[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
$125 BILLION IN SAVINGS IGNORED: REVIEW OF DOD'S EFFICIENCY STUDY
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HEARING
BEFORE THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MARCH 21, 2017
__________
Serial No. 115-19
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Printed for the use of the Committee on Oversight and Government Reform
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http://oversight.house.gov
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Committee on Oversight and Government Reform
Jason Chaffetz, Utah, Chairman
John J. Duncan, Jr., Tennessee Elijah E. Cummings, Maryland,
Darrell E. Issa, California Ranking Minority Member
Jim Jordan, Ohio Carolyn B. Maloney, New York
Mark Sanford, South Carolina Eleanor Holmes Norton, District of
Justin Amash, Michigan Columbia
Paul A. Gosar, Arizona Wm. Lacy Clay, Missouri
Scott DesJarlais, Tennessee Stephen F. Lynch, Massachusetts
Trey Gowdy, South Carolina Jim Cooper, Tennessee
Blake Farenthold, Texas Gerald E. Connolly, Virginia
Virginia Foxx, North Carolina Robin L. Kelly, Illinois
Thomas Massie, Kentucky Brenda L. Lawrence, Michigan
Mark Meadows, North Carolina Bonnie Watson Coleman, New Jersey
Ron DeSantis, Florida Stacey E. Plaskett, Virgin Islands
Dennis A. Ross, Florida Val Butler Demings, Florida
Mark Walker, North Carolina Raja Krishnamoorthi, Illinois
Rod Blum, Iowa Jamie Raskin, Maryland
Jody B. Hice, Georgia Peter Welch, Vermont
Steve Russell, Oklahoma Matthew Cartwright, Pennsylvania
Glenn Grothman, Wisconsin Mark DeSaulnier, California
Will Hurd, Texas John Sarbanes, Maryland
Gary J. Palmer, Alabama
James Comer, Kentucky
Paul Mitchell, Michigan
Jonathan Skladany, Staff Director
William McKenna, General Counsel
Cordell Hull, Senior Counsel
Brick Christensen, Senior Military Advisor
Sharon Casey, Deputy Chief Clerk
David Rapallo, Minority Staff Director
C O N T E N T S
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Page
Hearing held on March 21, 2017................................... 1
WITNESSES
Mr. David Tillotson III, Acting Deputy Chief Management Officer,
U.S. Department of Defense
Oral Statement............................................... 5
Written Statement............................................ 7
Mr. Scott Rutherford, Senior Partner, McKinsey & Company
Oral Statement............................................... 14
Written Statement............................................ 16
Mr. Michael Bayer, Chairman, Defense Business Board
Oral Statement............................................... 21
Written Statement............................................ 22
Mr. Robert ``Bobby'' Stein, Former Chairman, Defense Business
Board
Oral Statement............................................... 25
Written Statement............................................ 27
Mr. Kenneth ``Kenny'' Klepper, Former Board Member, Defense
Business Board
Oral Statement............................................... 29
Written Statement............................................ 31
Mr. Lawrence J. Korb, Ph.D., Senior Fellow, Center for American
Progress
Oral Statement............................................... 59
Written Statement............................................ 61
$125 BILLION IN SAVINGS IGNORED: REVIEW OF DOD'S EFFICIENCY STUDY
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Tuesday, March 21, 2017
House of Representatives,
Committee on Oversight and Government Reform,
Washington, D.C.
The committee met, pursuant to call, at 10:25 a.m., in Room
2154, Rayburn House Office Building, Hon. Jason Chaffetz
[chairman of the committee] presiding.
Present: Representatives Chaffetz, Duncan, Issa, Jordan,
Amash, DesJarlais, Massie, Meadows, DeSantis, Walker, Blum,
Hice, Russell, Grothman, Hurd, Palmer, Cummings, Maloney,
Norton, Lynch, Connolly, Kelly, Lawrence, Watson Coleman,
Plaskett, Demings, Krishnamoorthi, Raskin, Welch, DeSaulnier,
and Sarbanes.
Chairman Chaffetz. The Committee on Oversight and
Government Reform will come to order.
And, without objection, the chair is authorized to declare
a recess at any time. I appreciate you all being here. We have
an important topic today to talk about the potential of $125
billion in savings that has been ignored, and we're going to
have a discussion about the review of the Department of
Defense's efficiency study.
On December 5th of 2016, The Washington Post reported on a
Department of Defense study that found the Pentagon could
potentially save $125 billion over 5 years on back-office,
noncombat expenses. The Post's story detailed the desire of DOD
leadership to squelch the findings of the Defense Business
Board--sometimes referred to as the DBB, but the Defense
Business Board--for fear that the Congress would ultimately end
up cutting their budget. That is the concern.
The DBB is an advisory board commissioned by the Pentagon
to provide independent advice and recommendations with regard
to governance and management at the Department of Defense. For
the study, the Defense Business Board was charged with finding
savings the Pentagon could recapitalize into more troops, more
ships, and more planes. Enlisting the management consulting
firm of McKinsey & Company, one of the premier consulting
companies we have in this country, the DBB spent months
analyzing the Pentagon's business systems and back-office
operations. The result of the report concluded the Department
of Defense could save billions from overhauling its back-office
functions, including contract management, IT, business
processes, real estate, and human resource management. The
savings could be reinvested to better equip our men and women
in uniform. But the Department of Defense leadership squelched
the report.
In response to the Post's story, 31 members of this
committee from both sides of the aisle signed a letter to then-
Secretary Carter asking for answers.
With the change in administration, the urgent need for
reform at the Pentagon has not changed. There are a number of
statistics that tend to support the DBB's recommendation for
rigorous oversight. First, the Pentagon continues to expand its
use of contractors. From 2001 to 2015, the Department of
Defense increased the number of civilian employees by roughly
14 percent. Compared to our men and women in uniform,
government contractors are less likely to be subject to
oversight of the Pentagon. Some of the government's most
effective tools for holding its employees accountable are not
available when it comes to contractors.
Second, the Pentagon study noted the potential $125 billion
savings could fund 50 Army brigades or 10 Navy carrier strike
group deployments or 83 Air Force F-35 fighter wings. So, while
our troops are engaging the enemy in Iraq and Syria and
patrolling the South China Sea and really helping make sure
that this world and the United States is a safe place, the
Pentagon is resistant to back-office cuts that would better
fund and equip these men and women who are doing the hard work
on the front lines.
Given how dangerous our world is, we really, truly have to
get this right. And if we're going to ensure our troops are the
best equipped possible, it is our responsibility to oversee how
this money is expended. It is a lot of money. It is the single
biggest line item in our discretionary spending budget.
The Constitution delegates the Congress the role of
providing the training and equipment of the Army and to, quote,
``maintain a navy,'' end quote. It is our job to make sure that
our warfighters are getting all the support that they need to
do their jobs. We have a very astute panel, and we look forward
to having discussions with them about this report and what can
be done to save money at the Pentagon.
With that, I will yield my time back, and I now recognize
the ranking member, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman, for
holding this critical hearing today. The Department of Defense
is charged with the most serious mission there is: Protecting
and defending every man, woman, child in our country. In this
dangerous world, the readiness of our warfighters is essential
to national security, and Congress has a duty to provide our
military with all the necessary resources.
However, we also have a duty to ensure that every
taxpayer's dollar is put to its most effective and efficient
use. Every dollar that is squandered through waste,
duplication, or fraud is a dollar not available for military
training, advanced weaponry, and salaries and benefits for our
uniformed and non-uniformed personnel. It is also a dollar we
do not have for critical domestic programs like education, job
training, and feeding the poor.
In January 2015, the Defense Business Board, a panel that
provides management advice from a private sector perspective,
issued a study finding, and I quote, ``a clear path to saving
over $125 billion in the next 5 years,'' end of quote. Last
December, a Washington Post story written by Bob Woodward and
his colleagues reported allegations that Pentagon leadership
deliberately buried the study amid fears that Congress might
reduce the defense budget.
On December 8, all committee Democrats and 31 total
committee members signed a bipartisan letter requesting
information about this report and these allegations. The
Defense Department disputes the amount in the report, the $125
billion over 5 years, but nobody disputes that the Defense
Department could save billions of dollars by streamlining the
way it conducts business.
Senator John McCain and Representative Mac Thornberry,
chairmen of the Senate and House Armed Services Committees,
issued the following joint statement on the study, and I quote:
``The Defense Business Board's key findings, that the
Department of Defense could save as much as $125 billion over 5
years by limiting unnecessary back-office bureaucracy, are not
a surprise,'' end of quote.
Nor are the problems identified by the Board new. We have
known for many years that the Department's business practices
are archaic and wasteful, and this inability to pass a clean
audit is a longstanding travesty. In the United States of
America, we have one department that just cannot get through an
audit. That is amazing. This is also not new to this committee.
We have done years of work examining wasteful spending at the
Defense Department. Just last month, the Comptroller General of
the United States testified before us that, and I quote,
``probably a third of the areas on the high-risk list are DOD
business management practices,'' end of quote.
The Defense Department is the only Federal agency that has
never--never--passed an independent audit. I wonder if they're
spending too much money to be able to do an audit. And then we
hear that the President wants another $54 billion, and here we
have a report that says we can save $125 billion in 5 years.
But President Trump's new budget ignores all of this. He
proposes boosting defense spending by billions and billions of
dollars. He proposes funding this increase by slashing dozen of
programs that promote our national security and our Nation's
most vulnerable communities, the elderly, children, and the
rural working class. The President would slash funding for the
State Department and the U.S. Agency for International
Development, reducing contributions for U.N. peacekeeping, the
International Atomic Energy Agency that monitors Iran's
compliance with the nuclear agreement, and the World Bank's
antipoverty programs. The President would decimate foreign aid
for humanitarian efforts in Iraq, Afghanistan, and Nepal, as
well as antidrug trafficking efforts in Latin America.
Last month, more than 120 former generals signed a letter
to Congress warning, and I quote, ``the State Department,
USAID, Millennium Challenge Corporation, Peace Corps, and other
development agencies are critical to preventing conflict and
reducing the need to put our men and women in uniform in harm's
way.''
In 2013, Defense Secretary James Mattis, who was then
serving as the Commander of CENTCOM, testified, and I quote:
``If you don't fully fund the State Department, I need to buy
more ammunition ultimately. The more that we put into the State
Department's diplomacy, hopefully the less we have to put into
a military budget,'' end of quote.
The President's budget also weakens our maritime, border,
and airport security by redirecting billions of dollars from
the Coast Guard and TSA to constructing an outrageously
expensive wall on the border with Mexico. But to me, the most
disturbing cuts are to critical, domestic programs. The
President would eliminate Community Development Block Grants,
which fund antipoverty programs like Meals on Wheels, which
feeds approximately 2.4 million of our elderly citizens,
veterans, and other homebound individuals every year. The
President would also eliminate funding for the 21st Century
Community Learning Centers, which helps fund afterschool
programs, serving more than 1.6 million children across the
country, many of them in low-income neighborhoods. The
President's budget does not effectively serve our national
security interests, nor does it serve the interests of the
everyday American family.
The United States must invest in a strong national defense
to face our global challenges. This means not just spending
more, but spending wisely. So I want to thank all of the
witnesses for being with us today and for their valuable
contributions toward improving the Defense Department's
effectiveness and the national security of all of our
Americans.
With that, I yield back.
Chairman Chaffetz. The gentleman yields back.
I will hold the record open for 5 legislative days for any
members who wish to submit a written statement.
We'll now recognize our panel of witnesses.
We're pleased to welcome Mr. David Tillotson III, Acting
Deputy Chief Management Officer, from the United States
Department of Defense; Mr. Scott Rutherford, senior partner at
McKinsey & Company; Mr. Michael Bayer, current chairman of the
Defense Business Board; Mr. Robert Stein, former chairman of
the Defense Business Board; Mr. Kenneth Klepper, former board
member of the Defense Business Board; and the Honorable
Lawrence Korb, senior fellow at the Center for American
Progress.
We thank you all. Pursuant to committee rules, all
witnesses are to be sworn before they testify. So if you will
please rise and raise your right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing
but the truth, so help you God?
Thank you. You may be seated.
Let the record reflect that all the witnesses answered in
the affirmative.
Mr. Tillotson, we will start with you, and we will go right
on down the line. You'll each be recognized for 5 minutes. If
you'd please limit your testimony to those 5 minutes so members
have a chance to ask you questions. We have a big panel today.
Your entire written statement and any attachments will be made
part of the official record.
Mr. Tillotson, you are now recognized for 5 minutes.
WITNESS STATEMENTS
STATEMENT OF DAVID TILLOTSON III
Mr. Tillotson. Thank you, Mr. Chairman, Ranking Member,
members of the committee. As my written statement will be
entered into the record, I will keep my remarks brief in the
interest of giving you time to ask whatever questions the
committee chooses to ask. I will say a couple of things very
quickly, however.
I think the one thing that I would take unequivocal issue
with is that the report was in any way suppressed. It was
actively discussed within the Department at the time. It has
formed the basis of discussion since that time. It was posted
in the public record. It was actually discussed with Members of
the House and Senate back in 2015, shortly after it was issued,
albeit not with this committee, but with the HASC and SASC. So
the fact is this has not been suppressed.
The actions that led to the results of the DBB report,
among other things, were actually kicked off by the current
Deputy Secretary of Defense acting through my office. Two
actions were taken: One, we initiated a contract through the
DCMO office to Ryan Consulting to do some work on understanding
where the costs of the Department rested in terms of back-shop
activity. So this was a deliberate attempt on the part of the
Department to, in fact, identify the opportunity space, not
associate with the--directly associated with Defense Business
Board. Ryan Consulting in turn subcontracted to McKinsey. So
that's the relationship to that company.
The second activity was that the Deputy Secretary chartered
the Defense Business Board at the time to do a corporate-style
review, looking at the information generated by McKinsey and
coming up with recommendations about how the Department might
proceed to address opportunities generated by whatever the cost
opportunities presented us. So those were the actions that were
taken.
The question about moving forward on efficiencies is hardly
new to the Department. Secretary Gates led a significant
efficiency initiative that resulted in multiple billions of
dollars repurposed within the Department. Secretary Hagel
continued that tradition. Secretary Carter continues to do so.
After the study was published, several things got
addressed. There were two concrete areas for recommendations in
the report and a third recommendation that basically said: Go
do some more homework. We acted on the two concrete
recommendations, which were to address some IT efficiencies. We
have not gone as far as the report would suggest we could. I
agree with that. We also pushed ahead on some services'
contract reviews, particularly on the OSD staff, the Defense
Agencies and Field Activities, an area where, candidly, not as
much attention had been rendered as needed to have been done in
the past. When we look at the result of those sets of actions,
that added an additional $7.9 billion in efficiencies to an
already double-digit billions of efficiencies that we had put
in place in prior years.
Having said all that, there is more to do. There is ample
opportunity. The DBB report, the supporting McKinsey material
would suggest there are things we can do.
There are two challenges to moving forward. I will be
candid about both. There is an internal challenge. That's our
job. We will go fight those battles. We have to have those
discussions internal to the Department, and in some instances,
we are assisted by actions on the Hill. So, in the most recent
National Defense Authorization bill, in 2017, there was a very
specific requirement for us to redirect and look at the
management of the medical community in the Department of
Defense. We agree from the DCMO's office that that is worth
looking at. We certainly would endorse moving forward with
that, and we appreciate the support of Congress in doing that.
Having said that, ``efficiencies'' means we take a look at
moving money and activities from current activities into new
activities. One of the areas that both the GAO and the DBB
report and independent DBB reports have all pointed at is our
use of leased property and owned real property. It's intriguing
to me that, when we opt to let a lease contract for a building
lapse--not terminate it, let the contract run out--that we
spend three trips to a State delegation explaining why we can't
close that contract. So I'm prepared and the Department is
prepared to work on this going forward.
Mr. Korb in a recent article has suggested five steps that
the Department should build on, including build on the DBB
report. We agree. But his fifth recommendation is a
recommendation the Department brings forward with regularity
and which, candidly, at least one member of this committee in a
prior testimony has asked me if we thought we needed, and that
is, do we need a BRAC? And the answer is yes. So there are
actions that we need to take, working in conjunction with
Congress. By the way, BRAC is not the only action. I'm going to
say that right now. It is not the only thing we should do.
Thank you for your time, Mr. Chairman.
[Prepared statement of Mr. Tillotson follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Chaffetz. Thank you.
Mr. Rutherford, you're now recognized for 5 minutes.
STATEMENT OF SCOTT RUTHERFORD
Mr. Rutherford. Chairman Chaffetz, Ranking Member Cummings,
and members of the committee, my name is Scott Rutherford. I'm
a senior partner at McKinsey & Company, and I'm the managing
partner of the Washington, D.C., office. I'm pleased to be here
today to discuss McKinsey's work for the Department of Defense
under contract with the Department's Deputy Chief Management
Officer.
From the fall of 2014 to the spring of 2015, we were
engaged by the Department to conduct a comprehensive assessment
of its spending in six core business functions: human resource
management; healthcare management; financial flow management;
logistics and supply chain; acquisitions and procurement; and
real property management.
Our work began with the development of what we called a
cost baseline, which assembled data on existing spending across
the entire Department in these six areas. To our knowledge,
that kind of crosscutting analysis of back-office spending at
the DOD had never before been conducted. McKinsey's work has
since been used by the Department in a number of important
ways.
First, the Deputy Chief Management Officer shared our
baseline with the DBB, and that baseline was used by the
Defense Business Board in its own analysis and report released
in January 2015. Although the McKinsey baseline was a starting
point for the DBB's efforts--and McKinsey is one of many inputs
into their approach--the projections, assumptions, and analysis
of the potential cost savings were those of the DBB.
Second, McKinsey's work for the DOD continued using the
cost baseline into what we would call benchmarking, which
compares the Department against other large companies, and
roughsizing, which began the process of estimating the
magnitude of the savings that might be achieved in different
categories.
So, in May of 2015, McKinsey estimated that the Department
could achieve about $4 to $5 billion in new savings per year
over a 5-year period across the six functional areas we
examined. That translates into cumulative savings of between
$62 billion and $84 billion over a 5-year period.
Third, it's our understanding that the Department has used
our baseline, our benchmarks, and our cost savings estimates to
implement changes on its own that are generating actual cost
savings. The projected cost savings we identified are somewhat
different than those estimated by the DBB's January 2015 report
because, while both estimates started with the McKinsey
baseline, McKinsey had the benefit of working collaboratively
with the DOD, allowing us to drill down further and do
additional analytic work for a couple months afterwards. Based
on that work, we also assumed a somewhat slower pace of change
than the DBB assumed. This resulted in a lower estimate of how
much savings could be achieved over the first 5 years relative
to the DBB's projections.
We're very proud of our work. We have been helping private
sector and government agencies identify opportunities to reduce
costs for many years and have accumulated a body of proprietary
databases and methodologies that allow us to bring that
experience to bear in very concrete ways. And in this case, we
provided the Department with a set of tools and approaches to
move forward on realizing cost savings opportunities, and we
believe the Department's potential return on that investment it
made in our effort is substantial.
Thank you for the opportunity to be here today, and I'm
happy to answer any questions you might have.
[Prepared statement of Mr. Rutherford follows:]
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Chairman Chaffetz. Thank you. I appreciate it.
Mr. Bayer, you're recognized for 5 minutes.
STATEMENT OF MICHAEL BAYER
Mr. Bayer. Thank you, and good morning, Chairman Chaffetz
and Ranking Minority Member Cummings and members of the
committee.
My last engagement with this committee was many years ago
when my then-boss, Bud Brown, was the ranking minority member
of the then-named Government Operations Committee. But today I
appear before you as the fifth chairman of the Defense Business
Board.
As are all the members of the Business Board, I am a
private citizen, not a paid government employee. We all
volunteer our time to serve the Department of Defense by
offering our collective advice on how to manage the Department
more efficiently in order to enable the Secretary and the
Deputy Secretary to maximize the allocation of scarce resources
for the warfighter.
The men and women of the Business Board and its sister
advisory boards, Policy and Science, who donate their time and
energy to help the Department, each consider it a tremendous
honor and a great responsibility.
As I've communicated to you and your staff, I have no
direct knowledge about the effort at hand. My first meeting
after returning as chairman of the Defense Business Board was
in July of 2015, more than 6 months after this study had ended
and its presentation publicly in January of that year. As this
was under the direction of a previous chairman and long before
I became chair, I have no particular insight or access into the
actions and decisions made about how this effort was conducted
or delivered.
I can say in the year and a half since I became chairman,
the board has been very busy. It has completed eight studies,
and our most recent effort, ``Focusing a Transition,'' was a
product of every member of the board, of the Defense Business
Board, and it was very well received by the Department's
leadership at the time and the incoming leadership of Secretary
Mattis' team.
But there is more work to be done in the months and years
ahead as we all strive to support Secretary Mattis' priorities,
particularly his third, and I quote, ``bringing business
reforms to the Department of Defense,'' which we believe are
essential for his ability to deliver the other two.
I will close with saying that this hearing appears from its
title to be focused on what the Department did or did not do
with a particular study. And speaking for the Department is an
inherently governmental function, and I as a private citizen am
strictly prohibited from assuming that role, which makes
appearing before you to discuss a study of this which I wasn't
part of a bit challenging. My duties include speaking for the
Business Board to the Department and others but not speaking
for the Department of Defense to anyone.
Thank you, Mr. Chairman. This concludes my opening remarks,
and I look forward to your and Mr. Cummings' and the rest of
the members' questions.
[Prepared statement of Mr. Bayer follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Chaffetz. Thank you, Mr. Bayer.
I now recognize Mr. Stein for 5 minutes.
STATEMENT OF ROBERT ``BOBBY'' STEIN
Mr. Stein. Chairman, Ranking Member, and members of the
committee, thank you for inviting me to provide testimony
today.
Congressman Cummings, it is great seeing you again since
our time on the Naval Academy Board of Visitors.
My name is Bobby Stein, and I'm here to discuss the
Department of Defense efficiency study commissioned by
Secretary Hagel and created under my leadership as former
chairman of the DOD Defense Business Board, known as the DBB.
I was honored to serve as a member of the DBB between 2010
and 2014, and chairman from 2014 to 2015. As you know, the DBB
is an advisory panel comprised of a select group of our
Nation's business leaders. Our purpose was to provide advice to
the Secretary and Deputy Secretary of Defense and other senior
leaders on best practices that could be applied to DOD. My
priority for the DBB was that members be not selected for any
partisan reasons, but based on tried and true experience
results in the business world.
I was honored to serve because I understood our mission to
be strengthening the defense of our country. I was appointed as
chair of the DBB by then-Secretary Hagel in 2014. After
becoming chair, I went on a listening tour of senior retired
uniformed and non-uniformed leadership to determine areas where
the DBB could support the agency.
During the listening tour, we took note of key facts and
figures about how money was being spent. It generated concerns
because, as a retired Chairman of the Joint Chiefs of Staff
said, the biggest threat to our national security is our
national debt.
Key takeaways included our national debt is $20 trillion.
Our Federal Reserve has taken their balance sheet from 800
billion to 4.5 trillion. At the Pentagon, overhead and support
comprise 40 percent of spending, or $240 billion. This equals
twice the combined total budgets, defense budgets, of France
and England. The expenses on DOD headquarters alone amounts to
$40 billion, more than the German defense budget.
At the same time, since 2001, DOD civilian personnel has
increased over 15 percent, but military personnel has decreased
by 5 percent. While everyone wants reform in the Pentagon, the
status quo remains. The antibodies get you every time. Indeed,
clean audits and services continue to fail. In some estimates,
we have spent $6 billion to try to get clean audits in our
different departments. This listening tour predated the
commissioning of the efficiency study but highlights the
importance of the effort. The DBB efficiency study was one of
many reports undertaken by the DBB under my leadership. This
study was the first effort ever in DOD history to
comprehensively evaluate labor cost data and create a picture
of how much money is being spent on noncombat operations at the
agency.
As the chair of the DBB during the study, I felt that my
role was to help ensure that the study was done accurately so
we could meet our ultimate goal of identifying inefficiency and
cost savings that could then be moved to better uses. In
particular, I helped to identify the people with the right
experience to handle this type of project. For something like
this, you need a heart surgeon if you have a heart problem, not
a country doctor, as said by one of the retired CNOs. And I've
spent time looking for who that right person is and who can
help that path to work with the Department of Defense to get
these savings. And the name that kept coming up was Kenny
Klepper. Kenny has done this in a Fortune 50 company. He
understands that the DOD is not a business. It is government,
and there's not easy efficiency opportunities. So, with that,
we got Kenny to lead this study.
The study succeeded in its goal in highlighting
inefficiency that, if remedied, could generate significant cost
savings to the Department. This cost savings could then be
transferred to other priorities, like improving readiness,
modernizing our defense, and creating jobs.
The study was presented to the full DBB at public hearing
January 25 and won a unanimous approval for its findings and
recommendations.
The General Accountability Office also reviewed the study
and found the methodologies and analysis adequate to confirm
its conclusions. At the completion of the study, along with
other members of DBB, we were ready to move forward to assist
the DOD in reviewing the study's findings and recommendations.
I believe the DBB efficiency study represents a quality
analysis of costs and inefficiencies at DOD, and it is my hope
that it will be useful to the agency's efforts to streamline.
It was an honor to lead the DBB during the creation of the
study, and I'm proud of the work achieved in support of a
strong national defense. Thank you for your time, and I'm
pleased to answer any questions the committee may have.
[Prepared statement of Mr. Stein follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Chaffetz. Thank you.
Mr. Klepper, you're now recognized for 5 minutes.
STATEMENT OF KENNETH ``KENNY'' KLEPPER
Mr. Klepper. Good morning.
Chairman Chaffetz. If you can move that microphone up
close. Just straighten it out. There you go. Thank you.
Mr. Klepper. Thank you. Good morning, Chairman Chaffetz and
minority Ranking Member Cummings. It's a pleasure to be here.
I've served as adviser on the CNO's executive panel for five
CNOs, and this is a first for me for over a decade. So I am
happy to be here to tell the story of the work that we have
done.
The effort that we embarked on for the Defense Business
study is something I took very, very seriously. Just briefly, a
little of my background: I spent 40 years with the tradecraft
of organizational modernization and change. I spent about 20
years in chemical plant refinery operations out in Texas. And I
spent the second 20 years in health care. And I chose in my
written remarks that I submitted to the panel an example that I
think has a lot of stark parallels. Even though, as Bobby said,
I understand that the Defense Department is not a business,
there are some very strong parallels.
I was asked to come in and help do a turnaround for a
company in New York called Empire Blue Cross Blue Shield. It
was financially insolvent at the time, not enough reserves to
pay for claims, the largest health plan in the Northeast of the
United States. One of the things we did as part of the recovery
of that company was understand that we had no money, and we had
an obsolete legacy infrastructure running it, and we were
losing millions of members a year. The company was in a death
spiral. Since we didn't have cash to spend, the only way we
could fund the things that urgently needed to be addressed to
improve the performance of the business was to self-fund those
things through productivity.
So we put in place an opportunity to take productivity
savings as a way to generate the money to invest in the
platforms and automation and the improvements to recover the
company, which we did, and we were doing really well. And then,
on September 11, we were the second-largest tenant in the World
Trade Center. And through all the things that we did to improve
speed, agility, optimize our operations for the private sector,
to improve our service to our members and the physicians, we
never recognized the inherent ability that it gave us to
survive a devastating disaster for our facility. We had over
2,000 people in the building at the time, and with great pride
I can tell you, if we can separate the human tragedy for just a
moment--we lost 11 people that day--that when the Tower
collapsed, we were able to maintain the operation of the
business. We lost three call centers, two large server farms.
They all failed over to other operations, and the company
continued to operate.
The Kennedy Business School did a case study that we
included in my written remarks. And the reason I bring that up
is, when you look at the state of the operation of DOD, the
obsolescence of the legacy infrastructure is not just a bad
cost situation and not just creating bad service. I think it
increases the vulnerability of the operation to other threats.
Whether it is a kinetic attack, an EMP attack, cyber attack, it
is almost impossible to harden those types of legacy cores. So
part of what I hope that we can achieve through the
modernization of these assets is not just improve the cost
basis and not just improve the service, but to also harden and
provide a much more resilient infrastructure for the Department
of Defense.
The last thing I would mention is the $125 billion savings.
We did something that had never been done before--and I give
great credit to the Deputy Secretary, Bob Work--is, whenever I
talk to him, that the one thing that we had to have to really
start was we had to have transparency of where the money was,
where the cash flows were. He did something I think has never
been done before. He sponsored presentations by Bobby and
myself to the DEXCOM, the Defense Executive Committee. He
described the process of evaluation that we wanted to do and
that we advised him to do, and to his credit, he got approval
from all the civilian leadership to let us get the money. And
we brought in--I actually asked to have McKinsey brought in
because I've done this study before with them, and they did a
great job for me. We had over a hundred people pulling data out
of these systems. And people before that had said: The data is
not there. The data is no good. The antibodies will get you.
What we found was the data was there, and the data was not
perfect, and believe me, the study is not perfect, but I
believe that the savings that we identified are there with a
high degree of certainty.
So I think the debate and the big question for us is, and I
think it was stated by Mr. Tillotson and Mr. Rutherford, is--
the money is there--it is, can we get the institution out of
the way to help us do the things that can obviously help us
improve the operation of the business? And that's the purpose
of us being here. Thank you.
[Prepared statement of Mr. Klepper follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Chaffetz. Thank you.
Mr. Korb, you're now recognized for 5 minutes.
STATEMENT OF LAWRENCE J. KORB
Mr. Korb. Chairman Chaffetz, Ranking Member Cummings, thank
you very much for inviting me here today.
I think this hearing comes at a very critical time. As
Ranking Member Cummings mentioned, President Trump wants to add
$54 billion to the fiscal year 2018 budget. It's also important
to keep in mind that they're proposing to add $30 billion to
the fiscal 2017 budget, and then the Congress last year added
$23 billion in the National Defense Authorization Act. So we're
talking about adding $100 billion to the defense budget
compared to what we thought about a year ago.
It's also important to keep in mind, as has been very well
documented and even people in the Pentagon admit, that the
overseas contingency budget, or the warfighting budget, about
half of it is used to fund items from the enduring items or
from the base budget, and then the Pentagon has gotten relief
for the last 5 years from the budget cap. So I want to put that
into perspective.
Now, in terms of what the Defense Business Board
recommended, let me give you some examples from my own career
that I think buttress the points that they made. Basically,
I've been working on these issues ever since I was in the
service in the sixties; at AEI in the seventies, working with
former Secretary of Defense Melvin Laird, who I think was
probably the most effective Secretary we have ever had; the
privilege I had of serving for 5 years in the Reagan
administration administering about 70 percent of the defense
budget; and then continuing to focus on these areas at
Brookings, the Council on Foreign Relations, and now the Center
for American Progress.
When I was Assistant Secretary of Defense, my title was
Manpower, Installations, and Logistics. Right now, you do not
have anybody in that position. They have taken the manpower or
personnel part of it, elevated it to an Under Secretary, even
though he or she does not have responsibility for installations
and logistics.
During most of the Cold War, we had one Assistant Secretary
serving in the policy area. It was called the Assistant
Secretary for International Security Affairs. Now you have
seven confirmable positions in the policy area. All of these
men and women have their own staffs.
When I was working in government, the Congress took the
lead in proposing the Goldwater-Nichols Reform Act, which was
really very, very critical to get the Department to really be
unified for the first time. All of my colleagues fought it
because they felt that it was saying that they were not doing
their job. I thought, having based on my own research and
testifying on it, I supported it. What we did is we empowered
the Chairmen of the Joint Chiefs of Staff and the Joint Staff,
and so they increased their staffs. The service chiefs did not
decrease their staffs, and so what you ended up with was an
increase in the staff.
Similarly, when we set up new commands, like the Africa
Command and the Central Command, you did not decrease the
staffs of the commands that used to have responsibilities for
those areas.
And then, finally, and this is very, very critical, and in
the Bob Woodward article, they quote the former Secretary of
the Navy Ray Mabus talking about the fact that he says 20
percent of the budget goes to overhead in agencies, and he
mentioned the Defense Intelligence Agency and the Defense
Logistics Agency. Well, the fact of the matter is, when those
agencies were created, the idea was that the services would
transfer those functions to a unified organization, and they
would cut their own staffs. They didn't.
And I mention in my testimony when I did my dissertation
and wrote my book on the Joint Chiefs of Staff, when I asked a
former Chief of Naval Operations, you know, how did you handle
this? He said: Oh, we never cut the size of our own logistics
organizations or intelligence.
Let me conclude with this point. I can assure you that if
you add the additional funds that have been proposed by
President Trump, you will ensure that those reforms do not get
made. The best way to ensure that it happens is don't give them
any more money. Thank you.
[Prepared Statement of Mr. Korb follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Chaffetz. Thank you all for your testimony.
I'll now recognize myself for 5 minutes.
Mr. Tillotson, let's go back to the study. You originally
awarded the study to--name the company again.
Mr. Tillotson. Ryan Consulting.
Chairman Chaffetz. Do you happen to know R. Keith Harding,
the president, I believe.
Mr. Tillotson. I do not know.
Chairman Chaffetz. If I have the right website.
Mr. Tillotson. You may, but I'll be honest with you. No. I
do not know.
Chairman Chaffetz. And how much money was paid to Ryan
Consulting?
Mr. Tillotson. For the two elements of the contract that
were executed during the DBB study, about $2.9 million. There
was a third deliverable that was not incorporated in the DBB
study, and that was another, I think it was, $3 million; so
overall about $6.
Chairman Chaffetz. Six million?
Mr. Tillotson. Yes, sir.
Chairman Chaffetz. And how much of the work did they
actually do?
Mr. Tillotson. I can't tell you. I do know that the
McKinsey team lead, the lead for the study was from McKinsey,
and I don't know what the actual work split is.
Chairman Chaffetz. Mr. Rutherford, how much were you paid
to do this study?
Mr. Rutherford. $8 million.
Chairman Chaffetz. So you got $8 million, but you let out
this contract for $6 million. How does that work?
Mr. Tillotson. I don't know. That's not how the numbers----
Chairman Chaffetz. Where did the other $2 million come
from?
Mr. Rutherford. I was just referring back to what--looked
at our contracts for the totality of the full contract. I
thought it was $8 million.
Mr. Tillotson. Excuse me. Let me correct myself. I think it
was closer to $9, is what we actually wound up with. Sorry. It
was an additional 6. That's why I'm remembering a $6.
Chairman Chaffetz. Oh, an additional $6?
Mr. Tillotson. Yes, sir, $6 plus $2.9. So it's about $9.
That sounds about right.
Chairman Chaffetz. So $8.9- or $9 million, and McKinsey
gets $2 million--or $6 million.
Mr. Tillotson. Right.
Chairman Chaffetz. Or $8 million, and we don't know what
percentage of the work Ryan did.
Mr. Tillotson. I do not know percentage of the work Ryan
did.
Chairman Chaffetz. Is that something you can figure out and
get back to this committee?
Mr. Tillotson. I can certainly go ask. I'll have to go ask
Ryan.
Chairman Chaffetz. Yeah. How in the world did you select
Ryan Consulting? With all due respect--I'm sure they're nice
people--if I have the right website, they got three senior
people. Their head of human resources has a grand total of 6
years, and I'm sure that Tiffany Hollis, again, if I have the
right website, is a very nice person.
Mr. Tillotson. I will get back to you with the answer.
Chairman Chaffetz. But how do they get such a contract? I
mean, the Pentagon, we're talking about $600 billion or
something in annual expenditures, and I'm rounding by big
numbers here.
Mr. Tillotson. Yes.
Chairman Chaffetz. McKinsey & Company is a huge, massive
company with a great reputation. I really am curious because I
think we're starting to see where a lot of waste starts to go,
right? What did we get for the $900,000 or million dollars that
Ryan kept if the math you gave me already was working?
Mr. Tillotson. Sure.
Chairman Chaffetz. You give them 9. They give McKinsey 8.
What did we get for that other million dollars?
Mr. Tillotson. I will get back to you and let you know how
much work they put in.
Chairman Chaffetz. That's what I worry about. Even just
doing a study, we can't figure out what we cost and what it
didn't cost and who got paid and who did the work. And then we
give a contract to somebody, with all due respect--and I'd love
to look at their background, and we will--but how in the world
did they even get the contract to start with, because you're
going to need the expertise and the depth and the knowledge of
a McKinsey to actually get it done? So if you could let us
know.
Mr. Tillotson. Sure.
Chairman Chaffetz. I also want to know specifically from
the time you decided to do this study to the time you actually
let out the contract and actually McKinsey started working on
it, because that's part of the problem: whether you're buying
an F-35 or whether you're buying a study, again this is the
problem in the bureaucracy of the Pentagon.
Let me go to you, Mr. Stein. I only have a minute left
here. What's your biggest takeaway from all of this? You've got
a lot of expertise. What's your biggest takeaway and maybe add
to that what your biggest frustration is?
Mr. Stein. The biggest takeaway is that the focus has to be
on the warfighter, and the process has got to be a partnership
between Congress and DOD. And I think we're all in this
together, and there's a lot of work that needs to be done. And
this is critical. The $20 trillion that one of the retired
Chairman of the Joint Chiefs says is we got a $20 trillion----
Chairman Chaffetz. Yeah, but specific to this study. Come
on. We've spent all this money. You've looked at this. You were
the chairman. Now you're former chairman. What's working, and
what's not working?
Mr. Stein. Well, the key thing that works is you got to
have heart surgeons, as I said, to help the DOD. There are only
certain people that can do this type of work. And you need
their help, and I will say that McKinsey did a great job, and I
will say that there's a lot of work around--both uniformed and
non-uniformed people in the DOD that did great work. But you
need people like Kenny Klepper. If not Kenny Klepper, you need
people that understand this process to make change. And once
you figure out what those changes are, you got to coordinate
between Congress and DOD, and you've got to change culture, and
culture is tough to change.
Chairman Chaffetz. Thank you.
I now recognize the ranking member, Mr. Cummings.
Mr. Cummings. Thank you very much.
Mr. Connolly. Would the ranking member just yield for 1
second before he starts?
Mr. Cummings. Of course.
Mr. Connolly. I thank my friend and not to count against
his time. I want to welcome a lot of my constituents from
Herndon, Virginia, who are here watching a hearing, and we are
delighted to have them here today.
Chairman Chaffetz. We welcome you all for being here, and
you're very sharply dressed. Let the record reflect how sharply
dressed, well, at least row four is. Thank you. We appreciate
your attendance.
I now recognize the ranking member, Mr. Cummings.
Mr. Cummings. Thank you very much.
Mr. Stein, you all volunteer for this, right?
Mr. Stein. Yes.
Mr. Cummings. That's what I thought. And how confident are
you about the potential savings? You know, you were the
chairman of the Defense Business Board when the study was
conducted. Is that right?
Mr. Stein. Yes, sir.
Mr. Cummings. And I know how dedicated you are to these
kinds of causes. But, you know, it just seems like we talk
about this all the time, but it seems like we never get a hold
of it. In other words, we talk about it, savings. We talk about
overspending, but it seems that we can never--you know, we get
a lot of good recommendations, but we never get there. Do you
follow me? So, first of all, I guess, you feel pretty
comfortable that the potential savings are there?
Mr. Stein. I absolutely feel that the savings are there,
number one. Number two, when we looked at this, our focus was,
how do we do this without firing people? You know, you have
almost 30 percent of the workforce retiring in the next 5
years, which, you know, this was 2 years back. You have 1
percent of the contracts is 65 percent of the--is a spend. You
got 1,500 data centers in today's world of the cloud. And the
big thing, Congressman, is everybody says that, you know, we
are--the number is too low or the number is too high, but
nobody sat in the room with us and with Kenny. And this is a
process that I hope comes out of this, is people sit in the
room and sit down with Kenny and go through the numbers, and we
have to update the numbers.
But the numbers don't lie. And what we have got to do is
adults sitting around--because this is for our kids and
grandkids to get this right. There are not many times that we
will have to get this thing right. And what I was saying is we
do have $20 trillion of debt, and if interest rates go up 3
points, that wipes out the defense budget. What I'm saying is
what I would love to come out of this is we have got very
bright people in Congress, in DOD, and Kenny spent a year
talking about--this was an unpaid job--he spent a year on this.
And I think if we can work toward what he has done, his
process, and seeing how we take advantage of that process, I
think this country will be better off.
Mr. Cummings. And I got that. Well, let me go back. You
know, we have had all of these--I'm going to come to you in one
second, Mr. Klepper, and you may want to answer this too. We
have had all these instances--I haven't heard about any
recently--where we are paying like $500 for a trash can. I
mean, is that kind of waste and fraud--I see you laughing, Mr.
Korb--I mean, are we still doing that?
Mr. Korb. When I was in government I had to handle the $500
toilet seat. I had to deal with that before Congress.
Mr. Cummings. Must have been a hell of a toilet seat; $500
you said?
Mr. Korb. Yes, that was a big issue, and Senator Grassley
and I were able to work together to stop that type of stuff.
Mr. Cummings. Is that a large part of the problem, Mr.
Klepper, do you think? In other words, you got a system that's
just, it's almost on automatic--let me finish--then you got
some old boys in there, too, hello, and they've been used to
getting these contracts. And nobody, everybody wants folks to
make a profit, but we don't want to be ripped off either. So
I'm trying to figure out, do you see a lot of waste? What are
you seeing? Anybody else on the panel that might be able to
answer that?
Mr. Klepper. So we focused on, in the study, as far as the
analysis, trying to find the areas where we thought there was
the biggest opportunity to get savings quicker. You don't see
big IT reengineering kind of things or multiyear projects.
There's lots of savings through automation that you could have
there. So we focused really on two areas: contract optimization
and restructuring and an early retirement opportunity to avoid
having to fire people. Big numbers on both sides.
Two key areas that we saw in the contracting piece, and it
is there--the data is there. It's inescapable. One, and I think
you heard some conversation, is there's a lot of tiered
contracts. So somebody has a contract, and the only way you can
get on the contract is you have to be a sub and maybe a sub of
a sub and a sub. So what happens is, in the subs, it's like a
credit card transaction fee. So, when you get down to the
bottom, what did you actually pay for the service by the time
it went through this bureaucracy, forgetting even the cost of
the bureaucracy and all the people that worked all of those
contracts----
Mr. Cummings. That's what the chairman, that's what you
were alluding to, right?
Chairman Chaffetz. Yes.
Mr. Klepper. So it's rampant, and it's massive. And so,
when we looked at that, we went in specifically looking at
those things because you can get at that, not necessarily even
reducing contractors' services, looking at what you end up
paying and going out and rebidding large-scale bids for like-
type services and getting a much, much bigger rate, better rate
at the same kind of services. So that was one of the key
deliverables in the contract optimization component.
Mr. Cummings. I see my time is up. Thank you.
Chairman Chaffetz. I thank the gentleman.
I now recognize the gentleman from Ohio, Mr. Jordan, for 5
minutes.
Mr. Jordan. Thank you, Mr. Chairman.
Mr. Stein, you were chairman of the DBB when the Department
of Defense commissioned you guys to do the study. Is that
accurate?
Mr. Stein. Yes.
Mr. Jordan. And the goal was to look at how to make back-
office operations more efficient, save money? That was the
objective of the study?
Mr. Stein. Yes, sir.
Mr. Jordan. I just want to walk through the basics here,
and as I understand it, you felt like you needed some help on a
study of this size, so you worked with McKinsey. They did a lot
of the work to come up with the findings. Is that right?
Mr. Stein. No. The way it worked is I asked Kenny to lead
this effort.
Mr. Jordan. Okay. So the DBB led the effort.
Mr. Stein. The DBB led the effort.
Mr. Jordan. McKinsey helped.
Mr. Stein. McKinsey helped.
Mr. Jordan. Okay. And the conclusions were that you could
save $125 billion in taxpayer dollars over 5 years at the
Department of Defense. Is that accurate?
Mr. Stein. Yes, sir.
Mr. Jordan. And that savings meant that you could save
money in back-office operations. That money could then go to
upgraded weapons systems and to our troops in the field.
Mr. Stein. Yes.
Mr. Jordan. Great objective. I think that's exactly what we
all want to have happen.
Now, so you get this study that says you can save $125
billion over 5 years and put the money in troops and better
weapons systems. All sounds good. My guess is this wasn't the
first study that the DBB had authorized the commission to do.
You probably do studies all the time and have reports. Is that
accurate? This wasn't your first study?
Mr. Stein. This was not our first study.
Mr. Jordan. So you do this all the time, right?
Mr. Stein. Yes.
Mr. Jordan. So all these other studies--you commission a
study. You work with some outside group, maybe or maybe not.
You get back the report. What typically happens with the report
and all those other studies? What do you do with the report?
Mr. Stein. They're put on the website, and they're
distributed, bound and----
Mr. Jordan. The DOD website, right?
Mr. Stein. Yes.
Mr. Jordan. Are they typically printed out, lots of copies
published, wide dissemination? Does that all happen?
Mr. Stein. Yes, sir.
Mr. Jordan. Every other time you've done a study and got
the conclusions, that's the normal course of business?
Mr. Stein. Yes, sir.
Mr. Jordan. Okay. Well, that sort of raises the obvious
question: Did that happen with this report?
Mr. Stein. I think it was taken off the website.
Mr. Jordan. So all the other times, you use taxpayer
dollars, you do a study, find out something important for
taxpayers and potentially savings, there's a normal, normal way
that information is presented to the public. DOD puts it on
their website. They take that report; they print it. They make
several copies; i.e., it's published. And it gets wide
dissemination so we can learn the valuable information that we
spent a lot of taxpayer dollars to get?
Mr. Stein. Yes, sir.
Mr. Jordan. In this case, was the report put on the
website?
Mr. Stein. It was put on the website and taken down.
Mr. Jordan. Oh, so it didn't stay on the website?
Mr. Stein. After I left the DBB.
Mr. Jordan. And that's not the normal course of business,
right?
Mr. Stein. No, sir.
Mr. Jordan. Okay. Was it printed?
Mr. Stein. I think their people were told not to print the
report.
Mr. Jordan. So it wasn't printed. Mr. Tillotson looks like
he's disagreeing based on his hand motion over there.
Mr. Tillotson. There's your printed report.
Mr. Jordan. Okay. Was it widely disseminated, Mr. Stein?
Mr. Stein. Kenny, you can talk----
Mr. Jordan. Mr. Klepper?
Mr. Klepper. I don't know if it was widely disseminated. I
know, after I left the board, I called back in and asked if I
could get a printed copy, and they told me they were told not
to print it. That's the first printed copy I've ever seen.
Mr. Jordan. Mr. Tillotson, is that the only printed copy,
or were there lots of copies?
Mr. Tillotson. There were lots of copies.
Mr. Jordan. Really?
Mr. Tillotson. Yes, and they were distributed at the time
and were available----
Mr. Jordan. Why does the guy who chaired the DBB at the
time the report was commissioned and at the time that the
report was actually completed say that it wasn't widely
disseminated, it wasn't printed, and was taken off the website?
Mr. Tillotson. So I have no idea why he wasn't given a copy
of the printed report.
Mr. Jordan. Why did The Washington Post report what Mr.
Stein seems to be and Mr. Klepper seem to be saying here today
and not what you're saying?
Mr. Tillotson. Because they also believe, as Mr. Stein
believes, that it was taken off of the website. It was not. To
be accurate, it was moved from one location to another
location. It was never taken off the website.
Mr. Jordan. Was it moved from a high-profile location to a
somewhat less high-profile location?
Mr. Tillotson. It was moved to the meeting minutes
location, which is publicly available. It's been downloaded
2,800 times since January of 2015.
Mr. Jordan. Mr. Stein, is that consistent with how things
are normally done with the other reports, the many other
reports you've commissioned?
Mr. Stein. This is to the best of my knowledge. I've not
checked.
Kenny, do you have any comment there?
Mr. Jordan. Well, let's just assume you guys are--assume
that what you are saying is exactly right, because I've got
just a few seconds here. Tell me why; why the difference? Why
was this report treated different?
Mr. Stein, why would it be treated different?
Mr. Stein. I don't understand it.
Mr. Jordan. Maybe it was the magnitude of the findings.
Could that be? Seems logical to me.
Mr. Chairman, if I could just read one, we have an email
from Deputy Secretary of Defense, Mr. Work, that he sent to the
Secretary of the Navy, Mr. Mabus, and he says this. He
criticizes a speech that Mr. Mabus made where he referred to
the very report we're talking about right here. And he said:
``There were problems with your speech.'' And let me just
quote: ``Senator McCain believes we can take a 30-percent
reduction in management headquarters.'' He says to Mr. Mabus:
``Your comments could easily be used by him and his staff as
justification for the size of the cuts referenced in the
report.''
So maybe the reason it was treated different is because
some folks at DOD didn't actually want this out there, this $8
million study that shows $125 billion in savings over 5 years?
Could that be a logical explanation why it was treated
different, Mr. Stein?
Mr. Stein. I have no idea. I really don't. I left the DBB,
and after I left DBB, I had no responsibility on what happened
to the report. All I know is, if I was still chairman of the
DBB, that report would have been----
Mr. Jordan. Treated like it normally--like all the reports
are treated, right?
Mr. Stein. Yes, sir.
Mr. Jordan. Thank you, Mr. Stein.
Thank you, Mr. Chairman.
Chairman Chaffetz. I thank the gentleman.
I now recognize the gentleman from Virginia, Mr. Connolly,
for 5 minutes.
Mr. Connolly. Thank you, Mr. Chairman.
And welcome to the panel.
Mr. Tillotson, it's your contention in response to Mr.
Jordan's questioning that there was no attempt to downplay or
hide or suppress the results of this study. Is that correct?
Mr. Tillotson. That's correct, Congressman.
Mr. Connolly. How many copies of the report were, in fact,
printed?
Mr. Tillotson. I can't tell you, but I will find out and
let you know. I don't know I've been dropping them off every
place I've gone since The Washington Post article came out
because people have been asking. So we have a stack of them.
They've been available throughout the period.
Mr. Connolly. So have copies been made available to the
current members of the DBB?
Mr. Tillotson. Yes.
Mr. Connolly. You have one, Chairman Bayer.
Mr. Bayer. Yes, sir, I do.
Mr. Connolly. So were copies made available to former
members and the former chairmen of the DBB, such as Mr. Stein.
Mr. Tillotson. This is the first I've heard that anybody
had not been given a copy when it was requested. So I can't
answer.
Mr. Connolly. So maybe we can accomplish something here
today. Would you promise under oath, Mr. Tillotson, to make
sure Mr. Stein and company have copies of the report?
Mr. Tillotson. Yes, Mr. Congressman.
Mr. Connolly. I thank you so much.
Mr. Tillotson, in your testimony, you identify potentially
$1.9 billion in savings under the IT rubric.
Mr. Rutherford, I believe the comparable number in your
report, McKinsey's report, is actually $5 to $9 billion. Is
that correct?
Mr. Rutherford. I believe so, sir.
Mr. Connolly. So, Mr. Tillotson, why the discrepancy? Why
are you so low and McKinsey so high? And as you may know, this
committee is pretty interested in the IT management and
procurement issue, and DOD is the one agency that's been, from
our point of view, a reluctant partner in compliance with
FITARA, also known as Issa-Connolly.
Mr. Tillotson. The answer to your question, Mr. Congressman
is I don't disagree with the numbers from McKinsey. I also
don't disagree with the DBB report that suggests there are many
more billions to find. What we have provided in the response to
date is what we have actually put in place to date as opposed
to other activities that we need to do.
Mr. Connolly. Okay.
Mr. Tillotson. So we put $1.9 billion worth of initial work
in the 2017 budget. In the 2018 budget, we added another 250
million, which I would acknowledge, by the way, to this
committee is not anywhere close to what's possible. But there
was a deliberate decision made as we constructed our
discussions in 2018 to allow headroom for new administration to
walk in and make decisions.
Mr. Connolly. All right. Fair enough.
Mr. Tillotson. I think there is ample more dollars to be
saved in the IT space alone that would even actually come up
close to the total number McKinsey is suggesting we could
achieve. I think we can achieve those numbers, which are kind
of more in line with the DBB numbers.
Mr. Connolly. Well, let me ask this, I would ask that you
submit to the committee that potential plan. We would be very
interested to see a little fleshed-out plan in terms of what
are the savings we think we could strive for, not for the
purpose of making you face the inquisition, but from the point
of view, we want to get better compliance for FITARA across the
entire Federal Government; you're the biggest.
Mr. Tillotson. I understand, Mr. Congressman. We agree with
you.
Mr. Connolly. Terrific.
Mr. Korb, I mentioned to you before the hearing, but for
the average citizen, looking at a relatively indisputable
number of $125 billion over 5 years, maybe at least, but all
right, that is wasted in Pentagon spending or grossly
inefficient. Why in the world would we want to add $54 billion
to the Pentagon's budget this year when we haven't addressed
the critical issue of efficiency? Why would we want to throw
more good money after bad? If this were a civilian agency, I
know my friends on the other side of the aisle would be all
over it.
Mr. Korb. I agree with you, Congressman. In fact, my
feeling is, if you give them the extra money, and as I
mentioned in my testimony, it's not just the 54; they want to
add $30 to the 2017 budget in addition to the $28 that the
Congress has added in the 2017 NDAA. They won't do it. If you
really want them to do this and make a full-faith effort to
implement these recommendations, you cannot give them more
money, because if you do, there will be no incentive to do it.
And I think that's really the key issue.
I mentioned in my testimony about my work with former
Secretary Laird. If you go back and you take a look at the
Nixon administration when the defense budget was cut
substantially, in today's dollars, it was like $350 billion.
Look at the reforms they made under the leadership of David
Packard. That's the point I'm trying to make, and I couldn't
agree with you more.
Mr. Connolly. And I would just add, because my time is up,
but I mean, there is a huge opportunity cost too. So, in
addition to throwing good money after bad potentially--I'm
talking about by leaving waste unaddressed, this waste--we're
also taking away from civilian domestic investments that are
all so critical. So it's a double cost when we do this if we
don't address this issue.
Mr. Chairman, I thank you for having the hearing today. I
think it's a very important one. And I appreciate very much all
of our witnesses being here.
Chairman Chaffetz. I thank the gentleman.
I will now recognize the gentleman from Florida, the
chairman of our Subcommittee on National Security, Mr. DeSantis
of Florida, for 5 minutes.
Mr. DeSantis. Thank you, Mr. Chairman.
Thank you to the witnesses.
Mr. Tillotson, when the results of the study indicating
these potential savings were revealed, what was your reaction?
Mr. Tillotson. My reaction was that the potential for the
savings was certainly there, but the timetable was not going to
be executable in a Federal Government setting. And I had long
conversations with Kenny, with Mr. Klepper, at the time.
Recognizing that the basis of his recommendation was largely a
corporate model, he agreed. And part of that issue is because
we have an interaction in the process that occurs both within
the executive side of the Federal Government and then a
subsequent interaction that occurs with Congress in decisions
of significant magnitude that involve changing organizations
and structures.
Mr. DeSantis. I understand that. But at bottom, though, you
do welcome--you did welcome the opportunity to try to save
money and make the operations better?
Mr. Tillotson. Unequivocally. I think the study was well
done. I think the work done by McKinsey was significant. In
fact, we followed on from the McKinsey work to try and put
better cost repetition in place so that we can get a better
handle on these issues. So everything that was done in the
study has actually now allowed us to form the basis of how we
approach the problem going forward.
Mr. DeSantis. To your recollection, who briefed the Deputy
Secretary on the results of the study?
Mr. Tillotson. It was Mr. Klepper and Mr. Stein.
Mr. DeSantis. Were you there when he was there?
Mr. Tillotson. Yes.
Mr. DeSantis. What was his reaction?
Mr. Tillotson. His reaction was also positive.
Mr. DeSantis. It was positive?
Mr. Tillotson. Yes.
Mr. DeSantis. Then why did he ultimately dismiss the
findings?
Mr. Tillotson. He did not. In fact, when the reference that
was made to the email exchange in which he allegedly referenced
or dismissed the findings, he was--he, Secretary Work, was
actually addressing the fact that Secretary Mabus was raising
the issue in public rather than bringing it forward as an
internal conversation. And in the same email, I quote, from
Secretary Work to Secretary Mabus: ``There is absolutely
nothing wrong with your call for the Department to get more
efficient. It is timely and on point. I'd simply request that
you continue to push internally to get the Department more
efficient and focus your public comments on the Department of
the Navy.''
Mr. DeSantis. And I did see that, and I appreciate that. So
let me ask this: The Washington Post article claims that Deputy
Secretary Work suppressed the DBB study from wider
dissemination and tried to keep--now you have disputed that
Washington Post story. Is it your testimony that this report
received the fullest possible dissemination within the
Department?
Mr. Tillotson. The report was discussed within the
Department at the highest levels. It was discussed with all the
senior leaders of the Department at the time. I will tell you I
think there were----
Mr. DeSantis. You said say it was widely disseminated.
Mr. Tillotson. Yes, sir.
Mr. DeSantis. Is that your testimony?
Mr. Tillotson. Yes, sir.
Mr. DeSantis. Was this study shown to the Secretary of
Defense?
Mr. Tillotson. Yes, I believe it was at the DEXCOM meeting;
it was discussed at the DEXCOM with Secretary of Defense at the
time.
Mr. DeSantis. Okay. And what was the reaction from the
SecDef?
Mr. Tillotson. I think he was positive at the time.
Mr. DeSantis. Okay.
Let me ask, Mr. Bayer, have you read the study?
Mr. Bayer. What I have read are the slides. I have not read
the--it was never formalized into a completed study report.
Mr. DeSantis. That was there--since you've become chairman,
has there been discussion about limiting the distribution
within DOD? Have you been privy to--obviously, you read The
Washington Post article, I am sure, when that came out.
Mr. Bayer. Yes. Absolutely not. It's never been limited.
It's been available on the website from the moment it was
briefed to the board and the public in January.
Mr. DeSantis. You don't have a role? Your testimony would
be you have no role in limiting it in any way? Is that correct?
Mr. Bayer. I didn't limit it in any way.
Mr. DeSantis. Okay. And you didn't have any discussions
with anybody at DOD about limiting the report, the
dissemination.
Mr. Bayer. It was--having been on the Defense Business
Board for a decade--perhaps a little context here is that we
are--the board is tasked by terms of reference to do a
particular piece of work: in this case, this effort, this
effort. When that effort is completed, it is briefed to the
public, and the chairman and the members of the committee then
brief the other senior leadership in the Department, at which
point, the board moves on to other work. From the time in which
this board is--this effort was completed, the effort at hand,
the board has done nine other pieces of work in the normal
progression of things.
Mr. DeSantis. So what is your response to the questions
that were asked? You have some of these things that are
publicly available, more prominent? This one is, I would say, a
little bit harder to find location. Why is that?
Mr. Bayer. Well, very simply, there are three places on the
Defense Business Board website where previous work is
displayed. When you dial on to the website at the beginning,
there is a banner of work that flies by. That's always the most
current work. For a while, this effort was there, but it was--
--
Mr. DeSantis. For how long? Do you know?
Mr. Bayer. I don't. I'd have to go back and look at----
Mr. DeSantis. Was it still on when you took over?
Mr. Bayer. When I took over, it was on, but it was replaced
by the next piece of work: ``Fostering an Innovative Culture
through Corporate Engagement and Partnership.'' It was always
available on the minutes of that board meeting in January of
2015. It was erroneously listed as a report because, with the
greatest respect, this is what a report looks like. It has all
the context and the verbiage associated with the briefing and
the deliberation of the board.
What was on the board's site at that time was this, which
is now hardbound. That is a collection of slides. There is no
narrative, no explanation, no discussion. And, further, every
single page of this thing says on it: ``The full DB report will
later contain detailed text which will reflect the totality of
the points discussed and modifications.'' Those were never
delivered, and it was never put into final form. So that's why
it stayed on the report section--on the minutes section of the
meeting and not a report. It was never a report. It's a
collection of slides.
Mr. DeSantis. Well, my time is up. I think there will
probably be some followup to that for some of our other
members.
Chairman Chaffetz. Yeah. With the committee's indulgence
here, Mr. Rutherford, was there ever a final report written?
Mr. Rutherford. From the DBB's report?
Chairman Chaffetz. From the work you did, did you ever
write a final report?
Mr. Rutherford. Yes. So our deliverables from the final
report we did in May were delivered to the DCMO; that was the
work we did. The DBB report leveraged our baseline. We
continued on after 2015.
Chairman Chaffetz. Those taxpayers paid you $8 million. Did
you write a final report?
Mr. Rutherford. We delivered a number of deliverables, both
the baseline tools for them to leverage that going forward to
actually measure the effectiveness. We gave them actually the
breakdown of where the cost savings would be, where they
should----
Chairman Chaffetz. I asked a pretty simple question: Is
there a final report out there?
Mr. Rutherford. There is a set of deliverables that we
gave.
Mr. Cummings. May I ask one question?
Chairman Chaffetz. Go ahead.
Mr. Cummings. Did you complete the contract?
Mr. Rutherford. Yes, sir, we did.
Mr. Cummings. And how do you define completion of the
contract? How is that defined?
Mr. Rutherford. The contract asks for a number of
deliverables. Number one was a baseline assessment of all of
the six comprehensive support functions to the business board.
So what we did is we provided a view of all of the numbers for
the DCMO for them to measure on a go-forward basis where to
spend across these six areas. In addition to that, we gave them
a set of efficiency metrics they can use going forward to
measure this baseline as they go forward.
Thirdly, we provided them a number of things when it came
to where the cost savings may be.
Mr. Tillotson. If I may offer a point of clarity here, Mr.
Rutherford is speaking accurately. The contract that was let
was between the DCMO office and Ryan/McKinsey to deliver a
series of information products, which includes a database,
which included a number of documents. Those documents were
there. They were not on contract--they were not on contract--to
write a DBB report.
The DBB report, as Mr. Stein has indicated, is the
responsibility of the Defense Business Board, and we delivered
information from the government that we generated through
McKinsey to the Defense Business Board for them to use as the
basis of evaluation. So, when you ask if the--Mr. Chairman,
respectfully, if you ask if they delivered a DBB report, the
answer is no, they did not, but it was not their job to do so.
Did they deliver the things we requested in the contract?
Unequivocally yes. I have those documents. Those are separate
documents.
Mr. Cummings. I just have one more question.
Mr. Klepper, do you agree with this, this report slide
thing? See, I'm confused----
Mr. Klepper. I can offer some clarity.
Mr. Cummings. Yes, offer some clarity, because I'm used to
a contract says you do certain things for a certain amount of
money and you deliver them, period. So is this something that's
open-ended, by the way?
Mr. Tillotson. No, sir. There were specific clean
deliverables. We got those deliverables, and those were
delivered.
Mr. Cummings. And then----
Mr. Klepper. Some of this is new information to me. I can
tell you about the report. The final report was being written.
It was almost completed. I was waiting for it, and then I had
made a decision to leave. And they were very close, because I
was going to proofread, go ahead and do a proofread. So we were
very close; they were working on it. So I called back, and I
said--it was a few weeks later--I said: ``Have you finished
your report? Can I take it?'' And the officer that was working
it said they were told to stand down. So never got it.
Now this document that David's got, that's the first time
I've seen it. I can't answer what happened after that.
Chairman Chaffetz. So I think it is safe to say that this
thing you were waving around, Mr. Tillotson, this is not the
report, is it?
Mr. Tillotson. That is all I have is a report.
Chairman Chaffetz. Yeah. It's not a report. It's a slide
deck. In fact, it refers to a report that's forthcoming that
never--didn't get produced. And we spent $9 million and never
did get a report. Is that accurate?
Mr. Tillotson. No, that's not accurate.
Chairman Chaffetz. Where is the report? Where is the
report?
Mr. Tillotson. So, with all due respect, Mr. Chairman,
again, the contract wasn't to deliver a DBB report. There is
no----
Chairman Chaffetz. You can keep going in circles. We paid
$9 million of taxpayers' to get a report. You started flailing
around saying, ``Here it is; it's printed.'' This is a slide
deck; it's not a report.
Mr. Tillotson. With all due respect, Mr. Chairman, the
contract specified----
Chairman Chaffetz. No, don't give me--did you report--did
they develop and produce and publish and put on the internet a
report? Yes or no?
Mr. Tillotson. McKinsey did not put a report on the
internet, nor were they----
Chairman Chaffetz. This is why we're having this hearing,
and this is why you're overseeing a Department that is in
chaos.
Mr. Tillotson. --nor were they contracted to do so, with
all due respect, Mr. Chairman. They were not----
Chairman Chaffetz. I will now recognize Mrs. Watson Coleman
of New Jersey.
Mrs. Watson Coleman. Thank you, Mr. Chairman. I thank you
for holding this hearing today.
The topic of waste within the Department of Defense is
vitally important, and it deserves our utmost consideration,
especially considering that President Trump's budget proposal
is stripping other parts of the Federal budget to fund the
Defense Department by an additional $52 billion.
Dr. Korb, during your January appearance before the Senate
Armed Services Committee, you began your written remarks by
noting that, in the defense budget, and I quote, ``dollars are
policy.'' Shifting $52 billion from other Federal programs
speaks loudly about policy priorities, does it not?
Mr. Korb. Yes, it does.
Mrs. Watson Coleman. Thank you. This committee has a duty
to ensure that we are effective stewards of the taxpayer
dollars, and that also includes ensuring the effectiveness of
the programs that Congress funds.
Mr. Klepper, it sounds like one of the findings of your
study was that the Defense Department has significant
inefficiency and waste in its business processes. Is that
correct?
Mr. Klepper. Yes, ma'am.
Mrs. Watson Coleman. Dr. Korb, do you agree that Defense
Department could implement changes that would result in
billions of dollars of efficiency savings?
Mr. Korb. Yes. It is. And I testified before that, before
the Senate Armed Services Committee, and one of my colleagues
here, Mr. Tillotson, mentioned a report that I just did last
week on this.
Mrs. Watson Coleman. Thank you.
Instead of looking for efficiency savings at the Defense
Department, President Trump's so-called skinny budget released
last week slashes critical domestic programs to provide more
than $50 billion in additional funding to the Defense
Department. Despite the President's claim that this budget
``puts America first''--and I put that in quotes--based on
recent reporting, the budget would actually hurt some
vulnerable communities, such as low-income and elderly
Americans. For instance, the budget would eliminate funding for
the Appalachian Regional Commission, a program in 13 States
that has, since 1965, provided funding used to promote economic
growth. Most recently, it has helped to retrain coal miners who
have lost their jobs.
Dr. Korb, would you agree that it is important for the
Federal Government to spend its dollars wisely?
Mr. Korb. I certainly would.
Mrs. Watson Coleman. And one way to do that is to measure a
program's effectiveness. Is that not correct?
Mr. Korb. That's correct.
Mrs. Watson Coleman. The Appalachian Regional Commission
cites a dramatic decline in poverty rates in Appalachia from 30
percent to under 17 percent between 1960 and 2017, a
substantial reduction in the number of high-poverty counties
from 295 to 84 during that same period.
Dr. Korb, assuming those numbers are correct, that sounds
like the program has been working for America, does it not?
Mr. Korb. It certainly does.
Mrs. Watson Coleman. The President's proposed budget would
also eliminate funding for the Low-Income Home Energy
Assistance Program, which helps low-income people pay for heat
in the winter. It would also cut funding for the 21st Century
Community Learning Centers, which helps fund afterschool
programs serving more than 1.6 million children nationwide, and
reducing Meals on Wheels, where millions of meals have been
delivered to the vulnerable and the elderly.
Mr. Chairman, while I agree that we should provide the
warfighter with everything that he or she needs, I do not
believe that should come at the expense of critical domestic
programs that serve our Nation's most vulnerable.
I agree that the dollars are indeed policy. So some of
these dollars should go to the neediest of Americans.
And, with that, I yield back.
Thank you, Mr. Chairman.
Chairman Chaffetz. I thank the gentlewoman.
I will now recognize Mr. Issa of California for 5 minutes.
Mr. Issa. Thank you.
I'm going to pick up a little bit where the chairman left
off, no surprise. Yes, sir, it's you. You said there was a
contract for a report. Who determines when you put the word
``report'' onto a PowerPoint stack? I know that terms are
loose, but this thing purports to be a report in hard printing,
right?
Mr. Tillotson. Yes.
Mr. Issa. But it's not a report?
Mr. Tillotson. It is the report to the extent that one
exists for this study by the Defense Business Board. And the
answer as to who owns that is the Defense Business Board owns
that product, and we provide support, administrative support,
to the board when they do that. The information from McKinsey
was government information that we would provide to the Defense
Business Board as we would to the Defense Science Board or
anybody else.
Mr. Issa. Okay.
Let me go to the chairman for a second. This is a new era,
and I think we've got to ask some tough questions. And I
support this money being used. If I calculate it roughly,
right, as an old Army guy, those 50 brigades would be over
100,000 men that we would be able to add in end strength.
That's basically a full rotation, a whole group of people that
don't have to redeploy in a given year if we had that many more
in the Army. So this is the difference between Army people
finding themselves coming and going back and forth to combat
when you look at 50 brigades. I didn't focus on the other two
branches; I'm not as familiar with them.
So, Chairman, let me ask a couple of questions. One of them
was it was stated that they lost focus. Mr. Tillotson, I think,
said that. How do you lose interest in $125 billion once you
identify that number?
Mr. Bayer. Which of us do you want to answer that question?
Mr. Issa. I'm sorry, Chairman Bayer, I thought--two
chairmen, but only one has a title underneath there. But I'll
take both of you. How do you lose interest once you recognize,
even if it's not in a report but a stack of PowerPoint, how is
it you lose interest in saving $125 billion?
Chairman Bayer, I'd like you first.
Mr. Bayer. Well, Mr. Chairman--I'm sorry. Mr. Issa, we
don't lose interest in saving money. The board was formed 15
years ago. It's done far more than 100 pieces of work, all of
which the great sweep of that work is about how the Department
can do things more efficiently.
Mr. Issa. Let me go through a question then because,
obviously, this is a little bit like--it is an economic 9/11,
if you will. On 9/11, we didn't connect the dots; so the bad
guys bombed our country with our own aircraft.
So let's talk about $125 billion. Did you connect the dots
between you and the appropriators or any other Members of
Congress so we would know there is $125 billion in savings in
your report--in your nonreport--that we could have had?
Mr. Bayer. That would have been done under the previous
chairman, who served for an additional 90 days after that
effort was voted out of the----
Mr. Issa. No. My question is did anyone, not--are you
saying you don't know?
Mr. Bayer. Well, I prefer to defer that to Chairman Stein
at that time.
Mr. Issa. Chairman Stein, did you report to Members of
Congress, who would have been able to reprogram 125 billion if
they took advantage of these savings?
Mr. Stein. Well, first of all, there's--and this is the
first time I have heard this, the difference between slides and
a report, but we fully approved a report, this--I left after 90
days, and we started to move out to make--talk to Congress, and
then we were stopped.
Mr. Issa. Okay. Who stopped you? Who stopped you from
telling Congress there were 100,000 men that could be deployed
with this money?
Mr. Stein. The best I--and remember these numbers are
compounding. So, if you save a billion this year, it will be $2
billion----
Mr. Issa. You mean eventually a billion here, a billion
there, it adds up to real money? It's still true----
Mr. Stein. It adds up to real money. This is real money.
The thing I want to make sure of, first of all, I will say,
and I want to make this clear, this was the first ever that a--
the work that McKinsey did was important. It's the first time
it was ever done. So I just want to make sure that that is
said.
The second thing is we had full approval in a public
hearing on this report and Ash Carter or you know, we were told
that----
Mr. Issa. But I asked you who stopped it.
Mr. Stein. We don't know. I was asked----
Mr. Issa. Let me ask more than a rhetorical question
because I'm going to run out of time, Chairman. How do we on
this side of the dais ensure that never again are there tens or
hundreds of billions of dollars in savings that the American
people are denied because some unknown person in the Department
of the Defense puts a kibosh on it for whatever reason and
Congress doesn't find out about it? How do we stop that from
happening? What law do we have to pass to guarantee the
transparency to that gentleman or to the appropriators or to
whoever in Congress so that in fact the American people never
get a raw deal after good money has been spent to study
something that could save the American people or at least save
American lives by plussing up our military?
Mr. Stein. I will say two things: Look, when I left, Mr.
Bayer took over as chairman, and he didn't want to continue
this. Secretary Carter did not want to continue this. So let me
say the second thing here is that we have--and you're a
businessman, Congressman. You know, having a great plan is one
thing; having people that can implement it is another. You have
one of the great people here that spent a year working on this.
And you have McKinsey who spent a year and the people Scott had
involved were as good as you can get. What I'd like to do is
get people in the same room with Kenny Klepper, whoever that
might be--and that's the one thing that frustrated me is not
the same people would sit in a room, and they disagree or
agree, but we're talking about very important things and nobody
will get in the same room. And I'm saying that Dave Tillotson
is as good a person as you can find. Bob Work is as good a
person as you can find, and the antibodies got us. And the
antibodies is going to kill this country if we don't stop. We
have got to change culture, and we have got to make things
happen.
Mr. Issa. Mr. Chairman, I only ask that you and the ranking
member and all of us commit ourselves to make sure that we
never again allow the absence of this body knowing that there
is an opportunity on a study like this and never again allow it
to be buried. Certainly this is an example where I wish an IG
had brought it to you, Chairman and Ranking Member Cummings.
But since they didn't, I look forward to working with you on
mandating that in the future so it can't happen again.
Chairman Chaffetz. Thank you.
And, Mr. Stein, just to clarify with the questioning from
Mr. Issa, was there a final report that you had approved that
did not get published?
Mr. Stein. The best I know--and this is process now, and I
want to make sure--we approved in a public hearing this report.
It was fully vetted, fully--right now, you know, these guys are
saying something different. I'm not technicalities, but when
somebody talks about $125 billion, you had a change of
Secretaries and you had change of chairmen. This chairman
didn't want to pursue it, and the Secretary didn't want to
pursue it. I can follow that. What I'm saying is we spent a
year. We met with almost 80 executives in and out of the
Department. We worked well with Dave Tillotson, and I give him
a lot of credit. I give Bob Work a lot of credit, and I give
the McKinsey team a lot of credit, and I give the most credit
to Kenny Klepper. These guys bled their life for this for a
long time.
Chairman Chaffetz. Mr. Stein, I'm trying to get real clear
here. This is a slide deck. Is this the final report, or was
there a different report that was not published?
Mr. Stein. I have not seen that. I have not seen that.
Chairman Chaffetz. We'll hand it to you.
Let's now go to Mrs. Demings of Florida is now recognized.
Mrs. Demings. Thank you so much, Mr. Chairman.
Mr. Tillotson, in your testimony, you indicated that, after
the recommendations from the study or report came out, that you
did address some IT inefficiencies but that you did not go as
far as the study recommended. What are some examples of some of
the other recommendations that you chose not to implement?
Mr. Tillotson. So, actually, it's not so much that we
didn't choose to implement. There's a time interval to get the
work done to do the implementation. So, in the report--slide
deck, whatever version you'd like--in the report, there is
actually work required to be done to go put the details into
place. We started on some of the obvious things that actually
Mr. Klepper and Mr. Stein have already mentioned, like data
center consolidation. There is a broader set of activities that
regard moving information into a cloud environment that we
would need to pursue. We did look at contracts for enterprise
license agreements. So we looked at some of those. So part of
this is just time phase for implementation.
We did take on consolidation of some of the medical IT
systems. We abandoned some of those. So there was reduced--cost
savings in that activity, and there is more to be done in that.
We are actually continuing to work that. So we viewed this
much--by the way, the recommendation the DBB did, that this was
going to take a period of time to do. Again, commercial time
schedule one thing; government time schedule another. But the
answer is it is not work that ends; it is work that goes on.
Mrs. Demings. Mr. Klepper, you said: ``The money is there,
but can we get the agency out of the way to move forward?''
What did you mean by that?
Mr. Klepper. You know, as I go in there and look at this
enormous waste at a time where, no matter where you want to
spend the money, we see this happening. And there is this sense
of helplessness; we can't fix it. I just have to believe that
if we could show the aggregate economic impact to the Nation,
not just the Defense Department--but these budgets are
fungible; as you know, they bleed over into other areas--that
if we could identify the savings and with clarity show the
roadmap to fixing things, to getting to the savings, and
identify for Congress those things that we need Congress to
help us with. A lot of this is unintended consequences of
policies and laws to solve one problem that created big
inefficiencies and bureaucracies; it just happened. Nobody has
ever measured this. So nobody has ever seen the aggregate
historical financial consequence of those things over many
years. So my belief--maybe I'm an optimist--I just believe that
there is so much money here, and we are so desperate in need
for these funds, if we can make the case to Congress and to the
leadership of the Defense Department of the things that we need
help with, that people will help us. Now, are we going to go
from the very little savings that we had in the 2 years since
this study was published to 125? There's more than that. Or is
there going to be somewhere--I think the answer to that range
between Scott's 60 to 80 and where I think we have a real
possibility is in, can we work together to move self-imposed
barriers out of the way to let us do that? And I just believe
we can. I'm not ready to give up.
Mrs. Demings. Mr. Korb, as you know, last week, the Trump
administration released the budget proposal that would increase
defense spending by 54 billion. At the same time, the budget
would cut the State Department and U.S. Agency for
International Development's base budget by 28 percent, the
largest cut of a department the size of the Environmental
Protection Agency. As you know, our national security is
paramount, but the Trump administration fails to recognize how
these draconian cuts make America less safe.
Last month, 120 retired generals and admirals wrote a
letter urging Congress not to slash the funding for diplomacy
and international development. They stated, and I quote: ``The
State Department, USAID, Millennial Challenge Corporation,
Peace Corps, and other developmental agencies are critical to
preventing conflict and reducing the need to put our men and
women in uniform in harm's way.''
Mr. Korb, would you agree with that statement?
Mr. Korb. I certainly would agree, and I would also add the
Environmental Protection Agency because our military leaders
have said climate change is a threat to national security. And
essentially the Defense Department is not the only agency that
provides for national security. As you pointed out, all of
these other agencies do contribute as military people know full
well.
Mrs. Demings. Thank you. When he was Commander of Central
Command, Secretary James Mattis spoke to Members of Congress
stating, and I quote: ``I would start with the State
Department's budget. Frankly, they need to be as fully funded
as Congress believes appropriate because if you don't fund the
State Department fully, then I need to buy more ammunition
ultimately.'' Mr. Korb, would you agree with Secretary Mattis'
assessment?
Mr. Korb. Absolutely. And I hope that he continues to make
that case to the President now that he's a Cabinet officer.
Mrs. Demings. Is it fair to say preventing military
conflict through diplomacy would cost less than engaging in it?
Mr. Korb. Very definitely.
Mrs. Demings. Foreign aid is a popular target for those who
say they want to seriously cut down on waste. However, many
Americans may not realize foreign assistance makes up less than
1 percent of Federal budget.
Mr. Korb, is that right?
Mr. Korb. That's correct.
Mrs. Demings. Are there national security implications that
result from slashing foreign aid for our allies or humanitarian
efforts?
Mr. Korb. Very, very definitely.
Mrs. Demings. The Trump administration says that these
extreme budget cuts for diplomacy are about putting America
first, but America has a lot to lose if we stop making smart
investments for our own global security.
Thank you very much.
And I yield back, Mr. Chairman.
Mr. Palmer. [presiding.] I thank the gentlelady.
The chair now recognizes the gentleman from Oklahoma, Mr.
Russell.
Mr. Russell. Thank you, Mr. Chairman.
And thank all of you gentlemen for being here today.
Mr. Tillotson, in the course of evaluating savings and a
lot of the other things, I want to try to get back to some of
the evaluations that were examined. How many positions
currently filled by contractors could be filled by uniformed
Active-Duty personnel?
Mr. Tillotson. I can't give you a number. And I would also
answer that I would not necessarily fill those positions with
uniformed personnel. In some cases, if we were going to replace
them, we would fill them with contractors--pardon me, with
civilians.
I'll be honest with you, Mr. Chairman--or Mr. Congressman--
the issue that we are faced with in the Department is to look
at the appropriate labor mix, and I do think one of the things
that I'm in complete agreement with Mr. Klepper and Mr. Stein
on is an aggressive review of our contracts to just see whether
we need them at all.
Mr. Russell. Well, I think there's a whole array of issues:
nondeployability, efficiency, base salary. I mean, there's a
number of things that we can see for efficiencies. And I'm just
surprised that you would not have any type of estimation of a
number. I mean, since we're saving money by keeping
contractors, which I would dispute, we ought to have some idea
of what percentage or what numbers some of that might be.
We see a continued decline on our military personnel, and
yet we see a continued increase in bloat of the bureaucracy. Do
you not see that as a problem, Mr. Tillotson?
Mr. Tillotson. I do see that as a problem, Mr. Russell. And
I agree with you that--what I don't agree with is I don't see
that the contractors are necessarily a savings. I think if I
hire a contractor for a very finite job and they are done, then
that's cheaper than hiring a full-time employee of any kind.
Mr. Russell. Unless they can't perform the mission.
Mr. Tillotson. Unless they can't perform the mission, in
which case it is inappropriate; I agree.
Mr. Russell. Mr. Rutherford, in your analysis with
McKinsey, you looked at a wide array of things. Did your
baseline show any savings by replacing contractors with
uniformed personnel or what those mixes might be, or did you
examine any of that? I know you did examine both military and
contracting personnel. Did you see any savings there?
Mr. Rutherford. When we did our comprehensive assessment on
the actual savings and we looked at the different business
processes, we looked at changing demand management, changing
actually the contract, the contracts within themselves, and
renegotiating those, where you could do automation like Mr.
Klepper talked about. We did not look at whether or not you
could replace contractors and military personnel. What we
looked at is where the compressible spend was within those
different areas and that there was opportunities for savings
within the contract services.
Mr. Russell. Secretary Korb, if you don't mind me using
that title in deference to your long service to our country--
and I actually remember when you were in that capacity as a
young soldier--when you were serving in the Navy, was it
possible for a seaman to do a contracting personnel job more
efficiently with less expense?
Mr. Korb. I would say very definitely.
Mr. Russell. I suspected you might say that. And I guess,
Mr. Klepper, I'm just amazed at your background and how you've
been able to rescue what should have been destroyed and yet is
resurrected from, unfortunately, the ashes. As you evaluated
the structural and management processes of this problem, did
you determine that there would be any efficiency in savings by
replacing contractor functions with military personnel as a way
to get at net saving?
Mr. Klepper. No, sir. What we actually did was a little bit
the opposite. We looked at productivity and savings, and we did
not touch any uniformed positions. So, if you look at all the
savings that we listed, they were all nonmilitary--non-
uniformed----
Mr. Russell. Was this assuming though a steady line of
military units, or did it take constant folding of flags and
mothballing of ships and parking of aircraft?
Mr. Klepper. I'm not sure I understand that.
Mr. Russell. Well, okay. So, as you're studying this, and
you are looking at maybe we want to keep this contract, but as
you lose a unit, then--would you take that into account, or was
it a steady state of end strength that you made these
evaluations on?
Mr. Klepper. We made it on a steady state of end strength.
So we took--if I may, just for a second--the math, was we took
the prior year--which, by the way, an important point here was
2013 actual; so the study needs to be updated. But we took 2013
because I needed a full year's savings, and we extrapolated
that over a 5-year period for productivity.
Mr. Russell. I would argue, and having been in the military
myself, from 2013 to 2017, we've diminished our Armed Forces a
great deal, and we are putting our Republic at risk in its
defense. I would be the first to say that we need to reform
contracting; we need to find saving. But I also think that when
you pay a specialist E-4 or a seaman E-4 something like that, a
sailor, at $24- to $30,000 a year, they can probably do the
personnel job cheaper than a contractor. Would you agree with
that or not?
Mr. Klepper. I would. And just if I could build on that
point, the other piece that is the really big lever here is
automation and compute power, where you have a higher
intellectual worker versus low-end people doing papers and
things, and I think there the opportunity for military
personnel to self-serve is sort of an aspirational state that
you would design to. So they can configure the changes they
need without filling out forms and sending it back to come back
months and months later to put self help. If I were going to
improve, increase the amount of service that uniform did, I'd
do it through upping the intellectual level of value and
providing the automation tools that they could interact with
much, much more efficiently.
Mr. Russell. Thank you.
And thank you for your indulgence, Mr. Chairman. I yield
back.
Mr. Palmer. I thank the gentleman.
The chair now recognizes the gentleman from Maryland, Mr.
Raskin, for 5 minutes.
Mr. Raskin. Mr. Chairman, thank you very much.
Mr. Korb, let me start with you. Is there an inspector
general at the Department of Defense? Is that a person that we
would rightfully expect to be doing the kind of work that the
volunteers with the Defense Business Board have been doing?
Mr. Korb. Well, they would do some of it, but when you
bring in groups like the Defense Business Board, they are
people who understand how big organizations run. I mean, the
inspector general a lot of times deals with waste, fraud, and
abuse or, you know, people are not behaving themselves. You
could ask them, but I do think and these gentlemen all--and men
and women serve on there are nonpaid, and they bring--my
experience has been they bring great expertise to help us
because, a lot of times, you need somebody from the outside
to----
Mr. Raskin. To take a look from the outside.
Mr. Tillotson, let me ask you, did we waste $8- or $9
million of the taxpayers' money on a report on identifying
waste in the Pentagon? And if we didn't waste it, what have
been the savings that have come out of this report?
Mr. Tillotson. I don't believe we wasted the money. I think
the work that was done that was actually contracted has been
high payoff, and we continue to build on it. My direct answer
to your question is to date we have loaded in approximately
$7.9 billion worth of savings over the next 5 years based on
the results of that study alone and eliminating any other
savings that we've been doing in prior years?
Mr. Raskin. So it's a good start, you are saying, around 7-
or 8 billion.
Mr. Tillotson. And I will continue to reiterate my position
that this is not a one-and-done activity.
Mr. Raskin. Okay. Forgive me for interrupting; we just have
limited time. My concern is I represent the Eighth
Congressional District in Maryland, which includes NIH, which
is now slated for a $6 billion cut. These are the scientists
who are trying to rescue the population from lung cancer and
breast cancer and colon cancer and cystic fibrosis and asthma
and these killer diseases. And just cavalierly we would just
slash $6 billion from the NIH when we have a report 2 or 3
years old now saying we could save $125 billion just by
reducing bureaucratic bloat and contractor fraud and waste and
abuse and overruns. I looked into the history of that last
night. This goes back to the 1960s, the cost overruns, and the
1980s, with the $2,500 coffee makers and $600 toilet seats,
scandal after scandal after scandal.
I want to ask someone--maybe, Mr. Korb, let me come back to
you, you have a long history in the military--you know, when
you have that kind of systemic repeat dysfunction over the
decades, you've got to believe it's not totally pathological;
it's working for somebody. Who is this system of bloat, waste,
fraud, and corruption working for?
Mr. Korb. Well, unfortunately, it works for the individual
groups. The real problem you have obviously----
Mr. Raskin. When you say ``groups,'' you mean which groups?
Mr. Korb. You have organizations, and in the Department of
Defense and the history, the services have not wanted to give
up functions to the Office of the Secretary of Defense to the
extent that they should. You have basically--you have people,
as I pointed out in my testimony, you've got a Defense
Logistics Agency, but the services won't give up a lot of their
logistics function. I used to argue with them all of the time
to let us manage that. I think you have--and I mentioned this,
too, creating all these Under and Assistant Secretaries. My
goodness, I mean, why do you need that many people up there in
the Office of the Secretary of Defense, and we keep creating
them.
And as I've looked at that, the real key to running it
correctly and making the savings is when you have a strong
Deputy Secretary of Defense. As I mentioned earlier, David
Packard came in from Hewlett-Packard, and Google back and you
look at the fact we didn't have the cost overruns. Our budget
was half of what it is now. And I tell you who else was very
effective; when Dick Cheney was Secretary of Defense and
brought in Don Atwood from General Motors. It was very well
done. But when you don't have that strong deputy in there, it
becomes very, very difficult.
Mr. Raskin. Okay.
Mr. Klepper, you talked about changing the culture at the
Department of Defense. What are the concrete steps that can be
taken legislatively by Congress to help shock the system and
change the culture so the taxpayers are getting their money's
worth and we are not wasting our money in this way?
Mr. Klepper. As the guy that's had a life as a change
agent, that may be the biggest question I've heard today
because, when you look at large cultures that have--often an
organization as big as DOD is not one culture; it is a whole
bunch of tribes out there that have their own cultures because
the size of it--there are three key things I will always say to
focus on, is that, if you want to change the behaviors, it
starts with leadership, and it is what gets recognized,
reinforced, and rewarded. And to the extent as we worked our
study across the institution, there is almost no trace--there
are no metrics of productivity or reliability. There are
mastery skills in appropriations. So I would say the key would
be start with the head, and it would be that there is
accountability for real measures of productivity.
And as a leader in an organization, the most important
people that you can influence are your direct reports because,
as you look through the chain of command--and it is a long one
in an organization the size and complexity of Defense--anywhere
in the chain of command you fail to get the support, the
recognizing, reinforcing, and rewarding of these kind of
values, it creates a black hole in the organization. A black
hole is where change goes to die. So I would put enormous
emphasis at that part.
The mechanics, the operation, the skill sets: we can get
that. There's lot of talented people that we can bring in to do
that. But if it is not driven from the top, reinforced,
recognized, and rewarded, its odds of sustaining fall really,
really dramatically. That is certainly true in the commercial,
and I think that's human nature.
Mr. Raskin. Thank you.
And I yield back, Mr. Chairman.
Mr. Palmer. I thank the gentleman.
The chair now recognizes Mr. Blum from Iowa for 5 minutes.
Mr. Blum. Thank you, Mr. Chairman.
Thank you to the panel for being here today. I'd like to
read something to you; in fact, I'll read it twice. The
Department of Defense remains the only Federal agency that
can't get a clean audit opinion of its statement of budgetary
resources. Once again, the Department of Defense remains the
only Federal agency that can't get a clean audit opinion of its
statement of budgetary resources.
I'm from the private sector. I am a businessman. I'm a CEO
of a public company. I understand audits. I understand clean
audits. Taxpayers have invested $6 billion of their money over
the last decade trying to fix the audit problem at the
Department of Defense. We did a little research, and I found
out that the Department of Defense has the world's largest
accounting and finance organization of any company, any
organization, in the free world, the largest. It doesn't seem
to me to be a lack of resources. Will somebody, anybody--maybe
we'll go one by one--please tell me, please tell the taxpayers,
please tell my constituents in the State of Iowa why we can't
have a Department of Defense that has a clean audit? Mr.
Tillotson, let's start with you. And I'm very interested in
these answers.
Mr. Tillotson. No problem, Mr. Congressman. And the direct
answer to your question is I find the situation to be
unacceptable as well. I have been working very steadily since I
was moved up to OSD to try and put a lot more stick and rudder
into getting the audit position cleaned up. I agree with you:
it is an unacceptable position.
Mr. Blum. Who do you report to?
Mr. Tillotson. I report to the Deputy Secretary of Defense.
Mr. Blum. Do they agree it is unacceptable?
Mr. Tillotson. Yes.
Mr. Blum. To your knowledge. Who do they report to?
Mr. Tillotson. The Secretary of Defense.
Mr. Blum. Do they agree it is unacceptable?
Mr. Tillotson. The current Secretary agrees it is
unacceptable. And so the answer to your question is the very
size of that organization--this will go to the point that I'm
sure Mr. Klepper will build on--when we look at the business
practices of the Department within financial management, when
we did that research with the McKinsey folks, it is the very
size and kind of age of that process and the skill set of the
people who are doing it that actually stand in our way, coupled
with, candidly, our failure--and I'm going to say it this way--
to enforce sound business practices in the nonfinancial
community. We have very good rules, and sometimes we don't
follow them. So I'm not going to sit here and make an excuse
for you. The answer is we are working to fix that, and I agree
with----
Mr. Blum. Thank you for not making an excuse. I appreciate
your candor.
Mr. Rutherford?
Mr. Rutherford. Thank you, sir. We are not an accounting
firm, and the focus of our effort was really on the cost
savings potential. But with that said, when we came in, one of
the big deliverables that we did--with any cost savings
effort--is having an authoritative data set, to having real
numbers that everyone can agree to that this is the baseline.
We spent an inordinate amount of time making sure we developed
that so we could leverage it on a go-forward----
Mr. Blum. Does the Department of Defense pay their bills
with checks, or do they pay their bills with cash? They use
checks I assume, right? How can we not know where the money
goes? How does that happen?
Mr. Rutherford. We had to pull from 20 different data sets,
one view on this, and on that view, it had over 5 million
lines.
Mr. Blum. Does that go back to the tribes we were talking
about 5 minutes ago?
Mr. Rutherford. And also to this, where the IT and where
the data sits--it is a part of what Mr. Klepper was talking
about as well--is just, how do you actually have a view of what
the true spend is, and how do you actually take metrics on a
go-forward basis to measure that over time to see if you're
making----
Mr. Blum. If we started cutting people's pay at the top,
not the enlisted man, would this problem get solved? Maybe
that's what we need to do.
Mr. Bayer?
Mr. Bayer. Mr. Blum, I had a substantial career on being on
boards of directors of publicly and privately traded companies.
So my diagnosis of the situation is that it is appalling, and
it's all a direct result of leadership. If you--I would
encourage you to take a look at the transition report that we
offered the incoming administrations. We offered it to the team
of Hillary Clinton. We offered it to the team of Donald Trump.
We said that the challenge in the Department is getting a hold
of its fiscal destiny, and the way you do that is put people
who have business training expertise in these jobs.
Mr. Blum. How many years have you been saying this?
Mr. Bayer. A long time.
Mr. Blum. Is anybody listening? Is Congress listening?
Mr. Bayer. Trying to find some light in the darkness, the
current Secretary, Jim Mattis, was at the time, when I chaired
the Business Board the last time, was the chairman of Joint
Forces Command. The Business Board felt very strongly that the
Department had an excessive command infrastructure, one of
which was Joint Forces Command. And we recommended to the
Secretary of Defense at that time, Bob Gates, that he shut down
Joint Forces Command. The Commander was General Jim Mattis. He
embraced it and thought it was a spectacular idea and led the
reformation.
What I find now is that he has picked an individual, if
press is accurate, that he has picked an individual to be the
deputy who has had a lifetime of being a chief operating
officer and, frankly, a very tough customer about wringing out
costs and achieving accountability in a very large defense
aerospace company. I haven't met this guy; wouldn't know him if
he came in the room. But what I have read about him on the
internet leads me to believe that, perhaps, General Mattis is
in, fact, embodying the recommendations that we made, picking
really tough people to run these positions. The deputy is
critical in that--who is Mr. Tillotson's boss. So I think it's
all about leadership. It's all about toughness, and it's all
about making it important. If it's not important, it's not
going to get done, and you know that.
Mr. Blum. I'm happy to hear that. Maybe there is light at
the end of the tunnel.
Mr. Chairman, can I have--would you indulge just to have
the rest of them answer, very briefly?
Mr. Palmer. The witnesses may answer.
Mr. Blum. Try to keep it brief.
Mr. Stein. I'll go quickly and answer your specific
question. It's responsibility, and it's: Be determined to get
this done. If it is determined to get it done, it will get
done.
Mr. Klepper. I would repeat the leadership emphasis. I
would also say that one of the things that we see that is a
confounding issue is a culture where almost anyone can say no
and very few people can say yes to the changes that you need to
connect a lot of those dots. So that's part of it, but that
still goes back to leadership----
Mr. Blum. Culture.
Mr. Korb.
Mr. Korb. I think it requires a strong deputy. The
Secretary, he or she is very busy running around the world and
doing things. But you need someone like a David Packard; or
Charles Duncan, who came in from Coca-Cola; Don Atwood, who
came in from General Motors. When I have looked at this, that's
when the Department has been run well because they are the
chief management, and they also have the gravitas to make
things happen that you suggest.
Mr. Blum. Thank you, gentlemen.
And thank you for your indulgence, Mr. Chairman. I yield
back.
Mr. Palmer. The gentleman yields.
The chair recognizes the gentlelady from the District of
Columbia, Ms. Holmes Norton, for 5 minutes.
Ms. Norton. My thanks to the chair.
We've looked at the Trump budget, which purports to achieve
huge savings that it says can be done by looking at
inefficiency and waste. Now the largest budget in the domestic
budget is, of course, the defense budget. So let's begin, as I
think anybody would, by looking at the largest first. I might
ask this to any of you, to all of you; let me begin with Mr.
Korb: If you were making a serious effort to target
inefficiency and waste in the Federal Government, could you
possibly exclude the Defense Department budget?
Mr. Korb. Absolutely not, and I made that point: If you
give them money, they will have no incentive--if you give them
more money--to make the reductions that they should.
Ms. Norton. Do any of you believe that you would exclude
the Defense Department, set it aside, if you were looking at
your entire domestic budget and not look at the Defense
Department? Do any of you believe that that's how you would
proceed?
Hearing none, as they say.
Well, if we look at the budget of the administration, far
from looking for inefficiency and waste there, what we see is
an unheard of increase, a $50 billion increase, in that budget,
taken of course out of the flesh of the rest of the domestic
budget.
So let's look at the State Department budget, for starters.
You look at the State Department and the Agency for
International Development; it's a 28-percent cut. Some might
say: You cut that much, you starve the agency to death. Mr.
Korb, you believe there would be any agency left standing if
you took 20 percent out of a combination of USAID and the State
Department?
Mr. Korb. I think if you do that, you will jeopardize
national security. And as has been already pointed out by your
colleagues, most military people have objected to that,
including the current Secretary of Defense.
Ms. Norton. Do you think you would get a more efficient
State Department, for example, and USAID by cutting them 28
percent?
Mr. Korb. I don't think so. For example, you have more
people in military bands than you do in the Foreign Service. So
the idea that somehow or another you can cut back really just
doesn't make a great deal of sense.
Ms. Norton. So I ask you to look at this combination
because I was interested in how all this adds up. You take--the
USAID and the State Department has a 28-percent cut. Then you
look at the rest of the domestic budget. Look at the EPA;
that's a 31-percent cut. Or the Labor Department, that's a 21-
percent cut. Perhaps it's a coincidence, but you get a total
there of $58 billion, which is about the same as the increase
proposed in the Defense Department budget. So let's assume you
could get such a huge amount pouring into one budget so
quickly. Is that the way--could you get that amount used
efficiently so as to justify lobbing in such a huge amount at
one time on one agency?
Mr. Korb.
Mr. Korb. I don't think so. Particularly, as I mentioned
earlier, the new administration is adding $30 billion to their
2017 budget. So they are going to put that in, and the fiscal
year ends 1 October. So we're already a good way through it.
And then adds another $54; I think we'll find it very tough to
do it in an efficient--efficient way. That's why I commend the
Business Board here because they talked about the savings over
5 years, not having them all right in the first year.
Ms. Norton. Mr. Tillotson, this is an increase over 1 year.
Can you cite me any precedent where such a huge amount got
spent efficiently over a single year?
Mr. Tillotson. I can't cite a precedent, but I can cite the
concern of the Secretary of Defense that we not ask for
something that is not executable. And I can also cite the fact
that the Secretary of Defense is internally on record with the
tasking to the Department through the DepSecDef to look for
additional efficiencies. And I can also state that the White
House and the Office of Management and Budget is still holding
the Defense Department accountable for offsetting part of the
proposed increase in spending by continuing to find
efficiencies within the Department. I don't think anybody is
letting the Department off the hook in this conversation. And I
will defer the rest of the prioritization of the budget to the
White House. That is their decision, and I'm not privy to that
conversation.
Ms. Norton. Of course. And the way to do credible savings
is to do across-the-board savings. Then maybe somebody will
believe your budget.
Thank you, Mr. Chair.
Mr. Palmer. I thank the gentlelady.
I will now recognize myself for questions. Mr. Tillotson,
The Washington Post article, investigative report actually,
said that the Pentagon knew their back-office bureaucracy was
overstaffed and overfunded. If you knew that, why didn't do you
anything about it?
Mr. Tillotson. So, respectfully, we have been doing
something about it. Since Secretary Gates, we have been
continuing to draw down the headquarters' staffs at the
Department of Defense. That was an initiative from Secretary
Gates years ahead even of the DBB study. We continue on that
trend, and we're meeting those goals. We have reviewed the
defense agencies. I would take a bit of issue with the so-
called back shop that we talk about in some cases because we
talk about the defensewide account, includes the Defense
Logistics Agency, which does central purchasing and
procurement----
Mr. Palmer. Sir, I want to continue on with some other
stuff. And I appreciate the detail, but we have only got a few
minutes. Or we can take as long as we need to, I guess. But you
said you did something about it. I would assume that the fact
that Chairman Bayer, Mr. Stein, Mr. Klepper, Mr. Rutherford are
here, is that that was part of the actionable effort, this
study. Would that be correct, Mr. Rutherford?
Mr. Rutherford. Our study finished almost 2 years ago, and
in that study, we laid out a path forward with the DCMO on how
to measure this on a go-forward basis with line of sight into
what is due the savings.
Mr. Palmer. Now how much of that has been implemented?
Mr. Rutherford. You'd have to ask Mr. Tillotson.
Mr. Palmer. Mr. Tillotson, how much of that has been
implemented? Can you give me a percentage amount?
Mr. Tillotson. Yes, sir. I will go and say that $7.9
billion worth of efficiencies have been laid in, which
includes----
Mr. Palmer. Less than 8 percent.
Mr. Tillotson. Less than 8 percent. But as acknowledged in
the DBB study itself, we needed to start; we needed to put some
pieces in place; and then we needed to continue and sustain the
effort. And that's our intent
Mr. Palmer. How much of your recommendations, Mr.
Rutherford, do you think could be implemented?
Mr. Rutherford. We think all the recommendations----
Mr. Palmer. That's a great answer. Thank you very much. Do
you think that they could have quickly implemented 20 percent?
Mr. Rutherford. The speed is the biggest issue. So what we
have laid out with the DCMO is that the speed in which you
would do this would actually have to be quite deliberate of
year-over-year productivity, which is around, from our
estimations, a 3-percent productivity gain every year, which
would only be about 4- to $5 billion every year. To get
something so quickly upfront would take something much more
robust than we laid out.
Mr. Palmer. I want to ask you something else about--and I
will stick with you, Mr. Rutherford. The investigative article
also made this: the average administrative job at the Pentagon
was costing taxpayers more than $200,000, including salary and
benefits. Was that salary and benefits, or are there other
costs in there? I mean, I find that shocking that that was the
average cost.
Mr. Rutherford. My understanding of the salary and
benefits, but I should go back and get that for you.
Mr. Palmer. I would like for you to provide some answers to
some questions to the committee because I'm not sure you'll be
able to answer them right now. But I'd like to know how many
people overall were in those administrative positions? How many
were civilian versus military? And if you know the answer, I'd
love to hear it. And I'd like to know how many of those earned
over $200,000 because, if the average is $200,000, including
salary and benefits, frankly, that's shocking to me. And how
many are over $250,000? We're seeing this throughout the
Federal Government. This is something I'd like to know. Could
you provide those answers? How many total people are working
administrative jobs, and how many are civilian versus military?
How many of those earn over $200,000, and how many of those
earn over $250,000?
Mr. Rutherford. Since our work ended 2 years ago, I can go
back and look at those numbers and pull together what our view
was at that time.
Mr. Palmer. Mr. Tillotson, I would request the same
information from you. You should be able to provide.
Mr. Tillotson. I was going to say, I think respectfully,
Mr. Chairman, I'm the accountable agent for answering your
question. And I understand the question. We'll be happy to take
it on.
Mr. Palmer. Do you think we could get that next week?
Mr. Tillotson. I see no reason why not.
Mr. Palmer. Thank you. I've only got a few seconds here.
Here's the thing that bothers me about this. You realize that
the appearance--even the appearance of a coverup of a report
like this undermines the Pentagon's credibility. It undermines
your credibility, frankly. You hurt personnel that work at the
Pentagon who show up for work every day and do their job. You
hurt the taxpayers. You add to their burdens. You hurt the
finances of the United States government. Every dollar that's
wasted is another dollar, because we're doing deficit spending,
that we're having to pay interest on. You know, the total
amount of waste is more than 125 billion when you take that
into account.
Finally, by wasting the resources committed to our national
defense, I think you compromise the military's ability to carry
out its mission. That's what is so troubling here. You look at
the total financial picture of the United States Government and
the path that we're on. I mean, we're at $20 trillion in debt.
If we're having to pay interest on that entire debt, a 1-
percent increase in interest on that, Mr. Stein, is $200
billion. So you begin to understand why everybody on this
committee is so sensitive to this because you're adding to the
burden of the American taxpayer.
I think it was the Joint Chiefs of Staff Chairman, Admiral
Mullen, that said that the single greatest threat to our
national security is our debt. So I appreciate the seriousness
with which this hearing has been accorded by each one of you,
and I appreciate it very much. But we have got to get a handle
on this, not just at the Pentagon, but throughout the Federal
Government, but particularly at the Pentagon because that's--
constitutionally that's our first obligation, is our national
security.
With that, I'll yield back and recognize--sorry. The chair
recognizes Mr. DeSaulnier from California for 5 minutes.
Mr. DeSaulnier. Thank you, Mr. Chairman. I want to thank
the chair and the ranking member for this hearing.
I'm reminded of many conversations I used to have with my
father-in-law, who was a highly decorated Air Force general in
World War II, who ended his career, near the end of his career,
he was the auditor general of the Air Force, major general. He
won a Distinguished Flying Cross, but he also won something, if
memory serves me, called a Zuckert Award, which at its time was
the highest achievement for management. He used to say that was
harder to get than the Distinguished Flying Cross flying over
Germany. But he also told me that too many people in the
Department of Defense were more interested in keeping their
jobs than doing their jobs well.
So, Mr. Korb, you mentioned the Packard Initiative. I often
think back to Peter Grace and the Grace Commission. Why were
those effective in having business people being able to make
observations? This is not new: having business people come in
and look at the public sector, acknowledge that they're
different, and be able to get both Congress and the bureaucracy
to change their culture and implement those. The frustrating
thing, as you have said, is it doesn't seem sustainable.
Although I do want to congratulate the Department of Defense in
this instance for bringing Republicans and Democrats together
in common cause. Mr. Korb?
Mr. Korb. I think it's because of the fact that they've
managed large organizations, and they understand how to make
them work; plus they have the gravitas to be able to stand up
to generals, admirals, and other people. And I think that's the
key thing. When I worked in government, we had--things got
pretty bad, and it was mentioned earlier about the toilet seats
and all of that. We had to bring David Packard back to help
straighten things out. I think if you take, as I've looked at
this all the time, when you have a deputy like that, and many
times the Presidents will pick the deputy even before the
Secretary. Before Dick Cheney took the job, Brent Scowcroft had
picked up Don Atwood from General Motors. So I think that's the
key because you have a lot of people, military people, like
your father-in-law, done all these distinguished things. So
you're going to need a big presence to be able to tell them,
you know, what to do. And I think that's how it's worked best.
I mean, after all, David Packard, and everybody knew
Hewlett Packard, and back in the seventies, because of how
important that company was, when he said stuff, he made it
happen. Just to give you an example, the services didn't want
to have a single transportation command, okay. He was able to
get that done.
Mr. DeSaulnier. So here's the struggle, and, Mr. Klepper,
to you--and you've gone from different industries and been able
to look at cultures, and as the McKinsey report says very
clearly, that culture is a big thing, the willingness to accept
criticism, to acknowledge that you need to accept that
criticism in a manner that would be corrective, but it seems to
be uniquely difficult in this environment. One quote from the
McKinsey report, as acknowledged through The Washington Post
investigation, said McKinsey noted that, while the Defense
Department was, in quotes, ``the world's largest corporate
enterprise,'' end quotes, it had never, in quotes, ``rigorously
measured the cost effectiveness, speed and agility, or quality
of its business corporation.'' It seems rather striking that
that hasn't happened.
So, both on that comment and then on a comment you made in
the same article where you're quoted as saying, ``You're about
to turn on the light in a very dark room''--and I won't read
the rest of the quote. It's quite colorful. But it strikes me
that that's really the essence of it, and there have been
different periods of time where your kind of effort has worked
in the Department of Defense or in large public agencies. But
this keeps coming up, that the culture is the most resistant to
changing. And oftentimes, as my father-in-law said, the rewards
and promotion within that culture is more about just getting by
than actually performing well.
Mr. Klepper. Well, I haven't been in a number of
organizations where the task was a major disruption, a major
change from the status quo and some of the business direction.
A couple of things--look, this isn't a study; this is sort of
what Kenny's learned, you know, along the way--is I talked
about leadership as sort of the irreplaceable. Without that,
you're sort of lost. But the other two things that I think are
vitally important, and I do think they apply here, and we have
heard different versions of it, is transparency and
accountability, whether it's the audit system that we talked
about, because you can't have an accountable organization
without a transparent organization. I understand there's a lot
of classified stuff, but the things that we're working on here,
this is not classified stuff, and I do believe that sunshine is
a good disinfectant.
One of the greatest things that we could do is to make the
kind of inefficiency information more available to third
parties and have ideas and have innovations to do that. But
even then, if you don't deal with the tribal, cultural, who
gets promoted in and for what--that's the recognized,
reinforced, and rewarded--you got to go really, really hard on
that. And at some place, efficiency and productivity have to
become a more dominant marquee in that story. And I think if
you start there from the top, and if we can successfully begin
to bring transparency, we'll attract good practices, and
there's an unbelievable amount of talent.
And the other thing I think where the article
misrepresented somewhat the Pentagon, almost all the senior
military people that we talked to were extremely supportive. I
outbriefed General Odierno, and he was going up to testify
during sequestration, and there was a whole roomful of people.
It was like you're going in the coliseum. Is Kenny and Bobby
going to get their head chopped off, or this is not--and we
outbriefed to General Odierno. And he looked at us, and he
said: ``You know, I think you guys did a good job on this
study, and I think the savings is there.'' And he paused and he
said: ``Your timing is not perfect.'' But he tasked people to
move ahead, and then we weren't able to follow through.
So the talent is there. Transparency and leadership I think
are the starting place, and I think it is something that we can
do. This is an achievable goal, and there's lots of reward for
us if we do it.
Mr. DeSaulnier. Thank you. Thank you, Mr. Chairman.
Mr. Duncan. [presiding.] Thank you. I'll recognize myself
now. Let me just say a couple things.
First of all, the easiest thing in the world to do is to
spend other people's money. Secondly, you can never satisfy any
government agency's appetite for money or land. They always
want more. And I have wondered for many years whether there are
any fiscal conservatives at the Pentagon. I'll tell you a
little story. I've been here a long time. This is my 29th year.
When I first came here, I believed everything the Defense
Department said. And I voted for the first Gulf war because I
went to all the briefings and heard how great a threat Saddam
Hussein was. And then I watched that war, and I saw his same
so-called elite troops surrendering to CNN camera crews and
empty tanks. So, by the time the second war rolled around, I
had a lot more questions. And I got called to a meeting in a
little room at the White House with Condoleezza Rice and George
Tenet and John McLaughlin, the top two people at the CIA, and I
asked them that day many questions. But I asked them: Lawrence
Lindsey, the President's main economics adviser, had been on
the front page of The Washington Post saying a war with Iraq
would cost us $200 billion. I asked about that, and Condoleezza
Rice said, oh, no, it wouldn't cost nearly that much; it would
be 50- or 60 billion, and we would get some of that back from
our allies. Now we're up in the trillions. That must have been
the worst estimate in the history of the Federal Government.
And I can tell you that when I was one of the six
Republicans who voted against going to war in Iraq, it was the
most unpopular vote that I ever cast in my district because I'd
seen a poll the night before saying 74 percent of the people in
my district favored the war, and 9 percent were against, and
the rest undecided. But slowly over the years, that most
unpopular vote ended up becoming the most popular vote that I
ever cast. As I sit here now, I hear all these people say that
the Defense Department has been decimated or it's underfunded,
and yet I look at the historical tables of the official budget,
and it says that, in 2002, the defense budget was 348 billion.
By 2010, it had gone to 693 billion. And it's just gone up
every year. And this past year, in the budget, we spent 177.5
billion on new equipment. Well, we spend that much or close to
it I guess just about every year. Well, that equipment doesn't
wear out in 1 year's time. And the defense--the military
construction budget is a separate budget. You can't go to any
military base in this U.S. or in the world that there's not all
kinds of new construction going on.
We somehow have got to bring this under control. We have
got to get some more fiscal conservatives at the Pentagon, and
I mean, I believe and I think most of us believe that national
defense is the most important function or certainly one of the
most important functions of our entire Federal Government, but
it's getting kind of ridiculous when the Pentagon has done a
masterful public relations job in convincing people all over
this country that they're underfunded or been decimated, and I
think it's almost gotten to the point that it's, in my opinion,
it's pretty ridiculous. I am a very conservative Republican,
but I think conservative Republicans should be the ones most
horrified by the excessive overspending that's going on at the
Pentagon.
And I commend the work that your board has done. I
mentioned this 125 billion in the last newsletter a few months
ago, a couple months ago, that I sent out to my constituents.
We need more work that will go on like that.
And now I yield to Mr. Lynch for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
And I associate myself with much of what you have just
said. I don't think you need to be a conservative, but I do
think your outlook needs to be fact-based, and I think that's
where the differential comes in.
I just have one bone to pick, not necessarily with you, and
I want to thank all the witnesses here. You've all been very,
very helpful. I appreciate your report. I haven't gone through
all of it yet, but I will.
President Trump came in, and one of the first things he did
was to put a freeze on all Federal hiring. And, Mr. Tillotson,
DOD is the biggest employer of returning veterans and veterans
in this country. The Federal Government is collectively the
largest employer of our veterans coming back from Iraq and
Afghanistan and those who have served this country. First of
all, the economics, we have had two other hiring freezes--one
under Reagan, one under Jimmy Carter--and both of them,
according to the GAO, increased spending in the Federal
Government because we went to contracting, private contracting,
and it boosted up the cost. And I think that's going to
continue here. I don't think we're going to save any money.
The other thing is, because we are such, in the Federal
Government, such a large employer of veterans, what this
hiring--so 30 percent of our Federal employees are veterans,
about 30 percent. So what this does now is it puts a freeze in.
So, as these kids are coming back from Iraq and Afghanistan,
the Federal Government, which normally would hire them, is
saying no. And so we're already dealing with an elevated
suicide rate. We have got substance abuse problems. We have got
big, big problems with transition coming back in because of the
multiple deployments that these kids have done. I was over at
Camp Leatherneck there in Afghanistan, and I asked some of
those kids how many tours. I got all the way up to seven tours.
One of those young men was on his seventh tour. So that's got
to cause some psychological problems. In the meantime, when
they come home, we're telling them we can't hire them. And also
it's costing us more money. So that's just a statement I got
that is in opposition clearly to what the President is doing.
Now my background--here's where the question comes in--my
background is in construction, steel erection. I used to build
bridges. I was an ironworker for about 20 years. My degree is
in construction management. So this stuff with DOD is
infuriating to me. It really is. And from my own experience,
transparency, Mr. Klepper, right on the money; that's what it's
all about. In my business, my prior business, transparency and
competitiveness in bidding, that whole process was really what
gave the end user, the taxpayer, the biggest bang for their
buck. When there was no workaround, our contractors would come
in and sharpen their pencils, and, boy, that dollar would go a
long, long way. And when there was a lot of work and people
could just throw a number at you, things were much more
expensive.
This process that we have with DOD, and we have got 36
major defense laboratories all around the country, including my
own, where I can't figure out how to get a person who wants to
bid on some of that work into the process. It's all smoke and
mirrors. You need a secret handshake or something. I can't get
people on the job who want to offer a lower price for those
services. You know, it looks like to me--I have to say this--
that a lot of retired generals have gone to work for these
contractors and are in the system now, and it's like this good
old boy network where the smaller companies can't get in there
and offer lower prices. It's a problem. There are exceptions. I
know Raytheon brings in all these subs, and they try to help
with competition, and they'll educate the smaller subs so they
can use them. They use the sub to the sub to the sub.
But is that at the heart of this problem? That's the
question I have. Is that the heart of this problem? To make
this--and I do agree with you, Mr. Klepper, some of this stuff
is confidential; some of it is classified. But a lot of it is
not, and we should throw it out there and make people bid
openly, publicly, and competitively to make our government run
more efficiently and at a lower cost to the taxpayer.
Mr. Klepper.
Mr. Klepper. Sir, the answer is yes. I think that's a
significant part. If you look at contracting, I was just
thinking as you were talking: You know the way that you get in
is you find a sub of a sub of a sub, and you get on somewhere,
which means you've got to know somebody that knows somebody
generally to find them. Then there's a big, you know, by the
time the government pays the tab, there's a lot of additional
cost on it.
The other thing there's a practice here that's been around
for a long time that drives all the worst possible behavior for
spending. And it's a process--I don't know what the official.
Maybe David could help--it's use-it-or-lose-it. If you don't
spend all your money, then you get your budget cut. And one of
the things we saw in the study, at the end of the year, there's
a tsunami of contracts that completely overwhelm the
contracting unit. There were anecdotal conversations with the
McKinsey team where a single contract officer had to sign 60
contracts in one day because, if they don't get them signed,
whoever the authoring contract, it's going to be heck to pay
because now you've got my budget cut. So you have that
practice, and that's a practice I just have to believe--I'm not
smart enough to know how you guys could fix it. There has to be
a way to fix it because that's driving an insane waste of
money, use-it-or-lose-it. And I think the contracting
structures are where there are some quick hits.
And I would add, lastly, the key to getting the numbers at
the level that we are talking about is we need a large
mobilization. To go at this study should take a mobilization of
4- or 500 people that we're putting in teams, and we're
training them or deploying them, and they got targets and
goals. Until we scale up how we even think about attacking this
problem, we'll continue to just get dribs and drabs of savings.
Mr. Duncan. They tell me we have got to speed this up
because we have got votes coming up, but I will tell you I have
a bill in that gives an incentive award that lets the
Department keep half the money that they save, and half goes
back to the budget.
Mr. Lynch. Mr. Chairman, if I could, I also have a bill
that would allow veterans to be exempt from this hiring freeze
so, at least when our kids come home from Iraq and Afghanistan,
the government can hire them if they're qualified for those
jobs, and the jobs are available.
Mr. Duncan. All right. Thank you very much.
Mr. Grothman.
Mr. Grothman. Thank you. I have a question for either Mr.
Stein or Mr. Klepper. What steps have the DBB team taken to
ensure that benchmarks are applicable to the Department?
Mr. Klepper. I really can't answer that. We intentionally
in our study try to avoid benchmarking because we were looking
at such a high level. In benchmarking, you end up spending all
your time arguing about apples-and-oranges comparisons. So
benchmarking, I think, has an appropriate--I don't know, David,
if you can answer that, but I can't speak for the Department
there.
Mr. Tillotson. Mr. Congressman, one of the deliverables
that we asked for from McKinsey was, in fact, benchmarking in
some of these business areas compared to commercial sector. And
it's what points us to some of the first areas to look at. So,
specifically, financial, IT, and human resource management were
identified as areas where the departments spend on certain
activities, which has a good commercial analog, which is the
first question we asked, which suggests we could find
additional savings. So we are, in fact, using it.
Mr. Grothman. How would you characterize your overall level
of confidence in the cost and savings presented in the report?
And I guess that's really more for Mr. Stein.
Mr. Stein. Ask the question one more time.
Mr. Grothman. Okay. How would you characterize your overall
level of confidence in the cost and savings presented in the
report?
Mr. Stein. Until you have a full process of mobilization
and a commitment to this process, one of the things that was
talked about--I think this study by McKinsey was done 2 years
ago--and I think you are going to have to update those numbers
to see what actuals are, and I think you have a full commitment
from the Secretary of Defense that this is what's going to
happen.
Mr. Grothman. Okay. There were a number of individuals
interviewed as part of the report. Were those same individuals
providing the preliminary findings from the report, and if so,
what feedback did they provide on the data sources used as well
as the magnitude of the savings identified?
Mr. Klepper. The primary feedback--and I could yield to Mr.
Rutherford from McKinsey because I wasn't personally present
during the actual data pool. But we knew that when we build the
base case--I've done this type of work and know that the data
always gets attacked. For anybody, if it makes something look
bad, the first thing you do is say the data is not good, and
that's often where you get stopped at. So we took extraordinary
effort in the data pool to be sure that, when the data was
pulled from the system and it was arrayed against the core
processes, that there was a local signoff within the agency or
the military department that said that the way that the data
was stacked was reasonable, because we also wanted to be able
to do, to rerun the models on an annual basis so you can track
financial performance over time. So those are the two things
that we put a lot of rigor in that. And when we got into the
data pool, we found some of the same issues that may affect the
audit systems, financial systems, et cetera.
But I have to say the McKinsey team, working with Dave
Tillotson and the people he provided us--and there were over
100 people involved in this data pool; it is the biggest one
that, I believe, has ever happened at DOD--that the
foundational data is pretty solid. And we also offered a
challenge process that, if somebody saw the data and said,
``Hey, this is wildly wrong, your analysis is bad,'' that we
could actually come in, audit the numbers, and if we found an
error--look, if it was wrong, we want to know that the model is
wrong--we could correct it. So the model came through, and
today I don't think we have had any substantial challenges, at
least that I've heard, that the base case model is wrong. The
real debate, and maybe to your earlier question, is there's two
parts of it: Is the savings there, the potential? And I would
say it is absolutely there, and it's probably conservative. The
big question is, can all of us together resolve, move the
barriers, and get the implementation of the leadership? How
much of it can we get and how fast? And I think that's sort of
the wild card answer. And I believe we have a shot at the
numbers that we published. I really do. But we certainly would
need help from you and others like you to get some of the
barriers out of the way.
Mr. Grothman. I guess I have time for one more question.
Mr. Tillotson, what level of independence was given to the
McKinsey team?
Mr. Tillotson. The McKinsey team was basically on their
own. Other than the assistance it took to get them into the
databases, their analysis then was their own. And the DBB
analysis, which was also done, was also independent. We did not
influence either outcome.
Mr. Grothman. Okay. Thank you.
Mr. Duncan. Thank you.
Ms. Kelly.
Ms. Kelly. Thank you, Mr. Chair, and thank you for holding
the hearing today.
The topic of waste within the Defense Department is
extremely important, and it deserves our attention, especially
considering President Trump's budget proposes funding a $52
billion increase in the Defense Department by cutting other
parts of the Federal budget. While I definitely agree that we
should support the Nation's warfighters with everything they
need, I am concerned that this budget proposal would hurt our
national security in other ways.
Dr. Korb, our national security depends on more than just a
properly resourced Defense Department, does it not?
Mr. Korb. Yes, it certainly does. As we have talked about
here, several other agencies that are being cut to pay for this
are actually going to undermine national security.
Ms. Kelly. Thank you. And we have talked about, I know, the
State Department and the contributions it makes on national
security.
I would like to ask about another cut. Under the
President's proposal, Federal funding for the National
Institutes of Health would fall by 5.8 billion, roughly a 20-
percent cut. As chair of the Congressional Black Caucus Health
Braintrust, this is very concerning to me. The President's
proposed cuts would halt cancer research and other invaluable
medical research among the more than 2,600 institutions that
receive NIH funding. The cuts would also affect research of
infectious diseases, which respects no national boundaries.
According to The New York Times, over the last 50 years,
700,000 Americans have died from AIDS; 1.2 million died from
the flu; and 2,000 died from the West Nile virus; and 1 died
from Ebola.
During a television appearance on March 17, Republican
Congressman Tom Cole stated: ``I don't favor cutting NIH or
Centers for Disease Control. You're much more likely to die in
a pandemic than a terrorist attack, and so that's part of the
defense of the country as well.'' Congressman Cole called the
President's proposed cuts very short-sighted. Do you agree that
short-sighted cuts should be avoided?
Mr. Korb. I certainly do, and I'd like to quote my favorite
President, Eisenhower, who said you can't be strong abroad if
you're not strong at home. And if you don't deal with these
diseases, you're going to have a difficult time getting enough
people to volunteer for the military who meet all of the
requirements that you need.
Ms. Kelly. Thank you. Anybody else care to comment?
No? Okay.
Mr. Chairman, while I fully support providing necessary
resources again to our Nation's warfighters, we need to
carefully consider whether we hurt our national security on
other important fronts like global health.
And I yield back the balance of my time.
Mr. Duncan. Thank you.
Mr. Sarbanes.
Mr. Sarbanes. Thank you, Mr. Chairman.
I thank the panel.
I want to commend you for the incredible amount of work
that you've all put into this. You've bled for it. I commend
you for not just sitting there and engaging in a primal scream
for the last 2 or 3 hours. A couple things, and I know my
colleagues have been reading from some of these quotes, but we
have talked about how the President's budget is going to impose
draconian cuts on a lot of domestic programs, things that we
have all acknowledged are important, as well as foreign aid and
so forth. NIH, I know my colleagues have spoken to those cuts.
This quote from OMB Director Mick Mulvaney, though, is just
priceless, where he, in regards to the NIH cuts, said: ``These
were made because of the tremendous opportunity for savings at
NIH and''--I'm sure someone else has read this quote, but I
just want to repeat it--quote, ``the President's businessperson
view of government is focusing on efficiencies and focusing on
doing what we do better.'' I have to assume you all, when you
saw that quote, just grabbed this report--we'll call it a
report--and just ran as fast as you could up to the White House
and handed it to President Trump because it's all about a
businessperson's view of government and focusing on
efficiencies and on doing what we do better.
Let's talk about the culture because that's the name of the
game here: breaking the culture. And I've heard you speak, Mr.
Klepper and Mr. Korb and Mr. Stein, about leadership being
important, transparency and accountability being important. How
high do you have to go to get the person who can actually make
the change in the culture? Is it enough to go to an Assistant
Secretary of Defense? You got to get at least to the Secretary
of Defense to embrace the change in culture, or do you actually
have to get to the President, who gets up every day and says,
``The Pentagon has got lot of waste and inefficiency in it, and
one of the priorities today and tomorrow and the next day is
going to be for us to attack that and make it work more
effectively''? How high do you have to go to find the person
who you think can break the culture in a meaningful way?
You can just start with Mr. Korb there.
Mr. Korb. Well, I think it's really got to be your Deputy
Secretary of Defense. The Secretary whoever he, and hopefully
some day soon she, is basically is going to be traveling around
the world and doing a lot of things. The deputy is the one who
has to do it. And as I mentioned here, people like David
Packard, Charlie Duncan from Coca-Cola, Don Atwood from General
Motors, they've been able to do these things. And I think
that's really where it has----
Mr. Sarbanes. So, in terms of deploying the culture change,
you need that level. But you would certainly agree, I guess,
that if you don't have acquiescence in it or the buy-in or the
approval of it from the levels above, all the way up to the
President, then that person can't be effective presumably?
Mr. Korb. Well, that's true. If you take President Trump at
his word, you would think this is what he wants to do, and if
the Secretary, whoever he or she may be, should certainly buy
into that and then get a strong deputy to make sure that it
happens.
Mr. Sarbanes. Other thoughts?
Mr. Klepper. You know, it's the sponsor model for change,
and it starts with the President. He is mega sponsor ultimately
because, even though the size of the Department of Defense from
an efficiency standpoint has a bigger potential, it's an issue
across all of government. It's an issue in all of industry. So
this is--organization--high-performance organization needs to
be reinforced all the way from the top.
Now, that's delegated, and I would say we had a case in the
Department of Defense where the Deputy Secretary was all in. It
was a change of leadership at the top, and we kind of went
dark. So, in that situation, it really starts within the
Department of Defense with the Secretary of Defense because if
he's reinforcing and holding accountable to some tangible
metric, organizational efficiency, the odds are that those
direct reports are going to hold their staff accountable, and
that's that cascading chain to where, at any point, somebody
decides they're not interested in this and they're going to get
evaluated differently, that's the black hole where change goes
to die. So that's a really essential key----
Mr. Sarbanes. I'm going to run out of time. So I just want
to emphasize what you said. Culture change can't happen if it
doesn't start at the top, all the way at the top. And this is
the Federal Government. The person who's all the way at the top
is the President of the United States. So leadership matters
from there, but transparency and accountability, if those are
going to be standards that can accomplish the kind of change
you want to see and that you worked so hard to produce, to tee
up for us, then that commitment to transparency and
accountability has to begin at the very, very top.
And this committee has had the opportunity just in the last
few weeks to demonstrate that we're not seeing that kind of
accountability and transparency coming from the very top of
this organization, which is the Federal Government and, in this
case, the executive branch of the Federal Government. I hope we
see more of it.
Mr. Duncan. I'm sorry. We have got to go to Mrs. Maloney. I
apologize.
Mrs. Maloney. Thank you. Thank you very much, and I thank
you, Mr. Chairman.
And I thank all of you for your service. It's really,
personally, I think it's a scandal. It's an incredible scandal.
Of the 34 areas the GAO highlighted this year, seven for
mismanagement or high risk, seven were in the Defense
Department. And basically what your report showed, that if you
had implemented the findings of this report that you all worked
so hard on, you would have resulted in 125 billion in savings
so that the losses that my colleagues are talking about for
essential services for people wouldn't happen.
I think that this is an absolutely scandal, and it seems to
me like if you can't, in reading some of the history of this,
it's the Defense Department itself that stops the
investigations, that stops the reforms, that says the data
should be kept secret. It struck me, Mr. Rutherford, that you
said you couldn't even get your hands on it, and especially
what you said, you didn't know where it was. Do you have any
sense of how much of the bureaucracy, of the many levels that
they go through, is in the budget? Is it half of it? Is it a
quarter of it? Is it a tenth of it? How much of it is in this
permanent bureaucracy that has been created of the Defense
Department spending, would you say?
Mr. Rutherford. So what we looked at in our work was
looking at the six core business functions, and within those
business functions, we had to pull from 20 different data sets
to pool all the information to actually give the transparency
that Mr. Klepper is talking about so then Mr. Tillotson can
move out against that to see what they can make adjustments
against. As far as the percent of that that is bureaucracy,
that's where we started to cut down; where can they actually
find the savings? And that's when we came away with our 62- to
$84 billion number over a 5-year period because it adjusted for
a little bit more of a deeper dive into some of these sub-
functions.
Mrs. Maloney. That is amazing. Just to respond, I think if
the culture can't seem to change, I think Congress should step
in and help them change it, Mr. Chairman. Why don't we pass a
bill that the data has to be transparent so that people can see
it, so that people can report on it? If they're hiding their
data, number one--number two, on their contract system that the
sub of the sub of the sub of the sub gets to a small business,
why don't we have competitive bidding to the best qualified?
Forget--I read someplace you have like 155 contractors. For
what? You write up the specs, you throw it out, and you see
what comes in, instead of going through all these processes
that end up giving it to the ex-general. So I would like to see
competitive bidding for all of these processes and all of this
new equipment. Why do you need all of this new equipment? I
think you ought to bring in McKinsey and have them do a service
to their Nation and run the State Department--I mean the
Defense Department.
One thing struck me, that the contracting out of the
Defense Department is more than about 10 agencies combined. I
mean, it's huge. I want to ask, Mr. Rutherford, you had
slightly different numbers than what the Defense Business Board
came out with on what the final numbers were. Is that true?
Mr. Rutherford. Yes, ma'am.
Mrs. Maloney. Why was that, do you think?
Mr. Rutherford. So they finished the report in January of
2015. We spent then 3, 4 months longer with the DCMO going
deeper into the sub-functions, so we had the luxury of actually
looking at some of the lower level data. We actually then
brought in different types of benchmarks that we used in how
you can actually achieve productivity gains, and that came up
with a number that both in terms of the amount of spend came
down, but it had more to do with the timing on how much you can
achieve over a 5-year period.
Mrs. Maloney. And your contract spend optimization, do you
think that that would have potential savings, and how, much and
what is contract spend optimization? What is that?
Mr. Rutherford. The contract spend optimization is when you
look at the contracts every year they come up. Are you
actually, for rebidding purposes or renegotiation purposes,
actually looking at, one, what does the Department of Defense
really need from a requirements standpoint, and then, two, from
a bottom-up standpoint, what should it cost the Department of
Defense with more of a bottom-up view? And then you get a sense
of where your negotiation power is to actually do optimization
of those contracts over time. So, every year, you're getting
better and better at the contracting process.
Mrs. Maloney. Well, see, what I don't understand--we have
the greatest military in the world, but they can't seem to
manage anything. We're the best and the strongest. And how much
savings did you attribute to aggregating and renegotiating
contracts?
Mr. Rutherford. I'd have to go back and look at the
numbers, but what we looked for there on the contract spend--
that was going to be from a year-over-year savings--we were
looking at 4- to $5 billion every year for our 62 billion. Of
that, it was going to be about 20 percent to 25 percent of that
number would be in the contract optimization.
Mrs. Maloney. These are huge savings. I have one report
that they gave me, but it's from the business group. Could I
see the original report that McKinsey did?
Mr. Rutherford. I believe all of our deliverables that we
gave to the DCMO were provided, but I can go back and check to
make sure that that happened.
Mrs. Maloney. But I mean, you know, I didn't--could I see
your report? This is the report that we have. Was that yours?
Mr. Rutherford. So there's the DBB report that they did,
which was published on January 15. Our contract went beyond
that, and our contract had a number of deliverables that were
inputs into that report. But what we provided for the DCMO was
a set of contract deliverables that looked not only at what the
baseline was, but what metrics did they use for productivity
gains, and then what was the estimated savings in each of those
categories?
Mr. Duncan. I'm sorry. We have got votes going on on the
floor now. So I want to thank all the witnesses for taking the
time to appear before us today. You've been very patient.
You've been here a very long time.
I ask unanimous consent that members have 5 legislative
days to submit questions for the record.
Without objection, so ordered. If there is no further
business, without objection, the committee stands adjourned.
[Whereupon, at 1:11 p.m., the committee was adjourned.]
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