[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]






                                     

                         [H.A.S.C. No. 111-21]
 
    THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE 
       COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT

                               __________

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             MARCH 12, 2009


                                     
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                   HOUSE COMMITTEE ON ARMED SERVICES
                     One Hundred Eleventh Congress

                    IKE SKELTON, Missouri, Chairman
JOHN SPRATT, South Carolina          JOHN M. McHUGH, New York
SOLOMON P. ORTIZ, Texas              ROSCOE G. BARTLETT, Maryland
GENE TAYLOR, Mississippi             HOWARD P. ``BUCK'' McKEON, 
NEIL ABERCROMBIE, Hawaii                 California
SILVESTRE REYES, Texas               MAC THORNBERRY, Texas
VIC SNYDER, Arkansas                 WALTER B. JONES, North Carolina
ADAM SMITH, Washington               W. TODD AKIN, Missouri
LORETTA SANCHEZ, California          J. RANDY FORBES, Virginia
MIKE McINTYRE, North Carolina        JEFF MILLER, Florida
ELLEN O. TAUSCHER, California        JOE WILSON, South Carolina
ROBERT A. BRADY, Pennsylvania        FRANK A. LoBIONDO, New Jersey
ROBERT ANDREWS, New Jersey           ROB BISHOP, Utah
SUSAN A. DAVIS, California           MICHAEL TURNER, Ohio
JAMES R. LANGEVIN, Rhode Island      JOHN KLINE, Minnesota
RICK LARSEN, Washington              MIKE ROGERS, Alabama
JIM COOPER, Tennessee                TRENT FRANKS, Arizona
JIM MARSHALL, Georgia                BILL SHUSTER, Pennsylvania
MADELEINE Z. BORDALLO, Guam          CATHY McMORRIS RODGERS, Washington
BRAD ELLSWORTH, Indiana              K. MICHAEL CONAWAY, Texas
PATRICK J. MURPHY, Pennsylvania      DOUG LAMBORN, Colorado
HANK JOHNSON, Georgia                ROB WITTMAN, Virginia
CAROL SHEA-PORTER, New Hampshire     MARY FALLIN, Oklahoma
JOE COURTNEY, Connecticut            DUNCAN HUNTER, California
DAVID LOEBSACK, Iowa                 JOHN C. FLEMING, Louisiana
JOE SESTAK, Pennsylvania             MIKE COFFMAN, Colorado
GABRIELLE GIFFORDS, Arizona          THOMAS J. ROONEY, Florida
NIKI TSONGAS, Massachusetts
GLENN NYE, Virginia
CHELLIE PINGREE, Maine
LARRY KISSELL, North Carolina
MARTIN HEINRICH, New Mexico
FRANK M. KRATOVIL, Jr., Maryland
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama

                    Erin C. Conaton, Staff Director
                Andrew Hunter, Professional Staff Member
               Jenness Simler, Professional Staff Member
                    Caterina Dutto, Staff Assistant


                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Thursday, March 12, 2009, The Department of Defense at High Risk: 
  Recommendations of the Comptroller General for Improving 
  Departmental Management........................................     1

Appendix:

Thursday, March 12, 2009.........................................    29
                              ----------                              

                        THURSDAY, MARCH 12, 2009
    THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE 
       COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

McHugh, Hon. John M., a Representative from New York, Ranking 
  Member, Committee on Armed Services............................     2
Skelton, Hon. Ike, a Representative from Missouri, Chairman, 
  Committee on Armed Services....................................     1

                               WITNESSES

Dodaro, Gene L., Acting Comptroller General of the United States; 
  accompanied by Janet St. Laurent, Managing Director, Defense 
  Capabilities and Management, Government Accountability Office; 
  and Katherine Schinasi, Managing Director, Acquisition and 
  Sourcing Management, Government Accountability Office..........     4

                                APPENDIX

Prepared Statements:

    Dodaro, Gene L., Acting Comptroller General of the United 
      States.....................................................    33

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Skelton..................................................    67
    Mr. Taylor...................................................    67

Questions Submitted by Members Post Hearing:

    Mr. Murphy...................................................    72
    Mr. Smith....................................................    71
    THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE 
       COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                          Washington, DC, Thursday, March 12, 2009.
    The committee met, pursuant to call, at 10:02 a.m., in room 
2118, Rayburn House Office Building, Hon. Ike Skelton (chairman 
of the committee) presiding.

 OPENING STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM 
        MISSOURI, CHAIRMAN, COMMITTEE ON ARMED SERVICES

    The Chairman. Ladies and gentlemen, welcome to our hearing 
on ``The Department of Defense At High Risk: Recommendations of 
the Comptroller General.''
    Today, we focus on the issue of how well the Department of 
Defense (DOD) is doing at the routine business of managing its 
business operations, its finances, its investments and its 
contracts.
    I would note that today's hearing fulfills one of the 
committee's responsibilities under H. Res. 40, the Tanner 
Resolution, which amended the House rules to require the 
standing committees of the House to perform additional 
oversight.
    I use the phrase ``routine business,'' but the truth is 
that the Department of Defense is almost certainly the largest 
and most complex organization in the world. Managing such an 
organization can never truly be just routine.
    I might add that providing oversight to such an 
organization is also a significant responsibility. We must also 
today thank our witness, Gene Dodaro, the acting Comptroller 
General of the United States and the Government Accountability 
Office (GAO), which he leads, for taking on this task.
    For the last 19 years, the GAO has annually reviewed the 
Federal Government's operations and published a list of those 
areas presenting the highest risk. Due in large part to the 
size and complexities of the Department of Defense, the DOD has 
been a significant presence on the list since its inception.
    The Department has not been able to completely eliminate 
its risk in any of the areas identified by GAO over the years, 
nor has this committee been able to do so through its 
legislative or oversight activities.
    That is not to say, however, that nothing has been done. In 
fact, a great deal has been done.
    During the 110th Congress, this committee tackled many of 
the problems identified by the GAO. To cite a few, we codified 
the duties of the Chief Management Officer (CMO) of the 
Department of Defense, a step recommended by the GAO.
    We also enacted two significant pieces of acquisition 
reform legislation: the Acquisition Accountability and 
Improvement Act of 2007 and the Clean Contracting Act of 2008. 
And just last week, this committee established a panel on 
reform of the defense acquisition system to bring additional 
resources to its efforts in this area.
    The committee has certainly not been alone in its efforts. 
Secretary Gates, former Deputy Secretary Gordon England, 
incoming Deputy Secretary Bill Lynn have also devoted a great 
deal of effort to these problems, and they have shown a lot of 
progress.
    We must concede, however, that a tremendous amount remains 
to be done. It is unacceptable that only one significant 
organization within the Department of Defense, the Army Corps 
of Engineers, is able to reconcile its books with an outside 
auditor.
    It is unacceptable that the Department has allowed a cost 
growth of $295 billion in its pending major weapons systems. It 
is unacceptable that the Department's business systems remain 
stovepiped and incapable of generating the decision quality 
information that senior leaders need.
    We have not done enough, obviously.
    Today, the acting Comptroller General will update us on the 
high-risk areas of the Department of Defense and, most 
importantly, provide us with his recommendations on how we can 
eliminate or mitigate these risks.
    I would note for my colleagues that, in a few weeks, we 
will bring before this committee some of the senior managers of 
the Department of Defense, to hear their plans for addressing 
these problems.
    Joining Mr. Dodaro are Ms. Katherine Schinasi. Pronounce 
it. Did I get it? Thank you. She is managing director for 
acquisitions and sourcing management. Ms. Janet St. Laurent--
did I get that? All right. She is managing director for defense 
capabilities and management.
    Before we hear from our Comptroller General friend, let me 
turn to my colleague, my friend, John McHugh----
    Mr. McHugh. Thank you very much.
    The Chairman [continuing]. The gentleman from New York.

  STATEMENT OF HON. JOHN M. MCHUGH, A REPRESENTATIVE FROM NEW 
       YORK, RANKING MEMBER, COMMITTEE ON ARMED SERVICES

    Mr. McHugh. Thank you, Mr. Chairman. As always, you summed 
up the purpose of our getting together and our challenges very, 
very well.
    Let me note that, as I considered today's hearing, as you 
noted, it has been the better part of two decades that GAO's 
good counsel has been presented to us about high-risk Federal 
Government programs. And also as you noted, Mr. Chairman, in 
that time, the Department of Defense regrettably has 
consistently made that roll.
    And today, in fact, as we look at the current listing, the 
Department still has responsibility, at least in part, for 
about half of GAO's list of high-risk management programs.
    But it seems to me that, even more disturbing than that is 
that, once a DOD program makes the list, it does not seem to 
ever get fully removed. And this is, I guess, remarkable. It is 
also, obviously, somewhat disturbing.
    And it has to be an indication of one of two things. 
Surely, this is either DOD management, systems, and processes 
and their inherent risk, or DOD management is incapable of 
addressing the root causes.
    It would appear this axiom holds true, regardless of a 
particular administration, regardless of the controlling party 
in Congress, but is a consistent theme.
    But I think we would all be in dereliction of our duties 
were we to throw up our hands and simply accept as truth the 
Department cannot or will not address these challenges.
    As you noted, Mr. Chairman, there have been significant 
efforts, both from the Department side, as well as from the 
oversight side here in this Congress. And yet, any kind of 
significant resolution evades us.
    And at the end of the day, as I know you believe very 
strongly, Mr. Chairman, it is always the responsibility of this 
committee to assume a leadership role in advocating for 
reforms, particularly for those high-risk areas.
    More importantly, we are really at a critical juncture 
here, as ongoing military readiness needs and fiscal pressures 
place DOD increasingly in a position where it cannot tolerate 
ineffective and inefficient management processes and 
technology.
    To put it very bluntly, we cannot stand by and allow some 
in Congress, or in the Department, or anywhere, to cut programs 
supporting our military families or programs desperately needed 
to maintain and modernize our force in lieu of the concerted 
effort by both branches of government--the Administration as 
well as Congress--to boost efficiency of spending and to root 
out waste. And members of this committee do, I know. But we 
must stand as the vanguard against hasty and ill-conceived 
reductions to programs that some might try to cloak under the 
guise of reform.
    We have to be realistic. Nearly half of the areas for which 
DOD is responsible require interagency solutions, thereby 
compounding the challenge.
    I would add, as well, before we admonish DOD and other 
agencies too vociferously we should also examine how our own 
structure within the Congress impedes or fosters interagency 
solutions. And I would certainly be interested in any 
recommendations GAO might have on this score.
    In the end, risk is inherent in any organization 
responsible for so many personnel, so many dollars, so many 
contracting actions and systems. And that is why GAO has 
recommended, DOD has adopted and Congress has codified, the 
role of the Chief Management Officer.
    Currently, the Deputy Secretary of Defense (DEPSECDEF) 
serves as the CMO. The ability of the DEPSECDEF to take an 
active role in internal DOD management may be dependent on 
personality or circumstances. And how do we ensure that the 
management of the day-to-day DOD processes is not just an ad 
hoc duty?
    Mr. Chairman, I want to thank you for having this hearing 
today. I am certainly grateful for the opportunity. I want to 
add my words of welcome and deep appreciation to our guests 
here today. GAO, certainly here in matters of defense, but 
across the board in government operations, has been often a 
guiding light in our efforts to do a better job with our 
charges. And we look forward to their comments today.
    And let me note in conclusion that, I want to underscore 
that, although I strongly believe continued reforms of 
procurement and DOD's other business processes are essential, I 
have to break with those that might point to waste and 
mismanagement in the Department of Defense as grounds for 
tightening the defense budget.
    Cuts in programs that suffer from cost overruns are 
warranted when they reform behaviors that lead to negative 
procurement outcomes. But employing across-the-board cuts, as 
some in Washington propose, is, in my judgment, a blunt 
instrument that does little to restructure the Defense 
Department's business practices.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    The Chairman. Thank the gentleman.
    Mr. Dodaro, you are on.
    As I understand it, the gentleladies with you will be here 
for questions, and you will--but you will have a formal 
statement. Am I correct?
    Mr. Dodaro. That is correct, Chairman.
    The Chairman. Thank you.

STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER GENERAL OF THE 
   UNITED STATES; ACCOMPANIED BY JANET ST. LAURENT, MANAGING 
   DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, GOVERNMENT 
    ACCOUNTABILITY OFFICE; AND KATHERINE SCHINASI, MANAGING 
   DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

                  STATEMENT OF GENE L. DODARO

    Mr. Dodaro. Good morning, Mr. Chairman, Congressman McHugh, 
members of the committee. We are very pleased to be here today 
to discuss the status of DOD's high-risk areas.
    As has been pointed out in our latest update, DOD 
represents approximately half of the 30 areas we currently have 
on the list.
    I would note, however, that over the years since we have 
been doing this, in 1990, that we started out with the program 
focused largely on fraud, waste, abuse and mismanagement and 
those areas that were vulnerable to that. But over time, we 
also added areas in need of broad-based transformation to meet 
21st century challenges. And so, DOD's areas on the list really 
represent both of those areas in terms of vulnerabilities and 
areas in need of transformation.
    Now, I would like to highlight a few of those areas for you 
today, and then take questions on any of the areas as we enter 
into that period of the session.
    First is in the weapons systems acquisition area, which has 
seen significant cost growth. The last time we updated our work 
in 2007, we looked at the 95 programs in that portfolio. And 
over the original estimates that were in place for those 
programs, the cost growth was a total of $295 billion.
    Forty-four percent of those programs had cost growth of 
over 25 percent from the original estimates. And also, 
importantly, the delay in the scheduled delivery time was up to 
21 months, which was 4 months longer than just 2 months--or 2 
years, excuse me--previously in 2005. So, the cost growth was 
up, and it was taking longer to deploy.
    Now, the problem in the weapons systems area really has two 
dimensions at a strategic level. There are difficulties and not 
enough prioritization across the programs. And the process for 
determining and getting the requirements from the military 
commanders is fragmented. So, that part of the issue needs to 
be addressed, as well. It is still pretty much a service-by-
service type of determination.
    But also, at the individual program level, we consistently 
find that projects are moved forward without the maturity of 
the technologies that are under development, without 
application of sound systems engineering process with a good 
understanding of what the cost would be. The cost estimates 
continue to remain optimistic during the development period of 
time, and requirements keep getting introduced into the process 
as it moves forward, which further compounds the situation. So, 
there needs to be a more disciplined process in place.
    Now, one area that we have been very pleased with, back in 
December 2008, DOD modified its policy guidance in this area 
and implemented a number of the best practices that we have 
been advocating for a period of time. So, we are very 
encouraged by that. If they follow those practices, that will 
ensure more disciplined development of these weapons systems 
acquisitions, and we think would go a long way.
    This is the first time we have reported progress in this 
area since we have been tracking the high-risk areas, so we are 
very encouraged.
    The big challenge for DOD will be to translate policy into 
practice. And that is what we will be looking at as we continue 
to review their efforts.
    Now, similarly, in the contracting area, including service 
contracting, that is an area where DOD has grown a lot more 
reliant on contractors over a period of time. In fact, in the 
last five years in real terms, that contracting growth has more 
than doubled to about $387 billion, which includes about $200 
billion in service contracting.
    Now, that decision to attain more reliance on the 
contractors has not been one that has been a systematic, 
strategic decision. It is the result of the amalgamation of 
thousands of decisions that have been made across the 
Department to pursue additional contracting, often as a result 
of exigencies and the lack of the necessary means.
    However, we found that DOD too often has turned to time and 
materials contracting, or undefinitized contracts, whereby the 
work proceeds without a final agreement, including costs, with 
the contractor. These are highly risky contracting vehicles to 
be used, and more risk is borne by the government.
    But also, part of the equation here is that the amount of 
people that DOD uses to monitor and evaluate these contracts 
has not grown hardly at all. In fact, while the contracting has 
doubled in real terms over a four- or five-year period, the 
career contracting organization has grown less than one 
percent.
    So, this formula of high-risk contracts and lack of people 
to oversee the contracts adequately is not a prescription for 
success. And we think it needs to change.
    To DOD's credit, they have put in place stronger policies 
and procedures to deal with these issues. And if they use, 
like, for example, undefinitized contracts, we recommend they 
solidify the agreements within the 180 days required after that 
approach. And they are trying to better understand their 
contract workforce needs.
    These activities need to be completed. And just like the 
weapons systems acquisition area, they need to be put into 
practice and consistently implemented across the Department.
    Now, we are encouraged again here by some of the recent 
activities, but the proof will be in implementation going 
forward, which is one of the areas that we are concerned about 
in terms of the Department's track record in this regard.
    Now, we are also encouraged by other developments in the 
contracting and acquisition area. I would like to commend, Mr. 
Chairman, you and this committee for establishing your panel on 
DOD acquisition reform. I think that is important.
    And the Senate has introduced some legislation that we 
think will be helpful, as well. They have created also an ad 
hoc committee on contracting on the Homeland Security and 
Governmental Affairs Committee, on the Senate side.
    I was very pleased to see the President come out and 
announce contracting reform, and directing Office of Management 
and Budget (OMB) to address a number of issues and 
implementation guidance to the agencies, and we will be 
monitoring that very closely. But we think it is long overdue 
and much needed, and hope that it really addresses the issue 
and gains traction in DOD and other agencies across government.
    Now, a couple of other high-risk areas I would highlight 
quickly. One is supply chain management. This is an area in 
terms of being able to meet DOD's goal of getting the right 
items to the right people at the right time, whether they be 
spare parts or other support activities.
    We continue to see that they are challenged by demand 
forecasting in this area. And that means that they have a lot 
of spare parts in inventory that are not needed to meet current 
requirements. In fact, over a four-year period of time, on 
average, on an annual basis, the Army and the Navy had about 
$11 billion of spare parts that were not needed to meet current 
requirements.
    They developed a logistical road map to try to address the 
challenges in this area. And we think it was a good first step, 
but it does not address all the gaps that are needed. It does 
not have performance measures. And DOD has agreed that it needs 
some additional work going forward.
    You mentioned, Mr. Chairman, the lack of the ability of any 
of the major military services to get an opinion on the 
financial statements there. We are encouraged, at least, that 
the Army Corps of Engineers was able to move in that direction. 
But much more work in that area is needed. We are currently 
looking at DOD's plans to make improvements in this area.
    But I would point out, one of GAO's other responsibilities 
is to audit the consolidated financial statements of the 
Federal Government. And the lack of progress in financial 
management in DOD is the single largest impediment to our 
ability to be able to give an opinion on the Federal 
Government's financial statements.
    For 12 years now, we have had to disclaim an opinion, 
because of that issue, as well as problems with the Department 
of Treasury, and some other areas. So, this is a very critical 
area. It would be the underpinnings of also getting better cost 
information and have better reliable data, as well.
    In the human capital area, 30 percent of DOD's personnel 
are going to be eligible to retire over the next few years. 
This is a huge challenge. We have looked at their plans. They 
have made some good progress in this area. But those plans 
continue to need to be refined to meet the legislative 
requirements that have been imposed on them.
    In summary, there are some common issues here that we see 
across all the high-risk areas. There needs to be sustained 
leadership on the part of the Department. That has been lacking 
over a period of time. That needs to change, if there is going 
to be any progress made in these areas.
    There needs to be good, strategic plans to address the root 
causes of the problems. The plans have to have interim 
milestones and measures, so you can track progress.
    I mean, these are the things we look for when we decide to 
take an area off the high-risk list. You have got a commitment 
from your leaders, you have a good plan, and then you monitor 
and execute the plan in order to demonstrate progress. And that 
is the time where we consider taking some areas off the list.
    So, in DOD's case, they have got some good intentions here 
and revisions to their policies, but they really have to 
deliver along these lines.
    Now, important to that will be how they implement the new 
Chief Management Officer concept within DOD. Since the 
legislation has been passed, it really has not been 
implemented, because it came in the waning days of the prior 
administration.
    And there are still some people currently--positions that 
are unfilled there at the Deputy Chief Management Officer level 
and at some of the Chief Management Officers of the services. 
And that needs to be clarified in terms of the roles and 
responsibilities of the Deputy Chief Management Officer, and 
how they relate to the Chief Management Officers in the 
services.
    So, basically, you know, from an overall standpoint, some 
of the infrastructure is in place, and things are poised to 
make great progress. But a lot will depend on actions and 
implementation, and a lot of hard work that will have to be put 
forth by the Department.
    Congressional oversight is imperative in this area. I 
applaud you for taking on this initiative and your future 
hearings. And that concludes my opening remarks. I would be 
happy to take any questions.
    [The prepared statement of Mr. Dodaro can be found in the 
Appendix on page 33.]
    The Chairman. Mr. Dodaro, thank you so much.
    I think you will see some yeoman's work out of this 
committee this year. What we do hopefully will be very 
thorough, but also very effective. And we will not, I assure 
you, rush to judgment, but try to get it right the first time.
    I have two questions before I ask my friend from New York.
    Why is it the Army Corps of Engineers can balance its 
books, and not the rest of the Department of Defense?
    My second question is, how do we get our arms around the 
medical issue, the high costs of the medical issue within, or 
across the board, in the various services?
    Mr. Dodaro. First, with regard to the Army Corps of 
Engineers, for many years, they have put a lot of effort into 
developing a good financial management system. And they were 
one of the leaders within the Department, even many years ago, 
in terms of developing that. And they made a commitment that 
they wanted to achieve that goal. And they have a lot of unique 
financial operations there, because of the revolving fund type 
issue that they have over there.
    So, it was a matter of, they laid the foundation with some 
system development and good practices. But equally as 
important, if not more important, they made a commitment to get 
it done. And I think that is what is needed to be replicated 
throughout the Department.
    They also are able to--you know, one of the bigger 
challenges--let me put it this way. One of the bigger 
challenges for the services is they need a lot of cooperation 
across the Department. Congressman McHugh mentioned the 
cooperation across the Department.
    A lot of the information necessary for financial reporting 
is kept in some logistics systems, property systems, and 
others. And that needs to be brought together.
    And this is an area where I think there has to be 
leadership by the chief management offices--and officer within 
a department to support--even the comptroller does not 
necessarily have all the data necessary to pull the systems 
together. It is really a Department effort.
    The Corps of Engineers has somewhat of a more limited issue 
in that respect.
    With regard to the medical services, I would ask Janet to 
comment on this. But I would say--I mean, this is an issue in 
the private sector. It is an issue in the government generally. 
The largest single cost driver in the Federal Government's 
budget right now is escalating health care costs. And a lot of 
that is being driven by new technologies and utilization that 
differs across the government.
    We have issued a lot of reports on this and pointed to the 
need for the government to do this. So, I think, in that 
respect, DOD is not alone in trying to get a handle on this. 
And I think the efforts that have been announced to address 
health care reform generally are, I think, much needed.
    Janet.
    Ms. St. Laurent. Thank you very much, Mr. Chairman.
    Again, as Gene mentioned, this is an overarching issue for 
the Federal Government. Within DOD, we have looked overall at 
the average cost of compensation for military personnel, and 
have issued a number of studies looking at both the active 
component and the reserve component, showing that those total 
costs are increasing.
    And a large part of that increase is being driven by health 
care costs. So, we certainly agree that it is a key issue that 
has to be studied in more detail.
    There are a number of options on the table. One would be, 
again, looking at plans to possibly increase or charge service 
members a fee for certain services. That would be an option. 
But overall, I think a lot of the increase is also focused on 
the pharmaceutical issues and the costs associated with the 
rising cost. And again, it is very much linked to the overall 
problem that the nation is facing.
    We have not done specific work to look particularly at that 
issue with regard to DOD, however.
    Mr. Dodaro. And Mr. Chairman, we have also done work 
looking at the relationship between DOD and the Veterans' 
Administration (VA), and how they could leverage some of their 
purchasing power to help in this area. And I would be happy to 
provide a summary of that for the record.
    The Chairman. It would be outstanding if you would do that.
    Mr. Dodaro. We will.
    [The information referred to can be found in the Appendix 
on page 67.]
    The Chairman. Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman.
    I do not want to be unfair here. But, Mr. Dodaro, you 
mentioned the weapons acquisition changes. And I believe your 
comments were roughly, ``this is the first time since they were 
designated high risk that they have actually done some things 
to move forward.''
    As I look at the chart, they were designated in 1990. And 
in my opening comments, I talked about--as I believe the 
chairman did, as well--in all of the time that DOD programs 
have been designated high risk, not a single one has ever been 
undesignated high risk.
    That seems pretty remarkable to me. I remember when the GAO 
put certain operations of the postal service on high risk. 
L'Enfant Plaza almost blew up trying--at least trying to do 
some things in a very proactive way to remove themselves. And I 
am sure that is the behavior in other agencies.
    What is the problem with DOD?
    I do not want to be unfair. Help me understand why, after 
nearly 20 years, they just now did something that acted toward 
the high-risk actions, because as I read your high-risk 
reports, it is pretty clear why they are there and what they 
need to do to get off.
    Mr. Dodaro. I think--and I will ask Katherine to add in the 
weapons systems area--we gave them credit for progress this 
year. We might have noted some other attempts that they made 
previously, Congressman, to be fair. And I will let her, since 
she has been following this for a number of years, add context 
to that area.
    But I would say, overall, you know, one of the issues here 
is really senior leader commitment. I can tell you that I have 
received calls over the years from top agency officials, 
concerned they are on the list. They want to get off the list. 
They want to know what they need to do to be able to do that.
    We have had some discussions with DOD over the years. But I 
have not had that type of discussion with them in that regard, 
and I think that is needed.
    You know, in some other areas, too, the Congress has taken 
some steps to provide rigorous oversight. In some cases 
discussions have been taken as it relates to funding, and 
making sure progress is made in those areas.
    So, I think there needs to be some incentives for the 
Department to move forward in that regard. And it has to come 
with the Congress.
    We are prepared--and I am going to be outreaching to the 
Secretary and the Deputy Secretary, the Comptroller and all the 
new leaders that are put in place--to do what we can to give 
them advice on how to make progress in this area. I can assure 
you of that.
    Mr. McHugh. Yes. I am not worried about you.
    As a manager, I would have done something just to try to 
shut you up, frankly. But----
    Mr. Dodaro. Most----
    Mr. McHugh. It is frustrating. But I assure you the 
chairman and I--and we had dinner the other night with Senators 
Levin and McCain, and as you noted very graciously, are very 
committed to this. And we are going to work.
    And I don't know as I would place the word ``incentive'' 
quite what we may have in mind if we are met with a deaf ear, 
but we will take some steps. I look forward to that.
    And I want to commend the Administration, the new 
Administration, that have been--and you noted again--for 
tackling this issue, because certainly from the DOD 
perspective, as you look at these high-risk designations, how 
long it has been, understand that the losses, as you put in 
your testimony, billions of dollars in bad procurement 
practices, et cetera, et cetera.
    The Administration has targeted, I believe, $40 billion in 
savings in procurement areas. What a shock. They could find 
other people who had different opinions. And they ranged all 
over the map. I have no idea what the target out there 
reasonably might be, but GAO has talked about billions in 
savings.
    Have you ever assessed the figure that could help the 
chairman and I kind of look at where we need to be in terms of 
savings and real return on tax dollars?
    Mr. Dodaro. We have not come up with figures beyond a 
couple that I mentioned earlier. I mean, there are pretty good 
figures regarding the spare parts that are developed that are 
unneeded. That is probably where we have the best baseline 
information. It is hard to predict in some of these other 
areas, because they are so unique in some of the developments.
    And I have not looked at the Administration's figures yet. 
I am anxious to see what the details will be of how they will 
try to implement the reforms. But I do not think it is 
unreasonable to try to set some targets that are reasonable, 
and there is some flexibility there.
    But part of the issue with DOD is there are not interim 
targets. And that is part of the problem with the plan.
    And we have seen this on large-scale developments. There is 
nothing quite like the weapons systems development areas, but 
in other big development efforts there is more incremental 
development and specific goals that are needed to be met before 
you move to the next phase.
    And unless you do that, you never really get a handle on 
the issue that you are talking about. It might cost a little 
bit more up front, but it will save you long run, you know, 
more costs in the out years.
    But I think the direction that you are headed is a good 
direction, and I would encourage you to continue to do that. We 
will do what we can to support you.
    Mr. McHugh. Well, and I appreciate that. And I will just 
reiterate before I yield back, how much I know we all--but I 
certainly deeply am--deeply grateful for the great work that 
GAO does. And I suspect, Mr. Chairman, with your leadership, 
that as we go forward on procurement reform, we are going to be 
relying on these good folks even more.
    This is a critically important challenge. And as important 
as it is, I look forward to joining with you in taking it on.
    So, I would yield back, Mr. Chairman.
    The Chairman. Thank you very much.
    I think it is important as our committee approaches or 
attacks this problem, which we have looked at off and on 
through the years, to get it right. And to have to revisit it 
periodically is--we would like to get this behind us, but we 
have to get it right.
    You know, Rome was not built in a day, so we will do our 
very best.
    Mr. Johnson.
    Mr. Johnson. Thank you. Thank you, Mr. Chairman. And I 
applaud the holding of this hearing to elucidate us on the----
    The Chairman. Can you get just a little bit closer to the 
mike, please?
    Mr. Johnson. Sorry.
    The Chairman. And the witnesses do the same, because the 
acoustics in here are not very good.
    Mr. Johnson. All right. Thank you, Mr. Chairman and Mr. 
Ranking Member, for holding this very necessary and timely 
hearing at a time when there are cries from Americans to reduce 
the amount that this country spends on defense.
    And the areas of fraud, waste, and mismanagement, getting a 
handle on those can certainly yield some significant reductions 
in the amounts that the taxpayers are called upon to spend on 
defense--on the Department of Defense.
    And I would like to--you know, it is very strange that, for 
the last 19, 20 years, that there has really been no meaningful 
changes in the high-risk areas that GAO has identified since 
then.
    What are some of the reasons why the situation remains the 
same, after 20 years?
    Mr. Dodaro. I think, you know, basically--I mentioned some 
of the common denominators that we find across these 
departments. One is an inability to set the requirements 
properly up front, to take a disciplined approach to 
management, to have adequate follow-through and measures in the 
process.
    But underlying it all is a culture and incentives that are 
relatively unique within the Department. And I think that that 
needs to be modified, to be able to address some of these 
issues.
    I would ask----
    Mr. Johnson. Does that culture include one of perhaps over-
reliance on private contractors?
    Mr. Dodaro. Well, one of the recommendations that we have 
made is to ask for the Department to make a systematic 
assessment of where it should be contracting and where it 
should build in-house capabilities.
    I think, given the magnitude, size and challenge facing the 
Department, contractors will always be important. The question 
is, you know, determining where you want to use contracting, 
and if you make that determination, that you have adequate 
acquisition workforce to manage the contractors well, so the 
government gets what it pays for--deliverables on time and 
support to the warfighters. That is really important.
    But I would ask Katherine to make a couple of comments, 
because she has been traveling this road for a while.
    Ms. Schinasi. Thank you.
    One of the most difficult things that the Department has 
been unable to do is translate its policies into practice.
    Mr. Johnson. Could you pull that mike up a little bit?
    Ms. Schinasi. Yes.
    Mr. Johnson. Thank you.
    Ms. Schinasi. The Department, even when it has good 
policies in place, translating those policies into practice 
does not happen very often.
    So, the question that we ask is: Why? And what we find very 
often is that there are no consequences if you do not follow 
policies.
    So, there is always an exception made to the policy. For 
almost every--certainly in the weapons system area--for every 
program that we look at individually, there is an exception 
made for that program. And then what you have is the 
opportunity cost that falls into other programs, so that 
overall, you are faced with a very difficult situation and come 
up with the numbers that we have seen, $295 billion in cost 
overruns.
    But it is this basic lack of discipline and consequences 
for taking decisions and actions that do not follow the good 
policies that they have in place.
    Mr. Johnson. Thank you.
    What kind of consequences for these cost overruns, what 
kind of consequences would you deem appropriate and effective?
    Ms. Schinasi. There are very clear guidelines, some of 
which are legislatively mandated, about the kinds of 
information that you need before you make major investments in 
weapons systems. So, before you start a program, you have to 
understand that your technologies are mature. You have to 
understand that you can put together a design, and as you move 
forward through that process, that you can produce an item at 
the quality and at the cost, and in the time that you need it.
    So, there are very clear markers as to what you have to 
know before you make a decision to make a large investment. 
Those markers are not followed. And the decisions are made by 
the Department to continue to invest money, even when we do not 
know what the outcome of a program is going to be.
    Mr. Johnson. But which----
    Mr. Dodaro. And I think--congressman, excuse me--I think 
there also have to be consequences for the contractors in this 
area. I mean, we did a study a year or two ago that Katherine 
led, that looked at the award fees that were given the 
contractors, even though some of the terms of the contract were 
not met in the manner in which they were laid out.
    Now, the Department has moved, to its credit, to try to 
address that issue. But it is not only for the Department 
managers. There has to be some consequences for the contractors 
to incentivize them to perform consistently within time, on 
budget, as well.
    Mr. Johnson. Thank you. And just one final thought.
    If the DOD were a private corporation, it would have been 
bankrupted many years ago with this, facing these same 
challenges.
    Ms. Schinasi. But I think that is a very important point, 
because a private corporation is focused on putting a product 
into the field, and the Department is focused on starting a 
program. And those created two very different sets of 
incentives.
    The Chairman. Mr. Bartlett.
    Mr. Bartlett. Thank you very much.
    There is an old adage that says, what is everybody's 
business is nobody's business. I think of that as I walk 
through the Pentagon, through those halls, and see all of those 
names on the doors.
    Dr. Parkinson noted that, no matter how small the British 
Navy got, the British Admiralty--I guess their equivalent of 
our Pentagon--got larger and larger.
    I suspect both of these entities have grown, because things 
go wrong in administering contracts, and so forth. And so every 
time something goes wrong, we set up a new office to make sure 
that is not going to happen again.
    Every one of these new offices functions kind of as a 
committee. And, of course, committee functions always revert to 
the lowest common denominator, which means that the output is 
always going to be mediocre. It will never be stellar when 
everybody has to agree, you have to reach a consensus.
    It reminds me of our solution to mediocre teachers. We have 
a meticulously detailed curriculum, hoping that even a poor 
teacher will produce something in the classroom, because they 
have to follow a meticulously detailed curriculum.
    I think that kind of thing happens in the Pentagon. We just 
add rules and rules and rules to make sure nothing goes wrong, 
and I think this stifles creativity.
    Another problem I think is that, if you are going to 
advance in government, you cannot make a mistake. And the best 
way not to make a mistake is to never reach out and never to do 
anything. If you don't do anything, you do not make mistakes. 
And I think that is one of our big problems there.
    Dr. Parkinson again noted that there are far too many of 
what he called the ``abominable no-man'' in our government. 
Somebody wants to do something a little bit out of the box. No, 
you cannot do that.
    Dr. Parkinson also noted that, as institutions grew, more 
and more of their energies were exerted in internal 
communications. And depending upon the institution, they can 
reach a size when all of their energies are expended in 
internal communication, and nothing productive outside the 
organization happens.
    Are we stuck with what we have got? Or can we kind of start 
again?
    Mr. Dodaro. Well, our recommendation to create a focused, 
dedicated chief management official over at the Department was 
an attempt to try to penetrate some of the issues that you 
mentioned, or things that could get built up over time. There 
are clearly stovepipes that need to be brought together.
    That can only be done through top-level, dedicated 
leadership. And that is why we advanced this concept, and the 
Congress has acted. It was not entirely what we had 
recommended.
    We recommended a dedicated, full-time chief management 
official that would transcend administrations, so you would not 
lose momentum in some of these more basic financial and 
business systems over time. But that is what--you know, we were 
trying to advance something to create a new dynamic that would 
focus on these activities.
    As has been indicated here, this is one of the largest 
entities in the world. It has a lot of complexities associated 
with it. If you do not have dedicated, full-time management 
focused on it, and focused on it all the time, you are not 
going to create the type of changes that are needed.
    Mr. Bartlett. A number of years ago, one of our senior 
managers in government retired, so that he could speak freely. 
And he said that he thought that, if we simply took our 
government employees and marched them through a cutting gate 
and kept every tenth one--without any regard to whether they 
were good or bad--that our government would probably be more 
productive, because we were so ponderous, so much internal 
communications, that we were doing very little outside work.
    Do you think there could be an element of truth in that?
    Mr. Dodaro. Congressman, you know, most of the people that 
I meet--and I have been in government service for a long----
    Mr. Bartlett. Sorry, but there are very good people. They 
are working very hard. They are very dedicated. It is not the 
people, sir. It is the system.
    Mr. Dodaro. Well, there is a lot of truth to that. And it 
is up to leaders to change the system when it needs change. And 
that is my assessment of the Department of Defense. And it is 
up to the leadership to change that.
    Because there is no reason--I mean, we have the best 
military in the world, and when they are mission-focused on the 
military side, it gets done. On the business side, you do not 
have that same level of, you know, a sense of urgency and focus 
and clarity of what you want to achieve.
    And if that type of commitment and energy and dedication 
that is on the military side can be focused on these business 
systems, this can be done. It is not an unsolvable problem.
    Mr. Bartlett. Thank you, Mr. Chairman, for calling this 
hearing. It is more important than our attendance would 
indicate. Thank you very much.
    The Chairman. Dr. Snyder from Arkansas. Please.
    Dr. Snyder. Thank you, Mr. Chairman.
    I actually feel some empathy for the Department of Defense 
on this. You know, we are talking about the 19 years or the 20 
years. This is my 13th year here, and we still do not have a 
microphone system that works. [Laughter.]
    I mean, you would think that would be something that would 
be readily fixable.
    Mr. Dodaro, I wanted to ask, you mentioned the Levin-McCain 
bill. And the Chairman mentioned having their meeting the other 
night with Mr. Levin and Mr. McCain. And I think you thought 
that there were some good things in it.
    One of the concerns I have about that bill is its 
overwhelming focus. I mean, it is a bill about hardware. It is 
not a bill about service contracts.
    And I can see a possibility, if we do pass something a lot 
like that bill, there will be, as you talked about, the laser 
focus of the bill in the Congress will go on hardware. And, in 
fact, 60 to 65 percent of the money we are talking about is not 
spent on hardware, it is spent on service contracts.
    And if we do something major this year, I hope that we will 
not neglect service contracts, because I think that has even, 
in my view, more looseness to it than some of the hardware 
issues.
    Do you have any comment on that?
    Ms. Schinasi. As you know, the 2006 National Defense 
Authorization Act took a hard look at services and put a 
structure in place for the Department to be better managing its 
service contracts, just for the reasons that you stated.
    We are now looking at how well that is happening. They have 
made some move toward improving the focus on service 
contracting. But whether or not the outcome has started turning 
around yet, that is something that we will be looking at.
    But certainly, service contracting, in terms of dollars, 
has gotten more important over the years and needs the kind of 
attention that----
    Dr. Snyder. I think the attention of the public and the 
attention of the Congress, it is a lot easier to talk about 
Presidential helicopters or, I mean, something that we can see 
and touch. It is more difficult to talk about, okay, how much 
was this contract for the management of information technology 
supposed to cost, and why didn't it work?
    I mean, a lot of us can get confused fairly quickly--not 
just members of Congress, but people who follow the money 
issues pretty closely. But in fact, that is where a lot of the 
money is. And I think we need to not forget that.
    I wanted to ask about, if I might, Mr. Skelton mentioned 
the issue, we want to get it right. And I am not sure that we 
can get it right if--I am going to overstate what the chairman 
said, which is the implication that somehow we will come up 
with a bill or an architecture that this will work, this is 
perfect. All we have to do is the President signs it, and 
everything is back to where we want it to be.
    I do not think it is going to work that way. I mean, I 
think it is going to be a process that will just keep going on 
and on, that you will--I think workforce training, getting the 
right blend of workforce is going to be something we will work 
at. But that will not happen overnight.
    That is years right there in terms--first of all, we have 
got to stop the bleeding, as you pointed out, losing a lot of 
senior people. We are going to have to be training people. We 
are going to have to train people in a way that we think things 
need to be done.
    But talk about that, if you would, about the whole issue of 
how we go about doing the kind of reform that we think is 
necessary.
    Mr. Dodaro. I think, first of all, having an appropriate 
reform framework that goes to some of the root causes of the 
issues is a very important starting place. And I think some of 
those are outlined in the Senator McCain and Levin bill for 
those areas that are talked about. And I agree with you, it 
needs to be a broader focus.
    Secondly, you have to have good management accountability 
in the legislation, so that that accountability then sort of 
cascades down through the Department. You need to be able to 
hold people accountable.
    Thirdly, you need to have interim measures. You cannot, I 
believe, institute a large-scale reform that everybody knows 
will take a number of years to implement satisfactorily. But 
after six months, you should see some level of progress, after 
a year, another level of progress.
    That is what is lacking, I think, at the Department, 
because you do not have these interim milestones that are 
reasonable, that could be negotiated. But you do not know if 
you are on track or not over a period of time.
    So, I think a good legislative framework, followed by a 
very detailed implementation plan that the Congress understands 
and has realistic implementation milestones, is the only way 
that you are going to be able to achieve the progress over time 
and do it right, because a lot of these things are going to 
require mid-course corrections and refinements.
    Dr. Snyder. Thank you.
    The Chairman. Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    I had a meeting with the Secretary of Defense. He opened it 
up to all freshmen Members of Congress to go over to the 
Pentagon and to meet with him, as well as the Joint Chiefs of 
Staff.
    And I asked him a question. I said, well, I expressed a 
concern that the United States had been engaged in 
counterinsurgency operations for a period of time, and that 
maybe our forces were being reoriented permanently in that 
direction, of light forces versus the heavier ground forces, 
air power, sea power, needed to effect a deterrence against our 
potential enemies.
    And he bristled at that notion and said that he was focused 
on both fronts, on maintaining strategic deterrence as well as 
fighting two counterinsurgency wars.
    But he went on to say something that I thought was very 
interesting about his view of the Congress of the United 
States, because he said, one of the difficulties that he 
confronted was that any time he had a discussion--these are his 
words--with a Member of the Congress of the United States, they 
always had a list in their back pocket of weapons systems 
produced in their district that they wanted implemented, 
according to him, his view.
    What is your estimate of the Secretary's view of the role 
of Congress in weapons procurement? And is that an issue from 
your perspective that is problematic in procurement, in the 
weapons acquisition process?
    Mr. Dodaro. I think, you know, clearly, Congress has a role 
to play in reacting to and responding to the requests that the 
Department has put forward. Congress has the ultimate power of 
the purse, and they have decisions on how they want to allocate 
resources. So, in my view, it is a joint responsibility in 
these areas for people to be able to do that.
    But part of the issue here, I think, as reforms are put in 
place, I think the Congress needs to decide how it will behave 
and act in order to support and encourage those reforms going 
forward. So, I think it is an area that ought to come under 
some debate and discussion within the Congress about how it 
will support and incentivize and support good management 
decisions within the Department.
    And so, I think that is a very important point that needs 
attention.
    Mr. Coffman. Thank you.
    Mr. Chairman, I yield back the balance of my time.
    The Chairman. Mr. Ortiz.
    No, excuse me. Mr. Marshall and then Mr. Ortiz.
    Mr. Ortiz. Thank you, Mr. Chairman.
    The Government Accountability Office found that the 
Department of Defense actually unified or coordinated a command 
structure to plan for the management and execution of the 
return of material and equipment from Iraq. With less than 18 
months left to redeploy combat forces from Iraq, does the 
logistic road map have enough support within the Department of 
Defense to facilitate the withdrawal by the date mandated by 
the Administration?
    And I know that--the reason I asked this question is 
because I think we have more contractors in Iraq than we have 
troops. And when we talk about withdrawing the contractors and 
the equipment and our soldiers, we just want to be sure that 
what we do, that we do it right.
    Maybe you can touch on that and see if there is enough 
support to be able to accomplish that by the date given by the 
Administration.
    Mr. Dodaro. This is a very important issue. I am going to 
ask Janet to talk about our report, because we looked at 
whether or not they had a, you know, a command structure, 
unified command structure and a plan in place to do this.
    There is about $16.5 billion of equipment that is there. As 
you point out, there are a lot of contractors, and there are 
more than the military troops.
    There are a lot of factors that need to be considered. You 
know, we studied the withdrawal for the first Gulf War back in 
the early 1990s. And even that, that had far less deployment, 
took about 15 months, I believe, during that period of time.
    And so, there are a lot of issues here associated with 
cleaning, moving the equipment, getting the clearances from the 
countries in which we have to transport the material, 
environmental issues and other things. And we issued, I 
thought, a very good, early, thoughtful report on this. I will 
let Janet talk about it.
    Mr. Ortiz. That will be fine. Thank you.
    Yes, ma'am.
    Ms. St. Laurent. Thank you very much.
    I agree that it is going to be a very complex effort to 
coordinate closely.
    Since we issued our report, the Department has taken some 
steps to address some of the command issues. But, of course, 
there is going to be much more work that needs to be done, 
develop a more detailed plan for bringing equipment back out of 
Iraq.
    It is going to require a lot of analysis to determine how 
much equipment should be brought back, what if any equipment 
should be left for the Iraqis, whether or not the equipment is 
in good enough condition to be refurbished, or whether it needs 
to be replaced. And then, just coordinating all of the 
mechanics of moving considerable quantities of equipment out of 
the country to the point that it has to be cleaned, meet up 
with United States Department of Agriculture (USDA) inspections 
is going to be very comprehensive.
    Also, as you mentioned, the plan for removing U.S. combat 
forces and equipment needs to be closely coordinated with the 
plan for contractors. We think the plan for contractors is less 
mature at this point. We know the Department is working on 
developing some plans. But again, we need to see--would like to 
see--more detailed plans for the management of contractors and 
how it is going to be coordinated with the overall plans for 
drawdown.
    Turning back to the logistics road map, this is a very 
broad, departmental-wide effort to improve logistics across the 
Department. And again, our observation there is that, that 
effort needs to be improved in a couple of respects.
    It does not fully identify the most important gaps from a 
supply chain or logistics standpoint. So, we think the next 
iteration of it should identify more clearly what the 
priorities are.
    It does not fully address the funding needs associated with 
the initiatives. Again, prioritize those.
    And it is not clear how the senior leadership of the 
Department is going to use the road map to really manage and 
effect change, and a senior leadership focus on bringing about 
improvements in supply chain issues.
    Mr. Ortiz. See, it is not that I have anything against 
contractors or that I am against contracting, but let us do it 
when it makes sense.
    In my opinion--because we have had other hearings--it has 
kind of had morale problems with the soldiers, too. Because 
when I talk to some of the soldiers who are about to get out of 
the military, they say, ``You know what? I am going out, and I 
am going to do security work for a private company, because I 
am being paid $40,000 a year, and I am going to get paid 
$150,000.''
    And then, lo and behold, they are kept in the military. 
They cannot get out. And this has happened sometime back.
    So, me, as a member and chairman of the Readiness 
Subcommittee, I have no idea what criteria they use to hire 
contractors. I do not know what kind of pay scale they utilize 
to pay them.
    And many times we found out through hearings that, instead 
of the services doing some of the work that they are supposed 
to do, some of this work is given to contractors, to where the 
contractors are doing the work that the service people should 
be doing.
    So, I hope that we can correct that. And maybe you can 
elaborate on what needs to be done to correct something like 
this that has been happening for a long time.
    Mr. Dodaro. Yes, we made, and emphasize in our statement 
today, a fundamental recommendation to the Department, that 
they lay out and specify their criteria for making those 
decisions in a systematic way over time. And I would encourage 
the Congress to follow up with the Department, and make sure 
that that happens.
    I think that is very important, and it will address 
directly your issue.
    Mr. Ortiz. Thank you so much. My time has run out.
    Thank you, Mr. Chairman.
    The Chairman. Mary Fallin, and then followed by Mr. 
Marshall.
    Ms. Fallin. Thank you, Mr. Chairman.
    I have kind of a general question. As we are going through 
this process of meeting with various folks back home in our 
states and in our districts, there are a lot of people coming 
up to us as Members and saying, we have specific needs in our 
states--specific needs with the various branches of the 
military. And they are asking us for funding requests for those 
different projects.
    And so, when you analyze the Department of Defense, the 
criteria, the systems and the decision-making, you talked a 
little bit about leadership knowing, you know, what is needed 
down below.
    What recommendations do you have for us as Members of 
Congress when people come to us from our National Guard, from 
our Air Force or Army bases, or even from the private sector, 
or even from higher education, the universities with research 
and development, coming to us saying, these are things we 
believe will be beneficial for the Department of Defense, 
military branches, as far as those spending requests?
    Have you found any good way for us to work through these 
things?
    I know that we best know, I think, what our states need and 
what our local military branches need. But sometimes it seems 
to be that we fund things maybe they do not need at the top, or 
maybe the top does not know what the people down here need.
    Have you got some good suggestions on that?
    Mr. Dodaro. I am going to ask Janet to elaborate on this. 
But the first suggestion I have is, I think the Congress has to 
have confidence in the Department's ability to take all the 
requirements, and in a thoughtful, consistent way set 
priorities, and present that back to the Congress.
    Because there will probably never be a situation where 
everybody's wants are going to be able to be met or sustained 
over a period of time.
    So, there has to be some priorities that are set within a 
coherent framework that is understandable and transparent to 
the Congress.
    So, I think that--I would say that as a backdrop.
    Now, Janet has done a lot of work in this area, 
particularly with the Guard and Reserve. I will let her 
comment.
    Ms. St. Laurent. Another, I think, key piece of this is the 
notion of risk-based assessment, because, if you look at any 
one particular state--and I will use the example of National 
Guard--they may have equipment shortfalls, personnel shortfalls 
currently.
    But I think it is more important to look across the 
Department and how they are managing risk, whether or not they 
are looking at the cumulative requirements, how they are 
balancing risk and then allocating their resources effectively.
    And again, in some of our work, we have seen that that 
process is not necessarily occurring as well as it could be. 
And as a result, it does lead to issues, again, within 
particular states.
    I think there has been progress made on the National Guard 
issue over the past few years. Congress has certainly 
appropriated significant additional amounts of money for 
equipment.
    And the Department is also making strides in determining 
how to balance equipment across regions and across the country 
as a whole, to provide adequate capacity to have enough 
equipment here to deal with any potential homeland issues, and 
have a reserve, but then also to support forces that are going 
overseas.
    Ms. Fallin. I guess, Mr. Chairman, what I am trying to find 
out is, how do we establish that balance between what the 
Department of Defense needs, what the President wants, what 
people from our local communities are coming to us saying, this 
is what our states need, without us allocating resources that 
maybe are not in line with the priorities of the Department of 
Defense, be it having them know what our needs are back home.
    So, sometimes I think there is a little bit of a disconnect 
between the two. And, of course, I see that as being our 
responsibility as members of this committee, is to take our 
needs to the committee, take our needs to the top leadership 
and say, these are some of the things we see back with our 
folks, back in our districts.
    Mr. Dodaro. I think a large part of this is really a 
communications issue, too.
    In other words, I mean, you have issues, and your community 
has issues. What you need to be sure of is they have a vehicle 
to get their needs communicated to the Department, and that you 
have confidence that the Department will listen to those needs, 
make a decision, an informed decision, and communicate back to 
the Congress what its priorities are, and whether or not those 
needs are going to be included or not. And if not, why not?
    And Congress would have to be satisfied with those 
decisions, or take action to provide a modification to the 
Department's proposal. And I think that is the way the process 
needs to work.
    Ms. Fallin. Thank you so much.
    Mr. Dodaro. You are welcome.
    Ms. Fallin. I yield back my time.
    The Chairman. Thank you.
    Mr. Marshall.
    Mr. Marshall. Thank you, Mr. Chairman.
    It is not at all uncommon in business--or government, for 
that matter--for efficiency experts, auditors, accountants, et 
cetera, to come in and look at a process, crank the numbers, 
what have you, and then make recommendations which the CEO, or 
the board, or the mayor says, ``Thank you very much. I am not 
going to do that. I do not think that is a good idea. In fact, 
what you have asked me to do is going to cost us more money 
than any possible savings we could realize as a result of doing 
what you have requested.''
    That is just not an unusual event at all in business and in 
government. I have done it myself.
    And when it happens, typically, those who reject the 
recommendation have very precise, clear reasons why they are 
going to reject the recommendation. ``No, I am not going to add 
that person to trace those pennies, so that we know to a penny 
what has been spent, because we know it is within this realm, 
and that person--it is within a margin of error that is less 
than the cost of adding the person,'' for example.
    I find myself wondering if--the Department of Defense, it 
reminds me of--it greatly reminds me of a book published by a 
Yale professor. I cannot remember his name at the moment. But 
the book is wonderful. The title is wonderful.
    And actually, the title was the best part of the book, and 
it is ``Beyond Human Scale.'' And it refers to organizations 
that get to a point, as my friend, Roscoe Bartlett, was trying 
to describe, that no individual within the organization truly 
understands how it works.
    But I find myself wondering, are there apologists within 
the Department of Defense, or are there apologists outside of 
the Department of Defense, who have said to you all, ``Look. 
You are asking this institution--obviously can approve--they 
need to head in the direction that you are suggesting. But the 
institution is a different kind of beast. It has got a 
different kind of mission. You all just do not understand this. 
You are trying to take one model and apply it to what is 
inappropriate.''
    Do you get any kind of feedback like that? If you are not 
getting feedback like that, it is just amazing to me that 20 
years later, we are still talking about how to meet your goals.
    What kind of feedback do you get from anybody? What sort of 
pushback do you get from anybody?
    Mr. Dodaro. Yes. I will ask both Katherine and Janet to 
give you a perspective on it, because we make a lot of 
recommendations to the Department of Defense. And from my 
vantage point, the reaction is quite mixed. In many areas they 
agree, they put in places.
    I have just mentioned today many examples where they have 
implemented our recommendations by changing their policies, but 
the implementation of those policies is not consistently 
applied going forward.
    So, I do not think, you know, we have run in--I am sure 
over time we have run into some disagreements, where they 
disagree with us. And I will ask them to give some examples. 
But it is not a consistent type of issue. And certainly, in 
many cases, we are not asking or recommending things that we 
have not recommended in other departments and agencies, as 
well.
    Katherine, and then Janet.
    Ms. Schinasi. Perhaps I will start.
    It is true that we have mixed reactions. And I will give 
you a number of examples.
    Most of the work we do on individual programs, the program 
manager is the advocate for that program. And his or her 
responsibility is to support that program through whatever 
process that it is put through. And so, many times we will get 
from the program office a different perspective than we have 
brought to the problem.
    That said, however, when we raise those issues up to a 
higher level in the Department that has responsibility across 
many, many programs, we often hear a different story, because 
they are responsible for managing at a level that represents 
the Department's budget as a whole, not the individual program 
manager.
    So, for example, we have heard from officials in the 
Department that they hope weapons acquisition never comes off 
the high-risk list, because they see that as a force for 
change. And they like us coming in and pointing out with sort 
of that independent, once removed view, what we are seeing, 
particularly because we are able to, in many cases, quantify 
the effect of those decisions that you talked about, when they 
say, ``No, we are not going to do it. We have other reasons. 
You know, we do not like what you are saying. We are going to 
take another course.''
    Part of our responsibility is to come back and say, ``Fine. 
But this, you know, this is the effect of making that 
decision.''
    So, it is a mix. It is a mixed response.
    I would say, part of our optimism comes from the fact that, 
over the last five or six years, we have been much more in step 
with what the Department's top leadership----
    Mr. Marshall. I am going to run out of time. It would be 
very helpful to me, perhaps to the committee, to have some 
concrete examples of that, that you think reflect fairly the 
difference of opinion between program managers and GAO with 
regard to how things should evolve. That would be very helpful.
    Mr. Dodaro. Sure. We would be happy to provide that.
    [The information referred to was not available at the time 
of printing.]
    The Chairman. Mr. Wilson.
    Mr. Wilson. Thank you, Mr. Chairman.
    I am Joe Wilson from South Carolina and appreciate very 
much your service and the extraordinarily difficult challenge. 
I am very grateful that I have three Michelin plants located in 
the district I represent. South Carolina is home to 
extraordinary French investments.
    And a success story that you have been responsible for is 
the tire privatization program. And Michelin was successful in 
the competitive contract, working together with Goodyear as a 
subcontractor, providing the aviation and ground tires to the 
American military.
    And there are specifics here that are extraordinary, that I 
think the American public would be reassured to know. And that 
is that aviation tires are provided with a delivery time of 3.3 
days, with the allowable standard of 9.2 days, and an on-time 
delivery of 98.9 percent of the time. And for ground tires, the 
delivery is 3.7 days with a standard of 8.8 days, and 94 
percent delivery rate time.
    Additionally the Defense Logistics Agency has indicated 
this saves the American taxpayers $170 million. And to me, it 
is very significant for the health and safety of our service 
members, but it also provides for protection and advancement of 
our industrial base here within the United States.
    My question is that in July 2008, DOD released its 
Logistics Roadmap to guide improvement efforts in the area of 
logistics, including the supply chain management. Will the road 
map be effective in helping DOD to substantially improve supply 
chain management?
    Mr. Dodaro. The road map, from our perspective, was a good 
first step, but it will not be effective unless they make 
several changes. One is that the road map needs to address 
additional, significant gaps that we see that need to be 
addressed. It does not include performance measures, and it 
needs to. The Department has recognized some of these 
shortcomings and is beginning to work on them.
    But I would ask Janet if she has any additional points.
    Ms. St. Laurent. Yes. The road map, the current version of 
it, is also the latest version of a plan to improve supply 
chain and logistics issues. So, I think the challenge for the 
new administration in place is to make the further improvements 
on it that Gene talked about--identify the gaps, prioritize the 
gaps, identify the associated funding, identify the performance 
measures--and then move out to implement the most important 
aspects of the initiatives in that plan.
    There have been numerous similar plans that preceded this 
current version of the Logistics Roadmap. So, that is why, 
again, this issue has been on our high-risk list for a number 
of years. And what really needs to happen at this point is the 
focus on achieving outcomes and being able to demonstrate 
within the next couple of years some key successes.
    Mr. Wilson. And I appreciate your bringing up the 
successes.
    Additionally, a concern all of us have are cost overruns. 
And it has been a situation where contractors are under-
bidding, low-balling their cost estimates to receive the 
contract, so that they will have the contract. And then, from 
there, there are modifications to the contract, which are 
obviously much, much higher.
    Is there some process where low-balling could be avoided or 
eliminated?
    Mr. Dodaro. You know, one of the issues in best practices 
is to have independent cost estimates along the way, so you 
have benchmarks against the bids that are in. And we think that 
is one suggestion that has a lot of merit.
    Mr. Wilson. And I can see a real need for it, based on the 
Littoral Combat Ship (LCS), which was estimated to cost $220 
million, and that bids were processed on that. But it has come 
back at half-a-billion.
    And so, I hope with your expertise and efforts that this 
can be addressed about low-balling, under-bidding, and the 
reforms that are necessary.
    And so, thank you again for your service.
    Mr. Dodaro. Thank you.
    The Chairman. Thank you.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    I think this is an incredibly important subject matter. And 
normally, I really do ask questions without a lot of preamble. 
But I think today, as I sit and listen, I think preamble is 
what I need to do.
    And Mr. Bartlett started out with an adage, and I am going 
to start with one, too. The last seven years before coming 
here, I was a high school social studies teacher. And as 
teachers tend to do, I had a little sign in my classroom. And 
one of the ones that I had that I called to attention a lot is, 
``Insanity is expecting different results, while continuing to 
do the same thing.''
    And as I sit here and listen today to the words of 
procedures, and lack of procedures, and a lack of consequences, 
and that certain issues are staying on the table for 20 years, 
it seems to me that we have a lot of doing the same thing while 
wanting results.
    I also want to point out, which was mentioned earlier, and 
I was in a hearing earlier this week that this was greatly 
emphasized, were services are 60 to 65 percent of the 
expenditures.
    And I happened to have another conversation this week with 
a gentleman who is in the construction business. They do $600-
$700 million a year. But the complexity of bidding on 
Department of Defense contracts is so much that they just will 
not do it anymore. Which, in itself, tends to eliminate all but 
certain groupings.
    So, all of that said, it obviously is very important, Mr. 
Chairman, and we do not want to do this in a way that is a 
knee-jerk reaction. But it seems to me that consequences has to 
be a very important part of what we are doing.
    And before I taught, I spent 27 years in industry. And we 
always went to the people who did the job every day, to ask 
them for their opinions before we did anything. And sometimes I 
wonder, are we doing enough of talking to the people that make 
this work day to day.
    And as Mr. Bartlett also said, are we having a system and 
supporting a system where we encourage them to hide?
    And so, I am finally leading to a question. And I apologize 
for this rambling, but I think I just--it is important 
sometimes to kind of have an understanding of where this is 
coming from.
    Do we have functioning and well-understood ways that 
people, when they see that these procedures are not being 
followed, where people can offer suggestions? Or is that part 
of the complex that we tend to cover up, so that we do not draw 
attention to people?
    Mr. Dodaro. I think that the issue that you are raising is 
an important one.
    The people, the program managers, say, for the weapons 
systems, really do not have any ability to make any decisions 
in that process. And there needs to be, I think, probably 
greater incentive for them to raise some of the issues up 
through the system.
    But I would ask Katherine to elaborate on that point. But I 
appreciate your prologue, and it was not rambling. Plus, my 
father is a social studies teacher, so I understand.
    Katherine.
    Ms. Schinasi. I am not sure I have an answer for you, but I 
will agree. And one of the things that we try and do in our 
work is find success, and try and find people who are doing 
things to manage the system and manage the process, instead of 
letting the process manage them, and to highlight that, because 
it helps us to show things can be done differently, because 
some people have stepped up to do that. But we do not find that 
many examples.
    Mr. Dodaro. But I think your focus on saying that 
consequences are important is really a key element. But in 
implementing that, there has to be not only putting 
accountability and consequences, but you have to have a 
constructive, open line of communication there, because you 
could incentivize and make things worse, unless you have that 
ability to do what you are talking about, to have open 
disagreements, if you will, or people can raise issues up 
without fear of having problems.
    Mr. Kissell. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. I have remaining Mr. Taylor and Ms. Bordallo.
    Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.
    I want to thank our witnesses.
    Mr. Dodaro--is that correct?
    Mr. Dodaro. That is.
    Mr. Taylor. A couple of things I would like you to comment 
on. Mr. Wilson mentioned the LCS program, and it has got to be 
right up there amongst the poster children of just absolutely 
waste of taxpayer money--no effort to take advantage of any 
economies at any step, whether it is on acquisition, 
modernization.
    It is like we are going to send the government a bill. We 
will send them a bigger bill. They are going to keep paying it, 
because we have got them where we want them.
    Having said that, I have been lucky enough to serve at the 
city level, the state level, and now here. I know that cities 
and states very often require performance bonds on a project.
    Whether it is a building, a highway, a sewer and water 
line, they see to it that whoever bids on that posts a 
performance bond. And that way, if the contractor fails to do 
it properly, if he fails to do it on time, that the city gets 
the money that they would have squandered, back.
    I realize that there is a cost associated with a 
performance bond. But when a program like the LCS program is 
two-and-a-half times over the initial budget, even a 20 percent 
premium on the performance bond would have you way ahead at the 
end of the day.
    My question to you is, has your organization--and I am not 
a fan of the insurance industry by any means, but there is a 
place for that industry--has anyone in your organization looked 
into when the last time we required that, and whether or not it 
would be worthwhile now?
    Mr. Dodaro. Let me just check.
    Apparently, we do not have an answer for it that----
    Mr. Taylor. Can I ask you to do that?
    Mr. Dodaro. We will look at it.
    [The information referred to can be found in the Appendix 
beginning on page 67.]
    Mr. Taylor. It is not just that program. It is the Coast 
Guard ruining the 110/123 conversions, 8 ruined ships, $80 
million that Bollinger shipbuilding got to ruin 8 ships, so 
that you had the value of the 110s before they were ruined 
going on top of the $80 million. That is a lot of money 
squandered, that maybe a performance bond could have prevented.
    The second thing I would ask you to look at is, I 
understand you are concerned about buying spare parts we do not 
need. I understand you are concerned about buying, 
historically, commodities we do not need.
    But the world has changed so dramatically with things like 
computer-assisted drafting, where before--if it is done right--
before you ever start an airplane, before you ever start a 
ship, you are going to know exactly how many pieces you are 
going to need, what shapes they are going to be, how many of 
them there are, where every single one of them is going to go.
    I mean, I could take you to the Maersk shipyard or the 
Hyundai shipyard. And they literally, as a piece of steel is 
rolled into that yard, hit it with a barcode, and they will 
show you on the laptop exactly on that 1,000-foot ship where 
that one piece of steel is going to be, which machines it is 
going to pass over, in which sequence, as it is molded to the 
right shape.
    So, you know, the idea of buying stuff we do not need does 
not have to happen.
    The reason I say all this is, it has recently come to my 
attention that the price of aluminum is half of what it was two 
years ago. The price of steel is less than half of what it was 
two years ago. The price of titanium is down a third from two 
years ago.
    Who, if anyone, in your organization is encouraging people, 
for us as a Nation, to be countercyclical in our acquisitions 
on those things we know we are going to buy? C-130s, DDG-51s--
not the risky programs that may not survive, but the ones we 
know we buy every year.
    Who in your organization is going to them saying, you know 
what? We need to be aggressive. We need to tie down some 
contracts right now, while these suppliers are desperate for 
work. We can get good prices, and we know we can get them. By 
the way, we can keep them in business, and we can save the 
taxpayers a lot of money.
    Mr. Dodaro. Yes, we--that is not a normal function we would 
do. I would talk----
    Mr. Taylor. Well, Mr. Dodaro.
    Mr. Dodaro. Yes----
    Mr. Taylor. I know it is not a normal function.
    Mr. Dodaro. Right, right.
    Mr. Taylor. But these are not normal times, and you would 
hope that you are the organization that is providing some 
insight to the other organizations of how they ought to be 
doing things better.
    Mr. Dodaro. Right. Well, we can certainly raise the 
question to the Department, to see if it is looking at the 
issues that you are talking about, and making some decisions. 
We do not want to insert ourselves as a management function, 
Congressman.
    But we can and we will follow up to see if they are 
considering these issues, and as part of their normal 
management process.
    [The information referred to can be found in the Appendix 
on page 68.]
    Mr. Taylor. Well, those are two things that I very much 
want to pursue.
    Mr. Dodaro. Okay.
    Mr. Taylor. I am open-minded on both of them, so I am 
asking you to look into them and get back to us and say whether 
or not you think this would be a good idea, and for what 
reason--or whether or not you think it is a bad idea, and for 
what reason.
    Mr. Dodaro. Okay. We will do that.
    Mr. Taylor. Thank you. Thank you, Mr. Chairman.
    The Chairman. Would you make your answer to both of those 
inquiries to the entire committee? We would appreciate that.
    Mr. Dodaro. Well, that is our normal procedure, Mr. 
Chairman. I would be happy to.
    The Chairman. You bet. Thank you.
    Ms. Bordallo.
    Ms. Bordallo. Thank you very much, Mr. Chairman.
    I was not going to ask a question, but I came here, because 
I was very interested in the subject matter.
    With the impending military buildup occurring in my area, 
on Guam, the movement of 8,300 Marines from Okinawa at the cost 
of $14 billion, I can see where many of the high-risk areas, at 
least--maybe not many, but a few of them--on your list would 
certainly be involved in our buildup.
    And I want to bring up the fact that this is probably one 
of the largest military relocations of a base in the history of 
the military. And our chairman, Mr. Skelton, and several 
members here on the Armed Services Committee, just visited the 
area, both Guam and Okinawa.
    And I would like to repeat what our chairman says. We want 
to do this, and we want to do it right.
    So, I am curious. Are you aware of this buildup that is 
occurring? And things are already going on, contracting and 
that type of thing.
    Could you give me some----
    Mr. Dodaro. Yes. We are well aware of it. We have been 
asked to do quite a bit of work as it relates to the Guam 
situation. I will let Janet talk about what we know, and what 
we are currently doing.
    Ms. St. Laurent. We have three engagements going on right 
now, or studies, that are focused on various aspects of the 
buildup on Guam. And also, we are doing a lot of work worldwide 
to look at global reposturing.
    But specifically, we have an engagement looking at the 
utilities issues and how the Navy is going to meet those needs, 
working with Guam, the government of Guam. And I think you are 
well aware of that one.
    We are also monitoring and looking at the overall costs 
associated with the buildup, how those cost estimates are 
changing, all of the military players involved.
    Again, as you mentioned, this is going to be a complex move 
involving all of the services. There is a joint effort being 
done by the services to do the planning in a coordinated 
fashion, and we are looking at how that is going.
    And then third, we also have another effort underway that 
is focused on how the federal agencies are coordinating, again, 
with the government of Guam, to look at any further 
enhancements in infrastructure that may be needed, and how 
those issues are going to be addressed.
    Ms. Bordallo. All right. I do want to thank you. I am just 
concerned, because I have said over and over in this committee 
during hearings, that we are going to be monitoring this 
process as it goes along. And hopefully, contracting and all of 
that will be very transparent.
    And I do not want to be sitting here later on and hear that 
there were all kinds of abuses with this move.
    So, I want to thank you again.
    And I want to especially thank our chairman here, who has 
been very interested in this movement. And as he says, and I 
say now, I quote him, let us do it, and let us do it right.
    So, thank you.
    Thank you, Mr. Chairman.
    The Chairman. Certainly thank the gentlelady.
    Is there any member that wishes to ask additional questions 
while we have this panel before us?
    Are there any additional questions?
    Well, we thank each one of you. And Mr. Dodaro, it is just 
excellent testimony, as usual. We look forward to your answers, 
specifically to Mr. Taylor's questions. And we look forward to 
working with you.
    We have, as you know, and it has been mentioned earlier, a 
panel on acquisition reform. And I am sure we will call upon 
your expertise to be of assistance in that.
    Without further ado, thank you.
    [Whereupon, at 11:32 a.m., the committee was adjourned.]
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                             March 12, 2009

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                             March 12, 2009

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             RESPONSE TO QUESTION SUBMITTED BY MR. SKELTON

    Mr. Dodaro. Over the past several years, we have performed work on 
issues related to the cost of pharmaceuticals, including the 
relationship between DOD and VA. (In submitting my written responses 
for the record, I will also provide copies of any products cited in my 
response.) For example, in May 2000, we testified that VA and DOD could 
save millions of dollars by expanding their use of joint contracts for 
pharmaceuticals (See GAO/T-HEHS-00-121). In a subsequent report in May 
2001, we found that VA and DOD had made important progress in 
leveraging joint purchasing power for pharmaceuticals by expanding the 
number of joint pharmaceutical contracts (See GAO-01-588). At the time, 
most of their joint contracts were for generic drugs. We concluded that 
more significant cost reductions could be realized through joint 
procurement of high-cost brand name drugs, although we noted that DOD 
and VA faced challenges to do so. We recommended, among other things, 
that VA and DOD include information on ongoing and planned joint 
contracts in an annual report to the Congress, which they did most 
recently in February 2009.\1\ This report notes that there were 59 VA 
and DOD joint national contracts for the first three quarters of fiscal 
year 2008, resulting in $115 million in cost avoidance.
---------------------------------------------------------------------------
    \1\ VA/DOD Joint Executive Council, Annual Report Fiscal Year 2008, 
(Washington, D.C.: Feb. 2009).
---------------------------------------------------------------------------
    We also reported in June 2005 on a pilot program for DOD to use 
VA's mail order pharmacy to dispense outpatient refill prescriptions 
(See GAO-05-555). We noted that DOD's costs were much higher when 
beneficiaries used retail pharmacies than when they used military 
treatment facility pharmacies or mail order options. In addition, we 
concluded that DOD could achieve cost savings at very high levels of 
beneficiary satisfaction by delivering drugs to beneficiaries using the 
VA's mail order pharmacy rather than military treatment facility 
outpatient refill operations. In 2008, we reported that DOD's drug 
spending had more than tripled from fiscal year 2000 to fiscal year 
2006, and that retail pharmacy spending drove most of this increase. We 
noted that the growth in retail spending reflected the fact that 
federal pricing arrangements, which generally result in prices lower 
than retail prices, were not applied to drugs dispensed at retail 
pharmacies during this time. However, we noted that future growth in 
retail pharmacy spending may slow as the National Defense Authorization 
Act for Fiscal Year 2008 required that federal pricing arrangements be 
applied to drugs dispensed at retail pharmacies.\2\ We recommended that 
DOD monitor the effect of federal pricing arrangements for drugs 
dispensed at retail pharmacies along with ongoing efforts to limit 
pharmacy spending to determine the extent to which they reduce the 
growth in retail pharmacy spending, and to identify, implement, and 
monitor other efforts as needed to reduce the growth in retail pharmacy 
spending (See GAO-08-327). DOD stated that it concurred with these 
recommendations. [See page 9.]
---------------------------------------------------------------------------
    \2\ Pub. L. No. 110-181, Sec. 703(a)(2), 122 Stat. 3, 188 (codified 
at 10 U.S.C. Sec. 1074g(f)).
---------------------------------------------------------------------------
    [The GAO reports referred to above are retained in the committee 
files and can be viewed upon request.]
                                 ______
                                 
             RESPONSES TO QUESTIONS SUBMITTED BY MR. TAYLOR

    Mr. Dodaro. Although we have not done audit work looking at 
performance bonds on DOD contracts, we are familiar with the use of 
this tool. Just like many cities and states, the federal government 
provides for the use of performance bonds on construction contracts. In 
this regard, the Miller Act requires performance bonds for any 
construction contract exceeding $100,000.\3\ The bond is intended to 
assure fulfillment of the contractor's obligations under the contract 
by providing for payment of a penal amount to the government in the 
event of nonperformance. In general, the penal amount of the 
performance bond is equal to the amount of the contract.
---------------------------------------------------------------------------
    \3\ 40 U.S.C. Sec. Sec. 3131 to 3134 (2007).
---------------------------------------------------------------------------
    The FAR provides, however, that agencies generally should not 
require performance bonds for other than construction contracts. The 
exceptions to this general prohibition for the most part involve 
situations in which the government is providing property or other 
assets to the contractor early in the performance of the contract.
    The rationale for the general prohibition on the use of performance 
bonds outside the construction area is based on a number of factors. 
First, unlike construction contracts that are structured around well-
defined specifications, contracts for weapon system development such as 
for the Littoral Combat Ship often lack fixed objective specifications. 
Second, the length of time for which a surety is willing to issue a 
bond is typically less than two years, far shorter than most weapon 
system development projects. Third, the cost of obtaining a performance 
bond would be reflected in the contract price paid by the government. 
This means the government would be paying higher prices on all 
contracts requiring a bond even though only a small percentage of the 
contractors might fail to perform to contract requirements. And 
finally, the government has other means available to it to ensure good 
contract performance. Chief among these is the requirement in the FAR 
that the government do business only with responsible contractors. For 
all contracts, the contracting officer must make an affirmative 
determination that the prospective contractor has adequate financial 
resources, is able to meet schedule, has a satisfactory performance 
record, and is otherwise equipped to perform all contract requirements. 
[See page 26.]
    Mr. Dodaro. We have contacted the cognizant office within the 
department, the Director, Defense Procurement and Acquisition Policy, 
within the office of the Undersecretary for Acquisition, Technology and 
Logistics. We have conveyed Congressman Taylor's concern over the issue 
of countercyclical purchases of materials when they are in the best 
interests of the government, as well as the need to be aggressive in 
taking advantage of such opportunities. The Director replied that this 
issue has been discussed within the department and that he is taking 
steps to have the Defense Contract Management Agency pursue 
countercyclical purchases. He noted that enhancing the Defense Contract 
Management Agency's capacity in this area is one component of the 
department's overall workforce initiative. [See page 27.]
?

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             March 12, 2009

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

      
                    QUESTIONS SUBMITTED BY MR. SMITH

    Mr. Smith. Many of the systems on your list are software-intensive 
IT systems. In your analysis, did you find common characteristics that 
typify high-risk IT efforts from more successful programs?
    Mr. Dodaro. One of the more formidable challenges to addressing the 
business systems modernization high risk area is ensuring that the 
thousands of DOD business system programs and projects and IT services 
employ acquisition management rigor and discipline. This is because our 
work has shown that DOD has implemented acquisition management controls 
on large business system investments to varying degrees of 
effectiveness. In the last year, our reviews of major defense business 
system acquisitions have disclosed patterns of system-specific 
management weaknesses, including:

      not economically justifying investments on the basis of 
reliable estimates of future costs and benefits, which increases the 
risk that the department is not pursuing the most cost effective 
solutions for satisfying its business mission needs;

      not pursuing investments within the context of an 
enterprise architecture, which increases the risk of system 
implementations that are duplicative and not well integrated;

      not adequately defining and controlling system 
requirements, which increases the risks of producing a system that 
cannot be effectively tested and does not meet expectations;

      not proactively managing acquisition risks, which results 
in potential cost, schedule, and performance problems becoming actual 
problems; and

      not sufficiently testing system functions and 
performance, which increases the chances of developed and deployed 
capabilities not performing as intended and not meeting users 
operational needs.

    Until DOD addresses these characteristics of ``at risk'' 
acquisitions, it will be severely challenged in its ability to ensure 
that its system investments are the right solutions for addressing its 
business needs, that they produce expected capabilities and mission 
benefits, and that stakeholders are satisfied.
    Mr. Smith. Because the time cycle for technology development and 
refresh are so different, major automated information systems have 
different developmental needs compared to traditional hardware 
acquisition programs. Do you feel that the new DOD 5000 acquisition 
directives adequately address the specific challenges for IT systems? 
If so, what changes would you recommend?
    Mr. Dodaro. Based on our prior work, DOD has taken some action 
consistent with our recommendations, but additional steps are needed to 
address the challenges for IT systems. (In submitting my written 
responses for the record, I will also provide copies of the cited 
products). Specifically, in 2004, we reported that DOD's 5000 
acquisition directive and guidance were consistent with some, but not 
all, key acquisition practices for IT systems (See GAO-04-722). 
Specifically, while the policies and guidance largely incorporated the 
best practices that are relevant to any business systems acquisition, 
they did not incorporate key best practices that relate to acquiring 
commercial component-based business systems. For example, they included 
the requirement that acquisitions be economically justified on the 
basis of costs, benefits, and risks. However, they did not address 
basing any decision to modify commercial components on a thorough 
analysis of the impact of doing so, and they did not address preparing 
system users for the business process and job roles and 
responsibilities changes that are embedded in the functionality of 
commercial products. Moreover, they did not contain sufficient controls 
to ensure that DOD organizations appropriately follow the best 
practices that are incorporated in the department's policies and 
guidance.
    DOD has since revised its 5000 acquisition guidance to incorporate 
some of these practices. For example, they now provide for conducting 
an analysis of lifecycle costs and benefits before modifying commercial 
components. However, they do not yet incorporate provisions for 
measurement and verification that the best practices provided for are 
appropriately followed. Moreover, DOD's Business Transformation Agency, 
which is responsible for leading and coordinating, among other things, 
acquisition of business systems across the department, has recognized 
the need for an acquisition management approach that reflects the 
unique characteristics of major automated information systems. 
Specifically, it has drafted a lifecycle management methodology, 
referred to as the Business Capability Lifecycle that provides an 
approach for acquiring business systems. However, this methodology has 
been in draft for about two years and has yet to be approved or fully 
implemented. Our May 2009 report reiterates existing recommendations 
and includes new recommendations to address the business systems 
modernization high risk area (See GAO-09-586). These recommendations 
are aimed at strengthening institutional controls and ensuring that 
these controls are implemented on each and every business system 
investment.
    For example, at the institutional level, DOD still needs to:

      extend (federate) DOD's corporate business enterprise 
architecture and related transition plan to its component organizations 
and ensure that it reflects the department's complete investment 
portfolio; and

      evolve the department's corporate and component business 
system investment management processes and ensure that they are 
institutionalized at all levels of the organization.

    At the program-level, DOD still needs to ensure that the thousands 
of DOD business system modernization and IT services programs and 
projects employ program management rigor and discipline, to include:

      economically justifying investments on the basis of 
reliable estimates of future costs and benefits;

      pursuing investments within the context of an enterprise 
architecture; and

      adequately conducting key acquisition functions, such as 
requirements management, risk management, test management, performance 
management, and contract management.

    DOD has largely agreed with GAO's recommendations aimed at 
improving these institutional and program-specific controls and 
described either commitments or actions being planned or under way to 
address them.
    [The GAO reports referred to above are retained in the committee 
files and can be viewed upon request.]
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. MURPHY

    Mr. Murphy. Why are contractors who have a track record of 
providing substandard services because of the failure to maintain a 
well-trained and stable workforce continuing to receive additional 
government contracts?
    Mr. Dodaro. The federal government has tried for many years to find 
a way to give appropriate weight to firms' track record in selecting 
firms for new contracts. Today, agencies are required to consider past 
performance in selecting contractors, but, as discussed below, it is 
only one of a number of factors they consider. In addition, while a 
seemingly simple concept, using past performance information in source 
selections can be complicated in practice. Further, we recently 
identified several underlying problems that limit the usefulness of 
information in the government's past performance database for 
governmentwide sharing.
    The government contracting process provided under the Federal 
Acquisition Regulation (FAR) requires consideration of contractor 
performance at multiple points:

      Source selection: Past performance is required to be an 
evaluation factor in selecting contractors, along with factors such as 
price, management capability, and technical approach to the work.\1\ 
Although past performance must be a significant evaluation factor in 
the award process, agencies have broad discretion to set the precise 
weight to be afforded to past performance relative to other factors in 
the evaluation scheme.
---------------------------------------------------------------------------
    \1\ Agencies are required to consider past performance in all 
negotiated procurements above the simplified acquisition threshold of 
$100,000 and in all procurements for commercial goods or services.

      Responsibility determinations: Prior to the award of a 
contract the contracting officer must make an affirmative determination 
of responsibility regarding the prospective contractor. One of the 
factors a contracting officer must consider in making this 
determination is the prospective contractor's ability to perform the 
contract. This includes, for example, whether the prospective awardee 
---------------------------------------------------------------------------
has a satisfactory performance record on prior contracts.

      Surveillance under the current contract: Once a contract 
is awarded, the government monitors a contractor's performance 
throughout the life of the contract. This record of performance will 
generally be one of the evaluation factors considered by the government 
when evaluating and awarding future contracts.

      Debarment: To protect the government's interests, 
agencies can debar, that is preclude, contractors from receiving future 
contracts for various reasons, including serious failure to perform to 
the terms of a contract.

    DOD has issued additional guidance on the use of past performance 
data during contract award and what systems will be used to store and 
retrieve past performance data. For example, DOD offers instructions on 
using past performance in source selection and contractor 
responsibility determinations through the Defense Federal Acquisition 
Regulation Supplement and related Procedures, Guidance, and 
Information. DOD's Office of Defense Procurement and Acquisition Policy 
also made available a guide that provides more detailed standards for 
the collection and use of past performance information, including 
criteria applicable to various types of contracts.
    We recently assessed federal agencies' use of past performance 
information and the challenges that hindered the systematic sharing of 
past performance information.\2\ We found that the lack of 
accountability or incentives at agencies to document assessments in the 
government's past performance information system, a lack of standard 
evaluation factors and rating scales across agencies, and a lack of 
central oversight to ensure the adequacy of information fed into the 
system limited the usefulness of information for governmentwide 
sharing. We made several recommendations to the Office of Federal 
Procurement Policy aimed at improving the sharing and use of past 
performance information in contract award decisions. We also 
recommended that the agencies we reviewed establish management controls 
and appropriate management review of past performance evaluations to 
improve management and accountability for documenting contractor past 
performance information. The Office of Federal Procurement Policy and 
the agencies agreed with our recommendations. In addition, most of 
these agencies outlined plans or actions to implement our 
recommendation on management controls and reviews of past performance.
---------------------------------------------------------------------------
    \2\ GAO, Federal Contractors: Better Performance Information Needed 
to Support Agency Contract Award Decisions, GAO-09-374 (Washington, 
D.C.: April 23, 2009).
---------------------------------------------------------------------------
    Mr. Murphy. In your opinion, do you believe that by incorporating 
measures that allow procurement officers to evaluate the treatment of 
those employees that will be performing the contract we can obtain 
contracts that better service the needs of the government and the 
American people?
    Mr. Dodaro. Contracting officers are to consider a number of 
factors such as price, quality of the product or service, and past 
performance when awarding government contracts. As part of the quality 
of the product or service the government considers one or more non-cost 
evaluation factors such as technical excellence, management capability, 
and personnel qualifications. Contracting officers have broad 
discretion in the selection of evaluation factors used in assessing the 
relative merit of competing proposals for contracts for the procurement 
of goods and services, and a contractor's treatment of its employees 
can thus be used as an evaluation factor. In addition to evaluation 
factors, which are set out in a solicitation and used in the selection 
of the apparent winner of the competition for a contract, another issue 
relevant to your question is the determination of ``responsibility.'' 
Before an apparently successful firm can actually be awarded the 
contract, the contracting officer must determine that the firm is 
``responsible,'' a term of art that means, among other things, that the 
contractor:

      has adequate financial resources to perform the contract, 
or the ability to obtain them;

      be able to comply with the required or proposed delivery 
or performance schedule, taking into consideration all existing 
commercial and governmental business commitments;

      has a satisfactory performance record;

      has a satisfactory record of integrity and business 
ethics;

      has the necessary organization, experience, accounting 
and operational controls, and technical skills, or the ability to 
obtain them;

      has the necessary production, construction, and technical 
equipment and facilities, or the ability to obtain them; and

      is otherwise qualified and eligible to receive an award 
under applicable laws and regulations.

    A contractor's treatment of its employees is not a required 
evaluation factor nor is it necessarily considered by contracting 
officers in responsibility determinations. We have not done work that 
assessed the merits of the use of such a factor either in source 
selection or responsibility determinations.
    Mr. Murphy. Do you believe that by encouraging the selection of 
responsible contractors who employ a stable and well-trained workforce, 
the procurement process would better serve the needs of the government 
and the American people?
    Mr. Dodaro. In general, the selection of responsible contractors 
who employ a stable and well-trained workforce can help contribute to 
meeting the needs of the government and the American people. The 
stability and training of the contractors workforce are, however, not 
the only criteria used in selecting contractors, as explained above. 
Moreover, the government's selection of qualified contractors is just 
one of many factors associated with the performance of a successful 
acquisition. Other factors include, for example (1) the development of 
well-defined requirements; (2) the use of an appropriate contract type; 
(3) selection of a responsive and responsible contractor; and (4) 
proper government oversight of contractor performance. We have reported 
on DOD's contract management challenges in these four areas, which 
contribute to unmet expectations and continue to place the department 
at risk of potentially paying more than necessary for contracted 
services.

                                  
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