[Senate Hearing 118-683]
[From the U.S. Government Publishing Office]
S. Hrg. 118-683
THE FINAL REPORT OF THE PLANNING,
PROGRAMMING, BUDGETING, AND EXECUTION
REFORM COMMISSION
=======================================================================
HEARING
BEFORE 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
60-825 WASHINGTON : 2025
-----------------------------------------------------------------------------------
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
(ii)
C O N T E N T S
_________________________________________________________________
march 20, 2024
Page
The Final Report of the Planning, Programming, Budgeting, and 1
Execution Reform Commission.
Members Statements
Statement of Senator Jack Reed................................... 1
Statement of Senator Roger Wicker................................ 2
Witness Statements
Hale, The Honorable Robert F., Chair; The Honorable Ellen M. 4
Lord, Vice Chair; and Laura C. Sayer, Executive Director.
Appendix......................................................... 48
(iii)
THE FINAL REPORT OF THE PLANNING, PROGRAMMING, BUDGETING, AND EXECUTION
REFORM COMMISSION
----------
WEDNESDAY, MARCH 20, 2024
United States Senate,
Committee on Armed Services,
Washington, DC.
The Committee met, pursuant to notice, at 9:30 a.m. in room
SH-216, Hart Senate Office Building, Senator Jack Reed
(Chairman of the Committee, presiding).
Committee Members present: Senators Reed, Shaheen,
Blumenthal, Hirono, Kaine, King, Warren, Peters, Manchin,
Rosen, Wicker, Fischer, Cotton, Ernst, Sullivan, Scott,
Tuberville, Budd, and Schmitt.
OPENING STATEMENT OF SENATOR JACK REED
Chairman Reed. Good morning. The Committee meets today to
discuss the Planning, Programming, Budgeting, and Execution
(PPBE) Reform Commission's final report. The PPBE Reform
Commission was established in Fiscal Year 2022 National Defense
Authorization Act (NDAA), and was tasked with assessing the
effectiveness of the PPBE process in developing policy
recommendations that will enable the Defense Department to more
rapidly field the operational capabilities. The Commission was
led by The Honorable Robert Hale, who was here previously, as
Comptroller and Chief Financial Officer at the Department of
Defense (DOD), and The Honorable Ellen Lord, who served
previously as Under Secretary of Defense for Acquisition and
Sustainment. The Commission's Executive Director was Ms. Laura
Sayer, who served previously as Comptroller for Navy
Installations Command, Navy Facilities Engineering Systems
Command, and Office of Naval Research. I am pleased to welcome
each of these witnesses today, and would like to express my
appreciation for the Commission's expert bipartisan work. Thank
you.
Much of the discussion around the 2022 National Defense
Strategy (NDS) focuses on long-term strategic competition with
China and Russia, particularly the capabilities we need to
develop for any potential high-end fight and the key role of
our alliances and partnerships. But the NDS stresses another
less-glamorous, albeit it equally important, transformation
that must occur if we are to succeed in strategic competition,
that is the need to reform the acquisition and financial
performance of the Department of Defense.
The Department's PPBE process has long been the core of how
defense programs are developed, how they are resourced, and how
those resources are executed. However, the PPBE process has
remained largely unchanged for more than 60 years, since
Secretary Robert McNamara put it in place in 1961, when it was
a cutting edge planning tool. Today it is much too slow and
cumbersome to keep pace with the Department's requirements to
develop new technologies in a rapid, agile manner, and to make
decisions in a more dynamic environment.
Recognizing this, the Committee has made reforming the PPBE
process a priority for several years. Our first step was to
create and direct an independent commission to review and make
recommendations for PPBE reform. In addition, the Committee has
worked to provide the Department with more flexibility while
maintaining transparency and accountability.
With that in mind, I am encouraged by the thoroughness and
practicality of the PPBE Reform Commission's final report. The
report includes 28 recommendations, largely intended for the
Defense Department to make changes internally. Notably, the
report's first recommendation is to replace the PPBE process
altogether with a new defense-resourcing system. As the report
states, one of the most consistent concerns the Commission
heard over the past 2 years is the current PPBE process lacks
agility, limiting the Department's ability to respond quickly
and effectively to evolving threats, unanticipated events, and
emerging technological opportunities. I understand that a new
defense resourcing system would build on the PPBE's strengths
while addressing such weaknesses. Before we consider the
variety of forms that have been suggested it is important to
first understand the context of the Commission's work and the
analysis that produced these recommendations.
For my colleagues' awareness, instead of the usual 5-minute
witness opening statements we have asked Mr. Hale and Ms. Lord
to provide a presentation of the work of the Commission and its
recommendations. We will then turn to our usual round of
questioning.
I would like to again thank all of the members and staff of
the Commission, and I look forward to your testimony. Now let
me recognize the Ranking Member, Senator Wicker.
STATEMENT OF SENATOR ROGER WICKER
Senator Wicker. Thank you, Mr. Chairman, for convening this
hearing, and thank you, sir, for sponsoring the Planning,
Programming, Budgeting, and Executing Commission 2 years ago.
While the acronym PPBE may sound strange to most, the subject
is timely. This system governs the process that the Pentagon
uses to choose what to buy.
For over 6 decades, the Department of Defense has operated
a byzantine budgeting system with virtually no modifications or
improvements. This system was built for a past era, an age in
which software did not exist, and the United States Government,
not the commercial sector, was the largest research and
development spender. This system was predicated on the
Pentagon's ability to predict the future with near certainty 2
or 3 years out. That task is impossible because today's threat
environment evolves too quickly.
There is undoubtedly some merit to parts of our existing
budget system, but a crucial point is that for too many years
it has failed to deliver key weaponry at relevant speed and
scale. It has also failed to connect strategic choices to
budgets, and it has stifled trust between Congress and the
Pentagon. In other words, it is long past time for an update to
the Department's budgeting system.
I applaud the Commission for its thorough, timely, and
realistic work in three main areas. First, the Commission
recommends that DOD improve its ability to ensure that budget
is based on strategy. Today it seems that the National Defense
Strategy is little more than a suggestion to those in the
trenches, building the defense budget. This is why we still see
such a significant disconnect between the strategy's focus on
China and the relative lack of investment in key capabilities
and infrastructure that we need to face China in the Pacific.
Our current budgeting system does not foster, let alone
require, cooperation between our military services, even though
that is how they will have to fight. A move toward capability-
based portfolios and mission-based budgeting would alleviate
part of this problem. Why have 27 projects based on disparate
requirements when we could simply create programs based on
missions, like air defense, and budget for it that way?
Fixing these two problems will require senior leadership,
attention, and commitment, combined with hard work by our
Budget Office.
Second, the Committee recommends significantly changing
parts of the budgeting process. It should be a process that
fosters innovative technologies and activities. This might mean
adjusting reprogramming restrictions to allow the military to
adapt, in weeks, not months, including under continuing
resolutions (CR). It may also require thoughtful consolidation
of related activities across the budget by department.
Last, but certainly not least, is the subpar relationship
between Congress and the DOD. Today the transmission of budget
data is episodic, manually input, and often ineffective. It is
2024, and we should have the ability to share information in
real time, digitally, between the executive branch and
Congress. This is not difficult from a technological
standpoint. It just requires a culture change.
To achieve all this we will need a more modern budget
workforce. It is clear to me that the comptroller workforce
cannot execute this antiquated budget process and reform at the
same time, nor should we expect them to. This will require
significant up-front investment and new hiring authorities, but
it will save us tens of billions of dollars in the decades to
come.
I look forward to the different format today, Mr. Chairman.
We have got our work cut out for us, to listen to the experts
here, to reform the Pentagon's budgeting system, and this
Commission has given us a great starting place. I look forward
to the witnesses' testimony and to hearing their ideas for our
consideration.
Thank you, sir.
Chairman Reed. Thank you, Senator Wicker.
As I indicated, Secretary Hale, Secretary Lord, Ms. Sayer,
you have 20 to 30 minutes to give us an overview, and then we
will begin our questioning.
STATEMENT OF THE HONORABLE ROBERT F. HALE, CHAIR, THE HONORABLE
ELLEN M. LORD, VICE CHAIR, AND LAURA C. SAYER, EXECUTIVE
DIRECTOR
Mr. Hale. Thank you, Chairman Reed, Ranking Member Wicker,
all the Members of the Committee. We are pleased to be here
today to give you an overview of the final report of the PPBE
Reform Commission. We will do that with a briefing. I think you
have hard copies in front of you, and then we will answer your
questions. Ellen and I will do the briefing and then ask Lara
to join us as we answer questions. Ellen will deliver the first
part of the briefing and I will finish it up. So Ellen, over to
you.
Ms. Lord. Thank you, Bob. Chairman Reed, Ranking Member
Wicker, Members of the Committee, on behalf of the 14
commissioners we are very appreciative that you are taking time
out of your schedules to meet with us here today.
We speak after 24 months of work, over 400 meetings,
speaking with over 1,100 individuals. We are very pleased, as a
commission, to have over 200 years of experience on our staff.
We initially hired Lara to be our Executive Director, and she,
in turn, brought along other practitioners. So we did not have
people looking things up. We had people with experiential
learning, who had been through the PPBE process and know where
its strengths are and where its weaknesses are.
Our Commission believes we are here at a critical juncture
in history. We have emerging technology, whether it be
software, hardware, services, we have new business models, all
rapidly evolving, and we also have rapidly evolving
geopolitical threats. This is putting us in a position where we
have to be able to leverage American ingenuity and reduce it to
warfighting capability to be quickly fielded. We believe that
although today's PPBE process has many strengths in terms of
engaging a variety of stakeholders and very comprehensively
looking at the Department's strategy, we need to make
improvements, because we have a need for speed, and right now
we do not have that.
So I am on page 2 here of the handout [The handout can be
found in the Appendix on page 48], and just want to make the
point that our geopolitical threats range from the space domain
to underwater. We have information warfare. We have
cybersecurity threats. We need to weave all of our capability
together to be able to fill the gaps our warfighters have
today.
So if we go to slide 3, what I would like to do is talk
about the fact that our process takes 2 years, best case, from
defining a need, a requirement, to budgeting and getting money
ready to be obligated and go through the DOD process. This does
not meet the needs we have today, and I think Ukraine has very
clearly shown us how we can take commercial technology, quickly
put it in warfighters' hands, be adaptive, and be very, very
lethal. We need to learn from Ukraine and other events around
the world and make sure that we are pushing down decisionmaking
to the program executive officers and the program managers. We
need to make sure we do not unduly constrain them with very
discrete budget line items, that we do not get hung up with
colors of money when moving from RDT&E [Research, Development,
Test, and Evaluations] to procurement to O&M [Operations and
Maintenance].
There is opportunity here, and that is really what all of
our recommendations are about, the opportunity to make a
change. Change needs to happen both in the Department, at DOD.
It also needs help from Congress, and you will see in the back
of our report we have actually drafted some legislative
language to help support some of these recommendations.
If you go to slide 3, what we did there was talk about the
long timeframe of our budgeting process, and we have pointed
out in the report that there is precedent with other Government
agencies who have more flexibilities than we do, whether it be
NASA [National Aeronautics and Space Administration], NNSA
[National Nuclear Administration], or the VA [Veterans
Administration]. They are sometimes not colors of money.
Sometimes there is no-year money, and there is the ability to
carry over money. So there is precedent.
If we go to slide 4 we can talk about how we organized our
work. It is in five different areas.
First, as Senator Reed mentioned, improving alignment of
budgets to strategy. Right now it is difficult when you look at
the justification books, when you look at DOD's budget, to
understand how this meets the National Defense Strategy. Bob
will talk in a little bit about some of the restructuring of
the budget itself that we think will make this much clearer.
We second looked at fostering innovation and adaptability.
Right now we know that the majority of our innovation comes
from the commercial sector, yet we do not have the budgeting
flexibility and the acquisition procedures, and a trained
workforce, to allow us to quickly capitalize on these
commercial developments.
We also, in a third category, looked at the relationship
between Congress and DOD. There is a bit of skepticism on both
sides, it seems, when dealing with PPBE, and we believe that is
in large part due to the fact that we do not have the data-
driven conversations we need to have. We often talk in
generalities. We think there needs to be a cadence of
communications on regular basis, with very transparent budgets
that are sortable and searchable and very clear to all.
That leads us to the fourth category, which is modernizing
business systems and data analytics. Right now the Department
of Defense has many, many different business systems, and even
within one military service it is very difficult, or within one
agency, to understand all of the pieces and parts of the budget
as well as the supporting materials. What we advocate is using
common systems, where we have data aggregated, and we can use
modern technology to sort and search and apply data analytics.
Finally we look at strengthening the workforce. The human
capital at the Department of Defense is what is going to field
capability quickly downrange. Today we do not adequately train
our workforce in order to allow them to use all the authorities
that Congress has given them, the policies that DOD has
drafted, and the implementation guidance through procedures. We
need to leverage the Defense Acquisition University and our
leadership to motivate and reward our acquisition
professionals, our budgeting professionals to embrace the
change we have and use what we call ``creative compliance.''
So there are 28 recommendations we have, many of which can
be implemented now. We are very pleased with how the DEPSECDEF
[Deputy Secretary of Defense] has embraced many of these and
actually already put out some guidance. So to talk more
specifically about our recommendations and the new budget
structure and the defense resourcing process I am going to hand
it back over to Bob.
Mr. Hale. Okay, Ellen. Well, thank you. Based on our 400
interview and research we distilled that into, as Ellen said,
28 recommendations, the first of which is to replace the
current PPBE with a new system that we would call the Defense
Resourcing System.
If you turn with me to slide 5, you will see that there is
a fair amount of streamlining in this new system. On the left
you see the current PPBE process. On the right you see the new
DRS [Defense Resourcing System] process. I will not go through
every detail here, but the size of the slides makes clear that
the new system is streamlined, it uses fewer documents than the
current PPBE system. For example, in some cases today services
submit two documents to codify the budgets they present to the
Office of the Secretary of Defense. It is not clear why you
need to do that. We would go to just one document.
We also propose combining the current programming and
budgeting phases of the PPBE into a single phase to avoid
duplication.
In addition to streamlining, the new DRS strengthens the
process for establishing guidance from the Secretary of
Defense, telling the services how they should build their
buildings to align the strategy. In past years that guidance
has not always been definitive, and it has often been late. In
7 of the last 10 years it came after February, when the
services were well into their budget builds.
The Commission recommends more use of analysis and more
senior leader meetings in December/January to provide more
definitive guidance, and do so in a more timely manner. Now
that may sound academic, but it is not. When you are facing
rapidly changing threats you want to be sure that the services
are following the strategy that has been laid out, and so you
want to be able to relate budgets to strategy.
Turn with me now, if you would, to slide 6. As part of the
new Defense Resourcing System that Ellen has described and I
have begun to describe, the Commission recommends transforming
the way that DOD presents defense budgets and the way that
Congress authorizes and appropriates funds. As you see on the
left of slide 6, today the budgets are presented first in terms
of a lifecycle phase, defined in terms of appropriations,
procurement, O&M. They are presented in those terms, and in
terms of service or component, plus more detail in most cases,
but I will not go through a lot of that.
As the right-hand side of slide 6 shows, the Commission
recommends presenting and authorizing and appropriating budgets
in terms of services and components--that stays the same--but
then in terms of major capability or activity areas. DOD would
have to define what these are, working with Congress, but
examples could include things like tactical aviation, ground
maneuver units, surface ships. Now these categories certainly
not by themselves describe strategies, but they are a lot
closer to a strategy than appropriation titles like
procurement.
So this new presentation would help to ensure alignment of
budgets to strategy, which as Ms. Lord noted, is one of the
Commission's key goals, and I think an important one. The
transformed budget would also present data that is more in line
with the way this Committee and most people talk about and
discuss the defense budget, that is in terms of capability
areas.
Go with me now to slide 7, if you would, which lists a
number of new processes and changes in budgetary rules that the
Commission recommends in the new Defense Resourcing System. I
will highlight a few of them.
Ellen mentioned that improving relations between DOD and
Congress constituted one of the Commission's key goals. Now
based on my personal experience, when there is a serious
problem, DOD and Congress find ways to work together to meet
national security needs. But there are strains in this
relationship. We certainly heard a good deal about those
strains during our extensive interviews, and some changes we
think could help ameliorate these strains.
For example, the Commission recommends encouraging improved
in-person communication between DOD and Congress on budgetary
issues. Today there is a lot of communication when the budget
is sent up here, at both senior levels and more junior levels,
but after that the communication tends to be more episodic, and
my impression at more of the role of the junior levels.
The Commission recommends at least one more round of in-
person communications involving senior DOD and congressional
personnel. This round would focus partly on execution-year
issues, like the omnibus reprogramming. Why is it up here? What
are the most important parts? Also the additional communication
would focus on changes in the President's budget proposal. For
example, new technologies that may have arisen in the years
since the budget was put together, which could be, as Ellen
mentioned, a couple of years ago, and that Congress may want to
take into account during its markups. So we think some enhanced
in-person communication would be good for the process, in
general, and help DOD-congressional relations.
Let me turn to another rule change on slide 7. From DOD we
heard a lot of concern about late budgets and the continuing
resolutions that they cause, and these adversely affect budget
execution and certainly congressional relations. Now a broad
solution to late budgets involves issues well beyond the scope
of this Commission, but the Commission does recommend some
process changes that would mitigate some, though certainly not
all, of the adverse effects caused by CRs while still
maintaining congressional oversight.
Specifically, the Commission recommends that DOD be allowed
to put in place New STARTs while under a CR, but only if all
four of the defense committees and subcommittees had acted on
the defense budget, voted on it, and none of those four bills
had prohibited the New start. Similar rules would govern
increases in weapon buy sizes while under a CR. To ensure the
legality of this recommendation, it would be put in place using
the same informal agreement that Congress and DOD use today to
govern the reprogramming process.
Let me turn next to some important business process changes
that would help DOD and Congress process budgets more
effectively. I will mention just one. The Commission recommends
modernizing systems that are used to communicate budgetary data
to DOD, and Ellen mentioned this one briefly. Today that is
often communicated sometimes in printed form, but usually in
flat files, Excel, or PDF files. DOD could put in place
communication enclaves or platforms that would use software to
transmit budget data in ways that would be more searchable,
sortable, easier to extract information, and these approaches
would reduce workload on both sides of the river, assuming
Congress reciprocated and returned its guidance to DOD using
these communication platforms.
We talked a lot about fostering innovation, or Ellen did,
and adaptability. In its final report the Commission makes 11
specific recommendations designed to speed up actions under
this new Defense Resourcing System, and so better foster
innovation and increase adaptability. Which again is one of our
key goals. I will mention three examples because this is an
important area for the Commission.
The Commission addresses color of money challenges in
several recommendations. One of them would provide that a
single-purpose organization, like a buying organization, would
be allowed to pay all its expenses with one color of money,
procurement in the case of the buying organization. This is
similar today to what we do in DOD labs, and it avoids the
problem that occurs if a program manager 2 years ago said,
``Yes, I might need a little O&M for sustainment.'' He gets
into execution and finds out he does not have the right amount.
He has got to stop and probably go to an above-threshold
reprogramming to get that fix, or worse yet, wait for the next
budget cycle, all of which slows down the program. We think
this would get rid of many of those problems.
My second example of fostering innovation and adaptability
involves consolidation of budget line items. Budget line items
are the lowest level of detail that Congress uses to control a
defense budget. There are 1,700 of them in the DOD budget
today, 1,000 in the RDT&E appropriations alone. The Commission
believes this is too many for effective oversight either in DOD
or in Congress, and we recommend that DOD establish a working
group with Congress--this has to be done jointly--to
consolidate budget line items while maintaining appropriate
congressional oversight.
My final example is an oldie but it is still a goodie in
the Commission's view, and that is extending the availability
of a small portion of DOD's operating funds. As you know, today
all of DOD operating funds--that is the O&M and military
personnel appropriations--must be obligated in the year in
which they are appropriated. That often leaves insufficient
time to obligate funds for the highest priority needs,
especially when we are operating under CRs consistently--so
that 1 year could be 6 or 8 months--and it leads to the
infamous year-end spending spree, when sometimes commanders and
managers obligate money on lower priority programs just to
avoid losing those funds.
The Commission recommends that DOD be allowed to obligate a
small percentage of its operating funds, up to 5 percent in
each operating appropriation, in the second year. That would
reduce the year-end spending spree and result in more effective
execution of defense dollars. The Commission believes that
extending the availability of operating funds, along with some
of the other rule changes we have recommended, have been
debated for years, and are ready for legislative action. We
hope that this Committee will include at least some of these
proposed recommendations in this year's version of the NDAA.
Turn with me now to slide 8, and I will sum up the
advantages of the new Defense Resourcing System. Overall, the
DRS will help DOD react to rapidly changing threats and
technology changes, and to keep pace or outpace our strategic
competitors like China. How does it do that? Well, it does it
in the way that Ellen and I have been talking about, reformed
design to foster innovation and adaptability--that is those 11
recommendations on rule changes--a new budget structure, so we
present the data the way talk about the defense budget,
attention to communication with Congress, and other
modernization of business processes so that we are using more
modern systems, and finally streamlining to save both time and
avoid non-value-added duplication.
Now I will turn to slide 9, which is the last one I will
brief. We are concerned that if toss 28 recommendations into
the laps of staffs that are already veery busy, both in DOD and
Congress, handling day-to-day activities there just will not be
enough time to implement these changes. So our 28th
recommendation is that DOD establish an implementation team,
divorce it from the day-to-day activities, and task it with
overseeing implementation of those of our recommendations that
DOD and Congress believe should be put in place. The team
should be cross-functional--there is more here than financial
management--it is going to affect acquisition and many other
areas. It should report directly, in our view, to the Deputy
Secretary of Defense because in DOD if you are going to make
changes across functional areas that is the lowest level at
which it can be effectively done. Finally, the implementation
team should be temporary, but in the Commission's view,
temporary is more like 3 years, because it is going to take
time to implement some of these changes.
The implementation team should definitely be directed to
involve Congress in these implementation efforts. It is in
DOD's DNA--and I have worked there for many years--to go and
huddle together and figure out the best solution and then
present it to you. I think we will have more chance of success
if they come and talk to you along the way, get your thoughts
from Congress, and then eventually, obviously, they need to
make a recommendation for most of these and make a
presentation. So collaboration here is critical.
Slide 10 lists all of our recommendations. I will not brief
it, but it is a good place for me to stop and say that we would
be glad now to answer your questions. Ellen, Lara, and I would
be glad to give you our best thoughts.
Chairman Reed. Thank you, Secretary Hale. Thank you for all
for an extraordinary bit of work, and my first impression is
establishing a relationship with DOD and Congress is critical,
and within that congressional sphere it authorizes and
appropriates. I think we have to be very conscious of that, and
we will try to do that.
We all recognize, based on just our experience over the
years, and this very excellent report, that PPBE is an antique.
We need something better. I wonder if both Secretary Hale and
Secretary Lloyd, could you explain how the Defense Resourcing
System is just not going to be a name change if we do it right,
and how would it enable the Department to react more quickly to
the demands? We will start with Secretary Hale.
Mr. Hale. Let me start off. It is much more than just a
name change, although I think changing the name is important to
get people thinking that, hey, there is something new going on
here and not just revert to the old ways. But Ellen and I gave
some examples. It would have processes to give better guidance
to the services about how to structure their budgets consistent
with strategy. That sounds academic, but it is not. If you are
facing rapidly changing threats you need to be sure everybody
is rowing in the right direction to counter those threats, and
so we need a better process, and we think we have proposed one
to link budgets to strategy.
I mentioned some of the 11 changes that are designed to
foster innovation and increase adaptability to change threats.
Those would all be part of the Defense Resourcing System. Ellen
may well have more to say about this, but we need some modern
business practices. I gave one example of better ways of
communicating with Congress so we save time. Congress spends an
incredible amount of time figuring out how to take into account
the guidance you give them. Some of this can be done
electronically, and we have some specific proposals in our
report.
So it is much more than a name change. There is a good deal
of specifics. Ellen, let me ask if you want to add to that.
Ms. Lord. Certainly, then I think I should hand it over to
Lara to give some more examples, because she has really got the
details.
One of the key changes is to take two processes that were
done separately and bring them together. This is programming
and budgeting. So CAPE has typically worked programming on one
side and then comptroller budgeting on another. While the
Department has made some progress toward using the same
business systems to enter data, we say this should be one
collaborative process, because right now too much time, in our
opinion, goes by in the Department with separate groups working
separately, and then later on in the cycle it all crashes
together to try to be adjudicated.
So we would start the cycles earlier so that we could have
wargaming, we could have data analytics, and we get that
programming and budgeting really looking at different scenarios
so that the DMAG cycle, the Deputy's Management Action Group,
could start sooner so that the Department could get to some
good decisions. That is kind of on the front end of things.
When the Department comes up with a budget, right now it is
not delivered in a consistent way across the agencies and the
Military Departments. What this system says is that there will
be a common platform, common software platform. That does not
mean one platform. That means platforms that speak with one
another, where you can access data, and then have justification
books come across digitally, all together, in a consistent
format, so that members and staffers can very clearly
understand what is budgeted, what the backup documentation is,
versus going from one budget to another and trying to
rationalize the differences in presentation, and so forth.
This really requires the Department to come together, use
digital systems for the benefit of our business systems. We all
talk about digital engineering all the time when we talk about
warfighting platforms, but we are not applying that same modern
technology to the business side of things.
As I mentioned earlier in my opening comments, we are
trying to get more decision authority down to PEOs and PMs. A
lot of these recommendations under ``foster innovation and
adaptability'' allow them to not wait for the system to catch
up, so they can continue on their programs. It is allowing them
to move a little bit of money around, with guardrails on so
that Congress understands what is going on.
So Lara, why don't you bring it home.
Ms. Sayer. All right. Well, good morning, and thank you so
much for having us here today. A lot of what you have heard
described talks about streamlining within the Pentagon. I
wanted to highlight that the bulk of what happens in the PPBE
process is actually in the field, in the Acquisition Program
Office. Streamlining these activities will alleviate a lot of
duplicative, non-value-added workload in those places where we
actually execute the mission, put things on contract, and
deliver capability. So I am no longer building a program and a
budget. I am no longer putting together two documents that have
a lot of similar information. That is where the rubber meets
the road, where we simplify things.
One other thing I would like to foot-stop about the DRS
process, how we have designed it, is that continuous analysis
will be happening throughout the cycle. It will kick off rep
briefings, there will be tabletop exercises, there will be
conversations, including the Joint Force, so all of the
relevant voices are heard early and often. Then the feedback
with evaluation strengthened by modern business process will
make sure we have better data-driven decisions throughout the
cycle. Thank you.
[The joint prepared statement of The Honorable Robert F.
Hale and The Honorable Ellen M. Lord follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Reed. Thank you very much. Now let me yield to the
Ranking Member, Senator Wicker.
Senator Wicker. Ms. Sayer, the implementation team would be
composed of employees inside the Department of Defense, is that
correct?
Ms. Sayer. Yes, sir, but they could also hire subject
matter experts externally, as well. We haven't designed it
specifically who should be. But it needs to have leadership
direction from the Deputy Secretary of Defense to be effective.
Senator Wicker. Right. Right. Okay. Is there anywhere in
the recommendation, change recommended for the Office of
Management and Budget (OMB)?
Ms. Sayer. Well, they have to be a partner with us in this
regarding the changes to budget structure, and we have talked
with them several times, and they have been supportive. So they
will have to be involved with the implementation team as the
Department and Congress work together on this.
Senator Wicker. But Secretary Hale, this would require a
change of approach from OMB, would it not?
Mr. Hale. Yes. I mean, I think the fundamental process
could remain unchanged, of DOD having, we would hope, a joint
review in the fall with OMB. But obviously if we transform the
budget structure it would require a change agreement from OMB,
and frankly, also from the Congress because we would propose
that you authorize and appropriate in these categories, as
well.
As Lara said, we have met several times with OMB. I am not
going to sit here and tell you they bless all of these, but
they were generally supportive, and they are certainly well
aware of our efforts, and we heard what comments they had to
provide us.
Senator Wicker. Okay, and Secretary Lord
[audio interruption] we do not have much time. On how we
would treat continuing resolutions differently, basically the
same people who have to agree on reprogramming would be able to
reprogram funds in the case of a continuing resolution. Is that
correct?
Mr. Hale. We did not actually recommend any specific
changes associated with the reprogramming under a continuing
resolution. Actually, DOD has a fair amount of flexibility,
because the typical CRs are at an appropriation level. What
they can't do is, right now at least, put in place any new
starts. If you have got a weapons system that has a planned
increase in the buy size, under CR they can't go above last
year's level. We proposed allowing them to do that, but to
ensure that we provide for congressional oversight they can
only do that if all four of the defense committees and
subcommittees had passed the bill and none of them had
restricted the new start or the weapons size increase.
So I think we did what we tried throughout, Senator Wicker,
and that is to balance oversight, the need for oversight, with
the need for flexibility, and it seems to me it is a good
compromise and one that--I would like to get rid of CRs. I
think we all would--but a good compromise to the extent that we
have them.
Does that answer your question?
Senator Wicker. It seems to me there is a school of thought
out there that a CR saves money as opposed to the next
appropriation bill, which is at a higher level. I think the
panel knows what our thoughts are on that, that that is
actually false.
Do you think this is going to make a continuing resolution
a little more palatable?
Mr. Hale. We had a brisk debate on that in the Commission.
Do you want to mitigate adverse effects, at the risk of making
it a bit more palatable? Frankly, we looked at history. We had
one budget passed on time in DOD in the last 10 years. They are
just a way of life, and they are being caused by factors well
outside the defense budget.
So we finally decided that we probably are not going to
increase the probability of them, because unfortunately they
are pretty high right now, and therefore we should look for
ways to mitigate adverse effects. We offered that to Congress
and DOD as a way to do that, while again, I think, still
maintaining oversight.
Senator Wicker. On the record, Mr. Chairman, wondering if
they would comment, and at large on Secretary Lord's testimony,
about lessons learned in Ukraine and how we would be better off
under this new procedure in situations like the current
situation in Ukraine.
Ms. Lord. Are we taking that as a QFR, or--okay.
Senator Wicker. Thank you.
Chairman Reed. Thank you very much. Senator Hirono.
Senator Hirono. Thank you, Mr. Chairman. I think any time
we are talking about a pretty big change--because I think this
is a big change to how DOD operates. It is more than a name
change. Whenever we try to impose or have changes there is a
lot of resistance. So you have a number of recommendations. How
they are going to be implemented is a huge question in my mind,
regarding your Commission's work.
One question that I do have for Ms. Sayer, you mentioned
the need to streamlining. A lot of the streamlining needs to
take place in the acquisition process. You just said that,
right?
Ms. Sayer. I said it would affect the program offices. They
would have less non-value-added work for PPBE.
Senator Hirono. I thought you mentioned that more
streamlining can occur in the acquisition process.
Ms. Sayer. I was thinking of the program office itself.
They actually are involved in putting the program together and
budget. They do the cost estimates.
Senator Hirono. The reason I noted your testimony is that I
am having a Readiness Subcommittee hearing focusing on
acquisition. So, you know, it says that the 2016 NDAA, there
have actually been some 600--there have been nearly 500
acquisition provisions to provide flexibility and options to
the Department to tailor acquisition to be more efficient, cost
effective, all of that. We even created pathways for
acquisition so that we focus on how they ought to be operating.
I do not think very many of us here, on this Committee, know
that we have these pathways--rapid acquisition, middle tier
authority, major capability acquisition, software acquisition,
defense business systems, acquisition of services. We have all
these pathways that are intended to provide more flexibility
and have our acquisition people do what they are supposed to be
doing.
I am wondering whether we--I think we provided enough ways
that they ought to be operating. What more do we need to do to
provide acquisition reform? Is it the people, because you also
mentioned the need to train people. Is it that we need to
better train, for example, our acquisition people so that they
know how to use the authorities that they already have through
these pathways that I just mentioned?
Ms. Sayer. I absolutely agree you have given wonderful
authorities to the acquisition community, and absolutely
training is needed. We are focusing on the actual resourcing,
the putting the budget together, and my point was just that in
the program office, in the Acquisition Offices, they are a big
part of building that as they build their program office
estimate. So we are actually taking extraneous workload away
from them so they can focus more on acquisition, probably on
their training, so they can end up with better contracts. So my
apologies for the confusion.
Senator Hirono. Ms. Lord, do you want to add something?
Ms. Lord. Yes. Thank you very much. There are not many
flexibilities relative to acquisition and OTAs, middle tier of
acquisitions, software pathways are being utilized. They could
be much more fully utilized if the workforce was trained.
However, these acquisition professionals have a constraint if
they do not have money available at the right time in their
program, and that is what we are trying to get at with a lot of
these changes here. Acquisition professionals are constrained
by the color of money, if you will. RDT&E can only be used for
certain things, procurement. What we are trying to do is couple
budget adaptability, agility with the acquisition authorities
to speed everything along. So they are very complementary.
Senator Hirono. You say that you have some language,
statutory language, that we can consider for the NDAA?
Ms. Lord. Absolutely. Absolutely.
Senator Hirono. Okay. I am all for providing the kind of
flexibility that people need, that our professionals need in
order to do their jobs. I think, Mr. Hale, you were asked about
allowing a small portion, 5 percent, of operating funds to be
carried over for obligations, so that provides some level of
flexibility. What does 5 percent of operating funds translate
to in dollars?
Mr. Hale. I would have to go back to the budget. It would
be----
Senator Hirono. Are we talking about billions?
Mr. Hale.--maybe $10 billion, $20 billion.
Senator Hirono. We are talking about a lot of money.
Mr. Hale. Oh yes. A lot of money, for sure.
Senator Hirono. That is so--yes, go ahead.
Mr. Hale. But remember, they would still be spending this
money in accordance with the budget justification books that
they had sent to Congress. I mean, it is not as if, in the
second year, they could go off and do an entirely new program.
They would have to follow, again, what they told you they were
going to spend the money on.
Senator Hirono. So they still have to live within certain
constraints.
You know, just this hearing points out that I like your
idea that there needs to be more communication with Members of
Congress because you have done all of this work, and me
questioning for 5 minutes just does not hack it. So I like the
idea of providing additional opportunities for us to interact,
even with you all, and I probably will want to set up something
perhaps with my subcommittee.
Thank you, Mr. Chairman.
Chairman Reed. Thank you, Senator Hirono. The techs have
been working on the microphones. The advice they give us,
though, is if you could back a little bit it would mitigate the
interference.
Senator Fischer, please.
Senator Fischer. Thank you, Mr. Chairman, and thank all of
you for the work you have done on this Commission. I know a
couple of your key changes and reforms that you pointed out.
One was to be able to incorporate continuous planning and
analysis into compiling the guidance. I like that. I also like
where you are looking at making sure that you change the budget
structure so that military programs, they are all listed in the
same part of the budget, because it is really difficult to look
through the entire Department of Defense budget to figure out
what a certain program's cost is going to be.
Ms. Lord, the report highlighted the importance of aligning
the budget request with an overall strategy, but it also
underscored the difficulty in achieving the symmetry under the
current PPBE process. Can you explain to the Committee what the
importance is in being able to rectify that gap, really so that
the Department is able to react and be in a good position to
compete against a technologically advanced adversary like
China?
Ms. Lord. Absolutely. We begin with deconstructing the
National Defense Strategy into a new guidance document that is
much clearer about what should be done and what should stop
being done. We then start much earlier in----
Senator Fischer. I am going to interrupt you here. Do you
have specific recommendations on ways to stop----
Ms. Lord. Yes.
Senator Fischer. What page was that on?
Ms. Lord. We will go back and look at that, but overall----
Senator Fischer. If you could let us know.
Ms. Lord.--process, we can show you----
Senator Fischer. Because that----
Ms. Lord.--where we talk about clarity, we discuss at some
length perhaps the opportunities to change the Defense Planning
Guidance, and we give it a new name and ask for a lot more
specificity. So we can get back to you with the pages on that.
But that begins with articulating clear direction so that
we do not have different military services and agencies going
and building budgets according to their interpretation of what
is being asked to be done, and only find out 8 months later
that their interpretation was different than senior leadership.
Second, we begin this analysis cycle earlier, and we want
to make sure that we leverage force structure, materiel,
services all together in wargaming, tabletop exercises, and
what-if scenarios. That requires data being in a central
repository or able to be pulled out to do modern data analytics
so that you can run hundreds of what-if scenarios to optimize,
if you will, force structure, the number of ships, the number
of planes, all of these different things.
So the idea is to get in there and do many, many more what-
if scenarios earlier so that when this is communicated clearly
to Congress, and you ask questions, there are data-driven
answers to come back to justify why a certain pathway was
taken.
Senator Fischer. Thank you. Senator Hale, do you have
anything to add?
Mr. Hale. No. I think Ellen did a good job, and I will add
one thought. In the past years, one of the problems with this
Defense Planning Guidance, which is the current document that
is used to give instructions to the services on how to build
budgets, one of the problems is it has been a kind of consensus
document. It gets sent around for coordination. The services
realize they want to get the right words in there so they can
justify their programs.
One of the changes we would make is more use of senior
leader meetings in December and January, probably at this DMAG,
presided over typically by the Deputy Secretary. The Deputy
Secretary and the Secretary need to hear from the services
about their thoughts on strategy, but they also need to
formulate what strategy they want the Department to follow, and
it may not be a consensus strategy. So we think more use of
these DMAG senior-level meetings would help produce more
definitive guidance, and if we do them in December and January,
an on-time definitive guidance.
Senator Fischer. Thank you. Secretary Lord, you know, I
mentioned just the continuous analysis that needs to happen
here. I think the Department has a risk-adverse culture. So how
is that going to play?
Ms. Lord. We believe that leadership is incredibly
instrumental in setting culture and that there need to be
motivations and rewards for taking smart risks. We often treat
risk in terms of risk elimination versus risk management. We
believe we need to take smart risks, and what we are doing is
trying to delegate down to the PEOs and the PMs who are closest
to the problem, make smart decisions with how to spend money,
to really come up with something that is of utility for the
warfighter.
Senator Fischer. Thank you. Thank you, Mr. Chairman.
Chairman Reed. Thank you, Senator Fischer. Senator King,
please.
Senator King. Thank you, Mr. Chairman. First two quick
introductory points. Thank you for this amazing amount of work
and the research and analysis that you have done is very
impressive and important. Clearly we have not had a chance to
absorb this report in this short period of time.
Second, with regard to your legislative proposals, I do not
know if you have already done this. I served for 2 years on the
National Cyberspace Solarium Commission. We have had something
like 70 percent of our recommendations enacted. One of our
tricks was that we supplied the committees with fully drafted
legislation. It makes it a lot easier for staff. It makes it a
lot easier to consider the matters. If you have not done that I
recommend it. It will accelerate the process over here.
Mr. Hale. There is some legislative language that we have
drafted.
Ms. Lord. It is embedded in the report.
Mr. Hale. We were fortunate to have Peter Levine as a
commissioner. You will recognize that name.
Senator King. Absolutely.
Mr. Hale. He and others on the Commission were helpful in
drafting some of the language. If there is more needed we will
do our best to provide it.
Senator King. It will just accelerate the process over
here, I think.
It seems like if you boil it all down, speed is what we are
talking about, and speed particularly in a period of new
threats and accelerating technological change. One of the
problems--and again, I do not know if you have addressed it--is
we have had testimony before this Committee from smaller
businesses in Silicon Valley and others, that basically have
given up on contracting with the Pentagon. They said it is just
impossible. Too much red tape, too much work, too many filings
and back and forth, and they just say, ``We are just not going
to bother. We are going to work in the private sector.''
I hope you address that, because that is where a lot of the
innovation is taking place, in smaller businesses. If they do
not even come and knock on the door we are never going to get
to take advantage of those innovations. Secretary Lord?
Ms. Lord. The flexibility that we are talking about giving
the PEOs and the PMs to move small amts of money around helps
with that. Also, one of the biggest challenges small businesses
have is to understand what is being budgeted for and who to go
see in the Department. So our budget transparency in terms of
reorganizing the overall structure as well as making these
justification books consistent and totally digital will help
small businesses understand where they money is, who has it,
and who the decision authority is.
Senator King. That is important, but do not forget the
paperwork barrier, the size of a proposal. That has to be
addressed, as well. I think it would do well for the--and I
know we have small business programs in the Pentagon, but if
there were sort of focus groups with some of these companies
saying what are the barriers.
Ms. Lord. Yes. There is actually a little bit of a tangent
here, but there is National Economies studies right now looking
at the SBIR/STTR process--I happen to be on that committee--and
we are doing just that, to try to make it easier for
acquisition professionals in the Department to get small
businesses on contract, and conversely, point small businesses
toward the documents and the people they need to know. But
definitely a key part of this.
Senator King. A similar point, and I think you touched on
this in your testimony, the importance of relying on
commercial, off-the-shelf products. Senator Tillis, who used to
be a Member of this Committee, always came with a spec for the
handgun, which is even thicker than your report.
Ms. Lord. I have been on the receiving end of that, yes.
Senator King. You know what I am talking about. But that is
illustrative of a problem, it seems to me, that often the
Pentagon feels they have to have a custom item rather than an
off-the-shelf item that will meet 80 or 90 percent of the need,
and I think that is something we need to address.
Ms. Lord. Right. That is the requirements process. One size
does not fit all. Not everything needs to go through JCIDS
[Joint Capabilities Integration and Development System]. That
is where the middle tier of acquisition allows a senior
official in a military service or an agency to State a
requirement themselves and move out crisply. Other transaction
authorities allow you to do that, as well, without clearly
defining a requirement, just a general need.
So the adaptive acquisition framework does empower the
Department to do that. My opinion is the challenge is the
motivations and rewards are not there for the workforce to do
that. People are not being recognized who are using these, and
the workforce is not trained to use these as well as they
could, in addition. So we have a leadership opportunity here.
Senator King. I agree. Final point, and I am out of time. I
think we could do well to have a higher degree of relationship
and cooperation with allies who are doing similar research,
producing similar problems, facing similar problems, rather
than say we have to do everything here, working with great----
Ms. Lord. Well, absolutely, and I will say ITAR is a little
bit of a challenge there, so we need to work with the State
Department, as well.
Senator King. A huge challenge. Thank you. Thank you, Mr.
Chairman.
Chairman Reed. Thank you, Senator King. Senator Cotton,
please.
Senator Cotton. Thank you all for appearing here and thanks
to the Commission for a monumental job here.
Mr. Hale, we all know that continuing resolutions
disproportionately affect the Department of Defense in a
negative fashion, both in terms of lost money and lost time.
Congress continues to pass continuing resolutions, however. I
have sponsored, in the past, NDAA provisions that would allow
the Department of Defense to move forward with some programs
under a continuing resolution, but I think there is more to be
done. Could you talk about which of your recommendations are
most important to mitigating the negative impact of a
continuing resolution?
Mr. Hale. Senator, we made a specific recommendation to do
that, and the parts of it that we thought where we could give
DOD some more flexibility under a CR but still maintain
congressional oversight, and they are to allow some new starts
to take place under a CR, but only if all four of the
committees, Defense subcommittees and committees, had passed
the bill on the budget and none of them had restricted the new
start.
Similarly for increases in buy sizes of weapons, which now
are limited--if you have got a program that is growing in the
budget years it cannot go higher than last year while under a
CR. We would allow that but again, only if all four committees
had passed bills and none of them had restricted the buy size.
So we thought that was a good balance between oversight and
some flexibility for the Department. But the best thing would
be to get rid of these darn things. I mean, we cannot mitigate
some of the worst of the problems with CRs. I did not think
anybody can. It is the uncertainty about not knowing how much
you are going to have to budget, and this year is a classic
one. Are we going to be at the 1 percent below or at the
proposed level for DOD? When they do not know that they are
almost having to try to manage two budgets at the same time.
That is a real problem.
So we will try to mitigate them, and I think these are good
ideas, and I hope you will consider them, but the best thing
would be to try to find some way to do away with CRs.
Senator Cotton. I agree. How would you respond to those
Senators or Congressmen who would say, ``I understand you tried
to strike a balance, but you didn't strike a good enough
balance.'' There is not enough role for oversight here in what
you have proposed.
Mr. Hale, if you want to take that, and Ms. Lord, I saw you
nodding your head vigorously so I would like to hear your
response too.
Mr. Hale. The proposal we made, I think, strikes a good
balance. As I said, all four committees would have had to have
acted, and frequently by the time you are into a CR for several
months all four of the committees and subcommittees have acted.
So they could have expressed their will, and if they restricted
a new start then you would not be able to put that one in place
while under the CR.
This is not unlike what we did many years ago, back I think
when I was working for Congress, when we had a lesser of House
or Senate kind of language in continuing resolutions, which
provided that any bill that struck a program at a lower level
had to be adhered to during the CR. So I think we have balanced
the oversight well, and I would urge you to consider putting
that one in place.
Senator Cotton. Ms. Lord?
Ms. Lord. I do not believe we could let perfect be the
enemy of good enough here, and our recommendation recognizes
Congress' requirement to oversee taxpayer dollars, and we are
only talking about moving on new starts where SAS, HAS, HACD
and SACD have not marked. So that does preserve Congress'
oversight in our mind.
Senator Cotton. Okay. Thank you. I remain concerned that
certain cultural attitudes and bureaucratic inertia at the
Department of Defense could leave many, maybe most, of your
recommendations on the cutting room floor. It would not be the
first time that that has happened with a significant report
like yours.
What do you think are the biggest internal challenges at
the Department to making these changes? Ms. Lord, again I see
you nodding, if you want to take it, and then maybe if we have
enough time----
Ms. Lord. Thank you. First of all, we tried to make sure we
had stakeholder engagement during this whole process. The first
individual at the Department we talked to was the DEPSECDEF,
and we have gone in and briefed CAPE and Comptroller, many
different individuals, and we have gone back prior to both the
interim report release in August as well as the report released
in March to talk with the DEPSECDEF.
We believe there has to be an implementation team
established, and that needs to come from the DEPSECDEF's office
so that there is the authority there. There has to be
accountability, and we have to have metrics. Without data we
have nothing, and so we need to put out a timeframe.
Now I will say that we were extremely pleased that right
after the interim report, Kath Hicks put out a directive memo
asking her team when and how they were going to implement the
actions that could be implemented now, and we know that there
have been legislative proposals in the 2025 budget that six of
them reflect our recommendations.
But I think there has to be one human being responsible for
this, and there has to be accountability with data-driven
reports on a regular cadence of communications.
Senator Cotton. Thank you.
Mr. Hale. Can I add to that? I think you can play a role in
this, this Committee and the Congress. Some of these can be
legislated, and I would hope you would consider them, either in
the authorization or the appropriation bills, and that will
certainly give guidance to the Department and force their hand.
So you can play a role here.
Senator Cotton. Thank you.
Chairman Reed. Thank you, Senator Cotton. Senator Warren,
please.
Senator Warren. Thank you, Mr. Chairman. So you three are
testifying here today because Congress directed your Commission
to take a close look at how the Pentagon allocates its
budgetary resources and make recommendations about how the
process could be improved. As I read most of your
recommendations it is about providing increased flexibility for
DOD to move money around to different programs as it sees fit,
outside of what Congress specifically authorizes.
This is troubling because if anything, the Pentagon,
arguably, has too much flexibility as it is when it comes to
spending taxpayer dollars, and I just want to run through a few
examples.
The Chief Financial Officer's Act requires annual financial
audits for every Government agency. Mr. Hale, you have spent
years working on DOD's financial management issues. Has the
Department of Defense ever passed an audit, ever?
Mr. Hale. DOD, as a whole, not, but the Marine Corps had
just passed, got an unmodified opinion, and a number of other
agencies. DOD, as a whole, not.
Senator Warren. Good for the Marine Corps, but I have got
to tell you, that is a terrifying answer because not only has
DOD not, what you are really saying is only the Marine Corps
has, which is a way of saying all of the other divisions, as
well, have not.
You know, in other words I think we can say from that DOD
is not doing a good job of keeping track of where its money
goes. So it is puzzling that despite this failure of basic
internal controls this Commission is asking for DOD to have
significantly more flexibility to move money around.
So let's look at another example. Each year DOD proposes a
budget to Congress, but once that overall budget is submitted,
individual divisions within DOD get a second bite at the apple.
They can come to Congress separately and ask for more funding,
so-called unfunded priorities.
Mr. Hale, do you know how many other agencies do this kind
of two-bite funding, once for the overall department where all
of the balances are made about priorities, and then a second
time for practically every section in the Department to come
advance its own priorities, without any curbs on the balances
among them?
Mr. Hale. I am not aware of what other departments do. I
will say that the unfunded----
Senator Warren. So do you know of any that permit that two-
bite funding?
Mr. Hale. I do not, but that does not mean there are not.
Senator Warren. Well, I will tell you the answer, as best I
can figure it out. It is zero. This is something that no one
else does, and why? Because it is a terrible idea, and it leads
to chaotic budgeting. DOD itself has supported my bipartisan
bill to get rid of this approach. Nowhere else is this form of
budgeting permitted, and yet your Commission report just kicks
the can down the road. I mean, some watchdog you turned out to
be here.
So I want to do one more example. The Air Force recently
reported that its new intercontinental missile program is going
to cost nearly 40 percent more than originally expected. They
have admitted that they started out with bad data. Now I think
it may be worse than that. I think there is an open question
about whether Congress was purposely misled about the real
costs of this project in order to get Congress to approve it.
Mr. Hale, does giving the Pentagon more flexibility to move
money around from program to program make it more likely or
less likely that DOD will provide accurate cost estimates for
major programs?
Mr. Hale. I do not think it is going to affect the accuracy
of the programs because they are moving money around within the
guidelines of the justification books, and they told you how it
is going to be spent. It would not solve some of the problems
that you are raising, but I do not think it would worsen any of
them, and it would allow us to react to technological change,
or allow DOD to react to technological changes in ways that
will, I think, strengthen national security.
Senator Warren. Well, I have to say, since your job was on
budgeting, I am a little alarmed at your casual approach to the
implications of being able to do this. If DOD has more tools to
cover up its mistakes then I think it becomes even more
tempting to lowball the costs and the risks of a new program.
This looks to me like the perfect recipe for mismanaging tens
of billions of dollars.
Look, I am all for improving how DOD allocates its budget,
but I do not see how these recommendations get us there. It
seems to me that DOD has plenty of flexibility when spending
taxpayer dollars. Before Congress gives DOD the $850 billion it
requested for this year I think we should insist on some
guarantees that DOD will spend that money more responsibly.
Thank you, Mr. Chairman.
Chairman Reed. Thank you, Senator Warren. Senator Schmitt,
please.
Senator Schmitt. Thank you, Mr. Chairman. In June of last
year the Pentagon announced that they identified a $6.2 billion
accounting error in the value of equipment that they had
previously sent to Ukraine. Then just a couple of weeks ago the
Pentagon said, in a release, that, quote, ``The Army had found
additional funds''--$300 million--``after renegotiating
contract costs to replace equipment that has already been sent
to Ukraine.''
This release also quoted an unnamed official. It is long
but I think it is worth actually reading and quoting it to
highlight the absurdity of it. Quote, ``We had savings come in
that will allow us to offset the cost of a new drawdown
package,'' said a senior defense official today. Quote, ``The
savings that have come in here are going to help square the
circle of what the Secretary said of needing to have new
funding come in to be comfortable doing any more drawdown. We
did have funds come in that can cover the cost of one more
package, but this is a bid of an ad hoc or one-time shot. We do
not know if or when future savings will come in, and we
certainly can't count on this being a way of doing business,''
end quote.
Well, I would agree that this is no way to do business, and
I know this Commission does not have anything to do with
funding Ukraine or any contingency, for that matter. But I do
want to just bring this up that you talk about people losing
faith in institutions. It is really hard, I think, for people
when we talk about these additional drawdown packages and then
they suddenly found $6.2 billion. I know in our budget maybe
people do not think that is a lot of money. Where I come from,
that is a lot of money--$6.2 billion is a lot of money.
So I guess the question for each one of you, if you want to
chime in here, is what can be done to enhance the transparency
and accountability here with DOD's budgeting and acquisition to
both Congress and to the public, addressing this. It feels like
we are just continuously pulling money out of thin air. Anyway.
Ms. Lord. I believe that one of the recommendations that
squarely addresses this is the need for modern business
systems. I went into DOD after 33 years in industry, and the
systems, the business systems used by the Pentagon are 10, 20,
30 years old, and they do not talk to one another, so to speak.
So there is a lot of fat-fingering that has to happen to move,
you know, one set of numbers to another, and I believe there is
always going to be human error.
One of our recommendations here is to demand that we have
modern business systems based on commercial off-the-shelf
technology versus having these bespoke systems that are
developed by different groups within DOD, outsourcing other
groups to do them. There is a lot of reconciliation that has to
be done with the systems we have now. In fact, our staff has an
enormous amount of experience on that.
I do not know, Lara, if you want to comment on that, having
worked with the financial systems.
Ms. Sayer. The financial systems are a bit antiquated, and
there is not consistent capability across the Department. I
have worked across multiple services--Air Force, Navy, and
SOCOM--and every time you change commands it is something
different.
There is also not consistent training. So the transparency
unique should be in the justification material, the J Books,
the RDoCs. There is no consistent training on what we described
and tell Congress what we are procuring.
Senator Schmitt. Do you think that would address this
particular issue, like somewhere, we have found $6.2 billion.
Ms. Sayer. That was actually a misinterpretation of
confusing regulation in the Financial Management Regulation.
That actual document from the Department is over 7,000 pages,
has not really been updated, and whenever they make small
changes they do not pull it through the entire document. So
they interpreted one section of it one way, and then when they
went back and read it again they realized that had it wrong.
So that is one of our big recommendations is for them to
clean up their house on their guidance documents, sir.
Senator Schmitt. I do want to get to one other question. I
think everybody here can think of recent examples of major
acquisition programs that have either gone completely off the
rails, like the Army's Future Combat Systems that wasted
roughly $18 billion, with virtually nothing to show for it, to
continuing over time and over budget, like the F-35, that is 10
years late and 80 percent over budget.
While there are a bunch of reasons why I think these
programs fail or struggle, I wonder if the PPBE reform could be
a way to address some of those fundamental issues. I also think
this is particularly relevant in this kind of lightning fast
technological innovation phase, that we have got to be better
at, I think.
I have heard from some industry leaders that the system
procurement specifications are really prescriptive. They are
really prescriptive. For example, rather than simply stating
what warfare problem is DOD trying to solve and solicit really
kind of market solutions, it is quite the opposite. It is on
the front end, being strictly very, very prescriptive. I just
think this is going to be really important. It has always been
important, but now, with the competition with China and others
it is really important.
What are some recommendations you guys might have to
address that? Because it feels like this is a behemoth that we
talk about it, we know it is a problem, but then you get into a
7,000-page document that people interpret differently. So what
can actually be done to cut through here?
Ms. Lord. The requirements process is a big part of it, but
then when those requirements are translated to budget documents
we have to be very careful. We have an example in the report
about buying pens. You specify one color pen. If you find pens
that are a different color you cannot buy them.
So what I would say is we need to be very careful how we
define requirements and then how we contract. Future Combat
Systems, I was on the industry side for that. There was a major
debacle in terms of the acquisition community not working
closely with the operators, the people, the warfighters who
were actually going to use what was being procured. So what
ended up being procured was not what was needed. With Future
Combat Systems we gave all the responsibility and authority to
a prime contractor and have pulled it back over time.
So there are major problems with the way these acquisitions
were originally drafted, and that is more of an acquisition
problem. But what we are talking about is making sure with
these Justification Books that we do not have overly
prescriptive language and that we do not have too many finite
budget line items that cause program managers to wait weeks and
months to get money that actually is authorized and
appropriated for them to use, because of these administrative
glitches.
Senator Schmitt. Thank you. We will continue the
conversation. I am out of time. Thank you, Mr. Chairman.
Chairman Reed. Thank you. Senator Manchin, please.
Senator Manchin. Thank you, Mr. Chairman. Up front, in your
Executive Summary of your report you all call out the damage
delayed budgets and continuing resolutions do to our national
security, which we all agree. An example is the CR that covered
the beginning of fiscal year 2023 cost DOD nearly $18 billion,
according to the American Enterprise Institute, and that
average delay in appropriations being enacted is now over 4
months. I do not know what that figure is going to be.
To help address that you have called for the creation of a
common modern business system to better communicate information
inside the Department and to Congress.
My question is, putting it mildly, the Department struggles
to do anything that requires that level of coordination, based
on past experiences. Who exactly do you see in the Department
successfully leading this effort?
This is for all the panel, anybody.
Ms. Lord. Yes, there have been some steps. CAPE and
Comptroller are now working together in one system, and we see
a demand signal from senior leadership to try to have data move
around. I think Lara probably has some specific examples of
pockets of----
Senator Manchin. I do not want to set you all up with this
question coming up, and this is even more. In 2005, the Chief
Management Officer was created. You all paid no attention. It
never took hold. No one supported it. Nothing happened. They
got rid of it. We put it back again. I mean, I am just telling
you, I do not know who makes these decisions, but I can tell
you they do not want it. They do not want that oversight. I
know what you are saying. It sounds good, and you would think
the Department of Defense, being as large as it is, would want
oversight to make sure we are spending and doing that.
So I will lead into another. The military-industrial
complex, which is what Dwight Eisenhower warned us against,
every bit of that, every bit of these companies that basically
we are beholden to for our military might, if you will, have
retired, high-ranking retired military officials in their
ranks, every one of them. Some of them are basically
controlling the direction it is going.
Do they have more power than basically the Defense
Department has itself, or are they basically the tail wagging
the dog? Mr. Hale, you have been there, and I know you have
seen it inside out and every other way you can. This is a tough
one because something is wrong, sir. When you only have the
Marines--John McCain and I, way back, God bless John, we wanted
to audit the Department of Defense. It is the only agency we
have in the Federal Government that has never been audited, and
to this date, 14 years later, only the Marines.
So I do not know how we break through this, but I can tell
you it keeps ringing in my ears, Dwight Eisenhower saying,
``Beware of the military-industrial complex,'' and I am very
much aware. So go at.
Mr. Hale. Well, I certainly hear your concerns. It is not
an area where we focused in the Commission. We were looking for
ways to take whatever level of moneys Congress and the
President agree on and spend it in a matter that helps us keep
pace or outpace China and other strategic competitors.
I understand your concerns----
Senator Manchin. Let me ask you this question.
Mr. Hale.--but they were not a focus of this Commission.
Senator Manchin. You only have two people, that I
understand, two positions in the Department that have the
authority to make the change would be the Secretary and the
Deputy Secretary, from what you are talking about. To be frank,
they both already have more on their plates than they can
handle. That is why we created the Chief Management Officer,
and you all do not want it.
Mr. Hale. Well----
Senator Manchin. You will not accept it, you did not
integrate it, and nobody wanted it. Is that accurate?
Mr. Hale. Clearly the Department asked that it be
eliminated, so I think you are right there. We are not part of
DOD now, although we certainly have been.
Senator Manchin. So you understand that, basically what you
are saying right now----
Mr. Hale. But----
Senator Manchin.--and identifying is kind of hard for us to
take it serious because you already had a position that could
have done it, and you were just never given the authority to do
it.
Mr. Hale. Well, I will say----
Ms. Lord. Well, there is----
Mr. Hale.--the Deputy Secretary has taken this Commission
seriously. She has been very helpful. She directed implementing
a number of our recommendations in our August interim report,
and when we briefed her on this she expressed support for the
Commission and its goals. So I think it is on her plate, and--
--
Senator Manchin. Okay. We will call her in and find out.
Mr. Hale. Say again?
Senator Manchin. We will call them in and find out.
Secretary Lord, did you have something to say?
Ms. Lord. Yes. I believe that potentially we are conflating
a couple of issues here. DOD is a very large, complex----
Senator Manchin. We know that.
Ms. Lord.--organization, and when we add new departments it
makes it more complex. So there is an issue----
Senator Manchin. Who is adding departments? Why do you add
more departments when you cannot really oversee the ones you
already have?
Ms. Lord. I am addressing your CMO question, and that is
the very point I am making.
Senator Manchin. Okay.
Ms. Lord. When you add another group it adds to the
bureaucracy. So in my mind----
Senator Manchin. Whoa, whoa, whoa. Wait a minute. You are
saying by having an oversight CMO, a management officer, is
adding to the bureaucracy, that is supposed to be overseeing
the bureaucracy so it does not get more bureaucratic?
Ms. Lord. We have checkers on checkers on checkers on
checkers on checkers.
Senator Manchin. Well, my God, no one is reporting on the
checkers, I can tell you that, because we cannot get an audit
out of you all. Thank you.
Chairman Reed. Thank you, Senator Manchin. Senator Budd,
please.
Senator Budd. Thank you, Chairman, and again I thank the
witnesses for all your work on PPBE Reform Commission. Every
week I hear from small businesses in my home State of North
Carolina. They face obstacles working with DOD. They have got
innovative ideas. They have got solutions to the real problems,
and these solutions they could scale up quickly, but given the
cumbersome Pentagon budget practices that never really bridge
this valley of death. I see this as unsustainable for them and
certainly for our military, given these urgent emerging
threats.
Ms. Sayer, what were the Commission's finding related to
issues that small businesses face with the PPBE process, and
Ms. Lord, or Secretary Lord, what recommendations from the
report would best improve outcomes for small businesses? Ms.
Sayer, we will start with you.
Ms. Sayer. Thank you for that question. So when we talked
with private industry as part of our research we heard a lot of
feedback on the difficulty of doing business with the DOD. A
lot of it was not even understanding how to look at our budget
to understand where the Department was investing so they could
make sure they were aligned with that. Another problem was just
where the front door is to DOD to do business, and while DOD
has a lot of these innovation units it is still sort of you get
into the parlor but you do not actually get into the actual
front door to do business.
We have talked about, throughout this discussion today,
about the requirements being too descriptive, which leaves no
room for these new technologies to come in. That is why we are
looking at some of the streamlining of the budget structure to
give that ability to buy technology wherever it falls, and
technology readiness levels. Then looking at our justification
materials, the operations and maintenance account is 35 percent
of our $800 billion-plus budget. If you try to read it, good
luck figuring out what the Department wants to buy, and so we
are looking for that to be more programmatically based, where
there is parts obsolescence issues and hardware issues where
these small businesses could actually compete.
I will turn it over to Ms. Lord.
Senator Budd. Thank you.
Ms. Lord. Two key issues here. One, the budget structure,
right now small businesses cannot figure out where they could
play in this very, very large budget because of the way it is
broken up by RDT&E, procurement, and O&M. So our budget
restructuring recommendation makes it much more intuitive, by
military service, by type of platform, whether it be a ship, a
plane, whatever it might be. So one is transparency to see what
is addressable by small businesses.
On the other side is our recommendation for training of the
acquisition workforce. Right now I do not believe there is
sufficient training for SBIR/STTR programs, and right now it is
an afterthought for many acquisition professions. So we have an
obligation, I believe, to train the workforce to understand not
only how to use the small business set-asides that are there
but also how to use some of the flexible acquisition pathways,
like middle tier of acquisition and other transaction
authorities to help small businesses.
Senator Budd. You know, the Commission's final report, it
also identifies what I would characterize as a misalignment
between national strategy and resource allocation. This is
really clear if you consider both the 2018 and the 2022
National Defense Strategy, which identified China as the pacing
challenge, and yet Congress had to push DOD to align resources
to the Indo-Pacific, through initiatives such as the Pacific
Deterrence Initiative and supporting unfunded requirements.
Another example is the Army's decision to cut--to cut--
special operations forces (SOF) over the next 5 years, despite
the outsized role that SOF plays in competition with China and
Russia in counterterrorism and crisis response. Defense
planning guidance just does not properly account for SOF's
value proposition as the services plan their size and their
shape.
I want to open this to the panel, and Secretary Hale, we
have not heard from you yet, if you will start us. What are
your recommendations to better align the budget with the
strategy?
Mr. Hale. We would propose that we start earlier with more
analysis that deals with threat analysis, wargaming, that sets
up meetings in December or January, at the DMAG level, at the
Deputy Secretary level, designed to let the services comment on
draft guidance that is being circulated at that time, but also
gives a venue for the Deputy Secretary and perhaps the
Secretary of Defense to enunciate the guidance they want, and
not just the consensus of what the services have said but what
guidance does the Secretary of Defense want for the Department
to pursue in this year's budget.
We think that combination of more analysis and senior-level
meetings will yield more definitive guidance, and if they do
them in December or January it will be timely. That has been
another problem with the guidance. It comes after the services
have done much of their budget bills. So we believe that we do
have some proposals that will strengthen the guidance process.
Senator Budd. Thank you, Mr. Secretary. In the interest of
time, anything very brief from the two of you?
Ms. Lord. Yes. I think we addressed this very point by
recommending to do away with the Defense Planning Guidance,
which was too broad, and replace with the Defense Resourcing
Guidance that will be more specific in terms of what to do and
what not to do.
Senator Budd. Thank you.
Ms. Sayer. I would just----
Chairman Reed. Thank you very much, Senator Budd. Oh, go
ahead.
Ms. Sayer. I was just going to add that the transformed
budget structure would be more clearly aligned with whatever
Defense Strategy, so it would be more apparent what was being
budgeted for and how it aligned. Thank you.
Senator Budd. Thank you.
Chairman Reed. Thank you, Senator Budd. Senator Kaine,
please.
Senator Kaine. Thank you, Mr. Chair. By attending this
hearing, Mr. Chairman, I am missing a budget hearing, thereby
risking the ire of the other Rhode Island Senator, Senator
Whitehouse, my Chair of the Budget Committee.
Chairman Reed. The junior Senator?
Senator Kaine. Oh, is he the junior Senator? Okay. Thank
you. But the reason I am doing it is I actually think this
budget hearing is even more important than the budget hearing
that he is conducting right now because of the importance and
size of the DOD budget.
I just want to spend a little bit of time really with my
colleagues on this CR question. Having been here 11 years now,
I have learned something about CRs, and I think we are missing
an obvious strategy to reduce them. The normal CR is get the
budget done right before the end of the year. The abnormal CR
is the one that we are in right now, into the next calendar
year.
Why has it become a norm to have a CR to December 31? There
is a reason, and I interested that none of the recommendations
kind of grapple with what seems to me to be, in plain sight, a
pretty easy solution. We have the wrong fiscal year. We have
the wrong fiscal year. To get a budget done by September 30, to
begin a fiscal year on October 1, is going to require a lot of
attention by Members of Congress during the month of September.
In every other year 100 percent of the House and 33 percent of
the Senate are uninterested in the budget in September, and
they are sort of uninterested in the budget in October. They
are interested in their election. There is nothing that is a
forcing mechanism about October 1 to get a budget done, and we
set it up in the Budget Act of 1974 at precisely the wrong time
to get the attention of Congress to get a budget done.
So a friend who is a landscape architect told me once, if
you are going to design a landscape do not put the sidewalks
down. Put the landscape down, then see where people walk, then
go pave the sidewalk where they walk. If you look at what has
happened since 1974, when do we usually get the appropriations
deal? There are exceptions, like this year, but in 80 percent
of the time, maybe more, we get the deal before the holidays,
and we get the deal before the holidays because people want to
take time off and enjoy their time with their family, and the
leaders basically say we are going to get a deal before
everybody goes home.
If you were to adjust the calendar back and do a calendar
year budget, which is 6-month offset with what most State and
local governments do, you would dramatically reduce the number
of CRs. You would still have abnormal CRs like this year, where
the absence of a House Speaker, and then the need for a new
House Speaker to get his feet on the ground and then decide
whether the deal that was cut on the spending caps in May was a
deal that the new Speaker needed to honor, you would still have
aberrational circumstances. But you would set the budget
calendar up at a time when the tradition and practice in real
life of this body suggests this is when we do budgets, and we
could avoid the automatic 3-month CR, which has now become
normal.
I have a bill that is bipartisan that is pending in the
Budget Committee to make this move. I have had some
appropriators--and I am not an appropriator, but I have had
some appropriators say, ``Oh, Congress will just slide it back
another 3 months.'' I actually do not think that is true. I
think, again, the actual experience of when we do the
appropriations bill suggests that at the end of the calendar is
the time that we would normally do it.
That is also, if you slide back the dates in the 1974
Budget Act by 3 months to accommodate what I am suggesting you
would also slide back the date of the President's submission of
the budget. No incoming President is going to submit a really
good budget that is very thoughtful in February. It does not
happen. By sliding it back you would give an incoming
administration more time to really make a budget their own and
submit something meaningful, particularly if there has been a
transition from one party to the next and a whole new budget
and leadership team is put in place.
So I appreciate what you have done in trying to urge us to
reduce CRs, to put some processes in place that could mitigate
the downside effect of CRs, but I think this is mostly in
Congress' hands, and I think Congress has a step that we could
easily take that would not eliminate CRs but that would make
them less normal, than would make them less the norm, and would
promote a lot more just budgeting reality in this place.
So I am going to continue--this is more to my colleagues
than to the witnesses, but I am going to continue to press this
with my Budget Committee colleagues in the hope that we might
adjust the rules to what has become the normal practice.
I yield back, Mr. Chair.
Chairman Reed. Thank you very much, Senator Kaine. Senator
Shaheen, please.
Senator Shaheen. Well, thank you, and thank you to all of
our witnesses for being here and for the enormous amount of
work that you have done on this report, and to everyone on the
Commission.
I have to respond, though, Senator Kaine's comments because
I do not disagree with him necessarily. I think it is a
creative way to do it. But you and I have both been Governors.
Neither of our states had fiscal years that went according to
the calendar annually. In New Hampshire ours started July 1st,
and I am not sure that just changing the calendar deals with
the problem. I would also argue that we need a biennial budget,
which is something Virginia and New Hampshire both have, which
would make it easier to do this process. Again, there has been
a lot of opposition to that.
But I think the point that you are making goes to one of
the underlying points that the Commission really has not
addressed, that I believe to be true when we talk about the
Department of Defense being risk averse, when others talk about
too much flexibility.
I think one of the challenges is Congress. I mean, the fact
that Congress cannot get our act together to get a budget done
on an annual basis, that we put so many requirements in place
that it is hard to get a procurement process that people can
understand, and I understand the reasons why that is done, but
I think we have got to be more realistic about what is
possible.
One of the things that you may have talked about, and I am
sorry that I missed your testimony earlier, we passed a
supplemental funding bill here the Senate over a month ago to
support Ukraine. That bill is still sitting in the House, when
I think about $28 billion of that money goes to our defense
industrial base to help address the national security of this
country, and yet here we are. We are still under a continuing
resolution that is going to be the end of March before we get
that done. This has real impacts, as you all know, on the
Department of Defense and on our ability to do what we need to,
to protect this country and to maintain the global position we
have in the world.
So I think there is a lot of important information in your
report, but I guess I am in the camp that says all the problem
is not at DOD. Some of it is there, but a lot of it is in
Congress too, and we need to get our own act together.
So since I missed your testimony I guess one question that
I have is if Congress were only going to adopt one, or DOD were
only going to adopt one recommendation from your report, what
would be the most important recommendation that we should be
looking at?
Mr. Hale. Well, I will cheat and say put in place the
Defense Resourcing System, which encompasses all of the 28
things we recommended. I do not know that there is one single
silver bullet, Senator.
Senator Shaheen. I am not suggesting that it be a silver
bullet but more the top priority.
Mr. Hale. Well, the Commission came up with 14 priorities.
I do not want to speak for them and choose one. I will tell you
that I think the extended availability of operating funds into
the second year would do a lot to improve execution. It is not
going to solve other problems of adaptability, which are also
very important.
Can I also say, we did debate biennial budgeting, and
frankly decided not to pursue it because it did not work when
it was tried in the 1980's, and it did not work because there
was never a 2-year appropriation bill. Actually, they did not
even authorize it for 2 years.
Senator Shaheen. Well, that is the problem. There was not
really biennial budgeting if you did not have a 2-year
appropriation.
Mr. Hale. In fact, I go back to, I used to say Christmas is
an action-forcing event, or winter holidays are an action-
forcing event for budgets. I still think that is true. But as
you think about changing the year I would urge you to keep in
mind the problems it will create for the departmental
workforce. You are going to have closeout occurring during
Christmas, and I think we need to keep in mind what we are
doing to these people if we do that. So I would urge you to
think about dates that might make that less onerous on the
workforce. But I understand your point. We also debated that
issue at some length. It is not as if it was not paid attention
to.
Senator Shaheen. Mr. Chairman, since he was addressing
Senator Kaine's question can I have a few more seconds here?
Chairman Reed. Absolutely.
Senator Shaheen. I want to go back to the small business
piece because my State, like so many of the Members of this
Committee's states have a lot of small businesses that are very
engaged with the defense industry. One of the programs that has
made a huge difference for them has been the SBIR program. Can
you talk, Secretary Lord, to why that program is important and
the need to reauthorize it in a way that continues the
innovation that we are seeing through small businesses?
Ms. Lord. It is critically important because the
preponderance of our innovation comes from small companies, and
we need the SBIR/STTR process to actually, I think, be made
larger and be championed to a greater extent by the Department.
The budget is not transparent to small businesses. They
cannot understand what budget line items they can address and
then who they go to, to work on this. We also do not particular
train the acquisition workforce to work with small businesses,
so there is a lack of capability, knowledge, transparency on
either side.
I will say, I mentioned this earlier, there is actually a
National Academies study right now looking at that process and
how it could be done differently. I actually sit on that task
force, so it is important to make these recommendations for the
reauthorization, to make it a stronger system.
Senator Shaheen. Good. Well, thank you. Thank you all very
much.
Chairman Reed. Well, thank you very much, Senator Shaheen,
and Senator Kaine. I want to thank you for superb work. This
Commission was thorough, exhaustive, in looking at every option
to improve what is now the PPBE system. It struck me in the
course of the hearing, which I think was a very good one, is
PPBE one of the reasons we cannot get an audit? Secretary Lord?
Ms. Lord. I think it has to do more with the business
systems we have that we are talking about and the lack of
clarity in the financial management kind of regulations. We
have put Band-Aids on everything at DOD, and you get so many
Band-Aids that you cannot get back to the core of what is going
on. We do not go to base documents and build them up so we have
contradictions in our own documentation. So we really need to
kind of zero base sum of those regulations.
Chairman Reed. But your proposals get at that problem, in a
way, so if we could adopt many of your proposals, either
administratively or legislatively, we would have a much more
efficient system, which would be more susceptible to an audit.
Ms. Lord. I just want to say, I think Lara and the team are
great resources for the FMR and what could be done, because
they have lived with it, they have lived through the
complexity, the contradictions. It leaves a lot of DOD
employees in a very difficult position. How can they be
compliant if they have different directions?
Chairman Reed. In fact, I think one of the incentives I
have observed over the years is after a while, you just want to
make sure you check all the boxes. It is not getting the best
product, and you want to avoid being censored later for
violating an obscure thing. So that is a great reason why we do
not perform as well as we must.
The other aspect of this, too, forgive me, but do you think
Microsoft would be successful if it had the PPBE system?
Ms. Lord. No.
Chairman Reed. Okay.
Mr. Hale. I just want to go back, just briefly, to the
Financial Management Regulations. I have been working financial
management now for about four decades. I have never heard of a
fundamental look at that document, a zero-based look. It is
updated all the time, but I am sure there are a lot of out-of-
date provisions in there, and I also suspect some of them could
be rewarded in ways that gives the Department more flexibility
while still preserving your oversight. So it is one of those
recommendations that only a comptroller could love, but I think
redoing or a basic look at the FMR would be very important.
Chairman Reed. That was not in your purview.
Mr. Hale. Well, yes it was. We actually recommend updating
the PPBE documents and give the Financial Management
Regulations as a specific example. Now we did not try to do it
ourselves. That would have gone beyond our capability. It is
going to be a big job, and the Department would need to
establish a team that had the kind of expertise to deal with
that level of detail. But I think it would be very important
for them to do it, and yes, we specifically recommended that.
Chairman Reed. That is a task that we have to urge on.
Ms. Sayer. They have actually started kicking off a working
group for that right now, and they have a plan, I think, for a
20 or 30 percent update this year, and a 40 percent next year,
so in 3 years it would be overhauled. So that is encouraging.
Mr. Hale. Yes, I agree, and I hope it is not just an
update. I hope they go back. This needs a zero-based treatment,
in my view. It has been 30, 40 years, maybe longer, since that
has happened.
Chairman Reed. Well, again, just to my point is that we
have a system that is antiquated, to be kind. Unless we make
some significant changes we are never going to be competitive
in both financial responsibility as well as keeping up with our
opponents. So this is not a question of getting to an order.
This is a question of giving our Forces the equipment they need
in a timely fashion, and I think we have to follow through.
Again, let me commend you on your excellent efforts, and
with that I will adjourn the hearing. Thank you.
Mr. Hale. Thank you, Mr. Chairman.
Chairman Reed. Thank you, Mr. Hale.
[Whereupon, at 11:21 a.m., the Committee adjourned.]
APPENDIX
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]