[Senate Hearing 115-452]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 115-452

                     ACHIEVING A 355-SHIP NAVY FROM



                               BEFORE THE

                        SUBCOMMITTEE ON SEAPOWER

                                 OF THE

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE


                             FIRST SESSION


                             JULY 18, 2017


         Printed for the use of the Committee on Armed Services

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                        COMMITTEE ON ARMED SERVICES

                        JOHN McCAIN, Arizona, Chairman
JAMES M. INHOFE, Oklahoma		JACK REED, Rhode Island
ROGER F. WICKER, Mississippi		BILL NELSON, Florida
TOM COTTON, Arkansas			JEANNE SHAHEEN, New Hampshire
THOM TILLIS, North Carolina		JOE DONNELLY, Indiana
DAVID PERDUE, Georgia			TIM KAINE, Virginia
TED CRUZ, Texas				ANGUS S. KING, JR., Maine
BEN SASSE, Nebraska			ELIZABETH WARREN, Massachusetts
LUTHER STRANGE, Alabama              	GARY C. PETERS, Michigan
               Christian D. Brose, Staff Director
            Elizabeth L. King, Minority Staff Director


                        Subcommittee on Seapower

  ROGER F. WICKER, Mississippi, 	MAZIE K. HIRONO, Hawaii
TOM COTTON, Arkansas			JEANNE SHAHEEN, New Hampshire
THOM TILLIS, North Carolina		TIM KAINE, Virginia
LUTHER STRANGE, Alabama              

                           C O N T E N T S


                             July 18, 2017


Options and Considerations for Achieving a 355-Ship Navy from         1
  Former Reagan Administration Officials.

Lehman, Honorable John F., Jr., Former Secretary of the Navy.....     3
Pyatt, Honorable Everett, Former Assistant Secretary of the Navy      8
  for Shipbuilding and Logistics.
Schneider, Honorable William J., Jr., Former Associate Director      14
  for National Security and International Affairs at the Office 
  of Management and


                     ACHIEVING A 355-SHIP NAVY FROM


                         TUESDAY, JULY 18, 2017

                               U.S. Senate,
                          Subcommittee on Seapower,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 4:01 p.m. in 
Room SR-222, Russell Senate Office Building, Senator Roger 
Wicker (chairman of the subcommittee) presiding.
    Committee members present: Senators Wicker, Rounds, Tillis, 
Strange, Hirono, Shaheen, Blumenthal, Kaine, and King.


    Senator Wicker. Thank you very much. This Senate Armed 
Services Subcommittee hearing on Seapower will come to order.
    We convene this afternoon to receive testimony on achieving 
the 355-ship Navy, and we receive testimony today from former 
Reagan Administration officials. We welcome our three 
distinguished witnesses: the Honorable John F. Lehman, Jr., 
former Secretary of the Navy; the Honorable Everett Pyatt, 
former Assistant Secretary of the Navy for Shipbuilding and 
Logistics; and the Honorable William J. Schneider, Jr., former 
Associate Director for National Security and International 
Affairs at the Office of Management and Budget.
    Welcome, gentlemen.
    Our subcommittee is grateful for your decades of service 
and your willingness to appear before us. Your experience and 
counsel will be invaluable as we consider options for 
increasing the size of our Navy and protecting our nation's 
    Today's hearing represents another step in this 
subcommittee's effort to examine the Navy's 355-ship 
requirement. We have received a classified briefing on the 
basis for the requirement. We have heard from shipbuilders and 
suppliers, held a shipbuilding hearing with Navy officials, and 
will meet with naval analysts next week. Our actions this year 
will set a firm foundation for an intelligent and responsible 
expansion of the fleet in the future. To that end, I would note 
that all members of the subcommittee have co-sponsored the 
SHIPS Act, legislation which would codify the Navy's 
requirement for 355 ships as U.S. policy. The full committee 
has adopted the SHIPS Act into the Fiscal Year 2018 NDAA, and 
our House counterparts have done the same.
    The Seapower title also authorizes additional funding for 
five ships above the Administration's budget request while 
maintaining effective cost control measures on existing 
    The Navy's 355-ship requirement has received plenty of 
attention on Capitol Hill and in the press. It is important to 
put the desire to grow the fleet into proper historical 
context. The United States has embarked on naval buildups 
roughly every 30 years over the past century--in the 1910s, 
then in the 1940s and 1950s, and most recently in the 1980s--in 
response to emerging threats, technological development, and 
the condition of the fleet. This is now our time to lead.
    Our task is to increase the fleet's size from 276 ships 
today to 355 ships as soon as practicable, an increase of 79 
ships. In comparison, during the 1980s' buildup, the Navy added 
75 ships to the fleet in eight years, from fiscal year 1981 to 
fiscal year 1988, according to the Congressional Research 
    I would stress that we need the optimal mix of ships. 
Tomorrow's Navy should not replicate the one we had in the past 
or the one we have today. In other words, this subcommittee has 
no intention of funding shipbuilding only for the sake of 
shipbuilding. Our witnesses took the 1980s buildup from a 
vision to reality, proving the naysayers wrong all the way. The 
1980s' buildup was based on a comprehensive naval strategy, 
thorough analysis, and sound acquisition practices. Our 
witnesses thought outside the box. Thank you.
    For example, they supported outfitting our ships with 
cutting-edge technology, but also brought battleships out of 
mothballs. Perhaps most important, once the Navy established 
the famous 600-ship requirement, the senior leadership, 
uniformed and civilian, rallied around it.
    The subcommittee is interested in lessons learned and 
insights for how best to proceed with the task at hand today. 
Specifically, I hope our witnesses will discuss the importance 
of strategy for embarking on a buildup and the necessity of 
getting buy-in from the White House, Secretary of Defense, the 
Congressional defense committees, and industry; clear lines of 
authority and accountability for executing the shipbuilding 
program; fixed-price contracts and competition; delivering 
ships at or below cost, on schedule, with the promised 
capability; evaluating options related to existing ships, 
including extending service lives and reactivating 
decommissioned ships; and maximizing the use of the commercial 
industrial base.
    It should be an interesting discussion, gentlemen. We're 
delighted to have you. I look forward to your testimony.
    Now I recognize my dear friend, the Ranking Member, Senator 


    Senator Hirono. Thank you, Mr. Chairman.
    I join the Chairman in welcoming our witnesses to the 
hearing this afternoon.
    Last week we had a tragic loss of life for the Marine Corps 
and the Navy family with the crash of the KC-130 tanker in 
Mississippi. My thoughts, our thoughts, are with the families 
of the 15 Marines and one sailor who lost their lives in 
service to our country.
    The investigation into this tragedy should guide our 
decisions going forward to prevent these kinds of tragedies and 
to provide support for our sailors and Marines.
    Over the past weeks we have held hearings on the future of 
a number of Navy and Marine Corps programs. A major subject in 
these hearings has been the Chief of Naval Operations' new 
force structure assessment that points to having a fleet of 
some 355 ships. That would amount to an increase of some 80 
ships from the current fleet inventory. Today's witnesses will 
tell us about President Reagan's expansion of the Navy that 
increased the fleet by roughly 70 ships by the end of the 1980s 
    We hope to gain some insight from our witnesses today on 
what happened during the 1980s to increase the Navy's fleet. 
Reviewing that history may help us deal more effectively with 
the challenges facing us today. Our task before us is daunting 
enough, but we have to recognize that the Budget Control Act is 
looming in the background and will have to be dealt with. While 
that will not necessarily raise the debt ceiling, it also 
imposed Draconian caps on defense and non-defense programs and 
included sequestration. Sequestration or automatic, across-the-
board cuts was included as a worst-case scenario to motivate 
Congress. The mindless cuts to defense and non-defense programs 
were meant to be so bad that Congress would be forced to find 
an alternative way forward. We all learned a lesson in 2013 
when sequester was allowed to take effect. In fact, some in our 
industrial base are still working through the aftermath of that 
fiasco. Yet here we are, six years later, living with 
sequestration still not eliminated.
    Funding for critical programs, both defense and non-
defense, is not an either/or proposition. One thing is clear: 
if we do not deal with the Budget Control Act, we will end up 
cutting, not increasing, the size of the Navy. We all know the 
ongoing negative impact of sequestration and yet have not 
mustered the political will to do something about it. My hope 
is that at some point, sooner at this point rather than later, 
we will come together to pay more than lip service to the need 
to end sequestration.
    So I look forward to working with the Chairman and other 
committee members to balance the needs of our military with 
critical domestic programs. The Navy has not submitted a plan 
for ramping up to meet this new 355-ship goal. Presumably, we 
will begin to see that plan with the submission of the fiscal 
year 2019 budget. I look forward to hearing your testimony this 
afternoon and learning from your out-of-the-box experiences in 
the 1980s.
    Thank you very much, Mr. Chairman.
    Senator Wicker. Thank you, Senator Hirono.
    Dr. Lehman, we begin with you. You are recognized.

                            THE NAVY

    Dr. Lehman. Well, thank you very much. It's a real 
pleasure, an honor to be back in these precincts. I once did an 
analysis--or I didn't, but my office did an analysis of my 
calendar for the six years I was Secretary, and I spent a third 
of my time up here on the Hill, and much of that in this very 
room; and, of course, a lot of other private time with members 
and staff. It's really a pleasure to be back.
    It's not just remembering my schedule and the amount of 
time we spent up here, but it's often said that history doesn't 
repeat itself, but it sure rhymes. Those days when we started 
the quest for the 600-ship Navy have many close parallels to 
    Then we were at the end of a period of what was called then 
the ``peace dividend'' after Vietnam. Budgets were cut. The 
Navy was really in serious condition. The shipbuilding program 
was moribund, and everything was over running. As a result, as 
a nation we were losing our ability to deter the disturbers of 
the peace.
    The same situation with very different actors is true 
today. Our diplomacy is weak around the world because our 
deterrence is weak. Diplomacy is the shadow cast by military 
power and naval power, and our adversaries and our allies 
perceive today that we cannot always be counted on. As a 
result, those who wish us ill are taking advantage of that and 
pressing the envelope of risk in North Korea, in the South 
China Sea, in the Arabian Gulf, the Persian Gulf.
    So it's time to rebuild the Navy and restore the 
credibility of our diplomacy around the world by deterrence. 
It's my wish today that the three of us can help persuade you 
that not only is the time urgently here and now, but that it 
can be done, and it can be done affordably, and it can be done 
    But before I talk about that, I'd like to request, Mr. 
Chairman, if my full statement could be submitted for the 
    Senator Wicker. Without objection, it will be submitted.
    Dr. Lehman. Well, thank you.
    So, it all starts, as I think this subcommittee recognizes, 
with strategy. We have, as a nation, been ad-hocing our 
strategy. We've not really had a strategy for the last two 
decades, and it's time to restore a strategy. One of the 
strengths we had back in the 1980s was that starting around 
1977-1978, there was a bipartisan effort to really reach 
agreement on a strategy. It was led by the great Scoop Jackson 
and the great John Tower and former chairman of this 
subcommittee and committee, full committee, John Warner, who I 
was honored to see just left the room, and Chairman Stennis. 
This was a true bipartisan effort to really see if there was a 
clear consensus on what should be done to rebuild our Navy, and 
to what size, and to what makeup, and under what strategy.
    As a result there was a coherent, well-thought-through and, 
indeed, budgeted strategy that drove actually the election 
debate, and it was truly bipartisan. At the time, the 
Republicans were the minority, and it was led, as I say, by 
Senator Stennis and Senator Jackson. But with the help of the 
Navy Department and other outside thinkers, there was a truly 
fully-thought-through and budgeted strategy to pursue to 
rebuild the Navy.
    My distinguished colleague to my left, Bill Schneider, was 
responsible for the work in putting that budget together in the 
two years before the Reagan Administration and oversaw its 
execution in the years after, and he was a very tough 
comptroller of our currency in the Navy. It was Ev Pyatt--these 
were two of the greatest leaders of that time that really 
carried out this strategy. Ev was responsible for executing and 
for putting the discipline into the acquisition process and the 
procurement and the building of the ships, and the reactivating 
of the ships, which was a very important part of the strategy.
    From the way we put together the strategy--again, I keep 
emphasizing it was a bipartisan strategy that started with our 
vital interests. We're not going to be the world's policemen. 
We're not going to go looking for dragons to destroy. We are 
going to defend our vital interests, the vital chokepoints, the 
Malacca Straits, the Sunda Straits, our ability to maintain 
deterrence in Europe, our ability to keep hostile forces from 
getting control of the oil in the Persian Gulf, et cetera. From 
that, we derived the size and makeup of the force that would be 
necessary to prevail, and hence to deter, in each of those 
geographic areas.
    From that came the number 600. The number 600 was not just 
pulled out of a hat. It was logically deduced from our vital 
interests, and that's what must be done today, and is done and 
underlies the 355-ship Navy. It's a different era. It's 
different technology. The adversaries are much different. It 
was a bipolar world. It's a multi-polar world today, but the 
same principles apply.
    It's important that that number, 355, be solidified and 
understood. It wasn't just we picked it out of a hat, rolled 
the dice, came up with that number. This number has been 
developed by a lot of hard work by real operators who have had 
to deal and look across the waters at their adversaries just a 
few hundred yards away and see the tasks that they have. So 
this should not be treated lightly. It has to be incorporated 
in all of the actions taken here in this committee.
    It also, if the number is solid and agreed by this 
committee, then it can be bid out competitively with the 
assurance in the shipbuilders world that, yes, this is a 
serious commitment, and so we will put the capital into tooling 
up to build these additional ships. If that number wanders 
around or it's not logically based, then you will not have that 
economic payoff.
    So this was what underlay our strategy when we launched it. 
It depended on the clear consensus on the nature of the 
strategy. That strategy understood and supported in a 
bipartisan basis in Congress, in the White House, in the Office 
of Management and Budget, in the Pentagon, and, of course, in 
the uniformed Navy and Marine Corps as well, and that we had.
    As a result, the choices made in ships tradeoffs, we would 
not sacrifice readiness and sustainability. These have to be 
done simultaneously. You can't say--it's a nostrum to say that 
first we've got to take care of the readiness, then we'll worry 
about expanding the fleet. It can't be done that way. It's got 
to be done simultaneously. In fact, each reinforces the other. 
So that allows sensible tradeoffs to be made.
    I hope that you do have time to deal with the procurement 
side of this because one of the reasons we succeeded in 
building the 600-ship Navy--we got to 594--was because we put 
discipline in from the beginning. No contract could be let for 
production or ship construction without the design being 
complete, and then once it is let, it's in production, that you 
protect the contractors from the constant change orders and 
changing of minds and requirements that goes on, particularly 
in the post-Goldwater/Nichols bureaucracy, impinging on those 
    You've got to freeze the design once it's complete. When 
the technology changes, you introduce it in block upgrades. 
That allows you to compete on a firm fixed-price basis without 
the contractors worrying that they're going to be constantly 
pulled around in every different direction by change orders. It 
requires a continuing discipline and oversight by this 
committee to see that the disciplines of fixed price, of 
competition and production are met.
    Well, I think we ought to--I can't wait for your questions. 
Thank you.
    [The prepared statement of Mr. Lehman follows:]

               Prepared Statement by John F. Lehman, Jr.
    Good afternoon Mr. Chairman, Ranking Member and members of the 
    It is a pleasure to be here to describe the events that made the 
1980s Navy buildup possible, both in planning and execution. My purpose 
here today is to recommend to you that it is time for another such 
naval buildup and to try to convince you that it can be done affordably 
and rapidly.
    To begin with, the successful building of the 600 Ship Navy of the 
`80s was based on a coherent global National Strategy and its integral 
naval component; something that has been absent for the last twenty-
five years.
    Since World War II it has been rare to find major changes of 
direction in American national security policy. The first of these 
changes took place in the years after the war when optimism for world 
peace was replaced by the Iron Curtain, NATO, and the policy of 
Containment of a militant Soviet Union.
    Another sea-change took place in 1981, when a bi-partisan majority 
emerged to adopt a more activist pushback against Soviet aggression and 
Iranian terror. The new strategy was backed up by a major expansion of 
American military power.
    At the center of the new strategy was the U.S. Navy. To carry out 
this global forward strategy the Navy and Marine force structure had to 
be expanded rapidly to 600 ships including 15 carrier battle groups 
with 14 Active and 2 Reserve carrier air wings, four surface action 
groups built around four battleships, Marine amphibious shipping 
sufficient for 50,000 marines, 100 attack submarines, 100 frigates, 137 
cruisers and destroyers and more than 30 ballistic missile submarines. 
Of equal importance was a massive program of global forward naval 
exercises to demonstrate the power of NATO to command the seas and 
surround, attack and defeat any attempt by the Soviet Forces to attack 
NATO in central Europe.
    We believed at the time that 90% of the deterrent power of this 
buildup could be achieved in the first year. This was done by publicly 
declaring and explaining the strategy, especially its naval component, 
and taking actions that left no doubt among friend and foe that it 
would be achieved. Those actions were to submit a revised Defense 
budget to Congress that fully funded the buildup; a program to 
reactivate four battleships and modernize frigates and destroyers, 
commission into the USN, four ultra-modern destroyers built in 
Mississippi ordered and paid for by Iran, extend the lives of four 
carriers through a SLEP program, re-open two aircraft production lines 
and increase the procurement of others.
    Implementation was the next step. It was clear that long term 
success of the plan depended on controlling cost and building the fleet 
on schedule. At that time, full acquisition authority and 
responsibility rested with the Secretary of the Navy, the CNO and the 
    We knew that affordability was the major challenge. Others believed 
that the task was impossible within the time frame. Yet the 600 ship 
Navy was nearly complete when the Soviet Union collapsed. Key to 
achieving this end was a clear focus on ship affordability recognizing 
that budgets were limited and a high/low, new/old mix of ships was 
necessary to satisfy military needs and required force levels.
    Even with the substantially increased budget we knew that success 
depended upon maximum use of fixed price competition which required 
design stability, firm control of design changes and planned block 
upgrades over system life. These principles were implemented in a 
competitive procurement environment giving maximum incentive to 
contractors to lower costs rather than justify the highest costs 
possible in a negotiated procurement. If real competition had not used, 
(as it is not commonly used today,) then program completion would have 
been impossible. Reliance on competition also preserved and expanded 
the industrial base.
    My first procurement action as secretary was to recruit George 
Sawyer, a very successful engineering CEO with extensive experienced in 
the private sector and the Navy as a former nuclear qualified submarine 
officer. We then recruited Ev Pyatt, a career civil servant with top 
level experience in R&D, force planning and acquisition policy. He had 
been Principal Deputy assistant secretary for logistics in the prior 
administration overseeing production and logistics. The two combined to 
provide the leadership necessary to get the system moving. George 
concentrated on activating battleships, invented the two carrier 
acquisition strategy and dual source annual competition in submarines 
and surface ships. Ev developed a plan to acquire 12 prepositioning 
ships for the Marines and 5 tankers. These were built with commercial 
specifications rather than military specifications at one fifth the 
cost of producing them under Defense Acquisition Regulations. Funds 
saved in that program were used to build additional combatant ships. 
They developed the plan to bring competition into the sole source 
cruiser program, accelerating completion and saving hundreds of 
millions. This also provided shipyard capacity to start the DDG-51 
program originally planned for 23 ships, but the success has raised 
total production to over 60 ships.
    Equally important in immediately improving deterrence was sending a 
NATO fleet of 83 ships including three carriers north to exercise in 
the Norwegian and Barents Seas adjacent to the Soviet Union only 7 
months after the new administration was inaugurated. These exercises 
were then carried out annually in the Atlantic, Pacific, Mediterranean 
and Arctic theaters with tactics and numbers increased and improved 
with lessons learned each year.
    At first, the Soviets were aghast at this new United States Navy 
and NATO strategy, and then soon tried to react with increasing vigor. 
But as more and more ships, aircraft and technology joined the American 
fleet it became clear to the Soviet Navy that they could not cope. 
After NATO's Ocean Safari exercises in 1986, confounded and humiliated 
the Soviet air and naval defenses with United States carriers now able 
to operate with impunity inside Norwegian fjords, the Soviet General 
Staff informed the Politburo that the budget of the Northern Fleet and 
Air Force must be trebled if they were to be able to defend the 
homeland. Many have seen this as the point of collapse of Soviet will. 
After beggaring their economy to achieve the dream of military 
superiority they now found themselves worse off than ever.
    The forward strategy and maritime supremacy that had been asserted 
and built since 1981, led by the President and supported by a bi-
partisan Congress had been vindicated. Along with the modernization and 
increase in NATO land and air forces, ten years of aggressive global 
forward naval operations had convinced the Soviet leadership that they 
could not defend their strategic assets and their homeland without 
impossibly large increases in spending. That fact had removed the 
political power of the Soviet military, and created the political 
opportunity for strong leaders like Gorbachev and Yeltsin to pursue 
Perestroika and Glasnost and to seize the opportunity to negotiate an 
end to the Cold War with President George Bush and his Secretary of 
State Jim Baker.
    On December 8, 1991, The Soviet Union was dissolved and the Cold 
War was over. There were many factors that brought about this momentous 
threshold in History; the reforms and leadership of President Ronald 
Reagan, Margaret Thatcher and Mikhail Gorbachev, were major factors. 
But the fundamental shift in the naval balance and re-assertion of the 
power of geography was decisive and created the environment in which 
Western diplomacy could prevail and bring an end to the Cold War.
                lessons from the 1980s that apply today
    One of the consequences of the U.S. maritime program in the 1980s 
was it gave the President (and his successors) many more options to 
respond to intense security crises than would have been the case if 
Reagan tried to conduct his foreign policy (that was aimed at upending 
six decades of murderous Soviet rule rather than containing it) with 
his two predecessors' flaccid defense program and budget.
    The consequences of a quarter century of the bipartisan neglect of 
our defense posture had deeply eroded our ability to deter disturbers 
of the peace. The situation today is similar. Our adversaries actively 
seek to take advantage of our weakness. We are for instance currently 
being held at bay by one of the poorest nations on earth. The 
President's diplomatic power is deeply diminished by a navy stretched 
too thin and woefully underfunded. The President should have the option 
to prevent North Korea from launching any ballistic missiles that don't 
return to earth on its territory. He should have the option to maintain 
a carrier Battle Group in the Yellow Sea and Sea of Japan with a 
suitable number Aegis ships that could prevent North Korean ballistic 
missile launches in the boost/ascent phase.
    To move rapidly to restore that essential capability to deter our 

    1.  We must have a strategy with a strong naval component.
    2.  Attack the enormous bureaucratic bloat that can streamline 
processes and save tens of billions of dollars.
    3.  The procurement reforms enacted in the last two NDAAs must be 
    4.  The SecNav , CNO and Commandant must be given the authority and 
held accountable for Procurement execution
    5.  They must have firm control of all design changes in 
    6.  No program should be put into production until the design is 
    7.  Fixed-price competition for production programs should be the 
    8.  Early retired frigates, cruisers and logistic ships should be 
re-activated with essential upgrades
    9.  The 1980s program for build/convert and charter for non-
combatant logistics ships should be re-started.

    There are of course other very important issues that need to be 
addressed including readiness, personnel policies, zero-tolerance, 
political correctness, compensation, and reserves. All of them however 
can be resolved by good leadership.
    The experience of the 1980s demonstrated that 90 percent of the 
benefits from a program to restore American command of the seas and 
naval supremacy can be reaped immediately. Our adversaries will be 
forced to trim their sails. As John McCain famously said ``Russia is a 
gas-station with an economy the size of Denmark.'' They know that they 
cannot challenge a rebuilt U.S. Fleet with their professional but very 
small one-carrier Navy. The Chinese are at least a decade away from 
matching American naval and air capabilities, and more likely, can 
never do so. American diplomacy, again backed with naval and military 
superiority will instantly regain credibility.

    Senator Wicker. Well, thank you very much for your 
    I think, Mr. Pyatt, Mr. Secretary, we have you next. So 
proceed in your own fashion, sir.


    Mr. Pyatt. I guess, in kind of relating here, he was the 
architect and I was the garage mechanic.
    But I'd like to talk to you about some of the details that 
caused success and caused failure.
    He's right on discipline in the system. It loves to make 
changes, loves to award a cost-plus contract to get going, even 
though the design is not done, and invariably it's a disaster, 
and you've seen that on what you've done on the CVN-78 and the 
way you followed it and tried to lead it and corral it into 
something that has a long way to go.
    One of the fundamental things that I see is that over the 
last period of time you're talking about until now, the average 
cost of ships and cost of dollars, the program has increased 
from $1.6 billion per ship to $2.3 billion. This is caused by 
technological things. It's caused by business activity being a 
very low rate, so overhead doesn't get amortized over such a 
large basis. This is what the management has to work on to make 
an affordable program to bring to the Congress.
    It's a lot of details involved, but one of the ones that 
you have to worry about is incremental funding, invariably a 
disaster. Incremental funding was abolished in the 1950s or 
1960s because it was impossible to control the cost of ships. 
It's been basically adhered to since then, with the exception 
of the CVN-78, the DDG-1000, and the LCS, which have all gotten 
into serious trouble. It takes away the discipline needed to 
    Senator Shaheen. Mr. Chairman, may we ask the witness to 
define incremental funding?
    Mr. Pyatt. Yes. Incremental funding--full funding, let's 
start there. Full funding means that when you authorize and 
appropriate a ship, you give them all the money necessary to 
complete that ship. There may be and usually is a small amount 
of long lead money that buys engines and things like that. But 
when you authorize and appropriate a ship, it should be full 
funded. That's been a successful program. Every ship we built 
was full funded, including two carriers and Tridents. It's not 
an impossible task. What it really says is, executive 
department, this is all the money you're getting, you'd better 
live with it. I think that's a very important thing to control 
the cost of the Navy.
    But it also allowed us to make some savings and, as I 
mentioned in the testimony, which I'd like to be included in 
the record, if I may, sir----
    Senator Wicker. Your testimony will be included.
    Mr. Pyatt. Thank you.
    It allowed us to set up the competition. The contractors 
knew what was there, and it just--it's important.
    I put in here a little side commentary that ships aren't 
the only thing having the disease of excessive cost growth. 
Airplanes--in fact, one of the four studies recommended not 
building more carriers until you get enough airplanes to put on 
them. It's not quite that bad, but not far off. So it's 
something to think about.
    But the most important aspect of what we did was our 
people. Navy was blessed with a strong technological and 
business group at that time. It was partially destroyed in the 
1990s and is slowly being rebuilt. So one of the things that 
whoever does this has to worry about is developing and 
maintaining, both in uniform and in civilians, the skill of a 
knowledgeable buyer. Everybody can turn out 600-page respect 
for a handgun, but it takes somebody to realize there's an 
essential way to buy a handgun.
    So that's what I would say, and I would also add on to 
that, there's a person called a contracting officer. Most 
people don't have any idea who that is, but it is the only 
person who can obligate the government. We can talk all we want 
to, but until that person signs on the line, it's not an 
obligation. You need to develop him and support him. This is, 
again, from the garage mechanic's point of view.
    From this committee in particular, the program could use a 
little positive support. You've had some successes, the P-8 
program, the DDG-51 program, which I'd note that the GAO still 
calls it an overrun. I call it a success because they started 
out with 23 and wound up with 63. That's a successful program, 
and that's what this committee should reinforce and encourage.
    So again, I'd summarize it and say that all programs are 
not typified by the LCS and CVN-78. You know a lot about the 
CVN-78, and while I was waiting today I just discovered there's 
another $700 million buried in the post-delivery costs for 
reasons I don't understand. But the R&D shouldn't be that much. 
It's $400 million in R&D for a ship that's been delivered.
    There's another issue on carriers that's coming up. I'm 
talking about the future now. These are the things I think you 
will need to consider in the future. Another issue is coming up 
regarding the use of a small carrier. That's been a long-time 
issue, and there's lots of reasons for a smaller carrier, but 
the study that was done, to me, ignored the most obvious 
answer, which is a stripped down, basic Ford, get rid of a lot 
of the excessive stuff that's not necessary, because when you 
go to a carrier, the place that really determines what you need 
is the maintenance deck. There you see the airplanes that are 
being worked on, and particularly now, with many types and 
models, and probably expanded, the fellows who run that deck 
are going to need space, and I'm not sure a small carrier 
provides it. It's a worthwhile study, and I hope it gets 
    The SSBN, early in its design phases, plenty of time for 
things to go wrong, also get corrected. I think it's probably 
the most competent technical team in the government, and I 
would expect success, but things are never easy.
    The attack submarine program, running very smoothly right 
now. The risks coming up involve the addition of the Virginia 
module and what turbulence it may bring.
    Another problem with the submarine that I only talked about 
a little bit, and I'm sure this is heresy amongst many, is 
something smaller than the Virginia class. They're now at $2.5 
to $2.7 billion, and I'm not really sure that all those 
capabilities are really needed for the missions of the future, 
since many of the missions require much less capability.
    You might want to look at what I call a submarine frigate, 
a smaller ship, a little less money, but I don't think we're 
going to get to the force levels and within the budget you're 
talking about with a submarine.
    Senator Wicker. Where can we look at one?
    Mr. Pyatt. You can't. Look at the idea is what I said, 
should have said. I misspoke.
    Senator Wicker. No. No, you didn't misspeak. I just 
wondered if that concept existed anywhere on the face of the 
    Mr. Pyatt. Right here.
    Senator Wicker. Okay.
    Mr. Pyatt. This is a small part of the face of the earth.
    Mr. Pyatt. DDG-51 Phase III, that's a scary program to me. 
I think the idea of doing it as a change order based on the 
basic ship was a good idea, but there's a lot of places where 
it could still go wrong, and I'm particularly worried about the 
radar, and it's the plan to deliver it on time for a radar that 
hasn't been developed yet. There are some problems built in 
    This committee has been very supportive and very 
imaginative in pushing a new frigate. We need a real frigate in 
the Navy. We need an ASW frigate. The Navy just started in the 
evolution of a design. It's got a long way to go yet. The last 
version of it, even though it's an ASW ship, did not include 
ASW weapons, so there's some work to be done. It didn't include 
VLS, a vertical launch system, which is kind of mandatory for 
any future weapon system.
    So, there are problems the next managers have to worry 
about. We talked about the tanker, the new tanker. I don't know 
why it cost so much. It has more than doubled in price since 
the ones we bought, and I don't understand why.
    Now there's a new concept of icebreakers in the defense 
budget. This is a perfect candidate for a build and charter 
program like we did on the TAKs. Build and charter rules are a 
little different now, but I don't see why you want to spend 
scarce defense dollars and displace a destroyer or two 
destroyers and a submarine for building icebreakers. They're 
necessary, I understand that. There's got to be an alternative 
way to achieve it, and I'd like to leave that as an idea.
    So that concludes. We did it, and we did 17 ships that way. 
I did them. It can be done, and I think it's a good use.
    The other thing that happened to us and building the TAKs, 
even at that time I think the Navy estimate was $400 million 
for militarized ship. We built in the commercial standards. 
They survived and have been used for 30 years or so, and 
they've done quite well for the Marines, I understand. So 
there's no reason to go through all the defense bureaucracy to 
build an icebreaker. There are plenty of icebreakers around 
and, first of all, you need to involve Defense. They're the 
experts in the world, and they built all the Russian ones. So I 
encourage that line of thought.
    Sir, that concludes my summary of my testimony, which was 
not much of a summary, I think. Appreciate your time, sir.
    [The prepared statement of Mr. Pyatt follows:]

                  Prepared Statement by Everett Pyatt
                       acquiring the future navy
    Good afternoon, Mr. Chairman, Ranking Member and members of the 
Committee. It is my pleasure to relate some of my experiences in 
rebuilding the Navy and review future opportunities.
    Both Armed Services Committee markups contain resolute support for 
an enlarged Navy consisting of 355 ships. Based upon the experiences 
described by Secretary Lehman, this is reasonable task, well within 
existing industrial capabilities. Some assurance will be needed to 
support limited expansion at the supplier level, but these can be 
handled within existing authorities. The current NDAA will be a very 
important part of providing necessary assurances for supplier firms.
    However, there are many risks that could destroy this posture. The 
most obvious is cost growth. As Secretary Lehman described, we placed 
great emphasis on controlling cost, knowing that overruns would be 
destructive. The same applies now, and even to a greater extent due to 
the current budget deficit issues. The expansion is likely to extend 
over a decade and involve changes in the military balance, new 
technology and production issues. Risks must be anticipated and 
eliminated where possible.
    The Navy Secretary Lehman described involved the addition of 73 
ships from the FY 1981 fleet to reach 594 by the end of FY 1987. The 
plan for the future calls for 80 ships to be added to the current 275 
ship fleet. This can be achieved if funds are available. There is not 
likely to be a technical problem if current risks are managed. I will 
discuss these later.
    The fundamental financial problem is that the average cost of the 
shipbuilding program in FY 2017 dollars has increased from $1.6 billion 
in the 1980s to $2.3 billion now. Both packages include high-end 
carriers and ballistic missile submarines and are generally comparable 
packages. Reasons include military performance improvements, lack of 
competition, low facilities utilization rates, overhead growth and 
likely others. All need to be challenged as part of the program.
    Funding will determine the pace of any fleet increase. Current 
budget plans support a 275 ship navy. Building ten additional ships a 
year will add $23 billion to SCN funding annually, funding the 355 ship 
Navy in approximately 8 years. The exact number depends on deactivation 
rates and the number of ships now under construction.
    Average funding requirement can be changed through reactivations 
and service life extension renewals. These have to be a part of any 
plan as it was in the 1980s. Reactivation should start with several of 
the retired FFG-7 class and outfitted to support current operations.
    Cost of ships has lead to more incremental funding instead of full 
funding. Incremental funding was eliminated in the early 1960s because 
it did not provide adequate cost control. That conclusion has been 
proved right again in the Ford-class and DDG 1000 programs. It is now 
planned for the SSBN.
    During the 1980s, there was no incremental funding except for 
limited long lead funding. Tridents were full funded, as were the two-
ship carrier procurements.
    In the interest of cost control, all shipbuilding budgets should 
resume the policy of full funding. This eliminates budget caused 
manufacturing disruptions and allows smoothly running programs to 
proceed quickly and reduce costs.
    Production profiles must be considered to maximize production 
efficiency. Too often profiles are determined without considering 
production impact resulting in excessive ship cost.
    Competition is the most effective means to control cost. It brings 
at least a 10% reduction in cost and a much faster learning process. We 
achieved these savings. Each year, I would bring the savings list to 
the HASC Seapower Subcommittee and ask for another ship in the plan to 
be authorized. It always happened.
    The bottom line is the planned program, if completed in 8 years, 
will require 10 ships above the current program, effectively doubling 
the funding. These 10 ships will cost $23 B a year more given current 
management attitudes. If management adopted a more aggressive cost 
control approach as outlined by Secretary Lehman, these costs would 
fall by 10-20% a year, making the program more affordable. This 
committee has defined the need for cost control with actions regarding 
carrier funding in FORD and now in following carriers. Cost control 
emphasis needs to be extended to all ship classes by demanding results 
from Navy leadership. Otherwise I fear the necessary buildup will die 
on the budgetary table.
    Ships are not the only category of systems with this disease. 
Aircraft costs have grown so rapidly that there are not enough aircraft 
to fill all air-wings. As a point of departure, the Navy and Marines 
have about 4000 aircraft. Since aircraft have roughly 20-year lives, 
annual procurement should be 200 aircraft. That has not happened for 
years. Consequently the force has aged much beyond the optimal 10-year 
average age. In fact, one of the studies suggested not building more 
carriers until sufficient aircraft were available to fill the decks. 
Major efforts need to be concentrated on aircraft cost reduction.
    People make success happen. We pay too little attention to the 
process of developing professional skills and rewarding success. 
Secretary Lehman approved and we implemented the Navy Materiel 
Professional program for military hoping to provide a good career path 
for the future. It was copied and integrated into a DoD wide program 
and now appears to be dead. Hopefully this concept will be restarted as 
a way to include military experience more into the acquisition process.
    He eliminated a layer of bureaucracy, the Navy Materiel Command, 
not needed for effective management. It has not returned.
    We need to be more supportive of the folks trying to make these 
programs happen. It is often a thankless task, but many successes 
happen. These are program managers, technical professional, business 
managers and an increasing number of lawyers needed to negotiate the 
procurement law quagmire. And then there are the people we forget who 
are the only ones authorized to obligate the government to a contract. 
They are contracting officers holding warrants for contracting. They 
must make the determination that the prices are ``fair and 
reasonable''. They deserve our full support in the quest for cost 
    Acquisition could use some positive support. We know the problem 
programs, but the successes should also get prominent recognition. 
Results are not all bad as some proclaim. The P-8 program is being 
completed within the original estimates. The submarine program is 
within the multiyear budget. The DDG-51 program has expanded to include 
more than 40 ships above the original plan. For some reason, the GAO 
continues to insist this is an overrun. I call it a success. Hopefully 
the DDG-51 phase 3 will not ruin this record.
    In summary, all programs are not typified by LCS and CVN results.
    Each ship class will have its own challenges.
    This Committee knows about the CVN problems and has been the leader 
in focusing attention to the problem areas, starting with cost, 
continuing with the Navy's decision to skip component shock testing and 
deferring ship shock testing several years. Given the number of weapons 
being designed to attack carriers, this attitude is unfathomable. For 
some reason, the Navy thinks the delay that might be caused if there 
are bad test results is unacceptable, but it is fine to hold the 
KENNEDY two years awaiting a radar development that is not necessary 
for ship operation. I simply do not understand.
    Carrier costs have re-raised the issue of a smaller carrier to 
provide more fleet options. This is a worthwhile effort, but the RAND 
study left out an obvious alternative of a conventionally powered Ford-
class ship. If the full range of air wing aircraft is envisioned, then 
hanger space will be very important for maintenance operations. The 
America-class LHA solves this problem by limiting aircraft types. The 
current NDAA plan probably does not meet the analytic requirements for 
a new start defined in last year's NDAA. The idea should not die for 
procedural reasons. Controlling carrier cost will be a basic challenge 
to the whole 355 ship navy. We did it by building a frozen design in 
two ship packages, fully funded at the start.
    The Columbia-class SSBN is following a sound risk reduction 
process, but cost growth risk remains. A significant increase in the 
cost of this program could derail the whole Navy growth plan. Each 
description of the cost status by the program office seems to show less 
assurance of cost control. This program should be full funded after 
long lead items are purchased. Each Trident ship was full funded 
    The attack submarine program is under a multiyear contract and 
proceeding smoothly. The addition of the Virginia payload module 
introduces additional risk. If the program is expanded to 3-4 ships a 
year, that expansion should be done competitively and allow each 
shipbuilder to build the complete ship rather than portions if 
justified by cost.
    Increasing submarine cost and tight budget suggest it is 
appropriate to look at a less costly submarine. The fleet studies 
suggested air independent ships, but this concept is being rejected. 
Another approach could be a smaller SSN, designed to be more special 
purpose, in other words a submarine frigate. This may be the only way 
to get to the desired submarine force level.
    The DDG-51 phase 3 program shows early signs of problems. The 
current program plans an on time delivery of a radar that has not 
completed development and is on a very optimistic schedule. As shown in 
the carrier program, the radar program office often has delays and has 
been an advocate of two-phase ship completion to mask these delays. 
Refusal of the designing shipyard to accept a fixed price incentive 
contract is a very clear indication of risk problems due to design 
problems and late government furnished equipment. Agreement by the 
second shipyard may simply be a bid low and get even on changes ploy. 
However, the concept of building a lead ship in two yards is a good one 
because there will be many ships built. This step enhances the 
possibility of competitive production.
    The new frigate program is in the early stages of requirement 
definition. Hopefully it evolves as a significant anti-submarine 
warfare platform, and very much interconnected with the distributed 
lethality concept. It may evolve that foreign designs can provide the 
basic ship to be outfitted with current U.S. combat systems. We did a 
foreign ship transfer with a mine countermeasures ship. Even though the 
design was frozen, it was not an easy task.
    A meaningful frigate is a necessity. The program will require 
significant leadership attention to make it happen. It is off to a good 
start. However it does not include a ceiling price, or provision for 
anti submarine weapons including ASROC and ship launched torpedoes and 
precludes the use of vertical launchers. As soon as industrial interest 
determined, the process should change to include funded competitive 
concept studies. This would allow contractors to include ideas and 
systems not in the current list. The Navy program office would then 
evaluate realism. Contractor teams would include a second source and 
must demonstrate capability to produce pre-outfitted modular designs. 
The conclusion of these studies would be competitive proposals to 
design and build a lead ship with priced options for follow ships. This 
process is a copy of the original concept formulation/contract 
definition process defined by DepSecDef Packard.
    In my opinion, this Committee deserves accolades for getting a new 
frigate program underway.
    An example of failure to achieve cost control is the new 
replenishment ship. It is claimed to have the same performance as the 
current tankers, yet costs almost twice as much in constant dollars. I 
have no idea why this is.
    The NDAA includes Coast Guard icebreakers as part of the Navy 
program for the first time. This will eliminate 2-3 destroyers or 
submarines from the program, given the budget constraints. They will 
not count as part of the 355 ship navy. This program is an excellent 
candidate for a build and charter program similar to the one we did for 
the prepositioning ships and tankers. They can be either bare boat and 
crewed by Coast Guard personnel or a mixed crew as the Navy did it.
    This concludes my testimony based on my experiences of acquiring 
nearly 200 ships for the Navy in an executive role and providing staff 
support to several other ship acquisition decisions.
    Thank you for your time.

    Senator Wicker. Well, we appreciate your participation. If 
Mr. Lehman was the inspirational leader and you were the garage 
mechanic, was Mr. Schneider the banker?
    Mr. Pyatt. Yes.
    Senator Wicker. Okay. Well, Mr. Schneider, you are 


    Mr. Schneider. Thank you very much, Mr. Chairman and 
distinguished members of the committee. I do also have a 
prepared statement. With your permission, I'd like to submit it 
for the record.
    Senator Wicker. Without objection, all three statements are 
admitted to the record.
    Mr. Schneider. Thank you again, Mr. Chairman.
    I served as Associate Director of OMB for National Security 
and International Affairs, which was the budgets of the 
Department of Defense, the intelligence community, and the 
Department of State. The function of the Office of Management 
and Budget, which is, as you know, an office of the Executive 
Office of the President, was to assure that the President's 
intent was reflected in both the programs and budgets that were 
submitted for the President's approval.
    As Secretary Lehman noted, there was a good deal of 
preparation that took place before the election so that the 
staff, including myself, had a very clear idea of the strategy 
that then-President Reagan would pursue as President.
    Second, the President was very well aware of the 
intersection of a sound economy and the ability to produce a 
strong national defense. At the time, although it's hard to 
remember now, one of the most frequently used statistics was 
the misery index, which was the sum of inflation and the 
prevailing short-term interest rate, and it was over 20 percent 
at the time. The economy was in a chaotic state at this point, 
but the President recognized that you could not fix the economy 
first and work on the defense program later. He recognized the 
congruence of the two. He had a very affable personality that 
could work very well with the opposition, and he was very 
successful in working a deal with then-Speaker O'Neill that 
produced a combination of tax cuts and defense program 
increases that kept those forces united in the Congress. So it 
was a very effective collaboration on bringing the economy 
together so that the resources would be available for a very 
substantial increase in defense.
    The President recognized the centrality of maritime power 
in American national security policy, and his success in 
building a 600-ship Navy was a remarkable story of a committed 
executive and legislative branch leadership.
    The rebuilding of American military power as a maritime 
nation was one of the major themes of his presidency and 
perhaps is among the most enduring legacies of his tenure. 
Naval power and presence was a primary enabler of President 
Reagan's policy focus of inflicting costs on the Soviet Union 
as they attempted to maintain their grip on Europe while 
projecting their power in the Western Hemisphere, Africa, and 
the Middle East.
    The strategy that Secretary Lehman mentioned walked away 
from the previous administration's strategy of defense of sea 
control, which was mainly for protecting sea lanes, to a 
strategy of maritime supremacy, a term he often used, and 
delineated a defense program that was explicitly in support of 
those activities, and he had a very sharp focus on programs 
that should be supported in the defense budget to achieve that 
strategic aim and those that should be jettisoned. I was 
pleased to have an opportunity to be ruthless in getting rid of 
the programs that did not support the strategy.
    I'll just reinforce the point that Secretary Pyatt made 
about using the discipline of full funding. That was a very 
important dimension of the success because it assured that the 
program funding was going to be there when the ships were built 
and that the leadership in the Department had the ability to 
enforce discipline on the acquisition process, and that was 
very valuable.
    Nevertheless, because of the efficient way in which the 
Department managed the contractor base, the Reagan 
Administration had 32 multi-year programs in the defense 
program to be able to take advantage of the economies of scale. 
Looking at the 355-ship goal, I believe it is achievable. The 
acquisition discipline that Secretary Lehman and Secretary 
Pyatt referred to is certainly there and will help deliver the 
program, and there is adequate excess capacity in the industry 
to be able to make good on what is a congressional commitment, 
as well as a presidential commitment.
    So I think the opportunity is here to recover our maritime 
strength, and I would be pleased to do anything I can to 
contribute to the ability of this committee to be helpful.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Schneider follows:]

            Prepared Statement by William Schneider, Jr. \1\
    \1\ Senior Fellow, Hudson Institute; he formerly served as 
Associate Director, National Security and International Affairs, Office 
of Management and Budget, Executive Office of the President, and Under 
Secretary of State during the administration of President Ronald 
   financing the reagan 600-ship naval modernization program, 1981-89
    Mr. Chairman and distinguished Members of the Seapower 
    President Reagan recognized the centrality of maritime power in 
American national security policy. His successful effort in creating a 
600-ship Navy to support it is a remarkable story of committed national 
Executive and Legislative branch leadership. More than three decades 
later, it is important to recall the policy context within which those 
decisions were made and how that policy context shaped his effort to 
rebuild U.S. military to support American diplomacy based on a policy 
of ``peace through strength''.
    President Reagan was elected to office in November 1980 at an 
extraordinary juncture in our modern history. Soviet dominance of 
Central and Eastern Europe, in place since 1945, was solidified by the 
ruthless Soviet enforcement of the Brezhnev Doctrine. This doctrine was 
imposed following the invasion and suppression of the Prague Spring 
movement in 1968. Regrettably, Western resignation and acceptance of 
the invasion's permanence reinforced and amplified Soviet dominance. 
\2\ By 1980, the Soviet Union had invaded Afghanistan and projected its 
military power through surrogate movements in the Western Hemisphere, 
Africa, South Asia, and the Middle East. The Soviet Union's nuclear 
modernization surge, enabled by the unenforced arms control agreements 
of the early 1970s jeopardized the credibility of the U.S. nuclear 
deterrent, and the extended deterrent. Moreover, the hollowed-out 
United States military force was unable to impose a credible deterrent 
to arrest the global Soviet advance. The failure of the Desert One 
mission to rescue United States diplomats taken hostage by Iranian 
authorities in 1979 was both a tragedy and a metaphor for the failed 
policies President Reagan ultimately reversed.
    \2\ Following the Soviet invasion of Czechoslovakia in August 1968, 
Soviet Communist Party General Secretary, Leonid Brezhnev declared at 
the Fifth Congress of the Polish United Workers' Party on November 13, 
1968 a doctrine to justify future intervention in States subordinate to 
the Soviet Union. He said, ``When forces that are hostile to socialism 
try to turn the development of some socialist country towards 
capitalism, it becomes not only a problem of the country concerned, but 
a common problem and concern of all socialist countries.'' The 
Department of State counseled acceptance of the Brezhnev Doctrine. For 
example, ``Because the United States interpreted the Brezhnev Doctrine 
and the history of Soviet interventions in Europe as defending 
established territory, not expanding Soviet power, the aftermath of the 
Czech crisis also lent support to voices in the United States Congress 
calling for a reduction in United States military forces in Europe''. 
United States Department of State, Milestones in the History of Foreign 
Relations, ``Soviet Invasion of Czechoslovakia, 1968''; https://
    National policy paralysis in 1980 was twinned with the consequences 
of extraordinarily damaging sequence of economic and financial policy 
choices made by the prior administration. When President Reagan took 
office, the rate of inflation was over 12 percent, while the prime 
interest rate was over 15 percent; ruinous to both the economy and 
national defense. This was not a promising fiscal environment to 
initiate a major defense recapitalization and modernization effort.
    President Reagan recognized that a vibrant economy was a 
precondition to being able to conduct an effective national security 
policy, but--perhaps uniquely--he also recognized their mutual 
interdependence. In 1981, rather than ``fixing'' the ailing economy he 
inherited first, he, in collaboration with House Speaker Tip O'Neill, 
put aside their considerable policy differences and converged on a 
policy course of action that permitted both economic and national 
security aims to be harmonized and implemented. The outcome produced by 
their collaboration resulted in an 18 year-long economic expansion, and 
the collapse of the former Soviet Union.
  the reagan naval modernization program in its foreign policy context
    U.S. defense modernization needs were extensive. After a prolonged 
period of neglect--as Secretary Weinberger put it at the outset of the 
Reagan administration, ``there was nothing we did not need''. However, 
the President's national security strategy drove the defense budget 
toward a narrow range of priorities that would underpin his specific 
diplomatic objectives. President Reagan reversed the policy of 
containment that had been in place since 1950.He adopted instead a 
United States national security policy to undermine the legitimacy of 
the Soviet State and its capacity to dominate the nations of Central 
and Eastern Europe while mounting a global threat to United States 
vital interests.
    The rebuilding of American military power as a maritime nation was 
one of the major themes of the Reagan Presidency, and among the most 
enduring legacies of his tenure. Naval power and presence was a primary 
enabler of President Reagan's policy focus of inflicting costs on the 
Soviet Union as they attempted to maintain their grip on Europe while 
projecting their power into the Western Hemisphere, Africa, the Middle 
East and South Asia. The implementation of the policy was not simply a 
question of the number of ships; instead the mix of types of ships and 
their capabilities were decisive.
    The Reagan administration rejected the maritime doctrine of the 
Carter administration--``defensive sea control''--which focused on 
keeping major sea lanes open. Instead, the Reagan administration 
implemented its ``maritime supremacy'' strategy as President Reagan 
often referred to it, which shaped the characteristics and sizing of 
its associated naval recapitalization and modernization program. The 
Reagan administration's maritime strategy was designed to contribute to 
deterrence of Soviet efforts to coercively threaten or use its military 
power against United States or allied nations' interests. It was also 
designed to be global in reach based on the forward deployment of naval 
forces. Typically, over 100 naval combatant vessels were forward 
deployed at any given time on a world-wide basis. The maritime strategy 
was also coupled to collaborative operations with allied naval forces.
    The three-phase approach to the implementation of the maritime 
strategy (``deterrence or the transition to war; seizing the 
initiative, and carrying the fight to the enemy'') meant that aircraft 
carrier battle group expansion would be the most significant driver of 
President Reagan's modernization initiative. Each carrier battle group 
was composed of a tactical air wing (80-90 aircraft), 2-3 cruisers, 2-4 
destroyers, 2-6 frigates, 2 fast-attack nuclear submarines, and one 
combat support ship (fleet oiler or ammunition ship).
    The capacity to project United States military power world-wide was 
the centerpiece of the Reagan administration's policy objective of 
blocking the expansion of Soviet military power. It enabled attacking 
the extremities of its global reach in areas such as Central America, 
Africa, the Middle East, and South Asia while holding Soviet military 
power in Europe at risk. The Naval modernization program was also able 
to leverage technology developments, particularly the technologies of 
precision strike and persistent surveillance that was responsible for 
the eclipse of Soviet military power in Europe. The U.S. Navy's forward 
presence amplified the parallel investments made in the U.S. Army's 
Air-Land Battle program and the U.S. Air Force ``Follow-on-Force-
Attack'' initiative. Taken together these efforts created a powerful 
combined arms force to support the President's national defense 
strategy that in turn underpinned his national security strategy of 
delegitimizing and rolling-back the Soviet Union's dominance of Central 
and Eastern Europe while blocking the outward thrust of Soviet military 
power elsewhere in the world.
        the reagan administration's naval modernization program
    Figure 1 below summarizes the impact on both the number and 
capabilities mix of naval combatant vessels of the Reagan naval 
modernization program during his term of office.

                     Figure 1: Naval Modernization During the Reagan Administration, 1981-89
                        DATE                                    9/30/1981                     9/30/1989
                                   BATTLESHIPS                             0                             4
                                              CARRIERS                    12                            14
                      CRUISERS                                            27                            40
                     DESTROYERS                                           91                            68
                                      FRIGATES                            78                           100
                     SUBMARINES                                           87                            99
                        SSBNS                                             34                            36
                                              COMMAND SHIPS                4                             4
                                  MINE WARFARE                            25                            23
                                        PATROL                             1                             6
                                    AMPHIBIOUS                            61                            61
                                     AUXILIARY                           101                           137
                                         SURFACE WARSHIPS                196                           212
                                       TOTAL ACTIVE                      521                           592
Source: U.S. Ship Force Levels, 1986-Present

    During its eight-year term, the Reagan administration added 71 
ships led by two additional aircraft carrier battle groups to the 
Fleet. The shift in the nation's naval strategy from the Carter 
administration's ``defensive sea control'' to the Reagan 
administration's ``maritime supremacy'' transformed the contribution of 
the Navy to support for the President's national security strategy and 
the administration's core foreign policy objectives.
        how the reagan naval modernization program was financed
    In President Reagan's first defense budget (fiscal year 1983), the 
U.S. Navy budget grew by 35 percent over the last Carter 
Administration-proposed budget (fiscal year 1982). During the Reagan 
administration's term of office, $268 billion was appropriated for the 
U.S. Navy procurement accounts including $100.4 billion for the 
shipbuilding account (SCN). An additional $75.7 billion was 
appropriated for naval aircraft procurement. The administration's 
advocacy for its naval modernization initiative was well-received by 
the Congress including some additional funding provided by the Congress 
in fiscal year 1981, fiscal year 1982, fiscal year 1988, and fiscal 
year 1989.
    The funding for the program did not require any unique statutory 
concessions or changes in existing appropriation disciplines. U.S. Navy 
management changes in its acquisition practices in the shipbuilding 
program (compared to the previous practice) proved to be constructive 
in controlling cost. These managerial initiatives included:

      Aligning the Navy's modernization priorities to the 
administration's national security strategy;
      Building ships based on standard designs with limited 
opportunities for design and engineering changes; and
      An increased focus on competitive procurement.

    The administration's long-lead funding for pacing subsystems for 
naval combatant vessels of (e.g. nuclear reactors for aircraft carriers 
and submarines) stabilized naval shipbuilding and enabled programs to 
adhere to a well-defined production schedule. This enabled the 
administration to avoid the persistent cost-growth growth that 
adversely affected the Carter administration's naval shipbuilding 
    The Navy took advantage of a broader defense-wide practice of 
multi-year procurement. During the Reagan administration, 32 multi-year 
procurements (MYP) were initiated across all Military Departments. In 
some cases, the cost-reducing property of MYPs were magnified by 
integrating DOD procurements with those of foreign buyers to reap 
further economies of scale and reduce the cost of national defense.
    The success of the Reagan naval modernization program using the 
acquisition practices available at the time offers a useful basis for 
comparison with the experience of a subsequent administration. The 
administration of President George W. Bush faced a need to rapidly 
accelerate the procurement of a widely-supported special-purpose 
armored combat vehicle based on a South African developed ``V-hull, the 
Mine-Resistant Armor Protected (MRAP) vehicle. The MRAP vehicles were 
urgently needed to reduce the exposure of United States and allied 
forces to improvised explosive devices in Afghanistan and Iraq.
    While this program was a remarkable defense-industrial success in 
tactical and operational terms (12,000 vehicles procured between 2007 
and 2012), it was only possible with an extraordinary effort to 
``bend'' to the breaking point, DOD acquisition regulations. It 
necessitated intense personal involvement by the Secretary of Defense 
to surmount the baroque accumulation of financial, managerial, 
statutory, and cultural barriers to the rapid acquisition of urgently 
needed systems in the DOD. It was not a model for future rapid 
procurement efforts. The intense regulatory barriers are well known and 
have been identified by several studies by the Defense Science Board as 
well as other entities. Nevertheless, they persist despite for an 
accumulation of cultural, political, and institutional reasons despite 
the determined effort of several Secretaries of Defense to change them.
    implications for the trump administration's ``355-ship'' naval 
                         modernization program
    The U.S. Navy's 2016 Force Structure Assessment added 47 ships to 
its 2014 FSA for a total of 355 active ships in the Fleet. The scale of 
the increase compares favorably with the increase in naval vessels in 
the Reagan naval modernization program in the 1980s. The Reagan program 
increased the number of ships in the Fleet from 521 in 1981 to 592 in 
    The current Fleet, at the end of a slow recessional that has been 
underway since 1989, has been reduced to 275 ships. This is the lowest 
figure in a century (245 in 1916). There is significant excess capacity 
in the industrial base for surface shipbuilding--a circumstance which 
closely paralleled those of the 1980s. Management changes using 
precedents set during the Reagan administration shipbuilding initiative 
would support the delivery of the additional 80 ships to reach the 
desired 355 ship Fleet. This recapitalization and modernization is 
within the existing industrial capacity of the industry.
    The submarine production capacity is more stressed, but it seems 
likely that the industry will be able to deliver one of the Columbia 
SSBNs (Ohio-class) and two of the Virginia-class fast attack submarines 
per year.
    The administration's 355-ship Navy goal is achievable based on 
modern fiscal and industrial experience during the Reagan 
administration, and an evaluation of the capacity of the industrial 
base to produce the desired number of ships and submarines.
    Perhaps the most significant unresolved issue is whether the DOD 
and U.S. Navy leadership will be able to overcome the bureaucratic, 
managerial, contractual, and oversight encumbrances that have 
accumulated since the 1981-89 period. These encumbrances pose the most 
significant risk to the ability of the administration to achieve its 
naval modernization and recapitalization objectives.

    Senator Wicker. Well, thank you very much for that 
interesting testimony, and let me just make a comment or two, 
and then we're going to do 5-minute rounds.
    Secretary Pyatt, you said that you needed a little help 
back in the day. Well, that's why we're here as a subcommittee, 
and we're unanimous on the SHIPS Act in putting this 
requirement as U.S. policy. We're here to provide help to 
industry, we're here to provide help to the administration and 
to the military in actually getting this done.
    Thank you, Secretary Lehman, for emphasizing 
bipartisanship. Yes, that's a distinguished list of names you 
mentioned--Scoop Jackson, John Tower, John Warner, John 
Stennis. We could only aspire in this year, 2017 and going 
forward, to stand on the shoulders of those leaders. So, thank 
you for mentioning that.
    I would stress to you that this SHIPS Act is a bipartisan 
bill unanimously endorsed by every member of the Seapower 
Subcommittee. This morning we had a hearing, as a matter of 
fact. This has been our day to have hearings. This is my third 
Armed Services hearing, and there are not that many hours in 
the day. We did break for lunch at one point.
    But Senator Ernst brought up a point, and that was enlarged 
on by Senator Heinrich, and I followed him by agreeing with him 
about the seriousness of what the Russians are up to. They will 
do what they can get away with, and they target our threshold 
of tolerance and try to get just below what they think we'll 
tolerate or what the end of our patience is, and they try to 
stay there. I was so gratified to hear that Senator Blumenthal 
picked right up on that.
    So really, at the subcommittee level, and at the full 
committee level, there is a great degree of bipartisanship. 
Yes, we were delighted to hear John Warner today come and 
introduce some distinguished nominees, so I would emphasize 
    Secretary Lehman, I've mentioned the SHIPS Act. It's part 
of both bills, House and Senate, and in my opinion it is a 
critical statement for laying the foundation for what we need 
to do over the next few years. Do you believe this action is 
necessary, Dr. Lehman?
    Dr. Lehman. Yes, I do believe it's necessary. I believe 
it's essential. I do believe it's quite necessary. It gives the 
yardstick for this subcommittee, which we always in the Navy 
Department have viewed as our Board of Directors. We report to 
you, and certainly for the use of the troops and the ships that 
we build and train, the President is the Commander in Chief, 
but you are the Board of Directors. So we take the relationship 
very seriously.
    We also--I would hope that you would keep in mind the CEO 
of the Navy Department, the Secretary of the Navy, when he is 
confirmed by the Senate, and the CNO [Chief of Naval 
Operations] and Commandant who have been, thanks to this 
committee and the tremendous innovative reforms that have been 
put in place in the last two NDAAs [National Defense 
Authorization Acts] and the current one that you are working 
on, have really given back to the management team the 
responsibility, the authority, and the accountability. They 
know that you are going to hold them accountable and that cost 
overruns are not somebody else's problem. Even though I had to 
deal, we all had to deal with a much smaller bureaucracy in the 
Department of Defense, and it has grown to a bloated extent, 
nevertheless you have to protect the authority that you are 
going to hold these people accountable to execute, because now 
with 40 different joint requirement committees in this vast 
bureaucracy, there are constant pressures on execution.
    This office wants this change, this one wants two or three 
more knots on the LCS [Litoral Combat Ship], the other joint 
requirements committee wants greater length, more missiles, et 
cetera. It is essential that you do hold the Secretary and the 
CNO and the Commandant responsible for this execution. If there 
is a 20 percent cost overrun that they come in and ask you for, 
you should be asking them, ``Why the hell should we give you 
that extra money'' Hold them accountable the way a private-
sector CEO is held accountable, and that means you have to 
protect them from the intrusions of all azimuths against their 
ability to run the Navy Department.
    Senator Wicker. Thank you.
    Dr. Lehman, you mentioned our vital interests, and you also 
mentioned that you came up with a strategy and suggested that 
there have been decades where we didn't really have a strategy. 
When I think of our vital interests today, I think of Russia, I 
think of Iran, I think of the Asia Pacific and China's 
invigorated objective to dominate that area, and I think of 
North Korea. Am I missing anything in terms of our vital 
    Dr. Lehman. There are other areas that also have to be 
worried about as well. But the point that you make is a good 
one because, in fact, what President Reagan found, and all of 
his senior subordinates, that he reaped 90 percent of the 
benefits of his rebuilding program and his forward strategy in 
the first year, because as soon as it became clear that this 
was not just a passing fancy, that Congress was passing the 
bills, that the ships were being contracted, that reactivations 
were coming into the fleet, that readiness was going up, that 
shadow of power reinvigorated American democracy and gave great 
pause, which we now know because we have a lot of the 
intelligence from that era. Don't think you have to wait 10 
years to get the benefit of building a 355-ship Navy. I 
guarantee you that 90 percent of it will adhere to the U.S. 
Government and to our national security by the first year after 
it has committed to it and funded it.
    So that is an important consideration, because the strategy 
we had was very simple. It was a bipolar world, and the Soviet 
Union kept a discipline on the Warsaw Pact and potential 
troublemakers like Iraq and North Korea, and today it's a 
multi-polar world with lots of troublemakers, each requiring 
deterrence. We have to deter the North Koreans from proceeding 
with the course they're on, and we have to deter the Russians. 
We don't have to worry about the Russians becoming the Soviet 
Union again. That will never happen. The fleet that they're 
building today is a formidable fleet, but it's tiny compared to 
what it was, and they do not have the economy. As your 
committee Chairman, John McCain, has often said, Russia is a 
gas station with a real economy the size of Denmark's. So we 
can't paint them as this vast potential threat.
    Senator Wicker. There go the Danes.
    Dr. Lehman. But the fact is the Russians----
    Senator Wicker. We love our Danish friends.
    Dr. Lehman. The northern flag of NATO would be lost without 
Denmark. They're reliable, they modernized, and they're 
    But my point is that Russia is using a much smaller economy 
than they had in the Soviet Union, so they focused it. They had 
at the end of the Cold War, they had over 1,000 ships, the 
Soviet Union, and they were building a 100,000-ton aircraft 
carrier. Today they can't even keep one aircraft carrier, which 
doesn't even have catapults. But they have spent their money 
wisely from their point of view, and that is in submarine 
warfare. They learned their lessons, what we could do to them, 
which brought about the end of the Cold War, and so they are 
building submarines that are formidable threats. It's a focused 
threat. To deter that, we need more capability.
    The threat that we face, for instance, in the South China 
Sea is a very different one. We're not going to go to war over 
the South China Sea at this point, but we want to be able to 
deter the Chinese from using their increasing naval power, 
which is directed at our naval power, to close down vital 
shipping lanes.
    So every one of the vital interests we have is different, 
but you don't have to have a different Navy to deal with each 
of these different threats. You have to have a Navy that's big 
enough to deploy and deal with flexibility and agility with 
each of these different kinds of geographic and military 
threats, and that 355-ship Navy is derived from that analysis. 
So toying with that number and saying, well, if we just build 
more capable ships we don't have to build nearly as many, 
that's baloney. The world is a big place, and if you don't have 
the presence, you're not going to deter. So I think your path 
is clear.
    Senator Wicker. Thank you.
    We'll move on now to Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman.
    Dr. Lehman, you chatted a little bit about the importance 
of accountability so that ships can be delivered on time and on 
budget, but accountability is often quite elusive for this 
committee, and the SAS [Senate Armed Services] Committee, to 
hold the appropriate people accountable, which is one of the 
reasons that Chairman McCain, as far as I can see, has spent so 
much time and focus on acquisition reform, so that we can build 
in better accountability.
    Having said that, it would appear that one of the major 
differences between the early 1980s' buildup and the situation 
we face now is that the President back then could propose any 
top line for the Defense Department that he wanted without 
regard to the deficit, and that was true until the passage of 
the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit 
Control Act of 1985.
    For example, in 1983, when the administration added two 
aircraft carriers to the Navy budget, the administration 
increased the Navy top line unilaterally to account for that 
with no offset anywhere in DOD [Department of Defense] or to 
other domestic programs.
    Is it safe to infer or to say that each of you would 
support eliminating the budget caps in the Budget Control Act 
in order for the administration to ask for ships and other 
defense programs it believes are needed?
    Dr. Lehman. I can answer for myself.
    Senator Hirono. We'll start with you, Dr. Lehman.
    Dr. Lehman. Yes, those caps have to be increased.
    Mr. Pyatt. I'll add one yes to that.
    Mr. Schneider. I'll also agree that the caps should be 
eliminated. The problem is economic growth and not caps.
    Senator Hirono. Can you explain a little more? What do you 
mean the problem is economic growth?
    Mr. Schneider. One of the enablers for President Reagan's 
decision to increase naval expenditure in fiscal year 1983 was 
the performance of the economy. The turn-around was remarkable. 
The tax cuts had a very profound effect on economic activity, 
which in turn generated tax revenues which enabled the 
President to have confidence that our economy was able to 
produce the resources necessary to sustain the modernization 
that had been proposed when he became president.
    Senator Hirono. Thank you for that explanation. So not 
only--I think there are a lot of economists who are saying that 
our economy is slowing and there are indications along those 
lines, and at the same time we have the sequester to deal with.
    The Navy has raised concerns about how quickly we should 
ramp up production, and in a recent report to Congress on the 
possibility of producing additional attack submarines during 
the 2017 to 2030 period the Navy said, and I'm quoting, 
``Producing seven additional VCS (Virginia Class Submarines), 
during the fiscal year 2017 to 2030 timeframe, will be a 
challenge to the submarine industrial base that can be solved 
only if the shipyards are given sufficient time to address 
facility plans, develop their workforces, and expand the vendor 
base''. The seven extra boats mentioned in the Navy report 
amounts to the equivalent of one half of a boat per year.
    Secretary Pyatt, do you believe that we could add 10 ships 
to the fiscal year 2018 budget without overwhelming the 
industrial base?
    Mr. Pyatt. Yes. Yes, you can add 10 ships. I don't know 
where the Navy got those numbers. They must have been 
controlled by the budget office. But that industrial base in 
submarines is flexible, it's knowledgeable, and with the two 
building facilities they were kept there, and they could easily 
build three ships a year before. I think we got up to five one 
year, along with Trident being built. So I don't know why the 
Navy said that, but I certainly do not agree with it.
    Dr. Lehman. What we found when we ramped up in both 
destroyers and cruisers and the submarines, that the 
mobilization base adapted rapidly. In my judgment, what we 
should do is forward fund and fully fund a multi-year for the 
subs at three a year and compete them. That's what we did with 
the 688s, with General Dynamics competing against Newport News 
every year for the production. Low bid, which was a real low 
bid because they were firm fixed price, because they were 
mature designs, low bid got two, high bid got one. But if they 
went above a certain percentage, as GD [General Dynamics] did 
once, and they bid to get rich on the one, we took it away from 
them and gave it to Newport News.
    So it's easy to control if you have the benefit--and this 
was why it was such a wise thing to keep both sub manufacturers 
in business, because they could, each of them could build the 
Virginia class, and it makes a lot of sense to make them 
compete for that, and I don't mean a beauty contest for the 
next 10 years. I mean competing every year for the two versus 
the one, and you can do the same thing with the new destroyers. 
You can get the benefits of multi-yearing if you keep 
competition in those five years of multi-yearing. That's the 
way to do it.
    Senator Hirono. I have to say that I am astounded that the 
Navy, upon whose assessments we rely in making decisions as to 
whether or not our industrial base has adequate resources, 
manpower, et cetera, to move us faster toward a 355-ship goal, 
and here you are saying that, from what I gather, not a 
problem. There's such a disparity there between your position 
as articulated today and what the Navy itself is saying that I 
think, Mr. Chairman, I personally would need a much better 
understanding of what really realistically we can move towards.
    Thank you for that very different opinion. Did you want to 
add something?
    I am running out of time. But, Mr. Chairman, if you don't 
    Mr. Pyatt. I'd like to add not a problem, it's a little too 
easy. It's a problem, but it doesn't stop anything. They can 
build up. They have the facilities. They'll need to train some 
manpower. But any number you have below five a year is 
    Senator Hirono. Thank you.
    Thank you, Mr. Chairman.
    Senator Wicker. Thank you.
    Senator Strange?
    Senator Strange. Thank you very much, Mr. Chairman.
    It's great to have you here today. I appreciate your 
service to our nation and the work you did to achieve an almost 
600-ship Navy during your time. More than anyone else, I 
believe, you gentlemen understand that our industrial base is 
not a spigot you turn on and off but something that needs to be 
maintained and nurtured and thought about strategically.
    I have a couple of questions related to that, Secretary 
Lehman, maybe for you, but I would be interested in any views 
here. Do you agree that we should build ships at a rate most 
efficient to the taxpayer, the industrial base, the war 
fighters, or do you think we should merely keep a program on 
life support of procuring ships at a higher cost per ship, 
ignoring the Navy's stated need for the 52 small surface 
combatants on its way to a 355-ship fleet? I think you can 
probably tell from my question the concern that we stop and 
start and we don't keep the hot lines going to achieve our 
    Dr. Lehman. No, that's true. But again, it's not a black 
and white issue. The most important thing in the industrial 
base is the facilities that can deal with shipbuilding. The 
other is the human resources, the men and women that do the 
welding and the ship-fitting and all of the other skills 
required. That is why you have to look at a balanced program 
and why many of us have been advocating reactivating ships, 
because there are a lot of ships that during the last 20 years 
have been retired very early, some of them with less than half 
of their service life. So the hulls and the HM&E and the 
propulsion systems are good. The weapon systems and sensors 
have to be upgraded, but this is the kind of work that can be 
dispersed, and quickly, out to the industrial base that are not 
building ships now. It doesn't just go to the primes that have 
the huge graving docks and so forth. It can be done rapidly and 
can be done very cost efficiently, and maintain the 
mobilization base.
    The FIG-7s, I think there are eight or nine of those that 
clearly have that possibility. You've got the first flights of 
the Aegis cruisers that were retired at 14, 15 years of a 30-
year life. They're sitting there in the Philadelphia Navy Yard. 
You have Reefers that were retired early as the fleet shrank. 
They're available for reactivation. That's the kind of work 
that can be bid out competitively and spread and maintained, 
the skill base and workers and facilities.
    Senator Strange. Well, we have a magnificent shipyard that 
I'm familiar with, Austal, in my home state of Alabama, in 
    Mr. Schneider. Yes.
    Senator Strange. They do an excellent job consistently, and 
it's part of my background way before politics, workforce 
development. I'm really proud of that group.
    Let me quickly ask you a question, and maybe it's for you, 
Mr. Secretary, because I understand you have a little bit of 
helicopter background in your past, as well as all the other 
accomplishments. But as we progress towards this 355-ship Navy, 
we also have to look at the procurement of helicopters, the 
Seahawks and so forth, to meet the needs of the sea presence.
    So I wonder if you and perhaps others could share briefly 
your experience in dealing with that issue as you built up the 
Navy capabilities during your service.
    Dr. Lehman. Yes. We always pursued a high/low mix in helo's 
because we never felt comfortable being reduced to one 
supplier, because no matter how much goodwill they may have, 
and patriotism, the effects of monopoly are inevitable, and 
we've seen that.
    We had the Sea Hawk-2 . We put that back in production for 
the frigates. Then, of course, we had the Sea Hawk-60, which is 
a great airplane. That's got to be a major part of it.
    But the same rules apply for airplanes as for ships. 
They're constant. In my civilian capacity I built the Hawaii 
Super Ferry, of great fame, right next to the first aluminum 
ship built by Austal down in Mobile, and Austal is a great 
shipyard. They have a very, very quality force. But because of 
the bureaucracy, the Navy averaged 75 change orders a week in 
that first ship because the design had not been finalized when 
the contract was let, and right next to it, same size ship, two 
hulls instead of three, we built the first Hawaii Super Ferry, 
an 800-passenger ferry, with two change orders for two ships, 
the whole life of it. Once you sign a contract in the 
commercial world you can't say, ``Oh, we've got another 75 
changes we'd like to make.
    So the discipline has to be there, and it's even worse and 
more opportunity for change----
    Senator Wicker. Where does this have to be? Where does that 
discipline have to originate?
    Dr. Lehman. It's got to originate and be held accountable 
with the Secretary of the Navy, the CNO, and the Commandant. 
The trouble today is there are 22 offices in the Office of the 
Secretary of Defense, assistant secretaries, under secretaries, 
deputy under secretaries, all who have access to his autopen. 
So there are change orders coming in from the combatant 
commands, from all the different joint requirements committees, 
and there's only one way to stop that, and that is to put the 
chief executive in charge. If he approves a change order, he's 
got to worry about where the money is going to come from. He 
can't just say, oh, well, we'll cost-plus it later.
    So I think that having absorbed the hearing and what you 
put the current nominee for the Secretary of the Navy through, 
rightly, you've got the kind of chief executive that is needed 
to carry this program out. So I think you have to hold him to 
it, because who else are you going to? You know, the F-35 went 
through 17 project managers. Which one are you going to fire? 
For what? The same with the carrier.
    There should be one person where the buck stops, and that's 
got to be the service secretary.
    Senator Wicker. Thank you.
    Senator Shaheen?
    Senator Shaheen. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here.
    I would argue, Dr. Lehman, that the problem is not our 
industrial capacity. It's our commitment. This Congress could, 
today or tomorrow, this week, get rid of the sequestration 
caps, except there's no commitment to do that. There's no 
incentive. There's no outcry from the public that we should do 
this. There is not the same perceived threat from nation-states 
that we had at the time of the Cold War, and that has been 
challenging the threat that my constituents perceive is from 
ISIS [Islamic State of Iraq and Syria], from terrorist attacks. 
They're not worried about China and the fact that they're going 
to have a 350-ship Navy by 2020 and the second biggest economy. 
They're not worried about Russia and the fact that they're 
buzzing our ships in the Black Sea and the Baltic.
    So I think the question is where is the commitment to 
address this challenge, and I don't think we've seen it yet. 
Maybe if people, if the country feels threatened, we will then 
decide this is something that we're going to achieve, but I 
don't think we've got it yet. We can all talk about Senator 
Wicker's legislation, which I signed on to. I think everybody 
on this committee signed on to it. This is a goal we want to 
accomplish. But the fundamental commitment to say we're going 
to do this because we are a nation that's threatened is not 
there, and until it gets there, we're not going to do it.
    So I appreciate what everyone is saying, and I think you're 
talking about things that we ought to try and incorporate. But 
I think fundamentally, that's the problem. So, I don't know 
what your view is.
    Dr. Lehman. Well, I agree with you, Senator, on the 
industrial base. We have plenty of industrial base. That's not 
the primary worry. The commitment is the worry. But that is the 
role of this subcommittee. Historically, the Chairman talked 
about the 30-year cycles, and he's absolutely correct. But in 
the years leading up to those cycles, it was the subcommittees, 
the Seapower Subcommittee and, I guess up until the ?60s, the 
Naval Affairs Subcommittee, that even though they didn't have 
the commitment from the political base, there were other things 
that were taking priority. If it weren't for what Congress and 
the two Seapower Subcommittees did in 1936, we would have lost 
the war in the Pacific, because even though ``America First'' 
was ruling the political base, there wasn't a constituency for 
mobilizing. Nevertheless, the committees that were responsible 
understood the absolute need for the threat that was coming. So 
they undertook the 1936 and the 1938 shipbuilding programs in 
which every major capital ship that fought in World War II was 
the funding, at least the design was done.
    I've seen the same thing in my tenure on a bipartisan 
basis. It was when there was no constituency, after Vietnam, to 
rebuild the Navy. Far-seeing people like Harold Brown in both 
Republican and Democratic administrations saw that the funding 
was protected for the innovation, the new technologies that 
were necessary. So, in a sense, we reaped the benefit of that. 
When Reagan came in and said we've got to do it, here's the 
funding, the programmatics were there because they'd been done 
by the committees, working with the people who understood it in 
the executive branch.
    So that is what you've got to do now. This committee, this 
subcommittee, has to lead.
    Senator Shaheen. Well, I certainly agree that there's no 
strategy and that we need to develop one.
    Let me ask, to follow up on Senator Hirono's question about 
the capacity of the industry to do the shipbuilding, one of the 
things we have heard from them is that they have the capacity, 
but the suppliers often can't meet their needs. Do you have any 
thoughts, any of you have any thoughts about what we can do?
    My guess is that that has a lot to do with certainty, with 
the belief that if they have a contract for so many ships and 
they're certain that those are going to get funded, that then 
the suppliers will come up with what they need to meet 
industry's need to get those ships done. But right now that's 
an issue, and I think it's because of the uncertainty.
    Dr. Lehman. I'd like to hear from my colleagues here, but 
since I left the Navy, I went into the private equity business 
and acquiring aerospace and Marine contractors, suppliers, 
second-tier and third-tier subcontractors. We have owned about 
100 of them in the 25 years that I've been in this business. I 
can guarantee you, if we had the opportunity to bid on a double 
production, we would have been able to, in virtually every 
company that I was involved with. I think that's a red herring. 
I think that the supplier base will respond. That's the magic 
of our industrial base and our free enterprise system. So I 
don't buy the argument that they're holding everything back.
    Senator Shaheen. But you're saying if the contracts are 
    Dr. Lehman. Yes, if the contracts are there, sure. I mean, 
they're not going to tool up and start hiring programmers and 
so forth if there's no budgetary projection past the next six 
    Senator Shaheen. So one of the challenges is the 
uncertainty around the budgeting process.
    Dr. Lehman. Absolutely.
    Mr. Pyatt. May I add a couple of words?
    Senator Wicker. Yes, sir.
    Mr. Pyatt. The commitment from the Congress comes first, 
and these are the things that John just described. But the 
budgets show that's reality. The contracting process takes some 
time for the prime. They will go to their suppliers and they 
say, hey, we're bidding this, it's going to happen. The 
competitive enterprise will work, and I'd rely on it. We did, 
and it worked.
    Thank you.
    Mr. Schneider. Senator, if I just may add a footnote to 
this, one of the things that's worth keeping in mind since the 
1980s has been the military applications of information 
technology. While we've mostly been discussing shipbuilding, in 
most combatant platforms more than half the value is in things 
other than the structure.
    The industry here is much more accessible in terms of being 
able to get product out that's very competitive. I think we can 
do very well with this. I've had the privilege for a number of 
years of serving on the Defense Science Board, including eight 
years as chairman, and the technology is remarkable that can 
respond much more rapidly than was the case in the 1980s.
    So I think with the leadership of this committee and 
reinforced by the executive branch, I think these problems can 
be readily overcome.
    Senator Wicker. Senator Tillis?
    Senator Tillis. Thank you, Mr. Chair.
    Gentlemen, thank you for your service and for being here 
    Mr. Pyatt, I do agree with you. You said something I think 
is important. As we're trying to crack this nut and figure out 
how to actually get the capabilities we need, I think the 
icebreaker is a classic example of something that you don't 
need to put $100 saddle on a $10 horse. You go find a good 
shipbuilder, probably in Finland, you figure out an economic 
way to create that capability. I'm the one that always harps 
on--you mentioned the 600-page RFP [Request for Proposal] for 
the next-generation handguns. Actually, 680 pages in 10 years.
    Mr. Pyatt. I got it from you, sir.
    Senator Tillis. So I think it makes more sense to come up 
with a competitive procurement strategy to deploy that 
capability and get that out of the DOD and get it into the high 
C's. That sort of thinking is necessary.
    I wanted to talk more about something, Dr. Lehman, you 
brought up, and it probably is something that all three of you 
could give me some feedback on. But to me, getting to 355 
ships, I'm less obsessed with clicking off and high-fiving when 
we get to 355 than I am getting to the capability, the ability 
to project power and the gross capability that, say, 355 ships 
would give us.
    So a discussion, Mr. Chair, I don't know if we've had it or 
if it's the subject of possibly a future subcommittee hearing, 
but one of the discussions would be to what extent, through 
reactivation, can you start building some of those capabilities 
that buy you time. Admittedly, they may be halfway through 
their lives, and through the up-fit you may be able to extend 
their lives. But they're not going to be 30-year ships. They're 
going to live for some period of time, but that buys us time to 
also move into innovations that you all didn't really have the 
    We've heard a number of folks come before the Senate Armed 
Services Committee and say that unmanned smaller vehicles for 
survivability, particularly if they're not manned vehicles, 
could draw the lower unit rate so that you create more 
quantity, and as Admiral Harris has said more than once before 
the committee, quantity has a quality of its own.
    So if you were instructing us to take the lead on this and 
I think setting that target of 355 and understanding what that 
means in terms of capabilities, lethality, and projection of 
power, what would be the wisest way for us to do it so that we 
don't come up and think we've got the absolute inventory for 
the next 20 years or 30 years that we want to get built at the 
expense of maybe taking a leap technologically over that period 
of time?
    Dr. Lehman. Very, very good question. First, I think all of 
us totally support reactivating the ships that were put away 
early. They've got plenty of life left in them. They're going 
to have to be modernized. They're going to be upgraded. But you 
can do that very rapidly.
    Senator Tillis. They're known quantities.
    Dr. Lehman. They're known quantities.
    Senator Tillis. Most of the up-fits are relatively known 
quantities. We probably ought not be planning on reactivating a 
ship that's got to be filled in two years with a radar that may 
take four years or ten years----
    Dr. Lehman. Exactly.
    Senator Tillis.--to develop.
    Dr. Lehman. That's right.
    Senator Tillis. But known quantities. So that's one tier of 
    Dr. Lehman. Absolutely. Another tier of capability is 
getting control. By getting control of the change orders in the 
design, by ensuring that the design is complete before a 
production contract is let is another way. I always use the 
example of the Polaris program, which involved a new submarine, 
a new missile, a new launch system, a new guidance system, a 
new warhead, a new bus, done literally from the back of an 
envelope to the first deployment of the George Washington in 
four years.
    Today, the average for the ACAT 1 [Acquisition Category] 
and 2 programs is 22.5 years. The reason was somebody, 
somebodies were put in charge, by name--everybody knew who 
Admiral Rickover was--and held accountable, given the budget at 
the beginning, held accountable, and it was delivered ahead of 
time, on budget.
    So that collapses the time that enables you to put those 
systems out there early on. Again, the best is the enemy of the 
good. That's why, for instance, we had 101 frigates, essential 
anti-submarine weapons for the deploying battle groups. Today 
we have none, literally none, none. So we've got to get 
frigates out there. We can do some with eight or ten of the 
FIG-7's. But there are at least two first-class, foreign-
designed frigates which could be built in this country. They 
could be done--the design can be finalized to American 
standards, to put American weapons systems, where applicable, 
on them. It's that kind of creative thinking which, believe me, 
there are plenty of terrifically creative people in our 
bureaucracy. It's not just the political appointees or the 
uniformed people. I mean, here we have a bureaucrat who came up 
with some of the most innovative ideas to really get things 
moving fast in the Reagan Administration.
    But again, we were able to do it because we were protected 
by this committee from all of the requirements of the defense 
acquisition regulations. One of the best and most innovative 
jobs done along this line which you all were part of was in the 
Obama Administration. They had to come up with the IED 
[Improvised Explosive Device] or the bomb-proof personnel 
carriers. The Secretary of Defense--Ash Carter was then the 
Deputy Secretary of Defense for Procurement, and he granted 
waiver after waiver after waiver from all this vast 
bureaucracy, and they were able to get it out to the troops. 
The MRAP [Mine Resistant Ambush Protected] was one example. But 
he did 30 or 40 of them by granting waivers, and that's what 
makes things go for 22.5 years, because if you actually go 
through every hoop in the current existing defense acquisition 
regulations, it takes 5.5 years just to get approval for a 
requirement, just the piece of paper.
    But the Secretary of the Navy, with the Secretary of 
Defense, has the power to waive that bureaucracy sensibly, to 
do what common sense dictates. If you support these people in 
this committee, you can collapse the time. Time is money. So I 
think it's very doable. The 355-ship Navy is doable on an 
affordable basis and a lot sooner than the current system and 
process is projecting.
    Senator Wicker. Dr. Lehman, should we revamp the FAR 
[Federal Acquisition Regulation], repeal the FAR, or just make 
sure that the leadership of the Navy understands that they have 
a robust waiver----
    Dr. Lehman. The latter is the essential thing. You know, 
the Brits have a system, a process of legislative reform every 
ten years, so everything is grandfathered, and that's something 
going forward that you put sunset requirements in all of these 
new bureaucratic expansions. I think in the House there are 
something like 22 new reports that are proposed to be done, 
which means 22 new offices to hire more bureaucrats to slow 
things down.
    Forget about the FAR. The FAR takes up 141 feet of shelf 
space. It's not a book, not even a thick telephone book. It's 
141-feet thick. So trying to reform that is impossible.
    Do what you just said. Make them come and get waivers from 
the things that drive the time and eliminate the discipline and 
the accountability.
    Senator Wicker. Thank you.
    Senator Kaine?
    Senator Kaine. Thank you, Mr. Chairman.
    Thanks to the witnesses.
    To pay you a compliment, it's not often that we--like 
today, we have the nominee for the Navy secretary here in the 
room, and he is here because he wanted to hear your testimony, 
and that's a tribute to him as well. I think it's a tribute to 
a good leader to come and listen to the expertise of others. 
So, as you've been saying what we need to hold this person 
accountable for, I've been looking back there.
    Senator Kaine. That's a tribute to you, and it's a tribute 
to him.
    I will associate myself with Mr. Tillis, Senator Tillis. I 
really like the commitment to 355 ships, but I am more 
interested in capability than the number. I don't think we 
should be mechanistic about it. One of the things these 
hearings have been good at, including in Mr. Spencer's hearing, 
was trying to say, okay, there's a ship number, but this is 
about an industrial base, it's about the personnel that go on 
the ships, it's about aviation support for the ships, it's 
about the mix of the ships, what's the mix between surface and 
underwater, what's the mix between manned and unmanned. You 
could have a 355-ship Navy that would be exactly wrong, and 
that would be worse than a 300-ship Navy that was better 
    So this is a big question that we're going to be grappling 
with to get to 355. I think the industrial--I am with you. I 
think the industrial base can respond to this, but I think we 
have a lot of challenging strategic decisions to make in tandem 
with our military leadership about what the right mix is.
    I also wanted, Dr. Lehman, to just go after one issue that 
you mentioned. You said during the Reagan-era buildup that you 
guys worked on--and I thought this was fascinating--we got 90 
percent of the gain of the buildup in the first year. I want to 
just unpack that statement.
    I gather that what that means is what we did in the first 
year demonstrated our commitment, and no one doubted our 
commitment, and thus we got a lot of the gain out of it before 
it was even completed because once we were underway, people 
didn't doubt us.
    Dr. Lehman. Right.
    Senator Kaine. Now, you probably did not deal with a 
government shutdown during your tenure, did you?
    Dr. Lehman. No, I didn't, happily.
    Senator Kaine. Were you dealing with CRs [Continuing 
Resolutions], or were you generally dealing with appropriations 
    Dr. Lehman. CRs.
    Senator Kaine. So you were dealing with CRs.
    Dr. Lehman. Oh, yes.
    Senator Kaine. So that was a reality in the 1980s.
    Mr. Schneider. It was shorter then, but they were still 
    Senator Kaine. So to go back to your statement we got 90 
percent of the gain in the first year, we're not going to be 
able to get the gain out of a commitment to 355. I mean, it 
passed unanimously in this committee as an amendment, and then 
it passed unanimously, the mark passed unanimously out of the 
committee, and say it passes unanimously on the Floor, and say 
it's in a conference report that passes unanimously. We're not 
going to get the gain out of that if there's a lot of budgetary 
gamesmanship that leads not only adversaries and allies but 
even our own people to wonder, well, is this just a brochure 
thing or is it really going to happen?
    Dr. Lehman. Your point is well taken.
    Senator Kaine. So the certainty issue, this committee and 
the Armed Services Committee more generally has been a voice 
for certainty, but the broader budgetary and appropriations 
processes had to be absolutely critical to accomplishing the 
goal and communicating the certainty of the momentum going 
    Dr. Lehman. Absolutely, absolutely.
    Senator Kaine. That was bipartisan. This was a time during 
your buildup when this was supported in both parties and nobody 
questioned the commitment of this body in terms of actually 
carrying forward with the president in doing that build-out.
    Dr. Lehman. Right. Then, in those halcyon days, there was a 
very clear distinction between the authorizing and the 
appropriating. There was no legislation in appropriations 
bills, and there was a very close coupling between the Defense 
Appropriations Subcommittee and this committee, and that's got 
to be really strengthened.
    Senator Kaine. I'm a Budget Committee member who wonders 
whether the budget has any more relevance because it seems like 
it's all appropriations, and I'm starting to worry about even 
the authorizers because, for example, we did a mark this year, 
we didn't have a top line, so we just did the mark to the 
number that we wanted. But we don't know how that top line, how 
our mark will be treated when it gets into an appropriations 
    I think part of the answer to really sending that 
commitment is also probably going to be some budget and 
appropriations reform issues, as well as grappling with these 
strategic decisions about how, among the 355, how you allocate 
between the manned/unmanned surface ship, and then what that 
means with personnel and aviation components as well.
    So having committed to this, I'll just be blunt and 
parochial, I was all for 355. I'm from Virginia. I mean, I know 
what this means. I want to do shipbuilding. But as we've gotten 
more and more into the layers of it, what it means for 
aviation, what it means for personnel, what it means for the 
industrial base--and I think Mr. Spencer's testimony was good 
about this when he was before us--this really is a big, big 
strategic question that we're going to have to grapple with, 
and maybe the biggest piece of it is going to be the budgetary 
    So anyway, I appreciate your being here today and offering 
the perspective about how to do it right, and hopefully we 
will. This has been a helpful hearing and we'll learn some 
things from it.
    Thanks, Mr. Chairman.
    Senator Wicker. We are doing our part to the fullest in 
this subcommittee, and we seek to send a strong signal to 
everyone else that's listening, including our colleagues. So, a 
point well taken.
    Senator King is next.
    Senator King. Thank you.
    Mr. Schneider, I particularly want to greet you because you 
and I served on the staff in this outfit at exactly the same 
period, in the early 1970s. But neither one of us is any older, 
which is amazing.
    Mr. Schneider. The land that time forgot.
    Senator King. Mr. Pyatt and Mr. Lehman, I have probably 
been to 20 hearings in the last five years that have involved--
I think probably more than that, 30 hearings that have involved 
procurement, and the same issues keep coming up, and we just 
talked about it in the full committee earlier today, and you've 
mentioned it, because if we're talking about a 355-ship Navy, 
we're talking about procurement. I mean, that's where we're at.
    Fixed requirements, design before you build, finalize 
design before you build--I think, Mr. Lehman, Secretary Lehman, 
you said that. Off the shelf where possible, foreign designs 
where possible, 80 percent solutions that are on time are 
better than 99 percent solutions that are late; and then 
finally, and I think you mentioned this, Secretary Lehman, 
continuity of staff. One of the problems is turnover of project 
managers so nobody can be held accountable.
    Anyway, I want to bring this down to the very particular. 
Mr. Pyatt, in your prepared testimony you talked about the DDG-
51 flight III. We just authorized a 15-ship multi-year starting 
next year on that ship, which has never been built. I have 
concerns about the ability of our shipyards to bid 
realistically on a ship that's never been built and that the 
design isn't complete. Do you share those concerns?
    Mr. Pyatt. Absolutely. I mentioned that that can be a 
recipe for disaster. I think something that could be very 
important that you've done is authorize a multi-year 
procurement to tell everybody this is a serious program and 
you're going to be behind it, but the actual procurement of 
those ships should be on an annual or a bi-annual basis with 
options. Then you can have real competition between the two 
shipbuilders. They're both fine shipbuilders. You can have real 
competition. If you need to make a change someplace along the 
line, you can, and it's inevitable that it happens.
    I worry about the delivery of the radar, which hasn't been 
developed, or is in the development----
    Senator King. That's the heart of the ship.
    Mr. Pyatt. That's right.
    Senator King. There are going to be modifications to the 
ship based upon how the radar is----
    Mr. Pyatt. That's right. It's bound to happen. So I would 
not encourage entering into a multi-year contract for that 
ship. I would encourage this committee and the Congress to say, 
yes, we think that's a good idea, and we'll give you a multi-
year authorization or multi-year support because that helps 
build up the industrial base that you'll need to carry it out. 
So, we agree.
    Senator King. Then I want to associate myself with Senator 
Kaine's comments. It seems to me the real issue is what ships, 
and it's a strategic issue of what do we need, where do we put 
our effort, and we have to try to project ourselves. I've been 
in hearings in the last few days that have talked a lot about 
cyber. That's going to be a huge part of the threat of the 
future, and that has to be a consideration not only in 
shipbuilding but in every other aspect of how we defend our 
    So, Secretary Lehman, brainstorm a bit in a minute and 13 
seconds on what the shape of this new Navy should be in terms 
of mix. Are we talking about more undersea, more surface 
combatants, larger, smaller? Give us some thoughts.
    Dr. Lehman. Sure. There's got to be a high/low mix. That's 
why one of the most urgent needs is for frigates. As I said 
earlier, we had 101 frigates in the 600-ship Navy. They were 
built and they were deployed. We have none now.
    Senator King. Is there some strategic reason for that, for 
the demise of the frigate?
    Dr. Lehman. The threat was perceived. If you recall, 30 
years ago it was the end of history. There was no threat 
anywhere and we were the only superpower. As happens in 
democracies, cuts went way too deep. Now we have to rebuild in 
the most sensible way.
    Frigates are essential because the real threat is 
submarines. There are almost twice as many capable, quiet, 
diesel electric submarines in the world today as there were 
back in our day.
    Senator King. The Soviets are--the Russians. Sorry.
    Dr. Lehman. Exactly. The Russians----
    Senator King. We're showing our age.
    Dr. Lehman. The Russians have concentrated. They're not a 
global threat the way the Soviet Union was. They're small, and 
their one carrier is worthless. They may be able to build one 
smaller effective carrier, but they're not a global power. What 
they have concentrated their spending on is the ability to sink 
our ships and the ability to use their submarines to make sure 
it's got the best possible quieting technology to protect 
    Senator King. So counter-submarines are important.
    Dr. Lehman. Counter-submarines, absolutely. So we have to 
be able to be better at submarines, and I think we can. We are. 
We're staying ahead of it. But we also have to have, first of 
all--the Navy ought to change its nomenclature from calling 
these strike groups, because a full battle group deployed with 
25 or 28 ships in the Cold War, because you had to cover all 
azimuths from very substantial multiple threats. Today, a 
carrier deploys with maybe five or six ships. If you're going 
against the kind of threats that are already in existence and 
are being built by the Russians, by the Iranians, by the North 
Koreans, by the Chinese, you've got to go from five back to 20 
because you've got to cover in-depth the defense. You've got to 
have lots of tails and lots of active sonar. You need platforms 
for the ASW [Anti Submarine Warfare] helo's to live on.
    So I agree with you. The mix of what you're building is 
just as important as the number. But the number 355 came from 
very solid analysis. When you have to have this mix of high/low 
and defensive capability, you've also got to be there. The 
whole idea of the Navy is to deter the disturbers of the peace, 
not to fight them. Of course, to be able to deter, you have to 
be able to fight them and defeat them.
    Senator King. I characterize our destroyers at Bath 
Ironworks as instruments of peace.
    Dr. Lehman. Yes, they are, in a very real way. When Ronald 
Reagan said it in 1977, when he was asked what he thought about 
the Cold War, he said we win, they lose. How do you like that? 
He meant, and he truly believed at the time, that this could be 
done without violence, without fighting, and by ending the war 
with negotiation, if you built back the strength to deter, to 
show the Soviets that here we were cruising along with a 
growing economy with one hand tied behind our back and running 
them into the ground financially, and we topped their huge 
buildup that they had sacrificed so much to build. We were 
going ahead with Star Wars, and we were going ahead--the Navy 
was up in their backyard and front yard and showing that we 
were going to kick their ass. They finally realized that, and 
they didn't have the money to keep up with us.
    So that's what we've got to do again. We've got a different 
kind of threat, but we have to show the disturbers of the peace 
that if they think they can continue in the adventurism that 
they're doing now, that they can prevail against us and use 
that political leverage to invade other countries or to close 
off sea lanes or whatever, that they are going to lose that. 
That requires numbers, a coherent number that we should stick 
with because it was logically derived, and not stinting on the 
quality of what is done, and carrying out with the discipline 
of fixed price. The best is the enemy of the good. Make sure 
we've got the capability to prevail, but no more home plating. 
Do it by block upgrades every four years, or whatever. It can 
be done.
    Senator King. Thank you, Mr. Chairman.
    Senator Wicker. Thank you, Senator King.
    We've been a little informal here in this hearing, so 
before I recognize my friend, Mr. Blumenthal, let me just 
remind committee members, subcommittee members that in 
testimony about this subject over the last number of weeks, the 
testimony has been that the requirement comes from the experts 
in the form of a mix. They have informed the Navy about what 
mix is needed in the various areas around the globe, and that's 
the way that we arrived at the 355.
    For example, in the mix, it's fast attack submarines, 66; 
destroyers, cruisers, 104; carriers, 12. So the 355 ship 
requirement is derived from the mix. Now, we may need to 
revisit that and we may need to talk about a number of the 
alternatives that have come from the testimony today such as 
reactivation, but it's not just a number that was grabbed out 
there. It was a number that was boiled down from the absolute 
requirement we need to make this country safe.
    Senator Blumenthal, you are recognized for at least 5 
    Senator Blumenthal. Thanks, Mr. Chairman.
    Senator Wicker. A minimum of 5 minutes.
    Senator Blumenthal. You are very, very gracious, as always.
    First of all, I want to thank you for reminding us of that 
famous quote from John McCain that Russia's economy is a gas 
station, or Russia is a gas station with an economy the size of 
Denmark. I've heard that it has an economy the size of Mexico, 
but Denmark is even a better----
    Senator Wicker. We're now hoping the Danes can go help the 
Finns build those icebreakers, I think.
    Senator Blumenthal. I want to mention a word that I 
understand has not been raised here today, and that word is 
``cyber.'' Going to your comment, the Russians, for example in 
the undersea domain, cannot hope to match us. Their goal is to 
sink our ships. They can't match us in the capability of the 
Virginia class attack submarines, but they can render at least 
some of our fleet useless, maybe not sink them through cyber 
but lead to sinking them by, in essence, making them 
inoperative in key respects in defending themselves.
    So my question to you is, assuming that Russia's strategy 
is, in effect, to use cyber, they don't need huge investments, 
obviously, for cyber capabilities. They've used cyber against 
our democratic institutions. They have been audacious, to say 
the least, in attacking this country in the cyber sphere in the 
last election. They used it against our allies in Europe in a 
very direct way. They used it in Ukraine to disable their 
defense forces. They are obviously developing that as a 
    Does that change your view of what the United States should 
be doing either on the 355-ship Navy or on the mix of what it 
should be? I'll just throw out what a lot of laymen should 
say--you know, we've invested in the USS Ford; now, because of 
the $2 billion cost overrun, maybe larger, $12 or $13 billion 
in that one carrier, which conceivably could be rendered a 
sitting duck out there by cyber. Does that change your view of 
how we ought to be investing our resources?
    Dr. Lehman. Well, it certainly assumes that we have the 
same philosophy in cyber, which you can make a very strong case 
is the greatest threat we face. But you have to assume that 
offense is the best defense. In other words, making clear to 
our adversaries that we can do worse to them than they can do 
to us, as well as defending and building into our technology 
weapon systems being able to degrade gracefully, which used to 
be a very important term in the military.
    I mean, I flew the A-6 in the olden days, and we had 
inertial navigation. If that failed, we had Doppler navigation. 
If that failed, we had electronic navigation not dependent on 
satellites, and ultimately we had dead reckoning. So you had 
the highest technology available. But if you lost that or it 
was jammed or whatever, you degraded gracefully. We've got to 
have the same thing.
    If we find that they are able to get into our CQ, our 
networked capability, that we don't just go dark and 
ineffective. We have a better technology base in this country 
and in the Atlantic Alliance than any other area of the world. 
So we've got to mobilize that. We've got to build more 
partnerships, which I know this committee has been very strong 
in advocating with Silicon Valley and the other technology 
centers, so that there's more interaction, more ability.
    I was on the 9/11 Commission. We urged the intelligence 
communities to have more horizontal hiring and fellowships and 
internships and so forth with the top technological centers to 
keep that fertilization, because the danger of a bureaucracy 
that's over 900,000 civilians in the Department of Defense, 
you're constantly fighting against inertia and just entropy.
    So that has to be worked just as hard as every other part 
of the technological equation. But you can't say because we 
have some vulnerabilities, particularly in aircraft carriers 
and other systems, that therefore we don't build them or we 
build fewer of them. We've got to do it all because we are too 
small today. The fleet is being run into a shambles with less 
than, as everybody knows, less than half of the tactical 
fighters able to fly, with ships being run way past their 
maintenance schedules and so forth.
    You've got to do it all, and it can be done because it's 
self-reinforcing. The costs become more containable if you have 
more ability to get the work out there and to compete and to 
get the cost reductions. But you are absolutely right to put 
cyber at the very top of the priority.
    Senator Blumenthal. Thank you for that excellent answer.
    I have another question related to submarines, and I 
understand Senator Hirono asked a couple of questions about the 
Navy's report on our defense industrial base. But the idea--I 
think you said that at some point we were producing five 
submarines a year?
    Dr. Lehman. Yes, 688s.
    Senator Blumenthal. That is staggering. I mean, they were 
different submarines, but----
    Dr. Lehman. You know, people have forgotten the benefits of 
fixed price when you've got a solid design and it's complete 
and won't be changed. The ability--the amount of money you can 
save by competing every year, that's what we did. When we had 
five, the low-cost bidder got three and the high-cost bidder 
got two. When you have three, you do two and one. You can do 
that. You can really provide a challenge to the contractors if 
you aren't going to change the design in the middle of the 
contract, and they know that, so they can sharpen their 
pencils. They sign a contract that is not going to bring a 
loss, but then they start innovating and finding ways to cut 
costs and get better prices from their suppliers because on a 
firm fixed-price contract they can make a 40 percent margin if 
they do it the right way. So we've got to get back to that, and 
numbers count.
    Senator Blumenthal. Well, I represent the state that is 
home to Electric Boat. We're very proud of Electric Boat's 
capacity to build two, and soon it will be three with the 
Columbia class, submarines a year. But the Navy correctly 
identifies, and we've seen it up close on the ground, the 
difficulty of recruiting, retaining, and most importantly, 
training that defense industrial base, and it's not just at EB 
[electric boost] at the yard, it's also the supply chain which 
is often ignored.
    I am told that the numbers of contractors or the numbers of 
active suppliers was, in the 1980s, around 17,000. There are 
now about 3,000. So we've gone from 17,000 to 3,000 suppliers 
in that defense industrial base. I think that's where, from a 
production standpoint, we need to be investing some of our 
attention and maybe our resources.
    I think you're right, we can do it, but it will take some 
training, effort, skill education and so forth in our 
vocational technical skills, which is a good thing because we 
need those welders and pipefitters and electricians and 
engineers and designers, but it won't happen by magic.
    Dr. Lehman. No, you're absolutely right. It's a challenge.
    Senator Blumenthal. Thank you.
    Dr. Lehman. Thank you.
    Senator Wicker. Thank you, Senator Blumenthal.
    Gentlemen, can you stay another 5 or 10 minutes?
    Dr. Lehman. Sure.
    Senator Wicker. Secretary Lehman, when you did your 
strategy, how did you lay it out? What form did it take?
    Dr. Lehman. It was laid out in a comprehensive document 
that started with my confirmation hearings. Thanks to the way 
this committee operates, I was nominated, had my hearing, was 
reported out and confirmed in two weeks after the inauguration. 
So February 5th, I was on the job.
    The statement that I submitted for my confirmation hearings 
was the same--I didn't think it was so shortened, but it was a 
comprehensive explanation of what we hoped to achieve, what the 
intellectual process was, going to each geographic area and the 
threat, and then we really spent so much time communicating, 
and not just public affairs but, more importantly, 
congressional affairs. We spent so much time up here. As I said 
earlier, throughout my tenure of six-plus years, I spent about 
30 percent of my time up here, sitting down and having 
breakfasts and lunches and explaining----
    Senator Wicker. Who signed on to the strategy, sir?
    Dr. Lehman. A better point to make, because everybody 
signed on to it. The President ensured that that took place 
because we had to have OMB [Office of Management and Budget], 
we had to have the Defense Department, the Secretary of 
Defense, we had to have, in effect, the entire bureaucracy 
understand it. They might not all agree with it, but the fact 
is that we ensured that the Defense Logistics Agency, the 
nuclear agency, all of the 23 independent agencies were all 
brought into the picture to understand what the tradeoffs would 
be, how it would be executed, that discipline is required, and 
what we believed the result would be.
    So everybody has to be part of it. There has to be 
consensus with the committees, bipartisan committees and 
membership of both houses of Congress, the White House, the 
White House staff, OMB, and the Defense Department itself in 
all its many layers.
    Senator Wicker. Okay. Have you looked at our Navy title? 
Have you been able to read the NDAA Seapower title?
    Dr. Lehman. I haven't.
    Senator Wicker. Well, let me just say this. I hope you will 
agree that in terms of getting to this 355 with the right mix 
and making the requirement the policy of the United States 
Government, we funded five ships over and above the 
administration's budget request, and they include one 
destroyer, one amphib, one submarine, one float forward staging 
base, and one cable ship, in addition to what the 
administration had asked for.
    I hope you gentlemen would agree that in terms of getting 
to our stated policy of 355 as soon as practicable, that we're 
off to a good start in the first year.
    Dr. Lehman. I think it's terrific, and I think also the two 
NDAAs that I have read that preceded this one have laid the 
groundwork to enable it to be accomplished, the headquarters 
reductions, all of the reforms that you've done. You are 
providing the new team the foundation to get this thing done, 
which wasn't there before. So this committee has really broken 
new ground with the last two NDAAs.
    Senator Wicker. Senator Hirono?
    Senator Hirono. I'm fine.
    Senator Wicker. Are there any other questions?
    [No response.]
    Senator Wicker. Gentlemen, thank you very, very much for 
your lifetime of service and for your helpful testimony today.
    This hearing is concluded.
    [Whereupon, at 5:52 p.m., the subcommittee was adjourned.]