[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                         [H.A.S.C. No. 113-11] 
                       ASSURING VIABILITY OF THE 
                      SUSTAINMENT INDUSTRIAL BASE

                               __________

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON READINESS

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                           FEBRUARY 28, 2013


                                     
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                       SUBCOMMITTEE ON READINESS

                 ROBERT J. WITTMAN, Virginia, Chairman

ROB BISHOP, Utah                     MADELEINE Z. BORDALLO, Guam
VICKY HARTZLER, Missouri             JOE COURTNEY, Connecticut
AUSTIN SCOTT, Georgia                DAVID LOEBSACK, Iowa
KRISTI L. NOEM, South Dakota         COLLEEN W. HANABUSA, Hawaii
J. RANDY FORBES, Virginia            JACKIE SPEIER, California
FRANK A. LoBIONDO, New Jersey        RON BARBER, Arizona
MIKE ROGERS, Alabama                 CAROL SHEA-PORTER, New Hampshire
DOUG LAMBORN, Colorado               WILLIAM L. ENYART, Illinois
E. SCOTT RIGELL, Virginia            PETE P. GALLEGO, Texas
STEVEN M. PALAZZO, Mississippi
                        Michele Pearce, Counsel
               Vickie Plunkett, Professional Staff Member
                    Nicholas Rodman, Staff Assistant

                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2013

                                                                   Page

Hearing:

Thursday, February 28, 2013, Assuring Viability of the 
  Sustainment Industrial Base....................................     1

Appendix:

Thursday, February 28, 2013......................................    35
                              ----------                              

                      THURSDAY, FEBRUARY 28, 2013
         ASSURING VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Bordallo, Hon. Madeleine Z., a Delegate from Guam, Ranking 
  Member, Subcommittee on Readiness..............................     2
Wittman, Hon. Robert J., a Representative from Virginia, 
  Chairman, Subcommittee on Readiness............................     1

                               WITNESSES

Avdellas, Dr. Nicholas J., Senior Consultant for Materiel 
  Readiness and Sustainment, Logistics Management Institute......    10
Johns, John, Deputy Assistant Secretary of Defense for 
  Maintenance Policy and Programs, U.S. Department of Defense....     3
Steffes, Pete, Vice President, Government Policy, National 
  Defense Industrial Association.................................     5
Sterling, Cord, Vice President, Legislative Affairs, Aerospace 
  Industries Association.........................................     8

                                APPENDIX

Prepared Statements:

    Avdellas, Dr. Nicholas J.....................................    75
    Johns, John..................................................    41
    Steffes, Pete................................................    52
    Sterling, Cord...............................................    65
    Wittman, Hon. Robert J.......................................    39

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    Ms. Shea-Porter..............................................    91

         ASSURING VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                                 Subcommittee on Readiness,
                       Washington, DC, Thursday, February 28, 2013.
    The subcommittee met, pursuant to call, at 8:00 a.m., in 
room 2212, Rayburn House Office Building, Hon. Robert J. 
Wittman (chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. ROBERT J. WITTMAN, A REPRESENTATIVE 
       FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON READINESS

    Mr. Wittman. I would like to call to order the House Armed 
Services Subcommittee on Readiness. I want to welcome you to 
this morning's hearing. And I would like to thank our panel 
experts for being here today to address the viability of the 
defense sustainment industrial base and the implications for 
mission readiness as we try to resolve the current budget 
crisis.
    As we debate the way forward and try to resolve the 
continuing resolution and sequestration dilemmas, it is 
important not to lose sight on what is really at stake here, 
this country's ability to project power and to properly train 
and equip our warfighters, our men and women in uniform who, at 
this very moment, are fighting for us on the battlefields in 
Afghanistan and will continue to do so for the foreseeable 
future.
    As the debates have raged on I have been struck by how 
starkly our military leaders have described the dilemma. As 
General Dempsey and the other service chiefs recently informed 
this committee, ``the readiness of our armed forces is at a 
tipping point. We are on the brink of creating a hollow 
force.'' About the same time, we learned of the delayed 
deployment of the USS Truman carrier strike group to the 
central command AOR [Area of Responsibility], a region where 
our missions continue to grow rather than go away. Never in my 
lifetime did I imagine we would again be forced to confront the 
very real possibility of a hollow military force and the 
devastation it entails for our Nation and our men and women in 
uniform.
    Make no mistake, our readiness crisis is real and it is 
important to understand exactly what is at risk. During this 
hearing, I would like you to share your perspective on this and 
help us answer some basic questions.
    In terms of risk, what does it mean to our national 
security, particularly our sustainment industrial base to have 
ships moored to the pier, or sitting in dry dock, or waiting 
for depot maintenance. What, in your views, are the implication 
of having airplanes grounded on ramps?
    And finally, what is the impact on our warfighters when we 
delay or defer reset and retrograde of our equipment?
    Joining us today are Mr. John Johns, the Deputy Assistant 
Secretary of Defense for Maintenance and Policy Programs; Mr. 
Pete Steffes, Vice President for Government Policy at the 
National Defense Industrial Association; Mr. Cord Sterling, 
Vice President for Legislative Affairs at the Aerospace 
Industries Association; and Dr. Nicholas Avdellas, Senior 
Consultant For Material Readiness and Sustainment at the 
Logistics Management Institute.
    Gentlemen, thank you all very much for being here, and I 
appreciate your thoughtful statements, and particularly 
appreciated your views regarding the need for a detailed 
strategic planning for the future. Just as I have been an 
advocate for a 30-year shipbuilding plan and the benefits 
associated with determining strategy first and budgetary 
requirements second, I believe we need to similarly focus on 
strategic planning when it comes to the viability of the 
industrial base.
    With that, I would like to wish a warm welcome to my new 
partner on the Readiness Subcommittee, Madeleine Bordallo, who 
I have worked with in the past and who I have the highest 
regard for. I am truly honored to have such a distinguished 
ranking member working with me as we address these weighty 
issues, Mrs. Bordallo.
    [The prepared statement of Mr. Wittman can be found in the 
Appendix on page 39.]

STATEMENT OF HON. MADELEINE Z. BORDALLO, A DELEGATE FROM GUAM, 
           RANKING MEMBER, SUBCOMMITTEE ON READINESS

    Ms. Bordallo. Why, thank you, Mr. Chairman, my sentiments 
are the same. I want to welcome our witnesses to the hearing 
today, we are discussing some important topics that touch on 
the second- and third-order effects of sequestration and its 
impact on readiness. I find this a helpful discussion to truly 
understand the impact of sequestration. I am, however, 
disappointed that we are not having a more robust discussion in 
Congress about how to solve sequestration. We all agree and 
understand that sequestration is catastrophic for the prospects 
of a full economic recovery in our country. Cuts to defense and 
other discretionary programs will have significant negative 
impacts on the long-term economic growth of the country.
    I remain steadfast that the leadership of both parties must 
put everything on the table to find ways to avoid 
sequestration. And I hope that our discussion today and our 
hearing about viability of the sustainment industrial bases 
will encourage our Members of both parties to get leadership 
back to the table and address our debt and deficit issue in a 
more responsible manner.
    Our Nation faces significant economic challenges over the 
coming years. This will undoubtedly have a significant and 
potentially negative impact on the sustainment and the 
industrial bases. History shows us that if we do not align 
strategy with the need for sustainment, we create a situation 
where we are negatively affecting the readiness of our military 
forces. The sustainment industrial base provides the backbone 
for the military to respond to a variety of contingencies. As 
we face these difficult budget times, I hope today that our 
witnesses will touch on what efforts are under way to marry our 
military strategy with our sustainment requirements.
    What steps are under way to look at the fundamental 
underpinnings of how we reset our equipment so that it is done 
in a most cost-effective and efficient manner and ready and 
available for training, and for battle? Moreover, how do we 
posture our sustainment industrial base in such a fashion to 
adapt to future challenges? We have learned many lessons from 
how we sustained equipment during the Iraq and Afghanistan 
wars, so how do we take these lessons learned and apply to our 
future anticipated sustainment needs?
    In the near term, our most pressing issue is how we 
maintain the sustainment industrial base in the face of 
sequestration. Members of the committee need to better 
understand how we can find a balance between strategy and 
sustainment in that extremely fiscally constrained environment 
that does not allow for proper planning and supply lead times. 
So I hope that the witnesses can touch on the impact that 
sequestration would have on the timeline for reset of equipment 
that is retrograding from Afghanistan. I hope that all our 
witnesses can highlight the increase in cost that will occur 
when strategy and sustainment are not coordinated.
    What is the additional cost that is borne by the Government 
in the long term with such a significant cut in the short term? 
Some accounts could face 40 to 50 percent cuts before the end 
of this fiscal year. So along these lines, I also hope that all 
our witnesses can discuss the reversibility of these cuts to 
the sustainment industrial base. At what point are these cuts 
irreversible? How long can sequestration endure before we gut 
core capabilities? For example, I am particularly concerned 
that thousands of shipyard employees will be laid off if 
sequestration is allowed to continue for some time into the 
future. These layoffs could decimate a critical capability both 
for the Government, as well as with private shipyards and ship 
repair facilities. So again, I want to thank you, Mr. Chairman, 
for this opportunity and I look forward to the testimony of our 
witnesses.
    Mr. Wittman. Thank you, Mrs. Bordallo.
    We now go to the testimony from our witnesses, and begin 
with Mr. Johns.

STATEMENT OF JOHN JOHNS, DEPUTY ASSISTANT SECRETARY OF DEFENSE 
FOR MAINTENANCE POLICY AND PROGRAMS, U.S. DEPARTMENT OF DEFENSE

    Mr. Johns. Chairman Wittman, Ranking Member Bordallo, 
distinguished members of the subcommittee, thank you for the 
opportunity to appear before you to discuss the viability of 
the sustainment industrial base. I also thank you for your 
continued support and interest in a topic so critical to our 
ability to support readiness. Over the past several months, you 
have heard from the Department senior leadership on the 
potential devastating impacts of our developing fiscal 
situation and the bottom line effects on the strength of our 
Nation's military and the ability to support national security 
strategy. It is in this context that I offer my comments. I am 
proud to be speaking to you today as the senior maintainer 
within the Department of Defense.
    My prepared statement submitted for the record contains 
more detail than I can provide here in my opening remarks, so I 
will attempt to cover the major points and then welcome your 
questions later. To fully appreciate the future viability of 
the sustainment industrial base, I believe it is important to 
understand the basic fiscal and operational dynamics that 
govern our industrial base activities. First, it is important 
to understand that the Department's total requirement for 
sustainment industrial base funding, and in turn, its ability 
to generate readiness is directly dependent on appropriate 
resourcing of both our base program and OCO [Overseas 
Contingency Operations] requirements.
    With respect to contingency funding, each military 
department is dependent on OCO funding levels to resource 
critical requirements associated with both operations in 
theater, as well as maintenance, repair and overhaul of 
military equipment returning from Iraq and Afghanistan. This 
latter activity, or reset of equipment, has for a decade been 
responsible for correcting damage induced by harsh environments 
and high OPTEMPOs [Operational Tempo], extending the useful 
life of valuable equipment, drastically reducing the need for 
acquisition and replacement equipment, and enabling force 
generation strategies of each military service.
    With respect to operating under continuing resolution, 
there is not much more that I can add to what the Department 
senior leadership has already explained. So let me just 
emphasize that operating under restrictions of a continuing 
resolution with account-level funding that does not match our 
fiscal year 2013 requirements, has created an increased burden 
on the operation and maintenance accounts, effectively creating 
a funding shortfall in the accounts that resource our 
industrial based operation.
    With respect to sequestration if implemented, the funding 
implications are far greater in operations and maintenance 
accounts than may appear at the surface. The President has 
exercised his authority to exempt military personnel accounts 
from sequestration in fiscal year 2013 so other accounts must 
accommodate the full reduction to the Department. Moreover, 
because of the need to protect programs directly supporting 
wartime operations, the reduction to most base-budget O&M 
[Operations and Maintenance] accounts will be significantly 
greater than the single-digit percentages currently being 
discussed. The impact of these reductions will then be 
effectively doubled by having to accommodate the full fiscal 
year 2013 reductions in the last 7 months of the fiscal year.
    While each of these factors has significant negative impact 
in isolation, the combined effects must be considered to fully 
appreciate the impact on the national industrial base. And in 
turn, the impact on both near- and far-term readiness. The 
combined potential shortfalls and cuts are so large, we 
anticipate reductions, delays, and cancellation in work orders 
within our public depots and shipyards and on contract with the 
private sector. These actions will begin as early as March and 
continue throughout the fiscal year.
    The military services will manage existing funded workload, 
resource the highest priority maintenance, and take all 
possible actions to mitigate harmful effects on readiness and 
on our sustainment industrial base capability and workforce. In 
addition, reversibility will play a key factor in 
prioritization of actions. However, given the magnitude of the 
combined concentrated reductions, even the most effective 
mitigation strategies will not be sufficient to protect the 
sustainment industrial base. As a result, third- and fourth-
quarter inductions will be cancelled in many areas, gross 
financial and production inefficiencies will be generated, 
thousands of Government temporary and term employees and 
contractor personnel will be impacted immediately, hundreds of 
small businesses and businesses with strong military market 
dependency will be placed at risk and readiness of numerous 
major weapon systems and equipment and in turn each Service's 
ability to satisfy future mission requirements will be 
seriously degraded.
    The damage may be so severe in some areas full recovery 
within our national industrial base both public and private 
sectors from just fiscal year 2013 reductions could take up to 
a decade.
    Finally, from what I just highlighted, it may appear 
obvious that if sequestration is not reversed and outyear 
reductions occur, each Service's industrial base strategy is at 
risk. Adjustments in funded workload will exceed our ability to 
responsibly adjust workforce and evolve our industrial 
capability. As a result, critical skills will be lost, reduced 
investment levels will impact competitiveness and relevance, 
major inefficiencies will emerge, and key public-private 
partnerships will be unsupportable. The bottom line is, each 
Service's ability to support surge and sustained operations 
will be seriously damaged.
    Thank you, Mr. Chairman, Ranking Member Bordallo, and 
distinguished members of the subcommittee for the opportunity 
to address these critical issues.
    [The prepared statement of Mr. Johns can be found in the 
Appendix on page 41.]
    Mr. Wittman. Mr. Steffes.

 STATEMENT OF PETE STEFFES, VICE PRESIDENT, GOVERNMENT POLICY, 
            NATIONAL DEFENSE INDUSTRIAL ASSOCIATION

    Mr. Steffes. Thank you, Mr. Chairman, Ranking Member 
Bordallo, and members of the subcommittee. On behalf of the 
1,715 corporate members, and nearly 95,000 individual members 
of the National Defense Industrial Association, I am pleased to 
appear before the Subcommittee on Readiness concerning issues 
that are of great importance to the viability and sustainment 
of the industrial base, and therefore, national security.
    I am also very pleased to be sitting on this side of the 
table after 20 years sitting on the other side of table as a 
staffer on the committee.
    In trying to understand the immediate impacts of a 
continuing resolution and the impending Governmentwide 
sequestration, it is important to realize that many of the 
potential impacts of these actions are already occurring, 
especially for small business. Some examples of companies and 
communities these real life impacts include cuts to prime 
contractors such as the MRAP [Mine-Resistant Ambush Protected 
vehicle], which totals over 6 billion in contracting will 
impact over 1.5 billion subcontracts performed by small 
businesses.
    A company in Oregon that manufactures periscopes, vision 
blocks, ballistic windows, transparent armor, and specialty 
components for the past 35 years is shuttering their doors due 
to the uncertainty of potential budget cuts and a concern over 
the trends in defense procurement practices. The manufacturer 
of one-of-a-kind, high-tech, hot-press furnaces used to 
manufacture ceramic body-armor plates and the manufacture of 
carbon tooling, specialty foils, and other specialized products 
are close to going out of business. It would take 18 to 24 
months to reconstitute these capabilities and at a larger cost 
to taxpayers. Some of these examples may not be directly 
attributable to sequestration or the impact of year-after-year 
continuing resolutions, but are the realities of a reduction in 
the defense budget and the uncertainties of a normal 
appropriations process.
    Sequestration certainly will speed up the process of plant 
closures for many, but the real danger here is the forced 
closure of critical technology suppliers at a time when we must 
maintain a current level of readiness and be prepared to face 
inevitable challenges to national security in the future. 
Reconstituting these capabilities, not if, but when needed 
again, will take a lot of time and a lot of money and will have 
a significant impact on readiness. Managing these realities 
will be a challenge for all. Some of the big defense producers 
may be able to adjust to forced and unplanned changes that a 
sequestration and continuing resolutions will inevitably cause. 
However, the big businesses also heavily depend on second-, 
third-, and sometimes fourth-tier suppliers who will be most 
vulnerable to going out of business. Small business do not have 
the resources to weather the storm.
    As concerned as we are about the ability for the defense 
industrial base to provide acceptable levels of support to 
sustain national security, it is also just as important to 
maintain an organic source of repair and maintenance in the 
Department of Defense. Since the 1940s the Nation's 
manufacturing depots, arsenals, and shipyards have been the 
cornerstone of our ability to not only fight but to 
overwhelmingly win any and all conflicts.
    After significant downsizing during the last several BRAC 
[Base Closure and Realignment] rounds in a current future 
fiscal reality, the Nation's organic capabilities are feeling 
the same pressures as the private sector. One of the major 
contributors to these pressures is the declining workloads due 
to the scaling back of our war efforts, and that most of the 
work currently accomplished in our depots is on legacy systems. 
Fewer and fewer new weapons systems are being fielded and those 
that are do not require the heavy long-term maintenance that 
our depots system was originally designed.
    The military depots are also heavily dependent upon the 
private sector for repair parts and equipment. Overshadowing 
these fact-of-life realities is the impact of a sequestration, 
continuing resolution, and an inevitable budget reduction. 
Sequestration will necessitate a cancellation of program work 
orders in the third and fourth quarter, as Mr. Johns has 
mentioned, in this fiscal year, an action that will not only 
impact our readiness and material and equipment, but it will 
also leave us with a workforce with not much to do, an 
expensive proposition as the losses this year will be carried 
into next year's rates. Operating under a continuing resolution 
significantly restricts the Department's ability to transfer 
funding between accounts, a major hindrance in the proper 
management of the taxpayer funds.
    The debate on the most efficient manner providing for 
maintenance and repair needs of the Department has been going 
on for decades. Over the past 30 years Congress taken special 
interest in public maintenance facilities by enacting 
legislation meant to ensure their continued viability, 
especially in times of national emergency. Some will say that 
parts of existing legislation inhibit DOD's [Department of 
Defense's] ability to economically and efficiently manage these 
needs.
    Over the past 2 years, there have been good-faith efforts 
by Congress, the Department, and industry to find the solutions 
agreeable to all. Unfortunately to date, these efforts have not 
been successful. It clear that with a probable sequestration, 
continuing resolutions, and budget reductions irrespective of 
the sequestration, something must be done so that our world-
class repair and overall capabilities, public and private, are 
not lost.
    As budget constraints and force structure reductions make 
the management of effective public and private depot-level 
maintenance capabilities more challenging, the framework in 
chapter 146 of Title 10, the process of determining core 
logistics and minimum organic workload requirements should be 
reviewed by representatives of all stakeholders in a structured 
and open process that would serve well to inform future 
decisions by Congress and the Department of Defense on the 
efficient and affordable management support.
    One way to achieve this much-needed review is for Congress 
to direct DOD to establish an all stakeholders panel to 
thoroughly review the applicable sections of chapter 146 Title 
10 with the aim of updating current legislation to ensure 
viability and affordability of logistics support and depot-
level maintenance and repair activities of the Department in 
the future.
    DOD's new procurement policy, known as ``Better Buying 
Power 2.0,'' calls for more efficient use of tax dollars and 
endorses the concept of performance-based logistics, or PBLs. 
As the mechanism to lower the cost of weapons maintenance and 
create incentives for supplier to cut costs. Under a PBL 
arrangement a contractor will agree to provide a certain 
outcome for a prenegotiated price rather than get paid for 
individual products and services. If a PBL is for aircraft 
engines, for instance, the contractor would be held accountable 
for ensuring that a certain number of engines are available at 
any given time. However, at a time when DOD is advocating more 
efficient contracting methods, only 5 percent of the military's 
maintenance work is performed under such arrangements. About 87 
PBL contracts are in place today, compared with more than 200 
in 2005.
    A proven solution is partnering. Partnering has been 
discussed for many years and would appear to be an efficient 
way of utilizing public facilities capabilities along with 
industry. Legislation has been written by this committee over 
the years to incentivize and promote partnering. There have 
been very successful partnering arrangements, including the 
tank upgrade program at Anniston Army Depot of engineering 
support and logistic services between GE [General Electric] and 
Corpus Christi Army Aviation Depot, and the operative 
communications capabilities at Tobyhanna Army Depot, just to 
name a few.
    However, much more can and should be done. Further 
integration of the organic and private industrial bases will 
provide the additional flexibility demanded by an unstable and 
uncertain budget future.
    Mr. Chairman, at a time when the Department of Defense and 
the defense industrial base must adapt inevitable budget 
restrictions, regardless how they come about, there must be a 
change in how we do business. Congress, the Department of 
Defense and industry must come together and find ways to 
provide a manageable and affordable sustainment industrial 
base. As America's leading defense industry, NDIA [National 
Defense Industrial Association] is committed to working with 
all stakeholders to ensure that we continue to provide cutting-
edge technology and superior weapons and equipment, training, 
and support for our warfighters. Thank you, Mr. Chairman, 
Ranking Member Bordallo, and I will take any of your questions.
    [The prepared statement of Mr. Steffes can be found in the 
Appendix on page 52.]
    Mr. Wittman. Thank you, Mr. Steffes. Mr. Sterling.

    STATEMENT OF CORD STERLING, VICE PRESIDENT, LEGISLATIVE 
           AFFAIRS, AEROSPACE INDUSTRIES ASSOCIATION

    Mr. Sterling. Chairman Wittman, Ranking Member Bordallo, 
other distinguished subcommittee members, thank you for the 
opportunity to appear today and discuss the negative 
consequences of the continuing resolution and sequestration on 
the U.S. aerospace and defense industrial base. AIA [Aerospace 
Industries Association] represents 380 U.S. manufacturing firms 
in the aerospace and defense industries, a sector of our 
economy with over 1 million dedicated and talented employees. 
Many of you have seen the studies we have made available which 
look at economic and industrial impact of the current budget 
situation. Most widely used is one conducted by George Mason 
economist Dr. Stephen Fuller that concludes sequestration will 
put at risk 2.1 million jobs nationwide. This figure includes 
473,000 manufacturing workers. Many of these will be in the 
aerospace industry, including small suppliers. While the timing 
of these impacts will be spread over a couple of years and may 
be slightly diminished as a result of the small reduction in 
cuts made as part of the American Taxpayers Relief Act of 2012, 
they will still be large and devastating to families and 
communities across the country.
    Defense manufacturers have been laying off workers and 
canceling future investments for many months because of this 
uncertainty. The process accelerated so significantly at the 
end of last year that our national economy actually shrunk in 
the fourth quarter of 2012. This was a shock to economists who 
attribute it largely to the decline in defense spending, and 
the process continues.
    Last year we formed the Defense Industrial Base Task Force 
in partnership with the National Defense Industrial Association 
and the Professional Services Council. As these private-sector 
executives looked at the initial impact of just the $487 
billion in budget cuts already programmed, they determined 
these cuts could cripple certain defense sectors, resulting in 
an industrial base that is smaller, less innovative, and less 
responsive to urgent wartime needs. These impacts would most 
likely force industry to close production lines and lay off 
skilled full-time workers, letting go specialized manufacturing 
capacity and human capital that cannot be regenerated without 
great cost and significant time; reduce or eliminate 
investments and capabilities beyond those needed to meet 
existing contracts, and consolidate further, exit the defense 
sector altogether, or be divested by parent corporations.
    Consequently, defense executives predicted an erosion of 
the continuum of goods and services provided by industry from 
R&D [research and development] and design, to advanced 
development, to production and then sustainment and upgrade 
that could result in critical gaps in military capability over 
time. And all of this is just based on the first $487 billion 
in defense cuts, not the additional $500 billion from 
sequestration.
    Sequestration will cause us to lose the design teams, 
system integrators, skilled technicians and others that are 
critical for us to maintain our technological lead. The 
Department of Defense also has serious impacts operating under 
a long-term continuing resolution. We know that there is a $14 
billion shortfall in the operations and maintenance accounts 
under the CR [Continuing Resolution]. This means that critical 
training and sustainment activities will not be performed 
unless a shortfall is corrected. For example, the Navy, which 
has a $4.5 billion O&M shortfall has reported that 23 ship 
availabilities will not by performed if increased funding is 
not provided.
    Aircraft maintenance will be cancelled in the third and 
fourth quarters. And modernization programs will be deferred as 
we are forced to rely upon aging, antiquated systems that are 
less capable and more expensive to maintain.
    Sustaining current readiness will be impossible with the 
Joint Chiefs reporting that we are on the brink of creating a 
hollow force with sequestration and the CR triggering a 20-
percent cut in the operating budgets. With less funding 
available for maintaining the equipment, buying fuel and 
purchasing spare parts training on our equipment will not be 
possible at the levels deemed necessary by operational 
commanders.
    The CR is also preventing a number of programs from moving 
forward as rules of the CR do not allow new starts. As a 
result, personnel and equipment stand idle waiting for the 
authority to begin work. This increases cost and creates 
program delays that will be felt for years. Impacts will not 
all be immediate, they will build over time as agencies grapple 
with implementing the order. Our analysis all concluded that 
most private sector job losses would occur within 6 to 18 
months of the sequester order as contracts expire.
    The sheer magnitude of these nationwide effects will not be 
evident in the first month. What we do know is that the cuts 
will be deep and unless quickly reversed, will result in the 
loss of critical industrial skills and capabilities. Some have 
suggested that additional flexibility will solve most of these 
problems. However, flexibility without additional resources may 
end up savaging the very accounts that warfighters depend on 
for advance equipment and long-term readiness. The investment 
accounts will lose billions of dollars which translate to 
significant equipment reductions. This magnitude of cuts in the 
investment accounts could result in fewer, older, and less 
capable tools for our young warfighters in harm's way. It would 
terminate promising R&D that would help us keep our 
technological advantage and future conflicts, and it would 
cause irreversible damage to a fragile defense industrial base. 
Mr. Chairman, thank you again for the opportunity to testify 
today on this important topic.
    [The prepared statement of Mr. Sterling can be found in the 
Appendix on page 65.]
    Mr. Wittman. Thank you, Mr. Sterling. Dr. Avdellas.

 STATEMENT OF DR. NICHOLAS J. AVDELLAS, SENIOR CONSULTANT FOR 
   MATERIEL READINESS AND SUSTAINMENT, LOGISTICS MANAGEMENT 
                           INSTITUTE

    Dr. Avdellas. Chairman Wittman, Ranking Member Bordallo, 
and members of the committee. Thanks very much for the 
opportunity to provide a short opening statement on assuring 
the viability of the Department of Defense's sustainment 
industrial base in the context of a yearlong CR and sequester.
    In the time allotted, I will offer a brief perspective on 
what assuring the viability of the sustainment industrial base 
entails given clear fiscal pressures, and then highlight a few 
key consideration for a feasible way ahead. There is no doubt 
that DOD is faced with both substantial and sudden resource 
decreases as well as longer-term fiscal challenges. The looming 
and flexible and across-the-board nature of the most impending 
of these difficulties will undoubtedly cause specific 
disruption in DOD's sustainment industrial base.
    I would suggest that in that the near term, the challenges 
are primarily to what this base delivers, and in the longer 
term, to its shape and capabilities. Central issues then relate 
to the impact and strategies necessary to address reductions 
while reshaping what remains in that base to assure readiness 
capabilities for the future. In that regard DOD should work to 
define the right amount of sustainability to produce viable and 
responsive readiness. I believe the situation must prompt 
Congress and the DOD to critically deliberate the nature of the 
relationship of logistics or sustainment to our military 
strategy.
    Discussions about tooth or tail, readiness or sustainment, 
maintenance or operations, equipment or personnel must be 
approached from a wide-ranging, inclusive perspective.
    Viability of the industrial base should be considered in 
the context of force structure and operational needs, and what 
workloads and capabilities requirements those needs drive. In 
general, multiyear sequestration affects will logically reduce 
force structure and operational capabilities, and the 
industrial base will react to those reductions in what should 
be a balanced way. By ``balanced,'' I mean shaping an 
industrial base so it is efficiently structured and funded to 
deliver what the forces need or require or ask for in terms of 
readiness and capability. Overall, it is important to recognize 
that workload shifts or reductions will have a significant 
effect on the sustainment capabilities that support the force 
structure, and perhaps should have significant effects on 
shaping that force structure.
    If CR's budget reduction and sequestration are focused 
disproportionately on one aspect of these equations--force 
structure, operations, a particular element of sustainment, or 
some part of the industrial base--imbalance will result. If we 
focus on the industrial base or sustainment without relation to 
force structure and our operations, then readiness and 
capability cannot be delivered over time and deferred 
maintenance will result. This sort of imbalance was a 
contributing cause of the hollow force of the late 1970s.
    On the whole, the resource realities implicit in the CR and 
the sequestration signal a smaller workload over time that must 
be effectively positioned within our sustainment industrial 
base. These realities may require innovative approaches in 
addition to sound strategic thinking. In that regard, I offer 
several suggestions for considerations by the Department and 
the Congress.
    First, emphasize the need for detailed planning, the kind 
of planing that reflects adjustments to the realities of force 
structure, operational requirements, and readiness needs. Here, 
a clear need is characterized current conditions and to 
identify requirements for new capabilities and modernization 
that extend through the decade, not just the Future Years 
Defense Program, or the FYDP. This should apply to both organic 
and contract providers and might include consideration for an 
integrated management arrangement.
    Second, stress the integration of public and private sector 
sustainment efforts beyond primarily depot maintenance to 
achieve plan performance base support. Formulate and implement 
partnering approaches that could have some additional 
dimensions, including arrangements that leverage modernization 
that could be well provided by the private sector.
    Third, further evolve the core capability determine process 
towards a strategic risk management framework. Utilize the 
Army's plan as a baseline to drive constructive public and 
private sector behavior and workload management and provide 
strategic oversight through OSD [Office of the Secretary of 
Defense] and the military service relationships.
    Finally, rationalize centers of industrial and technical 
excellence or sites within a consistent framework across the 
Department to optimize the public sector industrial base and 
better integrate key private sector capabilities.
    This concludes my opening statement. I would be pleased to 
respond to any questions you have.
    [The prepared statement of Dr. Avdellas can be found in the 
Appendix on page 75.]
    Mr. Wittman. Very good. Thank you, Dr. Avdellas, appreciate 
your testimony as well as that of the other panel members.
    I want to begin with questioning. I want to remind the 
members we want to make sure we get to as many questions as we 
can, so I will be very brief with mine. We heard some common 
themes among our witnesses today, and essentially, they all 
boil down to this, and that is an erosion and degradation of 
capability, and that is not just a short-term issue, but a 
long-term issue, and many of you spoke very eloquently about 
the long-term nature of that with sustainability, what happens 
with personnel, what happens with equipment, what happens with 
our industrial base, I think all those things are 
extraordinarily important.
    What I would like to get is just a brief comment from each 
of you about in the face of a resource-challenged environment. 
Let's face it, we know we have got the $100 billion reduction 
from Secretary Gates, the 2011 $487 billion on top of whatever 
ultimately makes its way out of the budgeting decision 
processes in front of us. Where does the scenario leave us to 
do the best that we can under that particular scenario in 
making sure that we not only meet the short-term needs, but 
make sure the long-term needs are met. Also, in a pretty 
challenging environment where we have drawdowns, we have yet-
to-be-determined activities there in Afghanistan, challenges 
obviously will blossom in years to come, too. Just give me your 
perspective on how do we best meet that? Mr. Johns, we will 
start with you.
    Mr. Johns. Thank you, Mr. Chairman. I guess this is sort of 
the essence of the basic problem. I would first say that it is 
very, very difficult to comment definitively. Given the 
uncertainty associated with what might happen in a week, and 
what might happen for fiscal year 2015 and beyond levels of 
funding. Actions that we may take in fiscal year 2013 should, 
in fact, be shaped by what we anticipate happening in 2014 and 
2015. We want to be completely consistent with that to the 
degree possible. Very clearly, the situation that we are in 
right now, and the impacts associated with the potential 
reductions and shortfalls will cause us to stay within the top 
line and create some pretty significant impacts in our 
workforce, in our capability, in our ability to produce 
readiness.
    To mitigate those issues we need to factor in a variety of 
different considerations. What is reversible, first of all? Are 
there actions that we can take that can be reversed if the 
fiscal situation changes over the next 6 months to a year? 
Very, very important. The other one is are we taking actions 
that are consistent with the long-term desired capability of 
the United States military? That relates back to protection of 
critical capabilities and the analysis associated with that and 
linking those critical capabilities to warfighting 
requirements, absolutely essential. That dominates back into 
the workforce. The workforce is the most critical element and 
probably the most perishable and longest to recover if damaged 
in that equation. So we need to be very careful about what we 
do with our workforce. And in fact in the near term, we may 
take fiscal risk to protect that workforce so that we can 
protect long-term capability and reduce long-term risk by 
protection of the workforce.
    Mr. Wittman. Very good, thank you. Mr. Steffes.
    Mr. Steffes. Mr. Chairman, I totally agree with what Mr. 
Johns is saying, and part of the problem is what we do in the 
short term is going to have a very significant impact on how we 
should plan in the future years. No one knows really what the 
impact is going to be pretty much until it happens. The 
workforce is a perfect example, once you lose that talent, they 
are not going to sit there waiting for a call to come back. It 
is a very slippery slope, once you start making adjustments in 
the near term, there is a whole series of things that may fall 
out in the long time that is really going to be bad. A perfect 
example from my Air Force time, I have seen airplanes parked 
for a time on a ramp and they will break all on their own; you 
don't have to touch them, they will break.
    So if you don't do the things you need to do on a regular 
basis, it will cost you a lot more in the future. That falls 
into the reversible area because some of the stuff may not be 
reversible, you may get to the point where it is too expensive 
and you can't get there.
    Mr. Wittman. Mr. Sterling.
    Mr. Sterling. We know things will be broken, the cuts are 
just too steep, the magnitude is too large for there not to be 
a problem of some nature. What will be broken, it is too early 
to tell because that will be dependent upon decisions made over 
at the Pentagon. I think it is important to remember, and we 
talked about workforce. When we talked about the industrial 
base, we really are talking about the people. Plant and 
equipment is relatively easy to rebuild in a relatively short 
time, but you are not going to want to fly on a plane or sail 
on a ship that was designed by somebody who just graduated from 
engineering school or built by someone who just got out of 
trade school, a skilled technician, you want experience--
experience matters.
    We are going to lose a lot of that experience a lot of 
those people, whether it is through furloughs as people start 
to look for jobs elsewhere, temporary layoffs as some might 
portend this to be, the simple fact is people will look for 
stability, especially high-skilled people that are in our 
industry and our sector, and as a result, we will lose them to 
being able to provide what the warfighter needs.
    Mr. Wittman. Thank you, Mr. Sterling. Dr. Avdellas.
    Dr. Avdellas. Yes, I would harken back to Mr. Johns' 
comments about some of the uncertainty and kind of the 
immediacy of a lot of cuts that have been sort of hoisted upon 
the Department. I think the turning radius for the industrial 
base can and will be shaped and it will be moving forward. And 
I think the Department had been planning for resource 
reductions of certain levels, and as you mention, they were 
already going about a lot of sort of major efficiency 
initiatives. I think there are tools within the Department 
including, the core capability determination process where 
there is a work breakdown structure where, from an industrial 
base perspective, from a skill and a workload perspective, 
there is a starting point to really be able to understand the 
commodities within the industrial base that we really either 
are at risk or we really need to be paying attention to.
    For example, as we are aware, and we talk about readiness 
of aircraft because of the engineering standards and things for 
them to fly, a lot of readiness issues we will--I would say in 
that commodity area, we would see probably quicker than some of 
the ground vehicles in other places.
    So there is both a critical and core determination process 
and there are management tools within the Department that I 
think will just have to be used and applied.
    Mr. Wittman. Very good. Thank you, Dr. Avdellas. Ms. 
Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman. My first question is 
for Secretary Johns. Can you comment on how the reductions in 
the operations and maintenance accounts will impact our 
rebalance of forces to the Pacific. Naturally I am interested, 
since I represent the U.S. territory of Guam. And what impact 
will these reductions have in our ability to have equipment 
that is available for training with our partners in the region?
    Mr. Johns. Responsible relationship of maintenance to what 
happens to the asset once we produce them really is up to the 
Department.
    Ms. Bordallo. Do you have your mic on?
    Mr. Johns. I am sorry, ma'am. Staying within my lane, I am 
responsible for maintenance. I will attempt to comment on the 
production of assets that will then be used and employed by the 
Service and then allocated throughout the world. But to comment 
on the actual capabilities of the Navy throughout the world 
would be a little bit of a stretch for me. I will go up to 
where I think I am safe in doing that. What I can tell you is 
the impacts in the Navy, most of which you are aware of, has 
significant impact in the private yards, 70 percent of the 
ships maintenance in the private yards in the third and fourth 
quarter will be cancelled, that is 25 ship availabilities and 
potentially two carrier refuelings and complex overhauls.
    On the aviation side, 320 airframes, approximately 10 
percent of the fleet and over 1,200 engines and modules. This 
will result in bare firewalls and readiness problems in four 
air wings. There will be impacts on the industrial base in all 
three fleet readiness centers there as well as across the 
entire shipyard complex.
    Very clearly, this level of impact is going to have an 
associated effect on the assets available for the Navy to 
deploy worldwide, there is no doubt about that. Whether the 
priorities as they are now favoring CENTCOM [U.S. Central 
Command] and the western Pacific are upheld and the resources 
allocated in a way to adequately support those areas of 
operation at the sacrifice of other areas in support of Africa 
and other theaters really is a decision that needs to be made 
by the senior military personnel responsibility for planning.
    Ms. Bordallo. Thank you, Mr. Johns. Mr. Avdellas, what 
other approaches or techniques that DOD should consider to 
protect reversibility of maintenance capabilities given budget 
pressures and uncertainty? Could you give us specifics?
    Dr. Avdellas. Certainly. A couple of things that could be 
considered, particularly going back to the kinds of commodities 
that might be affected first, whether we are looking at 
airplanes or combat vehicles or ships and things is, some 
techniques that similar to a core capability process where 
either in the public sector or the private sector, we would 
keep parts of the industrial base warm, if you will. In other 
words, we may keep a very small amount of workload, or keep 
certain technicians, or certain skills that we know are 
critical moving forward should there be a certain surge 
requirement in these areas.
    I know that has been tried in the past and I know some 
people call it ``mothballing,'' certain things in terms of the 
equipment, but the whole idea is, and all of this is kind of 
hedging against risk and making sure that the whole system from 
the surge perspective is ready to respond if needed. So there 
are techniques, the one I mentioned is one of them, and others 
from a workforce perspective that could be done. I think the 
key idea is kind of balancing uncertainty with some known 
factors about what is happening in the future and what we might 
anticipate coming and trying to keep at least a minimum sort of 
capability, whether it is from a workforce perspective, 
technical skills, certain elements or things that are part of 
the construction and I think that should be something that 
should be focused on.
    Ms. Bordallo. Thank you. One last question for Secretary 
Johns. What is the impact of the planned drawdown of military 
force levels on the required capability and capacity of the 
sustainment industrial base? And what is the general impact of 
these actions on the workforce?
    Mr. Johns. Wonderful question. The complexity associated 
with that is understanding what is the difference between 
capability and capacity. Capability has to do with the basic 
ability of a particular service.
    Ms. Bordallo. I think your mic----
    Mr. Johns. Yes, I will get this eventually. Capability has 
to do with the basic ability of a service or a maintenance 
enterprise to actually conduct an individual repair on a piece 
of equipment and the nature of that repair. Capacity has to do 
with how much equipment and the nature of the maintenance that 
has to be worked to actually execute that maintenance, so 
capability and capacity are actually two different things 
though they are interrelated. The bottom line is that 
capability will be adjusted based on the type of equipment in 
the inventory, and capacity will be adjusted based on how much 
equipment, the nature of the use of that equipment, the age of 
that equipment within the inventory.
    So it is likely that in our situation, capability will 
actually increase with the induction of new weapon systems, the 
capacity will decrease with the decreased OPTEMPO, decreased 
force structures, and decreased inventories.
    Ms. Bordallo. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    Mr. Wittman. Thank you, Ms. Bordallo. Mr. Bishop. Ms. 
Hartzler.
    Mrs. Hartzler. All right. Well, thank you, gentlemen. I 
appreciate you all being here and your testimony. Mr. Johns, I 
was just wondering what is the Department's overall industrial 
base sustainment strategy?
    Mr. Johns. I got it right that time. The overall strategy 
really, and I will go back to the Army's strategy because we 
are doing a lot of work in using the Army's strategy as the 
basic foundation for what we are developing for the Department. 
So within the Army strategy, and we are sharing this across the 
Services, each Service has very similar strategies. Three major 
objectives: Retain critical capabilities, maintain efficient 
operations, and ensure regeneration of capabilities to maintain 
relevance.
    We have four basic tenets that we are working towards: one 
is managing capacity to support operations; focusing resources 
to sustain core and critical capabilities; promoting public and 
private partnerships; and aligning decisionmaking at all levels 
to achieve common goals. From a departmental perspective, we 
have added to that our enterprise tenets of operation so that 
we can enable the Services to work together to create 
enterprise, and the most efficient solutions across the entire 
industrial base.
    Our vision in that sense includes words like ``enterprise 
structured,'' and ``resourced,'' and ``operated,'' ``integrated 
and synchronized,'' ``collaborative global maintenance 
network,'' and the basic tenets support that. We have actually 
tested this recently to include the establishment of new 
capabilities in the organic sector with regard to unmanned 
aerial vehicles and it has worked very well. We have been able 
to identify single site sources of repair in the most efficient 
way across the entire Department, leveraging the critical 
capabilities and centers of excellence within each one of the 
Services to best allocate that workload across that entire 
Department.
    Each Service has contributed in that following the basic 
tenets of that Department strategy. While that is yet to be 
formalized, we are very encouraged that the first test in 
application of that strategy has worked very well for us.
    Mrs. Hartzler. That is good. You have a very difficult 
task, and I am very concerned about the impact of sequestration 
on all of our national defense, and certainly on our industrial 
base.
    Mr. Sterling, in your opinion, what critical skills in the 
industrial base need to be retained and what ones are at 
jeopardy if sequestration goes through?
    Mr. Sterling. Which ones are in jeopardy is a little more 
difficult to outline because lot of decisions will be made in 
the Pentagon over the course of the next several months as they 
implement it and looking at the future budget. The ones that 
are most critical to maintain, you have to look, and I know 
Brett Lambert, Secretary Lambert over in the Pentagon has been 
doing sort a deep dive looking at this cross-industrial base. 
People like systems engineers, they can bring a weapon system 
together from all the various suppliers. You want to look at 
skills such as that, you want to look at some of your, what I 
will call low-density skills, that they are working on critical 
unique elements, whether it is in the area of chips, 
manufacturing of that nature, whether it is in nuclear work for 
shipyards because you have got relatively small number of units 
coming out. Those are the skills you have to really make sure 
you retain because adding them back in later--I know one of our 
CEOs [Chief Executive Officers] was often noted as talking 
about the fact that we don't have a new manned aircraft under 
design now within the Pentagon. And it is the first time in 100 
years; we have the Joint Strike Fighter [F-35 Lightning II] 
coming on line, we have the F/A-18 E and F [Super Hornet 
fighter aircraft] that is out there. The F-22 [Raptor fighter 
aircraft], but a new one coming on line. That presents some 
unique challenges because the skills, the requirements you have 
on people to try to design a new system and bring that to 
through the various phases, you lose that skill. It atrophies, 
the people retire and so that is one of the challenges you have 
to look at.
    Mrs. Hartzler. What about the long-range strike fighter?
    Mr. Sterling. You are just not at the phase where you have 
the design teams in the Department.
    Mrs. Hartzler. Very good. Thank you very much. I yield 
back.
    Mr. Wittman. Thank you, Mrs. Hartzler. Now we can go to Mr. 
Loebsack.
    Mr. Loebsack. Thank you, Mr. Chair. Thank you for having 
this hearing today, I think it is absolutely critical, 
especially given that we are a day away from no doubt what will 
be sequestration. I think it is really quite unfortunate, and 
at a time when we are also operating under a continuing 
resolution. And I was reading today that it may very well be 
the case that at least in this body, there will be another 
continuing resolution moving forward after March 27th that will 
actually build in sequestration cuts into the base.
    So sequestration seems to be a reality, or at least that is 
the assumption at this point. So I think we have just got to 
move forward and be realistic in that sense. I am disappointed 
if, in fact, a continuing resolution after March 27th assumes 
sequestration as part of the base, I understand why that might 
be the case, but that is going to put even more pressure 
obviously on all the things that we are talking about, it seems 
to me today.
    I was one of those who voted against sequestration in the 
Budget Control Act in the first place, because quite honestly, 
I said at the time, I thought we might very well get to this 
point because someone in my seventh year here in this body, I 
am probably as pessimistic about the chances that this place 
will somehow be run by rationality as the average citizen and 
that is really unfortunate, but that is where we are right now, 
and I represent the Rock Island Arsenal, I represent the Iowa 
Army Ammunition Plant, we have lots of folks who are doing 
great work at both of those places to make sure that our troops 
have what they need if they are called overseas. And as a 
military parent, that is really important to me on a personal 
level I have to say.
    And clearly, our depots, our arsenals, our ammunition 
plants are doing a great job. I do have some questions; I guess 
I have a followup first more than anything for you, Mr. Johns, 
because when our chair was asking about what steps could be 
taken to protect the workforce, I guess you mentioned that some 
steps could be taken by DOD. What steps could those be, what 
steps could actually be taken to effectively manage workforce 
under sequestration, if you could offer some details?
    Mr. Johns. Yes, Congressman, of course. Again, as we all 
had indicated, the workforce is the key element behind 
capability both in the short term and long term. And we would 
hesitate to do anything that would damage them unduly. We would 
be looking for some indication about what future requirements 
looked like and future funding levels looked like in fiscal 
year 2014 and beyond to try to create some certainty there. But 
in the absence of that, we will make some assumptions about 
what level of workforce and what skills are required to support 
future operations. We will protect, to the best of our ability, 
those capabilities and those workforce skills to ensure that as 
we enter 2014 and come out of this sort of crisis situation in 
2013, that we have the workforce in place that can actually 
execute those requirements.
    Mr. Loebsack. Are we talking about a red line here? Is that 
what we are talking about?
    Mr. Johns. We would hope to not cross a red line, if I 
understand your question correctly.
    Mr. Loebsack. Right.
    Mr. Johns. Where that red line is, is obviously very, very 
difficult to predict, especially given what you just indicated.
    Mr. Loebsack. I hope I am not correct and I hope what I was 
reading today is not correct. We will see.
    Mr. Johns. Yes, Congressman. So in the meantime, our 
commanders and Services have latitude to adjust inductions, 
adjust funded workload to try to smooth out to the best of 
their ability the workload and the actual work that is being 
done within our industrial facilities, so that we can keep as 
many people and many skill sets actively employed and engaged 
to the maximum degree possible. The idea would be to be keeping 
warm production lines open as long as we possibly can, because 
once you shut down a production line, now you have effectively 
crossed a threshold that will require significant time to 
recover. As long as its warm and operating at even a marginal 
level, we will be protecting capability and ensuring 
reversibility.
    Mr. Loebsack. That goes to Mr. Avdellas' comments about 
keeping the organic base warm. Again, that comes back to really 
protecting our national security in the event of another 
contingency or another conflict, we have to have that organic 
manufacturing base, it has to be there and it has to be ready 
to be ramped up again as it was previously. And the Rock Island 
Arsenal, uparmoring Humvees, it was very, very important, 
something the private sector couldn't do as quickly as the 
arsenal did. Thanks to all of you. I really appreciate it. 
Thank you, Mr. Chairman, I yield back.
    Mr. Wittman. Thank you, Mr. Loebsack.
    Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman.
    I want to thank all four of you for being here today. I 
think, though, you do share some of the blame. If you had 
refused to testify at an 8 o'clock hearing, I wouldn't have to 
be here as well. It is not that I am opposed to mornings, it is 
just so dark. So thank you for that.
    Mr. Johns, I have appreciated your efforts for many, many 
years at the Department of Defense.
    Mr. Steffes, welcome back to HASC [House Armed Services 
Committee].
    Mr. Sterling, I understand you cut your teeth at the Senate 
Armed Services Committee. I am sorry. And I hope you have had 
enough time to be away from the dysfunctional side of the 
Capitol to get your bearings back.
    I do have six specific questions, so maybe there will be a 
second round, I hope.
    Let me start first of all with, Mr. Johns, I don't want an 
entire historical dissertation, but let's face it, you know, 
when the stimulus bill was built, every element of Government 
was increased so they have some cushion against sequestration 
cuts, except for the military. If this was the first cut for 
the military, I wouldn't feel any kind of compassion for you, 
but this is basically the third cut you have faced, and which 
is significant.
    I would like you just to give me historical perspective, 
because when the Soviet Union fell, the Berlin Wall came down, 
we had the so-called Peace Dividend, in which the 
infrastructure of our military was basically decimated at the 
same time.
    Is sequestration worse than that Peace Dividend, or is it 
similar to it, or is it every--it is going to be similar to it? 
And quickly, a simple answer.
    Mr. Johns. Yes. First, I appreciate your comments with 
regard to us, the entire panel.
    The simple answer to the question is while we expect a 
peace dividend, given the full-spectrum threat that we are 
facing, I am not sure that we should actually be seeking one.
    Now, unfortunately, the fiscal situation that we are 
involved with right now is so drastic in such a short 
timeframe, the drawdown in the post-Cold War era is nowhere 
near the slope that we are looking at in fiscal year 2013.
    Mr. Bishop. Okay. Timeframe versus the amount of money we 
are talking about makes it more significant.
    Mr. Johns. Timeframe and magnitude in that short amount of 
time.
    Mr. Bishop. All right. Let me go to one of the most 
significant questions. I have been hearing a great deal of talk 
about changing to the 50/50 program that we had in statute as a 
means of temporary relief. Is that a reality? And if it is, are 
we talking about permanent, temporary? If it is temporary, how 
do we replace the competency at depots, which may be lost by 
that kind of change?
    Let me go back. Is there any legitimacy to an effort to 
change that 50/50 complex?
    Mr. Johns. Well, the question is a little difficult as 
worded. Legitimacy, there has been discussion about potential 
impacts associated with 50/50.
    Mr. Bishop. Are we talking permanent or temporary changes 
to 50/50?
    Mr. Johns. If we look at just fiscal year 2013, I would say 
that that may be temporary, but I am not even convinced at this 
point that we will have to execute a waiver. It is a very 
complex situation; multiple things have to be balanced, 
requirements for readiness, protection of critical capabilities 
in both the public and private sectors. There will be 
reductions on both sides, so if I give you a final answer on 
what that number might be, it is likely to change and is 
probably incorrect.
    Mr. Bishop. That is a fair enough answer. If we do come 
back with a temporary change to that, I would like to see a 
definite cause-effect relationship that would justify such a 
change ever taking place. Once we lose those competencies at 
our depot bases, it will be very hard to bring those 
competencies back in again, and I think all of you have said 
something similar to that.
    Mr. Johns, let me try and get a couple more in on you, if I 
could. When we assess depot cost, are the force services 
similar or dissimilar in how they assess the costs of their 
depot? Does every Service take the same cost of overhead into 
coming up with their cost per unit?
    Mr. Johns. The simple answer, Congressman, is no, they are 
not similar. In many cases, though, the differences are 
marginal and dependent on the use of lexicon, different 
lexicons across the Department. They are probably more similar 
than they are dissimilar, but there are differences.
    Mr. Bishop. Okay. Thank you.
    And I guess, how easy would it be to standardize that 
process of especially overhead costs from Service to Service? 
Are the core responsibilities so different, it becomes 
difficult to do that?
    Mr. Johns. I would venture to say, Congressman, that the 
core processes are not the driver, but probably the long 
institutionally cultural differences between the Services have 
resulted in just simply different accounting and allocation 
structures. Those are adjustable, but we would be changing 
institutional processes.
    Mr. Bishop. Thank you. I appreciate that.
    I am over time. I got four of the seven I wanted, though.
    Mr. Wittman. You did great.
    Mr. Bishop. So I will be looking for a second round.
    Mr. Wittman. Thank you, Mr. Bishop.
    Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman.
    And thank you to the witnesses for evidence today that 
shows that this sort of--I wouldn't call it conventional 
wisdom, but sort of noise out there that while it is only $85 
billion in terms of a, you know, Federal budget of $3 trillion, 
I mean, the fact is, as I think your testimony elicits today, 
is that when the sequestration was actually first designed in 
1985, I mean, because that is really the formula that we are 
operating under, is the Gramm-Rudman-Hollings design, it was 
designed to hurt, and it was focused on one aspect of the 
Federal Government: discretionary spending. And this is, you 
know, the place that all of you are sort of stuck trying to 
deal with right now.
    And I guess, Mr. Johns, you know, one sort of proposal that 
is floating out there is, well, we will add flexibility to the 
sequestration, and you know, that will allow the scalpel rather 
than the hatchet. And so if Admiral Greenert was given 
flexibility to sort of deal with his shortfall that he is going 
to have to deal with in the final 7 months of this fiscal year, 
I mean, would that change anything? I mean, is that going to 
mean that we will have repair work at the Lincoln [USS Abraham 
Lincoln nuclear-powered supercarrier] or at the Providence [USS 
Providence nuclear-powered attack submarine] or, you know, 
these other availabilities that he is already being forced to 
cancel, or has he really already used whatever flexibility he 
has got to come up with the plan that we are now seeing?
    Mr. Johns. Yes, Congressman.
    I believe that flexibility associated with elimination or 
reduction of the limitations associated with continuing 
resolution would provide some relief in some cases, more 
significant in others.
    As General Odierno and Admiral Greenert have testified, I 
think probably the Army would see the best benefit behind 
increased flexibility and latitude to move money from 
investment accounts into operations and maintenance accounts, 
and probably the Navy is very closely behind them. There is no 
doubt that any increased flexibility would help alleviate, and 
obviously, that money would be placed against the most critical 
priorities.
    I do believe that the two RCOHs [Refueling and Complex 
Overhaul], at least one refueling and complex overhaul is 
associated with continuing resolution-driven limitations. So, 
yeah, there is going to be some relief associated with that.
    Mr. Courtney. But in terms of real savings, I mean, that is 
where I think, you know, holding off repair work is kind of 
like not getting your oil change in your car. I mean, at the 
end of the day, you are not really saving anything; you are 
just sort of deferring, and you are going to have to recal---
you know, you are going to sort of spend the money or getting 
these ships, you know, ready for their missions. Isn't that 
correct?
    Mr. Johns. That is absolutely correct. Any kind of third 
and fourth quarter reductions and deferred maintenance is going 
to have a ripple effect in multiple ways throughout the system, 
not only schedules but also fiscally in the generation of 
losses inside the working capital fund that will ripple in 
multiple years in the future. So not only would we not spend a 
billion dollars in maintenance this year, the losses that are 
generated with that because of our inability to adjust rapidly 
enough our fixed costs will show up as rate increases in fiscal 
year 2015. That same loss in fiscal year 2013 will show up in 
decreased buying power in fiscal year 2015. So we are creating 
these every-other-year ripples.
    The same thing could be seen in reduced OPTEMPO and 
training. That results in decreased depot-level orders from 
about 3 to 6 months in lag time from the decreased demand in 
the field. So when we reduce OPTEMPO and training in fiscal 
year 2013, we are creating a reduced demand within the depot 
for depot-level repairables in 2014, which will create losses 
in 2014, which will create rate increases in 2016, okay, not to 
mention the degradation in material condition, the reduced 
availability. We are creating a multiple significant fiscal and 
operational ripple effect with this deferred maintenance.
    Mr. Courtney. And lastly, I mean, that maintenance work 
keeps folks like nuclear welders and electricians busy while 
other projects are making their way through the pipeline in 
terms of production. And, again, that is something that we are 
already seeing in Groton, is that, you know, that bridge that 
the work on the Providence and others was going to provide 
while the construction schedule reached the waterfront is now, 
that bridge is being definitely made shaky or eliminated.
    So thank you, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Mr. Courtney.
    Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman. And, gentlemen, thank 
you being here.
    And it seems to me that in this room, we get the 
opportunity to have fact-based, rational decisionmakers testify 
before us, and maybe in another room right down the hallway, we 
don't get that sometimes, so thank you for your testimony. And 
you hit on a couple of things, Mr. Courtney and Mr. Bishop both 
hit on things that are important to me.
    I will tell you, I think any rational business owner would 
look at our current fiscal situation and say, you can cut 3 
percent out of the Federal budget. The problem is when you 
begin to exempt, piece by piece, the vast majority of the 
budget, then it pushes significant, significant percentage 
reductions to areas that are extremely important to us, like 
depot maintenance.
    And I represent Robins Air Force Base. We have a tremendous 
number of skilled, dedicated craftsmen and women there that are 
extremely concerned about what is going to happen, not only to 
their jobs but to the equipment that they are producing for the 
warfighters.
    So a couple of things that you hit on, protecting our 
workforce, these skilled craftsmen are not going to sit around 
and do nothing. There are going to be jobs available for them. 
And I certainly think that we have to maintain core 
capabilities inside our depots. We have to be able to do that 
work. I am glad that we have the private sector participate 
with us, but some of it we have to do ourselves.
    So when you talk about what is reversible and what is not 
reversible and when you talk about the fact that we can't shut 
down a line and expect to reopen it without significant 
additional costs, and I hear the leadership of the Air Force 
talking about the 50/50 rule and relief from the 50/50 rule, 
one of my concerns is that it implies that our depots are not 
as efficient as the private sector. We are not building widgets 
here. We are building weapons systems, and we have a lot of 
classified information. You can't just put this stuff out for a 
bid to the general public with the equipment systems that they 
are.
    So why is the Air Force asking for relief and the Army and 
the Navy are suggesting that they don't need the relief? And I 
would ask that to you, Mr. Johns.
    Mr. Johns. Congressman, if you would let me, I will answer 
your question directly, and then I would like to come back and 
talk about the Air Logistics Center at Robins as well, because 
I think it is important to recognize that as well as the 
workforce that contributed to superior performance there.
    The Air Force is probably the one that has been most vocal 
about this issue about approaching 50/50, because historically 
and projecting into the future, they are closest to the 
boundary. So any perturbations in the public sector workload 
will push them that much closer to the boundary. They probably 
have some critical contracts that may cost a significant amount 
if they were to terminate them. So these are balancing issues 
that the Air Force is going to have to go through. I think that 
probably what they are issuing is a potential warning order 
that they are approaching that boundary and that they may need 
to execute a waiver.
    At this point, I am not convinced that it has to happen. 
And again, as I answered Congressman Bishop, I believe that if 
we contain these impacts to fiscal year 2013, then this is a 
temporary measure, and as the statute allows, it is a year-to-
year waiver, so waive for 1 year and then go back and revisit 
it for the next.
    If these actions, however, continue beyond fiscal year 
2013, then we are going to have to relook at the entire issue 
of the split between the two sectors.
    Mr. Scott. Thank you.
    Mr. Johns. So if I could comment.
    I recently visited Warner Robins, the Air Logistics Center 
there, and just so you know, which you probably know, is that 
they were the winner of the Depot Maintenance of the Year 
Award.
    Mr. Scott. Yes, sir.
    Mr. Johns. Fabulous capability there. And I would hate to 
see, as well as many other exceptional maintenance activities 
across the Department, impacted by this.
    Mr. Scott. Yes, sir. And we are proud of that base and the 
men and women there and what they do for the warfighter.
    I know I am going to run over just a second here, Mr. 
Chairman, if you will bear with me, but thank you for coming 
down there and for those comments.
    One thing I would like to, and you can put this in writing, 
but from the private sector, one of the things that hasn't been 
addressed is fixed cost versus variable cost, especially with 
regard to the areas that you are talking about. And the fixed 
cost is going to be there no matter how many weapons systems we 
repair. It is the variable costs that is the only thing that 
you can get to. And my concern is that we are going to have a 
tremendous amount of increase in the price per unit being 
repaired if we do this thing.
    And, again, we can cut the Federal budget by 3 percent, but 
this is ``penny-wise and pound-foolish'' the way we are doing 
this.
    So, thank you, gentlemen, for being here and testifying.
    Mr. Wittman. Thank you, Mr. Scott.
    Mrs. Noem.
    Mrs. Noem. Yes. Thank you.
    And thank you all for being here.
    Mr. Avdellas, I have a question for you regarding your 
testimony. It is on the bottom of page 3, but it is where you 
talk about because of the continuing resolutions that we face, 
the budget reductions and now the sequester, that we are seeing 
a pattern develop that much resembles what happened in the 
1970s. And I am curious about that, because I would like to 
know if you see where we have some ability within what we are 
doing today to avoid what happened in the 1970s, if our hands 
are tied to that, if we have some mechanisms that we can 
utilize that will prevent something like that happening again. 
It was a thought process I had thought about a month or so ago, 
and the fact that you touched on it really brought it back to 
light again.
    Dr. Avdellas. Certainly. And thanks for the opportunity to 
comment. I think there are a couple of similarities and a 
couple of differences. I think that, as has been mentioned 
today, the quickness of how this has been brought upon the 
Department is very drastic, particularly from an orientation 
over the past 10 years really that has been so much on a 
mission orientation and getting the job done and using very 
effective tools, like reset and other things, to do that.
    So I think what you have heard initially from some of the 
military services, given a very short timeframe to kind of 
respond to all this and knowing the complexities of all of it 
is, you know, this could really be bad, this really has 
effects, because everything is based on the requirement. And we 
have been working so hard to try to meet those requirements 
over, as I say, the past decade.
    I think from a hollow force perspective, one major 
difference that you have got on the industry side and maybe 
some other folks could comment on it, but a lot of 
consolidations were done on the industry side between, say, the 
1970s and the period we are in now. We have one or two 
companies working on major weapons systems. We have single 
sourcing for efficiency reasons on the Government side. And I 
think a real risk that you could run and what is different is 
if these people get out of the business, so to speak, and they 
are seeing these signals, these very kind of clear signals over 
the past couple of months that, hey, there is a big change 
coming, it could really be quite substantial.
    And I think on the Government side, what you have seen in 
good faith from the military perspective is just trying to warn 
of the real impacts that could be happening. I will say, as Mr. 
Johns has mentioned, that I think the Department is probably a 
little better equipped in terms of management structures, 
communication structures, to manage better, if you will, but I 
do think, as I mentioned, there is some serious risk on the 
private sector side and then as well on the public sector side 
that probably need to be considered.
    Mrs. Noem. Do you think that it is more difficult in 
today's day and age for the industrial base to recover in this 
type of a situation than maybe it was decades ago, back in the 
1970s, when they were able to get their feet back under them, 
but it obviously took some time? But now with the technology 
developments that we have, the equity investment that has to 
happen, do you believe that it is more difficult to recover?
    Dr. Avdellas. I would say that the longer this goes on with 
these sort of drastic hits to the system, that, yes, it would 
probably be more difficult.
    Mrs. Noem. Okay. Mr. Steffes, I had a question for you. You 
talked a little bit about DOD's nuclear procurement policy, 
known as the Better Buying Power 2.0, but also what was 
interesting was that you talked about even though DOD is 
advocating for more efficient contracting methods, that we have 
also seen a decrease in the percentage of military maintenance 
work that is performed under arrangements such as that. It 
looks like before, we were operating at much higher 
percentages, but now we are down to about 5 percent of the 
military's maintenance work is performed using a PBL. So I am 
wondering if could you explain to me a little bit why we have 
had a decrease in that when that has been proven to be more 
efficient?
    Mr. Steffes. Thank you. One of the main reasons I think the 
numbers have gone down is the contracting officers are getting 
very concerned about going forward with long-term contracts, 
you know, 4- or 5-year contracts, which to make a PBL work, it 
has to be long-term.
    The whole acquisition workforce has changed significantly 
over the last 5, 6, 8 years, and there is a concern that they--
I think at the contracting officer level, that they don't want 
to go down this road, because of the unknown. Irrespective of 
the fact that you could look at the record to see what the 
savings has been under PBLs, which is significant. I can't say 
every single one was significant, but a huge majority certainly 
was.
    If you go back to a different way of just paying for it, 
you know, as you need it, there is no incentive by the 
contractor to make improvements, to do things that would give 
them more of a profit, and the customer, the military, more of 
a high level of readiness.
    Mrs. Noem. So the long-term efficiency of a PBL just isn't 
possible under the situation of continuing resolutions?
    Mr. Steffes. I don't know quite how the--well, continuing 
resolutions, as you would continue anything that was on the 
books in 2012, you can't write any new contracts; you can't go 
forward, until you get into a regular appropriations, so that 
is significantly going to hold them back.
    Mrs. Noem. Okay. Thank you very much. I appreciate it.
    Mr. Wittman. Thank you, Mrs. Noem.
    We are going to go into a second round of questioning, and 
I just want to follow up. You all have given us some great 
perspective, I think some pretty sobering assessments with 
where we are.
    I want to ask this: You had talked all along about the 
importance of the people part of the organic industrial base, 
the talents and skills that rest there. And if we look at that 
and how important that is overall in our military sustainment, 
why wouldn't we want to have the same type of planning that 
takes place with shipbuilding and in our airframes as we would 
with our organic industrial base? And how would we go about 
achieving that? What sort of form should it take if we were 
going to go down the path of saying, let's do a strategic plan 
on the same scale as we do in other areas? And obviously, we do 
a lot of planning. We do the QDR [Quadrennial Defense Review]. 
We do the 30-year shipbuilding plan. And I want to get your 
perspective on how we could do something similar with the 
organic industrial base so we understand what our longer-term 
needs are and how we can lay out how we meet those needs.
    Mr. Johns, I will begin with you.
    Mr. Johns. Thank you, Mr. Chairman.
    As we had indicated before, I think all of us are in 
unanimous agreement that the workforce and protection of the 
workforce are critical to us retaining capabilities for us in 
the future in the industrial base. And certainly protection of 
the workforce and the critical skills that we would identify in 
that analysis would be a centerpiece of our Department-level 
strategy.
    And so we would be looking at, and I know the other 
witnesses had indicated several areas that would be areas that 
would be protected, but from a strategic perspective, we would 
be looking at protection of highly complex work associated with 
highly complex equipment, work associated with software 
maintenance, critical safety items and material requiring true 
artisans. These four areas can be extended, broadened to 
encompass a wide variety of skills.
    These would be centerpieces of any national strategy, but 
what happens practically is these basic tenets or protections 
in these critical areas are flowed down within organizations, 
where commanders have the latitude to shape their workforce in 
that context to best satisfy the production requirements that 
are laid on them, and that is in fact what happened. So they do 
their workforce shaping in that strategic context.
    Mr. Wittman. Very good.
    Mr. Steffes.
    Mr. Steffes. Yeah. I think to accomplish what you have 
mentioned, you have got to make sure you give the Department 
all the management tools that it needs to do this, and 
operating under a continuing resolution is pretty tough to do a 
strategic plan. You have a yearly appropriations, so it is a 
challenge to try to lay out in a long term what it is, where 
you want to go, but I think you need to give them all the tools 
that they need to do this with, and rather than a system where 
they just have to, you know, make it up as they go along, if 
you will, because of what is happening on a day-to-day basis.
    Mr. Wittman. Very good.
    Mr. Sterling.
    Mr. Sterling. I think the planning aspect may be the simple 
approach. I mean, it is complex; there are things you got to 
do, but you mentioned for a shipbuilding plan, we have the QDR, 
we had the FYDP. On the private sector side, we look at what 
those programs are that are coming on line and we put together 
a workforce, plant and equipment to go along with it. And the 
Department could do the same thing.
    However, Mr. Steffes noted the CR, you know, sequestration, 
all these elements. The plan is irrelevant if the funding 
profile changes on an annual or a monthly basis to where you 
can't execute that plan, and that is the challenge that we are 
all facing. It doesn't matter if it is the public side or the 
private side, it is when you have introduced that uncertainty.
    When we do things, it is customer predictability. We need 
to know where that market is, and then we will invest in the 
plant and equipment and the people to do that. The Department's 
going to be much the same way. If they know that ship 
availability, that aircraft is coming into the depot, the Air 
Logistics Center, then they can put in the plant, the 
equipment, the people in an efficient and effective manner. 
They can make sure they have those skills.
    But if you are operating under a continuing resolution, if 
the budget is going down like it is in this case by about 20 
percent, then much of that is going to be absorbed in the O&M 
and in the investment accounts because personnel has been 
exempted, then you have a real unpredictable environment that 
it doesn't matter if you are a depot commander or if you are in 
the private side: you just can't do an effective plan that you 
can expect to maintain.
    Mr. Wittman. Sure. I think that is a great point. I know I 
have been frustrated since I have been here. It seems that 
budgets drive strategy, not vice versa. And strategy needs to 
be coming first, and then we make decisions from there. And it 
seems like to me that if we have that strategy first, at least 
you can make the argument when you have got competition for 
resources. So that is why I was asking the question about, you 
know, making sure you had that basis.
    I understand, and I completely agree with you. It is very 
complicated now in the way the process, decisionmaking process 
takes place.
    Dr. Avdellas, I will just ask you in 15 seconds to give me 
your opinion.
    Dr. Avdellas. I would say that the, as has been mentioned, 
the Army's industrial base plan does have a good component 
looking at workforce, again, related to capabilities and 
requirements. And as Mr. Johns noted, I think combining that 
with some sort of higher level diagnostics about those sorts of 
skills and things you would want to look at from a Department 
perspective would be important.
    Mr. Wittman. Very good.
    Ms. Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman.
    I have just a followup clarification question for Secretary 
Johns. I want to be sure that I understand you. Are you saying 
that if a depot or arsenal has a funded workload, then it may 
not be required to furlough its Federal civilian employees up 
to 22 days?
    Now, we have been told that all DOD activities have no 
flexibility in this regard, but you appear to be saying your 
depot and arsenal commanders may have choices.
    Mr. Johns. Well, they have choices, Congresswoman, to 
allocate workload based on what has been funded. Given the 
situation, many of the third- and fourth-quarter inductions 
generally across the board will not happen, the budget cuts are 
so severe. So you could imagine no new inductions starting 
midyear. The workload that remains in the depot will ramp down 
to almost nothing, with potential production shutdowns by the 
end of the year.
    So, as we are ramping down, the demand for the workforce 
actual touch labor in that workload that has been assigned is 
diminishing in effectively a linear fashion. So the furloughs 
in that context actually alleviate the fiscal problems and the 
generation of losses in that environment. So furloughs, among 
all other tools that the Department is using to try to stay 
within its top line, manage workload, protect critical skill 
capabilities, they fit in well into that overall spectrum of 
actions.
    Ms. Bordallo. Very good. Thank you.
    Mr. Steffes and Mr. Sterling, could you please talk more 
about the potential impact on the supplies you represent? Who 
are put at risk by sequestration, and what level of potential 
loss are we facing in terms of the supply base?
    I guess, Mr. Steffes, you first.
    Mr. Steffes. Yes. Well, the problem is, as I mentioned, the 
ability for the second- and third- and fourth-tier suppliers is 
very limited if they don't have work. You know, the big guys 
all need the smaller providers in the supply chain to make 
everything work. And once you start losing that capability and 
those people, they are gone. You are just not going to get them 
back.
    And in some cases, as I mentioned, they could be one or 
only two of a kind in the Nation. So if we lose that 
capability, it is going to be very difficult and very expensive 
to get back to even to where we are now.
    Mr. Sterling. I agree with Mr. Steffes.
    When you look at the larger companies, they are going to 
have greater access to capital. It will hurt. They will have to 
shed workforce and operations, but when you get down to some of 
these small suppliers, a lot of people talk about, well, 
competition, you have got these large companies that can 
compete on various products. Oftentimes, what is lost is as 
they go down into the supply chain, they may have a critical 
supplier that is common across each of those companies for some 
part, some piece.
    The thing to remember is those small suppliers, they are 
small companies; they don't have nearly the access to capital 
that the larger ones have, so when they lose a contract, even 
if it is for maybe a 30-day or 60-day period, they don't 
necessarily have the ability to weather that. And when they are 
the critical supplier of a component of a piece, you lose that 
to the entire defense industrial supply chain, and that could 
have devastating impact across the board, one that will be very 
expensive to replicate in the future.
    Ms. Bordallo. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Ms. Bordallo.
    Mr. Bishop.
    Mr. Bishop. Thank you. Let me see if I can get the last 
three in here.
    Mr. Wittman. I know you can do it.
    Mr. Bishop. Secretary Johns, if I could hit you up first. 
What strategies does--sequestration will probably hit. You are 
going to have 30 days before furloughs will be implemented. 
What strategies does DOD have, or do you have any flexibility 
to create such strategies, to ensure that when furloughs take 
place, you will not lose essential, skilled personnel from any 
of your complexes?
    Mr. Johns. Excellent question, Congressman. I think the 
answer depends on the perception that a furlough has on the 
individual employee. And this is related to perceived value 
that the employee has and how the country is treating them, as 
well as the job satisfaction that they may continue to retain 
in their work.
    Very clearly, the workforce that we are talking about in 
both the public and private sector are probably some of the 
most patriotic citizens that we have in the country. They have 
experienced the war through the equipment that they have had to 
refurbish that have bullet holes in them, that have IED 
[Improvised Explosive Device] damage, battle damage, sand and 
dust damage. They know and have contributed significantly to 
the success of the war.
    A furlough is probably going to send a very strong signal 
to them of indiscriminate actions and lack of value associated 
with their contribution to the national defense. It is not 
going to be viewed very well. As well as the diminishing 
workload that they are going to be required to do and the 
uncertainty of future workload is not going to be a good signal 
to them.
    Mr. Bishop. Let me try and focus once again, because I 
appreciate the answer; it is a good answer. But do you have 
tactics that you can use, or can you come up with tactics you 
can use to make any kind of discrimination in the furloughs, or 
is there going to have to be a blanket approach?
    Mr. Johns. I am not aware of any discrimination between 
various sectors or various skills that we are prepared to 
implement. Obviously, the Department will be relooking at that 
strategy. I don't know if there will be any areas that will be 
exempt or whether individual commanders will have----
    Mr. Bishop. Do you have the power to do that, or is it 
prohibited from you to do that?
    Mr. Johns. I am certain that the Department has latitude to 
do that.
    Mr. Bishop. Okay. I don't know to whom to ask this 
question. Maybe Mr. Steffes, I will ask the same thing. I was 
talking to one of my subcontractors, who was obviously 
complaining, and I think you have all mentioned the same 
concept: the larger business, the better they will have a 
chance of weathering this. Some of the small business 
subcontractors will not have that flexibility.
    He was arguing to me, and so I would like you just to 
assess the validity of this argument, that if he goes under, 
there are certain companies that are abroad, who are not 
involved in the system now, who will remain, and therefore, if 
we come past this concept and we start to ramp up again, that 
his subcontracting ability will not be there, but there will be 
foreign companies who can do the same thing.
    Are we indeed, as he complains, setting ourselves up to be 
even more dependent and more reliant on foreign companies to 
provide services and goods than we are right now?
    Mr. Steffes. I believe that is a probability. I mean, in 
some very specialized areas where we have lost that capability, 
you know, within the United States, if the needs require items 
that are only produced overseas, we are almost going to be 
forced to do that.
    Mr. Bishop. Okay. As I said earlier, you know, if this was 
the first cut we were asking to you do, tough, but this is the 
third cut. We have already taken in the last 5 years a trillion 
and a half away from you, and now this is another roughly half-
trillion dollars.
    So gloom and doom from other sources, I am somewhat 
skeptical, but when you say it, I am somewhat convinced that it 
is actually hitting, because we are treating the military 
differently than we are treating every other segment of Federal 
Government, which means as--and one of you mentioned, we are 
not dealing with a new generation of aircraft for the first 
time in decades.
    Acquisitions sometimes is much more sexy than maintenance 
becomes, but in the situation we are in, where the first two 
cuts basically took away our R&D, the amount of men we have to 
do the work, as well as weapon system, are we in a situation 
now where maintenance becomes even more critical than it was 
before? I guess, Secretary Johns, you are the logical person 
for that.
    Mr. Johns. Congressman, I agree with you absolutely.
    Mr. Bishop. That was too easy on answer. I am sorry.
    So I got 10 seconds left. I am giving it back to you.
    Thank you. I appreciate your answers.
    Mr. Wittman. Thank you, Mr. Bishop.
    Mr. Loebsack.
    Mr. Loebsack. Thanks again, Mr. Chairman.
    I want to thank you for organizing this hearing, and also 
the ranking member.
    And I think this is really important. We have really 
fleshed out a lot of issues, and we have gotten some answers. I 
think a lot of the things that we are talking about today, we 
really don't have any idea what the answer is because of the 
uncertainty, and if we have another CR, as I said, after March 
27th, it is going to add even more uncertainty to this whole 
process.
    I do want to address the public-private partnership issue, 
because we do know for a fact that public-private partnerships 
are really key to the workload and readiness of the organic 
industrial base. This is something that we have simply got to 
move forward on. I was happy in the NDAA [National Defense 
Authorization Act] of 2012, I was able to get a language in 
there that lifted a cap on those public-private partnerships. 
And there are folks around this country, at the Rock Island 
Arsenal and other places, where they are moving forward on 
that, and it is really critical, and Mr. Bishop brought up 
foreign manufacturing possibly taking the place of domestic 
manufacturing.
    Public-private partnerships, as we all know, are very 
important, too, for foreign military sales. And that is 
something that we haven't even talked about here, but that is 
really critical for our balance of trade, for our economy, for 
a number of reasons.
    I guess what I would like to ask all of you, but Mr. Johns, 
if you would start out, how are public-private partnerships 
going to be affected by sequestration and the CR? What kind of 
long-term effects are we talking about here?
    Mr. Johns. Well, Congressman, I agree with you that public-
private partnerships are absolutely critical to be able to 
protect the critical capabilities in both the public and 
private sector, now more than ever, as we are seeing 
significant downsizing.
    The capacity within the national sustainment industrial 
base is going to be insufficient to retain the capabilities and 
capacities that we currently enjoy. So, as we downsize, we will 
need to be able to leverage those critical capabilities in both 
sectors.
    So the impacts, however, will be dependent on the nature of 
the reductions in each one of the partners. So, typically, in a 
partnership agreement or in a contract that links two entities 
together, there are certain terms and conditions that must be 
met in that partnership for the greater good under that 
partnership. If we cross a threshold because of a reduction, 
either in the contractor side or on the organic side, then we 
put that partnership at risk. The level of reductions that we 
are looking at will do that in many cases.
    Mr. Loebsack. Thank you.
    Would any of the others like to comment on public-private 
partnerships?
    Mr. Steffes. Yes, sir.
    To add to what Mr. Johns said, the instability of the 
budgets over the last few years has not led to a huge 
outpouring of public-private partnerships.
    Mr. Loebsack. Right.
    Mr. Steffes. On the industry side, industry is very much 
interested in this, but unless they can get some assurances 
from their Government partner that they are going to be around 
and there is going to be workload for a period of time, they 
are very reluctant to make the investments that are needed to 
do these particular partnerships. And the CRs and sequestration 
stuff just adds to the instability and to the wariness on both 
sides of doing these partnerships.
    Mr. Loebsack. Thank you.
    Again, I would just add that, and really reiterate that 
these public-private partnerships go back to keeping our 
industrial organic base warm. This is another way that that can 
happen. It is another method for keeping that base warm and, 
therefore, ready in the event of another contingency down the 
road, so--thanks to all of you. And I have got time to yield 
back.
    Thank you, Mr. Chair.
    Mr. Wittman. Thank you, Mr. Loebsack.
    Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman.
    I want to follow up on Mr. Loebsack's line of questioning. 
In my district, in my home town, I have the Anderson army 
depot. And many of these folks and their families 
generationally have spent enormous amount of time committed to 
our Nation, volunteered to go to Iraq and Afghanistan to help 
in sustaining the troops over there.
    I would like for you, Mr. Johns, to speak first to 
sequestration's effect on the workload that they may deal with 
toward the end of the year, and then, secondly, talk about the 
CR's effect.
    Mr. Johns. Well, Congressman, it is actually very difficult 
for me to separate the effects associated with that. Clearly, 
continuing resolution is impacting our ability to move money 
from one account to another. The shortfalls associated with 
that within the operations and maintenance accounts affect the 
Army across the entire depot and arsenal system. There are 
impacts in multiple weapons system maintenance activities, at 
Anniston and across the board.
    The split associated with that between sequestration, I 
believe General Odierno has estimated about 50/50; 50 percent 
of that impact associated with continuing resolution, 50 
percent associated with sequestration. Effective----
    Mr. Rogers. Give me some examples of how that manifests 
itself in their daily lives and their workload.
    Mr. Johns. Well, collectively, it impacts in reduction of 
third- and fourth-quarter orders, reduced workload for those 
employees that remain onboard. And certainly the impact to 
temporary employees, term personnel and contractor support in 
each one of our facilities. They will be directly affected, and 
very shortly, they will be affected.
    So, under sequestration, that affect will take--that will 
take effect once we understand what the situation is very 
shortly. Under CR, that is going to happen anyway, unless we 
fix the problems associated with the restrictions under a 
continuing resolution, but collectively, they will have 
significant impacts on every one of our depots.
    Mr. Rogers. In which lines are you specifically worried 
about as an Army depot being affected most directly, their core 
capability?
    Mr. Johns. Clearly, core capability associated with armored 
vehicles. I mean, that is one of your core capabilities, and so 
there will be a natural impact in that area.
    Mr. Rogers. Mr. Loebsack was talking about the importance 
of public-private partnerships, and I couldn't agree more. In 
fact, at this particular depot, it leads the Nation in public-
private partnerships. Tell me how, in your view, sequestration 
and/or the CR would affect companies like BAE, General 
Dynamics, Honeywell, all of whom, along with others, have a 
presence at the depot.
    Mr. Johns. Certainly, the support contractors will feel the 
burden along with the temporary and term employees almost 
immediately. Any adjustments or reductions in addition to what 
we currently expect under CR and sequestration will have deeper 
cuts into that.
    The exact magnitude and whether we cross a threshold with 
regard to viability of a contract has yet to be determined. 
There may be impacts that cross contractual thresholds, but I 
can't tell you that right now. I don't know those details.
    Mr. Rogers. Well, you seem to be grouping those kinds of 
companies in with the term and temps. In my questioning of 
General Odierno a couple weeks ago, as well as General Dempsey, 
they indicated at that particular installation, that because we 
have a lot of orders in the pipeline that have already been 
paid for, that the third and fourth quarter is the time when 
the core employees may actually experience some furloughs.
    Why would the contractors be treated differently? I 
understand the term and temps may see an effect in the next 30 
to 45 days. Why would the contractors be in that category?
    Mr. Johns. Again, this will have to be a balance between 
retention of critical capabilities and skills. In some cases, 
we will need to protect critical capabilities and skills in 
workforce on the organic sector, and some cases, we will have 
to protect critical capabilities and skills in the contractor 
workforce.
    The actual balance between those two will almost be line-
by-line dependent, facility-by-facility dependent, so it is 
very difficult for me to comment on what the exact nature is 
going to be between impact to Government personnel other than 
temps and terms and impacts to contractor personnel.
    Mr. Rogers. I guess what I am getting at is, is it your 
opinion that, given that the core employees won't feel the 
effect until the third and fourth quarters, that may be the 
same case with the contract employees as well, or would they be 
impacted in the second quarter, adversely?
    Mr. Johns. Yeah. My understanding is that there will be not 
be any impacts until the third quarter.
    Mr. Rogers. Okay.
    Thank you, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Mr. Rogers.
    I wanted to just ask one more question of Mr. Johns. In 
kind of putting this in perspective, understanding where we are 
right now, I know that originally OMB [Office of Management and 
Budget] came out and said plan as though sequestration is not 
going to happen, but I wanted to know within that context, when 
was the direction given to restrain operation and maintenance 
execution? And if that is the case, if it was restrained, 
wouldn't that have lessened the impact in the third and fourth 
quarters of the fiscal year so that you could lessen some of 
the impact of sequestration? I wanted to get your perspective 
on where those directives and how they might have occurred and 
then where we are now.
    Mr. Johns. Yes, Mr. Chairman. Clearly, for a good portion 
of last year and into this fiscal year, we were assuming 
effectively across the board that sequestration was not going 
to happen. That kind of conversation was occurring through all 
sectors of the Government, everybody anticipating that we were 
going to fix this problem one way or the other, and so the 
demand for planning associated with that seemed to be second 
priority in terms of getting to a level of detail.
    Certainly, there were high-level thoughts that were being 
considered about what and where things might be impacted, but 
detailed planning and detailed analysis did not occur, start 
occurring until early this calendar year when it became 
apparent that this situation is likely not to be avoided.
    Mr. Wittman. So, at that time, was any consideration given 
to the execution of operation and maintenance efforts within 
DOD? And if that is the case, at what point were those 
resources restrained, and wouldn't that have had an impact on 
the third and fourth quarters?
    Mr. Johns. Yes. There was an immediate consideration about 
allocation of reductions. Certainly, with the President's 
authority to exempt military personnel, it became very apparent 
that the impacts in the other O&M accounts would be larger. And 
certainly with the priority to protect warfighting capabilities 
and those supporting capabilities directly related to wartime 
operations, the cuts in O&M accounts, especially those in the 
sustainment industrial base, grew.
    Mr. Wittman. Thank you.
    Do any other members have questions? Okay.
    Panelists, thank you so much for joining us today. We 
appreciate your candid and in-depth testimony. It is very, very 
helpful to us. This gives us a great opportunity to put in 
perspective where we are and what we need to be doing ahead as 
we face these challenging times. So I thank you very much.
    And with that, the House Armed Services Subcommittee on 
Readiness is adjourned.
    [Whereupon, at 9:46 a.m., the subcommittee was adjourned.]
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                            A P P E N D I X

                           February 28, 2013

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           February 28, 2013

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                  Statement of Hon. Robert J. Wittman

               Chairman, House Subcommittee on Readiness

                               Hearing on

         Assuring Viability of the Sustainment Industrial Base

                           February 28, 2013

    Welcome to this morning's hearing. I'd like to thank our 
panel of experts for being here today to address the viability 
of the Defense Sustainment Industrial Base and the implications 
for mission readiness as we try to resolve the budget crisis. 
As we debate the way forward and try to resolve the continuing 
resolution and sequestration dilemmas, it's important not to 
lose sight of what's really at stake here: this country's 
ability to project power and to properly train and equip our 
warfighters--our men and women in uniform who at this very 
moment are fighting for us on the battlefields in Afghanistan 
and will continue to do so for the foreseeable future.
    As the debates have raged on, I've been struck by how 
starkly our military leaders have described the dilemma. As 
General Dempsey and the other service chiefs recently informed 
this committee: ``the readiness of our Armed Forces is at a 
tipping point. We are on the brink of creating a hollow 
force.'' About this same time, we learned of the delayed 
deployment of the USS Truman Carrier Strike Group to the 
Central Command AOR--a region where our missions continue to 
grow rather than go away.
    Never in my lifetime did I imagine we would again be forced 
to confront the very real possibility of a hollow military 
force and the devastation it entails for our Nation and our men 
and women in uniform. Make no mistake--our readiness crisis is 
real and it's important to understand exactly what's at risk. 
During this hearing, I'd like you to share your perspective on 
this and help us answer some basic questions:
         LIn terms of risk, what does it mean to our 
        national security, particularly our sustainment 
        industrial base, to have ships moored to the pier, or 
        sitting in dry dock, waiting for depot maintenance?
         LWhat, in your views, are the implications of 
        having airplanes grounded on ramps?
         LAnd finally, what's the impact on our 
        warfighters when we delay or defer reset and retrograde 
        of our equipment?
    Joining us today are:
         LMr. John Johns, the Deputy Assistant 
        Secretary of Defense for Maintenance Policy and 
        Programs;
         LMr. Pete Steffes, Vice President for 
        Government Policy at the National Defense Industrial 
        Association;
         LMr. Cord Sterling, Vice President for 
        Legislative Affairs at the Aerospace Industries 
        Association; and
         LDr. Nicholas J. Avdellas, Senior Consultant 
        for Materiel Readiness and Sustainment at the Logistics 
        Management Institute.
    Gentlemen, thank you all very much for being here. I 
appreciated your thoughtful statements and particularly 
appreciated your views regarding the need for detailed 
strategic planning for the future. Just as I've been an 
advocate of the 30-Year Shipbuilding Plan and the benefits 
associated with determining strategy first and budgetary 
requirements second, I believe we need to similarly focus on 
strategic planning when it comes to the viability of the 
industrial base.

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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           February 28, 2013

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                 QUESTION SUBMITTED BY MS. SHEA-PORTER

    Ms. Shea-Porter. The Portsmouth Naval Shipyard lies at the eastern 
edge of the district I represent, the First Congressional District of 
New Hampshire. Since the strength and efficiency of our shipyards is an 
essential factor in overall naval readiness, I am very concerned about 
the severe defense budget constraints, the uncertainty, and the 
indiscriminate sequester cuts that are taking an immediate toll on 
civilian workers and on shipyard readiness, with furloughs imminent and 
the attendant decline in productivity that will entail. While the 
immediate impacts of such resource pressures on several aspects of the 
sustainment industrial base were the primary focus of the hearing, can 
you discuss the longer-term strategic risks that Congress and the 
Department of Defense will face with regard to the sustainment 
industrial base, should these severe constraints continue? What 
processes exist to address such strategic risks?
    Dr. Avdellas. The fiscal situation that the Department of Defense 
(DOD) finds itself in is unprecedented in many respects. I believe DOD 
will work to mitigate the long term organic sustainment risks of 
sequestration through implementation of core (10 USC Sec. 2464). The 
core capabilities determination process identifies the capabilities and 
sustaining workloads necessary to help ensure a ready and controlled 
source of technical competence. The process also addresses the 
resources needed to respond to military mobilization, contingencies and 
other risks or emergencies. As the Military Services seek to minimize 
the operational impacts of sequester, there will be increased pressure 
on sustainment resources. DOD's logisticians will have to be vigilant 
to ensure core sustaining workloads are funded in order to retain 
strategic sustainment industrial base capabilities and competencies.
    Additionally, I believe the DOD is addressing longer-term strategic 
risks in the sustainment industrial base by supporting the development 
of improvements to the core capability determination process. Aspects 
of it are being incorporated as part of an updated and improved depot 
maintenance source or repair decision process. These developments could 
help protect critical capabilities within the Nation's depots, 
shipyards, and arsenals should anticipated resource constraints 
continue.

                                  
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