[Senate Hearing 118-684]
[From the U.S. Government Publishing Office]
S. Hrg. 118-684
UPDATE OF THE STATE OF THE DEPARTMENT
OF DEFENSE ACQUISITION SYSTEM
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HEARING
BEFORE THE
SUBCOMMITTEE ON READINESS AND
MANAGEMENT SUPPORT
OF THE
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
MARCH 20, 2024
__________
Printed for the use of the Committee on Armed Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
60-823 PDF WASHINGTON : 2025
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COMMITTEE ON ARMED SERVICES
JACK REED, Rhode Island, Chairman
JEANNE SHAHEEN, New Hampshire ROGER F. WICKER, Mississippi
KIRSTEN E. GILLIBRAND, New York DEB FISCHER, Nebraska
RICHARD BLUMENTHAL, Connecticut TOM COTTON, Arkansas
MAZIE K. HIRONO, Hawaii MIKE ROUNDS, South Dakota
TIM KAINE, Virginia JONI ERNST, Iowa
ANGUS S. KING, Jr., Maine DAN SULLIVAN, Alaska
ELIZABETH WARREN, Massachusetts KEVIN CRAMER, North Dakota
GARY C. PETERS, Michigan RICK SCOTT, Florida
JOE MANCHIN III, West Virginia TOMMY TUBERVILLE, Alabama
TAMMY DUCKWORTH, Illinois MARKWAYNE MULLIN, Oklahoma
JACKY ROSEN, Nevada TED BUDD, North Carolina
MARK KELLY, Arizona ERIC SCHMITT, Missouri
Elizabeth L. King, Staff Director
John P. Keast, Minority Staff Director
_________________________________________________________________
Subcommittee on Readiness and Management Support
MAZIE K. HIRONO, Hawaii, Chairman
JEANNE SHAHEEN, New Hampshire DAN SULLIVAN, Alaska
RICHARD BLUMENTHAL, Connecticut DEB FISCHER, Nebraska
TIM KAINE, Virginia KEVIN CRAMER, North Dakota
TAMMY DUCKWORTH, Illinois MARKWAYNE MULLIN, Oklahoma
MARK KELLY, Arizona
(ii)
C O N T E N T S
_________________________________________________________________
march 20, 2024
Page
Update of the State of the Department of Defense Acquisition 1
System.
Member Statements
Statement of Senator Mazie Hirono................................ 1
Statement of Senator Dan Sullivan................................ 3
Witness Statements
Schwartz, Moshe, Senior Fellow for Acquisition Policy at the 5
National Defense Industrial Association.
Levine, The Honorable Peter K., Senior Fellow at the Institute 10
for Defense Analyses.
Greenwalt, William C., Ph.D., Nonresident Senior Fellow at the 23
American Enterprise Institute.
Questions for the Record......................................... 58
(iii)
UPDATE OF THE STATE OF THE DEPARTMENT OF DEFENSE ACQUISITION SYSTEM
----------
WEDNESDAY, MARCH 20, 2024
United States Senate,
Subcommittee on Readiness and
Management Support,
Committee on Armed Services,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m. in room
SR-222, Russell Senate Office Building, Senator Mazie Hirono
(Chair of the Subcommittee) presiding.
Committee Members present: Hirono, Blumenthal, Kaine,
Kelly, and Sullivan.
OPENING STATEMENT OF SENATOR MAZIE HIRONO
Senator Hirono. [Technical issues.]--system. I would say it
is a continuing challenge. Our witnesses today include Mr.
Peter Levine--who I understand used to work for the
Subcommittee so he should know where we are; he will be here
soon--a Senior Fellow at the Institute for Defense Analyses.
Mr. Moshe Schwartz, Senior Fellow for Acquisition Policy at the
National Defense Industrial Association, and Dr. William
Greenwalt, Nonresident Senior Fellow at the American Enterprise
Institute.
As Chair of this Subcommittee one area of focus is ensuring
that our servicemembers get the equipment they need to defend
our Nation. That means delivering weapons systems, supporting
technologies and the necessary services in a timely manner to
ensure our warfighters have the best possible capabilities. It
also means ensuring acquisitions remain on time and on budget--
on budget--to steward our taxpayer dollars.
Since the 2016 National Defense Authorization Act (NDAA),
Congress has enacted nearly 500--repeating, 500--acquisition
provisions to provide flexibility and options to the Department
to tailor acquisition pathways to best fit the types of systems
being acquired. Department of Defense's (DOD's) six acquisition
pathways--urgent capability, middle tier, major capability,
software, defense business systems, and services--these are all
acquisition pathways. Together these pathways comprise the
Adaptive Acquisition Framework.
A recent reform included adding the middle tier of
acquisition pathway, I mentioned that, in the 2016 NDAA to more
rapidly prototype and field major defense weapons systems. This
important change is already bearing fruit in some cases. For
example, the Space Force is currently using middle tier
acquisition to quickly procure and launch low-earth orbit
satellites on time and on budget.
However, the Defense Department's acquisition process still
remains on the Government Accountability Office's (GAO's) High
Risk List, which includes programs and operations that are
vulnerable to fraud, waste, abuse, mismanagement, or in need of
transformation. The GAO recently found that DOD has taken steps
to increase its capacity for addressing risks relating to
weapons systems acquisition, but at the same time it also found
the Department has yet to fully determine key programs'
oversight aspects for the Adaptive Acquisition Framework. Those
are the six pathways I talked about. Moreover, in February
2023, the GAO reported that some DOD components had yet to
establish key processes for the middle tier of acquisition
pathway.
As we can see from these examples, while the Department is
making incremental progress there are still improvements to be
made. This Committee, the Senate Armed Services Committee
(SASC), has also spent years creating tools to help the
Department attract and retain a skilled acquisition workforce.
For example, in 2023, we established the Defense Civilian
Training Corps to create new opportunity for college students
with an interest in vital DOD acquisition-related occupations
to receive scholarships in exchange for a service commitment
once they graduate. Though this program is in a very early
stage, it holds a lot of promise for attracting new talent into
the DOD acquisition workforce.
The acquisition workforce, the men and women of the Defense
Acquisition Corps, is essential to getting the most out of the
acquisition system and ensuring that we provide our
servicemembers with the equipment they need while also being
good steward of taxpayer dollars. We cannot solve our
acquisition problems without an acquisition workforce empowered
to make full use of the authorities Congress has provided the
Department and the judgment to know when to take calculated,
smart risks.
I want to emphasize that part about risk taking because
acquisition is not about just zero risk. It is about getting us
to the point where we are taking calculated smart risks, and
those risk-taking decisions must be supported up the chain of
command so that we can have acquisition practices that actually
do give us the most effective ways of acquiring the assets that
we need.
So in my view, this requires a culture where acquisition
professionals know they have the trust and support of senior
leaders, and we must make sure that we retain the specialized
workforce once they have the skills and certification that make
them so highly sought after by industry as well as government.
So my understanding is what happens is just as our
acquisition workforce is getting the kind of experience they
need to be able to fully utilize all of the acquisition tools
that we provide for them, they are wooed away to the private
sector. So there is a dip in our acquisition workforce, and
that is not what we need to see happen. So I would like our
witnesses to think about how we can retain a skilled
acquisition workforce.
In Hawaii we know firsthand the importance of a skilled
acquisition workforce to the success of our armed forces. For
example, Pearl Harbor Naval Shipyard relies on a skilled STEM
and technician workforce for positions from engineering to
welding but also contracting officers and management
specialists to ensure work is conducted on time and on budget.
This is particularly true right now in the building of Dry Dock
5 in Pearl Harbor, which is the largest military construction
project in the Defense Department, and unfortunately the price
tag for the dry dock recently incurred a large cost overrun,
highlighting the importance of ensuring robust oversight of how
the Department acquires goods and services and takes care of
taxpayer dollars.
I thank the witnesses for your willingness to share your
insights with the Subcommittee, and collectively you all bring
many decades of experience working with and reforming the
Defense Acquisition System. That experience is critical as we
consider ways our Committee can help ensure the Defense
Acquisition System is ultimately servicing its intended
purposes, delivering the capabilities our servicemembers need
in a timely manner. While we often focus on what is broken with
our Defense Acquisition System, I hope you will share with us
your perspectives on what has been working as well as pointing
to the areas where improvements are needed.
Thank you again for your expertise and your willingness to
spend some time with us. I look forward to your testimony, and
I do note that we are going to be in the midst of voting so the
Ranking Member and I will be taking turns, going and voting and
coming back.
Now I would like to recognize Ranking Member Sullivan.
OPENING STATEMENT OF SENATOR DAN SULLIVAN
Senator Sullivan. Thank you, Chair Hirono, and thank you
for calling this hearing. It is an issue where there is strong
bipartisan support to make some bold reforms.
Historian Irving Holley recognized, in 1964, that, quote,
``the procurement process itself is a weapon of war, no less
significant than the guns, airplanes, and rockets turned out by
the arsenal of democracy in the United States.'' Unfortunately
right now this is a weapon that is actually starting to be used
against us, and I think in many ways the purpose of this
hearing is to start to turn that challenge around.
Unfortunately, it was in the 1960s when the historian, Dr.
Holley, mentioned this idea of how important the procurement
process is to our national defense, that the Pentagon started
adopting the bureaucratic rules and regulations that have come
to define our acquisition process today.
It is not surprising that the rapid pace of defense
innovation in World War II and the two decades after World War
II has begun to slow down dramatically. Many of the more recent
technologies had to be forced upon our acquisition process,
such as unmanned systems, night vision, and proliferated
satellites.
While there has been no shortage of acquisition reform, as
the Chair stated, progress remains slow and inadequate.
Officials in the Pentagon have not maximized the use of the
substantial authorities already provided by Congress. For
example, the middle tier of acquisition pathway was intended by
Congress to simplify the process, empower program managers, and
deliver capabilities within 2 to 5 years. By contrast,
traditional programs take, on average, 11 years to reach
initial operational capability. Unfortunately, many legacy
programs are working their way back in and slowing down the
pace.
This seems par for the course with the Pentagon. Back in
the 1990s, Congress created commercial item procedures so that
the Pentagon could access companies that would otherwise not
take on defense business. Since then, more than 165 unnecessary
clauses have been added from the onerous Federal Acquisition
Regulation. The same problem is apparent with other
transactions which were intended to ease the adoption of
cutting-edge technologies.
So today, for this hearing, it is an opportunity for our
witnesses to diagnosis why past efforts have failed and
prescribe solutions to fully use existing authorities. While it
may be a tall order to change the culture of the nearly 200,000
acquisition professionals on how they do their job, we must
focus our efforts on capabilities that can have the greatest
impact within the next few years, including unmanned systems,
munitions, and very importantly, software and software
upgrades.
At the same time, we in Congress have a role to play
ourselves. We are certainly not without fault in these
challenges. In some cases, burdensome approvals, documentation,
and reporting requirements have been added to flexible
authorities, in essence wiping them out. I would appreciate if
our witnesses could identify specific statutes that you believe
constrain the Pentagon or additional authorities that could be
useful.
Moreover, acquisition reform can go on so far without
improving flexibilities in the funding process. Earlier this
morning the full Armed Services Committee held a hearing on the
Commission on Planning, Programming, Budgeting, and Execution
reform. I would be appreciative if our witnesses made
connections between those reforms that were highlighted in the
full hearing today and the acquisition process, especially what
we term the ``valley of death.''
Now, I know many of you are familiar with this. Here is
what is happening. We have this great opportunity right now.
Ten years ago, the vast majority of Silicon Valley and our tech
communities were not interested in working with the Pentagon.
You had the ridiculous situation, in my view, where Google
employees said, ``Hey, we are not going to do any work for the
Pentagon.'' Okay. We are a free country. That is fine. But then
we started realizing they were doing work with the Chinese
Communist Party. That is not acceptable to anybody in this
Senate.
So what we have now is a change of culture in Silicon
Valley, in other tech communities, where they want to work with
the Pentagon, and you have funders who want to fund companies
that can work with the Pentagon. This is a giant comparative
advantage we have over our adversaries like China and Russia,
our innovative tech companies.
But here is the problem. They are privately funded. Their
funding does not last 3 to 4 to 5 years. It might last 6
months, and the Pentagon has been too slow to take up the
opportunity to work with them, telling a high-tech company with
a great product, ``We will put you in our budget in 3 years.''
Well, they are going to be bankrupt in 6 months. That is the
valley of death that is squandering opportunities, and it is a
big focus of mine, and I would like to hear from the witnesses
how we can address that.
So I would like to conclude, Madam Chair, just by saying
all the buzzwords on innovation and dual-use technologies are
not translating into action. Here is the sad fact: it is taking
a longer time for the Pentagon to award contracts while, at the
same time, the number of companies in the defense industrial
base is shrinking. We have to reverse that, and we need big,
bold ideas from all of you whether to change the culture of the
Pentagon or get Congress to get its act together to finally,
finally fix what we all recognize is a huge strategic challenge
that hurts our ability to protect this Nation.
Thank you again to our witnesses and the Chair for this
hearing. I think it is really important. Again, there is
enormous bipartisan support to fix this, witnessed here by
these two Senators. We just need the good, big ideas in which
to do it. Thank you.
Senator Hirono. Thank you, Senator Sullivan, and we will
start with Mr. Schwartz.
STATEMENT OF MOSHE SCHWARTZ, SENIOR FELLOW FOR ACQUISITION
POLICY AT THE NATIONAL DEFENSE INDUSTRIAL ASSOCIATION
Mr. Schwartz. Thank you, Chairman Hirono, Ranking Member
Sullivan, for inviting me to talk today about the Defense
Acquisition System.
Our Defense Acquisition System, as you both mentioned,
takes too long to deliver capability, costs more than it
should, and often fails to adopt the most advanced capabilities
industry has to offer. In addition, our defense industrial
base, as you mentioned, is shrinking. This is a serious
problem.
In this testimony I would like to make five points.
First, workforce is the key to successful acquisitions.
Better acquisition cannot be achieved through multiple audits,
more regulation, or legislative fiat. Rather, giving a few
capable people the authority to do their job, putting them in
positions to succeed, with that holding them accountable, and
minimizing red tape, this is the recipe for better
acquisitions.
But that is not what we do. Instead, we measure them on
compliance and process. In 2021, there was a GAO report that
found that of the six agencies they reviewed, including the
Department of Defense, all relied, and I quote, ``on primarily
on process-oriented metrics when managing their procurement
organizations.'' In other words, compliance and process were
more important than performance. If we empower the workforce
and focus on outcomes, not metrics, we can hold people
accountable.
We should streamline the approval process. There are
statutes that focus on supply chains that are all written just
a little differently, without any policy reason for doing so.
Often the official with the authority to provide waivers is so
senior that the approval process is more time-consuming than it
needs to be. Such convoluted requirements add to bureaucracy,
it increases costs, it delays delivery, and adds confusion as
to who really makes what decisions.
A one program executive officer once said to me when
expressing his frustration over the approval process, ``I was
hired to make decisions. If you don't like my decisions, fire
me, but let me do my job.''
This brings me to the second point. We need to streamline
the acquisition rules and regulations. There are just too many
acquisition rules, and they are too complicated. Done right,
streamlining will increase accountability by clarifying lines
of authority, shorten timelines, and improve outcomes, without
undermining oversight. This is the approach industry takes--
fewer regulations, more consistently applied by an empowered
workforce.
We should encourage using commercial buying processes and
look at dollar thresholds that trigger regulations to ensure
that the cost and delay of imposing requirements do not
outweigh the potential savings these requirements could
generate. We should take a holistic approach to oversight,
ensuring that regulations aimed at solving specific problems do
not have unintended consequences to the overall acquisition
system that causes more harm than good.
This brings me to my third point. DOD needs to modernize
its IT systems and improve how it uses data to make decisions.
Data analytics can improve all aspects of procurement, but
DOD's IT and business systems are hampering its ability to
leverage data.
First, DOD is using outdated systems and plans to spend
more than $275 million over the next 4 years on systems that
the DOD Comptroller's Office stated, quote, ``can and should be
retired,'' and that is only the financial systems.
Second, DOD faces cultural and bureaucratic challenges in
adopting modern IT systems, as exhibited in the stalled effort
to replace the Defense Travel System with a modern and proven
commercial IT solution that is used today by thousands of
companies.
DOD is working to improve its data architecture. Just a few
weeks ago DLA [Defense Logistics Agency] awarded a contract to
adopt commercial supply chain and business capabilities. Such
efforts can dramatically improve acquisitions.
This brings me to my fourth point. Operations and
maintenance (O&M) matter. Sometimes our focus on the
procurement of a weapons system and on driving down early
procurement costs has negative long-term effects. Seventy
percent of the lifecycle cost of systems is operation and
maintenance, yet we are not investing sufficiently in that
area. This trend is hurting readiness. It is cheaper to
maintain systems that we already have than to buy more systems
to make up for readiness gaps that are a result of insufficient
O&M.
Finally my last point. We can be smarter in helping small
businesses. Despite meeting all its small business targets, the
number of small businesses working with DOD has declined over
the last 12 years. The targets and set-asides too often are an
end in themselves rather than a catalyst for expanding small
business participation in the defense industrial base or
identifying capabilities that we need.
DOD and Congress can take other approaches to expand small
business participation. For example, small businesses generally
do not have the resources to build or maintain secure
compartment information facilities (SCIFs), creating a barrier
to entry for small businesses. Allowing businesses to access
underutilized SCIF space or establishing new SCIFs, for example
in excess GSA facilities, could help small and other businesses
increase competition and provide new capabilities to the
Department.
Thank you for the opportunity to testify today, and I look
forward to our conversation.
[The prepared statement of Mr. Schwartz follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Hirono. Thank you very much. Mr. Levine?
STATEMENT OF THE HONORABLE PETER K. LEVINE, SENIOR FELLOW AT
THE INSTITUTE FOR DEFENSE ANALYSES
Mr. Levine. Thank you, Chairman Hirono. Thank you, Ranking
Member Sullivan. Senator Kaine, good to see you again. I would
like to just first thank you not just for inviting me here
today but for the leadership that you are showing on this
issue. This is a tremendously important issue, and it is really
good to see Senators like you committed to making the
acquisition system better.
Rather than repeating my opening statement, what I thought
I would do is to respond to a few of the really good points
that you guys made--Senators, sorry--that you made in your
opening statements. So first, Senator Hirono, you mentioned the
acquisition workforce, and I agree that that is completely key,
and you talked about how we lose some of our best acquisition
people when they are in their prime years.
I would urge you, one area to think about in that regard is
think about military rather than civilian, because the real
brain drain that we have in the acquisition system is on the
military side rather than civilian side, and it is because of
career patterns, where we push people out because of up-or-out
when they are still in their prime. I know this Committee has
thought, in the past, about career tracks that would be
different for some military, but the acquisition field is one
area where we probably need to think about that. We train these
guys up, they are really, really good, and then we push them
out because they are not going to make general officer or flag
officer.
Second, Senator, you mentioned risk, and I agree with you
it is important to take risk. I really appreciate the fact,
Chairman Hirono, that you mentioned smart risk because it is
important as we take risks that we understand where we should
take them and where we should not take them. What I would say
is it is important to fail early. It is important to take risks
early also. So you want to take your risks when you have less
money at stake, less quantities at stake. You do not want to
take big risks when you have a billion-dollar program and
millions of items, and if you fail you are going to be failing
with billions of dollars rather than hundreds of millions or
tens of millions. You want to figure those things out early.
Turning to Senator Sullivan, I really appreciated what you
said about some of the tools that are being underutilized, and
you particularly mentioned there the middle tier acquisition,
and I would agree that I think there are some ways in which
that has been underutilized. But I would urge you to think
about it this way. Not everything can be bought with middle
tier acquisition authority. For example, we are never going to
think about building an aircraft carrier with middle tier
because you cannot build an aircraft carrier in 5 years. I
think we know that. A next-generation bomber is not going to be
built with middle tier because it is not going to be done in 5
years.
What I would urge you to think about is, and to push the
Department on is, what that authority really tells the
Department is think differently about what you are going to
buy, not just how you are going to buy it but what you are
going to buy. Think about things that are closer to being ready
for acquisition, more incremental, and you will be able to buy
them faster and field them faster, field them more
incrementally and continuous, and engage in continuous
improvement.
It is these huge projects where we put all of our eggs in
one basket that is going to take 20 years. It cannot be done
with middle tier, so you have to think about breaking it down
differently and buying different things. It is not just a
matter of using different procedures. It is a matter of are we
going to keep buying the same things in the same way.
Second, you mentioned the PPBE [Planning, Programming,
Budgeting, and Execution] Commission. I sat on that commission,
as well. I would be happy, as we get into the Q&A, to talk to
you about what we found and our conclusions regarding the
valley of death and some things that Congress can do there.
The last thing that I would like to leave you with is, yes,
the acquisition system is overly bureaucratic, it has too many
regulations. I have some suggestions in my written testimony of
some areas where you could take action on it. But to give
credit to the people who are in the Department, I think we need
to remember that what they are trying to do is really, really
hard. It is really hard to build something from scratch, to
design it from the ground up. It is also really hard even to
buy commercial technology. Commercial off-the-shelf should be
easier than it is, where we are buying something that already
exists. But most of the time when we are buying commercial we
are not buying off-the-shelf. We are buying a technology that
will cost as much time and as much money to adapt for military
use as it took to develop in the first place.
If you look at the Army's experience with battlefield
radios and communications with JTRS [Joint Tactical Radio
System] and WIN-T [Warfighter Information Network-Tactical] you
can see systems that took decades. That is not because they are
technologies that have not been used in the commercial sector.
It is because putting those into a military situation and
adopting them to be battle-hardened and ready for use in all
the circumstances where we need it, in a contested environment,
requires adapting them, and once you start changing them it
becomes extremely expensive and time consuming. It is hard to
do.
So all the points that you make are really valid, but this
is a hard problem to crack. It is not something where there are
going to be any easy answers.
Thank you for your time, and I look forward to your
questions.
[The prepared statement of Mr. Peter Levine follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Hirono. Thank you very much. Mr. Greenwalt.
STATEMENT OF WILLIAM C. GREENWALT, Ph.D., NONRESIDENT SENIOR
FELLOW AT THE AMERICAN ENTERPRISE INSTITUTE
Dr. Greenwalt. Thank you, Chairman Hirono and Senator
Sullivan, Senator Kaine, other distinguished members of the
Subcommittee.
I think I am going to do the same thing. I entered a
statement for the record, and I will just kind of summarize and
try to take on some of these points.
The first thing is yes, we do have a system today, an
acquisition system, that is optimized for peacetime, and I
think we have to understand that. A lot of conflicting
different executive orders, regulations, law that drive
behavior in the acquisition system.
For 30 years we have been optimizing this system, and it is
frankly now too slow to do what is necessary. This Committee,
this Subcommittee, about 10 years ago essentially looked at
that and said we need to go faster, and created a toolkit,
including middle tier, including production and other
transactions, including ways of hiring acquisition workforce
faster, and it was adopted and tried to replicate a system of
innovation that the Department of Defense used to have in the
post-World War II era, in the 1950s, and it was driven by time.
It was driven by urgency. It was driven by step-by-step, serial
operational prototyping. In other words, middle tier type of
acquisition was a way of trying to replicate that system.
Guess what? What did we do in the 1950s? We deployed
aircraft carriers, new aircraft classes in less than 5 years,
bombers in less than 5 years, ICBMs, first of a kind, in less
than 5 years, first reconnaissance satellites in less than 5
years. We did these types of new innovations.
Now would they be like the type of system that we have
created in the 1960s, 1970s, 1980s, and 1990s? No, because
there were different criteria we have added to ensure certain
types of process and certain types of systems that are
producible or maintainable or whatever. But innovation was
driven in that time through a time-based, competitive process
of serial operational prototypes, and this Committee, with
middle tier, tried to replicate that.
The second most important part was at that time the
industrial base was brought together. The commercial and the
defense industrial base was working together, and the barriers
that exist today between Silicon Valley working with defense or
other commercial companies did not exist then and is so much
higher today. So other transactions are one of the ways to do
that because you can negotiate a commercial terms and
conditions, a commercial way of doing business with those
companies. The idea is to bring them forward.
Probably the biggest barrier today--and I am glad Peter is
here from the PPBE Commission--is budgeting. In other words,
the valley of death problem is a budget issue-driven problem.
Venture capital needs revenue, and each time you move forward
in the acquisition process there is kind of a waiting period,
and in any of those waiting periods is there is a need for
flexible funds to carry it through to the next stage? Wherever
the PPBE Commission has proposed those types of flexible
funding, that is something I think for this Committee to
seriously consider because it really could do a lot of good
things.
I proposed a pilot in my testimony in which Congress could
essentially consider as a way of empowering agencies like DIU
or SOCOM or whatever to essentially pull together these
acquisition authorities and streamline the ability for them to
use that. I think the Replicator Initiative is a really
positive initiative if we can get there. You have got to put an
organization in charge of these things. You need to ensure that
they have got the right acquisition workforce. That requires
hiring authority and that requires various authorities to be
able to use there. You have to empower them to use other
transactions, empower them to use rapid acquisition authority,
empower them to use middle tier authority, and finally, give
them the types of flexible budget flexibility that can carry
these programs into the next phase.
With that I think I am looking forward to your questions,
and hopefully we will be able to give you some answers.
[The prepared statement of Dr. Greenwalt follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Sullivan. [Presiding.] Great. The Chair went to go
to vote so I am going to take over here. Let me begin.
Mr. Schwartz, did you bring a copy of the FAR [Federal
Acquisition Regulation]?
Mr. Schwartz. Among other things, yes.
Senator Sullivan. Can I see it, or is it too heavy to lift?
Mr. Schwartz. I will lift it, but Congressman, this is the
complete works of [inaudible]. You also have the Federal
Acquisition Regulation, the Defense Federal Acquisition
Regulation, and the PGI [Procedures, Guidance and Information]
for the Defense Federal Acquisition Regulation. If you work for
some of the services there is more guidance and regulation, but
I apologize. I ran out of paper this morning. So it will bge a
little bit higher.
This is what we have to do for acquisition. Now when I was
in a grade school it was hard enough for me to read William
Shakespeare. This is a difficulty, and I think one of the
things that this does, when we are talking about empowering the
workforce, it freezes the workforce.
Senator Sullivan. Yes.
Mr. Schwartz. At this point to tell one story about it, if
I may. I remember after Hurricanes Katrina and Rita I went down
with the GAO team to visit, and we are talking to a bunch of
contracting officers working really hard for recovery for
people, for FEMA [Federal Emergency Management Agency], and
these people were working 16, 17 hour days, and at one point
they turned to us and said, ``Just tell us what you want. If
you want small business, we will get you small business. If you
want best price we will get you best price. If you want speed
we will get you speed. If you want best quality we will get you
best quality. We can't do it all, all the time.''
One, he is right, but two, what that concerns me with is
the one thing he did not mention is what is best for the
people. He mentioned he is always thinking about what the
regulations tell me to do and what will I be yelled at.
Senator Sullivan. Yes. So let me ask this real quick. If
you are a company with a great innovative idea, and you have
done a prototype on your own with private investor money, and
you are like, all right, now I want to get this to the
Pentagon, because this is going to help in our upcoming war
with China, or whatever, do they have to all of a sudden
understand that stack, or is that for the contracting officers,
or the combo?
Mr. Schwartz. It is both. Contracting officers, for sure.
[Clerk turned on mic.]
Mr. Schwartz. Oh, thank you very much. Thank you. But you
need to know if you need a cost accounting system. You need to
know if you have to have certain small business plans. You need
to know what domestic buying requirements you have. You need to
know----
Senator Sullivan. So if you are beginning, an innovative
American company, which again, in my view is a giant strategic
advantage we have over everybody else, and now they are
interested, these great Americans who are really innovative and
really smart want to help. They see the challenges in the
world. They see that authoritarian dictatorships are on the
march, whether in Iran, China, Russia, North Korea, working
together. So they want to help. But then they see that and they
are just like, what?
Mr. Schwartz. They do not. Many do not. I know a company
that has a great technology, someone who worked on the Hill,
and I said, ``This is great. Have you brought this to DOD?'' He
said, ``I am not going to. It is just not worth it. We are
small. We have a great technology. We have limited resources. I
am not going through that,'' and it broke my heart.
Senator Sullivan. Yes. Okay. Let me ask Dr. Greenwalt. One
thing that I think a lot of people miss--so I like to read a
lot of history. I am reading this really good book that was
actually given to me by the CNO [Chief of Naval Operations] a
couple of weeks ago, called ``The Admirals,'' and it is all
about five-star admirals that we had during World War II, and
the innovation, and of course that was an entire societal
effort. But I think from--I am trying to remember. I do not
want to get the numbers incorrect, but we cranked out, in 1943,
1942 to 1943, I think, like 17 aircraft carriers or something,
and then in 1944 the numbers are incredible.
But the innovation was also occurring, as you just
mentioned, in the 1950s. So we are not at like World War II
levels of entire economy focus. We are in peace, with the
exception, of course, of the Korean War, which is a big
exception. So what happened after that? You just gave some good
examples.
The other one I always like to cite is the SR-71, which I
think I have read they designed on a slide rule and it came
from concept to prototype in 18 months, or something crazy like
that, and that spy plane lasted for decades.
So what happened? What happened between the 1950s SR-71 and
the F-35 that took, I think, 25 years to field. What happened,
in your view?
Dr. Greenwalt. It is a long story but I will try to
summarize. In the 1960s we adopted a way of putting a system
around all of that innovation, and I even kind of think about
there is the good Rickover and the bad Rickover. The good
Rickover was the one who essentially was of the time-based
innovation approach, you know, developed the first naval
reactor, if you remember how many classes of nuclear submarines
were created in the 1950s, to get to the point where we wanted
to.
We got to the point where we wanted to, and then we
decided, well, we are going to manufacture these, and we
shifted into a different system. What we should have done is
had two acquisition systems, one for how to be incredibly
innovative and drive new technology into the hands of the
warfighter and the other was how to produce systems at scale.
But when we started producing systems at scale, Admiral
Rickover wanted cost accounting standards. He wanted greater
insight into contractor costs, and that is kind of, I do not
know if you want to say the bad Rickover, that is just the
Rickover that transitioned to something that was needed to
produce things at scale. So that is one thing.
The other thing is that we adopted what were business best
practices of the 1950s from the private sector, which actually
were not really good business best practices, and they were
based on centralized planning, based on prediction, very linear
ways of thinking. They were brought from Ford Motor Company
with McNamara in the 1960s, and the DOD adopted these, writ
large, and we have been working on this system for the last 60
years.
But what happened was we did not quite realize that the
same management system did not work out very well for the
private sector. The Japanese essentially, with quality
management and other approaches, essentially out-competed us,
and the private sector threw out all this centralized planning.
They threw out all these ways of bureaucratized linear process.
But the Department of Defense never did.
So we adopted many of those processes. We essentially
looked at our adversary, the Soviet Union, and mirrored some of
their processes, and we created a morass of bureaucracy in the
1960s. So the thought is let's go back to the 1950s, let's go
back to how we can produce things better, and create two
acquisition systems that essentially can complement each other.
Senator Sullivan. Good. Great. Well, listen, a lot more to
discuss. When you talk about imitating our adversaries I have
always thought it would make a lot of sense--hopefully no
Chinese Communist officials are listening right now--but we
mark that giant pile ``Top Secret.'' They have been stealing
all of our stuff anyway. We dump it in front of the Chinese
embassy and hopefully they get it, and are like, ``Oh, this is
amazing. We will use this.'' Then we will destroy the way we
have kind of destroyed our system.'' But maybe that would not
work.
Senator Kaine.
Senator Kaine. Thank you, Senator Sullivan, and thanks to
colleagues. I want to followup a little bit on where Dan
started--and Peter, I liked that you called us ``you guys''
because you are so familiar to this Committee. I saw you slip
there, and I appreciated that--which is entry points for the
small innovators. If the small innovators look at that stack,
or as you said, Mr. Schwartz, they are just like, ``I have a
capacity I could bring and I would like to but they are not
going to do it.''
Talk about the efficacy of the DIUs and the AFWERX. I think
Dr. Greenwalt mentioned DIUs. There is the effort to create
some entry points that might be more friendly to these small
innovators. Are they achieving their value? Is there more we
should do to help them achieve their value?
Dr. Greenwalt, do you want to start since you mentioned
that in your testimony?
Dr. Greenwalt. Yes, no, I think Congress and the Secretary
of Defense need to empower them and give them the tools to do
what they are empowered to do. So DIU should be given flexible
hiring authorities. They should be given flexible budgeting
authorities. They should be given the ability to move fast and
transition these types of systems.
You know, we have the nucleus of doing the right things. We
probably just need more of them, and they need to be empowered
to take that there and say, let's use an OTA, which is a one-
page agreement, and work with the private sector, and then
eventually evolve into something better. Peter?
Senator Kaine. Please, Peter.
Mr. Levine. Senator, yes, I think they are helpful, and
they are helpful not just because of a less bureaucratic
approach. They are helpful because one of the biggest problems
facing that small business is figuring out where, in the
Department of Defense, to go with the product. Just looking at
800,000 civilians and 1.2 million, or however many military we
have, and trying to figure out all these different commands,
who is that is going to want my product?
So if you have entry points who look like they are friendly
to innovative products, that is a really good place to start,
not just from a point of view of regulation but from the point
of view of having an entry point.
If I could, I would like to take a couple of minutes and
speak in favor of regulations, since you do not get to hear
that very often. You are too young--I know you are my age so I
guess I cannot say that--but you are almost too young to
remember back to the beginning of the Clinton administration
when Al Gore was doing his reinventing government.
But one of the things that they did when they came in was
to look at regulation, not just this, which was here at the
time, but other regulations. One of the things that they
actually did was, on the personnel side there was something
called the Federal Personnel Manual, which was for civilian
personnel policy, which was about as thick as this, and they
said we are going to deal with regulation by throwing that out.
The Federal Personnel Manual does not exist as of today.
The problem is that all the problems, all the issues that
personnel professionals had to deal with were still there. So
you had pirated copies of the Federal Personnel Manual that
people still had on their shelves, even though they were not
official, because they needed to figure out a framework that
they could use to answer those questions.
My take on these regulations is when you are buying
everything from nuclear aircraft carriers to paper clips you do
not have two acquisitions. You do not even have four
acquisition pathways. You have 15, 20, 50 acquisition systems,
and in order to govern 15, 20, or 50 acquisition systems which
are governing different types of decisions, a full range of
decisions on everything from technical data rights to
negotiating price to small business privileges, whatever it is,
it takes a lot of words.
In fact, I have this contrarian view that if you want to
give more flexibility, what you actually need is more pages,
not less. The reason is if you just take away the pages then
people will go into their defensive crouches and do what they
have always done, because they do not know what they can get
away with and what they cannot.
If you want to encourage them to do something different you
need to tell them, ``Here are your options and here are the
things you can be thinking about as you consider those
options.'' Then you are giving them protection to take risks,
and telling them it is okay to take risks. If you are silent
then you have not answered any of their questions and they go
back to this is the way I have always done it.
Senator Kaine. If I could, Madam Chair, I would love to ask
another question, and it might involve an answer pretty deep
into my stoppage time.
I am the Chairman of the Seapower Subcommittee, and so in
particular I would love any of your thoughts on ship and sub
procurement. Like what do you think about the way the Navy
procures ships and subs, and are there big-picture pieces of
advice you would offer to us as we are getting into the NDAA.
There is some controversy right at the gate in the President's
budget about, you know, the carrier block by sliding the
reduction in Virginia-class at the same time as we are telling
the Aussies we are going to produce Virginia-class subs for
them.
Talk to us about your thoughts about ship and sub
procurement.
Dr. Greenwalt. I think on the ship and sub side that is
where the traditional acquisition system actually works pretty
well. I think our biggest problem in some of our other areas is
that we have tried to take the ship and sub acquisition process
and apply it into areas where it is not really appropriate.
I think what we need here is we have an industrial base
problem. We essentially have a workforce, supply chain, budget
problem. But the way we buy things is pretty time tested.
Now, if you wanted to do new, autonomous vehicles, new
technology, I would take it in a different way than how we are
buying submarines today, and that is why we need multiple
pathways and multiple ways of doing things.
Senator Kaine. Can I put you on the spot, Mr. Schwartz, on
this question about the Navy?
Mr. Schwartz. Yes, on the Navy? Absolutely.
Senator Kaine. Ships and subs.
Mr. Schwartz. Yes. So a couple of things. One is the
workforce of the contractors is a huge problem. If there is too
much of a gap between ships that you are building you lose the
welders. That is not an easy skill, right, and the cost of
bringing back the welders and retraining them and losing
welders in and of itself has a consequence on budget. So that
is one.
The second is thinking through how we do CapEx. I
remember--and this was a number of years ago--but going down to
a shipyard, and everything was outdoors, right. Now, some of
that has changed, but I think it is illustrative because in
Asia they had already, for years and years and years, been
doing a lot of this building indoors, to the point where the
Navy was paying for material that was rusted because it was
outdoors. The sick leave for workers, because they were doing
the welding outdoors, was a cost.
Sometimes those things, in trying to save money really has
the larger consequence of not saving money because of the
perturbation of the workforce, because of not wanting to invest
in the facility that has people outdoors. I think those are a
couple.
Then, if I may, I want to get you two data points on small
business and DIU and those, because you asked.
As the defense industrial base is shrinking, from 2010 to
2020, the number of companies in consortia, which primarily do
OTAs, of 12 consortia that work with the Federal Government
went from 365 to 5,600. It is not that companies do not want to
work with the DOD. Companies do not want to work with this,
because the consortia are the entry point, and does not do some
of this, and I am not saying regulation is bad. You know, I do
not disagree with Peter at all on that. It is how we do it.
The other point is of the 12 consortia, their membership
was either 56 to 72 percent small businesses. So there are
entry points. We just need to leverage those more.
Senator Kaine. Could I ask Mr. Levine, please, Peter, on
the Navy ship and sub procurement.
Mr. Levine. Senator, you take me down memory lane because
if you remember the last year I was here I believe we had an
administration that cut an aircraft carrier, and you and I had
to work together to figure out how to pay for that.
Which brings me to what I think is really the crux of the
issue, which is we are trying to build and maintain a Navy that
is bigger than we can fit into the budget we have, and that is
what leads to the problem with the workforce. That is what
leads to the problem with gaps in production. We are always
looking for ways to build ships differently and less
expensively, and we have run into problems with that where we
have tried to cut corners and it has come back to hurt us.
But if there were one place that--and I know this is not
going to be new to you--but if there was one place that we need
to continue to look it is the lack of a commercial industrial
base in this area. Because we do not buy commercial-built ships
in the country anymore we have a big problem with maintain an
industrial base, and if there were some ways that we could
rebuild a commercial industrial base it would be an awful lot
easier on us to build military ships.
Senator Kaine. As I hand it back to the Chair you sound
like Mark Kelly, a proud Merchant Marine Academy graduate, who
makes that point often at our hearings. So thanks, Madam Chair.
Senator Hirono.
[Presiding.] Thank you. Having chaired the Seapower
Subcommittee before, yes, that is another committee that is
always pretty much frustrated. I think that is a good way to
explain a lot of the challenges that we face.
One thing that did catch my attention, Mr. Schwartz, is
when you say the DOD is planning to spend $725 million in the
next 4 years on systems that are already outdated. But having
said that, that sounds outrageous, but isn't it the case also
that by the time we figure out what systems would make sense
for us to acquire and figure it out and installing it, we are
already behind. We were constantly behind. Maybe the question
is how far behind, how far outdated are we going not find
acceptable.
But what is your answer? You gave that as, I would say, an
outrageous example of inefficiencies.
Mr. Schwartz. I would suggest one of the fundamental
problems is the challenge DOD has after they have identified a
system they are actually implementing, and that comes down to
business transformation, or it can go by a number of names.
An example is the Defense Travel System. It is not, in
fact, the most popular system in the Department of Defense. I
know a lot of people use it, but it is not. A system was
identified to replace it with a successful OTA, one that is
used by thousands of companies and hundreds of thousands of
people every day, a commercial system. It is huge.
They tried to adopt it, and they just gave up and said,
``we just cannot do it. Not because the system does not work
but because it is too hard culturally for us to get it adopted
throughout the Department of Defense.'' That is a cultural
problem. It is not just identifying the system. It is that
business process transformation that DOD does not do well.
Senator Hirono. Is it that it does not do well because we
do not have the acquisition people, workforce, that can make it
happen? Is it that we do not have enough experienced people,
they leave just when they get the experience that they need to
make smart decisions? I mean, what it is that makes them
incapable?
Mr. Schwartz. I think there are a lot of reasons, but I
know Peter has got some thoughts on this.
Senator Hirono. Mr. Levine.
Mr. Levine. Senator, it is hard, and let me talk about DTS.
I was here on Capitol Hill when a couple of attempts to replace
DTS failed. I was in the Department of Defense, and I cannot
remember which position, but with some responsibility for DTS
when the Defense Digital Service came to me and said, ``We want
to replace DTS,'' and I told them, ``Good luck. You are not
going to be able to,'' and I will tell you why--because it is
not a technology problem. It is not a problem of adapting a
commercial technology. It is not a problem that you have a
commercial system that does not work. It is not a cultural
problem.
The problem is, with DTS, we have a set of travel
regulations that are almost as big as this set of acquisition
regulations, and so our Defense Travel System has to comply
with these regulations. You can take a commercial system, with
commercial technology that works off the shelf, but when you
try to build into it these regulations the whole thing
collapses, and that is what we have been up against over and
over again.
You cannot solve the DTS problem until you solve the
defense travel regulations problem. That is a corner of what
you deal with, with business systems in the Department of
Defense, generally. We take an off-the-shelf commercial system,
an enterprise resource program, for example, an ERP, and we say
this is something that business uses to run their business. Why
can't we run it? Then you discover that Defense looks
different, and it works differently, and we have different
systems we need to plug into different data, different
requirements, and the commercial system cannot bear all of
that. So we have a huge problem with adoption of commercial
technology because we are different.
Mr. Schwartz. I would actually disagree with some of that
on DTS because DOD's own view of the pilot program was that it
was successful. While I totally agree with you, Peter, that the
financial rules, which I would have printed out had I had more
paper, are a problem, it is also a cultural barrier, because
there was a directive that this shall be the system of record,
and then the services decided they are not going to implement
it.
So I think it is both. I do not think it is one or the
other. I think it is both.
Senator Hirono. So those reams of paper that you have
there, that is to show what? All the requirements?
Mr. Schwartz. Oh, sorry. I apologize. So what we have here
is the Federal Acquisition Regulation. Now if you are in the
Department of Defense you also have to follow the Defense
Federal Acquisition Regulation. Then you will have the PGI for
the Defense Federal Acquisition Regulation, the guidance. There
is also, depending on what service you are, more regulations
that could be Army or Navy specific, but as I mentioned, I ran
out of paper so I could not print more, so I apologize. That
was just to compare it to the complete works of Shakespeare.
Senator Kaine. Madam Chair?
Senator Hirono. Yes.
Senator Kaine. Could I just interject something? In which
of those two sets of texts is the phrase ``A tale told by an
idiot, full of sound and fury, and signifying nothing''? Is
that Shakespeare or is that the Federal Regulations?
Mr. Schwartz. I believe it is Shakespeare.
Senator Kaine. Okay. Just checking.
Senator Hirono. So, okay. What I get is that we have
overregulation, or all these requirements, that we can reduce
some of those requirements and still get what we need in terms
of, say, for our warfighters' capabilities. So that is one. We
have reams and reams of stuff that they have to comply with.
But on the other hand, I am also told that through these
pathways that I talked about, six pathways, those pathways were
intended to speed up the acquisition process, but that does not
happen. Those are tools that we have provided to the
acquisition workforce, but they are not fully utilized because
we do not have a workforce willing to take smart risks.
I want to spend a little bit of time--I know I am over time
but what the heck, I am the Chair. By the way, if you like a
second round since we are here, you know, please feel free. But
really, when we focus on the acquisition workforce the full
Committee hearing also focused on a workforce that would be
experienced and trained to make use of the tools that are
currently available to speed up the processes, including
acquisition process. So what can you tell this Committee about
what to do about a workforce, retaining the kind of a workforce
that is willing to take smart risks in acquisitions? Anybody?
Mr. Levine. So first I would say that a fair amount of the
problem that you identify with using different acquisition
pathways is leadership direction rather than the acquisition
workforce. So we need to be clear. I think we have a very
talented acquisition workforce and we do not want to run them
down too much. We do have a problem with recapitalizing and
rebuilding and retaining and building on expertise.
When I was on the Committee 15 or so years ago I think one
of the things that we did that was the most important the whole
time I was here that I worked on was creating the Defense
Acquisition Workforce Development Fund. The reason I say that
is because we neglect our civilian acquisition workforce. We
spend hundreds of millions of dollars every year on military
recruiting, on military training. We plan for our military
strategically. We think about what talent we are bringing in
today, not only in terms of filling the job today but where are
they going to be in 10 years and 15 years and 20 years, and how
are we going to have the expertise that we need.
On the civilian side we do not recruit, we do not
systematically retrain, we do not take advantage of the
training when we send people to training. We bring them back
and we put them in jobs that do not relate to the training that
they had. We do not plan career paths. We really neglect our
civilian workforce.
Yes, we can do more there with the resources we have, but
it really is an area where we ought to think about more
resources, and we ought to think about reinvigorating the
Defense Acquisition Workforce Fund or creating something
similar, because it is a pervasive problem, the underfunding
and the neglect of the workforce.
Just to put it in perspective, my wife, who is a civil
servant, used to come home with computer problems, and my son
would look at her and say, ``I can't believe that they are
paying you however much they are paying you and you have a
problem with a $300 computer, and they won't just replace it.
That is 2 hours of your time and the Federal Government won't
do that.''
It is the same thing with the investment that we put into
the civilian workforce and other places, in recruiting, in
training, in career paths, in building quality and making the
workplace an attractive place to work. A small amount of
investment would go a really long way there.
Senator Hirono. Well, I would like to identify, how many
people are in the civilian workforce part of the acquisition
workforce?
Mr. Levine. Well, the acquisition workforce is somewhere in
the order of 150,000, and it is predominantly civilian.
Mr. Schwartz. But if I may, we also do not always put
people in positions to succeed. I will give you an example.
There was, I believe it was a lieutenant colonel, and this is
going to the uniformed personnel example that Peter was talking
about in his statement. He was doing his first stint as a
program manager on an IT system for logistics. So I said to
him, ``Oh wow, this is great. It is your first program manager
position. That is great. So you must have experience in IT.''
He said, ``No, I never did IT before.'' ``Okay, but you have
done logistics.'' ``No, never did logistics before.''
We did not put him in a position to succeed, and that is a
problem.
Dr. Greenwalt. Can I follow on to what Peter said?
Senator Hirono. Certainly.
Dr. Greenwalt. I think Peter was being way too modest about
the Defense Acquisition Workforce Development Fund. That was
probably the most significant piece of legislation this
Committee passed to improve the acquisition workforce, and
unfortunately about 3 or 4 years ago that fund was abolished
and replaced by something else, which is not even capable of
doing what is necessary. I think the recommendation that I
would make--and I do not know if Peter would make too--is to
reestablish that funding mechanism, because that funding
mechanism was very unique and clever in the way it took
expiring appropriations or took a tax on expiring
appropriations and brought that money in to pay for training
and new hires and things like that. It worked well for at least
10 years.
Senator Hirono. Okay. I know I am going to need to go and
vote soon. I do not know if you do also. I understand that
Senator Sullivan is coming back. I assume he wants a second
round. You may want a second round.
But really focusing on what we need to do in acquisition
changes, I understand that we need to do better with the
civilian workforce. I also understand we need to do better with
the military workforce. So if you were to focus on just on the
workforce, I would very much appreciate some very specific
things that we should be doing to empower the workforce to take
what I would call smart risks, understanding that smart risk is
also in the eyes of the beholder. It is not that easy to
define.
But I do understand that there are some specific things we
can do to train our workforce better, to retain them, and those
things. So if you can provide us with some specifics, which I
think you did--staff has them--we will followup with some
specific changes that we can do.
What to do with the $700 million we are going to spend on
our outdated system I am not quite sure what we can do on that,
but we will certainly give it a whirl.
Did you want a second round of questions?
Senator Sullivan. Oh, I have like 20 more questions, but I
am good, and I voted twice so I am ready to cover for the Chair
if she wants to. Is that over to me, Madam Chair?
Senator Hirono. Yes.
Senator Sullivan. [Presiding.] Okay. Mr. Greenwalt, or Dr.
Greenwalt, I want to just followup, and this is for all three
of you. This idea, and I have heard it a lot, and I think it
makes a lot of sense, the idea of maybe a two-track system,
and, you know, you have the system that you need. It is kind of
a command economy system that you need to build a sub or an
aircraft carrier. Okay, we all get that, and that has its own
processes and everything.
But another track that would be much more focused on
speed--although the first track should be focused on speed too.
Could you elaborate on that a little bit more, and any other
witnesses who want to, if you think that is a good idea.
Dr. Greenwalt. I would be happy to, and I think the
acquisition pathways that DOD has come forward with actually is
trying to do that. So the major capability area pathway is
exactly what we were talking about as far as the submarines and
the large legacy production of things that we are going to
continue to produce as platforms in the next few decades.
Senator Sullivan. There is no giant market for subs, right?
I mean, there is one buyer. I mean, well, maybe a few buyers.
Dr. Greenwalt. It is a different industrial base problem.
It is a different acquisition problem. Now yes, efficiencies
can be had, but a lot of it is just dealing with the industrial
base and addressing throughput in budget, and long-term,
multiyear type procurements would be something that would be
helpful there.
In the innovation side, that should be a time-based
innovation process, and we have two pathways, actually three
pathways that could be helpful there--the rapid acquisition
pathway, which is the pathway that was created essentially with
congressional authority in the early 2000s to deal with post-9/
11 wars in Iraq and Afghanistan, and those were designed to
deploy capability of the warfighter in less than 2 years.
Senator Sullivan. Okay. Is that working?
Dr. Greenwalt. It has worked in the past.
Senator Sullivan. A few times.
Dr. Greenwalt. A few times. The key thing there is it has
the ability to start things without a new start authority, and
it has flexible funds to move forward on those type of starts.
Probably in that area the most important thing would be is
to bring the combatant commanders into the equation more than
they are, and potentially even to think about some type of
limited acquisition authority for them to drive some of that
change, or at least some type of limited demand.
Senator Sullivan. So that is authority you think they have,
that they are not using?
Dr. Greenwalt. They do not have that authority.
Senator Sullivan. Oh, they do not have it.
Dr. Greenwalt. The combatant commanders do not have the
authority. SOCOM does and Cyber Command has it to a degree----
Senator Sullivan. So give it to other combatant commanders.
Dr. Greenwalt. But the geographical commands do not.
Senator Sullivan. Was that a good idea for this year's
NDAA, for example?
Dr. Greenwalt. If you did you could create authority like
we had with JFCOM. Joint Forces Command was designed to
essentially buy on behalf of the geographic commands and drive
innovation into the geographic commands.
Senator Sullivan. Should we give that to every combatant
commander?
Dr. Greenwalt. You could do that. They may not be able to
handle it, but at least some should pilot it and think about
the possibility of doing that.
The third pathway is middle tier, and middle tier is the 3
to 5, and again, that authority, if you give it to the right
organizations and they can drive innovation, we can be seeing
that----
Senator Sullivan. But again, didn't we already provide that
authority?
Dr. Greenwalt. You have provided that authority, and it is
being used probably about 1 percent of the budget is now being
used middle tier. I mean, that is where we are.
Senator Sullivan. Any other thoughts on these two
questions, gentlemen? Mr. Levine?
Mr. Levine. Senator Sullivan, yes. You are absolutely
right. We need at least two pathways, and as Bill has been
talking we do have----
Senator Sullivan. Or maybe more than two?
Mr. Levine. We have a lot more than two, and that is a good
thing, and we are underutilizing some of them. I think that is
all fair.
The one that I would point you to is the software
acquisition pathway. I think that there is a lot more that we
need to do in that area. Software is unique. We need to buy it
different.
Senator Sullivan. Almost the flip side of a carrier, right,
because software you are updating every 6 months, right, and
you have to----
Dr. Greenwalt. Maybe every 6 days.
Mr. Levine. You are updating frequently, and this is an
area, particularly you mentioned the PPBE Commission earlier,
where there is a recommendation in there that I would point you
to, which is as you update software frequently you are going
through development, procurement, testing, debugging,
redevelopment, reprocuring, refielding, going around that and
around that and around that. If you use the traditional funding
system that means you are changing color of money maybe several
times in a year. To get that right and have the right color of
money--I assume color of money is good--and to have the right
color of money at the right time and in the right place is
almost an impossibility.
So what we say is let's have a different rule for software.
If you are buying software with O&M, go ahead and develop it
and test it and field it. If you are buying it with
procurement, same thing. Go through the entire cycle and just
stay in the same color of money because we know software is
different and you have to be able to go through that.
Senator Sullivan. Like a private company would.
Dr. Greenwalt. Absolutely. You are not going to have to go
back and ask Congress, because I went through a new cycle where
I am debugging something and now that counts as development and
I need to get a different color of money.
Senator Sullivan. That is one of your big recommendations?
Mr. Levine. It is a small recommendation.
Senator Sullivan. Well, it sounds pretty substantial. That
authority does not exist right now?
Mr. Levine. No, it does not. There is some----
Senator Sullivan. That would have to be legislated.
Mr. Levine. It would have to be--it is complicated. So it
in the Federal Financial Regulation which you would say is just
legislative. In fact, it is sort of dictated by the
Appropriations Committee. So you risk getting crossways with
the appropriators who feel strongly about how their money is
spent.
Senator Sullivan. Yes, that happens here a lot, as you
know. Okay.
Mr. Schwartz, any other----
Mr. Schwartz. Yes, I will just add two things. One is I
have seen that problem with the budget and IT systems, and even
not IT or software all the time, and it has a lot of impacts.
One is schedule, of course. But the other one is the time it
takes to figure these things out. I remember being in a meeting
with two programs. One had too much money, one had too little
money, because of their schedules, in the same PEO office, and
they could not move it. So in an hour and a half meeting,
probably 45 minutes was spent on how do they deal with these
issues, and that has these knock-on effects.
Mr. Levine. Senator, if I could just add one other thing on
software. I worked with the Defense Innovation Board's
Software--I cannot remember, SWAP. Def Swap Acquisition? The
Software Acquisition Process study, whatever they called it,
and they had a recommendation for a separate software
acquisition pathway, which Congress adapted.
There was one piece of their recommendation that Bill and I
actually worked on together, which I thought was very
important, which Congress did not adopt. I have it in my
testimony, but I think it is worth mentioning here.
The issue is that you have some software engineers and
developers who are much better and more productive than others.
The way our Federal acquisition system works, when we run a
competition price has to be a factor, and when price is a
factor for something we do not know what we are going to build
yet, the way we consider price is by considering rates. So if
Company A is going to charge me $300 an hour for an engineer
and Company B is going to charge me $250 an hour for an
engineer, that looks less expensive. Of course, the $300
engineer may be 10 times as good, and proving that and
justifying going to the high-priced contractor is hard.
What we recommended is that this is an area where we need
to learn the lessons that we learned 50 years, 40 years ago,
with architect/engineer contracts, where we said let's do a
competition initially, in certain circumstances where it is
appropriate, just based purely on qualifications, and get the
best guy in here to do the job, because this is software where
it is really critical software, and I want to have the best
guy. So I am going to do a competition based on qualifications,
and once I get the best guy in then I will negotiate a price
with him.
Senator Sullivan. Is that in your recommendation?
Mr. Levine. It is, and we do that for architects and
engineers on the theory that if you are building critical
infrastructure you do not want to go to the low-price bidders
to design it. You should have the same thing. You should have
that same authority for software.
Senator Sullivan. Let me ask one more question before I
turn to Senator Kelly. This issue of the valley of death, and
again, I think this is a giant strategic opportunity for us now
that we have all these tech companies and innovators who really
want to help on our national defense.
I know it is a complicated issue. I hear it from so many,
and I am sure all of you do too. What would you, in all of your
vast experiences, A, do you agree with me that it is a big
problem--and it is also an opportunity that we have, again,
this part of our economy that wants to help the Pentagon. Then
what would you give to us as kind of the top three pithy
recommendations, and are they regs or is it authorities that we
need to provide?
I will just open that up to all three of you.
Mr. Levine. Senator, let me just take that one too, at
least to start, because this is something the PPBE Commission
spent a lot of time thinking about. This deals with how we fund
things, and there are two different ways that the PPBE
Commission went at this.
One is the question of the way the budget is structured. So
we structure our budget into such small boxes that it is hard
to move money around, so it is hard to make it available if we
have an opportunity that shows up in the year of execution. So
the technology suddenly is proven and we do not have any money
in the right box so we cannot make it available.
Senator Sullivan. And that company goes out of business.
Mr. Levine. The company may go out of business, exactly. So
we have budget structure recommendations that talk about
structuring the budget differently so that money is more
flexible.
We have reprogramming recommendations which talk about
making it easier to move money if you need to, at the last
minute. We have smaller recommendations like the software
recommendation I just mentioned to you, about relieving some of
the pressure on software. That would make money more flexible.
We have recommendations about delegating further down within
the Department of Defense, so things the Department can do
itself, delegating further down within the Department of
Defense, writing budget justifications more clearly. All these
things can provide more flexibility in the year of execution,
which could make it easier to move money, which can make it
easier to solve problems like that.
The one thing I would add to that is I do not want to make
it like this is a complete panacea, because a part of the
problem will always be is there enough money.
Senator Sullivan. Yes.
Mr. Levine. Where do we find the money? So it would be nice
if we could commit to all these companies, if your technology
proves out we will fund it. But we do not have enough money to
make that commitment to all those companies, and sometimes it
proves out and we have to look at it and say, ``Well, it would
be nice to have but I don't have money for it.''
So the problem will not go away even if you make the
process easier, but we ought to take out some of these hurdles
that we have got in the system.
Senator Sullivan. Okay. Any other quick thoughts on that?
Dr. Greenwalt. Yes. I think the Department of Defense needs
to start looking at this as a venture capital firm. There is a
valley of death in the VC world from Round A to Round B to
Round C to Round D, and we could be looking at the same thing
for initial prototype, advanced prototype, operational
prototype, and so on. There should be bridge funds between
every one of those, just like a VC would, and if something
hits, we are going to spend it on this, and it is flexible
enough to do that.
I would bring together, like the VCs do, which essentially
is they compete. I mean, the companies are competing for their
money all the time, I would bring the entire industrial base,
if it is possible, into an OTA consortium, a non-traditional
OTA consortium, to do that, where you could essentially drive
Round A's, Round B's, Round C's, Round D's, different types of
competitions within that industrial base for the type of
programs necessary.
Because if they hit then you can just go to the next bridge
fund and say, ``Okay, this is C round. We are going to go for
it.'' If you do not have enough money in your D round funds,
well, then everyone is just kind of going to go away. But if
you have got that money that is flexible enough to put on the
table if someone succeeds, then you have got something.
I have to say, the most successful OTA we have had was with
SpaceX in the sense that we promised that they would
essentially, if you can build it we will pay for it. MRAPs
[Mine Resistant Ambush Protected] were the same way. If you
build it, we will have money to put on it. That offer of some
kind of potential payoff is what will leap over the valley of
death, but if you do not have it you are always going to have a
valley of death.
Mr. Levine. I will say that I can remember sitting in
DMAGs--this is the senior DOD budget decision forum--and having
the group make a decision, we are going to fund these dozen
different experiments in an area, and having the Under
Secretary of Defense for Acquisition stand up and say, ``I am
all for funding these. It is the right thing to do. But you all
should know, if they are successful we don't have money to
field any of them.''
Mr. Schwartz. So three things. Let me perhaps suggest
guiding lights. But before I do, to reiterate one thing Peter
said. This is very hard. This is very complicated. I would
suggest no three ideas will absolutely solve the problem. It is
a lot of ideas and a lot of effort and a lot of ways over time.
It is very complicated.
But some guiding lights, if I may offer.
The first one is you mentioned, Senator, all these VCs and
other companies that want to help. They also need to run a
business, and sometimes DOD does not recognize cash-flow and
profits matter to these companies. If they cannot make money,
if they jeopardize their commercial markets, they are not going
to stay in this business, and we will lose them. There is a
reason why the defense industrial base has decreased in size
for the last 12 years.
Second guiding light. Time matters for these companies.
They do not have the luxury that DOD does of saying, well, we
are going to delay delivery because this part is not
qualifying, when it is not a safety issue. That is a problem.
Time for delivery, time to contract. In this warp speed, which
was another successful OTA, in fact, General Perna said, ``Warp
speed--it wouldn't have gone at warp speed without an OTA'' in
that particular case, which was his exact quote. Time matters
to companies, and DOD does not always appreciate that.
The third thing I would say is relationships matter to
industry. You know, sometimes industry has a setback. Sometimes
DOD gets a setback. But it is not about always what is the
letter of the contract or the law but how you work together,
and I would suggest they could probably use a relationship
therapist sometimes.
Senator Hirono. [Presiding.] Senator Kelly.
Senator Kelly. Thank you, Madam Chair. I want to just
followup a little bit on this. Thirty years ago, when I was at
the Naval Postgraduate School, I had one elective, and I took
an acquisition elective, and I was shocked at how complicated
this whole process was. I mean, it seemed to be more
complicated than most any other class I had, and I was there as
an aeronautical engineering student.
I would say over 30 years I think we have made some
progress here. I mean, SpaceX is one example; I am not sure we
have another. Maybe you could share, Dr. Greenwalt, if we do
have other examples, and I am perfectly willing to take the
blame here for Congress, but has this been a failure of
Congress not to be able to innovate fast enough in acquisition,
or is it just entrenched interests at DOD and maybe some of the
big defense contractors? Like what has been the big stumbling
block to actually making significant progress in reforming the
system?
Mr. Levine. Senator, before you take blame for Congress for
30 years ago I should confess that Bill and I met 30 years ago
when we were on congressional staff together working on this
problem. So we are to blame. We worked together. The first
thing we worked together on was the Federal Acquisition
Streamlining Act in 1994----
Senator Kelly. Did it pass?
Mr. Levine.--which passed, and which was the first major
congressional effort to streamline commercial purchasing. So
this is an issue that Congress has been battering its head
against for decades now. I think we are making progress on it.
I think we are better at it than we used to be. But it is hard.
I just need to come back around to there are things we do
to make it harder, and Bill and I both discussed some of these
and have some recommendations in our prepared statements about
reducing unnecessary requirements and peeling back some of the
buildup. So in 1992, we said produce a streamlined contract for
commercial contracts where you eliminate clauses that are not
necessary and should not apply to commercial companies. We got
down to a certain number, and then over 30 years it has built
up again, and it is time to relook at it.
But do not underestimate how hard it is for the Department
to buy commercial technologies, because it is all great that
these technologies are out there in the commercial marketplace
and that are available to us, but the experience over a period
of decades is it costs more and takes longer to take a
commercial marketplace and apply it to defense uses than it
does to build it in the first place. It is really hard work.
Senator Kelly. I was at the ribbon cutting last week at the
Southwest Mission Accelerator that we procured money to build
five of these around the country. I think there is one in
Hawaii, Oregon, Kansas, some other location somewhere, and it
is to try to help some of these entrepreneurial companies get
across that--maybe not get across the valley of death but even
the stuff that is more up front and connecting them with
financing and expertise. Do you see something like Southwest
MAC or these other accelerators to be helpful in this process?
Dr. Greenwalt. I think what is important is, and in as many
ways as possible, bring together that non-traditional
industrial base so the government can essentially work with it.
The other example I will give as far as success is
Operation Warp Speed. Why was that successful? Because we
brought together the non-traditional medical industrial base in
one acquisition vehicle, and it was ready when an emergency
hit. We should be doing that with every single----
Senator Kelly. Was that done before the pandemic?
Dr. Greenwalt. It was done before. It was it was not done
before pandemic we would probably still be trying to figure out
what kind of acquisition vehicle to use to develop a vaccine. I
mean, that was essentially----
Senator Kelly. So that was all stood up and ready to go.
Dr. Greenwalt. It was stood up and ready to go, and it was
bumped by accident. But it was the right vehicle to be able to
put a lot of money through in research and do it fast. We have
a traditional system, and we can go slow in a lot of different
area, but we should have emergency vehicles ready to go if
things happen that we need to go with, and I think that one was
one of those success stories.
Peter talking about success story on commercial item
acquisition, it is a lot different system than it was pre-1994.
That is a positive thing. We backtracked a lot, but we still
are buying, to a great degree, a lot of commercial items, and
that is a good thing.
Mr. Schwartz. If I may, Senator, there is a lot that has
improved, substantially. So a lot of us are talking about what
is not going as well as we would like, but there is a lot that
is going very well. Defense Acquisition University was
established. Even all these regulations that Peter mentioned,
there was not even centralized regulations. We have a more
professionalized workforce. If you even want to look at the
data, the cost growth is not higher than it used to be
historically, really far back, even though the systems are that
much more complicated with that many more technologies.
You could go to the Civil War--and this is true. Congress
put out two 1,100-page reports, and the things that they talk
about that happened would never happen in our current
acquisition system. A lot has been done. I think what we are
talking about is how we can do more and do better because of
the geopolitical issues that we have.
Senator Kelly. You are talking about bad things that
happened during the Civil War in acquisitions?
Mr. Schwartz. Yes. Absolutely.
Senator Kelly. Can you give us an example?
Mr. Schwartz. Yes. Lame horses, horses that actually you
could not ride. Food that was, in effect, spoiled. Cannons
that, in fact, would not fire, I guess would be the term. There
was even one--I will not go into that one. But things that
actually would be shocking to see today, but now we are able to
do logistics overseas in Iraq and Afghanistan at a level that
they could not even do 30 miles away. So there has been a lot
of progress, and I do think that is important to highlight.
Senator Kelly. All right.
Mr. Levine. Senator, if you would like I would just put in
a pitch for one other thing. As we try to deal with non-
traditional contractors, and they face this stack of
regulations, the Federal regulations, and they also face the
problem of not knowing even who to talk to in the Department of
Defense, it is a vast and imposing organization. One of the
things that I have learned on a project that I am working on
right now is that really helpful to non-traditional contractors
when they want to do business with the government is to have
sort of a sherpa to take them through it, somebody who knows
the process. Who knows the process? People who have left
government and understand how the process can work.
We have regulations on post-government employment that make
it harder and harder for them to do that, and there are reasons
why we have limitations on what people can do after they leave
government. But I would urge that you need to think about what
the impact is on the non-traditional contractors especially,
because they need those people to guide them through this
morass and tell them, ``Here is who you need to go to talk to.
Here is the kind of paper you need to do. Here is what you are
getting yourself into if you do this,'' and who can be honest
guides to that.
Senator Kelly. Thank you.
Senator Hirono. Senator Sullivan.
Senator Sullivan. I just had one final question, and this
can be for everybody. Mr. Schwartz, can you discuss some of
your findings on the other transactions, consortia, and whether
they lower the barrier to entry for non-traditional defense
contractors?
Mr. Schwartz. Yes. Absolutely, and a lot of the credit for
those authorities are for the other people here. But I will
give you a couple of examples.
We already went through the data of how the number of
companies in consortia have increased dramatically where, at
the same time, the defense industrial base has decreased. The
way Operation Warp Speed worked is that a consortium was put
together. A consortium, in short, is a number of companies, all
with a similar interest around a particular technology, in this
case health, because it can be a broad thing. There were a lot
of companies, and they had been working together already, and
they already had existing base contracts with the Department of
Defense, in this particular case. So they already know each
other. They already have the mechanisms. They already have the
processes and the relationships down.
So what happened here, with Operation Warp Speed, DOD said
this is what we need. I might get the numbers a little bit
wrong, it is in this report that I have on consortia right in
front of me, in something like 72 hours, I think it was, they
got out requests to something like 1,100 companies. In days
they get responses because it was already set up. That helps
with the market research, and it helps with the processes, so
you do not have to start going through this because it was
already put in place.
That is the power of what consortia can do. It increases
communication between the government and industry. It increases
the ability to work more efficiently because most consortia
work with other transaction authorities, and other transaction
authorities, for the most part, are exempt from most of the
regulations in the Federal Acquisition Regulation.
Now it is not for everybody, and it is not for all
circumstances. It is definitely not a silver bullet. But it
does do that, and there are small companies that have said--and
I can absolutely provide this information after the hearing--
but for the consortia they worked with they never would have
contracted with the Department of Defense.
Does that help?
Senator Sullivan. Yes, very helpful. Good. Well, thank you,
Madam Chair.
Senator Hirono. Can you just tell me a little bit more
about what you mean by consortia that are already set up to
push the kind of----
Dr. Greenwalt. I will start with the other transactions
because another transaction is essentially not a contract. It
is a contract but it is legally defined as not a contract, and
because of that--it is very confusing--because of that it does
not have to apply to things that apply to a contract. So it is
a new business relationship that the government can enter with
the private sector, and essentially negotiate any type of
relationship they want.
So a consortium, essentially, what that does is brings
together, in a vehicle, a way of bringing as many contractors
as possible onto that consortium, into a certain area. Then
what you can do with that consortium is task it to do certain
things, very simply, not through this process but through a
process that may be like this.
Senator Hirono. So you are saying that the DOD can create
these kinds of consortiums as it did in Operation Warp Speed,
depending on what it is that is defined as the need. They can
already do that. Is that what you are saying?
Dr. Greenwalt. They have the authority, and they have done,
what, about 40 of them now.
Mr. Schwartz. Yes. They, in fact, do it.
Dr. Greenwalt. But what is necessary is a lot of these are
in traditional defense sectors, and there are a lot of non-
traditional defense sectors like AI, or quantum, or autonomy,
where it would be a good idea to set these up and pull together
new small businesses, new non-traditional companies, so the
Department can start working with them. They can work with them
on a set of frameworks that is not based on this but based on
something that is more commercially available and
understandable to these companies.
Mr. Schwartz. It does two things. I mean, it does many
things, but two that I would like to highlight. One is it sends
a message, this is what DOD is interested in, or any other
agency, and those companies start gathering around that
technology--like undersea; undersea would be an example of
another one--and they get together. What is great is it is not
small businesses. It is not non-traditionals. It is not large
contractors. It is all of them in that milieu of innovation,
which is very valuable.
The second thing it does is it really creates a catalyst
for better back-and-forth communication with DOD, of what do
you really need. Sometimes DOD will put out an RFP and they
will be surprised--and there is an example, actually, in the
report I mentioned--that nobody responded, and then in this
consortia mechanism there is a wait for better communication,
where industry is freer to communicate back, and like, oh,
okay, we got it. We can craft something together, and then they
get to better results.
Mr. Levine. Senator, at the basis of it, a contract that
you can only enter with one company, that is why we have prime
contractors and everybody else is going to be a subcontractor.
Because the usual contract rules do not apply to OTAs, we can
enter an OTA with a group or a collection.
By the way, I would add to that it is not just companies.
It is also research institutions.
Mr. Schwartz. Right, and academic institutions.
Mr. Levine. Academic institutions are included in these
too, and then they can informally get together and talk about
what the best use of money is and consult with the government
as to where funding should go to address the purpose. It gives
you some of the flexibility that we talked about, that our
budgeting system denies in so many ways, because once the money
is allocated to a consortium there is a lot of flexibility to
where you move it around to best purpose.
Senator Hirono. So you were on the Commission, right, that
we heard from this morning in the full hearing.
Mr. Levine. Yes, Senator.
Senator Hirono. So I do not know that there was any
discussion about we should create these kinds of entities
called consortiums to address some of the needs of DOD. Was
there some discussion about this kind of way of doing things?
Mr. Levine. The Commission did not go into consortia, and
largely because there have been lots of commissions on
acquisition reform, and we were focused on the budget side of
the way the Department works. We had some recommendations that
go to the same kind of thing, talking about the level to which
we budget and the different boxes that we put our budget into,
being so small and inflexible, and getting bigger boxes and
different boxes and better-refined boxes to give greater
flexibility.
Senator Hirono. Yes, but it sounds as though creating these
kinds of consortiums would be another way that we can get to
the kind of acquisitions that would be faster.
Mr. Levine. It is helpful, but we should realize----
Senator Hirono. It is not the answer to all of our
problems.
Mr. Levine. Consortiums are usually used in, I would say,
to the 99th percent--you can disagree with me--for research,
and usually advanced research, and that is where the
consortiums have focused.
Senator Hirono. Yes, because I was wondering when we were
going to talk about AI and all of those aspects of what the DOD
and everybody else is concerned about these days.
Well, I notice that I am the only one left, so I want to
thank you all for a very stimulating testimony. We will be
doing some followup from my office with those of you that we
need to continue to talk to. But I find the consortium idea
very intriguing. I would like to think a little bit more about
that.
But I do have one question about the stack of papers that
you all have. Now at some point the acquisition people who have
to comply with all of those requirements, I mean, after a while
don't they have enough experience that they do not have to
resort to all of that. They know that they can skim over or be
smart about what they need to be doing so that they are not
hide-bound, like all of those requirements, and through
experience they can take smart risks?
Mr. Levine. Yes, Senator. For any given type of procurement
and any given type of issue you are going to be looking for
what is on page so-and-so of this. Nobody reads through this
whole thing. I doubt anybody has ever read through this whole
thing, unless Moshe----
Mr. Schwartz. I have not, actually.
Mr. Levine. Okay. You are the only person I ever thought
might. What you do is you look for the answer to the specific
question you have, and about 15 or 20 years ago this was
supposedly all rewritten--and since I have not read it I cannot
guarantee that it was--to separate between what is called
``direction'' and ``guidance,'' so that only those words that
needed to be directive are directive, and the rest of it was
going to be informative advice and consideration, so it would
build more flexibility into it.
I cannot tell you how successful it was in being rewritten
that way, but I made the point before, if you are going to
rewrite it that way so it is more flexible it probably makes it
longer, because when you give somebody guidance and talk about
here are all your different alternatives, you have got to lay
out choices and explain considerations, that is a lot harder
than just to say here is the rule, you can only use a fixed-
price contract.
Mr. Schwartz. I will say two things. One is even though--
and you are absolutely right--people only necessarily need 150
if they are doing commercial buying or something like that, at
some point the brain shuts down, right. This is true if I am
told to go buy cereal, and I go to the supermarket and see how
many cereals they have, I just need someone to tell me which
cereal to buy because I cannot compute that many choices. There
are too many choices.
I have dealt with contracting officers who just revert back
to the three or four authorities they know, because even though
there are 17 or 18 authorities, they cannot compute that many,
so it does not matter you gave them more authority. They are
just going to keep doing the same thing.
So I would argue sometimes less authority is, in fact, more
authority.
Senator Hirono. Well, based on this morning's hearing also,
the idea of having people who take smart risks is not to
minimize all risk, but to take the smart risk that is necessary
to get us the decisions that we need.
Thank you very much for your time and testimony. This
hearing is adjourned.
[Whereupon, at 3:39 p.m., the Subcommittee adjourned.]
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator Elizabeth Warren
sweeping
1. Senator Warren. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
according to a Department of Defense (DOD) memorandum issued by former
Director of Defense Procurement and Acquisition Policy Shay Assad, the
practice of contractors submitting cost or pricing data after
negotiations close (known as ``sweep'' data) is a major cause of
inefficiencies in the acquisition system. What advantages do contract
officers' gain when contractors submit ``sweep'' data?
Mr. Levine. Contracting officers who receive cost or pricing data
generated in the final days before the conclusion of price negotiations
have the advantage of knowing whether any last minute changes--for
example, new price information received from subcontractors and
suppliers--are likely to lower costs and should result in a reduced
contract price.
Mr. Schwartz. Contractors are required to certify that the cost or
pricing information provided to the government is current, accurate,
and complete as of the date of contract signing. Because there is a lag
between the handshake agreement on price and contract signing,
contractors conduct a ``Sweep'' to capture information from that
period.
A ``Sweep'' also ensures that anything that was not progressively
disclosed during negotiations (such as a rate change or impending rate
change, or negotiation of a supplier Purchase Order or updated supplier
pricing), is disclosed to the government and incorporated into the
pricing for the Contracting Officer to review and adjudicate.
Data in the ``Sweep'' may not have been available or accessible to
the contractor previously, for example when updated data is received
from subcontractors or when new data was generated after the handshake
on price (as when another contract or new supplier prices occur). While
this type of ``Sweep'' does take time to adequately perform, it ensures
that Contracting Officers have the most recent and up to date cost or
pricing data upon which to determine a fair and reasonable price
pursuant to both FAR 15 and DFARS 252.215 guidance after negotiations
are complete. \1\
---------------------------------------------------------------------------
\1\ FAR 15.403-4 requires the Contractor to submit a Certificate of
Current Cost or Pricing Data in the format specified in 15.406-2,
certifying that to the best of its knowledge and belief, the cost or
pricing data are ``accurate, complete, and current as of'' the date of
agreement on price or, if applicable, an earlier date agreed upon
between the parties that is as close as practicable to the date of
agreement on price.
---------------------------------------------------------------------------
Data provided as part of the ``Sweep'' process can be adjudicated.
After receipt of the data, contracting officers can re-open
negotiations if the data shows that the price agreed to was materially
higher than what the new cost data shows, resulting in a decrease in
price.
Generally, when the ``Sweep'' data supports an increase to the
negotiated price, an adjustment is often not made to adjust the price
upward. As such, ``Sweep'' data generally inures to the benefit of the
government and not to the benefit of the contractor--even when the
contractor was unaware of and was unable to get the data until after
price agreement. To the extent that ``Sweeps'' are used to adjust
prices down but not up appears to violate the ``fair and reasonable''
standard that is intended to be equally fair to the government and the
contractor.
This and the related questions on ``Sweeps'' raise important issues
ripe for further analysis. We appear to be operating in a policy
environment without robust data. Perhaps Congress could support a
study, to include the following data:
Why is cost and pricing data submitted after handshake on
price?
Why is the requirement for cost data based on the
contract date as opposed to the date of handshake?
What is the average number of days/weeks of delay, and
the source of such delays (are the data emanating from subcontractors,
the prime contractor)?
The nature of the updated data
How often does data from sweeps result in a reduction to
the negotiated price? In an increase to the negotiated price?
Dr. Greenwalt. Contracting officers could theoretically gain
greater exactitude in pricing if provided with instantaneous real time
data output from contractors that would correspond to the thesis of
better using sweep data. The reality that is a conclusion of the 2018
Assad sweep data memo is that ``untimely'' sweep data may be indicative
of estimating system issues. That is a hardly surprising. The
government when using TINA (or the Truthful Cost or Pricing Data Act as
it is now called) for covered contracts requires Federal contractors to
develop a unique accounting system that exists nowhere else in the
commercial marketplace for what may be the most regulated business
endeavor in the world. The TINA-CAS contract system is as unique as it
is cumbersome and methodical and is extremely costly to implement. It
is geared for eventual accuracy not timeliness. To get data in real
time rather than rely on sweep data would likely require significant
costs and frankly because of reporting time lags within business units
and from subcontractors may not even be possible to meet the objectives
of the Assad memo. As such the government in these cases will need to
rely on after the fact DCAA audits and self-reporting by the
contractors. As contractors may be held liable for making false or
fraudulent claims under, for example, the False Claims Act, the anti-
fraud provision of the Contracts Dispute Act, and the Program Fraud
Civil Remedies Act they are under a great incentive to comply.
2. Senator Warren. Mr. Levine, what disadvantages do contract
officers have to bear when contractors submit ``sweep'' data?
Mr. Levine. Contracting officers who receive cost or pricing data
after the conclusion of price negotiations have the disadvantage of
having to go through the data and assess it for potential impact on
cost and price. The need to do this analysis (and possibly to conduct
additional negotiations) could delay the award of a contract and the
delivery of needed products or services.
3. Senator Warren. Mr. Levine, do contractors usually have a
reasonable amount of time to provide cost or pricing data to the
contract officer during negotiations?
Mr. Levine. The timing of the final delivery of cost or pricing
data in connection with price negotiations is driven by the Truth in
Negotiations Act, which generally requires covered contractors to
certify that they have provided cost or pricing data that is
``accurate, complete, and current'' ``as of the date of agreement on
the price of a contract.'' Consequently, a contractor must update cost
or pricing data to the date on which price negotiations are concluded,
even if the contractor has timely provided earlier versions of such
information during the course of negotiations. Because a false
certification is subject to criminal penalties, contractors may feel
the need to conduct post-negotiation ``sweeps'' to ensure that due
diligence has been exercised in meeting the statutory requirement.
I have long believed that the best way out of this problem, in an
era when virtually all data are electronic, would be for contractors to
provide the government with real-time access to relevant data in their
business systems, and for the government to accept such access as
meeting the statutory requirement. It is my view that current
technology should make it possible to allow government access to
relevant data without compromising other, confidential, data in
contractor systems.
4. Senator Warren. Mr. Levine, what remedies does a contract
officer have to adjust a contract price after negotiations for the
contract have concluded and after ``sweeping'' has occurred?
Mr. Levine. If the contract has not yet been awarded, the
contracting officer has the option of reopening price negotiations and
insisting on changes based on the updated information. Of course, this
approach could trigger the need for yet another ``sweep'' of data when
those supplemental negotiations are concluded. If a contracting office
discovers undisclosed data that could have a significant impact on
contract price after a contract has been awarded, the Truth in
Negotiations authorizes a reduction in price based on the submission of
defective data.
5. Senator Warren. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt, are
prices ever changed after a contractor submits ``sweep'' data?
Mr. Levine. I have no first-hand knowledge on whether, or to what
extent, such changes have taken place.
Mr. Schwartz. Yes, prices are changed based on the disclosure of
``Sweep'' data. When the contractor provides disclosure data that have
material impact to the price as part of the ``Sweep'' process, there
may be further adjustment to the negotiated value--pursuing such
adjustment is at the discretion of the contract officer. This sometimes
results in a reduction of the negotiated price, which puts the
Government in the fair position they would likely have been in had the
data been available prior to the handshake agreement on price. While I
have no personal knowledge, there is concern that some companies are
thought to have held out providing new data until after price agreement
in the hopes that the Government will not use the data to reopen price
discussions. If and to the extent that some companies do this, the
government does that the authority to reopen the price discussions.
As discussed above, in some instances where the ``Sweep'' data
supports an increase to the negotiated price, an adjustment is often
not made to adjust the price upward. As such, ``Sweep'' data generally
inures to the benefit of the government and not to the benefit of the
contractor--even when the contractor was unaware of and was unable to
get the data until after price agreement. To the extent that ``Sweeps''
are used to adjust prices down but not up appears to violate the ``fair
and reasonable'' standard that is intended to be equally fair to the
government and the contractor.
This and the related questions on ``Sweeps'' raise important
questions that are ripe for further analysis. We appear to be operating
in a policy environment without robust data. Perhaps Congress could
support a study, to include the following data:
Why is cost and pricing data submitted after handshake on
price?
Why is the requirement for cost data based on the
contract date as opposed to the date of handshake?
What is the average number of days/weeks of delay, and
the source of such delays (are the data emanating from subcontractors,
the prime contractor)?
The nature of the updated data
How often does data from sweeps result in a reduction to
the negotiated price? In an increase to the negotiated price?
Dr. Greenwalt. I did not try to identify specific examples of these
types of price change adjustments but I would point the Committee to
data provided each year by the Defense Contract Audit Agency (DCAA) as
it pursues defective pricing audits. Last year (2023) DCAA identified
over $3.5 billion in ``savings'' and since using revised cost and
pricing data estimates would be one of the easiest types of audits
imaginable to conduct, I would expect that DCAA has identified these
types of discrepancies in its savings number. Still, the Committee
should verify if that is indeed the case. I would also expect that the
government has used TINA in some of these cases to obtain a ``price
adjustment remedy.'' Such a remedy could require the contractor to
repay DOD a portion of the money it earned on the contract, sometimes
with interest applied. The Committee should be able to obtain this
information from DCAA or the Department.
6. Senator Warren. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt, are
contract officers who have accurate cost or pricing data able to
negotiate more effectively than contract officers who do not have
accurate cost or pricing data?
Mr. Levine. In general, access to relevant data is very important
to contracting officers who are trying to negotiate fair and reasonable
prices. The question whether contracting officers need access to the
full range of detail provided by certified cost or pricing data depends
on a variety of circumstances, including the extent of competition, the
size and type of contract, and the nature of the government's
relationship with the contractor.
Mr. Schwartz. Yes. Both contracting officers and contractors can
negotiate more effectively when they have accurate data.
Dr. Greenwalt. This depends on one's definition of effective and
accuracy. Obtaining exactitude in accuracy may not be possible but in
the quest to do so will take more time and come at the cost of delaying
capability to the warfighter. From a contracting officer perspective
revised data may make their job easier from the singular point of view
of negotiating a final price with what are seemingly better estimates
based on historical data from a specific defense unique contractor.
Even this data though will not always be predictive of future supply
chain disruptions, labor cost increases, developmental problems, and
sector specific inflation. From the government's perspective whether an
updated point in time estimate is worth the costs to update contractors
accounting systems which the government will likely pay for in
reimbursable overhead is a debatable premise. The other factor to
consider is that for these types of contracts the more mandated
government unique requirements imposed and procedures to follow there
will be fewer contractors willing to bid on contracts which means less
competition and innovation for the Government.
commercialization
7. Senator Warren. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt, has
DOD made necessary steps to ensure contract officers have accurate and
enough information readily available to make commerciality
determinations?
Mr. Levine. I believe there is more that Congress and the
Department can and should do to ensure that contracting officers have
the information that they need to make these determinations.
Mr. Schwartz. DOD seems to have generally taken the steps necessary
to enable contracting officers to get sufficient information to make a
commercial determination but DOD cannot guarantee that the contracting
officers have all of the information they need. In some cases, the onus
is on the contracting officer to conduct market research to get the
data. In other cases, it is incumbent on the contractor to provide
sufficient descriptions and information of the items/services to enable
the contracting officer to do the market research. Ensuring that
contracting officers have access to prior commercial determinations can
help speed up the process.
Dr. Greenwalt. The Department has seemingly made commerciality
decisions more bureaucratic and time consuming than it should be. That
risks driving commercial contractors away from the government market
and limiting the types of solutions it could get from the commercial
marketplace. Adding more process in the defense marketplace is usually
not the best answer. These processes will also bleed into standard
practices in non-defense agencies. This will ultimately delay progress
in green energy and climate change projects and slow down responses to
future pandemics as the contracting process suffers from the same
incentive structure imposed upon DOD. Commerciality should be
determined through competition and a greater understanding of what the
commercial industrial base does and is capable of doing. That type of
knowledge gained through market research is often absent in the DOD
contracting community.
8. Senator Warren. Mr. Levine, a 2018 Government Accountability
Office (GAO) report found that no comprehensive information-sharing
strategy exists within the Department of Defense (DOD) regarding key
factors in determining if an item is commercial and reasonably priced.
What steps can DOD take to ensure contract officers have accurate and
adequate information readily available to make commerciality
determinations?
Mr. Levine. The Department could establish better guidance on the
types of data that contracting officers should seek and obtain for the
purpose of making such determinations. Such guidance might also address
the types of data other than cost or pricing data that contracting
officers should seek and obtain pursuant to 10 USC Section 3705 in
cases where certified cost or pricing data are not required to be
submitted.
9. Senator Warren. Mr. Levine, does requiring cost or pricing data
present an insurmountable burden for Department of Defense contractors?
Mr. Levine. It does not present an insurmountable burden for
traditional defense contractors, who have established systems for
collecting and providing such data. It may well present an
insurmountable burden for commercial vendors and other non-traditional
contractors, who do not have such systems. That is why the Truth in
Negotiations Act includes a series of exemptions for such contractors.
maintenance
10. Senator Warren. Mr. Schwartz, please describe the benefits of
initiatives like predictive maintenance on overall project costs.
Mr. Schwartz. Predictive maintenance can decrease long-term
maintenance costs, extend the life of systems, and increase readiness.
Predictive maintenance is a commercial best practice that requires:
1. sensors to collect data on system performance,
2. engineering analysis of the collected data to identify imminent
or expected material failure, and
3. maintenance actions to replace/fix parts before they fail.
Predictive maintenance and model-based product support help avoid
unscheduled or emergency maintenance when a part has failed. This helps
readiness by creating a more efficient maintenance process and ensuring
more accessibility to necessary parts (and improved parts ordering). It
also decreases costs by heading off more expensive maintenance.
In mechanical systems, the failure of one part can lead to damage
elsewhere in the system, triggering more extensive maintenance and
repair. Conceptually, this is like failing to get your oil checked or
changed and continuing to drive. At some point the car will stop
(readiness), emergency repair will be required (increased cost for the
specific problem), and other repairs might be necessary (additional
increased cost due to the consequence of failure on other parts of the
system).
Effective predictive maintenance is more than just gathering the
right data: it requires analyzing the data, acting on the analysis, and
configuring maintenance processes to maximize the efficiency of
maintenance. For example, waiting until the platform comes to the depot
to order the necessary part will undermine the value of predictive
maintenance. This is where budgets come into play. Too often
maintenance is a bill payer, saving money in the short term but
increasing costs in the long term. Effective predictive maintenance
requires the upfront investment in the sensors, maintaining an
analytical capability for the data gathered, and funding spare parts
and maintenance activities to ensure that the right maintenance is
conducted contemporaneously with the analysis.
11. Senator Warren. Mr. Schwartz, please describe how initiatives
like predictive maintenance would be best implemented at the Department
of Defense.
Mr. Schwartz. Fund the up-front investment in technology (e.g.
sensors) and spare parts/maintenance capability and efficiency. If, due
to backlogs or shortages of parts, it takes weeks or months to get
platforms through maintenance facilities, the value of predictive
maintenance is significantly diminished.
Establish DOD-wide policies that deem a part identified as failing
by a predictive maintenance tool as an ``unserviceable'' part. This
would eliminate the gray area in maintenance test procedures where a
part that is identified through predictive maintenance tests as working
and may be kept into the platform until failure.
Foster a culture that readiness is the business of the acquisition
workforce. It is not just about production, production, production. It
is ultimately about a right-sized and ready force. Neither production/
acquisition nor maintenance alone will get us there. It is about both
working hand in hand to optimize size and readiness of the fighting
force.
12. Senator Warren. Mr. Schwartz, what, if any, other initiatives
can the Department of Defense employ to ensure contract officers are
considering operations and maintenance cost during the acquisition
phase?
Mr. Schwartz. Currently, a greater emphasis is placed on cost and
schedule of production over long-term operations and sustainment
lifecycle costs. Well-intentioned statues like the Nunn-McCurdy Act
incentivize program managers to avoid an acquisition cost breach, even
at the expense of driving up even great sustainment costs.
Part of this stems from the budget process and program manager
tenures. Program managers in the acquisition phase execute RDT&E and
Procurement funding. O&M funding for sustainment is viewed as someone
else's money and someone else's problem, a distant thought that only
comes to a head years after the program manager has moved on.
Currently, there is little visibility on the materiel readiness
requirement for the fleets. Section 118 of the Fiscal Year 2024 NDAA
requires the Service Secretary to establish materiel readiness metrics
for each weapon system and to provide estimates for maintenance funding
to achieve those metrics and requires a 5-year look at the maintenance
estimates. Implementing section 118 and the related recommendations of
the PPBE commission could help improve planning and budgeting for
sustainment requirements.
Other initiatives could include applying Nunn-McCurdy-Type
reporting requirements to O&S Costs. As CRS report suggested Congress
may consider applying Nunn-McCurdy-type reporting requirements to O&S
costs. Applying a reporting requirement to O&S costs might help
Congress set its budgetary priorities, as well as gather and track cost
data for future analysis. Another option for Congress could be to
require the Cost Assessment and Program Evaluation office to include in
its annual report to Congress a comparison of original O&S cost
estimates to current actual costs (adjusted for inflation) for ongoing
programs. \2\
---------------------------------------------------------------------------
\2\ Congressional Research Service, The Nunn-McCurdy Act:
Background, Analysis, and Issues for Congress, May 12, 2016.
---------------------------------------------------------------------------
__________
Questions Submitted by Senator Dan Sullivan
longer-term contracts & defense industry stability
13. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
the recently released report from the Commission on Planning,
Programming, Budgeting, and Execution (PPBE) Reform cited that several
of our allies and partners use contracts that are even longer term than
our maximum five or 6 year multi-year procurement contracts that are
often used for shipbuilding, for example. Specifically, the report
said, ``The Commission also learned about examples of allied countries
using mechanisms for longer-term (10 years) industry signaling such as
Australia's Integrated Investment Program and Defence Industrial
Capability Plan and Canada's Defence Investment Plan and Defence
Capabilities Blueprint, which provide long-term plans and goals for
investment in the industrial base.'' Can you describe the optimal
structure of contract lengths and funding availability to induce
industry to make capacity and capability investments?
Mr. Levine. In general, the commitment made to industry by longer-
term contracts should help industry plan future investments. However,
long-term contracts also undermine the Department's flexibility to
adjust to changed circumstances. For example, it may become more
difficult for the Department to pivot to innovative products and new
technologies if funds are tied up on existing programs. Long-term
contracts may also limit the ability of new Administrations and new
Congresses to change course from their predecessors and establish new
priorities. Balancing signals to industry against needed flexibility
and congressional prerogatives has always been difficult, but in my
view, the existing statutory structure provides an appropriate
framework for such decisions.
Mr. Schwartz. Long-term and multi-year contracts can signal demand,
incentivize contractors to more aggressively bid for contracts,
encourage contractors to invest in contract performance through capital
expenditures or IT investments, allow contractors to better manage
their workforce, and facilitate prime contractors to get more favorable
pricing from subcontractors for long-term contracts. The predictability
and stability offered by such contracts (which is often more important
than a slightly higher profit margin) are motivators for industry and
essential to building and maintaining efficient supply chains.
But longer-term contracts are not a one-size-fits-all that benefit
DOD in all circumstances. Locking in long-term contracts can run the
risk of contractor complacency and vendor lock. Facility contracts are
ripe for long-term contracts, supplying commodities, less so (although
sometimes here too they can be useful). Factors in determining the
effectiveness of long-term contracts depend on some DOD internal
requirements, such as having quality contract oversight and a
willingness of the government to terminate contracts for subpar
performance (adding both a carrot and stick approach to long-term
contracts).
Identifying the optimal period and funding profile for contracts
depends on a variety of other factors unique to the good or service
being acquired, including price stability in the marketplace,
investment requirements, stability of demand, and oversight
capabilities. Such decisions are best left to the workforce closest to
the contract and responsible for execution and performance management.
Granting authority to the acquisition workforce to make such decisions
could enable more effective contracting.
Dr. Greenwalt. The answer is as long as it takes to get a market
return on a company's up-front investment. This will be a case-by-case
decision based on the specifics of the financial condition of the
contractor and what is being developed. One does not need to look to
our allies for examples of longer-term contracts than DOD's current
multiyear authority. Energy Savings Performance Contracts (a provision
in US law to incentive energy savings at US government facilities)
offer terms of up to 25 years for companies to recoup their investment.
Congress has made a decision to allow for longer contracting terms for
green energy savings investments but has not supported doing so to
achieve multiyear savings or to incentivize private sector investment
in defense. That perhaps is a debate worth having.
The recently released report from the Commission on Planning,
Programming, Budgeting, and Execution (PPBE) Reform cited that several
of our allies and partners use contracts that are even longer term than
our maximum 5 or 6 year multi-year procurement contracts that are often
used for shipbuilding, for example. Specifically, the report said,
``The Commission also learned about examples of allied countries using
mechanisms for longer-term (10 years) industry signaling such as
Australia's Integrated Investment Program and Defence Industrial
Capability Plan and Canada's Defence Investment Plan and Defence
Capabilities Blueprint, which provide long-term plans and goals for
investment in the industrial base.'' Can you describe the optimal
structure of contract lengths and funding availability to induce
industry to make capacity and capability investments?
Please see the response above.
pitfalls of contracting related to software
14. Senator Sullivan. Mr. Levine, the Fiscal Year 2019 National
Defense Authorization Act (NDAA) had a provision requiring the
Government Accountability Office (GAO) to assess information technology
(IT) programs annually through 2023. Unsurprisingly, one of the
findings is that Department of Defense does not use the latest versions
of commercially available software. Are there any acquisition pathways
or contracting authorities already in place that are optimal for
keeping systems updated with the latest software iterations?
Mr. Levine. I believe that the software acquisition pathway
provides an appropriate first step toward enabling the government to
engage in agile software acquisition. However, more could be done, in
particular, by: (1) adopting the recommendation of the PPBE Commission
to increase the Department's flexibility in the use of software
funding; and (2) adopting the rapid contracting mechanism proposed by
the Defense Innovation Board in its final report on Software
Acquisition and Practices. It is important to note, however, that some
of the difficulties the Department has in adopting commercially
available software are shared by commercial entities, while others are
due to the unique needs of the Department. For example, changes to law
and policy will not remove the inherent difficulty of adopting
commercial business systems to automate unique defense business
processes.
15. Senator Sullivan. Mr. Levine and Dr. Greenwalt, recognizing the
importance of keeping systems hardened from cyber-attack, are there
changes you would recommend to software acquisition pathways to ensure
information systems and weapons systems are updated with the latest
software available?
Mr. Levine. I believe that the Department has struggled with this
issue because the imposition of DOD-unique cyber requirements sometimes
runs contrary to the effort to rapidly field the latest software
developed in the commercial marketplace. In the long run, I believe we
will be most successful if we can persuade software developers to build
cyber protections into their products on the front-end, so that the
Department does not have to require changes on the back-end.
Dr. Greenwalt. This is always going to be a challenge as cyber and
electronic warfare will be a continuing, and constantly evolving threat
to all defense and commercial systems. DOD needs to be capable of being
agile enough to protect its systems. Our lumbering, risk averse,
linear, command and control, acquisition and budgeting model that is
grounded on predicting the unpredictable is in no way prepared to deal
with current cyber threats let alone the cyber threats of the future
that will be enabled by advances in AI and quantum technologies.
The only path forward is to run faster, cheaper, and better. That
requires agile acquisition, contracting, and budgeting practices that
leverage the commercial market. The Department and Congress needs to
understand that software is never done and will constantly evolve and
change. Our system predicated on programs that begin and end do not
comport with this reality. The commercial market seems to have a better
understanding of this but DOD continues to be decades behind that
market both in technology and management practices. DOD needs to
embrace these changes and modify its acquisition and budgeting practice
to accommodate continuous updates of software on its systems not just
to meet cyber security needs but also operational ones.
defense acquisition professionals
16. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
a July 27, 2021 GAO report found that Department of Defense acquisition
professionals across all services largely do not collaborate with
internal stakeholders and end-users when developing performance metrics
nor do procurement leaders use outcome-oriented performance metrics to
manage their organizations. What are specific ways to encourage
acquisition professionals to use the practices I just mentioned, which
are considered best practices across industry professionals?
Mr. Levine. I agree that the Department has failed to develop
effective outcome-oriented performance metrics for the acquisition
system. In my view, however, this is a result of the complexity of the
system and the difficulty of the problem, rather than any failure on
the part of DOD officials.
Acquisition professionals have been frustrated for decades by the
difficulty of developing relevant outcome-oriented performance metrics
for the defense acquisition system. The ultimate measure of success for
the defense acquisition system is whether the products and services
that we acquire successfully deter our adversaries and contribute to
success on the battlefield. Unlike the profit and loss calculations of
private companies, these outcomes are largely unknowable until years
after an acquisition has been completed and a system has been fielded,
if then.
DOD leaders, Congress, and the public rightly do not want to wait
for years, or decades, for an appraisal of the success of the
acquisition system, so we rely on surrogate measures, such as a
comparison of program cost, schedule, and performance to a program
baseline--basically, a prediction of how we expect an acquisition to
go--and testing to assess system performance on an ongoing basis. None
of these are real outcome measures.
Moreover, because of the vast range of products and services
acquired by the Department, even these surrogate measures for outcomes
tend to be difficult to aggregate. Indeed, we have had decades of
academic debate on basic issues such as whether, in the aggregate,
major weapons systems are subject to more cost growth, or take longer
to develop, than in the past. These disputes remain largely unresolved.
As a result, the aggregate acquisition measures demanded by Congress
and used by senior managers tend to be even less meaningful--numbers
like percentage of competitive awards, and dollars awarded to small
businesses. These are process metrics that help guide the acquisition
system, but they do not reflect the ultimate outcomes sought by the
system.
Mr. Schwartz. Both issues--collaborating with internal stakeholders
and using outcome-oriented performance metrics--are outgrowths of a
larger workforce challenge within the Department of Defense. DOD has a
culture problem. In particular, it has a culture of compliance problem,
which relates directly to how it conducts performance metrics. But the
workforce challenges are much deeper, running from the hiring process
to workforce management. DOD's acquisition workforce has also lost
technical expertise, making it more difficult to effectively manage the
`technical baseline' of programs. Addressing these issues requires a
more comprehensive, far-reaching effort than can be succinctly
articulated here.
Dr. Greenwalt. An unintended consequence of the Goldwater Nichols
Act of 1986 has been to create a divide between the acquirers of
military capabilities and its users in the combatant commands. As GAO
has found the acquisition community measures itself on process not
outcomes. The acquisition community has been incentivized to do a lot
of things, many of which do not support the warfighter. Congress
attempted to bridge this gap by trying to bring the service chiefs back
into the acquisition process in section 802 of the 2016 NDAA to help
develop a customer-oriented acquisition system. This has been a failure
as the service chiefs have done a poor job of representing the
customers residing in the combatant commands. One solution is to give
the combatant commanders acquisition authority and build systems and
capabilities that work for them. Other options to consider are to have
the combatant commanders rate the acquisition community and have pay
levels and job opportunities tied to those ratings, and to become more
formally involved in the development of department performance measures
and near-term requirements.
17. Senator Sullivan. Mr. Levine and Dr. Greenwalt, the current
acquisition workforce is almost 200,000 people. Given the modern
technologies like artificial intelligence and machine learning that can
make workflow more efficient, do you think the defense acquisition
workforce is over, under, or appropriately sized to meet the
Department's needs?
Mr. Levine. An acquisition workforce of 200,000 sounds large, but
the Department spends almost a half a trillion dollars a year on
products and services, or more than $2 million for every person in the
acquisition workforce. That workforce covers the full range of
acquisition functions, from processing purchase requests to developing
new technologies for electronic warfare and testing warships for
survivability in combat.
We have no benchmark for determining whether the current workforce
is too large, too small, or appropriately sized. However, numerous
studies have documented the fact that previous efforts to save money
through drastic cuts to the acquisition workforce--mostly in the 1990s
and early 2000s--were counterproductive and led to failed acquisitions,
increased costs, and an overall deterioration in acquisition system
performance.
Dr. Greenwalt. Given the level of bureaucracy and mandated
compliance requirements in the acquisition system there will probably
never be enough personnel to do what the executive branch and Congress
is asking the acquisition workforce to do. That does not mean the
acquisition workforce is undersized, it is just doing the wrong things.
There is a need to conduct a smart deregulation of the acquisition
system as well as a long-term skill set evolution and rebalancing to
address changes that are occurring in the economy and the industrial
base that are impacting how the Department can access the technologies
and private sector capabilities that currently exist and will exist in
the future.
18. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
the acquisition workforce gets its training primarily from Defense
Acquisition University (DAU) and focuses primarily on compliance with
the regulatory processes rather than taking risk to innovate. What can
Congress do to help the workforce utilize all the authorities they
have?
Mr. Levine. Over the last decade, the Department has made
significant changes in the way that it trains the acquisition
workforce, authorizing outside institutions to conduct some training,
and seeking to make organic training less compliance-driven in nature.
As a part of this effort, DAU has made major changes to its curriculum
and its overall approach to instruction. However, I am not well-
informed to assess the extent to which this effort has been successful.
Mr. Schwartz. There have been numerous commissions and task forces
on improving aspects of the Department of Defense acquisition system,
including the Section 809 Panel on Streamlining and Codifying
Acquisition Regulations; Commission on Wartime Contracting in Iraq and
Afghanistan; and PPBE Reform Commission, to name a few. Congress is
also considering establishing a commission on requirements reform. I am
not aware of any similar commission on workforce. Yet workforce is the
single most important factor for successful acquisition outcomes. As a
CRS report analyzing the history of acquisition reform stated:
Despite the hundreds of recommendations to improve defense
acquisitions, most reports seeking to address the fundamental
weaknesses of the system arrive at the same conclusion: the key
to good acquisitions is having a good workforce and giving them
the resources, incentives, and authority to do their job. \3\
\3\ Congressional Research Service, Defense Acquisition Reform:
Background, Analysis, and Issues for Congress, May 2014
---------------------------------------------------------------------------
Perhaps it is time to create a commission or panel to explore
workforce issues in the Department of Defense, with a focus on the
acquisition workforce. In creating such a panel, it would be ideal to
ensure that a significant number of the members of such a panel are
experts in education and workforce training, drawn more from academia
and industry than from DOD or the Federal Government.
Dr. Greenwalt. DAU is a backward looking organization as are many
of our acquisition laws and regulations. DAU helps the current
acquisition workforce comply with the many often conflicting mandates
imposed on defense acquisition. It has specialized in the more
traditional acquisition process that is out of touch with the way
technology is currently being developed around the globe. This is both
a leadership and curriculum issue. If DAU leadership or the curriculum
does not change then Congress should consider other alternatives to
train the acquisition workforce of the future. Moving a percentage of
DAU's budget to public universities, the War Colleges, or the private
sector to provide training that addresses speed to capability to the
warfighter should perhaps provide enough incentives for change to
happen at DAU.
19. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
are curriculum changes needed at Defense Acquisition University to
institutionalize taking smart risks to innovate vs regulatory
compliance?
Mr. Levine. DAU has already made significant changes to its
curriculum in an effort to address issues of this kind. However, I am
not well-enough informed to assess the extent to which this effort has
been successful.
Mr. Schwartz. Yes.
Dr. Greenwalt. Absolutely. The creation of the Adaptative
Acquisition Pathway framework--which was mandated by Congress in the
section 805 of the Fiscal Year 2016 NDAA and incorporated Rapid
Acquisition, Middle Tier Acquisition authority and the software pathway
all need to be better emphasized in current acquisition training.
Courses on OTAs have long been inadequate particularly so since
Congress created production OTA authority. A top-down reorganization of
the curriculum at DOD is vitally needed. Congress may want to consider
GAO or another independent body to review DAU's effectiveness and how
DAWIA could be changed to better align with the acquisition system that
will be needed in the future. Finally, curriculum changes should also
be considered at the service academies and the War Colleges to ensure
that military leaders have an understanding of how the capitalist
system actually works and how to better incentive the industrial base
to meet military needs.
other transaction consortia
20. Senator Sullivan. Mr. Schwartz, please provide a list of your
findings on Other Transactions consortia and whether they lower the
barrier to entry for non-traditional defense contractors.
Mr. Schwartz. Other Transactions not only lower the barrier to
entry for non-traditional defense contractors, but they can also
expedite acquisitions, expand the market, and improve requirements
development. The full analysis can be found in the report The Power of
Many: Leveraging Consortia to Promote Innovation, Expand the Defense
Industrial Base, and Accelerate Acquisition. Some findings include that
Other Transactions can:
expand the Defense Industrial Base, enhancing small
business and nontraditional contractor participation in the defense
industrial base,
promote innovation,
improve communication between DOD and industry,
provide surge capacity,
and accelerate acquisition.
However, these results only work if Other Transactions are used
currently, when appropriate, and by a prepared and skilled workforce.
21. Senator Sullivan. Dr. Greenwalt, I have heard that Other
Transactions prototypes often transition into production not through a
sole-source Other Transaction follow on, but rather a Federal
Acquisition Regulation-based contract. What can we do to grow the use
of this production authority for Other Transactions?
Dr. Greenwalt. The acquisition workforce is still too risk-averse
to take advantage of the authorizes it has been given by Congress. This
of course will limit those types of companies who will want to bid on
prototype OTAs in the first place. If the price of success in defense
acquisition is to adopt a TINA-CAS compliance system that will destroy
a firm's underling innovation culture these companies will just not do
business with DOD. It is that simple and China will gain access to
better technology in the commercial market than DOD ever will as US
companies continue to specialize in commercial operations. Congress can
play a role through oversight by asking questions and forcing DOD to
justify its decision every time a FAR based OTA transition occurs. It
could also put in place processes to disincentivize FAR based follow
ons--either through a high level of certification (say at the Secretary
of Defense level) to do so or to impose dollar limits on FAR based
transitions and none on OTA production transition. Finally, it could
use its control over the budget and not fund FAR based transitions with
non-traditional contractors.
international sales and cooperation
22. Senator Sullivan. Dr. Greenwalt, many of our allies and
partners are capable of designing and producing--and in fact already
have--weapons systems and platforms that we could use. Are there
specific International Traffic in Arms Regulations (ITAR) changes that
you can recommend that would allow for increased allied and partner
arms imports?
Dr. Greenwalt. In my May 2023 report ``Breaking the Barriers:
Reforming US Export Controls to Realize the Potential of AUKUS'' I
outline 8 deadly sins of ITAR. These are an outdated mindset;
universality and non-materiality; extraterritoriality; anti-
discrimination; transactional process-compliance; knowledge taint; non-
reciprocity; and unwarranted predictability. The most significant one
is knowledge taint or the contamination of our ally's intellectual
property when it comes into contact with US technology or knowledge.
This combined with an extraterritorial application is also known as the
``ITAR taint'' and removing it is critical to co-development of
technology with our allies. I have outlined several options for
Congress to address this problem within AUKUS (which could serve as a
test case for future reform with other allies) in the above report's
annex section on ``Proposals for executive branch and congressional
Action to Reform ITAR for AUKUS Countries.'' The most significant of
these reforms would be to address knowledge and services provided by
our allies in a way that the ITAR taint does not apply.
ppbe reform commission findings
23. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
what is your assessment of the PPBE Reform Commissions findings and
recommendations?
Mr. Levine. The findings and recommendations of the PPBE Commission
were unanimously approved by the Commission after months of
deliberation. As a Member of the Commission, I voted for, and support,
all of the recommendations. In my view, the adoption of these
recommendations would significantly streamline the Department's
processes and enhance its ability to respond quickly to new challenges
and new opportunities (including new technologies).
Mr. Schwartz. I support the recommendations of the PPBE Reform
Commission.
Dr. Greenwalt. The PPBE Commission is a good first effort but is
frankly minimalist in its recommendations. Much more needs to be done
to provide greater funding flexibility to support portfolio acquisition
and provide speed to capability to the warfighter. That even this
minimalist approach is proving difficult to implement is disheartening
and perilous given the growing threats to our Nation. Perhaps a more
relevant report for the Committee to consider was one of the supporting
reports that RAND conducted for the PPBE Commission that compared DOD's
budgeting system with the rest of the US government. In this RAND
report there are many flexibilities identified that other agencies have
that DOD does not. That the Reform Commission thought it politically
inexpedient to consider those flexibilities is unfortunate but that
does not mean that Congress should not consider the implications of the
RAND report's findings.
24. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
are there additional recommendations you would make specific to
acquisition?
Mr. Levine. I believe that the Commission recommendations
effectively address the most important acquisition-related aspects of
the PPBE system.
Mr. Schwartz. Rebuild the skills possessed by the acquisition
workforce to better manage programs by holding the technical baseline
in engineering and technology.
Dr. Greenwalt. I would argue for harmonization and parity between
other agencies budget flexibilities and DOD taking the RAND report as a
roadmap of how to bring these types of flexibilities to DOD. Adopting
NASA's mission and 2-year appropriations authority, HHS no-year,
multiyear, and non-recurring expense authorities, DHS' carryover
authority of unobligated balance, the VA's advance appropriations and
no-year funding authority, and others are examples where legal
precedents are in place that should be considered for DOD that would
radically speed defense acquisition. Congress should also provide
access to expiring and funds destined to be canceled to be applied to
urgent operational needs and capabilities. GAO recently identified up
to $25 billion a year that goes unspent in the Department's budget and
is ultimately canceled each year. That money could buy a lot of
munitions, unmanned systems, ships, armored vehicles and aircraft but
now goes wasted. Finally, Congress and the Department should focus more
on creating a system to support portfolio budgeting and acquisition as
my colleague Dan Patt and I outlined in the report ``Competing in Time:
Ensuring Capability Advantage and Mission Success through Adaptable
Resource Allocation''.
25. Senator Sullivan. Mr. Levine, Mr. Schwartz, and Dr. Greenwalt,
the reform commission recommended an implementation team that reports
directly to the Deputy Secretary of Defense. How would you implement
the recommendations into the acquisition workforce, particularly with
reference to curricula changes at DAU?
Mr. Levine. I understand that the Deputy Secretary has established
an implementation team and directed the implementation of all
recommendations of the Commission that fall under her authority (i.e.,
those that do not require action by Congress). The Deputy Secretary has
full authority to implement recommendations related to the acquisition
workforce and DAU. In practice, however, changes to the DAU curriculum
will require deep understanding of the existing curriculum, the changes
already made by DAU, and the resources required to undertake a new
approach, among other issues.
Mr. Schwartz. There are multiple ways to leverage DAU to implement
the recommendations of the PPBE Commission. In getting early buy-in/
early education and rolling out full implementation of the
recommendations DAU can:
Create a messaging campaign, along the lines of `Make
Budgeting a Catalyst, Not an Obstacle' to spread the word, build
enthusiasm, and gain support.
Leverage the existing Hot Topics series and other venues
to hold conversations with senior officials to discuss implementation
and what it means for the defense acquisition workforce, with a focus
on speeding up the process, adding flexibility, and improving
efficiency. Such Hot Topics types of efforts are critical to getting
buy-in from the workforce and raising the visibility of implementation.
Develop on demand 5-15 minutes training modules that
allow the workforce to quickly get up to speed on various
implementations, by topic or issue.
Incorporate and update implementation into existing
curricula.
Dr. Greenwalt. The Deputy Secretary must hold the Undersecretary of
Defense for A&S accountable for the changes required to be made at DAU.
As Peter Drucker once stated ``what gets measured gets managed.'' Along
those lines the Department needs to translate tangible recommendations
into achievable performance measures. The DAU President should be
responsible for achieving those measures but ultimately it is A&S and
the DEPSECDEF who have to be held accountable by Congress for
execution.
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