[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

                               __________

         Printed for the use of the Committee on Armed Services



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





        Available via the World Wide Web: http://www.fdsys.gov/



 
 
 
 
                                ______
 
                          U.S. GOVERNMENT PUBLISHING OFFICE 
 
 22-200 PDF                     WASHINGTON : 2016 
 -----------------------------------------------------------------------
   For sale by the Superintendent of Documents, U.S. Government Publishing 
   Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
          DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
 

                      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.

                                 [all]