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



                                     

                         [H.A.S.C. No. 111-134]
 
                     ADMINISTRATION PERSPECTIVES ON
                    MANAGING THE DEFENSE ACQUISITION
                         SYSTEM AND THE DEFENSE
                         ACQUISITION WORKFORCE

                               __________

                                HEARING

                               BEFORE THE

                  PANEL ON DEFENSE ACQUISITION REFORM

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                             MARCH 11, 2010

                                     
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                  PANEL ON DEFENSE ACQUISITION REFORM

                  ROBERT ANDREWS, New Jersey, Chairman
JIM COOPER, Tennessee                K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana              DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania             MIKE COFFMAN, Colorado
                Andrew Hunter, Professional Staff Member
                 John Wason, Professional Staff Member
                     Megan Howard, Staff Assistant


                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2010

                                                                   Page

Hearing:

Thursday, March 11, 2010, Administration Perspectives on Managing 
  the Defense Acquisition System and the Defense Acquisition 
  Workforce......................................................     1

Appendix:

Thursday, March 11, 2010.........................................    35
                              ----------                              

                        THURSDAY, MARCH 11, 2010
ADMINISTRATION PERSPECTIVES ON MANAGING THE DEFENSE ACQUISITION SYSTEM 
                 AND THE DEFENSE ACQUISITION WORKFORCE
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Conaway, Hon. K. Michael, a Representative from Texas, Ranking 
  Member, Panel on Defense Acquisition Reform....................     3
Cooper, Hon. Jim, a Representative from Tennessee, Panel on 
  Defense Acquisition Reform.....................................     1

                               WITNESSES

Carter, Hon. Ashton B., Under Secretary of Defense for 
  Acquisition, Technology and Logistics, U.S. Department of 
  Defense........................................................     4
Hale, Hon. Robert F., Under Secretary of Defense (Comptroller), 
  U.S. Department of Defense.....................................     7
McGrath, Elizabeth A., Acting Deputy Chief Management Officer, 
  U.S. Department of Defense.....................................     9

                                APPENDIX

Prepared Statements:

    Andrews, Hon. Robert, a Representative from New Jersey, 
      Chairman, Panel on Defense Acquisition Reform..............    39
    Carter, Hon. Ashton B........................................    44
    Conaway, Hon. K. Michael.....................................    42
    Hale, Hon. Robert F..........................................    57
    McGrath, Elizabeth A.........................................    64

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Andrews..................................................    81
    Mr. Hunter...................................................    81

Questions Submitted by Members Post Hearing:

    Mr. Conaway..................................................    85
ADMINISTRATION PERSPECTIVES ON MANAGING THE DEFENSE ACQUISITION SYSTEM 
                 AND THE DEFENSE ACQUISITION WORKFORCE

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                          Defense Acquisition Reform Panel,
                          Washington, DC, Thursday, March 11, 2010.
    The panel met, pursuant to call, at 3:02 p.m., in room 
2261, Rayburn House Office Building, Hon. Robert Andrews 
(chairman of the panel) presiding.

  OPENING STATEMENT OF HON. JIM COOPER, A REPRESENTATIVE FROM 
         TENNESSEE, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Cooper. [Presiding.] The hearing will come to order.
    Welcome to the 13th meeting of the Defense Acquisition 
Reform Panel.
    No, I am not Rob Andrews, nor do I pretend to be. I am 
certainly not from New Jersey. But Rob is unavoidably detained 
for a few moments, so we will kick off the hearing. And I would 
like to read his opening statement on his behalf.
    Today the panel approaches the end of its work. Last week 
we issued the panel's interim findings and recommendations, and 
today we hear from the Administration on their acquisition 
reform priorities and their thoughts about the panel's work.
    Having received this feedback, as well as feedback from our 
previous witnesses and other experts, we intend to deliver a 
final report to Chairman Skelton and Ranking Member McKeon at 
the end of next week. At that point, the panel's official 
mandate will expire. However, the panel's recommendations will 
serve as the basis of legislation that will be considered in 
the House this year, and we expect, enacted into law.
    Today's hearing marks the panel's 13th hearing since we 
were appointed by Chairman Skelton and then-Ranking Member John 
McHugh in March of last year. In these hearings, the panel has 
found that, while the nature of defense acquisition has 
substantially changed since the end of the Cold War, the 
defense acquisition system has not kept pace.
    The system remains structured primarily for the acquisition 
of weapon systems at a time when services represent a much 
larger share of the Department's acquisitions. And the system 
is particularly poorly designed for the acquisition of 
information technology, even though we are now in the 
Information Age.
    Even in the acquisition of weapon systems, the Department's 
historical strength, the system continues to generate 
development timeframes for the major systems measured in 
decades--an approach which has resulted in unacceptable cost 
growth, negative effects on industry and, in too many cases, a 
failure to meet warfighter needs.
    The panel has found that there is little commonality across 
defense acquisition systems. The acquisition of weapon systems, 
the acquisition of commercial goods and commodities, the 
acquisition of services, and the acquisition of information 
technology have very diverse features and challenges.
    In a few areas, however, the panel has found common issues. 
Across all categories of acquisition, significant improvements 
can be made in the following: managing the acquisition system; 
improving the requirements process; developing and 
incentivizing the highest quality acquisition workforce; 
reforming financial management; and getting the best from the 
industrial base.
    The panel began with the question of how well the defense 
acquisition system is doing in delivering value to the 
warfighter and the taxpayer. For most categories of 
acquisition, only anecdotal information exists about instances 
where the system either performed well, or poorly. Even where 
real performance metrics currently exist, they do not fully 
address the question.
    The panel continues to believe that real metrics are 
needed. The panel has also heard that challenges with the 
requirements process are a major factor in poor acquisition 
outcomes. The requirements process for the acquisition of 
services is almost entirely ad hoc. The process for developing 
requirements for the acquisition of weapon systems is overly 
cumbersome, lacking in expertise and capacity, and subject to 
requirements creep.
    There is no doubt that the Department needs an acquisition 
workforce that is as capable as its advanced weapon systems. To 
achieve this, the Department requires flexibility to 
efficiently hire qualified new employees, and to manage its 
workforce in a manner that promotes superior performance.
    The Department must develop new regulations for the 
civilian workforce which include fair, credible, and 
transparent methods for hiring and assigning personnel, and for 
appraising and rewarding employee performance.
    Also underlying the success of the defense acquisition 
system is the Department's financial management system. The 
panel is concerned that the inability to provide accurate and 
timely financial information prevents the Department of Defense 
(DOD) from adequately managing its acquisition programs and 
from implementing true acquisition reform.
    Finally, the panel has heard that the Department can 
enhance competition and gain access to more innovative 
technology by taking measures to utilize more of the industrial 
base, especially small and mid-tier businesses. And in managing 
that industrial base, that the Department is best served when 
it deals with responsible contractors with strong business 
systems.
    We look forward to hearing from today's witnesses about 
these topics, to get their expert views on how these problems 
can be solved.
    [The prepared statement of Mr. Andrews can be found in the 
Appendix on page 39.]
    Mr. Cooper. And I will now turn to my friend, Congressman 
Mike Conaway of Texas, for his opening remarks.

  STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM 
   TEXAS, RANKING MEMBER, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Conaway. Thank you, Mr. Chairman.
    Ladies and gentlemen, thank you for all of you being here 
today. I have a short statement, so we can spend most of our 
time listening to what you have got to say about it.
    First I want to thank, in absentia, Chairman Andrews for 
his leadership, and the other members of this panel for their 
commitment to dealing with these important issues. We have had 
many early morning meetings and hearings on the subjects 
ranging from services and Information Technology (IT) 
contracting to auditing, and we have learned a lot.
    To our witnesses, thank you for being here. Our panel has 
been very fortunate to have some great witnesses in the past. 
Some of you are repeat offenders, and we appreciate having you 
with us today. We understand and appreciate how busy you are. 
The fact that you have made time to be with us today is our 
privilege, and we appreciate that.
    I would also like to thank Mr. Fisher from the Business 
Transformation Agency (BTA) for being here. The BTA has a 
critical role, in my view, in what we are discussing today.
    And having said that, we realize that there is an awful lot 
of hard work to be done across the system. And I reiterate what 
the chairman has said, that we want to work with the Department 
to get this right. We are not adversaries. We are all in it for 
the exact same reason, and that is to get the best value for 
the taxpayer and get the warfighters what they need at the time 
and when they need it.
    So, we appreciate your feedback, and we look forward to 
modifying the report as we understand the things that you have 
got to say to us about that.
    So, with that, Mr. Chairman, I yield back.
    [The prepared statement of Mr. Conaway can be found in the 
Appendix on page 42.]
    Mr. Cooper. Thank you, Mike.
    Our witnesses today are unusually distinguished--so 
distinguished, they need no introduction, so they will not 
receive one. [Laughter.]
    We have with us the Honorable Ashton B. Carter, the Under 
Secretary of Defense for Acquisition, Technology and Logistics; 
the Honorable Robert F. Hale, the Under Secretary of Defense, 
the Comptroller; Ms. Elizabeth A. McGrath--I assume you are 
honorable, too--acting Deputy Chief Management Officer; Mr. 
Shay Assad, acting Deputy Under Secretary of Defense for 
Acquisition and Technology; and Mr. Fisher, as Mr. Conaway 
mentioned already, from the Office of----
    Mr. Conaway. Business Transformation Agency.
    Mr. Cooper [continuing]. Business Transformation. Thank 
you.
    Mr. Carter, you are on.

STATEMENT OF HON. ASHTON B. CARTER, UNDER SECRETARY OF DEFENSE 
 FOR ACQUISITION, TECHNOLOGY AND LOGISTICS, U.S. DEPARTMENT OF 
                            DEFENSE

    Secretary Carter. Thank you. I am grateful for the 
opportunity to be in front of you. And I am especially grateful 
to all of you who take an interest in the performance of the 
acquisition system. It is not what it ought to be, and the 
taxpayer and the warfighter deserve better. It is something we 
are trying to work on in the Department of Defense.
    Secretary Gates has been very involved and is outspoken 
about it--President Obama, also. It is not always that a 
President of the United States takes an interest in the 
accomplishment of the job that I am in, and President Obama 
does.
    And then, of course, both houses of Congress last year 
unanimously--both parties--in the Weapon Systems Acquisition 
Reform Act, which this body had a lot to do with.
    I am reminded of your introduction. I have heard the 
opposite version of that, Congressman Cooper, which is, I once 
heard Brent Scowcroft introducing Henry Kissinger. And he said, 
``Now, everyone would say that Henry Kissinger requires no 
introduction. But Henry Kissinger requires an introduction.'' 
[Laughter.]
    So, we are the opposite.
    I am glad to be here with my colleagues. I think that you 
have had the opportunity to introduce them all. I just wanted 
to say that Shay Assad works in my office and is really a 
superb contributor to the performance of the acquisition 
system. I am glad to be here with my colleague, Bob Hale, the 
Comptroller. They say the Comptroller's credo is, ``We are not 
happy till you are not happy.'' [Laughter.]
    And that is the way it feels. That is the way it feels.
    I am not going to try to read--I prepared a lengthy 
statement containing our thinking about the many topics on 
which the panel is focusing. And I do not intend to read that. 
I thought I would just touch on a few wave tops, and then we 
can have a discussion.
    The first thing I wanted to say--and Congressman Hunter and 
I have talked about this previously--is, even though a lot of 
our focus tends to be on the big ticket items and the multi-
decade programs, in this particular era, an important part of 
the acquisition, technology and logistics job has to do with 
being responsive to the wars we are in. And that is new.
    That is something predecessors of mine back in the Cold War 
when we were preparing to fight, but actually not--but not 
fighting. So, it was a different kind of job, and I try to be 
attentive to that.
    There is, first of all, the need to be rapid and responsive 
in acquisition to support the warfighter in Iraq, Afghanistan, 
or in the war on terror around the world. We now go to war on 
at least a one-to-one basis with a contractor for every 
soldier. And the management of those contractors is a 
responsibility that we have. And that is both a lot of money 
and a lot of responsibility and accountability, and that is 
important also.
    And a third is logistics, which sounds boring to many 
people. It is the heart of what has to happen now in 
Afghanistan, because we cannot have success until we are in 
there. And we cannot get in there until we get set. And it is 
about the most austere logistics environment you can possibly 
imagine, and so everything is a struggle to get in. And so, 
that is a big responsibility.
    And then last--and I will be speaking with some of you 
separately next week about this--the Secretary asked me and 
General Paxton, the Director of Operations for the Joint Staff, 
to make a special effort over these critical months at the 
counter-improvised explosive device (IED) problem in 
Afghanistan, because the IEDs not only are a threat to life and 
limb, but if we cannot go outside the fence, then we cannot do 
counterinsurgency. So, it frustrates the mission if you cannot 
leave your base.
    And IEDs dispirit our people and the Afghan people and our 
coalition partners, as well. So, for all those reasons--I know 
Congressman Hunter has been concerned about this--IEDs are a 
big deal.
    And I just wanted to open on that note. I know that is not 
the focus of the hearing, but it has got to be something that 
is always on my mind.
    I wanted to say something about the performance of the 
acquisition system and acquisition reform in general, and then 
touch on the three key insights in the draft report that you 
have, which I have read, which are, hey, it is not just about 
weapon systems. It is services, too, which is a big idea, and a 
very important one, and one that we are listening to and have 
under-attended to. So, that is very big.
    A second one is IT and the management of IT systems as 
against the management of weapons systems. And the last is the 
workforce. Those are, it seems to me, three things that I think 
you have hit on that are critical, and perhaps have not 
received the amount of attention they should have in the past.
    Backing up to the acquisition system in general, Secretary 
Gates always says about acquisition reform--and I think this is 
absolutely right--there is no silver bullet. We do not make one 
mistake over and over again. We make lots of different kinds of 
mistakes, and there is no one single fix to it.
    I have been associated with acquisition reform in one wave 
after another throughout my career. And we have changed the 
system from time to time. We still are, including some ideas 
that you had last year.
    But at the end of the day, none of that is going to make 
any difference, if we do not have discipline and good people. 
And discipline I will say more about. Good people is something 
you focused on as a panel.
    A good way to divide acquisition reform in your mind is 
into the acquisition reform at the beginning of programs, in 
the middle of programs and at the end of programs.
    The beginning of programs, you know what the principles 
are, and you wrote some of them into the Weapon Systems 
Acquisition Reform Act last year. Do not kid yourself at the 
beginning of a program. Do not buy in cheap. Do an independent 
cost estimate. Be sure you know what you are getting into.
    Understand what you are doing in the requirements process. 
Set them intelligently. Do not change them willy-nilly, and so 
forth.
    All--and particularly the independent cost estimate 
aspect--are things that we have implemented, and are 
implementing, in the Department.
    As you go into the middle of a program, this is a matter of 
excellence in execution. And we are taking your Performance 
Assessment and Root Cause Analysis (PARCA) idea, which was in 
your previous report, and implementing that as well. That was 
essentially not an administrative thing or a bureaucratic 
thing. It was the suggestion that we have the capacity to 
monitor our programs, so that we detect early enough that 
something is off the rails, that we have the opportunity 
managerially to address it.
    And the Nunn-McCurdy Act--which is in existence, has been 
in existence for a long time--is a very healthy thing. It 
terrifies everybody, and deterrence is a good thing. But the 
reality is that the Nunn-McCurdy bell rings too late, and it 
frequently is a false alarm. And so, it is not an ideal 
mechanism.
    And PARCA gives us--was an opportunity to give us--a tool 
and a method which we used to have, and had fallen into 
destitution, and we are reviving, to monitor the progress of 
programs in their mid-life, and recognize when things did not 
look right. And I think that was a great insight on your part, 
and one that we are implementing.
    Another thing we need to do in the mid-life of programs is 
get a better business deal. You were referring to this early, 
Congressman. And I am not satisfied that we have gotten good 
business deals.
    I review contracts, and so forth, that we have. We need to 
get a better business deal.
    The end of the program--not many people write about 
acquisition reform at the end of the program, at the end of 
program lives. But that is something that Secretary Gates has 
paid a lot of attention to, namely, having the discipline to 
stop doing things when we no longer need them, or have enough 
of them. That is always a difficult thing to do.
    He took a number of steps last year to cancel programs that 
either were not performing, or that we had enough of, or for 
which the need had passed in history, and he is doing more of 
that this year. And that is painful, but that is a necessary 
kind of acquisition reform, as well.
    With respect to services, I would just say that I look 
forward to your insights in that area. That is more than half 
the dough. And so, it is important that we pay attention to how 
we spend that half of the money, and not just the half of the 
money that is in the traditional programs of record.
    So, I am grateful that you are focusing on that. And I 
would like to focus on that with you.
    Ditto, information technology. We are a little further 
along in that in the sense that we became aware of the need to 
manage IT systems and acquisitions in a different way from 
ordinary weapon systems acquisitions a few years ago. But we 
are still crawling, not walking or running in that field. And 
we are trying to get better.
    Workforce--I cannot say enough about that. And Mr. Assad, 
among many other things he does, is managing our workforce 
improvement effort. But it is not a quantity thing, it is a 
quality thing. We are, in our civilian acquisition corps, going 
to increase the numbers by 20,000--half by insourcing, half by 
hiring. Obviously, the numbers do not matter nearly as much as 
the quality of the people.
    We are assisted by the state of the economy in our 
recruiting in terms of quality. But we have tried to look 
carefully at the skill sets we need: there is pricing, there 
are contract officers, there are systems engineers, and so 
forth, and make sure that we improve the quality of our people, 
and not just the quantity.
    And that is true in the uniformed services, as well. The 
uniformed services also, I think--and they would say this 
themselves--have under-attended to the acquisition cadre in all 
of the services. They are trying to change that, as well.
    What is important is that, if you are a major or a colonel 
who has acquisition acumen, and that is your calling, that you 
be able to look up your personnel cone and see general officers 
who have your area of expertise. And that is a very important 
thing to do.
    So, I applaud your focus on the workforce. And I look 
forward to discussing all of these matters with you, and I 
appreciate the opportunity to be with you.
    [The prepared statement of Secretary Carter can be found in 
the Appendix on page 44.]
    Mr. Andrews. [Presiding.] Secretary Carter, thank you.
    I want to extend my apologies for being late for the 
hearing. Some other pressing business here in the Capitol. I 
want to thank my friend, Mr. Cooper, for filling in, and for 
agreeing to vacate the chair once I got here. I was a little 
worried. [Laughter.]
    And I want to add my note of appreciation to the witnesses 
for your excellent preparation for today. We look forward to 
the dialogue, and I represent--or I acknowledge--Secretary 
Hale.

 STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE 
           (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE

    Secretary Hale. Well, thank you. Mr. Chairman, members of 
the panel, thank you for the chance to be here, and thank you 
for the support you give to the men and women in the military. 
We could not succeed without you.
    I am going to summarize my prepared statement briefly. I 
will focus on the issues you raised about improving financial 
information and audit readiness. There are some others I would 
be glad to discuss.
    First I would like to point out what I believe are the 
strengths of defense financial management. Not too many people 
mention them, including my colleague here.
    Drawing on 30 years of experience and numerous 
conversations with commanders, I think I can tell you that, 
generally, we are able to provide the resources and the 
financial support to meet our national security objectives. And 
that is our main mission. And while we need to make some 
improvements--and I will talk about one of them today in terms 
of audit readiness--we have got to take care not to achieve 
those improvements at the cost of meeting that fundamental 
mission.
    DOD also has effective financial processes in some key 
areas--payment processes, our summary reconciliation with 
Treasury. And importantly, in my view, we have a sound process 
for funds control and distribution, one that has been reviewed 
and validated by external auditors. And this process, I think, 
provides reassurance to the Congress that we are spending the 
money as directed by law.
    We have also made some progress toward achieving financial 
information improvement and audit readiness. Several DOD 
organizations have and are maintaining clean audit opinions, 
and several of them have. But frankly, major problems remain.
    When I took over as the Chief Financial Officer a little 
more than a year ago, I quickly became convinced that we did 
not have a common goal or common priorities in the area of 
improving financial information and audit readiness. The 
services were doing kind of their own thing, and with widely 
varying degrees of commitment.
    And worse yet, we were investing time and money improving 
financial information and seeking audit readiness for data we 
simply do not use to manage the Department of Defense.
    The best example, in my view, is the valuation of military 
weapons. Over the past decade, the Department has devoted a lot 
of resources in an unsuccessful effort to identify auditable, 
historical costs of all our weapons and modifications. That 
information under current rules is required to achieve clean 
audit opinions.
    Yet, in more than 30 years of working in defense policy and 
budget issues, I have never used the historical costs of 
defense weapons in analysis--replacement costs, yes, that 
frequently, but never historical costs. And I really do not 
know anyone else who has, either.
    And to a lesser extent, that same indictment I think 
applies to much of the valuation information that we are 
required to audit on the balance sheet.
    So, in my view, DOD needed a new approach. It needed a 
coordinated approach. It needed to improve financial 
information and audit readiness, and it needed an approach that 
focused on the information we actually use to manage.
    Shortly after I was sworn in, I began consultations 
regarding a new approach. I outlined that in a memo issued in 
August of last year. And that new approach focuses on improving 
the quality, accuracy, and reliability of the information we 
actually use to manage.
    Budgetary information is key there--we manage the 
Department based on budgets--and existence and completeness, 
which is audit term for verifying that we know how many assets 
we have and where they are. That is of great concern to the 
warfighter.
    Now that we have a new approach, the next and by far most 
difficult step is implementation. We will offer a detailed 
implementation plan to Congress in a May report that was 
required in last year's law, the 2010 National Defense 
Authorization Act (NDAA). I am not prepared to provide details 
yet; we are still coordinating with the services, although 
getting close. But I can tell you what the plan covers.
    It provides long-term milestones, and also interim 
milestones, so we can demonstrate progress. And it focuses, 
again, on the information that we actually use to manage the 
department.
    It specifies a governance structure, with a panel that I 
chair, but also, regular interaction with our senior leaders. 
And it identifies specific resources, by service, by year--
something we have not done in the past--to focus on financial 
improvement and audit readiness (FIAR).
    The plan's concept has been approved by the Department's 
Chief Management Officer, Deputy Secretary Lynn. I briefed him 
a couple of times. And he will get a briefing--he is scheduled 
to get a briefing--on the details of the plan in about two 
weeks.
    To keep the Congress up to date, we will provide a 
semiannual report on FIAR, as we call it--financial improvement 
and audit readiness--as required by the National Defense 
Authorization Act.
    Now, while we have a plan, I am not naive enough to think 
formidable challenges do not remain. Our business environment 
does not always meet auditor standards. We tend to exchange 
information among a lot of services in ways that makes it, if 
not impossible, at least very difficult, to audit. Our systems 
are old, and they handle or exchange information in ways that 
do not pass audit standards.
    And I might add, we are in the process of replacing almost 
all of those systems right now with enterprise resource 
planning systems. And while they offer substantial potential 
for improvement in financial management, they offer potential 
for disruption during the implementation period. And so, I 
think we need to watch those carefully, both in terms of 
managing the IT aspects and what they do to financial 
information while we are putting them into place.
    And finally, DOD's enormous size and geographical 
distribution greatly complicates this task. We just cannot 
afford to hire an army of accountants, and too many people were 
spread around too much. Think of trying to do audits in 
Afghanistan or Iraq. It just would not work.
    Despite these obstacles, the Department is committed to 
improving the information we used to manage and achieving audit 
readiness. I am personally committed to this effort as part of 
my overall commitment to providing financial services and 
budgetary information that we need to meet our national 
security objectives. And with your help and support, I intend 
to make progress.
    That concludes my statement. And when Ms. McGrath has 
finished, I would be glad to entertain any questions.
    [The prepared statement of Secretary Hale can be found in 
the Appendix on page 57.]
    Mr. Andrews. Thank you, Mr. Secretary.
    Ms. McGrath, welcome. Congratulations. I understand that 
you have been nominated to be made permanent in your position. 
Is that correct?

    STATEMENT OF ELIZABETH A. MCGRATH, ACTING DEPUTY CHIEF 
         MANAGEMENT OFFICER, U.S. DEPARTMENT OF DEFENSE

    Ms. McGrath. Yes, that is correct. Thank you.
    Mr. Andrews. Does that require a Senate confirmation?
    Ms. McGrath. Yes, it does.
    Mr. Andrews. Well, if you figure out how the Senate works, 
will you let us know? [Laughter.]
    Because we have some questions about that.
    Welcome. We are glad to have you with us today.
    Secretary Hale. On advice of counsel, Ms. McGrath, don't 
answer that.
    Ms. McGrath. Don't answer it. [Laughter.]
    I will take it for the record. I think that was a--thank 
you very much.
    Mr. Chairman, members of the panel, thank you for the 
opportunity to testify before you today and discuss the 
Department's commitment to and progress in the use of 
performance management to help achieve our strategic goals.
    Strategic performance management is about identifying what 
matters, measuring it, and then managing it to improve 
effectiveness, efficiency, and overall performance. A lot of 
your recommendations and what has been discussed already has 
touched upon the importance of those areas. So, certainly, 
performance management within the overall business space is 
something that we are both paying attention to and committed 
to.
    The Department has always worked to improve the efficiency 
and effectiveness of all of its business operations, especially 
today. Our business directly supports our combat operations in 
Afghanistan and Iraq in increasingly intricate ways. We provide 
critical services to the men and women in uniform and their 
families at home to help ensure that our Nation is ready to 
respond to new threats in an increasingly complex operational 
environment.
    Additionally, with increasing demands on the federal 
budget, and a greater demand for government transparency, and 
the overall pace of change in the business environment, 
execution of our business must become more agile and 
responsive, and provide enhanced financial stewardship for the 
American people.
    A key component in achieving results is the execution of a 
meaningful and robust strategic performance management system. 
Having read your panel's interim findings and recommendations, 
the Department shares the panel's important view that 
performance measures will help us achieve the goals, not only 
in acquisition, but throughout the Department's business 
mission area.
    We are committed to driving the use of the performance 
measures throughout the Department and, supported by the 
efforts of the Office of Management and Budget, to extend 
performance management improvements throughout the federal 
government.
    In July 2009, the Department released a strategic 
management plan, created by the 2008 National Defense 
Authorization Act. It was the first step in the Department's--
it was a first step for the Department to integrate goals and 
measures throughout the business mission area.
    This strategy, which is aligned to the Quadrennial Defense 
Review (QDR), set the strategic direction across the 
Department's business lines, and outlined five cross-
functional, enterprise-wide priorities: the first thing, 
supporting the overall volunteer force; the second, supporting 
contingency business operations; the third, reform DOD 
acquisition and support processes; the fourth, enhance civilian 
workforce; and finally, but certainly not last, strengthen DOD 
financial management.
    These priorities are cascaded into the performance budget 
of the Department, so they are not just stand-alone. They are 
tied to both the QDR and the overall DOD budget.
    These priorities encompass the most pressing business 
challenges currently facing the Department, and they include 
specific outcomes, goals, measures, and key initiatives that 
are critical for success. They also served as the basis for the 
development of the Department's high priority performance 
goals, which were included in the 2011 Federal budget.
    Acquisition, Technology, and Logistics (AT&L) goals and 
measures span the breadth of DOD acquisition, ranging from 
insourcing acquisition functions and the growth of the 
acquisition workforce, to both lowering cycle times and 
breaches for major defense acquisition programs. It also 
includes increasing the Department's use of renewable energy.
    Your panel's goals for faster and more effective 
acquisition of information technology systems will also serve 
to help us achieve those performance goals as more modern, 
agile systems can certainly enable greater efficiency, 
transparency, and effectiveness.
    In closing, I want to emphasize that the Department is 
committed to the continued use of active performance management 
to help achieve our strategic goals. I appreciate the work of 
this panel, and I look forward to your questions.
    [The prepared statement of Ms. McGrath can be found in the 
Appendix on page 64.]
    Mr. Andrews. Well, Ms. McGrath, thank you very much.
    I also want to thank Mr. Assad and Mr. Fisher for being 
with us today.
    Mr. Assad, welcome back to the panel. I think this is your 
third interaction with us, and you keep coming back. We are 
surprised. We are happy that you do.
    Neither of these gentlemen is going to offer a statement 
today, but each is available as a resource for our questions. 
That is my understanding.
    Thank you for the testimony.
    I wanted to begin, Secretary Carter, with you. In your 
statement you agree, happily, with our conclusion that good 
metrics are needed to measure performance. And we have 
attempted to provide some guidance as to how we would generate 
those metrics, and who would generate them and how to use them.
    Are there any suggestions you have for us as to where you 
think we could add to our work? Or are there metric 
identification ideas we have that you think are inappropriate?
    In other words, how can we reach this common goal of 
generating fair, precise, and relevant metrics to measure 
performance?
    Secretary Carter. I think that, chairman, the ideas that 
you have, some of which are reflected in my statement, for 
monitoring the performance on services contracts is probably 
the area where we have given it the least thought and have the 
least in the way of tradecraft.
    I gave some indications in the statement of where we are 
trying to improve our management of services. Basically, this 
is an oversimplification, but the problems are different on two 
sides of the services fence. One side is the contracted 
logistics support, which tends to be fairly--in terms of the 
personnel involved--fairly straightforward. The other is the 
contracting for specialized services, engineering services.
    In the former category, it is easier to measure 
contribution per dollar than it is in the latter category. We 
are trying to get better at measuring performance in the former 
category, and develop metrics in the latter category, which, 
however, recognize the inherently intangible nature of 
engineering talent, and so forth, that we depend on, that we 
have to contract for, because--this gets back to our 
acquisition workforce--we are not able to retain intramurally 
all of the skill sets that we need. We depend upon the external 
contractors for a lot of that.
    There are in my statement a number of steps that we are 
taking to shape our acquisition of services programs, including 
severely curtailing the use of new time-and-materials 
contracts, limiting service contract periods of performance to 
three to five years, ensuring and requiring organizations 
dedicate sufficient resources to performance oversight, and 
demanding competition for task orders in definite delivery and 
in definite quantity contracts. So, these are a number of the 
steps that we are taking.
    One other thing I will mention, Mr. Chairman, if I may, on 
the services side which is very important for contingency 
contracting, is the provision not just of contracting officers, 
but contracting officer representatives (COR). These are the 
people who do not write the contracts, but who ensure the 
contractor's delivery of the services promised on the contract. 
And that has been a big issue for us in contingency 
contracting.
    And one of the innovations that has been made that will be 
very constructive in the last couple of years in the Department 
is the training of deploying units, so that they have embedded 
in them people who have the training to be CORs. That is not 
necessarily a full-time job, but it is needed unit by unit.
    Mr. Andrews. I certainly think that our recent experience--
some negative, some positive--would certainly fortify the 
wisdom of that idea.
    Secretary Hale, the senior Republican on the panel, my 
friend, Mr. Conaway, has championed for a long time the need 
for comprehensive financial audits of the Department. And I 
completely subscribe to his idea. I think it is a credible 
argument that we could save in the neighborhood of $130 billion 
over the next five years, if we made some pretty modest 
improvements.
    Do you think--and honestly, there is not pride of 
authorship here. That is why our report is called an interim 
report.
    Do you have any suggestions as to how we could improve our 
approach to the financial audits that we require?
    Secretary Hale. Yes. As I indicated in my testimony and my 
oral statement, I think we need to focus on improving 
information. That is the key. The audit is a verification tool. 
The benefits come from improving the information.
    We ought to do it in the areas where we actually use the 
information to manage. And again, the parts that we have picked 
that fit that criteria are budgetary information, because that 
is what we use to manage the Department of Defense, and also 
this existence and completeness, knowing where our assets are 
and how many we have of them.
    If we focus there, I think we have got a business case for 
going forward in terms of spending money to improve the 
information.
    Mr. Andrews. Isn't the way that you gain information 
through doing the audits? Isn't that one of the purposes of 
having the audits?
    Secretary Hale. Well, they tell you where you have 
problems. That is true. But, I mean, the information comes in 
through the systems in the field.
    I mean, we certainly learn more about them by doing it. And 
indeed, we have a process that, gradually, you move toward a 
surging of audit readiness. And there is a series of reviews 
that go on, as actually required by the National Defense 
Authorization Act of some years ago, which stopped us from just 
going to audits right away, because they felt we were wasting 
money, but rather, required a series of reviews. And those are 
very helpful in telling us where the problems are.
    But we need to focus them on the information we use to 
manage. And unfortunately, some of what we have to audit is 
information we simply do not use to manage.
    Mr. Andrews. Understood.
    Ms. McGrath, on page three of your statement, you say it is 
the Department's view that, ``when measures are appropriate and 
well defined, progress is made, and people can be held 
accountable for performance.''
    You go on to say, the Department shares our panel's 
``important view that performance measures will help DOD 
achieve its goals in not only the acquisition arena, but 
throughout the Department's Business Mission Area. We are 
committed to driving the use of performance measures throughout 
the Department'' and support the efforts by the Office of 
Management and Budget (OMB) to extend performance management 
and improvement throughout the federal government.
    We have placed PARCA in an important role in that 
evaluation in our report.
    Do you think that is the right decision? Do you think it 
belongs somewhere else? What would you recommend to us?
    Ms. McGrath. With regard to the--I think the important 
piece is the collection of the information. Are we collecting 
the right measures for the right things? And each of these 
acquisition opportunities, be it services, information 
technology, or major defense acquisition programs, have 
different performance measures that have meaning for each of 
the different acquisition types.
    To me, getting those right is the most important thing, and 
the transparency and visibility of the information to those who 
make the decisions. I think that we have a structure within the 
Department right now, where in the Office of the Deputy Chief 
Management Officer, we collect the information from across the 
business lines to enable the transparency.
    So, be it in PARCA, or be it in another organization----
    Mr. Andrews. So, is it correct--I think I hear you saying 
that the quality of what is collected is more important than 
the collector, than who collects it.
    Ms. McGrath. Yes.
    Mr. Andrews. Okay. Thank you.
    I want to yield to my friend, Mr. Conaway.
    Mr. Conaway. Mr. Chairman, with the indulgence of the 
chairman, I would like to yield to my colleague from 
California.
    Mr. Andrews. Of course.
    Mr. Hunter is recognized.
    Mr. Hunter. Thank the ranking member from Texas.
    And Mr. Chairman, thank you for your indulgence.
    Dr. Carter, good to see you again. I look forward to next 
week's talk about IEDs and intelligence, surveillance, and 
reconnaissance (ISR), and all of that fun stuff.
    On page 10 of your testimony, you were talking about the 
industrial base, and how you want to help the industrial base. 
So, my question more specifically is about the M-16 and the M-
4, and the ability of the Secretary of Defense to expand the 
small arms industrial base to more than the three names that 
are on it.
    There are 3 names right now that are included in the small 
arms industrial base that, if it turns out that we need a new 
M-4, M-16, or a new carbine for the military, right now, if as 
is, it would be bid out to these three players, one of which 
makes the .50-cal machine gun, the ``Ma Deuce.'' They are not 
going to be competing in it.
    One is a foreign-owned company. Hopefully, they will not 
get to compete in it. And one is an American company.
    The Nation's largest small arms manufacturer is not even on 
this list. Secretary Gates, though, has the ability to expand 
the list.
    And I find it strange. I was talking to General Phillips 
yesterday. This is the only place that we can find where you 
actually list companies that are allowed to compete for 
something, where you say we are going to choose one of these 
companies out of four or five, and we are going to let that one 
company compete--I guess with itself is what it is going to 
look like now, if it is not expanded upon--if we do have to 
have a new carbine.
    So, that is my question. If you are going to encourage 
Secretary Gates, or if the Army has encouraged you, to allow 
more American industry into this competition, if we do have to 
have a bid-off from multiple American small arms companies. 
That is my question.
    Secretary Carter. Very good.
    I do not have a complete answer for you. That is one of the 
areas of the industrial base that we are studying, and where I 
have the same concern you do. And I guess you have discussed it 
with General Bill Phillips. Also, that we have a set of 
procedures that goes back some decades, if not centuries.
    So, that is one of the sectors, along with some others. Our 
stealth aircraft sector, space, solid rocket motors, protected 
communications, where we have in their various ways an 
industrial base concern.
    And I will promise you, Congressman, when we are done 
reviewing that, I will discuss it with you. I have the same 
concerns you do, I just do not have the answer for you right 
now on that aspect of the industrial base.
    One of the problems that we have--if I could just raise a 
general question, or a general issue occasioned by your 
question is--I have found that we do not have very good 
information on the industrial base that supports us. And that 
is another kind of--you are talking about information about the 
financial system, PARCA, which is basically, what is the health 
of our programs on an ongoing basis. Another one is, we do not 
have, believe it or not, very good information about our 
industrial base. And that is another thing that we are looking 
to improve.
    So, I will get back to you on this. I know exactly the 
issue you are talking about. I just do not have an answer to it 
right now.
    [The information referred to can be found in the Appendix 
on page 81.]
    Mr. Hunter. Thank you, Dr. Carter, the gentleman from Texas 
and Mr. Chairman for your indulgence. Appreciate it.
    Mr. Andrews. Thank you very much, Mr. Hunter.
    The chair recognizes the gentleman from Tennessee, the 
former chairman of the panel, Mr. Cooper. [Laughter.]
    Mr. Cooper. There was no coup attempt. There is a Cooper 
attempt going on right now.
    Any of the panelists are welcome to answer the following 
questions.
    Was there anything in the interim report that we left out 
that we should have included? Errors of omission are harder to 
find sometimes than errors of commission. But I am about to ask 
you, what should we have left out that we, in fact, included?
    Secretary Hale. Well, I will start with two thoughts for 
you. I do not know if it is commission or omission, but it is a 
theme I have struck before, that I would like to see you, or 
just to focus on, audit efforts on the information we actually 
use. I think I have probably hit that point to death, so I do 
not need to go over it again.
    You brought up a point that I think we need to think about, 
that I would urge you to understand how we use, and that is 
financial thresholds, at which point we review the financial 
situation in an acquisition project. We do set thresholds for 
both procurement and research, development, test, and 
evaluation (RDT&E).
    They are not slavish thresholds. If you do not meet them, 
in terms of a certain percentage of your money obligated, it 
does not mean you lose that money. You probably will get a 
phone call and asked what is going on in your program. And you 
may be asked to provide a briefing or other information.
    We do find some programs go more slowly than others. Some 
need additional funds, and we do try to move them around to get 
the most out of the national security dollars that you make 
available to us.
    But I would urge you to acknowledge, these are not 
automatic at all. They are triggers for reviews. And those are 
two points I would keep in mind.
    Mr. Cooper. Any other takers? Ash?
    Secretary Carter. I have a concern about the PARCA passages 
in the draft report, which is just this, and only this, but it 
is important. I share the objective entirely--and you called it 
to our attention last year, and we are. I could not agree more, 
and it is a good opportunity for us to improve our ability to 
track programs on a program-by-program basis.
    That said, I would hope we can avoid a situation where that 
develops into not a management tool, but another hurdle for the 
system. I know that is not your intent, or anybody's intent. 
But I am always amazed at how many hurdles we already have in 
the system, and how little good they seem to do. And it can 
create a system where just getting through the hurdles seems 
like victory all by itself for all too many program managers.
    And so, it is supposed to be a system that has content and 
purpose, and not just a system of milestones. So, if you can 
help us to avoid that in connection with PARCA, I would be 
grateful.
    Mr. Cooper. Are there any acquisition regulations you would 
like to see repealed outright? It goes larding on, report after 
report, recommendation, statute, rule?
    Secretary Carter. May I ask Mr. Assad if he has an answer 
to that? Shay, do you?
    Mr. Assad. No, I do not believe we are looking for repeal. 
We do share your view with regard to the tax withholding. We 
share your view on that. We believe that that would be an 
effective piece of legislation, to repeal that. That is more of 
a hindrance than it is anything else.
    But beyond that, I would not recommend the repeal of any 
existing legislation.
    Secretary Hale. Can I add one more thought? And that is--
and I will ask Shay Assad's help here--I believe there is a 
passage toward the end indicating that the Defense Contract 
Audit Agency (DCAA) certifies business systems. I think the 
fact is, they recommend to our contracting officers that 
certification. I think that is right.
    Mr. Assad. Yes, sir.
    Secretary Hale. And I want to fix that.
    Mr. Assad. And it is important, because the distinction is 
that the auditor is providing us an audit opinion. And the 
contracting officer is ultimately held responsible for deeming 
whether that system is adequate or not adequate. So, we do want 
to keep that separation.
    And we absolutely want independent audit opinions. But we 
do not want it to go the point where it is deeming a system is 
deficient or not. We want their findings. And we want the 
contracting officer, in concert with the auditor, to make a 
determination of do they believe it is deficient or not.
    Mr. Cooper. I have a feeling my time is expiring.
    Mr. Andrews. If I may before--I am sorry.
    Ms. McGrath, did you want to comment?
    Ms. McGrath. Since we have the opportunity to add.
    Mr. Andrews. Please do.
    Ms. McGrath. Specifically on the business systems, IT 
business systems, there is not a specific recommendation 
focused on business process reengineering of those areas in the 
National Defense Authorization Act. Section 1072 specifically 
does require a look at the business process reengineering, I 
think, from a holistic acquisition approach.
    I mean, there are many lessons learned out in industry, 
that if you do not perform the adequate business process 
reengineering up front, very much akin to the requirements 
development and tied to, have you locked the requirements, do 
you have the right ones. If you do not understand the process 
by which you are going to execute, and then the system it will 
serve, then you have missed the opportunity.
    So, if there is a way to address that within the 
recommendations, I think that would be beneficial, specifically 
from a business system perspective.
    Thank you.
    Mr. Andrews. Jim, I certainly do not want to rush you. If 
you have other questions, you are welcome to ask them.
    I did want to ask Secretary Carter, I agree completely with 
your point about not creating another hurdle for PARCA, but 
creating a good management tool. We would welcome your specific 
suggestions as to how we accomplish that as the report moves 
forward,
    Because, clearly, we do not want this to be another box 
people have to check off that is another annoyance. We want it 
to actually be a productivity tool. So, we would welcome your 
point.
    The chair recognizes Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman.
    Again, thanks, everybody, for being here.
    Secretary Hale, when you say something three or four times, 
obviously, you get my attention. The information you use to 
manage your business--I hope that is not code for, we are going 
to continue to use that as our mantra to not get to a point 
where we can audit the financial statements, because there is 
not a Chief Executive Officer (CEO) in America who would not 
love to have that standard versus the standard of a qualified 
opinion.
    So, I know it is hard. Probably the hardest effort anywhere 
in financial kingdoms is yours, because of the breadth of what 
DOD does and spends. And you and I will have some 
conversations, as you mentioned earlier today, and I look 
forward to that.
    I do not know if you had a comment on that. But I hope that 
is not something that we will use to say, you know, it doesn't 
matter what a historical cost of an M-1 tank is--and I agree. 
But nevertheless, without an unqualified opinion, there will be 
that lingering doubt in the taxpayer's mind that you do not 
have it right yet.
    And so, it is important to get ultimately to the 
unqualified opinion.
    Secretary Hale. Well, I think what we need to do is look at 
whether or not it makes sense to spend what could be hundreds 
of millions--maybe billions--to get that kind of information we 
do not use. Perhaps we need to revise the audit standards. And 
the Chief Financial Officer (CFO) Council is looking at that 
issue. I don't know that they have concluded that yet, but I 
believe it is something we need to look at.
    I do not think you would want me to spend enormous sums to 
obtain information that is useful in the private sector, but, 
frankly, is not used in the public sector and the Department of 
Defense.
    Mr. Conaway. Well, again, not to be argumentative, the CEOs 
of most of those companies who fought their way through section 
404 of the Sarbanes-Oxley Act and spent a lot of money in 
relation to what they do to get their internal controls 
audited, and all the other kind of your systems done to support 
ongoing information, and the ongoing efforts.
    But again, I think we both want to get to the same point. 
But again, without that final unqualified opinion at some 
point, I think the code, the law says now 2017, which I think 
is too far down the road, but nevertheless.
    Mr. Fisher is here from the Business Transformation Agency. 
As I understand that agency, they have responsibility for 
business transformation across the Department of Defense, but 
precious little authority to do anything, other than just the 
persuasion, I guess.
    Mr. Fisher, we continue to spend a lot of money on IT 
acquisition for new business systems. Maybe Ms. McGrath, you 
want to weigh on this one, as well.
    Can you give us a sense of how the Department is doing as 
they move these business system investments? Are they moving--
does it move the ball toward an unqualified audit, in your 
view?
    Mr. Fisher. It can. It should. It is questionable right now 
whether it is.
    Our track record is that we have been on the Government 
Accountability Office (GAO) high-risk list now for business 
system modernization for quite some time. On the enterprise 
resource planning systems that we have been implementing 
throughout the decade, we have spent almost $9 billion on those 
systems over the last 10 years.
    Some of them are in production. Some of them are still in 
development. So, our acquisition and delivery of those systems 
has been a real problem.
    If we can overcome those inherent challenges--and I can 
articulate some of them that we have observed over time, and 
that my agency is certainly trying to work with the components 
on, with military departments. We will, clearly, never achieve 
a clean audit opinion unless we can get these systems 
implemented.
    Just implementing the systems will not get us a clean audit 
opinion. But our current systems environment is prohibitive, in 
my opinion, to ever getting there, because it is so fragmented, 
so disaggregated. And we have so much data exchange in a non-
standard way today, that I do not believe we would ever get 
there.
    If we can overcome those challenges with these new system 
implementations, then that is certainly a path to getting to an 
audit readiness standpoint.
    Our problems are largely--we look at these as technology 
projects. As somebody once told me, these are not technology 
projects, they are sociology projects. They are about people. 
This is change to people, and people are highly resistant to 
change.
    We are organized today through our many, many stovepipe 
functional organizations, who have spent decades figuring out 
how to make their piece of the pie work really well. Well, the 
systems that we are implementing, and the kinds of end-to-end 
processes that we need to execute to ultimately achieve an 
audit opinion, or good information, or however you want to 
describe the positive effect, rely on us breaking down those 
silos. We need to operate in this end-to-end fashion.
    And we have a clash between the way we have always done 
things and the way these systems have always been designed to 
be used. And that clash hits in these implementation programs. 
When we talk about acquisition with our acquisition program 
managers (PMs), are faced with that clash.
    My optimism turns on, frankly, some legislation that has 
come in the last couple of years. The Chief Management Officer 
(CMO) legislation I think is critical to this whole thing. We 
finally now have an organizational construct within the 
military departments, and with Ms. McGrath's office at the 
Office of the Secretary of Defense (OSD), that spans the 
individual functions.
    We need to do that, if we are going to be able to implement 
these systems and execute business in an efficient and 
effective way. We cannot continue to optimize locally, if we 
expect to optimize the end-to-end, which is really the 
capability that we are delivering.
    So, our ability to effectively use those CMO, Chief 
Management Officer positions, again, is one of the things that 
I am counting on to be able to drive some of this change, where 
we have the end-to-end cooperation.
    The other is what Ms. McGrath also mentioned, the 
reengineering element that came in the NDAA last year. Change, 
again, comes hard. People are used to doing things the way they 
do them, and we spend a lot of time with programs arguing 
about, no, we are not going to do it that way anymore; here is 
a better way. And those tend to be lengthy arguments.
    Well, now it is the law that we not only need to have those 
arguments, we need to bias ourselves in the direction of 
change. And we in the Department now need to use that 
legislation as an ongoing lever when we engage with functional 
communities that are highly resistant, to say, I understand 
that is how you have always done it. You need to trust. You 
need to look at these opportunities to do things better 
holistically, and then move forward.
    So, I think those are a couple of levers that we need to 
continue to push, if we are going to be able to achieve the 
outcomes you described.
    Mr. Conaway. Okay. Thank you.
    Ms. McGrath, you have some comments on that?
    Ms. McGrath. I would just echo the importance of digging 
across functional enterprise look as we implement the 
enterprise resource planning (ERP). As you know, they are 
designed to be cross-functional. And as David pointed out, we 
are historically stovepipe-focused.
    And so, this does, say, provide an opportunity for us to 
actually look longitudinally across the department. But it does 
also--it is a significant change management challenge.
    And as we are pursuing the implementation for the ERPs, it 
is not just the program manager's responsibility, but it is the 
responsibility of the functional requirements, those who run 
and operate the business, to enable that cross-functional 
implementation.
    So, I would echo, the ERPs are more difficult, because we 
are asking them to do not only more, but different things 
across an entire enterprise, be it the military departments or 
the Defense Department.
    Mr. Conaway. Well, thank you.
    One of our panelists last time made an analogy to bull 
riding in a rodeo. That seems odd. But nevertheless, the 
scoring system there is the bull gets scored, and the rider 
gets scored. Can you--we have got an acquisition system, and 
then we have got folks who ride that system.
    Should we have evaluations of both? Is there a reason to 
have in place an evaluation system that grades both the system 
itself, as well as how well we implement it, from an 
acquisitions standpoint?
    Secretary Carter. I think we grade the system more than we 
grade the programs. And one of the nice--the idea of PARCA is 
to grade the programs, rather than grade--in other words, you 
are grading them on their performance, their performance for 
real, like, are they delivering capability on budget, not their 
performance in the system.
    Because, as I said, you can get through all the hoops, 
except you start over here with a tiger, and then it is a mouse 
that goes through the last hoop. And that is getting through 
the hoops, but it is not delivering the goods.
    So, I think that the innovation represented by PARCA, and 
the essence of it is to operate at the program level, to give 
us the visibility into the health of programs, whether they are 
performing--not just in meeting milestones, and so forth, but 
performing in their essence.
    And that, if I may say so, is the perspective I take on the 
information systems problem, as well. At the level below the 
discussion we just had, which is excellent, one has to look at 
the quality of our program management and who is actually 
running this thing.
    It frequently happens, as Ms. McGrath said, that the 
components who are running it, they are subject matter experts. 
They are rarely experts in information technology management. 
And this is a kind of dog-bites-man story that repeats itself 
on and on and on in IT systems, where the people who are trying 
to--who are acquiring the IT system are essentially trying to 
automate the system they have, and are not adequately open to 
changing their patterns of behavior and response. And you just 
see it repeated over and over again.
    That is why it is so important to have an ability to not 
just oversee, but to give best practices to people who will be 
doing it for the first time, because they do it kind of once a 
decade. And most of the time, they are worried about--their 
focus is on providing health care, let us say, not on health 
care IT.
    Mr. Conaway. I am sure we will have another round, but 
thank you.
    Mr. Andrews. Thank you.
    The chair recognizes Mr. Ellsworth for five minutes.
    Mr. Ellsworth. Thank you, Mr. Chairman.
    Dr. Carter, I think it was in your opening statement, when 
you talked about something that I have a big interest in. It 
was talking about the proper ordering of equipment and storage, 
about ordering the right amounts. I know we have to be fair to 
our contractors, but in my district alone, we just went through 
a long process of destroying VX gas that we stored for many 
years at Newport, Indiana. Just got rid of that.
    I know that I am trying to help seek funding for the 
destruction of armament at Crane Naval Warfare Center in the 
millions of dollars.
    And so, that was in your comments, right, in your opening 
statement?
    Secretary Carter. It was----
    Mr. Ellsworth. And I was just----
    Secretary Carter [continuing]. In a different direction.
    Mr. Ellsworth [continuing]. Just curious. And I have often 
heard stories, you know, talking to some warfighters who said 
they were either--this goes back to Vietnam, actually--but 
talking about dumping ammunition over the side of the boat, or 
just going out in the ocean and shooting it up, because, if we 
do not use it, we are going to lose it, or we are going to the 
supply line.
    And can you explore a little bit how we are going to do 
that, or what your thoughts are on how we could get the right 
amount, so we are not seeking millions down the road? Or 
billions?
    Secretary Carter. Yes. I would just make clear, I was 
certainly not suggesting that we buy things that we do not 
need, or would not need, or would not need more of later.
    I was specifically addressing--I think the passage you are 
referring to is in the contingency contracting world. It 
frequently happens that in the course of the war, that we can 
see an evolving requirement developing for a piece of 
equipment. We do not know exactly how many we will need.
    Yet the acquisition system wants to not start until it 
knows exactly what the objective is--in our terms, the 
requirement.
    In a war, since you cannot know exactly how many you are 
going to need, if you delay, you are depriving the warfighter 
of something they need. It is an unnatural act for the 
acquisition system to begin acquisition before the requirement 
is fully defined.
    In normal times, that is a perfectly reasonable expectation 
to have. In wartime, it is not always. So, I am frustrated from 
time to time by our ability not to anticipate needs.
    I will give you a great example, which is the mine 
resistant ambush protected all-terrain vehicle (MRAP ATV), 
which we began buying last summer. And we have now changed the 
requirement several times, because the troops get them, they 
like them. The threat changes, we need them. We are going to 
Afghanistan, not Iraq, which is mountainous, not flat, so you 
need the independent suspension of the MRAP ATV.
    And lo and behold, the requirement goes up.
    Well, if we had waited till last summer, till we were sure, 
finally, for once and for all how many, we still would not be 
producing them, which means they would not be falling into the 
hands of the troops.
    So, sometimes when you are in war, you need to take a 
little leap, at least quantitatively. And it just turns out 
that we are not set up to do that. And I have to personally 
intervene in force. Secretary Hale helps out in that regard, 
because the funding system is not prepared to do that either.
    And it just goes back to the acquisition system was 
designed to prepare for the war. When it comes to conducting 
war, we are cumbersome and have to work overtime to get the 
result that the taxpayer and the warfighter ought to want in 
Afghanistan.
    Mr. Ellsworth. I would rather have too much than too 
little. But how much too much? I think if we can get better at 
estimating, obviously, that would be a great thing.
    Secretary Carter. Well, if I can say so, if we start 
ramping up and start producing, and then we get the 
requirement, then we will cut off the buy at the appropriate 
date. It is those critical months when you could have been 
producing something, and you were not, because you are thinking 
how many you are actually going to need. It is just those 
critical months.
    And, you know, in Afghanistan, it is all a matter of 
months.
    Mr. Ellsworth. Sure.
    Mr. Hale, I talked to a gentleman last week back in 
Indiana. He was talking about his wife was in purchasing, and 
said she came home to the dinner table and said, ``I had to 
spend up $150,000 today.''
    Does the report--kind of the spend it or lose it syndrome, 
which happens a lot, probably happens in these halls and in our 
offices, too--but does the report, in your opinion, address 
that? I know we have talked about some stuff, and the chairman 
and I have talked about that, you know, we can solve some of 
this with an incentive to actually save that money and not 
spend it up.
    Secretary Hale. Well, you do bring it up. I mentioned the 
financial thresholds that we used to suggest when we should 
look at an acquisition project. I agree, it could create 
incentives. It could create the wrong incentives.
    And incidentally, there are also a number of limits. I am 
not sure whether they apply to acquisition. They certainly do 
in the operation and maintenance area. We are not allowed to 
spend more than a certain amount in the last quarter. So, there 
are some limits.
    But, you know, I think we have to depend on the good will 
and good intentions of our program managers to be careful in 
how they use this. And I think the great majority of them do 
that.
    I mean, you could say that giving grades causes kids to 
cheat. And it probably does sometimes. But for the great 
majority, I do not think you want to stop giving grades because 
of that. What you want to do is find the occasional ones who 
cheat, and take the right steps.
    I think our program managers are aware that they are going 
to have their financial programs looked at, and I think they 
should. But they will get a chance to say why. There may be 
good reasons why they are not able to obligate the money. And 
in that case, we will move ahead.
    Mr. Ellsworth. That is all I have, Mr. Chairman. I yield 
back.
    Mr. Andrews. Thank you very much.
    The chair recognizes Mr. Coffman. We appreciate your 
contributions throughout this, but most recently on the foreign 
sales industrial base issue, which we try to take into account.
    Mr. Coffman. Thank you, Mr. Chairman.
    In the export restrictions, I am concerned about the 
industrial base. We have a declining industrial base that is 
becoming less and less competitive in terms of trying to 
maintain it for defense acquisition.
    And so, one question I have is--and one issue that has been 
raised in the report--is taking a look at those export 
restrictions, and reviewing them and seeing if they are 
realistic, you know, in today's environment. Because if they 
can, in fact, be effectively relaxed, and that our industrial 
base then has more of a foreign market, then it will strengthen 
the industrial base and make it more competitive for our own 
acquisition.
    And would any of you like to respond to that?
    Secretary Carter. I would, if I may.
    That is an area that the Secretary of Defense feels very 
strongly about. He has expressed himself publicly in his view 
that our export control system is outdated. And he has asked 
for--with the Department of State and the Department of 
Commerce which also have responsibilities in this--a unified, 
what he calls ``clean sheet of paper'' approach.
    That review is being done. It is being led by Secretary 
Flournoy, the Under Secretary for Policy. And I really think it 
is a clean sheet of paper. And I think they are going to be 
reporting out in a short while.
    So, the Secretary absolutely shares your concern.
    Mr. Coffman. Anybody else?
    Let me raise another thing concerning our industrial base 
and the difficulty in maintaining a competitive environment. If 
we take--there are some areas that it seems that the Department 
of Defense has to consciously look out after in order to 
maintain the industrial base at all.
    Shipbuilding is an example. We maintain six shipyards at 
this time, and their only customer is the Department of 
Defense.
    And I think the question is, given the acquisition 
requirements of the United States Navy at this time, is it cost 
effective to maintain six shipyards? Or should we look at some 
sort of Base Realignment and Closure (BRAC)-like process to 
bring them down to a more reasonable level that would make it 
more cost effective--again, given our acquisition requirements?
    Would anybody like to address that? And you can take the 
Fifth Amendment. It is a politically sensitive question.
    Secretary Carter. I will just say that I know that the Navy 
is constantly assessing the shipbuilding industrial base. I 
know it has been an interest of Secretary Mabus, naturally 
enough, trying to get more efficiency out of the base we have, 
and figuring out who is good at what.
    It is not a free and open and competitive situation, so 
there is a requirement for more government intervention and 
management than there is in other aspects of the defense 
industrial base. So you are absolutely right.
    Mr. Coffman. Anyone else?
    Dr. Carter, I think you mentioned that we are now at a one-
to-one ratio, I think, in Afghanistan. And I am not sure if we 
are at a one-to-one ratio in Iraq, as well, between U.S. 
military personnel and contract personnel.
    Secretary Carter. Slightly higher in Iraq.
    Mr. Coffman. It is slightly higher in Iraq.
    Are you taking into account personnel that are not 
necessarily involved in logistical support, but involved in 
maybe some kind of advisory support? Or contract security 
personnel, are you taking into account those?
    Secretary Carter. All sorts of functions.
    Mr. Coffman. All those?
    Secretary Carter. All contract personnel.
    Mr. Coffman. In your estimation, is that the right number? 
Or is that number too high in terms of contract support?
    Secretary Carter. The alternative to contractors would be 
to have the functions now performed by contractors, performed 
by uniformed personnel.
    There are obviously some advantages to doing that in the 
sense that you have all government personnel. You have all 
personnel that you vet, you order, you discipline. The 
disadvantage is that all studies show that that is more 
expensive, and is a distraction from military functions for 
military people.
    So, we are a long way from World War II, where all of the 
kitchen, and all of the laundry, and all that stuff was done by 
people in uniform. So, if we were going to reverse that course, 
we would need to deal with both the economic and the 
organizational consequences of that.
    Mr. Coffman. Are there issues that we might reexamine in 
that context? I believe in Kuwait there was a situation with a 
higher-echelon vehicle maintenance that was done by private 
contract, if I recall, that had extraordinary problems. And 
that is something that has historically been done by U.S. 
military personnel.
    Can you comment on that issue?
    Secretary Carter. Yes. I think the principal thing that we 
learned in Iraq, and are trying to learn the lessons of Iraq 
for Afghanistan, with respect to management of contractors, is 
having the expertise there to write the contracts so that they 
are fair to the taxpayer, and then monitor the contracts to 
make sure that they are implemented the way they are supposed 
to be.
    It is different when you are back here at home, and you 
have all the contracting officers and all the contracting 
officer representatives you want. Over there, we cannot send 
people who are not uniformed people over there. So, we are 
chronically short of contracting officers and contracting 
officer representatives in theater, just the people who make 
the contracting system work, because they are needed there.
    We are trying to do a lot more of it back here, do some of 
the contract officer work, particularly, back here for 
contracts there. But monitoring of contracts can only be done 
on the spot. If you are building a building, you are building a 
road, there needs to be somebody who goes out to the building 
of the road and makes sure it is done the way it should be.
    So, we are chronically short of people. And I think that is 
the area where we have been most deficient, first in Iraq, now 
in Afghanistan.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back. I have 
an additional question, but I will wait for the second round.
    Mr. Andrews. Okay, thank you.
    I have two brief questions to kick off the second round.
    Secretary Carter, my understanding is, in December the 
Secretary of Defense directed you and your colleagues to do a 
consolidation of array of information systems study for the 
major weapon systems. And I just want to know if you could 
bring us up to date on the implementation of that as part of 
the Resource Management Decision 700 series.
    How are we? What are we up to? When can we expect to see 
some yield from that effort?
    Secretary Carter. If I can, I would like to get you a 
comprehensive answer. If I may, if I can take that one for the 
record and get back to you.
    [The information referred to can be found in the Appendix 
on page 81.]
    Mr. Andrews. Sure. No, we would be happy to do that.
    Secretary Carter. And Mr. Assad, if I might prevail upon 
you. We have made some recommendations in our report--our 
interim report--with respect to personnel, the human capital of 
the procurement organizations. We have made suggestions about 
quantity and training and incentives, and various other issues.
    I will ask Mr. Cooper's question. Is there anything in 
there you would like to see us add, or delete, that you think 
would improve the quality of our recommendations?
    Mr. Assad. First of all, Mr. Chairman, I would like to 
thank this committee for their unwavering support in improving 
the capability of the acquisition workforce. We really 
appreciate your support.
    Mr. Andrews. We appreciate your service and your good 
wisdom. Thank you.
    Mr. Assad. There is probably one area, and it goes to how 
we move folks around who may be able to take on a position, a 
new acquisition position. In other words, that person might be, 
in the old vernacular, GS-13. And there is a GS-14 opportunity.
    Well, the way the language is written, you might not be 
able to use the Acquisition Workforce Development Funds to 
actually hire or provide that opportunity to a person who is 
already in service, and then replace that person at that lower 
level with the funds that normally support him.
    So, one of the things that we are asking the committees to 
look at is to have that flexibility. The idea was, of course--
and I know why the committee put the language in, or the 
Congress put the language in--was because they wanted to 
prevent just a shifting of people and, you know, kind of 
swapping of the deck chairs.
    But there are instances where we need to make sure that 
folks who are deserving of opportunities that might be funded 
with an acquisition development workforce fund could, in fact, 
be used with that. So, that is one area that we would like to 
make sure that we have got clarity to do that.
    Mr. Andrews. Very well. And I think it is a recurring theme 
in our report that prior reports, I think, have been 
ineffective or irrelevant, because they have been 
proscriptive--prescriptive, rather--where we try to anticipate 
future situations and write rules about them.
    Our intention is rather different. We want to recruit and 
retain the very best people we can--and we believe we have many 
of them already--give those men and women the tools to do the 
job, give them standards, and then get out of the way.
    So, I think that your recommendation is very much in the 
spirit of that. And I would issue a blanket invitation to our 
witnesses today. If you see provisions that you think are 
overly prescriptive and interfere with that spirit, we would 
like to hear them. We will not necessarily agree with all of 
them, obviously, but we would like to hear them.
    I am going to yield to Mr. Conaway for a second round.
    Mr. Conaway. Thank you, Mr. Chairman.
    Focusing on this issue on IT and services and commodity 
purchasing, we talk about setting up standards and metrics to 
measure all of that work and to make sure the taxpayer is 
getting the best value. And that resides in the PARCA. A, is 
that the right place for that function to reside?
    B, where should all of that myriad of metrics get decided 
at the front end?
    You will have to have somebody monitor them after you have 
decided what you are going to measure and how you are going to 
hold people to things. But that work to be done on the front 
end, where in the system does it make the most sense to do 
that?
    Does the BTA have a role in helping set those standards up? 
And is PARCA, in fact, the right agency to then shepherd those 
through on an ongoing basis as it works to evaluate the 
purchasing of IT services, commodities, the non-weapon system 
money that gets set?
    Thoughts across the panel on that?
    Ms. McGrath. I can start.
    Mr. Conaway. Okay.
    Ms. McGrath. It sounds like you have a few questions in 
there in terms of what should those standard measures be for 
those different types of acquisitions? And I think that we are 
better at defining some of those today than others.
    I think for IT, I would distinguish business from non-
business, because they are very different. Command and control 
is very different than an ERP. And so, the types of things we 
are looking to measure, I think the definition of those, the 
different organizations would play a role in defining those.
    For example, BTA, Business Transformation Agency, and the 
highly qualified experts they have within their organization 
who have ERP experience and industry experience, I would say 
would be well positioned to define what those are. I would not, 
however, ask them to define command and control measures, 
because I do not think we would get that right.
    So, I think the identification of the need is well 
articulated. We would certainly have different organizations 
actually define those measures, be it within PARCA or another 
organization, the transparency of all of them and the standard 
implementation, so that we understand across the Defense 
Department, how are we doing in business systems irrespective 
of organizational home, if you will.
    So I think the definition, and then the proliferation of 
those standards, and then the reporting into a central place, 
and then the transparency of those, is important.
    Mr. Conaway. So what you are saying is, rather than have 
one agency like PARCA be responsible for monitoring the 
performance against those standards, you would rest that role 
with each of the individual agencies? Or in other words, 
decentralize that? Is that what your idea is right now?
    Ms. McGrath. Sir, there is an aspect of it that would be 
decentralized. I think the centralized part is the definitional 
piece. So establish what the standards are, ensure that those 
who have acquisition oversight, because there are multiple 
organizations that have that. I have acquisition oversight 
responsibility for some of the business systems, some of these 
ERPs that we are talking about.
    And so, I would want, as an acquisition authority, to look 
at how well are we performing against those standards. And 
then, yes, I would feed to sort of a central place within the 
Department, so that, again, we understand holistically how we 
are performing.
    Mr. Conaway. Anybody else have any comments?
    Mr. Assad. Sir, I would just like to say that I would like 
to kind of jump on the bandwagon with Beth. It is important for 
PARCA, I think, to participate as far as program performance is 
concerned in establishing standards.
    My concern--PARCA happens to be under the acquisition 
envelope--is overwhelming PARCA with--you know, they need to be 
focused on program performance. And they certainly can 
establish, and participate in establishing, the standards by 
which program offices set their goals. But if they actually 
participate in setting the goals, then they cannot be an 
independent and honest broker of evaluating whether or not 
those goals were met.
    And there will always be a question as to whether or not 
the goals that were established--you know, we get the checker 
checking himself.
    And I do think that PARCA needs to be that independent, 
honest broker that provides information to the Under Secretary, 
and not necessarily overburden it, especially in the near end 
here as we begin to establish it, with other responsibilities.
    Secretary Hale. I would just add one thought. You are 
talking to the policy arm of the Department of Defense, 
especially in the services area. And most of the execution is 
by the military departments and the agencies.
    We can set the standards, but they are the ones that are 
going to have to execute these programs. We do not have, and 
should not have the staff or the capability to do that--with 
the exception for some of the major defense acquisition 
programs where Ash Carter really has a kind of operational 
role--but even for most of the weapons programs they are 
executed at service level.
    Mr. Conaway. Okay. So, I guess what I would ask the panel 
is to look at how we have approached that issue within our 
report, so that we do not get ourselves in a position where it 
looks like we are recommending something that, collectively, 
you do not believe operationally works, because that is not 
what we are--that is not the intent.
    The intent is to put in place measurement systems that 
work, and then have that accountability occur within wherever 
it needs to occur that makes the most sense. Because I agree, 
Mr. Hale, that we do not want to set up a giant, new 
bureaucracy within anything, because the idea was to, you know, 
not do that. That is done easily and too often, and it really 
does not accomplish what we want to.
    So, as you look at the recommendations for this and the 
role PARCA plays, we would appreciate any thoughts you had on 
how we might need to fine-tune our recommendations, so that it 
does not mislead the system to go a direction that does not 
make sense, because I do not think that does any of us very 
well.
    So, thank you, Mr. Chairman.
    Mr. Andrews. I would associate myself with Mr. Conaway's 
remarks. We want to provide a tool, not an impediment. And so, 
your practical observations about what will work are very much 
welcome.
    Mr. Cooper is recognized.
    Mr. Cooper. In case anyone is getting sleepy, let us stir 
things up a little bit.
    So far we have heard a lot of abstract concepts, a lot of 
jargon, a lot of acronyms. Probably, the average citizen would 
have great difficulty even following the discussion.
    Yesterday, the Air and Land Forces Subcommittee heard from 
the Army, that even though the FCS--Future Combat Systems--
spin-out failed operational tests last August, they are still 
planning on buying two brigades' worth at $285 million a set. 
This apparently includes unmanned aerial vehicles (UAVs) that 
are designed to operate for 24 hours, but so far can go barely 
an hour-and-a-half without breaking down.
    It costs $360,000 a unit. Meanwhile, the Raven costs 
$17,000 a unit. So you could buy 21 Ravens for every one of 
these that they are thinking about buying.
    So, I think folks back home worry about things like that, 
as well as refrigerators that the Air Force used to be able to 
buy for $17,000, when just a year or 2 later--it is a miracle--
they are $32,000.
    Should we be upset about these things? Are they budget 
dust? Do you all care? You know, should taxpayers care?
    Secretary Carter. Absolutely, they should. It is the 
taxpayers' money, and it is equipment for the warfighter. So, 
the example you gave is one that I am looking at very 
carefully, the Army's Early Infantry Brigade Combat Teams 
(EIBCTs) and the legacy of the Future Combat Systems program, 
and getting what we can get out of that program that is useful.
    But I just testified this morning on another program, the 
F-35, the Joint Strike Fighter program. And the burden of the 
testimony was that that is not where you would want it to be. 
And our responsibility collectively is to make it better.
    So, I do not know. There is no reason why the citizens 
should be able to follow this discussion. They are counting on 
us to do right by them. And you give some examples of cases 
where we do not do right by them, and there are such examples.
    Mr. Cooper. Another question. One of the most disturbing 
things this committee found was the fact that the Defense 
Contract Audit Agency, at least in a sample of their work, had 
almost completely abandoned the principles of accounting.
    And I am not an accountant. I defer very much to my 
colleague Mr. Conaway's expertise in these matters. But that 
was deeply disturbing, and the lady subsequently resigned from 
her job. And she led an army of 4,000 or 5,000 of these folks.
    You worry about incompetence. You worry about corruption.
    And Mr. Hale, when I hear from you that, you know--and 
every audit has its limits, and historical information is not 
as valuable as future information. And the distinction was made 
earlier, well, these are public sector standards, and we just 
do not worry about that. And the private sector has different 
standards, and it is irrelevant.
    You are aware, of course, how critical the GAO is of the 
Pentagon's complete failure to be audited. It is by far the 
worst of all federal agencies in terms of non-compliance with 
management practices that have been in place for a long, long 
time.
    And I am sure you are a fine man, but I just do not get 
from your testimony or from your statements any sense of 
urgency or concern. I get a lot of self-satisfaction and a 
little bit of arrogance. And I think--maybe I just do not 
understand accounting well enough, but my colleague Mr. Conaway 
certainly does. And I think we need to get to the bottom of 
this.
    And just, we are doing fine right now, go away, is not a 
good answer.
    Secretary Hale. Well, I do not think that is what I said. 
But let me first address the Defense Contract Audit Agency, 
because you are right, we have got serious problems there. I am 
afraid we had a maxim in acquisition--faster, cheaper, better. 
We got two out of three with DCAA, but it definitely was not 
better.
    We have appointed a new director, making a number of 
changes, going to move to a more risk-based approach to 
auditing. They do about 30,000 audits a year. Nobody can do 
that and apply government audit standards. So, we need to make 
a number of changes, and are committed to making some 
significant ones within the year.
    We probably got into this problem with DCAA in a decade. We 
will not get out of it in a year, but we need to make progress.
    To your broader point, I am sorry if it came across that 
way if it did. I do feel a sense of urgency to fix the 
information that we use to manage. But I feel a sense of 
commitment to the taxpayer not to spend money on things we do 
not use to manage. If that came across wrong, I am sorry.
    The statements about what financial management does well 
are to put in context. I do not want to lose that. I do not 
want to have people stop meeting the needs of the warfighter 
because they are so concerned that they may do something that 
leads to a statement that is not auditable.
    We have got to find a balance. And that was the point that 
I was trying to make. In terms of the things that we do right, 
I want to keep those, and build on the things we do not.
    I do feel a sense of urgency. But at this 20th anniversary 
of the CFO Act, about the 15th anniversary, I think, of the 
Government Management Reform Act, which is the one that 
actually required auditable statements--and we are not real 
close. And we have had a lot of false starts.
    We have had some successes. The Army Corps of Engineers has 
fully auditable statements. The United States Marine Corps has 
asserted audit readiness for its statement of budgetary 
resources. But we have still got a long way to go. We do not 
have a coherent approach, as I said in my statement, and we do 
not have resources. I think we will, or we do now, but we have 
not in the past.
    So, if it came across as arrogant, I am sorry. It was not 
meant as that. It was meant to say, I want to keep what is good 
and build on it.
    Secretary Carter. May I comment on that also, on Secretary 
Hale's sense of balance there? Because I encounter that also in 
the contingency contracting area, where we are trying to be 
exigent, and we are operating in unusual places like 
Afghanistan, and unusual circumstances--and we are trying to be 
good stewards of the taxpayer's dollar, as well. And there has 
to be a balance there.
    And Secretary Hale has been of huge assistance to me in all 
the contingency things we have done, which does have an 
enormous sense of urgency. And so, that is an important balance 
for us to strike. And he has been an important part of making 
sure that we achieve that balance at the same time we do all 
the things that we need to do so urgently for the fight in 
Afghanistan and Iraq.
    Mr. Assad. If I might say something about the men and women 
at DCAA, because I am their customer. I represent the 26,000 
contracting officers who are out there buying goods and 
services.
    And we cannot get a good deal for the taxpayers unless we 
have an effective and able Defense Contract Audit Agency.
    Like the acquisition workforce, the Defense Contract Audit 
Agency's workforce, over a number of years, deteriorated in 
terms of just the number of folks that they have to do proper 
auditing.
    That has been recognized in our Acquisition Workforce 
Development Fund. We, in fact, have approximately funds for 800 
auditors. We have already hired--Mr. Hale has already hired 300 
auditors. In addition to that, Mr. Hale has set up an executive 
committee to oversee DCAA. I am a member of that committee as 
their ultimate customer.
    And we are very well aware--you are right, Mr. Cooper--
there were issues at DCAA. But the new director, Pat 
Fitzgerald, is focused. We, as an executive committee reporting 
to Mr. Hale, are focused on getting those things corrected.
    We have got to get a better deal for the taxpayers. And we 
will not be able to achieve what Secretary Carter talked about 
unless we have an effective and efficient DCAA.
    But I want you to know that the vast majority of inputs 
that we get from DCAA are quality products. They are documents 
and analysis that we can use at the table.
    Do they need to be improved? Absolutely. Just as we need to 
improve in negotiating deals for the taxpayer.
    But your comments are recognized. But I want you to know 
that there are a large number of those auditors out there who 
are doing a very good job.
    Mr. Cooper. Thank you, Mr. Chairman.
    Mr. Andrews. Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    Both parties are raising the issue of reforming the 
appropriations process, specifically earmarks. And in terms of 
the defense acquisition process, do you have any 
recommendations in terms of which earmarks are adverse to the 
process in terms of the efficient acquisition of the needs of 
our warfighters?
    Secretary Carter. I will hazard one comment, which is in 
our science and technology base programs. Just because, even as 
free and open competition is the principle that guarantees 
value and excellence in acquisition, in our science and 
technology base it is peer review. And scientific and 
technological excellence is the--ought to be--the basis for 
selecting projects. And that is an area where it would be 
particularly disturbing to see principles other than 
technological excellence at work in the selection of projects.
    Mr. Coffman. Anybody else?
    Secretary Hale. I mean, I think in general, we oppose 
earmarks in the Administration. We also understand that, in the 
end, if you enact a law, we are going to follow it. And that is 
how our system works. So, if you put it in the bill and tell us 
to do it, we will execute it.
    Mr. Coffman. Okay.
    I raised, in the previous round, International Traffic in 
Arms Regulations (ITAR) reform. And I want to take a different 
tack now on acquisition, and that is that, are there areas that 
we contract out now with foreign providers, non-U.S. providers, 
that made us over-reliant, that during time of war create a 
problem in our supply chain?
    And let us take the area of ammunition, of munitions, that 
there is a reliance on foreign providers when it comes to 
munitions. And is that problematic to the United States to be 
so reliant upon foreign providers?
    Would anybody like to answer that?
    Secretary Carter. I will take a shot at it, but I think, 
Shay, if I may ask you also.
    It is a requirement that we assess our dependence on 
foreign suppliers, and make sure that we are not overly 
dependent upon foreign suppliers, and that we do not put at 
risk our supply chain. At the same time, there are different 
gradations of foreigners.
    And another aspiration we have, just for the balancing 
sense, is to be able to dip into the global technology base, 
because 50 years ago, most technology--advanced technology was 
ours. That is no longer the case.
    And the most advanced technology was defense technology. 
That is no longer always the case, either. So, if we cannot 
reach out into the commercial base, which is inherently global, 
we will not have the best.
    So, we need to make sure we are not overly dependent, but 
also that we are availing ourselves of what is out there. 
Otherwise, we will become an enclave, which will not be good 
for the taxpayer and the warfighter.
    And, Shay, on the regulator side, or any other side, 
anything to add?
    Mr. Assad. Well, I just think the comment that you made 
earlier, Mr. Secretary, in terms of what the Director of 
Industrial Policy is doing to kind of really expand. We have 
not had the kind of insight and capability, Mr. Congressman, 
that you are talking about in terms of, did we really 
understand our industrial base--not just our domestic 
industrial base, the international industrial base--that we 
rely upon? And is it appropriate for us to be placing so much 
reliance on a particular international partner?
    One thing that you can be assured of, that when we--we 
obviously make every attempt to, when we issue our 
procurements, to live by the standards and the requirements of 
only dealing with qualifying countries as it relates to the Buy 
America Act.
    But there is more work to be done in this area of assessing 
the industrial base, and in particular the international 
industrial base, because it is a global marketplace that we are 
in.
    Mr. Coffman. Okay. Let me close with just a comment, a 
concern, that the Department of Defense is not looking forward 
enough in terms of supply chain issues on the industrial base.
    And I think the rare earth metals is a great example of 
that, where we seem to be wholly reliant--not wholly reliant--
but I think China has about 95 percent of the market right now. 
We are reliant upon them for imports. I think that their demand 
will soon catch up with their supply.
    We have no mining of rare earth metals in the United States 
to use in advanced weapons systems. And I think that we need to 
be more cognizant of that--not simply from a mining issue, but 
from a refining and other aspects of the supply chain.
    Thank you, Mr. Chairman. I yield back.
    Mr. Andrews. Thank you very much.
    I want to thank our panelists for their excellent 
presentations today and their preparation. I want to thank my 
colleagues and describe our process from here on out.
    Yes, Mr. Conaway?
    Mr. Conaway. I just wanted to comment.
    Mr. Andrews. Sure.
    Our interim report was put on the internet last Friday, and 
it is open for public comment from all interested parties, both 
inside and outside the government, certainly.
    The members of the panel are going to have a business 
meeting next week, where we will discuss our views about 
modifications to the interim report. I would especially invite 
our panelists here today to make any suggestions they have 
prior to that time. Early to mid next week would be helpful.
    It is our intention, then, to try to proceed the week after 
next with a public meeting where the panel will consider 
adoption of the report to forward on to the full committee.
    So, I would again invite members of the public, as well as, 
obviously, the Department, speaking more officially, to give us 
recommendations and suggestions, so that the members can take 
those recommendations into account when the members meet next 
week.
    I would be happy to yield to Mr. Conaway.
    Mr. Conaway. Well, thank you, Mr. Chairman.
    I also want to thank folks for coming today.
    I have got a question for the record I would like to 
submit. It has to do with a KC-135 contract that recently was 
bid between a small company and Boeing. And the small company 
lost out, because of the impact of a fee they had to pay to 
Boeing. So, I do not expect you to have an answer for it, but 
we will submit that for the record, because it has to do with 
this idea of an open, fair competition thing that we are 
talking about.
    And I just want to thank everybody for participating. This 
is not the end of the deal. As I said earlier, I think we are 
all in this together--ought to act as if we are all in this 
together--for the best interest of the warfighter and the 
taxpayer. And I look forward to continuing dialogue among all 
of you as to how we can get this whole process better than it 
is currently being done.
    Thank you, Mr. Chairman.
    Mr. Andrews. We thank you for your participation.
    The hearing is adjourned.
    [Whereupon, at 4:42 p.m., the panel was adjourned.]
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                            A P P E N D I X

                             March 11, 2010

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                             March 11, 2010

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             RESPONSE TO QUESTION SUBMITTED BY MR. ANDREWS

    Secretary Carter. The Department directed, via RMD 700, a study to 
improve the transparency of budgeting and programming of resources for 
Major Defense Acquisition Programs (MDAPs). The initial study effort is 
investigating the options to ensure transparency of the data reported 
in our Selected Acquisition Reports (SARs) and consistency with 
information provided in the President's Budget Request, Future Years 
Defense Program, and Budget Justification documentation. Under this 
first effort, we are reviewing the merits of and risks associated with 
reporting SAR financial data through one authoritative source, such as 
the USD (Comptroller) system, along with improvements in data 
structures. Decisions made to use either a common, single data source, 
or multiple data sources, and the aforementioned structure changes will 
be implemented in time for submission of the December 2010 SARs in 
early April 2011.
    Successes from the SAR transparency study above will serve as the 
baseline to further improve the transparency of budgeting and 
programming of resources--Research, Development, Test and Evaluation, 
Procurement, Military Construction, and Operations and Maintenance--for 
MDAPs, including details at the Subprogram level as reported in SARs. 
This second study effort, intended to incorporate statutory changes 
emanating from the 2009 Weapon System Acquisition Reform Act, 
certification of new MDAPs under Sections 2366a and 2366b, and all 
current MDAPs that are Section 2366 certified, will include 
recommendations for changes to all affected DOD Information Technology 
Systems in time to support the FY 2012 PBR. [See page 25.]
                                 ______
                                 
              RESPONSE TO QUESTION SUBMITTED BY MR. HUNTER

    Secretary Carter. The Department encourages competition for most of 
our acquisitions including small arms weapons. The latest competition 
for the M16 rifle was full and open. Two companies entered that 
competition--Colt's Manufacturing Company in West Hartford, 
Connecticut, and FN Manufacturing in Columbia, South Carolina. The Army 
is developing an acquisition strategy for the development of a new 
carbine to support our Warfighters. The Army will use full and open 
competition of American-based companies for this acquisition. The Army 
held an industry day where 10-11 companies participated. The Army plans 
to release a draft Request for Proposal (RFP) as soon as the Joint 
Staff approves the weapon system's requirements document. The Army does 
limit the acquisition of specified small arms spare parts as required 
by title 10 USC 2473. This title is a unique statute requiring 
procurement of barrels, bolts, and receivers for a select set of small 
caliber weapons be restricted to three domestic firms (General Dynamics 
Armaments and Technical Products, Colt Manufacturing Company, and FN 
Manufacturing), unless an exception is approved by the Secretary of 
Defense. The Army is evaluating the need for this statute. Initial Army 
findings indicate that this statute is not necessary because the 
authority to restrict acquisitions to support the industrial base 
reside in the Competition in Contracting Act. [See page 15.]
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             March 11, 2010

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                   QUESTION SUBMITTED BY MR. CONAWAY

    Mr. Conaway. Since your confirmation last year you have repeatedly 
emphasized your desire to maintain a healthy and competitive defense 
industrial base, sentiments that are also emphasized in the 2010 QDR.
    I am aware of a contract recently awarded by the Air Force for KC-
135 tanker maintenance in which Boeing Co. was chosen over a small 
contractor in Alabama that directly contradicts both your statements 
and the policy positions laid out in the 2010 QDR.
    Alabama Aircraft Industries Inc. (AAII) has for generations 
provided services to the U.S. military through its maintenance of C-
130s, P-3s, and KC-135s. There has been an ongoing dispute between 
Boeing and AAII regarding the aforementioned contract to provide KC-135 
maintenance. As a small business of about 800 employees, down from its 
peak of 1500, AAII is the only company other than Boeing that can 
perform this maintenance, and it has been doing so for over 5 decades 
with an excellent record of delivering defect-free aircraft.
    The KC-135 work is the vital core of AAII's business, without which 
the company will be forced to shut its doors, leaving the USAF with 
only one source of repair for a vital airplane. Not only would 
maintaining multiple maintenance sources reduce costs through the 
utilization of existing resources, but it also provides for continued 
needed capacity to cover unforeseen changes in demand. Given the 
continued KC-X delays, multiple sources are critical to the KC-135 
maintenance program and this aircraft's continued service to the war 
fighter.
    How does USAF decision to eliminate a competitive, small business 
square with your position, comments and the 2010 QDR?
    Secretary Carter. I appreciate your concern for the health of our 
industrial base, and I remain committed to robust participation by 
qualified small businesses. Still, sufficient competition and capacity 
exists to assure the future of KC-135 operations. Further, the process 
of procuring services in a competitive marketplace is governed by 
federal laws and regulations, and the KC-135 Programmed Depot 
Maintenance competition has been thoroughly reviewed by both the 
Government Accountability Office and two Federal Courts. We take great 
care to ensure fairness throughout all such competitions, and we will 
continue to do so as required by law.

                                  
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