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





 
                         [H.A.S.C. No. 113-65]

  IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION

                           AND MODERNIZATION

                               __________

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                            OCTOBER 23, 2013


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                               __________

                         U.S. GOVERNMENT PRINTING OFFICE 

85-329                         WASHINGTON : 2014 
-----------------------------------------------------------------------
   For sale by the Superintendent of Documents, U.S. Government Printing
    Office, http://bookstore.gpo.gov. For more information, contact the 
  GPO Customer Contact Center, U.S. Government Printing Office. Phone 
 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected].  





















              SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES

                   MICHAEL R. TURNER, Ohio, Chairman

FRANK A. LoBIONDO, New Jersey        LORETTA SANCHEZ, California
JOHN FLEMING, Louisiana              MIKE McINTYRE, North Carolina
CHRISTOPHER P. GIBSON, New York      JIM COOPER, Tennessee
JON RUNYAN, New Jersey               JOHN GARAMENDI, California
MARTHA ROBY, Alabama                 RON BARBER, Arizona
PAUL COOK, California                DANIEL B. MAFFEI, New York
JIM BRIDENSTINE, Oklahoma            JOAQUIN CASTRO, Texas
BRAD R. WENSTRUP, Ohio               TAMMY DUCKWORTH, Illinois
JACKIE WALORSKI, Indiana             WILLIAM L. ENYART, Illinois
MAC THORNBERRY, Texas                PETE P. GALLEGO, Texas
WALTER B. JONES, North Carolina      MARC A. VEASEY, Texas
ROB BISHOP, Utah
                John Sullivan, Professional Staff Member
                  Doug Bush, Professional Staff Member
                          Julie Herbert, Clerk

















                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2013

                                                                   Page

Hearing:

Wednesday, October 23, 2013, Impacts of a Continuing Resolution 
  and Sequestration on Acquisition and Modernization.............     1

Appendix:

Wednesday, October 23, 2013......................................    37
                              ----------                              

                      WEDNESDAY, OCTOBER 23, 2013
IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION AND 
                             MODERNIZATION
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Sanchez, Hon. Loretta, a Representative from California, Ranking 
  Member, Subcommittee on Tactical Air and Land Forces...........     3
Turner, Hon. Michael R., a Representative from Ohio, Chairman, 
  Subcommittee on Tactical Air and Land Forces...................     1

                               WITNESSES

Barclay, LTG James O., III, USA, Deputy Chief of Staff, G-8, U.S. 
  Army...........................................................    31
LaPlante, Dr. William A., Principal Deputy Assistant Secretary of 
  the Air Force (Acquisition)....................................     8
Moeller, Lt Gen Michael R., USAF, Deputy Chief of Staff for 
  Strategic Plans and Programs, U.S. Air Force...................    34
Myers, VADM Allen G., USN, Deputy Chief of Naval Operations for 
  Integration of Capabilities and Resources (N8), U.S. Navy......    32
Shyu, Hon. Heidi, Assistant Secretary of the Army for 
  Acquisition, Logistics and Technology..........................     4
Stackley, Hon. Sean J., Assistant Secretary of the Navy for 
  Research, Development and Acquisition..........................     6
Walters, LtGen Glenn M., USMC, Deputy Commandant for Programs and 
  Resources, U.S. Marine Corps...................................    33

                                APPENDIX

Prepared Statements:

    LaPlante, Dr. William A., joint with Lt Gen Michael R. 
      Moeller....................................................    72
    Sanchez, Hon. Loretta........................................    41
    Shyu, Hon. Heidi, joint with LTG James O. Barclay III........    44
    Stackley, Hon. Sean J., joint with VADM Allen G. Myers and 
      LtGen Glenn M. Walters.....................................    55

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:

    Mr. Turner...................................................    89
    Mr. Veasey...................................................   121




IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION AND 
                             MODERNIZATION

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
              Subcommittee on Tactical Air and Land Forces,
                       Washington, DC, Wednesday, October 23, 2013.
    The subcommittee met, pursuant to call, at 3:30 p.m., in 
room 2118, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. MICHAEL R. TURNER, A REPRESENTATIVE 
  FROM OHIO, CHAIRMAN, SUBCOMMITTEE ON TACTICAL AIR AND LAND 
                             FORCES

    Mr. Turner. The hearing of the Subcommittee on Tactical Air 
and Land Forces will come to order. Good afternoon. The 
Tactical Air and Land Forces Subcommittee meets today in open 
session to receive testimony from each of the four military 
services on the impacts of sequestration and the continuing 
resolution, known as CR, on acquisition programs and the 
associated industrial base. For over 2 years now, this 
committee has held numerous hearings on the impact of 
sequestration to our national security in attempts to try to 
capture some of the decisionmaking and the effects on our 
national security. We have warned of the catastrophic impact 
sequestration would have on the military's capabilities if it 
was allowed to continue.
    I voted against sequestration because I believed that it 
would happen and its effects might be devastating.
    Since sequestration began on March 1, we have seen dramatic 
effects on military force readiness, such as the grounding of 
17 Air Force combat squadrons, reductions in force squadrons, 
training exercises reduced, modernization programs curtailed, 
and the furloughs of Department of Defense [DOD] civilians. In 
my district alone, we saw the furlough of roughly 12,000 hard-
working men and women from Wright-Patterson Air Force Base. If 
left unchecked, I fear that many of these employees could lose 
their jobs permanently.
    I raise this particular point at this hearing because many 
of these individuals work in the acquisition community and are 
directly linked to the Air Force modernization. The hearing 
today will focus on the effects sequestration is having on 
DOD's investment accounts; that is, those accounts for 
procurement and research and development acquisition programs.
    Thus far, the effect on the investment accounts has been 
much less apparent, but we believe this to be a false sense of 
security. If sequestration continues, DOD investment and 
modernization will be impacted, and those impacts are expected 
to grow exponentially in fiscal years 2014 and 2015. This 
hearing will focus on those impacts. Through the end of fiscal 
year 2013, the Government Accountability Office has reported to 
the subcommittee that approximately 30 percent of sequestered 
funding for investment accounts has been taken from prior-year 
unobligated funds. Additionally, some funding requirements for 
fiscal year 2013 have been pushed into fiscal year 2014, 
creating must-pay bills during this fiscal year.
    These actions have allowed the Department to only delay the 
effects of sequestration on investment for fiscal year 2013. 
Beginning in fiscal year 2014, the situation will be different. 
Although sequestration is an approximate 9 percent decrease to 
the Department's budget, because military pay and Wounded 
Warrior programs will not be subject to sequestration 
decreases, other accounts, primarily the investment accounts, 
will have to make up the difference. Unlike last year, funds 
from unobligated balances have now been used up, and the must-
pay delayed bills from fiscal year 2013 are also now due. This 
means that investment accounts are likely to see an approximate 
14 percent decrease in fiscal year 2014. If this continues into 
fiscal year 2015, the combined impacts will continue to 
increase, affecting every acquisition program and thus severely 
impacting future readiness, the defense industrial base, as 
well as leading to possible program terminations.
    Last month, the committee received testimony from the four 
service chiefs about the near- and long-term effects that 
sequestration will have on the total force, and their remarks 
were sobering. Today, I expect to hear in very clear terms how 
investment and modernization will be impacted in fiscal year 
2014 and beyond should sequestration continue. We need to 
provide better clarity as to the consequences of these budget 
cuts and help make the case to Congress and the Nation as to 
why sequestration needs to be fixed.
    I would like to welcome our distinguished panel of 
witnesses. We have at the beginning of our panel Ms. Heidi 
Shyu, Assistant Secretary of the Army for Acquisition, 
Logistics and Technology. Then we have Lieutenant General James 
O. Barclay III, Deputy Chief of Staff, G-8. Representing the 
Navy and Marine Corps, we have Mr. Sean J. Stackley, Assistant 
Secretary of the Navy, Assistant Secretary of the Navy, 
Research, Development and Acquisition [RDA]. We have Vice 
Admiral Allen G. Myers, Deputy Chief of Naval Operations, 
Integration of Capabilities and Resources, N8. We have 
Lieutenant General Glenn M. Walters, Deputy Commandant for 
Programs and Resources. And representing the Air Force, we have 
Dr. Bill LaPlante, Principal Deputy Assistant Secretary of the 
Air Force for Acquisition. We also have Lieutenant General 
Michael Moeller, Deputy Chief of Staff for Strategic Plans and 
Programs.
    I want to thank you all for being here. And I have had the 
opportunity to speak with each of you. I am certainly hopeful 
today that we will hear in very clear terms of the effects of 
sequestration. This is not something that should be sugar-
coated. And these impacts are real, and they need to be 
avoided. So often we hear that sequestration has not had dire 
consequences. But I think in part it is because the story in 
the Department of Defense has not yet been told because you all 
have been very busy trying to implement sequestration and 
minimize its overall effects.
    Today, you have the opportunity to paint a clear picture to 
us not only of the work that you have done in trying to protect 
our national security under very difficult circumstances of 
sequestration; you have the ability to tell the picture of the 
future. And that is what is going to be really important, 
because right now, in the halls of Congress, there are people 
who are working on the issue of how do we lift sequestration? 
How do we complete the budget for fiscal year 2014? And that 
requires that your story be clear and unequivocal of the 
dangerous and damaging effects of sequestration to our national 
security and to the Department of Defense. And I appreciate 
your dedication and the message that you have for us today.
    With that, I want to turn to my ranking member, Ms. 
Sanchez.

   STATEMENT OF HON. LORETTA SANCHEZ, A REPRESENTATIVE FROM 
 CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON TACTICAL AIR AND 
                          LAND FORCES

    Ms. Sanchez. Thank you, Mr. Chairman.
    Thank you, Madam and Gentlemen, for being before us today. 
We appreciate it. Today's hearing comes at a very strange time 
of the year, so I am happy that the Department of Defense could 
be here with us and that you are willing to testify before us 
today. In a normal year, of course, we would have probably been 
in conference or out of conference with the NDAA [National 
Defense Authorization Act], and the appropriations for defense 
probably would have already been passed, and we would have been 
moving forward.
    But as you know, this is not a normal year. This year, not 
only with the shutdown, but with the second set of 
sequestration, with the Senate not even bringing its bill yet 
to the floor of the Senate, we are definitely in a very strange 
time. So I appreciate you being here. You know, we have passed 
our authorizing bill, and we are hoping that we will get a 
Senate version to conference in.
    But I think it must be very difficult for you all to try to 
figure out what programs move forward and what doesn't and what 
gets placed on hold. And in particular for me, it is a little 
striking that we would have a GAO [Government Accountability 
Office] report that would say that the first point that we have 
on the line, a data point that we have on the line, is telling 
us that for the Department of Defense not a lot happened for 
fiscal year 2013. In other words, for the first year of 
sequestration, not a lot--you know, we didn't face all the 
drastic or all the fears that we heard for a year that 
something terrible was going to happen to, you know, acquiring 
the equipment we need, et cetera, for the DOD, that terrible 
things were going to happen. The GAO report tells us that is 
not the case.
    Now, I would have to say that that probably is because 
there was a lot of unprogrammed or leftover moneys, or programs 
that didn't come to be, or weren't there. In other words, there 
was a lot of slack in the system. And maybe that is one of the 
major reasons why we didn't see what we had thought that we 
would see.
    And that raises a question, why was there so much slack in 
the whole programming?
    But I am worried about, and I know Mr. Chairman, this is 
about forward thinking, and what is going to happen in the 
second year of sequestration, and what is going to happen if we 
have a third year and a fourth year. Because as you know, this 
is a 10-year sequestration effort. So I really want to, I hope 
we concentrate on what this really means for DOD and what we 
are going to see.
    Because I have a fear, I mean I saw when I went out and 
visited the 82nd and other arenas, what it meant for training 
to our people. I was in Nevada; what it meant, you know, to our 
air shows. You know, the Thunderbirds are used to flying 200-
plus shows, and they flew one so far in this past season. So I 
have seen what has happened to the operating and the training 
of our soldiers and airmen and seamen, et cetera, marines. But 
the GAO says really nothing has happened in the acquisition 
arena. So I think it is important for us to know, well, what 
will happen if this continues forward? And I hope you will be 
pretty straightforward with us, and talk to us about your 
concerns with respect to that.
    And I guess, Mr. Chairman, I will put my official statement 
in the record.
    But I am very interested to hear from you all what you 
think as we move forward, how this will really affect the 
programs, the major programs in particular that are required 
for our troops to be as effective as they need to be.
    Thank you, Mr. Chairman. And I will submit my full 
statement for the record and move forward.
    Thank you.
    [The prepared statement of Ms. Sanchez can be found in the 
Appendix on page 41.]
    Mr. Turner. Thank you.
    We will begin opening statements with Secretary Shyu.

 STATEMENT OF HON. HEIDI SHYU, ASSISTANT SECRETARY OF THE ARMY 
           FOR ACQUISITION, LOGISTICS AND TECHNOLOGY

    Secretary Shyu. Chairman Turner, Ranking Member Sanchez, 
and other distinguished members of the subcommittee, thank you 
for this opportunity to testify before you, and providing 
comments for the record regarding impacts associated with the 
continuing resolution and sequestration on the Army and the 
industrial base in fiscal year 2014 and beyond.
    Joining me today is Lieutenant General James Barclay, 
Army's Deputy Chief of Staff, G-8. Our assessment of the 
combined CR and long-term sequestration impact to the Army 
acquisition programs and modernization investment is sobering. 
The current funding instability fundamentally hampers our 
ability to plan and execute acquisition programs in support of 
the warfighter. Key development, testing, and production 
activities that is planned months in advance are subject to 
limited funds available under a CR and were disrupted by the 
shutdown. Under a continuing resolution, we lack the authority 
to start new programs or authorize planned increases in 
production quantities for fielding.
    Sequestration reductions in fiscal year 2013 already 
reduced or eliminated our margin for error on many of our 
programs with our efforts to mitigate the impacts using prior-
year funds. Reductions in fiscal year 2014 and beyond will 
directly result in reduced production quantities, deferred 
investment in new capabilities, and delays in many programs. 
The hiring freeze, civilian furloughs, and government shutdown 
decimates our current and future ability to recruit and retain 
critical skills and expertise in the government workforce. This 
creates devastating impacts to the execution of our S&T 
[science and technology] projects, our acquisition programs, 
our testing, our contracting, our logistics, and depot 
maintenance.
    The long-term effects of this instability are yet to be 
fully discerned, but we know that the combined effects of 
sequestration and a yearly CR will significantly increase the 
costs of our vital soldier weapons systems. Constrained budgets 
will lead to reduced investment in new soldier capabilities at 
a time when we must work to prevent erosion of our 
technological edge. Investments in Army's research, 
development, and acquisition [RDA] programs face the alarming 
prospect of a nearly 40 percent reduction over a 3-year span, 
reaching a historical low. Because we are unable to reduce 
manpower costs significantly, RDA takes the brunt of the hit, 
especially in the short term.
    We are facing an unprecedented challenge in staying on 
track to develop the next generation of capabilities to our 
soldiers to counter emerging threats. Over 192 Army programs 
are potentially affected by CR limitations. These include 59 
planned new program starts. In addition, assuming the most 
inflexible and significant reductions under the BCA [Budget 
Control Act] sequestration across Army funding lines, we can 
anticipate to see effects, such as procurement of 12 fewer 
Apache helicopters and 11 fewer Chinook helicopters; delays in 
scheduled engineering change proposal upgrades to the Abrams 
tank and Bradley infantry fighting vehicles; 45 to 50 fewer 
Stryker vehicles that are modified to a double-V hull 
configuration, which delays the fielding of a 3rd Brigade set 
of Stryker double-V hull by 6 months; up to 120 new grants for 
new basic research in universities across the United States may 
be cut; and up to 40 or more existing second- and third-year 
grants may be cut.
    All of these impacts also affects the Army's defense on 
organic industrial base. When I meet with CEOs and industrial 
leaders, most frequently I hear about the shared desire for 
stability and predictability in our resources and planning for 
future soldier capabilities. The untold effects of lost 
expertise, innovation, investment within the industrial base 
among large corporations and small suppliers alike remains one 
of the most significant risks associated with the current 
fiscal environment. There are also significant human capital 
costs. Our capacity to maintain expertise in science and 
technology, engineering, contracting, cost estimation, 
logistics are all at risk, because one of the most attractive 
benefits to the government employee, the stability, has been 
undermined. These skills are critical to equipping and 
sustaining weapons systems directly affecting our programs.
    These examples provide just a snapshot of the cumulative 
effects of the fiscal instability. The current environment 
fundamentally challenges our ability to manage public resources 
in a prudent manner, while upholding the vital responsibility 
to provide the best equipment to our warfighters.
    Mr. Chairman, Ms. Sanchez, and other members, thank you 
again for the opportunity to testify, and I look forward to 
your questions.
    [The joint prepared statement of Secretary Shyu and General 
Barclay can be found in the Appendix on page 44.]
    Mr. Turner. Thank you.
    Mr. Stackley.

STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE 
         NAVY FOR RESEARCH, DEVELOPMENT AND ACQUISITION

    Secretary Stackley. Chairman Turner, Ranking Member 
Sanchez, distinguished members of the subcommittee, thank you 
for the opportunity to appear before you today to address the 
impacts of a fiscal year 2014 continuing resolution and 
sequestration on the Department of the Navy acquisition and 
modernization. Joining me today are the Deputy Chief of Naval 
Operations for Capabilities and Resources, Vice Admiral Myers, 
and the Deputy Commandant for Programs and Resources, 
Lieutenant General Walters.
    Today, about half of our fleet is underway, and near 100 of 
these ships, including the Nimitz, George Washington, and 
Truman carrier strike groups, and the Kearsarge, Boxer, and 
Bonhomme Richard amphibious groups, and 21,500 marines are 
deployed around the world. From ground operations in 
Afghanistan to maritime security along the world's vital sea 
lanes, to missile defense in the Mediterranean and Sea of 
Japan, to intelligence, surveillance, and reconnaissance where 
needed, as needed, from strategic deterrence to building 
partnerships, deterring enemies and responding to crises and 
contingencies, naval forces provide persistent presence and the 
ability to project power in regions of interest to America. In 
doing so, they place in the hands of our Nation's leaders tools 
and options to respond to today's world events and shape future 
events. The Department of the Navy's 2014 budget request 
provides the resources needed to meet this full range of 
missions. And two, it provides the investment called for by the 
Defense Strategic Guidance to execute tomorrow's missions 
against the future threat.
    Today, however, we are here to discuss the unfinished work 
of the Congress as it relates to final passage of a defense 
authorization bill and defense appropriations bill, and then 
the consequences that sequestration poses to our operations, 
our capabilities, our readiness, current and future, as 
provided for by those defense bills. Account by account, 
program by program, a $156 billion Navy and Marine Corps budget 
authorized by the Armed Services Committee is severely undercut 
by the limitations of the continuing resolution and the across-
the-board cuts imposed by sequestration. Operations and 
maintenance, and investment accounts are particularly hard hit, 
such that, as you described in your opening remarks, an 
approximate 10 percent cut to the 2014 budget would equate to a 
14 percent reduction to those accounts, due to military 
personnel exemptions.
    These reductions in 2014 would be additive to the $11 
billion sequestered in 2013, which, after depleting unobligated 
prior-year balances, removing management reserve, and deferring 
significant bills to future year budgets, ultimately resulted 
in cancelled deployments, reduced training, deferred 
maintenance, delays to development schedules, and reductions to 
procurement quantities.
    For 2014, in the near term, the Navy and Marine Corps will 
prioritize the global presence requirements set for the force, 
however with reduced ability to surge additional forces in 
response to crises. Depot maintenance, affecting greater than 
half of our planned surface ship depot periods, all in private 
shipyards, and nearly 200 aircraft depot maintenance actions 
are at risk. This missed maintenance will ultimately impact 
these ships' readiness for future deployments, as well as their 
expected surface life.
    Training will be curtailed and readiness will follow 
because of cuts to steaming hours and flight hours and 
maintenance and the procurement of spare parts; and the net of 
these impacting next year's operations, forward presence, and 
our ability to surge our forces. Maintaining current readiness 
and forward presence to the extent possible under sequestration 
comes at expense to our investment in future readiness. In 
fiscal year 2014 alone, absent congressional action or 
mitigating circumstances, the continuing resolution and 
sequestration would cause cancelled procurements of up to three 
major warships and 25 aircraft, including four Growler 
electronic attack aircraft, two Joint Strike Fighters, two 
maritime patrol aircraft, an advanced Hawkeye, three MH-60 
maritime helicopters, three MV-22 Ospreys, and various utility, 
training, and unmanned aircraft. To this total, about 400 
missiles and weapons at risk, cutting our inventory at a time 
when we are striving to restore our weapons to levels called 
for by the combatant commanders.
    Further, the combined impacts of a continuing resolution 
and sequestration deny us the ability to execute the multiyear 
procurements this committee authorized for E-2D advanced 
Hawkeye, the MV-22, the MH-60, DDG-51 destroyers, Virginia 
class submarines, and the evolved Sea Sparrow missile, placing 
at risk greater than $5 billion savings these multiyears 
provide. And two, our carrier force, which today falls below 
the statutory requirement for 11 carriers, will be greatly 
impacted, with a risk of halting construction of our newest 
carrier CVN-78, delaying construction of the CVN-79, and 
delaying the refueling complex overhaul of CVN-73. This outcome 
we must avoid.
    Beyond these procurement impacts, virtually every Navy and 
Marine Corps major development comprising those advanced 
capabilities that are critical to ensuring our future military 
superiority--Joint Strike Fighter, Ohio replacement, air and 
missile defense radar, Navy Integrated Fire Control, next-gen 
jammer, AIM-9X Sidewinder, the Joint Light Tactical Vehicle, 
the Amphibious Combat Vehicle, the Ground/Air Task Oriented 
Radar--every major development suffers delay, or reduction, or 
cancellation in this budget environment where uncertainty 
seemingly guides every decision.
    Further, we need to consider the impacts on our industrial 
base and acquisition workforce, which we wholly rely upon to 
develop and deliver these warfare systems that underpin our 
military superiority. We need to be mindful that as many as 
100,000 professional jobs are at risk as a result of the 
potential cuts to Navy-Marine Corps operations and programs, 
particularly skilled workers and engineering talent across 
government and industry at critical design and manufacturing 
facilities across the country. The same professionals who have 
been bearing great stress while performing their critical jobs 
in the face of furloughs and layoffs triggered by distortion of 
this budget process, which Congress has otherwise faithfully 
executed in prior years. These examples do not capture the full 
magnitude, and they do not begin to approach the impacts that 
will result from subsequent budget year reductions. Unabated, 
the reductions will profoundly affect the size and shape and 
readiness of your Navy and Marine Corps and the roles and 
missions which they are able to perform. Again, I thank this 
committee for its work on the 2014 authorizations bill. Our 
appeal is that Congress complete its work on the 2014 budget 
request with the passage of the authorizations and 
appropriations bills, and that this mechanism for addressing 
the Nation's budget impasse, which was devised to be so 
unacceptable that it would be averted, somehow be reversed 
before we are driven to irreversible actions which impair our 
collective responsibility to provide for the Nation's defense.
    Thank you, Mr. Chairman.
    [The joint prepared statement of Secretary Stackley, 
Admiral Myers, and General Walters can be found in the Appendix 
on page 55.]
    Mr. Turner. Thank you.
    Before I go to Dr. LaPlante, I just want to point out, 
because we are in a House hearing, that the House has passed 
both the National Defense Authorization Act and defense 
appropriations, which are sitting in the Senate. Although 
Congress, in order for us to congregate together as the House 
and the Senate, must complete it together, the House has done 
all of its work and sent it to the Senate, where we continue to 
be in this period where the House does its work and we wait for 
the Senate. That period of uncertainty really makes it very 
difficult for us. So I understand your frustration, but I do 
want to point out there are bills that are sitting there for 
action.
    Dr. LaPlante.

    STATEMENT OF DR. WILLIAM A. LAPLANTE, PRINCIPAL DEPUTY 
       ASSISTANT SECRETARY OF THE AIR FORCE (ACQUISITION)

    Dr. LaPlante. Thank you, Chairman Turner, Ranking Member 
Sanchez, and the rest of the distinguished members of the 
subcommittee.
    Thank you for holding this hearing to discuss the state of 
affairs with sequestration. And I will address the Air Force, 
and particularly the investment in the Air Force.
    I am joined by Lieutenant General Mike Moeller, who is the 
A-8 for the Air Force.
    And again, thank you for holding this hearing.
    We are committed, of course, as the Air Force, as remaining 
the best in the world, the best in the world in 2020, 2023, 
2028. That means being able to fight and win against peer 
adversaries in highly contested environments. In the middle of 
trying to make sure we meet that future and keep readiness 
high, we of course have had to deal with the sequester. When 
the sequester hit back in February, it was well known that 
there were really only two places in the budget to find the 
dollars to match what was needed to be cut. One was in 
operations and sustainment and maintenance, essentially hitting 
our readiness. And eventually, that also hit our workforce with 
the furloughs. The second place, the second place to go is our 
investment, which is RDT&E [research, development, test, and 
evaluation] and procurement.
    We started with our investment accounts looking at 
somewhere between a 10 and 11 percent cut, and we ended up, by 
using prior-year dollars and other flexibilities, being able to 
soften that to about 8 percent. But I should make no mistake, 
there is damage being done.
    So what I am going to talk about is the investment 
situation and what is going on there. So to begin with, what 
was done was each program was scrubbed. A lot of risk money, 
commitments that were going to be done in next years was taken, 
was swept up, with the case, hope, and promise that some of it 
would be returned. What also was done was, in some cases, major 
programs were simply stopped. I can speak to one specifically 
that we have been public about, it is called the Space Fence, 
which is an Air Force program, an important program for space 
situation awareness.
    We were ready to award the contract after a lot of 
excellent work by contractors and laboratories. We had a great 
acquisition strategy. And we stopped. We stopped the program. 
And it may or may not get started. If it does get started 
again, it is going to at least be one year away from IOC 
[initial operational capability], but more importantly, it is 
going to cost $70 million for the same program one year later. 
There are going to be other programs, new programs coming along 
that are going to be in exactly the same situation. In 
addition, in 2013, we, of course, had the furloughs. And the 
furloughs, I will talk about the effect on morale, which is 
harder to assess. But there was absolutely an effect on our 
acquisition programs. The F-35 lost 1 to 2 months of schedule 
overall in the program due to the furloughs. The reason was the 
testing, both at Eglin and Pax, was prohibited to test on 
overtime with civilians. And if you have been around testing, 
you know nothing gets done in a regular even 40-hour week, let 
alone a 32-hour week. So it directly impacted already our 
acquisition programs.
    Of course, the effect on the morale is something that is 
harder to measure. We unfortunately won't know until probably 
it is too late. The lagging indicator is usually turnover.
    I can tell you what my instinct is, and it is purely 
anecdotal. And that is, based upon individual resignations that 
have already occurred, I believe we have broken with the 
particularly the younger acquisition and science workforce. In 
other words, these are folks who are at a point in their career 
they are trying to make a decision, is this something that I 
can do for my full career? Am I ready, starting a family, is 
this something that is reliable? Particularly the highly 
talented and marketable ones, they are very vulnerable. We 
already have cases, including specific letters, of 
resignations.
    And oh, by the way, that was before October 1. The first 
week of October, half of the PEOs in the Air Force, PEOs, 
program executive officers, they are senior acquisition 
executives that run our programs, were home. We were within 
about 2 days, 2 weeks, 3 weeks ago, of shutting down the F-35 
line. Okay. I know that these are differences between sequester 
versus government shutdown, but the effect in the field is not 
terribly distinctive to the individuals in the programs that is 
going on.
    Now, talking about 2014, where we are right now, all the 
numbers that have been already mentioned apply to the Air 
Force. The 14 percent number, the number that could be higher, 
depending on what flexibility is there. I will also say, as I 
already mentioned, there will be other programs like Space 
Fence that are going to be cancelled or delayed. And in 
addition to that, entire fleet of aircraft are on the table for 
consideration of divestment by the leadership. I can't say 
which ones will end up being divested or not, I can't say which 
programs are going to be stopped or not, but the math, 
particularly in 2015 and 2016, is that bad. And so the final 
comment I will make is, as we mentioned, in 2013, there was 
some flexibility allowed for using prior-year dollars to soften 
the blow. In particular, we were able to also transfer some of 
that money to the operations accounts to try to soften 
readiness cuts. That is gone. That is gone.
    So, in 2013, F-35 was at risk of losing three airplanes. In 
the realm of no good deed goes unpunished, the F-35 program 
with the contractor was able to negotiate a very good price on 
lots 6 and 7, and essentially buy back those three airplanes. 
We don't have an opportunity to do that in 2014. We will lose 
somewhere between four and five airplanes in 2014. And I could 
go through some other programs. Anyway, that is a summary of 
kind of the severity of the situation within the Air Force. I 
look forward to working with the subcommittee in answering your 
questions. Thank you very much.
    [The joint prepared statement of Dr. LaPlante and General 
Moeller can be found in the Appendix on page 72.]
    Mrs. Walorski [presiding]. Thank you.
    Secretary Shyu, I just want to say that personally I have 
enjoyed the privilege and opportunity to work with you. I share 
your concern on sequestration. I appreciate what you do and 
your work.
    Could you speak specifically, if sequestration is allowed 
to continue to roll out, what kind of impact that is going to 
have on the JLTV [Joint Light Tactical Vehicle] program, which 
is super important to my district. And then also, just as far 
as modernization and acquisition, just speak briefly on the 
JLTV forecast if we can't curtail what is happening here.
    Secretary Shyu. JLTV currently is a great model program. 
Okay. Each of the 3 contractors have delivered 22 vehicles, and 
they are currently in test. The government shutdown has already 
impacted our testing plan because our civilians, who do the 
vast majority of our testing, can't travel to the test site. 
They don't have TDY [temporary duty] money. Okay.
    So the rippling effect of these government shutdowns, just 
the short period during the government shutdown, is stretching 
out--starting to stretch out the program. Because now we have 
got to get back into the queue to do the testing. Okay. And 
exactly with what Dr. LaPlante had talked about, part of the 
testing is usually our testers do more than 8 hours per day of 
testing. If you limit their number of hours, it is going to 
impact them. Okay.
    So, right now, the program is very well executed. We are 
trying to get back on schedule. But with sequestration cutting 
the RDA account heavier than the rest of the accounts, cutting 
the research, the development and acquisition accounts 
disproportionately higher than the other accounts, it will have 
impacts to us in terms of schedule. So that means we 
potentially may delay the program by a year due to the schedule 
cuts.
    Mrs. Walorski. I appreciate that.
    General Walters or Mr. Stackley, would you like to address 
that as well with JLTV?
    Secretary Stackley. I would simply add, as Ms. Shyu 
described, the developmental scale is going to slide to the 
right. That is going to hold up when we can get into 
production. So it will delay the start of production. I think a 
year is a conservative estimate in terms of that impact. And 
then it is going to impact each year of production. So the 
front end, when you are trying to climb up a ramp and get to 
efficient quantities, the front end will be suppressed in terms 
of the number of vehicles we can procure. And that is going to 
ultimately stretch the program out further on the back end. It 
is going to drive the cost up. These are all spiraling impacts 
that take a strong performing program at the front end and 
reverse its course, which, obviously, we are trying to avoid.
    Mrs. Walorski. General Walters.
    General Walters. Yes, ma'am. I echo the sentiments already 
displayed here. But I will also tell you that the longer-term 
effect year by year as sequestration marches on, if it 
continues to march, it will put us in a, from a program 
perspective, a more difficult position to make harder and 
harder choices as we try and buy out a vehicle portfolio that 
will become unaffordable in the out-years.
    Mrs. Walorski. Thank you.
    Representative Cooper.
    Mr. Cooper. Thank you, Madam Chair.
    Chairman Turner had said earlier that the House had 
basically done its work and was implying that it was the 
Senate's fault. Of course, we need to operate as a Congress and 
fulfill our Article I responsibilities as a Congress so that 
you gentlemen and ladies can do your work. I thought your 
testimony was excellent. And I wish you had the ability to 
question us. Because the fault is on our side of the dais. So I 
don't want to put you in a tough spot, so I will go ahead and 
make some points on my own about the House's and Congress' 
inability to perform adequately in these trying times. Because 
as one of the witnesses noticed, defense contractors, defense 
workers, others don't really distinguish between sequester and 
shutdown and also threatened default of U.S. credit. This is a 
nightmare that they should not have to go through and a 
nightmare the country should not have to go through.
    But let me cite a couple of articles here. One is Politico, 
October 14, an article by David Rogers. Headline, ``GOP Hawks 
Suddenly Silent on Sequestration.''
    An article that cites the excellent study by the Bipartisan 
Policy Center entitled, ``The Sequester: From the Merely Stupid 
to Dangerous.''
    Another article, this week's Wall Street Journal, an 
article by Fred Barnes. Fred Barnes, ``The Upside of the GOP 
Shutdown Defeat.'' He points out, quote, ``'Saving the 
sequester has been the top priority for me and my Republican 
colleagues throughout the debate about the shutdown,' Senate 
Majority Leader Mitch McConnell said.''
    They go on to say, ``The survival of the sequester wasn't 
an unalloyed win for Republicans. The automatic cuts take a 
huge bite out of Pentagon spending, which is bound to weaken 
military readiness. This has distressed many Republicans, and 
rightly so.''
    But then the article goes on to say, ``Yet most Republicans 
have been willing to swallow the defense cuts so far. They 
regard the sequester as a rare victory in their fight to reduce 
the size of government.''
    Another article, this one in the American Spectator, 
jointly authored by Steven Moore and Art Laffer. It says, 
``Treasury Secretary Jack Lew made a catastrophic 
miscalculation. He believed that defense hawk Republicans would 
never agree to the sequester cuts to the Pentagon. The White 
House bet that Republicans would raise taxes before cutting 
military spending. They were wrong. House Republicans rightly 
decided that as the wars in Afghanistan and Iraq were winding 
down, defense would be cut under any scenario, so it made the 
most strategic sense to uphold the sequester to ensure that the 
peace dividend did not get spent elsewhere.''
    As I mentioned, it is our fault. Congress should be blamed. 
In my opinion, the House in particular because it is not enough 
for us to pass our legislation; we have to conference it with 
the Senate. Both Houses finally passed budgets this year. But 
only this week did we go to conference on the budget. Because 
after 5 years of begging our Senate brethren to pass a budget, 
then we refused to conference it with them.
    The Wall Street Journal on its editorial pages correctly 
pointed out, you can't govern America with one half of one 
branch of government. It takes more than that. And it takes 
cooperation. It takes that dread word ``compromise'' to get 
along and get things done.
    So I am proud of the work that you gentlemen and ladies are 
doing at the Pentagon. I am sorry that you are under this 
distress. And I hope and pray that Congress will get its act 
together fast. We only have a few days before the budget 
conference is supposed to come up with a conclusion, a few 
legislative days. And by the way, we are only meeting next week 
like 1 or 2 days. We take the following week after that off.
    So I think the entire conference, the hope of compromise by 
December 13 only has a few possible days to come up with an 
agreement. That is appalling. The folks back home are expecting 
us to work 24/7/365 to get this done. They should be outraged 
that we haven't done it already because the fiscal year started 
October 1. So this is the time for this body to get its act 
together. As you know, the Armed Services Committee is the 
largest committee in the House of Representatives. But we don't 
act like it. We don't exercise the commensurate influence 
within the body. And in this crucial hearing on the damaging 
effects of sequester, how many people are here? Six? And this 
is just a subcommittee; it is not the full committee. But this 
is an embarrassing response to a national crisis that you 
gentlemen and ladies are correctly informing us of.
    So maybe one day you will have the right to question this 
side of the dais. I look forward to that. In the meantime, we 
should be punished for congressional misbehavior, both Houses, 
both parties, until we get the job done.
    Thank you, Madam Chair.
    Mrs. Walorski. Mr. Runyan.
    Mr. Runyan. Thank you, Madam Chair.
    And my question is actually going to be for General 
Moeller. Since I have been here, I have been a big supporter of 
the new tanker. There has been, obviously, some questions arose 
as of lately specifically dealing with things in my district. 
If you don't know, I represent Joint Base McGuire-Dix-
Lakehurst, which is home to most of our KC-10s on the East 
Coast. That being the workhorse of most of the refueling here 
on the East Coast and a lot of things overseas, in Iraq and 
Afghanistan, and dealing with homeland security. With the new 
tanker coming online slower than expected, obviously, because 
of many things we are discussing here today, the fact that 
there is probably really not much of a decrease in how we use 
those aircraft here, and if there is a delay in the 46 coming 
online, for the record, what does the Air Force plan for this 
critical platform? And is there program funding in fiscal year 
2015 to support this vital refueling asset?
    General Moeller. Congressman Runyan, thank you for the 
opportunity to talk with you. Before I talk specifically about 
platforms, let me just say that the blunt mechanism of 
sequestration drove us to look at all options, from across the 
Air Force. As Dr. LaPlante said, looking at our readiness 
accounts, our personnel accounts, force structure, and our 
modernization programs. We had to look everywhere in order to 
get to the billions of dollars in savings--not millions, 
billions of dollars in savings, especially in the near years in 
fiscal year 2015 and 2016. Because that is where sequestration 
drives the biggest cuts for us, for all of us, for all of the 
services, including the Air Force. With that in mind then, as 
we looked at where we were going to go to get--to gather the 
savings required to balance the program, we had to look at 
cutting entire fleets of aircraft. And the reason why we had to 
look at that is that in order to get the billions of dollars 
needed, we had to essentially go after overhead as much as we 
did force structure. Now, the cuts that we are talking about 
across the FYDP [Future Years Defense Program] are, for the Air 
Force specifically right now under sequestration, will be over 
25,000 people and over 550 aircraft. That is the magnitude of 
the challenge that we face across the FYDP. Specifically, 
because all of our fiscal year 2015 through 2019 program 
submission is pre-decisional, we can't talk about specific 
platforms. But I will tell you that we looked in priority order 
at avoiding further readiness degradation, that was our top 
priority, especially in the near years, cutting the more 
capable aircraft, and/or doing irreversible damage to high 
priority investment programs, like the KC-46A.
    Mr. Runyan. That is just puzzling to me, because I get what 
you are saying about needing to find the places to cut that 
stuff. The readiness hole that I think it would create, I have 
yet to find anyone in the Air Force to give me an answer to say 
how you backfill that. This, potentially, with the 46 being 
delayed, could potentially be a huge problem. And if you are 
going to take out a whole air wing that supplies critical 
refueling, how do you fill that gap?
    General Moeller. Well, Congressman, we will have gaps 
across the entire Air Force. Because it is not just, it is not 
just one platform. It is not just one capability. 
Sequestration, the levels of cuts require us to look across the 
Air Force. And so mitigating risk in one area is going to 
require offsets in others. The bottom line is that the Air 
Force, after sequestration, is going to be smaller. It is going 
to be less capable. It is going to be less ready, and it is 
less flexible. That, at the end of the day, is the bottom line 
of the effects of sequestration on your Air Force.
    Mr. Runyan. I would love to at some point personally sit 
down with you and have the numbers put out on the table and 
talk about it. I look forward to that.
    General Moeller. Be glad to come over.
    Mr. Runyan. I yield back.
    Mr. Turner [presiding]. Thank you. I want to thank Jackie 
Walorski for sitting in while I had the opportunity to attend a 
classified briefing for a few moments on the East Coast missile 
defense site. So I appreciate her taking the gavel for me.
    So now we will return to regular order. And regular order 
is such that we go through each of the members who were present 
at the gavel and then turn to those post-gavel.
    I want to start with, I always hate it when people make an 
issue partisan. Because nothing is describable or resolvable in 
its real effects on a partisan basis. This is a committee that 
very rarely will you ever hear anybody at any microphone say 
``the Democrats'' or ``the Republicans,'' because we are really 
all just working together on the same issue.
    I think when you look here at the number of Members who are 
present, we certainly have on this side of the aisle a great 
deal of attention on this, as we have had at the number of 
hearings that we have had. I can tell that on a bipartisan 
basis, my ranking member and I have both worked equally 
diligent on this, one being a Republican and one being a 
Democrat.
    I voted against sequestration. I voted against the 
President's recommended legislation of sequestration. I voted 
against it because I felt that the administration did not have 
a commitment to resolving sequestration. When we talk about 
resolving sequestration, what we are talking about is finding 
offsets elsewhere in the budget. With sequestration, we have 
taken over half of the budget of the allocated cuts for 
sequestration and applied it to less than 18 percent of the 
overall budget, which is the Department of Defense. The task 
that the President had charged Congress with was finding cuts 
in this issue--cuts elsewhere in the budget to offset those to 
lift sequestration. So when people talk about that they want 
sequestration to be applied, and there are Members who openly 
say that, they are not saying that they want this to be applied 
to the Department of Defense. They say they want the conclusion 
of it to occur, that is the identification of those cuts, 
elsewhere. No one, no one in Congress believes that the 
Department of Defense should continue to be subject to 
sequestration. It is irresponsible for any Member to say, 
especially on a partisan basis, that any Member believes the 
Department of Defense should be subject to sequestration.
    There are Members who believe that we cannot continue to 
spend out of control, and sequestration needs to be addressed 
by the process concluding, which is finding the source of those 
offsets.
    Now, people who voted for the Budget Control Act and for 
sequestration, who then speak about it disparagingly, as if it 
is everyone else's responsibility, is one also I think is of 
question. That is why I am proud of the fact that I opposed it, 
and I oppose it now. And I want to turn to your answers as to 
its effects so that we can get the motivation for Congress to 
conclude the process of offsetting them. Now, I know there are 
many people who would like to characterize it otherwise. But 
today you get to help us characterize it as a real problem and 
one that needs to be resolved.
    Secretary Shyu, you said that the issue of uncertainty is 
wrecking the ability for both the Department of Defense to 
plan, for contractors to plan, for acquisition, and for the 
industrial base. You said that they need predictability. As we 
go forward with sequestration, we also have, beyond the what 
level these cuts will be or how they will be applied, the issue 
of the aggregate numbers and what their effects will be upon 
the choices that you have to make. Can you speak for a moment 
of the fact that these numbers themselves are so egregious that 
many of the tasks that you have been assigned in acquisition 
are not going to be able to be achievable and therefore could 
harm our long-term sustainability in our national security?
    Secretary Shyu. Yes. The fiscal year 2014 sequestration 
will have significant impacts. Because as we talked a little 
bit earlier, we don't have any more buffer room left. Okay. We 
are going to defer maintenance on 172 of our aircraft, more 
than 900 of our vehicles, over 2,000 of our weapons systems, 
over 10,000 pieces of communication equipment. We will field 
less equipment to our brigade combat teams. It will impact our 
production in terms of quantities. We will buy fewer aircraft, 
eight less Apache helicopters in fiscal year 2014 
sequestration. That is on top of eight reduction that was due 
to fiscal year 2013. So this means this will have a rippling 
effect in terms of fielding to our units. Okay. All of the ECP 
[engineering change proposal] upgrades that we had talked 
about, upgrades to our Abrams, to our Bradleys, to our Stryker 
vehicles are going to be impacted. Okay. So what does that mean 
in terms of rippling effect? It means, our contractor that is 
looking for stability of their workforce and of the contracts 
that they have can no longer plan for it. They continuously ask 
me what type of--what do I anticipate the budget is going to be 
so they can plan for their workforce? It is very difficult to 
give them any numbers, because we are planning for our POM 
[program objectives memorandum] at the PB [President's budget] 
level, we are planning for our POM at the BCA level. And those 
have very, various different impacts. So the other rippling 
effect it has created for us is an enormous amount of 
additional work for our internal government folks to plan the 
what-if contingencies. We go through multiple iterations of 
planning. That is very, very disruptive. So I think, in my 
mind, if there is anything that this Congress can do to help us 
in terms of stop sequestration, to bring back stability in our 
budget, that is the one key critical thing that we need, not 
just for the Army, but for our industrial base as well.
    General Barclay, you want to add?
    General Barclay. Sir, as Ms. Shyu said, across all the 
different categories. Because as the Secretary and chief have 
testified earlier, because if we cannot bring our force 
structure down fast enough we are going to have dramatic 
impacts on both readiness, the training, and on the 
modernization programs. So, as we look at both of those 
categories, there is a large impact on cancelling training, the 
rotations out at the national training centers on units. As Ms. 
Shyu said, with the Apache helicopters, not only are we not--
reducing the numbers that we are purchasing, we have also gone 
away from the new buys, and we are now remanufacturing those 
platforms. We are taking old platforms and not purchasing new 
platforms. So, in an effort to meet the dollar cuts we have 
got, we are doing that across the fleet in several different 
categories, both in our ground combat vehicle category and also 
in our aviation category. So, as Ms. Shyu said, this will have 
a large impact on us as we move forward.
    Mr. Turner. Mr. Stackley.
    Secretary Stackley. Yes, sir. I don't want to repeat the 
theme, but the theme is the same. What I would simply add is, 
first, stability is absolutely critical to performance in our 
programs across the board. And what we have been experiencing 
over the last one and a half to 2 years, frankly, has been 
extraordinarily destabilizing. So this uncertain environment, 
budget environment that we are marching through is unraveling 
all the efforts that the Department has put into driving 
affordability in our programs. All those programs underpin 
current and future readiness. So, at the higher level, as the 
Commandant and as the CNO [Chief of Naval Operations] 
testified, what sequestration poses is a steady decline across 
the board in terms of operations, readiness, force structure, 
which ultimately equates to presence, response, and national 
security. And so we are on the front end of that today. In 
2013, we saw deployments being cancelled. We saw the front end 
of procurements being cancelled. You are seeing delays to 
programs. When you compound that year over year, as posed 
through sequestration, it is not a straight line, it will 
quickly devolve in terms of, as the CNO testified, the 300-ship 
Navy that we require to meet our Strategic Defense Guidance, we 
are staring today at potentially a Navy of 250 ships in number. 
Eleven aircraft carriers and associated groups and amphibious 
groups are jeopardized to drop down to numbers of 10 and 9. And 
all that poses in terms of the ability of the Navy and Marine 
Corps to meet its role and responsibility toward the Nation's 
defense.
    Mr. Turner. Mr. LaPlante.
    Dr. LaPlante. So I agree with the theme.
    So, specifics, would say start with something that Dr. Paul 
Kaminski talked about in the 1990s, which was program 
stability, or more importantly, program instability was 
actually one of the principal causes of some of the acquisition 
woes. And the implication being one of the things us in 
leadership and acquisition must try to do is offer that 
stability to the extent we can. I don't think any of that 
anticipated the situation we are in today.
    Clearly, from a taxpayer's perspective, taking a longer 
view term view beyond 6 months, beyond 3 months of buying 
complex weapons systems done correctly is smarter. A simple 
example is multiyear contracts done correctly are usually much 
better for the taxpayer than single-year contracts. Done 
correctly, fixed-price contracts are better for the taxpayer 
than cost-plus on programs where we can do it. Long-term 
efforts, like what we are doing right now with the F-35, under 
the leadership of Secretary Stackley, of looking at how, with 
the contractors we can bring down the operations and 
sustainment costs, which is really looking 5 to 10 years from 
now, all of that is better off in an environment where we have 
some idea. We understand things change. We understand what 
things go in and out of the budget. But just some basic idea on 
what the situation is. All that is put at risk by the situation 
we are in right now. Contracts that we put in place 2 years ago 
for the highest priority programs that remain so today, where 
we had no idea we would have the situation we are in today, 
where those contracts, because of the situation, are put at 
risk. Just 2 weeks ago, we had one of our fixed-price contracts 
come within about 24 hours of having a major problem until the 
President signed the continuing resolution. Had he signed it 24 
hours later, we would have broken one of our fixed-price 
contracts, because that is how it works. So instability, or 
program stability is so important to us. We recognize the fact 
that things change. But we have to do better than where we are 
right now. Thank you.
    Mr. Turner. It is my understanding--again, I am saying the 
issue that I hate it when people make issues partisan that are 
not partisan because it impedes our ability to get things 
done--it is my understanding that while I was out, Mr. Cooper 
made the statement that the Republicans, there are Republicans 
who want sequestration to continue in effect and its effects on 
the Department of Defense. So I have to ask you all, you have 
been up here talking to Congress, Members of Congress, trying 
to tell them the effects of sequestration and its immediacy of 
the needs for relief. Have you ever had, Democrat or 
Republican, a Member of Congress say to you that sequestration 
for the Department of Defense should remain intact and that you 
should remain under sequestration? Any of you had a Member of 
Congress tell you that? No. Not one Democrat, not one 
Republican. So I just want to make that point, as we try to 
avoid people turning this into partisan.
    I am going to go to Mrs. Roby.
    But one other thing before I do. By the way, Mr. Cooper did 
vote for sequestration.
    Mrs. Roby.
    Mrs. Roby. Thank you, Mr. Chairman, and I should take this 
opportunity as always to tell each of you thank you for your 
service to our country and to your families' service and 
sacrifice, that means a lot to all of us here.
    Mr. Turner just touched on what I was going to ask to 
General Barclay and Mrs. Shyu as it relates to overall 
priorities when it comes to, you know, acquisition and 
procurement but also from a development standpoint. So I will 
just defer to the two of you to determine who is best to answer 
my next questions, but General Odierno previously testified 
that the ITEP [Improved Turbine Engine Program] program was a 
key priority for the Army, and I know you mentioned in your 
written testimony that the ITEP program would be placed at 
risk. Can you elaborate on that as to whether it remains a 
priority and to what extent that the sequester may impact the 
Army acquisition strategy of maintaining competition to 
milestone B to reduce the risk and the cost?
    Secretary Shyu. The ITEP program is a very important 
program to the Army because it offers significant capabilities 
that we currently don't have; namely, 25 percent fuel 
efficiency, as an example. We very much would like to have 
competition on all of our programs, but if the sequestration 
continues in its compounding effect, we may be forced to down 
select earlier than we would like, and that is the risk of 
sequestration, okay?
    I would like to give an example. That is exactly what had 
happened on JAGMs program, Joint Air-to-Ground Missile program 
that we had. We had a $33 million mark, then a $3 million 
sequestration on top of that, so it was a $36 million cut. We 
were forced to drop one of the contractors. It is not that we 
wanted to, but we were forced because of budget shortfall.
    General Barclay, would you like to add?
    General Barclay. Yes, ma'am, and as you know the ITEP 
engine is critical not only because of, you know, as Ms. Shyu 
said, we have fuel savings, 25 percent there, it also has a 
maintenance savings, and it is key to our developmental 
programs out in the future. We are working to get that into the 
current platforms, the Black Hawk and Apache, but it is also 
tied to our joint multirole aircraft, which is out in the 
future, so sequestration places this program at risk of having 
to do an early down select, which will, if we continue, and it 
appears that we will, for several years in this environment, 
that program not only will we do an early down select, it could 
put that entire program at risk because it is tied to other 
programs. So, I mean, all this links together as you move 
forward, ma'am.
    Mrs. Roby. Can we talk for just a minute also about the 
impact on modernization of Army aviation and specifically how 
that is going to impact the Army Aviation Center of Excellence 
in Fort Rucker as it relates to the sequester?
    General Barclay. Yes, ma'am. As you know, Fort Rucker is in 
your district, and it is not only just sequestration. I mean, 
it is the continuing--as you move all those linked together, it 
already has had an impact at Fort Rucker. Fort Rucker was 
working around a 1,400 student throughput for the aviation 
force. This past year they have dropped that down below 1,200. 
We are probably looking to go below a thousand students simply 
because of the cost rate. We are already at about a--you know, 
we worked very hard for about a 3-year period to get the 
student back load down to a manageable level. We are now back 
over 500 students in the back load, which that is about a 2-
year problem to get that back, and it will only continue to 
grow as we move forward. So, from that training aspect, that 
also has an impact.
    The other part of that is as we start looking at our 
aviation portfolio modernization program, the training 
helicopter at Fort Rucker was one of those aircraft that we 
were looking at having to replace because of the age of that. 
That again will be part of our look at the future to just 
determine what we can afford and if we will still be able to 
incorporate that into our future buys and programs.
    Mrs. Roby. And just real quickly, I mean, I think this is 
the point that we want to emphasize. I mean, I, too, was 
opposed to the sequester for these very reasons, but let's talk 
about how those numbers and the decrease in training of these 
aviation, these pilots, both in the Air Force and the Army, 
affects our readiness and our ability to do what we need to do, 
and I just--if you could just quickly comment on that because, 
you know, it has just--it is what keeps me up at night.
    General Barclay. Yes, ma'am, it is not only the Army. I 
mean, it is in the Navy, it is in the Air Force.
    Mrs. Roby. Right, I know it affects everybody.
    General Barclay. All of our pilots are, we are restricting 
all of their flight hours. For example, we are only focusing on 
those combat aviation brigades that are getting ready to deploy 
back into Afghanistan. Those that are coming home, we have 
reduced their flight hours now to where they are not even at 
the proficiency level. We are only barely maintaining currency 
levels, and in some areas, as night vision goggles and some of 
the others, we are not able to maintain that level of currency 
because of the flight hour restrictions we are placing on those 
units that are not part of the war fight, are not categorized 
as next into the war fight into Afghanistan.
    Mrs. Roby. Right.
    General Barclay. So that has a huge impact on the training 
readiness of those units.
    Mrs. Roby. Well, again, my time has expired, but I just, I 
know it affects every person here in your position, and it is 
something that we absolutely have to address, not just in this 
committee but as the Congress because this hearing today, Mr. 
Chairman, demonstrates exactly where we are going to be when we 
enter year two. So thank you all for being here today, and 
again thank you for your service.
    Mr. Turner. Great. Before I go to my ranking member for her 
comments and questions, I just want to note that our military 
officers will be given a chance to give a closing. We have had 
opening from all of our Secretaries, and then after their 
closing comments, if any of the Secretaries have additional 
thoughts that they would like to add to the record, you will 
also be given that opportunity. Hopefully our questions will be 
directed and elicit the types of information you want to give 
us, but in case not, you know that you will have that 
opportunity at the end.
    Turning to Ms. Sanchez.
    Ms. Sanchez. Thank you, Mr. Chairman.
    This subcommittee had the GAO take a look at the 
implementation of sequestration for fiscal year 2013, and I 
know that you have seen that. In their primary finding, they 
said no weapons systems programs were cancelled and no programs 
reported cancelling or severely changing program contracts. And 
they said OSD [Office of the Secretary of Defense] officials 
agreed with this assessment.
    So that kind of contradicts what DOD and the industry 
people were telling us would happen under sequestration. We 
were told that the impacts would be significant, dramatic, 
immediate. Instead, it appears that, again, through a 
combination of unused funds and reprogramming and delaying 
development and reducing procurement quantities or getting 
better prices, as we did with the F-35, that we basically 
avoided disaster in fiscal year 2013.
    So my first question, and you can just say yes or no to 
this, is do you agree with the assessment by GAO that no 
weapons systems programs were cancelled and no programs 
reported cancelling or severely changing program contracts?
    And we will start with Ms. Shyu.
    Secretary Shyu. Yes.
    General Barclay. Ma'am, I have not fully read that program, 
so I will not comment on that.
    Secretary Stackley. I would say that every program was 
impacted. In the budget year 2013 in which sequestration hit, 
we were able to use prior year to absorb some of the impact, 
but, frankly, the Department of the Navy had to push a 
significant amount of that impact into the out-years, so the 
impact is still staring at us across the board in those same 
programs. Did we cancel any? No. Our priority was not to cancel 
and create more harm over and above what sequestration caused.
    Admiral Myers. I concur with Secretary Stackley. What you 
didn't see was the ability of the services to use unobligated 
investment funds, but those funds were earmarked or identified 
for each investment that we still have to reconcile either 
throughout the FYDP or past the FYDP. So we still have to pay 
those bills. We were able to make good decisions in the near 
term with only 6 months in the fiscal year to avoid cancelling 
programs. The services are always looking for an opportunity 
for reversibility with the hope that the inflexibility of the 
sequester could be remedied by Congress.
    General Walters. Ma'am, I agree with my mates here, but I 
will tell you that every program we had in the Marine Corps was 
affected either by quantity or schedule, and I also think the 
sequester in 2013 has set the conditions to cancel programs in 
2014 depending on how the budget plays out.
    Ms. Sanchez. Okay. But I am asking about the report itself 
because, you know, it says nothing was cancelled, no programs 
reported cancelling, and not severely changing program 
contracts. Is that correct or not? Because the OSC [Office of 
the Special Counsel] agreed with the GAO, so I am just----
    General Walters. I am at a loss because I haven't read the 
report, and I don't know what the definition of ``severe'' is.
    Ms. Sanchez. Okay.
    General Barclay. Ma'am, I would like to state that I would 
be willing to talk to them immediately. GAO did not come in--I 
don't know if they talked to any of the service components at 
all.
    Ms. Sanchez. Thank you, General.
    Dr. LaPlante. Cancelled, that perfectly--that could well be 
correct, absolutely correct what the GAO report says, but I 
will say the way it works is the step to cancellation is delay, 
and that is already started, and I am not saying the program is 
going to be cancelled because that decision has not been made, 
but Space Fence, the major Air Force program for space 
situational awareness has been put on hold, okay? Contractors 
were told to stop work on that program about September 15th. Is 
that cancelled? No, but----
    Ms. Sanchez. Okay, that is why we are having this hearing, 
Doctor, because we want to get--you know, we get one report, 
but we want to get the truth here.
    Mr. Turner. If I could for just a moment, and I think you 
have been, in your comments, you have been indicating you have 
not had an opportunity to fully review the report and digest or 
even some of you have not even seen it, correct?
    General Moeller. I have not.
    Mr. Turner. Have you seen it at all? Has anyone on the 
panel seen the report?
    Ms. Sanchez. Okay.
    Mr. Turner. Well, let's do this.
    Ms. Sanchez. Well, then I won't ask that question. We will 
do that for the record.
    Mr. Turner. Let's provide you the report and leave this 
record open for you----
    Ms. Sanchez. Perfect.
    Mr. Turner. To give an opportunity in writing to answer 
what the statements are in the report----
    Ms. Sanchez. Perfect.
    Mr. Turner [continuing]. To include in our record.
    Ms. Sanchez. Perfect.
    Mr. Turner. And we have your answers.
    Ms. Sanchez. Okay, for the Air Force, you stated previously 
that it would do whatever it takes to protect your top three 
acquisition programs, the F-35, the KC-46, and the long-range 
bomber. So assuming you would get reprogramming authority in a 
timely manner, which this committee somewhat controls, do you 
think you could protect those programs fully in fiscal year 
2014?
    Dr. LaPlante. So I will give an answer for that. To begin 
with, of those three programs, the two in general that I think 
are at the biggest risk regardless, depending on the scenario, 
are F-35 as well as the KC-46, and the reason is quite simple 
in that the LRSB [Long Range Strike Bomber], the dollars in 
that tend to pick up in the production much later, so it just 
is fortunate in the case of that program.
    Let's address each one at a time. For F-35, as I said 
earlier, without doing any relief, we are at risk of about four 
to five airplanes this next year, and we are not going to have 
the opportunity, unfortunately, to take advantage of another 
great negotiation to buy them back. Unfortunately, we just 
won't have that in 2014, that is just the way it works. So, 
with some flexibility, certainly that can be mitigated to some 
extent, to some extent, I can't claim that all the airplanes 
will be bought back.
    The other part of the F-35 that we have to really pay 
attention to, which is beyond 2014, but it is really important, 
is finishing the development program, that is getting to Block 
3F software, okay? And Block 2B before that. The Marines IOC 
with Block 2P in 2017, the Air Force roughly 2017, and then we 
get 3F in 2018. That is critical. Okay. So anything we do that 
will prevent us from protecting that development program is 
bad. Can we protect it? I am hopeful we could, depending on how 
much flexibility.
    In the case of the tanker, if we were not given 
flexibility, and it comes out to be like a 13.5 percent cut 
like we said, that is a problem. The tanker is one of those 
fixed-price contracts that the government has a very, very good 
arrangement with. That was a lot of excellent work after a lot 
of difficult lessons learned.
    Ms. Sanchez. But if you could reprogram to save your top 
three, do you think you could do it?
    Dr. LaPlante. I think we could likely save those two that I 
am worried about with the following caveat. What that means for 
every other program is it means if we could----
    Ms. Sanchez. That was my next question, what does it mean 
for the other things.
    Dr. LaPlante. If we could wall off, the numbers shoot up to 
cutting the other programs somewhere, I would say, close to 30 
percent.
    Ms. Sanchez. What are the other big programs that you think 
would fall by the wayside or----
    Dr. LaPlante. So this is where we get to the discussion of 
everything being on the table. So the types of dollars that one 
would have to find are only in the large platform programs, and 
that is where you get into the discussions of looking at 
divestiture, and you are looking at discussions of not starting 
new programs. So if you look at the Air Force plan and you say, 
you see new programs that would be starting, assume that that 
is at risk, and so that is all on the table.
    Ms. Sanchez. All right. A quick question on that, and then 
I am sorry, Mr. Chairman, but I am very interested in this 
issue, obviously. You talked about development two and a third 
development of the software with F-35. Is that because of 
concurrence?
    Dr. LaPlante. No, that is separate from concurrence.
    Ms. Sanchez. So software doesn't have anything to do with 
the fact that we are building and doing, and we are coming back 
and----
    Dr. LaPlante. No, no.
    Ms. Sanchez [continuing]. And doing things better?
    Dr. LaPlante. No.
    Ms. Sanchez. This is not--just yes or no so I know. Yes or 
no, with respect to concurrence because we bid this, and we are 
building it in a different manner, so for the future, I need to 
know, are we running into problems? Are you worried about 
development with respect to the software because we are doing 
things at the same time?
    Dr. LaPlante. I would say the answer is concurrence is not 
driving that issue at all.
    Ms. Sanchez. Okay, okay, I just wondered. The last question 
I have has to do with the Army. So the testimony lays out a 
range of programs which would be cut because of sequestration 
in 2014, including helicopters, armored vehicles, and 
communications equipment. Obviously, I think that is probably 
unacceptable, but I am thinking about the fact that I keep 
reading articles all over defense monthlies and dailies and 
weeklies where press reports keep telling us that the active 
duty Army will be down to 420,000 by 2019. So that is a 
pretty--that is a smaller Army than we have today, and it is 
done fairly quickly. If, in fact, these guys who go out and 
report are getting this information from our generals and 
others who are in the know, maybe from some of us, given this 
rapid decline in force structure, how has the Army adjusted its 
procurement requirements, and do your comments today take into 
account the reductions that people are projecting for the Army?
    General Barclay. Well, first of all, on force structure, we 
started this at an Army of 570,000. We were going to an Army of 
490,000 by fiscal year 2017. The Secretary and chief have both 
testified that that was the level we were going to. Under 
sequestration we know that we cannot support an Army, not only 
can we not afford to pay for it, we can't afford to train it, 
and we can't afford to equip it with the sequestration. So the 
490 is the force that we are at. We are looking at the impacts 
of sequestration and where we will have to take the Army down 
to. There are numbers that range anywhere from 380 in the AC 
[Active Component], back to about a 450 number, and our chief 
and Secretary have talked about those different scenarios based 
on how we look at the plans, how we balance between readiness, 
we balance between modernization, and then where we will end up 
being, and so there is still a lot of space here to make some 
of those decisions.
    Ms. Sanchez. So refresh my memory. Before we got into the 
two land wars of Afghanistan and Iraq, what was the active 
number in the Army, do you recall?
    General Barclay. 482,400, ma'am.
    Ms. Sanchez. 482. So you were thinking you were going to 
come down to 490, so even more than what you had before we got 
into two major wars.
    General Barclay. Yes, ma'am.
    Ms. Sanchez. And what you are telling me these numbers I am 
hearing of 420 or you were saying 380 or 450 or whatever have 
to do with the fact that the Army is actually taking a look at 
sequestration and other budget issues to bring it down even 
further.
    General Barclay. I would say OSD is taking a look at 
sequestration.
    Ms. Sanchez. OSD, okay.
    General Barclay. And the impacts, and then as they spread 
that across the services, then we are all then coming back to 
lay out how we are going to address those sequestration cuts 
that are then given to the services. For us, we are manpower 
intensive. That is what the Army is. We are about people. We 
are a land force.
    Ms. Sanchez. Thank you. I know that; my husband spent 23 
years in the Army.
    General Barclay. So when about 48 percent of your budget 
goes against paying the bill for the manpower, then that is 
part of our equation to get to where we need to go, so we are 
going to have to take the force structure down. Do we know 
exactly how low we are going? No. And also I want to add that 
it is not only just Active Component. It is all components. It 
is Active Component, National Guard, and Reserve. They all take 
proportional cuts. We have no choice but to do that to all 
components to get down. And, yes, we have taken that into 
account as we are looking at all of these different programs, 
changing the quantities and buys and modernization impacts at 
different levels of where we will be and then how that will 
result in changing some of those numbers. So, yes, ma'am, we 
are.
    Ms. Sanchez. Perfect. Thank you for your answer, I 
appreciate it.
    Mr. Turner. Mr. Cook.
    Mr. Cook. Thank you, Mr. Chairman.
    The cuts, because of the sequester and everything else, I 
have heard a few of the comments about significant impacts and 
some of the other things, and we have had other hearings, and I 
think all of us heard some very startling information, at least 
the hearings I was at, which basically said, we were not 
combat-ready to meet our current military contingencies and our 
treaty obligations. Now, I might be paraphrasing that 
incorrectly, but I know that specific question was addressed to 
all the different armed services, and I think the chair was 
there, so he can correct me if my memory fails me. But my point 
or the question that I am leading up to, what you have said 
here, it almost leads to a permanent C4 or a permanent 
declaration that each one of our armed services will not be 
combat-ready in perhaps the near future, 10 years. This is 
very, very scary. And I would like you to comment on what I was 
saying because a lot of the things with the sequester, I don't 
think the average person understands it. They understand 
something where our Armed Forces are not prepared or combat-
ready to go to war or a military situation where young men and 
young women can die, and that resonates, at least in my 
opinion, at least to me, at least to my district. So if you 
could kind of comment on where I am going with this because 
obviously, I am not a big fan of the sequester, particularly in 
regards to DOD and national security.
    General Barclay. Well, sir, from an Army perspective, I 
will tell you that I can break it down into a couple 
categories. First on the equipment side, if you look at it, and 
I will tell you that you run them from the CR impact to the 
sequestration impacts in 2014, brought forward by 2013, and 
then the future budget impacts. For example, we are putting 
soldiers at risk just because of the CR with a new start 
program for the counterhazard program for the protection 
against IEDs [improvised explosive devices]. Because of that we 
can't start that. There are no new starts. So the CR has an 
impact on providing something that we currently want to start 
for soldiers that are in the fight now. Some of the delays that 
result from this, the Third Stryker double-V hull. As you know, 
the double-V hull protects against the IED and trying to get 
that third Stryker organization so we can get it into theater 
for the last part of the fight to protect soldiers.
    Ms. Shyu has already mentioned the delaying of the JLTV 
fielding and LIRP [low-rate initial production], so that has an 
impact. And then, again, on the COCOM [combatant command] side, 
the Patriot missiles, we will have four sets, four units that 
we will not field the new PAC-3 missile set to because of this, 
and as we have already talked about, the ITEP engine doing 
that. It is also going to desync some programs that we are 
trying to attach to the future programs, which deal with our 
network modernization, and as we remove some of our capability 
sets moving into theater, we are going to have to slow that 
down. When we started, we were going to field to 10 brigade 
combat teams a year. We are now fielding only to those combat 
teams going into theater. And then so that has a training 
impact.
    On the readiness side, sir, you hit that; we have 
testified, I know the Secretary and the Secretary of the Army 
and the chief of staff of the Army have testified of the fact 
that those units that are going into the war are the only ones 
that we are training to the fullest level. Those are the only 
ones that are getting into our national training centers. All 
other brigade combat teams are not getting that opportunity 
because we don't have the money to send in to those. So, as you 
continue to move forward, the readiness levels continue to come 
down from C3 to C2. Some of those that came home out of the war 
were the C2. They are going to continue to degrade down to a 
C3, C4 because we don't have the funds to train them to the 
highest readiness levels.
    Admiral Myers. First, thank you for the question, and this 
is part and parcel similar to Chairman Turner's question, and I 
would like--the way I would like to answer it is in two parts, 
and the two take-aways are the terms uncertainty and 
inflexibility. Uncertainty is the budget environment that we 
are in right now. The uncertainty of not knowing when we are 
going to have a budget or what that budget is going to be. As a 
Navy, we are asked to provide forward presence with capable 
ships to do our Nation's business. To do that, we have to plan, 
we have to plan strategy, a budget, we have to plan for 
aviation and ship depot maintenance. We have to train our 
people, and we have to have a plan for that. We also have to 
have our maintenance schedules. With the uncertainty, it is 
disruptive when it comes to the planning. With the 
inflexibility that we see with the budget environment that we 
are in right now, we have already seen what happened in 2013, 
and when we look at 2014, the combination of a continuing 
resolution and a sequester is going to impact our training. It 
is going to reduce the number of carrier air wings that can 
effectively train. In 2013, we had two carrier air wings that 
had to go to reduced training. In 2014, it is going to be more 
than twice; half of our carrier air wings are going to be at 
reduced training. Those that are overseas or getting ready to 
go overseas will have the training that they need, but this is 
starting to impact our ability to surge.
    The sequester in 2014 is going to impact depot maintenance, 
it is going to impact procurement, it is going to impact every 
facet of the Navy because it is inflexible, and so when you 
take that inflexibility and you stretch it out for 10 years, 
what you have is a Navy that is less and less capable of 
providing the surge that we used to. It is a Navy that is 
increasingly challenged to have the readiness standards that we 
need for the nondeployed units. It is a Navy that is challenged 
when it comes to filling the missions of the Defense Strategic 
Guidance, specifically to project power, to deter and defeat, 
to provide the kind of support that we need for 
counterterrorism and regular warfare.
    Mr. Turner. Thank you.
    Turning to Mr. Wenstrup, but I just want to make one note 
in that the issue of the language that we used with respect to 
sequestration, when we talk of lifting sequestration, people 
who are discussing it want generally offsets to occur so that 
sequestration can be removed from the Department of Defense, so 
they are not just saying increased spending. But the other 
issue is, Admiral, as you were saying, the issue of flexibility 
or inflexibility. There are two aspects to sequestration, and I 
would just ask you in your closing comments to address this 
after Mr. Wenstrup and the others get to question.
    The bottom-line number under sequestration is also not 
right. If we say flexibility is what is needed, you are stuck 
with a lower number that is going to cause you to be incapable 
of achieving a lot of your goals. As the President structured 
sequestration, it was supposed to be an irrational program and 
that was indiscriminate in its effects and was to not have the 
Department of Defense have flexibility because, as he 
structured it, it was intended to be a penalty for, you know, a 
budget deal to be found that would solve the issue of 
sequestration, which is what we are hoping that certainly is 
solved now. But I don't want, in your very clear statements of 
its effects being damaging because of inflexibility, I don't 
want people to conclude that the answer is we will just provide 
flexibility, and we don't have to provide additional dollars, 
and the Department of Defense is good and made whole. I know it 
is not what you intended, but I just wanted to make that 
footnote.
    Dr. Wenstrup.
    Dr. Wenstrup. Thank you, Mr. Chairman.
    I appreciate you being here and all that you do. I am an 
Army reservist, been in 15 years, a year in Iraq, and I--you 
know, before I came here, I know like anyone else that there 
are places we can make cuts. There are things that we can cut 
out, we can reprioritize, but I have a grave concern about our 
readiness at this point, and I have seen the numbers, at least 
on the Army side, what the projections will look like, and 
clearly, it is not a force that is ready to take on the 
problems in the world, and what we have seen recently, we cut 
the military and then deploy them. We ask them to go into 
Libya, and we talk about going into Syria. I mean this is a 
combination that obviously can't go on, and I still serve as a 
surgeon at Walter Reed, and I can tell you, I know firsthand by 
what the people I see coming through that we are still at war 
now. We are asking way too much with way too little, and I am a 
firm believer, and I have always told veterans, and you can 
appreciate this, you meet a veteran who says, Well, I served 
but not during a war. And I tell them, if you weren't there, we 
would never have peace.
    And we need to maintain a strong deterrent force in this 
country whether we are at war or not, and there should be a 
baseline that we maintain always and have the ability to ramp 
it up when we need to and do it quickly because we can't expect 
the industry to be able to turn on and off. And we can't expect 
our personnel to be able to turn it on and off, and when I look 
at what we are doing today with cutting personnel in this 
economy, you are going to have people going on unemployment. 
And I know that comes out of your budgets ultimately. We are 
paying them anyway. So it is really a shame the trend that we 
are on, and I sit on these committees, and I see everyone is 
concerned. And I know you have to testify in front of other 
people. And I know you meet with the Senate and hopefully the 
administration.
    And I really just want to ask, is there anyone who doesn't 
get it? Do you find opposition to what you are saying when you 
say we aren't ready? Is anyone saying back to you, Oh, yes, you 
are, you are okay, we are going to be fine with what you have 
got? I need to know that because I am wondering why we aren't 
getting this taken care of, and if anyone would care to comment 
on that I would appreciate it.
    General Moeller. Congressman, I have never heard anyone say 
that sequestration has had a positive effect on service 
readiness across the board. You know the negative impacts on 
the Air Force in fiscal year 2013, and I will go back to 
Ranking Member Sanchez's question about the GAO report. One of 
the key places that we went in 2013 was to our readiness 
accounts in order to cover down on our investment accounts. In 
fiscal year 2013, 31 combat-coded squadrons in the Air Force 
stood down for a significant amount of time. Seven of those, 
seven additional squadrons were reduced to takeoff and landing 
currency only. They were flying at the minimum rates. Just as 
with the other services, we deferred critical, critical 
maintenance on our aging platforms in order to make sure that 
we could pay the bills and continue with our investment 
accounts with minimal impact--that is not true--with less 
impact on our investment accounts that we would have had if we 
didn't go to the readiness accounts. So, from an Air Force 
perspective, we were not ready in 2013. It drives readiness 
degradation into 2014, and under sequestration, we will not 
recover our readiness so that we are ready to fight tonight.
    General Barclay. Well, sir, as I stated earlier, again, we 
are only preparing those brigade combat teams that are going 
into the fight. The rest of them, where in the past we would 
try to maintain at the battalion and brigade level of 
proficiency, we are now going down to the platoon level, 
sometimes to the squad level, and the National Guard and 
Reserves, based on sequestration, they may go down to the 
individual crew and squad level, which is the lowest level of 
training that we have ever been, and that is due to only having 
the money to train those forces to the level that are the next 
deployers that are getting ready to go into the fight.
    Dr. Wenstrup. So when I talk about--in followup to that, if 
I may, General, when I talk about a deterrent force, basically 
what you are saying is we really don't have one right now 
because the ones that are trained and ready to go are the ones 
that are going. Would that be correct?
    General Barclay. Yes, sir. We are not training to full-
spectrum operations for the rest of the force.
    Dr. Wenstrup. This is on us, and I yield back.
    Mr. Turner. Mr. McIntyre.
    Mr. McIntyre. Thank you very much.
    Thank you, gentlemen, for being here. Two questions in two 
different areas, and I know I had to come in a little bit late 
because of some other situations. Everything is happening today 
now that we are back on a regular schedule. But I just want to 
clarify, one is on the F-35. I know that the recent flight 
hours now exceed 10,000 hours, recent estimates based on actual 
flight hour testing reveal life-cycle costs about 20 percent 
lower than originally estimated, with the Marine Corps analysis 
the cost per flying hour of the F-35V model about 16.6 percent 
lower than earlier Pentagon estimates, which achieves a savings 
of $12.3 billion over the next five decades. I guess my 
question to the three services that have the F-35 is, do you 
feel like the initial operation capabilities as well as the 
life cycle for your respective version of the F-35, in what way 
will that be impacted by sequestration?
    Secretary Stackley. Let me start, sir, and I will ask 
Admiral Myers and General Walters to join in. First, the data 
that you just described in terms of costs reflect the positive 
trend that the program is on in terms of driving down costs, 
not just procurement, but also as we enter the in-service 
period of the program, greater visibility, fidelity to the 
operating support costs that we are able to attack, and in 
fact, we are seeing projections come down in that regard, and 
that is all good. The IOC dates that were set by the service 
chiefs earlier in this year that they reported to Congress, 
those dates were set with a clear understanding of what the 
requirement, the capabilities would need to be to support those 
IOCs and as well realistic schedules that go with those. So 
both the Marine Corps and the Navy IOC dates and the 2015 with 
Block 2B and then 2018 with Block 3F capabilities with the 
aircraft. We have a good track on those, we understand 
performance to those goals. We understand what the capability 
will deliver, and equally and more important is maintaining the 
path that goes beyond those initial capabilities through the 
continued development of the program. So, right now, after much 
great effort on the part of the program, industry to turn 
things around in terms of cost and technical performance, we 
are seeing the positive returns that we have been yearning for 
through a long program.
    Admiral Myers. I would like to add that the sequester 
pressurizes the Navy's ability to get to IOC in 2018 with Block 
3F. We remain committed. We know that unchecked or unaverted, 
that the sequester will remove a F-35C from the U.S. Navy and 
F-35B tail from the U.S. Marine Corps, but the continued 
sequester is--when I use the term ``inflexible,'' I mean that 
the sequester applies a percentage to a program project or 
activity, so as you take those percentages in the case of 
fiscal year 2014, which is the 10 percent sequester when we 
exempt military personnel, for the Navy is a 14 percent impact 
to the program. That puts pressure, and it puts delays into the 
development and ultimately it puts at risk our ability to get 
to IOC in 2018.
    General Walters. Sir, to your point on the F-35B, I know a 
lot of the data that we have is from the F-35B that the Marines 
are flying right now. We are still on track. We note that a 
sequester in 2014 will take a tail out. We still think we can 
get to our 2017 IOC and then deployment of that aircraft to 
where it needs to be.
    But more to your point on sequester and related to the cost 
to operate the aircraft, like all aircraft that I have seen in 
my career, the flying hour costs if we do due diligence and we 
get the money in the program and we get the engineers to look 
at it, cost to operate will come down. Sequester, you know, I 
fear if we continue on that path, will reduce those efforts, 
and I would hate to see us bottom out on the cost to operate 
those aircraft. I would like to continue. We need those efforts 
to continue so we can operate the aircraft at the most cost-
effective cost way in the future. I think that is what you were 
looking for.
    Dr. LaPlante. Yeah, just a quick comment that the Air Force 
is seeing the same potential positive developments. We have 
some momentum going on controlling the O&S costs, but a lot 
more work has to be done.
    Mr. McIntyre. Thank you.
    Thank you, Mr. Chairman.
    Mr. Turner. Mr. Bridenstine.
    Mr. Bridenstine. Thank you, Mr. Chairman.
    I appreciate the comments on IOC. Beyond IOC, when you talk 
about multiyear procurement--I am a Navy pilot by trade. I flew 
E-2 Hawkeyes and F-18s, and we worked hard to get multiyear 
procurement of the E-2D, something I thought was critically 
important for our carriers, and my concern is I have heard 
testimony from Admiral Greenert that because of the sequester, 
we are in a situation where we are going to have to give up an 
E-2 Hawkeye in the procurement process, and of course, the 
reason is the cost per unit is going to be higher if we can't 
do multiyear procurement. And I guess my question would be, 
there are a number of concerns. Number one, the cost per unit 
of course is going to be higher than it otherwise would be, so 
that is a problem for the taxpayers, and beyond that we have an 
industrial base that is going to in the future want to enter 
into long-term contracts for multiyear procurement, and now 
there is a political risk in doing so beyond just the technical 
risk, and I guess, Mr. Stackley, if you could comment on how 
does the sequester affect multiyear procurement?
    Secretary Stackley. Yes, sir, and there is two parts to 
this, and I think since you brought up E-2D, I will talk to 
that one specifically. E-2D's multiyear procurement 
authorization is awaiting passage of the Defense Authorization 
Act, so it has been supported by both House and Senate, but we 
cannot move forward without that authorization. So step one is 
we need it authorized, and as well it has to be included in the 
appropriations bill. So we need an authorizations bill and an 
appropriations bill that provide for the E-2D multiyear.
    The second impact when we put together the multiyear 
construct for E-2D 5 years procurement, 32 aircraft, that 
brought the requirement for substantial savings that goes with 
the certification. When you look at the impact of 
sequestration, in the first year of the multiyear, where you 
are at risk of losing one of the first five aircraft, and then 
the potential over the 5 years of continued sequestration, now 
you have got this destabilizing impact on a program plan that 
is trying to bring stability and bring the affordability that 
comes with that. So what we are trying to hold on to here is 
the stability that the multiyear provides, not just for the 
affordability it gives us but also for the industrial base, and 
we are trying to do that in the face of this storm called 
sequestration, and we are working with industry, the 
contractor, as we negotiate this multiyear, and we are waiting 
on Congress to pass it in both the authorization and 
appropriations bills, so we can execute it. And what we have to 
do is we have to do this in such a fashion that if downstream, 
there is another shift in terms of the budget, we will plan for 
the multiyear that we provided, but if the budget, if there is 
a tectonic shift in the budget, then that may well impact the 
E-2D program. We have to construct this so we don't lose the 
savings for the aircraft that we ultimately buy.
    Mr. Bridenstine. As far as contracts, would there be 
cancellation of contracts as a result of the sequester, the 
longer-term contracts?
    Secretary Stackley. If you look across the board in terms 
of Navy multiyears, I think we have seven multiyears on the 
books right now, and one of them, for example, is the MV-22. So 
that is an ongoing multiyear. Sequestration in 2014 threatens 
three of the aircraft in that budget year. That would break the 
terms of that multiyear contract.
    I will tell you that the savings that we get across the 
multiyear are just, they are core to our total program plan. 
So, regardless of what comes out of the Congress in terms of 
appropriations in 2014, we are going to continue to work with 
industry to hold together the goodness of the multiyear going 
forward, and for each of the multiyears that we are staring at, 
we are going to go down that same path.
    Mr. Bridenstine. When you think about the future of 
multiyear contracts, would it seem, you know, I guess, 
reasonable that industry would build into the price of their 
products the risk that multiyear contracts might not be worth 
what they otherwise, you know, indicate on paper, and as such, 
they would--we wouldn't benefit as much from future multiyear 
contracts. Is that a fair assessment?
    Secretary Stackley. Almost. Frankly, the risk is on the 
government's part because when we sign up to that multiyear, we 
are making a commitment to a certain quantity over a number of 
years. Now, what industry provides back to us is a cancellation 
ceiling. If they cancel at any point in the program, we 
understand what our liability is associated with some of the 
nonrecurring costs that they have incurred in order to achieve 
the savings that the multiyear promised. If we break--if we, 
the government, break our part of the contract, then we are in 
a negotiation situation with industry to make it right for 
whatever we ultimately procure on the balance of the multiyear, 
and that negotiation is a bilateral negotiation. And we are 
going to ultimately arrive at what is fair and reasonable for 
both parties.
    Mr. Bridenstine. Got it. I yield back. I yield back. Thank 
you.
    Mr. Turner. Thank you.
    Well, I appreciate your comments today including your 
written statements. We greatly appreciate your dedication. With 
each of you, you have very complex issues to manage, funding, 
technology, contract vehicles, congressional lack of action or 
action, and with each of you not only are you anchored 
currently in the present, you are seeing the future. You see 
what we need to do and what is possible and what our options 
are as we go to new threats. So that is why I think your 
statements on sequestration are so important because it is not 
just about what is happening today or tomorrow, it is also what 
is happening in the future as a result of these effects.
    As I indicated, I want to give each of the military 
officers an opportunity to add to their comments anything that 
they believe they would like to conclude with on the record, 
and then I will offer that also to the Secretaries.
    We will begin with General Barclay.

  STATEMENT OF LTG JAMES O. BARCLAY III, USA, DEPUTY CHIEF OF 
                     STAFF, G-8, U.S. ARMY

    General Barclay. Chairman Turner, Ranking Member Sanchez, 
and other distinguished members of the subcommittee, again, I 
would like to thank you for the opportunity to present this 
statement today and answer your questions.
    The Army's leadership understands the gravity of our 
Nation's current fiscal situation, and as the Army's G-8, I 
must allocate resources that balance manpower, readiness, and 
equipping for our Army to meet the Defense Strategic Guidance 
and the defense budget priorities. However, the combined 
effects of the continuing resolutions and the magnitude and 
inflexible nature of sequestration put at risk our ability to 
fully meet the requirements of that Defense Strategic Guidance. 
Annual continuing resolutions cumulatively weaken equipping 
efforts over time. Delaying new starts and reducing procurement 
quantities in short order drive up our costs and ultimately 
postpone the fielding of much needed equipment to our soldiers. 
For the purpose of illustration, if the Army operates under a 
full CR in fiscal year 2014, we would be forced to defer new 
counterhazard programs for our soldiers' protection against 
IEDs. We would also delay the filling of the Stryker double-V 
hulls to the Third Stryker brigade combat team, and we would 
reduce combatant commanders' Patriot missile loads for four 
units.
    As the Army Chief of Staff has recently testified about 
sequestration, the Army cannot reduce its end strength fast 
enough, so readiness and modernization will take the brunt of 
cuts through fiscal year 2017. The cuts result in significantly 
degraded readiness and extensive modernization shortfalls in 
the near term. Over the fiscal year 2018 to fiscal year 2023, 
the Army may begin to rebalance some readiness and 
modernization and try to meet those requirements that are laid 
upon us by our Nation, but we will do that by paying in force 
structure and end strength, and we will add significant risk to 
the Army's ability to conduct even one sustained major combat 
operation in the future. If sequestration levels continue in 
fiscal year 2014, they would compound the cumulative effects of 
the CR. The detriments imposed would cause the Army to assume 
significant risk in our combat vehicle development, it would 
reduce our Apache helicopter procurement by 50 percent, which 
is the equivalent of one attack battalion, it would halt the 
procurement of the warfighter information network, and that 
would have an impact on 58 brigade combat teams. And without 
relief from sequestration in the future, we would be required 
to take increasingly significant actions by ending, 
restructuring, or delaying about 100 acquisition programs. The 
sequestration levels would result in decreased capabilities for 
the soldiers in every area, from our combat vehicles to 
aviation to air missile defense.
    In the end we strive to be good stewards of the taxpayer 
dollars while balancing the existing resources we have to meet 
the Defense Strategic Guidance. However, the combined effect of 
CRs and sequestration undermines these endeavors. The end state 
is a less modernized force at an increased cost today that 
results in an inefficient and wasteful use of taxpayer dollars 
and an undersized, less capable force in the future. We urge 
Congress to provide fiscal stability and predictability, pass 
timely annual appropriations and eliminate sequestration. If we 
must operate under a continuing resolution, we ask you to 
provide new start authority. Doing so would help us mitigate 
some of these effects.
    Chairman Turner, Ranking Member Sanchez, members of the 
subcommittee, again thank you for your unwavering support of 
the men and women of the United States Army, our Army civilians 
and their families, and I appreciate the opportunity to testify 
today.
    [The joint prepared statement of General Barclay and 
Secretary Shyu can be found in the Appendix on page 44.]
    Mr. Turner. Thank you.
    Admiral Myers.

 STATEMENT OF VADM ALLEN G. MYERS, USN, DEPUTY CHIEF OF NAVAL 
OPERATIONS FOR INTEGRATION OF CAPABILITIES AND RESOURCES (N8), 
                           U.S. NAVY

    Admiral Myers. Chairman Turner, Ranking Member Sanchez, and 
members of the committee, it has been an honor to appear before 
you today to discuss the impacts of the continuing resolution 
and the budget sequester on the Navy's fiscal year 2014 
acquisition programming and industrial base. Our fiscal year 
2014 budget request supports the Defense Strategic Guidance, 
and it will enable us to continue to rebalance our effort 
towards the Asia-Pacific rebalance, supports our partners in 
the Middle East, and focuses our presence at key strategic 
maritime crossroads. It also enables us to meet the highest 
priority capability demands of the geographic combatant 
commanders.
    To be frank, sequestration combined with a continuing 
resolution in fiscal year 2014 will be very hard on our Navy. 
We will have to absorb a larger reduction than we did in fiscal 
year 2013 from a smaller amount, a smaller submission. In 
fiscal year 2014, we don't have the prior-year assets that we 
can use to mitigate the impacts as we did before, and we don't 
have the ability to just defer carryover bills into the future 
years like we did in the past. These are going to start to 
compound.
    As the CNO has testified, sequestration and continuing 
resolution will reduce our readiness in the near term, and it 
exacerbates program reductions that are required under the 
current law and long term. We have been compelled to cancel or 
defer maintenance and investments in critical aviation 
programs, unmanned systems, and weapons systems.
    As the Nation continues to find a fiscal balance, the Navy 
is endeavoring to ensure that the near-term readiness and the 
future warfighting capabilities are properly balanced. To do 
this, it is important that we establish and pursue a plan for 
the future to develop a deliberate nature on how we go about 
finding fiscal certainty.
    Now, we are committed to an efficient use of the American 
taxpayer dollars, but the reductions of this magnitude take 
time to implement, and it takes time to reap the savings from. 
They also need to be done very carefully and strategically.
    As I previously testified to Congress, I feel like the most 
serious impact of sequestration and the continuing resolution 
is uncertainty. It is imperative that we have a predictable 
budget and associated authorities. Stability, that is what we 
need. It will enable us to plan and develop and execute a 
strategy that guides our efforts to sustain the appropriate 
readiness for today's Navy while building a fleet for the 
future that is able to deliver the most important presence and 
capabilities that our warfighters need.
    As I testified just a few minutes ago, the role of the Navy 
is to operate forward and to be ready with a trained and 
capable force, but to do that we have to plan, we have to plan 
a strategy, a budget, aviation and shipbuilding plans, 
operations plans, training plans, maintenance schedules. We 
need sailors that are trained and ready to man and operate our 
ships and aircraft when they are needed and where they are 
needed. Sequestration and the budget uncertainty and the 
immensely disruptive nature of the combination impacts our 
ability to plan and act strategically and execute efficiently. 
It disrupts our ability to operate. We saw that in fiscal year 
2013. It disrupts our ability to train and maintain the way 
that we need to, which then impacts the way that we are going 
to operate in the next fiscal year, and most significantly, it 
disrupts our dedicated sailors, civilians, and their families 
because of all the uncertainty that is now a challenging part 
of their everyday life.
    We understand what our responsibilities are. We also 
understand that this is something that we need to work through 
together, and anything that we can do together to put certainty 
and stability back into the budget process, to end the 
automatic and inflexible sequester and the BCA caps, would not 
only be appreciated, but it would be embraced by the 634,000 
Navy sailors and civilians that are operating around the globe 
protecting this Nation. Thank you for the opportunity to 
testify on behalf of the United States Navy.
    [The joint prepared statement of Admiral Myers, Secretary 
Stackley, and General Walters can be found in the Appendix on 
page 55.]
    Mr. Turner. It is my understanding that votes have been 
called, so we have about 10 more minutes.
    So, General Walters and General Moeller, I am going to ask 
if you could keep your comments relatively brief and giving 
some opportunity to the Secretaries. Saved by the bell.

 STATEMENT OF LTGEN GLENN M. WALTERS, USMC, DEPUTY COMMANDANT 
         FOR PROGRAMS AND RESOURCES, U.S. MARINE CORPS

    General Walters. Got it, sir. I will throw this piece of 
paper away here.
    Chairman Turner, Ranking Member Sanchez, distinguished 
members of the subcommittee, thank you for the opportunity to 
testify today. As the Commandant of the Marine Corps testified 
before this subcommittee a little over a month ago, the Marine 
Corps is the Nation's expeditionary force in readiness, our 
Nation's hedge against uncertainty with forces poised to 
swiftly respond to crisis and disaster, offering immediate 
options for strategic decisionmakers while simultaneously 
buying time for a follow-on joint force. We mitigate this, we 
mitigate the risk inherent in an uncertain world while being 
ready to respond to today's crisis with today's force today.
    However, our ability to mitigate these risks is compromised 
by our inability to get a budget approved and the facilities 
and sound management of personnel and equipment and limited 
resources from one year to the next. Since our readiness is 
directly linked to resources, sequestration-level cuts in 
fiscal year 2014 will force us to forfeit long-term priorities 
to fund near-term readiness.
    The impacts we face on readiness today will have primary 
and secondary effects. While the primary effects on short-term 
readiness will begin to be observable in fiscal year 2014, 
longer-term effects will be even more devastating. We are 
consuming tomorrow's seed corn today to feed our requirements 
for readiness today.
    Sequestration has and will continue to have a significant 
negative impact on our civilian workforce. Our civilians play a 
critical role in the acquisition process, financial management, 
ground equipment maintenance, training range operations and 
installation support services, and all of our family support 
programs.
    In fiscal year 2013, our civilian workforce took a 6-day 
furlough and started this fiscal year on furlough. Money was 
not the reason they chose to work for the Marine Corps. They 
chose to work for public service and to serve their fellow 
civilians. They chose public service to do their part in making 
the United States the best country in the world.
    If we don't value their contributions, many will choose to 
find a line of work elsewhere. The specter of further furloughs 
or reductions in force present significant challenges to our 
ability to retain and attract the talent we need.
    I thank you for this opportunity to share my thoughts.
    [The joint prepared statement of General Walters, Secretary 
Stackley, and Admiral Myers can be found in the Appendix on 
page 55.]
    Mr. Turner. General Moeller.

 STATEMENT OF LT GEN MICHAEL R. MOELLER, USAF, DEPUTY CHIEF OF 
     STAFF FOR STRATEGIC PLANS AND PROGRAMS, U.S. AIR FORCE

    General Moeller. Chairman Turner, members of the 
subcommittee, the continuation of sequestration will make the 
Air Force significantly smaller, less capable, less flexible, 
and less ready to meet our Nation's current military 
obligations. Most importantly, it will make it very difficult 
for us to prepare to meet the challenges we will face in the 
future. The erosion of readiness will carry far greater 
consequences. It means we may not get there in time. It means 
less--it may take longer for the joint team to win. And when we 
do respond, we will put our invaluable men and women who go 
into harm's way at greater risk. Simply put, if sequestration 
is fully implemented over the course of the next 10 years, the 
Air Force will not be ready to fight tonight; it will struggle 
to be prepared to meet tomorrow's challenges.
    To maintain the minimum levels of readiness and sustain our 
highest investment programs, the Air Force will be forced to 
cut thousands of total force airmen and hundreds of platforms. 
As we divest force structure, our priorities are to retain the 
global long-range capabilities and multirole platforms that are 
required to operate in highly contested environments. We will 
focus on divestiture of entire fleets of aging and costly 
platforms and those less capable and less survivable in heavily 
defended airspace. We don't want to do this. But the bottom 
line is sequestration will mean a smaller Air Force, period.
    [The joint prepared statement of General Moeller and Dr. 
LaPlante can be found in the Appendix on page 72.]
    Mr. Turner. Do any of the Secretaries have any closing 
comments?
    Secretary Shyu. Quickly, the combined effects of CR and 
sequestration are devastating. We are reaching a historical low 
in research, development, and acquisition in the Army, which 
will continue to degrade our capabilities and our 
modernization, and put our soldiers' lives at risk in future 
contingencies. We need budget stability without sequestration. 
We need to have the ability to plan without CR, sequestration, 
furloughs, and government shutdowns.
    Thank you for the opportunity to testify, and thank you for 
your unwavering support of our soldiers.
    Secretary Stackley. Sir, briefly, the Congress and the 
Department of Defense share the common responsibilities to 
protect the Nation and take care of our men and women in 
uniform. We have presented the Defense Strategic Guidance as 
the document, that tool to describe how we intend to meet those 
responsibilities, and we have submitted the President's budget 
request as a determination of the funding we believe is 
necessary to meet the Defense Strategic Guidance. And in 2013, 
and again before separate committees in 2014, that budget 
request was fully supported by the Congress. And yet the 
invisible hand of sequestration for the Department of the Navy 
took $11 billion out in 2013 and threatens to take another $16 
billion out in 2014. That results in a smaller Navy, smaller 
Marine Corps, less presence, less ability to meet the Defense 
Strategic Guidance. And this at a time when peer competitors 
are increasing their investment in their capabilities and their 
force around the world.
    Mr. Turner. Mr. LaPlante.
    Dr. LaPlante. Thank you, Chairman Turner, and thank you to 
your committee, your subcommittee's work. I would finally just 
add that we need help in getting our readiness back, and we 
need to get stability so we can do acquisition for the 
warfighter and for the taxpayer. Thank you.
    Mr. Turner. The title of this hearing was ``Impacts of a 
Continuing Resolution and Sequestration on Acquisition and 
Modernization.'' I think for impacts, with all of your 
testimony, we can say that the conclusion is ``Sequestration: 
Bad and Getting Worse.'' With your help, hopefully we will be 
able to offset it. I am very proud to have voted against this. 
I know all members of the Armed Services Committee are very 
proud to continue to work to get it lifted, and by ``lifted'' 
we mean, of course, that there are offsets elsewhere in the 
budget so that sequestration will not have these devastating 
impacts on the Department of Defense. Thank you all for what 
you do. We will be adjourned.
    [Whereupon, at 5:31 p.m., the subcommittee was adjourned.]



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




                            A P P E N D I X

                            October 23, 2013

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


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            October 23, 2013

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




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            October 23, 2013

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

      
                   QUESTIONS SUBMITTED BY MR. TURNER

    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    Secretary Shyu. An extended Continuing Resolution (CR) and the FY14 
proposed sequestration reductions would adversely impact the following 
aviation programs: Apache, Chinook, and Gray Eagle. The CR limitations 
and the sequester cuts would reduce procurement quantities, delay 
fielding of critical aviation systems, impede contract negotiations and 
put some existing contracts at increased risk.
    An extended CR would also delay the start of some network programs 
in FY14 and challenge program execution efforts due to funds released 
later in the fiscal year. Sequestration reductions have reduced 
procurement quantities across all existing network programs such as 
WIN-T, Tactical Radios, and Waveform Development, and will delay 
development and testing of some critical networking capabilities beyond 
the Future Years Defense Program.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    Secretary Shyu. In general, the earlier a program is in the 
acquisition lifecycle, the less disruptive a funding reduction. Unless 
the program is responding to an Urgent Operational Need Statement, most 
early contractual efforts are based on cost type contract vehicle where 
the government and the contractor share risk. In the later phase of a 
program, in production, contract vehicles for operational testing or 
for fielding efforts become fixed price oriented in general, where the 
contractor assumes more risk than the government.
    For example, a program that is pre-Milestone B (in Technology 
Development) is able to absorb shifts in funding easier than a program 
that is post-Milestone B. Once the Acquisition Program Baseline is 
established, a program must meet the established baseline or it must 
report to Congress on why it did not meet them, either through a 
significant change or a critical change.
    The most grievous concern would be a statutory violation as a 
result of a funding reduction, a Nunn-McCurdy Statutory violation or 
the equivalent for a Major Automated Information System program 
(failure of a program to achieve Initial Operational Capability prior 
to five years from Milestone A or funds first obligated). These 
violations must be avoided. Other statutory requirements levied on the 
Department of Defense must also be taken into consideration as well, 
for example, the Army's statutory requirement to be financially 
auditable by the end of Fiscal Year 2017.
    Reducing procurement funding usually reduces the quantity purchased 
with a resulting increase to the per unit cost. Quality reductions may 
result in a production line break, industrial base impacts --
particularly to second and third tier vendors--and delayed delivery to 
the Warfighter.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    Secretary Shyu. Sequestration reduces the level of available 
appropriated funding which will affect all programs, regardless of 
contract type. On many fixed-price contracts the quantities would be 
reduced to meet the available dollars and we would expect the unit 
costs to rise. The effects on multi-year procurements are more 
pronounced: if sequestration reduces the quantity buys to below the 
minimum level, a new negotiation may be required on the terms and 
conditions of the new contract. This will delay procurement of the 
system and delay the fielding to Warfighters. In addition, multi-year 
contracts typically generates significant amount of savings for the 
Army compared to annual procurement--the savings will be lost if the 
multi-year contract is broken. Furthermore, the Army will have to pay a 
termination liability.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    Secretary Shyu. The impacts of reductions depend on how the Budget 
Control Act is applied to the specific sources of appropriated funds. 
All contracts impacted by funding changes may need to be modified to 
adjust the requirements and dollars. Other courses of action include 
reduced order quantities against indefinite delivery indefinite 
quantity contracts, not exercising contract option periods, and 
contract terminations.
    The Army, unlike other services, has only a small number of multi-
year (MY) procurement contracts. Significant funding reductions could 
lead to breaking minimum production quantities and loss of efficiencies 
and cost savings in MY contracts. Funding reductions under 
sequestration could lead to renegotiations or possibly cancellations of 
these contracts.
    The combined effects of a continued CR and sequestration reductions 
in FY14 extend across the full range of diverse capabilities we field 
in support of our Warfighters. Assuming the most inflexible reductions 
to funding to programs, as many as 12 Apache helicopters in FY14 could 
be reduced. Development of the Improved Turbine Engine Program, the 
Armed Ariel Scout Helicopter, and upgrades to the MQ-1 Gray Eagle would 
be placed at risk.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    Secretary Shyu. No, we have reached a point where further delaying 
new starts, cancelling additional programs, and continuing to reduce 
existing programs will result in unacceptable risks for the Army. As a 
result of repeated Continuing Resolutions, the Budget Control Act, and 
sequestration, many Army programs have been cancelled, deferred, 
delayed, or restructured in an effort to maintain efficiencies and 
effectiveness in our major defense acquisition programs. Many of the 
programs impacted, some multiple times, are small programs that provide 
critical capabilities to the Army and the Joint force. These include 
Liquid Logistics, heavy machine guns, sniper rifles, construction 
equipment, and tactical bridging.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    Secretary Shyu. The Army has not delayed contract awards or reduced 
spending rates in an effort to prepare for sequestration in fiscal year 
2014 (FY14). The Army's ability to execute acquisition program 
timelines and contract awards is actually impacted by the absence of an 
appropriation in FY14 and the enactment of a continuing resolution that 
limits funding to prior-year levels. However, the continued instability 
of our fiscal environment limits the Army's ability to accurately 
develop and execute planned timelines for the design, engineering, 
manufacturing and fielding of weapon systems.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    Secretary Shyu. The current funding instability fundamentally 
hampers our ability to plan and execute acquisition programs in support 
of the Warfighter. Key development, testing and production activities 
are subject to the limited funds available under a continuing 
resolution (CR). Under a CR, we lack the authority to start new 
programs or authorize planned increases in production quantities for 
fielding. Sequestration reductions in Fiscal Year (FY) 2013 already 
reduced or eliminated our margin for error on many of our programs, 
even with our efforts to mitigate using prior-year funds. Reductions in 
FY14 and beyond will directly result in reduced production quantities, 
deferred investment in new capabilities, and delays in many programs. 
The hiring freeze, civilian furloughs and government shutdown decimates 
our current and future ability to recruit and retain critical skills 
and expertise in the government workforce. This creates significant 
impacts to the execution of our Science and Technology projects, 
acquisition programs, testing, contracting, logistics and depot 
maintenance. Delays in testing, contracting, and depot maintenance will 
have a rippling effect on our program execution by increasing cost due 
to inefficiencies garnered. The long-term effects of this instability 
are yet to be fully discerned but we know that the combined effects of 
sequestration and a yearly CR will significantly increase the costs of 
vital Soldier weapon systems.
    The combined effects of a continued CR and sequestration reductions 
in FY14 extend across the full range of diverse capabilities we field 
in support of our Warfighters. Assuming the most inflexible funding 
reductions, as many as 12 Apache helicopters in FY14 would be reduced. 
Continued cuts in FY14 may result in the reduction of up to 11 Chinook 
aircraft in FY14 and place the Army's ability to maintain the multi-
year production contract at risk. The Army will assume risk in its 
aviation modernization efforts for Chinook and Blackhawk contracts. 
Development of the Improved Turbine Engine Program, planned 
modernization of the Armed Aerial Scout Helicopter, and upgrades to the 
MQ-1 Gray Eagle will all be at risk. Modernization of combat vehicles 
will be affected and result in delays to scheduled Engineering Change 
Proposal upgrades to Abrams tank and Bradley Infantry Fighting 
Vehicles.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    Secretary Shyu. The lack of prior year funding significantly 
reduces the Army's flexibility and increases risk when addressing 
sequestration impacts. In FY13, the Army was able to mitigate many of 
the impacts that would otherwise have come to fruition against a number 
of programs by offsetting sequestration reductions with prior year 
unobligated funds. As prior year funds became scarce, the margin for 
error as programs decreases, pushing the programs towards critical 
breaches in delayed fielding to Soldiers.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    Secretary Shyu. Delays in systems development correlate to delayed 
production which ripples into delayed fielding of capabilities to the 
Warfighter. Inefficiencies created from the delays will lead to 
increased program cost. Deferring testing leads to stretch-out of 
program schedule since development and operational testing must be done 
to demonstrate that the system met performance requirements. Reducing 
testing during sequestration will lead to increased program risk which 
may result in deficiencies not discovered until later. Generally 
speaking, the later a deficiency is discovered in a program, the more 
expensive it is to fix the problem. Reducing testing in FY13 may also 
result in postponing the necessary residual testing until FY14 which 
leads to stretch-out of program schedule and increased cost.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    Secretary Shyu. Programs incur increased costs when schedules are 
extended, including development, personnel, test, and production. When 
capabilities are reduced and brought back at a later date, there are 
costs associated with schedule increases resulting in the loss of 
efficiencies and impacting the overall acquisition program. In an 
effort to avoid additional costs associated with delayed development 
activities and procurement in FY13, the Army used unobligated prior 
year funds to mitigate the effects of sequestration. In doing so, the 
Army accepted risk for programs with approved development and 
procurement contract actions scheduled in FY14. In the event that a 
Continuing Resolution or Appropriation is not passed, the Army has 
limited prior year funds available to support spending limitations in 
FY14, which could significantly impact new start programs, production 
rate increases or programs that are limited in funding due to 
sequestratoin. The Army thus far has been successful in mitigating 
added costs from sequestration. However, failure to enact a timely and 
sufficient Appropriation in FY14 could counteract these efforts to 
protect taxpayer dollars.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    Secretary Shyu. Funding reductions under the Budget Control Act 
were absorbed in fiscal year 2013 (FY13), but not without hostile 
effect to the Army's acquisition programs. The very nature of these 
indiscriminate cuts resulted in disproportionate impacts within many of 
our programs that may not be discerned right away. These reductions 
translated to varying delays in program schedules, reduced quantities 
of equipment procured and challenges imposed on the program's ability 
to meet development timelines planned well in advance. In many cases, 
the lasting effects of these disruptions are revealed as development 
programs reach milestone events planned months or years in advance. The 
Army's ability to endure these effects in FY13 ultimately depends, in 
large part, on the availability of stable resourcing at requested 
levels in ensuing fiscal years.
    Moreover, in FY13, the Army was able to mitigate many of the 
impacts by offsetting sequestration reductions with prior year 
unobligated funds. The increasingly scarce sources of prior year 
unobligated funding, combined with the cumulative disruptive effects of 
reductions in FY13 and prolonged Continuing Resolutions in FY13 and 
FY14, will continue to significantly impact the Army's weapon system 
programs in FY14.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    Secretary Shyu. Sequestration reductions in FY14 could put the 
Apache and Black Hawk programs at risk of a Nunn-McCurdy breach. The 
significant funding reductions resulting from sequestration would 
undermine the assumptions used in the programs' cost estimating models, 
prevent favorable contract negotiations, and potentially result in 
breach of the Black Hawk multiyear contract. Sequestration reductions 
have reduced procurement quantities across all existing network 
programs such as WIN-T, Tactical Radios, and Waveform Development, to 
specifically include the Small Airborne Networking Radio. These funding 
reductions will delay development and testing of some critical 
networking capabilities beyond the Future Years Defense Program.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    Secretary Shyu. Current Nunn-McCurdy breaches generally reflect 
poor programmatic management and cost growth. Based upon the continued 
sequestration challenges to execution years, as well as out-year 
sequestration planning controls, programs will hit Nunn-McCurdy 
breaches due to funding constraints and pushing programs beyond 
scheduled end dates. As a result, Nunn-McCurdy breaches will generally 
be outside of the Program Manager's span of control if funding controls 
are significantly altered from the approved Acquisition Program 
Baselines. We recommend that Congress consider allowing programs that 
hit Nunn-McCurdy breaches due to sequestration to rebaseline under the 
rules of a Critical Breach. This would allow programs to ``re-set'' and 
would prevent significant cost and schedule delays caused by Nunn-
McCurdy breaches.
    Mr. Turner. Please elaborate on the second and third order effects 
that could result from significant reductions in the Army's procurement 
and research and development budget accounts, e.g. industrial base 
impacts at the supplier and vendor levels.
    Secretary Shyu. Given the drawdown of operations in Iraq and 
Afghanistan and current budgetary pressures, the Army is working 
closely with industry to better understand the impacts to the defense 
industrial base and mitigate significant adverse effects. Since Army's 
Research, Development, Test & Evaluation and Procurement budget is 
declining faster than the Army's top-line reduction, second and third 
order impacts could potentially create significant problems as 
companies, both large and small, must rapidly adjust to reduced 
revenue. Large companies have been shedding workforce, restructuring 
and consolidating businesses to adjust to the shrinking top-line. 
Smaller companies have to diversify their portfolio or risk becoming 
unprofitable.
    The Army is concerned with the ability to retain critical 
engineering design, development and manufacturing capabilities in the 
defense industrial base across the entire supply chain. The Army has 
taken specific steps to mitigate critical impacts to the supply chain. 
Mitigation of adverse impacts is being addressed through measures that 
include: advocacy for FMS, extending production at lower levels to 
mitigate impacts of layoffs, increased quantity buys to meet minimum 
sustainable rates at second tier companies, investments in R&D to 
develop the next generation products for critical supply chain, monthly 
reporting by each PEO on industrial base impacts of their supply chain 
for the products within their portfolio, and ensuring the organic 
industrial base can step in to produce the critical component as a 
second source.
    The Army continues to conduct an assessment of the industrial base, 
both independently and in conjunction with broad DOD initiatives. The 
Army's Industrial Base assessment, the AT Kearney Combat Vehicle 
Industrial Base assessment, the DOD's Sector-by-Sector, Tier-by-Tier 
analysis are focused on identifying potential weak points in the 
Industrial Base and guiding efforts that support critical elements 
found to be at risk.
    Mr. Turner. How would the Army's planned growth of an additional 
combat aviation brigade be impacted?
    Secretary Shyu. To comply with the Budget Control Act of 2011, the 
Army continues to plan the drawdown to 490,000 Active Component spaces 
and assess our force structure today to achieve the right force mix for 
required missions. However, the 4th Infantry Division Combat Aviation 
Brigade (the additive CAB) remains programmed in the force with the 
activation of the CAB at Fort Carson earlier this year.
    Mr. Turner. In February you had stated that 1,100 companies (over a 
third of the critical vendor industrial base) were in moderate to high 
risk of bankruptcy? Do you still stand by that statement?
    Secretary Shyu. Because of the rapidly changing landscape and a 
myriad of factors that contribute to the overall business climate, it 
is difficult to accurately assess overall bankruptcy risk in the 
Industrial Base. The Army is actively engaged in efforts to assess risk 
in the Industrial Base. The Department of Defense the Sector-by-Sector, 
Tier-by-Tier (S2T2) effort seeks: (1) to establish early warning 
indicators of risk, particularly at lower-tiers; (2) to strengthen the 
supply chain and mitigate potential points of failure; and (3) to 
perform joint agency assessments providing the Army the ability to 
capture impacts on market sectors, manufacturers, and the Warfighter 
requirements across the Services. The Army Industrial Base Baseline 
Assessment seeks to analyze three factors: (1) to conduct a sector and 
sub-sector assessment of programs identified as critical by Program 
Executive Offices and Life Cycle Management Commands; (2) to determine 
the impact of reductions in funding to program requirements; and (3) to 
develop recommendations which enable the industrial base to sustain 
current and future Warfighter requirements. The AT Kearney Combat 
Vehicle Industrial Base assessment is focused on identifying potential 
weak points and guiding efforts to support critical elements found to 
be at risk in the Combat Vehicles portfolio.
    Mr. Turner. If the continuing resolution is in place for a full 
year, what impact does this have on execution of the Joint Light 
Tactical Vehicle program?
    Secretary Shyu. The JPO is making every effort to keep the test 
program on schedule in order to meet the scheduled Milestone C and Low 
Rate Initial Production (LRIP) contract award dates in Fiscal Year 2015 
(FY15). Unfortunately, the collective impacts of sequestration, 
congressional decrements in FY13, furloughs, and the government 
shutdown resulted in the program behind its planned testing schedule. 
While this does not yet require a slip in the program's overall 
schedule, a FY14 continuing resolution that reduces program funding by 
an additional $30.7M ($17.8M for the U.S. Army and $12.9 million (M) 
for the Marine Corps) beyond reductions already levied would impose a 
tremendous challenge. Such cumulative program budget reductions would 
require the test schedule to be extended, since the majority of FY14 
funding supports EMD phase testing. This could potentially cause up to 
a 12-month delay in the Milestone C decision and LRIP contract award.
    Mr. Turner. How would sequestration and a year-long CR scenario 
impact your ability to fund weight reduction initiatives for personnel 
protection equipment? How would this impact the PPE industrial base, 
e.g. body armor, night vision devices, etc.
    Secretary Shyu. The impact of a year-long Continuing Resolution, 
which effectively translates into a 30 percent funding cut, would be 
delays in the introduction of this improved, lighter protective 
capability. Limited User Evaluations of the SPS Vital Torso, Integrated 
Head Protection and Transition Combat Eye Protection subsystems, and 
the Phase II contract awards for the Torso Protection subsystem would 
be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15 
and the Milestone C decisions on these subsystems, depending upon 
receipt of funding, would slip 6-9 months from the planned third 
Quarter FY15 date.
    There is no immediate impact to the Industrial Base for ongoing 
procurement and fielding of head, eye, pelvic, torso armor, and other 
personal protective equipment. Funding is currently at the minimum 
sustaining rate for maintaining two qualified armor vendors in hard and 
soft armor solutions. Further funding reductions may place the Army's 
ability to maintain competition (and expertise) at risk.
    Projected Fiscal Year 2013 orders from the Army did not support 
minimum sustainment rates as reported by the two vendors for night 
vision image intensification tubes. However, both vendors have 
restructured and are still producing image intensification tubes. 
Further funding decreases from sequestration may stress image 
intensification tube manufacturing and ultimately drive up system costs 
if competitive pressure is lost due to the loss of one vendor. However, 
the Office of the Secretary of Defense ``Report to Congress on the 
Assessment of Industrial Base for Night Vision Image Intensifier 
Sensors,'' completed in September 2012, concluded that Warfighter 
readiness would not be negatively impacted if the industrial base was 
further reduced.
    Mr. Turner. If sequestration remains in FY14 and FY15, what impact 
will this have on the execution of the Joint Light Tactical Vehicle 
program? Please provide the subcommittee with an update on this 
critical program.
    Secretary Shyu. The JLTV Joint Program Office (JPO) has made 
substantial progress in streamlining the program timeline, and both the 
Army and Marine Corps remain fully committed to this program. The 
Engineering and Manufacturing Development (EMD) Phase of the program is 
proceeding well; all 66 of the EMD phase prototype vehicles were 
delivered on time and are currently undergoing ballistic, Reliability 
Availability and Maintainability (RAM), and performance testing. 
Although testing is in its early stages, the JPO remains confident in 
each vendor's ability to meet requirements.
    The JPO is making every effort to keep the test program on schedule 
in order to meet the scheduled Milestone C and Low Rate Initial 
Production (LRIP) contract award dates in Fiscal Year 2015 (FY15). 
Unfortunately, the collective impacts of sequestration, congressional 
decrements in FY13, furloughs, and the government shutdown resulted in 
the program behind its planned testing schedule. While this does not 
yet require a slip in the program's overall schedule, a FY14 continuing 
resolution that reduces program funding by an additional $30.7M ($17.8M 
for the U.S. Army and $12.9M for the Marine Corps) beyond reductions 
already levied would impose a tremendous challenge. Such cumulative 
program budget reductions would require the test schedule to be 
extended, since the majority of FY14 funding supports EMD phase 
testing, this could potentially cause up to a 12-month delay in the 
Milestone C decision and LRIP contract award.
    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    Secretary Stackley. An FY2014 continuing resolution (CR) and 
sequestration take away from the Department's ability to provide 
warfighting capability and capacity with the measures of efficiency 
essential to balancing the requirements of the Defense Strategic 
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon 
system development timelines will be extended and costs will be higher, 
production unit costs will increase, and the risk to the long-term 
viability of the defense industrial base will increase. Reductions to 
investment accounts will slow production on factory floors across the 
defense industrial base adding cost and schedule to weapon systems. 
Equally critical, these reductions will drive delays into the 
development of those leading edge weapon systems that contribute to our 
warfighters' asymmetric advantage over our adversaries.
    If fiscally constrained to sequestration level funding over the 
long term, the Navy of 2020 would not be able to execute the missions 
described in the Defense Strategic Guidance. The 2014 Quadrennial 
Defense Review will analyze the Department of Defense force structure 
as a whole and set the long term course for DOD strategy and 
priorities.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    Secretary Stackley. The effects of sequestration vary depending on 
a program's stage of development and fielding, but also vary from 
program to program. Sequestration impacts to some Naval programs in the 
development stage will result in loss of capability, while other Naval 
programs will experience a delay in delivery. Most of Navy's 
development work is tied directly to acquisition programs of record. 
Consequently, reductions in the development stage will potentially have 
an impact on their production schedules and costs.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    Secretary Stackley. Yes, if sequestration remains in place, the 
effects may differ for different contract types, but the limited funds 
will cause the Department of the Navy to reduce the products and/or 
services being purchased on many existing contracts. Limited funds 
forces the Department to prioritize all our requirements, including 
mission critical programs, then determine how much money we have 
available for those programs.
    From a contractual obligation perspective, some types of contract 
vehicles provide the Department with more flexibility than others. 
Given current regulatory requirements, the Department has more 
flexibility with existing Cost Reimbursement, Indefinite Delivery, 
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they 
provide the Department with maximum flexibility in avoiding hard budget 
limits. Typically, cost reimbursement contracts provide greater 
flexibility than firm fixed price contracts.
    The amount of obligations under a ``firm fixed price'' contract is 
the face value of the contract that is fully funded at contract award. 
The Department has less flexibility with existing fixed price 
contracts, but can choose, if deemed necessary, to re-negotiate 
established pricing based on our decision to de-scope quantity, 
capability and breadth of contract performance. The Department may also 
choose to not exercise and/or re-negotiate any contract options for 
future supplies or services.
    Multi-year contracts require added management focus in this 
sequestration environment. Unlike annual contracts, obligations under a 
multi-year contract have established contract terms and conditions 
including cancellation payment; therefore particular attention must be 
paid to meet these terms and conditions or otherwise re-negotiate the 
contract.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    Secretary Stackley. The Department of the Navy does not currently 
anticipate the need to renegotiate a large number of fixed price or 
multiyear procurement (MYP) shipbuilding contracts due to sequestration 
in FY 2014. No major previously awarded fixed price shipbuilding or 
aviation contracts will require deobligation of funds, and no Marine 
Corps contracts will need to be renegotiated.
    However, the Department's ability to continue to absorb 
sequestration reductions without impacting multiyear contracts is 
increasingly tenuous. The impacts of the FY 2013 sequester were 
mitigated by the use of prior-year investment balances and 
authorization to reprogram funds. Additionally, many planned costs were 
deferred to preserve multiyear contracts. As these limited stop-gap 
measures are exhausted, there will soon be few options for resources 
and multiyear contracts may have to be renegotiated at reduced 
quantities, putting substantial savings at risk.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    Secretary Stackley. The Department of the Navy (DoN) implemented 
these mitigation measures in developing the FY13 President's Budget 
submission in accordance with the Budget Control Act of 2011, and in 
managing the FY13 continuing resolution and sequestration. FY13 
sequestration resulted in curtailed operations, deferred maintenance, 
depleted unobligated prior-year balances in our investment accounts, 
and deferred costs to future year budgets. While this mitigated the 
immediate impacts, it was insufficient to bear the full weight of 
sequestration, resulting in delays to development schedules and 
reductions to procurement quantities. The net effects of these 
deferrals, delays, and program cuts are added bills and increased costs 
in FY14 and beyond. While we continue to employ these measures to the 
extent possible, the margin for mitigating the impacts of sequestration 
with these measures has been depleted and they are no longer sufficient 
to prevent significant reductions in major defense acquisition programs 
if sequestration continues in FY14.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    Secretary Stackley. All major defense acquisition programs have had 
to take actions to deal with the impact of the FY 2013 sequester.
    To minimize impacts in FY 2013, the Department of the Navy was able 
to use reprogramming authorization, prior-year investment balances, and 
deferral of costs to future years. For example, in the FY 2013 SCN 
account, we were able to use $640M of prior year SCN assets to finance 
some of the $1.75B sequestration bill. The Department requested, and 
the Congress approved, reprogramming for $240M to finance an additional 
portion of the SCN sequestration reduction. Proposed FY 2014 
Congressional action adds $358M, which may further finance the 
sequestration reduction. However, the Department is still faced with 
future cost to complete bills of $515M, which hinder future ship 
procurements. If sequestration continues, these future bills in the 
shipbuilding and other accounts will be larger without the benefit of 
prior year funds and will accumulate to the point where we will be 
compelled to reduce the number of ships or systems procured.
    Under the FY 2014 continuing resolution (CR), budget controls have 
been set at estimated FY 2014 sequestration levels and program spending 
rates have been slowed to match. In addition, OSD is closely managing 
DOD obligations and expenditures. This approach has allowed all 
programs to continue executing in accordance with the CR and has not 
yet caused delays in awarding contracts. However, the CR has impacted 
the ability of programs to execute planned production increases or new 
starts. In addition, all programs are working to identify the impacts 
of potential FY 2014 sequestration cuts, when those impacts will begin 
to occur, and mitigating actions or deferrals that could reduce those 
impacts.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    Secretary Stackley. Sequestration and the continued budget 
uncertainty will have varying impacts on each of the Department of the 
Navy's programs. Overall, an FY2014 CR and sequestration take away the 
Department's ability to provide warfighting capability and capacity 
with the measures of efficiency essential to balancing the requirements 
of the Defense Strategic Guidance with the fiscal constraints under 
current law. Without Congress acting to change the current path, our 
warfighters will have less surge capability and our long-term 
priorities will be traded off to fund near-term readiness. Further, 
weapon system development timelines will be extended and costs will be 
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    Secretary Stackley. If sequestration continues, automatic 
percentage cuts are required to be applied without regard to strategy, 
importance, or priorities, resulting in adverse impact to almost every 
program and project within the Navy. Sequestration would adversely 
impact many of our R&D programs through contract cancellations, 
contract terminations, and undetermined cost increases caused by 
inefficient contracting and schedule delays. These impacts will reduce 
and delay our R&D efforts and negatively impact key procurement 
strategies in future years.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    Secretary Stackley. The FY 2013 sequestration impacts to 
acquisition programs were mitigated by depleting unobligated prior-year 
balances in our investment accounts, reprogramming funds from other 
accounts, and deferring costs to future year budgets. However, this 
resulted in increased costs in FY 2014 and beyond and longer 
acquisition timelines. If sequestration continues in FY 2014, program 
impacts will include schedule delays, reduced acquisition objectives, 
postponed modernization and upgrades, and the subsequent cost increases 
due to delayed programs and decreased procurement quantities. In 
addition, sequestration will slow production on factory floors across 
the defense industrial base, adding cost and schedule risks to today's 
weapon systems. Equally critical, these reductions will add risk by 
delaying the development of leading edge weapon systems that provide 
our warfighters with the asymmetric advantage they hold over our 
adversaries.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    Secretary Stackley. The effects of FY13 sequestration were 
addressed by curtailing operations, deferring maintenance, depleting 
unobligated prior-year balances in our investment accounts, deferring 
costs to future year budgets, and employing the limited transfer 
authority provided to the DON. These measures, which mitigated the 
immediate impacts, were insufficient to bear the full weight of 
sequestration, resulting in delays to development schedules and 
reductions to procurement quantities. The net effects of these 
deferrals, delays, and program cuts are added bills and increased costs 
in FY14 and beyond. We estimate the total deferred ``carry over'' due 
to FY13 sequestration to be approximately $2 billion over the FY14-FY18 
future years defense program (FYDP) in operation and maintenance 
accounts, and an additional approximately $2B over the FY14-FY18 FYDP 
in investment accounts.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    Secretary Stackley. The effects of FY13 sequestration were 
addressed by curtailing operations, deferring maintenance, depleting 
unobligated prior-year balances in our investment accounts, deferring 
costs to future year budgets, and employing the limited transfer 
authority provided to the DON. These measures, which mitigated the 
immediate impacts, were insufficient to bear the full weight of 
sequestration, resulting in delays to development schedules and 
reductions to procurement quantities. The net effects of these 
deferrals, delays, and program cuts are added bills and increased costs 
in FY14 and beyond. While these mitigation measures will be repeated to 
the extent possible in FY14, we do not have the prior-year assets to 
protect investment accounts if FY14 sequestration occurs. In addition, 
deferred ``carry over'' bills from FY13 will need to be addressed in 
FY14. FY14 sequestration will compound the impacts of the FY13 
continuing resolution and sequestration.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    Secretary Stackley. There is a high probability that if 
sequestration continues in FY14 and subsequent years, some major 
defense acquisition programs will have significant unit cost increases 
reportable as ``Nunn-McCurdy breaches.'' Increasing the duration of 
programs (in development and/or production) causes programs to incur 
additional costs with no offsetting benefit to the government. 
Program's annual ``fixed'' costs are incurred for a greater number of 
years, reduced rates of production result in lower economies of scale, 
and programs face greater exposure to obsolescence or changes in the 
supply base with the added expense that generates.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    Secretary Stackley. Whether or not a Program will incur a Nunn-
McCurdy breach will not be a significant factor in selecting Programs 
for reductions. Cuts will be distributed on a requirements basis with 
cost implications and collateral costs (e.g. cancellation costs or 
breakage to other Programs) being factors. Exempting the department 
from Nunn-McCurdy reporting responsibilities caused by CR or 
Sequestration would be beneficial in reducing Program workloads.
    Mr. Turner. How would sequestration and a CR scenario impact the V-
22 program? Would there be impacts to the V-22 industrial base?
    Secretary Stackley. The V-22 program office is actively pursuing 
alternatives to minimize the overall impact of sequestration in FY14. 
But at the highest projected sequestration level, the program would be 
required to cut one aircraft in FY14, breaking the V-22 Multi-Year 
Procurement (MYP) contract and requiring renegotiation of the price for 
all remaining aircraft. This would directly impact the $1 billion in 
cost savings over the span of the MYP. The delay associated with 
negotiations could also increase costs due to a production break for 
Lot 18 (FY14) aircraft. As advance procurement funds for the Lot 18 
aircraft are already on contract, a partial termination for convenience 
would need to be negotiated. As a joint program, the Air Force and 
SOCOM will also be affected by the reductions through increased unit 
cost for procurement of their CV-22 aircraft.
    Reduction in FY14 aircraft quantity would delay full standup of the 
V-22 squadron in Kaneohe Bay, delay all units from reaching Primary 
Authorized Allowance of aircraft, and subsequently delay MV-22 Full 
Operational Capability. Furthermore, if V-22 quantities are reduced, 
the impact of a smaller business base at Bell Helicopter would cause 
labor rate increases which would negatively impact the cost for USMC H-
1 aircraft (which shares production facilities with V-22).
    At lower levels of sequestration, the primary impact would be to 
defer additional Peculiar Ground Support Equipment (PGSE) and Peculiar 
Training Equipment planned for procurement in FY14. A funding shortfall 
already exists due to the impact of FY13 sequestration. Additional 
reductions in FY14 would worsen the shortfalls for an expanding fleet 
of aircraft that's taking on additional deployments to support crisis 
response. Additionally, a significant portion of capability and 
readiness modifications would be cancelled or delayed, resulting in 
decreased readiness and ultimately resulting in higher operational 
cost.
    Mr. Turner. How would sequestration and a CR scenario impact the 
procurement of F-35Cs and F-35Bs? Would lower procurement numbers 
affect the strike fighter shortfall?
    Secretary Stackley. The Department of the Navy is working closely 
with the F-35 Program Office and the Under Secretary of Defense for 
Acquisition, Technology and Logistics to assess the impacts of 
sequestration on the F-35 program. Currently, the Department is 
investigating: the balance between preserving the development program 
and maintaining capabilities of Block 2B Initial Warfighting 
Capability; support and sustainment for all delivered aircraft; 
preserving production efficiencies and production capacity; and 
aircraft procurement. However, sequestration in FY14 would compel us to 
reduce aircraft procurement by one F-35B and one F-35C and delay the 
Block 3 development test and evaluation flights resulting in increased 
risk of meeting planned initial operating capability (IOC) dates. The 
reduced procurement will further pressurize unit recurring flyaway 
costs at a time when the program was achieving positive cost trends. A 
continuing resolution hampers the ability to properly fund required F-
35 modifications because they are considered new starts within FY14. 
The concurrency and block upgrades are critical to the IOC schedule 
since they are required for the operational testing and evaluation and 
for fleet operations.
    The Navy actively manages the strike fighter shortfall to minimize 
impacts in each execution year. The projected strike fighter shortfall 
is a compilation of a number of factors including legacy usage, 
meticulous management of fatigue life, and F-35 procurement. Delays in 
the F-35 procurement will aggravate challenges in meeting inventory 
requirements.
    Mr. Turner. Would sequestration and a CR affect life extension 
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter 
shortfall this year or in the years ahead?
    Secretary Stackley. Yes. Sequestration and the CR are having an 
adverse effect in the short term and are expected to exacerbate the 
long term strike fighter shortfall. Sequestration and the CR are 
currently causing cancellations and delays in depot inductions and High 
Flight Hour inspections which are negatively impacting the ability to 
source Navy and Marine Corps squadrons.
    Additionally, sequestration and the CR would impact the Marine 
Corps Readiness Management Program for the AV-8B. Some initiatives 
within this program would be delayed or cancelled, decreasing readiness 
and increasing flight hour costs due to decreasing component 
reliability.
    Mr. Turner. How would sequestration and a CR scenario impact your 
ground combat and tactical vehicle strategy? What programs will be 
delayed or impacted by this budget uncertainty?
    Secretary Stackley. The objective of the U.S Marine Corps' Ground 
Combat and Tactical Vehicle (GCTV) Strategy is to field a ground combat 
vehicle portfolio structured to support Marine Expeditionary Forces, 
two Marine Expeditionary Brigades (MEB) capable of conducting sea-based 
Joint Forcible Entry Operation, two maritime prepositioned MEBs (sea-
basing enabled), and one geographically prepositioned MEB. These 
scalable Marine Air-Ground Task Forces will be capable of supporting 
theater engagement plans, irregular warfare, sea-based operations, and 
sustained operations ashore across the range of military operations. 
Ultimately, the discreet components of the portfolio are designed to 
come together as a unitary whole that provides Combatant Commanders 
(COCOM) and the Nation the capabilities necessary to support the 
operations listed above that gives COCOMs the greatest range of options 
possible from the sea, in a balanced manner.
    Our GCTV Strategy is comprised of components that include the 
acquisition of Amphibious Combat Vehicles (ACV), Marine Personnel 
Carriers (MPC), and Joint Light Tactical Vehicles (JLTV); as well as 
the sustainment and modernization of our Assault Amphibious Vehicle 
(AAV), Light Armored Vehicle (LAV), M1A1 tank, and HMMWV fleets in 
sufficient quantities necessary to maintain capability during the 
transition to our objective GCTV force for the 21st century.
    The enduring challenge to the strategy is managing the increase in 
procurement and sustainment costs of vehicles needed for the 21st 
century operating environment. Historical expenditures for vehicles 
will not support ground maneuver and mobility needs as stated for our 
future force.
    The impacts of sequestration that include not only scarcity of 
resources, but also a large measure of uncertainty, have compromised 
our ability to approach the planning and execution of our GCTV Strategy 
with the coherence necessary for sound capital investment planning.
    While it remains a primary requirement in our GCTV Strategy, we 
have been forced to defund MPC in the near term due to insufficient 
funding. We have also been forced to adjust the timelines for ACV and 
JLTV due to reduced funding which, if unabated, may move the timelines 
for IOC to the right by up to three years and one year, respectively. 
The uncertainty created by the significant restructuring of our plan 
has created a need to redefine our requirements for aligning resources 
with the sustainment and modernization of our AAV, LAV, and M1A1 
fleets.
    Mr. Turner. What programs do the Marine Corps anticipate it will 
have to cancel or extend due to the budget uncertainty?
    Secretary Stackley. If sequestration were fully implemented, the 
Marine Corps would have to assess every program. Sequestration will 
cause interruptions during program acquisition that would increase the 
total program cost. Schedules would slip and contracts would be 
delayed. Efficiencies would be lost. This would negatively impact 
development and production schedules requiring program restructures and 
potentially cause Nunn-McCurdy breaches. For procurement programs, 
existing contracts will have to be renegotiated, preventing the Marine 
Corps from receiving Economic Order Quantity pricing.
    The Marine Corps will also have to sustain legacy systems longer 
than planned, which will drive up current operation and support costs. 
We will have to shift our attention to developing and replacing 
obsolescent parts for legacy systems that are no longer available in 
the market place, which will shift the workforce to a focus of 
reengineering old and inefficient technology. Finally, technologies 
designed to improve efficiencies (fuel, lightweight armor, etc.) will 
have to be postponed, preventing the Marine Corps from reaping planned 
savings while simultaneously driving up costs due to the use of older, 
more expensive technologies.
    Mr. Turner. What are impacts we are seeing on the execution of the 
Marine Personnel Carrier and Joint Light Tactical Vehicle program?
    Secretary Stackley. While it remains a primary requirement in our 
Ground Combat and Tactical Vehicle Strategy, we have been forced to 
defund Marine Personnel Carriers (MPC) in the near term due to 
insufficient funding. We have also been forced to adjust the timelines 
for the Amphibious Combat Vehicle (ACV) and Joint Light Tactical 
Vehicle (JLTV) due to reduced funding which may move the timelines for 
Initial Operational Capability to the right by three years and one year 
respectively. The uncertainty created by the restructuring of our plan 
has created a need to redefine our requirements for aligning resources 
with the sustainment and modernization of our Assault Amphibious 
Vehicle, Light Armored Vehicle, and HMMWV fleets.
    For FY14 and FY15, impacts to the JLTV program depend entirely on 
how sequestration or other reductions are implemented. The program is 
currently executing a test-intensive Engineering and Manufacturing 
Development phase already challenged by the cumulative effect of FY13 
Congressional decrements, sequestration, and furloughs, but this well-
structured program faces no inherent cost, schedule, or performance 
challenges. Consequently, if budget flexibility permits funding of JLTV 
to its Acquisition Program Baseline, the program should continue on-
budget and on-schedule. Conversely, across-the-board cuts in FY14 and 
FY15 would likely delay the program's Milestone C decision and Low Rate 
Initial Production (LRIP) contract award by up to 12 months, into FY16. 
The Services will continue to explore mitigation strategies to reduce 
the potential impact of sequestration on JLTV and to preserve the FY15 
Milestone C decision and LRIP contract award as currently planned. The 
JLTV program remains a critical opportunity to close capability gaps in 
today's light tactical wheeled vehicle fleets and to re-balance 
payload, performance, and protection for a wide range of demanding 
mission profiles.
    Mr. Turner. If sequestration remains in FY14 and FY15, what impact 
will this have on the execution of the Joint Light Tactical Vehicle 
program? Please provide the subcommittee with an update on this 
critical program.
    Secretary Stackley. While it remains a primary requirement in our 
Ground Combat and Tactical Vehicle (GCTV) Strategy, we have been forced 
to adjust the timeline for the Joint Light Tactical Vehicle (JLTV) due 
to reduced funding which may move the timelines for Initial operational 
capability to the right by one year. The uncertainty created by the 
restructuring of our plan has created a need to redefine our 
requirements for aligning resources with the sustainment and 
modernization of our HMMWV fleet.
    If sequestration remains in FY14 and FY15, impacts to the JLTV 
program depend entirely on how sequestration cuts are implemented. The 
program is currently executing a test-intensive Engineering and 
Manufacturing Development phase already challenged by the cumulative 
effect of FY13 Congressional decrements, sequestration, and furloughs. 
This well-structured program faces no inherent cost, schedule, or 
performance challenges. If budget flexibility permits funding of JLTV 
to its Acquisition Program Baseline despite sequestration, the program 
should continue on-budget and on-schedule. Conversely, across-the-board 
cuts in FY14 and FY15 would likely delay the program's Milestone C 
decision and Low Rate Initial Production (LRIP) contract award by up to 
12 months, into FY16. The Services will continue to explore mitigation 
strategies to reduce the potential impact of sequestration on JLTV and 
to preserve the FY15 Milestone C decision and LRIP contract award as 
currently planned. The JLTV program remains a critical opportunity to 
close capability gaps in today's light tactical wheeled vehicle fleets, 
and to re-balance payload, performance, and protection for a wide range 
of demanding mission profiles.
    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    Dr. LaPlante. Sequestration, combined with another continuing 
resolution (CR), continues to inflict painful, palpable, and ultimately 
expensive disruptions throughout our Air Force. We are making every 
effort to minimize the impact of the CR and Sequestration to our 
readiness and modernization. All of this comes at a time when our Air 
Force is long-overdue for vital reconstitution. Our fleets are aging, 
and our force is at its smallest since its inception.
    At this time, we are doing our best to balance near-term readiness 
with modernization while ensuring our ability to project Global 
Vigilance, Global Reach, and Global Power in the heavily defended 
environments of 2023. FY14 sequestration reductions force sharp 
declines in our readiness and modernization accounts. The blunt, 
indiscriminate mechanism of sequestration undermines the combat 
capability of your Air Force and the entire joint force, and it is 
unworthy of the servicemen and women who risk their lives in service to 
our great Nation.
    We know the Air Force has a role in helping our Nation get its 
fiscal house in order. However, the abrupt and arbitrary nature of 
sequestration drives the Air Force into a ``ready force today'' versus 
a ``modern force tomorrow'' dilemma. This dilemma is dangerous and 
avoidable. If we are given the flexibility to make prudent cuts over 
time, we can achieve the savings required under current law. However, 
sequestration robs us of that flexibility. We're left with options that 
simply don't make business sense. We need your help. We need funding 
bills that give us stability so we can achieve real savings in a 
strategically and managerially sound way.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    Dr. LaPlante. The effects of sequestration disrupt major defense 
acquisition programs throughout the development and fielding phases. 
The single largest impact of sequestration and current budgetary 
unknowns is the very serious impact they have on the meticulous cost 
and schedule planning mandated in numerous public laws and DOD 
acquisition policy directives. The increasing budgetary inefficiency 
makes it very difficult, if not impossible, for our program managers to 
do their jobs.
    Sequestration cuts deeply into Air Force investment accounts, which 
under the law must be applied equally at the program, project, and 
activity level; consequently, it impacts every one of the Air Force's 
acquisition programs. For example, a potential FY14 sequestration 
impact for the F-35A low rate initial production, relative to the 
request, could be the loss of four to five aircraft from the requested 
amount of 19. This potential reduction will increase unit costs 
resulting in production funding shortfalls.
    Moreover, the across the board cuts will likely remove funding for 
our program managers to address emerging technical issues discovered 
during the development effort. This directly impacts our ability to 
achieve the original program baseline, and will undoubtedly escalate 
program costs. The Air Force would like to be granted the ability to 
move appropriations to mitigate, to the maximum extent possible, 
devastation to the highest priority programs. However, even with 
flexibility, the Air Force may not eliminate all risks associated with 
meeting the Combatant Commander requirements.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    Dr. LaPlante. Regardless of contract type, the effects of 
sequestration could drive a program to de-scope requirements, delay 
performance of required work, or terminate the contract. Any of these 
developments will likely result in a contract modification regardless 
of whether the contract is fixed-price or cost-reimbursement. The only 
difference is in the flexibility and responsiveness to react to those 
changes; a cost-reimbursement arrangement usually provides more 
flexibility and quickness to react to changes than does a fixed-price 
arrangement. Making changes to a fixed price contract could have 
unintended consequences by opening a door for a contractor to claim 
additional costs.The effects of sequestration would differ on a multi-
year (MY) versus annual procurement. For an annual procurement, you 
could negotiate a reduction in the required number of items or level of 
service and only affect that current year acquisition without affecting 
subsequent years. MY procurements generally assume some constant level 
of production or service. For example, if budgets change and this 
causes a reduction of product or service requirements, it will likely 
result in the following: increased unit prices; a requirement to pay 
for subcontracted items delivered early to need per the MY agreement; 
and possibly an action for breach of contract if the requirements fall 
below a minimum commitment in the MY agreement.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    Dr. LaPlante. In FY13, we carefully managed our multi-year and 
large fixed price contracts for development, production and sustainment 
to avoid breaks in production or service as much as possible. However, 
some of our smaller fixed price agreements at the installation-level 
were affected. Another sequestration cut in FY14 is projected to have a 
larger effect on a higher number of our fixed-priced contracts for 
procurement, sustainment and installation.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    Dr. LaPlante. The deep cuts brought on by sequestration-level 
funding will force the Air Force to make profound cuts to readiness and 
investment major defense acquisition programs to achieve the targeted 
reduction amounts in the first few years of the fiscal year defense 
plan. When forced to make tough decisions, we will favor new 
capabilities over upgrades to our legacy forces and our top three 
acquisition priorities remain the KC-46, the F-35, and the Long Range 
Strike Bomber (LRS-B).
    To maintain minimum levels of readiness and sustain our highest 
investment programs, the Air Force will have to cut up to 25,000 Total 
Force Airmen and up to 550 aircraft. As we divest force structure, our 
priorities are to retain the global, long-range capabilities and multi-
role platforms that are required to operate in highly contested 
environments. We will focus on divestiture of entire fleets of aging 
and costly platforms as well as those less capable and less survivable 
in heavily defended airspace. We will look to cut aircraft fleets 
because divesting an entire weapons system results in greater savings 
than cutting a portion of an aircraft fleet; because, every fleet has 
relatively fixed sustainment (overhead) costs. Beyond our top three 
acquisition priorities, all options are on the table.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    Dr. LaPlante. All major defense acquisition programs have started 
to plan for sequestration. Air Force Program Executive Officers have 
been evaluating sequestration impacts to programs in their portfolios. 
For example, the Space Fence contract was ready for award in early June 
2013; however, a DOD-level review driven by sequestration, delayed the 
decision to proceed to later in 2013. With an affirmative decision in 
November, initial capability will slip about one year and costs will 
increase by over $70M. We cannot afford to mortgage the future of our 
Air Force and the defense of our Nation.
    In FY13, the Air Force used $1.5B in unobligated prior year funds 
that will not be available in FY14. With respect to the O&M account, we 
started FY14 under a Continuing Resolution that provided funding that 
is $500M less than we originally programmed for the year. The remaining 
FY14 funding does not allow us to even cover the readiness shortfall 
from last year.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    Dr. LaPlante. When forced to make tough decisions, we will favor 
new capabilities over upgrades to our legacy forces and our top three 
acquisition priorities remain the KC-46, the F-35, and the Long Range 
Strike Bomber. The current fiscal environment compels the Air Force to 
consider difficult budgetary choices. The current law caps and the 
abrupt and arbitrary nature of sequestration drive the Air Force into a 
``ready force today'' versus a ``modern force tomorrow'' dilemma. The 
indiscriminate application of these additional reductions drives us to 
eliminate significant capability and capacity and it does not provide 
the flexibility needed to maintain near-term readiness at levels to 
accomplish our assigned national security missions.
    Sequestration cuts deeply into Air Force investment accounts, which 
under the law must be applied equally at the program, project, and 
activity level; consequently, it impacts every one of the Air Force's 
acquisition programs. For example, a potential FY14 sequestration 
impact for the F-35A low rate initial production, relative to the 
request, could be the loss of four to five aircraft from the requested 
amount of 19.
    A year-long Continuing Resolution will also delay fielding needed 
capabilities to our warfighters. For example, without Congressional 
approval to enter into new multi-year procurements, an inability to 
execute the planned C-130J program multi-year buy will impact the 
production line, delivery schedule, and potentially increased cost.
    The Air Force would like to be granted the ability to move 
appropriations to mitigate, to the maximum extent possible, devastation 
to the highest priority programs. However, even with flexibility, the 
Air Force may not eliminate all risks associated with meeting the 
Combatant Commander requirements. We need the Congress' support to 
better align our future force to the needs of the current defense 
strategy.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    Dr. LaPlante. In FY13, the AF used $1.5B in unobligated prior year 
funds that will not be available in FY14. In addition, the current 
Continuing Resolution contains $500M less than was programmed for the 
AF FY14 budget. The remaining FY14 funding does not allow the AF to 
even cover the readiness shortfall from last year.
    As with force structure and readiness, if the reduced caps under 
current law continue, our modernization forecasts are bleak. This 
funding level will impact every one of the AF modernization programs. 
These disruptions will, over time, cost more taxpayer dollars to 
rectify contract breaches, raise unit costs, and delay delivery of 
critical equipment. When it comes to future investment and 
modernization, the public may not recognize the effects of these 
reductions initially. The damage will compound with time.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    Dr. LaPlante. With FY13 sequestration, programs assumed risks in 
schedule and cost by deferring near-term risk reduction activities, 
delaying contract awards and decreased investments in development. 
Additionally, the Air Force used $1.5B in unobligated prior year funds 
to reduce risks but that option will not be available in FY14. For FY14 
and beyond, deferrals are likely to extend program schedules and 
increase costs due to the restructuring of activities and contracts, 
which will likely delay the planned operational capabilities to 
warfighters. A potential FY14 sequestration impact for the F-35A low 
rate initial production, relative to the request, could be the loss of 
four to five aircraft from the requested amount of 19. This potential 
reduction will increase unit costs resulting in production funding 
shortfalls.
    Moreover, the across the board cuts will likely remove funding for 
our program managers to address emerging technical issues discovered 
during the development effort. This directly impacts our ability to 
achieve the original program baseline, and will undoubtedly escalate 
program costs. The Air Force would like to be granted the ability to 
move appropriations to mitigate, to the maximum extent possible, 
devastation to the highest priority programs. However, even with 
flexibility, the Air Force may not eliminate all risks associated with 
meeting the Combatant Commander requirements.
    The Strategic Choices and Management Review found the President's 
FY14 budget proposal is the most prudent option of those currently 
being considered. FY14 sequestration reductions force sharp declines in 
our readiness and modernization accounts.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    Dr. LaPlante. The Air Force has not conducted this analysis at the 
at the program, project, and activity level. With the continued budget 
uncertainties, the department has focused on protecting top 
modernization programs while maintaining readiness.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    Dr. LaPlante. In FY13, the Air Force used $1.5B in unobligated 
prior year funds that will not be available in FY14. With respect to 
the O&M account, we started FY14 under a Continuing Resolution that 
provided funding that is $500M less than we originally programmed for 
the year. The remaining FY14 funding does not allow us to even cover 
the readiness shortfall from last year.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    Dr. LaPlante. We did not experience any Nunn-McCurdy breaches with 
the FY13 sequestration, but there is potential for a breach with the 
FY14 sequestration. This will not be determined with certainty until 
the FY15 President's Budget is complete.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    Dr. LaPlante. The Air Force builds its budget based on the needs of 
the service consistent with resources available. The Air Force will 
make prioritized investments to ensure an ability to project Global 
Vigilance, Global Response, and Global Power. When forced to make tough 
decisions, we will favor new capabilities over upgrades to our legacy 
forces and our top three acquisition priorities remain the KC-46, the 
F-35, and the Long Range Strike Bomber.
    The fact that a program may or may not have a Nunn-McCurdy breach 
does not drive the overall programming process. Those decisions may 
result in terminations and truncations of investment programs. We would 
work to re-baseline and restructure the remaining major defense 
acquisition programs to be executable in FY14 and beyond, as well as 
minimize Nunn-McCurdy impacts.
    It is the Department's position not to seek any legislative relief 
for sequestration-driven Nunn-McCurdy breaches. The current Nunn-
McCurdy legislation has a mechanism to mitigate quantity-related 
critical breaches. The Department has not experienced any significant 
impact in terms of breaches to date. There were no Nunn-McCurdy 
breaches reported for FY13; however, the potential for a breach with 
sequestration for FY14 exists. The cumulative reductions over time in 
quantity from the baseline may eventually result in an increase in 
Nunn-McCurdy unit cost breaches.
    Mr. Turner. How would sequestration and CR scenario impact the 
procurement of F-35As? Would lower procurement numbers results in a 
future strike fighter shortfall?
    Dr. LaPlante. Sequestration in FY14 could result in a loss of 4-5 
F-35A aircraft. A full year continuing resolution (CR) could result in 
a loss of 3-4 F-35A aircraft. A combination of sequestration plus a 
full year CR could result in a loss of 5-7 aircraft. The FY14 
President's Budget request is for 19 F-35A aircraft.
    The exact impact of sequestration on the future strike fighter 
force is still being assessed. We do know that more reductions will 
drive additional risks to our readiness, force structure, and ability 
to modernize our aging aircraft inventory. As we navigate the uncertain 
way ahead, we will continue to work with Congress.
    Mr. Turner. Would sequestration and a CR affect life extension 
programs for F-15s, F-16s, and A-10s resulting in a higher fighter 
shortfall this year or in the years ahead?
    Dr. LaPlante. F-15 Program--The F-15 has no Service Life Extension 
Program (SLEP), therefore no known impact at this time.
    F-16 Program--FY14 sequestration and continuation resolution (CR) 
could affect the ongoing developmental efforts associated with the F-16 
Legacy SLEP program by slowing the program. Production is scheduled to 
begin in FY18 and may be impacted if there is a delay in development. 
There is no immediate shortfall in aircraft, but future years may be 
impacted.
    A-10 Program--The A-10 Wing Replacement Program would buy fewer 
wings this year. No fighter shortfall this year but may occur as early 
as FY19 without future buys based on FY13 NDAA mandated fleet size 
(283).
    Mr. Turner. What effects could sequestration and a CR have on the 
military aviation industrial base?
    Dr. LaPlante. We are now approaching a second year of operations 
under the Budget Control Act (BCA) and operating under Continuing 
Resolutions. Risk and uncertainty are the key words that I would use to 
characterize the results. The nation's security is at greater risk, 
your Air Force is at greater risk and most importantly our Airmen, 
military and civilians, are at greater risk as they attempt to cope 
with the uncertainties of this fiscal crisis.
    Clearly, there have been broad impacts to the national technology 
and industrial base. The immediate and drastic reductions imposed by 
the BCA caused the Air Force to cut flying hours; reduce training, 
exercises, and travel; defer maintenance and modernization; and 
painfully, furlough our civilian Airmen. The instantaneous drop in 
demand flowed across and through the tiered network of companies, large 
and small, that supply the goods and services needed to sustain Air 
Force capabilities and our infrastructure. The resulting personnel 
reductions and reorganizations of the larger firms, such as Lockheed 
Martin and Raytheon, have been reported in the press. Adjustments made 
by the lower tiers of the supply chain are less publicized yet, on the 
individual level, are just as devastating.
    Without relief, the impacts will not get better in the near future. 
As the Air Force shrinks in size, divesting capacity while preserving 
core capabilities and key investments, our demand on both the organic 
and commercial industrial bases will continue to drop. Some companies 
may be able to offset the drop in Air Force business by shifting to 
commercial or private sector customers. The segment of concern is that 
group which has both the intellectual capacity and physical plant 
capability to design, develop, produce, and sustain military-unique 
aircraft and systems. Without investment, that sector will wither. The 
nation may pay dearly in the future to reinvigorate that sector. My 
hope is the cost will be measured only in terms of dollars and time and 
not those whose mission it is to fly, fight and win when called upon.
    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    General Barclay. An extended Continuing Resolution (CR) and the 
FY14 proposed sequestration reductions would adversely impact the 
following aviation programs: Apache, Chinook, and Gray Eagle. The CR 
limitations and the sequester cuts would reduce procurement quantities, 
delay fielding of critical aviation systems, impede contract 
negotiations and put some existing contracts at increased risk.
    An extended CR would also delay the start of some network programs 
in FY14 and challenge program execution efforts due to funds released 
later in the fiscal year. Sequestration reductions have reduced 
procurement quantities across all existing network programs such as 
WIN-T, Tactical Radios, and Waveform Development, and will delay 
development and testing of some critical networking capabilities beyond 
the Future Years Defense Program.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    General Barclay. In general, the earlier a program is in the 
acquisition lifecycle, the less disruptive a funding reduction. Unless 
the program is responding to an Urgent Operational Need Statement, most 
early contractual efforts are based on cost type contract vehicle where 
the government and the contractor share risk. In the later phase of a 
program, in production, contract vehicles for operational testing or 
for fielding efforts become fixed price oriented in general, where the 
contractor assumes more risk than the government.
    For example, a program that is pre-Milestone B (in Technology 
Development) is able to absorb shifts in funding easier than a program 
that is post-Milestone B. Once the Acquisition Program Baseline is 
established, a program must meet the established baseline or it must 
report to Congress on why it did not meet them, either through a 
significant change or a critical change.
    The most grievous concern would be a statutory violation as a 
result of a funding reduction, a Nunn-McCurdy Statutory violation or 
the equivalent for a Major Automated Information System program 
(failure of a program to achieve Initial Operational Capability prior 
to five years from Milestone A or funds first obligated). These 
violations must be avoided. Other statutory requirements levied on the 
Department of Defense must also be taken into consideration as well, 
for example, the Army's statutory requirement to be financially 
auditable by the end of Fiscal Year 2017.
    Reducing procurement funding usually reduces the quantity purchased 
with a resulting increase to the per unit cost. Quality reductions may 
result in a production line break, industrial base impacts --
particularly to second and third tier vendors--and delayed delivery to 
the Warfighter.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    General Barclay. Sequestration reduces the level of available 
appropriated funding which will affect all programs, regardless of 
contract type. On many fixed-price contracts the quantities would be 
reduced to meet the available dollars and we would expect the unit 
costs to rise. The effects on multi-year procurements are more 
pronounced: if sequestration reduces the quantity buys to below the 
minimum level, a new negotiation may be required on the terms and 
conditions of the new contract. This will delay procurement of the 
system and delay the fielding to Warfighters. In addition, multi-year 
contracts typically generates significant amount of savings for the 
Army compared to annual procurement--the savings will be lost if the 
multi-year contract is broken. Furthermore, the Army will have to pay a 
termination liability.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    General Barclay. The impacts of reductions depend on how the Budget 
Control Act is applied to the specific sources of appropriated funds. 
All contracts impacted by funding changes may need to be modified to 
adjust the requirements and dollars. Other courses of action include 
reduced order quantities against indefinite delivery indefinite 
quantity contracts, not exercising contract option periods, and 
contract terminations.
    The Army, unlike other services, has only a small number of multi-
year (MY) procurement contracts. Significant funding reductions could 
lead to breaking minimum production quantities and loss of efficiencies 
and cost savings in MY contracts. Funding reductions under 
sequestration could lead to renegotiations or possibly cancellations of 
these contracts.
    The combined effects of a continued CR and sequestration reductions 
in FY14 extend across the full range of diverse capabilities we field 
in support of our Warfighters. Assuming the most inflexible reductions 
to funding to programs, as many as 12 Apache helicopters in FY14 could 
be reduced. Development of the Improved Turbine Engine Program, the 
Armed Ariel Scout Helicopter, and upgrades to the MQ-1 Gray Eagle would 
be placed at risk.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    General Barclay. No, we have reached a point where further delaying 
new starts, cancelling additional programs, and continuing to reduce 
existing programs will result in unacceptable risks for the Army. As a 
result of repeated Continuing Resolutions, the Budget Control Act, and 
sequestration, many Army programs have been cancelled, deferred, 
delayed, or restructured in an effort to maintain efficiencies and 
effectiveness in our major defense acquisition programs. Many of the 
programs impacted, some multiple times, are small programs that provide 
critical capabilities to the Army and the Joint force. These include 
Liquid Logistics, heavy machine guns, sniper rifles, construction 
equipment, and tactical bridging.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    General Barclay. The Army has not delayed contract awards or 
reduced spending rates in an effort to prepare for sequestration in 
fiscal year 2014 (FY14). The Army's ability to execute acquisition 
program timelines and contract awards is actually impacted by the 
absence of an appropriation in FY14 and the enactment of a continuing 
resolution that limits funding to prior-year levels. However, the 
continued instability of our fiscal environment limits the Army's 
ability to accurately develop and execute planned timelines for the 
design, engineering, manufacturing and fielding of weapon systems.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    General Barclay. The current funding instability fundamentally 
hampers our ability to plan and execute acquisition programs in support 
of the Warfighter. Key development, testing and production activities 
are subject to the limited funds available under a continuing 
resolution (CR). Under a CR, we lack the authority to start new 
programs or authorize planned increases in production quantities for 
fielding. Sequestration reductions in Fiscal Year (FY) 2013 already 
reduced or eliminated our margin for error on many of our programs, 
even with our efforts to mitigate using prior-year funds. Reductions in 
FY14 and beyond will directly result in reduced production quantities, 
deferred investment in new capabilities, and delays in many programs. 
The hiring freeze, civilian furloughs and government shutdown decimates 
our current and future ability to recruit and retain critical skills 
and expertise in the government workforce. This creates significant 
impacts to the execution of our Science and Technology projects, 
acquisition programs, testing, contracting, logistics and depot 
maintenance. Delays in testing, contracting, and depot maintenance will 
have a rippling effect on our program execution by increasing cost due 
to inefficiencies garnered. The long-term effects of this instability 
are yet to be fully discerned but we know that the combined effects of 
sequestration and a yearly CR will significantly increase the costs of 
vital Soldier weapon systems.
    The combined effects of a continued CR and sequestration reductions 
in FY14 extend across the full range of diverse capabilities we field 
in support of our Warfighters. Assuming the most inflexible funding 
reductions, as many as 12 Apache helicopters in FY14 would be reduced. 
Continued cuts in FY14 may result in the reduction of up to 11 Chinook 
aircraft in FY14 and place the Army's ability to maintain the multi-
year production contract at risk. The Army will assume risk in its 
aviation modernization efforts for Chinook and Blackhawk contracts. 
Development of the Improved Turbine Engine Program, planned 
modernization of the Armed Aerial Scout Helicopter, and upgrades to the 
MQ-1 Gray Eagle will all be at risk. Modernization of combat vehicles 
will be affected and result in delays to scheduled Engineering Change 
Proposal upgrades to Abrams tank and Bradley Infantry Fighting 
Vehicles.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    General Barclay. The lack of prior year funding significantly 
reduces the Army's flexibility and increases risk when addressing 
sequestration impacts. In FY13, the Army was able to mitigate many of 
the impacts that would otherwise have come to fruition against a number 
of programs by offsetting sequestration reductions with prior year 
unobligated funds. As prior year funds became scarce, the margin for 
error as programs decreases, pushing the programs towards critical 
breaches in delayed fielding to Soldiers.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    General Barclay. Delays in systems development correlate to delayed 
production which ripples into delayed fielding of capabilities to the 
Warfighter. Inefficiencies created from the delays will lead to 
increased program cost. Deferring testing leads to stretch-out of 
program schedule since development and operational testing must be done 
to demonstrate that the system met performance requirements. Reducing 
testing during sequestration will lead to increased program risk which 
may result in deficiencies not discovered until later. Generally 
speaking, the later a deficiency is discovered in a program, the more 
expensive it is to fix the problem. Reducing testing in FY13 may also 
result in postponing the necessary residual testing until FY14 which 
leads to stretch-out of program schedule and increased cost.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    General Barclay. Programs incur increased costs when schedules are 
extended, including development, personnel, test, and production. When 
capabilities are reduced and brought back at a later date, there are 
costs associated with schedule increases resulting in the loss of 
efficiencies and impacting the overall acquisition program. In an 
effort to avoid additional costs associated with delayed development 
activities and procurement in FY13, the Army used unobligated prior 
year funds to mitigate the effects of sequestration. In doing so, the 
Army accepted risk for programs with approved development and 
procurement contract actions scheduled in FY14. In the event that a 
Continuing Resolution or Appropriation is not passed, the Army has 
limited prior year funds available to support spending limitations in 
FY14, which could significantly impact new start programs, production 
rate increases or programs that are limited in funding due to 
sequestratoin. The Army thus far has been successful in mitigating 
added costs from sequestration. However, failure to enact a timely and 
sufficient Appropriation in FY14 could counteract these efforts to 
protect taxpayer dollars.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    General Barclay. Funding reductions under the Budget Control Act 
were absorbed in fiscal year 2013 (FY13), but not without hostile 
effect to the Army's acquisition programs. The very nature of these 
indiscriminate cuts resulted in disproportionate impacts within many of 
our programs that may not be discerned right away. These reductions 
translated to varying delays in program schedules, reduced quantities 
of equipment procured and challenges imposed on the program's ability 
to meet development timelines planned well in advance. In many cases, 
the lasting effects of these disruptions are revealed as development 
programs reach milestone events planned months or years in advance. The 
Army's ability to endure these effects in FY13 ultimately depends, in 
large part, on the availability of stable resourcing at requested 
levels in ensuing fiscal years.
    Moreover, in FY13, the Army was able to mitigate many of the 
impacts by offsetting sequestration reductions with prior year 
unobligated funds. The increasingly scarce sources of prior year 
unobligated funding, combined with the cumulative disruptive effects of 
reductions in FY13 and prolonged Continuing Resolutions in FY13 and 
FY14, will continue to significantly impact the Army's weapon system 
programs in FY14.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    General Barclay. Sequestration reductions in FY14 could put the 
Apache and Black Hawk programs at risk of a Nunn-McCurdy breach. The 
significant funding reductions resulting from sequestration would 
undermine the assumptions used in the programs' cost estimating models, 
prevent favorable contract negotiations, and potentially result in 
breach of the Black Hawk multiyear contract. Sequestration reductions 
have reduced procurement quantities across all existing network 
programs such as WIN-T, Tactical Radios, and Waveform Development, to 
specifically include the Small Airborne Networking Radio. These funding 
reductions will delay development and testing of some critical 
networking capabilities beyond the Future Years Defense Program.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    General Barclay. Current Nunn-McCurdy breaches generally reflect 
poor programmatic management and cost growth. Based upon the continued 
sequestration challenges to execution years, as well as out-year 
sequestration planning controls, programs will hit Nunn-McCurdy 
breaches due to funding constraints and pushing programs beyond 
scheduled end dates. As a result, Nunn-McCurdy breaches will generally 
be outside of the Program Manager's span of control if funding controls 
are significantly altered from the approved Acquisition Program 
Baselines. We recommend that Congress consider allowing programs that 
hit Nunn-McCurdy breaches due to sequestration to rebaseline under the 
rules of a Critical Breach. This would allow programs to ``re-set'' and 
would prevent significant cost and schedule delays caused by Nunn-
McCurdy breaches.
    Mr. Turner. How would sequestration and a year-long CR scenario 
impact your ability to fund weight reduction initiatives for personnel 
protection equipment? How would this impact the PPE industrial base, 
e.g. body armor, night vision devices, etc.
    General Barclay. The impact of a year-long Continuing Resolution, 
which effectively translates into a 30 percent funding cut, would be 
delays in the introduction of this improved, lighter protective 
capability. Limited User Evaluations of the SPS Vital Torso, Integrated 
Head Protection and Transition Combat Eye Protection subsystems, and 
the Phase II contract awards for the Torso Protection subsystem would 
be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15 
and the Milestone C decisions on these subsystems, depending upon 
receipt of funding, would slip 6-9 months from the planned third 
Quarter FY15 date.
    There is no immediate impact to the Industrial Base for ongoing 
procurement and fielding of head, eye, pelvic, torso armor, and other 
personal protective equipment. Funding is currently at the minimum 
sustaining rate for maintaining two qualified armor vendors in hard and 
soft armor solutions. Further funding reductions may place the Army's 
ability to maintain competition (and expertise) at risk.
    Projected Fiscal Year 2013 orders from the Army did not support 
minimum sustainment rates as reported by the two vendors for night 
vision image intensification tubes. However, both vendors have 
restructured and are still producing image intensification tubes. 
Further funding decreases from sequestration may stress image 
intensification tube manufacturing and ultimately drive up system costs 
if competitive pressure is lost due to the loss of one vendor. However, 
the Office of the Secretary of Defense ``Report to Congress on the 
Assessment of Industrial Base for Night Vision Image Intensifier 
Sensors,'' completed in September 2012, concluded that Warfighter 
readiness would not be negatively impacted if the industrial base was 
further reduced.
    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    Admiral Myers. An FY2014 continuing resolution (CR) and 
sequestration take away from the Department's ability to provide 
warfighting capability and capacity with the measures of efficiency 
essential to balancing the requirements of the Defense Strategic 
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon 
system development timelines will be extended and costs will be higher, 
production unit costs will increase, and the risk to the long-term 
viability of the defense industrial base will increase. Reductions to 
investment accounts will slow production on factory floors across the 
defense industrial base adding cost and schedule to weapon systems. 
Equally critical, these reductions will drive delays into the 
development of those leading edge weapon systems that contribute to our 
warfighters' asymmetric advantage over our adversaries.
    If fiscally constrained to sequestration level funding over the 
long term, the Navy of 2020 would not be able to execute the missions 
described in the Defense Strategic Guidance. The 2014 Quadrennial 
Defense Review will analyze the Department of Defense force structure 
as a whole and set the long term course for DOD strategy and 
priorities.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    Admiral Myers. The effects of sequestration vary depending on a 
program's stage of development and fielding, but also vary from program 
to program. Sequestration impacts to some Naval programs in the 
development stage will result in loss of capability, while other Naval 
programs will experience a delay in delivery. Most of Navy's 
development work is tied directly to acquisition programs of record. 
Consequently, reductions in the development stage will potentially have 
an impact on their production schedules and costs.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    Admiral Myers. Yes, if sequestration remains in place, the effects 
may differ for different contract types, but the limited funds will 
cause the Department of the Navy to reduce the products and/or services 
being purchased on many existing contracts. Limited funds forces the 
Department to prioritize all our requirements, including mission 
critical programs, then determine how much money we have available for 
those programs.
    From a contractual obligation perspective, some types of contract 
vehicles provide the Department with more flexibility than others. 
Given current regulatory requirements, the Department has more 
flexibility with existing Cost Reimbursement, Indefinite Delivery, 
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they 
provide the Department with maximum flexibility in avoiding hard budget 
limits. Typically, cost reimbursement contracts provide greater 
flexibility than firm fixed price contracts.
    The amount of obligations under a ``firm fixed price'' contract is 
the face value of the contract that is fully funded at contract award. 
The Department has less flexibility with existing fixed price 
contracts, but can choose, if deemed necessary, to re-negotiate 
established pricing based on our decision to de-scope quantity, 
capability and breadth of contract performance. The Department may also 
choose to not exercise and/or re-negotiate any contract options for 
future supplies or services.
    Multi-year contracts require added management focus in this 
sequestration environment. Unlike annual contracts, obligations under a 
multi-year contract have established contract terms and conditions 
including cancellation payment; therefore particular attention must be 
paid to meet these terms and conditions or otherwise re-negotiate the 
contract.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    Admiral Myers. The Department of the Navy does not currently 
anticipate the need to renegotiate a large number of fixed price or 
multiyear procurement (MYP) shipbuilding contracts due to sequestration 
in FY 2014. No major previously awarded fixed price shipbuilding or 
aviation contracts will require deobligation of funds, and no Marine 
Corps contracts will need to be renegotiated.
    However, the Department's ability to continue to absorb 
sequestration reductions without impacting multiyear contracts is 
increasingly tenuous. The impacts of the FY 2013 sequester were 
mitigated by the use of prior-year investment balances and 
authorization to reprogram funds. Additionally, many planned costs were 
deferred to preserve multiyear contracts. As these limited stop-gap 
measures are exhausted, there will soon be few options for resources 
and multiyear contracts may have to be renegotiated at reduced 
quantities, putting substantial savings at risk
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    Admiral Myers. The Department of the Navy (DoN) implemented these 
mitigation measures in developing the FY13 President's Budget 
submission in accordance with the Budget Control Act of 2011, and in 
managing the FY13 continuing resolution and sequestration. FY13 
sequestration resulted in curtailed operations, deferred maintenance, 
depleted unobligated prior-year balances in our investment accounts, 
and deferred costs to future year budgets. While this mitigated the 
immediate impacts, it was insufficient to bear the full weight of 
sequestration, resulting in delays to development schedules and 
reductions to procurement quantities. The net effects of these 
deferrals, delays, and program cuts are added bills and increased costs 
in FY14 and beyond. While we continue to employ these measures to the 
extent possible, the margin for mitigating the impacts of sequestration 
with these measures has been depleted and they are no longer sufficient 
to prevent significant reductions in major defense acquisition programs 
if sequestration continues in FY14.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    Admiral Myers. All major defense acquisition programs have had to 
take actions to deal with the impact of the FY 2013 sequester.
    To minimize impacts in FY 2013, the Department of the Navy was able 
to use reprogramming authorization, prior-year investment balances, and 
deferral of costs to future years. For example, in the FY 2013 SCN 
account, we were able to use $640M of prior year SCN assets to finance 
some of the $1.75B sequestration bill. The Department requested, and 
the Congress approved, reprogramming for $240M to finance an additional 
portion of the SCN sequestration reduction. Proposed FY 2014 
Congressional action adds $358M, which may further finance the 
sequestration reduction. However, the Department is still faced with 
future cost to complete bills of $515M, which hinder future ship 
procurements. If sequestration continues, these future bills in the 
shipbuilding and other accounts will be larger without the benefit of 
prior year funds and will accumulate to the point where we will be 
compelled to reduce the number of ships or systems procured.
    Under the FY 2014 continuing resolution (CR), budget controls have 
been set at estimated FY 2014 sequestration levels and program spending 
rates have been slowed to match. In addition, OSD is closely managing 
DOD obligations and expenditures. This approach has allowed all 
programs to continue executing in accordance with the CR and has not 
yet caused delays in awarding contracts. However, the CR has impacted 
the ability of programs to execute planned production increases or new 
starts. In addition, all programs are working to identify the impacts 
of potential FY 2014 sequestration cuts, when those impacts will begin 
to occur, and mitigating actions or deferrals that could reduce those 
impacts.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    Admiral Myers. Sequestration and the continued budget uncertainty 
will have varying impacts on each of the Department of the Navy's 
programs. Overall, an FY2014 CR and sequestration take away the 
Department's ability to provide warfighting capability and capacity 
with the measures of efficiency essential to balancing the requirements 
of the Defense Strategic Guidance with the fiscal constraints under 
current law. Without Congress acting to change the current path, our 
warfighters will have less surge capability and our long-term 
priorities will be traded off to fund near-term readiness. Further, 
weapon system development timelines will be extended and costs will be 
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    Admiral Myers. If sequestration continues, automatic percentage 
cuts are required to be applied without regard to strategy, importance, 
or priorities, resulting in adverse impact to almost every program and 
project within the Navy. Sequestration would adversely impact many of 
our R&D programs through contract cancellations, contract terminations, 
and undetermined cost increases caused by inefficient contracting and 
schedule delays. These impacts will reduce and delay our R&D efforts 
and negatively impact key procurement strategies in future years.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    Admiral Myers. The FY 2013 sequestration impacts to acquisition 
programs were mitigated by depleting unobligated prior-year balances in 
our investment accounts, reprogramming funds from other accounts, and 
deferring costs to future year budgets. However, this resulted in 
increased costs in FY 2014 and beyond and longer acquisition timelines. 
If sequestration continues in FY 2014, program impacts will include 
schedule delays, reduced acquisition objectives, postponed 
modernization and upgrades, and the subsequent cost increases due to 
delayed programs and decreased procurement quantities. In addition, 
sequestration will slow production on factory floors across the defense 
industrial base, adding cost and schedule risks to today's weapon 
systems. Equally critical, these reductions will add risk by delaying 
the development of leading edge weapon systems that provide our 
warfighters with the asymmetric advantage they hold over our 
adversaries.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    Admiral Myers. The effects of FY13 sequestration were addressed by 
curtailing operations, deferring maintenance, depleting unobligated 
prior-year balances in our investment accounts, deferring costs to 
future year budgets, and employing the limited transfer authority 
provided to the DON. These measures, which mitigated the immediate 
impacts, were insufficient to bear the full weight of sequestration, 
resulting in delays to development schedules and reductions to 
procurement quantities. The net effects of these deferrals, delays, and 
program cuts are added bills and increased costs in FY14 and beyond. We 
estimate the total deferred ``carry over'' due to FY13 sequestration to 
be approximately $2 billion over the FY14-FY18 future years defense 
program (FYDP) in operation and maintenance accounts, and an additional 
approximately $2B over the FY14-FY18 FYDP in investment accounts.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    Admiral Myers. The effects of FY13 sequestration were addressed by 
curtailing operations, deferring maintenance, depleting unobligated 
prior-year balances in our investment accounts, deferring costs to 
future year budgets, and employing the limited transfer authority 
provided to the DON. These measures, which mitigated the immediate 
impacts, were insufficient to bear the full weight of sequestration, 
resulting in delays to development schedules and reductions to 
procurement quantities. The net effects of these deferrals, delays, and 
program cuts are added bills and increased costs in FY14 and beyond. 
While these mitigation measures will be repeated to the extent possible 
in FY14, we do not have the prior-year assets to protect investment 
accounts if FY14 sequestration occurs. In addition, deferred ``carry 
over'' bills from FY13 will need to be addressed in FY14. FY14 
sequestration will compound the impacts of the FY13 continuing 
resolution and sequestration.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    Admiral Myers. There is a high probability that if sequestration 
continues in FY14 and subsequent years, some major defense acquisition 
programs will have significant unit cost increases reportable as 
``Nunn-McCurdy breaches.'' Increasing the duration of programs (in 
development and/or production) causes programs to incur additional 
costs with no offsetting benefit to the government. Program's annual 
``fixed'' costs are incurred for a greater number of years, reduced 
rates of production result in lower economies of scale, and programs 
face greater exposure to obsolescence or changes in the supply base 
with the added expense that generates.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    Admiral Myers. Whether or not a Program will incur a Nunn-McCurdy 
breach will not be a significant factor in selecting Programs for 
reductions. Cuts will be distributed on a requirements basis with cost 
implications and collateral costs (e.g. cancellation costs or breakage 
to other Programs) being factors. Exempting the department from Nunn-
McCurdy reporting responsibilities caused by CR or Sequestration would 
be beneficial in reducing Program workloads.
    Mr. Turner. How would sequestration and a CR scenario impact the 
procurement of F-35Cs and F-35Bs? Would lower procurement numbers 
affect the strike fighter shortfall?
    Admiral Myers. The Department of the Navy is working closely with 
the F-35 Program Office and the Under Secretary of Defense for 
Acquisition, Technology and Logistics to assess the impacts of 
sequestration on the F-35 program. Currently, the Department is 
investigating: the balance between preserving the development program 
and maintaining capabilities of Block 2B Initial Warfighting 
Capability; support and sustainment for all delivered aircraft; 
preserving production efficiencies and production capacity; and 
aircraft procurement. However, sequestration in FY14 would compel us to 
reduce aircraft procurement by one F-35B and one F-35C and delay the 
Block 3 development test and evaluation flights resulting in increased 
risk of meeting planned initial operating capability (IOC) dates. The 
reduced procurement will further pressurize unit recurring flyaway 
costs at a time when the program was achieving positive cost trends. A 
continuing resolution hampers the ability to properly fund required F-
35 modifications because they are considered new starts within FY14. 
The concurrency and block upgrades are critical to the IOC schedule 
since they are required for the operational testing and evaluation and 
for fleet operations.
    The Navy actively manages the strike fighter shortfall to minimize 
impacts in each execution year. The projected strike fighter shortfall 
is a compilation of a number of factors including legacy usage, 
meticulous management of fatigue life, and F-35 procurement. Delays in 
the F-35 procurement will aggravate challenges in meeting inventory 
requirements.
    Mr. Turner. Would sequestration and a CR affect life extension 
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter 
shortfall this year or in the years ahead?
    Admiral Myers. Yes. Sequestration and the CR are having an adverse 
effect in the short term and are expected to exacerbate the long term 
strike fighter shortfall. Sequestration and the CR are currently 
causing cancellations and delays in depot inductions and High Flight 
Hour inspections which are negatively impacting the ability to source 
Navy and Marine Corps squadrons.
    Additionally, sequestration and the CR would impact the Marine 
Corps Readiness Management Program for the AV-8B. Some initiatives 
within this program would be delayed or cancelled, decreasing readiness 
and increasing flight hour costs due to decreasing component 
reliability.
    Mr. Turner. How will the CR and sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    General Walters. An FY2014 continuing resolution (CR) and 
sequestration take away from the Marine Corps our ability to provide 
warfighting capability and capacity with the measures of efficiency 
essential to balancing the requirements of the Defense Strategic 
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon 
system development timelines will be extended and costs will be higher, 
production unit costs will increase, and the risk to the long-term 
viability of the defense industrial base will increase. Reductions to 
investment accounts will slow production on factory floors across the 
defense industrial base adding cost and schedule to weapon systems. 
Equally critical, these reductions will drive delay into the 
development of those leading edge weapon systems that provide our 
warfighters with the asymmetric advantage they hold over our 
adversaries.
    While the specific impact on each program will not be known until 
the Marine Corps receives their final FY 2014 appropriation, including 
sequestration allocations, and future year appropriations become more 
predictable, we anticipate schedule delays, reduced acquisition 
objectives, postponed modernization and upgrades, and the subsequent 
cost increases due to delayed programs and decreased procurement 
quantities. Marine Corps Ground Major Defense Acquisition Programs will 
not be dramatically affected in the near term.
    The 2014 Quadrennial Defense Review will analyze the DOD force 
structure as a whole and set the long term course for DOD strategy and 
priorities.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    General Walters. The effects of sequestration vary depending on a 
program's stage of development and fielding, but also vary from program 
to program. Sequestration impacts to some Marine Corps programs in the 
development stage will result in loss of capability, while other Marine 
Corps programs will experience a delay in delivery. Most of the Marine 
Corps' development work is tied directly to acquisition programs of 
record; consequently, reductions in the development stage will 
potentially have an impact on their production schedules and costs.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    General Walters. Yes, if sequestration remains in place, the 
effects may differ for different contract types, but the limited funds 
will cause the Marine Corps to reduce the products and/or services 
being purchased on many existing contracts. Limited funds forces the 
Marine Corps to prioritize all our requirements, including mission 
critical programs, then determine how much money we have available for 
those programs.
    From a contractual obligation perspective, some types of contract 
vehicles provide the Department with more flexibility than others. 
Given current regulatory requirements, the Department has more 
flexibility with existing Cost Reimbursement, Indefinite Delivery, 
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they 
provide the Department with maximum flexibility in avoiding hard budget 
limits. Typically, cost reimbursement contracts provide greater 
flexibility than firm fixed price contracts.
    The amount of obligations under a ``firm fixed price'' contract is 
the face value of the contract that is fully funded at contract award. 
The Marine Corps has less flexibility with existing fixed price 
contracts, but can choose, if deemed necessary, to re-negotiate 
established pricing based on our decision to de-scope quantity, 
capability and breadth of contract performance. The Marine Corps may 
also choose to not exercise and/or re-negotiate any contract options 
for future supplies or services.
    The multi-year contract provides the least amount of flexibility 
for the Marine Corps in this sequestration environment. Unlike annual 
contracts, obligations under a multi-year contract must follow the 
established contract terms and conditions to avoid any cancellation 
payment arrangements established in the contract.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    General Walters. No Marine Corps contracts will need to be 
renegotiated. However, the Marine Corps' ability to continue to absorb 
sequestration reductions without impacting multiyear contracts is 
increasingly tenuous. The Marine Corps made extensive use of 
unobligated prior year funds to avoid impacts to multiyear contracts in 
FY 2013. Additionally, many planned ancillary purchases for such things 
as support equipment and training devices were deferred to free up 
budget and preserve the multiyear contracts. As these limited stop-gap 
measures are exhausted, there will soon be little where else to go for 
resources and multiyear contracts may have to be renegotiated at 
reduced quantities, putting substantial savings at risk.
    While the Marine Corps has not renegotiated any major defense 
acquisition contracts to date as a result of FY 2014 budget decisions, 
the uncertainty associated with FY 2015 and outyear budgets will 
require the Marine Corps to continually review and adjust program plans 
consistent with the changing budget environment. Adjustments to these 
program plans may require renegotiation of procurement contracts. 
However, the Marine Corps will strive to minimize the number of these 
renegotiations to maintain the best value for the limited resources.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    General Walters. The Marine Corps implemented a variety of 
mitigation measures to manage FY13 while operating under a continuing 
resolution for the first six months of the fiscal year and 
sequestration. FY13 sequestration resulted in curtailed operations, 
deferred maintenance, depleted unobligated prior-year balances in our 
investment accounts, and deferred costs to future year budgets. While 
this mitigated the immediate impacts, it was insufficient to bear the 
full weight of sequestration, resulting in delays to development 
schedules and reductions to procurement quantities. The net effects of 
these deferrals, delays, and program cuts are added bills and increased 
costs in FY14 and beyond. While we continue to employ these measures to 
the extent possible, the margin for mitigating the impacts of 
sequestration with these measures has been exhausted and will be unable 
to prevent significant reductions in major defense acquisition programs 
if sequestration continues in FY14.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    General Walters. Now that the FY 2013 sequester has been realized, 
all major defense acquisition programs have had to take actions to deal 
with the impact.
    To minimize impacts in FY 2013, the Marine Corps was able to use 
prior year funding, FY 2013 Above Threshold Reprogramming actions, 
potential FY 2014 Congressional adjustments, and the deferral of 
certain costs
    Attempting to further plan for sequestration is difficult since 
more than half way through the first quarter of FY 2014, program 
funding levels for the year remain unknown. All programs are working to 
identify the impacts of potential cuts, when those impacts will begin 
to occur, and mitigating actions or buy backs that could diminish or 
alleviate those impacts.
    With the passing of the continuing resolution (CR) for FY 2014, 
budget controls have been set at estimated FY 2014 sequestration levels 
and program spending rates have been slowed to match. In addition, OSD 
is closely managing DOD obligations and expenditures and has recently 
revised a policy whereby all obligations in excess of $250M require 
prior approval from the Under Secretary of Defense for Acquisition, 
Technology, and Logistics (USD(AT&L)). This approach has allowed all 
programs to continue executing in accordance with the CR and has so far 
not caused delays in awarding contracts. The CR has impacted the 
ability of programs to execute planned production increases or new 
starts. However, with the uncertainty surrounding the FY 2014 budget 
and the potential for a yearlong CR, the Marine Corps will continue to 
use the funding available to execute the programs to provide the needed 
capabilities to our warfighters.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    General Walters. Sequestration and the continued budget uncertainty 
will have varying impacts on each of the Department of the Navy's 
programs. In FY 2013, no Marine Corps Major Defense Acquisition 
Programs were delayed in fielding due to the CR or sequestration cuts.
    We anticipate other schedule delays, reduced acquisition 
objectives, and postponed or cancelled modernization and upgrades will 
also be required. However, the specific impacts will not be known until 
a final budget level for FY 2014 is established and priorities and 
tradeoffs can be made.
    Overall, a FY2014 CR and sequestration act to take away the Marine 
Corps' ability to provide warfighting capability and capacity with the 
measures of efficiency essential to balancing the requirements of the 
Defense Strategic Guidance with the fiscal constraints under current 
law. Without Congress acting to change the current path, our 
warfighters will have less surge capability and our long-term 
priorities will be traded off to fund near-term readiness. Further, 
weapon system development timelines will be extended and costs will be 
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    General Walters. If sequestration continues, automatic percentage 
cuts are required to be applied without regard to strategy, importance, 
or priorities, resulting in adverse impact to almost every program and 
project within the Marine Corps. Sequestration would adversely impact 
many of our R&D programs through contract cancellations, contract 
terminations, and undetermined cost increases caused by inefficient 
contracting and schedule delays. These impacts will reduce and delay 
our R&D efforts and negatively impact key procurement strategies in 
future years.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    General Walters. The FY 2013 sequestration reduced the Marine 
Corps' top-line by approximately $1.2 billion and impacted our 
readiness, operations and procurement. The effects were addressed by 
curtailing operations, deferring maintenance, depleting unobligated 
prior-year balances in our investment accounts, and deferring costs to 
future year budgets. The net effects of these deferrals, delays, and 
program cuts are added bills; increased costs in FY 2014 and beyond; 
and longer acquisition timelines. These impacts are compounded with 
reductions to the FY 2014 budget in accordance with the mechanics of 
sequestration. The compounded effects eliminate the Marine Corps' 
ability to provide warfighting capability and capacity with the 
measures of efficiency essential to balancing the requirements of the 
Defense Strategic Guidance with the fiscal constraints of the Budget 
Control Act of 2011. Across the board reductions to investment accounts 
will slow production on factory floors across the defense industrial 
base adding cost and schedule to today's weapon systems; and equally 
critical, these reductions will drive delay into the development of 
those leading edge weapon systems that provide our warfighters with the 
asymmetric advantage they hold over our adversaries.
    Certain Marine Corps program tasks originally scheduled for FY 2013 
were moved to future years as a result of sequestration funding 
reductions. No testing was deferred or reduced. All Marine Corps 
programs remain within current schedule baselines at this time. 
Additional reductions in funding will begin to increase delays and risk 
to the programs.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    General Walters. The effects of FY13 sequestration were addressed 
by curtailing operations, deferring maintenance, depleting unobligated 
prior-year balances in our investment accounts, deferring costs to 
future year budgets, and employing the limited transfer authority 
provided to the DON. These measures, which mitigated the immediate 
impacts, were insufficient to bear the full weight of sequestration, 
resulting in delays to development schedules and reductions to 
procurement quantities. The net effects of these deferrals, delays, and 
program cuts are added bills and increased costs in FY14 and beyond. 
Overall, sequestration required a reduction of $212 million in 
investment accounts.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    General Walters. The effects of FY13 sequestration on the Marine 
Corps were addressed by depleting unobligated prior-year balances in 
our investment accounts, deferring costs to future year budgets, and 
employing the limited transfer authority provided to the DON. These 
measures, which mitigated the immediate impacts, were insufficient to 
bear the full weight of sequestration, resulting in delays to 
development schedules and reductions to procurement quantities. The net 
effects of these deferrals, delays, and program cuts are added bills 
and increased costs in FY14 and beyond. While these mitigation measures 
will be repeated to the extent possible in FY14, we do not have the 
prior-year assets to protect investment accounts if FY14 sequestration 
continues.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    General Walters. There is a probability that if sequestration 
continues in FY 2014 and subsequent years, some major defense 
acquisition programs (MDAPs) will have significant unit cost increases 
reportable as Nunn-McCurdy breaches. However, that risk will not be a 
significant factor in selecting programs for reduction.
    Increasing the duration of programs (in development and/or 
production) causes programs to incur additional costs with no 
offsetting benefit to the government. Program's annual fixed costs are 
incurred for a greater number of years, reduced rates of production 
result in lower economies of scale, and programs face greater exposure 
to obsolescence or changes in the supply base with the added expense 
that generates. Although Nunn-McCurdy unit cost thresholds are 
evaluated against base year dollars, the aerospace manufacturing sector 
has seen costs rising at a rate exceeding that of overall inflation. 
Therefore, even after general inflation is backed out of program costs, 
costs pushed further into the future still result in higher base year 
costs.
    Currently, the Navy does not anticipate that any shipbuilding or 
ship weapon system MDAPs will incur the risk of a Nunn-McCurdy unit 
cost breach as a result of potential sequestration effects, and no 
Marine Corps MDAPs have experienced Nunn-McCurdy level unit cost 
issues.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    General Walters. Within the line item level restrictions of 
sequestration, whether or not a Program will incur a Nunn-McCurdy 
breach will not be a significant factor in selecting Programs for 
reductions. Cuts will be distributed on a requirements basis after 
reviewing and assessing cost implications and collateral costs (e.g. 
cancellation costs or breakage to other Programs).
    Unless forced to incur across the board sequestration funding 
reductions similar to Fiscal Year 2013, Marine Corps Major Defense 
Acquisition Programs (MDAPs) will most likely obtain adequate funding 
via re-programming actions from non-MDAP programs.
    Exempting the Department from Nunn-McCurdy reporting 
responsibilities caused by a continuing resolution or Sequestration 
would be beneficial in reducing Program workloads.
    Mr. Turner. Would sequestration and a CR affect life extension 
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter 
shortfall this year or in the years ahead?
    General Walters. Yes. Sequestration and the CR are having an 
adverse effect in the short term and are expected to exacerbate the 
long term strike fighter shortfall. Sequestration and the CR are 
currently causing cancellations and delays in depot inductions and High 
Flight Hour inspections which are negatively impacting the ability to 
source Navy and Marine Corps squadrons.
    Additionally, sequestration and the CR would impact the Marine 
Corps Readiness Management Program for the AV-8B. Individual initiative 
timelines and specific initiatives within this program may be 
cancelled, decreasing readiness and increasing flight hour costs due to 
component reliability.
    Mr. Turner. How would sequestration and a CR scenario impact your 
ground combat and tactical vehicle strategy? What programs will be 
delayed or impacted by this budget uncertainty?
    General Walters. The objective of the U.S Marine Corps' Ground 
Combat and Tactical Vehicle (GCTV) Strategy is to field a ground combat 
vehicle portfolio structured to support Marine Expeditionary Forces, 
two Marine Expeditionary Brigades (MEB) capable of conducting sea-based 
Joint Forcible Entry Operation (JFEO), two maritime prepositioned MEBs 
(sea-basing enabled), and one geographically prepositioned MEB. These 
scalable MAGTF's will be capable of supporting theater engagement 
plans, irregular warfare, sea-based operations, and sustained 
operations ashore across the range of military operations. Ultimately, 
the discreet components of the portfolio are designed to come together 
as a unitary whole that provides Combatant Commanders (COCOM) and the 
Nation the capabilities necessary to support the operations listed 
above that gives COCOMs the greatest range of options possible from the 
sea, in a balanced manner.
    Our GCTV Strategy is comprised of components that include the 
acquisition of Amphibious Combat Vehicles, Marine Personnel Carriers, 
and Joint Light Tactical Vehicles; as well as the sustainment and 
modernization of our AAV, LAV, M1A1 tank, and HMMWV fleets in 
sufficient quantities necessary to maintain capability during the 
transition to our objective GCTV force for the 21st century.
    The enduring challenge to the strategy is managing the increase in 
procurement and sustainment costs of vehicles needed for the 21st 
century operating environment. Historical expenditures for vehicles 
will not support ground maneuver and mobility needs as stated for our 
future force.
    The impacts of sequestration that include not only scarcity of 
resources, but also a large measure of uncertainty, have compromised 
our ability to approach the planning and execution of our GCTV Strategy 
with the coherence necessary for sound capital investment planning.
    While it remains a primary requirement in our GCTV Strategy, we 
have been forced to defund MPC in the near term due to insufficient 
funding. We have also been forced to adjust the timelines for ACV and 
JLTV due to reduced funding which may move the timelines for IOC to the 
right by three years and one year respectively. The uncertainty created 
by the significant restructuring of our plan has created a need to 
redefine our requirements for aligning resources with the sustainment 
and modernization of our AAV, LAV, and M1A1 fleets.
    Mr. Turner. What programs do the Marine Corps anticipate it will 
have to cancel or extend due to the budget uncertainty?
    General Walters. If sequestration were fully implemented, the 
Marine Corps would have to assess every program. Sequestration will 
cause interruptions during program acquisition that would increase the 
total program cost. Schedules would slip and contracts would be 
delayed. Efficiencies would be lost. This would negatively impact 
development and production schedules requiring program restructures and 
potentially cause Nunn-McCurdy breaches. For procurement programs, 
existing contracts will have to be renegotiated, preventing the Marine 
Corps from receiving Economic Order Quantity pricing.
    The Marine Corps will also have to sustain legacy systems longer 
than planned, which will drive up current operation and support costs. 
We will have to shift our attention to developing and replacing 
obsolescent parts for legacy systems that are no longer available in 
the market place, which will shift the workforce to a focus of 
reengineering old and inefficient technology. Finally, technologies 
designed to improve efficiencies (fuel, lightweight armor, etc.) will 
have to be postponed, preventing the Marine Corps from reaping planned 
savings while simultaneously driving up costs due to the use of older, 
more expensive technologies.
    Mr. Turner. What are impacts we are seeing on the execution of the 
Marine Personnel Carrier and Joint Light Tactical Vehicle program?
    General Walters. While it remains a primary requirement in our GCTV 
Strategy, we have been forced to defund MPC in the near term due to 
insufficient funding. We have also been forced to adjust the timelines 
for ACV and JLTV due to reduced funding which may move the timelines 
for IOC to the right by three years and one year respectively. The 
uncertainty created by the restructuring of our plan has created a need 
to redefine our requirements for aligning resources with the 
sustainment and modernization of our AAV, LAV, and HMMWV fleets.
    For FY14 and FY15, impacts to the Joint Light Tactical Vehicle 
(JLTV) program depend entirely on how sequestration or other reductions 
are implemented. The program is currently executing a test-intensive 
Engineering and Manufacturing Development phase already challenged by 
the cumulative effect of FY13 Congressional decrements, sequestration, 
and furloughs, but this well-structured program faces no inherent cost, 
schedule, or performance challenges. Consequently, if budget 
flexibility permits funding of JLTV to its Acquisition Program 
Baseline, the program should continue on-budget and on-schedule. 
Conversely, across-the-board cuts in FY14 and FY15 would likely delay 
the program's Milestone C decision and Low Rate Initial Production 
(LRIP) contract award by up to 12 months, into FY16. The Services will 
continue to explore mitigation strategies to reduce the potential 
impact of sequestration on JLTV and to preserve the FY15 Milestone C 
decision and LRIP contract award as currently planned. The JLTV program 
remains a critical opportunity to close capability gaps in today's 
light tactical wheeled vehicle fleets and to re-balance payload, 
performance, and protection for a wide range of demanding mission 
profiles.
    Mr. Turner. If sequestration remains in FY14 and FY15, what impact 
will this have on the execution of the Joint Light Tactical Vehicle 
program? Please provide the subcommittee with an update on this 
critical program.
    General Walters. While it remains a primary requirement in our GCTV 
Strategy, we have been forced to adjust the timeline for JLTV due to 
reduced funding which may move the timelines for IOC to the right by 
one year. The uncertainty created by the restructuring of our plan has 
created a need to redefine our requirements for aligning resources with 
the sustainment and modernization of our HMMWV fleet.
    If sequestration remains in FY14 and FY15, impacts to the Joint 
Light Tactical Vehicle (JLTV) program depend entirely on how 
sequestration cuts are implemented. The program is currently executing 
a test-intensive Engineering and Manufacturing Development phase 
already challenged by the cumulative effect of FY13 Congressional 
decrements, sequestration, and furloughs. This well-structured program 
faces no inherent cost, schedule, or performance challenges. If budget 
flexibility permits funding of JLTV to its Acquisition Program Baseline 
despite sequestration, the program should continue on-budget and on-
schedule. Conversely, across-the-board cuts in FY14 and FY15 would 
likely delay the program's Milestone C decision and Low Rate Initial 
Production (LRIP) contract award by up to 12 months, into FY16. The 
Services will continue to explore mitigation strategies to reduce the 
potential impact of sequestration on JLTV and to preserve the FY15 
Milestone C decision and LRIP contract award as currently planned. The 
JLTV program remains a critical opportunity to close capability gaps in 
today's light tactical wheeled vehicle fleets, and to re-balance 
payload, performance, and protection for a wide range of demanding 
mission profiles.
    Mr. Turner. How will the CR and Sequestration impact your major 
defense acquisition programs and will these reductions require a change 
in national military strategy?
    General Moeller. Sequestration, combined with another continuing 
resolution (CR), continues to inflict painful, palpable, and ultimately 
expensive disruptions throughout our Air Force. We are making every 
effort to minimize the impact of the CR and Sequestration to our 
readiness and modernization. All of this comes at a time when our Air 
Force is long-overdue for vital reconstitution. Our fleets are aging, 
and our force is at its smallest since its inception.
    At this time, we are doing our best to balance near-term readiness 
with modernization while ensuring our ability to project Global 
Vigilance, Global Reach, and Global Power in the heavily defended 
environments of 2023. FY14 sequestration reductions force sharp 
declines in our readiness and modernization accounts. The blunt, 
indiscriminate mechanism of sequestration undermines the combat 
capability of your Air Force and the entire joint force, and it is 
unworthy of the servicemen and women who risk their lives in service to 
our great Nation.
    We know the Air Force has a role in helping our Nation get its 
fiscal house in order. However, the abrupt and arbitrary nature of 
sequestration drives the Air Force into a ``ready force today'' versus 
a ``modern force tomorrow'' dilemma. This dilemma is dangerous and 
avoidable. If we are given the flexibility to make prudent cuts over 
time, we can achieve the savings required under current law. However, 
sequestration robs us of that flexibility. We're left with options that 
simply don't make business sense. We need your help. We need funding 
bills that give us stability so we can achieve real savings in a 
strategically and managerially sound way.
    Mr. Turner. Please describe how the effects of sequestration differ 
for major defense acquisition programs in different stages of 
development and fielding? For example, would it be less disruptive for 
programs still in development, which are primarily based on a level of 
effort, than those in production?
    General Moeller. The effects of sequestration disrupt major defense 
acquisition programs throughout the development and fielding phases. 
The single largest impact of sequestration and current budgetary 
unknowns is the very serious impact they have on the meticulous cost 
and schedule planning mandated in numerous public laws and DOD 
acquisition policy directives. The increasing budgetary inefficiency 
makes it very difficult, if not impossible, for our program managers to 
do their jobs.
    Sequestration cuts deeply into Air Force investment accounts, which 
under the law must be applied equally at the program, project, and 
activity level; consequently, it impacts every one of the Air Force's 
acquisition programs. For example, a potential FY14 sequestration 
impact for the F-35A low rate initial production, relative to the 
request, could be the loss of four to five aircraft from the requested 
amount of 19. This potential reduction will increase unit costs 
resulting in production funding shortfalls.
    Moreover, the across the board cuts will likely remove funding for 
our program managers to address emerging technical issues discovered 
during the development effort. This directly impacts our ability to 
achieve the original program baseline, and will undoubtedly escalate 
program costs. The Air Force would like to be granted the ability to 
move appropriations to mitigate, to the maximum extent possible, 
devastation to the highest priority programs. However, even with 
flexibility, the Air Force may not eliminate all risks associated with 
meeting the Combatant Commander requirements.
    Mr. Turner. Will the potential effects of sequestration differ for 
major defense acquisition programs using different contract types and 
acquisition strategies (fixed-price v. cost-reimbursement; multi-year 
procurement v. annual procurement)?
    General Moeller. Regardless of contract type, the effects of 
sequestration could drive a program to de-scope requirements, delay 
performance of required work, or terminate the contract. Any of these 
developments will likely result in a contract modification regardless 
of whether the contract is fixed-price or cost-reimbursement. The only 
difference is in the flexibility and responsiveness to react to those 
changes; a cost-reimbursement arrangement usually provides more 
flexibility and quickness to react to changes than does a fixed-price 
arrangement. Making changes to a fixed price contract could have 
unintended consequences by opening a door for a contractor to claim 
additional costs. The effects of sequestration would differ on a multi-
year (MY) versus annual procurement. For an annual procurement, you 
could negotiate a reduction in the required number of items or level of 
service and only affect that current year acquisition without affecting 
subsequent years. MY procurements generally assume some constant level 
of production or service. For example, if budgets change and this 
causes a reduction of product or service requirements, it will likely 
result in the following: increased unit prices; a requirement to pay 
for subcontracted items delivered early to need per the MY agreement; 
and possibly an action for breach of contract if the requirements fall 
below a minimum commitment in the MY agreement.
    Mr. Turner. Would large numbers of fixed price or multiyear 
procurement contracts need to be renegotiated due to sequestration?
    General Moeller. In FY13, we carefully managed our multi-year and 
large fixed price contracts for development, production and sustainment 
to avoid breaks in production or service as much as possible. However, 
some of our smallest fixed price agreements at the installation-level 
were affected. Another sequestration cut in FY14 is projected to have a 
larger effect on a higher number of our fixed-priced contracts for 
procurement, sustainment and installation.
    Mr. Turner. Could the potential effects of sequestration on major 
defense acquisition programs be mitigated by delaying new starts, 
canceling lower priority programs, or curtailing existing programs?
    General Moeller. The deep cuts brought on by sequestration-level 
funding will force the Air Force to make profound cuts to readiness and 
investment major defense acquisition programs to achieve the targeted 
reduction amounts in the first few years of the fiscal year defense 
plan. When forced to make tough decisions, we will favor new 
capabilities over upgrades to our legacy forces and our top three 
acquisition priorities remain the KC-46, the F-35, and the Long Range 
Strike Bomber (LRS-B).
    To maintain minimum levels of readiness and sustain our highest 
investment programs, the Air Force will have to cut up to 25,000 Total 
Force Airmen and up to 550 aircraft. As we divest force structure, our 
priorities are to retain the global, long-range capabilities and multi-
role platforms that are required to operate in highly contested 
environments. We will focus on divestiture of entire fleets of aging 
and costly platforms as well as those less capable and less survivable 
in heavily defended airspace. We will look to cut aircraft fleets 
because divesting an entire weapons system results in greater savings 
than cutting a portion of an aircraft fleet; because, every fleet has 
relatively fixed sustainment (overhead) costs. Beyond our top three 
acquisition priorities, all options are on the table.
    Mr. Turner. Have any major defense acquisition programs started to 
take actions now to plan for sequestration? For example, have any 
programs delayed contract awards planned for fiscal year 2013 or slowed 
spending plans so that they can carry over additional funds to fiscal 
year 2014, 2015?
    General Moeller. All major defense acquisition programs have 
started to plan for sequestration. Air Force Program Executive Officers 
have been evaluating sequestration impacts to programs in their 
portfolios. For example, the Space Fence contract was ready for award 
in early June 2013; however, a DOD-level review driven by 
sequestration, delayed the decision to proceed to later in 2013. With 
an affirmative decision in November, initial capability will slip about 
one year and costs will increase by over $70M. We cannot afford to 
mortgage the future of our Air Force and the defense of our Nation.
    In FY13, the Air Force used $1.5B in unobligated prior year funds 
that will not be available in FY14. With respect to the O&M account, we 
started FY14 under a Continuing Resolution that provided funding that 
is $500M less than we originally programmed for the year. The remaining 
FY14 funding does not allow us to even cover the readiness shortfall 
from last year.
    Mr. Turner. Please provide details on the major defense acquisition 
programs that would experience any delays in fielding needed 
capabilities to the warfighter as a result of the effects of 
sequestration and CR?
    General Moeller. When forced to make tough decisions, we will favor 
new capabilities over upgrades to our legacy forces and our top three 
acquisition priorities remain the KC-46, the F-35, and the Long Range 
Strike Bomber. The current fiscal environment compels the Air Force to 
consider difficult budgetary choices. The current law caps and the 
abrupt and arbitrary nature of sequestration drive the Air Force into a 
``ready force today'' versus a ``modern force tomorrow'' dilemma. The 
indiscriminate application of these additional reductions drives us to 
eliminate significant capability and capacity and it does not provide 
the flexibility needed to maintain near-term readiness at levels to 
accomplish our assigned national security missions.
    Sequestration cuts deeply into Air Force investment accounts, which 
under the law must be applied equally at the program, project, and 
activity level; consequently, it impacts every one of the Air Force's 
acquisition programs. For example, a potential FY14 sequestration 
impact for the F-35A low rate initial production, relative to the 
request, could be the loss of four to five aircraft from the requested 
amount of 19.
    A year-long Continuing Resolution will also delay fielding needed 
capabilities to our warfighters. For example, without Congressional 
approval to enter into new multi-year procurements, an inability to 
execute the planned C-130J program multi-year buy will impact the 
production line, delivery schedule, and potentially increased cost.
    The Air Force would like to be granted the ability to move 
appropriations to mitigate, to the maximum extent possible, devastation 
to the highest priority programs. However, even with flexibility, the 
Air Force may not eliminate all risks associated with meeting the 
Combatant Commander requirements. We need the Congress' support to 
better align our future force to the needs of the current defense 
strategy.
    Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E 
and procurement accounts from prior year unobligated balances instead 
of from FY13 funds. What effects, if any, does the use of prior year 
unobligated balances to satisfy the FY13 sequestration have on the 
Department's flexibility in managing programs moving forward including 
dealing with further sequestration?
    General Moeller. In FY13, the AF used $1.5B in unobligated prior 
year funds that will not be available in FY14. In addition, the current 
Continuing Resolution contains $500M less than was programmed for the 
AF FY14 budget. The remaining FY14 funding does not allow the AF to 
even cover the readiness shortfall from last year.
    As with force structure and readiness, if the reduced caps under 
current law continue, our modernization forecasts are bleak. This 
funding level will impact every one of the AF modernization programs. 
These disruptions will, over time, cost more taxpayer dollars to 
rectify contract breaches, raise unit costs, and delay delivery of 
critical equipment. When it comes to future investment and 
modernization, the public may not recognize the effects of these 
reductions initially. The damage will compound with time.
    Mr. Turner. A number of programs reported delaying aspects of 
development and deferring or reducing testing in response to the FY13 
sequestration? What risks were assumed in these delays or reductions 
and what impacts will programs feel in FY14 and beyond as a result?
    General Moeller. With FY13 sequestration, programs assumed risks in 
schedule and cost by deferring near-term risk reduction activities, 
delaying contract awards and decreased investments in development. 
Additionally, the Air Force used $1.5B in unobligated prior year funds 
to reduce risks but that option will not be available in FY14. For FY14 
and beyond, deferrals are likely to extend program schedules and 
increase costs due to the restructuring of activities and contracts, 
which will likely delay the planned operational capabilities to 
warfighters. A potential FY14 sequestration impact for the F-35A low 
rate initial production, relative to the request, could be the loss of 
four to five aircraft from the requested amount of 19. This potential 
reduction will increase unit costs resulting in production funding 
shortfalls.
    Moreover, the across the board cuts will likely remove funding for 
our program managers to address emerging technical issues discovered 
during the development effort. This directly impacts our ability to 
achieve the original program baseline, and will undoubtedly escalate 
program costs. The Air Force would like to be granted the ability to 
move appropriations to mitigate, to the maximum extent possible, 
devastation to the highest priority programs. However, even with 
flexibility, the Air Force may not eliminate all risks associated with 
meeting the Combatant Commander requirements.
    The Strategic Choices and Management Review found the President's 
FY14 budget proposal is the most prudent option of those currently 
being considered. FY14 sequestration reductions force sharp declines in 
our readiness and modernization accounts.
    Mr. Turner. In addition to delaying or reducing development 
activities, including testing, the Department accommodated 
sequestration by reducing the procurement of quantities and 
capabilities in a number of weapon programs. Does the Department have 
an estimate of the added costs, if any, associated with delayed 
development activities and procurement associated with the FY13 
sequestration?
    General Moeller. The Air Force has not conducted this analysis at 
the at the program, project, and activity level. With the continued 
budget uncertainties, the department has focused on protecting top 
modernization programs while maintaining readiness.
    Mr. Turner. A fair number of programs appear to have been able to 
absorb the FY13 sequestration with minimal or little immediate impact. 
How was this possible and does the Department anticipate that this 
would again be the case if sequestration occurs again in FY14?
    General Moeller. In FY13, the Air Force used $1.5B in unobligated 
funds that will not be available in FY14. We start on a Continuing 
Resolution for the beginning of FY14 that is roughly, just on our O&M 
account, $500M less than we had programmed for in FY14. The remaining 
funding does not allow us to even cover the readiness shortfall from 
last year.
    Mr. Turner. Will the potential effects of sequestration--which 
could include longer development phases and lower production rates--be 
significant enough to cause some major defense acquisition programs to 
experience significant unit cost increases reportable as ``Nunn-McCurdy 
breaches''?
    General Moeller. We did not experience any Nunn-McCurdy breaches 
with the FY13 sequestration, but there is potential for a breach with 
the FY14 sequestration. This will not be determined with certainty 
until the FY15 President's Budget is complete.
    Mr. Turner. How will you make cuts to major defense acquisition 
programs without forcing them into a Nunn-McCurdy breach? Should 
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
    General Moeller. The Air Force builds its budget based on the needs 
of the service consistent with resources available. The Air Force will 
make prioritized investments to ensure an ability to project Global 
Vigilance, Global Response, and Global Power. When forced to make tough 
decisions, we will favor new capabilities over upgrades to our legacy 
forces and our top three acquisition priorities remain the KC-46, the 
F-35, and the Long Range Strike Bomber.
    The fact that a program may or may not have a Nunn-McCurdy breach 
does not drive the overall programming process. Those decisions may 
result in terminations and truncations of investment programs. We would 
work to re-baseline and restructure the remaining major defense 
acquisition programs to be executable in FY14 and beyond, as well as 
minimize Nunn-McCurdy impacts.
    It is the Department's position not to seek any legislative relief 
for sequestration-driven Nunn-McCurdy breaches. The current Nunn-
McCurdy legislation has a mechanism to mitigate quantity-related 
critical breaches. The Department has not experienced any significant 
impact in terms of breaches to date. There were no Nunn-McCurdy 
breaches reported for FY13; however, the potential for a breach with 
sequestration for FY14 exists. The cumulative reductions over time in 
quantity from the baseline may eventually result in an increase in 
Nunn-McCurdy unit cost breaches.
    Mr. Turner. How would sequestration and CR scenario impact the 
procurement of F-35As? Would lower procurement numbers results in a 
future strike fighter shortfall?
    General Moeller. Sequestration in FY14 could result in a loss of 4-
5 F-35A aircraft. A full year continuing resolution (CR) could result 
in a loss of 3-4 F-35A aircraft. A combination of sequestration plus a 
full year CR could result in a loss of 5-7 aircraft. The FY14 
President's Budget request is for 19 F-35A aircraft.
    The exact impact of sequestration on the future strike fighter 
force is still being assessed. We do know that more reductions will 
drive additional risks to our readiness, force structure, and ability 
to modernize our aging aircraft inventory. As we navigate the uncertain 
way ahead, we will continue to work with Congress.
    Mr. Turner. Would sequestration and a CR affect life extension 
programs for F-15s, F-16s, and A-10s resulting in a higher fighter 
shortfall this year or in the years ahead?
    General Moeller. F-15 Program--The F-15 has no Service Life 
Extension Program (SLEP), therefore no known impact at this time.
    F-16 Program--FY14 sequestration and continuation resolution (CR) 
could affect the ongoing developmental efforts associated with the F-16 
Legacy SLEP program by slowing the program. Production is scheduled to 
begin in FY18 and may be impacted if there is a delay in development. 
There is no immediate shortfall in aircraft, but future years may be 
impacted.
    A-10 Program--The A-10 Wing Replacement Program would buy fewer 
wings this year. No fighter shortfall this year but may occur as early 
as FY19 without future buys based on FY13 NDAA mandated fleet size 
(283).
    Mr. Turner. What effects could sequestration and a CR have on the 
military aviation industrial base?
    General Moeller. We are now approaching a second year of operations 
under the Budget Control Act (BCA) and operating under Continuing 
Resolutions. Risk and uncertainty are the key words that I would use to 
characterize the results. The nation's security is at greater risk, 
your Air Force is at greater risk and most importantly our Airmen, 
military and civilians, are at greater risk as they attempt to cope 
with the uncertainties of this fiscal crisis.
    Clearly, there have been broad impacts to the national technology 
and industrial base. The immediate and drastic reductions imposed by 
the BCA caused the Air Force to cut flying hours; reduce training, 
exercises, and travel; defer maintenance and modernization; and 
painfully, furlough our civilian Airmen. The instantaneous drop in 
demand flowed across and through the tiered network of companies, large 
and small, that supply the goods and services needed to sustain Air 
Force capabilities and our infrastructure. The resulting personnel 
reductions and reorganizations of the larger firms, such as Lockheed 
Martin and Raytheon, have been reported in the press. Adjustments made 
by the lower tiers of the supply chain are less publicized yet, on the 
individual level, are just as devastating.
    Without relief, the impacts will not get better in the near future. 
As the Air Force shrinks in size, divesting capacity while preserving 
core capabilities and key investments, our demand on both the organic 
and commercial industrial bases will continue to drop. Some companies 
may be able to offset the drop in Air Force business by shifting to 
commercial or private sector customers. The segment of concern is that 
group which has both the intellectual capacity and physical plant 
capability to design, develop, produce, and sustain military-unique 
aircraft and systems. Without investment, that sector will wither. The 
nation may pay dearly in the future to reinvigorate that sector. My 
hope is the cost will be measured only in terms of dollars and time and 
not those whose mission it is to fly, fight and win when called upon.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. VEASEY
    Mr. Veasey. As the Army addresses reductions in end-strength, you 
must also be looking to make commensurate cuts to equipment and weapons 
systems. Is Army basing these decisions not only on acquisition cost 
savings, but also on related life cycle cost expenditures? It's my 
concern that any saving initially reaped by divesting of one weapons 
system will be more than offset by the operating and maintenance costs 
associated with retaining or expanding the use of another system if 
operating expenses are ignored. Are you taking a holistic approach and 
assessing all the costs involved when you make these decisions?
    General Barclay. The Army requirements and programming process 
specifically addresses life cycle costs and cost-benefits associated 
with retaining existing equipment and modernization. All programs 
undergo a life cycle cost assessment to determine the investments 
necessary to develop, acquire, sustain, and divest the system. 
Modernization planning includes sustainment costs to keep older 
equipment longer if new or modification programs are delayed.
    The Army faces critical resource issues regarding sustainment costs 
and modernization costs. Continued delays in modernization will 
increase the sustainment costs of existing equipment.
    Throughout the year, the Army and Secretariat staff team to address 
near- and long-term life cycle costs. This is conducted at the program 
level and portfolio levels during the Program Objective Memorandum 
development, and in our recently instituted Long-Range Integrated 
Requirements Analysis reviews that bring together acquisition, 
sustainment, training, and installations to ensure the long-range plans 
are synchronized.
    The current sequestration pressures reduce the Army's ability to 
find the right balance to reduce overall life cycle costs. Resource 
stability and flexibility are fundamental building blocks to improving 
effective life cycle cost management

                                  [all]
