[Senate Hearing 111-898]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 111-898
 
             DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES 

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

                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 28, 2010

                               __________

         Printed for the use of the Committee on Armed Services




        Available via the World Wide Web: http://www.fdsys.gov/

                               __________

                         U.S. GOVERNMENT PRINTING OFFICE 

65-072 PDF                       WASHINGTON : 2011 

For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
Washington, DC 20402-0001 
























                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
JACK REED, Rhode Island              JAMES M. INHOFE, Oklahoma
DANIEL K. AKAKA, Hawaii              JEFF SESSIONS, Alabama
BILL NELSON, Florida                 SAXBY CHAMBLISS, Georgia
E. BENJAMIN NELSON, Nebraska         LINDSEY GRAHAM, South Carolina
EVAN BAYH, Indiana                   JOHN THUNE, South Dakota
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
CLAIRE McCASKILL, Missouri           GEORGE S. LeMIEUX, Florida
MARK UDALL, Colorado                 SCOTT P. BROWN, Massachusetts
KAY R. HAGAN, North Carolina         RICHARD BURR, North Carolina
MARK BEGICH, Alaska                  DAVID VITTER, Louisiana
ROLAND W. BURRIS, Illinois           SUSAN M. COLLINS, Maine
JEFF BINGAMAN, New Mexico            MARK KIRK, Illinois
EDWARD E. KAUFMAN, Delaware
CARTE P. GOODWIN, West Virginia

                   Richard D. DeBobes, Staff Director

               Joseph W. Bowab, Republican Staff Director

                                  (ii)

  

















                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

             Department of Defense Efficiencies Initiatives

                           september 28, 2010

                                                                   Page

Lynn, Hon. William J., Lynn III, Deputy Secretary of Defense.....     5
Carter, Hon. Ashton B., Under Secretary of Defense for 
  Acquisition, Technology, and Logistics.........................    12
Cartwright, Gen. James E., USMC, Vice Chairman of the Joint 
  Chiefs of Staff................................................    16
Appendix A.......................................................    86
Appendix B.......................................................    92
Appendix C.......................................................   110
Appendix D.......................................................   116
Appendix E.......................................................   117
Appendix F.......................................................   123
Appendix G.......................................................   139

                                 (iii)


             DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES

                              ----------                              


                      TUESDAY, SEPTEMBER 28, 2010

                                       U.S. Senate,
                               Committee on Armed Services,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SD-G50, Dirksen Senate Office Building, Senator Carl Levin 
(chairman) presiding.
    Committee members present: Senators Levin, Lieberman, Reed, 
E. Benjamin Nelson, Webb, McCaskill, Udall, Hagan, Begich, 
Goodwin, McCain, Thune, LeMieux, Brown, and Collins.
    Committee staff member present: Richard D. DeBobes, staff 
director.
    Majority staff members present: Joseph M. Bryan, 
professional staff member; Richard W. Fieldhouse, professional 
staff member; Creighton Greene, professional staff member; 
Peter K. Levine, general counsel; Jason W. Maroney, counsel; 
Roy F. Phillips, professional staff member; John H. Quirk V, 
professional staff member; Robie I. Samanta Roy, professional 
staff member; and William K. Sutey, professional staff member.
    Minority staff members present: Joseph W. Bowab, Republican 
staff director; Adam J. Barker, professional staff member; 
Michael V. Kostiw, professional staff member; David M. Morriss, 
minority counsel; Lucian L. Niemeyer, professional staff 
member; Diana G. Tabler, professional staff member; and Dana W. 
White, professional staff member.
    Staff assistants present: Jennifer R. Knowles, Christine G. 
Lang, and Brian F. Sebold.
    Committee members' assistants present: Christopher Griffin, 
assistant to Senator Lieberman; Carolyn A. Chuhta, assistant to 
Senator Reed; Alicia Brown, assistant to Senator Bill Nelson; 
Ann Premer, assistant to Senator Ben Nelson; Juliet M. Beyler 
and Gordon I. Peterson, assistants to Senator Webb; Tressa 
Guenov, assistant to Senator McCaskill; Jennifer Barrett, 
assistant to Senator Udall; Roger Pena, assistant to Senator 
Hagan; Lindsay Kavanaugh, assistant to Senator Begich; Amanda 
Fox, assistant to Senator Burris; Anthony J. Lazarski, 
assistant to Senator Inhofe; Lenwood Landrum and Sandra Luff, 
assistants to Senator Sessions; Clyde A. Taylor IV, assistant 
to Senator Chambliss; Andy Olson, assistant to Senator Graham; 
Jason Van Beek, assistant to Senator Thune; Brian Walsh, 
assistant to Senator LeMieux; Charles Prosch, assistant to 
Senator Brown; and Ryan Kaldahl, assistant to Senator Collins.

       OPENING STATEMENT OF SENATOR CARL LEVIN, CHAIRMAN

    Chairman Levin. Good morning, everybody. The committee 
meets today to hear testimony about the efficiencies 
initiatives announced by the Secretary of Defense in his May 8, 
2010, speech at the Eisenhower Library and his August 9, 2010, 
speech at the Pentagon.
    We're pleased today to have Deputy Secretary of Defense, 
Bill Lynn; Under Secretary of Defense for Acquisition, 
Technology, and Logistics, Ashton Carter; and the Vice Chairman 
of the Joint Chiefs of Staff, General James Cartwright, to 
address this important issue.
    We thank you all for being here this morning.
    On May 8, the Secretary stated that, ``The Defense 
Department must take a hard look at every aspect of how it is 
organized, staffed, and operated; indeed, every aspect of how 
it does business. In each instance,'' he said, ``we must ask, 
first, is this respectful of the American taxpayer at a time of 
economic and fiscal duress, and, second, is this activity or 
arrangement the best use of limited dollars, given the pressing 
needs to take care of our people, win the wars we are in, and 
invest in the capabilities necessary to deal with the most 
likely and lethal future threats?''
    I share the Secretary's objectives of reducing 
``duplication, overhead, and excess in the defense enterprise, 
and instilling a culture of savings and restraint across the 
Department of Defense (DOD).''
    On August 9, the Secretary followed up by announcing a 
series of specific cost-cutting measures, including a reduction 
in funding for service support contracts by 10 percent per year 
for 3 years; a freeze on the number of Office of the Secretary 
of Defense (OSD), Defense agency, and combatant command 
positions; a freeze on the number of general officer, flag 
officer, and Senior Executive Service (SES) positions; a review 
and reduction of the number of reports, studies, and advisory 
boards; new limits on SES positions and support contractors for 
DOD intelligence functions; and the elimination or 
consolidation of several Defense commands and agencies, 
including the Assistant Secretary of Defense for Network and 
Information Integration, the Business Transformation Agency 
(BTA), and the Joint Forces Command (JFCOM).
    I agree with the Secretary on the rapidly expanding force 
of service contractors who support the Department. Too often in 
the past, we've constrained the number of DOD employees, 
without placing any limits on the number of service 
contractors. As a result, we have more than doubled our 
spending on service contractors over the last decade, while the 
size of the DOD civilian workforce has been largely unchanged. 
Rather than saving money, we have lost badly needed talent, 
expertise, and institutional knowledge in the government, and 
given contractors more responsibility for the performance of 
critical government functions than is appropriate.
    I believe that the acquisition efficiency initiatives, 
announced by Secretary Carter, are consistent with the 
objectives of the Weapons Systems Acquisition Reform Act and 
other recent acquisition legislation initiated by this 
committee. Although I have concerns about some of the details, 
I am particularly pleased by Secretary Carter's emphasis on 
open-systems architectures, fixed-price incentive contracts, 
increased focus on affordability and program schedule, and 
improved management of contracts for services. I hope that he 
will place an equal emphasis on implementation of the Weapons 
System Acquisition Reform Act's requirement for developmental 
testing and systems engineering.
    At the same time, I believe that the Secretary's 
initiatives deserve close scrutiny from our committee. The 
Secretary has a legitimate objective of eliminating or 
consolidating repetitive and overlapping organizations within 
the Department, and his determination to cut costs and produce 
efficiencies is commendable. But, it appears that there was 
inadequate analysis and inadequate openness in the procedure 
which preceded his August announcement.
    For example, we need to be sure that the personnel 
restrictions announced by the Secretary do not undermine our 
ongoing efforts to rebuild the Department's acquisition 
workforce. Study after study, and hearing after hearing, has 
shown that our acquisition programs cost billions of dollars 
more than they should; in significant part, because our 
acquisition workforce was dramatically cut in the 1990s and no 
longer has the capacity to perform its essential functions.
    As the Acquisition Advisory Committee reported 4 years ago, 
our failure to fund an adequate number of acquisition 
professionals has been, ``penny wise and pound foolish, as it 
seriously undermines the pursuit of good value for the 
expenditure of public resources.''
    Similarly, we need a detailed accounting of the functions 
performed by the organizations that the Secretary proposes to 
consolidate or eliminate. For those functions that will no 
longer be performed, we need to understand why they are no 
longer needed. For those functions that are still needed, we 
need to understand who will perform them. We need to understand 
what resources will be transferred, what resources will be 
eliminated, and what real savings are likely.
    I am disappointed that, more than 6 weeks after the 
Secretary's announcement of these measures, we have received 
only the roughest and most general information about the 
Department's plans. I fully understand the frustration of the 
Senators from Virginia, for instance, and others, about their 
inability to obtain a more complete rationale and a plan for 
the Pentagon's proposed actions. The Secretary's intent to 
reduce duplication, overhead, and excess in DOD is commendable, 
but his actions should be supported by an open process, which 
includes detailed analysis and full consideration of opposing 
views.
    We again thank our witnesses for their presence here this 
morning. We look forward to their testimony.
    I call upon Senator McCain.

                STATEMENT OF SENATOR JOHN McCAIN

    Senator McCain. Thank you, Mr. Chairman.
    Thank our distinguished witnesses for joining us this 
morning and for their service to our Nation.
    As we know, in August, Secretary Gates announced a series 
of initiatives intended to reduce excess overhead costs and to 
improve the efficiency of DOD. As a part of this initiative, 
Secretary Gates also tasked Dr. Carter to improve the 
Department's buying power, through the way it acquires critical 
goods and services, in order to stop runaway cost growth and 
program delays. We look forward to hearing from Dr. Carter 
about the initial progress he's making within DOD and with the 
defense industry partners in this critical area.
    I think that both these initiatives are coming at an 
important time. We have to find ways to operate government more 
efficiently and at a lower cost to taxpayers. Secretary Gates 
understands the tough economic and fiscal situation facing our 
Nation. I strongly support his efforts in doing everything 
possible to make every taxpayer dollar count.
    I want to emphasize that the intent of this effort is not 
to reduce the Department's top line, but to find savings over 
the Future Years Defense Program, to invest in critical force 
structure and modernization priorities. We obviously cannot 
afford to shortchange our military, and we must maintain 
commitments to a Defense budget that supports the full range of 
our national security commitments.
    This committee has consistently supported the Department's 
efforts to reduce their massive overhead costs in order to be 
able to direct more resources to our fighting forces and 
weapons modernization. Eight initiatives are clearly aimed at 
addressing the exploding growth in service support contracts 
and overhead personnel. I look forward to getting more 
information on these proposals in the next few months in order 
to fully understand the scope of the anticipated savings and 
the impact on the missions and operations of our forces.
    One proposal the Secretary's recommended is the elimination 
of JFCOM. I strongly support that proposal.
    On the issue of elimination of BTA, I'd be interested, 
Secretary Carter and maybe Secretary Lynn, will we ever have an 
audit of DOD? That, I think, would be one major step forward.
    The Secretary also challenged the Services to find more 
than $100 billion in overhead savings over the next 5 years. 
Obviously, we want to make sure that those reductions don't 
impact long-term readiness over time.
    I support the Secretary's decision to address the personnel 
growth in OSD, defense agencies, and combatant commands, and to 
freeze, at 2010 levels, the number of civilian senior 
executives, general and flag officer and political positions. 
DOD management deserves a rigorous review to ensure it has the 
proper mix of civilian and military personnel, with the right 
ranks and the right positions.
    May I also say, I support the Secretary's decision to 
eliminate the second engine for the Joint Strike Fighter. But, 
on the subject of the Joint Strike Fighter, I would point out, 
to the witnesses and my colleagues, that the Joint Strike 
Fighter is another example of the terrible cost overruns 
associated with weapons procurement and the reasons why we, not 
only need to make a $100 billion in savings, but we need to 
fundamentally reform our acquisition system. I believe--correct 
me if I'm wrong, Mr. Lynn--that the Joint Strike Fighter now 
costs, approximately, more than its original estimates. Is that 
correct? We can't continue down that path. It's just not 
affordable and the American people deserve better.
    But, getting back to the subject at hand, I look forward to 
hearing from the witnesses. I know every member of this 
committee looks forward to working with you to try to bring 
about these proposed changes that I think are a bold initiative 
by the Secretary of Defense.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator McCain.
    Secretary Lynn.

  STATEMENT OF HON. WILLIAM J. LYNN III, DEPUTY SECRETARY OF 
                            DEFENSE

    Mr. Lynn. Thank you very much, Mr. Chairman, distinguished 
members of the committee. Thank you for the opportunity to 
appear before you to discuss the Department's efficiency 
efforts.
    If it's acceptable to the committee, I'd like to put the 
full statement in the record and summarize it here, briefly, in 
an oral statement.
    Chairman Levin. Thank you.
    Mr. Lynn. During a speech in May of this year at the 
Eisenhower Library, Secretary Gates outlined how, in order to 
maintain and modernize America's key military capabilities at a 
time of war and fiscal pressure, DOD would need to 
fundamentally change the way it does business.
    The reason is this: To sustain the current military force 
structure, which we must do, given the security challenges this 
country faces, requires the equivalent of real budget growth of 
2 to 3 percent. The overall Defense budget is projected to 
rise, in real terms, by about 1 percent, based on DOD's 
inflation assumptions. The Department cannot, and should not, 
ask Congress or the American taxpayers for more increases, in 
any year, unless we have done everything possible to make the 
dollars we already have count for more. Bridging that gap 
requires culling the Department's massive overhead costs and 
structures--``the tail''--and directing them to our fighting 
forces and modernization accounts--``the tooth.''
    This is not an effort, as Senator McCain indicated, to 
reduce the Defense budget. This is about shifting resources and 
priorities within the existing top line. That requires reducing 
the Department's overhead costs by targeting unnecessary excess 
and duplication in the Defense enterprise.
    This effort is not just about the budget; it is also about 
operational agility. We need to ensure that the Department is 
operating as efficiently and effectively as possible.
    The Secretary directed us to take a hard look at how the 
Department is organized, staffed, and operated; how we can 
flatten and streamline the organization; reduce executive and 
flag-officer billets and the staff apparatus that supports 
them; shed overlapping commands and organizations; and reduce 
the role and the costs of support contractors.
    Since the Secretary's speech in May, DOD embarked on a 
four-track approach toward a more efficient, effective, and 
cost-conscious way of doing business. Let me briefly touch on 
tracks one to three, and then spend a little bit more time on 
track four.
    On track one, the Secretary directed that the Military 
Services find more than $100 billion in overhead savings over 
the next 5 years. The Services will be able to keep any of 
those savings that they generate, to invest in higher priority 
warfighting and modernization needs. This effort is now 
underway, and we've begun to review the Services' submissions. 
The fiscal year 2012 budget will reflect the results when it is 
submitted to Congress in February 2011.
    On track two, the Department is seeking ideas, suggestions, 
and proposals regarding efficiencies from outside the normal 
channels. We have solicited input from experts, from think 
tanks, from industry, and from the Department's external 
boards. We also established a DOD suggestion program to solicit 
our own employees' ideas. The Department is willing to consider 
any reasonable suggestion to reduce our overhead.
    On track three, the Department is conducting a broad review 
of how it is organized and operated to inform President Obama's 
2012 budget process. This track three review focuses on 
affecting long-term systemic improvements in several key areas 
of DOD operations. Dr. Carter will address these in more detail 
in his opening statement.
    With regard to track four, the Secretary announced, on 
August 9th, specific areas where the Department can take action 
now to reduce inefficiencies and overhead. These steps are 
intended to jumpstart the reform process ahead of and separate 
from the normal programming and budget submission process. In 
particular, they represent the Secretary's lead efforts to 
reduce headquarters and support bureaucracies, military and 
civilian alike, that have swelled to cumbersome proportions, 
grown over-reliant on contractors, and become accustomed to 
operating with little consideration of costs.
    Though all of these efforts will result in measurable 
savings, an equally important purpose is to instill a culture 
of cost-consciousness and restraint in the Department; a 
culture that sets priorities, makes real tradeoffs, and 
separates unrestrained appetites from genuine requirements.
    There are eight major initiatives in track four that reduce 
support contractors, headquarters personnel, senior executives, 
and flag and general officers. Track four also includes efforts 
to reduce boards and commissions and redundant intelligence 
organizations.
    Finally, they involve several organizational 
disestablishments. The last decade has seen a significant 
growth of new offices and organizations, including two new 
combatant commands and five new Defense agencies. The Secretary 
concluded that JFCOM, the Assistant Secretary of Defense for 
Networks and Information Integration, the Joint Staff's J-6 
directorate, and the Defense BTA no longer effectively satisfy 
the purpose for which they were created. Some missions and 
tasks that each perform remain vital but can be managed 
effectively elsewhere. Other functions that each perform are 
either already performed elsewhere or are no longer relevant to 
the operation of the department.
    We are mindful that the recommended actions will have 
economic consequences for displaced employees, their families, 
and their local communities. The Department is committed to 
work with the affected communities and will devote significant 
attention to the challenges employees will face during this 
transition. We have asked Dr. Clifford Stanley, the Under 
Secretary for Personnel and Readiness, to take direct 
responsibility for this aspect of the Department's planning in 
order to ensure we take the steps necessary to help impacted 
employees with appropriate assistance and support.
    In closing, Mr. Chairman, I understand that some of these 
reforms may be controversial and unwelcome to some people, both 
inside and outside the Department. No doubt many of these 
changes will be stressful, even wrenching, for the organization 
and employees involved. But, I would ask the members of this 
committee, and Congress as a whole, to consider this reform 
agenda in terms of our responsibilities, as leaders, to set 
priorities and move resources from where they are needed least 
to where they belong: America's fighting forces, its investment 
in future capabilities, and, most importantly, the needs of our 
men and women in uniform. That is what Secretary Gates and 
President Obama are proposing, and we urge your strong support.
    Thank you for the opportunity to discuss this initiative 
with you today.
    [The prepared statement of Mr. Lynn follows:]
             Prepared Statement by Hon. William J. Lynn III
    Mr. Chairman and distinguished members of the committee, thank you 
for the opportunity to appear before you to discuss the Department's 
efficiency efforts.
    During his speech in May of this year at the Eisenhower library, 
Secretary Gates outlined how in order to maintain and modernize 
America's key military capabilities at a time of war and fiscal 
pressure, the Department of Defense (DOD) would need to fundamentally 
change the way it does business.
    The reason is this: To sustain the current military force 
structure--which the Secretary believes we must do given the security 
challenges this country faces--requires the equivalent of real budget 
growth of 2 to 3 percent. The overall defense budget, however, is 
projected to rise in real terms by about 1 percent, based on DOD 
inflation assumptions. The Department cannot, and should not, ask 
Congress for more increases each year unless we have done everything 
possible to make the dollars we already have count for more.
    Bridging that gap requires culling the department's massive 
overhead costs and structures, the ``tail,'' and directing them to our 
fighting forces and modernization accounts, the ``tooth.'' This is not 
an effort to reduce the Defense budget. This is about shifting 
resources and priorities within the existing top line. That requires 
reducing the department's overhead costs by targeting unnecessary 
excess and duplication in the defense enterprise.
    This effort is not just about the budget, it is also about 
operational agility. The Secretary wants to ensure that the Department 
is operating as efficiently and effectively as possible. He has 
directed us to take a hard look at how the Department is organized, 
staffed, and operated; how we can flatten and streamline the 
organization; reduce executive or flag-officer billets and the staff 
apparatus under them; shed overlapping commands and organizations; and 
reduce the role and costs of contractors.
    Since the Secretary's speech in May, DOD has embarked on a four-
track approach towards a more efficient, effective, and cost-conscious 
way of doing business. I will briefly touch on our activities in Tracks 
1-3 and then go into more depth about Track 4.
    Track 1: The Secretary directed that the military services find 
more than $100 billion in overhead savings over the next 5 years. The 
Services will be able to keep any of the savings they generate to 
invest in higher priority warfighting and modernization needs. This 
effort is underway and we have already begun to review the service 
submissions. The fiscal year 2012 budget will reflect the results when 
it is submitted in February.
    Track 2: The Department is also seeking ideas, suggestions and 
proposals regarding efficiencies from outside normal channels. We have 
solicited input from experts, from think tanks, industry, and the 
department's external boards. We have also established a DOD suggestion 
program to solicit our employees' ideas. The Department is willing to 
consider any reasonable suggestion to reduce our overhead.
    Track 3: The Department is also conducting a broad review of how it 
is organized and operated to inform President's 2012 budget process. 
This ``Track 3'' review focuses on affecting long-term systemic 
improvements in several key areas of DOD operations. Through this 
review the Department seeks to adjust processes, regulations, and 
systems that add needless layers of bureaucracy and serve as roadblocks 
to efficient operations. As a first step, Under Secretary of Defense 
for Acquisition, Technology, and Logistics, Dr. Ash Carter recently 
unveiled his acquisition initiatives, which includes 23 significant 
changes to the way the Department contracts for goods and services. Dr. 
Carter will address these in more detail in his opening statement.
    The Secretary's Track 4 initiatives, announced on August 9, address 
specific areas where the Department can take action now to reduce 
inefficiencies and overhead. These steps are intended to jump start the 
reform process ahead of and separate from the normal programming and 
budget submission process. In particular, they represent the 
Secretary's lead effort to reduce headquarters and support 
bureaucracies, military and civilian alike that have swelled to 
cumbersome proportions, grown over-reliant on contractors, and become 
accustomed to operating with little consideration of costs. Though all 
these efforts will result in measurable savings, an equally important 
purpose is to instill a culture of cost-consciousness and restraint in 
the Department--a culture that sets priorities, makes real trade-offs, 
and separates unrestrained appetites from genuine requirements.
    To see these Track 4 initiatives through from his announcement to 
action and to produce measurable results in the near-term, the 
Secretary established a task force chaired by his Chief of Staff. This 
task force has chartered study groups from within the department which 
are developing action plans aligned to the Secretary's guidance. The 
Task Force is overseeing the implementation of these plans and their 
eventual transition to the appropriate department leadership. Secretary 
Gates will personally approve all action plans later this fall to 
ensure that his vision is translated into concrete results.
    I will briefly recap the Secretary's guidance in each of these 
eight areas and then outline the reasons for his decision, as well as 
the general approach the Department is taking to execute it.
    Contractors: The Secretary directed funding for service support 
contractors be reduced by 10 percent per year for 3 years. There have 
been significant efforts to outsource non-core tasks to contractors 
over the last several decades. However, since 2001 the availability of 
resources from supplemental appropriations, coupled with the urgency of 
supporting combat operations, resulted in dramatic increases in the 
number of contractors working for the Department, who have risen from 
26 percent of the DOD workforce in 2000 to 39 percent today. The sheer 
number of contractors is not the only problem. Many of these recently 
outsourced service support and advisory contractors are actually 
carrying out functions that should be performed by government 
employees. The Secretary intends to reverse this trend. The task force 
is establishing a baseline for these contractors and will develop 
specific targets for reductions.
    Civilian Personnel: The Secretary's initiative froze the number of 
OSD, Defense Agency, and combatant command positions and directed a 
zero-based review of each organization. The growth in the size and 
expense of the Office of the Secretary of Defense, the defense 
agencies, and the combatant commands since 2001 provides a ripe area 
for review and subsequent realignment. The zero-based review of 
organizational missions, funding, and staffing is intended to ensure 
that each organization is aligned to the Department's priorities, and 
to allow reductions or realignment of personnel and resources as 
appropriate. We are in the midst of gathering data and reviewing 
initial organizational self-assessments. As we consolidate the data, 
and conduct our own analysis, the Secretary expects to receive a series 
of recommendations aimed at flattening the Department's headquarters 
and staff structures, resulting in efficiencies and savings that can be 
applied to higher priorities. The effort to seek efficiencies in our 
civilian staff will not undercut the ongoing process of adding 
contracting officers, system engineers, and weapons testers in our 
acquisition system.
    Senior Positions: Secretary Gates froze the number of senior 
civilian executives, general and flag officers, and presidentially 
appointed and Senate-confirmed officials. After a senior-level review, 
he intends to reduce the numbers of these positions. Since September 
2001, the number of general and flag officers has increased by more 
than 100, while senior civilian leaders have increased by more than 
300. This ``brass creep''--where higher ranking personnel now perform 
tasks that could be more appropriately and efficiently performed by 
lower ranking personnel--is associated with increased layers of 
bureaucracy and proliferation of new staff. The effort in this area is 
intended to assist in the transition to fewer organizations and into 
flatter and more responsive and agile structures. We have two senior 
study groups reviewing the distribution of senior positions across the 
Department and expect, at a minimum, to substantially trim the growth 
that has occurred since 2001.
    Economies of Scale: To take advantage of the Department's economies 
of scale, the Secretary directed that key areas of the Department 
consider consolidation of duplicative or redundant infrastructure and 
processes to reduce costs and increase capabilities. We are pursuing 
several key initiatives, particularly concerning the consolidation of 
information technology infrastructure, that appear to offer significant 
savings.
    Oversight Reports and Studies: The Secretary directed a freeze on 
the overall number of DOD-required oversight reports and immediately 
cut the fiscal year 2010 funding for advisory studies by 25 percent. A 
team is conducting an aggressive review of the value of all internal 
and external oversight reports with the goal of reducing their volume 
and the burden they place on Department staff. This team is currently 
reviewing an initial set of more than 1,000 internal oversight reports 
and studies, weighing the oversight value against the manpower it takes 
to produce them, and will make initial recommendations within weeks. We 
are also examining several hundred recurring reports required by 
Congress in the annual spending bills to better understand the cost of 
production and the value they provide to you and other defense 
decision-makers. As part of this evaluation, we look forward to 
engaging this and other committees on ways to seek efficiencies as we 
meet your oversight needs.
    Boards and Commissions: A team is also working to review about 60 
defense advisory boards and commissions, along with a large number of 
advisory subcommittees, to assess the value of their advice and to 
recommend disestablishment, streamlining and restructuring of those 
that are not providing the highest impact to senior decisionmakers. 
Remaining boards and commissions are expected to see their funding for 
studies reduced by 25 percent. Within the Secretary's authority, those 
boards and commissions that are assessed to provide little value to the 
Department will be disestablished. If our analysis indicates that any 
board or commission established in statute is no longer needed or 
should be restructured, we expect to engage your committee and others 
in dialogue about options for statutory changes to help implement 
desired efficiency gains while ensuring Congressional oversight 
responsibilities are met.
    Intelligence Organizations: The Secretary reduced intelligence 
advisory and assistance contract funding by 10 percent and froze the 
number of senior executive positions in defense intelligence 
organizations. He also directed a zero-based review of the department's 
intelligence missions, organizations, relationships, and contracts by 1 
November. There has been a proliferation of new intelligence 
organizations and operations since 2001, primarily based upon the 
demands of fighting two wars and combating terrorism. Because much of 
this growth was not centrally directed or coordinated, there is a high 
probability of redundancy and overlap with intelligence organizations 
that can be reduced or eliminated. This offers the opportunity to 
redirect the savings to other, more important intelligence efforts. In 
addition, this effort is being conducted in close collaboration with 
the DNI who is pursuing a similar review across the Intelligence 
Community. We expect that the fruits of the zero-based review and 
subsequent realignment will be a flatter and more responsive 
intelligence structure that better supports both national priorities 
and operational forces.
    Organizational Disestablishments: The last decade has seen a 
significant growth of new offices and organizations including two new 
combatant commands and five new defense agencies. Therefore, in 
addition to flattening and trimming structure, the Secretary directed 
the Department to consider the outright elimination of organizations 
that either perform duplicative functions or have outlived their 
original purpose.
    We reviewed a variety of information regarding combatant commands, 
defense agencies, and the OSD staff, including missions, staffing 
levels, and other data. However, the Secretary was particularly 
interested in organizations that had outlived the original argument for 
their existence, whose missions had changed or no longer existed, or 
had a mission or conducted activities that duplicated other 
organizations.
    We spent considerable time reviewing the input of his most senior 
advisors, including the Chairman and Vice Chairman of the Joint Staff, 
myself, and others. Over 30 meetings were held with senior leaders, in 
both small forums and large, to help understand the contributions that 
these organizations provided to national security and the risks and 
pitfalls that might be associated with any decision to disestablish an 
existing organization.
    The Secretary concluded that Joint Forces Command (JFCOM), the 
Assistant Secretary of Defense for Networks and Information Integration 
(NII), Joint Staff J-6 Directorate, and the Defense Business 
Transformation Agency (BTA) no longer effectively satisfy the purpose 
for which they were created. Some missions and tasks that each perform 
remain vital, but can be managed effectively elsewhere. Other functions 
that each perform are either already performed elsewhere, or are no 
longer relevant for the Department.
    Therefore, after several months of review, the Secretary made the 
decisions announced on August 9 to disestablish the NII, J-6, and BTA, 
and also to recommend to the President that he approve the 
disestablishment of JFCOM.
    NII was created in 2003 when the Office of Communications, Command, 
Control and Intelligence split off its intelligence functions due to 
the increasing need for intelligence in the post-September 11 world. At 
the time, there were questions about the necessity of creating a 
separate organization within OSD to handle the remaining 
Communications, Command, and Control functions, such as the replication 
of responsibilities and processes.
    The speed at which information technology is changing is 
outstripping the DOD's ability to adapt to the changes. The modern U.S. 
military is increasingly dependent on its ability to get the right 
information to the right person at the right time, while preventing 
critical information from getting into the wrong hands. The Department 
continues to expand its technology solutions to support both goals. 
But, at the same time, the Department is hindered by its internal 
bureaucracy--primarily the duplication of processes by multiple 
organizations--which limits our ability to be as agile as we would like 
in this crucial area.
    Many of the functions performed by NII are also provided by other 
organizations within the Department. For example, NII performs:

         Information assurance functions that are similar to 
        those provided through U.S. Cyber Command (CYBERCOM), the Joint 
        Staff, JFCOM and the Defense Information Systems Agency (DISA);
         Resourcing functions that are similar to those 
        provided through the Under Secretary of Defense for 
        Comptroller;
         Acquisition oversight for command and control are 
        similar to those provided through the Under Secretary of 
        Defense for Acquisition, Technology, and Logistics;
         CIO functions that are similar to those provided 
        through CYBERCOM, STRATCOM, the Joint Staff, JFCOM and DISA, 
        and;
         Command and Control (C2) functions that are similar to 
        those provided through CYBERCOM, STRATCOM, the Joint Staff, 
        JFCOM, and DISA.

    These redundancies represent more than a waste of resources--they 
also increase the potential for confusing or even conflicting policies 
and plans. Based on these observations, the analysis indicates that 
removing these functions from NII and J-6 and then consolidating them 
within other organizations will likely increase overall effectiveness 
and save money.
    A specific consideration for allocating these functions among 
existing DOD organizations is the value of representing the user and 
provider perspectives within the same organization. The goal is to 
support evolving operational needs and thwart equally adaptive threats. 
These goals are best served by an organization that is simultaneously 
responsible for setting policy, implementing plans, performing C2 and 
directly supporting users.
    There are multiple ways that key responsibilities can be 
reallocated. The Task Force working group is developing options to 
determine the best allocation strategy to achieve the goals of meeting 
operational needs, improving security, and being prudent fiscal 
managers.
    The BTA was created in 2006 to assist in business transformation 
activities, to integrate and improve the Department's business 
processes to include numerous Enterprise Resource Planning (ERP) 
implementations. The Agency encompassed the Financial Management 
Modernization Program and Business Management Modernization Programs 
that had previously existed in the Under Secretary of Defense for 
Comptroller and Under Secretary of Defense for Acquisition, Technology, 
and Logistics respectively. When established, BTA was envisioned to 
centralize business transformation and system modernization efforts 
into a unified and focused organization.
    In 2008, Congress, through the National Defense Authorization Act, 
instituted the position of Deputy Chief Management Officer (DCMO) to 
assist the Deputy Secretary of Defense, acting as the Chief Management 
Officer, to organize the business operations of DOD. The mission of the 
Office of the DCMO duplicates many of the BTA functions. Specifically, 
the DCMO has the principal responsibility for invigorating and 
improving business operations in DOD in order to enhance support to the 
warfighter and provide better financial accountability. Therefore, 
rather than lead in the development of better business practices, BTA's 
prime focus has essentially devolved to being the caretaker and manager 
for several relatively small business systems, and providing direct 
support to the DCMO for various policy issues. This narrower function 
does not justify continuing BTA as a stand-alone defense agency.
    Accordingly, Secretary Gates approved disestablishment of BTA and 
directed that its remaining functions be reviewed and transferred to 
other organizations in DOD as appropriate.
    The Secretary has recommended that the President approve the 
disestablishment of U.S. Joint Forces Command (JFCOM). This 
recommendation is based on a review of the missions assigned to JFCOM 
in the Unified Command Plan and the determination that these missions 
can be accomplished effectively and more efficiently, elsewhere within 
the Department.
    JFCOM was formally established in 1999 as the successor to the U.S. 
Atlantic Command. The central mission of JFCOM was to infuse and, to 
some degree, compel jointness into everything the military does, 
especially training, doctrine development and the provision of forces 
for operations. It was understood at the time that the creation of 
JFCOM would result in the addition of a new organizational layer in how 
the Department managed military forces. But, the imperative to 
encourage and advance the principle of jointness among our military was 
judged to outweigh the costs associated with the extra bureaucracy. 
Over the years, JFCOM has had success in advancing this goal. However, 
it has also grown dramatically in size, budget, and personnel. In 2000, 
its first full year of operation, JFCOM employed approximately 2,100 
military and civilian personnel and had an annual operating budget of 
approximately $300 million.
    Today, JFCOM employs more than 3,000 military and civilian 
personnel in addition to approximately 3,000 direct support contractors 
and has an annual operating budget of nearly $1 billion. However, 
unlike many DOD organizations that have grown since 2001 due to new 
missions or the need to support operations in Iraq and Afghanistan, 
JFCOM has continued to grow without any significant expansion of 
mission or responsibilities.
    More fundamentally, the principal purpose for the creation of JFCOM 
in 1999--to force a reluctant service-centric military culture to 
embrace joint operations and doctrine--has largely been achieved. 
Jointness is a cultural and behavioral principle that is evolutionary 
and not easily measured; however, there is little debate that today the 
United States military has doctrinally, operationally and culturally 
embraced jointness as a matter of practice and necessity. As with 
similar matters of cultural behavior, jointness remains a policy 
objective that requires continued development, vigilance and emphasis 
by civilian and military leadership. But I am also firmly convinced 
that our military institutions have now reached a point where there is 
no risk of reverting back to the pre-Goldwater-Nichols Act period, 
where the military services sometimes planned, trained, fought and 
bought as if the other services did not exist. The evidence of this 
achievement is manifested on today's battlefields, in military schools, 
and among the ranks of current and next generation military leaders who 
have grown up in and inherently accept this new joint world.
    Accordingly, we believe that we can no longer justify the expense 
and overhead associated with maintaining a separate four-star combatant 
command for this purpose.
    Finally, I am mindful that the recommended actions will have 
economic consequences for displaced employees, their families and local 
communities. The Department is committed to work with the affected 
communities and will devote significant attention to the challenges 
employees will face during this transition. We have asked Dr. Clifford 
Stanley, the Under Secretary for Personnel and Readiness, to take 
direct responsibility for this aspect of the Department's planning in 
order to ensure we take the steps necessary to help impacted employees 
with appropriate assistance and support.
    In closing, Mr. Chairman, I understand that some of these reforms 
may be controversial and unwelcome to some people both inside and 
outside the department. No doubt many of these changes will be 
stressful, if not wrenching for the organizations and employees 
affected. But I would ask the members of this committee, and Congress 
as the whole, to consider this reform agenda in terms of our 
responsibilities as leaders to set priorities and move resources from 
where they are needed least to where they belong: America's fighting 
forces, investment in future capabilities and, most importantly, the 
needs of our men and women in uniform. That is what the Secretary and 
the President are proposing, and we urge your strong support.
    Thank you for the opportunity to discuss this initiative with you 
today. I look forward to your questions.

    Chairman Levin. Thank you very much, Secretary Lynn.
    Secretary Carter.

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

    Dr. Carter. Thank you, Mr. Chairman, Senator McCain, 
distinguished members of the committee. I, too, am grateful for 
the opportunity to testify before you today.
    On the piece of the initiative that Secretary Gates and 
Deputy Secretary Lynn have charged me with organizing, which 
concerns the $400 billion, of the $700 billion Defense budget, 
which is contracted out for goods and services. The other $300 
billion is spent ``within the walls,'' if you like, of DOD, on 
the salaries, benefits, and so forth, of those, uniformed and 
civilian, who work for the Department, and the buildings and 
facilities within which they work. The other $400 billion is 
contracted out roughly equally between goods and services.
    We estimate that, by targeting efficiencies in the way that 
these goods and services are acquired, we can make a 
significant contribution to the overall $100 billion goal that 
Secretary Gates and Deputy Secretary Lynn have laid down for us 
over next 5 years.
    To put it bluntly, we can't support our troops with the 
capabilities they need unless we do so. Our challenge is to 
sustain a military at war, take care of our troops and their 
families, and invest in new capabilities, all in an era when 
Defense budgets will not be growing as rapidly as they were in 
the years following September 11, 2001.
    Last year, we identified savings in the Defense budget by 
canceling unneeded programs, and we'll need to do more of that. 
But, now we must also find savings within programs and 
activities we do need and do want. The Department must achieve 
what economists call ``productivity growth,'' and what I've 
called ``learning to do more, without more,'' delivering the 
program the Department needs, and the warfighter needs, for the 
amount of money we're going to get.
    If you think about a computer, you buy a computer every 
year; computer gets a little bit better and a little bit 
cheaper. Why is it that, on the contrary, as Senator McCain's 
already noted, we come before you every year with exactly the 
same product, and it costs even more? That's not productivity 
growth. We need productivity growth in the defense sector.
    In late June, we laid out a mandate, to the Defense 
Acquisition Workforce and the defense industry, describing how 
the Department can achieve this better buying power in 
contracted activities. On September 14, a few weeks ago, after 
several months of intensive work within the Department, with 
our program managers, program executive officers, systems 
command commanders, senior logisticians, and so forth, and also 
with our partners in industry, who accomplish this work and 
perform it for us, and outside experts, I issued specific 
guidance on how to implement that mandate.
    I'd like to submit the guidance from the June 28 mandate as 
well, and all the material that accompanies them, for the 
record, and just supplement it briefly.
    We are now moving vigorously into implementation mode, and 
taking each of those 23 items that were in the guidance, and 
making them happen. Let me, if I may, just summarize the high 
points of those points of guidance, in five categories, with 
specific examples, so you'll have some idea of what we're 
trying to get at.
    First, as we begin new programs, such as the Ohio class 
SSBN(X) replacement, the joint family of systems for long-range 
strike, the Army's Ground Combat Vehicle, and even the new 
presidential helicopter, which we'll be embarking on, we need 
to establish--and we will establish--affordability requirements 
that have the same force as high-priority performance 
requirements. We will also insist that our acquisition 
professionals and suppliers plan according to what programs 
should cost, not according to self-fulfilling historical 
estimates of what they will cost, as if nothing can be changed 
in how we do business.
    We are already using this method to drive down costs in the 
Joint Strike Fighter program, the Department's largest and the 
backbone of tactical airpower for the United States and many 
other countries. But, we have a long way to go, as Senator 
McCain has already noted; and I think my reaction, and 
Secretary Gates's and Secretary Lynn's, was the same as his to 
the revised cost estimates of last spring, which is, ``No, 
we're not going to pay that. We should pay something that is 
less than that. We should manage to a better result.''
    Second, to incentivize productivity and innovation in 
industry, we will strengthen the connection between profit and 
performance in our business practices. Among other things, 
we're exploring ways, through contracting and financing 
vehicles and a pilot preferred-supplier program, to reward 
contractors who control their costs and demonstrate exemplary 
performance.
    Third, we will remove obstacles to effective competition. 
Last year, the Pentagon awarded $55 billion in contracts that 
were supposed to be competitive but for which only one bid was 
received, usually from an incumbent. Yet, simple changes in how 
we structure evaluations and work with industry have shown to 
reduce by 50 percent the incidence of single bids by 
incumbents.
    Additionally, we will promote real competition, for it is 
the single most powerful tool that the Department has to drive 
productivity growth. We must stop deluding ourselves with the 
idea that directed buys from two designated suppliers 
represents real competition. We're already cutting down on 
directed buys, with the Navy's Littoral Combat Ship (LCS), 
where we have set in place real competition that will save more 
than 1 billion in the next 5 years alone--and we can 
demonstrate that--with additional savings expected over the 
entire life of the LCS program. Competition is not always 
available, but the evidence is clear that the government is not 
availing itself of all possible competitive situations.
    Fourth, we will move to more aggressively manage the over 
$200 billion we spend annually on services, such as information 
technology, knowledge-based services, facilities upkeep, 
weapons system maintenance, and transportation. When most 
people think of the Defense budget, they think of ships and 
planes, but more than 50 percent of our contract spending is 
actually for services. You may find this hard to believe, but 
our practices for buying services are even less effective than 
for buying weapons systems.
    Fifth, we're taking steps to reduce----
    Chairman Levin. By the way, I don't have any difficulty 
believing that at all. I just want you to know that. 
[Laughter.]
    Senator McCaskill. Yes. I think that's a ``duh.''
    Dr. Carter. I'm certain you don't. I did, at first, but I'm 
getting used to it.
    Fifth, we're taking steps to reduce unproductive processes 
and bureaucracy by reducing the number of OSD-level reviews to 
those necessary to support major investment decisions or to 
uncover and respond to significant program execution issues, 
eliminating low value-added statutory processes.
    I hasten to say, Mr. Chairman, at this point, I'm not 
referring to provisions of the Weapons System Acquisition 
Reform Act, that we understand the intent of that, and 
appreciate that intent, and are executing to that intent, 
including developmental test and evaluation and systems 
engineering.
    The kind of thing I have in mind is this. I sit in the 
Pentagon on a Saturday afternoon reading reports to you that 
are this thick, that are, in an embarrassing number of 
circumstances, late to need, and am convinced that I'm the only 
human being that has ever read it, and ever will. The reason 
I'm reading it is that I have to sign it, and I'm afraid of 
embarrassing myself. I sign an equal number of letters to you 
in which we say, ``You asked for it in May, and it's now June, 
and we're still working on the report.''
    This has nothing to do with intent. It has to do with the 
execution and the paperwork burden that we've imposed upon 
ourselves. That's just a piece of it. It's not just in 
responding to your inquiries, which we need to do; it's our own 
internal paperwork and, very importantly, it is the paperwork 
burden that we impose upon industry, in which we have them do 
something, and, of course, then we end up paying for it. It 
becomes an allowable cost, and we charge. These are the kinds 
of things we're talking about. Not changing the intent of any 
of that reporting, but trying to change the volume and the 
responsiveness of it, Mr. Chairman. So, I wanted to, because 
you had mentioned that, comment on that.
    Let me just conclude by saying that we recognize that 
changing our business practices will take time and require the 
continued close involvement of our industry partners, who have 
made major contributions to this effort and whose technical 
vitality and financial vitality is in the national interest. We 
also need your support for the success of this endeavor.
    Why do we think we can succeed? Several reasons. First of 
all, we have very reasonable reduction targets here. Next, 
we're focused on specific savings--not on abstractions, but on 
very specific things that we can do and that have been shown to 
work. Third, I think it's fair to say that, after an era of 
double-digit year-on-year budget growth, there's fat that has 
crept in and that we can identify and get out. The fourth is 
that President Obama, Secretary Gates, Deputy Secretary Lynn, 
this committee, Congress as a whole, and the American taxpayers 
are all expecting it, want it, need it.
    The last thing I'd say is, to those who doubt or who 
hesitate, they need to consider the alternative to the careful 
management into this new era, and that would be broken or 
canceled programs, budget turbulence, uncertainty for industry, 
erosion of taxpayer confidence that they're getting value for 
their dollar, and, especially, lost capability for the 
warfighter in a dangerous world. So, not only can, I think, we 
succeed in this endeavor, but we really have to.
    Thank you.
    [The prepared statement of Dr. Carter follows:]
               Prepared Statement by Dr. Ashton B. Carter
    Mr. Chairman, Senator McCain, distinguished members of the 
committee:
    Thank you for the opportunity to testify today. It is a pleasure to 
join Deputy Secretary Lynn and General Cartwright to discuss Secretary 
Gates' Efficiency Initiative, and my role in it.
   obtaining greater efficiency and productivity in defense spending
    As part of his broad initiative to improve the American taxpayer's 
return on his investment in national defense, Secretary Gates has 
tasked me to improve the Department's buying power in the way we 
acquire critical goods and services. Together, goods and services 
comprise $400 billion of the $700 billion in annual defense spending. 
We estimate that by targeting efficiencies in both of these areas, we 
can make a significant contribution towards achieving the $100 billion 
redirection of defense budget dollars from unproductive to productive 
purposes sought by Secretary Gates and Deputy Secretary Lynn over the 
next 5 years. The Department can meet this goal only if we 
fundamentally change the way we do business.
    To put it bluntly, we cannot support our troops with the 
capabilities they need unless we do so. Our challenge is to sustain a 
military at war, take care of our troops and their families, and invest 
in new capabilities--all in an era when defense budgets will not be 
growing as rapidly as they were in the years following September 11. 
Last year, we identified savings in the defense budget by cancelling 
unneeded programs. Now we must find savings within programs and 
activities we do need. The Department must achieve what economists call 
productivity growth: we must learn to do more without more.
    On June 28, I laid out a mandate to the defense acquisition 
workforce and the defense industry describing how the Department would 
try to achieve better buying power. On September 14--after months of 
work with the Department's senior acquisition professionals, industry 
leaders, and outside experts--I issued specific Guidance on how to 
implement that mandate. I would like to submit both the June 28 mandate 
and September 14 Guidance--and the charts which accompany them--for the 
record. [See Appendixes A and B)
                         september 14 guidance
    The September 14 Guidance contains 23 principal actions to improve 
efficiency organized in 5 major areas. Let me highlight just a few of 
the actions we are taking in each of the five areas:
    First, as we begin new programs such as the Ohio-class SSBN(X) 
replacement, the joint Family of Systems for long-range strike, the 
Army's Ground Combat Vehicle (GCV), and even a new Presidential 
Helicopter, we will establish affordability requirements that have the 
same force as high-priority performance requirements. We will also 
insist that our acquisition professionals and suppliers plan according 
to what programs should cost, not according to self-fulfilling 
historical estimates of what they will cost, as if nothing can be 
changed in how we do business. We are already using this method to 
drive down costs in the Joint Strike Fighter (JSF) program, the 
Department's largest and the backbone of tactical air power for the 
United States and many other countries. Secretary Gates has said that 
monies saved this way would be retained by the Service that achieved 
the efficiency; in this case, the Air Force, Navy, and Marine Corps 
could reallocate JSF funds to buy other urgent capabilities.
    Second, to incentivize productivity and innovation in industry, we 
will strengthen the connection between profit and performance in our 
business practices. Among other things, we are exploring ways--through 
contracting and financing vehicles and a pilot ``Preferred Supplier 
Program''--to reward contractors who control their costs and 
demonstrate exemplary performance.
    Third, we will remove obstacles to effective competition. Last 
year, the Pentagon awarded $55 billion in contracts that were supposed 
to be competitive but for which only one bid was received, usually from 
an incumbent contractor. Yet simple changes in how we structure 
evaluations and work with industry have been shown to reduce by 50 
percent the incidence of single bids by incumbents.
    Additionally, we will promote real competition, for it is the 
single most powerful tool to the Department to drive productivity. We 
must stop deluding ourselves with the idea that ``directed buys'' from 
two designated suppliers represents real competition. We are already 
cutting down on directed buys with the Navy's Littoral Combat Ship 
(LCS), where we have set in place real competition that will save more 
than $1 billion in the next 5 years alone, with additional savings 
expected over the life of the LCS program. Competition is not always 
available, but the evidence is clear that the government is not 
availing itself of all possible competitive situations.
    Fourth, we will more aggressively manage the over $200 billion we 
spend annually on services such as information technology and 
knowledge-based services, facilities upkeep, weapons system 
maintenance, and transportation. When most people think of the defense 
budget, they think of ships and planes. But more than 50 percent of our 
contract spending is for services. Believe it or not, our practices for 
buying such services are even less effective than for buying weapons 
systems.
    Fifth, we are taking steps to reduce unproductive processes and 
bureaucracy by reducing the number of Office of the Secretary of 
Defense-level reviews to those necessary to support major investment 
decisions or to uncover and respond to significant program execution 
issues, eliminating low-value-added statutory processes; and reducing 
the volume and cost of both internal and congressional reports as 
appropriate.
                               conclusion
    Changing our business practices will take time and require the 
continued close involvement of our industry partners. We also need your 
support, which is essential to the success of this endeavor. However, 
we have every reason to believe that the efficiencies we seek can be 
realized. We have established reasonable reduction targets. We are 
focused on specific savings. We can identify the excess after an era of 
double-digit budget growth. President Obama, Secretary Gates, Congress, 
and American taxpayers expect it. The alternative is unacceptable: 
broken or cancelled programs, budget turbulence, uncertainty for 
industry, erosion of taxpayer confidence, and especially lost 
capability for the warfighter in a dangerous world. We can succeed and 
we must.
    Thank you and I look forward to answering your questions.

    Chairman Levin. Thank you very much, Secretary Carter.
    General Cartwright.

 STATEMENT OF GEN. JAMES E. CARTWRIGHT, USMC, VICE CHAIRMAN OF 
                   THE JOINT CHIEFS OF STAFF

    General Cartwright. Chairman Levin, Senator McCain, and 
distinguished members of the committee, thank you for the 
opportunity to discuss the DOD efficiency initiatives.
    A few points, in context:
    We remain a Nation at war. Troops are deployed around the 
world, many engaged in combat. We are committed to ensuring 
these troops are properly supported.
    Second, DOD is a bureaucracy that has not fully adapted its 
processes and constructs to the Information Age. We must be 
able to adapt with increased speed in order to ensure we remain 
and sustain our competitive advantage. In the era of rapidly 
evolving threats, our success depends on our ability to adapt 
quickly.
    Third, DOD is cognizant of the Nation's financial 
situation. We do not expect budgets to grow at the rate that 
they grew over the last decade. When developing grand strategy, 
it is the first duty of the strategist to appreciate the 
financial position of his or her nation. We demonstrated this 
appreciation during last year's weapon system portfolio changes 
and earlier this year in the process to release our strategic 
reviews.
    The Secretary's efficiency initiatives are aimed at seeking 
the same effect in our organizations. These initiatives are not 
a cut, but, rather, a shift of resources from overhead to the 
warfighter, increasing the tooth-to-tail ratio.
    Regarding the disestablishment of JFCOM, JFCOM helped to 
accomplish the primary goal for which it was established: to 
drive jointness through the military. We must continue along 
the positive vectors regarding joint activities, as directed in 
Goldwater-Nichols Act. We must also improve initiatives to 
strengthen efforts in the interagency and combined arenas.
    It is our goal to reduce unintended redundancies and 
layering to more clearly align operational responsibilities 
with service, train, and equip functions in order to reduce 
inefficiencies as forces are presented to combatant commands. 
At all the COCOMs we must consolidate functions, where 
appropriate and, where functions are retained, move towards a 
construct of combined, joint, interagency task force 
organizations or centers. The combined and interagency aspects 
are critical components to establishing baseline capacity and 
surge expectations required for functions and capabilities this 
Nation presents.
    As the cyber domain continues to grow in importance, the 
Department will look to ensure lines of authority and 
responsibility are clear and adaptable. We focused cyber 
operations in Cyber Command. We will align policy and oversight 
activities in strengthening the DOD chief information officer. 
Finally, we must align cyber requirements and cyber acquisition 
to maximize support to operational activities.
    Given the expanding role and criticality of information and 
the networks that hold and transmit that information, we need 
to manage systems in the cyber domain as we do weapons systems. 
To ensure our success, IT systems must have the proper 
architecture and capability to ensure adaptability and 
innovation. Further, our architecture should enable 
collaboration throughout joint, interagency, coalition, and 
commercial partnerships. The free flow of information among 
these players is integral to a superior architecture. The 
Department's information systems must extend to the tactical 
edge and must work when others do not.
    I look forward to answering your questions.
    Thank you.
    [The prepared statement of General Cartwright follows:]
          Prepared Statement by Gen. James E. Cartwright, USMC
    Chairman Levin, Senator McCain and distinguished members of the 
committee, thank you for the opportunity to discuss the Department of 
Defense (DOD) efficiency initiatives.
    British military strategist J.F.C. Fuller wrote, ``The first duty 
of the grand strategist is to appreciate the commercial and financial 
position of his country.'' Sustained economic power is at the root of 
sustainable military power. This understanding drives the efficiency 
initiatives. The decisions should not be viewed as stand-alone 
activities, but rather, as the next steps in an evolutionary process to 
change the way the Pentagon does business.
    America remains a Nation at war. We have soldiers, sailors, airmen, 
marines, and coastguardsman deployed around the world, many engaged in 
combat. We have transitioned from combat operations in Iraq, but our 
effort in Afghanistan has intensified. Further, demographic, cultural 
and geopolitical realities require us to prepare for a future where our 
forces may be engaged in persistent conflict. The leadership of this 
Department is committed to ensuring the force is sufficient and well 
equipped. Efficiency initiatives are aimed at increasing our ``tooth to 
tail'' ratio.
    The nature of conflict in the 21st century continues to evolve and 
threats span the spectrum of conflict. The intentions of those who wish 
to harm us are enabled by the power of information technology (IT). We 
must be able to adapt our strategy, weapon systems, and organizations 
to a construct that recognizes, mitigates, and defends against these 
new vulnerabilities of the information age. With this accelerated pace, 
we must develop a strategic and organizational construct agile enough 
to stay competitive.
    Given the Nation's economic situation, we recognize budgets will 
not grow at the rate they have since September 11. DOD requires modest 
real budget growth of 2-3 percent annually to maintain and equip a 
nation at war, but projected budgets for fiscal years 2010-2015 only 
project 1 percent growth, based on DOD inflation assumptions. 
Additionally, there is risk the projected 1 percent real growth may not 
be realized. To help ensure sufficient resources for our highest 
priorities, we must seek efficiency within current budgets. We owe it 
to the warfighters, and the taxpayers, to adapt our strategy, weapons 
and organizations to effectively conduct 21st century warfare, and to 
conduct those operations efficiently.
    The work conducted as part of the strategic reviews we released 
last year includes examples where we made these types of changes. In 
the Quadrennial Defense Review we shifted priority to concentrate 
efforts on the wars we are currently in. In the National Space Policy, 
we wrote of initiatives to increase partnerships with other nations in 
order to ensure space systems remained affordable. We cancelled weapon 
system programs that were chronically over budget, and redirected 
others to better align with evolving threats.
    After making these adjustments in our strategy and weapons, we 
sought ways to streamline our organizational structure. Secretary Lynn 
described our general approach. Three specific initiatives are; the 
rebuilding and strengthening of the DOD Chief Information Officer 
(CIO), the consolidation of IT for common use and better cyber defense, 
and the disestablishment of Joint Forces Command (JFCOM).
    Our national dependence on IT for almost every aspect of our lives 
has accelerated, and DOD is no exception to this trend; DOD has 
witnessed a similarly rapid growth in the number of offices in the 
Department tasked to manage IT. Multiple organizations on multiple 
staffs at multiple layers of our hierarchy exist to oversee IT. The 
result is a complex web of authorities and responsibilities that is 
unclear and difficult to navigate. Combatant commanders simply do not 
understand what organization they need to visit in order to get work 
executed. The need to clarify organizational roles and responsibilities 
for IT has become obvious. With the establishment of Cyber Command 
earlier this year, the Department focused operational responsibility 
for this domain in one organization, compliant with legal requirements.
    With the operational aspects of cyber defense assigned to Cyber 
Command, we then needed to assign the policy and oversight 
responsibilities for that capability. To eliminate duplication across 
organizations, the operational functions of the Office of the Assistant 
Secretary of Defense for Networks and Information Integration, the J-6 
Directorate on the Joint Staff, and portions of JFCOM will shift to 
Cyber Command; the CIO-related functions of these organizations will be 
transferred into a strengthened CIO. Acquisition functions will be 
realigned consistent with the final report of the Information 
Technology Acquisition Reform Task Force.
    The recommended disestablishment of U.S. JFCOM by the Secretary of 
Defense also recognizes our changing times. When JFCOM was stood up in 
1999, its central mission was to drive jointness into everything the 
military does. It was understood that the creation of JFCOM for this 
purpose would result in the addition of an organization layer. At that 
time, it was judged that the imperative to advance jointness was 
greater than the costs associated with establishing a new command. 
Jointness is difficult to measure, but the goal of embracing joint 
operations and doctrine has reached a point where a four-star 
headquarters for joint advocacy is no longer required. We have embraced 
jointness as a matter of necessity. Evidence of this progression is 
manifested on the battlefield and in our military schools. We have 
reached critical mass, where our military accepts ``joint'' as the 
preferred method of war.
    We must continue along the positive joint vectors and activities 
directed by Goldwater-Nichols. In addition, we must establish or 
improve on our processes and structures in the combined and interagency 
arenas. We fight as part of coalitions and alliances, and our level of 
success in these operations is enhanced by the degree we are 
synchronized with our international partners. The nature of today's 
conflict also requires better integration through the interagency 
process. Strengthening capabilities and capacities through the ``whole 
of our government'' is increasingly important to our success.
    However, we must avoid unintended redundancies and layering that 
can result from these efforts. Decisionmaking in today's environments 
requires speed. Battlefields change too quickly. Our staffs and 
structures need to be flatter and faster. Redundancies and layering 
within our system is an impediment to success.
    Finally, disestablishing JFCOM will allow us to better align 
operational responsibilities with service train and equip functions in 
order to reduce inefficiencies as forces are presented to combatant 
commanders. JFCOM succeeded in helping push the services to jointness. 
But that vision has largely been achieved and we believe we can no 
longer justify the expense and overhead associated with maintaining a 
separate four-star combatant command for that purpose.
    The changes I have discussed in this statement have the unanimous 
support of the Joint Chiefs of Staff. They are needed to further our 
goal of creating a more effective and efficient DOD. There are two 
major beneficiaries of these changes. The first are the warfighters, 
who will be better postured with the resources they need to fight and 
win. The second is the taxpayer, who will not only have a more 
effective military for 21st century security, but will also witness an 
increased value in their defense dollar.

    Chairman Levin. Thank you very much, General Cartwright.
    Here's the time situation this morning. We have two votes, 
probably, beginning at 11:30. Many of us, perhaps most of us, 
are going to be going then to Arlington for Senator Stevens' 
funeral, I think the buses leave at 12:15. We want everybody to 
have some time here this morning, so we're going to have to 
have a short first round. But, then I will come back, and 
whoever else can come back, after the second vote, assuming 
that there is one. So, there is likely to be a gap here 
somewhere around 11:40 and 12:15.
    We're also going to have a vote, off the floor, on a number 
of matters that are pending before the committee. That will be 
at the end of the first vote. Okay? So, I hope everybody will 
help out on having that off-the-floor vote at the end of the 
first vote this morning in the Senate.
    Let's have a short first round, here for questioning, so 
that everybody will have at least some opportunity, including 
all those who will be going to the funeral. We'll have a 5-
minute round to start, if there's not enough time for 
everybody, then perhaps we can yield to each other to 
accommodate that goal.
    Let me start with Secretary Lynn. Too often, in the past, 
we've constrained the number of DOD employees, without placing 
any limitation on the number of service contractors. We have 
not been told what categories of contract services are covered 
by the Secretary's directive. Am I correct in understanding 
that critical functions, like weapons systems maintenance, 
healthcare services, and logistics support to our troops, will 
not be affected by the planned reduction in contract services? 
When can we expect to see a clear definition of what categories 
of contract services are covered by the planned reduction, and 
what categories of services are excluded?
    Mr. Lynn. Mr. Chairman, your assumption is correct. The 
reduction in service support contractors would not affect 
critical warfighting capabilities, like weapons maintenance. 
The general definition of a support service contractor would be 
someone who provides staff augmentation to government 
employees. I realize you're looking for something more precise, 
and we're endeavoring to provide that, and we have a task force 
working on that over the course of the fall. Sometime late this 
fall or early next year, we should have that.
    Chairman Levin. Is that task force in place now?
    Mr. Lynn. Yes.
    Chairman Levin. Would you tell us who's on that task force?
    Mr. Lynn. The overall task force is chaired by Robert 
Rangel, the Secretary's chief of staff. There's a subgroup. 
I'll have to get, for the record, who chairs the subgroup.
    Chairman Levin. If you'd let us know, that would be 
helpful.
    [The information referred to follows:]

    Please refer to the attachment ``ETF Task Force Organization.''
    [Deleted.]

    Chairman Levin. In the past, we've found that proposed cuts 
to contract services are nearly impossible to enforce, because 
expenditures for service contracting are invisible in the 
Department's budget. For this reason, section 806 of the 
National Defense Authorization Act (NDAA) for Fiscal Year 2008 
required that budget justification documents clearly and 
separately identify the amounts requested in each budget 
account for procurement of services. The Department has not yet 
complied with that requirement.
    When are you going to comply with that requirement, 
Secretary Lynn?
    Mr. Lynn. Part of the effort I mentioned would be to comply 
with that requirement. I would add--I think your implication is 
right--we are regretting that the Department hadn't complied 
earlier. It would make the task that we're undertaking easier 
if we had better data, and we're endeavoring to develop that.
    Chairman Levin. So, when will the Department comply with 
that statutory requirement? Are you going to comply for the 
2012 budget request?
    Mr. Lynn. We are trying. I can't commit at this point that 
we will have all the data to be able to do it, but we're going 
to do our very best.
    Chairman Levin. Well, it's a couple years overdue now so 
that's not satisfactory. I'm just wondering if you can give us 
a better handle on that--if necessary, month by month. I mean, 
I don't want to burden you with unnecessary requirements, but 
this is something in law, and it is essential that there be 
compliance on this. So, would you let us know by the end of 
October--let's just try report number one--whether or not the 
budget for 2012 will be complying with that requirement? Let us 
know by the end of October.
    Mr. Lynn. Yes, I'll do that, Mr. Chairman.
    [The information referred to follows:]

    Representatives from AT&L, P&R, and Comptroller met with 
professional staff on October 29, 2010; December 16, 2010; and March 3, 
2011, to discuss the National Defense Authorization Act for Fiscal Year 
2010, section 803, contract services inventory reporting requirement. 
Staff indicated that the intent of the language was to have better 
visibility into contract services from a total workforce standpoint. 
The Department explained the progress the Services have made to date as 
well as challenges with inventory and tracking.
    The material provided by the Department is included at the end of 
this hearing. [See Appendix C].

    Chairman Levin. If not, why not?
    On the JFCOM issue, was there an analysis of that issue 
before the decision was made relative to JFCOM? If so, 
precisely who was involved in that analysis?
    Mr. Lynn. The Secretary made his decision on JFCOM based on 
a series of meetings, probably as many as 30 meetings that he 
had with his senior military advisors, the chiefs, the 
combatant commanders, particularly the ones that are incoming 
and outgoing for JFCOM, as well as the senior members of OSD. 
During those meetings, the central military rationales--there 
are four, and I'd ask General Cartwright to go into a little 
more detail--that are in the Unified Command Plan for the 
JFCOM. At the end of those meetings, the conclusion was that 
those purposes no longer--in some cases, particularly the joint 
manning, was redundant with what the Joint Staff was already 
doing, in terms of joint doctrine, joint training are still 
important functions, but they no longer justified a four-star 
military command with a $1 billion budget.
    Chairman Levin. Would you provide the committee any 
analyses which were completed or done or presented to the 
Secretary relative to that issue, for the record?
    Mr. Lynn. We'll provide whatever we have for the record.
    [The information referred to follows:]

    The material provided is included at the end of this hearing. [See 
Appendix D].

    Chairman Levin. Okay. Finally, on just that issue--my 
time's up--has the President approved that yet, those changes 
in the Unified Command Plan?
    Mr. Lynn. The Secretary has forwarded his recommendation to 
that effect to the President. The President has not yet made a 
decision.
    Chairman Levin. Thank you so much.
    Senator McCain.
    Senator McCain. Thank you, Mr. Chairman.
    I thank the witnesses.
    Secretary Carter, you've been around for quite a while now. 
Don't you think one of the fundamental problems that we're 
facing here is the consolidation of defense industries, which 
has really led to a virtual lack of competition? In the 1990s, 
I think we're all aware that the defense industries were 
encouraged to consolidate. So, now we have very little, if any, 
competition. If there's any competition, it's between two; and 
most of them, there is none. Do you agree with me that that's a 
fundamental problem here?
    Dr. Carter. It is a fundamental constraint on our ability 
to get competition. That's why we have to work extra hard to 
make sure we get real competition. So, there are several things 
you can do in that circumstance. We do have competition among 
the big houses. It's important that we continue to encourage 
new entrants in the defense field, particularly smaller 
companies that might grow into bigger companies. They offer 
vitality and technical health, as well as new forms of 
competition. That's to include small business. It's important 
that we look at creative ways of getting competition.
    I mentioned the LCS acquisition strategy, as the Navy 
altered it 6 months ago or so, as an example of that. That was 
a situation where we had exactly what you're pointing to, which 
is two shipbuilders who were showing the signs of--suggesting, 
in bids, an expectation that they would continue to be in 
business, no matter what. So, we said, ``Well, no, that's not 
working for us, so we're going to down-select. Somebody's going 
to lose and somebody's going to win.'' The bids that came in 
after that announcement were quite different from the bids that 
came in before. That's----
    Senator McCain. Why don't you supply that for the record 
for us? Would you?
    Dr. Carter. I'd be happy to do that.
    [The information referred to follows:]

    In summer 2009, the Navy received proposals for the Fiscal Year 
2010 LCS from Lockheed Martin/Marinette Marine/Bollinger and General 
Dynamics Bath Iron Works/Austal USA Industry teams. These proposals did 
not reflect competitive pricing and well exceeded the Congressional 
Cost Cap. At that time, Navy revised the acquisition strategy for the 
LCS program with the objective of making the program affordable by way 
of increased competition. The revised strategy down selects to a single 
team for a block buy of up to 10 ships (2 per year from fiscal year 
2010 through fiscal year 2014), requires submission of a technical data 
package to support a competitive solicitation of a second source in 
fiscal year 2012, and requires delivery of 5 combat systems for the 
second source.
    For the LCS Fiscal Year 2010 solicitation, the Navy received Final 
Proposal Revisions (FPRs), valid for 90 days, on September 15, 2010. 
The Navy is taking the time necessary to carefully review and analyze 
the competing proposals. The Navy is proceeding with the LCS source 
selection diligently, thoroughly, and consistently with its source-
selection plan and applicable law and regulations. The Navy intends to 
make a contract award as expeditiously as practicable, consistent with 
its source selection plan, but in any event prior to the expiration of 
the FPRs.
    The Department understands there is keen public interest in this 
competition, but the duty to protect the integrity of the source-
selection process, as well as the confidentiality of the information 
submitted by the offerors, significantly limits ability to provide 
additional details about the ongoing competitive procurement. In 
particular, the Department is subject to criminal penalties of the 
Procurement Integrity Act (41 U.S.C. Sec. 423) for disclosure of 
proposal prices or other source selection information during this 
ongoing competitive source selection process.

    Senator McCain. I think that's really one of the biggest 
problems, here. I'm glad we're going to fixed-price incentive 
contracts. But, if there's only one major defense corporation 
competing--I don't know the answer, but I really do believe 
that that's a fundamental problem.
    Speaking of reports, there's a myriad of reports that are 
required by Congress every year. It grows every year. Every 
time we do the authorization bill and somebody wants an 
amendment approved, we say, ``Well, why don't we ask for a 
study and a report.'' You've seen that game played. So have 
you, Bill.
    Why don't you give us a list of the reports that are 
unnecessary and, you think, unneeded and duplicative, and maybe 
we could act, next year, and eliminate a lot of those. You 
could spend your Saturday afternoon watching Naval Academy 
football, instead of----[Laughter.]
    ----sitting in your office. Because we all know that there 
are stacks and stacks of them. But, maybe it'd be good to get 
an assessment from you of the reports that we think are 
unneeded. I think we'd agree with a lot of them. We don't read 
those reports, either. Dirty little secret. Sometimes we get 
briefed on them, if they're very important, but the vast 
majority of them are stored somewhere. I don't even know where.
    Mr. Lynn, isn't the biggest cost escalation to DOD today in 
healthcare?
    Mr. Lynn. Yes, sir. I don't know whether it's the biggest, 
in terms of percentage increase, but that is the largest 
account that is growing at a substantial pace.
    Senator McCain. Do you have any ideas on that issue?
    Mr. Lynn. We are reviewing that. As part of the fiscal year 
2012 budget, I think we will be proposing to Congress some 
ideas about how to restrain healthcare costs.
    Senator McCain. But, there's no doubt that it is growing in 
dramatic fashion.
    Mr. Lynn. There is no doubt.
    Senator McCain. In double-digit inflation.
    Mr. Lynn. In some years.
    Senator McCain. Recently.
    Mr. Lynn. Yes.
    Senator McCain. The other thing that might be helpful to 
this committee, after asking for a report, maybe you could do a 
little study for us, or just compile statistics, on the so-
called ``tooth-to-tail ratio'' over the last, say, 20, 25 
years. I think what we're going to find is a dramatic growth in 
both civilian personnel, Pentagon and other places, and I think 
we're also going to see a dramatic growth in staffing and the 
tooth-to-tail ratio becoming less and less optimum, to say the 
least. Would you agree that that's pretty much the case, 
General Cartwright?
    General Cartwright. Yes, I do, Senator. We have several 
staffs that have grown and the impact on the force is, it ages 
the force. It consolidates a lot of our leadership activities 
in headquarters, away from the battlefield. It tends to be 
layered, and that's what we're after.
    Senator McCain. Well, I think it would be helpful to us, 
and maybe motivate some kind of action, if you showed us how 
dramatic that growth has been, as opposed to the actual number 
of warfighters on the battlefield or in the ocean or in the 
air.
    I thank you, Mr. Chairman.
    [The information referred to follows:]
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
    Chairman Levin. Thank you, Senator McCain.
    Senator Lieberman.
    Senator Lieberman. Thanks, Mr. Chairman.
    Thanks, to the three of you, for being here today. Thanks, 
to Secretary Gates, for initiating this series of moves, which 
I support. The fact is that we're asking more of our military 
than we have in quite a while, with a combination of being 
involved in the war against Islamist extremism, managing our 
relations with a rising and more assertive China, and then a 
host of other problems. The fact is that we're already facing a 
squeeze, where we're not giving the military all that they 
need. Therefore, part of the answer here is to eliminate the 
waste. So, bottom line, I appreciate very much what Secretary 
Gates and all of you are doing here.
    I want to focus in on JFCOM, because I do have questions 
about that. I'm not stating my opposition to the proposal here, 
but I really want to ask, is it good for our national security? 
Have we reached a point where it's really time to put up the 
``mission accomplished'' sign on jointness in our military? 
Does it really save enough money to justify what will be lost 
by closing the command?
    To me, those are important questions, and I don't have the 
answers yet. I do want to admit that I may be biased, here, but 
I'm still going to keep my mind open, because I was involved, 
in the late 1990s, with former Senator Dan Coats--perhaps 
future Senator Dan Coats--in the legislation to create this 
JFCOM. We were responding to a report by what was then called 
the National Defense Panel (NDP), which was a kind of Team B 
outside group to review the Quadrennial Defense Review of 1997. 
The NDP was an impressive group. Phil Odeen was the chairman. 
It had people on it like Rich Armitage, Admiral Jeremiah, Bob 
Kimmitt, Andy Krepinevich, General Bob RisCassi. They 
recommended the creation of the JFCOM to drive jointness 
through our military, which had not been done, even though 
Goldwater-Nichols enforced in law. Ultimately, Secretary Cohen, 
in response to a lot of back and forth--General Hugh Shelton 
was then the Chairman of the Joint Chiefs--put this JFCOM into 
place.
    So my question really is--and I must say, with respect, 
that to me, there's a little bit of, oh, confusion about what 
the argument here is, because, Secretary Lynn, in your 
testimony, I think you did say the principal purpose for the 
creation of JFCOM in 1999, to force a reluctant service-centric 
military culture to embrace joint operations and doctrine, has 
largely been achieved. On the other hand, you did say today, I 
think in response to Chairman Levin, essentially, it hasn't 
been achieved, but it no longer justifies a four-star command.
    So, my question really--I mean, three questions, and I'll 
ask them open-ended--one is, have we really--if--I don't 
believe we've accomplished the mission of guaranteeing 
jointness in our military, which is fighting jointly. I wonder, 
if you're going to disband this command, where else are you 
going to do it? Or do you think we have achieved it, thus far? 
Second, does it really save enough money to justify the closing 
of the command?
    Secretary Lynn, do you want to start?
    Mr. Lynn. Sure. I wouldn't say it as strongly as you did, 
in terms of ``mission accomplished.'' There's danger in that 
statement. I think we have made substantial progress----
    Senator Lieberman. I think former Presidents are aware of 
that, for sure, yes.
    Mr. Lynn. Yes. We have made substantial progress in 
internalizing jointness into the combatant commands and how 
they operate. I think we operate fundamentally differently than 
we did in the 1991 Gulf War, which was, in many ways, the 
trigger for the recommendation--the panel that----
    Senator Lieberman. Right.
    Mr. Lynn.--you suggest. I think we operate, in the 
conflicts we're in, fundamentally differently than we did then. 
I think the Services operate fundamentally differently, in a 
much more joint way. It was our conclusion that we have made 
sufficient progress that it will not be reversed and that we 
can use the Joint Staff, subordinate organizations, to continue 
that--on command and control and other important elements--to 
continue that progress. But, it doesn't, as I said, justify a 
billion-dollar command. We do think we can make substantial 
savings off of that billion dollars by eliminating some of the 
functions, such as the joint manning role that it plays, which 
largely duplicates the role of the Joint Staff.
    Senator Lieberman. My time is up; I don't want to go 
beyond. But, do we have a cost figure, at this point, about how 
much you think closing the JFCOM will save?
    Mr. Lynn. We are working through that. We think we will be 
able to save a substantial portion of that billion dollars. 
But, that's part of the process now, is to determine which 
elements, which centers, and so on----
    Senator Lieberman. Right.
    Mr. Lynn.--of the JFCOM we want to keep, and where we want 
to keep them, and which things would go away--the headquarters, 
the joint manning functions--and then to net that through and 
get the savings figure.
    Senator Lieberman. Okay. Then, obviously, I'd raise the 
question about, if there are some parts of the command you are 
going to keep, because you feel they're still necessary, where 
will they be? Will something be lost if they're disbanded? The 
``whole is greater than the sum of the parts'' quality to the 
command that exists now. But, I look forward to those answers 
on another day.
    Thank you.
    Mr. Lynn. Okay.
    Chairman Levin. Thank you very much, Senator Lieberman.
    Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    Gentlemen, thank you for your service.
    This question is for the entire panel, and it has to do 
with something that Secretary Gates stated in his May 8, 2010, 
speech at the Eisenhower Library. He said, ``The fact that we 
are a nation at war calls for sustaining the current military 
force structure.'' The goal of this efficiencies initiative is 
to, and I quote again, ``cut our overhead costs and to transfer 
those savings to force structure and modernization within the 
program budget.''
    On August 9, 2010, Secretary Gates stated that, ``The task 
before us is to significantly reduce the Department's excess 
overhead costs and apply the savings to force structure and 
modernization.''
    Yet, over the summer, there have been rumors that the B-1 
bomber fleet, which has been a near-constant presence above 
Afghanistan throughout the war, might be proposed to be 
retired, in pursuit of the $2 billion in savings the Air Force 
is required to find under this initiative.
    General Petraeus, in front of this committee just a few 
months ago, spoke very highly of the B-1's presence and 
performance in Afghanistan. I guess I'm perplexed by rumors 
such as these, the proposed retirement of the B-1 fleet to 
obtain the required savings, in light of Secretary Gates's 
emphasis on sustaining and modernizing our force structure.
    So, my question is, wouldn't cutting force structure to 
find savings under this efficiencies initiative be in direct 
contradiction of Secretary Gates' initiative to cut overhead 
costs and transfer those savings to force structure and 
modernization?
    Mr. Lynn. Secretary Gates has asked us to do two things as 
we go through that. One is to make a determined effort to 
reduce overhead, transfer those resources to the warfighting 
accounts. Those are the quotes that you indicated. He's also 
asked us to take a scrub of the warfighting accounts 
themselves--and that's a substantial part of what Secretary 
Carter is doing--and to see if we can gain better 
effectiveness, better efficiency, better productivity from 
those forces.
    What the result will be of that, I wouldn't prejudge that 
at this point. But, we're looking across the board, both at the 
forces themselves as well as that overhead-to-warfighting 
transfer.
    Senator Thune. So, what you're saying, however, is that the 
Department is not looking only at bureaucratic redundancies and 
overhead, but is looking at reducing force structure in order 
to provide the----
    Mr. Lynn. We are looking at how to make the forces we have 
the most effective they can be to accomplish the mission.
    Senator Thune. Let me ask you one other question with 
regard to a September 20, 2010, Air Force Times article where 
Air Force Chief of Staff, General Schwartz, said that the 2005 
Base Realignment and Closure (BRAC) initiative, to consolidate 
26 installations into 12 joint bases, is a failure that's not 
produced the cost savings the Department had expected. In fact, 
the Government Accountability Office (GAO) stated, ``It was 
unclear whether joint basing will result in actual savings.'' 
There was an Air War College study stating that joint basing 
is, ``actually costing the Department of Defense more money 
than if the 26 bases and posts had remained separate.''
    What is your reaction to that criticism about the 2005 BRAC 
joint basing initiative ending up costing money rather than 
saving money?
    Mr. Lynn. I'm aware of what General Schwartz said and the 
GAO reports. I think we have to take them seriously and 
reexamine the path that we're on, and, either review and see if 
we think that data is wrong and the savings are there, or 
rethink our course of action.
    Senator Thune. Does the current effort authorized by 
Secretary Gates include the consideration of overseas bases?
    Mr. Lynn. Yes.
    Senator Thune. Have there been any recommendations made 
about base closures or consolidations since the Secretary's 
August-9th-of-this-year announcement?
    Mr. Lynn. There have been no recommendations to that 
effect, but be--we're in the midst--in terms of the overseas 
bases, there's a Global Force Posture Review going on, at this 
point, looking at, what are the purposes for those overseas 
forces, how best to accomplish those purposes, and then what we 
think the basing structure would be to support that. That's a 
study that's ongoing right now.
    Senator Thune. Okay. I think my time's expired.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator Thune.
    Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman.
    Thank you, gentlemen.
    Just to get a kind of an overview about how you're going to 
approach these savings, it seems to be and this is very 
simplistic--resources that have to be committed, through 
contract and elsewhere, to Afghanistan, Iraq, and other 
contingency operations; then there's programs that sort of help 
both the long-term defense plan and these operations; and then 
there's a long-term defense plan.
    So, Secretary Lynn, as you approach this problem, is there 
any sort of thought going into how you deal with these 
different types of resources? I mean, hopefully, the 
supplemental funds and the Iraq-Afghan funds will diminish over 
time. How do you factor in these different aspects?
    Mr. Lynn. We will continue to propose a overseas 
contingency account for those operations in Afghanistan and 
whatever remains in Iraq. As you say, I think, over time, you 
could expect to see those, conditions permitting, decrease. 
Most of what we've been talking about today, in the $100 
billion in the base budget, and we're talking about, just to be 
clear, not reducing that base budget by $100 billion, but 
finding $100 billion in the overhead accounts that we can shift 
to the warfighting accounts so that we could have 3-percent 
growth in the warfighting accounts, which is what we think we 
need to sustain those capabilities, but with only an overall 
top line of 1 percent. That's a significant challenge, but 
that's what we're trying to do.
    Senator Reed. So, besides just the value of efficiency and 
productivity gains, this is also about freeing up resources and 
continuing operations overseas and support the fighting forces. 
Is that fair?
    Mr. Lynn. Absolutely.
    Senator Reed. Mr.----
    General Cartwright. Can I just----
    Senator Reed. General Cartwright?
    General Cartwright.--just add, quickly, that part of what 
we'd like to be able to do is, the OCO accounts have, in fact, 
sustained capabilities that we have found necessary in this 
conflict, that we want to retain as part of our core 
capability. So, this will create room for those capabilities to 
move into the budget.
    Senator Reed. Right. But, you've also identified 
capabilities, which are very specific and unique, which you are 
also planning to phase out, I presume.
    General Cartwright. That is the case. Or, that is what the 
analysis is looking for.
    Senator Reed. Right.
    Secretary Carter, you point out that services and growth in 
service contracts are probably more difficult and larger than 
we all expected. I think usually the poster child for this 
problem is a big weapons platform. It's very expensive, et 
cetera, and the contract--there's only two contractors, it's 
not fully competitive. But, what I sense, too, is that these 
service contracts are just proliferating. Sometimes, 
contractors are writing the contracts for the services. Can you 
talk about how you attempt to deal with this issue of service 
contracts?
    Dr. Carter. Yes. A few of the main points, Senator. First 
thing is that the different categories are a little different. 
So, there's maintenance activities; there are information 
technology (IT) services, category of their own; there's 
advisory and assistance services, or knowledge-based services, 
which is principally the matter that Secretary Lynn was 
speaking of earlier. These are augmentation of the government 
staff that provide expertise that we, at the moment, don't have 
within our own walls, and so, have to contract for externally. 
They play an essential role. Nothing wrong with that; we just 
want to make sure we get them efficiently and that we're also 
working to strengthen the talent that we have within the 
government, and not excessively rely upon people outside.
    In all of those areas, unlike ships or planes, our ships 
and planes are bought by people who buy ships and planes for a 
living; they're very good at it. Most of our services are 
bought by people as an ancillary duty. They're, in a sense, 
amateurs. They're trying to get something else done and they're 
issuing contracts for services in order to help them. That's 
not their principal preoccupation. So, it's not surprising that 
their tradecraft isn't as good as it would be if that's all 
they did.
    We're trying to help them get better. How do you get 
better? Well, it's things like really try to shape the 
requirements. Be clear about what you want. Don't just drift 
into asking more and more, and being more and more reliant. Ask 
yourself why, 5 years ago, three people sufficed, and now five 
people are doing exactly the same thing. Recompete 
periodically, even though that's a nuisance, in some ways, for 
somebody who's trying to get other things done.
    We're trying to help our services' acquirers to do better, 
without burdening them with a lot of administrative structure, 
but assist them to be good amateur buyers. Market research is 
another part of that. So, there's a lot that goes into this, 
depends, a little bit, sector by sector. But, I just tell you, 
the low-hanging fruit really is there. There's a lot of money. 
There has been a very, very high rate of growth over the last 
decade, in services. They've grown faster than everything else. 
Knowledge-based services, within them, have grown even faster 
than the rest of services. So, there's a lot we can do.
    Then, of course, contingency contracting is a whole other 
area where we're really trying to improve. We know we didn't do 
that well in Iraq. We're trying to do better in Afghanistan.
    So, across the board we have work to do.
    Senator Reed. My time's expired, but just a final comment 
or question, you might agree or disagree. It seems that, 
wittingly or unwittingly, we created a system that it's much 
harder to hire a full-time DOD employee than it is to write a 
contract worth 10 or 20 times more, over the relative period of 
time. Human nature take the path of least resistance. Is that 
your observation, too?
    Dr. Carter. It absolutely is. As part of the Acquisition 
Workforce Initiative, which this committee had a lot to do with 
getting underway, we're trying to make it easier for our buying 
commands to hire, within the walls of government, the kinds of 
people we need. These aren't oversight bureaucrats. These are 
people at the point of execution: systems engineers, cost 
analyses, pricers, contracting officers, and so forth, the 
people who actually execute. It's a struggle. The economic 
circumstances are helping us in that regard, as they help 
recruiting elsewhere in our Department. But, we need to make it 
easier to bring people in, if we want good people within the 
walls.
    Chairman Levin. Thank you, Senator Reed.
    Senator LeMieux.
    Senator LeMieux. Thank you, Mr. Chairman.
    Thank you all for your service. Thank you for being here 
today.
    As someone who's new to the Senate, one of the things that 
initially struck me when I first came here was the size of DOD 
and the number of combatant commands and the number of four-
star officers. I just want to go over this to make sure that I 
have my information correct. But, as I count it, we have 10 
combatant commands, as well as this new cyber subunified 
command, which I think is under Strategic Command. We have, as 
I understand it, 40 four-star officers in the U.S. military, as 
well as 717,000 civilian employees in DOD. I think these are 
staggering numbers for the average American, to hear the size 
of this organization. Make no mistake that we all want to 
support the military and want the military to be as effective 
as possible, but we also want the military to be efficient.
    Having heard what you've said, Secretary Carter, about 
outsourcing and the cost increases in services on the 
outsourcing side, what are we doing to look internally--beyond 
the recent proposals that have come up about JFCOM, what are we 
doing internally to look to see: Are we using our resources in 
the best way possible? Are we top heavy in DOD, with our 40 
four-star officers? What can we do to make things more 
efficient and more effective?
    Dr. Carter. If I may, I think Secretary Lynn and General 
Cartwright are in a better position than I to give you an 
answer to that question.
    Senator LeMieux. Okay.
    Mr. Lynn. Senator, I think most of the numbers you gave are 
accurate. The Secretary directed that starting with the flag 
and general officers--there's been an addition, over the last 
10 years, of about 100 flag officers--he has asked for a review 
of that growth, with a target of reducing it by half that. 
Similarly, there's been a growth of about 300 civilian senior 
executives. He has the same aim there, to review that growth; 
again, with a target of a reduction of about 150. We've been 
talking about the growth in support contractors.
    He's directed that over the next 3 years, the target be a 
10-percent reduction in those support contractors. As I 
indicated to Chairman Levin, those are defined generally as 
people who are providing staff augmentation, as opposed to 
weapons testers or depot maintenance or more direct warfighting 
functions.
    The Secretary's directed that we look at all--you didn't 
mention the various board and commissions, but we have, I 
think, 65 of them. It seems like a lot. We're reviewing those 
to see if we can't reduce. He's directed a 25-percent reduction 
in their funding, immediately.
    Senator McCain mentioned the studies, some of which we 
generate internally, which we're looking to reduce on our own--
some of which come from Congress. There are certainly good 
reasons for some of them, but, as Senator McCain indicated, 
it's probably an appropriate time to review. I think we produce 
about 600 annual reports. I think there are 1,000 people, more 
or less, involved in producing those reports. So, there's some 
potential for reduction there.
    So, Secretary Gates, I think, has exactly the same reaction 
you did, is that it's important to support the military. We're 
in the midst of a fight in Afghanistan, we don't want to take 
away from that, but we think we can add to it by reducing our 
overhead accounts and putting those resources into the 
warfighting accounts.
    Senator LeMieux. General Cartwright, do you have any 
comment on that?
    General Cartwright. Just, quickly, sir. The review of the 
structure of the ranks, et cetera, is not only at the top, 
though; we're looking all the way through. So, every command 
that we're looking at every combatant command, every JTF, do we 
have the right level of responsibility? Many times, we have it 
there because a counterpart happens to be a four-star or 
something like that. That's not really a good reason for it. 
So, we're trying to understand how to get it back down to where 
we want so this grade-creep can be stopped, but actually pushed 
back to where it is appropriate and where we have the right 
balance for span of control and responsibilities associated 
with that individual.
    Senator LeMieux. What incentives do we give to DOD 
employees to find savings? Is there anything in their 
performance review? Is there anything that's tied to their 
compensation, if they're able to buy a ship cheaper or find a 
saving in a service contract? Are we rewarding them for that 
kind of good behavior?
    General Cartwright. There is a substantial effort, in this 
activity that we've undertaken, called ``a culture of 
savings.'' That's where we will nest the ideas of, how do we 
start to incentivize, not only the individual, but the 
institution to self-correct?--which is a difficult activity, 
but it'll go to those types of things. How are you evaluated? 
Is this something that's important to the command? Does it 
actually get to keep the resources so it's incentivized to do 
it? Have we put the right incentives in? In the discussion we 
had earlier, where you have contractors, then you have Guard/
Reserve, then you have civilians, then you have uniformed 
military, Active Duty. Can you put in place a structure that 
says--each one of those costs escalate. Can I say to you, ``You 
need flexibility to move around''? Sometimes a contractor is a 
response to needing something right now, to avoid the long 
period, or at least to cover the long period, to hire a 
civilian. Can we put in place the incentives to drive us, then, 
to getting that civilian, not forgetting about it and leaving a 
contractor in the position?
    Senator LeMieux. My time is up, but I just wanted to 
commend you for what you're undertaking. I think it's vitally 
important. We're going to have this challenge, throughout 
government, and I hope that the other agencies of government 
undertake the same methodology that you are. It's not easy to 
do, but it needs to be done, because our financial situation in 
this country is not going to allow us to keep spending more 
than we take in. I thank you, and appreciate you for the good 
work you're doing.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator LeMieux.
    Senator Ben Nelson.
    Senator Ben Nelson. Thank you, Mr. Chairman.
    Let me add my appreciation for the work that you're doing 
to economize and to create a more effective budgeting process 
for DOD. As you do that, the questions are going to continue to 
come up. Are you cutting in the right places? Cutting it the 
right way? Are you leaving in place the best kind of military 
that we need? And/or are you improving it? So, the questions 
are there, and they'll continue to be raised.
    Senator Lieberman referred to jointness as a critical 
element of what you're doing, and certainly maintaining 
jointness, as opposed to reducing jointness, by dealing with 
the Joint Command. I hope that, as we develop the process, 
here, to bring together the elements of the military so that we 
eliminate stovepiping and the protectionism of one branch of 
the government and its programs from the incursion by another 
branch of the military, that we'll be able to maintain that 
jointness. Obviously, it's not easy. Wasn't easy, some time 
ago, or we wouldn't have created the command to deal with it. I 
hope that it's now systemic in the thinking within DOD, as well 
as in the branches of the military, to think in terms of 
jointness and reduction of stovepipe.
    Senator Levin and others have asked that this analysis that 
you're working be provided to us, in a detailed analysis. Do we 
have a timeframe to expect what your analysis will be--in other 
words, what your methodology is to reduce unnecessary 
expenditures, to eliminate some of the fat that, perhaps, has 
developed with double-digit increases in the budgeting--do we 
have a timeframe where we might expect that?
    Mr. Lynn. As I indicated at the outset, there are four 
tracks in this effort. The first track, which is focused on the 
$100 billion savings, the savings themselves and the analysis 
that supports them will be part of the fiscal year 2012 Defense 
budget submission to Congress in February. The track-two effort 
is outside efforts, including the one General Cartwright 
referred to, in terms of just civilian employees. We'll be, 
certainly, reporting those as they come available. Track three 
is focused on particular practices within the Department. 
Secretary Carter testified to some of those, just a few moments 
ago, and he put out a memo on the changes that we're making in 
the acquisition system, earlier this month. If we haven't 
already, we're happy to provide that to the committee, and 
finally, in track four, we have a series of taskforces that are 
working on implementation plans. As they develop, we'll provide 
those to the committee.
    Senator Ben Nelson. All right, thank you.
    One particular area where I've been very pleased to see the 
level of coordination between the Navy and the Air Force is the 
Global Hawk program. The progress in joint training and 
coordinated operation here in this program hint at the 
opportunities that are there to eliminate redundancy and 
improve mission effectiveness.
    Now, I am going to go to one specific area where I hope 
that we can continue that kind of cooperation and that kind of 
a joint effort, and that is on unmanned aerial vehicles. I've 
already spoken to both General Casey and General Schwartz. 
They've acknowledged that they have to do better to try to 
coordinate their efforts. We don't need two separate programs 
with any unnecessary duplication that might come from that. 
Since both the Army and the Air Force plan to spend more than 
$7 billion on similar aircraft, it raises a red flag. It's not 
that the red flag can't be taken away--overcome--but, the red 
flag is there, and I hope that we'll direct the attention 
necessary, because that's a very specific area where I think 
redundancy is very likely to be encountered.
    I wonder if you have any comments, General Cartwright.
    General Cartwright. There are places where we like 
commonality, and we look for commonality rather than 
redundancy--in our unmanned aerial vehicle systems, the ground 
control networks, the space side of the equation, and making 
sure that they are common, to the best extent possible.
    In the unmanned aerial vehicles, what we have is a 
different mindset for procurement. I'd turn to Dr. Carter on 
some of this. But, the key is a common vehicle with different 
payloads; and using that, and being able to adapt those 
payloads as the fight changes well inside of normal acquisition 
practices--has been our advantage in that area. We seek to 
capitalize on that, as we move forward, not only in the 
unmanned aerial vehicle systems, but also in others.
    Ash?
    Dr. Carter. I think General Cartwright has it just right. 
The only thing I'd add is, on the specific matter of Global 
Hawk--and I indicated this in the document issued 2 weeks ago--
that is a program whose cost has been growing; and, I think 
unnecessarily so. So, that is one where we are intent on 
restoring what I referred to earlier as ``productivity 
growth.'' I have very good cooperation from those who are 
performing the work, who recognize that the cost has been 
growing. This is an important program to us. We can't allow 
ourselves to manage it in a way where it becomes unaffordable. 
So, it just happens that that is a program of--that is a focus 
of my attention--managerial attention, at the moment, for just 
the reason I indicated earlier, when I expressed our dismay at 
coming to you with exactly the same thing every year, and 
asking for more money for it. So, Global Hawk is one we need to 
do some work on, important as it is.
    Senator Ben Nelson. Do you agree that there is a 
commonality developing between the Air Force and the Army with 
respect to that?
    Dr. Carter. I do agree. I think General Cartwright's 
exactly right. The rearward communications, the processing and 
exploitation systems, commonality there; some of the handling 
systems in the field, making them common; and then having a 
suite of mission payloads from which any service or any user 
can draw, these are the key ingredients of a sort of mix-and-
match strategy towards UAVs. We see that our in the field in 
Afghanistan, the way we actually use the unmanned systems.
    Senator Ben Nelson. Okay. Thank you all.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator Nelson.
    Senator Brown, I believe, is next.
    Senator Brown. Thank you, Mr. Chairman.
    First of all, thank you for trying to give us the best 
value for our dollars. I think that every agency in the Federal 
Government should do a top-to-bottom review and try to 
streamline, consolidate, and offer those savings. Being 
somebody who's in the military, I'm keenly concerned and aware 
of that fact, that we need to maximize our dollars, in this day 
and age, because of what's happening federally.
    That being said I find it curious that you have to come up 
with a budget, yet the Federal Government isn't even doing a 
budget. You know Congress, we don't have budgets ourselves, but 
we're asking you and other agencies to come up with a budget. 
So, I would hope that, at some point, we would start to lead by 
example.
    We have a tremendous amount of equipment--Guard and 
Reserve, Active-Duty equipment now--in Iraq, in particular. We 
have yards filled with it, just sitting there. Has there been 
any thought, in an effort to create jobs and to basically get 
our equipment up and running and ready for the next battle, to 
move forward some of the expenditures that were going to be 
used for that sort of thing, maybe, down the road and bring it 
forward, to actually get that--those things happening right 
now--creating jobs, upgrading our equipment, getting everything 
back into the system, and then, ultimately, understanding and 
reevaluating where we need to go from there? Because we may not 
need some of the--some of the equipment that is slated, down 
the road, if we just take care of the stuff we have. So, I'll 
just throw it out there for whomever.
    Mr. Lynn. I'd ask General Cartwright to comment. But, we 
have a major reset program, ongoing, taking the equipment, 
right now, out of Iraq, and refurbishing that equipment, where 
appropriate, and bringing it back for units in the United 
States. That's going through the depots, and that's going on as 
we speak.
    General Cartwright. I would just add, there's a juggling 
act that goes on with some of this equipment that's forward-
staged as we reposture towards Afghanistan. Some of this 
equipment is positioned and actually being repaired and 
upgraded, coming out of Iraq, out there in theater, so that it 
can be moved directly across to Afghanistan. So, that's one 
class of equipment.
    There's another class of equipment that we need to get back 
to the United States so that Guard units and Active-Duty units 
actually have something to train on and that we can get it.
    There's a third aspect here, which is the throughput 
capacity of our depots and our commercial activities that work 
this. We're trying to maximize that activity and keep it as 
efficient, both in cost and effectiveness, as we can.
    Then there's the last category, which is that equipment, I 
think, some of which to you are speaking is, we're probably not 
going to use this equipment. It's probably coming back, and 
it's actually out of date in its mods, and we probably are 
going to replace it with the next generation. So can we take 
some of that equipment, train people, like Iraqis, to maintain 
it, and then provide it to them, as a case, so that we'd get 
the most bang for the buck and we keep them on an American-type 
system?
    So, those classes, we try to balance against. The highest 
priority is making sure that anything we need in Afghanistan 
that happens to be located in Iraq, we get there as quickly as 
possible. Keep the depots moving quickly so that we can train 
and equip the forces that are in combat. Then we start to work 
to the lesser categories.
    Senator Brown. Just to pick off what Senator McCain was 
saying, the whole idea of competition within--dealing with 
people that are providing equipment for us, in the armed 
services or any other agency. Secretary Lynn, do you believe 
that competition is a good thing? If so, what are we doing to 
promote or send a message to us so we can do our thing to help 
promote competition? Do we get a better product? Do we get a 
better price? It seems like the Federal Government's the only 
place where we don't.
    Mr. Lynn. We think competition is an important tool to get 
better prices and to get better equipment for the same or lower 
prices. It doesn't work in every case. You have to make sure 
that you've structured the competition correctly so that it's 
not an allocation, so you're not maintaining both contractors 
indefinitely. You need to ensure that you're not overinvesting 
upfront. But, in cases where you can avoid those pitfalls, it 
is a strong tool.
    Dr. Carter mentioned the LCS. We've restructured the buy to 
have much greater competition, and we're finding results from 
that.
    Senator Brown. Thank you. One final question. When work 
done by private contractors is absorbed by DOD personnel and 
labeled ``inherently governmental,'' does it end up costing the 
taxpayers more money, because the Federal employees cost 
significantly more, when you take into account retirement and 
health benefits? Is that an accurate statement? Does it cost 
more?
    Mr. Lynn. You're asking, do Federal employees cost more 
than private?
    Senator Brown. Yes.
    Mr. Lynn. As a general statement, I don't think that's 
accurate, no.
    Senator Brown. Great. All right.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator Brown.
    Senator Webb.
    Senator Webb. Thank you, Mr. Chairman.
    Before I begin my actual statement, I'd like to point out 
that a number of community leaders and constituents from 
Virginia are here today. Congressman Bob Scott was here, I'm 
not sure if he's still here thank you for coming--Mayor 
Johnson, from the City of Suffolk, and senior staff 
representing Governor McDonald.
    We are all united in our concern about the process that has 
been used with respect to JFCOM. I would ask unanimous consent 
that statements submitted by Senator Mark Warner, Governor 
McDonald, and Mayor Johnson be entered into the record at the 
end of my turn here today.
    Chairman Levin. They will be so entered.
    Senator Webb. Thank you, Mr. Chairman.
    [The information referred to follows:]

    Prepared statements submitted by Senator Mark Warner, Governor 
McDonald, and Mayor Johnson are included at the end of this hearing. 
[See Appendixes E, F, and G].

    Senator Webb. I've served 5 years in the Pentagon. I 
support, as a general principle, the DOD efforts to bring 
efficiencies into the process over there. I'm particularly 
interested in seeing what you can come up with, with respect to 
grade-creep, which has been significant since my years in the 
Pentagon, in the 1980s.
    I've worked on this issue since I've been in the Senate. 
Probably the most dramatic impact was when Senator McCaskill 
and I worked together to create the Wartime Contracting 
Commission in order to correct systemic deficiencies in that 
process.
    But, any proposal relating to major changes affecting 
unified combatant commands should be guided by a clear process, 
a sound analytical basis, in compliance with applicable laws, 
in a way that everybody can understand it. This is not a 
parochial issue. It's an issue that's going to become more 
important to everyone on this committee as Secretary Gates and 
others follow through on their stated intention to consolidate 
other military bases and installations.
    The present lack of transparency and consultation, 
particularly with our delegation, stands in stark contrast to 
how these decisions traditionally are made. We heard, today, 
that the Pentagon spent several months reviewing proposals, 
including holding more than 30 meetings. We did not have 
access. We didn't have an opportunity to provide input. In 
fact, on August 9, Secretary Lynn, you called me 15 minutes 
before this decision was publicly announced. That's not the way 
to conduct a review that has enormous implications to our 
defense and also to community interests. I believe, in another 
sport, it's called ``stiff-arming.''
    We need to know the analytical matrix that was used to 
compare all the commands and the agencies if we're able to 
evaluate a major proposed organizational disestablishment of 
one. We need to know if the Department has conducted 
comparative analysis of other major commands.
    This same lack of responsiveness has marked the 
Department's approach to many other requests for information 
from our delegation. Seven weeks ago, we began making multiple 
requests, seeking answers to a variety of important decisions. 
To this point, we've been stonewalled.
    Seven weeks ago, the same week of the JFCOM announcement, I 
asked for data on the size of major DOD and military department 
staffs. I think that's a relevant question, particularly all 
the exchange we've had here, in terms of tooth-to-tail ratios 
and this sort of thing. I haven't gotten an answer. I haven't 
gotten an answer on how big the OSD staff is. When I was in the 
Pentagon, I think that would take maybe an hour. We're still 
waiting.
    The Department has failed to answer even the most basic 
questions that have come from this delegation with respect to a 
cost-benefit analysis that shows what savings would be gained 
by closing JFCOM, and how they would outweigh the elimination 
of the missions that JFCOM currently performs. We have no real 
information, at this point, that allows us to quantify the 
possible effects of this proposal in such areas as fiscal and 
local economic implications.
    The Commonwealth has been a strong supporter--I think 
everybody knows that--of the military and of its families, 
particularly this area in the Commonwealth of Virginia. Every 
day, officials in our communities interact on a multitude of 
decisions to coordinate actions relating to military 
facilities. This affects business planning. It affects 
community planning. It affects real estate values down there. 
People are perplexed as to why the process guiding this 
proposal is being conducted in such complete contrast with the 
Department's traditional approach. So, this has led many to 
conclude that there is no comprehensive analysis that would 
support this recommendation to close JFCOM. It leads to the 
question, actually, in a larger scale, of how serious DOD 
really is about lasting reform on a broader scale.
    We need to get our questions answered. We deserve to have a 
full understanding of the Department's analysis and 
implications. We need facts.
    Today I filed an amendment to the NDAA that would require 
the Secretary of Defense to provide detailed analysis and other 
assessments that we have requested before the President would 
close or align any unified combatant command, not simply JFCOM. 
Senator Warner is a lead cosponsor. I hope my other colleagues 
will think about this and consider supporting the amendment. 
I'm also renewing my call to President Obama to withhold any 
final action on this recommendation until we have that sort of 
information.
    I know my time is up, but let me say one thing, Secretary 
Lynn. You once were a staffer on this committee. Is that 
correct?
    Mr. Lynn. Yes, sir.
    Senator Webb. Okay. You worked for Senator Kennedy, as I 
recall.
    Mr. Lynn. That's correct.
    Senator Webb. On your way back to the Pentagon today, I 
would just like you to think about what staff member Lynn would 
have said to Senator Kennedy, in terms of advice, if Senator 
Kennedy had been stiffed with a 15-minute phone call, when an 
announcement of this magnitude was made, and then not provided 
information for a 7-week period when he tried to gain 
information. I think I know what the answer to that would have 
been.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator Webb.
    I think we probably ought to give Secretary Lynn an 
opportunity, if he wants, to comment. He either can do that now 
or we can do that later. The vote has started, but, I think, if 
you want to take an opportunity now to comment--if you wish. 
You may not wish to do so, but----
    Mr. Lynn. No, I would like to comment.
    Secretary Webb, I--Senator Webb--well, former Secretary 
Webb--I appreciate that you do not feel that we have shared as 
much information as you would like, although I think the core 
issue here is, I think, a disagreement over the recommendation. 
This was not a business-case analysis, as some have described 
it. This was a military decision. The Secretary consulted with 
his closest military advisors on the rationale for the JFCOM. 
There are four central purposes in the Unified Command Plan 
having to do with joint manning, joint training, joint 
doctrine, joint experimentation.
    On the joint manning area, the conclusion is that it was 
duplicative. It was not a value-added function, that that 
function was better performed here in the Joint Staff, and that 
the JFCOM should be taken out of that. On the joint training/
joint doctrine, those are purposes that continue and that we 
need to maintain our progress in that, but that we have made 
sufficient progress in that area that we no longer need the 
billion-dollar expense and the continued leadership of a four-
star military command in that area.
    I know we disagree on that, but that is the central 
rationale.
    We will then review implementing that decision. That will 
determine how much of the billion dollars we might be able to 
save and how much will need to be continued in order to 
maintain the joint training/joint doctrine centers and 
facilities, some of which would continue to stay in the Norfolk 
area.
    Senator Webb. If I may, Mr. Chairman.
    Just as an immediate reaction, there are no decisions of 
this magnitude that are military decisions. Not in the United 
States. There are military recommendations to the Secretary of 
Defense, who then makes a recommendation to the President. 
Those are essentially civilian decisions.
    I appreciate the distinction that you're making, but it 
doesn't answer the questions that I have. What I would really 
appreciate from you, the reason I stopped was, I know that we 
have to go for a vote, and I wanted other people to be able to 
have their questions. But, I really would ask that your 
Department be more forthcoming when we were requesting 
information so that we can evaluate this. It's not simply 
whether we disagree. We deserve to make our own evaluation, 
based on information that we can be provided only by you.
    Mr. Lynn. I appreciate your request, Senator. We met with 
some of the members of the Virginia delegation, this morning, 
to try and start that, including the Governor. We've talked 
about setting up a meeting with yourself, with the Governor, 
other members of the Virginia delegation, with Secretary Gates, 
directly, to discuss that. We are establishing a channel in 
order that information, that the delegation feels is crucial to 
be considered, be considered by the task force that's reviewing 
the implementation of the Secretary's recommendation.
    Senator Webb. Well, Mr. Secretary, I'm asking for basic 
data. Data you could provide in 1 day. I'm glad to be able to 
have the meetings, but it doesn't seem to me that it would take 
7 weeks for you to tell me how many people are on the OSD 
staff.
    Mr. Lynn. I will get you the number on the OSD staff.
    [The information referred to follows:]

    Please refer to the attached correspondence to Senator Webb, dated 
November 17, 2010.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Senator Webb. We have a series of questions that are data-
oriented, that literally could be answered in 1 day, and in 7 
weeks we haven't gotten any answers.
    Mr. Lynn. I'll look into those, though the OSD question, I 
wasn't aware of, but we'll look into those questions and get 
you the data as soon as we can.
    [The information referred to follows:]

    Please refer to the previous response to Senator Webb, dated 
November 17, 2010.

    Senator Webb. Thank you.
    Thank you, Mr. Chairman.
    Chairman Levin. The data will come, not just to Senator 
Webb, but the committee as well?
    Senator Webb. Yes.
    Mr. Lynn. Of course.
    Chairman Levin. We all, obviously, have an interest in 
this. I think his frustration reflects the kind of frustration 
that many of us would have about a lack of process and 
analysis. I made reference to that in my opening statement. I 
don't know whether, Senator Webb, you were here or not. But, I 
do feel that--on the process and the analysis issue, that 
there's really a feeling, at least some of us have, and I 
surely do, that it was not adequate here. Putting aside for a 
moment what that data would show, there is an absence, here, of 
an analysis that's been forthcoming, not just to Senator Webb, 
but, I think, generally, publicly on this matter. That 
material, it would seem to me, should have been available prior 
to the decision, not just after the decision.
    That represents my own views. I think it also represents--
I'm here, guessing a bit--the views of many members of the 
committee, who, if put in the same position as the Virginia 
delegation, would react in the same way.
    What we're going to do is recess now. We're going to have 
two votes. This probably inconveniences our panel. I don't know 
if you were notified in advance--talking about process--of the 
fact that this would likely happen. If not, I apologize. But, 
if you were notified, that's the situation we're now in. We 
will probably get back here in about 25 minutes.
    Thank you. [Recess.]
    Okay, we're going to begin this.
    Senator McCaskill is supposed to be here in just a few 
minutes.
    Secretary Lynn, I know that you are going to the funeral, 
and so, when you need to leave, just wave your hand and leave.
    Mr. Lynn. About 10 minutes, I would think.
    Chairman Levin. Okay, that'd be fine.
    Let me start, then, while we're waiting for Senator 
McCaskill.
    Dr. Carter, you made reference, I believe, to the test-and-
evaluation issue, that the Acquisition Reform Act was so 
determined to reestablish that position. I think you've already 
indicated that a robust developmental test-and-evaluation 
capability is important, and that's not going to be disturbed. 
Is that correct?
    Dr. Carter. That's correct.
    Chairman Levin. Okay. Now, one of the Defense organizations 
that the Secretary plans to eliminate is the Assistant 
Secretary of Defense for Networks and Information Integration. 
ASDNII, I guess it's called. The Department has indicated that 
the functions currently performed by ASDNII will be transferred 
to the Defense Information Services Agency, Cyber Command, and 
other appropriate agencies.
    Secretary Lynn, if the Department delegates the oversight-
and-management roles that it currently performs to lower-level 
agencies and commands, isn't there a risk that either of these 
agencies will be responsible for overseeing themselves or that 
there will be no oversight? In other words, how will the OSD 
staff conduct oversight of command-and-control efforts, cyber 
security efforts, and other critical IT functions, without the 
resources of the ASDNII?
    Mr. Lynn. Couple of things there, Mr. Chairman. One, is, we 
will retain the chief information officer, and that individual 
will be a direct-report to the Secretary of Defense. So, in 
terms of the level, you will still have that direct-report that 
the NII has now. We think that, with the steps that we're 
taking, we're going to give that CIO greater resources. We're 
going to pull in the resources from the Joint Staff's J-6 
directorate, from DISA, as you indicated, and potentially some 
functions from other areas, to unify the IT oversight in the 
Department. We think we'll end up with a stronger CIO.
    Chairman Levin. Okay.
    Dr. Carter, the Secretary's established a task force on a 
reports, studies, boards, and commissions study group that is 
analyzing ways in which the number of advisory studies can be 
reduced to a more efficient level, to recommended which boards 
and committees provide insufficient value. I think a number of 
you made reference to that part of the decision of Secretary 
Gates. What I'm concerned about are the rumors that the 
Military Services' Science and Technology Advisory Groups could 
be targeted for those cuts.
    What is your view of the contribution of the Military 
Services' Science and Technology Advisory Groups in making 
recommendations to the Department's future investments in 
critical technology areas?
    Dr. Carter. I know those boards are under review in the 
Efficiencies Initiative. As the staff member responsible for 
the day-to-day shepherding of the Defense Science Board, I've 
provided that information to the group that Mr. Rangel has 
looking at the advisory boards. We've provided them with all of 
our data on the Defense Science Board, and they're looking at 
that and also the Service Science Boards.
    Chairman Levin. Secretary Lynn, one of the defense 
components that the Secretary plans to eliminate is the BTA. 
Now, earlier this year, the Department's Deputy Chief 
Management Officer (DCMO) told the committee that the BTA plays 
a crucial role in the business-process reform that is needed to 
reduce waste and inefficiency in the Department's operations. 
Over the years, the military departments and the defense 
agencies have proved incapable of modernizing their own 
business systems.
    The GAO recently reported that the Department's largest 
modernization programs are running billions of dollars over 
budget and as much as 6 years late, and BTA was assigned to 
provide needed leadership, expertise, and assistance in that 
effort.
    Now, the implications, then, of the elimination of the BTA 
are that the efforts to improve business systems and processes 
is going to revert to those who have proven incapable of 
managing that in the past. Or is some other entity going to 
provide the leadership, the expertise, and the assistance for 
which the BTA is currently responsible?
    Mr. Lynn. The BTA was created prior to the creation, by 
Congress, of the DCMO, and the functions of the two overlap 
fairly substantially. So, as we went through looking to 
delayer, per the Secretary's direction, the conclusion was that 
we could eliminate the agency, move the oversight functions, 
that you've described, to the DCMO and save a layer and 
probably reduce some of the staff resources, due to the 
duplication. But, there will still be that oversight function, 
at the OSD-level, on business processes, but it will be in the 
DCMO office.
    Chairman Levin. Now, what's the status of the Defense 
Agencies Initiative? They made some progress in improving the 
financial and business systems of the Defense agencies--is that 
initiative something that you're familiar with, offhand? That 
doesn't ring a bell with you?
    Mr. Lynn. Well, you referred, at the outset, to the audit. 
So, the underlying effort to get a clean audit opinion is the 
modernization of the financial systems themselves, that's what 
that refers to.
    Chairman Levin. Your answer, then, is that you're going to 
save a layer, but that the responsibility is clear----
    Mr. Lynn. Yes.
    Chairman Levin.--for where that responsibility's going to 
lie.
    Is the 2012 budget, when you submit it, likely to reflect 
the areas in which the efficiencies have been made; or, decided 
upon, as well as the areas in which the funding is proposed to 
be added? Are you going to identify those two things in your 
budget request?
    Mr. Lynn. We're working towards that end. I think you're 
really talking about track one and the hundred billion dollars. 
We are looking to do--there's a lot of churn as you build a 
budget, so it's not as straightforward as you might think, but 
we are working to establish a baseline and to understand where 
the shift occur when they move from overhead to warfighting 
accounts, and we'll present that in the fiscal year 2012 
budget.
    Chairman Levin. They're going to be identified?
    Mr. Lynn. We're going to do the best we can to--as I said, 
when you build a budget, there are a lot of changes, 
independent of this, so disentangling those changes from these 
policy changes is a data challenge. But we think this is an 
important initiative, and we're cognizant of the need to 
present data to Congress to support it.
    Chairman Levin. If it's not done in that way, with the 
budget submission, would it be done in some other way, like 
kind of a wrap-up, ``We set out to do, and this is what we did 
do, and this is what we expect the savings to be''? Will there 
be some kind of a summary when the decisions are finally made?
    Mr. Lynn. Yes. I think we will present something with the 
fiscal year 2012 budget. It may be just as you described or it 
may be something else, but I think, when we present the fiscal 
year 2012 budget, we will present our conclusions on this $100 
billion initiative.
    Chairman Levin. General, you could answer this. Does the 
Department expect to retain the Joint Improvised Explosive 
Device Defeat Organization for the long-term? JIEDDO?
    General Cartwright. I think, Senator, we'll retain it, to 
the extent and for the amount of time and in a character that 
is supportive of what we think we need in the field. Whether 
that becomes a standing organization, independent of the 
conflict we're in, I think that that would be something that we 
would take a very serious look at. But, there are elements of 
JIEDDO--command-and-control activities, intelligence 
activities, et cetera--and we have already gone through several 
relooks to make sure that we need each of those pieces to 
conduct the function we think is essential today.
    Chairman Levin. Now, there's a number of other rapid 
response programs and organizations, in addition to that one. 
Is there opportunities that you see for cost efficiencies 
through consolidation of those kind of rapid response 
organizations?
    General Cartwright. I think--and I'll turn this over to Ash 
Carter here, because he has a big hand in this, but from my 
perspective, as the warfighter part of the discussion that 
we've had today about JFCOM is about those things that are 
actually crosscutting, that no one service represents the 
entire Department's position, things like ISR, things like some 
of these other agencies. the crosscutting activities have had a 
significant impact in our ability to do what we're doing in the 
field, to do it in a way that is coherent so that we don't have 
four different solutions for the same problem. To the extent 
that they can continue to do that, that is some of what JFCOM 
has been able to do for us. So, we have built these 
organizations, these so-called ``horizontal activities,'' to 
cover down on those types of things that we, today, call 
``joint,'' but, in reality, are also standards and being able 
to work in the interagency and to work with allies. They have 
done it in a way that has been very effective and very 
efficient. So, to the extent they continue to do that and are 
evaluated as being such, we'll try to retain them.
    Ash?
    Chairman Levin. Okay.
    Now, Senator McCaskill's here.
    Secretary Lynn, we kept him as long as we could, but he has 
to go to the funeral.
    Senator McCaskill. That's fine.
    Chairman Levin. I think you understand that. Your--your 
paths crossed as you were coming----
    Senator McCaskill. Yes, I understand.
    Chairman Levin.--and he was leaving. Okay.
    Senator McCaskill. As I was sprinting to get here.
    Chairman Levin. We know you were, and we were aware of the 
fact you were coming.
    Secretary Carter, you want to add a quick answer to that 
before I call on Senator McCaskill?
    Dr. Carter. Just one note. It is exactly as General 
Cartwright said. However, in this field, which is the rapid 
response, the ongoing fight, we're looking for efficiencies, 
but the principal objective in looking at all of these 
organizations that have sprung up over the last 8 years or so 
to provide rapid and responsive support to the warfighter, is 
effectiveness. We're still not there, where we should be, in 
terms of being able, rapidly, and agilely respond to the needs 
of the warfighter in the acquisition system and the logistic 
system. This is something that General Cartwright and I work on 
together every day.
    So, efficiency is one thing and obviously, is a very 
important objective. But, the other thing is truly being 
responsive, and that's what JIEDDO was created to do, various 
taskforces and so forth, and we're still looking, I would say, 
for the right managerial mechanism to support the ongoing 
fight. A lot of it's done now by the personal attention of 
General Cartwright, myself, and many others at the top.
    Chairman Levin. Thank you.
    Senator McCaskill.
    Senator McCaskill. Thank you. Thank you, Mr. Chairman, and 
I really appreciate your indulgence in allowing me to hustle 
back here so I could have some time to ask some questions.
    Secretary Carter, as a former auditor, I feel your pain at 
the number of reports that have been developed and that no one 
reads. It is very common, when you have to make a hard 
decision, that it's easier to do a report. Most of the time, 
the call for studies and reports that comes from this place is 
in lieu of making a hard decision.
    Just to give one example--and I think one example where 
General Cartwright and I disagreed was on Joint Requirements 
Oversight Council (JROC). I think we have figured out that, 
over the years, JROC has not always done what it should do, in 
terms of being a check on acquisition, that it had--when we 
looked into it, I was hard-pressed to find an example where the 
various branches were not, ``Okay, I'll give you this if you 
give me that.''
    So, in an effort to deal with that, I offered two 
amendments, on the NDAA, that would deal with the problem of 
the JROC being a giant back-scratching organization, as opposed 
to an organization that was really holding branches 
accountable, in terms of the acquisition process.
    One of those amendments went through. The amendment that 
went through was allowing the COCOMs to have some input into 
the process. The other amendment, that didn't go through was 
the amendment that would have given you, Secretary Carter, the 
ability to have some kind of check and balance over the JROC. 
Now, General Cartwright didn't like that. General Cartwright, 
once I passed that in the NDAA, said, ``Why don't we do a study 
and look at it?''
    I think that's the kind of decision that actually magnifies 
the problem. I think the right call was to have somebody 
overseeing this, or have some kind of input into it. I thought 
the Under Secretary of Defense for Acquisition was the right 
person.
    So, let me ask the question, General Cartwright, how is the 
study going? What assurances can you give me that the JROC has 
evolved beyond, ``Give me what I want and I'll give you what 
you want''?
    General Cartwright. Well, the scratch-my-back analogy, I 
think, is probably a mischaracterization, but we can disagree 
about that. But, the study basically came out and gave us 
information, which we have introduced back to Congress now, 
that does a couple of things. One, it puts the vice chairman in 
a decision position, similar to a service acquisition chief. 
So, in other words, I'm accountable for those decisions. Two, 
it brings other members in and allows us to bring the COCOMs 
in, in an authoritative way, rather than to just sit at the 
table and give us an opinion, along with key OSD principals 
that are necessary, that represent resourcing and acquisition. 
Three, it brings a very authoritative role in, of the test 
community, to say, in the JROC, that what you're saying is, in 
fact, one, testable, that can verify that it--that you're going 
to get the performance you want or the metrics that you want; 
and, two, that they are then a part of the activity 
continuously, all the way through, into the milestone decision 
process that the acquisition community runs.
    We want common or similar representation so that the 
decisions that are made that represent what the customer says 
they want, not what someone else may want to give them, are in 
all of the forums now, all the way through acquisition and 
resourcing.
    So, you have a common group of people that can be held 
accountable for those decisions from birth to death.
    Senator McCaskill. Well, you may have been right and I may 
have been wrong. I definitely am wrong with some frequency. 
But, I want to know, ongoing--what we couldn't find is a place 
where JROC really did what it was supposed to do. We couldn't 
find a place where JROC stopped anything. I mean, the idea here 
is that you're supposed to catch things that aren't going to 
work, that are going to be too expensive, that you're going to 
figure out why, that you're going to make sure the 
requirements--and so much of this, probably 90 percent of it, 
is requirements, and that's why the COCOMs are so important.
    Let me move on to another subject: contracting. Wartime 
contracting has been stovepiped, mostly because it can be. The 
lack of competition is, frankly, a huge part of the problem. 
We're not talking about, now--I certainly agreed with Senator 
McCain, that some of the problem is a lack of competition among 
Defense contractors for the big stuff. But, there really isn't 
an excuse for a lot of the services' contracts. We're not 
talking about a lot of capitalization costs, for a lot of these 
service contracts. But, once again, what you see is a lack of 
competition, without a good excuse as to why there's a lack of 
competition. That, Secretary Carter, is where I think there is 
real, real money. I just urge you to bring to us, in this 
effort, how, not only you're looking at contracting in a macro 
sense, but how you are drilling down on contracting in wartime 
as it relates, especially, to logistics and troop support.
    I'm a conservative person when it comes to estimating 
numbers, because of my auditing background. I think it's very 
conservative to say that we've had $100 billion go up in smoke 
in Iraq, from bad contracting, that it's not as if there 
weren't competing people who could have been brought in; it 
just was easier not to. So, I urge you to keep us posted on how 
you're integrating that kind of contracting into the 
contracting reforms.
    Finally, Mr. Chairman, if I have your indulgence to go over 
just for----
    Chairman Levin. No. No.
    Senator McCaskill.--one more thing.
    Chairman Levin. You can take your time, here, because this 
is your second round now, and----
    Senator McCaskill. Okay.
    Chairman Levin.--there's no other----
    Senator McCaskill. Okay, great.
    Chairman Levin.--no one else here's waiting on their 
questions.
    Senator McCaskill. Okay, great.
    The audits. I tried to count up how many auditors you all 
have working in the defense sector, whether it's through IGs or 
whether it's through DCAA or whether it's through GAO. I quit 
counting at about 30,000. Thirty-thousand people are tasked 
with some auditing function within DOD, and sometimes with a 
little hangover into the Department of State, depending on 
that.
    Now, you're getting plenty of reports, without all the 
reports we're asking you for, that will give you 
accountability. The question is: Who's consuming them and 
whether or not you all have a strategy on consuming audits and 
following up on audits? I would ask you, Secretary Carter, to 
address that. Are you comfortable and confident that the 
millions upon millions of dollars of audit work that is ongoing 
is actually being embraced by the Department?
    Dr. Carter. I'd like to address that and also your first 
two points, if I may.
    Chairman Levin. Let me interrupt you, Secretary Carter, if 
I can.
    Senator McCaskill, can you close? Because I'm going to have 
to leave.
    Senator McCaskill. I absolutely can.
    Chairman Levin. Thank you.
    Thank you both.
    Senator McCaskill. That's a scary thing for these guys, 
though. I promise I won't keep you here all afternoon.
    Chairman Levin. Yes. [Laughter.]
    Senator McCaskill. You know I'm capable of it, Secretary 
Carter, but I will not. I really only have this auditing area 
to finish up with, and then I will let you go.
    Chairman Levin. Thank you.
    Thank you both.
    Senator McCaskill [presiding]. Thank you, Mr. Chairman.
    Dr. Carter. With respect to audits, two comments. The first 
is that I want to make clear that the auditing function, 
particularly DCAA, does not report to me; it reports to 
Secretary Hale. So, I don't want to presume to speak for him at 
all about that particular function.
    The part I can speak to is at the earlier stage, and 
particularly in contingency contracting. You are right, 
contingency contracting in Iraq, in the early years, did not 
have the tradecraft and the controls that were appropriate. 
We've recognized that. One of the first things Secretary Gates 
said to me, when he hired me in this job, was that he wanted to 
make sure we learned the lessons of Iraq and applied them in 
Afghanistan. We're really trying to do that.
    I would like to get our contracting system, in Afghanistan, 
to a point where we don't need to--we'll still need to be 
audited, but where we'll pass an audit easily. That means 
having contracting officers in adequate numbers to do the work 
right. It means having contracting officer representatives 
there to make sure the work is done on each contract. That 
means reducing the use of cash, and all of these things. Now--
and we have been assiduously working down that list--which is, 
I think, exactly the same list that you are working down--in 
Afghanistan, and made considerable progress in each of those 
areas. We're not where I think we should be, yet.
    Senator McCaskill. Let me acknowledge that progress. You 
have made progress.
    Dr. Carter. Thank you. I think we have. But, again, we're 
not there yet. As contracting officers, for example, I think, 
we have about an 86- or 87-percent fill rate now. It should be 
100 percent. It's better than 43 percent or something, which it 
was, a year and a half or 2 years ago. So, all along the chain 
that culminates in an audit, which you hope simply ratifies the 
fact that you've done a good job for the warfighter, you've 
been effective, but also, for the taxpayer, you've been 
efficient--and all through that chain, I think we do need to 
improve.
    The other thing I'd like to absolutely agree with you on, 
Senator, is the value to be had from improving how we manage 
services. It's just an area where we have not paid a lot of 
attention, where, as I said earlier, a lot of the people who 
are managing those activities are doing it on a--at the margins 
of the real function that they're trying to accomplish; it's an 
enabler for what they do. So, they don't have all the 
tradecraft that somebody who was, full-time, acquiring services 
would have.
    I think great savings can be had there, across the 
Services' spend. It's essential that we look there, because 
that's half the money. That's half the money--$200 billion a 
year. So, even if we can just get a few percentage points of 
improvement every year, that's exactly what Secretary Gates 
wants, because that's money that we don't have to come to the 
taxpayer for, that we can then take and reallocate, as he 
wants, to the warfighting capabilities.
    Senator McCaskill. Well, I hope that you get Senator McCain 
the list. I hope we can reduce the number of reports that 
you're sending to us, and that all of us get in the habit of 
reading audit reports.
    I would love to see you embrace--and I know that some of 
this is not in your portfolio, some of it is in Secretary 
Hale's portfolio, some of it, frankly, is other places--but, 
those 30,000 auditors, I don't think their work has been taken 
seriously. I don't think, right now, if I made Secretary Gates 
come up here and do a drawing of where the auditors were and 
what they were auditing on and where the reports went, I'm 
willing to bet that you all haven't spent a lot of time even 
looking at that issue.
    Well, you all know DCAA and you know GAO and you know the 
IGs, but the public doesn't realize that most of the IGs in the 
active military aren't really IGs. They don't report to the 
public; they report to the commander. So, their reports, while 
you all get the benefit of it, we never know whether or not 
you're paying any attention to what the IGs are saying within 
the Active Forces, because we don't ever get to see the 
reports.
    Let me close with an example of how, if you would spend 
more time and energy being deferential to the auditing 
community within DOD, I think that we would get higher quality, 
in terms of some of the work that's being done and the people 
who are attracted to the work. That's essential.
    I have written, now, three letters to the President about 
the Special Inspector General over Afghanistan. We now have had 
an independent review of his work, by a team of auditors, a 
peer review. They have said that it is woefully lacking. 
Probably the whipped cream and the cherry on this particular 
situation is that--here's somebody who's supposed to be the 
eyes and ears looking at contracting in a major way in 
Afghanistan, and he hires someone on a no-bid contract for 
$95,000 for 2 months' work.
    Now, first of all, how do you decide that somebody's worth 
45 grand a month of public money? How do you decide that's the 
one? There's no process there. Now, this is the Special 
Inspector General for Afghan Reconstruction, hiring somebody 
for $95,000, for 2 months' work. You wonder why the public 
thinks we've lost our minds. That is not being accountable, the 
person he hired formerly was the DOD IG with a lot of 
blemishes. I mean, we're not even talking about somebody that 
is--doesn't come with his own baggage. The Special Inspector 
General over Afghanistan should be fired, today. When you have 
an independent council of auditors saying that the Special 
Inspector General in Afghanistan--that their law enforcement 
authority should be removed from them because they don't have 
the right control processes in place, this is a problem.
    Now, I know you are not in a position to remove the Special 
Inspector General. But, now, over a period beginning in March 
2009, we have tried to point out to the administration that 
this Special Inspector General in Afghanistan is not up to the 
job.
    After what happened in Iraq, I just would like you, 
Secretary Carter, to go back to the Pentagon and say, ``You 
know, there are some people over there that aren't going to 
give up until we have a change in leadership in the Special 
Inspector General in Afghanistan.'' Because I know the kind of 
respect the President has for Secretary Gates. I have a sense, 
if Secretary Gates weighed in on this, that maybe we'd get some 
action. I just think it is enough to make the top of my head 
blow off.
    So, I'm happy to give either one of you an opportunity to 
respond to what I've said. I'm kind of venting in this public 
place, because I want to and because I can, and because it's 
wrong that--we have real work to do, in terms of oversight of 
contracting in Afghanistan. We don't have time, frankly, to be 
dealing with someone who hasn't shown that they're up to the 
job.
    I would like to propose that we have one special inspector 
general over all contingencies, and would like your responses 
to that proposal. So, we would roll into one office that would 
be permanent, a special inspector general to deal with any 
contingency operations that the military was actively involved 
in, so that you would have continuity, in terms of the 
expertise on contingency contracting; you'd have continuity, in 
terms of lessons learned; you would have continuity, in terms 
of a staff that felt committed to that particular activity, as 
opposed to, ``How long are we going to be around, and do I need 
to hitch my star to another moving target?''
    Do you think that would be something that would be welcome, 
in terms of your job responsibilities, Secretary Carter: one 
special inspector general for all contingencies?
    Dr. Carter. I hear you loud and clear--and I'll take that 
back to the Department for consideration, the idea of one 
overall.
    Senator McCaskill. We have really good people that learned 
a lot in Iraq, and then we're trying to recreate this same kind 
of office in Afghanistan, and it seems to me that we're missing 
opportunities here. Certainly, the Lessons Learned document, 
from Iraq, that was done by the special inspector general, 
should be required reading, frankly, for any commander. I hope 
it is. I hope that everyone's reading it. I think--Greg 
Mortenson's books, I think, are very important for the 
commanders in Afghanistan. But, that Lessons Learned booklet 
from Iraq, that was put together by Bowen's shop, I think it's 
very important reading for everyone there.
    I do want to acknowledge the progress that's been made. I 
will look forward to continuing to interact with you about 
JROC, General Cartwright. I want to believe that everyone there 
is capable of very independent decisions and saying no to their 
dear friends and their colleagues, that they--I mean, I just 
think that environment is a difficult environment to say no to 
one another. If you are confident that we've made progress on 
that, I'll look forward to visiting with you about that, and 
would be happy to acknowledge that the step I wanted to take 
was a step too far.
    General Cartwright. I think we should continue that 
dialogue. We certainly owe--not only to you, but to the 
American people--the ability to make sure that we understand 
the implications of that which we ask for, from the institution 
and from the government writ large, to carry on these 
conflicts. Oftentimes, though, it is not a pure business 
decision. Sometimes we react and we throw whatever we have in 
order to protect lives. But, those are usually in the minority.
    On the auditors, I think you have the right attributes. 
What I don't have, in my own knowledge kit-bag right now, is 
the span of control. But, how do we, in fact, ensure that those 
lessons and that continuity is moved from one place to the 
next, and that we don't have 6 months or whatever spin-up time 
to learn the job, out in the field, and that we have the sizing 
construct to be able to manage this span of control? I'll take 
that back with me, and we will keep up our dialogue.
    Senator McCaskill. That's great, General.
    Overall, I want to say, I'm very supportive of what 
Secretary Gates is trying to do. There is a lot of efficiencies 
that can be gained, but it's going to take a kind of focus and 
concentration, and a not-giving-up, because this isn't going to 
be easy. There's going to be all kinds of things, including a 
bunch of folks that sit up here, that are going to try to throw 
out roadblocks, depending on what it is that you're trying to 
shrink or make more efficient.
    But, I, for one, am a big admirer of the process that 
Secretary Gates is undergoing, here. I think it's absolutely 
essential. I think that we can have and maintain the finest 
military in the world, and still be much more efficient with 
taxpayer dollars in the process.
    I look forward to being helpful in any way I can. I thank 
you both for waiting until I got back, so I had an opportunity 
to visit with you.
    The hearing is adjourned.
    [Questions for the record with answers supplied follow:]
               Questions Submitted by Senator Carl Levin
                          test and evaluation
    1. Senator Levin. Mr. Lynn, Dr. Carter, and General Cartwright, how 
will the Department of Defense (DOD) ensure that its developmental test 
and evaluation enterprise has the necessary resources to ensure that it 
does its job effectively, as required by Weapon Systems Acquisition 
Reform Act (WSARA)?
    Mr. Lynn, Dr. Carter, and General Cartwright. Acquisition, 
Technology, and Logistics (AT&L) is actively engaged in developing a 
path forward to implement Secretary Gates' efficiency initiatives. In 
particular, we are driving the acquisition community toward greater 
efficiency and productivity in defense spending. We believe these 
initiatives are consistent with the objectives of the WSARA of 2009. We 
are resourcing a robust developmental test and evaluation capability 
for the Department and we will ensure the initiatives are in full 
compliance with title 10 U.S.C. 139d, enacted by section 102 of WSARA. 
We will continue to review our manpower and budget allocations to 
achieve a prudent balance across the critical missions within AT&L, to 
include Developmental Testing and Evaluation.

                            dod laboratories
    2. Senator Levin. Dr. Carter, the realistic use of the scientific 
and technology expertise in the Department's laboratories, such as, the 
Army's Tank and Automotive Research, Development and Engineering Center 
in Michigan, the Naval Undersea Warfare Center in Rhode Island, the Air 
Force Research Laboratory in New Mexico, and the Army's Aviation and 
Missile Research, Development and Engineering Center in Alabama, can 
help develop more mature technologies, reducing the cost of major 
weapon systems. As you are aware, this committee has provided the 
Department over the years with a number of authorities to provide the 
labs with flexibilities needed to hire the best and brightest 
scientists and engineers. What is the Department's view on the role of 
the defense laboratories to improve the acquisition process and make 
the acquisition of weapon systems more efficient?
    Dr. Carter. The role of the DOD labs is to contribute to basic 
science, develop and apply technologies to warfighting challenges, and 
reduce the technical risk of integrating these technologies into weapon 
systems. Our defense laboratories perform these functions with 
excellence including prize winning contributions to science, unique 
prototyping facilities, and systems integration/engineering skills that 
contribute to successful and more efficient, mature acquisition 
programs. As a testament to their commitment to the acquisition 
community, most of our scientists and engineers are certified as 
acquisition professionals through Defense Acquisition University's 
rigorous education programs. The Department will continue to look to 
the labs to tackle the toughest technical problems and to build success 
and efficiency into programs early in their life-cycle.

    3. Senator Levin. Dr. Carter, is the Department contemplating any 
specific efficiency actions, as part of the broader acquisition 
efficiency initiatives, to strengthen and improve the DOD laboratories?
    Dr. Carter. The strength and diversity of our DOD lab system has 
always been at the heart of our success in acquisition. Most recently, 
we have identified and are validating the first group of core technical 
competencies (e.g., energetics, armor, electronic warfare and low 
observable/counter-low observable technologies) of the DOD labs to 
focus its investments against competencies that must be maintained to 
ensure the DOD possesses the technology necessary to execute its 
missions. By focusing investment earlier in the process the labs will 
contribute to reducing the cost of developing new weapons systems. 
Taken together and with the continued support of Congress, these steps 
will achieve efficiencies that will strengthen and improve the DOD lab 
capabilities.

   industry independent research and development and industrial base 
                                 health
    4. Senator Levin. Dr. Carter, one of the objectives in your 
September 14th memo was to reinvigorate industry's independent research 
and development (IRAD) and protect the defense technology base. Despite 
significant increases in the Department's budget over the last decade, 
there are significant issues facing the health of certain critical 
industrial base sectors such as solid rocket motors, microelectronics, 
and rare earth metals. Can you provide any additional specifics on how 
you plan to go about reinvigorating industry's IRAD program and 
ensuring that these investments are directed in a way that will provide 
the greatest benefit to the Department and to the national defense?
    Dr. Carter. The DOD reimburses industry for its IRAD efforts using 
rates negotiated by the Department's contract offices. IRAD enables 
industry's understanding of its own concepts and capabilities to 
maximize the productivity of research and development investment. In 
most cases, from a technical perspective, a firm will have a better 
idea than the Department where the next dollar of R&D spending at that 
particular company will be most likely to yield a meaningful 
breakthrough. On the other hand, the Department best understands where 
innovation would most contribute to warfighters' needs or to meeting 
other requirements. Open communication between industry and the 
Department should guide industry's prioritization of IRAD. My sense is 
this communication between Industry and DOD on specific IRAD 
investments is not as strong as it could be as a result of changes made 
during the 1990s to the law governing IRAD processes.
    As part of the Efficiency Initiative, the Defense Contract Audit 
Agency is undertaking a more comprehensive data collection on IRAD 
expenditures, and the Department will work with industry to find ways 
to leverage the Department's IRAD investments. This includes adopting 
improved processes to communicate with industry about both priority 
investment areas and the results of IRAD spending. The Director of 
Defense Research and Engineering (DDR&E) is pursuing the implementation 
steps identified in the September 14 memo. In the near term, DDR&E has 
contacted nine of the largest performers of DOD IRAD for discussions 
and will engage with the National Defense Industrial Association for 
the larger industry perspective. My goal over the next year is to 
launch one or more pilot projects that would reinvigorate innovation 
through better use of IRAD investments, and I will examine all possible 
approaches allowed by the existing law.
    Parallel to the IRAD effort, the Department monitors the industrial 
base, including specific areas of concern like solid rocket motors, 
microelectronics, and rare earth elements. The Department is 
coordinating a sustainment plan for the solid rocket motors industry. A 
DDR&E-sponsored study is collecting data on domestic and foreign 
microelectronics suppliers and on defense and commercial demand. The 
study will also recommend a strategy for the future. The Office of 
Industrial Policy also prepared a study of rare earth elements supply 
and demand.

    5. Senator Levin. Dr. Carter, are you concerned about gaps and 
shortcomings in the industrial base--and if so, how do you plan to go 
about identifying and addressing problem areas?
    Dr. Carter. While the Department routinely monitors potential 
issues in the defense industrial base, we must improve on meeting our 
responsibility to suppliers by executing stable, well-structured 
programs with optimized acquisition strategies that will help sustain 
essential industrial capabilities.
    My office periodically conducts industrial assessments to evaluate 
and address changes in key system, subsystem, component, and/or 
material providers that supply multiple programs, and affect 
competition, innovation, and product availability. DOD Components also 
conduct their own assessments when: (1) there is an indication that 
industrial or technological capabilities associated with an industrial 
sector, subsector, or commodity important to a single Component could 
be lost; or (2) it is necessary to provide industrial capabilities 
information to help make specific programmatic decisions.
    Of particular concern to me are potential gaps and shortcomings in 
defense-unique and niche product areas where there is low peacetime 
demand, industrial capabilities are limited, and there is very little 
competition at the subsystem/component level. Accordingly, we must use 
many single/sole source suppliers--suppliers for which there may be 
minimal innovation incentive. Ultimately, these defense-unique industry 
segments may have an insufficient business case to justify continuing 
in the market. We have identified many products that cause us concern. 
Examples include armament and military-unique forgings and castings; 
metallic and composite armor materials; thermal batteries; solid rocket 
motors; inertial measurement units; GPS receivers; seekers; fuzes; and 
warheads. To address these types of issues, the Department is adopting 
a more integrated approach to identify these single-point failures/
concerns earlier in the acquisition process, and establishing more 
comprehensive (and, when appropriate, interagency) approaches to 
addressing industrial base issues.
                                 ______
                                 
           Questions Submitted by Senator Joseph I. Lieberman
                      service support contractors
    6. Senator Lieberman. Mr. Lynn and Dr. Carter, I'd like to ask 
about your efforts to reduce the Department's reliance on services 
contracts. On the one hand, you've announced your intent to reduce 
funding for service support contractors by 10 percent in each of the 
next 3 years. On the other hand, you've announced a civilian workforce 
freeze for parts of DOD, including the Office of the Secretary of 
Defense (OSD). I am wondering if we can gain some of the same 
efficiencies by careful human resource planning that determines, for 
each function, what is in the best interest of the government. Congress 
has enacted provisions requiring DOD to implement insourcing guidelines 
and to review its inventory of service contracts. The purpose of these 
reviews should not be to make arbitrary decisions, but to make a 
determination of whether work has been in the wrong hands, for example, 
has inherently governmental work been contracted out?
    Mr. Lynn and Dr. Carter. We agree that the purpose of these reviews 
is to determine the most effective allocation of human capital--
government and contract personnel alike. Our goal is to improve both 
the effectiveness of the Department and to find savings by eliminating 
low-priority functions. Toward that end and consistent with statutory 
requirements, all DOD Components are reviewing contracted services and 
considering whether government or private sector personnel are the best 
means for providing those personnel. We are finding some cases where 
contractors are providing services that would more effectively be 
provided by government personnel. For DOD organizations where the 
Secretary has directed us to limit organizational growth, in-sourcing 
efforts are being evaluated in terms of mission priorities and, where 
appropriate, exceptions for in-sourcing related to growth may be 
submitted.

    7. Senator Lieberman. Mr. Lynn and Dr. Carter, how does this type 
of human resource planning square with your efficiency review?
    Mr. Lynn and Dr. Carter. The considerations and planning described 
above are integral to our efficiency review.

    8. Senator Lieberman. Mr. Lynn and Dr. Carter, if under the 
insourcing review DOD determines that a function would more 
appropriately be performed by Federal employees, or that DOD could 
achieve savings by insourcing, how does a workforce freeze make sense?
    Mr. Lynn and Dr. Carter. Note that we are implementing a personnel 
cap, not a hiring freeze. We are trying to control the growth in the 
size of our workforce. We are allowing some in-sourcing where there is 
a compelling case for it. In order to effectively optimize the size of 
our workforce, we must be extremely judicious about creating additional 
billets for any reason. Consistent with statutory requirements, all DOD 
components are reviewing contracted services and providing 
consideration for in-sourcing those services. While some organizations 
indicated that they have no contracted services that are appropriate 
for in-sourcing, no DOD organizations are outright exempted from in-
sourcing. For DOD organizations where the Secretary has directed us to 
limit organizational growth, in-sourcing efforts are being evaluated in 
terms of mission priorities and, where appropriate, exceptions for in-
sourcing related growth may be submitted.
                                 ______
                                 
               Questions Submitted by Senator Mark Begich
                               readiness
    9. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, I 
support the objective of the initiative, but am concerned the attempt 
to realize near-term cost savings will come at the expense of the 
readiness of the current force. Under the initiative, military services 
can keep what they save, and reinvest those dollars in high priority 
warfighting needs. However, the Services already make hard choices 
between the current force, evolving requirements, and the future force. 
In past budgets we've seen underfunding of base operation and 
sustainment, depot maintenance, training accounts, and other day-to-day 
requirements to free up dollars for other investments. Over the years, 
the investment shortfalls negatively impact readiness by leading to 
dilapidated infrastructure beyond repair and deferred maintenance of 
current equipment. What specific guidance was given to the military 
services with respect to the initiative to prevent detrimental impacts 
to overall readiness of the current force?
    Mr. Lynn, Dr. Carter, and General Cartwright. It was precisely 
these concerns that prompted the Secretary to aggressively shift 
resources toward uses that would protect current and future military 
capabilities. In June, we issued guidance to the military departments 
explaining that the purpose of this effort was to improve the 
effectiveness and efficiency of our business operations so that we can 
increase funding available for our mission functions. Specifically, 
this guidance instructed the military departments to take resources 
from areas like headquarters, administrative functions, support 
activities, and other overhead and reinvest them in areas like 
personnel in units, force structure, readiness, procurement, and RDT&E.

    10. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
how will OSD ensure the military Services redirect investments to high 
priority warfighting needs?
    Mr. Lynn, Dr. Carter, and General Cartwright. As stated above, the 
guidance to the military departments was very clear. In addition, the 
Department's efficiencies are being carefully reviewed to ensure that 
this guidance was followed.

                         military construction
    11. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
the Services have been authorized to consider consolidation of excess 
bases and other facilities where appropriate. What guidance was given 
the Services by OSD to promote an objective and legitimate process in 
determining excess infrastructure?
    Mr. Lynn, Dr. Carter, and General Cartwright. In June, we issued 
guidance to the Military Departments explaining that the purpose of 
this effort was to improve the effectiveness and efficiency of our 
business operations so that we can increase funding available for our 
mission functions. Significant proposals like consolidating bases and 
facilities are vetted through the Deputy's Senior Advisory Working 
Group as a means of ensuring that these decisions are both objective 
and well-considered.

    12. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
cost savings have not always been realized when anticipated in previous 
Base Realignment and Closure (BRAC) rounds, and sometimes not at all, 
so why would the Department assume cost estimates associated with 
infrastructure initiatives would be realistic? What has changed?
    Mr. Lynn, Dr. Carter, and General Cartwright. Accurately estimating 
the cost of infrastructure savings has proven to be difficult, however 
reclaiming savings is a part, but not the sole driver of this 
initiative. The goal is to streamline our process and eliminate 
needless bureaucratic layers. In specific examples, getting rid of a 
headquarters or an overhead layer also means that the infrastructure 
that supported it is no longer necessary.

    13. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
as part of the initiative, DOD is conducting a global force review to 
determine the necessity of current overseas infrastructure and future 
investment in overseas installations. Please describe the review more 
thoroughly. When will the review be complete and available for 
Congress?
    Mr. Lynn, Dr. Carter, and General Cartwright. We are still 
evaluating these options. We expect to be able to provide more 
information on these reviews and the considerations that underlie them 
as part of the President's budget for 2012.

                             cost estimate
    14. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
DOD has provided information to Congress which states ``every new 
initiative will be accompanied by a cost estimate,'' yet it is my 
understanding no cost estimate is available for the Joint Forces 
Command (JFCOM) closure or any other Secretary of Defense initiative. 
When can Congress expect the cost estimates? Additionally, will new 
initiatives outlined in the President's budget submission for 2012 be 
accompanied by a cost estimate and clear articulation of where those 
dollars are being reinvested?
    Mr. Lynn, Dr. Carter, and General Cartwright. We are still 
evaluating the alternatives and resource implications of the 
Secretary's initiatives. We will provide you more information on cost 
savings as these analyses are completed. New initiatives that are 
outlined in the 2012 budget will be accompanied by cost estimates and 
we will be able to show where we reinvested those savings.

    15. Senator Begich. Mr. Lynn, Dr. Carter, and General Cartwright, 
as part of the efficiencies initiative, DOD has determined to reduce 
allocations for fulfilling congressional reporting requirements. How 
will DOD continue to meet its obligation and direction of Congress in 
required reports?
    Mr. Lynn, Dr. Carter, and General Cartwright. DOD will work with 
Congress to determine which of the 1,200 to 1,400 congressional reports 
that DOD produces each year provide valued information, where there are 
opportunities to consolidate reports, and whether there are reports 
that we agree are in our collective best interest to eliminate.

                                spending
    16. Senator Begich. Dr. Carter, is the Department conducting a 
review of over budget, behind schedule acquisition programs, such as 
the Medium Extended Air Defense System (MEADS) as part of the 
efficiency initiative?
    Dr. Carter. The Department is constantly reviewing programs as part 
of the normal acquisition oversight process. These reviews seek to 
mitigate the effects of schedule delays and cost growth, to prevent 
requirements creep, and to address technology risk or research and 
design challenges. The MEADS program is under review to address its 
specific challenges, but this review is not part of the Secretary's 
efficiency initiative.

    17. Senator Begich. Dr. Carter, what actions will DOD take to 
curtail continued spending on programs that are not delivering?
    Dr. Carter. The Department is willing to make the tough decision to 
cancel programs that are not delivering, or that have too many cost, 
schedule, and performance challenges. These cancellations demonstrate 
the Department's commitment to keeping industry accountable and to 
maintaining requirements realism for our acquisition programs.
    Program cancellation is not the only tool we use when faced with 
various challenges. While there is no ``silver bullet'' approach to fix 
a program, the Quadrennial Defense Review (QDR) identified 
``maintaining budget stability through demanding cost, schedule, and 
performance realism while holding industry and ourselves accountable'' 
as critical to ensuring better outcomes in our acquisition programs. To 
foster this stability, the Department is implementing greater use of 
fixed-price, competitively awarded contracts; forming Configuration 
Steering Boards to prevent requirements creep; and initiating 
independent peer review processes to ensure consistency of approach, 
quality of contracting, and information sharing across military 
departments and acquisition programs. Furthermore, we are enhancing 
budget stability and realism through improving life-cycle management 
and sustainment policy procedures with attention toward accurately 
estimating long-term ownership costs.
                                 ______
                                 
               Questions Submitted by Senator John McCain
                           industry dialogue
    18. Senator McCain. Dr. Carter, as part of Secretary Gates' 
efficiencies initiatives, you met with defense industry officials in 
June. The high-level session was part of an effort to reverse a trend 
of the past few years that had left the DOD/industry relationship in a 
condition you have described as ``not healthy.'' Can you elaborate on 
this description? Specifically, what part of the relationship is not 
healthy?
    Dr. Carter. Overall, the Department has a strong and productive 
relationship with the defense industry, with both sides supporting the 
warfighter and contributing to national security. However, some 
specific aspects of the relationship could be improved, notably 
increasing the communication between these two essential elements of 
American defense. The meeting in June was part of a Department 
initiative to revive a series of regular meetings between our senior 
leadership and the CEOs of major defense suppliers. These high-level 
meetings can facilitate smooth communication of priorities and help 
both sides get ahead of developing issues. Having a regular forum 
improves on the previous system of ad hoc contacts, which in recent 
years has tended to be too reactive or has made otherwise normal 
discourse appear like crisis management. The renewed series of meetings 
is already yielding dividends in terms of mutual understanding, 
including more aligned goals in the execution of the Department's 
ongoing Efficiency Initiative.

    19. Senator McCain. Dr. Carter, there have been reports that 
Secretary Gates is asking for the cooperation of defense industry to 
reduce costs in order to fight off potentially significant cuts to 
defense spending as part of future budget deficit reduction measures 
implemented by the White House. As the Wall Street Journal reported on 
August 3, 2010, ``Secretary Gates delivered a terse message: Start 
delivering cost savings, or the government will do it for you.'' How 
will you monitor industry's performance in order to inform future 
budget discussions?
    Dr. Carter. The quest to increase efficiency in defense acquisition 
need not breed a hostile relationship between the Department and the 
defense industry. Industry has its own competitive incentives to drive 
down costs on defense contracts, motivated by its own good business 
decisions. These incentives are especially strong in an era when the 
defense budget is going to shift to relatively slow real growth from 
the quite rapid real growth trajectory of the past decade. But I have 
also reminded industry leaders on several occasions of our shared 
interest in cost savings--not by threatening them with punitive 
policies but rather by pointing out the reality that cost overruns and 
continued inefficiency will lead to broken programs and capability 
shortfalls for warfighters.
    As part of the ongoing Efficiency Initiative, the Department is 
doing two things to strengthen industry's cost-saving efforts. First, 
we are looking for ways to remove those burdensome rules that lead 
contractors to increase costs while adding little value. Many of these 
burdens built up unintentionally in an era when rising budgets made it 
easier to resolve program difficulties by appealing for more resources 
than by streamlining processes or rationalizing facilities. Second, we 
are crafting acquisition rules and guidelines to let contractors and 
the military departments share the benefits of cost reduction, giving 
both buyers and sellers a direct interest in finding savings.
    The Department monitors contractor performance through several 
mechanisms. Acquisition programs go through a series of reviews during 
which the Department's leadership tracks actual program performance, 
compares performance to expectations determined earlier in the program, 
and, if necessary, makes course corrections. The Efficiency Initiative 
is creating streamlined templates for these reviews that focus on 
meeting affordability targets that explicitly incorporate projected 
savings from cost-saving reforms. In addition, we have reinstated the 
series of regular, high-level meetings between defense industry and 
Department leaders, and we are soliciting cost-saving ideas from 
industry--backed by real data--that we can incorporate into our 
continuing efficiency efforts. These various mechanisms should yield 
helpful data-based inputs to future budget discussions.

    20. Senator McCain. Dr. Carter, what benchmarks or metrics have you 
established to track the response and performance of the defense 
industry?
    Dr. Carter. The Department does not have a simple set of metrics to 
track the response and performance of the defense industry as a whole. 
The Office of Industrial Policy monitors the health and capability of 
the defense industrial base, using a variety of measures suited to the 
different sectors of the industry. For example, Industrial Policy looks 
at the number of competitors in each sector, the financial health of 
important companies, new investments and depreciation of physical 
capital, research and development expenditure, and many other metrics. 
To the extent possible, Industrial Policy tracks all levels of the 
supply chain, although the complexity of the defense industry reduces 
real-time visibility into the lower tiers, especially relative to 
visibility at the prime contractor level.
    The Department also uses databases like the Contractor Performance 
Assessment Reporting System (CPARS), which includes a rating system for 
contractors' performance in their previous interactions with the 
Department. CPARS data contribute to source selection for future 
contracts. As part of the Efficiency Initiative, the Department is also 
developing a set of systematic metrics that we will use to choose 
participants in the new Department-wide pilot Superior Suppliers 
Innovation Program, but we have not yet finalized the selection 
process.

                            saving analysis
    21. Senator McCain. Mr. Lynn, obviously, what is proposed by 
Secretary Gates is aggressive and ambitious. What analysis, if any, has 
been conducted to determine how much would likely be netted in savings 
on an annual basis as a result of the eight initiatives?
    Mr. Lynn. The Department is still evaluating the implementation 
mechanisms and resource implications. These initiatives were never 
about just saving money. The idea was to increase the effectiveness of 
the Department with the goal of increasing our military capabilities 
now and in the future. Redirecting resources, in the form of savings, 
from low-valued to higher-valued uses is an important means toward that 
end.

    22. Senator McCain. Mr. Lynn, how do you intend to track and 
validate the projected savings that have been achieved? For example, 
what baseline should we adopt for the total current cost of support 
contractors that will be reduced by 10 percent over the next 3 years?
    Mr. Lynn. Savings are being tracked internally. For service support 
contractors, the baseline will be set by 2010 service support contract 
funding. We are surveying our component organizations to determine the 
actual level of this funding.

    23. Senator McCain. Mr. Lynn, what is the projected savings 
achieved by the elimination of the Business Transformation Agency (BTA) 
JFCOM?
    Mr. Lynn. The exact savings from the disestablishment of JFCOM, 
BTA, and NII are still being determined. We expect to have cost 
estimates available on or before the President's budget request is 
delivered to Congress.

                       potential for hollow force
    24. Senator McCain. Mr. Lynn, aside from the eight initiatives in 
Track 4, Secretary Gates has asked the military departments to find 
$100 billion over the next 5 years. As you know from past years, the 
tendencies of the military departments when faced with similar 
directives have been to cut budgets for support activities such as base 
operations, facility maintenance, training, and equipment purchases. 
All of these actions have the effect of degrading readiness over time 
and contributing to a hollow force. Do you plan to assess the budget 
submissions of each of the Services to approve the sources of the 
savings or will the Services be given the flexibility to assume risk in 
certain mission areas?
    Mr. Lynn. Yes, every savings proposal is undergoing an assessment 
and analysis by OSD as part of the process to build the fiscal year 
2012 budget. Maintaining readiness continues to be a top priority and 
no proposal will be accepted that undermines readiness. To the 
contrary, the goal is to achieve efficiencies in support functions so 
that we can strengthen the funding for readiness efforts.

    25. Senator McCain. Mr. Lynn, what guidance have you given the 
military departments to concentrate their efforts on improving 
efficiencies as opposed to cutting essential operations and maintenance 
accounts?
    Mr. Lynn. In June, we issued guidance to the military departments 
explaining that the purpose of this effort was to improve the 
effectiveness and efficiency of our business operations so that we can 
increase funding available for our mission functions. Specifically, 
this guidance instructed the military departments to take resources 
from areas like headquarters, administrative functions, support 
activities, and other overhead and reinvest them in areas like 
personnel in units, force structure, readiness, procurement, and RDT&E.

    26. Senator McCain. General Cartwright, both the Army and the 
Marine Corps have indicated that there will need to be continuous 
investments in the resetting of combat forces well beyond the end of 
the war in Afghanistan. In past years, these reset costs have been 
covered in supplemental appropriations requests to provide our combat 
forces with the equipment and training needed to restore readiness. 
With the shift to a reliance on base budgets, coupled with the effort 
to find efficiencies in the current budget, do you expect the Army and 
the Marine Corps will be able to budget for all the costs of reset in 
future years?
    General Cartwright. In recent budget requests, the Department has 
included funding for long-term reconstitution. Long-term reconstitution 
is the reset of capability and equipment that is not needed immediately 
to get a unit ready for deployment, but which needs to be done at some 
point in the future, to ensure the unit's full operational readiness. 
This reconstitution is expected to take place over several years.
    The purpose of the efficiencies initiative is not to reduce the 
Department's top line budget, but to significantly reduce excess 
overhead costs and apply the savings to force structure and 
modernization. The efficiencies initiative will not impact the 
Department's ability to reset combat forces. In fact, the reset of 
combat forces is exactly the type of warfighting capability that the 
efficiencies initiative will bolster using savings garnered from 
overhead efficiencies.

    27. Senator McCain. General Cartwright, regarding the projected 
growth in the DOD budget adjusted for inflation, you mentioned in your 
opening statement that ``there is risk the projected 1 percent real 
growth may not be realized.'' Can you elaborate on this concern?
    General Cartwright. The nation's economic situation, combined with 
historical budget trends, will likely squeeze Federal spending, to 
include defense. Without 2 to 3 percent real annual growth, it will be 
difficult to maintain force structure and modernization efforts. The 
efficiencies initiative will address overhead cost growth and redirect 
the savings to high priority warfighting capabilities. This effort will 
ensure we use Defense dollars to their maximum potential and close the 
gap toward what is needed for warfighting requirements.
                             base closures
    28. Senator McCain. Mr. Lynn, one of Secretary Gates' announcements 
specifically sent shivers through every military community in the 
country--the authorization to each of the military departments to 
consider consolidation or closure of excess bases and other facilities 
where appropriate. The Secretary mentioned ``legal constraints on DOD's 
ability to close installations.'' The only statute currently in place 
regarding base closure is a requirement for a notification to Congress 
by the Department of the intent to close a base, along with a 
justification followed by a wait period of 60 calendar days. In 
response to requests by previous administrations, Congress specifically 
authorized a process involving an independent commission to make 
decisions in five previous rounds of BRAC. Would the Department prefer 
to select bases for closure without the involvement of an independent 
commission?
    Mr. Lynn. In furtherance of his responsibility to ensure that DOD 
operates efficiently and effectively in the performance of its 
missions, the Secretary has asked the Secretaries of the military 
departments to ``consider consolidation or closure of excess bases and 
other facilities where appropriate.'' The Department recognizes the 
value of a BRAC Commission process for ensuring transparency and 
objectivity when considering closure and consolidation actions. In the 
absence of BRAC authorities, however, it is prudent for the Department 
to continue pursuing efficiencies within its statutory limits because 
of the potential financial and operational benefits that could accrue 
from such an effort. As you indicated, the Secretary of Defense has the 
authority to close and realign military installations outside of the 
BRAC Commission process, provided the action does not trigger the 
thresholds established in section 2687 or, if it does, the Department 
follows the procedures set forth in that statute, which are far more 
extensive than a simple congressional notification. If the Secretaries 
of the military departments identify any actions that could involve the 
closure or realignment of a military installation, those actions will 
only be undertaken in accordance with law.

    29. Senator McCain. Mr. Lynn, we have many major reviews and 
initiatives underway with significant bills including moving marines 
from Okinawa to Guam, tour normalization in Korea, and the final number 
of forces in Europe. Regarding base closures, are you also encouraging 
the consideration of closing bases overseas? If so, will these 
considerations undergo any operational analysis or assessment to 
measure impact on global commitments?
    Mr. Lynn. The Department encourages efficiencies across the 
Services, and supports cost-saving measures regardless of location. The 
Army's consolidation of functions in Germany (at Wiesbaden) is an 
example of a cost-saving measure overseas. This action will produce 
efficiencies and allow the return of two sites to the host nation. As 
is the case for all closure/realignment actions, overseas initiatives 
undergo analyses to identify associated risks/impacts, to include 
impact on operational requirements and an assessment of applicable 
global commitments.

    30. Senator McCain. Mr. Lynn, will these assessments of potential 
cuts in globally arrayed forward deployed forces be accompanied by an 
estimate of expected savings?
    Mr. Lynn. Yes, but note that these decisions will not be made on 
the basis of savings alone. The Department will consider all of the 
resource implications pertaining to changes in forward deployed forces.

                        doing more without more
    31. Senator McCain. Dr. Carter, it seems like a common request we 
always make of our men and women in the military is to keep on ``doing 
more without more.'' To the personnel in the field, they see cuts to 
manning and service contracts and the directive to do it themselves, so 
that someone higher up the chain can claim an achievement of 
efficiency. What is the Department doing to ensure that military 
personnel are not saddled with these additional tasks?
    Dr. Carter. The goal of the Secretary of Defense efficiency effort 
is to move overhead resources to where we need it most--to the field. 
We believe these initiatives will benefit our combat forces in two 
significant ways. First, they will make the Department flatter and more 
effective by eliminating needless layers of bureaucracy. Second, where 
removing bureaucratic layers and the functions generate savings, they 
will be refocused toward current forces and the development of future 
capabilities.

    32. Senator McCain. Dr. Carter, what do you expect will be the 
impact of these efficiencies to our combat forces?
    Dr. Carter. These initiatives should benefit our combat forces in 
two ways. First, many of these initiatives are geared to make the 
Department flatter and more effective by eliminating needless layers of 
bureaucracy. Second, where removing these layers and the functions that 
go with them have generated savings, those savings are being refocused 
toward current forces and the development of future capabilities.

    33. Senator McCain. Dr. Carter, the most recent QDR was supposed to 
take a hard look at requirements and challenges over the next 20 years 
and to set forth a series of priorities to meet those challenges. Yet, 
it seems like there has been little analysis in the effort to reduce 
requirements or at least reevaluate roles and missions efficiently meet 
those requirements. In the directive given to the military departments 
to find $100 billion in efficiencies, how much flexibility do they have 
to engage in an assessment of relative roles and missions?
    Dr. Carter. The Track 1 effort that you are referring to was not 
intended to prompt a comprehensive roles and missions review for the 
military departments. Rather, it is an effort to improve the 
effectiveness and efficiency of our business operations to provide 
funding available for our mission functions.

    34. Senator McCain. Dr. Carter, where does the pursuit of 
efficiencies end and the assessment of roles and missions begin?
    Dr. Carter. Organizational assessments are a significant part of 
our efficiency initiatives and scrutinizing roles and missions are a 
fundamental component of these assessments. In particular, 
recommendations to disestablish JFCOM, BTA and NII are rooted in a 
detailed assessment of the value of their discrete roles and missions 
and the best means to continue providing those roles and missions that 
are highly valued.

                        fixed-price contracting
    35. Senator McCain. Dr. Carter, there appears to be some concern or 
confusion surrounding what you intend on fixed-price contracting. 
Please describe this initiative in more detail.
    Dr. Carter. While I recognize that one size does not fit all, there 
are times when the use of Fixed-Price Incentive Firm Target (FPIF) 
contracts is not only appropriate but desirable. FPIF contracts 
establish an appropriate balance or sharing of reward and risk between 
the government and industry. This type of contract structure is 
generally appropriate in early production efforts and in single-source 
production where improvement in price on a year-to-year basis can be 
rewarded.
    As I have stated previously, a good starting point in an FPIF 
contract is a 50/50 share line and a ceiling of 120 percent. Again, one 
size does not fit all and, in specific instances, the share line may 
need to be adjusted to address more uncertainty in cost. The issue of 
cost uncertainty may exist in programs that are early in production and 
in those instances, the issue of cost risk needs to be discussed and 
fully understood by both sides prior to establishing the share line.
    Based on historical experience, the 120 percent ceiling is 
generally appropriate for establishing the government's liability in an 
overrun of the target cost. As I noted in my September 14 memorandum to 
the DOD acquisition professionals, a higher proposed ceiling requires 
explanation to the relevant head of the contracting authority and a 
lower ceiling would suggest that a firm fixed-price contract may be in 
order.

    36. Senator McCain. Dr. Carter, what has your response been to 
industry criticism that your approach would require contractors to take 
on too much risk and could ultimately hamper the fielding of 
technologically advanced capability?
    Dr. Carter. AT&L is interested in balancing risk and reward between 
the government and industry. We want to move away from imposing fixed-
price contracts on programs where significant innovation and unknown 
costs can be anticipated--specifically, programs that are developing 
technologically advanced capability where the risk of successful 
performance is significant. Generally, we want to avoid Cost Plus Award 
Fee contracts because they contain subjective measures of award fee 
that are not clearly tied to cost control and solid results. We suggest 
the use of FPIF Target as a preferred choice where appropriate because 
in many circumstances it does achieve an appropriate balance of risk 
and reward for both the government and industry.
    An FPIF contract structure would be considered appropriate early in 
production or in single-source production where year-on-year price 
improvement can be rewarded. There may well be other occasions where 
conditions can be created that will support the use of an FPIF 
contract. Ultimately, the benefit of an FPIF contract is that it shares 
the costs of overruns and rewards underruns in a given transaction. It 
incentivizes both industry and the government to perform well.
    The share line of 50/50 that we have suggested for an FPIF is a 
recognition that the government and the contractor have a common view 
of the likely outcome of the contract's execution cost. If that view is 
not shared, there needs to be discussion of the factors that support a 
different share line. Also, the 120 percent ceiling starting point 
recognizes the historical experience in DOD with regard to program 
overruns.

            targeting affordability and driving productivity
    37. Senator McCain. Dr. Carter, I appreciate your intent to 
``mandate affordability as a requirement'' and ``drive productivity 
through `should cost' management.'' Setting an affordability target 
early; requiring that tradeoffs be made between engineering elements, 
time, and cost a lot earlier than we've done to date; and having that 
analysis guide how the program will be managed throughout its 
lifecycle, reflects many of the concepts that we identified as 
important in the WSARA of 2009. I am, however, concerned about the 
Department's ability to do the kind of engineering tradeoff analysis 
and cost-estimating needed to make those initiatives work. I'm 
particularly concerned about whether the Services, which would 
presumably cover smaller programs in this regard, have the requisite 
capability. Having sufficient relevant cost- and engineering-related 
capability is, needless to say, vital to ensuring that those 
affordability and productivity initiatives will work as intended. Do 
you agree that, currently, the relevant cost- and engineering-related 
capabilities within the Department are insufficient to support your 
affordability and productivity proposals now, and if so, how do you 
intend to address those capability gaps?
    Dr. Carter. The Department has cost and engineering capabilities 
within the existing acquisition workforce to perform a range of 
analytical trade studies critical to facilitating affordability 
decisions. However, the Department recognizes that the size and 
composition of this existing cost and engineering workforce must be 
expanded to be able to apply those core capabilities to meet the more 
detailed affordability analysis needs of all acquisition programs and 
to more fully enhance those capabilities in support of Major Defense 
Acquisition Programs.
    The Department is committed to revitalizing cost-related 
capabilities and reversing a decade-long decline in the organic 
workforce. To get best value for taxpayers, DOD will enhance the cost-
estimating and pricing capability to improve program estimates and 
ensure we price contracts appropriately. As reported in our April 2010 
report to Congress ``The Defense Acquisition Workforce Improvement 
Strategy fiscal year 2010,'' to improve quality, the Department is 
expanding and improving training programs in this area. We have created 
a separate cost-estimating career path within the Business career 
field, and now require 7 instead of 4 years of experience to achieve 
Level III certification. Currently, the Department has more than 900 
cost-estimating positions in the DOD acquisition workforce supporting a 
diverse set of technical and program activities. The cost analysis 
capability at the program office level is supported and guided by 
existing cost analysis organizations within each Component acquisition 
product division and organizations at the Component headquarters level 
that provide independent cost analyses to support Component Acquisition 
Executive decisions. In the Office of the Secretary of Defense, the 
Cost Assessment and Program Evaluation organization provides an 
additional level of capability to provide estimates to inform 
Department-level decisions on acquisition programs and their 
affordability.
    In terms of engineering-related capabilities within the acquisition 
workforce, the Department currently has 38,000 positions in the 
``Systems Planning Research Development Engineering (SPRDE)'' technical 
workforce. The SPRDE workforce represents the Department's core 
capabilities for executing the range of engineering trade-off studies 
including life cycle cost modeling in all phases of the acquisition 
process. These trade studies and modeling activities are critical to 
making informed choices that impact system affordability.

    38. Senator McCain. Dr. Carter, how long do you think it will be 
before DOD and, in particular, the military departments will have the 
relevant cost- and engineering-related capability needed to make those 
initiatives work?
    Dr. Carter. For cost-related capability: The Department has the 
capability to make these initiatives work and is already seeing 
examples to increase our confidence. The Department has been working 
closely with the military departments on several MDAPs, with good 
results from carefully thinking through requirements, costs and 
engineering trade-offs. As Secretary Gates has said, ``There is no 
silver bullet'' for changing how the Department conducts business, and 
it will take time to fully implement these ideas across the Department 
and inculcate these practices in all acquisition programs.
    For engineering-related capability: As part of the Organization and 
Capability Assessment efforts mandated by WSARA of 2009, the Department 
is currently working with the military departments and agencies to 
assess the current capability of the workforce members providing 
engineering-related expertise. The Department possesses the 
capabilities needed at the present time by using government personnel 
with augmentation from systems engineering-focused Federally-Funded 
Research and Development Centers and other contractor personnel. The 
transition to an indigenous organization of government technical 
personnel is in progress and is anticipated to take several years.

        business transformation and protecting core competencies
    39. Senator McCain. Dr. Carter, for a while now, I have called on 
the DOD to achieve audit-ready financial statements. In my view, that 
is vital to ensuring that taxpayer dollars are not being wasted, 
stolen, or otherwise abused. But, that can only be achieved by getting 
robust ``transaction-level'' accountability--through ``end-to-end'' 
business systems developed under a single, broad business enterprise 
architecture plan. Much of the technical expertise that has supported 
that effort has resided within the Office of Business Transformation 
Agency (BTA). Now that the BTA will be dismantled under the savings and 
efficiencies initiative, how will those skill sets be preserved and 
cultivated and where will they go?
    Dr. Carter. When the BTA was established in 2006, it was entrusted 
with the mission of reforming and modernizing the Department's business 
practices. In 2008, Congress created a Chief Management Officer (CMO) 
and Deputy Chief Management Officer (DCMO) to improve business 
operations from the highest levels of the Department. The Secretary 
determined this arrangement is duplicative and that it is time to close 
the BTA and consolidate some of its functions within the Office of the 
DCMO and other organizations.
    The DCMO is working with the Department's senior leadership to 
ensure BTA's critical skillsets and functions are retained. While it is 
premature to say specifically what the results of this effort will be, 
statutorily required key drivers of our business transformation 
efforts, such as the Business Enterprise Architecture, will continue to 
be key management priorities. The Department is committed to 
accomplishing the Secretary's vision of reducing overhead costs by 
eliminating excess and duplication while still ensuring every taxpayer 
dollar is well spent.

    40. Senator McCain. Dr. Carter, what about other competencies 
related to, for example, how the Department buys major systems--in 
particular, those that actually enable savings and efficiency and are, 
as such, worthy of increased investment?
    Dr. Carter. The purpose of the efficiency initiative is to redirect 
the Department's limited resources from unproductive to productive 
purposes. A natural result of this process will be increased investment 
in areas where the Department identifies more productive uses for our 
limited resources. The Department will identify those areas for 
increased investment by pursuing the five following goals: (1) Target 
Affordability and Control Cost Growth; (2) Incentivize Productivity and 
Innovation in Industry; (3) Promote Real Competition; (4) Improve 
Tradecraft in Services Acquisition; and (5) Reduce Non-Productive 
Processes and Bureaucracy. In parallel with these efficiency 
initiatives the Department is continuing to build its acquisition 
workforce, both in size and in capability.

    41. Senator McCain. Dr. Carter, in those areas, the better we 
perform in those areas, the more money will be saved for the taxpayer. 
Are they subject to being cut under the initiative?
    Dr. Carter. The Department will not cut the core competencies that 
are saving the Department money; doing so would be inconsistent with 
the goals of the Secretary's efficiency initiative.

    42. Senator McCain. Dr. Carter, when will we get auditable 
financial statements?
    Dr. Carter. We recognize that Congress places a high priority on 
the Department's audit readiness and that the National Defense 
Authorization Act for Fiscal Year 2010 requires DOD to have fully 
auditable financial statements by 2017. Achieving auditability is not 
an easy task for the Department. However, the current approach put in 
place by the Under Secretary of Defense (Comptroller) is sound.
    The Department is focusing first on improving the quality, 
accuracy, and reliability of the financial and asset information that 
we use every day to manage the Department with clear near- and mid-term 
goals. This approach lays the foundation for achieving auditability in 
the most cost effective way, while simultaneously improving the daily 
management of our financial enterprise. The Department has also created 
a strong governance framework to manage its audit readiness efforts and 
dedicated the necessary resources to the effort to achieve success.
    Achieving auditability is dependent on a number of factors--such as 
the successful implementation of many defense business systems, 
including Enterprise Resource Planning Systems. With the successful 
implementation of these systems, additional resources devoted to 
financial improvement, and a well developed Financial Improvement and 
Audit Readiness Plan, the Department should achieve significant 
progress toward audit readiness by 2017.

                               insourcing
    43. Senator McCain. Dr. Carter, Secretary Gates stated on August 9, 
2010, his intent to discontinue the conversion of contracted work to 
in-house work, also known as insourcing. The reason that he cited for 
reversing course was that he wasn't seeing expected savings from 
insourcing those jobs. Please elaborate on the lack of expected savings 
from insourcing. Specifically, what has been the end result of 2 years 
of growing the civilian personnel manning without assessing the long-
term impact in terms of benefits.
    Dr. Carter. In April 2009, the Secretary announced that he wanted 
to find $900 million in savings through insourcing a specific segment 
of contracted services. These positions were insourced and the $900 
million goal was reached, but these positions were only about 1 percent 
of all contracted services. While we were insourcing this small segment 
of services, we were also spending a lot more on providing most other 
services. The net increase turned out to be more than $5 billion from 
fiscal year 2009 to fiscal year 2010. While insourcing remains an 
appropriate course of action in cases where contracted functions would 
be more effectively performed by government personnel, we must focus on 
reducing our total growth. For DOD organizations where the Secretary 
has directed us to limit organizational growth, in-sourcing efforts are 
being evaluated in terms of mission priorities and, where appropriate, 
exceptions for in-sourcing may be submitted.

    44. Senator McCain. Dr. Carter, despite Secretary Gates' statement, 
I understand that, in actuality, the Department is not reversing its 
insourcing initiative. While there will be a billet freeze on DOD 
components (other than the military departments), insourcing within the 
military departments will not only continue but it will continue at its 
original pace. Is this correct? Can you clarify Secretary Gates' 
current plan on insourcing?
    Dr. Carter. All DOD components are reviewing contracted services 
and providing consideration for in-sourcing those services. There are 
DOD organizations at which no contracted services have been identified 
as appropriate for in-sourcing but no DOD organizations are outright 
exempted from in-sourcing. For DOD organizations where the Secretary 
has directed to limit organizational growth, in-sourcing efforts are 
being evaluated in terms of mission priorities and, where appropriate, 
exceptions for in-sourcing related growth may be submitted.

    45. Senator McCain. Dr. Carter, in those cases where you do a cost 
analysis to determine whether insourcing would be more cost-effective 
than outsourcing, problems exist with the quality of these analyses 
(e.g., bad or old data, assumptions, et cetera). As the Department 
continues its in-sourcing initiative, to what extent will those 
business cases be done openly and transparently--to ensure their 
fidelity?
    Dr. Carter. When cost effectiveness is the determining factor for 
in-sourcing contracted services, such as those services determined to 
be not inherently governmental, not closely associated with inherently 
governmental, or not otherwise exempted from private sector performance 
(i.e., to mitigate risk, ensure continuity of operations, build 
internal capacity, maintain control and oversight of operations, meet 
readiness needs, etc.) cost analyses are required to be done in 
accordance with the business rules set forth in Directive Type 
Memorandum (DTM) 09-077.
    This DTM establishes business rules for use in estimating and 
comparing the full costs of military and DOD civilian manpower and 
contract support. The full costs of manpower include current and 
deferred compensation costs paid in cash and in-kind as well as non-
compensation costs. The DTM mandates that DOD components shall use the 
business rules to estimate the full costs of the defense workforce in 
support of strategic planning, defense acquisition, and force structure 
decisions, as well as when performing an economic analysis in support 
of workforce decisions. This includes, but is not limited to, 
determining the workforce mix of new or expanding mission requirements 
that are not inherently governmental or exempt from private-sector 
performance. The DOD Components shall also use the business rules to 
decide whether to use DOD civilians to perform functions that are 
currently being performed by contractors but could be performed by DOD 
civilians. All DOD Components must adhere to these rules which are 
publicly available via the DOD's issuances website. Additionally, the 
cost factors the DTM requires for consideration are all in the public 
domain.
    Individual cost analyses in support of in-sourcing actions are not 
made publicly available by the Department due to concerns over the 
inclusion/release of private sector propriety pricing information and 
business sensitive information. Furthermore, public release of cost 
analyses could put at risk the integrity and fidelity of future 
procurements and the ability of affected private sector interests to be 
competitive. Firms affected by individual in-sourcing decisions may 
request a cost analysis through Freedom of Information Act (FOIA) 
channels. Requests will be reviewed and adjudicated in accordance with 
all standard FOIA regulations and Department practices.

    46. Senator McCain. Dr. Carter, what, if anything, are you doing to 
ensure that openness and transparency across the military departments, 
in particular?
    Dr. Carter. Our acquisition workforce strategic plan, available to 
the public online, at https://acc.dau.mil/acquisitionworkforce, details 
our workforce strategies, key measures, and initiatives. DOD provided 
this plan, which includes appendices for each of the Military 
Departments, to Congress in April 2010. Openness and transparency are 
also achieved by sharing and reviewing progress at the defense 
acquisition workforce senior steering board that I chair and is 
composed of senior acquisition component and functional leaders.

    47. Senator McCain. Dr. Carter, what, if anything, are you doing to 
ensure that your proposal on insourcing is being implemented properly 
and consistently among all the military departments?
    Dr. Carter. When it comes to my efforts to rebuild the capacity and 
capability of the Defense Acquisition Workforce, in part through 
insourcing contracted services, I have supplemented Deputy Secretary 
Lynn's and other Department-wide policies implementing statutory 
workforce shaping with guidance directly geared to the acquisition 
community and its leaders. To date, our monitoring of growth resulting 
from insourcing within the acquisition workforce, consistent with our 
human capital planning efforts, is strengthening our in-house 
engineering and program management capability. This growth is 
consistent with our broader strategies to strengthen key in-house 
acquisition workforce capability.

         adjusting progress payments to incentivize performance
    48. Senator McCain. Dr. Carter, as you of course know, from a 
financing perspective, how the DOD customarily pays its bills (that is, 
upfront, regularly and often before the contractor performs) tends to 
overwhelmingly favor industry. So, without any benefit to the taxpayer, 
the DOD tends to provide industry with a high cash flow return on 
invested capital. I'm intrigued about what you intend to do to change 
that. Please explain what you intend to do more fully.
    Dr. Carter. There will be short- and longer-term aspects to this 
initiative to insure we are being fair to industry while protecting the 
interests of the taxpayer.
    The current Federal Acquisition Regulations states that when 
Government financing is provided, Performance Based Payments (PBPs) are 
the preferred method on fixed price contracts. PBPs provide financing 
up to a maximum of 90 percent of the contract price which provides 
considerably better cash flow to the contractor than customary progress 
payments which, for large businesses, provide 80 percent of the 
contract cost. The financial value of this better cash flow is 
measurable. Based on Department data, it does not appear that the 
Government has been receiving adequate consideration when PBPs are 
used.
    My September 14th memorandum entitled ``Better Buying Power: 
Guidance for Obtaining Greater Efficiency and Productivity in Defense 
Spending'' stated that the Department will negotiate prices on the 
basis of customary progress payments and then consider an arrangement 
that provides better cash flow to the contractor and negotiate adequate 
consideration. The Department is developing a tool (cash flow model) 
that will be made available and mandated for use by all contracting 
officers when the Government provides PBPs in lieu of customary 
progress payments. This tool will also be adapted for use in other 
situations in which improved cash flow might be provided to the 
contractor. Since industry and the Government have a different view of 
the time-value of money, a win-win solution (Lower Price for Better 
Cash Flow) can be identified. This use of the tool will allow both 
sides to benefit fairly from the improved cash flow.
    Longer term, the Department is examining the structured approach 
(Weighted Guidelines) used to develop Government profit objectives on 
contracts. The impact of contract financing will be a part of this 
review to ensure the benefits of cash flow are adequately addressed in 
the profit policy. Changes to profit policy require changes to 
associated regulations and public input and comment, which will take 
longer to implement.

    49. Senator McCain. Dr. Carter, do you have even a rough sense of 
how much taxpayers could benefit from this particular initiative?
    Dr. Carter. Based on data collected in the Department's profit 
reporting system, a conservative estimate of savings would be 
approximately hundreds of millions per year based on the value of 
contracts using Performance Based Payments as the method of contract 
financing.

            eliminating low value added statutory processes
    50. Senator McCain. Dr. Carter, among the internal processes that 
you have identified as providing little value are certain Nunn-McCurdy 
reviews--in particular ``full'' reviews of programs that have grown in 
cost only because of changes in how many units we want to buy. I 
understand that, in those cases, you want some relief. We have, 
however, come far in changing Nunn-McCurdy from just a ``paper tiger'' 
into a tool that can help keep program costs from growing excessively. 
Also, bear in mind, that all too many times, we have had to cut how 
much we intend to buy in a program precisely because that program has 
been poorly managed or because it's otherwise poorly performed. Rarely 
do so-called ``technical'' breaches (a term that has no meaning in any 
DOD Instruction or other authority, by the way) occur in a vacuum. So, 
I would strongly suggest caution here. Regarding Nunn-McCurdy, please 
explain exactly what you identify to be the problem here and what you 
have in mind to have the process changed.
    Dr. Carter. I fully support the Nunn-McCurdy process, to include 
the recent improvements that were made by the WSARA of 2009. The 
Department takes each of these breaches very seriously, and we conduct 
the prescribed review according to the provisions of the statute. 
However, each review is costly to perform and should be avoided when 
the critical breach is caused primarily by a change in quantity that 
was made in response to changes in threat or other fielding 
requirements and not the result of poor performance or mismanagement. 
For example, the Army Acquisition Objective for the Guided Multiple 
Launch Rocket System and, more recently, the Excalibur projectile 
program were both reduced by more than 70 percent due to an approved 
change in force requirements. Due to a learning curve and the 
amortization of development costs, significant quantity reductions 
frequently result in critical Nunn-McCurdy breaches.
    My proposed revision to section 2433a of title 10, U.S.C., would 
reduce the statutory requirements for critical Nunn-McCurdy breaches 
caused primarily by quantity changes (as long as the quantity change 
was not made as a result of an increase in unit cost). In our proposal, 
the root cause of the cost growth would need to be validated by the 
WSARA-created office of Program Assessment & Root Cause Analysis. Since 
the statutory requirements of a Nunn-McCurdy critical breach under 
section 2433a are extensive, this section would reduce the requirements 
for quantity-related critical breaches. That is, for the review, only a 
root cause analysis would be conducted to substantiate the causal 
effects of the quantity change, followed by a written statement from me 
that it is in the best interests of the Government to continue the 
acquisition program notwithstanding the increase in unit cost.

    51. Senator McCain. Dr. Carter, similar to your proposal on Nunn-
McCurdy, I am concerned about your interest in relieving the Department 
from doing so-called ``look-back'' milestone certifications for 
programs that are already in the development and production pipeline. 
As you of course know, this committee's interest here arose from high-
profile examples of big weapons acquisition weapons being ``put on 
rails'' almost right after they started. That resulted in billions of 
dollars of the taxpayers' money invested without, for example, 
alternatives ever having been analyzed, critical technologies having 
matured, design drawings having been reviewed, et cetera. So, we made 
these milestone elements that needed to be certified to and, for 
programs already in the pipeline, required the DOD to go back and make 
sure these things were done. I believe that what this committee did 
here was a move in the right direction. So, just as with Nunn-McCurdy, 
I would similarly caution care here in changing the current requirement 
dramatically. Please explain what exactly the problem is and how 
Congress can help you address it.
    Dr. Carter. The Department requests the repeal of requirements to 
perform retroactive certifications. The process of applying the 
certification criteria retroactively to programs that had already 
received Milestone (MS) A or MS B approval prior to enactment of WSARA 
provides, at best, marginal utility as a forensic tool and, at worst, 
is a non-productive use of the Department's limited funding and 
personnel resources. Personnel resources available across the 
enterprise were inadequate to review all of the 50-plus programs 
(identified for retroactive certification) against the appropriate 
certification criteria within the time allotted by WSARA. As one 
example of the burden, both the 2366a and 2366b certification criteria 
require an independent cost estimate (ICE) to be performed. Even if the 
Department's cost estimation personnel had been wholly dedicated to 
just that task--forsaking all work on programs that are currently 
approaching Milestone events or that have experienced unit cost 
breaches--the Director of Cost Assessment and Program Evaluation could 
not have completed the necessary 50-plus ICEs with the current number 
of personnel within the allotted timeframe. The Department's resources 
are best employed toward focusing on the appropriate certification 
activities for programs currently approaching a Milestone decision 
event, rather than attempting to apply those certification criteria to 
programs already well-past those events. The lack of a real benefit 
proportionate with the personnel and resource costs of doing 
retroactive certifications is even more evident in the case of those 
programs that had already entered the Production and Deployment phase.

    52. Senator McCain. Dr. Carter, you also assert that organizational 
changes that Congress mandated within your organization (that is, at 
Acquisitions, Technology and Logistics) may require a relook or an 
adjustment. In the WSARA of 2009, we required certain organizational 
changes where, with the benefit of analysis done by or for the DOD, we 
found that some functional areas within your organization that are 
vital to effective program management and oversight had atrophied. In 
those areas (like developmental testing, systems engineering, and cost-
estimating), we concluded that additional investment would likely 
result in greater savings. Now, however, you say that you need 
``flexibility'' to resource your organization. Please describe exactly 
what the problem is here and specifically what you propose in this 
area. Exactly how does your proposal here derogate from organizational 
changes that Congress (and this committee) required?
    Dr. Carter. In support of continuing to implement WSARA and 
continuing to stand up the responsible offices, AT&L has requested that 
the remaining WSARA resources be exempted from the Secretary's 
authorization freeze, to adequately staff the Systems Engineering, 
Developmental Test & Evaluation and Performance Assessment & Root Cause 
Analysis offices.
    AT&L needs to implement WSARA while also finding ``efficiencies'' 
in our workforce by putting the right people in the right positions, 
which may require resource flexibility to fill the desired acquisition 
billets.

                 technological readiness level reviews
    53. Senator McCain. Dr. Carter, I understand that among the OSD-
level reviews, you would like to change at reviews for ``technological 
readiness levels'' (TRL). As you of course know, these reviews are 
vital to informing the Department's investment decisions on programs 
early in the defense acquisition system and to managing those programs 
effectively. For those same reasons, this committee has been pushing 
the Department to review engineering and integration risk similarly. 
But, you would like to eliminate the OSD's review of those kinds of 
risk from its TRL review. If that's done, at what point would the 
Department independently vet engineering and integration risk so as to 
inform its investment decisions on major systems?
    Dr. Carter. The DDR&E has cognizance over both research and systems 
engineering. In response to my concerns about how the Technology 
Readiness Level review and certification process has grown well beyond 
our original intent, his research staff is currently finalizing a new 
approach for evaluating technologies and associated risks to inform 
both program managers and the Defense Acquisition Board decisions. On 
the other hand, I look to the engineering staff to assess independently 
the engineering and integration risks associated with systems and 
systems of systems. They support this effort by conducting Program 
Support Reviews prior to milestones to assess the adequacy of the 
planning and execution of technical and management activities, which 
include engineering and integration efforts. Results are presented to 
the Overarching Integrated Product Team, and a risk assessment is 
presented at my Defense Acquisition Board meetings. These engineers 
also maintain continuous engagement with programs to monitor progress 
and technical risk mitigation activities.

                       service support contracts
    54. Senator McCain. Mr. Lynn, Secretary Gates has stated many times 
that health care costs are unsustainable within the Department's budget 
and will impinge on readiness if unconstrained. The President's budget 
requested over $16 billion for care purchased from civilian providers 
through large health care contracts, an increase of approximately $1.5 
billion from the previous year. In March 2008, the Department announced 
a new acquisition program for DOD purchased care, known as the Third 
Generation of Contracts (T-3). This program was designed to encourage 
competition, improve contractor performance, weed out fraud and abuse, 
and achieve cost savings. 18 months later, only one of three contracts 
has been signed; two others remain in dispute or discussion as a result 
of flaws in the acquisition process. As a result, in addition to not 
achieving anticipated savings in the new contracts, billions have been 
expended by the Department in extension of the existing contracts, 
which is never advantageous to the taxpayer. Several weeks ago we were 
informed that the Department is now beginning to design yet another 
version of these contracts, known as T-4, before the previous version 
has even been awarded. These are some of the largest service support 
contracts in DOD. Is any effort underway to examine the acquisition 
system that has resulted in obvious ``inefficiency'' in proceeding with 
this program?
    Mr. Lynn. Yes, there is an effort underway to examine the 
acquisition system. In early 2010, the Assistant Secretary of Defense 
for Health Affairs appointed a Component Acquisition Executive (CAE), 
as defined in the DOD 5000 series of directives pertaining to managing 
the Defense Acquisition System. Following this action, DOD developed a 
variety of improvements and infrastructure of the acquisition process 
for the Military Health System. For example,

    (a)  The CAE hired and appointed an Acquisition Career Manager to 
oversee identification and certification of the acquisition workforce, 
including conducting a survey to identify the acquisition workforce.
    (b)  The CAE also hired 9 contract specialist developmental 
positions in fiscal year 2010 with plans to hire an additional 22 
developmental positions in various acquisition career fields in fiscal 
year 2011 and beyond to improve TMA's ability to efficiently execute 
timely acquisitions. The CAE is also in the process of identifying and 
appointing Program Executive Officers and Program Managers for major 
acquisitions. To facilitate this effort, the CAE hired professionals in 
program management, systems engineering, and logistics for the CAE 
staff to oversee TMA programs and ensure they meet the DOD 5000 series 
requirements.
    (c)  In addition, the CAE is hosting the first ever Industry Day to 
provide transparency into TMA information technology acquisitions.
    (d)  The CAE is aggressively insourcing contract support personnel 
to reduce reliance on contractors and is conducting a spend analysis to 
identify opportunities for strategic sourcing to reduce duplicative 
acquisition requirements and improve the Government's buying power.

    At the same time, as part of initiatives announced by the Secretary 
of Defense; the Under Secretary of Defense for Acquisition, Technology, 
and Logistics; and the Assistant Secretary of Defense for Health 
Affairs/TRICARE Management Activity are reviewing various acquisition 
initiatives with a goal to reduce expenditures of our managed care 
contracts.

    55. Senator McCain. Mr. Lynn, why begin design of a new contract, 
without the benefit of experience under the proposed improvement?
    Mr. Lynn. The Department began the design of a new contract 
acquisition process because the acquisition process is lengthy and 
requires deliberation in order to obtain the best value for the 
Department. We believe that one of the mistakes made in the past was 
not addressing future requirements soon enough to allow for full 
vetting of requirements and approaches. The Third Generation of TRICARE 
Contracts (T-3) current contracts consist of incremental changes from 
those under the Next Generation of TRICARE (TNEX).
    The Twenty-One Total Technology (T4) group will be determining 
appropriate actions during the second year of T-3 delivery and any 
potential statutory or regulatory changes that may be sought could be 
underway with resolution in the third year of service delivery. This 
schedule allows 18 to 24 months to process the follow-on acquisition in 
order to have contracts in place by the end of the current contracts.
    Contracts option exercises are granted for 1 year. The Department 
has a unilateral right to exercise, or not, those options. If the 
Department is able to identify efficiencies and cost reduction through 
a new approach to the acquisition of health care, it would be 
advantageous to the Government to pursue potential additional savings, 
even if it results in less than 5 years of delivery under the T-3 
contracts.

                          cost share increases
    56. Senator McCain. Mr. Lynn, in view of the comments about the 
need to control health care costs, it would come as no surprise to me 
if discussions were not already underway within the Department on 
specific cost saving proposals. I hope that the Department has learned 
from previous mistakes and will consult with Congress, as Secretary 
Gates has pledged, before proposing changes in medical benefits. We 
also expect the Department to consult with beneficiary organizations as 
well prior to proposing changes in the DOD medical program. Can we get 
those commitments from you now?
    Mr. Lynn. The Department is currently considering specific cost 
saving proposals in the DOD and some of those do involve health care 
costs. However, these proposals are still being reviewed. At this time, 
it would be premature for congressional consultation. At the 
appropriate time, we will consult with Congress and discuss these with 
beneficiary organizations.

                      capability portfolio reviews
    57. Senator McCain. Dr. Carter, in your guidance memo of 14 
September, you indicated that you plan to conduct capability portfolio 
reviews similar to the Army's review, which led to the cancellation of 
the Non-Line-of-Sight Launch System (NLOS-LS). Will your reviews be 
confined to acquisition programs only? Or will you review Services' 
contracts as well?
    Dr. Carter. We currently only plan to conduct capability portfolio 
reviews on acquisition programs. OSD-level assessments of services 
contracts that are valued at $1 billion or more have and will continue 
to entail three elements: (1) Review and approval of acquisition 
strategies to ensure alignment with the Department's architecture for 
service contracts; (2) Pre-award peer reviews to ensure new service 
contracts are executed in accordance with law and regulation 
considering best practices and lessons learned; and (3) Post-award peer 
reviews to evaluate whether service contractors are delivering value 
and whether the government team is providing effective oversight. As 
our management of service contracts matures we will consider whether or 
not to conduct portfolio reviews of certain types of service contracts.

    58. Senator McCain. Dr. Carter, will those programs reviewed by 
your office be limited by dollar threshold (e.g. ACAT Level 1 only), by 
special interest items, or by some other criteria?
    Dr. Carter. The reviews are intended to identify redundancies in 
warfighting portfolios. That is, I want to ensure that decisions on 
whether to pursue a specific acquisition program are based on whether a 
portfolio of systems and programs taken together provide all or most of 
the needed capability. As such, the portfolio reviews will not be 
limited by dollar thresholds.

    59. Senator McCain. Dr. Carter, when defense-wide/joint 
capabilities overlap with Service-specific capabilities, who will 
conduct the review, your office or the Service?
    Dr. Carter. Generally, my staff will lead those portfolio reviews 
at the joint and Department-wide level. However, we expect all 
stakeholders to participate.

    60. Senator McCain. Dr. Carter, what is your time frame for 
completing the first two defense-wide reviews of Ground Moving Target 
Indicator (GMTI) systems and Integrated Air and Missile Defense (IAMD) 
systems?
    Dr. Carter. For both of these studies, the initial phase of the 
study has been completed and is in the process of being briefed to 
senior leaders to determine if further analysis is required.

    61. Senator McCain. Dr. Carter, would you be willing to brief the 
committee on the results of these reviews once finalized?
    Dr. Carter. The IAMD and GMTI reviews will inform the fiscal year 
2012 President's Budget (PB) deliberations. As such, they will not be 
completely finalized until the PB is released. Until then, they are 
pre-decisional, and we would not plan to brief them; however, I will be 
happy to discuss the results after the PB is submitted.

    62. Senator McCain. Dr. Carter, what subsequent portfolio reviews 
do you plan on conducting?
    Dr. Carter. We have not directed additional portfolio reviews at 
the Department or joint level at this time. The Component and Agency 
Acquisition Executives will be conducting portfolio reviews to inform 
individual program milestone decisions and budget decisions.

    63. Senator McCain. Dr. Carter, in the same letter, you also 
directed the Services to conduct review for smaller programs. On its 
own initiative, the Army has already conducted/is conducting numerous 
reviews. Have those reviews been sent to you yet?
    Dr. Carter. Not yet. My specific direction was to conduct reviews 
of ACAT II and III programs to identify and eliminate redundancy and to 
provide a report on the results of those reviews, with the first report 
due March 1, 2011. My intent in directing these portfolio reviews of 
smaller programs was to have the Component and Agency Acquisition 
Executives examine their smaller programs and look for opportunities to 
shift resources within their own portfolios from redundancy or low-
value added programs to other programs that provide warfighting 
capability.

    64. Senator McCain. Dr. Carter, what deadline will the Services 
have to meet in conducting their own reviews?
    Dr. Carter. AT&L has asked for a report on the results of Component 
and Agency Acquisition Executive portfolios by March 1, 2011, and 
annually thereafter. However, there is not a specific deadline for them 
to conduct their reviews.

    65. Senator McCain. Dr. Carter, what will the process be for your 
review of their work?
    Dr. Carter. The Component and Agency Acquisition Executives will 
provide reports on the results of their portfolio reviews on March 1, 
2011, and annually thereafter. These results will inform both 
individual program decisions and budget deliberations.

    66. Senator McCain. Dr. Carter, what will happen if you disagree 
with a Service's findings/conclusion on their own program?
    Dr. Carter. The Services' reviews will inform individual program 
decisions and budget deliberations. If the Services and AT&L come to 
different conclusions, additional analysis may be performed to resolve 
uncertainties. In some cases decisions may be taken through the DAB 
process or the budget process that differs from Service-preferred 
positions.
                                 ______
                                 
             Questions Submitted by Senator James M. Inhofe
                         efficiency initiative
    67. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
while I support the overall efficiency initiative begun by DOD, I also 
have several concerns. First, it appears the $100 billion savings 
number was chosen to compensate for a decreasing defense budget, 
projected to only be 1 percent real growth. Secretary Gates has said 
the military needs about 2 to 3 percent real growth in its 
modernization and force structure accounts to maintain the force. 
Projected savings are approx $7 billion in fiscal year 2010, $11 
billion in fiscal year 2013, $19 billion in fiscal year 2014, $28 
billion in fiscal year 2015, and $37 billion in fiscal year 2016. Next 
year, each of the Services has a bogie savings of approximately $2 
billion. What percentage of internal budget growth will this savings 
provide DOD? Is it enough to modernize and sustain our military or will 
Congress see more defense cuts along with the cuts that are driving 
these savings?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Secretary has 
been very clear that he does not support any reduction to the Defense 
topline. He continues to feel that modest growth in the Defense budget 
is absolutely essential to meet the national security challenges of 
today. The intent of the current initiatives is to reduce funding for 
support efforts, the so-called ``tail'' portion of the Defense budget, 
and increase funding for readiness and modernization, the so-called 
``tooth'' portion of the Defense budget. As the Department shifts $100 
billion into warfighting needs, the Nation will gain a much more 
capable Defense force for the foreseeable future.

    68. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
what analysis went into selecting the targeted budget savings each year 
and the overall $100 billion savings target?
    Mr. Lynn, Dr. Carter, and General Cartwright. Secretary Gates 
explained that the Department needs 2 to 3 percent real growth in order 
to sustain the force. In order to achieve this growth, he realized that 
we needed to scrutinize all of our spending and specifically reduce low 
priority accounts like overhead. Given that such profound changes in 
our spending patterns would require equally profound changes in 
behavior, the Secretary and the Chairman settled on $100 billion in 
savings as an amount that would both free up a sufficient amount of 
resources and force behavioral change.

    69. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
what is the analysis that shows these savings are achievable?
    Mr. Lynn, Dr. Carter, and General Cartwright. As he considered this 
decision, the Secretary received a variety of information concerning 
combatant commands, Defense agencies, and the OSD staff, including 
missions, staffing levels, and other data. He spent considerable time 
discussing alternatives, critically considering the input of his most 
senior advisors, including the Chairman and Vice Chairman of the Joint 
Staff, the Deputy Secretary of Defense, the outgoing JFCOM Commander, 
and others.

    70. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
what happens if they cannot or do not achieve their target savings?
    Mr. Lynn, Dr. Carter, and General Cartwright. These initiatives are 
as much about changing from a culture of spending to a culture of 
savings as they are about achieving specific fiscal targets. While I 
have no reason to doubt that we will achieve our targets, I can tell 
you that the pressure to continue to be vigilant about carefully 
allocating resources will continue regardless of this year's outcome.

    71. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
what analysis is going into the cuts being proposed by each of the 
Services?
    Mr. Lynn, Dr. Carter, and General Cartwright. Efforts are currently 
underway to assess the Services' excess overhead costs versus 
investments in force structure, warfighting capabilities, and 
modernization programs. We are reviewing and tracking the service 
submissions, and the fiscal year 2012 budget will reflect the results 
when it is submitted in February 2011.

    72. Senator Inhofe. Mr. Lynn, Dr Carter, and General Cartwright, 
this efficiency initiative also reduces the total number of support 
contractors by 10 percent for the next 3 years, reduces funding for 
congressionally mandated studies by 25 percent, cuts funding for boards 
and commissions by 25 percent, reduces intelligence advisory and 
assistance contract funding by 10 percent, and cuts some organizations 
such as JFCOM. What analysis went into selecting the reduction 
percentages I just mentioned?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Secretary 
embarked upon a four-track approach aimed at making the Department more 
efficient and effective. Before taking any action, the Secretary 
received various assessments that indicated that efficiencies would be 
gained by taking the actions announced in August 2010. These cuts were 
enacted to create persistent decreases in the substantial growth in 
these areas over the last 9 years.

    73. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
did that analysis look at potential impacts of those cuts?
    Mr. Lynn, Dr. Carter, and General Cartwright. Yes. We continue to 
monitor these effects as we implement the cuts.

    74. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
are those hard numbers or will they be based on future assessments, 
meaning the numbers could be more or less than the targeted percentage?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Department will 
continually evaluate the numbers in an effort to further the 
Secretary's efficiency goals.

                               readiness
    75. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
during a difficult economy, resources must be focused on our forces, 
future capabilities, and our troops. It is critical for DOD and 
Congress to work together to increase effectiveness and efficiencies 
but with a bottom line of always providing the necessary funds so that 
our troops are the best trained and equipped military in the world. 
While the savings are internal and not a top line budget cut, people 
and things will be cut. What is DOD's plan to coordinate with Congress 
on attaining these savings?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Department will 
provide details on all savings proposals no later than the time when 
the fiscal year 2012 President's budget request is submitted.

    76. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
when will Congress be informed of the proposed areas that will generate 
the savings in fiscal year 2012 and beyond?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Department will 
provide details on all savings proposals no later than the time when 
the fiscal year 2012 President's budget request is submitted.

         defense spending, efficiencies, and acquisition reform
    77. Senator Inhofe. Mr. Lynn, Dr. Carter, and General Cartwright, 
since the end of the Cold War, our military has done much more with 
much less. Our troops on the front lines are forced to use equipment 
that is well past its service life, in some instances by 30 years. The 
equipment problem is compounded by the fact that the pace at which we 
are purchasing new equipment has been drastically scaled back. The fact 
that Secretary Gates is trying to scrape together $100 billion over the 
next 5 years from various accounts across DOD in order to fund 
modernization efforts is evidence that current spending will not 
sustain our military. Again, while I support this initiative, I firmly 
believe that alone it will not provide the funding for modernization 
and sustainment of our military.
    In addition to Congress and DOD working together to increase 
effectiveness and efficiency, Congress must increase overall DOD 
funding and streamline the acquisition process with legitimate and 
continued reform. Secretary Gates and Admiral Mullen have both talked 
about a goal of setting a target for base or core defense spending . . 
. the number used has been 4 percent and I agree with them. This level 
of spending will guarantee our qualitative and technological 
superiority, increase our military's capability to fight across the 
full spectrum of warfare, and operate at higher readiness rates with 
lower costs.
    This increased spending must accompany continued acquisition 
reform. We cannot sustain our military when programs are running 8 
years behind schedule and 150 percent over budget.
    Unfortunately, our answer is to grow our acquisition bureaucracy 
and procurement process to provide additional oversight. This result 
has often been less accountability due to diffused responsibilities and 
a slowing of the entire process. We currently have Program Managers 
spending most of their time managing oversight requirements instead of 
managing their actual programs. Result is increased costs, delays in 
procurement times, cancelled programs, and wasted funds.
    Congress and the DOD must reduce the complexity of the process by 
removing the multiple layers of oversight and the cumbersome reporting 
requirements and regulations.
    What would you think about creating a Congressional and Executive 
Branch Bipartisan Task Force focused on reforming our Federal 
acquisition process . . . a task force targeted at reducing and 
streamlining our Federal acquisition regulations, maintaining oversight 
but consolidating and reducing reporting requirements, and given the 
authority to effect all areas of our acquisition process from bids 
through procurement with the goal of cost savings, efficiency, and 
timeliness for the production of military hardware?
    Mr. Lynn and Dr. Carter. The Department shares your concern 
regarding the acquisition process and the challenges we face as we seek 
to modernize our forces and weapon systems. As part of the Secretary's 
broad initiative to improve the American taxpayer's return on his 
investment in national defense, Secretary Gates has tasked us to 
improve the Department's buying power and attempt to ``fix'' many of 
the areas you bring to light.
    To put it bluntly, we cannot support our troops with the 
capabilities they need unless we do this. Our challenge is to sustain a 
military at war, take care of our troops and their families, and invest 
in new capabilities--all in an era when defense budgets will not be 
growing as rapidly as they were in the years following September 11.
    The Department welcomes the opportunity to work with members of 
Congress and staff, and we are appreciative of Congress' generous 
support for the Department's modernization programs. At this time, 
however, we do not support a congressional and bipartisan Task Force. 
We believe we can and are addressing these problems effectively. The 
recent WSARA and the measures we are putting in place to strengthen the 
acquisition workforce under the Defense Acquisition Workforce 
Improvement Act of 1990 need to be given a chance to succeed.
    General Cartwright. I agree with the urgent need to improve our 
acquisition processes. In fact, the type of reform proposed is being 
pursued aggressively on two fronts.
    The Joint Staff, in partnership with the military departments and 
OSD, is reassessing the Joint Capability Integration System (JCIDS) 
process to improve responsiveness and decision support to the Joint 
Requirements Oversight Council (JROC), to include affordability-based 
conclusions. In order to improve our efficiency, the Chairman also 
recommended fiscal year 2011 legislative changes. These changes would 
expand the JROC to formally include, by direction of the Chairman, a 
combatant commander when matters related to the area of responsibility 
or functions of that command will be under consideration by the 
Council. This proposal also extends advisory status to select 
principals in OSD and to other civilian officials as deemed necessary 
by the Secretary of Defense. The Joint Staff will again, as part of the 
fiscal year 2012 legislative proposals process, recommend this 
legislative action.
    Concurrently, OSD is conducting a top-down assessment, directed by 
Dr. Ashton Carter, to restore affordability and productivity in defense 
spending.
    We look forward to working with the oversight committees to 
continue to make progress on these critical issues.

                strengthening the acquisition workforce
    78. Senator Inhofe. Mr. Lynn and Dr. Carter, one critical component 
of this initiative is estimating costs. Whether it is ``Should-Cost'' 
or ``Will-Cost'', DOD needs accurate cost estimates. In conjunction 
with the passage of the WSARA of 2009, DOD has been increasing the size 
of its acquisition workforce. At the same time, it is also attempting 
to increase the skill levels and experience of that work force. 
Secretary Carter, you have acknowledged the need to improve the 
quantity and quality of the acquisition work force. What is the current 
status of our acquisition workforce?
    Mr. Lynn and Dr. Carter. Secretary Gates' initiative to strengthen 
the acquisition workforce, announced in April 2009, is well underway. 
We have completed 7,000 of the planned 20,000 new hires. Targeted 
growth and other quality-focused initiatives are strengthening our 
engineering, contracting, cost estimating, and other critical skill 
capabilities and capacity.

    79. Senator Inhofe. Mr. Lynn and Dr. Carter, what is the project 
end state growth of the acquisition workforce?
    Mr. Lynn and Dr. Carter. The Department continues to pursue the 
President's March 2009 direction to ensure the acquisition workforce 
has the right capability and capacity. The President's fiscal year 2011 
budget request provides for continuing the Secretary of Defense 
initiative to grow the acquisition workforce by 20,000 positions by 
2015. While DOD force planning and requirements will evolve, the 
current estimate of workforce size by 2015 is 155,000.

    80. Senator Inhofe. Mr. Lynn and Dr. Carter, what is the impact of 
this efficiency initiative on the workload for the existing workforce?
    Mr. Lynn and Dr. Carter. Our initiatives to improve buying power 
include targeting affordability and cost growth, incentivizing 
productivity and innovation in industry, promoting real competition, 
improving tradecraft in services acquisition, and reducing non-
productive processes and bureaucracy. While these initiatives will 
focus acquisition workforce effort, they are not new and should be part 
of our normal expected workload as we accomplish the business of 
acquisition. DOD efforts to strengthen the acquisition workforce in 
size and quality are key to successful implementation of our 
acquisition reform efforts to improve how we buy and our buying power.

    81. Senator Inhofe. Mr. Lynn and Dr. Carter, how will another cost 
estimate expedite our acquisition process?
    Mr. Lynn and Dr. Carter. Our intention is to employ ``should cost 
analysis'' [the additional cost estimate we believe you refer to] to 
drive productivity improvement into our programs and make the most 
efficient use of every taxpayer dollar. We want our program managers to 
scrutinize every element of program cost, assessing whether each 
element can be reduced relative to the year before, challenging 
learning curves, dissecting overheads and indirect costs, and targeting 
cost reduction with profit incentive--in short executing to what the 
program ``should cost.'' The objective is to more efficiently manage 
scarce resources and drive leanness into each program. Should cost 
analysis is not specifically designed to expedite the acquisition 
process, but the information resulting from the analysis will 
facilitate better business arrangements, improved program planning, and 
promote more predictable cost, schedule and performance outcomes.
                                 ______
                                 
               Questions Submitted by Senator John Thune
             force structure sustainment and modernization
    82. Senator Thune. Dr. Carter and General Cartwright, as you know, 
Secretary Gates stated in his May 8, 2010, speech at the Eisenhower 
Library that ``the fact that we are a nation at war . . . calls for 
sustaining the current military force structure'' and that the goal of 
this efficiencies initiative is to ``cut our overhead costs and to 
transfer those savings to force structure and modernization within the 
programmed budget.''
    On August 9, 2010, Secretary Gates stated that ``the task before us 
is . . . to significantly reduce [the department's] excess overhead 
costs and apply the savings to force structure and modernization.'' Yet 
over the summer, there have been rumors that the B-1 bomber fleet, 
which has been a near constant presence above Afghanistan throughout 
the war, might be proposed to be retired in pursuit of the $2 billion 
in savings the Air Force is required to find under this initiative. 
General Petraeus was before this committee just a few months ago and 
spoke very highly of the B-1's presence and performance in Afghanistan. 
So I'm perplexed by rumors such as these that propose retirement of the 
B-1 fleet to obtain the required savings, in light of Secretary Gates' 
emphasis on sustaining and modernizing our force structure.
    Cutting force structure to find savings under this efficiencies 
initiative contradicts Secretary Gates' directive to cut overhead costs 
and transfer those savings to force structure and modernization, does 
it not?
    Dr. Carter and General Cartwright. The efficiencies initiatives 
will not cut force structure. The goal is to reduce excess overhead 
costs and apply the savings to operational forces and modernization.

    83. Senator Thune. Dr. Carter and General Cartwright, can you 
confirm that the Department is looking only at bureaucratic 
redundancies and overhead and will not reduce force structure in order 
to provide the savings the Department seeks?
    Dr. Carter and General Cartwright. The Department is determined to 
protect current and future warfighting ability. In pursuit of this 
goal, we are considering how to best allocate our scarce resources to 
maximize our capabilities. These considerations remain under review and 
deliberations.

    84. Senator Thune. Dr. Carter and General Cartwright, has Secretary 
Gates issued a mandate which directs the Services to look beyond 
bureaucratic inefficiencies and redundancies and consider reducing 
current force structure as a means to modernize and recapitalize the 
current force structure? If so, please provide a copy of that mandate.
    Dr. Carter and General Cartwright. The Secretary has not issued 
such a mandate.

                        reducing force structure
    85. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
Secretary Lynn has stated that there is an ongoing ``scrub'' of the 
warfighting accounts to ``see if we can gain better effectiveness, 
better efficiency, better productivity from those forces.'' What 
reductions in force structure do you believe would be required to make 
the forces we have the most effective they can be to accomplish the 
mission? Please provide specifics.
    Mr. Lynn, Dr. Carter, and General Cartwright. This ``scrub'' refers 
to the Department's commitment to identify every opportunity to reduce 
overhead and associated costs not an attempt to cut force structure. 
The Secretary's goal was to effect a real cultural change in how we do 
business and gain efficiencies to protect current force structure and 
modernization.

    86. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
should we expect another announcement requesting a further reduction in 
combat air forces, similar to the 250 fighter aircraft that were 
retired this year, with those savings being applied to aircraft 
modernization and recapitalization? If so, what aircraft will you seek 
to retire?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Department is 
currently reviewing the fiscal year 2012 budget, and no final decisions 
have been made with respect to specific programs. Consistent with 
Secretary Gate's efficiencies initiatives, the Department's intent is 
to focus on efficiencies that enable movement of resources from 
overhead activities to fund capabilities required to fight the current 
war and prepare for future conflicts.

    87. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
with regard to the B-1 bomber fleet, do you agree with General 
Petraeus, the current commander of our forces in Afghanistan, that the 
B-1 bomber aircraft plays ``a very big role'' with regard to providing 
close air support for our troops on the ground in Afghanistan, and that 
the B-1 is ``a great platform'' and ``a very capable bomber''?
    Mr. Lynn and Dr. Carter. Yes, as a team member among multiple 
combat assets providing close air support to our troops in Afghanistan, 
the B-1 plays a large role and is a capable platform. The B-1 provides 
the Joint Force Commander massive conventional firepower coupled with 
significant loiter capability perfectly suited for the inconsistent 
tempo of today's ongoing operations in Afghanistan. The B-1's 
supersonic dash capability allows a single aircraft to perform as a 
``roving linebacker'' over large portions of the Area of 
Responsibility.
    General Cartwright. The B-1 provides the Joint Force Commander 
conventional firepower coupled with a loiter capability well suited for 
the tempo of today's ongoing operations. The B-1's dash capability 
allows a single aircraft to perform as a roving standby asset over 
large portions of the area of responsibility (AOR). The Air Force 
continues to improve the B-1's conventional capability through ongoing 
modernization efforts. For example, the B-1 is the threshold platform 
for the Extended Range version of the Joint Air-to-Surface Standoff 
Missile (JASSM-ER). When combined with the ongoing Fully Integrated 
Data Link (FIDL) modification, these investments will ensure the B-1 
remains a leading-edge combat platform.

    88. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
Secretary Gates has said that ``the fact that we are a nation at war . 
. . calls for sustaining the current military force structure''. The B-
1 bomber fleet is an example of the kind of current military force 
structure fighting the war in Afghanistan that should be sustained 
rather than cut, is it not?
    Mr. Lynn and Dr. Carter. The B-1 is a critical part of our combined 
team of platforms supporting our ground troops in Afghanistan. DOD is 
committed to the continuing sustainment and modernization of the B-1 
fleet and will continue to work toward completing the modifications we 
have outlined in the Future Years Defense Program (FYDP). The Air Force 
is currently reviewing the B-1's long-term role as part of the overall 
Long-Range Strike force structure, along with Tactical Air force 
structure, considering military requirements, modernization and 
sustainment costs, and fiscal constraints.
    General Cartwright. DOD continues to sustain and modernize the B-1 
fleet and we will continue to work towards completing the modifications 
programmed in the FYDP. The Air Force is currently reviewing the B-1's 
long-term role as part of the overall Long-Range Strike (LRS) force 
structure and will provide recommendations to DOD leadership for the 
proper balance of bomber assets.

     consolidation or closure of excess bases and other facilities
    89. Senator Thune. Mr. Lynn and General Cartwright, as part of his 
August 9, 2010, announcements, Secretary Gates authorized the military 
departments to ``consider consolidation or closure of excess bases and 
other facilities where appropriate.'' At the time that you are 
answering this question in writing for the record, have there been any 
recommendations made about base closures or consolidations since the 
Secretary's August 9 announcement? If so, please specify.
    Mr. Lynn and General Cartwright. Not to my knowledge.

                      global force posture review
    90. Senator Thune. Mr. Lynn and General Cartwright, Secretary Lynn 
referred to an ongoing global force posture review during the hearing. 
When was the review authorized?
    Mr. Lynn and General Cartwright. The review began as part of the 
2010 QDR.

    91. Senator Thune. Mr. Lynn and General Cartwright, how long has 
the review been in effect?
    Mr. Lynn and General Cartwright. This review began as part of the 
2010 QDR and is ongoing.

    92. Senator Thune. Mr. Lynn and General Cartwright, when will the 
review be completed?
    Mr. Lynn and General Cartwright. We expect some elements of the 
review to be completed in time to inform the fiscal year 2012 budget. 
Beyond fiscal year 2012, the Department will continue to conduct 
rigorous analysis of global force posture, and consider adjustments of 
our approach as the environment warrants.

    93. Senator Thune. Mr. Lynn and General Cartwright, who is 
conducting this review?
    Mr. Lynn and General Cartwright. The review is strategy-driven and 
led by the Office of the Under Secretary of Defense for Policy, in 
close consultation with other elements of OSD, the Joint Staff, the 
combatant commands, and the military departments and Services.

    94. Senator Thune. Mr. Lynn and General Cartwright, what has been 
learned so far during the review?
    Mr. Lynn and General Cartwright. First, forward stationed and 
rotationally-deployed U.S. forces continue to be relevant and required. 
The long-term presence of U.S. forces abroad reassures allies and 
partners of our commitments--we cannot simply ``surge'' trust and 
relationships on demand.
    Second, our defense posture must balance the need for a permanent 
overseas presence with the need for a flexible ability to respond to 
contingencies, emerging threats, and global security needs.
    Third, we must balance the need for assured access to support 
ongoing operations with the risks of introducing fragility into the 
lines of communication. We will seek innovative ways to add strategic 
depth to our posture network.
    Fourth, America's defense posture should provide a stabilizing 
influence abroad and be welcomed by the host nation.
    Finally, our defense posture will continuously adapt to changes in 
the strategic environment. Deliberate, ongoing assessments of national 
interests, military requirements and the strategic environment should 
guide U.S. global defense posture planning.

    95. Senator Thune. Mr. Lynn and General Cartwright, have any 
conclusions been drawn during this review?
    Mr. Lynn and General Cartwright. First, forward stationed and 
rotationally-deployed U.S. forces continue to be relevant and required. 
The long-term presence of U.S. forces abroad reassures allies and 
partners of our commitments--we cannot simply ``surge'' trust and 
relationships on demand.
    Second, our defense posture must balance the need for a permanent 
overseas presence with the need for a flexible ability to respond to 
contingencies, emerging threats, and global security needs.
    Third, we must balance the need for assured access to support 
ongoing operations with the risks of introducing fragility into the 
lines of communication. We will seek innovative ways to add strategic 
depth to our posture network.
    Fourth, America's defense posture should provide a stabilizing 
influence abroad and be welcomed by the host nation.
    Finally, our defense posture will continuously adapt to changes in 
the strategic environment. Deliberate, ongoing assessments of national 
interests, military requirements and the strategic environment should 
guide U.S. global defense posture planning.

    96. Senator Thune. Mr. Lynn and General Cartwright, what are the 
objectives of this review?
    Mr. Lynn and General Cartwright. The purpose of the review is to 
examine the Department's current approach to global posture and to make 
strategic judgments about the need for adjustments. The review is 
strategy-driven, and seeks to rationalize global posture planning with 
resource constraints in a dynamic geostrategic environment.

    97. Senator Thune. Mr. Lynn and General Cartwright, what is the 
intent of this review?
    Mr. Lynn and General Cartwright. The purpose of the review is to 
examine the Department's current approach to global posture and to make 
strategic judgments about the need for adjustments. The review is 
strategy-driven, and seeks to rationalize global posture planning with 
resource constraints in a dynamic geostrategic environment.

    98. Senator Thune. Mr. Lynn and General Cartwright, will this 
review be used to inform decisions on base closures and consolidations 
in the fiscal year 2012 budget?
    Mr. Lynn and General Cartwright. Our ongoing review of global 
posture assesses the strategic and operational implications of overseas 
basing. As such, it helps inform overseas closure and consolidation 
choices.

    99. Senator Thune. Mr. Lynn and General Cartwright, will you 
provide us a copy of the complete review?
    Mr. Lynn and General Cartwright. The global posture review is an 
ongoing process to position the United States for emerging threats and 
opportunities in a dynamic geo-strategic environment. DOD provides an 
annual report to Congress on Global Defense Posture. DOD will complete 
the next iteration of this report during the first quarter of 2011.

                              joint basing
    100. Senator Thune. General Cartwright, according to a September 
20, 2010, Air Force Times article, the Air Force Chief of Staff, 
General Schwartz, said that the 2005 BRAC initiative to consolidate 26 
installations into 12 joint bases is a failure that has not produced 
the cost savings the DOD expected. In fact, the Government 
Accountability Office stated ``it was unclear whether joint basing will 
result in actual savings,'' and an Air War College study stated that 
joint basing is ``actually costing DOD more money than if the 26 bases 
and posts had remained separate.'' What is your reaction to this 
criticism that the 2005 BRAC joint basing initiative has probably ended 
up costing money, rather than saving money?
    General Cartwright. The Chairman and I are supportive of the 
Department's initiative to streamline installation support at 26 of our 
geographically proximate locations into 12 joint bases. The first five 
bases obtained full operational capability (FOC) on October 1, 2009, 
and we are less than 6 weeks into the final seven joint bases obtaining 
FOC. Therefore, it is too early to judge the overall success and 
viability of joint bases. Some innovative solutions have been enacted 
in support of joint bases. Application of a jointly developed support-
standard could potentially have an impact across all installations. The 
Department has also implemented a formalized quality and cost control 
reporting mechanism for joint bases that could also have far reaching 
effects. As expected and planned, there has been cost growth early in 
implementation of these complex mergers. We fully expect lessons to be 
learned that will streamline operations and allow joint basing to 
realize its potential while also acting as a beta test for innovative 
solutions that can be applied to all joint bases.
    The 12 joint bases are:
Phase 1 (established 1 Oct 09)
     1.  Joint Base Andrews-Naval Air Facility Washington (AF Lead)
     2.  Joint Base McGuire-Dix-Lakehurst (AF Lead)
     3.  Joint Expeditionary Base Little Creek-Ft Story (Navy Lead)
     4.  Joint Region Marianas (Navy Lead) = Naval Base Guam, Andersen 
AFB
     5.  Joint Base Myer-Henderson Hall (Army Lead)
Phase 2 (established 1 Oct 10)
     6.  Joint Base Charleston (AF Lead)
     7.  Joint Base Elmendorf-Richardson (AF Lead)
     8.  Joint Base San Antonio (AF Lead) = Lackland AFB, Randolph AFB, 
Fort Sam Houston
     9.  Joint Base Langley-Eustis (AF Lead)
    10.  Joint Base Anacostia-Bolling (Navy Lead)
    11.  Joint Base Pearl Harbor-Hickam (Navy Lead)
    12.  Joint Base Lewis-McChord (Army Lead)

          joint unmanned aircraft systems center of excellence
    101. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
with regard to the proposed closure of JFCOM, I'm concerned about the 
future of the Joint Unmanned Aircraft Systems Center of Excellence 
(JUAS COE), which is owned by JFCOM, and is headquartered at Creech AFB 
in Nevada. One of the key issues General Odierno said he wanted to 
focus on as the new head of JFCOM was to bring his many years of 
experience as a commander in Iraq to bear on the issue of coordinating 
intelligence, surveillance, and reconnaissance (ISR) assets and 
understanding how to best utilize them in an asymmetric environment. 
Can you discuss what the plan is for this JUAS COE?
    Mr. Lynn, Dr. Carter, and General Cartwright. The mission of the 
JUAS COE is to optimize Joint UAS employment through the development 
and integration of UAS common operating standards, capabilities, 
concepts, technologies, doctrine, tactics, techniques, procedures, and 
training. The JUAS COE publishes the Joint UAS CONOPS, where they 
utilize lessons learned from current operations, to form a joint vision 
for the operation, integration, and interoperability of UAS. The CONOPs 
examine unmanned-manned integration, airspace management, and urban 
operations issues. This joint look is critical as we rely more and more 
on UAS.
    We are reviewing all USJFCOM functions, including the JUAS COE, to 
determine whether the continuation of each function is essential. These 
and other considerations, will inform the Secretary of Defense's 
recommendations and decisions concerning each of these functions.

    102. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
who will own it and where will it be located?
    Mr. Lynn, Dr. Carter, and General Cartwright. The integration of 
unmanned aircraft systems (UAS) into joint operations has improved and 
the need for a separate center of excellence to manage the joint 
integration of these systems is yet to be determined. The knowledge and 
expertise associated with the UAS operations located at Creech Air 
Force Base is being considered to serve as a catalyst to drive the 
continued development and improvement of the tactics, techniques, and 
procedures associated with this maturing capability.

    103. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
do you believe this is an important initiative in light of our heavy 
reliance on this capability in the wars we're fighting?
    Mr. Lynn, Dr. Carter, and General Cartwright. The JUAS COE is an 
important initiative with the mission to optimize Joint UAS employment 
through the development and integration of UAS common operating 
standards, capabilities, concepts, technologies, doctrine, tactics, 
techniques, procedures, and training. The JUAS COE publishes the Joint 
UAS CONOPS, where they utilize lessons learned from current operations, 
to form a joint vision for the operation, integration, and 
interoperability of UAS. The CONOPs examine unmanned-manned 
integration, airspace management, and urban operations issues. This 
joint look is critical as we rely more and more on UAS.
    We are reviewing all USJFCOM functions, including the JUAS COE, to 
determine whether the continuation of each function is essential and 
unique. These and other considerations, will inform the Secretary of 
Defense's recommendations and decisions concerning each of these 
functions.

    104. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
what can be done to ensure that General Odierno will still be able to 
focus on this important issue if JFCOM is in fact closed?
    Mr. Lynn, Dr. Carter, and General Cartwright. Any decision 
concerning the JUAS COE will take into account current and future 
operational UAS and ISR capability requirements of joint mission roles 
across all Services and combatant commanders.

    funding for advisory and assistance contractors in intelligence
    105. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
Secretary Gates in his August 9, 2010, speech said that he was 
implementing a 10 percent reduction in funding for advisory and 
assistance contractors in intelligence areas and a freeze in the number 
of senior executives in the defense intelligence organizations. 
Following the attacks of September 11, 2001, we determined that we had 
a critical shortfall in intelligence and immediately began building up 
this capability. It takes years and in some cases decades to build up 
experienced personnel. How will you determine the proper level of 
manpower to eliminate while ensuring we won't harm our current 
intelligence capability?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Department's 
efficiency initiatives are designed to protect current and future 
capability; saving money and reallocating those savings towards 
building capabilities is a means to that end. In that respect, we are 
approaching the intelligence review with the same methodology we are 
approaching every other part of the Department. We are looking for 
unnecessary redundancies and overhead that offer little contribution to 
the critical capabilities that you reference. As part of that effort, 
we are reviewing and prioritizing the Department's Civilian Senior 
Executive requirements, to include our Defense Intelligence Senior 
Executive Service and Defense Intelligence Senior Level positions. 
While this work is still in process, we are actively involving the 
Director of National Intelligence and both the providers of 
intelligence capabilities and their end users in an effort to get a 
complete understanding of where there are opportunities to shift 
resources toward highly valued applications.

    106. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
how much in savings do you expect to gain from this 10 percent 
reduction?
    Mr. Lynn, Dr. Carter, and General Cartwright. These reductions are 
still under review. We expect to provide you more information on these 
savings by January.

       reducing congressional reports while maintaining oversight
    107. Senator Thune. Mr. Lynn, Secretary Gates stated in his August 
9, 2010, Pentagon briefing that ``this Department is awash in taskings 
for reports and studies. In 1970, the Pentagon produced a total of 37 
reports for Congress, a number that topped off at more than 700 reports 
in last year's cycle.'' In addition he stated that in order to 
accomplish these reports, the Department employs nearly 1,000 
contractors with more than 200 of them working full time with a good 
number of those reports internally driven, with the remaining being 
mandated by Congress. Can you discuss why you think there has been such 
an increase in the number of required reports?
    Mr. Lynn. There are a number of reasons and I'll just summarize a 
few. First, considering that the Department has waged two wars spanning 
most of the past decade, and that its operating budget has grown apace, 
it is not surprising that Congressional oversight has expanded through 
its report assignments. Second, during the annual Authorization and 
Appropriation bill processes legislative proposals that need more time 
to fully mature into viable statutory provisions are often supplanted 
by reporting requirements, so that both Congress and the Department can 
gain valuable information to make good proposed law into better and 
viable law. Third, and finally, I also believe that the congressional 
report process itself produces duplicative reporting requirements and 
requests, and that both Congress and the Department would be better 
served if, in partnership, we could more often combine similar reports 
and provide committees interested in the same information one report 
that satisfied all of their oversight requirements, rather than 
producing many reports on the same topic from incrementally different 
perspectives or data-sets.

    108. Senator Thune. Mr. Lynn, Secretary Gates has proposed working 
with Congress to meet our needs while at the same time reducing the 
number of mandated reports. Can you discuss your thoughts on how to go 
about reducing the number of mandated studies?
    Mr. Lynn. The congressional reports process is not appropriately 
coordinated. For example, many of the requested reports cover similar 
issues or are outdated. We would like to have an agreement with 
Congress that streamlines reports so as to eliminate duplication and to 
ensure that what we do provide continues to have value.

    109. Senator Thune. Mr. Lynn, how would you recommend Congress 
conduct oversight and see the analysis behind your decisions without 
requiring these reports?
    Mr. Lynn. The Secretary believes that the intent of eliminating 
duplication and overlap in the requested reports should not negatively 
impact Congress' oversight responsibilities. More efficient use of the 
Department's resources will enhance the quality of the reports and the 
underlying analysis used to support decisions.

           army-air force unmanned aerial vehicle duplicating
    110. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
the Army's 2011 budget proposal requested over $578 million toward the 
acquisition of MQ-1 unmanned aerial vehicles (UAV), as well as their 
payload and weaponization. With that money, the Army would buy 26 more 
aircraft next year in addition to the 24 purchased this year with 158 
total aircraft in the Army inventory by the end of 2015. By comparison, 
the Air Force has 144 MQ-1s today. The rationale for these duplicative 
purchases is that there is an urgent need for more ISR platforms in the 
field. Specifically, the Air Force has been tasked to provide 65 combat 
air patrols (CAP) on a daily basis using these types of aircraft. As 
part of this efficiency initiative, Secretary Gates has directed each 
Service to find savings of $2 billion in next year's budget. What 
synergies do you envision could be made between the Army and the Air 
Force with regard to unmanned capabilities and where do you think they 
can save money and reduce duplication?
    Mr. Lynn and Dr. Carter. The Air Force MQ-1B Predator and the Army 
MQ-1C Gray Eagle are not duplicative efforts. In fiscal year 2009, the 
Air Force ceased procurement of the MQ-1B and has transitioned to 
maximum procurement of MQ-9 in order to effectively field 65 orbits of 
combined MQ-1B/MQ-9 aircraft. Remaining procurement in the MQ-1 
Predator program is for conversion of existing MQ-1 aircraft to the MQ-
1B configuration and to support incremental modification of those 
aircraft to include new capabilities such as digital video and 
encrypted data links. As the Air Force has transitioned from the MQ-1B 
to the more capable MQ-9, the Army plans to meet their ISR capability 
needs with the more capable MQ-1C aircraft. The MQ-1C program has 
leveraged significant investment in the MQ-1B program to field initial 
capability quickly in the form of Quick Reaction Capability (QRC) 
deployments as the system completes developmental testing and heads 
into full-rate production. The Office of the Secretary of Defense's 
Unmanned Aircraft Systems Task Force was directed in 2007 to look for 
acquisition efficiency areas between the two systems. The Task Force 
found efficiencies and savings in areas of the sensor ball and 
communications data links used by both systems. The Army and Air Force 
have committed to procurement of a common sensor ball configuration 
between MQ-1B and MQ-1C as well as fielding interoperable communication 
data links. The Task Force is continuing to look at ground station 
architectures with the intent of defining a future architecture that 
would allow the military departments to take advantage of the power of 
a service-oriented-architecture to achieve increased competition and 
efficiency in software development.
    General Cartwright. The Army's MQ-1C Gray Eagle and the Air Force's 
MQ-1B Predator are different aircraft that complement each other in 
meeting extensive ISR demands. Physically, the MQ-1C was built from 
lessons learned using the MQ-1B. The MQ-1C is slightly larger and has 
improved payload and range performance than its predecessor, the MQ-1B. 
Operationally, the MQ-1B provides theater level support, while the MQ-
1C directly supports ground commanders with tactical ISR data, thereby 
enabling a full spectrum of support. The Air Force will operate both 
the MQ-1B (procurement ended in fiscal year 2009) and the much larger, 
more capable, MQ-9 Reaper to meet the required theater-level 65 CAPs by 
the fourth quarter fiscal year 2013. Remaining procurement funding in 
the MQ-1B Predator program supports modifications such as encrypted 
data link.
    The Department continues to pursue commonality and full 
interoperability where appropriate. The Services are dedicated to 
fielding interoperable communication data links and a common (EO/IR) 
sensor ball configuration between both the Predator and the Gray Eagle. 
The UAS Task Force is also defining a future ground station 
architecture that would significantly drive down costs by moving away 
from proprietary stand alone ground station architectures.

    111. Senator Thune. Mr. Lynn, Dr. Carter, and General Cartwright, 
are you seeing this as an opportunity for the two Services to work 
together to achieve the goal of 65 CAPs that the Combatant Commander 
has requested?
    Mr. Lynn and Dr. Carter. The Resource Management Directive 700 
signed on December 23, 2009 directed the Air Force to add funds to 
procure additional MQ-9 Reaper aircraft and to deploy 65 Combat Air 
Patrols (CAP) of MQ-1B Predator and MQ-9 Reaper by 2013 to meet 
theater-level requirements. There are currently 44 Air Force CAPs in 
place, 30 MQ-1B CAPs and 14 MQ-9 Reaper CAPs supporting theater-level 
needs. MQ-9 Reaper aircraft continue to deliver until a total of 65 
CAPs of MQ-1/MQ-9 capability are fielded in fourth quarter, fiscal year 
2013.
    Separately, the Army is delivering organic Intelligence, 
Surveillance, and Reconnaissance capability with a variety of systems 
including the Raven, Shadow, and Gray Eagle Unmanned Aircraft System at 
the brigade level and below. This capability is not duplicative with 
higher theater level requirements but reduces the organic ground forces 
requirement that is requested at the theater level. Capacity at both 
the organic and theater-level provides flexibility and responsiveness 
to meet a range of warfighter requirements.
    General Cartwright. We are continuously looking at operations to 
provide the combatant commander with the right level and type of 
capability to prosecute our strategy. The Army's MQ-1C and the Air 
Force's MQ-1B are complementary aircraft that support the warfighter at 
the tactical and theater level respectively. The 65 CAPs (combined Air 
Force MQ-1B/MQ-9 aircraft) support the Combatant Commander at the 
theater level. The MQ-1B Predator and MQ-9 Reaper systems are on a path 
to reach the 65 CAP goal by the fourth quarter of fiscal year 2013.

                               insourcing
    112. Senator Thune. Mr. Lynn and Dr. Carter, I would like to 
discuss for a few moments Secretary Gates' insourcing initiative. Under 
this initiative, he directed a 10 percent reduction each year, over the 
next 3 years, in funding for support contractors. His goal is to reduce 
the number of contractors that are performing functions that are 
inherently governmental. Can you describe how big of a problem this is 
within the DOD?
    Mr. Lynn and Dr. Carter. The Secretary's goal in reducing funding 
for service support contractors is to reduce the Department's 
overreliance on those types of contractors. Independent of that goal, 
functions that are inherently governmental should not be performed by 
contractors. While there may be some overlap between these initiatives, 
they are largely separate.

    113. Senator Thune. Mr. Lynn and Dr. Carter, what savings do you 
expect to receive from this initiative and would you agree that we 
should stop insourcing jobs that are not inherently governmental?
    Mr. Lynn and Dr. Carter. Not necessarily. On a case-by-case basis 
DOD components and organizations find that they can perform some 
functions more cost effectively using government civilians than through 
continued private sector personnel. In other cases, the private sector 
may provide the most efficient and effective means of providing valued 
functions. The goal is to curb cost growth and redirect spending to 
more highly valued uses. We can provide more information on the extent 
of these savings by January.

                economies of scale and multi-year budget
    114. Senator Thune. Mr. Lynn and Dr. Carter, one of the goals that 
Secretary Gates outlined was the ability to achieve greater benefits in 
cost and efficiency through the use of economies of scale. Although he 
used the consolidation of the IT infrastructure as an example, I 
believe another example of economies of scale would be the ability to 
make multi-year purchases. We recently saw the benefit of this when we 
authorized the Navy to purchase F/A-18s as part of a multi-year 
contract. I recently proposed an amendment as part of an overall budget 
reduction plan, that proposes transitioning the budget process to a 
multi-year process versus accomplishing it every year. Creating a 
budget every year doesn't seem to be the best way to save money. Multi-
year contracts allow us the opportunity to buy equipment over 2 years 
and take advantage of a multi-year buy in purchasing negotiations. What 
inefficiencies do you see with maintaining a yearly budget and do you 
believe you could obtain more savings from contractors if the DOD 
budget transitioned to a multi-year budget?
    Mr. Lynn and Dr. Carter. From an acquisition perspective, mature 
major weapon system procurements can often benefit from multi-year 
purchases and/or multi-year budgets by providing some fiscal stability. 
Our concern is that we do not give up flexibility while gaining 
stability. Annual budgets with multi-year appropriations work well for 
investment programs, but it depends on the acquisition stage of the 
major weapon system. Multi-year procurement contracts are best suited 
to those programs with consistent requirements, reasonable production 
runs, and stable design configurations. Without these attributes, there 
is greater risk in not achieving the projected savings associated with 
economies of scale or absorbing costs from breaking a multi-year 
commitment. Multi-year budgeting does not guarantee certainty in the 
procurement process, and there is no guarantee that contractors will 
pass on savings to the government. Multi-year budgeting is effective if 
it is used with other fiscal tools such as the ability to reprogram 
funding within the Department to accommodate dynamic program 
requirements and the changing fiscal environment.
                                 ______
                                 
              Questions Submitted by Senator Susan Collins
                          savings distribution
    115. Senator Collins. Mr. Lynn, a key assumption of Secretary 
Gates' efficiency initiatives is that the Services will be able to 
direct the savings they identify in overhead towards modernization 
accounts for additional ships, planes, or other assets. So long as the 
Services are actually empowered to reinvest savings from overhead costs 
to modernization accounts, many of us that have urged the Department to 
increase its investment in building and maintaining a 313-ship Navy or 
a larger Air Force might welcome such a proposal. However, as you know, 
there have been instances in the past where the Services identified 
savings but were unable to translate those savings into increased 
procurement. Has the President or the Director of the Office of 
Management and Budget assured you or Secretary Gates that the savings 
identified by the Services will not be used to reduce the overall 
defense budget top-line or be redirected to other priorities?
    Mr. Lynn. The President understands and supports the effort. 
Secretary Gates explained that the goal is not to reduce the 
Department's top line budget and that the Services will be able to keep 
the savings they generate to reinvest in higher priority warfighting 
needs and modernization programs. The President has called the effort, 
``another step forward in the reform efforts.to reduce excess overhead 
costs, cut waste, and reform the way the Pentagon does business.'' He 
has also affirmed that the funds saved will help us sustain the current 
force structure and make needed investments in modernization in a 
fiscally responsible way.

    116. Senator Collins. Mr. Lynn, in his August 9, 2010, announcement 
of the efficiency initiatives, Secretary Gates stated that, ``I believe 
that sustaining the current force structure and making needed 
investments in modernization will require annual real growth of 2 to 3 
percent, which is 1 to 2 percent above current top-line budget 
projections.'' This statement suggests that Secretary Gates believes 
that a 1 to 2 percent growth in the annual defense budget is a fair and 
realistic assumption for the future. Have you received assurances from 
the President or the Director of the Office of Management and Budget 
that they share Secretary Gates' assumption that a 1 to 2 percent 
growth in the DOD budget is a fair and realistic assumption for future 
budget projections?
    Mr. Lynn. The President has not commented specifically on this 
item, although he applauded Secretary Gates on August 9 for undertaking 
this critical effort to support our men and women in uniform and 
strengthen our national security.

    117. Senator Collins. Mr. Lynn, as a part of the Department's 
efficiency initiatives, Secretary Gates authorized the military 
Services to consider consolidating or closing excess military 
facilities as a part of their efforts to find savings in their budgets. 
As you know, in many towns and communities, a military installation can 
serve as the economic engine for an entire region. The announcement 
made by Secretary Gates creates immense uncertainty for the many 
businesses in these communities that are struggling in an already 
uncertain economic environment. It is the investment by these very 
businesses that can create many of the jobs that are needed in our 
country. What assurances, if any, can you provide the businessmen and 
women looking to expand their businesses in the hundreds of communities 
that are home to military installations about the future of those 
military installations?
    Mr. Lynn. Closure and realignment decisions are difficult and the 
Department does not undertake them lightly. While Military Value has 
been the primary consideration in each of the five BRAC rounds, the 
Department fully considered the impact on local communities and is 
keenly aware of the close relationship between military installations 
and the surrounding communities. In each round, the Department made 
difficult choices based on thorough analyses and subsequent evaluation 
by an independent, legislatively mandated commission. In carrying out 
any closure or realignment decision, the Department seeks to minimize 
the economic impact of the decision to the local community. The Office 
of Economic Adjustment, in coordination with other Federal agencies, 
assists States and communities to work with affected businesses, 
workers, and community stakeholders to understand and respond to the 
impacts of these actions.

                              base closure
    118. Senator Collins. Mr. Lynn, Dr. Carter, and General Cartwright, 
when budget analysts go searching for defense savings, it usually does 
not take long for someone to suggest another BRAC round. In fact, 
General Roger Brady, the four-star general who commands our U.S. Air 
Forces in Europe, said on September 15, 2010, that we have too many 
bases and that we need to consider additional base closures. However, 
it seems to me that it is premature to discuss a future BRAC round 
until we know if the ongoing 2005 BRAC round resulted in the savings it 
promised to deliver. A July 2010 GAO analysis found that DOD's reported 
costs for the 2005 Round are not complete because the Army has not 
reported all of its BRAC-related costs. In addition, the current $35 
billion cost estimate to implement the 2005 BRAC is 50 percent more 
than the Department's original cost estimate, and costs could increase 
as the BRAC 2005 deadline approaches next September. Given the current 
status of the 2005 BRAC round and the economic uncertainty facing many 
of our businesses, do you or this administration support another BRAC 
round?
    Mr. Lynn, Dr. Carter, and General Cartwright. The Secretary has 
directed the military Departments to ``consider consolidation or 
closure of excess bases and other facilities where appropriate.'' 
Regarding savings, the GAO estimated in its November 2009 report that 
the BRAC 2005 round would produce $3.9 billion in annual recurring 
savings beginning in fiscal year 2012. These savings will be used to 
support new capabilities and improve operational efficiencies. This is 
a significant benefit that comes as a direct result of successfully 
implementing the BRAC 2005 recommendations. The Department is not 
currently seeking authority for another BRAC round.

    119. Senator Collins. Dr. Carter, Secretary Gates has asked the 
Services to identify $100 billion in savings over the next 5 years. 
Would you estimate the savings that will result over 5 years from the 
changes you are seeking strictly within the acquisition community 
alone?
    Dr. Carter. Last year, we identified savings in the defense budget 
by canceling unneeded programs, and we will need to do more of that. We 
must also find savings within active programs and in ongoing 
activities. The Department must achieve what economists call 
``productivity growth'' and what I have called ``learning to do more 
without more;'' delivering the programs that both the Department and 
warfighter need for the amount of money we are going to get.
    The goal of this productivity growth is to redirect defense budget 
dollars from unproductive to productive purposes, and we will get there 
by laying the policy groundwork to increase the Department's buying 
power as I detailed in my September 14 memorandum to acquisition 
professionals. Redirecting tens of billions of dollars to productive 
purposes is a result of the necessary changes we were making in the way 
we do business; we are not implementing broad reforms to simply reach a 
fixed dollar target of saving, and doing so would be dishonest to the 
process. Even if it were possible, we would be reluctant to project the 
total value of resources redirected over the next 5 years in 
acquisitions. Right now we are focused on getting the policies right 
and implementing true reforms, and billions in savings will be the 
natural result.

                         acquisition workforce
    120. Senator Collins. Dr. Carter, the defense acquisition workforce 
has experienced an increasing workload resulting from expanded uses of 
services contracts, increased procurement requirements from Congress, 
and efforts supporting counter-insurgency operations over the last 9 
years. In your September 14, 2010, memo to acquisition professionals, 
you describe the importance of achieving productivity growth--in your 
words: to ``do more without more.'' Given that the acquisition 
workforce is already stressed and possibly overworked, are you 
confident that there is existing capacity in the acquisition workforce 
to follow the 23 points identified in the memo to achieve the intended 
savings targets in addition to their current duties and 
responsibilities?
    Dr. Carter. Yes. In addition, DOD is continuing efforts to 
strengthen the acquisition workforce size and quality. This is key to 
successful implementation of our acquisition reform efforts to improve 
how we buy and our buying power. Also, reducing non-productive 
processes and bureaucracy is a key efficiency initiative that will 
enable the acquisition workforce to focus critical skills and efforts 
on improving acquisition outcomes.

    121. Senator Collins. Dr. Carter, one of the targeted areas in your 
23-point plan is to mandate ``affordability'' as a requirement. Can you 
explain how this requirement will be evaluated in acquisition 
decisions?
    Dr. Carter. In my September 14 memorandum to acquisition 
professionals, I outlined several specific measures directing program 
managers to treat affordability as a requirement before granting 
milestone authority to proceed with the program. Specifically, at 
Milestone A, my Acquisition Decision Memorandum (ADM) approving formal 
commencement of the program will contain an affordability target to be 
treated by the program manager like a Key Performance Parameter (KPP) 
such as speed, power, or data rate--i.e., a design parameter not to be 
sacrificed or compromised without my specific authority. At Milestone 
B, when a system's detailed design is begun, I will require 
presentation of a systems engineering tradeoff analysis showing how 
cost varies as the major design parameters and time to complete are 
varied. This analysis would allow decisions to be made about how the 
system could be made less expensive without loss of important 
capability. This analysis would then form the basis of the 
``Affordability Requirement'' that would be part of the ADM decision. 
These measures will help us control costs while delivering the best 
possible capability to the warfighter.

    122. Senator Collins. Dr. Carter, in your September 14, 2010, memo, 
you indicate that you want to work with Congress to develop special 
rules to eliminate some of the detailed Nunn-McCurdy reporting for 
critical cost breaches and the associated requirement for a Milestone A 
or Milestone B recertification. You identified more than $10 million 
and 95,000 hours of overhead labor associated with compliance of Nunn-
McCurdy requirements for programs that had a critical cost growth 
breach simply based upon a change of procurement quantity approved by 
Congress. What was the impact on the cost, schedule, and capabilities 
of the programs that were subjected to a Nunn-McCurdy review simply 
because of a change in the procurement quantity?
    Dr. Carter. First, let me state that I think there has been a 
misunderstanding about the impact on the Department for having to 
perform Nunn-McCurdy reviews for programs that have experienced a 
critical unit cost growth simply based upon a change of procurement 
quantity. The impact has not been the $10 million and 95,000 hours of 
overhead labor for those programs alone. Rather, as my September 14 
memorandum set forth, this estimate covered all six of the Nunn-McCurdy 
reviews that the Department conducted in the spring of 2010. An actual 
number for programs that have experienced a critical unit cost growth 
because of quantity adjustments is not possible, because the Department 
does not closely segregate costs for its overhead functions and it does 
not track Nunn-McCurdy review cycles for so-called ``innocent'' or 
``administrative'' breaches separate from those breaches where problems 
in program execution have triggered the unit cost growth. We comply 
irrespective of the fundamental causes. However, in cases where the 
unit cost breach can be attributed to changes in quantity, the 
fundamental, if not sole, question is whether it is in the best 
interests of the Government to continue with the acquisition of the 
program notwithstanding the increase in unit cost.
    There are also costs imposed by second order impacts stemming from 
the Nunn-McCurdy certification process. Regardless of the 
circumstances, if the program is certified, the previous Milestone must 
be rescinded and repeated, and no funding can be obligated for any 
contract without specific prior approval of the Milestone Decision 
Authority (MDA). A repeat Milestone requires new cost estimates, new 
Milestone certification documentation, preparation reviews, etc. Much 
of this is required in separate statutory requirements for those 
decision points, but it becomes necessary as a result of the Nunn-
McCurdy review. Repeating these things comes at additional expense to 
the taxpayer and, in the case of quantity-driven changes, adds little 
value to the process or product if the Department has already answered 
the fundamental question about proceeding with the program. The 
additional time and effort obtaining MDA approval is burdensome and 
distracting to those executing the programs.

    123. Senator Collins. Dr. Carter, what changes to policy, 
regulation, or statute would be required to implement the special rules 
regarding the Nunn-McCurdy process that you describe in your September 
14, 2010, memo?
    Dr. Carter. I fully support the Nunn-McCurdy process, to include 
the recent improvements that were made by the WSARA of 2009. The 
Department takes each of these breaches seriously, and we conduct the 
prescribed review according to the provisions of the statute. However, 
each review is costly to perform and should be avoided when the 
critical breach is caused primarily by a change in quantity that was 
made in response to changes in threat or other fielding requirements 
and not the result of poor performance or mismanagement. For example, 
the Army Acquisition Objective for the Guided Multiple Launch Rocket 
System and, more recently, the Excalibur projectile program were both 
reduced by more than 70 percent due to an approved change in force 
requirements. Due to a learning curve and the amortization of 
development costs, significant quantity reductions frequently result in 
critical Nunn-McCurdy breaches.
    My proposed revision to section 2433a of title 10, U.S.C., would 
reduce the statutory requirements for critical Nunn-McCurdy breaches 
caused primarily by quantity changes (as long as the quantity change 
was not made as a result of an increase in unit cost). In our proposal 
the root cause of the cost growth would need to be validated by the 
WSARA-created office of Program Assessment & Root Cause Analysis. Since 
the statutory requirements of a Nunn-McCurdy critical breach under 
section 2433a are extensive, this section would reduce the requirements 
for quantity-related critical breaches. That is, for the review, only a 
root cause analysis would be conducted to substantiate the causal 
effects of the quantity change, followed by a written statement from me 
that it is in the best interests of the Government to continue the 
acquisition program notwithstanding the increase in unit cost.
                                 ______
                                 
    [Appendixes A through G follow:]

                               APPENDIX A

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
      
    
                               APPENDIX B
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
                              APPENDIX C 

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               APPENDIX D

    [Deleted.]

                               APPENDIX E
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      

                               APPENDIX F
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      

                               APPENDIX G

      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
    [Whereupon, at 12:58 p.m., the committee adjourned.]

                                 
