[Senate Hearing 112-161]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-161
 
             DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES

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


                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 29, 2011

                               __________

         Printed for the use of the Committee on Armed Services




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

                               __________




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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
JACK REED, Rhode Island              JAMES M. INHOFE, Oklahoma
DANIEL K. AKAKA, Hawaii              JEFF SESSIONS, Alabama
E. BENJAMIN NELSON, Nebraska         SAXBY CHAMBLISS, Georgia
JIM WEBB, Virginia                   ROGER F. WICKER, Mississippi
CLAIRE McCASKILL, Missouri           SCOTT P. BROWN, Massachusetts
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
KAY R. HAGAN, North Carolina         KELLY AYOTTE, New Hampshire
MARK BEGICH, Alaska                  SUSAN M. COLLINS, Maine
JOE MANCHIN III, West Virginia       LINDSEY GRAHAM, South Carolina
JEANNE SHAHEEN, New Hampshire        JOHN CORNYN, Texas
KIRSTEN E. GILLIBRAND, New York      DAVID VITTER, Louisiana
RICHARD BLUMENTHAL, Connecticut

                   Richard D. DeBobes, Staff Director

               David M. Morriss, Minority Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

             Department Of Defense Efficiencies Initiatives

                             march 29, 2011

                                                                   Page

Hale, Hon. Robert F., Under Secretary of Defense, Comptroller....     8
Westphal, Hon. Joseph W., Under Secretary of the Army............    10
Work, Hon. Robert O., Under Secretary of the Navy................    11
Conaton, Hon. Erin C., Under Secretary of the Air Force..........    12

                                 (iii)


             DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES

                              ----------                              


                        TUESDAY, MARCH 29, 2011

                           U.S. Senate,    
                  Subcommittee on Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:34 p.m. in 
room SR-232A, Russell Senate Office Building, Senator Claire 
McCaskill (chairwoman of the subcommittee) presiding.
    Committee members present: Senators McCaskill, Begich, and 
Ayotte.
    Majority staff members present: Peter K. Levine, general 
counsel; Jason W. Maroney, counsel; Roy F. Phillips, 
professional staff member; John H. Quirk V, professional staff 
member; and Russell L. Shaffer, counsel.
    Minority staff members present: Pablo E. Carrillo, minority 
investigative counsel; and Lucian L. Niemeyer, professional 
staff member.
    Staff assistants present: Hannah I. Lloyd and Breon N. 
Wells.
    Committee members' assistants present: Gordon Peterson, 
assistant to Senator Webb; Tressa Guenov, assistant to Senator 
McCaskill; Lindsay Kavanaugh, assistant to Senator Begich; and 
Brad Bowman, assistant to Senator Ayotte.

   OPENING STATEMENT OF SENATOR CLAIRE McCASKILL, CHAIRWOMAN

    Senator McCaskill. The Readiness and Management Support 
Subcommittee of the Senate Armed Services Committee will begin. 
Today we're going to have a hearing on the Department of 
Defense (DOD) Efficiencies Initiatives.
    The Subcommittee on Readiness and Management Support meets 
this afternoon to hear testimony on the efficiencies 
initiatives--say that three times real fast--[Laughter] 
announced by the Secretary of Defense.
    We're pleased to have the DOD Comptroller, Robert F. Hale, 
and the Chief Management Officers (CMO) of the three military 
departments--Under Secretary of the Army, Joseph Westphal, 
Under Secretary of the Navy, Robert Work, and Under Secretary 
of the Air Force, Erin Conaton--here today to address this 
important issue. I welcome you all, and I thank you not only 
for your testimony, but for your contributions to the 
Secretary's efforts at efficiencies.
    I fully support the Secretary's objectives in reducing the 
duplication, overhead, and excess in the Defense enterprise and 
instilling a culture of savings and restraint across DOD. As I 
stated at our previous hearing, I do not believe there is 
anything DOD is doing that we cannot do better, and I do not 
believe there is any part of the budget that can be off limits 
as we look for savings.
    I believe that the Secretary was on the right track when he 
announced a reduction in funding for service support contracts 
by 10 percent per year for 3 years, a freeze on the number of 
the Office of the Secretary of Defense (OSD), Defense agency, 
and combatant command (COCOM) positions, a freeze on the number 
of general officer, flag officer, and Senior Executive Service 
(SES) positions, a review and reduction of the number of 
reports, studies, and advisory boards, new limits on SES 
positions and support contractors for DOD intelligence 
functions, and the elimination or consolidation of several 
defense commands and agencies.
    I'm also pleased that the military departments have 
followed up by proposing additional economies, including 
consolidations of functions and facilities, cuts to funding for 
recruiting and retention, increased use of flight simulators, 
reductions in inventories in pre-positioned stockpiles of 
materials, the deferral of military construction (MILCON), and 
the termination of lower-priority acquisition programs.
    I also want to thank our witnesses today for the additional 
detail you have provided on DOD's efficiencies initiatives over 
the last few days. That information includes written rationales 
for specific elements of the effort and detailed funding tables 
showing the expected savings. It has seemed like pulling teeth 
to get the detailed information we need to understand exactly 
what you plan to do and why you think it's going to save money, 
but the information that you have now provided is a huge step 
in the right direction, and puts the entire effort on a much 
sounder footing. We really appreciate it.
    Nonetheless, the proposed efficiencies initiatives raise 
some difficult questions, which I hope we will begin to answer 
in the course of today's hearing. For example, although the 
Secretary stated on August 9 that he intended to reverse the 
dramatic increase in DOD's use of service support contractors, 
DOD now proposes to cut spending on service contracts by just 
$1.3 billion this year, less than a third of the $4.5 billion 
it plans to cut from the much smaller amount spent on DOD's 
civilian workforce. Will these disproportionate cuts to the 
civilian workforce accelerate the outsourcing trend that the 
Secretary has promised to reverse?
    In his August 9 speech, the Secretary of Defense announced 
that he would conduct a zero-based review of DOD's intelligence 
organizations, require a 10-percent freeze in reduction in 
funding for the advisory and assistance contractors, and freeze 
the number of senior executive positions in DOD intelligence 
positions. Yet, the budget calls for a savings in DOD 
intelligence budget of only $41 million in fiscal year 2012 and 
$372 million over the Future Years Defense Program (FYDP), 
which covers another additional 5 years. Is that really the 
best we can do?
    In addition to the Defense-wide initiatives and the 
service-specific initiatives, we have a third set of 
initiatives, the ``better buying power'' acquisition reform 
initiatives announced by Secretary Ash Carter. The Defense-wide 
initiatives are expected to achieve $78 billion in savings, and 
the service-specific initiatives are expected to save $100 
billion--however, no savings at all are credited to this 
acquisition reform initiative. Why not?
    I understand that the CMOs of the three military 
departments, our witnesses here today, are responsible for the 
implementation of the service-specific initiatives in this 
efficiency effort. However, the CMO and Deputy Chief Management 
Officer (DCMO) of DOD appeared to have played little role in 
the Defense-wide effort to date. Who will be responsible for 
implementing the Defense-wide efficiencies initiatives? Who can 
we hold accountable?
    Over the last decade, DOD's budget has grown from just 
under $300 billion in fiscal year 2001 to almost $550 billion 
in fiscal year 2011, an increase of over $250 billion on an 
annual basis. That's the base budget. That is not counting the 
cost of Overseas Contingency Operations (OCO). I want to repeat 
that, make sure that we understand what the numbers are we're 
working with. In less than a decade, we have gone from a base 
budget at the Pentagon of $300 billion to a base budget of $550 
billion, not counting any of the costs that we have incurred in 
Iraq, Afghanistan, or the current international assistance 
operation that is ongoing in Libya.
    Measured against that yardstick, the Secretary's proposal 
to find savings of $24 billion and reduce the top line of the 
Defense budget by about $14 billion in fiscal year 2012 seems 
much more modest than draconian. In fact, I question whether, 
in this time of economic and fiscal duress, we can afford to 
allow the military departments to reinvest the $10 billion they 
plan to save this year through cuts to excessive bureaucracy 
and underachieving programs. When we move forward with the 
National Defense Authorization Act (NDAA) for Fiscal Year 2012, 
I may offer an amendment to strike this added spending from the 
bill so that we can apply the full savings against our rising 
budget deficit.
    I welcome all the witnesses today, again, and thank you.
    Now, I will turn to the ranking member, it's so great to 
have her on board, Senator Ayotte.
    [The prepared statement of Senator McCaskill follows:]

             Prepared Statement by Senator Claire McCaskill
    The Subcommittee on Readiness and Management Support meets this 
afternoon to hear testimony on the efficiencies initiatives announced 
by the Secretary of Defense. We are pleased to have the Department of 
Defense (DOD) Comptroller Robert F. Hale and the Chief Management 
Officers of the three military departments--Under Secretary of the Army 
Joseph W. Westphal, Under Secretary of the Navy Robert O. Work, and 
Under Secretary of the Air Force Erin C. Conaton--here today to address 
this important issue. I welcome you all, and I thank you not only for 
your testimony, but for your contributions to the Secretary's 
efficiencies initiatives.
    I fully support the Secretary's objectives of reducing 
``duplication, overhead, and excess in the defense enterprise'' and 
instilling ``a culture of savings and restraint'' across DOD. As I 
stated at our previous hearing, I do not believe there is anything the 
Department is doing that we cannot do better, and I do not believe that 
there is any part of the budget that can be off limits as we look for 
savings.
    I believe that the Secretary was on the right track when he 
announced a reduction in funding for service support contracts by 10 
percent per year for 3 years; a freeze on the number of Office of 
Secretary of Defense, Defense agency, and combatant command positions; 
a freeze on the number of general officer, flag officer, and Senior 
Executive Service (SES) positions; a review and reduction of the number 
of reports, studies, and advisory boards; new limits on SES positions 
and support contractors for DOD intelligence functions; and the 
elimination or consolidation of several defense commands and agencies.
    I am also pleased that the military departments have followed up by 
proposing additional economies, including consolidations of functions 
and facilities, cuts to funding for recruiting and retention, increased 
use off light simulators, reductions in inventories and prepositioned 
stockpiles of materials, the deferral of military construction, and the 
termination of lower priority acquisition programs.
    I also want to thank our witnesses today for the additional detail 
that you have provided on the Department's efficiencies initiatives in 
the last few days. That information includes written rationales for 
specific elements of the effort and detailed funding tables showing the 
expected savings. It has seemed like pulling teeth to get the detailed 
information we need to understand exactly what you plan to do and why 
you think it is going to save money--but the information that you have 
now provided is a huge step in the right direction and puts the entire 
effort on a much sounder footing. We really appreciate it.
    Nonetheless, the proposed efficiencies initiatives raise some 
difficult questions, which I hope we will begin to answer in the course 
of today's hearing. For example:

         Although the Secretary stated on August 9 that he 
        intended to reverse the dramatic increase in the Department's 
        use of service support contractors, the Department now proposes 
        to cut spending on service contracts by just $1.3 billion this 
        year--less than a third of the $4.5 billion it plans to cut 
        from the much smaller amount spent on the Department's civilian 
        workforce. Will the disproportionate cuts to the civilian 
        workforce accelerate the outsourcing trend that the Secretary 
        promised to reverse?
         In his August 9 speech, the Secretary of Defense 
        announced that he would conduct a ``zero-based review'' of the 
        Department's intelligence organizations, require a 10 percent 
        freeze in reduction in funding for intelligence advisory and 
        assistance contractors, and freeze the number of senior 
        executive positions in DOD intelligence positions. Yet, the 
        budget calls for a savings in the DOD intelligence budget of 
        only $41 million in fiscal year 2012, and $372 million over the 
        Future Years Defense Program. Is that really the best we can 
        do?
         In addition to the defense-wide initiatives and the 
        service-specific initiatives, we have a third set of 
        initiatives--the ``better buying power'' acquisition reform 
        initiatives announced by Secretary Carter. While the DOD-wide 
        initiatives are expected to achieve $78 billion in savings and 
        the service-specific initiatives are expected to save $100 
        billion, however, no savings at all are credited to the 
        acquisition reform initiatives. Why not?
         I understand that the Chief Management Officers of the 
        three military departments--our witnesses here today--are 
        responsible for the implementation of the service-specific 
        efficiencies initiatives. However, the Chief Management Officer 
        and Deputy Chief Management Officer of DOD appear to have 
        played little role in the defense-wide effort to date. Who will 
        be responsible for implementing the defense-wide efficiencies 
        initiatives?

    Over the last decade, the DOD budget has grown from just under $300 
billion in fiscal year 2001 to almost $550 billion in fiscal year 2011, 
an increase of $250 billion per year--and that is the base budget, not 
including the cost of overseas contingency operations. Measured against 
that yardstick, the Secretary's proposal to finding savings of $24 
billion and reduce the top-line of the defense budget by about $14 
billion in fiscal year 2012 seems more modest than draconian.
    In fact, I question whether, in this time of economic and fiscal 
duress, we can afford to allow the military departments to ``reinvest'' 
the $10 billion that they plan to save this year through cuts to 
excessive bureaucracy and underachieving programs. When we move forward 
with the National Defense Authorization Act for Fiscal Year 2012, I may 
offer an amendment to strike this added spending from the bill, so that 
we can apply the full savings against our rising budget deficit.
    I look forward to the testimony of our witnesses, and I now turn to 
Senator Ayotte for any opening remarks that she may have.

               STATEMENT OF SENATOR KELLY AYOTTE

    Senator Ayotte. Thank you very much, Madam Chairwoman.
    I thank the witnesses for appearing before our subcommittee 
today, and for your service to our country during these 
difficult times.
    This hearing really goes to the heart of the fiscal crisis 
that we face as a Nation. Certainly, I've heard from people in 
New Hampshire in sending me to Washington, that we need to 
address our Nation's fiscal crisis and reduce Federal spending. 
I certainly plan to honor that commitment. We cannot continue 
to spend what we don't have, and we must closely scrutinize 
every Federal agency, including DOD, to identify and eliminate 
wasteful or duplicative programs. As the National Commission on 
Fiscal Responsibility and Reform (Bowles-Simpson) stated in 
their final report, A Moment of Truth, ``Every aspect of 
discretionary--the discretionary budget must be scrutinized. No 
agency can be off limits, and no program that spends too much 
or achieves too little can be spared.''
    I commend the Secretary of Defense for his commitment to 
review DOD's operations to find better ways to do business. The 
services now plan to fund new modernization initiatives from 
within the budgets that will remain steady, as adjusted for 
inflation, in the next few years. In addition, the Secretary's 
review of all DOD functions reduces overhead costs by $78 
billion over the next 5 years, starting with $13 billion in 
fiscal year 2012, from the amount projected in last year's 
President's budget for DOD.
    But, let's be clear: only in the current climate here in 
Washington, DC, can an agency propose a cut in the rate of 
growth of future budgets and call it a triumph. In a year when 
we are facing close to a $1.6 trillion deficit accruing at over 
$200 billion a month, cutting $13 billion from projected $566 
billion requests hardly makes a dent. Local and State 
governments around the country are looking at their outlays 
today and cutting back now just to remain solvent. We need to 
instill that--this same mindset and same sense of urgency in 
DOD.
    DOD funds provided for specific purposes, but no longer 
needed or in excess of that requirement, should be returned to 
the General Fund of the Treasury, as opposed to funding lower 
priorities. For example, our committee has challenged requests 
to use savings from the Base Realignment and Closure (BRAC) 
accounts to fund new MILCON projects, and will continue to do 
so. We should not fund additional projects that did not make 
the cut the first time.
    I would also like to hear how the witnesses plan to change 
the widespread mindset in the Pentagon, which encourages 
program managers to spend all the money available in order to 
justify future budget requests. I ask the witnesses to consider 
an overarching efficiency initiative for DOD's budgeting system 
to provide incentives to program managers to be rewarded for 
spending less, as opposed to being penalized, in the future 
budgets, for not spending every dollar that's given to them.
    In addition, DOD needs to stop carrying out earmarked 
programs that are not core DOD activities. Substantial savings 
will not be realized until DOD commits to spend only what is 
absolutely essential for the warfighter and critical DOD 
functions.
    I'm also concerned that some of the efficiencies may 
actually defer expenditures critical to our military readiness, 
which increases risk to our military forces and to our national 
security. Reduced funding for facility maintenance, aircraft 
maintenance, MILCON, and flying hours are not savings or 
efficiencies. The negative consequences of the continuing 
resolution on our core readiness functions, like ship 
availabilities, we're already seeing and are bad enough. We 
should not compound the damage of the continuing resolution on 
our military's readiness by pushing core readiness requirements 
to future years that will eventually have to be funded.
    I ask our witnesses today, for the record, to delineate 
those spending cuts proposed in the budget request that defer 
requirements, assess the risk of each one, and propose a plan 
for their eventual payment. This committee needs to honestly 
and accurately assess this risk, on top of the years of 
accumulated risk, to the readiness and training of our forces. 
In a time of turmoil and uncertainty around the world, which 
we've certainly seen with the recent events in Libya and the 
Middle East, we must be clear about the true effects of reduced 
military spending in critical readiness areas proposed under 
the guise of efficiencies.
    I also support the chairwoman's previous call for financial 
statements for DOD that can be audited. Given how defective 
DOD's financial processes and systems are, I have to wonder how 
the projected savings will actually be realized without having 
a strong system in place that can be audited. Without tracking 
and understanding current expenses, DOD has no way to establish 
a baseline to measure the performance of any efficiency 
initiative. I'm concerned that the Air Force, for example, does 
not have a plan to be audit-ready until the end of 2016. I 
think the average American would be surprised and disappointed 
to know that DOD does not currently have fully auditable 
statements, and does not expect to have them until 2017. This 
is too late. The Financial Improvement and Audit Readiness 
Initiative should be DOD's top efficiency priority.
    Finally, Chairwoman McCaskill, I hope you will share my 
commitment to avoid, today--which I know you have said in 
previous hearings--to avoid using gimmicks to get around the 
ban on earmarks that Congress has adopted this year. Adding 
unspecified lump sums to certain DOD accounts without a vote by 
this committee or the full committee, and then allowing DOD to 
pick and choose the special-interest items to fund with the 
additional money, is not consistent with my definition of 
fiscal responsibility and accountability.
    I look forward to a productive and open discussion with our 
witnesses today, and appreciate, again, your commitment to our 
country. This is a very important hearing, and I appreciate you 
all being here today.
    [The prepared statement of Senator Ayotte follows:]
               Prepared Statement by Senator Kelly Ayotte
    Thank you Chairwoman McCaskill and I thank the witnesses for 
appearing before our subcommittee today. This hearing goes to the heart 
of the fiscal crisis we face as a Nation. During my campaign, I vowed 
to my constituents in New Hampshire that I would come to Washington, 
DC, to address our Nation's fiscal crisis and to reduce Federal 
spending. I plan to honor that commitment. We cannot continue to spend 
what we do not have. We must closely scrutinize every Federal agency--
including the Department of Defense (DOD)--to identify and eliminate 
wasteful or duplicative programs. As the National Commission on Fiscal 
Responsibility and Reform stated in their final report, A Moment of 
Truth, ``Every aspect of the discretionary budget must be scrutinized, 
no agency can be off limits, and no program that spends too much or 
achieves too little can be spared.''
    I commend the Secretary of Defense for his commitment to review the 
Department's operations to find better ways to do business. The 
Services now plan to fund new modernization initiatives from within 
budgets that will remain steady as adjusted for inflation in the next 
few years. In addition, the Secretary's review of all Department 
functions reduces overhead costs by $78 billion over the next 5 years, 
starting with $13 billion in fiscal year 2012 from the amount projected 
in last year's President's budget for the Department.
    But let's be clear. Only in the current climate here in Washington, 
DC, can an agency propose a cut in the rate of growth of future budgets 
and call it a triumph. In a year when we are facing a $1.4 trillion 
deficit accruing at over $200 billion a month, cutting $13 billion from 
a projected $566 billion request hardly makes a dent. Local and State 
governments around the country are looking at their outlays today, and 
cutting back now to remain solvent. We need to instill this same 
mindset and same sense of urgency in DOD. DOD funds provided for 
specific purposes, but no longer needed or in excess of the 
requirement, should be returned to the General Fund of the Treasury, as 
opposed to funding lower priorities. For example, our committee has 
challenged requests to use savings from the base realignment and 
closure accounts to fund new military construction projects, and will 
continue to do so. We should not fund additional projects that did not 
make the cut the first time.
    I would also like to hear how the witnesses plan to change the 
widespread mindset in the Pentagon which encourages program managers to 
spend all money available in order to justify future budget requests. I 
ask the witnesses to consider an overarching efficiency initiative for 
the Department's budgeting system to provide incentives to program 
managers to be rewarded for spending less, as opposed to being 
penalized in future budgets for not spending every dollar given to 
them. In addition, the Department needs to stop carrying out earmarked 
programs that are not core DOD activities. Substantial savings will not 
be realized until the Department commits to spend only what is 
absolutely essential for the warfighter and critical Department 
functions.
    I am also concerned that many efficiencies actually defer 
expenditures critical to our military readiness, which increases risk 
to our military forces and to our national security. Reduced funding 
for facility maintenance, aircraft maintenance, military construction, 
and flying hours are not savings or efficiencies. The negative 
consequences of the continuing resolution on core readiness functions 
like ship availabilities are bad enough. We should not compound the 
damage of the continuing resolution on our military's readiness by 
pushing core readiness requirements to future years that will 
eventually have to be funded. I ask our witnesses today for the record 
to delineate those spending cuts proposed in the budget requests that 
defer requirements, assess the risk for each one, and propose a plan 
for their eventual payment. This committee needs to honestly and 
accurately assess this risk, on top of years of accumulated risks, to 
the readiness and training of our forces. In a time of turmoil and 
uncertainty around the world, we must be clear about the true effects 
of reduced military spending in critical readiness areas proposed under 
the guise of efficiencies.
    I also support the chairwoman's previous call for financial 
statements for the Department that can be audited. Given how defective 
the Department's financial processes and systems are, I have to wonder 
how the projected savings will be actually realized. Without tracking 
and understanding current expenses, the Department has no way to 
establish a baseline or to measure the performance of any efficiency 
initiative. I am concerned that the Air Force, for example, does not 
plan to be audit ready until the end of 2016. I think the average 
American would be surprised and disappointed to know that the 
Department does not currently have fully auditable statements, and does 
not expect to have them until 2017. This is too late. The Financial 
Improvement and Audit Readiness initiative should be the Department's 
top efficiency priority.
    Finally, Chairwoman McCaskill, I hope you will share my commitment 
today to avoid using gimmicks to get around the ban on earmarks that 
Congress has adopted this year. Adding unspecified lump sums to certain 
DOD accounts without a vote by this committee or the full committee, 
and then allowing the Department to pick and choose the special 
interest items to fund with the additional money, is not consistent 
with my definition of fiscal responsibility and accountability.
    I look forward to a productive and open discussion with our 
witnesses today.

    Senator McCaskill. Thank you all for being here.
    I will go down the list in the order that I have them 
listed on the witness sheet, which means we will begin with 
Secretary Hale.

 STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE, 
                          COMPTROLLER

    Mr. Hale. Thank you. Well, good afternoon, Chairwoman 
McCaskill, Senator Ayotte, Senator Begich. Thank you for the 
opportunity to discuss our efficiencies initiatives.
    I'm joined today by the Under Secretary's CMOs. We've 
submitted a statement. I hope you'll include it in your record. 
In the interests of time, I'll summarize. I'll start. Then I'm 
going to ask each of the Service Secretaries to discuss issues 
for their service, and I'll end with a short summary about 
implementation.
    At the outset, let me note that, like Congress, we're 
mindful of the fact that the United States is dealing with 
significant fiscal and economic pressures that affect our 
Nation and our Nation's defenses. As a result, our past budgets 
for fiscal years 2010 and 2011 included steps to curtail or 
eliminate weapons. The secretaries' reform agenda didn't begin 
with the budget we submitted to you. We've terminated seriously 
troubled programs. We've ended some where we thought we had 
bought enough. We terminated or restructured more than 20 
weapons programs in the 2010 and 2011 budget.
    But, the one that we just submitted in 2012, we shifted our 
focus to streamlining our business operations. There are some 
further terminations of weapons, but the focus is on the 
business side. We've created plans that will save $178 billion 
in fiscal years 2012 to 2016. I'll say, I've been looking in 
and around Defense budgets for more than 30 years. I have never 
seen one with as far-reaching a set of business streamlining as 
this one.
    The Under Secretaries will briefly describe how their plans 
are to save about $100 billion of that amount, which they have 
retained and reinvested in high-priority warfighter 
capabilities.
    I'll now speak to the $78 billion in Defense-wide savings. 
These savings were used to accommodate a reduction in the top 
line in support of the administration's deficit reduction 
efforts. Now, note that this $78 billion, as you pointed out, 
results in a reduction in the rate of growth in Defense 
spending, not a cut from the current level. Even with the $78 
billion, we'll go from $553 billion request in 2012 to $611 
billion by 2016. There is some modest real growth there, and we 
can discuss this more later. But, I would say, we not only have 
a deficit problem, we also have some very significant national 
security challenges. We feel that we need this funding to 
handle, whether it's Afghanistan, getting--finishing the 
mission in Iraq, Libya, Japan, and many things that we are 
responsible for undertaking.
    In order to protect the capability for the warfighter, most 
of our top-line savings, that $78 billion, came from 
efficiencies and other changes in the portions of our budget 
less closely related to warfighter capability. About $68 
billion of the $78 billion came from improving business 
practices, reducing personnel costs, and changing economic 
assumptions.
    Let me cite a couple of examples to give you a flavor for 
what we did. We're proposing steps to slow the growth in 
military medical costs. While we continue to provide, and will 
continue to provide, the troops and the families and retirees 
with high-quality medical care, we're concerned that DOD's 
medical care costs are skyrocketing. They've gone from $19 
billion in fiscal year 2000 to $52 billion in fiscal year 2012. 
To slow that growth, we've proposed incentives to increase the 
use of generic drugs and mail-order delivery. We've proposed a 
modest increase in TRICARE enrollment fees for working-age 
retirees, the first since the mid-1990s, and we've indexed 
those fees to a medical deflator. We also propose to end some 
special subsidies for private-sector hospitals that currently 
receive premium claims rates. Expected savings will total $340 
million in fiscal year 2012 and $7.9 billion through fiscal 
year 2016.
    I ask Congress' help here. I know these are hard things to 
do, but we have to make some of these tough decisions if we're 
going to find ways to hold down the growth in Defense spending.
    A second example of Department-wide cost-cutting involves 
personnel decisions. We've proposed a DOD-wide freeze on 
civilian billets, with some limited but important exceptions, 
such as the one for the acquisition workforce. That will save 
$2.5 billion in fiscal year 2012 and $13 billion over the FYDP.
    We also proposed a 30-percent reduction in the number of 
contractor employees performing staff augmentation work. It's 
an important distinction. That is people that are essentially 
hired to do jobs that could be done by government employees. 
That'll save $812 million next year, 5.7 percent over the FYDP.
    Over the next 2 years, we plan to reduce or downgrade 140 
general officer and flag billets, and more than 200 senior 
civilian billets. The savings there will be modest, but it does 
go toward Secretary Gates' goal of flattening DOD's 
organization.
    Third, we're streamlining DOD's organizational structure. 
That includes disestablishing the Joint Forces Command, at a 
savings of $2 billion over the FYDP, and the Business 
Transformation Agency, which will save another $337 million.
    All together, actions affecting the portion of the budget 
least directly related to warfighting account for about 87 
percent of that top-line reduction. The remaining roughly $10 
billion involve decisions more directly related to combat 
capability: a $4 billion restructuring of the Joint Strike 
Fighter--but, frankly, we would have done that anyway, because 
of slips in the program--and $6 billion from proposed decreases 
in the end strength of the Army and the Marine Corps in fiscal 
2015 and 2016, assuming that future security circumstances 
allow such reductions with minimal risk.
    As I said earlier, in addition to the $78 billion in 
Defense-wide savings, the Services have gone through their own 
cost-cutting exercises, which saved more than $100 billion, or 
plan to, in fiscal 2012 through 2016. These are organizational 
improvements, changes in business practices, termination of 
underperforming or unneeded weapons. Of those savings, $28 
billion were reinvested to pay for higher operating costs or 
pay for readiness enhancements, essentially. I think that 
rather than hollowing out or decreasing readiness, this 
initiative is designed to improve it. Certainly in Secretary 
Gates' mind. It included depot maintenance. It included more 
flight hours and training. The remaining $70 billion, they 
reinvested in other higher priorities.
    So, now let me ask each Service Under Secretary to provide 
some details, beginning with Army Secretary--Under Secretary 
Joseph Westphal. That will be followed by Under Secretary 
Robert Work and Under Secretary Erin Conaton.
    Joe?

 STATEMENT OF HON. JOSEPH W. WESTPHAL, UNDER SECRETARY OF THE 
                              ARMY

    Dr. Westphal. Chairwoman McCaskill, thank you very much for 
having us here today. Senator Ayotte, thank you, and members of 
the subcommittee.
    I will also have a little statement. Rather than read that, 
I'll just make a few summary points. I think you know 
everything that's on it already. So, not to belabor the 
subcommittee's time.
    I will say that, from our perspective as CMOs, we actually 
welcome a dialogue with the committee about these issues. I 
think we're entering upon a very, very turbulent period of 
time, both in terms of the fiscal standing of our Nation's 
budgets, but also in terms of the nature of operations out 
there. As we try to draw down out of Iraq and gain momentum in 
Afghanistan, and do all the things that we need to do to 
support this Nation's security, I think these discussions are 
going to be very important.
    In the Army, what we call the generating force--that is, 
all those elements of military and civilian that support our 
operational force--has been reduced, in significant ways, to 
support and to be part of the operating force. So, part of what 
we need to do as we move forward, in terms of efficiencies, is 
to ensure that we don't further undermine the generating force 
so that we always have ready and trained troops ready to go. 
So, a lot of the efficiencies that we identified, in our 
efforts to gain approximately $28 billion to $29 billion, were 
aimed at ensuring that we didn't undermine the generating 
force.
    For example, we made sure that support for base operations 
was an important investment in ensuring the maintenance and 
growth and sustainability of the generating force, as opposed 
to simply moving all resources over to shifting resources from 
one side of procurement to another side of procurement. We did 
some of that, as well.
    But, the gist of it is that we believe that the Secretary's 
efficiency initiative for the Army was the beginning--as I 
think Secretary Hale mentioned, the beginning of an effort to 
really become much more adept at addressing the very difficult 
issues of, how do we reduce and shift resources? Whether you're 
reducing the workforce or whether you're eliminating programs, 
or whether you are reducing or taking down structure, the 
processes that we have to follow to do that are complex and 
often difficult to maneuver through. So, we've had some 
valuable lessons learned in this process. I think we've 
employed some techniques that we could talk about during the 
question-and-answer that I think will help us address many of 
the concerns that both of you have mentioned in your opening 
statements.
    I think you know what we did to gain that $29 billion in 
savings on the procurement side, on the infrastructure side, on 
the personnel side. So, I won't detail that to you now. But, 
I'll be glad to answer any questions and address it as we go 
forward in the interview.
    Thank you very much.
    Senator McCaskill. Thank you, Mr. Secretary.

 STATEMENT OF HON. ROBERT O. WORK, UNDER SECRETARY OF THE NAVY

    Mr. Work. Chairwoman McCaskill, Senator Ayotte, Senator 
Begich, I echo Joe and Robert's ``thank you very much for 
having us here today.'' We are very, very interested in 
continuing a dialogue with both the committee and Congress, 
writ large.
    I'd like to echo that this is something very different, 
this entire efficiencies effort, than anything that I've seen 
through my 27 years as an Active-Duty Marine and since my 
retirement. The breadth of the effort was quite striking. We 
had aggressive top-down targets. Each of the Departments were 
given $30 billion to hit on their efficiencies targets. We were 
given very explicit types of targets. So, I think you know that 
one-third were supposed to come from what we referred to as 
``tooth'' and two-thirds from ``tail,'' or, pretty much, 
overhead.
    We had vibrant debates within DOD on the type of codes that 
we should actually map the efficiencies. We had close 
interaction with all of the Under Secretaries. The Under 
Secretaries met, if not weekly, biweekly. You had a question 
with the DCMO. We met frequently with the DCMO. We also met 
with Bob Hale and Christine Fox from CAPE. It was a very 
iterative process. We were pushed very hard after the first $30 
billion rounds, for example, we were given another track II.
    So, the way the Department of the Navy went about this is, 
we tried to have four kind of broad areas. One through 
reorganizations, which we've given several examples of what we 
might do, but we disestablished staffs, the Second Fleet, et 
cetera. We've reduced personnel ashore. We did that by going 
through each of the over 200 bases and stations, and went 
through and asked what we might be able to do with fewer 
people. We did better business practices. That included buying 
smarter. But, to answer Senator Ayotte's question, we actually 
looked at all of these input metrics like Facilities, 
Sustainment, Restoration, and Modernization (FSRM), which are 
really just models where you would just dial in 90 percent or 
80 percent. You take a look at your flight hours and you dial 
in a certain percentage and you take a look at your ship depot 
maintenance. We tried to do everything from a percentage--from 
the perspective of, how could we do this better?
    So, there would be a model that said you were supposed to 
do 90 percent of all of the different types of requirements. 
What we would do is try to go to each base and say, ``Okay, 
what's really wrong on this base, the highest priority thing, 
is to replace this specific roof, because if this roof caves 
in, you would have a much harder problem. So, we have a much 
better idea of what the prioritization of all of these things 
are. We think we will be able to be far more efficient in this 
way. The same way on flight hours, for example. We went through 
each type and model series of aircraft and looked to see how 
that might work. We also looked at program eliminations, as Mr. 
Hale said, like the expeditionary fighting vehicle (EFV) and 
the Standard Missile-2 (SM-2).
    We took all of this money. What really made this different 
is each of the Under Secretaries and the Service Chiefs and the 
Service Secretaries were told to reinvest this money into high-
priority warfighting, since this was the initial goal of this 
effort. So, we were able to put more people to sea. We were 
able to accelerate programs like the next-generation jammer. We 
were able to buy and accelerate new capabilities, like the 
medium-range unmanned aerial system. We were able to fully pay 
for things that we had planned but had yet to put in the 
budget, like service life extension programs, on our aircraft. 
We were able to take all of the money from, for example, the 
EFV, and put it into Marine Corps ground combat equipment 
strategies, which made the force much more whole.
    We also were able to convince DOD that energy should be 
considered ``tooth.'' So, we put an awful lot of investment 
into energy, because we expect that to save us a lot of money 
downstream.
    I can't overemphasize that one of the most important things 
on this efficiencies drill is to try to get the continuing 
resolution resolved. An efficiencies effort has to have a 
baseline, and with the baseline constantly changing, this 
really causes us a problem. So, the continuing resolution 
itself will allow us to be much more efficient than we are now. 
We are, quite frankly, doing things that are inefficient. I 
think any other businesswoman or businessman would say, ``What 
in the heck are you doing this for?'' So, we hope that the 
continuing resolution, in conjunction with this effort, will 
allow us to be much more efficient.
    I look forward to your questions.
    Senator McCaskill. Secretary Conaton.

 STATEMENT OF HON. ERIN C. CONATON, UNDER SECRETARY OF THE AIR 
                             FORCE

    Ms. Conaton. Chairwoman McCaskill, Senator Ayotte, Senator 
Begich, members of the staff, thanks very much for having us 
here today. I join with my partners in appreciating the 
opportunity to continue the dialogue on where we go from here 
with efficiencies.
    Like the rest of the services, the Air Force worked hard to 
meet the targets that Secretary Gates set out for us; in our 
case, about $33 billion in efficiencies. As Bob was saying, to 
do this, we looked at all aspects of our work. We looked at all 
categories of support activities, from installations to 
sustainment to acquisition, overhead, and through those whole 
range of processes.
    We also looked at how we do business. Secretary Work gave, 
I think, a good example with the facilities sustainment 
account, and we can talk more about that. But, there are other 
areas where we've changed our business process in order to 
become more efficient. Then, we also looked at industry best 
practices to see what folks in other parts of the country are 
doing that could lend lessons for us.
    At least within the Air Force--and we can go into any 
number of these details, as you like--but, we had 
organizational and headquarters consolidations with some of our 
air and space operation centers and with numbered air forces. 
We had a number of logistic support efficiencies, everything 
from how we sustain our weapons systems to over $700 million in 
fuel savings from additional efficiencies there.
    In the space arena, we've tried to improve our acquisition 
processes, and we're proposing, for your consideration, and 
would like to work with you as you get ready for the NDAA, on a 
new approach for how to buy two of our advanced extremely high 
frequency satellites in a way that we think will reduce costs 
and provide greater stability to the industrial base.
    We were able to use the funds made available through these 
efficiencies in a range of enhancements that we believe enhance 
both warfighter capability and readiness. For the Air Force, we 
put a significant amount of money, about $4 billion, into 
weapons systems sustainment, which has a direct bearing on our 
readiness rates. We've developed and are pursuing an affordable 
long-range penetrating bomber as part of DOD's long-range 
strike family of systems. We're procuring more evolved 
expendable launch vehicles, both to ensure access to space and 
to stabilize our industrial base. We're transitioning our MC-12 
Intelligence, Surveillance, and Reconnaissance (ISR) aircraft, 
that's doing such amazing things over in Afghanistan, into our 
base budget to be an enduring capability.
    We know that in order to achieve these goals we need to 
make individual senior leaders accountable for developing and 
executing detailed implementation plans. I'd be happy to talk 
about this more as we get into your questions.
    The Air Force is using our existing corporate governance 
structure, including the Air Force Council, which is chaired--
cochaired by myself and the Vice Chief of Staff, to regularly 
review the progress we're making on achieving these targets. 
We're particularly looking at the readiness impacts to make 
sure that there's no unintended consequences when it comes to 
the readiness of the force. But, from the Secretary and the 
Chief on down, we're committed to achieving these goals. We 
know that in order to do that, we have to work with our 
partners in DOD and with you all in order to be successful.
    So, I think, with that, I'll turn back my time and just 
look forward to answering your questions.
    Thank you very much.
    Senator McCaskill. Thank you very much.
    Mr. Hale. Can I just finish up with----
    Senator McCaskill. Sure.
    Mr. Hale.--a point on implementation, which is, the CMOs, 
as you said, will monitor for the services. I'll join with the 
OSD DCMO to look at the OSD-wide initiatives. All of us will 
report to the Department CMO, Deputy Secretary Lynn.
    We will work with Congress. You asked, in the letter, about 
legislative requirements. Generally, these don't require that. 
But, there are a couple of cases that do; one in the medical 
care area, one that Erin referred to as the space efficiency. 
We need legislative authority there. I'm a little embarrassed 
to say we don't have the language to you yet, but I'm told it's 
coming soon.
    Let me just say, lastly, we're talking a lot about 
efficiencies. Unfortunately, in fiscal year 2011, I think we're 
moving in the opposite direction with the continuing 
resolution. I know we are. I mean, it is causing 
inefficiencies. We are forcing our contracting officers to go 
to short-term contracts to preserve capability. We have several 
hundred MILCON projects on hold, as well as a number of 
procurement actions. I'm concerned that an already understaffed 
and under-experienced contracting workforce is going to have 
trouble catching up in a way that's efficient. So, anything 
that you can do--I know that there's difficult issues here--but 
to get us a budget for fiscal year 2011 would be very helpful.
    Let me just end by thanking you for your support of the men 
and women in the military. We very much appreciate it. We can't 
maintain our national security without Congress, and we 
appreciate it.
    With that, we'll stop and answer your question.
    [The joint prepared statement of Mr. Hale, Mr. Westphal, 
Mr. Work, and Ms. Conaton follows:]
Joint Prepared Statement by Hon. Robert F. Hale, Hon. Joseph Westphal, 
             Hon. Robert O. Work, and Hon. Erin C. Conaton
    Good morning, Chairwoman McCaskill and members of the subcommittee. 
Thank you for this opportunity to discuss our efficiency actions at the 
Department of Defense.
    I am privileged to be joined today by my colleagues from the Armed 
Services Committee, the Under Secretaries of the Army, the Navy, and 
the Air Force, who also function as Chief Management Officers for their 
respective Services. We have a joint statement, after which we would be 
pleased to entertain your questions.
    We would begin by noting that--like Congress--the leadership of the 
Department of Defense is mindful of the fact that our Nation is dealing 
with significant fiscal and economic pressures. Those pressures have a 
direct impact on the strength of our national defense.
    We owe it to the taxpayers to make the most of every dollar they 
entrust to us for the defense of the United States. As Dwight 
Eisenhower once said, ``The patriot today is the fellow who can do the 
job with less money.'' That statement is, if anything, truer today than 
it was when President Eisenhower first said it. It was no accident that 
Secretary Gates recalled those words in a speech at the Eisenhower 
Library a year ago.
    In that spirit, the Department's budget requests for fiscal years 
2010 and 2011 included steps to curtail or eliminate programs where we 
had met our procurement needs, or where programs were seriously 
troubled or provided capabilities that were judged too narrow to 
justify their expense. More than 20 programs were restructured or 
eliminated, among them further production of the F-22 and the C-17 
aircraft, the program for the new VH-71 Presidential helicopter, the 
Navy's DDG-1000 ship program, and the Army's Future Combat System 
(FCS). Had these and other cancelled programs continued as planned, 
they would have cost taxpayers hundreds of billions of dollars.
    As significant as those savings are, however, the goal of our 
effort was more than cost-cutting. Its purpose was to rebalance the 
U.S. military over the long term by reinvesting the savings in force 
structure and combat capabilities, to meet the needs of the wars we are 
presently engaged in, as well as those we may face in the future.
    In the past year, DOD has continued its cost-cutting effort with 
particular emphasis on business operations. We have identified plans to 
save a total of $178 billion in fiscal years 2012 to 2016. The Services 
identified about $100 billion of savings, which they reinvested to 
increase combat capability. The remaining $78 billion in Defense-wide 
savings was used to accommodate reductions in the defense topline, 
thereby contributing to the administration's efforts to reduce the 
Federal deficit.
    I will summarize each of these efforts separately, beginning with 
the Defense-wide reductions.
              $78 billion used to reduce federal deficits
    To be clear: The savings of $78 billion across the Department do 
not represent a cut in the Defense budget compared to current levels; 
rather, it is a cut in the rate of growth. Even with this substantial 
reduction, DOD requested $553 billion for the base budget in fiscal 
year 2012, growing to $611 billion in fiscal year 2016. These budgets 
permit modest real growth in the near years of the present Future Years 
Defense Program (FYDP).
    It is also important to note that, in order to protect warfighter 
capability, most of this topline reduction was achieved through 
efficiencies and other changes in portions of our budget less closely 
related to warfighter capability. To quote the Secretary of Defense: 
``As a result of the efficiencies and reforms undertaken over the past 
year, we have protected programs that support military people, 
readiness, and modernization.''
    More specifically, of the $78 billion we saved, $68 billion in 
savings were achieved by shedding excess overhead, improving business 
practices, reducing personnel costs, and changing economic assumptions. 
Attachment A to our testimony lists the specific initiatives involved 
in achieving these $78 billion in savings. We highlight a few of the 
significant changes.
    They include steps to slow the growth in our medical costs. While 
we will continue to provide high-quality military health care for 
troops and their families, we are concerned that DOD's medical costs 
have skyrocketed in recent years--from $19 billion in fiscal year 2001, 
to more than $52 billion anticipated in fiscal year 2012. To slow the 
growth in the costs of medical care, we are proposing some necessary 
improvements. They include changes in pharmacy co-pays to provide 
incentives to increase the use of generic drugs and mail order 
delivery. We are also proposing a modest increase in TRICARE enrollment 
fees for working-age retirees--the first such increase since the mid-
1990s--and we will index those fees to a medical deflator. We also 
intend to phase out subsidies for several private-sector hospitals 
where the Department pays premium claims rates. Expected savings from 
the health care reforms will total $340 million in fiscal year 2012 and 
$7.9 billion through 2016.
    A second example of cost-cutting described in the attachment 
involved personnel decisions. They include--with limited exceptions--a 
freeze on civilian workforce levels that will save $2.5 billion in 
fiscal year 2012 and $13 billion over the FYDP. Also included is a 30 
percent reduction in the number of contractor employees who have 
supplemented and supported our government staffs. These cuts in the 
number of contractors will save $812 million next year and $5.7 billion 
over the FYDP. In addition, over the next 2 years, we will reduce or 
downgrade 140 general and flag billets out of 900, and more than 200 
senior civilian billets out of a total of 1,400. While the savings 
associated with these changes are modest, they will contribute to a 
flattening of the DOD structure.
    Third, we are taking steps to streamline the Department's 
organizational structure. As the Secretary of Defense announced last 
August, we are disestablishing the Joint Forces Command--at a savings 
of $2 billion over the FYDP--and the Business Transformation Agency--
which will save another $337 million.
    Altogether, actions affecting the portions of our budget least 
directly related to warfighting capability account for $68 billion--or 
more than 87 percent--of our topline savings. The remaining $10 billion 
in 5-year topline savings involved decisions more directly related to 
military combat capability: $4 billion from restructuring the Joint 
Strike Fighter Program and $6 billion from a proposed decrease in end 
strength of the Army and Marine Corps.
    This last item deserves more explanation. Four years ago--in the 
midst of our engagements in Iraq and Afghanistan--Secretary Gates 
increased the Army's permanent end strength by 65,000 and the Marines' 
by 27,000. By 2014, we anticipate that U.S. forces will have completed 
the military mission in Iraq and largely shifted the security mission 
in Afghanistan from allied to Afghan forces. As a result, we believe 
that, in fiscal years 2015 and 2016, we can reduce active duty end 
strength by 27,000 within the Army and by 15,000 to 20,000 in the 
Marine Corps with minimal risk. If our assumptions about Iraq and 
Afghanistan turn out to be overly optimistic, or if global conditions 
change for the worse, we would be able to adjust the size and schedule 
of this change or even reverse it altogether.
            military services save and reinvest $100 billion
    In addition to the $78 billion in Defense-wide savings, the 
Military Services have gone through a cost-cutting exercise of their 
own, identifying savings totaling $100 billion in fiscal years 2012 
through 2016. These savings reflect organizational improvements, 
changes to business practices, and termination of underperforming or 
unneeded weapons programs.
    Of the savings realized, $28 billion will be devoted to higher-
than-expected operating costs. These are ``must pay'' expenses to meet 
requirements such as sustainment of weapons systems, depot maintenance, 
base support, flight hours, and other training. Without these 
efficiency savings, we would have been forced to reduce procurement or 
cut force structure in order to cover these costs.
    Of the remaining savings, roughly $70 billion will be retained by 
the Military Departments and will be reinvested in higher priority 
military capabilities. Another $2 billion is being reinvested by 
Special Operations Command.
    Attachment B to this testimony lists the full array of planned 
efficiencies. We will briefly highlight a few of the planned 
efficiencies in each Service and the uses to which these savings are 
being put.
                                  army
    The U.S. Army achieved $29.5 billion in savings over the fiscal 
year 2012 to fiscal year 2016 period. The Army's plan includes 
consolidating six installation management command regions into four. 
They also are closing the Evaluation Task Force at Fort Bliss, which 
was created to assess the now-restructured Future Combat System. This 
action will make 1,000 service men and women available for other duties 
at that post. The Army is also leveraging the efforts of other 
organizations, such as the Defense Information Systems Agency, to 
eliminate redundancies and reduce the number of their data centers by 
half.
    The Army has decided to reduce military construction costs by $1.4 
billion over the FYDP by deferring lower-priority construction 
projects. Those savings will be reinvested into base operating accounts 
in order to sustain existing facilities.
    In the interest of both efficiency and effectiveness in its 
procurement programs, the Army has chosen to terminate the Surface-
Launched Advanced Medium-Range Air-to-Air Missile surface-to-air 
missile in favor of higher-priority capabilities, saving $103 million 
in fiscal year 2012 and $1.1 billion over the FYDP. They are also 
terminating the Non-Line-of-Sight Launch System, which was originally a 
part of the Future Combat System. It is now considered redundant and 
not cost-effective. Its cancellation will save some $605 million next 
year and $3.2 billion over the FYDP.
    The savings will be invested in modernizing the Army's battle fleet 
of Abrams tanks, Bradley Fighting Vehicles, and Stryker wheeled 
vehicles. Other investments that are planned include accelerated 
fielding of a new tactical communications network and acquisition of 
more unmanned aerial vehicles, which are in high demand by combatant 
commanders. The Army has also devoted savings to increased funding for 
suicide prevention and mental health counseling.
                         navy and marine corps
    The Department of the Navy achieved a total of $4.3 billion in 
fiscal year 2012 and $35 billion across the FYDP. Highlights include 
the elimination of selected squadron staffs for submarines, patrol 
aircraft, and destroyer squadrons. The Navy will also disestablish 
Second Fleet in Norfolk, a relic of the Cold War. Needed functions will 
be transferred to Fleet Forces Command, and no ships will leave 
Norfolk. This action will save $1.2 billion over the FYDP. These and 
many other decisions will help to cut manpower at about 290 shore 
commands, which will enable a shift of approximately 6,000 billets to 
shipboard manning. This will in turn help to man new ships entering the 
Fleet. It will help to bolster the submarine force with an additional 
500 sailors. It will compensate for excessive crew cuts that were made 
under a policy termed `optimal manning.'
    The Navy has also achieved savings through a careful review of 
critical mission requirements, which led to reductions in programs that 
cost too much or provide too little capability. As a case in point, the 
Marine Corps will terminate the Expeditionary Fighting Vehicle (EFV). 
Total savings will amount to $2.8 billion over the FYDP and $13.3 
billion through 2025. In place of the EFV, the Marine Corps will 
continue to support its amphibious assault mission by reinvesting the 
savings into upgrades of existing vehicles and the creation of a new 
amphibious vehicle based on requirements that better reflect likely 
future fights.
    In addition the Navy will aggressively pursue efficiencies in 
acquisition. These efforts should produce more than $1.7 billion in 
savings associated with multiyear procurement approaches for the F/A-18 
aircraft and the E-2D aircraft.
    The Navy plans to use its savings to acquire six more ships than 
planned in the FYDP--a destroyer, a Littoral Combat Ship, a TAGOS 
oceanographic vessel, and three oilers. The Navy will also acquire 41 
additional F/A-18s and execute a Service Life Extension on about 150 
more, actions that together will partially compensate for delays with 
the Joint Strike Fighter. They plan to develop a new generation of 
electronic jammers, to increase repair and refurbishment of Marine 
equipment, and to develop a new generation of sea-borne unmanned 
aircraft.
                               air force
    The Air Force achieved approximately $33 billion in overhead 
savings across the Future Years Defense Program. The organizational 
changes include changes to manpower and personnel, consolidation of two 
Air Operations Centers in the United States and another two in Europe, 
and consolidation of three Numbered Air Force staffs in areas where 
major commands can assume the workload. These moves will save $516 
million next year and $4.2 billion over the FYDP.
    Implementation of better business practices accounts for $2.2 
billion in savings next year and $20.6 billion over the FYDP. Actions 
include:

         A 25 percent reduction in the cost of communications 
        infrastructure, using enterprise-wide services and consolidated 
        data centers that will save $1.3 billion over the FYDP.
         Cuts to fuel and energy costs by Air Force Mobility 
        Command through adoption of commercial best practices in flight 
        planning and use of simulators that will require an investment 
        of $120 million but pay back $715 million over 5 years.
         Adoption of a new method for acquiring satellites--
        emphasizing block buys, sustained funding for engineering, 
        fixed price contracts, and full funding over multiple years 
        through advance appropriations. The Air Force is expecting this 
        new acquisition approach--which we refer to as Evolutionary 
        Acquisition for Space Efficiency (EASE)--to create more 
        stability in the industrial base and lower the costs of 
        acquiring satellites.

    The savings gained from these and other efforts will help to launch 
development of a new long-range bomber program. Plans call for a long-
range penetrating aircraft, which will be able to carry nuclear weapons 
and to operate in both manned and unmanned configurations. This program 
will leverage existing technologies and a streamlined acquisition 
approach to manage costs.
    Savings will also make it possible for the Air Force to invest in a 
greater number of Evolved Expendable Launch Vehicles to ensure access 
to space and improve industrial base stability; modern radars for the 
F-15 C and E model aircraft; additional simulators for F35 training; 
and transition of the MC-12 program into the base budget.
                                summary
    As these examples illustrate, our efficiency initiatives will 
support improvements in warfighter capability that would not otherwise 
have been fiscally feasible.
    We recognize that, in order to achieve the warfighter benefits we 
have described today, we must implement our plans and achieve these 
efficiency savings. Implementing such a wide array of changes poses 
formidable challenges. In order to turn plans into reality, each 
Service Chief Management Officer will monitor the implementation 
process in his or her Service. Within the Office of the Secretary of 
Defense, the Under Secretary of Defense (Comptroller), and the Deputy 
Chief Management Officer will work together to monitor compliance and 
report successes and problems to the Deputy Secretary of Defense, DOD's 
Chief Management Officer.
    We would also note that we have a powerful incentive to realize 
these planned efficiencies. The dollars that we plan to save have 
either been removed from the defense budget or have been reinvested to 
achieve increases in warfighter capabilities. If we fail to achieve our 
efficiency plans, we will be forced to scale back programs that 
contribute to our core mission. That prospect will motivate us to 
translate planned efficiencies into actual efficiencies.
    We will work with Congress as we plan for implementation of these 
important initiatives. While most of the proposals do not require 
legislative authority, some do. For example, one of our military 
healthcare initiatives requires legislation, as does EASE, the 
Evolutionary Acquisition for Space Efficiency. We will be submitting 
required legislative changes.
    We want to end our statement by thanking the committee for your 
support of the Department and the men and women who bear the burdens of 
our Nation's defense. Thanks to you--and the American people--these men 
and women have the resources to carry out their missions whenever and 
wherever they are needed.
      
    
    
      
    
    
      
    
    
      
    
    
      
    
    

    Senator McCaskill. Thank you very much. Thank all of you.
    Let me start with the idea that the Secretary authorized 
the military departments to bring down $100 billion and then 
spend $100 billion. You probably can guess what my question's 
going to be. Last summer, none of this spending was in any of 
your budgets. So, you were ready to submit your budgets to the 
Secretary of Defense without this additional spending. You felt 
you could do without it, and now you're presenting to us a 
budget that includes this additional spending, at the exact 
moment that we can't get a continuing resolution passed because 
we can't agree on how much money to cut from the budget. 
Clearly, you see what's coming down the road. I mean, this is 
going to be an exercise in cutting the size and scope of the 
Federal Government for the foreseeable future.
    So, how can I agree to allow you to spend the money that 
you find in efficiencies on something that you didn't even have 
in your budget before the Secretary announced the effort?
    Mr. Hale. Well, let me start by saying that simple number 
cuts are math, not strategy; we need to consider what we won't 
do if we have to walk back through those cuts. I hear your 
point; they weren't there last year. But, many of them probably 
would have been. We would have looked at other programs, 
including, frankly, some readiness-related ones, and cut them 
in order to do the sorts of things we were able to achieve 
through these efficiencies: adding ships so that we could 
maintain a 300-ship force; starting a new bomber program, 
because we feel we need it for access interdiction in the 
future; upgrading some of the Army's older weapons, which we 
feel we need, because we're going to have to keep them out on 
the battlefield for many years.
    So, we face some very significant national security 
challenges. Secretary Gates believes, and I certainly agree--I 
know all of us will, here--that we need these funds to invest 
in order to meet those challenges.
    Let me ask my colleagues here. You want to----
    Dr. Westphal. Well, I'll----
    Mr. Hale. You want to start, Joe?
    Dr. Westphal. Yes.
    I think you bring up a good point. There certainly were 
things in the budget that we weren't possibly going to be able 
to fund. But, by finding these efficiencies and these savings, 
we were able to shift money. In the Army, for example, we knew 
we had a tremendous need to bring in more folks into the 
workforce to help us with counseling and substance abuse, 
suicides. We have a pretty significant personnel need there. We 
were able to shift some of the resources from one end of the 
savings efficiency initiative to that. We were able to do the 
recap of some of these older systems as a result of also 
eliminating or terminating major weapons systems, as a result 
of our portfolio reviews.
    The network, which is one of the most critical and most 
important priorities for the Army, something that is very 
costly, we're able to shift more resources to pushing the 
network further ahead, in the hopes of really making great 
progress in that particular area.
    So, we moved resources to some things that we were funding 
that we needed to fund at higher levels and to things that we 
really needed, really needed to provide to the warfighter 
today.
    Mr. Work. Ma'am, I think Senator Ayotte said it very well. 
Having the incentive structure to do any type of effort like 
this is very important. So, Senator Ayotte mentioned trying to 
have incentives where contracting officers wouldn't be rewarded 
for spending all their money.
    In this case, Secretary Gates, who said our rate of growth 
is going to slow down--and he anticipated this--he said we 
would have to find or free up resources within our expected top 
line, last summer. The incentive was that the Services would be 
able to keep the money.
    Now, this was a significant effort. There have been other 
efficiency efforts that I've been into where the incentives, if 
you don't get to keep the money, then you don't get as many or 
as bold reorganizations or efficiencies as you might otherwise 
expect.
    So, this year is kind of the third year of an extremely 
turbulent time. We went through the Quadrennial Defense Review, 
which was really trying to match our budget to the strategy. 
Last year, it was really trying to be more efficient within 
that expected budget. As you mentioned, this year is going to 
be trying to accommodate the new fiscal realities.
    So, I see this as all part of a long 3-year effort. I'm 
certain that the Secretary of Defense did, and he anticipated 
us going out. But, having that incentive for us to look for 
efficiencies and being able to invest it into warfighting was, 
I think, the key thing that allowed us to do what I consider to 
be many, many innovative things.
    Senator McCaskill. Okay.
    Quickly, if you would.
    Ms. Conaton. I'll give you two quick examples. Before we 
got started in this effort, the Air Force was having to 
consider taking down major parts of its force structure just to 
balance the books. So, I would say that if we didn't have the 
ability to reinvest, we'd be looking at making adjustments to 
the size or capability of the force.
    The other thing I'd say, on the readiness side, is that it 
was only because we had the ability to reinvest that we were 
able to sustain our readiness rates through weapon systems 
sustainment. The growth in cost there, because of the new ISR 
platforms and others coming into the fleet, have driven the 
costs up to a point where it would have been very difficult for 
us to maintain those rates that contribute to readiness.
    Thank you, Chairwoman McCaskill.
    Senator McCaskill. Thank you.
    This will be my last question for this round, and then 
we'll all come back, after my colleagues have a chance to ask 
questions. Let me talk about the balance between contractors 
and civilian employees.
    I mean, the announcement was welcome news to me, and it 
was, we have to wean ourselves off of this incredible explosion 
of contractors within DOD. I am very aware of the size and 
scope of that explosion. But, then I look, and in reality 
what's happened is, you've cut civilian workforce more than 
you've cut the contracting workforce. I thought the idea was, 
we were going to try to go the other way, because the 
contracting has not turned out to be the kind of cost saver 
that I think it was touted to be in the last decade.
    So, how do we get a handle on this if, even after the 
Secretary says we're going to do this, we do the opposite?
    Mr. Hale. Well, I need to look at the numbers. The concept 
was what you said, that we froze civilians, with exceptions for 
the acquisition workforce. They were actually cut below current 
numbers, at least in selected categories of contractors, namely 
the so-called staff augmentees.
    The numbers are slippery. There was an article, a very 
confusing article, in Congressional Quarterly today, that 
suggested there was actually an increase in contractor 
spending. It was measured off the continuing resolution level 
in a rather arbitrary budget that we had to present in 2011, 
because we don't have an approved budget, so we don't have a 
baseline.
    So, I'm not sure I can respond to your direct numbers. I'm 
going to have to look at them for the record.
    [The information referred to follows:]

    (A) During fiscal year 2010, the Department spent $70.6 billion on 
civilian labor. The Department of Defense (DOD) implemented a civilian 
hiring cap on all the Military Services and Defense Agencies at the 
fiscal year 2010 authorized and funded levels for fiscal year 2011 to 
fiscal year 2013. The savings are included in the fiscal year 2012 
budget request. Cumulative annual reductions/savings from the fiscal 
year 2011 budget request level to the fiscal year 2012 budget request 
level are estimated at:

         Fiscal Year 2011 - $351 million
         Fiscal Year 2012 - $2,510 million
         Fiscal Year 2013 - $2,673 million

    (B) During fiscal year 2010, the DOD spent nearly $4 billion on 
service support contractors providing staff support augmentation for 
government employees. Using this basis, cumulative annual reductions/
savings are estimated as:

         Fiscal Year 2011 - $418 million
         Fiscal Year 2012 - $812 million
         Fiscal Year 2013 - $1,221 million

    The savings are included in the fiscal year 2012 budget request. By 
fiscal year 2013, this subset of contracts is reduced by 30 percent 
(from that fiscal year 2010 basis).

    Mr. Hale. But, the concept is, civilians stay about the 
same, or maybe up slightly for acquisition, and we estimate 
some cuts in the contractor workforce.
    Senator McCaskill. Well, let me give you the numbers that 
we think are accurate. We think that you're cutting spending on 
service contracts by $1.3 billion this year. That represents 
less than a third of the $4.5 billion you plan to cut in the 
civilian workforce. So, it looks like close to three times as 
much. We'd love to get to the bottom of that, also.
    Mr. Hale. Let's do that for you.
    Senator McCaskill. Senator Ayotte.
    Senator Ayotte. Thank you very much, Chairwoman McCaskill.
    I wanted to ask a followup to what you just raised--and I 
believe Secretary Work, as well as Secretary Hale--the 
incentives for contractors and the incentives within the 
Department. Obviously, it's very important that we've 
undertaken this efficiency incentive to come up with these 
savings. But, how do we put that into the permanent mindset of 
DOD? What do you view, right now, as the way that we carry 
forward this process so that it is an ongoing process and that 
we're not left where--I see now, where the duty is--people feel 
like, at the end of the year, they have to spend everything 
they have, even if they don't need it?
    Then, second, with our contractors, as the chairwoman has 
pointed out, where's the incentive for the contractors to find 
efficiencies and save money?
    So, I view it in two veins, not only those that work in 
DOD, but also those that we contract with. How are we going to 
memorialize these efforts?
    Mr. Hale. Well, let me offer a couple thoughts. One, the 
end-of-year problem is an endemic problem in government. I've 
watched it for 30 years. In a private business, you have 
profit. If you meet your customers' needs and cut costs, you're 
going to increase profit. You'll probably get a bonus. 
Unfortunately, in the government it's often the case that if 
you cut costs, the comptroller, the next year, takes your 
money. Then there is no profit. There's no bottom line in the 
same way there is.
    We have tried a variety of approaches to that. I've never 
found one better than, frankly, just tightening up a bit on the 
money that is available and waiting to see what--or, watching 
the effects of that to be sure you don't have unintended 
consequences. But, we ought to continue to look for better 
incentives. I mean, I recognize it's a tough thing to do.
    In terms of the contractor incentives, there I think the 
best thing we can do is pursue competition in contracting, 
especially services contracting. We haven't always been as good 
at that as we should be. That's one of Ash Carter's goals, is 
to get more competition. Because, if we say to a contractor, 
``Okay, here's what we want done. You bid. Several people bid. 
They will have incentives then to provide us efficient 
services, keep the dollars low so that they actually win. I 
think that's--there, it's harder--you can't have five navies 
competing with each other. You can't have five air forces. It's 
much harder to do for the Department as a whole. But, I think 
competition is the key, in terms of keeping down contractor 
costs.
    You--anybody want to add to that?
    Dr. Westphal. I'll add----
    Mr. Hale. All right.
    Mr. Westphal.--a couple of things.
    What we did is, we immediately did--I directed a data call 
of all of our service contracts in the Army, across the Army, 
to look--first of all, to understand what the size and scope of 
the contracts were. Then, using the financial manager of the 
Army, that's the tool that I will be using to direct commands 
to ensure that any future contracts, and as they move contracts 
through the process, that we will gain efficiencies from that. 
Then we want to balance it out with any insourcing that we do. 
We also have the directive to move jobs that are inherently 
governmental to the civil service. We want to be able to do 
that in a balanced and strategic and an efficient manner.
    So, all of that is something that we've created, a new 
Deputy Assistant Secretary for Services, under our Assistant 
Secretary for Acquisition, to monitor all those contracts, to 
look at all of the workforce and give us some guidance as to 
how we balance out that work we have to do to sustain our 
soldiers in the current operations.
    Senator Ayotte. Thank you.
    Secretary Hale, to follow up on what we were just talking 
about, there aren't any types of incentives in place, whether 
they be performance-based--any type of--because, I think that 
mindset has to come from the top down, in terms of, we're going 
to measure your performance, not only on how you perform the 
qualifications or your--but, one of your qualifications of your 
job would be that the more money that you are able to save and 
return to the Treasury, as opposed to finding something you 
need to spend it on--and I think--I agree with you, this is a 
challenge we have across government. But, obviously, with DOD's 
budget and some of the critical needs we need to use those 
funds for, given the challenges we face right now in the Middle 
East, and the challenges we face, obviously, in following 
through in Afghanistan--to me, making sure those dollars are--
instead of just being spent for the sake of being spent.
    Mr. Hale. There are incentives. I don't want to leave you--
the broad ones are hard to come by. Certainly, all the Defense 
agencies, or many of them, are business-like organizations. 
They do have bottom lines of profit, if you will, or net 
operating result, as we call it in government. They can, to 
some extent at least, benchmark their activities against the 
private sector. So, there, I think there are good incentives.
    We have some specific programs, fast payback capital 
incentives, where if you invest a certain amount of money and 
get fast payback, you can keep the savings, which provides an 
incentive to actually try it.
    But, I still would conclude that it's much harder in 
government, without an overall bottom line, than it is in a 
private business, to get people not to do things like spend 
money at the end of the year. I know it happens, and we need to 
keep working on it.
    Ms. Conaton. Can I give you one quick example in our area? 
It's not specifically on contracts, but it is on energy.
    The Air Force is the largest consumer of energy in the 
Federal Government. Our mobility air forces is the largest 
consumer of energy within the Air Force. So, part of what we've 
been trying to do is incentivize our commands to be more fuel 
efficient. That means being willing to invest some upfront 
dollars in order to get the payback. But, we're also thinking 
about: Once they achieve those dollars, how do we help them see 
that we will then reinvest to get the next level of savings?--
so that you're constantly providing the investment needed to 
get to the next level in the particular area of energy.
    Mr. Work. I would echo Under Secretary Conaton. We're doing 
the same thing in energy, looking everywhere from nonmonetary 
incentives, like establishing a battle leave for energy 
efficiency, things like that, which, in a military 
organization, can really lead to changes in behavior.
    But, on the--what we're really starting to see--where we're 
really focusing our attention on incentives right now is in the 
acquisition side, at the program executive officer (PEO) level, 
where we're doing things with change-orders management, and we 
are purposely looking for innovative acquisition strategies, et 
cetera. We reward these PEOs for being able to free up money 
for the broader acquisition priorities of DOD. I can't speak to 
specific incentives, but that is where we're focused right 
now--energy and acquisition--on the incentives.
    As far as the contractors and civilian side, we're now 
going in with our budget-submitting organizations and we're 
talking with them and saying, ``Do we have the right balance of 
contractors and civilians and military in the budget-submitting 
organizations to do the business of DOD?'' Over this whole--
this next year, as part of POM-13, we hope to establish the 
incentives for those budget-submitting organizations to be able 
to work within their means and free up money for DOD.
    Senator Ayotte. Well, I certainly appreciate all of your 
comments on this issue. It's an issue I would very much like to 
work with you on, because I think that's something we not only 
face here, but across government.
    I'd like to follow up with one other question. I obviously 
give, with the chair's latitude, the opportunity to the other 
Senator here, Senator Begich, to ask questions. But, I have a 
concern--wanted to get your view on--right now, we're obviously 
in a continuing resolution situation. Secretary Hale, you 
talked about inefficiencies. When you say ``inefficiencies,'' 
are there ways where we're actually failing to save money and 
spending more money, because we haven't passed a budget 
resolution and the Defense appropriation for the rest of the 
year?
    Mr. Hale. Yes, I think that, unfortunately, is true. One 
example, in order to preserve funding flexibility--I'm sure--
it's hard to see this from Washington, but I'm sure that our 
bases are signing short-term contracts, because they don't know 
what funding they'll have in 2 months. Those are just 
inherently inefficient. We have had to pull back--the Navy, for 
example--a number of ships that were intended to go into the 
shipyards for repairs, because of limits on funds. It'll cost 
more when we do that again. Sometimes we won't be able to do 
the repair until some future point.
    We have--I worry--again, this is a problem that--I can't 
quantify this, but I worry that we have a contracting workforce 
that's treading water out there, to at least some extent, 
because they can't move forward, because the continuing 
resolution limits new starts, and therefore, they'll have to 
try to catch up. When they do that, they won't have as much 
time to compete and do a good job of contracting. They will do 
their best. I'm not criticizing them. But, I think there are a 
variety of inefficiencies inherent in this Continuing 
Resolution. As I said before, we very much need a budget.
    Senator Ayotte. I can tell you that certainly--I know, 
members of the Armed Services Committee appreciate that we are 
at war right now, and that--I would like to see us, even if it 
comes up as standalone Defense appropriations bill, come 
forward for the remainder-of-the-year funding.
    Related to that is also, right now, with the conflict that 
we're now involved in Libya, and of course the Japanese relief 
effort--is the Department preparing a request to Congress for 
an--emergency supplemental funds to address both of those 
situations?
    Mr. Hale. The answer is no. Actually, we couldn't submit a 
supplemental now. We don't have a budget.
    Senator Ayotte. Right.
    Mr. Hale. We'd have to amend the budget, which--ironic--
halfway through the year. But, the administration has said they 
don't plan to submit a supplemental request at this time. We 
are looking for a dedicated source of funding for the Libyan 
operations. If we can't arrange that in the fiscal 2011 budget, 
then we will have to use reprogramming to allow us to move the 
money around to cover those funds.
    Senator Ayotte. Has there been an--my time has expired--
but, has there been an estimate prepared yet of what the cost 
of the Libyan conflict is?
    Mr. Hale. Yes. Our estimate, we actually--just this 
morning, so, the added cost incurred to date, about $550 
million. About 60 percent of that is for munitions, primarily 
the Tomahawk Land Attack Missiles, that have been used widely. 
The future costs are very uncertain, because we don't know the 
duration or, frankly, the operating tempo. But, given the 
current plans, it looks like maybe $40 million a month, if we 
stay. We're coming down sharply, in terms of the U.S. 
commitment, as NATO takes control. If we stay at that lower 
level, it would be around $40 million a month in added costs.
    Senator Ayotte. $40 million a month?
    Mr. Hale. Yes.
    Senator Ayotte. Thank you very much. I appreciate your 
answers.
    Thank you for the latitude, Chairwoman McCaskill.
    Senator McCaskill. Sure.
    Secretary--excuse me--Senator Begich.
    Senator Begich. I don't know if that was a promotion, or 
what.
    Senator McCaskill. I don't think, right now. [Laughter.]
    Senator Begich. Right now, probably not.
    Senator McCaskill. They have challenges right now.
    Senator Begich. That's right. Thank you, Chairwoman 
McCaskill.
    Thank you, all of you, for being here.
    I have several areas of interest, and I'll try to be 
concise, here. But, I want you to know, I come from a State 
that's very strong in the area of military support. As a former 
mayor, that literally was right next door to Elmendorf and Fort 
Rich, an incredible partnership. I'm a hawk when it comes to 
these issues. But, I'm also frugal with the dollars. I want to 
walk through some of this with you. Because, I want to make 
sure that the resources we are spending are being utilized for 
the best interests of our fighting men and women on the front 
line, as well as the families that are necessary, obviously, 
back home. So, that's my intention here. I don't want you to 
assume, at the end of the day, that I'm not supportive of the 
military mission, whatever it may be, depending on the time and 
year and day we are engaged in. We have multiple conflicts 
right now.
    But, let me walk through one, first, easy one. Secretary 
Conatan, I'd love to have you come up to Alaska on energy.
    We would love to show why, strategically, Alaska is 
critical, not only for the Air Force and the resources there, 
but, also, we know aviation fuel and the connection with some 
of the work you're doing on gas-to-liquids and some other 
efforts you're doing in the military could benefit not only 
what's going on in Alaska, but throughout the country. So, I 
would love to--
    Ms. Conaton. Be happy to.
    Senator Begich. It's only because she mentioned energy; the 
rest of you didn't mention it, so you're not invited yet. 
They're coming in the winter. You can come in the summer. 
[Laughter.]
    But, I think it's really a good point you made about the 
energy issue. That is, as I know, your energy budget's already 
$1.2 billion, maybe $2 billion over budget already for this 
fiscal year, for a lot of reasons. You are the largest 
producers of renewable and alternative energy. You're doing a 
lot of stuff in that arena. I've asked the chairman of the full 
committee to actually have a hearing on energy in the military, 
because I think it would be an incredible story, but also get 
us all focused on what's needed and the resources and the 
technology you're all developing that not only could help the 
military, from a national security perspective, but our 
economic security. So, I do mean to invite all of you. But, she 
mentioned energy, so I wanted to share that as a comment.
    Second, on the continuing resolution, I want to add to what 
you said, Secretary Hale. That is, I know what it's doing to my 
State. That is, I know we have over $400 million in MILCON 
projects--and no disrespect to the ranking member and the 
chairman--I like earmarks. I like a lot of earmarks. A lot of 
these MILCON projects are a mixture of earmarks, as well as 
program money. The problem is--and these are all needed 
projects, critically needed for our military families and our 
military strategic needs up in Alaska--440-plus million, 200-
and-some million ready to go, right today. But, they cannot 
sign the contracts, for all the reasons you just said. This 
continuing resolution method that's going on here--and I'm new 
here--I'll tell you, is the worst thing you could ever do. It's 
the worst kind of business that--I mean, if--I just can't 
imagine how anyone in the private sector looks at this. I know 
how I would, I know how my wife does, who's in the private 
sector, running businesses. This is appalling, how we do the 
business.
    I know contractors, right now--to your question, Senator 
Ayotte--and that is, I have contractors in Alaska who have 
maxed out their bonding capacity waiting for the contract to be 
signed. We have a seasonal construction season. We have an $80 
million hangar that was built in World War II. It has to be 
replaced or it will cave in and ruin multimillion dollars worth 
of equipment. So, when you talk about examples, I can give you 
a shopping list. It's appalling that we can't do them. In a 
couple of months, by May 15, in our season, we'll be out of the 
business of constructing, especially in the northern sector of 
Alaska, where Fairbanks has missile defense system, Air Force, 
Army, Clear Air Force Base, needed for our military around the 
world.
    So, I just wanted to echo what you said. One way or 
another, we have to get this done. It's appalling. It is a--and 
it's not hurting the military, in the sense of personnel, off 
by themselves. It is the private sector that is getting hit, 
all--in conjunction. Because, these are contractors that come 
and do the work. When the Corps of Engineers lets the contracts 
in Alaska, it's a private contractor who's going to do that 
construction, along with the military personnel. It's a combo. 
So, when I hear people say, ``Well, it's just the 
government''--it's not just the government. It is private-
sector contractors that do an enormous amount of work on behalf 
of the Federal Government. Is--am I off on that? Or----
    Mr. Hale. Well, I think it's hurting military personnel.
    Senator Begich. Oh no, I agree with that. No, no. I'm 
saying, in conjunction.
    Mr. Hale. It is not issuing permanent change of station 
(PCS) orders with the right notice. We have a hiring freeze in 
civilians in the Army and----
    Senator Begich. Yes.
    Mr. Hale.--the Marine Corps, so we can't hire the people we 
need.
    Senator Begich. Right. No, I agree with you. I think some 
people say it's just a bunch of government workers we're 
affecting. Not true. It's a combo. It's both private sector.
    To some of my quick questions here, and that is on saving 
some money and trying to figure this out. I know, in the recent 
Government Accountability Office (GAO) report, they talked 
about the Joint Medical Command (MEDCOM). This seems to be a 
$200 million to $400 million potential savings. There seems to 
be a conflict of how to do it among the different service 
agencies. It seems a logical thing to save money. What are you 
doing to help make that happen?
    Mr. Hale. Well, I think it is on the list to look at next 
year. We want to be sure we manage the medical capabilities of 
DOD carefully. I respect that there are probably different 
approaches to doing that in the Services. But, I know our CMO 
is interested in looking at that. I think we will do it. 
Whether we come forward with that proposal, I'll have--we'll 
have to wait a year. We haven't done so yet. But, we will look 
at it.
    Senator Begich. Will you? Thank you very much.
    Will you respond to the GAO report in saying, if you do not 
do it, why you won't do it? Because, it seems like we--again, 
I'm only here for a couple years, so far, but I see a lot of 
these reports that talk about all these savings. Then people 
say, ``Well, maybe we'll look at it.'' Then they look at it. 
Nothing happens, 4 years later, 5 years later, a new report 
comes out, cites the old report. So, are you going to look at 
it and say, ``This is why we can do it or can't do it,'' and 
then report back to--if it's this committee or somebody within 
armed services, so we at least have knowledge of----
    Mr. Hale. My guess is, you'll give us a chance to do that 
next year if we don't recommend it. [Laughter.]
    But I will say, this is a very far-reaching set of 
proposals that we have put forward. As I said in my opening 
remarks, having watched Defense budgets for 30 years, I've 
never seen one more far-reaching, in terms of business 
streamlining. There are a lot of things in here that people 
have been urging us to do that we are now proposing. We need 
help from Congress on some of them. I'll come back to the 
medical care initiatives. I know how hard they are, but many 
groups have urged that we do it. Now we need Congress to let us 
do it. In most cases, they don't require legislation. They 
require the absence of legislation.
    Senator Begich. Does this require legislation?
    Mr. Hale. One part of them. There are four proposals we've 
made. One does require legislation. That's the one where I 
discovered, yesterday, we haven't got the legislation here yet. 
But, it will be here soon. The others don't. But, they require 
the absence of legislation. Congress has, for example, 
prohibited us from increasing TRICARE fees for working-age 
retirees for a number of years. You have to not do that, and 
let us go forward----
    Senator Begich. I understand. But----
    Mr. Hale.--and let us go forward.
    Senator Begich.--just specifically on this one, does it 
require legislation?
    Mr. Hale. Which one, now? The Joint--
    Senator Begich. Yes.
    Mr. Hale.--MEDCOM?
    Senator Begich. Yes.
    Mr. Hale. Oh. I don't know. I'd have to check on that.
    Senator Begich. Okay.
    Mr. Hale. I'm not sure.
    Senator Begich. I'd like to know if it does----
    Mr. Hale. Okay.
    Senator Begich.--because----
    Mr. Hale. We'll find out.
    [The information referred to follows:]

    There is no legislation required at this time. The Secretary 
believes he currently has the authorities required for organizing the 
Department in the most effective and efficient manner required.

    Senator Begich. I don't think it will. But, that's----
    Dr. Westphal. Yes, I think you bring up a really important 
type of issue that we need to be looking at. The three Under 
Secretaries--we've already started engaging, partly because of 
BRAC, where we're, for example, merging Walter Reed and 
Bethesda Naval.
    Senator Begich. Right.
    Dr. Westphal. So, we've had lots of issues associated with 
that, partly because of our need to connect better with the VA 
and the medical records----
    Senator Begich. Right.
    Mr. Westphal.--and all of the efforts to make that process 
easier. The three Under Secretaries--we've been engaged in 
those discussions and working with our surgeon generals to get 
them to work together better. I think we've achieved a lot of 
success in that area. The military cultures are there that are 
going to block--naturally block an effort to do anything like a 
unified MEDCOM.
    Senator Begich. I have faith----
    Dr. Westphal. But, we're going to look at that. We're going 
to look at it hard. We're going to bring folks into the room to 
talk about that. We need to engage you, in the Senate and this 
committee and others, to help us figure the best way to do 
that.
    Senator Begich. Good. Let me, if I can--there--I have 
talked about it in a couple meetings, especially in the Budget 
Committee, on medium extended air defense systems (MEADS) and 
the termination and the process that that will go through, and 
the cost. I know what I've been told. I think the termination 
cost is around $800 million--not ``terminate,'' I'm sorry--to 
bring it to concept. I forget the exact phrase, but it's the 
concept that we'll never use. But, it's--we're going to pay 
$800 million to get there.
    Mr. Hale. MEADS has had a troubled history.
    Senator Begich. Yes.
    Mr. Hale. Our choice was to continue it through fiscal year 
2013, because, had we terminated it, our estimate was, we would 
have spent as much to--in termination liability as we would 
have to continue the program through 2013. We believe that 
there are some technologies we can use and that important 
allies can use. So, we think we will get something out of it. 
But, I would agree it is a program that's had a very troubled 
history.
    Senator Begich. If I can--my time has expired. So, let me 
just try to summarize here on that one point. What's the 
guarantee, especially--it has had cost overruns--correct?--as 
part of the equation here. So, I've been told it's $804 million 
to get to this concept of--I forget the exact phrase--but, 
concept of design versus termination, which is a capped number. 
So, that's what I understand, unless someone's misinformed me. 
But, I just want to make sure. I have no faith, to be very 
frank with you--this project has cost overruns, so why would I 
think that, when I'm told $804 million will be the number to 
continue to design it through 2013--is there a way to say, 
``Okay, it's 804. That's the number.'' That's what I've been 
told now, in the record, more than once--$804 million. We're 
capping it. You won't get another dime, even though you have 
that money already, according to testimony received in the 
Budget Committee--that you won't receive another dime. How do--
can you guarantee me, right now, that that's the cap?
    Mr. Hale. Well, I suppose you could put that cap into law. 
I'd have to get----
    Senator Begich. Let me ask you. Can you guarantee it will 
be $804 million--versus the termination cost, which is a little 
bit more than that--can you guarantee that?
    Mr. Hale. I can't sit here and tell you that. I need to get 
you a MEADS expert. I don't like making statements I can't back 
up. I'm not an expert in MEADS.
    I can tell you that there were debates within DOD. The 
judgment that Ash Carter and others made were that we would pay 
more, at least as much, in termination costs and that, 
therefore, continuing the program through fiscal year 2013 and 
garnering some benefits, which he feels we will, in terms of 
technology that we could use or allies could use, that was the 
better approach. That's the one we recommend.
    Senator Begich. Let me end there, Chairwoman McCaskill, and 
just say that my faith is weak here on this. I would love to 
have, if you want to get something for the record back to me or 
the committee explaining MEADS--the developers of MEADS--and 
clearly making sure that they--how they come to this conclusion 
that number will be it, versus termination, which, today, we 
can be done with, and you have the money in your budget, 
according to what was testified. So, part of me says, ``Cut our 
losses. Move on.'' It's going to--and the last thing I'll say 
there is multiple terminations--you have two or three more 
terminations in your efficiency study--do those have clauses? 
You don't have to get that now. I guess----
    [The information referred to follows:]

    Question. Explain the development of Medium Extended Air Defense 
System (MEADS).
    Answer. The MEADS program was initiated upon the conclusion of the 
Memorandum of Understanding concerning Cooperation on Project 
Definition and Validation of a MEADS in 1996. With limited resources, 
one way to ensure that a program involving research, development, 
testing, and/or evaluation programs is most cost-effective is to share 
developmental costs of the program with one or more of our Allies. A 
program of cooperative development by the Department of Defense (DOD) 
with other North Atlantic Treaty Organization (NATO) nations enhances 
our interoperability with these nations, while building our collective 
missile defense capability. The MEADS program continued under the MEADS 
Design and Development Memorandum of Understanding (which is referred 
to below as the MOU) among the United States, Germany, and Italy in 
2005. Based on standard DOD and international agreement practice, the 
MOU was written in a way that would make it difficult for any 
participating nation to drop out without paying any associated contract 
termination costs caused by premature withdrawal from the program. 
Programs (especially Engineering and Manufacturing Development 
programs) need stability, not an annual budget fight in the U.S. or in 
foreign governments. The prime contractor selected for the MEADS 
program is MEADS International, located in Orlando, FL. The MEADS is 
being developed according to the 2004 MEADS International Cooperative 
Requirements (ICOR) document. The requirements of the ICOR document 
focus on providing a highly mobile, tactically and strategically 
deployable system, providing both stationary and mobile defensive 
protection capability for critical maneuver force assets against short- 
and medium-range ballistic missiles, cruise missiles, and air breathing 
threats. The major MEADS development components included are the 
Surveillance Radar, Multifunction Fire Control Radar, Tactical 
Operations Center, Launcher, and Missile.
    Question. How the Department came to the conclusion that $804 
million will be the United States cost share, versus termination? Are 
the resources ($804 million) in the fiscal year 2012 budget request?
    Answer. Under the MEADS Design and Development Memorandum of 
Understanding (referred to as the MOU), the remaining DOD obligation to 
the MEADS program in fiscal year 2012 and fiscal year 2013 is $804 
million. If the DOD were to withdraw from the MOU (or if Congress were 
not to appropriate funding, causing the DOD to be unable to continue 
participating in the MEADS program under the MOU), the DOD would be 
responsible for contract cost impacts, up to our ceiling commitment 
under the MOU. Under the MOU, any participant may withdraw from the MOU 
upon 180 days written notification. As noted in the previous answer, 
under the MOU, if the DOD unilaterally withdraws from the program, with 
respect to contracts awarded on behalf of all participants, the DOD 
would be liable for ``all contract modification or termination costs 
that would not otherwise have been incurred but for the decision to 
withdraw'' up to its share of the cost ceiling for financial 
contributions.
    The MOU cost ceiling is $4 billion (equivalent 2004 U.S. dollars), 
and the MOU provides that each participant will contribute its share of 
the full financial contributions of the MEADS project. The DOD cost 
share of the program is 58 percent, for a ceiling of $2.324 billion 
(2004 dollars). To date (including the fiscal year 2011 commitment 
through February 2011), the DOD has contributed $1.478 billion (2004 
U.S. dollars) under the MOU. As a result, in a ``worst case'' scenario, 
the DOD withdrawal liability under the MOU would be capped at $846 
million (2004 U.S. dollars) ($2.324 billion-$1.478 billion).
    Contract termination costs (and related government termination 
costs) would be driven by existing obligations like long lead item 
procurements and orders, targets, test and integration infrastructure, 
and other support costs (lease, support contractors, etc). Should the 
DOD withdraw from the MOU, the remaining participants would be forced 
to decide how to proceed, and if they decided to terminate the 
contract, they would have to request a termination proposal from the 
contractor. Because the other participants have not agreed to pursue 
termination, we can only estimate the maximum expected termination 
liability, which would be less than our MOU cost ceiling obligation.
    On the other hand, if the DOD and its MOU partners pursue the 
proposed Proof of Concept effort using the remaining MEADS MOU funding, 
the DOD cost share would be limited to the current MOU commitment of 
$804 million as reflected in the Department's fiscal year 2012 budget 
request. Essentially, for the cost associated with termination, the DOD 
and its MOU partners would derive substantial benefit in terms of 
hardware, software, or intellectual property deliverables from the 
MEADS prime contractor that would allow Germany and Italy to proceed 
into production, and would provide the DOD with an expanded array of 
future choices with regard to future Air and Missile Defense systems 
capability. At the most recent MEADS Board of Directors meeting, both 
Germany and Italy supported pursuing the Proof of Concept.
    The DOD believes that implementation of a Proof of Concept Design 
and Development program, within the funding limits agreed in the MOU, 
is the best option for the DOD and its partners, Germany and Italy. If 
the DOD contributes the remainder of its costs under the terms of the 
MOU, the MEADS program would complete the prototypes that have already 
passed critical design review. In many cases, component parts have been 
ordered or delivered for these major end items, such as the radars. The 
program would complete limited system integration and demonstrate 
capability via ground and flight tests of these prototype systems. This 
would allow documentation of the tested design and the ability to 
assess the capabilities of the major system elements and the 
development of data packages for these elements. This decision would 
ensure that the DOD fulfills its obligations under the MOU, avoids a 
situation where the DOD may be viewed as walking away from its 
international obligations, and allows the DOD to avoid being required 
to pay termination costs that the DOD estimates would be more than the 
cost of completing the Proof of Concept effort under the MOU. 
Importantly, this course of action would facilitate the maturation of 
key technologies that would be useful to the DOD in other programs and 
to its MOU partners, Germany and Italy, in any follow-on effort.
    If the MEADS program is terminated, which would require the consent 
of the German and Italian Ministries of Defense; it would effectively 
force the DOD and its German and Italian partners to devote significant 
funds to cover contract-termination costs--funds that could otherwise 
be used to bring the MEADS development to a useful level of maturity. 
It is our firm belief that developing and producing these key 
technology developments through the MEADS program would facilitate 
their use in other DOD programs; it would capture the engineering, 
design, and test documentation for the Proof of Concept effort; and it 
would support our Allies in their air defense capability development 
efforts. Therefore, we believe that these efforts are worthy of the 
continued funding for the remainder of the Design and Development 
effort.
    Question. What is the impact if the resources were not appropriated 
for MEADS?
    Answer. Although the MEADS Design and Development Memorandum of 
Understanding (referred to below as the MOU) provides that the 
responsibilities of the DOD and the other participants are subject to 
the availability of funds, we believe that each participant under the 
MOU has an obligation to seek the funds necessary for it to provide its 
agreed-upon contributions. Thus, the DOD is seeking current and future-
year funds, which are necessary to pay its agreed costs under the MOU, 
including any costs due as a result of contract modification and 
termination stemming from the DOD's withdrawal from the MOU. If 
Congress does not appropriate and authorize funding for the MOU for 
fiscal years 2012-2013, the DOD would be unable to provide its required 
contributions to the program under the MOU.
    Under the MOU, a participant is required to notify the other 
participants promptly that available funds are not adequate to fulfill 
its responsibilities under the MOU. Thus, if the DOD becomes aware that 
it will not have adequate appropriated and authorized resources to 
fulfill its responsibilities in fiscal year 2012, and/or fiscal year 
2013, the DOD would be required to inform its German and Italian 
counterparts promptly. In such circumstances, the MOU requires the 
participants to consult immediately with a view toward continuing the 
MOU, but on a modified (i.e., restructured) basis.
    Without any other viable solution in the absence of the DOD 
resources, the DOD would be forced to withdraw from the MOU. The MOU 
provides that the DOD (or any other participant) may withdraw from it 
upon 180 days written notification. However, if the DOD were to 
withdraw from the MOU, not only would it be responsible for its own 
project-related costs associated with its withdrawal, but also for 
costs associated with contracts awarded on behalf of all of the 
participants. As noted in the previous answer, per the MOU, the DOD (as 
the withdrawing participant) would be required to pay all contract 
modification or termination costs that would not otherwise have been 
incurred but for its decision to withdraw, up to its share of the cost 
ceiling for its financial contributions, as set forth in the financial 
provisions of the MOU.
    If the DOD withdrew from the MOU, we estimate the withdrawal costs 
in fiscal years 2011 through 2013 would be as high as the MOU cost 
ceiling amount ($846 million for the DOD) because the DOD (as the 
withdrawing participant) would be responsible for all contract 
modification or termination costs that otherwise would not have been 
incurred but for its withdrawal. However, if the DOD and the other 
participants continue pursuing the more limited and focused Proof of 
Concept effort to mature technology, obtaining data packages on such 
technology where possible, with the remaining already-agreed MEADS MOU 
funding, the DOD's costs would be limited to $804 million. Importantly, 
there would be the added benefit of having funds applied to the 
maturing of key technologies to a point where they would be useful, not 
only for our partners in any follow-on effort, but also for the DOD for 
use in other programs.
    Per contract provisions, valid contract termination costs would be 
determined either through negotiation or through arbitration under the 
North Atlantic Treaty Organization arbitration process. Without the 
necessary funding for fiscal year 2012-2013 being authorized and 
appropriated for the DOD to continue its participation under the MOU, 
it is likely that there would be inadequate funds available to pay the 
partner nations' share of contract termination costs. Thus, the DOD 
would be unable to provide funds to the North Atlantic Treaty 
Organization to cover valid contract termination costs owed to the 
MEADS contractors under contracts entered into ``in good faith'' on our 
behalf pursuant to the MOU. Although the MOU provides that the 
responsibilities of the DOD and the other participants are subject to 
the availability of funds, it is understood that each participant under 
the MOU has an obligation to seek the funds necessary for it to provide 
its agreed-upon contributions. Thus, the DOD would be required to seek 
current and future-year funds necessary to pay its agreed costs under 
the MOU, including any costs due as a result of contract modification 
and termination stemming from the DOD withdrawal from the MOU.
    The effects of a DOD decision not to authorize and appropriate 
funding for MEADS might be even more serious since the DOD's ability or 
willingness to fund similar current or future cooperative program 
Memorandum of Understanding obligations--intergovernmental or 
contractual--could be called into question by our other partner 
nations. The DOD has entered into hundreds of international cooperative 
program agreements with allied and friendly nations that could be 
adversely affected if other nations or foreign contractors perceive the 
DOD's decision not to authorize and appropriate funding for MEADS, 
which results in the DOD's inability to cover contract modification or 
termination costs stemming from its withdrawal from the MOU, as a 
default on an obligation under the terms of an international 
cooperative program MOU. Finally, a perceived ``failure'' of the DOD to 
uphold its international cooperative program MOU funding obligations 
could result in other nations taking similar action in the future, 
potentially harming the interests of the DOD and other partner nations 
that, in good faith, entered into legally binding international 
cooperative program agreements.
    The DOD urges Congress to consider these factors in its 
decisionmaking process regarding fiscal year 2012-2013 funding 
requirements for the MEADS Design and Development MOU, and to support 
the fulfillment of the DOD's commitment under the MOU by authorizing 
and appropriating the funds that the United States agreed to provide to 
the cooperative MEADS effort.
    Question. You have two or three more terminations in your 
efficiency study. How many other programs being terminated have 
contract termination clauses as the MEADS does?
    Answer. In our search for efficiencies in the development of the 
fiscal year 2012 President's budget request, the DOD has not identified 
another program being terminated that invokes a termination clause 
similar to the MEADS program.

    Senator Begich. Here's my thought, and I'll just leave on 
this, Chairwoman McCaskill. It drives me crazy. Every time--so, 
we get a project, we--let me finish--we contract, has cost 
overruns--it's a private contractor we're working with, along 
with our folks--has cost overruns, not working out like we 
thought, then we have to pay to get out of it. Now, if that's 
the case with these other ones, I'd like to know what those 
termination costs are. Then, the last thing I'd like to know 
how many other contracts do we have like this. Because, I'll 
tell you, as a mayor, when I had--and I had multimillion-dollar 
contracts--we never had termination deals like this. If you 
talk about the competitive nature, this is not one thing you 
put into it, because it's a guaranteed cashflow. If they screw 
it up, they still get paid. I don't--maybe I'm too simplistic 
on this, coming from the private sector, or just the mayor from 
Anchorage, but I'm telling you, it doesn't make sense to me and 
it doesn't make sense to taxpayers, when I talk to them. I've 
just--little bit of frustration----
    Mr. Hale. Well, just briefly, we are required to fund 
termination liability for cost-plus contracts, which is the 
ones where these occur. Fixed-price contracts, generally you're 
not going to see this, because there's a certain requirement to 
perform, and a certain number of dollars. But, on cost-plus 
contracts, if we terminate for the convenience of the 
government, which--that's what we're doing in the case of 
MEADS--there is a termination liability, and it's usually 
negotiated. So, you don't know it upfront. But, we do budget 
for the most likely amount. We're required to do that under the 
full-funding concept.
    Senator Begich. The simplest----
    Mr. Hale. I don't know if that reassures you. It probably 
doesn't. But----
    Senator Begich. The simplest thing we could do is just not 
appropriate it. Because all the contracts say, ``subject to 
appropriation.'' I'd put money on that. Every contract has 
``subject to appropriation.'' So, all we have to do is say 
we're not going to appropriate money for that project. Guess 
what? It saves us $800 million. So, I'll just leave it at that. 
Thought for discussion.
    Senator McCaskill. Thank you, Senator Begich.
    Let me just--before I go on to my questions, let me just 
talk a little bit about--I think the challenges you have in 
terms of the culture--there are real challenges. Cost-plus 
contracts is a good example. In my opinion, having looked at a 
lot of contracting work over the last 4 years since I've been 
here, way too often were we using cost-plus, much less 
noncompetitive cost-plus.
    Second, performance awards for nonperformance. I mean, that 
is on my hit list, that we have contractors that perform 
terribly, but it's been the culture to pay them performance 
awards anyway, because we always pay performance awards. It's 
like--it's just an added cost of doing business, as opposed to 
any kind of alignment of incentives, like Senator Ayotte was 
talking about.
    Let me just put out there, today, as we're talking about 
culture, there is also an entourage culture that is 
interesting. I mean, let me ask, How many people in the room 
work for DOD or one of the branches of the military?--if you'd 
raise your hands. That's a lot. I mean, I have hearings with a 
lot of different Federal agencies. Typically, they don't bring 
as many people to meetings or to hearings. I'm trying to figure 
out why we need so many people to do this, and the culture 
behind that.
    I remember how pleasantly surprised I was when Admiral 
Mullen came to see me one day and only had one person with him. 
I was going, ``Now we're getting somewhere.'' I'm trying to 
figure out what all these people do and why they all need to be 
here at one time. It seems to me that there could be 
efficiencies if they would be doing other jobs right now 
besides sitting in this hearing room.
    So, I mean, those are three good examples. I have a long 
hit list of things like that. I think that's part of the 
challenge of what you're trying to do. It's part of the 
challenge about the brass creep that the Secretary of Defense 
talked about. It's part of the challenge of trying to flatten 
the organization and reduce the number of flags and all of 
those things. I am so proud of our military. We do so many 
things well. But if you take out the medical expenses, which is 
part of the increase--but, I reduced the numbers I talked about 
earlier by what we paid for medical care 10 years ago and what 
we're paying now; it still went from $280 billion to $500 
billion in a decade. That is an amazing increase in a 
relatively short period of time. So, I know we can do better. 
That's one of the reasons we're having this hearing today.
    Let me ask about the Army business transformation cut. Now, 
I--this is where-- I get a headache on this one, because--I 
have to be honest with you, I never really quite understood 
what the Army business transformation was. Now what, basically, 
you're saying is, you're going to reduce expenditures for 
transforming business operations through, now, something called 
the Enterprise Governance Approach. Enterprise Governance 
Approach sounds like gobbledygook to me. I mean, what is the 
Enterprise Governance Approach? Can we get more detail about 
what that really means? How do you come up with $3.6 billion 
in--underneath this Enterprise Governance Approach in 5 years?
    Dr. Westphal. Well, Senator, we submitted, just recently, a 
report to Congress that details, in the form of about 26 to 27 
projects, what we are doing to transform our business 
operations. That's not directly related to the efficiencies 
initiative; it's--there are parts of it in there. But, that's 
an overall transformation effort that deals with everything 
from logistics to our enterprise systems to our personnel 
management to our auditability to all of the issues that you, 
the GAO, and many others have raised about our business 
transformation.
    One of the things that I have done, as the CMO, is to 
institute governance for all of those kinds of efforts to 
transform our business operations. That is, to really say that 
performance evaluations and performance measures will be--that 
people will be held accountable for transforming the kinds of--
and the metrics that they have laid on the table for that--for 
those activities. The way we've done that is, we've formed what 
we call the Army Campaign Plan, which is a series of priorities 
across the gamut of activities of the Army. I've asked each 
assistant secretary and each command to develop the matrix by 
which we measure transformation in those business operations. 
Those metrics then--I have sat down with those commanders and 
those assistant secretaries, reviewed the metrics, criticized 
some of them, sent them back to the drawing board to redo them.
    It's a slow process. But, we are making progress. We have 
change in the culture. We're changing the attitudes. The 
Enterprise Approach really means that we are trying to do this 
in a more integrated fashion. We're trying to align better with 
OSD so that, as we transform our business operations, we're not 
only aligning with the transformation efforts at the DCMO level 
at OSD, but we're also aligned with our sister Services, as 
well.
    So, it sounds like gobbledygook, but I tell you, that 
report is fairly detailed. I would be glad to come back and sit 
with you or your staff and----
    Senator McCaskill. Well, I think it'd be helpful--if this 
is about performance metrics--I think it'd be helpful for us to 
get top-line performance metrics, for the various departments, 
that you've developed. I just want to make sure that we're not 
investing a lot of money in having a whole bunch of people work 
on PowerPoint presentations that have titles on them, and then 
we come back later, and what we're really trying to do, now 
we're going, call it something different and try to do it 
again. It feels like that sometimes. It feels like you're 
running uphill and you're not getting anywhere.
    Dr. Westphal. Right.
    Senator McCaskill. Frankly, obviously, it's been a problem, 
writ large, because we can't even audit. I mean, for--how many 
years have we been trying to be able to audit, and we can't 
even audit DOD. So, I just am frustrated that we aren't getting 
to, kind of, the commonsense bottom line. But, maybe get 
another name that----
    Dr. Westphal. Can I give you one more----
    Senator McCaskill. sounds good, but we're not really sure 
what it means.
    Dr. Westphal. Yes. I'm going to give you one more point on 
this. You mentioned the growth of the Federal budget. I was 
here in 2001, before September 11, as the acting Secretary of 
the Army, and I defended an approximately $76 billion budget 
back then for the Army--base budget. That has more than doubled 
in recent years. So, I understand where you're--what you're 
getting at.
    I will tell you that, in this effort, what's critically 
important for all of us is to be able to look at those metrics 
and actually make the folks that are applying them accountable 
for implementing and executing on those metrics.
    Senator McCaskill. Right.
    Dr. Westphal. That is the hardest part that we have----
    Senator McCaskill. That is the hardest part. There's no 
question about it.
    The Navy energy efficiency cut, you have savings of $566 
million in 2012 and 2.3 over the FYDP by reducing energy 
consumption. But, these investments were already included in 
the budget prior to the efficiencies initiative. Are you 
double-counting them or are you just saying, ``We already did 
the work, and here it is''?
    Mr. Work. I'm not exactly certain of the $500 million.
    What we did is, we added--we--it is true that what happened 
is, we were able, as part of the efficiencies drill, to include 
energy investments and energy savings as part of the overall 
efficiencies drill. That is absolutely true. We have tried to 
add--Secretary Mabus has extremely ambitious goals, both to 
reduce energy at our bases and stations, to reduce the--also to 
have achieved, by 2020, 50-percent alternative energy sources 
for all of our fuels. That has been taken into account by our 
new Assistant Secretary of the Navy for Energy Installations 
and the Environment. This is the first time we have an 
assistant secretary that really focuses all the time on energy. 
They were able to put together a pretty broadbased plan on 
where we would get the biggest return on investment. So, in 
2012, for example, there are three steam plants that we will 
have a return on investment in about 10 years. We--our average 
return on investment on our energy programs across the FYDP is 
about 7.1 years. So, some of them were probably in the program, 
but they are all included as part of the efficiency savings 
that we're reapplying back into our basic program.
    [The information referred to follows:]

    There are numerous energy efficient initiatives and renewable/
alternative energy programs that the Navy and Marine Corps are 
pursuing. The reduced reliance on fossil fuels will achieve lower 
energy consumption, strategic security, avoided energy cost, and a more 
sustainable Fleet. Here are the major program areas along with examples 
of projects with estimated savings.

         Major Energy Program Areas

                 Shore

                         Steam plants decentralizations
                         Lighting systems upgrades
                         Renewable energy systems (solar & 
                        photovoltaic)
                         Solar thermal domestic water and pool 
                        heating projects
                         LED street lighting projects
                         Ground source heat pumps
                         Boiler heat recovery upgrades
                         Control system improvements
                         Alternative fuel vehicles

                 Tactical/Expeditionary

                         Hull coatings
                         Propeller coatings
                         Stern flaps
                         Allison 501K efficiency initiatives
                         Aviation simulators
                         Smart voyage planning decision aid 
                        software
                         USS Truxtun hybrid electric drive 
                        retrofit
                         Alternative fuels testing and 
                        certification program
                         Incentivized Energy Conservation 
                        Program (i-ENCON)
                         Expeditionary Forward Operating Base 
                        (Ex-FOB)

                          Solar Portable Alternative 
                        Communication Energy System
                          Light Emitting Diode (LED) lighting
                          Renewable battery charging systems

         Examples of Projects for Navy Tactical with Estimated 
        Savings

                 Stern Flaps for Amphibious Ships

                         Shown to have an average payback 
                        period of less than 1 year on FFG/CG/DDG 
                        platforms
                         Currently undergoing testing on 
                        amphibious ships
                         Savings estimated at 5,500 BBLs/ship/
                        year for LHD

                 Hull/Propeller Coating

                         Easy release hull/propeller coating 
                        system allows Navy ships to shed bio-fouling 
                        once underway
                         Reduces costly periodic hull/propeller 
                        cleanings
                         Savings estimated at 1,800 BBLs/ship/
                        year

                 Solid State Lighting

                         Uses LEDs for platform illumination
                         LED lights in commercial applications 
                        last almost 50 times longer than incandescent 
                        and 6 times longer than fluorescent lights; 
                        provides the same illumination with 25 percent 
                        of the energy
                         Currently testing on DDG-108 and LSD-
                        52
                         Payback estimated at 3 years, 
                        depending on fixture (savings of 335 BBLs/
                        ship/year for DDG)

    Navy also continues to develop technologies that will be 
implemented in future years; the implementation schedule for these 
initiatives is subject to impacts based on final fiscal year 2011 
budget:

                 Hybrid Electric Drive for DDG

                         Fuel savings by securing LM2500 
                        propulsion turbines at low speed while loading 
                        gas turbine electric generators to more 
                        efficient operating condition (savings 
                        estimated at 8,500 BBLs/ship/year)
                         Land-based prototype scheduled for 
                        testing mid-2011
                         USS Truxtun (DDG-103) scheduled to be 
                        first operational installation in fiscal year 
                        2012 as an afloat test platform

                 Engine efficiency modifications for the F-35 
                Joint Strike Fighter

                         Improvement in F135 Block 5+ engine 
                        fuel economy and lifecycle cost through 
                        component upgrades and software cycle 
                        optimization
                         Estimated Fleet-wide savings of 
                        35,000 BBLs in 2023 (upon delivery of Block 5 
                        aircraft), increasing to 178,000 BBLs/yr by 
                        2029

    Senator McCaskill. Okay. Well, we will ask you to give us 
specifics--what was in, prior to the initiative, and what you 
then used as part of the initiative after the initiative was 
announced.
    Mr. Work. Yes, ma'am.
    Senator McCaskill. Senator Ayotte.
    Senator Ayotte. Thank you very much, Chairwoman McCaskill.
    I want to follow up on--first of all, just given that we 
can't--we don't have auditable financial statements, how are we 
going to know that we're actually achieving the savings and 
efficiencies that--if you don't have the way to measure it by 
the financial statements that you would in most organizations, 
how do we know we're even going to achieve the savings? I'm new 
to this, so--I'm a new Senator, and--so, why don't we?
    Mr. Hale. That's two questions. Let me take the first one. 
[Laughter.]
    Senator McCaskill. First of all, you need to get a sleeping 
bag and a pillow. [Laughter.]
    Because, it is longer than one hearing. Trust me. I asked--
--
    Mr. Hale. I'll complete the first.
    Senator McCaskill. the same question 4 years ago, coming 
from----
    Mr. Hale. We do----
    Senator McCaskill. an auditor's office.
    Mr. Hale. We do have financial systems. I might add, I 
think we have the best-trained financial managers in 
government. I'll go to the second question briefly in a moment. 
But, there are systems. They can't meet commercial audit 
standards, which means we can't--our systems are old--they 
can't track, as auditors require, information back to the 
transaction level. But, I think they do present the dollars 
that you give us reasonably accurately. If you want external 
collaboration, we have probably 2,000 auditors looking over our 
shoulders. The number of times we actually violate the Federal 
Antideficiency Act, kind of the major crime, is pretty small. 
It's 20 cents out of every $1,000 that we spend--20 cents out 
of every $1,000. That's 20 cents more than I'd like. We're 
trying to get it to zero. But, I don't think it suggests we 
have no idea where we're spending the money you give us. I know 
it doesn't.
    Incidentally, I might add that our rate of Antideficiency 
Act violations is a lot lower than the nondefense agencies, 
even though they have auditable statements.
    That said, sometimes we can just take our financial 
statements and--or systems--and immediately tell what's saved. 
The civilian pay freeze would be a good example of that, the 
civilian billet freeze, because there are lines that govern 
that. More often, we have to have our analysts look through a 
variety of lines and make estimates. That takes some time. But, 
they can almost always give us a pretty good idea where the 
savings occur. So, yes, I think we can tell whether we saved 
the money.
    Now, do you really want the answer about why we don't have 
auditable statements?
    Senator Ayotte. Given what the Chair--The Honorable----
    Mr. Hale. I'll be glad to do it.
    Senator Ayotte.--Chairwoman just told me, I don't think so.
    Mr. Hale. It hasn't been----
    Senator Ayotte. I will----
    Mr. Hale.--as systematically----
    Senator Ayotte. I will find out.
    Mr. Hale. Let me just say, I think we've done some things 
right, but it has not been systematically a high priority. I 
believe we have a streamlined and focused structure. With the 
help of these guys to my right and left, I think that we will--
we are committed to meeting the goal in 2017. But, more 
importantly, we're trying to get somewhere in the next 2 years. 
Part of the problem is, we keep setting these goals way out in 
2017. I'm not going to be the comptroller in 2017. Or, as I 
like to say, if I am, I will definitely have a new wife, 
because she's made it real clear that it ain't going to last 
that long. So, we need near-----
    Senator Begich. But, you have the legacy you could leave by 
putting this in place.
    Mr. Hale. We need some near-term goals, and we have some. 
Maybe, if you'd like, I can come and explain them to you and 
not take the time now.
    Senator Begich. Well, and I think, really, in all 
seriousness, this--having those--the auditable financial 
statements should be one of the top efficiency----
    Mr. Hale. It is one of----
    Senator Begich.--initiatives, because----
    Mr. Hale.--of our nine--we have nine high-priority business 
goals, and that is one of them.
    Senator Begich. Thank you. I appreciate that.
    I wanted to ask you about some of the assumptions on the 
savings, just to make sure that, if those assumptions don't 
come to fruition, that we aren't in a place where the savings 
really don't come to fruition. A couple of them, for example, 
Secretary Work, that we're seeing a troubling rise in the price 
of oil right now as a result of--in part, because of the 
activities in the Middle East. How realistic do you think that 
the Navy's projected savings of $566 million in fiscal year 
2012 is for reduced energy consumption?
    Mr. Work. Well, our estimated energy savings across the 
FYDP, we track the number of millions of barrels of oil that we 
will save. So, if the price goes up, we are actually going to 
save more money. It would only, if the price goes down--if the 
price goes up for oil, we are going to save that--a certain 
number of barrels; we don't project a specific cost based on 
the oil. We also estimate that 70 trillion British thermal 
units (BTU) across the FYDP, for sure--we will save those as a 
result of the energy investments we are making. That's both in 
shore and tactical. So, we hope that we will achieve the 6 
million barrels. If we don't achieve the 6 million barrels, 
that's where we will start to say we were really--we didn't 
make the right projection.
    Senator Ayotte. But--I mean, I'm trying to follow this, 
because if you don't track it by cost of barrel, and you just 
do it by barrel, and the--let's say the price of oil doubles, 
then even if you are able to achieve the number of barrels you 
want to save, it's really not going to result in the end 
savings. So, that's what I'm trying to understand.
    Mr. Work. I see. What--well, what will happen--what we did 
in the--as part of the entire efficiencies drill is, we had 
very high--what we consider to be very high-risk, medium-risk, 
and low-risk approaches to achieve efficiencies. That was 
worked out both at the Service level, then at the Department 
level, and then at the OSD level. If we--there are fact-of-life 
increases, like increases to fuel, inflation rates, that we 
make in our economic adjustments, and those will be accounted 
for through--we'll either have to find other efficiencies to 
offset those or we'll have to stop--reduce the amount of 
operations that we're doing. We'll have a wide variety of 
things. Once the efficiencies and our execution start to work 
together, we'll be making adjustments every year, as we always 
do.
    Mr. Hale. Can I build on that and just say, with price at 
$105, and now it's $110 billion, there will be some substantial 
added cost; if it stays there, about $1.5 billion over the rest 
of this fiscal year. It won't be quite as high, because we are 
able to reduce consumption. There are going to be net increases 
of costs when we see when fuel is up that much higher. It is of 
concern to all of us. We're going to have to reprogram funds 
from somewhere--I don't know where, for sure yet--in order to 
meet those.
    Senator Ayotte. How are we reaching the consumption 
reductions that you're proposing overall? Is it reduction in 
flying missions? A reduction in naval operations? Or, are we 
just receiving--purely through energy efficiencies?
    Mr. Work. A wide variety, ma'am. On shore, for example, 
we're doing--we're changing--we're having steam plants 
replaced. There's a wide variety of photovoltaic systems, solar 
energy, that we're putting on tops of roofs. On tactical sides, 
we're putting hull coatings on our ships. Marines who are 
deploying to Afghanistan are using portable solar cells. All of 
that takes fewer numbers of fuel trucks to bring fuel out to 
the forward operating bases. We're doing smart voyage planning 
software, so that we can get the most efficient uses. We expect 
to achieve these savings through true energy efficiencies, not 
by cutting operations.
    Senator Ayotte. Well, and I would add, also, with the 
public shipyards, for example, the one--the Portsmouth Naval 
Shipyard--I know that there are many energy efficiency projects 
that will save--that you--the Secretary has approved. I want to 
say that I'm very supportive of those efforts.
    I wanted to follow up, just on a couple other assumptions 
within the efficiencies, just to see where we're at. The 
assumption with regard to unemployment rates--Secretary 
Westphal, I think you've--in the Army's proposal, the 
unemployment rate, we assume, is going to stay at 9 percent. 
I'm sure that Senator McCaskill shares this with me. We, in 
Congress, hope that that is not the case. So--but, that is an 
assumption that is made, in terms of retention and recruitment 
throughout, in terms of savings. If our economy does pick up, 
are we going to see those savings disappear? Can you comment on 
that, and why that assumption was included over those years?
    Dr. Westphal. We were trying to model this based on what we 
thought were at least trends over the next--the current fiscal 
year and the next fiscal year. But, we knew that there was some 
danger in doing that, in terms of predicting fluctuations in 
the marketplace.
    We don't think it's going to affect our models in a 
significant way. I think we'll still obtain the savings. But, 
we are watching that. I mean, all of these kinds of assumptions 
have to be based on things we cannot predict. If we can't--if 
we don't get them right, we'll have to adjust.
    Senator Ayotte. Well, thank you.
    I also have some additional questions that I would submit 
to all of you for the record, and certainly appreciate your 
coming before the subcommittee today.
    Dr. Westphal. Thank you, Senator.
    Senator McCaskill. I just have three things I'd like to 
cover, hopefully fairly quickly, and so we can let you all get 
back to work.
    Can somebody explain why Ash Carter's Better Buying Power 
(BBP) Initiatives have not resulted in any savings?
    Mr. Hale. Well, there are actually a number of items--and 
I'm going to ask Bob Work and Erin Conaton to comment--that are 
in here. Savings, in littoral combat ship, multiyear 
procurement savings, and the evolutionary acquisition for space 
efficiency.
    Could you--maybe, Erin, you could--you want to start, Erin?
    Ms. Conaton. Sure, I'd be happy to address the specific 
that Bob mentioned. But, I would say, at a more general level, 
a lot of the ideas that Dr. Carter's put forward, reducing 
overhead rates in acquisition programs, we've laid that into 
any number of our----
    Senator McCaskill. I see.
    Ms. Conaton.--acquisition programs. So, we can show you, we 
can show the staff, where we've--
    Senator McCaskill. So, you have pollinated your various 
efficiency efforts with----
    Ms. Conaton.--by program.
    Senator McCaskill. the ideas, and they just aren't 
identified as part of Dr. Carter's program?
    Ms. Conaton. Correct. We've laid them in by individual 
acquisition program. We can do that crosswalk for you to----
    Senator McCaskill. Okay.
    Ms. Conaton.--put them in.
    Senator McCaskill. Okay.
    It looks like we have 90-plus major defense acquisition 
programs that we currently have ongoing. Are--and this touches 
on some of the frustrations that Senator Begich has--do you 
think we're putting enough energy behind the notion of 
identifying, as quickly as possible, the ones that we're not 
going to be able to afford to carry forward, and doing 
everything we can, in terms of early termination? Is there 
anything about the continuing resolution that keeps you from 
being able to terminate? Because we've heard rumblings that 
they're saying, ``We can't terminate things, because we're only 
under a continuing resolution.'' I'm thinking, ``Well, the 
continuing resolution is a really good excuse to terminate 
things.''
    Mr. Hale. Well, there are a few specific provisions for 
items where Congress increased funding where we would be 
prohibited from. But, in general, for the major weapons, I 
don't think the continuing resolution is stopping us.
    We haven't done as good a job--and I'll copy my boss' 
answer here--Secretary Gates's answer--as good a job as we 
probably should have of trying to identify, early on, programs 
that weren't promising. Some of that's a problem in the 
building. There's a can-do attitude. Everybody wants to make it 
work. Even though some people might start to realize it's not 
going to, there's a--strong tendencies. Some of it, quite 
frankly, is in Congress. It's very difficult to terminate major 
weapons; often run into a lot of opposition.
    But, we need to do better. I think we've probably pruned 
out a number of the problems in the herd over the last couple 
of years. We need to be alert, realizing that times will be 
tight, and try to not let them go on as long. I think that's a 
fair point.
    Senator McCaskill. I really think that that's a place where 
some incentives would be great, the early identification of 
programs that aren't going to work out. I know defense 
contractors do a good job of salting various States with parts 
of programs to keep them from being cut, because it's 
politically difficult, especially politically difficult in a 
recession, when everyone's really focused on jobs. But, having 
said that, I thought the Secretary of Defense's strong, strong 
leadership on the second engine made a difference. It really 
made a difference. I'm confident--even though, unfortunately, 
Secretary Gates won't be around for the long haul, I'm 
confident that anytime someone in your position, Secretary 
Hale, or any of your positions, or any of the leadership of the 
military, you are so revered--the leadership of our military in 
this country, for all the right reasons, is revered, and I 
think the stronger that you all lead on trying to shut down 
programs that, in the long run, are going to cost money that we 
don't have, I think, the more responsive that Congress will be. 
I thought it took a lot of courage for Secretary Gates to go 
out as far as he did on the second engine. Ultimately, I 
believe it is his leadership that made a difference. I really 
do.
    Mr. Hale. You won't get any objection from me on that.
    Senator McCaskill. Yes, I do.
    Dr. Westphal. Senator, can I add----
    Senator McCaskill. Sure.
    Mr. Westphal.--can I add to what you were just saying?
    What we did in the Army is, we did these portfolio reviews. 
So, we took weapons systems across a portfolio, and we looked 
at the range of weapons we were using, the ones we were not 
using, the quantities and the effects. That was a lot of hard 
work. The Vice Chief of Staff, Pete Chiarelli, took on the 
front part of that. I came into that with him. We made 
recommendations for courses of actions. We terminated some of 
the major weapons systems as a result of that, and canceled 
some others--and made some decisions about where we should 
invest.
    But, what we're doing now, that I think is significant for 
what you're trying to say here, is that we've taken that 
approach, which was just something that was ad hoc, we had 
never done before, because we knew that our requirements 
process was out of control; we just simply weren't managing the 
requirements the way we should. This was an attempt to validate 
longstanding, old requirements. So, what we are doing now--and 
I've been doing this work with the Chief--the current Chief of 
Staff for the Army--he and I have embarked on an effort to try 
to reform the planning, programming, budgeting, and execution 
process, so that we incorporate this kind of review process at 
the front end. We reform the requirements process, align it 
with the resourcing so that when we make requirements 
decisions, they are informed by the resourcing available to 
make those decisions.
    Senator McCaskill. So, you're not doing it in a vacuum 
anymore.
    Dr. Westphal. Yes.
    Senator McCaskill. That's great.
    Dr. Westphal. Now, that's--we're--I can't tell we're there. 
What we're doing is, we're going to have to----
    Senator McCaskill. I assumed you weren't there yet.
    Mr. Westphal.--reorganize and train to the way we are--we 
do business. We're----
    Senator McCaskill. Yes. It's hard.
    Dr. Westphal. It is.
    Senator McCaskill. I think that you all are--the more 
quickly you adapt to some of these strategies, the less painful 
the next decade is going to be for DOD and for our military.
    The senior-level positions, there was a system of--that the 
Secretary announced, at--announcing at least 50 general and 
flag officer positions, eliminating, and eliminating 150 senior 
civilian executive positions. Now, I--and I look, and 21 
senior-level scientific positions were eliminated. I'm worried 
that the people that were deciding what to eliminate were not 
looking as closely at organizations that they were close to. I 
mean, you guys got rid of the senior research scientist for 
combat casualty care; the senior research scientist for 
nanomaterial science and engineering; the Navy's chief 
scientist for nonlinear science; and the senior scientist for 
rocket propulsion. Are--is that--I mean, when I hear 150 SES, I 
think of folks that are--I don't--that sounds sarcastic and 
flippant, and I don't mean to, but folks that are doing more 
PowerPoints, maybe, than the scientists. I'm trying to figure 
out if that's because the folks that were making the decisions 
didn't feel as close to the scientists as maybe to some of the 
other SES positions that need to be eliminated.
    Mr. Hale. Well, let me tell you the process, at least--and 
each of the Services did their own process. But, each manager 
was required to rank all their SES positions from 1 to N, and 
we focused on the bottom third, and then, frankly, the bottom 
of that group. Then there was an across-the-board group that 
made tradeoffs among them. So, you weren't just--everybody 
didn't take the same proportional cut.
    So, I can tell you, first off, I don't think we have any 
SES just doing PowerPoint. I mean, I hope not. They're well 
beyond that. They have others to help them, or are doing it 
only very small part of their time. They're supposed to be 
managers, and I think most of them are.
    Senator McCaskill. That was kind of sarcastic----
    Mr. Hale. All right.
    Senator McCaskill. and inappropriate. Unfair to the hard-
working SES staff, I should say.
    Mr. Hale. I think--I'll accept that.
    Senator McCaskill. I was trying to make a point, and----
    Mr. Hale. I hear you.
    Senator McCaskill. didn't do it very well.
    Mr. Hale. But, there was a very systematic process. It was 
painful. I mean, I did it myself, for the Defense Contract 
Audit Agency, for Defense Financing and Accounting Services in 
my own staff. It's not easy to do. But, it's healthy, because, 
in the end, there are a few that you can say, ``Hey, these 
probably are lower priority.'' The Secretary was adamant that 
he wanted us to stop doing things. That was hard, also. We did 
a little; not as much as he wanted, but we did do some. So, I 
think this was a systematic process.
    Let me ask my colleagues--I know we're running short on 
time--but, if they might briefly comment on your process, 
because they did it for their organizations.
    Dr. Westphal. Yes, not be repetitive, yes, I think we 
followed a similar process. We--the numbers that I have are 10 
SES--there's 28 Defense intelligence senior level folks, five--
that's highly qualified experts--which are folks that are--can 
be in a range of different jobs. Then six of the science and 
technical folks. All this was done with a very rigorous 
process, because obviously we wanted to be very analytical and 
creative about making these decisions in the right fashion. 
Now, whether we hit it right or wrong, or not, or whether those 
numbers are significant or sufficient, we'll--I think we're 
going to continue looking at all that. Of course, we came down 
seven general officers in the Army.
    Mr. Work. The way we tried to keep it at a strategic level 
is, once the managers, as Mr. Hale said, ranked all of their 
SESs 1 to N, then it went into a departmental level that was 
actually managed by the CMOs, through the DCMOs, in the case of 
the Department of the Navy. You had a department--excuse me--a 
Chief of Naval Operations and Commandant of the Marine Corps 
representative. They tried to look across the Department of the 
Navy and say, strategically, did we make a bad choice? We did 
the same thing at the Secretary Stanley level.
    In the end, there is a requirement process. So, for 
example, we had a testing and evaluation position that didn't 
make the cut. Mike Gilmore said, ``Hey, what--why did this 
happen?'' We were able to go back in and say, ``You're probably 
right. We shouldn't have taken this cut. We might have taken 
another one.'' So, there is a self-correcting method to try to 
get us the SESs that are the highest priority for the Navy.
    Ms. Conaton. The only thing I'd add, Chairwoman McCaskill, 
is that within the Air Force, we asked our major commands to 
help us with that 1 to N list. Then what we did was, we took a 
functional look across. So, we looked at all the scientists, we 
looked at all the financial management folks, we looked at all 
the acquisition folks to make sure that we weren't taking 
individual cuts from different commands that, in the aggregate, 
had a severely negative impact on a particular career field. 
So, we did try to be conscious of the different functional 
specialties.
    Senator McCaskill. I just realized there was one other area 
I wanted to cover. That was the zero-based review of the 
Department's intelligence organizations. That's what the 
Secretary indicated was going to happen. Yet, we only ended up 
with 41 million in cuts for 2012, and it looks like, from 
reviewing the documentation, that only the budget of Defense 
Intelligence Agency was cut. Did a zero-based review occur? If 
so, why are these results so de minimis?
    Mr. Hale. Your staff is very good at picking out the areas 
where we didn't do too well. Secretary Gates has said he was 
disappointed in the review. It is ongoing. The major thing that 
has come out of it--but, I don't think it made it in time for 
the budget--is a significant change in the Joint Intelligence 
Operating Centers. These are groups in each COCOM that provide 
intelligence advice to the COCOM. We were essentially staffing 
these to go to war or for a significant operation--all of them. 
Yet, they don't--except for U.S. Central Command, they don't 
do--they only do it periodically. We're going to go to a 
different approach, which is have enough people at each COCOM--
for the peacetime needs, and then, during the ramp-up period--
but, have a group, probably at Defense intelligence agencies--
kind of a roving group of people who will augment them. We 
think that they'll be--I can't give you the number; I'll have 
to do it for the record--but, a number of hundred of positions 
of reductions there.
    [The information referred to follows:]

    Two hundred twenty-eight positions will be reduced in fiscal year 
2012, to include civilians, military, and contractors.
    We expect to see increased efficiencies based on the intelligence 
review in the longer term. The zero-based review of Defense 
intelligence focused on eliminating unnecessary redundancy, not 
necessarily on savings. The review was an integrated effort between the 
Department of Defense (DOD) and Director of National Intelligence (DNI) 
and looked at baseline resources across the Intelligence Community 
(IC). The analysis team consisted of DOD and DNI members. The 
partnership was critical for success. They reviewed baseline resources 
across the IC, identifying areas of major investment and significant 
recent growth and focusing on analysis and production organizations.
    The decisions made as a result of the review are to:

    1.  Resize the Geographic Combatant Command (COCOM) Joint 
Intelligence Operations Centers (JIOCs) commensurate with their 
peacetime missions.
    2.  Establish a rotational model for Defense Intelligence Agency 
(DIA) support to the COCOMs.
    3.  Disestablish the Defense Intelligence Operations Coordination 
Center and the Joint Functional Component Command for Intelligence, 
Surveillance, and Reconnaissance
    4.  Consolidate selected Department Counterterrorism (CT) functions 
under the Joint Intelligence Task Force for Combating Terrorism (JITF-
CT).
    5.  Consolidate selected Department Counter Threat Finance (CTF) 
elements under a new Joint Intelligence Task Force for CTF (JITF-CTF).
    6.  Track emerging intelligence organizations and develop plans to 
harvest them as they redeploy from theater.

    In conjunction with the JIOC resizing, the DIA will begin providing 
approximately 20-person rotational teams of subject matter experts to 
support analysis and collection at each of the JIOCs. If a conflict or 
crisis breaks out in any combatant commander's area of responsibility, 
DIA will surge personnel to the JIOC as appropriate for the region and 
type of crisis.
    Several efforts are underway to identify Defense Intelligence 
efficiencies and evaluate the impact on intelligence support to combat 
operations, if efforts are reduced or eliminated. Ongoing efficiency 
efforts within the Department include a working group that is tracking 
and reviewing intelligence organizations formed to support operations 
in Afghanistan and Iraq and to identify which of these would be 
retained as combat operations draw down.
    Last August, we were considering an immediate reduction in funding 
for intelligence advisory and assistance contracts, but have since 
conducted a DOD-wide review of our reliance on contractors. As the 
result of this review, DOD components' funding used to acquire service 
support contracts was reduced 10 percent per year over the next 3 years 
from their reported fiscal year 2010 level. Based on the DOD 
components' allocation of the efficiency, the Military Intelligence 
Program (MIP) was assessed a portion of this reduction. Contractor 
funding reductions in the MIP were absorbed by realizing process 
efficiencies and moving away from higher-priced contractor services. 
The MIP significantly reduced its reliance on contractor support. 
Compared to fiscal year 2010 actuals, MIP contractor reliance has 
declined approximately 19 percent.
    There has been an increase in the number of Defense Intelligence 
organizations since 2001. In the Defense arena, large and well-staffed 
intelligence structures now exist in the Services, the Defense 
Agencies, the COCOMs, and in the war theaters. The Intelligence Review 
Study Group (IRSG) identified areas of major investment and focused on 
the analytic organizations within the IC. While the IRSG findings 
identified areas where efficiencies can be gained by consolidating 
select functions, such as in counterterrorism and counterthreat 
finance, we continue to look for areas to increase efficiency and 
eliminate redundancy.
    The final report was presented to Secretary Gates and Director 
Clapper, but the bulk of efficiencies so far are in activities funded 
by the MIP. The DNI is separately implementing IC efficiencies funded 
by the National Intelligence Program. Several of the efficiency 
recommendations made to the Secretary, require the development of 
detailed implementation plans or continued review, before the 
Department can identify any resource savings.

    Mr. Hale. We're looking at some others, but it has been 
difficult. Counterthreat finance and counterterrorism, we think 
there may be some consolidations that are possible.
    But, we tried, and I don't think we've gotten as far as 
we'd hoped. I think it deserves some continued effort. I think 
if Secretary Gates were here, he'd probably state it even more 
forcefully.
    Senator McCaskill. Well, I agree with him.
    Mr. Hale. I'll tell him.
    Senator McCaskill. As usual, I think he's correct. I think 
that this is probably not the kind of zero-based review that he 
had envisioned when he used that terminology. We'll look 
forward to hearing additional work in the area of a zero-based 
review, in terms of that work.
    I don't have any other questions. We may have some more for 
the record.
    Senator Ayotte, do you have any more?.
    Senator Ayotte. No, I'm all set. I have some for the 
record, but that's it. Thank you.
    Senator McCaskill. Okay.
    I want to thank all of you for being here today. I thought 
it was very productive. We'll continue to work closely with you 
to figure out ways we can continue to be the best military in 
the world with less money spent.
    [Questions for the record with answers supplied follow:]
              Questions Submitted by Senator Kelly Ayotte
              responsible use of end of year fiscal funds
    1. Senator Ayotte. Secretary Hale, I'm interested in finding 
efficiencies now, as opposed to waiting for the out-years. Starting 
with spending what you have in order to justify future budget requests, 
what is your assessment of the current climate in the Department of 
Defense (DOD) for the preparation of the fiscal year 2013 budget?
    Mr. Hale. The DOD effort to increase efficiencies will not wait for 
the out years. The efficiency initiatives reflected in the DOD fiscal 
year 2012 budget continue the reform agenda started in the fiscal year 
2010 budget. The fiscal year 2010 budget focused on weapons programs, 
e.g., terminating the F-22 fighter production and the VH-71 
Presidential helicopter. The fiscal year 2011 budget again focused on 
weapons programs, e.g., ending C-17 production and not funding of an 
extra engine for the Joint Strike Fighter (JSF), and initiated military 
health care efficiencies. The fiscal year 2012 budget focused on DOD 
business operations efficiencies in addition to further program 
terminations. The efficiencies gained in these budgets form the 
foundation for building the fiscal year 2013 budget. Further 
efficiencies will be proposed in the fiscal year 2013 budget.

    2. Senator Ayotte. Secretary Hale, assuming DOD can get a fiscal 
year 2011 appropriations bill soon, will you still condone a mad rush 
by the Services at this year's end to obligate all funds available on 
lower priorities?
    Mr. Hale. There will be no mad rush to spend any funds. The fiscal 
year 2011 funds are needed to satisfy valid requirements. The 
Department will conduct a robust midyear review to ensure these valid 
requirements are properly funded. As a result of the review, any 
significant funding changes will be included in the Omnibus 
reprogramming request. The reprogramming request will be forwarded to 
the Defense Oversight Committees for their approval.

    3. Senator Ayotte. Secretary Hale, why not let unused funds expire 
as opposed to finding other requirements to spend money on?
    Mr. Hale. We don't seek other requirements to spend money on; 
unfortunately, there are always new emergent requirements that arise 
that were unanticipated. In particular, in fighting a war there are 
urgent operational needs that are identified by the battlefield 
commander that need immediate attention and cannot wait until the next 
budget request. In recent years the challenge to find good solutions to 
the Improvised Explosive Device threat is the best example of this kind 
of unexpected unobligated need. Other adjustments result from economic 
conditions (fuel prices), unplanned humanitarian relief (Japan and 
Libya), and shifts in national security priorities. This year, the 
extended Continuing Resolution, decreases in fiscal year 2011 funding 
levels, and implementation of the Secretary's efficiencies demand a 
more critical midyear review of the accounts and an examination of 
potential impacts on readiness. Unanticipated negative impacts to 
readiness will be resolved within the reprogramming flexibility allowed 
by the statues. As occurred in fiscal year 2010, funds will be allowed 
to expire if valid requirements don't exist.

    4. Senator Ayotte. Secretary Hale, does DOD currently have in place 
incentives to reward the timely completion of requirements in a fiscal 
year and the return of unused funds?
    Mr. Hale. The Department utilizes various contract incentives to 
encourage the timely completion of requirements and the return of 
unused funds. The midyear review process ensures available funding is 
identified and either realigned to other valid requirements (fuel 
increases, Japan, Libya, urgent theater needs) or allowed to expire.

    5. Senator Ayotte. Secretary Hale, how can the process be changed 
to encourage program managers (PM) to spend only what is absolutely 
necessary and planned for that year?
    Mr. Hale. Responsible funds stewardship begins with the budget 
plan. In preparation for the fiscal year 2012 budget submission, DOD 
launched a comprehensive effort to reduce its overhead expenditures. 
The goal was to sustain the U.S. military's size and strength over the 
long term by reinvesting those efficiency savings in force structure 
and other key combat capabilities. The Military Departments and the 
U.S. Special Operations Command (SOCOM) were challenged to identify at 
least $100 billion in savings that they could keep and shift to higher 
priority programs. In addition to the military departments and SOCOM 
reviews, Secretary Gates directed a number of initiatives with the goal 
of reducing overhead costs and improving efficiency across the 
Department as a whole, with special attention to the massive 
headquarters and support bureaucracies outside the Military Services 
and SOCOM. The Department will implement a process to monitor how it is 
doing in the implementation of the efficiency initiatives. Continued 
management oversight at all levels of the organization helps ensure 
efficient and effective use of resources.

    6. Senator Ayotte. Secretary Hale, what is DOD currently doing to 
institutionalize a mindset of not-spending versus spending?
    Mr. Hale. The entire Department was brought into the comprehensive 
effort to increase efficiencies in the spring of 2010. Many of the 
cross-cutting initiatives included the DOD fiscal year 2012 budget were 
started in fiscal year 2011. Specifically, the reductions in service 
support contracts, reports, studies, boards and commissions began in 
fiscal year 2011. Other reductions to fiscal year 2011 include the 
civilian workforce freeze and the GS pay freeze. The Department is 
launching a process that will require every component touched by an 
efficiency to brief their plan for achieving the efficiency and their 
actual progress against the plan. The first of these briefings will 
occur in early summer to inform building the fiscal year 2013 budget.

                          economic projections
    7. Senator Ayotte. Secretary Hale, in your written statement you 
state that of DOD's nearly $78 billion reduction over the next 5 years, 
``much of the savings will come from reducing personnel costs and 
changing economic assumptions.'' I need to make sure that we are not 
relying on speculative economic assumptions in order to justify budget 
cuts. I am sure that the witnesses would agree projected savings must 
be supported with sound and consistent justification. What inflation 
rate was assumed for fiscal years 2012 through 2016?
    Mr. Hale. DOD uses composite inflation rates that are comprised of 
rates from the Gross Domestic Product Price Index (with DOD outlay 
rates factored in), civilian pay raise rates, military pay raise rates, 
fuel rates, and CPI-U (Medical) rates. The DOD composite rates are as 
follows:

         Fiscal Year 2012: 1.5 percent
         Fiscal Year 2013: 2.0 percent
         Fiscal Year 2014: 2.1 percent
         Fiscal Year 2015: 2.1 percent
         Fiscal Year 2016: 2.1 percent

    8. Senator Ayotte. Secretary Hale, do the top lines for each 
Service budget through 2016 assume the same inflation rates?
    Mr. Hale. Yes, each Service assumes the same inflation rates; 
however there are many other non-inflationary factors that play into 
each Service's budget development. For example, mission requirements, 
programmatic priorities, and requirements of the acquisition process 
vary by Service and would impact their final budget requests.

    9. Senator Ayotte. Secretary Hale, the Army assumed an unemployment 
rate of over 9 percent through fiscal year 2015. Is that DOD's 
assessment as well?
    Mr. Hale. While the individual Services may use unemployment rates 
for particular aspects of their budget development, such as forecasting 
the recruiting environment, the Department as a whole does not develop 
or forecast those rates.

    10. Senator Ayotte. Secretary Hale, what economic projections were 
used to justify this rate?
    Mr. Hale. DOD as a whole does not develop or forecast unemployment 
rates.

    11. Senator Ayotte. Secretary Hale, can you provide your projection 
for annual military pay adjustments through fiscal year 2016 that 
contributed to your savings estimate?
    Mr. Hale. The Department's efficiencies savings include military 
pay and allowances economic assumption adjustments totaling to a net 
savings of $1.1 billion in fiscal year 2012 and $2.8 billion from 
fiscal year 2012-fiscal year 2016. These adjustments are based on 
changes to economic assumptions projected during the previous budget 
cycle (fiscal year 2011 President's budget request) to the fiscal year 
2012 budget request. The following table provides a breakout of the 
adjustments.

                        [In billions of dollars]
------------------------------------------------------------------------
                                                                Fiscal
                                                    Fiscal    Year 2012-
                                                   Year 2012     2016
------------------------------------------------------------------------
Fiscal Year 2012 Military Pay Raise.............        $0.5        $3.1
Retired Pay Accrual Rate Increase...............        -0.9        -4.8
Medicare-Eligible Retiree Health Care Accrual            0.9         0.9
 Rates..........................................
Basic Allowance for Housing Rates...............         0.5         2.7
Basic Allowance for Subsistence Rates...........         0.1         0.9
                                                 -----------------------
  Net MilPay Economic Assumption Changes........        $1.1        $2.8
------------------------------------------------------------------------

         Fiscal Year 2012 Military Pay Raise was programmed at 
        2.3 percent during the previous budget cycle but was adjusted 
        to 1.6 percent based on the September 30, 2010, Employment Cost 
        Index (ECI) as required under the by-law formula.
         Retired Pay Accrual Rates for full-time personnel 
        increased from 32.7 percent to 34.3 percent in fiscal year 2012 
        and beyond based on annual determination by the DOD Board of 
        Actuaries.
         Medicare-Eligible Retiree Health Care Accrual per 
        capita rates for fiscal year 2012 decreased based on annual 
        determination by the DOD Board of Actuaries.
         Basic Allowance for Housing Rates were budgeted to 
        increase by 4.2 percent on-average in fiscal year 2011 while 
        actual rates increased by only 1.6 percent on-average.
         Basic Allowance for Subsistence Rates were budgeted to 
        increase by 3.4 percent in fiscal year 2011 while actual rates 
        increased by only 0.4 percent based on the by-law formula.

                        recruiting and retention
    12. Senator Ayotte. Secretary Westphal, following up on a 
discussion from the hearing, the Army has proposed a reorganization of 
recruiting and retention incentives to cut $764 million in fiscal year 
2012 based on ``current and projected economic environments.'' In 
particular, the Army assumed that the unemployment rate will continue 
at 9 percent or higher. Is this assumption consistent with the 
administration's projection?
    Dr. Westphal. The President's fiscal year 2012 budget assumes an 
unemployment rate of 8.8 percent, slightly below the 9 percent 
assumption we used for planning purposes. However, it should be noted 
that there are many other factors involved in determining the level of 
incentives and programs needed to sustain the All-Volunteer Force. The 
propensity to recommend Military Service has increased with influencers 
such as mothers, fathers, guidance counselors, and coaches. Additional 
factors affecting our success in recruiting and retaining quality 
soldiers are: comparable pay to civilian salaries; comprehensive 
medical coverage; reduced deployments; and improved family support 
programs. The combination of all the above factors has positioned us 
for success in our 2012 recruitment and retention programs.

    13. Senator Ayotte. Secretary Westphal, the Army projects a savings 
of $5.3 billion over the Future Years Defense Plan (FYDP). What happens 
if the economy picks up, as we all hope it will?
    Dr. Westphal. As the Army works to improve the Soldier deployment 
cycle, dwell time at home with family and quality of life, the desire 
to reenlist also increases. For recruiting, the Army continues to 
select the highest quality recruiters, and is always improving and 
exploring opportunities such as social media, community involvement, 
and coordinating with high schools to help students and parents 
determine whether the military is right for them. The Army stresses the 
total compensation and benefits available to soldiers and families in 
order to attract and retain quality soldiers. With the support of 
Congress, we have made substantial improvement in the quality of life 
of soldiers and their Families across the board. Increases in soldier 
and family programs, education benefits, housing, working conditions, 
and equipment all contribute to the successful maintenance of the All-
Volunteer Force.

    14. Senator Ayotte. Secretary Westphal, will the Army restore 
recruiting and retention incentives? If so, how will this efficiency 
provide its projected savings?
    Dr. Westphal. Unless there is a dramatic improvement in the economy 
or the American public's perception of the Army sours, we do not see a 
need to place more funding in the recruiting and retention budget. We 
continuously analyze each military occupational skill based on the need 
for each capability. We use that in-depth analysis over time to make 
decisions concerning incentives. The bonus program is designed to 
incentivize soldiers in critical MOSs and ranks based on current and 
projected shortages. Particular career fields such as Explosive 
Ordnance Disposal, Military Intelligence, Engineers, Linguists, and 
Special Forces have highly marketable skills that are in demand and 
well compensated in the civilian economy. We have used incentives very 
effectively to remain competitive and retain the capabilities needed to 
execute our missions.

    15. Senator Ayotte. Secretary Westphal, how will the Army 
reorganize recruiting and retention incentives?
    Dr. Westphal. The Army has a highly analytical and flexible 
recruiting and retention incentive determination process that has 
proven successful over time. It concentrates on skill and grade 
requirements and their criticality to maintaining a ready Army. We will 
continue to access our process and make adjustments based on sustaining 
the All-Volunteer Force. To be sure incentives are not the only tool on 
which the Army relies to effect recruiting and retention. We stress the 
total compensation and benefits package available to soldiers and 
families to attract and retain quality soldiers. With the support of 
Congress, we have made substantial investments to improve quality of 
life programs for our soldiers and families. It is the combination of 
all of these elements that will enable us to successfully man the 
force.

    16. Senator Ayotte. Secretary Work, the Navy proposes the same 
reduction in recruiting and retention programs. What economic 
assumption did you use to make those decisions?
    Mr. Work. In general, the bonus programs considered that 
unemployment would decrease gradually but that the economic impact on 
recruiting and retention would be relatively unchanged. Navy has 
experienced increased retention and fewer recruiting challenges which 
have allowed reductions in recruiting and retention incentives.

                   likelihood of further defense cuts
    17. Senator Ayotte. Secretary Hale, The Defense News reported on 
March 27, 2011, that DOD is preparing for up to $100 billion more in 
cuts to defense over the next 5 years once the Pentagon's top line 
budget figures are released from the White House for the fiscal year 
2013 budget. Acknowledging that speculation about future year budgets 
is a tricky thing, particularly in the press, can you share your 
opinion on what will happen to DOD's budget in fiscal year 2013 and 
beyond?
    Mr. Work. It is premature to provide an assessment of what will 
happen to DOD's budget in fiscal year 2013 and beyond.

    18. Senator Ayotte. Secretary Hale, do you anticipate having to 
make further top line cut through the FYDP beyond the $78 billion that 
DOD has already absorbed?
    Mr. Work. It is premature to provide an assessment of what will 
happen to DOD's budget in fiscal year 2013 and beyond.

                   individual service risk assessment
    19. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, in your joint statement, you state ``most 
of this top line reduction was achieved through efficiencies and other 
changes in portions of our budget less closely related to warfighter 
capability''. With that said, The Defense News reported yesterday that 
DOD may be provided with guidance this week from the Office of 
Management and Budget (OMB) that will require DOD to cut an additional 
$100 billion from the top lines over the next 5 years. Many of DOD's 
efficiencies propose spending cuts to flying hours, weapon system 
maintenance, training programs, facility repairs, as well as cancelling 
the acquisition of new systems that were intended to replace old 
equipment, such as the Expeditionary Fighting Vehicle (EFV). Please 
provide your assessment of the risk incurred by each Service for each 
efficiencies initiative proposed in the fiscal year 2012 budget 
request. Specifically, I'm looking for an assessment of the operational 
risk assumed for reducing end strength, deferring requirements, 
eliminating programs, and scaling back training accounts.
    Mr. Hale.
Department of the Army:
    The Army's efficiency initiatives proposed in the fiscal year 2012 
budget request are assessed as low operational risk. To achieve 
savings, the Army used comprehensive capability portfolio reviews to 
terminate or reduce weapons systems with declining relevance or 
unneeded redundancy. The Army ensured training programs and equipment 
programs terminated, reduced or deferred would not pose a threat to its 
ability to conduct the full range of military operations. Service and 
support contracts supporting HQ activities were reduced with low risk 
achieved. The Army also leveraged investments in existing 
infrastructure and information technology, which will provide 
efficiency and maintain or improve effectiveness in supporting the 
Operating Force.
Department of the Navy (DON):
    Risk was inherently considered as the warfighters were involved 
from the ground floor in defining efficiencies. Lower echelon commands 
were asked to be bold in challenging current organizations, constructs, 
and structure focused on ``Buying Smarter'', ``Streamlining 
Organizations and Operations'', and ``Energy Efficiencies''. This 
resulted in numerous issues being vetted affecting over 1,000 budget 
lines.
    To address the specific concerns noted, end strength changes are 
the result of eliminating duplicative staffs, streamlining 
organizations, eliminating unnecessary contractor support, and strident 
reviews of personnel policies and practices. Similarly, the DON 
identified several investment programs that were underperforming or 
less effective than envisioned and are now proposed to be revamped or 
terminated in order to pursue more appropriate materiel solutions given 
the changing landscape of the world. Finally, the scaling back of 
training accounts reflects the reality of technology that now permits 
more realistic and cost effective training using advanced simulators 
without overall loss of readiness and proficiency.
    In summary, the DON believes the benefits achieved through 
reinvestments and restructuring far outweigh the near-term operational 
risks of not conducting ``business as usual''. Business as usual is in 
fact the greatest risk as inefficient business practices will continue 
to divert resources from the critical needs of the warfighters. To 
prevent this, the DON is aggressively developing processes and 
practices to monitor the implementation of the proposed efficiencies to 
ensure savings are realized along with corresponding enhancements, and 
that the DON does not slip back into a mindset of ``business as 
usual''.
Department of the Air Force:
    The Air Force estimates that there is little operational risk in 
the current efficiency plans, and that in fact, the enhancements 
enabled by the efficiency efforts will increase operational capability.
    First, efficiency work is aimed at reducing staff overhead 
structures and general support activities, and reallocating resources 
to direct operational improvements (e.g., modernized F-15E radars, long 
range bomber, increased funding to weapon system sustainment). The Air 
Force corporate structure will closely monitor progress on efficiency 
goals and, as importantly, mission performance.
    Other than a limited number of senior executives and general 
officers, the Air Force is not reducing any Active, Reserve, and Air 
National Guard end strength and is still continuing to grow government 
civilian end strength. While the Air Force is reducing workforce in 
selected support activities, that workforce is being reallocated to 
more direct operational and operational support activities.
    In regards to deferring requirements, the efficiency goals 
represent real savings/reductions versus deferring expenditures to 
future years. Regarding eliminating programs, the Air Force took a 
balanced approach considering the costs and savings associated with 
funding the programs vice termination. There are three program 
terminations within the Air Force reported efficiencies.
    The efficiency goal for training is to reduce the cost to sustain 
current training levels and reduce the cost of flying hours while 
maintaining mission readiness at or above current standards. To achieve 
this, the Air Force must continue to invest in high fidelity simulators 
and mission training centers while continuing to focus on fuel 
management savings and improved planning.
    The Air Force will monitor plans and progress to ensure efficiency 
outcomes are being delivered and will also review readiness and 
performance data to ensure Air Force efficiencies are not inadvertently 
impacting mission performance or the quality of life of airmen.
    Dr. Westphal. The Army's efficiency initiatives proposed in the 
fiscal year 2012 budget request are assessed as low to operational 
risk. To achieve savings, the Army used comprehensive capability 
portfolio reviews to terminate or reduce weapons systems with declining 
relevance or unneeded redundancy; we have ensured training programs and 
equipment programs terminated, reduced or deferred would not pose a 
threat to our ability to conduct the full range of military operations. 
No efficiencies resulted in end strength reductions; however, some 
service and support contracts at headquarters activities were reduced 
within the Army's Generating Force. Leveraging investments in existing 
infrastructure and consolidating information technology will provide 
efficiency and maintain or improve effectiveness in supporting the 
Operating Force.
    Mr. Work. The DON did not pursue a purely ``top down'' approach by 
imposing efficiencies, but rather directed lower echelon commands to be 
bold in challenging our current organization, constructs, and structure 
focused on ``Buying Smarter'', ``Streamlining our Organizations and 
Operations'', and ``Energy Efficiencies''. This resulted in numerous 
issues being vetted affecting over 1,000 budget lines. The CNO and CMC 
personally weighed the risks associated with every recommended 
efficiency, and they forwarded for approval only those efficiencies 
where they judged the benefits to outweigh operational risk. These were 
then reviewed by the Secretary of the Navy as well as OSD before booked 
as savings.
    To address the specific concerns noted, end strength changes are 
the result of eliminating duplicative staffs, streamlining 
organizations, eliminating unnecessary contractor support, and strident 
reviews of personnel policies and practices. Similarly, the Department 
identified several investment programs that were underperforming or 
less effective than envisioned and are now proposed to be revamped or 
terminated in order to pursue more appropriate materiel solutions given 
the changing landscape of the world. Finally, the scaling back of 
training accounts reflects the reality of technology that now permits 
more realistic and cost effective training using advanced simulators 
without overall loss of readiness and proficiency.
    In summary, DON believes the benefits achieved through 
reinvestments and restructuring far outweigh the near-term operational 
risks of not conducting ``business as usual''. Business as usual is in 
fact our greatest risk as inefficient business practices will continue 
to divert resources from the critical needs of our warfighters. To 
prevent this, the DON is aggressively developing processes and 
practices to monitor the implementation of our proposed efficiencies to 
ensure savings are realized along with corresponding enhancements, and 
that the DON does not slip back into a mindset of ``business as 
usual''.
    Ms. Conaton. The Air Force assessment is that there is little 
operational risk in our current efficiency plans, and that in fact, the 
enhancements enabled by the efficiency efforts will increase 
operational capability.
    First, our efficiency work is aimed at staff overhead structures 
and general support activities, and resources are reallocated to direct 
operational improvements (e.g., modernized F-15E radars, long-range 
bomber, increased funding to weapon system sustainment (WSS)). WSS was 
both an investment and an efficiency area; the Air Force increased 
funding in WSS to improve readiness, and in addition, imposed an 
efficiency equating to $3 billion by setting the expectation of 
delivering 85 percent of requirements at an 80 percent funding level. 
The Air Force corporate structure will closely monitor progress on 
efficiency goals and mission performance.
    Other than a limited number of senior executives and general 
officers, the Air Force is not reducing any Active, Reserve, and Air 
National Guard end strength, and is still continuing to grow government 
civilian end strength. While we are reducing workforce in selected 
support activities, that workforce is being reallocated to more direct 
operational and operational support activities. We are reallocating 
5,600 active duty billets over the FYDP from lower priority support 
functions to higher priority growth areas, such as intelligence, 
surveillance and reconnaissance operations. In the areas where we are 
reducing staff (either government or contractors), the Air Force plan 
is to either modify the work itself to eliminate unnecessary and 
redundant tasks or to stop doing a job altogether that is no longer 
deemed essential. This approach is a means to keep from getting into 
the trap of ``doing more with less'' and reduces operational risk.
    In regards to deferring requirements, our efficiency goals 
represent real savings/reductions versus deferring expenditures to 
future years. Approximately 1 percent of our $33.3 billion in Air 
Force-identified efficiency initiatives are related to rephasing of 
programs due to fact-of-life slips or program execution status. They 
include rephasing war reserve material stockpile and training munitions 
procurement; re-phasing Wide Area Airborne Surveillance procurement; 
re-phasing AFNet support; and Link 16 Crypto Modernization for B-1, B-
2, F-15 and F-16 systems. Real savings generated by these and other 
Efficiencies, permitted funds to be realigned to increase mission core 
capabilities including investments in B-1 modernization, F-35 simulator 
procurements and funding MC-12 in the baseline program. All of these 
investments contribute to decreased operational risk.
    Regarding eliminating programs, we took a balanced approach 
considering the costs and savings associated with funding the programs 
vice termination. We have three program terminations within Air Force 
reported efficiencies: (1) Air Vehicle Survivability Facility at Arnold 
is terminated saving $720,000 in Research Development Test & Evaluation 
(RDT&E) funds per year across fiscal year 2012-2016. The facility was 
not core to Air Force requirements and no additional costs are 
associated with this termination; (2) The Air Force Infrared Search and 
Track Program modification to the F-15 was terminated saving $43.8 
million in RDT&E funds across fiscal year 2012-2013 and $301.6 million 
in Procurement funds across fiscal year 2013-2016; and, (3) Advanced 
Targeting Pods-Sensor Enhanced was terminated saving $98.7 million in 
Procurement funds across fiscal year 2012-2016. Efficiency savings 
allow us to shift resources to modernization and readiness enhancements 
such as those covered above.
    Our efficiency goal for training is to reduce the cost to sustain 
current training levels and reduce the cost of flying hours while 
maintaining mission readiness at or above current standards. To achieve 
this, the Air Force must continue to invest in high-fidelity simulators 
and mission training centers while continuing to focus on fuel 
management savings and improved planning. We are conducting several 
internal studies to help find the right balance of live flying hours 
and simulator trainings in order to provide the best trained airmen. We 
will closely monitor this initiative (as with the others) and 
explicitly measure mission readiness to preclude increased operational 
risk.
    On a monthly basis, we will monitor plans and progress to ensure 
efficiency outcomes are being delivered and will also review readiness 
and performance data to ensure Air Force efficiencies are not 
inadvertently impacting mission performance or the quality of life of 
airmen.

                 proposals for end strength reductions
    20. Senator Ayotte. Secretary Hale, reading your statement for this 
hearing, DOD has included a savings of $6 billion in fiscal years 2015 
and 2016 for a proposed decrease in end strength for the Army and 
Marine Corps. You go on to state ``If our assumptions about Iraq or 
Afghanistan turn out to be overly optimistic, or if global conditions 
change for the worse, we would be able to adjust the size and schedule 
of this change or even reverse it altogether''. Given this significant 
caveat, why did DOD include this initiative as a savings contributing 
to the administration's efforts to reduce the Federal deficit?
    Mr. Hale. As I said in my remarks during the March 29th testimony, 
we have and will continue to have some significant national security 
challenges. Certainly, the assumptions for proposed force reductions 
may adjust based on future security circumstances, but such reductions 
were not made without first knowing the risk. In the end, these force 
reductions are achievable, but we also understand that in order to 
protect the capability of the warfighter, the plan must stay aligned 
with global conditions and balance such reductions with minimal risk. 
It is important to remember that even after the planned reductions, the 
active Army end strength would continue to be larger by nearly 40,000 
soldiers compared to their end strength 4 years ago.

    21. Senator Ayotte. Secretary Hale, to what extent will global 
conditions have to change for the worse in order to trigger a 
reassessment of the proposed force structure reductions?
    Mr. Hale. We will continuously assess global conditions and adjust 
as necessary in order to minimize risk. The current plan is based on 
the assumption that the number of troops in Afghanistan will be 
significantly reduced by the end of 2014 in accordance with the 
President's and NATO's strategy. If the assumptions prove incorrect, 
there is plenty of time to adjust the size and schedule of this change. 
As the Services resize their forces according to anticipated demand, we 
must ensure that any reductions avoid unnecessary increased risk or 
stress on our servicemembers.

    22. Senator Ayotte. Secretary Hale, the downward ramps for both the 
Marine Corps (20,000 in 2 years) and Army (47,000 in 4 years) are very 
steep. Lacking mandatory spending authority for early retirement 
authority, enhanced selective retirement boards, and other legislative 
initiatives, how do you expect these Services to achieve these goals?
    Mr. Hale. It is the Department's policy to offer voluntary programs 
prior to taking involuntary separation action. Maintaining readiness 
while responsibly reducing our force structure will be a major 
challenge in the years ahead and the Department needs additional 
authorities to achieve these goals. The Department is working to submit 
a legislative proposal for force shaping tools to achieve the necessary 
force drawdown. The Department is currently reviewing a package of 
authorities, which includes the following proposals--(1) Reinstatement 
of authority for enhanced Selective Early Retirement Boards and Early 
Discharges; (2) Extension of Voluntary Separation Pay; (3) 
Reinstatement of Temporary Early Retirement Authority; (4) Voluntary 
Retirement Incentive; and (5) Authority to reduce years of service for 
mandatory retirement for certain officers in pay grades O-5 and O-6.

    23. Senator Ayotte. Secretary Hale, if DOD decides to reverse the 
proposal, would you expect to get the $6 billion back in the top line 
in fiscal year 2015?
    Mr. Hale. Every year, we perform a program and budget review of all 
DOD programs and prioritize requirements based on the current and 
projected economic, political, and national security environments. 
Starting with the fiscal year 2013 program and budget review, we will 
reassess these programs for the budget year and 5 years out. Given this 
schedule, fiscal year 2015 will be readdressed during the next three 
program and budget reviews before submitting the fiscal year 2015 
President's budget. We will work the details of any top line funding 
adjustments necessary to meet DOD requirements through the Office of 
Management and Budget, as we do on an annual basis.

    24. Senator Ayotte. Secretary Hale, what other Department-wide 
efficiency initiatives are subject to the uncertainty of world events?
    Mr. Hale. The Department believes that most of the efficiencies 
included in the fiscal year 2012 budget request are achievable with 
minimal risk to warfighting capability. The efficiencies in the fiscal 
year 2012 budget were primarily focused on business process and 
overhead expenditures. Of course, with any plan, there is a possibility 
that implementation may not happen as originally planned for various 
reasons. To ensure implementation risks are mitigated, there will be a 
recurring review of component plans and actual execution against those 
plans.

                            audit of savings
    25. Senator Ayotte. Secretary Hale, given all the shortcomings in 
DOD's financial management systems, I question whether the efficiencies 
identified in the fiscal year 2012 budget request are reliable, 
realistic, and achievable without a set of auditable financial 
statements. How confident are you that the efficiencies proposed will 
actually realize the projected savings without having a decent set of 
financial statements that can be audited to track performance?
    Mr. Work. The Department records and reports expenditures 
associated with budgeted amounts. While not sufficient to meet audit 
standards, this longstanding approach has proven to be an effective 
means to responsibly manage the public funds entrusted to the 
Department. We have thousands of well-trained financial management 
professionals in the Department dedicated to and motivated by their 
role in providing to warfighters the resources necessary to meet the 
National security mission of the country. These financial managers know 
DOD missions cannot be executed without timely and sufficient 
resources, and so are able to track expenditures and report to managers 
with an accurate status. Because of this capability, Secretary Gates 
and I feel we can demand and track savings from the specific operations 
targeted by the efficiencies initiative.
    This does not mean that we do not take the financial statement 
audit requirement seriously. Financial statement audits are also a key 
indicator to the public that we have reliable financial management 
information and can show reliable results of the efficiencies 
implemented. While this is not the intent of financial statement 
audits, they are a signal to the public that we manage funds legally, 
effectively, and efficiently. We are dedicated to having fully 
auditable financial statements by 2017, the deadline established by 
Congress.

    26. Senator Ayotte. Secretary Hale, why is the achievement of a DOD 
financial audit not Secretary Gates' top efficiency initiative?
    Mr. Hale. The highest priority for the Department's business 
enterprise is to meet the needs of the warfighters executing our 
national security mission. Due to budgetary constraints for the United 
States as a whole, and DOD in particular, Secretary Gates has directed 
the Department to eliminate or reduce overhead tasks and transfer the 
related resources to meet urgent warfigher needs. In other words, 
transfer resources from tail to tooth. This initiative to improve 
financial management and achieve a financial audit is part of that 
effort. Improved financial management information will help the 
Department better identify overhead costs and ensure reductions are 
realized.

    27. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, which savings or efficiencies proposed by 
your departments are the riskiest, in terms of not being achievable? 
Please explain your answer.
    Mr. Hale. Experience tells us that some of these initiatives may 
not proceed entirely according to plan. The Department has no choice 
but to strictly monitor and enforce these efficiencies and make 
adjustments as needed with the understanding that we cannot afford to 
return to past behavior. At this point, there are no elements that we 
believe are especially risky
    Dr. Westphal. Of the proposed Army efficiencies, realizing savings 
from organizational streamlining and the implementation of better 
business processes represent the greatest challenge. Many of those 
organizational changes were driven by the need to address the 
cumulative effects of over a decade of war on the Army, its soldiers 
and their families. The Army is mitigating the risk of such challenges 
by prudently planning to save only 20 percent in these difficult areas 
during the first 3 years of the FYDP (i.e., $2 billion fiscal year 
2012-2014 of the projected $9 billion total over fiscal years 2012-
2016). The Army phased its approach to provide the time needed to 
implement future initiatives successfully.
    We are confident we can achieve the necessary savings in fiscal 
year 2012 through fiscal year 2014 by leveraging other types of 
efficiency savings such as:

         Terminating or reducing weapons systems with declining 
        relevance or unnecessary redundancy through comprehensive 
        capability portfolio reviews.
         Leveraging investments in existing infrastructure and 
        implementing a balanced facilities investment strategy to save 
        $1.4 billion in military construction (MILCON).

    Mr. Work. An area of particular challenge pertains to assorted 
efficiencies that have a cumulative effect on the DON Total Force. In 
an effort to maximize the preservation of `tooth,' aggressive measures 
were taken to ensure that overhead investments (`tail'), such as those 
devoted to manpower, were streamlined. Sample issues include reductions 
in the number and size of staffs, cuts to Senior Executives and General 
Officers, and significant reductions in contractor support. Although 
not easy, taking these steps was necessary to preserve core warfighting 
capability.
    There are several factors that add to the complexity of realizing 
efficiencies in the workforce. For starters, it is critical to adopt a 
total force perspective and fully understand the combined impact of 
adjustments made to military, civilian, and contractor personnel. 
Obtaining this viewpoint is difficult given the fact that cuts span 
appropriations, organizations, and contracts and are accompanied by 
varying degrees of specificity in terms of intent. For example, some 
reductions are defined by billet(s) while others are exclusively 
represented by fiscal adjustments that must be translated into billets 
in order for the savings to be realized. While these efficiencies may 
be achievable in the near term, they may be more difficult to sustain 
over the long term, due in part to circumstances beyond our control 
(e.g. force reset or surge requirements).
    Because the savings have already been recouped in the 2012 budget 
submission, the DON is committed to ensuring that these savings are 
realized and not inadvertently or unintentionally applied to critical 
programs or missions. Meeting this objective will require application 
of oversight and ardent planning on an Enterprise level. As Under 
Secretary Hale testified to Congress (on 29 March 2011 before the 
Senate Armed Services Committee Subcommittee on Readiness), `` . . . if 
we fail to achieve our efficiency plans, we will be forced to scale 
back programs that contribute to our core mission. That prospect will 
motivate us to translate planned efficiencies into actual 
efficiencies.'' Although execution of these savings won't commence 
until October 2011, efforts are already underway to plan for 
implementation and ensure that necessary risk mitigation measures are 
in place. In fact, the DON is already working across the DON Enterprise 
and closely with OSD to ensure that all 2012 efficiencies, not just 
those related to the workforce, are being monitored and tracked in a 
manner that will minimize risk and keep leadership informed of emergent 
challenges.
    Ms. Conaton. First, we have mitigated risk in our efficiency plans 
through a variety of strategies including ramping up expected 
efficiencies further out in the FYDP allowing additional time for 
planning and execution of the plans; selecting by-name owners of our 
initiatives to ensure responsibility remains at a personal level of 
accountability; and, by weaving efficiency planning and execution 
process into existing Air Force Corporate Structure to ensure 
efficiency plans are aligned with Air Force strategy and get reviewed 
on a regular basis. However, we are unable to eliminate risk due to a 
variety of factors.
    The majority of risk we currently assess in our efficiencies comes 
from external sources and is generally a product of assumptions made in 
the planning process. Commodity prices, for example, represent great 
risk to energy efficiencies in both the aviation and facility areas. 
Rising fuel prices could completely eliminate all dollar savings from 
efficiencies. Our business process efficiencies are based on a 
projected level of demand for service. Real-world contingencies could 
significantly challenge those projections and drive additional manpower 
requirements to meet those needs in spite of the process efficiencies 
we were able to garner. The same contingencies would also use our 
equipment at greater rates than currently projected which would require 
adjustments to acquisition strategies and replacement profiles.
    We monitor risk on a monthly basis, and therefore the type of risk 
and amount associated with that risk varies as we actually execute the 
efficiency plans. Currently, the Air Force assesses risk in the 
following areas that translate to $1.2 billion across the FYDP in 
efficiency plan shortfalls, and an additional amount of approximately 
$1 billion based on actual cost of fuel:

         Installation Support/Communication Issues: Current 
        restructure plans for installation support result in efficiency 
        estimates that are less than originally anticipated. The Air 
        Force is developing alternative approaches to mission support 
        that will allow us to make up the difference.
         Logistics and Installation Efficiencies and MAF Fuel 
        Efficiencies: We can take actions through smart investments and 
        standard operating policies to reduce energy consumption, but 
        we cannot control the price of energy. Recent increases in oil 
        prices highlight the inherent risk in achieving financial 
        savings based on fuel and energy efficiencies. We expect to 
        reduce energy consumption and reduce gallons/energy consumed. 
        However, as price of fuel varies, it will impact our ability to 
        achieve financial savings.
         Weapon System Sustainment: Our aging platforms and 
        equipment create upward pressure on costs--obsolescence is a 
        continuing management challenge
         The Defense Weather Satellite System (DWSS): Decisions 
        were made to enhance funding to this program in finalizing the 
        fiscal year 2012 President's budget submission which impacts 
        projected savings associated with this program across the FYDP. 
        We are doing assessments within this program, our space 
        portfolio, and broader acquisition efficiencies as a means to 
        fill this efficiency target gap

    The process for managing efficiencies has considered that fact of 
life issues are inevitable. The ability to fill gaps quickly when they 
arise is essential and is part of the ongoing management process. The 
Air Force will be proposing additional efficiencies to fill any 
shortfalls in executing fiscal year 2012 and in building the fiscal 
year 2013 budget.

         relocation of marine corps force from okinawa to guam
    28. Senator Ayotte. Secretary Work, the current agreement between 
the United States and Japan to realign forces on Okinawa, and to 
relocate 8,000 marines and their families from Okinawa to Guam is 
planned to cost over $25 billion between the two countries. Given the 
recent tragic events in Japan, is DOD currently reassessing the terms 
of the agreement? If so, can you provide details?
    Mr. Work. A ``2+2'' meeting between the Secretary of Defense, 
Secretary of State, Japanese Minister of Defense, and Japanese Minister 
of Foreign Affairs will be scheduled for late May or early June in 
Tokyo. In the preliminary discussions, the Government of Japan has 
assured the U.S Government that since the natural and nuclear disaster 
events of March 11, 2011 it remains committed to the Roadmap Agreement, 
both for the Futenma Replacement Facility and Okinawa as well as the 
Guam realignment. We are working with the Japanese to determine what 
effect the events of March 11, 2011 may have on the near term bilateral 
agenda.

    29. Senator Ayotte. Secretary Work, in your opinion, is the closure 
of Marine Corps Air Station Futenma and the relocation of Marine Air 
activities to Camp Schwab still a legitimate option?
    Mr. Work. We continue to work with the Government of Japan to 
develop the way forward to construct the Futenma Replacement Facility 
(FRF) at Camp Schwab. Per the 2006 Roadmap Agreement, we will continue 
to use MCAS Futenma until a fully operational FRF is completed.

    30. Senator Ayotte. Secretary Work, what are currently the planned 
investments on Guam and on Okinawa by each country?
    Mr. Work. Regarding Guam, per the Realignment Roadmap, the 
Government of Japan will contribute up to $6.09 billion in funding 
towards the relocation of marines from Okinawa to the U.S. territory. 
The funding contribution is comprised of a direct cash contribution of 
$2.8 billion, plus up to $3.29 billion in financial instruments for 
utilities and family housing to support the relocation of marines. The 
United States will bear the balance of the costs associated with the 
realignment.
    The Government of Japan has transferred $834 million to the United 
States to fund the following projects (awards pending): (note Japanese 
fiscal year (JFY) runs from April 1-March 31):

         JFY09:

                 Utilities & Site Improvements I: $321 million

         JFY 2010:

                 Apra Harbor Medical Clinic: $96 million
                 Apra Harbor Waterfront HQ: $25 million
                 Utilities & Site Improvements II: $309 million
                 Finegayan Fire Station: $25 million

         JFY 2011:

                 MLG Admin Building: $59 million
                 Base Admin Building: $70 million

    In JFY 2011, the Government of Japan also approved $415 million in 
financing for water and wastewater projects on Guam.
    Guam projects funded by the U.S. Government thus far are:

         Fiscal Year 2010:

                 AAFB North Ramp Utilities I: $22 million 
                (awarded in April 2011)
                 AAFB North Ramp Parking I: $89 million 
                (awarded in April 2011)
                 Apra Harbor Wharf Improvements I: $127 million 
                (awarded in Sept. 2010)
                 Military Working Dog Facility Relocation: $14 
                million (awarded in Sept. 2010)
                 Defense Access Road Improvements: $49 million

         Fiscal Year 2011

                 Apra Harbor Wharf Improvements II: $40 million
                 Defense Access Road Improvements: $67 million

    Additionally, the President's budget for fiscal year 2012 includes 
a request for $181 million for two MILCON projects (AAFB North Ramp 
Utilities II, Finegayan Water Utilities) and planning and design. We 
have developed an updated cost estimate and notional timeline for the 
Guam realignment and have offered to brief committee staff regarding 
these issues.

    31. Senator Ayotte. Secretary Work, are the planned investments 
still affordable?
    Mr. Work. Given the significance of the realignment of Marine 
forces in the Pacific, we continue to work to identify opportunities to 
reduce the costs while at the same time implementing the best possible 
strategic laydown of forces in the Pacific.

                     termination of weapons systems
    32. Senator Ayotte. Secretary Hale, over $21 billion of the 
projected savings in the next 5 years will be achieved through program 
terminations and reductions. Assuming the requirements still exist, say 
for example amphibious assault, do these savings take into account the 
additional costs the Services will incur in other programs to 
compensate for the terminations? If not, why not?
    Mr. Hale. The Army terminated three programs including Non-Line of 
Sight Launch System (NLOS-LS), Surface Launched Advanced Medium Range 
Air-to-Air Missile (SLAMRAAM) and Scorpion. The Army believes existing 
systems and capabilities are sufficient and do not believe that 
additional procurement funds will be required for other programs. Army 
also determined that Scorpion was not a cost effective program and has 
elected to pursue other anti-vehicular capabilities under the Spider 
Increment II program which is currently funded in fiscal year 2012.
    The Navy termination efficiencies encompassed three programs which 
include the Expeditionary Fighting Vehicle (EFV), restructure of the 
Joint Light Tactical Vehicle (JLTV), and termination of the Standard 
Missile 2 Block IIIB Upgrade. DON accounted for additional costs 
through reinvestment of these savings where required within other Navy 
programs.
    The Air Force corporate structure took into account the costs 
associated with funding the programs vice terminating. The Air Force 
reported $3.7 billion for program reductions and termination across 
fiscal years 2012-2016) including three terminated programs 
representing 12 percent of that total figure. Operations and 
maintenance funding adjustments to implement fiscal year 2011 costing 
factors comprised 35 percent, program adjustments, from fact of life 
changes to adjusting requirements to highest priority needs, comprised 
47 percent of the total. The remaining 6 percent is associated with 
retiring assets as a preferred economic alternative to repair and 
continued operations.
    The Joint Multi-Mission Submersible (JMMS) program is Special 
Operations Forces (SOF) unique and its termination incurred no 
additional costs.

    33. Senator Ayotte. Secretary Hale, if so, for each program 
termination, please provide details of the programs in which funding 
increased to meet the underlying requirement.
    Mr. Hale.
Navy - Two Program Terminations/One Program Restructure.
    The Navy terminated two programs and restructured one saving $5.5 
billion including termination of Expeditionary Fighting Vehicle (EFV), 
restructure of the JLTV, and termination of the Standard Missile 2 
Block IIIB Upgrade. Navy reinvested EFV funding into upgrades for the 
current Amphibious Assault Vehicle (AAV) fleet, RDT&E for the proposed 
Amphibious Combat Vehicle (ACV), accelerated procurement of the Marine 
Personnel Carrier (MPC), and sustainment of legacy ground tactical 
vehicles to bridge the capabilities gap associated with EFV 
cancellation.
    Since JLTV is a program struggling with changing capability 
requirements and slow development, the restructure removes procurement 
funding from fiscal year 2013 to fiscal year 2016. There is no current 
impact as the Marine Corps studies how this capability ties to its 
future Ground Combat Tactical Vehicles requirements.
    The SM-2 Block IIIB termination did not require additional 
investments in other programs. The Department will procure SM-6 
missiles instead of SM-2 Block IIIB. The SM-6 program was already 
resourced before the SM-2 termination, and as such, required no 
additional funds to meet the Department's requirements.
Air Force - Three program terminations.

    1.  The Air Vehicle Survivability Facility is terminated saving 
$3.4 million in Research Development, Test & Evaluation (RDT&E) funds 
across fiscal years (fiscal year) 2012-2016. The facility was deemed as 
non-essential at the completion of the post-BRAC 05 Memorandum of 
Agreement was signed by the Air Force and Navy. All subsequent Air 
Force live-fire test and evaluation workload has been moved to the Navy 
facility at China Lake. A near term fiscal year 2012 closure bill of 
$250,000 was provided in the offset option. Any potential environmental 
cleanup cost is pending completion of the environmental assessment.
    2.  The Air Force Infrared Search and Track (IRST) Program 
modification to the F-15 was terminated saving $43.8 million in RDT&E 
funds across fiscal year 2012-2013 and $301.6 million in procurement 
funds across fiscal year 2013-2016.
    3.  Advanced Targeting Pods-Sensor Enhanced (ATP-SE) was terminated 
saving $98.7 million in procurement funds across fiscal year 2012-2016. 
We have associated support funding reductions from this termination 
which are included in our program reduction accounting.

U.S. Special Operations Command-One program termination.
    JMMS was terminated saving $800 million from fiscal year 2013 to 
fiscal year 2016. The $800 million was realigned to fund the SOCOM 
Undersea Mobility Way Ahead. Longstanding capability gaps persist in 
SOCOM's requirement to operate in denied maritime areas from strategic 
distances. The JMMS program resources were realigned to the following 
program requirements:

         Sea, Air, and Land (SEAL) Delivery Vehicle (SDV) Mk 8 
        technology refresh
         SDV upgrades
         Shallow Water Combat Submersible Block I Program of 
        Record
         Development of a family of dry combat submersibles

                 Dry Combat Submersible Light
                 Dry Combat Submersible Medium

         Dry Deck Shelters (DDS) Modifications/Extension
         Analysis of Alternatives for the Next-Generation 
        Submarine Shelter

Army--Three programs terminated.
    The Army terminated three programs saving $4.5 billion including 
Non-Line of Sight Launch System (NLOS-LS), SLAMRAAM, and Scorpion.
    The NLOS-LS program was terminated when senior leadership 
determined that NLOS-LS was not cost effective compared to other 
precision fire capabilities. The Army believes existing systems and 
capabilities are sufficient to attack intended target sets and do not 
believe that additional procurement funds will be required for other 
programs.
    SLAMRAAM procurement was cancelled when senior leadership 
determined it was not cost effective compared to other air and missile 
defense capabilities. Sufficient capability currently exists within 
other programs, e.g., Patriot, to attack lower tier targets such as 
cruise missiles, although funding was added to upgrade Stinger.
    Senior leadership also determined that Scorpion was not a cost 
effective program and has elected to pursue other anti-vehicular 
capabilities under the Spider Increment II program which is currently 
funded in fiscal year 2012.

                       cuts to service contracts
    34. Senator Ayotte. Secretary Hale, does DOD have a baseline 
accounting of the funds spent on service contracts annually?
    Mr. Hale. The Department utilizes the Office of Management and 
Budget directed object class categories to identify the amount of 
funding spent on contract services annually. Object classes are 
categories in a classification system that present obligations by the 
type of items or services purchased by the Federal Government, for 
example, supplies, rent, contract services. These amounts include both 
base budget funding and Overseas Contingency Operations (OCO) funding.

    35. Senator Ayotte. Secretary Hale, if there is a baseline 
accounting of these funds, can you provide details on the amounts spent 
annually by type of service contract?
    Mr. Hale. The actual amount spent in fiscal year 2010 on Contract 
Services from base budget and Overseas Contingency Operations funding 
was:

                        [In millions of dollars]
------------------------------------------------------------------------
                                                            Fiscal Year
           Object Class              Object Class Title    2010  Actual
------------------------------------------------------------------------
  25.1............................  Advisory and                 $19,368
                                     Assistance Services.
  25.2............................  Other Services......          20,895
  25.4............................  Operation and                 24,923
                                     Maintenance of
                                     Facilities.
  25.5............................  Research and                   3,188
                                     Development
                                     Contracts.
  25.6............................  Medical Care........          13,985
  25.7............................  Operation and                 30,608
                                     Maintenance of
                                     Equipment.
  25.8............................  Subsistance and                  347
                                     Support of Persons.
                                                         ---------------
        Total.....................                              $113,314
------------------------------------------------------------------------


    36. Senator Ayotte. Secretary Hale, if there isn't a baseline 
accounting of these funds, how will you be able to assess the 
performance of DOD's goal to cut service contracts by 10 percent in 
each of the next 3 years, resulting in a savings of $5.7 billion?
    Mr. Hale. The Department plans to monitor compliance with the 
service support contract funding reductions through a data call that 
will require each component to provide an implementation plan that 
lists actions taken and planned during fiscal year 2011. Components 
will be required to provide an update twice annually.

                       cuts to facility accounts
    37. Senator Ayotte. Secretary Hale, since maintenance of DOD 
facilities requires a minimally adequate level of annual funding, why 
does DOD consider cuts to those accounts as an efficiency savings?
    Mr. Hale. Two Military Services believe they can identify facility 
sustainment efficiencies. Given the stress on DOD's budgets now and in 
the near future, we believe it is important to explore opportunities to 
save resources. The Department will monitor the Navy and Air Force 
sustainment execution to identify whether they were able to maintain or 
improve delivery of services or just defer them.

    38. Senator Ayotte. Secretary Hale, does the long-term underfunding 
facility maintenance and repairs have a detrimental impact on 
readiness?
    Mr. Hale. While the long-term effect of underfunding maintenance 
and repairs results in an increase to the deferred maintenance backlog, 
the Department prioritizes critical facility maintenance and repairs to 
eliminate significant detrimental impacts to readiness.

    39. Senator Ayotte. Secretary Hale, will the accompanying reduction 
of funds for MILCON increase the need for maintenance and repair funds, 
thereby accelerating the detrimental impact on readiness?
    Mr. Hale. The fiscal year 2012 MILCON reductions are a result of 
completing BRAC and changes in other initiatives like Grow-the-Force. 
Because these efforts were not recapitalization efforts, these 
reductions do not correlate to requirements for additional restoration 
and modernization funds. Further, regardless of any reduction of funds 
for MILCON investments, the necessary annual investments for 
sustainment of existing infrastructure remain. The DOD has processes to 
determine and fund priority critical facility maintenance and repairs 
to eliminate significant detrimental impacts to readiness.

    40. Senator Ayotte. Secretary Westphal, the Army proposes to save 
$1.5 billion on MILCON costs by sustaining existing facilities, but 
does not propose a corresponding increase to the facility sustainment 
account. How will the Army fund the increased sustainment load?
    Dr. Westphal. The Army is now focusing on using Operations and 
Maintenance (O&M) funded restoration and modernization as a more cost 
effective way to meet current mission requirements as opposed to 
replacing facilities through MILCON. This approach has been successful 
in modernizing certain types of permanent party barracks and we plan to 
expand this approach by continuing with training barracks modernization 
using both MILCON and O&M. The fiscal year 2012 budget includes $202 
million for restoration and modernization, an increase over prior year 
requests.

                            army reductions
    41. Senator Ayotte. Secretary Westphal, in reviewing the testimony 
and supporting documentation, I was struck by the vague descriptions of 
some of the Army initiatives. Please provide more details on the 
``adoption of an Enterprise Governance Approach to transforming 
business operations and obtaining the best possible outcomes for the 
entire Army rather than individual portions of the force''.
    Dr. Westphal. The Army's enterprise governance approach supports 
transforming business operations and obtaining best possible outcomes 
by using broad collaboration and finding innovative Army-wide 
solutions. We created four functional forums called ``Core 
Enterprises'' centered on manning, readiness, equipping and services to 
help us better align and integrate our business operations. These Core 
Enterprises are focused on improving Army business processes through 
collaboration within and between the Core Enterprises. This creates a 
holistic team approach towards transforming business operations. 
Problems are now exposed in the full light of a multifaceted forum that 
brings together a broad range and depth of experiences to improve the 
Army. Some examples of the Army's enterprise governance approach 
include the recent stand up of the Business Systems Information 
Technologies Executive Steering Group and defining 27 Business 
Initiatives. The Business Systems Information Technologies Executive 
Steering Group is chaired by the Army Chief Management Officer and 
works in close coordination with the DOD Deputy Chief Management 
Officer to synchronize, integrate, and prioritize resources. The Army 
Chief Management Officer has designated Enterprise Business Initiatives 
which are broad enough in scope to affect the Army in several ways. We 
use a horizontal integration approach to prevent secondary and tertiary 
unintended consequences as we move toward implementation. The 
enterprise governance approach for business initiatives reduces risk of 
failure and wasted resources as a mechanism for continuous process 
improvement.

    42. Senator Ayotte. Secretary Westphal, where can we find the 
savings of $75 million in the current budget request?
    Dr. Westphal. Assuming that the referenced $75 million reduction is 
in Base Operations Support, the Army will realize these savings by 
taking the following actions:

         Installation Management Command (IMCOM) restructuring 
        initiatives.

                 IMCOM will generate manpower savings by 
                restructuring the Command's operations staff sections 
                to reduce civilian pay requirements.
                 Family Morale, Welfare, Recreation Command 
                (FMWRC) Inactivation/Integration. The Army is 
                inactivating the two-Star FMWRC Command and integrating 
                its mission into the General Staff. This reduces the 
                command's structure and leverages existing capabilities 
                already performed by the IMCOM Headquarters staff.
                 Elimination of Staff Augmentation Contracts. 
                Leveraging the Headquarters' Base Realignment and 
                Closure (BRAC) move from Washington, DC to Fort Sam 
                Houston, TX, IMCOM eliminated its dependence on 
                contractor personnel and is staffing the Headquarters 
                with a pure Department of the Army Civilian (DAC) 
                workforce in Texas.

         Consolidation of IMCOM Regions. Midway through fiscal 
        year 2011, IMCOM operated with six regional commands. By the 
        end of fiscal year 2011, IMCOM will be operating with only four 
        Regions: Pacific, Central, Atlantic and European. As we 
        restructure and rebalance the personnel and subsequently 
        document this restructure, the command will be able to reduce 
        its Regional Headquarters authorized strength from its current 
        level of 1,160 to 945, a savings of 215 positions.
         Garrison Reductions: IMCOM conducted a thorough Force 
        Restructure Review that identified approximately 3,000 
        Department of the Army civilians and Contractor Manpower 
        Equivalent (CME) reductions across the Army's garrisons.

    43. Senator Ayotte. Secretary Westphal, can I get the same 
explanation for your goal to ``refine and optimize full spectrum 
training requirements'' and exactly how $1.1 billion will be saved?
    Dr. Westphal. The Army goal is to train forces for a more balanced 
readiness posture, not just for counterinsurgency, nor exclusively for 
major combat operations as was done in the past. Instead, the Army will 
prepare contingency forces to conduct offense, defense, and stability 
operations in a complex 21st century operational environment against an 
adaptive hybrid threat. The $1.1 billion fiscal year 2012-2016 savings 
in training requirements is primarily due to reduced training activity 
in the Reset phase of the Army Force Generation (ARFORGEN) model and 
the shift from major combat operations to full spectrum operations 
training. The key adjustments for full spectrum operations training 
include reducing the number of Combat Training Center rotations that 
Brigade Combat Teams (BCTs) execute during an ARFORGEN cycle from two 
to one; reducing the frequency of BCT-level training and integrating 
stability operations into all training events. These changes reduce 
resource requirements, without short-changing the readiness of our 
forces.

    44. Senator Ayotte. Secretary Westphal, if we are cutting training 
requirements for our soldiers, will this refinement be accompanied by 
reduction of the roles and tasks currently considered mission 
essential?
    Dr. Westphal. There will be no reduction in roles or tasks. 
Moreover, stability tasks have been added and are now recognized as 
``mission essential'' to Army operations as part of a joint/
interagency/multinational team during contemporary campaigns. The 
intent of full spectrum operations training is to prepare forces not 
just for major combat operations or counterinsurgency operations, but 
to prepare leaders and forces to conduct offense, defense, and 
stability operations (or civil support operations within the contiguous 
United States) simultaneously for assigned missions at any point along 
the spectrum of conflict from stable peace to general war. Full 
spectrum operations training enables the Army to effectively respond to 
a broad range of contingencies at any point along the spectrum of 
conflict against hybrid threats. We are not cutting requirements or 
short-changing the readiness of our soldiers; rather we are more 
efficiently allocating training resources to better match planned and 
expected training activity levels.

                 controlling military health care costs
    45. Senator Ayotte. Secretary Hale, in your written statement, you 
state that ``DOD's medical costs have skyrocketed in recent years--from 
$19 billion in fiscal year 2001, to more than $52 billion anticipated 
in fiscal year 2012.'' In response, the President's budget request for 
fiscal year 2012 assumes savings as a result of increased enrollment 
fees for working age retirees, adjustment of pharmacy copayments for 
all beneficiaries, and other health care payment reforms as well. 
Expected savings from the health care reforms will total $340 million 
in fiscal year 2012 and $7.9 billion through fiscal year 2016. Is this 
an efficiency or just passing rising costs onto retirees?
    Mr. Hale. The health care reform proposal is an efficiency with the 
goal of maintaining high-quality care while also slowing the growth in 
costs. For some time, the Department has taken a number of internal 
actions, as recommended by beneficiary organizations to achieve greater 
internal efficiency. The four benefit changes propose a shared 
responsibility for managing costs while introducing further 
efficiencies. We consider the proposal for the fiscal year 2012 budget 
to be fair and equitable.

    46. Senator Ayotte. Secretary Hale, in each health care cost saving 
initiatives, is there any internal belt tightening by DOD itself that 
would yield a real efficiency savings?
    Mr. Hale. The Department proposed initiatives include $1.3 billion 
worth of internal Defense Health Program efficiencies across the FYDP. 
The initiatives include:

                        [In millions of dollars]
------------------------------------------------------------------------
                                                                Fiscal
                                                              Years 2012-
                                                                 2016
------------------------------------------------------------------------
Patient Centered Medical Home (PCMH) Staffing...............        $112
Consolidation of Initial Outfitting and Transition (IO&T)...         191
Medical Supply Chain Sourcing Optimization..................         129
Service Support Contractor Reduction........................         478
Baseline Review (DHP/TMA)...................................         262
Reports, Studies, Boards & Commissions Review...............         124
                                                             -----------
  Total Potential Savings...................................      $1,296
------------------------------------------------------------------------


         The PCMH concept has been adopted as the foundation 
        for refocusing the primary health care delivery model with the 
        Military Health System (MHS). PCMH will generate savings by 
        reducing the utilization of specialty, critical care, and 
        inherent staffing for implementation.
         Through consolidated IO&T management of medical/non-
        medical equipment, technology systems, and furniture for MILCON 
        initiatives efficiency savings can be achieved.
         The Department determined opportunities for supply 
        chain optimization through medical materiel sourcing 
        strategies. The reduction is less than 1 percent of total 
        supply purchases and should be easily achieved primarily 
        through efforts of the Defense Logistics Agency (DLA).
         The Department is currently conducting a complete 
        bottom-up review of Programs within the TRICARE Management 
        Activity which rely heavily on Contractor Support. Programs 
        will be reviewed based on strategic importance, performance, 
        and affordability.
         As part of a baseline review, the TRICARE Management 
        Activity will reduce staff and streamline its headquarters 
        management. Significant efficiencies will be realized with no 
        reduction in mission effectiveness.
         The entire Department, to include Health Affairs, will 
        implement guidance to reduce expenditures on Reports, Studies, 
        Boards and Commissions. The cost of producing future 
        initiatives will also be reported for transparency.

    47. Senator Ayotte. Secretary Hale, how many of the proposed DOD 
efficiency initiatives actually transfer or increase costs to military 
members or other beneficiaries?
    Mr. Hale. Three of the reform initiatives modestly increase 
beneficiary's out-of-pocket costs.
Increase TRICARE Prime Fees for <65 Retirees
         This proposal would increase Prime enrollment fees in 
        fiscal year 2012 for working age retirees by $5/month for 
        families or $2.50/month for individuals, but would exclude 
        Survivors, medically retired members, and their beneficiaries. 
        In addition, it is recommended that starting in fiscal year 
        2013 enrollment fees be indexed to a medical index to keep pace 
        with health care inflation. Given that fees have not increased 
        since the inception of TRICARE in the mid-1990s, and it 
        protects our most vulnerable populations from additional 
        financial burden, this proposal is viewed as a very modest 
        increase, which continues to recognize the sacrifices made by 
        our military.
Pharmacy Co-Pay
         This proposal will change co-pays for pharmaceuticals 
        to provide incentives for beneficiaries to choose the most 
        cost-effective options for prescriptions, namely use of generic 
        drugs and delivery of prescriptions by mail. Co-pays are 
        eliminated altogether for generic drugs ordered through the 
        mail order program, which will mean a savings to beneficiaries 
        of $3 per prescription. Most non-generic drugs are available 
        via mail order with no increase in co-pays. For retail 
        pharmacies, co-pays are increased by $2 to $3 per prescription. 
        These changes will help Department to contain medical care 
        costs while still meeting the medical needs of our 
        beneficiaries.
U.S. Family Health Plan (USFHP)
         This proposal will provide equitable treatment for all 
        Medicare-eligible retirees by offering a single program design 
        across the country. Under current law, Medicare-eligible 
        enrollees are allowed to remain in the USFHP, whether they 
        enroll in Medicare Part B or not. They are the only military 
        retirees using the health benefits who do not have to enroll in 
        Medicare when they become eligible. We seek legislative 
        authority that will require those who are part of the USFHP to 
        join Medicare upon reaching age 65. Our plan will fully 
        grandfather all of those who are already in USFHP, but would 
        require future USFHP enrollees to transition to Medicare and 
        TRICARE for Life once they become Medicare-eligible. Future 
        retirees covered by the proposal would still be able to obtain 
        services from providers associated with USFHP as long as the 
        providers accept Medicare.

    48. Senator Ayotte. Secretary Westphal, Secretary Work, and 
Secretary Conaton, as you know, the committee has received a letter 
signed by Admiral Mullen and each of the uniformed Service Chiefs 
supporting the President's proposal to increase TRICARE fees. However, 
some beneficiary organizations have a different perspective. Are you 
aware of the concerns expressed by these beneficiary organizations on 
the proposed TRICARE increases, in particular linking fee increases for 
working age retirees to medical inflation rates?
    Dr. Westphal. Yes, we are aware of the concerns expressed by some 
beneficiary organization over the proposed TRICARE rate increases.
    Mr. Work. We understand that some beneficiary groups have expressed 
concerns about the use of the health care inflation index for deriving 
future TRICARE Prime enrollment fee increases for working age retirees.
    Nevertheless, DON supports the Secretary of Defense's health care 
reform initiatives and I believe these proposals are consistent with 
our efforts over the last several years, which have focused on finding 
internal efficiencies, incentivizing healthy behaviors by our service 
men and women, and ensuring all of our beneficiaries are treated 
equitably. These proposals are modest and provide an opportunity for 
all participants--the government, providers of health care, and 
beneficiaries--to share in the responsibility to better manage our 
health care costs.
    Ms. Conaton. Yes, I am aware of the beneficiary organizations 
concerns with regard to the proposed TRICARE increases.
    The TRICARE Prime enrollment fee was established in 1995 and set at 
$230/$460 for individuals/families. This fee has not changed in 16 
years. Enrollees who pay this fee subsequently pay no TRICARE 
deductible (reducing the effective cost of enrollment to $80/$160 per 
year). The expectation had been to raise the enrollment fee on a 
periodic basis, but this has never happened. In 2005, DOD attempted to 
increase the TRICARE enrollment fee by approximately 300 percent over 
three years to again have some parity with civilian health premiums. 
This proposal was met by significant resistance from beneficiary 
organizations, and Congress ultimately decided the increase was too 
severe and prohibited any increase in TRICARE Prime enrollment fees.
    Having learned lessons from the previous attempts at increasing 
TRICARE enrollment fees, and out of genuine concern not to introduce 
unexpected and steep hikes in out-of-pocket costs, the Department has 
put forward a significantly more modest fee increase ($2.50 or $5/month 
for individuals/families). The proposal indexes any future enrollment 
fees to a medical inflation rate, thereby moving to a regular and 
gradual increase from year-to-year, and also excludes from fee increase 
the following special populations of retirees: survivors (regardless of 
when or how the servicemember died), and medically retired military 
members and their families.
    We believe this proposal represents a fair and responsible increase 
in TRICARE Prime enrollment fees, and provides a balanced approach to 
managing the escalating healthcare costs of our MHS while ensuring we 
continue to provide the best healthcare in the world for our warriors 
and their families.

    49. Senator Ayotte. Secretary Westphal, Secretary Work, and 
Secretary Conaton, how do you respond to these concerns?
    Dr. Westphal. We acknowledge that these proposed changes have 
created some concern among our beneficiaries and various organizations 
that represent them. However, we believe the proposal to raise some 
TRICARE fees for working age retirees will be modest, gradual, and 
responsible. We support DOD efforts to work with Congress to find ways 
to help control escalating healthcare costs. The Army, in partnership 
with DOD, is committed to preserving this healthcare benefit while 
recognizing that continued increases in costs are not sustainable. Even 
with proposed fee changes, TRICARE would remain one of the Nation's 
very best health benefits and beneficiaries would continue to have less 
out of pocket costs than Federal, State, and private health plans. 
These proposals balance our commitment to preserve the healthcare 
benefit while slowing future growth in healthcare costs. We continue to 
support modest fee increases as proposed.
    Mr. Work. DON supports the Secretary of Defense's health care 
reform initiatives. TRICARE Prime enrollment fees have not changed 
since the mid-1990s and aligning future increases to an established 
index will help us continue to deliver superb benefits while more 
responsibly managing cost. I believe this and other proposals are 
consistent with our efforts over the last several years, which have 
focused on finding internal efficiencies, incentivizing healthy 
behaviors by our service men and women ensuring all of our 
beneficiaries are treated equitably. These proposals are modest and 
provide an opportunity for all participants--the government, providers 
of health care, and beneficiaries--to share in the responsibility to 
better manage our health care costs.
    Ms. Conaton. As stated in the aforementioned letter dated 7 Feb 11, 
I strongly support these modest changes to the military healthcare 
program in the fiscal year 2012 budget.
    I believe we have included the appropriate safeguards to ensure a 
careful and measured approach to protect our most vulnerable 
beneficiaries, while continuing to provide free healthcare to our 
active duty personnel. Additionally, all Services and the TRICARE 
Management Activity have looked internally to identify efficiencies and 
incorporate those into the system before the decision to pursue these 
changes.
    Our commitment to our beneficiaries remains unchanged, with 
continued investment in wounded warrior care and enhanced access to 
superior health services to all our beneficiaries. I believe these 
changes to the MHS are critical to our continuing to provide the finest 
healthcare benefit in the world while also slowing the cost growth in 
the healthcare system.

    50. Senator Ayotte. Secretary Westphal, Secretary Work, and 
Secretary Conaton, are you concerned about the effect of such increases 
on recruitment or retention of military personnel?
    Dr. Westphal. With the projected economy growing at a slow rate, 
the Army is experiencing a favorable recruiting and retention 
environment. We acknowledge that health care benefits are part of the 
overall package that recruits consider in joining the Army and in 
staying in the Army; however we do not anticipate any shortfalls in 
recruitment or retention at this time.
    Mr. Work. Navy anticipates that a fee increase would have little, 
if any, impact on recruiting and retention. TRICARE is a robust health 
plan with broad coverage at costs well below comparable civilian health 
insurance plans. While the proposed modest fee adjustment would 
increase out-of-pocket expenses for working-age retirees, their total 
health care expenditure would remain well below comparable commercial 
plans. It is also unlikely that a modest change in the cost of a 
retirement benefit, to which most potential recruits would never become 
eligible, and to which those who remain until retirement eligibility 
would not become eligible until at least 20 years later, would 
influence an applicant's decision on whether or not to enlist in the 
Navy.
    Ms. Conaton. While there are many dynamics that impact military 
recruiting and retention, we do not believe the proposed change to 
TRICARE fees for retirees will adversely impact our recruiting and 
retention. Without these adjustments, we will need to reduce funding in 
other areas such as those programs supporting Airmen and their 
families. The latter funding reductions would more adversely impact 
recruiting and retention.

             evolutionary acquisition for space efficiency
    51. Senator Ayotte. Secretary Hale, the Air Force has proposed an 
efficiency initiative to adopt a new method for acquiring satellites 
called Evolutionary Acquisition for Space Efficiency (EASE). The Air 
Force is expecting this new acquisition approach to save up to $1.7 
billion to help launch development of a new long-range bomber program. 
We have recently heard that the Assistant Secretary of Defense for 
Acquisition, Technology and Logistics (AT&L) may have some serious 
concerns about the use of a multiyear program authority for the EASE 
program, putting its authorization into doubt. What is DOD's position 
on the use of multiyear procurement authority for the Air Force 
initiative?
    Mr. Hale. The DOD has discussed the Multi-Year Procurement 
provisions at length with the White House and Congressional staffs in 
reference to the Advanced Extremely High Frequency (AEHF) and Space-
Based InfraRed System (SBIRS) programs. As a result of these 
discussions, we have determined that Multi-Year procurement 
authorization is not required for these space systems. Therefore, the 
model we are implementing is not Multi-Year Procurement. In both of 
these cases, the Air Force is procuring two satellites, in a block buy, 
in a single year. However, funding both satellites, in a single year, 
is not practically achievable in today's budget environment. In order 
to finance EASE, in conjunction with OMB, the DOD has developed a model 
that achieves full funding of block buys through Advance 
Appropriations.
    Savings realized through the AEHF and SBIRS block buys will be 
reinvested in research and development for technology enhancement to 
advance the SATCOM and Overhead Persistent Infrared (OPIR) mission area 
capabilities.

    52. Senator Ayotte. Secretary Hale, what is DOD's view on using 
multiyear contracts to buy military satellites?
    Mr. Hale. The DOD is not using multiyear procurement contracts to 
purchase military satellites at this time. However, future satellite 
procurements, such as the Global Positioning System (GPS), or future 
launch vehicle procurements could gain significant savings through 
multiyear procurement contracts. The DOD will evaluate each procurement 
on a case-by-case basis to determine if the system fulfills all United 
States Code Title 10 requirements for multiyear procurement contracts.

    53. Senator Ayotte. Secretary Hale, from your perspective, isn't 
there a danger that using multiyear contracts to buy major systems too 
aggressively across the enterprise could restrict DOD's ability to 
terminate or otherwise effect reductions in problem programs?
    Mr. Hale. Thank you for this question, I have a two part response.
EASE
    The DOD evaluated but decided not to use multiyear contracts to 
purchase military satellites in the development of the fiscal year 2012 
budget. Instead the Department's PB12 budget employs EASE on AEHF with 
block buys fully funded through Advance Appropriations. The principles 
that should govern a decision for satellite block buys are stable 
requirements, a stable design, completed development, and readiness for 
steady state production.
MYP
    Multiyear Procurement (MYP) can be an effective tool to reduce unit 
cost in continuous stable production runs. When we buy a certain number 
of items each year for a set amount of years, MYP is one tool available 
to generate savings. Through large lot, sometimes referred to as 
Economic Order Quantity (EOQ), material buys can generate significant 
savings on purchased material costs. These large procurements also 
incentivize contractors to be more efficient in their operations as the 
government has committed to a long-term procurement run. The government 
can also use MYP as a negotiating lever by increasing our buying power, 
which can encourage companies to commit to lower fee levels in exchange 
for a longer-term commitment.
    We understand that MYP commits both the Department and Congress, 
and we will analyze each MYP proposal on a case-by-case basis and 
propose only those that meet the principles referred to above.

    54. Senator Ayotte. Secretary Hale, are DOD efficiencies 
initiatives inhibited by policies in the OMB that prefer multiyear 
procurements over incremental funding for the acquisition of major 
weapon systems?
    Mr. Hale. The DOD and OMB have collaborated well on identifying 
potential efficiencies and acquisition initiatives such as EASE. OMB 
policies do not inhibit DOD efficiency initiatives.

    55. Senator Ayotte. Secretary Hale, if the savings proposed through 
EASE are not realized, how will that affect the long-range bomber 
program?
    Mr. Hale. Savings realized through the AEHF and SBIRS block buys 
will not be applied to the long-range bomber program. Rather, these 
savings will be reinvested in research and development for technology 
enhancement to advance the SATCOM and Overhead Persistent Infrared 
(OPIR) mission area capabilities.

    56. Senator Ayotte. Secretary Conaton, has the Air Force received 
any recent guidance from DOD about EASE? If so, can you share that 
guidance?
    Ms. Conaton. The Air Force has been working with DOD Office of the 
Secretary of Defense (OSD) the last several months on the EASE 
construct. The Air Force envisions implementing the EASE concept to 
drive down costs, improve stability in the fragile space industrial 
base, invest in technology that will lower risk for future programs, 
and achieve efficiencies through block buys of satellites. EASE 
achieves these benefits through four basic elements: block buys of 
satellites; stable research and development funding; fixed price 
contracts; and full funding over multiple years via advanced 
appropriations. The Air Force is working closely with the Office of 
Management and Budget (OMB), OSD Acquisition, Technology, and Logistics 
(AT&L), and OSD Cost Assessment and Program Evaluation Office (CAPE) to 
establish EASE guidelines and achieve these objectives in the event 
that Congress approves this approach.

        methodologies for selection of efficiencies initiatives
    57. Senator Ayotte. Secretary Hale, I have concerns the due 
diligence and methodologies used to quantify the spending cuts and 
benefits, specifically whether those methodologies are reliable, 
traceable, repeatable, and defensible. For example, on the closure of 
U.S. Joint Forces Command (JFCOM), how did you determine the potential 
savings that would be realized from the closure?
    Mr. Hale. A Transition Planning Team was organized comprised of 
members from the Joint Staff and U.S. Joint Forces Command (JFCOM) to 
analyze and assess the functional construct of the command and tighten 
focus on core joint capabilities. The analysis of the JFCOM 6 specified 
responsibilities assigned in the draft 2010 Unified Command Plan (UCP) 
identified 24 of 77 functions that should be eliminated, with the 
remaining functions scaled for efficiency.
    The Transition Planning Team performed a cost-benefit-analysis of 
every JFCOM function using three major factors to evaluate the cost 
versus benefit of retaining or eliminating each function. Each function 
was evaluated on the merits of its authoritative requirement; its 
uniqueness and essentiality; and the risk to joint force readiness if 
the function was eliminated.

    58. Senator Ayotte. Secretary Hale, please share the methods you 
used to quantify and, more importantly, validate this savings.
    Mr. Hale. All of the cross-cutting efficiency initiatives were 
quantified in dollars and many were also quantified in manpower or 
other quantitative measures. The specific approach for quantifying the 
savings varied across initiative. For example, the service support 
contract reduction was estimated using the actual inventory of 
contracts for each component. The actual contract values were used to 
calculate the percentage reduction. Actual progress will be monitored 
by each Component reporting the specific contracts that have been 
reduced or terminated. Another example is the senior executive position 
reduction which used the actual position eliminated to calculate the 
savings. All of the initiatives had a specific approach for quantifying 
the savings that will be monitored in actual execution.

    59. Senator Ayotte. Secretary Hale, presumably, the departments and 
organizations within the DOD have provided you with a Plan of Action 
and Milestones (POAM) document to pursue an effective plan that would 
identify, eliminate, and capture cost savings for reinvestment. Was 
this completed for JFCOM and all other efficiency initiatives? If so, 
can you describe the process to develop the POAMs?
    Mr. Hale. The Department is implementing a process to collect the 
component plans for the efficiency initiatives. The plans will include 
the milestones associated with the initiative, the financial and 
nonfinancial metrics for measuring the initiative implementation, and 
the areas of risk and risk mitigation strategies. The initial plans 
will be collected and briefed to senior Department leadership in early 
summer. This will ensue the baselines are clear before execution begins 
in fiscal year 2012 and will also provide information to inform the 
summer fiscal year 2013 budget review.

    60. Senator Ayotte. Secretary Hale, please discuss how you plan to 
manage these execution plans so dates don't slip and savings are not 
minimized.
    Mr. Hale. The component initial plans will be collected and briefed 
to senior Department leadership in early summer. This will ensue the 
baselines are clear before execution begins in fiscal year 2012 and 
will also provide information to inform the summer fiscal year 2013 
budget review. The components will brief senior Department leadership 
again in early fall with actual results from the first 2 months of 
fiscal year 2012. These briefings will be used to ensure actions are 
taken to mitigate schedule and savings risks.

    61. Senator Ayotte. Secretary Conaton, the Air Force's Deputy Chief 
Management Officer was recently quoted as saying that if the Service 
does not meet those efficiency goals, it could be pressed to remove 
money from areas it had not planned to cut, making DOD both less 
efficient and less capable. Do you agree with that assessment?
    Ms. Conaton. Yes, I agree. The Air Force gave careful consideration 
to the development of efficiency initiatives and the application of 
savings to support mission and force structure requirements. Continuing 
our longstanding commitment to fiscal responsibility and operational 
efficiency, the Air Force is committed to a deliberate process to 
enhance capabilities by reducing expenses allocated to overhead and 
support functions while shifting resources to the modernization and 
readiness programs. If we find any portion of the efficiencies cannot 
be achieved in execution, we will find and execute another form of 
efficiency to ensure we preserve the critical warfighting enhancements 
included in the fiscal year 2012 President's budget request.

    62. Senator Ayotte. Secretary Conaton, exactly how will you ensure 
that the Air Force actually holds those lines, so that money doesn't 
migrate back into those accounts where it intended to spend less?
    Ms. Conaton. The Air Force comptroller is assisting with the means 
to track actual expenditures and ensure resources are not migrated back 
into efficiency areas. Efficiency initiatives that cannot be readily 
reported through Air Force financial systems or other sources will be 
reported to the comptroller through senior leadership assigned to those 
respective priority areas. The Air Force Audit Agency will be assessing 
the adequacy of financial controls to assure accurate financial data on 
the results of efficiency initiatives beginning in fiscal year 2012.
    The Air Force will use its existing corporate governance structure, 
the Air Force Board and Council, to regularly review status towards 
achieving identified efficiencies by measuring specific progress 
against the implementation plans. The Air Force Deputy Chief Management 
Officer is leading the Air Force Board, attended by flag officers/
senior executives from across Headquarters Air Force and Major 
Commands, in monthly reviews of the execution status of efficiency 
efforts.
    On a quarterly basis, the Air Force Council, co-chaired by myself 
and the Vice Chief of Staff, will monitor plans and progress to ensure 
efficiency outcomes are being delivered and will also review readiness 
and performance data to ensure Air Force efficiencies are not 
inadvertently impacting mission performance or the quality of life of 
airmen.

    63. Senator Ayotte. Secretary Conaton, to what extent did the Air 
Force put together a POAM which would help ensure that the savings that 
the Air Force has identified will be realized and will eliminate and 
capture cost-savings for reinvestment?
    Ms. Conaton. The Air Force has established detailed implementation 
plans, which are the responsibility of senior leadership, to ensure 
results against programmed efficiencies. We are compiling and will 
track updates to plans through an Integrated Master Schedule. We have 
also established fiscal tracking through the Air Force comptroller to 
ensure we allocate and expend funds consistent with efficiency plans.

    64. Senator Ayotte. Secretary Conaton, can you provide these 
document(s)?
    Ms. Conaton. The Air Force has established detailed implementation 
plans, which are the responsibility of senior leadership, to ensure 
results against programmed efficiencies. We are compiling and will 
track updates to plans through an Integrated Master Schedule (IMS). We 
have also established fiscal tracking through the Air Force comptroller 
to ensure we allocate and expend funds consistent with efficiency 
plans.
    The Air Force has provided to the Senate Armed Services Readiness 
and Management Support Subcommittee staff, for each of our efficiency 
initiatives, documents that detail what the Air Force is seeking to 
achieve, why it was selected, and how we are going about implementing 
the initiative. The papers provided addressed: (1) organization and 
headquarters consolidations to include our AOC and NAF consolidation as 
well as above wing level installation support; (2) manpower and 
personnel efficiencies to include reducing planned growth in civilian 
manpower and realigning military manpower into force structure and 
readiness; (3) facility sustainment savings targeting 10 percent 
savings to facility sustainment and reducing non-utility Facility 
Operations (FO) costs by 3 percent without impact to mission; (4) 
acquisition management efficiencies which included overhead and 
indirect program cost reductions; (5) logistics support savings which 
addresses performance improvement and efficiencies in logistics and 
installations, weapon system sustainment, Mobility Air Force aviation 
fuel use, converting product support activities from contracted 
logistics support to organic, reductions in vehicle fleet size and 
facility demolition and consolidation; (6) space acquisition 
efficiencies to include achieving a 10 percent reduction in EELV 
procurement costs without degrading launch capability; (7) MAJCOM 
support efficiencies which targets movement of operation and 
maintenance funding from support to direct readiness and mission 
activities; (8) training efficiencies related to sustaining Air Force 
mission readiness at or above current standards while reducing the cost 
to sustain current training levels; and (9) improving information 
technology (IT) efficiencies and operations across all Air Force IT 
while maintaining Air Force operational cyberspace capabilities. We can 
readily discuss and review the plans outlined in papers already 
provided with our staff and provide additional detail and discuss our 
plans if desired by you or your staff.

                        unified medical command
    65. Senator Ayotte. Secretary Hale, in its March 1, 2011, report 
titled, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue,'' the Government 
Accountability Office (GAO) found that realigning DOD's military 
medical command (MEDCOM) structures and consolidating common functions 
could increase efficiency and result in savings ranging from $281 
million to $460 million annually. Although incremental steps have been 
taken toward reducing duplicative layers of MEDCOM where possible, 
three separate service medical departments and structures remain 
essentially unchanged. Please provide DOD's position on each efficiency 
proposal contained in the GAO report that relates to DOD.
    Mr. Hale. Attached is a letter sent by the Director of Cost 
Assessment and Program Evaluation to Senator Pryor which outlines the 
Department's position on the efficiency proposals contained in the GAO 
report.
      
    
    
      
    
    

    66. Senator Ayotte. Secretary Hale, was further consolidation of 
MEDCOM functions, including establishment of a unified MEDCOM, 
considered during the development of the Secretary's efficiency 
initiatives? If not, is further consolidation an option that is on the 
table for future consideration?
    Mr. Hale. We did look at the organizational structure of the MHS as 
part of the Secretary's efficiency initiatives. We did not consider 
either a Unified MEDCOM or a Defense Health Agency as options to 
consider for this particular effort.
    The Secretary and the OSD Team, however, did study organizational 
options that streamlined certain functions within the MHS. For example, 
optimization of the medical supply chain is one area in which savings 
can be achieved through both leaner organizational structures and more 
leveraged purchasing strategies.
    With the physical relocation of the OSD and Service medical 
headquarters in one location as required by BRAC, we will continue to 
pursue the consolidation of certain functions that may be better 
delivered as a single entity. BRAC also has allowed us to 
geographically consolidate our medical education and training functions 
in one location.
    Finally, we also plan to assess the various health governance 
structures that have been introduced in several of the multi-service 
market areas over the past several years, and develop a coherent, 
consistent and integrated governance approach for the long-term 
management of health care services.

    67. Senator Ayotte. Secretary Hale, what are the benefits that you 
believe could be achieved by establishment of a unified MEDCOM, and 
would legislation be required?
    Mr. Hale. Secretary Gates has not proposed a Unified MEDCOM for the 
MHS. Although some efficiencies might be achieved through a single 
command, there are policy, force management and other command issues 
that might offset these efficiencies. The Secretary believes he 
currently has the authorities required for organizing the Department in 
the most effective and efficient manner required.

    68. Senator Ayotte. Secretary Westphal, Secretary Work, and 
Secretary Conaton, the GAO report acknowledges the difficulty in the 
past in achieving consensus among the military departments on changes 
to governance of medical programs. I would like to ask each of you to 
comment on whether or not your Service agrees that realignment of 
medical programs in a unified MEDCOM would be in the best interests of 
DOD. If so, why? If not, why not?
    Dr. Westphal. We are waiting on DOD to review the desirability of 
establishing a Unified MEDCOM. There are many complex factors that must 
be carefully taken into consideration before moving forward with such a 
monumental change in managing our health care system.
    Mr. Work. DON fully supports an integrated health care system that 
maintains the highest standard of medical training, research, and 
operational support while simultaneously delivering world class health 
care around the world. The MHS is one of the most complex programs 
within DOD; and one of the most important with regard to force 
readiness, recruitment and retention of military personnel. Ideally, 
the effective operation of the MHS with military and civilian 
components working at maximum efficiency is critical to controlling 
costs while maintaining force and medical readiness.
    Assessment of existing joint arrangements should be evaluated for 
the Services' experiences and successes with improvements and 
enhancements to the delivery of care in support of the operational 
commanders and to the MHS' worldwide beneficiaries. We fully support 
the Secretary's defense health care reform initiatives and believe the 
Services are working collaboratively to implement systemic efficiencies 
and specific initiatives to strategically improve quality and 
satisfaction while managing costs more responsibly. We can continue to 
leverage our successful joint efforts such as integrated healthcare in 
Germany at Landstuhl Regional Medical Center. As many as 300 Navy 
Medicine and 300 Air Force medical professionals are working 
collaboratively in an Army hospital alongside 1,000 Army medical staff 
to provide stabilization and enroute care for over 76,000 patients 
since the initiation of Operations Enduring Freedom and Iraqi Freedom.
    Ms. Conaton. The Air Force does not favor the establishment of a 
unified military MEDCOM.
    The Air Force Medical Service is fully integrated with the Line of 
the Air Force, and medical personnel are key members of the wing 
commander's team to accomplish the wing mission. When Air Force units 
deploy, their medics deploy with them. The Unified MEDCOM would sever 
that close relationship at the expense of our existing effective 
organizational structure. We can drive unity of effort within current 
authorities without the expense of establishing a Unified MEDCOM and 
disrupting the effective alignment of medics to Service oversight. The 
synergy created by close alignment of Air Force medics to our 
operational mission should not be put at risk in a new unified command 
structure.
    We believe a more effective and efficient Joint medical solution 
can be attained without the expense of establishing a Unified MEDCOM. 
Changes to doctrine can be made within current authorities and do not 
require a new Unified MEDCOM. Service-specific and joint medical 
doctrine must be improved to assure Service capabilities are fully 
interoperable and interdependent to bolster unity of effort. The 
Services should continue integrating common medical platforms to reduce 
redundancy and lower costs.
    A Unified MEDCOM may not achieve the intended synergy or unity of 
effort. All models of the Unified MEDCOM to date do not include medical 
forces intrinsic (line funded vs. DHP funded manpower authorizations) 
to Service line units. A Unified MEDCOM would not oversee medical 
forces serving in these line units. Air Force line funded medics 
represent 5 percent of Air Force medical personnel; Navy shipboard 
assets represent 25 percent of medical personnel; and Army line Tables 
of Organization and Equipment (TOE) funded medics represent 48 percent 
of Army Active Duty medics. The Air Force ability to meet operational 
medical requirements would be disproportionately compromised in current 
models for Unified MEDCOM.
    Any new Unified MEDCOM will require new systems and structure to 
oversee component headquarters and assigned forces. This will drive 
even higher costs. If a Unified MEDCOM follows the example of the 
current Joint Task Force, National Capitol Region Medical, it is highly 
unlikely there will be cost savings. There is no need for a fourth 
military Service and the establishment of such in the form of a Unified 
MEDCOM, without the discipline and historical rule sets that govern 
existing Services, will likely drive costs much higher. Even more 
critical, a Unified MEDCOM may not be as responsive to the needs of 
Service warfighters as is the current oversight by the Services.
    BRAC 2005 created many opportunities for joint oversight of medics. 
Given time to mature, these initiatives along with the Service Surgeon 
Generals' efforts to consolidate oversight of common support functions 
(information management, contracting, military health facility 
construction and financial management) in the new colocated medical 
headquarters will reduce redundancies. Adoption of a single Service 
accounting system to allocate Defense Health Program dollars and 
improve accountability would do more to reduce costs than a Unified 
MEDCOM.

       savings through a reduction of overseas u.s. force posture
    69. Senator Ayotte. Secretary Hale, the GAO report noted that DOD 
spends billions of dollars annually on military installations around 
the world. For example, according to data provided by the Military 
Services, between fiscal years 2006 and 2009 the Military Services 
obligated $17.2 billion for the installations they manage in Europe. 
Further, the Military Services estimated a requirement of $24 billion 
through fiscal year 2015 to build, operate, and maintain these 
installations. Currently, plans to reduce forces in Europe are being 
reconsidered. GAO estimated that leaving two brigades in Europe could 
cost DOD between $1 billion and $2 billion over 10 years compared to 
bringing the forces back to the United States. Has DOD assessed 
potential saving to be realized from consolidating bases overseas and 
returning U.S. forces to the United States?
    Mr. Hale. U.S. overseas defense posture sustains capacity for 
global reach and power projection and supports not only defense but 
also foreign policy objectives. In this dynamic and evolving geo-
strategic environment, the Department continuously reviews overseas 
presence and posture requirements. In 2004, the Department initiated 
major consolidation efforts in both Korea and Europe, returning 
approximately 30,000 military personnel to the continental United 
States (CONUS)--the associated base consolidation efforts are still 
underway. In consideration of all potential force posture decisions, 
the Department views potential savings from consolidation and return of 
forces to CONUS as a key decisionmaking criterion. Regarding the Europe 
brigades, the U.S. Army is conducting an analysis to determine the most 
efficient and effective method to meet planned end strength 
requirements.

    70. Senator Ayotte. Secretary Hale, given the current search for 
savings, can DOD afford to spend additional billions to support the 
stationing of families of U.S. personnel in Korea?
    Mr. Hale. A working group has been established to develop options 
to achieve full tour normalization in Korea, and to assess each 
option's affordability. The group's work is still ongoing.

                       weapons system sustainment
    71. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, GAO just released a report titled, 
``Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue.'' In the report, GAO noted that 
DOD spends billions of dollars each year to sustain weapon systems 
through the operating and support (O&S) phase of its life cycle. O&S 
costs can account for 70 percent or more of the total ownership costs 
over a system's lifetime. It included the direct and indirect costs for 
spare parts, fuel, maintenance, personnel, support facilities, and 
training. Weapon systems experience O&S cost growth after they are 
acquired due to various factors such as lower than expected 
reliability, obsolete replacement parts, and increased usage. Please 
provide examples where competition has been used to lower lifecycle 
costs.
    Mr. Hale. Many components of cost in the operating and support 
phase of the lifecycle aren't amenable to competition, including fuel, 
manning, and usage, among others. Where there are elements of operating 
and support costs that could be affected by competition, the Department 
is committed to utilizing competition to the greatest extent possible 
to maximize savings for the taxpayer.
    For example, in restarting the DDG-51 shipbuilding program, DON has 
pursued competitive strategies for major components of the ship to 
reduce life cycle cost and continues pursuing open architecture 
initiatives to achieve design stability, mature technologies and 
affordable solutions. Specifically, the DON has implemented a 
commercial off-the-shelf (COTS) based Advanced Capability Build (ACB) 
computer program to update and stabilize the ships' combat system 
baselines, driving down design costs, achieving greater commonality and 
allowing for more readily available replacement parts. The ACB computer 
program replaces legacy combat system computing programs in new 
construction ships and is being back fit into the Fleet through the 
Cruiser and Destroyer Modernization Programs. The DON competed the main 
reduction gear production for the ships in a breakout strategy, thereby 
avoiding pass-through costs to the shipbuilders and establishing future 
competitive opportunities for this major component. DON is considering 
other component breakout strategies, which reflect our commitment to 
affordability.
    Another example where the Department is leveraging competition in 
the operating and support phase is in the Air Force's Advanced 
Targeting Pods-Sensor Enhancement (ATP-SE) program. A program life 
cycle cost analysis is currently underway, so the overall savings 
impact is not yet known; however, to date, the cost avoidance through 
competition is estimated to be $363 million. This includes 
approximately $174 million for pod production, approximately $4 million 
for ATP-SE support contracts, and approximately $185 million for depot 
activation data. The competition in production also results in a lower 
spare parts cost, which will likely result in a lower sustainment cost 
for the life of the system.
    Dr. Westphal. I can think of three examples totaling approximately 
$1.1 billion over 5 years and across the complete lifecycle costs of 
the product lines.

    1.  Family of Medium Tactical Vehicles Competition. The Army 
awarded a competitive 5-year requirements contract to Oshkosh that 
resulted in an average cost savings of 28 percent over the previous 
sole source contract. This was due in part to the fact that the 
government owned the Technical Data Package (TDP) and an extremely 
competitive environment in the market place. The end result is a cost 
savings of an estimated $578M over the contract period of performance.
    2.  Leveraging Real Competition. Joint Tactical Radio System, or 
JTRS, Enterprise Business Model: The JTRS Enterprise Business Model 
(EBM) is predicated upon fostering and leveraging competition in 
production. For the Multifunctional Distribution Information System-Low 
Volume Terminal (MIDS-LVT) radio program initial radios started at 
$426,000 per unit. Since then, through competition between the two 
approved vendor production sources, the radios have decreased steadily 
to a cost of only $181,000 per unit, a savings of nearly 60 percent on 
each radio. With over 2,600 MIDS units purchased by DOD, the total 
savings is almost $500 million thus far.
    3.  Joint Service General Purpose Mask (JSGPM) Filter Canister 
Additional Source. On behalf of the Joint Program Executive Office 
(PEO) for Chem-Bio Defense, the Research, Development, and Engineering 
Command Contracting Center released a request for proposal for 
additional source(s) for spare M-61 filter canisters for the M-50 JSGPM 
which is now sole sourced. Qualification of an additional source will 
introduce competition and increase surge capability. Up to 3 million 
filter pairs could be produced, with an estimated $12 cost reduction 
per pair, for a total savings of $36 million, over 5 years.

    Mr. Work. For the DON, the most visible example is the Littoral 
Combat Ship (LCS) competition where Lockheed Martin and Austal USA were 
each awarded a fixed-price incentive contract for the design and 
construction of a 10 ship block-buy, for a total of 20 LCS from fiscal 
year 2010 through 2015. This strategy resulted in effective competition 
and reflects the DON's commitment to affordability. The benefits of 
competition, serial production, employment of mature technologies, 
design stability, fixed-price contracting, commonality, and economies 
of scale will provide a highly affordable ship construction program. 
Additionally, both shipbuilders will also deliver a TDP that allows the 
DON to establish a foundation for effective future competition 
throughout the ships' life cycle.
    In restarting the DDG-51 shipbuilding program, the DON has pursued 
competitive strategies for major components of the ship to reduce life 
cycle cost and continues pursuing open architecture initiatives to 
achieve design stability, mature technologies and affordable solutions. 
Specifically, the DON has implemented a commercial off-the-shelf (COTS) 
based Advanced Capability Build (ACB) computer program to update and 
stabilize the ships' combat system baselines, driving down design 
costs, achieving greater commonality and allowing for more readily 
available replacement parts. The ACB computer program replaces legacy 
combat system computing programs in new construction ships and is being 
back fit into the Fleet through the Cruiser and Destroyer Modernization 
Programs. The DON competed the main reduction gear production for the 
ships in a breakout strategy, thereby avoiding pass-through costs to 
the shipbuilders and establishing future competitive opportunities for 
this major component. We are considering other component breakout 
strategies, which reflect our commitment to affordability.
    Ms. Conaton. The Air Force uses competition to the maximum extent 
practical. The DOD 5000 mandates that PMs plan for competition in their 
Acquisition Strategy at the initiation of the program, and at every 
milestone decision throughout the acquisition. The Federal Acquisition 
Regulation prescribes policies and procedures to be used to promote 
full and open competition. 10 U.S.C. 2304 and 41 U.S.C. 253 require, 
with certain limited exceptions, that contracting officers shall 
promote and provide for full and open competition in soliciting offers 
and awarding Government contracts. FAR 6.302 lists exceptions 
permitting other than full and open competitions. Within these Federal 
regulation parameters, Air Force Contracting looks at each procurement 
on a case-by-case basis to determine the best business decision for our 
warfighters and our taxpayers. Competitive sourcing has proven 
effective in many programs, but it's not the right solution for all 
acquisitions.
    One example where competition has lowered life cycle costs is found 
in Advanced Targeting Pods-Sensor Enhancement (ATP-SE). A program life 
cycle cost analysis is currently underway, so the overall savings 
impact is not yet known; however, to date, the cost avoidance through 
competition is estimated to be $363 million. This includes $174 
million for pod production, $4 million for ATP-SE support contracts, 
and $185 million for depot activation data. The competition in 
production also results in a lower spare parts cost, which will likely 
result in a lower sustainment cost for the life of the system.
    The B-1 Laptop Controlled Targeting Pod program provides another 
example of lower lifecycle costs where the B-1 team used an existing 
multiple-award Indefinite Delivery/Indefinite Quantity (ID/IQ) contract 
to promote efficiency. Under multiple-award ID/IQ contracts, the 
government must provide each awardee a fair opportunity to be 
considered for each order. As a result, the B-1 team solicited 
proposals from the ID/IQ awardees and received three proposals, 
including a proposal from the B-1 prime contractor. Award was made to a 
contractor other than the prime contractor for approximately $1.1 
million, which was $250,000 less than the prime contractor's proposed 
price. In addition to this $250,000 delta, we expect that the prime 
contractor's price would have been higher if the government had gone 
sole source to the prime. It is difficult to estimate what the prime 
contractor's proposal would have been in a sole source environment, but 
we roughly estimate the price would have been $200,000 higher, 
resulting in total cost avoidance of $450,000.

    72. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, how do your department's efficiency 
initiatives increase the use of competition as a means to lower 
lifecycle costs?
    Mr. Hale. The Under Secretary of Defense for Acquisition Technology 
and Logistics (USD(AT&L)) November 3, 2010 memo to the military 
departments and Defense agencies directed immediate action to increase 
competition. The acquisition community is addressing this in the 
development of Weapon System Acquisition Strategies. Specifically, the 
Secretaries of the Military Departments and Defense Agency Directors 
were directed to implement the following:

         Present a competitive acquisition strategy at each 
        program milestone: Provide a one-page competitive strategy for 
        each Acquisition Category (ACAT) 1D program at each milestone 
        as part of the overall acquisition strategy.
         Report to USD(AT&L) in fiscal year 2011 on how their 
        military department or agency intends to reduce single-bid 
        competitions. At a minimum, the report will address market 
        research, restricted specifications, and adequate time for 
        proposal preparation.
         Achieve a 2 percent reduction in single-bid 
        competitive contracts in fiscal year 2011, with continuing 
        reductions thereafter.
         Remove obstacles to competition: ensure contracting 
        officers conduct negotiations with all single-bid offerors, 
        unless this requirement is specifically waived by the Head of 
        Contracting Activity or Military Department Secretary. The 
        basis of these negotiations will be cost or price analysis, as 
        the case may be, using either certified or non-certified cost 
        or pricing data, as appropriate.
         Have their component or agency competition advocate 
        develop a plan to improve both the overall rate of competition 
        and the rate of effective competition. These plans will 
        establish an improvement rate of at least 2 percent per year 
        for overall competition and an improvement rate of at least 10 
        percent per year for effective competition.
         Require open systems architectures and set rules for 
        acquisition of technical data rights:

                 PMs will conduct a business case analysis in 
                concert with the engineering tradeoff analysis that 
                will be presented at Milestone B. The business case 
                analysis will outline the open systems architecture 
                approach, combined with technical data rights the 
                Government will pursue in order to ensure a lifetime 
                consideration of competition in the acquisition of 
                weapon systems.
                 The results of this analysis will be reported 
                in the Acquisition Strategy Report and in the 
                competition strategy.

         Increase the dynamic small business role in the 
        defense marketplace competition: All competitive and non-
        competitive procurement actions will seek to increase small 
        business participation through weighting factors in past 
        performance and fee construct.

    These actions apply to all contracts, including MRO, CLS, and PBL 
contracts. The result will be PEOs and PMs developing a competitive 
strategy early in acquisition that spans the program's life and 
improves the ability to compete MRO, CLS, and PBL contracts in 
sustainment. For example, the Department of Navy has undertaken a 
specific initiative to engage each PEO, PM, and Product Support Manager 
(PSM) to emphasize real competition at every stage of acquisition and 
sustainment. They directed the PEOs/PMs/PSMs to establish a competitive 
environment throughout the life cycle of their programs, and to enable 
better competitive opportunities in the sustainment phase. 
Additionally, PEOs and PMs are reviewing their existing portfolios in 
pursuit of increased competitive opportunities, including consideration 
of breakout opportunities, and expanding open architecture solutions 
and small business opportunities that fosters additional competition. 
The Army is emphasizing the conduct of logistics analyses early to 
baseline costs and develop technical data requirements that facilitate 
competition in sustainment contracts. The Air Force is also taking 
proactive steps to ensure PMs and PSMs correctly identify and pursue 
data rights in their contract negotiations to facilitate competition in 
sustainment. The outcome will be required warfighting capability at a 
reduced cost to the Government.
    Dr. Westphal. The Army's Better Buying Power Initiative includes 
the requirement to ``Promote Real Competition.'' Army PMs of all 
acquisition categories are required to present, and have approved by 
their Milestone Decision Authority, a competitive strategy at each 
milestone decision. In addition, at the Milestone B review, the point 
of formal program initiation, we require a business case analysis in 
concert with an engineering trade analysis. The engineering trade 
analysis defines the approach for using open systems architectures and 
acquiring technical data rights to ensure sustained consideration of 
competition, thus lowering the overall costs throughout the acquisition 
lifecycle.
    Mr. Work. The DON undertook several initiatives to increase 
competition, which includes a specific initiative to engage each PEO 
and Project Manager (PM) to lead the way for their programs and 
emphasize real competition at every stage of our acquisitions. In 
addition to initiatives to establish a solid foundation for a 
competitive environment throughout the life cycle of our programs, we 
have asked our PEOs and PMs to also review their existing portfolios in 
pursuit of increased competitive opportunities, including consideration 
of breakout opportunities at the subsystem and component levels to 
reduce lifecycle costs.
    In addition, Navy has been working with OSD researching how 
performance based initiatives (i.e. PBLs (Performance Based Logistics)) 
work within the Services and industry and identifying impediments and 
best practices. Research efforts include the Product Support Assessment 
Team Industrial Integration Product Support Database analysis and the 
DOD PBL Proof Point analysis. Both efforts are identifying best 
practices and blueprints for a successful performance based product 
support strategy that leads to lower lifecycle costs.
    Ms. Conaton. The Air Force requires the use of a competitive 
strategy prior to each milestone for each Acquisition Categories (ACAT) 
program. Each competitive strategy is included in the Life Cycle 
Management Plan and addresses how the program will obtain technical 
data, computer software and documentation, and associated intellectual 
property rights necessary for operation, maintenance, long-term 
sustainment and competition. In order to reduce lifecycle cost the Air 
Force conducts should-cost analyses and continues to pursue open 
architecture initiatives to achieve design stability, mature 
technologies, and affordable solutions. The Air Force is also requiring 
more frequent recompetes of knowledge-based services, and service 
contracts valued at more than $1 billion are required to include 
productivity improvement and cost efficiency objectives. The Air Force 
is committed to utilizing competition to the greatest extent practical 
to maximize savings for the taxpayer. Competitive sourcing has proven 
effective in many programs, but it's not the right solution for all 
acquisitions.

    73. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, in what areas do you think competition and 
commercial investments in technology can be leveraged to achieve 
further cost reductions?
    Mr. Hale. Achieving cost reductions through competition and 
commercial investments in technology are two complementary aspects of 
the USD(AT&L)'s ``Better Buying Power'' initiative.
    As the Department continues to seek efficiencies as outlined in the 
November 3, 2010 implementation directive for Better Buying Power, 
titled ``Obtaining Greater Efficiency and Productivity in Defense 
Spending,'' the entire Department is striving to improve cost 
effectiveness through increased use of commercial technology 
investment. Specifically, in that directive, the Director, Defense 
Research and Engineering (now the Assistant Secretary of Defense for 
Research and Engineering) was tasked to reinvigorate the Independent 
Research and Development (IRAD) program. The process is ongoing, with a 
plan to increase the visibility of IRAD as a fundamental element of the 
broader DOD R&D program. Application of IRAD to DOD projects should 
provide guests cost efficiency for the DOD.
    On November 24, 2010 the Director of Defense Procurement and 
Acquisition Policy issued guidance on improving competition in Defense 
procurement. Promoting real competition is an essential focus area 
within the ``Better Buying Power'' initiative that requires the 
Military Departments and Defense Agencies to develop plans to improve 
overall and effective competition by: reducing the number of single-bid 
contracts; negotiating better prices on single-bid contracts and task 
and delivery orders; and reducing the dollar value of sole-source 
contracts and task and delivery orders.
    Dr. Westphal. We have found that we can leverage commercial 
technology in many areas. That is one reason why in the DOD Directive 
5000.01, the procurement or modification of commercially available 
products, services, and technologies is the first order of preference 
in satisfying a user's requirement. In this same policy, we have 
directed that PMs maximize the use of competition as a method for 
providing major incentives to industry and Government organizations to 
innovate, reduce cost, and increase quality. Further, that same policy 
calls for the use of Performance-Based Logistics wherein we can take 
advantage of sustainment strategies that include the best use of public 
and private sector capabilities. Through government and industry 
partnering initiatives, we optimize total system availability while 
minimizing cost and our logistics footprint.
    Mr. Work. The DON undertook several initiatives to increase 
competition, including green energy initiatives. We also issued 
specific challenges to program managers to increase competitive 
opportunities through obtaining technical data rights, considering the 
merits of component breakout, and expanding open architecture solutions 
and small business opportunities. We believe continued investment in 
these areas will allow achievement of further cost reductions 
throughout the life cycle of our weapon systems.
    Regarding energy initiatives, we have already flown the F/A-18 
``Green Hornet'' using biofuel and have begun a large scale expansion 
of solar power. We are partnering with the Department of Agriculture on 
research and development of a variety of alternative fuel resources. 
One example of savings was the launch of our first hybrid ship, the 
amphibious big-deck USS Makin Island. On its first voyage from 
Pascagoula, MS, to San Diego, CA, Makin Island saved around $2 million 
in fuel costs. In addition, Marines in Helmand province have 
demonstrated their ability to reduce use of fossil fuels through 
renewable energy devices. The DON will continue investing in energy 
initiatives.
    An example of the successful and strategic use of open architecture 
and obtaining appropriate technical data rights is the Virginia class 
SSN program. The Virginia class program uses a modular open systems 
architecture and selective subcomponent technical data rights that 
promote robust competition at the sub-component supplier level, while 
still supporting continual and effective block upgrades to the existing 
systems that reduces the overall life cycle cost of the system. The DON 
continues expanding these open architecture initiatives to other 
systems and developing capabilities examples include: Advanced 
Capability Build (ACB) 12 for the AEGIS Weapon System, to Consolidated 
Afloat Networks and Enterprise Services, Next Generation Enterprise 
Network, and Strategic Systems Programs.
    Ms. Conaton. The Air Force fully recognizes and acts on the basic 
principle that there is no one source of good ideas. We continually 
look to find places, both large and small, where we can leverage 
competition or commercial innovation across all our domains--air, 
space, and cyber.
    We have a strong technology transfer program, to include leveraging 
the ``spin in'' of commercial technologies; noise cancelling ear 
protection modified for pilots is one recent example. It is important 
to point out that the demands of the battlefield often require 
modification to commercial technology before it can be used by our 
Airmen--we must ensure that the end article both works under 
operational conditions and can be supported. The domestic technology 
transfer program also leverages Cooperative Research and Development 
Agreements, Commercial Technology Agreements, and other cooperative 
agreements where commercial companies can leverage our Air Force 
laboratory resources and expertise, thereby helping us leverage their 
technology advances. The Air Force Commercialization Pilot Program also 
promotes the transition of technology developed as part of the Small 
Business Innovation Research (SBIR)/Small Business Technology Transfer 
(STTR) Program.
    As an organization with needs in the areas of administration, 
financial management, human resources, education and training, 
facilities and installation operation/upkeep, and materiel handling and 
storage, the Air Force can more readily directly benefit from 
commercial innovation. Most Air Force facilities have some kind of 
commercial environmental control and monitoring system to help increase 
energy efficiency. We keep better track of our investment in parts and 
supplies by tagging them with radio frequency identification devices. 
In the space domain, using commercial satellites to host military 
payloads enables the Air Force to leverage these commercial technology 
investments. We have adopted energy efficient lighting. New facilities, 
such as the Air Force Institute of Technology's academic building at 
Wright Patterson Air Force Base, are designed and constructed to meet 
Leadership in Energy and Environmental Design (LEED) standards--
nationally accepted benchmarks for facility design, construction, and 
operation. The efficiencies we gain on our organizational side free up 
resources we can apply to our operational side.

                         proposed navy savings
    74. Senator Ayotte. Secretary Work, given the current troubling 
rise in the price of oil with no relief in sight, how realistic is the 
Navy's projected savings of $566 million in fiscal year 2012 for 
reduced energy consumption?
    Mr. Work. In order to save energy and money, all of our programs 
within our energy strategy need to be in sync and operating at full 
capacity. Energy savings are also based on prior year programs and 
projects that are now coming to fruition.
    DON has set two priorities that illustrate the Department's role in 
investing in alternative sources of energy: energy security and energy 
independence. The Navy will achieve energy security by utilizing 
sustainable sources that meet force sustainment functions and fulfill 
tactical, expeditionary, and shore operational requirements. This 
allows the ability to protect and deliver sufficient energy to meet 
operational needs. Second, energy independence is achieved when Naval 
forces rely only on energy resources that are not subject to 
intentional or accidental supply disruptions. As a priority, energy 
independence increases operational effectiveness by making Naval forces 
more energy self-sufficient and less dependent on vulnerable energy 
production and supply lines.
    The DON uses many different types of alternative energy on our 
naval installations such as solar, wind, and waste to energy. We have 
over 100 MW of solar planned to be installed in the next few years, and 
we have 22 anemometer (wind) studies ongoing. On the operational energy 
front, we have flown an F/A-18 Hornet, operated a Riverine Command Boat 
(RCB-X), and flown a Seahawk helicopter on a 50/50 blend of biofuels. 
The DON has also commissioned the USS Makin Island which is designed 
with a gas turbine engine and electric auxiliary propulsion system. We 
also consider our nuclear fleet of aircraft carriers and submarines as 
part of our alternative energy program. In our expeditionary forward 
operating bases, we are using flexible solar panels to recharge 
batteries and light the inside of the tents with LED lighting. These 
are just a few examples of the different types of alternative energy 
sources that the Department of Navy is currently using.
    Much of our success is in the technologies that are tried and 
true--solar, wind, and geothermal. We are continuing to explore 
geothermal resources on our installations in the Southwest. We are 
making great strides in helping stand up a biofuels industry that will 
supply biofuels to the fleet. This effort will be a key factor in our 
overall success of the 50 percent alternative energy goal. We have to 
continue to institute energy efficiency into our processes and 
programs. We are currently designing and constructing all of our new 
buildings to LEED Silver criteria. The bottom line is that the least 
expensive BTU or KW-hr is the one that is not used.
    There are numerous energy efficient initiatives and renewable/
alternative energy programs that the Navy and Marine Corps are 
pursuing. The reduced reliance on fossil fuels will achieve lower 
energy consumption, strategic security, avoided energy cost, and a more 
sustainable Fleet. Here are examples of projects with estimated 
savings.

Examples of Navy Tactical Projects with Estimated Savings
         Stern Flaps for Amphibious Ships

                 Shown to have an average payback period of 
                less than 1 year on FFG/CG/DDG platforms
                 Currently undergoing testing on amphibious 
                ships
                 Savings estimated at 5,500 BBLs/ship/year for 
                LHD

         Hull/Propeller Coating

                 Easy release hull/propeller coating system 
                allows Navy ships to shed bio-fouling once underway
                 Reduces costly periodic hull/propeller 
                cleanings
                 Savings estimated at 1,800 BBLs/ship/year

         Solid State Lighting

                 Uses LEDs for platform illumination
                 LED lights in commercial applications last 
                almost 50 times longer than incandescent and 6 times 
                longer than fluorescent lights; provides the same 
                illumination with 25 percent of the energy
                 Currently testing on DDG-108 and LSD-52
                 Payback estimated at 3 years, depending on 
                fixture (savings of 335 BBLs/ship/year for DDG)

    Navy also continues to develop technologies that will be 
implemented in future years; the implementation schedule for these 
initiatives is subject to impacts based on the budget:

         Hybrid Electric Drive for DDG

                 Fuel savings by securing LM2500 propulsion 
                turbines at low speed while loading gas turbine 
                electric generators to more efficient operating 
                condition (savings estimated at 8,500 BBLs/ship/year)
                 Land-based prototype scheduled for testing 
                mid-2011
                 USS Truxtun (DDG-103) scheduled to be first 
                operational installation in fiscal year 2012 as an 
                afloat test platform

         Engine efficiency modifications for the F-35 JSF

                 Improvement in F135 Block 5+ engine fuel 
                economy and lifecycle cost through component upgrades 
                and software cycle optimization
                 Estimated Fleet-wide savings of 35,000 BBLs 
                in 2023 (upon delivery of Block 5 aircraft), increasing 
                to 178,000 BBLs/yr by 2029

    75. Senator Ayotte. Secretary Work, how does the Navy propose to 
achieve this significant reduction of energy consumption?
    Mr. Work. There are numerous energy efficient initiatives and 
renewable/alternative energy programs that the Navy and Marine Corps 
are pursuing. The reduced reliance on fossil fuels will achieve lower 
energy consumption, strategic security, avoided energy cost, and a more 
sustainable Fleet. Here are the major program areas along with examples 
of projects with estimated savings.

         Major Energy Program areas

                 Shore

                         Steam plants decentralizations
                         Lighting systems upgrades
                         Renewable energy systems (solar & 
                        photovoltaic)
                         Solar thermal domestic water and pool 
                        heating projects
                         LED street lighting projects
                         Ground source heat pumps
                         Boiler heat recovery upgrades
                         Control system improvements
                         Alternative Fuel Vehicles

                 Tactical/Expeditionary

                         Hull coatings
                         Propeller coatings
                         Stern Flaps
                         Allison 501K Efficiency Initiatives
                         Aviation Simulators
                         Smart voyage planning decision aid 
                        software
                         USS Truxtun hybrid electric drive 
                        retrofit
                         Alternative fuels testing and 
                        certification program
                         Incentivized Energy Conservation 
                        Program (i-ENCON)
                         Expeditionary Forward Operating Base 
                        (Ex-FOB)

                           Solar Portable Alternative 
                        Communications Energy System portable solar 
                        systems
                           Light Emitting Diode (LED) Lighting
                           Renewable battery charging systems
Examples of Projects for Navy Tactical with estimated savings
         Stern Flaps for Amphibious Ships

                 Shown to have an average payback period of 
                less than 1 year on FFG/CG/DDG platforms
                 Currently undergoing testing on amphibious 
                ships
                 Savings estimated at 5,500 BBLs/ship/year for 
                LHD

         Hull/Propeller Coating

                 Easy release hull/propeller coating system 
                allows Navy ships to shed bio-fouling once underway
                 Reduces costly periodic hull/propeller 
                cleanings
                 Savings estimated at 1,800 BBLs/ship/year

         Solid State Lighting

                 Uses LEDs for platform illumination
                 LED lights in commercial applications last 
                almost 50 times longer than Incandescent and 6 times 
                longer than Fluorescent lights; provide the same 
                illumination with 25 percent of the energy
                 Currently testing on DDG-108 and LSD-52
                 Payback estimated at 3 years, depending on 
                fixture (savings of 335 BBLs/ship/year for DDG)

    Navy also continues to develop technologies that will be 
implemented in future years; the implementation schedule for these 
initiatives is subject to impacts based on final fiscal year 2011 
budget:

         Hybrid Electric Drive for DDG

                 Fuel savings by securing LM2500 propulsion 
                turbines at low speed while loading gas turbine 
                electric generators to more efficient operating 
                condition (savings estimated at 8,500 BBLs/ship/year)
                 Land-based prototype scheduled for testing 
                mid-2011
                 USS Truxtun (DDG-103) scheduled to be first 
                operational installation in fiscal year 2012 as an 
                afloat test platform

         Engine efficiency modifications for the F-35 JSF

                 Improvement in F135 Block 5+ engine fuel 
                economy and lifecycle cost through component upgrades 
                and software cycle optimization
                 Estimated Fleet-wide savings of 35,000 BBLs 
                in 2023 (upon delivery of Block 5 aircraft), increasing 
                to 178,000 BBLs/year by 2029

    76. Senator Ayotte. Secretary Work, the data provided by the Navy 
in support of the savings for fuel consumption details a series of 
initiatives ranging from lighting systems upgrades to ship hull/
propeller coatings and stern flaps. Are the investments for these 
initiatives included in the budget request?
    Mr. Work. The investments for DON's energy initiatives are included 
in the budget request. The specific energy programs where these 
investments are being made support the five Secretary of the Navy 
(SECNAV) Energy Goals.
    The SECNAV Energy Goals are listed here.

    1.  Acquisition Process Reform

    Evaluation factors used when awarding contracts for platforms, 
weapon systems, and facilities will include lifecycle energy costs, 
fully-burdened cost of fuel, and contractor energy footprint.

    2.  Sail the ``Great Green Fleet''

    DON will demonstrate a Green Strike Group in local operations by 
2012, and sail it by 2016. The strike group will be made up of nuclear 
vessels, surface combatants using biofuels with hybrid electric power 
systems, and aircraft flying on biofuels.
    3.  Reduce Petroleum Use in Non-Tactical Vehicles

    By 2015, DON will reduce petroleum use in the commercial fleet by 
50 percent, through the use of flex fuel vehicles, hybrid electric 
vehicles, and neighborhood electric vehicles.
    4.  Increase Alternative Energy Ashore

    By 2020, DON will produce at least 50 percent of shore-based energy 
requirements from alternative sources, and 50 percent of all naval 
installations will be Net Zero energy consumers.
    5.  Increase Alternative Energy Use Department-wide

    By 2020, 50 percent of total DON energy consumption will come from 
alternative sources.

    The bulk of the Navy's energy efforts are focused to improve 
efficiency of both legacy and future platforms. Initiatives such as 
those mentioned above and others in the Navy's Energy investment 
portfolio are a strong start not only to meet the stated SECNAV Goals 
but also to provide DON greater combat capability, reduced operational 
risk, and reduced overall cost for supplying and maintaining forward 
deployed forces.
       
    
    
       
    
    
       
    
    
       
    
    
       
    
    
       
    
    
       
    
    
       
    
    
       
    
    
    
    

    77. Senator Ayotte. Secretary Work, will this energy consumption 
goal include a reduction in flying hours or steam hours?
    Mr. Work. No, the Navy's energy consumption goal does not include a 
reduction in flying hours or steaming days. Efforts to achieve 
reductions in fuel consumption are focused on increasing the fuel 
efficiency of legacy platforms through technology upgrades and behavior 
changes.

    78. Senator Ayotte. Secretary Work, regarding flight operations, 
how will the Navy be able to determine whether the increased reliance 
on simulators has either a detrimental or positive impact on the 
training and currency of naval and marine aviators?
    Mr. Work. The planned simulator upgrades were developed in concert 
with Fleet Aviators and Instructional Systems Developers to ensure that 
the enhanced simulator capabilities would advance training and 
readiness without sacrificing safety or tactical excellence. Simulators 
will be used to replace live training to the extent that technology and 
opportunities will allow where training effectiveness and operational 
readiness are not compromised. Commander, Naval Air Forces conducts an 
annual training & readiness conference for each type, model, and series 
aircraft to align simulator enhancements with the capabilities-based 
training and readiness matrix within fidelity and safety limits. 
Ultimately, Navy aviators' training and readiness is evaluated through 
a number of means: the individual Unit Commander's assessment of their 
personnel, Type Wing Weapons Schools' implementation of the Air Combat 
Training Continuum Program and pre-deployment training/certification 
periods.

    79. Senator Ayotte. Secretary Work, on another issue, how does the 
Navy propose to develop housing allowance efficiencies without 
increasing the amounts sailors and marines will have to pay out-of-
pocket for housing?
    Mr. Work. The Secretary of Defense, through the Defense Travel 
Management Office (DTMO) within the Office of the Under Secretary of 
Defense (Personnel and Readiness), is responsible for setting the 
housing allowance rates for all eligible personnel. DOD sets housing 
allowance rates annually based on market costs of rent, utilities and 
renter's insurance with input from each of the Services. Prior to 2001, 
the DOD housing allowance program was structured so that the average 
military member paid at least 15 percent of their housing costs. In 
January 2000, the Secretary of Defense announced a quality-of-life 
initiative to increase housing allowances gradually over a 5 year 
period to eliminate a servicemember's average out-of-pocket housing 
costs.
    DON's ability to adjust housing allowance rates is limited. 
However, one planned efficiency is the Marine Corps' initiative to 
enforce stricter rules that require unmarried Marines without 
dependents to live in Government-furnished bachelor quarters instead of 
drawing BAH.
    The DON will continue to work with DTMO via the Per Diem Travel and 
Transportation Allowance Committee to validate the processes and data 
used in setting housing allowance rates. We want to ensure that we are 
not paying amounts in excess of prevailing housing market rates; 
however, there is no intent on the part of DON to increase out of 
pocket housing expenses for servicemembers.

                         cbo reduction options
    80. Senator Ayotte. Secretary Hale, the Congressional Budget Office 
(CBO) released a report last week, titled: ``Reducing the Deficit: 
Spending and Revenue Options.'' The report provided 14 options for DOD 
to reduce both mandatory and discretionary spending. What is your 
position on each of the 14 options?
    Mr. Hale.
Option 1: Reduce the growth in appropriations for the Department of 
        Defense.
    The Department's annual budget requests will continue to be driven 
by the requirements necessary to complete its mission. That is the 
reason DOD and OMB perform a thorough, joint budget review each fall--
evaluating funding for each program as it relates to the Department's 
mission. Reducing the growth in DOD's appropriations by the arbitrary 
amounts mentioned in the CBO report could hamper the Department's 
ability to carry out the administration's directives. To the extent 
that Administration modifies DOD's mission, we will adjust our funding 
requests accordingly.
Option 2: Cap increases in military pay.
    We must ensure that military compensation remains highly 
competitive and recognizes the sacrifices our servicemembers endure. 
However, in light of the current fiscal crisis facing the Nation, the 
CBO proposal of adjusting the military pay raise to 0.5 percent below 
the ECI for fiscal year 2012-fiscal year 2015 is not an unreasonable 
idea given the significant improvements in the military compensation 
package that have been made over the last decade. As the Department 
wrestles with a shrinking top line, some adjustments to military 
compensation will likely need to be considered.
Option 3: Increase medical cost sharing for military retirees who are 
        not yet eligible for Medicare
          Increased enrollment fees for TRICARE Prime from $230/$460 
        per individual/family to $550/$1,100 annually and established 
        $30 co-pay for visits to civilian network. Additionally, the 
        proposal imposes a fee for enrollment in TRICARE standard of 
        $50/$100 and indexes PRIME and Standard enrollment fees to per 
        capita growth in health care expenditures.

    The Department generally agrees with the savings estimates for 
option 3, but has no specific comments on these proposals other than to 
indicate that the proposals currently in the bill--submitted by the 
Department--represent the Department and administrations current 
position on these issues.
Option 4: Limit the TRICARE benefit for military retirees and their 
        dependents.
          Retirees would not have the option of enrolling in TRICARE 
        Prime. TRICARE Standard would require enrollment and payment of 
        a fee equal to 28 percent of the cost of providing coverage. 
        Catastrophic cap would increase from $3,500 to $7,500 per 
        family and would be indexed to growth in health care 
        expenditures.

    The Department generally agrees with the savings estimates for 
option 4, but has no specific comments on these proposals other than to 
indicate that the proposals currently in the bill--submitted by the 
Department--represent the Department and administrations current 
position on these issues.
Option 5: Increase cost sharing for pharmaceuticals under TRICARE.
          Increased co-pay for pharmaceuticals for all except active 
        duty servicemembers. From no cost in military medical 
        facilities and $3/$9/$22 in retail/mail order networks (for 30/
        90 day fill) for generic/formulary/non-formulary to $4/$9 in 
        military medical facilities and $15/$25/$45 in retail network 
        (for 30 day fill) and $9/$27/$45 in mail order (for a 90 day 
        fill).

    The first two options are not additive--the third option can be 
added to either the first or second option. The Department generally 
agrees with the savings estimates for option 5, but has no specific 
comments on these proposals other than to indicate that the proposals 
currently in the bill--submitted by the Department--represent the 
Department and administrations current position on these issues.
Option 6: Consolidate DOD's retail activities and provide a grocery 
        allowance to servicemembers.
    The Department has studied the effects of consolidating the systems 
or providing benefits to military members via alternate methods and 
rejected the alternatives for the following reasons:

    1.  Exchanges mark up products to benefit morale, welfare, and 
recreation (MWR) activities. A recent Defense Commissary Agency (DeCA) 
study reported that if the Government made a profit, however slight, on 
the goods sold through commissaries, manufacturers would not support 
the pricing level they now offer, so a consolidated retail system would 
have the adverse effect of eliminating savings. The Department 
estimates a $990 annual price increase to the average commissary 
shopper, a much larger cost than supported by CBO's proposed $400 
annual grocery allowance. Further, the proposal does not address the 
cost-of-living allowance (COLA) implications for servicemembers, and 
additional costs borne by the Military Personnel accounts, given the 
new, higher proposed retail prices that would be used in COLA surveys.
    2.  The proposed grocery allowance (paid to only active-duty 
members) disregards 80 percent of the eligible commissary shopping 
population (4,500,000 retirees, 846,000 Guard and Reserve members, and 
14,800 overseas civilians). Further, during the 5-year phase-in period, 
the administrative burden of starting and stopping a grocery allowance 
as active duty members move from a base that has already consolidated 
to one that is pending consolidation, and vice versa, would be onerous.
    3.  In fiscal year 2010, the exchanges distributed $365 million to 
MWR programs. Without this exchange dividend, the Department would have 
to increase its appropriation requests for Category A programs 
(libraries, fitness centers, etc.) and virtually all Category B 
facilities (childcare centers and youth programs, recreational 
equipment checkout, etc.).
    4.  All personnel in a consolidated retail system would be 
classified as nonappropriated fund (NAF) personnel. A study of the 
feasibility of using the NAF personnel system in DeCA found that 
significant implementation risks, including labor and congressional 
opposition, outweighed potential savings. Further, without legislation 
to allow benefits to transfer from the General Schedule and Wage Grade 
systems to the NAF pay system, the Department would have to pay 
benefits and leave balances ($173.3 million) to all DeCA employees and 
DeCA employees' employment records would restart with zero days of 
accrued annual leave and sick leave upon conversion.
    5.  Finally, the CBO's estimated savings is overstated. Current 
appropriations for commissary and exchange operations are $1.5 billion. 
If the Department pays a total grocery allowance of $560 million each 
year, the Budget Authority savings line could not be $1.3 billion per 
year for fiscal years 2017 through fiscal year 2021 unless an 
exaggerated inflation factor were applied to the appropriation and the 
grocery allowance amount were frozen.
Option 7: Replace the JSF program with F-16s and F/A-18s; and,
Option 8: Cancel the Navy and Marine Corps' JSFs and replace those 
        aircraft with F/A-18E/Fs.
    During recent Nunn-McCurdy certification for the JSF, the 
Department assessed whether or not there were alternative aircraft to 
the JSF could provide acceptable capability to meet the joint military 
requirement at lower cost. Those deliberations included an assessment 
of the F-22, F-15E, F-16 Block 52/60 and the F-18E/F aircraft. The 
analysis compared the options on the bass of survivability, basing, 
lethality, and networking as well as including potential upgrades to 
alternative aircraft airframes, weapons, sensors, and communications 
networks. Rough order of magnitude data was obtained on the cost of the 
basic and upgraded alternative aircraft, scaled to a JSF-size inventory 
quantity.
    The assessments concluded the following. None of the alternatives 
were found to provide the basing capability needed from conventional 
and austere land bases and from sea bases. There are no upgrades to 
mitigate the basing capability shortfall. The F-15E, F-16, and FA-18E/F 
also lack the stealth features to be survivable in higher threat 
environments. The F-22 is the strongest alternative in terms of 
survivability and lethality in the air-to-air arena, but it lacks the 
sensors and weapons to meet required lethality against targets. With 
extensive upgrades, the F-22's capability against ground targets could 
be improved, but potential design limitations, technical risk, lack of 
basing flexibility, and high cost eliminated this alternative. Based on 
this analysis, the Department concluded that there is no alternative to 
the JSF that provides acceptable capability to meet the joint military 
requirement at less cost.
Option 9: Cut the number of aircraft carriers to ten and the number of 
        Navy air wings to nine.
    Reducing the number of deployable nuclear powered aircraft carrier 
from 11 to 10, would inhibit the Navy's ability to respond to national 
security requirements as mandated by the President of the United 
States. Given that approximately one ship is unavailable due to 
Refueling and Complex Overhaul, and two or more ships are also 
unavailable because of recurring maintenance activities, training 
support missions, or transiting from or to the Area of Responsibility, 
a reduction to 10 ships would lead to regional coverage gaps, which 
would possibly impact the ability of the Navy to respond to worldwide 
situations. Furthermore, such a reduction would force the early 
retirement of a Nimitz class (CVN 68) aircraft carrier, years ahead of 
the end of its service life. The elimination of the 10th Navy Air Wing 
would be inconsistent with 11 fleet aircraft carrier battle force.
Option 10: Cancel the Expeditionary Fighting Vehicle
    The Department cancelled the Expeditionary Fighting Vehicle (EFV) 
in fiscal year 2011 because future fiscal constraints made the program 
and subsequent sustainment of the vehicle in the inventory 
unaffordable. Based on Marine Corps cost projections, the EFV would 
have consumed on average 49 percent of the Marine Corps total 
procurement account during the years 2018 through 2025. The EFV would 
also consume over 100 percent of what is projected to be available for 
all procurement of ground vehicles during the years 2018 through 2025. 
Once fully fielded the EFV would consume 91 percent of the Marine 
Corps' vehicle-related operations and maintenance account when fully 
fielded. The Marine Corps invested in a new, more affordable, 
amphibious vehicle starting in fiscal year 2012.
Option 11: Delay funding of the Army's Ground Combat Vehicle.
    The Department cancelled the Future Combat Systems including the 
Manned Ground Vehicle in fiscal year 2010 but continued the development 
of the combat vehicle now called Ground Combat Vehicle as a stand-alone 
program. The Department is currently assessing the Army's Analysis of 
Alternative (AoA) submission which outlines a variety of materiel 
solutions to satisfy the capability need documented in the approved 
Initial Capabilities Document (ICD). It is premature at this point to 
delay initial fielding to 2025 for this effort since the Defense 
Acquisition Board (DAB) has not convened to review all acquisition 
documents and establish planned milestones and fielding dates. A better 
decision point to make schedule changes will be at the Milestone B when 
the program baseline is established and approved.
Option 12: Terminate the Medium Extended Air Defense System Program.
    DOD has terminated the MEADS program in the fiscal year 2012 Budget 
request. The Department has reduced MEADS to $804 million to execute 
the program through fiscal year 2013 for design and development and 
complete the prototypes that have already passed critical design 
review, such as the radars. The program would complete limited system 
integration and demonstrate capability via ground and flight tests of 
these prototype systems. This would further allow documentation of the 
tested design and the ability to assess the capabilities of the major 
system elements and the development of data packages for these 
elements. The Department is in a commitment with its allies, Germany 
and Italy and if DOD broke the Memorandum of Agreement with our allies 
it is estimated the withdrawal liability would be $846 million dollars. 
It is in the best interest of DOD to complete its agreement through 
fiscal year 2013 for a cost of $804 million.
Option 13: Terminate the Precision Tracking Space System Program.
    The Precision Tracking Space System (PTSS) provides a space-based 
missile defense sensor which assists the Ballistic Missile Defense 
System (BMDS) in successfully overcome an adversaries' future ballistic 
missile capabilities. Additionally, space-based sensors offer on-
demand, geographically independent, persistent coverage with no need 
for Indications and Warning, enabling earlier intercept opportunities. 
Based on modeling and simulation studies, the greatest hedge against 
missile defense threats of greatest concern, regional medium-range 
ballistic missiles and intermediate-range ballistic missiles, remains a 
highly available early missile tracking capability from space based 
sensors. The Precision Tracking Space System prototype will demonstrate 
early, precise, real-time tracking of ballistic missiles. This 
capability significantly improves BMDS performance and the associated 
functionalities, when approved, will be captured in future BMDS 
Integrated Build documentation.

    81. Senator Ayotte. Secretary Hale, one option caught my attention 
regarding the consolidation of four retail systems, also known as 
commissaries and exchanges operated by DOD as a benefit to military 
members and their families. The commissaries receive about $1.3 billion 
in annual appropriated subsidies, while the exchanges rely on military 
logistics to reduce their overhead costs. The exchanges also serve as a 
revenue source for non-appropriated MWR programs. Has DOD considered an 
efficiency initiative to consolidate the systems or reduce the annual 
appropriated subsidy in lieu of a grocery credit provided to military 
members?
    Mr. Hale. Yes, the Department has studied the effects of 
consolidating the systems or providing benefits to military members via 
alternate methods and rejected the alternatives for the following 
reasons:
    Exchanges mark up products to benefit MWR activities. A recent DeCA 
study reported that if the Government made a profit, however slight, on 
the goods sold through commissaries, manufacturers would not support 
the pricing level they now offer, so a consolidated retail system would 
have the adverse effect of eliminating savings. The Department 
estimates a $990 annual price increase to the average commissary 
shopper, a much larger cost than supported by CBO's proposed $400 
annual grocery allowance. Further, the proposal does not address the 
COLA implications for servicemembers, and additional costs borne by the 
military personnel accounts, given the new, higher proposed retail 
prices that would be used in COLA surveys.
    The proposed grocery allowance (paid to only Active-Duty members) 
disregards 80 percent of the eligible commissary shopping population 
(4,500,000 retirees, 846,000 Guard and Reserve members, and 14,800 
overseas civilians). Further, during the 5-year phase-in period, the 
administrative burden of starting and stopping a grocery allowance as 
active duty members move from a base that has already consolidated to 
one that is pending consolidation, and vice versa, would be onerous.
    In fiscal year 2010, the exchanges distributed $365 million to MWR 
programs. Without this exchange dividend, the Department would have to 
increase its appropriation requests for Category A programs (libraries, 
fitness centers, et cetera) and virtually all Category B facilities 
(childcare centers and youth programs, recreational equipment checkout, 
et cetera).
    All personnel in a consolidated retail system would be classified 
as NAF personnel. A study of the feasibility of using the NAF personnel 
system in DeCA found that significant implementation risks, including 
labor and congressional opposition, outweighed potential savings. 
Further, without legislation to allow benefits to transfer from the 
General Schedule and Wage Grade systems to the NAF pay system, the 
Department would have to pay benefits and leave balances ($173.3 
million) to all DeCA employees and DeCA employees' employment records 
would restart with zero days of accrued annual leave and sick leave 
upon conversion.
    Finally, the CBO's estimated savings is overstated. Current 
appropriations for commissary and exchange operations are $1.5 billion. 
If the Department pays a total grocery allowance of $560 million each 
year, the Budget Authority savings line could not be $1.3 billion per 
year for fiscal years 2017 through fiscal year 2021 unless an 
exaggerated inflation factor were applied to the appropriation and the 
grocery allowance amount were frozen.

    82. Senator Ayotte. Secretary Hale, in this day and age of 
warehouse retail outlets and specialty grocery chains, has a business 
cases assessment been accomplished to compare the competitiveness and 
efficiency of exchanges and commissaries run by DOD to commercial 
counterparts? If so, what were the results?
    Mr. Hale. No, the Department has not compared its retail operations 
to their commercial counterparts. However, consulting firms have 
conducted several studies, and the DeCA and the exchanges routinely 
conduct internal studies. For instance, each year, the DeCA publishes 
their return on investment; for fiscal year 2010 that figure was 208 
percent, as military members saved $2.7 billion compared to the annual 
appropriation of $1.3 billion. The DeCA also monitors Commissary 
Customer Satisfaction. In fiscal year 2010, they recorded an overall 
score of 4.68 (on a scale of 1 to 5), the highest mark in the Agency's 
history. In order to apply statistics to the efficiency of the DeCA and 
the exchanges, we would have to determine the monetary value these 
benefits have on the safety, health, quality-of-life, and security of 
the military communities, especially in overseas locations. Equally 
difficult to quantify is the readiness, recruitment, and retention 
these non-pay benefits provide to the Military Services. We do not have 
statistical proof of the payback the retail activities inherently 
provide, but we know they exist.

                     civilian pay and hiring freeze
    83. Senator Ayotte. Secretary Hale, DOD proposes to freeze the 
hiring of civilian personnel through fiscal year 2013 and to freeze 
civilian pay freeze through fiscal year 2012 for a savings of $25 
billion over the next 5 years. The combined effect of these two 
initiatives will be, in most cases, to ask our DOD workforce to do more 
work with less pay once inflation is factored in. It seems from DOD's 
data that civilian hiring freezes will save over $2.5 billion each year 
over the next 5 years. How specifically will the savings be derived?
    Mr. Hale. There are two separate issues:

    (1)  The Civilian Workforce Freeze for fiscal year 2012 and fiscal 
year 2013 is based on freezing the full-time equivalent (FTE) level of 
the civilian workforce at the fiscal year 2010 level. This means, that 
the Components are not allowed to increase their civilian personnel 
FTEs over the fiscal year 2010 levels for fiscal year 2012 and fiscal 
year 2013 with limited exceptions. The previously planned increases 
over the fiscal year 2010 levels were taken as cost savings.
    (2)  The Civilian Pay Raise Freeze for fiscal year 2011 and fiscal 
year 2012 is a Federal wide pay raise freeze as directed by the 
President. The approximate $12 billion cost savings is derived by 
reducing the civilian pay budgeted amounts by the previously 
anticipated pay raise of 2.3 percent in both fiscal year 2011 and 
fiscal year 2012. The civilian pay raise resumes in fiscal year 2013 
but based on a lower pay rate. The amounts previously included in the 
out year budget were taken as cost savings.

    84. Senator Ayotte. Secretary Hale, do the savings assume that once 
the freeze is lifted in 2014, hiring actions will not resume to fill 
the empty slots?
    Mr. Hale. Yes.

    85. Senator Ayotte. Secretary Hale, will civilian position 
authorizations that go vacant eventually be eliminated? In other words, 
does the Department plan a civilian workforce reduction?
    Mr. Hale. The components will not have the ability to increase 
positions, but they will have the ability to maintain fiscal year 2010 
staffing levels by filling positions that go vacant. The components 
will need to review all civilian manpower to determine which functions 
are a priority and must continue to be performed. Any workforce changes 
will be reviewed on a case-by-case basis.

    86. Senator Ayotte. Secretary Hale, as for the civilian pay freeze, 
do the savings assume that pay will not be adjusted for the accumulated 
inflation?
    Mr. Hale. The civilian pay raise (inflation) factor is not included 
in fiscal year 2011 and fiscal year 2012. It does however, resume in 
fiscal year 2013-2015.

    87. Senator Ayotte. Secretary Hale, please provide a projection 
over the next 5 years of civilian pay increases that was used to 
estimate the cost savings.
    Mr. Hale. The savings associated with the civilian workforce freeze 
were estimated using the fiscal year 2010 funding levels. The savings 
by year are:

          Fiscal Year 2012 - $2.5 billion
          Fiscal Year 2013 - $2.7 billion
          Fiscal Year 2014 - $2.9 billion
          Fiscal Year 2015 - $2.6 billion
          Fiscal Year 2016 - $2.6 billion

    88. Senator Ayotte. Secretary Hale, in your opinion, how will the 
combined freezes affect the morale and productivity of the DOD civilian 
workforce?
    Mr. Hale. DOD civilians are extremely dedicated workforce that 
understand the fiscal challenges facing the Nation. The Department 
anticipates minimal impact to morale and productivity.
                                 ______
                                 
             Questions Submitted by Senator James M. Inhofe
                                 depots
    89. Senator Inhofe. Secretary Hale and Secretary Conaton, how is 
the efficiencies strategy affecting parts availability?
    Mr. Hale. The efficiency strategy for depot maintenance is planned 
to have virtually no impact on parts availability. Direct labor and 
material costs are assumed to be constant throughout the FYDP and 
unchanged as a result of efficiencies.
    Ms. Conaton. Air Force Efficiencies Strategy is not intended to 
affect current parts availability, but is intended to implement 
improvements in the supply chain that have long-lasting impacts. 
Desired effects from efficiencies include improving sourcing decisions, 
leveraging Air Force funds for more favorable pricing and terms, 
optimizing productivity of limited manpower, improving supplier 
relationships, generating savings and accelerating the delivery of 
materiel (parts availability).

    90. Senator Inhofe. Secretary Hale and Secretary Conaton, is a 
comprehensive strategy involving the DLA, depots, the Global Logistics 
Support Center (GLSC), U.S. Transportation Command (TRANSCOM), and 
other stakeholders being worked concurrently with the implementation of 
efficiencies measures? If so, when will this plan be available?
    Mr. Hale. The efficiency strategy for depot maintenance is planned 
to have virtually no impact on parts availability. Direct labor and 
material costs are assumed to be constant throughout the FYDP and 
unchanged as a result of efficiencies.
    Ms. Conaton. OSD along with TRANSCOM has taken the lead in 
developing a Joint comprehensive strategy to implement supply chain 
based efficiency measures. In support of OSD, the Air Force's Global 
Logistics Support Center and Air Force Air Logistics Centers have been 
participating in the development of the plan and will continue to do 
so. Since this is a Joint strategy, the Air Force must defer the 
question on availability of the plan to OSD and TRANSCOM.

    91. Senator Inhofe. Secretary Hale and Secretary Conaton, are 
reinvestment dollars available to fuel innovation in this area?
    Mr. Hale. Efforts to improve Depot Maintenance processes are 
continuing within the Department. Funding requirements to implement 
these improvements have been re-aligned within existing resources. 
Although future proposals may require additional resources, additional 
funding requirements are not known at this time. Any proposed funding 
realignments will be evaluated through cost benefit analysis to ensure 
the most effective measures are implemented.
    Ms. Conaton. OSD with TRANSCOM has taken the lead in developing a 
joint comprehensive strategy to implement supply chain based efficiency 
measures. As this plan is developed by OSD and TRANSCOM, the resources 
will be identified and programmed appropriately by the Services.

                          u.s. industrial base
    92. Senator Inhofe. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, how are we balancing efficiencies and 
immediate budget concerns with the long-term need to maintain a robust 
defense industrial base and niche skills/specialties that disappear if 
not consistently cultivated?
    Mr. Hale. DOD is pursuing efficiencies and immediate budget 
savings, while at the same time working to maintain a robust defense 
industrial base and critical niche skills/specialties. In many cases, 
the efforts underway will both create savings and enhance the long-term 
health of the defense industry. For instance, under the Better Buying 
Power initiative the Department is addressing affordability right at 
the outset of program initiation, which will reduce the amount of 
changes that are made to programs once they are in progress. For 
example, the Ohio class replacement missile submarine was unaffordable 
as originally conceived, so it was redesigned to drive down the cost 
substantially. By making necessary changes at the beginning, the 
Department will avoid the problems of breaking or canceling programs 
later on, which negatively impacts industry. We are also going to 
reduce costs and drive better industry performance by promoting real 
competition across the board in our programs. The recent competition 
for the LCS is a good example where the bidders were incentivized to 
substantially improve their offers because of the head-to-head nature 
of the competition. In addition, the Department is reviewing technology 
investment policies to encourage greater collaboration with industry. 
Finally, we are launching a DOD-wide Superior Supplier Incentive 
Program to reward contractors who control their costs and demonstrate 
superior performance. Taken together, these and other efforts will 
create savings and drive the defense industry to be more efficient and 
innovative, which is the key to its long-term health and ability to 
compete globally.
    Dr. Westphal. We are vigilant in ensuring that the disciplines 
found in our population of industrial base specialties are minimally 
affected and in fact are being bolstered by reinvesting some realized 
saving with contractors and other Service providers found exclusively 
in our industrial base. We are limiting solicitations to the National 
Technology Industrial Base, thus ensuring the niche skills they provide 
are funded and facilitated.
    Mr. Work. The fiscal year 2012 President's budget is a product of a 
comprehensive examination of the Department's business operations which 
has enabled the Navy and Marine Corps to refocus on our critical 
warfighting capabilities. Efficiencies were found across three 
categories: buying ``smarter', streamlining organizations and 
operations, and energy initiatives. DON identified nearly $35 billion 
in efficiencies over 5 years, and when combined with Defense Department 
level initiatives, the DON fiscal year 2012 FYDP incorporates over $42 
billion in savings. Inherent in buying smarter is taking into account 
industrial base implications as acquisition strategies and contracting 
strategies are developed. For example, the LCS competition where 
Lockheed Martin and Austal USA were each awarded a fixed-price 
incentive contract for the design and construction of a 10 ship block 
buy from fiscal year 2010 through 2015 reflects our commitment to 
affordability while minding the industrial base. This LCS strategy 
supports the industrial base for shipbuilding by keeping workers 
employed at two shipyards along with workers at their various 
subcontractors and vendors. Additionally, the Navy has looked to 
multiyear procurements in aviation and shipbuilding programs to bring 
stability to the industrial base which is reflected in savings achieved 
by such procurements.
    Ms. Conaton. The Air Force recognizes the benefits of a robust 
national industrial base. One step we are taking is to work with OSD 
and other Defense components on a sector-by-sector, tier-by-tier review 
of the network of firms that support the Department. The knowledge 
expected to be gained by this review will enable Air Force decision 
makers to better evaluate the potential impact of investment 
alternatives and make decisions accordingly.
    Beyond this analysis the Air Force also recognizes that as we 
implement the efficiencies we have identified, we must also ensure that 
we take steps to promote a robust defense industrial base, including 
preservation of key skills and capabilities on which we depend. In the 
area of space acquisition, for example, in keeping with Secretary 
Gates' Efficiencies Initiative, the Air Force is developing specific 
strategies that we believe will result in cost savings and a more 
efficient approach, while also helping to strengthen the industrial 
base. Two important efforts in this area are the ``EASE'' proposal for 
satellite acquisition and our developing strategy for acquiring launch 
capability.
    EASE is designed to drive down costs, improve space industrial base 
stability, and allow for investments in technology that will lower risk 
for future programs. It has four basic tenets: block buys of 
satellites; stable research and development investment; fixed price 
contracting; and full funding over multiple years through advance 
appropriations.
    The first tenet--block buys of satellites--will allow us to 
purchase economic order quantities of critical parts, run production 
lines more efficiently, and reduce non-recurring engineering costs. The 
resulting savings can be reinvested in research and development to 
further improve the performance and lower the cost of follow-on 
systems. This reinvestment--what we call the Capability and 
Affordability Insertion Program--is an essential component of EASE. 
Together, these first two tenets will provide much-needed stability and 
predictability for a fragile space industrial base.
    Another area where the Air Force has devoted significant effort to 
developing a more cost-effective acquisition strategy while aiding the 
industrial base is space launch. Along with our partners at the 
National Reconnaissance Office (NRO), we deliver assured access to 
space through the Evolved Expendable Launch Vehicle (EELV) program. 
Several studies have independently recommended an acquisition strategy 
that procures a minimum eight cores per year, both to help control 
costs and to help solidify the industrial base. Consistent with our 
commitment to deliver assured access to space, the Air Force has 
partnered with the NRO to ensure this level of baseline annual 
production. The NRO will buy three per year, and the DOD will buy five 
per year, with the Navy picking up one core in each of fiscal year 2012 
and fiscal year 2013. Thereafter, the Air Force has pledged to buy five 
EELVs per year for the remainder of the FYDP. This will have the effect 
of lowering the cost per booster and contributing to a more stable 
market for our industrial base.
    In addition to taking these steps, the Air Force also recently 
signed a joint Memorandum of Agreement with the NRO and NASA designed 
to ensure a consistent position on opportunities, certification, and 
requirements for potential new entrants to space launch. We expect to 
release new entrant criteria by late this summer, and we expect to 
allow new entrants to compete for near-term launch missions. These 
steps should also promote a healthy industrial base.

    93. Senator Inhofe. Secretary Hale, Secretary Westphal, Secretary 
Work, and Secretary Conaton, have reinvestment opportunities been 
identified in the areas of small business development, research and 
development, DARPA, etc . . . to ensure that leaning/cutting of 
processes are not followed by loss of expertise and erosion of our 
competitive edge?
    Mr. Hale. The efficiency initiatives instituted by the Under 
Secretary of Defense for Acquisition, Technology and Logistics under 
his memorandum titled ``Better Buying Power'' are directed at 
increasing productivity in DOD. Of the 23 specific initiatives, 2 are 
related specifically to providing greater opportunities to small 
businesses. This action reflects the Department's understanding that 
efficiencies can be gained through the use of small businesses, which 
are often more cost effective than larger businesses.
    Another way the Department provides protection of its research and 
development investments is under the SBIR program. This program 
protects small business by allowing them to retain rights to 
intellectual property generated under the program for a period of 5 
years after contract award (DFARS 227.71 Rights In Technical Data). New 
contract awards during this protection period have the effect of 
renewing or extending the protection period.
    With respect to preserving our investments in the industrial base, 
Title III of the Defense Production Act contains a unique set of 
authorities, found nowhere else in law, that enables the Federal 
Government to incentivize the creation, expansion or preservation of 
domestic manufacturing capabilities to support national security needs. 
Title III authorities provide domestic industry with a variety of 
incentives that reduce the risks associated with the capitalization and 
investments required to establish the needed production capacity. The 
authorities provide a bridge from the R&D arena and accelerate the 
transition of technologies to affordable production and deployment. 
Additionally, Title III investments mitigate domestic industrial base 
capability gaps and strengthen the economic and technological 
competitiveness of the U.S. industrial base.
    Dr. Westphal. As we explore possible efficiencies and opportunities 
to meet the Department's Better Buying Power initiatives, we remain 
committed to realizing the advantages that competition and small 
business innovations bring to the table. We have several ongoing 
programs to modernize major weapons systems, and these are excellent 
opportunities to introduce new technologies. The Paladin Integrated 
Management program is incorporating technologies initially developed 
for the Non-Line of Sight-Cannon (NLOS-C). This effort helps preserve 
the skills and technologies that might otherwise have been lost due to 
a program termination. The Army's near-term plans for modernizing the 
Bradley fleet sustains both government and contractor System 
Engineering capability. We have other reset programs that incorporate 
new technologies where feasible. We understand that these investments 
will not provide the same level of production workload at depots and 
final assembly facilities, but they do allow us to preserve some level 
of the expertise in many areas.
    Mr. Work. The DON worked with the Small Business Administration in 
launching the website Green Biz Ops to connect contractors and, 
especially, small businesses with opportunities to participate in 
contracts for our energy initiatives. The Office of Naval Research 
(ONR) is constantly looking for innovative scientific and technological 
solutions to address current and future Navy and Marine Corps 
requirements and maintains Broad Agency Announcements to ensure 
continuing investment in research ideas. Additionally, the DON's SBIR 
Program gives small businesses the opportunity to address naval needs 
in more than 30 science and technology areas to provide the Navy and 
Marine Corps with innovative advances in technology developed by small 
firms. The DON Office of Small Business Programs maintains a presence 
at each of our buying commands to foster small business opportunities 
where possible.
    A recent leadership development is the establishment of a Deputy 
Assistant Secretary of the Navy for Research, Development, Test, and 
Evaluation to ensure our investment in research maintains our 
competitive edge.
    Ms. Conaton. The Air Force focus on lean and continuous process 
improvement is intended to improve our expertise and sharpen our 
competitive edge. The Air Force is looking at reinvestment 
opportunities in many areas, including research and development. Within 
its Science and Technology Program, the Air Force plans to reinvest 
savings realized from efficiencies back into basic research, applied 
research, and advanced technology development efforts supporting 
Flagship Capability Concepts, Technology Horizons, and other high 
priorities in order to maintain our competitive edge. With regards to 
SBIR, reinvestment opportunities may help identify and promote advanced 
technologies, translate scientific discoveries into technological 
innovations, and accelerate transformational technology aiding in the 
creation of jobs and sustaining expertise in areas such as energy and 
manufacturing.
                                 ______
                                 
               Questions Submitted by Senator Rob Portman
              dod efficiencies partnerships with industry
    94. Senator Portman. Secretary Westphal, Secretary Work, and 
Secretary Conaton, DOD has been partnering with the aluminum industry 
on some cost-shared initiatives to improve performance while lowering 
weight and costs. Some of these initiatives include transitioning to 
new alloys, joining techniques, and commercial best practices to 
defense programs. Please provide a summary of what your Service has 
done to date on these efforts and outline the results in terms of cost 
reductions, weight reductions, and performance improvements.
    Dr. Westphal. The U.S. Army Tank Automotive Research, Development 
and Engineering Center (TARDEC) and Alcoa have partnered on a program 
called the Army Lightweight Structures Initiative. This program will 
integrate Alcoa's proven capabilities particularly into the design of 
new but also into older military ground vehicles. The goal of the 
program is weight reduction and performance improvement by substituting 
new alloys for older heavier metals.
    Examples of weight reductions to date are as follows:

         EVCII (Expanded Capacity Vehicle II) floor

                 Drop in to existing aluminum design saved 91 
                pounds (32 percent).
                 Prototyped in 2 months; 20,000 miles of 
                testing.

         EVCII Frame

                 Cross members saved 106 pounds (36 percent) 
                over existing Al design.

         Lower Mission Module (LMM)

                 330 pound savings (31 percent).

         HEMTT (Heavy Expanded Mobility Tactical Truck) - A3 - 
        Space frame

                 Design reduced weight by 840 pounds (50 
                percent).

         HEMTT-A3 - Blast Shield

                 440 pound savings (35 percent).

         FMTV (Family of Medium Tactical Vehicles) Spare Tire 
        Carrier

                 64 pound weight savings (43 percent).

    Mr. Work. Naval Surface Warfare Center Carderock Division 
contracted with Alcoa to provide engineering services supporting 
research and development of lighter weight aluminum structures with 
improved fabrication methods for the LCS and other high speed, shallow 
draft vessels. Components for improvement have included flight deck tie 
downs, trimaran side hull tips, passageway radius extrusions, 
corrugated panels, bolted and bonded splice components, and MK 110 Navy 
gun mount system.
    For the General Dynamics (GD)-Austal LCS) design, flight deck tie 
downs and side hull tips have been redesigned for improved 
manufacturability, cost savings, and weight reduction. The redesigned 
flight deck tie downs have also been approved for use on the Joint High 
Speed Vessel (JHSV). The tie downs were redesigned from a completely 
welded component to a welded and bolted component comprised of fewer 
parts. The tie downs provide a 50 percent weight reduction over the 
baseline tie down currently being used by the Navy resulting in a 
weight savings of 2.6 tons for the GD-Austal variant of LCS and 1.5 
tons for JHSV. The side hull tip was redesigned from a structure 
comprised of numerous welded plates with difficult geometry to a single 
piece side hull tip. The redesigned side hull tip provides the 
potential for an approximate 70 percent cost reduction or approximately 
800 labor hours per ship over the baseline due to significant 
reductions in fit-up time, welding, inspection, and rework and has been 
installed on LCS 4.
    On the Lockheed Martin LCS design, passageway radius extrusions, 
single sided corrugated panels, and bolted and bonded longitudinal 
splices were redesigned for cost and weight reductions. The redesigned 
passageway extrusions have already been installed on LCS 3 and were 
redesigned to simplify production of radiused bulkhead corners 
eliminating multiple piece-parts and subcomponent welding. The 
shipbuilder has reported a 40 to 80 hour labor reduction per corner 
with additional savings associated with manufacturing, assembly, and 
rework. Single sided corrugated panels are being developed as a 
replacement for candidate stiffened panels. The corrugated panels are 
anticipated to provide estimated weight reductions of 10 to 20 percent 
where used and a potential for cost savings of 5 to 10 percent. Bolted 
and bonded splices were designed to replace approximately 1,500 welded 
splices done on the LCS 1 and are anticipated to reduce labor cost by 
approximately 50 percent when implemented on LCS 3.
    The MK 110 Navy gun mount system was redesigned for improved 
manufacturability. The baseline component was comprised of 320 welded 
parts that was redesigned to 78 parts providing a 75 percent part 
reduction in the structure. The parts consolidation results in 
reductions in labor costs, welding, and rework.
    In addition to the efforts discussed above, the Alcoa contract 
involves research and development to improve aluminum joining 
technologies. Alcoa is currently developing improved tool designs for 
friction stir welding (FSW) of 6XXX series aluminum extrusions and is 
being evaluated as a potential technique for joining extruded decking 
panels on the GD-Austal LCS. The use of FSW is anticipated to improve 
weld quality over the baseline decking panels currently being joined by 
conventional arc welding. Alcoa is also developing a new temper for 
aluminum 5456 designated as 5456-HX anticipated to have improved 
resistance to aluminum sensitization. The Navy will be funding the 
certification of 5456-HX. Successful certification and implementation 
of 5456-HX on the CG 47 Class would potentially result in reduction in 
life cycle costs.
    Other industry efforts include the development of an aluminum-
scandium alloy designated as 7XA by Surface Treatment Technologies. 
Alloy 7XA is a 7XXX aluminum alloy with scandium additions for improved 
strength and extrudability. The alloy was developed with the ONR 
funding and is being implemented on CVN 78 for flexible infrastructure 
to enable improved weight savings. A co-cast aluminum alloy designated 
as 5005/5456 was developed by Novelis. This co-cast material is 
anticipated to have improved corrosion resistance over conventional 
5456. This alloy was not developed under a cost-share initiative with 
the Navy. Both alloy 7XA and Novelis 5005/5456 are undergoing 
certification testing that is being funded by the Navy.
    Ms. Conaton. The Advanced Aluminum Aerostructures Initiative 
(A\3\I) is a congressionally-directed advanced development program 
managed by the Air Force and aimed at reducing the installed cost of 
aluminum aerospace structures, while lowering maintenance requirements, 
improving performance, and reducing life cycle costs. Several vehicle 
components have been studied as part of this program including the 
Boeing C-17 crew emergency escape door, the Lockheed Martin F-22 nose 
landing gear door, and the Lockheed Martin C-130 cargo ramp extension.
    The C-17 crew emergency escape door is a forged and high-speed, 
machined one-piece frame with a separate aluminum skin. The door design 
uses 81 percent fewer parts and offers a 30 percent overall cost 
reduction. The redesigned door has been successfully transitioned to 
the customer and was put into production in July 2004. Installation of 
the door on the C-17 fleet began in spring 2005 with aircraft #134.
    The F-22 nose landing gear door is a unitized structure that 
utilizes innovative snap-fit fastenerless technology, meaning no holes 
need to be drilled. The new door design will reduce maintenance time, 
offers better impact damage tolerance, and is expected to save a 
significant amount of funding over the life of the F/A-22. The 
redesigned F-22 nose landing gear door has been successfully 
transitioned to the customer for production and has been installed on 
the F-22 aircraft beginning with aircraft #4112.
    At 30 pounds, the C-130 cargo ramp extension offers a 40 percent 
weight savings over the previous design and uses fewer parts and no 
fasteners, which makes it easier and less expensive to manufacture. 
Additionally, the new design is safer and easier for the loadmaster to 
use. The ramp has ergonomic hand holds along its length and at the end 
to facilitate stowage and removal from a tight fitting storage slot 
without danger of personnel injury.

    95. Senator Portman. Secretary Westphal, Secretary Work, and 
Secretary Conaton, in your opinion, have these collaborations increased 
the purchasing power of our defense dollars?
    Dr. Westphal. Yes. The U.S. Army TARDEC and the aluminum industry 
have successfully formed a partnership together for the Army 
Lightweight Structures Initiative. This initiative has integrated 
proven capabilities into the design of new and legacy military ground 
vehicles. The goal of the program is to partner with military ground 
vehicle Original Equipment Manufacturers (OEM) to provide the Army with 
cost-effective weight reduction through the implementation of industry 
and OEM solutions. The technology has shown the potential to reduce 
life cycle cost. The aluminum industry has applied their materials and 
joining techniques to certain vehicle platforms demonstrating weight 
reduction and improved vehicle performance in certain areas.
    Mr. Work. When cost reductions from ongoing Navy-Industry 
initiatives are realized as cost savings on Navy contracts, the 
collaborations will have a positive impact on defense purchasing power. 
The Navy is pleased that such savings have been realized and is 
optimistic that additional savings will result from ongoing efforts.
    Ms. Conaton. Yes; these A\3\I products offer an advantage to Air 
Force and DOD aerospace systems, as they reduce the overall part count 
and number of fasteners required in the manufacturing process. This 
reduces labor costs and overall component weight, which offers fuel 
efficient performance benefits for the life of the system.

    96. Senator Portman. Secretary Westphal, Secretary Work, and 
Secretary Conaton, would you support expanding these cost-shared 
initiatives, as resources permit, to other platforms and components?
    Dr. Westphal. Yes. The U.S. Army would support expanding these 
activities if the necessary resources were available.
    Mr. Work. Although the efforts under the Alcoa contract have 
resulted in direct cost savings for the shipbuilder, the weight 
reductions and performance improvements are a direct benefit to the 
Navy.
    Outside of the USN-Alcoa contract, Alcoa is continuing to invest in 
aluminum research and development for marine applications. Alcoa is 
currently developing a new temper for aluminum 5456 to provide improved 
resistance to aluminum sensitization. While the new temper is not being 
developed under a contract that includes cost-share agreements between 
the Navy and Alcoa, the certification of the new alloy will be funded 
by the Navy. Alcoa is also pursuing an ONR Manufacturing Technology 
(ManTech) project to develop and demonstrate a High-Deposition Gas 
Metal Arc (HDGMA) aluminum welding system and procedures. Transition of 
the HDGMA process is intended for both the Austal and Lockheed Martin 
variants of the LCS as well as Austal's Joint High Speed Vessel (JHSV) 
platform after vetting through the Acquisition Governance process. The 
successful implementation of HDGMA is anticipated to result in 
significant labor and cost savings. In addition to aluminum Research 
and Development (R&D) efforts, Alcoa has participated on the CG 47 
Class Integrated Product Team (IPT) and has worked with BAE Systems 
Ship Repair, the prime contractor for maintenance and modernization on 
CG 47 Class, to optimize and develop improved aluminum welding 
processes and workmanship.
    Based on the above benefits to the Navy continued collaboration 
should be supported.
    Ms. Conaton. The A\3\I concepts could be applied to all platforms. 
When implemented on the aging aircraft fleet, these improvements help 
to keep older aircraft in service longer, resulting in a decreased need 
for new aircraft. As resources permit, these concepts will be reviewed 
for possible application on other platforms.

                   readiness of army helicopter fleet
    97. Senator Portman. Secretary Westphal, with our missions in 
Afghanistan and Iraq, our helicopters are seeing more flight hours and 
more combat hours than in the past. Increased use of our helicopters 
are decreasing their lifespans and increasing the need to refurbish or 
upgrade them. With this in mind, please provide an overview of the 
overall readiness of the Army's helicopters supporting our efforts in 
Iraq and Afghanistan.
    Dr. Westphal. Deployed aircraft fleets generally meet or exceed the 
Army fully mission capable (FMC) readiness rate standard of 75 percent. 
Specifically, over the last year:
    AH-64D Apache: average FMC readiness rates of 75-80 percent 
(Deployed fleet is 24 percent of the total deployable fleet).
    CH-47D/F Chinook: average FMC readiness rate of 70 percent 
(Deployed fleet is 32 percent of the total deployable fleet).
    OH-58D Kiowa: average FMC readiness rates of 80-85 percent 
(Deployed fleet is 41 percent of the total deployable fleet).
    UH-60A/L/M Blackhawk: average FMC readiness rate of 80 percent 
(Deployed fleet is 31 percent of the total deployable fleet).
    Averages are based upon the 12 month period from April 2010 through 
March 2011.

    98. Senator Portman. Secretary Westphal, what are the average 
flight hours between reset for the Apache, Kiowa, and Blackhawk 
platforms?
    Dr. Westphal. The average flight hours between Reset is:

AH-64D Apache.............................  1,521 hours (ranges from 981
                                             to 2,061 hours)
CH-47D/F Chinook..........................  902 hours (ranges from 569
                                             to 1,235 hours)
OH-58D Kiowa Warrior......................  1,400 hours (ranges from 983
                                             to 1,817 hours)
UH-60A Blackhawk..........................  684 hours (ranges from 456
                                             to 912 hours)
UH-60L Blackhawk..........................  992 hours (ranges from 678
                                             to 1,306 hours)
HH-60L Blackhawk..........................  734 hours (ranges from 524
                                             to 940 hours)


    These hours are primarily attributed to operational tempo while 
deployed. However, there is minimal flight time post deployment before 
and after Reset, and during a unit's deployment preparation training.
    The current policy objective for aircraft is to remain in the area 
of operations for two complete deployment rotations. Active duty units 
are 12 month deployments, and Army National Guard and Army Reserves 
units are 9 month deployments. This allows for 24 months and 18 months, 
respectively, of operational time for each component.
    While deployed, the typical operational tempo for each aircraft 
mission/design/series is:

AH-64D Apache.............................  59 hours per month
CH-47D/F Chinook..........................  40 hours per month
OH-58D Kiowa Warrior......................  75 hours per month
UH-60A/L/M Blackhawk......................  48 hours per month



    99. Senator Portman. Secretary Westphal, how long does the average 
helicopter serve before it needs to be reset?
    Dr. Westphal. The current policy objective for aircraft is to 
remain in the area of operations for two complete deployment rotations. 
Active duty units are 12 month deployments, and U.S. Army National 
Guard and U.S. Army Reserve units are 9 month deployments. This allows 
for 24 months and 18 months, respectively, of operational time for each 
component.

    100. Senator Portman. Secretary Westphal, how many months average 
spent in depots receiving reset work and at what cost per rotorcraft?
    Dr. Westphal. Aircraft Reset is Field Level Maintenance performed 
at several installation activities within the continental United 
States. Major Aircraft Crash or Battle Damage work is performed at the 
Corpus Christi Army Aviation depot.
    As of the fiscal year 2009 Reset program, average days in work and 
cost for the completed aircraft, by mission/design/series:

                        [In millions of dollars]
AH-64D Apache:............................  average of 82 days at $1.194
CH-47D Chinook:...........................  average of 125 days at
                                             $1.934
CH-47F Chinook:...........................  average of 87 days at $1.004
OH-58D Kiowa Warrior:.....................  average of 82 days at $0.49
UH-60A Blackhawk:.........................  average of 87 days at $1.20
UH-60L Blackhawk:.........................  average of 83 days at $1.19
UH-60M Blackhawk:.........................  (no UH-60Ms were part of the
                                             fiscal year 2009 program)

                                                                                             

    101. Senator Portman. Secretary Westphal, is the Army leveraging 
commercial best practices and new aluminum alloys and joining 
techniques within reset activities to enhance performance and 
affordability?
    Dr. Westphal. Yes. The Army leverages commercial best practices to 
include advanced aluminum material and design solutions within new 
production. Airframe and engineering modifications, to include 
engineering enhancements, are applied during airframe modernization 
recapitalization processes.
    The Army Aviation Reset program has Reset over 4,000 aircraft since 
inception in 2003. The Army conducts periodic reviews of the program to 
improve Reset operations, specifically identifying and implementing 
efficiencies in cost and production, monitoring and ensuring quality of 
work, and reviewing scope of work. Aircraft inducted in Reset 
capitalize on the insertion of developing technologies such as the 
Common Missile Warning System and the Advanced Threat Infrared 
Countermeasures, utilizing rapid fielding initiatives to reduce 
aircraft non-available time.

    102. Senator Portman. Secretary Westphal, please discuss possible 
opportunities to achieve cost and weight reduction on the rotorcraft 
structure through the application of commercial best practices and 
advanced aluminum material and design solutions.
    Dr. Westphal. There are many opportunities to achieve cost and 
weight reduction on the rotorcraft structure of the Apache, Kiowa 
Warrior, and Chinook through the application of commercial best 
practices and advanced aluminum material and design solutions. One 
example is the aluminum alloy which comprises a major part of the 
Apache airframe structure. As loads have increased on the frame over 
time, consideration is given to implementing improvements, with 
priority made to both increasing strength and lowering weight, 
utilizing both best commercial practices and methods. In this process, 
airframe structural and historical data obtained during RESET teardown 
is sought and evaluated for use in the redesign of key airframe 
components. Working with the OEM, optimal design solutions and material 
redistribution, which exhibit lower stress patterns, are analyzed and 
employed. In addition to service life extensions of certain components, 
reducing component weight is achievable.
    We have utilized state of the art lighter base materials, precision 
machining, composite material, fastener, and bonding technologies, and 
best production and assembly processes during our aircraft 
modernization and development programs. Select redesigns and structural 
upgrades were incorporated to address fatigue cracking in the field. 
While production costs and weight have improved as a result of this 
modernization, further improvement is needed as weight and cost are 
critical elements to improving equipment for the Warfighter. We have 
incrementally used better alloys and joining techniques in our 
airframes, but our airframe manufacturers must address qualifications 
for air worthiness, corrosion resistance, and material properties. 
There is opportunity for improvement in our older airframes, such as 
the OH-58 helicopter, which are not yet significantly modernized.
    We have addressed a potential area for weight savings in the 
airframe structures for the Chinook CH47-F. The current airframe design 
technique utilize built-up structures; however, modern manufacturing 
techniques have proven to reduce the cost of legacy airframe structures 
by replacing labor-intensive built-up structures with monolithic 
machined structures. Monolithic machined structures are also ideal 
candidates for weight reduction with typical topology optimized 
structure weight savings of between 15 percent to 20 percent. The 
National Center for Defense Manufacturing and Machining has proven they 
can manufacture a monolithic topology optimized structure using 
aluminum to replace the legacy built-up structures. The results show 
that machining costs were comparative to traditional structure designs, 
resulting in no increase to recurring costs. Additionally, billet sizes 
for the traditional and the optimized designs were identical. Once 
developed and manufactured, the topology optimized structures were 
subjected to static and fatigue testing to determine if the components 
met the strength criteria for airframe structures. Testing confirmed 
that these designs met or exceeded the requirements established for 
these airframe structures. Fifty pounds of weight savings is achievable 
(if implemented) when extrapolating the 15 percent weight savings to 
all of the under floor structures in the Chinook helicopter. The 
benefits of topology optimization include: load path visualization, 
weight savings, systems design space, ballistic protection, and 
improved fatigue resistance. These benefits offer a compelling 
incentive to employ this technology into the current design process in 
order to increase the overall performance of the airframe structures.
                                 ______
                                 
               Questions Submitted by Senator John Cornyn
                              joint basing
    103. Senator Cornyn. Secretary Hale, the 2005 Defense BRAC 
Commission recommended DOD establish 12 joint bases by consolidating 
the management and support of 26 separate installations, potentially 
saving $2.3 billion over 20 years. One of the 12 joint bases mandated 
in 2005 is Joint Base San Antonio. The residents of San Antonio, known 
as Military City USA, have long been proud that several military 
installations, including Lackland and Randolph Air Force Bases and Fort 
Sam Houston, call their city home. To date, what cost savings has DOD 
seen from joint basing? If none, what savings do you expect to see in 
the coming years as joint base leaders gain experience with 
consolidation and common standards?
    Mr. Hale. The consolidation of 26 installations into 12 joint bases 
represents a fundamental change in our approach to installation 
management. Predictably, we are beginning to realize efficiencies from 
this initiative, many of them the result of economies of scale. For 
example, consolidating all recycling operations at Joint Base McGuire-
Dix-Lakehurst saved $1 million in facility and equipment requirements 
and reduced overall contract costs by $200,000 annually. Far more 
important, however, is that our joint base commanders--faced with 
parallel and often-conflicting Service rules and requirements--are 
successfully implementing new, cross-cutting business processes. This 
ability to transcend traditional practices and develop innovative 
solutions to longstanding inefficiencies is key to positioning 
ourselves for future, Department-wide reforms.

    104. Senator Cornyn. Secretary Hale, what are your plans to achieve 
the efficiencies originally expected from the joint basing initiative?
    Mr. Hale. Our joint base commanders--faced with parallel and often-
conflicting Service rules and requirements--are successfully 
implementing new, cross-cutting business processes. This ability to 
transcend traditional practices and develop innovative solutions to 
longstanding inefficiencies is key to positioning ourselves for future, 
Department-wide reforms. As one joint base commander put it joint bases 
are ``incubators for innovation''. The Joint Base Commands continue to 
display a can-do attitude and dedication to providing the highest 
quality service, not only in support of the military missions on their 
sites, but to servicemembers and their families as well.

                        reducing lifecycle costs
    105. Senator Cornyn. Secretary Hale, both the Weapon System 
Acquisition Reform Act (WSARA) of 2009 and the policies related to 
DOD's efficiency initiatives call for increasing the use of competition 
as a means to lower lifecycle costs. What are some examples of where 
competition has been used to lower lifecycle costs?
    Mr. Hale. The USD(AT&L) November 3, 2010 memo to the Military 
Departments and Defense Agencies directed immediate action to increase 
competition. The acquisition community is addressing this in the 
development of Weapon System Acquisition Strategies. Specifically, the 
Secretaries of the Military Departments and Defense Agency Directors 
were directed to implement the following:

         Present a competitive acquisition strategy at each 
        program milestone. Provide a one-page competitive strategy for 
        each ACAT 1D program at each milestone as part of the overall 
        acquisition strategy.
         Report to USD(AT&L) in fiscal year 2011 on how their 
        military department or agency intends to reduce single-bid 
        competitions. At a minimum, the report will address market 
        research, restricted specifications, and adequate time for 
        proposal preparation.
         Achieve a 2 percent reduction in single-bid 
        competitive contracts in fiscal year 2011, with continuing 
        reductions thereafter.
         Remove obstacles to competition, ensure contracting 
        officers conduct negotiations with all single-bid offerors, 
        unless this requirement is specifically waived by the Head of 
        Contracting Activity or Military Department Secretary. The 
        basis of these negotiations will be cost or price analysis, as 
        the case may be, using either certified or non-certified cost 
        or pricing data, as appropriate.
         Have their component or agency competition advocate 
        develop a plan to improve both the overall rate of competition 
        and the rate of effective competition. These plans will 
        establish an improvement rate of at least 2 percent per year 
        for overall competition and an improvement rate of at least 10 
        percent per year for effective competition.
         Require open systems architectures and set rules for 
        acquisition of technical data rights:

                 PMs will conduct a business case analysis in 
                concert with the engineering tradeoff analysis that 
                will be presented at Milestone B. The business case 
                analysis will outline the open systems architecture 
                approach, combined with technical data rights the 
                Government will pursue in order to ensure a lifetime 
                consideration of competition in the acquisition of 
                weapon systems.
                 The results of this analysis will be reported 
                in the Acquisition Strategy Report and in the 
                competition strategy.
                 Increase the dynamic small business role in 
                the defense marketplace competition. All competitive 
                and non-competitive procurement actions will seek to 
                increase small business participation through weighting 
                factors in past performance and fee construct.

    These actions apply to all contracts, including MRO, CLS, and PBL 
contracts. The result will be PEOs and PMs developing a competitive 
strategy early in acquisition that spans the program's life and 
improves the ability to compete MRO, CLS, and PBL contracts in 
sustainment. For example, the Department of Navy has undertaken a 
specific initiative to engage each PEO, PM, and Product Support Manager 
(PSM) to emphasize real competition at every stage of acquisition and 
sustainment. They directed the PEOs/PMs/PSMs to establish a competitive 
environment throughout the life cycle of their programs, and to enable 
better competitive opportunities in the sustainment phase. 
Additionally, PEOs and PMs are reviewing their existing portfolios in 
pursuit of increased competitive opportunities, including consideration 
of breakout opportunities, and expanding open architecture solutions 
and small business opportunities that fosters additional competition. 
The Army is emphasizing the conduct of logistics analyses early to 
baseline costs and develop technical data requirements that facilitate 
competition in sustainment contracts. The Air Force is also taking 
proactive steps to ensure PMs and PSMs correctly identify and pursue 
data rights in their contract negotiations to facilitate competition in 
sustainment. The outcome will be required warfighting capability at a 
reduced cost to the Government.

    106. Senator Cornyn. Secretary Hale, what other programs will this 
effort be expanded to in the near future?
    Mr. Hale. The Department continues to promote and pursue a 
competitive acquisition environment. For example, Directive-Type 
Memorandum (DTM) 10-015--Requirements for Life Cycle Management and 
Product Support establishes the requirement for a mandatory Product 
Support Manager (PSM) position for each ACAT I and II program. One of 
the PSM's duties is, ``Promote opportunities to maximize competition 
while meeting the objective of best-value long-term outcomes to the 
warfighter''. The Services recently completed PSM identification March 
30, 2011. Additionally, the military departments are undertaking a 
variety of initiatives to increase competition. For example:

         The Department of Navy has engaged each PEO and PM to 
        establish a solid foundation for a competitive environment 
        throughout a program's life cycle. Therefore, the PEOs and PMs 
        are reviewing their existing portfolios in pursuit of increased 
        competition opportunities, including consideration of breakout 
        opportunities at the subsystem and component levels to reduce 
        lifecycle costs.
         The Department of Air Force has published regulations 
        and guidebooks that detail the importance of competition. The 
        Air Force is specifically focusing on sole-source contracts for 
        software maintenance, as well as engine repairs and parts, to 
        increase competition.
         The Department of Army, over the course of the next 
        year, plans to review and refine internal practices and 
        processes that empower the PSM to promote competitive 
        opportunities.

    Beyond DTM 10-015, the USDAT&L, November 3, 2010 memorandum 
Implementation Directive for Better Buying Power--Obtaining Greater 
Efficiency and Productivity in Defense Spending directs the Department 
to ``Promote Real Competition'' across all acquisition programs. At 
milestone decision briefs, each program is required to provide a one-
page competitive strategy for each ACAT ID program at each milestone as 
part of the overall acquisition strategy. Beginning December 1, 2010, 
each program is required to include competition in its acquisition 
strategy prior to each milestone for ACAT IC, II, III and IV programs.

    107. Senator Cornyn. Secretary Hale, in what areas do you think 
competition and commercial investments in technology can be leveraged 
to achieve further cost reductions?
    Mr. Hale. Achieving cost reductions through competition and 
commercial investments in technology are two complementary aspects of 
the USD(AT&L)'s ``Better Buying Power'' initiative.
    As the Department continues to seek efficiencies as outlined in the 
November 3, 2010 implementation directive for Better Buying Power, 
titled ``Obtaining Greater Efficiency and Productivity in Defense 
Spending,'' the entire Department is striving to improve cost 
effectiveness through increased use of commercial technology 
investment. Specifically, in that directive, the Director, Defense 
Research and Engineering (now the Assistant Secretary of Defense for 
Research and Engineering) was tasked to reinvigorate the Independent 
Research and Development (IRAD) program. The process is ongoing, with a 
plan to increase the visibility of IRAD as a fundamental element of the 
broader DOD R&D program. Application of IRAD to DOD projects should 
provide guests cost efficiency for the DOD.
    On November 24, 2010 the Director of Defense Procurement and 
Acquisition Policy issued guidance on improving competition in Defense 
procurement. Promoting real competition is an essential focus area 
within the ``Better Buying Power'' initiative that requires the 
Military Departments and Defense Agencies to develop plans to improve 
overall and effective competition by: reducing the number of single-bid 
contracts; negotiating better prices on single-bid contracts and task 
and delivery orders; and reducing the dollar value of sole-source 
contracts and task and delivery orders.

    108. Senator Cornyn. Secretary Hale, Section 805 of the National 
Defense Authorization Act (NDAA) for Fiscal Year 2010 deals with 
lifecycle management, calling for product support managers to maximize 
competition and make the best possible use of available DOD and 
industry resources at the system, subsystem, and component levels. This 
provision was implemented through DOD's Directive-Type Memorandum on 
October 6, 2010. Please provide examples of where DOD has pursued 
competition at subsystem and component levels to reduce lifecycle 
costs.
    Mr. Hale. Since the issuance of the DTM, the military departments 
continue to implement section 805 and have made significant progress 
identifying Product Support Managers (PSMs) for ACAT I and II programs 
and issuing the guidance. One of the PSM's major duties is to promote 
opportunities to maximize competition while meeting the objective of 
best-value, long-term outcomes for the warfighter.
    To this end, DOD Life Cycle Management and PSM Rapid Deployment 
training, which specifically addresses increased competition, has been 
developed and fielded by the Defense Acquisition University, with 
strong attendance across the DOD and the industry acquisition 
community.
    Additionally, the military departments are undertaking a variety of 
initiatives to increase competition. For example:

         The Department of Navy has engaged each PEO and PM to 
        establish a solid foundation for a competitive environment 
        throughout the life cycle. Therefore, the PEOs and PMs are 
        reviewing their existing portfolios in pursuit of increased 
        competition opportunities, including consideration of breakout 
        opportunities at the subsystem and component levels to reduce 
        lifecycle costs.
         The Department of Air Force has published regulations 
        and guidebooks that detail the importance of competition. The 
        Air Force is specifically focusing on sole-source contracts for 
        software maintenance, as well as engine repairs and parts, to 
        increase competition.

    The Department of Army, over the course of the next year, plans to 
review and refine internal practices and processes that empower the PSM 
to promote competitive opportunities.

                       army acquisition programs
    109. Senator Cornyn. Secretary Westphal, an Inside the Army article 
on February 11, 2011, states that the Army ``has an abysmal record of 
pumping billions of dollars into weapon systems that will never be 
deployed, with a trend of sunk costs pointing upward during the past 
decade.'' The article cites briefing slides marked for presentation by 
Secretary McHugh which highlight that the Army's canceled programs have 
eaten up between $3.3 billion and $3.8 billion per year since 2004, 
representing an average of 35 to 45 percent of the Army's annual budget 
for development, testing, and engineering. This is very disappointing, 
and it represents poor stewardship of taxpayers' dollars. Your prepared 
testimony highlights that the Army has identified $29.5 billion in 
savings over the fiscal year 2012 to fiscal year 2016 period that will 
be invested in modernization and acquisition programs. What steps is 
the Army taking to overcome its shocking trend of wasting billions of 
dollars on cancelled acquisition programs?
    Dr. Westphal. The Army Acquisition Review Panel submitted its 
report in February 2011, which includes 76 recommendations in four 
broad areas that extend across various Army organizations. Those broad 
areas address requirements generation, risk management, organizational 
alignment, and resources. The Secretary of the Army has directed the 
Assistant Secretary of the Army for Acquisition, Logistics and 
Technology (ASA(ALT)) to assess those recommendations. The ASA(ALT) 
will provide specific recommendations for implementation of those 
portions of the report which are judged to improve the efficiency and 
effectiveness of the Army's Acquisition process. That initial 
assessment is due to the Secretary in April. Following that, the Army 
will determine the path forward on implementation of the 
recommendations.

    110. Senator Cornyn. Secretary Westphal, how do you plan to ensure 
that the $29.5 billion identified in savings for reinvestment in the 
Army's budget will actually go towards the modernization and 
acquisition of weapons and systems that are in high demand by combatant 
commanders?
    Dr. Westphal. During the preparation of the fiscal year 2012 budget 
request, the Army re-invested $17.1 billion in equipment acquisition 
and modernization programs that are high priority to the warfighter. By 
taking a holistic look at requirements, priorities, and acquisition 
timelines, we were able to focus our investments in areas that will 
deliver current capability to the Warfighter quicker or provide future 
capabilities to fill critical gaps. Recognizing that our greatest asset 
is the soldier, the Army also re-invested $9 billion in force 
structure, readiness, and quality of life programs that continue to 
ensure we have not only the best equipped, but also the best trained 
and supported soldiers in the world.

                         air force efficiencies
    111. Senator Cornyn. Secretary Conaton, it is my understanding that 
the Air Force estimates that it has been saving over $1 million per KC-
10 engine overhaul by competitively awarding this contract for work 
which is being done at Port San Antonio, TX. Do you believe that the 
cost savings realized through competition of the KC-10 engine overhaul 
can be effectively applied to other airframes and engines?
    Ms. Conaton. Yes, the KC-10 engine overhaul is an example where 
competition realized cost savings. The KC-10 engine program was able to 
do so because of two key conditions. First, the KC-10 engine is a 
commercial derivative. This condition typically ensures a robust 
industrial base with several vendors capable of performing the overhaul 
work. The second is that the U.S. Air Force owned the data rights to 
necessary maintenance overhaul manuals. Government ownership of this 
data enabled the Air Force to broadly compete the overhaul work. The 
combination of a robust industrial base and government ownership of the 
maintenance data created the opportunity to realize cost savings. The 
Air Force is committed to competition, and in cases where these 
conditions exist, the Air Force actively pursues this strategy and the 
opportunity to achieve cost savings.

    112. Senator Cornyn. Secretary Conaton, what else is the Air Force 
doing to help facilitate competition in the sustainment of major weapon 
systems?
    Ms. Conaton. The Air Force is more conscientious given reduced 
budgets and long-term sustainment of weapons system platforms. As such, 
the Air Force is taking a comprehensive approach that looks at both our 
legacy platforms and our new platforms in terms of data rights and 
ownership. Where our legacy platforms have not included full ownership 
of data rights, thus limiting competition, the Air Force has initiated 
business case analyses. The analyses determine the level of data rights 
most affordable over the life cycle to the government to organically 
support the sustainment of our legacy major weapons systems. Where new 
platforms are established, the Air Force is taking a proactive planning 
approach by determining what type of data rights are required for both 
acquisition and sustainment. This approach will lend itself to greater 
competition at various milestones through the acquisition and 
sustainment lifecycles.

    113. Senator Cornyn. Secretary Conaton, on January 27, 2011, the 
Air Force released a request for information (RFI) for the procurement 
of 150 C-17 engines, bringing the total number of C-17 engines procured 
by the Air Force to over 960. Given the WSARA of 2009, section 805 of 
the NDAA for Fiscal Year 2010, and the DOD's efficiency initiatives, 
why did the RFI not include a requirement to purchase the technical 
data rights in order to facilitate competition in sustainment?
    Ms. Conaton. The request for information was only issued as a 
market research tool to determine the availability and adequacy of 
potential sources for C-17 engines and to determine whether any 
competitive sources existed.
    The C-17 engine was designed and developed by Pratt & Whitney (P&W) 
at their expense and has been sustained under Contractor Logistics 
Support. The original sustainment approach for the F117 engine did not 
include provisions for purchasing technical data. However, in the 
future, the Air Force will consider obtaining data rights in a separate 
follow-on sustainment effort. OEM willingness to propose and the cost 
thereof will drive the decision on purchasing technical data and the 
potential for competition in the future. To date, P&W has indicated 
little to no interest in providing such data.

    114. Senator Cornyn. Secretary Conaton, given that the C-17 engine 
is a derivative of a commercial 757 engine, with over 91 percent 
commonality, why is the Air Force not seeking competition in the 
supplier base as the commercial industry does?
    Ms. Conaton. Although there is engine commonality, the nine percent 
difference between F117 (Air Force engine) and Pratt and Whitney (PW) 
2000 (commercial engine) is significant and prevents a campaign for 
sustainment in the commercial supplier base. Furthermore, the PW2000 
(on Boeing 757 aircraft) commercial engine manuals are not sufficient 
for F117 overhaul and maintenance. The significant differences in the 
engines include: the low pressure compressor (LPC) group, LPC drive 
shaft group, fan case group, main gearbox assembly group, engine fuel 
and control group, engine oil group, and engine indicating system 
group. These differences are due to operational profiles required for 
military flight (i.e., wartime, max-power take offs causing high engine 
exhaust temperatures). Additionally, the F117 supply chain usage data 
is different from PW2000. The usage data and the repair manuals for the 
F117 are P&W proprietary, and they own the pipeline spares. Using 
commercial usage information without pipeline spares would cause 
immediate parts shortages and reduction in wartime readiness engines. 
The U.S. Air Force intends to pursue these manuals and ownership of 
pipeline spares for future sustainment efforts.

                          red river army depot
    115. Senator Cornyn. Secretary Westphal, in 2002, Red River Army 
Depot (RRAD) was designated by the Secretary of the Army as a Center 
for Industrial and Technical Excellence (CITE) for all Tactical Wheeled 
Vehicles (TWV), which include the High Mobility Multipurpose Wheeled 
Vehicle (HMMWV). RRAD has the capability to produce an average of 32 
HMMWVs per day on a single shift, with the capability and capacity to 
handle all Army, National Guard, Army Reserve, and Marine Corps HMMWV 
reset and recapitalization requirements in a surge environment. 
However, Letterkenny Army Depot (LEAD), which is not a CITE for TWV, 
has been designated as the source of repair for SOCOM'S HMMWVs. How can 
the Army justify overhead and administrative costs for two separate 
contracts for supply chain management when Red River could efficiently 
conduct all HMMWV recap efforts, resulting in a reduction of overall 
HMMWV recap program costs?
    Dr. Westphal. As the CITE for TWVs, RRAD will eventually perform 
the entire HMMWV RECAP mission, given the projected decrease in 
workload beyond fiscal year 2012. LEAD has been used as a second repair 
source during the surge to meet increased warfighter needs for HMMWVs. 
With regard to the SOCOM's HMMWVs, although there is repair part 
commonality for HMMWVs; the SOCOM HMMWVs are significantly different 
from typical HMMWVs and LEAD has been instrumental in the design and in 
maintaining the TDP with SOCOM additions. LEAD was selected by SOCOM as 
the only depot able to meet their cost, quality, and schedule 
requirements for their Ground Mobility Vehicle (GMV) sustainment. LEAD 
has developed the engineering staff and has built the necessary 
infrastructure to perform the GMV repair mission; reducing 
significantly investment in administrative requirements, overhead costs 
and supply chain support.

    116. Senator Cornyn. Secretary Westphal, as a CITE for all TWV, 
RRAD has also been designated as the Army's Depot Source of Repair 
(DSOR) for the Mine Resistant Ambush Protected (MRAP) family of 
vehicles. RRAD demonstrated successful completion of a pilot program 
for the rest of 54 MRAP that was completed below cost estimate, 
validating RRAD's capability to reset and repair MRAP. However, LEAD 
was assigned as the DSOR for the Route Clearance Vehicle (RCV), an MRAP 
derivative with near identical reset and repair processes to the MRAP. 
Why did the Army require a separate DSOR decision for the RCV?
    Dr. Westphal. Designating LEAD as the DSOR for RCVs provides the 
Army flexibility to focus on MRAP repair/MRAP Egress Trainer 
manufacturing at RRAD, and RCV repair at LEAD. Continuous upgrades are 
being applied to RCVs, and LEAD has extensive knowledge of these highly 
specialized vehicles because of their depot-forward operation in 
Kuwait. LEAD has also developed an excellent partnership with the OEM 
which saves us money and establishes core skill sets as changes are 
applied to the RCVs at the organic facility.

    117. Senator Cornyn. Secretary Westphal, how can the Army justify 
Letterkenny's designation as a separate DSOR for the RCV, duplicating 
the Army's capabilities and investments at RRAD, at a time when the 
defense budget is under critical review and the Nation is facing a 
financial crisis?
    Dr. Westphal. The investment in capabilities at LEAD for RCV repair 
was made in close coordination with the OEM in support of Operation 
Iraqi Freedom. LEAD gained considerable expertise in repair and new 
production, and has gained extensive knowledge of the highly 
specialized RCVs through its depot-forward operation in Kuwait (having 
repaired hundreds of RCVs in theater). LEAD has continued to build on 
this great partnering arrangement with the OEM and has continued to 
gain efficiencies while meeting warfighter needs.

    [Whereupon, at 4:13 p.m., the subcommittee adjourned.]

                                 
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