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



 
                         [H.A.S.C. No. 113-66] 


   TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE? 

                               __________

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                            OCTOBER 29, 2013

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                      COMMITTEE ON ARMED SERVICES
                    One Hundred Thirteenth Congress

            HOWARD P. ``BUCK'' McKEON, California, Chairman

MAC THORNBERRY, Texas                ADAM SMITH, Washington
WALTER B. JONES, North Carolina      LORETTA SANCHEZ, California
J. RANDY FORBES, Virginia            MIKE McINTYRE, North Carolina
JEFF MILLER, Florida                 ROBERT A. BRADY, Pennsylvania
JOE WILSON, South Carolina           ROBERT E. ANDREWS, New Jersey
FRANK A. LoBIONDO, New Jersey        SUSAN A. DAVIS, California
ROB BISHOP, Utah                     JAMES R. LANGEVIN, Rhode Island
MICHAEL R. TURNER, Ohio              RICK LARSEN, Washington
JOHN KLINE, Minnesota                JIM COOPER, Tennessee
MIKE ROGERS, Alabama                 MADELEINE Z. BORDALLO, Guam
TRENT FRANKS, Arizona                JOE COURTNEY, Connecticut
BILL SHUSTER, Pennsylvania           DAVID LOEBSACK, Iowa
K. MICHAEL CONAWAY, Texas            NIKI TSONGAS, Massachusetts
DOUG LAMBORN, Colorado               JOHN GARAMENDI, California
ROBERT J. WITTMAN, Virginia          HENRY C. ``HANK'' JOHNSON, Jr., 
DUNCAN HUNTER, California                Georgia
JOHN FLEMING, Louisiana              COLLEEN W. HANABUSA, Hawaii
MIKE COFFMAN, Colorado               JACKIE SPEIER, California
E. SCOTT RIGELL, Virginia            RON BARBER, Arizona
CHRISTOPHER P. GIBSON, New York      ANDRE CARSON, Indiana
VICKY HARTZLER, Missouri             CAROL SHEA-PORTER, New Hampshire
JOSEPH J. HECK, Nevada               DANIEL B. MAFFEI, New York
JON RUNYAN, New Jersey               DEREK KILMER, Washington
AUSTIN SCOTT, Georgia                JOAQUIN CASTRO, Texas
STEVEN M. PALAZZO, Mississippi       TAMMY DUCKWORTH, Illinois
MARTHA ROBY, Alabama                 SCOTT H. PETERS, California
MO BROOKS, Alabama                   WILLIAM L. ENYART, Illinois
RICHARD B. NUGENT, Florida           PETE P. GALLEGO, Texas
KRISTI L. NOEM, South Dakota         MARC A. VEASEY, Texas
PAUL COOK, California
JIM BRIDENSTINE, Oklahoma
BRAD R. WENSTRUP, Ohio
JACKIE WALORSKI, Indiana

                  Robert L. Simmons II, Staff Director
                Lynn Williams, Professional Staff Member
                        Spencer Johnson, Counsel
               Timothy McClees, Professional Staff Member
                           Aaron Falk, Clerk



                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2013

                                                                   Page

Hearing:

Tuesday, October 29, 2013, Twenty-five Years of Acquisition 
  Reform: Where Do We Go from Here?..............................     1

Appendix:

Tuesday, October 29, 2013........................................    45
                              ----------                              

                       TUESDAY, OCTOBER 29, 2013
   TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE?
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

McKeon, Hon. Howard P. ``Buck,'' a Representative from 
  California, Chairman, Committee on Armed Services..............     1
Smith, Hon. Adam, a Representative from Washington, Ranking 
  Member, Committee on Armed Services............................     2

                               WITNESSES

Chao, Pierre A., Senior Associate (Non-Resident), International 
  Security Program, Center for Strategic and International 
  Studies........................................................     7
Francis, Paul L., Managing Director, Acquisition and Sourcing 
  Management, U.S. Government Accountability Office..............    11
Schwartz, Moshe, Specialist in Defense Acquisition Policy, 
  Congressional Research Service.................................     9
Zakheim, Hon. Dov S., Former Under Secretary of Defense 
  (Comptroller), Senior Advisor, Center for Strategic and 
  International Studies..........................................     3

                                APPENDIX

Prepared Statements:

    Chao, Pierre A...............................................    77
    Francis, Paul L..............................................   112
    McKeon, Hon. Howard P. ``Buck''..............................    49
    Schwartz, Moshe..............................................    87
    Smith, Hon. Adam.............................................    51
    Zakheim, Hon. Dov S..........................................    53

Documents Submitted for the Record:

    Statement of J. Ronald Fox, ``Defense Acquisition Reform''...   133

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    Mr. Langevin.................................................   157
    Mr. Miller...................................................   151
   TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE?

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                         Washington, DC, Tuesday, October 29, 2013.
    The committee met, pursuant to call, at 10:10 a.m., in room 
2118, Rayburn House Office Building, Hon. Howard P. ``Buck'' 
McKeon (chairman of the committee) presiding.

    OPENING STATEMENT OF HON. HOWARD P. ``BUCK'' MCKEON, A 
 REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED 
                            SERVICES

    The Chairman. The committee will come to order.
    We convene on a sad day. Yesterday, this committee lost a 
former chairman, a hero, a patriot, and a friend. Ike Skelton 
will be deeply missed, not only by those of us Members and 
staff in this room, but by the men and women in uniform who Ike 
worked so hard and so humbly for.
    It was always difficult to have a conversation with Ike in 
public because our troops were always stopping him to thank 
him, to have their picture taken with him, or to let him know 
how his service had made theirs better. Ike was always humble 
when he met them.
    There is no tribute we can offer that can ever match the 
gratitude of those men and women. It is appropriate, though, 
that we take a moment now to bow our heads and thank God for 
the gift of having known Ike and for the opportunity to carry 
on his work.
    [Moment of silence.]
    The Chairman. Thank you.
    That brings us to today's hearing. As many of you know, 
this committee, under leadership of many like Ike, has a long 
track record of tackling incredibly complex and challenging 
issues. The subject of today's hearing, acquisition reform, is 
one of those issues.
    For anyone who needs reminding of the magnitude of defense 
acquisition, in 2012 the Defense Department's contract 
obligations were 10 percent of the entire Federal budget.
    While this committee has led successful efforts to improve 
the way the Department acquires items and services, there are 
still significant challenges facing the defense acquisition 
system. We cannot afford a costly and ineffective acquisition 
system, particularly when faced with devastating impacts of 
repeated budget cuts and sequestration.
    The Congress, together with the Department of Defense and 
industry, must be willing to do the hard work to find root 
causes, look past Band-Aid fixes and parochial interests, and 
have the courage to implement meaningful, lasting reform. To 
this end, I have asked our vice chairman, Mr. Thornberry, in 
consultation with our ranking member, to engage in a long-term 
DOD [Department of Defense] reform effort that includes a hard 
look at acquisition.
    We have invited an extraordinary panel of witnesses to help 
us with that task here today. I am very thankful for their 
willingness to be here to examine previous reform efforts, 
explore reasons the Department continues to field programs over 
budget and behind schedule, and look to ways that we can lead 
lasting reform efforts.
    Joining us today are the Honorable Dov Zakheim, former 
Comptroller of the Department of Defense; Mr. Pierre Chao, 
senior associate, Center for Strategic and International 
Studies; Mr. Moshe Schwartz, specialist in defense acquisition 
policy, Congressional Research Service; and Mr. Paul Francis, 
Managing Director, U.S. Government Accountability Office.
    Unfortunately, Dr. Ron Fox from the Harvard Business School 
could not be here today. He did, however, provide us with 
written remarks that you all have a copy of, and I thank him 
for that.
    And I ask unanimous consent that those remarks be entered 
into the record.
    Without objection, so ordered.
    [The statement of Mr. Fox can be found in the Appendix on 
page 133.]
    The Chairman. Mr. Smith.
    [The prepared statement of Mr. McKeon can be found in the 
Appendix on page 49.]

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON, 
          RANKING MEMBER, COMMITTEE ON ARMED SERVICES

    Mr. Smith. Thank you, Mr. Chairman.
    First of all, I want to share in your remarks about 
Chairman Skelton. I served on this committee with him for 14 
years. He was an amazing man. I mean, I can't think of anybody 
who was more dedicated to the people who served in the 
military. When you would travel with Ike, he always, as we were 
doing our meetings with different groups and everything, he 
would always say, ``Where are the troops? I want to talk to the 
troops.'' And he always did that, and he always looked after 
them. He had a knowledge of military history and a dedication 
to the men and women who served which is unparalleled.
    But he was also just an excellent mentor for everybody who 
served on this committee, Republican and Democrat alike. And 
Mr. McKeon and I always talk about how this is a--you know, it 
is a bipartisan committee. Well, it took dedication of people 
like Mr. Skelton to make sure that that was the case. As both 
the chairman and ranking member, he went out of his way to work 
across the aisle to make sure that we always remembered what we 
were doing here, which was to look after the national security 
interests of our country and those who served and protected it.
    He will be sorely missed by many. I know many of the staff 
worked very closely with him for years and years, as well. But 
he lived a very, very good life. And he upheld the standards of 
this body, Congress, and, in particular, upheld the standards 
of the House Armed Services Committee in a way that all of the 
rest of us should absolutely aspire to.
    So I thank the chairman for taking a moment to recognize 
his service. And it is a very sad day. We will all miss Ike, 
but we thank him for all that he has done for his country, for 
his district, for the men and women in the military, and for 
this committee.
    It is hard to go from that to talking about acquisition 
reform, but I appreciate our panelists being here today. It is 
a never-ending challenge. One of the big things that was 
accomplished when Ike was chairman of this committee was we 
passed a comprehensive acquisition reform bill that I think has 
made, you know, some positive steps.
    And there is a whole bunch of different things that could 
be said about it, but the thing that I have sort of learned in 
my time of working on it is that it really comes down to 
people. You know, we can pass all the legislation we want. It 
really is a matter of how the DOD operates--the procurement 
shop, the program managers, you know, what is the ethic that is 
put in place there, how do we get to greater efficiency.
    I think one of the greatest challenges in that is getting 
the incentives right so that the men and women who work in this 
have the proper incentive to be innovative, to find the way to 
do the thing that is most cost-effective. I think far too often 
the incentives that are in place within our personnel system 
within DOD are to merely check the box. As long as you did the 
process right, regardless of the result, nobody can blame you. 
I think we need to better empower the people in the Pentagon to 
make those smart decisions.
    When you go out in private industry and you see how 
companies have, you know, sort of changed paradigms and all of 
a sudden become more efficient and more effective than their 
competitors, it is not because a group of people sat in a room 
somewhere and developed a perfect process and then everybody 
robotically followed it. It is because people doing the work 
saw opportunities and took them and figured out how to do 
things different and better and more efficiently.
    So I know there are a lot of other issues around this, but, 
for me, empowering the people to make those smart decisions is 
one of the most important approaches that we can take.
    I look forward to the testimony of our very distinguished 
panel, and I thank the chairman for holding this hearing.
    [The prepared statement of Mr. Smith can be found in the 
Appendix on page 51.]
    The Chairman. Thank you.
    Mr. Zakheim.

  STATEMENT OF HON. DOV S. ZAKHEIM, FORMER UNDER SECRETARY OF 
DEFENSE (COMPTROLLER), SENIOR ADVISOR, CENTER FOR STRATEGIC AND 
                     INTERNATIONAL STUDIES

    Mr. Zakheim. Thank you, Mr. Chairman. For the record, thank 
you for being so nice to my son.
    The Chairman. Can you move that mike right--real close? 
Thank you very much.
    Mr. Zakheim. Were you able to hear me?
    The Chairman. You bet.
    Mr. Zakheim. Mr. Chairman, Ranking Member Smith, 
distinguished members of the committee, I appreciate the 
opportunity to appear again before you.
    The title of your hearing actually outlines the nature of 
the challenge that DOD faces: 25 years of acquisition reform, 
and we still have to ask, where do we go from here?
    In fact, for much longer than 25 years, talented officials, 
many of them with illustrious records in industry, have 
grappled with the reality that our defense acquisition system 
is fundamentally broken.
    And I would ask, because I have a long statement, that it 
be placed in the record, and that way I can abridge it now.
    The Chairman. All of your statements will be placed in 
whole in the record.
    Without objection, so ordered.
    Mr. Zakheim. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Zakheim. More money is buying less product, and this is 
cost growth, not just inflation. The F-35 is a good example of 
a very long list. And despite so-called improvements in 
manufacturing processes, costs continue to grow. It is decades 
since Norm Augustine said that the way costs were rising, we 
would wind up with one plane, one ship, and one tank. And 
nothing has happened since he said that to change the analysis.
    And equally troubling is the management of DOD's 
acquisition of services. Services get a lot less scrutiny than 
the acquisition of goods, but they account for more than half 
of all DOD acquisition. But poor product, duplication, more 
generally waste, occasionally fraud and abuse, have plagued the 
Department's acquisition of services for years and are a 
special cause of concern.
    As long ago as 1975, a subcommittee of the Senate 
Government Affairs Committee, as it was then called, held a 
hearing--a series of hearings on defense acquisition, including 
one on major systems acquisition reform. Since then, we have 
had DSB [Defense Science Board] reports, commissions, task 
forces, think tanks all worrying about the same thing, 
government initiatives as well, most recently the Better Buying 
Power memorandum of November 2012, and changes all the time to 
the DOD 5000 series of acquisition directives.
    But the Rapid Acquisition Cell in effect identifies the 
heart of the problem and its size. Imagine, we set up a Rapid 
Acquisition Cell to get around our own acquisition system.
    And so the current era of budget constraints renders the 
need for acquisition reform even more urgent than in the past. 
We can't afford to waste a cent, much less dollars or billions 
of them.
    And there is no point blaming anyone for this. We are where 
we are. But the executive branch and the Congress have to 
commit to a radical restructuring of the acquisition system in 
all its manifestations. And by the executive branch, I don't 
just mean DOD. I mean OPM [Office of Personnel Management], as 
well, and OMB [Office of Management and Budget], too, its 
management side.
    So what do we need? First, we need a core of educated 
consumers. DOD no longer has the monopoly on technology. There 
is Silicon Valley, North Carolina Research Triangle, Route 28 
in Massachusetts, lots of other places that are ahead of DOD in 
advanced technology. But there is no DOD-wide program to ensure 
that its civilians remain conversant with the most up-to-date 
technological developments. Too often, they have to rely on 
contractors for analytical and scientific support.
    And, yes, there are online courses at the Defense 
Acquisition University and there is the university itself. But 
too many program managers appear to be deficient when it comes 
to supervising the progress of programs simply because they 
don't know the technology that they are supervising.
    And, finally, too many contracting officers carry out their 
tasks in a lot less than optimal ways. They usually opt for the 
lowest price. That way, they can afford to avoid bid protests. 
That is not the way you should run the system.
    So, in the last minute or so of the time available to me, I 
am going to jump to some suggestions.
    First, we need to encourage, and not discourage, our 
acquisition officers to get outside education. We need to be 
sure that when they come back they have jobs that make it a 
profession, a career, and not just a job. This does not happen 
very often at all.
    We must make sure that contracting officers are proficient. 
They are not right now. We must guarantee that someone does not 
move up the chain of promotion unless they have had the 
equivalent of professional military education. You can't become 
a lieutenant colonel without going to Command and Staff 
College. You can't become a flag or general officer without 
going to the NDU [National Defense University] or one of the 
other 1-year university courses at the War College level. But 
you can get promoted to SES [Senior Executive Service], to GS-
15 and -14 without having taken a single course since you went 
to graduate school. And then you are supposed to manage 
billion-dollar, leading-edge programs that are state-of-the-
art. It doesn't work. We need to do something about that.
    We need to encourage people not to simply spend every penny 
they've got because if they do so they will be penalized. It is 
absolutely the wrong way around. They should be rewarded for 
saving money. The money should go back to DOD. Maybe some would 
argue it should go back elsewhere. But it should be saved. And 
we need to reward people for that.
    Our measurement and reward system is simply not adequate, 
and a lot of that has to do with OPM. OPM is still operating 
with 1960s rules, with the way it defines particular job 
descriptions, with the way it deals with promotions, with the 
way it deals with education. This is not just a DOD problem. If 
we are talking about defense civilians, then OPM has to weigh 
in.
    If we are talking about the military, then we have to look 
at how long they serve in a particular program management job. 
The director of the Nuclear Reactors Program for the Navy 
serves 10 years. No senior military officer who is in charge of 
a major program should serve for less than 5 years. You cannot 
have the kind of turnover we have and expect programs not to 
overrun, not to be late, not to miss testing schedules. It just 
doesn't work.
    Another point that I would like to make regarding some way 
to deal with acquisition in a different way from the present is 
we need to focus a spotlight on DCMA [Defense Contract 
Management Agency]. The Defense Contracts Management Agency has 
roughly over 1,000 people--excuse me, more than that. It has--
yes, it has over 1,000 people and over a billion-dollar budget 
and, I don't know, about 12,000 contractors.
    DCMA has always been under everybody's radar screen, and 
yet they are supposed to manage the contracts. They don't 
reward people for managing contracts well. People just move up 
the chain. This needs to be looked into very, very carefully. 
We cannot--we far too often blame contractors, when, in fact, 
they are not given clear rules, they are not given clear 
directives. DCMA has to enforce that.
    And one thing that is exceedingly important for DCMA to 
enforce is the whole approach to engineering change proposals 
[ECPs]. What often happens is that contractors, because they 
know contracting officers will go with the low bid to avoid bid 
protests, contractors come in with the lowest bid. They lowball 
the bid, and then they figure, well, we will make it up later. 
Well, how do you make it up later? You make it up later when 
somebody gives you an engineering change proposal. It is like a 
dentist who discovers he has to do a crown; he praises God. It 
is the same thing with ECPs, because that busts completely 
through any firm, fixed-price contract.
    Who is supposed to enforce some kind of rigorous control 
over ECPs? Well, if you look at requirements, that is done by 
the Joint Chiefs. And Admiral Winnefeld has done a tremendous 
job in ensuring that once the Chiefs agree on a requirement, 
which is based, of course, on what the commanders-in-chief in 
the field say, by and large, then you review that requirement 
and you come back to it and make sure that it holds. But once 
there is an engineering change proposal, that falls through as 
well.
    DCMA has to ensure that an ECP simply is not approved at 
lower levels. You want an ECP? You hand it to your boss, and 
your boss hands it to their boss so that you have a senior 
person who is responsible, who is accountable, who then signs 
off, and I guarantee you the number of ECPs is going to be 
minimized. And once that happens, people are going to stop 
lowballing because they know they are not going to get their 
money back, and the whole cycle that we have now is going to 
get reversed.
    So I urge you to look very closely at DCMA, at the whole 
ECP issue, and talk to everybody about it--the military, the 
civilians, industry. You will get the same answer.
    It looks like I am way over my time, so I will just say 
this. I think what you are doing is exceedingly important. Like 
I said, this has been going on for years, for decades. The list 
of programs that have overrun is a mile long. And it is not 
going to take you 6 weeks or even 6 months to fix the problem.
    But the people in the Pentagon, particularly the top, are 
dedicated to this. One important thing is that, whoever is the 
Secretary of Defense--Democrat, Republican, doesn't matter--
they need to share this objective. You shouldn't just come in 
and say, I am going to throw everything overboard because the 
other guy had it and this isn't mine. It needs to be a 
bipartisan effort, it needs to be a long-term effort, and, God 
willing, you will succeed.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Zakheim can be found in the 
Appendix on page 53.]
    The Chairman. Thank you.
    Mr. Chao.

 STATEMENT OF PIERRE A. CHAO, SENIOR ASSOCIATE (NON-RESIDENT), 
   INTERNATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND 
                     INTERNATIONAL STUDIES

    Mr. Chao. Mr. Chairman, Ranking Member Smith, distinguished 
members of the committee, thank you for the privilege to appear 
before you to discuss the very important topic of improving the 
defense acquisition enterprise. It is an excellent one for the 
committee to be addressing. And, Mr. Chairman, as you noted, in 
a period of slowing defense spending, these dollars will be 
extremely precious, and it will be strategically important for 
the Department of Defense to have an efficient acquisition 
system.
    I thought I would make five, sort of, key observations 
about the acquisition reform system and the efforts and look 
forward in terms of what should be done.
    First, there has been a very useful evolution of the debate 
about acquisition reform. If you take the time to read, you 
know, the commissions and studies done after the Revolutionary 
War, Civil War, any other conflict, they are filled with 
horrific stories about true corruption and fraud and abuse. And 
so it should be no surprise that the first 150 years was spent 
in terms of putting in laws to prevent those kinds of things. 
1980s, 1990s, 2000s, we rotated into looking at how do you 
bring efficiencies to the processes and functioning of the 
acquisition system.
    What I think has been important in the last 7 years has 
been the recognition that the acquisition system is part of a 
broader system that involves the requirements, budgeting 
processes, as well as the acquisition process. I can have the 
most perfectly designed and functioning acquisition system, but 
if it is fed the wrong requirements or rapidly changing 
requirements, it will still produce bad outcomes.
    And so continuing that focus and accepting the viewpoint 
and the results of GAO [Government Accountability Office] 
analyses and others that sits there and says that 85 percent of 
the cost of a weapons system is determined by the time the 
requirements are set, looking at the functioning of the 
requirements processes and systems and how it interfaces with 
others I think would be a very fruitful place, you know, to 
continue to look as we go forward.
    Second, the laws and rules defining and governing the DOD 
acquisition system are large and complex. They have accreted 
over time. If you go back to the original roots of any one of 
those rules or regulations, there was probably a true original 
problem. The problem is that we have accreted other rules that 
sometimes conflict, everybody forgot why the original rule came 
into place, and there has been a tendency to add rules but 
never take any away, which is why things like the Section 800 
Panel that was done in 1993 or the periodic rewrites of the 
5000 instructions are so useful, because it causes a relook.
    As an aside, putting a sunset clause on almost all new laws 
or rules to force a periodic reexamination would be an 
interesting best practice to consider. It would be my 
observation that many of the problems of the acquisition system 
are really the result of unintended consequences of a very 
Byzantine and sometimes outright contradictory set of laws and 
regulations rather than outright malice or malfeasance on the 
part of the people.
    Third point: One size does not fit all in this system. The 
Pentagon is acquiring and buying a wide range of technologies, 
products, and services. It touches almost every segment of the 
economy. We are doing everything from trying to draw in new 
technologies to buying very mature platform systems, buying 
services. Now, actually, the Pentagon buys as much services as 
it does hardware. And we have a system that is trying to live 
in a dual mode of both doing rapid acquisition for the war, 
where time and speed is critical, at the same time as we are 
trying to buy very long-cycle weapons systems.
    Reforms being done at one end of the system may actually be 
very counterproductive if applied to the wrong end of the 
system. And so avoiding the tendency to do, you know, one-size-
fits-all types of rules or regulations would be important, and 
looking at, frankly, whether do we need multiple tracks that 
run through it, which--different sets of rules and policies and 
procedures and, frankly, cultures, as well.
    Fourth point: All the cost overruns, missed deadlines, 
failed programs are symptoms, not root causes. I think part of 
the reason why we have failed to shift the system is because 
many of the studies and reform attempts have tried to go after 
the systems rather than the root causes. And I would submit 
that there are four root causes to consider.
    The first one is, we want to have a military at the 
technological cutting edge--and that has always been our focus. 
If you live at the technological cutting edge, you are going to 
have failures, risk, and structural overruns. We will never be 
able to get the overruns down to zero, frankly, if we want to 
choose that. And attempting to do so is a little bit--is 
essentially chasing a chimera that doesn't exist. That doesn't 
mean we should tolerate poor performance and not try to improve 
it. It simply says that eliminating all cost overruns is 
incompatible with our strategic goals.
    Two, in terms of another structural disconnect, there are 
fundamental and structural disconnects in the timeframes used 
by the different actors. I am trying to do a decade-long 
program with program managers that rotate over a couple of 
years, with oversight by a Congress that has 2- and 6-year 
cycles, being executed by companies that have quarterly 
performance metrics that they are trying to match.
    Getting realignment in those timeframes, I think, would be 
useful, to the extent that it is those different timeframes 
that creates the friction and cost in the system. So, as Dov 
mentioned, having program managers who spend more time there. 
If you want to really take on something, looking at budgeting 
processes and how we appropriate dollars. In some cases it may 
be appropriate to do it on an annual basis, in other cases 
maybe on a multiyear basis, in order to better match and create 
stability in the system. I believe we waste billions of dollars 
in this churning of mismatched timeframes.
    The other key structural issue: The economic and profit 
incentives embedded in the system creates adverse results. We 
would rather pay a billion dollars and 4 percent margins than 
$600 million and 20 percent margins. Even though that 
differential would save the taxpayers $400 million, I guarantee 
you, if it was that, we would have a question about, why did 
that contractor make 20 percent margins? And yet, when we use 
that kind of a system, we then turn all the economic incentives 
in the capitalist system that we have a military to protect and 
defend on its head. And so, looking at the disincentives to 
reduce costs and the behaviors are there.
    And, Ranking Member Smith, I was really encouraged by your 
using the word ``incentives'' in your comments, because that is 
a topic that has rarely been addressed in prior studies. We 
move boxes, we add people, we rearrange things, we pass laws, 
and rarely has anybody said, what are the incentives that we 
want to put into place? As you noted, in the end, it is down to 
the behaviors of people, and they go by those incentives.
    The system is set up with a structural incentive to lie to 
itself. We want to put in the low bid to win the contract, DOD 
wants to accept that low bid in order to get the program going, 
Congress wants to accept it so we can get the program going and 
get jobs in districts. And part of those cost overruns that you 
see is nothing more than that lie being manifest, and it is 
something that we knew right from the beginning.
    And some of the studies have begun to approach this, you 
know, budgeting to the 80 percent probability line rather than 
50 percent, and I would argue, again, changing the incentives 
for missing that. In fact, we have the ironic counterincentive. 
The programs that fail are the ones that get extra money, and 
if you actually do your job and come in under budget and ahead 
of time, you get your money taken away from you. So why would I 
ever want to do that?
    If this group focused on this topic of incentives, I would 
argue you would move the ball much further than any other 
efforts have over the last couple of decades.
    Thank you for the opportunity to share some of my thoughts. 
I look forward to your questions and the dialogue.
    [The prepared statement of Mr. Chao can be found in the 
Appendix on page 77.]
    The Chairman. Thank you very much.
    Mr. Schwartz.

STATEMENT OF MOSHE SCHWARTZ, SPECIALIST IN DEFENSE ACQUISITION 
             POLICY, CONGRESSIONAL RESEARCH SERVICE

    Mr. Schwartz. Chairman McKeon, Ranking Member Smith, 
distinguished members of the committee, thank you for the 
opportunity to discuss defense acquisitions.
    I want to begin with a quotation. ``The policies of the 
Department on development and acquisition of weapons and other 
hardware have contributed to serious cost overruns, schedule 
slippages, and performance deficiencies. The difficulties do 
not appear amenable to a few simple cure-alls but require many 
interrelated changes in organization and procedures.''
    If I told you that this quote was from a report written 
last year, I imagine no one in this room would question that or 
think twice. However, these words were written in 1970, and 
many analysts believe they are as true then as they are today.
    On one level, the defense acquisition system works well. 
Our military has the most advanced weapons in the world, and no 
other military could execute operational contract support on 
the scale necessary for the operations we conducted in Iraq and 
Afghanistan over the last decade.
    But on another level, the system is not working. Consider 
these facts: Since 1997, one-third of major defense acquisition 
programs have a cost growth of at least 15 percent. From 1996 
to 2010, the Army spent more than $1 billion annually on 
programs that were ultimately canceled. The time it takes to 
develop new aircraft has increased since 1980 and is continuing 
to increase, and some programs have development times of 15 
years or more. In short, it takes longer to buy fewer weapons 
and often with less capability than originally promised.
    The acquisition of services, which account for more than 
half of DOD contract obligations, have also experienced many 
instances of wasteful spending, schedule delays, and capability 
shortfalls.
    The United States must be prepared to respond quickly to a 
diverse range of security challenges within a context of 
constrained budgets. Analysts have questioned whether the 
current acquisition system is efficient and nimble enough to 
ensure that we are prepared to meet the security challenges of 
an ever-changing world.
    In recent years, there have been significant changes in the 
national security and acquisition landscape. Weapons and 
information technology systems are more complex than ever. The 
defense industrial base has consolidated significantly in the 
last 25 years. DOD is a less influential buyer, prompting some 
companies to diversify their business and others to forgo 
competing for government contracts.
    Industry is playing an increasingly important role in 
innovation and development, with DOD spending a smaller share 
of its contracting dollars on R&D [research and development]. 
And U.S. spending is declining, necessitating cuts to force 
structure and modernization programs.
    However, just as the acquisition landscape has changed, DOD 
has undergone changes that may make significant reform 
possible. Operations in Iraq and Afghanistan have highlighted 
the importance of acquisitions to the operational force. 
Constrained budgets are fostering a culture of better 
decisionmaking. And data is improving, allowing decisionmakers 
to make more informed decisions.
    So where do we go from here? Most reports have arrived at 
the same conclusion: The key to good acquisitions is having a 
sufficiently sized and talented workforce and giving them the 
resources, incentives, and authority to do their job. Yet most 
of the reform efforts of the past decades have not sought to 
fundamentally and systematically address the issue of 
workforce.
    The current system often incentivizes people to make poor 
decisions. Yet, even with the right decision incentives, 
without the authority to make binding decisions, even the most 
skilled and incentivized professionals cannot effectively 
manage a program. The current management structure is often 
described as too bureaucratic. Too many people can say ``no'' 
or influence a program. As one program manager quipped, even 
program managers are not really sure who is in charge of their 
programs.
    In addition to improving workforce management, targeted 
reform efforts can save money and improve operations. Examples 
of possible areas ripe for reform include streamlining 
acquisition rules and focusing on contract logistics.
    But even such targeted reforms may have only limited 
success unless good decisions are made early and throughout the 
acquisition process. Former Secretary of Defense Robert Gates 
lamented that, in recent years, ``DOD has lost its ability to 
prioritize, to make hard decisions, and to do tough analysis.'' 
Similarly, Under Secretary of Defense Frank Kendall said in his 
guidance on implementing the Better Buying Power initiatives, 
``The first responsibility of the acquisition workforce is to 
think.''
    As my opening quotation indicates, the problem with our 
acquisition system is longstanding, and multiple reform efforts 
have made little cumulative progress. But improvement is 
possible, and the right changes, such as empowering good people 
to make good decisions, can help our military prepare to meet 
the security challenges of the future.
    Thank you again for the opportunity to appear before you. I 
will be pleased to respond to questions.
    [The prepared statement of Mr. Schwartz can be found in the 
Appendix on page 87.]
    The Chairman. Thank you very much.
    Mr. Francis.

 STATEMENT OF PAUL L. FRANCIS, MANAGING DIRECTOR, ACQUISITION 
 AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Francis. Thank you, Mr. Chairman, Mr. Smith, and 
members of the committee, for inviting me here to participate 
in the discussion of acquisition reform this morning.
    I know this was an issue that Mr. Skelton cared about a 
lot, and he chaired a hearing in 2009 to discuss these very 
issues. So I condole with you over the loss of Mr. Skelton and 
then, earlier in the year, our good friend, Doug Roach. I know 
it has been a very tough year for the HASC [House Armed 
Services Committee] family, so my condolences.
    On the question of, should we do acquisition reform, should 
we keep at it, I think Mr. Skelton would say yes, so I say yes. 
Should we do it the same way? Should we revise policy, 
legislate? Maybe not. I think we should answer the question 
that David Packard raised, which is, we know what to do, so why 
don't we do it?
    And when you think about the typical outcomes of 
acquisition programs, cost growth and schedule slippage, they 
don't really line up with policy. That is not what policy asks 
for. So something else is going on, isn't it? And I think of 
those, what else is going on, as rival incentives, sort of like 
what Mr. Chao mentioned.
    And I think we have to remember that practices take root 
because they help programs succeed in their environment. So 
what is this acquisition environment? Well, I will mention a 
couple of features, but one is it is about a lot more than 
buying the right piece of equipment at the right price, isn't 
it? Weapons systems embody policy, they embody roles and 
missions, service reputations, budget shares, jobs, careers. So 
they mean a lot more than just getting a piece of equipment.
    Another aspect of the acquisition environment is money. If 
you look at a commercial endeavor, a product development is an 
expense. The company doesn't make any money until that product 
is developed, produced, and sold at a profit. In the Department 
of Defense, weapons systems are budget line items. They 
actually attract revenue. And I'd submit that the incentives 
associated with managing an expense in the private sector are 
quite different from managing programs in the Department of 
Defense which can be considered revenue generators. It is a 
different psychology.
    So let's think now about a couple of the golden rules of 
acquisition--``fly before buy'' and realistic cost estimating--
and put them in this environment. This is an environment where 
there is a lot of pressure to compete for funding, and once you 
have successfully competed for funding, you compete every year 
in the budget process. So there is a lot of pressure to keep 
focus on the funding stream and in the near term.
    So ``fly before buy,'' early test results, I think we would 
all agree that is a good thing. But do early test results 
really help you compete for funding? Test results can be really 
inconvenient when you are competing for funding.
    Realistic cost estimating, there is another golden rule. 
``Realistic'' is a euphemism for ``higher.'' So I would again 
ask the rhetorical question, does a higher cost estimate 
actually help you when you are competing for funding? I would 
say no.
    So this is not about bad actors. I think the people in the 
process are great people acting rationally, trying to meet 
needs they consider to be legitimate. However, collectively, 
they create competing demands that give rise or force 
compromises in good judgment.
    So where does that leave us? I'd ask you to entertain the 
notion that maybe we have the system we have all asked for.
    After a program has gone through the serpentine path of 
requirements, cost growth, schedule slippage, testing problems, 
we reduce quantities, if it makes it through, we all are kind 
of winners. The warfighter gets something, the program office 
has a success, the service is happy, the committees have done 
their job, industry gets work, localities get jobs, the press 
writes about them, the critics and the overseers, we get to 
talk about them. It is a pretty good gig.
    So I think we have to think about maybe we have the system 
we have asked for. So it is not a simple process that is 
broken. I think we can fix that. It is a sophisticated 
enterprise that is an equilibrium, and it is a much tougher nut 
to crack.
    So I laid out some ideas on my written statement on what we 
can do about it. I don't think they are an improvement on what 
has been said. I find them, myself, to be insufficient. But 
there are two things I would mention.
    One is what you do with money, your money decisions, is 
really important. Because right now our process is set up where 
you have to make budget decisions about 2 years ahead of a 
program decision. So if a program has a milestone B in 2016, 
you are starting to authorize money for it now, which creates 
incentives for programs to behave a certain way. So if a 
program comes forward and it is breaking all the rules--it is 
concurrent, it is adopting high risk, it has an unrealistic 
cost estimate--and you fund it, that reinforces that behavior 
and sends the message that it is okay.
    So think about every year the Department of Defense brings 
forward a handful of programs to start. That is your highest 
point of leverage on a program. So I would look at them as a 
group, as a freshman class, even at the full committee level, 
and see if that group of new programs adheres to the principles 
that you consider important to sound acquisition, and then fund 
accordingly.
    Then I think, eventually, if we do a number of other 
things, our goal should be to put good people in a position to 
succeed, which I don't think we do today. I think we put 
program managers and staff in very difficult positions and we 
grind them up.
    So I will leave you with a thought that I think we have to 
aim at these rival incentives. And I'd like to think about a 
good outcome being, can we help programs intrinsically build 
good practice inside them? And can we come up with incentives 
or create incentives that are self-sustaining, rather than 
impose practice on top of programs that otherwise would not be 
planned properly?
    So I will conclude with that and welcome any questions.
    [The prepared statement of Mr. Francis can be found in the 
Appendix on page 112.]
    The Chairman. Thank you very much.
    We often hear that the problem with the DOD acquisition 
system is one of culture and that you can't reform the system 
without changing the culture.
    In your view, is culture--and this is to all of you--a 
major part of the problem? And can you provide some examples 
where the culture of the DOD, of industry, and Congress is 
causal in the failures of the acquisition processes?
    Mr. Francis. Okay. I will start.
    Yes, I think culture is a very important ingredient as to 
what is going on. Because when you look at the question, why 
aren't good people getting good outcomes, I think you get the 
culture. Again, I think people know what to do, but they have 
conflicting demands and they are asked to do different things. 
So, as I explained earlier, there are reasons why you don't 
have a realistic cost estimate, because it may not help you.
    And I think the culture is really seated in the fact that 
people really believe that the program they are working on is 
the most important thing for the Nation's defense. And so you 
adopt behaviors to help get that program in the end zone. And 
they may not be testing when you should, that may be starting 
production before you should, because you help guarantee the 
program will get through the process.
    I think some of the programs that we have looked at in the 
past, Future Combat Systems, where this committee did 
pioneering work, that was a program where we were rushing 50 
technologies, trying to create a system and get it into 
production before we knew anything worked yet. I think that is 
culture at work.
    This afternoon, I believe that Members are going to get a 
briefing on the UCLASS, the Navy's unmanned aerial vehicle. We 
think that is a pretty good strategy. The problem is the whole 
strategy and the fielding complete before milestone B. I think 
that is culture. I think that is trying to get the system in 
before all of the oversight occurs.
    So it is real. We are all part of it, but I think we can 
address it.
    Mr. Zakheim. I will pick up from there.
    Obviously, we look at the F-35 and we say, my God, there 
was concurrency, concurrency in testing and concurrence with 
production, and why does this happen? You can go all the way 
back to the TFX [Tactical Fighter Experiment] and you will see 
concurrency of a different kind--you know, concurrency in 
research and concurrency in production. It is cultural. Of 
course it is cultural.
    And, as I think several of my colleagues here on the panel 
pointed out, the system of rules we have disincentivizes 
savings, incentivizes people just to get, basically get, the 
thing out their door, and then they can move on.
    If somebody was on the job 5 years, they would be much more 
careful about how something was being produced. If you are on a 
job 18 months, you just want to get it out of the way, make 
sure nothing blows up on your watch, and off you go. Well, that 
is part of the culture. The turnover is part of the culture. 
Nobody imposed that on DOD.
    Another thing. I remember, when I worked in the Reagan 
administration, we had trouble with the B-1, and Mr. Weinberger 
finally got fed up and asked for a briefing every 2 weeks. And 
when you think about how Mr. Gates was his own action officer 
on the MRAP [Mine Resistant Ambush Protected], you get the 
picture that, somehow, the frustration levels reach so far to 
the top that the Secretary feels he has to be his own action 
officer.
    Now, why does that happen? I would argue, in part, it 
happens because the management levels very often are not really 
competent--and I will emphasize that--competent to manage 
highly complex programs, and so they let things slip in all 
sorts of ways. That is cultural.
    If you have, for instance, a Deputy Secretary who is a true 
manager, he is never going to go to the Secretary to begin 
with; it will be pushed downward. And I think the leadership 
has to start at the top. We have been far too lax about the 
requirements for how somebody should be Deputy Secretary of 
Defense, which, frankly, is the chief operating officer of the 
Pentagon. That is something probably the Congress could 
actually deal with.
    If you have an attitude where the new person comes in with 
a new set of buzzwords and a new set of terms, you create a 
cynical bureaucracy. If you have a bureaucracy that is not 
technically competent, it relies on contractors to give them 
the technical competence. It also means that whatever the 
contractor tells them they will have to believe, they have no 
choice.
    In the meanwhile, the contractor, as Pierre Chao pointed 
out, is being forced into the straitjacket of having very low 
profits and driving up costs because there is no other way to 
do it except if it is fixed-price and, as I said, there is an 
ECP.
    So you have a system that essentially drives everybody 
crazy. It doesn't have to be that way. That is cultural.
    Mr. Schwartz. If I may perhaps give two examples, one is, 
with major weapons systems, usually 70 percent of the cost of 
the entire system is after it has been acquired. It is O&S 
costs, operations and support costs.
    And recently I was talking to a program manager of a 
multibillion-dollar program, and I asked a similar question. 
And his comment to me was, because of the pressure to save 
acquisition costs, there is no motivation to pursue long-term 
savings. That was an example of the incentive driving a culture 
where he was being told, save now at the expense of saving more 
later.
    Similarly, when I was in--another example is contract 
obligations. When I was in Kabul a couple of years ago, I 
remember talking to someone from USAID [United States Agency 
for International Development], and he was recounting the story 
where, recently, a few weeks earlier, he and his team had been 
told they have $100 million to spend by the end of the year. He 
said, there is no way we can spend that $100 million 
competently. But that $100 million got spent, because that is 
how they were being measured.
    So I would suggest those are two examples of incentives 
creating decisions and a certain culture that may not be the 
one that you would always like to have.
    Mr. Chao. If I could maybe give one or two other examples 
that shows, again, that a lot of these things start from a good 
originating position but as you interface with the system it 
kind of gets turned on its head.
    I don't know a single good engineer who doesn't believe 
that they can actually do that task that they are asked to do, 
right? And part of that structural optimism is, yeah, I can 
invent that thing that is invisible and can go, you know, Mach 
10; sure, we can do that. And so that part of that lying to 
yourself starts off from, actually, a good spot, but there is 
no one there to apply the outside metric and sits there and 
says, well, can you really? Right? And so that is a little bit 
of that cultural issue.
    The other one is from an oversight perspective. Former 
Under Secretary for AT&L [Acquisition, Technology and 
Logistics] Ken Krieg has noted we spend millions in oversight 
to chase pennies. Right? The sense of that there is no 
threshold level below which--which we sit there and say, all 
right--and it is a horrible thing to say, in some ways, and you 
would be probably crucified in the press for saying it, but--it 
is okay if there is this amount.
    I mean, Walmart, frankly, looks at its entire system and 
accepts a certain amount of shrinkage, you know, in its system. 
Here we will spend millions and millions of dollars to make 
sure that there is zero shrinkage. That is a cultural issue, 
right, and one that is reflective of the system, and that is 
part of the cost that is embedded in that weapons system.
    The Chairman. I mentioned yesterday I was meeting with a 
CEO [chief executive officer], and he said in one of his plants 
he has 200 people there from the government to oversee and make 
sure he doesn't have the shrinkage, and then he has to hire 200 
to watch them and respond to them. And I said, you know, if we 
probably eliminated those 400 people, he couldn't steal that 
much, you know, if he wanted to. But it--good point.
    Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    I guess--and you sort of touched on this, but if you could 
just sort of narrow down specifically, how would we change the 
incentives? You know, if you had, like, one law that we could 
change--you know, we have always heard the classic example, as 
you mentioned, about USAID. You know, whenever people think 
about government, I swear the first thing they think about is, 
you know, the incentive to spend all the money you have, no 
matter what. And this has been going on forever, as near as I 
can tell.
    How would we change the incentives? What law would you 
change? What regulation? What approach? Just quickly, a couple 
of things that would change the incentives and move them in a 
positive direction.
    Mr. Zakheim. I think the easiest thing to do is to change 
the way you promote people. If you basically promote somebody 
because they saved money, you have just changed the incentives. 
Now, is that a DOD regulation? It is probably something OPM has 
to do.
    Mr. Smith. Okay.
    Mr. Zakheim. And OPM constantly hides under the table when 
these things come up.
    Mr. Smith. Why?
    Mr. Zakheim. Why does OPM hide? I think OPM hides because 
they are OPM. I have never seen an agency that was more--
basically, they are still running the way Chester Alan Arthur 
set it up in 1883 under a different name.
    We are so out of date with the way we manage personnel 
today, it is ridiculous. And there really needs to be a focus 
on it, not just in this respect but in many. But the fact of 
the matter is, if you promote somebody because they saved 
money, everybody is going to want to save money.
    Think about how Goldwater-Nichols worked. You couldn't 
become an admiral or a general until you went to the Joint 
Staff. I remember in the early 1980s the Joint Staff was a 
dead-end position. You got into the Joint Staff, you knew you 
were going to have to retire. All of a sudden, after Goldwater-
Nichols, the only way you can become flag or general officer is 
if you join the Joint Staff. You have just changed the 
incentives. And look at the difference our military shows 
today. That is what you have to do.
    And, frankly, if somebody really managed the system long 
enough to lose a ton of money, that should be the end of their 
career.
    Mr. Smith. Thank you.
    Mr. Chao. I also think the issue of aligning the tenure of 
the program managers to the phase of the program that they are 
watching. I mean, the old joke is you want to be the first and 
third program manager, not the second and fourth, right, 
because first and third you are the hero, second and fourth is 
where all the mistakes show up.
    If you were there to suffer the consequences of your 
mistakes, you would be a little bit more careful about doing 
that. That will run right into the military promotion cycles 
and other cycles, and so, I mean, that is what needs to get 
reconciled.
    The other one is looking at this issue of budgeting and 
rewarding program managers who actually perform and not taking 
away their money. That is something--that is probably nothing 
you could legislate, but that is a bargain that you could have.
    Mr. Smith. Well, if I could ask about that, I mean, because 
that is always the problem. If you don't spend all the money, 
then you don't get as much the next year. But that is the way 
it should be. I mean, if you are looking at and you have 
learned, okay, we can do it for $50 million instead of $100 
million, you wouldn't give them $100 million the next year 
because you would be reinforcing the problem.
    I mean, so I think you should reward the individuals who 
make the decision, to get back to the promotion thing. You have 
saved that money, you are more likely to get promoted than if 
you don't. Because if you simply say, if you save money, we are 
going to give you more, that doesn't quite solve the problem, I 
wouldn't think.
    Mr. Zakheim. Well, let me deal with that, since I happened 
to be in the hot seat of Comptroller for a few years.
    We have in the Department a midyear review, and what are we 
looking at? We are looking at programs that are spending too 
quickly, programs that are spending too slowly. We then come to 
you on the Hill and we say, here is a reprogramming, can you 
please approve it? And in most cases you do, because it makes 
sense.
    So if somebody is spending less money, it doesn't 
necessarily mean that next year they are going to spend less 
money.
    Mr. Smith. Right.
    Mr. Zakheim. And as long as the Department can reprogram 
and the Congress is willing to support the Department, I happen 
to think we should have much higher reprogramming ceilings. If 
we did that, then I think the Comptroller would have much more 
flexibility in moving money around.
    And then if we combined that with the incentives that 
Pierre has talked about, that I have talked about, for the 
individuals so they know, A, they are going to get promoted if 
they save money but, B, they might get more money next year 
because programs are like that anyway, that will change the 
mentality.
    Mr. Smith. Okay.
    Mr. Chao. And I would put my comments in the context of, we 
are programming but we are budgeting programs to the 50 percent 
mark, and so they are already--you know, I agree with you that 
if it is underspent and legitimately they don't need the money, 
why give it to them? It is filling in that 50 percent mark to 
the 100 percent where they should be.
    Mr. Smith. Okay. Thank you.
    Mr. Schwartz. One is accountability. Who is responsible? 
And there are two senses of accountability, both positive and 
negative. For example, I was speaking to somebody at a private 
industry recently, last week, and I said, if somebody in your 
company saves $50 million, do they get any benefit out of it? 
And the response was, yeah, they could apply for this fund, and 
they get $10,000, $15,000, $20,000 potentially, not all the 
time, but they can get it.
    Then I asked other people there, well, does DOD have 
similar structures where, if you save $100 million for the 
Department of Defense, you can apply and get some sort of 
bonus? And the answer was, well, generally not. Well, that is 
one example of positive incentive.
    Very often--I remember reading, I believe it was a GAO 
report, that said DOD is buying from the GSA [General Services 
Administration] schedule and they are not even asking, could we 
get a better price? Well, they might ask can I get a better 
price, if there was a potential for them to get a bonus. The 
optics might not be great on it, but that is one possibility.
    Mr. Smith. Right.
    Mr. Schwartz. The reverse is also--for accountability is 
the negative accountability, which is, if you had a program 
that completely went off the rails, who is responsible? And are 
they going to be held responsible or are they still going to 
continue the path up?
    Now, there is a problem with that, which is, if you are 
going to hold people accountable, you have to give them the 
authority.
    Mr. Smith. Exactly. I mean, I think that is where it is 
painfully easy to hide. Because it is like, well, I wasn't in 
charge of this, he was in charge of that. I mean, I hate to 
bring this up, but the Web site, you know, on health care is a 
great example of that. He was doing it; no, he was doing it; he 
was doing it. It is like, you know, somebody needs to be in 
charge and be held accountable and/or rewarded, depending on 
the circumstances.
    Mr. Francis. I will add a couple to the good ideas my 
colleague raised.
    One is the end requirements. Again, I think our process 
still rewards proposals for new programs that come through 
advertising, revolutionary improvements over the existing 
system. There are some weapons that maybe have to do that, but 
when you think of what we as consumers do, when we buy a new 
car, we have to replace our old car. So we have to get 
something and we take advantage of what is available. That 
doesn't cut it in the Department. It is always something a leap 
ahead. So if the requirements process can accept the fact that 
sometimes we are just replacing something with something a 
little better and not next-generation.
    And, again, I think if we can have a candid discussion 
about risk. Programs when they come forward, when they take 
risk, that is okay, but let's have a candid discussion and fund 
risk.
    Risks are typically denied. No program is high-risk. The 
low-risk programs, they don't worry about. The medium-risk 
programs, we apply this balm, and it is called risk-mitigation 
strategies, which have everything in them but time and money.
    And I think if we had that candid conversation, it is okay 
to take a risk, but let's take it together and let's resource 
it.
    Mr. Smith. Thank you, gentlemen.
    Mr. Thornberry [presiding]. I am going to withhold my 
questions and give other Members a chance.
    Mr. Lamborn.
    Mr. Lamborn. Okay. Thank you.
    I have heard anecdotal stories from Colorado companies in 
my district who end up adding 5 to 10 percent to their costs 
simply due to the number of overseers that they have to support 
on an ongoing basis from DCAA [Defense Contract Audit Agency] 
and DCMA [Defense Contract Management Agency].
    How do we strike the right balance between oversight and 
efficiency in contract management? For any one of you.
    Mr. Chao. I think that is where we go to that threshold 
issue in terms of, at what level do we go? And there have been 
some of the studies done in acquisition reform over the last 4 
or 5 years that have tried to look at that topic. There was one 
that Norm Augustine had with BENS, Business Executives for 
National Security, that I would recommend you take a look at.
    One of the things and proposals some people have said is, 
you know, can we turn to outside accounting firms to do the 
normal audits and you use DCAA to audit the auditors and make 
sure they are following the right processes and procedures. 
That would perhaps be more efficient. So people have begun to 
look at that.
    I would submit to you the key item there is, what is the 
right threshold level? I think it is back to that spending 
millions to chase the pennies that is really exacerbating and 
causing the imposition of the people. You don't want to 
eliminate them, right? They have a legitimate role to play. It 
is, at what level?
    Mr. Lamborn. Okay. Thank you.
    Mr. Schwartz. So there are a number of perspectives. One 
that has been interesting is, you know, I believe it was 
Abraham Lincoln that said, if I had 6 hours to chop down a 
tree, I would spend the first 4 hours sharpening my axe. Very 
often, the oversight sometimes comes down to, well, they have 
had 25 percent growth; let's have the GAO report, let's have 
DCAA, let's have DCMA, let's have the hearings.
    But perhaps another possibility is spending more time 
getting it right up front and focusing on the requirements. 
Because oversight, very often, is after the costs have gone 25 
percent, now you have the Nunn-McCurdy requirements to go 
through another milestone and notify Congress and have the 
Secretary of Defense certify that this is required.
    So sometimes getting it right up front--programs that start 
off right generally, statistically, do much better on cost 
schedule and performance later on. So that is another 
possibility.
    Mr. Lamborn. We could explore this more, but I need to move 
on to another question for the sake of time.
    Overseeing service contracts versus the purchase of weapons 
or other tangible goods, are there any differences there in 
approach that you would recommend? Like, in my district, you 
have everything from trash removal to operating shooting ranges 
to managing satellites. Any advice there?
    Mr. Zakheim. Well, for a start, I would say that service 
contracting--there are different kinds of services, and you 
just pointed that out. You've got brain work which counts as 
service contracting. You've got the guy who comes in and does 
his old job at the Pentagon but now has a different badge. It 
is called ``butts and seats'' in French. That is services. And 
then there is collecting trash; that is services.
    I think what you need to do is recognize that the real 
problem is the second one that I was talking about. You always 
have to collect the trash, and you want people to use their 
brains. But Mr. Gates pointed out that the, what they call 
staff augmentation, the guys coming in and doing the 
government's work, doing the civil servants' work, that has 
gotten totally out of hand. And there is where I would look. I 
think we can cut back significantly.
    We are not spending half of our money; we are spending more 
than half of our money on services contracting. And considering 
the number of weapons that continue to drop each year with 
procurement, I would like to see more of that money going from 
service contracting to hardware, frankly.
    Mr. Lamborn. Mr. Francis.
    Mr. Francis. Yes. Services are quite different. So the 
people that write requirements are not your standard 
requirements organizations; they are bases, they are local 
places, people not necessarily well-versed in writing 
requirements. Services occur very quickly. A weapons system 
could take 10 or 15 years; a service is a level of effort that 
is done in months or a year.
    In weapons, dollars are a good proxy for risk. Something 
big and expensive probably involves risk. It is not the same 
for services. Some of your highest risk services, like Dov had 
mentioned or interrogators in Iraq, are not high-dollar. And 
some of the high-dollar things, which are buying a high volume 
of low-risk things, that is not necessarily what you need to be 
looking at.
    So I think the model for services is it has to be really 
front-end-loaded. You have to triage the requirement to see 
what we are buying and why we are buying it. Because with 
services, once you buy it, it becomes a drug. Then we keep that 
service over time, but we don't go back and look. So I think it 
is a quite different oversight regime.
    Mr. Lamborn. Thank you all.
    Mr. Thornberry. Ms. Tsongas.
    Ms. Tsongas. Thank you, Mr. Chair.
    And thank you all for being here.
    I would like to ask the question of, really, coming from 
Massachusetts, where we are home to so many high-tech companies 
who really engage robustly on solving a lot of these problems, 
how should Congress make sure that the Pentagon leverages high-
tech communities like Massachusetts that are willing to partner 
with them and to share some of the upfront investment in 
bringing the next-generation technology to meet the future 
challenges?
    And the reason that I ask this is I am proud to represent 
Hanscom Air Force Base. The professionals there are responsible 
for acquiring some of the Nation's most complex command and 
control systems and for making sure that these systems are 
adequately sustained through their lifecycle.
    So today we are facing new, much discussed challenges, for 
example, in the cyber domain, and it is Hanscom that is 
responsible for Air Force cyber acquisition. Now, the Air Force 
has acknowledged that Hanscom has improved cyber acquisition 
with the creation of the Cyber Solutions Cell and the creation 
of an organization responsible for lifecycle management of 
those cyber capabilities. But we also know that the cyber 
threat changes so quickly that the traditional acquisition 
process cannot support the evolving cyber requirements.
    But we have in Massachusetts a community that is really 
rising to and engaging in the challenge. Some of our best cyber 
minds really want to solve this problem. So, for example, there 
have been initiatives that are in place, including the Advanced 
Cyber Security Center, the Massachusetts Green High-Performance 
Computing Center, and the Kostas Research Institute for 
Homeland Security. And MIT [Massachusetts Institute of 
Technology] Lincoln Labs is planning a $450 million upgrade in 
facilities to support Hanscom.
    These capabilities reside in Massachusetts. They have 
already provided great value in working to solve some of our 
technical challenges that are currently helping to protect the 
soldier in Afghanistan.
    So, with the pressure on defense budgets, knowing what we 
have in Massachusetts and other States across this country, how 
should Congress make sure that the Pentagon does not ignore 
these resources, that engages them to solve some of these 
problems without sort of reinventing the wheel, looking to what 
is there?
    Mr. Zakheim. Well, I mentioned Route 128 in my testimony.
    Ms. Tsongas. You did, and I was glad to hear it.
    Mr. Zakheim. Well, a couple things. I have already spoken 
about the need for having technical expertise inside the 
Department. They need to know what to get. And right now we 
don't have that to any extent, certainly not to the extent we 
need to have them.
    But a couple of other things. We clearly need to simplify 
the rules. A lot of companies just don't want to get involved. 
It is too complex. And you have those companies that have done 
business with DOD for years, they know how to do it; those that 
have not just don't want the trouble.
    So one of the things you all might want to think about, 
members of the committee, is having a hearing where you bring 
in these high-tech company executives and ask them what kind of 
rule changes would they like to see, what would get them to 
work alongside DOD.
    DOD, as you know, part of the culture we have talked about 
is not invented here. If it hasn't been invented in a DOD lab 
or by some favorite contractor, it can be foreign, it can be 
domestic, it can be whatever, they are not interested. And 
Congress has tried to legislate in the past, you know, side-by-
side competitions and all that. But there is always a way to 
fix the requirements to eliminate anybody you want to 
eliminate.
    And it seems to me that there is no question that, because 
of Moore's law, our civilians who may--and military people who 
may not have taken a course in 30 years, by the time they get 
senior, have no idea what is going on in the Research Triangle 
or Route 128 or Silicon Valley or whatever. We have to educate 
them.
    But we have to ask industry, how can the FAR, the Federal 
Acquisition Regulations, and the defense regulations that are 
appended to those be changed to simplify the ability of 
companies that really are at the cutting edge to support 
defense?
    Ms. Tsongas. So do you think the Pentagon has an 
appreciation of what the opportunities are? Or do you think 
there is some education that needs to be done on that front, as 
well?
    Mr. Zakheim. I think, at the senior levels, the people who 
come in from the outside certainly have an appreciation. I 
think that if you have been in the bureaucracy 20 years, what 
you do is you rely on another contractor to help you out. It is 
called program management support or scientific engineering and 
technical assistance, SETA. What it really means is, I don't 
know what this is all about, but I will get this contractor to 
tell me. How can you make educated choices that way?
    Ms. Tsongas. Thank you.
    I would love to get your response, Mr. Chao, but we have 
run out of time.
    Mr. Thornberry. Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    Gentlemen, thank you for your testimony today and giving us 
some insight into not only what the Department of Defense is 
doing, or should be doing, but also what our agenda should be.
    And I would like to focus specifically on the issue of the 
use of lowest price technically acceptable, LPTA, contracting 
and the impact that it is having on both the Department of 
Defense and our industrial base.
    Let me first say that I certainly believe that it is 
important for the Department of Defense to continue its efforts 
to lower costs and to seek greater efficiency. However, I am 
concerned that lowest price technically acceptable contracting 
has become an over-utilized practice in the acquisition 
community. And, more and more, we are seeing increasingly 
complex and technical contracts be awarded as a result of 
lowest price technically acceptable, as opposed to the 
traditional best value approach.
    While lowest price technically acceptable may make sense in 
some cases, I am always hesitant when I learn of its use when 
contracting out critical national security capabilities. I 
would like to hear each of your thoughts on the lowest price 
technically acceptable contracting as it pertains to the 
Department of Defense.
    Is there a sense that in the long run this practice could 
lead to additional long-term costs? Could its overuse lead to a 
decrease in competition and an overall decline in the defense 
industrial base--quality of contractor workforce, ingenuity, 
and efficiency? Would you please provide me your thoughts?
    Thank you.
    Mr. Chao. It is a great question. And I think the answer 
would be yes. I think it is one of these examples of a decent 
rule for a particular application being more overly broadly 
applied than it should be. You even have--you have had Ash 
Carter and Frank Kendall say, you know, this is not what I 
intended, in terms of the way it is being rolled out.
    And I would submit to you that we are currently seeing 
the--you are seeing the early signs of the bad-actor effects of 
companies who were awarded contracts that are actually not 
technically capable starting to fail in those program. So I 
suspect over the next 12 to 18 months you are going begin to 
see some of the horror shows, you know, of some of that 
behavior.
    And so it does fall into the category of something that has 
been overused.
    Mr. Turner. Before we go on to the others, I want to 
underscore what you just said, because I think that was 
absolutely critical. You said companies that are not 
technically capable. One of the concerns is that technically 
acceptable is so borderline that the mistake then degrades to, 
as you just said, not technically capable. And that certainly 
is a disaster.
    Thank you.
    Mr. Zakheim. I once was speaking to a contracting officer 
who explained to me why they do this. The reason they do this 
is because of the lawyers. There is an industry, a bid protest 
industry out there. And so everybody protests. And the lawyers 
have basically told these contracting officers, look, the best 
way to get around it is go with the lowest price. That way, it 
is harder to get protested.
    Now, what is the solution? The solution is clearly to make 
it much harder to protest the bid. And a lot of people aren't 
going to like that. But if you raise the bar, that makes it 
harder for the contracting officer to say: ``Well, you know, I 
am just going to go with the lowest bid.'' Because it is going 
to be different. They won't always get hit with a bid protest.
    Another thing you do--and this is really in the weeds, but 
you have asked an important question--is how you weight the 
selection process. In other words, we've got an index, and cost 
is one of the elements of that index. And there are other--
there is technical acceptability and so on. What you do is you 
make cost a lower priority, so, by definition, it gets much 
harder for a company to win just because they are cheaper. That 
can be done. You don't even need legislation for it.
    Mr. Schwartz. The issue of lowest price technically 
acceptable also gets us back to workforce. Do we have the right 
people in place to decide when it should be used and when it 
shouldn't be used?
    In addition to that, it is not just having the right people 
in place to decide when to use it, but how to craft what are 
the standards for ``acceptable.''
    And if the standards for what is acceptable are crafted in 
a certain way and if the people in place are there to make the 
decision of when or shouldn't it be used, it could be much more 
effective.
    Mr. Francis. Batting last, I think low price technically 
acceptable is, you know, in principle, a good thing for the 
government to try to be doing in the right circumstance. What 
the government tends to do is, when it develops a new 
instrument, it tends to overuse it or not think about what 
situations it applies to. And I think, Mr. Turner, you hit--the 
real issue is, how sophisticated is the service that you are 
buying, and is this an appropriate instrument?
    And I think another thing that also kind of gets lost in 
the shuffle is we don't do a good job of evaluating past 
performance of contractors. So some contractor may look 
technically acceptable, but if they have a poor track record 
for performance, you need to evaluate that, and you might find 
that is not the best way to go.
    Mr. Turner. Mr. Chairman, for just a moment, if you might, 
could I put an objection on the record to blaming the lawyers, 
being a lawyer? Because I never think that is the answer.
    Mr. Thornberry. The gentleman's objection is overruled.
    Mr. Peters.
    Mr. Peters. Thank you, Mr. Chairman.
    You know, I think a lot about innovation in this space. And 
I have been speaking to a lot of companies in San Diego, where 
I live, and also throughout California. I am sure this is true 
in other areas. And a couple things strike me. And it is a 
little bit anecdotal, but maybe you could think a little bit 
about the incentives of a contracting officer.
    First, many of them are familiar with the company they have 
always been working with. And someone has come along with a 
better idea. And it may be a small company who has part of the 
technology, and they just can't seem to break through. And I 
can understand there is a fear in the contracting authority to 
make that change.
    But the other thing that strikes me and concerns me a 
little bit, and maybe you have some thoughts about this, is 
that generally we shouldn't expect these contracting officers 
to be nearly up to speed on what is going on in innovation in 
the private sector. They are going to be way behind, you know, 
almost by definition.
    And so how is it that we can incentivize them to take 
advantage of what is being developed, which may be more 
efficient or more effective, and to adopt that as part of 
acquisitions?
    Mr. Chao. It is a great question. I think--and over the 
last decade, partly because of the war, we have created better 
and more mechanisms to act as interfaces for innovation. We 
have always had DARPA [Defense Advanced Research Projects 
Agency], for example, but there have been other groups. I think 
one of the things to look at is making sure that, as we come 
out of the war, that we don't forget or lose the lessons that 
we have learned the hard way, in terms of doing that.
    I would also submit to you that the initial interface, the 
ability to get SBIRs [Small Business Innovation Research] and 
other types of contracts to attract, you know, companies are 
there. The real hard part is the so-called valley of death, 
that you get that first initial contract but it is then getting 
it into the broader system that becomes difficult. And so a 
focus on that would be one of the places.
    The third thing that I would note is, which makes it hard 
for innovative companies, we have had a basic bargain, cultural 
bargain, that we have created over the last couple of years: 
Lose money or make very little money on research and 
development, make it up in production. Right? That incentivizes 
a system to get and it favors large companies.
    I would argue, in a downturn environment where preserving 
research and development and access to innovation becomes 
critical, making research and development a viable economic 
proposition is something that would turn the whole system on 
its head and actually, I think, help those kinds of companies.
    Mr. Zakheim. I think a lot of it has to do with education. 
You put your finger right on it. Our people just aren't keeping 
up with the technology. And that is why I have argued that, in 
order to get to a level where you are a senior contracting 
officer, senior acquisition officer of any kind, you need to be 
able to spend a year doing something, either learning in a top 
technical school with the government paying for it--it is worth 
the money, and the money is there--maybe spending time in 
industry, like the SECDEF [Secretary of Defense] Fellows do, so 
you really know what is going on on the other side.
    We need to incentivize people to do that. Very often 
somebody goes off for a year and comes back and they don't have 
their job anymore and they don't have any place. That is 
something DOD could say, no, when you come back, you are going 
to have a job that takes advantage of the education you just 
got. There are things that can be done so that people can keep 
pace with the technology.
    You also want to have, probably, integrated teams. You 
don't want to just negotiate a contract with a lawyer. You 
probably want to have some technical person alongside you, as 
well. It will be better for industry.
    Mr. Peters. There is another layer on this, though, because 
the problem is that it is not a system that listens to what is 
happening. So what has happened in the private sector is people 
will come up with products we didn't know we needed. They have 
a good idea for something. And I see this in defense, is that 
there are good ideas on communication. But no one today in 
companies I have visited in my district, my area, no one today, 
say, in the Navy may be thinking that I need such a thing, so 
it is not getting down as a request for acquisition.
    So what we need, we need to go beyond educating these 
people, which I certainly agree is invaluable and necessary, to 
figuring out a way for us to be able to listen to what is 
happening in technology for ideas that we may not have thought 
we needed but could serve us, you know, make our warfighters 
safer, make our budgets tighter, and help us be more efficient.
    Mr. Chao. You have touched on one topic which I would 
encourage the committee to really look at. We have created a 
growing divide and disconnect between the building and the 
industry in terms of the dialogue that you are able to have 
back and forth. There is, in some cases, you know, such a fear 
that if I engage in that, I am going to get in trouble.
    And it is exactly those mechanisms that we used to have 
that would enable that interchange of information that we are 
drifting away from now, I would argue, in a very dangerous 
fashion. And I think you are seeing that on the ground, live, 
in the companies that you are talking to.
    Mr. Peters. And I just have the sense that our adversaries 
are better listeners in this way and adapting this technology 
in a way that is faster than us, and I don't want to be in the 
way of it.
    Thank you, Mr.----
    Mr. Francis. I----
    Mr. Peters. Oh, sorry.
    Mr. Francis. I just have one point. And I would say that 
the contracting officer is not the right person to be 
adjudicating something like this, that the real burden should 
be on the people with programmatic responsibility for doing 
market research, knowing what is out there. They can construct, 
then, a proposal that the contracting officer has to make sure 
it abides by law, but they shouldn't be adjudicating the 
propriety of what is being done.
    Second point I would make is the government needs to have 
some venture capital, it needs to have different ways to 
explore these things. And they are going to fail, and that has 
to be okay.
    Mr. Peters. Right.
    Mr. Francis. In today's world, you have to hitch your wagon 
to a program. And once you do that, you are into long-
established relationships, maybe different standards of 
accountability. So we need more flexibility up front.
    Mr. Peters. Thank you. My time has expired. I appreciate 
it.
    Mr. Thornberry. Mr. Wittman.
    Mr. Wittman. Thank you, Mr. Chairman.
    And, gentlemen, thank you so much for joining us today.
    I want to get your perspective on the recent state of 
affairs and then where we go in the future with the current 
element of what I call ``churn,'' and that is budget 
decisionmaking, appropriations decisionmaking, budgeting by CRs 
and the uncertainty that comes with that.
    In that recent history and then projecting out into the 
future, how do you see that affecting acquisition reform? How 
do you see us being able to efficiently and prudently get the 
necessary equipment to our men and women? How do we make sure 
that we are making the proper decisions in acquiring the things 
that our military needs?
    I just want to get your perspective on where you think we 
have been and where you think we are going.
    Mr. Zakheim. Well, when I was Comptroller, I gave out 
money; now, Bob Hale takes it away. So I feel for him.
    To some extent, the two overlap, but I think that is not an 
excuse for acquisition reform. And I think that is really the 
important point here. The budget situation is going to change. 
We know that, historically, there have been highs and lows. 
This is not the first budget-constrained environment we have 
been in. And what has to be done is to maximize the efficiency 
of the acquisition corps, regardless of the budget level.
    And so I would say, yes, we have difficulties now, but all 
the things that this panel have been talking about are not 
really budget-driven. And so I think this committee has a real 
opportunity to make change. Now, once the budget environment 
eases up, you will see even more benefit from these changes, 
but this should not be a limiting factor.
    Mr. Wittman. Gotcha.
    Mr. Chao. I mean, I would take a little bit of a different 
tack from the perspective of the question you asked about all 
this churn. I think, without a doubt, it is costing the 
Department and the Congress money. You know, starting, 
stopping, laying off, rehiring, furloughing, bringing back; I 
can't assign contracts to my supply chain; I have to cut them 
off because I don't know, in order to follow rules; program 
managers afraid of going to jail for violating the Anti-
Deficiency Act, so therefore not spending money.
    I guarantee you that that is embedding costs that we are 
going to see and we are going to have to pay for in the next 2 
or 3 years. And anyone--you know, that is a guarantee that that 
is embedded in--as a result of what has been going on.
    Mr. Wittman. Very good.
    Mr. Francis. I think one of the real consequences is, with 
this churn, funding is always being discussed and programs, I 
think, always live in the threat that they are going to lose 
money. So it keeps them in the cycle, always working on their 
funding stream, which I think creates a very short-term 
perspective and it dis-incentivizes candor.
    You are not going to talk about problems or risks you have 
if every month you have another budget battle to fight. So, as 
long as we are in that environment, I don't think we are going 
to get candid conversations about what is going on in programs.
    Mr. Wittman. Very good.
    Mr. Schwartz, any comments?
    Mr. Schwartz. It was very well said.
    Mr. Wittman. Okay. Thank you.
    Gentlemen, you all spoke very eloquently about the current 
culture and how you change the culture to actually get true 
reform in acquisition. You talked about flexibility, which I 
think is critical, adaptability within those systems.
    How do we change that culture? You know, organizations are 
so large, and they figure out how to adjust to different 
administrations, to different Congresses. How do we have true 
change in that culture and reform?
    Mr. Schwartz. So, if I may on this one----
    Mr. Wittman. Yes.
    Mr. Schwartz [continuing]. One possibility is to start with 
something I mentioned before, which is authority. And I want to 
quote Heidi Shyu, the Assistant Secretary of the Army, or the 
top weapons buyer, who reportedly said recently, ``Having been 
in government for only 3 years and having spent 33 years in 
industry before that, I am utterly shocked about how little 
control the poor PM [program manager] has,'' referring to the 
program manager. ``The program manager is a flea on the tail of 
a dog, let's put it that way.''
    And that is exactly what I have heard from a lot of other 
people. Just in the last 2 weeks, I jotted these down in the 
last 2 weeks, one program manager said, ``I have authority for 
nothing but responsibility for everything.'' Another one said, 
``We need more authority in the field.''
    Giving them the authority to make decisions and, of course, 
holding them to accountability is one way to change the 
culture.
    Mr. Wittman. Very good.
    Any other thoughts?
    Mr. Zakheim. Well, one other thing. Culture starts at the 
top.
    Mr. Wittman. Uh-huh.
    Mr. Zakheim. And I think one thing that Congress can do is 
really tighten up the requirements for who should be Deputy 
Secretary of Defense.
    Mr. Wittman. Gotcha.
    Mr. Zakheim. Ultimately, that is where the decisions go. 
And you are the ones that set the requirements. The Deputy 
Secretary of Defense should be the chief operating officer, 
should ultimately be accountable for the kinds of things we are 
talking about. And there are some clear requirements for that, 
I think.
    Mr. Wittman. Very good.
    Thank you, Mr. Chairman. I yield back.
    Mr. Thornberry. Thank you.
    Mr. Langevin.
    Mr. Langevin. Thank you, Mr. Chairman.
    I want to thank the panel for your testimony today. It has 
been very helpful.
    And I would like to go back, if we could, on the topic of 
cybersecurity and how as it relates to the acquisition process. 
I know my colleague, Ms. Tsongas, talked about this. I want to 
talk about it maybe from a little different perspective.
    But acquisition of cybersecurity systems and software is 
commonly cited as a circumstance where the current acquisition 
system is woefully inadequate, due in large part to the 
extremely short timelines required.
    Are there concrete ways in which we could give the current 
system the speed and flexibility needed without simply 
bypassing it?
    Mr. Francis. Well, I will start.
    I think so. One of the things that you keep in mind when 
you are embarking on an acquisition which involves technology 
changing at a very rapid cycle is your initial technology that 
makes this capability possible, I think you structure your 
acquisition around, do we have that? And then make that your 
minimal capability and go with that. And then you can fund at 
the same time all these different improvements, using 
flexibility to allow innovation to occur. And then you can 
bring those in as that product is being developed and improve 
it over time or improve that capability.
    A process where we have to have the whole thing at once 
doesn't work in this situation because technology changes too 
fast. On the other hand, I don't think you can go out to try to 
buy something that hasn't had anything invented yet. So I 
think, you know, a first initial capability with a flexible 
acquisition strategy to improve over time is the way to go.
    Mr. Chao. Well, and given that these are technologies that 
are, again, moving at Moore's Law speeds, you know, 9 to 12 to 
18 months, a 2-year budget planning and budget execution cycle 
just is fundamentally at odds to it. And so you would have to 
think through a mechanism by which you could have just much 
more flexible dollars. And it probably is a go-around or, 
again, a different track with its own set of rules in order to 
accommodate that.
    And there will be--and there are other technologies, 
frankly, that match that, those characteristics. Aside from 
that, the gears will grind.
    Mr. Langevin. So let me ask this. On the Better Buying 
Power, BBP, wanted to focus much attention on training and 
process, but absent from the discussion has been a focus on 
equipping the workforce with time-saving, modern, analytical 
software.
    Have acquisition support systems, such as the contract-
writing systems, cost-estimating systems, auditing systems, and 
the like, kept pace with acquisition reform and evolution? And 
how could technology enable the acquisition workforce to 
forecast, estimate, compete, award, and monitor requirements 
better?
    Mr. Zakheim. Well, a couple things.
    I think the first thing is the workforce needs to know how 
to use the technologies. One of the interesting things that I 
have found in government is they will buy technologies and then 
they don't know how to use them, or they will act as if they 
know how to use them but use them the wrong way.
    So it comes back, again, to training. A tool is only as 
good as the person who knows how to use it. And it seems to me 
there are tools out there that can be useful.
    And I will give you an example of a major failure that I 
had when I was Comptroller. I tried to centralize the entire 
auditing system. And we had, my God, the CEO of Oracle came to 
see me, for goodness' sake, to see if he could sell his 
product. And we bought a product, and the staff simply did not 
really understand what it was supposed to do. So the whole 
thing collapsed of its own weight.
    And, of course, you know, we have the same thing, perhaps, 
now with the Affordable Care Act. The problem is the staff 
needs to know how to use what it buys. So there is stuff out 
there, but you need an educated staff to know how to use it.
    Mr. Langevin. Good point.
    Well, let me ask you this. Could there be a better way to 
automate more of the acquisition process, particularly small 
contract changes like unilateral modifications, and, in doing 
so, free up time to work more complex acquisition issues?
    Mr. Francis. I think there are ways to do that. The 
government has, in the past, gone through reforms to simplify 
acquisitions. Things that fall below a certain threshold should 
be easier to approve. I think it is a good time to relook at 
that. Government tends to do these things just periodically 
after several years.
    Given the changing nature of technologies, I think that 
there are plenty of opportunities to, again, give people 
authority to make decisions using guidelines. Let them make the 
decisions and be held accountable. So I think there is quite a 
bit of potential to allow some of these smaller decisions, if 
you will, to be made much quicker.
    Mr. Langevin. Thank you.
    Thank you, gentlemen. I appreciate your testimony today.
    I yield back.
    Mr. Thornberry. Thank you.
    Mr. Scott.
    Mr. Scott. Gentlemen, thank you for being here.
    And I want to talk a little bit about weapons system 
sustainment. But I want to go back, before I do that, and give 
you a couple of examples that I have heard from--one from a 
program manager, one from a contractor that was a building 
contractor. He was a roofing contractor. And he got asked one 
time by the base command why he never bid on the original 
project. And the answer was, because I can't do it at the price 
that you are awarding the bid at. But he made a very good 
living repairing what the original bid provided for the base.
    And the bottom line is the low-bid process is costing us a 
tremendous amount of money because it doesn't deal with the 
sustainment of it, and nobody in the private sector would use 
the system we have. So, I mean, if you have a specific way for 
us to change that, I mean, in the end it gets to the people 
that we hire and some discretion.
    But one program manager, Mr. Schwartz, put it to me this 
way. He said, you know, he said, ``If I am buying a tire and I 
am told to buy P235/70/16, and I can use discretion to buy a 
good tire, then I can get a good price on it. But if I am told 
exactly which tire I have to buy, then the private sector knows 
that, and I am going to pay a fortune for it.'' And the end 
result of that is a frustration and the rubber-stamping of 
million-dollar change orders.
    So, as we carry that forward into the sustainment of a 
weapons system, which is two-thirds of the lifecycle costs of 
the weapons system, my questions get back to the current 
acquisition system and sustainment and what can be done to make 
the sustainment more efficient and the use of our--I represent 
Robins Air Force Base, which is a depot--and the balance 
between the public sector and the private sector with regard to 
making sure that the taxpayer gets a good deal in the 
sustainment of the systems.
    Mr. Schwartz. So, as we discussed, operations and support 
is very often 70 percent of the program. DOD, historically, has 
not had very good data upon which to track how reliable those 
O&S costs were going to be. So one starting place is to improve 
the data available so you can make those future tradeoffs.
    A second example is to prioritize the importance of the 
long-term operational support costs as a factor in authority 
and accountability and keeping the eye on that ball. Because, 
you know, Nunn-McCurdy--and there is a lot to be said that is 
positive about Nunn-McCurdy, you know, the reporting 
requirements, but it very often drives people to try to 
sacrifice the long-term costs for the current short-term costs, 
particularly in this environment. And if we could figure out a 
way to encourage the long-term view, and we have the data to 
back that up, then we might be able to get at that.
    Mr. Chao. This is also an area where you have a cultural 
issue of the issue of colors of money, right, with the 
procurement dollars being in a different stovepipe than the O&M 
[operations and maintenance] dollars, which is exacerbating 
this phenomenon of, well, I don't want to spend extra 
procurement dollars, the bidding on the original roof, in order 
to save money later on. And looking at that issue of color of 
money and can you perhaps allow some of that to slop back and 
forth, if it results in good decisions, is probably a topic to 
look at.
    Mr. Scott. Can I ask a follow-up to that? So in today's day 
and time, in the cuts that are being made today, doesn't that 
make the problem bigger going forward? Aren't we going to push 
more of the costs of sustainment in the future with what we are 
doing right now?
    Mr. Chao. Yes, for sure. And which is why, you know, never 
let a crisis go to waste. You know, and this would be the time 
to take a look at that, because it is going to drive that--it 
will drive exactly that kind of behavior.
    Mr. Zakheim. I think--a couple things you can do. Again, it 
is how you frame the contract, how you actually make the 
decision about a contract. If price is way too high, then, by 
definition, you are going to go with the lowest price.
    To my knowledge, sustainability isn't the major factor in 
contract decisions anyway, and it can be. I mean, obviously, 
you cannot predict the future, but you can certainly say, has 
it been tested? There are ways to test things like mean time 
between failure and so on. You could have that as a major 
standard. It could be part of what is technically acceptable.
    ``Technically acceptable,'' as has been said, is a very, 
very broad term. You raise the bar on what is technically 
acceptable and include sustainability in it.
    Mr. Francis. I would just add to that, I think structuring 
the acquisition up front is very important. If you are going to 
focus on operations and support and sustainment, I don't think 
we do that. I think performance still wins the debates.
    And I think over time the government has given up some of 
its ability to make decisions in its own interest. So we get 
into situations where we award a contract to a contractor to 
develop a product at the same time we give them the contract to 
sustain the product. So they are making money on both ends of 
the spectrum.
    And if we haven't bought the data rights or stood up an 
organic capability, the government leaves itself no option but 
to go with the developer to sustain the product. And that is a 
disincentive to getting the product designed for sustainment.
    Mr. Scott. It is an unregulated monopoly, in that case. And 
that is the reason I firmly believe we need to continue with 
the 50/50 rule, to make sure there is competition out there.
    Thank you, gentlemen.
    Mr. Thornberry. Ms. Speier.
    Ms. Speier. Mr. Chairman, thank you.
    The Inspector General has found a number of instances where 
contractors grossly overcharge the Department for spare parts. 
The IG [inspector general] pointed out this particular bearing 
sleeve that costs retail $10 and Boeing charged the taxpayers 
$2,286. This is a metal tube assembly. Boeing charged the 
taxpayers $12,400; it retails for $1,167.
    You know, the American people thought that the $800 coffee 
pots and the toilet seats were something of the past, but the 
truth is it is still going on today.
    So my question to you is, how do we hold these contractors 
accountable? Anyone who would like to answer that would be----
    Mr. Francis. Well, I think----
    Ms. Speier [continuing]. Welcomed.
    Mr. Francis [continuing]. The first thing is the structure 
of the contract. And I think, rather than the government 
focusing on the specific profit rate that is being established 
or the cost--the other side of that, Ms. Speier, is you can get 
that flood of auditors looking at all these individual things. 
So if the price is fair, then I think the government--that is 
where the government should be structuring itself.
    If they find that the contractor then, after an audit, is 
not being fair, that needs to be factored into their past 
performance history so that the next time the contract is 
awarded it may not go to them. The government has to be a smart 
buyer and has to be willing to walk away from somebody who is 
not giving them a fair deal.
    But I don't know if I would go so far as to break down all 
of these individual parts and then create that audit burden. We 
have to get the big thing right up front.
    Mr. Schwartz. I believe one of the examples that you are 
referencing was a part that, in fact, was in DLA [Defense 
Logistics Agency] inventory for a very cheap price. So another 
side of it is not just the contractor, but who in that 
workforce signed off on paying $2,000, I think the figure was, 
for that part without calling DLA and saying, ``Hey, can you 
beat $2,000 by $1,900?'' So that is another element of the 
aspect you are talking about.
    Mr. Chao. And, frankly, though, there are two elements to 
this. There are going to be the examples where there was 
overcharging, and then there is, frankly, the other element we 
have to be very careful of of sometimes those prices are 
reflecting exactly the overhead burden that we are imposing on 
the overall system, right, which they are required to do so. 
And so when you ask for that individual part and they are 
required to allocate a portion of that overhead burden onto 
that individual part, it will make that part look egregiously 
expensive, but that is what we have asked of the system.
    And so I think we need to distinguish between the two, lest 
we sort of go chasing some things that may not be relevant.
    Mr. Zakheim. And, of course, if you say ``the system,'' it 
means something you ought to be changing. In other words, if 
you are going to impose rules on the contractors that only 
allow them to make money a certain way, that is how they are 
going to make their money. If you were to, for instance, 
convert some of these contracts to a firm, fixed price, and 
then they have to--and there are no engineering change 
proposals allowed, and they have to, basically, if they want to 
make a profit, come in below that price, you are going to see a 
very different kind of behavior.
    So you have two things here. You have the contracting 
officer who has no idea what DLA is offering because it is all 
over their head anyway and they are just undereducated, and 
then you have the rules that, even if they are educated, 
squeeze both them and industry in a certain peculiar and 
perverse way to come up with, whether it is toilet seats or 
hammers or anything else.
    Ms. Speier. So, Dr. Zakheim, you mentioned in your opening 
remarks that the lack of education is a critical component. So 
you would recommend that we have persons who are more highly 
qualified, pay them more, so that we are going to get greater 
value for the taxpayers?
    Mr. Zakheim. I don't know that we even have to pay them 
more. I mean, if we are promoting people from GS-13 to GS-14 
anyway, they are going to get paid as GS-14s. It will cost some 
money to have them educated for a year, but, you know, frankly, 
that money is there. We find ways to find money that we need. 
And we are not talking about big bucks, and the payoff is huge.
    Mr. Chao. And it is making the time available for them to 
take that training and put that into the rotation cycles.
    Ms. Speier. Thank you. My time has expired.
    Mr. Thornberry. Mr. Nugent.
    Mr. Nugent. Thank you, Mr. Chairman.
    And I want to thank this panel for your insight because, as 
someone that has only been here 3 years, it is mind-boggling in 
regards to how we spend money, and sometimes have no idea why 
we spend it or how we spent it.
    I can just give you a simple example, and then to a 
question. When we were trying to buy a computer in our office, 
it came back that was going to be 1,100 bucks. And the same 
computer we were able to buy with authorization through the 
purchasing for $500 from Best Buy. One would say that the 
Federal Government probably should have a better buying power 
than Best Buy, but obviously not.
    But I want to get to, in Iraq, when we had issues, 
particularly when our enemies exploited the vulnerabilities of 
our Humvees to improvised explosive devices, not only in Iraq 
but also Afghanistan, the DOD, you know, launched an expedited 
program, the MRAPS, to get in the field, which was outstanding 
because I have three sons currently serving in the United 
States Army. Two have them have been in Iraq and Afghanistan.
    But would you talk about the lessons learned--and I guess 
anyone can answer this, but Mr. Francis in particular--lessons 
learned from the MRAP acquisition? Some of the positive 
examples, I guess, of cutting through the bureaucratic system 
to get the MRAPs fielded? And maybe if there are some negatives 
on important steps ignored?
    If you--I know it is three questions, and I can always come 
back to it.
    Mr. Francis. I will try to muddle up my answer so all three 
will get answered. How is that?
    Mr. Nugent. Great.
    Mr. Francis. Yeah, I think there are good lessons learned 
from MRAP. So, on the positive side, once the government 
decided it wanted to go there, it did some really good things. 
One, it had money, top priority, it could put the best people 
on it. And it decided it was going to shop off-the-shelf and 
evaluate existing vehicles and then make a modification using 
existing equipment. So the government was going to pick the 
best vehicle and then put the equipment on it that it needs and 
get it out there. And we did it really fast, and it was really 
successful. So I think that was good.
    You ask yourself then, well, how come we are not producing 
that kind of equipment? And that gets to the negative. I think 
it took 2 years, at least 2 years, before the government 
realized that up-armoring Humvees and so forth wasn't getting 
the protection it needed.
    Mr. Nugent. Right.
    Mr. Francis. Those vehicles that they ended up buying had 
been around for years, but that is not where we look first. You 
know, we looked at our tried-and-true ways. And only when we 
had no other option, then we go out and do the right thing.
    So I think the question for the acquisition process is, 
could it have done the right thing right away? And I think the 
answer is yes. But the organizations have relationships. They 
have favorite programs, they have favorite contractors, and it 
is very hard to get them to respond differently.
    I don't think we need to go to a system that is all rapid 
acquisition that breaks the rules all the time, if you will. 
But we have to look at the current acquisition and say, can't 
the requirements process and the acquisition process be more 
responsive to meet needs like that?
    Mr. Nugent. Mr. Chao.
    Mr. Chao. I do think it also highlights one other thing 
that we are going to have to be very careful of as we go 
through a little bit of time, right? The acquisition system is 
always trading off cost, performance, and time, right? That was 
a great example. And you can optimize two and you are going to 
have sacrifice the third. Very clear example in the MRAPs of 
emphasizing time and performance, and I paid for it in cost, 
right?
    As we come out of the war and the time imperative decreases 
for most of the system--SOCOM [Special Operations Command] and 
other parts will still have that time imperative--the system 
and the emphasis will shift, and things that will look normal 
in the new system--or that looked normal in the old system will 
not look normal in the new system.
    Mr. Nugent. And, lastly, I am running out of time, but is 
it possible to use existing technology without trying to always 
reinvent the wheel and then add on to that existing technology 
in a way that would save us money?
    Mr. Zakheim. Well, it certainly is possible, and it has 
been done. But part of the difficulty, if you take the MRAP, it 
was basically based on a South African design, as we know. We 
tend to be very, very narrow and restrictive about where we 
look, and so we tend not to look at what is on the shelf. When 
we do take something off that shelf, we tend to modify it so it 
is unrecognizable.
    That is something that has to change, and that has to be 
changed by top management and enforced year after year, 
Secretary after Secretary, party after party. If there isn't 
consistency in this, the system will just lapse again.
    Mr. Nugent. Thank you very much. My time has expired.
    Mr. Thornberry. Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman.
    Mr. Schwartz, do you think that the Defense Acquisition 
Workforce Development Fund, first, has made some progress on 
getting the right number of people working in the acquisition 
field? And, as well, has it increased the professionalism of 
the acquisition workforce? Have you done any assessment on 
that?
    Mr. Schwartz. If I understand, I believe it is 
approximately 2,000, or slightly more than that, individuals in 
the acquisition workforce that were brought on board to the 
Department of Defense as a function of the funding that was 
created in the DAWDF, the Defense Workforce Acquisition Fund.
    In addition to that, even some of the requirements from 
DAWIA, the Defense Acquisition Workforce Improvement Act, from 
20 years ago, which required, I believe, program managers to 
have 8 years of experience, PEOs, program executive officers, 
to have 10 years of experience, those regulations that have 
started educating the workforce, those people that went through 
that are just now generally getting to that layer of senior 
management and have been brought up through that system.
    So with DAWIA and Defense Workforce Acquisition, they are--
from my understanding of people in the system, there definitely 
has been an improvement of people who went through that who 
have better training and more experience.
    Part of the problem, though, is that the average age of 
many people in the acquisition workforce is much higher. The 
workforce was cut substantially in the 1990s, and as we are 
hiring more people, it could take 10, 15 years until those 
individuals get through that process. So with DAWIA and with 
the Workforce, it definitely is setting a good standard, but it 
is going to take time to get that workforce back up to where it 
needs to, from that perspective.
    Mr. Larsen. Yeah.
    And a follow-up for that: Can you provide the committee 
with an example of some of the challenges that program managers 
face trying to navigate and keep track of the steps in the 
acquisition program?
    Mr. Schwartz. Absolutely. So the acquisition framework is 
set forth in the 5000 series. Perhaps I can show you. One 
individual recently said, we have legislated and regulated our 
way into a black hole.
    So this is the--these are the directives of the 5000 
series. This is the basis. Now, on this is the Federal 
Acquisition Regulation. This is the Federal Acquisition 
Regulation. It is about 1,800 pages. But there is guidance that 
is necessary to understand that. This is the Defense 
Acquisition Guidebook that explains how to use the Federal 
Acquisition Regulation.
    And that is for all of government. Now, defense is slightly 
different.
    Mr. Larsen. Thank God that one is in a binder, anyway.
    Mr. Schwartz. This is the Defense Federal Acquisition 
Regulation Supplement just for the Defense Department.
    Now, just to make sure you understand how to use that, 
there is the Defense Acquisition Regulation Procedures, 
Guidance, and Information that explains that.
    That is one of the challenges of the program managers 
today.
    Mr. Larsen. That looks like about 13 inches of challenges 
or so. All right. Good. Could you read those for us? No, I am 
just kidding.
    Mr. Schwartz. We can make a CRS [Congressional Research 
Service] report with all that.
    Mr. Larsen. Great. Thanks.
    I think another challenge, too, for Mr. Francis to answer, 
is, looking at your GAO report, noting in your ``Analysis of 
DOD Major Defense Acquisition Program Portfolios,'' page 2, is 
kind of the depressing number here, that from 2008 to 2012 the 
average delay in initial operating capability for these 
programs have gone from 22 months to 27 months. The change in 
development costs from first full estimate has gone from 42 
percent to about 49 percent.
    Where is the--is there a good news in this story?
    Mr. Francis. I think there is some good news. I think in 
the last 2 years we have seen some benefits from acquisition 
reform in WSARA [Weapons System Acquisition Reform Act] and 
Better Buying Power. We have seen some difficult decisions 
made, I think, after 2008. That is when Secretary Gates made a 
lot of decisions in 2010 to get rid of some bad programs and 
have them come out of the portfolio. So I think that was good.
    I think some of the things that they are doing today on 
cost studies and making requirements tradeoffs, I think those 
are doing okay. But I am not willing, at this point, to say we 
have turned the corner, all of a sudden the trend is going up. 
What we tend to see is, when you see improvements like that, 
they are imposed by strong individuals. It is the hero model. I 
don't think yet that the process has been institutionalized, 
and we would have to see this over time.
    Which is why I think this hearing is very important. 
Because when people like Ash Carter leave and Frank Kendall 
leave and some of the service acquisition executives leave, are 
we going to see this trend continue or is it going to 
disappear? I think this is mainly operating on the strength of 
individuals, which is good, we will take that success so far, 
but we need to institutionalize it.
    Mr. Larsen. Thank you.
    And, Mr. Chairman, if we could, as the committee hearing 
ends at some point, if we could get a dolly in to help Mr. 
Schwartz take the regs back, I would appreciate that. I am sure 
he would appreciate it.
    Mr. Thornberry. We are definitely going to record the stack 
for posterity.
    Ms. Davis.
    Mrs. Davis. Thank you, Mr. Chairman.
    And, certainly, I reflect on the memory of Ike Skelton, as 
well, and the fact that he was very concerned about this issue, 
as you all mentioned earlier.
    It does feel a little like deja vu. I know that Mr. Andrews 
and Mr. Conaway took part in a very active task force quite a 
number of years ago. I guess that was in 2009. And what I 
recall from that was that issues such as bundling and other 
ways in which--we question whether small businesses could get 
more in the fight, if you will. And we talked about that a 
little bit earlier, in terms of innovation.
    Do you see improvements in this way? I mean, has that made 
a difference? And is there something that Congress should be 
doing with addition to language or what have you?
    I mean, I am looking at the stack, and I am--one question 
really is, how much of that do you relate to what Congress has 
done? I know that is a part of rulemaking, but in terms of the 
effort that Congress has made that has been positive and both 
negative in that regard. You know, are we 3 inches of that or 
are we--what part of it does Congress represent?
    And I am particularly interested in the bundling issue 
because I think that has been a great frustration to small 
businesses. It is very difficult for them to be able to jump 
in. And we have seen this, you know, we have seen this in the 
ACA [Affordable Care Act], as well.
    Mr. Schwartz. It being my stack, apparently I will answer 
that question.
    This is an improvement from the 1970s, when it was 30,000 
pages and streamlined across the government. So, on one level, 
the acquisition system, while not aggregately perhaps 
improving, has kept up with the change. So even as systems and 
other services are more complex, generally, at least the cost 
overruns haven't skyrocketed more than they are currently. So 
that is one way of looking at it.
    In the last six National Defense Authorization Acts, the 
Title VIII of acquisition had approximately 250 different 
sections. So some people have suggested that perhaps that is 
more active. Others have said, well, some of these are very 
well-timed. But a number of these perhaps were right on target 
15 years ago but might not be appropriate now. Others of these 
might have had unintended consequences but just stayed on the 
books because we haven't, since 20 years ago with the 800 panel 
that Dr. Zakheim referred to, been gone through. And some of 
them didn't have--had a bad result, unintended.
    Mrs. Davis. Uh-huh.
    Mr. Schwartz. So I think a review, perhaps, of this stack 
and say which of them are outdated, which of them had 
unintended consequences, perhaps could be repealed or amended 
to say, how do we streamline it without undercutting some good 
oversight and some good things that may very well be in there.
    Mrs. Davis. And the mechanism for that? I mean, is that a 
role of the Congress? Is that a role of a task force? Is that a 
role--how do you see that?
    Mr. Schwartz. So I would suggest the way it was done last 
time was collaborative. And, generally, if you look at the past 
reform efforts, those that have been successful have been 
substantial, collaborative efforts across departments and 
across branches of Congress.
    You know, Packard, I believe it was, who said that he was 
shocked that when--when he was Deputy Secretary of Defense, he 
was shocked that they would put in at the Department of Defense 
on a senior level these reforms and the services wouldn't buy 
into them.
    Mrs. Davis. Uh-huh.
    Mr. Schwartz. So, no matter what the senior level does, if 
the services don't buy in, it won't be as effective.
    Even if the services do it, if the lower components don't 
buy in, it won't be effective. And, arguably, it is the same 
with Congress and DOD. If it is a collaborative effort 
together, which is how it was done in the 800 panel--Congress 
required, I believe it was Defense Acquisition University to do 
a study, and that was turned over to Congress, with input from 
numerous experts, and then that is how we got the Streamlining 
Act.
    Mrs. Davis. Uh-huh. But I guess part of what I wonder 
about--because we have talked about the education piece. If you 
have a lot of the same people, even though perhaps they are 
newer to the process, are we going to get the same results?
    Mr. Zakheim. I think that one place we haven't talked about 
is the White House. I think you will need OMB, OPM, and OFPP, 
the Office of Federal Procurement Policy, to play in this. A 
lot of this stuff is generated, or at least is theoretically 
under the oversight of those offices.
    Mrs. Davis. Uh-huh.
    Mr. Zakheim. And, again, a lot has to do with merits and 
measurement and reward. The services, if they know that they 
will not be penalized for not listening to a Deputy Secretary, 
they are not going to listen.
    So there is a combination of things. It has to be 
collaborative. It has to be nonpartisan. And within the 
Department, there has to be a sense of----
    Mrs. Davis. And do you think that this is something that 
Congress actually has to----
    Mr. Zakheim. Well, Congress should play in this and ask for 
it.
    Mrs. Davis. Yeah. Okay. All right.
    Mr. Francis. Ms. Davis, just a couple points.
    A couple of teasers. We are doing work on bundling right 
now, so we will have a report coming out. And we are also 
looking at small-business innovative research for this 
committee. So we are looking at how small businesses are faring 
in that world.
    And then just a little conundrum that we are facing here. 
If we were to, let's say, talk a lot about small business, 
Congress' role, they might write a law about small business 
that might add this. We talked earlier about cybersecurity; 
there might be something added for that. And we talked earlier 
about the defense acquisition workforce; we might want to pass 
laws and legislation on that. All individually good things to 
do. But then at the end, you say, have we looked at the 
cumulative effect?
    Mrs. Davis. Uh-huh. All right. Thank you.
    Mr. Thornberry. I thank the gentlelady.
    Mr. Kilmer.
    Mr. Kilmer. Thank you, Mr. Chairman.
    I have a few questions. One, it seems appreciated and 
understood that the use of commercial off-the-shelf products 
tends to be cheaper when initially purchased and maintained as 
compared to custom solutions. Part 10 of the Federal 
Acquisition Regulation supports that notion and encourages the 
use--encourages agencies to seek out those commercially 
available solutions while conducting market research.
    I guess, a few questions. One, are organizations adopting 
this shift? Have we actually realized a significant shift to 
purchasing commercial off-the-shelf? And are there any 
statistics that you have seen that support such a trend?
    Mr. Schwartz. There has been significant change in that 
since the 1990s with, I believe it started with Secretary of 
Defense Perry, when there were mil-specs, military 
specifications, for virtually everything, and he really 
initiated that efforts move away from that and buy commercial.
    What a number of people have suggested is, while that is 
definitely good, perhaps at some point the pendulum went too 
far, and we are trying to force that buying into commercial, 
which, as a number of the other people on the panel talked 
about, is, well, when that was the incentive, everybody had to 
buy commercial, whether it was the right thing or not. Now, 
perhaps, it is settling a little bit more. So that is one 
thing. And I will take that as a task and, over the next week 
or so, try to get you some statistics on that.
    The other issue with that, in addition to a clear increase 
in doing that as well, is there have been a number of 
instances, unfortunately, where the initial effort seemed that 
it was ideal to get off-the-shelf, and then when it was adapted 
to military requirements or when some of the regulations 
started kicking in, it ceased to be that. And then somehow a 
major development effort had to be done to incorporate these 
regulations, and then you lost the whole benefit of that, and 
sometimes the costs even went higher than otherwise.
    Mr. Chao. So here is where I would quibble a little bit. I 
mean, the reforms of the 1990s were actually fairly 
revolutionary in terms of switching the whole system from 
defaulting on mil-spec to now defaulting on commercial and 
proved to me why it should do mil-spec.
    Over the last decade, I think that pendulum has kind of 
started to swing back a little bit, and it has been creeping 
back--mil-spec has been creeping back into the system. And I 
would argue a review, you know, of that would be important.
    I think I saw a statistic that something around 28, 29 
percent of the dollars are being spent on a commercial basis, 
and it has kind of plateaued. And you would think, if you think 
of all the technologies that are moving more and more 
commercial, like IT [information technology], you would think 
that that percentage should be growing.
    Mr. Kilmer. Okay. Thank you.
    I also had a question around the small-business preferences 
that exist within our procurement policy. I know there are 
preferences to encourage disabled veteran and female and 
minority businesses. I want to get your sense of how successful 
those programs have been in encouraging qualified individuals 
to establish businesses and to grow their businesses. Have you 
seen--is there competition between the various preferences that 
might inhibit the achievement of each agency's goals in that 
regard?
    Mr. Zakheim. Well, my experience as a contractor for more 
than the time that I was in government tells me that, as usual, 
the system gets played.
    So, for example, big companies will hide behind the small 
business, which doesn't really have the capability to do 
everything that the government demands of it. That begs the 
question, should the government be demanding as much as it does 
from small businesses that forces them to turn to the big 
companies to back them up? So that is one issue that I think 
needs to be perhaps dealt with.
    Another is, yes, there is clearly a competition. If you 
want to have a woman-owned business, a disabled-owned business, 
a veterans business or so on, they are all competing against 
each other.
    Does DOD always meet its goals in terms of small business? 
No. The answer is, you know, sometimes it does, sometimes it 
doesn't. Is there a desire on the part of industry to bring in 
small business? Always, because you know that if you get a 
small business in, you have a better chance of winning the 
contract.
    But, again, it is kind of backwards. It is the big company 
that is looking for the small company in order to win the 
business, as opposed to the government looking for the small 
company for the reasons that presumably you support.
    Mr. Kilmer. So, from a public policy standpoint, what would 
you do differently?
    Mr. Zakheim. You probably would not make as great demands 
on the small companies, and just give them the opportunity to 
bring in what they bring in without forcing them, in effect, to 
join the big guys because, otherwise, they can't win a 
contract.
    Mr. Chao. I mean, as a mechanism for incubating small 
businesses, I would argue it has been successful. The place 
where it has gotten a little bit perverse is, as companies hit 
that threshold, deciding to stay there rather than crossing 
over. And, I mean, ideally, you would think that that was a 
policy established to incubate companies and let them grow all 
the way up. And now we have people that are just deciding to, 
you know, opt out, ``I don't want to go across the fence into 
the maelstrom,'' and so they stay right at that level. And that 
is probably something to take a look at.
    Mr. Kilmer. Thank you.
    Thank you, Mr. Chairman.
    Mr. Thornberry. Mr. Carson.
    Mr. Carson. Thank you, Mr. Chairman.
    This question is for all the panelists. It has been 
repeated often by Members on both sides of the aisle that 
sequestration is, I think we all agree, is the worst possible 
way to cut back our defense spending. The same goes for 
domestic spending. And we should eliminate both immediately.
    But I think it would be foolish not to learn from our 
mistakes. The DOD is effectively being forced to make decisions 
that it would likely not have considered if it were not for 
sequestration.
    Are there lessons we can take from sequestration about DOD 
acquisition and potential efficiencies that could be pursued? 
And what do we know now about DOD's ability to make tough 
choices in acquisition that we didn't know prior to 
sequestration?
    Mr. Francis. Okay. I will start.
    Mr. Carson, we have taken a look at how the Department has 
handled its investment accounts, and I think for fiscal 2013 
for the sequester it has taken short-term measures. It has 
postponed some decisions, may have pushed out some quantities, 
but it hasn't done anything drastic, in terms of canceling 
programs. It hasn't broken up any big contracts. So it hasn't 
done anything that I would say was imprudent. That is okay for 
this year.
    Next year, some of those same tools are not going to be 
available to the Department. So some of the things they have 
put off, particularly in shipbuilding, for example, where you 
have advance funding to buy long-lead items, you can put them 
off for a year, but you can't take them away. So they can't put 
them off again next year.
    I think lower budgets, if you know they are coming, can 
actually force some good decisions, some hard choices. They can 
bring discipline to a process. We have seen the opposite, where 
big budgets don't necessarily make for better decisions.
    I think the structural issue here is the Department has put 
forth a budget that does not yet reflect the sequestered 
amount. So when it goes back in, I am not sure it is going to 
make decisions to put it on a long-term glide path to save 
money. The decisions are not--are going to be, again, short-
term in nature and maybe not as well-advised if you know you 
are going to be sitting on lower budgets for the long term.
    Mr. Schwartz. I believe it was Winston Churchill who said, 
``Gentlemen, we are out of money. We now need to think.'' That 
concept is starting to really pervade the Department of 
Defense.
    In the past, there was this culture, perhaps we can call 
it, of, well, that program is going to increase in costs but we 
will get funding for it, and we will ask for more money, and we 
will ask for the cost cap to be raised, and we will ask for 
more money, and it will get funded one way or the other.
    That is not necessarily the culture now that a lot of 
people, not everyone, but a lot of people are feeling in the 
Department of Defense. It is no longer a given that if there is 
cost overrun, they are going to get funding. And it is no 
longer a given that if they promise more capability, that is 
going to sell.
    And Secretary Gates started this when he said, we don't 
need exquisite technologies anymore, we need the 80 percent 
solution. And a lot of people have traced that change in 
culture to comments like that.
    Mr. Chao. So, I mean, the most damaging thing about 
sequestration was the elimination--and it was designed to be so 
horrific that it would never be taken up--but of the across-
the-board cuts of everything having to be applied. And so, how 
can I cut, you know, a fifth of a ship, for example? And yet, 
you know, hence we were down that path.
    And so the Pentagon knows how to plan. In fact, it is very, 
very good at it. And I think that is one of the--if you give it 
the opportunity to do so, if it was told, here is the level to 
which you need to plan to, I would submit to you it can do a 
very, very good job of that. You know, the current environment 
has eliminated that ability and has created the turmoil. And I 
think that is where you are picking up all the inefficiencies, 
because it cannot do that planning.
    Mr. Zakheim. You know, even without sequestration, there 
has always been cut drills for years and years and years. And 
what happens is programs that are promising very often get cut 
because they just don't have the right sponsors in the right 
places.
    I don't know whether the Department right now has made the 
kinds of structural, as opposed to near-term, choices. I agree 
with my fellow panelists about where we are headed over the 
next year, but if you are talking about fundamental change in 
the way you do your acquisition, it is not clear to me that 
that is happening. And, at some point, the budgets will go up 
again. And if you don't have those kinds of changes, you are 
not going to get the efficiencies; you will waste money again.
    Mr. Carson. Uh-huh.
    Mr. Zakheim. So the sequester may have focused people's 
minds. The next question is, have they done the kinds of things 
that will allow for more efficient acquisition regardless of 
the budgetary environment? And I think the jury is out on that.
    Mr. Chao. If I could quickly follow up on that, if the 
budgets actually peaked, including the OCO [Overseas 
Contingency Operations] accounts, in 2009 and we are planning 
the 2015 budgets, we are actually 6 years into the downturn. I 
know it doesn't feel like that. And if you look at the historic 
cycles, we usually had
10-, 12-year cycles. I would submit to you we are almost, 
quote/
unquote, halfway through.
    So as I talk to industry, I tell them, if you are starting 
to think about the downturn now, you are way too late. You 
should actually be thinking about what the next upturn looks 
like and what do we want to do during this downturn to 
strategically position ourselves. And I think the Pentagon 
really wants to do that. I think it is a great role for 
Congress, you know, to also play in thinking about how to do 
that.
    I mean, to end on an optimistic note, you know, for as much 
complaining, we still end up with the best equipped military in 
the world. Now, we may sit there and say, you know, that is a 
``we suck less'' strategy and that doesn't feel very good. But, 
you know, this is as much of an opportunity, I think, to 
position for--you know, to position ourselves for, frankly, for 
what the next upturn looks like.
    Mr. Carson. Thank you, gentlemen.
    I yield back my time, Mr. Chairman.
    Mr. Thornberry. Thank you.
    And thank you all. We have covered a lot of ground today. 
Members had a lot of good questions.
    I guess I do want to ask, is there some key element of this 
that we have not touched on that any of you all think that you 
would like to highlight as a last comment? You don't have to 
say anything. I am just giving you the chance in case we missed 
something.
    Mr. Chao. So, one last topic, which was touched upon 
obliquely. It is another politically sensitive one. It is the 
issue of the revolving door. Right? To the extent of, if we 
have these issues in the workforce and you need to get better 
quality people in, and we have 15 percent, I think, of the 
Federal workforce eligible for retirement and another 30 
percent coming in the next 5 or 6 years and there is going to 
be this brain drain, the ability to pull people mid-career into 
the system and back out again is probably something that needs 
to be really, really looked at.
    And it has become almost a one-way trip, either one way or 
the other. It has become very, very difficult to do that. 
Again, to sit there and say, ``I want to increase the revolving 
door'' is not politically palatable or popular, but it is a 
real topic, I would argue, to look at.
    Mr. Zakheim. Another one that is clearly a tremendous 
frustration is, how do you bring people in at the political 
appointee level? A lot of people just don't want to get 
involved because it is just so hard to make it through the 
confirmation process.
    And I know that takes place in the other Chamber, but it 
seems to me it is a challenge for everybody involved in 
acquisition. And it is something that, as you talk to your 
colleagues in the other Chamber, it really needs to get 
resolved. It is not a partisan issue. It is an issue of, can we 
get the best people for this country? And there are an awful 
lot of good people out there who just don't feel they can 
serve.
    Mr. Thornberry. Okay.
    Mr. Francis. Mr. Thornberry, I just would conclude that it 
is kind of easy to say the acquisition workforce should do 
something different, or the executives or the program managers, 
but I think we have to think holistically and look at all of us 
put pressures on the system and create pressures. And I think 
it responds pretty much to those pressures.
    So if we want to get different results, I think we each 
have to look at what are we contributing to the current state 
of affairs and what can we do to take some of the pressure out 
of it. And I think that is going to be key to getting results 
in the future, instead of just looking at what the other guy 
can do.
    Mr. Schwartz. And perhaps to sum that up, what the role of 
Congress--and there was a question before. So this committee 
has done a lot of work, as other committees have, on 
operational contract support. And everyone I have spoken to in 
the Department of Defense had said that the progress made could 
not have been made without the effort in Congress.
    I would suggest that the past successful reforms, Congress 
has always played a critical role. And there is a critical role 
for Congress to play in the future.
    Mr. Thornberry. Well, I appreciate that. You all heard what 
the chairman and Mr. Smith have agreed to do. And, as I think 
each of you have said at one time or another, that requires not 
only Republicans and Democrats, House and Senate, it requires 
various levels of the Pentagon and also working with industry. 
Because until you get, kind of, everybody more on the same 
page, we are not going to have the success we need.
    So thank you all very much for your time today. And I hate 
to break it to you, but we are going to be calling on you in 
the future to help guide this effort.
    With that, the hearing stands adjourned.
    [Whereupon, at 12:21 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                            October 29, 2013

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            October 29, 2013

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                   DOCUMENTS SUBMITTED FOR THE RECORD

                            October 29, 2013

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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            October 29, 2013

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                   QUESTIONS SUBMITTED BY MR. MILLER

    Mr. Miller. Dr. Michael Gilmore, Director of Operational Test & 
Evaluation, consistently speaks about developmental test & evaluation 
(DT&E) as being key to successful operational test & evaluation (OT&E). 
Prior to enactment of the Weapons Systems Acquisition Reform Act 
(WSARA) of 2009, the GAO and the Defense Science Board found that 50% 
of programs completing initial operational test & evaluation since 2000 
were assessed as ``not operationally effective or suitable.'' GAO 
suggested that ``. . . beginning production before successfully 
demonstrating that the weapon system will work as intended increases 
the potential for discovering costly design changes . . . and usually 
requires substantial modification costs at a later time.''
      Do you believe enhancing the authority and resourcing of 
the Deputy Assistant Secretary of Defense for Developmental Test & 
Evaluation would improve that office's oversight effectiveness, 
resulting in reduced cost overruns and schedule delays?
      How would you recommend enhancing that authority and 
resourcing?
    Mr. Zakheim. It is not clear why the DASD for DT&E requires 
additional resourcing. OSD is already overstaffed. At most, personnel 
should be dropped from other OSD offices in order to add a few more 
slots to the DT&E office.
    The key is additional authority, rather than resources. In order to 
ensure that DT&E has the desired impact in the acquisition cycle, the 
DOD 5000 series should require that the DASD DT&E certify to the 
Defense Acquisition Board that developmental testing and evaluation has 
been completed and that the program in question can move to production. 
The DOD Directive should make it clear that there will be no movement 
to production without such certification unless a waiver is explicitly 
granted in writing by the Deputy Secretary of Defense.
    Mr. Miller. Over the past several years, this committee has 
attempted to pass legislation that would provide authorities to enter 
into long-term and/or multi-year procurement contracts. The constant 
obstacle is the CBO and the manner in which they score these 
initiatives. What are your thoughts on CBO scoring methodology 
associated with multi-year procurements and do you think it is time for 
the Congress to provide new guidance to CBO regarding the scoring of 
long-term procurements?
    Mr. Zakheim. CBO scores multi-year programs in the year they were 
approved. This results in frontloading their costs and pushing aside 
other programs that cannot fit into budget caps or other prescribed 
spending ceilings.
    Should the Congress wish to change the nature of CBO's scoring, it 
could of course provide new guidance to that effect. However, doing so 
would compromise CBO's independence by opening the door for other 
changes in CBO's methodology . . . something the Congress might do best 
to avoid.
    Mr. Miller. Termination liability is often cited by both CBO and 
OMB as an obstacle to adopting long-term and/or multi-year procurement 
contracts. Industry continues to tell the CBO and OMB that termination 
liability can be mitigated through contract terms. What are your 
thoughts on termination liability?
    Mr. Zakheim. There is no doubt that termination liabilities are a 
function of the contracts that are signed for a given program. 
Contracts, when amended or modified, are notoriously vague with respect 
to those liabilities. Engineering change proposals and other variations 
to the original contract change overall program cost and therefore 
affect the amount of termination liability, which arises when the 
Government chooses to terminate a contract for its convenience. In my 
testimony I suggested much more rigorous control over contract changes; 
included in that suggestion would be clarity regarding termination 
liability--a specific sum to be appended to every contract 
modification.
    Mr. Miller. Dr. Michael Gilmore, Director of Operational Test & 
Evaluation, consistently speaks about developmental test & evaluation 
(DT&E) as being key to successful operational test & evaluation (OT&E). 
Prior to enactment of the Weapons Systems Acquisition Reform Act 
(WSARA) of 2009, the GAO and the Defense Science Board found that 50% 
of programs completing initial operational test & evaluation since 2000 
were assessed as ``not operationally effective or suitable.'' GAO 
suggested that ``. . . beginning production before successfully 
demonstrating that the weapon system will work as intended increases 
the potential for discovering costly design changes . . . and usually 
requires substantial modification costs at a later time.''
      Do you believe enhancing the authority and resourcing of 
the Deputy Assistant Secretary of Defense for Developmental Test & 
Evaluation would improve that office's oversight effectiveness, 
resulting in reduced cost overruns and schedule delays?
      How would you recommend enhancing that authority and 
resourcing?
    Mr. Chao. I would focus attention on whether the office of the DASD 
(DT&E) has the proper resources rather than on the tinkering of 
authorities. Generally it is a good practice to push testing and 
evaluation earlier into the process and more into the actual design and 
development process, as the GAO has noted. The best practices found in 
industry and the commercial world place a great deal of emphasis on 
testing as you go, and building in assessment into the development 
process rather than waiting until the end to discover whether a product 
or system works. It should be noted however that the more complex the 
system is and the more that the deliverable product is a system of 
systems, the more there is a reality that the weapon system can only be 
fully tested when completed--that is the nature of very complex system 
of systems.
    Mr. Miller. Over the past several years, this committee has 
attempted to pass legislation that would provide authorities to enter 
into long-term and/or multi-year procurement contracts. The constant 
obstacle is the CBO and the manner in which they score these 
initiatives. What are your thoughts on CBO scoring methodology 
associated with multi-year procurements and do you think it is time for 
the Congress to provide new guidance to CBO regarding the scoring of 
long-term procurements?
    Mr. Chao. I believe serious consideration should be given to re-
examining how multi-year procurements are scored and assessed. While 
very aware of the issues of annual appropriations, the anti-deficiency 
act and the prerogatives of Congress, there are sufficient advantages 
to multi-year procurements from a cost perspective that the topic 
should be examined. It will be particularly important as defense 
budgets decline and cost savings and the need to provide some stability 
to the defense industrial base becomes critical. The rules regarding 
multi-year procurement scoring in many ways offset the exact reason 
that they are useful/efficient--for long term visibility and stability 
the customer gets lower cost. Force the entire contract or large 
portion to be accounted for in one year and it naturally creates a huge 
disincentive to use the mechanism and short circuits the normal 
economics. These are ultimately rules that Congress has set for itself, 
and therefore can only be addressed by Congress.
    Mr. Miller. Termination liability is often cited by both CBO and 
OMB as an obstacle to adopting long-term and/or multi-year procurement 
contracts. Industry continues to tell the CBO and OMB that termination 
liability can be mitigated through contract terms. What are your 
thoughts on termination liability?
    Mr. Chao. Multi-year contracts have a known and well studied set of 
economic benefits. By buying in economically efficient lots they lower 
cost; they potentially reduce the overhead burden; they incentivize 
standardization and reduce start up costs (which also lowers cost); 
stabilize work forces and incentivize investments in productivity by 
the contractors. While they are not useful for every case, they can be 
ideal for situations where the requirement/need is stable, there is a 
base level of demand, and the costs are amenable to multi-year 
efficiencies.
    An issue raised, as you note, is termination liability with the big 
risk being the cancellation of a program early in its life. Given that 
the budgeting rules require the funding of the termination liability it 
certainly creates a disincentive to using multi-years. Ultimately this 
is a cultural issue--the component that creates the greatest fear (``I 
don't have flexibility, what if I need to change the contract''), is 
exactly the element that generates the savings (``this is stable, they 
can't change the contract''). The core topic is therefore risk 
mitigation, and as any business person will note risk can be managed/
negotiated via contract terms. For example, termination liabilities can 
scaled or risk adjusted. The issue of termination liabilities should 
not a priori preclude the examination of using a multi-year.
    Mr. Miller. Dr. Michael Gilmore, Director of Operational Test & 
Evaluation, consistently speaks about developmental test & evaluation 
(DT&E) as being key to successful operational test & evaluation (OT&E). 
Prior to enactment of the Weapons Systems Acquisition Reform Act 
(WSARA) of 2009, the GAO and the Defense Science Board found that 50% 
of programs completing initial operational test & evaluation since 2000 
were assessed as ``not operationally effective or suitable.'' GAO 
suggested that ``. . . beginning production before successfully 
demonstrating that the weapon system will work as intended increases 
the potential for discovering costly design changes . . . and usually 
requires substantial modification costs at a later time.''
      Do you believe enhancing the authority and resourcing of 
the Deputy Assistant Secretary of Defense for Developmental Test & 
Evaluation would improve that office's oversight effectiveness, 
resulting in reduced cost overruns and schedule delays?
      How would you recommend enhancing that authority and 
resourcing?
    Mr. Schwartz. A number of analysts and government officials have 
echoed GAO's suggestion that beginning production before successfully 
demonstrating that systems will work as intended increases the 
potential for costly modifications at a later time. As Vice Admiral 
David Venlet reportedly stated, DOD was surprised at the extent of the 
changes required--and the associated cost--that resulted from the high 
rate of concurrency found in the Joint Strike Fighter program.\1\
---------------------------------------------------------------------------
    \1\ Richard Whittle, ``JSF's Build and Test Was `Miscalculation,' 
Adm. Venlet Says; Production Must Slow,'' Breaking Defense, December 1, 
2011, at http://breakingdefense.com/2011/12/jsf-build-and-test-was-
miscalculation-production-must-slow-v/.
---------------------------------------------------------------------------
    In the DOT&E FY2012 Annual Report to Congress, Dr. Gilmore stated 
that since 2009 (the year the Weapon System Acquisition Reform Act was 
enacted into law), there has been progress in a number of areas related 
to testing, including significant progress in increasing the scientific 
and statistical rigor; early engagement with the requirements community 
to develop realistic, feasible, and testable requirements; and 
increased attention in reliability management, design, and growth 
testing.\2\ The report also stated that DOD recognizes ``the 
significant adverse long-term life cycle cost impacts and reduced 
operational capability resulting from systems being unreliable.'' \3\
---------------------------------------------------------------------------
    \2\ Office of the Director, Operational Test & Evaluation, FY 2012 
Annual Report, December 2012, p. X.
    \3\ Ibid., p. v.
---------------------------------------------------------------------------
    An example of DOD's increased recognition and focus on the 
importance of testing in general, and developmental testing in 
particular, can be seen in the recently released draft DOD Instruction 
5000.02, which contains a more robust discussion on testing than the 
current instruction. The draft instruction states that developmental 
test and evaluation
        demonstrates the ability of the system to meet its stated and 
        derived requirements, including the approved KPPs, and that 
        system production or fielding can be supported. The effort 
        requires completion of DT&E activities consistent with the Test 
        and Evaluation Master Plan and may include operational 
        assessments. Successful completion of adequate developmental 
        testing with production or fielding representative prototype 
        test articles will normally be the primary basis for entering 
        LRIP or Limited Fielding.
    The draft instruction also contains two enclosures dedicated 
exclusively to test and evaluation requirements, including Enclosure 2-
3, which is an eight page discussion of developmental test and 
evaluation. The current instruction does contain such a focus on DT&E.
    Despite the progress cited above and the increasing attention being 
paid to the importance of testing, there are numerous areas ripe for 
improvement, such as the rate of systems meeting required reliability 
thresholds. According to the annual report, ``reliability continues to 
lag; only 7/13 systems (54 percent) evaluated in 2012 met their 
reliability thresholds and overall between 1997 and 2012 only 67/118 
systems (57 percent) were reliable.\4\''
---------------------------------------------------------------------------
    \4\ Ibid., p. 6.
---------------------------------------------------------------------------
    Given the progress cited by Dr. Gilmore, the draft of the 5000.02 
instruction, the Weapon System Acquisition Reform Act, and other reform 
efforts currently underway (including a heightened focus on program 
cost), there is little consensus as to what impact enhancing the 
authority and resourcing of the Deputy Assistant Secretary of Defense 
for Developmental Test & Evaluation would have on the goal of improving 
that office's oversight effectiveness, and its ability to address cost 
overruns, and schedule delays. Some could argue that enhancing the 
authority and resources of DT&E activities will improve the process, 
particularly in those areas where observable progress has not occurred; 
others can argue that implementing further changes could have 
unintended consequences or may hinder the progress currently underway.
    Mr. Miller. Over the past several years, this committee has 
attempted to pass legislation that would provide authorities to enter 
into long-term and/or multi-year procurement contracts. The constant 
obstacle is the CBO and the manner in which they score these 
initiatives. What are your thoughts on CBO scoring methodology 
associated with multi-year procurements and do you think it is time for 
the Congress to provide new guidance to CBO regarding the scoring of 
long-term procurements?
    Mr. Schwartz. The statutory authority for executing MYPs include 10 
U.S.C. 2306b (providing for the use of MYP for the procurement of 
goods) and 10 U.S.C. 2306c (providing for the use of MYP for the 
procurement of services). MYPs are further governed by DOD acquisition 
regulations.\5\ Generally, CBO does not score authorizations for MYP 
that are executed under existing legislation such as 10 U.S.C. 2306b. 
However, CBO does score new legislation that would provide new types of 
MYP contracts, increase the maximum term of such contracts, or add 
additional goods and services to those authorized under current law.\6\ 
In conducting its analysis, CBO adheres to the principle that MYPs 
incur future obligations in excess of currently available 
appropriations. When scoring MYPs, CBO includes the total expected 
obligation for all out years, not just the current obligation and the 
termination cost if the contract is cancelled after the first year.
---------------------------------------------------------------------------
    \5\ For more information on MYP, see CRS Report R41909, Multiyear 
Procurement (MYP) and Block Buy Contracting in Defense Acquisition: 
Background and Issues for Congress, by Ronald O'Rourke and Moshe 
Schwartz.
    \6\ For example, see U.S. Government Accountability Office, 
Department of Veterans Affairs Major Medical Facility Lease 
Authorization Act of 2013, Cost Estimate: H.R. 3521, December 6, 2013, 
http://www.cbo.gov/sites/default/files/cbofiles/attachments/
hr3521_1.pdf.
---------------------------------------------------------------------------
    The Congressional Budget Act (P.L. 93-344 section 312(a)) provides 
that for purposes of enforcement, spending and revenue levels ``shall 
be determined on the basis of estimates made by the Committee on the 
Budget of the House of Representatives or the Senate, as applicable.'' 
As such, Congress need not consider CBO scoring or analysis. Congress 
could also choose to provide new guidance to CBO as it relates to MYP 
scoring methodology, such as whether scoring should be based on 
termination costs or on all out-year costs in the contract. Such 
guidance may not be binding on CBO unless appropriately enshrined in 
statute.
    Mr. Miller. Termination liability is often cited by both CBO and 
OMB as an obstacle to adopting long-term and/or multi-year procurement 
contracts. Industry continues to tell the CBO and OMB that termination 
liability can be mitigated through contract terms. What are your 
thoughts on termination liability?
    Mr. Schwartz. There is a general consensus that MYPs generate cost 
savings for DOD. Compared with estimated costs under annual 
contracting, estimated savings for programs being proposed for MYP have 
ranged from less than 5% to more than 15%, depending on the particulars 
of the program in question, with many estimates falling in the range of 
5% to 10%.\7\ In practice, actual savings from using MYP rather than 
annual contracting can be difficult to observe or verify because of 
cost growth during the execution of the contract that was caused by 
developments independent of the use of MYP rather than annual 
contracting.
---------------------------------------------------------------------------
    \7\ CRS Report R41909, Multiyear Procurement (MYP) and Block Buy 
Contracting in Defense Acquisition: Background and Issues for Congress, 
by Ronald O'Rourke and Moshe Schwartz.
---------------------------------------------------------------------------
    The anticipated government savings generated from MYPs explain why 
DOD seeks to pursue such contracts. Generally, contractors are 
interested in signing multi-year contracts to book future work; 
contractors are more likely to make long-term investments in support of 
a contract if the contract period is long enough to ensure that the 
contractor will recoup its investment (and increase profits). However, 
because the federal government can terminate contracts for convenience, 
companies may forgo making long-term investments to guard against the 
government terminating the contract before the contractor recoups its 
investment. Generally, two main factors give contractors the confidence 
that DOD will not terminate an MYP contract and that the multiyear 
stream of business will materialize:
      For a program to qualify for MYP, DOD must certify, among 
other things, that the minimum need for the items to be purchased is 
expected to remain substantially unchanged during the contract in terms 
of production rate, procurement rate, and total quantities.
      MYP contracts include a cancellation penalty intended to 
reimburse a contractor for costs that the contractor has incurred 
(i.e., investments the contractor has made) in anticipation of the work 
covered under the MYP contract. The undesirability of paying a 
cancellation penalty acts as a disincentive for the government against 
canceling the contract (and if the contract is canceled, the 
cancellation penalty helps to make the contractor whole).
    A 2008 report by GAO found that, while DOD terminated hundreds of 
contracts for convenience each year, fewer than a dozen contracts 
terminated from 1995-2007 were worth more than $100 million.\8\ 
However, from FY1999-FY2008, DOD contract obligations (adjusted for 
inflation) increased every year. From FY2008-FY2013 (adjusted for 
inflation), DOD contract obligations have decreased every year. 
Shrinking contract spending and the accompanying focus on cost 
increases the risk that DOD will terminate a contract for convenience.
---------------------------------------------------------------------------
    \8\ U.S. Government Accountability Office, Defense Acquisitions: 
Termination Costs are Generally Not A Compelling Reason to Continue 
Programs or Contracts that Otherwise Warrant Ending, GAO-08-379, March 
14, 2008, p. 1.
---------------------------------------------------------------------------
    To the extent that there is an increased risk in contract 
termination or substantial funding changes, government officials have 
less of an incentive to enter into long-term or MYP contracts that 
carry a substantial termination liability. In the current environment, 
termination costs can also be the determining factor in deciding 
whether to continue or terminate a contract. The lack of reliable or 
complete information can lead to poor decisions, an issue discussed in 
a report by the DOD Inspector General which found that the Secretary of 
Defense did not have sufficient termination cost information to 
determine the cost-effectiveness of continuing or terminating the C-
130J MYP contract.\9\
---------------------------------------------------------------------------
    \9\ See Department of Defense Office of the Inspector General, 
Acquisition: Contracting and Funding for the C-130J Aircraft Program, 
D-2006-093, June 21, 2006, p. 3. According to the report the Secretary 
of Defense wrote a letter to Congress stating that it was in the best 
interest of DOD to complete the multiyear contract based on the 
additional cost estimated to terminate the C-130J MYP contract. 
However, the IG found that ``The Air Force acquisition personnel 
provided the Secretary of Defense with an unsupported cost estimate to 
use in deciding whether to terminate the C-130J aircraft MYP contract. 
This occurred because the Air Force included ambiguous language in the 
contract and did not have cost and pricing data needed to develop an 
accurate cost estimate. As a result, the Secretary of Defense did not 
have sufficient termination cost information to determine the cost-
effectiveness of continuing or terminating the C-130J MYP contract.''
---------------------------------------------------------------------------
    Part 49 of the Federal Acquisition Regulation is dedicated 
exclusively to contract terminations, including the responsibilities of 
the parties in determining and settling termination liabilities. In 
addition to the rules and regulations governing contract termination, 
termination liability can be addressed in the contract itself. However, 
the budget environment in recent years makes MYP a less attractive 
strategy for the government, particularly given the level of 
uncertainty in recent years related to
      what the future overall defense base budget will be;
      if DOD will be required to operate under a continuing 
resolution due to the lack of a budget being enacted;
      whether a continuing resolution will include language 
prohibiting DOD from signing MYP contracts for the life of the 
continuing resolution;
      whether sequestration will be triggered in future years; 
and
      the stability of funding for individual programs.
    Mr. Miller. Dr. Michael Gilmore, Director of Operational Test & 
Evaluation, consistently speaks about developmental test & evaluation 
(DT&E) as being key to successful operational test & evaluation (OT&E). 
Prior to enactment of the Weapons Systems Acquisition Reform Act 
(WSARA) of 2009, the GAO and the Defense Science Board found that 50% 
of programs completing initial operational test & evaluation since 2000 
were assessed as ``not operationally effective or suitable.'' GAO 
suggested that ``. . . beginning production before successfully 
demonstrating that the weapon system will work as intended increases 
the potential for discovering costly design changes . . . and usually 
requires substantial modification costs at a later time.''
      Do you believe enhancing the authority and resourcing of 
the Deputy Assistant Secretary of Defense for Developmental Test & 
Evaluation would improve that office's oversight effectiveness, 
resulting in reduced cost overruns and schedule delays?
      How would you recommend enhancing that authority and 
resourcing?
    Mr. Francis. We examined the staffing and influence of the DT&E 
office during our 2010, 2011, and 2012 assessments of DOD's 
implementation of the Weapon Systems Acquisition Reform Act of 2009.\1\ 
In our 2011 and 2012 assessments, we reported that the office had to 
drop virtually all but the largest programs from its oversight list and 
eliminate oversight of some major automated information systems because 
its staff could not adequately cover a portfolio of over 200 
acquisition programs. In addition, the office was providing minimal 
coverage to programs prior to the start of development, which is the 
most opportune time to influence a program's acquisition strategy. In 
our 2011 assessment, we also reported that the Deputy Assistant 
Secretary for DT&E would like his office to be staffed with a larger 
proportion of government employees as he believed it is important to 
maintain a core cadre of people with the required institutional 
knowledge and skills to support current and future program office 
needs. At that time, about two-thirds of the staff were contractors. 
Our 2011 report also discussed concerns about T&E's influence within 
DOD. However, we could not determine if the office had the appropriate 
amount of influence because it was not tracking the extent to which its 
recommendations were being adopted or impacting weapon programs. This 
type of information would provide some indication of whether additional 
authority is needed.
---------------------------------------------------------------------------
    \1\ GAO, Defense Acquisitions: DOD Needs to Develop Performance 
Criteria to Gauge Impact of Reform Act Changes and Address Workforce 
Issues, GAO-10-774 (Washington, D.C.: July 29, 2010); GAO, Weapons 
Acquisition Reform: Actions Needed to Address Systems Engineering and 
Developmental Testing Challenges, GAO-11-806 (Washington, D.C.: Sept. 
19, 2011); Weapons Acquisition Reform: Reform Act Is Helping DOD 
Acquisition Programs Reduce Risk, but Implementation Challenges Remain, 
GAO-13-103 (Washington, D.C.: Dec. 14, 2012).
---------------------------------------------------------------------------
    Accordingly, dedicating more resources to DT&E activities would 
allow the office to oversee activities on more programs. However, 
finding additional resources at a time when defense budgets are 
shrinking may be difficult to achieve. We do note (1) the difficulty in 
finding such resources given competing demands, and (2) the capability 
of the DT&E office is but one of many factors that could address cost 
growth and schedule delays. Collectively, the program offices and the 
offices of DT&E, Systems Engineering, Cost Assessment and Program 
Evaluation, and others need to address these issues. For example, while 
some of these risks could be addressed with additional testing earlier 
in a program, other risks may best be identified through increased 
attention to early systems engineering or more accurate cost 
estimating. In addition, while we have no analytical basis for 
recommending a change in the DT&E office's authority, we reported in 
our 2012 assessment that the department must address challenges related 
to cultural barriers between OSD and the services that make service 
officials reluctant to accept DT&E's recommendations.
    Mr. Miller. Over the past several years, this committee has 
attempted to pass legislation that would provide authorities to enter 
into long-term and/or multi-year procurement contracts. The constant 
obstacle is the CBO and the manner in which they score these 
initiatives. What are your thoughts on CBO scoring methodology 
associated with multi-year procurements and do you think it is time for 
the Congress to provide new guidance to CBO regarding the scoring of 
long-term procurements?
    Mr. Francis. While we are familiar with CBO's scoring methodology 
we generally do not comment on it as CBO is a sister legislative agency 
and we feel that Congress is best served by having one support agency 
on this topic. We do note that, according to OMB scorekeeping 
guidelines, when a law provides the authority for an agency to enter 
into a long-term or multiyear contract, it is to score the entire 
amount of the government's estimated legal obligation in the year in 
which the budget authority is first made available to make clear the 
Government's total estimated legal obligations over the life of the 
contract.
    GAO has long supported such up-front disclosure of the full 
commitments of the government. We have advocated that it is the best 
way to ensure recognition of commitments embodied in budgeting 
decisions and maintain government-wide fiscal control. When certain 
costs are not fully recognized up-front, before funds are committed, 
important information on full budgetary effects may not be considered 
as trade-offs are made among competing priorities.
    Mr. Miller. Termination liability is often cited by both CBO and 
OMB as an obstacle to adopting long-term and/or multi-year procurement 
contracts. Industry continues to tell the CBO and OMB that termination 
liability can be mitigated through contract terms. What are your 
thoughts on termination liability?
    Mr. Francis. While it is true that termination liability can be 
negotiated up front, it is also true that multiyear contracts can 
entail higher costs if the contract is terminated. We have previously 
observed that a good understanding of potential termination costs can 
better position an agency to fulfill its mission. The amount of a 
termination settlement reflects costs for which the contractor is 
entitled to be reimbursed, including costs incurred in performance of 
the contract to date, and is typically limited in multiyear procurement 
contracts by a negotiated termination liability which places a ceiling 
on these costs. As a further limitation, under certain circumstances 
DOD procurement regulations provide for ``special termination costs'' 
clauses that may be used after negotiation and agreement with the 
contractor.\2\ Multiyear contracts allow contractors to enter into 
contracts for a period of up to five years so they can purchase more 
than 1 year's worth of equipment or materials from their suppliers, 
thus incurring costs sooner. We have reported that compared to a series 
of annual contracts, this approach could result in cost savings when a 
multiyear contract is completed. However, if the contract is 
terminated, it may result in higher incurred costs and thus a higher 
termination settlement.\3\ Termination liability is one factor to 
consider when looking at the stability of a program's funding, a key 
element in determining whether a multiyear contract should be awarded, 
and should be considered an added risk that an otherwise stable, 
realistically priced program can avoid. Immature, volatile programs and 
those at risk of future changes should not be proposed as multiyear 
candidates because such instability puts the savings attributed to 
efficiencies of production and buying at risk.
---------------------------------------------------------------------------
    \2\ Defense Federal Acquisition Regulation Supplement, 48 C.F.R. 
Sec. 249.501-70; 252.249-7000.
    \3\ GAO, Defense Acquisitions: Termination Costs Are Generally Not 
a Compelling Reason to Continue Programs or Contracts That Otherwise 
Warrant Ending, GAO-08-379 (Washington, D.C.: Mar 14, 2008).
---------------------------------------------------------------------------
                                 ______
                                 
                  QUESTIONS SUBMITTED BY MR. LANGEVIN
    Mr. Langevin. Better Buying Power (BBP) 1 and 2 focused much 
attention on training and processes, but absent from the discussion has 
been a focus on equipping the workforce with time saving, modern, 
analytical software.
      Have acquisition support systems such as the contract 
writing systems, cost estimating systems, auditing systems, and the 
like kept pace with acquisition reform and evolution?
      How could technology enable the acquisition workforce to 
forecast, estimate, compete, award, and monitor requirements better?
      Could there be a way to automate more of the acquisition 
processes, particularly small contract changes like unilateral 
modifications, and in doing so free up time to work more complex 
acquisition issues?
    Mr. Zakheim. While providing the types of software outlined in the 
question certainly could help improve the efficiency of the workforce, 
far more fundamental is the question of how the recommendations of both 
versions of Better Buying Power will be implemented. The two documents 
correctly identify the problems that best the acquisition system. 
Better Buying Power 2.0, in particular, outlines an exhaustive list of 
actions that must be taken to overcome those problems. Nevertheless, 
with some notable exceptions--for example, presenting affordability 
analyses to the Milestone Decision Authority; DAU incorporating 
Performance Based Logistics assets into its curricula; limiting the 
time for staff review of Acquisition Strategies and Decision 
Memoranda--even the lengthier and more detailed implementation 
memorandum for Better Buying Power 2.0 is full of words such as 
``review,'' ``evaluate,'' ``determine'' and ``study.'' Directives that 
incorporate such language invariably are either circumvented or ignored 
by the bureaucracy. Acquiring expensive software or systems without 
ensuring bureaucratic performance invariably results in underuse or 
misuse of the software/systems. Only by basing bonuses, pay increases 
and promotions on actual performance, and by mandating far more 
stringent training requirements than are currently in force, will 
bureaucratic performance be improved. And at that point, it will be 
advantageous to acquire software/systems to further enhance that 
performance.
    Mr. Langevin. One area of focus in acquisition reform has been the 
state of the acquisition workforce. Are there any international 
examples of different approaches to acquisition workforce management 
policies that have potential benefit for application in the U.S.? 
Similarly, are there examples of international acquisition systems, 
organizational structures and procurement processes that are structured 
fundamentally differently than our own that could be adopted to the 
benefit of our own defense acquisition system?
    Mr. Zakheim. Because the American acquisition program and budget is 
so much larger than its equivalent anywhere else, there are limits to 
the lessons that might be learned from foreign acquisition systems. 
Those that tend to function more effectively, such as the Israeli 
system, involve fewer, and smaller, programs. What is noteworthy about 
the Israeli system is the emphasis on having operators involved in all 
aspects of a program's development. Matching requirements to 
developmental performance is key to a successful program; the Vice 
Chairman of the Joint Chiefs has begun to implement this process, but 
it can be carried much further.
    There are some lessons to be learned from the French system as 
well. France has traditionally shared program management among the 
chiefs of staff and the Director General for Armaments (DGA). Since the 
late 1990s program teams have been organized in integrated, cross 
disciplinary fashion. While French acquisition has suffered from many 
of the same ailments as other nations, the system is far more tolerant 
of multi-year acquisition programs than the United States. The DGA also 
emphasizes harmonization of programs under a smaller number of 
contracts, to improve contract management, and the greater use of pilot 
programs. It may therefore be worth exploring whether these efforts 
might be applied within the American context.
    There may also be much to be gleaned from the DGA's human resource 
management, education and training system. French engineers are 
generally drawn from the country's top school, the Ecole Polytechnique, 
where they earn the equivalent of a Master's degree. They will also 
have had a year of military training. They also can obtain up to two 
additional years of specialized engineering education at one one of 
several advanced technical engineering schools, two of which are 
managed by the DGA itself. Many also train in foreign laboratories or 
earn doctorates. As a result, the leading career officials in the DGA 
not only have the highest level of technical education that France 
offers, but also military experience and, in many cases, foreign 
experience as well.
    The DGA has a more demanding system of continuing education than 
its American counterpart. French continuing education includes a staff 
course taken jointly by civil servants and defense company executives, 
a 44 day course for program directors (compared to 80 hour requirements 
for senior program managers in the DOD system), and a program for 
confirmed managers in their tenth year of service.
    The British acquisition system has suffered from cost overruns and 
schedule delays for some time. In 2004 the Ministry of Defense issued a 
series of ``smart acquisition'' guidelines (not dissimilar from the 
DOD's ongoing Better Buying Power initiatives) to address these 
challenges, but within a year a parliamentary committee found that cost 
overruns and schedule delays persisted. Other attempts to improve the 
process since then have also been unsuccessful. As a result, the 
Ministry of Defense is considering the option of outsourcing the 
management of its acquisition and support operations, a task that in 
the United States is considered ``inherently governmental.'' The plan 
is highly controversial in Britain and has come under attack from 
former senior government officials such as Lord Peter Levene, who has 
argued that it would more efficient to revamp the government's own 
acquisition organization. The Royal United Services Institute, leading 
British think tank, is also opposed to the plan. The MoD may 
nevertheless proceed with an award of a one year pilot contract to one 
of two bidders who would manage the $22 billion British program. 
Clearly, outsourcing acquisition and support would obviate the need for 
an acquisition workforce comparable to the one functioning in the MoD, 
or for that matter, in the US DOD. I am dubious that the British 
experiment, if undertaken, will succeed, however, nor, in the US 
context, would it be useful to extend inherently governmental functions 
to contractors. If anything, there should be greater scrutiny to ensure 
that contractors do not cross over the line the demarcates those 
activities that properly should only be carried out by the US 
government.
    Several European states have attempted to coordinate their 
acquisition efforts. At one end of the spectrum, the Nordic nations--
Denmark, Sweden, Norway, Iceland and Finland established Nordic Defense 
Cooperation (NORDEFCO) in 2009 to coordinate their defense 
capabilities. The nations work jointly on acquisition and life cycle 
support, delineating areas for cooperation. The states claim to have 
saved several tens of millions of Euros, but their budgets and 
acquisition programs are quite small, even when aggregated among them 
all (Iceland does not even have a defense force). On the other hand, 
France and Britain have repeatedly attempted to coordinate their 
acquisition efforts, with at best moderate success. In 2010 the two 
countries agreed to strengthen the UK-France High Level Working Group's 
efforts in the areas of industrial and armaments cooperation, which, if 
anything, was an indication of that Group's lack of success until that 
time.
    Mr. Langevin. One area of focus in acquisition reform has been the 
state of the acquisition workforce. Are there any international 
examples of different approaches to acquisition workforce management 
policies that have potential benefit for application in the U.S.? 
Similarly, are there examples of international acquisition systems, 
organizational structures and procurement processes that are structured 
fundamentally differently than our own that could be adopted to the 
benefit of our own defense acquisition system?
    Mr. Chao. The topic of lessons to be learned from acquisition 
workforce practices of our international peers has been studied by 
various think tanks, academics and FFRDCs over the last 10-15 years and 
there are several good reports that are worth reading. The focus of the 
studies has been mostly on our NATO allies and the larger, more 
technologically sophisticated countries. The common cautionary note in 
most of these studies is that no other country has an acquisition 
system required to purchase the scope, scale and sophistication of the 
U.S. It does not mean there are no lessons to be learned, simply that 
the practices cannot be applied directly to the U.S. acquisition 
system.
    There are two key elements which stand out and are worthy of 
consideration:
    The first is that certain countries, such as France, have a 
professionalized and independent acquisition work force. Unlike the 
U.S. system where an acquisition assignment is one of many that can be 
had during a military career, in the systems that have professional 
acquisition corps, it becomes a permanent avocation. This is culturally 
very different than the U.S. system and although the notion has been 
raised in prior acquisition reform studies, it has not gained much 
traction. The related topic, that is perhaps better suited for the U.S. 
acquisition system, is how the Services treat their acquisition cadre--
in terms of promotion, flag officer billets, etc. If pursuing an 
acquisition track is deemed to be negative to a career, then naturally 
the best talent will stay away and it will impact the quality of the 
acquisition system.
    The second element that one finds in the U.K., French and other 
allied acquisition workforces is a far greater exchange of 
professionals between industry and the government/civil service/
military. This is achieved through military officer exchange programs 
and civilians moving back and forth between industry and government 
service throughout their careers. It creates a far better understand of 
the industry, their capabilities and their motivations by the 
government; and I would submit better ability to perform oversight. The 
growing divide between industry and the acquisition system in the U.S. 
is a dangerous trend--without fail former government acquisition 
professionals who have joined industry say ``I wish I knew then what I 
know now about industry and how it works'', and vice versa when members 
of industry go into government service. Examining how these countries 
enable that interchange, manage conflicts of interest and ethics issues 
would be areas of fruitful examination.
    Aside from these two key areas, there are a few other practices 
also worth looking at. The Australian practice of charging programs a 
cost of money creates some very interesting and healthier behaviors--it 
places a premium on getting programs done quickly. Also countries that 
truly implement total cost of ownership evaluation have a better 
ability to analyze programs that require higher up front costs but save 
money once in operation--our current system with the different colors 
of money (procurement separate from O&M) makes this hard in the U.S. 
system.
    Mr. Langevin. One area of focus in acquisition reform has been the 
state of the acquisition workforce. Are there any international 
examples of different approaches to acquisition workforce management 
policies that have potential benefit for application in the U.S.? 
Similarly, are there examples of international acquisition systems, 
organizational structures and procurement processes that are structured 
fundamentally differently than our own that could be adopted to the 
benefit of our own defense acquisition system?
    Mr. Schwartz. A number of countries have undertaken efforts to 
reform or improve their defense acquisition system, resulting in novel 
and innovative approaches to acquisitions. Some analysts have suggested 
that the United States can benefit from looking at the defense 
acquisition practices of other countries.
    1.  Some analysts have suggested that DOD should emulate the 
approach taken by such countries as England, France, Sweden, Australia, 
Israel, and Germany, and create a centralized (joint) acquisition 
organization. Some of these analysts argue that just as Goldwater-
Nichols created a `joint-ness' in the operational forces, it is time to 
extend the principles of Goldwater-Nichols to the acquisition sphere 
and create a joint acquisition organization. Such an approach was 
outlined in HR 965, Independent Defense Procurement Corps Act of 1989 
(the bill was not enacted into law).\1\
---------------------------------------------------------------------------
    \1\ Section 101 of the bill read as follows:
    Congress finds the following:
    (1) It is essential that Congress act to establish an independent 
procurement system for the Department of Defense that will minimize 
abuses and provide high quality, competitively priced, and effectively 
designed defense products.
    (2) The frequent movement of individuals from the private sector to 
the Department of Defense, and from the Department of Defense to the 
private sector, fosters real and perceived conflicts of interest in 
defense acquisition.
    (3) The parochial interests of each military department often lead 
to duplication of effort and higher costs.
    (4) There should be an independent, well-trained, and well-paid 
team of professionals who have chosen the Independent Procurement Corps 
as a stable career path and who represent the public interest and the 
legitimate needs of the Department of Defense in all negotiations with 
defense contractors in all matters related to the procurement of 
property and services required by the Department of Defense, including 
research, development, production, and management.
---------------------------------------------------------------------------
    Others have taken the opposite view, arguing that the military 
services should be endowed with more acquisition authority, at the 
expense of the Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics. This position is consistent 
with those analysts and officials from other countries who are not 
persuaded that a centralized acquisition organization is inherently 
more efficient or effective.
    Below is a list of selected countries that some analysts or 
officials have suggested provide examples of approaches to defense 
acquisitions that can be emulated by the Department of Defense.

Israel \2\
---------------------------------------------------------------------------
    \2\ Information provided to CRS by an official at the Embassy of 
Israel in Washington D.C., December 12, 2013. Information also based on 
discussions with Israeli officials throughout 2012.

    The acquisition of goods and services for the Israeli military is 
generally executed by the Ministry of Defense's Directorate of 
Procurement and Production. The directorate is organized into five main 
divisions:
    2.  Air
    3.  Land
    4.  Sea
    5.  Information and Telecommunication
    6.  Maintenance and Services.
    Each of these divisions corresponds to and works closely with its 
operational counterpart. Requirements are developed by the relevant 
service, not by the Directorate of Procurement and Production. A 
separate organization, the Directorate for Research and Development, 
focuses on R&D programs and can set its own operational requirements.
    Some analysts and officials have suggested that another positive 
aspect of the Israeli requirements and acquisition process is that it 
allows for more rapid development and fielding of systems than the MDAP 
acquisition process in the United States.\3\
---------------------------------------------------------------------------
    \3\ One example is Israel's Iron Dome system, which was developed 
and deployed within a timeframe that was faster than generally possible 
in the current DOD acquisition process.

Sweden \4\
---------------------------------------------------------------------------
    \4\ Based on information and documentation provided to CRS by an 
official of the Defense Materiel Administration, November 29, 2013 
(unless otherwise cited). Documents available upon request.

    The Defense Materiel Administration (FMV) is the centralized 
organization that procures goods and services for the Swedish military. 
Starting January 1, 2014, the FMV will be expanded to also provide 
logistics. After January 1, the FMV will consist of six divisions:
     7.  Systems and Production
     8.  Logistics and Procurement
     9.  Storage, Service and Workshops
    10.  Tests and Evaluation
    11.  GRIPEN (Strategic Projects)
    12.  Commercial Operations.
    Some analysts have suggested that the United States should emulate 
the pay structure used by the FMV to attract and retain its acquisition 
workforce. According to acquisition expert Ronald Fox, Sweden addresses 
the challenge of
        attracting and retaining senior people--military and civilian--
        by a special law that allows an added salary increase for 
        crucial acquisition positions. Thus, a Swedish colonel serving 
        as a program manager can receive a significantly higher salary 
        than other colonels and even the director general of the 
        agency. This incentive provides prestige and draws highly 
        qualified, experienced people to senior acquisition 
        positions.\5\
---------------------------------------------------------------------------
    \5\ J. Ronald Fox, Defense Acquisition Reform 1960-2009: An Elusive 
Goal (2011), p. 204.
---------------------------------------------------------------------------
    The same policy applies to all FMV personnel in the acquisition 
workforce, including technical experts and project managers. Pay and 
benefits, which are influenced by the complexity of the task and the 
performance of the individual, are more flexible than DOD's GS (General 
Scale) or uniform pay structures. According to the Swedish government
        Pay determination shall be individual, differentiated and 
        adjusted to market conditions for all categories of personnel. 
        It is the responsibility of each manager to ensure that his/her 
        employees are evaluated and awarded based on performance . . . 
        . In the pay review the individual evaluation shall be based on 
        whether the employee has achieved the expected result and 
        fulfills the competency requirements for his/her position.\6\
---------------------------------------------------------------------------
    \6\ Documentation provided by the Defense Materiel Administration.
---------------------------------------------------------------------------
    A consequence of the pay system is that different positions have 
different salary ranges within which an individual's pay is 
determined.\7\
---------------------------------------------------------------------------
    \7\ Based on email discussion with official from the Defense 
Materiel Administration.

---------------------------------------------------------------------------
France

    In 1961, France became one of the first nations to consolidate all 
defense acquisition under one bureau, the Direction Generale de 
l'Armement (DGA-General Directorate for Armament), which is responsible 
for virtually all aspects of weapon system development (including 
exports). Some analysts have argued that the French approach to defense 
acquisition can provide lessons in improved acquisition performance. 
One report found that cost overruns in French weapon acquisitions
        tend to be relatively minor in scope; on the order of 5-10 
        percent per weapons platform, versus an average overrun of 26 
        percent per platform in the United States.\8\
---------------------------------------------------------------------------
    \8\ Ethan B. Kapstein and Jean-Michel Oudot, ``Reforming Defense 
Procurement: Lessons from France,'' De Gruyter Business and Politics, 
vol. 11, no. 2 (August 2009). A policy brief written summarizing the 
full abstract was written by the author and issued by the Center for a 
New American Security. The policy brief can be found at http://
www.cnas.org/files/documents/publications/CNAS%20Policy%20Brief%20-
%20defense%20acquisition_1.pdf.
    CRS has not determined the extent to which this comparative 
analysis adjusts, as appropriate, for size, complexity, or 
technological advances in weapon programs The report points out that 
the methodology used by the Government Accountability Office to 
determine `average' cost growth of 26%is unknown. As a result, the 
authors ``look at both the arithmetic and geometric averages in our 
account of the French case, and thus the spread in averages from 5-10 
percent.''
---------------------------------------------------------------------------
    The report argues that three related factors are substantially 
responsible for cost control:
    13.  hard budget constraints;
    14.  technical knowledge and experience of the acquisition 
workforce, coupled with a more collaborative relationship between the 
military department and industry; and
    15.  empowered program managers.
    Another difference between the U.S. and French systems is the role 
of the legislative branch. The French legislature is viewed as having 
less authority in the budget process over individual weapon systems 
than the U.S. Congress.

Australia \9\
---------------------------------------------------------------------------
    \9\ Based on discussions with officials from the Australian Senate 
and the Embassy of Australia, December 2013, and documentation provided 
to CRS December 13, 2013. Documents available upon request.

    The Defense Materiel Agency (DMO), established in 2000, is the 
centralized organization responsible for the acquisition of goods and 
services for the Australian military. In 2012-2013, the DMO was 
responsible for 40% of the Australian military's budget. According to 
the Australian government, since the establishment of a centralized 
acquisition organization:
    On average, projects are delivered under budget (using 98% of 
available funds).
    Average schedule slips have decreased from 50% to 30% in 2007; the 
number of projects delivered on time has doubled.
    One unique feature of the DMO is that it provides independent cost, 
schedule, and risk analysis to the military and civilian government, 
providing independent analysis from those executing the acquisition 
programs (the DMO does not weigh in on capability requirements). 
According to government documentation,
        DMO is responsible for delivering military equipment to the ADF 
        (Australian Defense Forces) according to the cost, schedule and 
        specifications agreed by the Government. To be properly held to 
        account for doing so, DMO needs to be able to provide 
        independent advice to Government on matters which it remits.
    Another unique feature of the Australian system is the role of Gate 
Review Boards. Gate Reviews are the rough equivalent to DOD milestones. 
Gate Reviews are conducted by Gate Review Boards. Each board is made up 
of
      Senior DMO management;
      DMO officials independent of the program in questions; 
and
      Independent non-DMO officials.
    The board conducts in-depth analysis of the program, and the Chair 
of the board provides guidance to the program manager and the senior 
executive responsible for approving the program's readiness to advance 
to the next acquisition phase. Australian officials have indicated that 
this process has been very successful in improving the performance of 
the acquisition process.
Challenges to Adopting Foreign Practices

    While there may be lessons to be drawn from the acquisition 
practices of other countries, it is worth noting the vast difference in 
scale between DOD and the military establishments of other nations, 
including the
    1.  comparative size of the defense acquisition workforce;
    2.  number of complex and challenging acquisitions undertaken by 
DOD; and
    3.  significantly larger acquisition budget of DOD.
    Put in context, DOD obligated more money on just contracts in 
FY2012 ($360 billion) than the combined value of the five largest non-
U.S. total defense budgets in the world ($335 billion). Some policies 
that appear effective in smaller acquisition organizations or in less 
complex procurements may not prove to be as effective when pursued on 
the scale of DOD.
    Another challenge in adopting foreign practices is the difference 
in the organizational structure of DOD compared to that of most other 
countries. Title X of the U.S. Code endows the military services with a 
substantial role in the acquisition process. This is in marked contrast 
to the structure established in many other countries, including most 
European countries, where there is a centralized defense acquisition 
organization. Policies that work in a centralized acquisition 
organization may not be transferable to or as effective in the military 
service-oriented structure of the Department of Defense.

    Mr. Langevin. Better Buying Power (BBP) 1 and 2 focused much 
attention on training and processes, but absent from the discussion has 
been a focus on equipping the workforce with time saving, modern, 
analytical software.
      Have acquisition support systems such as the contract 
writing systems, cost estimating systems, auditing systems, and the 
like kept pace with acquisition reform and evolution?
      How could technology enable the acquisition workforce to 
forecast, estimate, compete, award, and monitor requirements better?
      Could there be a way to automate more of the acquisition 
processes, particularly small contract changes like unilateral 
modifications, and in doing so free up time to work more complex 
acquisition issues?
    Mr. Francis. Theoretically such systems could assist the 
department, but, in DOD's past experience, such systems have proven 
problematic. For example, in October 2011, the Under Secretary of 
Defense for Acquisition, Technology, and Logistics noted that the 
Standard Procurement System (SPS)--the department's contract writing 
system that supports nearly 27,000 procurement professionals in issuing 
solicitations, award contracts and modifications, approving payments, 
and closing out contracts--was difficult to maintain and improve and 
was technologically fragile. As a result, no new contracts, agreements 
or orders are to be awarded through SPS after September 30, 2015, and 
the use of the system is to cease two years later. As we noted in our 
February 2013 high-risk update, DOD needs to ensure that these types of 
business systems investments are managed with the kind of acquisition 
management rigor and discipline that is embodied in relevant guidance 
and best practices so that each investment will deliver expected 
benefits and capabilities on time and within budget.\1\
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    \1\ High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: Feb. 
2013).
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    GAO has not assessed specific technologies or software that could 
enable the acquisition workforce to better execute or automate contract 
management, but we have found means of achieving greater efficiency 
that are not software related but could improve acquisition practices. 
For example, one way that improved analytics and data can help DOD and 
other federal agencies potentially save billions of dollars is through 
the expanded use of strategic sourcing.\2\ Generally speaking, 
strategic sourcing is a procurement process that seems to move an 
organization away from numerous individual procurements to a broader 
aggregate approach. The tools and techniques that come with strategic 
sourcing enable organizations to:
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    \2\ GAO, Strategic Sourcing: Improved and Expanded Use Could 
Provide Significant Procurement Savings, GAO-13-765T (Washington, D.C.: 
July 15, 2013).
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      develop a better picture of what they are spending on 
goods and services,
      better understand cost drivers,
      prioritize their requirements,
      better manage suppliers,
      take advantage of market trends, and
      target savings.
    Leading companies strategically manage 90 percent of their 
procurement spending, and report savings of 10 percent or more of total 
procurement costs. We have found, however, that federal agencies have 
been slow to embrace this approach, even in a time of great fiscal 
pressure, due in part to the lack of leadership commitment, expertise, 
and data barriers among other factors. As a result, we found that while 
DOD and the Departments of Homeland Security, Energy, and Veterans 
Affairs accounted for 80 percent of the $537 billion in federal 
procurement spending in fiscal year 2011, less than 5 percent of that 
spending was managed through strategic sourcing efforts.
    In addition, our audits of civilian agencies have found that 
agencies did not always take full advantage of acquisition planning to 
develop a strong foundation for the services contracts they awarded.\3\ 
In particular, GAO found that agencies faced challenges defining their 
needs, documented cost estimates to varying degrees, and documented 
lessons learned to a limited extent.
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    \3\ GAO, Acquisition Planning: Opportunities to Build Strong 
Foundations for Better Services Contracts, GAO-11-672 (Washington, 
D.C.: Aug. 9, 2011).
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    Mr. Langevin. One area of focus in acquisition reform has been the 
state of the acquisition workforce. Are there any international 
examples of different approaches to acquisition workforce management 
policies that have potential benefit for application in the U.S.? 
Similarly, are there examples of international acquisition systems, 
organizational structures and procurement processes that are structured 
fundamentally differently than our own that could be adopted to the 
benefit of our own defense acquisition system?
    Mr. Francis. We have not recently assessed other countries' 
acquisition workforce management policies, but our prior work found 
that the experiences of other nations in developing their workforce 
performance management systems as a whole could be instructive to U.S. 
agencies considering reforms. For example, in 2002, we noted that 
Australia, Canada, New Zealand, and the United Kingdom had begun to use 
their performance management systems to help their governments achieve 
results.\4\ To do so, these countries
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    \4\ GAO, Results-Oriented Cultures: Insights for U.S. Agencies from 
Other Countries' Performance Management Initiatives, GAO-02-862 
(Washington, D.C.: Aug. 2, 2002).
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      created a ``line of sight'' between individual and 
organizational goals,
      used competencies to provide a fuller assessment of 
individual performance,
      linked pay to individual and overall organizational 
performance, and
      fostered organization wide commitment to results-oriented 
performance management.
    While the performance management initiatives in these countries 
reflected their specific organizational structures, cultures, and 
priorities, we concluded that their experiences provided a useful point 
of reference for U.S. agencies. In addition to the performance 
management practices used by other countries, our prior work has 
identified management practices that could help improve the capacity of 
the federal acquisition workforce. They include robust workforce 
planning, succession planning, and using practices that have shown to 
boost employee morale and engagement.
    Similarly, while we have not assessed other nations' acquisition 
systems or procurement processes, we have participated in numerous 
forums, conferences, and meetings with our fellow auditors from around 
the world to compare experiences and exchange lessons learned. 
Acquisition systems, organizational structures, and procurement 
processes vary from country to country and may have similarities to or 
differences from our own. While British and Australian defense 
acquisition processes have a ``gated'' review processes similar to DOD, 
for example, they use a more portfolio-oriented approach for program 
execution. Regardless of acquisition structure or policy, however, 
foreign audit entities report outcomes similar to those here at home. 
For example, British and Australian audit agencies release an annual 
report on the performance of their defense acquisition programs much as 
we do. Those reports communicate the same kinds of cost and schedule 
overruns and note similar reasons for overruns such as poor cost and 
schedule estimating and a bias towards performance over cost when 
tradeoffs are needed. It should also be noted that Britain, Australia, 
and other countries procuring major defense systems do not tend to 
engage in as many, or as costly and complex, development programs as 
DOD.

                                  
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