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

                             [H.A.S.C. No. 115-104]

                                    HEARING

                                       ON

                       NATIONAL DEFENSE AUTHORIZATION ACT

                              FOR FISCAL YEAR 2019

                                      AND

                  OVERSIGHT OF PREVIOUSLY AUTHORIZED PROGRAMS

                                   BEFORE THE

                          COMMITTEE ON ARMED SERVICES

                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                             FULL COMMITTEE HEARING

                                       ON

        OVERSIGHT AND REFORM OF THE DEPARTMENT OF DEFENSE ``4TH ESTATE''

                                   __________

                                  HEARING HELD

                                 APRIL 18, 2018

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    30-685                      WASHINGTON : 2019

    --------------------------------------------------------------------------------------

                          COMMITTEE ON ARMED SERVICES

                         One Hundred Fifteenth Congress

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

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

                          Jen Stewart, Staff Director
                             Tim Morrison, Counsel
                          William S. Johnson, Counsel
                              Justin Lynch, Clerk

                               C O N T E N T S

                                  ----------
                                                                       Page

                  STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

    Smith, Hon. Adam, a Representative from Washington, Ranking
      Member, Committee on Armed Services............................     1
    Thornberry, Hon. William M. ``Mac,'' a Representative from Texas,
      Chairman, Committee on Armed Services..........................     1

                                   WITNESSES

    Dunlap, Preston C., National Security Analysis Mission Area
      Executive, Johns Hopkins University Applied Physics Laboratory.     5
    Levine, Peter, Senior Research Fellow, Institute for Defense
      Analyses.......................................................     2

                                    APPENDIX

    Prepared Statements:

        Dunlap, Preston C............................................    53
        Levine, Peter................................................    45
        Smith, Hon. Adam.............................................    44
        Thornberry, Hon. William M. ``Mac''..........................    43

    Documents Submitted for the Record:

        [There were no Documents submitted.]

    Witness Responses to Questions Asked During the Hearing:

        [There were no Questions submitted during the hearing.]

    Questions Submitted by Members Post Hearing:

        [There were no Questions submitted post hearing.]

        OVERSIGHT AND REFORM OF THE DEPARTMENT OF DEFENSE ``4TH ESTATE''

                                  ----------

                              House of Representatives,
                                   Committee on Armed Services,
                             Washington, DC, Wednesday, April 18, 2018.
        The committee met, pursuant to call, at 10:02 a.m., in room
    2118, Rayburn House Office Building, Hon. William M. ``Mac''
    Thornberry (chairman of the committee) presiding.

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

        The Chairman. The committee will come to order.
        Over the years, Congress has focused most of our attention
    on the military services and on weapons and equipment,
    personnel, and policy issues. We have paid relatively little
    attention to the rest of DOD [Department of Defense] that makes
    up the 4th Estate; in fact, one expert has said the 4th Estate
    is untouched by human hands.
        Yet, this portion of the Department of Defense spends about
    20 percent of the budget, includes about 25 percent of the
    civilian workforce, and hires about 600,000 contractors. As we
    are working to get more value for the taxpayer dollar, to get
    more resources into the hands of the warfighter faster, and to
    make the Department more agile and innovative in the face of
    the wide array of security challenges before us, we cannot
    neglect to examine this large portion of DOD.
        Yesterday, I offered a proposal to make reforms to a
    portion of the 4th Estate. I look forward to receiving
    reactions to that legislative text. But beyond the specific
    proposals, I believe it is essential that we work across the
    entire Department, leaving no stone unturned, to ensure that
    the warfighters have the best that this country can provide,
    and that this enormous organization of DOD is ready and able to
    defend the Nation.
        I yield to the ranking member.
        [The prepared statement of Mr. Thornberry can be found in
    the Appendix on page 43.]

    STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON,
              RANKING MEMBER, COMMITTEE ON ARMED SERVICES

        Mr. Smith. Thank you, Mr. Chairman. And I agree; this is an
    important hearing that we are having today on a substantial
    portion of the budget that does not get as much attention as it
    deserves.
        I wouldn't go so far as to say it is untouched by human
    hands. I think that there are others that have come before us
    that have taken a swing at this, both in the Department and in
    Congress, to try to look at the portion of the budget that is
    not directly related to the warfighter.
        And there is without a doubt, and I don't think anyone
    would argue, there is savings that can be found there, and I
    think we should look and try and do that. And I think the
    chairman's bill that he introduced yesterday or, I guess, the
    portion of our markup he introduced yesterday to attempt to do
    that is a good starting point.
        I would say, however, what these people do is not
    irrelevant. There are a number of portions in the so-called 4th
    Estate that are essential to assisting the warfighter and
    making sure that they are ready for the fight.
        So what we have to do in this committee is figure out how
    can we find savings without doing damage. And, as I said,
    others have come before us and tried to do that. The Pentagon
    is a very difficult bureaucracy to get at. I certainly admit
    that.
        And I will just close by saying, I certainly applaud the
    chairman's efforts to take that run. I look forward to working
    with him to figure out the best way to do that, to make sure we
    cut in a sensible way that saves money, and at the same time,
    makes sure that we can continue to provide the services that
    our warfighters need so we can fight as efficiently as
    possible.
        I will stop there because the two gentlemen who are
    testifying today know a lot more about this than I do, so it
    will be better to hear from them and get to our questions and
    answers.
        Thank you, Mr. Chairman. I yield back.
        [The prepared statement of Mr. Smith can be found in the
    Appendix on page 44.]
        The Chairman. Thank you. I certainly agree with the
    gentleman on all of that, including the fact that our witnesses
    have a lot of expertise to bring to the table.
        We welcome Mr. Peter Levine, senior research fellow at the
    Institute for Defense Analyses, but who has also been Deputy
    Chief Management Officer at the Department of Defense. And what
    I won't mention is some of his associations across the capital.
        We also have Mr. Preston Dunlap, who is the National
    Security Analysis Mission Area Executive at Johns Hopkins
    Applied Physics Laboratory, but he too has experience in the
    Pentagon including serving in CAPE [Cost Assessment and Program
    Evaluation] and in other positions.
        Thank you both for being here. Without objection, your full
    written statements will be made part of the record. And we look
    forward to any oral comments you would like to make.
        Mr. Levine.

     STATEMENT OF PETER LEVINE, SENIOR RESEARCH FELLOW, INSTITUTE
                          FOR DEFENSE ANALYSES

        Mr. Levine. Thank you, Mr. Chairman, Congressman Smith,
    members of the committee.
        First, it is good to see you all again. I thank you for
    inviting me here to address defense management and the DOD's
    4th Estate. I think it is a tremendously important issue which
    is well worth your attention, and I believe that there are
    significant savings that are possible in this area.
        When I served as the Department's Deputy Chief Management
    Officer I was responsible for a program to carry out about $7
    billion worth of savings over the course of the FYDP [Future
    Years Defense Program], and most of that we were looking to the
    4th Estate to achieve.
        I think it is important though not to have unreasonable
    expectations as we look at the 4th Estate. As I point out in my
    prepared statement, a huge part of the 4th Estate budget goes
    to the Defense Intelligence Agencies, the Missile Defense
    Agency, and the U.S. Special Operations Command. By some
    definitions, the combatant commands are also part of the 4th
    Estate, so there is a huge warfighting function that is in the
    4th Estate.
        Within the balance, we pay for the Defense Health Program
    which provides health care to our service members and their
    families, as well as the DOD schools and commissaries, which
    Members of Congress have generally considered to be off limits
    for large cuts.
        The 4th Estate also includes DARPA [Defense Advanced
    Research Projects Agency], SCO [Strategic Capabilities Office],
    and DIUx [Defense Innovation Unit Experimental], all of which
    perform cutting-edge research needed to maintain our
    technological edge. If all those entities are considered to be
    essentially off the table for budget reductions, and I don't
    mean to imply that there are no efficiencies possible, but the
    large budget reductions, if we are looking at the rest of it,
    we have about a quarter of the 4th Estate left to look at. So
    you can't achieve 25 percent reduction in the 4th Estate by
    looking at only a quarter of the budget.
        Unfortunately, the everything else also performs essential
    functions. I think these are functions that can be performed
    more efficiently and that deserve close attention from the
    committee, but they are important functions, nonetheless.
        This includes a number of small defense agencies that
    perform specialized functions, like DPAA [Defense POW/MIA
    Accounting Agency], DSCA [Defense Security Cooperation Agency],
    DTRA [Defense Threat Reduction Agency], DTIC [Defense Technical
    Information Center], DTSA [Defense Technology Security
    Administration], DTRMC [Department of Defense Test Resource
    Management Center]. We can go through any of those that you
    want, but my point on that would be the overall cost of those
    small agencies is relatively small. Their functions have to be
    performed somewhere. So there are savings. I believe that the
    small agencies can be made more efficient, but you are not
    looking for big dollars there.
        If you are looking for big dollars, you are probably
    looking where others have looked, which is to the big business-
    type defense agencies, like DLA [Defense Logistics Agency],
    DFAS [Defense Finance and Accounting Services], and DISA
    [Defense Information Systems Agency]. That is sort of
    everybody's favorite target for budget cuts in the 4th Estate.
        Before those agencies were established, the Department ran
    parallel activities in each of the services, multiplying the
    overhead and the number of people needed to perform the work.
    DLA and DFAS, the two agencies that get most of the complaints
    because of their size, had almost 100,000 employees between
    them when they absorbed functions from the services in the
    1990s.
        Today they perform the same work better with 34,000
    employees. That is about a $6 billion a year annual savings
    from the personnel reduction that they were able to accomplish
    by bringing in tasks from the services and consolidating them.
        I have been following DLA for almost 30 years now, and I
    have watched it evolve as a business, reaping savings by
    instituting best practices from the private sector like direct
    vendor delivery, prime vendor contracts, electronic
    contracting, electronic tracking, asset visibility programs,
    and business systems that actually work, unlike most of those
    in the Department of Defense.
        Over the last 5 years, DLA has executed a cost reduction
    program that targeted contracting, personnel, acquisition of
    assets, travel, transportation, supplies and equipment, rent
    and maintenance. This program was expected to achieve about $5
    billion of savings over the FYDP.
        As a result of these efforts, I think DLA is one of the
    best run businesses in the Department. That doesn't mean that
    further savings aren't possible--they are and the committee
    should pursue them--I think we just need to understand what has
    gone before as we look at those.
        DFAS is also a relatively efficient organization and
    outperforms what the services did 25 years ago, but I see a
    difference here. Both DFAS and the services have evolved
    considerably and have new capability since DFAS was formed 25
    years ago.
        Given the new ERPs [enterprise resource programs] in the
    services, and the new capabilities that they have, I think it
    is long past time for a complete re-examination of the role
    that DFAS and the services play. And there should be
    streamlining that's possible. There may be functions that can
    be transferred from DFAS to the services, but a real considered
    approach to that and figuring out how those functions work is
    necessary.
        I am less familiar with DISA, but I know that it runs data
    centers that are sometimes considered to be underutilized and
    overstaffed. It is tough cutting these kinds of things in the
    Department without a BRAC [base realignment and closure]
    though, so you might--you know, if you are willing to take that
    issue on, not a BRAC issue but the issue of data centers and
    whether they are efficiently utilized, more power to you.
        Finally, I would like to say just a few words about two
    agencies, two defense agencies that reported directly to me
    when I was in the Department. Everybody in the Pentagon loves
    to criticize Washington Headquarters Services [WHS]. It can be
    maddeningly unresponsive at times, but it performs essential
    functions without which the Pentagon could not operate.
        It runs the power plant and utilities, maintains the
    building, allocates office space, contracts for food, handles
    the budget, runs personnel system, controls ID [identification]
    cards and parking permits, among other functions.
        It would be nice to think that we could save money by
    eliminating WHS, but somebody has to provide these services.
    Similarly, with the Defense Human Resources Activity [DHRA],
    which reported to me when I was Acting Under Secretary for
    Personnel and Readiness, that is a notoriously inefficient
    agency.
        And there have to be savings that are possible, but
    recognize that it performs a bunch of activities that cannot--
    that we really cannot avoid and many of which are mandated by
    Congress. It runs the Department's education and training
    programs and its manpower data systems.
        It staffs the JAMRS [Joint Advertising, Market Research and
    Studies] program, the Suicide Prevention Office, the SAPRO
    [Sexual Assault Prevention and Response] office, and the
    Defense Travel System. It is responsible for the accommodation
    program for disabled employees, the veterans transition
    program, employer support for the Guard and Reserve. The
    elimination of DHRA makes no sense unless those programs are
    also going to be eliminated.
        So, Mr. Chairman, in conclusion, I appreciate the
    committee's ambition in looking at this issue. I think it is
    tremendously important. I think you can find efficiency. I
    think you can find significant savings, and any savings that
    you achieve will be a tremendous victory for the Department and
    the taxpayers.
        I look forward to your questions.
        [The prepared statement of Mr. Levine can be found in the
    Appendix on page 45.]
        The Chairman. Thank you.
        Mr. Dunlap.

      STATEMENT OF PRESTON C. DUNLAP, NATIONAL SECURITY ANALYSIS
       MISSION AREA EXECUTIVE, JOHNS HOPKINS UNIVERSITY APPLIED
                           PHYSICS LABORATORY

        Mr. Dunlap. Chairman Thornberry, Ranking Member Smith,
    distinguished members of the committee, it is an honor to
    appear before you today to discuss the oversight and reform of
    the 4th Estate and defense agencies and field activities in
    particular.
        It is also excellent to be joined by my colleague, Peter
    Levine, here today.
        Though, as the chairman said, I currently work at Johns
    Hopkins Applied Physics Lab, I am here today in a personal
    capacity. In 2013, I led a review on this topic for Secretary
    of Defense Chuck Hagel as part of the Strategic Choices and
    Management Review when I was the Director of Program Analysis
    and Chief of Staff in the Office of Cost Assessment and Program
    Evaluation in OSD [Office of the Secretary of Defense].
        While I readily admit that my experience is slightly dated,
    the principles that were true then and what we found in reviews
    past, I think, remain relevant and true today. To that end, I
    am going to walk through six false assumptions that plagued our
    review and other reviews that we looked at, and I hope that we
    might be able to progress here more quickly past them.
        And I do thank the chairman for throwing out the first
    pitch and getting the ball rolling on this, so thank you.
        Assumption number one: Defense agencies and field
    activities are homogenous back offices. Each of the current 27
    agencies and activities was initially created by statute to
    achieve greater effectiveness, spanning multiple military
    departments. These missions vary widely, as you know, from
    groceries to geospatial analysis, to educating kids, to
    engineering, and so on.
        Though each organization does indeed have a back office or
    overhead, and a few do function as consolidated back offices,
    like the Washington Headquarters Services, the majority conduct
    a variety of what many consider valuable direct missions to the
    Department of Defense.
        Assumption number two: The appropriated budget is the total
    budget. We are using publicly available data, unclassified
    data--so setting aside things like the intelligence agencies--
    the agencies get appropriated, as the chairman alluded to,
    roughly $65 billion, but some also receive additional funding
    via defense working capital funds from other DOD agencies,
    military departments, and even individuals that pay them for
    services.
        Working capital funds allow consumers, in some sense, some
    choice as to where to buy their services from as well as
    flexibility and agility to respond to pressing needs. That
    included, all told, they execute roughly 16 percent of the DOD
    budget or over $116 billion, but as I mentioned before, each in
    a different way.
        And when you think about 25 percent to the right target,
    thinking about both the appropriated as well as revenues and
    other appropriated budgets that get sent to these agencies for
    execution should be considered.
        Assumption number three: The agencies can take cuts and
    still perform the same level of mission. And I appreciate the
    chairman's comments that--and when you look at this you should
    think about not only cuts but also dropping missions that might
    not be important or relevant in today's time.
        In a bureaucracy it is often harder to cut a mission than
    it is simply to cut funding, but, of course, they are related.
    It is appropriate to take hard looks at doing the same mission
    or even more for less, but if savings are an objective then
    tough decisions may have to be made about actually doing less
    for less.
        For example, one that is often cited is DOD's grocery
    stores or commissaries or DOD schools, which, of course,
    provide a valued service to military families that can be
    difficult to find in some areas overseas or remote areas in the
    U.S.
        That said, roughly 85 percent of commissaries are located
    within a 15-minute drive of a grocery store or a big-box store
    with full grocery selections. Options to save here or these
    type of agencies would include a careful review of the business
    case for each particular location, store, school, and so on.
        Assumption number four: Peanut butter spread cuts are
    helpful. When faced with tough decisions past reviews often
    defaulted to a peanut butter spread approach to efficiencies,
    such as multiple years of 10 percent cuts in a generic fashion.
        A better approach, I think, as the Congress recognizes, is
    to focus on what the Nation most needs from these organizations
    to emphasize those missions for the warfighter and take
    efficiencies in lower priority areas or obsolete missions.
        Assumption number five: Reorganization is the answer. Is it
    wise for the same person to oversee an intelligence agency, a
    grocery store, and the Missile Defense Agency? Well, maybe. So
    our study in 2013 examined the implications of consolidating
    all those agencies under one leader versus grouping them by
    missions, similar to the way they are today. And we found it
    helpful to consider both the personal expertise of the leader
    as well as dividing the missions across the Department in the
    4th Estate.
        Assumption number six: It is all about metrics and
    reporting. The agencies and activities have been required to
    provide a biannual report to Congress and in the past also
    produced metrics that were tracked by organizations like CAPE,
    my old organization, and at the time the Deputy Chief
    Management Officer.
        However, ultimately, there is no substitute for strong
    leadership. In our experience, the vision and experience of a
    leader who understands the mission of the particular defense
    agency or field activity they oversee and the need for greater
    efficiencies can, together with oversight and action from
    Congress, I think, achieve the greatest steps.
        So going forward, any reform efforts might consider these
    and other lessons learned to give a sense of the magnitude of
    the issue, along with the 25 percent sort of target that is on
    the table. If all seven agencies--we will say six of those
    mentioned are eliminated, that is roughly a 2 percent budget
    cut in total. So there is a long way to go between 2 and 25
    percent if you set aside DISA and the transfer.
        So how do we think about that? There is four categories
    that could find further efforts to be able to get from that
    level of percentage up to 25 or whatever the right percent is.
    First, large agencies that have not recently been reviewed,
    like the Defense Logistics Agency or the Defense Information
    Systems Agency, which is put on the table already; second,
    missions that may be partially accomplished outside the
    government like Defense Commissary Agency or Education Activity
    on a location basis; third, missions that are split between the
    4th Estate and the services still, like intelligence agencies,
    satellite development organizations, and these cases, of
    course, in coordination with the Director of National
    Intelligence; and fourth, those currently decentralized
    missions that may require increased leadership focus, given
    advances in both threat and technological opportunities like
    artificial intelligence and hypersonics, which could either be
    accomplished with existing structures like the Missile Defense
    Agency and Defense Advanced Research Project Agency or with
    their own organizations.
        Ultimately, for any reform to be successful it must be true
    both, as was said here, to the taxpayer as well as to the
    talented men and women in uniform who put themselves in harm's
    way each and every day around the globe.
        And I thank you for the opportunity to testify before you
    today on this important topic, and I look forward to your
    questions. Thank you.
        [The prepared statement of Mr. Dunlap can be found in the
    Appendix on page 53.]
        The Chairman. Thank you. Thank you both.
        Mr. Levine, you have got a magic wand and you can wave it
    and do one or two things when it comes to the 4th Estate
    reform. What would you do?
        Mr. Levine. The first thing I would do is to take a close
    look at the working capital funds. My colleague, Mr. Dunlap,
    referred to the fact that a significant amount of the funding
    going into the 4th Estate comes from the services through the
    working capital funds.
        My concern about the working capital funds is they do what
    they are supposed to with regard to the buyer. The services
    have a pressure to become more efficient because they see the
    cost of what they are buying.
        But they don't have the desired effect in terms of
    efficiency with a seller, because the way the rates are set,
    they are set to make sure that the fund breaks even. So no
    matter how high your expenses are, you will always know you are
    going to recover them.
        My belief is we need a mechanism that will give the
    customers the services, visibility into essentially how the
    defense agencies are spending their money, how DLA, DISA, and
    DFAS are spending their money so they can see the overhead and
    push back at excess expenses.
        I think that kind of mechanism would create sort of a cop
    on the beat to look at those expenses on a day-to-day basis,
    and nobody has more incentive to save money than the person who
    is actually paying the bills. So I think we need to build that
    kind of mechanism into the Department.
        Second, there are a number of specific areas I would look
    at. The first one is healthcare management. I know that the
    committee just went through a major exercise of passing
    legislation on that. It is very significant legislation. The
    Department has a long way to go to execute it.
        But I can't help but say the overhead in the healthcare
    area is extraordinary when we are maintaining three separate
    surgeon generals and the Defense Health Agency. I don't think
    that is an area where we are efficient.
        And you and the Department are going to have to keep a very
    close eye on the implementation of this to make sure that it is
    actually implemented in a way that brings down the overhead and
    doesn't just add new organizations to an inefficient system.
        The third area that I would look at--and there are others
    we can talk about. The third area I would look at is finance
    and accounting. And I really think it is important to relook
    the whole relationship between DFAS and the services. When I
    was the DCMO [Deputy Chief Management Officer], some of the
    service comptrollers would come to me and say, look, there are
    things that DFAS is doing for me that I can now do myself
    because I have an ERP, an enterprise resource program.
        It has the capability built into it, but I am required to
    ship this stuff over to DFAS and have them do it. And the
    consequence is then it is in two systems and then I have to
    hire--DFAS has to hire more people. They have to go through a
    reconciliation process because it is in two systems. If I just
    did it myself I could not only do it within the system I
    already have but I could do it cheaper without the manpower to
    do the reconciliation.
        That is a substantial task to do that re-examination. But
    as I said in my prepared statement, there has been a lot of
    evolution and capability on both the DFAS side and the service
    side, and I think that whole relationship of who does what
    finance and accounting tasks deserves a comprehensive relook.
        The Chairman. Okay. Mr. Dunlap, magic wand, what would you
    do?
        Mr. Dunlap. Thank you.
        I appreciate the comments of my colleague here. I think
    working capital funds are both a bit of a mystery as well as a
    gem. Why do I say that? It is hard to track where everything
    goes and the pricing, as my colleague pointed out.
        A gem because I think the Congress is also interested in
    agility and flexibility in the agencies to respond
    appropriately, and that is certainly pointed to as a mechanism
    to allow that flexibility and some choice where the choice is
    available for the different organizations to choose one
    organization or another.
        So there is both pros and cons to the approach. But it is,
    you know, roughly half of the sort of total appropriations that
    the defense agencies oversee, so it is appropriate to take a
    careful look at that.
        I think the biggest thing here would be to splice out those
    functions across all the organizations that truly are a more
    overhead and back office functions with an assessment that they
    be done more efficiently or effectively. I think a careful,
    hard look needs to be done.
        We did that in our review by bringing in each of the
    defense agency and activities heads, so I personally met with
    each of them, went through the org [organizational] chart, the
    missions, what they were doing, and why they were doing them.
    To be able to get at that, it takes something like that
    pressurizing leadership in the Department to go have a careful,
    intricate look to support that.
        On the reform in terms of making them more effective and
    capable for the service members, they also provide a variety of
    capabilities that I think, you know, the Congress thinks are
    important, intelligence information in light of foreign
    adversaries' capabilities, missile defense capabilities, and so
    we want to make sure that we emphasize those.
        And to that end, there remains, as I mentioned in the
    opening remarks, elements of those structures that remain both
    divested amongst the services and other organizations as well
    as in the 4th Estate.
        I don't have a position on whether it is better to be in
    the 4th Estate or to be divested back to the services, but I
    think there are several missions still in defense agencies
    where we could look at that as part of this review and where
    things could be done better or worse.
        To get to that target of 25 percent or whatever the right
    amount is, we are going to have to take--the Congress is going
    to have to take a careful look at what to cut and what to stop
    doing.
        So I appreciate the seven agencies mentioned, one of which
    is more of a transfer. But as I said, that only gets to about 2
    percent of the budget if they were all eliminated, 2 percent of
    the 25 percent, I should say.
        And so I think the Congress will have to take a careful
    look at whether they are open to issues like Mr. Levine
    mentioned with what has typically been off the table with
    BRACs, or education, or commissaries, because you have to get
    agencies that are large to be able to achieve that kind of
    savings.
        So I just put that out there for consideration. Thank you.
        The Chairman. Okay. I have got several things I want to
    pursue, but first, I will turn to other members. Ranking
    Member.
        Mr. Smith. Thank you, Mr. Chairman.
        You mentioned the word ``BRAC'' in that last little
    sentence there, and it is the first thing I want to ask you
    about. Of all the savings, how important would it be to give
    the Department of Defense greater flexibility in closing bases
    and moving personnel?
        Because we all know, I mean, BRAC is the big bite that
    people are reluctant to take in terms of actually closing bases
    and realigning them. But they are--even within simply moving
    equipment around within DOD or if you wanted to close an office
    in one place and open it up someplace else, you have always got
    this massive fight with, well, us, whatever district it is that
    you are closing down.
        So there is two questions in there. Number one, are there
    things that we could do to make it easier for DOD to shut
    things down, to move personnel, to sort of resist the political
    pressures that inevitably come from the district in question?
        And I am talking about something as simple as if they
    wanted to move four C-130s from one base to another. There will
    always be a fight, and it will always take longer than it
    should. So there is that smaller stuff. And then on the larger
    point, how important would be having a BRAC round to getting at
    some of the efficiencies that is we are talking about here?
        Mr. Levine. Mr. Smith, I am not going to take on the
    political question of how you could possibly get a BRAC passed
    in the Congress. I----
        Mr. Smith. I didn't actually ask you that question. I am
    allowing you to live in your perfect nonpolitical world there,
    so----
        Mr. Levine. I did manage to go through that once, and it
    was a remarkable experience.
        But in terms of the importance of BRAC, you may remember a
    few years ago there was this Defense Business Board study that
    said we could save $125 billion in all these different areas.
    And about half of the savings were--that they projected, if I
    remember right, were in logistics and real property management.
        And so when I became Deputy Chief Management Officer, which
    was several, you know, a little while after that Defense
    Business Board study, I tasked the Defense Business Board, the
    Deputy Secretary tasked them, but at my suggestion he tasked
    the Defense Business Board to go and look at logistics and real
    property management.
        Here you said that there is $50 billion of savings here.
    Tell us what we would do in order to achieve those savings. The
    one overwhelming recommendation the Defense Business Board came
    back with was, you need a BRAC.
        So I don't know that they thought when they looked
    specifically at logistics and real property management that
    they believed that there was really $50 billion of savings
    there or that they had recommendations. But they said, if you
    want significant savings in these areas, what you need to have
    is a BRAC. So that is sort of one marker anyway.
        Mr. Smith. Okay. Mr. Dunlap, do you have anything to add to
    that?
        Mr. Dunlap. I can't answer how much of the defense agency
    reform, you know, would require BRAC or not BRAC. Just a
    general comment is that on average we sort of see a 10-year or
    so return on investment there, so there would have to be a
    recognition of upfront cost to be able to move out.
        There are some examples in the agencies not requiring BRAC
    where they are able to achieve efficiencies. I think Defense
    Finance and Accounting Services is a good organization to look
    to for that where they consolidate a bunch of their offices
    across the country.
        I don't believe they required any BRAC authority to go do
    that, but they were able, on their own volition, to take
    efficiencies there.
        Mr. Smith. Thanks.
        A related question, and just, if you want to comment on it,
    you may. You mentioned the commissaries. You mentioned some of
    the stuff locally. I mean, frankly, most of this stuff that we
    are looking at, when you say, you know, we want to reform it,
    BRAC is a very good example of what we run into.
        We asked the question, you know, why don't we reform it.
    And at the end of the day, it is because of, you know, politics
    in a lot of cases. People don't want jobs lost in their
    district. They don't want things moved.
        So, I mean, if we are going to do this, we are all going to
    have to figure out some process for saying we are going to bite
    the bullet, allow the DOD to have greater efficiency despite
    how it may impact our individual districts. Yes, I understand
    the fantasy of that comment, but I think it is important,
    because everything we are doing here is going to run into that
    brick wall.
        Even if we could all agree that there is one particular
    agency that, you know, has 5,000 people working at it, it is a
    total waste of money, we ought to do it elsewhere, it is going
    to be the mother of all fights, because those 5,000 people are
    somewhere, and some group of people are going to fight for
    them.
        But on the commissary issue, and there are a number of
    issues like this, that are basically things that the men and
    women who serve and their families, it is a convenience. It is
    something they like. It is something that they are used to. It
    is something that improves the quality of their lives in their
    belief system.
        Do you really think there are areas within that, like
    commissaries and elsewhere, that we could get to? And if so,
    how do we get to it in a way that convinces the service members
    and their families that this is okay, that we have a better
    option that is not going to negatively impact your life while
    we save money?
        Mr. Levine. You may remember that a few years ago the
    Department proposed to eliminate the commissary subsidy and
    Congress said no.
        Mr. Smith. I do.
        Mr. Levine. After that we were able to work out with you
    and with your approval and with legislation an alternative
    course, which we hope, if it is successfully implemented, will
    reduce the subsidy without reducing the benefit to service
    members.
        So that, to me, is an example of the kind of reform that
    you can do being cognizant of the benefits that you are
    providing without removing those benefits but still to provide
    them more efficiently.
        Just to take just a minute on the defense schools, my
    recollection is that the defense schools in the United States,
    we spend about $300 or $400 million a year, something in that
    range is my memory. For that price, we get extraordinarily good
    schools.
        The DOD schools match up very well against the better
    school districts in the country in terms of performance, and
    they are doing it with a sensitivity to the needs of service
    members and their children, who move frequently.
        And so just the fact that they are defense schools means
    that they are more understanding of what kids are going through
    with their parents' absence and with their parents in combat
    situations. They provide a tremendously valuable service.
        When we looked at that, the general consensus was, if we
    got rid of the defense schools, we were going to have to
    provide an almost equivalent subsidy to local school districts
    around the country. So the savings would not be $300 or $400
    million a year; it would be maybe some fraction of that, maybe
    a quarter of that or something.
        But for that $100 million, say, a year of savings, you were
    going to lose all the special capabilities provided for the
    defense school. So it is not just a matter of politics. I mean,
    there is a real value to some of these things, and a real value
    to the benefits that we provide to our service members and what
    they do for us in terms of recruiting, retention, quality of
    life for service members.
        So it is easy to say, you know, if it weren't for the
    politics, we would get rid of it, but you have got to remember
    that there is a real value that we are providing as well.
        Mr. Smith. Thank you for making that point. That is really
    all you need, and that is exactly--what you just said is what I
    will say about that. A lot of times the savings looks big
    upfront, but then you have got to factor in everything that you
    just said. And I can't say it any better, so I won't repeat it.
        But I think you are right. The commissary model is the
    model that we are going to have to go through, and this is how
    can we do it in a way--forgetting the politics for a moment,
    like you said--there is a real service that is being provided.
        So we are going to have to work very, very closely with the
    communities and with the service members to figure out, you
    know, how can we balance this out in a way that is going to
    make sure that the benefits are the same and the savings
    actually is realized.
        With that, I yield back. Thanks.
        The Chairman. Mr. Wilson.
        Mr. Wilson. Thank you, Mr. Chairman.
        And thank you, Chairman Mac Thornberry, for addressing this
    important matter of the 4th Estate which manages a significant
    portion of the defense budget and represents oversight
    responsibilities of a large number of civilian and contractor
    workforces with roughly an annual budget of $100 billion.
        And, Mr. Levine and Mr. Dunlap, thank you both for being
    here today.
        And even before I begin, Mr. Levine, I appreciate you
    commending the DOD schools and the sensitivity to military
    families. I feel the same is being done with commissaries with
    a sensitivity and support of military families and giving
    opportunities for not just having the conveniences of home
    worldwide but also providing for military family members,
    spouses, to have employment understanding that they could be
    rotated out. And so we are really fortunate to have systems in
    place that are so positive and meaningful for morale and
    welfare.
        And for both of you, what is your assessment of the
    successes or failures of the past efforts to reform or render
    more efficient the 4th Estate of the Department of Defense? And
    especially I would like for you to begin with the description
    of the 4th Estate for the benefit of observers of this hearing.
        Mr. Levine. So the 4th Estate includes the Office of the
    Secretary of Defense, the defense agencies and field
    activities. Most people would also include the Joint Staff and
    the combatant commands. So that is sort of what you are talking
    about when you try to get your arms around the 4th Estate.
        That oversimplifies it though, because, as Mr. Dunlap and I
    have been describing, those defense agencies are incredibly
    diverse and perform a wide range of missions. I can't say all
    of them are essential to the Department but many of which are
    essential to the Department, many of which are directly related
    to warfighting.
        I think there have been repeated efforts to get at the
    management of the 4th Estate. Most every administration takes
    that on at some point because most every administration is
    under budget pressure. I mean, we have gone through
    sequestration. We know what budget pressure is around here, but
    it is not new to the Department of Defense.
        My view is that each of those reform efforts has made a
    contribution. I look at DLA as an example. DLA today is a
    completely different entity from what it was when I first
    visited DLA in the 1990s, and it was this huge, unruly mass
    that was barely managed.
        I think that improvements have been made over the years,
    but I believe that management reform is a continuous
    responsibility. It is something you can never leave, and every
    new leadership cadre needs to focus on it because it is not
    something that takes care of itself or that you are ever done
    with.
        Mr. Dunlap. Great description of the 4th Estate. I
    completely agree. Just the one large thing that results in one
    of the frustrations, which is if you do reduce a mission and
    you end up not seeing the efficiencies or the savings, it can
    be quite frustrating, both for the Department and Congress.
        So, you know, sometimes you can do these and to make a
    decision to reduce an agency. And the Department has done this
    in the past as well, and it is kind of like squeezing a
    balloon. You move it over here; it just reorgs and shows up
    somewhere else. So keeping track on when you decide to cut an
    organization, reduce or eliminate, making sure that that, in
    fact, happens holistically.
        And in past efforts it sort of stops there without being
    able to track the ultimate completion of those actions and
    direction. So it is an effort that isn't an instantaneous
    result. It is going to take time and oversight.
        Mr. Wilson. And in line with your balloon analogy, how
    frequently does the Department assess the roles, functions, and
    relative value of the defense agencies and field activities
    that comprise such a significant element of the 4th Estate?
    Each of you.
        Mr. Levine. I think the Department is always looking for
    cuts in 4th Estate and efficiencies in the 4th Estate. I am not
    sure that it does a bottoms-up review of is this mission still
    needed in the way you are describing as often as it should, and
    I think it is something that can always be used.
        Mr. Dunlap. I think, you know, legislatively I think 2
    years, sort of biannual type of report and assessment is
    required. That said, every year for the President's budget and
    program and budget review they are part of that process and
    evaluation.
        In terms of a holistic review, the closest and nearest one
    that I am aware of was the 2013 review that Secretary Hagel
    oversaw. And I am not sure about years prior.
        Mr. Wilson. And really quickly, the GAO, Government
    Accountability Office, has assessed many of the cross-
    enterprise business operations of DOD, Department of Defense,
    as high risk due to waste, fraud, and abuse. Is that what you
    believe has occurred? Each of you.
        Mr. Levine. The GAO has assessed all of DOD as high risk
    due to waste, fraud, and abuse. I am not sure that the defense
    agencies are any different from the rest of the Department in
    that regard.
        Mr. Wilson. And thank you very much. My time is up.
        Thank you, Mr. Chairman.
        The Chairman. Mrs. Davis.
        Mrs. Davis. Thank you. And thank you, Mr. Chairman.
        I certainly appreciate your efforts here in attempting to
    reform the defense agencies. Tough thing to do, and I think you
    all are speaking to that. Of course, we don't have the
    advantage of having that draft and neither do you, but I think
    trying to look ahead now and see where are those instances in
    which you have seen some successes in doing this and those
    areas in which you think that perhaps the intent was a good
    one, but in the end it wasn't able to achieve the required
    results.
        So I look forward to getting into this and seeing how we
    can do it in the most inclusive way. What have you seen in
    terms of models, perhaps that is BRAC in some ways or other
    reorganization attempts, that you think we should be looking to
    to try and really reflect here in our discussions?
        Mr. Levine. BRAC goes to facilities. Facilities aren't the
    only things we pay for.
        Mrs. Davis. Right.
        Mr. Levine. We have a couple of other things that we need
    to look at. Basically the other category, you buy things, you
    buy--you have facilities, and you have manpower. If you are not
    focusing on things--because we are not talking about the
    acquisition system. That is a whole different issue.
        Mrs. Davis. Yeah. I think----
        Mr. Levine. You are really focusing on manpower and how can
    you save manpower. That is military, civilian, and contractor.
    You have to look at the total force.
        Mrs. Davis. Yeah.
        Mr. Levine. So there are issues you can look at about the
    balance of the total force. Military tends to be much more
    expensive because we have to train and retain and so that we
    have a lifetime investment in military. If we are using
    military for functions that could be performed by civilians or
    contractors, that is probably not a good idea. There is
    analysis that can go into that.
        Mrs. Davis. Mr. Levine, if I may, is there an organization
    or really a process that you think has been a good model? And I
    am thinking of making sure that people who are on the ground,
    who know this stuff and work with it everyday, are included as
    well as those who have fresh eyes on the prize, essentially.
        Mr. Levine. So a model I would offer you is what we use for
    looking at service contracts, which is an important area to
    look at. We had throughout the Department something called
    Service Requirement Review Boards, SRRBs--they are sometimes
    called contractor courts--where the leadership of an agency or
    an entity, service, systematically reviews its own service
    contracts and requires a bottoms-up justification for what they
    are spending on service contracts.
        And so the people who were responsible for those contracts
    have to come in and present, this is what I am spending and why
    I am spending it. That SRRB process started in the services.
    When I was DCMO we expanded to the defense agencies to make
    sure that they were under that same kind of review. But that
    model of the contractor court, the SRRB, is something that can
    be applied, I think, to other areas of the Department as well.
        Mrs. Davis. Uh-huh. Mr. Dunlap, would you agree with that?
    And do you get people that are willing to say, you know,
    listen, we don't need this?
        Mr. Dunlap. So I think the important thing--and I think you
    might be alluding to this--is talking particularly to the
    people both that run the organizations and the beneficiaries of
    the organizations and outside perspectives as well.
        That was extremely valuable in the review that I was
    involved in. And I found, depending on the particular leader at
    the time, some actually quite open to talking about where they
    could see their organization being more efficient and effective
    yet were limited, for a variety of reasons that have been
    mentioned here, outside and inside the Department.
        And so I think that has been excellent. I think there are
    good examples, like DARPA, with technologies that are a great
    idea of what the defense agencies are about.
        Mrs. Davis. If I could stop you because I have so little
    time, how do you see doing this within healthcare management? I
    mean, I know this is a really difficult one in terms of
    hierarchies within the different services. Is that a good
    model? Is that something--how would you do it to really get to
    where we want to go?
        Mr. Levine. I am not always convinced that Congress is the
    best mechanism for defense management reform because you need
    to have hands on within the Department to get it right and to
    do the details. And so I am a skeptic sometimes of defense
    management reform.
        But the healthcare area is actually one where I would urge
    the committee to keep hands on. I think that the Department is
    going to be unable to come to grips with this by itself without
    direct pressure and direct oversight from Congress. I just
    think that the organization is big enough and dysfunctional
    enough that it is going to be hard for the Department to
    overcome that.
        Mrs. Davis. And one other question. Yesterday we had a
    hearing really looking at the culture of innovation, and one of
    the concerns is all the requirements, processes, and the many
    layers of people who really want to express their opinion. So
    how do we help and reform the 4th Estate knowing that that is
    going to be an issue?
        Mr. Dunlap. I will just offer, you know, I used the example
    of DARPA, Defense Advanced Research Project Agency, and
    organizations like that, that have the flexibility. They exist
    in the 4th Estate as the defense agency, and yet, due to
    leadership, passion, vision that they have, and risk-taking,
    they are able to cut through a lot of that. Strategic
    Capabilities Office is another one. So supporting organizations
    like that doing the mission that the Nation needs is useful for
    the committee.
        Mrs. Davis. Thank you.
        Thank you, Mr. Chairman.
        The Chairman. Mr. Turner.
        Mr. Turner. Thank you, Mr. Chairman.
        Mr. Levine, I appreciate your description. As you were
    giving a list of all the things that we are going to be
    executing in the Department of Defense with civilians that are
    not what people consider bureaucracy, I basically heard you
    describing many of the functions that are at Wright-Patterson
    Air Force Base, which is in my district.
        And I too believe we need significant overhaul of processes
    in the Department of Defense and areas to find savings. I
    served as mayor of my community and had to do that in my own
    bureaucracy and organization.
        But you made a pretty important distinction, which is how
    do you preserve--this is just not just a civilian workforce
    issue versus a uniform workforce issue. It is a function. How
    do you preserve from a legislative perspective what is coming
    from Congress in trying to address issues of civilian personnel
    and not hurt those functions?
        Because we all know what a bureaucrat is, right. A
    bureaucrat is not an accountant. It is not an engineer. It is
    not a scientist. It is these functions that you have that are
    being executed. There is a product. I am not quite certain how
    you would carve that out.
        Let me give you some examples. Air Force Institute of
    Technology is at Wright-Patterson Air Force Base, all the
    graduate programs for the Air Force. There are programs that no
    other college or university has, many of which are classified
    programs.
        Air Force Research Labs are based at Wright-Patterson Air
    Force Base, scientists, engineers. In addition to being a
    civilian workforce that manages materials, sensors, UAVs
    [unmanned aerial vehicles], they also oversee the university
    research portfolio of the Air Force.
        Life Cycle Management Center, which oversees a portion of
    depot maintenance and looks to contractor oversight, has to
    have engineers, scientists to oversee contractors. And, of
    course, the bidding process is they also have the foreign
    military sales aspect and have the interface with those--with
    our military counterparts.
        Human Performance Wing, scientists, engineers, how we marry
    our men and women in uniform to technology and also issues of,
    you know, physiological episodes that we are having. We send it
    to those engineers and scientists.
        So how do we take those things--you know, NASIC, National
    Air and Space Intelligence Center, 3,000 people, largely
    civilians that are specialists in missiles and what our
    counterparts are doing, how do we look at trying to streamline
    and pare bureaucracy but make certain that we don't impact
    those functions that are actually being executed as missions of
    Department of Defense, or in this case the Air Force, that are
    inherently going to be civilian functions?
        Mr. Levine. Thank you for that question.
        In response to the last question or one of the last
    questions, I was saying that I thought the Department needed to
    be hands-on with health care but you can be too hands-on in the
    management area. At the end of the day, management is going to
    be a leadership task within the Department of Defense. You
    can't manage the Department of Defense from here.
        So what I think that the committee can do and
    constructively is to set goals, make sure those goals are
    reasonable, and that enough time is provided to be realistic
    that you may implement it. If you have unreasonable savings
    expectations, you are going to have irrational action. But if
    you have reasonable goals, reasonable timelines that will keep
    the pressure on the Department. And you can have the senior
    officials at the Department come over, you know, establish
    plans, come over and brief you on that.
        Mr. Dunlap did that in his time. I did that in my time. I
    think you need to keep the pressure on that and keep the
    oversight of that. But the management, the hands-on management
    at the end of the day needs to be done within the Department,
    and there is no substitute for leadership.
        What they have got to do is they have got to get into the
    nitty-gritty of how processes work, what organizations look
    like, and where there are inefficiencies or where there are
    unnecessary tasks. And that is just not something that you can
    do in legislation. You have to do it really with a hands-on
    management style.
        Mr. Turner. Thank you. I yield back.
        The Chairman. Mr. Langevin.
        Mr. Langevin. Thank you, Mr. Chairman.
        I want to thank our witnesses for being here today. And let
    me start with Mr. Dunlap. In your statement you provide four
    categories by which to think about agencies and potential
    reforms. So I am particularly interested in the last two
    categories, agencies with missions split between the 4th Estate
    and the services and those with decentralized missions.
        So responsibilities for artificial intelligence [AI] and
    hypersonics, I believe, fall into both these categories. Can
    you elaborate further on how you would think about reforming
    the agencies currently responsible for AI and hypersonics so
    that we achieve and sustain world leadership in each of these
    areas?
        Mr. Dunlap. Thank you for the question.
        I think, you know, those are a couple areas, hypersonics,
    artificial intelligence, that this Congress recognizes is
    important both to today and in the future. The reason why I
    mention it is that what can often happen is that each entity is
    trying to do the right thing in and of themselves, but, as Mr.
    Levine mentioned, leadership focus can be important to drive
    innovation and change throughout a large organization like the
    Department of Defense.
        And so I offer those not as thoughts for increasing
    bureaucracy and overhead but instead to maintain both vision,
    passion, excitement, and energy, and resources on those
    capabilities. And so those can take place both in the 4th
    Estate as well as in the services.
        I mentioned intelligence agencies, satellite developers,
    things that in the past defense agencies were created to be
    able to do good things to achieve efficiencies, gain greater
    effectiveness by working together. And so I think that is an
    important tenet. Whether or not organizational change is a part
    of that is a separate question.
        Mr. Langevin. Thank you.
        So yesterday in this same room we held a hearing on
    innovation, and both witnesses detailed how we essentially have
    good people working within a tricky system, and that ultimately
    we should place more of our focus on outcome rather than
    resources--I am sorry, rather than processes.
        Do you agree, or do you feel that there are elements within
    the defense field activities and combat support agencies that
    require existing processes to achieve the desired outcome?
        Mr. Levine. My view on defense innovation is that a huge
    part of the issue that is too often overlooked is money,
    resources. Are we putting our resources in the right places to
    promote innovation.
        If you want to do what the Department says they want to do
    now, which is to try lots of things and be willing to fail, you
    don't want to be doing that in your acquisition programs. I
    don't think any of us want to see a major acquisition program
    where we are investing $50 billion fail. That is not where you
    try something and fail. You need to try and fail before you get
    there.
        The problem that I see in the way our acquisition system
    works is that the way you get defense development dollars in
    large quantities is you start a program. Until you have a
    program, you have nickels and dimes and try this and try that.
    But if you want the big money for development, it is going to
    be in a program. Well, once you put it in a program you can't
    afford to fail.
        What we need to do, to figure out a way to do, is to have
    big dollars out there, substantial investment that we make that
    is separate from weapons programs so that we can be running
    prototypes and tests and experiments where we can try lots of
    different things and be willing to fail, that is not a part of
    programs where we can't afford to fail.
        Mr. Langevin. Good observation. Thank you.
        Mr. Dunlap, do you have anything to add on that point?
        Mr. Dunlap. I will just add, I think one of the most
    interesting comments that I heard, you know, yesterday was, you
    know, that we don't reward people for failing. We shouldn't for
    wrongful failing, but when you are failing for taking risks,
    failing early and fast to be able to achieve the greatest
    effectiveness, we ought to be rewarding those people in the
    bureaucracy.
        Mr. Langevin. Yeah. I completely agree.
        So support agencies to the Department of Defense play
    critical roles in addressing the needs of the Pentagon here at
    home and around the world. And while I support looking
    holistically at our reform efforts in saving money through
    efficiencies like headquarters reductions, new technologies,
    and business practice efficiencies, I also believe that we must
    tread lightly before rapidly cutting these programs.
        Where is the sweet spot between preserving these entities
    and making tough cuts so that we can maximize efficiencies and
    streamline our efforts?
        Mr. Dunlap. I am not sure there is a sweet spot that is
    known, which is why it should be done carefully, understanding
    both the pros and cons and impacts of each choices, which is
    why, you know, I would recommend, you know, a conversation with
    the Department and the agency heads about what we can--what can
    be done, what can't be done, and how to move forward so that
    that sort of illuminated through those conversations. And, of
    course, you can't ever quantify enough the value of strong
    leadership of those organizations, too.
        Mr. Langevin. Thank you both.
        The Chairman. Dr. Wenstrup.
        Dr. Wenstrup. Thank you, Mr. Chairman.
        Thank you, gentlemen, for being here.
        One quick question: Is the 4th Estate, I assume, it is part
    of the DOD audit that is taking place?
        Mr. Levine. Yes, sir.
        Dr. Wenstrup. Okay. So, Mr. Levine, I want to get into a
    process perhaps. You said many times that we can find savings.
    You said that, I think, two or three times at least. And I
    would certainly agree with you. So what percent of the budget
    do you think--do you estimate could be saved?
        Mr. Levine. It depends on what you are willing to give up.
    I will give you an example since you just mentioned audit. If I
    were the master of the universe, I would give up the audit; $5
    billion over 5 years, I would say it is not worth it.
        Dr. Wenstrup. Well, that may be for the 4th Estate, but I
    don't know if that is the same throughout the DOD. This is the
    first audit in the history of America of the DOD, so I am
    hoping that we see some benefits from that.
        Mr. Levine. If we had a chance of being successful, I
    suppose I might agree with you. But I would say that we already
    know the problems that--the deficiencies we have in our
    financial systems. We know what we--we know we have a long
    laundry list of things that need to be fixed. And until we fix
    them, we are going to continue to fail audits. So to spend $5
    billion over 5 years auditing when you already know what the
    results can be, to me, is not a useful expenditure of public
    funds.
        Dr. Wenstrup. Well, I can't say that I know what the
    results are going to be, but bravo to you for knowing what the
    results will be. But it is hard for us here to really decide
    what could be cut without the advice from experts, those that
    are in the trenches.
        Mr. Levine. I am sorry. I shouldn't have been so flip. I
    just put that out as an example of something that people don't
    want to cut but there is a lot of money there. And that tends
    to be the kind of thing that we see if we really want to save
    big money.
        We have to make a tough decision, say we are just not going
    to do something that we would like to do, but it is too much
    money. And so that kind of judgment about what is it we are
    willing to give up is something that I think that members of
    this committee have to reach for themselves. No expert is going
    to tell you what you are willing to give up.
        Dr. Wenstrup. Well, so audit aside, let's go back to
    process of what we are trying to do today. Mr. Dunlap, you
    talked about peanut butter spread type of cuts, you know, just
    making it 10 percent or whatever it may be across the board.
        But what if agency leaders were tasked with the notion that
    if you had to cut 10 percent, what would that look like and
    where would it be, what would it be, why would it be, and then
    confer with Congress and appropriators, et cetera, on where we
    may need to go with that? Would that be an appropriate process
    to put into place?
        Mr. Dunlap. So the Department, as I understand it and
    certainly when I was there, looked at things like that. And I
    think it is always good to pressurize the system to come up
    with solutions and choices.
        You might get a suboptimal solution there in the end
    because with that approach you are also looking only within the
    individual organizations themselves. And to have a large impact
    in terms of savings or efficiencies, I think you want to think
    about sort of holistically across the missions.
        And you may not want to give a 10 percent cut to agencies
    that are, you know, optimal, efficient, and highly effective.
    And so I would just suggest some flexibility in that to be able
    to pressurize the Department as a whole to find out not only
    where they are going to take those efficiencies but perhaps
    even an opportunity to apply those resources in a more
    effective manner so there is a----
        Dr. Wenstrup. Well, but that is my point too, to what you
    just said. I am just asking you to say, if you had to, what
    would that look like. Then we would decide does it need to be
    done or can it be done and still produce the results that we
    want to produce. Do you see what I am saying?
        So why not have a process where we challenge people to say,
    well, if I was forced to do it, this is what I would do? And
    then we take a look at it and say, well, is that realistic?
    Should it happen? Or maybe somebody comes back and says, I can
    cut more than 10 and still function well. But challenge
    ourselves to that process so that we begin, because what is the
    optimal way then, you know? If either one of you want to
    answer.
        Mr. Levine. I think you are right that you need to set
    objectives, and I think that is where Congress can play a role.
    And there is no science that is going to tell you what the
    sweet spot is, but you have got to use your best judgment and
    decide what it is.
        I think that you have to watch out for if you are going to
    tell everybody, tell me what you would cut and come back and I
    will decide. You get what they used to call gold watching.
    Somebody will come back and tell you their most valuable
    programs. This is what I have to cut. And obviously you can't
    do that so you don't do anything. You need to watch out for
    that.
        But I think that in terms of setting goals, my personal
    view, 25 percent is way more than you are going to get. But you
    have got to have some goal or the Department--because the
    Department can justify everything it does. There is no activity
    that takes place in the Department where somebody can't explain
    to you that there is a good reason for it.
        So if you want to get cuts, you are going to have to set
    some kind of goal that will get you some pressure to identify
    what the low-hanging fruit is.
        Dr. Wenstrup. Thank you. I yield back.
        The Chairman. Ms. Shea-Porter.
        Ms. Shea-Porter. Thank you. And thank you both for being
    here.
        I was a military spouse, and my husband actually grew up in
    the military, so I am always very sensitive when I start to
    hear the word ``cuts'' or looking at any programs that military
    communities benefit from.
        And I have to say, Mr. Dunlap, that reading the testimony
    when you talked about the big-box stores are a 15-minute drive
    away, I started to think about the people that I knew in the
    military who didn't have a car, so that 15 minutes might as
    well have been an hour because it was not accessible.
        So that just brings it right down to the ground level of
    what we are talking about when we are looking at these budgets
    and how they actually have impact. And so I just wanted to
    throw that out there and say that there is a community there
    that needs to be heard.
        We are sitting here--and I am so grateful for both of you
    and what you have done in the way you have outlined this and
    the testimony is excellent, but it still has an impact. And
    those kinds of stories might not be told if there isn't
    somebody sitting here who actually has been in the military or
    been in a family that can say, yeah, but we don't have a car.
    Or yes, but it may only be a half of 1 percent savings when you
    go to a commissary but still that.
        And the other thing I wanted to say, and I recognize that
    we have responsibilities and fiscal responsibilities here, but
    it does seem like it is a small fraction of the overall budget,
    and I am looking at the personnel and the impact.
        My husband talks often with others about what that was like
    to grow up on different military bases. And that is why I
    appreciate your comment, Mr. Levine, about the schools, that
    they had to move to places they had never been, but they always
    had one kid that they had come across somewhere. So for all of
    the moves, and back then they were frequent, I think more
    frequent moves for many families, there was somebody that they
    could identify with.
        My mother-in-law taught in the DOD schools and they were
    excellent. They were a source of pride. So what I am talking
    about here is community, that when we look at the dollars we
    also have to talk about what constitutes a community.
        We know in our own communities when we choose neighborhoods
    to live in, we say, well, you know, where are the stores, where
    are the access points for our children, what is their comfort
    level in schools, et cetera.
        So I would just urge us, as we take out our pens to do
    budgets, that we remember, again, that these are people who get
    moved frequently, who leave family, who leave their support
    systems. And I know you know this, but I want to state it
    again.
        And that it is so important for them, wherever they land,
    that they have a sense that they are in a special community and
    that we don't inadvertently chip away from that sense of
    belonging to a community and being part of that.
        So, Mr. Levine, I want to ask you something about that. You
    know, the strength of our militaries obviously are people, and
    it is predicated on the recruitment, the retention of the men
    and the women. And they need to know that their families are
    always in good care and safe.
        These spouses and children who form the backbone of every
    member's career depend on those services by these 4th Estate
    agencies, such as DOD Education Activity and the DeCA [Defense
    Commissary Agency]. We know that that is pretty critical to
    them.
        So are there any analysis of the impact on recruitment and
    retention and any impact on family finances and stability as we
    are looking at this? I heard you say earlier that we haven't
    really had any recent studies on just simply the cost. What
    about the cost on these families and our ability to recruit and
    retain?
        Mr. Levine. There are studies of impact of compensation
    changes on recruitment and retention. There are models that
    some of the think tanks have, that IDA [Institute for Defense
    Analyses] has, that RAND has, that will predict what the impact
    on recruitment and retention is of a change in compensation.
        Those don't tell you what the impact is on an individual
    family from some of these benefits. You know, the one family--
    or the family that doesn't have a car and needs to walk to the
    commissary and can't shop otherwise. So it doesn't tell you
    about personal impacts. It tells you about aggregate impacts.
    But we do have studies that tell you that, that provide that
    kind of information.
        Ms. Shea-Porter. And is it your belief that if we go after
    these programs or we in some way find, you know, small
    reductions or large reductions, that it will have that impact
    on, not just quality of life--obviously, we are talking about
    the quality of life--but also on actually retaining.
        Mr. Levine. So I believe we need to be very sensitive to
    changes that impact the quality of life.
        Having said that, I think that there are very few things
    that we do in the Department that we can't do better and more
    efficiently. So I don't see any reason to put something off the
    table just because it deals with quality of life. We can still
    be more efficient. We can still do things better.
        I mentioned in my opening statement the Defense Human
    Resources Activity, which used to report to me as Acting Under
    Secretary for Personnel and Readiness, it is a notoriously
    inefficient entity. It provides vital services. So you have to
    deal with both of those things. You don't want to cut off the
    services and programs that it runs, but you want to have it run
    better.
        I was privileged to be able to name a new Director for
    DHRA, who is taking management reforms seriously and I believe
    will reorient it and make it run better. That should eventually
    result in savings, but it is a hard job, because if you want to
    produce savings without eliminating activities, you need to
    look into the details of how your organization is set up, how
    your processes work.
        Those are hands-on management activities that can only be
    done by a manager within the Department. You can't do that from
    Congress. You can only set the goal.
        Ms. Shea-Porter. Right. And I appreciate that.
        Mr. Dunlap, would you like to comment on that.
        Mr. Dunlap. I would just like to say that I appreciate your
    underscoring the truth, I think, in general about these
    agencies, which is that it is really hard to get a free lunch.
    There is always an impact to get real savings out of any of
    these organizations. So thank you.
        Ms. Shea-Porter. Okay. Thank you. And, again, I thank you
    for the work that you have done because it is critical, and we
    understand our debt is pretty out of control and that we need
    to do something. I just want to make sure we target, you know,
    the right budget and the right places, instead of inadvertent
    impacts on military families and communities.
        Thank you, again.
        The Chairman. Mr. Gallagher.
        Mr. Gallagher. Thank you, Mr. Chairman.
        Gentlemen, thank you both for being here today. I
    appreciate it. And I know you sort of talked about this broadly
    in your testimony, but I think it is worth sort of reviewing a
    little bit and foot stomping, or at least for me it would be
    useful.
        Obviously, we have had various efforts in the past at
    streamlining the 4th Estate, and you have been involved in a
    variety of them. And I just, you know, we have talked about the
    ``More Disciplined Use of Resources'' review in 2012, the Core
    Business Process Review of 2014, the delayering initiative
    2015, on and on.
        Could you distill for me what you think we have learned
    from these collective efforts on how to embark on successful
    reform efforts? What was the source of failure? What was the
    source of success? If you could just kind of distill it down
    into the bottom line for me, that would be very helpful.
        Mr. Levine. I will give you one thought, which is, in my
    view, in management reform, you get what you pay for, not only
    in terms of dollars but in terms of time.
        Top management has to be willing to devote a lot of time
    and stick with an issue in order to make it work.
        Mr. Dunlap, when he did the SCMR [Strategic Choices and
    Management Review], he had to spend, I am, sure vast amounts of
    time. When I was DCMO and I had my savings initiative, the
    delayering initiative that you mentioned, among others, that
    was something that was a solid commitment of a big chunk of my
    time every day over the course of a year.
        Mr. Gallagher. Sure.
        Mr. Levine. And it had to continue after I left. I hope it
    continued after I left, but you can't take your hands off the
    wheel and expect it to happen. And you can't expect savings to
    magically appear. Frankly, you don't expect much savings in the
    first year.
        Mr. Dunlap mentioned with BRAC that there is the 10-year
    payback period. With most management types of savings, you are
    investing upfront. And maybe it is just the time and effort of
    management that you are investing upfront, but you have to
    invest upfront in order to get payback in the long run.
        Mr. Gallagher. Sure.
        Mr. Dunlap. If I could just augment that. I appreciate
    that. Three things: Number one, strong leadership, which my
    colleague just mentioned, vital through the duration. Second,
    watch the balloon. I talked about squeezing in one area----
        Mr. Gallagher. Sure.
        Mr. Dunlap [continuing]. And it moving to another. And,
    third, and perhaps the most difficult for both Congress and the
    Department, which is the tough decisions to cut or reduce or
    completely eliminate missions. And that often is the difference
    between sort of marginal savings and significant savings but,
    of course, more difficult choice.
        Mr. Gallagher. And I commend your testimony for drawing out
    sort of how difficult it is to cut mission relative to cost but
    how the two are related.
        Another thing that seems to come up is a lot of these
    reform efforts are baked into the FYDP, so we expect savings
    redistributed out to support other priorities in the out-years.
    So can you just kind of, again to foot stomp this, how has DOD
    planning been impacted by these kind of phantom savings that
    are projected in future years but sometimes do not appear?
        Mr. Levine. If you put a wedge in the DOD budget of savings
    that are anticipated and then they don't appear, what happens
    is you have to cut something else. And what you usually cut
    something else ends up being operations and maintenance. And
    operations and maintenance can impact every phase of your
    activity and your ability to perform the mission. So, if you
    put in savings and they are not achieved, at the end of the
    day, you are going to impact mission.
        Mr. Dunlap. I will just add that it is tough for any
    company to run if you don't have realistic projections of what
    you are going to do and what you are not going to do. So you
    want to be realistic in your planning and budgeting.
        Mr. Gallagher. And then, if we just kind of look at, even
    if you adjust for inflation I believe, and you compare what we
    are spending today versus the 1980s, we were spending less
    during the Reagan building in the 1980s and getting more in
    terms of quantity.
        Now, you could say that, just as my iPhone cost more than
    whatever people were using back in 1980s, I don't know, I was
    like 5 years old, you are paying more for a more sophisticated
    piece of equipment, but I do think what we are talking about
    today is the way in which other priorities have crowded out a
    lot of the things that we want to spend money on, which is to
    buy lethality and sort of support the direct mission of the
    Department of Defense.
        Among those many things, it seems health care, just like it
    is affecting the rest of society and crowding out other
    priorities, is affecting DOD. As you look at the many problems
    we face, does health care stand out among the rest of them as
    an area where cost continues to outpace inflation and it is
    crowding out other priorities?
        Mr. Levine. Health care is a big block, which makes it
    attractive to look at when you are looking at trying to be more
    efficient. To me, the place you will look for a lot of savings
    is not big blocks but little chunks.
        An example I would give you is something the Department is
    undertaking right now, which is just to look at all the
    training programs, mandatory training that they require the
    troops to put through. Just an extraordinary expenditure of
    time, which is not going to military training but is going to
    awareness training of this, readiness, you know, prep training
    for that. Sort of every program that everybody has ever thought
    of, it is great to think that you are going to train people,
    but when you have 15 different requirements and you have to go
    through this training and that training and the other training,
    you are distracting from the mission. So that is one example.
        Another example I would give you is when I was the DCMO, I
    looked at the hiring process for the Office of the Secretary of
    Defense. Everybody knew it was dysfunctional, but they just
    lived with it because it was what the hiring process was.
        One of the things I discovered was it was, one of the
    reasons it was dysfunctional was because, at some point, the
    personnel authority had been removed from the individual
    offices, centralized, which is great, except then what the
    individual offices did, each of the Under Secretaries then put
    their own personnel people in because they didn't trust the
    central function.
        And what happened was they spent all their time negotiating
    with each other. So it would take months and months and months
    just to get a position description because the guy who was
    working for the Under Secretary for X would put together a
    position description, and then he would have to negotiate with
    the personnel people over in WHS [Washington Headquarters
    Services] about whether he was allowed to say that. And they'd
    go back and forth and back and forth over a period of months
    before they'd even get a simple position description written.
        So you have to think about consequences of your actions.
    Sometimes you centralize; sometimes maybe centralizing isn't
    such a great idea. And you have to get into the nitty-gritty of
    processes like that. And I had an approach that I was taking to
    untie that knot, but you can't do that without analyzing the
    actual process and digging in.
        You don't expect great savings, but if you never look at
    processes like that, then everybody does what they did with the
    hiring system, ``Well, it is just something I have to look at,
    something I have to live with.'' If nobody looks at it and
    nobody takes it on, that will stay that way forever.
        Mr. Gallagher. Thank you.
        Mr. Dunlap. I will just offer to you the Defense Health
    Agency, somewhere around $34 billion, it is 25 percent or so of
    the 4th Estate defense agency cost. You know, the Congress has
    done a lot to work on that and reform that, you know, in recent
    years as well.
        I agree with your assessment that personnel costs have
    increased dramatically recently, and that could be, you know,
    that could be good if we have good people. That may make sense.
    But health care is certainly one of those areas that has
    increased at a rapid rate.
        Mr. Gallagher. Thank you both.
        The Chairman. Mr. Veasey.
        Mr. Veasey. Thank you, Mr. Chairman.
        I want to ask both of you about your assessment on the role
    of civilians and military personnel and contractors in
    performing the work of the 4th Estate. And do you think that we
    have the right proportion of each of them to do the work of
    defense agencies and field agencies?
        Mr. Levine. Military, civilian, and contractors are all
    vital parts of the DOD workforce.
        We rely on all of them, and we need all of them. They
    perform different functions, and we don't always have it right.
    There are some functions that we put military people in which
    could really be performed by civilians and contractors and
    would be much less expensive.
        There are also functions that we have contractors
    performing where we really need to have organic capability and
    we cannot and should not be relying on contractors. And you
    need to have that ability in-house.
        Your civilian workforce tends to be your institutional
    knowledge, and if you divest too much of your civilian
    workforce and lose that institutional knowledge, you may lose
    the ability to do the job.
        So it is not that any one of those parts, components of the
    workforce is more important than the other. They all have their
    roles, and we need to keep a balance. And, no, I can't tell you
    that we have it right. I think that that is an area which is
    ripe for re-examination, not only now but at all times. We need
    to constantly be on top of that to try to make sure we are
    perfecting that balance.
        Mr. Veasey. I wanted to specifically ask you about what you
    think the appropriate relationship of the newly created Chief
    Management Officer to the defense agencies and field activities
    should be, especially as it relates to the Department's cross-
    enterprise business functions, like civilian resource
    management, or service contracting?
        Mr. Levine. I believe that the CMO, the Chief Management
    Officer, can play an important role in providing common
    services and ensuring that common services are provided in an
    efficient manner.
        I am much less convinced that the CMO should be in the
    direct management chain for the defense agencies, for a couple
    of reasons. One is, that, to me, one of the big advantages I
    had when I was DCMO, the predecessor to the position, over
    other senior officials in the Department, was that my day job
    was less burdensome. The routine tasks of the office didn't
    fill up my inbox. So I had time and ability to get into a
    management improvement program, to take on the issue of hiring
    in the Pentagon, to take on a $7 billion savings program,
    because my inbox wasn't always full.
        Most senior officials in the Department, the inbox is so
    pressing that they have maybe 5 percent of their time is
    discretionary that they can spend on their own initiatives.
        My concern with the CMO being in direct line of authority
    over defense agencies is that that could overwhelm the office,
    that it could overwhelm the individual, and then, all of a
    sudden, that time that the CMO has to develop management
    initiatives that cut across the Department, you no longer have
    that time and ability.
        The second concern I have is that I am not sure that the
    CMO right now has the institutional capability, that that
    office has the institutional capability to do that. There about
    100 people in the CMO office and most of them have relatively
    routine jobs. They are not the people you would want to have if
    you were managing all the defense agencies.
        So, if you are going to give the CMO that task, the first
    thing the CMO is going to want to do is to build up new
    capabilities. Essentially, you will be building a new office
    and a new bureaucracy. I am just not sure that that is the
    direction that you want the CMO to go. I won't tell you it is
    the wrong thing to do. There are other factors that weigh in
    the other direction, but those are my concerns with putting the
    CMO in the direct line of authority.
        Mr. Veasey. Thank you very much. That is very good to know.
    Thank you, Mr. Chairman. I yield back my time.
        The Chairman. Mr. Jones.
        Mr. Jones. Mr. Chairman, thank you very much. And thank
    you, gentlemen, for your research, your hard work, and being
    here today to give us, hopefully, some ideas to make DOD more
    efficient.
        You know, recently in Stars and Stripes, there was an
    article written that DOD could not locate 95,000 vehicles in
    Afghanistan. That equaled out to about $3.1 billion lost.
        Okay. One other story, and then I have a question. Years
    ago, John Sopko testified in front of the Senate that DOD spent
    $6 million to buy nine goats. Well, it is almost the end of it.
    Nobody ever picks up to say: Well, how are we going to recover
    the money? How are we going to recover the vehicles? It just is
    endless.
        My question to you, because you are an expert in the areas
    that you are talking about today, why do we in Congress keep
    increasing the budget? I am all for the warfighter. He or she
    deserves whatever we can give them. But the system itself
    continues to spend and spend in a way that there is no
    accountability.
        What would be wrong with putting the responsibility in the
    Office of the Secretary of Defense--it wouldn't happen
    overnight, but in a period of time--and saying to the Secretary
    of Defense: You have the responsibility for accountability. If
    you cannot account for 95,000 vehicles in Afghanistan, then we
    are going to take $3.1 billion out of your budget.
        How does Congress--and I have heard some your comments, I
    was late getting here, sorry, but some of your comments--how do
    we put the responsibility? It can't be on Congress, because we
    will always continue to fund the military because of the
    families and the warfighting. That, I understand. I am in favor
    of that. But somewhere along the way, somebody has got to be
    accountable.
        And I don't think it is going to be Congress, to be honest
    with you. I think we have done a great job under Democrat
    leadership and Republican leadership of trying. But until you
    put one Department or one person overseeing the problem, and
    that person knows if we can't account for moneys that we have
    lost, then we are going to lose money from Congress the next
    year.
        How can we, as the American people, not Congress, how can
    we get a control of the waste, fraud, and abuse if sombody is
    not held responsible?
        Mr. Levine. Congressman, I suppose that, in a way, we are
    all responsible. Before I went to the Department of Defense, I
    spent better than a quarter century working for Senator Levin
    and helping write legislation and addressing defense
    management, so I suppose that makes me responsible and
    accountable.
        I don't know, I don't know how you do it, other than to say
    that the idea that you do it by cutting the defense budget, to
    me, doesn't work. If you are unhappy with performance, you have
    got to go after that performance, but to say you are going to
    take away $3 billion, well, that is going to come right out of
    the mission and undermine the mission.
        So I don't know what the right answer is, but I am pretty
    sure that is not it.
        Mr. Dunlap. I will just offer, and I think you alluded to
    some of this, which is a theme that we had been talking about,
    which is strong, you know, leadership, both at the top and
    throughout and accountability.
        So I certainly underscore the need to have people that
    oversee this in a way that care about the mission, care about
    accountability and waste and abuse and fraud and so on, and
    that action should be taken. I can't speak to the specific
    examples that you are referring to, but in general and in
    principle, I think the Department of Defense certainly wants to
    be accountable and not have those types of activities happen. I
    can't point to a specific reform the defense agencies that
    would affect that, but appreciate that we certainly don't want
    those kinds of things to happen.
        Mr. Levine. Having said that I was accountable, I want to
    clarify: I never bought any goats.
        Mr. Jones. Well, I am going to close in 1 second.
        It is almost like you are saying there is nothing we can do
    about it. And that is sad for the taxpayers because we are
    headed for a financial collapse as a country. Then we won't
    have any money to pay the troops. Anyway, thank you.
        Mr. Levine. If I could offer a ray of hope there, I think
    you can do something and it is what you are doing right now.
        You can hold hearings. You can shine spotlight. You can
    identify problems. And the primary tool that Congress has to
    hold senior DOD officials accountable is to bring them in here
    and make them explain what they have done and why. And believe
    me: It has an impact on the way senior officials at the
    Department manage. They know the power that you have, and they
    know, if they screw up, they are going to have to come in here
    and report to you on it.
        Mr. Jones. Thank you very much.
        The Chairman. Mr. Norcross.
        Mr. Norcross. Thank you, Chairman, and thank you for having
    this hearing. Although it feels like deja vu all over again,
    especially to you who spent so much time.
        Over the past month, I have spent a considerable amount of
    my time going through a couple of programs that we are running.
    The Columbia class, and certainly our warfighters in terms of
    dealings with ships. And chart after chart is talking about the
    workload of the workforce building those ships--there is going
    to be a downplay; we are going to have to lay off people and
    then rehire them; and how tough it is to keep that quality
    workforce--which I have to agree with. But it doesn't seem that
    we have that same conversation when we are talking about
    eliminating or downsizing parts that affect the quality of life
    of our warfighters, whether it is schools, the commissary.
        People by their nature are inefficient at times. They get
    sick. They are humans. And this seems that those who don't have
    the paid lobbyists tend to get hit the worst. What sort of
    analysis do you do in terms of the human side, how it affects
    our warfighters and their families when they go home? Gee, the
    commissary was closed; we have to drive down the street. That
    quality of life that affects the decision making whether or not
    they want to remain in the Armed Forces.
        How do you go through that side of analysis, because you
    have extensive analysis when it comes to the efficiency of
    building something. How about building the human side of the
    quality of life for our warfighters? How do you handle that?
        Mr. Levine. Congressman, that is the responsibility at the
    OSD level of the Under Secretary of Defense for Personnel and
    Readiness, has an entire office that looks at those functions
    and tries to protect them.
        Within each of the military services, we have an Assistant
    Secretary for Manpower and Reserve Affairs who has that
    responsibility.
        On each of the service staffs, we have a Deputy Chief of
    Staff for Personnel, the one who is responsible for that. At
    the base level, we have base commanders who are responsible for
    that.
        We have people throughout the military system who are
    responsible for the well-being of people, of the men and women
    in uniform.
        Mr. Norcross. We fully understand, but how does it come to
    you.
        Mr. Levine. It is and has been and will be a major priority
    for the Department of Defense. I don't think it is a
    responsibility the Department takes lightly.
        Mr. Norcross. But I don't hear you discussing that today
    until--whether it was, Ms. Shea-Porter, that side of the
    equation. How do you deal with that? Just, oh, we can save 10
    percent; that is a nice goal to go for.
        Mr. Levine. I believe that my colleague and I have tried to
    emphasize that, as you look at potential cuts, you have to
    think about the programs that are going to be cut and you have
    to make choices and understand the impacts of your action.
        I still believe, even so, that there are things that we can
    do more efficiently, that we can run our business more
    efficiently, we can run our business more efficiently even in
    the personnel area, even when it comes to quality of life.
        I am not convinced that the Human Resources management of
    the Department is efficiently run. I believe, without having
    done a detailed study--but I believe that we have an
    extraordinary number of human resource officials in the
    Department at every layer of the organization. And there may be
    so many of them that that is an overhead factor that could be
    looked at.
        So I don't want to say, that deals with quality of life,
    that is off the table. We need people who care about that. We
    need people who work on it. We need to maintain quality of
    life. We need to pay attention to that, but it doesn't mean we
    can't do it more efficiently.
        Mr. Norcross. Nobody has argued with that. So let me ask
    you a very direct question.
        Do you think that warfighters and their families, say, are
    happier in their service to their country than they were 10, 20
    years ago? Do you any quality-of-life measurements across the
    entire organization?
        Mr. Levine. There are quality-of-life surveys that take
    place regularly in the Armed Forces. I can't tell you what----
        Mr. Norcross. Do you know if they are more satisfied with
    what they are doing today than they were 5 years ago?
        Mr. Levine. I can't tell you offhand what the trend is over
    the recent period. I don't know. But I know that those surveys
    are taken and that information is----
        Mr. Norcross. You certainly could tell us the
    inefficiencies of many of the other programs.
        Here is one of the most important--I am not digging just on
    you. I am trying to suggest that is as important as sometimes
    some of the classes of submarines we buy or ships we buy,
    whether or not those people who call the military their home or
    their community is just as important.
        Mr. Levine. Congressman, I am going to agree with you. It
    is not only as important; it is more important. Our most
    important asset is our people.
        Mr. Norcross. Thank you. Mr. Dunlap, do you have anything
    to add?
        Mr. Dunlap. I will just underscore Mr. Levine's last point,
    which is, I think the Department's people are its most
    effective capability, and that should always be held in mind.
    It is hard to analyze sort of the hearts and minds and
    perspectives of people sort of in a quantitative, analytical
    fashion. And so----
        Mr. Norcross. And by the way, it is not hard to measure. It
    is measured every day. It is called the retail outlets. They
    know exactly what people want. And I think we can know that
    information also.
        I yield back the balance of my time.
        The Chairman. Mr. Russell.
        Mr. Russell. Thank you, Mr. Chairman. And thank you,
    gentlemen, for being here. There is an old adage that says that
    which is not inspected is not done.
        I would find that to be true. And I think, in many cases,
    when we look at the Department of Defense on the personnel
    side, you have got people actually that are involved with
    units, that are involved with programs, and they generally will
    try to clean up their individual agencies, much like you did
    when you were working in the five-sided building.
        But I have to say that there is a solution here. And when
    you look at the Department of Defense: $700 billion annually is
    the norm now for its budget; $2.4 trillion in assets; 3 million
    Americans both in and out of uniform committed to defending our
    Republic, and yet only 1,700 Department of IG [inspector
    general] staff oversee all of that.
        Well, there is part of your solution: that which is not
    inspected is not done. When I was a commander, both on
    battlefields or in peacetime, if I didn't go down and inspect
    my equipment or do layouts or look at motor pools or have
    uniform inspections or do any of those things, I guarantee you
    that all of those things, like plates spinning on a pole, they
    will wobble and they will break.
        And I have to totally agree with my colleagues, Mr.
    Norcross and Ms. Shea-Porter. We are not going to see reform in
    saving or realize anything close to that by eliminating Mrs.
    Russell's ability to go buy a can of beans in the commissary. I
    think that is absurd. We have to take care of our people.
        But the big ticket things, you know, why wouldn't we
    increase and authorize instead of 1,700 Department of IG staff
    or Department of Defense, why not make that 3,400. That would
    cost a lot less than your audit concerns.
        Really? Eliminate the audit? Do you realize that the
    Department of Defense is the only agency ever in the United
    States Government that has never been audited, held to
    absolutely no account? I am a retired warrior. I still got a
    little fight left in me. But we need an audit. That which is
    not inspected is not done.
        Here are a few things: Payment to grantee verification.
    Yeah, we grant all kinds of stuff. Department of Defense
    improper payments, just last year in 2017 accounted for $1
    billion of improper payments. I wouldn't call it low-hanging
    fruit because we like to eat fruit, but there is some weeds
    that we could pull right there.
        Department of Defense improper payments. Procurement
    management. Here is from a recent Department IG CIGIE [Council
    of the Inspectors General on Integrity and Efficiency] report,
    quote: Many DOD programs fall short of costs, schedule, and
    performance expectations. As a result the Department of Defense
    regularly pays more than anticipated, buys less than expected,
    and delivers less capability than its contracts require.
        And we have been doing it since we have been wearing
    tricorn hats.
        So how do we stop it? That which is not inspected is not
    done. And so, you know, while I appreciate your comments here,
    and I have great admiration for IDA and so many other great
    organizations that do so much to promote proper defense of our
    Republic, we have to have accountability.
        We are not going to realize it off of, you know, Ms. Shea-
    Porter's dependents or, you know, Mrs. Russell being able to
    buy beans at the commissary. We are not going to do it that
    way. We are going to do it by going after these bigger
    programs.
        And you had made mention, and I agree with your comments,
    Mr. Levine, about the big dollars that get sucked into these
    programs, and then they are locked in, and it creates enormous
    inefficiency. And I would suggest to you that, as a Congress,
    we owe ourselves to bolster programs that DIUx, SOFWERX, Skunk
    Works, things like that where the innovation comes out where
    you have something actually developed, and then it ends up
    going from, ``Wow, this works, can we immediately get it
    fielded,'' and then we just fund it. Those things work.
        Big primes provide big things, and there are lot of
    implements for the things that we come to rely on, but they
    also buy up innovation and squash it.
        And so I would hope, Mr. Chairman, as we look at the
    problems in the future on the 4th Estate stuff, we could
    bolster those innovative programs to prevent some of that
    waste.
        We are all frustrated with it. I even found myself
    associated with Mr. Jones' comments on Afghanistan today. That
    is a rare thing, being an Afghanistan veteran as well. But he
    is right. Our overseas contingency dollar programs, three
    biggies right now, where is the oversight and accountability?
        Mr. Chairman, I don't really have any questions, but I
    would suggest that we ought to do everything we can to increase
    the Department of IG numbers, even double them, and we will get
    to billions right away.
        Thank you. I yield back.
        The Chairman. Do you all have any comment?
        Mr. Levine. Mr. Chairman, I think those were helpful
    comments. And, frankly, I agree with the point that, if it is
    not inspected, it often doesn't get done.
        I think that you saw some examples of that with previous
    management reform efforts at times. And one I would point to
    is, in the 1990s, we cut back quality inspection on our major
    acquisition programs. And what we discovered is, when we cut
    back the DOD inspectors, the contractors responded by cutting
    back their own inspectors, too. And so we had quality problems.
        More recently than that, the reason that the DOD Test
    Resource Management Center, the DTRMC, was created because the
    Air Force was neglecting its major test facilities. It was
    allowing really valuable assets to atrophy. It wasn't putting
    money into them. We created an oversight entity.
        So it is not just IGs who look at things. Other people have
    that responsibility for the inspections and oversight and can
    bring attention to these kinds of problems and make sure that
    important issues don't get neglected.
        The Chairman. Let me just pick up on that for a second.
    Because it seems to me one of the ways we got to where we are,
    is, okay--and I will just take this example: Air Force is
    neglecting its key testings. What do we do? We create another
    office that is supposed to oversee them to make sure that they
    take care of their test resources rather than hold the Air
    Force accountable for doing what they should have done to begin
    with.
        And isn't it true that, over time, that layer after layer,
    and we are as much responsible--``we,'' Congress--is as much
    responsible as anybody of reacting to a problem by creating a
    new process or a new bureaucracy.
        Do you think I am wrong?
        Mr. Levine. I think you are right, Mr. Chairman. I would
    say that, in the case of the Test Resource Management, that the
    number of people who actually review the budget--to me, budget
    review is a plus.
        The number of people who actually review the DOD budget for
    the MRTFB [Major Range and Test Facility Base] is relatively
    small. I think that most of the budget of that entity is for
    investment in test capabilities--science and technology,
    investment in test capabilities, the National Cyber Range
    Complex. They maintain important capabilities.
        There is a handful of people who review the service
    budgets. And, frankly, that is at the core of what OSD's job
    is, is to review the service budgets to make sure they are
    spending their money wisely.
        The Chairman. But there is also a separate DOD entity
    responsible for independent testing.
        Mr. Levine. There is, but it doesn't have the
    responsibility for the test base, for the investment in
    facilities, which is what TRMC does.
        The Chairman. Okay. Let me, if I can, just go back to the
    beginning for just a second.
        My sense is, as one looks out, not only at business but at
    nonprofit and essentially every sort of organization outside
    government, the trend in recent years has been flatter
    organizational structure, savings in the back office. The
    supporting functions of the key missions have been reduced or
    at least squeezed to gain greater efficiency so that more
    resources can go to the core mission.
        And, yet, the Department of Defense, anyway, has not kept
    up, at least to the extent that all the rest of the world has,
    in that regard.
        Now, do you all agree or disagree with that premise?
        Mr. Levine. I would say that I believe that is a constant
    focus of defense management. I believe that was Mr. Dunlap's
    focus when he was doing the SCMR. That was my focus when I was
    working in DCMO.
        Nonetheless, you are absolutely right. More needs to be
    done. More always needs to be done on this. I would point to
    the Air Force, when the Army was working on its delayering
    activity, the report that came back was that there would be
    times when the Army's Chief of Staff would issue an order to a
    subordinate, and it would have to go down through 13 different
    people. And a couple of months later, somebody would do the job
    and then would have to report back up to 13 different people.
    And by the time you played that game of telephone, the job that
    was done was completely different from what the Chief Staff had
    asked for.
        So, of course, you have to look at that, and you always
    have to look at that because it builds up over time, and it
    will continue to build up over time. If you don't keep
    fighting, you are never going to get there.
        Mr. Dunlap. Sir, thank you. I certainly agree with the
    trend that I see in industry. And I think that I completely
    agree with you in flattening the organization can make it more
    effective.
        I think there is a natural tension between that, as I tried
    to allude to earlier in my opening statement, where there is a
    good chunk of those agencies in the 4th Estate that are more
    direct mission than they are overhead function.
        And so looking at sort of the overall budget of the defense
    agencies and activities as a whole and putting a specific
    target on that and thinking that that can be achieved purely
    through efficiencies and delayering might be optimistic because
    I think you really have to cut into mission, which I commend
    you for thinking about that, in sort of your opening volley
    that you put out this week.
        So I would just offer that I completely agree with you, but
    I also think to achieve the savings to be able to put towards
    the warfighter that you are talking about, you know, cuts in
    missions are going to have to be made.
        The Chairman. Well, let me just pick up on that for just a
    second. Because even--and I will use Defense Health Agency as
    an example. Even if you say they are doing their mission, you
    know, perfectly, which I take your point that they are not, but
    even if you say they are, there are certain supporting
    functions within that organization, their business practices,
    their real estate management, their logistics, their
    contracting, their personnel management, and those things can
    be improved across-the-board.
        I mean, we tend to think of it as all our charts do like
    this, but there are some commonalities here across the 4th
    Estate where greater savings and efficiency, as well as
    compatibility, could be achieved.
        That is my premise. Tell me what you think.
        Mr. Levine. I agree with you.
        Mr. Dunlap. I agree. We tried to get to that in 2013 as
    well to dissect overhead versus mission functions. And any new
    reform going forward ought to consider that. So I agree.
        The Chairman. And to me--I don't know if it is going to be
    25 percent, but that is a lot of where some of this can come
    from, is in some of that back office.
        Mr. Levine. Mr. Chairman, you have two tasks, though. One
    is to separate the overhead from the mission and then to figure
    out how much you can cut the mission. And I think that looking
    at the defense agencies, it is important to recognize that is
    not the overhead. There is a lot of mission in there.
        The Chairman. Yeah, no, I understand your point.
        Mr. Levine, I want to just ask you once again, because you
    talked at the beginning about the Defense Finance and
    Accounting Service.
        One of my suggestions in my proposal is to look at--I know
    them by acronyms, I have got look at exactly, the Defense
    Contract Audit Agency [DCAA] and DCMA--whatever that is.
        Mr. Levine. DCMA, and Defense Contract Management Agency.
        The Chairman. Defense Contract Management Agency, yeah. So
    we have three separate entities that are essentially dealing
    with finance and accounting, which, as I have tried to drill
    down, the difference in responsibilities is not always as clear
    as maybe I thought it was.
        Can you comment? Because you talked a lot about DFAS, but
    talk about DFAS in connection with DCMA and DCAA, and I guess
    to some extent the comptroller's office, in how all that
    financial management----
        Mr. Levine. DFAS works for the comptroller and is
    essentially the finance and accounting, the authoritative
    finance and accounting entity for the Department of Defense. So
    they are the ones who are responsible for DOD's books. They
    have to work with others to do that, but they have the
    accountability.
        DCMA and DCAA deal with acquisition. They don't deal with
    finance and accounting, so DCMA is an acquisition support
    agency. They support program managers and contracting officers
    by doing onsite inspection and onsite management of contracting
    facilities.
        DCAA is a contract audit agency. That is different from
    what DFAS does because what they are doing is auditing
    contractors. They are not doing DOD's finances. They are
    looking at contractor finances.
        So three separate functions. Three separate agencies.
        The Chairman. And I guess the essence of my question is you
    believe there needs to continue to be three separate agencies
    to do each of these discrete--or each of these
    responsibilities?
        Mr. Levine. I do because I believe they are discrete
    responsibilities. This is an area where I think you can achieve
    efficiencies within any one of those, but I don't think that
    they can appropriately be combined.
        My particular concern with combining DCMA and DCAA, for
    example, is DCMA is an acquisition support activity. It is part
    of the acquisition community, working for them. DCAA is an
    auditor. They have to maintain audit independence. If you
    combine them, then you lose the audit independence. GAO is
    going to say that none of their audits are valid. So you have a
    problem.
        The Chairman. Yeah. Do you have any opinion on this, Mr.
    Dunlap?
        Mr. Dunlap. I think we have actually had, at least in my
    experience, some successes. So I mentioned DFAS consolidating,
    on their own, some headquarters functions, which is good for
    efficiency.
        DCMA, you know, is often out there with the contractors,
    and so they will catch things in support of the contractors
    early, you know. DCAA kind of comes in on the back side with
    the audit. And they can actually report out, as they did for
    me, particular metrics on the cost savings that they have been
    able to find.
        Now, that is retroactively. You know, you would like to get
    ahead of that in the process as well, but, you know, each have
    their own function.
        The Chairman. Okay. Let me just ask about one other area
    right quick, and that is DLA. And, Mr. Levine, you talked about
    how you believe that DLA has made great strides in improving
    its management and so forth.
        I am probably like a number of members, and I remember, I
    don't know, 2 or 3 years ago, a number of news articles about
    vast warehouses, they didn't know what they had, throwing
    things away, and a number of items that at least called into
    question their ability to manage their inventory and to get
    items where they needed to be on a timely basis.
        I mean, I want you to elaborate a little. Do you think they
    have overcome those problems? But then, secondly, I am also
    looking at commercial companies that I can click on and have
    something delivered to my front door that day or the next day.
    The just-in-time sort of approach that business is using.
        And so I would appreciate from each of you an evaluation of
    DLA's ability to meet the military's needs in the context of
    the way that business has also moved. Understanding, you know,
    DLA will never be exactly like Walmart or some business, you
    know. I think we can all agree to that. But have they kept up
    at least with those trends?
        Mr. Levine. So, when I first looked at DLA in the early
    1990s, they were a mess. They didn't know where anything was.
    They couldn't track what they had. They lost things. There were
    reports that things would fall off of trucks, and the truck
    would arrive and they didn't even know something had fallen off
    because they had no idea what was coming.
        They have made tremendous progress in their own system.
    They have asset visibility systems which allow them to know
    what they have in much greater detail than ever before, pretty
    much comparable to what is available in the private sector.
        Not only that, they have come to rely on the private
    sector. So, where, in the 1990s, they used to stock things like
    medical supplies and hardware, they figured out 15, 20 years
    ago, they didn't need to stock those because they could buy
    them from the commercial sector. And not only could they buy
    them, they could rely on commercial distribution networks so
    that they could have hospital, medical supplies, for example,
    delivered directly to the hospitals, never touched by anybody
    at DLA. So they are dramatically more efficient today.
        I won't tell you that that means that they don't have
    problems. They still do have problems. The one that always
    comes back up is the unneeded inventory that they have on hand,
    the excess inventory. What I would say is there is more work
    that can be done on that, but that is largely a consequence of
    demand signals that they get from the services: I think I am
    going to need this, and by the way, these are critical spare
    parts, so I have got to have delivery within 30 days when I
    need it. And they are a unique build, so, in a 9-month advance
    time, you are going to have to have them on hand or airplanes
    aren't going to fly.
        So you have a lot of stuff that you have to have on hand.
    And then, sometimes, the product is discontinued; you don't
    need it anymore, and we are stuck with that on hand. But it is
    a consequence of a need to be responsive, which DLA has,
    because it is servicing military hardware in a way that the
    private sector doesn't necessarily have.
        It is not just a matter of avoiding the error in terms of
    not buying too much; it is at least as important to avoid the
    error in terms of not having a critical part on hand when it is
    needed.
        Mr. Dunlap. DLA is an interesting case, not only because it
    is the second largest agency in terms of revenue that it
    oversees, but also sort of historically. So it, at least to my
    understanding and reading, it had not done well, and then it
    sort of turned its game around and started being much more
    successful in terms of logistics, delivery. It split off DCMA
    actually from DLA in the nineties to focus on logistics,
    delivery. It gained sort of more efficient, effective notoriety
    in the Department, and then became, perhaps recently, more of a
    victim of its own success where it began to be asked to take on
    more and more responsibility sort of outside the core logistics
    and fuel delivery. It provides nearly 100 percent of the fuel
    for the warfighters, for example.
        Mr. Levine. And if I could, DLA now provides personnel
    support services. It now buys IT [information technology]
    systems. It does things for other parts of the Department of
    Defense because they have been good at it. And so this is where
    they get additional assignments that can become a problem.
        Mr. Dunlap. Yeah, so I think sometimes it is hard when you
    take your eye off the target and forget what your core mission
    is and get diluted. And it, you know, might be time to think
    about those additional missions that were added that could
    possibly be done elsewhere.
        In that sense, I think it might be a victim of its own
    success. You know, that said, I think where it can look to
    adopt commercial practices or use commercial vendors directly
    is an excellent idea, won't always work getting fuel to your
    ship in the middle of the ocean, but in other cases, it could
    be the right choice.
        The Chairman. Well, just two things right quick on that.
    Number one, I am hopeful that our e-commerce provision, which
    is on the way to being implemented, can assist for basic off-
    the-shelf commercial items. And that can include some medical
    equipment which can provide that delivery.
        Secondly, we are hearing recently about advances in
    artificial intelligence that can improve predictive maintenance
    so that you don't have, you know, 10 things on the shelf, just
    in case. But you have a database of evidence that can give you
    very much higher probability of when you are going to need what
    to repair.
        And my hope is that cannot only make DLA more efficient but
    also, as we move towards additive manufacturing, may also play
    a role.
        Mr. Levine. Mr. Chairman, I think you have correctly
    identified the next frontier for DLA. Better algorithms, to
    predict use and identifying, you know, the just-in-time
    manufacturing with 3D can get you out of having to stock parts
    in some cases.
        So identifying those kinds of uses of new technology is
    probably the direction they need to go. But I still say, for
    what they are doing, they are so much more efficient now than
    they ever were before, and so much more efficient than a lot of
    other parts of the Department of Defense that they really ought
    to be given credit for that.
        Mrs. Davis. Mr. Chairman, I was just going to say, I think
    it has been, you know, you have been excellent in trying to
    help us see where some of the pitfalls are in moving forward
    and, at the same time, that we need to move forward. And I just
    want to thank you for that.
        I think we want to move in that way very thoughtfully, not
    rhetorically. You know, I think people are always concerned
    that you can make cuts that may sound good, but a lot of people
    could get hurt along the way. And I think that the discussion
    today has been helpful in understanding that there is a lot
    more to this. It is not as easy as it looks, and, yet, at the
    same time, it is an important thing for us to be doing. So
    thank you very much.
        The Chairman. I appreciate it. Actually, that is what I was
    about to say to wind up. I think it is important to acknowledge
    the efforts and the progress that has been made. Both of you-
    all have had part of that. And the folks who work at the
    Pentagon now are looking to take the next steps.
        We, I believe, have a key role in also pushing that along.
    But the purpose of all this is not just to make cuts; it is to
    have more resources in the hands of the warfighter faster. And
    as everybody on both sides of the aisle keeps reminding me, we
    don't have unlimited resources around here, and the world is
    not getting any safer.
        And if we are going to meet our obligations when facing
    sophisticated adversaries as well as terrorism as well as the
    other threats around the world, we are going to have to make
    some of these reforms in order to meet those obligations.
        Thank you both for being here.
        I would just alert members that, in approximately 15
    minutes, we will reconvene upstairs in 2216 for a briefing on
    some of the management initiatives underway at the Department.
        The hearing now stands adjourned.
        [Whereupon, at 11:52 a.m., the committee was adjourned.]

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                                A P P E N D I X

                                 April 18, 2018

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                  PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                                 April 18, 2018

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