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TESTIMONY OF UNDERSECRETARY OF DEFENSE

(ACQUISITION, TECHNOLOGY AND LOGISTICS)

Mr. E.C. "Pete" Aldridge

 July 12, 2001

Chairman Spence, Chairman Hunter, Congressman Taylor, Congressman Meehan, Members of the Subcommittees, it is an honor to appear before you to discuss the President's 2002 amended budget for the Department of Defense.

 The fiscal year 2002 budget begins the Administration's transformation of the Department of Defense. Transformation is crucial to the security of the United States and our ability to deter, to fight and to win wars. The US Armed Forces are the best trained, best equipped military force - and the members of these subcommittees and the support provided have been instrumental in keeping our military a superior force. With the support of this committee, we will enhance the Department's deployment of combat capabilities that provide revolutionary and asymmetric advantages to our forces.

 The Department has taken a procurement holiday over the past decade. We have been living off the substantial investments made in the 1980s and early 1990s. Since that time, DOD has used its equipment at increased operating tempos, while procurement of new equipment fell below the levels necessary to sustain existing forces, leading to steady increases in the age of our equipment.

 The 2002 budget request includes total procurement funding of $61.6 billion dollars, compared to the $60.3 billion requested in the 2001 President's budget (an increase of $1.3 billion) and the $62.4 billion appropriated in fiscal year 2001. The research and development (R&D) request is $47.4 billion, compared to the $37.9 billion requested in 2001 (a $9.5 billion increase) and the $41.0 billion appropriated in fiscal year 2001. This increase to R&D will support the Department's transformation initiatives and the President's commitment to missile defense.

 This budget begins the transformation by continuing to fund modernization programs critical to our ability to retain our status as the preeminent military force for the 21^st century. This budget provides stabilization of acquisition programs and avoids unnecessary perturbations. While the budget increases some programs, it also introduces program stability, since we did not decrement programs to fund other Administration Defense initiatives such as the military pay increase, military health care, improved military housing, and out-of pocket housing costs.

 While this is a good beginning, it does not complete our important work. We will implement numerous initiatives that we will continue to discuss with the members of these subcommittees.

 Our procurement and R&D management is very important to me. I've developed five goals to help me with that management.

 The first goal is to Achieve Credibility and Effectiveness in the Acquisition and Logistics Support Process. The FY02 budget begins our transformation by providing needed program stability. The declining Defense budget from the mid-1980s had forced the Department to fund priorities other than acquisition - which led to program instability. This budget supports our existing acquisition efforts and maintains current program schedules.

 We have been able to support another aspect of this first goal, which is to properly price programs. The President's FY02 budget has allowed us to fully fund our major acquisition programs- by adding several hundred million dollars to them.  With your support, we will continue to properly price programs and fund them at the correct level.

While this budget supports the Department's on-going acquisition efforts, we continue to see problems in areas such as shipbuilding, aging Air Force aircraft, and Army combat systems. The FY02 budget recognizes the problems associated with aging systems and begins to fund a robust recapitalization program - which is vital to our ability to maintain our decisive edge while we transform. These are areas that we will address more completely once we have the Quadrennial Defense Review results and proceed with implementation of the findings.

Another facet of this first goal is to reduce cycle time of acquisition programs. My objective is to achieve an average of five to seven years from program launch to production. This will require a greater willingness to use cost-as-an-independent-variable (CAIV) strategies and evolutionary or spiral development. A continued CAIV emphasis in our acquisition programs - with trade-offs among cost, schedule and performance parameters - will support decreased program development and production time and innovation in manufacturing, support and contracting approaches. The use of evolutionary acquisition will also allow us to deploy systems more quickly and then update them as more advanced technology is proven, using a modular open systems approach to access to the latest technologies and products. We currently have these tools at our disposal and will continue to employ them where feasible.

I have also restructured the major acquisition decision review group, the Defense Acquisition Board (DAB), to include the Service Secretaries and have decreased overall membership. This will help streamline the Department's internal decision process by focusing senior leadership attention at the top levels and reducing decision delay.

To achieve the credibility and efficiency in these processes, we must also be able to revitalize the acquisition, technology, and logistics workforce. Therefore, the second goal I've established is to Revitalize the quality and morale of the acquisition, technology, and logistics workforce.

DOD faces complex issues in managing and modernizing its acquisition workforce. The legacy of a decade of downsizing is an aging Acquisition, Technology and Logistics workforce that is over 49% smaller than in 1992. One result is that DOD faces a crisis with half of the current workforce eligible to retire by 2005. Low hiring levels and long hiring delays add to this dilemma. We need a cultural change in how we manage our civilian workforce so that we can transfer critical expertise to the next generation and attract employees with the technical skills to meet future challenges.

People remain our most valuable resource. I plan to initiate a public relations "outreach" campaign to highlight the value and importance of the acquisition, technology and logistics workforce in carrying out strategy and process improvements. We need to better manage the human resource lifecycle from marketing and recruiting to knowledge transfer and retirement. To support this, we have forged an alliance within the Department to address the personnel issues facing our workforce and have also begun strategic human resources planning throughout the acquisition, technology and logistics workforce.

The Department initiated an Acquisition Personnel Demonstration Project, which allows for a personnel system outside of the standard general schedule; eighteen months later, the results have all been positive. I am considering expanding the program beyond today's 5,000 participants to take better advantage of this program under current law.

We need to be more aggressive in educating our people. To facilitate this goal, re-engineering the Defense Acquisition University is in the final stages as we capitalize on web-based learning techniques for continuous learning with increased emphasis on commercial practices to accelerate acquisition and logistics excellence.

We have some tools currently available that allow our Laboratory Directors to compete with the private sector for new scientific talent through direct hiring authority. We've initiated a plan to use this authority and, based on its successful implementation, we hope to discuss its expansion with members of this committee in the future. We hope to work with the Congress to implement other recruitment and retention initiatives that will help support the Department's future acquisition workforce needs.

My third goal is to Improve Health of Defense Industrial Base. With the shrinking Defense budget, the previous 'procurement holiday' has lead to the consolidation of the defense industrial base. The Department needs to be vigilant regarding the health of our valued defense industry partners.

Their financial health is key - so the Department may continue to provide innovative, technologically excellent weapons systems and equipment at favorable prices.

To initiate this goal, the Department should permit contractors to earn a reasonable return on defense contracts in exchange for good performance. Further, we should not expect contractors to invest in defense research and development contracts. The new policy I have put in place makes the following unacceptable:

· Use of contractor independent research and development (IR&D) funds to subsidize defense contract research and development

· Cost ceilings that in essence convert cost-type contracts into fixed-price contracts.

          ·  Unreasonable capping of annual funding increments    on research and development contracts.

It allows exceptions only when there is a reasonable probability of potential commercial applications related to the research and development effort.

The Department does not desire to encourage or require contractors to supplement DOD appropriations by bearing a portion of defense contract costs. To further implement this goal, we are currently reviewing the acquisition strategy for all major programs to ensure that contractor cost sharing is not a part of those contracts. We'll also incorporate this policy into our Department acquisition policy. We hope these initiatives will lead to an even better relationship with our current commercial partners and provide incentive for other firms - not currently active in DOD contracts - to do business with the Department.

Goal four is to Rationalize weapons systems and infrastructure with new defense strategy. We have established new internal management committees to improve the Department's business practices and transform the military into a 21^st century force.

The newly formed Business Initiative Council will include the Service Secretaries, the Vice-Chairman of the Joint Chiefs of Staff and me. Our group will pursue and implement reforms to improve business practices and operational efficiency of the Department. The savings identified will be reallocated to support the Defense transformation - including readiness and modernization.

We'll start by using the recommendations of past studies and implementing them as well as continuing beneficial reforms currently in place. We know what we need to do -- we just need to do it. This is a top priority for the Department and is a crucial aspect of the Secretary's plan to transform the Department. We hope to take billions of dollars out of the infrastructure and overhead of the Department and use it to fund the transformation.

The most important aspect of this goal will be the results of the Quadrennial Defense Review, or QDR, which will shape our national defense strategy as well as the Administration's plans for force structure, modernization and infrastructure.

We will continue to consult with you as the QDR process approaches completion in September and we will then come to conclusions about the desirability of the possible new defense strategy.

While the FY02 budget maintains the current program structure, the QDR will show us what programs are required and we will look to properly fund those programs in the future.

The Department has also created the Force Transformation office to support our transformation priorities and objectives. Their efforts will be focused on advocating transformation programs and ensuring that the Department meets its transformation objectives.

To support the President's national security goals, it is critical that we fully leverage Science and Technology and transition it to weapons systems - which is encompassed in Goal number 5 Initiate high-leverage technologies to create the weapons systems and strategies of the future.

The mission of the our Science and Technology (S&T) program is to ensure the warfighters today and tomorrow have superior and affordable technology to support their missions, and provide revolutionary, war-winning capabilities. We must be conscious of emerging national security challenges as we establish our priorities and foster technology breakthroughs that will lead to new capabilities.

Basic research is a long-term investment with emphasis on opportunities for military application far in the future. Previous investments have led to radar, stealth, night vision, and guidance for precision strike. The Department must continue to invest broadly in defense-relevant scientific fields because it is not possible to predict precisely in which areas the next breakthroughs will occur. The Department recently led a collaborative effort to identify priority areas where we must focus to be effective in the future. Three Strategic Technology Areas were identified:

·       Hard problems - areas where there are particularly difficult technical challenges, and no counter to an existing threat.  Examples include chem-bio defense modeling & stand off detection and the defeat of hardened and deeply buried targets.

·       Warfighting concepts - technologies that will lead to next generation capabilities - dramatically new ways of addressing military problems. This category includes network centric warfare, fuller dominance of space, and autonomous systems.

·       Militarily significant research areas - technologies that will also be revolutionary but still have a large component of basic research. Examples include nanoscience, directed energy, and advanced power.

Another priority is enabling capabilities - underlying technologies that have the potential to improve a broad range of existing and future systems. One area is propulsion research where we are investigating new capabilities as well as increasing fuel efficiency and noise mitigation in existing systems. A second area is electronics and we are now in the process of establishing robust programs to develop technologies in electro optics, infrared, mixed signal, radio frequency, and radiation hardening. A third enabling capability is software, which continues to grow in importance in our weapons systems - and remains a significant contributor to program cost, schedule and performance shortfalls. To address software issues, we have established working groups focused on software intensive systems.

Rapidly transitioning technology from S&T to an operational capability is critical. We have several mechanisms to facilitate this process, one of which is Advanced Concept Technology Demonstrations (ACTD). This program has proven successful at taking matured technologies into the field in prototype systems. Recent successes include the Predator and Global Hawk unmanned aerial vehicles.

Another non-technical challenge and important priority is maintaining a strong S&T workforce. The number of scientists and engineers we have is down 15,300 from the 1990 level of 43,800. This workforce is also aging with the average age of the laboratory technologist at about 45 years and a significant portion of the workforce able to retire in the next three years. There have been numerous studies to look at these and related issues, and new efforts are now underway to address them.

The FY2002 Amended President's Budget Request provides a $1 billion increase to the Department's S&T budget over the legacy budget thus giving a total S&T program of $8.8 billion which puts us on a path to achieve an S&T budget that is 3% of the Department's topline. This percentage is approximately equivalent to the amount commercial industries dedicate to S&T research and development. The importance of the increase can be realized in the technologies it will support, such as the Army's Future Combat System, the Navy's electric drive for ships, and the Air Force's space initiatives. The $1 billion increase raises S&T funding from 2.5% to 2.7% of the Department's topline which is also an add of over 13% more to the S&T legacy budget. The President's budget provides a good foundation to support the Department's science and technology mission.

In conclusion, I look forward to your active support as we embark on the transformation of the department, and your participation as we work together to make our vision of acquisition, technology, and logistics excellence a reality.

Thank you.

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