[Senate Hearing 110-639]
[From the U.S. Government Publishing Office]
S. Hrg. 110-639
THE ACQUISITION OF MAJOR WEAPONS SYSTEMS BY THE DEPARTMENT OF DEFENSE
=======================================================================
HEARING
before the
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JUNE 3, 2008
__________
Printed for the use of the Committee on Armed Services
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45-699 PDF WASHINGTON DC: 2008
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COMMITTEE ON ARMED SERVICES
CARL LEVIN, Michigan, Chairman
EDWARD M. KENNEDY, Massachusetts JOHN McCAIN, Arizona
ROBERT C. BYRD, West Virginia JOHN WARNER, Virginia,
JOSEPH I. LIEBERMAN, Connecticut JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island JEFF SESSIONS, Alabama
DANIEL K. AKAKA, Hawaii SUSAN M. COLLINS, Maine
BILL NELSON, Florida SAXBY CHAMBLISS, Georgia
E. BENJAMIN NELSON, Nebraska LINDSEY O. GRAHAM, South Carolina
EVAN BAYH, Indiana ELIZABETH DOLE, North Carolina
HILLARY RODHAM CLINTON, New York JOHN CORNYN, Texas
MARK L. PRYOR, Arkansas JOHN THUNE, South Dakota
JIM WEBB, Virginia MEL MARTINEZ, Florida
CLAIRE McCASKILL, Missouri ROGER F. WICKER, Mississippi
Richard D. DeBobes, Staff Director
Michael V. Kostiw, Republican Staff Director
(ii)
?
C O N T E N T S
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CHRONOLOGICAL LIST OF WITNESSES
The Acquisition of Major Weapons Systems by the Department of Defense
june 3, 2008
Page
Young, Hon. John J., Under Secretary of Defense for Acquisition,
Technology, and Logistics...................................... 9
Schinasi, Katherine V., Managing Director, Acquisition and
Sourcing Management, Government Accountability Office.......... 20
GAO Report to Congressional Committees on Defense Contracting:
Post-Government Employment of Former DOD Officials Needs
Greater Transparency........................................... 109
(iii)
THE ACQUISITION OF MAJOR WEAPONS SYSTEMS BY THE DEPARTMENT OF DEFENSE
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TUESDAY, JUNE 3, 2008
U.S. Senate,
Committee on Armed Services,
Washington, DC.
The committee met, pursuant to notice, at 9:35 a.m. in room
SD-50, Dirksen Senate Office Building, Senator Carl Levin
(chairman) presiding.
Committee members present: Senators Levin, Lieberman, Reed,
Akaka, Pryor, McCaskill, Warner, Collins, Dole, Thune, and
Martinez.
Committee staff members present: Richard D. DeBobes, staff
director; and Leah C. Brewer, nominations and hearings clerk.
Majority staff members present: Madelyn R. Creedon,
counsel; Creighton Greene, professional staff member; Michael
J. Kuiken, professional staff member; Peter K. Levine, general
counsel; Michael J. McCord, professional staff member; William
G.P. Monahan, counsel; and William K. Sutey, professional staff
member.
Minority staff members present: Michael V. Kostiw,
Republican staff director; William M. Caniano, professional
staff member; Gregory T. Kiley, professional staff member;
David M. Morriss, minority counsel; Christopher J. Paul,
professional staff member; and Sean G. Stackley, professional
staff member.
Staff assistants present: Jessica L. Kingston, Ali Z.
Pasha, Benjamin L. Rubin, and Breon N. Wells.
Committee members' assistants present: Jay Maroney,
assistant to Senator Kennedy; Frederick M. Downey, assistant to
Senator Lieberman; Elizabeth King, assistant to Senator Reed;
Bonni Berge, assistant to Senator Akaka; Christopher Caple,
assistant to Senator Bill Nelson; Jon Davey, assistant to
Senator Bayh; M. Bradford Foley, assistant to Senator Pryor;
Gordon I. Peterson, assistant to Senator Webb; Sandra Luff,
assistant to Senator Warner; Anthony J. Lazarski and Nathan
Reese, assistants to Senator Inhofe; Lenwood Landrum and Todd
Stiefler, assistants to Senator Sessions; Mark J. Winter,
assistant to Senator Collins; Clyde A. Taylor IV, assistant to
Senator Chambliss; Lindsey Neas, assistant to Senator Dole;
Jason Van Beek, assistant to Senator Thune; and Erskine W.
Wells III, assistant to Senator Martinez.
OPENING STATEMENT OF SENATOR CARL LEVIN, CHAIRMAN
Chairman Levin. Good morning, everybody. The committee
meets today to consider the performance of the Department of
Defense (DOD) major acquisition programs at a time when cost
growth on these programs has reached crisis proportions. We
don't have to look very far to find examples. Over the last few
years, unit costs on the Air Force's largest acquisition
program have grown by almost 40 percent, costing us an extra
$37 billion. Over the last 3 years, unit costs on the Army's
largest program, the Future Combat System (FCS), have grown by
more than 45 percent, costing us an extra $40 billion. Last
year, the Navy had to cancel the planned construction of the
two Littoral Combat Ships (LCSs) after the program cost doubled
in just 2 years.
Since the beginning of 2006, nearly half of DOD's 95
largest acquisition programs have exceeded the so-called Nunn-
McCurdy cost growth standards established by Congress. Overall,
these 95 Major Defense Acquisition Programs (MDAPs) have
exceeded their research and development (R&D) budget by an
average of 40 percent, have seen their acquisition costs grow
by an average of 26 percent, and experienced an average
schedule delay of almost 2 years.
The Government Accountability Office (GAO) tells us that
cost overruns on these MDAPs now total $295 billion over the
original program estimates, even though we have cut unit
quantities and reduced performance expectations on many
programs in an effort to hold down costs.
Now, just to put the size of these cost overruns in
perspective, what would that $295 billion buy? We could buy at
current prices 2 new aircraft carriers for $10 billion each,
and 8 Virginia-class submarines for $2.5 billion each, and 500
V-22 Ospreys for $120 million each, and 500 Joint Strike
Fighters (JSFs) for $100 million each, and 10,000 mine
resistant ambush protected vehicles for $1.4 million each, all
of that, and still have enough money left over to pay for the
entire $130 billion FCS program.
These cost overruns happen because of fundamental flaws
that are built into our acquisition system. We know what those
flaws are. DOD acquisition programs fail because the Department
continues to rely on unreasonable cost and schedule estimates,
establish unrealistic performance expectations, insist on the
use of immature technologies, and direct costly changes to
program requirements, production quantities, and funding levels
in the middle of ongoing programs.
As Secretary Gates recently acknowledged, we've been
``adding layer upon layer of cost and complexity onto fewer and
fewer programs that take longer and longer to build.'' He said,
``This must come to an end.'' Well, it's been long overdue that
that come to an end.
Let me just give you a few examples of how these programs
have impacted weapons systems. With regard to unrealistic cost
and schedule estimates, the Navy initially established a goal
of $220 million and a 2-year construction cycle for the two
lead ships on the LCS program. These goals were completely
inconsistent with the Navy's historic experience in building
new ships and with the complexity of the design required to
make the program successful. As a result, program costs doubled
and the Navy started to run out of money long before the ships
were complete, forcing it to cancel follow-on ships.
With regard to unrealistic performance expectations, the
National Polar Orbiting Operational Environmental Satellite
System was designed to include 14 different environmental
sensors on 6 different satellites, plus a ground system. Now,
the system turned out to be so complex and unmanageable that
the cost doubled, forcing DOD to eliminate one of the planned
satellites and five of the planned sensors and make several of
the other sensors less complex. The Department is now trying to
figure out how to restore some of the capability that will be
lost as a result of the elimination of the planned sensors.
With regard to immature technologies, the Army's Warfare
Information Network-Tactical program entered the System
Development and Demonstration (SDD) phase with only 3 of its 12
critical technologies at the appropriate level of maturity. As
the Army struggled to develop these technologies or to
substitute alternative technologies that were more ready for
production, program costs grew by 88 percent and the program
was delayed by more than 4\1/2\ years.
With regard to changing program requirements, the Air Force
has repeatedly restructured its Global Hawk program to add new
and sometimes unproven technologies. While the new technologies
have added to the capability of the Global Hawk, the changes
have led to space, weight, and power constraints that have more
than doubled production costs and have significantly disrupted
the program.
Over the last few years this committee has taken a number
of steps to try to address these problems. For example, we have
required senior acquisition officials to certify that cost
estimates are realistic and technologies are mature before new
programs are started, we've required that program managers be
held accountable for meeting measurable performance objectives
to which they have agreed in writing, and we've tightened the
so-called Nunn-McCurdy thresholds to prevent DOD from hiding
underperforming programs.
The Under Secretary of Defense for Acquisition, Technology,
and Logistics (AT&L), who will be testifying before us today,
has carried out our new certification requirements and he has
used the Nunn-McCurdy process to require the serious
reexamination of troubled programs. He has also required the
military departments to establish Configuration Steering Boards
(CSBs) to prevent unnecessary and costly changes to program
requirements, which is a constructive step that we propose to
enact into law in this year's National Defense Authorization
Act (NDAA).
However, those efforts have fallen far, far short. No
matter how well intentioned Secretary Young and other senior
acquisition officials may be, they remain dependent upon the
information that is provided to them by contractors and program
officers. These contractors and program officers have every
reason to produce overly optimistic cost estimates and
unrealistic performance expectations because programs that
promise revolutionary change and project lower costs are more
likely to be approved and funded by senior administration
officials and by Congress. In other words, we get the
information we need to run our programs from people who have a
vested interest in overpromising.
In a draft report that will be issued later this month, GAO
concludes that ``The Department of Defense's inability to
allocate funding effectively to program is largely driven by
the acceptance of unrealistic cost estimates and a failure to
balance needs based on available resources. Development costs
for major acquisition programs are consistently
underestimated,'' they said, ``at a program's initiation by 30
to 40 percent, in large part because the estimates are based on
limited knowledge and optimistic assumptions about system
requirements and critical technologies.''
The consequences of using such optimistic estimates were
correctly identified by the DOD acquisition performance
assessment panel 2 years ago. That panel found that using
``optimistic budget estimates force excessive annual
reprogramming and budget exercises within the Department, which
in turn cause program restructuring that drive long-term costs,
cause schedule growth, and open the door to requirements
creep.''
It's going to take a fundamental change in the structure
and culture of the acquisition system to address that problem.
For this reason, I believe that we need a Director of
Independent Cost Assessment in the DOD, with authority and
responsibility comparable to those of the Director of
Operational Test and Evaluation (DOT&E) that we established 20
years ago. This new independent office would review cost
estimates on all MDAPs and develop its own independent cost
estimates to ensure that the information, on which so many of
our program and budget decisions are based, are fair, unbiased,
and reliable. I plan to offer an amendment to this year's
defense bill when it comes to the Senate floor to establish
this office.
Today the committee will hear from John Young, the Under
Secretary of Defense for AT&L, who is the top acquisition
official for DOD, and from Katherine Schinasi, who is GAO's top
expert on the acquisition system. We look forward to the
testimony of our witnesses on these important issues. We thank
both of you for your commitment and your service to improving
these systems.
Senator Warner.
STATEMENT OF SENATOR JOHN WARNER
Senator Warner. Thank you, Mr. Chairman. I join you in
welcoming our witnesses today. I thought you laid out a very
factual and pragmatic assessment of the situation as this
committee views it.
Mr. Chairman, I roughly estimate that DOD, over the next 5
years, has $900 billion with which to inject in the procurement
system. We simply must make the adjustments that are required
to obviate what you have recited.
You and I have been on this committee a long time. I
remember one very clear chapter when Dave Packard put forward
the Packard Commission reports and that was to solve all the
problems. It didn't seem to work. We awakened here one day and
it was this committee that put a stop to the Boeing tanker
situation, and it's taken these many years to remedy that and
hopefully get back on the rails again.
So I join you, Mr. Chairman. I think the committee, the
members on our side, are very much in favor of seeing what we
can do to take positive action to correct the situation.
I'd like to put in a statement on behalf of Senator McCain
at this point and amplify my own. Thank you.
[The prepared statements of Senator McCain and Senator
Warner follow:]
Prepared Statement by Senator John McCain
Mr. Chairman, thank you for calling this important hearing. The
committee meets to examine the management and oversight of Department
of Defense (DOD) acquisition programs.
Defending our Nation against its enemies is the first and most
fundamental commitment of the Federal Government. Resourcing our
military to defend this nation requires an appropriate working
relationship among defense industries, the DOD, and Congress with an
eye toward faithful and efficient expenditure of every taxpayer dollar
that is made available for defense procurement.
However, I believe it is important to recall that President
Eisenhower warned in 1961 that, ``We must guard against the acquisition
of unwarranted influence, whether sought or unsought, by the military
industrial complex. The potential for the disastrous rise of misplaced
power exists and will persist.''
Over the last 6 years--since the Air Force-Boeing tanker
procurement scandal where we learned of the most egregious abuse of
power from a government acquisition official--this committee has been
active in its oversight responsibilities and approved the largest
number of acquisition reform measures since the mid-1980s when a series
of procurement scandals plagued the Pentagon. If DOD follows these
laws, they could exercise more discipline in how the Pentagon develops
and buys new weapon systems.
Unfortunately, despite these recent reforms drafted by this
committee and enacted into law, cost overruns for major weapon programs
are still staggering. We are here today to find out if these policy
changes have improved the way the DOD buys new weapon systems, and to
determine whether additional reforms are necessary. According to the
Government Accountability Office (GAO), none of the weapons programs
that they assessed this year had proceeded through system development
and met the ``best practices'' standards for mature technologies,
stable design, and mature production processes--all prerequisites for
achieving planned cost, schedule, and performance outcomes. Equally as
disturbing are the GAO reports that the Department has not used system
engineering tools--preliminary design reviews and prototyping--to
demonstrate the maturity of the planned weapon system.
The need for acquisition reform is paramount. Most civilian and
uniformed leaders, as well as outside defense experts, believe that
military spending is going down. A short time ago, the former Chairman
of the Joint Chiefs, General Peter Pace, showed me a chart called
``Future Investments? 10-Year Cyclical DOD Outlays.'' It examined
defense spending since the beginning of the Vietnam War, and the
results described 10-year cyclical spending cycles.
What is clear from the chart is that investment in weapon
acquisition programs is now at its highest level in two decades--but is
at its apex and heading downward. No other organization understands
this better than the GAO which has authored several reports on defense
acquisition. GAO has stated that since the mid-1990s, the acquisition
costs for major weapons programs has increased almost 120 percent and
that current programs are experiencing, on average, nearly a 2-year
delay in delivering initial capabilities to the warfighter.
The Department expects to invest about $900 billion over the next 5
years on development and procurement and invest nearly $340 billion
specifically in major defense acquisition programs. Every dollar spent
inefficiently in acquiring weapon systems is less money we spend on our
budget priorities--such as the global war on terror. Nearly half of
DOD's major defense acquisition programs are paying at least 25 percent
or more per unit than originally expected.
Given this situation, some will simply call for increasing defense
spending or fixing it to a greater percentage of the Gross National
Product. I believe, instead, that what our Nation spends on defense
should be dictated by the threat. So how do we ensure our defense
budget is adequate and cost-effective? First and foremost, we must stop
wasteful spending on congressional earmarks. Second, we must maximize
the value of the defense dollar while providing the maximum protection
to the taxpayer. A core element of this is to execute a sound
acquisition strategy that remedies systemic problems at the senior
management and the program level, which causes alarming increases in
costs and schedule delays. A sound acquisition strategy will help
improve accountability in acquisition management and ensure that
program decisions are consistent with the requirements of the unified
commands.
Defense acquisition policy has been a major issue ever since
President Eisenhower first warned the Nation about the military-
industrial complex. Yet, as Operation Ill Wind in the 1980s and the
more recent Boeing Tanker scandal show, Eisenhower's admonitions should
be paramount in our examination today. Despite the lessons of the past,
the acquisition process continues to produce poor cost-, scheduling-,
and performance-outcomes--to the detriment of the taxpayer and the
warfighter.
In the 109th and 110th Congresses, major acquisition policy issues
have come up on several multi-billion dollar programs: the Army's
Future Combat Systems contract conversion; the Navy's Littoral Combat
Ship (LCS); the Air Force's F-22 Raptor, C-130J contract conversion,
replacement tanker program, and Combat Search and Rescue helicopter;
the Marine Corps' Expeditionary Fighting Vehicle (EFV); and one of the
largest aviation acquisition programs ever, the Marine Corps, Navy, and
Air Force F-35, Joint Strike Fighter.
There is much we can do to help ensure taxpayers' dollars are spent
wisely as we develop, test, and acquire major defense systems. By
increasing transparency and accountability and maximizing competition,
broad acquisition reform can deliver the best value to the taxpayer and
minimize waste, fraud, and abuse. Most importantly, it can help assure
that the United States maintains the strongest fighting force in the
world. The Senate Armed Services Committee's efforts, along with the
help of the GAO and strong oversight of the Office of the DOD Inspector
General (IG), can improve an acquisition system that is fundamentally
broken.
At one time or another, all of the military Services have received
failing grades in the development and acquisition of weapon systems.
Where problems have been identified, some of the military Services have
recognized the need for more discipline and accountability and in some
cases fired program managers, directors, and service acquisition
executives. That was the case with the Marine Corps' EFV and the Navy's
LCS programs. But, when the Services have not held people to the level
of excellence they espouse in glorified mission statements, there have
been more systemic problems. Unfortunately, that is the case with the
Air Force, where protests in competitive acquisition awards are seven
times more likely to occur than with the other Services.
The Secretary of Defense (SECDEF), the Deputy Secretary of
Defense--as the Secretary's Executive Officer--and the Under Secretary
of Defense for Acquisition must pay more attention to these
acquisitions, especially when poor decisions are made and procedures
ignored.
In the Boeing tanker scandal, actions by a top Air Force
acquisition official, Darleen Druyun, not only disgraced herself and
resulted in her conviction on public corruption charges, but also
disgraced the Air Force, the DOD, and the entire defense establishment.
I continue to believe that Ms. Druyun was not solely responsible for
the Air Force's failure. On the contrary, it is the Air Force's
inability to accept any responsibility for wrongdoing that predicates
potential failures in the future.
For example, the DOD IG has recently reported that within a year
after Darleen Druyun and a Boeing CEO went to jail over the proposed
Air Force tanker acquisition, a former Air Combat Commander and 4-star
Air Force general improperly influenced senior Air Force officers to
steer a high visibility Air Force contract through a non-competitive
process for the Thunderbirds to a friend and his new company. Clearly,
the recent Air Force scandal was not the rare example of mismanagement
and oversight failure we thought it would be.
No one was held accountable when the Air Force misled Congress
after being directed by statute to convert a contract for C-130Js from
a commercial contract to a traditional military contract. Despite this
legal requirement, the Air Force reported to Congress the contract had
been converted, even though it had not yet been done. Furthermore, no
one was held accountable when the DOD IG found that the Air Force
apparently presented Congress false information on the C-130J multi-
year contract termination costs and the F-22A Program Manager who was
among those responsible for apparently exaggerating the termination
costs--is responsible for executing the F-22 multi-year contract today.
We shall see if anyone will be held accountable when the DOD IG
completes its ongoing investigation examining how senior Air Force
officials may have inappropriately solicited new orders for C-17s,
contrary to the orders of the President and the SECDEF. This occurred
in spite of clear guidance from the DOD that they did not want
additional C-17s, because there is no military ``requirement'' for them
and buying more C-17s is contrary to the Pentagon's current budget
plan.
Again, while legislation and policy revisions can help guide
change, the DOD must begin making better choices that reflect joint
capability needs and match requirements with resources, or the
department will continue to experience acquisition failures. This
Hobson's choice must ensure that the military Services do not continue
to over promise capabilities and underestimate the costs of developing
and buying weapon systems.
Acquisition problems will continue to prevail in DOD until the
Secretary provides a better foundation for buying the right assets, the
right way. This requires making tough decisions as to which programs
should be pursued, and more importantly, not pursued; making sure
programs are executable; locking in requirements before programs are
ever started; and making it clear who is responsible for what and
holding people accountable when responsibilities are not fulfilled.
Moreover, we must change the culture that leads DOD and the military
Services to over-compromise on capability and underestimate costs in
order to sell new programs and capture funding will need to change.
We must also reverse the trend of Service leaders not understanding
the complexity of developing systems through adequate oversight and
holding those accountable for failing to follow acquisition laws and
regulations. We simply cannot afford further acquisition failures, not
if we are to maximize the value of the defense dollar and buy the right
weapon systems for our service men and women.
Finally, let me recommend to the committee, and ask that it be
placed into the record, a recent GAO report titled, ``Defense
Contracting, Post-Government Employment of Former DOD Officials Needs
Greater Transparency.'' This report recommends additional statutory and
policy changes in this area and finds significant under-reporting by as
much as half of the contractors' employment of former DOD officials.
Time and again, some poor acquisition decisions are made because of a
lack of transparency at all levels of the acquisition process. The
report cites recent high-profile cases involving former senior DOD
officials' violations of post-government employment laws that are worth
reviewing to understand the breadth of the problem, and demonstrate the
need for further reform.
The bottom line is this: DOD must implement acquisition initiatives
quickly if we are to ensure that warfighter capabilities are delivered
when needed and as promised. In addition, I call on the Defense
Secretary, Deputy Secretary, and Under Secretary for Acquisition to
enforce the acquisition laws and regulations in the department and hold
people accountable when they do not follow them. When we do this we
should be able to more effectively and efficiently buy weapon systems
and we will regain the confidence of the taxpayer and our soldiers,
sailors, marines, and airmen.
I look forward to hearing from today's witnesses and receiving an
update on the execution of and implementation of acquisition policies
that this committee has carefully drafted and were enacted into law
over the past 3 years.
Thank you, Mr. Chairman.
[The GAO Report to Congressional Committees entitled ``Defense
Contracting: Post-Government Employment of Former DOD Officials Needs
Greater Transparency'' dated May 2008 is located at the end of this
hearing.]
______
Prepared Statement by Senator John Warner
Mr. Chairman, thank you for calling this hearing to examine the
management and oversight of Department of Defense (DOD) acquisition
programs. The topic of our hearing today is of the utmost importance to
me. I believe that the way we resource the military Services to defend
our Nation requires an appropriate working relationship among defense
industries, the DOD, and Congress. But we must always strive to be
mindful that we are making efficient and effective use of every
taxpayer dollar that is made available for defense procurement.
Recall that President Eisenhower warned in 1961 that, ``We must
guard against the acquisition of unwarranted influence, whether sought
or unsought, by the military industrial complex. The potential for the
disastrous rise of misplaced power exists and will persist.''
I believe that this committee has been very active and attentive in
its oversight responsibilities over the last several years. In
particular, since the Air Force-Boeing tanker procurement scandal, this
committee has approved the largest number of acquisition reform
measures since the mid-1980s. I believe that if DOD takes these reforms
seriously and implements the changes required by these laws, it could
instill more discipline into how the Pentagon develops and buys new
weapon systems.
But, I am very concerned that despite our efforts to seek changes
at the Pentagon that will make defense acquisitions effective and
efficient for our military Services and for taxpayers, cost and
schedule outcomes for major weapon programs are not improving. As a
result, we are here today to find out if our recent policy reforms have
improved the way the DOD buys new weapon systems, and to determine what
additional steps and reforms are necessary.
I would like to mention a few other key areas of concern that are
relevant to this discussion. Currently, most civilian and uniformed
leaders, and outside defense experts, believe that military spending,
which is at its highest point now, is heading down. This is a very
troubling trend at such a critical time given our national security
situation and our military Services' needs, and it reinforces the need
for real and timely acquisition reform.
In addition, a recent report by the Government Accountability
Office (GAO) found that none of the weapons programs that they assessed
this year had proceeded through system development and met the ``best
practices'' standards for mature technologies, stable design, and
mature production processes--all prerequisites for achieving planned
cost, schedule, and performance outcomes. GAO has also stated that
since the mid-1990s, the acquisition costs for major weapons programs
have increased almost 120 percent and that current programs are
experiencing, on average, a nearly 2-year delay in delivering initial
capabilities to the warfighter. This demonstrates that the DOD
acquisition process remains inefficient and costly across a wide range
of programs, and we need to determine what can be done to significantly
improve this situation.
Mr. Chairman, defense acquisition policy has been a major issue
ever since President Eisenhower first warned the Nation about the
military-industrial complex. Yet, as Operation Ill Wind in the 1980s
and the more recent Boeing Tanker scandal demonstrate, Eisenhower's
admonitions should be front and center in our examination today.
Despite the lessons of the past, the acquisition process continues to
result in troubling outcomes, to the detriment of the warfighter and
the taxpayer.
I believe the need for acquisition reform is paramount, and as DOD
expects to invest nearly $900 billion over the next 5 years on
development and procurement, every dollar spent inefficiently and
ineffectively will limit the funding available for other budget
priorities. A sound acquisition strategy will help improve
accountability in acquisition management and will also help ensure that
decisions made on programs are consistently cross-checked with the
requirements of the unified commands.
I look forward to hearing from our witnesses today. Thank you again
Mr. Chairman for holding this important hearing.
Chairman Levin. Thank you, Senator Warner.
Secretary Young, I think we will begin with you. Again, our
thanks to you.
STATEMENT OF HON. JOHN J. YOUNG, UNDER SECRETARY OF DEFENSE FOR
ACQUISITION, TECHNOLOGY, AND LOGISTICS
Mr. Young. Thank you, Chairman Levin, members of the
committee.
Members of the defense acquisition team and I are working
very hard to improve the cost and schedule performance of
defense acquisition programs and I welcome the chance to talk
with you about this. I would ask that my written statement be
made part of the record and I would like to open with a
discussion of the key elements necessary for a successful
program.
First, people devise and execute programs. The DOD
procurement budget has experienced 34 percent real growth since
2001 and the R&D budget has risen 70 percent. The DOD
acquisition workforce has actually decreased slightly in this
time period and there has been a cap on management and
headquarters staff to oversee these programs. Programs cannot
be successfully executed without adequate, experienced, and
capable people.
Indeed, I have recently reviewed several troubled programs
and one factor was inadequate staffing in the government
program office.
Next, I agree with the many assessments that suggest that
systems should only move to the final stages of development
when key technologies are appropriately mature. Congress'
requirement for certification of technology readiness at
Milestone B is a very helpful decision.
Third, a weapons program must have reasonable and stable
requirements and understood certification standards. While many
factors are involved, there's been a tendency, as you noted, to
establish requirements which exceed the budget, schedule, and
maturity of technology. Additionally, the application of
certification and technical authority standards to programs has
driven dramatic cost growth and schedule impacts.
Finally, successful program execution is totally dependent
upon a stable and adequately funded budget. In most cases we
should fund major programs through an independent cost
estimate. Fully funding the initial phases of a program is most
critical. I've seen many instances where DOD has underfunded
programs and Congress has cut programs, ensuring cost growth
and schedule slippage.
While there are other relevant factors, a summary of all of
this is: Hope is not a strategy. As my previous comments
suggest, many of the factors necessary to successfully execute
programs are not currently in the control of the program
manager. In the Goldwater-Nichols legislation, Congress was
amazingly prescient in assigning acquisition responsibility to
the civilian chain of command working for the President.
I believe the Defense and Service Acquisition Executives
(SAEs) are critical positions and these individuals are the key
to many aspects of improving defense acquisition. SAEs must
support program managers in their efforts to moderate or adjust
requirements to get best value for the warfighter and the
taxpayer, must fight in the military personnel system for
promotion of program managers, must prioritize jointness and
interoperability above service equities, and must set high
standards for program development and execution.
I'd like to talk briefly about some of the many steps I am
taking to address these obligations. Program managers must have
a forum to discuss program execution decisions and requirement
changes with key stakeholders. CSBs, as you noted, sir, were
used on programs like F-16 in the past and we are renewing this
practice in the Defense Department. In hopes of constructing a
joint, interoperable, executable and properly priced
development program, we have used Joint Analysis Teams with
membership that includes all relevant DOD stakeholders to
mature program plans or review portfolios of programs to avoid
duplication.
The Department has often used blue ribbon panels or
independent reviews to assess problems. I have formalized this
process into Defense Support Teams which seek to harness
experienced outside experts to help us solve program execution
problems and to assess the adequacy of our development plans
and technologies. These Defense Support Teams also help
partially offset DOD's inability to hire adequate government
personnel to manage our programs.
As the Director of Defense Research and Engineering
(DDR&E), I began a practice of quick-look technology readiness
assessments. It is of no value to reach Milestone B and
determine that we have technology which is immature. Quick-look
assessments are necessary to drive investments in the
maturation of technologies in advance of Milestone B.
Historically, the Defense Department built prototype
systems. DOD has evolved from this strategy to moving to paper
competitions for contract awards for final development of
systems. I rarely believe this is the best strategy. We need to
build prototypes competitively to demonstrate the validity of
requirements, to mature technology, to inform our estimates of
development and procurement costs, and to insist in the
development of concepts of operation.
At a more general level, DOD needs to pursue the
development of prototypes to train our personnel in program
management and systems engineering, to attract talented
scientists and engineers to work on defense programs, and to
inspire a new generation of people to pursue technical
education.
Shifting the culture and discipline of the enterprise will
take time. In a small way, I constantly work towards this goal
by sending weekly notes across, broadly across, the acquisition
team highlighting the challenges, problems, and best practices
which I see. Alternately, I would tell you that I do not think
we can assure program performance through rules and
certifications. Indeed, these processes diffuse accountability
from the fact that responsible and accountable people must
manage acquisition programs.
Finally, I'm grateful to the Senate for this chance to
serve as the Defense Acquisition Executive. My primary
responsibility is to serve as Milestone Decision Authority for
major acquisition programs and set these higher standards.
Recently I have sought to further address many of these issues
through Acquisition Decision Memorandums (ADMs). In recent
decision memorandums I have locked program requirements,
prohibited changes, directed full funding, encouraged program
managers to pursue trades which could reduce costs, and forced
jointness. I recognize the need for improvement in the planning
and execution of the defense acquisition programs and, I'm
seeking to honor your trust by making necessary changes.
I'm most grateful for the chance to talk with you today
about these issues and I look forward to your questions.
[The prepared statement of Mr. Young follows:]
Prepared Statement by Hon. John J. Young
INTRODUCTION
Chairman Levin, Senator McCain, and distinguished members of the
committee, thank you for the opportunity to appear before you today to
discuss the Department's policies and practices in the acquisition of
major weapons systems.
vision
Since I last appeared before this committee for my confirmation 8
months ago, I have taken a number of actions to implement my vision for
Acquisition, Technology, and Logistics, which is to drive the
capability to defeat any adversary on any battlefield. I have focused
my approach into four strategic thrust areas, each of which has a
guiding principle, desired outcomes, and specific initiatives with
metrics or steps against which we can measure progress. These four
strategic thrust areas are:
Define Effective and Affordable Tools for the Joint
Warfighter
Responsibly Spend Every Single Tax Dollar
Take Care of Our People
Department of Defense (DOD) Transformation Priorities
In identifying both the problems we face, and the solutions we are
seeking, I am committed to transparency throughout the acquisition
process. It is my belief that we need to be clear, concise, and open
with regard to what the DOD is seeking, and the work it is completing.
It is our responsibility as stewards of tax dollars to ensure complete
openness, fairness, and objectivity in the acquisition process. I
intend that we will be accountable to ensure the success of these
initiatives.
I have charged the acquisition team to create an inspired, high-
performing organization where:
We expect each person must make a difference;
We seek out new ideas and new ways of doing business;
We constantly question requirements and how we meet
them; and
We recognize that we are part of a larger neighborhood
of stakeholders interested in successful outcomes at reasonable
costs.
We live in an increasingly complex world. Our missions vary widely,
so we need strategic resilience and depth; and must ensure our Nation
has response options today and for the future with the appropriate
capacity and capability to prevail at home and abroad.
I would like to highlight some specific initiatives that capture
these philosophies and are fundamental to transforming the acquisition
process and workforce. They are:
(1) Program Manager Empowerment and Accountability
Program managers play a critical role in developing and fielding
weapon systems. I have put in place a comprehensive strategy to address
improving the performance of program managers. Key to this are program
manager tenure agreements for Acquisition Category (ACAT) I and II
programs, which are our largest programs. My expectation is that tenure
agreements should correspond to a major milestone and last
approximately 4 years. Another fundamental piece I have established is
Program Management Agreements--a contract between the program manager
and the acquisition and requirements/resource officials--to ensure a
common basis for understanding and accountability; that plans are fully
resourced and realistically achievable; and that effective transparent
communication takes place throughout the acquisition process.
(2) Configuration Steering Boards (CSBs)
I have directed the military departments to establish CSBs. My
intent is to provide the program manager a forum for socializing
changes that improve affordability and executability. Boards will be in
place for every current and future ACAT I program and will review all
proposed requirement changes, and any proposed significant technical
configuration changes which potentially could result in cost and
schedule changes. Boards are empowered to reject any changes, and are
expected to only approve those where the change is deemed critical,
funds are identified, and schedule impacts are truly mitigated. For
example, the Navy decided to terminate the Extended Range Munition
(ERM) contract after the CSB review because the effort on the ERM
contract was not meeting the performance needs of the Department. The
Department is now looking at other alternatives to satisfy the
requirement. I require every acquisition team member to fully engage
the Planning, Programming, Budgeting, and Execution (PPBE) process thus
creating an avenue for program managers to ensure they are funded to
execute their responsibilities or alternatively descope their programs
to match reduced budget levels.
(3) Defense Support Teams (DSTs)
To address the challenge of acquisition execution and assist both
industry and DOD program managers, I have expanded the use of these
teams who are made up of outside world-class technical experts to
address our toughest program technical issues. I expect the teams to
resolve emergent problems and help the Department successfully execute
tough programs before problems develop. For example, the Net Enabled
Command Capability (NECC) program benefitted from a DST that clarified
the critical coordination points necessary to bring the Defense
Information Support Agency, the Service acquisition authorities, and
operational sponsors into a coherent approach balancing military needs,
technology solutions, and funding requirements. A refocused NECC team
demonstrated significant progress on developing actionable military
need definitions and establishing a collaborative environment for
design and testing of software application modules enabling elements of
a joint command and control tool set.
(4) Prototyping and Competition
I have issued policy requiring competitive, technically mature
prototyping. My intent is to rectify problems of inadequate technology
maturity and lack of understanding of the critical program development
path. Prototyping employed at any level--component, subsystem, system--
whatever provides the best value to the taxpayer.
For example, the Joint Light Tactical Vehicle (JLTV) is currently
using competitive prototyping. The JLTV program will eventually provide
our soldiers and marines with a truck that combines the off-road
mobility of a High Mobility Multi-purpose Wheeled Vehicle with
protection approaching that of a Mine Resistance Ambush Protected
vehicle. To do this, the Joint Program Office is having three separate
teams of contractors compete to make multiple prototypes which will be
rigorously tested. At the end of this competition, the best of these
prototypes will proceed on to Systems Demonstration and Development
having already proven that they have the technical maturity to satisfy
the requirements in a timely and cost effective manner.
(5) AT&L Notes
I am writing weekly notes to the acquisition workforce. These notes
share lessons learned and provide leadership guidance on expected
procedures, processes and behaviors within the acquisition workforce.
These notes provide a powerful training tool directly from me.
COST AND SCHEDULE DELAYS IN MAJOR DEFENSE ACQUISITION PROGRAMS AND
OTHER PROGRAMS
Let me now address cost overruns and schedule delays in the
Department's Major Defense Acquisition Programs (MDAPs). First let me
say that many programs do well in terms of cost and schedule. But for
those programs that do have cost and schedule growth, the biggest
drivers are unstable requirements, immature technologies, and funding
instability.
I am addressing requirements instability through increased
partnering with the Joint Staff on requirements and through CSBs. CSBs
review all proposed requirements changes and any proposed significant
technical configuration changes which have the potential to result in
cost and schedule impacts to an MDAP. Such changes will generally be
rejected, deferring them to future blocks or increments. Changes may
not be approved unless funds are identified and schedule impacts
mitigated. CSBs also create a collaborative forum for program managers
to propose and describe reductions in requirements which can
significantly lower cost without substantially reducing capability.
Program managers desperately need these forums to try to improve the
pace of requirements decisions and match that pace to the pace of
program execution. The Joint Staff has also asked the programs to come
back to them, if requirements are driving costs, and discuss if it
makes sense to change the requirements.
I also require technical maturity of programs before program
initiation (Milestone B). Statute requires that Milestone Decision
Authorities (MDA) certify that the technology in an MDAP is
demonstrated in a relevant environment for Milestone B (or Key Decision
Point B for space programs). I must also certify that the program
demonstrates a high likelihood of accomplishing its intended mission.
These are 2 of the 10 criteria I certify. Congress' direction that the
DOD ensure appropriate technical maturity at Milestone B was very
helpful. I think the additional nine criteria add time and paperwork,
and these criteria can conflict with making needed progress on
developing tools for our warfighters.
Where I have had questions about a program's readiness for program
initiation, I have used Independent Program Assessments (IPAs), DSTs,
and other tools to do a thorough assessment of the program and to
present their findings to me and other members of the Defense
Acquisition Board (DAB). For example, I directed the creation of a DST
to assist the Space-Based Infrared System High program in
rearchitecting the Flight Software System. This became the critical
path to launch due to architecture problems found late in development.
The DST team brought an outside expert perspective, enabling the
contractor team to leverage years of embedded systems development and
management experience, to assess the viability of the new architecture
and highly streamlined development process. Currently, the revised
architecture is proving to meet expectations and the development team
is meeting critical delivery dates although some minor delays have been
experienced.
I give explicit funding and schedule direction to programs at their
milestone decisions, and ensure those funding directions are
implemented in the budget process. In addition, I am also focusing a
great deal of attention on the contractual incentives put in place for
programs I review to ensure we incentivize improved outcomes and not
reward poor ones.
Finally, I have tried to improve discipline in the process by
citing the governing requirements document in acquisition decision
memorandums (ADMs), prohibiting any changes to the requirements, and
directing the program managers to seek adjustments in requirements
which reduce cost and program risk, and insisting the program manager
execute within the budget and limit the excessive demands of technical
authority and derived requirements.
Taken together I believe these initiatives, along with those I
discussed earlier will put us on a path towards achieving markedly
improved acquisition outcomes.
GOVERNMENT ACCOUNTABILITY OFFICE REPORT
Let me now address our cost and schedule performance that was
detailed in the Government Accountability Office (GAO) Report
``Assessments of Selected Weapon Programs.'' This report made headlines
citing cost growth of $295 billion on 95 Defense programs. It was a
catchy headline in the newspapers. But having reviewed the report in
detail, I can only conclude that we and the GAO have some important
work ahead of us to develop appropriate metrics to evaluate DOD's
acquisition system. The current report has some significant limitations
that I will discuss briefly. Has there been cost growth in some DOD
programs? Yes, and I am not here to condone it. Indeed, I am seeking to
strictly limit cost growth. Do all programs behave as it is implied in
the GAO report? Absolutely not. Our acquisition system is not on a
downward spiral--it is on a path to improvement.
As I am sure you know, DOD is working to field some of the most
technologically complex and revolutionary systems to ensure our
national security, while taking into consideration other aspects, such
as immediate national security needs, industrial base considerations,
legislative direction, congressional requirements, and changing
capability needs. I have yet to see an assessment that takes these
kinds of factors into account when developing a report card for DOD. I
believe that it is essential that we, and the GAO, account for these
issues when assessing the DOD acquisition system to ensure the taxpayer
and Congress get an accurate picture of the health of our acquisition
system.
I do not plan to dissect the report, but I am going to offer a few
specific comments about the GAO's analytical approach to temper any
conclusions you might have drawn from their study. I hope to build on
this, so that we might all move towards sound future analysis on which
to measure the progress of our acquisition system.
First, I believe GAO overstates the magnitude of many of the issues
they raise by making generalizations from limited subsets of data. A
few poor performers incorrectly drive many of the conclusions that GAO
makes. Many of these conclusions are not indicative of most programs in
the portfolio nor of DOD acquisition performance trends.
Second, the report does not differentiate between cost growth due
to wise and intentional choices and cost growth from programs that are
struggling. For example, $18 billion of the cost growth in the GAO's
2007 Selected Acquisition Report portfolio can be attributed to
programs with quantity increases. This growth is intentional and
intelligent decisionmaking, representing deliberate choices to increase
capability. For instance, we recently purchased more Unmanned Aerial
Vehicles (UAVs) than originally envisioned because the UAV provides our
warfighters with unprecedented capability that enhances their
survivability in Iraq and Afghanistan. Under GAO's methodology, these
additional UAVs would be counted as cost growth. Similarly, purchasing
an additional 76 C-130J aircraft counts as $8 billion of cost growth.
Buying almost 500 additional Advanced Threat Infra-Red Countermeasure
systems to defend more helicopters from heat seeking missiles counts as
cost growth too. These are exactly the kinds of things that are helping
the warfighter in both Iraq and Afghanistan, but are used to bolster
the perception that the DOD is performing poorly.
We look forward to working with GAO to select better metrics and
displays that will portray our incremental performance changes.
GAO High Risk Areas within DOD
All but one of the Department's High Risk Areas fall under my
purview. I am committed to aggressively addressing our High Risk Areas
including:
(1) Weapons Systems Acquisition;
(2) Contract Management and Interagency Contracting;
(3) Supply Chain Management;
(4) Support Infrastructure Management and Managing Federal Real
Property;
(5) Business Systems Modernization;
(6) Financial Management; and
(7) Protection of Technologies Critical to U.S. National
Security Interests.
I am tracking the progress of each High Risk Area goal and
milestone and receive periodic updates from the respective Department
leads. We are working closely with both the Office of Management and
Budget (OMB) and GAO staff on developed plans and progress on
milestones and metrics to reduce risks in these areas critical to DOD.
Last month, we met with OMB leaders and GAO auditors to discuss those
plans and review appropriate metrics in details. These exchanges are
extremely valuable. Our high level focus and associated initiatives are
demonstrating tangible progress in the weapon systems, contract
management, supply chain, and infrastructure areas.
INVESTMENT PLANNING--DOD'S IMPLEMENTATION OF SECTION 817 OF THE
NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2008
Let me now address section 817, which requires a report on the DOD
strategies for balancing the allocation of funds and other resources
among MDAPs. In my response to section 817, I will assess the benefits
of several ongoing initiatives, such as capability portfolio management
and the incorporation of the benefits of the Concept Decision (CD)
Pilot Initiative, which was completed in March 2008. Through CSBs,
Joint Analysis Teams (JATs), and the CD Pilot Initiative, we have
learned much about bringing the requirements, acquisition, technology
and programming processes together to determine potential materiel and
non-materiel solutions for Joint Requirements Oversight Council (JROC)
approved capability gaps from among a portfolio of choices. As such, I
am instituting a more rigorous review prior to entering the acquisition
process, called the Material Development Decision which will replace
the current Concept Decision point in DODI 5000.2. Additionally, in
accordance with the National Defense Authorization Act (NDAA) for
Fiscal Year 2007, we are instituting a requirements manager
certification course developed in conjunction with the Joint Staff and
Defense Acquisition University (DAU) to ensure that requirements are
written with a better understanding of and appreciation for the needs
of the acquisition process.
The department continues to identify and incorporate additional
opportunities for strategic resource balancing and prioritization
through initiatives such as the ongoing Capability Portfolio Manager
implementations. As the benefits from these initiatives are recognized,
we will develop further recommendations for changes in processes and,
as appropriate, legislative proposals. However, in order to conduct the
necessary in-depth review of all the data and metrics gathered, we will
not be ready to submit the report required by section 817 until the
second quarter of fiscal year 2009, after we have had an opportunity to
view fourth quarter 2008 and first quarter 2009 outcomes and to assess
their value added to our ability to make strategic resourcing
decisions.
MILESTONE A REQUIREMENTS--DOD IMPLEMENTATION OF SECTION 943 OF THE
NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2008
Let me now address section 943, which enacts a new section 2366b of
title 10 that adds requirements for certification of MDAPs before
Milestone A, or Key Decision Point A (KDP A) for space programs. This
approval must be granted prior to entrance into the technology
development phase of the acquisition lifecycle. We have been actively
reviewing this legislation in an attempt to establish an implementation
plan. Based upon that review, and advice from legal counsel, we have
not yet determined how to make the language actionable. Some examples
of the issues we are struggling with in section 2366b are:
1. The use of the term ``system'' to describe a Milestone A
technology concept is problematic--there is no ``system'' or
``program'' at Milestone A. Indeed, the DOD needs the
flexibility to consider a wide range of prototyping concepts in
a post-Milestone A development effort.
2. Section 941 of the NDAA for Fiscal Year 2008 enacted a new
section 118b of title 10. We have not completed implementation
of section 118b at this time, and in fact it will be some time
before that will happen because of the comprehensive reviews it
requires. Therefore, the requirement in the new Milestone A
certification that the "system be executed by an entity with a
relevant core competency as identified by the Secretary of
Defense under section 118b of this title" is premature.
3. There is ambiguity over the application of the requirement
for priority levels assigned by the JROC. Indeed, it is
actually essential that post-Milestone A prototyping and
development efforts be used to inform the setting of
requirements. Excessive requirements are almost always a factor
in the high cost and long timelines for DOD development
programs. Seeking to grant excessive validity to requirements
at Milestone A is exactly the wrong approach to improving DOD
development programs.
We are working with our General Counsel in an effort to resolve our
concerns and determine how to address Milestone A, or KDP A, approval
for programs otherwise ready to enter the Technology Development phase.
We will work closely with the committees to resolve our concerns with
this new legislative language.
milestone b requirements--dod implementation of section 801 as amended
BY SECTION 812 OF NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR
2008
Let me now address section 801 as amended by section 812 of the
NDAA for Fiscal Year 2008, which requires the milestone decision
authority to receive a business case analysis for an MDAP under
consideration for Milestone B, or KDP B for space programs, approval
and to certify on the basis of the analysis that the program is
affordable, reasonable cost and schedule estimates have been developed,
and funding is available to execute through the Future Years Defense
Plan. In February 2008, I enacted policy implementing section 812. This
policy directs the MDA, without further delegation, to certify the
program against the components of the business case analysis and the
remaining provisions as specified in the law before granting Milestone
B (or KDP B) approval. Although not mandated by statute, the policy
also requires a similar certification if the program is initiated at
Milestone C. Indeed, the most literal interpretation of the Milestone C
certification would appropriately require full funding and effectively
create a beneficial, stable multi-year procurement. However, the lack
of multi-year authority prevents the taxpayer from realizing potential
savings.
We have been in compliance with the amended Milestone B/KDP B
requirements. Some aspects of these certifications serve to make the
acquisition process more robust, but the process adds time and
paperwork and limits DOD's flexibility. To date, in accordance with the
amended statute, I have certified four MDAPs for Milestone B decisions
and one MDAP for a KDP-B decision. The four programs receiving
Milestone B certifications were the KC-X Tanker Replacement program,
the Joint Tactical Radio--Airborne, & Maritime/Fixed Station program,
the Mission Planning System (MPS) Increment IV program, and the Broad
Area Maritime Surveillance (BAMS) program. The KDP B certification was
for Global Positioning System IIIA.
NUNN MCCURDY--DOD IMPLEMENTATION OF SECTION 802 OF THE NATIONAL DEFENSE
AUTHORIZATION ACT FOR FISCAL YEAR 2006
Let me now address section 802, which amended section 2433 of title
10, U.S.C., by adding specifications for ``significant'' and
``critical'' cost growth thresholds; and established the requirement
for unit cost reporting against an original baseline--the baseline
description established at program initiation for all MDAPs. Prior to
this change, unit cost reporting was done only against the current
baseline--which, in practice, once approved, replaced all previous
versions.
This change has increased our visibility into unit cost changes
over time, however, traditionally the Department has used the
Acquisition Program Baseline (APB) both for congressional tracking and
for program execution management. The restrictions imposed by section
802 that limit changes of the current APB to Milestones (or Key
Decision Points), Low Rate/Full Rate Production, and critical breaches
have hampered the usefulness of the APB in the Department as a
management tool. To be clear, I have always been an advocate of
measuring program results against the original cost baseline.
The Department has a rigorous, intensive, Department-wide review
process to assess all programs that have experienced critical Nunn-
McCurdy baseline breaches. This process has provided a comprehensive
basis of analysis and a review of possible alternatives for me to
consider before making a decision on whether or not to certify each
program. I take very seriously the responsibility to keep programs
within cost and schedule and to restructure or reset programs with
significant or critical cost growth, such as the unit cost growth
measured for the Nunn-McCurdy criteria.
Since the changes to the law were enacted, seven programs have had
critical Nunn-McCurdy baseline breaches. Of these seven, five had
critical breaches to both the current and the original baselines. Only
two programs had a critical breach to the original baseline only--Joint
Primary Aircraft Training (JPATs) and Joint Air to Surface Missile. All
seven programs were certified, although in all cases, except JPATS,
those programs were restructured to increase greatly the probability
they will remain within cost and schedule.
program manager requirements--dod implementation of section 853 of the
NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2007
Let me now address section 853 of the NDAA for Fiscal Year 2007,
which directs the Department to develop a strategic plan for enhancing
the role of program managers in developing and carrying out defense
acquisition programs. The Department has taken steps to empower its
program managers and to hold them accountable for their performance. As
a result of our efforts to develop that plan, we developed a series of
initiatives in the areas of program manager development and incentives,
knowledge sharing, and stability and support. Those initiatives,
described below, are in various stages of implementation.
In the area of ``program manager development and incentives,'' we
are actively pursuing program manager financial incentives linked to
those positions that develop our program managers and also to their
tenure in those positions. These incentives will make the program
management field more appealing, especially to the civilian workforce.
In addition, we are increasing our use of just-in-time training. DAU is
deploying its ``Core Plus'' concept that involves additional position-
specific coursework for program managers in specialty areas. To improve
the civilian program manager workforce, we are planning to implement a
single occupational specialty for use across the Department. This will
allow for more consistent career management of civilian program
managers and provide better opportunities for them to compete for
positions in other Services.
As part of our ``knowledge sharing'' initiatives, we are
participating in the National Defense Industrial Association's
Industrial Committee on Program Management (ICPM). Under the auspices
of the ICPM, we are teaming with industry to develop and expand the use
of Program Startup Workshops to improve communication and clarify
expectations up front. Within the Department, we have held Program
Manager Forums that allow me and my senior staff to interact directly
with program managers and to get their feedback on issues important to
them. We have initiatives led by DAU to ensure our program managers
have access to an array of tools and templates.
GANSLER COMMISSION RECOMMENDATIONS
Finally let me briefly address the Gansler Commission, which was
established in August 2007 to look at Army Acquisition and Program
Management in Expeditionary Operations. This initiative was prompted by
the contracting problems identified largely in Kuwait, but the report
is not limited to Kuwait or just to the Army. The work of this
commission provides us a clear way ahead on contracting reform that
offers detailed analysis and recommendations both large and small. This
was a totally independent, objective assessment.
The Commission provided four overarching recommendations, as
follows:
(1) Increase the stature, quantity, and career development of
military and civilian contracting personnel (especially for
expeditionary operations);
(2) Restructure organization and restore responsibility to
facilitate contracting and contract management in expeditionary
and CONUS operations;
(3) Provide training and tools for overall contracting
activities in expeditionary operations; and
(4) Provide legislative, regulatory, and policy assistance to
enable contracting effectiveness in expeditionary operations.
The DOD is addressing improvement in contracting in several ways.
We have increased the staffing within the Defense Procurement,
Acquisition Policy, and Strategic Sourcing Directorate that is
specifically dedicated to Contracting in Expeditionary Operations. This
team is staffed with contracting personnel who have expeditionary
deployment experience. In addition, I stood up the Task Force on
Contracting and Contract Management in Expeditionary Operations to
address the specific Commission recommendations and to integrate
activities responding to the Commission's recommendations with the many
other relevant activities already underway within the DOD. The Task
Force is guided by senior leaders within the Acquisition, Technology,
and Logistics organization, including the Deputy Under Secretary
(Acquisition and Technology), as well as the Director, Defense
Procurement, Acquisition Policy, and Strategic Sourcing. These senior
leaders are working closely with key personnel throughout the
Department. They meet weekly to track progress and monthly with Dr.
Gansler himself to discuss any points of clarification regarding the
Commission's recommendations. Progress of the Task Force is of utmost
importance to me.
The Task Force actions implement section 849 of the NDAA for Fiscal
Year 2008, which directed the Secretary of Defense, in consultation
with the Joint Chiefs of Staff, to evaluate the Commission's
recommendations to determine the extent to which such recommendations
are applicable to the other Armed Forces. The evaluation required by
section 849 is underway, and the report to the congressional committees
is on schedule for submission within a month.
With regard to increasing the number of contracting personnel, we
are conducting a competency assessment for the entire DOD Contracting
Career Field. The Department is actively assessing and developing its
position regarding the appropriate numbers of General and Flag
Officers, and Senior Executive Service authorizations for contracting
positions. To be clear, it will take time to recruit, hire, train,
develop, and promote the full range of contracting personnel required
by DOD.
The Commission recommended that the Defense Contract Management
Agency should be responsible for all base, post, camp and station
contracting, and that it should be resourced to accomplish that
mission. The Task Force is developing alternative approaches to achieve
the Commission's goal of enhanced post-award contract management during
routine times as well as during times of contingency and war. Through
monthly discussions with Dr. Gansler, we believe he agrees we are on a
path to achieving the Commission's intent.
Recently, the Department sent forward legislative proposals to
implement some of the recommendations of the Gansler Commission that
require legislation. These proposals include:
Authority to Acquire Products and Services Produced in
a Contingency Theater of Operations Outside the United States
Exceptions for National Security and Emergency
Operations
Requirement for Use of Express Option for Deciding
Protests of Contracts and Task Delivery Orders in Support of
Emergency Operations
Optional Life Insurance Election Opportunity for
Certain Federal Civilian Employees
Expedited Hiring Authority for Defense Acquisition
Positions
I would be happy to discuss further my work in implementing the
Commission's recommendations and about our legislative proposals. I
appreciate the committee's support of these legislative changes that
will greatly improve expeditionary contracting and beyond.
PERSPECTIVE
I would like to add some broader perspective to this more specific
discussion of acquisition matters. In each of my Senate confirmed
positions, I have talked with the previous office holders in order to
try to benefit from their experiences. I believe there are many
relevant insights in these discussions.
First, this Nation had the chance to lead all other Nation's on
some technology efforts because there was available funding to pursue
innovative, cutting edge ideas--technology push in many cases. Our
current budget processes and timelines seriously limit our ability to
pace most nation-states and offer no prospect of pacing aggressive
terrorist organizations.
Several of my predecessors highlighted the need for extremely
capable people. In the past, there was robust exchange of people at all
career stages between industry and government. Indeed, Jacques Gansler
was hired from industry based on a phone call from Johnny Foster in
search of an extremely capable electronics expert. Today, for a host of
reasons, we have virtually eliminated the exchange of personnel between
industry and government--to the detriment of the defense research,
development and procurement program. DARPA is the only organization
which has managed to successfully maintain a reasonable level of
industry personnel rotation for the benefit of the DOD and the Nation.
Indeed, after several years in government, I can tell you that it
is virtually impossible to hire a mid-career industry person into the
DOD. There are many, many impediments. However, I believe this
detrimental situation hinders the ability of the defense acquisition
team to be maximally effective.
Further, Congress has enacted greater restrictions on the
acquisition team members who do choose to serve in the Federal
Government. I believe the latest set of restrictions governing post
government employment will seriously discourage the very best and
brightest from entering the defense acquisition field and serving for
their full careers. The legislation will certainly make the wall
between industry and government even higher. Many people in all walks
of life now pursue two careers. The prospect of devoting years to one
career of dedicated public service and then confronting severe
restrictions on one's ability to use those experiences in a second
career is unfair. While the DOD has some useful opportunities to hire
retired military and government personnel into acquisition positions,
the Department needs tools to balance these options with the ability to
hire industry personnel and non-military personnel into entry, mid, and
senior career positions to ensure the highest level of creativity,
alternative thinking and balanced perspectives.
Current caps on management headquarters and past focused efforts on
``shoppers'' have seriously harmed the defense acquisition workforce.
As government employees lived through these times, some of the most
capable personnel left the government for the lucrative opportunities
presented by industry. As the DOD's procurement and research and
development budgets have grown significantly since 2001, there has been
no linkage to the personnel process or corresponding ability to hire
government personnel. Indeed, several programs which I have recently
reviewed that experienced cost and schedule problems cited a shortage
of program office personnel as one of the contributing factors. I have
recently asked the AT&L team to consider the use of personnel plans in
conjunction with new major acquisition programs. However, these efforts
will still face the constraints of management headquarters caps. The
situation has driven the DOD to greater use of contractor personnel, a
solution which has several deficiencies. However, it is necessary to
have trained people to manage major acquisition programs spending
significant tax dollars. It is unfair to expect flawless execution
without adequate manpower.
One additional impediment to industry personnel joining the DOD is
the restrictions DOD personnel face regarding participating in the
stock market. The threshold for defining defense contractors is doing
$25,000 of business with DOD, and this threshold has not been adjusted
for over 35 years. This restriction prevents many defense personnel
from participating in the stock market like the rest of America. The
DOD has an abundance of rules and processes to prevent an honest
individual from assisting a single company. However, the low threshold
prevents DOD appointees from participating in the stock market and
restricts other members of the acquisition team. All of these issues
can be carefully and appropriately managed and do not require the
blanket restrictions and rules which are going to discourage people
from working for the DOD in defense acquisition.
The DOD needs to work with Congress on appropriate changes which
can help DOD retain a highly capable acquisition team, recruit talented
individuals from all levels of industry, and give the acquisition team
greater flexibility to deliver technology and products to protect our
Nation's security.
CONCLUSIONS
In conclusion, I am working extensively with others in the
Department and our industry partners to improve Defense Acquisition as
outlined by the numerous initiatives I have described today. We have
taken a multi-faceted approach to improve both our processes and our
products. Our goal is to have the best equipment for the warfighter,
while spending the taxpayer's money wisely. The review boards and teams
that I have instituted provide an excellent forum for integrating
technology, and improving affordability and executability. Prototyping
ensures competition and technological maturity. Analysis, through
business case development at Milestone Reviews and Nunn-McCurdy
reviews, creates a framework for cost/schedule/performance tradeoffs.
Most importantly, our people, from the contract specialist to the
program manager are becoming more knowledgeable and multi-functional
through the training and professional development initiatives I have
implemented.
In summary, we work in a very dynamic environment, and as such we
must constantly be balancing stability and flexibility in our
requirements, resources, and reporting. I believe we have developed a
solid set of checks and balances that I am confident will support our
current acquisition posture and keep us on a path to improvement.
I thank the committee for their time in allowing me to describe my
vision for improving our acquisition system and some specific
initiatives we have undertaken to improve program outcomes. I look
forward to answering your questions.
Chairman Levin. Thank you very much, Secretary Young.
Ms. Schinasi?
STATEMENT OF KATHERINE V. SCHINASI, MANAGING DIRECTOR,
ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY
OFFICE
Ms. Schinasi. Thank you, Mr. Chairman, Senator Warner, and
members of the committee, for inviting me here today to talk
about DOD's management of its acquisition.
In preparing for this hearing, I looked at a statement that
we had delivered in front of this committee a decade ago. The
title of that statement was ``Defense Acquisition: Improved
Program Outcomes Are Possible.'' I'm trying hard to hold on to
that optimism as I come before you today. Part of the reason I
think I may be able to is some of the things that the Under
Secretary has talked about.
But I'm going to start from a different place. I'm going to
start from a position that says I believe DOD's acquisition
process has failed in two important ways. First, it's failed
the warfighter because it's delivering capabilities late and in
fewer quantities than planned, or both. Many times when
equipment is delivered to the field, it is not what's needed
for the current operations. I think you've heard Secretary
Gates' frustration lately with the Air Force, who continues to
produce fighter aircraft when really it's unmanned aerial
vehicles that are needed in current operations. The Army is
spending billions of dollars that it did not plan to on legacy
radios because its development efforts for a new radio have
gotten so bogged down. The Navy is apt to have a net loss in
its carrier fleet capacity, because it has been delayed in
developing a new carrier beyond the point where it will have to
start retiring its current carriers. The Marine Corps will have
to wait at least 5 years to get half of the quantities of
expeditionary vehicles that it has planned. The space
community, after years of trying and failing to develop the
Space-Based Infrared System-High program, is going to be left
with a constellation of missile warning satellites that are
nearing the end of their useful life.
I believe the acquisition process has also failed the
taxpayer, as continuing and significant cost overruns mean less
value for the dollar spent. There are concerns about what is
known about program costs and, Mr. Chairman, you referred to a
number of those in your opening statement. But there also needs
to be concern for what is not known about program costs. The
change that Congress made in 2005 to Nunn-McCurdy is telling in
that respect. In the 3 years before the rebaselining was done
in 2005, DOD reported 12 cost breaches. In the 3 years since
that change was made, DOD has reported 4 times as many, or 48
cost breaches.
In addition to that, the work we have done shows that cost
growth is not recognized in the Department until after the
critical design review, and there are many programs that the
Department currently has in development that have not yet
reached that point. So there is cost growth coming that we
don't yet know about.
In addition to the individual program cost growth, there is
also the matter of cost growth in the modernization account as
a whole. The Department estimates its costs over the 6-year
Future Years Defense Program (FYDP). What we have seen in work
that we have done for this committee recently, is that that
period of time does not really give a full picture of the cost
of the programs overall. In fact, it obfuscates that cost. It
is always the next year, after the FYDP program, when we see
that bow wave that we will not be able to continue to support.
If you look at the period 1992 to 2007, what you see is the
costs needed to complete DOD's portfolio increased 120 percent,
but over that time period the funding that was provided to do
so was only 57 percent. So that bow wave is going to continue.
But an evaluation cannot just look at the acquisition
process to see what's gone wrong and what needs to be fixed.
DOD actually knows pretty well how to buy things, which is what
the acquisition process does. DOD's policies are sound in that
regard, some of those put in place because of legislation from
this committee. The challenge is to figure out why managers and
decisionmakers don't do what they say they should do.
But the evaluation must also include the proper focus on
what to buy, because until that condition is fixed we will
continue to see dysfunction in the acquisition process. What to
buy, of course, starts with the requirements process. The
requirements process is broken. Program requirements are
established on wants, not needs, and moving from a threat-based
evaluation to establish the need for new equipment to a
capabilities-based evaluation I believe has only exacerbated
this problem. Solutions developed by the military departments
and approved by the military vice chiefs reflect parochial
service interests, rather than current and future warfighter
needs.
What to buy also includes the resource allocation process
and the resource allocation process is broken. Resource needs
are almost an afterthought in requirements decisions. As a
consequence, DOD has too many programs chasing too few dollars.
When priorities are not established, the continual battle for
funding that results creates damaging instability.
What to buy increasingly relies on a defense industry that
has shrunk to just a handful of companies. The government has
increasingly turned to industry to help them find and develop
almost unbelievably complex technical solutions, without
ensuring that sufficient in-house capacity exists to manage
contractor activities. The defense industry is too willing a
participant in continuing business as usual.
Finally, I need to say a word about oversight. Oversight
has not made much of a difference. As much as I would agree
with many of the policies that the current under secretary and
his team have put forward, the transitory nature of leadership
in the Department makes it almost impossible to get lasting
change. Just as an example, Mr. Young is the seventh individual
in the under secretary's position in the 15 years that I've
been working in this area.
In fulfilling their own oversight role, the Members of
Congress have their own ideas about authorizing and
appropriating individual weapons programs. It's the decisions
on those individual programs that determine whether or not
policies will work.
Some believe that more money is the answer, but DOD has
already tried spending more money. Investment in the weapons
acquisition programs is now at its highest level in 2 decades
and the outcomes have only gotten worse. I have one chart that
I brought with me today that has cost and schedule overruns,
and you only need to look at that to see the discouraging
detail.
Chairman Levin. Do we have copies of that chart in your
testimony?
Ms. Schinasi. Yes, I believe you do, yes.
What we have to do is redefine success. Success should be
defined as producing needed equipment that can be delivered to
the warfighter as promised, and at a predictable cost that the
country can afford. The goal of any changes as we go forward
should be to create a system in which this is the natural
outcome.
The perverse incentives now contained in the requirements,
funding, acquisition, and oversight processes are there because
success is currently defined as attracting funding and the way
to attract funding is to get a program started. The system that
has arisen as a consequence is one in which all participants
get just enough so as to maintain the status quo--the military
departments, the Office of the Secretary, defense companies,
the press, Congressional sponsors, and even the auditors--who
have lifetime employment. Negative consequences now accrue only
to the warfighter and to the taxpayer, who don't really
participate in the process.
We have to find a way to establish consequences. Another
way of saying that is that we have to create a system in which
we can assign accountability and then make it stick. Advocates
in the system must be recognized for what they are. Their
individual needs must be explicitly balanced in the context of
constrained resources, and as a check independence must exist
in key functions.
In some cases, changes to DOD organizations or the
authority of DOD officials may need to be made. Congress can
help by reinforcing sound Department policies with laws, and by
providing or withholding funding as necessary.
As I said when I started, I'm trying to hold on to the
optimism contained in our statement from a decade ago. But we
have to start thinking in terms of the opportunity costs that
we're facing.
Mr. Chairman, you made the point in your opening statement
that the $295 billion that was not planned that we are now
spending on weapons programs could be used for so many other
things. They say that if you do what you've always done you'll
get what you've always gotten. I hope the witness appearing
before you 10 years from now will have a different and better
story to tell.
Thank you for your continued leadership in these matters
and I look forward to your questions.
[The prepared statement of Ms. Schinasi follows:]
Prepared Statement by Katherine V. Schinasi
Mr. Chairman and members of the committee: I am pleased to be here
today to discuss the Department of Defense's (DOD) management of its
major weapon system acquisitions--an area that has been on the
Government Accountability Office's (GAO) high risk list since 1990.
Prior to and since that time, Congress and DOD have continually
explored ways to improve acquisition outcomes without much to show for
their efforts. DOD's major weapon system programs continue to take
longer, cost more, and deliver fewer quantities and capabilities than
originally planned. Current operational demands have highlighted the
impact of these persistent problems as DOD has been forced to work
outside of its traditional acquisition process to acquire equipment
that meet warfighter needs.
Investment in weapons acquisition programs is now at its highest
level in two decades. The department expects to invest about $900
billion (fiscal year 2008 dollars) over the next 5 years on development
and procurement with more than $335 billion invested specifically in
major defense acquisition programs. Given the size of this investment,
poor outcomes in DOD's weapon system programs reverberate across the
entire Federal government. Every dollar wasted during the development
and acquisition of weapon systems is money not available for other
internal and external budget priorities--such as the war on terror and
mandatory payments to growing entitlement programs.
My statement today is drawn from our body of work on DOD's
acquisition, requirements, and funding processes, as well as our annual
assessment of selected DOD weapon programs. As you requested, I will
focus on (1) the performance of DOD's major defense acquisition program
portfolio; (2) the underlying systemic problems that contribute to poor
cost and schedule outcomes; (3) recent legislative initiatives and DOD
actions aimed at addressing these problems; and (4) the extent to which
those initiatives and actions can be expected to improve the future
performance of DOD's major defense acquisition programs. Our work was
conducted in May 2008 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
SUMMARY
Since fiscal year 2000, DOD significantly increased the number of
major defense acquisition programs and its overall investment in them.
During this same time period, acquisition outcomes have not improved.
Based on our analysis, total acquisition costs for the fiscal year 2007
portfolio of major defense acquisition programs increased 26 percent
and development costs increased by 40 percent from first estimates--
both of which are higher than the corresponding increases in DOD's
fiscal year 2000 portfolio. In most cases, the programs we assessed
failed to deliver capabilities when promised--often forcing warfighters
to spend additional funds on maintaining legacy systems. Our analysis
shows that current programs are experiencing, on average, a 21-month
delay in delivering initial capabilities to the warfighter, a 5-month
increase over fiscal year 2000 programs.
Several underlying systemic problems at the strategic level and at
the program level continue to contribute to poor weapon system program
outcomes. At the strategic level, DOD does not prioritize weapon system
investments and the department's processes for matching warfighter
needs with resources are fragmented and broken. Furthermore, the
requirements and acquisition processes are not agile enough to support
programs that can meet current operational requirements. At the program
level, programs are started without knowing what resources will truly
be needed and are managed with lower levels of product knowledge at
critical junctures than expected under best practices standards. In the
absence of such knowledge, managers rely heavily on assumptions about
system requirements, technology, and design maturity, which are
consistently too optimistic. This exposes programs to significant and
unnecessary technology, design, and production risks, and ultimately
damaging cost growth and schedule delays. DOD officials are rarely held
accountable for these poor outcomes and the acquisition environment
does not provide the appropriate incentives for contractors to stay
within cost and schedule targets, making them a strong enabler of the
status quo.
Recent congressionally mandated changes to the DOD acquisition
system, as well as initiatives being pursued by the department, include
elements that could improve DOD's overall investment strategy and the
soundness of the programs it allows to move forward. However, it is
still too early to determine the impact those changes have had on
programs. Recognizing the need for more discipline and accountability
in the acquisition process, Congress enacted legislation that requires
decision-makers to certify that programs meet specific criteria at key
decision points early in the acquisition process, and are measured
against their original baseline estimates for the purpose of assessing
and reporting unit cost growth.
Recent legislation also requires DOD to report on its strategies
for balancing the allocation of funds and other resources among major
defense acquisition programs and to identify strategies for enhancing
the role of program managers in carrying out acquisition programs. DOD
has begun several policy initiatives including a new concept decision
review initiative, acquisition approaches with shorter and more certain
delivery timeframes, a requirement for more prototyping early in
programs, and the establishment of review boards to monitor weapon
system configuration changes, which are designed to enable key
department leaders to make informed decisions before a program starts
and maintain discipline once it begins.
While legislation and policy revisions can help guide change, DOD
must begin making better choices that reflect joint capability needs
and match requirements with resources or the department will continue
to experience poor acquisition outcomes. DOD and the military Services
cannot continue to view success through the prism of securing the
funding needed to start and sustain new programs. Sound programs should
be the natural outgrowth of a disciplined knowledge-based process.
DOD's policy emphasizes the importance of a knowledge-based approach,
but practice does not always follow policy. The transitory nature of
leadership and the stovepiped process further undermines successful
reform. Meaningful and lasting reform will not be achieved until the
right incentives are established and accountability is bolstered at all
levels of the acquisition process--both within the department and in
the defense industry. Finally, unless all of the players involved with
acquisitions--Congress, DOD, and perhaps most importantly, the military
Services--have unified goals, outcomes are not likely to improve.
dod has too many acquisition programs competing for limited resources,
WHILE PROGRAM COSTS AND SCHEDULES CONTINUE TO INCREASE
DOD's portfolio of major acquisition programs has grown at a pace
that far exceeds available resources. From 1992 to 2007, the estimated
acquisition costs needed to complete the major acquisition programs in
DOD's portfolio increased almost 120 percent, while the funding
provided for these programs only increased 57 percent, creating a
fiscal bow wave that may be unsustainable (see fig. 1).
The total acquisition cost of DOD's 2007 portfolio of major
programs under development or in production has grown by nearly $300
billion over initial estimates. While DOD is committing substantially
more investment dollars to develop and procure new weapon systems, our
analysis shows that the 2007 portfolio is experiencing greater cost
growth and schedule delays than the fiscal years 2000 and 2005
portfolios (see table 1).\1\ For example, total acquisition costs for
programs in DOD's fiscal year 2007 portfolio have increased 26 percent
from first estimates--compared to a 6-percent increase for programs in
its fiscal year 2000 portfolio. We found a similar trend for total
RDT&E costs and unit costs.
---------------------------------------------------------------------------
\1\ Our analysis in this area reflects comparisons of performance
for programs meeting DOD's criteria for being a major defense
acquisition program in fiscal year 2007 and programs meeting the same
criteria in fiscal years 2005 and 2000. The analysis does not include
all the same systems in all 3 years.
---------------------------------------------------------------------------
Continued cost growth results in less funding being available for
other DOD priorities and programs, while continued failure to deliver
weapon systems on time delays providing critical capabilities to the
warfighter. Put simply, cost growth reduces DOD's buying power. As
program costs increase, DOD must request more funding to cover the
overruns, make trade-offs with existing programs, delay the start of
new programs, or take funds from other accounts. Delays in providing
capabilities to the warfighter result in the need to operate costly
legacy systems longer than expected, find alternatives to fill
capability gaps, or go without the capability. The warfighter's urgent
need for the new weapon system is often cited when the case is first
made for developing and producing the system. However, DOD has already
missed fielding dates for many programs and many others are behind
schedule. On average, the current portfolio of programs has experienced
a 21-month delay in delivering initial operational capability to the
warfighter, and 14 percent are more than 4 years late.
FRAGMENTED PROCESSES, UNEXECUTABLE BUSINESS CASES, AND LIMITED
ACCOUNTABILITY UNDERLIE POOR ACQUISITION OUTCOMES
Poor program execution contributes to and flows from shortfalls in
DOD's requirements and resource allocation processes. Over the past
several years our work has highlighted a number of underlying systemic
causes for cost growth and schedule delays both at the strategic and at
the program level. At the strategic level, DOD's processes for
identifying warfighter needs, allocating resources, and developing and
procuring weapon systems--which together define DOD's overall weapon
system investment strategy--are fragmented and broken. At the program
level, the military Services propose and DOD approves programs without
adequate knowledge about requirements and the resources needed to
successfully execute the program within cost, schedule, and performance
targets. In addition, DOD officials are rarely held accountable for
poor decisions or poor program outcomes.
Key Acquisition Support Processes Are Fragmented and Result in Unsound
Programs
DOD largely continues to define warfighting needs and make
investment decisions on a service-by-service basis, and assess these
requirements and their funding implications under separate
decisionmaking processes. While DOD's requirements process provides a
framework for reviewing and validating needs, it does not adequately
prioritize those needs and is not agile enough to meet changing
warfighter demands. A senior Army acquisition official recently
testified before Congress that because the process can take more than a
year, it is not suitable for meeting urgent needs related to ongoing
operations; and a recent study by the Center for Strategic and
International Studies indicates that the process is unwieldy and
officials are now trying to find ways to work around it. Ultimately,
the process produces more demand for new programs than available
resources can support. This imbalance promotes an unhealthy competition
for funds that encourages programs to pursue overly ambitious
capabilities, develop unrealistically low cost estimates and optimistic
schedules, and to suppress bad news. Similarly, DOD's funding process
does not produce an accurate picture of the department's future
resource needs for individual programs--in large part because it allows
programs to go forward with unreliable cost estimates and lengthy
development cycles--not a sound basis for allocating resources and
ensuring program stability. Invariably, DOD and Congress end up
continually shifting funds to and from programs--undermining well-
performing programs to pay for poorly performing ones.
Initiating Programs with Unexecutable Business Cases Sets Them Up to
Fail
At the program level, the key cause of poor outcomes is the
consistent lack of disciplined analysis that would provide an
understanding of what it would take to field a weapon system before
system development. Our body of work in best practices has found that
an executable business case is one that provides demonstrated evidence
that: (1) the identified needs are real and necessary and that they can
best be met with the chosen concept and (2) the chosen concept can be
developed and produced within existing resources--including
technologies, funding, time, and management capacity. Although DOD has
taken steps to revise its acquisition policies and guidance to reflect
the benefits of a knowledge-based approach, we have found no evidence
of widespread adoption of such an approach in the department. Our most
recent assessment of major weapon systems found that the vast majority
of programs began development with unexecutable business cases, and did
not attain, or plan to achieve, adequate levels of knowledge before
reaching design review and production start--the two key junctures in
the process following development start (see figure 2).
Knowledge gaps are largely the result of a lack of disciplined
systems engineering analysis prior to beginning system development.
Systems engineering translates customer needs into specific product
requirements for which requisite technological, software, engineering,
and production capabilities can be identified through requirements
analysis, design, and testing. Early systems engineering provides
knowledge that enables a developer to identify and resolve gaps before
product development begins. Because the government often does not
perform the proper upfront analysis to determine whether its needs can
be met, significant contract cost increases can occur as the scope of
the requirements change or become better understood by the government
and contractor. Not only does DOD not typically conduct disciplined
systems engineering prior to beginning system development, it has
allowed new requirements to be added well into the acquisition cycle.
The acquisition environment encourages launching ambitious product
developments that embody more technical unknowns and less knowledge
about the performance and production risks they entail. A new weapon
system is not likely to be approved unless it promises the best
capability and appears affordable within forecasted available funding
levels. We have recently reported on the negative impact that poor
systems engineering practices have had on several programs such as the
Global Hawk Unmanned Aircraft System, F-22A, Expeditionary Fighting
Vehicle, Joint Air-to-Surface Standoff Missile and others.\2\
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\2\ GAO, Best Practices: Increased Focus on Requirements and
Oversight Needed to Improve DOD's Acquisition Environment and Weapon
System Quality, GAO-08-294 (Washington, DC: Feb. 1, 2008).
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With high levels of uncertainty about technologies, design, and
requirements, program cost estimates and related funding needs are
often understated, effectively setting programs up for failure. We
recently assessed the service and independent cost estimates for 20
major weapon system programs and found that the independent estimate
was higher in nearly every case, but the difference between the
estimates was typically not significant. We also found that both
estimates were too low in most cases, and the knowledge needed to
develop realistic cost estimates was often lacking. For example,
program Cost Analysis Requirements Description documents--used to build
the program cost estimate--are not typically based on demonstrated
knowledge and therefore provide a shaky foundation for estimating
costs. Cost estimates have proven to be off by billions of dollars in
some of the programs we reviewed. For example, the initial Cost
Analysis Improvement Group estimate for the Expeditionary Fighting
Vehicle program was about $1.4 billion compared to a service estimate
of about $1.1 billion, but development costs for the system are now
expected to be close to $3.6 billion. Estimates this far off the mark
do not provide the necessary foundation for sufficient funding
commitments and realistic long-term planning.
Constraining development cycles would make it easier to more
accurately estimate costs, and as a result, predict the future funding
needs and effectively allocate resources. We have consistently
emphasized the need for DOD's weapon programs to establish shorter
development cycles. DOD's conventional acquisition process often
requires as many as 10 or 15 years to get from program start to
production. Such lengthy cycle times promote program funding
instability--especially when considering DOD's tendency to change
requirements and funding as well as frequent changes in leadership.
Constraining cycle times to 5 or 6 years would force programs to
conduct more detailed systems engineering analyses, lend itself to
fully funding programs to completion, and thereby increase the
likelihood that their requirements can be met within established
timeframes and available resources. An assessment of DOD's acquisition
system commissioned by the Deputy Secretary of Defense in 2006
similarly found that programs should be time-constrained to reduce
pressure on investment accounts and increase funding stability for all
programs.
Accountability Suffers When Program Managers Lack the Authority to
Shape Programs
When DOD consistently allows unsound, unexecutable programs to pass
through the requirements, funding, and acquisition processes,
accountability suffers. Program managers cannot be held accountable
when the programs they are handed already have a low probability of
success. In addition, program managers are not empowered to make go or
no-go decisions, have little control over funding, cannot veto new
requirements, and have little authority over staffing. At the same
time, program managers frequently change during a program's
development. Our analysis indicates that the average tenure for
managers on 39 major acquisition programs started since March 2001 was
about 17 months--less than half the length of the average system
development cycle time of 37 months. Such frequent turnover makes it
difficult to hold program managers accountable for the business cases
that they are entrusted to manage and deliver.
The government's control over and accountability for decisions is
complicated by DOD's growing reliance on technical, business, and
procurement expertise supplied by contractors. This reliance can reach
a point where the foundation on which decisions are based may be
largely crafted by individuals who are not employed by the government,
who are not bound by the same rules governing their conduct, and who
are not required to disclose whether they have financial or other
personal interests that conflict with the responsibilities they have
performing contract tasks for DOD. Further, in systems development, DOD
typically uses cost-reimbursement contracts, in which DOD generally
pays the allowable costs incurred for the contractor's best efforts, to
the extent provided by the contract. This may contribute to an
acquisition environment that is not conducive for incentivizing
contractors to follow best practices and keep cost and schedule in
check.
RECENT CONGRESSIONAL INITIATIVES AND DOD ACTIONS AIM TO PROMOTE A MORE
DISCIPLINED, KNOWLEDGE-BASED ACQUISITION APPROACH
Recognizing the need for more discipline and accountability in the
acquisition process, Congress recently enacted legislation that, if
followed, could result in a better chance to spend resources wisely.
Likewise, DOD has recently begun to develop several initiatives, based
in part on congressional direction and GAO recommendations that, if
implemented properly, could also provide a foundation for establishing
a well balanced investment strategy and sound, knowledge-based business
cases for individual acquisition programs.
Legislation Could Have a Positive Impact on Acquisition Outcomes
Over the past 3 years, Congress has enacted legislation that
requires DOD to take certain actions which, if followed, could instill
more discipline into the front-end of the acquisition process when key
knowledge is gained and ultimately improve acquisition outcomes. For
example, 2006 and 2008 legislation require decisionmakers to certify
that specific levels of knowledge have been demonstrated at key
decision points early in the acquisition process before programs can
enter the technology development phase or the system development phase.
The 2006 legislation also requires programs to use their original
baseline estimates--and not only their most recent estimates--when
reporting unit cost threshold breaches. It also requires an additional
assessment of the program if certain thresholds are reached. Other key
legislation requires DOD to report on the department's strategies for
balancing the allocation of funds and other resources among major
defense acquisition programs, and to identify strategies for enhancing
the role of program managers in carrying out acquisition programs. (For
more detailed description of recent legislation, see appendix I).
Recent DOD Actions Provide Opportunities for Improvement
DOD has initiated actions aimed at improving investment decisions
and weapon system acquisition outcomes, based in part on congressional
direction and GAO recommendations. Each of the initiatives is designed
to enable more informed decisions by key department leaders well ahead
of a program's start, decisions that provide a closer match between
each program's requirements and the department's resources. For
example:
DOD is experimenting with a new concept decision
review, different acquisition approaches according to expected
fielding times, and panels to review weapon system
configuration changes that could adversely affect program cost
and schedule.
DOD is also testing portfolio management approaches in
selected capability areas to facilitate more strategic choices
about how to allocate resources across programs and also
testing the use of capital budgeting as a potential means to
stabilize program funding.
In September 2007, the Office of the Under Secretary
of Defense for Acquisition, Technology, and Logistics issued a
policy memorandum to ensure weapons acquisition programs were
able to demonstrate key knowledge elements that could inform
future development and budget decisions. This policy directed
pending and future programs to include acquisition strategies
and funding that provide for contractors to develop technically
mature prototypes prior to initiating system development, with
the hope of reducing technical risk, validating designs and
cost estimates, evaluating manufacturing processes, and
refining requirements.
DOD also plans to implement new practices that reflect
past GAO recommendations intended to provide program managers
more incentives, support, and stability. The department
acknowledges that any actions taken to improve accountability
must be based on a foundation whereby program managers can
launch and manage programs toward greater performance, rather
than focusing on maintaining support and funding for individual
programs. DOD acquisition leaders have told us that any
improvements to program managers' performance hinge on the
success of these departmental initiatives.
In addition, DOD has taken actions to strengthen the
link between award and incentive fees with desired program
outcomes, which has the potential to increase the
accountability of DOD programs for fees paid and of contractors
for results achieved.
If adopted and implemented properly these actions could
provide a foundation for establishing sound, knowledge-based
business cases for individual acquisition programs, and the
means for executing those programs within established cost,
schedule, and performance goals.
CONCLUDING OBSERVATIONS ON ACHIEVING SUCCESSFUL AND LASTING REFORM
DOD understands what it needs to do at the strategic and at the
program level to improve acquisition outcomes. The strategic vision of
the current Under Secretary of Defense for Acquisition, Technology, and
Logistics acknowledges the need to create a high-performing, boundary-
less organization--one that seeks out new ideas and new ways of doing
business and is prepared to question requirements and traditional
processes. Past efforts have had similar goals, yet we continue to find
all too often that DOD's investment decisions are service- and program-
centric and that the military Services overpromise capabilities and
underestimate costs to capture the funding needed to start and sustain
development programs. This acquisition environment has been
characterized in many different ways. For example, some have described
it as a ``conspiracy of hope,'' in which industry is encouraged to
propose unrealistic cost estimates, optimistic performance, and
understated technical risks during the proposal process and DOD is
encouraged to accept these proposals as the foundation for new
programs. Either way, it is clear that DOD's implied definition of
success is to attract funds for new programs and to keep funds for
ongoing programs, no matter what the impact. DOD and the military
Services cannot continue to view success through this prism. Adding
pressure to this environment are changes that have occurred within the
defense supplier base. In 2006, a DOD-commissioned study found that the
number of fully competent prime contractors competing for programs had
been reduced from more than 20 in 1985 to only 6. This limits DOD's
ability to maximize competition to reduce costs and encourage
innovation.
More legislation can be enacted and policies can be written, but
until DOD begins making better choices that reflect joint capability
needs and matches requirements with resources, the acquisition
environment will continue to produce poor outcomes. It should not be
necessary to take extraordinary steps to ensure needed capabilities are
delivered to the warfighter on time and within costs. Executable
programs should be the natural outgrowth of a disciplined, knowledge-
based process. While DOD's current policy supports a knowledge-based,
evolutionary approach to acquiring new weapons, in practice decisions
made on individual programs often sacrifice knowledge and realism in
favor of revolutionary solutions. Meaningful and lasting reform will
not be achieved until DOD changes the acquisition environment and the
incentives that drive the behavior of DOD decisionmakers, the military
Services, program managers, and the defense industry. Finally, no real
reform can be achieved without a true partnership among all these
players and Congress.
Mr. Chairman, this concludes my prepared statement. I would be
happy to answer any questions you may have at this time.
CONTACTS AND STAFF ACKNOWLEDGMENTS
For further information about this statement, please contact
Katherine V. Schinasi at (202) 512-4841 or [email protected]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this testimony. Individuals who made
key contributions to this statement include Michael J. Sullivan,
Director; Ronald E. Schwenn, Assistant Director; Megan Hill; Travis J.
Masters; Karen Sloan; and Alyssa B. Weir.
Chairman Levin. Thank you so much and thanks for the work
of the GAO in this area. We're also hopeful that the story will
improve instead of getting worse over the years. Even though
our efforts and your efforts and Secretary Young's efforts have
not been successful in correcting these problems yet, to the
extent at least that we want them to be corrected, and they've
gotten worse in many instances, we just have to keep plugging
away at it. It's our responsibility and it's, I hope, a
responsibility which DOD accepts and feels.
Secretary Young, the GAO reported in March 2006 that DOD
was paying hundreds of millions of dollars of award and
incentive fees to contractors without regard to acquisition
outcomes. The GAO found that most contractors were paid 90
percent or more of available award and incentive fees even when
they failed to meet basic cost, schedule, and performance
requirements.
We responded by enacting a provision in the NDAA for Fiscal
Year 2007 which requires DOD to tighten up requirements for
award and incentive fees and tie those fees more closely to
acquisition outcomes and contractor performance. Is the
provision that we enacted in the NDAA for Fiscal Year 2007
having any effect on the Department's behavior and do you
believe that this provision succeeds in tying contractor
profits to acquisition outcomes, or is further action needed?
Mr. Young. Mr. Chairman, there are so many things I want to
tell you today. I want to try to be efficient. I believe the
provision is helpful. As the Navy acquisition executive, I
issued three memos on the use of profit and incentive fees. As
the Defense Acquisition Executive, I am constantly pushing to
tie fees to objective criteria that are on the critical path of
a program so that we pay taxpayer dollars for results. I am
against the subjective award of fees based on a bunch of
viewgraphs and other such things. I have consistently turned
down or pushed down on base fees that are basically awarded for
people coming to work. It takes your efforts and my efforts to
constantly change the culture to more objective awards of fees.
Chairman Levin. You mentioned, Mr. Secretary, that some of
the problems in our acquisition system can be attributed to a
workforce that has been cut over the last 15 years. We
addressed that, or attempted to address that problem by
establishing an acquisition workforce development fund to
provide the resources needed to begin rebuilding DOD's core of
acquisition professionals. Section 852 of the NDAA for Fiscal
Year 2008 provided $300 million to be transferred to the fund
this fiscal year, starting no later than August 1.
Has the Comptroller supported that change?
Mr. Young. We are working with the Comptroller to transfer
those funds. We're working on a fairly thorough plan to execute
that program. The one thing I would add to that is that I think
there are hurdles we have to work our way through. The
personnel system is one of the most dysfunctional systems in
the government. You could have money, but not billets. You
could have billets, but not money. Then the hiring process is
excruciatingly long. All of these have not contributed to
people with the right talents wanting to come to work for the
government.
Chairman Levin. The $300 million, though, to put additional
people there has not yet been transferred?
Mr. Young. No, sir.
Chairman Levin. Will it be transferred no later than August
1?
Mr. Young. It is my expectation. The Comptroller
understands that we have a plan to execute to that, and they
are working with us.
Chairman Levin. If it's not going to be transferred, will
you let this committee know?
Mr. Young. Yes.
Chairman Levin. Unrealistic cost and schedule estimates
have been really at the heart of this problem. DOD's own
acquisition performance assessment panel concluded in 2006 that
using optimistic budget estimates forces excessive annual
reprogramming and budget exercises within the Department, which
in turn causes program restructuring that drives up long-term
costs, causes schedule growth, and opens the door to
requirements creep.
By the way, before I ask the question on this, let's have
an 8-minute round for our first round of questions, so our
staff can alert me when I've hit 8 minutes.
I want to talk about these optimistic and unrealistic cost
and scheduling estimates that are almost always based on
information that comes from contractors, who have a conflict of
interest obviously. Now, let me ask you this, Ms. Schinasi;
what is your view of my suggestion that we establish a new
director of independent cost assessment in the DOD, with
authorities and responsibilities comparable to those of the
DOT&E, so that we can attempt to ensure that the information on
which we base program and budget decisions is objective and
reliable?
Ms. Schinasi. Clearly that is something that is needed. In
our work we have found that neither the program office cost
estimates nor the independent cost estimates that are currently
developed by the Cost Analysis Improvement Group (CAIG) come
anywhere close to what the real costs of the program would be.
An independent look at that, if the individual also has the
ability to set policies that say we need to have cost estimates
that actually are informed by knowledge, I think would help to
ameliorate the situation that you've described.
Chairman Levin. That knowledge has to be objective
information.
Ms. Schinasi. It does, and most of it has to do, frankly,
with technologies. What we see is that we promise new programs
based on technologies, which oftentimes come from industry, and
we don't really understand what it will take to bring those
technologies to the field. So cost estimates based on those
immature technologies are not going to be very reliable.
Chairman Levin. We're going to bring an amendment to
establish this new director to the floor and your testimony is
very helpful in that regard.
Does DOD have a position yet on this, Secretary Young?
Mr. Young. I wouldn't say we have a position on this, but I
would like to comment if I could.
Chairman Levin. Sure.
Mr. Young. Contractors don't build the defense budget. It
starts with programmers. I labored in the Navy as programmers
programmed an 18,000-ton DDX destroyer to cost about 15 percent
more than a 9,000-ton DDG destroyer. The program manager should
have never accepted that as his challenge, and across the board
I need to get my acquisition team not to accept it.
In my ADMs, as I mentioned, I am directing the use of
independent cost estimates, and I give the greatest weight to
the CAIG's Director, who does do that independent cost estimate
for the Department at every milestone, at Milestone B.
Chairman Levin. Would you take a look at the language which
we're going to submit to you? We've obviously not succeeded,
despite efforts, good faith efforts, of people like yourself.
It's a history of failure to keep these costs under control,
and we have to find ways and keep looking for ways that we can
do better. We know what the problems are. We've not solved
these problems. We've had these huge excessive costs, way above
what were projected. We have the responsibility of trying to
rein them in, and we're going to continue to see if we can't do
that through various methods.
If you would take a look at this particular recommendation
for a new director of independent cost assessment in the
Department, in the next week or 2, we'd appreciate it because
we're hopeful our bill will come to the floor in a couple of
weeks.
Three years ago, we attempted to address the problem of
immature technologies by requiring senior officials to certify
that critical technologies have reached the required maturity
level before giving the so-called Milestone B approval. I think
you've made reference to that already this morning, Secretary
Young.
I'd like to ask Ms. Schinasi, though, as to whether or not
in her judgment the new technological maturity requirement has
been effectively implemented and enforced? Have you gotten into
that issue?
Ms. Schinasi. We haven't looked specifically at the total
programs that have gone through that process. I am aware of
some in which the DDR&E has turned back technology readiness
assessments that were submitted by the programs because they
were not ready, but there are others that have gone through
even though the technology readiness assessments did not show
that the technologies were sufficiently mature. So anecdotally
I would say that it's been a mixed experience.
Chairman Levin. Did you want to comment on that, Secretary
Young?
Mr. Young. I do, sir. I'd like to know which ones haven't
gone through. We'll go back and find that out. I had one
particular program recently, a major program, $1 billion, Net
Enabled Command Capability, where there was a difference of
opinion between DDR&E and the program about technology
readiness. I refused the Milestone B.
The Department does have needs, though, that have to go
forward. I granted a Milestone A to go do prototypical work on
that program, improve their process, to mature their
technology, let DDR&E review that, the readiness of the
technology. They'll come back to me later for a Milestone B. So
I am not seeking to grant Milestone approvals. There are
certain programs that have unique features, like shipbuilding
programs, where a radar may not be today at Milestone B
appropriately technology mature, but the radar's not needed for
2 or 3 years down the road for ship construction and delivery
and they have a valid path to get to that appropriate
technology maturity.
But in general, consistent with law, we are not approving
programs without that technology maturity. We need to give this
process a chance to prove that it's leading to better
management of acquisition programs.
Chairman Levin. Ms. Schinasi, would you after this hearing
is over get together with the Secretary and give him the items
that you made reference to?
Ms. Schinasi. Yes.
Chairman Levin. Thank you.
Senator Warner.
Senator Warner. Thank you, Mr. Chairman.
Perhaps no program in contemporary history here is of
greater importance to the United States, not only from the
standpoint of its own need for inventory of a weapon system,
but some eight or nine other nations that are looking to the
U.S. to build it, and that's the JSF. Coincidentally, we're
greeted this morning with a press report which reads as
follows: ``Lockheed Martin Corp. system for tracking costs and
schedules has generated useless or suspect data on the F-35 JSF
ever since the program started in 2001.''
Mr. Young, I think perhaps you should first address that
issue. This rattles all across the world.
Mr. Young. Yes, sir.
Senator Warner. We've spent a great deal of time on it here
in this committee. How did this happen?
Mr. Young. Mr. Chairman, I've looked into the details, some
level of the details of this. I think the goodness is that the
Defense Contract Management Agency (DCMA)----
Senator Warner. What is?
Mr. Young. The DCMA.
Senator Warner. No, you said ``the goodness''? I didn't get
that.
Chairman Levin. You said ``good news'' or ``goodness''?
Mr. Young. The goodness is that the DCMA did an audit and
discovered this issue. I want to make clear there are two
aspects of this. The DCMA did not address the billing system,
where valid bills and invoices are turned in and the government
pays them. There is not a discrepancy in the billing process.
The discrepancy is taking that billing process and loading
it into an earned value management system (EVMS) that lets us
see our performance and predict our progress going forward,
which is what I think you saw in the report. It says that the
EVMS does not provide a confident basis for projecting future
performance of the program.
Within that, Jim Finley, the Deputy Under Secretary, has
met with Lockheed and DCMA. They've outlined a corrective
action plan for the next 12 months. DCMA meets with them every
2 weeks. Lockheed's agreed to the corrective action plan.
Furthermore, there are Milestones, 12 Milestones. The first
one's been met. At each of those Milestones, if Lockheed does
not meet the corrective action plan we will withhold $10
million in payments from the corporation.
So we are working to rectify this situation. It does need
to be corrected, you are right.
Senator Warner. Ms. Schinasi, do you have some views on
this?
Ms. Schinasi. Yes, Senator. We found in the most recent
work we've done on the JSF, and we issued that report earlier
this spring, that the cost estimate was unreliable and we
recommended that another cost estimate be prepared.
Senator Warner. I hope both of you recognize the two-fold
problem here, and that is, the essential need for this aircraft
in inventories for purposes of our defense structure; and also,
it's the image of the United States, being the principal
manager of a major program, and a lot of trust and confidence
of other nations was given to the United States to run it
right.
Do we know why, at this late date in the program, we're
discovering this deficiency?
Mr. Young. I'd like to come back to you on the record as to
whether previous audits didn't uncover this. But the audits in
general have focused on the billing system, where again we have
paid properly for the work that's been performed. The changes--
the loading of that information into the EVMS, Lockheed made
changes in that. They should not have and it undermined our
confidence of projecting our current and future performance.
We're going to go fix that for exactly the reasons you said,
sir. We have to have confidence in this aircraft.
[The information referred to follows:]
There were no audits of Lockheed Martin Aero's (then General
Dynamics) system since the initial validation in 1980. In 1991, General
Dynamics' Fort Worth, TX, Cost Schedule Control System was called into
question with the findings of the A-12 Program cancellation.
Subsequently in 1995, the Department switched to an industry-based
Earned Value Management System (EVMS), which placed more reliance on
industry for enforcement. However, based on the results of several
audits, it was determined in 2004 that industry's stewardship of EVMS
has been inadequate. Since that time, the Department's response has
been to create a robust, government-monitored earned value management
compliance regime, which has been effective in identifying issues
across industry.
Senator Warner. Is our program manager accountable for
this?
Mr. Young. Yes, the program manager is accountable for it.
Senator Warner. Well, that's clear. I hope that you address
that properly.
Do you have any views on why it took so long to catch it,
Ms. Schinasi?
Ms. Schinasi. Senator, I believe that the cost growth in
the program has been in place from the very beginning. This
most recent review of the contractor's systems is new, but the
program, the JSF program, has had many of the same problems
that we've seen in other programs. The original justification
was that this would be a plane that would be very low cost to
operate, which was a great idea when it was conceived. But the
technologies required to get those low operations and
maintenance costs were not mature, and I think the program has
gone forward without getting the knowledge that it needed to
understand what the true costs would be.
So many of these cost overruns could have been predicted
earlier on.
Senator Warner. Mr. Chairman, I think we should invite
Lockheed to review this record and provide for the committee
its perspective on this issue.
Mr. Young. Mr. Chairman.
Senator Warner. Yes?
Mr. Young. Can I comment on this for a moment? There are
definitely some accuracies in what Ms. Schinasi said. Every
program has unique details that we need to look at. We're
applying a bumper sticker of cost growth to everything and we
need to look at it. Here's one example where I believe the
requirements have been well managed on JSF. We have a CSB. The
JSF was prototyped early on.
My frustration is we did not prototype the right things in
JSF. So when we went into system design and development, we
found the short take-off, vertical landing (STOVL) variant, the
variant for the Marine Corps, was heavy. We had to take an
extra 18 months to get the weight out of that program. That 18
months cost us about $7 billion.
So we can explain how we got from there to here. Now, I
have reported and have testified that we have some additional
cost growth on JSF. I can couple that directly to the fact that
over the last 5 years DOD and Congress have taken over $1
billion out of the program. If you have a reasonably well
managed and planned program and you take $1 billion out, it
probably shouldn't be a surprise that you need that billion
dollars with some premium back.
So there were people who bet that the STOVL variant would
not fly this year. The good news side of this is that variant
probably is going to fly this week or next week. The software
is largely done for the first deliverable aircraft. So I would
appeal that we look at the details of some of these things and
learn the right lessons going forward.
Senator Warner. Just out of curiosity, Mr. Young, you're
well known to this committee and to Congress. You've performed
your services here in Congress very ably and we were all
extremely pleased you took this position. Ms. Schinasi, I
presume you've had an equally distinguished career. Do you ever
get together before you come here in Congress and square off on
each other and try and avoid some of these hearings?
Mr. Young. Actually, I would say there's a good bit of
common ground between us. We haven't personally done it, but
members of my team have worked closely with GAO to understand
the $295 billion overrun and agreed to work more closely going
forward. So we are doing what you suggest.
Senator Warner. I would hope that you would share views and
viewpoints without having to write up all these reports and
come in to Congress and sort of set it out. That's the way
government should work. You are the GAO and he's government
also.
Ms. Schinasi. Yes, sir, and we try very hard when we make
recommendations in our individual reports to make sure that we
consult with DOD, because if we put something out that's not
doable that doesn't help anyone.
Senator Warner. Let's touch on just the prototyping, Mr.
Secretary. When it comes to ships, you simply can't prototype
an entire ship.
Mr. Young. Yes, sir.
Senator Warner. I think we learned some very tragic lessons
with the LCS program. I think you ought to provide for the
record what you felt went wrong with that program and what
steps you've put in place not to have it reoccur.
Mr. Young. A short comment. You're exactly right. I've
pushed for the signing of the contracts for the first two DDG-
1000s. I think there is another program that's not talked about
as much because the development program for DDG-1000 has gone
very well. You're right, we didn't prototype the ship, but we
prototyped I think 12 different engineering development models.
We installed a fire and battle damage control system in an old
Navy ship and proved it. We had a land-based test site for the
electric motor. There were a dozen, I believe, development
models that built our technological maturity, and our
confidence in designing the whole of the system, which are
essentially component prototyping efforts necessary for that
program.
So largely that development program has gone well, a very
complicated development program. The remaining tests that
Congress is rightly asking us to pass is: can you now build
that ship for the price that you've advertised? We have signed
contracts for that and we have to prove we can go do that.
[The information referred to follows:]
The Navy conducted several reviews of the Littoral Combat Ship
(LCS) program, including the establishment of a Program Management
Assist Group to conduct a review of cost growth associated with LCS 1,
and to review projected costs for LCS 2, LCS 3, and LCS 4. The Navy
assessment identified the following root causes of cost growth:
Aggressive cost and schedule goals.
Pressure to build to schedule was strongly emphasized
and generated cost growth.
The ambitious schedule relied upon concurrent design
and construction that was not achieved.
For LCS 1, the timing of Lockheed-Martin's bid to the
finalization of Naval Vessel Rules resulted in underestimated
efforts for design and construction by the contractor.
The competitive environment created disincentive for
the contractor to disclose execution challenges to the Navy.
The Navy has taken the following action for the LCS program to
address cost growth and prevent recurrence:
Increased oversight has been assigned to monitor
industry performance.
More realistic schedule objectives have been assigned.
To address cost growth, resources were reprogrammed
from fiscal year 2007 LCS procurement.
The plan also includes reduced procurement of LCS
seaframes in fiscal year 2008 and fiscal year 2009.
Additionally, overall the Navy has strengthened its acquisition
policy to improve rapid acquisition in support of the global war on
terror, to control cost growth, and to monitor contractor performance
more effectively. The Navy has established a Center of Excellence for
Earned Value Management (CEVM) to adopt a more centralized approach to
managing EVM and to improve visibility of the status of all Navy
acquisition programs. Navy oversight includes acquisition program
reviews and portfolio reviews of acquisition programs and the supplier
base. The Navy also is working improvement initiatives in
accountability, portfolio assessment, and acquisition workforce
management. To bolster the Navy's acquisition leadership, the Navy
added a three-star admiral to serve as Principal Deputy Assistant
Secretary of the Navy for Research, Development, and Acquisition
(ASN(RDA)), and recently established the position of Principal Civilian
Deputy Assistant Secretary of the Navy for Research, Development, and
Acquisition (PCDASN(RDA)). The PCDASN will be responsible to ASN(RDA)
for all acquisition workforce programs and functions.
Specifically, on February 26, 2008, the Navy issued guidance
implementing Navy acquisition governance improvement through a six-gate
reporting, reviewing and oversight process. Its purpose is to ensure
early and frequent involvement and collaboration among the leadership
of the requirements, resources, and acquisition communities.
Configuration Steering Boards will oversee changes to the requirements
baselines as well as consider cost and funding availability. In
addition, the Department of the Navy will implement a systems design
specification which will provide more clarity to the requirements
development process and convert and interpret operational
specifications into affordable design requirements. It is important to
note that the success of all these initiatives is heavily dependent on
personnel with the correct training and experience commensurate with
responsibilities assigned.
Senator Warner. As we look back in our oversight, I recall
very specifically that DOD made a decision under the last
Secretary that he was going to bring in the top industrial
leaders and their portfolio was to solve these various problems
on procurement. While the committee had some different views as
to different types of individuals that might serve as Service
Secretaries, Rumsfeld's view prevailed: I'm going to bring in
the top proven executives of industry.
I guess history is going to have to judge how successful
they have been in this problem, which they presumably had the
expertise coming in to solve. Would you not agree with that?
Mr. Young. I think I'll take the fifth amendment on that
one. I think it's an important question, but my response is
really too complex and mixed. I just think that there are
people, obviously, in industry that can make a difference, but
there's also people who have expertise outside of industry that
sometimes can be stronger and have a bigger impact. So it's a
blend you need, I think, essentially of the industrial
experience, but also experience in government and the academic
experience that needs to be put in place.
I hate to duck a question from a friend like you, but I
think I'd have to give a more complex answer to that. I do
agree that Secretary Rumsfeld did put in place this system and
the people in it. That part of it I surely agree with, and I
don't think that we've seen the kind of success that was
promised.
Senator Warner. Or hoped for.
I thank the chair.
Chairman Levin. Thank you, Senator Warner.
Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman. I think
this is a very important hearing and I commend you and Senator
Warner for hosting it.
Secretary Young, one of the major challenges is reducing
technical risks in these programs. Sometimes we discover it too
late and it costs a great deal of money. What is your view with
respect to investment in science and technology (S&T),
investment in the defense laboratories to systematically try to
reduce technical risk as a way of lowering costs? Is that a
useful option?
Mr. Young. Absolutely, sir. I've consistently gone on
record, mostly at Secretary Gates's request, explaining that
S&T investment has not kept pace with the numbers I mentioned
earlier, that the procurement account is up I think 34-35
percent, and the R&D budget is up 70 percent; S&T is not
comparably up. We need in several areas more robust S&T
investment.
To his great credit, Secretary Gates responded to that and
he's increased and provided real growth in basic research, as
well as some augmenting incentives in the S&T base for key
technologies that we think are enablers of the future.
Then another piece of the process, if we execute
prototyping we'll need to pull money back in later stages of
development into the S&T program and invest it in these
prototypical efforts that again inform us. They develop
management skills, they inform us on the engineering and
technology maturity, they inform us of the costs if we decide
to take it forward into development. I believe that's a
critical element of what DOD did well in the past, 20 and 30
years ago, and we need to go back to it.
Senator Reed. So this is a deliberate, conscious approach
in order to reconnect the S&T, the defense laboratories, with
the procurement process?
Mr. Young. Yes, sir.
Senator Reed. Very explicit.
Ms. Schinasi, could you comment on that?
Ms. Schinasi. Yes, Senator Reed. We've made that
recommendation in the past. I think what you're seeing is that
DOD tends to push those leading edge disruptive technologies
inside of programs, and that's a lot of the reason that we're
seeing the problems that we're seeing, cost growth and schedule
delays.
If in fact they would use the tech base to develop those
technologies, you can afford to fail in the tech base and
that's what it takes to do that kind of development.
Senator Reed. Just a question, Secretary Young. You've made
the point, and I think Senator Levin's question was right on
target, about the need for additional resources in contracting,
oversight, et cetera. First, I think there is a difficult
tension between our requirements in Iraq today because
everything we read is of the need for additional contracting
officers, additional people on the ground, which is basically
taking away from your potential pool of procurement and
contracting officers. Is that accurate?
Mr. Young. I think it's more complicated than that. The
higher demand issue, as Secretary Gates has testified, is that
the DCMA in 2000 had 12,550 people, and if you go back to 1990
they had over 20,000 people. Today we project at the end of the
year that they'll have 9,899 people. That's for a normal course
of business. We don't have a normal course of business. We have
Iraq and Afghanistan and a procurement budget that's up 34
percent, an R&D budget that's up 70 percent, and the challenge
of finding people with the skills necessary to come in and
perform those contracting management and contract oversight
functions.
It will take us time to recover from this. It took time to
get here. But there is no question we are understaffed in these
areas.
Senator Reed. I presume there are other areas where the
maturity level of your existing workforce would be 45-plus
rather than 35-minus.
Mr. Young. Yes, sir, you are very correct. We have an older
and experienced workforce. We really need to do some hiring and
get some knowledge transfer, and we will have to use other
tools, such as these defense support teams I mentioned, that
use people who have retired and are willing to come back and
help the government to help us go troubleshoot and problem-
solve on programs.
Senator Reed. Do you have a nominal kind of workforce
structure with different levels of expertise that is available
to this committee, so that we can see the matchup between what
you think is the best and what you have at the moment? Again,
these are very capable, dedicated, and extraordinarily talented
people.
Mr. Young. If I could for the record, I'd give you a longer
answer, but we are working in the enterprise--it involves
heavily the Defense Acquisition University (DAU)--to build a
competency model that will assess the skills we have, the
skills we need, where some of our gaps are, and help us work
more deliberate workforce planning going forward.
[The information referred to follows:]
Yes, for each of the approximately 126,000 Department of Defense
acquisition positions, the Department has an acquisition workforce
structure where the military departments and defense agencies require a
minimum certification level, by career field (e.g., program management,
engineering, contracting, et cetera) for each acquisition position:
Level One - Entry; Level Two - Journeyman; and Level Three - Expert.
The assigned certification level corresponds to minimum experience,
education, and training standards. As of March 2008, 54 percent meet or
exceed position requirements. Members are required to meet the
certification requirements within 24 months of encumbering an
acquisition position. The new Acquisition Workforce Development Fund,
established pursuant to section 852 of the National Defense
Authorization Act in Fiscal Year 2008 that enacted 10 U.S.C. 1705, will
be used to increase our training capacity. Additionally, our updated
competency models and assessments will provide us the ability to
identify more precisely gaps and target training to priority needs.
Mr. Young. That's in progress. It's an important tool to be
used in conjunction with the $300 million fund in the section
that Chairman Levin referenced.
Senator Reed. First, Ms. Schinasi, if you want to comment
on any of these issues, please.
Ms. Schinasi. If I just may comment on that last point, I
think the focus lately has been on oversight, which clearly we
need more oversight, but I think there's a more basic question
about attracting people to the acquisition workforce. A report
that was put out by the acquisition advisory panel about a year
and a half ago now went out and looked at the private sector.
One of the things that they found was that companies invest
very large resources in their acquisition workforce because
they realize how important that workforce is to their case
getting a profit. In the Department's case, I would say to
accomplishing a mission.
This is something we're looking at across the government as
a whole. You need to pay more attention and raise the
prominence of the acquisition function in order to be able to
attract and retain good people.
Senator Reed. Do you have a comment?
I have one more question, Mr. Chairman.
Mr. Young. At some risk, I'd like to comment about that.
The first thing I said is that people manage and execute
programs, and that's important and I meant that. At this point
in time, I mentioned that we have a dysfunctional personnel
system. I have virtually no hope of hiring a midcareer person
back into government from industry. 20 years ago, Johnny Foster
and some of the great people that had this job--I cite in my
written statement I think one example--Johnny Foster called and
asked for an expert in electronics technology and he got
Jacques Gansler on the DDR&E staff, and Jacques Gansler
eventually became the Under Secretary of Defense for AT&L.
That can't happen today. Industry people will not come into
the government because of the restrictions that have been
placed. At this point in time, I will have increasing trouble
getting government people to stay in the acquisition workforce
because of post-employment restrictions. We are at serious risk
of being able to keep competent people in the government
acquisition process.
Senator Reed. Thank you, Mr. Secretary.
Ms. Schinasi, you made the distinction between threat-based
programs and capabilities-based. Could you elaborate on, first,
the difference in your mind, and the consequences to the
acquisition process?
Ms. Schinasi. For a number of years in the post-Cold War
environment, we had a system whereby requirements were
developed based on what we thought an enemy was likely to be
able to do. Once we lost that peer competitor, we also lost the
ability, or we changed our process from going to that peer
competitor threat-based to one which said capabilities, we need
to look at the capabilities we need.
That, some people would argue, opened up the floodgates for
a wants-driven requirements process as opposed to a needs-
driven requirements process.
Senator Reed. Is it your recommendation or comment that we
should return to a threats-based program? Would that help us in
this endeavor?
Ms. Schinasi. I think what we're seeing now is the need for
flexibility in the requirements process. So we would argue that
what you need to do is bring resources to the requirements
determination process at an earlier point in time than it is
right now, because there is no limit to the kind of capability
that we would want to have.
Senator Reed. A quick response, Mr. Secretary. My time has
expired.
Mr. Young. I think I would agree strongly with her comments
and go beyond it. One of the cancers on the enterprise right
now is the competition for resources, and it is fueled by
setting a threat level, setting a requirements level, and then
saying, I must have budget resources to deal with that, and the
competition among the Services for resources.
It really is one of the underlying problems in this space,
combined with other factors and that is why I'm constantly in
favor of Congress' Goldwater-Nichols legislation, because I
believe that the Service Chiefs do have control of that
requirements process and it is critical for Congress to
hopefully continue to understand that you do not want to move
the acquisition process under the Service Chiefs. What you did
in Goldwater-Nichols was the right way to handle the business.
Senator Reed. Thank you very much.
Thank you, Mr. Chairman.
Chairman Levin. Thank you, Senator Reed.
Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Secretary Young, your comments on the JSF brought to mind
the realization that part of the problem with cost growth is
attributable to the failings of the contractors, part of it is
attributable to changing requirements and insufficient
oversight by DOD, but part of it is the failure at times of
Congress to provide predictable, stable funding.
I see you're nodding in agreement. I think we have an
example of that with the DDG-1000 program, where we're seeing
the House move in the direction of pausing or perhaps
terminating the DDG-1000 program after the first two ships. The
Senate, far more wisely in my judgment, fully funded the budget
request for a third DDG-1000.
What would be the impact if the House position should
prevail on the cost of the first two DDG-1000, shipbuilding in
general, and the industrial base for shipbuilding if the House
position were to prevail?
Mr. Young. I think we should assess that in more detail,
but I am extremely concerned about several aspects of the House
mark in that deliberation. When we've established a
manufacturing--these processes take time to put into place and
then they execute very well over a period of time. To stop the
DDG-1000 program at two ships would unquestionably add
substantial costs to that program.
To restart the DDG-51 program, which is stopped, has been
stopped for several years, it is difficult for us to properly
estimate the cost of that. Then the question becomes, do you
buy more ships after that, because just buying a couple of DDG-
51s will be inordinately expensive and I am confident we cannot
estimate that. Suppliers will talk to you if you want to buy
many of things over several years. If you want to buy a few
things for 1 year, I have no idea what that will cost.
So the DDG-1000 will go up. I don't know what those DDG-51s
will cost, but I can offer to get you some information for the
record. It will destabilize the destroyer industrial base. Then
it's a requirements issue, as we've discussed today. We have 62
DDG-51s. The Navy is moving forward because it needs additional
capability, it believes. The discussions I've had with the
Navy, they do not seek more DDG-51s; they seek a DDG-51
possibly with plugs to carry a bigger radar, and that ship will
quickly approach the cost or exceed the cost of a DDG-1000, so
we will not be addressing the issues that I think the House has
tabled.
We need to look at this combination of requirements,
stability of the industrial base, and cost to get a better
solution here.
Senator Collins. It would be helpful to have your
information on the cost estimate.
Are you familiar with the May 7, 2008, letter that the
Chief of Naval Operations (CNO) sent to Senator Kennedy
attempting to compare the cost of restarting the DDG-51 line
versus pursuing continuing with the DDG-1000?
Mr. Young. I've recently learned of the letter and, based
on reviewing it, have a number of concerns with the letter that
was provided to the CNO for his signature. The letter's numbers
are based on key assumptions and are incorrect in some cases.
The DDG-51 prices assume continuing DDG-51 procurement, as I
said. So those prices in that letter mean you would buy more
DDG-51s. If those were the only ones, they would be more
expensive, I believe.
Second, the DDG-51 prices assume that the two ships, in the
case of the two-ship case, could be awarded to one yard. I have
no process right now to give two DDG-51s to one yard, as you
well know, and if I build them between yards that will be
significantly more expensive.
It's questionable whether the DDG-51 prices are accurate if
no DDG-1000 is built in fiscal year 2009, because, to talk more
technically, this is about overhead absorption and use of the
business base. If there's no DDG-1000 beyond the first two,
then those DDG-51s will be more expensive, I believe, than the
record suggests.
Then the DDG-1000 prices for the two lead ships, as we
already discussed, would certainly increase. Operations and
support costs are reported in DOD's Selected Acquisition
Reports. The DDG-51 ship costs $10 million more per year to
operate and I don't think that's correctly reflected in the
letter.
But I can expand on this and reply to you if you would
like.
[The information referred to follows:]
There are two cases to consider for acquisition costs. The first
case maintains the DDG-1000 program of record and begins procuring
additional DD-51 ships beginning in fiscal year 2009 and continuing for
a few years. In this case, the costs for one and two additional DD-51
ships in fiscal year 2009 are provided in the table below. The second
case stops building DDG-1000 ships after the two lead ships, so there
would be no fiscal year 2009 DDG-1000 procurement. Instead, one or two
DD-51 ships would be procured. Again, it is essential to recognize that
these numbers assume continuing DD-51 procurement. The Navy would
likely see significant premiums added to the following prices if only
one or two DD-51s were purchased. The following table summarizes the
costs for these two acquisition cost cases:
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
Fiscal Year 2009 DDG-1000 DDG-51 DDG-51
----------------------------------------------------------------------------------------------------------------
Case 1
Quantity.......................................... 1 +1 +2
Cost.............................................. $2.7 +$2.1 +$3.3
----------------------------------------------------------------------------------------------------------------
Case 2
Quantity.......................................... -1 +1 +2
Cost.............................................. -$2.7 +$2.2 +$3.5 to +$3.6
----------------------------------------------------------------------------------------------------------------
It is important to recognize the following about these cost
estimates:
There would not be sufficient funding to procure two
additional DD-51 ships in fiscal year 2009 at a cost less than
or equal to one DDG-1000 ship.
A single DD-51 class ship in fiscal year 2009, with no
other DD-51 ships to follow, would not support the current
surface combatant industrial base, unless DDG-1000 production
is continued.
Direct production hours for one DDG-1000 ship are
about 2.5 times that of one additional DD-51 ship. This
validates DOD's experience that two to three DD-51 destroyers
need to be purchased annually to maintain the two yard surface
combatant industrial base.
Cost increases for the two lead DDG-1000 ships, with
no follow ships, are unknown.
The RDT&E efforts for the DDG-1000 program must
continue in order to deliver two complete ships and to support
the Dual Band Radar for the CVN 21 program.
The estimated cost to terminate the DDG-1000 program at the third
ship ranges from $2.5 billion to over $4 billion. These costs include
increased execution risk on the two lead ships; class services costs
and integrated data environment costs that were budgeted in future
years; additional Government Furnished Equipment costs for mission
systems equipment; class shutdown and closeout costs; cost impacts on
other Navy shipbuilding programs as a result of cancelling future DDG-
1000 ships; and allowances to recoup lost investments for litigation,
and for other liabilities that might be claimed by the DDG-1000 program
contractors.
As for annual Operating and Support (O&S) costs for the two ship
classes, the Department reports annual O&S costs to the Congress in the
Selected Acquisition Record (SAR). The table below shows the annual O&S
costs from the most recent SAR, reported as of December 2007, but the
values are adjusted to fiscal year 2005 dollars for comparison. As the
table shows, there is about a $10 million per year difference between
the two classes, but this is based on estimates for the DDG-1000 ships
as compared to several years of operating experience with the DDG-51
class ships.
[In millions of dollars]
------------------------------------------------------------------------
Fiscal Year 2005 DDG-1000 DDG-51
------------------------------------------------------------------------
Mission Pay & Allowance......... 6.8............... 20.7
Unit Level Consumption.......... 10.1.............. 11.6
Intermediate Maintenance........ 0.7............... 0.7
Depot Maintenance............... 10.0.............. 7.0
Contractor Support.............. 0.0............... 0.9
Sustaining Support.............. 14.2.............. 3.0
Indirect........................ 4.4............... 12.7
Other........................... .................. ..................
------------------------------------------------------------------------
Total (average annual O&S).... 46.2.............. 56.6
------------------------------------------------------------------------
The operating cost data provided in the CNO letter to Senator
Kennedy compared the programming information used to construct the
latest budget, but did not include items not directly budgeted to a
specific program, for example, indirect support costs.
Senator Collins. That would be very helpful to me and to
this committee.
Two more points on that. It's my understanding that the
DDG-51 requires a reduction gear that is no longer in
production and that you would have to start up that line, which
is very expensive. Is that accurate?
Mr. Young. I believe that's correct for that and several
other cases, because again I believe the last DDG-51s were
bought in fiscal year 2005. I have programs that are in current
development that experience obsolescence issues. This is a
program that's been out of production, so there's no question
we will have multiple obsolete parts issues.
Senator Collins. Do you believe that the current contract
strategy for the DDG-1000 has sufficient cost control elements
to meet the program's objectives?
Mr. Young. The best thing I can do is what I had a chance
to state to the chairman, I believe: The DDG-1000 R&D program
has gone very well. The drawing designs have been produced. The
technology is matured. We did, I believe in that case the right
component prototyping to inspire that maturity. We've recently
successfully negotiated priced contracts with both yards for
the lead ships.
We have to go prove we can execute that, and so, in light
of this hearing, I'm anxious about guaranteeing that
performance, but I believe every measure has been taken to try
to ensure that performance and I'm optimistic about it.
Senator Collins. Finally, the Navy's requirements for at
least seven DDG-1000 have not changed, have they?
Mr. Young. I'm not aware. That's obviously a question for
the Navy. We contemplated some of these issues going forward.
The very simple version for me is the Navy needs to study
carefully removing the guns from the DDG-1000s and replacing
them with missile cells, and then you have the potential for a
first generation cruiser with modest changes. That was my goal
in setting up the strategy for DDG-1000, to balance the Navy's
long-term cruiser requirements with the Marine Corps's fire
support requirements.
Senator Collins. Thank you.
Chairman Levin. Thank you, Senator Collins.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman.
Secretary Young, Ms. Schinasi, thank you. I was thinking as
I listened to the testimony, I've been privileged to be on this
Armed Services Committee of the Senate for 16 years and in that
time I've developed the highest regard for the Pentagon, for
our military, in just so many ways. I must say that this area
of acquisition is the one really unsettling exception.
When you think of the consequences, I find the report that
you, Ms. Schinasi and GAO, have issued to be exasperating and
embarrassing, and ultimately very harmful to our attempts to
provide for our national security in exactly the strong, and
appropriately strong, and eloquent terms that the chairman,
Senator Levin, spoke of in his opening statement. In the work
of this committee and the various subcommittees, we hear
constantly of the shortfalls in major systems that our military
needs down the road.
We are far from the 313-ship Navy that was the goal and
we're not closing that gap. We held a hearing in the Airland
Subcommittee a while back, the Navy and the Air Force talking
about projected shortfalls of aircraft some years down the road
which are really troubling.
I could go on and on. I thought Senator Levin's opening
statement, in which he basically took that $295 billion, which
is what GAO reported earlier this year had been the cost growth
on these programs, and talked about what we could buy with that
money. It's really a shame.
So in that spirit, Secretary Young, I wanted to ask you
this question. I have high regard for you and you've spoken
here today about memoranda issued and decisions rendered that
caused persons responsible to act in compliance with
recommendations and best practice.
I want to say to you today that I think those people who
are responsible for acquisition ought to be held accountable,
and that accountability should include consequences for
failure, because our military, our national security, is now
paying the price of the consequences of, in other words, lack
of real personal accountability?
Mr. Young. Yes, sir, I'm aware of several. It's not a large
number, but I'm certainly aware of a handful of instances where
government and industry program managers were held accountable
and relieved of their responsibilities for program issues.
Senator Lieberman. So this is not--this is not just the
system? I understand the problem with recruiting and retaining
personnel in this area. But you agree that some of this is just
a failure to do the job that we expect people to do?
Mr. Young. I'd be happy to talk to you in this hearing or
outside. I've had--I could cite for you easily ten programs
that have come all the way to the Under Secretary level for
approval that I felt failed to meet the standards that we're
talking about meeting today and I have directed changes in
those programs. So I am working with the whole of the
acquisition team to shift that culture to greater discipline,
and we have to make progress there.
Senator Lieberman. But there are some cases in which
adverse career actions have been taken?
Mr. Young. Yes, sir.
Senator Lieberman. What are those kinds of actions? What
are the adverse--do you know the number on your watch?
Mr. Young. I could get you some information for the record.
Off the top of my memory, I know on one particular program a
flag officer and a program manager who were relieved. On the
industry side, I've known of both a flag officer and a major
corporate program leader being relieved. I could probably cite
for you seven or eight. But I'll get some information to you
for the record.
Some of these are a little harder because these are done
with some grace here, because there are people that make
mistakes, but they can still contribute in other places.
[The information referred to follows:]
The Department is committed to sound program management and holds
program managers accountable for their program's cost and schedule
performance. In cases where we experience poor program outcomes and we
determine the program manager's actions were responsible for those
outcomes, we will take steps to correct the situation including
appropriate personnel actions. In general, that means the individual is
reassigned. Depending on the circumstances, he or she may not be
recommended for promotion and may be asked to retire. In general, there
is no public release on the rationale for the removal of a
servicemember or employee.
During my tenure as the Under Secretary of Defense for Acquisition,
Technology, and Logistics, one program executive officer and four
program managers have been reassigned due to program performance.
It is incumbent on the acquisition team, and in particular the
acquisition executives, to monitor program performance closely and to
take early corrective action when problems arise rather than wait for
programs to fail. We need to ensure that our program managers have the
proper education and training and that they are empowered to act in the
best interest of their program, the warfighter, and the taxpayer. It is
the acquisition team's responsibility, too, to structure programs so
that our program managers can succeed. However, it is equally critical
for the programming and budgeting community to fully fund programs to
the program manager's estimate. Underfunding which produces bad
outcomes is not the program manager's fault. Equally, allowing
requirements officers to change requirements during execution creates
negative results which again are not totally attributable to the
program manager.
Senator Lieberman. I'd like to see that report. Nobody
wants to be punitive without justification, but the point is
when you think about the consequences of the failures in
acquisition then we have to hold people accountable and hope
that that's part of the message we send that improves the
process.
I think it's gotten, in the time I've been here,
notwithstanding all the efforts of a lot of people, I think the
problem has gotten worse, not better.
Mr. Young. Could I address this with a couple of brief
examples?
Senator Lieberman. Go right ahead.
Mr. Young. The one I use frequently is T-45. The Navy
bought the expected number, I think 221, T-45 aircraft. But
beyond the control of the program manager, although he should
have complained and objected, the programming and budgeting
process bought those planes at ranges from 6 per year, at which
point they're about $30 million a copy, to 18 a year, at which
point they're $20 million a copy. Optimal is about 15.
Had we bought at the optimal rate, we could have bought
that program and saved $632 million. It is the program
manager's fault that the taxpayer paid $630 million extra
dollars for absolutely no more capability. So in my enterprise
I have a source document where I ask program managers to behave
in certain ways. One way is exactly as Chairman Levin said:
Look to save money every day on your program; fight the
programming process, fight the comptrolling process, and ask
for economic order quantity.
To emphasize that, I sent a note on the T-45 example to
Secretary Gates a month ago. He wrote back and said: Bring me
some of these examples. I just last week sent him a memo of
things we can do to buy more efficiently and help avoid that,
because the source document says what you are saying and what
GAO is saying; that is, every time I pay more for no more
capability, I'm essentially denying the warfighters a tool that
we could have.
Senator Lieberman. That's the ultimate victim here, the
warfighter.
Let me ask you a question, the question on the other side.
What about a program manager who really does the job, an
acquisition official who really does the job and saves money?
Are you able to reward that person?
Mr. Young. Especially if they're a military person in
uniform, I have nothing to give them other than end-of-service
commendations.
Senator Lieberman. Well, that's something we ought to think
about.
Let me go on to one more question briefly, because we've
seen a lot of progress in the private sector in the reduction
of waste. The Pentagon I know has tried to embrace some of
those systems. But the report suggests that it's not just the
business model and efficiency systems that are being used, but
how closely the programs are being followed.
Here I want to get really to the question of organization.
While a private sector business has a CEO with wide-ranging
control of programs, as you've touched on briefly a while ago,
each military department is organized differently. So I want to
ask you to deal for a moment with these two questions: Is each
Service organized ideally to manage these programs; and then,
more broadly, does the senior acquisition official have
authority equivalent to a CEO in a private business on not only
the process, but on requirements, costs, and what's required to
manage the system?
Mr. Young. I believe--as I stated earlier, I think the SAEs
are critical functions in the enterprise. I do not believe that
that responsibility has been adequately exercised to achieve
jointness and interoperability. They have the authority to
refuse to sign contracts, and I'll give you an example.
The Navy and Marine Corps wanted to pursue an LHAR, a new
amphibious ship, that was basically going to be taking an LHS
and put two plugs in it and make it ten feet wider and change
80 percent of the drawings and spend a billion dollars in
nonrecurring. I stood up and said: Why do we have to do this?
Is the requirement adequately compelling to spend that money?
That ended up in discussions with even the Commandant of the
Marine Corps, but in the end the Commandant agreed that
requirement should be relooked and we didn't go down that path
and we saved that money.
So I give you an example that the SAE does have the
authority to refuse to sign contracts and call into question
the requirements. That's the power of them reporting and
working for the President under Goldwater-Nichols. Have we
adequately exercised that authority? I think the answer is no.
Senator Lieberman. Okay. Needless to say, and you know it
and we all know it, this is real important. So let's work
together to try to make it better.
Thank you.
Chairman Levin. Thank you, Senator Lieberman.
Senator Thune.
Senator Thune. Thank you, Mr. Chairman.
Secretary Young, I have a question that regards a current
program that's at least in the formative stages that I'd like
to get your reaction to, how that's progressing, and what can
be done to keep it on schedule. The Air Force is currently
undertaking a new major weapons system acquisition program in
the Next Generation Bomber. As this is a brand new acquisition
program with an aggressive time line of being fielded by the
year 2018, what acquisition strategies is the Department
exercising to successfully field this platform on time without
significant cost growth?
Mr. Young. I would think, consistent with what I believe
the committee would expect of me, I would take this as one of
my fundamental responsibilities. I cannot afford for the
Department to embark on a new bomber and not do it accurately.
So a couple of things would happen. One, I would give the Air
Force credit; they have laid out a program that includes some
level of prototyping and the things that I've insisted upon.
I have independently asked the Defense Science Board team
to review this program and help advise me on the technology
maturity, the achievability of the requirements, and those
factors. Then I've personally gone out last week and looked at
the potential for this program.
Through the work of that process, already the Air Force has
concluded that more money and possibly a little more time is
required than they initially laid out, and I am determined to
try to bring and present to Congress an achievable program
that's properly resourced, properly scheduled, and has
appropriate technology maturity in it.
That's the goal. I strongly support the need for the new
bomber, but I do not intend to put my name on a piece of paper
that will start a program that is going to be in the next
hearing a few years from now about how the costs grew on it.
Senator Thune. One of the issues that's related to that,
and the GAO report noted that the long development cycles make
it difficult to estimate cost and funding needs. Some
development cycles take 10 to 15 years from start to finish.
The GAO recommended constraining cycles to 5 to 6 years.
I guess my question is, is that recommendation realistic?
How can we continue to shorten the development time of these
very complex programs?
Mr. Young. I think I believe the chairman has mentioned a
few times the Defense Acquisition Performance Assessment
Report, which advocated a tool called time-defined acquisition.
I think it's a very potentially useful tool, but it's only
useful if you can define requirements that can be achieved in
that time period. If you set out and say, I'm going to do
something in 5 years, but the something you have set out to do
in terms of requirements can't be done, then it'll just be
another program that misses its schedule and its budget.
So I do think we need to look at that. In many of those
things where you define short windows of time, you will be
looking for incremental improvements in capability, and that
may be a reasonable and very affordable strategy for the
Department. In other places the Department does have
requirements that go beyond an incremental change and so I
don't know that I can always demand that a time-defined
approach be the strategy.
Senator Thune. The GAO also noted that DOD typically uses
cost reimbursed contracts, in which the DOD generally pays the
allowable costs incurred for the contractor's best efforts to
the extent provided by the contract. It further notes that this
may contribute to an acquisition environment that's not
conducive for incentivizing contractors to follow best
practices and keep costs and schedule in check.
Would you agree with that statement and, if so, what's
being done to correct these misdirected incentives?
Mr. Young. I think we have to--I believe there's work to be
done in this space. We have to balance risks and costs. Where
we are seeking to push the state of the art in technology,
industry will not do this on a fixed-price basis and I'm not
sure it's reasonable to ask that it be done.
Other places we possibly could look at a more aggressive
contract structure that will help keep in check the
requirements and help us deliver for affordable costs.
Then there are other places where we've used cost-type
contracts, that I think have been unfair to the government and
we need to seek reform in that area. The best example I can
give you is on the LPD-17 ship, where some significant fraction
of the welds in that ship were flawed and had to be redone. At
some point in time, I should expect some reasonable level of
performance by industry on a cost basis. I shouldn't be able,
forced, if you will, to pay on behalf of the taxpayer any price
for any level of deficient performance. That's an area where we
need to do some work on our contracts.
Senator Thune. The GAO testimony concluded with the
statement that in practice DOD's decisions made on individual
programs often sacrifice knowledge and realism in favor of
revolutionary solutions. Would you agree with that assessment,
and if so what are the two or three biggest initiatives that
you think could correct that problem?
Mr. Young. I think--if I misunderstood your question,
please correct me--but I believe the key to that is technology
readiness. So there are a couple of steps to that. One, I am a
strong advocate of the acquisition team working with the
requirements team to try to make sure the initial requirements
are set in a reasonable place and informed by what technology
can do.
Then, to a finer level of detail, you have to do what
Congress has rightly asked us to do, and that is at the
milestone points ensure that the technology is appropriately
mature to move to the next phase of development. So in both
those cases I think we need to address those issues.
Senator Thune. Thank you, Mr. Chairman.
Thank you.
Chairman Levin. Thank you so much, Senator Thune.
Senator McCaskill.
Senator McCaskill. Thank you, Mr. Chairman.
There are depressing failures in this area of DOD. The
saddest thing about these failures is that we pass laws and we
talk about them, and we pass laws and we talk about them, we
have audits and we have audits, and it just keeps getting
worse. What do they say, that insanity is to continue doing the
same thing over and over again and expecting a different
outcome.
It seems to me we ought to implode something here. The
system needs to be really looked at in terms of a crisis of
leadership. There is--if you look at two broad principles in
terms of any government program, it's, first, what's the
definition of success; and second, is there accountability?
Because people aren't going to change what they're doing if
they're not held accountable for it.
We've discussed that briefly in this hearing. But it seems
to me that the definition of success, and that's part of the
problem, in acquisitions is to get the money and keep getting
the money. Well, if the definition of success is to get the
money and keep getting the money, then we're going to continue
to have these problems.
That's what the whole community's about, is getting the
money and keeping the money. It doesn't--well, I think that's
what the contracting community's about. I think that that's
what sometimes the leadership of the various branches is about,
and certainly it's about what Members of Congress are about
sometimes, getting the money for their own individual systems
that they care about, their pet systems based on what
contractors they have in their States or whatever.
I want to focus in on turnover. I asked my staff why the
military branches were not going to be represented today and
they said, well, two out of the three positions are vacant. Ms.
Schinasi, how long have you had your job?
Ms. Schinasi. 30 years.
Senator McCaskill. How long have you been focusing on this
area?
Ms. Schinasi. About 18.
Senator McCaskill. So for 18 years you have watched these
problems.
Secretary Young, how long have you had your job?
Mr. Young. Which one?
Senator McCaskill. The one you have now.
Mr. Young. I was made acting at the end of July. I was
confirmed by the Senate in November 2007.
Senator McCaskill. How long did the person serving before
you have that job?
Mr. Young. Approximately 2 years.
Senator McCaskill. Do you know off the top of your head how
long the average program manager stays in place in your system?
Mr. Young. I do.
Senator McCaskill. It's 17 months, correct?
Mr. Young. That's not correct.
Senator McCaskill. Well, the GAO audit says it's 17 months.
Mr. Young. I asked my team yesterday to go through the data
and identify, and at least for the places where you had data,
the Army and the Navy, we surveyed program managers who have
left since 2000 and the average tenure of those program
managers was 37 months.
Senator McCaskill. Well, you all need to get together,
because the audit says that of the 39 systems since 2001 the
average length of a program manager was 17 months, and that is
half the life of the development of those systems.
How do we expect any accountability if you know you're
going to be gone before the you-know-what hits the fan?
Mr. Young. I think I will certainly let Ms. Schinasi speak,
but we have a snapshot in time that says today the current
average is about 24 months, but that's a snapshot in time. It
doesn't say how much longer they'll serve, and we are seeking
to address this very issue with program manager tenure
agreements that says that--where program managers agree to
serve for a period of time or to the next nearest milestone.
So I agree with you about this. If I could, I'd use this
opportunity to say there's another dimension to this. When I
was the Navy acquisition executive for 4\1/2\ years, I had I
think four rotations in the senior requirements officer. The
requirements officers are a party to this situation. They
rotate on much more regular intervals. They come in and they
potentially want to change the requirements, and then I have my
acquisition program manager trying not to change and to keep
stability and a requirements officer who just came in from the
fleet and has the potential to make flag saying you have to
change, and it creates a lot of tension in the system.
That's why I believe again the acquisition executives have
to take care of their program managers who try to manage with
discipline, because it's not an easy discussion with the flag
officer requirements person who says: You must change this part
of the contract.
Senator McCaskill. Where are these people going when they
leave?
Mr. Young. The program managers?
Senator McCaskill. Yes, or where are the senior acquisition
people at the Navy and the Air Force, where are they going?
Where do they go? When they leave these jobs, where are they
going?
Mr. Young. Well, I was the Navy acquisition executive and I
got moved to be the DDR&E, and I got moved to be the Under
Secretary for AT&L. Others, SAEs, my colleagues that I knew,
one's at the DAU now, one's in industry. Most people I do
believe return and work in industry in general, is the vast
majority.
Senator McCaskill. So what would it take for us to--and I
mean the sky's the limit here. What would it take for us to get
someone like Ms. Schinasi to stay in some of these jobs for a
decade maybe, something remarkable like 10 years, where they
could actually manage and be accountable for these programs? Is
it a matter of money?
You talked about that you're having trouble getting people
to come back because we are limiting what they can do when they
leave. If you could write your wish list, why is it that
somebody at GAO--I guarantee you she's not getting rich. I
guarantee you she's not in this job for the money or the fame.
I'm not implying that people that leave DOD are going for money
or fame.
But something is terribly wrong when the Government
Accountability auditor stays 18 years and the average program
manager--and we want to quibble about how long--are turning
over like hotcakes. There is something terribly wrong with this
system, and there's no way we're ever going to fix it if we
don't have longevity in these leadership positions.
Mr. Young. The questions I had were largely about
politically, presidentially appointed senior leadership
positions in the acquisition community. If you move levels down
from that, we have lots of government civilians who just like
Ms. Schinasi, have been in place for 20 and 30 years. I believe
Senator Reed asked about this. In fact, my issue is refreshing
that leadership with people that are about to retire.
So at the deputy under secretary levels and the next level
and even in other places, we have a lot of that leadership. In
general, we have a bias to run programs and oversee portfolios
of programs with program executive officers (PEOs) who are
military. In that regard, the acquisition system parallels to
some extent the military assignment system, where people don't
serve indefinitely in those jobs. Again, acquisition rotates
far less frequently. I have PEOs and program managers for at
least 3 years. Many of the line officer organizations--commands
of ship rotate on an 18-month to 24-month basis.
Senator McCaskill. Well, shouldn't we fix that? Shouldn't
we change it? Obviously it's not working. We have cost
overruns, we have scheduling. This is a disaster. We're talking
about hundreds of billions of dollars. Isn't it time for
someone to stand up and say, this is a crisis and we can no
longer use this model in terms of the kind of longevity it's
producing in these critical oversee and accountability
positions?
Mr. Young. The issue has multiple dimensions. I believe
this is one that's reasonably addressed when people are serving
36 to 40 months. I have program managers serving more than 4
years. I think we should look at it, but I would urge you that
more significant factors are rotating the requirements officers
and letting the requirements officers lean very hard on those
program managers to change things. Then as I cited in the T-45
example, it's also programmers and comptrollers giving
acquisition team members a budget they can't execute, and they
need the backing to stand up and say: I can't execute that
budget.
Senator McCaskill. We'll follow up with you and with you,
Ms. Schinasi, because I think it's time that we try--and I know
that the chairman talked about a new position that might be
outside of the process at this point in terms of the oversight.
I think that might be a key example.
I'm new here, but this is sickening. This is unacceptable.
This would never be tolerated in the private sector. The reason
it's tolerated here is because we care about our military, we
want them to have the best, and because, frankly, it's not our
money. It's taxpayer money.
I think we need to do something dramatic and different in
terms of how these processes are working.
Let me finally address a question about the number of
contractors. We're down to six. I think all of us that are
being honest about this know that this is a cross-pollinated
incestuous deal here, that the contractors and the military--
I'm aware of an incredibly inappropriate incident that occurred
with the highest ranking of our military in an acquisition
contract dealing with a PR screen for the Thunderbirds that we
will go into another day.
But when we get down to one or two contractors, what should
we do, Ms. Schinasi? I mean, when we've gone from what,
something down to six, what do you recommend? How do we create
more competition if we're down to six, and how do we keep it
from going to one or two? If we're going to do that, why don't
we just bite the bullet and say that we have in fact become
like other countries, where the government controls the
business of supplying equipment to the government, because
right now we kind of do; we just don't admit it.
Ms. Schinasi. I'm going to give you an answer that touches
on a couple of the issues you've raised, and that is, it would
be good if we could get more production going because
production is where contractors look for efficiencies for
themselves. That's where you can go into a fixed-price
environment and you can rely on them to do what's in their best
interests, that's also in the government's best interest.
One way to do that is to shorten these development cycles,
and shorter programs will also address the problem that you
talked about for accountability of program managers. If we only
need somebody to stay 5 years, we're more apt to get that kind
of match between what the system wants out of its program
managers and what the system needs out of the program managers.
So that would be one part of the answer.
I think you are right in that we cannot rely on competition
the way the procurement system has been set up, because the
bedrock of our procurement system is competition. So we have to
put more rules in place and we have to legislate more and we
have to have more oversight. I'm not sure that's the most
efficient way to do things, but that's where we are left right
now.
There are ways to encourage competition if we look at the
supplier base as a whole. The six companies I talked about are
the major defense contractors, but there is an industry out
there that can be created. Congress has looked at different
ways to do that, the use of other transaction authority, for
example, or other ways to bring in nontraditional contractors.
I think some of those initiatives have merit, that we can get
companies involved in government business that will provide
some of that incentive and initiative to the ones who are
already there to do their job better.
Senator McCaskill. Secretary Young, do you have any
comments about that?
Mr. Young. I think I would agree completely with that. I've
issued--I mentioned that I issue weekly notes to the broad
acquisition team to try to keep moving the culture forward. At
least two or three of those notes are aligned with the
chairman's comments, and your comments. I have asked people to
stop viewing success as getting more money, growing your
program office, getting more people. In fact, I view that as a
failure if you're doing it at the expense of contributing more
capability. I'd be happy to give you that note for the record.
[The information referred to follows:]
See the attached DUSD(AT&L) notes.
Mr. Young. I have issued notes that said we have to have
more open competition and do it as fairly as possible. I
created acquisition strategies where a smaller business and a
larger business were going to go head to head and the large
business went and bought the smaller business. So I've watched
an acquisition strategy through competition fall apart. We need
some serious attention in this space.
We have another problem where I've seen some of the venture
capital models work well, like In-Q-Tel for the Central
Intelligence Agency. I've talked to those companies and those
companies in general won't come and do business with the
Pentagon because of the complexities of trying to do business
with us. So we need to go attack some of those issues.
All these small companies may not have adequate cost
accounting systems, but they have technology that our
warfighter needs. We need to find a way to deal with that.
Senator McCaskill. Well, the irony is that because we are
pretending like we have a competitive system, we are putting
myriad rules and regulations in place to actually compensate
for the fact that it's not true competition, and it's those
myriad rules and regulations that are keeping venture
capitalists out. So it is a circle of failure. This is like--
it's almost surreal, how ridiculous it is.
I don't have any more time----
Chairman Levin. Senator, I'm afraid your time is up.
Senator McCaskill. I'm out of time. Thank you very much.
Chairman Levin. Thank you, Senator McCaskill.
Senator Martinez.
Senator Martinez. Thank you, Mr. Chairman.
Secretary Young, I want to focus on the issue of
shipbuilding. I know the CNO has had a goal of a 313-ship Navy.
We've talked about that a little bit this morning. We also know
that from time to time in recent years this plan has not been
meeting the goals that we need in order to see that to
fruition.
We've also heard from shipbuilders that they argue that the
formula for bringing down construction costs has to include
volume and stability. My question to you is essentially, do you
believe that the Navy at this point has adequately addressed
the concerns in the shipbuilding plan which will then enable
the Navy to get on the road to a 313-ship Navy?
Mr. Young. Well, I believe the Navy--I have not seen the
latest iteration--the Navy is building, possibly with modest
changes, the shipbuilding plan for the program objective fiscal
year 2010 to fiscal year 2015 budget. Your current plan, as it
exists in the current President's budget, I believe, provides
moderate stability. Certainly you wouldn't call it robust, but
a moderate stability and a path to the 313-ship Navy.
DDG-1000 is an important piece of that plan. I believe
trying to regain cost control on the LCS is an important piece
of that plan for capability reasons as well as some degree of
industrial base concern.
Senator Martinez. In your prior job you worked on the LCS
procurement program. Specifically on that, where are we today
in your estimation in terms of--I know we have the two
prototypes and they're about to come out I guess in the next 2
or 3 months. Once those are sea-tried and a model is selected
on which to go forward, do you think that the system, the
procurement system, is ready to go so that we can then proceed
to the construction of a LCS and get a production line going
that's going to be successful?
Mr. Young. A couple of things. One, the LCS was formed
ahead of Operation Iraqi Freedom, where the Department did
several thousand--I went to Fifth Fleet and they did several
thousand boardings in the Gulf. We were boarding small ships
that could have been a danger with billion dollar DDG-51
destroyers. We need a smaller, faster ship in our Navy.
I couldn't be more frustrated than all of you that that
ship, which we set out based on some commercial designs that we
were going to make modest changes to, has now grown, more than
doubled in cost. I would like the Navy to revisit, trying to
get some cost control of that program. But I believe the
capability is still needed and I think you will see in the
POM10 budget the Navy tries--because you can't deny the
capability--the Navy will try to buy those ships and restore
that program.
The cost cap right now is causing a problem. I was asked,
and I will provide extended comments for the record, but one of
the fundamental issues is we took a more commercial-like ship
that we were going to add some systems to and applied a lot of
Navy technical authority and turned it into a militarized ship.
We drove that cost growth. I don't even know--it's some mix of
cost growth and the fact that we made new demands on this ship
that drove the price of it to a higher level. ``Cost growth''
is such a general word applied here.
[The information referred to follows:]
Yes. The procurement system is prepared to proceed with further
production of the Littoral Combat Ship (LCS).
The Navy has worked diligently with the industry teams to identify
and evaluate program cost, schedule and technical risk. The Navy has
taken the following action for the LCS program to address cost growth
and prevent recurrence of the problems found during production of LCS 1
and LCS 2, including increased oversight assigned to monitor industry
performance, and allowing for more realistic schedule objectives.
An updated acquisition strategy for the fiscal year 2008 and fiscal
year 2009 procurements was approved by the Under Secretary of Defense
for Acquisition, Technology, and Logistics. The Navy is seeking to
award one ship in fiscal year 2008 using the funding appropriated by
Congress, along with material from one of the ships terminated in
calendar year 2007. The fiscal year 2009 President's budget requests
two additional LCS ships.
The following relates to the incorporation of military
specifications into the LCS designs.
In February 2003, the Naval Sea Systems Command and Program
Executive Officer ships made two joint decisions. The first was to work
with the American Bureau of Shipping (ABS) to develop a set of design
standards, or rules that could be applied to non-nuclear naval
combatant ships. The second was to utilize ABS to class both LCS and
DDG-1000 using the new rules. ``To class'' means to certify adherence
to the rules through design approval and construction surveillance.
In the Preliminary Design Phase Request for Proposal (RFP) issued
February 28, 2003, the LCS Industry Teams were required to team with
ABS to aid in producing an acceptable design, and to conduct an early
assessment of each design to gauge its ability to comply with the
design rules that were under development at that time.
The Preliminary Design RFP stated:
``It is the Government's intention that the Preliminary
Design be evaluated by ABS and judged acceptable at that stage
of design. This evaluation will be repeated at the end of Final
System Design. It is also Government's intention to have the
LCS classed by ABS at delivery. The Government understands that
there is currently no complete set of U.S. approved rules
applicable to LCS. The Government expects that the U.S. naval
ship rules currently under development will be available prior
to the award of Final System Design.''
At that point, the Navy established ship structure design
requirements under the High Speed Naval Craft (HSNC) Guide and
communicated this to the teams. The HSNC was freely available, having
been released the previous year. The Navy also established that other
Mechanical and Electrical systems would be designed to the Naval Vessel
Rules (NVR) and communicated that fact. At that early stage of the
design process, the above dialogue provided sufficient guidance to
conduct the Preliminary Design phase.
To provide advance insight into the required rules set, ABS issued
a Draft Final Rules Matrix for LCS to the Industry Preliminary Design
teams in October 2003. From January 2004 to May 2004, the Navy worked
to finalize the first issue of the NVR. This first edition NVR was
released May 21, 2004, and was immediately provided to the Industry
Teams by ABS.
The December 19, 2003 Final System Design (FSD) Phase RFP
reiterated the requirement for the ships to be delivered in class as a
naval combatant ship in accordance with the NVR. By the time of FSD
contract award on May 28, 2004, the Industry Teams were aware of the
February 3, 2004 draft NVR. It is during the FSD phase that the
Industry Teams were tasked to fully describe detailed design
requirements for all aspects of the ship in the course of preparing the
Shipbuilding Specification. It was expected that the ship designs would
be further developed during the FSD phase to conform to the design rule
requirements (i.e., HSNC for Structure and NVR for the remainder of the
mechanical and electrical systems), which is a normal part of the ship
design progression.
Both teams inserted reference to the May 21, 2004 NVR in their
approved Specified Performance Documents (SPDs), thereby noting the NVR
among the applicable requirements documents. After accepting the Teams'
SPDs in final form, they were made contractually effective for the
succeeding portions of the program.
These comments clearly represent the Navy's statement and view of
the circumstances. However, it should be clear that these are ambiguous
statements which predict the application of undeveloped standards. It
is inappropriate on the part of the Navy to claim that industry clearly
and concisely understood the rules and certification requirements which
would be applied to LCS. The Navy bears a share of responsibility for
the poor management and execution of the LCS program.
Mr. Young. Is it a more capable ship at the price of $400
million plus? Yes, it's a more capable ship. Is it as
affordable to the Navy as it should have been? Absolutely not.
Senator Martinez. Well, given that, do you think that the
vision for the LCS can be actually accomplished, given where we
are today?
Mr. Young. I think I'd stay with the first--I think the
vision has to be accomplished. I need a ship that can go 40 or
50 knots and chase down the small vessels. Our adversaries buy
ships now that are faster than DDG-51s. DDG-51s really weren't
intended for the maritime interdiction operation missions. We
need a ship in this class for the missions our Navy faces in
today's environment.
I think this is very consistent with Secretary Gates'
comments about what are the threats and the missions we will
have to execute in the next few years. There's a gap in the
Navy to do this job. Can we now go in and undo some of the
changes that were done to the LCS to make it more affordable
for the Nation so we can buy them in quantity for our Navy's
warfighter?
Senator Martinez. So give me some confidence that we're on
the right track to be able to get that done. Because I agree
with you, we need the ship.
Is the Navy on track to be able to pull this off? Is the
acquisition system in place? Once we select the prototype, are
we ready to go?
Mr. Young. Are we able to buy the ship that the LCS has
become? Probably, but it's not as affordable as it should be.
Has the Navy made enough effort to get costs back out of that
ship? I think that's not answered yet and I intend to have
discussions and meetings with the Navy to seek to accomplish
that goal.
Senator Martinez. In terms of the overall ship acquisition
challenges, do you believe that we have reversed or have taken
the steps necessary to reverse this long-term trend which we've
seen that has not allowed us to get the ships that the Navy
needs, just in the overall fleet, not just the LCS?
Mr. Young. I think, unfortunately, the requirements process
has driven us to ships that are more expensive because they
have more capability. You have to look at those factors. I face
this constantly in the Navy, and that's my job, is to try to
find that middle ground. There are places where I could buy a
less capable ship and it would be more affordable and run some
risk of the threat being able to match that ship.
So I think the Navy's trying to find that reasonable
balance. I believe we've restored some degree of stability to
the Navy shipbuilding program. The program is expensive, more
expensive than we would like it to be. But it is linked to the
capabilities that reasonable people have assessed the threat to
have, particularly when you look at nations that are building
capable ships out there.
So I think the Navy's finding that some degree of
reasonable ground--unfortunately, ships are more expensive.
They're more expensive--I think, as Ms. Schinasi pointed out,
we're not buying anything in the quantities we bought them in
the past. That alone is driving a significant cost into our
systems across the board, not just ships.
Senator Martinez. This last question for both you,
Secretary Young and Ms. Schinasi as well. In the 109th Congress
this committee passed legislation that was enacted into law
which requires that the Defense Department give a preference to
fixed-price contracts for major developmental defense programs.
Fixed-price contracts shift the risk to the contractor and
incentivize the contractor to increase the reliability of the
system components.
GAO has determined that cost-type contracts cost the
taxpayer $80 billion in cost overruns in the past decade. So
what has been the practical effect of this legislation in
helping the military Services to end the practice of
overpromising capabilities and underestimate cost of
development in buying weapons systems?
Ms. Schinasi. I would say that the contract type should
reflect the risk associated. So when we have a preference for
fixed-price contract, what we're saying is let's get some of
the risk out of the programs that we're trying to develop and
produce here. There have been experiments in the past with
fixed-price development contracts that have not worked because
we have not taken on the more difficult piece of the risk of
the technology maturity and the other things that are
associated with all the cost growth that we've been talking
about this morning.
A program I would look at now is the JSF, where we are
going into production and still looking at costs with some
cost-type contracts, which says that perhaps the cost of the
program is a little bit greater than we would expect to see
going into production.
But again, the contract type has to be put in place
associated with the risks that the government is undertaking.
Senator Martinez. Mr. Secretary?
Mr. Young. I would agree with Ms. Schinasi's comments and
add to that. One thing I have to ask--I don't have any way
around--I have to ask your patience with is, you pass
legislation and it takes time to implement steps in that regard
and move forward. Then it takes some years to see. I've been
frustrated with the discussion about that transition. To me
this isn't a transition business. I have something like 16
programs seeking Milestone Bs this year and all of those
programs will execute over the 3 to 8 years beyond the end of
this administration.
We need to make those decisions well. We will make those
decisions well. We have done exactly what she said. I have
asked the program office and Lockheed to look at fixed-price
incentive contracts at the right point for these JSF aircraft.
So we will, with your legislation--and partly because it's just
the right thing to do--I will continue to push in this space to
get better terms and conditions for the government, and it will
take us a couple of years to see the benefits of all those
activities.
Senator Martinez. Thank you both very much.
Chairman Levin. Thank you, Senator Martinez.
Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
Ms. Schinasi and Secretary Young, in that order, I want to
welcome you here today to talk to me about the problems that
have been going on for years. I want to deal with production
process control and also with best practices. I think there is
an agreement that achievement of quality and production is
nearly impossible without process control, and it also makes
for casting of cost and timelines extremely difficult to do
accurately.
One of the many problems we've heard today deals with poor
business and engineering practices. Specifically, I am most
concerned that in all cases there was not a single instance
where all critical production processes were in statistical
control prior to the beginning of the production phase.
My question to both of you is, could you please describe
why this previously identified best practice has failed to be
enforced? Second, what steps the Department is taking with its
current programs that are still in the pre-production stage to
break this trend? We're talking about attacking and breaking
these trends?
So these two parts of the question, about describing the
best practice and also what steps are you taking.
Ms. Schinasi. Senator, I will defer to the Under Secretary
on the enforcement piece, but I would like to say, on the
manufacturing the process control, that is an indicator that we
use to look at whether or not a system is ready to go into
production. What we find in many cases is the reason that you
don't have process controls is because you don't have a stable
design, and in some cases you don't have stable design because
you're working with immature technologies.
So it's a cascading problem that we see in a lot of
programs. Process controls is one way that you can measure the
readiness of your manufacturing to go forward. It's not the
only one. But the thing that I think is most troubling to us is
that in many cases, even if program offices do not capture that
metric, they do not capture any metric because they don't--they
have not seen the importance of getting the manufacturing
processes ready.
Senator Akaka. Secretary Young?
Mr. Young. I would add a comment. This is one of the more
difficult decision spaces that I face in the business. I'll use
a couple of examples. JSF will be one. Right now we have 15
system design and development, the end of the development of
JSF, aircraft in construction. So we have teams of people that
are learning, improving the processes to build that aircraft.
We have signed for two low-rate production contracts for that
aircraft.
My choices are to build the SDD aircraft, come to a halt
and test and design that production process and then start it
back up. That guarantees me a loss of time and a loss of
learning and an increased cost to the taxpayer. Or the risk
issue that's come up many times today, do you take some
appropriate level of risk and begin the process of fabrication
and production at low rates and continue to gain maturity in
the processes?
I certainly can't disagree with the GAO comment that you'd
love to have everything. But I believe the everything path will
cost me more and so I have to take some measured and prudent
risks, I believe, on the heels of developmental aircraft
construction to begin to do low rate production, and then seek
to go to rate production. I believe that in our rate production
decisions we seek to have much more maturity, if not good
maturity, in that production process control you've talked
about.
Senator Akaka. To both of you, to what degree has the
current security environment and the wars in Iraq and
Afghanistan contributed to what you call a sense of operational
necessity that allows waiving of requirements established in
recent legislation regarding these practices?
Mr. Young. Can I comment on that?
Ms. Schinasi. Yes, please.
Mr. Young. I had a meeting yesterday that I think
potentially answers your question, sir. The H-1 upgrade program
to get new helicopters to the Marine Corps, known as the Y and
the Z, the H-1Y and the H-1Z. The program manager came to me
and there are pieces of the AH-1Y that are not ready for test.
They are in operational test right now, and successful
operational test would have paved the way for a decision this
September to buy low-rate production Zs, and then again in 2009
the issue before you is to buy low-rate production Zs.
The Marine Corps has a gap and they need these aircraft. So
they come to me and all the risk comes to me and they say--we
didn't go--we cancelled operational tests, we're now not going
to do operational tests until 2010, and still we seek to buy
and deliver aircraft in 2011, hoping for success. I'm faced
with the challenge of how do I come talk to you, when you're
asking me to execute more discipline in the system and
demonstrate that greater discipline. Yet the best way to do
this would be stop. If I stop on the Y-Z--on the Z program
right now, the Marine Corps will not get helicopters in 2011,
they will be short of helicopters, the costs will
unquestionably go up, but I could possibly deliver the program
more confidently, for a known increase in cost. Or I'm faced
with the alternative, to stay the course and take some
reasonable measures to demand testing and operational
assessments and developmental tests that will help build my and
your confidence, with the idea that I possibly need to go ahead
and buy the Z aircraft for the Marine Corps's operational need.
I haven't made that decision yet, but that's a perfect
example of the kind of decisions, where I'm trying to balance
the risks and your request to me to execute the program with
more stability and the warfighter's need today in the theater.
Ms. Schinasi. I think the Under Secretary was correct
earlier when he said every program has its own story and it's
important to recognize the story in every program. But I also
think it's important to step back and look at what is happening
across the board. So the question I think that's important from
the question that you just raised and the example that was just
given is why are we in this position? Why are we in a place
where we have to rush, where we have to push through, where all
of a sudden it's urgent, urgent, urgent, because in many cases
once we say it's urgent and we move forward, it takes us longer
to get where we're going anyway.
Mr. Young. Maybe could I offer another example, because
here we have great alignment. Another example I dealt with this
year is the Multi-User Objective System (MUOS). It's a
replacement for the ultra-high frequency (UHF) satellite. I
feel like the requirements and budgeting enterprise should have
recognized the need for that satellite earlier and budgeted for
it. Instead, we were late to need, and they came to the
acquisition team and said: We need a replacement for the UHF
satellites in 60 months. The Department historically had taken
78 months to build every communications satellite.
The program office accepted the challenge, said, we'll try
to do everything we can to meet the 60-month schedule. They are
going to deliver MUOS in 77 months. So they beat the average by
1 month. Is this viewed as program office failure? In one sense
it is, because they never should have agreed to do it in 60
months.
Are they the sole responsible party? Absolutely not. The
programming and requirements community could have recognized
this need, I think, as Ms. Schinasi said, if I could borrow her
words, and budgeted for a program that has a reasonable
probability of succeeding to meet that schedule and budget.
Senator Akaka. Thank you very much, Mr. Chairman.
Chairman Levin. Thank you, Senator Akaka.
Senator McCaskill.
Senator McCaskill. I have looked at the audits that were
done by the Defense Contract Audit Agency concerning Lockheed
cost estimating systems and also the report that was issued in
November of last year by the DCMA that called Lockheed's
systems ``deficient to the point where the government is not
obtaining useful program performance data to manage risks.''
There is a GAO audit also that was highly critical. This is
not a new issue. Back in 1998, the president of Lockheed Martin
said: ``Our current program and functional reviews are not
capable of providing what we need.''
I understand there was a meeting in February between the
Lockheed officials about the cost estimating system problem,
and obviously this is a big, big problem, because we're talking
about the JSF. We're talking about almost $1 trillion, and
we're basing payments on a system that all of our auditing
agencies and management agencies are saying doesn't work.
Back in 2005 you withheld 2 percent of your payments to
Bell Helicopters under a circumstance, frankly, that sounds as
egregious as this. Are we going to expect and are you planning
on withholding payment from Lockheed because of the
deficiencies in their EVMS?
Mr. Young. Senator, you're obviously well-informed on this.
One thing I want to distinguish here is to make clear, the
report addresses the EVMS and not the billing system. So the
government has valid invoices for the moneys that we have paid
Lockheed Martin, and I've had this discussion with the CEO. We
believe the money paid and the billings match. The translation
by Lockheed Martin of invoicing and billing into an EVMS to
assess their progress and their projection of future success on
the program, there were flaws in that practice found in that
report.
We met with Lockheed, as you noted. Secretary Finley, the
Deputy Under Secretary of Defense for AT&L, met with them,
highlighted the report, and then he and the DCMA outlined a
plan to address and remedy all these issues. There are 12
milestones in that plan. The first milestone's been met. The
other 11 are ahead of us.
DCMA meets with Lockheed's staff every 2 weeks to address
progress on this, and we will withhold $10 million for every
milestone that is not met as we continue to progress, with the
goal of remedying the Lockheed EVMS within a year.
Senator McCaskill. So you're going to withhold $10 million
every time they don't meet one of these. I do want to--that's
good, and I would love to be kept apprised of that as to how
much is withheld and what the milestones are and what is being
reached, because clearly this has been a continuing problem.
I think the thing as an auditor that concerned me most is
in the audit they also noted their control environment and
accounting at Lockheed was inadequate. Well, when an auditor
cites a control environment the sirens and bells and whistles
should go off. That means that there is an environment where
bad, bad things could happen if the controls are not in place
and if it's a matter of their accounting system.
So I would specifically like that issue to be addressed if
possible in a follow-up, as to how they are taking steps
specifically based on the audit findings about their control
and accounting.
Mr. Young. We'll provide you more detail for the record or
personally, or both, whichever you like.
[The information referred to follows:]
Lockheed Martin is making adequate progress against their
Corrective Action Plan. Twelve withhold milestones have been
identified. $10 million penalty represents 3 percent of monthly JSF
billings which is in line with Bell withholds. All four withhold
milestones have been met on time with none missed.
Senator McCaskill. Both would be great. Thank you so much.
Thank you, Mr. Chairman.
Chairman Levin. Thank you so much, Senator McCaskill, and
thanks for your energy and commitment in this area. It's
absolutely invaluable to us.
I want to pursue a matter that you made reference to
earlier today, and that's this so-called Thunder Vision
contract, which has come up many times now. But there's an
Inspector General (IG) report that was issued in May which
identified an additional seven contracts on which senior Air
Force military officers were perceived to have used the powers
of their position to award contracts to specific companies.
I'm wondering, Secretary Young, whether or not you're aware
of that IG report and, if so, what steps you've taken to
provide accountability where you thought accountability was
needed.
Mr. Young. I'm aware of the IG report. It is working in the
normal disciplinary process, first to the Air Force, and I need
to see what actions they take. Many aspects of that report
highlight an issue I've talked about around today, where I
believe the report cites that the acquisition team members
sought to have a competition and felt like they needed
standards against which to compete. The report talks more about
people outside the acquisition process seeking to exert undue
influence on that process.
Those are disciplinary matters that are not within my
purview, but they exist. They exist in lots of different ways
and manifest themselves with people who have authority becoming
frustrated with an acquisition team who is explaining, we need
to do this in a competitive manner, in an open manner, and
consistent with the laws and regulations. We run into that
challenge on a regular basis, Mr. Chairman.
Chairman Levin. I think that it's clear to us the issue of
accountability is critically important. This morning Senator
McCaskill has highlighted it. It's been raised also in your
testimony, I think, Ms. Schinasi. It's critically important. So
even though this may not be precisely in your area of
jurisdiction, would you let this committee know on this
particular report that the IG has issued in May as to what the
outcome was relative to accountability?
Mr. Young. Yes, sir, I'd be happy to.
[The information referred to follows:]
The Air Force and Air Combat Command believes they responded
aggressively to the second report issued on contracts awarded at Nellis
Air Force Base. The Department of Defense (DOD) Inspector General (IG)
Report on Air Force Air Combat Command Contracts recommended that the
Assistant Secretary of the Air Force for Acquisition issue guidance to
Air Force General Officers, military commanders, and senior executive
servicemembers within the Air Force that reemphasizes the need to
eliminate the appearance of conflicts of interest situations in Air
Force contracting. On March 26, 2008, the Secretary of the Air Force
and the Air Force Chief of Staff co-issued a memorandum reemphasizing
to senior Air Force military and civilian personnel the need to
eliminate the appearance of conflicts of interest situations and
emphasizing ethical responsibilities while conducting procurements.
Additional guidance was issued by the Assistant Secretary of the Air
Force for Acquisition on April 2, 2008, and the Deputy Assistant
Secretary (Contracting) on April 5, 2008, by memorandum. The Commander
of Air Combat Command (ACC) distributed the March 26, 2008, memorandum
to all commanders within ACC.
As requested by the Commander of ACC, and at the direction of the
Deputy Assistant Secretary for Contracting, an independent review team
visited the Nellis Contracting Squadron to review contracts from fiscal
year 2006-2008 to see if the practices occurring in the period of the
DOD IG reports, 2003-2005, were ongoing. The independent review team
concluded that internal controls were still weak.
As a result of the audits and independent review, the Commander of
ACC completed many actions and has actions planned for the near future
to improve internal controls for contracting activities at Nellis Air
Force Base and throughout ACC. The commander of the Nellis Contracting
Squadron was relieved from command and has been replaced by an
experienced and engaged commander who is committed to turning the
organization around. Additional personnel improvements have been
started for DOD civilians at the Nellis Contracting Squadron. The
Nellis Contracting Squadron and all squadrons in ACC have completed
mandatory training directed by ACC headquarters. Inspection checklists
throughout ACC Contracting and the Air Force Contracting comprehensive
checklist have been updated to include checks for the weaknesses
identified in these reports. During the week of July 8, the Director of
Installation and Mission Support for ACC, a brigadier general, along
with a member of the Judge Advocate General's Corps and senior
contracting officials, will visit Nellis to brief senior leaders of
host units and tenants units, such as the Air Warfare Center and the
Thunderbirds, on lessons learned from past contracting failures and
their responsibilities in the future success of the contracting
mission. As part of the visit, employees of the contracting squadron
will receive additional training on ethics and competition requirements
and reaffirmation of their responsibility to seek assistance when they
feel pressured to take shortcuts around competition and ethics rules.
Finally, the Air Force General Counsel is reviewing additional measures
in broader ethics training.
However, I think these statements by the Air Force indicate some of
the fundamental cultural and disciplinary problems in the system. While
disciplinary actions were implemented for contracting personnel, it is
not clear to me that appropriate disciplinary measures have been
applied to the individuals who were outside the acquisition process and
took actions to improperly influence and pressurize the individuals
responsible for acquisition and contracting.
Chairman Levin. If there's no other questions, we will,
with thanks to our panel, stand adjourned.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator Jack Reed
REDUCING TECHNICAL RISK IN ACQUISITION PROGRAMS
1. Senator Reed. Secretary Young, it is well understood that one of
the problems facing many of our major acquisition programs is the high
level of technical risk that is not rationalized with limited budgets
and optimistic delivery schedules. I think that the Department of
Defense's (DOD) science and technology (S&T) programs can play a bigger
role in researching fundamental phenomenon and technology design,
performance, and integration issues to reduce the costs and risk of
major programs. What do you think is the role of relatively small
investments in S&T in helping to reduce the large and growing costs of
the DOD major acquisition programs?
Mr. Young. Reducing costs of major acquisition programs has been
one of my specific goals as the Under Secretary. In my previous
position, as the Director of Defense Research and Engineering (DDR&E),
I saw the specific role the S&T investment can have in helping to meet
this goal and I have continued the integration of both the DDR&E and
Systems Engineers in acquisition programs. In addition, we have
directed the use of competitive prototyping both before and where
appropriate after Milestone B. For those systems before Milestone B,
the S&T community is responsible for the competitive prototyping
efforts. We believe that by developing prototypes before locking down
system design and development, we will be able to make tradeoffs
between requirements, cost, and technological feasibility.
Finally, we have expanded the application of technology maturity
assessments for major acquisition programs. All of these things--
prototypes, demonstrations, and technology assessments--come from the
S&T investments of the DOD should help to control costs by providing
better information from which decisions can be made.
DEFENSE LABORATORIES
2. Senator Reed. Secretary Young, our network of defense
laboratories house equipment and expertise which can be better utilized
by many accounts to help address the problems that are resulting in
cost and schedule overruns in many acquisition programs. How
specifically are you tapping into your defense laboratories to address
acquisition problems?
Mr. Young. For the most part, the laboratories provide technical
expertise to evaluate feasibility. In the past few years, the DOD has
substantially expanded its use of technical experts from DOD labs to
support the acquisition process. The use of immature technologies is a
major risk factor for cost and schedule over-runs in Defense
acquisitions. To minimize the possibility of going forward into System
Development and Demonstration (SDD) with immature technologies, DOD
conducts technology readiness assessments for all acquisition programs
as they approach the Milestone B decision point. Technical experts from
the DOD laboratories are active participants on the review teams that
analyze technology maturity to ensure only mature technologies enter
the SDD phase. In addition, the Department employs defense support
teams, which often comprise expert technical staff from DOD
laboratories to assist specific acquisition programs with technical
problems.
3. Senator Reed. Secretary Young, what new authorities can this
committee provide the laboratories to enhance their ability to support
your efforts at reducing acquisition program problems?
Mr. Young. The laboratories have sufficient authority within their
expertise and resources to assist acquisition programs.
MANUFACTURING PROGRAMS
4. Senator Reed. Secretary Young, the Department's Manufacturing
Technology (MANTECH) programs play a key role in reducing the costs of
weapons systems and creating innovation in the defense industrial base.
However, these programs are often underfunded and do not have the
impact that they possibly could. What role do you think the MANTECH
program should play in helping to address acquisition issues?
Mr. Young. The MANTECH program develops and matures key
manufacturing processes to accelerate technology improvements in the
acquisition and sustainment of DOD systems and components. In fiscal
year 2008, the Department established a Defense-wide Manufacturing S&T
program to focus on cross-cutting manufacturing processes. We are in
our first year of execution of this program but I believe it will pay
dividends soon. In addition, the military department's MANTECH program
investments are critical to affordably equipping the warfighter. As
such, the MANTECH programs are closely coordinated with military
department's requirements for achieving affordability goals. The Navy
MANTECH program is actively participating with the Virginia class
submarine, CVN, and DDG-1000 programs to achieve shipbuilding
affordability goals. The Army MANTECH program is developing
manufacturing processes of critical technologies, such as Focal Plane
Arrays, where MANTECH investments reduced item costs from $1.6 million
to $60,000 per large format arrays to enable proliferation of new
sensor capability on ground platforms. The Air Force MANTECH program
worked with the F-22 program office to identify new materials and
manufacturing processes for the F-22 canopy, resulting in an increase
of canopy life of more than 500 percent with an estimated $450 million
life cost avoidance for F-22.
Finally, the MANTECH program, under the guidance of the Joint
Defense Manufacturing Technology Panel (JDMTP), has worked to develop
Manufacturing Readiness Levels (MRL), providing a communication
framework for identifying and managing manufacturing risks through the
development process.
RESOURCES FOR TECHNOLOGICAL MATURATION
5. Senator Reed. Secretary Young, you have implemented a set of
procedures to ensure that programs are to use mature technology if they
are to pass Milestone B decisions. Technologies do not mature without
resources. Has the Department developed any methodologies that would
enable estimates of resource requirements and timing of investments in
research and early stage technology development to ensure adequate
technological maturation to support the reduction of cost and delivery
time of major programs?
Mr. Young. Currently, we do not have an estimate of the resource
requirements needed in early technology development to ensure adequate
technology maturation. We do believe, however, that prudent use of both
Advanced Technology Development and Advanced Component Development and
Prototype funds (Budget Activities 3 and 4 of major Force Programs 6)
should give the Department better cost predictability for late-stage
development activities that contribute to reduction of cost and
delivery time of major programs. The current DOD-wide S&T budget
request of $11.4 billion is the second highest request in history, in
constant year dollars; embedded within this request are funds for a
number of demonstrations and prototypes.
Also, my policy for competitive prototyping is intended
specifically to mature technology, inform requirements and better
define costs prior to Milestone B. Competitive prototyping should
effectively identify potential issues associated with immature
technology and lack of understanding of the critical program
development path. It is too soon to provide definitive data on how
earlier prototyping will impact the cost and delivery time of major
programs, but in general, for those systems before Milestone B, the S&T
community is responsible for the technology-based competitive
prototyping. This increased investment should reduce risk. We believe
that by developing prototypes before locking down system design and
development, we will be able to make tradeoffs between requirements,
cost, and technological feasibility.
6. Senator Reed. Secretary Young, do you have quantitative
estimates of the S&T investments necessary to mature technologies to
the point that we can reduce cost and time to deliver systems for any
existing programs of record?
Mr. Young. Currently, we don't have refined quantitative estimates
of the S&T investment necessary to mature technologies to the point
that can reduce cost and time to deliver systems. We do believe,
however, that prudent use of both Advanced Technology Development and
Advanced Component Prototype Development Prototype funds (Budget
Activities 3 and 4 programs) should give the DOD better cost
predictability. The current DOD-wide S&T budget request of $11.4
billion is the second highest request in history, in constant year
dollars. This investment highlights our belief in S&T as an enabler of
cost control. In this area of maturing and prototyping technologies for
weapon systems, it will not be easily possible to provide an annual
dollar amount or percentage of the budget. What is required is that the
Services and the DOD accept the requirement and demonstrate the will to
invest larger amounts of research and development (R&D) funds in the
early phases of a program. The rush to move immediately to the final
stage of development with one bidder based on a paper proposal has
proven to be a formula for risk, cost growth and schedule delays. The
Joint Lightweight Tactical Vehicle (JLTV) program provides a great
example. It is not likely that the JLTV program would have successfully
executed based on selecting one paper proposal for aggressive
development against unrealistic requirements. However, it was a
struggle to get the Department to fund three prototype JLTVs.
RESOURCES FOR COMPETITIVE PROTOTYPING
7. Senator Reed. Secretary Young, your initiative to expand efforts
at competitive prototyping prior to major program initiation will
naturally lead to increased resource requirements to support these
activities. Do you expect these increased investments to be made by the
Department in defense industry only, or will additional resources be
provided to DOD labs and technical centers as well?
Mr. Young. As noted in my testimony, my intent in establishing
policy for competitive prototyping is to rectify problems associated
with immature technology and lack of understanding of the critical
program development path. Prototyping at any level--component,
subsystem, or system--earlier in the milestone development process will
improve the knowledge associated with estimating development and
procurement cost. It is too soon to provide definitive data on how
earlier prototyping will impact the resource level in the DOD labs and
technical centers. But, in general, we expect increased attention to
prototyping and competition in our late-stage technology demonstration
programs to help reduce technical risk, validate designs and
manufacturing processes, and refine requirements. The DOD needs to
demonstrate the will to properly fund the initial technology maturation
and prototyping efforts necessary to succeed in the final phases of
weapon system development programs. Concurrently, these strategic DOD
decisions will necessarily require lab and center Directors to address
the need for more robust and diverse technical, system engineering and
program management skills within the R&D community to support earlier
development programs. Ultimately, a shift in a program's total funding
to enable competitive prototyping through milestone B is expected to
improve cost efficiencies across the acquisition life.
8. Senator Reed. Secretary Young, has any estimate been made about
the increased funding required to support this initiative?
Mr. Young. No comprehensive estimate has been done. My view is that
prototyping can and should be accomplished within available resources.
The purpose is to achieve higher confidence in the technology and
manufacturing readiness before we initiate major investment in the
system development. In general, there are many cases where we can
mature our knowledge, and sensibly avoid the kinds of cost growth we
have seen that resulted from not prototyping.
Frankly, the alternative of taking immature, unproven, and untested
technology into the final phase of system design and development
without prototyping has proven in several cases to be extremely costly
for the DOD. I believe it is fair to suggest that only a fraction of
the funds DOD has paid for SDD phase cost growth could have paid for
multiple, robust, competitive prototypes.
INDUSTRIAL BASE STRATEGIES
9. Senator Reed. Secretary Young, please describe the processes by
which the Department assesses the adequacy of the government
acquisition and industrial base to support current and planned future
defense acquisitions.
Mr. Young. The Department periodically conducts analyses/
assessments to identify and evaluate those industrial and technological
capabilities needed to meet current and future defense requirements. It
then uses the results of these analyses/assessments to make informed
budget, technology investment, acquisition, and logistics decisions.
DOD-wide industrial assessments evaluate and address changes in key
system, subsystem, component, and/or material providers that supply
many programs, and affect competition, innovation, and product
availability.
DOD components conduct their own assessments when: (1) there is an
indication that industrial or technological capabilities associated
with an industrial sector, subsector or commodity important to a single
DOD component could be lost; or (2) it is necessary to provide
industrial capabilities information to help make specific programmatic
decisions. These ``programmatic'' assessments generally are conducted,
reviewed, and acted upon internally within the DOD components. For
example, as part of the program acquisition strategy, individual
program offices conduct industrial assessments in accordance with the
requirements of title 10, U.S.C., section 2440, as implemented in the
Defense Acquisition Guidebook (Chapter 2.3. Systems Acquisition:
Acquisition Strategy). These assessments address DOD investments needed
to create or enhance required industrial capabilities; the risk of
industry being unable to provide program design or manufacturing
capabilities at planned cost and schedule; and issues associated with
product technology obsolescence, replacement of limited-life items,
regeneration options for unique manufacturing processes, and conversion
to performance specifications at the subsystems, component, and spares
levels.
These periodic assessments are summarized in the Department's
Annual Industrial Capabilities Report to Congress, most recently
completed in March 2008.
10. Senator Reed. Secretary Young, does this assessment lead to a
single or a set of industrial base planning documents that the
Department implements?
Mr. Young. There is no single set of industrial base planning
documents that the Department implements. However, the Department's
Annual Industrial Capabilities Report to Congress (most recently
completed in March 2008) summarizes for Congress, Department
acquisition officials, industry, and other stakeholders: (1) new
departmental industrial capabilities-associated guidance; (2) methods
and analyses undertaken to identify and address concerns regarding
technological and industrial capabilities of the national technology
and industrial base; (3) industrial capabilities-related assessments
conducted within the Department; and (4) programs designed to sustain
specific essential technological and industrial capabilities and
processes.
Nevertheless, the Department's goal is to integrate and address
industrial base issues within its existing budget, acquisition, and
logistics processes to the maximum extent practicable. Written reports
play a constructive role in identifying and evaluating integrated
polices and actions, but at best are vehicles that reflect and document
the analyses necessary to develop stronger policies, make informed
decisions, and take effective actions. In many cases, these assessments
cannot be successfully performed and recommendations implemented on a
centralized basis. Industrial concerns affecting individual programs
can best be properly and effectively integrated into budgets and
acquisition decisions only if the responsible acquisition officers
themselves are conscious of issues that affect their programs, and
address them within program confines.
11. Senator Reed. Secretary Young, what authorities, programs, and
other tools does the Department have at its disposal to shape the
industrial base to meet its needs?
Mr. Young. The industrial strategy of the DOD is to rely on market
forces to the maximum extent practicable to create, shape, and sustain
those industrial and technological capabilities needed to provide for
the Nation's defense. The Department will intervene in the marketplace
only when absolutely necessary to create and/or sustain competition,
innovation, and/or essential industrial capabilities.
Having said that, the Department creates market forces--most
frequently within defense-dominant market segments--through its budget,
acquisition, and logistics processes. DOD research, development,
acquisition, and logistics policies, analyses, and decisions guide and
influence industry in four fundamental ways. First, DOD evaluations and
assessments of industry segments or specific industry-related issues
help identify future budgetary and programmatic issues and inform
policy-making and requirements generation. Second, DOD defense system
acquisition strategies and decisions shape the technological and
programmatic focus of industry. Third, the Department incorporates
industrial base-related policies into its acquisition regulations to
protect national security, promote competition and innovation, and, in
certain specific cases, preserve critical defense industrial and
technological capabilities. Fourth, DOD decisions made on mergers and
acquisitions involving defense firms directly shape the structure of
the industry.
When market forces are insufficient, the Department can use other
tools to focus industry attention on critical technology development,
accelerate technology insertion into manufacturing processes, create or
expand critical production facilities, and direct production capacity
towards meeting the most urgent warfighter needs. For example, the
Defense Production Act (DPA) Title III Program strengthens the economic
and technological competitiveness of the U.S. defense industrial base,
accelerates the transition of technologies from R&D to affordable
production and insertion into defense systems, and can reduce U.S.
dependency on foreign sources of supply for critical materials and
technologies. The MANTECH program develops and matures key
manufacturing processes to accelerate technology improvements in the
acquisition and sustainment of DOD systems and components. In fiscal
year 2008, Congress added $24 million to the Fiscal Year 2008 Research,
Development, Testing, and Evaluation (RDT&E) Defense-wide
appropriations to establish an Industrial Base Innovation Fund (IBIF)
to develop advanced manufacturing processes and technologies to support
long-term and short-term needs of the Department. The IBIF is executed
through the Defense Logistics Agency's MANTECH program.
Another tool unavailable to the DOD is the Military Critical
Technologies List (MCTL). As DDR&E, I successfully added funds to this
program to enhance and update the MCTL process. I believe the MCTL
determinations should be used for multiple purposes, including to guide
decisions about critical elements of the U.S. industrial base.
DOD has the ability to use the DPA, Title 3, to make investments in
the preservation and creation of unique industrial capability required
for manufacturing military systems. I believe DOD should significantly
expand our utilization of, and funding for, the DPA program.
Finally, the Department has the ability to establish, and has
established, administratively-imposed (imposed by DOD policy, not
statute) restrictions within the Defense Federal Acquisition Regulation
Supplement (DFARS) precluding the use of foreign products for specific
defense applications when necessary to ensure military readiness.
12. Senator Reed. Secretary Young, how much do you invest in these
industrial base planning and shaping activities?
Mr. Young. Generally, the Department leverages its significant
market clout through its budget, acquisition (research, development,
production), and logistics processes to facilitate an industrial base
that is reliable, cost-effective, and sufficient to meet strategic
objectives. With respect to the ``interventionist'' programs noted
earlier, in fiscal year 2008, the DPA Title III program appropriation
was about $94.8 million and the MANTECH program appropriation was about
$273.3 million.
13. Senator Reed. Secretary Young, what new authorities do you feel
are required by the Department to support efforts in this area?
Mr. Young. The Department has sufficient authorities to identify,
evaluate, create, and/or sustain industrial and technological
capabilities important to defense.
______
Questions Submitted by Senator Daniel K. Akaka
OPERATIONAL CAPABILITY DELIVERY DELAY
14. Senator Akaka. Secretary Young and Ms. Schinasi, according to
the Government Accountability Office (GAO) findings, the current
portfolio of programs has experienced a 21-month delay in delivering
initial operational capability to the warfighter, and a full 14 percent
of these are more than 4 years late. These delays are unprecedented,
and represent approximately a 33 percent increase over 2,000 portfolio
levels. Two of the reasons you have identified as contributing
significantly to these delays include both request for changes in
system capability by the DOD and the failure of contractors to meet
agreed upon timelines. Which of these two factors do you feel pose the
biggest challenge to on-time program completion, and why?
Mr. Young. I agree that we can and must do better delivering
capability on-time and within budget. It is difficult to identify one
dominant factor in schedule delays. I would list several factors which
are generally present to varying degrees in every program delay--moving
immature technology into final development stages, excessively
optimistic industry proposals, lack of full funding or funding cuts in
the DOD or congressional budget process, and changes in requirements
during program execution.
Thus, to improve program outcomes we must start programs right and
align expectations among the key stakeholders. We have several such
initiatives in place. I am instituting a Materiel Development Decision
(MDD) as the formal entry point into the acquisition process. The MDD
will assess potential materiel solutions and is mandatory for all
programs. I am insisting that, with rare exceptions, we conduct a
robust Technology Development phase that provides for two or more
competing teams producing prototypes of the system and/or key system
elements prior to, or through, Milestone B. Prototypes reduce technical
risk, validate designs and cost estimates, evaluate manufacturing
processes, and refine requirements. These steps will ensure that when a
program is initiated at Milestone B it is positioned to develop a
system or an increment of capability; complete full system integration
(technology risk reduction having occurred during Technology
Development); and transition to an affordable and executable
manufacturing phase. Along with these initiatives, we need to stay
disciplined in keeping to the requirements we agreed to at the start of
the program and in holding everyone in the acquisition community
accountable for doing so.
We can improve program execution by early dialogue with our
contractors. We have begun using the Program Startup Workshop soon
after contract award to align the government and contractor teams'
understanding of the contract and to ensure they have a shared
understanding of contract requirements.
While our industry partners need to improve their schedule
performance, we in the Department can do our part by starting programs
right and by working with our industry partners to ensure a shared
understanding of their responsibilities.
Ms. Schinasi. Requirements instability and failure to meet agreed
upon timelines can contribute significantly to delays in delivering
needed capabilities to the warfighter. Our work has consistently
emphasized that DOD should require each proposed program to demonstrate
that the established requirements are achievable within resource
limitations--that is that the program's business case is executable.
However, as our most recent Assessment of Selected Weapon Programs
indicates, DOD continues to allow programs to progress through the
acquisition process before key knowledge has been attained.\1\ These
knowledge gaps are largely the result of a lack of disciplined systems
engineering analysis. Early systems engineering provides knowledge that
enables a developer to identify and resolve gaps before product
development begins. Because the government often does not perform the
proper upfront analysis to determine whether its needs can be met,
significant contract cost increases can occur as the scope of the
requirements change or become better understood by the government and
the contractor. This lack of upfront knowledge can also affect the
contractor's ability to meet agreed upon timeframes.
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\1\ GAO, Defense Acquisitions: Assessments of Selected Weapon
Programs, GAO-08-467SP (Washington, DC: Mar. 31, 2008).
15. Senator Akaka. Ms. Schinasi, unrealistic development and
production timelines have been highlighted as one of the problems that
plague defense programs right from the start, and lead to inevitable
delays and cost overruns as the reality of the requirement being sought
becomes fully clear. In some cases, however, contractors agree to
timelines they subsequently are unable to meet. In cases involving the
failure of contractors to meet what you have asserted are often overly
optimistic timelines, to what extent do you believe that there is
adequate documentation being kept regarding instances of contractor
poor performance?
Ms. Schinasi. Past performance information is critical to enhancing
contractor accountability and it is essential the government has past
performance systems in place to help ensure that contractor performance
is reflected in the award of new contracts. With that said, it is
questionable whether contracting officials are documenting and
maintaining contractor performance information in a timely, complete,
and consistent manner. The House Oversight and Government Reform
Committee's Subcommittee on Government Management, Organization, and
Procurement held a hearing in July 2007 in which we testified on issues
related to the use of contractor past performance information.\2\ The
hearing raised concerns regarding an apparent disconnect between actual
contract performance, how performance reviews are calculated, and the
weight given to past performance in the source selection process. In
addition, a February 2008 DOD Inspector General report highlighted the
lack of emphasis across the military Services in accurately and timely
reporting of past performance and training for past performance
assessment report preparation.\3\ The report stated that 82 percent of
past performance assessment reports reviewed did not contain detailed,
sufficient narratives to establish that ratings were credible and
justifiable. At the request of the House Oversight and Government
Reform Committee and the Subcommittee on Government Management,
Organization, and Procurement, we are currently assessing how
agencies--including DOD--collect contractor past performance
information for use in source selection.
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\2\ GAO, Federal Contracting: Use of Contractor Performance
Information, GAO-07-1111T (Washington, DC: Jul. 18, 2007).
\3\ DOD Inspector General, Contractor Past Performance Information,
D-2008-057 (Arlington, VA: Feb. 29, 2008).
16. Senator Akaka. Ms. Schinasi, are contracting officers making
the best use of available information when issuing contract awards?
Ms. Schinasi. Although a seemingly simple concept, using past
performance information in source selection can be complicated in
practice. GAO bid protest decisions illustrate some of the complexities
of using past performance information as a predictor of future
contractor success. A key consideration is whether the performance
evaluated can reasonably be considered predictive of the offeror's
performance under the contract being considered for award. For example,
a June 2008 congressional hearing regarding a $300 million contract the
U.S. Army awarded to supply ammunition to Afghan security forces raised
concerns about the nature and extent of past performance information
that is currently available for contracting officers to use in source
selection decisions. In this specific case, questions were raised
regarding the contractor's qualifications and whether DOD exercised due
diligence in considering all past performance information. A senior
Army contracting official testified that certain information regarding
the past performance of this particular contractor, such as several
previous contracts terminated for cause, was not available to the
contracting officer since the contracts fell below DOD's dollar
threshold for collecting past performance information.
PROGRAM MANAGER TURNOVER
17. Senator Akaka. Secretary Young, one of the main problems
highlighted in the defense acquisition process is frequent turnover of
program managers, as well as senior acquisition officials. I find it
interesting that this finding should come to light now, despite the
decades old practice of DOD rotating its personnel every few years. It
would seem that for some reason, the impact of program manager turnover
has been identified as more problematic with the current portfolio of
weapons programs than in the past. Traditionally, an officer's career
development was contingent upon seeing multiple assignments covering a
variety of missions and leadership positions. However, continuous fresh
faces in a defense acquisition program over the course of its life is a
liability. Why do you think this finding is especially important today,
and are there any initiatives within the Services to work with their
respective personnel offices to come up with a potential solution of
limiting assignment rotations for their project managers and
acquisition officers?
Mr. Young. I am aware of several reports that depict higher
turnover in program manager assignments than is expected or acceptable.
These reports are not accurate. The average program manager tenure for
those who have served and left positions since 2000 is 37 months.
Again, since 2000, program managers have served in their positions, on
average, for 37 months. The average tenure for program managers
departing in the last year was 40 months. Indeed, 23 percent of the
program managers who completed their tours last year had served more
than 48 months. However, our review of the current data shows that the
average expected tenure of program managers today, across all Services,
is 42 months, based on Program Manager Agreements, assignment plans,
and program milestone points.
I would highlight equally relevant concern is the frequent rotation
of requirements officers. I have personally seen senior requirements
officers rotate in cycles of 18 months or less. Now requirements
officers or resource sponsors frequently seek to fundamentally change
acquisition programs at substantial cost. Indeed, the new substantial
changes in the DDX program are directly related to unexpected
requirements changes after years of development and billions of
expended tax dollars.
I expect that major system program managers' tours will comply with
statutory guidelines and current Department policy. Section 1734 of
Title 10, U.S.C., generally requires the Program Manager and Deputy
Program Manager of a major defense acquisition program to be assigned
to their position until completion of the major milestone (e.g., system
design and development) that occurs closest to four years in their
position. DOD Instruction 5000.66 provides additional guidance and
establishes the requirement for a written tenure agreement.
In May 2007, an Under Secretary of Defese for Acquisition,
Technology, and Logistics (USD(AT&L)) policy memorandum, ``Program
Management Tenure and Accountability,'' emphasized the need for program
managers to have sufficient tenure to achieve expected outcomes and to
improve both systemic and personal accountability. Signed tenure
agreements capture that expectation. There are waiver provisions in
place, but the military departments are aggressive in limiting
approvals of waiver requests. The Navy reports, for example, that
nearly two-thirds of their program managers serve until the agreed upon
tenure is completed.
In response to section 853 of the National Defense Authorization
Act (NDAA) for Fiscal Year 2007, we developed a comprehensive strategy
for enhancing the role of DOD program managers in developing and
carrying out defense acquisition programs. The strategy addressed a
number of initiatives to improve program manager empowerment and
accountability. One of these that we are working to implement is a
financial incentive for key members of program offices. While the
details of that incentive program are still being worked out, tenure
will be one of the key requirements. Our intent is to structure the
financial incentives in such a way as to encourage highly qualified
people to compete for positions of increased responsibility and to
serve long enough to apply their experience for the good of the
program.
We have long recognized the need to balance the need for individual
career development with sufficient tenure to provide for stability and
accountability. Department policy already calls for longer tour lengths
for assignments to acquisition positions and our planned financial
incentive program will further encourage people to stay in their
positions longer. However, the Department also believes there is value
in rotating experienced members of the acquisition corps to other
programs so they transfer lessons learned across the acquisition
community.
This, too, is recognized in statute (10 U.S.C. 1734) which
generally calls for the rotation of those serving in critical
acquisition positions (both military and civilians) after 5 years.
The military departments all recognize the need to balance program
manager tenure with the career development needed to grow future
acquisition leaders. They are using available flexibilities to tailor
tenure appropriately based on the program and its point in the life
cycle. For example, the Army staggers rotations to ensure continuity of
program goals and responsibilities. At their Project and Product
Managers level, they attempt to ensure all Program Managers in one
office do not rotate out of their positions in the same year. In
addition, civilians who serve as Deputy Program Executive Officers and
Deputy Program Managers are often in their positions for five or more
years, providing dedicated continuity of effort.
We will continue to use assignment policies that look at
individuals' career development and overall program manning to improve
the acquisition workforce as a whole and still meet individual program
objectives.
CONFIGURATION STEERING BOARDS
18. Senator Akaka. Secretary Young, one of the initiatives you have
described as fundamental to transformation of the acquisition process
and its workforce is the establishment of Configuration Steering Boards
(CSB). These boards have the responsibility to critically review any
proposed changes to system requirements and ensure what few changes are
allowed, are deemed critical. Was your decision to establish these CSBs
a direct response to the GAO findings?
Mr. Young. No. I formed the first CSB in 2002, for the Joint Strike
Fighter (JSF), during my tenure as the Navy Acquisition Executive. That
CSB was formed specifically to allow us to manage requirements for a
joint program with international participation. There were many
stakeholders and the CSB process proved to be a most effective and
efficient way to address requirement changes. My experience with the
successful JSF CSB led me to broaden its application to all ACAT I
programs.
19. Senator Akaka. Secretary Young, was the Navy CSB example you
cited in your prepared testimony an already-established entity under a
different name, or was it the first in this new initiative?
Mr. Young. For the Extended Range Munition example I cited the CSB
was newly established as a result of my July 2007 memorandum.
20. Senator Akaka. Secretary Young, what is the current status of
these CSBs within each of the military Services, and how are you going
to ensure standardization among the Services, given the competition for
resources that exists within the building?
Mr. Young. The military departments, along with the Defense
Information Systems Agency and the Missile Defense Agency, have
implemented my July 2007 memorandum directing establishment of CSBs for
all current and future ACAT I programs. Most are adapting the concept
to or in conjunction with existing forums. To date, the Navy has
conducted 14 CSBs, the Air Force has conducted 4, and the Army, 1. The
Services have an active schedule of CSB reviews in the upcoming months.
Implementation is the responsibility of each component; however, my
memorandum provided specific guidance on the focus of CSB reviews. We
are finding that Service implementation is evolving as they gain
experience with the CSB construct. CSBs review proposed changes to
requirements that have a cost and schedule impact with a predilection
to reject them, or defer them to future blocks/increments. Proposed
changes are to include an assessment of the impacts to performance and
schedule, a plan to mitigate them, and a funding source. Changes are to
be coordinated with Joint Staff and military department requirements
owners before they are considered by the CSB.
CSBs include senior AT&L and Joint Staff members. I have assigned a
senior member of my staff as the primary point of contact for CSBs. He
is tasked to ensure that CSBs meet my expectations and to ensure
standardization in Component implementation.
CONTRACTING OFFICER REPRESENTATIVES
21. Senator Akaka. Secretary Young, according to an October 2007
report on Army Acquisition and Program Management in Expeditionary
Operations, it was found that Contracting Officer Representatives (COR)
were assigned as an additional duty, requiring no experience. It also
found that these individuals received little to no training in the
performance of their contracting-related duties. To what extent is COR
duty assigned as an additional duty for military personnel, and has
there been any effort to establish standardized training for this
mission, given the multi-billion dollar value of some contracts
overseen?
Mr. Young. The duties of a COR are generally additional duties for
military personnel. The Department is working to ensure that trained
CORs are available for performing surveillance of the Department's
service contracts. COR management, training, and funding for training
are being addressed at a strategic level through the development of COR
certification requirements dictating training and experience levels
prior to assuming their responsibilities. The Department is working to
ensure that properly trained and ready CORs are assigned prior to
contract award. Further, to validate the training and experience leads
to improved oversight, CORs will be rated based on their duty
performance on their assigned contracts. The Department has developed a
preliminary list of common COR functions and responsibilities and an
initial framework for a DOD standard for COR certification. The
proposed standard consists of three categories, each based on the
nature of the work to be performed, size and complexity of the
requirement, and contract type. Each COR category will map to minimum
training requirements to ensure personnel performing designated COR
functions can perform effectively. The proposed standard will allow
sufficient flexibility for additional training beyond the minimum, if
deemed appropriate. On December 6, 2006, the Department issued a policy
memorandum titled ``Designation of Contracting Officer's
Representatives on Contracts for Services in Support of Department of
Defense Requirements.'' It states the role of CORs and emphasizes the
need to have a properly trained COR designated for contracts for
services in support of the Department's requirements before contract
performance begins. On July 14, 2008, the Department issued another
policy memorandum titled ``Management of Contractor Performance under
Time & Material and Labor Hour Contracts for Services.'' It discusses
the COR's role in assisting with the technical monitoring or
administration of these types of contracts, and it requires the
contracting officer (CO) to designate a properly trained COR in writing
before contract award. Presently, the Department is staffing another
policy memorandum that would require the COR to be identified early in
the acquisition cycle and included in pre-award activities when
appropriate. Further, it would require the CO to provide the requiring
activity a list of responsibilities for the COR, and it would oblige
the requiring activity to provide to the contracting activity with
nominations for CORs as part of the purchase request package. The
package must contain: qualifications of the individual; affirmation
that the COR will be afforded necessary resources (time, supplies, and
equipment) to perform the designated functions; and affirmation that
the performance of the designated functions will be addressed as part
of the COR's duty performance evaluation and that the COR must be
trained prior to contract award. Finally, the Defense Acquisition
University has completed development of, and has conducted a pilot test
of, a new COR training course. This training is in addition to the
component level training made available to CORs.
______
Questions Submitted by Senator John McCain
REVOLVING DOOR
22. Senator McCain. Secretary Young, the GAO recently issued a
report called, ``Defense Contracting, Post-Government Employment of
Former DOD Officials Needs Greater Transparency.'' The DOD fully agreed
with the findings in the report and concurred with its recommendations.
Based on recent statutory changes directed by this committee, do you
think that DOD policies need to be changed or new policies need to be
put in place (additional reporting requirements, for example) to guard
against violations of the government's post-employment rules?
Mr. Young. Section 813 of the John Warner NDAA for Fiscal Year 2007
directed the establishment of a ``Panel on Contracting Integrity.''
Subcommittee #9, Contractor Employee Conflicts of Interest, was formed
to review, evaluate and provide recommendations in response to recent
reports by the GAO concerned with defense contracting and conflicts of
interest. The scope of this subcommittee was expanded to include the
recently issued report that you referenced, GAO Report 08-485,
``Defense Contracting, Post Government Employment of Former DOD
Officials Need Greater Transparency.'' The subcommittee reported to the
Panel in May that they have begun to review the recommendations, will
do further research, and will discuss relative value and feasibility of
the recommendations. The subcommittee is expected to report its
findings and recommendations at the next Panel meeting in August.
Personally, I think new policies are not necessary. Indeed, the
recent legislation in this area is likely to discourage military and
civilian personnel from entering the defense acquisition field at
senior levels. Already, the excessive restrictions on stock ownership
have led many capable private sector experts to reject opportunities to
work for the DOD. At this point, we have totally destroyed the exchange
of personnel between industry and the DOD--an exchange which some
previous USD(AT&L)'s feel was critical to successful program management
and execution.
23. Senator McCain. Secretary Young, one recommendation made by the
GAO was that within a set number of days after contract award, defense
contractors who are awarded a contract should disclose to the
contracting officer the names of employees who are certain former DOD
officials, such as civilian senior executives, high-level military
officers, or acquisition officials, who worked on the response to the
solicitation and certify that these employees are in compliance with
the applicable post-government employment restrictions. Do you agree
with that recommendation?
Mr. Young. The DOD generally agrees with the recommendations of the
GAO. Further evaluation will be conducted by Subcommittee #9,
Contractor Employee Conflicts of Interest, of the Section 813 Panel on
Contracting Integrity. In addition, DFARS Case 2008-D007 has been
initiated to implement section 847 of the NDAA for Fiscal Year 2008
that requires certain DOD employees and former DOD employees to obtain
a written legal opinion from a DOD ethics official as to the
applicability of post employment restrictions prior to accepting
compensation from a DOD contractor.
These people have served and returned to the private sector. As
long as these individuals honor the existing post employment
restrictions, they should be able to work freely in the private sector.
The standards and restrictions in the DOD far exceed the restrictions
and standards applied to other Federal Agencies or Congress.
ACQUISITION OVERSIGHT
24. Senator McCain. Secretary Young and Ms. Schinasi, in 1986, the
Commission on Defense Management (commonly referred to as the Packard
Commission) identified structural problems within the DOD, especially
the absence of a responsible senior official, to oversee the
acquisition process. The Packard Commission recommended a commercial
model adopted by successful industrial companies that centralized the
decisionmaking process and decentralized the execution of defense
procurement. Since then, do structural problems continue to persist
within the Department that limit oversight of the acquisition process?
If so, in what area(s) are they most apparent?
Mr. Young. The Packard Commission recommended creation of the
position I currently occupy and comparable positions within the
military departments to oversee the acquisition process. The changes
that have been made create clear lines of authority and accountability
for the operation of our acquisition system. In addition, service
acquisition executives (SAEs) can and do appoint subordinate officials
at the appropriate grade to review programs at the lowest level of
investment. Consequently, I believe we have the necessary management
infrastructure to ensure comprehensive acquisition process oversight.
The largest structural problem in the DOD is the lack of control
and authority provided to program managers in the face of being held
accountable. Individuals who are not accountable for acquisition
program execution are allowed to annually change the program budget and
requirements. The DOD has an adequate oversight structure and process.
Responsible acquisition officials do not have adequate control and
authority within the broader Pentagon budgeting and requirements
structures.
Ms. Schinasi. Yes. One of the primary structural problems within
the department that continues to limit oversight of the acquisition
process is that the three major processes that support acquisitions are
fragmented and service-centric. To plan, execute, and fund its weapon
system acquisition programs, DOD relies on three principal
decisionmaking systems: the Joint Capabilities Integration and
Development System (JCIDS), which is used to assess gaps in warfighting
capabilities and recommend solutions to resolve those gaps; the Defense
Acquisition System, which is used to manage the development and
procurement of weapon systems and other equipment; and the Planning,
Programming, Budgeting, and Execution process, which is used to
allocate resources. In March 2007, we reported that although the
military Services fight together on the battlefield as a joint force,
they do not identify warfighting needs and make weapon system
investment decisions together in an integrated manner.\4\ Although, DOD
has taken steps to identify warfighting needs through a joint
requirements process, its service-centric structure and fragmented
decisionmaking processes do not allow for the same portfolio management
approach used by successful commercial companies to make investment
decisions that benefit the organization as a whole. DOD largely
continues to define warfighting needs and make investment decisions on
a service-by-service basis, an approach that has contributed to
duplication in programs and equipment that does not operate effectively
together. Further, while DOD's JCIDS process provides a framework for
reviewing and validating the initial requirements, it does not focus on
the cost and feasibility of acquiring the capabilities to be developed
and fielded. Instead, these considerations are addressed through
separate budgeting and acquisition processes. Moreover, although DOD
policy provides for a series of early reviews--focused on the concept
refinement and technology development phases of proposed weapon system
programs--in prior work we found that the reviews are often skipped or
are not fully implemented.\5\
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\4\ GAO, Best Practices: An Integrated Portfolio Management
Approach to Weapon System? Investments Could Improve DOD's Acquisition
Outcomes, GAO-07-388 (Washington, DC: Mar. 30, 2007).
\5\ GAO, Defense Acquisitions: Major Weapon Systems Continue to
Experience Cost and Schedule Problems under DOD's Revised Policy, GAO-
06-368 (Washington, DC: Apr. 13, 2006).
25. Senator McCain. Secretary Young and Ms. Schinasi, what issues
have evolved in the acquisition process not addressed by the Packard
Commission?
Mr. Young. As required by section 804 of the John Warner NDAA for
Fiscal Year 2007, Public Law 109-364, the Department is submitting the
semi-annual Defense Acquisition Transformation Report which takes into
account the recommendations made by the following:
1. The ``Defense Acquisition Performance Assessment (DAPA)
Report'' of January 2006
2. The Defense Science Board 2005 Summer Study:
``Transformation: A Progress Assessment Volume I'' of February
2006
3. The Center for Strategic and International Studies' Phase
2 Report, ``Beyond Goldwater-Nichols: U.S. Government and
Defense Reform for a New Strategic Era,'' of July 2005
4. The 2006 Quadrennial Defense Review, issued February 6,
2006
These four studies were commissioned by different authorities and
intended to serve different purposes within the DOD. However, the
recommendations from these studies are focused on transforming the
entire spectrum of the Defense Acquisition System. Our semi-annual
reporting focuses on three of these studies: the DAPA Report, the
Defense Science Board Study and the CSIS ``Beyond Goldwater-Nichols''
Report. The studies contain a total of 55 major recommendations to
improve the Defense Acquisition System. Recommendations from the
studies and DOD Transformation Priorities, along with the AT&L ``Source
Document,'' provide a strategic blueprint for the future. The source
document is intended to provide a framework that gives the Defense
Acquisition System a shared purpose, while shaping our way of being,
thinking, and working. It is intended to be the basis by which
individual goals are set, planning is done, decisions are made, and
actions are taken.
The report, frequently referred to as the 804 report, highlights
the progress we are making towards these recommendations as well as
towards other initiatives supporting AT&L goals and priorities.
Ms. Schinasi. We believe that the lack of accountability remains
one of the major impediments in the acquisition process. DOD has found
it difficult to apply the controls or assign the accountability
necessary for successful outcomes. There are no consequences for
actions that run counter to the intent of DOD acquisition policies, in
part, because officials responsible for approving programs are no
longer in their positions by the time the consequences of their actions
become evident. In addition, it is difficult to assign accountability
to individual program managers because they are often handed programs
that are unrealistic from the start. Accountability must extend not
just to those involved in the product development process, but also to
those involved in the underlying budgeting and requirements processes
that define problems and find solutions. First, the budgeting process
requires that funding for a program is put on the table 2 to 3 years in
advance--this creates pressure to proceed with the program regardless
of its technological maturity. Next, the requirements process tends to
settle on ultimate performance, which puts pressure on programs to
reach for exotic technology. Finally, it is easier to say ``yes'' than
``no'' to Service and warfighter demands for new requirements and new
programs. Removing these incentives from the system and instilling
discipline and accountability will be necessary to get lasting change
and improved outcomes.
MULTI-YEAR PROCUREMENT
26. Senator McCain. Secretary Young and Ms. Schinasi, the statutory
criteria for determining whether a major system can be procured under a
multi-year contract require that a candidate program have associate
with it realistic cost estimates, substantial savings, and stability in
terms of funding, requirements, and design. However, the stability and
saving associated with some programs for which the DOD has sought
multi-year contracting authority have been questionable. This has
raised concerns about DOD's management and controls for justifying
multi-year candidates. When it examined this, the GAO specifically
cited the Under Secretary of Defense for Acquisition as providing
sufficient guidance and direction in this regard. In order to improve
the ability of the Services to enter into multi-year contracts in a
responsible manner when buying weapons, this committee passed important
legislation last year that provided guidance to the Services on which
programs are suitable candidates for multi-year contracting authority.
Do you believe that the multi-year statute is well understood by the
SAEs?
Mr. Young. I believe the SAEs understand the requirements of the
multi-year statute. To save the taxpayer money and deliver more
capability to the warfighter, the DOD should be allowed to
significantly expand the use of multi-year contracts. Additional
restrictions and criteria on the use of this authority are detrimental
to efficient program management and are generally resulting in less use
of multi-year contracts and higher costs to the taxpayer.
Ms. Schinasi. While we found no evidence that the multi-year
statute was not understood by the SAEs, our recent review identified
significant deficiencies in the Department's guidance and
implementation of multi-year contracting.\6\ Our February 2008 report
discussed the need to improve DOD's review process to adequately
capture important information and events, document decisions, and help
ensure that consistent and reliable determinations are made regarding
multi-year criteria. We also observed turnover at every level of the
multi-year justification process--from program offices, through higher
headquarters, and on to primary action offices in the Office of the
Secretary of Defense (OSD) which we believe has contributed to
``knowledge gaps,'' historical recordkeeping deficiencies, and
differences in interpretation and application of multi-year decision
criteria. In addition, DOD's supplemental guidance does not adequately
operationalize the criteria laid out by the multi-year statute by
amplifying terms such as ``reasonable,'' ``substantial,'' and
``stable'' and quantifying where possible to provide more objectivity
and rigor to the multi-year review process. Guidance for the most part
restates the statutory criteria and establishes formats for submitting
multi-year procurement budget justification materials, but does not
provide much elucidation for interpreting and applying the criteria and
establishing internal evidence standards for demonstrating criteria are
met. From our review of justification packages and our discussions with
DOD officials responsible for generating and reviewing multi-year
justification packages, we determined that reviewers interpret and
apply criteria differently and that the methods and data used to
compute contract costs and savings and provide evidence to document
program stability vary in quality and sophistication. The new guidance
provided by this committee in the NDAA for Fiscal Year 2008 should
improve consistency in the multi-year review process and result in the
Services submitting only those candidates for approval with adequate
savings potential.
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\6\ GAO, Defense Acquisitions: DOD's Practices and Processes for
Multi-year Procurement Should Be Improved, GAO-08-298 (Washington, DC:
Feb. 7, 2008).
27. Senator McCain. Secretary Young and Ms. Schinasi, have you done
anything to help ensure the Services' compliance with it?
Mr. Young. The plan to pursue a multi-year procurement strategy for
a Major Defense Acquisition Program is addressed in its acquisition
strategy, which is approved by the Under Secretary of Defense for
Acquisition, Technology, and Logistics on ACAT ID programs. My staff
participates in budget hearings hosted by the Under Secretary of
Defense (Comptroller/Chief Financial Officer) to advise on budget
requests with multi-year justifications.
Ms. Schinasi. In our February 2008 report, we made four
recommendations designed to improve the outcomes of DOD's multi-year
justification reviews and military Service compliance with the
statutory guidance and to provide lessons learned for future multi-year
procurements. We recommended that DOD: (1) improve and expand guidance
provided to military Services to better define multi-year decision
criteria for major weapon systems and to facilitate more consistent,
objective, and knowledge-based evaluations of these multi-year
candidates; (2) establish a process for third party validation of the
costs and savings data submitted for candidate programs to Congress for
approval; (3) implement a central database for maintaining historical
records and for effectively monitoring and tracking major weapon system
multi-year procurements, to include documenting the specific decisions
made by stakeholders and their rationales for decisions; and (4)
conduct after-action assessments of multi-year contracts to provide
lessons learned for informing and improving future multi-year
candidates and to ensure DOD is earning a sufficient return on its
investments in multi-year contracts. DOD generally concurred with these
recommendations and--in keeping with our quality standards--we will
follow up periodically with DOD to evaluate its plans for implementing
our recommendations and any improvements that result from these
efforts.
28. Senator McCain. Secretary Young and Ms. Schinasi, what more, if
anything, have you done to help ensure that the process by which multi-
year candidates are prepared and reviewed is made more disciplined and
supported by adequate empirical data?
Mr. Young. As a result of the GAO audit on this subject, the
Director of Defense Procurement, Acquisition Policy, and Strategic
Sourcing tasked the military departments to perform a review of their
multi-year contracts to determine whether the projected savings were
realized; what impact adjustments related to economic price adjustment
clauses had on the actual savings; and what changes, if any, are
required in their use of multi-year contracts. We expect the results of
this review will help inform more realistic support for budget requests
that propose multi-year procurements.
To be clear, when the DOD has firm requirements, the Services
should be allowed and encouraged to use multi-year contracts at even
modest levels of savings in order to provide funding and production
stability.
Ms. Schinasi. During our review of multi-year procurement, we noted
the general paucity of records for tracking multi-year candidates,
documenting decisions, and assessing contract performance. In
performing our work, we helped officials identify data sources for
compiling information required to maintain more complete and
disciplined records. We also made three recommendations designed to
improve the empirical data available to make decisions and the validity
of DOD's cost and savings estimates. First, we recommended that DOD
maintain a central database for collecting historical data and tracking
multi-year performance. The department is beginning to implement this
recommendation. A June 20, 2008, memo from the Director of Defense
Procurement, Acquisition Policy, and Strategic Sourcing tasked each of
the Services to review multi-year contracts and start gathering data in
a prescribed format, to include such data as contract price, projected
savings, profit rates, and adjustments. We also recommended that
independent third party validations of cost and savings estimates from
candidate programs would improve the fidelity and completeness in data
used to justify multi-year contracts. The Department partially
concurred with our recommendation, stating that such validations are
done on some programs and that it would consider whether the benefits
of requiring validation on all programs would warrant the delays and
costs of validation. Our review found that third party validations are
rarely done, and we continue to believe that third party reviews would
be cost-effective and result in more accurate and comprehensive cost
and savings information critical to congressional and DOD
decisionmaking on multi-year candidates. Lastly, we recommended DOD
conduct after-action assessments of multi-year contracts. These
assessments should provide lessons learned for informing and improving
future multi-year candidates and empirical data to gauge whether DOD is
earning sufficient returns on its multi-year contract investments. In
their initial response to our draft report, DOD partially concurred
with this recommendation, noting that such assessments may have value
in some cases, but questioned its worth in all instances. DOD later
revised its response, indicating that it fully concurred with the
recommendation and intends to require the Services to complete after-
action assessments.
EARMARKS
29. Senator McCain. Secretary Young and Ms. Schinasi, recently, the
DOD Inspector General (IG) reviewed the Fiscal Year 2007 Appropriations
Act Conference Report to, among other things, determine the overall
impact of earmarks on advancing the primary mission and goals of DOD.
The DOD IG determined that 70 earmarks totaling over $6.4 billion did
not fully support the mission and goals of DOD. Please describe how
congressional earmarks harm a sound acquisition process and deter the
DOD from buying weapon systems that meet the requirements of the joint
warfighter.
Mr. Young. Defense acquisition is a complex process that involves a
constant reevaluation of priorities, taking into account availability
of resources. The DOD uses the Planning, Programming, Budgeting, and
Execution (PPBE) process to establish priorities and allocate
resources. Within the process, departmental objectives are established
based on desired capabilities and national military strategy. Limited
resources are allocated based on these objectives, and programs are
developed within these parameters according to the needs of the DOD and
the joint warfighter. The acquisition process results in a DOD program
to acquire specific equipment, in specific quantities, to address
specific defense requirements. Earmarks have the effect of diverting
valuable resources from projects and programs considered necessary by
the Department, reallocating these limited funds to projects or
programs that may be considered of lesser or no value to the DOD's
mission. In addition, it is of utmost importance that the acquisition
process allow for complete competition in the awarding of contracts for
R&D, procurement and sustainment of military systems. Earmarks
generally contain specific language that does not allow for free, open
competition, which must exist in order to ensure the most efficient use
of funds.
Further, the process of trying to get value from these directed
projects consumes enormous effort on the part of DOD program managers
and contract officers. Finally, the process is detrimental to the
culture and values of the acquisition team. After carefully considering
the needs of the warfighters and working through a complicated and
difficult DOD budget process to find a project, program managers watch
an alternate system that earmarks funds for lower priority, non-
competitive projects.
Ms. Schinasi. Our current work on earmarks does not provide
insights into how congressional directives impact the requirements of
the joint warfighter. However, in prior work, we interviewed DOD
officials who had responsibility for budgeting, financial management,
and legislative issues regarding congressional directives impact on
budget and program execution.\7\ DOD officials from the six components
we interviewed provided a range of views on this topic. Among the views
we heard were the following:
---------------------------------------------------------------------------
\7\ GAO, Congressional Directives: Selected Agencies' Processes for
Responding to Funding Instructions, GAO-08-209 (Washington, DC: Jan.
31, 2008).
DOD officials indicated that congressional directives
can sometimes place restrictions on the ability to retire some
programs and invest in others. These restrictions have an
effect on the budget because they require the components to
support an activity that was not in their budget.
Congressional directives could tend to displace
``core'' programs that have been requested through the formal
budget submission.
There has always been a feeling that the billions of
dollars of congressional directives must come from somewhere,
but it is not possible to determine whether any specific
directive resulted in reducing funding for another program.
Congressional directives are viewed as tasks to be
implemented and are opportunities to enhance their mission
requirements through additional funding in areas that would not
have been priority areas due to budget constraints.
30. Senator McCain. Secretary Young and Ms. Schinasi, in about as
aggressive of remarks as I have seen from a Service Chief regarding
earmarks, here is what the Commandant of the U.S. Coast Guard, Admiral
Thad Allen, said in a interview to Defense Daily:
``[I am] happy with the fiscal year 2009 budget, but, the
Coast Guard needs all of the fiscal year 2009 funds. There is
no fat, no largess in the fiscal year 2009 request. We need
every single penny of it. And to the extent we can have it not
diluted by earmarks and get exactly what we ask for. If you
don't get the full President's request then you are increasing
your risk position for what you are able to do for the country.
Or if you have to absorb other commitments in terms of earmarks
that divert money from what you are doing. Then you are also
increasing risk in what you can do for the country.''
Do you agree with Admiral Allen's statement? Please explain.
Mr. Young. I agree with Admiral Allen's statement. Earmarks greatly
impede the ability of any program or agency to fully and cost-
effectively carry out its duties, and in no agency is this more of a
problem than in the DOD. Earmarks that reward companies in specific
Congressional districts as recipients increase risk due to decreased
competition. Competition for contracts provides incentives for thorough
research, testing, and cost-reduction, steps which are necessary to
avoid the problems of cost growth and schedule delays that already
challenge the Department. Another central problem is that most
earmarked projects are not included in the original DOD budget, and
therefore do not usually address specific agency needs. DOD's formal,
cyclical process called PPBE is used to determine optimal resource
allocation for the Department. Within PPBE, four overlapping phases
work to establish organizational priorities, develop new programs and
enhance existing ones to satisfy these priorities, find cost-effective
solutions, and forward these funding recommendations as part of the
President's budget to Congress. Throughout this process, important
programs and activities often get sacrificed due to sheer lack of
funds. An organization that must constantly realign resources among its
own prioritized programs cannot afford to devote time, money, and
personnel to non-essential activities. For every earmark in a defense
appropriations bill, there is a Departmental priority that will not
achieve completion.
Ms. Schinasi. We have not analyzed the Coast Guard's budget and the
potential effect of congressional earmarks on the agency's risk
position. However, officials in other agencies have raised similar
concerns. For example, in December 2006, we found that the Department
of Energy (DOE) diverted funds to accommodate earmark.\8\ DOE officials
indicated that the rising number of biomass earmarks shifted funds away
from R&D programs causing them to change priorities and terminate some
cost shared programs.
---------------------------------------------------------------------------
\8\ GAO, Department of Energy Key Challenges Remain for Developing
and Deploying Advanced Energy Technologies to Meet Future Needs, GAO-
07-106 (Washington, DC: Dec. 20, 2006).
ANALYSIS OF ALTERNATIVES AND OPERATIONAL REQUIREMENTS DOCUMENT
31. Senator McCain. Secretary Young and Ms. Schinasi, during the
109th Congress, this committee passed legislation that was enacted into
law which requires that, before the DOD acquires a major defense
system, among other things, the Department has completed an Analysis of
Alternatives (AOA), the Vice Chairman of the Joint Chiefs of Staff has
completed an Operational Requirements Document (ORD)--now called a
Capabilities Decision Document (CDD)--and the program is affordable
given the total resources available during the period covered by the 6-
year defense budget in the year the certification is made. What effect
has this legislation had to improve cost-, scheduling- and performance-
outcomes and better align the requirements, acquisition, and budget
spheres in a way that will help the Pentagon make more informed,
powerful investment decisions on weapons programs?
Mr. Young. Congress has instituted a number of legislative changes
that are useful in this respect, but there is still considerable work
to be done by the acquisition community. Many of these changes have
been in place only a short time, and significant changes will take time
to be visible across the entire acquisition portfolio.
Ms. Schinasi. Although we have not done any work directly assessing
the effect of this legislation on cost, schedule, and performance
outcomes, we believe that the requirements it establishes have the
potential to drive more discipline into the early phases of the
acquisition process. If implemented properly by DOD, we believe that
the legislative requirements could ultimately result in the attainment
of higher levels of knowledge about requirements, technologies, costs,
and schedules before DOD commits to a new development program--a best
practice that much of our work over the past decade has emphasized. At
the same time, DOD must also move towards a joint, portfolio management
approach to weapon system acquisitions--with functionally aligned
entities that have the requisite responsibility, authority, and control
over resources--in order to effectively prioritize requirements, make
informed trade-offs, and achieve a balanced mix of weapon systems that
are affordable, feasible, and provide the best military value to the
warfighter.
LEASING OF MAJOR WEAPONS PROGRAMS
32. Senator McCain. Secretary Young and Ms. Schinasi, in the 109th
Congress, this committee passed legislation that was enacted into law
which requires that, before acquiring combat vehicles, aircraft, or
vessels under a lease, the Secretary of Defense certify to Congress
that leasing these systems is more cost-effective than buying them.
This legislation was meant to reverse the tendency for the Services
toward leasing of weapon systems by directing the Department to treat
leases the same way as a purchase and to ensure a more rigorous,
disciplined process supported by adequate empirical data for preparing
and reviewing candidate programs for leases. In your view, has this
legislation had its desired effect and improved acquisition processes,
thereby injecting proper oversight to costs and pricing, among other
things, and ensuring that monstrosities like the Boeing tanker lease do
not occur again?
Mr. Young. There have been no major lease proposals subject to the
provisions of the statute since it was enacted in January 6, 2006.
Ms. Schinasi. We have not evaluated the effects of the recent
legislation on DOD's use of equipment leases. However, the legislation
addressed some of the problems and concerns we previously raised about
leasing by providing direction to treat leases the same way as
purchases and to use a more rigorous, disciplined approval process. In
addition, while we have not taken a position on the overall policy of
leasing versus purchasing defense equipment, we believe an analysis of
the costs and benefits should be done on a case-by-case basis, and
should consider issues in addition to cost, such as the nature of the
equipment, the criticality of the need, readiness impacts, and
industrial base issues. Also, to make informed judgments on resource
allocation, decisionmakers need accurate comparisons of the relative
long-term effects of acquisition decisions. Before the recent
legislation was enacted, we noted that leases could obscure those
comparisons. The military Service was not required to set aside funds
for the full term of the lease (as it would for a purchase). In
addition, the lease would likely be paid through the operation and
maintenance budget and would not have to compete for procurement
funding with other defense priorities. The recent legislation directs
that a lease-purchase shall be treated as an acquisition, subject to
all applicable statutory and regulatory requirements for defense weapon
systems, and cannot use operation and maintenance funds.
INAPPROPRIATE LOBBYING BY THE SERVICES FOR WEAPON SYSTEMS
33. Senator McCain. Secretary Young, against the backdrop of wholly
inappropriate communications between the Air Force and the Boeing
Company that facilitated the folly that we now know as the Boeing
tanker scandal, at the request of this committee, the DOD IG has opened
an investigation to examine apparently improper communications between
Air Force officials and Boeing on the C-17 program, in a manner that
induced the company into putting up millions of its shareholders'
dollars to keep the production line for spare parts associated with
that program open. As you of course appreciate, doing so was contrary
to the administration's commitment to the program of record and could
compromise other Department-wide acquisition priorities. What are your
thoughts about the appropriateness of the Air Force's role in
influencing earmarks then, in the Boeing tanker scandal, and now, in
lobbying for nearly $4 billion in C-17 aircraft?
Mr. Young. I am not aware of any such communications, but I do
discourage such actions. It would be entirely inappropriate to have any
such communications with a contractor, other than via formal
contracting actions.
34. Senator McCain. Secretary Young, as the DOD's top acquisition
executive and number three official, is this type of Service lobbying
helpful as you determine priorities across all the Services?
Mr. Young. I am not aware of any such lobbying efforts, and I do
not condone efforts to undermine full support for the President's
budget.
35. Senator McCain. Secretary Young, what can be done to end this
practice of blatant and aggressive Service lobbying for huge weapons
systems, the purchase of which may compromise defense-wide procurement
priorities?
Mr. Young. I am not aware of any such lobbying efforts, and I do
not condone efforts to undermine full support for the President's
budget.
36. Senator McCain. Secretary Young, what policies can be
instituted within DOD to ensure that even into future administrations,
the same problem will not occur?
Mr. Young. I do not condone efforts to undermine support of the
President's budget. As I have stated, I am not aware of the lobbying
efforts you have described and believe it is inappropriate to comment
on policy changes while the DOD IG has an ongoing investigation.
USE OF OTHER TRANSACTION AUTHORITY FOR MAJOR WEAPONS SYSTEMS
37. Senator McCain. Secretary Young and Ms. Schinasi, in the 109th
Congress, this committee investigated the Future Combat System (FCS)
Other Transaction Authority (OTA) and determined that FCS OTA
negotiated by Boeing and the Army lacked many of the standard legal
protections that accompany major DOD acquisitions. This committee
passed legislation that was enacted into law which restricts the DOD
from buying large weapons systems under a prototype contract which does
not provide the government with a number of significant protections,
including cost and pricing data, Truth in Negotiations Act, and
Procurement Integrity Act protections, among other things. Did this
legislation significantly improve the Department's oversight and stop
the growing practice by certain Services to extend OTA to production
contracts, as was the case with the FCS?
Mr. Young. The Department implemented a rigorous review and
approval process to implement section 823 of the NDAA for Fiscal Year
2006. It includes the requirement for me, as the Under Secretary of
Defense for Acquisition, Technology, and Logistics, to approve the use
of Other Transaction Authority for a prototype project that is expected
to cost the DOD in excess of $100,000,000. This process has ensured
that the Other Transaction Authority is used only for prototype
projects.
Ms. Schinasi. We have not looked at the DOD-wide effect of the
legislation passed by the committee as described in the Senate report
accompanying the NDAA for Fiscal Year 2006. That legislation included
two specific provisions that added to previous legislation on
contracting approaches; specifically:
(1) Prohibition of ``other transactions'' in excess of $100
million and ensuring that the Procurement Integrity Act (41
U.S.C. 423) applies to all such transactions; and
(2) Requirement for a specific authorization for the purchase
of major weapon systems under procedures established for the
procurement of commercial items. We have, however, reported in
2007 that the Army converted its ``other transaction
agreement'' (OTA) with the Lead Systems Integrator (LSI) for
the Future Combat System (FCS) program--the Boeing Company--to
a Federal Acquisition Regulation (FAR) based contract.\9\ A
FAR-based contract provides significant oversight mechanisms
for the government customer that are not required under an OTA.
These items were included in the FAR contract for FCS SDD as
definitized in 2006.
---------------------------------------------------------------------------
\9\ GAO, Defense Acquisitions: Role of Lead System Integrator on
Future Combat Systems Program Poses Oversight Challenges. GAO-07-380
(Washington, DC: Jun. 6, 2007).
CHANGES TO ACQUISITION REFORM
38. Senator McCain. Secretary Young and Ms. Schinasi, what specific
changes do you recommend in the area of acquisition reform, to ensure
that we can get the right equipment first and the best equipment at the
best price for the taxpayer?
Mr. Young. I have taken a number of actions to implement my vision
for Acquisition, Technology, and Logistics. My approach is focused into
four strategic thrust areas, each of which has a guiding principle,
desired outcomes, and specific initiatives with metrics or steps
against which we can measure progress. These four strategic thrust
areas are:
Define Effective and Affordable Tools for the Joint
Warfighter
Responsibly Spend Every Single Tax Dollar
Take Care of Our People
DOD Transformation Priorities
In identifying both the problems we face, and the solutions we are
seeking, I am committed to transparency throughout the acquisition
process. It is my belief that we need to be clear, concise, and open
with regard to what the DOD is seeking, and the work it is completing.
As I mentioned in my testimony, it is our responsibility as
stewards of tax dollars to ensure complete openness, fairness, and
objectivity in the acquisition process. I intend that we will be
accountable to ensure the success of these initiatives.
I have charged the acquisition team to create an inspired, high-
performing organization where:
We expect each person must make a difference;
We seek out new ideas and new ways of doing business;
We constantly question requirements and how we meet them;
We recognize that we are part of a larger neighborhood of
stakeholders interested in successful outcomes at reasonable
costs.
My testimony highlighted specific initiatives that capture these
philosophies and are fundamental to transforming the acquisition
process and workforce. They are:
(1) Program Manager Empowerment and Accountability
Program managers play a critical role in developing and fielding
weapon systems. I have put in place a comprehensive strategy to address
improving the performance of program managers.
(2) Configuration Steering Boards
I have directed the military departments to establish CSBs. My
intent is to provide the program manager a forum for socializing
changes that improve affordability and executability. Boards will be in
place for every current and future ACAT I program and will review all
proposed requirement changes, and any proposed significant technical
configuration changes which potentially could result in cost and
schedule changes. Boards are empowered to reject any changes, and are
expected to only approve those where the change is deemed critical,
funds are identified, and schedule impacts are truly mitigated.
(4) Prototyping and Competition
I have issued policy requiring competitive, technically mature
prototyping. My intent is to rectify problems of inadequate technology
maturity and lack of understanding of the critical program development
path. Prototyping employed at any level--component, subsystem, system--
provides the best value to the taxpayer.
(5) AT&L Notes
I am writing weekly notes to the acquisition workforce. These notes
share lessons learned and provide leadership guidance on expected
procedures, processes and behaviors within the acquisition workforce.
These notes provide a powerful training tool directly from me.
Ms. Schinasi. The first step toward improving acquisition outcomes
is implementing a new DOD-wide investment strategy for weapons systems.
We have reported that DOD should develop an overarching strategy and
decisionmaking processes that prioritize programs based on a balanced
match between customer needs and available department resources--that
is the dollars, technologies, time, and people needed to achieve these
capabilities.\10\ We also recommended that capabilities not designated
as a priority should be set out separately as desirable but not funded
unless resources were both available and sustainable. This means that
the decisionmakers responsible for weapon system requirements, funding,
and acquisition execution must establish an investment strategy in
concert. Once DOD has prioritized capabilities, it should work
vigorously to make sure each new program is executable before the
acquisition begins. More specifically, this means assuring requirements
for specific weapon systems are clearly defined and achievable given
available resources, and that all alternatives have been considered.
DOD should also require all new programs have manageable development
cycles, realistic cost estimates, and have planned and programmed full
funding for the entire development cycle. Finally, DOD should pursue an
evolutionary path toward meeting user needs rather than attempting to
satisfy all needs in a single step. One way to do this is to limit the
time available for weapon system development. Constraining development
cycles would make it easier to more accurately estimate costs, and as a
result, predict the future funding needs and effectively allocate
resources. Program managers could also be kept for the entire
development cycle. It would also force programs to conduct more
detailed systems engineering analyses, lend itself to fully funding
programs to completion, and thereby increase the likelihood that their
requirements can be met within established timeframes and available
resources.
---------------------------------------------------------------------------
\10\ GAO, Best Practices: An Integrated Portfolio Management
Approach to Weapon System Investments Could Improve DOD's Acquisition
Outcomes, GAO-07-388 (Washington, DC: Mar. 30, 2007); and Best
Practices: Better Matching of Needs and Resources Will Lend to Better
Weapon System Outcomes, GAO-01-288 (Washington, DC: Mar. 8, 2001).
FIXED-PRICE CONTRACTS
39. Senator McCain. Secretary Young and Ms. Schinasi, in the 109th
Congress, this committee passed legislation that was enacted into law
which requires that DOD gives a preference to fixed-price contracts for
major developmental defense programs. Fixed-price contracts shift the
risk to the contractor and incentivizes the contractor to increase the
reliability of the system components. GAO determined that cost-type
contracts cost the taxpayer $80 billion in cost overruns over the past
decade. What has been the practical effect of this legislation in
helping the military Services to not continue the practice to over-
promise capabilities and under-estimate costs of developing and buying
weapon systems?
Mr. Young. Section 818 of the John Warner NDAA for Fiscal Year 2007
requires the Milestone Decision Authority (MDA) to select the contract
type for a development program at the time that Milestone B is approved
and to make a written determination if the MDA authorizes the use of a
cost type contract. The required determination has been made for each
program for which a cost type contract has been authorized since the
enactment of this requirement. In each case, the facts have justified
the use of a cost type contract because there have been uncertainties
involved in contract performance that did not permit costs to be
estimated with sufficient accuracy to permit use of a fixed price
contract, and the circumstances justified proceeding with Milestone B
approval before the program risk could be reduced.
Ms. Schinasi. We have not assessed the practical impact of this
legislation on DOD's choice of contract types for major defense
acquisition programs. DOD awards cost reimbursement type contracts for
the development of major weapon systems because of the risk and
uncertainty involved with its programs. Because the government often
does not perform the necessary systems engineering analysis before a
contract is signed to determine whether a match exists between
requirements and available resources, significant contract cost
increases can occur as the scope of the requirements change or become
better understood by the government and contractor. The legislation
addressed this issue by stating that DOD's decisions to use cost-
reimbursable contracts for weapon system development cannot be driven
by its failure to meet other statutory requirements designed to put
programs on solid footing at their start. In other words, DOD can not
use contract type to manage risks that could be avoided through better
management of its acquisition system. Examples of these requirements
include certifying that: the technology in the program has been
demonstrated in a relevant environment; the program demonstrates a high
likelihood of accomplishing its intended mission; the program is
affordable when considering the per unit cost and the total acquisition
cost in the context of the total resources available during the period
covered by the Future Years Defense Program (FYDP) submitted during the
fiscal year in which the certification is made; and the DOD has
completed an AOA with respect to the program. As a result, the
legislation has the potential to improve the way DOD does business
because it ties contracting strategy to the development of sound
executable business cases.
REALISTIC BUDGET ESTIMATES
40. Senator McCain. Secretary Young and Ms. Schinasi, there is a
lot of pressure on the military Services to gain funding for a weapons
program. According to GAO, to gain funding, often a program manager
will drastically under-estimate the cost of a program. Then once in the
FYDP, the true costs begin to emerge. What causes a program manager to
go to these extremes and how can DOD avoid that in the future?
Mr. Young. I fundamentally disagree with the implication that our
program managers intentionally or deliberately underestimate costs.
Rather, underestimating results from a lack understanding of what is
needed to satisfy warfighter requirements, exercise requirements, a
lack of technology maturity, weakness in software development and what
is needed to fully integrate and test the system, all combined with
schedules and budgets that are too optimistic. Frankly, in many cases,
the program manager tells the enterprise what a program will cost and
then the defense enterprise budgets significantly less money and asks
the program manager to deliver the full result on schedule. There are
entirely too many programmer and comptroller decisions to underfund a
program. A classic example is the DDX program, where initial budget,
provided DDX procurement costs at levels about 20 percent greater than
DDG-51s in order to buy a destroyer with twice the displacement tonnage
and significantly more technology.
Thus, to improve program outcomes we must ``start programs right.''
I have instituted a Materiel Development Decision (MDD) as the formal
entry point into the acquisition process. The MDD will assess potential
materiel solutions and is mandatory for all programs. I am insisting
that, with rare exceptions, we conduct robust a Technology Development
phase that provides for two or more competing teams producing
prototypes of the system and/or key system elements prior to, or
through, Milestone B. Prototypes reduce technical risk, validate
designs and cost estimates, evaluate manufacturing processes, and
refine requirements. These steps will ensure that with program
initiation at Milestone B the program is positioned to develop a system
or an increment of capability; complete full system integration
(technology risk reduction having occurred during Technology
Development), and develop an affordable and executable manufacturing
process. The improvement in program definition resulting from
``starting programs right'' will result in more realistic cost
estimates.
I am also holding the acquisition team, including program managers,
accountable for program performance. For program managers, there is a
renewed emphasis on tenure agreements so that program managers will
remain with their programs longer. Signed Program Management Agreements
(PMAs) establish a ``contract'' between a program manager and the
enterprise setting expectations for cost, schedule, and performance
against the Acquisition Program Baseline. The PMA must be
reaccomplished if conditions change. Overarching CSBs review
requirements changes and technical configuration changes that have the
potential to increase costs or delay schedules.
This combination of better definition at the start of the program
and holding the acquisition team accountable will provide for more
realistic cost estimates and improve program outcomes.
Ms. Schinasi. Inaccurate cost estimates are often the result of
limited knowledge and optimistic assumptions about requirements and
technologies. The acquisition environment encourages launching programs
that embody more technical unknowns and less knowledge about the
performance and production risks they entail. In the absence of
knowledge, cost estimators must rely heavily on assumptions about
system requirements, technology, and design maturity as well as the
time and funding needed. In addition, a new weapon system is encouraged
to possess performance features that significantly distinguish it from
other systems and promises the best capability. A new program will not
be approved unless its costs fall within forecasts of available funds
and, therefore, look affordable. Because cost and schedule estimates
are comparatively soft at the time, successfully competing for funds
encourages the program's estimates to be squeezed into the funds
available. This practice often leads to programs being initiated
without adequate funding. Further, as programs progress and costs
increase, DOD often makes unplanned and inefficient funding
adjustments, such as moving money between programs, deferring work and
associated costs into the future, or reducing procurement quantities.
Ultimately, such reactive practices obscure true program costs and
contribute to the instability of many programs and poor acquisition
outcomes.
In a recently issued report we made recommendations that we believe
would help DOD avoid these cost estimating and funding problems in the
future.\11\ Specifically we recommended that the Secretary of Defense
take the following actions:
---------------------------------------------------------------------------
\11\ GAO, Defense Acquisitions: A Knowledge-Based Funding Approach
Could Improve Major Weapon System Program Outcomes, GAO-08-619
(Washington, DC:Jul. 2, 2008).
Develop and implement a strategy to bring the
department's current portfolio into balance by aligning the
number of programs and the cost and schedule of those programs
with available resources. In developing and implementing a
strategy, the department should determine ways to prioritize
needs and identify whether the budget and the FYDP should be
increased to more accurately reflect the actual costs of
current programs or whether the portfolio of current programs
should be reduced and lower-priority programs terminated to
match available resources.
Require that all new programs have manageable
development cycles, realistic cost estimates, and have planned
and programmed full funding for the entire development cycle.
Require all cost estimates submitted for funding a
program at milestone decisions to be reported as a range of
likely costs and reflect the associated levels of risk and
uncertainty. At Milestone A, require estimates that allow for a
wide range of likely costs. At Milestone B, require estimates
that, based on knowledge gained, are more precise.
PASS-THROUGH CHARGES
41. Senator McCain. Secretary Young and Ms. Schinasi, in the 109th
Congress, this committee passed legislation that was enacted into law
which requires that DOD prescribe regulations prohibiting excessive
pass-through fees on defense contracts and subcontracts. I understand
that DOD is requiring a contract clause in all eligible contracts,
which allows it to recoup contractor payments that contracting officers
determine to be excessive. Has this worked?
Mr. Young. To implement section 852 of the NDAA of Fiscal Year
2007, on April 26, 2007, we published an interim rule changing the
DFARS. However, this first interim rule resulted in significant public
comment in response to the rule. Consequently, we made significant
changes to the first interim rule, and we issued a second revised
interim rule on May 13, 2008. As a result, there has not been adequate
time since the issuance of the second interim rule to assess the impact
of this legislation.
Ms. Schinasi. At this point, it is too early to determine the
effectiveness of DOD's efforts to prohibit excessive pass-through
charges. In May 2008, DOD issued a second interim rule that includes a
solicitation provision and a contract clause requiring offerors and
contractors to identify the percentage of work that will be
subcontracted and, when subcontract costs will exceed 70 percent of the
total cost, to provide information on indirect costs and profit and
value added with regard to the subcontract work. While this provision
and the clause are currently in place, we have not examined their
effectiveness. In addition, DOD has yet to develop implementing
guidance for contracting officers that addresses the rule or
recommendations from our January 2008 report, which include taking
contract risk into account when assessing value added.\12\ Further,
while the regulation allows contracting officers to recoup charges that
they determine to be excessive, it does not specify the roles of the
Defense Contract Audit Agency (DCAA) and the Defense Contract
Management Agency (DCMA)--organizations that play a key role in
assessing cost information. Officials from both of these agencies
indicated that they would play a role in implementing this regulation
and in assisting contracting officers in determining whether costs are
excessive, but have not fully considered the extent or the resources
needed to do so. DOD procurement policy officials have told us that, in
accordance with the recommendations in our January 2008 report, they
will develop implementing guidance and emphasize that contracting
officers need to include contract risk in conducting their contractor
value added assessments, document the results, and obtain assistance
from DCAA and DCMA as appropriate.
---------------------------------------------------------------------------
\12\ GAO, Defense Contracting: Contract Risk in a Key Factor in
Assessing Excessive Pass-Through Charges, GAO-08-269 (Washington, DC:
Jan. 25, 2008).
42. Senator McCain. Secretary Young and Ms. Schinasi, I understand
that the DOD is also requiring detailed information from contractors on
their value-added when subcontracting costs reach 70 percent or more of
total contract cost. However, the GAO has reported that the DOD rule on
this issue needs improvement and specifically, more guidance to ensure
effective implementation and consistent application of cost and pricing
tools to mitigate excessive costs. What is DOD doing to address this
critical issue to provide greater insight into DOD's supply chain and
costs--information companies say they use to mitigate costs?
Mr. Young. As a result of numerous public and government comments
received, we revised the initial interim rule on Excessive Pass-Through
Charges that we had added to the DFARS on April 26, 2007. We issued the
revised DFARS interim rule on May 13, 2008. Once the final DFARS rule
is in place, the Department intends to issue extensive guidance in our
Procedures Guidance and Instructions (PGI) to ensure a clear
understanding of the new DFARS rule on Excessive Pass-Through Charges.
Ms. Schinasi. Historically, DOD has lacked insight into its supply
chain and subcontractor costs, raising questions about the value added
when multiple layers of contractors perform the work. DOD contracting
officials generally apply tools in Federal and DOD acquisition
regulations to assess contractor value added. However, as we stated in
our January 2008 report, the extent to which these tools are applied
depends on the contract risk--that is, whether the contract was
competed and whether the type of contract required the government to
pay a fixed-price or costs incurred by the contractor. Under DOD's
interim rule, prime contractors are required to inform a contracting
officer of the value added that they are providing when subcontract
costs exceed 70 percent of the total contract value. While the rule may
enhance insight into contractor value added under these circumstances,
it alone will not address DOD's challenges in obtaining insight into
its supply chain and costs. Successfully identifying and preventing
excessive pass-through charges requires DOD to obtain insight into
their supply chain and incorporate contract risk into the assessment of
contractor value added.
AWARD AND INCENTIVE FEES
43. Senator McCain. Secretary Young and Ms. Schinasi, in the 109th
Congress, this committee passed legislation that was enacted into law
which ensures award and incentive fees in military contracts reward
only outstanding performance by linking them to excellent acquisition
outcomes and are used appropriately as an incentive for excellent
performance. This legislation limits taxpayers' exposure in defense
contracts. The GAO reported that the DOD's use of neither award nor
incentive fees was effective in helping the Department achieve the
outcomes it desired. Has the statute and following DOD regulations
improved this situation and reversed what the GAO referred to DOD's use
of award and incentive fees as a waste of taxpayers' dollars?
Mr. Young. The Department initially revised award fee policies in
response to the GAO report in a memorandum signed out by the Under
Secretary of Defense (AT&L) on March 29, 2006. Also, in response to
section 814 of the John Warner NDAA for Fiscal Year 2007, two
additional memoranda, signed by the Director, Defense Procurement and
Acquisition Policy (DPAP) on April 24, 2007, were issued focusing on
both award fee and incentive fee contracts and effective for all
solicitations issued on August 1, 2007, and thereafter. Since most
contracts based on this latest policy have only recently been awarded,
it is too early to gauge effectiveness. Nonetheless, I remain strongly
committed to ensuring the Department's use of award and incentive fee
contracts is properly incentivizing contractor performance.
Ms. Schinasi. DOD has taken actions to strengthen the link between
award and incentive fees and desired program outcomes, which could
increase the accountability of DOD programs for fees paid and of
contractors for results achieved. DOD is collecting data that could be
used to evaluate the effectiveness of DOD's actions, but we have not
yet conducted any follow up analysis. In response to congressional
actions and GAO recommendations, the Director, DPAP issued a memo in
April 2007 that required each military department and defense agency to
collect information on the amount of award fees and performance
incentives available and paid as well as the contractor's cost and
schedule performance for all contracts with a value of greater than $50
million.\13\ This information is to be reported to the Director, DPAP,
and used by the military Services and defense agencies to ensure that
the fees paid are commensurate with performance. The policy stated that
this data collection was supposed to occur semi-annually starting with
the 6 month period ending June 30, 2007.
---------------------------------------------------------------------------
\13\ GAO, Defense Acquisitions: DOD Has Paid Billions in Award and
Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66
(Washington, DC: Dec. 19, 2005).
RESISTANCE TO CHANGE
44. Senator McCain. Secretary Young, the problems of cost growth
and delays in getting new weapons into warfighters' hands seem to be
persistent despite the efforts of DOD and Congress to fix them. We have
given the Department more money and that has not worked; DOD has
changed acquisition policies to reflect best practices and that has not
worked; commissions and panels have been chartered; and yet nothing
changes. Why are these issues so immune to change?
Mr. Young. I think things can and have changed. But those changes
will take some time to be visible in the macro level cost performance
of the entire acquisition portfolio. I focus a tremendous amount of
attention on ensuring we have things ``right'' before we start a major
program. Congress has instituted a number of certifications that are
useful in this respect, but those have been in place less than 3 years
and therefore applied to roughly 10 percent of the Major Defense
Acquisition Program (MDAP) portfolio.
I require each MDAP to have a CSB to review all proposed changes to
a program with the intent to ensure requirement ``creep'' is minimized,
cost growth is understood and addressed proactively, and trade-offs are
considered at senior levels to preserve cost and schedule objectives.
These trade-offs are expected to include reducing capability if
necessary. However, committing to always reduce content or requirements
in each and every program that experiences cost or schedule growth
doesn't consider the strategic or performance impacts that are
essential to the warfighter and national security. We have to be smart
and balanced in our approach and manage program-by-program, while
considering impacts across the DOD enterprise.
I also seek to ensure we have the right kinds of contractual
mechanisms to incentivize industry to control costs, and avoid
rewarding poor cost performance with unreasonable profit margins. I
want industry to clearly understand the difference between good and
poor performance.
We also have to realize that some cost increases in programs are a
result of valid reasons. Some cost increases in programs are due to
choices to increase quantities or content for legitimate reasons. We
need to recognize that program estimates are subject to a variety of
factors that are impossible to control in the long run. Assumptions
about labor rates, productivity and materials costs are some factors
that can significantly affect an estimate. We try to base our estimates
on the best available data at the time, but usually cost estimates are
developed many years before a system is actually produced. In addition
to the program office estimate, I ensure that an independent cost
estimate is also done prior to program initiation.
Some cost and schedule growth should be avoidable with good
management and oversight and it is those issues that I attempt to
address with the policies that I have put forth and am enforcing.
Finally, it is important to note that many, many programs are
successfully executed. The media and congressional attention is focused
on the much smaller set of programs which do indeed have cost growth
and delays that we must take action to avoid.
45. Senator McCain. Secretary Young, what makes your efforts to
address them different than all those efforts in the past?
Mr. Young. My efforts are different than historical efforts because
I am personally enforcing policies that:
1. Ensure tenure agreements and program management agreements
exist to improve accountability.
2. Ensure CSBs are used to review and approve or reject
requirement changes that may increase costs or schedules.
3. Ensure that Defense Support Teams are used to accurately
assess technical risks and resolve technical and management
challenges.
4. Ensure competitive prototyping is used to reduce cost and
schedule risk during development.
5. Ensure technology readiness assessments are performed and
that no technology moves forward before it is ready to do so.
6. Ensure that the independent cost estimates are fully
considered during any MDAP's milestone review and that
realistic cost estimates and schedule projections are adopted.
7. Ensure that programs consider cutting content prior to
realizing cost or schedule growth and impacting other
acquisition programs.
It will take time to show the impact of my commitment to enforce
these policies, but I believe that lasting change starts with good
common-sense policies that are measurable, enforceable, and widely
accepted as good policy. I believe my policies are embraced as good
ideas by the acquisition community and Congress. My actions will be
consistent with these policies, and I believe that future leaders will
be held accountable for their decisions according to these policies.
46. Senator McCain. Secretary Young, during your career, you have
seen things from the industry perspective, congressional perspective,
military Service perspective, and now the Department's perspective.
What needs to change to get the incentives for each of those groups
aligned to get better outcomes on individual programs?
Mr. Young. I agree that alignment among stakeholders in the domains
you mention, as well as with resource and requirements stakeholders, is
necessary for better outcomes on individual programs. Gaining that
alignment for each program is one of the key challenges of my current
position. My approach is continuous involvement of all domains as
programs are conceived, developed, tested, fielded and sustained. One
of the domains may be leading the definition of the program at a
particular stage, as does the requirements domain early in program
definition; but even in that example industry, resources and
acquisition domains must be represented. When a program transitions to
the development and production phases, I ensure the other domains
remain involved to maintain the alignment achieved during the
requirements phase. My bottom line for stakeholder alignment on
performance, cost and schedule is continuous involvement--no domain
ever totally ``owns'' a program during its life-cycle--all domains must
be continuously involved and all aspects of the program must be totally
transparent to, and understood by, key stakeholders in each of the
domains.
At the macro level, I see a need for several changes. The hardest
change is to change the culture. I believe the competition for funds
among the Services is a cancer on the defense enterprise. This
competition encourages overstating requirements and excessive inventory
objectives. This competition leads to underfunded development programs
and low rate procurement programs--partially driven by a desire to
compete for more resources within the Pentagon, at the White House, and
with Congress. I offer as evidence the Service Unfunded Requirements
(UFR) lists. These cultural behaviors need to change.
The Services budget, allocate and execute the vast majority of DOD
funds. I have repeatedly found that joint programs struggle to gain
adequate manpower, budget, and support. Alternately, the Services have
many Service-unique programs that could be joint. For example, each
Service is buying or developing their own unique satellite
communications terminal. In many areas, these Service-unique systems,
which are not interoperable, create operational problems for combatant
commanders (COCOMs). As the Department moves to greater reliance on
network systems and shared intelligence, surveillance and
reconnaissance, these issues grow even more complicated and problematic
for the COCOMs. Thus, another change required is greater corporate
activism and direction in the formulation of program requirements and
budgets. OSD leadership must drive and fund jointness and
interoperability.
A related issue is derived requirements applied by military
technical certification authorities. The application of technical
authority standards to the VH-71 Presidential helicopter led to a
significant and costly redesign of what was planned as a modified
commercial helicopter. There are very few mechanisms that question
whether the application of technical authority results in costly
excessive margins or good value for the taxpayer. We need to review and
pragmatically change the Services' implementation of technical
authority.
Another needed change is greater funding stability. Program
managers are held accountable for successful execution and blamed for
cost growth. However, program managers have almost no control over
their budgets. The programming and budgeting offices in the Services
and OSD make final decisions on program budgets. End game cuts, trims,
taxes, balancing and other reductions become fact of life adjustments
to a program manager's budget. A program manager's budget is generally
linked to a signed contract. When the budget is adjusted by the
``system,'' the program manager has to replan his work and schedule and
potentially renegotiate the contract. As many people know, changing
your house plans during construction is expensive--this is equally true
in defense acquisition.
Similarly, we must stop changing requirements. As we speak, the
Navy is reconsidering a DDX requirement that has been validated for
over 10 years and led to the expenditure of over $8 billion. We need
greater discipline in requirements, and we should avoid letting the
rotation of requirements officers lead to churn in requirements, and
thus program execution plans.
In addition to the cultural and process changes, there are a number
of changes we are making in the actual management and execution of DOD
programs. For example, I am insisting that, with rare exceptions, we
conduct a robust Technology Development phase that provides for two or
more competing teams producing prototypes of the system and/or key
system elements prior to, or through, Milestone B. Prototypes reduce
technical risk, validate designs and cost estimates, evaluate
manufacturing processes, and refine requirements. These steps will
ensure that with program initiation at Milestone B the program is
positioned to develop a system or an increment of capability; complete
full system integration (technology risk reduction having occurred
during Technology Development), and develop an affordable and
executable manufacturing process.
I have directed the establishment of Configuration Steering Boards
to address program changes with the potential to drive cost increases
and schedule delays. Proposed requirement changes are coordinated with
key program stakeholders throughout the program's life. I also require
technical maturity of programs before program initiation (Milestone B).
Where I have questions about a program's readiness for program
initiation, I use Independent Program Assessments, Defense Support
Teams, and other tools to do a thorough assessment of the program and
to present their findings to me and other members of the Defense
Acquisition Board. I also give explicit funding and schedule direction
to programs at their milestone decisions, and ensure those funding
directions are implemented in the budget process. In addition, I am
focusing a great deal of attention on the contractual incentives put in
place for programs I review to ensure we incentivize improved outcomes
and not reward poor ones.
The Department is engaging with industry continuously. That
dialogue occurs not only on a program-by-program basis where industry
holds a contract, but also via industrial associations that involve
many contractors. For example, we participate in the National Defense
Industrial Association's Industrial Committee on Program Management
(ICPM). The ICPM is working with us on topics of interest to both
industry and government, for example the use of new Program Startup
Workshops and improved application of Earned Value Management Systems.
Forums like this also help align interests of the various domains.
INSTITUTIONALIZING BEST PRACTICES
47. Senator McCain. Secretary Young, with a new administration
taking office next year, you may or may not find yourself in your
current position. What actions are you taking to ensure your
initiatives take hold and endure potential leadership changes?
Mr. Young. I have undertaken a number of initiatives to implement
my vision for Acquisition, Technology, and Logistics. Two of these
initiatives, which are fundamental to transforming the acquisition
process, are CSB and Competitive Prototyping. Using the authorities of
the Office of the Under Secretary of Defense, I have directed the
establishment of Departmental policy for CSBs and Competitive
Prototyping.
Concerning CSBs, my intent is to provide the program manager a
forum for socializing changes that improve both affordability and
executability. Boards will be in place for every current and future
ACAT I program and will review all proposed requirement changes and any
proposed significant, technical configuration changes which could
result in cost and schedule changes. These boards are empowered to
reject any changes, and expected to only approve changes deemed
critical, in which funds are identified and schedule impacts are truly
mitigated.
Also, I have issued policy requiring competitive, technically
mature prototyping. My intent is to rectify problems of inadequate
technology maturity as well as a lack of understanding of critical
program development paths. Prototyping employed at any level-component,
subsystem, system-whatever provides the best value to the taxpayer.
It is my intent that these polices be institutionalized in the
forthcoming update to DOD Instruction 5000.2. As importantly, I have
written weekly AT&L notes to the broadest possible acquisition team
audience. These notes convey my principles and lessons, seeking to
change the acquisition community culture and develop better practices.
These efforts to influence the broadest possible audience in the
acquisition community represent critical efforts to produce lasting,
enduring improvements.
48. Senator McCain. Secretary Young, given the problems that DOD
has had ensuring that sound policy translates into practice, what do we
need to do to support you on this?
Mr. Young. I believe we have the necessary authority and the
management ability to translate those policies into effective day-to-
day business practice and improved acquisition outcomes. However,
funding instability detracts from our ability to achieve those
outcomes. While we are doing all we can to ensure that program costs
are accurately estimated and fully funded, we would appreciate your
support in eliminating funding instability as an issue that inevitably
contributes to increased costs and extended cycle times.
STRATEGIC VISION
49. Senator McCain. Secretary Young, in your Acquisition,
Technology, and Logistics strategic goals implementation plan, you
stated that DOD needs to accurately price programs and insist that the
program's schedule and budget reflect this realistic pricing. How do
you plan to accomplish this?
Mr. Young. Strategic Thrust 2 of my Strategic Goals Implementation
Plan describes how I intend for the Department to responsibly spend
every single tax dollar. We must ensure that every program reflects
realistic costs and schedules. To do this, we must adhere to proven
practices and institute new promising ones. It has been the
Department's policy to fund programs at the Cost Analysis Improvement
Group's (CAIG) estimate. Over the years, this has proven to be the most
accurate prediction of actual costs. We will continue this policy. To
ensure that the cost estimates and programs deliver expected
capabilities in a timely manner, I am supporting and monitoring a
number of initiatives, including the following:
Competitive Prototyping: Successful competitive prototyping
will inform us on the realism of requirements, mature
technology before final development phases, and significantly
improve our cost estimates.
Technology Readiness Assessments (TRA): TRAs will ensure
technology is appropriately mature at each sequential phase of
development and ensure the Department budgets adequate funds
for necessary technology maturation.
Incentive Policies: Careful, aggressive use of profit and
incentives are critical to the program manager's efforts to
achieve cost control and disciplined behavior by industry.
Enhanced Acquisition Decision Memorandum (ADM): I am signing
ADMs which specify the requirements document and its date and
prohibit changes to program requirements. The ADMs also require
full program funding.
CSBs: CSBs will review requirements and technical
configuration changes, which have the potential to result in
significant increases to program cost and schedule.
Concept Decision (CD): CD is designed to develop DOD policy
and procedures that will synchronize affordable, risk-informed,
strategic investment decisions to ensure that priority joint
warfighter needs are addressed. It will result in portfolio-
based investment decisions that enable predictable acquisition
performance that is responsive to warfighter needs.
Life Cycle Management (LCM): By integrating LCM principles
into the acquisition and sustainment processes, we will
increase system readiness while lowering total life cycle
costs.
50. Senator McCain. Secretary Young, who will be responsible for
developing these cost estimates and program baselines?
Mr. Young. The Department has an established process for developing
cost estimates and program baselines. The responsibility is shared
among offices from the requirements, programming, budgeting,
acquisition, and other appropriate functional communities. Depending on
the size of the program, this is done at either the component or OSD
level. Each Service has one or more independent cost estimating offices
which operate independent of the program offices. After the cost
estimates and program baselines are developed, they must be approved.
Again, depending on the size of the program, they may be approved by
the SAE, or, if the program is an Acquisition Category (ACAT) ID
program, they must be approved by me. For ACAT ID programs, my policy
is to ensure the program is funded at the level estimated by the CAIG.
This estimate, over the years, has consistently been the most accurate.
I will not approve cost estimates and program baselines unless I am
convinced they reflect accurate pricing and scheduling, and that they
recognize the technical risks involved.
51. Senator McCain. Secretary Young, you added that DOD would then
hold itself accountable for delivering to the schedules and budgets
established. What does it mean to hold people or programs accountable
for delivering these results?
Mr. Young. I am insisting that program managers build coherent
acquisition programs with manageable risk. These programs must then be
fully funded to the program manager or an independent cost estimate.
Finally, the requirements for the program cannot change. If these
criteria are met, I will have a basis for holding program manager's
fully accountable and taking management or disciplinary action for poor
performance.
Program Manager Empowerment and Accountability is a piece of the
strategy I am putting into place which captures this philosophy.
Program managers play a critical role in developing and fielding the
weapon systems. I have put into place a comprehensive strategy to
address improving the performance of program managers. Key to this is
program manager tenure agreements for ACAT I and II programs, our
largest programs. My expectation is that tenure agreements should
correspond to a major milestone, and last approximately 4 years.
Also, I think we have to make improvement in the education and
training of our program managers. Our current acquisition program
execution is deficient, and some responsibility for this must be
attributed to our education and training programs.
Another fundamental piece I have established is Program Management
Agreements--a contract between the program manager and the acquisition
and requirements/resource officials--to ensure a common basis for
understanding and accountability. This ensures that plans are fully
resourced and realistically achievable and that effective transparent
communication takes place throughout the acquisition process.
PROTOTYPING AND COMPETITION
52. Senator McCain. Secretary Young, you recently signed out a memo
calling for the increased use of prototyping and competition prior to
starting a development program to gain more knowledge about costs and
technical risks. What is your intent and how would you like to see this
implemented?
Mr. Young. My intent is to understand the technical risks inherent
in a system development effort through physical demonstrations that
help us reduce risk prior to initiating new programs. Competing teams
producing prototypes of key system elements will not only reduce
technical risk but also validate designs and cost estimates, evaluate
manufacturing processes, and refine requirements. In total, this
approach will also reduce time to fielding. Further, this approach can
help the DOD make source selection decisions based on hardware and
performance instead of thousands of pages of paper. This policy will be
implemented in the technology development phase for emerging
acquisition programs, and it will be included in the next publication
of DOD Instruction 5000.2.
53. Senator McCain. Secretary Young, do you expect programs to fund
full-up prototypes by competing contractors (fly-off)?
Mr. Young. Prototypes may be full-up systems or subsystems
depending upon the technical risks that need to be assessed. I expect
programs to fully fund the prototype activities that will be defined in
the technology development strategy for the program.
54. Senator McCain. Secretary Young, how does the approach outlined
in your memo differ from that used on the JSF and F-22 programs--both
of which held fly-offs but still experienced billions in cost growth
and years in schedule delays?
Mr. Young. Both the F-22 and F-35 JSF programs held thorough,
competitive prototyping phases that captured many of the key elements
identified in my September 19, 2007, memorandum. In both cases, the
prototypes provided valuable information that reduced program risk,
validated key technical concepts, and reduced costs.
The simple answer to this question is that the program manager must
carefully and wisely choose to prototype the right components to reduce
risk and provide confidence in production. The JSF prototypes did not
incorporate any production representative structure, even if only in
selected areas. As the prototypes were transitioned to a production
design, the short takeoff and vertical landing (STOVL) variant was
overweight. This fact is the dominant reason for JSF development cost
growth. I am less familiar with the prototype phase of F-22. However,
F-22 cost grew because of the highly integrated avionics architecture
and the demanding manufacturing process. I believe it is likely that a
detailed review of the history would reveal that the F-22 prototypes
failed to adequately focus prototype development effort on these key
issues.
The F-35 JSF held an almost 5-year Concept Development Phase (CDP).
During CDP, the 2 competing teams built 4 prototypes, and achieved 700
test points apiece. The CDP enabled the program to better understand
many of the risks involved in designing a family of common aircraft
that would satisfy the requirements for three U.S. Services and eight
international partners. While the JSF program experienced cost growth
and schedule delays, the JSF prototype efforts almost certainly helped
avoid cost growth and schedule slips in other areas of the JSF program.
F-35 cost growth and schedule delay are mainly attributed to the
weight issues surrounding the design of the STOVL variant. The program
was extended during the SDD phase to make sure the design could meet
the rigorous requirements necessary to operate in the STOVL's
expeditionary role. Additional cost growth in the unit cost of the
aircraft is primarily the result of a reduced Department of the Navy
procurement objective, the rising cost of specialty metals, and
increased labor and overhead rates; all of which would have affected
the program regardless of the prototyping and competition phase.
The F-22 also conducted a thorough competition with two competitors
developing two prototype aircraft. The F-22 CDP was valuable in
validating the 5th generation capabilities in the areas of propulsion,
aircraft handling, and stealth. Much of the program cost growth
experienced by the F-22 program is attributed to technology challenges
associated with design complexities. These complexities led to numerous
restructures, caused funding instability and extended the Engineering
and Manufacturing Development phase to 14 years. In addition,
procurement quantities decreased due to changing national defense
strategies, the evolution of the less costly F-35 aircraft to
complement the capabilities of the F-22, and requirements to fund other
Department priorities.
55. Senator McCain. Secretary Young, what lessons learned did you
draw from those programs?
Mr. Young. The key lesson learned is that competitive prototyping
is an effective component for acquisition excellence and is only part
of a tool kit that includes stable requirements, mature technology,
manufacturing and integration levels, funding stability, upfront
integrated planning baselines, and CSBs.
SHIFT MORE RISK AND RESPONSIBILITY TO CONTRACTORS
56. Senator McCain. Secretary Young, we have recent examples, such
as the Expeditionary Fighting Vehicle and Advanced SEAL Delivery
System, in which the contractor delivered an item that failed to
perform. In both cases, the government accepted full responsibility and
gave the contractor a do-over. What causes the Department to make those
types of decisions?
Mr. Young. Decisions to significantly restructure, terminate, or
continue troubled acquisition programs are complex. We have found the
principal drivers for troubled programs are unstable requirements,
immature technologies, and funding instability. Additionally, we are
focusing a great deal of attention on contractual incentives--and
ensuring we incentivize improved outcomes, with demonstrated
performance, and not reward poor outcomes. I am an extreme advocate for
back-end loading fees in contracts, that is, reserving a very
significant portion of the contract fee until the final stages of
development and product delivery when it is clear and measurable that
the warfighter and taxpayer received value for the Nation's investment.
As stewards of tax dollars, our responsibility for acquisition
decisions must ensure complete openness, fairness, and objectivity. We
in the acquisition enterprise are accountable for those decisions to
deliver successful outcomes at reasonable costs.
The decision related to the Expeditionary Fighting Vehicle
acquisition was based on detailed assessments which determined the
capability required was critical, the reliability performance
shortfalls were correctable, and the replanned program was the most
cost-effective means to deliver the required capability.
The Advanced SEAL Delivery System (ASDS) program was cancelled
based on numerous subsystem reliability issues identified by operator
use. U.S. Special Operations Command has employed a reliability
improvement program in order to field and deploy the ASDS-1 unit
produced. The Department continues to evaluate ways to address the
capability gap that now exists.
Many of these cases come down to a very difficult, straightforward
determination. The Department and the taxpayer have invested millions
of dollars to get to the initial item delivery which has problems. If
the requirement for the capability remains valid, then the DOD must
decide whether to start over with a new competition or invest
additional dollars to correct the deficiencies. Starting over means a
new development program which likely requires the Nation to spend twice
to develop the required capability. Further, while there is some value
in terminating the failed effort, the industry team that failed to
perform would have a very substantial competitive and cost advantage in
any new competition. These are difficult issues to weigh and judge in
seeking to recover from program failures to perform. One of my
fundamental goals is to structure programs initially with a higher
probability of success, using technology readiness assessments,
prototyping, CSBs, realistic requirements, and full funding. This is
critical to our efforts to avoid ever having to make difficult
decisions on failed programs.
57. Senator McCain. Secretary Young, what can we do to shift
appropriate risk back on the contractors?
Mr. Young. The fundamental lesson that we have learned is that we
must have stable requirements to hold contractors accountable for
performance. It starts with having a clear understanding of what
available technology can accomplish before we invest in the development
of a new system. We can use competitive prototyping to anchor our
predictions of performance with physical demonstrations of capability.
This requires financing multiple approaches to develop a materiel
solution, and while the benefits from a long-term perspective justify
this investment, there are affordability pressures on programs in the
near term that make it difficult to execute. After prototype
demonstrations have reduced risk for the program, it is essential that
contract requirements remain stable. I have implemented CSBs to provide
oversight over the evolution of system designs during development and
testing which carefully evaluate the introduction of changes to
contract requirements. It is also important to focus the attention of
contractors on the program objectives. I favor the use of measurable
performance incentives whereby in order to earn fee, the contractor
must deliver product that demonstrates the required capability. Taken
together, along with support of Congress to maintain funding stability
for well managed programs, these actions will have the effect of
reducing opportunities for increasing contract costs while rewarding
contractors who deliver what was promised.
In general, Industry will price risk into their contracts and
proposals. In more instances, the price of this risk is unaffordable
and poses the risk of the DOD overpaying for a particular program. The
key is for the government to recognize and understand risk and build
appropriate program plans, acquisition strategies, and execution
schedules to deal affordably with risk.
UNDERSTANDING THE ACQUISITION PROCESS
58. Senator McCain. Secretary Young, the cost of the VH-71 program
has now grown from around $6 billion to over $11 billion. The
contractor, Lockheed Martin, claims that the Navy changed its
requirements, while the Navy claims that it did not understand the
technical challenges. What does it say about the acquisition process
when the Navy can sign a multibillion dollar contract with a company
who does not understand the requirements of the system it is supposed
to build and the government does not know enough to say the
contractor's proposal won't work?
Mr. Young. On VH-71, the Department purposely accepted more cost
and schedule risk than is normal. The post-September 11 security
environment drove an urgent need to replace legacy VH-3D/VH-60N with a
safer, more reliable and more survivable presidential transport
helicopter. To help meet the high risk schedule the program executed a
short risk reduction period with potential vendors vice entering a
technology development phase. A more thorough technology development
phase prior to entering the SDD phase would have helped ensure complete
flow down of the government's performance-based specification into the
contractor's proposed configuration. It would have allowed the
government to fully define the technical scope of this highly
concurrent Increment 1 and Increment 2 VH-71 program and to develop
more accurate cost and schedule baselines.
Increment 1 was to address the immediate need of providing the
President with safe, reliable and survivable transportation. Increment
2 was to address the full set of requirements capable of performing
both administrative and contingency missions. While the technical
baseline for Increment 2 should have been fully defined at contract
award, the urgency was of a sufficient concern that a programmatic
decision was made to proceed forward with Increment 1. Although the
program's cost and schedule have increased significantly, the
Department believes that had it known at the beginning of the program
what it knows now the cost would have been very close to current
projections.
A performance-based contract was competitively awarded in January
2005 to Lockheed Martin Systems Integration-Owego (LMSI-O). Slow
progress in requirements and technical definition of the performance
contract (not requirements changes), design completion, and lack of
coordination of the proposed design between LMSI-O and their
subcontractors adversely affected an already high risk schedule. Solid
systems engineering processes were not adhered to in this program as it
made compromises in order to keep schedule, which compounded the
problem. Concurrency in the Increment 1 and Increment 2 development,
and a larger amount of Increment 2 redesign than was originally
planned, caused further schedule delays and cost increases.
With this factual history as background, I would offer a few
additional summary comments. First, the initial White House
requirements have not changed. However, there are classified aspects of
this program. In my reviews, there seems to have been some confusion
between the Navy and industry on Appendices F and G related to
structural and performance requirements for the VH-71 and how industry
was to consider these requirements in their proposal. Some members of
the government feel industry exploited this confusion to argue that
performance requirements were tradeable, thus choosing not to flow down
all requirements and produce a more realistic estimate of workload and
cost. This confusion should not have existed or occurred because the
White House requirements were firm and never changed. It is unclear
whether this confusion had a real impact on underestimation of program
cost or this confusion is a convenient explanation for a dramatic
underestimation of the VH-71 program cost.
There have been changes in the ``derived requirements'' relative to
initial assumptions. The White House assumed it would be a
straightforward process to integrate new communications and safety
equipment on an existing commercial helicopter. Industry may have
legitimately believed that this was the government objective. However,
the Naval Air Systems Command (NAVAIR), which has technical authority
for selected military aviation systems including the Presidential
helicopter, imposed derived requirements for the VH-71 to improve
safety and reliability. NAVAIR required changes in the helicopter fuel
system, structure, tail design and other areas to meet their
airworthiness certification requirements. These changes have led to
substantial redesign of the proposed commercial helicopter and
significant additional cost. Industry may reasonably perceive these as
changed requirements. In early discussions about the program, I did not
perceive or understand the Navy would demand so many design changes in
the commercial helicopter, such as dictating the number of bolts
attaching the transmission to the airframe. I think a full
understanding and recognition of these derived requirements should have
called into question the initial industry and government cost
estimates.
I believe that all of these issues could have been better
understood. An existing EH-101 will not meet the White House range and
payload requirements. Adding several thousand pounds of weight to the
EH-101, even with a new engine, further guarantees that the helicopter
will not meet range and payload requirements. In reviewing the VH-71
program, I asked for a comparison to the CH-53 redesign effort. Indeed,
the CH-53 effort will require about $5 billion of new design and test
work--a number comparable to the new estimate for VH-71 Increment 2
development. The initial estimate of $800 million for Increment 2
development was clearly incorrect. The stringent requirements and the
application of government certification requirements and standards have
driven substantial cost growth on VH-71 over the original estimates.
While risk and urgency can account for some of the growth, it is clear
that misunderstandings on the requirements and failed assumptions about
the use of a commercial helicopter airframe were significant
contributors. Even in light of all of these issues, I believe errors
were made in planning and pricing the VH-71 program which should not
have been made.
Despite initial difficulties with regard to what was necessary to
fulfill program requirements, the Program Office, LMSI-O and its major
subcontractors now understand and agree on contract requirements. A
restructured program has been proposed which meets the White House
military requirements on a schedule with better understood risk.
59. Senator McCain. Secretary Young, is DOD fulfilling its
fiduciary responsibilities when it enters into long-term, cost-plus
contracts for development when it knows so little about what it intends
to develop and build?
Mr. Young. I agree that DOD is responsible for ensuring that every
taxpayer dollar is spent in the most efficient and effective manner in
providing for the Nation's defense. Consistent with that objective, the
contract vehicles we employ should be consistent with our assessment of
overall program risk. When we determine that the program is so complex
and technically challenging that it would not be practical to reduce
program risk to a level consistent with the use of a fixed price
contract vehicle, we should choose a cost type contract because we
believe that approach is the one most likely to provide the greatest
benefit to national defense and the taxpayer. These decisions must be
made on a contract-by-contract basis and with a full appreciation of
our fiduciary responsibility.
I would agree that the Department should avoid entering contracts
with excessive, unknown risks. The Department must spend more in the
early phases of program development, including investing in competitive
prototypes or component level technology demonstrations. The Department
must also complete Quick Look Technology Readiness Assessments to guide
program planning and investment in the early stages. Even with these
tools, industry will conservatively price risk into contracts if the
department insists on fixed price contracts. This strategy runs the
risk of DOD significantly overpaying for development programs. With
proper planning, risk reduction and management, I believe the taxpayer
gets the lowest price and the best product by using cost type contracts
when the requirements are demanding and the level of risk is
substantial. In other situations, DOD may be able to consider fixed
price incentive fee contracts for development programs.
ACCOUNTABILITY
60. Senator McCain. Secretary Young, Congress has expressed its
intent to have the Missile Defense program follow the same rules as
other major programs, i.e. accountability for cost increases, full
funding with procurement dollars, and budgeting from the right pots of
money--Procurement; Research, Development, Testing, and Evaluation;
Military Construction; Operations and Maintenance; etc. Are you in
support of this?
Mr. Young. For the Ballistic Missile Defense program, I support the
implementation of program oversight and processes that contribute to
efficient execution. I intend to ensure that a rigorous Ballistic
Missile Defense System baseline agreement with defined cost, schedule
and performance parameters be fully implemented to allow continuous
evaluation of program execution and accountability for changes to
program plans. Consistent with the NDAA for Fiscal Year 2008, MDA was
authorized to use incremental procurement authority for fiscal years
2009 and 2010. The Department will assess the impact of full versus
incremental funding applied to MDA procurement actions beyond fiscal
year 2010, and will formulate direction. The Missile Defense Executive
Board initiated activity to develop a Ballistic Missile Defense System
Life Cycle Management Process to assess Missile Defense Agency
requirements, development, procurement and transition plans. Future
budget submissions will include appropriate requests, to the extent
possible, for the different types of funding to include: Procurement,
Research Development Test and Evaluation, Military Construction, and
Operations and Maintenance.
ACQUISITION WORKFORCE
61. Senator McCain. Secretary Young, there is a debate over whether
the acquisition workforce is sufficient in terms of skill mix and
quantity. What is your view?
Mr. Young. I'm well aware of the debate. At the highest level, I do
not believe the acquisition workforce is adequately manned, and I
believe there are a number of areas where we need more robust and
comprehensive skills. There is not an all-or-nothing answer. I am
working to adjust skill mixes and to build up numbers where that is the
right thing to do. To ensure our defense acquisition workforce is
sufficient in terms of skill mix and quantity, we deployed several
initiatives under my AT&L strategic thrust, ``Take Care of Our
People.'' Two primary initiatives are Competency Management and Human
Capital Strategic Planning. The Competency Management initiative is
taking a hard look at critical acquisition occupations such as Program
Management, Cost Estimating, Financial Management, Contracting, Systems
Engineering Management, Testing and Evaluation, and Logistics. We will
learn about existing skill mixes and gaps. The Human Capital Strategic
Planning initiative addresses the gaps between the mix and size needed
and in place; a report to Congress is in process. We will use the DOD
Acquisition Workforce Development Fund (10 U.S.C. 1705) to address both
skill and quantity gaps through recruiting and hiring; training and
development; and recognition/retention initiatives.
62. Senator McCain. Secretary Young, are we relying too much on
contractors to perform work the government used to perform?
Mr. Young. Consistent with applicable laws and regulations defining
inherently governmental functions, the DOD identifies opportunities
where competitive sourcing of contractor support allows DOD to
concentrate its manpower on distinctly military activities. The
department recognizes the extent to which our use of contractors has
grown. I am concerned that we may not have the right balance between
government personnel and contractors.
63. Senator McCain. Secretary Young, does the government have the
systems engineering talent needed to execute the policies you
enumerated in your recent memo on prototyping?
Mr. Young. The promulgation of DOD's competitive prototyping policy
does indeed place additional emphasis on systems engineers during early
phases of the acquisition lifecycle. We are addressing this critical
need through several initiatives as part of our Human Capital Strategic
Plan. First, we are working to leverage Section 852 (the DOD
Acquisition Workforce Development Fund) of the NDAA for Fiscal Year
2008 to recruit, train, and retain systems engineers. Second, we are in
the process of conducting a top-to-bottom assessment of our systems
engineering workforce to identify the number of systems engineers
needed and the specific skills they require. Third, we continue to
enhance our systems engineering guidance, tools, and education and
training certification courses to assist the workforce in implementing
new policies such as competitive prototyping, integrated developmental
and operational test, and preliminary design reviews. Finally, as I
mentioned in my prototyping policy memorandum, our intent is that the
demand for earlier knowledge and reduction of risk provide the
incentive to further develop and enhance the systems engineering skills
in our current workforce. System engineering talent is vital for
program success, and we are actively working to ensure we meet and
sustain our acquisition workforce needs.
IMPROVING PROGRAM OUTCOMES
64. Senator McCain. Ms. Schinasi, in your written statement you
note that GAO designated DOD weapon system acquisitions as a high risk
area in 1990, and that programs continue to experience poor cost,
schedule, and performance outcomes. Your statement identifies problems
at the strategic level and at the program level that you believe
continue to contribute to these poor outcomes. At the strategic level,
what is needed to improve program outcomes?
Ms. Schinasi. We recently recommended that the Secretary of Defense
develop and implement a strategy to bring the department's current
portfolio into balance by aligning the number of programs and the cost
and schedule of those programs with available resources.\14\ In
developing and implementing a strategy, the department should determine
ways to prioritize needs and identify whether the budget and the FYDP
should be increased to more accurately reflect the actual costs of
current programs or whether the portfolio of current programs should be
reduced and lower-priority programs terminated to match available
resources. We have also recommended in the past that the Secretary of
Defense implement an enterprise-wide portfolio management approach to
making weapon system investments that integrates the assessment and
determination of warfighting needs with available resources and cuts
across the Services by functional or capability area.\15\ To ensure the
success of such an approach, the Secretary should establish a single
point of accountability at the department level with the authority,
responsibility, and tools to ensure that portfolio management for
weapon system investments is effectively implemented across the
department. In addition, the Secretary should ensure that the following
commercial best practices are incorporated:
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\14\ GAO, Defense Acquisitions: A Knowledge-Based Funding Approach
Could Improve Major Weapon System Program Outcomes, GAO-08-619
(Washington, DC: Jul. 2, 2008).
\15\ GAO, Best Practices: An Integrated Portfolio Management
Approach to Weapon System Investments Could Improve DOD's Acquisition
Outcomes, GAO-07-388 (Washington, DC: Mar. 30, 2007).
implement a review process in which needs and
resources are integrated early and in which resources are
committed incrementally based on the achievement of specific
levels of knowledge at established decision points;
prioritize programs based on the relative costs,
benefits, and risks of each investment to ensure a balanced
portfolio;
require increasingly precise cost, schedule, and
performance information for each alternative that meets
specified levels of confidence and allowable deviations at each
decision point leading up to the start of product development;
establish portfolio managers who are empowered to
prioritize needs, make early go/no-go decisions about
alternative solutions, and allocate resources within fiscal
constraints; and
hold officials at all levels accountable for achieving
and maintaining a balanced, joint portfolio of weapon system
investments that meet the needs of the warfighter within
resource constraints.
65. Senator McCain. Ms. Schinasi, at the program level, what is
needed to increase the likelihood of program success?
Ms. Schinasi. To increase the likelihood of program success, DOD
must ensure that appropriate knowledge is captured and used at critical
junctures to make decisions about moving a program forward and
investing more money. While DOD has incorporated into policy a
framework that supports a knowledge-based acquisition process similar
to that used by leading organizations, it must establish stronger
controls to ensure that decisions on individual programs are informed
by demonstrated knowledge. Moreover, congressional approval of programs
that have not taken these steps encourages DOD's subsequent requests
for additional funding.
A path can be laid out to make decisions that will lead to better
program choices and better outcomes. Much of this is known and has been
recommended by one study or another. GAO itself has issued hundreds of
reports. The key recommendations we have made have been focused on the
product development process:
constraining individual program requirements by
working within available resources and by leveraging systems
engineering;
establishing clear business cases for each individual
investment;
enabling S&T organizations to shoulder the technology
burden;
ensuring that the workforce is capable of managing
requirements trades, source selection, and knowledge-based
acquisition strategies; and
establishing and enforcing controls to ensure that
appropriate knowledge is captured and used at critical
junctures before moving programs forward and investing more
money.
66. Senator McCain. Ms. Schinasi, what changes in the acquisition
environment need to be made to ensure program success?
Ms. Schinasi. DOD is not enforcing a knowledge-based approach,
discipline is lacking, and business cases do not measure up. This is
occurring, in part, because there are no consequences for actions that
run counter to the intent of DOD acquisition polices--officials
responsible for approving program starts are no longer in their
positions by the time the consequences of their actions become evident.
The department routinely accepts high levels of technology risk at the
start of major acquisition programs. Mature technologies are pivotal to
developing new products. Without mature technologies at the outset, a
program will almost certainly incur cost and schedule problems.
However, DOD's acquisition community moves forward on programs with
technologies before they are mature and takes on responsibility for
technology development and product development concurrently. Our work
has also shown that DOD allows programs to begin without establishing a
sound business case that matches requirements with technology,
acquisition strategy, time, and funding. And once these programs begin,
their requirements and funding change over time. In fact, program
managers consider shifting requirements--which can result in added
program complexity and costs--and funding instabilities--which occur
throughout the program--to be their biggest obstacles to success.
Fundamentally, DOD will need to reexamine the entirety of its
acquisition process and how it is affected by requirements and funding
processes. This includes making significant changes to program
requirements setting, funding, and execution; as well as to the
incentives that drive the behavior of DOD decisionmakers, the military
Services, program managers, and the defense industry. Finally, no real
reform can be achieved without a true partnership among all these
players and Congress.
67. Senator McCain. Ms. Schinasi, GAO cites tenure or turnover
issues for both program managers and senior DOD leaders as impediments
to better program outcomes and lasting reform. What recommendations
would GAO make to alleviate this issue?
Ms. Schinasi. We have made several recommendations related to the
issue of management tenure as it relates to weapon system development
programs. For example, in our November 2005 report on program managers,
we recommended that DOD develop and implement a process to instill and
sustain accountability for successful program outcomes.\16\ In
developing this process, we note that, in part, DOD should consider
matching program manager tenure with delivery of a product or for
system design and demonstration, and tailoring career paths and
performance management systems to incentivize longer tenures. We have
also noted that if DOD limited development cycle times to between 5 and
7 years it would be possible to extend the tenure for a single program
manager to the entire product development phase-providing the manager a
more realistic responsibility but with more accountability.
---------------------------------------------------------------------------
\16\ GAO, Best Practices: Better Support of Weapon System Program
Managers Needed to Improve Outcomes, GAO-06-110 (Washington, DC: Nov.
30, 2005).
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In 1998, the Under Secretary of Defense for Acquisition,
Technology, and Logistics stated that the department's objective must
and will be to achieve acquisition cycle times no longer than 5 to 7
years.
In 2000, we testified that we had identified a 5-year limit for
weapon system development programs--which reflected both commercial
practices and DOD guidance. DOD's acquisition policy, revised in 2003,
suggests that system development should be limited to a manageable
timeframe--about 5 years.\17\ An assessment of DOD's acquisition system
commissioned by the Deputy Secretary of Defense in 2006 similarly
recommended that programs should be time-constrained with development
cycles no longer than 6 years from Milestone A to low-rate initial
production.\18\
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\17\ GAO, Defense Acquisitions: Employing Best Practices Can Shape
Better Weapon System Decisions, GAO/T-NSIAD-00-137 (Washington, DC:
Apr. 26, 2000).
\18\ Assessment Panel of the Defense Acquisition Performance
Assessment Project for the Deputy Secretary of Defense, Defense
Acquisition Performance Assessment Report (Jan. 2006).
68. Senator McCain. Ms. Schinasi, GAO describes cost growth as
reduced buying power and lost opportunity costs for DOD. What are the
implications of continued cost and schedule problems?
Ms. Schinasi. Cost and schedule problems for DOD programs have
implications both within the department and for the Federal Government
as a whole. Within DOD, continued cost growth results in less funding
being available for other DOD priorities and programs, while continued
failure to deliver weapon systems on time delays providing critical
capabilities to the warfighter. As program costs increase, DOD must
request more funding to cover the overruns, make trade-offs with
existing programs, delay the start of new programs, or take funds from
other accounts. Delays in providing capabilities to the warfighter
result in the need to operate costly legacy systems longer than
expected, find alternatives to fill capability gaps, or go without the
capability. In a broader sense, poor outcomes in DOD's weapon system
programs reverberate across the entire Federal Government because of
the sheer size of the investment in these programs. Every dollar wasted
during the development and acquisition of weapon systems is money not
available for other internal and external budget priorities--such as
the war on terror and mandatory payments to growing entitlement
programs.
69. Senator McCain. Ms. Schinasi, does GAO feel that DOD's recent
flurry of initiatives takes acquisition change to needed levels? If so,
what steps does DOD need to take to reinforce these initiatives and
translate them into practice?
Ms. Schinasi. DOD's recent initiatives appear to have some promise,
but we have found that practices do not always follow promise. DOD must
ensure that programs follow the new policies and that people are held
accountable for their compliance with them as well. Many of DOD's
recent initiatives are contained in policy memos signed by the current
Under Secretary of Defense for Acquisition, Technology, and Logistics
and are not guaranteed to survive the transition to the next
administration. DOD is taking a positive first step by revising its
overall acquisition policy, referred to as the DOD 5000 series, to
include many of these initiatives. Preliminary indications are that the
revised policy will establish more controls and metrics by which to
assess program progress. In order to get better outcomes, DOD will need
to avoid service- and program-centric investment decisions that allow
the military Services to overpromise capabilities and, underestimate
costs and enforce the controls in its revised policy. For its part,
Congress should support DOD's efforts to instill discipline and
accountability into its acquisition process, while continuing to
monitor the department's efforts through vigorous oversight.
70. Senator McCain. Ms. Schinasi, what additional guidance and
steps are needed to bolster DOD's recent initiatives?
Ms. Schinasi. DOD's recent initiatives indicate that in large part
the department knows what needs to be done to improve acquisitions.
However, we have found that the department does not apply the controls
or assign the accountability necessary to achieve successful outcomes.
To strengthen accountability, DOD must also clearly delineate
responsibilities among those who have a role in deciding what to buy as
well as those who have role in executing, revising, and terminating
programs. At the program level once a program begins, DOD will need to:
(1) match program manager tenure with development or the delivery of a
product; (2) tailor career paths and performance management systems to
incentivize longer tenures; (3) strengthen training and career paths as
needed to ensure program managers have the right qualifications to run
the programs they are assigned to; (4) empower program managers to
execute their programs, including an examination of whether and how
much additional authority can be provided over funding, staffing, and
approving requirements proposed after the start of a program; and (5)
develop and provide automated tools to enhance management and oversight
as well as to reduce the time required to prepare status information.
In addition, rewards and incentives must be altered so that success can
be viewed as delivering needed capability at the right price and the
right time, rather than attracting and retaining support for numerous
new and ongoing programs.
71. Senator McCain. Ms. Schinasi, do you believe there are
sufficient controls embedded in DOD's policy and processes to ensure a
knowledge-based decision process is followed?
Ms. Schinasi. Twice in the last 5 years, we have reported that
DOD's acquisition process did not contain sufficient controls to ensure
a knowledge-based approach is followed. We reported in November 2003
that DOD's leaders had taken noteworthy steps by incorporating into the
policy a framework that supports a knowledge-based, evolutionary
acquisition process, similar to one used by leading commercial
companies to get successful outcomes.\19\ This framework was an
important and significant step. However, we noted that while DOD's
policy included some controls that leading companies use to capture
knowledge at the start of a program, additional controls were needed to
ensure that decisions made throughout product development are informed
by demonstrated knowledge. In April 2006, we reported again that DOD's
revised acquisition policy lacked sufficient controls and noted that
acquisition officials were not effectively implementing the policy's
knowledge-based process.\20\
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\19\ GAO, Defense Acquisitions: DOD's Revised Policy Emphasizes
Best Practices, but More Controls are Needed, GAO-04-53 (Washington,
DC: Nov. 10, 2003).
\20\ GAO, Defense Acquisitions: Major Weapon Systems Continue to
Experience Cost and Schedule Problems under DOD's Revised Policy, GAO-
06-368 (Washington, DC: Apr. 13, 2006).
72. Senator McCain. Ms. Schinasi, what additional controls are
needed in place to ensure the intent of the policy (evolutionary and
knowledge-based process) is carried out?
Ms. Schinasi. DOD must instill discipline and accountability into
the acquisition process and ensure that practice follows policy. DOD
must demand that appropriate knowledge is captured and used at critical
junctures to make decisions about moving a program forward and
investing more money. Our 2003 assessment of DOD's revised acquisition
policy found that it included some of the controls that leading
companies use to capture knowledge at the start of a program--such as
holding decision reviews--but additional controls were needed. We
recommended that the Secretary of Defense require program officials to
demonstrate that they have captured knowledge at three key points--
program start, design review for transitioning from system integration
to system demonstration, and production commitment--as a condition for
investing resources. In our subsequent 2006 report, we noted that, at a
minimum, those controls should require program officials to demonstrate
that they have achieved a level of knowledge that meets or exceeds the
following criteria at each respective decision point:
Program start (Milestone B): Start of product development
Demonstrate technologies to high readiness levels
Ensure that requirements for the product are informed
by the systems engineering process
Establish cost and schedule estimates for product on
the basis of knowledge from preliminary design using system
engineering tools
Conduct decision review for program start
Design readiness review: Beginning of system demonstration
Complete 90 percent of design drawings
Complete subsystem and system design reviews
Demonstrate with prototype that design meets
requirements
Obtain stakeholders' concurrence that drawings are
complete and producible
Complete the failure modes and effects analysis
Identify key system characteristics
Identify critical manufacturing processes
Establish reliability targets and growth plan on the
basis of demonstrated reliability rates of components and
subsystems
Conduct decision review to enter system demonstration
Production commitment (Milestone C): Initiation of low-rate Production
Demonstrate manufacturing processes
Build production-representative prototypes
Test production-representative prototypes to achieve
reliability goal
Test production-representative prototypes to
demonstrate product in operational environment
Collect statistical process control data
Demonstrate that critical processes are capable and in
statistical control
Conduct decision review to begin production
Over the past several years, Congress has taken legislative action
to establish controls that we believe have the potential to instill
more discipline into the front-end of the acquisition process and
ultimately improve program outcomes. For example, the NDAA for Fiscal
Year 2006 requires that before a major defense program can receive
approval to start system development, the MDA must certify that the
program meets specified criteria, such as:
the technology in the program has been demonstrated in
a relevant environment;
the program is affordable when considering DOD's
ability to accomplish the program's mission using alternative
systems and the per unit and total acquisition costs in the
context of the FYDP;
reasonable cost and schedule estimates have been
developed for system development and production; and
appropriate market research has been conducted prior
to technology development to reduce duplication of existing
technology and products.
COST TRACKING SYSTEM
73. Senator McCain. Secretary Young, you dispute the GAO's finding
that our acquisition system is broken--and you have testified that ``it
is on a path to improvement''--however, in the press today we are
learning that the Pentagon has found ``significant concerns . . .
regarding [Lockheed Martin's] ability to mitigate emerging costs and
schedule issues in a timely manner . . . this undisciplined approach to
program . . . diminishes the purchasing power of the Department.'' How
can you suggest that DOD's acquisition process is not broken--and that
DOD fully understands the costs for developing and buying weapon
systems?
Mr. Young. The specific example you cite deals with a single
contractor and its compliance with standard Earned Value Management
procedures. This system is one tool we use in program management, and
this case is not, in my view, indicative of a systemic problem
associated with the acquisition system. I take this matter very
seriously and as I testified, there is a corrective action plan in
place, Lockheed has agreed to it and met three of the milestones
already. There are substantial financial incentives associated with
meeting the milestones. One specific instance among thousands of
programs, thousands of contracts and hundreds of companies does not
constitute a broken acquisition system. The media and Congress have
failed to focus any attention on the vast number of successfully
executed and managed DOD acquisition programs which deliver
extraordinary capability and develop world class technology.
74. Senator McCain. Ms. Schinasi, what is the impact of this failed
cost tracking system?
Ms. Schinasi. We recently reported that the current JSF program
cost estimate is not reliable; in part because it is based on the prime
contractor's earned value management data and other information which
has been found to be inaccurate and misleading.\21\ The immediate
impact of this unreliable estimate is that Congress and DOD management
do not have an accurate picture of JSF current cost and schedule
performance and future funding requirements. In our report, we
recommended specific improvements needed to prepare a new estimate that
is comprehensive, accurate, well-documented, and credible.
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\21\ GAO, Joint Strike Fighter: Recent Decisions by DOD Add to
Program Risks, GAO-08-388 (Washington, DC: Mar. 11, 2008).
---------------------------------------------------------------------------
JSF program officials told us that they use Lockheed Martin earned
value management data in creating their estimate of JSF development
costs. The Defense Contract Management Agency (DCMA) identified this
data as being of very poor quality, calling into question the accuracy
of any estimate based on these data. In November 2007, DCMA issued a
report saying that Lockheed Martin's tracking of cost and schedule
information at its aerospace unit in Fort Worth, TX--where the JSF
program is managed--is deficient to the point where the government is
not obtaining useful program performance data to manage risks. Among
other problem areas, DCMA found that Lockheed Martin had not clearly
defined roles and responsibilities, and was using management reserve
funds to alter its own and subcontractor performance levels and cost
overruns. DCMA officials who conducted the review at Lockheed Martin
told us that the poor quality of the data invalidated key performance
metrics regarding cost and schedule, as well as the contractor's
estimate of the cost to complete the contract. In 2005, the Naval Air
Systems Command (NAVAIR) raised similar concerns about Lockheed
Martin's earned value system. NAVAIR officials told us that most
deficiencies identified in the DCMA report have the effect of
underreporting costs, and that the official program cost estimates will
increase if the deficiencies are corrected.
75. Senator McCain. Ms. Schinasi, isn't it true that this failure
to adequately track costs has reduced DOD's flexibility by causing it
to cut two developmental test JSFs?
Ms. Schinasi. Cutting two development test aircraft, especially one
of the carrier variants for testing mission systems and ship
suitability, reduces DOD's flexibility in completing development
testing on time to support the start of operational testing and the
subsequent full-rate production decision. The decision to cut two test
aircraft was part of the Mid-Course Risk Reduction Plan--a risky and
controversial plan put in place to replenish management reserves.
Specifically, the plan reduces development test aircraft and test
flights, and accelerates the reduction of the contractor's development
workforce in order to restore management reserves to the level
considered prudent to complete the development contract as planned and
within the current cost estimate. The test community and others within
DOD believe the plan puts the development flight program at
considerable risk and trades known cost risk today for unknown cost and
schedule risk in the future. The number of development flight tests had
already been reduced twice before the Mid-Course Risk Reduction plan.
Over the last 2 years, test flights have been reduced by more than
1,800 flights or 26 percent.
76. Senator McCain. Ms. Schinasi, what impact could this setback in
testing have on the entire program?
Ms. Schinasi. The program had originally planned to conduct
development flight tests using 15 aircraft. The recent decision to
reduce test aircraft to 13 (including a non-production representative
prototype), cut back the number of flights, and change how some
capabilities are tested will stress resources, compress time to
complete testing, and increase the number of development test efforts
that will overlap with the planned start of operational testing in
October 2012. Test officials are concerned that capacity will be too
constrained to meet schedules and adequately test and demonstrate
aircraft in time to support operational testing and the full-rate
production decision in October 2013. The full extent of changes and
impacts from a revised test verification strategy are still evolving.
Program officials reported that if test assets become too constrained,
production aircraft may eventually be used to complete development
testing. This would reduce the number of operational assets and delay
training pilots.
______
Questions Submitted by Senator Susan Collins
PROCUREMENT OF LPD-17 CLASS SHIPS
77. Senator Collins. Secretary Young, the committee recently
approved the President's budget request to fund the third of seven
planned DDG-1000 Zumwalt class destroyers in fiscal year 2009. The
House, however, failed to approve the budget request for the DDG-1000
shipbuilding program and would leave only $400 million of a $2.5
billion budget request for surface combatant ship procurement in fiscal
year 2009. This would amount to only a small down payment for a delayed
third DDG-1000 in fiscal year 2010 or a down payment toward the
procurement of unplanned DDG-51 class ships in fiscal year 2010. The
House approach would mean that no destroyer of any kind would be
procured or contracted for construction in fiscal year 2009 from either
surface combatant shipbuilder and would basically eliminate surface
combatant shipbuilding to procure an additional LPD-17 class ship for
which funds were not requested in the President's budget. Can you
please comment on the likely impact on shipbuilding acquisition costs,
program continuity, as well as industrial base stability, workforce
retention, and cost efficient production at our surface combatant
shipyards, if Congress fails to fund the procurement of the third DDG-
1000 this year?
Mr. Young. The failure to fully fund the third DDG-1000 ship in
fiscal year 2009 would pose risk to the surface combatant shipbuilding
industrial base, would pose risk to the overall shipbuilding plan, and
would inject additional cost. Direct production hours for one DDG-1000
ship are about 2.5 times that of one DDG-51 restart ship. This
validates DOD's experience that two to three DDG-51 destroyers need to
be purchased annually to sustain the production workload base for two
surface combatant shipyards. Current estimates project that two DDG-51
ships would cost more per year than one DDG-1000 follow ship. The cost
per year for modified DDG-51 ships would be even higher. Several ship
and vendor base issues including equipment obsolescence, main reduction
gears, configuration change issues, and re-start of production lines
would need to be resolved in order to award and construct additional
DDG-51 class ships in the following years. If the DDG-1000 program is
truncated after only two ships, the costs for the two DDG-1000 lead
ships would increase by $2-4 billion according to Navy estimates, and
program shutdown costs would have to be funded. It also is important to
recognize that the research, development, testing, and evaluation
efforts for the DDG-1000 program must continue in order to deliver two
complete lead ships and to support the Dual Band Radar for the CVN 21
program. With a gap year in fiscal year 2009, as the House plan would
insert, industrial base stability, workforce retention, and cost
efficiency would suffer at the surface combatant shipyards regardless
of whether the Navy continues DDG-1000 production in fiscal year 2010
or restarts DDG-51 production in fiscal year 2010.
78. Senator Collins. Secretary Young, does the DOD support
congressional funding of an additional LPD-17 class ship at the expense
of surface combatant shipbuilding procurement in fiscal year 2009?
Mr. Young. No. The Department's position is reflected in the
President's budget fiscal year 2009 submission. It represents the
Department's funding requirements after balancing needs across all
product lines.
______
Questions Submitted by Senator Saxby Chambliss
TAX INCREASE PREVENTION AND RECONCILIATION ACT
79. Senator Chambliss. Secretary Young, your office recently
submitted a letter to Congress outlining impacts on the DOD of
implementing Section 511 of the Tax Increase Prevention and
Reconciliation Act (TIPRA) of 2005. I understand that complying with
TIPRA will require DOD to modify the Defense Financial Accounting
System, increase personnel requirements, and pay an additional $17
billion to DOD contractors over the next 5 years. I understand that the
intent of this law is to crack down on government contractors who do
not pay their taxes, but I am wondering if there will not be some
unintended consequences. Although the cost to DOD is $17 billion over 5
years, I understand the reduction in the tax gap is miniscule compared
to this, and also that DOD also gets no savings but is only burdened
with the cost. What do you think the impact to DOD will be if this
requirement is not repealed?
Mr. Young. The Department is concerned that the withhold will limit
the number of companies willing to enter into the government market. As
a result, it will reduce competition and our access to new
technologies. Also, it would significantly restrict the available cash
of tax-compliant companies that would otherwise be used to develop new
technologies. In addition, the withhold will apply to payments made by
third parties such as those made to banks under the government
commercial credit card program. The banks processing payments under
this commercial credit card program have already informed the
government that they do not intend to implement the section 511
withholds on behalf of the government. Therefore, the Department will
lose its ability to use the commercial purchase card and other third
party payment mechanisms and will have to bring these small purchase
functions back in-house. This will exacerbate the Department's current
procurement personnel staffing shortages by the additional workload
that would result from the alternate use of purchase orders or other
paper intensive processes.
80. Senator Chambliss. Secretary Young, where do you envision the
money coming from to pay the additional costs since it is doubtful
Congress will be appropriating more money specifically for this?
Mr. Young. The additional costs associated with changing DOD
financial management systems and processes will be borne by either the
Defense Finance and Accounting Service (DFAS) or the military
departments and other defense agencies (ODAs), depending on the
systems. Since DFAS is a working capital fund organization, it would
make the necessary changes to the systems it owns or controls and
increase the costs to its customers. The cost to modify the systems
owned or controlled by the military departments and ODAs would come
from appropriated funds. In addition, commercial vendors are expected
to pass on the incremental cost of goods and services due to added cost
for commercial vendors to modify their systems and processes. These
costs will also be passed on to the military departments and ODAs.
81. Senator Chambliss. Secretary Young, will there be an impact on
force readiness due to the extra funds that will have to be expended to
comply with this law?
Mr. Young. Yes. The cost to the contractors to comply with this law
will be passed to the government through increased costs of systems,
spares, supplies and services purchased by the Department. Without
additional funds to offset either these increases or the additional
costs the Department will have to bear to implement this additional
withholding requirement, the Department will have fewer funds to
support our warfighters.
82. Senator Chambliss. Secretary Young, while the 3 percent
withholding requirement does not go into effect until 2011, when does
the DOD expect to change its regulations and financial management
systems to become compliant with TIPRA?
Mr. Young. The Internal Revenue Service (IRS) is developing
implementing regulations to establish the process for section 511
withholds. Once the IRS issues the implementing regulations, the
requirements will be known, and DOD can begin modifying its regulations
and financial management systems. If DOD can begin these modifications
in fiscal year 2009, we would expect to have them completed in time to
be in compliance when section 511 goes into effect on January 1, 2011.
83. Senator Chambliss. Secretary Young, how do you expect TIPRA to
affect future contracts as well as small businesses that are pursuing
military contracts?
Mr. Young. The Department is concerned the withhold will limit the
number of companies willing to enter into the government market,
thereby reducing competition and access to new technologies. We believe
many small businesses will no longer do business with the government
due to the potential cash flow problems created by TIPRA of 2005.
MILITARY HOUSING PRIVATIZATION INITIATIVE
84. Senator Chambliss. Secretary Young, your responsibilities as
Under Secretary for Acquisition, Technology, and Logistics include
oversight of installation and environmental issues within DOD. Over the
past year I have been heavily involved with an issue relating to DOD's
military housing privatization initiative (MHPI) which falls within
this area. To be honest, we have four extremely successful housing
privatization projects in the State of Georgia. However, we have a
disaster at Moody Air Force Base. The Air Force has four projects known
as the American Eagle projects at four different Air Force bases. Work
has ceased at all these projects and they are years behind schedule
and, collectively, hundreds of millions of dollars in debt.
Specifically at Moody Air Force Base, approximately $9 million has been
owed to around 30 subcontractors for over a year and at least one of
these subcontractors has lost both his hope and his business as a
result of this failed project.
As I have looked at this, I believe there is enough blame to go
around and that everyone involved, the bondholders, the project owner,
but also the Government, made mistakes here that should not have been
made, could have been avoided, and need to be prevented in the future.
Senator Mark Pryor and I included legislation in this year's NDAA
to increase DOD's oversight process in this area and require closer
attention to the way these projects are designed, executed, and
requiring the Services to more closely oversee the projects so that
problems are detected and corrected early on.
It greatly concerns me that, in the case of the project at Moody,
there was not a single government person on site monitoring the
project, that the government representative on site had essentially no
authority, and that after being aware of problems with the Moody
project for several years, that the Air Force either did not have the
necessary mechanisms or did not use the mechanisms they had to either
correct the problem or replace the project owner in a timely fashion.
And obviously it concerns me greatly that we are almost 4 years into
this project and that we have essentially no houses built, are millions
of dollars in debt, and that there are small businesses suffering as a
result. Above all, I'm concerned that there are thousands of airmen
moving to Moody Air Force Base and that they may not have a place to
live. Are you aware of this issue, and what is your assessment?
Mr. Young. Since the MHPI was enacted in the NDAA for Fiscal Year
1996, the military Services have awarded 87 housing privatization
projects. Over 174,000 housing units have been privatized and more than
130,000 previously inadequate units will be revitalized during the
initial 10 years of the program. DOD's $2 billion contribution has
generated $24 billion in upfront private sector housing construction.
One developer, American Eagle, currently owns five projects and is
performing poorly. American Eagle is comprised of Carabetta Enterprises
and the Shaw Group. In November 2007, American Eagle sold its Navy
Northwest, WA, project to Forest City Enterprises, Inc., who assumed
the role of general partner. American Eagle is the general partner in
one Army project at Fort Leonard Wood, MO, which is stable and in the
process of being sold to another developer. This project sale is
expected to close in June 2008. American Eagle owns four Air Force
projects at Hanscom Air Force Base, MA; Patrick Air Force Base, FL;
Little Rock Air Force Base, AR; and Moody Air Force Base, GA. At the
four Air Force installations, American Eagle is behind its construction
schedule, behind in paying subcontractors, and in default under private
and Air Force project documents. The bondholders have stopped funding
construction draws while the projects are sold to another developer.
Execution of the purchase and sale agreement for the Air Force projects
is expected in fall 2008.
The Air Force did monitor and was aware of the Moody project
deficiencies and reported them to the project owner and bondholders as
early as 2005. Since the Government was not a party to the private
sector contract between the Moody project owner and its contractors,
the government had no authority to intervene in those contracts. The
Air Force sent cure notices to the project owner in August 2007 and
continued to work closely with the bondholders regarding the project
owner's deficiencies. The Moody project was put into receivership in
late summer 2007, and all action on the project requires the court's
approval. The Air Force continues to work the project owners and the
bondholders for a consensual sale of the Moody project to a new owner
by the fall 2008. As part of the consensual sale, Air Force is working
with the prospective project owners to properly size the project to
meet future Air Force housing needs and ensure adequate housing is
available for the military families moving to the installation.
The current MHPI authorities provide a creative and effective
solution to addressing the shortage of quality family rental housing
for servicemembers and their families. The proposed MHPI authority
amendments contained in Section 2803 of S. 3001 would impose
undesirable and unnecessary additional government oversight and
reporting on MHPI projects, contrary to the privatization model and the
legislative intent of the original authorizing language. Under the
original MHPI, private sector developers and lenders develop, maintain,
and operate the privatized housing and resolve issues when they arise.
Market forces drive contractor performance and the primary enforcement
mechanism is the ability of the military members to choose where to
live. If a housing project fails to meet performance expectations
lenders have the option, with the approval of the Services, to replace
the owner with a more viable entity. The American Eagle problems have
been unfortunate, but the MHPI has enabled the military Services to
revitalize their housing significantly faster than they would have
under traditional military construction.
85. Senator Chambliss. Secretary Young, can you give me your
assurances that you will review DOD's policies in this area to ensure
yourself that DOD has the proper oversight policies in place to protect
the Government's interests and ensure that our soldiers, sailors,
airmen, and marines receive the quality housing they deserve in a
timely manner through housing privatization initiative projects such as
these?
Mr. Young. The MHPI is key to the Department's efforts to ensure
that servicemembers and their families have access to high quality,
safe, secure, and affordable housing. The Department continually
reviews its policies regarding military housing privatization, to
ensure that the Department maintains an effective oversight program for
MHPI project performance. Current Department policy includes detailed
upward reporting by the military Services, completion of a biannual
program evaluation plan (PEP report), and mandatory project reviews and
approvals by the Office of the Deputy Under Secretary of Defense for
Installations and Environment. In addition, the Department's quarterly
reports and biannual PEP reports are submitted to the congressional
defense committees for ongoing congressional oversight. The
difficulties with American Eagle projects were identified as early as
the MHPI PEP Report #10, which was submitted to Congress on March 30,
2006. The Department is willing to work with the congressional defense
committees to improve these areas of our oversight.
______
[The report referred to follows:]
[Whereupon, at 11:41 a.m., the committee adjourned.]