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


  $125 BILLION IN SAVINGS IGNORED: REVIEW OF DOD'S EFFICIENCY STUDY

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

                                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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              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

                              ----------                              
                                                                   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

                              ----------                              


                        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:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    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:]
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    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:]
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    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:]
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    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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