[Senate Hearing 112-210]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-210
 
           TOOLS TO PREVENT DEFENSE DEPARTMENT COST OVERRUNS

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


                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT

                   INFORMATION, FEDERAL SERVICES, AND

                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON

               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE


                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 29, 2011

                               __________

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

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        Committee on Homeland Security and Governmental Affairs




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  ROB PORTMAN, Ohio
MARK BEGICH, Alaska                  RAND PAUL, Kentucky

                  Michael L. Alexander, Staff Director
               Nicholas A. Rossi, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk
            Joyce Ward, Publications Clerk and GPO Detailee
                                 ------                                

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

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 SCOTT P. BROWN, Massachusetts
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
CLAIRE McCASKILL, Missouri           RON JOHNSON, Wisconsin
MARK BEGICH, Alaska                  ROB PORTMAN, Ohio

                    John Kilvington, Staff Director
                William Wright, Minority Staff Director
                   Deirdre G. Armstrong, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator Brown................................................     4
Prepared statements:
    Senator Carper...............................................    59
    Senator Brown................................................    62

                               WITNESSES
                        TUESDAY, MARCH 29, 2011

Frank Kendall, Principal Under Secretary of Defense for 
  Acquisition, Technology, and Logistics, U.S. Department of 
  Defense; and Richard Burke, Ph.D., Deputy Director, Cost 
  Assessment, Office of the Secretary of Defense/Cost Assessment 
  and Program Evaluation, U.S. Department of Defense.............     7
John J. Young, Jr., Senior Fellow, The Potomac Institute for 
  Policy Studies.................................................    41
Michael J. Sullivan, Director, Acquisition Sourcing Management, 
  U.S. Government Accountability Office..........................    43
Moshe Schwartz, Specialist in Defense Acquisition Policy, 
  Congressional Research Service, The Library of Congress........    45

                     Alphabetical List of Witnesses

Kendall, Frank:
    Testimony....................................................     7
    Prepared statement...........................................    64
Schwartz, Moshe:
    Testimony....................................................    45
    Prepared statement...........................................    89
Sullivan Michael J.:
    Testimony....................................................    43
    Prepared statement...........................................    78
Young, John J. Jr.:
    Testimony....................................................    41
    Prepared statement...........................................    74

                                APPENDIX

Questions and responses for the Record from:
    Mr. Kendall..................................................   102
    Mr. Burke....................................................   139
    Mr. Sullivan.................................................   159
Chart referenced by Senator Carper...............................   163


           TOOLS TO PREVENT DEFENSE DEPARTMENT COST OVERRUNS

                              ----------                              


                        TUESDAY, MARCH 29, 2011

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                              and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:34 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Pryor, Brown, Coburn, and 
Portman.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The hearing will come to order. We will be 
joined during the course of the afternoon by some of my 
colleagues, but I just want to go ahead and get started. 
Welcome to our witnesses and to our guests.
    I have asked Harlan Geer, also known as ``Cahoon,'' just to 
start us off with a chart, and this is a brand-new chart. We 
are looking at major weapons system cost growth or major 
weapons system cost overruns going back to fiscal year (FY) 
2000 when the number was about $42 billion; and in 2005 the 
number had gone up to $202 billion; in 2007 the number was up 
to $295 billion; and the major weapons system cost growth or 
overrun today is about $402 billion.
    In fiscal year 2000, you may recall we actually had a 
balanced budget in this country. In fact, we had not been able 
to balance our budget since 1968, and we had a bipartisan group 
that worked--Erskine Bowles--on behalf of the President, 
President Clinton, and the Republicans, who were in the 
majority in the House and Senate, worked with Democrats, and we 
ended up with a balanced budget approach that worked on the 
defense side, defense spending, worked on domestic 
discretionary spending, worked on entitlements, and also 
revenues, and actually some reorganizing of government to try 
to be more efficient in the way we ran the government. We ended 
up with a balanced budget, but in that year when we had a 
balanced budget, the contribution to the unbalance, if you 
will, was $42 billion because of major weapons system growth. 
So I just thought we would start off with that kind of--what is 
the old saying? As Senator Scott Brown likes to say, ``A 
picture is worth a thousand words,'' so we thought we would 
start off with one of yours, Scott. Welcome.
    I just brought the hearing to order, and I am going to go 
ahead and give a statement, then yield to the Ranking 
Republican on the Subcommittee, Senator Brown.
    But today's hearing will focus, as you can probably tell 
here, on how the Department of Defense (DOD) can more 
efficiently develop our Nation's largest and most costly 
weapons and weapons systems. This hearing comes amidst joint 
efforts by the United States and NATO allies to avoid a 
humanitarian catastrophe in Libya. The major weapons systems of 
the U.S. military and of our NATO allies have helped to level 
the playing field against a regime that has chosen to launch 
air strikes against protesters and deploy tanks to attack their 
own population.
    As we applaud the efforts to stop this regression, though, 
we need to keep in mind that the cost of our involvement in 
three simultaneous wars--Iraq, Afghanistan, and now Libya--
contributes to already unsustainable levels.
    In addition to our costly national security challenges, our 
Nation still faces equally costly economic challenges that have 
led to record budget deficits in recent years. Between 2001 and 
2008, we actually accumulated as much new debt as we had in the 
previous 208 years of our Nation's history. We are on track to 
double our Nation's debt again over the next decade if we do 
not do something about it. And our national debt now stands at 
more than $14 trillion.
    In an earlier hearing that Senator Brown and I had earlier 
this month, one of the things that we noted was debt, our 
Nation's debt, as a percentage of Gross Domestic Product (GDP) 
now stands at about 65 percent. As best we can tell, the last 
time we were at that level was at the end of World War II, and 
the folks in Greece and in Turkey, they have higher numbers 
than that. But we do not want to go there because we know where 
that road led them.
    While most Americans want us to reduce the deficit, 
determining the best path forward will not always be easy. Many 
believe that those of us here in Washington are not capable of 
doing the hard work we were hired to do--that is, to 
effectively manage the tax dollars that we are entrusted with. 
A lot of folks look at the spending decisions we have made in 
recent years and question whether the culture here is broken. 
They question whether we are capable of making the kind of 
tough decisions that they and their families make with their 
own budgets. It is hard to blame them for being skeptical.
    We need to establish a different kind of culture. We need 
to establish a different kind of culture here in our Nation's 
capital, in Washington, when it comes to spending. We need to 
establish what I call a culture of thrift to replace what some 
would call a culture of spendthrift. We need to look in every 
nook and cranny of Federal spending--domestic, defense, 
entitlements, along with tax expenditures--and ask this 
question: Is it possible to get better results for less money? 
Or is it at least possible to get better results for not a 
whole lot more money?
    The hard truth is that many program funding levels will 
need to be reduced. Even some of the most popular programs, 
programs that most of us would support and do support will 
likely be asked to do more with less, or at least to do more 
with the same level of funding.
    Most of us, however, understand that we cannot simply cut 
our way out of the debt, cannot tax our way out of the debt, or 
save our way out of debt. We need also to grow our way out of 
the debt. And that is what happened in the late 1990's. It was 
not just cutting domestic spending or defense spending. It was 
not just working on the entitlement program. It was like we 
grew the economy rather robustly, and that helped get the job 
done. But we were able to spur the level of growth needed to 
repair our Nation's fiscal health, and we must invest in the 
kind of research and development that will enable us to out-
innovate the rest of the world once again.
    Given the limited resources available for this kind of 
investment, we can not afford to waste taxpayers' money on 
inefficient Federal programs that do not help us achieve our 
goals as a country. And today we are going to look at 
inefficient spending in the Department of Defense, specifically 
its acquisition system for major weapons programs.
    Three years ago, the Government Accountability Office (GAO) 
testified before this Subcommittee that the cost growth in 
major weapons systems had increased significantly over the past 
decade, and we can see that from the chart\1\ to my left from 
about $44 billion--actually $42 billion in 2000 to today 
something like $402 billion.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Carper appears in the appendix 
on page 163.
---------------------------------------------------------------------------
    These cost overruns were not only a waste of taxpayer 
money, they also prohibited us from investing in the highest 
needs of our military. Some of you will recall last year 
Secretary Bob Gates, our Secretary of Defense, said that every 
dollar wasted on weapons system cost overruns--and this is a 
quote--``is a dollar not available to take care of our 
military, reset the force, win the wars we are in, and improve 
capabilities in areas where we are underinvested and 
potentially vulnerable.''
    Now, if we are going to have any hope of strengthening our 
military and achieving a balanced budget down the line, we have 
to reverse the trend of growing weapons system costs, and as 
with many of our Federal programs, we just get better results 
for less money in this area, too.
    In today's hearing we will look at some of the root causes 
of mounting cost overruns that we have seen in recent years, 
and for the next hour or two, we will examine the effectiveness 
of the tools available to the Department of Defense and to 
Congress to guard against even greater cost escalation.
    One of Congress' and the Department of Defense's tools for 
managing cost overruns is the Nunn-McCurdy law, which serves as 
a tripwire to alert Congress and the Department of Defense to 
weapons systems with costs that are spiraling out of control. 
This tool is simple. If a program's growth of costs grows by 
more than 15 percent, Congress must be notified. If its cost 
increases by 25 percent or more, then the program is terminated 
unless the Secretary of Defense certifies that it meets key 
requirements.
    We have asked GAO to look at trends in the past Nunn-
McCurdy breaches that might be able to help us determine the 
effectiveness of this tool. Once again their findings reveal a 
serious problem. According to GAO, since 1997, one in three 
major weapons systems has experienced cost overruns big enough 
to trigger Nunn-McCurdy breaches. One in three. Thirty-six 
programs' costs grew by more than 25 percent, subjecting them 
to the possibility of termination. Yet only one program has 
ever actually been terminated.
    GAO also identified Nunn-McCurdy trends in the military 
services that indicate mismanagement. For example, the Air 
Force has had nearly as many Nunn-McCurdy breaches--and that is 
29--as they did major weapons systems in development, which was 
36, between 1997 and 2009. And the contractors that build and 
develop these systems are not without fault either. For 1997 to 
2009, 16 companies had more than one of their weapons systems 
trigger a Nunn-McCurdy breach. Moreover, two major contractors 
accounted for more than 50 percent of the weapons systems that 
breached Nunn-McCurdy over this 12-year period.
    These trends in Nunn-McCurdy breaches tell us that too many 
of our weapons systems have costs that are spiraling out of 
control. This underscores a key fiscal reality that our Nation 
must face. We simply cannot balance our budget when we must 
consistently pay hundreds of billions of dollars more than 
expected for our major weapons systems.
    Our witnesses here today will help us identify the causes 
of these cost overruns, the tools available to control them, 
and the tools we will need to prevent them in the future.
    With that having been said, we welcome Senator Pryor to our 
midst, and I want to turn it over to Senator Brown for any 
comments he would like to make. Scott, thank you.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Thank you, Mr. Chairman. Good to see you 
again.
    Senator Carper. Nice to see you.
    Senator Brown. I will be bouncing back and forth. We are 
actually moving offices today, so I am going to certainly----
    Senator Carper. I would just mention--excuse me for a 
minute. I would just mention how pleased we were to see Senator 
Pryor. I did not say anything about the Senator from 
Cincinnati.
    Senator Brown. The Enforcer.
    Senator Carper. The Enforcer. It is great to see you, Rob. 
Welcome.
    Senator Brown. Thank you, Mr. Chairman, for holding this 
important hearing to protect our tax dollars from waste, fraud, 
and abuse. It is critical and I appreciate your partnership in 
this pursuit, and our Nation is in a perilous financial 
position with our national debt over $14.2 trillion.
    It is funny. When I got here, it was $11.95 trillion. In a 
little over a year, we are at $14.2 trillion.
    Senator Carper. What do they say? Cause and effect. You got 
here and it just shoots right up. [Laughter.]
    Actually, it had not gone down all that well under my watch 
either.
    Senator Brown. Yes, thanks. Keep going. I am pretty quick 
on the retort as well. [Laughter.]
    Now, more than ever we have to find the best value for our 
tax dollars, and I am amazed as I stay here longer as to how 
much we actually waste and how we do things and how we really 
should be doing it better. And with spending exceeding $700 
billion, the Defense Department budget consumes 18 percent of 
our total budget, and obviously with everything that is 
happening, we have a lot of challenges. And, unfortunately, we 
need to be mindful also that the DOD budget is not exempt from 
the necessity of ensuring that we protect the taxpayers' funds. 
So it is fairly simple, and especially when we deal with cost 
overruns and major defense system acquisitions.
    It is no secret that the overruns in the DOD acquisitions 
consume billions of dollars every year, and I am still amazed. 
I have not quite gotten a good answer as to why we not only 
have the overruns, but if we have overruns, why there aren't 
penalties. And, in fact, if we try to stop a program, then not 
only do we have to pay a penalty, but if we do not we get sued. 
And I would rather spend the money, quite frankly, going after 
the people that have either breached the contract or not 
performed instead of just saying here is the check, we are 
going to close you down. What is happening here? It is just--I 
do not even want to talk about it. It is unbelievable the 
amount of money we are spending for a weapons system that is 
over budget and where they are apparently going to shut down, 
and we have nothing to show for it, and we may have to pay 
another $804 million just to close it out. I do not get it. So 
I am going to be zeroing in on my inquiry on those types of 
things.
    I understand that sometimes projects go over budget, and I 
understand that it is sometimes based on the changing need of 
the battle or the warfighting needs of our soldiers. I get 
that. But it seems to be the norm rather than the exception. We 
need to change the process that allows programs like MEADS to 
go on for almost 20 years without any acceptable results. Like 
I said, I am flabbergasted.
    We need to change the thinking that if only we give a 
program a couple more years and a couple more billion dollars 
the program will ultimately be successful. And, listen, if a 
program has not worked in 20 years and we are giving it another 
few years, by then the technology is obsolete, and it makes no 
sense to me. So especially now under these tough fiscal 
circumstances, I would hope that if we are going to divert our 
precious tax dollars, we do it to programs that are working and 
that can be done quicker, more effectively, and timely.
    Let me state that we must not be afraid of taking the risks 
necessary to develop the next generation of weapons systems 
that our Nation will depend on. Based on what we are seeing 
around the world, it is clear that we will continue to be the 
world leader when it comes to trying to solve the world's 
problems. And encumbered in that risk is failure and, 
unfortunately, sometimes cost overruns. Once again, I do 
understand that. But as we are here looking at the MEADS 
program, for example, it just does not make sense to me.
    So I would like to thank the witnesses for being here 
today. I appreciate it and look forward to your testimony. I 
will try not to go on too long. I would rather hear from you so 
we can get right to the questions.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator Brown.
    Senator Pryor, welcome. Thanks for joining us.
    Senator Pryor. Thank you. I do not have an opening 
statement, but thank you very much for doing this, both of you.
    Senator Carper. You are welcome. You are good to come. 
Thanks so much. I was looking forward to introducing you. For 
the first time I have ever been able to introduce you as the 
senior Senator from Arkansas, and I let it slip by. But we are 
delighted that you could join us.
    Senator Portman.
    Senator Portman. I do not have an opening statement.
    Senator Carper. OK. Fair enough.
    All right. A quick introduction for our witnesses, and we 
will get right into it.
    Senator Brown. Mr. Chairman, can I just make--I meant MEADS 
program. I apologize. I was reading versus talking.
    Senator Carper. That is OK. Thank you for that 
clarification.
    Our first witness today is the Honorable Frank Kendall, who 
serves as the Principal Deputy Under Secretary of Defense for 
Acquisition, Technology, and Logistics at the Department of 
Defense. The Office of Acquisition, Technology, and Logistics 
oversees the development and purchase of all DOD weapons 
systems and works with each service's acquisition officials to 
ensure that our military requirements are met through the 
acquisition of appropriate military technologies. Mr. Kendall 
has more than 35 years of experience in engineering, defense 
acquisition, and national security affairs serving as the 
Deputy Under Secretary of Defense for Strategic Defense 
Systems. Mr. Kendall is here today to tell us how the 
Department of Defense intends to curb potential cost overruns 
in the future and what tools his office will need in order to 
achieve this goal and to save scarce taxpayer dollars. And we 
not only thank you for being here, we thank you for your 
service.
    We were talking a little bit earlier, and I asked him where 
he went to school, and he said he went to a place called West 
Point and served some time in the Army.
    How long did you serve?
    Mr. Kendall. I was on active duty for about 11 years and 
remained in the Reserves for about another 15 after that.
    Senator Carper. Good for you. And when you retired, did you 
retire as a Major General?
    Mr. Kendall. Lieutenant Colonel.
    Senator Carper. All right. Good for you.
    Well, we have another colonel up here and a retired Navy 
Captain. We are happy to have you. Thank you very much for that 
service as well.
    Our second witness today is Dr. Richard Burke. Dr. Burke is 
the current Deputy Director for Cost Assessment in the Cost 
Assessment and Program Evaluation Office at the Department of 
Defense. The Cost Assessment and Program Evaluation Office 
provides independent cost estimates of major weapons systems 
for the Department of Defense and is empowered to do so under 
the Weapon Systems Acquisition Reform Act passed into law in 
2009. In addition to serving as the Deputy Director of the Cost 
Assessment and Program Evaluation Office, Dr. Burke serves as 
the Deputy Director for Resource Analysis in the Program 
Analysis and Evaluation Division of the Office of the Secretary 
of Defense and as the Chairman of the Cost Analysis Improvement 
Group in the Department of Defense. That is a mouthful. Dr. 
Burke will spend time with us today answering our questions 
about how we can achieve accurate cost estimates in the 
beginning of a weapons system's life so that we do not 
experience cost overruns in the later stages of the systems 
development.
    Dr. Burke, we thank you for being here and for your 
testimony. As I understand, Mr. Kendall is going to be 
delivering the oral statements for both himself and for you, 
and both of you will be available for questions. We are going 
to be watching carefully to see, when Mr. Kendall speaks, if 
your lips move. We will see how good you are at this. All 
right? Thanks for joining us today. Please proceed. Your entire 
statement will be made part of the record, and you may proceed.
    I would ask you to take around 5 minutes. If you go a 
little bit beyond that, that is OK. If you go a lot beyond 
that, it is probably not so good.
    Thank you. Welcome.

  STATEMENT OF FRANK KENDALL,\1\ PRINCIPAL UNDER SECRETARY OF 
   DEFENSE FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS, U.S. 
    DEPARTMENT OF DEFENSE; AND RICHARD BURKE, PH.D., DEPUTY 
 DIRECTOR, COST ASSESSMENT, OFFICE OF THE SECRETARY OF DEFENSE/
  COST ASSESSMENT AND PROGRAM EVALUATION, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Kendall. Thank you for the latitude, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kendall appears in the appendix 
on page 64.
---------------------------------------------------------------------------
    Chairman Carper, Senator Brown, distinguished Members of 
the Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security, I am 
Frank Kendall, the Principal Deputy Under Secretary of Defense 
for Acquisition, Technology, and Logistics. I am honored to be 
here today for the opportunity to discuss the DOD acquisition 
program and the tools to prevent cost overruns. Accompanying me 
is Mr. Richard Burke, Deputy Director, Cost Assessment, and the 
Senior Cost Analyst for the Department of Defense.
    What I would like to do with my opening statement, instead 
of just summarizing my written submission, is to step back and 
address directly the reasons we have cost overruns in defense 
programs. I am going to address causes now, and I will be happy 
to take your questions about tools later.
    My written statement discusses a number of measures the 
Department is taking to improve our controls over cost and cost 
growth. This includes our response to recent statutory 
direction, particularly of the Weapon Systems Acquisition 
Reform Act of 2009, but also the measures included in the 
recent Defense Appropriation Act.
    My written statement also highlights some of Under 
Secretary Carter's set of initiatives, which we refer to 
collectively as ``Better Buying Power,'' as well as other 
internal measures we are taking. Rather than summarize all 
those measures now, I would like to discuss the deeper issue 
the Subcommittee has asked me here to address: Why is cost 
growth so endemic to the defense acquisition enterprise?
    I have been involved with the Defense Department for over 
45 years, 31 of which have been spent in acquisition-related 
work, either in government or in the defense industry. I was on 
the Secretary of Defense's acquisition staff when the first 
Under Secretary for Acquisition was appointed. I worked for the 
first several defense acquisition executives, and I know and I 
have great respect for all of those persons who have served in 
this position, including Mr. Young, who will testify later 
today. I have served in several Administrations, and I can tell 
you that this is not a partisan issue or problem.
    In my written statement, I refer to the struggle to control 
acquisition costs. It is not just cost overruns. It is to 
control costs overall. Every defense acquisition executive, 
every principal deputy to the acquisition executive, every 
service or component acquisition executive has engaged in this 
struggle. Why has this been so difficult? Why do we still have 
cost overruns?
    There are a number of reasons why this problem has been so 
intractable. Understanding these root causes has to be the 
first step in addressing cost control and cost overruns in DOD.
    I would like to say, somewhat glibly perhaps, that the 
acquisition system only has two problems: Planning and 
execution. Let us start with planning.
    Planning is largely a government responsibility. It 
includes: First, setting the requirements for a new product; 
second, setting key schedule dates; third, estimating total 
program costs; fourth, establishing budgets; and evaluating 
plans, finally, including the bids we receive from industry. In 
each and every case there are strong pressures on our 
institutions and the people in them to be optimistic.
    The United States has been militarily dominant in the world 
for decades. That dominance rests in large part on the superior 
weapons systems we acquire for our fighting men and women. In 
order to acquire these weapons, we are always pushing the 
state-of-the-art in our requirements. And to give credit where 
credit is due, we have to a large part been successful in this 
endeavor. But we have had to take risks to achieve success.
    We almost always set out to build a product that is better 
than anything that has ever been built before. Our appetite for 
innovative and beyond-current-state-of-the-art systems is also 
influenced by industry's desire to sell us new products. As one 
would expect, industry is not shy about marketing attractive 
new capabilities to our operational communities. Marketing 
people do not emphasize the technological risk and the cost 
risk in their products.
    Likewise, there is always pressure on our system from the 
user community and others to do things faster, independent of 
the scale, complexity, and risk associated with the product. 
The acquisition system is frequently criticized for taking too 
long and being too risk averse. One has to ask: If we are so 
risk averse, why do we have so many overruns and schedule 
slips?
    The competition for resources within the planning system 
provide more incentives toward optimism. Our budget formulation 
process is an ongoing effort to squeeze as much capability as 
possible into a zero-sum constraint. To some degree, it is a 
competitive process to secure funding. That money has to be 
divided among a number of interest groups who are all vying for 
a share of the pie. All of them would like to obtain new 
capabilities.
    People in our system who are trying to get their programs 
into the budget have a strong incentive to be optimistic in 
their assumptions. Selling a given program in our system is 
also linked to the total cost of the program. Here again there 
are strong incentives to optimism by the proponents.
    Finally, industry has a strong incentive to take risks and 
to be optimistic in its bids. A defense contractor cannot stay 
in business by bidding realistically or conservatively and 
never winning a contract. Here also government plays a key 
role, ideally by insisting that industry justify its 
projections and its cost elements. But, again, here there is 
tremendous pressure to accept the lowest offer price, 
independent of the risk that is being taken.
    On the planning side, these are the forces that Dr. Carter 
and I and other acquisition executives have always had to 
struggle against, while at the same time doing everything we 
can to push the system to deliver more and better products 
sooner and at lower cost.
    Execution, on the other hand, is largely an industry 
responsibility. Once we set the terms of an acquisition 
strategy, basically our contracting strategy, it is up to 
industry to design and deliver the products. Now, the 
government always has a responsibility to ensure that prices we 
pay are fair and reasonable, that the quality of the work we 
accept meets our standards, and that the costs we reimburse are 
justified. But the execution of design and production functions 
falls primarily on industry. If the plan is sound, then cost 
overruns and execution are a matter of management, engineering, 
and production capability--or, more harshly, competency in 
these disciplines.
    At one time in my career, I would have said that our 
biggest problem by far leading to cost overruns was failures in 
planning. I am no longer as certain of that. I am seeing too 
many indicators that both government and industry need to 
improve their internal capacity to manage and to execute 
programs. To the extent that this observation is correct, we 
have a lot of work to do over time to build or rebuild the 
capacity in our workforces, both in industry and in government.
    For government, we have some direct control over this 
outcome, and we are moving aggressively to reconstitute and 
strengthen our workforce. Industry must also be strengthened, 
but this will have to happen indirectly through the incentives 
that we provide, largely through the way we contract. 
Incentives, primarily business incentives, are the primary tool 
the Department has to influence industry's performance, and we 
need to use them creatively and aggressively.
    So what is the Department doing about all this? My written 
testimony summarizes about 20 of the actions that we are taking 
to address these problems. We are building on the work of all 
the professionals who came before us, such as Mr. Young, who 
will testify before the Committee later today. We are working 
closely with other elements of the Department, particularly the 
cost assessment and program evaluation organization, where Mr. 
Burke serves as the head of the cost estimating group, but also 
the Joint Staff, which approves requirements; the Comptroller, 
which sets budgets; and others. We are working hard to make the 
entire acquisition chain of command and all the people who 
serve in it more effective. To achieve better performance in 
cost control and execution in general, we are strengthening the 
incentives we provide to industry.
    The Department has moved out smartly to implement the 
Weapon Systems Acquisition Reform Act and other legislation. 
Better Buying Power is a set of 23 initiatives designed to 
control and reduce costs across all of our contracted 
activities, not just major programs. With Secretary Gates' full 
support, we are increasing the size and, just as importantly, 
the capacity and capability of the government acquisition 
workforce. Despite the difficult financial climate, we fully 
recognize the force multiplier that a quality acquisition 
workforce has on the ultimate success of our programs.
    For Dr. Carter and me, this is all a process of continuous 
improvement. This will characterize our entire tenure in 
office. The struggle I have described will never end. It is not 
a short-term battle or a simple policy change or two that will 
solve all of our problems. If that were the case, it would have 
been solved long ago. It takes professionalism, tenacity, and 
singleness of purpose at all levels of the acquisition 
enterprise to make progress. We are totally committed to 
bringing the cost of our products and services under control 
and reducing them wherever possible. As Secretary Gates has 
indicated, the alternative is simply not acceptable.
    With that, we would be happy to answer your questions. 
Thank you, Mr. Chairman.
    Senator Carper. Thanks so much.
    How did he do, Dr. Burke? What do you think? Pretty good?
    Mr. Burke. He did very well.
    Senator Carper. I thought he did well.
    Let me start off with this: Tell us the name of the person 
who you succeeded, if you will, Mr. Kendall.
    Mr. Kendall. There was no one in my specific position. Jim 
Finley was in the closest position to mine. It was Deputy Under 
Secretary for Acquisition and Technology. For a few years, 
there was no Principal Deputy Under Secretary.
    Senator Carper. OK. So your position was vacant?
    Mr. Kendall. It did not exist.
    Senator Carper. It did not exist.
    Mr. Kendall. It essentially was retitled in the National 
Defense Authorization Act of fiscal year 2010.
    Senator Carper. OK. Jim Finley was a witness here about a 
year or so ago, and John Young was a witness here maybe 2 or 3 
years ago. And I think, as I understand it, John Young held the 
position that Ash Carter now holds. Is that correct?
    Mr. Kendall. That is correct.
    Senator Carper. OK. The year that Jim Finley came to 
testify, I asked him, ``How long have you been in your 
position?'' And he told me how many months he had been there. 
And I said, ``What kind of turnover did you receive from your 
predecessor?'' And he said, ``Well my predecessor had left,'' I 
think he said, ``18 months before I got there.'' I said, ``No 
kidding.'' And I said, ``Well, how many direct reports do you 
have in your position, Mr. Finley?'' Or is it Dr. Finley? I am 
not sure. And he said, ``I have six and,'' he said, ``only two 
of them were filled when I arrived.'' Only two.
    One of the questions I often ask of witnesses, particularly 
when we see a real problem, $402 billion worth in cost 
overruns, what can we do to help? What can we do to help? And 
one of the things that occurs to me that we could to help, 
particularly in positions that require Senate confirmation, is 
we can either confirm people or turn them down and say to the 
Administration, ``Send us another name. Send us a better 
name.''
    We are going through a process, as my colleagues know, we 
are going through a process led by Senator Chuck Schumer, 
Democrat from New York, and Lamar Alexander, Republican from 
Tennessee, where we would take--I think about out of roughly 
1,200 confirmable position that require Senate confirmation in 
the Executive Branch, I think we are going to try to take about 
400 or 450 out of that so that we reduce by about 30, 35 
percent the number of positions that require confirmation. That 
might just help, and I have asked my staff to look at those 
positions that are involved and see, are there any of those 
that we would take out of those that need to be confirmed, are 
there any that are within the Department of Defense in the 
acquisition area, whether it is in the Secretary's office or in 
the Army, Navy, Air Force, Marines, to see what--maybe that is 
another area where we can help.
    My recollection is that when it comes to confirming 
Secretaries of Departments, we do pretty well. When we get into 
the Deputy Secretaries, not bad. By the time we get to 
Assistant Secretaries, we do not do a good job at all. And 
sometimes my colleagues and I--hopefully not me--will put a 
hold on someone's name in order to get some kind of leverage 
for an entirely unrelated item. And the folks who suffer, and 
particularly in the acquisition area, are the taxpayers because 
we do not have the kind of horsepower we need in acquisition 
watching over the process and making sure that we are holding 
the feet of our contractors to the fire.
    Does any of that make any sense to either of you?
    Mr. Kendall. I would echo that completely. I was thinking 
about the thing that I would give as the first thing that the 
Congress could do, and you hit it. I waited 15 months after the 
Administration started before I came in. I was on hold for 
several months during my confirmation process because of the 
tanker acquisition. It had nothing to do with my candidacy.
    It is a very onerous and time-consuming process, and people 
are often held in limbo for a long period of time. It is very 
hard to recruit people who know they have to go through that 
process. We have a few more people coming up.
    I do not know if there is any Department position on this, 
so this is a personal opinion, but I would do just as you 
suggest. I would have more people come in as non-career Senior 
Executive Services (SESs). At the Assistant Secretary level, we 
have four or five Assistant Secretaries that report to Dr. 
Carter and me. Each of the acquisition executives for the 
services is an Assistant Secretary. And I think those people 
could easily be brought in as non-career SESs, and we could 
have our team on board much more quickly, and we would probably 
have a very capable team in place much, much more quickly than 
we did.
    Senator Carper. Let me just say, too--and I am going to 
ask, Dr. Burke, for you to respond as well. I would just say to 
Senator Brown and Senator Portman, could we just--I just want 
to make sure we are following what they are saying. What they 
are saying is we have this huge problem with cost overruns. The 
folks that are supposed to be serving in these acquisition 
jobs, senior acquisition jobs, we leave these positions vacant 
for months, in some cases longer than months. And we are trying 
to figure out what we can do on our end to better ensure that 
this $402 billion--that we start sending this curve the other 
way, not to continue to see it escalate. And we may have an 
opportunity in the Schumer-Alexander legislation to---we may 
have--there you go, that is right. We are on it. I suspect--my 
guess is that Senator Portman is or will be. But we may want to 
look at the jobs that we would remove the requirement for 
confirmation to see how many of those fall in this bailiwick 
and if there--I would ask you, if you will for the record, just 
to come back to us and recommend confirmable positions within 
the acquisition area at the Department of Defense that are 
confirmable that in your judgments should not be. And that does 
not mean we will sign off on all those, but at least we would 
be making a better, more informed decision.
    Dr. Burke, your response to what I have been saying, if you 
will, and to what Mr. Kendall said.


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    I defer to the Senate on Senate-confirmed positions.

    Mr. Burke. Mr. Chairman, as a career member of the SES, I 
have had to deal with the situation that Mr. Kendall describes 
and which you describe, which is often there are vacancies at 
policymaking levels for extended periods of time, often early 
in an Administration, and it is not a helpful thing for anybody 
involved, essentially, in terms of efficient operation of the 
government.
    Senator Carper. All right. Thank you. I have some more 
questions, but let me just yield to Senator Brown. Thanks for 
those responses.
    Senator Brown. Thank you, Mr. Chairman.
    So, Mr. Kendall, the Secretary of Defense has recently 
decided to continue the Medium Extended Air Defense System 
(MEADS) program, by requesting from Congress another $800 
million, as I referenced in my earlier testimony. This program 
has already cost the taxpayers almost $1.9 billion, and we are 
over 14 years into the program.
    Why should we continue with this failed program that the 
Department has characterized as, No. 1, subject to a high 
degree of risk; two, not needed because we can utilize existing 
assets to provide the capabilities; and, three, too costly?
    Mr. Kendall. Senator Brown, MEADS is a very unusual program 
in a number of respects. It is an international cooperative 
program, and our teammates have been to Germany and Italy. And 
the program, as you say, has been going on for quite a few 
years. It has gotten into developmental problems, cost overruns 
in the development phase, that have caused us to question 
whether or not it should continue.
    We looked at the program carefully. We looked at other 
options that we have to meet the same mission requirements 
essentially, and decided that we should not continue it into 
production. It was largely an affordability decision, but it 
was also looking at the actual progress on the program.
    The reason there is still money in the program for the next 
2 years is that we have a very unusual arrangement with our 
partners. The memorandum of understanding (MOU)--the contract, 
effectively--that we have with Italy and Germany is that if 
anybody withdraws, any of the partners withdraws, that partner 
is liable for all the termination liability associated with 
that withdrawal up to their full obligation to the program. 
Now, our obligation to the program is the money that you see 
still in budget, that $804 million.
    So we are basically in a position where we would have to 
pay a termination liability and get nothing, or we can go ahead 
and spend the money on the program and try to get some 
technology and perhaps some components that will be of value to 
us.
    So we looked at three options: We looked at just stopping, 
which would have led to a termination liability; we looked at 
continuing to the end of our agreement; and we looked at 
putting in an additional over $1 billion to meet the 
requirements of the program to finish development--the overrun, 
effectively. And we decided the best business option for us at 
this point was the middle option, the one to let the program 
continue to the end of the MOU.
    Senator Brown. So who--sorry to interrupt, but who signed 
this contract? I mean, isn't there also a provision in the 
contract to allow for non-performance which would mitigate the 
ability or the responsibility to pay that type of----
    Mr. Kendall. There are two agreements. There is an 
agreement between the Nations which sets up the terms by which 
we will execute the----
    Senator Brown. And who signed--who got us into that deal?
    Mr. Kendall. It was about 8 or 9 years ago, and I am not 
actually sure who actually signed up to the deal.
    Senator Brown. Well, I mean, it just seems that--I mean, I 
am not--I do not know how we--how we managed to get the 
taxpayers in a situation where we have to waste another $800 
million to build an air defense system with the Italians and 
Germans when we do it very well ourselves here, and then we 
also--so we are going to spend $800 million extra just to get a 
little bit of technology and knowledge. Are you kidding me?
    Mr. Kendall. Our problem is we do not have a better option 
right now because if we terminate, we will still be obligated 
to pay termination liability, which could be--which is capped 
at that amount.
    Senator Brown. And there is nothing in the contract that 
allows you to mitigate because of failure to deliver?
    Mr. Kendall. I believe that this contract is essentially a 
cost-plus vehicle, so essentially--and the termination 
liability is the costs associated with stopping, the costs that 
basically have to be borne because of all the work that has 
been done so far and what it costs to wind down the program, if 
you will. So that is--and the agreement was set up--and I was 
not party to the agreement when it was initially set up between 
the Nations. But the agreement between the Nations was designed 
to make it hard for people to leave because there is a long 
history in cooperative programs of one or more partners bailing 
out of the program because of budget difficulties.
    Senator Brown. But if----
    Mr. Kendall. It was set up as a way to keep everybody in, 
and now, of course, we are the persons who would like to get 
out but----
    Senator Brown. Right, but if the cost is roughly the same 
and without having pushed the Germans and Italians to agree to 
a mutual termination, without having negotiated actual 
termination costs, how can we claim that the taxpayers are 
better off by going forward and moving forward through the 
remaining term of the program to 2014?
    Mr. Kendall. Senator Brown, we are taking this one step at 
a time. We are currently in negotiations or discussions with 
our partners about----
    Senator Brown. I hope you have good attorneys or something.
    Mr. Kendall. Well, we----
    Senator Brown. I hope you have somebody who--you ought to 
give it to them on a contingency fee and give them a third or 
something.
    Mr. Kendall. We have to separate the agreement between the 
countries and the contract. The contract is straightforward, 
relatively speaking. We have to deal with that. Once the 
Nations decide how they want to proceed----
    Senator Brown. Well, I cannot imagine the other countries 
are too happy and they would want to get out as well.
    Mr. Kendall. I do not believe they are very happy either.
    Senator Brown. So wouldn't there be the ability to work 
together and try to kind of find some type of common ground so 
everybody saves some money?
    Mr. Kendall. That is exactly what we are trying to do right 
now. But we have to stay in the MOU while we have those 
discussions. At the end of the day, we may come to an agreement 
together to terminate. We may decide to go forward. It depends 
to a large extent on what the other partners say at this point.
    Senator Brown. So just so I am clear, what do the taxpayers 
have to show for their $1.8 billion of money so far? Anything?
    Mr. Kendall. What is being discussed now is what we can do 
to take the components that have been developed as far as they 
have: The two radars, the missile system, the----
    Senator Brown. But isn't it--really, it is nothing new, is 
it? There is no new technology that we already do not have in 
existence, right?
    Mr. Kendall. These are new systems. The missile will be an 
American missile. Basically it is being developed for Patriot, 
intended to be. The radars are new radars. The----
    Senator Brown. But don't we already have the technology in 
play now? The Colonel behind you is saying, ``No, sir.'' Do you 
want to testify?
    Mr. Kendall. These are new design systems. They have been 
in design for quite some time, but they are new systems.
    Senator Brown. OK. So new better new or just new?
    Mr. Kendall. New better new. Patriot has been upgraded, 
which is our comparable system. It is a much older system. 
Patriot was in development in the 1970's, so it has been around 
for a long time. It has been upgraded a few times, and it can 
be upgraded more. But this is a much newer technology system 
than Patriot.
    Senator Brown. So if I could just add, maybe go to Dr. 
Burke, the Weapon Systems Acquisition Reform Act, which became 
law in 2009, included a provision which required contractors, 
where practical, to develop competitive prototypes in major 
defense acquisition programs. And if the Department implemented 
the competitive prototype in MDAPs prior to production and 
deployment, how much money could we have actually saved, do you 
think?
    Mr. Burke. On this program specifically, on the MEADS 
program? It would have been very difficult to implement that on 
this program because of what Mr. Kendall has described. This is 
an international program that has been structured----
    Senator Brown. Do we do that often, international type 
programs like this? Is this kind of a kiss to the Italians and 
Germans to say, ``Hey, let us do this deal together,'' it is 
great?
    Mr. Kendall. This is a pretty unusual program. I do not 
recall one----
    Senator Brown. Do not do it again, all right?
    Mr. Kendall [continuing]. Quite like this.
    Senator Brown. We are way over, and we are getting nothing, 
so please, do me a favor, do not do it again. All right? And, 
obviously, I am a little bit--I do not want to be a wise guy, 
but it is just--it is crazy. And getting back to Mr. Kendall, 
in what programs has the Department implemented competitive 
prototyping? And where in the acquisition process has this 
taken place, pre-systems acquisition, systems acquisition, or 
sustainment?
    Mr. Kendall. Is your question where have we implemented 
competitive prototyping?
    Senator Brown. Yes, where has it been done successfully 
before, this prototyping?
    Mr. Kendall. It was done for Joint Strike Fighter, 
initially. That is one of the larger programs we have done it 
for. I am trying to think of a more recent program.
    Senator Brown. A littoral combat ship? Has it----
    Mr. Kendall. We have done it for some of the munitions 
programs. Two that come to mind right away are Small Diameter 
Bomb and the Joint Air-to-Ground Missile System. So we have 
done it for those. It is the preferred path.
    Senator Brown. It is the law now, isn't it, though, to 
include it, where practical, I guess?
    Mr. Kendall. Yes, where practical.
    Senator Brown. Do we ever say to whomever, hey, is it 
practical? Do we ask that next question?
    Mr. Kendall. Absolutely. Carrying competition as far as 
possible into development is a very good thing for the 
Department. It really does a lot to reduce the risk in the 
program and reduce costs overall. So----
    Senator Brown. And it is interesting you say that because 
we are canceling a second engine, and you are talking about 
competition, on the one hand, you just said it is great, and 
yet we are not doing it. In fact, if we continued on with that 
program, there is a potential savings of billions of dollars--
what, hundreds of millions of dollars? What is the number? But 
it is substantial, and yet we are not doing it.
    Mr. Kendall. The Department has looked very hard at the 
engine situation.
    Senator Brown. Twenty billion.
    Mr. Kendall. And I think you are well aware of our 
conclusions there. We do not see the case for the engine 
development, second engine development. That has been----
    Senator Brown. I am going to come back, Mr. Chairman----
    Mr. Kendall [continuing]. In the Department's budget for a 
long time.
    Senator Brown [continuing]. Because I have a bunch more 
questions.
    Senator Carper. OK. Senator Pryor. Senator Portman, Senator 
Bob Portman, from Queen City.
    Senator Portman. Mr. Chairman, I appreciate it, and thank 
you for being here today and for your service. Let me just 
followup on some of the things that Senator Brown was talking 
about in terms of how we do save money. I look at the 
Quadrennial Defense Review (QDR) Independent Panel recently 
concluded: ``History has shown that the only reliable source of 
price reduction to the life of a program is competition between 
dual sources.'' Do you agree with that? Do you disagree with 
the Quadrennial Review?
    Mr. Kendall. Competition is probably our most effective 
single tool to bring down costs. I would agree with that, 
absolutely.
    Senator Portman. The life of a program is competition 
between dual sources. You said in your testimony you are 
looking to create new systems constantly, to create incentives. 
You said we need to use incentives aggressively. You talked 
about accountability. You talked about competition. You just 
now confirmed that. I assume you think the competition is 
consistent with the 2009 legislation that actually was 
championed by Senators Levin and McCain, the Weapon Systems 
Acquisition Reform Act. Part of that bill is to require 
contractors, where practical, to develop these competitive 
prototypes of a major defense acquisition program. So would you 
say that competition is consistent with that 2009 legislation?
    Mr. Kendall. Yes, absolutely. We are doing competition 
wherever we can. Ground Combat Vehicle (GCV) is a new startup 
that Dr. Carter and I have had coming through, and we will be 
doing competition there and carrying it well into development, 
perhaps all the way through.
    There are other programs like SSBN-X, which is another new 
start that we are looking at, where for a new ballistic missile 
submarine we just simply cannot afford to carry two competitors 
through the full design phase or prototype. So it is a case-by-
case judgment call based on what is affordable. But wherever we 
can, we absolutely do want to carry competitive prototypes.
    One of the changes that Mr. Young made when he was in 
office was to move the start of engineering, manufacturing, 
development, our full-scale development phase, to after 
preliminary design review. So you have now in our system for 
normal programs, as many as we can, you do competitive risk 
reduction, you go to preliminary design, and then you down-
select. If possible, we would like to go even further with 
competition, but we usually cannot afford to do that.
    Senator Portman. Let us talk about how it has worked 
because you have mentioned that you have used the prototype 
competition with the Joint Strike Fighter. You said that a 
moment ago. How is that going?
    Mr. Kendall. Well, the original competition----
    Senator Portman. Where is the Joint Strike Fighter program 
right now compared to its initial forecast?
    Mr. Kendall. It is not performing to its initial forecast. 
I think that----
    Senator Portman. How much over is it? How much over?
    Mr. Kendall. It is over by at least 100 percent, I think, 
from its original estimates, if I remember the numbers. Rick, 
do you have those----
    Senator Portman. Over 100 percent would be how many 
billions of dollars?
    Mr. Kendall. Let me get a number for you.
    Fifty percent is the overrun from the original baseline--I 
am sorry. At the time of Nunn-McCurdy, it was a 57-percent 
overrun. Nunn-McCurdy we did last year. Joint Strike Fighter 
went through----
    Senator Portman. From the original program, how many 
billions of the over $400 billion that the Chairman has on his 
chart there is the Joint Strike Fighter over?
    Mr. Kendall. I believe it is the biggest contributor.
    Senator Portman. How many billions?
    Mr. Kendall. I would have to check the report to see, but--
--
    Senator Portman. I would hope you all would know what the 
number is on your biggest cost overrun.
    Mr. Kendall. I will get you a number, Senator Portman. I do 
not have a number right now.
    Senator Portman. OK. I have a number. I may be wrong, but I 
would like to hear it from you all.


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[GRAPHIC] [TIFF OMITTED] T7121.106

    Senator Portman. How about the--so the program is, let us 
just stipulate, billions of dollars over, and----
    Mr. Kendall. Yes, it is.
    Senator Portman [continuing]. It is behind time, and----
    Mr. Kendall. Yes, it is.
    Senator Portman. And part of the program of creating this 
Joint Strike Fighter, which would be about 80 to 85 percent of 
our military warfighters at the point of its completion because 
it would be a Navy, Air Force, and Marine aircraft, part of 
this is the engine. And you said earlier that you had done your 
analysis and determined that competition is not appropriate 
with the engine. The GAO has done this study that Senator Brown 
indicated earlier, shows that through competition you save 
money, and they analyzed the F-16 program, for instance, and 
said it is roughly a 10-to 20-percent savings. I think 20 
percent was their number. So it is about a $100 billion 
program, although cost overruns are every day, so we will see. 
So that would be about $20 billion. But you said earlier you 
think that there are not cost savings through competition on 
the engine side. What is going on with the engine? Where is the 
engine that--you have apparently chosen as of last week when 
you did a stop order on the alternative engine. How is that 
engine doing? Is it meeting the projections?
    Mr. Kendall. It is making progress. Its deliveries are 
currently scheduled to be consistent with the aircraft that it 
is going to go on. There are----
    Senator Portman. Are there any cost overruns in it?
    Mr. Kendall. There have been some overruns, and----
    Senator Portman. How much?
    Mr. Kendall. I would have to get that number for you, too.
    Senator Portman. OK. When you get the other number, I would 
love to hear that number.


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[GRAPHIC] [TIFF OMITTED] T7121.107

[GRAPHIC] [TIFF OMITTED] T7121.108

    Senator Portman. The number I have is $2.5 billion already 
in cost overruns----
    Mr. Kendall. That engine has thousands of hours of testing, 
and it is a much more mature design than the alternative. The 
alternative has had a relatively small number of hours of 
testing. There is still a good deal of risk in that program, 
and we do not see the benefit of diverting resources from other 
projects or from the F-35 airframes to that second engine. We 
just do not see the benefit of that at this point in time.
    The engine that we are relying on----
    Senator Portman. You do not see the benefit in this fiscal 
year, or you do not see the benefit over the----
    Mr. Kendall. Over the----
    Senator Portman [continuing]. Life of the program?
    Mr. Kendall. At this point we cannot predict----
    Senator Portman. This is meant to be--Joint Strike Fighter 
is----
    Mr. Kendall [continuing]. Benefit over the life.
    Senator Portman [continuing]. Meant to be the program for 
our Armed Forces for a couple decades, right?
    Mr. Kendall. I understand.
    Senator Portman. And you do not see any benefit from 
competition?
    Mr. Kendall. We do not think that there is enough assurance 
of that benefit to justify the risk of diverting the resources 
over to the engine.
    Senator Portman. What is the risk of diverting resources--
is the second engine over cost?
    Mr. Kendall. Yes, the second engine has had developmental 
problems also.
    Senator Portman. Is it over cost?
    Mr. Kendall. I do not have those numbers. I would have to 
check on that.


                       information for the record


    Yes. The F136 System Development and Demonstration contract 
was signed in 2005 for $2.5 billion. At the time the contract 
was terminated, in April 2011, the JSF program office estimate 
to complete was approximately $3.2 billion.

    Senator Portman. OK. My understanding is that the first 
engine is over cost by $2.5 billion already. The overall 
program is tens of billions of dollars if not hundreds of 
billions of dollars over cost. I have heard different numbers--
$104 billion over cost. And you have testified before us today 
brilliantly about the need for competition and how you believe 
in competition, and certainly the 2009 legislation, the 
Quadrennial Review, and every other study that has been done, 
including GAO, says competition works. These numbers are 
unsustainable. I mean, if we did not have the largest deficit 
in the history of our country and the biggest debt obviously in 
the history of our country and as a percent of our economy, as 
the Chairman has said--it is numbers we have never had to deal 
with before. In fact, as a percent of our economy, our debt is 
actually bigger than it has ever been. Our deficit has only 
been bigger one time, and that was World War II, when it was 
the same, roughly 10 percent. So we are in a situation now 
where we have to do what the Chairman said, which is thrift 
versus spendthrift, better results for less money, and using 
competition is certainly something that you have today talked 
about as a way to get at this cost overrun of $400 billion.
    So I would hope that the Department of Defense, instead of, 
as it did last week, putting a stop order in place while 
Congress is in the middle of its appropriations process and 
working with this exact program trying to find cost savings in 
it, that instead you would embrace the idea of competition in 
order to save money for the taxpayer over time.
    My time is up. I hope to have a chance to come back. I look 
forward to your numbers on the Joint Strike Fighter program 
overall.
    Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator Portman. Senator Pryor.
    Senator Pryor. Thank you, Mr. Chairman. We have already 
clarified what Mr. Kendall's rank was when he left the 
military. What was your rank?
    Senator Carper. I think it was Captain.
    Senator Pryor. Captain, all right.
    Senator Carper. But I could not get in the Army. I had to 
stay in the Navy.
    Senator Pryor. Well, thank you for your service there.
    Let me followup, if I can, just on the Joint Strike 
Fighter, and I think you were about to offer an explanation, 
and my understanding is that one of the reasons it is so far 
off budget, and so late is because there have been redesigns?
    Mr. Kendall. There are a combination of factors that affect 
the Joint Strike Fighter's increase in cost. One of them was 
just poor estimating originally. There have been difficulties 
in the design phase and in production where things have not 
gone as well as the original estimates were made. We are 
working very, very hard now to get the production processes 
under control.
    One of the aircraft, the STOVL aircraft in particular, has 
had problems with the design, is having to have some rework 
because of that. It is the reason we have put the STOVL 
aircraft essentially on a pause while we sort out those 
problems. And it is on--I think the Secretary has even used the 
words--probation for 2 years until we get some of the problems 
with it sorted out.
    Senator Pryor. Mr. Burke, did you have any comments on 
that? I saw you nodding your head over there.
    Mr. Burke. I agree with those comments.
    Senator Pryor. You understand Congress' frustration. All 
politicians are squeamish when it comes to cutting defense 
spending. That is politically a dangerous thing to do, but in 
this budget environment we are going to have to become more 
efficient and stretch our dollars and make sure that when we 
are spending dollars on defense they are actually going to 
productive pursuits, whatever those may be.
    That leads me to my next question. I know we have Nunn-
McCurdy on the books and I would like to get your read on how 
well it is working and if it goes far enough. Because even 
though it is on the books, it seems that we constantly are 
plagued with cost overruns, et cetera. So does Nunn-McCurdy 
need to be strengthened? Does it need to go further? Does it 
need to be changed in any way to make sure we can get a handle 
on these cost overruns?
    Mr. Kendall. Nunn-McCurdy is a useful tool for us. The 
problem with Nunn-McCurdy is it comes after the cost overrun 
has already been realized. And then it asks the very reasonable 
questions you should ask in that situation. Do I still need the 
product? Are there other alternatives that would be less costly 
in giving you something with the same capability, et cetera. 
Those are reasonable questions to ask. And what we are doing 
now is actually we are asking them well before a formal Nunn-
McCurdy breach has to be declared.
    The problem is that they come after the cost overruns have 
already occurred. What we are much more interested in right now 
is prevention and making sure we start programs that are 
designed for success.
    Senator Pryor. And do you feel like you are being 
successful in that and catching these potential overruns 
earlier in the process?
    Mr. Kendall. That is our intent, and I think we now are 
having some success. A lot of that has to do with the planning 
function that I described and setting the requirements right 
early.
    I wanted to mention that we are as interested in cost 
control as in preventing cost overruns. We have to get more 
product out the door for the money that we have. That is what 
we are fundamentally about right now. We are not delivering 
enough to the warfighters for the money that we have. So we are 
stressing affordability in our programs, which means that 
basically early on people have to set an affordability target, 
which we are calling a requirement, for what that program will 
cost, and then they have to design to that cost. That is a 
fundamental change. I think cultural change was mentioned 
earlier. This is a different mindset. We cannot allow our 
operational communities to just ask for anything and then go 
try to build it.
    If you look at the programs we have canceled over the last 
few years, look at the program Secretary Gates canceled about 2 
years ago, the ones we just canceled in this budget, what runs 
through them more than anything else is that they are 
unaffordable programs. EFV is a good example, the Expeditionary 
Fighting Vehicle. We spent years in development chasing a 
requirement and a project that turned out to be unaffordable. 
We were forced to confront eventually that it was unaffordable, 
kind of around the time Nunn-McCurdy breach would occur. That 
is way too late. We should not be starting unaffordable 
programs. So we are really stressing the beginning of the 
process.
    We are also stressing something that we are calling in 
general to change the culture of our workforce, and maybe 
change the culture of industry, getting more cost control into 
everything we do. We are emphasizing something called ``should 
cost,'' which is the idea that you do not just accept the 
independent estimate. One of the ways we can avoid having cost 
overruns is just put a lot of money into everything or to take 
no risk. What we want to do is get as inexpensive a product as 
we can and get superior products at the same time.
    So what we are funding to now is the independent cost 
estimate that Mr. Burke's shop generally generates for us. We 
are incentivizing our own managers and we are going to 
incentivize industry to deliver below that, to get the costs 
down.
    Now, in the world that I have lived in all my life, we tend 
to overrun the independent cost estimate. But if I can just get 
to that level, then I will have prevented all these cost 
overruns that we are talking about. If we can get below that 
level, then we can deliver more products to the warfighter. 
That is our ultimate goal, and we want to define that as 
success.
    For too many of our people, success is spending the money, 
and that is not what we want. We want people to get more value 
for that money.
    Senator Pryor. I do think that the Department of Defense is 
in sort of a different category than the other departments and 
agencies. Congress is afraid sometimes to push too hard on cost 
containment because it might be used in a 30-second ad that we 
are cutting spending on defense.
    From time to time, it appears that the leadership over at 
the Pentagon will spend everything that we give them and try to 
find ways to spend it, and it almost sometimes appears they are 
not that interested in cost containment, although I would say 
that Secretary Gates has shown a lot of courage on that.
    And then I think the contractors have a lot of incentive to 
keep going and keep building and keep producing and spending.
    DOD is different than pretty much any other agency because 
of the political dynamic of trying to pressure you to cut your 
spending.
    Mr. Kendall. What I think Secretary Gates has caused the 
Department to confront is that it cannot continue that type of 
behavior. When he started his Abilene speech of about a year 
ago now, I think it was a revolutionary statement. People had 
to pay attention to that.
    Senator Pryor. It was impressive and it was appreciated.
    Mr. Kendall. We are implementing that across the board. In 
acquisition, where we spend $400 billion of the $700 billion 
that was in the budget today in 2010, we are going after 
everything that we are contracting out: Service contracts, 
which were about half of that $400 billion that we spent, as 
well as all of our programs. The major programs are a 
substantial fraction of that, about 40 percent overall. So we 
are trying to do everything we can to change the way people 
think about the money that they are spending.
    On the government side, that is a cultural change. That is 
an attitude change and the way people think about what success 
is in a way.
    On the industry side, we have to have stronger incentives. 
We have to have consequences. I think Senator Brown mentioned 
this. When people do not deliver, there have to be 
consequences. Now, most of the time we like to do that in fees. 
We often do not want to kill a program. We want to get the 
program. But we do not want people to be rewarded for poor 
performance so we are strengthening our incentives in order to 
do that.
    Senator Pryor. That is a very valid point because the 
Department of Defense does so much contracting. It is an 
enormous number of contracts and amount of money involved. And 
there are companies out there that routinely breach the 
contracts, that do not meet the expectations, that do not 
perform. There are these cost overruns. In some cases they are 
not paying their taxes. In some cases they have had problems in 
contracting either with this agency or other agencies for non-
performance or whatever it may be. But, nonetheless, they still 
get the contract, and we really need to focus and clean that 
up.
    Mr. Burke, did you have anything you wanted to add? You 
looked like you were going to chime in there a minute ago.
    Mr. Burke. I was. Thank you, Senator. I was going to say 
that my observation is that this is actually a very important 
law. The Nunn-McCurdy tool actually influences the Military 
Departments. And you have been in the Military Departments, and 
it influences their behavior. We are trying to move them so 
that when they make decisions about spending resources or 
making trades, delaying production to save money, that we 
actually have them calculate what the percentage increase of 
that cost metric. So Nunn-McCurdy gives you 15 percent. Well, 
if I delay a production a year, it might cost me six of that 
just off one small incremental decision. And we are really--
they are beginning to take that seriously to try to avoid those 
limits. So I think it is an important statute.
    Senator Pryor. Thank you, and thank you, Captain.
    Senator Carper. You are welcome, Your Excellency. General. 
He was a General. He was an Attorney General, so we call him 
``General.'' I was just a Captain.
    I want to revisit a little bit of the territory that 
Senator Pryor just covered, and it is interesting. I think it 
was you, Mr. Kendall, who spoke about prevention, the power of 
prevention for cost overruns. Senator Brown and I have held I 
think at least one of those hearings in recent months. Senator 
Portman and maybe Senator Pryor were with us as well. We were 
focusing on how do we prevent fraud in Medicare, how do we 
prevent fraud in Medicaid. What we are trying to do is to 
improve our ability, when fraud occurs or when we just make 
overpayments, mistakes, to be able to go out and recover--after 
the fact, recover the money from those that have been overpaid 
or who have defrauded money from the Medicare trust fund.
    One of our witnesses sitting right where you sit, Mr. 
Kendall, a couple of weeks ago said we want to move away from 
what he described as ``pay and chase.'' We actually pay the 
providers up front. Then we figure out it was wrong, and 
mistake, and then chase them down and try to get the money 
back. And he said what we have to do is do not pay them in the 
first place, make sure that we are not allowing unethical, 
really criminal providers to get involved in the payment system 
in the first place so that we do not pay people and then have 
to chase them down to get the taxpayers' money back.
    We try to work on prevention with respect to health care. 
In the health care legislation we actually provide--we call it 
the Safeway amendment. Senator Ensign and I offered legislation 
that allows employers to provide premium discounts to their 
employees of up to 30 percent if employees who are overweight 
lose weight, bring their weight down, keep it down; if they 
smoke, stop smoking; that kind of thing. But there is actually 
a big focus on prevention there.
    Those of us who served in the military before, we got 
annual physicals, usually in our birthday month. The military 
does that in order to save money, to identify problems when 
they are small, fixable, rather than when they get really 
serious and expensive. And in Medicare, we never allowed folks 
to get a physical except one time in their life: When they 
became eligible for Medicare. It was the welcome-to-Medicare 
physical. We have changed that so folks can now get a physical 
every year. And, again, the reason why is prevention. An ounce 
of prevention, as my grandmother used to say, ``Is worth a 
pound of cure.''
    So it is interesting that the theme has actually been part 
of several hearings that we have focused on. We are trying to 
rein in the growth of costs. I would almost call it cultural 
change. I keep coming back to the idea of a cultural change.
    You spoke of a cultural change in the Department, in the 
acquisition area, in the different branches of the armed 
forces. Talk a little bit more about the cultural change that 
is needed there.
    Mr. Kendall. We have some incentives--I mentioned some of 
the incentives earlier in my opening remarks. We give 
incentives to people to spend the money, and we have to reverse 
that. An e-mail came across my desk last summer, last fall, 
where the Comptroller was looking at obligation rates, and he 
was saying to people, OK, if you are not spending your money 
fast enough, I am going to cut your budget in the current year 
because you have shown that you are not obligating quickly 
enough. And I sent him an e-mail back saying this was 
inappropriate, this was the wrong kind of behavior to 
encourage.
    Senator Carper. Good for you.
    Mr. Kendall. He and I and Dr. Carter and a couple of others 
met, and we had a meeting and we discussed the subject. We were 
talking about how pervasive this behavior was.
    One of the people in the room was a fighter pilot, and he 
talked after the meeting about how at the end of every year the 
fighter pilots in his squadron would get out and fly their 
airplanes around, to burn holes in the sky----
    Senator Carper. Burn that gas.
    Mr. Kendall [continuing]. To burn their gas so they would 
not have cuts in their funding for operations for training in 
the next year. That is not the kind of behavior that taxpayers 
expect, and that is not what they should get. That is a 
cultural change. People have to stop sub-optimizing like that. 
Getting your money on contract, getting your money obligated is 
not the figure of merit we should be looking at. It should be 
getting the most value for the taxpayers. That is a huge 
cultural change for our institution.
    Should costs--in trying to emphasize that to people, 
incentivizing people that if they do achieve savings, if they 
do save us money, they will get rewarded for that. They will be 
rewarded for that in their careers. We tend to be very focused 
on meeting the near-term milestone as an example of success.
    As we go around and talk to our contracting people, one of 
the complaints I get--and we have been visiting the buying 
commands, Dr. Carter and I--is that contracting people feel 
they are under pressure to award contracts. You do not want to 
be on the side of a negotiation where time is not on your side. 
You want to give those contracting people time to get the best 
deal they can for the government, which means you just take 
that time.
    Now, your money may expire. You may get yelled at by your 
boss. We want to change that. But basically we want to get the 
best business deal we can. So success is coming back with a 
better price for the government and a better business deal, not 
getting things on contract fast. That is a big cultural change 
we are after.
    Senator Carper. All right. Thank you.
    Do you want to add to that, Dr. Burke? No? OK.
    Let me go back to what triggers a Nunn-McCurdy breach. My 
recollection is if we have a cost increase that is, I think, 15 
percent more than the last time we measured the cost, then that 
triggers Nunn-McCurdy. And also if we get a price increase that 
is 25 percent above the original cost, that can trigger Nunn-
McCurdy.
    We have had some discussion with my staff and myself and 
others that we are trying to look for a way to forecast before 
that 15-percent trigger, the 25-percent trigger, a way to 
forecast that or anticipate it, kind of look over the horizon. 
Can you talk with us about that and maybe tie it in with an R&D 
budget to see, looking--maybe an R&D budget could help us 
identify early and forecast a potential Nunn-McCurdy breach?
    Mr. Kendall. Tools we use to forecast cost growth in 
development contracts, we used Earned Value Management, which 
is a system of tracking progress relative to plan, where you 
can get very good early warning indicators.
    On production contracts it largely depends upon the nature 
of the contract. There, too, there are things that can tell us 
early when things are headed in the wrong direction, and we can 
try to step in and take action.
    I would not encourage a Nunn-McCurdy-like process for 
development. Development is about 10 percent, maybe at the most 
20 percent, of the total cost of a program. It is the place 
where you really want to spend money to save money later. So if 
we put constraints on--we have to be careful of unintended 
consequences. So if we put constraints on development where 
people trim and take risk in development to avoid a Nunn-
McCurdy-like situation--and Rick was right. People try to avoid 
Nunn-McCurdys. It is not always the behavior we want that they 
use to try to avoid them, but they do try to avoid them.
    So I would be a little careful about development. I want 
people to spend a little money in development; they can save a 
lot of money in production as a result of that. And, more 
importantly, even they can save money in sustainment. So 
development is where we need to make good business choices and 
not be penny-wise and pound-foolish. We tend to do the 
opposite, I am afraid.
    Senator Carper. All right. Do you want to add anything to 
that Dr. Burke?
    Mr. Burke. I would just say that one of the key tools to 
forecast overruns is Earned Value Management, and in Mr. 
Kendall's written remarks, he talks about the fact that in the 
Department we have not paid enough attention to the Earned 
Value Management tools. Industry also----
    Senator Carper. Just explain what you mean by that. We have 
talked about this at other hearings, but just for our purposes 
today, what do you mean by Earned Value Management?
    Mr. Kendall. The Earned Value system basically forces you 
to plan your work and break it up into small segments and 
attach costs to each of those segments. So essentially as you 
start to execute, you then report against that. So you can 
track whether your budgeted work and your budgeted costs are 
actually coming in according to plan. And it is a very good 
leading indicator of problems in a project.
    It is also a very important planning tool. It has become--
in my earlier years in the Department, it was used extensively 
and for those purposes. But I think in the last 10 or 15 years, 
it has atrophied. It has become much more of a bookkeeping kind 
of program as opposed to a management kind of tool. So we are 
trying to get our people to move back in that direction and use 
it more aggressively. We are reviewing in our monthly reviews 
now to see what kind of progress there is.
    It does not apply to every type of contract. It is most 
useful in development contracts. It is less useful in 
production contracts. But it is a great leading indicator of 
problems if it is set up properly.
    Senator Carper. All right. Good. Thanks. Thanks very much.
    Senator Brown, second round. And welcome, Senator Coburn. 
Nice to see you.
    Senator Brown. I will defer to Senator Coburn and give him 
a shot.
    Senator Coburn. Well, I apologize for not being here first 
at the hearing, and you may have covered the questions I am 
going to ask--that I apologized or that you deferred? 
[Laughter.]
    OK. I used to sit in that chair. I understand what it is 
like.
    Senator Carper. He used to sit in this chair, too.
    Senator Coburn. Yes, I did.
    I just want to have a general conversation with you, having 
the manufacturing background for 10 years and the business 
background, and what I want you to do is tell me where I am 
wrong in my thinking. What I see in the last 6 years and the 6 
years I was in Congress is we do not have good control on 
requirement creep. And the way I understand it, we actually 
incentivize requirement creep to the tune that the fact that on 
our contracting there is more remuneration the more 
requirements that you have.
    So my question is: How do you set it up where the 
decisionmakers can actually control the requirement creep? 
Because if you come to me and I am a purchaser and I am not 
really concerned about my budget in the long run and I know I 
have a cost-plus-development contract or something like that, 
and I know, hey, this bell or whistle would really be good, 
this is cool, versus what is needed when we start out with what 
our needs are in defense, what do we actually need, and then 
have a parallel track of some sort on these extra things, so 
that when you go to a second iteration of it, you add in the 
new bells and whistles as you go. Because what I have seen too 
often is it is not that the guys that are trying to get this 
original piece of idea out the door for a major defense, it is 
that we get the requirement creep that markedly increases both 
the developmental cost but ultimately the unit cost when we go 
into production. Am I wrong in that?
    Mr. Kendall. No, I think you are right, Senator Coburn. The 
things we are doing about that--there are several things. Let 
me start out with affordability constraints.
    One of the things we are doing now in all our programs, all 
our new starts, is we are requiring that there be an analysis 
of the affordability of the program up front that dictates the 
cost you are capable of paying for it. A good example is our 
Ground Combat Vehicle, the Army's new program. Essentially my 
analogy I use for this all the time is if your teenage son 
comes to you and says, ``Dad, I have a requirement for a 
Ferrari.'' You have to say, ``Son, I have a budget for a Ford, 
and that is what you are going to get.'' So it is something 
like that, OK? Because the requirements community will tend, 
even at the beginning, to ask for everything it can conceive of 
that it would like to have, and I can understand that 
motivation. But we do not have budgets that can support that, 
and we have to make tradeoffs.
    Ground Combat Vehicle, we actually--Dr. Carter and I and 
Dr. O'Neill, who is the Assistant Secretary of the Army, pulled 
back the RFP that was on the street and said we had an RFP that 
was basically all the requirements that the user could put down 
and no constraints on cost. So we said, OK, we are going to do 
two things. We are going to figure out what the cost cap is for 
this program. How much can the Army really afford in 
production? We ended up with a number of about $10 million per 
platform, and we did that by looking out at the Army's Ground 
Combat Vehicle fleet and saying, OK, given the budgets you can 
expect to have, how much can you expect to be able to spend per 
new item that you are going to buy out there? That came out to 
be the number. And that left the Army with enough money to do 
some upgrades on it to other systems when that was pretty much 
all, at least for the next 20, 25 years. So we had a cost cap.
    Then we made the Army sit down and look at its requirements 
and prioritize them, and the ones that it absolutely had to 
have were in the top end. Then others were tradeable and others 
were kind of in the nice-to-have category. And that is the way 
the RFP finally went out on the street. So that is the sort of 
thing we have to do to discipline the process.
    Another thing we're doing that the Joint Staff is doing 
actually now--and it is in line with the idea of tripwires. The 
Joint Staff is now requiring that if the cost of a program goes 
up by 10 percent, just 10 percent, the program has to come back 
in and its requirements have to be reassessed to see if any 
requirements can be removed to get that cost back down. So that 
is another tool that we are using.
    Senator Coburn. All right. Let me ask you one other 
question. You guys spend a lot of money purchasing weapons 
systems, right? And on the developmental side of that, what is 
wrong with having a requirement of some capital contribution by 
those that are going to be in the development potential get the 
product later on? In other words, one of the things that I 
think--and I learned this by talking to the CEO of Honeywell--
is if, in fact, they have capital at risk, the efficiency with 
which the development is undertaken is much greater because 
they have some of their money at risk, not our money at risk.
    What are your thoughts about that?
    Mr. Kendall. You make a good point. I have not looked at 
that idea. Generally speaking, we pay people to do the R&D, and 
then we pay them to facilitize for production. So they are not 
taking the same kind of risks.
    I would have to go back and take that on board and see how 
we could do that. The tool that we have that I think is 
probably most effective for us is their profitability. Because 
we tend to do things that are difficult to do, most of our 
development programs are cost-plus. We are not in a commercial 
market where there is any other customer. We are it. And 
basically if we are only going to buy one of something, you 
will gamble your entire company trying to build a product for 
us on the odds--in fact, Northrop Grumman did this once. They 
built a fighter plane on their own, and we never bought it. 
They lost a huge amount of money on that. So we are not going 
to get that kind of an investment. But we can get some 
investment perhaps.
    Senator Coburn. Yes, that is what I am saying, some shared 
capital exposure so that you have the driver on their side 
saying, wait a minute, guys, we are going to be a lot more 
efficient in this development.
    Mr. Kendall. I could go back and take a look at that and 
see if we could structure things that way. I do not think we 
ever tried to do that per se. What we are doing is looking at 
is the profitability of the company, and one of the things that 
you mentioned was that requirements creep up, and in a cost-
plus environment you just keep adding on, and the bigger it is, 
the bigger fee you get. We are trying to shift our profit more 
into the production side of the house.
    The world I used to live in was the cold war when I got 
into this business initially. The metric was get out of 
development, you win the development contract, and you probably 
break even maybe in development, and then you get into 
production and you make your money in production. We have been 
in a world where people have been able to make money in 
development for a long time now, and we need to shift that. We 
need to shift the emphasis and the incentive system so people 
get into production sooner so they can start to make money. 
That is a fundamental change we need to engender.
    Senator Coburn. One area that you all have had massive cost 
overruns on are IT systems and radios, and actually this 
country spends $64 billion a year on IT systems and $34 billion 
is at risk all the time. They are on the EAO's High-Risk List 
all the time. A lot of that is commercially available and the 
application. I am involved in all the auditing and the new 
systems and everything else that is going on over there. I just 
wonder if we could emphasize maybe a little more taking off-
the-shelf products where we can because having a son-in-law 
that works for Oracle and who used to work for SAP, I get to 
see all this stuff from the inside, and the waste. I mean, they 
are not real efficient organizations either. And when they can 
see one of these contracts, I mean, it is big dough to them. 
Big dough.
    Mr. Kendall. That is an area where there is a lot of 
potential for improvement. Dr. Carter, when I came in a year 
ago, gave me the opportunity to look at our business systems 
and some of our radio systems and communications command-and-
control systems, and I have been doing that. We have tried to 
do too much sometimes. We have had too large of programs which 
are too difficult.
    To give you a sense, though, of the fact that you cannot 
always just bring in a commercial product, I talked to one of 
our integrators, and I said why did we get into so much trouble 
on a specific program. I think it was a human resources 
program. He said, well, there are 170,000 compliance 
requirements that were unique to the government that had to be 
put into the software, and that is where the cost is going. It 
is all that development cost up front, and that is where we 
tend to get into trouble.
    What we are doing----
    Senator Coburn. That is where you need to come to us and 
say, How do we get a waiver on some of these compliance costs?
    Mr. Kendall. Yes.
    Senator Coburn. I mean, we are in a whole new day on 
budgets. You all know that.
    Mr. Kendall. We understand that fully.
    Senator Coburn. And so that is the kind of creative thing. 
You need to come back to Congress and say, ``Can we have some 
relief on this where we could save some money?''
    Mr. Kendall. We will do that where we can. What we are 
doing in addition is breaking up those jobs into increments 
that are reasonable, and we are insisting on delivered 
capability, testable capability at least, if not field-able, 
before we go on to the next phase.
    Senator Coburn. Got you.
    Mr. Kendall. So that approach, it is a standard large, 
complex software program approach. But we are implementing it 
in our business systems, we are implementing it in our command-
and-control systems where we tend to have the most difficulty.
    We are also using more commercial hardware. The Navy had a 
great success in Virginia with its off-the-shelf hardware for 
the combat system, so we are emulating that in other places as 
well.
    Senator Coburn. All right. I am way over my time.
    Mr. Kendall. There is a lot of room for improvement there.
    Senator Coburn. Thank you, Mr. Chairman.
    Senator Carper. You bet. Thanks for your great work in this 
area with us.
    Senator Brown, you are back.
    Senator Brown. Thank you, Mr. Chairman. I know you have to 
take a break, so if you want, I will just continue to march.
    I just want to zip back just for a minute. I am going to 
get you some questions for the record because I want to make 
sure I understand everything that is going on with the two 
engines for the 135, 136, and--because, I mean, the numbers I 
have--you talk about competition, you talk about cost savings, 
you talk about everything. But then it just does not make sense 
when you have one engine that is a projected $11.45 billion and 
another one is $3.87 billion, give or take. So I am going to 
designate--I just want you to know what is coming, and I would 
like within a reasonable time--and it will be something like 
what is the cost, why is it over--why is the engine that you 
picked so far over budget? When is it going to be done? What is 
the projected cost? And a detailed explanation, aside from a 
phone call on a Saturday morning, like, hey, by the way, we are 
canceling an engine. And I do not really know based on 
everything we are seeing here, like why? And if competition is 
good and we are going to save money. Sometimes you have to pay 
a little money to save a little money, and I think competition 
in any type of business breeds a better product and a more 
aggressive entity producing. But that being said, that will be 
forthcoming.
    I just wanted to touch base on and just kind of shift gears 
a little bit, the acquisition program managers should have 
increased authority commensurate with the accountability to 
make responsible decisions about spending taxpayers' money, Mr. 
Kendall. Is that an accurate statement? They have increased 
authority to make responsible decisions about spending taxpayer 
money? Do they have a certain amount of authority to spend or 
not spend?
    Mr. Kendall. I am not sure of the context of the question.
    Senator Brown. The acquisition workforce. I am going to 
shift to acquisition workforce, and the acquisition program 
managers should have increased authority commensurate with 
their accountability.
    Mr. Kendall. Yes. Basically one of the things we are 
emphasizing is that the acquisition chain of command needs to 
be responsible and accountable for what it does, so people who 
are in our chain of command include the program executive 
officers and the program managers, service acquisition 
executives as well.
    An observation I have made in coming back in to government 
is that authority and responsibility tended to have shifted 
away from them to the staff too much, and I want those people 
to be professionals, and I want them to be held accountable and 
responsible for the things that they are in charge.
    Senator Brown. And what incentives are in place to actually 
reward the efficient and effective program management and 
ensure that these critical positions are filled for the 
duration of the program life cycle?
    Mr. Kendall. Those are largely career-related incentives 
for government people: Promotions, obviously, great 
responsibility, recognition, those sorts of things.
    Senator Brown. And with responsibility should come 
accountability. I am presuming you would agree with that.
    Mr. Kendall. Absolutely.
    Senator Brown. And in the last 10 years, how many people 
have actually been fired for bad program management, if any?
    Mr. Kendall. I am aware of one individual.
    Senator Brown. One out of how many program----
    Mr. Kendall. We have 100 major programs, so roughly 100 
major programs, 98.
    Senator Brown. So how many acquisition program managers are 
there total then? Are there 100?
    Mr. Kendall. At any given time there are about 100 major 
programs.
    Senator Brown. So in the last 10 years----
    Mr. Kendall. In the last 1 or 2 years, I only know of one 
that has been fired from his position.
    Senator Brown. So are all the programs running well?
    Mr. Kendall. I wish I could say so, Senator Brown.
    Senator Brown. So where is the accountability? I mean, what 
happens? Do they get bad reviews? Do they not get promotions? I 
mean, what--where is the accountability on the negative? I 
mean, if everyone is getting all these great promotions based 
on rewarding efficient and effective program management, on the 
other side I would think that if, in fact, the programs are not 
running well that somebody would basically be held accountable. 
And you are saying with the last 2 years there has only been 
one person, and I am assuming in the last 10 years there has 
only been one or two. So how do we----
    Mr. Kendall. There may be others. I only know of one 
personally.
    Senator Brown. OK, but I think you know what I am saying. 
Where is the accountability for the folks that are doing the 
bad program management? Because there seems to be a heck of a 
lot of it.
    Mr. Kendall. You raise a good point. I would have to go 
back and check to see if----
    Senator Brown. Well, what will you do about----
    Mr. Kendall [continuing]. There are others, but let me----
    Senator Brown. You are in charge--are you in charge on 
that?
    Mr. Kendall. Let me make a comment, though, about a 
situation we have in the government with program managers. Our 
program managers rotate. Nominally, they are supposed to stay 
in place for 4 years, but they actually rotate right now a 
little bit less than that. Part of that is because we are at 
war and people are cycling through different jobs faster.
    Because people come and go throughout the life cycle of a 
program, often the problems that are basically built into a 
program happened in a previous tenure, so it is not always 
possible to hold the person who is there now responsible for 
the sins of someone who was before him. So that is one of the 
problems. Longer tenures can help to do that, but we do have 
that problem. It is kind of inherent in the fact that we rotate 
officers in particular through these jobs.
    Senator Brown. That is great, but you are in charge of 
all--are you in charge of all these people?
    Mr. Kendall. I am not in charge of the military personnel 
system now. We do have----
    Senator Brown. Right, but how about----
    Mr. Kendall [continuing]. Influence over the tenure of 
program managers----
    Senator Brown. How about the acquisition program managers? 
Are you in charge of those?
    Mr. Kendall. Through the acquisition executives and the 
services' components, yes.
    Senator Brown. So is there somebody who is going to 
actually look at these program managers and say, wow, this guy 
is--these people are not doing a good job, we are going to take 
some----
    Mr. Kendall. We do take corrective action. In fact, I will 
double my numbers. There are actually two people that have.
    Senator Brown. I would like for the record, Mr. Chairman, I 
would like to know in the last 10 years--how many program 
acquisition managers there are in the system, and also how 
many, in fact, have been disciplined or fired or reduced in pay 
grade or whatever based on their poor performance? Because 
there seems to be a ton of it going around and--I mean, at 
these hearings it is like over and over and over you just hear 
the same thing, well, we are going to do this, we are going to 
do that. I remember when we had the last hearing, the gentleman 
said we were going to fix it, and it is 20 years. He almost 
said the same thing as the other guy said 20 years earlier, and 
we are still in that cycle which is over and over and over.
    Now, I got to be honest with you I expect more, I know the 
President expects more, and the taxpayers expect more. So, I 
mean, I would think with everything that is happening, we are 
in deep trouble right now. We need to find and squeeze out 
every last piece of savings so we can provide the tools and 
resources to our men and women that are fighting. And I am not 
feeling it right now, Mr. Chairman. I do not want to beat a 
dead horse, but I am going to submit a bunch of questions for 
the record because I do not want to embarrass anybody or prove 
a point. I just want it finally answered so we can collectively 
work in a bipartisan manner, like we always do, to solve some 
of these problems, because it is just broken. The way we award 
contracts is broken, the way we hold people to the letter of 
the contract is broken, the way we provide bonuses is broken, 
the way we hold people accountable in their job performance is 
broken. And it is just over and over and over again, and it is 
unacceptable.
    So I am going to just terminate my questioning because I am 
getting a little frustrated, and I am going to submit them for 
the record, OK?
    Senator Carper. Fair enough.
    Thank you for all those questions.
    One of the things I said at the beginning, I think before 
Senator Brown arrived, was we need a change of culture around 
here. We need to change the culture throughout the Federal 
Government, including the Department of Defense. And we need to 
change the culture from one of what I describe as spendthrift 
to a culture of thrift. And I know my colleagues think I sound 
a lot like Johnny One Note, but that is an important note to 
sound, and we are going to continue to sound that note.
    Senator Coburn is going to try to come back, and if he 
comes back in the next minute or so, then I would be happy to 
recognize him for an additional round of questions. But I just 
want to kind of reflect, if I could, on a conversation here 
this afternoon. I am interested, Senator Brown is interested, 
Senator Coburn, Senator Portman, and Senator Pryor, we are 
interested in solving problems. And, obviously, we have a 
problem here. When we have seen major weapon systems cost 
overruns rise from $42 billion in fiscal year 2000 to $402 
billion in fiscal year 2010, we have a problem.
    I think we also have discussed and identified a number of 
solutions. No silver bullets but a lot of them--maybe a little 
of silver BBs, and a bunch of them pretty big, pretty good 
size. One of them is the culture. We talked about that. Another 
is the confirmation process, and the idea is we are going to 
look hard and we will be asking you for the record to help us 
to identify positions in the acquisition system of the 
Department of Defense and each of our service branches, help us 
to identify positions where we require the President to 
nominate and the Senate to confirm where maybe we should not be 
doing that. And what we will do is consider that, discuss it 
with the relevant committees of jurisdiction--the Armed 
Services Committee--and see if we cannot find some agreement to 
maybe amend, if needed, the legislation that Senator Schumer 
and Senator Alexander are introducing with the sponsorship of 
Senator Brown and myself and others.
    The other thing is in terms of culture, we need to change 
our culture here. The idea of putting holds on these positions, 
confirmable positions for reasons that have nothing to do--
nothing to do with the quality of the nomination. It is hard 
enough to get people to be willing to serve in these positions 
and work hard in these positions and go through the nominating 
process. And to know you have to put up with holds that might 
last for a year for no good reason, it is very, very 
frustrating. So that is part of our culture.
    We have talked about requirement creeps in the agencies. It 
is a problem in the IT systems, too. Senator Coburn referred to 
that. One of the reasons why we have all these cost overruns in 
our IT system development is because we continue to change the 
requirements of the program, and it is not uncommon here in the 
Department of Defense. That, again, sort of falls maybe in the 
area of culture change.
    Dr. Burke raised the issue of earned value and said it is 
something we maybe used to focus on a good deal more than we do 
now, and I think he suggested that we began to get back to 
that.
    Competition, I think we had a good discussion here on 
competition, whether or not we actually are using it enough. 
There are some times when obviously it does not work, but to 
the extent that we can make it work and harness it, it can be 
hugely effective. A friend of mine used to say, ``Competition 
is like cod liver oil. First it makes you sick, then it makes 
you better.'' And I think there is a lot of truth to that. 
Ernie Ganman would appreciate--he is now deceased, but he would 
appreciate me saying that.
    The other thing that we talked about was whether or not 
there is an early indicator, some kind of early indicator of a 
problem later on that could trigger a Nunn-McCurdy breach, 
either the 15 percent or is it a 25-percent trigger? And I just 
want us to work with you on helping to identify those.
    Let me just close this down, this part of our hearing down, 
but I want each of you, if you will, just to make a closing 
statement. We always ask you to make opening statements. Dr. 
Burke, you were not called on to do an opening statement. I 
will ask you to do a closing statement. This is sort of like 
the benediction before the second panel. But I would just like 
for you to reflect on the conversation that we have had here, 
what you have had to say, sort of what we have had to say, and 
then our questions, I would like to hear you make some 
reflections on what we have been talking about here, and with 
the idea that we want to solve this problem. We have to do 
better than this. Otherwise, we will end up having $1.5 
trillion deficits for as far as the eye can see. We cannot 
afford that.
    Dr. Burke, a closing thought or two, please.
    Mr. Burke. Well, we have covered a lot of territory today, 
but I would make a few observations.
    One is that one of the most important things that the 
Congress did for us in WSARA was actually made the Department 
conduct Milestone A reviews early on in programs. I think it is 
very, very important because that is where as many of the 
questions have come up, and trades between requirements and 
costs come together. That is going to be a change of culture in 
the Department of Defense. You are trying to change a culture 
where requirements have been thrown over the transom to the 
acquisition community, go buy something that meets these 
requirements, and now what you are trying to do is really 
engender a conversation, enable that conversation between the 
people that set requirements and what systems are going to 
cost.
    On the cost community particularly it is challenge because 
we need tools and we are developing tools to inform that trade 
space. Early on can we trade requirements and come up with less 
costly systems that meet the needs in the national security 
environment for the Department of Defense? We have done it a 
few times. We are at the start. Mr. Kendall mentioned GCV. 
Another good one is the----
    Senator Carper. What did he mention?
    Mr. Burke. The Ground Combat Vehicle in his testimony.
    Senator Carper. Thank you.
    Mr. Burke. I would also refer the Committee to the 
discussions that happened on the Ohio Class replacement program 
where some very interesting conversations happened that have 
not happened in the Department of Defense in the past.
    Senator Carper. Just briefly characterize those 
conversations. Just briefly.
    Mr. Burke. Well, the conversations were about essentially 
we know we will need a replacement submarine for the Ohio Class 
at some point in the future. What can the country afford? And 
what will the characteristics of that submarine look like? 
Those are very, very useful conversations and will affect these 
charts like the one you are showing 10 to 20 years from now. 
But my point is really it is a culture change, and the 
conversations we had are not perfect yet. But I think we are 
actually beginning to make some progress, and I would encourage 
the Committee to continue to support us in having us, forcing 
us essentially to have those conversations and in a transparent 
environment where we can see requirements and costs traded 
together. Thank you.
    Senator Carper. Mr. Kendal.
    Mr. Kendall. I agree with your comments in your summary, 
Mr. Chairman, and I agree with Mr. Burke's comments also. I 
just want to emphasize people. John Young is going to give an 
opening statement shortly, I think, and he is going to talk 
about people quite extensively. It is the people in the 
acquisition workforce, it is the people in industry. It is 
their capability to do the work, it is the incentive systems 
that are in place that motivate them.
    At the end of the day, this is about professionals who 
really understand how to do very difficult jobs being given the 
tools and the opportunity and held responsible for executing 
those jobs.
    We are working very hard to strengthen the acquisition 
workforce. We have a lot of support from the Secretary of 
Defense on this. We are increasing the size. We are also 
working very hard to increase the capability of that workforce.
    We need to provide incentives to industry so that it brings 
back the kind of engineering strength that it once had. We do 
that through the motivation of profit, primarily, and we reward 
better behavior and do not reward poor behavior.
    It is a long, long journey to do that. Improving the 
culture of our workforce, improving the inherent capacity of 
our workforce takes a long time. Dr. Carter and I both refer to 
it as our No. 1 program, is to do that. So that is central.
    To come back to your original point about confirmations, 
the Senate has an oversight responsibility here obviously. It 
is the time of the process that is the problem. Whether they 
are confirmed or not, if we can get people into office quickly, 
that is what really makes the difference. And make sure that 
they are professionals, that they do know what they are doing. 
These are not the type of jobs that people can do who do not 
have a background that is relevant, some typical background and 
a fair amount of experience with the defense system.
    I think that summarizes it for me.
    Senator Carper. One last quick question. Each of you ought 
to take a shot. Just for takeaways, again, just--and I may be 
asking you to repeat yourself. Give me like one or two things--
again, one or two things that we ought to be doing on the 
legislative side to make sure that these numbers do not keep 
going that way and come down, and one or two things that may be 
the most important things for the Executive Branch, 
particularly in the Department of Defense, to do. You talked 
around this, maybe to it, but just say one or two things for us 
on this side of the dais and one or two things for those of you 
who sit on the other side. Go ahead.
    Mr. Kendall. Helping us get good people in sooner. Helping 
us reward people better. The government system, as I think kind 
of was mentioned, does not have a good system to reward people 
for the kind of performance that we need. We do not have the 
kind of bonuses industry has. We do not have the kind of salary 
incentives that people have. It is very hard to promote people 
in government outside the system. It is very cumbersome and 
tedious. It took me forever to bring one senior executive into 
my staff when I was trying to hire somebody with technical 
capability. It took almost a year. So giving us more 
flexibility in terms of our own people, to identify the best 
people and to bring them in, would be extremely helpful.
    Senator Carper. Good. Thanks. Thanks for that.
    Mr. Burke. I think one of the most important things you can 
do is actually--and actually the Senate has been very helpful 
in terms of adjusting some of the changes that were made in the 
Weapon Systems Acquisition Reform Act. There have been some 
changes. We have actually been trying to implement the act as 
it was passed. We had some suggestions on how to improve things 
and make it actually work, and I hope we can continue that 
dialog over the course of the next few years because there were 
some important changes enacted in legislation even this year 
that help us quite a bit.
    Senator Carper. OK. Mr. Kendall.
    Mr. Kendall. If I can piggyback on that, I think we have 
the tools we need. We have to sharpen those tools, and we have 
to use them. But that is our responsibility. I think the things 
you have done have really given us the things that we need, and 
now it is up to us.
    Senator Carper. All right. Well, this is a two-way street 
in terms of who is to blame for this, and that is sort of the 
question that Senator Brown asked. I think none of us escape 
blame. None of us escape blame. And if we are going to turn 
this around, all of us have a role to play. And one of our 
roles is to do consistent, extensive oversight. And we do that 
religiously on this Subcommittee and on our Committee, and we 
will continue to do that. But we will do it in a way that is 
constructive and not just what we call ``gotcha.'' We have 
never been into that. But what we really want to get are better 
results for less money.
    All right, gentlemen. Thanks so much again for joining us 
today, and there will be some followup questions Within the 
next 2 weeks, people can still submit questions. You will 
probably get some. We just ask that you respond to them 
promptly. Again, thank you so much for joining us today and for 
joining us in this dialog. Thanks.
    Mr. Kendall. Thank you, Mr. Chairman.
    Mr. Burke. Thank you.
    Senator Carper. Thank you very much.
    And with that, we welcome our second panel. Gentlemen, 
welcome. John Young, nice to see you. Welcome. Michael 
Sullivan, the real Michael Sullivan. And Moshe Schwartz, thank 
you. Let me just provide a brief introduction. Were you all 
here for the entire first panel? OK, good. How did they do? All 
right. We will see. I think they did pretty well.
    Our lead-off hitter today on the second panel is John 
Young, no stranger here. It is very nice to see you, all of you 
again, but especially John. Mr. Young served as the Under 
Secretary of Defense for Acquisition, Technology, and Logistics 
until April 2009. Now I understand he is hanging his hat over 
at the Board of Regents of the Potomac Institute for Policy and 
Studies, where I think he is a Senior Fellow and Member of the 
Board of Regents there. During his career Mr. Young has held 
numerous positions in the Department of Defense acquisition 
community, including Director of Defense Research and 
Engineering in the Office of the Secretary and Assistant 
Secretary of the Navy for Research and Development and 
Acquisition. Mr. Young, again, no stranger to Capitol Hill, 
having served for 10 years as a staff member of the Defense 
Subcommittee of the Senate Appropriations Committee.
    Who were the Chairs that you worked for there? OK. Your 
microphone is not on. Say that again. Who did you----
    Mr. Young. I worked for Senator Stevens and Senator Inouye 
at different times as Chairman.
    Senator Carper. And Senator Inouye is still with us. He is 
still going strong. He is amazing.
    During his tenure at the Department of Defense, Mr. Young 
oversaw, among other things, the Mine Resistant Ambush 
Protected (MRAP), vehicle program and secured the Virginia 
Class submarine multi-year contract. Mr. Young will also show 
us his experience as managing weapons systems because when he 
was a chief acquisition officer for the U.S. Navy and for all 
of the Department of Defense, and he is remembered fondly in 
our Subcommittee for the great work that he did on C-5 
modernization to make sure that we got the kind of value out of 
those old C-5s to turn them into like-new C-5s, one of which 
set, I think, 41 world records in a flight from Dover Air Force 
Base to Turkey last year. We have just gotten our fourth one 
in. We are about to get our fifth C-5 into Dover, and the 
reviews we are getting are actually quite good. So thanks for 
that as well.
    The next witness is Michael Sullivan from the Government 
Accountability Office. Who is your Comptroller General? What is 
his name?
    Mr. Sullivan. Gene Dodaro.
    Senator Carper. Gene Dodaro. I have heard of him. Actually, 
he has been here many times.
    Mr. Sullivan. Yes.
    Senator Carper. When he comes and testifies, he does not 
use any notes. He is just talks right off the top of the head, 
all of his testimony, all of his answers. Is that part of the 
new policy at GAO?
    Mr. Sullivan. I do not have quite those talents. That is 
why he is where he is.
    Senator Carper. I have to say, there are two people I have 
seen do that. One was John Roberts, Chief Justice of the 
Supreme Court, who testified for days before the Judiciary 
Committee and never used a note. He answered all the questions 
and never used a note. And then you have Gene Dodaro. Maybe in 
his next job he could be Chief Justice. Who knows? We will see.
    Mr. Sullivan, I do not know what your next job will be, but 
you are currently the Director for Acquisition Sourcing 
Management at GAO. You have worked there for--this says 25 
years. Is that possible?
    Mr. Sullivan. Yes, it is.
    Senator Carper. All right. Mr. Sullivan's team at GAO is 
responsible--anybody here from your team?
    Mr. Sullivan. Yes.
    Senator Carper. Would you all raise your hand, please, team 
members? OK. Thank you.
    Mr. Sullivan's team is responsible for examining the 
effectiveness of the Department of Defense's acquisition and 
procurement practices in meeting its mission performance 
objectives and requirements. This is, I think, Mr. Sullivan's 
second time testifying before this Subcommittee on cost 
overruns. In 2008, he testified about GAO's annual weapons 
system audit that showed that major weapons system cost 
overruns amounted to $295 billion, and I think Mr. Young was 
here at that same hearing. As I mentioned before, my office 
enlisted Mr. Sullivan and his team to analyze trends of those 
weapons systems that have reached Nunn-McCurdy because their 
costs have spiraled out of control, and Mr. Sullivan's 
testimony will shed some light on these trends. And, again, we 
thank you and your team for being here today and for your 
preparation for this hearing.
    Last, but not least, Moshe Schwartz. Has anybody ever 
called you ``Moshie''?
    Mr. Schwartz. Among other things.
    Senator Carper. Well, Mr. Schwartz is a Specialist in 
Defense Acquisition at the Congressional Research Service. He 
has written numerous reports for Congress on various issues 
relating to defense acquisitions and contracting during 
contingency operations. Before joining CRS, Mr. Schwartz served 
as senior analyst at GAO where he worked on a variety of DOD 
acquisition issues.
    Did you all ever work together? OK.
    Mr. Schwartz. Sorry. Excellent training.
    Senator Carper. All right. Well, good. Today Mr. Schwartz 
will outline efforts to accurately estimate weapons system 
costs, the characteristics of the acquisition programs that can 
lead to cost growth and potential opportunities to strengthen 
the Nunn-McCurdy law to more effectively prevent against future 
cost overruns, and we appreciate what you did then and we 
appreciate what you are doing now.
    One of the things that I am going to be looking for at the 
end of this hearing--and I am going to telegraph this pitch 
right now. One of the things I am going to be looking for is 
for you to think back to the first panel, what our first 
witnesses had to say, and what each of you are about to say in 
responses to the questions. Then I want to ask you to say where 
you think there is a confluence of agreement. One of the 
things, in order to get anything done down here, you have to 
get people to agree, and so I am always looking for ways to 
build consensus. So just be thinking about that, if you would. 
All right?
    Mr. Young, you are up first, and your clock with run for 5 
minutes. You can take a little bit beyond that but hopefully 
not a whole lot beyond that. So please proceed.

STATEMENT OF JOHN J. YOUNG,\1\ JR., SENIOR FELLOW, THE POTOMAC 
                  INSTITUTE FOR POLICY STUDIES

    Mr. Young. Thank you very much, Mr. Chairman. I will try 
well to finish in the time.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Young appears in the appendix on 
page 74.
---------------------------------------------------------------------------
    It is a privilege to get to testify to you. I appreciate 
your help during my past tenure as Under Secretary. You were a 
knowledgeable and interested member, and that is, I think, 
worthwhile on both sides of the river, if you will.
    I want to highlight a few brief principles and then note 
several tools that are fundamental, I think, to the defense 
acquisition enterprise.
    First, as you have already heard today, people run 
programs. In the Goldwater-Nichols legislation, I believe the 
Congress was amazingly prescient in assigning acquisition 
responsibility to the civilian chain of command working for the 
President. The defense and service acquisition executives are 
critical positions, and these individuals are the key to 
successfully executing and improving defense acquisition. As 
the Under Secretary, I wrote a memo to Secretary Gates 
emphasizing this point. The acquisition executive must serve as 
the first line of defense against overstated requirements, 
understated budgets, unrealistic schedules, immature 
technology, and service-unique programs. Every unaffordable 
program a service wants cannot be adjudicated by the Secretary 
of Defense or the President, and it is harmful for the defense 
acquisition enterprise to delay filling these positions with 
qualified people.
    Second, the President's acquisition team must enable the 
defense acquisition team working for them to make the thousands 
of necessary, timely, and required hard decisions every day. 
Military requirements officers and industry are constantly 
seeking to change and improve ongoing programs, for legitimate 
reasons. But the tough job is locking the design and executing 
the program. The acquisition executives must support the 
managers who say no. The military promotions system will reward 
the requirements officer who pushes for more requirements and 
punish a military acquisition program manager who resists 
making costly changes to a program. Similarly, civil servants 
in acquisition who want successful careers are cautious about 
taking on hard issues. The President's acquisition team must 
support and empower these program managers when they try to 
make responsible decisions about spending taxpayer money.
    Third, people execute programs, again, but not paper. It is 
not possible to write a universally applicable procedure that 
will deliver successful results. No amount of process or 
procedure and certification will make the hard decisions that 
trained people make. The growing volume of legislation and 
certification requirements do pose a risk of adding months and 
higher costs at a time when our adversaries are doing things 
faster and cheaper. We should resist the urge to add to the 
acquisition laws and certifications and regulations which 
already resemble the Tax Code and consume a program manager's 
time and energy for limited results.
    As a student of defense acquisition, I can tell you there 
are many valid examples of people delivering great results when 
freed from the constraints of the normal process. Frequently, 
this is in the classified programs arena.
    Fourth, we need to increase the authority of acquisition 
program managers commensurate with the public accountability 
being levied on the team. People without accountability chop 
documents, cut budgets, increase requirements, impose new 
certification standards, and then everyone wants to know why a 
program manager is late and over budget.
    Finally, I think there are several tools that can be used 
to help. The Department must use competitive prototyping to 
evaluate the validity of requirements, to mature technologies 
with smaller teams at lower cost, to inform our estimates of 
final development and procurement costs, and to assist in the 
refinement of concepts of operations, how we are going to use 
the things, and to access new companies. I used to tell program 
managers that the cost of a program is known the day the 
contract is signed. The only question is whether they know the 
cost. It is very difficult to estimate that cost and the 
schedule based solely on paper. Appropriate prototyping is 
important.
    At a more general level, DOD needs to pursue the 
development of prototypes to train our people in program 
management and systems engineering, to attract talented 
scientists and engineers to work on defense programs, and even 
to inspire a new generation of young people to pursue technical 
educations.
    DOD must use collaborative processes to make timely program 
development decisions and to appropriately include all 
stakeholders to achieve alignment--acquisition, budget, and 
requirements. The Configuration Steering Board process was used 
in the past on programs like the F-16, the low-cost fighters, 
and I reinstituted this practice in DOD. I used this similar 
collaborative process on the MRAP program that you mentioned, 
Mr. Chairman, the DOD Biometrics Program, the Virginia Class 
submarine, the DDG 1000 destroyer, the P-8 maritime aircraft, 
and other programs.
    We instituted Joint Analysis Teams to review portfolios of 
programs which cut across services. These are difficult 
decisions, and you need to achieve consensus with multiple 
stakeholders.
    The Department often used blue ribbon panels or independent 
teams to assess problems. I sought to make this a regular 
process through creating defense support teams which seek to 
harness experienced outside experts to review program 
development plans and review program progress before we have 
problems. Defense Supports Teams (DSTs), can partially offset 
the Department's inability to hire government personnel to 
manage our programs.
    Further, the Congress has instituted technology readiness 
assessments which are of great value, but it is of no value to 
spend tax dollars and reached Milestone B to determine that the 
technology is immature. Quick-look assessments are necessary to 
drive investment in the timely maturation of those 
technologies.
    These are just a few of the tools which I believe are 
fundamental to the proper creation and management of complex 
programs. The tools must be employed by capable people with 
adequate authority. The press stories will always report the 
programs which go badly. There are programs which successfully 
deliver capacity to the warfighter. The real key, again, is 
trained and experienced acquisition team members with 
management support, decisionmaking authority, realistic 
requirements, adequate budgets. Under these conditions, program 
managers will carefully spend tax dollars and deliver 
capability to the men and women that serve this Nation.
    I appreciate the chance to testify, and I look forward to 
your questions.
    Senator Carper. Great. Thanks for that excellent testimony. 
Mr. Sullivan.

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

    Mr. Sullivan. Thank you, Mr. Chairman. It is a pleasure to 
be here today to discuss our work on the Nunn-McCurdy process 
and other tools to improve acquisition outcomes. I will make a 
brief oral statement. I have submitted a written statement for 
the record.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sullivan appears in the appendix 
on page 78.
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    Let me begin by just summarizing our findings on Nunn-
McCurdy very quickly. Since 1997, there have been 74 breaches 
from 47 major acquisitions. Eighteen of those programs have had 
multiple breaches--more than one: Seven have had three, and 
one, the space-based infrared satellite, has had four. The 
Department points to engineering, schedule, and quantity 
changes and revised cost estimates as factors most frequently 
responsible for these breaches in the programs.
    We have questions about the meaning and the validity of 
some of these factors and have our own ideas about potentially 
better tools which we can perhaps get into during Q&A.
    The Department has also established a tripwire process that 
it believes will provide early warning for potential breaches, 
and I believe you heard a little bit about that from the first 
panel. We believe that what they are doing with that process 
has merit, and they should think about institutionalizing that. 
The Department also plans to propose new legislation that would 
reduce some statutory requirements that were added in 2009 for 
cases where there is evidence that a Nunn-McCurdy breach was 
caused by quantity changes and not necessarily by poor 
performance, and we believe this proposal deserves further 
study as well.
    Senator Carper. When you say poor performance, by the 
contractor?
    Mr. Sullivan. By the government and the contractor, yes.
    Senator Carper. OK. Thank you.
    Mr. Sullivan. Cost, schedule performance.
    Senator Carper. All right.
    Mr. Sullivan. Mr. Chairman, let me conclude with a few 
words about the current process, what we believe the key tools 
for improving acquisitions are, and how we think the Department 
is doing with its implementation of reform up until now.
    The current Nunn-McCurdy process is an oversight tool and 
not particularly designed for cost management because it is a 
report on what has already gone wrong, and I believe you got a 
little bit of that from the first panel as well. The Department 
currently uses its annual selected acquisition reports to track 
program cost, schedule, and performance. It is these reports 
that attempt to trace root causes of the breaches, as I stated 
above. Most of the causes we believe are poorly analyzed or 
miscategorized. For example, the selected acquisition report 
typically recites nine factors that are responsible for 
breaches. At least two of those--schedule issues and revised 
estimates--are not casual in nature. They usually depend on 
some other root cause taking place before they get out of 
whack. They reflect the impact of other factors.
    In addition, when it is generally recognized that 
requirement changes happen frequently during a program and are 
anathema to healthy cost control--I am talking about 
requirements creep there--the Department chose this factor as 
sixth out of the nine factors in terms of frequency of 
problems. We believe there are other key tools for improving 
outcomes, and they continue to be things that we have heard a 
lot about from the first panel. I think Mr. Young referred to 
some. We look at them as robust systems engineering analysis 
early in a program and often, clear and well-defined 
requirements, cost estimates that are based on systems 
engineering knowledge, a robust science and technology base to 
mature technologies before they get to an acquisition program, 
and an incremental knowledge-based approach to delivering 
weapons more quickly--in other words, perhaps a shorter 
development time period or time cycle that program managers 
could shoot for.
    Our written statement has a picture of the current process 
in it and where we think those tools would fit into it well, 
and I would be happy to walk you through that during Q and A's.
    The Department has been working to implement many of the 
tools we mentioned above as it implements its own revised 
policies and the statutory criteria that was mandated under the 
Weapon Systems Acquisition Reform Act and some other 
legislation that has been passed in the last couple of years, 
and it has made some progress.
    Our annual assessment of major weapons systems was issued 
today, and I believe the $402 billion number there was reported 
in that. In that report we do make quite a few observations 
about the progress the Department has made in moving toward a 
more knowledge-based process and trying to get more 
efficiencies into the programs. However, it remains clear that 
a lot more must be done to achieve a reasonable level of cost 
efficiency.
    For example, due to budgetary constraints, the Department 
is currently struggling to build a robust systems engineering 
and developmental test workforce. Because pressure will remain 
on budgets for the foreseeable future, the Department must 
remain diligent in trying to establish that workforce. I think 
Mr. Young spoke eloquently about that. And the Congress must 
remain vigilant in trying to control these costs.
    Mr. Chairman, that completes my statement. I would be happy 
to answer questions.
    Senator Carper. Great. Thanks for the statement. Thanks 
very much for the work that preceded that statement, too. Mr. 
Schwartz, please.

     STATEMENT OF MOSHE SCHWARTZ,\1\ SPECIALIST IN DEFENSE 
ACQUISITION POLICY, CONGRESSIONAL RESEARCH SERVICE, THE LIBRARY 
                          OF CONGRESS

    Mr. Schwartz. Thank you, Mr. Chairman. Thank you for the 
opportunity to discuss cost overruns in weapons systems 
acquisitions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Schwartz appears in the appendix 
on page 89.
---------------------------------------------------------------------------
    Over the years major defense acquisition programs have been 
plagued by substantial cost growth, as has been pointed out by 
a number of people here already. Cost growth has been so 
systemic and widespread that time and again the Department of 
Defense has resorted to terminating or substantially curtailing 
many programs in which billions of dollars had already been 
invested. In the 1980's a number of weapons systems experienced 
dramatic cost overruns, increasing the defense budget by 
billions of dollars. The last 3 months of 1980 alone saw a $47 
billion increase for 47 major weapons systems. It is against 
this backdrop that the Nunn-McCurdy Act was enacted as a way to 
notify Congress of cost overruns in major weapon systems.
    Under Nunn-McCurdy, as has been discussed, DOD must notify 
Congress if a program's cost growth exceeds certain thresholds. 
The act was intended to inform Congress as to whether or not 
the acquisition process was working effectively. It was also 
intended to publicly expose cost overruns in the belief that 
such exposure would compel DOD to rein in cost growth.
    Despite Nunn-McCurdy and other reform efforts, cost growth 
continues to plague many programs, as some of the GAO's work 
has excellently reflected. In response, Congress has amended 
Nunn-McCurdy numerous times, transforming it from primarily a 
reporting system into more of a robust information-gathering 
and management tool. These changes were fueled in part by 
concerns that programs with chronic cost growth and schedule 
delays were not being terminated and that Congress was not 
receiving useful information on the causes of cost overruns.
    Many experts have pointed to poor cost estimating as a 
primary cause of cost growth, and that has come up a number of 
times already at these hearings. Program advocates have strong 
incentives to underestimate what a program will cost. 
Contractors often use low estimates to win contracts. Program 
representatives often use low estimates to argue for their 
system over competing systems. Once established, 
unrealistically low estimates make future cost growth almost 
inevitable.
    Since the early 1970's, Congress and DOD tried a number of 
initiatives to improve cost growth and over optimistic cost 
estimates. Most recently in 2009, the Office of the Director of 
Cost Assessment and Program Evaluation was established in the 
Weapon Systems Acquisition Reform Act to help develop more 
accurate and realistic cost estimates. Given how recently the 
new Office of Cost Assessment was established, only time will 
tell whether the Director of Cost Assessment and Program 
Evaluation will be more effective than past efforts to make DOD 
cost estimates more realistic.
    Other factors in cost growth that have been alluded to 
include unstable funding, insufficient testing early in the 
acquisition process, requirements creep, and poor contract 
management. Analysts have also argued that it simply takes too 
long to develop and field major weapons systems. Ten-to 20-year 
development programs often indicate that a program is seeking 
ill-defined capabilities or pursuing technologies that are not 
yet achievable. As a result, some have suggested that limits be 
set on the time it takes to develop and field new systems.
    Nunn-McCurdy does not apply to operation and support costs, 
which often account for two-thirds or more of a system's total 
life-cycle cost. Because many of the decisions that determine 
operation and support costs are made early in the development 
process before these costs are actually incurred, operation and 
support costs do not always receive the same attention as 
acquisition costs. Requiring DOD to report on cost growth in 
operation and support might give Congress a better 
understanding of the long-term cost of weapons systems.
    Another option for Congress could be to consider shortening 
the time DOD has to notify Congress of cost growth and certify 
a program. Condensing the reporting requirements could give 
Congress more of an opportunity to weigh in earlier on the 
future of troubled programs. When Nunn-McCurdy was first 
enacted, no more than 97 days passed from the end of the 
quarter in which a critical breach occurred to when a program 
was certified to Congress. Today it could take more than 195 
days.
    Congress took an approach similar to this in the 
Intelligence Authorization Act for fiscal year 2010, which 
applied a Nunn-McCurdy-like requirement to intelligence 
acquisition programs but, in fact, shortened the time that is 
required to certify a program to Congress.
    Mr. Chairman, when weapons systems end up costing far more 
than originally anticipated, the scramble to plug budget 
shortfalls undermines long-term strategic planning. Systemic 
cost growth jeopardizes the ability of the United States to 
execute a long-term, coherent, and stable strategy that will 
give U.S. Armed Forces the weapons they need to meet future 
threats.
    This concludes my testimony. Thank you for the opportunity 
to appear before you to discuss these issues, and I will be 
pleased to respond to any questions you might have.
    Senator Carper. All right. Good. Thank you.
    I think I want to return to a theme that we have touched 
upon in a number of previous hearings involving different 
government programs, and the theme is that of realigning our 
incentives. I will use an example. We held hearings here, oh, 
gosh, within the last month or so, on something called the 
Tuition Assistance Program for active-duty military personnel 
where they can be reimbursed for a portion of their 
postsecondary education costs while they are on active duty. 
And we have a situation where active-duty personnel can--like 
at Dover Air Force Base, they can go to Delaware State 
University or Wesley College or other schools in the area--
Wilmington University--and take postsecondary courses. They can 
actually take courses on the base. Some of these universities 
and colleges come to the base. Or they can use distance 
learning and remotely take courses.
    Some of the for-profits, some of the private, and some of 
the nonprofit colleges and universities do a great job. They do 
a great job actually with the taxpayers' money. In many cases, 
whether it is Pell grants, whether it is the GI bill, whether 
it is tuition assistance payment, some colleges and 
universities do a terrific job. Some of them do not.
    One of the things that has become apparent to us is that at 
least in that program, we need to realign the incentives so 
that we are rewarding or incentivizing the college or 
university, whether it is for-profit, whether it is nonprofit, 
whether it is private, we need to realign them so that we are 
rewarding quality, not quantity, and so they actually reward 
students who complete their course work, reward colleges and 
universities that help students complete their course work, 
provide tutoring or whatever assistance is needed. We reward 
colleges and universities for actually making sure that not 
only do students complete their course work but they actually 
graduate or complete their certification requirements and that 
they actually get placement or help get placement in jobs where 
they can pay off their loans or go on to live productive lives. 
We are focused there on how do we change and realign those 
incentives.
    Talk with us here today about how we have been trying to 
better align the incentives in the acquisition field, maybe 
some changes that we have made that you are aware of, and 
particularly changes, additional changes that we might need to 
make in order to derive the kind of behavior that the taxpayers 
need and, frankly, deserve.
    Do you want to go first, Mr. Young?
    Mr. Young. I would welcome the chance to comment on that. 
During my tenure, I talked a lot about changing the profit that 
you heard about in the earlier panel, the award fees, to be 
objective instead of subjective, and I will tie that to 
something I said. Program managers need time to focus on their 
programs, and I think we would all like to see, as Secretary 
Kendall noted, a nice program plan laid out that could be--
earned value management could be applied to because the work is 
focused, and within that system, I want that program manager 
responsible and accountable to the taxpayer to decide which 
pieces of work are on the critical path and when a company 
succeeds and executes that piece of work and meets that interim 
milestone, you pay them profit, a million dollars or whatever. 
These are bigger pieces of money, so they are big decisions.
    Instead, in a lot of cases, we have beauty contests with a 
lot of viewgraphs and companies tell very good stories, and 
they have done good work. But that is not a good basis for 
deciding whether to give somebody an 80-or 85-or 90-percent 
award fee. Results that is on the critical path to success is 
what is needed.
    Back-end-loading the fees so that you have a lot of work 
accomplished--and we did this on Joint Strike Fighter. This was 
a tough discussion with industry. Industry in the end accepted 
it, and that is why Secretary Gates has a pool of fee now on 
the back end of that program to use to incentivize success in 
that program.
    I feel strongly we should move away from subjective fees 
and more to objective fees. Designating fee against events will 
force better program planning and lend itself to better earned 
value management.
    Senator Carper. Mr. Sullivan.
    Mr. Sullivan. Yes, I would first comment that right now the 
incentives, as we have kind of discussed here today, are almost 
backward. When you think about a vibrant, competitive market 
outside of the defense industrial base, where you have world-
class firms that are in some ways outpacing the defense 
industry in terms of innovation and bringing things to market 
very quickly, they are very, very incentivized, and what 
incentivizes them, obviously, is that they do not make their 
money until they get into production.
    So the one thing, one set of incentives would have to do 
with how can you establish--it has to do with defining 
requirements so that they are doable and they can kind of 
encourage competition. So how can you establish development 
programs where--I do not think fixed-price development 
contracts are necessarily a good idea. They have been tried in 
the past. But how do you incentivize a contractor to be able to 
develop a high-quality product as quickly as possible so that 
they can get to production to make their money. And competition 
has a lot to do with that, so I think that would be--how can 
you compete development more, how can you do competitive 
prototyping, a lot of the discussion we had around the Joint 
Strike Fighter engine, I believe the LCS Navy ship is another 
one where they are trying to induce competition.
    I know that on the--I believe it is the joint light 
tactical vehicle, which I think Mr. Young had a lot to do with, 
infusing a lot more competition into that program, they are 
going to try to be kind of your class program, I think. And, 
the AT&L stopped them and said, no, no, go back out and do some 
prototyping and let us get some competition going. So the 
competition is very important.
    Just quickly, I would say shorter programs, really shorter 
development programs, when you start a program with ill-defined 
requirements and say let us take 15 years to develop the F-22 
or the Joint Strike Fighter or the next-generation bomber or 
whatever is coming down the pike, I think you set up a program 
manager for--that is a recipe for cost and schedule growth. So 
shorter programs, really, and the way you do that is you get 
more incremental, much as the private sector does, the private 
sector will--they might put a clean sheet of paper new product 
out there you can take a lot of things--the iPad, for example, 
and put out a product that the requirements are established and 
doable with an understanding that you are going to continue to 
improve that, but you deliver quickly that basic product.
    And, finally, I think a more vibrant tech base for the 
government, and we have argued in the past that the S&T budget 
could probably be increased. If you looked at----
    Senator Carper. I am sorry. The S and what?
    Mr. Sullivan. The science and technology budget.
    Senator Carper. Thank you.
    Mr. Sullivan. For the Department of Defense. I am sorry. We 
have tried to analyze that a little bit, and it seems to us 
that for every dollar you would put into developing more 
technology, which right now I think is probably maybe 3 percent 
of the defense budget, you would probably save a lot more money 
in product development because you would have new technologies 
that were more mature as they hit product development.
    So a vibrant tech base I think is something that would 
incentivize a lot of the contractors in the defense industry. 
Those are some ideas.
    Senator Carper. Good. All right. Thanks.
    Mr. Schwartz, realigning incentives.
    Mr. Schwartz. Sorry?
    Senator Carper. Realigning incentives.
    Mr. Schwartz. Yes, and my colleague spoke a lot about 
incentivizing the----
    Senator Carper. It is fine to repeat what they have said. 
Sometimes repetition is a good thing.
    Mr. Schwartz. Well, then, I would definitely echo some of 
the sentiments as far as, for example, time-certain development 
or how long it takes to field. In fact, that is a flag that was 
raised also by the Quadrennial Defense Review independent 
panel, which recommended 5 to 7 years time-certain development 
to include development and initial deployment for that reason. 
But I also perhaps want to talk a little bit about 
incentivizing the acquisition workforce within the government 
as well, if I can.
    Mr. Young testified before and he mentioned Goldwater-
Nichols. I think Goldwater-Nichols perhaps is an excellent 
example of how Congress helped incentivize the Department of 
Defense by incentivizing joint assignments as a useful tool for 
promotion within the Department of Defense, and that was one 
example.
    When you have a program like the V-22, which had 
approximately a 20-year development cycle, you have had five, 
possibly even ten program managers on that. You had different 
people who set the requirements and perhaps different people 
that did the cost estimating. Well, who is responsible? Is it 
the people that did the requirements? Is it the people that did 
the initial cost estimate? Or is it the five to ten different 
program managers that you have? It is hard to incentivize when 
you do not really know who to incentivize or how long they are 
there.
    I will just give one other example. The Joint Strike 
Fighter is a joint program, and as a result, it bounces back 
between services every 2 years, which can result in a different 
program manager every 2 years, and possibly different 
acquisition rules, depending on the service. So there, too, the 
question is: Who are you incentivizing and how do you do that? 
And that might be another issue to look at as far as 
incentivization.
    Senator Carper. All right. Good.
    I am going to ask a question for the panel. I think I know 
the answers here. Be very brief in responding. OK? But a point-
blank question. Are weapons system cost overruns growing? As a 
followup, is the Department of Defense acquisition system 
becoming more or less efficient? And, third, are we committing 
more to acquisition costs than we were, say, 5 years ago?
    Those three questions: Are weapons systems cost overruns 
growing? Is DOD's acquisition system becoming more or less 
efficient? And are we committing more to acquisition costs than 
we were 5 years ago?
    Mr. Schwartz, do you want to lead us off?
    Mr. Schwartz. Sure, and I left the talk button on, so that 
is perfect.
    Senator Carper. Perfect.
    Mr. Schwartz. RAND did a study a couple years ago that, 
adjusting for the change in the mix of what weapons we are 
buying, whether cost growth has increased or not, and what they 
determined looking back to the 1970's was that cost growth 
basically as a percentage of initial cost estimates has stayed 
somewhat stable. The absolute dollars, of course, as we see, 
have increased because weapons systems have gotten more 
expensive. But, generally, the performance has pretty much been 
from a cost growth perspective roughly the same, and you can 
even hark back to the 1980's when Carlucci testified before the 
McCurdy hearings, which started Nunn-McCurdy. He pegged initial 
cost estimates at approximately 10 percent of the cost of the 
source of cost growth, which is roughly the same number that, 
adjusted for inflation, the RAND report came out with.
    So from that perspective, one could say that it has not 
necessarily gotten much worse, but it has not necessarily 
gotten much better. We are roughly in the same situation that 
we have been in before.
    Senator Carper. Mr. Sullivan, would you take a shot at 
those three questions, please?
    Mr. Sullivan. Yes. The first one on cost growth, I think I 
would probably tend to agree with Mr. Schwartz that it is 
probably about the same. It has been the same for a long time. 
If you look at the $402 billion number up there the Department 
takes issue with this. I know when Mr. Young was there he did, 
too. It was a fair argument that, in fact, we have been trying 
to straighten out over the 3 years. There is a lot of cost 
increase in that number that is the result of quantities, 
additional quantities. MRAP is a good example.
    Senator Carper. Buying additional quantities.
    Mr. Sullivan. Yes.
    Senator Carper. As opposed to fewer?
    Mr. Sullivan. Fewer, yes.
    Now, there is also, however, cost growth when they reduce 
quantities because cost has gotten so out of control. The F-22, 
of course, is a good example of that. The F-22 spent about the 
same amount that they originally estimated, and they got a 
third of the aircraft. But if look at programs like the MRAP, I 
think F-18E/F is probably an example. There were quantity 
increases that drove some of that cost, which is not 
necessarily a bad cost increase. But I do not think it 
represents--probably the cost increases on programs where they 
have reduced quantities easily offsets that. So you have a 
number of $402 billion there. Probably 25 percent of that 
number is one program, and that is the Joint Strike Fighter. 
They were talking earlier about cost growth. Cost growth on the 
Joint Strike Fighter from its original estimate of Milestone B 
is probably $125 billion, or thereabouts. That program was an 
ill-defined program at the outset, and it has been very 
difficult. It has played out that way.
    If you look at the top ten programs, the big giant 
programs, they are driving more than half of that cost. So I 
think cost growth is probably the same, and it usually is the 
big monoliths. The Future Combat System for years was doing it 
to the Army. F-22 was doing it to the Air Force for years. 
Joint Strike Fighter is a joint program that is driving costs.
    And then you had two other points. One was----
    Senator Carper. The first one, again, was: Are weapons 
systems cost overruns growing? And you suggest, well, maybe a 
big piece of this, maybe as much as a quarter of it is the----
    Mr. Sullivan. Is one program.
    Senator Carper. Is the Joint Strike Fighter. Second--hold 
on.
    Pardon me. The second was: Is DOD's acquisition system 
becoming more or less efficient? And, last, are we committing 
more to acquisition costs than we were 5 years ago? They are 
all sort of intertwined.
    Mr. Sullivan. I think the answer to the third one probably 
is that we are committing more to acquisition costs than we 
were 5 years ago. I could get those numbers for you. I think 
that is probably a safe bet.
    Senator Carper. All right.
    Mr. Sullivan. And then the middle one is--it is hard to 
tell, but I would argue after the last reforms, a lot of what 
Under Secretary Young did when he was there, he started the 
Configuration Steering Boards. Those are there in order to keep 
requirements from creeping out of control. Good idea. The 
Department is beginning to implement them. We have looked at 
how well they are doing that, and I think---I could be 
mistaken, but less than half of all of the major programs have 
held Configuration Steering Board reviews to date, but they are 
beginning to do that. So I think a lot of the WSARA reforms, 
the Department is trying to implement them, but this becomes a 
workforce issue as well. If you want them to maintain efficient 
oversight, they probably do need more professional staff.
    Senator Carper. All right. Thanks.
    Mr. Young, do you want to take a shot at these questions? 
Just briefly.
    Mr. Young. I will try to be brief. Obviously, I think we 
are spending more and the costs are growing unacceptably. I 
have never felt that was acceptable. I think the acquisition 
team is actually becoming gradually and steadily more 
efficient. Why is that not producing the results would probably 
be your question, and my answer to that is--we had a lot of 
discussions about this in the past. If you look, the 
acquisition workforce through the 1990's came down 
dramatically. So you come to the 2000 timeframe, and the budget 
starts going up significantly, and I built a couple charts for 
Secretary England to show how many programs we were running 
through NAVAIR and through NAVSEA, essentially concurrently. 
And I said if you let me stagger these programs, I can take 
this team and do a better job. But if we are going to 
concurrently push programs through a small team, it is a 
struggle. And I think not only have you seen that struggle 
happen, but then we found ourselves in two major engagements 
with significant supplemental dollars, and a lot of those 
supplemental dollars had to be spent on urgent wartime 
capability.
    So you have seen a stretch team gradually be more 
efficient, but I think the undercapacity for what they were 
asked to do in the aftermath of how much that workforce was 
reduced through the 1990's.
    Senator Carper. Sometimes when we hold these oversight 
hearings, we focus on disappointing performance, bad actors, 
that sort of thing. But I also like to focus on exemplary work 
and be able to put a spotlight not just on disappointing 
behavior or results, but actually quite good ones. And I am 
going to ask if you all could provide us--and one or two of you 
have touched on this during the course of your testimony, as 
did our first panel, but just provide us with examples of a 
couple weapons systems where they are getting it right, and 
maybe you can name some weapons systems that are being 
delivered on time, even under budget. And where I really want 
to go with this is: What do you think the keys are for that 
better performance?
    Do you want to lead us off, John?
    Mr. Young. I would love to talk to you for like an hour 
about this.
    Senator Carper. We do not have quite that long.
    Mr. Young. I understand, so I will try to be brief and 
clear because I want to use it to illuminate some other issues.
    One of the things I fought through in the Navy was SSGN, 
the conversion of Trident submarines to carry Tomahawks--a very 
efficient program, well done. If I had the chart, I could show 
you a graphic where I sketched out the way to do that program 
just the way I told you. We are going to do one--there was an 
insistence that we do it on both coasts and do it as fast as 
possible. Part of that came from even the White House level 
because they said the President mentioned this so we must do 
this program.
    The submarine community, very happy to do that program as 
fast as possible. John Young saying, no, we are not going to 
concurrently do this; we are going to do one submarine, and 
then take some of those people to the other coast if you make 
me do them on both coasts and exchange learning. And it was a 
public-private partnership, a difficult program, and----
    Senator Carper. So John Young trumped the President.
    Mr. Young. Well, I will not say the President----
    Senator Carper. OK. You do not have to say it.
    Mr. Young. But I certainly had to have a discussion with 
the National Security Council members and say, we have----
    Senator Carper. Which President was this? Which President 
was this?
    Mr. Young. President Bush.
    Senator Carper. George W. Bush, right? I remember meeting 
with him once, and he said to me, ``Who is John Young?'' 
[Laughter.]
    I am kidding. Go ahead.
    Mr. Young. I would highlight another set of factors. So I 
have talked to you about the fact that lots of different forces 
can get engaged in trying to do the program the right way. DDG 
1000, today that debate is diminished. When I was there, there 
were a lot of different debates about it, but a lot of things 
were done right. Essentially, prototyping is very important at 
multiple levels. There were, I think, 13 engineering 
development models of the power plant, the gun, the peripheral 
VLS, all the systems on the DDG 1000 that were proven so that 
we could then take that ship into design and then build that 
ship. And it was designed in a CATIA system. There were claims 
of that ship being $5 or $6 billion. Today the first ship is 40 
percent complete, and it is on budget, and the lead ship is 
going to be about $3.5 billion and the follow ships will be 
cheaper. The programs performed pretty well because a lot of 
the right things were done along the way.
    The program has been somewhat killed, if you will, because 
of the debate and the projections of overages that have not 
happened. So you have to work your way through those things.
    I would highlight the C-5 program that you mentioned. It 
came off the rails, but with a lot of discipline, the program 
was put back on the rails. And I think it is performing going 
forward. Its continued success is critical to the budget being 
stable going forward, treating it almost like a multi-year, 
which is what I tried to insist from the Air Force.
    Virginia class, the Congress extended an unprecedented 
authority to us in the Department before we had the first 
submarine because we were being asked, largely by the Congress, 
to build the submarines at one a year in two different yards. 
That is a horrible strategy to build one submarine a year 
between two yards. But Congress at least gave us the authority 
to put those submarines until a multi-year, and that brought 
enormous stability of that program and let you in a very lean 
production environment deliver effectively along with other 
tools, good management and other things.
    I could give you a lot of good examples. I really 
appreciate the chance to give you some of those examples.
    Senator Carper. Good. And, again, a special appreciation 
for your great work on C-5 modernization.
    Mr. Sullivan, any good examples you want to cite just very 
briefly?
    Mr. Sullivan. Small Diameter Bomb, the first increment of 
that was a really well done program. P-8A, which is in 
development now, appears to have a very----
    Senator Carper. What is P-8A?
    Mr. Sullivan. P-8A is----
    Mr. Young. A multi-mission----
    Senator Carper. P-8, oh----
    Mr. Young. Replacement for the P-3s.
    Senator Carper. The mighty P-3, of which I was a mission 
commander. My sons, when they were little, used to call it 
``the mighty P-3.''
    Mr. Sullivan. That has been an excellent program. F-18/E/F 
actually, a lot of the F-18--because they basically are mods in 
many ways, big mods, but nonetheless they were allowed to come 
in with a realistic cost estimate and have all done well. The 
Growler is the same way, the EA-18G.
    There have been a lot of programs--the Joint Direct Attack 
Munition (JDAM) was kind of a favorite. It was a very small, 
unsexy----
    Senator Carper. The what?
    Mr. Sullivan. I am sorry. The Joint Direct Attack Munition.
    Senator Carper. Thank you.
    Mr. Sullivan. Which really kind of explored precision 
strike a long time ago, and it was basically a program where 
they took a dumb bomb and strapped software, a kit on it to 
make it be able to go where they wanted it to go. That was a 
very successful program.
    There have been a lot, and I think----
    Senator Carper. Did you say they took a dumb bomb and 
strapped a kid?
    Mr. Sullivan. Kit.
    Senator Carper. Thank you.
    Mr. Sullivan. A dumb bomb, a gravity bomb, I guess. I think 
what all of those programs share--by the way, the F-15 and the 
F-16 were very successful programs, and we have argued a lot 
that they should go back and look at how they did that upgrade 
approach and try to do that again. But they all share common 
themes, and I think it is--the No. 1 thing is they all have an 
awful lot of support from very senior leadership. Senior 
leadership is on board, and they are going to get that job 
done. They all seem to have a real need out there that they are 
going to fulfill. So there is an extra added incentive, 
patriotic, if you will. The P-8A is very much like that. I 
think the P-3 has about had it. And so they need----
    Senator Carper. How about their old mission commanders from 
the P-3?
    Mr. Sullivan. They are still doing really good. They are 
doing fine. In fact, some may run for President. Who knows?
    Senator Carper. Not in this hearing. [Laughter.]
    Mr. Sullivan. But they share those things in common. There 
is a real need, and senior leadership has gotten onboard, and 
someone has allowed that core team that is going to sell that 
program to do a realistic cost estimate and to keep 
requirements reasonable.
    Senator Carper. All right. Thanks.
    Mr. Schwartz, the last word on this question, and then I am 
going to kick it back to you, and you are going to help us 
develop consensus before we close. Thanks. Mr. Schwartz.
    Mr. Schwartz. Thank you. I will give two examples of 
programs for considering and then perhaps add one other point.
    One is, to go back to what Mr. Young said, the Virginia 
class submarine. While it is true that it had some cost 
estimating problems early on, the actual execution of the 
program is one that many people have pointed to as an example 
of excellent program management, and now the results will still 
take some time to come in. But some of the reasons that have 
been pointed to are that particularly a submarine program has 
put a lot of effort into hiring talented and capable program 
managers and acquisition personnel as well as limiting the 
management spend. For the last decade or so, the program 
manager has had one program, the submarine program, to focus 
on. That is distinct from other situations. For example, the 
Joint High-Speed Vessel and the TAKE--and I believe another 
program that I do not recall at the moment--were all under one 
program manager, so that is also another contributing factor.
    Another one is one of the approaches that the Virginia 
class submarine has used is block buys and technology insertion 
programs, and what I mean by that is they buy some submarines 
and they are developing technology at the same time. And as 
those technologies are becoming more ripe, they are inserting 
them into the next block buy to try to avoid some of the 
concerns that have been raised as far as immature technology. 
That has been another approach.
    And third is they have had a very carefully planned, 
disciplined approach to cost reduction that they have spelled 
out and sought to stick to.
    The other program that I would mention is, I believe, the 
Super Hornet, which is the upgrade of the Hornet. It has been a 
program that generally has been viewed by a number of people 
that I have heard from as a good example, and it was more than 
just an upgrade. It had a little bit more challenges than just 
upgrading the Hornet, including, I believe, a larger airframe. 
So I would mention that one.
    But the other point I would like to add perhaps is--and I 
will quote John Young. He wrote a memo recently that said half 
of--and Mr. Sullivan, who said that half of the cost growth is 
five or ten programs. So one way to look at it is which 
programs are doing well, how can we emulate that. Another 
potential approach that can be thought of is which programs 
caused the high cost growth risk and how can we take a 
different approach with those.
    Some people will say heightened scrutiny of everybody is 
heightened scrutiny of nobody. But what are the driving forces 
of high risk? And perhaps we should look at those differently 
or require them to be budgeted at a higher confidence level, 
and I will just give one example.
    In 2001, there were five helicopter programs. Four of them 
had Nunn-McCurdy breaches, and they represented four of the 
complete number of nine Nunn-McCurdy breaches in the entire 
Department. Now, RAND work and GAO work has indicated that 
helicopter programs, as an example, have a higher risk of cost 
growth than most other major defense acquisition programs. If 
that is the case, one way to approach this is, well, how do we 
think of these programs differently than the other 70 or 80 
programs that might not have generally as high a history of 
cost growth risk? Thank you.
    Senator Carper. Thank you.
    That brings us almost to our conclusion here. You may 
recall, before we started asking questions of this panel, I 
said that I wanted you to help us really focus on consensus 
because that is what we really need in order to get much if 
anything done around here. And you have had the benefit of 
hearing from the first panel. You have had the benefit of 
hearing one another and some of the questions that I have 
entered into. And you have the benefit of all your years of 
experience.
    So just some closing thoughts here, things you want to just 
emphasize, re-emphasize, underline that you think might be 
especially helpful for us as we try to develop consensus, not 
just at the legislative side but executive as well.
    Please, Mr. Young, do you want to go first?
    Mr. Young. Well, I would like to go backward, but go 
forward with it. I would be remiss if I did not emphasize that 
I believe the MRAP program would be on the list of good-
performing programs. It was a program where we had money--that 
was not even a question--we had requirement, but we had the--
the requirement was really to do the best we could as fast as 
we could. It was not an unobtainable requirement, and we were 
not even--if something was unobtainable, we were asked to step 
back and deliver faster rather than slower. We had leadership 
support, and all of that could have gone south if you did not 
have the teamwork and collaboration. Secretary Gates' big fear 
that I feared, therefore, and worked hard on was to make sure 
once we built 10,000 vehicles, they could be deployed; the 
people could be trained; spare parts could arrive for those 
vehicles so the soldiers could actually use them. So the 
program was executed by very capable people comprehensively.
    And so that is how I go forward, with that example, and 
tell you we have to have leadership, and I think some of that 
leadership is from people that are accountable to the President 
so they can try to do the right thing. They are accountable to 
the Congress, too, in general because they are confirmed. They 
are spending taxpayer money. They need to have trained people 
working for them that are empowered to make hard decisions, and 
they need to be supported. They cannot not be promoted because 
they said no to some new requirement that was going to disrupt 
the program.
    You have to have realistic and honest budgets. You have 
heard all of us say that. And I think you do need to change 
some of the incentive structures in the contracts.
    The Department as a whole needs to build a meaningful 5-
year budget. I said this all the time I was in the Pentagon. 
The building right now is actively and busily building the 2013 
budget. The truth is they just built the 2012 budget. That 
ought to be quality. But the truth is it is a 1-year budget 
with 4 out-years that are not as meaningful as they should be. 
And so if we had a meaningful 5-year budget, we would then have 
a meaningful and stable outlook for acquisition programs to 
execute to. And I believe that is an important thing that has 
not been said today.
    So I really appreciate your pursuit of this knowledge and 
consensus, and I thank you for the chance to testify.
    Senator Carper. It is great of you to come, and we applaud 
your continued efforts here. Thanks so much for helping us. Mr. 
Sullivan.
    Mr. Sullivan. So much has been said today that I agree 
with, including the first panel. I mean, I think that the 
Department at this point understands what it has to do. It is 
beginning to understand the budget constraints. But I would 
focus on--I think the 5-year budget is a good idea. I would not 
start a program unless the requirements were very well defined 
with preliminary design review, a lot of this engineering 
knowledge to prove that everything is there. I would not let 
them exceed 5 years, and I think it is good to use an 
incremental approach.
    I think the F-16 program is a potential model. Some of the 
ones we named earlier, Small Diameter Bomb, those are good 
examples of how to do a program.
    Competition. We talked a lot about--the Department, it does 
not seem to me, has come out with a clear policy or message or 
plan on how or when it is going to compete things, and there 
are different levels of times when you can compete. You can 
compete technologies, which the Ground Combat Vehicle is doing 
now. You can compete during product development, and each step 
gets more expensive. You could even compete into production. 
And I think if you are talking about missiles or munitions, you 
can do that sort of thing. If you are talking about a bomber, 
it gets a little more difficult.
    But competition, I think that the Department could focus on 
how it can use competition at varying times during an 
acquisition and then stick to that, I guess. Have a clearer 
policy about how it is going to use that.
    Senator Carper. OK. Thanks.
    Mr. Schwartz, do you want to close this out?
    Mr. Schwartz. Sure. Thank you. With the goal of consensus, 
I think there are three themes that I have heard recurring that 
I believe everyone agreed on. One is the need to try to improve 
cost estimating early on because without good cost estimates 
you sort of start behind the eight ball, as it were.
    The second one is requirements creep, and I would add 
change orders. For example, the LCS, Littoral Combat, had 
millions of dollars in change orders, which is something that 
requires you to renegotiate the contract sometimes and is going 
to raise costs, and the more that those orders and 
requirements, as was stated, could be stable earlier in the 
process, that should help.
    And the third was workforce incentivization, and I mean 
from the Department of Defense side as well as the contractor 
side, which is a role that Congress was very helpful with, as 
we mentioned, in Goldwater-Nichols and could also play a very 
key role here.
    The only thing I would like to add, though, is, as great as 
a lot of these ideas are and as optimistic as many people are, 
it all comes down to execution, and actually making sure that 
the initiatives are being adhered to, because you could have a 
policy that is not necessarily being followed. And the example 
I would give, for example, is in 1972 the Cost Analysis and 
Improvement Group was established with the sole purpose of 
improving DOD cost estimates.
    In 1987, the Defense Acquisition Board was established, and 
one of their goals was to improve cost estimates and require 
further reliance on the Cost Analysis and Improvement Group.
    In 2009, the Cost Analysis and Program Evaluation Group was 
established with the primary purpose of improving cost 
estimates.
    So the initiatives have been there, but very often it comes 
down to execution and, as was stated before--and that is the 
point I want to end with--changing the culture to truly embrace 
the goals of these policies. Thank you.
    Senator Carper. All right. Well, that is a good note to 
close on. Again, we are in debt to each of you. We appreciate 
very much your preparation for today and your participation 
here today and in previous years.
    As you probably heard me say earlier, some of the folks on 
our Subcommittee are probably going to have some extra 
questions, and we may have some extra questions as well. And if 
you receive those, we would just ask that you respond to them 
promptly. Other Members have 2 weeks to submit those questions.
    With that having been said, I just want to thank our 
staffs, both Democrat and Republican staffs, for their work in 
helping us to prepare for today. It has been, I think, a very 
constructive hearing and one that gives us a lot to chew on. 
And my hope is that we continue to do our oversight in the 
years to come, and if we extend that bar graph or bar chart a 
couple years forward into the future that we will see not only 
a plateauing, but we will see those numbers coming back down, a 
little bit less red ink. Maybe a lot less. All right. Maybe 
today's hearing will help get us on the right track.
    Thank you all very, very much, and with that, this hearing 
is adjourned.
    [Whereupon, at 5:13 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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