    [Senate Hearing 114-394]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-394

                         ACQUISITION REFORM: NEXT STEPS

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

                                    HEARING

                                   before the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                DECEMBER 1, 2015

                                   __________

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                          COMMITTEE ON ARMED SERVICES

                         JOHN McCAIN, Arizona, Chairman

    JAMES M. INHOFE, Oklahoma            JACK REED, Rhode Island
    JEFF SESSIONS, Alabama               BILL NELSON, Florida
    ROGER F. WICKER, Mississippi         CLAIRE McCASKILL, Missouri
    KELLY AYOTTE, New Hampshire          JOE MANCHIN III, West Virginia
    DEB FISCHER, Nebraska                JEANNE SHAHEEN, New Hampshire
    TOM COTTON, Arkansas                 KIRSTEN E. GILLIBRAND, New York
    MIKE ROUNDS, South Dakota            RICHARD BLUMENTHAL, Connecticut
    JONI ERNST, Iowa                     JOE DONNELLY, Indiana
    THOM TILLIS, North Carolina          MAZIE K. HIRONO, Hawaii
    DAN SULLIVAN, Alaska                 TIM KAINE, Virginia
    MIKE LEE, Utah                       ANGUS S. KING, JR., Maine
    LINDSEY GRAHAM, South Carolina       MARTIN HEINRICH, New Mexico
    TED CRUZ, Texas

                       Christian D. Brose, Staff Director

                   Elizabeth L. King, Minority Staff Director

                                      (ii)

                                C O N T E N T S

                                   __________

                                december 1, 2015

                                                                       Page

    Acquisition Reform: Next Steps...................................     1

    Gansler, Hon. Jacques S., Chairman and CEO, The Gansler Group and
      Professor Emeritus, University of Maryland.....................     5
    Augustine, Norman R., Coauthor, The Defense Revolution...........    13
    Fitzgerald, Ben, Senior Fellow and Director of the Technology and
      National Security Program, Center for a New American Security..    17
    Ward, Lieutenant Colonel Dan, USAF (Ret.), Consultant and Author
      of F.I.R.E.: How Fast, Inexpensive, Restrained, and Elegant
      Methods Ignite Innovation......................................    24

    Questions for the Record.........................................    58

                                     (iii)

                         ACQUISITION REFORM: NEXT STEPS

                                  ----------

                           TUESDAY, DECEMBER 1, 2015

                                           U.S. Senate,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 9:30 a.m. in Room
    SD-G50, Dirksen Senate Office Building, Senator John McCain
    (chairman) presiding.
        Committee members present: Senators McCain, Inhofe, Wicker,
    Ayotte, Fischer, Cotton, Rounds, Ernst, Tillis, Reed, Nelson,
    McCaskill, Manchin, Shaheen, Gillibrand, Donnelly, Hirono,
    King, and Heinrich.

           OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN

        Chairman McCain. Well, good morning. The Senate Armed
    Services Committee meets this morning to discuss the next steps
    for reforming the Pentagon's broken acquisition system.
        Last week, the President signed the National Defense
    Authorization Act [NDAA] for Fiscal Year 2016 into law, and
    that legislation marked the beginning of a significant
    revamping of the defense acquisition system that has been
    broken for decades. Schedule delays and cost overruns are par
    for the course. Complex regulations and stifling bureaucracy
    impede innovation and restrict access to critical commercial
    technologies. Worse still, it seems no one in the defense
    acquisition system is ever held accountable for these repeated
    failures. That's why in this year's NDAA, Congress sought to
    improve access to nontraditional and commercial innovation by
    removing barriers to new entrants into the defense market,
    adopting commercial buying practices for the Defense
    Department, and ensuring these firms are not forced to cede
    intellectual property that's developed at their own expense.
    The NDAA also expanded flexible acquisition authorities in the
    development of alternative acquisition pathways to acquire
    critical national security capabilities.
        And perhaps most importantly, the NDAA took important steps
    to ensure accountability in the defense acquisition system. The
    NDAA gave greater authority to the military services to manage
    their own programs and enhance the role of the service chiefs
    in the acquisition process. Service chiefs, service
    secretaries, service acquisition executives and program
    managers will now sign up to binding management requirement and
    resource commitments. And if military services fail to manage a
    program effectively, they will lose authority and control over
    that program and be assessed an annual cost penalty on their
    cost overruns. This committee will be watching closely to
    ensure the Department implements these reforms in keeping with
    both the letter and spirit of the law. At the same time, we
    will continue to press forward to make lasting reform a
    reality.
        It's been almost 30 years since the landmark Goldwater-
    Nichols Act and the Packard Commission. It's been 20 years
    since the Federal Acquisition Streamlining Act and the Clinger-
    Cohen Act. In recent years, the Pentagon has been given
    unprecedented authorities to bypass the existing acquisition
    system and access new technologies and innovative companies,
    yet today the defense acquisition system is more risk-averse,
    costly, inefficient, and less open to commercial solutions than
    it was 30 years ago.
        This morning, we welcome a distinguished panel of witnesses
    to help us identify what else Congress can do to change the
    current incentive structure and culture to achieve improved
    acquisition outcomes that meet the needs of our servicemembers
    and taxpayers: The Honorable Jacques Gansler, Chairman and CEO
    [Chief Executive Officer] of The Gansler Group and Professor
    Emeritus at the University of Maryland. Mr. Gansler previously
    served as Under Secretary of Defense for Acquisition,
    Technology, and Logistics in the Clinton administration; Mr.
    Norman Augustine, founder of In-Q-Tel, former Chairman and CEO
    of Lockheed Martin, and Acting Secretary of the Army; Mr. Ben
    FitzGerald, Senior Fellow and Director of the Technology and
    National Security Program at the Center for a New American
    Security; and retired Air Force General--Lieutenant Colonel Dan
    Ward, a former Air Force acquisition officer who specialized in
    leading high-speed, low-cost technology development programs.
        We simply cannot tolerate the vast management failure that
    is the defense acquisition system. All too often, programs are
    delayed, over budget, and underperforming. Worse still, the
    Pentagon has wasted billions on programs that produce no combat
    capability whatsoever: $20 billion spent on the Future Combat
    System, with little to show for it; over $1 billion spent on
    the Expeditionary Combat Support System; a failed attempt to
    implement a, quote, ``commercial off-the-shelf logistics IT
    [information technology] system'' that resulted in no usable
    capability for the Air Force; $3 billion in 15 years spent on
    the expeditionary fighting vehicle; and $3.2 squandered on the
    presidential helicopter without ever fielding a single
    helicopter. And to think we used to be able to field zero
    helicopters for free.
        Still, the management failures and the colossal waste of
    taxpayer dollars may not be the worst of our problems. As the
    bureaucracy fiddles and fails to modernize our forces, our
    adversaries are catching up with us in the development of
    critical defense technologies. At the same time, the Defense
    Department struggles to incorporate advanced commercial
    technologies into its operations as they become more widely
    available to our enemies. Our national security cannot rest on
    the assumption that our adversaries will be as inefficient and
    clueless as we are about buying defense capabilities.
        We've reached a critical inflection point. We are
    confronting an emerging technology gap with the commercial
    market in electronics, information, security, robotics,
    communications, and data analytics. Combined with budget cuts
    that prevent us from modernizing our forces or deploying them
    in sufficient numbers around the world, such a gap will be
    disastrous, emboldening our adversaries and feeding
    instability. We must not allow any such technology and
    capability gap to grow. The United States has the greatest
    military in the world, but, make no mistake, protecting our
    military technological superiority is the urgent work of today,
    not tomorrow. For acquisition reform to be successful, we must
    change the current culture of inefficiency, risk aversion, and
    complacency. There is only so much that legislation can do to
    accomplish this goal. It will require changing incentives and
    focused and continuous leadership from Congress, the Secretary
    of Defense, and industry. Every year we fail to do so, billions
    more in taxpayers' dollars will be wasted, and our military
    will be left less capable of performing its missions. That is
    dangerously unsustainable, and that's what we must prevent. And
    that's why we must continue to press the cause of acquisition
    reform.
        And finally, I'd like to say that the President, as we all
    know, signed the defense authorization bill, a product of which
    all of us, Republican and Democrat, can be proud of the
    bipartisan effort. Our constituents are very unhappy about our
    lack of achieving results here in Washington. And I think all
    of--every member who has been heavily engaged in this process
    can look with some satisfaction, the fact that, in a bipartisan
    fashion, we were able to craft legislation that is a beginning
    of reform and also continues our obligation to help train,
    equip, and defend the men and women who serve this Nation.
        Senator Reed.

                     STATEMENT OF SENATOR JACK REED

        Senator Reed. Well, thank you very much, Mr. Chairman. And
    let me also echo your comments about the defense authorization
    bill and make it clear that, without your leadership, it would
    not have been a bipartisan and innovative and important piece
    of legislation. So, thank you, Mr. Chairman.
        And, gentlemen, thank you for joining us today. You have a
    wealth of experience in acquisition and management in the
    Department of Defense. You will help us sort of look forward to
    the next steps that we must take to follow on the--what is
    included in this defense authorization bill to improve defense
    acquisition. Your experience, your insight, will be absolutely
    critical as we review additional steps that we will take, going
    forward.
        The Pentagon's fundamental mission is the defense of our
    Nation, which requires that our military procure
    technologically advanced weapons platforms and invests in
    cutting-edge research and development. According to the
    Congressional Defense--excuse me--the Congressional Research
    Service, the Department of Defense obligated $285 billion in
    contracts in FY [fiscal year] 2014, which was more than all
    other Government agencies, combined. This amount included
    funding for high-end critical weapon systems, such as the Joint
    Strike Fighter and the Ohio-class replacement submarine, as
    well as service support contracts, which have much less
    visibility. In fact, the Government Accountability Office has
    stated that, within the Federal Government, the Pentagon has
    the largest share of all service contracts, totaling $156
    billion in FY 2014. And many times, we overlook these service
    contracts, where, in fact, that's a critical item, in terms of
    reforming and making more efficient the operation of the
    Department of Defense.
        In an era of fiscal constraints, it's become more important
    to ensure that we spend every dollar wisely. While the
    Department has made progress in addressing cost overruns for
    some major acquisition programs, more work remains. For every
    dollar that is spent on the weapon systems that are
    underperforming, that is a dollar that we cannot spend on other
    important requirements of the military services, including
    other acquisition programs and important readiness activities,
    including flying hours for aircraft, steaming days for ships
    and submarines, and all training that supports the national
    military strategy.
        The good news is that the acquisition procurement reforms
    undertaken by this committee, again under the leadership of
    the--Chairman McCain and, preceding that, under his leadership
    and that of Senator Carl Levin, such as the Weapon Systems
    Acquisition Reform Act, have been, I think, combined with the
    better buying power reform led in the Department by Secretary
    Carter and Under Secretary [of Defense for Acquisition,
    Technology, and Logistics] Kendall, have begun to make an
    impact on our ability to control costs and schedules of
    acquisition, but we can't sit back on our laurels; we've got to
    do much more. Programs, I think, are being run with more
    realistic cost estimates, more rigorous systems engineering,
    and with lower technological risk. Programs that have been
    initiated under the rules of these later reforms have
    experienced less cost growth and fewer schedule slips than
    we've seen previously. Fewer programs are breaking large cost-
    growth thresholds--in other words, Nunn-McCurdy [Act] breaches.
    We also seem to be making progress with halting the cost for
    increases for some major troubled acquisition initiated under
    the old rule.
        Unfortunately, progress has been more elusive in other
    areas. The Department still struggles to develop and field
    large information technology systems and managed businesses
    processes, like personnel, pay, and accounting. DOD [Department
    of Defense] still does not have a good handle on how to control
    its spending on the lower visibility service contracts, as I
    mentioned before. DOD also finds it very difficult to compete
    with the private sector for world-class technical, engineering,
    and program management talent. We are rapidly losing important
    pieces of our defense industrial base through merges and
    consolidations. And, perhaps most importantly, the Pentagon is
    in the unfamiliar role of chasing global and commercial
    innovation, rather than acting as the technological leader that
    it has been in the past. And I hope our witnesses can help us
    shed light on all these different topics.
        Thank you again for your service to the Nation. And I look
    forward to your testimony.
        Thank you, Mr. Chairman.
        Chairman McCain. Dr. Gansler.
        By the way, all of your complete statements will be made
    part of the record.
        Dr. Gansler.

      STATEMENT OF HON. JACQUES S. GANSLER, CHAIRMAN AND CEO, THE
      GANSLER GROUP AND PROFESSOR EMERITUS, UNIVERSITY OF MARYLAND

        Dr. Gansler. Thank you.
        Well, I don't have to tell this committee that this is a
    critical period in the future security of the United States.
    Our defense budget is being cut significantly to help pay for
    the Nation's debt, and a significant share of these cuts are
    coming out of R&D [research and development], which, of course,
    Senator Reed, your statements there are in conflict with that,
    taking cuts in R&D as we are now doing to help balance the
    budget. I think the way this strikes me is, we're preparing for
    20th century warfare, but not 21st century needs. And I think
    that's not what we should be doing.
        Well, clearly, the world is not at peace today. We have
    concerns about ISIS [the Islamic State of Iraq and Syria],
    Syria, the Crimea, the South China Sea, nuclear weapons and
    ICBM [intercontinental ballistic missile] proliferations,
    terrorism, and cybersecurity. And, as we become more and more
    dependent on cyber, and as Senator McCain mentioned, things
    like robotics and other areas, we're becoming increasingly
    concerned about cyber--use of cyber--and therefore, this threat
    is becoming more and more real, the cybersecurity threat. And
    the recent OPM [Office of Personnel Management] cyber attack
    certainly alerted all of us to that.
        The overall security problem is compounded by the rising
    costs of the current weapon systems and the high cost of their
    support. And I agree with Senator Reed's point about
    emphasizing the support, as well. And then, of course, the
    lengthening development times for the new systems--for example,
    the F-22 took 22 and a half years; during that 22 and a half
    years, technology changes rapidly, geopolitics changed rapidly,
    and so we have to be able to adjust more rapidly.
        Without a question in my mind, significant change is
    clearly required in the way the DOD goes about the acquisition
    of goods and services. And, to achieve this, the historical
    data is very clear--in order to make change, to make
    significant change, two things are required: widespread
    recognition of the need for change, and leadership with a
    vision, a strategy, and a set of implementation actions.
        On a positive note, the first of these is demonstrated by
    the current SASC [Senate Armed Services Committee] and HASC
    [House Armed Services Commitee] proposals, under the leadership
    of Senator McCain or Representative Thornberry, for significant
    defense acquisition reform. Now we need agreement from the
    executive and legislative branches on the specific actions
    required to address this need for greater security with fewer
    dollars.
        In the past, the U.S. defense and economic competitiveness
    strategies for the Nation have been based on technological
    superiority. But, today, as shown in the first of my figures
    that I hope you all have copies of, it's very clear that, as
    was mentioned, the commercial world is now spending
    significantly more money on their R&D, and the global world is
    spending significantly more on R&D. And because there should be
    a correlation between R&D expenditures and results achieved,
    there are many critical national security areas in which the
    DOD is no longer leading.
        For example, like when I got a briefing from the Army Night
    Vision Lab recently, the French are the leaders in night-vision
    devices. And also, when the DOD decided to armor the next-
    generation infantry fighting vehicles because roadside bombs
    were the number-one killer of U.S. soldiers and marines in Iraq
    and Afghanistan, so the DOD chose armor from Israel, and the
    foreign firm agreed to build the armor in the U.S. At least
    that's positive. Clearly, the congressional and DOD cutbacks
    and the share of the budgets going to R&D must be reversed in
    order for the DOD to achieve technological leadership in the
    21st century.
        Under Secretary Frank Kendall stated, in the--in his Better
    Buying Power 3.0, the removal of the barriers to buying
    commercial is an area that has to change. And in the figures
    that I gave you, Figure 2 shows the comparison that came out of
    the Packard Commission that Bill Perry certainly pushed hard
    when Bill was Secretary, for the difference between a
    commercial electronics item--in this case, semiconductors, and
    a MIL-SPEC [U.S. Military Standard] one--in this case, as you
    can see from the data, the commercial is more than an order of
    magnitude cheaper, and more than an order of magnitude more
    reliable, and even more advanced in technology. And so, why
    wouldn't we use them? It seems to me sensible to consider doing
    that.
        And, in fact, on Figure 3, you'll notice, this is the code
    of Federal regulations today, and it's now up to 180,000 pages.
    I'm sure every one of you have memorized every one of those
    requirements.
        [Laughter.]
        Dr. Gansler. And there's no question about--that is a
    barrier to using commercial----
        Chairman McCain. Say that again. How many pages?
        Dr. Gansler. 180,000 pages.
        Chairman McCain. Thank you.
        Dr. Gansler. And not only that, Senator, but every year----
        Chairman McCain. Yeah, I read them all the time.
        [Laughter.]
        Dr. Gansler. Every--that's--look at the slope of that
    curve. Every year, we're adding another 2,000 pages of
    requirements that are coming from a combination of legislation
    and regulation. That's where they're coming from. And it has
    been independently estimated by OMB [Office of Management and
    Budget] and the Small Business Administration that the cost of
    that compliance is $1.75 trillion in 2008, when they did their
    analysis. So, it's not a trivial point that is--this is just
    one of the barriers that Frank Kendall was trying to identify.
    And clearly we have to address that.
        And so, why, if you're a commercial firm, would you then
    want to go into the defense business? It's not expected to be a
    growth market. It's--as we're seeing, it--the dollars are
    shrinking. It's being used to pay for the Nation's debt. And we
    are legislating, in effect, a smaller profit than what the
    company would make in the commercial business. So, you know, if
    you don't have a growth market and you're guaranteed to get a
    lower profit, why is that a good business for you to go into?
    And this growth in the Federal regulations pages is killing the
    desire for any good commercial firm to get into this business.
        So, in 2005, the test of desirability of using commercial
    parts to lower the costs of weapon systems, we tried, when I
    was Under Secretary, to apply this logic to the JDAM [joint
    direct attack munition] missile. The JDAM missile is converting
    dumb bombs into smart bombs. Precision-guided rather than
    simply gravity-dropped.
        Chairman McCain. Doctor, could you summarize, since we have
    three other witnesses and so we could move forward with the
    questions, please?
        Dr. Gansler. Sure.
        Chairman McCain. Thank you.
        Dr. Gansler. Okay.
        Chairman McCain. Go ahead.
        Dr. Gansler. Well, Senator Nunn once told me, ``Jack, don't
    give me a lot of theory, give me some examples.'' So, this--the
    JDAM is an example, where it was independently estimated that,
    if you use MIL-SPEC parts for the JDAM missile, it was going to
    cost $69,000 each. They now--we allowed them to use commercial
    parts, and they're now building them for $18,000 each. So,
    there's a $50,000 difference there, times the 10- to 20,000 of
    dumb bombs that we had stored, that we wanted to now put into
    them, that we can now have precision delivery with. So, it
    makes a significant difference, not only in cost, but in
    reliability and performance, getting the combination of that
    out of it. So, we got the savings both ways, performance
    improvements and cost.
        So, clearly, we should be using affordability now to drive
    our system. And the keys to affordability, it seems to me, are
    six items that--one of which is increased--let me summarize
    this--increased competition. And I--and in my paper, I've
    described some of those issues. For example, in a lot of these
    services that Senator Reed mentioned, we have a choice of doing
    public sector versus private sector. But, Congress has outlawed
    A-76 competitions. And when we had over 3,000 of those
    competitions, the average savings was over 30 percent. Why
    wouldn't we continue them? I understand what the political
    considerations were.
        Second thing that you need to do in order to address more
    efficiency and effectiveness is greater civil/military,
    industrial integration.
        Third thing, more emphasis on innovation. Cutting the R&D
    budget is, for example, not an emphasis on innovation, and
    people don't just--are resisting cultural change, or resist
    change. And that's one of the things that's happening.
        And I think we also need to look at more innovative
    financing techniques. Other countries are now using leasing,
    for example. And I know we went through that once on a--the
    tankers, but we had to stop it because of the illegal action,
    but not because of the leasing. And it's important.
        Okay. And the fifth area was overcoming the resistance to
    change, both in industry and in the DOD. And we have to--that
    takes leadership to do that.
        And then the last item, that you did address, and they also
    addressed it in the House, which is the education and training
    of the DOD acquisition workforce. That's critical that we get
    these people with better education and training. And one of the
    things that at least I had noticed that was being cut out was
    graduate education funding for the DOD. And strikes me that
    that's going in the opposite direction.
        So, let me thank you, Senator McCain, and you, Senator
    Reed, for this opportunity to present this information.
        [The prepared statement of Dr. Gansler follows:]

            Prepared Statement by Hon. Jacques S. Gansler, Ph.D. \1\
    ---------------------------------------------------------------------------
        \1\ Former Under Secretary of Defense Acquisition, Technologic and
    Logistics, 1997-2001. Currently, CEO The Gansler Group, McLean,
    Virginia, and also Professor Emeritus, School of Public Policy and
    Glenn L Martin Professor, School of Engineering, University of
    Maryland.
    ---------------------------------------------------------------------------
        I do not have to tell this Committee that this is a critical period
    for the future security of the United States. Our defense budget is
    being cut significantly to help pay for the Nation's debt and a
    significant share of these cuts are coming out of R&D. Clearly, we are
    preparing for 20th century warfare, but not 21st century needs.
        Yet the world is not at peace. We have to be concerned about ISIS,
    Syria, the Crimea, the South China Sea, nuclear weapons and ICBM
    proliferations, terrorism, and cybersecurity--as we have become more
    and more dependent on cyber, and as the threat capability becomes more
    real (as the recent OPM cyber attack alerted us).
        The overall security problem is compounded by the rising costs of
    current weapon systems and the high cost for their support, as well as
    by the lengthening development times for new systems--for example, the
    F-22 took 22.5 years. This long cycle is counter to the rapid and
    continuing changes occurring today in the areas of both technology and
    geopolitics.
        Without question, significant change is required in the way DOD
    does its acquisition of goods and services and, to achieve this, the
    historical data is clear. To achieve significant change, two things are
    needed.
        1. Widespread recognition of the need for change; and
        2. Leadership--with a vision, a strategy and a set of
    implementation actions.
        On a positive note, the first of these is demonstrated by the
    current SASC and
        HSAC proposals, under the leadership of Senator McCain and
    Representative Thornberry, for significant defense acquisition reform.
    Now we need agreement, from the Executive and Legislative branches, on
    the specific actions required to address the need for greater security
    with fewer dollars.
        In the past, the US defense and economic competitiveness strategies
    have been based on ``technological superiority.'' But today (as shown
    in figure 1) the commercial and international worlds are greatly
    exceeding the federal government's expenditures on R&D. Since there is
    a correlation between R&D expenditures and results achieved, there are
    many critical national security areas in which the DOD is no longer
    leading. For example, the French are the leaders in night-vision
    devices. Also, when the DOD decided to armor their next generation
    infantry fighting vehicles (since road-side bombs were the No.1 killer
    of US soldiers and marines in Iraq and Afghanistan), they chose armor
    from Israel (and the foreign firm agreed to build the armor in the US).
    Clearly, the Congressional and DOD cut back in the share of the budgets
    going to R&D must be reversed in order for the DOD to achieve
    technological leadership in the 21st century.
        Under Secretary Frank Kendall stated, in ``Better Buying Power
    3.0,'' the ``removal of the barriers to buying commercial'' is an area
    that has to change. Figure 2, from the Packard Commission, compares
    commercial semiconductors to military-specification semiconductors, and
    shows that the commercial parts are an order of magnitude cheaper, more
    than an order of magnitude more reliable, and more technologically
    advanced. But, there are significant ``barriers'' to commercial firms
    wanting to do business with the Department of Defense--it is not
    expected to be a growth market, the profit margins are mandated to be
    low, and the incredible number of regulations for doing government
    business drives up costs and also drives away commercial firms. In
    fact, Figure 3 shows that the Code of Federal Regulations is now around
    180,000 pages (and growing by 2,000 pages a year). In 2008, OMB and SBA
    estimated the regulatory compliance cost to be 1.752 trillion dollars.
        In 2005, to test the desirability of using commercial parts (to
    lower the costs of weapon systems), the Joint Direct Attack Munition,
    or JDAM (see Figure 4), which is a precision-guided weapon to convert
    ``gravity bombs'' into ``smart bombs'' was allowed to use commercial
    parts for electronics, sensors, and actuators. The result was greatly
    improved performance at dramatically lower cost. In fact, an
    independent cost analysis determined that by using military specified
    parts the cost would be $69,000 each, while the actual price, using
    commercial parts, is $18,000 each. Since the DOD had tens of thousands
    of gravity-dropped dumb bombs to be converted to smart bombs, the use
    of commercial parts on JDAM resulted in very significant savings, and
    the performance greatly improved.
        To achieve the required overall DOD objective of ``greater
    capability for fewer dollars,'' the driving requirement must be
    ``affordability.'' This can be achieved by six specific actions:

        1.  Increased competition, at both the prime contractor level and
    at the subcontractor level--for the acquisition of both goods and
    services--with awards based on ``best value,'' not simply ``lowest
    price.''

           The benefits of competition, both in performance gains and in
    lower costs, have been demonstrated over and over--and is the basis of
    the American economy. Similarly, in over 3,000 examples of public/
    private competitions for non-inherently governmental work, the average
    savings has been over 30 percent; but these so-called ``A-76
    competitions'' have been outlawed by Congress. Without a doubt, for all
    future acquisitions of goods and services, at both the prime contract
    and subcontract levels, competition must be considered.

        2.  Greater civil/military industrial integration in both hardware
    and software by removing the barriers to buying commercial

           The JDAM example clearly proves the value of civil/military
    integration. A second example I might note is the dramatic price
    increase that occurred when Boeing was forced, by the government, to
    separate the building of military and commercial transports. Boeing had
    been building both in the same production facility and achieving lower
    cost for both by taking advantage of the economies-of-scale from the
    higher combined volume.

        3.  Increased emphasis on funding for innovation. The fact that
    both Congress and the DOD have decided to cut the R&D budgets as the
    total defense budgets are declining, is a clear demonstration of the
    resistance to innovation (i.e. the resistance to change) and an
    indication that the US will no longer be able to lead through
    ``technological superiority''--especially, since (as shown in Figure 1)
    both the US commercial world and other countries are significantly
    increasing their R&D budgets. However, the DOD must continue to focus
    on innovation investments in order to stay ahead.

           I might note, at this point, that recent data (as seen in Figure
    5) indicates that the greatest source of significant innovation comes
    from government-supported small-business-innovative-research (SBIR). It
    is a no brainer that this should continue to be supported.

        4.  Greater use of innovative financing techniques such as leasing
    and public/private partnerships. Currently many other countries are
    using leasing as a way to spend less and still get the needed
    performance. This is a technique we all use regularly; for example, if
    we need a car somewhere across the country, we do not buy one, we just
    lease it when we need it.

           In fact, DOD decided to use leasing for the tanker.
    Unfortunately, there was a criminal personnel scandal (in 2002) which,
    by the way, had nothing to do with the concept of leasing, that killed
    the deal. I believe the potential benefits are sufficient to explore
    the concept again--especially when the leased items have dual-use
    value, both for commercial and military applications.

        5.  Greater emphasis on the need to overcome the institutional
    resistance to change. A critical change required is greater use of
    innovation, with a focus on higher performance at lower costs.

           To overcome the Congressional and DOD's institutional resistance
    to change, the literature is clear, it takes two things to implement
    successful change:

              General agreement on the need for change. Today, the
    HASC and the SASC acquisition reform bills, show that there is
    widespread agreement on the need for change.

              Therefore, what is required is legislative and
    executive branches' leadership pushing for the needed changes;
    specifically, to get more capability for the available dollars--with a
    focus on the six areas covered herein.

        6.  A focus on the education and training of the DOD's acquisition
    workforce. The last change required is reform of education and training
    for the DOD's acquisition workforce. This is clearly recognized in both
    the SASC and the HASC acquisition reform proposals.

           A 2009 Defense Science Board Task Force found that 55 percent of
    the DOD acquisition workforce had less than five years of experience
    and that most of the senior, potential mentors, had retired. For
    example, in 1990 the Army had five general officers with contracting
    experience, while in 2009 it had none. Instead of educating the
    acquisition workforce on compliance with the 180,000 pages of the code
    of federal regulations, they should be taught about ``best practices.''
    Also, instead of solely case studies on the acquisition of prior weapon
    systems, they should learn with comparable examples of complex
    commercial acquisitions (faster and at lower costs).

           Finally, the DOD acquisition workforce should be encouraged to
    attend relevant Graduate school classes (at government's expense). The
    cost is small but the potential benefits are significant.

        Senator McCain and Senator Reed, thank you both for the opportunity
    to express my views on the needed defense acquisition reforms at this
    critical point in our Nation's security posture.

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman McCain. Thank you, Doctor.
        Mr. Augustine, welcome back.

        STATEMENT OF NORMAN R. AUGUSTINE, COAUTHOR, THE DEFENSE
                               REVOLUTION

        Mr. Augustine. Thank you, Mr. Chairman--it's good to be
    back--Senator Reed, members of the committee. I appreciate the
    opportunity to share my thoughts on the defense acquisition
    process. And I have submitted a statement for the record, Mr.
    Chairman.
        I need to emphasize that I'm appearing as a private
    citizen, and so the views I express are purely my own.
        Chairman McCain. It's never constrained you in the past.
        [Laughter.]
        Mr. Augustine. That's true, and it may not today. But, I
    probably should give a little bit of my perspective. I must
    confess that I've spent nearly 60 years now in the defense
    acquisition process, either in it or around it, both in
    government and in industry. And I've also had the opportunity
    to work with a number of commercial firms sort of on the side.
        In the United States, as you know, we've chosen to have the
    private enterprise system provide much of our military
    equipment, as opposed to having it provided in government-owned
    arsenals and government-operated arsenals. That's not true of
    much of the world. From everything I've seen, our system works
    far better than the other alternative. But, the fact remains
    that there are many complications that go along with that
    decision that we've made. One of them is that the companies
    that provide most of our military equipment, not only compete
    with each other, they also have to compete for talent and for
    capital with all the other firms in the U.S., whether it's
    Google or IBM or Intel, or eBay, or whoever. Furthermore, our
    defense system is necessarily--defense acquisition system is
    necessarily not true free enterprise, because it's a monopsony.
    And the sole buyer is a very powerful buyer. That places a huge
    fiduciary responsibility, not only on the buyer, but on the
    seller. The buyer, to assure that short-term actions don't harm
    the long-term sustainability of the industry. And it places a
    huge responsibility on those who run the industry, because this
    is not an industry that makes video games or sailboats. We're
    dealing with the Nation's defense. We're dealing with the lives
    of our servicemen and -women. A huge responsibility.
        Having said all that, arguably--and I think, strongly
    arguably--the defense equipment that we've had in the past has
    been such that almost any other nation would have traded theirs
    for ours. But, the fact remains that the process of producing
    that equipment has been far less efficient than it could be or
    that it should be, and that very often that equipment was
    produced in spite of the system rather than because of the
    system.
        There's probably one fundamental problem that underlies
    most of this, and that is that we've tried to manage by
    regulation. Dr. Gansler mentions 180,000 pages. My experience
    is that the only way to manage is with talented, experienced,
    dedicated people, and to give those people the authority to
    make judgments. Yes, sometimes they will fail, indeed. But, the
    free market says, yes, that they fail far less often than does
    management by regulation.
        In industry, we delegate responsibility. We place great
    emphasis on past accomplishments, past experience, placing
    people in positions of responsibility. And we fire people who
    fail to perform. None of these takes place in the government,
    to my experience. Furthermore, in the government, ``risk'' is
    considered to be a four-letter word.
        How do you fix the acquisition process? Unfortunately,
    there's no silver bullet. There are a lot of very talented
    people who have tried in the past. You all know many of them.
    The--but, there are certain things I think that we've learned,
    and number one is that we have to have talented people in
    positions to make judgments, give them the authority to make
    those judgments, and to hold them responsible. That is, to have
    consequences.
        Furthermore, we should take greater advantage of the
    immense power in the free enterprise system that's served this
    country so well in so many areas, whether it be industry or a
    higher education system or what have you. How do you do that?
    The fundamental basis of free enterprise is competition. And
    competition is not always possible, but it's usually possible
    to some degree. And to make it possible, one needs to have
    large buys, multiyear buys; one needs to rely, often, on
    competition at the subcontractor level if it can't be done at
    the prime level; one also can investigate such approaches as
    what was used at In-Q-Tel. Mr. Chairman, you mentioned my
    involvement in setting that up. And it addressed exactly the
    problem this committee is talking about. And I'm told that it's
    viewed by many as having been relatively successful.
        We need to take advantage of the private sector, commercial
    sector, and the products that it produces, wherever we can,
    which would be to a far greater degree than we do. We need to
    be sure we use appropriate contracting methods. We need to
    provide funding stability. We need to shift authority from
    staff to line. That's extremely important, not only in the
    Defense Department, but in many other departments of the
    government. We need to totally revamp the requirements process.
    We need to provide contingency funding. We need to permit
    talented people, experienced people to move from government to
    industry, and back. And that could be done without creating
    conflicts of interest, in my view, but it's rarely done
    anymore. And I believe we've paid a price for that. People like
    Dave Packard probably couldn't serve in the government today.
    We should avoid these conflicts of interest. And I say I think
    we can. We should emphasize prototyping to a greater extent. We
    need to fund basic research far more than we do.
        And I just would conclude by saying that none of this is
    rocket science. This is Management 101. We just have to have
    the will to go do it.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Augustine follows:]

                   Prepared Statement by Norman R. Augustine
        Mr. Chairman and Members of the Committee, thank you for this
    opportunity to share my views on the defense acquisition system. I
    should emphasize that I am appearing as a private citizen, representing
    only myself.
        In the way of background, my perspective is that of one who has
    participated for sixty years in defense acquisition at virtually every
    level and has observed the process from both the industry and
    government standpoints. I have also participated in over 500 board
    meetings of Fortune 100 commercial firms concentrating in the energy,
    manufacturing and consumer products fields.
        If one is to seek to improve defense procurement ``while doing no
    harm,'' recognition of at least ten facets of the environment in which
    the process functions is essential.
        The first of these is that in terms of capability no other nation
    on Earth would trade their defense equipment for that of the United
    States.
        Second, there is an enormous number of dedicated, talented
    individuals both within government and in industry who somehow make the
    system work as well as it does.
        Third, in America we have chosen, unlike many other countries, to
    rely largely upon the private sector, operating as a free-enterprise
    endeavor, to equip our armed forces; the alternatives being to have
    government arsenals entirely fill that role or to de facto nationalize
    the industry. Having traveled in some 112 countries around the globe, I
    have observed nothing that causes me to believe that either of the
    latter two approaches would in any way be superior. This conclusion of
    course carries many implications and consequences, perhaps foremost
    among these is that so-called ``defense companies'' must compete not
    only against one another but also must compete for talent and capital
    against Google, Amazon, Facebook and IBM. This in turn means that the
    industry's shareholders will demand a competitive return on their
    investments and that sought-after employees will demand to work in an
    innovative, creative environment where they have the freedom to excel
    and contribute.
        Fourth, unlike virtually all the rest of U.S. industry, the defense
    sector operates in a monopsony. Its defense products have in essence
    but one customer, a customer that makes the rules, interprets the rules
    and enforces the rules. At the same time, the customer, in this case
    the U.S. government, occasionally, and sometimes unavoidably, finds
    itself dealing with a monopoly. If, for example, the government decided
    it needed one more B-2 bomber there was only one place where it could
    be practicably obtained.
        Fifth, in most commercial businesses a ``bad year'' means the loss
    of two or three points of market share. In defense procurement, where
    major contracts come in rare but enormous quanta, it can mean going out
    of business. Consider the case of the iconic McDonnell Douglas
    Corporation being absorbed into Boeing shortly after the former lost
    the F-35 contract competition.
        Sixth, unlike when I entered the industry, the leading edge of most
    technology no longer resides in the defense industry. The latter was
    where such things as commercial jet aircraft, satellite communications,
    nuclear power, GPS, robotics and the internet originated. That was
    where young scientists and engineers wanted to work. Today, the leading
    edge of the state of the art and innovation is often to be found in
    commercial firms, and many of those firms are not eagerly seeking the
    opportunity to participate in the defense acquisition process--or even
    with the government in general. A canonical example would be the
    situation that existed some sixteen years ago when the CIA recognized
    that the state of the art in its very lifeblood, informatics, had moved
    to Silicon Valley, Route 128, Research Triangle, Houston and other such
    environs, places where many of the leaders, probably most, wanted
    absolutely nothing to do with government procurement policies. Having
    at that time just retired from my job in industry, I was asked to help
    address this impasse that was increasingly becoming a danger to our
    nation's intelligence capability. This led to the establishment of an
    organization that we called In-Q-Tel, the concept of which was very
    simple: conduct business on behalf of the government with Silicon
    Valley and others as they would deal with any other commercial firms. I
    believe that it is fair to say that this has been an immensely
    successful endeavor from virtually every perspective.
        Seventh, and again unlike when I first entered the industry and the
    average shareholder held a share of stock for eight years, today that
    period is four months--and declining. This implies that a firm's
    owners--including those firms supporting national defense--have little
    interest in what happens to the firm ten or fifteen years from now. And
    this, in turn, implies that the government must be particularly mindful
    of the fragility of the nation's overall defense enterprise and its
    long-term importance.
        Eighth, the industrial foundation of national security is not the
    defense sector per se, as important as it may be. Rather, it resides in
    the nation's economy as a whole. Without a strong economy our nation
    will be unable to afford a strong military with modern equipment. That
    is a formula for greater casualties in warfare . . . or worse. Numerous
    studies, including one that formed the basis of a Nobel Prize, have
    shown that 50 to 85 percent of the growth in America's GDP during
    roughly the past half century are attributable to advancements in just
    two fields: science and technology. Yet, in recent years America has
    fallen from first to seventh place in basic research as a fraction of
    GDP and from first to tenth place in R&D by the same measure. China is
    projected to outspend the U.S. in R&D in less than ten years, both in
    absolute terms and relative to the economy. The U.S. government now
    ranks 29th in the fraction of research performed in the nation that is
    federally funded. We rank 79th out of 93 nations in the fraction of all
    baccalaureate degrees that are granted in the field of engineering. The
    nation most closely matching us in this regard is Mozambique. Our 15-
    year-olds rank 21st in science and 27th in math among the 34 OECD
    nations participating in standardized tests. It is my view that these
    factors are far more consequential to our nation's defense than
    shortcomings of our defense acquisition process, as serious as the
    latter may be.
        Ninth, those individuals and firms who work on projects supporting
    our nation's defense bear a special fiduciary responsibility that far
    transcends that of those who operate in the more conventional
    commercial marketplace. This implies that in some instances these
    individuals and firms must be prepared to accept special constraints.
        Tenth, the defense acquisition process does not function nearly as
    well as it could or should.
        Which brings us to the questions of what is broken and how can we
    fix what is broken without destroying the system's underlying
    strengths. I could of course offer a long list of specific actions and
    in fact have done so on a number of occasions. The problem is that
    there is no silver bullet--if there were it would have been implemented
    long ago. But if there is anything approaching a silver bullet it is to
    use wherever possible the power inherent in the free enterprise system
    that has made America's business, its universities and its innovative
    process the envy of the world.
        But in doing so one is constantly confronted with paradoxes.
    Competition is the heart and soul of free enterprise, but where limited
    numbers of items are procured, as is often the case in defense
    procurement today, at what point does it no longer make economic sense
    to establish a second producer to maintain competition? When does it
    make sense to distort procurement policies to promote worthy social
    goals, such as aiding small businesses? Fixed price contracts make a
    great deal of sense under many circumstances, say performing serial
    production, but when applied to risky endeavors, say R&D, only the
    desperate, foolish or dishonest would bid other than an inordinately,
    and probably unacceptably high, fixed price. Where is the point in the
    continuum at which one type of contract or the other no longer makes
    sense? When relying on past performance to select contractors such as
    is widely done in the free market, what does one do when the CEO's of
    the two firms in a major competition suddenly switch jobs--as actually
    happened on one occasion? Or how does one evaluate a firm possessing no
    prior record that seeks to enter the market?
        The answer to such questions resides in a single word: ``judgment''
    . . . and judgment regarding complex issues is an attribute that can
    only be found in one place--competent, dedicated, experienced people
    who are given the freedom to exercise judgment.
        This of course means that bad judgments will occasionally occur . .
    . judgments are made by humans. In the private sector, when
    particularly bad judgments are made people lose their jobs. In
    government, when bad judgments are made, nothing happens. Too often
    when good judgments are made, nothing happens either. In industry
    people are rarely placed in positions for which they have not
    accumulated years of relevant experience. This is often not the case in
    government. Further, there are few people in senior or relatively
    senior government line-positions possessing any experience in industry;
    and the converse is also true.
        The essence of my message today is the compelling need for a
    personnel system that delegates authority, rewards success and
    penalizes failure. This is by no means an original idea. It has been
    espoused for a half-century by friends of mine such as Air Force
    General Bennie Schriever, Army General Bob Baer, Admiral Wayne Meyer,
    and industry executives such as Dave Packard and Kelly Johnson.
    Virtually every successful major defense program that I can recall has
    had as its leader an extraordinary individual such as these folks.
        But today's policies strongly discourage leaders in industry from
    serving in government; military officers from going into acquisition;
    and government civilians from aspiring to hold senior positions in
    their organizations. (For example, today there are no fewer than 168
    presidential appointees--not all Senate confirmed--in leadership roles
    in the Department of Homeland Security, not all of whom have experience
    in homeland security.)
        If we are to make the acquisition process work more like a
    business, the first thing we must do is run the personnel management
    system more like a business. Only then can we get down to lesser
    matters such as fixing the requirements process, increasing
    prototyping, milestone budgeting, contingency funding, enhancing
    competition, shifting management authority from staff to line,
    providing funding stability, and encouraging prudent risk-taking.
    Fortunately, none of this is rocket science . . . it is done every day
    in the free enterprise marketplace.
        Thank you again for permitting me to share my views, and thank you
    for devoting your attention to this critically important topic.
        NORMAN R. AUGUSTINE was raised in Colorado and attended Princeton
    University where he graduated with a BSE in Aeronautical Engineering,
    magna cum laude, and an MSE. He was elected to Phi Beta Kappa, Tau Beta
    Pi and Sigma Xi.
        In 1958 he joined the Douglas Aircraft Company in California where
    he worked as a Research Engineer, Program Manager and Chief Engineer.
    Beginning in 1965, he served in the Office of the Secretary of Defense
    as Assistant Director of Defense Research and Engineering. He joined
    LTV Missiles and Space Company in 1970, serving as Vice President,
    Advanced Programs and Marketing. In 1973 he returned to the government
    as Assistant Secretary of the Army and in 1975 became Under Secretary
    of the Army, and later Acting Secretary of the Army. Joining Martin
    Marietta Corporation in 1977 as Vice President of Technical Operations,
    he was elected as CEO in 1987 and chairman in 1988, having previously
    been President and COO. He served as president of Lockheed Martin
    Corporation upon the formation of that company in 1995, and became CEO
    later that year. He retired as chairman and CEO of Lockheed Martin in
    1997, at which time he became a Lecturer with the Rank of Professor on
    the faculty of Princeton University where he served until 1999.
        Mr. Augustine was Chairman and Principal Officer of the American
    Red Cross for nine years, Chairman of the Council of the National
    Academy of Engineering, President and Chairman of the Association of
    the United States Army, Chairman of the Aerospace Industries
    Association, and Chairman of the Defense Science Board. He is a former
    President of the American Institute of Aeronautics and Astronautics and
    the Boy Scouts of America. He serves on the Board of Trustees of the
    National World War II Museum and is a former member of the Board of
    Directors of ConocoPhillips, Black & Decker, Proctor & Gamble and
    Lockheed Martin, and was a member of the Board of Trustees of Colonial
    Williamsburg. He is a Regent of the University System of Maryland (12
    institutions), Trustee Emeritus of Johns Hopkins and a former member of
    the Board of Trustees of Princeton and MIT. He has been a member of
    advisory boards to the Departments of Homeland Security, Energy,
    Defense, Commerce, Transportation, and Health and Human Services, as
    well as NASA, Congress and the White House. He was a member of the
    Hart/Rudman Commission on National Security, and served for 16 years on
    the President's Council of Advisors on Science and Technology under
    both Republican and Democratic presidents. He is a member of the
    American Philosophical Society, the National Academy of Sciences and
    the Council on Foreign Relations, and is a Fellow of the National
    Academy of Arts and Sciences and the Explorers Club.
        Mr. Augustine has been presented the National Medal of Technology
    by the President of the United States and received the Joint Chiefs of
    Staff Distinguished Public Service Award. He has five times received
    the Department of Defense's highest civilian decoration, the
    Distinguished Service Medal. He is co-author of The Defense Revolution
    and Shakespeare in Charge and author of Augustine's Laws and
    Augustine's Travels. He holds 34 honorary degrees and was selected by
    Who's Who in America and the Library of Congress as one of ``Fifty
    Great Americans'' on the occasion of Who's Who's fiftieth anniversary.
    He has traveled in 112 countries and stood on both the North and South
    Poles of the earth.

        Chairman McCain. Thank you.
        Mr. FitzGerald.

    STATEMENT OF BEN FITZGERALD, SENIOR FELLOW AND DIRECTOR OF THE
      TECHNOLOGY AND NATIONAL SECURITY PROGRAM, CENTER FOR A NEW
                           AMERICAN SECURITY

        Mr. FitzGerald. Mr. Chairman, Ranking Member Reed,
    distinguished members of the committee, thank you for the
    opportunity to speak with you all today. It's a considerable
    honor. In fact, it's such an honor, I've taken the unusual step
    of putting on a tie, something I don't normally do.
        I offer my remarks today from two perspectives, that of a
    researcher at a think tank, but also as the former managing
    director of a small business that worked predominantly for the
    Department of Defense.
        It's a generally held article of faith today that the locus
    of technological innovation is now firmly rooted outside of the
    United States Department of Defense in the global private
    sector. My testimony seeks to unpack this bumper-sticker
    statement and explore the implications for necessary reforms to
    our R&D and acquisition systems.
        The democratization of technology to a global user base is
    not new and has been underway since at least the early 1980s.
    The United States Government cannot arrest this trend. In fact,
    the Department's R&D budget is higher today, in constant
    dollars, than it was in the early 1970s. This trend is simply
    due to the growth of the global economy. Our challenge today is
    that, despite the efforts of this committee and others across
    the defense establishment, our implicit strategy and
    organizational methods for developing military capability
    remain optimized for a bygone era, and we continue to cling to
    the methods of past success in ways that unnecessarily
    disadvantage us.
        At a high level, it is helpful to think about this
    challenge in terms of the alignment between our strategic
    needs, the technological environments, and our underlying
    models of doing business. The canonical case for what ``good''
    looks like comes from the increasingly popular second offset
    strategy.
        During the '70s and '80s, the U.S. faced a clear and
    singular threat, in the form of the Soviet Union. Concomitant
    with the strategic imperative, the DOD possessed privileged
    access to critical technical components--microprocessors,
    computer processing, networking, data compression, GPS, and
    software--that, when integrated, would yield the precision
    munitions, ISR [intelligence, surveillance, and reconnaissance]
    networks, and command-and-control systems that underpin our
    current military technical advantages. The positive alignment
    of U.S. strategy, technology, and business during the Cold War
    meant that the DOD could simultaneously establish a
    conventional deterrent to the Soviet Union, develop the most
    capable fighting force in human history, and lock in at the
    privileged access to enabling technologies through a series of
    export controls. As if this was not enough, those investments
    helped establish U.S. businesses that came to dominate entire
    global industries. We would not have Intel, Cisco, or Apple or
    the following generation of Internet businesses, like Google
    and Facebook, without those early investments.
        In contrast today, we face a range of rapidly evolving
    threats and competitors from near-peer powers to nonstate
    actors, with no one capability providing game-changing
    advantages across likely contingencies. We face many more
    technological options to which we might apply our finite
    resources--AI [artificial intelligence] and automation, big
    data, additive manufacturing, hypersonics, and directed energy
    weapons, to name a few. And the U.S. no longer holds a monopoly
    on emerging technologies with military relevance.
        Most importantly, while the DOD budget is still significant
    and influential, it is no longer compelling. Apple Corporation
    currently has $203 billion cash on hand, enough to buy Lockheed
    Martin, General Dynamics, Raytheon, Northrop Grumman, and BAE
    Systems without having to get a loan. In this environment, it
    is hard to convince many businesses to build technologies
    specific to DOD requirements. Despite these many differences
    and the work of this committee and others, our acquisition
    system is still optimized for that prior Cold War environment,
    creating a misalignment between our strategy, technology, and
    business.
        So, what do we need to do to address this strategic
    misalignment? Accessing technology, people, and capital from
    commercial markets will be vital to providing our military with
    advanced capabilities today and in the future. I commend this
    committee for its work on the 2016 NDAA, which will make it
    much easier for the DOD to acquire commercial technology,
    should it choose to make use of those authorities. The DOD has
    also undertaken smart initiatives, such as better buying power
    and establishing a presence in Silicon Valley with the DIUx
    [Defense Innovation Unit Experimental]. However, commercial
    technology is available globally, to our allies and our
    adversaries, alike. Our challenge, therefore, is not simply how
    better to acquire commercially available technology, but,
    rather, how to generate and maintain unique military advantage
    in a global marketplace driven by demand for increasingly
    powerful commercial technologies.
        To achieve this objective will require a more nuanced and
    varied approach than we have in our current system, which
    operates on similar principles, regardless of whether you were
    developing an aircraft carrier or a microdrone. We cannot
    expect the same market conditions, product life cycles, export
    controls, or business models to create optimal outcomes for the
    full range of capabilities we require in our arsenal. We will
    need to create a business environment that incentivizes the
    best companies and individuals to help solve our hardest
    problems. This naturally conjures images of Silicon Valley, an
    important innovation hub, but we must also include other hubs
    around the country and the world.
        Importantly, reforms to our acquisition system must also
    incentivize traditional defense industry to innovate and
    collaborate with nontraditional businesses. Traditional defense
    industry will be an important conduit to deploy new technology
    and ideas inside the DOD at scale. This committee can provide
    the legal basis and strong incentives for the DOD to adapt
    appropriately. Updated approaches to intellectual property,
    export control, our requirements regime, and contracting
    methods would help lay the foundation for a more competitive,
    innovative, and sustainable set of industries from which the
    DOD can generate unique military advantages.
        Acquisition reform will never have the same urgency as the
    frequent international crises we face, or garner the same
    interests as decisions on new weapon systems. And yet, our
    ability to respond effectively to the crises of today and
    tomorrow, to generate unique military advantage, and to support
    healthy industries for the DOD require us to improve our
    acquisition system. While DOD's recent history does not provide
    much hope for our ability to change, I believe we have a small
    window within which we might make significant progress. The
    leaders of this committee, your colleagues on the HASC, and the
    current DOD senior leaders are uniquely qualified and willing
    to take action.
        So, in closing, I thank the committee for its work, and I
    encourage you to continue on your current path of investigation
    and reform.
        Thank you again for the opportunity to speak with you all
    today.
        [The prepared statement of Mr. FitzGerald follows:]

                      Prepared Statement by Ben FitzGerald
        It is a generally held article of faith today that the locus of
    technological innovation is now firmly rooted outside of the United
    States Department of Defense (DOD) in the global private sector.
        This testimony seeks to unpack this bumper sticker statement to
    establish its historic context, frame the impact it has on the DOD and,
    most importantly, explore the implications for necessary reforms to our
    research and development (R&D) and acquisition systems.
        The democratization of technology to a global user base is not new
    and has been underway since global R&D spending outgrew DOD spending in
    the early 1980s. There is little the U.S. can do to arrest this trend
    and this is not an issue of declining spending on the part of the DOD.
    In fact, the Department's R&D budget is higher today, in constant
    dollars, than it was in the early 1970s when many of the investments
    that underpin our current technological advantage were made. Rather,
    this trend is a function of the global economy and, indeed, there are
    many benefits to the U.S. in terms of global prosperity.
        Our challenge today is that, despite the efforts of this committee
    and others across the defense establishment, our implicit strategy and
    organizational methods for developing military capability remain
    optimized for a bygone era and cling to the methods of past success in
    ways that unnecessarily disadvantage us.
                      strategic alignment and misalignment
        It is helpful to think about this challenge in terms of the
    alignment between our strategic needs, the technological environment,
    and underlying models of doing business. Considering this alignment in
    the context of the Second Offset Strategy offers a case study in a
    positive relationship between these factors.
        During the 1970s and 1980s the U.S. faced a clear and singular
    threat from the Soviet Union in the context of the Cold War. In an era
    of mutually assured destruction, the U.S. required a qualitative
    technological advantage to `offset' the numerical superiority of Warsaw
    Pact forces. Concomitant with this strategic imperative, the U.S.
    possessed privileged access to the technical components that would
    enable so called `information based force multipliers' that would
    manifest themselves in precision munitions, intelligence, surveillance,
    and reconnaissance (ISR) networks, and command and control systems.
    During this period the DOD was the overwhelmingly dominant provider of
    funding for technology including: microprocessors, computer networking,
    data compression, global positions system (GPS), and the software
    required to tie these elements together.
        The positive alignment of these various factors meant that the DOD
    could establish a conventional deterrent to the Soviet Union, develop
    the most capable fighting force in human history, and lock in its
    privileged access to the enabling technology through a series of export
    controls. As if this was not enough, these investments helped establish
    U.S. businesses that came to dominate entire global industries. We
    would not have Intel, Cisco or Apple or the following generation of
    internet businesses like Google and Facebook without these early
    investments.
        In contrast, today we face a range of rapidly evolving threats and
    competitors from so called near peer powers to non-state actors and
    terrorists. We also face many more technological options to which me
    might apply our finite resources: artificial intelligence and
    automation, big data, additive manufacturing, hypersonics, and directed
    energy weapons to name a few. The U.S. no longer holds a monopoly on
    emerging technologies with military relevance. And, while the DOD
    budget is still significant and influential, it is no longer compelling
    in the way that it used to be. Samsung corporation's R&D budget is
    larger than that of DARPA. Apple Corp. currently has $203b cash on
    hand, enough to buy Lockheed Martin ($70b), General Dynamics, ($45b)
    Raytheon ($38b) Northrop Grumman ($34b) and BAE Systems ($16b).
        But despite the many differences in our strategic and technological
    environments the DOD largely operates today as though the conditions of
    the early 1970s still prevail - especially regarding the acquisition of
    major weapons systems. We establish formal requirements, competitively
    select a contractor from a relatively small number of businesses,
    develop and test it over a period of years or decades, and then control
    access to that technology through a regime of export controls.
        This committee is well aware of the myriad implications of this
    lack of adaptation. I will offer a short example from the world of
    drones. We are currently unable to sell armed Predator drones to our
    ally Jordan due to the provisions of the Missile Technology Control
    Regime--with China now seeking to take our natural place and sell their
    drones to Jordan instead. In a prior era, keeping this technology in
    the hands of the U.S. alone may have prevented proliferation but today,
    many nations compete in the global drone market. \1\ In fact, Israel
    has supplied over 60 percent of the world's drones since 1985, with the
    U.S. only supplying 24 percent. \2\ This policy decision does not just
    adversely impact the revenue of U.S. businesses, it makes us less
    competitive technologically. This was seen in July of this year when
    the Indian Army rejected the U.S. Raven drone, currently in use by the
    Army and Marine Corps, as being insufficiently `futuristic' for its
    needs. \3\
    ---------------------------------------------------------------------------
        \1\ George Arnett, ``The numbers behind the worldwide trade in
    drones,'' The Guardian, March 16, 2015.
        \2\ Rania Khalek, ``Sixty percent of global drone exports come from
    Israel--new data,'' electronicintifada.net, March 24, 2015.
        \3\ Rajat Pandit, ``Army rejects US offer of Raven mini-drones for
    its foot-soldiers,'' The Times of India, July 18, 2015.
    ---------------------------------------------------------------------------
        Yet, the U.S. military and defense industry have been pioneers in
    the use of drones--no other nation has a stealth drone that can land on
    an aircraft carrier. This is clearly a problem of law and policy not of
    military, technical, or business acumen. In a world of rapidly
    proliferating drones other nations have many avenues by which they can
    acquire these systems. By choosing not to sell drones to our allies we
    risk making U.S. businesses less competitive, allowing strategic
    competitors to establish arms sales relationships with our allies,
    diminish interoperability, and have less influence over how drone
    technology is used by others.
                    the advantages of commercial technology
        The driving force behind this (not so) new reality is the spread of
    powerful technologies, particularly information technologies, from a
    handful of government customers to thousands of business customers and
    now, most potently, to billions of individual users around the globe.
    Operating at vast scale has rapidly driven down prices while increasing
    the capability of systems that were highly classified mere decades ago.
    The global availability of these technologies creates a number of
    challenges to the U.S. from highly capable non-state actors to
    competitor nation-states able to proliferate their own military
    technologies. However, commercial technology is also fundamental to
    generating and maintaining our military-technical advantage.
    Specifically:

          Efficient resource allocation--Commercial technology is
    increasingly able to meet demanding military requirements. For
    information technology (IT), the Department of Defense frequently seeks
    commercial solutions, ranging from Apple and Galaxy smartphones to
    enterprise email, rather than developing proprietary systems for basic
    functions. This trend is increasingly moving from the back office to
    the battlefield. The government should enhance this approach beyond IT
    and think creatively about how to quickly adapt a broader range of
    technologies to various military environments. While the market will
    not yield a stealthy, armed drone, commercially available drones may be
    utilized for tactical applications at a fraction of the cost of
    military models. An effective division of labor that utilizes cheap and
    readily available commercial products can save the department time,
    personnel, and money to devote to more challenging, military specific
    endeavors. \4\
    ---------------------------------------------------------------------------
        \4\ Ben FitzGerald and Katrina Timlin, ``Time for a Private-Sector
    Pivot On Military Technology,'' WarOnTheRocks.com, May 14, 2015, http:/
    /warontherocks.com/2015/05/time-for-a-private-sector-pivot-on-military-
    technology/.
    ---------------------------------------------------------------------------
          Effectively incorporating commercial components in unique
    military systems--The Department of Defense, as a long-time user of
    commercial components in major platforms, is seeking to better
    incorporate emergent commercial technologies by designing modular
    military systems. Designing and fielding exquisite platforms and
    systems is expensive and time-intensive, as evidenced by the long and
    costly history of the F-35. To accelerate this process, the Better
    Buying Power 3.0 procurement initiative will focus on agile development
    and modular, platform-agnostic technologies. Modular design facilitates
    modernization and avoids situations like the F-22 processor, where
    software components are rendered obsolete by the pace of technological
    advances. Analyzing what components can be developed using existing
    technology can reduce lifecycle costs and ensure the military is
    positioned to take advantage of technological developments. These
    initiatives can be taken further by adopting commercial practices, for
    example in the areas of user experience design or development
    practices. Updating DOD procurement practices will be the difference
    between a U.S. military that benefits from commercial innovation and
    one that is superseded by it.
          Applying military grade engineering to wholly commercial
    components--Commercial components are rarely deployed prima facie as
    military hardware, but integrating commercially available technology
    can produce cost-effective systems and platforms quickly. Integrating
    commercial technology affords U.S. armed forces with advantages in
    rapid fielding, adaptation, and more varied force mixes, as well as the
    ability to easily export weapons systems to allies. The Textron
    Scorpion fighter jet uses only commercial technology, leading to an
    inexpensive aircraft, that used no DOD research and development funding
    but is still appropriate for routine missions. The Air Force has
    additionally integrated multiple PlayStation 3 consoles to build a
    supercomputer that is not only cheaper, but more energy efficient. Such
    approaches allow the department to manage cost, innovate rapidly, and
    stay connected with allies--especially for contingencies with less
    technologically advanced adversaries--while preserving exclusivity
    around unique high-end military systems.
          Commercial tech as a force multiplier for military
    systems--Commercial technology can also be deployed in combination with
    military systems to expand their scope of use. One program that has
    adapted commercial technology for military purposes is DARPA's
    Persistent Close Air Support System (PCAS). Using Android tablets, PCAS
    enables closer coordination between ground and air troops and provides
    enhanced situational awareness by integrating various data streams and
    lines of communication for close air support. While currently deployed
    on the MV-22, DARPA is looking to expand to other air platforms, which
    is possible due to the modular, software-based PCAS system. This
    approach extends the utility and lifespans of existing military systems
    but also imbues commercial systems with military advantages. Anyone can
    purchase an Android tablet, but they can't use it to call for precision
    fires in a secure communications environment. The Qinetiq robotic
    applique kits are another example of imbuing traditionally commercial
    platforms, in this case a Bobcat truck, with functionality for military
    applications and missions. Adapting common applications for a military
    purpose allows the Department of Defense to leverage a tested,
    functional product in the private domain and adapt it to a military
    environment.
                          dod's push for collaboration
        It is in this context that the Secretary of Defense Ash Carter is
    seeking to improve DOD's relationships with Silicon Valley and other
    hubs of innovation around the country. This is absolutely the right
    instinct but for the DOD to benefit in any meaningful way from this
    collaboration will require policy, legal and ultimately cultural
    changes in the way we do business. In the period from the 1960s to
    today, the DOD has gone from being the customer for technology to a
    customer for technology and has not adjusted accordingly. With global
    R&D spending topping $1 trillion and with abundant venture capital
    available to startups, the Department's roughly $60 billion R&D budget
    remains large but far from the only option available.
        In an era with ready access to capital, doing business with the
    Department of Defense often represents too great an opportunity cost
    for many new and innovative businesses. The Pentagon's investment and
    purchasing model operates on sales cycles measured in years. Contracts
    run even longer--the F-22 fighter took more than two decades to
    develop--with some engineers working their entire careers on a single
    project. Rigid requirements and testing regimes designed to mitigate
    risk also mitigate innovation, often to the extent that a company's
    product would not be competitive or desired by non-DOD users. Worse,
    these businesses would then have to suffer through prescriptive
    accounting and compliance requirements, frequent audits and arcane
    contract vehicles that lock in prices and even profit margins. It is
    therefore natural for commercial businesses, including startups, to
    focus on other markets despite the DOD's, and particularly military
    professionals', burning desire for collaboration.
        Without realigning the incentive structures for collaboration the
    DOD will be unable to take advantage of partnerships with innovative
    commercial businesses. Worse, the Pentagon's early investments and new
    technology opportunities will continue to be acquired by Silicon Valley
    companies, denying DOD the chance to fully capitalize on its own
    investments. Boston Dynamics, DARPA's leading robotics provider;
    Skybox, a provider of micro satellites and data analytics; and much of
    the driverless car technology generated by DARPA's Grand Challenge have
    all found a more welcoming and sustainable home at Google.
        Despite this gloomy outlook, significant potential remains for
    healthy collaboration between the DOD and commercial businesses.
    Indeed, smart businesses should want to collaborate because the DOD:

          Remains on the leading edge of technical challenges and
    has early access to compelling problems. Businesses able to help solve
    those problems will find themselves in advantageous technical and
    market positions.
          Is willing to invest in and experiment with immature
    technology that commercial investors would be unwilling to consider.
          Can provide access to a large, singular user base,
    particularly active duty military personnel, comfortable with testing
    and adapting to new technology.
          Owns significant testing facilities and ranges that can
    provide rare and discreet opportunities to test new technologies.
          Is willing to pay above commercial rates for new
    technology.
          Can provide capital to startup and small businesses that
    does not dilute their equity in the ways that seed or venture capital
    would.
          Provides a sense of purpose, mission and meaning greater
    than most other industries.

        However, for commercial businesses to invest their time and capital
    into collaboration with DOD they will need to be able to transition
    their product from a national security context to a commercial one. If
    we look to aerospace, a related field experiencing similar dynamics,
    companies like Space X and Blue Horizon are applying innovative
    practices to the business of private space launch. There are a number
    of national security benefits to their work but the end game for these
    businesses is commercial space flight not military satellite launches.
    If we stifle their ambitions, that capital and innovation will go
    elsewhere, leaving the U.S. with insufficient launches to justify a
    robust domestic market for rocket engines and an ongoing need to
    purchase these engines from Russia.
        Without reforming our current laws, policies and acquisition
    culture create many impediments for commercial businesses that might
    otherwise wish to capitalize on the natural advantages of collaboration
    with the Department of Defense.
                          beyond commercial technology
        Accessing technology from commercial markets will be vital to
    providing our military with advanced capabilities today and in the
    future. However, commercial technology is widely available and
    therefore cannot provide the U.S. with unique military advantage. In
    this context, our challenge is not simply how to better acquire
    commercially available technology but rather how to generate and
    maintain technical advantage in a global marketplace driven by demand
    for powerful commercial technologies. This will require an acquisition
    system that can integrate a mix of military and commercial technologies
    in compelling ways.
        Achieving this objective will require a more nuanced and variegated
    approach than we have in our current system, which operates on similar
    principles regardless of whether you are developing an aircraft carrier
    or a micro-drone. We cannot expect the same market conditions, product
    lifecycles, export controls, or business models to create optimal
    outcomes for the full range of capabilities we require in our arsenal.
        Additionally, in seeking to take advantage of commercial
    technology, we must not overlook the important role of defense
    industry. DOD reforms to compete more effectively in commercial
    marketplaces is just as important for defense businesses to enable them
    to innovate and reorient their organizations to focus on growth and
    technology investment. Defense industry will also continue to play an
    important role integrating technologies--commercial and military--into
    capabilities that our services can use. Accessing non-traditional
    sources of defense technology will be good for traditional defense
    industry as well.
        Left unchanged, our current regime will continue to provide the DOD
    with strong control over the technology acquired for its own personnel
    but will make it almost impossible to build technology compelling to a
    global user base--the key area of focus for the best technology
    companies.
        Ultimately, our acquisition and R&D challenges are strategic,
    organizational, and cultural in nature and we do not have a strong
    track record of updating these factors over the last thirty years. That
    said, I commend this committee for its work on the National Defense
    Authorization Act of 2016, particularly for the contributions made in
    providing additional authorities to the DOD for purchasing commercial
    technologies. These authorities, should the DOD choose to make use of
    them, provide an excellent basis for purchasing commercial off the
    shelf technology, a critical aspect of maintaining our technical
    advantage.
        However, to truly and effectively compete in the global market for
    technology, talent, and capital will require further action. This
    committee can provide the legal basis and strong incentives for the DOD
    to adapt appropriately. Most significant will be updated approaches to
    intellectual property, export control, as well as our requirements
    regime and contracting methods.
                                   conclusion
        Improving our acquisition system will never have the same urgency
    as the daily crises we face or garner the same interest as decisions on
    new weapons systems. And yet, our ability to respond effectively to the
    crises of today and tomorrow, to create compelling options for weapons
    systems, and support healthy industries for defense require us to
    improve our methods for developing military capability.
        While our recent history does not provide much hope for our ability
    to change, we have a small window within which we might make
    significant progress. The leadership of this committee and your
    colleagues on the House Armed Services Committee combined with the
    leadership from Secretary of Defense Carter, Deputy Secretary Work, and
    Undersecretary Kendall are uniquely qualified and willing to take
    action. I encourage you to do so.

        Chairman McCain. Thank you, Mr. FitzGerald. It's a nice-
    looking tie.
        Mr. FitzGerald. Thank you. I bought it specially.
        Chairman McCain. Thank you.
        [Laughter.]
        Chairman McCain. Thought maybe you had borrowed it. Thank
    you.
        [Laughter.]
        Chairman McCain. Colonel Ward.

        STATEMENT OF LIEUTENANT COLONEL DAN WARD, USAF (RET.),
       CONSULTANT AND AUTHOR OF F.I.R.E.: HOW FAST, INEXPENSIVE,
           RESTRAINED, AND ELEGANT METHODS IGNITE INNOVATION

        Colonel Ward. Good morning, everybody.
        Mr. Chairman, Ranking Member Reed, and distinguished
    committee members, thank you for the opportunity to be here
    this morning and to share some thoughts.
        My perspective on acquisition reform can be summed up in
    two words: constraints work. That perspective is based on my 20
    years of service as an Air Force acquisition officer and my
    research over the past decade. I've observed that small teams
    who embrace constraints tend to outperform large teams who
    adopt an expansive mentality of ``take your time and spare no
    expense.'' It may seem counterintuitive, but, beyond a certain
    point, there is an inverse relationship between how much we
    spend on a project and the value of what it produces. I contend
    that if we want the acquisition community to deliver world-
    class, affordable systems at the speed of need, we need to
    establish small teams with short schedules, tight budgets, and
    a deep commitment to simplicity. We should resist the urge to
    launch big, slow, expensive programs which inevitably cost
    more, take longer, and do less than promised.
        As I explained in an article about technology lessons from
    Star Wars, we need to build droids, not death stars. Droids
    work, death stars keep getting blown up. And this doesn't just
    happen in the movies, it happens in real life, too. The opening
    story in my first book, F.I.R.E.,'' is about a supercomputer
    developed by the Air Force Research Lab in 2010. At the time,
    it was the fastest supercomputer in the entire Department of
    Defense. Remarkably, it cost less than a tenth of what a
    typical supercomputer would cost. How did AFRL produce a best-
    in-class technology on a shoestring budget? They built it out
    of 1,760 Play Station IIIs, which makes it an interesting story
    and a funny story, but also an important story.
        If the scientists and engineers at the Air Force Research
    Lab had a large budget for that particular project, what would
    they have done? They would have bought a standard, typical
    supercomputer, which would have cost more and performed more
    slowly than the system they actually developed. Their small
    budget forced them to pursue a different path, which not only
    saved money, it also--and I can't emphasize this enough--
    outperformed every other supercomputer in the Pentagon's
    inventory. And that is a key point. A constrained approach can
    help save money, yes, but that's a secondary objective. The
    primary objective is to ensure we deliver best-in-class
    capabilities so that our men and women in uniform continue to
    enjoy unsurpassed technological advantages. As a person who has
    strapped on body armor and carried a loaded weapon into a
    combat zone, I take this very seriously. And the data is
    overwhelmingly consistent. We get better acquisition outcomes,
    programmatically and operationally, when we take a constrained
    approach. That's what I mean when I say ``constraints work.''
        So, the question is, How do we build a culture that
    incentivizes constraint? And the first is to recognize that
    constraint is not a foreign concept. The Armed Forces are full
    of people who embrace constraints, who take pride in doing the
    most when they have the least. And I had the privilege of
    leading one such team during my final year on Active Duty.
    There were six of us in uniform, along with a handful of
    civilian partners. Our $84 million project was one of the
    smallest in our division, so constraints are relative. $84
    million is a lot of money. But, outside experts said this
    project should take 7 years. My predecessor wisely decided to
    do it in 2. I took over for the last year. Our first test
    flight was a month ahead of schedule. We flew twice as many
    test flights as originally planned. And, when the program
    ended, I was able to go into my commander's office and report
    that we were $8 million under budget.
        Now, this is not a typical outcome, but it's more common
    than you might think. And if we want more projects to look like
    this--world-class technologies, ahead of schedule, and under
    budget--my suggestion for--is for leaders to seek, support, and
    celebrate such teams. Take steps to find these high-performing
    innovators, and support them, and tell their stories. If
    prominent leaders tell the world, ``This is what right looks
    like. This is us at our best,'' that will help provide
    incentives for others to move in that direction, as well.
        Look, the U.S. military is fantastic at achieving its
    goals. Give us an objective, and we will do whatever it takes
    to satisfy that objective. Military innovators have proven we
    can deliver world-class capabilities ahead of schedule and
    under budget when that's the goal. But, acquisition programs
    run into problems when that's not the goal, when concepts like
    speed and thrift are dismissed, when they're viewed skeptically
    or written off as impossible. Acquisition programs run into
    problems when big budgets are treated as signs of prestige,
    when long timelines are treated as signs of strategic genius,
    and when high degrees of complexity are treated as signs of
    sophistication. We need to set better goals and incentivize the
    right things.
        If we're going to reform the acquisition system, we must
    take steps to measure and incentivize three things: speed,
    thrift, and simplicity. And we need leaders who will seek,
    support, and celebrate the teams who pursue these goals. And we
    need to do these things for a very, very simple reason:
    constraints work.
        Thank you.
        [The prepared statement of Colonel Ward follows:]

                    Prepared Statement by Lt. Col. Dan Ward
        Constraints work.
        Earlier this year a study in the Oxford Journal of Consumer
    Research looked at the way ``resource availability'' affects behavior
    and concluded that scarcity promotes creativity. That is, when people
    have fewer resources, they tend to exhibit more creative behaviors. The
    researchers explained that having less helps to foster a ``constraint
    mindset,'' which leads to more innovative outcomes. Abundance on the
    other hand is correlated with less creative behaviors. The implication
    is that if we want to foster creative, innovative approaches, we should
    start by restricting resource availability.
        The results of this study match my own experience serving for more
    than 20 years as an Air Force acquisitions officer, where I observed
    that limited resources tend to drive innovative outcomes. This study
    and my experience are also consistent with large body of data on the
    effectiveness of technology development programs in general and defense
    acquisition programs in particular. This data shows that small teams
    with short schedules, tight budgets, and deep commitments to
    simplicity--in other words, teams with a constraint mindset--are not
    only more creative but also more effective. Small teams consistently
    outperform large, unconstrained teams who pursue complexity and adopt a
    ``take your time, spare no expense'' mentality.
        In other words, we tend to do the most when we have the least.
        This is particularly true in the Defense Department. Time and
    again, military program offices working under tight constraints
    reliably hit their budget and schedule targets while the technologies
    they produce contribute significantly to achieving operational
    objectives in the field. In fact, the military's most important,
    impactful, and innovative systems tend to come from these small,
    thrifty, speedy teams. In contrast, when a cast of thousands spends
    billions and decades, the result inevitably costs more, takes longer,
    and does less than promised.
        It bears repeating: constraints work. They help acquisition
    professionals deliver affordable world-class technologies that are
    available when needed and effective when used.
        Despite overwhelming evidence that focusing on speed, thrift, and
    simplicity leads to positive programmatic outcomes and outstanding
    operational performance, the DOD continues to foster an environment
    where expansive budgets and long timelines are rewarded, pursued, and
    valued. The predominant culture treats budget overruns and schedule
    delays as inevitable attributes of advanced technology development
    programs, if not desirable attributes. This is a flawed belief, based
    on incorrect assumptions rather than actual data. The truth is that
    constraints are an important precursor to creativity and innovation.
    This also means that fiscal responsibility and technical excellence are
    not incompatible goals.
        Specific examples of these dynamics within defense acquisition
    programs are easy to find and well documented. While this statement
    does not aim to provide a comprehensive summary of the data, I will
    briefly refer to a handful of examples while primarily focusing on the
    overall trend, then provide a specific recommendation for an initiative
    that would encourage and incentivize a constraint mindset.
        Let's begin with a brief look at how constraints work:

        1.  Constraints foster creativity. When time and money are limited,
    status quo solutions are off the table. Program teams must instead
    pursue alternative solutions. For example, in 2010 the Air Force
    Research Laboratory built a 500 TFLOPS supercomputer named the Condor
    Cluster. When it was delivered, it was the fastest supercomputer in the
    entire DOD. Remarkably, it cost less than one-tenth the price of a
    comparable machine and used one-tenth the electricity of a traditional
    supercomputer. How did AFRL manage to produce a best-in-class
    technology on such a shoestring budget? They built the Condor Cluster
    out of 1,760 PlayStation 3's.
            The reason they took this approach is clear: they had no other
    option. They were operating under strict financial constraints. If the
    scientists and engineers at AFRL had a large budget, they would have
    simply bought a standard, expensive supercomputer . . . which would
    have been less capable than the system they actually developed.
    Instead, their small budget forced them to pursue a different path--
    which not only saved a significant amount of money, it also
    outperformed every other supercomputer in the Pentagon's inventory. And
    that is key. The fact that a constraint mentality helps us save some
    money is only a secondary objective. The primary objective is to ensure
    we deliver best-in-class capabilities.

        2.  Constraints foster focus. When time and money are limited, a
    program team is forced to prioritize and restrict their requirements.
    They simply cannot afford to do everything and are unable to
    accommodate requirement creep. This leads to a more focused approach on
    requirements that matter the most and have the largest impact on
    operations. There is less clutter (organizationally, procedurally, and
    technically), less passive engagement, and less social loafing.

            For example, the JDAM famously had just three requirements from
    the Air Force Chief of Staff (``It should work; it should hit the
    target; and it should cost under $40,000 each.''), an approach that
    provided a very useful sense of priorities and focus to the development
    team. The resulting system performed admirably and ended up costing
    approximately $17,000 each, well under the $40,000 requirement.

            Feedback from the field shows that simple, focused systems tend
    to do more than they were designed to do, while complicated systems
    with long lists of features tend to underperform. Simple systems tend
    to be more reliable and less fragile, easier to use and easier to
    maintain.

        3.  Long timelines increase exposure to change. Over time, new
    threats emerge and old threats go away. New technologies are developed,
    new political and economic situations unfold, and new leadership comes
    on the scene. All of these changes contribute to increase the odds that
    the product under development will be operationally irrelevant,
    technologically obsolete, or both by the time it is delivered.

            For example, the F-22 Raptor was intended to counter the Soviet
    Air Force. However, the USSR collapsed 15 years before the Raptor
    program declared its Initial Operational Capability (IOC). Because so
    many things in the world changed between program inception and IOC, the
    final product was ill-suited for the military's actual combat needs and
    the F-22 did not fly a single combat mission in Afghanistan, Iraq or
    Libya. It was even declared ``not relevant'' by the Secretary of
    Defense himself.

            In contrast, shorter timelines increase the odds of a close
    alignment between the state of the art and the user's needs. For
    example, an ISR aircraft known as the MC-12W Project Liberty flew its
    first combat mission a mere 8 months after receiving funding, then went
    on to fly thousands of missions in Iraq and Afghanistan.

            By constraining the development timeline, programs present a
    smaller target to the forces of change and increase the likelihood of
    alignment between what the system can do and what the users need it to
    do. Long timelines, in contrast, rely on long-term predictions about
    future needs and amplify any predictive errors.

        4.  Delays foster delays. Extending a program's development
    schedule or slipping the delivery date creates a vicious circle that
    necessitates additional delays, because the more time a program spends
    in development, the more changes it is exposed to (see #3 above). It
    takes time to respond to these changes, but the world does not stand
    still while the program office responds. The net result is that delays
    cause delays, and the program ends up presenting a larger target to the
    forces of change. This ends up adding to the cost and complexity of the
    system as well as adding to the schedule.

            In contrast, speed fosters speed, and programs which set
    aggressive delivery timelines have a remarkable tendency to deliver
    ahead of schedule. For example, the US Navy's Virginia Class Submarine
    program set an aggressive goal of delivering two submarines for $2B
    each, every two years (referred to as ``2 for 2 in 2''). These firm
    constraints helped shape the program office's behavior across the whole
    spectrum of decision making, and the result is that the Navy
    consistently delivers Virginia submarines months ahead of schedule and
    tens of millions of dollars under budget. Specifically, in 2008 the USS
    New Hampshire was delivered 8 months early, $54 million under budget.
    In 2011 the USS Mississippi was a year ahead of schedule, $60 million
    under budget. In 2014 the USS North Dakota continued the trend,
    delivering on time and under budget. This is a remarkable achievement
    and a stark contrast to the previous Seawolf program, which was
    terminated in 1995 after delivering only three of the planned 29
    submarines, each of which cost $4.4B.

        Given this reality, why do so many defense programs continue to
    operate in an unconstrained manner? In large part this is caused by the
    presence of perverse incentives and an absence of positive incentives.
    The defense acquisition community tends to be skeptical of constraints
    rather than guided by the idea that constraints foster quality. The
    prevailing mindset views complexity as a sign of sophistication, long
    timelines as a sign of strategic genius, and large budgets as signs of
    prestige. Quick, simple, low-cost solutions are dismissed as
    simplistic, hasty, and cheap.
        The result is an acquisition environment where large budgets and
    long timelines are viewed as inevitable attributes of advanced
    technology programs, and adding time and money to a program is a common
    problem-solving strategy. While some organizations within the military
    take pride in accomplishing a lot despite minimal resources (e.g.
    SOCOM), they are a distinct minority.
        Further, the acquisition environment does very little to reward
    program offices for delivering under budget or ahead of schedule. If a
    thrifty program ends up with unspent funds, either at the end of the
    fiscal year or at the end of the program, these dollars are generally
    transferred to some other project (usually one that is overspending).
    The team who worked hard to save money receives virtually no benefit
    aside from a single line in an annual evaluation. The team which is
    overspending ends up receiving more money.
        The good news is that we can improve this situation without having
    to completely recreate the entire enterprise. In a broad sense,
    congressional and military leaders can make a concerted effort to seek,
    support, and celebrate the organizations, programs, and individuals who
    exhibit this constrained mindset. Find the teams which are already
    delivering ahead of schedule and under budget, encourage them to
    continue along that path, and celebrate their achievements in public.
    Point to them as an example of what right looks like, hold them up as
    exemplars for other programs to follow, as viable and valuable
    alternatives to the status quo. Identifying these teams as the top
    performers can provide a strong incentive to the rest of the
    acquisition community to follow suit.
        Let's look at one specific way to do this, which is entirely
    allowable within the current regulations. A few small policy
    adjustments would be sufficient to get things started, and a minor
    legislative effort could boost it considerably.
                         give program offices ``a tip''
        I propose creating an Acquisition Thrift Incentive Program (A TIP),
    through which Pentagon leaders give program offices a ``tip'' for good
    performance. This could be initially implemented on a small number of
    programs, then expanded to the wider enterprise if proven successful.
    Here is how that would work.
        When a program office delivers a new capability under budget, a
    portion of the saved funds (nominally 10 percent) would be formally set
    aside for the team to spend on a project of their choosing. They would
    be granted considerable freedom and autonomy in deciding how to invest
    these funds. The available options would vary depending on how much
    money is involved, but might include the following:

        1.  Establish an incentive prize on Challenge.gov to fund a
    relevant technology contest
        2.  Fund a Small Business Innovation Research (SBIR) effort at
    SBIR.gov
        3.  Sponsor a small research project with a university
        4.  Purchase the necessary hardware (3D printers, etc) to set up
    and maintain a Maker Space on their local base

        The A TIP initiative would grant top performers an opportunity to
    do more of what they are good at and would equip front-line
    practitioners the freedom to explore alternatives which might otherwise
    be overlooked. It would also reward speed, because the longer the
    program takes to complete, the less likely there will be money left
    over and the less likely the people involved early in the program will
    still be involved as the program ends. Focusing on speed, thrift, and
    simplicity (i.e. adopting a constraint mindset) would maximize the
    team's odds of receiving A TIP funds. Any funds spent on an incentive
    prize or SBIR award would likely produce additional low-cost solutions
    to important needs and would help fill gaps in current plans.
        It would be difficult to game this system by inflating initial
    estimates and budgets, because all the existing incentives would still
    apply (i.e. low bidders tend to win, etc). The A TIP concept directly
    incentivizes the desired outcomes (not merely the desired behavior), as
    it encourages program teams to deliver capabilities under budget and
    ahead of schedule.
        One important aspect of A TIP is not to add new reporting
    requirements or excessive restrictions on how the funds will be spent.
    The mechanisms, reporting requirements, and controls already in place
    for managing government incentive prizes or SBIR programs should be
    sufficient. Senior executives should refrain from dictating exactly
    which program, technology, or endeavor to fund. The idea is to allow
    the front-line practitioners to decide as a team which areas to pursue.
        This is a sensible position to take because if the team was
    efficient enough to come in under budget in the first place, it is
    reasonable to suggest that they would be similarly efficient and
    effective with the A TIP funds. The program will still comply with all
    the accountability requirements associated with the particular
    contracting vehicle or channel, but should be given wide latitude
    within those boundaries.
        Let's consider an actual example. From January through November of
    2014, I was the program manager for the Dismount Detection Radar (DDR)
    program, an $84M effort to develop a new radar system. When we finished
    the effort and closed out the contract, our thrifty approach meant we
    had $8M in unspent funds to return to the government. Under an A TIP
    initiative that provides 10 percent of the savings to the program
    office, the DDR team would receive $800,000 to invest and manage
    (approximately 1 percent of the program's original budget), while the
    Air Force would retain $7.2M. This is the very definition of a win-win-
    win situation.
        With $800,000, my team could have funded several small experiments
    via SBIRS, as well as a handful of incentive prizes at Challenge.gov.
    There would likely have been money left over to send the whole team to
    a technology conference or to pay for formal training at a place such
    as the University of Tennessee's Aerospace and Defense division or
    Georgia Tech's Contracting Education Academy.
        The benefits of this program include:

        1.  Increased incentives to adopt a constraint mindset.
        2.  Increased incentive to complete programs under budget and ahead
    of schedule.
        3.  Increased morale among program offices as they are granted
    autonomy to experiment with the A TIP funds.
        4.  Increased training opportunities for the workforce with no
    additional funds needed.
        5.  Increased opportunities to pursue disruptive innovations and
    alternative technologies, suppliers, and methods via SIBR.gov and
    Challenge.gov.
        6.  Increased access to innovative solutions (incentive prize
    winners and SBIR awards).

        One potential barrier to implementation is the legislative
    restriction based on ``color of money'' and fund expiration dates, but
    this is easily overcome. For starters, there are plenty of
    opportunities to use the saved funds within the original funding
    category and timelines. A team that saves R&D funds could simply put
    their 10 percent towards an additional R&D effort, staying within the
    category of the original budget. The fact that they are not allowed to
    spend those funds in a completely unrestricted manner would likely have
    a minimal impact on the incentive nature of the A TIP initiative.
    However, it would also be possible to establish a simple mechanism to
    convert the A TIP funds (which will inevitably be a small portion of
    the original program budget) into ``colorless money,'' which does not
    expire and could be used in a wider range of situations.
                                   conclusion
        There are many ways for military and congressional leaders to
    provide a strong, creative, empowering incentive to encourage
    acquisition professionals to adopt a constraint mindset. The A TIP idea
    is one such method that seems particularly promising. It is designed to
    help our best performers do more of what they are good at and is likely
    to convey a rich benefit to the acquisition workforce and the armed
    forces as a whole.
        Launching such an initiative would be a matter of issuing a
    Department-level policy, as the majority of the actual mechanisms
    necessary are already in place. The first step is to launch A TIP as a
    small pathfinder program, available to a select group of programs. If
    it succeeds in delivering the desired results, it could then be rolled
    out on a larger scale. The initial A TIP programs might focus on
    leveraging existing legislative mechanisms, and over time additional
    opportunities could be introduced through the legislative process (i.e.
    changing color of money).
        Lt Col Dan Ward, USAF (ret) is the author of The Simplicity Cycle:
    A Field Guide To Making Things Better Without Making Them Worse and
    F.I.R.E.: How Fast, Inexpensive, Restrained, and Elegant Methods Ignite
    Innovation. He holds three engineering degrees and served in the U.S.
    Air Force for over two decades as an acquisition officer before
    launching Dan Ward Consulting LLC. He is a Cybersecurity Fellow at the
    New America Foundation and a Senior Associate Fellow at the British
    Institute for Statecraft.

        Chairman McCain. Thank you.
        Silicon Valley seems to be a place where innovation and
    quick turnaround and quick progress on their products is the
    order of the day. And we continue to see new products, new
    advances in information technologies, new ways of
    communicating. And therefore, many of us, including the
    Secretary of Defense, have tried to involve and engage Silicon
    Valley more in the issue of acquisition. And also, the
    attempts, at least, have been made to help us with this
    challenge of cyber. And that part, we seem to be at somewhat
    odds, but--so, we formed up In-Q-Tel. That was a CIA [Central
    Intelligence Agency] operation, and seemed to be very
    successful. It provided funds for startups, which have--many of
    which have been successful. And I think it's quite a--really
    remarkable progress in the area that we are looking for and
    engaging Silicon Valley, who I think we all know are not
    particularly interested, because of the constraints which the
    witnesses just described. But, then we had DIUx, and that seems
    to be a tour guide for government officials that visit Silicon
    Valley and matchmaking--and vastly different from what In-Q-Tel
    has done.
        So, I guess my overall question to you is, How do we engage
    Silicon Valley? How do we really adopt some of the practices,
    which obviously have astounded and led the world, and employ
    some of those, at least in our reform--our efforts to reform
    the acquisition process?
        I guess we'd begin with you, Dr. Gansler.
        Dr. Gansler. Well, the----
        Chairman McCain. And what role does Silicon Valley play in
    that effort?
        Dr. Gansler. I think what Secretary Carter started there
    was the right thing to be considering, is to try to come up
    with some innovative, nontraditional approaches, you know,
    because clearly we've had some great success with the Small
    Business Innovative Research Program. And that probably, right
    now, is being emulated around the world. Other countries are
    trying to copy us, because we've had such success with the SBIR
    program. And the same concept is behind the move toward Silicon
    Valley. And what we're trying there to do is to, again, think
    about, How do we get disruptive things done? I mean, you
    mentioned, earlier, unmanned systems. And that's an example of
    where there's enormous cultural resistance to introducing some
    of these new ideas. And we have to continue to fight that.
        I mean--I'll give you an example again. I like to use
    examples wherever we can. The Global Hawk is an example of
    that, where, if you remember, for 2 years in a row, while I was
    Under Secretary, the Air Force refused to fund the Global Hawk,
    because it was an unmanned airplane, and that was
    countercultural to the Air Force culture of pilots. And so,
    the--we--I actually had Bill Cohen send a note to the Air Force
    saying, ``Fund the Global Hawk.'' And they did fund it, but
    then they got back at me by saying the person sitting at a desk
    in Las Vegas flying an airplane over Afghanistan must be a
    rated pilot. So, what we had to do was to spend a million
    dollars to get that person to be trained as a pilot, each--you
    know, for each person. And then, when you realize it, those
    people didn't want to sit at a desk anymore, they wanted to fly
    airplanes, so we had trouble trying to get them to stay as the
    remote piloting systems.
        Chairman McCain. Could----
        Dr. Gansler. And there's an example, it strikes me, that
    what we need is something like the innovation that comes out of
    the Small Business Innovative Research Program.
        Chairman McCain. Thank you.
        Dr. Gansler. It's a self-sustaining program. It--by the
    way, it often has this--the people from the universities
    involved in that. They're, in many areas, ahead of the
    technology.
        Chairman McCain. Thank you.
        Mr. Augustine.
        Mr. Augustine. Yes, I think there are two characteristics
    of Silicon Valley that are particularly important. One is the
    willingness to take risk, and the other is that young people
    getting out of college today, where do they want to work? They
    want to work in Silicon Valley; whereas, when I first got out
    of engineering school, where you wanted to work was in the
    Defense Department, because the latter was where the state-of-
    the-art was, the excitement was.
        You mentioned In-Q-Tel. I--my experience with that was in
    1998. George Tenet was head of the CIA, and George called me. I
    had just retired from my other job. The--George said that they
    were having a terrible problem at the CIA because they were
    totally dependent on the information industry, that it was
    their--their lifeblood, obviously, is information. But, the
    state-of-the-art had moved from defense contractors to Silicon
    Valley. And the Silicon Valley wanted absolutely nothing to do
    with the government, particularly the CIA--and asked what we
    might do. And, anyway, a group of us got together, and we
    decided maybe what we should do is form In-Q-Tel. And I was the
    first chairman of that. And the model is extremely simple.
    What----
        Chairman McCain. But, DIUx has not followed that model.
        Mr. Augustine. I'm sorry?
        Chairman McCain. But, the Department of Defense, DIUx, has
    not followed in the In-Q-Tel model.
        Mr. Augustine. No, it's totally different approach. And the
    In-Q-Tel model was simply to deal with Silicon Valley as other
    commercial firms----
        Chairman McCain. Right.
        Mr. Augustine.--deal with each other not as the Defense
    deals with you--Department--deals with you. And so, through
    great courage of the people at the CIA, we created an outside
    organization in the private sector, not for profit, and we were
    given the authority to grant contracts, to give grants, to take
    equity positions, and to make decisions overnight without
    competition, whatever we thought was the best interest of the
    government. And we did it. And I might add, sir, we spent the
    first 2 years being investigated by every IG [inspector
    general] in the world, but----
        Chairman McCain. Could----
        Mr. Augustine.--once they became convinced that we were
    sincere in our belief, In-Q-Tel, I think, has been an enormous
    success. And I would think, just maybe there's some prototype
    of In-Q-Tel that could be adopted by the DOD. I wouldn't
    suggest you could develop aircraft carriers with In-Q-Tel, but
    I think there are a lot of things you can. And I would
    encourage thinking about a prototype version of it.
        Chairman McCain. Thank you.
        Mr. FitzGerald.
        Mr. FitzGerald. Senator, I think that the way to engage
    Silicon Valley is by solving hard problems with mutual benefit.
    If we're able to align our interests and Silicon Valley
    interests, help them kick off new work on new ideas and hard
    problems, let them innovate rapidly, and then if we have the
    ability to purchase those solutions commercially later and
    allow them to pursue a global commercial market, things will
    line up neatly.
        I agree--I almost always agree, unfortunately, with Mr.
    Augustine, we're not going to see a Google aircraft carrier or
    the Apple iBomber. The Department of Defense shouldn't try to
    become Google. It's not--that would not work, and it would be a
    bad idea. But, if we align----
        Chairman McCain. But, in the area of cyber, which is a
    major challenge, it's seems to me that we could have some
    alliance there.
        Mr. FitzGerald. Absolutely, we can, although I note that
    Silicon Valley thinks about information security and
    information risk in very----
        Chairman McCain. I know.
        Mr. FitzGerald.--different ways. So----
        Chairman McCain. I'm very aware.
        Mr. FitzGerald. But, we can--but, I think that we can line
    that up. I think a good model for what ``good'' looks like here
    is if we think about SpaceX. So, SpaceX, in the aerospace
    industry--and I have some writing about this in my written
    statement--they're supporting NASA [National Aeronautics and
    Space Administration] through commercial spaceflight. They're
    not interested in going after ULA's satellite launch business.
    They want to do commercial spaceflight. But, in the interim,
    NASA can benefit from commercial practices, and the United
    States will develop--will redevelop a healthy space industry.
    If we don't allow organizations like SpaceX and BlueOrigin to
    get into this environment, we're not going to have a
    sufficiently healthy space industry to build our own rocket
    engines, and we're going to have to keep buying them from the
    Russians. So, we can't--despite the fact that I agree with--
    that we need constraints, we can't constrain Silicon Valley to
    a purely DOD market. We need to find common interests and
    leverage those, and then let them go do their thing outside of
    that.
        Chairman McCain. Thank you.
        Colonel Ward, briefly. I'm way over time.
        Colonel Ward. Yes, sir. When I was on Active Duty, I
    actually had a very successful engagement with a nontraditional
    company from Silicon Valley. The reason they were interested in
    working with us is that we had a--an interesting series of
    small, quick, rapidly developed and rapidly delivered new
    capacities. Look, Silicon Valley looks at the big traditional
    acquisition programs, and they get uninterested because the
    pace is so slow and the bureaucracy so heavy. They want to
    deliver something quickly, not just because they are interested
    in speed, but because they know speed works and they know that
    long timelines increase the risk of delivering something that's
    operationally irrelevant, technologically obsolete, or both.
    And that's the type of risk that we don't want to pursue. So,
    by keeping the timelines short, we can make ourselves more
    interesting and more engaging to the Silicon Valley folks.
        Chairman McCain. Thank you.
        Senator Reed.
        Senator Reed. Well, thank you very much, Mr. Chairman.
        Let me start with Colonel Ward and go down. And the general
    topic are the service contracts. You know, usually when there's
    a front page story, it's about overrun on a system--a land-
    based system, an aircraft, or something. But, there's so much
    money being devoted to service contracts--and Mr. Gansler
    referred to one of the constraints already--but your insights
    about how we can get our handle on these service contracts to
    be more efficient, more effective, and hopefully free up
    dollars for other higher priorities. And, Colonel Ward, you
    start, and we'll go right down.
        Colonel Ward. Yes, sir. So, a couple of years ago, the Air
    Force announced that they were spending more money on service
    projects than they were on, you know, traditional R&D and
    technology-type things. So, it is a huge amount of money. I
    think one of the first steps is to not treat service contracts
    that same as we treat contracts to build an aircraft, for
    example. However, I think a lot of the similar constraints can
    apply. Rather than assembling a cast of thousands, I think
    we're better off with smaller teams. And I think if we sort of
    modularize these service contracts--again, this idea of
    centralized--centralizing everything in one big service
    contract to rule them all--the economies of scale that were
    promised never seem to emerge, the efficiencies that are
    supposed to come along with those never quite happen, because
    the bureaucracy just gets so heavy when we're managing that.
    Large numbers of small teams have their own challenges, and
    none of this is easy. But, large numbers of small teams, I
    think gets you better results than a small number of really
    large teams.
        Senator Reed. Thank you.
        Mr. FitzGerald, please.
        Mr. FitzGerald. Senator, I don't have much more to add on
    top of Colonel Ward's excellent points. The only thing that I
    would add is: shorter duration allows for continued
    competition; and we need to ensure that there are strong
    incentives for these companies to continue to compete for that
    business. They can't view them as an annuity business which
    just allows them to generate revenue in perpetuity.
        Senator Reed. Very good.
        And Mr. Augustine.
        Mr. Augustine. Senator, everything I have seen with regard
    to service contracts or hardware contracts is that the
    successful ones always have somebody at the leadership position
    who has authority, who has the willingness to put their career
    on the line, who has experience at what they've been asked to
    do. And I think it comes down to leadership, with people.
        Senator Reed. And that leadership would be in the company
    or in the Department of Defense, or both? I agree with you.
        Mr. Augustine. I--it's obviously both, but the real issue,
    I think, is in the Department of Defense. The way we've filled
    many of the leadership positions really discourages people from
    joining the Department of Defense today.
        Senator Reed. There's another aspect of this, too, I think,
    in terms of--sometimes you have to plug the gap at the middle
    and lower level with contractors, because of the reason you
    point out. You cannot attract, as you did 30 or 40 years ago,
    you know, the very best to go in for a career in the Department
    of Defense. Is that another problem we have in--we have to deal
    with?
        Mr. Augustine. I think it is absolutely a problem. And in
    my mid-career, when you--it was during the Cold War--when you
    were asked to take a position in the government, even if it
    meant a huge pay cut, you took it. Today, I know of jobs that a
    dozen people have turned down, senior positions in the
    government. And I think we pay a great price for that, sir.
        Senator Reed. Thank you.
        Dr. Gansler, please.
        Dr. Gansler. Well, the most obvious place where I think
    this would be applicable to your point about services is in the
    information technology area. I mean, the example that I think
    would be appropriate here is a comparison between FedEx, UPS,
    and Department of Defense logistics systems, where FedEx and
    UPS have total asset visibility, but the DOD doesn't have that.
    That's inexcusable. It seems to me that we should be learning
    how to take advantage--I mean, right now, our IT systems tend
    to follow the same rules as building a tank. And that's not
    sensible. I mean--and that's one of the main areas I think we
    have to address, is the information system technology
    acquisition, and how to take full advantage of what commercial
    technology is doing in the IT area today; for example, that
    logistics case I just gave you.
        Senator Reed. Just one follow--a quick point--is that, you
    know, we've come to realize that information technology is a
    double-edged sword. It moves things around very quickly, but if
    you can get into that system, you can stop everything in a
    moment. So, part of what we're--we want to do is emulate what
    they do, but also make sure it's invulnerable to penetration, I
    would presume. Is that fair?
        Dr. Gansler. Correct. No, that's--right now, we're becoming
    increasingly vulnerable, and that's the danger in the system.
    And it's been demonstrated with that OPM attack recently. And
    it's very clear that--when people were talking, a few minutes
    ago, about supercomputing, that the number-one supercomputer in
    the world today is actually the National University of Defense
    Technology in China. And it's obvious that they are focusing on
    the software aspects of that. And, by the way, when I toured
    that facility, those were all American parts in there. There's
    a globalization of parts. And--but, it's clear that their focus
    is on the software side of that. And so, other countries are
    going to be--not just countries, but people--are going to
    increasingly be attacking our systems. And it makes them more
    vulnerable as we become more dependent on cyber.
        Senator Reed. Thank you.
        Thank you, gentlemen, very much.
        Thank you.
        Chairman McCain. Senator Inhofe.
        Senator Inhofe. Thank you, Mr. Chairman.
        I've been waiting for the right panel to come along for
    several years now. So, I'm going to only ask one question, and
    I'm going to carry you through. And it's something that's very
    personal to me, because I was elected to the Senate in 1994. My
    first year was 1995. In 1995, they came up with the idea that
    we've had the old Paladin system for many years. It's old World
    War II technology. And we needed to have something that would
    really be substantial, really protect our kids out there. And
    they came out with the Crusader. That was 1995.
        In fact, let me get the timeline down here so I'm accurate
    on it. In 1995, it's when they approved the--to commence the
    program. And the first prototype--this is the Howitzer--was--
    and you're all familiar with this, of course--was in the year
    2000.
        Then, in 2002, after some $2 billion had been spent, it was
    terminated. Now, I'm a Republican, I'm conservative, but I
    can't blame the Democrats on this, because this was done with
    Rumsfeld in the Bush administration. In fact, it was so
    seriously considered that one of--you remember the Congressman,
    J.C. Watts, he actually retired from the House of
    Representatives because he was so upset with spending 7 years
    on a program and then dropping the thing. And at that time, $2
    billion seemed like a lot.
        Well, then we go through with this thing, and carry it
    through. And they say, ``All right, we need to have something
    that's lighter.'' The Crusader started out at 65 tons, ended up
    at 40 tons. They went into bringing it down to 18 tons. They
    said, ``No, that's not heavy enough to offer the protection
    that's necessary, so let's''--we dropped that program, started
    the NLOS Cannon, none-line-of-sight cannon. That was one that
    was--they brought down to 18 tons because they wanted to make
    sure they could transport it on a C-130. And so, we went
    through this--all of this program. And finally, at the end of a
    period of time, they went into--that was part of the FCS
    program, then they dropped that one. As the Chairman mentioned
    in his opening remarks, that was a $20 billion program that we
    had already spent on that.
        Now, the interesting thing is, they brought the weight
    down. We're now going back to a part of an improved Paladin,
    the PIM system. And what's the weight of that? It's right back
    up to where the Crusader was. It's 40 tons.
        Now, what I'd like to ask you--and I know you can't do it
    in here--I'd like to have your opinions on the record, later
    on, getting around to it, as to how we went through that
    chronology, that transition.
        Senator Inhofe. Because you start a program, the
    requirements really didn't change that much, because the
    requirements were, ``It's got to be transferable, it's got to
    be mobile, and it's got to offer the protection.'' And other
    than the fact that we had different systems down there, we're
    going right back to one that offered essentially the same
    protection that--in the final years of the Crusader. Do you
    have any comments now about just that one combat vehicle that
    we've gone through in that period of time? In your--and in your
    opinion. Is it because requirements changed and then didn't we
    end up where we started?
        Dr. Gansler. Well, I think one of the things we should
    start to think about is making affordability a requirement.
    Because it's very clear, if you think about Lanchester's Law,
    that--you know, of total force effectiveness is proportional to
    individual weapon effectiveness times numbers squared.
        Senator Inhofe. Yeah.
        Dr. Gansler. And so, the question is, Are--is it affordable
    to get the numbers we need? And therefore, that's the unit
    cost. Why isn't that a requirement?
        Senator Inhofe. Yeah. Well, let me do this. Because I'm out
    of time anyway. If you all wouldn't mind tracing that through,
    that little history through for me. And I'd like to be--very
    much to have your comments on how we ended up in that
    situation.
        Senator Inhofe. Thank you, Mr. Chairman.
        Chairman McCain. Senator Heinrich.
        Senator Heinrich. Thank you, Mr. Chairman.
        I want to return, if I could, to something that both Mr.
    FitzGerald and Mr. Augustine have brought up a couple of times
    now, and it's just how much things have changed since even I
    got my engineering degree, back in the early to mid-'90s, where
    people really tracked to working in DOD, working in our
    National Labs, because of the attractiveness particularly of
    the problems. It was seen as the place to be. And I saw that
    change very quickly as I left and went to work as--for a
    contractor at Air Force Research Labs, how quickly Silicon
    Valley and other innovative tech clusters around the country
    became the place to be for the talent coming out of our
    engineering schools, in particular.
        Some of that is based on the problems that are being put
    forth. People want to work on the things that really make them
    excited, that are difficult, where they feel like innovative
    solutions are going to emerge. Some of that's also cultural.
    And you see this anytime you--you know, if you go and tour some
    of the innovators at Silicon Valley, and the culture of
    workplace is so dramatically different than, you know, what I
    experienced at Air Force Research Labs. And that is something
    that has an enormous draw for engineering and STEM [science,
    technology, engineering, and mathematics] talent coming out of
    our universities today.
        What can we learn, in terms of inserting some of those
    cultural elements into what is obviously a slow-to-change and
    rigid and, in many cases, for a reason, culture of DOD?
        And, Mr. FitzGerald and Mr. Augustine, in particular, I'd
    like to get your thoughts.
        Mr. Augustine. Well, it's a great question. And I think
    there are examples within DOD that do exactly what you
    describe. DARPA [Defense Advanced Rsearch Projects Agency],
    ARPA-E [Defense Advanced Rsearch Projects Agency-Energy], In-Q-
    Tel could attract the very best people coming out of college
    today. Whereas, many of the more established, rigid
    organizations can't. And I think the difference is the culture
    or the freedom to do things. And I'll cite the example of my
    son, who is an engineer. Went to work for a company--not the
    one I was involved with--and was working on a defense contract.
    And he and these young engineers were told how very important
    this was. They worked through the Thanksgiving holidays. He
    went to work on Christmas Day. Early in January, the customer
    decided they really didn't need this after all and canceled the
    program. Well, those kids all got out of the defense business
    and headed to Silicon Valley. And so, it's a cultural issue.
    And this issue of the lack of stability is something that costs
    us a great deal.
        Mr. FitzGerald. I agree, this is a great question.
        I'd come back to how we frame the problem. Part of the
    challenge is that we frame problems in really boring or
    esoteric ways. So, if I give a short example. The Secretary of
    Defense, when he was in Silicon Valley, talked a lot about GPS,
    and rightly so. If I described the problem to you in military
    technical speak, I would say, ``We face an ongoing challenge
    of, How do we maintain persistent precision timing in
    navigation in A2/AD [anti-access/area-denial] environments
    against a near-peer threat specifically in the South China
    Sea?''--at which point most people under the age of 30 are in a
    microsleep. If we say, ``I'm talking about the future of GPS
    that does not require expensive satellite technology, that
    would revolutionize how every mobile handset on the planet
    operates, and then all the opportunities that come from the
    apps that you'll build on top of that,'' that's a compelling
    and interesting problem to go after. So, we need to frame it,
    and then we need to let people go directly to the problem.
        Most of the folks I speak to in Silicon Valley would love
    to work on an actual military problem. If they get to hang out
    with marines in a quonset hut in the desert, that's a good
    time. What they don't want to do is sit in an office park
    somewhere in Northern Virginia and do a capabilities-based
    assessment for 3 months. So, if we can keep things--if we can
    operate on short timeframes, I think we can make it more
    interesting. Overall, I think that this is one of those sort of
    addition by subtraction. Remove constraints, in terms of
    unnecessary bureaucracy, let people go at the problems, and
    they'll want to do it.
        Senator Heinrich. Thank you both.
        I want to, with the remainder of my time--and this is for
    anyone on the panel--How much of these challenges just result
    from sort of an inherent bias towards sort of exquisite one-off
    solutions at the cost of off-the-shelf solutions as a result of
    the sort of regulatory process that we've created?
        Mr. Augustine. Well, your question, really, I think, points
    to the requirements process, which, in my view, is a
    fundamental part of the problem that we face. The requirements
    process is very sterile, very formalized, lacks feedback, lacks
    financial input. And I think that--I won't take a lot of time,
    because we don't have it, but I--the first thing I would start
    doing would be to change the way we do requirements.
        Senator Heinrich. That's very helpful.
        Thank you very much, Mr. Chair----
        Dr. Gansler. My comment on the----
        Senator Heinrich. Oh. Hello.
        Dr. Gansler.--GPS--I didn't realize I was going to turn the
    lights off, but--I mean, it's--but, your example of GPS is an
    interesting one, in the sense that one of the things we might
    look for is dual-use capability in some of these innovative
    ideas.
        Senator Heinrich. Right.
        Dr. Gansler. I mean, it's very clear. At the time when GPS
    was started, I was responsible for electronics R&D. And what
    was interesting about that is, both the Navy and the Air Force
    separately came to me and wanted their own satellite navigation
    system. I suggested to them they're using the same earth. You
    know, it doesn't seem to me it makes much sense, because it was
    so expensive. And why do you need a separate one? You know.
    And--but, it--obviously, it had lots of commercial application.
    So, if you were thinking about what career you want to go into,
    you would want to go into something that had both dual-use. And
    a lot of the things we've talked about today are dual-use kinds
    of things. And so, you might think about it in that model
    rather than simply saying something that's unique for defense.
    In the past, where defense was always ahead, it's no longer the
    case.
        Chairman McCain. Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        Gentlemen, I'd just--what I would like to do is a little
    bit of an exercise. Based on a series of premises, I'd like you
    to rate and suggest to us, as policymakers, better ways to
    provide specific guidance.
        Let me just lay this out. I'd--the old comic strip story
    of, ``We have met the enemy, and the enemy is us.'' It sounds
    as though, in this particular case, when you have laid out for
    us the challenges that you've seen, it comes back down to the
    policy that has been established. And let me just work my way
    through this for just a second.
        Dr. Gansler, in your testimony, you've noted the incredible
    number of regulations for doing government business. You've
    indicated 2,000 more pages are being added of regulations,
    180,000 already in place. I think currently the total cost for
    regulatory compliance to the United States is up to about $1.9
    trillion today, and climbing.
        Mr. Augustine, you talk about the fact that, in the private
    sector, when particularly bad judgments have been made, people
    lose their jobs. In government, when bad judgments were made,
    nothing happens. You've also identified, earlier in our
    conversations today, the fact that there was a time, when
    someone asked someone to go to work in a government agency to
    help, people said yes. Today, we have those positions open, and
    we're having a tough time filling them. There's a reason for
    it.
        When we talk--Colonel Ward, in your testimony, you comment
    that, time and again, military program offices, working under
    tight constraints, reliably hit their budget and schedule
    targets while the technologies they produce contribute
    significantly to achieving operational objectives in the field.
    And then you lay out the fact that constraints work.
        It looks to me, though, that when we sit back and we look
    at the actual products that have been established, whether you
    talk about an F-22, where you talk about the total number of
    dollars invested in the development of the program, and then,
    midstream, we end up with less than 200 aircraft operational
    when we're all done. Look at the F-35, where the challenge of
    developing it is one thing, and yet we're going to debate how
    many we actually build. We have an LRSB, which is under
    development today, and yet the cost of it will go up unless we
    commit to the number of aircraft that we're actually going to
    build.
        At some stage of the game, when we look at all of these
    different issues, they all point back to policy, which is
    either being changed in midstream or there is not
    accountability demanded, or it appears as though, when we do
    see something wrong, the first thing we do is, is we jump back
    into this thing to say there ought to be a law to stop it from
    happening again, none of which seems to be working very well.
        So, if I could, would you each just, in--briefly as you
    can--lay out for us one or two items that you think would be
    critical as we move forward that we could do, as policymakers,
    specifically to help the Department of Defense to actually be
    able to comply and to become more efficient, things that we
    could either stop doing or things that we should be doing as
    policymakers.
        Colonel Ward. So, a program with a long timeline presents a
    larger target to the forces of change, whether it's legislative
    change, changes in the threat environment, changes in the
    technology environment, changes in the economics or the
    politics of the thing. So, anything we can do to incentivize
    and reward shorter timelines will help provide that stability,
    in terms of requirements, legislative requirements, all these
    things. So, we start sort of by measuring it. And if we're
    really legislatively, you know, saying, ``We must measure not
    just how much time we're--we spend, but how much time we plan
    to spend''--because a lot of times, when we plan to spend a
    long time, we end up spending even more; when we plan to spend
    a short amount of time, we end up spending even less.
        One of my favorite examples is the Virginia-class
    submarine. My friends in the Navy have done a fantastic job
    with the Virginia-class subs. I have some numbers here. The--in
    2008, the USS New Hampshire delivered 8 months early, 54
    million under budget. In 2011, the USS Mississippi was a year
    ahead of schedule, 60 million under budget. So, on the order of
    a year ahead of schedule, on the order of tens of millions of
    dollars under budget for something as large and expensive and
    complicated as a nuclear-powered sub. The reason they did that,
    they set a goal: two for two in two. Two subs, $2 billion every
    2 years. And then they said, ``Not a day more, not a dollar
    more. In fact, we expect you to beat these timelines.'' And $2
    billion is a lot of money, but compare that to the Sea Wolf
    submarine, which was $4.4 billion--that was the one that came
    before and was canceled--it's less than half the price of the
    Sea Wolf. It can be done, even on something as big and
    complicated as that, by setting these tight constraints. Things
    like two for two in two, which is a nice, handy bumper-sticker,
    but there was deep engineering beneath it, as well.
        Senator Rounds. Got it.
        Mr. FitzGerald. I'll pick two things. The first would be
    export controls. I think that we should blow the current system
    up and start again. It made sense in an era when we had access
    to unique technology that we needed to protect. But other
    people have this technology already. The great example is our
    desire to sell drones to Jordan, an ally of ours. We sell them
    F-16s. Thanks to MTCR [Missile Technology Control Regime], we
    can't sell them drones. In the past, that would have meant they
    didn't have any. Now they're buying, or they have the
    opportunity to buy, Chinese drones that look suspiciously like
    our drones, and we have fewer means by which we control--we can
    influence the way that the Jordanians use them. And, at the
    same time, our businesses are not as competitive globally
    because they're not able to sell drones as frequently. I think
    that's a huge--one way we can just start again.
        I would also--while it's not legislative, I would encourage
    the committee to establish incentives whereby we can start many
    more programs, each of which is smaller and shorter. That will
    mean that we have less risk in each program and we can shoot
    things earlier, and they won't be trying to move requirements
    onto one big megaprogram, as we've seen with all of the
    failures that we've been talking about today.
        Senator Rounds. Thank you.
        Mr. Augustine. Two things that I think the Congress could
    do to address the issue you raise. One would be to provide the
    Defense Department with a 10-year planning budget that you
    update every year, and require that all new starts fit within
    that budget. One of the problems is that we start out approving
    programs one by one, in isolation, and we don't fit together
    the total cost. And so, we start out to build a--I've forgotten
    how many B-2s, but we wound up building 21 of them and then
    wondered why they cost so much. So, if the Congress provided a
    planning budget, kept it up to date, that would, I think, be
    very helpful.
        The second is to make it very much harder to start new
    programs and very much harder to change them once they're
    started. When I worked in the Pentagon, I was an aerospace
    engineer, they put me to work in the Army because they thought
    that was where the biggest problem was, I guess, or that's what
    I was told. And, at that time, there had been five--the Army
    ``big five'' had just started. And whether I agreed with them
    or not, I said, ``By golly, we're going to stick with them to
    avoid the Crusader problem. We're going to stick with them, and
    we're going to make them happen.'' Well, those five programs
    today were the Apache, the Black Hawk, the Patriot, and Abrams
    tank, and the combat vehicle. Those are the systems we're
    fighting with today, and that was in 1973. And so, if we just
    stick with these things and make it--don't start them. Let's
    keep track of how many we finish, not how many we start.
        Senator Rounds. Thank you.
        Chairman McCain. Got to move on to----
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman McCain. Yeah.
        Senator Manchin.
        Senator Manchin. Thank you, Mr. Chairman.
        Thank all of you all for being here today and your service
    to our country.
        Mr. Ward--Colonel Ward, I was--I checked your bio and
    everything. I was very impressed. And you went over the numbers
    again, 8--was it $8 billion under budget?
        Colonel Ward. Million with an ``m.''
        Senator Manchin. Eight million, oh, okay. I was giving you
    a little bit more credit. Anyway, time constraints. You know,
    we hear an awful--I want to hear all of your--the sequestering
    and budget caps. You're talking about time constraints. It
    seems like Congress has to--you want us to micromanage, since
    the Department of Defense can't put time constraints on
    themselves? Where should it come from? This committee? From
    Congress, telling how quick these programs should be--come to
    fruition? If not, then you move on. But, how did you get to
    where you all--the ``two for two for two'' you just mentioned,
    how did that come about?
        Colonel Ward. I think that was Navy leadership who made
    that decision. And, again, I wouldn't recommend--I'm a big fan
    of decentralized decisionmaking and pushing----
        Senator Manchin. Yeah.
        Colonel Ward.--decisions down to the lowest possible level
    and as close----
        Senator Manchin. Okay.
        Colonel Ward.--to the action as possible. The challenge is,
    though, that what gets rewarded and incentivized is managing a
    program that--you know, if you want to get promoted, work on a
    long, big, expensive, complicated program.
        Senator Manchin. There's schools of thoughts here, because
    some people think that we throw so much money, and it's just
    wasted, and there's no time, and there's no accountability and
    responsibility. And then others say that we basically have
    strangled with budget caps and sequestration. Give me all--give
    me your all thoughts on those real quick.
        Colonel Ward. Sure. I think that there's a widespread
    belief that spending more money and spending more time is a
    good problem-solving technique and a good way to get us better
    outcomes. And the data just doesn't support that. In fact, we
    tend to get better results with short timelines and----
        Senator Manchin. What's your thoughts on sequestration?
        Colonel Ward. I think there's a way to do budget
    constraints that's intelligent and thoughtful, and then
    sequestration tends to be more of a broad----
        Senator Manchin. Hammer down?
        Colonel Ward. Yeah, more of a hammer than the scalpel.
        Senator Manchin. Gotcha.
        Colonel Ward. So, we can do it well, we can do it, you
    know, more of a brute force.
        Senator Manchin. Do you think there's enough money in the
    system right now to defend our country?
        Colonel Ward. I do. I do.
        Senator Manchin. Just not using it wisely, right?
        Colonel Ward. Right. Right. And the idea is not that we
    spend less money overall, but that we spend it on smaller
    individual projects. And we could have a portfolio of programs
    which distributes the risk, distributes the learning, and
    increases accountability.
        Senator Manchin. Mr. Augustine, I'd like to hear your
    thoughts on that real quick.
        Mr. Augustine. Yes. I think that not only is the amount of
    money important, but the stability of the amount of money is
    extremely important. And with regard to sequestration,
    everything I've seen, looking from the bottom up, is that it's
    been very damaging.
        Senator Manchin. Mr. Gansler?
        Dr. Gansler. I think the one thing we've got to do is gain
    better confidence in the stability of the budget. And if--for
    planning purposes, that's going to be absolutely critical, in
    terms of how much you can afford for each individual system and
    how many of those you can buy.
        Senator Manchin. Mr. Augustine, real quick, do you think
    there's enough money in the system right now, as far as our
    budget in--if we chose to spend it differently or, basically,
    appropriate it differently?
        Mr. Augustine. I suspect I'm not in a position to really
    answer whether it's an adequate amount, but I do think that we
    could get a great deal more for what we have.
        Senator Manchin. Efficiency.
        Mr. Augustine. Through efficiency. And I'm talking about
    probably 25 percent or something like that, a big number.
        Senator Manchin. Oh, boy.
        Mr. FitzGerald.
        Dr. Gansler. But, it also depends upon how many more new
    regulations and legislation you write, because if those are
    driving the costs up and the--and stretching----
        Senator Manchin. Well, you all have been very clear in your
    testimonies about, basically, the regulations. Almost--more
    than a trillion dollars of cost has been added because of
    regulations that have been sent from us, from Congress, or is
    it developed within the Department of Defense?
        Dr. Gansler. Some of each.
        Senator Manchin. Some of each.
        Mr. FitzGerald. Senator, when I was running a small
    business, the majority of government input was about my
    reporting and my accounting and the audits that I had to go
    through to get paid, rather than, ``Did I do good work? Were my
    ideas strong? Did they impact the Department of Defense in a
    positive way?'' So, we're putting--we're strangling on the
    wrong things, not strangling on the right things.
        I strongly agree with the point Mr. Augustine made, in
    terms of sequestration and budget clarity. I almost went out of
    business twice because of continuing resolutions. I had
    Department of Defense customers who wanted to purchase my
    services for things that mattered, but there were new starts
    during a CR [continuing resolution], and we couldn't do it.
    That meant that I had to keep significant cash on hand just to
    keep the business going. I couldn't invest that in new ideas.
    It was a very inefficient way of running a business.
        Senator Manchin. Makes all the sense in the world.
        Thank you.
        Chairman McCain. Some feel that a meat axe approach, which
    is sequestration, is the wrong approach. And I don't know of
    many experts who disagree with that. I am proud of this
    committee's reductions in excess spending, fact I can name it
    in the billions. But, to have a meat axe approach, it takes--
    throws the baby out with the bath water. And every military--
    uniformed military leader who has testified before this
    committee has said that sequestration is harming their ability
    to defend the Nation. And if the attack on Paris doesn't wake
    us up, then nothing will. And so, to somehow allege that we're
    spending enough money right now in the right way is, in my
    view, sheer fallacy and ignorance of the threats that we face.
    Total ignorance.
        Senator Ernst.
        Senator Ernst. Thank you, Mr. Chair.
        Gentlemen, thank you for being here today.
        Colonel Ward, just thank you. You shared some great
    examples there of servicemen and -women that have really taken
    that extra step and exhibited some great ingenuity. So, thank
    you for doing that for us today.
        Gentlemen, we do have a substantive budget allocation
    that's directly dependent on our program management, our
    program project management being done right. I mean, it must be
    done right. However, we don't have a fully standardized
    workforce leading those programs with a baseline of people and
    processes and the culture, which we've talked about today, how
    we need a culture that works a little differently than it has
    in the past, that culture that's necessary for predictable
    outcomes--on time, on target, on budget.
        And the Defense Acquisition Workforce Improvement Act was a
    great first step in this process. However, it only deals with
    weapon systems, it doesn't deal with the service contract side
    that we've discussed about earlier.
        So, just very briefly, if each of you could comment on your
    assessment of DAWIA. And is it providing the necessary program
    management across the whole of our acquisition process? And
    just some brief thoughts on that.
        Colonel Ward, if we could start with you, please.
        Colonel Ward. Yes, ma'am. So, I think there's a lot of good
    things that happened with DAWIA, in terms of the emphasis on
    education. I think there's certainly more room for improvement.
    One thing that I've done recently is, I kind of--I went through
    and I read the FAR [Federal Acquisition Regulation], or as much
    of it as I could, and I collected a series of the phrases, the
    clauses, the sections of the FAR that I could really hang my
    hat on, that moved us in the direction of speed, thrift, and
    simplicity, flexibility, agility, and these types of things.
    So, I mean, granted, the FAR is too long and too complicated
    and difficult to comply with, but there's a lot in there that
    does tell us to do the right things and do good things. And so,
    if we can kind of include that type of analysis. And I wrote a
    little booklet on it, and it'll be coming out in the new year,
    that says, ``Here are the simplifications, the opportunities,
    and the agilities that the FAR not just allows us to do, but
    encourages us to do.'' A greater awareness of those types of
    things, I think, would go a long way to improve the quality of
    decisionmaking at the practitioner level, which is sort of my
    area.
        Senator Ernst. Certainly. Thank you.
        Mr. FitzGerald.
        Mr. FitzGerald. I agree with you. I think that the
    legislation is a good first step, that that needs to be
    followed up with strong management and getting the incentives
    right at the individual level. So, celebrating success, when
    required, and, without being indelicate, punishing failure.
    It's--all of this legislation will be immaterial to the
    practitioner if they can't see the implications for themselves.
    So, I would encourage this committee to engage in that sort of
    management, and also to encourage the Department of Defense to
    do that, as well.
        Senator Ernst. Very good, thank you.
        Mr. Augustine.
        Mr. Augustine. Yes. My experience has been that, where you
    really develop managers for very, very complex undertakings,
    whether it's software or hardware or services or what have you,
    is really in industry, not in the government. And I think the
    reasons for that are that, in industry, you're given authority,
    and you're held accountable. And one of the things that's
    changed during the period of my career is that it used to be
    quite common for people to--in industry who have been trained
    to manage big projects, they serve in government for a period
    of time and manage those projects, and then can go back and
    have a career in industry. They have to disqualify themselves
    for many things to avoid conflicts of interest. And that's
    important. But, today it's so hard to go back and forth. And
    many would say it--you shouldn't go back and forth. But, I
    truly believe that if we don't have some of the industrial
    experience managing major projects in our government, we're
    losing an opportunity.
        Senator Ernst. Very good, thank you.
        Dr. Gansler.
        Dr. Gansler. I agree with Norman, it's highly desirable to
    have both experiences to understand--but, the incentives in
    industry, from the government side--that that's absolutely
    critical. And to the extent that maybe you can get that in
    business school, or something like that, it would be highly
    desirable to have that understanding. I also think that we
    should have a promotion system within the government, based
    upon success, achievements, you know, meeting schedules,
    meeting cost, meeting performance, things like that, that we
    need to evaluate the incentive systems, both ways. And, of
    course, it wouldn't hurt to have some salary compensation,
    either. I mean, twice I've gone into the government--first
    time, I took an 80-percent cut, and the second time, a 90-
    percent cut. That's not bad.
        Senator Ernst. Right.
        Well, I thank you all very much for your testimony today.
        Thank you, Mr. Chair.
        Chairman McCain. Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman.
        Our acquisition process is highly complicated, and yet we
    are stuck in a bygone era, from not just the testimony from
    today's hearing, but from other hearings that the Chairman has
    called.
        I was very intrigued, therefore, by Colonel Ward's focus on
    ``constraints work,'' where speed, thrift, and simplicity are
    the areas that we ought to be looking at. And I'm interested to
    know from the other three panelists whether you think that this
    approach, the attitude, ``constraints work,'' whether that
    would be applicable to the acquisition process in--for example,
    in our space systems, in the building of aircraft carriers, to
    our cybersecurity area. Would this be a good approach for us to
    move toward: ``constraints work''?
        Mr. Augustine. Well, I'll comment. And the Colonel makes a
    very important point. I think there's a real semantics hazard
    here. And the 180,000 pages that Jacques mentions are
    constraints. And I'm sure those are not what the Colonel is
    referring to. And so, I would probably use the word ``freedom''
    instead of ``constraints.'' But, I understand his point, and I
    think his point is correct.
        Dr. Gansler. Yeah, I would think that the--I agree with
    Norman--the concept of removing the constraints would be highly
    desirable, in the sense of the regulatory aspects of them. You
    know, the--right now, with the--one of the problems, I think,
    that we have is in the training of our acquisition officials in
    the Department of Defense. They learn all the constraints, but
    they don't learn to think about whether those constraints are
    good or bad, and how they could be modified.
        So, I think what we probably do need is something like
    another Packard Commission, in effect, that--I mean, we didn't
    take advantage of what came out of the Packard Commission, in
    terms of how to use commercial stuff. That was one of the main
    things that Bill Perry was trying to do in the chart that I
    showed of the comparison of mill standard parts with commercial
    parts, is an example of where we could be more flexible in our
    judgment of how we apply commercial things. We talked
    information systems, for example, in the support functions.
        Senator Hirono. So, I think that if we define
    ``constraints'' as, really, speed, thrift, simplicity, I think
    that's what we're getting at, not, ``Let's add another 100,000
    pages of requirements.'' So, if we use those kinds of words to
    define what we mean, and then I think that's when you get a
    decision such as ``two for two in two.'' And I think that
    that's perhaps where we need to go.
        There's one more person who I'd like to hear from.
        Mr. FitzGerald. Yeah. So, I'm slightly biased. I'm a Dan
    Ward fan. I actually reviewed his first book. So, I agree. But,
    this is about putting constraints in the right areas, not
    through regulation, but through management. I'd also say that
    we can't have one system to build everything. So, building
    aircraft carriers requires a different system to building--to
    integrating ISR [intelligence, surveillance, and
    reconnaissance] systems and to acquiring commercial
    technologies. Building an aircraft carrier, you can still
    create constraints. It's a series of small projects, not one
    50-year project.
        We can also benefit ourselves by not building stuff. This
    version of the NDAA encourages or, I think, mandates that the
    Department of Defense look more at the persistent close air
    support project, which I think is an excellent project by DARPA
    and the Marine Corps. They build new software that they put on
    top of an Android tablet. We didn't have to build the Android
    operating system. We didn't have to build the tablet. That's a
    great way of constraining your project. Just don't build that.
    Focus on the hard stuff that you need the military unique
    advantage. I think it's a great approach.
        Senator Hirono. Some of you have talked about the
    competition that exists between, for example, the engineers
    wanting to go and work at--in Silicon Valley, as opposed to the
    DOD. And as we look at the need of our country for STEM--people
    with STEM backgrounds, are we--how do you see us, vis-a-vis the
    rest of the world, in terms of our ability to have people with
    STEM educations? How are we doing? And what do we need to do?
    Very briefly. I'm running out of time.
        Mr. Augustine. Well, I'm so glad you asked that question,
    because, I think, in the long term, that may be the biggest
    hazard we face in defense. And today--there was a recent study
    of 93 countries, as where they looked at what percentage of the
    baccalaureate degrees were awarded, were awarded in science of
    engineering. The United States ranked 79th out of the 93. The
    country we were closest to was Madagascar. If you look into the
    scores on standardized tests of 15-year-olds in this country,
    of the OECD [Organization for Economic Co-operation and
    Development] nations, 34 nations, the United States ranks
    21st----
        Senator Hirono. So, we're not doing well. What--do you have
    any thoughts on what we can do to improve this situation?
        Mr. Augustine. The first thing to do is to fix the K-
    through-12 system, and second is, don't have the States starve
    our great research universities.
        Senator Hirono. Anyone else?
        Dr. Gansler. Also----
        Senator Hirono. Yes, Colonel Ward.
        Dr. Gansler.--funding advanced research would certainly be
    one of the ways of doing it.
        Senator Hirono. Colonel Ward.
        Colonel Ward. So, I was at a technology conference out in
    Silicon Valley, and Todd Park, from D.C., went out there and
    spoke to a big room of people, and basically said, ``Your
    government needs you.'' We have important challenges to help
    serve our veterans--VA [Veterans Affairs] healthcare and--and
    he laid out a number of interesting challenges. And he said,
    ``I'm going to be in that room over there. If you want to come
    talk to me about coming to D.C. and working, you know, give me
    your card.'' He was mobbed. The line was out the door. I
    couldn't even get--and I was still in uniform at the time, so I
    was already there. But, people want meaningful challenges. And
    I was listening to people talk, and it's like, ``This is a
    chance to go--I'm doing--designing video games, which is fun,
    but I could be helping to save lives. That's what I want to go
    do.'' And the just simple outreach of, ``Hey, I'm here. Here
    are some of the problems. Come talk to me''--seemed to have a
    huge impact.
        Senator Hirono. Thank you.
        Chairman McCain. Senator Ayotte.
        Senator Ayotte. Thank you, Chairman.
        I want to thank the witnesses.
        In Secretary Gates' books, he discusses the extraordinary
    measures he had to take to get the MRAPs [Mine-Resistant Ambush
    Protected Vehicles] fielded to our troops to save lives. And I
    think that's one of--that's not the only story we have of where
    we've needed to really go around the entire system to get to
    our men and women in uniform, lifesaving equipment and the
    best, so that we could make sure that they're protected and
    we're able to address what we needed to do to fight the enemy
    on the ground. So, what do you all take from the MRAP
    experience? And how do we--especially as we think about our
    engagement in conflicts, and we're still, obviously, engaged in
    Afghanistan, we're fighting this war against ISIS [Islamic
    State of Iraq and Syria]. And we've been notably bad at
    predicting what our next conflict will be. How do we avoid
    this? What lessons do we take from that, from what he described
    he had to do for--to get the MRAPs to the troops?
        Colonel Ward. Sure. I have sort of two observations on the
    MRAP. The first is that the defense acquisition system and all
    the requirements and things are super important for us to all
    comply with them, unless we have an important and urgent need
    in where it really matters to deliver it, and then we sort of
    throw that out the window and we come up with a new rapid
    approach. And so, this idea that, you know, we can only be fast
    when we have to be, is sort of a weird perverse incentive that
    goes on.
        With the MRAP, the leadership made it very clear, ``This
    needs to be quickly and spend as much money as you need to.''
    So, what happened? It was done quickly, and we spent a lot of
    money. I wonder what would have happened if they had said,
    ``Needs to be done quickly, and it needs to thrifty, and we
    need to plan for future upgrades.'' But, again, those goals
    weren't as clearly emphasized as----
        Senator Ayotte. Do you think that that's what distinguishes
    the Virginia-class success? Where we had a measurable, ``It has
    to be done in this period, this amount of money, and this is
    how much we have produce''?
        Colonel Ward. I do. I do. And I think that the tendency--
    again, to hit the goals that we set is very strong. We've got a
    great track record of doing that. And again, with the MRAP,
    they said, ``Hey, speed matters. Cost doesn't matter so much.''
    So, we got it fast, and it was expensive. But, the idea of
    ``faster, better, cheaper, pick two,'' that's the one
    conclusion that the data absolutely doesn't support. It's
    possible to simultaneously improve all three dimensions--the
    speed, the quality, and the performance, and the cost. We can
    only pick two. And if we do only pick two, it becomes a self-
    fulfilling prophecy, but it's possible to pick all three. And
    the Virginia, I think, is a great example of when we've done
    that.
        Mr. FitzGerald. Senator, I think that the MRAP example
    shows that our system is geared for crisis. The thing that
    really concerns me is that we're getting to a point where the
    size of the crisis required to drive change is greater than the
    crisis we're trying to respond to in the world, at which point
    we've lost. We didn't just lose that conflict, we've lost all
    conflicts. So, it also shows that the only way to succeed in
    crisis is to go around the system. We saw that with the MRAP,
    we saw that even in the 1970s and '80s, with the second offset
    strategy. That was Bill Perry managing around the system. It's
    a call for the action that you guys are already taking. So, I
    get incredibly frustrated. The answer is always, ``Change the
    system.'' And the one thing that we don't seem to be able to do
    is change the system. We can't afford to--in the current
    environment, we can't assume that we're going to be able to jam
    through one or two capabilities----
        Senator Ayotte. Right.
        Mr. FitzGerald.--to get us out of a jam in the future,
    given the range of threats that we face.
        Senator Ayotte. I want to--before my time goes up, Dr.
    Gansler, I want to ask you about something that you--which I
    think is related to this, as well--in your written statement,
    you emphasize the importance of utilizing best value. And one
    provision that I've--got included in the defense authorization
    this year is to really focus on--in particular, on the personal
    protective equipment that are critical to life or death for our
    troops, of making sure that it's not--that it's best value. I
    mean, obviously, best value, in terms of best equipment and
    best cost, looking--doing it both. So, I wanted to get your
    thoughts on that since you included that in your----
        Dr. Gansler. Yeah, I've been very shocked by the fact that
    we've been drifting towards low pricing settings to be
    acceptable as a source selection criteria. I mean, you and I
    don't buy that way. You know, that's cheap.
        Senator Ayotte. Well, especially when it means bullets are
    coming at us and we----
        Dr. Gansler. Exactly.
        Senator Ayotte.--want to make sure that we're protected.
        Dr. Gansler. Yeah. I mean, it's--it just doesn't make any
    sense.
        Senator Ayotte. It's like when you're going cold-weather
    hiking. You know, do you get the cheapest thing you can find,
    or you get the thing that keeps you warm and so that you don't
    get frostbitten?
        Dr. Gansler. Exactly. I mean, well, I--we don't use best
    choice--combination of performance and cost. That's the way I
    think the DOD should be buying today.
        Senator Ayotte. So, my time is running up. So, I've got 10
    seconds here, Mr. Augustine. You talked about In-Q-Tel. I've
    been very impressed with their success. What can we learn from
    that experience, from In-Q-Tel and that?
        Mr. Augustine. I think that it--put very shortly is, it--
    it's going to take a long time to fix the system. And, in the
    meantime, for those things that are really important, take them
    out of the system, treat them separately.
        Senator Ayotte. Yeah. The irony, of course, the fact that
    we have to, like, essentially, go around the system to get
    something so important to our men and women on the ground, and
    to our warfighters, is that it's supposed to be set up to be
    warfighting and defend the Nation.
        Mr. FitzGerald. And then, once that contingency is over, we
    shut down the system that we created to go around----
        Senator Ayotte. It's unbelievable, because there's always
    going to be another contingency, and that's what we need to be
    dynamic enough to address.
        Colonel Ward. My proposal is, sort of, shift the default.
    We have the rapid method that we only use in emergencies, and
    we have the big, expensive, complicated one. How about the
    rapid be the default approach, and you only do the big,
    expensive, complicated one when you have to?
        Senator Ayotte. Sounds great.
        Thank you.
        Dr. Gansler. You might also think about the distinction
    that Clay Christensen points out between disruptive technology
    and traditional incremental technology. And we're having
    trouble funding the disruptive technologies, the new innovation
    stuff. And that's the direction that we should be moving,
    because the world is changing rapidly. Technology is changing,
    geopolitics are changing rapidly. But, tradition constrains us
    to thinking that what we've been doing for the past, you know,
    30 years is the right thing to continue doing.
        Chairman McCain. Senator King.
        Senator King. Thank you, Mr. Chairman.
        Mr. Ward--Colonel Ward, I'm fascinated by the concept of
    constraints. Reminds me of when Edward Bennett Williams fired
    the general manager of what I refer to as ``the team which
    plays its home games in Washington.'' He said, ``I gave him an
    unlimited budget, and he overspent it. I gave him infinite
    patience, and he exhausted it.'' And it's common sense what you
    say, and yet, it's so rarely thought about that--of course we
    can't put a cap on this, because we don't know what it's going
    to cost, and ``Take all the time you need,'' and, by
    definition, the work expands to fill the time available. I
    would love to see further thoughts from you. You said you have
    a book coming out. As--I hope it touches on this point.
        Colonel Ward. I--my first book came out in May of 2014, and
    it goes into this in a good amount of detail.
        A great example, though, is NASA's ``faster, better,
    cheaper'' missions during the 1990s. For the total cost--they
    launched 16 missions under this ``faster, better, cheaper''
    initiative, and the idea was low cost, high-speed access to
    space. The amount of money that they spent on all 16 missions
    was less than what we've spent on Cassini. Now, Cassini is a
    huge success. I love Cassini. We're getting great science and
    great arc out of Cassini. But, for that amount of money, we got
    16 other missions. Only 10 of them succeeded, so we only got a
    10-for-1 return on that investment. But, it was things like the
    Pathfinder mission to Mars, which was one-fifteenth the cost of
    the Viking mission to Mars from 20 years earlier. Viking was a
    huge success, but it was so expensive, so complicated, NASA
    said, ``Let's never do that again.'' It was 20 years before
    they tried to go back. Later on, for about half the time, a
    third of the team, one-fifteenth the cost, it was designed to
    last a week, they hoped it would last a month, it drove around
    for 83 days on the surface of the planet. And they said, ``That
    was great. That was awesome. Let's do it again.'' They went
    back three more times: Spirit, Curiosity, Opportunity.
        Senator King. Well, I think that's a very important
    concept, and ought to be part of our thinking.
        By the way, Mr. Chairman, I commend to you a book that Mr.
    Augustine sent me a couple of years ago called ``The Free
    Enterprise Patriot.'' It's a humorous account of a blacksmith
    trying to make cannons for the Continental Army under today's
    procurement process. The cannons never got built until, you
    know, 1785 or so. It's a fabulous story.
        Mr. Augustine, you've been--you've mentioned several times
    the importance of good people. It seems to me we've built a
    system--I was just talking to another Senator about this, this
    morning--where good people don't want to put up with what they
    have to put up with in order to go to work for the government--
    financial disclosure, FBI [Federal Bureau of Investigation]
    checks, then you do everything else and your nomination can sit
    here for a year or more--not in this committee, but in the
    Senate. Talk to me about the problems--the mount--I've
    considered it a mounting problem of a disincentive of anybody
    that is--has, you know, consciousness of--why would they want
    to put themselves through this?
        Mr. Augustine. Well, the Colonel mentioned going to Silicon
    Valley and that there were all kinds of people who were very
    excited about taking on some of these big challenges. The
    problem is, when they walk in the door to work on the big
    challenges, they're handed Jacques' 180,000-page set of rules,
    and they don't want to deal with that. And----
        Senator King. But, I'm talking about the top-level people
    to come in and manage. I mean, that's where a lot of the
    important decisions have to be made.
        Mr. Augustine. I think that the mission is so important
    that that's very attractive, but it is so hard to go from
    industry to government. I'll just tell a story, if I might,
    briefly. I was asked----
        Senator King. Briefly, because the Chairman watches this
    little clock that----
        Mr. Augustine. I'm looking at it, here, too. But, I was
    asked to take a position in the government. And--a few years
    ago--and they--I get a call from the White House, and they said
    they see I own stock in Lockheed Martin. And I said, ``Yes, I
    own one share.'' And they said, ``How much do you make on
    that?'' And I said, ``73 cents every 3 months.'' And they said,
    ``Boy, that's a big problem. We probably can't deal with that.
    Will you sell it?'' And I said, ``No.'' And they said, ``Why
    won't you sell it?'' And I said, ``It's share number one of
    Lockheed Martin. I--it's my signature approving the sale of it.
    I bought it.'' And I said, ``I won't sell it.'' And they said,
    ``Well, that's a big problem.'' And the conversation went
    downhill from there.
        [Laughter.]
        Mr. Augustine. I didn't take the job.
        Senator King. Well, that--I think that's the point.
        This is a question for the record. Many of you have
    mentioned the problem of regulations and how it impedes our
    ability to go--I would like some specific examples of
    regulations and how they impede our ability to contract
    effectively and efficiently. You know, Rule 14(a), 302(b),
    which says you have to file all your applications in
    triplicate, or whatever it is. I think it would be helpful to
    understand exactly what we're talking about.
        Senator King. And then, finally, Mr. FitzGerald--and again,
    perhaps for the record--modularity, it seems to me, is an
    important concept. When we're building 40-year platforms, that
    we not try to cram all the technology into the new Ohio-class,
    but that we build it in such a way that it can be upgraded. I'd
    like your thoughts on that.
        Mr. FitzGerald. Sir, I completely agree. There are multiple
    ways that we can address this. Modularity in the design of
    systems, but also pairing the payloads with the platforms, as
    former CNO [Chief of Naval Operations] Greenert talked about.
    So, the B-52 was flown for a long time. It's not an especially
    smart platform, but if you put a smart munition in it, it
    becomes a very effective way of thinking about things. So, I
    think modularity there is important. I think there are also
    significant opportunities that are soon to be available to us
    technologically, in terms of advanced manufacturing, where we
    can use 3D printing and robotic assembly to assemble different
    components in very compelling ways. I'm happy to share with you
    a paper that I wrote on this a couple of years ago that
    explains how that might work.
        So, if we take that approach, that allows us to get
    positive constraints, it allows us to compete out different
    parts and mitigate risks in very compelling ways. The challenge
    becomes, How do we take that approach and put it into our
    current acquisition system? Again, this is where things fall
    down.
        Senator King. Thank you.
        Thank you, Mr. Chairman.
        Chairman McCain. You know, I agree, Mr. FitzGerald, but I
    also can cite you an example, the Littoral Combat Ship.
    Modularity has not succeeded. In fact, it's been disastrous, as
    far as the mine countermeasures modularity. So, I guess the
    moral of the story is, these are--there's not real simple
    answers. But, maybe you could begin by sending Senator King the
    1,800 pages of regulations that need to be changed. And I'm
    sure he will enjoy reading them. It's very cold up in Maine
    this time of year.
        Senator Shaheen.
        Senator Shaheen. Thank you, Mr. Chairman.
        And thank you all very much for being here.
        And, as Senator King and Mr. Augustine, you note, talk
    about that book on the revolution of the continental army, it
    had to abide by the rules of the British Army. We never would
    have won the war. So, it's an important lesson in the
    importance of innovation.
        Mr. Augustine. We would be speaking with a British accent
    here.
        [Laughter.]
        Senator Shaheen. Yes. Yes, we would.
        Mr. FitzGerald. I don't know what you're talking about. I'm
    Australian.
        [Laughter.]
        Senator Shaheen. You know, I don't really have a question,
    but I want to agree with the point that everybody has made
    about how we attract good people into work for the government.
    And it seems to me that some of the actions that Congress has
    taken have contributed significantly to that, whether it's
    sequestration or our ability to reach budget agreement so
    there's some certainty. You know, the Portsmouth Naval Shipyard
    is between New Hampshire and Maine. Senator King and I fight
    about that on a regular basis. But, it's one of our premier
    public shipyards. And they have very--a very good skilled
    workforce who is--that is now aging. And the challenge of
    trying to replace that workforce in an environment where people
    are uncertain about the budget prospects and what sequestration
    is going to mean has been very challenging. And so, I think
    it's a good admonition to all of us that we need to try and
    address those concerns to keep good people here.
        I want to, Dr. Gansler, ask you about the SBIR [DOD Small
    Business Innovation Research] program, because that's a program
    that was started by Warren Rudman, from New Hampshire, so we
    feel a lot of personal commitment to that program. And I serve
    on the Small Business Committee as the Ranking Member, and I
    know how long it took us to get it reauthorized in the last go-
    round. It's up for renewal again in 2017. I think we need to
    start right now in order to get that done.
        But, can you comment on how important you think it would be
    to make that program permanent so that we don't have to do this
    and, again, provide the uncertainty every go-round on the SBIR
    program?
        Dr. Gansler. Yes. I feel strongly that we should make it a
    permanent thing. What you'll notice is, a lot of country around
    the world are starting to copy us now with the SBIR program. I
    put into my presentation, my talk, for--specifically, that one
    figure, that last figure in there--that shows that, where we
    used to get most of our good ideas from industry, that industry
    is reluctant to make changes if they think it'll be disruptive
    to their business. Where the same thing is true about
    universities. Many cases now, the people in universities who
    have the good ideas are starting to set up their own small
    business. And I think increasingly that's going to become an
    opportunity for them. And I think, in many cases, we're getting
    many of our ideas--and that's what that chart shows--from now--
    if you just list the----
        Senator Shaheen. Let--I don't want to interrupt you, but
    the clock is running, and so I just want to get----
        Dr. Gansler. Yeah.
        Senator Shaheen. Is there anybody who disagrees that that
    program should be made permanent?
        [No response.]
        Senator Shaheen. Okay, thank you.
        Mr. Augustine. I would just comment very briefly. I do
    think it should be made permanent, but there--as you know,
    there have been abuses. We need----
        Senator Shaheen. Right.
        Mr. Augustine.--we need to fix those. And I come from a
    world where our goal was not to become a small business, but
    it's a truth that I think could be shown that most of the new,
    creative disruptive ideas do come from small businesses.
        Senator Shaheen. I agree.
        And, Mr. FitzGerald, I know you wanted to respond to that,
    but let me ask you, as part of that--you talked about the
    problems with the export control system, which I totally agree
    with. I think we've got to do more to address that. And there
    have been efforts to reform it over the last couple of years.
    Do you think those have been helpful, or should we--do we need
    to scrap those and start all over?
        Mr. FitzGerald. So, just briefly, on the small business
    thing, I think that the SBIR program is excellent. The
    challenge is not that program. We have many ways of getting new
    ideas funded in the Department of Defense, from In-Q-Tel, from
    other places. The challenge is what happens after that initial
    funding. How do we integrate that into the----
        Senator Shaheen. Right.
        Mr. FitzGerald.--mainstream Department of Defense?
    Otherwise, we are funding stuff that we never get a benefit on
    or it becomes commercial and, therefore, our adversaries and
    other people can buy it, and we can't. Very frustrating.
        From an export-control perspective, I think that the
    current--the recent work has been excellent. We've removed a
    number of things from the lists. I think, ultimately, the
    challenge is the lists, themselves. I think of it kind of like
    the DHS alert system. No political leader is going to say,
    ``We're moving from status red to status orange.'' You need to
    blow up the system and say, ``It's going to be alpha-numeric
    now, and we're going to come up with a letter, instead, that
    will be a lower level of threat.'' Otherwise, we're going to
    have, sort of, the high priests of ITAR [International Traffic
    in Arms Regulation] continue to come out and tell us how the
    world's going to explode if we take something off the list.
    It's not going to--we can't reform that way.
        Senator Shaheen. I totally agree.
        And I'm out of time, but can I ask just one more question,
    Mr. Chairman, of Colonel Ward?
        I was in Kuwait when they were bringing back a lot of the
    equipment from Iraq. And one of the things they showed me with
    great pride was the MRAP with the little contraption on its
    nose that could--had a heat source that detected IEDs, and how
    successful that had been. And they said that that had been
    designed by men and women in the field who had this idea about
    how to help. How do we get those kinds of ideas into our
    innovation research into the acquisition process so we can
    actually respond to what works in the field?
        Colonel Ward. Sure. So, field mods are an important source
    of innovative ideas. Oftentimes, after they're successfully
    used and demonstrated, ``Hey, this works great,'' the official
    response is, ``Take that off. It's not authorized.'' So, there
    are some mechanisms and channels to provide those ideas and
    provide those inputs. I think those tend to be, again, sort of
    held at arm's length, much like the--but, again, the Army OIF
    [Operation Iraqi Freedom] report said that field mods are the
    primary channel of feedback to developers. As an engineer, I
    often didn't hear those, and--because they got filter out--
    filtered through--over-filtered.
        So, the idea is that we need to encourage and--again, seek,
    support, and celebrate. Tell those stories, say, ``Hey, this
    was a great example. We should do more of this.'' Because, for
    every situation and every story we hear, there's ten more that
    we didn't hear about--again, that got over-filtered. So, we
    need to create some channels to let those ideas filter through.
        Senator Shaheen. Thank you all very much.
        Chairman McCain. Senator Cotton.
        Senator Cotton. Thank you all very much for your thought-
    provoking testimony on this important topic.
        Mr. Augustine, you had mentioned in your written testimony
    that you were present at the creation, so to speak, of In-Q-
    Tel, back in the 1990s. I'm familiar with the organization from
    my work on the Intelligence Committee. Could you give us your
    take on the lessons learned from the creation of In-Q-Tel and
    the way it's worked, and how it would apply to the Department
    of Defense, given their differences in mission and scale and so
    forth?
        Mr. Augustine. Yes. I don't believe that In-Q-Tel can solve
    the broad problems of the Department of Defense, but I think a
    Department of Defense version of In-Q-Tel to deal with very
    high priority specific challenges could be very valuable. And
    the secret to In-Q-Tel is fairly straightforward, and that is
    that it has the capability to deal with firms just as they
    would deal with each other, as opposed to the way they have to
    deal with the government. And In-Q-Tel had a lot of latitude,
    it had a lot of flexibility. Is there room for abuse? Yes. But,
    thus far, there has not been a problem.
        Senator Cotton. All right.
        Mr. FitzGerald, the interaction between the Department of
    Defense and the private sector, especially given that
    technological development is now largely located outside of our
    defense industry, is something about which you wrote. You said
    there needed to be policy, legal, cultural changes, in your
    written testimony. Do you care to comment on the In-Q-Tel
    approach? You just--you had some comments earlier, but also
    what Mr. Augustine just said?
        Mr. FitzGerald. I think that the In-Q-Tel model is an
    excellent one. A number of the advantages that it takes--that
    it is based on are particular to the intelligence community.
    Partially, that's about size, and it's also about their ability
    to link the people who own the problem with the people who fund
    the solution very quickly. And it's difficult for us to do that
    in the Department of Defense. So, I think that it helps us
    address a number of challenges.
        The challenge with--for the Department of Defense is, How
    do you do that at scale? So, that's how we can build
    prototypes, that's how we can get new entrants into the
    marketplace. But, it--I don't--we don't have a good model yet
    to take us from that new idea into a large program of record,
    which isn't the failing of In-Q-Tel or those models, it's a
    failure of our program-of-record system.
        Senator Cotton. Okay.
        When you say that the Department of Defense needs--is going
    to need legal and policy and cultural changes, which one of
    those do you think are most important?
        Mr. FitzGerald. Ultimately, it's the cultural change, but
    that's probably going to be driven, in the first instance, by
    the law and policy. And I think the other factor, something
    that we've talked about significantly today, is about
    leadership and human capital. So, ultimately, I think--and I
    think this has been shown in our testimony and the
    understanding of the committee today--we know what most of the
    challenges are, and we have a pretty good sense, idea of what
    needs to be done. It's a--just a question of, How do we move
    the large institutions to implement on what we know needs to be
    done?
        Senator Cotton. And, Colonel Ward, the human capital and
    leadership development is something about which you spoke in
    your written testimony; specifically, the ability of
    constraint-driven teams to innovate rapidly at lower cost.
    What's your perspective on this about the cultural or mindset
    shift that may need to occur?
        Colonel Ward. Absolutely. So, the culture shift, I agree,
    is absolutely the right piece of the puzzle that's going to be
    the--have the biggest impact on improving acquisition outcomes.
    And when I say ``acquisition outcomes,'' I mean
    programmatically as well as operationally. So, the ability to
    get the mission done on time, on budget.
        The culture shift, I think--right now, we have a culture
    that tends to look at complexity as a sign of sophistication,
    budgets as a sign of prestige, and long timelines as a sign of
    strategic intelligence and strategic genius, when, in fact, I
    think we get better results when we have a culture that values
    speed, thrift, and simplicity.
        I think the other piece of it, too, though, is--and we
    talked a lot of about regulations. I've found that ignorance of
    the FAR is a greater barrier to innovation than the regulations
    themselves. The prevailing perception in the culture is, ``The
    FAR won't let you do that, the FAR won't let you be fast, the
    FAR won't let you simplify.'' In fact, when we go through and
    read the FAR--and you--there's plenty of clauses, plenty of
    pieces of the FAR that do, not only allow, but encourage speed,
    thrift, and simplicity. So, a greater awareness of what the FAR
    actually says, what it allows, what it encourages, I think can
    go a long way towards that.
        Senator Cotton. What----
        Colonel Ward. And it's just a matter of----
        Senator Cotton. What's behind that lack of awareness among
    people who, by and large, make a living using the FAR?
        Colonel Ward. Right. It's so big and so expensive--or the
    FAR, itself, is to complex that it's intimidating. I've found
    that people who can quote the FAR, chapter and verse, tend to
    be more convincing than people who can't. And the people who
    can quote the FAR, chapter and verse, are very, very few in
    number. It's easier to just say, ``The FAR,'' which none of us
    have read, ``doesn't let you do that.'' And so, it's the
    safer--it's the more risk-averse-type approach to just say,
    ``Well, I'm sure we can't do that, because we didn't do it last
    time.''
        Senator Cotton. The military, by and large, has an up-or-
    out personnel management system. Do you think that's an
    appropriate system for our--the people who are involved in our
    acquisitions process?
        Colonel Ward. That is a--challenging and problematic. I'm
    not sure I have a better solution for it. But, in my case, for
    example, I decided to retire from the military because I was
    not interested in getting promoted again, I wasn't interested
    in moving again, my kids were heading into high school, and we
    wanted them to start and finish in one place. And the Air
    Force's perspective was, ``Either move or get out.'' There was
    no third option to sort of stay and keep doing this kind of
    work.
        Senator Cotton. Okay.
        Thank you. My time is expired.
        Senator Reed [presiding]: Thank you.
        On behalf of the Chairman, Senator McCaskill.
        Senator McCaskill. There's a lot of argument, I think, that
    can be made that ``up-or-out'' has really, in many ways,
    cannibalized our acquisitions processes, because it--longevity
    and having as much knowledge as the people who are trying to do
    business with the Federal Government--knowledge is power. And
    when there's a new person, then you've got opportunities. And I
    think that there--that there's something to be said for that.
        You know, when you talk about incentives--I've spent an
    awful lot of time--and some of you know--on contracting and the
    problems there. It seems to me that the incentive in the
    private sector is so elegant and simple, speaking of simple--
    it's that speed and thrift pays more money. You make more money
    if you are efficient. And in the private sector, the bottom
    line matters. You can't have a new deputy deputy dog if you're
    not making money. In the Pentagon, you could have the Under
    Secretary to the Under Secretary to the Assistant Secretary to
    the Under Secretary, and there is no bottom-line pressure.
        So, why is it that we can't change the incentives in a more
    simplified way? The incentives are there to get the bid, to be
    cost-effective in the bid. But, then the incentives kind of get
    murky. And that's when the regs come in, right? That's when the
    regs march with a resoluteness towards, ``You must do this, you
    must do that.'' Because the system is trying to desperately--by
    fingernails sometimes--hold on to the concept that, ``We're
    going to constrain your costs, we are going to constrain your
    costs. We will add a nother requirement to constrain your
    costs.''
        Why can't we incentivize more profit if you constrain the
    cost? I mean, I can think of so many systems--I mean, whether
    it's DCGS [Distributed Common Ground System] or whether it's
    the helicopter, or whatever. If you actually, during the
    lifetime of the development, said, ``If you can do this, we
    will pay you more,'' as opposed to, ``We're going to layer
    another regulation on you to make sure you don't up the cost
    when there's not a good reason for it,'' which, by the way, ups
    the cost without a good reason for it.
        So, tell me, historically, have there been attempts that
    have not been successful to incentivize profit for constraining
    cost?
        Colonel Ward. I think part of the challenge is, on a 10- or
    20-year project, the incentives that we try to establish for
    the people who are in the early part of the program, we won't
    know how the program is going to end for another 10 or 20
    years, so we don't see the end of other story, so it's hard to
    incentivize those outcomes for people who won't be around in 10
    or 20 years. But, I----
        Senator McCaskill. But, the company is going to be around,
    whether it makes money or not. I mean, we're down to--you know,
    I can count on my fingers and toes how many companies there are
    that are getting these bids. They certainly are way more
    sophisticated than the man or woman of the hour at acquisition,
    right?
        Colonel Ward. Yes, absolutely. Absolutely. But, I think on
    the military side, on the practitioner side, you know, we want
    to incentivize good decisionmaking for the engineers, the
    program managers, and the contracting officers. On a 3-year
    assignment, which just ends up being a year and a half on this
    project and a year and a half on some other project, but each
    of them are 10-year projects, so the longer timelines really
    create barriers to smart incentives.
        Senator McCaskill. Yeah. Well, they certainly do on the
    military side. I guess I'm----
        Colonel Ward. Right.
        Senator McCaskill.--trying to think more from on the side
    of the people who are actually getting paid by the government
    to develop these systems.
        Mr. FitzGerald. So, in my experience, Senator, the
    challenge was a misapplication of well-intended regulations.
    So, when I was running a small business, I was running a
    strategy firm. We weren't building products, it was fairly low-
    risk stuff. Despite that, many of the contracts that I suffered
    under were ``cost-plus-fixed-fee.'' I was--I had to do ``cost-
    plus-fixed-fee'' contracts because the worker I had done had
    never been done before, and they were concerned that there
    would be too much risk. So, I was, like, ``Let me understand
    this. You're going to tell me up front what my profit is going
    to be, and you're going to drive that down over time, but the
    amount that I spend can increase almost as much as I would like
    it to.''
        Senator McCaskill. That's how we got monogrammed hand
    towels in Iraq.
        Mr. FitzGerald. Well, the--well, this was a thing. When I
    was speaking to my board, who were not familiar with the
    defense--with the U.S. defense world, I'm saying, ``So, why
    don't you just go out and buy, like, really nice furniture and
    all of these other things for the office?'' And I was, like,
    ``Because that would make us an unhealthy and sick business if
    we try to do anything other than live off this contract.'' So,
    ultimately we didn't, but only for--out of self-interest. If
    all we had done--for the--in terms of the culture and health of
    our organization. If we had followed the incentives as they
    were laid out, we would----
        Senator McCaskill. Right.
        Mr. FitzGerald.--have become big and bloated, because I was
    only going to get 7 percent profit, so I might as well have
    nice perks in the office so that I could hire people----
        Senator McCaskill. Exactly.
        Mr. FitzGerald. It was crazy.
        Senator McCaskill. I mean, the cost-plus is, like,
    ridiculous.
        Mr. FitzGerald. So----
        Senator McCaskill. I mean, if we are going to be a risk-
    free organization, I think defense is the wrong area to be in.
        Mr. FitzGerald. I completely agree.
        Senator McCaskill. Right? I mean, it's kind of inherently
    risky, isn't it? It seems to me embracing risk ought to be part
    of the equation.
        Well, my time is out. I've got a awful lot of other
    questions. I would like--and will have some for the record for
    you, because you all represent an awful lot of expertise. IT
    drives me crazy, the inability of the various branches to talk
    to one another, the absolute aversion to off-the-shelf that is
    beyond the pale of ridiculous. Speaking of complexity, that--
    and these are people buying stuff that don't know what they're
    buying, so it is needlessly complex and needlessly expensive,
    and there is an aversion to off-the-shelf IT products that I
    think needs to come to a screeching halt at the Pentagon.
        So, thank you, Mr. Chairman.
        Senator Reed. Thank you, Senator McCaskill.
        And, gentlemen, thank you for your extraordinary testimony
    and also for your great service to the Nation in so many
    different ways.
        And on behalf of Chairman McCain, I will declare the
    hearing adjourned.
        [Whereupon, at 11:36 a.m., the hearing was adjourned.]

        [Questions for the record with answers supplied follow:]

                    Questions Submitted by Senator Jack Reed
                         leveraging commercial products
        1. Senator Reed. It is imperative that DOD maintain military
    superiority in the global defense space and this will require the
    department to develop more nimble acquisition processes. However, a
    ``one size fits all'' acquisition approach may not be appropriate.
        In what technologies or weapon systems should DOD pursue a co-
    development strategy with both non-traditional and traditional
    companies versus incorporating available, commercial off the shelf
    technologies (i.e., harvesting what the market has to offer)?
        Under what circumstances / conditions have other transaction
    agreements been used effectively to acquire innovative, commercial
    technologies?
        What steps can be taken to increase the knowledge of DOD's
    acquisition workforce of the flexibilities available to them using
    other transactions, or for that matter, the flexibilities provided
    under the FAR, to leverage commercial products?
        Mr. Ward. I would point to two documents. First, the Innovative
    Contracting Case Studies playbook, published by OMB and the White House
    OSTP, which provides information about using OT. It is currently
    available as a PDF. Second, is an upcoming publication titled A Brief
    Reference Guide to Agilities, Flexibilities, and Simplifications within
    the Federal Acquisition Regulation. It is scheduled to be published by
    Carnegie-Mellon's Software Engineering Institute in early 2016.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler. I agree that ``one size fits all'' doesn't apply to
    DOD acquisitions e.g., acquiring an I.T. system is definitely different
    than acquiring a missile. Similarly, hiring an engineer for a study or
    a design is definitely different than buying a tank--you don't have to
    put the engineer through live--fire testing. If we want to maintain a
    strategy of ``technological superiority'' we can not keep cutting
    funding for R&D (as both the Congress and the DOD have been doing)--
    while other nations are stressing innovation and increasing funding for
    it. To enhance the understanding of the DOD's workforce of the
    ``barriers'' to buying commercial and/or of civil/military industrial
    integration--and of its benefits: these need to be part of the
    curriculum of the Defense Acquisition University--along with teaching
    ``best practices'', vs. just teaching ``conformance to the rules''. The
    Acquisition workforce must learn what incentivizes industry to achieve
    higher performance at lower costs--and then practice it. (***note that
    Dr. Gansler was not asked for his response to this question, but it
    will be included in the record)
                              setting requirements
        2. Senator Reed. DOD's approach for setting and articulating
    requirements was raised as a deterrent for attracting non-traditional
    firms. One commercial solution that was mentioned involved DOD
    articulating its needs in terms of a problem that needs to be solved,
    rather than identify specific requirements that have to be met.
    Defining needs in terms of a problem statement would require a
    different mindset within DOD's requirements-setting community.
        How could DOD develop well-articulated ``problems'' internally and
    effectively communicate them to commercial contractors? Are there areas
    of acquisition where DOD might need to continue to offer a more
    requirements-based approach to articulate its needs to ensure the
    reliability, maintainability, and cybersecurity of a system?
        Mr. Ward. I think the key word is ``communicate,'' and the secret
    to effective communication is to understand it is a two-way process. So
    rather than trying to develop fully articulated problems, then handing
    them over to commercial contractors (large or small), I recommend the
    DOD adopt a more interactive, collaborative approach to problem
    definition. This should be a joint process, in which developers are
    involved from the start. The Coast Guard Logistics Information
    Management System (CG-LIMS) used this approach very successfully. CAPT
    Dan Taylor explained this in a blog post from 2011, writing ``we're
    opening up communications with industry by posting requirements
    documents early in the process on FedBizOpps, using a blog to keep all
    stakeholders informed, and using the wiki hosted on GSA's
    citizen.apps.gov platform to give everyone information on what we're
    thinking and solicit industry ideas as we form an acquisition
    strategy.''
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler. The one area of the DOD ``requirements process'' that
    currently is largely ignored is ``unit and life cycle cost as a
    requirement.'' The commercial would certainly make cost a requirement,
    and quantity is certainly critical in defense--and, with limited
    dollars, quantity is dependent on unit cost; so this needs to be
    stressed more as a ``military requirement''. Also, currently a major
    cost factor on DOD acquisitions are the over 180,000 pages of the Code
    of Federal Regulations--which adds over 2000 pages of new regulations
    each year. Perhaps Congress needs to mandate a Commission to see which
    of these regulations are driving the costs up; and which are no longer
    needed. Incidentally, these regulations, and the auditing of them, not
    only drive up the costs; but they also drive away commercial firms, and
    the innovative small businesses.
        adequately funding and targeting research and development funds
        3. Senator Reed. During the hearing, witnesses repeatedly expressed
    concern about DOD's research and development funding levels. However,
    Deputy Defense Secretary Bob Work recently stated that DOD will have to
    curtail some innovation-focused investments DOD had planned because the
    two-year budget deal reflects $14.9 billion less for fiscal year 2017
    than DOD had originally sought.
        In an era of budget constraints and big ticket weapon system
    investments, what new approaches can DOD and the Congress use to
    protect research and development funding, or make the available funding
    more efficiently and effectively used?
        Dr. Gansler. As noted in my answer to question #1 we already have
    been cutting innovation funding in DOD, not only in the Service
    budgets, but even for DARPA. Meanwhile other countries (e.g. China,
    India, Israel, Japan, and Singapore) recognize the value of not only
    funding innovation, but supporting the leadership who are pushing for
    change (i.e. to overcome the institutions' resistance to change--both
    from the established defense industries and the military services
    themselves). Clearly, the leadership needs to be focused on using
    innovation (both in technology related to processes and to products) to
    achieve greater performance at lower costs. We need to be
    intellectually honest in continuously comparing current capability
    (including numbers) with what could be--if we innovate and move ahead
    to new capability at lower costs.
                            developing open systems
        4. Senator Reed. What role can open systems architecture play in
    contributing to meaningful acquisition reform?
        What are the most significant barriers to using open systems
    architectures in DOD?
        What are the key enablers or practices used in industry that could
    most effectively move DOD in the direction of open systems
    architectures?
        Is there a discrepancy between how the government and contractors
    define ``open''? If so, how can this be resolved?
        Mr. Ward. The most significant barrier to using open system
    architecture is a lack of awareness of the methods and tools available
    to acquisition professionals. While open system approaches are endorsed
    by regulation, many in the DOD are still unaware of what ``open''
    really means, what tools and mechanisms are available, and how to
    implement open architectures on their programs. The last project I led
    while on active duty (in 2014) was chartered to serve as a
    ``pathfinder'' program for open architecture methods, aiming to help
    validate open architecture as an approach and to show how it can be
    done. The fact that pathfinders are still considered necessary shows
    that the path has hitherto not been well established. Whether the DOD
    needs more pathfinders or simply more awareness of existing pathfinders
    is an open question.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
                          use of commercial technology
        5. Senator Reed. In the past two decades, Congress and DOD have
    made a number of changes related to the use of commercial items. Dr.
    Gansler, you noted that more needed to be done to further encourage the
    use of commercial items. At this point in time, what steps should be
    taken, through legislation, policy, or culture, to encourage the use of
    commercial items?
        Dr. Gansler. Perhaps the best, and easiest, way to convince people
    to utilize commercial parts and practices is with ``case studies'' (to
    show it can be, and should be, done). --that's a lesson Senator Sam
    Mann taught me; long ago.
        Some examples include:

          Allowing the JDAM missile to use commercial electronics,
    sensors, and actuators lowered the cost from 69,000 each to 18,000
    each; and with improved accuracy and reliability.
          Forcing Boeing to split the common production of military
    and commercial transports raised the prices of both (because they lost
    the economies of scale from the lower quantities).
          Logistics comparisons of FedEx and U.P.S. logistics
    information systems with the DOD system. The commercial systems have
    ``total asset visibility'' and the DOD system doesn't.

        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
                 lowest-price technically acceptable contracts
        6. Senator Reed. In your statement and testimony you expressed
    concern about DOD's increased use of lowest-price technically
    acceptable contracts. Can you elaborate on your concerns about the use
    of this approach? Are there situations where you think the use of this
    approach is particularly detrimental, and/or situations where the use
    of this approach makes sense?
        Dr. Gansler. When two competitive approaches give the same
    performance, then picking the lower-cost one makes sense. But in the
    commercial world--which we want to be the same--first we check to see
    if the performance is comparable if not, we don't simply pick the
    cheapest--even if the performance is significantly worse. This
    balanced--solution criteria is known as ``Best Value'' (i.e. the
    combination of high performance and low price). However, the DOD
    approach of ``Low Price, Technically acceptable'' (without a clear
    understanding, or even a definition of ``Technically Acceptable) simply
    is buying ``cheapest''--even if it doesn't work, or fails to meet
    ``requirements'' (including even reliability). Whether it is for
    professional services or military equipment, the DOD should not simply
    buy the cheap stuff--too much (including lives) is at stake.
                              innovative financing
        7. Senator Reed. In addition to leasing, what other alternative
    financing techniques can DOD adopt to drive affordability and for which
    types of weapon systems?
        Mr. Ward did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                          incentives to work with dod
        8. Senator Reed. In your testimony, you stated that government
    budgetary processes such as sequestration and continuing resolutions
    allow for funding instabilities that negatively affect and potentially
    jeopardize the viability of commercial companies.
        In this fiscal climate, what incentives exist for commercial
    companies (particularly small to continue to pursue DOD business? What
    else could DOD do to incentivize commercial businesses?
        What sort of funding / contract mechanisms could DOD / Congress
    create to reduce funding uncertainty or prevent companies from being
    adversely impacted by continuing resolutions and sequestration?
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
                                  constraints
        9. Senator Reed. In your testimony, you identified three principal
    areas that DOD needs to incentivize: speed, thrift and simplicity. You
    also stated that small teams with short schedules, tight budgets, and
    deep commitments to simplicity--in other words, teams with a constraint
    mindset--are more creative and effective.
        What short- and long-term changes can DOD make to increase the mix
    of its weapon system portfolio focused on less expensive, quicker
    turnaround programs?
        What can be done to ensure less expensive programs do not face the
    same problems as major programs, just on a smaller scale?
        How would this approach change the way DOD staffs program offices?
        To what extent might constraints make program managers less willing
    to adopt innovative technologies into their programs?
        Could the new ``middle tier'' of acquisition for rapid prototyping
    and rapid fielding'' provided by Section 804 of the National Defense
    Authorization Act for fiscal year 2016 encourage the type of speed,
    thrift, and simplicity that you advocate, while also helping minimize
    program risk? If not, why not?
        In addition to rewarding programs that perform under budget, what
    else could Congress do to create an environment conducive to
    ``constrained'' acquisition programs?
        Mr. Ward. One very simple change which could be implemented
    immediately is to require every contract to include a clause that
    states the contract can be cancelled if cost growth exceeds 15 percent.
    NASA used this clause very effectively during their Faster, Better,
    Cheaper missions, and nothing prevents the DOD from inserting this
    clause into every contract. This would not only provide a
    straightforward contracting mechanism to allow termination of programs
    before cost growth gets out of control, it would also communicate to
    all involved that excessive cost growth will not be tolerated. It would
    not require cancellation but would put an important tool in the
    government's hands.
        Second, the DOD should limit the number of Key Performance
    Parameters (KPP's) on each program. More than three or four KPP's
    dilutes the importance of each one. The US Navy's Virginia Class
    submarine program provides an outstanding example--they removed three
    KPP's from the requirements list when it was determined that they would
    cost more than they were worth and that the submarines could still
    accomplish the mission without those KPP's.
        Many of the problems experienced by large programs are a direct
    result of the program's size. Smaller, less-expensive programs will
    therefore not experience the same problems that big, expensive programs
    do. Smaller programs do have problems of their own, but they tend to be
    fewer, more manageable, and less harmful. And even if they do
    experience the same problems on a smaller scale, this is preferable to
    experiencing the problem on a large scale.
        The constrained approach could change the way the DOD staffs
    program offices by making them smaller (i.e. fewer people per project).
    It would also increase alignment between tour length and project
    length, because programs with shorter timelines create the opportunity
    to increase personnel stability and increases the likelihood of having
    consistent leadership throughout the program's duration. In fact, this
    would make it easier for the DOD to set a program manager's tour
    duration based on the duration of the program they are managing.
        Constraints of time and money should make PM's less willing to
    adopt immature technologies into their programs, which is very much by
    design. A program manager with a long development timeline may allow a
    design to include immature technology, based on a belief that the
    technology will be mature by the time it is needed. This often does not
    come to pass. Constraints help to discourage that type of decision
    making, and instead encourages PM's to put existing, mature technology
    together in new and interesting ways--which is in fact the definition
    of innovation.
        In addition to rewarding programs for performing under budget,
    Congress could provide rewards for speed and simplicity. The idea is to
    reward programs for delivering ahead of schedule and for taking steps
    to simplify their organizations, processes, and technologies.
                               far flexibilities
        10. Senator Reed. During the hearing, Mr. Ward stated that
    ignorance of the FAR is a greater barrier to innovation to than the
    regulations themselves.
        What steps can be taken to increase the knowledge of DOD's
    acquisition workforce of the flexibilities available to them under the
    FAR, and to empower the workforce to make better use of these
    flexibilities?
        Mr. Ward. In a 2013 paper titled Changing Acquisition Culture: What
    and How (Published by the Center for National Policy), I identified
    four ``influence channels'' that can be used to inform and influence
    the federal acquisition workforce. These channels are: Leadership, Peer
    Network, Publications, and Training & Education. I would suggest
    launching a concerted effort to spread the word about FAR
    flexibilities, using those four channels. The specifics of this
    strategy are available in the aforementioned paper.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                         acquisition workforce training
        11. Senator Reed. In testimony, Dr. Gansler stated that one of the
    six areas for improvement is ``A focus on the education and training of
    the DOD's acquisition workforce.'' What suggestions do you have for how
    to improve the training, education, and overall professional
    development of the acquisition workforce?
        Mr. Ward. While the Defense Acquisition University is formally
    chartered to provide education and training to the workforce, it tends
    to focus on compliance rather than creativity. I would suggest taking a
    closer look at DAU's curriculum and incorporating a greater emphasis on
    innovation (see answer to question #10.
        I also suggest making greater use of civilian academic
    institutions. For example, the University of Tennessee's National
    Defense Business Institute has a very strong aerospace MBA program and
    has also provided very effective training on innovative acquisitions,
    primarily for Air Force customers. To the best of my knowledge UT's
    focus on defense acquisition is unique, but several other universities
    have the capacity to contribute to this topic as well, including West
    Virginia University's Center for Smart Defense, Duke University's
    Corporate Education program, and Georgia Tech's Contracting Education
    Academy.
        Finally, I strongly believe that conferences are an important
    contributor to professional development. They allow practitioners to
    establish and strengthen their networks, expose practitioners to new
    ideas, and provide an important forum for sharing and exploring new
    approaches. In recent years the DOD has severely limited the ability of
    people to participate in technology conferences, and I suggest this
    policy is worth re-evaluating. The recent conference policy update
    (Sept 2015) is a step in the right direction, and I hope it will have
    the intended impact.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
         Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                           conflict of interest rules
        12. Senator Reed. Do you believe that conflict of interest laws
    dissuade top-tier candidates from joining DOD?
        What steps can be taken to address this issue, while still
    protecting the public's interests?
        Mr. Ward did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                            determining fair prices
        13. Senator Reed. One of the fundamental challenges in defense
    acquisition is trying to determine if we are paying a fair price for
    complex systems? that have no commercial market.
        What steps can we take to improve our ability to determine what
    major, complex systems should cost so that we pay fair prices?
        How can we take those steps without creating extended review and
    oversight processes or driving potential suppliers away from the
    defense market?
        How should we think about fair profit margins for defense
    contractors providing unique services and systems to the government?
        Mr. Ward. The government should not waste time trying to guess or
    estimate what a fair price might be for any given program. Instead,
    determine fair price by having a series of real competitions, between
    multiple vendors, using open system architectures and common
    maintenance capabilities.
        For example, buying a single KC-46 tanker creates artificial
    pressure on bidders and rewards unrealistically low bids, because
    whichever company loses the competition is out of the tanker business
    forever. This situation also provides only a single data point on what
    a tanker aircraft should cost. A better approach is to buy multiple
    tankers from multiple vendors, perhaps buying one type of tanker in a
    particular year and having a competition for a new tanker five years
    later. Open architectures and common maintenance standards can help
    reduce the costs of maintaining a diverse fleet. Based on the
    consistent cost growth experienced on previous one-shot programs (B-2,
    JSF, etc), I suspect the multiple-system approach would actually save
    money.
        On the topic of profit margins, as long as we treat huge price tags
    as inevitable attributes of defense acquisition programs, it makes
    sense to limit the profit percentage. However, reducing the total cost
    of a program and increasing the profit margin potential can serve the
    interests of both the government and industry. For example, rather than
    insisting on a 7 percent profit margin limit on a $1M project, both
    sides might be better served by allowing a 30 percent profit on a
    $500,000 effort.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                              requirements process
        14. Senator Reed. One of the major challenges in acquisition reform
    is reviewing the weaknesses and shortfalls in our requirements
    development processes. For example, some argue that requirements are
    developed without being informed by cost or technical realities, and
    that they are too ambitious, or continually change over the course of a
    program--which drives up costs and extends schedules.
        What reforms would you recommend for this process?
        Mr. Ward. My recommendation is to introduce tight constraints on
    cost, schedule, and budget. To paraphrase the Hon Richard Danzig's
    excellent paper ``Driving In The Dark,'' the DOD should build more for
    the short term (spend less time and money, building simpler systems).
    Taking a constrained approach to requirements in particular introduces
    several important, impactful limits. First, the sheer number of
    requirements (and KPP's) should be kept to a minimum (see answer to #9
    above). This serves to provide focus, priority, and clarity for the
    project leaders. It also increases the team's ability to accurately
    assess, understand, and incorporate realistic cost and technical
    realities. Shorter timelines also reduce the project's exposure to
    change during the development cycle, thus reducing exposure to factors
    which increase costs and delay schedules. One particularly helpful FAR
    reference on this point is 39.103, which describes Modular Contracting.
        Second, the requirements process should be a more collaborative
    approach, involving both technologists and operators in an interactive,
    incremental discussion that addresses both the state of the art and the
    operational environment. Rather than worrying about requirements creep,
    the focus should be on avoiding stale requirements which no longer
    describe the operational needs, as well as on avoiding over-stated
    requirements which exceed actual needs. Two particularly helpful FAR
    references on this point are FAR 15.306(d)(4) and FAR 35.008.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                               acquisition reform
        15. Senator Reed. As you know, the most recent National Defense
    Authorization Act (NDAA) restored some authority to the Service Chiefs
    with respect to acquisition. In contrast, Secretary Carter raised
    concerns with this approach, indicting in a letter to OMB that the
    language in the NDAA would ``significantly affect my ability to oversee
    Service programs and overcome the very strong incentives and inherent
    bias within the military departments to be overly optimistic in their
    planning, particularly when budgets are tight.''
        Do you think that the military departments are overly optimistic in
    their planning? Why?
        If so, what can we do to mitigate against that unwarranted
    optimism?
        Does OSD provide an appropriate counterbalance against Service
    optimism?
        Mr. Ward. The problem with optimistic planning is less about
    optimism as it is about the scope, scale, and duration of the plans. An
    optimistic 1-year project, with a well-defined objective, a stable
    leadership team, and a tightly controlled budget will a) be more likely
    to deliver meaningful & relevant capabilities than a 10-year proect,
    and b) incur less harm if the optimism proves unwarranted.
        So my suggestion on how to mitigate the problem is not to
    discourage optimism, because we want and need acquisition leaders who
    embrace a can-do mentality and are willing to take risks, etc. Rather,
    we should discourage stretching that optimism out into timelines that
    exceed our capacity to act or exceed our involvement with the program.
    By all means, be optimistic. But do so on a timescale that aligns with
    the Program Manager's tenure. This introduces a degree of
    accountability that is impossible to provide on a 10+ year program.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
                                   __________
                Questions Submitted by Senator Claire McCaskill
                            breaking the cost curve
        16. Senator McCaskill. Over the past several years, the Department
    of Defense has recognized the unsustainable growth for development
    programs and has highlighted the need to break the cost curve. In
    response, some in industry has been pursuing ways to reduce development
    and production costs. Do you believe the Department is doing enough in
    source selection to recognize industry cost cutting and innovation
    efforts?
        Mr. Augustine. There can be no question but that we are on an
    unsustainable path with regard to the cost of major items of military
    equipment. It is my belief that this problem has less to do with source
    selection than with the requirements process and the design and
    development processes.
        We have now reached that point in the so-called ``death spiral''
    wherein items of equipment cost so much that we can buy very few of
    them (usually even fewer than were planned when the program was
    established and program costs initially estimated) and individual unit
    costs thus become untenable. This is particularly the case when
    development costs must be amortized over the (often reduced) production
    buy. I believe that what is needed in many cases is far greater
    emphasis on somewhat less sophisticated equipment that can be purchased
    in substantially larger quantities, often drawing on commercial
    hardware and software. This will require a less ``linear,'' less rigid
    and less procedural requirements process than exists today.
    Specifically, what is needed is a ``closed-loop'' process that
    simultaneously involves military operators; design, development and
    production engineers; cost estimators; and budget analysts. Only
    through an iterative process involving all four of these groups do I
    believe that we can arrive at affordable designs with today's tight
    budgets and small quantities of equipment that are generally purchased
    in peacetime.
                                   __________
                 Questions Submitted by Senator Jeanne Shaheen
                             acquisition workforce
        17. Senator Shaheen. How can the contracting workforce be more
    effective in engaging with small and non-traditional contractors in
    order to maximize benefits to both DOD and the taxpayer?
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Augustine. The In-Q-Tel model has proven to be a highly
    successful means for dealing with the kinds of issues addressed in
    Question 19. It is premised on the notion that in many instances the
    government should enable commercial procurement practices to replace
    government procurement practices. This is of course not without risk,
    nor is it easy, but that risk, in my experience, is trivial compared
    with the cost of meeting all the so-called ``protections'' built into
    defense procurement as it has evolved over the years. The In-Q-Tel
    concept is really quite simple: it allows companies to deal with
    government (intermediaries) much as it deals with other firms in the
    free enterprise system.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Ward. The contracting workforce could begin by increasing its
    awareness of, understanding of, and compliance with the FAR. For
    example, FAR 13.003 states ``Agencies shall use simplified acquisition
    procedures to the maximum extent practicable,'' which clearly points in
    the direction of engaging with smaller and non-traditional vendors, and
    yet there is a widespread reluctance to take advantage of this
    procedure.
        Similarly, although FAR 39.103 states that the government should
    use modular contracting ``to the maximum extent practicable,'' many
    CO's seem unaware of what modular contracting is, how it works, or how
    to use it. In the simplest terms, modular contracting involves breaking
    large efforts into a series of smaller efforts, which reduces the
    barriers to participation for smaller, non-traditional contractors.

        18. Senator Shaheen. What is your assessment of the training and
    education of the acquisition workforce? What improvements should be
    made?
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Ward. As I mentioned in the answer to Question 11, the Pentagon
    would do well to augment the DAU training with material from civilian
    academic institutions such as the University of Tennessee, West
    Virginia University's Center for Smart Defense, Duke University's
    Corporate Education program, and Georgia Tech's Contracting Education
    Academy.
        Similarly, it is definitely time to refresh the curriculum at DAU.
    They do good work and have a challenging charter, but I would like to
    see a greater emphasis on innovation over compliance, on clarity and
    flexibility over death-by-PowerPoint and school-house answers.
                             government contracting
        19. Senator Shaheen. In your view, what are the benefits of
    engaging small and non-traditional businesses in contracting for the
    federal government? What are the tools at the government's disposal to
    meet these needs?
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Augustine did not respond in time for printing. When received,
    answer will be retained in committee files.
                                   __________
                 Questions Submitted by Senator Jeanne Shaheen
        20. Senator Shaheen. Are these tools sufficient? Are there barriers
    that should be removed to better encourage small and innovative
    companies to participate in defense acquisition?
        Dr. Gansler did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Augustine. The In-Q-Tel model has proven to be a highly
    successful means for dealing with the kinds of issues addressed in
    Question 19. It is premised on the notion that in many instances the
    government should enable commercial procurement practices to replace
    government procurement practices. This is of course not without risk,
    nor is it easy, but that risk, in my experience, is trivial compared
    with the cost of meeting all the so-called ``protections'' built into
    defense procurement as it has evolved over the years. The In-Q-Tel
    concept is really quite simple: it allows companies to deal with
    government (intermediaries) much as it deals with other firms in the
    free enterprise system.
        Mr. FitzGerald did not respond in time for printing. When received,
    answer will be retained in committee files.
        Mr. Ward. My observation is that small, non-traditional businesses
    are more than willing to work on projects for the federal government if
    they see an opportunity to contribute to a meaningful objective on a
    reasonable timeline. They are discouraged when it takes too long to get
    started or when their contribution is limited, either because the large
    prime contractor does not allocate meaningful tasks or because the
    project itself does not actually address a meaningful problem.
    Establishing short timelines and well-focused projects helps address
    both of these barriers.
                                   __________
                  Questions Submitted by Senator Mazie Hirono
                           stem education in the u.s.
        21. Senator Hirono. Mr. Augustine, I know that you have done
    significant work in the STEM arena. Preparing our youth for future jobs
    in the science and engineering fields is vital for our national
    security and economy. We discussed during the hearing that we are being
    significantly outpaced by other countries in this area. In your
    opinion, what can be done to improve the quality and quantity of our
    STEM graduates?
        Mr. Augustine. Thank you for this question; it is a very important
    question indeed. Today, for every PhD that U.S. universities award in
    engineering to U.S.-born individuals, these universities, on average,
    award two PhDs to individuals who were not born in the U.S. In short,
    we have been importing much of the nation's engineering talent insofar
    as the research sector is concerned.
        I believe that when it comes to expanding the nation's engineering
    talent base we have issues at both the primary and secondary school
    levels as well as at the university level. In the case of the latter,
    most states have now chosen to disinvest in higher education, and as
    such the current, extraordinary high ranking of our institutions of
    higher education are very much endangered. We must encourage our states
    once again to underwrite higher education at a level consistent with
    its importance.
        With regard to primary and secondary education, simply stated, we
    need to bring the Free Enterprise system to grades K-12. This system
    has been enormously successful in American business, making our economy
    the strongest in the world, and in higher education, making our
    universities the finest in the world. This requires creating
    competition among schools, among teachers, and among administrators;
    paying quality teachers much more than they are now paid; and helping
    teachers not suited to the classroom to find other careers which they
    might more successfully pursue.
        We also need a change in the attitude of our engineering schools,
    which for many years seem to have embraced the notion of trying to see
    how many candidates could be driven out of engineering into other
    fields, presumably to prove how difficult is an engineering curriculum.
    Typically, between a third and half of those beginning in engineering
    at U.S. universities do not graduate in that field. This has recently
    been recognized and the curriculum is being modified at many
    universities, particularly for the freshman year.

        22. Senator Hirono. What specific steps should DOD be taking in
    STEM educational activities to support their missions and needs?
        Mr. Augustine. I believe there are several constructive pursuits
    that DOD could undertake in STEM education that would also support the
    DOD mission. One of these would be to create practical, out-of-the-
    classroom experiences in engineering for young students. This would
    help them understand the relevance of their studies to everyday work in
    science and engineering. One very good program in this regard is
    underway at the Pensacola, FL Navy base.
        Another initiative would be to establish a number of Defense
    Scholarships for extraordinarily exceptional high school graduates.
    Still another would be to address the problem that the children of our
    military are frequently required to move from school to school and
    often to attend inferior public schools that happen to surround many
    military bases in the United States. In this regard, there is a program
    called the National Math and Science Initiative that is currently
    working with DOD to help improve these schools, particularly in the
    STEM fields, I would encourage the expansion of this relationship. (For
    the record, I am one of the founders and a member of the board of
    directors of the National Math and Science Initiative, a not-for-profit
    organization designed to improve the quality of education offered to
    America's students.)

        23. Senator Hirono. What can be done to support STEM education for
    the children of service members?
        Mr. Augustine. Please see response to Question 22.

        24. Senator Hirono. How can we create incentives for industry to
    work with DOD on these issues?
        Mr. Augustine. Industry is, by and large, devoting a substantial
    fraction of its charitable giving to K-12 education. I believe that a
    greater portion of these resources could be allocated to schools at
    which the children of the nation's service members attend.
    Additionally, one might replicate something that I have done, which is
    to specify that the scholarships that my wife and I have established at
    various universities give priority to children of individuals serving
    in the military as well as to individuals who themselves have formerly
    served in the military.

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