[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]









 
                         [H.A.S.C. No. 115-32]

                   ASSESSING PROGRESS AND IDENTIFYING

                 FUTURE OPPORTUNITIES IN DEFENSE REFORM

                               __________

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             APRIL 4, 2017


 
 
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                      COMMITTEE ON ARMED SERVICES
                     One Hundred Fifteenth Congress

             WILLIAM M. ``MAC'' THORNBERRY, Texas, Chairman

WALTER B. JONES, North Carolina      ADAM SMITH, Washington
JOE WILSON, South Carolina           ROBERT A. BRADY, Pennsylvania
FRANK A. LoBIONDO, New Jersey        SUSAN A. DAVIS, California
ROB BISHOP, Utah                     JAMES R. LANGEVIN, Rhode Island
MICHAEL R. TURNER, Ohio              RICK LARSEN, Washington
MIKE ROGERS, Alabama                 JIM COOPER, Tennessee
TRENT FRANKS, Arizona                MADELEINE Z. BORDALLO, Guam
BILL SHUSTER, Pennsylvania           JOE COURTNEY, Connecticut
K. MICHAEL CONAWAY, Texas            NIKI TSONGAS, Massachusetts
DOUG LAMBORN, Colorado               JOHN GARAMENDI, California
ROBERT J. WITTMAN, Virginia          JACKIE SPEIER, California
DUNCAN HUNTER, California            MARC A. VEASEY, Texas
MIKE COFFMAN, Colorado               TULSI GABBARD, Hawaii
VICKY HARTZLER, Missouri             BETO O'ROURKE, Texas
AUSTIN SCOTT, Georgia                DONALD NORCROSS, New Jersey
MO BROOKS, Alabama                   RUBEN GALLEGO, Arizona
PAUL COOK, California                SETH MOULTON, Massachusetts
JIM BRIDENSTINE, Oklahoma            COLLEEN HANABUSA, Hawaii
BRAD R. WENSTRUP, Ohio               CAROL SHEA-PORTER, New Hampshire
BRADLEY BYRNE, Alabama               JACKY ROSEN, Nevada
SAM GRAVES, Missouri                 A. DONALD McEACHIN, Virginia
ELISE M. STEFANIK, New York          SALUD O. CARBAJAL, California
MARTHA McSALLY, Arizona              ANTHONY G. BROWN, Maryland
STEPHEN KNIGHT, California           STEPHANIE N. MURPHY, Florida
STEVE RUSSELL, Oklahoma              RO KHANNA, California
SCOTT DesJARLAIS, Tennessee          TOM O'HALLERAN, Arizona
RALPH LEE ABRAHAM, Louisiana         THOMAS R. SUOZZI, New York
TRENT KELLY, Mississippi             (Vacancy)
MIKE GALLAGHER, Wisconsin
MATT GAETZ, Florida
DON BACON, Nebraska
JIM BANKS, Indiana
LIZ CHENEY, Wyoming

                  Robert L. Simmons II, Staff Director
            Ann McDonough-Hughes, Professional Staff Member
                Douglas Bush, Professional Staff Member
                         Britton Burkett, Clerk
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                         
                            C O N T E N T S

                              ----------                              
                                                                   Page

              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Langevin, Hon. James R., a Representative from Rhode Island, 
  Committee on Armed Services....................................     2
Thornberry, Hon. William M. ``Mac,'' a Representative from Texas, 
  Chairman, Committee on Armed Services..........................     1

                               WITNESSES

Flournoy, Michele, Chief Executive Officer and Co-Founder, Center 
  for a New American Security, Former Under Secretary of Defense 
  (Policy).......................................................     5
Hamre, Dr. John J., Chief Executive Officer and President, Center 
  for Strategic and International Studies, Former Deputy 
  Secretary of Defense...........................................     3
Zakheim, Dr. Dov S., Senior Adviser, Center for Strategic and 
  International Studies, Former Under Secretary of Defense 
  (Comptroller)..................................................     8

                                APPENDIX

Prepared Statements:

    Flournoy, Michele............................................    60
    Hamre, Dr. John J............................................    51
    Smith, Hon. Adam, a Representative from Washington, Ranking 
      Member, Committee on Armed Services........................    49
    Zakheim, Dr. Dov S...........................................    74

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    [There were no Questions submitted during the hearing.]

Questions Submitted by Members Post Hearing:

    Mr. Langevin.................................................    91
    
    
    
    
    
    
    
  ASSESSING PROGRESS AND IDENTIFYING FUTURE OPPORTUNITIES IN DEFENSE 
                                 REFORM

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                            Washington, DC, Tuesday, April 4, 2017.
    The committee met, pursuant to call, at 10:01 a.m., in room 
2118, Rayburn House Office Building, Hon. William M. ``Mac'' 
Thornberry (chairman of the committee) presiding.

  OPENING STATEMENT OF HON. WILLIAM M. ``MAC'' THORNBERRY, A 
    REPRESENTATIVE FROM TEXAS, CHAIRMAN, COMMITTEE ON ARMED 
                            SERVICES

    The Chairman. Committee will come to order.
    This week the committee will hold two hearings that focus 
on the two major pillars of our agenda. Tomorrow we will hear 
from the service chiefs on repairing and rebuilding our 
military. Today, however, we will concentrate on the other 
pillar, which is defense reform.
    We have done a lot of reform over the past 2 years. That 
includes acquisition reform, a new military retirement system, 
major changes in military health care, commissary reform, a 
rewrite of the Uniform Code of Military Justice, as well as 
significant organizational reform.
    While a lot has been done, however, a lot more needs to be 
done. The world around us is simply moving too fast for us to 
sit still and assume that the organizations and processes of 
the past will suffice for today and especially for tomorrow.
    Yes, we all have an obligation to see that taxpayer dollars 
are spent as efficiently and as effectively as possible, 
especially in fulfilling the first job of the Federal 
Government, which is to defend the country. But we all know 
from the news and from our intelligence briefings that we face 
a wide, diverse array of threats, and those threats change day 
by day as adversaries develop systems designed to deny us any 
military advantage. We must be prepared for each of these 
threats.
    We also know that the pace of technological change is 
accelerating and that more and more innovation takes place in 
the private sector.
    All of these trends stress our existing organizations and 
processes. We will not be able to defend the country with 
outdated technology or sluggish bureaucracy.
    Much of the responsibility for making needed reforms rests 
with us, with Congress. We cannot do everything in a single 
bill or even in 3 years, but we must be willing to move 
aggressively to make the reforms needed in this volatile, 
dangerous world.
    There are no individuals who can provide wiser, more 
considered guidance than the three witnesses we have today, 
each of whom has held high office in the Department of Defense, 
each of whom has testified many times before this committee, 
and each of whom has devoted their careers to helping provide 
for the national security of the United States. I appreciate 
each of them being with us today.
    Before turning to those witnesses, let me yield to the 
distinguished acting ranking member, the gentleman from Rhode 
Island, Mr. Langevin.

  STATEMENT OF HON. JAMES R. LANGEVIN, A REPRESENTATIVE FROM 
           RHODE ISLAND, COMMITTEE ON ARMED SERVICES

    Mr. Langevin. Thank you, Mr. Chairman.
    I want to welcome our witnesses here today, and proud to be 
able to speak on behalf of Ranking Member Smith this morning. 
And I will be submitting his statement for the record after I 
read it.
    [The prepared statement of Mr. Smith can be found in the 
Appendix on page 49.]
    Mr. Langevin. But thank you, again, to our witnesses.
    So thank you, Mr. Chairman, for holding today's hearing on 
this topic of critical importance.
    And again, I also want to say a thank you to our witnesses 
for sharing their opinions on past and future defense reform 
opportunities. I know you all have a wealth of knowledge, and I 
appreciate you sharing this with the committee.
    I look forward to hearing the views on what the Department 
of Defense should or should not address in the future as it 
relates to acquisition policy, organizational structure, and 
military personnel reform efforts. The fiscal year 2016 and 
fiscal year 2017 National Defense Authorization Acts included 
significant changes to the acquisition division of the Office 
of the Secretary of Defense.
    First, decision-making authority for large acquisition 
programs moved from the Under Secretary of Defense for 
Acquisition, Technology, and Logistics to the service 
secretaries; and second, that the same under secretary position 
was split into two under secretary positions. This shift has 
created an unknown dynamic for the Department of Defense and 
private sector companies who produce goods and provide services 
for DOD.
    So here we are in 2017 working on next year's NDAA 
[National Defense Authorization Act] and key acquisition 
positions are yet to be filled, and it is too early to tell if 
this reform--these reforms will prove to be successful.
    In my view, before we make additional acquisition reforms 
we should see if last year's changes are effective because, 
frankly, it seems as if current changes may be overwhelming the 
system. The Department of Defense can only absorb so much new 
acquisition reform legislation.
    However, one area where DOD does not need congressional 
support is in helping it to right-size its infrastructure by 
authorizing a new round of base realignment and closure [BRAC]. 
DOD has been asking Congress to authorize a new BRAC round each 
year for the past 5 years, and they estimate a new BRAC can 
help save $2 billion a year. At a time of constrained resources 
we cannot afford to waste $2 billion a year holding onto 
infrastructure that is in excess to the military's requirement.
    While some may question the force structure levels or raise 
concerns with the 2005 round, I believe Congress can and should 
work with DOD to address these issues and authorize a new round 
of BRAC this year.
    I am also interested in where the Department and the 
services will go with personnel reforms. The fiscal year 2016 
NDAA reformed the military retirement system to provide 83 
percent of the force a strong, portable retirement plan that 
they can take with them when they complete their service 
obligation but do not reach a 20-year retirement.
    It is time that the personnel system complements the 
retirement system with more flexibility and ability to target 
certain skill sets when needed. The services have been 
discussing for years the need for a more flexible personnel 
system but have done little with the existing authorities they 
have to make any meaningful changes.
    People join the military and depart the military for a 
variety of reasons, and the system cannot be one-size-fits-all. 
I understand due to the nature of the missions and 
organizations there have--there are requirements and standards 
that need to be maintained. I am interested in exploring 
concrete options that create flexibility to attract the 
qualified individuals it needs to fit the requirements and, as 
those requirements change, retaining the quality the military 
needs to maintain high standards.
    With that, I thank the ranking member for letting me read 
his statement on his behalf, and I yield back to the chairman.
    The Chairman. I thank the gentleman.
    Let me again welcome each of our witnesses: Dr. John Hamre, 
chief executive officer and president for the Center for 
Strategic and International Studies [CSIS]; Michele Flournoy, 
chief executive officer and co-founder, Center for a New 
American Security; and Dr. Dov Zakheim, senior advisor for the 
CSIS.
    As I mentioned, each of them have held high position in the 
Department of Defense and we are grateful for y'all being here.
    Without objection, your full written statement will be made 
part of the record. But at this point we would be pleased to 
hear any oral comments you would like to make.
    Dr. Hamre.

  STATEMENT OF DR. JOHN J. HAMRE, CHIEF EXECUTIVE OFFICER AND 
  PRESIDENT, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, 
               FORMER DEPUTY SECRETARY OF DEFENSE

    Dr. Hamre. Mr. Chairman, Ranking Member Smith, it is a real 
privilege to be invited back and I want to say thank you to you 
not just for inviting us but for this committee taking so 
seriously this important work of defense reorganization reform. 
You know, this is not the kind of thing that most committees 
are doing these days. I am so proud that you are, and thank you 
for that.
    I was on the staff of the Senate Armed Services Committee 
when the----
    The Chairman. Excuse me, Dr. Hamre. Would you get that 
microphone right up to your mouth----
    Dr. Hamre. I am sorry. I apologize.
    The Chairman. Thank you. Thank you.
    Dr. Hamre. I was on the staff of the Senate Armed Services 
Committee when we passed Goldwater-Nichols and then the Packard 
Commission reforms. We worked on that very hard, but we made a 
real--some serious mistakes with the Packard Commission reform, 
and I would--it was--we didn't understand it at the time but 
we--when we took the chief of staff of the services out of the 
chain of command for acquisition, that was a mistake.
    You fixed that 2 years ago, and I am very grateful for 
that.
    We made a mistake by decapitating the ecosystem for 
innovation in the Department when we created the under 
secretary for acquisition, made it the third most important 
position in the building, and we diminished the role of the 
defense research and engineering. That was a mistake at the 
time.
    You fixed that last year, but--and I am--I haven't--I know 
that you are working on legislation this year. I haven't seen 
what you are proposing, so I am really--what I really am here 
to talk about is what happened last year.
    You did the right thing by elevating the research and 
engineering function, but unfortunately, in the conference I 
think you undermined the impact of this when you created the 
second under secretary for acquisition.
    The purpose of your goal last year--and we had 
conversations with the committee--was to make the innovation 
secretary the third most important position in the building, 
and that was the right thing to do. You did that.
    But by introducing a second under secretary who takes care 
of acquisition, that is where the money is. You know, I was the 
comptroller, you know, so I know what it is like in the 
building. The guy that controls the money has got more clout.
    So your desire to elevate in prominence the innovation 
ecosystem in the Department so that we become more dynamic in 
addressing new technology and new threats was, unfortunately, 
undermined when you created this second under secretary. And I 
would ask you to go back and take a look at that.
    You did the right thing by delaying implementation 1 year, 
so you have a chance to really get this right. We need to 
recruit the biggest person we possibly can to come into that 
job.
    We have to recruit a very prominent person. They are not 
going to come in if the job looks like it is undermined by the 
structure of the rest of the senior leadership.
    So I would plead with you to take another look at that. I 
would be happy to come up and talk at any time.
    The other thing I would wish to talk to you about is you 
put in--in the Authorization Act last year you created the 
chief management officer. As written now, it isn't--it doesn't 
really do anything new. It carves out all the functions that 
are currently with the deputy secretary as the chief management 
officer into that new position as an under secretary.
    I think there is a great promise in what you are looking 
at, but I think we need to make clear the way it is written in 
last year's bill it is a staff function. What I think we need 
in the Department is a line manager over the defense agencies. 
We do not have a line manager over the defense agencies. We 
have line manager for the Army, for the Air Force, for the Navy 
and Marine Corps; we don't for the defense agencies.
    I would ask you to consider looking at making that chief 
management officer position, which you created, not a staff 
function but a line function. Give it responsibility to manage, 
oversee, hire, fire, promote, you know, to make capital 
investments, et cetera, for this very important function, to 
oversee the defense agencies. It is about $130 billion, so 
there is a lot of work to be done here, but you are not going 
to get management out of the job the way you wrote it last 
year.
    So I apologize for being blunt here, but I--you absolutely 
are on the right track. I think some minor adjustments you will 
carry this across the line.
    And, of course, I would be very flattered to work with you 
on anything this year. I haven't seen your draft bill, but I 
look forward to working with you and the committee, sir.
    Thank you.
    [The prepared statement of Dr. Hamre can be found in the 
Appendix on page 51.]
    The Chairman. Thank you, sir.
    Ms. Flournoy.

 STATEMENT OF MICHELE FLOURNOY, CHIEF EXECUTIVE OFFICER AND CO-
   FOUNDER, CENTER FOR A NEW AMERICAN SECURITY, FORMER UNDER 
                 SECRETARY OF DEFENSE (POLICY)

    Ms. Flournoy. Mr. Chairman, Ranking Member Smith, and 
distinguished members of the committee, truly an honor to be 
here to testify before you on such a critical topic as defense 
reform.
    You know, it is hard to remember a time when the need for 
defense reform was more acute, given the incredible challenges 
that our military is likely to face in the future. We have a 
military that is more capable than ever before, but also it is 
a military that is on an unsustainable cost curve.
    And so fundamental reforms are needed to actually free up 
resources that can be reinvested in the critical concepts and 
capabilities and operations that will need--that will enable us 
to really maintain our technological edge in the future in a 
far more challenging security environment. So now is the time 
to continue with a plan for robust reform that ensures that we 
get the most possible out of every taxpayer dollar invested.
    And I, too, want to applaud the work that this committee 
has done in leading the charge on defense reform, particularly 
in the acquisition area. But what I wanted to do this morning 
is suggest four new areas that you may want to go deeper in 
this legislative cycle and in the future.
    The first is right-sizing DOD headquarters and, in 
particular, transforming the defense agencies. If you look 
today at the Office of the Secretary of Defense, the Joint 
Staff, the combatant command headquarters, and the defense 
agencies, they total about 240,000 people, excluding 
contractors. That is about 20 percent of the defense budget.
    The substantial growth in DOD headquarters is not just a 
matter of inefficiency but also one of effectiveness. You know, 
in the private sector bloated headquarter staffs have been 
documented to slow decision making, push too many decisions too 
far up in the organization, incentivize risk-averse behavior, 
undermine organizational performance, and compromise agility; 
and I think the same can be true in government.
    Perhaps the greatest opportunity for potential savings lies 
with the largest defense agencies, which account for about $134 
billion of the DOD budget. So highest priority in my mind 
should be given to those large agencies that operate most like 
civilian businesses, including DLA, the Defense Logistics 
Agency; DISA, the Defense Information Systems Agency; DHA, the 
Defense Health Agency; and DFAS, which is the [Defense] Finance 
and Accounting Service.
    And what I would encourage you to do is to require the 
Secretary of Defense to undertake a comprehensive management 
assessment of these agencies, looking at where best business 
practices, new technologies, and automation might actually 
improve performance and reduce cost, and create savings that 
could be reinvested in higher-priority areas.
    Beyond this focus on defense agencies, I think it would 
also be a good thing for Congress to provide the Secretary with 
the flexibility and breathing room to assess across the DOD 
headquarters areas of potential overlap and look for 
opportunities to restructure, consolidate, reassign personnel, 
eliminate unnecessary offices and functions. Just hearing 
John's proposal for giving the CMO [chief management officer] 
line responsibility over the agencies, I think that is very 
much worthy of consideration.
    Second key area I would love for you to grapple with is 
BRAC. The Department desperately needs a BRAC round. The 
estimate is that 22 percent of current infrastructure is excess 
to military need. The service chiefs have repeatedly testified 
that that infrastructure overhang is taking money away from 
readiness and from modernization and critical future 
warfighting capabilities.
    Based on past experience, the Department is estimating that 
at least $2 billion a year could be saved. And although 
concerns about potential job loss are understandable, there are 
also a number of studies of past closures that concluded that 
most jobs are ultimately replaced and most affected communities 
actually do recover quite well.
    I think in a year where the Congress is also considering a 
major infrastructure investment bill you could imagine 
directing some of that investment to affected communities and 
potentially easing their transition and mitigating some of the 
job losses associated with BRAC.
    So bottom line is every dollar we spend on unneeded 
infrastructure is a dollar that we are not using to support the 
men and women who serve in harm's way, so I would encourage you 
this year to act.
    The third area is reshaping and reinvigorating the civilian 
workforce. Today DOD employs about 770,000 civilian employees, 
plus a comparable number of civilian contractors. Multiple 
efforts have been made to streamline the system with mixed 
success.
    I think you have an opportunity this year to provide the 
Secretary with a package of authorities to help reinvigorate 
the civilian workforce. I would encourage you--I list them in 
my testimony; I will just briefly touch on some of them here.
    But requiring the Secretary to develop a comprehensive 
human capital strategy for how we recruit, develop, retain, and 
shape the civilian workforce, including in that assessing the 
optimal mix between military, civilian, and contractor 
workforces; secondly, to set realistic personnel cost reduction 
targets over the FYDP [Future Years Defense Program]; to 
actually further modify the VSIP [voluntary separation 
incentive payments] authority to allow it to be targeted on 
specific employees that are judged appropriate to leave 
government service; to encourage the Secretary to use the 
modified RIF [reduction in force] authority that you provided 
last year but hasn't been used by the Department yet; to give 
the Secretary flexibility to reallocate and reassign personnel 
as he right-sizes and reshapes the organization; and really to 
look at consolidating the personnel system.
    Currently there are 66 different personnel systems that are 
being used for the civilian workforce in the Department of 
Defense today--66. Imagine trying to manage that.
    Can we look at a consolidated approach under title 10 that 
would really allow the Secretary to tailor one system to hire, 
manage, develop, compensate, retain DOD's civilian workforce. 
And there are a number of other ideas that I list there, as 
well.
    The fourth area is improving the quality of health care 
while reducing costs. Today the military health care system--
costs have nearly doubled over the last decade, with the CBO 
[Congressional Budget Office] estimating an additional $40 
billion by 2030.
    What is even more important in my mind is that survey data 
suggests that the quality of care received by military 
personnel and their dependents remains uneven and customer 
satisfaction is below civilian benchmarks in key areas. So I 
think this is an area where DOD and the Congress have an 
opportunity to explore ways of both improving the quality of 
care while also leveraging approaches like values-based health 
care to reduce costs.
    In my written testimony I actually draw from an excellent 
report that Bob Hale, the former DOD comptroller, did for CNAS 
[Center for a New American Security] on reforming defense, and 
particularly he highlights five areas for health care reform 
that I think are worthy of looking at: wartime readiness, 
value-based reimbursement, utilization of services, 
productivity, and availability of choice.
    Let me just conclude by saying that I really do think we 
have a tremendous opportunity with this Secretary and this 
Congress to move forward on these issues. I think now is the 
time to provide the Secretary of Defense with the authorities 
and flexibility he needs to actually get better performance and 
free up resources for reinvestment in higher-priority areas.
    But that said, defense reform, as you all know, is not a 
panacea. It is my hope that this Congress will also consider 
how to establish a more predictable and more robust levels of 
defense spending over the next 5 to 10 years without gutting 
diplomacy and development accounts that are also critical to 
our national security.
    I believe that reaching a comprehensive budget deal that 
includes all of the obvious elements--from tax reform, to 
entitlement reform, to smart investment in the drivers of our 
economic vitality and growth--is not only an economic 
imperative; it has become a national security imperative.
    Lastly, I hope that through the dialogue that this 
committee is fostering, the Congress and the executive branch 
will be able to partner more closely together and make some of 
the hard choices and undertake the reforms necessary to ensure 
that we truly keep faith with the men and women who serve in 
the best fighting force in the world. As I think you would all 
agree, they deserve nothing less.
    Thank you.
    [The prepared statement of Ms. Flournoy can be found in the 
Appendix on page 60.]
    The Chairman. Thank you.
    Dr. Zakheim.

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

    Dr. Zakheim. Mr. Chairman, Ranking Member Smith, Mr. 
Langevin, and the committee, like my colleagues here, I have 
been in front of this committee several times and it is a real 
privilege to be here again and to testify yet again on defense 
reform.
    The last 2 years in particular this committee has literally 
led the charge on implementing--first legislating and then 
helping to, in effect, implement reforms that were sorely 
needed in the Department. But, as my colleagues have pointed 
out and everyone here recognizes, there is still a way to go.
    I want to focus on some of the topics that have already 
been mentioned. The list is very long.
    Let me begin first with civilian personnel. I have a 
slightly different take than some of my colleagues have on what 
to do about the fact that civilian personnel has grown. It is 
36 percent right now of--excuse me, of all personnel in DOD. 
Civilian personnel added 77,000 people over the last 15 years, 
an 11.5 percent jump. Military end strength, as we know, has 
gone down over that period by 8 percent.
    And civilian pay has gone up 31 percent. Most of that has 
gone to the General Schedule, the white-collar folks. Wage 
Board folks, the blue-collar folks, have barely gotten an 
increase at all, and I think that is worth noting.
    It is not at all clear that all these increases have 
actually provided DOD with more efficiencies. If it had, we 
wouldn't be talking about it today.
    And one of the serious issues involving efficiency is the 
degree to which civil servants offload too much work to 
contractors, and particularly to what are called 
euphemistically ``staff augmentees.'' We have got a problem 
with that because it creates a sort of unhealthy symbiosis 
where civilian workers essentially give contractors work that 
they probably could and should do themselves.
    And I had that when I was comptroller. I saw reports that 
were meant to go to the Congress that were poorly written. 
Turned out they weren't written by the civil servants; they 
were barely reviewed by the civil servants.
    They were written by contractors. And when I said this just 
wasn't the right thing to send up to the Hill the answer was, 
``Okay. We will send it back to the contractor.'' There is 
something fundamentally wrong with that.
    Another serious problem is the education of our civil 
servants. You can get a degree at the age of 25 and not take 
another course again for 40 years. That just doesn't work with 
Moore's law--particularly with the acquisition corps, but for 
human resource management, as well.
    I think my colleagues are absolutely right: We need to 
focus on human resource management. If we don't train people, 
how are they going to know how to manage?
    We really need to ensure that we--anybody who wants to get 
particularly into the Senior Executive Service should spend a 
year at a top-notch university either doing business school-
type work or going to a top technology school so that they 
really become educated consumers and educated managers. Without 
that you are going to find people flailing around, as they do 
today.
    It doesn't help. And the military system, whatever you 
think about the need to improve professional military 
education, at least they have it. And you cannot become a flag 
or a general officer without going to the National War College 
or one of the service war colleges or the equivalent.
    We need that for our civilians, as well. It is not fair to 
them.
    And last year's NDAA had some relationships established 
between the Defense Acquisition University and outside 
organizations, whether it is think tanks, universities, 
whatever. But the Defense Acquisition University is 
fundamentally a training institution, and if you go online and 
you look at the offerings you will see so many of them are 
distance learning. Well, distance learning has its points, but 
it is not really going to educate people in the way that face-
to-face, yearlong education will do.
    As long as the course offerings are primarily for learning 
how to do something for training rather than education, you are 
not going to get what you need out of the DAU. The DAU has its 
place, but it is not the be-all and end-all.
    I would also argue that because the civilian personnel 
levels are just so high, we need to look at something like the 
REDUCE [Rebalance for an Effective Defense Uniformed and 
Civilian Employees] Act. Unless you literally specify cuts--and 
it can--and obviously the Department will allocate those cuts, 
but unless you specify something along the lines of the REDUCE 
Act, you are never going to get the civilian force levels down.
    And if you want to spend more money on the military force 
levels, you want to spend more money on procurement and 
acquisition, you have got to do something with the size of the 
civilian workforce. There are no two ways around it.
    And as for dealing with the staff augmentees, I would 
recommend that nobody who leaves the Department as a civilian 
or a military person can go back to the Department as a 
contractor for 5 years.
    In other words, you can't flip your badge and come back on 
Monday doing the same work you did on Friday. It just doesn't 
work out. It adds to the overload in terms of numbers of 
civilians, and obviously if people have to stay out for 5 years 
they are going to find other jobs and you won't have this 
phenomenon of people literally doing the same job, just getting 
paid more and wearing a different badge.
    I would also like to briefly talk about the reorganization 
of OSD [Office of the Secretary of Defense]. I don't feel as 
strongly as my colleague, John Hamre, does about the split of 
the two--of the under secretary into two under secretaries, but 
one thing: We really need to make sure that their staffs don't 
grow so that, again, you are increasing headquarters instead of 
reducing them, as Michele would like to see and I think we all 
would like to see.
    If you don't limit what they can add to themselves--one 
idea that I have had for many years is have the principal 
deputy double as the assistant secretary in some--some 
assistant secretary simply so that you don't have duplication 
of staffs. You don't need to have a principal deputy who has a 
staff of his or her own in addition to the under secretary, in 
addition to an assistant--to the number of assistant 
secretaries.
    And, by the way, I would recommend the committee look again 
at how many assistant secretaries the Defense Department really 
needs. In my testimony I indicate some areas where some changes 
could be made there and reductions could be made.
    And finally, regarding the CMO, I totally agree with John. 
The CMO ought to be, in effect, the under secretary--not with 
that term, but, in effect, the under secretary for the Fourth 
Estate.
    Have them focus--the CMO focus on that area. We are talking 
about Fortune 500 companies that are managed by people who 
would not be CEOs [chief executive officers] of Fortune 500 
companies.
    So we need to get somebody good in there; we need to get 
somebody with business experience in there. And that CMO should 
focus on that.
    Right now the mandate is so broad that what is going to 
happen is there will be inefficient focus on any one area, plus 
lots and lots of turf wars. There is nobody who focuses only on 
the defense agencies and field activities.
    That is because the under secretaries who have them in 
their org charts simply are focused primarily on other things. 
When I was comptroller, I suspect when John was comptroller, 
yes we had DFAS, and yes we had DCAA [Defense Contract Audit 
Agency] under us, but that was not our primary task. Our 
primary task was to focus on the budget.
    So I would strongly recommend, as I think John does, that 
the CMO focus on that Fourth Estate.
    And finally, on acquisition reform, because I know my time 
is running out, I would simply say this: I know that there has 
been some skepticism about DIUx [Defense Innovation Unit 
Experimental] and about, to some extent, the Third Offset. 
Frankly, I think the Third Offset is necessary; it is--it only 
shouldn't be a replacement for force level increases, which to 
some extent was the implication that many people took away from 
when the Third Offset was first introduced.
    As for DIUx, it seems to me that they have overhauled their 
personnel, they are clearly focused on innovation, but if you 
want them to succeed you have got to do some other things. In 
particular, the Defense Department needs to default not to FAR 
[Federal Acquisition Regulation] part 15, which is the classic 
way of contracting, but either to FAR part 12 or some other 
system where, in effect, you are buying directly from the 
contractor, who doesn't have to be part of the defense base.
    If you do that you are going to totally overhaul the 
culture of the Department, which right now thinks profits is 
some kind of sin, which essentially wants to go through many 
hurdles and hoops before anything gets done, and that is where 
we get our delays, that is where we get our cost overruns, and 
that is where we get frustration on the part of your committee 
and Congress generally, and the consumers of defense, who are 
the taxpayers.
    Mr. Chairman, thank you very much for allowing me to repeat 
many of the things I have said before, but you are--the 
committee is doing a wonderful job, and just keep it up.
    Thank you.
    [The prepared statement of Dr. Zakheim can be found in the 
Appendix on page 74.]
    The Chairman. Sometimes we need to hear it more than once, 
so that is okay.
    I want to go back and examine some of the specifics y'all 
have talked about at the end if other members don't ask about 
them, but let me just start with a couple big-picture 
questions.
    Seems to me when it comes to defense reform there are two 
major justifications. One is efficiency, squeeze more money out 
so it can be used for other purpose; the other is agility, so 
you can keep up with changing threats, changing technology, 
adaptive enemies, and so forth.
    Do each of you agree that the efficiency part--if you--if 
everything were perfect and you could squeeze out all the 
inefficiency possible, do you believe that is enough money to 
rebuild the military, to repair the damage that CRs [continuing 
resolutions] and sequestration have created over the past 
number of years?
    Dr. Hamre. Do you mean the budget as--the slim budget that 
was proposed?
    The Chairman. No. What members ask me is they will see a 
headline and says, ``Oh, greater efficiencies could save this 
much money.'' And the question is, can you reform your way to 
health if you are just looking at the dollars?
    Dr. Hamre. Yes. My personal view is that you are going to 
need additional resources. You cannot find enough savings 
inside the Department to compensate for the readiness issues we 
have now, the force structure issues we have now. I think you 
are going to need more money, personally.
    Now, that isn't to say you shouldn't dig in on getting rid 
of the inefficiencies, but I think you are--we just need more 
money because the Department is stretched.
    The Chairman. Yes. That is what I am trying to understand.
    Ms. Flournoy. I would agree that you can't--defense reform 
alone will be--not be enough to generate the investment we need 
in future capabilities to deal with a more daunting security 
environment.
    By the same token, I don't think we can afford to simply 
put more money into the defense budget without defense reform, 
both from an efficiency perspective but also from the very 
important point you made about agility, that this is also about 
improving the organizational performance of the Department, not 
just reducing cost.
    The Chairman. Dr. Zakheim.
    Dr. Zakheim. I would agree, as well. I would use a business 
metaphor, if you will: If you cut your operating costs all the 
way down and you don't increase your revenues you are out of 
business.
    And in a sense, this is the same thing. I mean, you can 
push efficiencies only so far, but if you don't increase your 
top line you are going to be out of business.
    And agility, I think, is equally if not more important 
because the fact of the matter is we do rely primarily on our 
edge in high technology, and if we are not agile enough we are 
going to lose that edge because so much of that technology is 
no longer DARPA's [Defense Advanced Research Projects Agency's] 
province or DOD's province. It is out there. And so agility is 
absolutely critical.
    We need both. And I think the direction the committee has 
taken I think does allow the Department to achieve both if the 
Department is willing to cooperate.
    The Chairman. Well, and let me just pick up on that for my 
second question. On the agility side, I think you heard earlier 
the statement that we need to just give it a rest, let the 
reforms we have already instituted have a chance to get--
because they are--is a cost to churn, to change, and I think we 
ought to be, you know, cognizant of that.
    But I guess what I would--and, again, a big-picture sense 
from y'all is as you see the threats evolving, do you believe 
we should kind of back off and let what we have already done 
give a chance to set in, or do you think we need to continue to 
move, maybe even more aggressively, at the kinds of reforms 
that each of you have laid out? Just, again, this kind of 
bigger picture: Is the churn worth it, given what is happening 
in the world?
    Dr. Zakheim. Well, Mr. Chairman, I would say move as 
aggressively as you can, and the reason I say that is twofold.
    First, churn doesn't necessarily lead to bad things. 
Secondly, if you essentially call a timeout what you are going 
to do is allow the bureaucrats in the Department to figure out 
a way to get around everything you have done.
    That has happened in the past. I have seen it when I was in 
the Weinberger Defense Department; I saw it in the Rumsfeld 
Defense Department; I saw it when Mr. Rumsfeld tried to do 
things and the bureaucracy figured out how to get around him, 
much less you all.
    No. It is critical that you keep on pushing.
    The Chairman. Okay.
    Ms. Flournoy.
    Ms. Flournoy. I would agree with that. I do think that a 
lot of the change is focused in the acquisition area, and I 
think the Department probably needs some period of 
consolidation of actually, maybe with some of the tweaks that 
John Hamre described, but to have--needs some time to actually 
be able to implement and fully, you know, comply with what you 
have already asked them to do in the acquisition domain.
    Beyond that, I think it is--now is a time where you have an 
opportunity to move much more aggressively now in other areas, 
which are equally important to bringing both agility and 
efficiency.
    The Chairman. Dr. Hamre.
    Dr. Hamre. Mr. Chairman, I would argue that I think you 
should move actively, aggressively on reform because the 
American public is questioning the value we are getting out of 
what we put into the Defense Department. That was the real 
challenge of that study that was done by the Defense Business 
Board last year.
    It came at a time when people were saying, ``Do we need to 
give DOD more money or don't we need to give them more money?'' 
I happen to think we do, but I also think the American public 
is questioning whether they ought to.
    I think you have to push on reform in order to convince 
them that you are being a good steward of these resources.
    The Chairman. Okay. Thank you all. That is very helpful.
    Mr. Langevin.
    Mr. Langevin. Thank you, Mr. Chairman. Again, I want to 
thank our witnesses for your insightful testimony here today.
    So modernization approaches in our major programs have 
traditionally taken years to execute. For example, Increment 
3.1 on the F-22 began development in 2006 and the first upgrade 
wasn't delivered to the fleet until 2012. While this strategy 
has worked in the past, the commoditization of advanced 
computing power has rendered it unsustainable, especially when 
you look at Moore's law, I mean, squaring--technology is 
squaring every 18 months.
    So our adversaries are now accomplishing multiple upgrades 
during our weapon systems development and acquisition timeline. 
How do we transform the military-industrial policy complex to 
restore our advantage in the timeline it takes to field new 
technologies?
    Ms. Flournoy. I think it is one of the principal challenges 
we face. And, you know, I think one of the things--there are 
certain platforms that are going to take very long lead times 
to create, but I think we want to--one of the things we want to 
do is have more modularity in the designs of those platforms so 
that you can plug and play new information technologies, new 
electronic warfare systems, new, you know, modular components.
    Because it is those capabilities that are developing much 
more rapidly and those areas where we want to be able to change 
out capabilities on a platform that may have to last 20, 30 
years. But that is key.
    The other key part is being able to approach the 
acquisition of commercial technologies and their integration 
with a much more responsive, agile, quick-turn set of 
authorities. One of the things that, you know, this committee 
has done is pushed some of those other authorities, those new 
authorities to the Department.
    I think what is now lacking is the change of culture and 
behavior that Mr. Zakheim highlighted as needed in the 
acquisition workforce. We need to actually educate, train a 
cadre who really knows how to use those new authorities, who 
has more of an innovation mindset, who is most comfortable 
acquiring commercial technologies and bringing them in. And 
that is a very different skill set and mindset than what you 
need to manage a major traditional defense acquisition program 
over a 20-year timescale.
    Dr. Zakheim. And the only thing I would add to what Michele 
Flournoy just said is it is necessary if you are going to 
change the culture to have the bureaucracy default to buying 
commercial as opposed to default to the system that we now 
have. The Defense Business Board, which I am on, and the task 
force that I also was on, recommended, as I mentioned, focusing 
on the portion of the FAR part 12 that essentially deals with 
commercial off-the-shelf procurement as opposed to the classic 
system.
    You can do that. You can do other things. What really is 
important is ensuring that the default mechanism for buying the 
modularity that Michele talked about is commercial. As long as 
that is not the default mechanism, A, you are not going to 
change the culture; and B, you are going to have the same 
problems you just spoke about, Mr. Langevin.
    Dr. Hamre. May I just briefly add that I--you are right to 
highlight that when we build platforms we--gosh, it takes a 
long time to do it. But we also have examples where we have 
done things quickly and we have done them effectively. We put 
Hellfire on Predator. I mean, that was just done in months.
    I mean, we are able to do things very quickly and we should 
be studying why do we have places where we do it well, and then 
why do we get bogged down in other things? And a lot of it 
revolves around the commitment of the leadership and how 
closely the leadership is supervising the bureaucracy. You 
know, if a boss wants to pull something through the system, it 
works, you know?
    So I think we need to probably go back and take a look. 
This is why you did the right thing when you put the chairman 
of the chiefs of staff back in the chain of command. That is 
how we are going to get more--it is making people more 
accountable and giving them more flexibility and say, ``We are 
not satisfied with 12-year-long development programs.''
    You are right to highlight it. Let's look at the examples 
where we have been successful, too.
    Dr. Zakheim. If I could jump in a second time, you know, we 
have a rapid acquisition system now that was created to get 
around our acquisition system. So that is where you ought to 
start looking.
    And I think what you will find is that the rapid system 
simply eliminates a lot of the checkoffs and reviews and 
passing of paper that otherwise would take place. But that is 
where you should look. When a department creates a system to 
get around its own system, you ought to scratch your head and 
say, ``Why?''
    Mr. Langevin. Thank you for those answers, and still on the 
topic of acquiring advanced technologies more quickly and allow 
them to be adapted more quickly, so technological advantage and 
the innovation that drives it have been key foundations of 
strength for our armed services. Our technology sector, from 
major corporations to small businesses, are crucial to 
invigorating research, yet they have limited access to and 
participation in our defense industry.
    While the Defense Innovation Unit Experimental, or DIUx, is 
an excellent initiative to change this paradigm, the contracts 
awarded through this mechanism accounted for less than 0.01 of 
a percent of DOD's research and procurement budgets in fiscal 
year 2016. So how do we reform our acquisition cycle to promote 
participation and access for both giants of Silicon Valley and 
the entrepreneurial small businesses that fuel our American 
tech industry?
    Ms. Flournoy. And I think the primary task and opportunity 
of the new under secretary--I like to call it the under 
secretary of innovation, but it is the research, development, 
engineering under secretary--is to take that soda straw that is 
coming through places like DIUx or DARPA, and so forth, and to 
make it a superhighway, to really perfect the Department's 
leveraging of these other authorities to access commercial 
technologies, to have it be commonplace to be prototyping a 
number of systems, and then choose which ones you are going to 
bring all the way into full acquisition.
    To be putting--incentivizing real experimentation and 
concept development that goes along with how we are going to 
better--how we are going to allow these new technologies to 
actually transform how we fight.
    And again, that is going to take a different organizational 
culture, a different set of incentives and rewards, a different 
kind of training for the civilian and military workforces that 
actually have that task.
    So I think that is--you have done the organizational 
change, but if--to make that effective you really have to get 
into how are you going to create the incentives, the career 
paths, the training to make that new organization behave 
fundamentally differently than the traditional acquisition 
corps.
    Dr. Zakheim. I would add a couple of other things.
    First, DIUx essentially develops prototypes. Then it goes 
into the system. Once it goes into the system you have got all 
the problems that the system has and that we have talked about.
    So again, that is another reason for accelerating reform 
rather than sitting back and waiting, because otherwise you 
just shot DIUx in the foot. It won't be able to do anything.
    Another area related to that is you can MIL-SPEC [military 
standard] everything to death and if you start MIL-SPECing what 
DIUx has prototyped you are going to have a problem again. And 
I have spoken to the head of DIUx about it and he acknowledged 
that that was a serious issue because they don't MIL-SPEC. That 
is the whole idea of what DIUx is doing. So you have gotta take 
a close look at that.
    Third area is just keep the DIUx leadership there. If 
somebody comes in from industry and is there 18 months, that is 
not really very, very good. You are not going to get anything 
out of an innovation like DIUx unless you have got somebody 
there for 3 years who figures out how the system works, how to 
get around the roadblocks, and so on.
    You heard about the training from Michele. I won't repeat 
that again.
    But one other thing: DIUx now has leaders who are 
reservists--many of them. And our whole Reserve system doesn't 
really account enough for the people who are in the high-tech 
area in their civilian lives and then come in and they will be 
sent to clean the bilge or something. And I am not kidding.
    So DIUx provides a vehicle for bringing in Reserves who are 
doing really well in the high-tech area--for example, down in 
Austin. The guy who is down in Austin who is running that 
Austin office is a Reserve who reports directly to the CEO of 
Apple. That is what you want.
    Dr. Hamre. May I humbly offer a suggestion?
    The President has nominated Mr. Patrick Shanahan to be the 
next Deputy Secretary of Defense. Pat has a long and very 
storied career as a very effective program manager in one of 
our aerospace companies. You don't have a formal role with 
confirmation, but you should have him come up to talk to you, 
either in a formal hearing or in an informal hearing, and ask 
him--say, ``We are going to be measuring you by how well you 
accelerate the efficiency of this system, and I want you to 
come back to us in 3 months with each of the chiefs of staff of 
the military departments to say how are we going to do it.''
    This is about leadership, and I think you have a golden 
opportunity because we have got a new leader who has a lot of 
experience in managing in industry. I think it is a great 
opportunity for you to take advantage of that.
    Mr. Langevin. Very good. Great suggestions. I thank you all 
for your answers and your insights, and although I have other 
questions and I like this idea of not being on the clock, I am 
going to be respectful of other members' time.
    And I will yield back and perhaps submit these for the 
record. Thank you. I yield back.
    The Chairman. Mr. Wilson is recognized for 5 minutes.
    Mr. Wilson. Thank you, Mr. Chairman. Thank you each for 
being here today and your service to our country.
    Dr. Zakheim, in your own experience as Under Secretary of 
Defense, what was one defense reform that stands out as being 
particularly effective, and what lessons should be learned and 
taken from that reform to inform ongoing and future reform 
efforts?
    Dr. Zakheim. That is a tough question. Remember, I was 
there at the----
    Mr. Wilson. We need some good news. I would like to hear 
it.
    Dr. Zakheim. I was there at the beginning of the 2000s.
    One reform that clearly did make a difference, I thought, 
was the ability of DARPA essentially to go directly to the 
comptroller and get money. And I will give you a concrete 
example of that.
    Ron Sega at the time was director of DARPA. We had gone 
into Afghanistan; we knew a lot of the bad guys were hiding in 
caves.
    He comes to me and he says--this is November of 2001--he 
comes to me and he says, ``If you give me X amount of millions 
of dollars I have got this weapon called a thermobaric weapon 
that will smoke all these people out of caves, and I will have 
it in the field for you by March.''
    Gave him the money. That was that. It was in the field by 
March and it smoked a lot of people out.
    So there are ways, and I think my colleagues have pointed 
it out. There are ways to cut through this red tape. That was 
one example.
    Mr. Wilson. Well, as a grateful dad of a son who served as 
an engineer in Afghanistan, thank you for what you did.
    Ms. Flournoy, if you recommend a shift to new issues, what 
criteria should the committee use to determine issues of focus 
for future defense reform efforts?
    Ms. Flournoy. I guess I would encourage you to sort of plot 
them on two axes: One is sort of bang for the buck, biggest 
return on the effort; and second would be political--the 
heaviness of the political lift, and to focus first and 
foremost on the things that are most impactful in terms of both 
improving that organizational performance and agility on one 
hand, and potentially reducing cost on the other, and that are 
also in the politically feasible square. That is where I would 
start.
    You know, I think one of the things--the dynamics that has 
taken hold sometimes is, you know, the Department of Defense 
will propose and Congress will say, ``Well, we don't really 
like that agenda,'' and we go back and forth trading.
    I would love to see the executive branch and the Congress 
sit down and say, ``Let's create a target for how much money we 
want to be able to move from--you know, to save and move into 
reinvestment,'' and let you all really determine or have the 
lead in determining of all the target-rich environment of all 
the possible reforms, what are the ones that you think make 
sense and that you think politically we can get a consensus on 
to move forward on.
    And, I mean, because the truth is there are many more 
opportunities than we can possibly handle in 1 year, and I 
think the key is keeping momentum going. And so, you know, that 
is--I would say bang for the buck and political feasibility.
    Mr. Wilson. And very constructive. Thank you very much.
    And, Dr. Hamre, under the leadership of Chairman Mac 
Thornberry of this committee our reform efforts have largely 
been focused in the past few years successfully on acquisition, 
military personnel, and structural reforms at the Department. 
In your opinion, should the committee continue to--its focus on 
primary reform efforts in these areas in order to capitalize on 
progress that has been made to date, or shift to new issues? If 
you recommend shifting to new issues, what issues do you 
recommend?
    Dr. Hamre. Sir, I do think--first of all, you are going to 
have to monitor the reforms--efforts that you have put in place 
because the reforms of last year are unsettled. And you did the 
right thing by giving a year implementation period, but that 
means you are going to have to be on top of it for this year to 
make sure that they follow through.
    I do think you should look at additional things. And I have 
my own set of pet-rock issues.
    For example--and I know this is something your staff is 
working at--the question of materiality for audit standards in 
the Department. There is no materiality standard for the 
auditors.
    So they chase 10 cents; they chase parking tickets; they 
chase, you know, who had the blue cheese dressing. You know, I 
mean, it is crazy without having a materiality standard. We are 
wasting a lot of money and we are bottling up the defense 
industry because we can't close out our--close our contracts.
    I mean, these are very mechanical, very arcane, but stuff 
like that is really important. It drives a lot.
    I personally think we need to bring back A-76, where we 
conducted objective competitions between public and private 
sector over contracting out activities. Half of the time the 
government wins. But the government redesigned the way it did 
the business and it saved money every time.
    I think there are a lot of things like that that we could 
be doing that--and I hope you tackle these. These are not the 
big, glamorous, exciting things, but they drive a lot of money 
in this department, and I would be grateful. I am happy to come 
up at any time and talk with you about some of them.
    There is no purple property book for the Department of 
Defense. Every bit of property is owned by one of the military 
services.
    There is no central management. We are the biggest renter 
of real estate for the Federal Government, outside of the 
General Services Administration, but it is all decentralized. 
We get no value for scale in our system.
    There are so many things we could do like this that would--
but we have to change the way we do our business.
    Mr. Wilson. Well, supporting an audit, thank you for what 
you are suggesting. Thank you.
    The Chairman. Mr. Suozzi.
    Mr. Suozzi. Thank you, Mr. Chairman.
    I am new to this, but I am a former mayor and a county 
executive of a large county with a $2.8 billion budget, and it 
was a 50-year-old government that kind of--just kind of grew 
over time. There was no central listing of the properties that 
were owned; there were multiple different IT [information 
technology] technologies in all the different departments.
    So when I hear you talk about 66 different--what did you 
say--HR [human resource] personnel systems, and when you talk 
about no, you know, no centralization of management--and I just 
visited Guantanamo yesterday and, you know, it is a sprawling 
facility with a new building here and another one over there, 
and it is very typical to what I saw in my experience.
    Now, I always felt it was, you know, the executive branch 
who really is the one that has to get their hands around this. 
They are the ones who have to drive the ball here and, you 
know, the legislative body can sometimes be more of a hindrance 
by trying to pass an additional law like, you know, no 
standards for the audits, for example. So, you know, I don't 
really care who had the blue cheese dressing; I want to know 
about the big things that are going on.
    So I have a couple different questions.
    Number one is, you suggested before, Ms. Flournoy, that 
if--we should target a number as to how much we would like to 
try and target in savings that should be used for reinvestment. 
So the first question is, what do you think that number should 
be? You know, just to--you know, I am not going to hold you to 
it, but it is just an order of magnitude type of number that we 
should be targeting for savings and then reinvestment.
    Second question is when I look at the overall budget of the 
Department of Defense, personnel is $138 billion; operation and 
maintenance is $250 billion; and procurement is $112 billion. 
So operation and maintenance is bigger than either personnel or 
procurement, and that is--and I don't hear anybody talking 
about operation and maintenance that much, so it seems like 
there is a lot of--that could be a target-rich environment. And 
what do you think about that basic observation, just looking at 
the numbers?
    And that is where I will--I will leave it there for now.
    So I am just going to ask all of you, what is your target 
number that we should be looking for for--set a goal for, 
``This is what we want to get as savings to reinvest back into 
the military.''
    And second is: What about operation and maintenance?
    Dr. Zakheim. Well, the Defense Business Board, as you may 
know, came up with a study--it has been referenced before--a 
couple years ago which pointed out a host of different 
efficiencies and argued that over 5 years you could save $125 
billion. That is a lot of----
    Mr. Suozzi. That would be $25 billion a year.
    Dr. Zakheim. $25 billion a year. I personally think that 
that number is on the high side, and they actually had high, 
low, and middle. But it just does seem to me that somewhere 
between $15 billion and $20 billion is not out of the question. 
That is number one.
    On the----
    Mr. Suozzi. Just $25 billion is, you know, less than 5 
percent of the budget.
    Dr. Zakheim. That is correct.
    On the operations and maintenance [O&M], you are absolutely 
right. One of the issues that has been ongoing for years is 
real cost growth in operations and support. And part of the 
problem for--with that is that when you buy a new system the 
focus is always on the upfront costs and not on how much it is 
going to cost you out there. In fact, very often the people who 
produce the system say, ``Well, you are going to save a ton of 
money in the future,'' but if you start discounting you 
discover you are not saving all that much. In fact, you are 
going to wind up spending a lot more than you thought.
    And so you need to have somebody very senior who is 
responsible for the O&M side when they get into discussions 
about procurement. I remember at the--at meetings of the 
acquisition board the person who worried about sustainment and 
operations was not as senior as just about everybody else 
around the table. Well, you know what happens when that is the 
case.
    I think high-level focus on O&M will get to the goal that 
you are laying out.
    Ms. Flournoy. I don't have a magic number in mind, but I do 
believe that the sort of order of magnitude that the Defense 
Business Board study talked about is probably correct over 
time. The challenge is you are going to require--it is going to 
require some upfront investment so your initial savings will be 
smaller and it will grow over time.
    For example, base realignment and closure. There is 
actually--it costs money up front to close bases and then you 
get the savings over time. But it is documented that in most 
cases you do get the savings.
    Similarly, for things like IT transformation and automation 
you are going to have--DOD is going to have to invest to move 
to the cloud or to a secure cloud and to start treating 
software as a service rather than some--you know, building 
proprietary systems. That is going to require upfront 
investment, but over time potential for dramatic savings.
    So I think you want to think about it as ramping up over 
time.
    The other key thing is the incentives, and this I watched 
Secretary Gates struggle with this on the efficiencies mission 
effort the--that he undertook. The first time he went out and 
sat down with all the services and the components he said, 
``Okay, we are going to aim for''--you know, 10--I can't 
remember what the number was--``X billion dollars of 
efficiencies. Next meeting come back with your suggestions.''
    Everybody came back the next meeting--really hard to find 
anything. Just, you know, really couldn't do it.
    So he said, ``Well, how about if I told you you could keep 
half of what you find?''
    Oh. So next time people came back--unbelievable ideas. 
Wonderful, creative ideas because each of the components knew 
that they could now keep half those savings and reinvest in 
their priority areas.
    So I think the incentive structure is very--as important as 
setting the target level.
    Mr. Suozzi. Thank you.
    Dr. Hamre. Just to build on what Secretary Flournoy has 
said, it is about incentives. And, you know, both Dr. Zakheim 
and I were comptrollers. You know, the patron saint of all 
comptrollers is Judas Iscariot, you know?
    So nobody is ever going to come and give you money. And so 
it sets up this very bad dynamic, you know, within the 
Department.
    But there is one very important dimension: If any dollar 
that a military department--any one of the service chiefs--
saves in the out-years of the FYDP, they get 100 percent of 
that. It is only when it comes into the budget year when we arm 
wrestle with them and take some from them and give them a 
little bit back and all that.
    Everything they save in the FYDP, the out-years, is 
something they get to pocket and they can reinvest inside their 
own service.
    The most important review that the Department does is the 
program review, which is run by CAPE [Cost Assessment and 
Program Evaluation]. We have kind of let that fall apart, 
honestly. If we were to get back to the--where the program 
review becomes more prominent in how we manage the Department 
and the service chiefs know if they make hard choices now, in 2 
and 3 years they get 100 percent of that money.
    Mr. Suozzi. Yes.
    Dr. Hamre. So we can get the incentives right, but we don't 
have it right now.
    Mr. Suozzi. Okay. Thank you very much. Thank you, Mr. 
Chairman. I am very interested in this topic if there is 
anything that we can do further. Thank you.
    The Chairman. Great.
    Mrs. Hartzler.
    Mrs. Hartzler. Thank you. Thank you, Mr. Chairman. Great 
testimony, great suggestions, and appreciate my colleague's 
comments there.
    I wanted to hone in on the--Dr. Zakheim, the Defense 
Business Board at--the report that you put out that you just 
referenced. And as you know, that kind of caused a big stir 
when that came out, $125 billion, and that is $25 billion a 
year.
    You know, current and former Department leaders and others 
have expressed concerns that some of the savings came from 
private sector initiatives that may not be achievable in the 
public sector. So in your opinion, what are the differences 
between accomplishing successful reform in the public sector 
versus the private sector?
    Dr. Zakheim. Well, let me start with unions. We have in the 
Defense Department unions that bitterly oppose any civilian 
personnel reform, where you could save a bunch of money. You 
could save probably initially anywhere between $5 billion and 
$8 billion a year just through human resource management.
    Well, Mr. Rumsfeld tried it and it blew up in his face, 
thanks to the unions.
    Now, the law, the Civil Service Reform Act of 1979, 
actually has a provision where the President could exempt 
Defense Department employees from being unionized. Already CIA 
[Central Intelligence Agency] employees, military employees, 
others are, indeed, exempt.
    Now, once you exempt them then you can start pursuing those 
sorts of reforms, and that is one key area. In fact, that is 
probably the richest area for immediate reform because that is 
money that you spend immediately each year.
    There obviously are differences beyond that between the 
commercial sector and the government sector. But nevertheless, 
if you actually look at the report it does scale: $125 billion 
is kind of mid-level; there is less than that and more than 
that, as well, as options.
    But the key is, what kind of efficiency--what percent 
efficiencies could you realize? And if you took half the 
percent of what goes on in the commercial sector, you would 
still save $60 billion over 5 years.
    So it does seem to me that the argument, ``Well, you know, 
we are different,'' and you throw your hands up in the air--it 
has got some validity, but not total validity.
    Mrs. Hartzler. Yes. Very good.
    Ms. Flournoy. One thought--data access and transparency. 
There is no entity in the world that has more data than the 
Department of Defense, but we keep it locked up in little 
stovepipes that individual components own.
    And so if you are looking at real property, for example, 
right now the Department is trying to do a cost accounting 
exercise where they just are trying to understand how are we 
actually spending money on different properties. And if you do 
that--if you unlock that data and you apply analytics across 
it, the problem children pop out and you see, well, in one case 
you are paying five times more for electricity in the same 
region than another facility down the road. Why is that? Or, 
you know, maintenance, or whatever the issue is.
    So I think there is a huge--there is--it is very powerful 
if we could figure out a way to unlock and access and analyze 
the data that the Department already has in stovepipes to get 
at some of these efficiencies.
    Mrs. Hartzler. That is very good. Dr. Hamre, do you have 
anything you wanted to add to that?
    Dr. Hamre. Well, if I may, just, you know, we really have 
two different kinds of budgets in the Department of Defense. We 
have got budgets we manage from the top down. That is 
procurement, MILCON [military construction], military 
personnel. And then there are budgets that are bottom up. That 
is O&M, and we do not manage that in any detail.
    The way we handle it is we deal out--we give cash at 
various levels to people. We give them a little bit less than 
they ask for and we see how loud they scream.
    That is really how we manage O&M. I mean, we do not manage 
O&M in an effective way. And everybody knows they are 
sandbagging dollars at lower levels because they know they are 
going to get cut.
    So we really do have to find a different way we get at how 
we analyze and understand the O&M budget. And the O&M budget 
now is doing a lot of procurement. It is not just operations 
anymore. We are buying a lot of procurement through the O&M 
budget.
    So you are on to something very big here, and I--but I--you 
are going to have to drill down to say, ``If we were to change 
the way we budget and manage the execution of O&M, how would we 
do that?''
    Mrs. Hartzler. Very good. Thank you very much. I yield 
back.
    The Chairman. Mrs. Davis.
    Mrs. Davis. Thank you, Mr. Chairman. And I really 
appreciate your having this hearing. It tells me how serious 
you are about this topic, and I know it has been going on for 
some time.
    One of the questions that really is looming out there right 
now--and you have talked so much about the people who are in 
important places, leadership, but I am wondering right now, we 
have a Federal hiring freeze. We are also having a great deal 
of difficulty getting people into appointed positions, 
nominations, and even the confirmations.
    How is that affecting all of this?
    Ms. Flournoy. I think it is creating a very challenging 
environment. I think the hiring freeze in particular is sort 
of, you know, using a meat ax when you need a scalpel, and many 
administrations across, you know, political--of all different 
stripes have used this.
    It is a very blunt instrument because what it does is it 
cuts off your talent pipeline and so it prohibits you from 
hiring the best talent coming in, the next generation, even in 
the most high-priority areas. And so you basically create a 
personnel bathtub that will follow you through over time, you 
know, as the--as your talent pool progresses.
    I was on the CIA advisory board and we watched this bathtub 
that was created--I think it was in the Carter years--follow 
all the way through the workforce, where still in very senior 
grades today you have a paucity of the right kind of expertise 
and personnel because of that hiring freeze decades ago.
    And so I think it is--there are better ways to manage that 
personnel infrastructure.
    The other thing is as you are right-sizing, reshaping the 
workforce and making cuts, it is very important to also be 
investing in the workforce and the talent that you want to keep 
so that you are continuing professional development, you are 
continuing to groom and promote the high-performers, and so 
forth, because if you don't do that you will actually break the 
workforce in the process of reshaping it.
    Which is why that human capital strategy piece up front is 
so important to pull all of the different pieces together.
    Mrs. Davis. So I am wondering, then, and certainly for this 
committee, you have had a lot of suggestions about how to try 
and get at some of these issues. Some of them are cultural; 
others are just--I think people just haven't tackled those 
issues.
    What is the best way of going about that? I know on 
personnel over the last few years some changes were made. There 
were commissions that looked at some of those issues. Sometimes 
it feels as if there is going to--that only creates a delay in 
getting things done.
    But if we had, you know, this year, looking at what is it 
specifically that could be done to get at that--you mentioned 
one of the positions that I think hasn't--someone who hasn't 
even taken that position yet trying to get to--what would you 
do on a lot of these? Do we need a----
    Ms. Flournoy. I think it starts----
    Mrs. Davis [continuing]. A task force here or----
    Ms. Flournoy. Well, I think it--I think the--what this 
committee could do is ask the Secretary of Defense to create a 
human capital strategy for the civilian workforce of the 
Department and then he would task each of his line managers to 
do component strategies.
    I harp on this because, you know, if I were going to ask 
that--answer that previous question about what was the most 
successful, powerful reform you witnessed when you were in 
government, it was implementing a human capital strategy in my 
own organization as we were having to downsize, because I knew 
that if you didn't complement the downsizing with investment 
and keeping the best talent and incentivizing the participation 
and the morale and, you know, people buying into--even though 
it was going to be a smaller organization, a still vigorous 
organization.
    To me that is the key. You have got to have a strategy of 
where you are trying to go that isn't just about cuts, but also 
reinvesting in what you are going to keep.
    And so that is where I would start, and I would encourage 
the Secretary to report to you on that and to hold all of his 
direct reports accountable for helping him develop that 
Department-wide.
    Mrs. Davis. Dr. Zakheim.
    Dr. Zakheim. Yes. I would focus on two things.
    First, we have all talked about training and education, and 
I do believe that no one should enter the Senior Executive 
Service and be a top manager without getting the kind of 
education the same way the military does: a year where you are 
really learning about either technology or human resource 
management.
    The other one is if you are going to formulate any kind of 
requirement for a human resource management plan, like Michele 
just talked about, be careful not to create the kind of 
loopholes that DOD always blows right through. And I will give 
you an example. The 2013 NDAA called for an efficiencies plan, 
but it allowed DOD to identify exemptions of--from the total 
workforce. Out of 776,000 people 538,000 were exempted.
    If that is going to be the situation, you are not going to 
get anywhere.
    So I would strongly urge, if you follow Michele's advice, 
make it as tight as possible.
    Mrs. Davis. Thank you. Thank you, Mr. Chairman.
    The Chairman. Mr. Byrne.
    Mr. Byrne. Thank you, Mr. Chairman.
    Ms. Flournoy, you brought up a topic that has been sort of 
a hot topic around here and some of us have been skeptics about 
it. I am going to go back to it with you. That is BRAC.
    We have had discussions about BRAC ever since I have been 
on the committee 3\1/2\ years now, and some of us have tried to 
look into past BRACs to determine if those BRACs actually 
resulted in savings--real, substantial savings. And we couldn't 
find any evidence that, in fact, there were those sorts of 
demonstrable savings that would make the BRAC effort worth it.
    So I would like for you to disabuse me of my skepticism. 
Tell me where I am wrong and other members of the committee are 
wrong.
    Will BRAC--based upon past experience, will it really bring 
savings to us?
    Ms. Flournoy. I am not an expert on this topic, but I 
have--I believe the GAO [Government Accountability Office] has 
done a number of reports that--and the way--my understanding of 
their conclusions was that the early rounds of BRAC actually 
did result in recurring savings over time in the single-digit 
billions. And I could get the exact figure for you but, you 
know, I am sure your staff can get to that report or I can 
provide it.
    The BRAC round that sort of poisoned the well was the last 
one because it really was a realignment and consolidation BRAC; 
it really wasn't a closure BRAC, by and large. And so it really 
didn't save a lot of money, and the way in which the process 
worked I think left a lot of--a sour taste in the mouths of 
many people who participated.
    So I think there are certainly lessons to be learned in how 
to go about this to ensure that it is worth the pain associated 
with doing it, but I do think the early rounds of BRAC 
demonstrate that real savings can be had over time. And given 
the extent of the overhang--when you have got service chiefs 
saying, ``I have 20 to 25 percent more infrastructure than I 
need and it is taking money away from readiness and investment 
in future capability for the people we are sending into harm's 
way,'' I think we have to wrestle with this.
    Mr. Byrne. Would either one of you gentlemen want to 
respond to that?
    Dr. Hamre. If I may, sir, the secret is that BRAC was the 
biggest MILCON program in history. We built stuff all over in 
the gaining bases and gave them modern new facilities. So you 
really have to look at this--at BRAC--as having made possible 
the real plant modernization for major elements of the 
departments.
    I was just down in Huntsville last week. My gosh, the 
fabulous facilities down in Huntsville--it was all made 
possible by BRAC.
    So the reason that you don't see big savings is because, 
frankly, we spent it along the way to modernize. We would have 
had to have done something with modernization anyway.
    I would look at this in a slightly different way: How do we 
find a way to internally finance the modernization of our 
forces--especially real property? I think we should look at 
BRAC in a slightly different way than just, ``Are we going to 
rack up big savings that we can show to the American 
taxpayer?''
    Mr. Byrne. Well, but that is the way it has typically been 
sold to us--you know, to save money. And when we look----
    Dr. Hamre. Yes, sir. I understand.
    Mr. Byrne. And so I am not saying that it is not 
appropriate to look at what you are saying we should look at, 
but the way we are being approached with it is, ``Hey, we need 
to save this money.'' We just are skeptics about that part of 
it.
    Maybe it is something worth doing beyond the fact that it 
saves money. Maybe it achieves some other things for us. But it 
seems to me we haven't had a good enough case made by the 
services that a BRAC would actually save money.
    I mean, do you all have--Dr. Zakheim, did you have 
something you want to add to that?
    Dr. Zakheim. Well, I tend to agree with John Hamre on this. 
If you look at BRAC the way we have been talking about other 
efficiencies, where the idea is--you know, there are two ways 
to benefit from efficiencies.
    One is to save the money and give it back to OMB [Office of 
Management and Budget]. I wouldn't want to do that. I tried to 
avoid it when I was comptroller.
    The other way is to take the money, I think as Michele 
pointed out, and said, ``Yes, we are going to put it back into 
service priorities.''
    If you approach BRAC that way--we are going to take the 
money and put it back into service priorities--you are in a 
completely different place. But I totally agree with you that 
if the case is made on the basis of savings, the case is weak.
    Ms. Flournoy. I think that is why you have the service 
chiefs pushing for this so strongly, because they want that 
money to reinvest elsewhere, whether it is in readiness or, 
even more so, in future capabilities that they know they are 
going to need to deal with more challenging adversaries.
    Mr. Byrne. Well, I appreciate that.
    Mr. Chairman, I would just say I would hope that if we 
could get that information from the service chiefs, what is it 
that you would do with this money that you think you are going 
to save, and how is it you think that that is going to make 
your operation more efficient and more effective? That would be 
helpful to me to be able to take a closer look at the BRACs and 
see if they really make sense.
    And I yield back.
    The Chairman. Thank the gentleman.
    I would just mention, we asked the services a couple years 
ago to give us some data to support the idea that they have 20 
percent excess infrastructure. What we got back basically was 
the 2004 estimate and nothing really updated since then.
    So I think the attitude a lot of us have is we want to work 
with you to save money, but we are going to have to have 
something more than something that goes back more than a decade 
before the last round of BRAC upon which to base a decision.
    I appreciate the gentleman raising the issue.
    Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman.
    My question pertains to changes in acquisition.
    I know that, Dr. Hamre, you identified some specific things 
that perhaps we should consider undoing from previous years.
    But I also know that, Ms. Flournoy, in your submitted 
testimony--and I missed some of your responses to questions as 
I had to step out; I apologize--you advocate for a pause, 
perhaps a yearlong pause in further acquisition reform to allow 
the Department of Defense to realize and measure the impact of 
changes made in the last few NDAAs. I wanted you to elaborate 
on that.
    And let me throw out all my questions so this way each of 
you can respond, perhaps.
    Dr. Zakheim, you had mentioned the workforce training for 
acquisition. I know in October of 2002 the Army stood up the 
Acquisition Corps to identify, recruit, retain, develop that 
civilian and military workforce. Is that working? Is it a good 
model? Should it go service-wide, Department-wide?
    Thank you.
    Ms. Flournoy. Let me clarify. I don't mean a full stop 
pause. What I was trying to say is last year's authorization 
bill gave the Secretary and the Department a lot of guidance on 
how to change the acquisition system, and particular the--how 
the Department--the organizational structure: you know, 
dividing the under secretary into two, creating new authority 
staff procedures, et cetera.
    Just having lived through many organizational changes in 
the Department, I think that I would say that the focus, as Dr. 
Hamre said, this year should be on really working very, very 
closely with the Department to make sure those changes are 
perhaps tweaked and refined a little bit as needed, but also 
fully implemented as intended before you sort of take your eye 
off that ball and go on to the next round, particularly of any 
further organizational changes.
    So it is not really a pause, but I think you have put a lot 
on the plate in terms of acquisition reform, and I think it 
is--I would say it is a good time to switch to some other areas 
while really monitoring closely the implementation of what you 
have already asked the Department to do in that regard.
    Dr. Zakheim. Well, I differ somewhat with my colleague and 
friend, Michele Flournoy. I personally believe that you have 
got to go full-bore, because if you give the bureaucracy time 
to figure out what you have asked for, they will also figure 
out a way to get around what you asked for. Happens over and 
over again. You have got to keep pushing, in my view.
    On your question about training, remember when the Army 
brought this in they had had a string of disasters--of 
acquisition disasters. They have done better, although find me 
a good new light helicopter. They are still working on that.
    But again, the focus was on training, and there has to be 
training. But there also needs to be a focus on education. You 
don't keep up with Moore's law through a training course at DAU 
[Defense Acquisition University]. You just don't.
    A year at MIT [Massachusetts Institute of Technology] might 
do it, though. And so you need both.
    And it should be, obviously, defense-wide because even if a 
service has a pretty efficient way of getting its systems 
through its own process. Look at Stackley at the Navy, who is 
really a terrific assistant secretary and has worked, I think, 
for both Democrats and Republicans. They don't want to let him 
go.
    But what happens when whatever has passed through him now 
hits OSD? You run into a roadblock again.
    So any reform that you think about implementing needs to be 
DOD-wide, in my view.
    Mr. Brown. Just a follow-up: And Maryland has gained a lot 
in BRAC 2005 on a per capita basis, big plus-ups there. I am 
hearing sort of conflicting views from the services that I 
speak with, different service personnel, leadership, as to 
Navy, Army, and Air Force, who is in for BRAC, who is not, and 
what is the--can you just characterize, perhaps, it by service, 
where they are?
    Ms. Flournoy. I do not have the fidelity to give you an 
accurate answer. I am sorry.
    The Chairman. Mr. Wittman.
    Mr. Wittman. Thank you, Mr. Chair. I would like to thank 
our witnesses for joining us today.
    Ms. Flournoy, I would like to begin with this: You know, we 
hear today about all the strategic challenges we have--our 
adversaries, whether it is terrorism and the groups associated 
with that, China, Russia, North Korea, Iran. And since World 
War II every administration has gone through the process of 
acquisition reform.
    But I argue today for the United States, with where we are, 
that our adversary, our challenge that is as strategically 
important as the other adversaries we talk about all the time, 
are time and resources, of which we have excess of neither.
    Give me your perspective on how do we get an acquisition 
process that treats the adversaries of time and resources at 
the same level as it treats our adversaries of extremist 
groups, of Russia, of China, or Iran, and North Korea.
    Ms. Flournoy. It is a great question, and I think is the--
what should be the driver behind really building out not this--
not just this new under secretary but a whole end-to-end system 
of how you go from--you know, how you really create a pipeline 
for rapid acquisition and rapid access to commercial 
technologies and integration of those technologies.
    Because I share your view--and I think this is a common 
assumption--that, you know, what we do in the next decade will 
determine whether we keep our military technological edge. It 
is under challenge in many domains: cyber, space, maritime, 
electronic--I mean, you can go down a list. If we stand still 
and rest on our laurels we will not have the edge in 10 years' 
time.
    In many of these areas it is not going to be the new 
acquisition platform bill that is going to yield fruit in 20 
years; it is going to be how rapidly can we upgrade and modify 
and improve what we have?
    And so the efforts of DIUx; the efforts of the Strategic 
Capabilities Office that is currently tucked--you know, that is 
housed in DARPA but an independent organization; the efforts of 
DARPA--these are--and how quickly we can prototype and get 
those into the field, that is what is going to determine 
whether we can prevail in the future.
    So I think you--we can't have a great enough sense of 
urgency here. And I think building out the bypass system is the 
most immediate goal, and then I would love to keep reforming 
the main system.
    But the urgency is building out the bypass and making it a 
superhighway instead of a one-lane dirt road.
    Mr. Wittman. Dr. Zakheim, let me ask you, in addition to 
this question, let me ask you to expand, because where I see 
the United States today in relation to our adversaries is this: 
When our adversaries look to start a new system, whether it is 
a combat system, whether it is a new class of ships or 
aircraft, they start with a blank piece of paper and they go 
through and they put their ideas on there and they go, ``Okay, 
we are going to do this; we are going to do that,'' and they 
problem-solve and get to decision making quickly through that 
realm.
    When we start here in the United States we have a sheet of 
paper that is filled with ``noes.'' No, you can't do this. No, 
you can't do that. No, you can't do this. So we look for 
portholes through that whole sheet of paper with noes.
    How do we pull out our eraser and take those noes off the 
page so we can start with the blank sheet of paper, which is 
where our adversaries start? And they add to that blank sheet 
of paper by stealing some things, too, so they can bypass us 
even more quickly.
    Give me your perspective on how we get there.
    Dr. Zakheim. Well, again, I think the key is to open the 
door as wide as possible to commercial acquisition. If you buy 
into the notion that the big weapon systems are essentially 
platforms for things you put in them, then the question 
becomes, ``How do I get the things that I want to put in them 
as quickly as possible and as advanced as possible?''
    Look, if you go out to Silicon Valley, they are ahead of 
time. You go to the Defense Department, we are behind time.
    And so that is the key. How wide can you force that door 
open? And unless there is legislation to force it open, it 
ain't going to open because the culture of the Department is 
anti-profit, anti-commercialization, lots and lots of inboxes 
and outboxes, and you know all the rest.
    By the way, I heard something really interesting, which 
shows even the bad guys steal from each other. Russians came to 
China and discovered that the Chinese had stolen their plans 
for the latest airplane and they discovered it was exactly the 
same. So if they are stealing from each other you can imagine 
how much they are stealing from us.
    We have to focus on that, as well. And we are doing a lot 
in that regard, but unless we go after the things that 
everybody else wants to steal, then we are not going to make 
that 10-year gap that Michele talked about.
    Mr. Wittman. Thank you, Mr. Chairman. I yield back.
    Dr. Hamre. Would you permit me to--you didn't ask me the 
question, but may I just offer something?
    Mr. Wittman. Please. Please, yes.
    Dr. Hamre. And, you know, I go back to when I was nominated 
to be the comptroller, Senator John Glenn asked me to come up, 
sit in on a hearing he was holding in Government Affairs 
Committee about how bad the finance and accounting system was 
in the Department of Defense. That had a searing impact on me, 
and I probably spent 20 percent of my time when I was the 
comptroller trying to go after that problem.
    I would suggest--again, I mentioned--you were out at--
because you had another obligation, but I would recommend you 
bring in the new Deputy Secretary of Defense--he is an 
acquisition professional; he has been working inside industry--
and you tell him you want him to give you a plan in 6 months on 
how he is going to streamline the system. It isn't going to 
give you all the answers, but I promise you he is going to 
spend a third of his time working on that problem, and it is 
about leadership. That is what the real key is.
    I apologize for interrupting.
    Mr. Wittman. No problem. Thank you, Mr. Chairman. I yield 
back.
    The Chairman. That is great.
    Ms. Hanabusa.
    Ms. Hanabusa. Thank you, Mr. Chairman. It is nice to see 
Ms. Flournoy again.
    I have a question, and I am following up with Congressman 
Wittman's ideas. I am a fan of DARPA. I think DARPA is amazing.
    It has been explained to me once like, he said, ``Imagine 
about 100 or so geniuses just doing whatever they do and just 
one like a travel agent, making sure that they are staying in 
their right places.'' And as we all know, when Prime Minister 
Abe was looking at trying to reform the Japanese military the 
one thing he wanted that we had was like a DARPA because it 
just worked so well.
    Having said that, however--and this is in line with what 
Michele Flournoy was saying, as well as you, Dr. Zakheim--it is 
this idea of the reality is we can have this thing about silos 
and what we need to do, but the reality is we are here every 2 
years, you know? The President is there every 4. It takes him a 
while to maybe pick whoever is going to be in the respective 
positions. And therefore the concepts of what we should do to 
modify how we do things can come and go very quickly.
    So how do you anticipate--like if--it seems to me like 
getting rid of the silos is a great idea, something that should 
have been done a long time ago but hasn't. But then the 
question becomes, okay, it seems like some other kind of 
bureaucracy is going to have to take over to do away with the 
silos and, like Ms. Flournoy was saying with BRAC, there is 
going to be an expense that may make it seem inefficient before 
you have the benefit.
    So as you all sit there, tell me, given the political 
reality of how Congress and how administration operates, how do 
we--how are we going to be able to accomplish this if you have 
a totally changed philosophy in 2 years or 4 years? And what I 
really want to make sure of is that we don't do things to 
entities like DARPA, that works.
    And those are my concerns. I agree, we need to do 
something. But how do you do it in the political reality of 
which we deal with?
    Dr. Zakheim. Let me take a stab at that.
    I am a Republican. My two colleagues are Democrats. We are 
pretty much in agreement on a lot of this, and this is a very 
bipartisan committee.
    The point is when it comes to efficiencies in defense 
reform it is not a political issue in the sense that many other 
things are. So that is already an advantage in your favor.
    The second thing is, this is one of the reasons why I would 
argue push for reforms as quickly as you can precisely because 
it is a 2-year turnover. And also, once the legislation is 
there the Department always adapts if you don't give them the 
flexibility to wiggle out of it. So that is the second thing.
    The third thing is Congress can--and I think John Hamre 
alluded to this several times--Congress can call the leadership 
of the Department in and say, ``Okay, what have you done? What 
have you accomplished?'' Because what you want is consistency.
    I wouldn't get rid of the DIUx just because Ash Carter 
brought it in. That is ridiculous.
    And what I have seen over the years is you get new 
secretaries, new under secretaries, they come in, and they 
reinvent the wheel. They have a 100-day plan and they basically 
say, ``The guy before me was an idiot,'' which, if you think 
about it, means that everybody was an idiot because the new guy 
said that about the old guy.
    You have got to get away from that. The way you get away 
from that is Congress keeps pushing and saying, ``We have 
legislated X. Demonstrate how you have effectively made X to 
work.'' That you can do, and you can do it over time.
    Ms. Hanabusa. And as Ms. Flournoy answers, but, you know, 
everyone knows this, Ms. Flournoy. You have talked about it for 
years and years. But we don't do it.
    So, go ahead.
    Ms. Flournoy. And I think one of the challenges is we too 
often focus, in my view, on moving the organizational boxes 
without changing the underlying incentives that drive behavior. 
And I will give you a great example that John Hamre gets lots 
of credit for because he worked on it when he was up on the 
Hill of legislating a change of incentive that we are still 
feeling the effects of today: Goldwater-Nichols.
    It used to be that joint service was the death of a 
military career. You are out of sight, out of mind. Forget 
promotion if you leave your service.
    Once you passed Goldwater-Nichols and you said, ``You may 
not become a general or a flag officer unless you, A, get joint 
education, and B, you have joint experience,'' it completely 
flipped the incentive and now all of the hard-chargers are 
looking for that joint experience and looking for that joint 
education and how am I going to do--be that so I can get the 
stars on my shoulder?
    It is very powerful, and over a generation or two that is 
the bedrock of joint culture. It is all that time being 
educated together, serving together.
    So I think the thing we have to wrestle with is what is 
the--what are the incentive changes that you all could 
legislate that would create fundamentally different behavior in 
the acquisition and innovation domain? To me that is going to 
be more powerful and enduring than any tweaks we make to the 
organizational chart.
    Now you are going to ask me what that is.
    [Laughter.]
    Ms. Hanabusa. I am out of time.
    Dr. Hamre. But do you mind if I may just----
    Ms. Hanabusa. You have to ask the chair.
    Dr. Hamre. There are five reasons why DARPA has been a huge 
success.
    First, the chairman serves a 5-year term--the director. And 
so there is--it is a long enough period of time for you to be 
accountable, and you want to show results. That is the first 
thing.
    Second thing is there is an astounding amount of financial 
flexibility for DARPA. There are only four line items in 
DARPA's account, and they can move money across any of them.
    You know, Congress has tied the Department's hands. You 
cannot move more than two--I think it is $4 million from one 
line item to another in R&D [research and development] without 
coming back for permission. DARPA has total flexibility to do 
that. That is the second.
    The third reason is almost all of their work is placed 
entirely in the private sector. And they can do rapid 
acquisition by going out to the private sector. They have 
special authorities to do that. But they place it in the 
private sector.
    The fourth reason is program managers are not allowed to 
stay more than 4 years, you know, so they don't build up 
entrenched bureaucracies around themselves. It is a fairly 
small, fairly lean organization, and they can only stay for 4 
years.
    And the last thing is they get Secretary of Defense 
protection.
    Now, you put those five factors together, that is what--why 
we have success.
    I would have to tell you--and I say this respectfully. We 
are doing just the reverse with our legislation. We are 
creating more overhead, more fracturing of it; we are putting 
more restrictions on where you can put money and how you spend 
it.
    I mean, please step back to look at how you could take that 
model and bring more flexibility to the Department, because 
that is why DARPA works.
    Ms. Hanabusa. Thank you, Mr. Chair, and I apologize I went 
over.
    The Chairman. No, we are a little more flexible today with 
these witnesses.
    General Bacon.
    Mr. Bacon. Thank you, Mr. Chairman.
    And as someone who served nearly 30 years in the Air Force 
I tell you, your stellar reputations precede you, so thank you 
for being here.
    Two quick comments and then a couple of questions.
    I was part of the rapid acquisition as an operator within 
the Air Force, the Big Safari really works. One thing that 
doesn't work is the manning of those weapon systems once we 
produce them.
    We typically only man them at 50 percent even though we 
have done a good job fielding them, so I would hope--we have to 
match the rapid acquisition with other things that the service 
provides there, I think, for it to be effective.
    I am thinking of the MC-12 as an example--50 percent manned 
while we had it in the Air Force, and put a lot of risk into 
the system. Just one example.
    Secondly, I am very proud that this committee has worked on 
reducing the size or the number of general officers and SESes 
[Senior Executive Service], particularly in the Pentagon. It 
has been my experience we have been overstaffed there.
    Now for a couple questions.
    Have we reduced the OSD staff at the same levels that we 
have with the services? Because I think we need to. This is my 
impression, but I would love to have your thoughts on that, and 
whoever would like to answer.
    Dr. Zakheim. They want me to go first----
    Mr. Bacon. Put you up first.
    Dr. Zakheim. My impression is that we have not. And in 
fact, each time you add an assistant secretary or you have a 
congressionally mandated deputy under secretary, somebody who 
needs confirmation, you have created an excuse to hire more and 
more staff.
    In my written testimony you will see I give a few examples 
of where, in fact, you can combine assistant secretaries so 
that you can cut back on the staff. I think you should cut back 
on principal deputies; I don't think you need them.
    And finally, when we talk about splitting the Under 
Secretary for AT&L [Acquisition, Technology, and Logistics], 
make sure that the total number of OSD staff working for the 
two is no greater than working for the one, which was too big 
to begin with. If you look back at the growth of the AT&L 
bureaucracy over the last 20 years, it skyrockets.
    Mr. Bacon. Should the Armed Services Committees of both the 
Senate and the House drive this, or does the Secretary of 
Defense--should he take ownership of doing what you are saying?
    Dr. Zakheim. I would say that this is something that 
requires consultation with the Secretary, and if the Secretary 
is forthcoming--and this particular Secretary is very 
forthcoming about just about everything--I would say that it 
may well be that the Secretary could handle it. The only 
downside to that is what happens when a new Secretary comes in?
    Mr. Bacon. All right.
    Dr. Zakheim. That is my concern.
    Mr. Bacon. Anyone else care to answer?
    Ms. Flournoy. And I think the--I think you should put the 
onus on, you know, on the Secretary of Defense to come back to 
you with what is the optimal mix, where is the optimal 
reallocation. And there may be areas where he needs to grow 
capability and there may be areas where he can reduce the 
capability, but giving him the flexibility to move--to, you 
know, consolidate organizations, eliminate low-priority 
functions, reassign staff--I mean, those kinds of authorities 
and flexibilities are key to do that reshaping.
    Because again, there may be some cutting but there is also 
going to need to be some reinvestment----
    Mr. Bacon. Right.
    Ms. Flournoy [continuing]. In the human capital.
    Mr. Bacon. Well, sure fits in with my perception that we 
need to reduce the size of the OSD team.
    Another question for you: Use it or lose it at the end of 
the year. How do we reform that better, because we get a lot of 
new desks, a lot of new paintings, a lot of new rugs, and it is 
wasteful. End-of-year spending, use it or lose it--anybody--any 
thoughts on that?
    Dr. Hamre. You know, I was a comptroller and I remember we 
had a process where we would move money from time zone to time 
zone the last day to be able to spend it.
    Mr. Bacon. I saw it too.
    Dr. Hamre. Okay. So yes, we are--part of it is you have 
done some of that. I don't know if the authority is still in 
place, but funds that are not spent in the O&M account by the 
end of the fiscal year, normally they lapse but they are 
allowed to go into the Foreign Currency Fluctuation Fund. So it 
provides an--you don't have the incentive just to spend it on 
anything, you know, because you can put it into something that 
you need.
    I think that is how you ought to think about this. I think 
you ought to find a way where you can take the, you know, the 
funds that are otherwise close to expiring and give them an 
opportunity to live in a different way for something that the 
Department needs.
    In this case, foreign currency fluctuation was a--it was a 
big deal, you know, in the 1990s. I don't know if it is as much 
a problem today as it was back then, but I think it is 
something like that.
    The other thing is, frankly, O&M is--it is managed on a 
decentralized basis. You know, we don't really know how it is 
being spent in the field.
    And until we start developing different approaches--here 
probably the committee should find out how big corporations 
manage O&M. You know, they must have a different way of doing 
it than we do in the government.
    But like I just said, we don't know----
    Mr. Bacon. They have profit.
    Dr. Hamre. Yes. They have an incentive for it, so----
    Mr. Bacon. Right. Thank you very much. I yield back, 
Chairman.
    Dr. Zakheim. Mr. Chairman, may I just add a couple things?
    I agree with John. The way, by the way, that private 
corporations do it is they are monitoring the funds on a daily 
basis. And one thing that I tried to do, I brought in the E to 
PPBE [Planning, Programming, Budgeting, and Execution] with 
these, which is execution, and I wanted to have an execution 
review every quarter, which is nothing compared to daily 
reviews of where the monies are.
    But if you have an execution review every quarter as 
opposed to one midyear review then the comptroller is in a 
better position, working with the Joint Staff in particular, to 
move those monies around and minimize that last-minute spending 
that you are talking about. Moving the monies into an account 
that would allow them to be used for other purposes, well some 
people are going to turn around and say it is a slush fund. So 
you have got to be very careful about what accounts you are 
talking about.
    But it seems to me that the more visibility you have into 
what are called bishop's funds--and it is actually a total 
church hierarchy because the further down you go the monsignor 
has got his money, and so on and so forth. The more 
transparency you get--and we have all talked about that--the 
more likely it is you are going to prevent what you are talking 
about.
    Mr. Bacon. Well, thank you again.
    And I just submit, Mr. Chairman, that use-it-or-lose-it 
reforms is something we should be looking at. I think it is an 
embarrassment.
    Thank you.
    The Chairman. Well, as a matter of fact, I am hopeful that 
if there is a supplemental that we enact that it can be spent 
beyond September 30th, at least for that money for this year. 
We have done it a few times before to extend beyond the fiscal 
year, and it seems to me, getting at the problem you are 
talking about, that it would make some sense.
    Mr. Lamborn.
    Mr. Lamborn. Thank you, Mr. Chairman. Thank you for having 
this hearing. Thank you all for being here.
    Research and development is critical, and that is part of 
having the best weapons platforms and innovations for the 
future. But sometimes research dollars are vulnerable because 
in the beginning stages of researching new technologies, it is 
not yet tied to a program.
    So how can research dollars in these times of constrained 
budgets be protected so that we still have the great 
capabilities that our finest minds in the world are able to 
come up with and stay ahead of any potential adversaries, but 
those dollars might be taken for something else if we are not 
careful?
    Dr. Hamre. Well, this is a big problem because, you know, 
we--when we were back in the days when we had R&D budgets that 
were about half the size of the procurement budget, we couldn't 
possibly turn the breakthroughs into weapons systems. We didn't 
have enough procurement money.
    You know, and so part of the reason that it was scaled 
back, you know, the last couple years as a percentage was 
because there just was not sufficient capacity to take 
advantage of what we were inventing.
    The whole fresh look at R&D would be very helpful. It is 
one of the things that would be very good for this new Under 
Secretary for Research and Engineering to do, I mean, because 
the current DDR&E [Director of Defense Research and 
Engineering] largely just looks after the 6.1 and 6.2 account, 
you know, they don't have a capacity to look at the whole. And 
I think that would be a good thing for you to ask the next 
under secretary to do.
    Corporations will have--I was with one for a time--I was on 
the board of one for a time that had something called a 
vitality index, which is: How much of our R&D that we spend 
today shows up on the shelf as a product we sell within 5 
years? And there was a--there were objective measures that they 
had as a company to say, ``Where are we willing to spend money 
because we want to see a return on it?''
    Now, it is hard for us to do that in the Defense 
Department, but we should have some kind of a mechanism where 
we are looking at the R&D program and saying, ``Where does this 
fit in?'' You know, ``Where does it fit in and what difference 
will it make?''
    You are hard-pressed to find that, so there is some real 
management we need to bring to this problem.
    Dr. Zakheim. All companies basically look at capital 
expenditures, which includes R&D expenditures, and the CEO has 
to report back to the board and say, ``Here is what I think is 
going to come of this,'' precisely because they are bottom-line 
operations.
    One possibility that might help deal with the concern you 
raise is if this new under secretary really is committed to 
having a partnership with the commercial sector, with the non-
defense commercial sector, so that our bureaucrats--and again, 
I mean, you want to talk about measures of merit and changing 
culture, I have said in my testimony, don't let anybody become 
a senior executive servant unless they have spent a year in--at 
MIT, or Caltech, or what have you, if they want to be in the 
Acquisition Corps because it is going to make a difference.
    I have also suggested that there is a program called the 
Secretary of Defense Corporate Fellows, where they send about 
18 or 20 people to corporations. Triple that and then have an 
equal number of civilians there so they know what it is like in 
industry.
    The more you cross-pollinate with industry, the more they 
will think about, ``Yes, where do my R&D dollars lead to? What 
will I really get?'' Because now they will be thinking in terms 
of CAPEX [capital expenditure], if I can use the term that 
everybody uses.
    I think that might be a way to help out.
    Mr. Lamborn. Michele, do you have any thoughts to add?
    Ms. Flournoy. The one thing I would say is that if you are 
going to move towards a system that puts more emphasis on 
experimentation, innovation, prototyping, you know, your--you 
have to have a slightly--you have to have a somewhat higher 
tolerance for failure, that there are going to be certain 
things that you prototype, they don't work out, but you learn 
from the experience and that makes the next thing better.
    So I actually think in the model that you are trying to 
create with this new organization you want to have a higher 
proportion of R&D spending relative to what we have had vis-a-
vis procurement, and that you don't want to have such an 
emphasis on ultimate ROI [return on investment] that you miss 
the learning curve that you get out of, you know, a very robust 
experimentation and prototyping plan.
    Mr. Lamborn. Mr. Chairman, could I ask a quick follow-up?
    The Chairman. Sure.
    Mr. Lamborn. Very quickly, Iron Dome in Israel--that was 
done in 3 years, from pad of paper to operation, and I just 
can't see that kind of result here in the U.S. And yet, there 
are times we are going to need that kind of quick turnaround.
    Ms. Flournoy. I think that is a great example of urgent 
operational need. You had civilians in Israel being killed by 
rockets from Gaza.
    They went out and saw, what is possible today? What can we 
put together that works? And they went out and procured it and 
fielded it as fast as possible, with our help.
    I think this gets to one of the things that I hope will be 
on your plate is the whole military requirement-setting 
process, that--obstacle to doing things quickly. We spend so 
much time trying to get consensus and we over-specify the 
requirements that, you know, we spend so much time--we spend 
years on that up front--that we are already behind the curve 
when we finally get to trying to actually acquire the thing.
    So figuring out where do you need--really do need to have 
the military specs, and where can you rely on commercial and 
integration and adaptation kind of--I think that is a key 
distinction that we need to work on.
    Dr. Zakheim. Well, the Israeli system, by the way, is so 
different from ours in another respect. They are totally 
integrated, the commercial side and the ministry of defense, so 
that when they go out and say, ``Yes, we need X,'' the 
commercial folks are on it quickly.
    We have this gap because for too many of our people in the 
acquisition system the commercial side is the enemy. We have 
got to break down that barrier.
    Mr. Lamborn. Thank you all. Thank you, Mr. Chairman, for 
your indulgence. I yield back.
    The Chairman. Mr. Veasey.
    Mr. Veasey. Thank you, Mr. Chairman.
    I know that people have varying opinions on how the 
Congress should go about tackling these issues, and other than 
legislation, I was wondering what do you think Congress can do 
or refrain from doing that could improve the efficiency or 
the--and the effectiveness of the acquisition process.
    Dr. Hamre. Well, I would go back to what I mentioned about 
DARPA. I think that DARPA is such a success because it has so 
much flexibility but accountability.
    The director is there for 5 years. That individual is 
totally accountable for what comes out, that product, out of 
their budget every year. They have a lot of flexibility in the 
budget. They are not bound by the civil service system for 
finding program managers.
    You know, so it--what it--it is a very different model. It 
is a model where it is more about leadership and trusting 
leadership and less about arcane and very rigid rules.
    And I think, honestly, we are on a path where we are 
writing legislation so much just dictating how the Department 
has to do things that we are undermining what I think is really 
the key, which is hold them accountable, give them the 
flexibility, and use the other power that you guys have, which 
you don't use enough of, which is to bring them up and talk to 
them.
    You have no idea how frightening it is when they get a call 
and say: I want to--the committee wants to hear--it is not 
going to be a hearing; we are just going to have a private 
meeting.
    They are going to--that has enormous impact. But right now 
most people think they just have to write big bills to have 
impact with the Department.
    You don't. There is so much more you could do by utilizing 
this power that you have from this position.
    So I would look--do less, create more accountability, think 
about a model where you are trying to recruit the very best 
people that want to come in and serve because they have a lot 
of authority to get things done and you are trying to help them 
do it.
    Dr. Zakheim. You know, John Hamre was my predecessor, 
actually, but one as comptroller. And I can say as comptroller, 
as well, the congressional restrictions on moving money from 
one account to another are just too tight. John mentioned the 
director of DARPA doesn't have to worry about that to any 
degree that just about anybody else does.
    And when we are talking about a budget of approximately 
$600 billion and then you are told we must go to four 
committees to move $25 million from one account to another, I 
mean, that is ridiculous. Certainly not how industry works. 
Certainly not how any successful company would work.
    So it seems to me that--I fully understand why Congress 
wants to watch how monies move, but there is a long way between 
$20 million or $25 million and a $600 billion budget. And it 
seems to me raising those ceilings would be one way to create 
the ability to be flexible and agile, and then if you combine 
it with some of the other reforms that this committee is 
pushing then you are going to start to see a real synergy.
    Ms. Flournoy. I would just add that same flexibility in 
moving and managing people is really, really key.
    And then the last thing I would say is, you know, there 
have been lots of reform attempts over the year, and when 
something doesn't work, rather than removing it we just add 
another layer. And so I think clearing away some of the layered 
complexity of past reform and regulatory efforts that haven't 
necessarily yielded the desired results but people still feel 
accountable to go by, that can also add a lot of needed 
flexibility.
    Mr. Veasey. And so with all of that, what do you think is 
the most appropriate mix and the most cost-effective mix that 
the military should try to achieve as it relates to military, 
civilian, and contractor personnel to accomplish its mission?
    Ms. Flournoy. Again, I think that will be--the answer to 
that question requires a comprehensive assessment that I don't 
think has been done in a long time. But I think the general 
assumption that I have heard this morning is, you know, there 
is likely to be some reshaping of the civilian career workforce 
while investing in that workforce's development and education 
and training, and probably a reduction in the level of 
contractors that we rely on to support those civilian 
functions.
    Dr. Zakheim. And we also have to look very closely at what 
we want the military to do, as opposed to what someone else can 
do. And that is important, as well.
    So it is not just a matter of cutting this level or that 
level of civilians, or cutting contractors; it is also a matter 
of who is doing what. And so it really has to be a 
comprehensive view.
    Mr. Veasey. Thank you. Thank you, Mr. Chairman.
    Dr. Hamre. And if I may add, it has to be a comprehensive 
review where we have the honest price of each of the forms of 
labor. We do not have a uniform way in which we put the full 
cost of having a uniform or a civilian or a contractor side by 
side to say, ``Which is the most cost-effective way to do this 
job?''
    So you could demand--again, this is a plea--you could 
demand that the Congress give--or that the Department develop a 
real objective cost assessment that you can see the difference 
between military labor, civilian labor, contracted labor.
    The Chairman. Ms. Flournoy, as y'all were talking about it 
earlier I had in my mind that you were talking about, say, a 
human capital plan for OSD. But you are really talking about 
something broader than that when you start bringing in who does 
what--what do contractors do, what do civilians do, what do 
military people do.
    Am I right, or--I am trying to think, okay, how do--what is 
the--what--how do we write this? What is the charge here?
    Ms. Flournoy. You know, ideally you would want a full 
assessment Department-wide, but that is a pretty herculean 
task. So I think where I would start is with the Secretary's 
own staff, and to ask him to lay out for the functions of OSD 
what is the right mix of military, civilian, and contractor, 
and how does he need to reshape and re-educate, train, develop 
his workforce to be as effective and efficient as possible.
    But I think you could then look at other components beyond 
OSD, and should, because, you know, from a resources 
perspective the OSD is dwarfed by the staffs of the services, 
the staffs of the defense agencies, and so forth.
    But if you are looking for a way to pilot the approach and 
get your arms around a piece of the puzzle and then learn from 
that experience to then go after other pieces, it is not a bad 
place to start.
    Dr. Zakheim. I would agree with that, except I would expand 
it to include the Joint Staff. There is a lot of overlap there.
    There are some people who say we just ought to combine them 
the way the Canadians and the Brits do. I am not sure that is 
the right way to go. In fact, I am pretty sure it is not the 
right way to go.
    But still, there is an awful lot of overlap, and I think 
looking at them together as a unit might be one way to deal 
with this pilot project, as Michele puts it.
    The other thing is I wouldn't allow this to stand in the 
way of mandating reductions in the civilian workforce. The 
civilian workforce is just too big, and I haven't seen any 
efficiency out of it. There is no correlation between the 
growth of the workforce and its efficiency. In fact, it is a 
negative correlation.
    The Chairman. Well, that really gets to the second part--or 
the other question I wanted to ask.
    There are some suggestions that we ought to give the 
Secretary of Defense authority to reorganize, say, OSD however 
he wanted to in 6 months' time. But is your view that we ought 
to expect this human capital report before there is authority 
to move the boxes around and have buyouts and so forth?
    Ms. Flournoy. I think that ultimately you want the review, 
first of all--you want form to fit function. You want the focus 
to be first on, you know, what are the most--what are the 
important functions that--where I need, you know, potentially 
more investment? Where am I willing to take some risk and do 
less?
    And then you need to adapt, I think, the--add on the human 
capital layer to fill out how are we going to actually staff 
that.
    So one of the things that I--when I had my little world of 
Policy, which was by then 1,000 people--it, you know, had grown 
a lot since I had first been in there in the Clinton 
administration--we did them simultaneously. And one of the 
things we asked is, ``If you had more--10 percent more to 
invest, where would you invest it? If you had to cut 10 
percent, where would you cut?''
    And we did that at the--a very low level all the way 
through the organization, and it gave you a pretty good sense 
of where we were short and we really needed to plus-up, and 
where people really thought, ``You know, I am doing this 
because I am told I have to do it but I really don't think 
there is much value here.''
    And so we sort of did the two streams in a complementary 
way, or overlapping way. I don't think they have to be strictly 
sequenced.
    Dr. Hamre. Sir, I am not--I just think you are going to 
have to impose cuts and then tell them, ``Figure out what is 
the most efficient way to do what you have got to do, and if 
there are things that you don't need to do or you think are 
low-value, tell us what that is.''
    But, you know, I am close enough to a number of 
corporations, when they have to do a downsizing they don't 
start with a bottom-up review, you know, they start with a top-
down goal.
    And I think Bill Perry used to say, you know, reform does 
not--can't remember what he said now. Forgive me. You have to 
make cuts first and commit yourself to those cuts before you 
can figure out how you are going to get the best value out of 
it.
    I just honestly think you--I have been around it too much. 
You are going to get very incremental, marginal suggestions if 
you do it on a bottom-up basis.
    Ms. Flournoy. I agree with that. I think you have to have a 
target but then allow a combination of a functional review and 
a human capital review, in terms of figuring out how you are 
going to get there. But the target is key to incentivizing the 
result.
    Dr. Zakheim. And that is where I would come out, as well. 
If you don't give them some clear directive as to how much they 
should cut over what period of time, they just--they are not 
going to do it.
    First of all, they are going to try to wait you out. That 
is number one.
    Number two is they are going to try to--like I had 
mentioned somewhat earlier, they will--if you give them any 
sort of vehicle for exemption they will exempt as many people 
as they could--500,000 out of 700,000, and that sort of thing.
    So it has got to be tightly written, it has got to be 
clearly directed, and then you give the Secretary--and, I would 
argue, the Secretary together with the Chairman, because I 
think it is important if you are focusing on OSD, OSD and the 
Joint Staff I really think need to be looked at together--have 
them both, give them the flexibility within that overall 
number, and then have them come back and report to you. And not 
a written report, because a written report is going to be 
written by a contractor, but have them actually come and 
testify in front of you.
    Ms. Flournoy. But I think a cost-saving target, you know, 
it gives them maximum flexibility of how to get there.
    And this is where the other authorities come in--they are 
so important, you know, as you gave last year, a RIF authority 
that is not just about seniority but actually about 
performance. VSIP authority you raised the level, which is 
great, but still supervisors can't use that on an individual 
basis to actually incentivize individuals who need to depart to 
depart.
    So, I mean, I think those accompanying authorities are 
really, really important to turn the--you know, to really give 
the flexibility required to reshape the organization in a 
productive manner.
    Dr. Zakheim. The only thing that worries me about 
authorities, Mr. Chairman, is that bureaucrats will say, 
``Okay, I have got the authority and I want to use it.'' And 
what will then happen is the deadwood always stays, which is 
why deadwood bureaucrats love hiring freezes, because who goes? 
The junior people.
    They don't come in. The ones who come in last, they are the 
ones who go out. That is just not the way to get the Department 
up to speed with all our enemies out there.
    The Chairman. Okay.
    If y'all will indulge me just a few moments more, Dr. 
Hamre, I have got to go back to the beginning and this under 
secretary business. I understand your point, that you dilute 
the effectiveness of the one by having the second, and you 
addressed this in your written testimony but I still need to 
hear it again.
    So if you have the Under Secretary for Research and 
Development but then you give under him the acquisition 
authority, how is that not recreating AT&L under a different 
name?
    Dr. Hamre. Yes, sir. I think the most important thing we 
are trying to do is to change AT&L from a giant compliance 
organization into an innovation organization.
    You are not going to get that done unless you break it up, 
and I think breaking it up means you take those mechanical 
functions of acquisition--you know, procurement policy, FAR 
review, you know, all that kind of stuff--you put that under an 
assistant secretary. That is what the assistant secretary does.
    The under secretary is responsible for all the big choices 
that the Department is going to make that involves 
acquisition--development and purchase of things. But you have 
to make that job big enough so that you are going to recruit 
somebody really big who will want that job because it really is 
meaningful.
    All of the acquisition--you took a big step 2 years ago 
when you pushed a lot of the acquisition back to the services. 
A very good thing to do.
    So we need to get the bulk of the acquisition process back 
to the services, get a smaller organization at the top that is 
overseeing the process that the services implement, and then a 
powerful person who makes big choices for the Department. And I 
think having two under secretaries I think could confuse that.
    It is really disassembling what we built up with the 
Packard Commission and going back to having the services play 
much more of a role and OSD play much more of an oversight role 
with a creative person being a decider about big choices.
    The Chairman. But the assistant secretary reports to the 
under secretary----
    Dr. Hamre. Yes, sir.
    The Chairman [continuing]. So it is still within the one--
--
    Dr. Hamre. It is still within that orbit. You have one 
acquisition secretary but you are taking all of those 
mechanical functions and you are taking them down a level and 
you are pushing them out to the services.
    The Chairman. Okay. Okay. Y'all have anything more on that? 
Okay.
    Mr. Langevin, you have questions?
    Mr. Langevin. Thank you, Mr. Chairman.
    So one additional question that I had--and we had a 
discussion just a minute ago about cost-cutting targets. Last 
winter we learned of a report out of the DOD that stated that 
$125 billion could be saved over the course of 5 years by 
attending to waste within the Department. So this accounts for 
about 4 percent of DOD outlays and is well within the types of 
savings that companies also try to achieve through cost-cutting 
practices.
    And while I am disappointed this report was initially 
buried within the Department, I think there are certainly 
valuable lessons that can be learned from it.
    How do you believe we can best meet these cost-saving 
objectives, and how have you seen the Department implement some 
of the more actionable efficiencies?
    Dr. Zakheim. Well, the report came out of the Defense 
Business Board, as you know, Mr. Langevin, and it wasn't really 
buried at all. I mean, it was easily accessible on the web; it 
was publicly briefed; we all talked about it; nobody was told 
you couldn't talk about it. So I don't know where that whole 
thing came from, quite frankly.
    But to the substance of your concern, it does seem to me 
that what that report essentially is saying is in the first 
place your best start is with civilian personnel, and it seems 
to me that that is one where the--their legislation, in terms 
of levels of civilian personnel, might be very much worthwhile. 
I believe that if you take their numbers from 2 years ago and 
update the numbers to fiscal 2017 numbers you could save $5 
billion to $8 billion. Not trivial. Not a lot, but not trivial.
    Then they have five other categories, and in fact, the 
Secretary of Defense listed those very same categories in his 
memorandum on efficiency. And so again, picking up on what John 
Hamre said, get them in here. Ask them, ``Okay, what have you 
done on each of these categories?'' And to the extent that you 
don't get a straight answer you start thinking about 
legislation for it.
    Ms. Flournoy. I would just add, I also think you need to 
think about how the deputy secretary and the CMO--what kind of 
capacity they will have to do this kind of management 
transformation work. You know, your typical political appointee 
is not going to necessarily have that kind of background and 
experience, and so a senior official who wants to take a 
transformation step is either--you know, either they have to go 
hire a very expensive outside consultant or they decide, you 
know, they just don't have the bandwidth to take something on.
    One of the things that was included in the last 
authorization bill was authorization for what is called a 
delivery unit, which is actually taking a page from the U.K. 
[United Kingdom], who basically brought, you know, 30, 40 
people with deep experience transforming organizations coupled 
with some real experienced folks from within the Department and 
basically created an internal resource for the deputy and the 
CMO to work with the line managers of the organization on 
transformation plans and to really drive that change 
internally.
    But I do think you have to think about where is--where are 
these two critical officials actually going to get the 
capacity--the kind of change that you are talking about and to 
really drive that.
    Dr. Hamre. You know, I personally think you could save $115 
billion, but very hard choices. Really tough choices we have to 
make.
    You know, the average--I think the average server in a 
computer center in the Department runs at about 10 percent of 
capacity, but we--because each of the services is buying their 
own stuff. But that means you are going in and you are ripping 
it out of a service. That is painful. It is hard to do that.
    We do not take advantage of the pricing power we have as 
the biggest renter of property in the United States because it 
is fractured. It is all over the place. We don't have a central 
place where we are good at that.
    We spend money getting rid of things rather than making 
money getting rid of things. You know, we have got 500 people 
at the disposal center. We are paying for them to get rid of 
stuff. We are not making any money off of it.
    I mean, look, there are--but these are very hard things to 
do. They involve people's jobs in very specific locations. You 
know, it involves a lot of--freeing up a lot of restrictions 
that have been put on the Department in recent years.
    So can we do it? Yes. I think we can do it. They are very 
painful.
    Does that avoid us needing to increase money for the 
Department because of the problems we have got now? No. I think 
we need to--we are--we have got real readiness issues in the 
Department. Real readiness issues.
    We have got a lot of airplanes that are really old, you 
know, that we need to replace. I mean, so I--we need to be 
objective about it.
    I strongly think we should try to save that--the $115 
billion, $125 billion, whatever that is, especially because it 
would give credibility to the Department when it asks for 
additional resources.
    Dr. Zakheim. One other area where--related to this is the 
whole area of contract auditing, which is highly controversial 
right now. But the fact of the matter is DCAA is billions of 
dollars behind. That is hurting industry in another way, which 
is they have to reserve money that they can't spend because 
they don't know if they are going to have to give it to DCAA.
    But leave that aside. The fact is if you get a good outside 
auditor they will start to tell you where some of this money 
that John Hamre just referred to is or isn't, and that gives 
you the vehicle to start moving monies around, to being more 
efficient, and, in fact, to reaching that $125 billion goal.
    Mr. Langevin. Well, certainly I know that we are moving in 
the direction of being able to audit the Department. I know we 
are trying to get to that point, and certainly this is another 
area where data analytics will come into play and help us to 
get where we want to be.
    So thank you all for your testimony. And with that I will 
yield back.
    The Chairman. Yes. I want to just emphasize on the Defense 
Business Board issue not only did we not bury it, we cited it 
in our committee report 2 months later. And the increase in 
incentives to voluntarily leave the Department that we had in 
last year's bill was one of the specific recommendations that 
they made.
    Now, the bigger dollar savings comes from the sort of 
civilian personnel reform that we have been talking about, 
which is part of the reason I have asked y'all several 
questions about that. As Dr. Zakheim mentioned, there was an 
effort that didn't go so well to do that a few years ago, but 
yet, it is a significant area that needs our attention.
    Y'all have been very helpful. I have got lots of notes, but 
I also know where to find you to elicit more information and 
more questions.
    So thank you all for being here and for all that you assist 
this committee with.
    The hearing stands adjourned.
    [Whereupon, at 12:15 p.m., the committee was adjourned.]



      
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                            A P P E N D I X

                             April 4, 2017

      
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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                             April 4, 2017

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  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  

      
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             April 4, 2017

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                  QUESTIONS SUBMITTED BY MR. LANGEVIN

    Mr. Langevin. In the 1940s and 1950s, almost 40 combat aircraft 
were competed and awarded, invigorating the industrial base in the 
process. This period of development stands in stark contrast to the 
last 25 years when only 4 new fighters or bombers were developed: the 
B-2, the F-22, the F-35, and the B-21 last year. Today, if a company 
does not prime or partner on a winning design, they risk being shut out 
of the industry until the next competition a decade or more later. How 
do we increase the number of competitions and reduce this feast or 
famine cycle to increase the vitality of our defense industrial base?
    Dr. Hamre. I recall this history, and it was astounding how many 
different aircraft design efforts we were able to sustain during that 
period. Part of the answer is greater resources. Back during this 
period, defense spending was between 6-7% of GDP, and today it is less 
than 3% GDP. We also have seen huge real cost increases in the price of 
labor, both civilian and military, which reduces the amount we can 
devote to research, development and acquisition. I mention these two 
factors because I think this will hugely constrain our ability to solve 
the problem you outlined. In fairness, during the last 15 years we have 
launched major efforts to use unmanned air vehicles. But your point is 
still valid.
    I think the only practical way to do this with the constrained 
budgets we currently have is through expanded emphasis on prototyping. 
That will support the design teams, but would not necessarily support 
the shop floors. It is hard to see how this can change until we 
allocate more resources to aircraft procurement.
    Mr. Langevin. In the 1940s and 1950s, almost 40 combat aircraft 
were competed and awarded, invigorating the industrial base in the 
process. This period of development stands in stark contrast to the 
last 25 years when only 4 new fighters or bombers were developed: the 
B-2, the F-22, the F-35, and the B-21 last year. Today, if a company 
does not prime or partner on a winning design, they risk being shut out 
of the industry until the next competition a decade or more later. How 
do we increase the number of competitions and reduce this feast or 
famine cycle to increase the vitality of our defense industrial base?
    Ms. Flournoy. Increasing the number of competitions is indeed 
critical to enhancing the vitality of our defense industrial base. It 
is also essential to ensuring that our armed forces can fully leverage 
rapidly evolving technological innovation to maintain their military 
edge in the future. Working with Congress, the Department of Defense 
can and should take several steps to increase the opportunities for 
competition.
    First, and perhaps most importantly, Congress must act to restore 
predictability in defense budgeting so the military services can plan 
and execute their programs over a multiyear period without constant 
uncertainty and disruption. Nothing does more to undermine DOD's 
ability to make smart investments in future defense capabilities than 
not knowing whether and when defense authorization and appropriations 
bills will be passed or how much defense spending will be approved over 
the FYDP. Negotiating a budget deal that would permanently lift the BCA 
caps, end the threat of sequestration, and return the system to regular 
order should be a top national security priority. Restoring 
predictability would enable the services to let contracts with greater 
frequency and regularity while increasing industry's confidence in 
having more bites at the apple.
    Second, Congress should fully support DOD's efforts to enact 
defense reforms that would enable the reallocation of resources to 
priority investment accounts. The list of promising reforms is long and 
includes, among others: authorizing another round of Base Realignment 
and Closure (BRAC), streamlining DOD headquarters staffs and defense 
agencies, leveraging information technologies and big data to transform 
DOD's business practices, and adopting a value-based approach to health 
care that would improve the quality of care while reducing costs. Every 
dollar saved by improving the performance and efficiency of the DOD 
enterprise is a dollar that could be reinvested in ensuring our troops 
have the capabilities they will need in the future.
    Third, DOD should adopt a new approach to acquisition that 
incentivizes innovation and strengthens the vitality of the defense 
industrial ecosystem. As described in greater detail in the recent CNAS 
Report, Future Foundry: A New Strategic Approach to Military-
Technological Advantage, by Ben Fitzgerald, Alexandra Sander, and 
Jacqueline Parziale, the Department should pursue an ``optionality 
strategy'' to develop an expanded and more diverse portfolio of defense 
capabilities and concepts. This approach would provide industry with 
more opportunities to innovate and rapidly prototype and field new 
technologies. It would generate more opportunities for companies, both 
traditional defense firms and new entrants to the market, to compete 
for a wide variety of contracts, stimulating a healthier industrial 
base while generating greater technological advantage for the U.S. 
military.
    These steps are necessary not only to ensure the future health and 
vitality of the U.S. defense industrial base but also to ensure that 
the U.S. armed forces maintain their technological edge and, most 
importantly, their ability to deter and prevail in a more complex and 
challenging future security environment.
    Mr. Langevin. In the 1940s and 1950s, almost 40 combat aircraft 
were competed and awarded, invigorating the industrial base in the 
process. This period of development stands in stark contrast to the 
last 25 years when only 4 new fighters or bombers were developed: the 
B-2, the F-22, the F-35, and the B-21 last year. Today, if a company 
does not prime or partner on a winning design, they risk being shut out 
of the industry until the next competition a decade or more later. How 
do we increase the number of competitions and reduce this feast or 
famine cycle to increase the vitality of our defense industrial base?
    Dr. Zakheim. A number of factors enabled the United States to 
produce a larger set of combat aircraft in the 1940s and 1950s. First, 
aircraft were less complex, rendering it easier for more firms to enter 
the market, or remain in it. Second, the complexity of modern aircraft 
increases the financial and related scheduling penalties that accompany 
engineering change proposals; one change will likely affect many other 
aircraft components and even sub-systems. Greater costs limit aircraft 
buys. Third, although the War and Navy Departments, and, succeeding 
them, the Defense Department, imposed military specifications during 
that era, there were far fewer such specifications than is the case 
today. Meeting all specifications can drive up costs, again limiting 
production. Fourth, the overwhelmingly bureaucratic nature of the 
current acquisition process itself causes delays, and increased costs 
that always accompany such delays. There are too many approval levels. 
Fifth, while operational testing is critical, government development 
testing should be minimized. Industry should be held accountable for 
testing at the developmental level. Sixth, the huge backlog of DCAA 
audits forces companies to reserve cash that might otherwise be spent 
on new development, or serve as dividends. This too, inhibits companies 
from participating in the defense sector. Finally, bureaucracy is also 
a deterrent to new companies entering the defense industrial sector. 
Excessive paperwork (apart from milspec); excessive oversight; limits 
on profit; restrictions on retention of intellectual property; and a 
different cost accounting method (government cost accounting standards 
(CAS) as opposed to commercial Generally Accepted Accounting Principles 
(GAAP), are among the leading factors inhibiting companies from working 
with government. Therefore, in order to increase competition, and ramp 
up production of new aircraft, the DOD must, to the extent it can, 
reverse the foregoing factors.
    1) While aircraft are not likely to become less complex, DOD can 
minimize the frequency of engineering change proposals by requiring 
that any proposal involving more than a month's effort be certified at 
a flag, general officer, or SES level. 2) DOD should mandate an 
immediate fifty per cent. reduction in military specifications. 3) 
Approval levels should be reduced by twenty per cent. DOD-wide, to 
include service and OSD approvals. 4) Development tests should be 
reduced by at least twenty per cent. 5) Mandate than any DCAA audit 
that has not been completed in twelve months shall be dropped entirely, 
enabling companies to free funds currently held as reserves. 6) DOD, 
working with OMB, should modify CAS so that it more nearly approximates 
GAAP.

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