    [Senate Hearing 113-108, Part 2]
    [From the U.S. Government Publishing Office]

                                                      S. Hrg. 113-108 Pt. 2

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                   2014 AND THE FUTURE YEARS DEFENSE PROGRAM

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

                                    HEARINGS

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

                                    S. 1197

         TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2014 FOR MILITARY
    ACTIVITIES OF THE DEPARTMENT OF DEFENSE, FOR MILITARY CONSTRUCTION, AND
       FOR DEFENSE ACTIVITIES OF THE DEPARTMENT OF ENERGY, TO PRESCRIBE
       MILITARY PERSONNEL STRENGTHS FOR SUCH FISCAL YEAR, AND FOR OTHER
                                    PURPOSES

                                   __________

                                     PART 2

                                    SEAPOWER

                                   __________

                               MAY 8 AND 14, 2013

                                   __________

             Printed for the use of the Committee on Armed Services
            Available via the World Wide Web: http://www.fdsys.gov/

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                          COMMITTEE ON ARMED SERVICES

                         CARL LEVIN, Michigan, Chairman

    JACK REED, Rhode Island              JAMES M. INHOFE, Oklahoma
    BILL NELSON, Florida                 JOHN McCAIN, Arizona
    CLAIRE McCASKILL, Missouri           JEFF SESSIONS, Alabama
    MARK UDALL, Colorado                 SAXBY CHAMBLISS, Georgia
    KAY R. HAGAN, North Carolina         ROGER F. WICKER, Mississippi
    JOE MANCHIN III, West Virginia       KELLY AYOTTE, New Hampshire
    JEANNE SHAHEEN, New Hampshire        DEB FISCHER, Nebraska
    KIRSTEN E. GILLIBRAND, New York      LINDSEY GRAHAM, South Carolina
    RICHARD BLUMENTHAL, Connecticut      DAVID VITTER, Louisiana
    JOE DONNELLY, Indiana                ROY BLUNT, Missouri
    MAZIE K. HIRONO, Hawaii              MIKE LEE, Utah
    TIM KAINE, Virginia                  TED CRUZ, Texas
    ANGUS KING, Maine

                        Peter K. Levine, Staff Director

                    John A. Bonsell, Minority Staff Director

                                     ______

                            Subcommittee on Seapower

                       JACK REED, Rhode Island, Chairman

    BILL NELSON, Florida                 JOHN McCAIN, Arizona
    KAY R. HAGAN, North Carolina         JEFF SESSIONS, Alabama
    JEANNE SHAHEEN, New Hampshire        ROGER F. WICKER, Mississippi
    RICHARD BLUMENTHAL, Connecticut      KELLY AYOTTE, New Hampshire
    MAZIE K. HIRONO, Hawaii              LINDSEY GRAHAM, South Carolina
    TIM KAINE, Virginia                  DAVID VITTER, Louisiana
    ANGUS KING, Maine                    TED CRUZ, Texas

                                      (ii)

                                C O N T E N T S

                                  ----------

                        CHRONOLOGICAL LIST OF WITNESSES
                           Navy Shipbuilding Programs
                                  may 8, 2013

                                                                       Page

    Stackley, Hon. Sean J., Assistant Secretary of the Navy for
      Research, Development, and Acquisition.........................     3
    Myers, VADM Allen G., USN, Deputy Chief of Naval Operations,
      Integration of Capabilities and Resources, N8..................     6
    McCoy, VADM Kevin M., USN, Commander, Naval Sea Systems Command..     8

                           Marine Corps Modernization
                                  may 14, 2013

    Stackley, Hon. Sean J., Assistant Secretary of the Navy for
      Research, Development, and Acquisition.........................   112
    Mills, LtGen Richard P., USMC, Deputy Commander for Combat
      Development and Integration/Commanding General, Marine Corps
      Combat Development Command.....................................   118

                                     (iii)

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                   2014 AND THE FUTURE YEARS DEFENSE PROGRAM

                                  ----------

                             WEDNESDAY, MAY 8, 2013

                                   U.S. Senate,
                              Subcommittee on Seapower,
                                   Committee on Armed Services,
                                                        Washington, DC.

                           NAVY SHIPBUILDING PROGRAMS

        The subcommittee met, pursuant to notice, at 9:30 a.m. in
    room SR-232A, Russell Senate Office Building, Senator Jack Reed
    (chairman of the subcommittee) presiding.
        Committee members present: Senators Reed, Shaheen,
    Blumenthal, Kaine, King, McCain, Sessions, Wicker, and Ayotte.
        Majority staff member present: Creighton Greene,
    professional staff member.
        Minority staff members present: Daniel A. Lerner,
    professional staff member; and Lucian L. Niemeyer, professional
    staff member.
        Staff assistants present: Jennifer R. Knowles and John L.
    Principato.
        Committee members' assistants present: Carolyn Chuhta,
    assistant to Senator Reed; Patrick Day, assistant to Senator
    Shaheen; Ethan Saxon, assistant to Senator Blumenthal; Karen
    Courington, assistant to Senator Kaine; Steve Smith, assistant
    to Senator King; T. Finch Fulton and Lenwood Landrum,
    assistants to Senator Sessions; Joseph Lai, assistant to
    Senator Wicker; and Brad Bowman, assistant to Senator Ayotte.

            OPENING STATEMENT OF SENATOR JACK REED, CHAIRMAN

        Senator Reed. Let me call the hearing to order.
        Senator McCain has indicated that he might be delayed and
    asked us to go forward. When he arrives, I will interrupt the
    proceedings and ask him if there are any comments that he would
    make.
        Let me make an opening statement. Then if any of my
    colleagues want to make a brief comment, it would be
    appropriate. But we will get right to the testimony.
        Let me welcome our witnesses: the Honorable Sean J.
    Stackley, Assistant Secretary of Defense for Research,
    Development and Acquisition; Vice Admiral Kevin M. McCoy, USN,
    Commander, Naval Sea Systems Command (NAVSEA); and Vice Admiral
    Allen G. Myers, USN, Deputy Chief of Naval Operations,
    Integration of Capabilities and Resources. Thank you,
    gentlemen, very much.
        We are certainly grateful for your service and also for the
    incredibly professional and courageous service of the men and
    women of the U.S. Navy and the U.S. Marine Corps.
        I especially want to thank Admiral McCoy this morning
    because I believe, sir, this will be your last opportunity--and
    ``opportunity'' is used wisely or diplomatically--to appear
    before the subcommittee. Thank you for your service, sir. Thank
    you very much.
        Admiral McCoy. Thank you, sir.
        Senator Reed. I also want to welcome Senator McCain when he
    joins us. He is the new ranking member. There are few people
    with the expertise, the experience, and the insight of Senator
    McCain when it comes to anything to do with the U.S. Navy. So
    he is an extraordinary addition to this subcommittee as the
    ranking member.
        Now, again, I would ask my colleagues to bear in mind that
    the President of South Korea will be attending a joint session.
    So we will want to move forward as expeditiously as possible.
    If someone would like to make a very brief statement, I will
    recognize them at the appropriate time.
        The Navy continues to be faced with a number of critical
    issues as it tries to balance its modernization and procurement
    needs against the costs of current operations. A number of
    ongoing critical issues confront the Department of the Navy,
    but principally complicating the Navy's efforts this year to
    support current operations in U.S. Central Command and
    elsewhere is the specter of sequestration. The shipbuilding
    budget remains at a level where it will be difficult, if not
    impossible, to field the Navy we believe we need. Sequestration
    will only exacerbate that shortfall. We need to understand how
    sequestration may complicate the Navy's job of maintaining
    current readiness while building for the fleet of the future.
        Another topic of concern is the change in fleet size goals
    since last year. The Navy has now defined a new requirement for
    the size of the fleet, changing the goal from 313 ships to 306
    ships. We hope to understand more about this change during the
    hearing this morning.
        With that in mind, a continuing focus of the subcommittee
    has been to see that we improve our acquisition stewardship and
    thereby ensuring that we are getting good value for every
    shipbuilding dollar that we spend.
        We were very pleased to see that the Navy Department has
    been able to use the jump start in advance procurement funds
    Congress provided in fiscal year 2013 to maintain Virginia-
    class attack submarine production at a level of two per year.
    We have seen that stability helps drive down costs and improve
    productivity.
        We also support the Navy's continuing efforts to drive
    costs out of the Ohio replacement ballistic missile submarines
    (SSBN) program. SSBNs will remain a vital leg of the nuclear
    triad for the foreseeable future. Establishing and achieving
    cost reduction goals in these Virginia-class and Ohio
    replacement programs will yield significant stability to our
    Nation's submarine industrial base, which provides good paying
    jobs all through the country but particularly in my region and
    will ensure the Navy has a modern, capable submarine fleet for
    many years to come.
        The subcommittee has met the last 2 years and focused
    primarily on other programs that were experiencing quality
    control issues or other production issues. It is never a
    pleasant situation when major programs are having such
    problems. During these hearings, testimony from the Navy made
    it seem to me that the Navy Department and the contractor teams
    were making good faith efforts to improve the situation through
    changes in staffing, training, and organization. We are eager
    to hear an update from Secretary Stackley and Vice Admiral
    McCoy this morning on the progress that they have made on these
    initiatives since last year.
        In our country's current fiscal environment, it is very
    unlikely that we will have as much money to spend as the 30-
    year shipbuilding plan assumes. Fundamentally, that is why
    these continuing hearings on efficiency and productivity are so
    important. We need to focus on managing these important
    programs in ways that are efficient and effective in delivering
    the capability the country needs from its Navy. We need to
    improve quality and efficiency in all of our shipbuilding
    programs not only because of the direct savings, but also
    because we need to demonstrate to the taxpayer that we are
    using defense dollars wisely.
        Gentlemen, we look forward to your testimony this morning.
        Senator King, do you have any opening comments, brief
    comments?
        Senator King. No, thank you.
        Senator Reed. Thank you very much.
        Senator Ayotte, if you have a brief comment.
        Senator Ayotte. I do not, Mr. Chairman. Thank you.
        Senator Reed. Thank you.
        This is an extremely cooperative subcommittee. [Laughter.]
        I appreciate your contributions very much.
        Let me now recognize Secretary Stackley. I understand, Mr.
    Secretary, that you will have a statement, as well as Admiral
    McCoy and Admiral Myers.
        Mr. Stackley. That is correct, sir.
        Senator Reed. Please proceed.

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

        Mr. Stackley. Thank you. Chairman Reed, distinguished
    members of the subcommittee, thank you for your leadership on
    the many issues that fall under Congress' broad responsibility
    to provide and maintain a Navy and for your steadfast
    commitment to our sailors and marines around the world today.
        I appreciate the opportunity to appear before you alongside
    Vice Admiral Myers, the Deputy Chief of Naval Operations, and
    Vice Admiral McCoy, the Commander of NAVSEA to address Navy
    shipbuilding. With the permission of the subcommittee, I
    propose to provide a brief statement and submit a separate
    formal statement.
        Senator Reed. All statements will be made part of the
    record in whole, and you may summarize if you wish, Mr.
    Secretary.
        Mr. Stackley. Thank you, sir.
        Today's Navy is 283 ships in number, about half of which on
    any given day are underway performing missions around the
    globe, supporting operations in Afghanistan, providing maritime
    security along the world's vital sea lanes, missile defense in
    the Mediterranean and Sea of Japan, intelligence, surveillance,
    and reconnaissance where needed, as needed, global presence at
    sea and with an embarked marine force ready to move ashore.
    They are conducting anti-piracy patrols, global partnership
    stations, and humanitarian assistance. They are quietly,
    reliably providing strategic deterrence and all the while they
    are training and repairing for the next deployment, the next
    operation.
        Whether measured by the breadth and pace of these
    operations or by the defense strategy's call for increased
    naval presence from the Middle East to the Pacific or by the
    Chief of Naval Operation's (CNO) force structure assessment
    reported to Congress earlier this year, the Navy's objective to
    reach the 300 ship level by the end of this decade is more an
    imperative than a goal if we are to sustain this operational
    tempo (OPTEMPO) that we have all grown to expect of our ships
    and sailors.
        This requires that we build a balanced mix of ships per the
    CNO's requirements at a rate of about 10 ships per year, that
    we not merely control cost but drive down cost in new
    construction, and that we modernize our in-service ships to
    ensure their mission relevance for their full service life.
        With this basic approach since the first quarter of fiscal
    year 2011, we have awarded contracts to procure 43 ships,
    including options, most competitively awarded, all fixed-price
    contracts, and we are on track to increase that number this
    spring with the anticipated award of the DDG-51 multiyear
    procurement.
        Stable production and mature designs represented in these
    fixed-price contracts provide an important degree of
    affordability to our program and certainty to our industrial
    base in an otherwise uncertain period in defense spending. In
    total, today we have 49 ships under construction, under
    contract, where appropriated, and pending the support of
    Congress, with an additional eight ships included in the fiscal
    year 2014 budget request, the Navy is on track to reach the 300
    ship mark later this decade.
        Further capitalizing and support provided by this
    subcommittee in 2013, we are proposing to increase our ship
    procurement this year with the addition of a second Virginia
    submarine in 2014 for a 10-boat multiyear, and similarly, we
    are working to procure the additional 10th DDG-51 authorized by
    Congress in 2013 as part of that program's multiyear.
        Clearly, sequestration puts this plan at risk. Consider
    2013 alone: the Navy proposed and Congress authorized nearly $5
    billion savings associated with the submarine destroyer and MV-
    22 aircraft multiyear procurements. Plus, Congress increased
    the Navy's request by nearly $4 billion provided for additional
    ships and for modernization and operations of ships slated for
    early retirement. These gains, however, were more than offset
    at the top line by the $11 billion reduction to the Navy's
    budget resulting from sequestration earlier this year.
        Across the board, we are weighing alternatives to mitigate
    quantity reductions, schedule delays, and cost impacts to each
    of our ship, aircraft, and weapons systems programs that we
    rely upon to meet our future readiness requirements. A case in
    point with specific regard to the DDG-51 multiyear, we will
    need to work with the defense committees to repair the funding
    that was lost to sequestration in order to award the 10th
    destroyer authorized and appropriated in 2013 towards that
    multiyear.
        These singular efforts to repair the impacts of
    sequestration in 2013, however, will be insufficient to stay
    the potentially deeper and longer-term impacts of
    sequestration. The Department of Defense (DOD) leadership is
    separately reviewing alternatives to meet the defense strategy
    under these circumstances at significantly reduced top lines.
        I would like to briefly address specific programs within
    our shipbuilding plan. The eight ships included in this year's
    budget request include two Virginia-class submarines, an Aegis
    destroyer, four littoral combat ships (LCS), and one mobile
    landing platform (MLP). In each case, submarine, destroyer,
    LCS, and MLP, construction performance is strong, and these
    programs' savings have been reinvested to uphold our
    shipbuilding rates despite downward pressure on the budget.
        The request also includes funding for continued
    construction of the Ford class aircraft carriers. In 2010, we
    reported cost growth on the lead ship, CVN-78, stemming from
    development of new systems and delays in design and material,
    all impacting production. Our efforts to improve on this
    performance have stayed cost growth on the lead ship but not
    reversed it. Accordingly, we are requesting an adjustment to
    the cost cap and additional funding to complete CVN-78 in
    accordance with our previously reported estimate.
        We are attacking these issues on the next carrier, CVN-79,
    and are working with the shipbuilder and vendors to improve the
    quality and producibility of this new design, to replan the
    work flow and material ordering in order to drive higher
    completion levels at the earlier, more efficient stages of
    production and to invest in needed facility improvements in
    order to reduce cost for future carriers. We have provided
    these details in a separate report to Congress and look forward
    to working with your staffs on the implementation of these
    critical initiatives.
        Regarding amphibious ship construction, performance is much
    improved. LHA-6 rolling into LHA-7 construction and the
    recently delivered LPD-23 and LPD-24 are entering the fleet at
    high levels of quality and completion, and we look for this
    trend to continue as we complete the remaining ships in this
    class.
        Regarding the Ohio replacement program, requirements are
    stable and development and early design are on schedule to
    support procurement in 2021. Affordability of the Navy's
    shipbuilding program during the period of SSBN construction
    remains a priority, and while design for affordability is a
    central tenet of our Ohio replacement strategy, meeting our
    cost objectives will not alone bring our shipbuilding top line
    within our reach during that period.
        Looking ahead, we are conducting design studies and
    analysis of alternatives (AOA) for future ships, DDG-51 Flight
    III, LHA-8, the future LXR to replace the LSD-41 and -49 class,
    and the future oiler T-AO(X). It is critical that we press
    forward with these ships' design schedules, place a premium on
    affordability, and look for opportunities to pull this work
    forward in keeping with the constraints of the budget and the
    demands of the defense strategy.
        Ultimately, we recognize that as we balance requirements,
    affordability, and industrial base considerations, it is ever
    more important that our shipbuilding plan closely align with
    the priorities outlined in the new defense strategy. In view of
    increasing pressure on our top line, it is equally paramount
    that we, the Navy and industry, continue to improve the
    affordability within our programs in order to build the Navy
    needed by the future force.
        Mr. Chairman, thank you for the opportunity to appear
    before you today. I look forward to answering your questions.
        Senator Reed. Thank you very much, Mr. Secretary.
        Admiral Myers, please.

     STATEMENT OF VADM ALLEN G. MYERS, USN, DEPUTY CHIEF OF NAVAL
       OPERATIONS, INTEGRATION OF CAPABILITIES AND RESOURCES, N8

        Admiral Myers. Mr. Chairman, distinguished members of the
    committee, it is an honor to appear before you today with Mr.
    Stackley and Vice Admiral McCoy to discuss the Navy's fiscal
    year 2014 national defense authorization budget request.
        Our fiscal year 2014 budget request supports the Defense
    Strategic Guidance and accomplishes our ability to sustain our
    support to the partners in the Middle East, rebalance our
    efforts in the Asia-Pacific, and focus our presence at key
    strategic maritime crossroads, and meet the highest priority
    capability demands of the geographic combatant commanders.
        As the CNO testified before this full committee a couple of
    weeks ago, our final approach to meet our responsibility of
    operating forward where it matters and being ready when it
    matters has not changed. Regardless of the size of our budget
    or our fleet, our CNO's three tenets of warfighting first,
    operate forward, and be ready, guide our decisionmaking in the
    development of our budget request. We made tough, strategy-
    based choices to ensure a coherent budget that delivers the
    overseas presence directed by the Secretary of Defense per the
    Global Force Management Allocation Plan (GFMAP) and continues
    essential, near-term investments started in fiscal year 2012
    and 2013 to address challenges in the Middle East and the Asia-
    Pacific with improvements in mounting an anti-submarine warfare
    and develops capabilities over the long term to address
    warfighting challenges in these same regions with integrated
    systems such as the Navy integrated fire control, counter-air,
    and platforms like the P-8A Poseidon.
        We also recently completed an update to our force structure
    assessment based on the Defense Strategic Guidance and a
    reexamination of our operational plans and other changes in
    shipbuilding programs, ship employment cycles, and our global
    operating posture. The new requirement was for a battle force
    of 306 ships. This requirement is different from our previous
    requirement of 313 ships because of reduced presence
    requirements resulting from the Defense Strategic Guidance
    priorities, increased forward-basing of ships, and the
    introduction of new payload capacity for attack submarines
    replacing our SSGNs, an increased use of ships manned with
    rotating civilian and military crews which provide greater
    presence for our ships.
        Our shipbuilding investments continue to build towards a
    balanced 306-ship force as outlined by our force structure
    assessment and delivers a fleet of 300 ships by 2019 with
    increased capability and flexibility compared to the fleet
    today.
        Along with our primary joint partner, the U.S. Marine
    Corps, the Navy is uniquely qualified to immediately respond to
    a crisis to assure our allies, build partnerships, and deter
    aggression and to contain conflict. Our fiscal year 2014 budget
    request supports our ability to continue to perform this
    important national security role.
        I want to thank Congress for the National Defense
    Authorization Act (NDAA) for Fiscal Year 2013 and the fiscal
    year 2013 defense appropriations bill. We applied these funds
    in accordance with our strategy and priorities to pay civilian
    personnel and meet must-pay bills to reconcile the fiscal year
    2013 readiness and sustained operation and maintenance (O&M)
    priorities for our forces deploying to meet the current
    approved fiscal year 2013 GFMAP and prepare to meet the fiscal
    year 2014 GFMAP.
        It also restores critical base operations and renovation.
    We are still working through the impacts of sequestration for
    fiscal year 2013, but we know that sequestration will result in
    a fleet and bases that are less ready than planned for and our
    fiscal year 2013 funding for each investment program has been
    reduced by about 8 percent. This will likely result in
    reductions to the number of weapons and aircraft we intend to
    procure, as well as the restructuring of ship construction
    programs very likely resulting in increased cost in future
    years.
        In closing, I ask for the support of the Navy's fiscal year
    2014 budget request, and I thank you for the opportunity to
    testify on behalf of the approximately 613 sailors and
    civilians in our Navy serving worldwide.
        Senator Reed. Thank you very much, Admiral.
        Before I recognize Admiral McCoy, let me call on the
    ranking member, Senator McCain. Senator?

                    STATEMENT OF SENATOR JOHN McCAIN

        Senator McCain. Thank you, Mr. Chairman, and thank you for
    holding this first Seapower Subcommittee hearing on the Navy's
    shipbuilding programs in view of the President's 2014 request.
    I look forward to working with you this year to ensure the
    committee and our Nation have a clear understanding of the
    trends for future capabilities of our naval forces.
        I want to thank our witnesses for their public service
    during a time of growing maritime demands on our armed forces.
        I would just mention a couple of things, Mr. Chairman.
        One, the President's budget for fiscal year 2014 on
    shipbuilding is a fantasy. It will continue the Department's
    budget uncertainty, paralyzing any ability to conduct
    deliberate planning or sound management of Navy shipbuilding
    accounts or any other investment program.
        The Department's long-range shipbuilding program, which we
    have yet to receive, will depend on proposed investment levels
    over the next 10 years that will be very difficult to achieve
    as long as sequestration continues.
        Even in the event sequestration is solved, if we accept the
    Department's proposed shipbuilding and retirement plan, by 2015
    we will have the fewest number of naval vessels operating in
    the fleet since 1917.
        The Department's current plan for shipbuilding does not
    achieve the Navy's combatant vessel force structure requirement
    of 306 ships until 2037. The 306-ship requirement was itself
    reduced from 313 ships this past January. For another 23 years,
    we will assume significant risk in the ability of our Navy to
    protect U.S. interests around the world.
        To compound that risk, the Navy plans for the LCS to
    comprise over one-third of the Nation's total surface combatant
    fleet by 2028 and yet the LCS has not yet demonstrated adequate
    performance of assigned missions. We need to fix it or find
    something else rather rapidly
        Finally, the Navy must come up with an affordable way to
    build the Ohio replacement SSBN-X program, which threatens to
    crowd out other investments, and find ways to incentivize the
    lone builder of aircraft carriers to reduce cost. Neither will
    be easy.
        I thank you, Mr. Chairman.
        Senator Reed. Thank you very much, Senator McCain.
        Admiral McCoy?

      STATEMENT OF VADM KEVIN M. McCOY, USN, COMMANDER, NAVAL SEA
                            SYSTEMS COMMAND

        Admiral McCoy. Chairman Reed, Ranking Member McCain,
    distinguished subcommittee members, thank you very much for the
    opportunity to testify on shipbuilding initiatives and the
    material readiness of our Navy.
        As the Commander of NAVSEA for the past 5 years, I have
    been actively engaged with senior Navy leadership, the
    shipbuilders, and NAVSEA organization to improve the quality of
    ships delivered to the fleet and ensure that our ships retain
    their warfighting effectiveness and achieve their full service
    lives.
        Let me speak upfront specifically about the quality trends
    in our shipbuilding programs. Since the fall of 2008 when the
    problems with initially delivered LPD-17 class ships started to
    materialize in service, NAVSEA and the program executive
    offices have been keenly focused on improving the reliability,
    the in-service performance, and overall quality of delivered
    ships. We have had three particular focus areas.
        First, properly staffing the supervisor of shipbuilding
    offices and training personnel in oversight of industrial
    processes and compliance. Since 2007, we have added
    approximately 200 additional personnel to the Supervisor of
    Shipbuilding, Conversion & Repair (SUPSHIP) staff, an increase
    of over 20 percent.
        Second, we have increased shipyard surveillance inspections
    and metrics-based assessment of the core shipbuilding processes
    by the supervisor of shipbuilding. This includes joint
    collaboration with the shipbuilders on ensuring compliance with
    specifications and spotting negative trends and implementing
    corrective actions. NAVSEA headquarters also performs
    independent assessments of shipbuilder quality performance and
    the performance of SUPSHIP oversight of the shipbuilders.
        Then third, we strengthened the Government's oversight of
    the delivery process to include additional testing prior to
    delivery to ensure reliability during fleet service and to
    drive down the number of significant in-serve trial
    deficiencies prior to delivery.
        An example of additional testing imposed prior to delivery
    includes more robust, at-sea endurance trials for recent LPD-17
    class ships to ensure the reliability of propulsion plant
    diesel engines.
        Our trends, as measured by the Navy's Board of Inspection
    and Survey, have been very positive. Of note, the last three
    LPD-17 class ships delivered, USS San Diego, USS Anchorage, and
    USS Arlington, were all delivered with zero in-service priority
    one start guards. This was a marked improvement from their
    predecessors. All three ships also underwent significant
    additional propulsion trials to ensure reliability before the
    Navy accepted the ships.
        I will also point out that just prior to delivery of USS
    Anchorage, a deficiency with propulsion plant bolts was
    discovered by the shipbuilder. Rather than accept delivery, the
    Navy decided to delay delivery for about 6 weeks until the
    bolts were replaced and additional sea trials performed to
    verify proper operation and to make absolutely sure the ship
    would be reliable in service.
        The last seven T-AKE class ships, for example, were
    delivered with zero shipbuilder responsible in-serve cards. USS
    Fort Worth, LCS-3, was delivered with two shipbuilder start
    cards compared to nine for USS Freedom, the first ship of that
    class. Our trends are all in the right direction across the
    board for remaining ship classes, including Virginia-class
    submarines, Arleigh Burke-class destroyers, and auxiliary
    ships.
        While the examples I gave above are for in-serve priority
    one start cards, our trends are also in the improving direction
    for remaining lower priority deficiencies found prior to
    delivery. While our ultimate goal is zero deficiencies of any
    kind at delivery, we must also balance the cost of keeping the
    ship at the shipyard with a fully manned crew vice completing
    remaining issues during a post-shakedown availability, which is
    normally conducted within a year of delivery. In any case, we
    ensure completion of all shipbuilder deficiencies by the end of
    the post-shakedown availability.
        The NAVSEA and program executive office team fully
    understand our responsibility to work with the shipbuilders to
    ensure that our ships meet the demanding standards required for
    entry into naval service. We will continue to stay focused here
    in order to keep America's Navy number one in the world.
        I will be happy to take any of your questions, sir.
        [The joint prepared statement of Mr. Stackley, Admiral
    Myers, and Admiral McCoy follows:]
    Joint Prepared Statement by Hon. Sean J. Stackley, VADM Allen G. Myers,
                       USN, and VADM Kevin M. McCoy, USN
        Chairman Reed, Senator McCain, and distinguished members of the
    subcommittee, thank you for the opportunity to appear before you today
    to address Department of the Navy shipbuilding programs. The fiscal
    year 2014 President's budget submission implements the Defense
    Strategic Guidance and continues our efforts to build and maintain
    platforms that will evolve and adapt, allowing our war fighters to
    fight and win the Nation's wars, operate forward and sustain readiness.
    As we confront the challenges of budget constraints and the uncertainty
    inherent in our fiscal outlook, we are evaluating priorities in our
    shipbuilding, aviation, and combat vehicle plans to make the hard
    choices necessary to maintain the right measure of balance in
    capability, capacity, affordability, and the industrial base.
        As 2012 began, USS Carl Vinson and Carrier Air Wing 17 provide air
    support over Helmand Province while the USS Abraham Lincoln Carrier
    Strike Group sails west through 7th Fleet toward 5th Fleet.
        USS Makin Island, along with USS Pearl Harbor and USS New Orleans
    and the embarked Marines of the 11th Marine Expeditionary Unit, are on
    point in the Persian Gulf . . . having relieved the BATAAN Ready Group
    and marines of the 22nd MEU, who would, in February, return home after
    nearly 11 months of overseas operations--the longest U.S. Navy
    deployment in 40 years.
        In March, John C. Stennis Carrier Strike Group returned to homeport
    after a 7-month deployment to 5th and 7th Fleets, and 7 days later, USS
    Enterprise departs Norfolk for its final deployment, just 8 months
    after returning from its last cruise. Accompanying are destroyers USS
    Porter, USS Nitze, USS James E. Williams and cruiser USS Vicksburg, all
    headed, as well, to the Middle East.
        Later that same month, Iwo Jima Ready Group and 24th Marine
    Expeditionary Unit deployed . . . the regular drumbeat of rotational
    forces to support maritime security operations, provide crisis response
    capability, and increase theater security cooperation and forward naval
    presence in the 5th and 6th Fleets.
        Already in 7th Fleet, Carrier Strike Group 1 and USS Carl Vinson
    anchor off Chennai, India, in preparation for Exercise Malabar with the
    Indian Navy to foster interoperability.
        In May, the second littoral combat ship, USS Independence,
    completes its maiden voyage to homeport San Diego . . . in time to see
    the hospital ship USNS Mercy depart the following day on a humanitarian
    and civic assistance mission to Indonesia, the Philippines, Vietnam,
    and Cambodia.
        The cycle continues with USS Carl Vinson home again in May with
    cruiser USS Bunker Hill and destroyer USS Halsey, having flown more
    than a thousand Operation Enduring Freedom (OEF) missions . . . 6,600
    flight hours . . . 7,283 pounds of ordnance on target, 1,717 rounds of
    20mm ammunition expended . . . in support of coalition ground forces.
        Days later, USS George Washington, forward-deployed to Japan,
    departs on patrol, its fourth since arrival in the U.S. 7th Fleet Area
    Operations.
        The next month, guided missile destroyer USS Benfold sails west
    from San Diego on an 8-month Ballistic Missile Defense deployment while
    USS Vandegrift, USS Sampson, and national security cutter USCGC Waesche
    arrive in 7th Fleet to begin cooperation afloat readiness and training
    (CARAT), a series of bilateral exercises with Southeast Asian
    countries. The 23rd RIMPAC is underway--the world's largest
    international maritime exercise involves 22 nations this year and more
    than 40 ships and submarines and 200 aircraft, around the Hawaiian
    Islands.
        In the North Arabian Sea, USS Dwight D. Eisenhower begins to fly
    combat sorties over Afghanistan . . . and back at the largest Fleet
    homeport in the world; USS Abraham Lincoln arrives in Norfolk to
    prepare for Refueling and Complex Overhaul. Having left Everett, WA 245
    days before, the ship sailed 72,000 miles, around the world, including
    105 days in the Arabian Sea supporting OEF.
        USS Bonhomme Richard, with elements of the 31st MEU embarked,
    begins its first patrol as the Navy's permanently forward-deployed
    amphibious assault ship from Sasebo, Japan.
        The operational tempo of the Fleet remained high throughout 2012
    and 2013. Guided missile cruiser USS Cape St George returns to San
    Diego after circumnavigating the globe in a 9-month deployment
    supporting 5th, 6th, and 7th Fleets.
        In Bremerton, WA, Defense Secretary Leon Panetta thanks the crew of
    USS John C. Stennis for extraordinary effort to prepare for an 8-month
    deployment: 4 months ahead of schedule; 6 months after returning from a
    7-month deployment.
        Rotations continue . . . Peleliu Ready Group and the 15th MEU
    depart San Diego in September; Guided missile destroyer USS Milius
    returns to San Diego after 8-months while USS Paul Hamilton leaves
    Pearl Harbor for a planned 10-month deployment.
        The third LCS, USS Fort Worth, arrives in homeport San Diego
    following a September commissioning.
        Enterprise Carrier Strike Group returns to Norfolk . . . it is the
    25th and final homecoming in 51 years of distinguished service. The
    inactivation ceremony follows on December 1.
        In mid-December the Dwight D. Eisenhower Strike Group returns to
    Norfolk, early, it seems, after only 6 months gone, but back for a
    brief time to depart again and arrive on station in 5th Fleet barely a
    month ago.
        USS Freedom, the first littoral combat ship, arrives in the U.S.
    7th Fleet area of responsibility on its 8-month deployment to Southeast
    Asia.
        Meanwhile, all the year long, marines keep lit the torch of freedom
    in Afghanistan and the Navy conducts anti-piracy patrols, international
    exercises, global partnership stations, under-ice operations, maritime
    surveillance, strategic deterrence, and missile defense missions.
        No other military, no other nation on earth has the reach, the
    presence, the capability, the training and the resolve to maintain this
    pace and breadth of operations. Global reach, persistent presence, and
    operational flexibility, the inherent characteristics of U.S. seapower
    articulated in the Cooperative Strategy for 21st Century Seapower, are
    demonstrated in all we have done in 2012 and continue to do in 2013.
    These tenets, along with the Defense Strategic Guidance, guide the
    priorities and direction of the Department of the Navy's fiscal year
    2014 President's budget request.
        The Navy and Marine Corps' first responsibility is to ensure the
    ability to deliver the overseas presence and capabilities required by
    the Defense Strategic Guidance (DSG), Sustaining U.S. Global
    Leadership: Priorities for 21st Century Defense. The DSG mandates the
    need to be present overseas where it matters and to be ready when it
    matters, with a smaller, more ready force, with the right capabilities
    postured in each region. The DSG concludes that a prompt, credible
    response by forward U.S. forces can demonstrate American resolve and
    can blunt the initial actions of an aggressor. The Navy and Marine
    Corps are well suited and uniquely positioned to meet this mandate, and
    the Department of the Navy's budget submission for fiscal year 2014
    reflects the capabilities needed to meet the DSG.
        In implementing the DSG, the Navy's fiscal year 2014 budget
    submission sustains our support to partners in the Middle East,
    rebalances our effort toward the Asia-Pacific region, focuses our
    presence at key maritime crossroads, and meets the highest-priority
    capability demands of the geographic Combatant Commanders. We made
    tough strategy-based choices to ensure a coherent budget that delivers
    the overseas presence directed by the Secretary of Defense in support
    of the Global Force Management Allocation Plan (GFMAP); continues our
    essential, near term investments in the Middle East and Asia-Pacific;
    and develops capabilities over the long term to address warfighting
    challenges in these same regions.
        Final passage of the National Defense Authorization Act for Fiscal
    Year 2013 and the fiscal year 2013 Defense Appropriations Bill was
    critical to avert the damaging impacts to our operations, maintenance,
    and investment accounts associated with the potential year-long
    Continuing Resolution. These funds are being applied in accordance with
    our strategy and priorities to pay civilian personnel and ``must pay
    bills,'' reconcile fiscal year 2013 readiness, sustain operation and
    maintenance for priority forces deploying to meet the current approved
    fiscal year 2013 GFMAP, prepare to meet the fiscal year 2014 GFMAP, and
    restore critical base operations and renovation. As well, the
    Department is exercising new start authorities provided by Congress to
    develop and deliver future capabilities required by the force, and
    leveraging multiyear procurement activities for Virginia class
    submarines, Arleigh Burke class destroyers, and Osprey MV-22 aircraft;
    all critical to meeting the force structure requirements in the most
    affordable manner possible.
        Sequestration, however, reduced the fiscal year 2013 funding across
    all accounts by roughly 8 percent, or about $10.7 billion total, thus
    directly impacting current and future readiness. The Navy is still
    reconciling the impact of this reduction; however, due to the mechanics
    of its implementation and the limits on Department-wide transfer
    authority authorized by the fiscal year 2013 Defense Appropriations
    Act, it is likely that the Department will be compelled to reduce our
    near term forward presence, our planned depot maintenance and training
    to support future operational rotations, our procurement of ships,
    aircraft and weapons systems to meet our force structure and inventory
    requirements, and our investment in future capabilities and readiness;
    thus impacting our future readiness. Every major weapon system is
    impacted by sequestration in 2013 with impacts ranging from reducing
    quantities procured, delaying schedules (delivery and initial
    operational capability), deferring costs to future years (particularly
    in the case of executing programs, such as shipbuilding), and absorbing
    cost growth due to all of these impacts.
                   the fiscal year 2014 shipbuilding program
        As the Department moves into fiscal year 2014 and beyond, the
    budget submission balances Force structure, Readiness and Capability to
    meet national security commitments; and as the national debate focuses
    increasingly on economic security, it is ever more imperative that the
    Department of the Navy redouble our efforts to being responsible
    stewards of public funds. A brief overview of Shipbuilding programs
    follows.
                                  shipbuilding
        The Navy reported to Congress in January 2013 results of the Force
    Structure Assessment (FSA) which determined the capabilities of the
    future force to meet the full range of missions requirements by the
    Department of the Navy in support of the DSG. The FSA analysis resulted
    in a battle force requirement of 306 ships. This requirement is
    different from our previous 313-ship requirement because of: (1)
    reduced presence requirements resulting from the DSG's priorities; (2)
    increased forward basing of ships; (3) introduction of new payload
    capacity for SSNs (replacing the SSGNs) and; (4) the increased use of
    ships manned with rotating civilian and military crews which provide
    more presence per ship. Our shipbuilding investments are not programmed
    to reach the precise number and mix of ships within this Future Years
    Defense Program (FYDP), but do deliver a fleet of 300 ships by 2019
    with increased capability and flexibility compared to the fleet of
    today.
        The Department's Shipbuilding Plan continues to build toward the
    balanced 306-ship force outlined by the FSA. In support of this, the
    fiscal year 2014 President's budget request funds eight ships: two
    Virginia-class attack submarines, one DDG-51 Arleigh Burke class
    destroyer, four Littoral Combat Ships (LCS), and one Mobile Landing
    Platform/Afloat Forward Staging Base (MLP/AFSB) variant. Over the next
    5 years, the Navy will deliver 47 ships. These investments are part of
    our long-term plan designed to deliver the fleet, by ship type,
    required per the FSA over the long term.
        Key to accomplishing the objectives of the shipbuilding plan is
    stability and affordability. Over the past several years, the Navy has
    placed a priority on increasing shipbuilding rates and providing
    stability for the shipbuilding industrial base. Stability translates
    into retention of skilled labor, improved material purchasing and
    workforce planning, strong learning curve performance, and the ability
    for industry to invest in facility improvements; all resulting in more
    efficient ship construction and a more affordable shipbuilding program.
    The past Virginia-class and DDG-51-class MYPs, the DDG-1000 Swap/DDG-51
    Restart Agreement, the LCS dual block buy, the MLP procurement, the
    continuation of CVN-78-class procurements on constant 5-year centers,
    and the heel-to-toe CVN RCOH induction-to-delivery cycle have provided
    critical stable workload for our shipyards and their respective vendor
    base. The approved upcoming Virginia-class and DDG-51-class MYPs will
    help to further stabilize the surface combatant and submarine
    industrial base through this decade. Likewise, the funding requested to
    procure a fourth MLP, and to configure MLP-3 and MLP-4 as AFSBs will
    also provide for much-needed workload within the auxiliary shipbuilding
    sector.
        The strategy going forward must also continue to center upon
    improving affordability. To this end, in addition to the emphasis on
    stability discussed above, the Navy has established affordability
    requirements and invested in Design for Affordability for future ship
    programs; mandating use of open systems design; leveraging competition
    at every opportunity in shipbuilding and weapons systems production;
    employing fixed-price contracts to control cost for ships and weapon
    systems in production; imposing strict criteria limiting disruptive
    change to contracts; investing in industry-wide manufacturing process
    improvements through the National Shipbuilding Research Program; and
    incentivizing capital investment in facilities where warranted.
        The Navy will continue to aggressively pursue the mutual objectives
    of improving the affordability of our shipbuilding program and
    increasing the strength of our shipbuilding industrial base, and is
    committed to working closely with Congress on these efforts.
                               aircraft carriers
        Our aircraft carriers are central to our Nation's Defense Strategy,
    which calls for forward presence, ability to simultaneously deter
    potential adversaries and assure our allies, and capacity to project
    power at sea and ashore. These national assets; however, are equally
    capable of providing our other core capabilities of sea control,
    maritime security, and humanitarian assistance and disaster relief. Our
    carriers provide our Nation the ability to rapidly and decisively
    respond globally to crises with a small footprint that does not impose
    unnecessary political or logistic burdens upon our allies or potential
    partners.
        Gerald R. Ford (CVN-78) is the lead ship of our first new class of
    aircraft carrier in nearly 40 years. Ford-class carriers will replace,
    on a one-for-one basis, Nimitz-class carriers as they reach the end of
    their projected 50-year service lives. Ford-class carriers are expected
    to be the premier forward deployed asset for crisis response and early
    decisive striking power in major combat operations through the
    remainder of this century. While the Gerald R. Ford aircraft carrier
    design uses the Nimitz-class hull form, it is essentially a brand new
    ship, encompassing new technologies and interior arrangements to
    improve warfighting capability, operational availability, and quality
    of life for its sailors, while reducing crew and aviation wing size by
    as many as 1200 personnel and total ownership costs by approximately $5
    billion over the life of each ship. In 2011, the Navy identified
    spiraling cost growth associated with first of class non-recurring
    design, contractor and government furnished equipment, and ship
    production issues on the lead ship. The Navy completed an end-to-end
    review of CVN-78 construction in December 2011 and, with the
    shipbuilder, implemented a series of corrective actions to stem, and to
    the extent possible, reverse these trends. While cost performance has
    stabilized, incurred cost growth is irreversible. Accordingly, the
    fiscal year 2014 President's budget includes funding for the cost
    growth identified in 2011 and requests that the cost cap be
    correspondingly increased to $12.887 billion.
        The President's budget also requests the second year of
    construction funding for John F. Kennedy (CVN-79), the second ship of
    the Ford-class. The planned delivery of CVN-79 aligns with the end of
    service life for USS Nimitz, the ship it will functionally replace to
    maintain a force structure of 11 carriers. As a result of lessons
    learned on CVN-78, the approach to carrier construction has undergone
    an extensive affordability review; and the Navy and the shipbuilder
    have made significant changes on CVN-79 that will reduce the cost to
    build the ship. CVN-79 construction will start with a complete design,
    firm requirements, and material economically procured and on hand in
    support of production need. The ship's build schedule also provides for
    increased completion levels at each stage of construction with
    resulting improved production efficiencies. The associated cost cap for
    CVN-79 is also being updated with this budget request to account for
    economic inflation and non-recurring engineering for incorporation of
    lead ship lessons learned and design changes to improve affordability.
        Inarguably, this new class of aircraft carrier brings forward
    tremendous capability and life-cycle cost advantages compared to the
    Nimitz-class it will replace. However, the design, development and
    construction efforts required to overcome the technical challenges
    inherent to these advanced capabilities have significantly impacted
    cost performance on the lead ship. The Navy continues implementing
    actions from the 2012 detailed review of the FORD-Class build plan to
    control cost and improve performance across lead and follow ship
    contracts. This effort, taken in conjunction with a series of
    corrective actions with the shipbuilder on the lead ship, will not
    recover costs to original targets for Gerald R. Ford, but should
    improve performance on the lead ship while fully benefitting CVN-79 and
    following ships of the class.
        With more than half of the service life of the Nimitz-class still
    remaining, the Refueling and Complex Overhaul (RCOH) continues as a key
    enabler for the enduring presence of the aircraft carrier Fleet. This
    year's budget request includes $1.75 billion for the last year of
    funding for the RCOH of USS Abraham Lincoln and $246 million for
    advance procurement for the RCOH of USS George Washington.
                                   submarines
        Submarines have a unique capability for stealth and persistent
    operation in an access-denied environment and to act as a force
    multiplier by providing high-quality Intelligence, Surveillance, and
    Reconnaissance (ISR) as well as indication and warning of potential
    hostile action. In addition, attack submarines are effective in anti-
    surface ship warfare and anti-submarine warfare in almost every
    environment, thus eliminating any safe-haven that an adversary might
    pursue with access-denial systems. As such, they represent a
    significant conventional deterrent. While our attack submarine Fleet
    provides considerable strike capacity already, our guided missile
    submarines provide significantly more strike capacity and a robust
    capability to covertly deploy special operations force (SOF) personnel.
    The Navy is mitigating an impending attack submarine force structure
    shortfall in the 2020s through three parallel efforts: reducing the
    construction span of Virginia-class submarines, extending the service
    lives of selected attack submarines, and extending the length of
    selected attack submarine deployments.
        With the support of Congress in fiscal year 2013, the fiscal year
    2014 President's budget requests funding for two Virginia-class
    submarines ($5.3 billion), with one of these two submarines funded
    between fiscal year 2014 and fiscal year 2015 using advance
    appropriations. The request also includes advance procurement and
    economic order quantity funding for the fiscal year 2015 through 2018
    boats. The fiscal year 2014 boats are the first two submarines under
    the Block IV fiscal years 2014 through 2018 multiyear procurement (MYP)
    contract.
        Ballistic missile submarines are the most survivable leg of the
    Nation's strategic arsenal and provide the Nation's only day-to-day
    assured nuclear response capability. They provide survivable nuclear
    strike capabilities to assure allies, deter potential adversaries, and,
    if needed, respond in kind. The Nuclear Posture Review completed in
    April 2010 determined that the United States would retain a nuclear
    triad under New START and that, for the near-term, the Navy would
    retain all 14 Ohio-class SSBNs in the current inventory. To maintain an
    at-sea presence for the long term, the United States must continue
    development of the follow-on to the Ohio-class submarine, the 12-ship
    Ohio Replacement. On December 21, 2012, the Navy awarded the research
    and development contract for Ohio Replacement. This contract focuses on
    meeting the program's stressing performance requirements while reducing
    costs, in not only design and production, but also operation and
    sustainment. To date, the Navy has reduced cost by implementing modular
    construction build practices into the design and re-using previous
    classes' designs and components where feasible.
        The fiscal year 2014 budget requests funding to continue
    development of the Ohio Replacement SSBN and ensures Common Missile
    Compartment (CMC) efforts remain on track to support the United
    Kingdom's Successor Program's schedule. All aspects of the Ohio
    Replacement Program will continue to be thoroughly reviewed and
    aggressively challenged to responsibly drive down engineering,
    construction, and operations and support costs. However, Navy will need
    the means to resource, in particular, construction of the next
    generation nuclear ballistic missile submarine.
        Today the Navy has four guided missile submarines (SSGN). To
    mitigate the loss of strike capacity when SSGNs retire in the next
    decade, the Navy requests fiscal year 2014 Research and Development
    funding to continue the design for a modification to the Virginia-class
    SSN, the Virginia Payload Module. Modified Virginia-class SSNs could be
    procured starting no earlier than fiscal year 2019. Our challenge will
    be executing this option affordably alongside competing priorities
    within the overall shipbuilding program.
        As threats evolve, it is also vital to continue to modernize
    existing submarines with updated capabilities. The submarine
    modernization program includes advances in weapons, integrated combat
    control systems, sensors, open architecture, and necessary hull,
    mechanical and electrical upgrades. These upgrades are necessary to
    retain credible capabilities for the future conflicts and current
    peacetime ISR and Indication and Warning missions and to continue them
    on the path of reaching their full service life.
                            large surface combatants
        Guided missile cruisers (CGs) and guided missile destroyers (DDGs)
    comprise our large surface combatant Fleet. When viewed as a whole,
    these ships fulfill broad mission requirements both independently and
    in conjunction with a strike group. The demands for increased
    capability and capacity in ballistic missile defense (BMD), integrated
    air and missile defense (IAMD) and open ocean anti-submarine warfare
    (ASW) have resulted in a shift of focus on the type and quantity of
    these ships.
        The fiscal year 2014 President's budget requests funding for one
    Flight IIA DDG-51 Arleigh Burke-class destroyer as well as additional
    advance procurement and economic order quantity funds in support of the
    ongoing fiscal year 2013 through fiscal year 2017 MYP for nine ships
    with the option for a 10th ship. The Flight IIA ships will incorporate
    IAMD, providing critical additional BMD capability and capacity to the
    Fleet. The Navy projected in excess of $1.5 billion in savings for the
    ships across the MYP contract and has leveraged these savings in the
    procurement of the ships. The Department's objective is to procure the
    10th DDG-51 in the MYP; however, we will first need to resolve funding
    shortfalls resulting from the fiscal year 2013 sequestration
    reductions.
        The Navy is proceeding with the Air and Missile Defense Radar
    (AMDR) program to meet the growing ballistic missile threat by greatly
    improving radar sensitivity and longer range detection for engagement
    of increasingly complex threats. This scalable radar is on track for
    installation on DDG-51 Flight III ships to support joint battle space
    threat awareness and defense, including BMD, area air defense, and ship
    self defense. The AMDR radar suite will be capable of providing
    simultaneous surveillance and engagement support for long range BMD and
    area air defense. The Navy intends to introduce AMDR on DDG-51 Flight
    III in fiscal year 2016.
        The fiscal year 2014 President's budget request includes funding
    for the modernization of two cruisers and three destroyers. To counter
    emerging threats, this investment is critical to sustain combat
    effectiveness and to achieve the full expected service lives of the
    Aegis Fleet. Destroyer and cruiser modernization programs include Hull,
    Mechanical, and Electrical (HM&E) upgrades, as well as advances in
    warfighting capability and open architecture combat systems to reduce
    total ownership costs and expand mission capability for current and
    future combat capabilities. The current plan combines the HM&E and
    combat system modernization into a single availability which increases
    the operational availability of our most demanded assets.
        The DDG-1000-class guided missile destroyer will be a multi-mission
    surface combatant capable of providing long-range, precision naval
    surface fire support to marines ashore. To accomplish this mission, the
    ship features two 155mm Advanced Gun Systems capable of engaging
    targets with the Long-Range Land Attack Projectiles (LRLAP) at a range
    of over 63 nautical miles. In addition to this critical capability,
    this optimally-crewed ship will provide valuable lessons in advanced
    technology such as signature reduction, active and passive self-defense
    systems, and enhanced survivability features. The fiscal year 2014
    President's budget requests $232 million to continue construction on
    DDG-1000, -1001, and -1002. DDG-1000 is 82 percent complete. The
    deckhouse and hangar have been integrated into the ship, which is
    progressing towards launch and christening later this year. DDG-1001 is
    58 percent complete; and DDG-1002 has started fabrication.
                            small surface combatants
        The Navy's fiscal year 2014 President's budget requests $1.8
    billion to procure four Littoral Combat Ships (LCS) with a total of
    fourteen to be procured across the FYDP. These ships expand the battle
    space by complementing our inherent blue water capability and filling
    warfighting gaps in the littorals and strategic choke points around the
    world. LCS design characteristics (speed, agility, shallow draft,
    payload capacity, reconfigurable mission spaces, air/water craft
    capabilities) combined with its core C4I, sensors, and weapons systems,
    make it an ideal platform for engaging in maritime security operations.
    Each ship brings unique strengths and capabilities to the mission and
    each has been designed in accordance with overarching objectives for
    reducing total ownership cost.
        Affordability remains a key factor in acquiring the needed future
    capacity of these highly flexible and capable ships. The Navy remains
    on course to deliver these ships in the quantities needed through the
    execution of the two competitive block buy contracts (for 10 ships of
    each version) awarded in fiscal year 2010. The average cost of both LCS
    variants--including basic construction, Government Furnished Equipment
    (GFE), and change orders--across the 10-ship procurement over the 5
    year period falls under the congressionally-mandated cost cap of $480
    million per ship (fiscal year 2009 dollars). The dual block buy award
    strategy afforded the Navy an opportunity to award up to 20 ships
    between fiscal year 2010 and 2015 under fixed-price type contracts
    resulting in a savings of $2.9 billion.
        The dual award strategy also stabilized the LCS program and its
    associated industrial base, increased the ship procurement rate to
    support operational requirements, promoted efficiency in the industrial
    base from the vendors to system providers to the shipyards, while
    sustaining competition, and provided potential Foreign Military Sales
    opportunities. The Navy is also aggressively pursuing commonality
    between the two variants, with particular focus on weapon systems,
    sensors, and C4I equipment. There are several on-going studies that
    will identify non-recurring integration costs, insertion points, and
    total ownership costs in order to assess the optimal insertion points.
        LCS capabilities address specific and validated capability gaps in
    Surface Warfare, Mine Countermeasures, and Anti-Submarine Warfare. The
    concept of operations and design specifications for LCS were developed
    to meet these gaps with focused mission packages that deploy manned and
    unmanned vehicles to execute a variety of missions. Two mine-
    countermeasure mission modules (MM), four Surface Warfare (SUW) MMs;
    and one anti-submarine warfare MM have been delivered. The surface
    warfare and anti-submarine warfare mission modules remain on schedule
    to reach initial operational capability (IOC) in fiscal year 2014 and
    fiscal year 2016, respectively. Sequestration, combined with recent
    congressional marks and rescissions, will impact the operational test
    schedule for the mine countermeasures MM. The Navy is working to
    minimize this impact and will advise the defense committees of any
    changes to meeting the IOC date for this essential capability. The
    fiscal year 2014 President's budget requests approximately $347 million
    in research and development and other procurement funding for continued
    development of mission modules, procurement of common mission module
    equipment and procurement of four mission packages. The Navy will
    continue to incrementally field additional mission package capabilities
    to the Fleet as they mature. Mission package production will remain in
    phase with ship deliveries to ensure that each LCS is able to execute
    its required missions.
                             expeditionary warfare
        Ensuring the Nation retains its critical amphibious capability
    remains a top Department of the Navy priority. The Marine Corps remains
    first and foremost a naval service, operating in close partnership with
    the U.S. Navy. Together, the two naval services leverage the seas, not
    only to protect the vast global commons, but also to project our
    national power and influence ashore where that is required.
        The future security environment dictates that the Department
    maintains a robust capability to operate from the sea, placing special
    demands on our equipment. A core capability of expeditionary forces is
    the ability to project forces ashore from amphibious platforms and to
    maneuver once ashore.
                                amphibious ships
        Amphibious ships operate forward to support allies, respond to
    crises, deter potential adversaries, and provide the Nation's best
    means of projecting sustainable power ashore; they also provide ideal
    capabilities for providing humanitarian assistance and disaster relief.
    Amphibious forces comprised of sailors, marines, ships, aircraft, and
    surface connectors provide the ability to rapidly and decisively
    respond to global crises without a permanent footprint ashore that
    would place unnecessary political or logistic burdens upon our allies
    or potential partners. There are two main drivers of the amphibious
    ship requirement: maintaining the persistent forward presence, which
    enables both engagement and crisis response, and delivering the assault
    echelons of up to two Marine Expeditionary Brigades (MEB) for joint
    forcible entry operations.
        Based on the footprint of a 2.0 MEB assault echelon force, a
    minimum of 30 operationally available ships are necessary to provide a
    force made up of 10 Amphibious Assault Ships (LHD/LHA), 10 Amphibious
    Transport Docks (LPD) and 10 Dock Landing Ships (LSD). The Chief of
    Naval Operations and Commandant of the Marine Corps have determined
    that an overall force structure of 38 amphibious ships is required to
    ensure this mix of 30 ships is operationally available. Balancing the
    total naval force structure requirements against fiscal projections,
    the Department has concluded that it can accept a measured degree of
    risk by employing planning factors that call for a force of 33 ships to
    achieve this availability.
        Today, the Amphibious Force Structure stands at 30 ships, which
    includes 9 LHD/LHAs, 9 LPDs, and 12 LSDs.
        The Navy is commencing recapitalization of the large deck
    amphibious assault ships with the construction of America (LHA-6).
    America is now more than 80 percent complete and is scheduled for
    delivery in fiscal year 2014. The fiscal year 2014 President's budget
    request includes a funding request to complete construction of America.
    Beginning with LHA-8, which is planned for procurement in fiscal year
    2017, the Navy will reintegrate the well deck into the large deck
    amphibious assault ships to provide necessary surface lift capacity.
    Funding to design this reintegration of the well deck is included in
    the President's Budget.
        The San Antonio-class LPD (LPD-17) provides the Navy and Marine
    Corps team with modern, capable amphibious lift, and has transitioned
    into a mature production program. Eight of the 11 authorized and
    approved ships of this class have been delivered to the Navy. Lessons
    learned from the effort to resolve material reliability concerns
    identified in the early ships of the class are being applied to ships
    currently under construction. Quality continues to improve with each
    ship delivered as the Navy continues to work closely with the
    shipbuilder to address cost, schedule, and performance issues. The
    utility of this class was well demonstrated most recently by USS Mesa
    Verde as she completed 19 months of deployed operation over a 20 5-
    month period.
        LX (R) will replace the aging LSD-41/49 Whidbey Island/Harpers
    Ferry-class vessels and will perform an array of amphibious missions.
    An analysis of alternatives (AoA) is being conducted in fiscal year
    2013. The fiscal year 2014 President's budget requests research and
    development funds required for technology development and initial
    design efforts resulting from the AoA. Affordability will be a key
    factor in acquiring the needed future capacity and operational
    capabilities of this highly flexible multifaceted ship.
        A fully funded LSD mid-life program, to include repairs, is
    essential for ensuring the LSD-41/49 ships are able to meet their
    readiness for tasking requirements and their expected service life.
    Seven of the 12 ships in the class have completed their mid-life
    upgrade. Funding for LSD mid-life is included in the fiscal year 2014
    President's budget request, with a total of four mid-life upgrades
    scheduled to be completed or begin in fiscal year 2014.
                                auxiliary ships
        Combat Logistics Support ships fulfill the vital role of providing
    underway replenishment of fuel, food, repair parts, ammunition and
    equipment to forward deployed ships and their embarked aircraft, to
    enable them to operate for extended periods of time at sea. Combat
    Logistic Support Ships consist of T-AOE fast support ships, T-AKE
    auxiliary dry cargo ships, and T-AO Fleet oilers. The T-AO and T-AKE
    ships tend to serve as shuttle ships between resupply ports and their
    customer ships, while the T-AOE tends to serve as a station ship,
    accompanying and staying on-station with a Carrier Strike Group (CSG)
    to provide fuel as required to customer ships. Two T-AKE auxiliary dry
    cargo ships have been allocated to the Maritime Prepositioning
    Squadrons (MPS) to provide sea-based logistic support to Marine Corps
    units afloat and ashore.
        The fiscal year 2014 President's budget requests research and
    development funds to mature the Navy's concept for the replacement T-AO
    Fleet oiler in fiscal year 2016. The analysis of alternatives (AoA) was
    completed in fiscal year 2012. The Navy has recently awarded multiple
    contracts to perform industry studies related to design alternatives
    for the ship. The new oilers will have a double-hull design to ensure
    compliance with the modern commercial environmental protection
    requirement.
        Support vessels provide additional flexibility to the combatant
    commander within the operating area. The Mobile Landing Platform (MLP)
    enables at-sea transfer of vehicles from cargo ships and facilitates
    the delivery of those vehicles, as well as equipment, personnel and
    supplies, between the sea and restricted access locations ashore. The
    Navy has three MLPs under construction and has requested a fourth MLP
    in fiscal year 2014. The Joint High Speed Vessel (JHSV) provides a
    high-speed, shallow-draft alternative for moving personnel and materiel
    within and between the operating areas and in support of security
    cooperation and engagement missions. The final JHSV contract option for
    construction of the 10th ship was exercised in December 2012.
        There remains a valid and enduring requirement for an Afloat
    Forward Staging Base (AFSB) capability with capacity for mine warfare
    and special operations support. Historically, Fleet assets have been
    called upon to address the AFSB demand. The Department converted the
    USS Ponce to alleviate the increased demand on the Fleet and provide an
    interim AFSB capability until fiscal year 2017. To establish a long-
    term solution for providing the capabilities specified by the Joint
    Staff, the Navy will sign a detail design and construction contract
    modification for MLP-3 (fiscal year 2012 ship) to become a dedicated
    AFSB asset. Delivery of MLP-3 is planned for fiscal year 2015 to meet
    the projected retirement of USS Ponce. The fiscal year 2014 budget
    includes a similar request for MLP-4, which will result in a class of
    four MLPs--two dedicated to the MPSRONs and two dedicated to the AFSB
    mission.
                     affordability and the industrial base
        Continually improving the affordability of our shipbuilding
    programs is critical to our ability to meet our new construction
    requirements. Stability in our plans is fundamental to any weapon
    system procurement because it allows industry to effectively plan the
    work, train and retain their unique workforce, invest in facility and
    process improvements, and sustain the critical subvendor base. For
    stable programs, the Department has leveraged fixed-price multiyear
    procurements and block buys. These two methods alone are resulting in
    over $11.5 billion of savings in current procurements of major Navy
    weapons systems. Competition is a key element of our programs, and we
    have achieved significant savings from competition which we have
    reinvested in our programs to buy at more economic rates. We have put
    in place the rigor and discipline necessary early in a program's life
    to get the requirements right; we are holding firm to these
    requirements; we're implementing design for affordability as a tenet
    across all of our programs, we are ensuring high levels of completion
    of design before start of production, and mandating use of open system
    designs. As a result of these actions, the Department's procurement
    rates have increased, competition and stable procurements are the norm,
    affordability has improved, and the industrial base on the whole is
    sustainable. We are pointed in the right direction, yet much remains to
    be done. It is critical to sustain this progress particularly as we
    confront the otherwise destabilizing impacts associated with
    sequestration.
                                    summary
        The Department's Shipbuilding Plan continues to build toward the
    306-ship force which is outlined by the updated Force Structure
    Assessment. This force possesses the requisite capability and capacity
    to deliver credible deterrence, sea control, and power projection to
    deter or contain conflict and, if called upon, to fight and win our
    Nation's wars. The request for fiscal year 2014 includes two Virginia-
    class attack submarines, one DDG-51 Arleigh Burke-class destroyer, four
    LCSs, and one MLP/AFSB variant. These investments are a critical part
    of our long-range plan designed to deliver the fleet necessary to meet
    the Department of the Navy's missions under the Defense Strategic
    Guidance. The Department continues to instill affordability, stability,
    and capacity into the shipbuilding plans and to advance capabilities to
    become a more agile, lethal and flexible force to address the
    challenges and opportunities facing the Nation. Forty seven ships will
    be delivered over the next 5 years.
        Budget uncertainties may slow progress toward our goals, but the
    tenets which guide our decisions remain firm. The Navy and Marine
    Corps, on the high seas and closing foreign shores, stand ready to
    answer the call of the Nation. We thank you for your continued support
    of the Navy and Marine Corps and request your approval of the fiscal
    year 2014 President's budget request.

        Senator Reed. Thank you very much, Admiral McCoy.
        We will have 8-minute rounds. When I conclude, I will
    recognize the ranking member. Then we will go by the early bird
    rule side to side. So thank you very much.
        Again, gentlemen, thank you for your testimony.
        Secretary Stackley, one recurring theme obviously is
    sequestration. You commented upon it in your statement. Could
    you highlight for us again what you believe the critical issues
    are going forward in this budget cycle with respect to
    sequestration and, because of the obvious concern about the
    status of the attack submarine program, any effect it might
    have on that program?
        Mr. Stackley. Yes, sir. Let me start by just describing
    2013 since we are dealing with sequestration in the current
    budget year.
        As I described at the outset, each of the program lines was
    impacted by sequestration. So in 2013, we are working line by
    line to mitigate the impact by either paying for the
    sequestration impact through prior year assets, which we had
    accumulated through the last 4 to 5 years of shipbuilding, or
    trying to defer certain costs that we can defer to a later
    point in the cycle in order to keep the planned procurement on
    track. There are certain cases where we are looking at whether
    we need to descope certain items from the shipbuilding plan,
    but trying to keep the overall force structure number healthy.
        In that approach, in fact the DDG-51 that was added by
    Congress in 2013 is, in fact, held up. Otherwise, the balance
    of the shipbuilding program is going forward admittedly at some
    increased risk in terms of, call it, budget executability.
        So we are trying to do this very mindfully. If we allow
    sequestration to stop us in our tracks, that will simply cause
    our costs and disruption to go through the roof.
        We are going to continue to work that destroyer with
    Congress so that you all understand its specific impact. We are
    going to continue to execute the balance of the shipbuilding
    program in 2013. We have brought forward the budget request in
    2014 which, as you are well aware, does not account for
    sequestration in 2014. In fact in 2014 and out in the more
    strategic review that is being accomplished under the direction
    and guidance of the Secretary of Defense, we are looking at
    shipbuilding amidst all of the capabilities that the Department
    is pursuing in terms of what are the impacts associated with a
    reduction in the top line and then what are the priorities that
    we need to bring forward in terms of funding those
    capabilities. Central to all of that is driving down the cost
    of what we are procuring and driving out the cost of our doing
    business so that more of the dollars available can go towards
    capability.
        Senator Reed. Thank you very much, Mr. Secretary.
        One of the programs that we have been concerned about for
    many years is LPD-17, but we have seen, I think, some progress
    in terms of bringing down costs and increasing quality. You or
    Admiral McCoy might comment upon that but also in the context
    of not just the trials at the end of completion but how we are
    trying to build quality and accountability and budget controls
    in the whole process. So any comments would be appreciated.
        Admiral McCoy. Yes. I will comment, Senator, that the early
    LPDs got away from us and we have had to fix them in-service. I
    will point out that Mesa Verde recently completed 19 of 25
    months on two essentially back to back deployments. So I think
    we have a handle on that.
        We are also taking many actions to drive down the cost and
    improve the competitiveness of maintenance performed on all our
    ships, LPD-17s as well as all of our surface ships.
        So I think we are moving in the right direction, Senator,
    and from all the feedback we have from the Marine Corps, as
    well as the Navy sailors, on board the LPD-17-class ships, they
    love those ships and they are performing well in service.
        Senator Reed. Let me ask you another related question. You
    are responsible for SUPSHIPs which is one of the major
    organizations that are responsible for contract execution,
    negotiation, supervision, et cetera. One of the issues that
    came to the attention of the committee, going back several
    years, is just the lack of qualified personnel on SUPSHIPs. We
    essentially sort of let go our trained workforce. You have been
    trying to reconstitute that capacity, which is critical I
    think, in my view maybe the most critical aspect of maintaining
    cost and control of the contractors. Can you comment upon the
    progress there?
        Admiral McCoy. Yes, sir. We took a hard look around the
    2006-2007 timeframe when we first started having issues with
    the LCS program and realized we were about 20 percent
    understaffed. We had really stopped training the staff we had.
    So for the last 4 or 5 years, we have gotten the staffing up to
    where it needs to be. We have been very rigorous on the
    training. In terms of defining what we expect out of every
    supervisor quality assurance inspector, for example, every day
    in terms of the number of looks we want them doing both
    independent of the shipyard, as well as with the shipyard, and
    collaborating the data, we have been very prescriptive there,
    and it seems to be the right approach, Senator.
        Senator Reed. Thank you very much.
        I know you probably do not have a dollar for dollar sort of
    measure of how much savings or how much better you are, but do
    you have anything like that? I will just ask.
        Admiral McCoy. I can tell you they are probably one of the
    lowest density/highest leveraged workforce that we have in the
    NAVSEA, sir.
        Senator Reed. So they more than make up for their overall
    cost in terms of the benefits and the productivity.
        Admiral McCoy. Yes, sir. We have about 1,200 people in our
    supervisor shipbuilding that do everything from on the ships
    inspections to contract processing and negotiations with the
    shipbuilders, and to do the entire shipbuilding program, it
    could be $30 billion in play at any one time.
        Senator Reed. Senator McCain pointed out, I think, very
    appropriately that we have many challenges. One is to have an
    affordable SSBN replacement for the Ohio-class, and the other
    is to maintain carrier production but at a level that we can
    afford. With respect to the Ohio-class specifically
    replacement, since it is a strategic asset because it is part
    of the triad, are there any attempts to provide supplementary
    funding to the Navy shipbuilding budget because of this
    strategic dimension? Have those talks progressed or have they
    even been undertaken in DOD?
        Mr. Stackley. Sir, all I can answer straightly is those
    talks have not progressed. I should probably leave it at that.
        Senator Reed. Okay. That is an interesting comment. Thank
    you very much.
        Mr. Stackley. Let me go ahead and expand then. [Laughter.]
        The Navy's plan in the Future Years Defense Program
    (FYDP)--we think that the budget that we have assigned to the
    numbers that we plan on procuring in the FYDP is within our
    reach if you park sequestration momentarily. But when you get
    outside of the FYDP, now you are quickly entering into the
    period where the Ohio replacement dominates our shipbuilding
    plan. We have spent a lot of effort over the last couple years
    to go after the requirements, to drive affordability through
    the requirements process and also through the design process.
    So it is something that started at about a $7 billion a unit
    cost for the Ohio replacement. The current estimate is $5.6
    billion. We are working through the design process to get it
    down with an objective of about $5 billion, $4.9 billion. That
    by itself does not bring the shipbuilding plan within the reach
    of affordability.
        So if you look at that period of time and you look at the
    budget forecast for that period of time, you have to go back to
    the period of the 1980s, when we were building up the 600-ship
    Navy, to see those type of shipbuilding budget levels that are
    projected for the force that is laid out in the shipbuilding
    plan. That is beyond our shipbuilding total obligation
    authority by any method of extrapolation.
        Senator Reed. That is assuming that we can stabilize the
    course in the other shipbuilding programs.
        Mr. Stackley. Yes, sir.
        Senator Reed. Thank you very much.
        We will have a second round if time allows.
        Senator McCain, please.
        Senator McCain. Thank you, Mr. Chairman.
        Secretary Stackley, when will the Department deliver the
    final shipbuilding plan to Congress?
        Mr. Stackley. Sir, the shipbuilding plan has been signed
    out of the Navy, gone through review with DOD. I would like to
    hand-carry a copy of that report back over here this week. I
    think it is all complete. It is going through its last routing.
        Senator McCain. According to the draft shipbuilding plan,
    when will the Navy have 306 ships in its fleet?
        Mr. Stackley. The date, year that you identified in your
    opening statement is correct. The draft plan reaches 306 in
    2037.
        Senator McCain. If the Navy builds the Ohio replacement
    submarine within existing funds, will it be able to afford 300
    ships?
        Mr. Stackley. The answer squarely is we will not be able to
    hit the numbers that we outlined in the plan if our top line
    for shipbuilding is brought down to the range in the FYDP.
    During the period of the Ohio replacement, working with the
    Office of the Secretary of Defense, we have allowed for about a
    $2 billion per year increase above current FYDP range. But if
    we have to suppress those numbers down to the FYDP numbers, we
    are going to fall short in terms of total ship count.
        Senator McCain. The numbers I have show that we should be
    about $16.8 billion each year for the next 10 years to meet
    your shipbuilding goals. Is that ball park estimate correct?
        Mr. Stackley. It is ball park correct. We break the
    shipbuilding plan down to three periods, near term, midterm,
    long term. In the near term, about $15.4 billion. Midterm, it
    jumps up to $19.8 billion. Long term, it comes back down again.
        Senator McCain. But the budget request, Admiral Myers, is
    $10.9 billion. Is that correct?
        Admiral Myers. Yes, sir. That is correct, and that is for
    fiscal year 2014. It increases through the FYDP. It reaches $17
    billion at the end of the FYDP and it averages about $15
    billion in our shipbuilding and conversion account for each
    year of the FYDP.
        Senator McCain. So you are counting on a dramatic increase
    in shipbuilding request funding in the coming years?
        Admiral Myers. Yes, sir. The plan that we delivered in
    prospect 2014 reflects that increase in each year of the FYDP.
        Senator McCain. Let us talk for a minute, if we could,
    about the CVN-78. I have here from the Congressional Research
    Service (CRS) some of the estimates for -79 and -80 for CVNs.
    The fiscal year 2008 budget estimated the cost of the Gerald R.
    Ford to be roughly $10.5 billion. That is correct, is it not,
    Admiral? Well, we now know that the estimate is $12.8 billion.
    In rough figures, that is a $2.5 billion cost overrun.
        How do I explain to my constituents in Arizona that wte
    have a $2.5 billion cost overrun on an aircraft carrier? Maybe
    you can help me out, Mr. Secretary.
        Mr. Stackley. Sir, I can go to the details in terms of
    building up how we went from $10.5 billion to $12.8 billion,
    but I do not think that is what you are looking for with your
    question.
        Senator McCain. I apologize for asking you a question that
    I do not expect you to answer, rather that I have to try to
    answer.
        Maybe you can respond to this. The CRS states: costs for
    the CVN-78 will likely exceed the budget for several reasons.
    This is the CRS. First, the Navy's cost estimate, which
    underpins the budget, is optimistic. For example, the Navy
    assumes that the CVN-78 will be built with fewer labor hours
    than were needed for the previous two carriers.
        Second, the Navy's target cost for ship construction may
    not be achievable. The shipbuilder's initial cost estimate for
    construction was 22 percent higher than the Navy's cost target,
    which was based on the budget. The Navy and the shipbuilder are
    working on ways to reduce costs. Actual costs to build the ship
    will likely increase above the Navy's target.
        Third, the Navy's ability to manage issues that affect cost
    suffers from insufficient cost surveillance. Without effective
    cost surveillance, the Navy will not be able to identify early
    signs of cost growth and take necessary action.
        So Newport News is the only game in town. Right? Nobody
    else builds aircraft carriers. What can we do to prevent this
    kind of cost overrun, which I can tell you in my constituents'
    minds is unacceptable when we have a terribly damaged economy
    in my home State of Arizona. I cannot justify it.
        Now, tell me, assure me of the steps we are taking to
    prevent a $2.5 billion cost overrun on one ship, so I can go
    back and tell my constituents.
        Mr. Stackley. Yes, sir. First, the cost growth on the CVN-
    78 is unacceptable. The cost growth dates back in time to the
    very basic concepts that went into taking the Nimitz-class and
    doing a total redesign of the Nimitz-class to get to a level of
    capability and to reduce operating support costs for the future
    carrier. Far too much risk was carried into the design of the
    first of the Ford-class.
        Cost growth stems to the design was moving at the time
    production started. The vendor base that was responsible for
    delivering new components and material to support the ship
    production was saddled with new developments in the vendor base
    and production plan did not account for the material ordering
    difficulties, the material delivery difficulties and some of
    the challenges associated with building a whole new design
    compared to the Nimitz.
        Senator McCain. I understand all of that. What are we going
    to do to Newport News to ensure they get a ship built according
    to the cost since there is no competition?
        Mr. Stackley. So for CVN-79, we have held up the
    expenditures on CVN-79 as we go through the details of, one,
    ensuring that the design of the 78 is complete and repeated for
    the 79--so we start with a clean design.
        Two, we are going through the material procurement, and we
    brought a third party in to assess material buying practices at
    Newport News to bring down the cost of material. We are
    metering out the dollars for buying material until it hits the
    objectives that we are setting for CVN-79.
        We are rewriting the build plan on CVN-79. If you take a
    look at how the -78 is being constructed, far too much work is
    being accomplished late in the build cycle. So we are rewriting
    the build plan for CVN-79, do more work in the shops where it
    is more efficient, more work in the buildings where it is more
    efficient, less work in the dry dock, less work on the water.
    Then we are going after the rates, the labor rates, and the
    investments needed by the shipbuilder to achieve these
    efficiencies.
        Senator McCain. Keep us posted.
        Admiral Myers, are you confident about the progress of the
    LCS? I am hearing that there are significant problems.
        Admiral Myers. We are confident at this point in the
    development and implementation of bringing the LCS into the
    fleet. What you are seeing, Senator, is a new platform that we
    are having a proof of concept deployment so that we can
    understand the concept of operations of how we are going to
    rotate the crew, how we are going to sustain it, how we are
    going to maintain it. So these kinds of issues that we see on a
    new platform--and this is a transformational approach to our
    ships. Just like transformational approaches to any platform,
    we are going to find issues and we are going to have discovery
    before it enters the fleet and full operational capability.
        Senator McCain. The only problem here is that under intense
    questioning in past years, I asked whether these problems were
    envisioned, particularly in a new platform, moving in and out
    different modules. I was always told, ``No problem. There is no
    problem. We have that all planned out.'' Obviously, at least
    according to what I am told, ``the Navy's own analysts have
    only about 10 percent confidence in the current estimate of the
    cost to operate and support.'' So I hope that those problems
    that you just outlined, which some of us were concerned about
    at the time, will be resolved without much additional cost to
    the taxpayer.
        I thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator McCain.
        Senator Shaheen?
        Senator Shaheen. Thank you, Mr. Chairman.
        Thank you all for being here, gentlemen, and for your
    service to the country.
        Secretary Stackley, I would like to pursue some of the
    questions that have been presented about how sequestration is
    affecting your ability to operate. One of the things you talked
    about is your efforts to drive down costs. How does
    sequestration affect that ability to drive down costs?
        Mr. Stackley. Senator, across the board, sequestration
    affects everything that we do. First, it has created a great
    deal of uncertainty in terms of our planning and allowing us to
    prioritize within a top line where our investments will go. So
    the uncertainty creates an impact.
        That uncertainty then trickles down into planning and
    procurement in the vendor base, first tier shipyards and then
    down in the vendor base below that. So we are having to keep an
    eye on ensuring the vendor base that we are relying on in the
    longer term to support our shipbuilding requirements does not
    break as a result of delays or uncertainty from sequestration.
        Then the most poignant impact is the dollar impact
    directly. Everything that we have been doing to try to reduce
    the cost of our shipbuilding program, whether it is stabilizing
    requirements, whether it is trying to get stable production
    rates that allow investment by the shipbuilders, trying to wrap
    in a multiyear where we harvest a significant savings, putting
    that inside of a fixed-price contract where we have confidence
    in the savings, sequestration unravels that to an extent.
        So now what we have to do when we look prospectively at
    sequestration in the out-year budgets, we have to fight for the
    priority that shipbuilding demands in order to hit the CNO's
    requirement within the budget so that our efforts to reduce
    cost do not, in fact, go in the reverse direction as a result
    of sequestration and we end up with potential disruption,
    taking low shipbuilding rates that we have today and driving
    them lower and then ultimately driving those costs up. So we
    have to avoid that spiral that could occur if we unravel what
    we have been attempting to do with regard to stabilizing the
    shipbuilding plan over the last several years.
        Senator Shaheen. You indicated that the 2014 budget is
    based on an assumption that sequestration ends at the end of
    this fiscal year. Did I understand that correctly?
        Mr. Stackley. The 2014 budget, as submitted, does not
    account for sequestration in 2014 and beyond.
        Senator Shaheen. I am sure that everyone here would like to
    see us address sequestration before we get into the next fiscal
    year, but given the lack of movement within Congress, I think
    there are real questions about whether that is going to happen.
    So given that, can you talk about what the impact will be if
    you are looking at another $55 billion in cuts over the next
    fiscal year on top of what you have already had?
        Mr. Stackley. Yes, ma'am. Let me first say that Secretary
    Hagel has, in fact, chartered a Strategic Choices Management
    Review to go directly at that question. The Armed Services
    Committee has sent out a letter to the Secretary asking for a
    more discrete response to the potentially $52 billion impact in
    2014, and that response is being addressed in real time.
        Now, let me just talk about shipbuilding and make some
    assumptions. If it is a $52 billion impact, about 10 percent,
    and if that was prorated across all of our lines, then in
    shipbuilding we would be looking at greater than a billion
    dollar reduction to the 2014 request. That is assuming no
    ability to prioritize our investments. That would be applying
    sequestration in 2014 just like it was in 2013 line by line.
        In 2013, shipbuilding took about a $1.7 billion reduction.
    We were able to manage that to a great extent through prior
    year. We had assets that we were building up in the prior year.
    So we were able to pay off about a third to 40 percent of
    sequestration by liquidating those assets. Of the balance, the
    $1 billion to $1.2 billion, some of that we are able to reduce
    our requirements. Some of that we are going to have to work
    within 2013 and some of it effectively bow waves into the out-
    years.
        If you then do that again in 2014, effectively we have
    pulled all the margin out of the system in shipbuilding. Where
    we had margin, we have pulled it out. So now if we double down
    sequestration in 2014, the margin is gone and now we are
    looking at direct impacts to our ship procurement rates.
        Senator Shaheen. Thank you.
        Senator King has gone temporarily, I think, but he will be
    back, and I am sure he would be interested, as I am sure
    Senator Ayotte is, in what is happening at the public
    shipyards. We all represent the Portsmouth Naval Shipyard, and
    obviously, our four public shipyards are critical as we look at
    maintenance and what we need to do to keep the fleet operating.
    I wonder if you could talk about the current role that our
    public shipyards are playing and the importance of continuing
    to modernize them so that they can address the needs that we
    have with shipbuilding.
        Admiral McCoy. Yes, Senator. I will go ahead and take that
    one.
        The public shipyards do 95 percent of the submarine and
    aircraft carrier day-to-day maintenance work, as well as
    overhauls. The only big exception would be the refueling
    overhauls of Nimitz-class carriers in the private sector.
        The public shipyards are fully loaded particularly with the
    OPTEMPO that we have had around the world. In fact, I had an
    earlier discussion with Senator King that one of my concerns is
    that we are too loaded. We will have a healthy workload
    certainly through the FYDP, but we are seeing the effects of
    sequestration. We are seeing reduced overtime particularly on
    our aircraft carrier availabilities where we work the critical
    paths 6 days a week, and if we do go into furloughs, we are
    worried about the aircraft carrier schedules, the SSBN
    schedules, and the SNN schedules in the naval shipyards.
        We are also in a hiring freeze which with 30,000 employees
    in the four naval shipyards, we will lose effectively 1,800
    workers or about 150 workers every month that we are in a
    hiring freeze. So we are concerned about that.
        So I would say we have plenty of work in a time of fiscal
    uncertainty, at a time where the workforce is also very
    anxious.
        Jumping to the infrastructure, we have released a report. I
    have been in the naval shipyard business for 30 years. That is
    the most comprehensive, thorough look at the infrastructure of
    our naval shipyards. We have also had probably the most
    significant discussions at the very senior level. I have
    briefed that report at the four-star level several occasions
    personally myself.
        I think the report reflects the Navy's sentiment that we
    would like to close the investment gap we think we need in
    about a 10-year period. We see that the financial uncertainty
    and the budget pressures that we have will only allow us to do
    it about in a 17-year period. We would like to be closer to 10.
    We are committed to looking for opportunities to pull work
    forward. In fact, the plan that we presented starts in 2015,
    but we have already pulled ahead investments into 2013 and 2014
    to get a jump start on that and we will look for ways to
    continue to do that.
        The naval shipyards are a jewel. Our Navy cannot sail
    without them and we understand our stewardship role to keep
    them fully facilitized, ma'am.
        Senator Shaheen. Thank you very much and thank you for the
    report.
        Senator Reed. Thank you, Senator.
        Senator Ayotte.
        Senator Ayotte. Thank you, Mr. Chairman.
        I wanted to follow up, Admiral McCoy, just on what you were
    just talking about with regard to the shipyards. I certainly
    share the concerns that my colleague from New Hampshire does,
    in particular for the Portsmouth Naval Shipyard.
        But you said they are fully loaded in terms of maintenance
    and what is happening. What happens if we implement the
    furloughs in terms of the maintenance schedule? Can you help me
    understand--as I understand it, the Navy has submitted a plan
    to Secretary Hagel that would allow us to avoid the furloughs.
    Can you help me understand if we do implement the furloughs and
    the Secretary decides not to implement the plan that the Navy
    has proposed, what are the additional costs that we incur
    because we have to delay all the maintenance schedules?
        Mr. Stackley. I will start and then allow Admiral McCoy to
    join.
        First, the evaluation of furloughing. It is being done in
    DOD applying to all the Services where everyone is looking at
    how to mitigate the degree to which we would have to furlough,
    and within that larger discussion, we are continuing to look at
    if we do furlough, are there exceptions that we need to apply
    because they are directly impacting readiness or the remedy is
    creating more problems than it is solving. Shipyards are in
    that mix. The potential to furlough public shipyard workers is
    in that mix, and that is all I can offer you right now because
    we are looking at this real hard real-time.
        They are in that mix because of the direct impact on
    readiness that would be caused by a furlough at our shipyards.
    It would be more than a 1-for-1 impact when you impose the
    degree of disruption that occurs to a ship's maintenance or
    modernization schedule at the shipyard if people have to put
    down their tools and then return after a gap to pick them back
    up. So I think everyone understands that shipyards are a
    special case in terms of direct impact on readiness. The math
    states that there is going to be a more than 1-for-1 impact if
    you furlough, and overall DOD is trying to mitigate any
    furlough actions because we recognize the impact on not just
    productivity, not just the impact on readiness, but also the
    impact on the workforce that is trying to execute within the
    sequestration environment.
        Admiral Myers. Senator, just to add before Admiral McCoy
    takes the mike, I think the Navy has been very consistent in
    articulating the readiness impacts of furloughing at our
    depots, both on the shipyards and aviation, the impacts to our
    carriers, the impacts to our submarines, and the impacts to our
    aircraft and engines and engine modules.
        Senator Ayotte. Thank you all. I wanted to follow up on
    what was raised by the chairman as well as Senator McCain,
    which is the Ohio-class replacement, the SSBN. One of the
    things that was recently said I think by Vice Admiral Burke was
    that, yes, if we buy the SSBN within existing funds, we will
    not reach 300 ships. In fact, we will find ourselves closer to
    250. Our global presence will be reduced such that we will only
    be able to visit some areas of the world episodically.
        So I think the issue is this: how to ensure that we build
    the 12 Ohio-class replacement boats, which are such a critical
    part of our triad in the protection of our country, while also
    continuing the shipbuilding plan. What is that going to take? I
    know that Senator McCain touched upon this. What will that take
    because we cannot have one and not the other? Do we need
    something new? I mean, setting aside sequestration, as I
    understand it, if we go forward with sequestration, the fleet
    is going to go down to 235 according to Admiral Greenert. If we
    set aside sequestration for a moment, do we need a new national
    capital ships account in addition to the shipbuilding and
    conversion Navy account? How do we get there?
        Also, could you comment on the collaboration between the
    United Kingdom on the common missile compartment for the Ohio
    replacement? Is that saving money? Are we receiving any
    economies of scale there? What can we do to also bring down
    costs on the Ohio replacement so that we can do both?
        Mr. Stackley. Yes, ma'am. Let me start with the first
    question dealing with the Ohio replacement and the period of
    its production. As discussed earlier, during the period of the
    Ohio replacement ship construction, the average top line for
    shipbuilding that will be required to achieve the shipbuilding
    plan, which as Senator McCain described, does not get to 306
    ships until after the Ohio replacement is complete, is about
    $20 billion. Inside of the FYDP, our average shipbuilding is
    closer to $14 billion to $15 billion with the current budget
    year $11 billion. So you can see the steep rise that would have
    to occur.
        So the first question is could the Navy do this within the
    current budget, call it, rules or allocation. No matter how
    much priority we place on shipbuilding within the Navy's
    allocation, in order to hit $20 billion a year for a 12- to 15-
    year period, that would cause breakage to other parts of the
    Navy's budget that we are responsible for.
        So this is a funding requirement that is larger than the
    Navy.
        Senator Ayotte. So how do we get to a realistic--I think it
    is important for all of us to be working toward a realistic
    budget allocation that makes sure that we have a robust Navy.
    As far as I can tell, we have China investing more in their
    navy. The needs right now for a naval presence are very
    rigorous.
        Mr. Stackley. We start with the requirement and the CNO has
    done the force structure assessment to outline the requirement.
    Then we lay in how do we get there from here. So the
    shipbuilding plan lays out a path to get there, recognizing
    that it has a saw tooth effect to it. Then we do everything
    that we can to drive cost out of the equation. We will continue
    to work on that, but we will not be able to drive, say, 25
    percent cost out of the equation.
        So the problem is staring at us. You could argue that the
    problem is inside the FYDP, but it gets pretty extreme right
    outside of the FYDP. So to try to engage in a level of
    discussion and debate that is required to address that beyond
    the FYDP budget issue today while we are just wrestling with
    the uncertainty associated with sequestration by itself, that
    has proven to be too difficult for the system today to clearly
    address that issue that is 5, 10, 15 years beyond today.
        But we have to keep the debate open. We have to keep the
    issues clear in front of us. As it gets inside of the FYDP, I
    think the discussion between Congress and the Department on how
    we are going to be able to afford that shipbuilding plan needs
    to be more heated.
        Senator Ayotte. I worry that we are on a completely
    unrealistic path right now given what the real needs are for
    the Navy on the shipbuilding budget. So I hope that this is an
    issue we will also have more rigorous discussion about.
        So thank you all for being here.
        Senator Reed. Thank you, Senator.
        Senator Kaine, please.
        Senator Kaine. Thank you, Mr. Chair.
        To the witnesses, I am going to start with a comment and a
    couple of questions. The comment is really for both the
    witnesses and my colleagues, and it is kind of a ``new guy''
    comment.
        Every hearing we have been having of the full committee or
    of the subcommittees has focused on sequester effects. I think
    it was Senator McCain's questioning at a hearing where we had
    both the Secretary and the Chairman of the Joint Chiefs,
    General Dempsey, that inspired the letter from Senators Levin
    and Inhofe to say show us what it would look like if sequester
    is permanent. I really encourage diligence in showing us what
    it will look like if sequester is permanent.
        My observation of my colleagues is that we all think
    across-the-board, non-strategic sequester cuts to defense is a
    really bad idea. Most of us think that across-the-board, non-
    strategic cuts to non-defense accounts is also a bad idea. But
    I think we all think that with respect to defense.
        But in February we did have a vote to turn off the
    sequester that got a majority in the Senate, but the invoking
    of the filibuster, the paper filibuster, blocked that.
        In March, we voted on a budget that would have replaced
    sequester. It still would require cuts, but they would have
    been strategic. They would have been smaller and they would
    have been differently arrayed over the 10-year budget cycle
    rather than so much upfront. Unanimous consent rules are being
    utilized in the Senate now to even block that budget from going
    to conference.
        My sense is since we all agree that non-strategic, across-
    the-board cuts to defense are a bad idea, if the Senate does
    not fix that, it is not going to get fixed. I think if the
    Armed Services Committee does not reach some accord about it, I
    do not think the Senate is going to fix it. I think this
    committee is the committee that is most willing and most likely
    to try to promote action that would eliminate what we all think
    are stupid across-the-board, non-strategic cuts to defense.
        But I think that July 1 letter inspired by Senator McCain's
    question and the request from the committee chair and ranking
    member is going to be very key to seeing what the next 10 years
    would look like if we do not turn away from the foolish path
    that we are on.
        So I just hope that that is a very specific, detailed
    accounting of what would need to be done because something has
    to convince this body, and this body then has to convince the
    Senate I think to take action. Then the question of whether we
    could convince the House is another matter entirely, but the
    House is not going to do it unless we do it.
        I want to follow up on the questions about the carrier, the
    Ford-class carrier. Secretary Stackley, you talked about
    reasons for the overrun, that the overrun was unacceptable, and
    steps being taken to address it. Educate me a little bit
    about--I imagine there is some analogous history here. The
    building of a first in class creates some issues that hopefully
    the building of the second, third, and fourth in class are
    easier. Is there a history of some challenging cost overruns on
    a first in class and then learning from it and then the per-
    unit cost coming down as you get deeper into whether it is
    subs, carriers, surface ships, whatever it is? Just talk to me
    a little bit about that.
        Mr. Stackley. Yes, sir. Absolutely. The history in
    shipbuilding is--since you do not have a prototype for a new
    ship, the first of class, referred to as the lead ship, is your
    prototype. So you carry a lot of risk into the construction of
    that first of class.
        Also, there is a lengthy design, development, and build
    span associated with ships. So there is a certain amount of
    overlap or concurrency that occurs between the development of
    new systems that need to be delivered with the first ship, the
    incorporation of the design of those new systems, and the
    actual construction.
        So to the extent that there is change in a new ship class,
    then that risk goes up accordingly. In the case of the CVN-78,
    the degree of change compared to the Nimitz was fairly
    extraordinary, all for good reasons, good intentions, increased
    capability, increased survivability, significant reduction in
    operating and support costs. So there was a determination that
    we would take not this risk in order to get those benefits. In
    the case of the CVN-78, those risks are driving a lot of the
    cost growth on the lead ship.
        When you think about the follow ships, now you have a
    stable design. Now your vendor base has a production line going
    to support the production. Now you have a build plan and a
    workforce that has climbed up on the learning curve to drive
    costs down. So you can look at virtually every shipbuilding
    program, and you will see a significant drop-off in costs from
    that first of class to the follow ships. Then you look for a
    stable learning curve to take over in the longer-term
    production of a ship class.
        Carriers are unique for a number of reasons, one of which
    we do not have an annual procurement of carriers. They are
    spread out over a 5--and in fact in the case of the 78, as much
    as a 7-year period. So in order to achieve that learning, there
    are additional challenges associated with achieving that
    learning. So we are going at it very deliberately on the CVN-79
    through the build plan with the shipbuilder to hit the line
    that we have to have, the cost reductions that we have to have
    on the follow ships of the class.
        Senator Kaine. You answered a question of Senator McCain's
    about some of the lessons learned from CVN-78 to -79, but I
    think I would like to submit a written question on the record
    as well to try to get a more extended answer that is really
    probably beyond the scope of a hearing like this so that we
    could then just have that and then utilize it as we talk down
    the road about what we are seeing on CVN-79 and CVN-80.
        Mr. Stackley. If I can offer, we have, in fact, submitted a
    fairly detailed report to Congress on the CVN-79 build plan to
    address these issues, and I would start by offering to sit with
    your staff and brief you on those details.
        Senator Kaine. That would be helpful.
        You and I were together recently in Newport News for the
    commissioning of the USS John Warner or I guess the keel
    laying. I am going to be having lunch with him today. So I know
    he is going to be asking me about Virginia-class submarines.
        This is preliminary because we are not at July 1 yet, but
    what would a full sequester likely do to the Virginia-class
    program? This is of deep interest, obviously, not just to
    Virginia but others as well.
        Mr. Stackley. Yes. I am glad you asked that question
    because I wanted to double back to Senator Reed. That was one
    of his opening questions, and I did not get to it in my
    response.
        First, the Virginia-class submarine is a very high priority
    for DOD in terms of procurement. It is a high priority for all
    of the right reasons, extraordinary capability. It plays a
    significant role in every major operation. So regardless of
    sequestration, it will be a priority in our budget. In fact,
    the fact that we came back this year and added Virginia in 2014
    reflects that priority.
        Second, even with that level of priority, within our
    shipbuilding plan and all the assumptions that we have laid in
    that, we still fall below the long-term requirement for attack
    submarines. So the force structure assessment describes we need
    a minimum of 48 attack submarines, and within the shipbuilding
    plan, keeping Virginia as a priority, we still drop down into
    the low 40s and that is without overlaying the risk of
    sequestration or anything beyond that.
        So it is a priority. The budget is at risk in terms of
    sequestration. Not just the Department of the Navy, DOD will
    keep that as a priority as we march forward regardless of
    sequestration.
        Where there is risk are some of the modernization and
    upgrade efforts associated with that class of submarine. We
    will take a hard look, for example, at the Virginia payload
    modules which is under design and development today for the
    2019 boats and beyond. We will have to take a hard look at
    whether or not we can, in fact, afford those upgrades when we
    have better clarity in terms of the long term.
        Senator Kaine. Thank you.
        Thank you, Mr. Chairman.
        Senator McCain. Mr. Chairman, could I ask for unanimous
    consent to submit for the record the cost of CVN-79 has
    increased by--first, CVN-78 cost increase over the original
    estimate is 22.3 percent. CVN-79 is a 23.4 percent increase
    over the estimated original procurement cost, and the CVN-80,
    29.5 percent. So any allegation that somehow costs are under
    control or being reduced are contradicted by the CRS report.
        Senator Reed. Without objection, it will be submitted for
    the record.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Senator Reed. Secretary Stackley?
        Mr. Stackley. If I may make a comment on that. The cost
    figures that were put into the 2006 NDAA associated with CVN-78
    class did not account for escalation. So the dollars in 2006,
    when you escalate those out to the build span for the CVN-79
    and the CVN-80, what you see is an increase associated with
    escalation. For CVN-79, there is also an increase associated
    with nonrecurring engineering to incorporate the design issues
    that we identified on -78 that need to be fixed before
    producibility of -79.
        Senator McCain. I appreciate that, but some of us do expect
    those increases to be anticipated rather than just saying we
    had to add on those costs. Then obviously these cost estimates
    that were submitted in the fiscal year 2008 budget--there are
    increases. That is what was presented to Congress, and that is
    not what happened.
        Mr. Stackley. Sir, for the record, when those numbers were
    presented for the cost cap purposes, it was, call it, in
    constant year dollars in the year of the authorization and the
    allowances made to update those for impacts of escalation.
        Senator McCain. Of 23 and 29.5 percent? I do not think some
    of us would have voted for it if we had known of that kind of
    escalation, Mr. Secretary.
        Senator Reed. I think at this point it is appropriate to
    recognize Senator Sessions. We will have a second round, and we
    will have an opportunity for the Secretary in the course of
    that second round or other comments to further elaborate.
    Senator Sessions?
        Senator Sessions. We have a tight budget situation. I know
    you guys are working hard at it. Thank you for what you do.
    But, Senator McCain raises important questions, and I think it
    is in the national interest that he does so.
        With regard to the fleet and the size, Secretary Stackley
    or Admiral Myers, are you confident that we have the ships that
    we need to do the job that we are challenged to do? Would you
    give us any comments on it? Do you think we have the right mix?
        Admiral Myers. Senator, thanks for the question.
        The force structure assessment that was completed and
    released is very comprehensive. This is a periodic review by
    the Navy to make sure that we understand what force structure
    are we building to. Now, this is an important element of our
    shipbuilding plan. The shipbuilding plan is a combination of
    not just the force structure assessment but also what we think
    we can afford budget-wise, looking at the industrial base,
    understanding our ship construction profiles and a number of
    things. But key to beginning the process of building our annual
    shipbuilding plan is understanding what force structure that we
    are building to.
        So for the force structure assessment, what we did was we
    went to the combatant commanders and talked to them to try to
    understand what mission sets, what capabilities that they need
    in their areas of responsibility (AOR). We also looked at
    deployment schedules in our GFMAP.
        Senator Sessions. Can I interrupt you? When was this done
    and when did it commence?
        Admiral Myers. Last year, and it was completed within the
    last year. So this is current. This is the force structure
    assessment that changed from 313 to 306.
        So in the course of that analysis, what the Navy discovered
    is a couple of things. One is we have new Defense Strategic
    Guidance, and in that guidance it prioritizes presence in
    different AORs.
        Senator Sessions. Who decided the new defense guidance? How
    was that decided?
        Admiral Myers. The Defense Strategic Guidance was released
    by the administration in, I believe it was, January of last
    year.
        So based on the Defense Strategic Guidance, what we did was
    we talked to the combatant commanders, looked at the GFMAP,
    looked at the ships that we have in our inventory, looked at
    the industrial base, and then considered what is it that the
    Navy needs in terms of a requirement for force structure to
    meet the presence and warfighting capabilities overseas.
        The results of that were 306 ships. Now, that is a change
    from 313.
        A couple of things were unique that changed over the last
    year besides the Defense Strategic Guidance shifting some of
    our priorities to the Asia-Pacific. What we also did was the
    Navy has been increasing our emphasis on forward-deployed naval
    ships, and we have four ships that will be permanently
    stationed in Rota as part of the Ballistic Missile Defense
    (BMD) rotation in the Mediterranean. Those four ships keep us
    from having to have more ships sailing from the east coast. So
    we went from 94 surface combatants down to 88. So instead of
    having additional ships to sail back and forth across the
    Atlantic, we were able to keep those BMD ships in Rota and have
    the same kind of force structure we need in terms of presence
    but reduced overall force structure.
        Senator Sessions. When I came on this committee some years
    ago now, that was a serious discussion about the forward
    deployment in ships. So you feel good about that strategy? We
    have been doing more of it. Is it effective in increasing our
    presence and reducing the number of ships that we need in the
    fleet?
        Admiral Myers. Absolutely. We benefit from forward presence
    in Japan and the western pacific routinely, and having
    commanded the USS Kitty Hawk homeported in Yokosuka, I can
    personally attest to the effectiveness and the efficiency of
    having a forward-deployed naval force in the AOR. So what we
    are doing in Rota is we are moving theater BMD destroyers.
    Beginning in fiscal year 2014 will be the first ship and that
    will be a more efficient way to maintaining a presence in the
    Mediterranean for that mission.
        We also within the force structure assessment looked at
    efficiencies of civilian crewed Joint High Speed Vessels for a
    presence where we could have increased presence and then
    prioritizing some of the military manned like our amphib ships
    in different AORs. So we are able to find some efficiencies.
        We are also bringing on board our MLPs in float staging
    bases, and those are also going to be civilian manned and we
    will be able to increase our presence.
        So when you do the math, we come up with 306 ships and we
    think it is the right mix. We think that we have a path ahead
    to account for the SSGN.
        Senator Sessions. My time is about up, but I appreciate
    that. I think we should all recognize that this overall
    assessment strategy is determined by the administration and it,
    therefore, allows you, if your mission is less, to have less
    ships. You are given a mission. You provide the ships that you
    have to have to accomplish that. You constrict the
    requirements. You do not have to have as many ships. So we need
    to be sure, when we analyze all this, in the long run we are
    not making a mistake.
        Secretary Stackley, in your 30-year plan for shipbuilding,
    you do maintain the LCS as a significant role in that. There
    have been questions raised over this ship, but one of the
    reports was over a year old. I know it was recently published.
    Would you give us your assessment of where the LCS is?
        I will have to say I have been impressed with your
    leadership over the years in trying to manage shipbuilding
    programs. I think all of us appreciate your service to the
    country.
        Mr. Stackley. Sir, thanks for the question.
        Let me address LCS in two pieces. One is ship production
    and then the other is mission packages or mission modules.
        First, I think the subcommittee is well aware of the
    history in terms of ship production, and today I can report
    that ship production is stable. Costs are going down. The
    contracts are fixed-price. So there is all goodness there.
        Senator Sessions. Are costs actually at the level you
    expect? How do you compare it to projections?
        Mr. Stackley. When we awarded the dual block buy, we
    projected $2.9 billion in savings across the 20 ships. That was
    assuming not just the fixed prices on the contracts, but we
    also included some margin above those fixed--I am sorry--fixed-
    price incentives above the targets on those contracts and we
    are operating well within that budget. So they are performing
    below the budget that we had outlined when we awarded the dual
    block buy, which is a measure that we are achieving the savings
    that we had targeted.
        We are still early in production, but we see the learning
    that we expect to see. We see the investment by the shipyards
    that they needed to make, and we are seeing them leverage the
    block buys with the vendor base in order to get savings in
    material as well. So production is stable.
        Sequestration, frankly, pulled the margins out of those
    budgets. So where we held a margin above the target to account
    for potential risk, sequestration pulled much of that margin
    out. Sequestration pulled out much of the Government's reserve
    for change orders that we include in our budget, but frankly,
    we have locked down requirements to the extent that we are not
    burning dollars on change orders in production.
        So we are on a good path on the ship production side and
    really working out, I will call it, the learning that goes with
    the investments that the shipyards have made and the early
    deliveries.
        On the mission package side, we are in developmental
    testing across the three mission packages. LCS-1 deployed with
    an early increment of surface warfare capability. The mine
    countermeasure mission package, in the first increment of the
    mine countermeasure mission package and surface warfare mission
    package, we are scheduled to initial operational capability
    (IOC) next year.
        In terms of sequestration impacts, the dollars that we have
    lost in research and development (R&D) to support those
    development efforts are likely pushing those IOCs into 2015.
        So if I have a plea for Congress, it is to recognize that
    it is difficult to hold onto developmental schedules when you
    suffer these types of setbacks in your funding, and so I would
    ask that we do not compound that issue in marking the 2014
    budget. But actually let us sit down and take a look at what we
    need in terms of completing that development so we can, in
    fact, IOC those systems that we need desperately today. The
    mine countermeasure package is a priority for the Navy. Our
    capability today with the legacy ships is extremely limited,
    and we have to get increased capability and capacity to deal
    with a potential threat in the mine warfare area.
        Senator Sessions. Thank you.
        Senator Reed. Thank you, Senator Sessions.
        Senator King, please.
        Senator King. Good morning, gentlemen. Thank you for
    joining us.
        Secretary Stackley, first thanks for the notice last week
    on the nine purchase procurement on the DDG-51.
        What is the amount of the current shortfall projected for
    the 10th destroyer in that package?
        Mr. Stackley. Yes, sir. Sequestration pulled about $560
    million out of the DDG-51 program. Congress had rescinded $400
    million of prior year assets for the DDG-51s, included that in
    a $987 million add for the 10th destroyer, and then
    sequestration pulled about $560 million out. Of the $560
    million, almost half of that, about $260 million of it, we were
    able to offset with other assets in the program. So for that
    10th destroyer, we are about $300 million short.
        Senator King. Do you have the necessary authority within
    the current budget request to cover the shortfall? If not, do
    you need something from Congress? I am learning new meaning to
    the phrase--my father used to use it--``it will take an act of
    Congress.''
        Mr. Stackley. Yes, sir. I describe it as we have to work
    real closely with the defense committees because you now have
    the 2014 budget request. So we rely upon your actions in 2014
    in order to be able to award that 10th ship in 2014.
        Senator King. So we need to be in close communication on
    that issue.
        Mr. Stackley. Yes, sir.
        Senator King. If the 10th ship is fully funded in the 2014
    budget, can it be added to the set of nine procurement and
    generate some savings throughout the program?
        Mr. Stackley. Yes, sir. That 10th ship is an option that
    was competed between the two builders. So we have contract
    proposals in hand for the 10th ship. We have all but about $300
    million appropriated that we need to award the 10th ship. So we
    are in the red zone. We got to punch this thing across the goal
    line.
        Senator King. Does it generate savings in the overall
    program?
        Mr. Stackley. I would describe it as the marginal cost for
    that 10th ship. It will be the most affordable destroyer that
    we will be looking at for the foreseeable future.
        Senator King. Thank you.
        As I understand it, under sequestration, the DDG-1000 could
    experience about a $90 million shortfall on the last pieces of
    the third DDG-1000. Does the fiscal year 2014 budget request
    take care of this issue?
        Mr. Stackley. No, sir. This is very similar to the earlier
    discussion on the LCS mission packages where the DDG-1000--
    there are a lot of developmental activities that are going
    along side by side with the ship construction. So we are
    impacted in terms of development associated with the lead ship
    and also procurement associated with the lead ship. So we are
    very concerned that we do not have the ability make up that
    reduction. We have limitations in terms of our reprogramming
    authority. We have limited assets under sequestration in order
    to be able to offer up an asset to backfill. So we are stuck in
    2013 with that reduction, and we do not have the ability to fix
    it in 2014 and the budget request in fact did not anticipate
    having to backfill 2013----
        Senator King. So this is another area where we have to work
    together.
        Mr. Stackley. Yes, sir.
        Senator King. There has been a lot of discussion about
    fleet size. The target has moved from 313 to 306, and you
    mentioned that it is going to be 2037 before that occurs.
    Admiral Greenert testified that the fleet, in the meantime,
    could sink as low as 235 ships if we cannot replace
    sequestration. Is that consistent with your thinking? Assume
    for a moment sequestration continues for the next 9 years,
    which is what the law allows.
        Mr. Stackley. First, I guard against putting a specific
    number on what happens under sequestration, and that is not to
    pull back from the CNO's statement. But there are a lot of
    assumptions that you have to get past. The first thing we have
    to sort out is what is the top line for the foreseeable future.
    Second is what flexibility or authority do we have to manage
    our priorities within that top line. Third, what are we going
    to do to offset the reductions to the extent possible by
    improving affordability, driving down the cost of doing
    business, and potentially load-shedding lower priority
    activities or in certain cases curtailing operations, et
    cetera? Then with the balance of top line versus priorities,
    now how does shipbuilding fare?
        Senator King. But is it safe to say that if sequestration
    continues into the indefinite foreseeable future, we will have
    a substantial impact on shipbuilding?
        Mr. Stackley. It will be unavoidable. Yes, sir.
        Senator King. Any thoughts on taking advantage of the
    technical abilities of the DDG-1000, for example, the all-
    electric drive and incorporating that into future other ships?
    If we are going to build only three of those ships, we ought to
    at least learn from them and apply some of that technology in
    some of the newer ships.
        Mr. Stackley. Yes, sir. First, we are already doing that.
    So, for example, the DDG-51 Flight III is leveraging some of
    the developments from the DDG-1000-class, and likewise on the
    Ohio replacement program, that will be an all-electric drive,
    an integrated power system for that boat. A lot of the early
    development of the electric drive for DDG-1000 is porting over
    to the Ohio replacement. So the answer is absolutely we need to
    be leveraging those technologies.
        In terms of the capacity that the DDG-1000 brings, the
    power generation capacity that you can now distribute beyond
    just propulsion but now put it on the grid for weapons systems,
    that is an area where, if you take a look at a lot of our early
    development activities in directed energy, for example, those
    technologies need that type of platform, that type of electric
    power capacity to provide the Navy the full potential.
        Senator King. Perhaps this should have been the first
    question, but getting back to this overall question, I was
    frankly surprised that the 306-ship goal would not be reached
    for 24 years. I assume the 306-ship goal is something that the
    Navy feels they need now, and not having it for 24 years
    strikes me as--if I said to somebody I need my roof fixed and
    they said that will be great, we will do it in 24 years, my
    response would be ``huh''?
        Mr. Stackley. The force structure assessment first defined
    the requirements of the post-fiscal year 2020 requirement. Now,
    in terms of the Navy's long-range shipbuilding plan, we can
    certainly come up with a plan that gets us to 306 and holds us
    there, but if we are under criticism today for the realism
    associated with the budget assumptions in that plan, we would
    only be compounding it by stating that during the construction
    of the Ohio replacement submarine, we will be able to hit and
    hold 306 ships. So that is just one of the practical challenges
    that we have.
        The requirement was built. The plan was laid out. A measure
    of constraint was put on the plan in terms of the budget, and
    then within that budget constraint, we worked to keep a
    balanced force. Then you bounce around. You hit a 300 number,
    go through the Ohio replacement. You draw down, come out of the
    Ohio replacement construction and start to build back up. That
    is how you end up with----
        Senator King. But that 306 number in 24 years is based upon
    no sequestration. Is that correct?
        Mr. Stackley. Yes, sir.
        Admiral Myers. Senator, if I could add. The 306--I think it
    is important to note that it is not just 306. It is 306 of the
    right types of ships. It is not just the right types of ships.
    It is when we need those ships. So when we hit 300 in 2019,
    then we essentially maintain 300 through the 2020s, but it is
    the right mix of 300. I think that is critical and that we do
    not look just at the number.
        Senator King. Thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator King.
        Senator Wicker.
        Senator Wicker. I would point out that I think the accurate
    way to say that, Senator King, is that 306 is the minimum
    requirement. That is the way the Navy puts it.
        But let me ask you, Secretary Stackley, about amphibious
    ships. You note that the current inventory of 33 ships allows
    the Navy and Marine Corps to meet combatant commander
    requirements but with risks--that is in your advance
    testimony--and further note that the number of amphibious ships
    you really need is 38. Is that right?
        Mr. Stackley. Yes, sir. The derivation of the 38
    requirement is all about what the Marine Corps--the two Marine
    Expeditionary Brigade (MEB) lift requirement for forcible entry
    operations. 38 assumes that not all will be available for the
    fight. 38 is a notional number. You need the right mix of 30
    amphibs at the fight to provide a full two MEB lift capacity.
    Going to 33 introduces some risk in terms of the elements of
    the MEB that would have to arrive as part of a follow-on
    echelon.
        Senator Wicker. You are pretty high on the San Antonio-
    class of LPDs, and I know that you singled out the superb
    performance of the Mesa Verde during 19 months of deployed
    operation over a 24-month period. It sounds to me like the San
    Antonio class has become a proven workhorse in our amphibious
    inventory.
        So, Secretary Stackley, would the addition of a 12th San
    Antonio-class LPD be of value to the fleet, and would continued
    production of a 12th ship in the class have the additional
    benefit of maintaining the fragile shipbuilding industrial base
    which would, in turn, allow you to procure future LXR class of
    amphibious ships at a more affordable price?
        Mr. Stackley. Senator, that is an unconstrained question.
    Would the addition of a 12th LPD----
        Senator Wicker. I hope that is all right.
        Mr. Stackley. Rarely do I have the opportunity to answer a
    question without constraints.
        But would the addition of a 12th LPD-17 be of advantage to
    the fleet? Absolutely. The Navy's requirement, though,
    consistent with the force structure assessment, is 11 LPD-17
    class, and then we move to replace the LSD-41 and -49 class
    with the LXR.
        So the plan of record is a good plan. The challenge before
    us is we do go through a period where we are below the 33
    amphibious force structure inventory requirement, and that same
    period is marked by what I would call a valley in amphibious
    ship construction in our shipyards. So that is the challenge
    before us in this fiscal environment.
        Senator Wicker. We are going to try to get you a 12th LPD,
    and we think that it is going to help you in your future years
    with a more affordable price.
        Let me pivot then to survivability. I am concerned with the
    recent trends toward acquisition of non-military shipping as a
    substitute for combat ready amphibious warships. Commercial
    grade ships have the potential to save costs when used intra-
    theater, but a robust anti-access, area of denial (A2-AD)
    capability is being developed by such regional threats as Iran,
    and North Korea indicates that commercial grade ships would not
    survive in the event of conflict. The idea of procuring ships
    built to civilian standards as an augment to military grade
    amphibious warships might sound appealing from a cost
    standpoint, but it is fairly clear that ships built to
    commercial standards would be unable to operate in a robust
    area of defense environments such as Iran and North Korea.
    Conversely, ships built to military standards can operate
    across the spectrum of conflict and add far more value to the
    warfighter.
        To this end, it seems that the U.S. Navy must continue to
    procure combat survivable amphibious shipping. While cost
    savings should be sought certainly in the adoption of
    commercial-grade standards where doing so will not negatively
    affect the safety of the ship and crew, the emphasis must
    remain on ensuring our amphibious ships are built to fight and
    survive.
        So, Secretary Stackley and Admiral Myers, do you agree with
    me regarding the need to continue to build amphibious ships
    that are meant to operate and survive in a multi-threat combat
    environment? Admiral, do you want to go first?
        Admiral Myers. I will take that first, Senator.
        First of all, when we talk about the 33-ship agreed-upon
    number from the Commandant and the Chief of Naval Operations
    back in January 2009, then we are focusing on the amphibious
    ships that you describe. We also have ships that support the
    amphibious MEB as a follow echelon, and we look for
    efficiencies when it comes to how we can support our amphibious
    MEB 2.0 requirement.
        When we looked at the MLP and we look at the float staging
    base, we looked at different ways that we can be the most
    efficient, and it also gives us, with the civilian mariners
    that man our MLPs with our Maritime Prepositioning Ship
    Squadrons (MPSRON)--we think that that is the most efficient
    and effective way to maintain presence, have the capability
    overseas where we need it when we need it and the right kind of
    capability for an affordable price.
        Now, everything that I do I have to look at a strategy-
    driven budget, and I cannot look and prioritize just in one
    element at a time. I have to look across the portfolio. I think
    the mix we have with our MPSRONs, our MLPs, and our amphibious
    ships is the right mix for right now and into the future.
        Senator Wicker. I will tell you, let me go to Admiral McCoy
    and then let us see if Secretary Stackley can sum up.
        The CNO in a recent article in Proceedings magazine argued
    that the Navy should reuse proven hull forms and focus its R&D
    investment in warfare systems and not the hull, not the
    mechanical and electrical systems of new vessels. Do you agree
    with Admiral Greenert that the starting point for new warships
    design should be on a proven combat-capable hull form that
    could be modified according to the need and cost constraints?
        Admiral McCoy. Certainly I agree with my CNO, Senator.
        Senator Wicker. I thought you would.
        Admiral McCoy. But let me talk about that. So, for example,
    what is probably on your mind is the LSD-41/49 replacement. So
    when we approach looking at what should the attributes of that
    ship be, we start with a year-long process. For example, it is
    called an analysis of alternatives. The initial starting point
    for that AOA is: What are the existing hot production lines?
    What are the existing light hulls that might meet the
    requirements? Because there is a certain economy from having a
    hot production line or from having gotten over the design
    issues, for example, of a new class--and that is the starting
    point that we always look at.
        Then we look at what are the specific requirements, what is
    the threat that that ship is expected to see over its service
    life. We look at, well, does the entire ship, every system on
    that ship, for example, have to be shot qualified or maybe just
    the propulsion plant and some damage control systems be shot
    qualified and then other portions of the ship can be built to a
    lesser standard and, therefore, a potential for saving money.
        So we look across the board, Senator, starting with an
    existing ship design, how much does it cost to change it to
    meet the requirement of this new ship. We look at other options
    in terms of is there, for example, a commercial ship design in
    some parts of the ship with military specifications in other
    parts of the ship that will get us the survivability that we
    need for the threat environment that we expect the ship to see.
        Then we look at those options. We take them to the table
    and say, okay, so what is the cost of this increase over here?
    What is the cost of this level of survivability? What do we
    expect the Marine Corps, for example, entry to be and
    experience in terms of the threat environment? We lay that out
    and look at what is the best alternative. But typically we look
    at three or four different alternatives starting with a hot
    production line.
        Senator Wicker. Secretary Stackley, we are over my time
    limit, but perhaps you could respond briefly.
        Mr. Stackley. Yes, sir. I am going to actually go back to
    some of the prior discussion on CVN-78. That is an example of
    where we went with an entirely new design to get the added
    capability that we needed and brought with that a high degree
    of risk, and now we are experiencing the cost that came with
    that risk.
        We shift over the DDG Flight III as the other example. With
    DDG Flight III, we are taking a very proven hull form and we
    are bringing it to an increased air missile defense capability
    through a Flight III upgrade. So we are, in fact, using mature
    design and mature technologies to get to the added capability
    and therefore walking away from risk.
        When we look at the LXR, we are accomplishing the AOA that
    Admiral McCoy described, and then there we will place weight on
    the values associated with mature design, mature production,
    and then lower risk that comes with that. Our challenge is to
    get there affordably. But the LPD-17 is more ship than the ship
    that we need to replace with the LXR. So we have to get that
    ship's cost into the box associated with the LXR given all
    these considerations with reusing hull forms and mature
    technology.
        Senator Reed. Thank you very much.
        Senator Blumenthal.
        Senator Blumenthal. Thank you, Mr. Chairman, and thank each
    of you for your service and your excellent work.
        I want to come back, if I may, Mr. Secretary, to the
    Virginia-class submarine. You, I think, characterized in your
    testimony in response to a previous question this program as
    being a priority, notwithstanding sequestration, and that even
    without sequestration, the number of attack submarines under
    the current program would be in the low 40s as compared to the
    projected need for about 48. Is that a fair summary?
        Mr. Stackley. Yes, sir. Today, in fact, we are at 55 attack
    submarines. So what is happening over time is the retirement
    rate of the Los Angeles-class is outstripping the build rate of
    the Virginia-class, and in fact, we went through a period in
    the 1990s where our build rates were down in the zero and one
    range. So we have to get through that transition, and in going
    through that transition, we drop below our 48 requirement.
        Senator Blumenthal. So it is absolutely vital that we
    continue the present pace of building at two submarines a year
    as outlined by the program submitted by the Department of the
    Navy.
        Mr. Stackley. Absolutely for the near term because each
    submarine that we forgo in production deepens the valley when
    we get to it. Ultimately, we will stabilize at about a three
    submarines every 2-year point, which is what you need to build
    to sustain a 48-boat requirement. But we have to get through
    that valley that we are staring at.
        Senator Blumenthal. Which is also the reason why the two
    submarines are projected for 2014 in the current budget.
        Mr. Stackley. From a couple of perspectives, one in terms
    of requirement and the priority associated with the requirement
    and also in terms of the benefit that we gain by adding that
    boat inside of the multiyear that was authorized last year.
        Senator Blumenthal. My understanding is that the current
    program involves building those submarines actually on time or
    even ahead of schedule and on or under budget. Is that correct?
        Mr. Stackley. Yes, sir. In fact, one of the key strategies
    associated with how to increase our operational availability of
    our submarines has everything to do with reducing the build
    span. So not too long ago, the build span was about 66 months.
    The most recently delivered submarine is about 63 to 64 months,
    and as we march into the multiyear, we look at getting it down
    to about a 60-month build span.
        Senator Blumenthal. I am looking at your testimony in
    describing the three parallel efforts to mitigate the impending
    shortfall, which are to reduce the construction span of the
    Virginia-class submarines, extending the service lives of
    selected attack submarines, and extending the length of the
    deployments. I wonder if you could expand on what kind of
    progress we are making in those three parallel efforts. Please
    feel free, either of the two admirals.
        Mr. Stackley. Yes. I am going to share this response with
    Admiral Myers on the deployment schedules.
        I just described the progress that we are making in terms
    of getting the build span down. 4 or 5 years ago, that looked
    like a pretty significant challenge, but the program has been
    steadily making the progress that it needs to hit the schedules
    that we are going forward with in the fiscal year 2014
    multiyear. So we see the build span coming down.
        The other important part of this is we are pulling work
    into the construction span that used to go into a post-
    shakedown availability. So in fact the boats will be
    deployment-ready earlier in their life than historically had
    been in the past.
        The deployment schedules. I will leave that to Admiral
    Myers to address.
        Senator Blumenthal. Admiral Myers?
        Admiral Myers. We are anticipating that with the reduced
    number of submarines, it is going to put more stress on the
    force to make the combatant commanders' demand for overseas
    presence. So the three approaches that we are taking are seeing
    what we can do to extend the life of the Los Angeles-class
    submarines, delivering the Virginia-class early, and then
    taking the deployments that are currently scheduled or will be
    scheduled and increasing their length to bridge the gap.
        Senator Blumenthal. Thank you.
        One of the great advantages--obvious advantages--of the
    submarine force is its stealth, and the public, I think,
    appreciates the physical stealth which is apparent to everyone
    who knows that they can go in shallower waters with less
    detection than ever before. But the other part of the stealth
    advantage seems to me perhaps to be in the cyber attack area,
    and I do not know whether that is true. Perhaps you could
    expand on it.
        Mr. Stackley. Senator, I am going to suggest that we take
    that for the record and provide a more comprehensive discussion
    on that in a classified setting.
        Senator Blumenthal. I would appreciate that. I expected it
    that might be the response and I do appreciate it.
        [The information referred to follows:]

        I will have my staff contact the Senate Armed Services Committee
    professional staff and Senator Blumenthal's MLA to schedule a
    classified briefing on this.

        Senator Blumenthal. Shifting now to the payload module, I
    understood either from your testimony or from other briefings
    that there was an effort underway to extend the size of the
    payload module and that that issue was going to be under study,
    but that the funds for that work have been reduced somewhat.
    Could you explain, number one, the reasons to extend the
    payload module and, number two, the reasons to reduce the
    funding going into that study?
        Mr. Stackley. Yes. I am not sure about the context of
    extending.
        What we are looking at within the Virginia payload module
    concept is adding 4 modules to the current capacity on the
    Virginia which would add an additional 28 missiles per boat.
        Senator Blumenthal. I should have used the word ``expand''
    probably instead of ``extend.''
        Mr. Stackley. Okay.
        So if you add 4 modules per boat, in order to recover the
    capacity that we lose with the retirement of the SSGNs in the
    late 2020s, we will need about 20 Virginias modified with
    Virginia payload modules. We are currently targeting or looking
    at the 2019 block 5 Virginia procurement as the initiation of
    Virginia payload modules. But first, we have to go through the
    design phase and we also have to take a hard look at the cost
    per boat. There will be a significant review between now and
    then to assess whether that investment is appropriate for that
    capability and capacity.
        The funding that we have laid out in the FYDP, about $800
    million in the FYDP and a trace outside the FYDP, adding up to
    about $924 million nonrecurring engineering, is necessary to
    address the changes that would be required. I would say we are
    held up at the outset due to the continuing resolutions since
    this is a new start, and then we were stunned by sequestration
    in terms of reducing the funding in 2013. So we are delayed on
    that start, but we still see a 2019 incorporation as quite
    feasible. But when you look at the long-range shipbuilding
    plan, that is not included in the cost per boat in 2019 and
    out. So those decisions have not been made.
        The current estimate is in then-year dollars, inflation
    accounted for, we are looking at as much as a $500 million per
    boat increase for that added capacity, and we are going to do
    some significant review of that cost and see what we can do to
    drive that cost down and go through those deliberations with
    all the uncertainty that we are staring at in the budget at
    least in the near term.
        Admiral Myers. Senator, if I could add.
        Senator Blumenthal. Yes, Admiral Myers.
        Admiral Myers. The Virginia payload module incorporation of
    the Virginia-class submarines is an assumption that went into
    the force structure assessment, and when we lose the SSGNs from
    the 2026 to 2028 timeframe, then that is a loss of four
    vessels, four boats. That was another reason, a compounding
    reason, that the numbers changed from 313 to 306.
        Senator Blumenthal. $500 million as an additional cost is a
    fairly significant increment of the total cost. Is it not? It
    is a fairly significant percentage.
        Mr. Stackley. The two boat per year rate right now is about
    2.7 to 2.8 per boat. So you are looking at a 15 to 20 percent
    increase in the unit cost of the submarines. We have work to do
    to try to improve upon that. Actually let me back up here.
        There is $500 million in then-year. So that is out in the
    2019 timeframe. The 2.7/2.8 is in current year. So in current
    year, the Virginia payload module is closer to a $360 to $380
    million estimate.
        Senator Blumenthal. My time has expired, but I want to
    thank each of you for your excellent testimony today. Thank you
    very much.
        Senator Reed. Thank you, Senator Blumenthal.
        We will begin a second round of 5 minutes to give our
    witnesses an opportunity to at least relax a bit.
        But I want to thank the witnesses and also my colleagues.
    This has been a very thoughtful and constructive hearing.
    Again, Secretary Stackley, let me join my colleagues in
    saluting your service over many years. You have done an
    extraordinarily effective job, along with Admiral McCoy and
    Admiral Myers.
        But a lot of our hearing has been, I think, engaged in the
    perennial issue: does the budget drive strategy or strategy
    drive budgets? It is a little of both probably. But one of the
    things that we are reminded by with some of Admiral Myers'
    comments that you have to look at, in terms of strategy, is the
    threat environment. Senator Blumenthal alluded to this.
        We have two not new but increasingly more problematic
    issues. One is cyber in which some of our systems, both
    offensive and defensive, might be compromised either with our
    knowledge or without our knowledge, and second, long-range
    precision weapons that can essentially reach out hundreds of
    miles, if not further.
        Again, this might be more appropriate for a closed session
    but, Mr. Secretary and Admiral Myers, how are you factoring in
    these not new developments but increasingly more critical
    developments in terms of, as you point out, the ship size, the
    size of the fleet, and the mix of ships? Let us begin with
    Admiral Myers.
        Admiral Myers. Mr. Chairman, I think that the place to
    start, when we look at the construction of our annual
    shipbuilding plan, is the force structure assessment and do we
    have that right or are we focused and targeted on the right
    quantity and the right kinds of ships.
        Our current force structure assessment takes into account
    the requirements for our operational plans by the combatant
    commanders, our presence requirements overseas, what we have in
    the force structure, what we think we can build to the
    industrial base, and also looks at it with an eye on the fiscal
    constraint. So when you put it all together, we have what we
    think is the right force to have the right capability in the
    right place at the right time.
        Now, when it comes to the Asia-Pacific AOR, it is important
    that we have the right modernization and capabilities so that
    we can pace the changing environment. When you look at the A2-
    AD environment, our submarines having undersea dominance is a
    top priority for the Navy. We have investments in the right
    kinds of ship modernization and protection measures that we
    think are appropriate at this point. We are vigilant. We are
    watching. We are monitoring, but we are also not sitting around
    waiting. We are actively developing and fielding the
    capabilities that we need to assure our access in that kind of
    environment.
        When it comes to the cyber portion, that is very
    complementary to A2-AD, and the Navy has a couple of
    approaches. We are investing in increasing our manpower
    contribution to our cyber force working with the cyber force
    commander, but also all the way down to the ship level with
    Consolidated Attack Network Enterprises (CANEs) and the
    incorporation within our ships to make sure that we have the
    right kind of firewalls, the right kind of thresholds to try to
    mitigate from any kind of cyber intrusion.
        With that, I will turn it over to Secretary Stackley.
        Senator Reed. Thank you, Admiral.
        Mr. Secretary, any further comments?
        Mr. Stackley. Yes, sir. Let me just kind of go down a short
    list here.
        First, a lot of this hearing was focused on platforms, but
    it is really about capability. So if I use the DDG Flight III
    as an example, the reason we are able to evolve that ship class
    to provide for increased air missile defense is because we are
    going to look to leverage other sensors and integrate the other
    sensors into the battle problem to increase the effectiveness
    of the shooter so we do not have to load all the radar
    capability onto one platform. We believe that is extremely
    feasible and it is the right way to go. So we have to continue
    to develop not just the platform, not just the radar for the
    platform, but the integration of the sensors across the force
    to amass the effects.
        Second is R&D. A lot of the discussion about
    sequestration--one of the things we have to keep a close eye on
    is in a sequestration environment, if we are looking at as much
    as a $50 billion a year reduction over the next decade, we have
    to keep our investments going forward in R&D. A decision was
    made back in post-World War II that the United States of
    America is going to remain dominant on the battlefield because
    of capability not just numbers. That comes through the R&D
    stream. So we have to keep our eye focused on developing those
    technologies and capabilities that we need for dominance not
    just winning the numbers battle.
        There is a modernization piece to it. Admiral Myers
    described CANEs as an example. CANEs is an upgrade to our, call
    it, communications backbone on our ships that we need to get to
    because a lot of the legacy capability is vulnerable. We have
    to get there quickly, though. So the investment in CANEs, left
    to its own devices, becomes a 10- to 20-year modernization
    plan. We might not have 10 to 20 years to get there. So we have
    to continually look at how to drive those necessary upgrades
    earlier to the fleet, which means wholeness in terms of our
    modernization accounts as well.
        Then the last piece is--I am just going to put the plug in
    for open architecture. 5-6 years ago, it was a concept. Today
    everyone recognizes that we have to employ open architecture in
    the design of our systems so that we can, in fact, upgrade them
    to keep pace with the threat and not bring our major platforms
    down for lengthy periods of time when we have to do massive
    rip-out and upgrades.
        Senator Reed. Thank you, Mr. Secretary.
        Senator King, any questions?
        Senator King. No additional questions, Mr. Chairman. I just
    want to again thank the witnesses. Mr. Secretary, thank you for
    the superb work that you do and have done.
        Admiral, I understand you are retiring soon, and I want to
    thank you for your long service and wish you a happy
    retirement. I know you will miss coming before this committee.
    [Laughter.]
        Senator Reed. He will miss coming before Senator King.
        Senator Kaine.
        Senator Kaine. Just briefly to all three of you, again
    thanks. This has been helpful. We have talked a lot about
    platforms and then, Secretary Stackley, you talked about
    capability.
        Let us talk about people for a minute. Just over the course
    of the testimony this morning, we have heard about the question
    about furloughs. We have heard questions about the hiring
    freeze and its effect upon the shipbuilding mission, and we
    have also talked about potential cuts to contracting, which
    obviously has an effect on the industrial base. I would love it
    if each of you could just sort of offer your own perspectives
    about the people side of this, this budgetary uncertainty.
        The chairman indicated does budget drive defense strategy
    or does defense strategy drive budget. I am worried that we are
    letting budgetary indecision drive defense strategy, which is a
    horrible thing to do, but that indecision affects people's
    choices about their careers, about where they will work, about
    whether a welder would go to work in the shipyard or choose to
    go to work for the many other companies that want to hire good
    welders.
        Mr. Stackley. Yes, sir. I think you are going to get three
    different perspectives, but we are all going to land at pretty
    much the same spot here.
        Let me first describe that DOD and Congress, and industry
    all recognized that over the period of drawdown of the 1990s
    that we drew down our acquisition workforce far too fast, far
    too deep, and we lost a lot of the capabilities, the talent,
    the skills that we need to have inside the Government in order
    to be able to manage these large, complex programs.
        So we went on the path of rebuilding the acquisition
    workforce. We leveraged the fund that was set up by Congress to
    bring in talent. It is not a numbers count. It is talent. It is
    youth and it is also experience, the right skill sets, the
    right locations. We have done pretty well there. We probably
    hit 70-75 percent of our target before we intersected things
    like hiring freezes and some of these other budget issues. So
    step one is we want to hold onto the skilled workforce that we
    have.
        Sequestration and all the churn that comes with that--that
    is a demoralizer for folks inside of the Government, but I will
    tell you you have a professional workforce out there and we are
    delivering what we need to deliver because the sailors and the
    marines at the far end need our best.
        But it is also a distracter or detractor for folks that are
    in industry that are considering entering Government service.
    That causes me equal concern because we need that talent. We
    need that experience. It still takes 20 years to get 20 years'
    experience, and if we lose the ability to tap into industry for
    that, then we have a long growth path ahead of us.
        So from an acquisition workforce perspective, this period
    that we are going through, uncertainty, the churn, it is almost
    a de-valuing of the Government workforce. That is pretty
    significant. Congress' understanding of that helps. Now what we
    all need to do is work together to try to resolve some of the
    issues before us. In the end, the budget reductions directly
    impact people whether they are inside the Government or service
    industries supporting the Government or our defense
    contractors.
        Admiral McCoy. Senator, thank you very much for asking that
    question. I have a little over 57,000 civilian employees in the
    NAVSEA, and I get many emails every week from what I call the
    ``man on the street'' talking to me and asking me questions
    about the furlough and the uncertainty ahead. I had a recent
    one from a worker out of Puget Sound Naval Shipyard who said I
    am getting ready to close on a $73,000 mobile home for my wife,
    myself, and my daughter. I cannot afford it if I am furloughed.
    Do you think I should close on the mobile home? All I could say
    was I can tell you what I know and I can tell you what I do not
    know.
        What I worry about particularly in an industrial
    environment is the focus, and the people are incredibly
    patriotic. On the Friday night before a 3-day weekend, if I
    told a worker in any shipyard, hey, you are flying to Guam
    tomorrow to fix a submarine or fix a ship, even though they had
    plans, they would be the first ones. Their bags would be packed
    and they would be on the airplane. That is the caliber of
    people we have. They put their lives on hold at a moment's
    notice to do the Nation's work.
        What I worry about is the churn out there and the potential
    impacts of the lack of focus either on personnel safety or ship
    safety.
        Senator Kaine. Admiral Myers?
        Admiral Myers. Again, I appreciate the opportunity to
    respond to that question. I think that I have the unique
    perspective of recently as 6 months ago coming from the fleet,
    being the commander of naval aviation and currently being the
    chief financial officer for the Navy.
        So when I look at what is happening, first you have to
    think about what is the role of the Navy. The role of the Navy
    is to operate forward and be ready with a capable force, a
    trained and capable force. That is our job. But to do that, we
    have to plan. We have to plan a budget. We have to plan a
    shipbuilding plan. We have to plan how we are going to operate,
    train to make sure that we are ready to operate overseas,
    maintain our aircraft, our ships and our weapons systems so
    that they can be ready when we need them. We have to have the
    sailors that are trained and ready to man those ships and
    aircraft.
        The sequestration and the budget uncertainty is disruptive.
    It is immensely disruptive. It disrupts our ability to sort out
    the budget. It disrupts the shipbuilding plan. It disrupts our
    ability to plan for the future. It disrupts our ability to
    operate, and we saw that just this last spring and will
    continue to see that with the impacts of the fiscal year 2013
    sequester. It disrupts the way we train because if our
    operating schedule is changing and we do not have the funding
    in our operating accounts to train the way we want to, then we
    have to reduce the training. It impacts the way we maintain,
    and if you impact the way you train and maintain, now you are
    impacting the way you are going to operate the next fiscal
    year. Most significantly, it is very disruptive to the sailors
    and their families because of all the uncertainty that is
    introduced.
        So anything that we can do together to put certainty back
    into our budget process to de-trigger the sequester, to support
    PB-14, would be not only appreciated but embraced by the
    613,000 civilians and sailors operating around the globe for
    the U.S. Navy.
        Senator Kaine. Thank you very much.
        Thank you, Mr. Chair.
        Senator Reed. Thank you, Senator Kaine.
        Senator Blumenthal.
        Senator Blumenthal. Thank you, Mr. Chairman.
        Just briefly to pursue the excellent question asked by
    Senator Kaine, in terms of the impact of sequester, I think we
    on this panel, maybe every Member of the U.S. Senate at this
    point, could do the denunciation of sequester in our sleep. We
    have done it so often and we are so deeply believing in the
    harmful, even disastrous effects of sequester on morale, on
    procurement, and so forth. At least members of this committee,
    I think almost to a person feel that strongly about it. So I
    appreciate the very passionate and committed remarks that you
    just made.
        But looking at the personnel issue from a different
    standpoint, the weapons systems that we have been discussing
    here are so advanced and sophisticated that they really require
    extraordinarily talented and trained, dedicated individuals to
    operate. Obviously, we deeply appreciate the extraordinary
    ability that you bring and the service and sacrifice that you
    have made as individuals, but that same kind of sacrifice, it
    seems to me, needs to be made by those individuals who actually
    drive those ships and operate the weapons systems as they
    become more advanced and more demanding.
        I guess the question I am asking is, are you satisfied that
    the Navy, whether it is because of sequester or any of the
    other disadvantages relative to the private sector, can
    continue to attract the exceptionally devoted and able people
    that it has in past so as to be able to operate the submarines
    and the ships and the aircraft that we are endeavoring to fund
    now?
        Admiral Myers. That is a great question, Senator, and
    something that we are actively looking at very closely. I think
    it is going to be increasingly difficult and challenging for
    the military to attract the right people at the right level if
    we do not put some certainty back into our process. I cannot
    overemphasize the disruption from this budget uncertainty and
    what it is doing out in the fleet, what it is doing to not just
    our investment accounts and our training, but just down to the
    deck plates.
        If we can put certainty back into the process, then I think
    that it would make it easier to communicate not just within the
    Navy but outside the Navy what we are going to be doing for the
    next few years. We absolutely understand what our
    responsibilities are. We understand that this is something that
    we need to work through together, but outside the Navy, those
    that are not part of the process have a hard time understanding
    what is happening and why. So being able to assure them that
    they are coming to an organization that is going to have not
    just potential for their personal development but also has the
    kind of purpose that our military offers in terms of embracing
    our national security and doing something worthwhile with your
    life, wearing the cloth of your Nation is something that we are
    going to have to continue to emphasize. But having any kind of
    budget certainty back into the process would enable us to
    communicate that a little more clearly.
        Senator Blumenthal. Thank you, and I appreciate that very
    candid answer.
        At the same time, if it is any reassurance, as the father
    of a son who was commissioned as a Navy officer in March and
    who is very enthusiastic, to put it mildly, about his service,
    I want to thank you for the model of service you have provided,
    ``you'' meaning the men and women of our U.S. Navy, because in
    spite of the uncertainty, in spite of the challenges, we have
    some of the best and brightest of his generation wanting to
    follow that model that you have so ably established. So I know
    that may not be a lot of reassurance, and I share your doubts
    and determination to avoid the effects of sequester. But again,
    I thank you for your service. Thank you.
        Senator Reed. Senator King, please.
        Senator King. I was struck by the sentence you just
    uttered, Admiral Myers. I just want to speak for one U.S.
    Senator. I am having a hard time understanding what is
    happening and why. What is going on in this institution with
    regard to the fiscal situation is inexcusable, and to me it is
    a fundamental issue of competence. We are not doing our job. I
    say ``we'' collectively. I know there are plenty of people who
    are trying very hard to do their job. But it is not just you.
    It is the American people. But there are also people in this
    institution who have a hard time understanding what is going on
    and why. I think that is the key question that I have heard
    today, and we are going to be discussing this. But I appreciate
    your candor, and I know that what you have said is true because
    I am hearing it from people in Maine every time I talk to them
    on the street.
        Thank you very much, gentlemen.
        Senator Reed. Thank you, Senator King.
        For the record, we will keep it open until May 15, next
    Wednesday. My colleagues might have statements they want to
    submit, additional questions. I would ask you, gentlemen, to
    respond as quickly as possible to these questions.
        Thank you, not only for today's hearing, but for your
    service to the Navy and the Nation.
        With that, this hearing is adjourned.
        [Questions for the record with answers supplied follow:]
                    Questions Submitted by Senator Jack Reed
                     313 to 306 ships--goal for fleet size
        1. Senator Reed. Admiral Myers, for a number of years now, the Navy
    has stated that the long-term goal for fleet size is 313 ships. That
    goal included a number of assumptions about which ships were included
    in the 313-ship fleet, where they would be based, how they would be
    manned, et cetera. This year, the Navy has changed the goal to 306
    ships. The reason identified in the report related to a change in
    demand for ships in U.S. Africa Command (AFRICOM). With the situation
    in AFRICOM we see today, why should we believe that there should be a
    reduction in overall fleet size based on reduced demand for naval
    forces in AFRICOM?
        Admiral Myers. The reduction in overall fleet size contained in
    Navy's most recent Force Structure Assessment was primarily driven by
    increased global posture forward and modified employment cycles. In
    comparison, the reduction to the AFRICOM presence requirement, in
    alignment with the 2012 Defense Strategic Guidance (DSG), had minimal
    impact on Navy force structure requirements. The revised AFRICOM
    presence requirement is still more than what is currently being
    provided.

                              littoral combat ship
        2. Senator Reed. Secretary Stackley, one of the lessons the Navy
    has had to periodically relearn is that we shouldn't be making changes
    in the middle of a shipbuilding acquisition contract. We certainly most
    recently saw the problems this creates on the Littoral Combat Ship
    (LCS) program where the Navy changed requirements shortly after signing
    the contract. However, after many original problems, the LCS program
    seemed to be improving in its execution. Recently, some concerns have
    been raised about two major issues: what warranted the establishment of
    an LCS Council and are we spending several billion dollars on the LCS
    program to produce a ship that will not meet requirements? Can you
    discuss why the Navy felt the need to create an LCS Council and what
    problems is the Council trying to solve?
        Mr. Stackley. In August 2012, the Navy (CNO/ASN(RD&A)) established
    the LCS Council with three-star flag officer membership from
    requirements, acquisition, and Fleet stakeholders with the objective of
    driving actions and coordinating all administrative control
    responsibilities for the LCS class to ensure LCS is ready to meet its
    assigned missions. Fundamentally, the Council was constituted and
    empowered to bridge ``gaps and seams'' that may exist or arise between
    various stakeholders, warfare and mission communities and, supporting
    activities across the requirements, acquisition, and Fleet enterprise
    to ensure the successful procurement, development, manning, training,
    sustainment and operational employment of the LCS class ships, their
    associated Mission Packages, and shore infrastructure.
        LCS will meet all expected Capability Development Document Key
    Performance Parameters including speed, mission package payload, range,
    navigational draft, core crew manning (addition of 10 crew members
    remains within the threshold), interoperability and the various detect
    to engage scenarios for (ASW, MIW, and SUW). LCS was conceived as an
    integral part of a battle force architecture based on an essential need
    for a new generation of multi-role, ``focused mission'' surface
    combatants optimized for battle network operations in the near-land
    battlespace dominance arena. This capability is precisely what the
    Department of the Navy has received with LCS.
        LCS's concept of operations calls for LCS to penetrate contested
    littorals in the face of three major anti-access threats which are
    clearly documented as joint capability gaps: swarming fast attack
    craft/fast inshore attack craft/ (FAC/FIAC), diesel submarines (SSK/
    SMM) and maritime mines. LCS' design characteristics of high speed,
    maneuverability, shallow draft, networked sensors, and readily-
    exchangeable focused mission packages were specifically intended to
    allow LCS to dominate these threats and assure access to the littorals.

        3. Senator Reed. Admiral Myers, why do you believe that Vice
    Admiral Tom Copeman, USN, Commander of Naval Surface Forces in the U.S.
    Pacific Fleet, has been quoted as calling for the truncation of the LCS
    program if it will meet Navy requirements?
        Admiral Myers. In 2012, Chief of Naval Operations Admiral Jonathan
    Greenert requested a memo from Vice Admiral Tom Copeman, Commander of
    U.S. Surface Forces, to provoke open and honest discussion to senior
    Navy leadership with regard to force requirements. Vice Admiral
    Copeman's document was entitled ``Vision for the 2025 Surface Fleet.''
    The comments on the LCS are three paragraphs in a 10-page document on
    the future of Navy's surface fleet. The vision memo does not yet
    represent any program changes or decisions, although it does put these
    issues into the official ring of discussion.
        As the Type Commander for all U.S. Navy Surface Forces, Vice
    Admiral Copeman is specifically responsible for manning, training, and
    equipping Navy's surface forces, including LCS, to meet operational
    commander requirements, and his recommendations and thoughts on the
    Fleet of the future are invaluable in Navy's decisionmaking process.
    Chief of Naval Operations Admiral Greenert stated that ``he appreciated
    the thoughtful look he [Vice Admiral Copeman] gave into the future,''
    and considered Vice Admiral Copeman's vision to be ``interesting and
    useful.''

                   cost and schedule performance of all ships
        4. Senator Reed. Secretary Stackley, could you please give me an
    overview of how the other shipbuilding programs, like aircraft
    carriers, destroyers, LCS, other amphibious ships, and auxiliaries, are
    performing? Please provide detailed metrics on cost and schedule
    performance of these programs.
        Mr. Stackley. Below is a summary of the cost and schedule
    performance for surface Navy ships under construction. The contracts
    for CVN-78 and DDG-1000 are cost plus. All other current contracts are
    fixed price. The Navy continues to assess the impact of fiscal year
    2013 sequestration reductions on shipbuilding programs.
    CVN-78:
        The ship is above target cost and will deliver beyond the
    contractual delivery date. The launch date for Gerald R. Ford, the
    first CVN-78 class ship, was revised from July 2013 to November 2013
    with a corresponding delay in delivery until the second quarter of
    fiscal year 2016. Delay of launch and associated delivery will allow
    for increased outfitting to more economically complete the ship. With
    the ship at 70 percent complete at launch, CVN-78 will be well prepared
    for subsequent shipboard testing. The comprehensive effort to reverse
    the trend in cost growth has stabilized program cost performance, and
    the Program Manager's Estimate at Completion, has remained steady at
    $12.887 billion for the past 2 years. However, there are still risks
    associated with full-system testing and first-time integration of
    developmental systems on this first-of-class. Additional funding as
    cost to complete, along with the legislative proposal to adjust the
    cost cap to the program's estimate at completion, is included in the
    fiscal year 2014 President's budget (PB) request.
    DDG-1000:
        Some of the DDG-1000 program contracts have experienced cost
    increases typical with first of class ships. Cost increases on the
    first ship are primarily attributed to contracts for the construction
    of the lead ship at Bath Iron Works (BIW), and completion of the lead
    ship hangar, deckhouse and aft peripheral vertical launching system at
    Huntington Ingalls Industries (HII). Many factors contribute to any
    cost increase, including contractor performance, contract change,
    government furnished equipment (GFE), inflation, and labor rates. The
    cost increases at BIW are typical for learning associated with
    construction of a lead ship. The Navy is currently assessing cost
    performance on the program, as well as the impact of sequestration
    reductions, and will address cost increases in the fiscal year 2015
    President's budget. The acquisition procurement unit cost (APUC) in the
    most recent Selected Acquisition Report (SAR) is below the current
    acquisition program baseline (APB) unit price. The program remains on
    track for launch and christening of DDG-1000 in the fall of 2013 and to
    achieve initial operational capability (IOC) in fiscal year 2016.
    DDG-51:
        There are currently 13 ships under contract from fiscal year 2010
    to fiscal year 2017. DDG-113 to DDG-116 were awarded in fiscal year
    2010-fiscal year 2012 timeframe while the remaining nine ships were
    awarded as part of the fiscal year 2013-fiscal year 2017 multiyear
    procurement (MYP). While it is still early in the construction process
    for DDG-113 to DDG-116, and the MYP ships are in the pre-construction
    phase, the ships are currently on or projected to be on cost and
    schedule. Sequestration in fiscal year 2013 results in a shortfall to
    the program and requires $304.2 million in Completion of Prior Year
    Shipbuilding Programs.
    LCS:
        The Lockheed Martin and Austal USA shipbuilding teams revised their
    schedules based on refined build strategies and have done so to
    maintain solid cost performance (not chasing schedule at the expense of
    cost performance). The shipbuilding teams have paced production work to
    the availability of complete design products, the ability to use new
    facilities efficiently, and the availability of skilled workforce in
    Marinette, WI and Mobile, AL. The shift in the delivery dates for the
    first ships of the Block Buy contracts has resulted in a serial
    production schedule that has an LCS being delivered from each
    shipbuilder every 6 months in the most cost effective method possible.
    LCS seaframe construction continues to be within the allotted
    congressional-mandated budget.
    LHA-6:
        LHA-6's Builder's Trials are scheduled to occur this Fall and
    anticipated delivery is March 2014. The ship will deliver beyond the
    contractual delivery date and is projected to be near the cost ceiling.
    Additional funding to complete was provided in the fiscal year 2013
    President's budget. The fiscal year 2014 President's budget request
    includes additional cost to complete for economic price adjustment.
    LPD:
        LPD-25 will deliver in the fall 2013 and will be the last ship
    delivered at the Avondale shipyard in Louisiana. LPD-26 and -27, under
    construction at HII's Pascagoula shipyard, are planned for delivery in
    2016 and 2017 respectively. LPD-25 contract is at ceiling. LPD-26 is
    currently above target cost and behind schedule due to initial
    resource/facility challenges at the Pascagoula shipyard. It is very
    early in LPD-27 construction process; the initial baseline review is
    scheduled for summer 2013.
    MLP:
        MLP-1 delivered in May 2013, on-cost and on-schedule, which is a
    major accomplishment for the lead ship of a class. MLP-2 will deliver
    in 2014 and is on-cost and on-schedule. It is very early in MLP-3
    construction process (start of construction occurred in February 2013);
    therefore, the current estimate at completion for MLP-3 is the contract
    target cost.
    JHSV:
        JHSV-3 to -5 are under construction. Ship deliveries are set 6
    months after the delivery of the previous hull and in the near term,
    are on schedule. Shipbuilder is addressing cost performance with
    capital and process improvement investments. JHSV-3, -4, and -5 are
    projected to complete above target cost, although cost improvement is
    being seen from one ship to the next. Additional funds will be required
    to complete these ships. The HAC-D mark up of the fiscal year 2014
    President's budget request has proposed an additional $7.6 million for
    JHSV-4 overrun. The Navy is addressing overruns for JHSV-3 and -5,
    which were originally funded with Other Procurement, Army.

        effect of retiring an aircraft carrier before a replacement is
                                   available
        5. Senator Reed. Secretary Stackley, having stretched out carrier
    funding in the long-term shipbuilding plan to a rate of buying an
    aircraft carrier every 6 years, we will likely be faced with having to
    retire an aircraft carrier before its replacement has been built. We
    saw this situation with the inactivation of the USS Enterprise before
    the USS George H.W. Bush had been delivered. This resulted in
    temporarily dropping the carrier force level from 11 to 10 for a 2- to
    3-year period. I suspect that the gap period has led to pressure to
    maintain the construction schedule at the expense of efficiency and
    total costs. As we get further into the plan to buy one carrier every 6
    years, I suspect that this pressure will only increase. Will the Navy
    have the resilience to avoid letting the shipyard make very
    inefficient, expensive production decisions to try to deliver carriers
    on schedule or even earlier in order to try to minimize carrier force
    structure gaps occasioned by retiring older carriers?
        Mr. Stackley. Aircraft carriers are procured on 5-year centers.
    CVN-78 was awarded in 2008; CVN-79 and CVN-80 have planned awards in
    2013 and 2018, respectively. As noted in the 30-year shipbuilding plan,
    this pace supports the required carrier force structure of 11 through
    2039. The force structure gap created between the inactivation of CVN-
    65 and the commissioning on CVN-78 was the direct result of previous
    DOD and Navy decisions to defer the construction start for CVN-78.
        The Navy and shipbuilder are committed to the most cost efficient
    construction and testing process for aircraft carriers, and will not
    let schedule pressures drive cost inefficiencies into the program. The
    recent decision to delay launch of CVN-78 from July to November 2013
    reflects this commitment; allowing the shipbuilder to complete more
    outfitting and best prepare the ship for the post-launch test program,
    steps that will ultimately lower the production costs to build the
    ship.
        The follow-on ships of the class, CVN-79 and CVN-80 will
    incorporate repeatable, sustainable build, and test processes, built on
    lessons learned from CVN-78 that will substantially lower the costs of
    these follow-on ships.

        6. Senator Reed. Secretary Stackley, will the Navy be able to
    maintain self-discipline in this situation?
        Mr. Stackley. Yes, the Navy remains committed to the most cost
    effective delivery schedule regardless of the pressure to the schedule.
    The recent decision to delay launch of CVN-78 from July to November
    2013 reflects this commitment; allowing the shipbuilder to complete
    more outfitting and best prepare the ship for the post-launch test
    program, steps that will ultimately lower the production costs to build
    the ship.
                                     ______

                   Questions Submitted by Senator Bill Nelson
                        mayport and strategic dispersal
        7. Senator Nelson. Admiral McCoy, dispersing our capital ships is
    in our best national security interest and specifically, dispersing the
    East Coast carrier fleet is a national security priority. The 2010
    Quadrennial Defense Review clearly states, ``To mitigate the risk of a
    terrorist attack, accident, or natural disaster, the Navy will homeport
    an East Coast carrier in Mayport, Florida.'' The Navy has stated
    military construction (MILCON) costs to prepare Mayport to homeport a
    carrier, which includes nuclear maintenance facilities, would be
    approximately $500 million, while the Government Accountability Office
    (GAO) estimates the number to be $250 to $300 million. The next phase
    of the effort is a Controlled Industrial facility (CIF) for nuclear
    maintenance. Navy estimates it will cost $150 million. GAO states the
    range as $35 to $94 million. However, the Navy recently completed a CIF
    at the Naval Shipyard in Portsmouth, VA, for $33 million. I know that
    the Navy is always interested in ensuring that we have adequate
    capacity and a suitably diverse footprint for our surface ship nuclear
    maintenance facilities. Do you have any reason to believe that the Navy
    is backing off from this position?
        Admiral McCoy. The Navy is committed to strategic dispersal of its
    forces. The east coast carriers are not currently dispersed. All east
    coast carriers and support infrastructure are consolidated within a 15
    nautical mile radius in the Hampton Roads area. Two Atlantic Fleet CVN
    homeports reduce risk and provide strategic flexibility/options in the
    event of natural disaster, manmade calamity, or attack by foreign
    nation or terrorists, and are consistent with homeporting strategies in
    place on the west coast (i.e., Bremerton, Everett, & San Diego). Due to
    fiscal constraints, the decision has been made to defer the investment
    required to homeport a CVN in Mayport at this time. The Navy remains
    committed to strategic dispersal of east coast carriers and intends to
    homeport a CVN in Mayport in the future.

        8. Senator Nelson. Admiral McCoy, can you discuss how the Navy can
    provide such a drastically different quote for a similar facility?
        Admiral McCoy. The CIF at Norfolk is currently under construction
    and therefore the $26 million cost represents an actual winning bid in
    the current economic climate; whereas the $150 million estimate for the
    CIF at Mayport is based on a very preliminary design. Additionally, the
    Mayport CIF design is more robust to accommodate the increased
    potential for higher storm surges due to its location adjacent to the
    coast of Florida. Furthermore, the Mayport CIF will also include some
    nuclear facilities (such as a long-term mixed waste storage facility,
    container storage, additional crane capacity, and additional
    radiological work enclosures) that the Norfolk CIF does not require
    because those facilities already exist at Norfolk.

                                  counterdrug
        9. Senator Nelson. Admiral Myers, due to the sequestration, Navy
    ship deployments to U.S. Southern Command (SOUTHCOM) have been
    cancelled. Additionally, the President's fiscal year 2014 budget
    request saw a drastic 38 percent reduction from the President's 2013
    budget for drug interdiction efforts. Historically, SOUTHCOM drug
    interdiction results in the annual removal of 200 tons of cocaine from
    the U.S. supply--10 times that which is removed by U.S. law enforcement
    along the Southwest border. I realize that we have the unfortunate
    effects of sequestration, ongoing commitments in U.S. Central Command
    (CENTCOM), as well as the pivot to Asia influencing the number of Navy
    ships available to the SOUTHCOM commander. No Navy ships for the
    counterdrug effort in the Caribbean for the remainder of the fiscal
    year, however, is a very negative development, indeed. Now that you
    have sent the new LCS on its maiden deployment in the Western Pacific,
    will you commit to examining SOUTHCOM as the next developmental
    deployment for LCS?
        Admiral Myers. In accordance with the DSG, the initial LCS
    deliveries and deployments are focused in the Pacific. Navy has a
    variety of platforms that can support SOUTHCOM's counter illicit
    trafficking line of operations and we continuously review support to
    SOUTHCOM as part of our defense strategy. However, we cannot commit to
    making SOUTHCOM the next deployment for LCS without a stable defense
    budget. Navy is currently assessing the impacts of sequestration as
    part of the Strategic Choices Management Review (SCMR), which is
    designed to factor in defense-wide budget cuts and their impacts to the
    DSG.
                                     ______

                 Questions Submitted by Senator Jeanne Shaheen
                                   submarines
        10. Senator Shaheen. Secretary Stackley and Admiral McCoy, the
    Defense Advanced Research Projects Agency (DARPA) is developing an
    unmanned anti-submarine system called the anti-submarine warfare
    continuous trail unmanned vessel (ACTUV). Could you please provide the
    Navy's assessment of the program's potential capabilities and current
    state of development?
        Mr. Stackley and Admiral McCoy. The Navy is watching ACTUV with
    interest. The program will advance the state-of-the-art for Unmanned
    Surface Vehicle (USV) autonomy which will be useful for many other
    programs. It will provide insight into the flexibility of a surface
    craft to engage a submarine in an environment short of hostility. The
    program will also advance the state-of-the-art of various ASW sensors
    which have been under development by the Office of Naval Research,
    notably Non-Acoustic sensors. The ACTUV concept of operation is focused
    on ``hold-at-risk'' after first being cued by ASW surveillance systems
    to search an area of uncertainty. This concept of operation depends on
    initial detection and classification of a threat target within a large
    area by a surveillance system, the hardest task in ASW. The success of
    long term track depends to some extent on benign behavior of the threat
    country's maritime assets.
        The ACTUV program has selected a USV design and has completed
    scale-model testing to validate speed/power relationships. Collision
    avoidance autonomy has been bench-marked in simulations. The algorithms
    were tested against the International Collision Regulations (COLREGS).
    The reacquired and continued track of a simulated submarine after
    executing COLREGS maneuvers 95 percent of the time. The Navy will
    continue to stay engaged with DARPA on this technology development.

                 ohio-class guided missile submarine retirement
        11. Senator Shaheen. Admiral McCoy, U.S. Special Operations Command
    (SOCOM) has indicated that the Ohio-class guided missile submarines
    (SSGN) are the only host platform capable of deploying with dual dry
    deck shelters (DDS), which allow Special Operators much greater
    flexibility during undersea campaigns. How will that requirement be met
    as the SSGNs retire?
        Admiral McCoy. The Navy and SOCOM are currently conducting an
    Analysis of Alternatives (AoA) to evaluate options to address the gap
    in undersea clandestine insertion of Special Operations Forces when the
    four Ohio-class SSGNs retire. The AoA is expected to be completed in
    2013.

        12. Senator Shaheen. Admiral McCoy, would the Virginia Payload
    Module (VPM) accommodate the DDSs?
        Admiral McCoy. Virginia-class (SSN-774) submarines with VPM will
    still be required to accommodate the DDS.

        13. Senator Shaheen. Admiral McCoy, what capabilities will be lost
    from a special operations perspective in the transition from SSGNs to
    Virginia-class boats both with the VPM?
        Admiral McCoy. Ohio-class SSGNs are much larger submarines than
    Virginia-class attack submarines (SSN), with or without VPM. This size,
    and the modifications made to the SSGNs during conversion to support
    special operations, allows them to carry large complements of Special
    Operations Forces (SOF) and their support teams, ammunition and
    equipment and two dry deck shelters (DDS) to support long duration,
    sustained, undersea special operations campaigns.
        Virginia-class SSNs were also extensively designed to support
    special operations forces, on a smaller level. Current Virginia-class
    SSNs can accommodate approximately half the personnel, only one DDS,
    and much less equipment because of their size, but have much better
    maneuverability and access to shallow, littoral waters, optimizing them
    for focused missions vice long term campaigns.
        VPM, because of its added compartment size and accessible large
    diameter payload tubes, would provide the opportunity to host more SOF
    personnel and their equipment for longer durations than current
    Virginia-class SSNs, though not to the degree of the SSGNs. The
    suitability of Virginia-class SSNs with and without VPM is being
    considered as a potential material solution in the ongoing Navy and
    SOCOM AoA. This analysis will identify options and address the gap in
    undersea clandestine insertion of special operations forces when the
    four Ohio-class SSGNs retire.

        14. Senator Shaheen. Admiral McCoy, what capabilities will be lost
    from a special operations perspective in the transition from SSGNs to
    Virginia-class boats both without the VPM?
        Admiral McCoy. Ohio Class SSGNs are much larger submarines than
    Virginia-class attack submarines (SSN), with or without VPM. This size,
    and the modifications made to the SSGNs during conversion to support
    special operations, allows them to carry large complements of Special
    Operations Forces (SOF) and their support teams, ammunition, equipment
    and two DDSs to support long duration, sustained, undersea special
    operations campaigns. Virginia-class SSNs were also extensively
    designed to support SOF, but on a smaller scale. Current Virginia-class
    SSNs can accommodate approximately half the personnel, only one DDS,
    and much less equipment because of their size. The smaller SOF payload
    is balanced against better maneuverability and access to shallow,
    littoral waters, optimizing Virginia-class for focused missions vice
    long-term campaigns. U.S. Special Operations Command requirements
    currently are fulfilled by maintaining both an SSGN and SSN operational
    capability. VPM, because of its added size and accessible large
    diameter payload tubes, would provide the opportunity to host more SOF
    personnel and their equipment for longer durations than current
    Virginia-class SSNs, though not to the degree of the SSGNs. The
    suitability of Virginia-class SSNs with and without VPM is being
    considered as a potential material solution in the ongoing Navy and
    SOCOM AoA. This analysis will identify options and address the gap in
    undersea clandestine insertion of Special Operations Forces when the
    four Ohio-class SSGNs retire.

                               dry deck shelters
        15. Senator Shaheen. Secretary Stackley, the first DDSs will reach
    the end of their service life in 2022. In order to optimize design,
    ensure a smooth transition, and minimize cost the Navy should consider
    the next generation DDS as soon as possible. What is the Navy's current
    plan to replace the DDS platform?
        Mr. Stackley. In January of this year, an engineering evaluation of
    the current DDSs was completed, resulting in their service life being
    extended an additional 20 years. As a result, the first DDS will not
    reach its end of service life until 2042. U.S. Special Operations
    Command (SOCOM) is the resource sponsor for the DDSs, as ``special
    operations forces peculiar equipment,'' and is responsible for their
    operation, modification and eventual replacement. An ongoing AoA is
    evaluating various options to modify or replace the current DDSs, along
    with the Navy's options for associated host submarines, to best support
    SOCOM and the regional combatant commanders' warfighting requirements.
    The AoA is expected to be complete in 2013.
                                     ______

                Question Submitted by Senator Richard Blumenthal
                            virginia payload module
        16. Senator Blumenthal. Secretary Stackley, I appreciate your
    statement that, to make up for the loss of the strike capacity of the
    retiring SSGNs, the Navy requested funding of approximately $121
    million in fiscal year 2014 to continue the design for the VPM that can
    launch more cruise missiles. I understand the Navy plans to procure the
    modified Virginia-class SSNs starting in fiscal year 2019. Given that
    plan, I would appreciate if you could please provide information as to
    why the request for new design SSN for fiscal year 2014 was reduced by
    approximately $146 million from the $268 million projected for fiscal
    year 2014 last year, to what we saw submitted in the President's budget
    this year. The Navy budget justification documents say only that $55
    million reduction was for program adjustments and $91 million was a
    miscellaneous adjustment. I would like to have more fidelity as to the
    nature of these reductions and whether they will impact your target
    date of 2019 for this capability.
        Mr. Stackley. The Navy is proceeding with development and design of
    the Virginia Payload Module (VPM) with the intent of pursuing the
    option to include this capability in the 2019 Virginia-class
    procurement. The ultimate decision regarding procuring VPM in 2019 will
    be made in conjunction with budgeting decisions for the fiscal year
    2019 President's budget. The VPM effort (RDT&E Project 4500) was
    reduced $91 million in fiscal year 2014 to align with a rephased
    funding profile, which supports starting major design activities in
    fiscal year 2014, vice fiscal year 2013 as was projected in last year's
    budget.
        Funding for the reduced total ownership cost (RTOC) initiative,
    under RDT&E Project 1947, was reduced by $47 million. The RTOC work
    performed to date had determined that the full amount originally
    programmed was not required to reach the core objective of increasing
    Virginia-class SSN operational availability by reducing depot-level
    maintenance, starting in Block IV.
        The remaining balance of the adjustment was related to efficiencies
    in doing business or was used for other Department priorities and
    rephased to future years.
        These adjustments do not impact on the ability to incorporate VPM
    in Block V Virginia-class SSNs starting in fiscal year 2019.
                                     ______

                   Questions Submitted by Senator John McCain
                            impact of sequestration
        17. Senator McCain. Secretary Stackley, last year you testified
    that the Navy cannot ``imagine continuing [the current defense program]
    with another half a trillion dollar reduction over the next 10 years.
    It's a significant shift and we have not put contingencies in place.''
    It's a year later and sequestration has occurred. Has the Navy budget
    accounted for sequestration in the budget request for fiscal year 2014?
        Mr. Stackley. The fiscal year 2014 President's budget submission
    did not account for sequestration in fiscal year 2014. Navy is working
    with the Office of the Secretary of Defense in the Strategic Choices
    and Management Review (SCMR) to inform the major decision that must be
    made in the decade ahead to preserve and adapt our defense strategy,
    our force, and our institutions under a range of future budgetary
    scenarios. In the event sequestration is allowed to occur in 2014, we
    will work with the Department to make the necessary adjustments to
    continue to provide Combatant Commanders with ready and capable Naval
    forces while, to the extent practicable, protecting our research base
    and ensuring that our people are properly resourced.

        18. Senator McCain. Secretary Stackley, you state in your testimony
    that, ``Every major weapon system is impacted by sequestration in
    2013.'' Which specific acquisition programs are experiencing reduced
    quantities, delayed schedules, and potential cost growth as a result of
    sequestration?
        Mr. Stackley. The Navy is still reconciling the impact of
    sequestration in fiscal year 2013 to each specific acquisition program.
    Sequestration law implemented automatic cuts that impacted each
    separate program line in the entire budget. We are working to mitigate
    the impacts, but in some cases we had to de-scope certain items in the
    shipbuilding plan, while maintaining overall force structure capacity
    and capability. For example, Navy was unable to award the 10th DDG-51
    in the multiyear authorized and appropriated in 2013 due to funding
    lost by sequestration. We are continuing to work with Congress to
    examine this impact. Additionally, we estimate that there will be a
    reduction of up to 12 aircraft procurements across our aviation
    programs and approximately 291 weapons of various types not procured.
        In other cases, we may have to delay delivery or initial
    operational capability (IOC). For example, due to the funding lost in
    research and development, sequestration will likely cause a delay in
    the IOC dates for the LCS mission packages, systems and capabilities
    that we need desperately today. Similarly, sequestration also reduced
    the development and procurement associated with the lead ship in the
    DDG-1000 program, which potentially will delay lead ship delivery.
        Delays in schedules, uncertainty in planning, and deferral of costs
    to future years inevitably lead to future cost growth and affordability
    challenges. Our ship construction programs will need to restructure
    schedules and shift some costs to future years due to sequestration.
    This will pass on ``costs to complete'' that will need to be reconciled
    in future years. These costs will not be an insignificant challenge as
    they may compel Navy to cancel the procurement of future ships to
    complete ships that are nearing delivery.
        Navy is able to mitigate some of the impacts of sequestration in
    fiscal year 2013 by liquidating all the assets we were building through
    cost reduction efforts in the prior years of our major procurement
    programs. If sequestration continues into fiscal year 2014, that margin
    is gone and there will be direct impacts to our acquisition programs
    with significant reductions in shipbuilding, aviation, and weapons
    system programs.

        19. Senator McCain. Secretary Stackley, your testimony states that
    the Navy will need an average annual level of shipbuilding investment
    of $16.8 billion over the next 10 years, and the 10 years after that
    about $20 billion annually to meet goals outlined in the 30-year
    shipbuilding report. Given the current fiscal crisis facing the
    Department of Defense (DOD), do you realistically expect to even get
    $14 billion or $15 billion over the next 3 years?
        Mr. Stackley. As the Secretary of Defense certified with the
    shipbuilding plan, the budget for fiscal year 2014 and the Future Years
    Defense Program (FYDP) for fiscal years 2014-2018 provide a sufficient
    level of funding to procure the naval vessels specified by the plan.
    DON has historically been able to resource between $12 billion and $14
    billion in annual new-ship procurement funding. During the fiscal year
    2014-2018 FYDP, average annual new-ship procurement funding is about
    $14 billion. This level of investment is based on the need to balance
    our resources between manning, maintenance, sustainment, modernization
    and recapitalization of our ships, aircraft and weapons. The plan is
    affordable within the FYDP, but does not account for the effects of the
    Budget Control Act of 2011.
        There will be resourcing challenges outside the FYDP, largely due
    to the investment requirements associated with the Ohio-class
    replacement (OR) SSBN. The cost of the OR SSBN is significant relative
    to the resources available to DoN in any given year. At the same time,
    the Department will have to address the block retirement of ships
    procured in large numbers during the 1980s which are reaching the end
    of their service lives. The confluence on these events prevents DoN
    from being able to shift resources within the shipbuilding account to
    accommodate the cost of the OR SSBN.
        If DoN funds the OR SSBN from within its own resources, OR SSBN
    construction will compete for the resources available for construction
    of other ships in the battle force such as attack submarines,
    destroyers, aircraft carriers and amphibious warfare ships. The
    resulting battle force will not meet the requirements of the Force
    Structure Assessment (FSA) and will therefore not be sufficient to
    implement the DSG. In addition, there will be significant negative
    impact to the shipbuilding industrial base since, for the decade the
    SSBNs are being built, there will only be sufficient resources
    (assuming historical funding levels) to procure one or two additional
    multi-mission ships each year during that period.

        20. Senator McCain. Secretary Stackley, please provide a revised
    30-year shipbuilding plan that takes into account, to the best of your
    ability, the sequestration of defense accounts over the next 9 years.
        Mr. Stackley. Accordingly, a shipbuilding plan that takes into
    account a decade of sequestration cannot be constructed in isolation,
    but must rather be constructed with the formation of the overall
    budget. As Secretary Hagel stated in his letter of May 10, 2013 to the
    Defense Authorization and Appropriations committees, forwarding the
    Report to Congress on the Annual Long-Range Plan for the Construction
    of Naval Vessels for fiscal year 2014, the plan will be updated and
    submitted with the President's budget submission for fiscal year 2015
    when the Strategic Choices and Management Review is completed and the
    Department's Appropriations Bill for fiscal year 2014 is enacted.

                          ford-class aircraft carrier
        21. Senator McCain. Secretary Stackley, the President's budget
    request for 2014 includes a legislative proposal to raise the cost cap
    for the first Ford-class aircraft carrier (CVN-78) from $11.8 billion
    to $12.9 billion. Why do you need the cap this year when the carrier is
    only 58 percent complete--6.5 percent behind schedule--and not
    scheduled for delivery until 2016?
        Mr. Stackley. The Navy requires an increase to the CVN-78 cost cap
    in fiscal year 2014 because, based on the expected spend rates, the
    program will exceed the current cap of $11.8 billion during fiscal year
    2014. The fiscal year 2014 President's budget adds $588 million to the
    CVN-78 program in fiscal year 2014. When added to the appropriated
    funding of $11,512 million, the total program funding through fiscal
    year 2014 is $12,100 million.

        22. Senator McCain. Secretary Stackley, the majority of the
    shipboard test programs for CVN-78 will not commence until after the
    launch in November 2013. What is the risk that the operational testing
    for CVN will result in expenses that exceed the proposed cost cap?
        Mr. Stackley. The significant new developmental technologies,
    Electromagnetic Aircraft Launch System (EMALS), Advanced Arresting Gear
    (AAG), and Dual Band Radar (DBR) are executing land based programs to
    mitigate shipboard testing risk. In addition, all shipboard systems are
    undergoing a methodical test progression that will ensure testing is
    conducted as a totally integrated test program vice a federation of
    individual tests. All of these steps will minimize the risk associated
    with follow-on testing. However, there are always unknowns associated
    with first time operation of new systems that could produce cost risk
    during the shipboard test program. The Navy is taking all available
    steps to minimize that risk but it cannot be fully eliminated and
    cannot be precisely quantified at this time.

        23. Senator McCain. Secretary Stackley, in December the Director of
    Operational Test and Evaluation noted that the current test plan for
    CVN-78 does not adequately address ``platform-level developmental
    testing.'' What are you doing to address this concern?
        Mr. Stackley. The Program's Test and Evaluation Master Plan (TEMP
    1610) is currently being revised, and will be submitted for approval as
    part of the upcoming Defense Acquisition Board. The revisions have been
    made to address the concerns noted by DOT&E and organized the planned
    testing into five distinct Developmental Test phases to include
    platform-level developmental testing. This approach was established
    based on recommendation received from, and in collaboration with
    COMOPTEVFOR, DASD (DT&E), and DOT&E.

        24. Senator McCain. Secretary Stackley, do you have concerns that
    the concurrent development, testing, and installation of an electronic
    aircraft launch system designed to replace legacy catapult systems will
    affect either cost or schedule for CVN-78?
        Mr. Stackley. The Navy has taken specific steps to mitigate both
    the cost and schedule risks associated with the concurrent development,
    testing and installation of Electromagnetic Aircraft Launch System
    (EMALS).
        EMALS hardware is being procured on a Firm-Fixed-Price contract.
    Hardware deliveries to the shipbuilder have been ongoing since May
    2011, and most equipment interior to the ship is already installed.
    Flight deck equipment will be installed this year using lessons learned
    from the full scale single launcher installation at the land-based test
    site. Further cost risk from development and shipboard installation of
    EMALS is projected to be low.
        EMALS is 92 percent complete on an extensive System Development and
    Demonstration land-based test program, having successfully launched 134
    aircraft and more than 2,600 deadloads. This testing and the identified
    design issues have been resolved, greatly mitigating risk to the
    shipboard test program. Additionally, following installation, a
    methodical step-by-step shipboard testing sequence has been developed
    to further reduce risk of significant test problems that could affect
    cost or schedule. Testing of the integrated EMALS system (four
    launchers and three energy storage groups) will be completed shipboard.
    This process, together with laboratory testing of the shipboard four
    launcher control system and the land-based testing already completed,
    lowers cost risk due to shipboard testing. However, because there are
    always unknowns associated with first time shipboard operations of new
    systems, some cost and schedule risk remains as part of this effort. In
    particular, EMALS installation and testing will be on the critical path
    for CVN-78 Delivery and will require a heightened degree of
    coordination and performance by the shipbuilder in order to capitalize
    on the extensive risk mitigation efforts employed throughout EMALS
    development; else cost and schedule will be significantly impacted.

        25. Senator McCain. Secretary Stackley, how confident are you that
    the final cost for CVN-78 will not exceed the proposed statutory cap?
        Mr. Stackley. The cost estimate that forms the basis for the
    proposed cost cap was first established and reported to Congress
    approximately 2 years ago. The estimate accounts for all elements of
    cost (design, contractor furnished material, government furnished
    material, shipbuilding labor, fees, change orders, and government
    support cost) factoring in performance-to-date, estimated work-to-go,
    risks and opportunities to future performance. In the course of these
    past 2 years, design, material (contractor and government), labor
    rates, change orders and government support costs have performed within
    range of the estimate and confidence is high that these elements of
    cost will not exceed their allocation within the proposed cap. There
    remains, however, substantial risks associated with full system testing
    and first time integration on this first-of-class. System testing and
    land-based testing to date have increased confidence that the test
    program has mitigated the impact of major changes to the ship's
    platform. Yet, the extent and complexity of these new systems preclude
    fully retiring this risk in advance of shipboard testing. Accordingly,
    in view of remaining risk associated with completing the first-of-class
    test and trials program, the Navy has requested authority for the
    Secretary of the Navy to be able to adjust the cost cap in the event
    test-related cost growth jeopardizes completion of CVN-78 within the
    proposed cost cap.

        26. Senator McCain. Secretary Stackley, the launch for CVN-78 has
    been delayed from July 2013 to November 2013 and even then will only be
    70 percent construction complete. How do schedule slips affect the
    costs to the Navy?
        Mr. Stackley. The delay in launch reflects the Navy's commitment to
    follow the most cost-effective path to CVN-78 delivery. Rather than
    inefficiently pursuing scheduled milestone dates, the Navy has opted to
    delay launch. Doing so allows time for the most cost-effective
    completion of critical path work and also enables the ship to reach the
    70 percent complete mark at launch--10 percent above the previous
    program goal. This advanced state of completion serves to lower cost
    risk associated with the follow-on shipboard testing schedule.

        27. Senator McCain. Secretary Stackley, what concerns do you have
    that CVN-78 will be delivered by early 2016?
        Mr. Stackley. The shipbuilder has developed a cost-effective plan
    to complete construction and test of CVN-78 in early 2016 with minimal
    schedule risk considering technical risks identified to date. However,
    as has been seen in other first-of-class ships, unknown risks
    associated with first time shipboard testing of new systems could,
    depending on the magnitude of the issue, impact scheduled delivery. The
    Navy has taken several steps to minimize these risks, including
    extensive land-based testing and well-designed shipboard testing plans.

        28. Senator McCain. Secretary Stackley, the next carrier, CVN-79,
    is now estimated to cost the Navy $11.3 billion and the Secretary of
    the Navy has used an authority provided by law to adjust the cost cap
    for total construction to $11.5 billion. The shipyard at Newport News,
    which will construct CVN-79, is operated by Huntington Ingalls
    Industries, the Nation's sole industrial designer, builder, and
    refueler of nuclear-powered aircraft carriers. How can the Navy use
    competitive practices to control costs for CVN-79?
        Mr. Stackley. The Navy is taking several steps to introduce as much
    competition as possible into the construction process for its carriers.
    These include working directly with the shipbuilder to ensure
    competitive practices are employed where feasible within the material
    procurement process. New suppliers have also been developed and
    qualified to increase the number of competitive opportunities. In
    addition, while outside contractors have not been employed in past CVN
    construction, the Navy is pursuing the use of Alteration Installation
    Teams, who routinely install modernization items at a lower cost on
    other Navy ships, to accomplish the installation of select systems on
    CVN-78 and CVN-79 as another competitive practice. Finally, we are
    examining the effectiveness of competing select portions of the ship
    itself, similar to the deckhouse on DDG1000. We will work diligently to
    expand each of these opportunities for CVN-80 and subsequent ships of
    the class.

        29. Senator McCain. Secretary Stackley, the Navy recently submitted
    a report to Congress regarding the costs for CVN-79 that detailed a
    series of actions expected to reduce the material cost of CVN-79 by 10
    to 20 percent in real terms from CVN-78, to reduce the number of man-
    hours required to build the CVN-79 by 15 to 25 percent from CVN-78, and
    to reduce the cost of government furnished systems by 5 to 10 percent
    in real terms from CVN-78. Can you please provide what the current
    actual baselines in real terms for CVN-78 are for each goal that you're
    going to measure savings against for CVN-79?
        Mr. Stackley. The cost savings expected to be realized in the
    construction of CVN-79 and identified in the May 6, 2013 Report to
    Congress are measured against the corresponding elements (hours to
    build the ship, material cost, and government furnished systems cost)
    of the CVN-78 Program Manager's estimate at completion (EAC) as
    identified in the 2011 SAR as measured in TY$13. The details of this
    baseline are considered sensitive and were provided to the subcommittee
    professional staff members on June 8, 2013.

        30. Senator McCain. Secretary Stackley, given the sole source
    nature of the negotiations, how realistic is the projection of savings
    for CVN-79?
        Mr. Stackley. As detailed in its May 6, 2013 Report to Congress,
    the Navy's approach to carrier construction has undergone an extensive
    affordability review. Changes made by the Navy and the shipbuilder will
    significantly reduce the cost to build CVN-79. These changes include
    starting construction on CVN-79 with:

             A complete design and bill of materials
             A firm set of stable requirements
             Development completed on a host of new technologies
            inserted on CVN-78
             An optimal build plan that emphasizes the completion
            of work and ship outfitting to optimize cost and ultimately
            schedule performance

        Additionally, the Navy and the shipbuilder continue to discuss a
    series of additional changes that could positively impact construction
    costs. The Navy has also imposed cost targets and is aggressively
    pursuing cost reduction initiatives in its government furnished
    systems. The projection of savings on CVN-79 is consistent with both
    the actions we are taking to change the way we are building CVN-79, and
    reductions achieved between the first and second ships of other ship
    classes.

        31. Senator McCain. Secretary Stackley, in your opinion, what is
    the incentive for the contractor to negotiate price reductions with the
    Navy in good faith?
        Mr. Stackley. The incentive for the contractor to negotiate price
    reductions with the Navy in good faith is the direct linkage between
    shipbuilding cost reduction and a stable and predictable workload into
    the future. The Navy has communicated its expectations to the
    shipbuilder that performance on CVN construction must improve. The
    shipbuilder's actions, including visiting other construction yards to
    view best practices and the changes they have already made to the CVN-
    79 construction process, indicate that they have heard that message and
    are changing how CVNs are constructed to reduce the cost. While they
    are the sole provider capable of building CVNs, we have made it clear
    that failure to reduce costs will come at the expense of future
    workload stability for Huntington Ingalls Industries-Newport News
    Shipbuilding.

        32. Senator McCain. Secretary Stackley, the Secretary of the Navy's
    recent report on costs for CVN-79 mentions a series of lessons learned
    that should significantly control the cost of construction, starting
    with a firm set of stable requirements, a complete design and a
    complete bill of material, and ensuring an optimal build plan that
    emphasizes the completion of work and ship outfitting as early as
    possible in the construction process to optimize cost and ultimately
    schedule performance. How are you applying these lessons to the
    development and construction of other ship classes? Please provide
    specific examples.
        Mr. Stackley. The Aircraft Carrier Construction Report to Congress
    dated May 2013, provided a comprehensive report detailing the actions
    being taken to reduce the cost to build CVN-79. Lessons learned from
    CVN-78, which were driven by material availability and first-of-class
    design/construction issues, have resulted in changes to the build
    strategy, design changes for greater producibility, facility upgrades,
    and improved supply chain management, that are being or will be
    incorporated on CVN-79 and follow ships.
        Certain lessons learned, such as shipbuilding and manufacturing
    best practices, can be implemented to various degrees across all
    shipyards. Within the Navy's shipbuilding portfolio, the Navy has
    instituted priorities that center upon improving affordability and
    wholeness, which include, but are not limited to, employing fixed-price
    type contracts to control cost for ships in production, and utilizing
    long-term contracts such as multiyear procurements (MYP) and block
    buys; maturing design plans prior to the start of construction; and
    continuing emphasis on cost performance, production stability, and
    improving quality.
        Examples of these priorities and the resulting benefits are
    outlined below:
    Employing Fixed-Price Type Contracts and Utilizing MYP and Block Buys:
        For stable programs, the Navy has leveraged fixed-price MYP and
    block buys. These two methods alone are resulting in over $11.5B of
    savings in current procurements of major Navy weapons systems. Within
    the surface and submarine shipbuilding portfolio, the Navy has utilized
    fixed-price type contracts in the DDG-51, LPD-17, LCS, LHA (R), JHSV,
    MLP, and Virginia-class programs.
        The recent DDG-51 fiscal year 2013-2017 MYP yielded savings of more
    than $1.5 billion. MYP contracts achieve savings through economic order
    quantity (EOQ), reduced hardware and engineering costs, and improved
    planning and production efforts possible with increased stability in
    the industrial base.
        The dual block buy award strategy employed on the LCS program
    afforded the Navy an opportunity to award up to 20 ships between fiscal
    year 2010-2015 with fixed-price type contracts resulting in a savings
    of approximately $2.9 billion. This strategy stabilized both the LCS
    program and the industrial base. It increased the ship procurement rate
    to support urgent operational requirements, promoted efficiency across
    the entire spectrum of the industrial base while sustaining
    competition, and enhanced Foreign Military Sales opportunities. The
    fixed-price type contract also limits the government's liability and
    incentivizes both the government and the shipbuilder to aggressively
    pursue further efficiencies.
        Two shipbuilders, Electric Boat and Newport News Shipbuilding, are
    currently building Virginia-class submarines under a teaming agreement
    originally legislated by Congress. The Virginia-class submarines have
    been awarded as MYP blocks with each block incorporating minimal
    changes designed to reduce cost and improve performance. Block III was
    awarded as a fixed-price incentive (FPI) contract for eight ships in
    December 2008. Construction of the first Block III ship started in
    March 2009; and the construction of the eighth ship is planned to start
    in September 2013. Award of the Block IV MYP FPI contract for 10 ships
    is expected in early fiscal year 2014. As a result of these actions,
    procurement rates are increasing, competition and stable procurements
    are fostered, and affordability has improved.
    Mature Design Plans Prior to the Start of Construction:
        In Production Readiness Reviews, the Navy ensures that design
    maturity is at least 85 percent prior to start of construction because
    a shipyard's efficiency and learning curve is heavily impacted by
    having a completed design using 3D modeling. In the case of the MLP,
    the design was 100 percent complete before starting construction. Using
    the 3D modeling and collaborative government-industry teams, the
    shipbuilder was able to identify interferences early and plan the block
    design more efficiently. During construction, minimal change orders
    were executed--the change order budget for MLP was less than 1 percent,
    safety was maintained and rework was kept to a low of 2.4 percent. With
    a completed design, the shipbuilder was able to outfit construction
    blocks prior to launching the ship. By performing the outfitting on the
    ground, access is easier and productivity is improved which reduces
    both cost and schedule performance. MLP-1 was more than 90 percent
    complete at launch.
        This principle was further exemplified by the decision to leverage
    the stable DDG-51 design and production baseline for the introduction
    of integrated air and missile defense capability. The fiscal year 2010
    and follow DDG-51's required a significant design update to accommodate
    the addition of the integrated air and missile defense capability in
    AEGIS Baseline 9. The design update was fully complete and design
    products fully developed before either Bath or Ingalls began
    construction on DDG 113 and follow. This prevented delays and cost
    increases due to design concurrency. Requirement stability is also key,
    and the DDG-51 program, like others in the Navy's shipbuilding
    portfolio, have used annual Configuration Steering Boards to vet all
    proposed additional requirements and control the inclusion of new
    requirements to only those judged essential by Navy leadership.
    Material/Supply Chain Process:
        Material cost has become the largest area of the shipbuilder's
    overall cost for a ship; and there is great opportunity to reduce those
    costs by the shipbuilders, particularly in a sole source contractor
    environment. The standardization of material specifications has created
    opportunities to bundle material orders and achieve economic order
    quantity pricing for Virginia-class submarines and Nimitz-class
    refueling complex overhaul. Conversion of contractor furnished
    equipment (CFE) to GFE, as was done for the last two ships of the LPD-
    17 class, has resulted in significant savings by eliminating pass-
    through costs and fees associated with material subcontracts. The
    utilization of expert material consultants and establishment of
    material should-cost estimates have driven costs downward by creating
    opportunities for competition and promoting aggressive pricing.
        The Navy has been working to minimize ship equipment and parts
    variants within ship classes, and from ship class to ship class, to
    create greater commonality across the Fleet, while also looking at
    smart ways to reduce the number of ship specifications and procedures.
    From these efforts, the Navy believes that additional cost savings can
    be achieved through application of the block buy approach across a
    subset of shipbuilding material, common equipment, parts, and
    commodities. The Navy is currently evaluating this alternate
    acquisition concept and ways to implement it within the confines of the
    current authorization and appropriation process. Once the concept is
    developed further, additional flexibility may be desired with respect
    to authorization, appropriation, and bundling of advanced procurement
    material across appropriations (SCN, OPN, and NDSF), and possibly
    fiscal years, to best implement this alternative acquisition concept.
    Continued Emphasis on Cost and Execution Performance, Production, and
            Quality:
        Commonality of shipboard systems across ship classes not only
    presents opportunities for EOQ buys, but it also allows lessons learned
    from installation of those shipboard systems on earlier ships to be
    leveraged on future ships--resulting in favorable impacts to production
    costs and schedules. The Navy has worked with the Virginia-class
    shipbuilder to reduce the submarine construction span through the use
    of multiyear procurements, fixed price contracts, and EOQ buys. Design
    changes focused on improved performance and reduction in costs have
    been incorporated on follow ships; and the use of outside supply chain
    experts has increased material availability while driving down material
    costs. Ten Virginia-class submarines have been delivered to date. The
    last eight have been delivered on budget and on or ahead of schedule
    with the most recent submarines (SSN-782 and -783) being delivered an
    average of 11 months ahead of contract delivery date.
        Marinette Marine and Austal, USA, the two LCS shipyards and their
    parent companies, have invested considerable capital resources to
    improve shipyard quality, capacity, and efficiency. Substantial
    production efficiencies are being realized by both shipbuilders on LCS
    as a result of those capital investments, which were not in place for
    the lead ships.
        The T-AKE-1 Class (Dry Cargo/Ammunition ship) program is another
    example of successful leveraging of continuous process improvements,
    best practices, and learning across a relatively large production run.
    The T-AKE-class sustained an exceptional 79 percent production learning
    curve across the class, with the seventh ship being produced for less
    than 50 percent of the man-hours of the lead ship, and demonstrated a
    corresponding reduction in production and delivery cycle times. Stable
    requirements and a mature design were the primary drivers behind a less
    than 2 percent configuration change rate and less than 3.9 percent
    rework across the class resulting in an overall average of greater than
    85 percent completion at launch. Proper sequencing and allocation of
    work packages, stable funding, and long lead material procurements
    enabled efficient production, reduced cycle times and overhead, and
    created material purchasing economies. Capital improvements led to
    increased throughput and lower overhead; the implementation of hundreds
    of ``lean design'' producibility improvements reduced the cost of
    follow ships by an average of $10 million (2 percent savings) per hull.
        The LPD-17-class shipbuilder, Huntington Ingalls Industries,
    developed a new class build plan which was implemented on LPD-22 and
    follow ships. The plan aligned work packages in a more logical sequence
    and focused on accomplishing an increased portion of construction on
    land, which is the most efficient approach. As a result, pre-outfitting
    and completion levels at launch have increased with each successive
    LPD-17-class ship.
        The Virginia-class design was tailored to optimize the construction
    process, facilitate the integration of supplier equipment, and
    incorporate Navy operational and maintenance experience. The best
    strategy is to maximize work in the shop environment and minimize work
    within the hull, which means increasing the size, weight, and state of
    completion of modules prior to inserting them into hull sections. The
    shipbuilder, Electric Boat, began to develop build plan improvements in
    the Virginia-class when hull sections and module weights were no longer
    limited by the capacity of the Groton Land Level Ship Construction
    Facility transportation system. Increasing the transportable module
    weight opened up virtually unlimited possibilities for construction
    planners; and the build plan could be based on an approach that made
    the most sense from an efficiency standpoint--maximizing module
    manufacturing at module outfitting facilities and doing final assembly
    at the delivery yards. The improvements to the module transportation
    system are expected to save more than 1.2 million construction hours on
    a 30-ship Virginia-class reducing the number of module end loads
    performed by the final assembly yard from four to one, reducing the
    number of critical installs from eight to one, and reducing the number
    of hull butt welds from five to three.
        The Capital Expenditures (CAPEX) program is a unique investment
    opportunity for the shipyards wherein the Navy funds selected process
    and infrastructure improvements. The projects are designed to reduce
    overall construction costs. Under the program, the shipyard presents a
    proposal and business case to the Navy outlining improvements to its
    processes or facilities. If the plan and business case are deemed
    worthy, the Navy funds 50 percent of the cost of the improvement
    upfront. Once complete, the Navy then pays for the remainder of the
    project; however, the Navy can recoup up to 100 percent of the funds
    provided for the project if it fails to meet the projected savings.
    Several shipbuilders have taken advantage of this opportunity over the
    past few years to upgrade their facilities resulting in increased
    through-put and productivity, improved efficiencies and quality, and
    reduced costs and schedule durations.
        BIW recently completed one of those CAPEX improvements, the Ultra
    Hall facility, which incorporated early release of retentions, special
    contract incentive fees, and share-line adjustments resulting in
    maximized pre-outfitting levels, man-hour reductions, and savings for
    the DDG-51 and DDG-1000 programs. The Ultra Hall facility allows for
    increased work in climate-controlled conditions which optimizes
    outfitting levels early in construction. The resultant improved quality
    in the blast and paint process and the elimination of the requirement
    for custom-built staging has also reduced schedule durations. Electric
    Boat's Quonset Point Coating Facility is another example of a CAPEX
    success. The facility reduces cost by applying hull coatings prior to
    the submarine's delivery as opposed to the legacy approach which
    involved applying the coating in a dry-dock during the submarine's post
    shakedown availability (PSA). In addition to the cost reduction, the
    PSA schedule was able to be shortened allowing submarines to be
    delivered 6 to 9 months sooner.
        The Navy is also driving increased quality in shipbuilding. The
    LPD-17 class has seen significant improvement in ship quality at
    delivery; most recently, LPD 24 had zero starred cards open at
    delivery. Another test of total ship quality is how the ship performs
    at Acceptance Trials; and that is evidenced by the reduced number of
    ``starred cards'' being issued by the Navy's Board of Inspection and
    Survey (INSURV). During acceptance trials for MLP-1, there were 0
    starred cards--this was a first for any new ship class. Across the
    other ship classes, the Navy is closing out most, if not all, starred
    cards prior to ship delivery.

                              littoral combat ship
        33. Senator McCain. Secretary Stackley, the Navy originally
    intended the LCS to replace a total of 56 frigates, minesweepers, and
    patrol boats. The current plan calls for the purchase of 52 LCS, which
    will eventually comprise one-third of the Navy's surface combatant
    fleet. Recent critical reviews about the LCS's capabilities and
    performance have surfaced with specific concerns about survivability,
    adequate manning, endurance, and the ship's ability to meet warfighter
    requirements. As a result of internal reviews, are you currently
    considering terminating the program at the 24 ships in operation, under
    construction, or on order?
        Mr. Stackley. Navy is not considering terminating the program at 24
    ships. With regard to LCS performance characteristics, LCS meets its
    warfighter requirements; including survivability and endurance. Navy's
    2012 Force Structure Assessment calls for 52 LCSs to meet global fleet
    requirements, and Navy leadership is committed to LCS as an integral
    component of the future fleet.

        34. Senator McCain. Secretary Stackley, does the Navy intend to
    down select to a single LCS design in fiscal year 2016? If not, why
    not?
        Mr. Stackley. The Navy is evaluating its follow-on acquisition
    strategy and has not made a decision about down-selecting to a single
    LCS design. Both LCS variants provide the operational capability
    required by the Navy and continued competition promises continued
    affordability for the program.

        35. Senator McCain. Secretary Stackley, why is LCS-4 delayed in its
    delivery date? Will this affect -5 through -8?
        Mr. Stackley. The delay in LCS-4's delivery date is attributed to
    several factors: an aggressive initial schedule, transition from stick-
    built to modular construction, delay in production manning ramp-up
    early in the construction process, incorporation of design lessons
    learned from LCS-2, and a consistent focus on cost performance.
        Austal USA has paced production work to the availability of
    complete design products, the ability to use new facilities
    efficiently, and the availability of skilled workforce in the Mobile,
    AL, region. The shipyard has revised its schedule based on a refined
    build strategy and has done so to maintain solid cost performance (not
    chasing schedule at the expense of cost performance). The shift in the
    delivery dates for the first ships of the Block Buy contract has
    resulted in a serial production schedule that has an LCS being
    delivered every 6 months and in the most cost effective method
    possible.
        The delivery schedules for all of the Austal USA Block Buy ships
    are delayed an average 5 months, with the most significant delivery
    delays being on LCS 6 and 8, where the contract delivery dates were
    modified 6 and 8 months, respectively. Navy believes the initial
    schedule for the Austal ships was somewhat aggressive, and the schedule
    adjustment proposed by the shipbuilder, represents a more realistic
    delivery schedule, balancing shipyard workload between LCS and Joint
    High Speed Vessel (JHSV).
        LCS-4 through LCS-8 are contracted under fixed-price incentive type
    contracts with established target costs and associated under and over
    share lines and ceiling prices. The current planned delivery dates are
    consistent with the fiscal year 2014 President's budget SCN exhibits.
    There are no changes to target prices of the ships as a result of
    changes in the ship delivery dates.
        LCS-5 and -7 are being built by Marinette Marine Corporation (MMC)
    in Wisconsin and therefore are not impacted by the schedule shifts at
    Austal USA.

        36. Senator McCain. Secretary Stackley, would it be economical to
    maintain production of both LCS designs at a combined production rate
    of two per year? If not, can you provide a detailed estimate of the
    additional costs that the Navy would incur?
        Mr. Stackley. Reducing procurement to one ship per year at each
    shipyard instead of two ships would permit the contractors to
    renegotiate the prices for the remaining ships of the Block Buy in
    fiscal year 2014 and the last year of the block buy in fiscal year
    2015. Navy would expect the shipbuilders to renegotiate the ship prices
    at a higher cost since there would be no guarantee of future work.
    Further, shipbuilder costs will increase because their ability to buy
    components in quantity would be reduced.
        If only two ships instead of four were authorized in fiscal year
    2014, the increased cost estimate for the contracted LCSs (fiscal year
    2010-fiscal year 2013 ships) is estimated to be $302 million. This cost
    estimate includes schedule slips and labor inefficiencies resulting in
    the fiscal year 2011, fiscal year 2012 and fiscal year 2013 ships going
    from target to ceiling cost.
        If Navy is unable to come to an agreement on the cost of the two
    fiscal year 2014 ships and ships in later years (fiscal year 2015 and
    later), the cost for all the ships already under contract will be
    increased due to impact of lost workload, inefficiencies, and breakage
    to vendor base. The Navy's liability in this case extends to the
    contract ceiling for LCS-5 to LCS-16 (up to $462 million).
        Additionally, in the event of lost workload at Austal USA in
    Mobile, AL, JHSV program cost would also increase.

        37. Senator McCain. Admiral Myers, a recently leaked draft GAO
    report notes that the the Navy's own analysts have only about 10
    percent confidence in the current estimate that it will cost $50.4
    billion to operate and support a total of 52 LCSs over their 25-year
    service lives. While such long-term life cycle costs are notoriously
    hard to estimate accurately decades out, a normal program would have at
    least 50 percent confidence in its figures at this stage. Does the Navy
    have confidence that the estimate of $50.4 billion for the long-term
    costs to operate and support the fleet of LCSs is accurate?
        Admiral Myers. The Navy is confident in its operating and support
    estimate based on current parameters and assumptions. The draft GAO
    report references an estimated life cycle cost and risk analysis based
    on the program requirements set during the Milestone B decision in
    April 2011 for the LCS program. At that time, the operating and
    sustainment cost estimate of range $50.4 billion (Calendar Year 2010$)
    to $86.8 billion (calendar year 2010$) represented a total of 55 LCSs,
    each with a 25-year service life. For Milestone B, Navy conducted a
    risk analysis on the total program life cycle cost estimate where the
    point estimate was at a 10 percent confidence level. However, the 10
    percent assessment reflects the risks inherent in operating and
    sustainment estimates that are typical for any ship class--principally
    uncertainties in future inflation, the price of crude oil, and realized
    ship operating tempo (OPTEMPO) for a period of 48 years (the life of
    the class). As additional hulls are delivered and become operational,
    the long-term cost estimate to operate and support the fleet of LCSs
    will be further refined and will be reflected annually in the program's
    SAR.

        38. Senator McCain. Admiral Myers, is the LCS built to military
    standards?
        Admiral Myers. The LCSs were designed and built to the standards of
    the American Bureau of Shipping (ABS) High Speed Naval Craft and Naval
    Vessel Rules (NVR) with additional military requirements stipulated in
    the class-specific contractual Build Specifications. The NVR was
    developed jointly between ABS and the Navy and it integrates industry
    and military standards. This design specification meets all the JROC
    approved requirements, including survivability.

        39. Senator McCain. Admiral Myers, how is the Navy addressing
    concerns with the LCS's survivability?
        Admiral Myers. Navy has designed and built the LCS to meet its JROC
    approved survivability requirements. LCS is designed and built to ABS
    NVR, which require higher performance and survivability features for a
    naval combatant and allow the ship to fight and operate in high-threat
    environments as part of a networked battle force which includes higher-
    end surface combatants. LCS can operate independently in low- to
    medium-threat environments.
        LCS ships are built to meet JROC-approved survivability
    requirements and include OPNAVINST 9070.1 Level 1 Survivability
    standards. The LCS design specifically includes Level 1 plus additional
    tailored survivability enhancements (``Level 1+''). LCS' Level 1+
    survivability standard is greater than the Level I standard to which
    Navy patrol craft and mine warfare ships were designed, but less than
    the Level II standard to which the Oliver Hazard Perry (FFG-7)-class
    frigates were designed. LCS survivability depends on a combination of
    ship design, ship numbers, and ship CONOPS which says LCS will;

             Operate as part of a networked battle force

                     Independent operations in low to medium threat
                    scenarios
                     Part of a networked battle force ops in high
                    threat environments

             Create Battle Space/Avoid being hit

                     Reliance on networked battle force for threat
                    attrition
                     Reliance on offboard systems

             Fight and survive if hit

                     Ship design: Accept ship mission kill; keep
                    ship afloat and protect crew after hit
                     Battle force design: Maintain battle force
                    fight-through capability through LCS numbers and
                    mission flexibility

             Withdraw/reposition if hit

        LCS is designed to maintain essential mobility after a hit allowing
    the ship to exit the battle area under its own power. The LCS systems
    allow ship's crew to navigate and communicate while repositioning after
    a hit all the while utilizing numbers (of LCSs), and CONOPS as force
    multipliers. LCS incorporates survivability systems to perform required
    missions in the littoral with an emphasis on crew survival.

        40. Senator McCain. Admiral Myers, in your opinion, does the LCS
    have the capability to adequately meet all expected warfighters'
    requirements?
        Admiral Myers. The LCS will meet all expected warfighting
    requirements. LCS was conceived as an integral part of a battle force
    architecture based on an essential need for a new generation of multi-
    role, ``focused mission'' surface combatants optimized for battle
    network operations in the near-land battlespace dominance arena. This
    capability is precisely what the Department of the Navy has received
    with LCS.
        LCS's concept of operations calls for LCS to penetrate contested
    littorals in the face of three major anti-access threats which are
    clearly documented as joint capability gaps: swarming fast attack
    craft/fast inshore attack craft/(FAC/FIAC), diesel submarines (SSK/SMM)
    and maritime mines. LCS' design characteristics of high speed,
    maneuverability, shallow draft, networked sensors, and readily-
    exchangeable focused mission packages were specifically intended to
    allow LCS to dominate these threats and assure access to the littorals.

        41. Senator McCain. Admiral Myers, based on the current performance
    of the ship and modules, are you comfortable with the LCS comprising
    one-third of the Navy's surface combatant fleet by 2027?
        Admiral Myers. I am completely comfortable relying on the LCS for a
    third of the Navy's surface combatant fleet. LCS fills current
    capability gaps for the Joint Force in the littorals. LCS is a
    component of a balanced force, structured to defeat adversaries in
    times of war and maintain a sizeable, continuous naval presence across
    the globe. Much of what the Navy does in peacetime, and a sizable
    portion of what we need to do in any conflict, are within the
    capability of these ships.
        While expensive, multi-mission ships, like cruisers and destroyers,
    could do what the LCS does, we would have far fewer of them and this is
    a classic case of quantity having a quality of its own. By having this
    mix of multi-mission ships and LCSes, the Navy is able to be in more
    places at the same time--with combat credible ships. This ``phase
    zero'' presence is what deters conflict from happening in the first
    place and aides in establishing the conditions for success in conflicts
    when deterrence fails.
        Their rotational crewing construct enables LCS to spend more than
    twice the percentage of their service life deployed overseas when
    compared to U.S.-based cruisers and destroyers, and does so at a
    quarter of the procurement cost by operating from a more forward
    presence. LCS will provide significantly greater forward presence than
    a like number of cruisers and destroyers, and will relieve those more
    expensive surface combatants to focus on their primary missions.

        42. Senator McCain. Admiral Myers, in January, the Navy revised the
    number of naval combatant vessels required to meet a revised strategic
    defense guidance issued last year by the President. Despite rebalancing
    U.S. military forces to the Asia-Pacific region and the recent
    testimony by Navy leaders that a fleet of more than 500 ships would be
    required to meet the demands of combatant commanders, the Navy
    concluded that a fleet of 306 ships would be adequate to meet the range
    of worldwide requirements, down from 313 ships it established in 2010.
    In your testimony, you state that this reduction was attributed to four
    factors:

        A.  Reduced presence requirements resulting from the 2012 Strategic
    Guidance;
        B.  Increased forward basing of ships;
        C.  Introduction of new payload capacity for cruise-missile
    submarines; and
        D.  Increased use of rotational manning on ships--keeping the ships
    at sea longer.

        Can you describe which priorities for reduced presence in the DSG
    specifically resulted in a decrease in the number of ships required to
    meet the strategy?
        Admiral Myers. The DSG states that in a period of declining
    resources, U.S. forces will require ``innovative and creative solutions
    to maintain our support'' for allies and partners. Further,
    ``thoughtful choices will need to be made regarding the location and
    frequency'' of operations that provide a stabilizing presence.
        The DSG, warfighting requirements, and an analysis of platforms to
    capabilities were all used to derive the Force Structure Assessment
    (FSA). A number of factors, including the rebalance toward the Asia-
    Pacific region, modifications to employment cycles and increases to
    Navy's global posture forward, led to a smaller number of ships
    required to execute DSG guidance.
        The reduction in overall fleet size contained in Navy's most recent
    Force Structure Assessment was primarily driven by increased global
    posture forward and modified employment cycles. In comparison, the
    reduction to the AFRICOM presence requirement, in alignment with the
    2012 DSG, had minimal impact on Navy force structure requirements, only
    impacting the number of LCSs and Combat Logistics Force (CLF) ships.
    The revised AFRICOM presence requirement is still more than what is
    currently being provided.

        43. Senator McCain. Admiral Myers, how exactly does increased
    forward basing of ships equate to a rationale to decrease the total
    size of the fleet?
        Admiral Myers. One of our CNO's tenets, operate forward, compels us
    to look for new ways to increase the amount of presence we can deliver
    at the right places--and to do so more efficiently. Each of these ways
    places ships overseas where they deliver continuous (``non-
    rotational'') presence, instead of having to deploy from the
    continental United States (CONUS) to provide ``rotational'' presence.
    One ship operating from an overseas port in this manner provides the
    same presence as about four ships operating from homeports in the
    United States.
        The Navy operates forward to make the most effective and efficient
    use of what we own. There are two basic ways in which we can sustain
    ships overseas:

             Ships can be homeported overseas as part of the
            Forward Deployed Naval Force (FDNF) with their sailors and
            their families as we do in Japan and will soon do in Rota,
            Spain. This provides continuous presence, immediate response to
            crisis, and the means to build a strong relationship with the
            host nation.
             For example, we continued preparations for the planned move of
            four destroyers to Rota, Spain, which highlights the benefit of
            FDNF ships. Conducting the European ballistic missile defense
            (BMD) mission today takes 10 ships deploying from CONUS. This
            same mission can be done with four destroyers based forward,
            freeing up six rotationally-deployed destroyers to deploy to
            other regions such as the Asia-Pacific.
             Ships can also Forward Station overseas and be manned
            by civilian or military crews that rotate out to the ship.
            Rotating civilian crews man our Mobile Landing Platform (MLP),
            JHSV, Afloat Forward Staging Base (AFSB) and Combat Logistics
            Force (CLF) ships. Rotating military crews man our LCS and
            nuclear guided missile submarines (SSGN).

        44. Senator McCain. Admiral Myers, if ships have a certain service
    life that requires so many days per year at the pier for maintenance,
    how would rotating crews provide more presence per ship?
        Admiral Myers. The LCS will operate differently than most legacy
    surface platforms by using a rotational crewing concept and conducting
    maintenance while operating forward. The ships will deploy from
    continental United States (CONUS) homeports for 16 months and crews
    will be swapped during the deployment at 4-month intervals. Rotating
    crews provide more presence per ship since it will enable LCS ships to
    remain forward without lengthy transits to and from CONUS homeports in
    support of a standard 6- to 7-month deployment.
        Combatant commanders will benefit from increased Operational
    Availability (Ao) from LCS due to its ability to consistently remain in
    theatre. The ships will return to homeport every 16 months for a CNO
    maintenance period, during which time the ship will undergo depot
    maintenance as well as support crew training and CONUS-based tasking.
    While deployed overseas, LCS will be able to operate approximately 25
    days per month with 5 days per month dedicated to inport maintenance
    periods. There will also be a dedicated maintenance period every 4
    months during which the ship remains available for surge operations.

        45. Senator McCain. Admiral Myers, DOD seems to be revising fleet
    size requirements to respond to diminishing defense budgets. How do we
    know that 306 is the right number?
        Admiral Myers. The Navy conducted a comprehensive and rigorous
    analytical Force Structure Assessment (FSA) in 2012, consistent with
    the DSG, that identified a 306 ship combatant force as that required to
    deter and respond to crises and war, and protect the interconnected
    systems of trade, information, and security that underpin American
    prosperity. The 306 ship combatant force possesses the capability and
    capacity to deliver credible deterrence, sea control, and power
    projection to deter or contain conflict and, if called upon, to fight
    and win our Nation's wars. These critical missions have been, remain,
    and will continue to be the Navy's core responsibilities.
        The new battle force requirement is different from the 2010 FSA
    results (313-ship requirement) because of: (1) adjusted global presence
    requirements aligned with DSG's priorities; (2) increased forward
    basing/stationing of ships (and systems); (3) new payload (strike)
    capacity for attack submarines (replacing nuclear guided missile
    submarines); and (4) increased use of rotating civilian and military
    crews, providing more forward presence per ship.
        The FSA provides a comprehensive description of and justification
    for the 306 ship combatant force. We would be happy to provide a
    classified brief on the FSA if additional information is requested.

                               early retirements
        46. Senator McCain. Secretary Stackley, this year's shipbuilding
    plan submitted by the Secretary of Defense included this caveat: ``All
    battle force ships serve to the end of their planned or extended
    service lives.'' Last year's plan included the additional note that:
    ``In this fiscal environment, the Navy can ill-afford to inflate future
    shipbuilding requirements by retiring ships earlier than planned.''
    However, the Navy is still planning to retire 20 ships in fiscal year
    2015, and 42 over the Future Years Defense Plan, 12 of which are being
    proposed for retirement prior to the end of their expected service
    life: 7 guided missile cruisers; 2 dock landing ships; 1 mine
    countermeasure; and 2 T-AOE fast support ships. When was the last time
    the Navy retired so many ships in such a short time?
        Mr. Stackley. In the past, particularly during the 1990's draw
    down, the Navy retired a significant number of ships in single fiscal
    years. For example, in 1998, 29 ships were retired and in 1999, 21
    ships. In a more recent period, in the timeframe of fiscal year 2004 to
    fiscal year 2008, the Navy retired 45 ships.
        The budget decisions that drove the retirements in the fiscal year
    2014 President's budget plan were based on the Navy's determination to
    reshape force structure to reflect the priorities of the DSG and the
    reality of top line reductions consistent with the Budget Control Act.

        47. Senator McCain. Secretary Stackley, given uncertain future
    shipbuilding budgets, why is the Navy taking this risk?
        Mr. Stackley. As part of the difficult choices required by the
    Budget Control Act (BCA) of 2011, the fiscal year 2014 President's
    budget request proposed the decommissioning of seven guided missile
    cruisers (CGs) and two dock landing ships (LSDs) in fiscal year 2015.
    This is before the end of their expected service life. Navy decided to
    retire these ships to provide a ready and sustainable Fleet within
    budget constraints. The Navy reshaped force structure to reflect the
    priorities of the DSG and the reality of top line reductions consistent
    with the BCA.
        The DSG is designed to ensure U.S. Armed Forces can meet the
    demands of the National Security Strategy at acceptable risk. To
    support the DSG under fiscal constraints, Navy force structure struck a
    balance between capacity, capability, affordability, and preserving the
    industrial base, while ensuring our warfighters have the necessary
    tools to protect our vital interests around the world. These ships are
    in need of significant maintenance investment, and the decision to
    retire these ships allows increased funding for training and
    maintenance for the balance of the fleet. This decision is driven by
    the need to provide wholeness of the force, averting more force
    structure than we can afford to man, train, and equip.

        48. Senator McCain. Secretary Stackley, what is the current
    estimate of savings the Navy will achieve for these retirements?
        Mr. Stackley. The Navy reported an estimated $4.8 billion in
    savings associated with early retirement of the seven CGs and two LSDs
    with submission of the fiscal year 2013 President's budget. Congress
    subsequently fully funded the cost for continued operation and
    sustainment of these ships through the end of fiscal year 2014 with the
    Ship Modernization, Operation, and Sustainment Fund (SMOSF). Insofar as
    the unused balance of SMOSF funds expire at the end of fiscal year 2014
    and no further sustainment funding is programmed for fiscal year 2015
    and beyond, the estimated cost to retain these ships across the fiscal
    year 2015 Future Years Defense Plan--with the same set of assumptions
    regarding operations and modernization of these ships in fiscal year
    2015-fiscal year 2019, would be on the order of $4.8 billion. (This
    number would need to be updated--likely reduced--pending decisions
    regarding ship modernization, since the fleet modernization plan has
    been directly affected by the revised scheduling resulting from the
    decision to retire these ships.) Since these costs are not programmed,
    retiring these ships in early fiscal year 2015 equates to cost
    avoidance rather than savings relative to the budget.

        49. Senator McCain. Secretary Stackley, Congress rejected the
    Navy's proposal last year to early retire seven cruisers. Congress also
    provided the Navy an additional $2.4 billion to cover the costs for 2
    years of ship modernization, operations, and sustainment. Yet, in the
    draft shipbuilding plan for fiscal year 2014, the Navy again proposes
    to retire the same ships in 2015. What is the Navy's expense plan for
    the $2.4 billion?
        Mr. Stackley. The current Navy plan only includes the expense of
    basic operation and sustainment (O&S) costs for fiscal year 2013 ($280
    million) and fiscal year 2014 ($550.3 million). The CGs and LSDs
    covered by Ship Modernization, Operation and Sustainment Fund (SMOSF)
    will be maintained until the currently planned retirement in fiscal
    year 2015. However, due to the expiring nature of the SMOSF funds and
    the longer term budget uncertainty that contributed to the Navy's
    submission of the fiscal year 2013 budget proposing to retire these
    ships early, there is no viable plan to expend SMOSF funds to modernize
    these ships. Specifically, the SMOSF funding expires at the end of
    fiscal year 2014, and no funding is currently available in the Navy's
    budget beyond fiscal year 2014 for the required manpower and operating
    costs. Full combat system and HM&E modernizations require 2 years for
    procuring material, and for planning and executing the modernization
    availabilities.

        50. Senator McCain. Secretary Stackley, how will maintaining these
    ships in the fleet beyond 2014 affect the Navy's shipbuilding plan?
    Please provide specific changes.
        Mr. Stackley. There would be more ships in the Naval Battle Force
    Inventory if the ships scheduled for early retirement were maintained
    beyond 2014. Specifically, the year-to-year battle force inventory
    would be nine ships higher than projected in the 2014 Shipbuilding Plan
    until fiscal year 2024. In fiscal year 2025, these ships would begin to
    reach their expected service lives until all nine ships were retired by
    fiscal year 2029.
        The budget decisions that drove the retirements in the fiscal year
    2014 President's budget plan were based on the Navy's determination to
    provide a ready and sustainable Fleet within budget constraints, and
    reshape force structure to reflect the priorities of the DSG and the
    reality of top line reductions consistent with the Budget Control Act.
    Navy made the difficult decision to retire these ships to allow
    increased funding for training and maintenance through the balance of
    the fleet, and balance between capacity, capability, affordability, and
    preserving the industrial base, while ensuring our warfighters have the
    necessary tools to protect our vital interests around the world.

                            virginia payload module
        51. Senator McCain. Secretary Stackley, according to the witnesses'
    prepared testimony, the introduction of new payload capacity for SSNs
    is one of four cited rationales used to justify a decrease in the
    battle force requirement reduction from 313 to 306 ships. What is the
    current design maturity of the VPM?
        Mr. Stackley. The Virginia Payload Module (VPM) is currently in
    concept development. The Department of Defense added RDT&E and non-
    recurring engineering funding in the fiscal years 2013-2018 Future
    Years Defense Program for VPM, which will incorporate four large
    diameter payload tubes in a new hull section that could be inserted aft
    of the sail on future Virginia-class SSNs. This advance engineering
    work will enable the Department to consider incorporating VPMs in the
    fiscal year 2019 Block V Virginia-class buy as an alternative to
    recapitalizing the Ohio-class guided missile submarines (SSGNs).
        The Navy has just started the design effort this fiscal year and
    will initially focus on requirements definition and concept design. The
    Navy will make the final decision whether or not to incorporate VPM in
    ship procurement in the fiscal year 2017 President's budget request to
    support the first year of Advanced Procurement SCN required for the
    submarines starting construction in fiscal year 2019. The design
    efforts for VPM will leverage existing technologies proven in Virginia
    Payload Tubes, SSGNs and with the construction of USS Jimmy Carter
    (SSN-23). There is no developmental technology required for VPM.

        52. Senator McCain. Admiral Myers, with additional payload
    capacity, will the future fleet be able to satisfy combatant command
    demand or will you still have a shortfall in overall the overall
    submarine fleet size?
        Admiral Myers. SSN force structure will drop below the requirement
    of 48 SSNs in 2025 and remain below 48 for 10 years. Though increased
    payload capacity would improve the capability of individual SSNs, the
    overall force size will still be unable to satisfy forward presence
    demands.
        Undersea strike volume will decrease by approximately 63 percent in
    the 2030 timeframe due to SSGN retirement and SSN force structure
    reductions. The additional payload capacity provided by Virginia
    Payload Module (VPM) will allow the Navy to satisfy the regional
    combatant commanders' demand for major contingency operations where the
    unique value of undersea strike is most important. Including VPM on
    future Virginia-class submarines in the Navy's long range shipbuilding
    strategy would allow the Navy to eventually restore approximately 94
    percent of our current undersea strike volume.
        The Navy is considering measures to mitigate the impact of the SSN
    force structure trough--including reductions in SSN construction time
    and overhaul length and increases in deployment length--and has
    developed an Integrated Undersea Future Strategy to balance
    considerations of force structure and payload capacity.
        While VPM represents a significant improvement in strike capacity,
    it comes at a cost. Given the increased costs VPM would introduce in
    the Virginia-class concurrent with our efforts to field the SSBN(X)
    replacement, it may render VPM unaffordable as we assess the future
    fiscal impact of sequestration.

        53. Senator McCain. Secretary Stackley, how would a delay in the
    design of the VPM impact the Navy's ability to move forward with
    production on block V in fiscal year 2019?
        Mr. Stackley. Department of Defense requested RDT&E and
    nonrecurring engineering funding in the fiscal year 2013-2018 Future
    Years Defense Program for VPM, which will incorporate four large
    diameter payload tubes in a new hull section that could be inserted aft
    of the sail on future Virginia-class SSNs. This advance engineering
    work will enable the Navy to consider incorporating VPMs in the fiscal
    year 2019 Block V Virginia-class buy.
        The Navy will make the final decision whether or not to incorporate
    VPM in ship procurement in the fiscal year 2017 President's budget
    request to support the first year of advanced procurement SCN required
    for the submarines starting construction in fiscal year 2019. A design
    delay will influence which hull ultimately receives the VPM. Navy will
    not proceed unless design maturity is achieved.

                          2-year delay of the ssbn(x)
        54. Senator McCain. Admiral Myers, the fiscal year 2014 budget
    fully funded the SSBN(X) development effort. It does not repair the 2-
    year delay initiated in last year's budget. In prior years, the Navy
    claimed that the schedule for procuring 12 follow-on ballistic missile
    submarines is inextricably linked to legacy submarine retirements and
    that there is no leeway in this plan to allow a start or any delay in
    the procurement plan. Does the delay the Navy proposed last year risk
    your ability to maintain the same at-sea availability rates required
    under current nuclear force posture?
        Admiral Myers. Long term, the Navy needs a minimum of twelve SSBNs
    to provide a survivable force and meet STRATCOM strategic targeting
    objectives. This force structure is necessary to provide 10
    operationally available SSBNs during the middle-of-life overhaul period
    (beginning in the mid-2050s). The key to ensuring we meet strategic
    requirements is to start construction of the lead Ohio Replacement SSBN
    in fiscal year 2021.
        The 2-year delay introduced a second period where the Navy will be
    at the absolute minimum requirement of 10 operational SSBNs during the
    2030s as the Ohio Replacement comes into service. Since no legacy Ohio-
    class SSBNs will be in overhaul during this period. We will be able to
    satisfy STRATCOM requirements with moderate risk.
        Any further delay to the Ohio Replacement program will reduce the
    total SSBN force structure below that required to provide 10
    operational SSBNs during the transition period from the Ohio-class to
    the Ohio Replacement, which would prevent us from meeting STRATCOM at-
    sea requirements.

        55. Senator McCain. Admiral Myers, does the current strategy
    include any margin for design or development challenges?
        Admiral Myers. To meet U.S. Strategic Command operational
    requirements, the first Ohio Replacement SSBN must be ready for
    strategic deterrent patrol by 2031. The Ohio Replacement SSBN program
    leverages the highly successful Virginia-class design-build
    methodology. The program schedule was developed using lessons learned
    from previous submarine classes (i.e., Ohio-class, Seawolf-class, and
    Virginia-class) enabling the Ohio Replacement SSBN to obtain a high
    design maturity at construction start ensuring minimal changes during
    construction and provide a predictable delivery cost and schedule. As
    with many shipbuilding programs employing new technologies to meet
    operational requirements, a risk assessment is performed to identify
    potential technical, cost, and schedule issues that could occur during
    development and ensure that plans properly account for those potential
    issues. Even with this approach, unforeseen issues with new technology
    development can occur and impact plans.
        Given the strength of our submarine industrial base--as witnessed
    in the success of fielding the Virginia-class--our Ohio Replacement
    design-build-sustain strategy timeline is sound.

        56. Senator McCain. Admiral Myers, did this delay in any way infuse
    additional risk in our national ability to meet our current strategic
    requirements in the future?
        Admiral Myers. As detailed question 54, the 2-year delay introduced
    a period where the Navy will be at the absolute minimum requirement of
    10 operational SSBNs during the 2030s as the Ohio Replacement comes
    into service. This adds moderate risk to the period of transition
    between Ohio and Ohio Replacement. However, since no legacy Ohio-class
    SSBNs will be in overhaul during this period, we will be able to
    satisfy STRATCOM requirements with moderate risk.

                     virginia-class advance appropriations
        57. Senator McCain. Admiral Myers, instead of the traditional
    funding approach utilizing incremental funding, the fiscal year 2014
    budget proposes to fund the Virginia-class using advanced
    appropriations, legislatively locking in the fiscal year 2015 funding
    increment. According to the Congressional Research Service (CRS), while
    the Navy has expressed interest in advanced appropriations in the past,
    there is little precedent in recent years for funding Navy ships with
    advance appropriations. Why did you propose to use advanced
    appropriations?
        Admiral Myers. When assessing the path ahead on the procurement of
    the 10th Block IV or second Virginia-class SSN in fiscal year 2014, the
    Department looked at a range of funding options. During final budget
    deliberations, the Department decided that advance appropriations was
    the best way to fund the second Virginia-class submarine in fiscal year
    2014. This would mitigate the budget spike of the balance of the second
    submarine in fiscal year 2014 minimizing the impact to other Navy
    shipbuilding programs, but allow Congress to make a single procurement
    decision vice incrementally funding.
        The use of advance appropriations for the 10th Block IV multiyear
    procurement Virginia SSN will also greatly reduce significant
    programmatic and budgetary uncertainties. Moreover, advance
    appropriations will help ensure transparency of total ship procurement
    costs.

        58. Senator McCain. Admiral Myers, given the budget does not
    account for sequestration, how might advance appropriations impact Navy
    flexibility if sequestration were not averted in fiscal year 2014?
        Admiral Myers. The Department is currently assessing the impact of
    sequestration on its shipbuilding goals as part of the SCMR, which is
    designed to factor in defense-wide budget cuts and its impact on the
    DSG. Upon completion of the review, we will balance the level of risk
    across warfighting and support capabilities for the full range of
    potential military operations and prioritize procurements to meet the
    capabilities and capacities to achieve this balance. Changes to ship
    force structure numbers and types of ships will be evaluated based on
    the results of this review.

                          amphibious ship construction
        59. Senator McCain. Secretary Stackley, today, the Amphibious Force
    Structure stands at 30 amphibious ships, which includes 9 LHD/LHAs, 9
    LPDs, and 12 LSDs. Of this amount, only 22 to 23 are currently
    operationally available. The Navy determined last year that an overall
    force structure of 38 amphibious ships is required to ensure that 30
    ships are operationally available as required to support the Marine
    Corps. But the Navy concluded that it can accept a measured degree of
    risk by employing planning factors that call for a force of 33 ships,
    even though the DSG in 2012 calls for dispersing the Marine Corps
    around the Pacific theater, thereby increasing the reliance on
    amphibious ships. Based on the projected 2014 shipbuilding plan, when
    will the fleet have the right mix of 33 amphibious ships?
        Mr. Stackley. The fiscal year 2014 Long-Range Shipbuilding Report
    to Congress provides the plan to meet the 33 ship amphibious force mix
    with eleven LHD/LHAs, eleven LPDs, and eleven LSDs upon delivery of the
    first LX(R) in fiscal year 2025.

        60. Senator McCain. Secretary Stackley, is the Navy currently
    assessing any plan to accelerate the construction of additional
    amphibious ships?
        Mr. Stackley. Not at this time. However, as the AoA for LX(R)
    concludes this year, the Department will assess the timing of
    acquisition of this amphibious ship class.

        61. Senator McCain. Secretary Stackley, what is the Navy's position
    on a proposal to authorize and appropriate an additional $825 million
    in fiscal year 2014 and authorize 2-year incremental funding for a 12th
    LPD-17-class vessel?
        Mr. Stackley. Balancing requirements, affordability and industrial
    base considerations, the Navy's shipbuilding plan builds toward a 33
    ship amphibious force comprising 11 LHD/LHAs, 11 LPD and 11 LSD
    amphibious ships. The fiscal year 2013 Continuing and Furthering
    Appropriations Bill (P.L. 113-6) added $263 million of Advanced
    Procurement (AP) funding for a 12th LPD-17 amphibious transport dock
    ship. With the sequestration mark of $20 million, the net AP
    appropriated for a 12th ship is $243 million. Assuming the $243 million
    of AP in fiscal year 2013 was leveraged, the end cost of a 12th ship in
    fiscal year 2014 is estimated at $2.13 billion, leaving a balance of
    approximately $1.9 billion of full funding required in fiscal year
    2014.
        Accordingly, the Department has concluded that procurement of a
    12th LPD is not an affordable alternative to meeting the 33 ship
    amphibious force requirement. However, within the context of the LX(R)
    AoA, the Navy is assessing the feasibility of significantly reducing
    the cost of the LPD hull form through design for affordability
    initiatives and capability trades. Insofar as procurement funding for
    the LX(R) is not required until fiscal year 2018, the Navy is currently
    holding the AP funds pending determination of LX(R) design/development
    funding needs.

        62. Senator McCain. Secretary Stackley, Congress provided $263
    million for advanced procurement in fiscal year 2013 appropriations for
    a 12th LPD. What is the plan for the use of those funds?
        Mr. Stackley. The administration opposed the addition of $263
    million for advanced procurement in fiscal year 2013 appropriations for
    a 12th LPD as excess to requirement. The Navy is currently holding the
    AP funds pending determination of LX(R) design/development funding
    needs and will provide recommendations on the use of these funds at
    that time.

        63. Senator McCain. Secretary Stackley, what additional funding
    would be required by the Navy to construct a 12th LPD?
        Mr. Stackley. The fiscal year 2013 Continuing and Furthering
    Appropriations Bill (P.L. 113-6) added $263 million of advanced
    procurement (AP) funding for a 12th LPD-17 amphibious transport dock
    ship. With the sequestration mark of $20 million, the net AP
    appropriated for a 12th ship is $243 million. Assuming the $243 million
    of AP in fiscal year 2013 was leveraged, the end cost of a 12th ship in
    fiscal year 2014 is $2.13 billion, leaving a balance of approximately
    $1.9 billion of full funding required in fiscal year 2014.
                                     ______

                 Questions Submitted by Senator Roger F. Wicker
                  stabilizing the shipbuilding industrial base
        64. Senator Wicker. Secretary Stackley and Admiral Myers, in your
    advance testimony, you discuss at length the need to maintain a robust
    and healthy shipbuilding industrial base. In my discussions with
    industry leaders, they expressed to me their concerns with the unsteady
    nature of the contract work they perform for the Navy and the
    difficulties that stem from the shipbuilding acquisition program.
    Because of the feast or famine nature of the Navy's shipbuilding
    process, companies are challenged to find steady work for their highly-
    skilled employees to ensure they do not lose them to other industries.
    Once these employees leave an industry or region, they are unlikely to
    return. Such losses have the potential to cripple a fragile
    shipbuilding industrial base. Additionally, the lack of consistency
    that characterizes the acquisition system currently in place has a
    ripple effect on second- and third-tier suppliers. While major
    companies can generally survive short periods in which they are not
    building a ship, smaller companies that produce components or provide
    materials are often forced out of business. This uncertainty increases
    costs to the Navy and the taxpayers in the near-term, and contributes
    to the gradual erosion of the industrial base in the long-term. Do you
    agree that it is in the best interest of the Navy and the shipbuilding
    industry to establish a more consistent, predictable method of
    contracting and paying for ship construction?
        Mr. Stackley and Admiral Myers. The Navy agrees that stability and
    affordability are key to obtaining the objectives of the shipbuilding
    plan and improving the health of the industrial base. Over the past
    several years, the Navy has placed a priority on increasing
    shipbuilding rates and providing stability for the shipbuilding
    industrial base. Stability translates into retention of skilled labor,
    improved material purchasing, improved workforce and financial
    planning, strong learning curve performance, and the ability for
    industry to invest in facility improvements; all resulting in more
    efficient ship construction and a more affordable shipbuilding program.
    The past Virginia-class and DDG-51 class multiyear procurements (MYPs),
    the DDG-1000 Swap/DDG-51 Restart Agreement, the LCS dual block buy, the
    MLP procurement, the continuation of CVN-78-class procurements on
    constant 5-year centers, and the heel-to-toe CVN RCOH induction-to-
    delivery cycle have provided critical stable workload for our shipyards
    and their respective vendor bases. The approved upcoming Virginia-class
    MYP and just awarded DDG-51-class MYP will help to further stabilize
    the submarine and surface combatant industrial base through this
    decade. Likewise, the funding requested to procure a fourth MLP, and to
    configure MLP-3 and MLP-4 as AFSBs will also provide for much-needed
    workload within the auxiliary shipbuilding sector.
        The strategy going forward continues to center upon improving
    affordability. To this end, in addition to the emphasis on stability
    discussed above, the Navy has established affordability requirements
    and invested in design for affordability for future ship programs;
    mandating use of open systems design; leveraging competition at every
    opportunity in shipbuilding and weapons systems production; employing
    fixed-price contracts to control cost for ships and weapon systems in
    production; imposing strict criteria limiting disruptive change to
    contracts; investing in industry-wide manufacturing process
    improvements through the National Shipbuilding Research Program; and
    incentivizing capital investment in facilities where warranted.
        The fiscal year 2014 President's budget request for fiscal years
    2014-2018 requests 41 ships. Of these 41 ships, 25 ships are part of
    stable DDG-51 or SSN-774 MYPs or the LCS block buy contracts, and 11
    ships are part of ongoing shipbuilding construction programs.
        The Navy believes continued use of multiyear and block buy
    procurements provide the best means of ensuring stability and
    predictability within the industry with respect to workload and
    financial planning. The greatest risk to the industrial base is
    associated with budget uncertainty, particularly the disruption and
    inefficiency caused by sequestration, delayed authorization and
    appropriations, and the looming budgetary challenges. The Navy will
    continue to aggressively pursue the mutual objectives of improving the
    affordability of our shipbuilding program and increasing the strength
    of our shipbuilding industrial base, and is committed to working
    closely with Congress on these efforts.

        65. Senator Wicker. Secretary Stackley and Admiral Myers, if you
    had the option, would you agree to funding contracts on a multiyear
    basis, rather than year by year?
        Mr. Stackley and Admiral Myers. New ship construction is typically
    procured using Shipbuilding and Conversion, Navy (SCN) appropriation
    funding which provides multiple year budget authority that is available
    for obligation for 5 years. With few exceptions, the Navy typically
    requests to fully fund an entire ship in the year of authorization/
    appropriation. In cases where there is a requirement for advance
    procurement (AP) funds, which typically is associated with the need to
    order long lead time material or to achieve economic order quantity
    discounts, the Navy will request AP funds in the year(s) preceding a
    ship's full funding request. With respect to aircraft carriers and
    large deck amphibious ships, in addition to AP funds, the Navy will
    request to incrementally or ``split'' fund the balance of the ship, in
    order to avoid large spikes in the budget request for the years that
    these platforms are authorized and appropriated.
        In instances where the ship class design is mature and production
    is proven and stable, the Navy believes continued use of multiyear and
    block buy procurements provide the best means of ensuring stability and
    predictability within the industry with respect to workload and
    financial planning. The fiscal year 2014 President's budget request for
    fiscal years 2014-2018 requests 41 ships. Of these 41 ships, 25 ships
    are part of stable DDG-51 or SSN-774 multiyear procurements or the LCS
    block buy contracts. The greatest risk to the industrial base is
    associated with budget uncertainty, particularly the disruption,
    inefficiency and irrational acts necessitated by sequestration, delayed
    authorization and appropriations, and the looming budgetary challenges.
    The Navy will continue to aggressively pursue the mutual objectives of
    improving the affordability of our shipbuilding program and increasing
    the strength of our shipbuilding industrial base, and is committed to
    working closely with Congress on these efforts

        66. Senator Wicker. Secretary Stackley, if given the opportunity to
    restructure the way the Navy pays for ship acquisition, from design to
    construction to final acceptance by the Navy, what changes would you
    make?
        Mr. Stackley. Today one of the greatest risks facing Navy
    shipbuilding is associated with budget uncertainty. To mitigate budget
    uncertainty, the Navy believes the continued use of multiyear and block
    buy procurements provide the best means of ensuring stability and
    predictability within the industry in instances where the ship design
    is complete and the production is proven and stable. Consideration
    should be given to expanding the period over which these types of
    procurements can be used to 6 or 7 years, in order to leverage economic
    order quantity purchases and to increase stability. As well, as we
    approach a period of ship construction that will be dominated by the
    capital demands for replacing the Ohio-class strategic deterrent
    submarine, we need to investigate financing methods that enable
    continued steady investment across the balance of our shipbuilding
    programs commensurate with the Ohio Replacement procurement. This
    should include limited exceptions to the full funding policy for
    shipbuilding.
        The Navy has been working to minimize ship equipment and parts
    variants within ship classes and from ship class to ship class, to
    create greater commonality across the Fleet, while also looking at
    smart ways to reduce the number of ship specifications and procedures.
    From these efforts, the Navy believes that additional cost savings can
    be achieved through application of the block buy approach across a
    subset of shipbuilding material, common equipment, parts and
    commodities. The Navy is currently evaluating this alternate
    acquisition concept and ways to implement it, within the confines of
    the current authorization and appropriation process. Once the concept
    is developed further, additional flexibility may be desired with
    respect to authorization, appropriation, and bundling of advanced
    procurement material across appropriations (SCN, OPN, and NDSF) and
    possibly fiscal years, to best implement this alternative acquisition
    concept.
        Another potential area of consideration regards restrictions and
    scoring rules associated with long term lease-purchase agreements. A
    long-term ``Charter-Build'' construct may be a prudent way to build,
    lease, and possibly procure some auxiliary ships such as T-AO(X) and T-
    ATS(X). In this construct, the Navy would enter into a long-term
    agreement with a private sector contractor to design, build, and then
    lease a number of ships to the Navy. The Navy would pay for the use of
    the vessels over the length of the lease, rather than upfront, and
    would secure the private sector contractor's loan from the Federal
    Financing Bank, pay financing charges, and would have the option to buy
    the vessel at a later date.
                                     ______

                  Questions Submitted by Senator Kelly Ayotte
                          shipbuilding industrial base
        67. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, in your joint prepared statement, you highlight the importance
    of providing ``stability for the shipbuilding industrial base.'' Due to
    the inability to pass budgets and appropriations bills on time and find
    alternative spending reductions to replace defense sequestration,
    Congress has not provided the Navy the stability and predictability it
    needs. You also underscore the need to increase the ``strength of our
    shipbuilding industrial base.'' I would be interested to hear from each
    of you . . . how healthy is our Nation's shipbuilding industrial base,
    and what vulnerabilities or weaknesses do you see in our shipbuilding
    industrial base?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. At present, the
    First Tier Shipbuilding Industrial Base is relatively stable, although
    the Navy remains concerned with the Amphibious and Auxiliary
    shipbuilding sector. The current shipbuilding plan of one Aircraft
    Carrier Refueling and Complex Overhaul (RCOH) approximately every 3
    years, and one new carrier procurement every 5 years, maintains
    sufficiently stable production at Huntington Ingalls Industries Newport
    News Shipbuilding (HII-NNS) to sustain a level workload and a highly
    skilled workforce that supports complex aircraft carrier work.
    Submarine design and construction workload is at its highest level in
    over 2 decades at General Dynamics (GD)-Electric Boat and HII-NNS.
    Congress' approval in fiscal year 2013 of the Navy's request for
    multiyear procurement for the Virginia-class Block IV fiscal year 2014-
    2018 contract for up to 10 submarines should further stabilize the
    submarine industrial base. With the early June 2013 award of the fiscal
    year 2013-2017 multiyear procurement contract, surface combatant
    backlog provides workload stability at both GD BIW and HII-Ingalls
    shipyards. The Amphibious and Auxiliary Ship sector, consisting of HII-
    Ingalls and GD-NASSCO faces the greatest challenges with respect to
    sustaining a stable design and construction workload. HII has announced
    plans to close its Avondale, LA, shipyard and consolidate its naval
    shipbuilding at its HII-Ingalls facility in Pascagoula, MS. With both
    the LPD-17 class and MLP-1 class program delivering their last ships in
    fiscal year 2017, bridging the gap in procurement of amphibious and
    auxiliary ships will be challenging, as the next auxiliary program (T-
    AO(X)) is not planned until fiscal year 2016, the next amphibious ship
    award (LHA-8) is not until fiscal year 2017, and the next amphibious
    program (LX(R)) is not planned to be procured until fiscal year 2019
    with advanced procurement funding in fiscal year 2018.
        The second-tier shipbuilding industrial base consisting of
    Marinette Marine, Austal USA, VT Halter Marine, Dakota Creek
    Industries, Textron and others, is considered healthy. Second-tier
    shipyards are building the LCS, JHSV, Oceanographic Survey Research
    Ship (T-AGS-66), Oceanographic Research Ship (Ocean AGOR) and the Ship-
    to-Shore Connector (SSC).
        The Navy continues to assess the industrial base for risk as it
    executes this shipbuilding plan and will address industrial base
    matters with industry and Congress in the course of programming future
    years' shipbuilding budgets, formulating industrial base policies and
    agreements, and implementing acquisition strategies.

        68. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, what damage has sequestration and the lack of budget
    predictability and stability caused?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. Both sequestration
    and delayed appropriations have resulted in inefficiencies, short term
    reactions at the expense of long term goals, added risk, and damage at
    various extents and at various levels throughout the Navy enterprise.
    While the Navy made every attempt to minimize the damage when
    administering sequestration, some impacts were unavoidable given the
    size and timing of the reduction. The Navy has cancelled the unbudgeted
    deployment of a second carrier to CENTCOM in February and has cancelled
    other deployments to EUCOM, PACOM and SOUTHCOM. We have also forgone
    training and reduced our parts purchases, lowering our ability to surge
    forces and maintain our readiness levels while deployed. We have
    reduced the scope and efforts associated with development and
    acquisition, and are preparing to furlough our civilian workforce for
    up to 11 days beginning in July.
        Many of our decisions in the area of procurement have been focused
    on making immediate reductions, although temporary de-scopes and
    deferrals were necessary, programs will require a ``pay-back'' in the
    future. This creates a continued rightward push of projects and
    requirements for what amounts to a one-time, non repeatable savings. As
    such, future budgets will have much less trade space available to
    respond, and ultimately our readiness and ability to surge will
    continue to be diminished. In fact, should sequestration continue with
    the Department placed on a lower funding path, the readiness impacts
    will increase disproportionately. As funding declines, our shore
    infrastructure will degrade and our shipbuilding, weapons system and
    supplier base will decline. Some contractors may choose not to do
    business with the Department or cease to exist entirely.
        While some efficiency can still be obtained, reduction of the
    Navy's top-line budget will ultimately require a more balanced
    strategic approach, which the Department is currently assessing.

        69. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, what can we do to address those weaknesses?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. Budget uncertainty
    and instability are immensely disruptive to our ability to execute the
    current year budget and our ability to plan for the future.
        We have limited options to restore funding lost to fiscal year 2013
    sequestration that is required to complete fiscal year 2013 and prior
    year ships. A portion of fiscal year 2015 through fiscal year 2018
    budget authority will be diverted from budget year requirements to fund
    prior year program completion efforts.
        Reducing uncertainty in the budget process through passage of
    appropriation acts (or allowing anomalies during extended periods of
    Continuing Resolution Authority which are extremely disruptive for
    shipbuilding programs) and acting to avoid sequestration would help to
    address disruptions in programs. The Department is limited in terms of
    its reprogramming authority. Increasing the General Transfer Authority
    and the scope and purpose of Special Transfer Authority associated with
    new construction shipbuilding would provide additional flexibility to
    enable the Department leadership to review alternatives and take
    actions to meet the defense strategy.

        70. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, to what degree is the Navy reliant on sole source suppliers? Has
    the reliance increased or decreased in recent years?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. The Navy's
    shipbuilding industrial base is relatively stable. At the prime level,
    we have sole source contracts for our aircraft carriers and currently
    with our large deck amphibious ships. Most of the other shipbuilding
    contracts are procured using limited competition. These shipbuilders
    have established supplier relationships, in some cases with a single
    domestic source supplying critical equipment or components for one or
    more shipbuilders, or in some cases Services.
        Where demand and funding are stable and/or the supplier is not
    solely reliant on one customer or product, sole source or single source
    arrangements can and do exist, typically without issue. Of course,
    relying on a single supplier introduces risk, as it creates a single
    point of failure, possibly from natural disasters, labor unrest, surge
    limitations, or financial distress. The Department recognizes that only
    a small fraction of our enormous industrial base capabilities are truly
    at risk (fragile) and therefore in danger of disappearing without
    dedicated efforts to sustain them. As such we will continue to identify
    those firms which may warrant action if appropriate.

     importance of virginia payload module to u.s. undersea strike capacity
        71. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, based on the planned drop to 42 attack submarines in 2029, what
    will be the specific impact on the Navy's undersea strike capacity?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. Undersea strike
    volume will decrease by approximately 63 percent in the 2030 timeframe
    due to two factors: SSN force structure reductions and SSGN retirement.
    The retirement of SSGNs accounts for a loss of 616 launchers and the
    reduction in SSN force structure for a loss of 72 launchers.
        DOD added RDT&E and non-recurring engineering funding for a
    Virginia Payload Module (VPM) that could be inserted into future
    Virginia-class SSNs that would restore approximately 94 percent of our
    current undersea strike volume. This advance engineering work will
    enable the DoN to consider incorporating VPMs in the fiscal year 2019
    Block V Virginia-class buy as an alternative to recapitalizing the
    SSGNs.

        72. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, how important is it that Congress fully fund the research and
    development funding for the VPM to mitigate the loss of undersea strike
    capacity?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. Undersea strike is
    a critical element of the ability to counter adversary anti-access and
    area denial capabilities, and to assure access for the Joint Force.
        The Virginia Payload Module (VPM) is a potential option to more
    than triple the vertical launch capacity in current Virginia-class
    ships. VPM would provide an additional four large diameter payload
    tubes, each capable of carrying seven Tomahawk cruise missiles,
    increasing vertical launch cruise missile capacity from 12 to 40 per
    ship. Twenty Virginia-class SSNs with VPM could replace the undersea
    strike volume gap created by the inactivation of the SSGNs. The current
    advanced engineering design work on VPM will enable the Department of
    the Navy to consider incorporating VPM in the fiscal year 2019 Block V
    Virginia-class buy.
        While the VPM represents a significant improvement in strike
    capacity that may be made available to us if we could incorporate this
    change into the Virginia-class design, it comes at a cost. In
    isolation, these costs would not be insurmountable but including them
    in the Virginia-class costs concurrent with our efforts to field the
    Ohio Replacement SSBN may prove to make these changes unaffordable
    regardless of the contribution they might represent.

                             ohio-class replacement
        73. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, I note that Vice Admiral William Burke, the Deputy Chief of
    Naval Operations Warfare Systems, recently said that, ``if we buy the
    SSBN within existing funds, we will not reach 300 ships. In fact, we'll
    find ourselves closer to 250 . . . our global presence will be reduced
    such that we will only be able to visit some areas of the world
    episodically.'' Our national security requires not only the Ohio-class
    replacement, but also a fleet of 306 ships. Under the current plan, not
    even accounting for sequestration, we are not going to have a 306-ship
    Navy until 2037. How can we ensure our Nation builds the 12 Ohio-class
    replacement boats we need with the common missile component for the
    U.K. Vanguard program, while protecting our shipbuilding plan that will
    allow the Navy to reach and sustain approximately a 300-ship fleet
    through much of the 2020s?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. The Department of
    the Navy will require ship construction funds identified in the 30-year
    shipbuilding plan to execute the plan and meet the requirements of the
    Force Structure Assessment (FSA). The funding cost estimates presented
    in the 30-year shipbuilding plan will build to and maintain a battle
    force inventory of approximately 300 ships during the time of Ohio-
    class recapitalization and ultimately achieve the Navy's FSA post-
    fiscal year 2020 objective of 306 battle force ships. The battle force
    represents an integrated and balanced fleet that executes the DSG. The
    challenge before us all is ensuring that shipbuilding receives the
    level of funding necessary to meet these force structure requirements.

        74. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, do we need a new national capital ships account in addition to
    the SCN account?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. Budgeting for Ohio
    Replacement (OR) in a separate national capital ships account will not
    affect the cost of the program or the resources required to meet the
    30-year shipbuilding plan. The challenge before the Department is the
    episodic nature of SSBN recapitalization. SSBNs are not built in a
    level loaded schedule approach as are virtually other Navy platforms
    and instead, are built in tight class groupings every 30 to 40 years.
    The ``historical average'' shipbuilding plan over the last 20 years
    does not include SSBNs, so it is not surprising that a shipbuilding
    plan which includes SSBNs will exceed the historical average.
        Accordingly, the Department with Congress will need to increase
    shipbuilding funds to account for the OR SSBN. Otherwise, with the OR
    estimated to require about one third of the historical average
    shipbuilding budget; existing, stable, lean shipbuilding plans
    implemented to provide optimal cost-efficiency (and the associated
    workforce stability) would be disrupted for 15 years in a manner
    inconsistent with cost control. Fewer ships would be built, and those
    built would be less cost efficient.

        75. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, is the collaboration with the United Kingdom on the Common
    Missile Compartment (CMC) for the Ohio-class replacement saving the
    U.S. money due to economies of scale?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. The U.S. and U.K.
    Governments both share in the U.S.-designed CMC. The U.K. provides
    funding for the non-recurring engineering (NRE) costs of designing the
    CMC; under the joint agreement the U.K. will pay a 12.5 percent cost
    share of all CMC design NRE. To date, the U.K. has invested
    approximately $400 million.
        The U.S. and U.K. Governments anticipate both CFE and GFE material
    savings benefits associated with combined purchases from the recently
    reconstituted missile tube and launch tube industrial bases for
    construction of both the Ohio Replacement and U.K. Successor
    submarines.
        In addition to missile and launch tube savings, the U.S. and U.K.
    Governments anticipate cost savings from joint manufacturing fixture
    procurements by sharing non-recurring engineering and design costs,
    leveraging suppliers' economic order quantities, including procurement
    and quality management labor hour reductions, and securing learning
    curve improvements during the assembly and testing of fixtures. The
    program expects to realize a cost savings of approximately 5 to 10
    percent of the overall contract values for each manufacturing fixture
    based on the combined buy. At this time, actions for the fixtures are
    in various stages of competitive process. The Navy plans to award a
    fixture contract in 2013 and both nations will benefit from these
    savings.

        76. Senator Ayotte. Secretary Stackley, Admiral McCoy, and Admiral
    Myers, are there other areas of shipbuilding where we could seek to
    establish similar international partnerships that could save money?
        Mr. Stackley, Admiral McCoy, and Admiral Myers. There are numerous
    international partnerships that provide technology and tools that aid
    Navy shipbuilding. Actual shipbuilding cooperation is limited by
    legislation; therefore, most of these projects focus on cooperation in
    the research and development phases. Some examples are:

             Advanced steel technology with Japan (completed--
            results used in submarine and ship construction).
             Trimaran with the U.K. (completed--design technology
            for trimaran hulls like that used in LCS 2 Variant).
             Tip vortex cavitation with the Netherlands
            (completed--results used in the design of the propeller for
            DDG-51).
             Dynamic system mechanics advanced simulation (DYSMAS)
            with Germany--(completed--provided modeling code for undersea
            explosion effect and ship design that mitigate such effects).
             Submarine composite structures with the U.K. (signed
            and underway--developing and testing composites for submarine
            structures).
             Advanced material propeller with Australia (recently
            signed--will design and test future designs for submarine
            propulsors).
             High speed multi-hull vessel with Japan (in
            negotiation--will develop tools to support future designs).
             Large diameter unmanned undersea vessels with South
            Korea (in negotiation--will provide an additional prototype
            platform for Unmanned Undersea Vessels).
             Hydrodynamics with the U.K. (active Project
            arrangement--collaboratively designed and evaluated different
            stern designs for use on Ohio Replacement and Successor
            programs).

        The Navy meets regularly with several countries to assess any
    future efforts and conducts numerous active information exchanges with
    allies.

        [Whereupon, at 11:46 a.m., the subcommittee adjourned.]

    DEPARTMENT OF DEFENSE AUTHORIZATION FOR APPROPRIATIONS FOR FISCAL YEAR
                   2014 AND THE FUTURE YEARS DEFENSE PROGRAM

                                  ----------

                             TUESDAY, MAY 14, 2013

                                   U.S. Senate,
                              Subcommittee on Seapower,
                                   Committee on Armed Services,
                                                        Washington, DC.

                           MARINE CORPS MODERNIZATION

        The subcommittee met, pursuant to notice, at 9:33 a.m. in
    room SR-222, Russell Senate Office Building, Senator Jack Reed
    (chairman of the subcommittee) presiding.
        Committee members present: Senators Reed, Kaine, King,
    McCain, and Ayotte.
        Committee staff member present: Leah Brewer, nominations
    and hearings clerk.
        Majority staff members present: Creighton Greene,
    professional staff member; and William K. Sutey, professional
    staff member.
        Minority staff members present: Ambrose R. Hock,
    professional staff member; and Daniel A. Lerner, professional
    staff member.
        Staff assistants present: Lauren M. Gillis and John
    Principato.
        Committee members' assistants present: Carolyn Chuhta,
    assistant to Senator Reed; Karen Courington, assistant to
    Senator Kaine; Stephen Smith, assistant to Senator King; Paul
    C. Hutton IV, assistant to Senator McCain; Bradley Bowman,
    assistant to Senator Ayotte; and Joshua Hodges, assistant to
    Senator Vitter.

            OPENING STATEMENT OF SENATOR JACK REED, CHAIRMAN

        Senator Reed. Let me call the hearing to order.
        I want to, obviously, thank and welcome back Sean Stackley,
    the Assistant Secretary of the Navy for Research, Development,
    and Acquisition; and Lieutenant General Richard Mills, the
    Deputy Commander for Combat Development and Integration, and
    the Commanding General of the Marine Corps Combat Development
    Command. We are certainly grateful for your service to the
    Nation and the Marine Corps, both of you. Thank you very much
    for that and also to the men and women of the Marine Corps who
    every day distinguish themselves and honor the country. So
    thank you, gentlemen.
        Today our witnesses will update us on their efforts to
    build a force of amphibious, combat, and tactical ground
    vehicles that meets the Nation's requirements for maneuver from
    the sea that is technologically achievable and affordable.
    Since the cancelation of the Expeditionary Fighting Vehicle
    (EFV) in 2011, the Marine Corps has taken advantage of the
    opportunity to reassess its amphibious vehicle concepts and
    requirements.
        Last year, we questioned the affordability of the Marine
    Corps combat and tactical vehicle programs given an out-years'
    procurement bow wave that far exceeded projected available
    funding levels. We hope that the Marine Corps ground systems
    budget request for fiscal year 2014 reflects the applications
    of the lessons of the recent past and adaptation to the
    realities of today and tomorrow's operational and fiscal
    environments.
        We look forward to our witnesses describing for us how the
    Marine Corps has reassessed its priorities relative to its
    missions and requirements under the current defense strategy
    and how it proposes to sequence its vehicle development and
    acquisition efforts to better control overall affordability,
    specifically the appropriate size and structure of the
    amphibious assault capability and the mix of armored combat and
    tactic vehicles and ship-to-shore connectors.
        Coming off the cancelation of the EFV, and the
    affordability tradeoffs made with respect to the cost of the
    system and the numbers of amphibious vehicles during the
    program development, several questions were raised about the
    tactical implications of the scope and pace of the buildup of
    combat power ashore and risk to mission success.
        I understand that the Marine Corps is nearing the
    completion of its fleet mix study to inform its decisions with
    respect to how many of what type vehicles it should buy in the
    future. I look forward to an update on the fleet mix study, its
    preliminary findings, if any, and continuing our discussion of
    this issue.
        We must note, unfortunately, that all of this is at risk if
    sequestration is triggered for fiscal year 2014. No doubt,
    sequestration next year would compound the challenges to all
    Marine Corps programs. We would like our witnesses to address
    the impacts and risks of another year of sequestration,
    including any extraordinary budget pressures associated with
    continuing operations in Afghanistan.
        Finally, and related to our interest in the challenges of
    modern operations from the sea, I note that next month the
    Marine Corps will conduct a major amphibious exercise that
    will, so to speak, stretch some tactical muscles that have not
    enjoyed robust testing in many years. We would welcome your
    views on this coming exercise and other completed exercises and
    what the Marine Corps has learned or hopes to learn about joint
    and combined amphibious operations and their concepts,
    equipment, and readiness. We are particularly interested in any
    insights regarding the performance of the Marine Corps current
    fleet of amphibious, combat, and tactical vehicles.
        Gentlemen, we look forward to your testimony.
        Now, let me now recognize Senator McCain.

                    STATEMENT OF SENATOR JOHN McCAIN

        Senator McCain. Thank you, Mr. Chairman. I join you in
    welcome our witnesses, Secretary Stackley and Lieutenant
    General Mills, and thank them for their many years of service.
        As we all know, it is the responsibility of Congress to
    provide the resources to enable a ready expeditionary force
    capable of acting when called upon and defending our security
    interests when threatened. Unfortunately, the budget request
    before us today falls short of that goal as it continues to
    finance near-term readiness at the expense of modernization and
    infrastructure. Marine Corps modernization funding represents
    less than 10 percent of the Marine Corps budget request for
    2014. We must ensure the Marine Corps makes good use of these
    scarce resources.
        The current fiscal situation has caused the Department of
    the Navy to assume significant risk in shipbuilding programs
    needed by the Marine Corps to accomplish their missions. For
    example, the Navy has identified a requirement for 38
    amphibious ships to support the Marine Corps mission, but the
    shipbuilding plan calls for only 33 ships. That number of ships
    will not be achieved until 2025 and assumes a huge increase in
    the annual shipbuilding budget.
        The Navy is also taking on readiness risk with the current
    amphibious fleet, with only 22 ships available or fully mission
    capable last year. This is on top of the Navy's decision last
    year in response to declining budgets to eliminate a squadron
    of maritime prepositioning ships for the Marine Corps which are
    used to rapidly deploy combat equipment around the world. In
    all, reduced investments have Marine Corps capabilities and
    readiness headed in the wrong direction.
        Over the last few years, the Marine Corps has identified
    areas in which new technology is needed to improve capabilities
    or respond to changing threats. The fiscal year 2014 budget
    request includes funding for the procurement of the Joint Light
    Tactical Vehicle (JLTV), and development of the Amphibious
    Combat Vehicle (ACV), which replaces the failed EFV program.
    Additionally, the Marine Corps will recapitalize a portion of
    their legacy vehicles, including the High Mobility Multipurpose
    Wheeled Vehicle (HMMWV) fleet. This subcommittee would be
    interested in hearing how the Marine Corps is managing these
    programs so that they are affordable in the current and future
    fiscal environment.
        After spending nearly $3 billion on it, the Marine Corps
    canceled the EFV program in 2011 due to poor reliability and
    excessive cost growth. One of the factors contributing to cost
    growth was the requirement that the armored troop carrier be
    able to achieve high speeds in open water. After recently
    completing the ACV analysis of alternatives, I understand the
    Marine Corps is reopening the high water-speed can of worms. We
    will be interested in hearing how the Marine Corps plans to
    field this capability without incurring the cost growth that
    led to the EFV's cancelation.
        Let me close by expressing my concern for Marine Corps
    readiness. Similar to the other Services, the Marine Corps has
    prioritized deployed and next-to-deploy marines in their
    operations and maintenance accounts at the expense of
    nondeployed units. This has resulted in the degradation of
    Marine Corps readiness. According to the Commandant of the
    Marine Corps, by the beginning of calendar year 2014,
    approximately 50 percent of Marine Corps ground and aviation
    units will be below acceptable readiness levels. This places
    the Marine Corps at serious risk in their ability to respond to
    near-term contingency operations.
        I look forward to the testimony of the witnesses.
        Senator Reed. Thank you very much, Senator McCain.
        Secretary Stackley.

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

        Mr. Stackley. Yes, sir. Chairman Reed, Senator McCain,
    distinguished members of the subcommittee, thank you for the
    opportunity to appear before you today to address Marine Corps
    modernization. I will be testifying alongside the Deputy
    Commandant for Combat Development and Integration, Lieutenant
    General Mills, and with the permission of the subcommittee, I
    propose to keep opening remarks brief and submit a formal
    statement for the record.
        Senator Reed. All of your statements will be included. You
    may summarize.
        Mr. Stackley. Thank you, sir.
        Your Marine Corps serves as America's expeditionary force
    in readiness, a balanced air/ground naval force, forward-
    deployed and forward-engaged. Today, over 17,000 marines are
    deployed around the world, on the ground in Afghanistan in
    support of Operation Enduring Freedom and at sea deployed
    aboard amphibious ships operating off coasts from Africa to
    Japan, conducting air operations, ship-to-shore operations,
    building partnerships, deterring enemies, and responding to
    crises and contingencies. They place in the hands of our
    Nation's leaders tools and options to respond to today's world
    events and shape future events, and it is our responsibility to
    place in the hands of our marines the best weapons this Nation
    can produce to shape, deter, defeat, and deny our enemies
    sanctuary.
        The seamless maneuver of marines from sea to conduct
    operations ashore, whether for training, humanitarian
    assistance, or combat, remains a key priority as the Marine
    Corps shapes its future force. To this end, the Marine Corps
    modernization strategy includes sustainment of amphibious lift
    capabilities, as outlined in the Department's 30-year
    shipbuilding plan, replacement of the landing craft air cushion
    (LCAC), ship-to-shore connectors, recapitalization of critical
    aviation capabilities from the Short Takeoff Vertical Landing
    (STOVL) version of the Joint Strike Fighter (JSF) to modernized
    attack and utility H-1 helicopters to the development of the
    heavy lift H-53K helicopter, modernization of the Corps'
    expeditionary command, control, and communications capabilities
    with the development of the Ground/Air Task-Oriented Radar (G/
    ATOR), the common aviation command and control system, and the
    global communications support system Marine Corps and
    modernization of the Marine Corps' ground combat vehicles.
        The Marine Corps combat vehicles are at the front end of
    much needed recapitalization. We have briefed this subcommittee
    on the Corps' ground combat tactical vehicle strategy which
    includes developing and procuring the JLTV; developing a modern
    ACV; sustaining a portion of the HMMWV fleet through 2030;
    initiating an upgrade program for the legacy amphibious assault
    vehicle (AAV) as a bridge to the ACV; and managing procurement
    of vehicles to reduce acquisition objectives, a net reduction
    of about 20 percent based on the more recent force structure
    reviews.
        The JLTV program remains on track with the 2014 budget
    request continuing development in support of procurement
    commencing in 2015. We are continuing to review with the Army
    the impacts of sequestration on the schedule and will advise on
    the results of this review when complete.
        The ACV is, as the Commandant stated in testimony earlier
    this year, a top Marine Corps priority. The simple fact is that
    execution of amphibious operations requires a self-deploying
    amphibious vehicle to seamlessly project ready-to-fight marine
    units from sea to land in permissive, uncertain, and hostile
    environments. This capability enables the Corps to maximize
    available amphibious lift and accelerate the buildup of power
    ashore, which is key to overcoming access challenges posed by
    either the lack of improved infrastructure or the threat of an
    adversary.
        In order to ensure we get the ACV program right, we are
    conducting a combined requirements definition feasibility study
    assembling the best of government and industry requirements,
    systems engineering design, and cost experts. Our intent is to
    bring the best talent and best information together to build on
    the tremendous body of knowledge we possess across all our
    vehicle programs and determine how to deliver the capability
    needed by the Marine Corps with high confidence in the
    affordability of the defined requirements.
        We have engaged your staff at the front end of this process
    and will remain engaged as we progress towards future milestone
    decisions. In fact, for our entire portfolio and particularly
    the ACV and JLTV, the Marine Corps has taken a textbook
    approach to developing these critical combat vehicles, placing
    priority on getting the requirements right at the front end,
    employing mature technology where possible to reduce cost and
    risk in development, establishing affordability as a
    requirement, conducting comprehensive systems engineering and
    cost analysis, streamlining the acquisition process where
    sensible, leveraging competition and, perhaps most importantly,
    integrating the requirements and acquisition team to enable
    effective, cost performance trades throughout the requirements
    definition and system development process.
        Mr. Chairman, thank you for the opportunity to appear
    before you today. We look forward to answering your questions.
        [The joint prepared statement of Mr. Stackley and General
    Mills follows:]
    Joint Prepared Statement by Hon. Sean J. Stackley and LtGen Richard P.
                                  Mills, USMC
                                  introduction
        Chairman Reed, Senator McCain, and distinguished members of this
    subcommittee, we appreciate the opportunity to appear here today and
    discuss Marine Corps modernization. As always, we thank you for your
    continued support to our sailors, marines, and their families.
        As America's Expeditionary Force in Readiness, the Marine Corps'
    ground modernization investments support our Nation's ability to be
    prepared for all manner of crises and contingencies. As a
    ``middleweight force,'' Marines do not seek to supplant any Service or
    ``own'' any domain. Rather, Marine forces transit in a ``lane'' that
    passes through all domains--land, sea, air, space and cyber-operating
    capably and freely throughout the spectrum of threats, whether they be
    conventional, irregular or the uncertain hybrid areas where they
    overlap. Key is the ability to deploy and employ from the sea in
    austere environments at a time and place of our choosing -a significant
    asymmetric, strategic and operational advantage that has been used more
    than 130 times in the past 2 decades.
        Our ground investments allow us to develop and sustain a ready,
    middleweight force that is easily deployable, energy efficient, and
    highly expeditionary. As the Department of the Navy and your Marine
    Corps confront the challenges of budget constraints and the uncertainty
    inherent in our fiscal outlook, we are evaluating priorities and making
    hard choices that are necessary to maintain the right balance in
    capacity, capability and industrial base sustainment. We have accepted
    our share of the additional risk associated with reduced resources;
    however, we have also sought innovative and practical means to mitigate
    that risk. We leverage programs, technologies, technical skills and
    competencies of other Services to ensure we deliver the most effective
    and affordable combat capability to your marines. We also seek to
    capitalize on our industrial base to identify and pursue innovative and
    ground-breaking solutions to meeting the warfighter's needs and to
    reduce acquisition and sustainment costs of our systems.
                             operating environment
        Over the past year alone, Marines have actively engaged in every
    corner of the global security environment. The Marine Corps continued
    to meet operational commitments in Afghanistan while simultaneously
    working with more than 90 allies and partners to train, learn, and
    build effective security institutions. In addition to forces committed
    to Operation Enduring Freedom (OEF), our Marine Expeditionary Units
    (MEUs), in partnership with Navy's Amphibious Ready Groups (ARGs),
    continued to patrol regions of likely crisis. Other task-organized
    Marine Air Ground Task Forces (MAGTFs), operating from expeditionary
    locations, supported U.S. national security objectives through forward
    presence, deterrence, multinational theater security cooperation
    exercises, and building partner capacity. Marines have been active in
    every geographical combatant command, serving as a key component of the
    joint force. Even under fiscal restraint, we continue to support these
    strategically important activities to the greatest extent possible.
        The need for this highly capable and ready force is more pressing
    now than ever. Today, we see a world marked by conflict, instability
    and humanitarian disaster. We see the disruptive changes that accompany
    a rapidly modernizing world--a world in which tyranny is rewarded,
    power is diffused, and extremism finds fertile ground in the
    disenfranchised. In what has been described as a 'new normal,'
    extremism, economic disruption, identity politics and social change
    generate new potential security threats at an accelerating pace. While
    we desire peace as a nation, threats to our citizens, allies and
    national interests compel our response when crisis occurs.
        Regardless of the financial pressures placed on governments and
    markets today, crises requiring military intervention undoubtedly will
    continue into the foreseeable future. In this environment, physical
    presence and readiness matter more than ever. As a maritime nation,
    dependent on the sea for the free exchange of ideas and trade, America
    requires security both at home and abroad. Since the 1990s, the United
    States has been reducing its presence on foreign bases. This trend will
    likely continue in the face of the strategic and budget realities we
    currently face. There remains an enduring requirement to balance
    presence with cost. In the past, the Nation has chosen to depend on the
    Navy and Marine Corps to provide a lean and economical force of an
    expeditionary nature, operating forward and in close proximity to
    potential trouble spots. Investing in naval forces that can respond to
    a wide range of crisis situations creates options and decision space
    for our Nation's leaders.
                            role of the marine corps
        The Marine Corps remains first and foremost a naval service,
    operating in partnership with the U.S. Navy. We share with them a
    storied heritage that predates the signing of our Constitution.
    Together, we in the naval service use the seas, not only to protect the
    vast global commons, but also to project our national power and
    influence ashore where that is required. The world's coastal regions
    are the home to an increasing majority of the human population, and are
    thus the scene of frequent conflict and natural disaster. These
    littoral regions comprise the connective tissues that join oceanic
    trade routes with the activities of populations ashore. In an era of
    heightened sensitivities over sovereignty, and where large foreign
    military footprints are unwelcome, the seas provide maritime forces
    with a means of less obtrusive presence and unfettered access. Maritime
    expeditionary forces can be located close enough to act when crisis
    threatens and hours matter, without imposing a burden on host nations.
    Expeditionary maritime forces can operate in the air, at sea, and on
    land, without the necessity of infrastructure ashore. They can loiter
    unseen over the horizon, and can move swiftly from one crisis region to
    another. Importantly, maritime forces also have the ability to rapidly
    return to the sea when their mission is complete.
        This flexibility and strategic agility make Marine forces a key
    tool for the Joint force in major contingencies. Operating in
    partnership with the Navy, the Marine Air-Ground-Logistics Task Force
    creates the strategic asymmetries that make the joint force so
    effective on the modem battlefield. Amphibious and expeditionary
    capabilities contribute to each of the ten mission areas of the joint
    force, and are directly responsive to the security demands articulated
    in the President's Defense Strategic Guidance for the 21st Century. By
    design, marines smoothly integrate with the other elements of the joint
    force, enable our interagency partners, and provide a naturally
    complementary team when working with Special Operations Forces.
        Virtual presence, the ability to strike with precision weapons or
    to attack an adversaries' networks do not have the same impact of
    knowing the force is over the horizon can be at your front door
    tonight. The tragic events in Boston highlight the value of a ready
    police force that can respond to today's crisis with today's force. Law
    enforcement personnel (local, State, and Federal) are backed up by
    sophisticated technology but the officer walking the street--going door
    to door -was crucial to re-establishing calm and finding the
    perpetrators. With the right ships, equipment, personnel and training,
    marines are your international crisis response force--as part of a
    larger joint and multi-national effort--we will be there first with the
    ability to respond to today's crisis with today's force, today.
        As the Nation prepares for an uncertain future, its expeditionary
    Marine forces provide a highly-utilitarian capability, effective in a
    wide range of scenarios. Marines remain a cost-effective hedge against
    the unexpected, providing a national ``insurance policy'' against
    strategic surprise. The Marine Corps will continue to meet the
    requirements of strategic guidance while resetting and reconstituting
    the force in-stride.
                                     reset
        Reset is a subset of reconstitution and comprises the actions taken
    to restore units to a desired level of combat capability commensurate
    with the units' future missions. After more than a decade of combat,
    this will require an unprecedented level of effort. The Marine Corps is
    resetting its forces ``in stride'' with fighting the war in Afghanistan
    and transitioning in line with the Defense Strategic Guidance. Unlike
    previous post-conflict periods, such as after Operation Desert Storm,
    we do not anticipate taking an ``operational pause'' to reset as we
    transition from OEF.
        The Marine Corps' Operation Enduring Freedom Ground Equipment Reset
    Strategy, released in January 2012, identifies the equipment we will
    reset or divest. The reset strategy prioritizes investment and
    modernization decisions to develop our middleweight force. Last year
    our reset liability was approximately $3.2 billion. We currently
    estimate it will be something less; however; we are unsure exactly what
    that number will be until we can get a better picture on both the
    totality of the costs associated with returning our equipment from
    Afghanistan and the detailed costs associated with resetting our gear
    after 10 years of combat. This revised forecast is primarily based on
    the replacement of combat losses, the restoration of items to
    serviceable condition, and the extension in service life of selected
    items. The liability accounts for execution of reset dollars provided
    in fiscal year 2012 and the first quarter of fiscal year 2013 to
    include maintaining the Marine Corps' enduring requirement of 1,231
    Mine Resistant Ambush Protected (MRAP) vehicles.
        The Marine Corps' MRAP reset requirement strikes the right balance
    between capabilities immediately available to the operating forces,
    those geographically positioned for crisis response, and MRAPs placed
    in a cost-effective long-term storage for potential enduring conflict.
    The 455 MRAPs maintained in our strategic prepositioning stocks afloat,
    in Norway, and in Kuwait will be kept at a heightened state of
    readiness--available in crisis response with little notice; 618 MRAPs
    will move into long term storage at our organic depot facility in
    Barstow, CA; and the remaining 158 MRAPs will be used in our operating
    forces for training and immediate response.
        The Retrograde and Redeployment in support of Reset and
    Reconstitution Operational Group (R40G) is a vital element to the
    Marine Corps' responsible drawdown from Afghanistan and the successful
    execution of the Ground Equipment Reset Strategy. The R40G which began
    in May 2012 is the Marine Corps' component to the U.S. Central Command
    Materiel Recovery Element and is tasked with preserving the operational
    capacity of combat units shouldering the load of clearing the battle
    space of equipment, supplies and sustainment stocks. The R40G is
    focused on accountability and efficiency in the redeployment and
    retrograde process. This process includes retrograding more than $324
    million of equipment, repairing more than 1,200 shipping containers,
    and processing more than 230,000 pounds (net explosive weight) of
    ammunition, and has overseen the retrograde of more than 4.5 million
    square feet of aviation AM2 matting and more than 5,700 equipment
    items. The Marine Corps has retrograded 60 percent of its equipment
    items; 70 percent of the supplies, repair parts, and ammunition; and 85
    percent of its AM2 matting in Afghanistan. Additionally, the R40G
    brings discipline to the retrograde process ensuring Marine Corps
    combat units can withdraw from Afghanistan and redeploy.
        Our reset effort is already underway and it maximizes the Marine
    Corps' depot capacity, where we expect the bulk of reset to occur for 2
    to 3 years after our equipment is returned. The continued availability
    of our ground equipment depot capacity at both Barstow, CA, and Albany,
    GA, is essential for timely reset, our ability to generate readiness,
    and to surge in response to wartime demand. With the funding provided
    by Congress in Public Law 113-6 we will be able to remain on schedule
    with our reset plan in fiscal year 2013; however, the long term impacts
    of sequestration on reset may result in cuts to depot maintenance and
    procurement accounts, which may hinder the Marine Corps' ability to
    reconstitute in stride by fiscal year 2017.
        We are examining future equipment requirements with an on-going
    comprehensive review of the Marine Corps' equipment inventories. This
    effort will validate reset strategies, future acquisition plans, depot
    maintenance programming, and required modernization initiatives. This
    review will incorporate the lessons we learned from over a decade of
    combat to upgrade our tables of equipment to reflect the way we fight
    today and our warfighting requirements of tomorrow.
                                 modernization
        With the smallest modernization budget in the Department of
    Defense, the Marine Corps continually seeks to leverage the investments
    of other Services, carefully meting-out our modernization resources to
    those investment areas which are the most fiscally prudent and those
    which promise the most operationally effective payoffs.
        Innovative warfighting approaches and can-do leadership are
    hallmarks of the Corps, but these cannot overcome the vulnerabilities
    created by our rapidly aging fleet of vehicles, systems and aircraft.
    Long-term shortfalls in modernization would have an immediate impact on
    readiness and would ultimately cost lives during crises. At some point,
    sustaining fleets of severely worn vehicles becomes inefficient and no
    longer cost-effective. This inefficiency reduces available
    modernization resources from an already small account, degrading our
    ability to effectively operate in today's complex security environment.
    Our modernization investment requires a balanced approach across the
    Air-Ground-Logistics Team.
    Ground Vehicle Modernization and Sustainment
        Selective modernization and effective sustainment of our combat and
    tactical vehicles is the basis for planning, programming and budgeting
    to provide balanced maneuver and mobility capabilities to our Operating
    Forces. Our force structure and associated vehicles are highly
    leveraged investments. They optimize strategic lift capability and
    provide aggregate utility across the range of military operations. Our
    ground vehicle modernization strategy is to sequentially modernize
    priority capabilities, reduce equipment inventory requirements wherever
    possible, and judiciously sustain remaining equipment. Our plans focus
    on achieving the right mix of assets, while balancing performance,
    payload, survivability, fuel efficiency, transportability and cost.
        Our two signature modernization initiatives are the Amphibious
    Combat Vehicle (ACV) and the Joint Light Tactical Vehicle (JLTV). These
    vehicle modernization programs coupled with the upgrade of our Assault
    Amphibious Vehicles (AAV) and our family of Light Armored Vehicles
    (LAV), the refurbishment of a portion of our legacy High Mobility
    Multi-Purpose Wheeled Vehicle (HMMWV) fleet, and improvements in
    advanced simulations systems, are critical to sustaining our combat
    readiness and enabling our core warfighting capabilities. The Marine
    Corps has deferred acquisition of the Marine Personnel Carrier with the
    future capability requirement to be assessed after the more pressing
    ACY and JLTV requirements have been addressed.
        The Marine Corps is committed to developing and fielding an ACY
    that supports and enables our Service-defining capability of enabling
    operational access and forcible entry from the sea. The ACY is the
    Marine Corps' top ground modernization priority and the fiscal year
    2014 President's budget request includes $137 million for support of
    this effort. Based on the Department's 10-year investment plan, the
    intent is to address modernization shortfalls sequentially-both before
    and after development of the ACY. The Department's JLTV strategy
    depends on procuring those vehicles with the most demanding mission
    profiles. The Marine Corps' fiscal year 2014 request includes $50
    million to continue Engineering Manufacturing and Development efforts
    and reach Milestone C before the Marine Corps procurement focus is
    turned towards the ACY.
        During the interval in which the ACY is designed, built and
    fielded, the Department must also ensure the continued safety,
    reliability, and operational capability of the legacy AAV. The current
    AAV platform faces significant maintenance challenges and obsolescence
    issues. Accordingly, the Marine Corps is investing $70 million in AAV
    sustainment efforts, to include the AAV upgrade program. Both of these
    efforts remain a top Marine Corps recapitalization effort priority
    until fielding of the ACY. The Marine Corps plans to upgrade between
    350 to 400 existing AAVs to ensure they are survivable on the modern
    battlefield.
        While the AAV upgrades will provide a bridge of sorts, the ACY is
    needed to replace this aging fleet. The ACY Analysis of Alternatives
    was completed in July 2012 and the results of follow-on analysis into
    the cost of a high water-speed capability are expected in October 2013
    at which time a decision will be made whether to pursue a high water-
    speed vehicle. The current baseline budget allows for equipment
    modernization on a reasonable timeline. Possible future reductions in
    the baseline budget and the impact of sequestration would result in
    delay, modification or elimination of key modernization programs.
    Additional Modernization
        To complement future ground and amphibious vehicles, the Marine
    Corps is investing in key support areas such as the Ground/Air Task-
    Oriented Radarm. Fiscal year 2014 President's budget request includes
    $192 million to complete Engineering and Manufacturing Development and
    enter Low Rate Initial Production in fiscal year 2014. This system will
    replace five legacy radar systems, and will be significantly more
    advanced in its capabilities. It will improve threat detection and be
    more deployable, able to be set up in a fraction of the time compared
    with current systems.
        Over the last 10 years of near continuous combat operations, the
    need for fuel and batteries on the battlefield has grown exponentially.
    Since 2001, the Corps has increased the number of radios infantry
    battalions use by 250 percent and the number of information technology
    equipment by 300 percent. The number of vehicles has risen by 200
    percent, with their associated weight increasing more than 75 percent
    as a result of force protection requirements. In the end, the force
    today is more lethal, but we have become critically dependent on fuel
    and batteries, which has increased the risk to our logistics trains.
    Moreover, a 2010 study found that one marine is wounded for every 50
    fuel and water convoys. To reduce risk and increase combat
    effectiveness, in March 2011, the Commandant issued the ``Marine Corps
    Expeditionary Energy Strategy and Implementation Plan'' to change the
    way the Corps thinks about and values energy. As part of this strategy,
    we are also investing in the Ground Renewable Expeditionary Energy
    System and Solar Portable Alternative communications Energy System.
    These systems will provide portable power, increasing self-sufficiency,
    and reduce requirements for fuel resupply for small units operating at
    the forward edge. This ``bases-to-battlefield' strategy includes
    training all marines to understand the relationship between resource
    efficiency and combat effectiveness. Throughout the Navy and the Marine
    Corps, we will consider energy performance in all our requirements and
    acquisitions decisions.
                                   conclusion
        The Navy and Marine Corps team is fully aware of the fiscal
    challenges facing our Nation and has critically examined and
    streamlined our force needs for the future. We are proud of our
    reputation for frugality, and will continue to remain good stewards of
    every defense dollar we receive. In a period of budget austerity, we
    offer a strategically mobile force optimized for forward presence and
    rapid crisis response for a notably small portion of the Department of
    Defense budget. The Marine Corps will remain ready to fulfill its role
    as the crisis response force of choice for our Nation's leaders.
        Through the support of Congress, our marines and sailors responding
    to crisis and in the fight have received everything necessary to ensure
    success over the past decade of sustained combat operations. As we
    transition to the challenges and opportunities of the post-OEF world
    and continue to reorient to the Pacific, the Marine Corps is
    rebalancing and modernizing for the future. We must also keep faith
    with and provide the right resources for those who have served and
    sacrificed so selflessly in our All-Volunteer Force. With the continued
    support of Congress and the American people, we will ensure amphibious
    forces are well prepared to secure our national interests in an
    uncertain future.

        Senator Reed. Thank you, Mr. Secretary.
        General Mills, please.

    STATEMENT OF LTGEN RICHARD P. MILLS, USMC, DEPUTY COMMANDER FOR
     COMBAT DEVELOPMENT AND INTEGRATION/COMMANDING GENERAL, MARINE
                    CORPS COMBAT DEVELOPMENT COMMAND

        General Mills. Thank you, sir. Chairman Reed, Senator
    McCain, distinguished members of the subcommittee, it is good
    to be here to discuss Marine Corps modernization programs. As
    always, we thank you for your continued support to our sailors,
    our marines, and their families.
        As America's expeditionary force readiness, the Marine
    Corps' ground modernization investments support our Nation's
    ability to be prepared for all matters of crises and
    contingencies. Our ground investments allow us to develop and
    sustain a ready, middle-weight force easily deployable, energy
    efficient, and highly expeditionary.
        As the Department of the Navy and your Marine Corps
    confront the challenges of budget constraints in sequestration,
    we are evaluating priorities, we are making hard choices,
    choices that are necessary to maintain the right balance and
    capacity, capability, and industrial base sustainment.
        The programmatic priority for our ground forces is the
    seamless maneuver of marines from sea in order to conduct
    operations ashore whether for training, for humanitarian
    assistance, or for combat. The Marine Corps modernization and
    sustainment strategy is the basis for planning, programming,
    and budgeting in order to provide balanced maneuver and
    mobility capabilities for our operating forces. This strategy
    is focused on achieving the right mix of assets while balancing
    performance, payload, survivability, fuel efficiency,
    transportability, and of course, affordability.
        With the smallest modernization budget in the Department of
    Defense (DOD), the Marine Corps continually seeks to leverage
    the investments of our other Services. We carefully allocate
    our modernization resources in those investment areas which are
    most fiscally prudent and those which promise the most
    operational return.
        Our two signature modernization initiatives this year are
    the ACV and the JLTV. These vehicle modernization programs,
    coupled with an upgrade to our AAVs and also upgrades to our
    family of light armored vehicles, the refurbishment of a
    portion of our legacy HMMWV and improvements in advance
    simulation systems, are critical to sustaining our combat
    readiness and enabling our core warfighting capabilities.
        As discussed, the ACV AOA was completed in July 2012. While
    it did not directly address high water-speed, it did validate
    the requirement for an ACV capable of self-deploying from over-
    the-horizon at long distances. High water-speed, however, is
    still a valuable attribute, but we understand it must be
    weighed against all other requirements. Mr. Stackley, as he
    said, brought industry together with a team of our own experts
    at Quantico to determine if an affordable, survivable, high
    water-speed vehicle is in fact obtainable. We expect the
    results of this incursion in October of this year and expect a
    decision shortly after that time.
        Clearly, there are challenges in meeting operational
    requirements in today's highly dynamic security environment, as
    well as the constrained and uncertain budget environment we are
    operating in. However, in partnership with the Navy, the Marine
    Corps looks forward to working with you to address these issues
    so that we are best postured to continue serving as the
    Nation's expeditionary force in readiness.
        Again, thank you for the opportunity to be here. I look
    forward to your questions.
        Senator Reed. Thank you very much, General Mills.
        Let me ask a question which I think will be asked by all my
    colleagues in one form or another. That is, how would you
    characterize the impact or potential impact of the Continuing
    Resolution (CR), the sequestration, and reprogramming on the
    Marine Corps modernization budget this year and going forward,
    all of this under the Budget Control Act and other
    congressional actions? Mr. Secretary, you might begin.
        Mr. Stackley. Yes, sir. First, you start with the CR. The
    CR slowed our execution in 2013, but I think we are overcoming
    any lasting effects that it has had and getting up on the
    governor in terms of executing smartly our programs. The
    sequestration impact clearly is more significant for the two
    reasons that are described. First, is the dollar amount itself,
    and second, is the across-the-board method of applying the
    reductions due to sequestration.
        For Marine Corps modernization, for example, the total
    impact is north of $300 million across their programs in
    procurement and then a smaller but significant amount in
    research and development (R&D). So we are having to go line by
    line through the Marine Corps programs to mitigate the effects
    in 2013, recognizing that some of those effects bow wave into
    the out-years. So there may be some necessary backfilling
    associated with sequestration.
        We can handle that on a 1-year basis, but clearly when you
    start to compound that with 2014 and out, it will have a
    significant reshaping of our Marine Corps modernization, at
    least in terms of the schedule for the programs that we are
    delaying in the out-years.
        Senator Reed. General Mills, do you have any comments?
        General Mills. Sir, I would add that our program and our
    plan for modernizing especially the JLTV and the ACV area
    require a plan for us to buy them sequentially. Any delay to
    either of those programs could affect our ability to do that.
    So it is one that we are very concerned about and one that we
    are watching very carefully. Again, affordability is a major
    factor in both of those programs. The sequential buy and the
    interaction between those two programs is critical to our
    strategy, and so the impact could be substantial.
        Senator Reed. Let me ask you a question, General Mills. I
    understand currently the Marine Corps has about 1,000 AAVs,
    which is the workhorse that gets marines from ship to shore.
    When you were doing the EFV, because of costs and other
    factors, I think you were down to a number of about 360. That
    was the planned buy. That would equip about four infantry
    battalions, not presumably 10 or so battalions you could equip
    now with the AAV.
        As you go forward with the new vehicle, the ACV, what is
    your target in terms of how many vehicles you want to procure?
    Then how does it relate to some of the other purchases? For
    example, you also have on the boards a Marine Personnel Carrier
    (MPC), which is a wheeled vehicle. You are sharing costs with
    the Army with the JLTV. Is there a priority? I say this in the
    context of, when you look out at the money situation, even in
    the best of circumstances, it is not going to be as robust as
    we might have thought 4 or 5 years ago. Do you have to make a
    tough decision and say, ``well, we only can afford the
    appropriate number of ACVs and then the others will be
    slipped.'' How are you going to deal with this whole vehicle
    mix?
        General Mills. Sir, the ACV is the Commandant's number one
    priority for ground modernization, and so that is the crown
    jewel in our program. Of course, it does impact our other lift
    requirements, and we have looked at those very carefully and
    studied them very carefully. The MPC is probably an excellent
    example of that. Although that is something we would like to
    have, we feel at this point in time we just simply cannot
    afford it. So we have pushed that requirement further out into
    the out-years to be perhaps resurrected at a later date.
        We have taken a look at the number of ACVs that we would
    need, what our lift strategy would be to move forces from ship
    to shore. We have looked at the mix between aircraft lift and
    surface lift. We have looked at alternate means of moving
    forces once they get ashore. We feel we have arrived at a
    requirement to lift about six battalions of forces by ACV, and
    that is the number that we are looking at.
        We have also, of course, developed a bridging strategy
    until that vehicle is able to be fielded, and that is to
    selectively sustain a number of our AAVs, our amphibious
    tracked vehicles, which are in the fleet right now. Between 350
    and 400 of those vehicles will undergo some sustainment work.
    They will become more survivable by increasing the protection
    on the floor, by putting in new blast seats that make it more
    survivable for the marines who ride inside of it, and some work
    on the power trains to be able to lift that extra weight and
    move it.
        So we see that as a bridging strategy until our new ACVs
    are able to be fielded some years from now, but we think that
    we have a plan, again, to maintain that core capability of
    moving marines in a self-deployer from ship to shore, move
    seamlessly beyond the high-water mark, continue on to the
    objective, and provide the marines inside with an acceptable
    level of protection.
        Senator Reed. Let me ask you another related question. The
    present AAV is designed to carry at least a squad of marines to
    the beach. When you look forward to the new ACV, is that going
    to maintain that same unit integrity of a squad or are you
    building a smaller vessel, or what are your plans?
        General Mills. Sir, what we anticipate is sometime in the
    October timeframe getting back the additional study from
    industry which will tell us the trade space that we have. We
    understand there will be some trades between affordability,
    number of marines you may have to lift inside of it, high speed
    in the water or not high speed. So the number of marines that
    will be lifted ashore is one of those areas in which we look at
    possible trade space. Unit integrity is critical to us,
    obviously. Lift capability to bring the right supplies ashore
    and be able to sustain those forces once they are on the beach.
    All those are factors that we will have to look at when we
    decide what it is that vehicle will finally be able to do.
        Senator Reed. Thank you.
        For the members' information, we are doing 7-minute rounds
    and we will entertain a second round.
        I hope, General Mills, I asked hard questions because as
    General Flynn pointed out at his retirement, I asked too easy
    questions and he was hoping that the Commandant would be here
    rather than you so I can ask harder questions. So I hope I have
    not disappointed General Flynn.
        General Mills. Sir, I failed to thank General Flynn for
    making that comment.
        Senator Reed. You should thank General Flynn.
        Senator McCain.
        Senator McCain. Thank you, Mr. Chairman.
        It is nice to see you again, General. You mentioned the
    last time we were together was in March--we had a delightful
    meal of unknown ingredients at the Governor's residence, and
    how you survived all those meals is a testimony to your iron
    constitution, I must say. [Laughter.]
        Secretary Stackley, we are still budgeting on the proviso
    that sequestration will be repealed. Is that correct?
        Mr. Stackley. Yes, sir. The 2014 budget request did not
    include an impact associated with sequestration.
        Senator McCain. Do you think at some point, as the weeks go
    on, that maybe we should prepare for that contingency?
        Mr. Stackley. Yes, sir.
        Senator McCain. I would imagine that decision is somewhat
    above your level, but would you not think logically we should
    start at least preparing a budget which would take into
    consideration the lack of repeal of sequestration? I say this
    because I think it might motivate Members of Congress and the
    American people to understand how devastating the effects would
    be.
        Mr. Stackley. Yes, sir. Secretary Hagel, back around the
    March timeframe, launched what he referred to as a Strategic
    Choices and Management Review (SCMR) to do exactly that, to
    take a look at the longer-term impacts associated with
    sequestration commencing in 2014 and beyond.
        Senator McCain. But there has been no formal notification
    or inclusion of Congress in those deliberations. Again, I hope
    that we would make the American people aware of the effects of
    another, I believe, $52 billion reduction in defense spending.
    Is that correct?
        Mr. Stackley. Yes, sir.
        Senator McCain. So we have already, in the short-term,
    curtailed training for nondeploying forces, General Mills, and
    obviously it takes time to recover from the impacts of
    training. How concerned are you, and who would bear the brunt
    of this additional risk in your view?
        General Mills. Sir, the Commandant is very concerned about
    the readiness, of course--number one--of our deploying forces,
    but equally with all marine forces. As we are a crisis response
    force, we have to have forces ready to deploy immediately, not
    necessarily being able to plan that ahead of time. I think that
    you can see that somewhat in the deployment of our special
    purpose Marine Air-Ground Task Force that recently deployed to
    Europe in order to cover any contingencies that arise on the
    northern rim of Africa, again an unplanned deployment, but one
    in which the Marine Corps had to be ready to do and which, I
    think, we did in a very timely and very efficient, professional
    manner. Those forces today, I believe, are on alert for
    possible use somewhere in that area. So we are very concerned.
        I think the first impact you probably would see in
    readiness would be in our aviation communities. Those are
    skill-sets that deteriorate very rapidly which require constant
    refresher training. I think the ground forces perhaps might
    have a little more lag time to maintain their high state of
    readiness. As you begin to see parts, as you begin to see
    maintenance pieces fall out of the budgets, I think that that
    would have a direct impact on our ability to deploy forces. So
    it is a concern.
        Senator McCain. As far as the ACV, for which the budget
    requests $137 million and follows the failed EFV, what are we
    doing different this time, General?
        General Mills. Sir, I believe what we are doing different
    this time--first of all, we are drawing from the lessons
    learned from that previous program, which are substantial.
        Senator McCain. A $3 billion lesson.
        General Mills. I think those lessons have been applied
    directly to the partnership that you see today between industry
    and the developers down at Quantico who are looking now at a
    series of capabilities, and those capabilities, I think,
    include high water-speed will be weighed carefully for
    affordability and for trade space so that we understand what we
    are giving up if, in fact, we want to achieve the high water-
    speed. So I think certainly the number one lesson I can say we
    drew from there is that we have to balance high water-speed
    against the other capabilities we want out of that vehicle and
    ultimately against the affordability of the individual vehicle
    but also of the entire program itself.
        Senator McCain. When you look at the costs of the high
    speed in the water issue, in retrospect, it is just nonsense.
    Who was the contractor on that system, do you know?
        Mr. Stackley. The prime contractor for the EFV program was
    General Dynamics, one of two defense contractors that have the
    ability to manufacture track vehicles.
        Senator McCain. That is one of the problems.
        Secretary Stackley, today I understand that Secretary Hagel
    plans to announce this afternoon that DOD will furlough about
    800,000 civilian employees to pay for the budget cuts under
    sequestration for 11 days. Assuming that is going to happen,
    which is what reports are, what will be the impact of
    furloughing the civilian employees on Marine Corps and Navy
    depot operations, and how does that--maybe General Mills can
    weigh in on this--impact fiscal year 2014 readiness? How long
    would it take the Navy and Marine Corps to recover from this
    decision?
        Mr. Stackley. Yes, sir. Let me start by discussing what the
    impact of the furlough would be on the depots. Notionally, the
    furlough would be a day-per-week furlough for the period of
    time that the Secretary would be announcing. If it applies to
    the depots--and I do not know that at this time--then 1 day a
    week the depots would be shutting down or curtailing their
    operation, and there would also be an impact in terms of their
    ability to work overtime. So there is the direct impact of a
    day-for-day loss of work plus the impact of lost overtime
    opportunity for dealing with throughput at the depots.
        Today at the depots, we are dealing with the workload
    associated with planned maintenance and also the workload
    associated with reset as hardware comes back from the theater.
    So we are rising in terms of the workload at the depots,
    reaching towards a peak in the 2014 to 2015 timeframe, and this
    would stall that ramp-up.
        Senator McCain. General Mills, do you have a comment?
        General Mills. Sir, I have to concur with what Secretary
    Stackley said. It would have a ripple effect. Right now, the
    Marine Corps plan is to reset the force in stride by fiscal
    year 2017, and that depends on our depots being able to provide
    that very vital maintenance work and that refit work. So it
    would have a definite impact on our ability to reset the force
    and, again, would have a ripple effect, I believe, on readiness
    in the out-years.
        Senator McCain. Just as a comment, Mr. Chairman, is it not
    true that with all this equipment coming back from Afghanistan,
    the load on these depots is dramatically increased? Is that not
    true, Mr. Secretary?
        Mr. Stackley. Yes, sir.
        Senator McCain. Thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator McCain.
        Senator Kaine.
        Senator Kaine. Thank you, Mr. Chairman.
        To the witnesses, welcome.
        You might have mentioned this, but I just want to pin it
    down. I think we are expecting a report from Secretary Hagel in
    early July, around the 1st of July, to the committee on
    sequester effects compared to the fiscal year 2014 request. But
    if the annual is about $52 billion in terms of reduced defense
    expenditure, what are you expecting that to be in terms of an
    allocation to the Marine Corps?
        Mr. Stackley. Senator, that is exactly the type of review
    that is going on right now inside of the SCMR. We are trying to
    not have a strict Service-by-Service allocation but really take
    a step back and take a look at the capabilities, the
    operations, and the priorities across DOD, with input from the
    combatant commanders in terms of how to best deal with
    reductions to the budget.
        If you just assumed an across-the-board cut the way
    sequestration was applied in 2013, then in terms of Marine
    Corps procurement, for example, you would be looking at about a
    $200 million to $250 million reduction, and when you overlay on
    top of that the impact to R&D, now you are north of $300
    million. If you look at what we refer to as blue-in-support-of-
    green, which are Navy dollars that go towards Marine Corps
    programs such as aviation and amphibious shipbuilding, then you
    quickly go north into the billions.
        Senator Kaine. So just on the procurement account--and
    straight line is not likely what you are going to recommend,
    but if it was about $200 million to $250 million, that is out
    of a $1.3 billion request in the fiscal year 2014 budget.
    Potentially 25 percent of the procurement request could be
    reduced if we were to apply the sequester on a straight-line
    basis.
        Mr. Stackley. For planning purposes, we are taking a
    nominal 10 percent number and then looking at iterations off of
    that up and down.
        Senator Kaine. Just a decisionmaking thing that you have
    had to recently go through was a decision that you would not
    retrograde a lot of the Mine Resistant Ambush Protected (MRAP)
    vehicles back from Afghanistan. Could you just share the
    decisionmaking on that and how that is a mixture of either
    modernization and analyzing what capacity you need versus the
    budgetary realities of the cost of retrograding and how the
    Marine Corps reached that decision?
        General Mills. Sir, regarding the MRAP, we procured a
    little over 4,000 of them. We did an extensive study to decide
    how many we wanted to retain as a capability because it is a
    rather unique vehicle and it does have some limitations on it.
    That study was completed this summer. We decided that we were
    going to retain about 1,200 of them. Those would be refitted
    and they would be spread-loaded at various places both in our
    preposition stocks, both ashore and afloat, also out to our
    operating forces for missions such as route clearance and
    explosive ordinance disposal work. Some would be retained at
    our various training locations in order to ensure that our
    mechanics and drivers were able to train on the actual vehicle
    itself. So a very rigorous study was applied, in which we
    decided that a little over 1,200 was probably the number that
    we could afford and we wanted to retain.
        Senator Kaine. The plan would be to leave the remainder in
    Afghanistan and try to allocate them to our partners there as
    best as we can?
        Mr. Stackley. Sir, the MRAP retrograde is much larger than
    the Marine Corps, obviously. So across DOD, with the Army being
    the heavyweight in terms of numbers, we are still working
    through the details of how to best retire the vehicles that are
    not going to be put back into service. There is an in-theater
    piece to it, but then the large numbers--we are still going to
    have to be bringing these back to the States.
        Senator Kaine. We had some testimony recently about the
    size of the retrograde budget, and I think General Amos or
    General Paxton said that the Marine Corps will need about $3.2
    billion in Overseas Contingency Operation funding to retrograde
    the equipment that it wants back. How would the sequester
    likely affect that effort?
        Mr. Stackley. One of the issues that we are dealing with
    right now in 2013, dealing with impacts associated with
    sequestration, is retrograde and its effect on--again, it is
    not a Service-unique issue. It is a force-wide issue--our
    ability to retrograde from Afghanistan. So it is having a very
    direct, very real impact, and Congress will be seeing some of
    those effects when we talk about reprogramming later in fiscal
    year 2013.
        Senator Kaine. Senator McCain asked a question that was
    about the effect of sequester on readiness, and, I think,
    General Mills, you indicated that you might see it sooner on
    the aviation side than on the ground side. Or maybe it was
    Secretary Stackley. How about in terms of the procurement side?
    What is likely to feel the most direct effects? Or I guess the
    reverse way to ask it is what priority on the procurement side
    will you protect against sequester, and then what is most
    vulnerable to sequester on the procurement side. Is it aviation
    or other assets?
        Mr. Stackley. It is not going to be aviation versus ground
    vehicles versus shipbuilding. We have to look at the balanced
    force capability. I will tell you that shipbuilding is a
    priority for the Secretary of the Navy, and so we are going to
    be protecting that in the budget process. General Mills
    described that the ACV is a priority for the Commandant. So
    when we look at the mix of vehicles between the JLTV, the
    improved AAV, and the development of the ACV, we are going to
    keep the ACV on track to the extent possible even within a
    sequestered environment.
        Then the other top priority for the Marine Corps is the
    STOVL version of the JSF. That is going to have to--not simply
    earn its way--hold its place in the budget as it continues its
    development. So it is keeping the development on track, and
    that is a priority inside of the JSF program is keeping the
    funding for the development, but then performance inside of
    that development and test regime of the JSF STOVL version will
    be the other priority for the Marine Corps.
        Senator Kaine. One last question moving away from the
    budget is in the discussion about the pivot to Asia. As you
    look at modernization programs, how does a more primary focus
    on Asia affect the strategic decisions about what kinds of
    platforms to procure on the procurement side?
        General Mills. Sir, again, the pivot to Asia, when you look
    at the Pacific, you are struck by the vastness of the maritime
    and the ability of our forces to operate from ship to shore. So
    we are very carefully looking at, as we modernize, to ensure
    that everything that we get is able to fit very nicely with our
    Navy counterparts' plans as they look at shipbuilding, look at
    what the new ships are going to look like, their capabilities,
    capacities, and again to ensure that the Marine Corps remains
    the expeditionary crisis response force able to respond
    anywhere when the country needs it. So we are looking very hard
    at those kinds of things. So if you look at vehicles like the
    MRAP, which are not very expeditionary, and, of course, look at
    the JLTV and the ACV, which are critical to our expeditionary
    capabilities, those again are the programs that we want to
    protect, programs we want to continue, and the ones that are
    very important to us as a Corps and as an institution.
        Senator Kaine. Thank you, Mr. Chairman.
        Senator Reed. Thank you.
        Senator Ayotte.
        Senator Ayotte. Thank you, Mr. Chairman.
        I wanted to follow up with last May 10, 2012, before the
    implementation of sequestration, there were many of us asking
    questions as to what to anticipate on the impact. General
    Dunford testified before the Senate Armed Services Committee, I
    believe on the subcommittee, that if you look at the personnel
    end--now, I understand that is exempt right now in terms of
    Active Duty--that if we were to cut 10 percent from the Marine
    Corps, it would end up being an 18,000 troop cut and that, in
    his view, it would not allow us to meet a single major
    contingency operation. That really stuck with me because the
    notion that we would have--if we just took it from the troop
    side, that we would have a Marine Corps that could not respond
    to a single major contingency operation.
        Can you help me understand that testimony in light of--we
    are all sitting here today on sequestration, but this thing
    continues for 10 years. Is there an assumption that in those 10
    years we will continue to exempt the troops from that in terms
    of force structure and end strength? If that assumption does
    continue, if you think it will continue, if sequestration is
    the new norm, then what will that mean? I am assuming if we do
    not take it from the troop end, General, that if we send the
    troops in there, it has to be taken from somewhere, and then
    they do not have the equipment and/or the training.
        So I wanted to bring that statement to your attention again
    and get a reaction to it because to me, it was quite striking
    at the time.
        General Mills. Thank you, Senator.
        Of course, the Marine Corps has been looking for the past
    several years at what size will we be following the wars in
    Afghanistan and Iraq, and we have put substantial effort into
    several studies designed to balance the requirements that the
    Marine Corps faces, along with what can we actually afford to--
    how big can we afford to be and what can we afford to have
    those marines equipped with.
        Currently, we are looking at a force of 182,100. That meets
    the requirements, we feel, with some risk across the board.
    Everything from, of course, the entire range of military
    operations. Everything from humanitarian assistance to a major
    contingency operation somewhere in the world. We continue to
    look at those numbers. Personnel is our largest expense. It is
    expensive. But we need to have marines, obviously, and we need
    to have the units manned to proper strengths. The Commandant
    has been very adamant that he does not want to build a hollow
    force, hollow either in the number of marines who are manning
    the fighting holes or the equipment that those marines have
    with which to operate.
        So it is going to be a balance, no question about it. The
    challenge will be to make those balances between equipping the
    force, training the force, and manning the force, and one which
    we will put an awful lot of effort into.
        Senator Ayotte. General, I appreciate that.
        I think what we need to understand here is--and if you
    cannot answer this today, I would like us to take it for the
    record. If last year, when General Dunford said that the impact
    of sequestration would be that the Marine Corps could not
    respond to one single major contingency, that is the kind of
    thing that keeps me up at night. So if that is where we are,
    meaning if we continue on this path, whether it is because we
    have to reduce end strength and/or because we have to diminish
    the training and the equipment that our men and women in the
    Marine Corps need, I would like to know what your view is of
    that statement now, if it has changed and/or what the
    implications are going forward.
        I just think that it is really important because there is
    an operating assumption around here that, sure, maybe it is all
    okay, and I think it is important to understand what that does
    to the investment in our Marine Corps going forward. We ask you
    to go in first, and if we do not have a robust, prepared Marine
    Corps, then that is a big problem for our country.
        So if that is something you want to take for the record,
    that is fine, or if you can answer it now, I would appreciate
    it.
        Mr. Stackley. Senator, the only thing I can add at this
    point is I come back to the SCMR. That is the task before this
    group which looks across the Services, across the strategic
    defense guidance, overlays what does a $52 billion hit look
    like in terms of, first, what can we get out of, call it the
    cost of our doing business, call it efficiency, what have you.
    Then for the balance of that reduction, what are the impacts to
    keeping things balanced, the size and shape of our force, and
    the readiness of that force in terms of their training, their
    maintenance, the wholeness of their equipment, and then the
    operations that can be conducted and then prioritize. So,
    frankly, it is a somewhat daunting task that we are trying to
    complete in the course of the balance of this spring before we
    can come forward to Congress with some findings.
        Senator Ayotte. So just as a follow-up for both of you, we
    will give you General Dunford's statement and you can let me
    know whether that statement still stands because this is a
    shocking statement and it is really important that we
    understand that.
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        Additional information regarding this request was provided to
    Senator Ayotte.

        Senator Ayotte. I do not have a lot more time, but I want
    to ask you about this G/ATOR program. I want to ask you about
    the trailer-mounted radar system. Having read the Government
    Acountability Office (GAO) report from March 2013, my jaw
    dropped really when I looked and I saw a 145 percent increase
    in R&D, an 87 percent increase in procurement costs, a 101
    percent increase in total program costs, a 126 percent increase
    in unit costs, and a 100 percent increase in acquisition time.
    So can you help us? When we are talking about sequestration,
    this to me seems like a 126 percent increase in unit costs--how
    can we justify that to people back home? Can you tell me what
    is happening with this particular procurement program, the G/
    ATOR?
        Mr. Stackley. Let me first describe that the numbers that
    you are quoting from GAO--I am looking at the baseline for G/
    ATOR, and I do not arrive at those types of numbers. I am
    looking at a 13 percent increase in the current costs over the
    original baseline, and I can provide you the backup data that
    goes with that.
        G/ATOR has been an extremely strongly performing program
    over the course of about the last 3 years as we have been
    completing its development, and today we are taking production
    representative units out in the field and demonstrating its
    performance. So it is meeting its performance targets.
        It is about 13 percent over the original baseline, but to
    the current baseline, it has been 5 percent or less above that
    developmental baseline. The efforts to reduce its procurement
    costs--we were able to go to a new technology, referred to as
    gallium nitride, for the system, and by combining that shift in
    G/ATOR, along with other radar programs that are all moving to
    gallium nitride, we are able to bring down its unit cost in
    production in the out-years as well.
        Senator Ayotte. I see my time has passed, but I am holding
    the GAO report right here. I took these percentages right from
    it. So I certainly would like to have a follow-up.
        Mr. Stackley. Yes, ma'am.
        Senator Ayotte. If we can get it today, I will submit a
    written question to get a follow-up answer on this because it
    does not make sense to me with what I read in the GAO report.
        Thank you.
        Mr. Stackley. Yes, ma'am.
        [The information referred to follows:]

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        Senator Reed. Thank you, Senator Ayotte.
        Senator King.
        Senator King. General, I want to step away a minute from
    procurement and talk about strategy. We are talking about the
    Pacific. We are talking about amphibious. The Benghazi
    situation taught us that timeliness of response is important.
    During that week that that event occurred, there were 31
    different demonstrations around the Muslim world, 5 different
    attacks. This is going to be a part of the future, I am afraid.
    Do you have a strategy or think about rapid deployment of small
    numbers of people as opposed to taking a beach in a more
    concentrated kind of way?
        General Mills. The Marine Corps has always been and
    continues to be the crisis response force, and one of the
    pillars of that strategy or ability to do that is our ability
    to be forward-deployed and therefore being able to be
    repositioned close to areas of crisis as they develop and,
    furthermore, being able to linger in those areas for a
    substantial period of time and to be able to provide the
    decisionmakers back here in Washington time to decide what it
    is they want to do about that particular crisis. So that is why
    we stress the importance of the Marine Corps being
    expeditionary, being forward deployed, being aboard ship,
    having the means to move ship to shore, to put only the force
    necessary on site and be able to sustain them if they need to
    stay there, and to provide the forces that are afloat with a
    wide range of capabilities so they are able to operate across
    the entire realm, or whether that crisis happens to be
    something like Benghazi or whether that crisis is a hurricane
    or a tornado that has struck a particular area, or a
    humanitarian disaster, any sort of crisis we might want to be
    able to use our forces to respond to.
        We believe the value of our amphibious forces is that you
    can reposition. You can get it to the crisis location. It is
    not locked down to one particular location and, therefore, too
    far away or too many hours away to be able to respond credibly.
    We think that that just shows the value of the Marine Corps to
    the country.
        Senator King. Do you think we are adequately forward-
    deployed now? If so, why could we not get people to Benghazi?
        General Mills. The Marine Corps maintains three forward
    deployed amphibious forces at any one time. One comes off the
    east coast of the United States, and one comes off the west
    coast of the United States, and one is based in Japan.
    Currently, all of them are busy within the U.S. Central Command
    (CENTCOM) area of operations.
        Senator King. I would point out none of those geographic
    areas are anywhere near where all of these demonstrations took
    place.
        General Mills. True. I had the privilege of being able to
    command the 24th Marine Expeditionary Unit out of Camp Lejeune,
    NC, back in the late 1990s and early 2000s. Then our routine
    stops were all in the Mediterranean. We made a round robin, if
    you will, of the Mediterranean, operated there nearly
    exclusively. However, a good example again of the value of
    those kinds of forces is that in 2003, when the fight in Iraq
    started, we moved through the canal, went down to the Red Sea,
    and we actually landed and participated in the operation
    ashore.
        So a long answer to a short question. The fact is, that the
    value of those amphibious forces, had they been moved, they
    could have been positioned in the Mediterranean perhaps if that
    is where the decision was made where they were needed most. At
    this time they are in the CENTCOM area of operations conducting
    operations.
        Senator King. Changing the subject, on the ACV, I think the
    chairman testified that there were $3 billion spent before that
    program was terminated. That is an awful lot of money. Should
    we not have a trigger that tells us before we get to $3 billion
    that it ain't gonna work?
        Mr. Stackley. Yes, sir. The program that was terminated was
    the EFV. A long history to that program. The demonstrator for
    the EFV dates back to the late 1980s/early 1990s, followed on
    by a down-select to a sole source development effort that
    proceeded through the 1990s and into the 2000s to develop the
    technologies that would go with the complex task of a high
    water-speed armored vehicle.
        The program did incur what is referred to as a Nunn-McCurdy
    breach where it exceeded its original baseline cost by greater
    than 25 percent. That was in the 2006 timeframe. At that point
    in time, the program was restructured. The cost estimates were
    stabilized, and the program went into what is referred to as a
    reliability growth effort to get the reliability numbers up
    where they needed to be.
        The decision to terminate the program in 2011 was driven by
    two parts. One was the unit cost had grown, at that point in
    time, to a $16 million to $17 million vehicle, which was beyond
    the reach of procurement in the Marine Corps. It would have
    pushed too many other programs out. The other aspect was the
    operating and support costs. The complexity of the vehicle
    brought with it a tail----
        Senator King. Excuse me. I am not questioning that the
    decision was made. I am sure it was made on good grounds. My
    question is, why did it take $3 billion to get to the point
    where that decision became obvious?
        Mr. Stackley. Frankly, at the point in time the decision
    was made, it was competing with other priorities in the budget,
    and the decision was that the price tag for that vehicle,
    including the operating and support costs, was going to push
    out too many other priorities and that we needed to go back and
    revisit the EFV.
        Senator King. What is the difference between the AAV and
    the proposed ACV?
        General Mills. The program that was canceled? Is that the
    comparison?
        Senator King. No. The vehicle you have now, the AAV, versus
    the ACV. What is the difference? What are we gaining in the new
    proposed vehicle that we do not have in the current vehicle?
        General Mills. A number of things. First of all, the AAV is
    aging out. It is coming to the end of its life, so we are going
    to have to look at either replacing it or putting some
    extensive modernization into it.
        Senator King. Its physical life?
        General Mills. Its physical life, that is correct, just
    strictly the frame and those types of things.
        The difference is going to be mainly in protection. It will
    be one that jumps right out at you, is the fact that the AAV--
    it is very susceptible to the improvised explosive device (IED)
    threat. It is also susceptible to small arms fire. We are going
    to put more protection on the ACV, as it comes online. We hope,
    again, as we have said before, to achieve better water speed,
    higher speed in the water, therefore less time that the marines
    have to spend in it afloat.
        Senator King. What are we talking about when we talk about
    water speed? What does the AAV have versus this high speed? Are
    we talking about 50 knots or 30 knots?
        General Mills. No, no. The AAV right now in the water is
    probably about 7 knots. The hopefully high water-speed would be
    in excess of 15 knots.
        What does that give you? It gives you several things, less
    time in the water, as I said, quicker ability to move from ship
    to shore, your ability to offset the ships to avoid the threat
    ashore, so you can go further out in the sea because you can
    move those forces quickly to the beach. Also, it gives you
    range and ability to bypass perhaps enemy defenses and enemy
    beaches where you do not want to land, but you have to go other
    places. So it gives you a fair amount of improvement over the
    current capability.
        Mr. Stackley. If I could just add. General Mills described
    in excess of 15 knots. In fact, for the EFV, we demonstrated
    the ability to go greater than 25 knots by pushing the vehicle
    up onto a plane. That becomes critical in terms of the time/
    distance equation for buildup ashore and also the range at
    which you would deploy the marines from the amphibious ships.
        Senator King. But that was one of the things that pushed
    the price up, I understand.
        Mr. Stackley. Yes, sir.
        Senator King. Thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator King.
        Related questions, I hope, General Mills, you are going to
    have to take another amphibious operation, training operation,
    at which you are going to try to establish, I think, where you
    are, the baseline and what you need, and it goes to the bigger
    question. I cannot think of a more complicated military
    operation than amphibious assault. You need to clear the beach
    with naval gunfire, aviation. Usually you have to bring your
    own aviation. You have to get our amphibious ships up close but
    not too close. You have to have assault ships to take the
    marines to the beach, and you have to have LCACs to bring
    supplies ashore. Then, of course, you have to have marines
    ready, able, and well-trained to do that very complicated
    operation. Another dimension, which has increased, is the
    precision weapons that a likely opponent might have to engage
    even a fairly fast moving assault vessel.
        So given all those issues and given this budget problem,
    how do you keep everything synchronized in the sense of you
    have all those pieces? Because I think one of the concerns we
    have that has been reflected in a lot of the questioning is
    something is going to give. You are either not going to get
    your new assault vessel or you are not going to get the
    amphibious ships or the amphibious ships will not be the level
    of readiness that you need. You have training issues we have
    all talked about. Then you have this new environment where it
    is going to be awfully difficult to get close to a beach and it
    is going to be really hard to get on the beach given the
    weapons systems that even some of the second-tier powers might
    have.
        In the context of this training exercise you are doing, I
    would just like your comments on that very broad question.
    Again, thank General Flynn.
        General Mills. Senator, we do several large exercises. We
    do a number of large exercises every year. Usually in alternate
    years they are live. In other years, they are virtual, both one
    on the east coast and one on the west coast so we involve the
    entire operational Marine Corps in these exercises. I believe
    the one that you are interested in particularly is Exercise
    Dawn Blitz, which goes on on the west coast.
        All of these exercises, we try to put in both real
    operational experience but also experiments in how we plan to
    do things in the future and try things out. They are not just
    simply dog and pony shows in which we all land in a perfect
    line from 1,000 yards off the beach. Instead, we use those
    exercises because they are expensive and they are difficult to
    set up. We use them to experiment so we can try out new
    tactics, techniques, and procedures, and new operational
    concepts and apply those.
        For instance, distributed operations is one in which we are
    putting a lot of effort into in doing our exercises. Those are
    long inserts usually by air and supported by aviation and using
    experimental ways to supply those forces once ashore so we can
    maintain more of our big footprint out at sea where it is
    safer. We are also pushing the amphibious forces further out to
    sea, only sending those ships close to the beach that have to
    go there in order to carry out a particular mission, with the
    support further out outside threat envelopes. We are looking at
    energy experiments, for instance, in the way of solar and
    things like that so we have less of a logistics footprint to
    take ashore, which saves us in amphibious lift, which saves us
    in surface transport.
        So we use these exercises to take a look realistically at
    how we would conduct a whole range of operations from low
    intensity to high intensity against a threat that is real and
    that is based on good intelligence of what we might see in
    various places in which we go.
        Senator Reed. So your operation force would be, presumably,
    equipped with some of the sophisticated weapons that are
    available now, and your operation force command structure would
    operate independently of the blue force, if you will, so that
    they could react not by script but by the skill of the
    operation force commander. Is that a fair summary of the
    concept?
        General Mills. That is an extraordinarily good summary,
    sir. We want that operation force commander to react in what we
    call force-on-force, in which he is free to react as an
    operation force commander might. We want him to do the
    unexpected, and we want him to thoroughly test if what we are
    doing is the way it should be done. Sometimes failure can be as
    valuable as success. That shows you that an idea you have may
    or may not work out. Better try that out now in peacetime and
    obviously in a training operation than to find it out on a
    beach somewhere in the future.
        Senator Reed. Could I ask you when you conclude and have
    your results thoroughly vetted--would you be available either
    in an open or a closed session to come back and let us know
    about the lessons you have learned, particularly the lessons
    learned based on trial and error.
        General Mills. Absolutely. That would be great. We would
    relish that opportunity, sir.
        Senator Reed. Thank you very much.
        Mr. Secretary, let me ask you a variation of the same
    question, which is how do you keep all these different
    components at the relatively same level, readiness of forces,
    amphibious ships, et cetera, particularly given the sheer cost
    of the F-35B. How do you keep all those things moving forward
    in this very difficult budget? At what point--I presume it is
    after you have talked to the Commandant, General Mills--do you
    decide that we have to step back on this one. We can afford the
    risk. Can you comment on that briefly?
        Mr. Stackley. Yes, sir. First, the going in philosophy when
    we are dealing with this sequestration issue is the last thing
    we give up as we bring the budget down is the capability that
    we need. So let us work the entire budget and identify what we
    can do to reduce our costs before we give up the capability.
    Then when you get down to the things that add up to force
    structure is taking a look at the priorities within the program
    and looking for are there opportunities where things could
    either be delayed, deferred, descoped without compromising the
    force's ability to do its mission and then balancing. In the
    end, you have to keep things in balance.
        So you have to do a portfolio management of the program, as
    opposed to a line-by-line management of the program, to ensure
    that as you bring things down, you do not untowardly break a
    part of the kill chain. It is really looking at the kill chain
    to keep it intact and then understand what does that leave you
    in terms of your overall ability to perform the missions. So it
    is really taking a portfolio approach, starting with the rest
    of the costs, try to bring the cost of doing business down, and
    then within the portfolio, prioritizing and then making sure
    you keep it balanced.
        Senator Reed. Thank you very much, Mr. Secretary.
        Senator Kaine.
        Senator Kaine. This is a topic that I think may be a little
    bit beyond the modernization topic, but it has come up. It is
    the end strength, and then Senator King's questions about
    Benghazi have reminded me about something. General, you toured
    me at Quantico a couple months back, and one of the things I
    did was visit the marine security guard program on base, which
    is very exemplary.
        So the Accountability Review Board (ARB) in the aftermath
    of Benghazi suggested that one of the things that we needed to
    do was to bulk up that marine security guard program, I
    believe, by about 1,000 marines. That was the recommendation.
    Am I correct about that?
        General Mills. That is correct.
        Senator Kaine. Now, I believe that there is a bit of gray
    area about how that affects the end force, the 182,100 number.
    Would it be fair to say that the Marine Corps is considering
    the additional 1,000 marine security guards as additional to
    the 182,100?
        General Mills. The assumption was that the extra 1,000
    marines would not be counted against that 182,100 end strength.
    Yes, sir.
        Senator Kaine. So the current marine security guard program
    recruits enlisteds into that elite program and trains them, but
    the working assumption today is that the additional 1,000 would
    be on top of the 182,100 end force.
        General Mills. That is correct.
        Senator Kaine. The training budget for the current marine
    security guard program I understand is protected from
    sequester, but I do not believe the Marine Corps' budget
    request includes funding for an additional 1,000 to come into
    the marine security guard program. Correct?
        General Mills. That is correct.
        Senator Kaine. So even before we get to the question of
    whether sequester would affect the marine security guard
    program, even the Marine Corps budget, as requested, does not
    include funding for the recommendation that we add 1,000 to the
    marine security guard program.
        General Mills. I believe that is correct. I know there was
    a question about where that funding would come from.
        Senator Kaine. Mr. Chairman, this might be something that
    might be more for the Personnel Subcommittee, but I am
    concerned about this. One of my worries about Benghazi and the
    discussion about Benghazi is that we will spend a lot of time
    talking about things other than the recommendations that have
    been made for how we fix the problems that we spent a lot of
    time trying to dig through and discover. If the ARB
    recommendations make this, I think, worthy recommendation, a
    very worthy one, that part of the response should be bulking up
    the marine security guard program, and yet that is not part of
    even the budget request right now, it could easily get lost in
    the shuffle as we talk about other aspects of Benghazi.
        I hope that as we move into the full committee markup, that
    might be something that we dialogue with the Marine Corps about
    because if they are believing from a Corps perspective that the
    1,000 security guards are extra but we on the staff or the
    Senate side are believing, no, you can find that 1,000 within
    the 182,100, then we have a serious challenge. We ought to be
    trying to reach some kind of an accord and be on the same page
    about it because following the ARB's recommendations, I think
    is the least that we ought to be able to do to protect against
    the likelihood of a similar incident in the future.
        Senator Reed. I think the Senator has made some excellent
    comments. First, the issue here of whether that increase would
    come out of the top line of the Marine Corps so it would be a
    cost to maneuver units and other units of the Marine Corps, I
    think that has to be seriously addressed.
        Second, the primary mission, prior to Benghazi, of the
    marine security unit was basically to destroy the sensitive
    information and protect that information. In fact, we lost a
    marine in Islamabad doing that in the 1980s. That raises the
    question of do we want a different mission also for the marine
    security forces.
        So I think your point is well-taken and we will pursue it.
        Senator Kaine. Thank you. Thank you, Mr. Chairman.
        Senator Reed. Thank you.
        Senator King, do you have a question?
        Senator King. A comment about sequestration. I can remember
    being asked last year this time or perhaps in the summer about
    sequestration and saying, ``oh, do not worry. It will never
    happen. Congress would never do such a foolish thing.'' I have
    a feeling now that we are having a somewhat similar experience
    of it will never happen again. It is just more of a comment
    than a question, and I am glad to hear the Secretary is
    preparing a contingency plan for what happens if.
        I would urge you to get that contingency plan or list of
    what it would mean to us because it will help those of us who
    want to try to unwind sequestration to have the information of
    what it will actually mean. One of the problems with the
    discussion that took place around here in February and March
    was it was all abstract and nobody really knew what it was
    going to entail.
        Following on that point, it strikes me that the overall
    impression from this hearing is that we are really in a
    situation, particularly with sequestration, where readiness and
    modernization are in competition with each other, and that we
    are slighting both is what it amounts to. I believe the
    chairman's comment was we are 50 percent below readiness levels
    generally across the Marine Corps, and we are also talking
    about putting aside and slowing down some of these
    modernization projects. Modernization is particularly
    important, it seems to me, as we are coming out of Afghanistan
    and we have an aged force of equipment. We have learned a lot
    of lessons, and the question is, are we going to have the
    wherewithal to modernize and upgrade that equipment?
        This was a long statement. Now my short question. Am I
    correct that we are really talking about a competition or a
    tension between readiness and modernization?
        Mr. Stackley. Sir, I would say it is clearly a tension. I
    would not use the word ``competition'' because we all lose if
    you have to compete current and future readiness.
        The Marine Corps modernization strategy has been very well
    thought out over the last several years, going from amphibious
    ships, aviation, and then ground vehicles. So it is a well-
    constructed plan to hold onto that capability that was defined
    in terms of two marine expeditionary brigades capability for
    joint forcible entry operations. Senator Reed's question gets
    at that capability that is central to the Marine Corps'
    operations.
        So we are very careful in all these deliberations to hold
    onto that capability which we think the Nation needs as a
    priority. The deliberations will carry on and the outcome will
    start to set a path for perhaps there are trades that get made
    between current and future readiness to hold onto current force
    structure at some expense of future capability. But we are not
    there yet. We are not there yet. We are holding onto what we
    believe are the core capabilities required by the Marine Corps
    to perform that mission.
        Senator King. General?
        General Mills. Sir, I would agree. There is always a
    certain tension, I think, in any budget process. I think the
    Commandant, however, understands the value of the Marine Corps.
    We are most ready when the Nation is least ready. He has
    directed the Corps to be ready and we will be ready. If that
    requires some tradeoffs in modernization, some delays in some
    programs or perhaps restructuring a few programs, then that is
    what we will do. But I can assure you the marines who go
    forward will be ready to go there and to accomplish their
    mission, properly equipped, properly trained, and fully manned
    to do that.
        We have already begun to make a few of these adjustments.
    JLTV, for instance. We maintain that program. However, we are
    also going to care for our HMMWVs and we are going to put them
    through a sustainment and a reset process that they will be
    also able to serve out in the fleet. The MPC, which was the
    third triad of our ground mobility--we have decided to delay
    that a number of years, again in order to ensure that we can
    afford those critical pieces of equipment that we need to do
    our core missions.
        We think that the ACV is our number one priority that we
    have to have. That is what the Marine Corps does. We move from
    forward-deployed ships. We move ashore. We move seamlessly
    beyond the high water mark to the objective to conduct
    operations. To do that, we need that ACV, and so we are going
    to protect that program.
        The JLTV, we think we need that program. The HMMWV showed
    itself in Iraq and Afghanistan to be very susceptible to the
    IED threat and the mine threat. The JLTV will have a level of
    protection substantially better than the HMMWV and will protect
    those marines and sailors who have to go forward to do the
    Nation's business.
        So although that tension exists, I think we are studying it
    very hard and willing to accept some risk in some areas, but
    again, our readiness, our ability to go forward, our ability to
    do the Nation's business when called upon, will remain
    sacrosanct.
        Senator King. Again, I would emphasize that we need to hear
    about the effects particularly of the sequestration because it
    will not do to have a crisis that we are unable to respond to
    adequately and then look back and say, ``well, we just could
    not do that because of the lack of funds.'' You need to tell us
    now so we can prevent that eventuality.
        Thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator King.
        Mr. Secretary, General Mills, thank you for your testimony,
    and obviously your continued service to the Nation and the
    Marine Corps and the Navy.
        We will keep the record open until next Tuesday, May 21.
    You may get questions from my colleagues or additional
    statements could be included. We would ask you to respond to
    those questions as promptly as you can.
        If there are no further questions, the hearing is
    adjourned.
        [Questions for the record with answers supplied follow:]
                  Questions Submitted by Senator Kelly Ayotte
                  reduced capacity for contingency operations
        1. Senator Ayotte. Secretary Stackley and General Mills, on May 10,
    2012, General Dunford testified that ``If we were to cut another 18,000
    we would not have adequate capabilities and capacities to meet a single
    major contingency operation.'' Is that still true?
        Mr. Stackley and General Mills. At the time General Dunford was
    asked the question, leaders were deciding how sequestration would be
    implemented at the Service level. Studies were attempting to determine
    if cuts should be applied to capacity, capability, readiness, et
    cetera. Applying a 10 percent personnel cut from 182,000 would reduce
    the Marine Corps to approximately 164,000--which is a significant
    reduction. Based on analysis from the Force Structure Review Group and
    the Force Optimization Review Group, the Marine Corps could respond to
    a major contingency operation, but at 164,000, it would be an all-in
    force. This force would include all Active Duty components supplemented
    by the Reserve Force. It is important to note that the Marine Corps
    would not have the force structure to provide additional crisis
    response or forward presence (e.g., Marine Expeditionary Units) during
    this evolution. Additionally, when the question was posed to General
    Dunford, personnel were exempt from sequestration and were therefore
    removed from the sequestration equation.

                         ground/air task-oriented radar
        2. Senator Ayotte. Secretary Stackley and General Mills, in your
    joint prepared statement, you discuss the Ground/Air Task-Oriented
    Radar (G/ATOR). You state that this multi-role radar will improve
    threat detection, be more deployable, and is intended to replace five
    legacy radar systems. However, I am concerned about the program's past
    cost growth and schedule delays. According to a March 2013 Government
    Accountability Office (GAO) report, between August 2005 and June 2012,
    the program saw a 145 percent increase in research and development cost
    ($364 million to $893 million); 87 percent increase in procurement cost
    ($1.1 billion to $2.1 billion); 101 percent increase in total program
    cost ($1.5 billion to $3.0 billion); 126 percent increase in unit cost
    ($24 million each to $53 million each); and a 100 percent increase in
    acquisition time (66 months to 132 months). Why has the program
    experienced a 126 percent increase in unit cost?
        Mr. Stackley and General Mills. Provided by the Assistant Secretary
    of the Navy (ASN) for Research, Development, and Acquisition (RDA) in
    his letter to Senator Ayotte dated May 22, 2013, excerpted below:
        During my testimony before the Seapower Subcommittee of the Senate
    Armed Services Committee on May 14, 2013, you raised a concern
    regarding a recent GAO report outlining cost growth exceeding 100
    percent in the AN/TPS-80 G/ATOR Program.
        In my response, I cited much better performance and indicated an
    inconsistency in our respective data. In fact, I was incorrectly
    referring to the program baseline at the time it was designated as a
    Major Defense Acquisition Program as the ``original baseline.'' Your
    concern for G/ATOR cost growth is wholly warranted as it relates to
    peformance prior to the program being restructured in 2009.
        In order to correctly address your question, I believe it is
    important to review the  G/ATOR  program  performance  history.
    Subsequent  to  program  initiation  in  2005, G/ATOR performance
    requirements were revised to provide better force protection for the
    host vehicle which resulted in the necessity to redesign the system.
    Cost growth associated with this decision had become irreversible in
    the 2009 timeframe at which point the program was restructured. At that
    time, a revised program baseline was established and one of the
    Department's finest program managers was hand-selected to take over
    leadership of G/ATOR's further development. Since then (March 2010),
    the program has performed exceptionally well and is currently
    experiencing an overall 15 percent cost reduction to that baseline.

                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                 Percent                   Percent
                                         As of 08/    As of 03/    As of 06/   Change from   Today  05/  Change from
             Fiscal Year 2013               2005         2010         2012      08/2005 to      2013      03/2010 to
                                                                                 06/2012                 Present Day
    ----------------------------------------------------------------------------------------------------------------
    Research and development cost.....       $364.3     $1,016.0       $893.0        145.1       $907.0           -3
    Procurement cost..................      1,141.1      2,423.0       2135.0         86.6       1620.0          -34
    Total Program cost................      1,508.1      3,439.0       3034.0        101.2      2,911.0          -15
    Program unit cost.................         23.6         49.8         53.2        125.9         47.5           -4
    Total quantities..................           64           69           57        -10.9           57          -16
    Acquisition cycle time (months)...           66          132          132          100          132            0
    ----------------------------------------------------------------------------------------------------------------

        It is worth noting that during this timeframe, the Department of
    the Navy recognized that we had encountered an unacceptable rate of
    program cost breaches which were attributable to requirements or design
    change, and we implemented improved governance through a ``Gate Review
    Process'' designed to preclude inadvertent cost growth of this nature.
        Thank  you  for  the  opportunity  to  clarify  the  performance
    of  this  important  program.  The  program's  early  performance
    history  was  unacceptable.  Currently,  G/ATOR is on sound
    programmatic footing, has solid requirements and continues to show
    improvement in technical maturity. Upon a successful Operational
    Assessment this fall, I will be reviewing the program for entrance into
    Low Rate Initial Production. Cost will be a major aspect of my
    assessment and decision to move forward.

        3. Senator Ayotte. Secretary Stackley and General Mills, I note
    that the Marine Corps began development of the G/ATOR in August 2005,
    and as I understand it, we don't expect initial capability until August
    2016. Why is it going to take 11 years for the Marine Corps to reach
    initial capability for a trailer-mounted radar system?
        Mr. Stackley and General Mills. The contract was originally awarded
    in 2005. However, the program was delayed 2 years due to a protest from
    industry and didn't commence development until 2007. Subsequently, G/
    ATOR was redesigned to support the improved force protection for the
    host vehicle (High Mobility Multipurpose Wheeled Vehicle (HMMWV)) thus
    increasing program cost and schedule. As such, the program was
    restructured in 2009 and has since maintained all schedule thresholds
    and is scheduled for a Milestone C this fall with an Initial
    Operational Capability of 2016. This timeframe is entirely consistent
    with complex radar development timelines.

        4. Senator Ayotte. Secretary Stackley and General Mills, why has
    the acquisition time doubled?
        Mr. Stackley and General Mills. The contract was originally awarded
    in 2005. However, the program was delayed 2 years due to a protest from
    industry and didn't commence development until 2007. Subsequently, G/
    ATOR was redesigned to support the improved force protection for the
    host vehicle (HMMWV) thus increasing program cost and schedule
    increase. As such, the program was restructured in 2009 and has since
    maintained all schedule thresholds and is scheduled for a Milestone C
    this fall with an Initial Operational Capability of 2016. This
    timeframe is entirely consistent with complex radar development
    timelines.

        5. Senator Ayotte. Secretary Stackley and General Mills, I
    understand that initial plans to integrate the G/ATOR onto a High
    Mobility Multipurpose Wheeled Vehicle (HMMWV) were abandoned when the
    weight exceeded the chassis and drive train limits. Reportedly, the G/
    ATOR will be towed by a Medium Tactical Vehicle Replacement (MTVR)
    truck--which cannot be moved by helicopter. This will limit the
    expeditionary capability of the system--which is, of course, a key
    comparative advantage of the Marine Corps. Can you discuss these design
    changes and how they will impact the expeditionary capabilities of this
    system?
        Mr. Stackley and General Mills. To ensure clarity, the problem was
    not with G/ATOR's weight, rather the increase in curb weight the HMMWV
    experienced due to the vehicle being up-armored in response to the
    improvised explosive device threat our warfighters were experiencing in
    theater. This additional weight diminished the towing ability of the
    HMMWV required to support G/ATOR. The MTVR is an interim solution until
    the Joint Light Tactical Vehicle (JLTV) comes onboard. The radar
    continues to meet the Marine Corps expeditionary needs, as all prime
    mission equipment can be transported to/around the battlefield by two
    vehicles, rotary-wing aircraft, MV-22, and fixed-wing support aircraft.
    Once the JLTV is introduced into the inventory, it will replace the
    MTVR as the prime mover.

                         expeditionary fighting vehicle
        6. Senator Ayotte. Secretary Stackley and General Mills, in 2011,
    after spending approximately $3 billion in developmental funding, the
    Marine Corps cancelled the Expeditionary Fighting Vehicle (EFV) program
    due to poor performance and excessive cost growth. With the budget
    challenges our Nation and the Department of Defense (DOD) are
    confronting, we cannot afford more acquisition failures like we saw on
    the EFV. What are the key lessons you have learned from the EFV
    cancelation and how are those lessons informing your work on the
    Amphibious Combat Vehicle (ACV)?
        Mr. Stackley and General Mills. The key lessons are, first, getting
    the requirements right. The ACV requirements must be established with
    an understanding of the associated cost and maturity of the technology
    required to meet them with sufficient available trade space to manage
    the uncertainty in both.
        The second lesson is a realistic assessment of affordability. ACV
    affordability targets must be established with an understanding of both
    the opportunity costs and service impacts associated with the trades
    necessary to hold that target in a dynamic fiscal environment. The
    Department's ``Better Buying Power 2.0'' places emphasis on
    affordability as a requirement and we will approach this acquisition
    with full consideration of affordability.
        The third lesson is early industry involvement to inform the above.
    This entails a need for greater industry involvement in the early
    phases of requirements development and material assessment.
        While determining affordability will continue to be a challenge in
    an uncertain fiscal environment, we believe we have developed a more
    rigorous means of establishing and understanding requirements,
    particularly the correlation between capability, cost, and technical
    risks. These relationships serve to drive trade-offs in capabilities
    necessary to establish achievable affordability targets and manageable
    program risks while still providing relevant operational value to
    marine warfighters.
        Beginning with the cancellation of the EFV program, we stood up a
    Systems Engineering War Room that first decomposed, to the component
    level, the cost of the EFV in order to help us fully understand the
    cost drivers of that program. We then defined several ACV concepts,
    with cost information down to the component level, some of which were
    evaluated in an analysis of alternatives (AOA). The results of the AOA
    provided insight into potential future capabilities and the cost of
    those capabilities. It confirmed that mission requirements dictate that
    the ACV must be a self-deploying amphibious tractor capable of over-
    the-horizon deployment but it did not specifically address the tactical
    value of a vehicle capable of moving at high water-speed.

        7. Senator Ayotte. Secretary Stackley and General Mills, does the
    Marine Corps have preliminary program cost estimates for the ACV?
        Mr. Stackley and General Mills. The Marine Corps and the ASN(RDA)
    established an ACV team which reports directly to General Paxton and
    Mr. Stackley and is chartered to determine the capability trades, cost,
    and technical risks associated with the development of an affordable,
    survivable, high water-speed vehicle. This team, composed of leading
    technical experts from across the Marine Corps/Navy enterprise, is
    working in close collaboration with industry to understand the design
    and cost implications of prospective requirements. This team is also
    engaging with the operating forces and Marine Corps leadership to
    establish Service priorities across the spectrum of requirements. The
    results of these efforts will be used to inform decisions and
    investments with respect to future ACV capabilities and acquisition
    plans, the goal of which is to provide the operational capability at
    the best price possible.
        Specific to your question, the Marine Corps is still conducting a
    material solution analysis to determine the most suitable alternative
    for this program and the associated cost. We expect to complete this
    phase of the program in fiscal year 2014 at which time we will be able
    to provide specific program costs.

        8. Senator Ayotte. Secretary Stackley and General Mills, has the
    Marine Corps provided those cost estimates to this committee, and if
    not, when can this committee expect to receive those cost estimates?
        Mr. Stackley and General Mills. We have not yet provided cost
    estimates to the committee but will do so as soon as we have completed
    our material solution analysis and developed our cost estimate for this
    program. In the interim, we offer your staff full insights to the
    process and progress of this important program by way of a full program
    brief at the ACV war room.

                          joint light tactical vehicle
        9. Senator Ayotte. Secretary Stackley and General Mills, according
    to recent news reports, Army officials have said the across-the-board
    sequestration cuts and potential furloughs threaten to delay the JLTV
    program by an estimated 3 to 4 months. From a Marine Corps perspective,
    do you also see sequestration and furloughs causing delays in the JLTV
    program?
        Mr. Stackley and General Mills. Yes. JLTV is a joint program, and
    budget decrements and delays imposed upon the program from any source
    affect both participating Services. The Joint Program Office is already
    experiencing schedule delays to ongoing ballistic hull and rolling
    chassis blast testing, due to sequestration and furlough-related
    restrictions on workhours directed by the Army Test and Evaluation
    Command approximately 2 months ago. While current schedule delays will
    not impact the timely delivery of the Engineering and Manufacturing
    Development (EMD) phase of the JLTV prototypes in late August,
    sequestration decrements and furloughs will cause a delay in the start
    and execution of the program's (Office of the Secretary of Defense/
    Department of Operational Test and Evaluation) approved Test and
    Evaluation Master Plan (TEMP), resulting in an estimated schedule slip
    of 3 to 4 months, and placing the program at a higher risk of a
    schedule breach. Subsequent sequestration decrements in future fiscal
    years will have potentially compounding schedule and associated cost
    implications.

        10. Senator Ayotte. Secretary Stackley and General Mills, how will
    the delay impact program costs?
        Mr. Stackley and General Mills. The Joint Program Office (JPO) is
    working contingency plans to mitigate schedule delays caused by fiscal
    year 2013 sequestration cuts and furloughs. If these measures prove
    unsuccessful, or if additional cuts are levied on the program, the JPO
    estimates each month of delay increases EMD phase contract costs by
    roughly $3 million. In addition, lengthening the EMD phase 14-month
    test period for the 66 full-up prototypes will also increase the costs
    of supporting all aspects of the required performance, reliability/
    availability/maintainability (RAM), and live-fire testing, to include
    onsite JPO test representatives, test site personnel and equipment, and
    administrative costs.

                army and marine corps acquisition collaboration
        11. Senator Ayotte. Secretary Stackley and General Mills, how has
    the Marine Corps' collaboration with the Army on the JLTV benefited the
    Marine Corps?
        Mr. Stackley and General Mills. From a business perspective,
    collaboration has enabled the Marine Corps to leverage significant Army
    fiscal, manpower, and test resources in the refinement of operational
    capabilities requirements and the research, development, and
    acquisition of technical solutions to meet those requirements. Long-
    term benefits for both the Marine Corps and the Army will be realized
    during the production phase, in that both Services will incur lower
    average unit costs due to the economies of scale afforded by the
    combined quantities in the JLTV production rates of Service-common
    baseline vehicles. These same benefits extend likewise well into the
    program's sustainment phase as the Marine Corps will be able to
    leverage the benefits of commonality with the Army.

        12. Senator Ayotte. Secretary Stackley and General Mills, are there
    any other current or planned acquisition programs where we could
    achieve economies of scale and save money by developing and fielding
    the acquisition program jointly?
        Mr. Stackley and General Mills. When it comes to requirements, the
    Marine Corps and the Army collaborate whenever mission profiles
    converge. We have many joint programs--JLTV being the most notable. A
    few other joint programs include the Joint Battle Command-Platform, RQ-
    11B Raven UAS, Tactical Robotic Controller, and Enhanced Combat Helmet
    (ECH). The Joint Battle Command-Platform is the follow-on the Force XXI
    Battle Command Brigade and Below (FBCB2). The Marine Corps is an active
    participant in this Army program. Both Services have converged to a
    single, common hardware and software solution that provides command and
    control/situational awareness to the platform and dismounted user. With
    the ECH, the two Services will develop a helmet with greater protection
    against ballistic and blunt trauma at equal or lesser weight to the
    currently issued helmets (Light Weight Helmet (LWH) for the Marine
    Corps, Advanced Combat Helmet (ACH) for the Army).
        In addition to the many joint programs with the Army, the Marine
    Corps collaborates with the Army on a myriad of capabilities--from C2,
    cyber, and force protection, to the HMMWV sustainment program. For
    example, the Marine Corps has collaborated with the Army on the M16A4
    and the M4 Carbine. We have participated with the Army since 2008 in
    developing the improved carbine requirements and will remain engaged
    with the source selection process to identify potential candidates to
    replace the M16A4 and the M4 Carbine Modular Weapon System (MWS).
    Although the Marine Corps will monitor individual carbine progress, the
    Service has neither validated a requirement to replace the MWS nor
    funded a potential replacement. Current Marine Corps efforts and
    funding are focused on MWS precision, accuracy, and human factors
    upgrades. The Marine Corps is actively pursuing emerging technologies,
    such as lightweight materials and ammunition, improved fire control
    systems, and an integrated approach to the next generation of small
    arms weapons, optics, enablers, and ammunition.

                   marine corps prepositioning program-norway
        13. Senator Ayotte. General Mills, in last year's hearing, you and
    I discussed the Marine Corps Prepositioning Program-Norway (MCPP-N). We
    talked about the need to ensure that the equipment there is fully
    reconstituted and modernized, as well  as  properly  maintained.  Would
     you  please  provide  an  update  on  the  MCPP-N?
        General Mills. MCPP-N equipment and supplies are stored in stable
    temperature and humidity-controlled facilities and undergo scheduled
    inspections and maintenance services. All equipment and supplies are
    stored at the proper level of preservation to ensure operational
    readiness and serviceability. Normal modifications, technical
    instructions, and retrofits are applied during scheduled maintenance
    services. Corrective maintenance is performed by the Norwegian Defense
    Logistics Organization on an as-required basis, generally after
    equipment has been returned from an exercise. In this regard, MCPP-N
    benefits from an experienced, highly trained workforce and near optimal
    storage conditions directly attributable to our 50/50 burdensharing
    agreement with our Norwegian partners. Marine Corps Logistics Command
    is responsible for overall equipment management for the program which
    includes, but is not limited to: rotation planning of weapons systems
    and equipment; conducting quality assurance inspections; readiness
    reporting; meeting accountability requirements; and support of
    exercises or crisis response, when required.
        The Marine Corps is currently executing a transformation effort
    designed to enhance relevance of the MCPP-N to geographic combatant
    commanders, in particular, U.S. European Command (EUCOM) and U.S.
    Africa Command (AFRICOM). This effort includes development of a new
    force list and corresponding equipment sets to support that force. This
    initiative includes addition of communications and ordnance items not
    previously prepositioned in Norway. Quantities of equipment and
    supplies currently stored in Norway will also be adjusted to provide a
    balanced equipment set appropriate to support a Marine Air Ground Task
    Force manned specifically  to  support  a  crisis  response.  The
    Marine  Corps  plans  to  complete  MCPP-N transformation in fiscal
    year 2016.

        14. Senator Ayotte. General Mills, have the stocks there been fully
    reconstituted?
        General Mills. MCPP-N is fielded with equipment based on approved
    acquisition objectives and Marine Corps fielding priorities. Current
    attainment is 73 percent. Over the course of the next several years,
    and to maximum extent possible, the MCPP-N will be restocked with
    equipment that becomes available as a result of elimination of the
    Maritime Prepositioning Squadron-One (MPSRON-1) and drawdown from
    combat operations in support of Operation Enduring Freedom. This is
    essential to increasing attainment levels in Norway and mitigating risk
    to EUCOM and AFRICOM associated with the loss of MPSRON-1. Though MCPP-
    N will mitigate this risk to some extent, it is not a substitute for
    the entire afloat prepositioned capability previously provided by
    MPSRON-1. The Marine Corps plans to fully reconstitute MCPP-N in fiscal
    year 2016.

        [Whereupon, at 10:47 a.m., the subcommittee adjourned.]