[Senate Hearing 112-161]
[From the U.S. Government Printing Office]
S. Hrg. 112-161
DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES
=======================================================================
HEARING
before the
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MARCH 29, 2011
__________
Printed for the use of the Committee on Armed Services
Available via the World Wide Web: http://www.fdsys.gov/
__________
U.S. GOVERNMENT PRINTING OFFICE
71-377 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON ARMED SERVICES
CARL LEVIN, Michigan, Chairman
JOSEPH I. LIEBERMAN, Connecticut JOHN McCAIN, Arizona
JACK REED, Rhode Island JAMES M. INHOFE, Oklahoma
DANIEL K. AKAKA, Hawaii JEFF SESSIONS, Alabama
E. BENJAMIN NELSON, Nebraska SAXBY CHAMBLISS, Georgia
JIM WEBB, Virginia ROGER F. WICKER, Mississippi
CLAIRE McCASKILL, Missouri SCOTT P. BROWN, Massachusetts
MARK UDALL, Colorado ROB PORTMAN, Ohio
KAY R. HAGAN, North Carolina KELLY AYOTTE, New Hampshire
MARK BEGICH, Alaska SUSAN M. COLLINS, Maine
JOE MANCHIN III, West Virginia LINDSEY GRAHAM, South Carolina
JEANNE SHAHEEN, New Hampshire JOHN CORNYN, Texas
KIRSTEN E. GILLIBRAND, New York DAVID VITTER, Louisiana
RICHARD BLUMENTHAL, Connecticut
Richard D. DeBobes, Staff Director
David M. Morriss, Minority Staff Director
(ii)
C O N T E N T S
__________
CHRONOLOGICAL LIST OF WITNESSES
Department Of Defense Efficiencies Initiatives
march 29, 2011
Page
Hale, Hon. Robert F., Under Secretary of Defense, Comptroller.... 8
Westphal, Hon. Joseph W., Under Secretary of the Army............ 10
Work, Hon. Robert O., Under Secretary of the Navy................ 11
Conaton, Hon. Erin C., Under Secretary of the Air Force.......... 12
(iii)
DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES
----------
TUESDAY, MARCH 29, 2011
U.S. Senate,
Subcommittee on Readiness
and Management Support,
Committee on Armed Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:34 p.m. in
room SR-232A, Russell Senate Office Building, Senator Claire
McCaskill (chairwoman of the subcommittee) presiding.
Committee members present: Senators McCaskill, Begich, and
Ayotte.
Majority staff members present: Peter K. Levine, general
counsel; Jason W. Maroney, counsel; Roy F. Phillips,
professional staff member; John H. Quirk V, professional staff
member; and Russell L. Shaffer, counsel.
Minority staff members present: Pablo E. Carrillo, minority
investigative counsel; and Lucian L. Niemeyer, professional
staff member.
Staff assistants present: Hannah I. Lloyd and Breon N.
Wells.
Committee members' assistants present: Gordon Peterson,
assistant to Senator Webb; Tressa Guenov, assistant to Senator
McCaskill; Lindsay Kavanaugh, assistant to Senator Begich; and
Brad Bowman, assistant to Senator Ayotte.
OPENING STATEMENT OF SENATOR CLAIRE McCASKILL, CHAIRWOMAN
Senator McCaskill. The Readiness and Management Support
Subcommittee of the Senate Armed Services Committee will begin.
Today we're going to have a hearing on the Department of
Defense (DOD) Efficiencies Initiatives.
The Subcommittee on Readiness and Management Support meets
this afternoon to hear testimony on the efficiencies
initiatives--say that three times real fast--[Laughter]
announced by the Secretary of Defense.
We're pleased to have the DOD Comptroller, Robert F. Hale,
and the Chief Management Officers (CMO) of the three military
departments--Under Secretary of the Army, Joseph Westphal,
Under Secretary of the Navy, Robert Work, and Under Secretary
of the Air Force, Erin Conaton--here today to address this
important issue. I welcome you all, and I thank you not only
for your testimony, but for your contributions to the
Secretary's efforts at efficiencies.
I fully support the Secretary's objectives in reducing the
duplication, overhead, and excess in the Defense enterprise and
instilling a culture of savings and restraint across DOD. As I
stated at our previous hearing, I do not believe there is
anything DOD is doing that we cannot do better, and I do not
believe there is any part of the budget that can be off limits
as we look for savings.
I believe that the Secretary was on the right track when he
announced a reduction in funding for service support contracts
by 10 percent per year for 3 years, a freeze on the number of
the Office of the Secretary of Defense (OSD), Defense agency,
and combatant command (COCOM) positions, a freeze on the number
of general officer, flag officer, and Senior Executive Service
(SES) positions, a review and reduction of the number of
reports, studies, and advisory boards, new limits on SES
positions and support contractors for DOD intelligence
functions, and the elimination or consolidation of several
defense commands and agencies.
I'm also pleased that the military departments have
followed up by proposing additional economies, including
consolidations of functions and facilities, cuts to funding for
recruiting and retention, increased use of flight simulators,
reductions in inventories in pre-positioned stockpiles of
materials, the deferral of military construction (MILCON), and
the termination of lower-priority acquisition programs.
I also want to thank our witnesses today for the additional
detail you have provided on DOD's efficiencies initiatives over
the last few days. That information includes written rationales
for specific elements of the effort and detailed funding tables
showing the expected savings. It has seemed like pulling teeth
to get the detailed information we need to understand exactly
what you plan to do and why you think it's going to save money,
but the information that you have now provided is a huge step
in the right direction, and puts the entire effort on a much
sounder footing. We really appreciate it.
Nonetheless, the proposed efficiencies initiatives raise
some difficult questions, which I hope we will begin to answer
in the course of today's hearing. For example, although the
Secretary stated on August 9 that he intended to reverse the
dramatic increase in DOD's use of service support contractors,
DOD now proposes to cut spending on service contracts by just
$1.3 billion this year, less than a third of the $4.5 billion
it plans to cut from the much smaller amount spent on DOD's
civilian workforce. Will these disproportionate cuts to the
civilian workforce accelerate the outsourcing trend that the
Secretary has promised to reverse?
In his August 9 speech, the Secretary of Defense announced
that he would conduct a zero-based review of DOD's intelligence
organizations, require a 10-percent freeze in reduction in
funding for the advisory and assistance contractors, and freeze
the number of senior executive positions in DOD intelligence
positions. Yet, the budget calls for a savings in DOD
intelligence budget of only $41 million in fiscal year 2012 and
$372 million over the Future Years Defense Program (FYDP),
which covers another additional 5 years. Is that really the
best we can do?
In addition to the Defense-wide initiatives and the
service-specific initiatives, we have a third set of
initiatives, the ``better buying power'' acquisition reform
initiatives announced by Secretary Ash Carter. The Defense-wide
initiatives are expected to achieve $78 billion in savings, and
the service-specific initiatives are expected to save $100
billion--however, no savings at all are credited to this
acquisition reform initiative. Why not?
I understand that the CMOs of the three military
departments, our witnesses here today, are responsible for the
implementation of the service-specific initiatives in this
efficiency effort. However, the CMO and Deputy Chief Management
Officer (DCMO) of DOD appeared to have played little role in
the Defense-wide effort to date. Who will be responsible for
implementing the Defense-wide efficiencies initiatives? Who can
we hold accountable?
Over the last decade, DOD's budget has grown from just
under $300 billion in fiscal year 2001 to almost $550 billion
in fiscal year 2011, an increase of over $250 billion on an
annual basis. That's the base budget. That is not counting the
cost of Overseas Contingency Operations (OCO). I want to repeat
that, make sure that we understand what the numbers are we're
working with. In less than a decade, we have gone from a base
budget at the Pentagon of $300 billion to a base budget of $550
billion, not counting any of the costs that we have incurred in
Iraq, Afghanistan, or the current international assistance
operation that is ongoing in Libya.
Measured against that yardstick, the Secretary's proposal
to find savings of $24 billion and reduce the top line of the
Defense budget by about $14 billion in fiscal year 2012 seems
much more modest than draconian. In fact, I question whether,
in this time of economic and fiscal duress, we can afford to
allow the military departments to reinvest the $10 billion they
plan to save this year through cuts to excessive bureaucracy
and underachieving programs. When we move forward with the
National Defense Authorization Act (NDAA) for Fiscal Year 2012,
I may offer an amendment to strike this added spending from the
bill so that we can apply the full savings against our rising
budget deficit.
I welcome all the witnesses today, again, and thank you.
Now, I will turn to the ranking member, it's so great to
have her on board, Senator Ayotte.
[The prepared statement of Senator McCaskill follows:]
Prepared Statement by Senator Claire McCaskill
The Subcommittee on Readiness and Management Support meets this
afternoon to hear testimony on the efficiencies initiatives announced
by the Secretary of Defense. We are pleased to have the Department of
Defense (DOD) Comptroller Robert F. Hale and the Chief Management
Officers of the three military departments--Under Secretary of the Army
Joseph W. Westphal, Under Secretary of the Navy Robert O. Work, and
Under Secretary of the Air Force Erin C. Conaton--here today to address
this important issue. I welcome you all, and I thank you not only for
your testimony, but for your contributions to the Secretary's
efficiencies initiatives.
I fully support the Secretary's objectives of reducing
``duplication, overhead, and excess in the defense enterprise'' and
instilling ``a culture of savings and restraint'' across DOD. As I
stated at our previous hearing, I do not believe there is anything the
Department is doing that we cannot do better, and I do not believe that
there is any part of the budget that can be off limits as we look for
savings.
I believe that the Secretary was on the right track when he
announced a reduction in funding for service support contracts by 10
percent per year for 3 years; a freeze on the number of Office of
Secretary of Defense, Defense agency, and combatant command positions;
a freeze on the number of general officer, flag officer, and Senior
Executive Service (SES) positions; a review and reduction of the number
of reports, studies, and advisory boards; new limits on SES positions
and support contractors for DOD intelligence functions; and the
elimination or consolidation of several defense commands and agencies.
I am also pleased that the military departments have followed up by
proposing additional economies, including consolidations of functions
and facilities, cuts to funding for recruiting and retention, increased
use off light simulators, reductions in inventories and prepositioned
stockpiles of materials, the deferral of military construction, and the
termination of lower priority acquisition programs.
I also want to thank our witnesses today for the additional detail
that you have provided on the Department's efficiencies initiatives in
the last few days. That information includes written rationales for
specific elements of the effort and detailed funding tables showing the
expected savings. It has seemed like pulling teeth to get the detailed
information we need to understand exactly what you plan to do and why
you think it is going to save money--but the information that you have
now provided is a huge step in the right direction and puts the entire
effort on a much sounder footing. We really appreciate it.
Nonetheless, the proposed efficiencies initiatives raise some
difficult questions, which I hope we will begin to answer in the course
of today's hearing. For example:
Although the Secretary stated on August 9 that he
intended to reverse the dramatic increase in the Department's
use of service support contractors, the Department now proposes
to cut spending on service contracts by just $1.3 billion this
year--less than a third of the $4.5 billion it plans to cut
from the much smaller amount spent on the Department's civilian
workforce. Will the disproportionate cuts to the civilian
workforce accelerate the outsourcing trend that the Secretary
promised to reverse?
In his August 9 speech, the Secretary of Defense
announced that he would conduct a ``zero-based review'' of the
Department's intelligence organizations, require a 10 percent
freeze in reduction in funding for intelligence advisory and
assistance contractors, and freeze the number of senior
executive positions in DOD intelligence positions. Yet, the
budget calls for a savings in the DOD intelligence budget of
only $41 million in fiscal year 2012, and $372 million over the
Future Years Defense Program. Is that really the best we can
do?
In addition to the defense-wide initiatives and the
service-specific initiatives, we have a third set of
initiatives--the ``better buying power'' acquisition reform
initiatives announced by Secretary Carter. While the DOD-wide
initiatives are expected to achieve $78 billion in savings and
the service-specific initiatives are expected to save $100
billion, however, no savings at all are credited to the
acquisition reform initiatives. Why not?
I understand that the Chief Management Officers of the
three military departments--our witnesses here today--are
responsible for the implementation of the service-specific
efficiencies initiatives. However, the Chief Management Officer
and Deputy Chief Management Officer of DOD appear to have
played little role in the defense-wide effort to date. Who will
be responsible for implementing the defense-wide efficiencies
initiatives?
Over the last decade, the DOD budget has grown from just under $300
billion in fiscal year 2001 to almost $550 billion in fiscal year 2011,
an increase of $250 billion per year--and that is the base budget, not
including the cost of overseas contingency operations. Measured against
that yardstick, the Secretary's proposal to finding savings of $24
billion and reduce the top-line of the defense budget by about $14
billion in fiscal year 2012 seems more modest than draconian.
In fact, I question whether, in this time of economic and fiscal
duress, we can afford to allow the military departments to ``reinvest''
the $10 billion that they plan to save this year through cuts to
excessive bureaucracy and underachieving programs. When we move forward
with the National Defense Authorization Act for Fiscal Year 2012, I may
offer an amendment to strike this added spending from the bill, so that
we can apply the full savings against our rising budget deficit.
I look forward to the testimony of our witnesses, and I now turn to
Senator Ayotte for any opening remarks that she may have.
STATEMENT OF SENATOR KELLY AYOTTE
Senator Ayotte. Thank you very much, Madam Chairwoman.
I thank the witnesses for appearing before our subcommittee
today, and for your service to our country during these
difficult times.
This hearing really goes to the heart of the fiscal crisis
that we face as a Nation. Certainly, I've heard from people in
New Hampshire in sending me to Washington, that we need to
address our Nation's fiscal crisis and reduce Federal spending.
I certainly plan to honor that commitment. We cannot continue
to spend what we don't have, and we must closely scrutinize
every Federal agency, including DOD, to identify and eliminate
wasteful or duplicative programs. As the National Commission on
Fiscal Responsibility and Reform (Bowles-Simpson) stated in
their final report, A Moment of Truth, ``Every aspect of
discretionary--the discretionary budget must be scrutinized. No
agency can be off limits, and no program that spends too much
or achieves too little can be spared.''
I commend the Secretary of Defense for his commitment to
review DOD's operations to find better ways to do business. The
services now plan to fund new modernization initiatives from
within the budgets that will remain steady, as adjusted for
inflation, in the next few years. In addition, the Secretary's
review of all DOD functions reduces overhead costs by $78
billion over the next 5 years, starting with $13 billion in
fiscal year 2012, from the amount projected in last year's
President's budget for DOD.
But, let's be clear: only in the current climate here in
Washington, DC, can an agency propose a cut in the rate of
growth of future budgets and call it a triumph. In a year when
we are facing close to a $1.6 trillion deficit accruing at over
$200 billion a month, cutting $13 billion from projected $566
billion requests hardly makes a dent. Local and State
governments around the country are looking at their outlays
today and cutting back now just to remain solvent. We need to
instill that--this same mindset and same sense of urgency in
DOD.
DOD funds provided for specific purposes, but no longer
needed or in excess of that requirement, should be returned to
the General Fund of the Treasury, as opposed to funding lower
priorities. For example, our committee has challenged requests
to use savings from the Base Realignment and Closure (BRAC)
accounts to fund new MILCON projects, and will continue to do
so. We should not fund additional projects that did not make
the cut the first time.
I would also like to hear how the witnesses plan to change
the widespread mindset in the Pentagon, which encourages
program managers to spend all the money available in order to
justify future budget requests. I ask the witnesses to consider
an overarching efficiency initiative for DOD's budgeting system
to provide incentives to program managers to be rewarded for
spending less, as opposed to being penalized, in the future
budgets, for not spending every dollar that's given to them.
In addition, DOD needs to stop carrying out earmarked
programs that are not core DOD activities. Substantial savings
will not be realized until DOD commits to spend only what is
absolutely essential for the warfighter and critical DOD
functions.
I'm also concerned that some of the efficiencies may
actually defer expenditures critical to our military readiness,
which increases risk to our military forces and to our national
security. Reduced funding for facility maintenance, aircraft
maintenance, MILCON, and flying hours are not savings or
efficiencies. The negative consequences of the continuing
resolution on our core readiness functions, like ship
availabilities, we're already seeing and are bad enough. We
should not compound the damage of the continuing resolution on
our military's readiness by pushing core readiness requirements
to future years that will eventually have to be funded.
I ask our witnesses today, for the record, to delineate
those spending cuts proposed in the budget request that defer
requirements, assess the risk of each one, and propose a plan
for their eventual payment. This committee needs to honestly
and accurately assess this risk, on top of the years of
accumulated risk, to the readiness and training of our forces.
In a time of turmoil and uncertainty around the world, which
we've certainly seen with the recent events in Libya and the
Middle East, we must be clear about the true effects of reduced
military spending in critical readiness areas proposed under
the guise of efficiencies.
I also support the chairwoman's previous call for financial
statements for DOD that can be audited. Given how defective
DOD's financial processes and systems are, I have to wonder how
the projected savings will actually be realized without having
a strong system in place that can be audited. Without tracking
and understanding current expenses, DOD has no way to establish
a baseline to measure the performance of any efficiency
initiative. I'm concerned that the Air Force, for example, does
not have a plan to be audit-ready until the end of 2016. I
think the average American would be surprised and disappointed
to know that DOD does not currently have fully auditable
statements, and does not expect to have them until 2017. This
is too late. The Financial Improvement and Audit Readiness
Initiative should be DOD's top efficiency priority.
Finally, Chairwoman McCaskill, I hope you will share my
commitment to avoid, today--which I know you have said in
previous hearings--to avoid using gimmicks to get around the
ban on earmarks that Congress has adopted this year. Adding
unspecified lump sums to certain DOD accounts without a vote by
this committee or the full committee, and then allowing DOD to
pick and choose the special-interest items to fund with the
additional money, is not consistent with my definition of
fiscal responsibility and accountability.
I look forward to a productive and open discussion with our
witnesses today, and appreciate, again, your commitment to our
country. This is a very important hearing, and I appreciate you
all being here today.
[The prepared statement of Senator Ayotte follows:]
Prepared Statement by Senator Kelly Ayotte
Thank you Chairwoman McCaskill and I thank the witnesses for
appearing before our subcommittee today. This hearing goes to the heart
of the fiscal crisis we face as a Nation. During my campaign, I vowed
to my constituents in New Hampshire that I would come to Washington,
DC, to address our Nation's fiscal crisis and to reduce Federal
spending. I plan to honor that commitment. We cannot continue to spend
what we do not have. We must closely scrutinize every Federal agency--
including the Department of Defense (DOD)--to identify and eliminate
wasteful or duplicative programs. As the National Commission on Fiscal
Responsibility and Reform stated in their final report, A Moment of
Truth, ``Every aspect of the discretionary budget must be scrutinized,
no agency can be off limits, and no program that spends too much or
achieves too little can be spared.''
I commend the Secretary of Defense for his commitment to review the
Department's operations to find better ways to do business. The
Services now plan to fund new modernization initiatives from within
budgets that will remain steady as adjusted for inflation in the next
few years. In addition, the Secretary's review of all Department
functions reduces overhead costs by $78 billion over the next 5 years,
starting with $13 billion in fiscal year 2012 from the amount projected
in last year's President's budget for the Department.
But let's be clear. Only in the current climate here in Washington,
DC, can an agency propose a cut in the rate of growth of future budgets
and call it a triumph. In a year when we are facing a $1.4 trillion
deficit accruing at over $200 billion a month, cutting $13 billion from
a projected $566 billion request hardly makes a dent. Local and State
governments around the country are looking at their outlays today, and
cutting back now to remain solvent. We need to instill this same
mindset and same sense of urgency in DOD. DOD funds provided for
specific purposes, but no longer needed or in excess of the
requirement, should be returned to the General Fund of the Treasury, as
opposed to funding lower priorities. For example, our committee has
challenged requests to use savings from the base realignment and
closure accounts to fund new military construction projects, and will
continue to do so. We should not fund additional projects that did not
make the cut the first time.
I would also like to hear how the witnesses plan to change the
widespread mindset in the Pentagon which encourages program managers to
spend all money available in order to justify future budget requests. I
ask the witnesses to consider an overarching efficiency initiative for
the Department's budgeting system to provide incentives to program
managers to be rewarded for spending less, as opposed to being
penalized in future budgets for not spending every dollar given to
them. In addition, the Department needs to stop carrying out earmarked
programs that are not core DOD activities. Substantial savings will not
be realized until the Department commits to spend only what is
absolutely essential for the warfighter and critical Department
functions.
I am also concerned that many efficiencies actually defer
expenditures critical to our military readiness, which increases risk
to our military forces and to our national security. Reduced funding
for facility maintenance, aircraft maintenance, military construction,
and flying hours are not savings or efficiencies. The negative
consequences of the continuing resolution on core readiness functions
like ship availabilities are bad enough. We should not compound the
damage of the continuing resolution on our military's readiness by
pushing core readiness requirements to future years that will
eventually have to be funded. I ask our witnesses today for the record
to delineate those spending cuts proposed in the budget requests that
defer requirements, assess the risk for each one, and propose a plan
for their eventual payment. This committee needs to honestly and
accurately assess this risk, on top of years of accumulated risks, to
the readiness and training of our forces. In a time of turmoil and
uncertainty around the world, we must be clear about the true effects
of reduced military spending in critical readiness areas proposed under
the guise of efficiencies.
I also support the chairwoman's previous call for financial
statements for the Department that can be audited. Given how defective
the Department's financial processes and systems are, I have to wonder
how the projected savings will be actually realized. Without tracking
and understanding current expenses, the Department has no way to
establish a baseline or to measure the performance of any efficiency
initiative. I am concerned that the Air Force, for example, does not
plan to be audit ready until the end of 2016. I think the average
American would be surprised and disappointed to know that the
Department does not currently have fully auditable statements, and does
not expect to have them until 2017. This is too late. The Financial
Improvement and Audit Readiness initiative should be the Department's
top efficiency priority.
Finally, Chairwoman McCaskill, I hope you will share my commitment
today to avoid using gimmicks to get around the ban on earmarks that
Congress has adopted this year. Adding unspecified lump sums to certain
DOD accounts without a vote by this committee or the full committee,
and then allowing the Department to pick and choose the special
interest items to fund with the additional money, is not consistent
with my definition of fiscal responsibility and accountability.
I look forward to a productive and open discussion with our
witnesses today.
Senator McCaskill. Thank you all for being here.
I will go down the list in the order that I have them
listed on the witness sheet, which means we will begin with
Secretary Hale.
STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE,
COMPTROLLER
Mr. Hale. Thank you. Well, good afternoon, Chairwoman
McCaskill, Senator Ayotte, Senator Begich. Thank you for the
opportunity to discuss our efficiencies initiatives.
I'm joined today by the Under Secretary's CMOs. We've
submitted a statement. I hope you'll include it in your record.
In the interests of time, I'll summarize. I'll start. Then I'm
going to ask each of the Service Secretaries to discuss issues
for their service, and I'll end with a short summary about
implementation.
At the outset, let me note that, like Congress, we're
mindful of the fact that the United States is dealing with
significant fiscal and economic pressures that affect our
Nation and our Nation's defenses. As a result, our past budgets
for fiscal years 2010 and 2011 included steps to curtail or
eliminate weapons. The secretaries' reform agenda didn't begin
with the budget we submitted to you. We've terminated seriously
troubled programs. We've ended some where we thought we had
bought enough. We terminated or restructured more than 20
weapons programs in the 2010 and 2011 budget.
But, the one that we just submitted in 2012, we shifted our
focus to streamlining our business operations. There are some
further terminations of weapons, but the focus is on the
business side. We've created plans that will save $178 billion
in fiscal years 2012 to 2016. I'll say, I've been looking in
and around Defense budgets for more than 30 years. I have never
seen one with as far-reaching a set of business streamlining as
this one.
The Under Secretaries will briefly describe how their plans
are to save about $100 billion of that amount, which they have
retained and reinvested in high-priority warfighter
capabilities.
I'll now speak to the $78 billion in Defense-wide savings.
These savings were used to accommodate a reduction in the top
line in support of the administration's deficit reduction
efforts. Now, note that this $78 billion, as you pointed out,
results in a reduction in the rate of growth in Defense
spending, not a cut from the current level. Even with the $78
billion, we'll go from $553 billion request in 2012 to $611
billion by 2016. There is some modest real growth there, and we
can discuss this more later. But, I would say, we not only have
a deficit problem, we also have some very significant national
security challenges. We feel that we need this funding to
handle, whether it's Afghanistan, getting--finishing the
mission in Iraq, Libya, Japan, and many things that we are
responsible for undertaking.
In order to protect the capability for the warfighter, most
of our top-line savings, that $78 billion, came from
efficiencies and other changes in the portions of our budget
less closely related to warfighter capability. About $68
billion of the $78 billion came from improving business
practices, reducing personnel costs, and changing economic
assumptions.
Let me cite a couple of examples to give you a flavor for
what we did. We're proposing steps to slow the growth in
military medical costs. While we continue to provide, and will
continue to provide, the troops and the families and retirees
with high-quality medical care, we're concerned that DOD's
medical care costs are skyrocketing. They've gone from $19
billion in fiscal year 2000 to $52 billion in fiscal year 2012.
To slow that growth, we've proposed incentives to increase the
use of generic drugs and mail-order delivery. We've proposed a
modest increase in TRICARE enrollment fees for working-age
retirees, the first since the mid-1990s, and we've indexed
those fees to a medical deflator. We also propose to end some
special subsidies for private-sector hospitals that currently
receive premium claims rates. Expected savings will total $340
million in fiscal year 2012 and $7.9 billion through fiscal
year 2016.
I ask Congress' help here. I know these are hard things to
do, but we have to make some of these tough decisions if we're
going to find ways to hold down the growth in Defense spending.
A second example of Department-wide cost-cutting involves
personnel decisions. We've proposed a DOD-wide freeze on
civilian billets, with some limited but important exceptions,
such as the one for the acquisition workforce. That will save
$2.5 billion in fiscal year 2012 and $13 billion over the FYDP.
We also proposed a 30-percent reduction in the number of
contractor employees performing staff augmentation work. It's
an important distinction. That is people that are essentially
hired to do jobs that could be done by government employees.
That'll save $812 million next year, 5.7 percent over the FYDP.
Over the next 2 years, we plan to reduce or downgrade 140
general officer and flag billets, and more than 200 senior
civilian billets. The savings there will be modest, but it does
go toward Secretary Gates' goal of flattening DOD's
organization.
Third, we're streamlining DOD's organizational structure.
That includes disestablishing the Joint Forces Command, at a
savings of $2 billion over the FYDP, and the Business
Transformation Agency, which will save another $337 million.
All together, actions affecting the portion of the budget
least directly related to warfighting account for about 87
percent of that top-line reduction. The remaining roughly $10
billion involve decisions more directly related to combat
capability: a $4 billion restructuring of the Joint Strike
Fighter--but, frankly, we would have done that anyway, because
of slips in the program--and $6 billion from proposed decreases
in the end strength of the Army and the Marine Corps in fiscal
2015 and 2016, assuming that future security circumstances
allow such reductions with minimal risk.
As I said earlier, in addition to the $78 billion in
Defense-wide savings, the Services have gone through their own
cost-cutting exercises, which saved more than $100 billion, or
plan to, in fiscal 2012 through 2016. These are organizational
improvements, changes in business practices, termination of
underperforming or unneeded weapons. Of those savings, $28
billion were reinvested to pay for higher operating costs or
pay for readiness enhancements, essentially. I think that
rather than hollowing out or decreasing readiness, this
initiative is designed to improve it. Certainly in Secretary
Gates' mind. It included depot maintenance. It included more
flight hours and training. The remaining $70 billion, they
reinvested in other higher priorities.
So, now let me ask each Service Under Secretary to provide
some details, beginning with Army Secretary--Under Secretary
Joseph Westphal. That will be followed by Under Secretary
Robert Work and Under Secretary Erin Conaton.
Joe?
STATEMENT OF HON. JOSEPH W. WESTPHAL, UNDER SECRETARY OF THE
ARMY
Dr. Westphal. Chairwoman McCaskill, thank you very much for
having us here today. Senator Ayotte, thank you, and members of
the subcommittee.
I will also have a little statement. Rather than read that,
I'll just make a few summary points. I think you know
everything that's on it already. So, not to belabor the
subcommittee's time.
I will say that, from our perspective as CMOs, we actually
welcome a dialogue with the committee about these issues. I
think we're entering upon a very, very turbulent period of
time, both in terms of the fiscal standing of our Nation's
budgets, but also in terms of the nature of operations out
there. As we try to draw down out of Iraq and gain momentum in
Afghanistan, and do all the things that we need to do to
support this Nation's security, I think these discussions are
going to be very important.
In the Army, what we call the generating force--that is,
all those elements of military and civilian that support our
operational force--has been reduced, in significant ways, to
support and to be part of the operating force. So, part of what
we need to do as we move forward, in terms of efficiencies, is
to ensure that we don't further undermine the generating force
so that we always have ready and trained troops ready to go.
So, a lot of the efficiencies that we identified, in our
efforts to gain approximately $28 billion to $29 billion, were
aimed at ensuring that we didn't undermine the generating
force.
For example, we made sure that support for base operations
was an important investment in ensuring the maintenance and
growth and sustainability of the generating force, as opposed
to simply moving all resources over to shifting resources from
one side of procurement to another side of procurement. We did
some of that, as well.
But, the gist of it is that we believe that the Secretary's
efficiency initiative for the Army was the beginning--as I
think Secretary Hale mentioned, the beginning of an effort to
really become much more adept at addressing the very difficult
issues of, how do we reduce and shift resources? Whether you're
reducing the workforce or whether you're eliminating programs,
or whether you are reducing or taking down structure, the
processes that we have to follow to do that are complex and
often difficult to maneuver through. So, we've had some
valuable lessons learned in this process. I think we've
employed some techniques that we could talk about during the
question-and-answer that I think will help us address many of
the concerns that both of you have mentioned in your opening
statements.
I think you know what we did to gain that $29 billion in
savings on the procurement side, on the infrastructure side, on
the personnel side. So, I won't detail that to you now. But,
I'll be glad to answer any questions and address it as we go
forward in the interview.
Thank you very much.
Senator McCaskill. Thank you, Mr. Secretary.
STATEMENT OF HON. ROBERT O. WORK, UNDER SECRETARY OF THE NAVY
Mr. Work. Chairwoman McCaskill, Senator Ayotte, Senator
Begich, I echo Joe and Robert's ``thank you very much for
having us here today.'' We are very, very interested in
continuing a dialogue with both the committee and Congress,
writ large.
I'd like to echo that this is something very different,
this entire efficiencies effort, than anything that I've seen
through my 27 years as an Active-Duty Marine and since my
retirement. The breadth of the effort was quite striking. We
had aggressive top-down targets. Each of the Departments were
given $30 billion to hit on their efficiencies targets. We were
given very explicit types of targets. So, I think you know that
one-third were supposed to come from what we referred to as
``tooth'' and two-thirds from ``tail,'' or, pretty much,
overhead.
We had vibrant debates within DOD on the type of codes that
we should actually map the efficiencies. We had close
interaction with all of the Under Secretaries. The Under
Secretaries met, if not weekly, biweekly. You had a question
with the DCMO. We met frequently with the DCMO. We also met
with Bob Hale and Christine Fox from CAPE. It was a very
iterative process. We were pushed very hard after the first $30
billion rounds, for example, we were given another track II.
So, the way the Department of the Navy went about this is,
we tried to have four kind of broad areas. One through
reorganizations, which we've given several examples of what we
might do, but we disestablished staffs, the Second Fleet, et
cetera. We've reduced personnel ashore. We did that by going
through each of the over 200 bases and stations, and went
through and asked what we might be able to do with fewer
people. We did better business practices. That included buying
smarter. But, to answer Senator Ayotte's question, we actually
looked at all of these input metrics like Facilities,
Sustainment, Restoration, and Modernization (FSRM), which are
really just models where you would just dial in 90 percent or
80 percent. You take a look at your flight hours and you dial
in a certain percentage and you take a look at your ship depot
maintenance. We tried to do everything from a percentage--from
the perspective of, how could we do this better?
So, there would be a model that said you were supposed to
do 90 percent of all of the different types of requirements.
What we would do is try to go to each base and say, ``Okay,
what's really wrong on this base, the highest priority thing,
is to replace this specific roof, because if this roof caves
in, you would have a much harder problem. So, we have a much
better idea of what the prioritization of all of these things
are. We think we will be able to be far more efficient in this
way. The same way on flight hours, for example. We went through
each type and model series of aircraft and looked to see how
that might work. We also looked at program eliminations, as Mr.
Hale said, like the expeditionary fighting vehicle (EFV) and
the Standard Missile-2 (SM-2).
We took all of this money. What really made this different
is each of the Under Secretaries and the Service Chiefs and the
Service Secretaries were told to reinvest this money into high-
priority warfighting, since this was the initial goal of this
effort. So, we were able to put more people to sea. We were
able to accelerate programs like the next-generation jammer. We
were able to buy and accelerate new capabilities, like the
medium-range unmanned aerial system. We were able to fully pay
for things that we had planned but had yet to put in the
budget, like service life extension programs, on our aircraft.
We were able to take all of the money from, for example, the
EFV, and put it into Marine Corps ground combat equipment
strategies, which made the force much more whole.
We also were able to convince DOD that energy should be
considered ``tooth.'' So, we put an awful lot of investment
into energy, because we expect that to save us a lot of money
downstream.
I can't overemphasize that one of the most important things
on this efficiencies drill is to try to get the continuing
resolution resolved. An efficiencies effort has to have a
baseline, and with the baseline constantly changing, this
really causes us a problem. So, the continuing resolution
itself will allow us to be much more efficient than we are now.
We are, quite frankly, doing things that are inefficient. I
think any other businesswoman or businessman would say, ``What
in the heck are you doing this for?'' So, we hope that the
continuing resolution, in conjunction with this effort, will
allow us to be much more efficient.
I look forward to your questions.
Senator McCaskill. Secretary Conaton.
STATEMENT OF HON. ERIN C. CONATON, UNDER SECRETARY OF THE AIR
FORCE
Ms. Conaton. Chairwoman McCaskill, Senator Ayotte, Senator
Begich, members of the staff, thanks very much for having us
here today. I join with my partners in appreciating the
opportunity to continue the dialogue on where we go from here
with efficiencies.
Like the rest of the services, the Air Force worked hard to
meet the targets that Secretary Gates set out for us; in our
case, about $33 billion in efficiencies. As Bob was saying, to
do this, we looked at all aspects of our work. We looked at all
categories of support activities, from installations to
sustainment to acquisition, overhead, and through those whole
range of processes.
We also looked at how we do business. Secretary Work gave,
I think, a good example with the facilities sustainment
account, and we can talk more about that. But, there are other
areas where we've changed our business process in order to
become more efficient. Then, we also looked at industry best
practices to see what folks in other parts of the country are
doing that could lend lessons for us.
At least within the Air Force--and we can go into any
number of these details, as you like--but, we had
organizational and headquarters consolidations with some of our
air and space operation centers and with numbered air forces.
We had a number of logistic support efficiencies, everything
from how we sustain our weapons systems to over $700 million in
fuel savings from additional efficiencies there.
In the space arena, we've tried to improve our acquisition
processes, and we're proposing, for your consideration, and
would like to work with you as you get ready for the NDAA, on a
new approach for how to buy two of our advanced extremely high
frequency satellites in a way that we think will reduce costs
and provide greater stability to the industrial base.
We were able to use the funds made available through these
efficiencies in a range of enhancements that we believe enhance
both warfighter capability and readiness. For the Air Force, we
put a significant amount of money, about $4 billion, into
weapons systems sustainment, which has a direct bearing on our
readiness rates. We've developed and are pursuing an affordable
long-range penetrating bomber as part of DOD's long-range
strike family of systems. We're procuring more evolved
expendable launch vehicles, both to ensure access to space and
to stabilize our industrial base. We're transitioning our MC-12
Intelligence, Surveillance, and Reconnaissance (ISR) aircraft,
that's doing such amazing things over in Afghanistan, into our
base budget to be an enduring capability.
We know that in order to achieve these goals we need to
make individual senior leaders accountable for developing and
executing detailed implementation plans. I'd be happy to talk
about this more as we get into your questions.
The Air Force is using our existing corporate governance
structure, including the Air Force Council, which is chaired--
cochaired by myself and the Vice Chief of Staff, to regularly
review the progress we're making on achieving these targets.
We're particularly looking at the readiness impacts to make
sure that there's no unintended consequences when it comes to
the readiness of the force. But, from the Secretary and the
Chief on down, we're committed to achieving these goals. We
know that in order to do that, we have to work with our
partners in DOD and with you all in order to be successful.
So, I think, with that, I'll turn back my time and just
look forward to answering your questions.
Thank you very much.
Senator McCaskill. Thank you very much.
Mr. Hale. Can I just finish up with----
Senator McCaskill. Sure.
Mr. Hale.--a point on implementation, which is, the CMOs,
as you said, will monitor for the services. I'll join with the
OSD DCMO to look at the OSD-wide initiatives. All of us will
report to the Department CMO, Deputy Secretary Lynn.
We will work with Congress. You asked, in the letter, about
legislative requirements. Generally, these don't require that.
But, there are a couple of cases that do; one in the medical
care area, one that Erin referred to as the space efficiency.
We need legislative authority there. I'm a little embarrassed
to say we don't have the language to you yet, but I'm told it's
coming soon.
Let me just say, lastly, we're talking a lot about
efficiencies. Unfortunately, in fiscal year 2011, I think we're
moving in the opposite direction with the continuing
resolution. I know we are. I mean, it is causing
inefficiencies. We are forcing our contracting officers to go
to short-term contracts to preserve capability. We have several
hundred MILCON projects on hold, as well as a number of
procurement actions. I'm concerned that an already understaffed
and under-experienced contracting workforce is going to have
trouble catching up in a way that's efficient. So, anything
that you can do--I know that there's difficult issues here--but
to get us a budget for fiscal year 2011 would be very helpful.
Let me just end by thanking you for your support of the men
and women in the military. We very much appreciate it. We can't
maintain our national security without Congress, and we
appreciate it.
With that, we'll stop and answer your question.
[The joint prepared statement of Mr. Hale, Mr. Westphal,
Mr. Work, and Ms. Conaton follows:]
Joint Prepared Statement by Hon. Robert F. Hale, Hon. Joseph Westphal,
Hon. Robert O. Work, and Hon. Erin C. Conaton
Good morning, Chairwoman McCaskill and members of the subcommittee.
Thank you for this opportunity to discuss our efficiency actions at the
Department of Defense.
I am privileged to be joined today by my colleagues from the Armed
Services Committee, the Under Secretaries of the Army, the Navy, and
the Air Force, who also function as Chief Management Officers for their
respective Services. We have a joint statement, after which we would be
pleased to entertain your questions.
We would begin by noting that--like Congress--the leadership of the
Department of Defense is mindful of the fact that our Nation is dealing
with significant fiscal and economic pressures. Those pressures have a
direct impact on the strength of our national defense.
We owe it to the taxpayers to make the most of every dollar they
entrust to us for the defense of the United States. As Dwight
Eisenhower once said, ``The patriot today is the fellow who can do the
job with less money.'' That statement is, if anything, truer today than
it was when President Eisenhower first said it. It was no accident that
Secretary Gates recalled those words in a speech at the Eisenhower
Library a year ago.
In that spirit, the Department's budget requests for fiscal years
2010 and 2011 included steps to curtail or eliminate programs where we
had met our procurement needs, or where programs were seriously
troubled or provided capabilities that were judged too narrow to
justify their expense. More than 20 programs were restructured or
eliminated, among them further production of the F-22 and the C-17
aircraft, the program for the new VH-71 Presidential helicopter, the
Navy's DDG-1000 ship program, and the Army's Future Combat System
(FCS). Had these and other cancelled programs continued as planned,
they would have cost taxpayers hundreds of billions of dollars.
As significant as those savings are, however, the goal of our
effort was more than cost-cutting. Its purpose was to rebalance the
U.S. military over the long term by reinvesting the savings in force
structure and combat capabilities, to meet the needs of the wars we are
presently engaged in, as well as those we may face in the future.
In the past year, DOD has continued its cost-cutting effort with
particular emphasis on business operations. We have identified plans to
save a total of $178 billion in fiscal years 2012 to 2016. The Services
identified about $100 billion of savings, which they reinvested to
increase combat capability. The remaining $78 billion in Defense-wide
savings was used to accommodate reductions in the defense topline,
thereby contributing to the administration's efforts to reduce the
Federal deficit.
I will summarize each of these efforts separately, beginning with
the Defense-wide reductions.
$78 billion used to reduce federal deficits
To be clear: The savings of $78 billion across the Department do
not represent a cut in the Defense budget compared to current levels;
rather, it is a cut in the rate of growth. Even with this substantial
reduction, DOD requested $553 billion for the base budget in fiscal
year 2012, growing to $611 billion in fiscal year 2016. These budgets
permit modest real growth in the near years of the present Future Years
Defense Program (FYDP).
It is also important to note that, in order to protect warfighter
capability, most of this topline reduction was achieved through
efficiencies and other changes in portions of our budget less closely
related to warfighter capability. To quote the Secretary of Defense:
``As a result of the efficiencies and reforms undertaken over the past
year, we have protected programs that support military people,
readiness, and modernization.''
More specifically, of the $78 billion we saved, $68 billion in
savings were achieved by shedding excess overhead, improving business
practices, reducing personnel costs, and changing economic assumptions.
Attachment A to our testimony lists the specific initiatives involved
in achieving these $78 billion in savings. We highlight a few of the
significant changes.
They include steps to slow the growth in our medical costs. While
we will continue to provide high-quality military health care for
troops and their families, we are concerned that DOD's medical costs
have skyrocketed in recent years--from $19 billion in fiscal year 2001,
to more than $52 billion anticipated in fiscal year 2012. To slow the
growth in the costs of medical care, we are proposing some necessary
improvements. They include changes in pharmacy co-pays to provide
incentives to increase the use of generic drugs and mail order
delivery. We are also proposing a modest increase in TRICARE enrollment
fees for working-age retirees--the first such increase since the mid-
1990s--and we will index those fees to a medical deflator. We also
intend to phase out subsidies for several private-sector hospitals
where the Department pays premium claims rates. Expected savings from
the health care reforms will total $340 million in fiscal year 2012 and
$7.9 billion through 2016.
A second example of cost-cutting described in the attachment
involved personnel decisions. They include--with limited exceptions--a
freeze on civilian workforce levels that will save $2.5 billion in
fiscal year 2012 and $13 billion over the FYDP. Also included is a 30
percent reduction in the number of contractor employees who have
supplemented and supported our government staffs. These cuts in the
number of contractors will save $812 million next year and $5.7 billion
over the FYDP. In addition, over the next 2 years, we will reduce or
downgrade 140 general and flag billets out of 900, and more than 200
senior civilian billets out of a total of 1,400. While the savings
associated with these changes are modest, they will contribute to a
flattening of the DOD structure.
Third, we are taking steps to streamline the Department's
organizational structure. As the Secretary of Defense announced last
August, we are disestablishing the Joint Forces Command--at a savings
of $2 billion over the FYDP--and the Business Transformation Agency--
which will save another $337 million.
Altogether, actions affecting the portions of our budget least
directly related to warfighting capability account for $68 billion--or
more than 87 percent--of our topline savings. The remaining $10 billion
in 5-year topline savings involved decisions more directly related to
military combat capability: $4 billion from restructuring the Joint
Strike Fighter Program and $6 billion from a proposed decrease in end
strength of the Army and Marine Corps.
This last item deserves more explanation. Four years ago--in the
midst of our engagements in Iraq and Afghanistan--Secretary Gates
increased the Army's permanent end strength by 65,000 and the Marines'
by 27,000. By 2014, we anticipate that U.S. forces will have completed
the military mission in Iraq and largely shifted the security mission
in Afghanistan from allied to Afghan forces. As a result, we believe
that, in fiscal years 2015 and 2016, we can reduce active duty end
strength by 27,000 within the Army and by 15,000 to 20,000 in the
Marine Corps with minimal risk. If our assumptions about Iraq and
Afghanistan turn out to be overly optimistic, or if global conditions
change for the worse, we would be able to adjust the size and schedule
of this change or even reverse it altogether.
military services save and reinvest $100 billion
In addition to the $78 billion in Defense-wide savings, the
Military Services have gone through a cost-cutting exercise of their
own, identifying savings totaling $100 billion in fiscal years 2012
through 2016. These savings reflect organizational improvements,
changes to business practices, and termination of underperforming or
unneeded weapons programs.
Of the savings realized, $28 billion will be devoted to higher-
than-expected operating costs. These are ``must pay'' expenses to meet
requirements such as sustainment of weapons systems, depot maintenance,
base support, flight hours, and other training. Without these
efficiency savings, we would have been forced to reduce procurement or
cut force structure in order to cover these costs.
Of the remaining savings, roughly $70 billion will be retained by
the Military Departments and will be reinvested in higher priority
military capabilities. Another $2 billion is being reinvested by
Special Operations Command.
Attachment B to this testimony lists the full array of planned
efficiencies. We will briefly highlight a few of the planned
efficiencies in each Service and the uses to which these savings are
being put.
army
The U.S. Army achieved $29.5 billion in savings over the fiscal
year 2012 to fiscal year 2016 period. The Army's plan includes
consolidating six installation management command regions into four.
They also are closing the Evaluation Task Force at Fort Bliss, which
was created to assess the now-restructured Future Combat System. This
action will make 1,000 service men and women available for other duties
at that post. The Army is also leveraging the efforts of other
organizations, such as the Defense Information Systems Agency, to
eliminate redundancies and reduce the number of their data centers by
half.
The Army has decided to reduce military construction costs by $1.4
billion over the FYDP by deferring lower-priority construction
projects. Those savings will be reinvested into base operating accounts
in order to sustain existing facilities.
In the interest of both efficiency and effectiveness in its
procurement programs, the Army has chosen to terminate the Surface-
Launched Advanced Medium-Range Air-to-Air Missile surface-to-air
missile in favor of higher-priority capabilities, saving $103 million
in fiscal year 2012 and $1.1 billion over the FYDP. They are also
terminating the Non-Line-of-Sight Launch System, which was originally a
part of the Future Combat System. It is now considered redundant and
not cost-effective. Its cancellation will save some $605 million next
year and $3.2 billion over the FYDP.
The savings will be invested in modernizing the Army's battle fleet
of Abrams tanks, Bradley Fighting Vehicles, and Stryker wheeled
vehicles. Other investments that are planned include accelerated
fielding of a new tactical communications network and acquisition of
more unmanned aerial vehicles, which are in high demand by combatant
commanders. The Army has also devoted savings to increased funding for
suicide prevention and mental health counseling.
navy and marine corps
The Department of the Navy achieved a total of $4.3 billion in
fiscal year 2012 and $35 billion across the FYDP. Highlights include
the elimination of selected squadron staffs for submarines, patrol
aircraft, and destroyer squadrons. The Navy will also disestablish
Second Fleet in Norfolk, a relic of the Cold War. Needed functions will
be transferred to Fleet Forces Command, and no ships will leave
Norfolk. This action will save $1.2 billion over the FYDP. These and
many other decisions will help to cut manpower at about 290 shore
commands, which will enable a shift of approximately 6,000 billets to
shipboard manning. This will in turn help to man new ships entering the
Fleet. It will help to bolster the submarine force with an additional
500 sailors. It will compensate for excessive crew cuts that were made
under a policy termed `optimal manning.'
The Navy has also achieved savings through a careful review of
critical mission requirements, which led to reductions in programs that
cost too much or provide too little capability. As a case in point, the
Marine Corps will terminate the Expeditionary Fighting Vehicle (EFV).
Total savings will amount to $2.8 billion over the FYDP and $13.3
billion through 2025. In place of the EFV, the Marine Corps will
continue to support its amphibious assault mission by reinvesting the
savings into upgrades of existing vehicles and the creation of a new
amphibious vehicle based on requirements that better reflect likely
future fights.
In addition the Navy will aggressively pursue efficiencies in
acquisition. These efforts should produce more than $1.7 billion in
savings associated with multiyear procurement approaches for the F/A-18
aircraft and the E-2D aircraft.
The Navy plans to use its savings to acquire six more ships than
planned in the FYDP--a destroyer, a Littoral Combat Ship, a TAGOS
oceanographic vessel, and three oilers. The Navy will also acquire 41
additional F/A-18s and execute a Service Life Extension on about 150
more, actions that together will partially compensate for delays with
the Joint Strike Fighter. They plan to develop a new generation of
electronic jammers, to increase repair and refurbishment of Marine
equipment, and to develop a new generation of sea-borne unmanned
aircraft.
air force
The Air Force achieved approximately $33 billion in overhead
savings across the Future Years Defense Program. The organizational
changes include changes to manpower and personnel, consolidation of two
Air Operations Centers in the United States and another two in Europe,
and consolidation of three Numbered Air Force staffs in areas where
major commands can assume the workload. These moves will save $516
million next year and $4.2 billion over the FYDP.
Implementation of better business practices accounts for $2.2
billion in savings next year and $20.6 billion over the FYDP. Actions
include:
A 25 percent reduction in the cost of communications
infrastructure, using enterprise-wide services and consolidated
data centers that will save $1.3 billion over the FYDP.
Cuts to fuel and energy costs by Air Force Mobility
Command through adoption of commercial best practices in flight
planning and use of simulators that will require an investment
of $120 million but pay back $715 million over 5 years.
Adoption of a new method for acquiring satellites--
emphasizing block buys, sustained funding for engineering,
fixed price contracts, and full funding over multiple years
through advance appropriations. The Air Force is expecting this
new acquisition approach--which we refer to as Evolutionary
Acquisition for Space Efficiency (EASE)--to create more
stability in the industrial base and lower the costs of
acquiring satellites.
The savings gained from these and other efforts will help to launch
development of a new long-range bomber program. Plans call for a long-
range penetrating aircraft, which will be able to carry nuclear weapons
and to operate in both manned and unmanned configurations. This program
will leverage existing technologies and a streamlined acquisition
approach to manage costs.
Savings will also make it possible for the Air Force to invest in a
greater number of Evolved Expendable Launch Vehicles to ensure access
to space and improve industrial base stability; modern radars for the
F-15 C and E model aircraft; additional simulators for F35 training;
and transition of the MC-12 program into the base budget.
summary
As these examples illustrate, our efficiency initiatives will
support improvements in warfighter capability that would not otherwise
have been fiscally feasible.
We recognize that, in order to achieve the warfighter benefits we
have described today, we must implement our plans and achieve these
efficiency savings. Implementing such a wide array of changes poses
formidable challenges. In order to turn plans into reality, each
Service Chief Management Officer will monitor the implementation
process in his or her Service. Within the Office of the Secretary of
Defense, the Under Secretary of Defense (Comptroller), and the Deputy
Chief Management Officer will work together to monitor compliance and
report successes and problems to the Deputy Secretary of Defense, DOD's
Chief Management Officer.
We would also note that we have a powerful incentive to realize
these planned efficiencies. The dollars that we plan to save have
either been removed from the defense budget or have been reinvested to
achieve increases in warfighter capabilities. If we fail to achieve our
efficiency plans, we will be forced to scale back programs that
contribute to our core mission. That prospect will motivate us to
translate planned efficiencies into actual efficiencies.
We will work with Congress as we plan for implementation of these
important initiatives. While most of the proposals do not require
legislative authority, some do. For example, one of our military
healthcare initiatives requires legislation, as does EASE, the
Evolutionary Acquisition for Space Efficiency. We will be submitting
required legislative changes.
We want to end our statement by thanking the committee for your
support of the Department and the men and women who bear the burdens of
our Nation's defense. Thanks to you--and the American people--these men
and women have the resources to carry out their missions whenever and
wherever they are needed.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Senator McCaskill. Thank you very much. Thank all of you.
Let me start with the idea that the Secretary authorized
the military departments to bring down $100 billion and then
spend $100 billion. You probably can guess what my question's
going to be. Last summer, none of this spending was in any of
your budgets. So, you were ready to submit your budgets to the
Secretary of Defense without this additional spending. You felt
you could do without it, and now you're presenting to us a
budget that includes this additional spending, at the exact
moment that we can't get a continuing resolution passed because
we can't agree on how much money to cut from the budget.
Clearly, you see what's coming down the road. I mean, this is
going to be an exercise in cutting the size and scope of the
Federal Government for the foreseeable future.
So, how can I agree to allow you to spend the money that
you find in efficiencies on something that you didn't even have
in your budget before the Secretary announced the effort?
Mr. Hale. Well, let me start by saying that simple number
cuts are math, not strategy; we need to consider what we won't
do if we have to walk back through those cuts. I hear your
point; they weren't there last year. But, many of them probably
would have been. We would have looked at other programs,
including, frankly, some readiness-related ones, and cut them
in order to do the sorts of things we were able to achieve
through these efficiencies: adding ships so that we could
maintain a 300-ship force; starting a new bomber program,
because we feel we need it for access interdiction in the
future; upgrading some of the Army's older weapons, which we
feel we need, because we're going to have to keep them out on
the battlefield for many years.
So, we face some very significant national security
challenges. Secretary Gates believes, and I certainly agree--I
know all of us will, here--that we need these funds to invest
in order to meet those challenges.
Let me ask my colleagues here. You want to----
Dr. Westphal. Well, I'll----
Mr. Hale. You want to start, Joe?
Dr. Westphal. Yes.
I think you bring up a good point. There certainly were
things in the budget that we weren't possibly going to be able
to fund. But, by finding these efficiencies and these savings,
we were able to shift money. In the Army, for example, we knew
we had a tremendous need to bring in more folks into the
workforce to help us with counseling and substance abuse,
suicides. We have a pretty significant personnel need there. We
were able to shift some of the resources from one end of the
savings efficiency initiative to that. We were able to do the
recap of some of these older systems as a result of also
eliminating or terminating major weapons systems, as a result
of our portfolio reviews.
The network, which is one of the most critical and most
important priorities for the Army, something that is very
costly, we're able to shift more resources to pushing the
network further ahead, in the hopes of really making great
progress in that particular area.
So, we moved resources to some things that we were funding
that we needed to fund at higher levels and to things that we
really needed, really needed to provide to the warfighter
today.
Mr. Work. Ma'am, I think Senator Ayotte said it very well.
Having the incentive structure to do any type of effort like
this is very important. So, Senator Ayotte mentioned trying to
have incentives where contracting officers wouldn't be rewarded
for spending all their money.
In this case, Secretary Gates, who said our rate of growth
is going to slow down--and he anticipated this--he said we
would have to find or free up resources within our expected top
line, last summer. The incentive was that the Services would be
able to keep the money.
Now, this was a significant effort. There have been other
efficiency efforts that I've been into where the incentives, if
you don't get to keep the money, then you don't get as many or
as bold reorganizations or efficiencies as you might otherwise
expect.
So, this year is kind of the third year of an extremely
turbulent time. We went through the Quadrennial Defense Review,
which was really trying to match our budget to the strategy.
Last year, it was really trying to be more efficient within
that expected budget. As you mentioned, this year is going to
be trying to accommodate the new fiscal realities.
So, I see this as all part of a long 3-year effort. I'm
certain that the Secretary of Defense did, and he anticipated
us going out. But, having that incentive for us to look for
efficiencies and being able to invest it into warfighting was,
I think, the key thing that allowed us to do what I consider to
be many, many innovative things.
Senator McCaskill. Okay.
Quickly, if you would.
Ms. Conaton. I'll give you two quick examples. Before we
got started in this effort, the Air Force was having to
consider taking down major parts of its force structure just to
balance the books. So, I would say that if we didn't have the
ability to reinvest, we'd be looking at making adjustments to
the size or capability of the force.
The other thing I'd say, on the readiness side, is that it
was only because we had the ability to reinvest that we were
able to sustain our readiness rates through weapon systems
sustainment. The growth in cost there, because of the new ISR
platforms and others coming into the fleet, have driven the
costs up to a point where it would have been very difficult for
us to maintain those rates that contribute to readiness.
Thank you, Chairwoman McCaskill.
Senator McCaskill. Thank you.
This will be my last question for this round, and then
we'll all come back, after my colleagues have a chance to ask
questions. Let me talk about the balance between contractors
and civilian employees.
I mean, the announcement was welcome news to me, and it
was, we have to wean ourselves off of this incredible explosion
of contractors within DOD. I am very aware of the size and
scope of that explosion. But, then I look, and in reality
what's happened is, you've cut civilian workforce more than
you've cut the contracting workforce. I thought the idea was,
we were going to try to go the other way, because the
contracting has not turned out to be the kind of cost saver
that I think it was touted to be in the last decade.
So, how do we get a handle on this if, even after the
Secretary says we're going to do this, we do the opposite?
Mr. Hale. Well, I need to look at the numbers. The concept
was what you said, that we froze civilians, with exceptions for
the acquisition workforce. They were actually cut below current
numbers, at least in selected categories of contractors, namely
the so-called staff augmentees.
The numbers are slippery. There was an article, a very
confusing article, in Congressional Quarterly today, that
suggested there was actually an increase in contractor
spending. It was measured off the continuing resolution level
in a rather arbitrary budget that we had to present in 2011,
because we don't have an approved budget, so we don't have a
baseline.
So, I'm not sure I can respond to your direct numbers. I'm
going to have to look at them for the record.
[The information referred to follows:]
(A) During fiscal year 2010, the Department spent $70.6 billion on
civilian labor. The Department of Defense (DOD) implemented a civilian
hiring cap on all the Military Services and Defense Agencies at the
fiscal year 2010 authorized and funded levels for fiscal year 2011 to
fiscal year 2013. The savings are included in the fiscal year 2012
budget request. Cumulative annual reductions/savings from the fiscal
year 2011 budget request level to the fiscal year 2012 budget request
level are estimated at:
Fiscal Year 2011 - $351 million
Fiscal Year 2012 - $2,510 million
Fiscal Year 2013 - $2,673 million
(B) During fiscal year 2010, the DOD spent nearly $4 billion on
service support contractors providing staff support augmentation for
government employees. Using this basis, cumulative annual reductions/
savings are estimated as:
Fiscal Year 2011 - $418 million
Fiscal Year 2012 - $812 million
Fiscal Year 2013 - $1,221 million
The savings are included in the fiscal year 2012 budget request. By
fiscal year 2013, this subset of contracts is reduced by 30 percent
(from that fiscal year 2010 basis).
Mr. Hale. But, the concept is, civilians stay about the
same, or maybe up slightly for acquisition, and we estimate
some cuts in the contractor workforce.
Senator McCaskill. Well, let me give you the numbers that
we think are accurate. We think that you're cutting spending on
service contracts by $1.3 billion this year. That represents
less than a third of the $4.5 billion you plan to cut in the
civilian workforce. So, it looks like close to three times as
much. We'd love to get to the bottom of that, also.
Mr. Hale. Let's do that for you.
Senator McCaskill. Senator Ayotte.
Senator Ayotte. Thank you very much, Chairwoman McCaskill.
I wanted to ask a followup to what you just raised--and I
believe Secretary Work, as well as Secretary Hale--the
incentives for contractors and the incentives within the
Department. Obviously, it's very important that we've
undertaken this efficiency incentive to come up with these
savings. But, how do we put that into the permanent mindset of
DOD? What do you view, right now, as the way that we carry
forward this process so that it is an ongoing process and that
we're not left where--I see now, where the duty is--people feel
like, at the end of the year, they have to spend everything
they have, even if they don't need it?
Then, second, with our contractors, as the chairwoman has
pointed out, where's the incentive for the contractors to find
efficiencies and save money?
So, I view it in two veins, not only those that work in
DOD, but also those that we contract with. How are we going to
memorialize these efforts?
Mr. Hale. Well, let me offer a couple thoughts. One, the
end-of-year problem is an endemic problem in government. I've
watched it for 30 years. In a private business, you have
profit. If you meet your customers' needs and cut costs, you're
going to increase profit. You'll probably get a bonus.
Unfortunately, in the government it's often the case that if
you cut costs, the comptroller, the next year, takes your
money. Then there is no profit. There's no bottom line in the
same way there is.
We have tried a variety of approaches to that. I've never
found one better than, frankly, just tightening up a bit on the
money that is available and waiting to see what--or, watching
the effects of that to be sure you don't have unintended
consequences. But, we ought to continue to look for better
incentives. I mean, I recognize it's a tough thing to do.
In terms of the contractor incentives, there I think the
best thing we can do is pursue competition in contracting,
especially services contracting. We haven't always been as good
at that as we should be. That's one of Ash Carter's goals, is
to get more competition. Because, if we say to a contractor,
``Okay, here's what we want done. You bid. Several people bid.
They will have incentives then to provide us efficient
services, keep the dollars low so that they actually win. I
think that's--there, it's harder--you can't have five navies
competing with each other. You can't have five air forces. It's
much harder to do for the Department as a whole. But, I think
competition is the key, in terms of keeping down contractor
costs.
You--anybody want to add to that?
Dr. Westphal. I'll add----
Mr. Hale. All right.
Mr. Westphal.--a couple of things.
What we did is, we immediately did--I directed a data call
of all of our service contracts in the Army, across the Army,
to look--first of all, to understand what the size and scope of
the contracts were. Then, using the financial manager of the
Army, that's the tool that I will be using to direct commands
to ensure that any future contracts, and as they move contracts
through the process, that we will gain efficiencies from that.
Then we want to balance it out with any insourcing that we do.
We also have the directive to move jobs that are inherently
governmental to the civil service. We want to be able to do
that in a balanced and strategic and an efficient manner.
So, all of that is something that we've created, a new
Deputy Assistant Secretary for Services, under our Assistant
Secretary for Acquisition, to monitor all those contracts, to
look at all of the workforce and give us some guidance as to
how we balance out that work we have to do to sustain our
soldiers in the current operations.
Senator Ayotte. Thank you.
Secretary Hale, to follow up on what we were just talking
about, there aren't any types of incentives in place, whether
they be performance-based--any type of--because, I think that
mindset has to come from the top down, in terms of, we're going
to measure your performance, not only on how you perform the
qualifications or your--but, one of your qualifications of your
job would be that the more money that you are able to save and
return to the Treasury, as opposed to finding something you
need to spend it on--and I think--I agree with you, this is a
challenge we have across government. But, obviously, with DOD's
budget and some of the critical needs we need to use those
funds for, given the challenges we face right now in the Middle
East, and the challenges we face, obviously, in following
through in Afghanistan--to me, making sure those dollars are--
instead of just being spent for the sake of being spent.
Mr. Hale. There are incentives. I don't want to leave you--
the broad ones are hard to come by. Certainly, all the Defense
agencies, or many of them, are business-like organizations.
They do have bottom lines of profit, if you will, or net
operating result, as we call it in government. They can, to
some extent at least, benchmark their activities against the
private sector. So, there, I think there are good incentives.
We have some specific programs, fast payback capital
incentives, where if you invest a certain amount of money and
get fast payback, you can keep the savings, which provides an
incentive to actually try it.
But, I still would conclude that it's much harder in
government, without an overall bottom line, than it is in a
private business, to get people not to do things like spend
money at the end of the year. I know it happens, and we need to
keep working on it.
Ms. Conaton. Can I give you one quick example in our area?
It's not specifically on contracts, but it is on energy.
The Air Force is the largest consumer of energy in the
Federal Government. Our mobility air forces is the largest
consumer of energy within the Air Force. So, part of what we've
been trying to do is incentivize our commands to be more fuel
efficient. That means being willing to invest some upfront
dollars in order to get the payback. But, we're also thinking
about: Once they achieve those dollars, how do we help them see
that we will then reinvest to get the next level of savings?--
so that you're constantly providing the investment needed to
get to the next level in the particular area of energy.
Mr. Work. I would echo Under Secretary Conaton. We're doing
the same thing in energy, looking everywhere from nonmonetary
incentives, like establishing a battle leave for energy
efficiency, things like that, which, in a military
organization, can really lead to changes in behavior.
But, on the--what we're really starting to see--where we're
really focusing our attention on incentives right now is in the
acquisition side, at the program executive officer (PEO) level,
where we're doing things with change-orders management, and we
are purposely looking for innovative acquisition strategies, et
cetera. We reward these PEOs for being able to free up money
for the broader acquisition priorities of DOD. I can't speak to
specific incentives, but that is where we're focused right
now--energy and acquisition--on the incentives.
As far as the contractors and civilian side, we're now
going in with our budget-submitting organizations and we're
talking with them and saying, ``Do we have the right balance of
contractors and civilians and military in the budget-submitting
organizations to do the business of DOD?'' Over this whole--
this next year, as part of POM-13, we hope to establish the
incentives for those budget-submitting organizations to be able
to work within their means and free up money for DOD.
Senator Ayotte. Well, I certainly appreciate all of your
comments on this issue. It's an issue I would very much like to
work with you on, because I think that's something we not only
face here, but across government.
I'd like to follow up with one other question. I obviously
give, with the chair's latitude, the opportunity to the other
Senator here, Senator Begich, to ask questions. But, I have a
concern--wanted to get your view on--right now, we're obviously
in a continuing resolution situation. Secretary Hale, you
talked about inefficiencies. When you say ``inefficiencies,''
are there ways where we're actually failing to save money and
spending more money, because we haven't passed a budget
resolution and the Defense appropriation for the rest of the
year?
Mr. Hale. Yes, I think that, unfortunately, is true. One
example, in order to preserve funding flexibility--I'm sure--
it's hard to see this from Washington, but I'm sure that our
bases are signing short-term contracts, because they don't know
what funding they'll have in 2 months. Those are just
inherently inefficient. We have had to pull back--the Navy, for
example--a number of ships that were intended to go into the
shipyards for repairs, because of limits on funds. It'll cost
more when we do that again. Sometimes we won't be able to do
the repair until some future point.
We have--I worry--again, this is a problem that--I can't
quantify this, but I worry that we have a contracting workforce
that's treading water out there, to at least some extent,
because they can't move forward, because the continuing
resolution limits new starts, and therefore, they'll have to
try to catch up. When they do that, they won't have as much
time to compete and do a good job of contracting. They will do
their best. I'm not criticizing them. But, I think there are a
variety of inefficiencies inherent in this Continuing
Resolution. As I said before, we very much need a budget.
Senator Ayotte. I can tell you that certainly--I know,
members of the Armed Services Committee appreciate that we are
at war right now, and that--I would like to see us, even if it
comes up as standalone Defense appropriations bill, come
forward for the remainder-of-the-year funding.
Related to that is also, right now, with the conflict that
we're now involved in Libya, and of course the Japanese relief
effort--is the Department preparing a request to Congress for
an--emergency supplemental funds to address both of those
situations?
Mr. Hale. The answer is no. Actually, we couldn't submit a
supplemental now. We don't have a budget.
Senator Ayotte. Right.
Mr. Hale. We'd have to amend the budget, which--ironic--
halfway through the year. But, the administration has said they
don't plan to submit a supplemental request at this time. We
are looking for a dedicated source of funding for the Libyan
operations. If we can't arrange that in the fiscal 2011 budget,
then we will have to use reprogramming to allow us to move the
money around to cover those funds.
Senator Ayotte. Has there been an--my time has expired--
but, has there been an estimate prepared yet of what the cost
of the Libyan conflict is?
Mr. Hale. Yes. Our estimate, we actually--just this
morning, so, the added cost incurred to date, about $550
million. About 60 percent of that is for munitions, primarily
the Tomahawk Land Attack Missiles, that have been used widely.
The future costs are very uncertain, because we don't know the
duration or, frankly, the operating tempo. But, given the
current plans, it looks like maybe $40 million a month, if we
stay. We're coming down sharply, in terms of the U.S.
commitment, as NATO takes control. If we stay at that lower
level, it would be around $40 million a month in added costs.
Senator Ayotte. $40 million a month?
Mr. Hale. Yes.
Senator Ayotte. Thank you very much. I appreciate your
answers.
Thank you for the latitude, Chairwoman McCaskill.
Senator McCaskill. Sure.
Secretary--excuse me--Senator Begich.
Senator Begich. I don't know if that was a promotion, or
what.
Senator McCaskill. I don't think, right now. [Laughter.]
Senator Begich. Right now, probably not.
Senator McCaskill. They have challenges right now.
Senator Begich. That's right. Thank you, Chairwoman
McCaskill.
Thank you, all of you, for being here.
I have several areas of interest, and I'll try to be
concise, here. But, I want you to know, I come from a State
that's very strong in the area of military support. As a former
mayor, that literally was right next door to Elmendorf and Fort
Rich, an incredible partnership. I'm a hawk when it comes to
these issues. But, I'm also frugal with the dollars. I want to
walk through some of this with you. Because, I want to make
sure that the resources we are spending are being utilized for
the best interests of our fighting men and women on the front
line, as well as the families that are necessary, obviously,
back home. So, that's my intention here. I don't want you to
assume, at the end of the day, that I'm not supportive of the
military mission, whatever it may be, depending on the time and
year and day we are engaged in. We have multiple conflicts
right now.
But, let me walk through one, first, easy one. Secretary
Conatan, I'd love to have you come up to Alaska on energy.
We would love to show why, strategically, Alaska is
critical, not only for the Air Force and the resources there,
but, also, we know aviation fuel and the connection with some
of the work you're doing on gas-to-liquids and some other
efforts you're doing in the military could benefit not only
what's going on in Alaska, but throughout the country. So, I
would love to--
Ms. Conaton. Be happy to.
Senator Begich. It's only because she mentioned energy; the
rest of you didn't mention it, so you're not invited yet.
They're coming in the winter. You can come in the summer.
[Laughter.]
But, I think it's really a good point you made about the
energy issue. That is, as I know, your energy budget's already
$1.2 billion, maybe $2 billion over budget already for this
fiscal year, for a lot of reasons. You are the largest
producers of renewable and alternative energy. You're doing a
lot of stuff in that arena. I've asked the chairman of the full
committee to actually have a hearing on energy in the military,
because I think it would be an incredible story, but also get
us all focused on what's needed and the resources and the
technology you're all developing that not only could help the
military, from a national security perspective, but our
economic security. So, I do mean to invite all of you. But, she
mentioned energy, so I wanted to share that as a comment.
Second, on the continuing resolution, I want to add to what
you said, Secretary Hale. That is, I know what it's doing to my
State. That is, I know we have over $400 million in MILCON
projects--and no disrespect to the ranking member and the
chairman--I like earmarks. I like a lot of earmarks. A lot of
these MILCON projects are a mixture of earmarks, as well as
program money. The problem is--and these are all needed
projects, critically needed for our military families and our
military strategic needs up in Alaska--440-plus million, 200-
and-some million ready to go, right today. But, they cannot
sign the contracts, for all the reasons you just said. This
continuing resolution method that's going on here--and I'm new
here--I'll tell you, is the worst thing you could ever do. It's
the worst kind of business that--I mean, if--I just can't
imagine how anyone in the private sector looks at this. I know
how I would, I know how my wife does, who's in the private
sector, running businesses. This is appalling, how we do the
business.
I know contractors, right now--to your question, Senator
Ayotte--and that is, I have contractors in Alaska who have
maxed out their bonding capacity waiting for the contract to be
signed. We have a seasonal construction season. We have an $80
million hangar that was built in World War II. It has to be
replaced or it will cave in and ruin multimillion dollars worth
of equipment. So, when you talk about examples, I can give you
a shopping list. It's appalling that we can't do them. In a
couple of months, by May 15, in our season, we'll be out of the
business of constructing, especially in the northern sector of
Alaska, where Fairbanks has missile defense system, Air Force,
Army, Clear Air Force Base, needed for our military around the
world.
So, I just wanted to echo what you said. One way or
another, we have to get this done. It's appalling. It is a--and
it's not hurting the military, in the sense of personnel, off
by themselves. It is the private sector that is getting hit,
all--in conjunction. Because, these are contractors that come
and do the work. When the Corps of Engineers lets the contracts
in Alaska, it's a private contractor who's going to do that
construction, along with the military personnel. It's a combo.
So, when I hear people say, ``Well, it's just the
government''--it's not just the government. It is private-
sector contractors that do an enormous amount of work on behalf
of the Federal Government. Is--am I off on that? Or----
Mr. Hale. Well, I think it's hurting military personnel.
Senator Begich. Oh no, I agree with that. No, no. I'm
saying, in conjunction.
Mr. Hale. It is not issuing permanent change of station
(PCS) orders with the right notice. We have a hiring freeze in
civilians in the Army and----
Senator Begich. Yes.
Mr. Hale.--the Marine Corps, so we can't hire the people we
need.
Senator Begich. Right. No, I agree with you. I think some
people say it's just a bunch of government workers we're
affecting. Not true. It's a combo. It's both private sector.
To some of my quick questions here, and that is on saving
some money and trying to figure this out. I know, in the recent
Government Accountability Office (GAO) report, they talked
about the Joint Medical Command (MEDCOM). This seems to be a
$200 million to $400 million potential savings. There seems to
be a conflict of how to do it among the different service
agencies. It seems a logical thing to save money. What are you
doing to help make that happen?
Mr. Hale. Well, I think it is on the list to look at next
year. We want to be sure we manage the medical capabilities of
DOD carefully. I respect that there are probably different
approaches to doing that in the Services. But, I know our CMO
is interested in looking at that. I think we will do it.
Whether we come forward with that proposal, I'll have--we'll
have to wait a year. We haven't done so yet. But, we will look
at it.
Senator Begich. Will you? Thank you very much.
Will you respond to the GAO report in saying, if you do not
do it, why you won't do it? Because, it seems like we--again,
I'm only here for a couple years, so far, but I see a lot of
these reports that talk about all these savings. Then people
say, ``Well, maybe we'll look at it.'' Then they look at it.
Nothing happens, 4 years later, 5 years later, a new report
comes out, cites the old report. So, are you going to look at
it and say, ``This is why we can do it or can't do it,'' and
then report back to--if it's this committee or somebody within
armed services, so we at least have knowledge of----
Mr. Hale. My guess is, you'll give us a chance to do that
next year if we don't recommend it. [Laughter.]
But I will say, this is a very far-reaching set of
proposals that we have put forward. As I said in my opening
remarks, having watched Defense budgets for 30 years, I've
never seen one more far-reaching, in terms of business
streamlining. There are a lot of things in here that people
have been urging us to do that we are now proposing. We need
help from Congress on some of them. I'll come back to the
medical care initiatives. I know how hard they are, but many
groups have urged that we do it. Now we need Congress to let us
do it. In most cases, they don't require legislation. They
require the absence of legislation.
Senator Begich. Does this require legislation?
Mr. Hale. One part of them. There are four proposals we've
made. One does require legislation. That's the one where I
discovered, yesterday, we haven't got the legislation here yet.
But, it will be here soon. The others don't. But, they require
the absence of legislation. Congress has, for example,
prohibited us from increasing TRICARE fees for working-age
retirees for a number of years. You have to not do that, and
let us go forward----
Senator Begich. I understand. But----
Mr. Hale.--and let us go forward.
Senator Begich.--just specifically on this one, does it
require legislation?
Mr. Hale. Which one, now? The Joint--
Senator Begich. Yes.
Mr. Hale.--MEDCOM?
Senator Begich. Yes.
Mr. Hale. Oh. I don't know. I'd have to check on that.
Senator Begich. Okay.
Mr. Hale. I'm not sure.
Senator Begich. I'd like to know if it does----
Mr. Hale. Okay.
Senator Begich.--because----
Mr. Hale. We'll find out.
[The information referred to follows:]
There is no legislation required at this time. The Secretary
believes he currently has the authorities required for organizing the
Department in the most effective and efficient manner required.
Senator Begich. I don't think it will. But, that's----
Dr. Westphal. Yes, I think you bring up a really important
type of issue that we need to be looking at. The three Under
Secretaries--we've already started engaging, partly because of
BRAC, where we're, for example, merging Walter Reed and
Bethesda Naval.
Senator Begich. Right.
Dr. Westphal. So, we've had lots of issues associated with
that, partly because of our need to connect better with the VA
and the medical records----
Senator Begich. Right.
Mr. Westphal.--and all of the efforts to make that process
easier. The three Under Secretaries--we've been engaged in
those discussions and working with our surgeon generals to get
them to work together better. I think we've achieved a lot of
success in that area. The military cultures are there that are
going to block--naturally block an effort to do anything like a
unified MEDCOM.
Senator Begich. I have faith----
Dr. Westphal. But, we're going to look at that. We're going
to look at it hard. We're going to bring folks into the room to
talk about that. We need to engage you, in the Senate and this
committee and others, to help us figure the best way to do
that.
Senator Begich. Good. Let me, if I can--there--I have
talked about it in a couple meetings, especially in the Budget
Committee, on medium extended air defense systems (MEADS) and
the termination and the process that that will go through, and
the cost. I know what I've been told. I think the termination
cost is around $800 million--not ``terminate,'' I'm sorry--to
bring it to concept. I forget the exact phrase, but it's the
concept that we'll never use. But, it's--we're going to pay
$800 million to get there.
Mr. Hale. MEADS has had a troubled history.
Senator Begich. Yes.
Mr. Hale. Our choice was to continue it through fiscal year
2013, because, had we terminated it, our estimate was, we would
have spent as much to--in termination liability as we would
have to continue the program through 2013. We believe that
there are some technologies we can use and that important
allies can use. So, we think we will get something out of it.
But, I would agree it is a program that's had a very troubled
history.
Senator Begich. If I can--my time has expired. So, let me
just try to summarize here on that one point. What's the
guarantee, especially--it has had cost overruns--correct?--as
part of the equation here. So, I've been told it's $804 million
to get to this concept of--I forget the exact phrase--but,
concept of design versus termination, which is a capped number.
So, that's what I understand, unless someone's misinformed me.
But, I just want to make sure. I have no faith, to be very
frank with you--this project has cost overruns, so why would I
think that, when I'm told $804 million will be the number to
continue to design it through 2013--is there a way to say,
``Okay, it's 804. That's the number.'' That's what I've been
told now, in the record, more than once--$804 million. We're
capping it. You won't get another dime, even though you have
that money already, according to testimony received in the
Budget Committee--that you won't receive another dime. How do--
can you guarantee me, right now, that that's the cap?
Mr. Hale. Well, I suppose you could put that cap into law.
I'd have to get----
Senator Begich. Let me ask you. Can you guarantee it will
be $804 million--versus the termination cost, which is a little
bit more than that--can you guarantee that?
Mr. Hale. I can't sit here and tell you that. I need to get
you a MEADS expert. I don't like making statements I can't back
up. I'm not an expert in MEADS.
I can tell you that there were debates within DOD. The
judgment that Ash Carter and others made were that we would pay
more, at least as much, in termination costs and that,
therefore, continuing the program through fiscal year 2013 and
garnering some benefits, which he feels we will, in terms of
technology that we could use or allies could use, that was the
better approach. That's the one we recommend.
Senator Begich. Let me end there, Chairwoman McCaskill, and
just say that my faith is weak here on this. I would love to
have, if you want to get something for the record back to me or
the committee explaining MEADS--the developers of MEADS--and
clearly making sure that they--how they come to this conclusion
that number will be it, versus termination, which, today, we
can be done with, and you have the money in your budget,
according to what was testified. So, part of me says, ``Cut our
losses. Move on.'' It's going to--and the last thing I'll say
there is multiple terminations--you have two or three more
terminations in your efficiency study--do those have clauses?
You don't have to get that now. I guess----
[The information referred to follows:]
Question. Explain the development of Medium Extended Air Defense
System (MEADS).
Answer. The MEADS program was initiated upon the conclusion of the
Memorandum of Understanding concerning Cooperation on Project
Definition and Validation of a MEADS in 1996. With limited resources,
one way to ensure that a program involving research, development,
testing, and/or evaluation programs is most cost-effective is to share
developmental costs of the program with one or more of our Allies. A
program of cooperative development by the Department of Defense (DOD)
with other North Atlantic Treaty Organization (NATO) nations enhances
our interoperability with these nations, while building our collective
missile defense capability. The MEADS program continued under the MEADS
Design and Development Memorandum of Understanding (which is referred
to below as the MOU) among the United States, Germany, and Italy in
2005. Based on standard DOD and international agreement practice, the
MOU was written in a way that would make it difficult for any
participating nation to drop out without paying any associated contract
termination costs caused by premature withdrawal from the program.
Programs (especially Engineering and Manufacturing Development
programs) need stability, not an annual budget fight in the U.S. or in
foreign governments. The prime contractor selected for the MEADS
program is MEADS International, located in Orlando, FL. The MEADS is
being developed according to the 2004 MEADS International Cooperative
Requirements (ICOR) document. The requirements of the ICOR document
focus on providing a highly mobile, tactically and strategically
deployable system, providing both stationary and mobile defensive
protection capability for critical maneuver force assets against short-
and medium-range ballistic missiles, cruise missiles, and air breathing
threats. The major MEADS development components included are the
Surveillance Radar, Multifunction Fire Control Radar, Tactical
Operations Center, Launcher, and Missile.
Question. How the Department came to the conclusion that $804
million will be the United States cost share, versus termination? Are
the resources ($804 million) in the fiscal year 2012 budget request?
Answer. Under the MEADS Design and Development Memorandum of
Understanding (referred to as the MOU), the remaining DOD obligation to
the MEADS program in fiscal year 2012 and fiscal year 2013 is $804
million. If the DOD were to withdraw from the MOU (or if Congress were
not to appropriate funding, causing the DOD to be unable to continue
participating in the MEADS program under the MOU), the DOD would be
responsible for contract cost impacts, up to our ceiling commitment
under the MOU. Under the MOU, any participant may withdraw from the MOU
upon 180 days written notification. As noted in the previous answer,
under the MOU, if the DOD unilaterally withdraws from the program, with
respect to contracts awarded on behalf of all participants, the DOD
would be liable for ``all contract modification or termination costs
that would not otherwise have been incurred but for the decision to
withdraw'' up to its share of the cost ceiling for financial
contributions.
The MOU cost ceiling is $4 billion (equivalent 2004 U.S. dollars),
and the MOU provides that each participant will contribute its share of
the full financial contributions of the MEADS project. The DOD cost
share of the program is 58 percent, for a ceiling of $2.324 billion
(2004 dollars). To date (including the fiscal year 2011 commitment
through February 2011), the DOD has contributed $1.478 billion (2004
U.S. dollars) under the MOU. As a result, in a ``worst case'' scenario,
the DOD withdrawal liability under the MOU would be capped at $846
million (2004 U.S. dollars) ($2.324 billion-$1.478 billion).
Contract termination costs (and related government termination
costs) would be driven by existing obligations like long lead item
procurements and orders, targets, test and integration infrastructure,
and other support costs (lease, support contractors, etc). Should the
DOD withdraw from the MOU, the remaining participants would be forced
to decide how to proceed, and if they decided to terminate the
contract, they would have to request a termination proposal from the
contractor. Because the other participants have not agreed to pursue
termination, we can only estimate the maximum expected termination
liability, which would be less than our MOU cost ceiling obligation.
On the other hand, if the DOD and its MOU partners pursue the
proposed Proof of Concept effort using the remaining MEADS MOU funding,
the DOD cost share would be limited to the current MOU commitment of
$804 million as reflected in the Department's fiscal year 2012 budget
request. Essentially, for the cost associated with termination, the DOD
and its MOU partners would derive substantial benefit in terms of
hardware, software, or intellectual property deliverables from the
MEADS prime contractor that would allow Germany and Italy to proceed
into production, and would provide the DOD with an expanded array of
future choices with regard to future Air and Missile Defense systems
capability. At the most recent MEADS Board of Directors meeting, both
Germany and Italy supported pursuing the Proof of Concept.
The DOD believes that implementation of a Proof of Concept Design
and Development program, within the funding limits agreed in the MOU,
is the best option for the DOD and its partners, Germany and Italy. If
the DOD contributes the remainder of its costs under the terms of the
MOU, the MEADS program would complete the prototypes that have already
passed critical design review. In many cases, component parts have been
ordered or delivered for these major end items, such as the radars. The
program would complete limited system integration and demonstrate
capability via ground and flight tests of these prototype systems. This
would allow documentation of the tested design and the ability to
assess the capabilities of the major system elements and the
development of data packages for these elements. This decision would
ensure that the DOD fulfills its obligations under the MOU, avoids a
situation where the DOD may be viewed as walking away from its
international obligations, and allows the DOD to avoid being required
to pay termination costs that the DOD estimates would be more than the
cost of completing the Proof of Concept effort under the MOU.
Importantly, this course of action would facilitate the maturation of
key technologies that would be useful to the DOD in other programs and
to its MOU partners, Germany and Italy, in any follow-on effort.
If the MEADS program is terminated, which would require the consent
of the German and Italian Ministries of Defense; it would effectively
force the DOD and its German and Italian partners to devote significant
funds to cover contract-termination costs--funds that could otherwise
be used to bring the MEADS development to a useful level of maturity.
It is our firm belief that developing and producing these key
technology developments through the MEADS program would facilitate
their use in other DOD programs; it would capture the engineering,
design, and test documentation for the Proof of Concept effort; and it
would support our Allies in their air defense capability development
efforts. Therefore, we believe that these efforts are worthy of the
continued funding for the remainder of the Design and Development
effort.
Question. What is the impact if the resources were not appropriated
for MEADS?
Answer. Although the MEADS Design and Development Memorandum of
Understanding (referred to below as the MOU) provides that the
responsibilities of the DOD and the other participants are subject to
the availability of funds, we believe that each participant under the
MOU has an obligation to seek the funds necessary for it to provide its
agreed-upon contributions. Thus, the DOD is seeking current and future-
year funds, which are necessary to pay its agreed costs under the MOU,
including any costs due as a result of contract modification and
termination stemming from the DOD's withdrawal from the MOU. If
Congress does not appropriate and authorize funding for the MOU for
fiscal years 2012-2013, the DOD would be unable to provide its required
contributions to the program under the MOU.
Under the MOU, a participant is required to notify the other
participants promptly that available funds are not adequate to fulfill
its responsibilities under the MOU. Thus, if the DOD becomes aware that
it will not have adequate appropriated and authorized resources to
fulfill its responsibilities in fiscal year 2012, and/or fiscal year
2013, the DOD would be required to inform its German and Italian
counterparts promptly. In such circumstances, the MOU requires the
participants to consult immediately with a view toward continuing the
MOU, but on a modified (i.e., restructured) basis.
Without any other viable solution in the absence of the DOD
resources, the DOD would be forced to withdraw from the MOU. The MOU
provides that the DOD (or any other participant) may withdraw from it
upon 180 days written notification. However, if the DOD were to
withdraw from the MOU, not only would it be responsible for its own
project-related costs associated with its withdrawal, but also for
costs associated with contracts awarded on behalf of all of the
participants. As noted in the previous answer, per the MOU, the DOD (as
the withdrawing participant) would be required to pay all contract
modification or termination costs that would not otherwise have been
incurred but for its decision to withdraw, up to its share of the cost
ceiling for its financial contributions, as set forth in the financial
provisions of the MOU.
If the DOD withdrew from the MOU, we estimate the withdrawal costs
in fiscal years 2011 through 2013 would be as high as the MOU cost
ceiling amount ($846 million for the DOD) because the DOD (as the
withdrawing participant) would be responsible for all contract
modification or termination costs that otherwise would not have been
incurred but for its withdrawal. However, if the DOD and the other
participants continue pursuing the more limited and focused Proof of
Concept effort to mature technology, obtaining data packages on such
technology where possible, with the remaining already-agreed MEADS MOU
funding, the DOD's costs would be limited to $804 million. Importantly,
there would be the added benefit of having funds applied to the
maturing of key technologies to a point where they would be useful, not
only for our partners in any follow-on effort, but also for the DOD for
use in other programs.
Per contract provisions, valid contract termination costs would be
determined either through negotiation or through arbitration under the
North Atlantic Treaty Organization arbitration process. Without the
necessary funding for fiscal year 2012-2013 being authorized and
appropriated for the DOD to continue its participation under the MOU,
it is likely that there would be inadequate funds available to pay the
partner nations' share of contract termination costs. Thus, the DOD
would be unable to provide funds to the North Atlantic Treaty
Organization to cover valid contract termination costs owed to the
MEADS contractors under contracts entered into ``in good faith'' on our
behalf pursuant to the MOU. Although the MOU provides that the
responsibilities of the DOD and the other participants are subject to
the availability of funds, it is understood that each participant under
the MOU has an obligation to seek the funds necessary for it to provide
its agreed-upon contributions. Thus, the DOD would be required to seek
current and future-year funds necessary to pay its agreed costs under
the MOU, including any costs due as a result of contract modification
and termination stemming from the DOD withdrawal from the MOU.
The effects of a DOD decision not to authorize and appropriate
funding for MEADS might be even more serious since the DOD's ability or
willingness to fund similar current or future cooperative program
Memorandum of Understanding obligations--intergovernmental or
contractual--could be called into question by our other partner
nations. The DOD has entered into hundreds of international cooperative
program agreements with allied and friendly nations that could be
adversely affected if other nations or foreign contractors perceive the
DOD's decision not to authorize and appropriate funding for MEADS,
which results in the DOD's inability to cover contract modification or
termination costs stemming from its withdrawal from the MOU, as a
default on an obligation under the terms of an international
cooperative program MOU. Finally, a perceived ``failure'' of the DOD to
uphold its international cooperative program MOU funding obligations
could result in other nations taking similar action in the future,
potentially harming the interests of the DOD and other partner nations
that, in good faith, entered into legally binding international
cooperative program agreements.
The DOD urges Congress to consider these factors in its
decisionmaking process regarding fiscal year 2012-2013 funding
requirements for the MEADS Design and Development MOU, and to support
the fulfillment of the DOD's commitment under the MOU by authorizing
and appropriating the funds that the United States agreed to provide to
the cooperative MEADS effort.
Question. You have two or three more terminations in your
efficiency study. How many other programs being terminated have
contract termination clauses as the MEADS does?
Answer. In our search for efficiencies in the development of the
fiscal year 2012 President's budget request, the DOD has not identified
another program being terminated that invokes a termination clause
similar to the MEADS program.
Senator Begich. Here's my thought, and I'll just leave on
this, Chairwoman McCaskill. It drives me crazy. Every time--so,
we get a project, we--let me finish--we contract, has cost
overruns--it's a private contractor we're working with, along
with our folks--has cost overruns, not working out like we
thought, then we have to pay to get out of it. Now, if that's
the case with these other ones, I'd like to know what those
termination costs are. Then, the last thing I'd like to know
how many other contracts do we have like this. Because, I'll
tell you, as a mayor, when I had--and I had multimillion-dollar
contracts--we never had termination deals like this. If you
talk about the competitive nature, this is not one thing you
put into it, because it's a guaranteed cashflow. If they screw
it up, they still get paid. I don't--maybe I'm too simplistic
on this, coming from the private sector, or just the mayor from
Anchorage, but I'm telling you, it doesn't make sense to me and
it doesn't make sense to taxpayers, when I talk to them. I've
just--little bit of frustration----
Mr. Hale. Well, just briefly, we are required to fund
termination liability for cost-plus contracts, which is the
ones where these occur. Fixed-price contracts, generally you're
not going to see this, because there's a certain requirement to
perform, and a certain number of dollars. But, on cost-plus
contracts, if we terminate for the convenience of the
government, which--that's what we're doing in the case of
MEADS--there is a termination liability, and it's usually
negotiated. So, you don't know it upfront. But, we do budget
for the most likely amount. We're required to do that under the
full-funding concept.
Senator Begich. The simplest----
Mr. Hale. I don't know if that reassures you. It probably
doesn't. But----
Senator Begich. The simplest thing we could do is just not
appropriate it. Because all the contracts say, ``subject to
appropriation.'' I'd put money on that. Every contract has
``subject to appropriation.'' So, all we have to do is say
we're not going to appropriate money for that project. Guess
what? It saves us $800 million. So, I'll just leave it at that.
Thought for discussion.
Senator McCaskill. Thank you, Senator Begich.
Let me just--before I go on to my questions, let me just
talk a little bit about--I think the challenges you have in
terms of the culture--there are real challenges. Cost-plus
contracts is a good example. In my opinion, having looked at a
lot of contracting work over the last 4 years since I've been
here, way too often were we using cost-plus, much less
noncompetitive cost-plus.
Second, performance awards for nonperformance. I mean, that
is on my hit list, that we have contractors that perform
terribly, but it's been the culture to pay them performance
awards anyway, because we always pay performance awards. It's
like--it's just an added cost of doing business, as opposed to
any kind of alignment of incentives, like Senator Ayotte was
talking about.
Let me just put out there, today, as we're talking about
culture, there is also an entourage culture that is
interesting. I mean, let me ask, How many people in the room
work for DOD or one of the branches of the military?--if you'd
raise your hands. That's a lot. I mean, I have hearings with a
lot of different Federal agencies. Typically, they don't bring
as many people to meetings or to hearings. I'm trying to figure
out why we need so many people to do this, and the culture
behind that.
I remember how pleasantly surprised I was when Admiral
Mullen came to see me one day and only had one person with him.
I was going, ``Now we're getting somewhere.'' I'm trying to
figure out what all these people do and why they all need to be
here at one time. It seems to me that there could be
efficiencies if they would be doing other jobs right now
besides sitting in this hearing room.
So, I mean, those are three good examples. I have a long
hit list of things like that. I think that's part of the
challenge of what you're trying to do. It's part of the
challenge about the brass creep that the Secretary of Defense
talked about. It's part of the challenge of trying to flatten
the organization and reduce the number of flags and all of
those things. I am so proud of our military. We do so many
things well. But if you take out the medical expenses, which is
part of the increase--but, I reduced the numbers I talked about
earlier by what we paid for medical care 10 years ago and what
we're paying now; it still went from $280 billion to $500
billion in a decade. That is an amazing increase in a
relatively short period of time. So, I know we can do better.
That's one of the reasons we're having this hearing today.
Let me ask about the Army business transformation cut. Now,
I--this is where-- I get a headache on this one, because--I
have to be honest with you, I never really quite understood
what the Army business transformation was. Now what, basically,
you're saying is, you're going to reduce expenditures for
transforming business operations through, now, something called
the Enterprise Governance Approach. Enterprise Governance
Approach sounds like gobbledygook to me. I mean, what is the
Enterprise Governance Approach? Can we get more detail about
what that really means? How do you come up with $3.6 billion
in--underneath this Enterprise Governance Approach in 5 years?
Dr. Westphal. Well, Senator, we submitted, just recently, a
report to Congress that details, in the form of about 26 to 27
projects, what we are doing to transform our business
operations. That's not directly related to the efficiencies
initiative; it's--there are parts of it in there. But, that's
an overall transformation effort that deals with everything
from logistics to our enterprise systems to our personnel
management to our auditability to all of the issues that you,
the GAO, and many others have raised about our business
transformation.
One of the things that I have done, as the CMO, is to
institute governance for all of those kinds of efforts to
transform our business operations. That is, to really say that
performance evaluations and performance measures will be--that
people will be held accountable for transforming the kinds of--
and the metrics that they have laid on the table for that--for
those activities. The way we've done that is, we've formed what
we call the Army Campaign Plan, which is a series of priorities
across the gamut of activities of the Army. I've asked each
assistant secretary and each command to develop the matrix by
which we measure transformation in those business operations.
Those metrics then--I have sat down with those commanders and
those assistant secretaries, reviewed the metrics, criticized
some of them, sent them back to the drawing board to redo them.
It's a slow process. But, we are making progress. We have
change in the culture. We're changing the attitudes. The
Enterprise Approach really means that we are trying to do this
in a more integrated fashion. We're trying to align better with
OSD so that, as we transform our business operations, we're not
only aligning with the transformation efforts at the DCMO level
at OSD, but we're also aligned with our sister Services, as
well.
So, it sounds like gobbledygook, but I tell you, that
report is fairly detailed. I would be glad to come back and sit
with you or your staff and----
Senator McCaskill. Well, I think it'd be helpful--if this
is about performance metrics--I think it'd be helpful for us to
get top-line performance metrics, for the various departments,
that you've developed. I just want to make sure that we're not
investing a lot of money in having a whole bunch of people work
on PowerPoint presentations that have titles on them, and then
we come back later, and what we're really trying to do, now
we're going, call it something different and try to do it
again. It feels like that sometimes. It feels like you're
running uphill and you're not getting anywhere.
Dr. Westphal. Right.
Senator McCaskill. Frankly, obviously, it's been a problem,
writ large, because we can't even audit. I mean, for--how many
years have we been trying to be able to audit, and we can't
even audit DOD. So, I just am frustrated that we aren't getting
to, kind of, the commonsense bottom line. But, maybe get
another name that----
Dr. Westphal. Can I give you one more----
Senator McCaskill. sounds good, but we're not really sure
what it means.
Dr. Westphal. Yes. I'm going to give you one more point on
this. You mentioned the growth of the Federal budget. I was
here in 2001, before September 11, as the acting Secretary of
the Army, and I defended an approximately $76 billion budget
back then for the Army--base budget. That has more than doubled
in recent years. So, I understand where you're--what you're
getting at.
I will tell you that, in this effort, what's critically
important for all of us is to be able to look at those metrics
and actually make the folks that are applying them accountable
for implementing and executing on those metrics.
Senator McCaskill. Right.
Dr. Westphal. That is the hardest part that we have----
Senator McCaskill. That is the hardest part. There's no
question about it.
The Navy energy efficiency cut, you have savings of $566
million in 2012 and 2.3 over the FYDP by reducing energy
consumption. But, these investments were already included in
the budget prior to the efficiencies initiative. Are you
double-counting them or are you just saying, ``We already did
the work, and here it is''?
Mr. Work. I'm not exactly certain of the $500 million.
What we did is, we added--we--it is true that what happened
is, we were able, as part of the efficiencies drill, to include
energy investments and energy savings as part of the overall
efficiencies drill. That is absolutely true. We have tried to
add--Secretary Mabus has extremely ambitious goals, both to
reduce energy at our bases and stations, to reduce the--also to
have achieved, by 2020, 50-percent alternative energy sources
for all of our fuels. That has been taken into account by our
new Assistant Secretary of the Navy for Energy Installations
and the Environment. This is the first time we have an
assistant secretary that really focuses all the time on energy.
They were able to put together a pretty broadbased plan on
where we would get the biggest return on investment. So, in
2012, for example, there are three steam plants that we will
have a return on investment in about 10 years. We--our average
return on investment on our energy programs across the FYDP is
about 7.1 years. So, some of them were probably in the program,
but they are all included as part of the efficiency savings
that we're reapplying back into our basic program.
[The information referred to follows:]
There are numerous energy efficient initiatives and renewable/
alternative energy programs that the Navy and Marine Corps are
pursuing. The reduced reliance on fossil fuels will achieve lower
energy consumption, strategic security, avoided energy cost, and a more
sustainable Fleet. Here are the major program areas along with examples
of projects with estimated savings.
Major Energy Program Areas
Shore
Steam plants decentralizations
Lighting systems upgrades
Renewable energy systems (solar &
photovoltaic)
Solar thermal domestic water and pool
heating projects
LED street lighting projects
Ground source heat pumps
Boiler heat recovery upgrades
Control system improvements
Alternative fuel vehicles
Tactical/Expeditionary
Hull coatings
Propeller coatings
Stern flaps
Allison 501K efficiency initiatives
Aviation simulators
Smart voyage planning decision aid
software
USS Truxtun hybrid electric drive
retrofit
Alternative fuels testing and
certification program
Incentivized Energy Conservation
Program (i-ENCON)
Expeditionary Forward Operating Base
(Ex-FOB)
Solar Portable Alternative
Communication Energy System
Light Emitting Diode (LED) lighting
Renewable battery charging systems
Examples of Projects for Navy Tactical with Estimated
Savings
Stern Flaps for Amphibious Ships
Shown to have an average payback
period of less than 1 year on FFG/CG/DDG
platforms
Currently undergoing testing on
amphibious ships
Savings estimated at 5,500 BBLs/ship/
year for LHD
Hull/Propeller Coating
Easy release hull/propeller coating
system allows Navy ships to shed bio-fouling
once underway
Reduces costly periodic hull/propeller
cleanings
Savings estimated at 1,800 BBLs/ship/
year
Solid State Lighting
Uses LEDs for platform illumination
LED lights in commercial applications
last almost 50 times longer than incandescent
and 6 times longer than fluorescent lights;
provides the same illumination with 25 percent
of the energy
Currently testing on DDG-108 and LSD-
52
Payback estimated at 3 years,
depending on fixture (savings of 335 BBLs/
ship/year for DDG)
Navy also continues to develop technologies that will be
implemented in future years; the implementation schedule for these
initiatives is subject to impacts based on final fiscal year 2011
budget:
Hybrid Electric Drive for DDG
Fuel savings by securing LM2500
propulsion turbines at low speed while loading
gas turbine electric generators to more
efficient operating condition (savings
estimated at 8,500 BBLs/ship/year)
Land-based prototype scheduled for
testing mid-2011
USS Truxtun (DDG-103) scheduled to be
first operational installation in fiscal year
2012 as an afloat test platform
Engine efficiency modifications for the F-35
Joint Strike Fighter
Improvement in F135 Block 5+ engine
fuel economy and lifecycle cost through
component upgrades and software cycle
optimization
Estimated Fleet-wide savings of
35,000 BBLs in 2023 (upon delivery of Block 5
aircraft), increasing to 178,000 BBLs/yr by
2029
Senator McCaskill. Okay. Well, we will ask you to give us
specifics--what was in, prior to the initiative, and what you
then used as part of the initiative after the initiative was
announced.
Mr. Work. Yes, ma'am.
Senator McCaskill. Senator Ayotte.
Senator Ayotte. Thank you very much, Chairwoman McCaskill.
I want to follow up on--first of all, just given that we
can't--we don't have auditable financial statements, how are we
going to know that we're actually achieving the savings and
efficiencies that--if you don't have the way to measure it by
the financial statements that you would in most organizations,
how do we know we're even going to achieve the savings? I'm new
to this, so--I'm a new Senator, and--so, why don't we?
Mr. Hale. That's two questions. Let me take the first one.
[Laughter.]
Senator McCaskill. First of all, you need to get a sleeping
bag and a pillow. [Laughter.]
Because, it is longer than one hearing. Trust me. I asked--
--
Mr. Hale. I'll complete the first.
Senator McCaskill. the same question 4 years ago, coming
from----
Mr. Hale. We do----
Senator McCaskill. an auditor's office.
Mr. Hale. We do have financial systems. I might add, I
think we have the best-trained financial managers in
government. I'll go to the second question briefly in a moment.
But, there are systems. They can't meet commercial audit
standards, which means we can't--our systems are old--they
can't track, as auditors require, information back to the
transaction level. But, I think they do present the dollars
that you give us reasonably accurately. If you want external
collaboration, we have probably 2,000 auditors looking over our
shoulders. The number of times we actually violate the Federal
Antideficiency Act, kind of the major crime, is pretty small.
It's 20 cents out of every $1,000 that we spend--20 cents out
of every $1,000. That's 20 cents more than I'd like. We're
trying to get it to zero. But, I don't think it suggests we
have no idea where we're spending the money you give us. I know
it doesn't.
Incidentally, I might add that our rate of Antideficiency
Act violations is a lot lower than the nondefense agencies,
even though they have auditable statements.
That said, sometimes we can just take our financial
statements and--or systems--and immediately tell what's saved.
The civilian pay freeze would be a good example of that, the
civilian billet freeze, because there are lines that govern
that. More often, we have to have our analysts look through a
variety of lines and make estimates. That takes some time. But,
they can almost always give us a pretty good idea where the
savings occur. So, yes, I think we can tell whether we saved
the money.
Now, do you really want the answer about why we don't have
auditable statements?
Senator Ayotte. Given what the Chair--The Honorable----
Mr. Hale. I'll be glad to do it.
Senator Ayotte.--Chairwoman just told me, I don't think so.
Mr. Hale. It hasn't been----
Senator Ayotte. I will----
Mr. Hale.--as systematically----
Senator Ayotte. I will find out.
Mr. Hale. Let me just say, I think we've done some things
right, but it has not been systematically a high priority. I
believe we have a streamlined and focused structure. With the
help of these guys to my right and left, I think that we will--
we are committed to meeting the goal in 2017. But, more
importantly, we're trying to get somewhere in the next 2 years.
Part of the problem is, we keep setting these goals way out in
2017. I'm not going to be the comptroller in 2017. Or, as I
like to say, if I am, I will definitely have a new wife,
because she's made it real clear that it ain't going to last
that long. So, we need near-----
Senator Begich. But, you have the legacy you could leave by
putting this in place.
Mr. Hale. We need some near-term goals, and we have some.
Maybe, if you'd like, I can come and explain them to you and
not take the time now.
Senator Begich. Well, and I think, really, in all
seriousness, this--having those--the auditable financial
statements should be one of the top efficiency----
Mr. Hale. It is one of----
Senator Begich.--initiatives, because----
Mr. Hale.--of our nine--we have nine high-priority business
goals, and that is one of them.
Senator Begich. Thank you. I appreciate that.
I wanted to ask you about some of the assumptions on the
savings, just to make sure that, if those assumptions don't
come to fruition, that we aren't in a place where the savings
really don't come to fruition. A couple of them, for example,
Secretary Work, that we're seeing a troubling rise in the price
of oil right now as a result of--in part, because of the
activities in the Middle East. How realistic do you think that
the Navy's projected savings of $566 million in fiscal year
2012 is for reduced energy consumption?
Mr. Work. Well, our estimated energy savings across the
FYDP, we track the number of millions of barrels of oil that we
will save. So, if the price goes up, we are actually going to
save more money. It would only, if the price goes down--if the
price goes up for oil, we are going to save that--a certain
number of barrels; we don't project a specific cost based on
the oil. We also estimate that 70 trillion British thermal
units (BTU) across the FYDP, for sure--we will save those as a
result of the energy investments we are making. That's both in
shore and tactical. So, we hope that we will achieve the 6
million barrels. If we don't achieve the 6 million barrels,
that's where we will start to say we were really--we didn't
make the right projection.
Senator Ayotte. But--I mean, I'm trying to follow this,
because if you don't track it by cost of barrel, and you just
do it by barrel, and the--let's say the price of oil doubles,
then even if you are able to achieve the number of barrels you
want to save, it's really not going to result in the end
savings. So, that's what I'm trying to understand.
Mr. Work. I see. What--well, what will happen--what we did
in the--as part of the entire efficiencies drill is, we had
very high--what we consider to be very high-risk, medium-risk,
and low-risk approaches to achieve efficiencies. That was
worked out both at the Service level, then at the Department
level, and then at the OSD level. If we--there are fact-of-life
increases, like increases to fuel, inflation rates, that we
make in our economic adjustments, and those will be accounted
for through--we'll either have to find other efficiencies to
offset those or we'll have to stop--reduce the amount of
operations that we're doing. We'll have a wide variety of
things. Once the efficiencies and our execution start to work
together, we'll be making adjustments every year, as we always
do.
Mr. Hale. Can I build on that and just say, with price at
$105, and now it's $110 billion, there will be some substantial
added cost; if it stays there, about $1.5 billion over the rest
of this fiscal year. It won't be quite as high, because we are
able to reduce consumption. There are going to be net increases
of costs when we see when fuel is up that much higher. It is of
concern to all of us. We're going to have to reprogram funds
from somewhere--I don't know where, for sure yet--in order to
meet those.
Senator Ayotte. How are we reaching the consumption
reductions that you're proposing overall? Is it reduction in
flying missions? A reduction in naval operations? Or, are we
just receiving--purely through energy efficiencies?
Mr. Work. A wide variety, ma'am. On shore, for example,
we're doing--we're changing--we're having steam plants
replaced. There's a wide variety of photovoltaic systems, solar
energy, that we're putting on tops of roofs. On tactical sides,
we're putting hull coatings on our ships. Marines who are
deploying to Afghanistan are using portable solar cells. All of
that takes fewer numbers of fuel trucks to bring fuel out to
the forward operating bases. We're doing smart voyage planning
software, so that we can get the most efficient uses. We expect
to achieve these savings through true energy efficiencies, not
by cutting operations.
Senator Ayotte. Well, and I would add, also, with the
public shipyards, for example, the one--the Portsmouth Naval
Shipyard--I know that there are many energy efficiency projects
that will save--that you--the Secretary has approved. I want to
say that I'm very supportive of those efforts.
I wanted to follow up, just on a couple other assumptions
within the efficiencies, just to see where we're at. The
assumption with regard to unemployment rates--Secretary
Westphal, I think you've--in the Army's proposal, the
unemployment rate, we assume, is going to stay at 9 percent.
I'm sure that Senator McCaskill shares this with me. We, in
Congress, hope that that is not the case. So--but, that is an
assumption that is made, in terms of retention and recruitment
throughout, in terms of savings. If our economy does pick up,
are we going to see those savings disappear? Can you comment on
that, and why that assumption was included over those years?
Dr. Westphal. We were trying to model this based on what we
thought were at least trends over the next--the current fiscal
year and the next fiscal year. But, we knew that there was some
danger in doing that, in terms of predicting fluctuations in
the marketplace.
We don't think it's going to affect our models in a
significant way. I think we'll still obtain the savings. But,
we are watching that. I mean, all of these kinds of assumptions
have to be based on things we cannot predict. If we can't--if
we don't get them right, we'll have to adjust.
Senator Ayotte. Well, thank you.
I also have some additional questions that I would submit
to all of you for the record, and certainly appreciate your
coming before the subcommittee today.
Dr. Westphal. Thank you, Senator.
Senator McCaskill. I just have three things I'd like to
cover, hopefully fairly quickly, and so we can let you all get
back to work.
Can somebody explain why Ash Carter's Better Buying Power
(BBP) Initiatives have not resulted in any savings?
Mr. Hale. Well, there are actually a number of items--and
I'm going to ask Bob Work and Erin Conaton to comment--that are
in here. Savings, in littoral combat ship, multiyear
procurement savings, and the evolutionary acquisition for space
efficiency.
Could you--maybe, Erin, you could--you want to start, Erin?
Ms. Conaton. Sure, I'd be happy to address the specific
that Bob mentioned. But, I would say, at a more general level,
a lot of the ideas that Dr. Carter's put forward, reducing
overhead rates in acquisition programs, we've laid that into
any number of our----
Senator McCaskill. I see.
Ms. Conaton.--acquisition programs. So, we can show you, we
can show the staff, where we've--
Senator McCaskill. So, you have pollinated your various
efficiency efforts with----
Ms. Conaton.--by program.
Senator McCaskill. the ideas, and they just aren't
identified as part of Dr. Carter's program?
Ms. Conaton. Correct. We've laid them in by individual
acquisition program. We can do that crosswalk for you to----
Senator McCaskill. Okay.
Ms. Conaton.--put them in.
Senator McCaskill. Okay.
It looks like we have 90-plus major defense acquisition
programs that we currently have ongoing. Are--and this touches
on some of the frustrations that Senator Begich has--do you
think we're putting enough energy behind the notion of
identifying, as quickly as possible, the ones that we're not
going to be able to afford to carry forward, and doing
everything we can, in terms of early termination? Is there
anything about the continuing resolution that keeps you from
being able to terminate? Because we've heard rumblings that
they're saying, ``We can't terminate things, because we're only
under a continuing resolution.'' I'm thinking, ``Well, the
continuing resolution is a really good excuse to terminate
things.''
Mr. Hale. Well, there are a few specific provisions for
items where Congress increased funding where we would be
prohibited from. But, in general, for the major weapons, I
don't think the continuing resolution is stopping us.
We haven't done as good a job--and I'll copy my boss'
answer here--Secretary Gates's answer--as good a job as we
probably should have of trying to identify, early on, programs
that weren't promising. Some of that's a problem in the
building. There's a can-do attitude. Everybody wants to make it
work. Even though some people might start to realize it's not
going to, there's a--strong tendencies. Some of it, quite
frankly, is in Congress. It's very difficult to terminate major
weapons; often run into a lot of opposition.
But, we need to do better. I think we've probably pruned
out a number of the problems in the herd over the last couple
of years. We need to be alert, realizing that times will be
tight, and try to not let them go on as long. I think that's a
fair point.
Senator McCaskill. I really think that that's a place where
some incentives would be great, the early identification of
programs that aren't going to work out. I know defense
contractors do a good job of salting various States with parts
of programs to keep them from being cut, because it's
politically difficult, especially politically difficult in a
recession, when everyone's really focused on jobs. But, having
said that, I thought the Secretary of Defense's strong, strong
leadership on the second engine made a difference. It really
made a difference. I'm confident--even though, unfortunately,
Secretary Gates won't be around for the long haul, I'm
confident that anytime someone in your position, Secretary
Hale, or any of your positions, or any of the leadership of the
military, you are so revered--the leadership of our military in
this country, for all the right reasons, is revered, and I
think the stronger that you all lead on trying to shut down
programs that, in the long run, are going to cost money that we
don't have, I think, the more responsive that Congress will be.
I thought it took a lot of courage for Secretary Gates to go
out as far as he did on the second engine. Ultimately, I
believe it is his leadership that made a difference. I really
do.
Mr. Hale. You won't get any objection from me on that.
Senator McCaskill. Yes, I do.
Dr. Westphal. Senator, can I add----
Senator McCaskill. Sure.
Mr. Westphal.--can I add to what you were just saying?
What we did in the Army is, we did these portfolio reviews.
So, we took weapons systems across a portfolio, and we looked
at the range of weapons we were using, the ones we were not
using, the quantities and the effects. That was a lot of hard
work. The Vice Chief of Staff, Pete Chiarelli, took on the
front part of that. I came into that with him. We made
recommendations for courses of actions. We terminated some of
the major weapons systems as a result of that, and canceled
some others--and made some decisions about where we should
invest.
But, what we're doing now, that I think is significant for
what you're trying to say here, is that we've taken that
approach, which was just something that was ad hoc, we had
never done before, because we knew that our requirements
process was out of control; we just simply weren't managing the
requirements the way we should. This was an attempt to validate
longstanding, old requirements. So, what we are doing now--and
I've been doing this work with the Chief--the current Chief of
Staff for the Army--he and I have embarked on an effort to try
to reform the planning, programming, budgeting, and execution
process, so that we incorporate this kind of review process at
the front end. We reform the requirements process, align it
with the resourcing so that when we make requirements
decisions, they are informed by the resourcing available to
make those decisions.
Senator McCaskill. So, you're not doing it in a vacuum
anymore.
Dr. Westphal. Yes.
Senator McCaskill. That's great.
Dr. Westphal. Now, that's--we're--I can't tell we're there.
What we're doing is, we're going to have to----
Senator McCaskill. I assumed you weren't there yet.
Mr. Westphal.--reorganize and train to the way we are--we
do business. We're----
Senator McCaskill. Yes. It's hard.
Dr. Westphal. It is.
Senator McCaskill. I think that you all are--the more
quickly you adapt to some of these strategies, the less painful
the next decade is going to be for DOD and for our military.
The senior-level positions, there was a system of--that the
Secretary announced, at--announcing at least 50 general and
flag officer positions, eliminating, and eliminating 150 senior
civilian executive positions. Now, I--and I look, and 21
senior-level scientific positions were eliminated. I'm worried
that the people that were deciding what to eliminate were not
looking as closely at organizations that they were close to. I
mean, you guys got rid of the senior research scientist for
combat casualty care; the senior research scientist for
nanomaterial science and engineering; the Navy's chief
scientist for nonlinear science; and the senior scientist for
rocket propulsion. Are--is that--I mean, when I hear 150 SES, I
think of folks that are--I don't--that sounds sarcastic and
flippant, and I don't mean to, but folks that are doing more
PowerPoints, maybe, than the scientists. I'm trying to figure
out if that's because the folks that were making the decisions
didn't feel as close to the scientists as maybe to some of the
other SES positions that need to be eliminated.
Mr. Hale. Well, let me tell you the process, at least--and
each of the Services did their own process. But, each manager
was required to rank all their SES positions from 1 to N, and
we focused on the bottom third, and then, frankly, the bottom
of that group. Then there was an across-the-board group that
made tradeoffs among them. So, you weren't just--everybody
didn't take the same proportional cut.
So, I can tell you, first off, I don't think we have any
SES just doing PowerPoint. I mean, I hope not. They're well
beyond that. They have others to help them, or are doing it
only very small part of their time. They're supposed to be
managers, and I think most of them are.
Senator McCaskill. That was kind of sarcastic----
Mr. Hale. All right.
Senator McCaskill. and inappropriate. Unfair to the hard-
working SES staff, I should say.
Mr. Hale. I think--I'll accept that.
Senator McCaskill. I was trying to make a point, and----
Mr. Hale. I hear you.
Senator McCaskill. didn't do it very well.
Mr. Hale. But, there was a very systematic process. It was
painful. I mean, I did it myself, for the Defense Contract
Audit Agency, for Defense Financing and Accounting Services in
my own staff. It's not easy to do. But, it's healthy, because,
in the end, there are a few that you can say, ``Hey, these
probably are lower priority.'' The Secretary was adamant that
he wanted us to stop doing things. That was hard, also. We did
a little; not as much as he wanted, but we did do some. So, I
think this was a systematic process.
Let me ask my colleagues--I know we're running short on
time--but, if they might briefly comment on your process,
because they did it for their organizations.
Dr. Westphal. Yes, not be repetitive, yes, I think we
followed a similar process. We--the numbers that I have are 10
SES--there's 28 Defense intelligence senior level folks, five--
that's highly qualified experts--which are folks that are--can
be in a range of different jobs. Then six of the science and
technical folks. All this was done with a very rigorous
process, because obviously we wanted to be very analytical and
creative about making these decisions in the right fashion.
Now, whether we hit it right or wrong, or not, or whether those
numbers are significant or sufficient, we'll--I think we're
going to continue looking at all that. Of course, we came down
seven general officers in the Army.
Mr. Work. The way we tried to keep it at a strategic level
is, once the managers, as Mr. Hale said, ranked all of their
SESs 1 to N, then it went into a departmental level that was
actually managed by the CMOs, through the DCMOs, in the case of
the Department of the Navy. You had a department--excuse me--a
Chief of Naval Operations and Commandant of the Marine Corps
representative. They tried to look across the Department of the
Navy and say, strategically, did we make a bad choice? We did
the same thing at the Secretary Stanley level.
In the end, there is a requirement process. So, for
example, we had a testing and evaluation position that didn't
make the cut. Mike Gilmore said, ``Hey, what--why did this
happen?'' We were able to go back in and say, ``You're probably
right. We shouldn't have taken this cut. We might have taken
another one.'' So, there is a self-correcting method to try to
get us the SESs that are the highest priority for the Navy.
Ms. Conaton. The only thing I'd add, Chairwoman McCaskill,
is that within the Air Force, we asked our major commands to
help us with that 1 to N list. Then what we did was, we took a
functional look across. So, we looked at all the scientists, we
looked at all the financial management folks, we looked at all
the acquisition folks to make sure that we weren't taking
individual cuts from different commands that, in the aggregate,
had a severely negative impact on a particular career field.
So, we did try to be conscious of the different functional
specialties.
Senator McCaskill. I just realized there was one other area
I wanted to cover. That was the zero-based review of the
Department's intelligence organizations. That's what the
Secretary indicated was going to happen. Yet, we only ended up
with 41 million in cuts for 2012, and it looks like, from
reviewing the documentation, that only the budget of Defense
Intelligence Agency was cut. Did a zero-based review occur? If
so, why are these results so de minimis?
Mr. Hale. Your staff is very good at picking out the areas
where we didn't do too well. Secretary Gates has said he was
disappointed in the review. It is ongoing. The major thing that
has come out of it--but, I don't think it made it in time for
the budget--is a significant change in the Joint Intelligence
Operating Centers. These are groups in each COCOM that provide
intelligence advice to the COCOM. We were essentially staffing
these to go to war or for a significant operation--all of them.
Yet, they don't--except for U.S. Central Command, they don't
do--they only do it periodically. We're going to go to a
different approach, which is have enough people at each COCOM--
for the peacetime needs, and then, during the ramp-up period--
but, have a group, probably at Defense intelligence agencies--
kind of a roving group of people who will augment them. We
think that they'll be--I can't give you the number; I'll have
to do it for the record--but, a number of hundred of positions
of reductions there.
[The information referred to follows:]
Two hundred twenty-eight positions will be reduced in fiscal year
2012, to include civilians, military, and contractors.
We expect to see increased efficiencies based on the intelligence
review in the longer term. The zero-based review of Defense
intelligence focused on eliminating unnecessary redundancy, not
necessarily on savings. The review was an integrated effort between the
Department of Defense (DOD) and Director of National Intelligence (DNI)
and looked at baseline resources across the Intelligence Community
(IC). The analysis team consisted of DOD and DNI members. The
partnership was critical for success. They reviewed baseline resources
across the IC, identifying areas of major investment and significant
recent growth and focusing on analysis and production organizations.
The decisions made as a result of the review are to:
1. Resize the Geographic Combatant Command (COCOM) Joint
Intelligence Operations Centers (JIOCs) commensurate with their
peacetime missions.
2. Establish a rotational model for Defense Intelligence Agency
(DIA) support to the COCOMs.
3. Disestablish the Defense Intelligence Operations Coordination
Center and the Joint Functional Component Command for Intelligence,
Surveillance, and Reconnaissance
4. Consolidate selected Department Counterterrorism (CT) functions
under the Joint Intelligence Task Force for Combating Terrorism (JITF-
CT).
5. Consolidate selected Department Counter Threat Finance (CTF)
elements under a new Joint Intelligence Task Force for CTF (JITF-CTF).
6. Track emerging intelligence organizations and develop plans to
harvest them as they redeploy from theater.
In conjunction with the JIOC resizing, the DIA will begin providing
approximately 20-person rotational teams of subject matter experts to
support analysis and collection at each of the JIOCs. If a conflict or
crisis breaks out in any combatant commander's area of responsibility,
DIA will surge personnel to the JIOC as appropriate for the region and
type of crisis.
Several efforts are underway to identify Defense Intelligence
efficiencies and evaluate the impact on intelligence support to combat
operations, if efforts are reduced or eliminated. Ongoing efficiency
efforts within the Department include a working group that is tracking
and reviewing intelligence organizations formed to support operations
in Afghanistan and Iraq and to identify which of these would be
retained as combat operations draw down.
Last August, we were considering an immediate reduction in funding
for intelligence advisory and assistance contracts, but have since
conducted a DOD-wide review of our reliance on contractors. As the
result of this review, DOD components' funding used to acquire service
support contracts was reduced 10 percent per year over the next 3 years
from their reported fiscal year 2010 level. Based on the DOD
components' allocation of the efficiency, the Military Intelligence
Program (MIP) was assessed a portion of this reduction. Contractor
funding reductions in the MIP were absorbed by realizing process
efficiencies and moving away from higher-priced contractor services.
The MIP significantly reduced its reliance on contractor support.
Compared to fiscal year 2010 actuals, MIP contractor reliance has
declined approximately 19 percent.
There has been an increase in the number of Defense Intelligence
organizations since 2001. In the Defense arena, large and well-staffed
intelligence structures now exist in the Services, the Defense
Agencies, the COCOMs, and in the war theaters. The Intelligence Review
Study Group (IRSG) identified areas of major investment and focused on
the analytic organizations within the IC. While the IRSG findings
identified areas where efficiencies can be gained by consolidating
select functions, such as in counterterrorism and counterthreat
finance, we continue to look for areas to increase efficiency and
eliminate redundancy.
The final report was presented to Secretary Gates and Director
Clapper, but the bulk of efficiencies so far are in activities funded
by the MIP. The DNI is separately implementing IC efficiencies funded
by the National Intelligence Program. Several of the efficiency
recommendations made to the Secretary, require the development of
detailed implementation plans or continued review, before the
Department can identify any resource savings.
Mr. Hale. We're looking at some others, but it has been
difficult. Counterthreat finance and counterterrorism, we think
there may be some consolidations that are possible.
But, we tried, and I don't think we've gotten as far as
we'd hoped. I think it deserves some continued effort. I think
if Secretary Gates were here, he'd probably state it even more
forcefully.
Senator McCaskill. Well, I agree with him.
Mr. Hale. I'll tell him.
Senator McCaskill. As usual, I think he's correct. I think
that this is probably not the kind of zero-based review that he
had envisioned when he used that terminology. We'll look
forward to hearing additional work in the area of a zero-based
review, in terms of that work.
I don't have any other questions. We may have some more for
the record.
Senator Ayotte, do you have any more?.
Senator Ayotte. No, I'm all set. I have some for the
record, but that's it. Thank you.
Senator McCaskill. Okay.
I want to thank all of you for being here today. I thought
it was very productive. We'll continue to work closely with you
to figure out ways we can continue to be the best military in
the world with less money spent.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator Kelly Ayotte
responsible use of end of year fiscal funds
1. Senator Ayotte. Secretary Hale, I'm interested in finding
efficiencies now, as opposed to waiting for the out-years. Starting
with spending what you have in order to justify future budget requests,
what is your assessment of the current climate in the Department of
Defense (DOD) for the preparation of the fiscal year 2013 budget?
Mr. Hale. The DOD effort to increase efficiencies will not wait for
the out years. The efficiency initiatives reflected in the DOD fiscal
year 2012 budget continue the reform agenda started in the fiscal year
2010 budget. The fiscal year 2010 budget focused on weapons programs,
e.g., terminating the F-22 fighter production and the VH-71
Presidential helicopter. The fiscal year 2011 budget again focused on
weapons programs, e.g., ending C-17 production and not funding of an
extra engine for the Joint Strike Fighter (JSF), and initiated military
health care efficiencies. The fiscal year 2012 budget focused on DOD
business operations efficiencies in addition to further program
terminations. The efficiencies gained in these budgets form the
foundation for building the fiscal year 2013 budget. Further
efficiencies will be proposed in the fiscal year 2013 budget.
2. Senator Ayotte. Secretary Hale, assuming DOD can get a fiscal
year 2011 appropriations bill soon, will you still condone a mad rush
by the Services at this year's end to obligate all funds available on
lower priorities?
Mr. Hale. There will be no mad rush to spend any funds. The fiscal
year 2011 funds are needed to satisfy valid requirements. The
Department will conduct a robust midyear review to ensure these valid
requirements are properly funded. As a result of the review, any
significant funding changes will be included in the Omnibus
reprogramming request. The reprogramming request will be forwarded to
the Defense Oversight Committees for their approval.
3. Senator Ayotte. Secretary Hale, why not let unused funds expire
as opposed to finding other requirements to spend money on?
Mr. Hale. We don't seek other requirements to spend money on;
unfortunately, there are always new emergent requirements that arise
that were unanticipated. In particular, in fighting a war there are
urgent operational needs that are identified by the battlefield
commander that need immediate attention and cannot wait until the next
budget request. In recent years the challenge to find good solutions to
the Improvised Explosive Device threat is the best example of this kind
of unexpected unobligated need. Other adjustments result from economic
conditions (fuel prices), unplanned humanitarian relief (Japan and
Libya), and shifts in national security priorities. This year, the
extended Continuing Resolution, decreases in fiscal year 2011 funding
levels, and implementation of the Secretary's efficiencies demand a
more critical midyear review of the accounts and an examination of
potential impacts on readiness. Unanticipated negative impacts to
readiness will be resolved within the reprogramming flexibility allowed
by the statues. As occurred in fiscal year 2010, funds will be allowed
to expire if valid requirements don't exist.
4. Senator Ayotte. Secretary Hale, does DOD currently have in place
incentives to reward the timely completion of requirements in a fiscal
year and the return of unused funds?
Mr. Hale. The Department utilizes various contract incentives to
encourage the timely completion of requirements and the return of
unused funds. The midyear review process ensures available funding is
identified and either realigned to other valid requirements (fuel
increases, Japan, Libya, urgent theater needs) or allowed to expire.
5. Senator Ayotte. Secretary Hale, how can the process be changed
to encourage program managers (PM) to spend only what is absolutely
necessary and planned for that year?
Mr. Hale. Responsible funds stewardship begins with the budget
plan. In preparation for the fiscal year 2012 budget submission, DOD
launched a comprehensive effort to reduce its overhead expenditures.
The goal was to sustain the U.S. military's size and strength over the
long term by reinvesting those efficiency savings in force structure
and other key combat capabilities. The Military Departments and the
U.S. Special Operations Command (SOCOM) were challenged to identify at
least $100 billion in savings that they could keep and shift to higher
priority programs. In addition to the military departments and SOCOM
reviews, Secretary Gates directed a number of initiatives with the goal
of reducing overhead costs and improving efficiency across the
Department as a whole, with special attention to the massive
headquarters and support bureaucracies outside the Military Services
and SOCOM. The Department will implement a process to monitor how it is
doing in the implementation of the efficiency initiatives. Continued
management oversight at all levels of the organization helps ensure
efficient and effective use of resources.
6. Senator Ayotte. Secretary Hale, what is DOD currently doing to
institutionalize a mindset of not-spending versus spending?
Mr. Hale. The entire Department was brought into the comprehensive
effort to increase efficiencies in the spring of 2010. Many of the
cross-cutting initiatives included the DOD fiscal year 2012 budget were
started in fiscal year 2011. Specifically, the reductions in service
support contracts, reports, studies, boards and commissions began in
fiscal year 2011. Other reductions to fiscal year 2011 include the
civilian workforce freeze and the GS pay freeze. The Department is
launching a process that will require every component touched by an
efficiency to brief their plan for achieving the efficiency and their
actual progress against the plan. The first of these briefings will
occur in early summer to inform building the fiscal year 2013 budget.
economic projections
7. Senator Ayotte. Secretary Hale, in your written statement you
state that of DOD's nearly $78 billion reduction over the next 5 years,
``much of the savings will come from reducing personnel costs and
changing economic assumptions.'' I need to make sure that we are not
relying on speculative economic assumptions in order to justify budget
cuts. I am sure that the witnesses would agree projected savings must
be supported with sound and consistent justification. What inflation
rate was assumed for fiscal years 2012 through 2016?
Mr. Hale. DOD uses composite inflation rates that are comprised of
rates from the Gross Domestic Product Price Index (with DOD outlay
rates factored in), civilian pay raise rates, military pay raise rates,
fuel rates, and CPI-U (Medical) rates. The DOD composite rates are as
follows:
Fiscal Year 2012: 1.5 percent
Fiscal Year 2013: 2.0 percent
Fiscal Year 2014: 2.1 percent
Fiscal Year 2015: 2.1 percent
Fiscal Year 2016: 2.1 percent
8. Senator Ayotte. Secretary Hale, do the top lines for each
Service budget through 2016 assume the same inflation rates?
Mr. Hale. Yes, each Service assumes the same inflation rates;
however there are many other non-inflationary factors that play into
each Service's budget development. For example, mission requirements,
programmatic priorities, and requirements of the acquisition process
vary by Service and would impact their final budget requests.
9. Senator Ayotte. Secretary Hale, the Army assumed an unemployment
rate of over 9 percent through fiscal year 2015. Is that DOD's
assessment as well?
Mr. Hale. While the individual Services may use unemployment rates
for particular aspects of their budget development, such as forecasting
the recruiting environment, the Department as a whole does not develop
or forecast those rates.
10. Senator Ayotte. Secretary Hale, what economic projections were
used to justify this rate?
Mr. Hale. DOD as a whole does not develop or forecast unemployment
rates.
11. Senator Ayotte. Secretary Hale, can you provide your projection
for annual military pay adjustments through fiscal year 2016 that
contributed to your savings estimate?
Mr. Hale. The Department's efficiencies savings include military
pay and allowances economic assumption adjustments totaling to a net
savings of $1.1 billion in fiscal year 2012 and $2.8 billion from
fiscal year 2012-fiscal year 2016. These adjustments are based on
changes to economic assumptions projected during the previous budget
cycle (fiscal year 2011 President's budget request) to the fiscal year
2012 budget request. The following table provides a breakout of the
adjustments.
[In billions of dollars]
------------------------------------------------------------------------
Fiscal
Fiscal Year 2012-
Year 2012 2016
------------------------------------------------------------------------
Fiscal Year 2012 Military Pay Raise............. $0.5 $3.1
Retired Pay Accrual Rate Increase............... -0.9 -4.8
Medicare-Eligible Retiree Health Care Accrual 0.9 0.9
Rates..........................................
Basic Allowance for Housing Rates............... 0.5 2.7
Basic Allowance for Subsistence Rates........... 0.1 0.9
-----------------------
Net MilPay Economic Assumption Changes........ $1.1 $2.8
------------------------------------------------------------------------
Fiscal Year 2012 Military Pay Raise was programmed at
2.3 percent during the previous budget cycle but was adjusted
to 1.6 percent based on the September 30, 2010, Employment Cost
Index (ECI) as required under the by-law formula.
Retired Pay Accrual Rates for full-time personnel
increased from 32.7 percent to 34.3 percent in fiscal year 2012
and beyond based on annual determination by the DOD Board of
Actuaries.
Medicare-Eligible Retiree Health Care Accrual per
capita rates for fiscal year 2012 decreased based on annual
determination by the DOD Board of Actuaries.
Basic Allowance for Housing Rates were budgeted to
increase by 4.2 percent on-average in fiscal year 2011 while
actual rates increased by only 1.6 percent on-average.
Basic Allowance for Subsistence Rates were budgeted to
increase by 3.4 percent in fiscal year 2011 while actual rates
increased by only 0.4 percent based on the by-law formula.
recruiting and retention
12. Senator Ayotte. Secretary Westphal, following up on a
discussion from the hearing, the Army has proposed a reorganization of
recruiting and retention incentives to cut $764 million in fiscal year
2012 based on ``current and projected economic environments.'' In
particular, the Army assumed that the unemployment rate will continue
at 9 percent or higher. Is this assumption consistent with the
administration's projection?
Dr. Westphal. The President's fiscal year 2012 budget assumes an
unemployment rate of 8.8 percent, slightly below the 9 percent
assumption we used for planning purposes. However, it should be noted
that there are many other factors involved in determining the level of
incentives and programs needed to sustain the All-Volunteer Force. The
propensity to recommend Military Service has increased with influencers
such as mothers, fathers, guidance counselors, and coaches. Additional
factors affecting our success in recruiting and retaining quality
soldiers are: comparable pay to civilian salaries; comprehensive
medical coverage; reduced deployments; and improved family support
programs. The combination of all the above factors has positioned us
for success in our 2012 recruitment and retention programs.
13. Senator Ayotte. Secretary Westphal, the Army projects a savings
of $5.3 billion over the Future Years Defense Plan (FYDP). What happens
if the economy picks up, as we all hope it will?
Dr. Westphal. As the Army works to improve the Soldier deployment
cycle, dwell time at home with family and quality of life, the desire
to reenlist also increases. For recruiting, the Army continues to
select the highest quality recruiters, and is always improving and
exploring opportunities such as social media, community involvement,
and coordinating with high schools to help students and parents
determine whether the military is right for them. The Army stresses the
total compensation and benefits available to soldiers and families in
order to attract and retain quality soldiers. With the support of
Congress, we have made substantial improvement in the quality of life
of soldiers and their Families across the board. Increases in soldier
and family programs, education benefits, housing, working conditions,
and equipment all contribute to the successful maintenance of the All-
Volunteer Force.
14. Senator Ayotte. Secretary Westphal, will the Army restore
recruiting and retention incentives? If so, how will this efficiency
provide its projected savings?
Dr. Westphal. Unless there is a dramatic improvement in the economy
or the American public's perception of the Army sours, we do not see a
need to place more funding in the recruiting and retention budget. We
continuously analyze each military occupational skill based on the need
for each capability. We use that in-depth analysis over time to make
decisions concerning incentives. The bonus program is designed to
incentivize soldiers in critical MOSs and ranks based on current and
projected shortages. Particular career fields such as Explosive
Ordnance Disposal, Military Intelligence, Engineers, Linguists, and
Special Forces have highly marketable skills that are in demand and
well compensated in the civilian economy. We have used incentives very
effectively to remain competitive and retain the capabilities needed to
execute our missions.
15. Senator Ayotte. Secretary Westphal, how will the Army
reorganize recruiting and retention incentives?
Dr. Westphal. The Army has a highly analytical and flexible
recruiting and retention incentive determination process that has
proven successful over time. It concentrates on skill and grade
requirements and their criticality to maintaining a ready Army. We will
continue to access our process and make adjustments based on sustaining
the All-Volunteer Force. To be sure incentives are not the only tool on
which the Army relies to effect recruiting and retention. We stress the
total compensation and benefits package available to soldiers and
families to attract and retain quality soldiers. With the support of
Congress, we have made substantial investments to improve quality of
life programs for our soldiers and families. It is the combination of
all of these elements that will enable us to successfully man the
force.
16. Senator Ayotte. Secretary Work, the Navy proposes the same
reduction in recruiting and retention programs. What economic
assumption did you use to make those decisions?
Mr. Work. In general, the bonus programs considered that
unemployment would decrease gradually but that the economic impact on
recruiting and retention would be relatively unchanged. Navy has
experienced increased retention and fewer recruiting challenges which
have allowed reductions in recruiting and retention incentives.
likelihood of further defense cuts
17. Senator Ayotte. Secretary Hale, The Defense News reported on
March 27, 2011, that DOD is preparing for up to $100 billion more in
cuts to defense over the next 5 years once the Pentagon's top line
budget figures are released from the White House for the fiscal year
2013 budget. Acknowledging that speculation about future year budgets
is a tricky thing, particularly in the press, can you share your
opinion on what will happen to DOD's budget in fiscal year 2013 and
beyond?
Mr. Work. It is premature to provide an assessment of what will
happen to DOD's budget in fiscal year 2013 and beyond.
18. Senator Ayotte. Secretary Hale, do you anticipate having to
make further top line cut through the FYDP beyond the $78 billion that
DOD has already absorbed?
Mr. Work. It is premature to provide an assessment of what will
happen to DOD's budget in fiscal year 2013 and beyond.
individual service risk assessment
19. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, in your joint statement, you state ``most
of this top line reduction was achieved through efficiencies and other
changes in portions of our budget less closely related to warfighter
capability''. With that said, The Defense News reported yesterday that
DOD may be provided with guidance this week from the Office of
Management and Budget (OMB) that will require DOD to cut an additional
$100 billion from the top lines over the next 5 years. Many of DOD's
efficiencies propose spending cuts to flying hours, weapon system
maintenance, training programs, facility repairs, as well as cancelling
the acquisition of new systems that were intended to replace old
equipment, such as the Expeditionary Fighting Vehicle (EFV). Please
provide your assessment of the risk incurred by each Service for each
efficiencies initiative proposed in the fiscal year 2012 budget
request. Specifically, I'm looking for an assessment of the operational
risk assumed for reducing end strength, deferring requirements,
eliminating programs, and scaling back training accounts.
Mr. Hale.
Department of the Army:
The Army's efficiency initiatives proposed in the fiscal year 2012
budget request are assessed as low operational risk. To achieve
savings, the Army used comprehensive capability portfolio reviews to
terminate or reduce weapons systems with declining relevance or
unneeded redundancy. The Army ensured training programs and equipment
programs terminated, reduced or deferred would not pose a threat to its
ability to conduct the full range of military operations. Service and
support contracts supporting HQ activities were reduced with low risk
achieved. The Army also leveraged investments in existing
infrastructure and information technology, which will provide
efficiency and maintain or improve effectiveness in supporting the
Operating Force.
Department of the Navy (DON):
Risk was inherently considered as the warfighters were involved
from the ground floor in defining efficiencies. Lower echelon commands
were asked to be bold in challenging current organizations, constructs,
and structure focused on ``Buying Smarter'', ``Streamlining
Organizations and Operations'', and ``Energy Efficiencies''. This
resulted in numerous issues being vetted affecting over 1,000 budget
lines.
To address the specific concerns noted, end strength changes are
the result of eliminating duplicative staffs, streamlining
organizations, eliminating unnecessary contractor support, and strident
reviews of personnel policies and practices. Similarly, the DON
identified several investment programs that were underperforming or
less effective than envisioned and are now proposed to be revamped or
terminated in order to pursue more appropriate materiel solutions given
the changing landscape of the world. Finally, the scaling back of
training accounts reflects the reality of technology that now permits
more realistic and cost effective training using advanced simulators
without overall loss of readiness and proficiency.
In summary, the DON believes the benefits achieved through
reinvestments and restructuring far outweigh the near-term operational
risks of not conducting ``business as usual''. Business as usual is in
fact the greatest risk as inefficient business practices will continue
to divert resources from the critical needs of the warfighters. To
prevent this, the DON is aggressively developing processes and
practices to monitor the implementation of the proposed efficiencies to
ensure savings are realized along with corresponding enhancements, and
that the DON does not slip back into a mindset of ``business as
usual''.
Department of the Air Force:
The Air Force estimates that there is little operational risk in
the current efficiency plans, and that in fact, the enhancements
enabled by the efficiency efforts will increase operational capability.
First, efficiency work is aimed at reducing staff overhead
structures and general support activities, and reallocating resources
to direct operational improvements (e.g., modernized F-15E radars, long
range bomber, increased funding to weapon system sustainment). The Air
Force corporate structure will closely monitor progress on efficiency
goals and, as importantly, mission performance.
Other than a limited number of senior executives and general
officers, the Air Force is not reducing any Active, Reserve, and Air
National Guard end strength and is still continuing to grow government
civilian end strength. While the Air Force is reducing workforce in
selected support activities, that workforce is being reallocated to
more direct operational and operational support activities.
In regards to deferring requirements, the efficiency goals
represent real savings/reductions versus deferring expenditures to
future years. Regarding eliminating programs, the Air Force took a
balanced approach considering the costs and savings associated with
funding the programs vice termination. There are three program
terminations within the Air Force reported efficiencies.
The efficiency goal for training is to reduce the cost to sustain
current training levels and reduce the cost of flying hours while
maintaining mission readiness at or above current standards. To achieve
this, the Air Force must continue to invest in high fidelity simulators
and mission training centers while continuing to focus on fuel
management savings and improved planning.
The Air Force will monitor plans and progress to ensure efficiency
outcomes are being delivered and will also review readiness and
performance data to ensure Air Force efficiencies are not inadvertently
impacting mission performance or the quality of life of airmen.
Dr. Westphal. The Army's efficiency initiatives proposed in the
fiscal year 2012 budget request are assessed as low to operational
risk. To achieve savings, the Army used comprehensive capability
portfolio reviews to terminate or reduce weapons systems with declining
relevance or unneeded redundancy; we have ensured training programs and
equipment programs terminated, reduced or deferred would not pose a
threat to our ability to conduct the full range of military operations.
No efficiencies resulted in end strength reductions; however, some
service and support contracts at headquarters activities were reduced
within the Army's Generating Force. Leveraging investments in existing
infrastructure and consolidating information technology will provide
efficiency and maintain or improve effectiveness in supporting the
Operating Force.
Mr. Work. The DON did not pursue a purely ``top down'' approach by
imposing efficiencies, but rather directed lower echelon commands to be
bold in challenging our current organization, constructs, and structure
focused on ``Buying Smarter'', ``Streamlining our Organizations and
Operations'', and ``Energy Efficiencies''. This resulted in numerous
issues being vetted affecting over 1,000 budget lines. The CNO and CMC
personally weighed the risks associated with every recommended
efficiency, and they forwarded for approval only those efficiencies
where they judged the benefits to outweigh operational risk. These were
then reviewed by the Secretary of the Navy as well as OSD before booked
as savings.
To address the specific concerns noted, end strength changes are
the result of eliminating duplicative staffs, streamlining
organizations, eliminating unnecessary contractor support, and strident
reviews of personnel policies and practices. Similarly, the Department
identified several investment programs that were underperforming or
less effective than envisioned and are now proposed to be revamped or
terminated in order to pursue more appropriate materiel solutions given
the changing landscape of the world. Finally, the scaling back of
training accounts reflects the reality of technology that now permits
more realistic and cost effective training using advanced simulators
without overall loss of readiness and proficiency.
In summary, DON believes the benefits achieved through
reinvestments and restructuring far outweigh the near-term operational
risks of not conducting ``business as usual''. Business as usual is in
fact our greatest risk as inefficient business practices will continue
to divert resources from the critical needs of our warfighters. To
prevent this, the DON is aggressively developing processes and
practices to monitor the implementation of our proposed efficiencies to
ensure savings are realized along with corresponding enhancements, and
that the DON does not slip back into a mindset of ``business as
usual''.
Ms. Conaton. The Air Force assessment is that there is little
operational risk in our current efficiency plans, and that in fact, the
enhancements enabled by the efficiency efforts will increase
operational capability.
First, our efficiency work is aimed at staff overhead structures
and general support activities, and resources are reallocated to direct
operational improvements (e.g., modernized F-15E radars, long-range
bomber, increased funding to weapon system sustainment (WSS)). WSS was
both an investment and an efficiency area; the Air Force increased
funding in WSS to improve readiness, and in addition, imposed an
efficiency equating to $3 billion by setting the expectation of
delivering 85 percent of requirements at an 80 percent funding level.
The Air Force corporate structure will closely monitor progress on
efficiency goals and mission performance.
Other than a limited number of senior executives and general
officers, the Air Force is not reducing any Active, Reserve, and Air
National Guard end strength, and is still continuing to grow government
civilian end strength. While we are reducing workforce in selected
support activities, that workforce is being reallocated to more direct
operational and operational support activities. We are reallocating
5,600 active duty billets over the FYDP from lower priority support
functions to higher priority growth areas, such as intelligence,
surveillance and reconnaissance operations. In the areas where we are
reducing staff (either government or contractors), the Air Force plan
is to either modify the work itself to eliminate unnecessary and
redundant tasks or to stop doing a job altogether that is no longer
deemed essential. This approach is a means to keep from getting into
the trap of ``doing more with less'' and reduces operational risk.
In regards to deferring requirements, our efficiency goals
represent real savings/reductions versus deferring expenditures to
future years. Approximately 1 percent of our $33.3 billion in Air
Force-identified efficiency initiatives are related to rephasing of
programs due to fact-of-life slips or program execution status. They
include rephasing war reserve material stockpile and training munitions
procurement; re-phasing Wide Area Airborne Surveillance procurement;
re-phasing AFNet support; and Link 16 Crypto Modernization for B-1, B-
2, F-15 and F-16 systems. Real savings generated by these and other
Efficiencies, permitted funds to be realigned to increase mission core
capabilities including investments in B-1 modernization, F-35 simulator
procurements and funding MC-12 in the baseline program. All of these
investments contribute to decreased operational risk.
Regarding eliminating programs, we took a balanced approach
considering the costs and savings associated with funding the programs
vice termination. We have three program terminations within Air Force
reported efficiencies: (1) Air Vehicle Survivability Facility at Arnold
is terminated saving $720,000 in Research Development Test & Evaluation
(RDT&E) funds per year across fiscal year 2012-2016. The facility was
not core to Air Force requirements and no additional costs are
associated with this termination; (2) The Air Force Infrared Search and
Track Program modification to the F-15 was terminated saving $43.8
million in RDT&E funds across fiscal year 2012-2013 and $301.6 million
in Procurement funds across fiscal year 2013-2016; and, (3) Advanced
Targeting Pods-Sensor Enhanced was terminated saving $98.7 million in
Procurement funds across fiscal year 2012-2016. Efficiency savings
allow us to shift resources to modernization and readiness enhancements
such as those covered above.
Our efficiency goal for training is to reduce the cost to sustain
current training levels and reduce the cost of flying hours while
maintaining mission readiness at or above current standards. To achieve
this, the Air Force must continue to invest in high-fidelity simulators
and mission training centers while continuing to focus on fuel
management savings and improved planning. We are conducting several
internal studies to help find the right balance of live flying hours
and simulator trainings in order to provide the best trained airmen. We
will closely monitor this initiative (as with the others) and
explicitly measure mission readiness to preclude increased operational
risk.
On a monthly basis, we will monitor plans and progress to ensure
efficiency outcomes are being delivered and will also review readiness
and performance data to ensure Air Force efficiencies are not
inadvertently impacting mission performance or the quality of life of
airmen.
proposals for end strength reductions
20. Senator Ayotte. Secretary Hale, reading your statement for this
hearing, DOD has included a savings of $6 billion in fiscal years 2015
and 2016 for a proposed decrease in end strength for the Army and
Marine Corps. You go on to state ``If our assumptions about Iraq or
Afghanistan turn out to be overly optimistic, or if global conditions
change for the worse, we would be able to adjust the size and schedule
of this change or even reverse it altogether''. Given this significant
caveat, why did DOD include this initiative as a savings contributing
to the administration's efforts to reduce the Federal deficit?
Mr. Hale. As I said in my remarks during the March 29th testimony,
we have and will continue to have some significant national security
challenges. Certainly, the assumptions for proposed force reductions
may adjust based on future security circumstances, but such reductions
were not made without first knowing the risk. In the end, these force
reductions are achievable, but we also understand that in order to
protect the capability of the warfighter, the plan must stay aligned
with global conditions and balance such reductions with minimal risk.
It is important to remember that even after the planned reductions, the
active Army end strength would continue to be larger by nearly 40,000
soldiers compared to their end strength 4 years ago.
21. Senator Ayotte. Secretary Hale, to what extent will global
conditions have to change for the worse in order to trigger a
reassessment of the proposed force structure reductions?
Mr. Hale. We will continuously assess global conditions and adjust
as necessary in order to minimize risk. The current plan is based on
the assumption that the number of troops in Afghanistan will be
significantly reduced by the end of 2014 in accordance with the
President's and NATO's strategy. If the assumptions prove incorrect,
there is plenty of time to adjust the size and schedule of this change.
As the Services resize their forces according to anticipated demand, we
must ensure that any reductions avoid unnecessary increased risk or
stress on our servicemembers.
22. Senator Ayotte. Secretary Hale, the downward ramps for both the
Marine Corps (20,000 in 2 years) and Army (47,000 in 4 years) are very
steep. Lacking mandatory spending authority for early retirement
authority, enhanced selective retirement boards, and other legislative
initiatives, how do you expect these Services to achieve these goals?
Mr. Hale. It is the Department's policy to offer voluntary programs
prior to taking involuntary separation action. Maintaining readiness
while responsibly reducing our force structure will be a major
challenge in the years ahead and the Department needs additional
authorities to achieve these goals. The Department is working to submit
a legislative proposal for force shaping tools to achieve the necessary
force drawdown. The Department is currently reviewing a package of
authorities, which includes the following proposals--(1) Reinstatement
of authority for enhanced Selective Early Retirement Boards and Early
Discharges; (2) Extension of Voluntary Separation Pay; (3)
Reinstatement of Temporary Early Retirement Authority; (4) Voluntary
Retirement Incentive; and (5) Authority to reduce years of service for
mandatory retirement for certain officers in pay grades O-5 and O-6.
23. Senator Ayotte. Secretary Hale, if DOD decides to reverse the
proposal, would you expect to get the $6 billion back in the top line
in fiscal year 2015?
Mr. Hale. Every year, we perform a program and budget review of all
DOD programs and prioritize requirements based on the current and
projected economic, political, and national security environments.
Starting with the fiscal year 2013 program and budget review, we will
reassess these programs for the budget year and 5 years out. Given this
schedule, fiscal year 2015 will be readdressed during the next three
program and budget reviews before submitting the fiscal year 2015
President's budget. We will work the details of any top line funding
adjustments necessary to meet DOD requirements through the Office of
Management and Budget, as we do on an annual basis.
24. Senator Ayotte. Secretary Hale, what other Department-wide
efficiency initiatives are subject to the uncertainty of world events?
Mr. Hale. The Department believes that most of the efficiencies
included in the fiscal year 2012 budget request are achievable with
minimal risk to warfighting capability. The efficiencies in the fiscal
year 2012 budget were primarily focused on business process and
overhead expenditures. Of course, with any plan, there is a possibility
that implementation may not happen as originally planned for various
reasons. To ensure implementation risks are mitigated, there will be a
recurring review of component plans and actual execution against those
plans.
audit of savings
25. Senator Ayotte. Secretary Hale, given all the shortcomings in
DOD's financial management systems, I question whether the efficiencies
identified in the fiscal year 2012 budget request are reliable,
realistic, and achievable without a set of auditable financial
statements. How confident are you that the efficiencies proposed will
actually realize the projected savings without having a decent set of
financial statements that can be audited to track performance?
Mr. Work. The Department records and reports expenditures
associated with budgeted amounts. While not sufficient to meet audit
standards, this longstanding approach has proven to be an effective
means to responsibly manage the public funds entrusted to the
Department. We have thousands of well-trained financial management
professionals in the Department dedicated to and motivated by their
role in providing to warfighters the resources necessary to meet the
National security mission of the country. These financial managers know
DOD missions cannot be executed without timely and sufficient
resources, and so are able to track expenditures and report to managers
with an accurate status. Because of this capability, Secretary Gates
and I feel we can demand and track savings from the specific operations
targeted by the efficiencies initiative.
This does not mean that we do not take the financial statement
audit requirement seriously. Financial statement audits are also a key
indicator to the public that we have reliable financial management
information and can show reliable results of the efficiencies
implemented. While this is not the intent of financial statement
audits, they are a signal to the public that we manage funds legally,
effectively, and efficiently. We are dedicated to having fully
auditable financial statements by 2017, the deadline established by
Congress.
26. Senator Ayotte. Secretary Hale, why is the achievement of a DOD
financial audit not Secretary Gates' top efficiency initiative?
Mr. Hale. The highest priority for the Department's business
enterprise is to meet the needs of the warfighters executing our
national security mission. Due to budgetary constraints for the United
States as a whole, and DOD in particular, Secretary Gates has directed
the Department to eliminate or reduce overhead tasks and transfer the
related resources to meet urgent warfigher needs. In other words,
transfer resources from tail to tooth. This initiative to improve
financial management and achieve a financial audit is part of that
effort. Improved financial management information will help the
Department better identify overhead costs and ensure reductions are
realized.
27. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, which savings or efficiencies proposed by
your departments are the riskiest, in terms of not being achievable?
Please explain your answer.
Mr. Hale. Experience tells us that some of these initiatives may
not proceed entirely according to plan. The Department has no choice
but to strictly monitor and enforce these efficiencies and make
adjustments as needed with the understanding that we cannot afford to
return to past behavior. At this point, there are no elements that we
believe are especially risky
Dr. Westphal. Of the proposed Army efficiencies, realizing savings
from organizational streamlining and the implementation of better
business processes represent the greatest challenge. Many of those
organizational changes were driven by the need to address the
cumulative effects of over a decade of war on the Army, its soldiers
and their families. The Army is mitigating the risk of such challenges
by prudently planning to save only 20 percent in these difficult areas
during the first 3 years of the FYDP (i.e., $2 billion fiscal year
2012-2014 of the projected $9 billion total over fiscal years 2012-
2016). The Army phased its approach to provide the time needed to
implement future initiatives successfully.
We are confident we can achieve the necessary savings in fiscal
year 2012 through fiscal year 2014 by leveraging other types of
efficiency savings such as:
Terminating or reducing weapons systems with declining
relevance or unnecessary redundancy through comprehensive
capability portfolio reviews.
Leveraging investments in existing infrastructure and
implementing a balanced facilities investment strategy to save
$1.4 billion in military construction (MILCON).
Mr. Work. An area of particular challenge pertains to assorted
efficiencies that have a cumulative effect on the DON Total Force. In
an effort to maximize the preservation of `tooth,' aggressive measures
were taken to ensure that overhead investments (`tail'), such as those
devoted to manpower, were streamlined. Sample issues include reductions
in the number and size of staffs, cuts to Senior Executives and General
Officers, and significant reductions in contractor support. Although
not easy, taking these steps was necessary to preserve core warfighting
capability.
There are several factors that add to the complexity of realizing
efficiencies in the workforce. For starters, it is critical to adopt a
total force perspective and fully understand the combined impact of
adjustments made to military, civilian, and contractor personnel.
Obtaining this viewpoint is difficult given the fact that cuts span
appropriations, organizations, and contracts and are accompanied by
varying degrees of specificity in terms of intent. For example, some
reductions are defined by billet(s) while others are exclusively
represented by fiscal adjustments that must be translated into billets
in order for the savings to be realized. While these efficiencies may
be achievable in the near term, they may be more difficult to sustain
over the long term, due in part to circumstances beyond our control
(e.g. force reset or surge requirements).
Because the savings have already been recouped in the 2012 budget
submission, the DON is committed to ensuring that these savings are
realized and not inadvertently or unintentionally applied to critical
programs or missions. Meeting this objective will require application
of oversight and ardent planning on an Enterprise level. As Under
Secretary Hale testified to Congress (on 29 March 2011 before the
Senate Armed Services Committee Subcommittee on Readiness), `` . . . if
we fail to achieve our efficiency plans, we will be forced to scale
back programs that contribute to our core mission. That prospect will
motivate us to translate planned efficiencies into actual
efficiencies.'' Although execution of these savings won't commence
until October 2011, efforts are already underway to plan for
implementation and ensure that necessary risk mitigation measures are
in place. In fact, the DON is already working across the DON Enterprise
and closely with OSD to ensure that all 2012 efficiencies, not just
those related to the workforce, are being monitored and tracked in a
manner that will minimize risk and keep leadership informed of emergent
challenges.
Ms. Conaton. First, we have mitigated risk in our efficiency plans
through a variety of strategies including ramping up expected
efficiencies further out in the FYDP allowing additional time for
planning and execution of the plans; selecting by-name owners of our
initiatives to ensure responsibility remains at a personal level of
accountability; and, by weaving efficiency planning and execution
process into existing Air Force Corporate Structure to ensure
efficiency plans are aligned with Air Force strategy and get reviewed
on a regular basis. However, we are unable to eliminate risk due to a
variety of factors.
The majority of risk we currently assess in our efficiencies comes
from external sources and is generally a product of assumptions made in
the planning process. Commodity prices, for example, represent great
risk to energy efficiencies in both the aviation and facility areas.
Rising fuel prices could completely eliminate all dollar savings from
efficiencies. Our business process efficiencies are based on a
projected level of demand for service. Real-world contingencies could
significantly challenge those projections and drive additional manpower
requirements to meet those needs in spite of the process efficiencies
we were able to garner. The same contingencies would also use our
equipment at greater rates than currently projected which would require
adjustments to acquisition strategies and replacement profiles.
We monitor risk on a monthly basis, and therefore the type of risk
and amount associated with that risk varies as we actually execute the
efficiency plans. Currently, the Air Force assesses risk in the
following areas that translate to $1.2 billion across the FYDP in
efficiency plan shortfalls, and an additional amount of approximately
$1 billion based on actual cost of fuel:
Installation Support/Communication Issues: Current
restructure plans for installation support result in efficiency
estimates that are less than originally anticipated. The Air
Force is developing alternative approaches to mission support
that will allow us to make up the difference.
Logistics and Installation Efficiencies and MAF Fuel
Efficiencies: We can take actions through smart investments and
standard operating policies to reduce energy consumption, but
we cannot control the price of energy. Recent increases in oil
prices highlight the inherent risk in achieving financial
savings based on fuel and energy efficiencies. We expect to
reduce energy consumption and reduce gallons/energy consumed.
However, as price of fuel varies, it will impact our ability to
achieve financial savings.
Weapon System Sustainment: Our aging platforms and
equipment create upward pressure on costs--obsolescence is a
continuing management challenge
The Defense Weather Satellite System (DWSS): Decisions
were made to enhance funding to this program in finalizing the
fiscal year 2012 President's budget submission which impacts
projected savings associated with this program across the FYDP.
We are doing assessments within this program, our space
portfolio, and broader acquisition efficiencies as a means to
fill this efficiency target gap
The process for managing efficiencies has considered that fact of
life issues are inevitable. The ability to fill gaps quickly when they
arise is essential and is part of the ongoing management process. The
Air Force will be proposing additional efficiencies to fill any
shortfalls in executing fiscal year 2012 and in building the fiscal
year 2013 budget.
relocation of marine corps force from okinawa to guam
28. Senator Ayotte. Secretary Work, the current agreement between
the United States and Japan to realign forces on Okinawa, and to
relocate 8,000 marines and their families from Okinawa to Guam is
planned to cost over $25 billion between the two countries. Given the
recent tragic events in Japan, is DOD currently reassessing the terms
of the agreement? If so, can you provide details?
Mr. Work. A ``2+2'' meeting between the Secretary of Defense,
Secretary of State, Japanese Minister of Defense, and Japanese Minister
of Foreign Affairs will be scheduled for late May or early June in
Tokyo. In the preliminary discussions, the Government of Japan has
assured the U.S Government that since the natural and nuclear disaster
events of March 11, 2011 it remains committed to the Roadmap Agreement,
both for the Futenma Replacement Facility and Okinawa as well as the
Guam realignment. We are working with the Japanese to determine what
effect the events of March 11, 2011 may have on the near term bilateral
agenda.
29. Senator Ayotte. Secretary Work, in your opinion, is the closure
of Marine Corps Air Station Futenma and the relocation of Marine Air
activities to Camp Schwab still a legitimate option?
Mr. Work. We continue to work with the Government of Japan to
develop the way forward to construct the Futenma Replacement Facility
(FRF) at Camp Schwab. Per the 2006 Roadmap Agreement, we will continue
to use MCAS Futenma until a fully operational FRF is completed.
30. Senator Ayotte. Secretary Work, what are currently the planned
investments on Guam and on Okinawa by each country?
Mr. Work. Regarding Guam, per the Realignment Roadmap, the
Government of Japan will contribute up to $6.09 billion in funding
towards the relocation of marines from Okinawa to the U.S. territory.
The funding contribution is comprised of a direct cash contribution of
$2.8 billion, plus up to $3.29 billion in financial instruments for
utilities and family housing to support the relocation of marines. The
United States will bear the balance of the costs associated with the
realignment.
The Government of Japan has transferred $834 million to the United
States to fund the following projects (awards pending): (note Japanese
fiscal year (JFY) runs from April 1-March 31):
JFY09:
Utilities & Site Improvements I: $321 million
JFY 2010:
Apra Harbor Medical Clinic: $96 million
Apra Harbor Waterfront HQ: $25 million
Utilities & Site Improvements II: $309 million
Finegayan Fire Station: $25 million
JFY 2011:
MLG Admin Building: $59 million
Base Admin Building: $70 million
In JFY 2011, the Government of Japan also approved $415 million in
financing for water and wastewater projects on Guam.
Guam projects funded by the U.S. Government thus far are:
Fiscal Year 2010:
AAFB North Ramp Utilities I: $22 million
(awarded in April 2011)
AAFB North Ramp Parking I: $89 million
(awarded in April 2011)
Apra Harbor Wharf Improvements I: $127 million
(awarded in Sept. 2010)
Military Working Dog Facility Relocation: $14
million (awarded in Sept. 2010)
Defense Access Road Improvements: $49 million
Fiscal Year 2011
Apra Harbor Wharf Improvements II: $40 million
Defense Access Road Improvements: $67 million
Additionally, the President's budget for fiscal year 2012 includes
a request for $181 million for two MILCON projects (AAFB North Ramp
Utilities II, Finegayan Water Utilities) and planning and design. We
have developed an updated cost estimate and notional timeline for the
Guam realignment and have offered to brief committee staff regarding
these issues.
31. Senator Ayotte. Secretary Work, are the planned investments
still affordable?
Mr. Work. Given the significance of the realignment of Marine
forces in the Pacific, we continue to work to identify opportunities to
reduce the costs while at the same time implementing the best possible
strategic laydown of forces in the Pacific.
termination of weapons systems
32. Senator Ayotte. Secretary Hale, over $21 billion of the
projected savings in the next 5 years will be achieved through program
terminations and reductions. Assuming the requirements still exist, say
for example amphibious assault, do these savings take into account the
additional costs the Services will incur in other programs to
compensate for the terminations? If not, why not?
Mr. Hale. The Army terminated three programs including Non-Line of
Sight Launch System (NLOS-LS), Surface Launched Advanced Medium Range
Air-to-Air Missile (SLAMRAAM) and Scorpion. The Army believes existing
systems and capabilities are sufficient and do not believe that
additional procurement funds will be required for other programs. Army
also determined that Scorpion was not a cost effective program and has
elected to pursue other anti-vehicular capabilities under the Spider
Increment II program which is currently funded in fiscal year 2012.
The Navy termination efficiencies encompassed three programs which
include the Expeditionary Fighting Vehicle (EFV), restructure of the
Joint Light Tactical Vehicle (JLTV), and termination of the Standard
Missile 2 Block IIIB Upgrade. DON accounted for additional costs
through reinvestment of these savings where required within other Navy
programs.
The Air Force corporate structure took into account the costs
associated with funding the programs vice terminating. The Air Force
reported $3.7 billion for program reductions and termination across
fiscal years 2012-2016) including three terminated programs
representing 12 percent of that total figure. Operations and
maintenance funding adjustments to implement fiscal year 2011 costing
factors comprised 35 percent, program adjustments, from fact of life
changes to adjusting requirements to highest priority needs, comprised
47 percent of the total. The remaining 6 percent is associated with
retiring assets as a preferred economic alternative to repair and
continued operations.
The Joint Multi-Mission Submersible (JMMS) program is Special
Operations Forces (SOF) unique and its termination incurred no
additional costs.
33. Senator Ayotte. Secretary Hale, if so, for each program
termination, please provide details of the programs in which funding
increased to meet the underlying requirement.
Mr. Hale.
Navy - Two Program Terminations/One Program Restructure.
The Navy terminated two programs and restructured one saving $5.5
billion including termination of Expeditionary Fighting Vehicle (EFV),
restructure of the JLTV, and termination of the Standard Missile 2
Block IIIB Upgrade. Navy reinvested EFV funding into upgrades for the
current Amphibious Assault Vehicle (AAV) fleet, RDT&E for the proposed
Amphibious Combat Vehicle (ACV), accelerated procurement of the Marine
Personnel Carrier (MPC), and sustainment of legacy ground tactical
vehicles to bridge the capabilities gap associated with EFV
cancellation.
Since JLTV is a program struggling with changing capability
requirements and slow development, the restructure removes procurement
funding from fiscal year 2013 to fiscal year 2016. There is no current
impact as the Marine Corps studies how this capability ties to its
future Ground Combat Tactical Vehicles requirements.
The SM-2 Block IIIB termination did not require additional
investments in other programs. The Department will procure SM-6
missiles instead of SM-2 Block IIIB. The SM-6 program was already
resourced before the SM-2 termination, and as such, required no
additional funds to meet the Department's requirements.
Air Force - Three program terminations.
1. The Air Vehicle Survivability Facility is terminated saving
$3.4 million in Research Development, Test & Evaluation (RDT&E) funds
across fiscal years (fiscal year) 2012-2016. The facility was deemed as
non-essential at the completion of the post-BRAC 05 Memorandum of
Agreement was signed by the Air Force and Navy. All subsequent Air
Force live-fire test and evaluation workload has been moved to the Navy
facility at China Lake. A near term fiscal year 2012 closure bill of
$250,000 was provided in the offset option. Any potential environmental
cleanup cost is pending completion of the environmental assessment.
2. The Air Force Infrared Search and Track (IRST) Program
modification to the F-15 was terminated saving $43.8 million in RDT&E
funds across fiscal year 2012-2013 and $301.6 million in procurement
funds across fiscal year 2013-2016.
3. Advanced Targeting Pods-Sensor Enhanced (ATP-SE) was terminated
saving $98.7 million in procurement funds across fiscal year 2012-2016.
We have associated support funding reductions from this termination
which are included in our program reduction accounting.
U.S. Special Operations Command-One program termination.
JMMS was terminated saving $800 million from fiscal year 2013 to
fiscal year 2016. The $800 million was realigned to fund the SOCOM
Undersea Mobility Way Ahead. Longstanding capability gaps persist in
SOCOM's requirement to operate in denied maritime areas from strategic
distances. The JMMS program resources were realigned to the following
program requirements:
Sea, Air, and Land (SEAL) Delivery Vehicle (SDV) Mk 8
technology refresh
SDV upgrades
Shallow Water Combat Submersible Block I Program of
Record
Development of a family of dry combat submersibles
Dry Combat Submersible Light
Dry Combat Submersible Medium
Dry Deck Shelters (DDS) Modifications/Extension
Analysis of Alternatives for the Next-Generation
Submarine Shelter
Army--Three programs terminated.
The Army terminated three programs saving $4.5 billion including
Non-Line of Sight Launch System (NLOS-LS), SLAMRAAM, and Scorpion.
The NLOS-LS program was terminated when senior leadership
determined that NLOS-LS was not cost effective compared to other
precision fire capabilities. The Army believes existing systems and
capabilities are sufficient to attack intended target sets and do not
believe that additional procurement funds will be required for other
programs.
SLAMRAAM procurement was cancelled when senior leadership
determined it was not cost effective compared to other air and missile
defense capabilities. Sufficient capability currently exists within
other programs, e.g., Patriot, to attack lower tier targets such as
cruise missiles, although funding was added to upgrade Stinger.
Senior leadership also determined that Scorpion was not a cost
effective program and has elected to pursue other anti-vehicular
capabilities under the Spider Increment II program which is currently
funded in fiscal year 2012.
cuts to service contracts
34. Senator Ayotte. Secretary Hale, does DOD have a baseline
accounting of the funds spent on service contracts annually?
Mr. Hale. The Department utilizes the Office of Management and
Budget directed object class categories to identify the amount of
funding spent on contract services annually. Object classes are
categories in a classification system that present obligations by the
type of items or services purchased by the Federal Government, for
example, supplies, rent, contract services. These amounts include both
base budget funding and Overseas Contingency Operations (OCO) funding.
35. Senator Ayotte. Secretary Hale, if there is a baseline
accounting of these funds, can you provide details on the amounts spent
annually by type of service contract?
Mr. Hale. The actual amount spent in fiscal year 2010 on Contract
Services from base budget and Overseas Contingency Operations funding
was:
[In millions of dollars]
------------------------------------------------------------------------
Fiscal Year
Object Class Object Class Title 2010 Actual
------------------------------------------------------------------------
25.1............................ Advisory and $19,368
Assistance Services.
25.2............................ Other Services...... 20,895
25.4............................ Operation and 24,923
Maintenance of
Facilities.
25.5............................ Research and 3,188
Development
Contracts.
25.6............................ Medical Care........ 13,985
25.7............................ Operation and 30,608
Maintenance of
Equipment.
25.8............................ Subsistance and 347
Support of Persons.
---------------
Total..................... $113,314
------------------------------------------------------------------------
36. Senator Ayotte. Secretary Hale, if there isn't a baseline
accounting of these funds, how will you be able to assess the
performance of DOD's goal to cut service contracts by 10 percent in
each of the next 3 years, resulting in a savings of $5.7 billion?
Mr. Hale. The Department plans to monitor compliance with the
service support contract funding reductions through a data call that
will require each component to provide an implementation plan that
lists actions taken and planned during fiscal year 2011. Components
will be required to provide an update twice annually.
cuts to facility accounts
37. Senator Ayotte. Secretary Hale, since maintenance of DOD
facilities requires a minimally adequate level of annual funding, why
does DOD consider cuts to those accounts as an efficiency savings?
Mr. Hale. Two Military Services believe they can identify facility
sustainment efficiencies. Given the stress on DOD's budgets now and in
the near future, we believe it is important to explore opportunities to
save resources. The Department will monitor the Navy and Air Force
sustainment execution to identify whether they were able to maintain or
improve delivery of services or just defer them.
38. Senator Ayotte. Secretary Hale, does the long-term underfunding
facility maintenance and repairs have a detrimental impact on
readiness?
Mr. Hale. While the long-term effect of underfunding maintenance
and repairs results in an increase to the deferred maintenance backlog,
the Department prioritizes critical facility maintenance and repairs to
eliminate significant detrimental impacts to readiness.
39. Senator Ayotte. Secretary Hale, will the accompanying reduction
of funds for MILCON increase the need for maintenance and repair funds,
thereby accelerating the detrimental impact on readiness?
Mr. Hale. The fiscal year 2012 MILCON reductions are a result of
completing BRAC and changes in other initiatives like Grow-the-Force.
Because these efforts were not recapitalization efforts, these
reductions do not correlate to requirements for additional restoration
and modernization funds. Further, regardless of any reduction of funds
for MILCON investments, the necessary annual investments for
sustainment of existing infrastructure remain. The DOD has processes to
determine and fund priority critical facility maintenance and repairs
to eliminate significant detrimental impacts to readiness.
40. Senator Ayotte. Secretary Westphal, the Army proposes to save
$1.5 billion on MILCON costs by sustaining existing facilities, but
does not propose a corresponding increase to the facility sustainment
account. How will the Army fund the increased sustainment load?
Dr. Westphal. The Army is now focusing on using Operations and
Maintenance (O&M) funded restoration and modernization as a more cost
effective way to meet current mission requirements as opposed to
replacing facilities through MILCON. This approach has been successful
in modernizing certain types of permanent party barracks and we plan to
expand this approach by continuing with training barracks modernization
using both MILCON and O&M. The fiscal year 2012 budget includes $202
million for restoration and modernization, an increase over prior year
requests.
army reductions
41. Senator Ayotte. Secretary Westphal, in reviewing the testimony
and supporting documentation, I was struck by the vague descriptions of
some of the Army initiatives. Please provide more details on the
``adoption of an Enterprise Governance Approach to transforming
business operations and obtaining the best possible outcomes for the
entire Army rather than individual portions of the force''.
Dr. Westphal. The Army's enterprise governance approach supports
transforming business operations and obtaining best possible outcomes
by using broad collaboration and finding innovative Army-wide
solutions. We created four functional forums called ``Core
Enterprises'' centered on manning, readiness, equipping and services to
help us better align and integrate our business operations. These Core
Enterprises are focused on improving Army business processes through
collaboration within and between the Core Enterprises. This creates a
holistic team approach towards transforming business operations.
Problems are now exposed in the full light of a multifaceted forum that
brings together a broad range and depth of experiences to improve the
Army. Some examples of the Army's enterprise governance approach
include the recent stand up of the Business Systems Information
Technologies Executive Steering Group and defining 27 Business
Initiatives. The Business Systems Information Technologies Executive
Steering Group is chaired by the Army Chief Management Officer and
works in close coordination with the DOD Deputy Chief Management
Officer to synchronize, integrate, and prioritize resources. The Army
Chief Management Officer has designated Enterprise Business Initiatives
which are broad enough in scope to affect the Army in several ways. We
use a horizontal integration approach to prevent secondary and tertiary
unintended consequences as we move toward implementation. The
enterprise governance approach for business initiatives reduces risk of
failure and wasted resources as a mechanism for continuous process
improvement.
42. Senator Ayotte. Secretary Westphal, where can we find the
savings of $75 million in the current budget request?
Dr. Westphal. Assuming that the referenced $75 million reduction is
in Base Operations Support, the Army will realize these savings by
taking the following actions:
Installation Management Command (IMCOM) restructuring
initiatives.
IMCOM will generate manpower savings by
restructuring the Command's operations staff sections
to reduce civilian pay requirements.
Family Morale, Welfare, Recreation Command
(FMWRC) Inactivation/Integration. The Army is
inactivating the two-Star FMWRC Command and integrating
its mission into the General Staff. This reduces the
command's structure and leverages existing capabilities
already performed by the IMCOM Headquarters staff.
Elimination of Staff Augmentation Contracts.
Leveraging the Headquarters' Base Realignment and
Closure (BRAC) move from Washington, DC to Fort Sam
Houston, TX, IMCOM eliminated its dependence on
contractor personnel and is staffing the Headquarters
with a pure Department of the Army Civilian (DAC)
workforce in Texas.
Consolidation of IMCOM Regions. Midway through fiscal
year 2011, IMCOM operated with six regional commands. By the
end of fiscal year 2011, IMCOM will be operating with only four
Regions: Pacific, Central, Atlantic and European. As we
restructure and rebalance the personnel and subsequently
document this restructure, the command will be able to reduce
its Regional Headquarters authorized strength from its current
level of 1,160 to 945, a savings of 215 positions.
Garrison Reductions: IMCOM conducted a thorough Force
Restructure Review that identified approximately 3,000
Department of the Army civilians and Contractor Manpower
Equivalent (CME) reductions across the Army's garrisons.
43. Senator Ayotte. Secretary Westphal, can I get the same
explanation for your goal to ``refine and optimize full spectrum
training requirements'' and exactly how $1.1 billion will be saved?
Dr. Westphal. The Army goal is to train forces for a more balanced
readiness posture, not just for counterinsurgency, nor exclusively for
major combat operations as was done in the past. Instead, the Army will
prepare contingency forces to conduct offense, defense, and stability
operations in a complex 21st century operational environment against an
adaptive hybrid threat. The $1.1 billion fiscal year 2012-2016 savings
in training requirements is primarily due to reduced training activity
in the Reset phase of the Army Force Generation (ARFORGEN) model and
the shift from major combat operations to full spectrum operations
training. The key adjustments for full spectrum operations training
include reducing the number of Combat Training Center rotations that
Brigade Combat Teams (BCTs) execute during an ARFORGEN cycle from two
to one; reducing the frequency of BCT-level training and integrating
stability operations into all training events. These changes reduce
resource requirements, without short-changing the readiness of our
forces.
44. Senator Ayotte. Secretary Westphal, if we are cutting training
requirements for our soldiers, will this refinement be accompanied by
reduction of the roles and tasks currently considered mission
essential?
Dr. Westphal. There will be no reduction in roles or tasks.
Moreover, stability tasks have been added and are now recognized as
``mission essential'' to Army operations as part of a joint/
interagency/multinational team during contemporary campaigns. The
intent of full spectrum operations training is to prepare forces not
just for major combat operations or counterinsurgency operations, but
to prepare leaders and forces to conduct offense, defense, and
stability operations (or civil support operations within the contiguous
United States) simultaneously for assigned missions at any point along
the spectrum of conflict from stable peace to general war. Full
spectrum operations training enables the Army to effectively respond to
a broad range of contingencies at any point along the spectrum of
conflict against hybrid threats. We are not cutting requirements or
short-changing the readiness of our soldiers; rather we are more
efficiently allocating training resources to better match planned and
expected training activity levels.
controlling military health care costs
45. Senator Ayotte. Secretary Hale, in your written statement, you
state that ``DOD's medical costs have skyrocketed in recent years--from
$19 billion in fiscal year 2001, to more than $52 billion anticipated
in fiscal year 2012.'' In response, the President's budget request for
fiscal year 2012 assumes savings as a result of increased enrollment
fees for working age retirees, adjustment of pharmacy copayments for
all beneficiaries, and other health care payment reforms as well.
Expected savings from the health care reforms will total $340 million
in fiscal year 2012 and $7.9 billion through fiscal year 2016. Is this
an efficiency or just passing rising costs onto retirees?
Mr. Hale. The health care reform proposal is an efficiency with the
goal of maintaining high-quality care while also slowing the growth in
costs. For some time, the Department has taken a number of internal
actions, as recommended by beneficiary organizations to achieve greater
internal efficiency. The four benefit changes propose a shared
responsibility for managing costs while introducing further
efficiencies. We consider the proposal for the fiscal year 2012 budget
to be fair and equitable.
46. Senator Ayotte. Secretary Hale, in each health care cost saving
initiatives, is there any internal belt tightening by DOD itself that
would yield a real efficiency savings?
Mr. Hale. The Department proposed initiatives include $1.3 billion
worth of internal Defense Health Program efficiencies across the FYDP.
The initiatives include:
[In millions of dollars]
------------------------------------------------------------------------
Fiscal
Years 2012-
2016
------------------------------------------------------------------------
Patient Centered Medical Home (PCMH) Staffing............... $112
Consolidation of Initial Outfitting and Transition (IO&T)... 191
Medical Supply Chain Sourcing Optimization.................. 129
Service Support Contractor Reduction........................ 478
Baseline Review (DHP/TMA)................................... 262
Reports, Studies, Boards & Commissions Review............... 124
-----------
Total Potential Savings................................... $1,296
------------------------------------------------------------------------
The PCMH concept has been adopted as the foundation
for refocusing the primary health care delivery model with the
Military Health System (MHS). PCMH will generate savings by
reducing the utilization of specialty, critical care, and
inherent staffing for implementation.
Through consolidated IO&T management of medical/non-
medical equipment, technology systems, and furniture for MILCON
initiatives efficiency savings can be achieved.
The Department determined opportunities for supply
chain optimization through medical materiel sourcing
strategies. The reduction is less than 1 percent of total
supply purchases and should be easily achieved primarily
through efforts of the Defense Logistics Agency (DLA).
The Department is currently conducting a complete
bottom-up review of Programs within the TRICARE Management
Activity which rely heavily on Contractor Support. Programs
will be reviewed based on strategic importance, performance,
and affordability.
As part of a baseline review, the TRICARE Management
Activity will reduce staff and streamline its headquarters
management. Significant efficiencies will be realized with no
reduction in mission effectiveness.
The entire Department, to include Health Affairs, will
implement guidance to reduce expenditures on Reports, Studies,
Boards and Commissions. The cost of producing future
initiatives will also be reported for transparency.
47. Senator Ayotte. Secretary Hale, how many of the proposed DOD
efficiency initiatives actually transfer or increase costs to military
members or other beneficiaries?
Mr. Hale. Three of the reform initiatives modestly increase
beneficiary's out-of-pocket costs.
Increase TRICARE Prime Fees for <65 Retirees
This proposal would increase Prime enrollment fees in
fiscal year 2012 for working age retirees by $5/month for
families or $2.50/month for individuals, but would exclude
Survivors, medically retired members, and their beneficiaries.
In addition, it is recommended that starting in fiscal year
2013 enrollment fees be indexed to a medical index to keep pace
with health care inflation. Given that fees have not increased
since the inception of TRICARE in the mid-1990s, and it
protects our most vulnerable populations from additional
financial burden, this proposal is viewed as a very modest
increase, which continues to recognize the sacrifices made by
our military.
Pharmacy Co-Pay
This proposal will change co-pays for pharmaceuticals
to provide incentives for beneficiaries to choose the most
cost-effective options for prescriptions, namely use of generic
drugs and delivery of prescriptions by mail. Co-pays are
eliminated altogether for generic drugs ordered through the
mail order program, which will mean a savings to beneficiaries
of $3 per prescription. Most non-generic drugs are available
via mail order with no increase in co-pays. For retail
pharmacies, co-pays are increased by $2 to $3 per prescription.
These changes will help Department to contain medical care
costs while still meeting the medical needs of our
beneficiaries.
U.S. Family Health Plan (USFHP)
This proposal will provide equitable treatment for all
Medicare-eligible retirees by offering a single program design
across the country. Under current law, Medicare-eligible
enrollees are allowed to remain in the USFHP, whether they
enroll in Medicare Part B or not. They are the only military
retirees using the health benefits who do not have to enroll in
Medicare when they become eligible. We seek legislative
authority that will require those who are part of the USFHP to
join Medicare upon reaching age 65. Our plan will fully
grandfather all of those who are already in USFHP, but would
require future USFHP enrollees to transition to Medicare and
TRICARE for Life once they become Medicare-eligible. Future
retirees covered by the proposal would still be able to obtain
services from providers associated with USFHP as long as the
providers accept Medicare.
48. Senator Ayotte. Secretary Westphal, Secretary Work, and
Secretary Conaton, as you know, the committee has received a letter
signed by Admiral Mullen and each of the uniformed Service Chiefs
supporting the President's proposal to increase TRICARE fees. However,
some beneficiary organizations have a different perspective. Are you
aware of the concerns expressed by these beneficiary organizations on
the proposed TRICARE increases, in particular linking fee increases for
working age retirees to medical inflation rates?
Dr. Westphal. Yes, we are aware of the concerns expressed by some
beneficiary organization over the proposed TRICARE rate increases.
Mr. Work. We understand that some beneficiary groups have expressed
concerns about the use of the health care inflation index for deriving
future TRICARE Prime enrollment fee increases for working age retirees.
Nevertheless, DON supports the Secretary of Defense's health care
reform initiatives and I believe these proposals are consistent with
our efforts over the last several years, which have focused on finding
internal efficiencies, incentivizing healthy behaviors by our service
men and women, and ensuring all of our beneficiaries are treated
equitably. These proposals are modest and provide an opportunity for
all participants--the government, providers of health care, and
beneficiaries--to share in the responsibility to better manage our
health care costs.
Ms. Conaton. Yes, I am aware of the beneficiary organizations
concerns with regard to the proposed TRICARE increases.
The TRICARE Prime enrollment fee was established in 1995 and set at
$230/$460 for individuals/families. This fee has not changed in 16
years. Enrollees who pay this fee subsequently pay no TRICARE
deductible (reducing the effective cost of enrollment to $80/$160 per
year). The expectation had been to raise the enrollment fee on a
periodic basis, but this has never happened. In 2005, DOD attempted to
increase the TRICARE enrollment fee by approximately 300 percent over
three years to again have some parity with civilian health premiums.
This proposal was met by significant resistance from beneficiary
organizations, and Congress ultimately decided the increase was too
severe and prohibited any increase in TRICARE Prime enrollment fees.
Having learned lessons from the previous attempts at increasing
TRICARE enrollment fees, and out of genuine concern not to introduce
unexpected and steep hikes in out-of-pocket costs, the Department has
put forward a significantly more modest fee increase ($2.50 or $5/month
for individuals/families). The proposal indexes any future enrollment
fees to a medical inflation rate, thereby moving to a regular and
gradual increase from year-to-year, and also excludes from fee increase
the following special populations of retirees: survivors (regardless of
when or how the servicemember died), and medically retired military
members and their families.
We believe this proposal represents a fair and responsible increase
in TRICARE Prime enrollment fees, and provides a balanced approach to
managing the escalating healthcare costs of our MHS while ensuring we
continue to provide the best healthcare in the world for our warriors
and their families.
49. Senator Ayotte. Secretary Westphal, Secretary Work, and
Secretary Conaton, how do you respond to these concerns?
Dr. Westphal. We acknowledge that these proposed changes have
created some concern among our beneficiaries and various organizations
that represent them. However, we believe the proposal to raise some
TRICARE fees for working age retirees will be modest, gradual, and
responsible. We support DOD efforts to work with Congress to find ways
to help control escalating healthcare costs. The Army, in partnership
with DOD, is committed to preserving this healthcare benefit while
recognizing that continued increases in costs are not sustainable. Even
with proposed fee changes, TRICARE would remain one of the Nation's
very best health benefits and beneficiaries would continue to have less
out of pocket costs than Federal, State, and private health plans.
These proposals balance our commitment to preserve the healthcare
benefit while slowing future growth in healthcare costs. We continue to
support modest fee increases as proposed.
Mr. Work. DON supports the Secretary of Defense's health care
reform initiatives. TRICARE Prime enrollment fees have not changed
since the mid-1990s and aligning future increases to an established
index will help us continue to deliver superb benefits while more
responsibly managing cost. I believe this and other proposals are
consistent with our efforts over the last several years, which have
focused on finding internal efficiencies, incentivizing healthy
behaviors by our service men and women ensuring all of our
beneficiaries are treated equitably. These proposals are modest and
provide an opportunity for all participants--the government, providers
of health care, and beneficiaries--to share in the responsibility to
better manage our health care costs.
Ms. Conaton. As stated in the aforementioned letter dated 7 Feb 11,
I strongly support these modest changes to the military healthcare
program in the fiscal year 2012 budget.
I believe we have included the appropriate safeguards to ensure a
careful and measured approach to protect our most vulnerable
beneficiaries, while continuing to provide free healthcare to our
active duty personnel. Additionally, all Services and the TRICARE
Management Activity have looked internally to identify efficiencies and
incorporate those into the system before the decision to pursue these
changes.
Our commitment to our beneficiaries remains unchanged, with
continued investment in wounded warrior care and enhanced access to
superior health services to all our beneficiaries. I believe these
changes to the MHS are critical to our continuing to provide the finest
healthcare benefit in the world while also slowing the cost growth in
the healthcare system.
50. Senator Ayotte. Secretary Westphal, Secretary Work, and
Secretary Conaton, are you concerned about the effect of such increases
on recruitment or retention of military personnel?
Dr. Westphal. With the projected economy growing at a slow rate,
the Army is experiencing a favorable recruiting and retention
environment. We acknowledge that health care benefits are part of the
overall package that recruits consider in joining the Army and in
staying in the Army; however we do not anticipate any shortfalls in
recruitment or retention at this time.
Mr. Work. Navy anticipates that a fee increase would have little,
if any, impact on recruiting and retention. TRICARE is a robust health
plan with broad coverage at costs well below comparable civilian health
insurance plans. While the proposed modest fee adjustment would
increase out-of-pocket expenses for working-age retirees, their total
health care expenditure would remain well below comparable commercial
plans. It is also unlikely that a modest change in the cost of a
retirement benefit, to which most potential recruits would never become
eligible, and to which those who remain until retirement eligibility
would not become eligible until at least 20 years later, would
influence an applicant's decision on whether or not to enlist in the
Navy.
Ms. Conaton. While there are many dynamics that impact military
recruiting and retention, we do not believe the proposed change to
TRICARE fees for retirees will adversely impact our recruiting and
retention. Without these adjustments, we will need to reduce funding in
other areas such as those programs supporting Airmen and their
families. The latter funding reductions would more adversely impact
recruiting and retention.
evolutionary acquisition for space efficiency
51. Senator Ayotte. Secretary Hale, the Air Force has proposed an
efficiency initiative to adopt a new method for acquiring satellites
called Evolutionary Acquisition for Space Efficiency (EASE). The Air
Force is expecting this new acquisition approach to save up to $1.7
billion to help launch development of a new long-range bomber program.
We have recently heard that the Assistant Secretary of Defense for
Acquisition, Technology and Logistics (AT&L) may have some serious
concerns about the use of a multiyear program authority for the EASE
program, putting its authorization into doubt. What is DOD's position
on the use of multiyear procurement authority for the Air Force
initiative?
Mr. Hale. The DOD has discussed the Multi-Year Procurement
provisions at length with the White House and Congressional staffs in
reference to the Advanced Extremely High Frequency (AEHF) and Space-
Based InfraRed System (SBIRS) programs. As a result of these
discussions, we have determined that Multi-Year procurement
authorization is not required for these space systems. Therefore, the
model we are implementing is not Multi-Year Procurement. In both of
these cases, the Air Force is procuring two satellites, in a block buy,
in a single year. However, funding both satellites, in a single year,
is not practically achievable in today's budget environment. In order
to finance EASE, in conjunction with OMB, the DOD has developed a model
that achieves full funding of block buys through Advance
Appropriations.
Savings realized through the AEHF and SBIRS block buys will be
reinvested in research and development for technology enhancement to
advance the SATCOM and Overhead Persistent Infrared (OPIR) mission area
capabilities.
52. Senator Ayotte. Secretary Hale, what is DOD's view on using
multiyear contracts to buy military satellites?
Mr. Hale. The DOD is not using multiyear procurement contracts to
purchase military satellites at this time. However, future satellite
procurements, such as the Global Positioning System (GPS), or future
launch vehicle procurements could gain significant savings through
multiyear procurement contracts. The DOD will evaluate each procurement
on a case-by-case basis to determine if the system fulfills all United
States Code Title 10 requirements for multiyear procurement contracts.
53. Senator Ayotte. Secretary Hale, from your perspective, isn't
there a danger that using multiyear contracts to buy major systems too
aggressively across the enterprise could restrict DOD's ability to
terminate or otherwise effect reductions in problem programs?
Mr. Hale. Thank you for this question, I have a two part response.
EASE
The DOD evaluated but decided not to use multiyear contracts to
purchase military satellites in the development of the fiscal year 2012
budget. Instead the Department's PB12 budget employs EASE on AEHF with
block buys fully funded through Advance Appropriations. The principles
that should govern a decision for satellite block buys are stable
requirements, a stable design, completed development, and readiness for
steady state production.
MYP
Multiyear Procurement (MYP) can be an effective tool to reduce unit
cost in continuous stable production runs. When we buy a certain number
of items each year for a set amount of years, MYP is one tool available
to generate savings. Through large lot, sometimes referred to as
Economic Order Quantity (EOQ), material buys can generate significant
savings on purchased material costs. These large procurements also
incentivize contractors to be more efficient in their operations as the
government has committed to a long-term procurement run. The government
can also use MYP as a negotiating lever by increasing our buying power,
which can encourage companies to commit to lower fee levels in exchange
for a longer-term commitment.
We understand that MYP commits both the Department and Congress,
and we will analyze each MYP proposal on a case-by-case basis and
propose only those that meet the principles referred to above.
54. Senator Ayotte. Secretary Hale, are DOD efficiencies
initiatives inhibited by policies in the OMB that prefer multiyear
procurements over incremental funding for the acquisition of major
weapon systems?
Mr. Hale. The DOD and OMB have collaborated well on identifying
potential efficiencies and acquisition initiatives such as EASE. OMB
policies do not inhibit DOD efficiency initiatives.
55. Senator Ayotte. Secretary Hale, if the savings proposed through
EASE are not realized, how will that affect the long-range bomber
program?
Mr. Hale. Savings realized through the AEHF and SBIRS block buys
will not be applied to the long-range bomber program. Rather, these
savings will be reinvested in research and development for technology
enhancement to advance the SATCOM and Overhead Persistent Infrared
(OPIR) mission area capabilities.
56. Senator Ayotte. Secretary Conaton, has the Air Force received
any recent guidance from DOD about EASE? If so, can you share that
guidance?
Ms. Conaton. The Air Force has been working with DOD Office of the
Secretary of Defense (OSD) the last several months on the EASE
construct. The Air Force envisions implementing the EASE concept to
drive down costs, improve stability in the fragile space industrial
base, invest in technology that will lower risk for future programs,
and achieve efficiencies through block buys of satellites. EASE
achieves these benefits through four basic elements: block buys of
satellites; stable research and development funding; fixed price
contracts; and full funding over multiple years via advanced
appropriations. The Air Force is working closely with the Office of
Management and Budget (OMB), OSD Acquisition, Technology, and Logistics
(AT&L), and OSD Cost Assessment and Program Evaluation Office (CAPE) to
establish EASE guidelines and achieve these objectives in the event
that Congress approves this approach.
methodologies for selection of efficiencies initiatives
57. Senator Ayotte. Secretary Hale, I have concerns the due
diligence and methodologies used to quantify the spending cuts and
benefits, specifically whether those methodologies are reliable,
traceable, repeatable, and defensible. For example, on the closure of
U.S. Joint Forces Command (JFCOM), how did you determine the potential
savings that would be realized from the closure?
Mr. Hale. A Transition Planning Team was organized comprised of
members from the Joint Staff and U.S. Joint Forces Command (JFCOM) to
analyze and assess the functional construct of the command and tighten
focus on core joint capabilities. The analysis of the JFCOM 6 specified
responsibilities assigned in the draft 2010 Unified Command Plan (UCP)
identified 24 of 77 functions that should be eliminated, with the
remaining functions scaled for efficiency.
The Transition Planning Team performed a cost-benefit-analysis of
every JFCOM function using three major factors to evaluate the cost
versus benefit of retaining or eliminating each function. Each function
was evaluated on the merits of its authoritative requirement; its
uniqueness and essentiality; and the risk to joint force readiness if
the function was eliminated.
58. Senator Ayotte. Secretary Hale, please share the methods you
used to quantify and, more importantly, validate this savings.
Mr. Hale. All of the cross-cutting efficiency initiatives were
quantified in dollars and many were also quantified in manpower or
other quantitative measures. The specific approach for quantifying the
savings varied across initiative. For example, the service support
contract reduction was estimated using the actual inventory of
contracts for each component. The actual contract values were used to
calculate the percentage reduction. Actual progress will be monitored
by each Component reporting the specific contracts that have been
reduced or terminated. Another example is the senior executive position
reduction which used the actual position eliminated to calculate the
savings. All of the initiatives had a specific approach for quantifying
the savings that will be monitored in actual execution.
59. Senator Ayotte. Secretary Hale, presumably, the departments and
organizations within the DOD have provided you with a Plan of Action
and Milestones (POAM) document to pursue an effective plan that would
identify, eliminate, and capture cost savings for reinvestment. Was
this completed for JFCOM and all other efficiency initiatives? If so,
can you describe the process to develop the POAMs?
Mr. Hale. The Department is implementing a process to collect the
component plans for the efficiency initiatives. The plans will include
the milestones associated with the initiative, the financial and
nonfinancial metrics for measuring the initiative implementation, and
the areas of risk and risk mitigation strategies. The initial plans
will be collected and briefed to senior Department leadership in early
summer. This will ensue the baselines are clear before execution begins
in fiscal year 2012 and will also provide information to inform the
summer fiscal year 2013 budget review.
60. Senator Ayotte. Secretary Hale, please discuss how you plan to
manage these execution plans so dates don't slip and savings are not
minimized.
Mr. Hale. The component initial plans will be collected and briefed
to senior Department leadership in early summer. This will ensue the
baselines are clear before execution begins in fiscal year 2012 and
will also provide information to inform the summer fiscal year 2013
budget review. The components will brief senior Department leadership
again in early fall with actual results from the first 2 months of
fiscal year 2012. These briefings will be used to ensure actions are
taken to mitigate schedule and savings risks.
61. Senator Ayotte. Secretary Conaton, the Air Force's Deputy Chief
Management Officer was recently quoted as saying that if the Service
does not meet those efficiency goals, it could be pressed to remove
money from areas it had not planned to cut, making DOD both less
efficient and less capable. Do you agree with that assessment?
Ms. Conaton. Yes, I agree. The Air Force gave careful consideration
to the development of efficiency initiatives and the application of
savings to support mission and force structure requirements. Continuing
our longstanding commitment to fiscal responsibility and operational
efficiency, the Air Force is committed to a deliberate process to
enhance capabilities by reducing expenses allocated to overhead and
support functions while shifting resources to the modernization and
readiness programs. If we find any portion of the efficiencies cannot
be achieved in execution, we will find and execute another form of
efficiency to ensure we preserve the critical warfighting enhancements
included in the fiscal year 2012 President's budget request.
62. Senator Ayotte. Secretary Conaton, exactly how will you ensure
that the Air Force actually holds those lines, so that money doesn't
migrate back into those accounts where it intended to spend less?
Ms. Conaton. The Air Force comptroller is assisting with the means
to track actual expenditures and ensure resources are not migrated back
into efficiency areas. Efficiency initiatives that cannot be readily
reported through Air Force financial systems or other sources will be
reported to the comptroller through senior leadership assigned to those
respective priority areas. The Air Force Audit Agency will be assessing
the adequacy of financial controls to assure accurate financial data on
the results of efficiency initiatives beginning in fiscal year 2012.
The Air Force will use its existing corporate governance structure,
the Air Force Board and Council, to regularly review status towards
achieving identified efficiencies by measuring specific progress
against the implementation plans. The Air Force Deputy Chief Management
Officer is leading the Air Force Board, attended by flag officers/
senior executives from across Headquarters Air Force and Major
Commands, in monthly reviews of the execution status of efficiency
efforts.
On a quarterly basis, the Air Force Council, co-chaired by myself
and the Vice Chief of Staff, will monitor plans and progress to ensure
efficiency outcomes are being delivered and will also review readiness
and performance data to ensure Air Force efficiencies are not
inadvertently impacting mission performance or the quality of life of
airmen.
63. Senator Ayotte. Secretary Conaton, to what extent did the Air
Force put together a POAM which would help ensure that the savings that
the Air Force has identified will be realized and will eliminate and
capture cost-savings for reinvestment?
Ms. Conaton. The Air Force has established detailed implementation
plans, which are the responsibility of senior leadership, to ensure
results against programmed efficiencies. We are compiling and will
track updates to plans through an Integrated Master Schedule. We have
also established fiscal tracking through the Air Force comptroller to
ensure we allocate and expend funds consistent with efficiency plans.
64. Senator Ayotte. Secretary Conaton, can you provide these
document(s)?
Ms. Conaton. The Air Force has established detailed implementation
plans, which are the responsibility of senior leadership, to ensure
results against programmed efficiencies. We are compiling and will
track updates to plans through an Integrated Master Schedule (IMS). We
have also established fiscal tracking through the Air Force comptroller
to ensure we allocate and expend funds consistent with efficiency
plans.
The Air Force has provided to the Senate Armed Services Readiness
and Management Support Subcommittee staff, for each of our efficiency
initiatives, documents that detail what the Air Force is seeking to
achieve, why it was selected, and how we are going about implementing
the initiative. The papers provided addressed: (1) organization and
headquarters consolidations to include our AOC and NAF consolidation as
well as above wing level installation support; (2) manpower and
personnel efficiencies to include reducing planned growth in civilian
manpower and realigning military manpower into force structure and
readiness; (3) facility sustainment savings targeting 10 percent
savings to facility sustainment and reducing non-utility Facility
Operations (FO) costs by 3 percent without impact to mission; (4)
acquisition management efficiencies which included overhead and
indirect program cost reductions; (5) logistics support savings which
addresses performance improvement and efficiencies in logistics and
installations, weapon system sustainment, Mobility Air Force aviation
fuel use, converting product support activities from contracted
logistics support to organic, reductions in vehicle fleet size and
facility demolition and consolidation; (6) space acquisition
efficiencies to include achieving a 10 percent reduction in EELV
procurement costs without degrading launch capability; (7) MAJCOM
support efficiencies which targets movement of operation and
maintenance funding from support to direct readiness and mission
activities; (8) training efficiencies related to sustaining Air Force
mission readiness at or above current standards while reducing the cost
to sustain current training levels; and (9) improving information
technology (IT) efficiencies and operations across all Air Force IT
while maintaining Air Force operational cyberspace capabilities. We can
readily discuss and review the plans outlined in papers already
provided with our staff and provide additional detail and discuss our
plans if desired by you or your staff.
unified medical command
65. Senator Ayotte. Secretary Hale, in its March 1, 2011, report
titled, Opportunities to Reduce Potential Duplication in Government
Programs, Save Tax Dollars, and Enhance Revenue,'' the Government
Accountability Office (GAO) found that realigning DOD's military
medical command (MEDCOM) structures and consolidating common functions
could increase efficiency and result in savings ranging from $281
million to $460 million annually. Although incremental steps have been
taken toward reducing duplicative layers of MEDCOM where possible,
three separate service medical departments and structures remain
essentially unchanged. Please provide DOD's position on each efficiency
proposal contained in the GAO report that relates to DOD.
Mr. Hale. Attached is a letter sent by the Director of Cost
Assessment and Program Evaluation to Senator Pryor which outlines the
Department's position on the efficiency proposals contained in the GAO
report.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
66. Senator Ayotte. Secretary Hale, was further consolidation of
MEDCOM functions, including establishment of a unified MEDCOM,
considered during the development of the Secretary's efficiency
initiatives? If not, is further consolidation an option that is on the
table for future consideration?
Mr. Hale. We did look at the organizational structure of the MHS as
part of the Secretary's efficiency initiatives. We did not consider
either a Unified MEDCOM or a Defense Health Agency as options to
consider for this particular effort.
The Secretary and the OSD Team, however, did study organizational
options that streamlined certain functions within the MHS. For example,
optimization of the medical supply chain is one area in which savings
can be achieved through both leaner organizational structures and more
leveraged purchasing strategies.
With the physical relocation of the OSD and Service medical
headquarters in one location as required by BRAC, we will continue to
pursue the consolidation of certain functions that may be better
delivered as a single entity. BRAC also has allowed us to
geographically consolidate our medical education and training functions
in one location.
Finally, we also plan to assess the various health governance
structures that have been introduced in several of the multi-service
market areas over the past several years, and develop a coherent,
consistent and integrated governance approach for the long-term
management of health care services.
67. Senator Ayotte. Secretary Hale, what are the benefits that you
believe could be achieved by establishment of a unified MEDCOM, and
would legislation be required?
Mr. Hale. Secretary Gates has not proposed a Unified MEDCOM for the
MHS. Although some efficiencies might be achieved through a single
command, there are policy, force management and other command issues
that might offset these efficiencies. The Secretary believes he
currently has the authorities required for organizing the Department in
the most effective and efficient manner required.
68. Senator Ayotte. Secretary Westphal, Secretary Work, and
Secretary Conaton, the GAO report acknowledges the difficulty in the
past in achieving consensus among the military departments on changes
to governance of medical programs. I would like to ask each of you to
comment on whether or not your Service agrees that realignment of
medical programs in a unified MEDCOM would be in the best interests of
DOD. If so, why? If not, why not?
Dr. Westphal. We are waiting on DOD to review the desirability of
establishing a Unified MEDCOM. There are many complex factors that must
be carefully taken into consideration before moving forward with such a
monumental change in managing our health care system.
Mr. Work. DON fully supports an integrated health care system that
maintains the highest standard of medical training, research, and
operational support while simultaneously delivering world class health
care around the world. The MHS is one of the most complex programs
within DOD; and one of the most important with regard to force
readiness, recruitment and retention of military personnel. Ideally,
the effective operation of the MHS with military and civilian
components working at maximum efficiency is critical to controlling
costs while maintaining force and medical readiness.
Assessment of existing joint arrangements should be evaluated for
the Services' experiences and successes with improvements and
enhancements to the delivery of care in support of the operational
commanders and to the MHS' worldwide beneficiaries. We fully support
the Secretary's defense health care reform initiatives and believe the
Services are working collaboratively to implement systemic efficiencies
and specific initiatives to strategically improve quality and
satisfaction while managing costs more responsibly. We can continue to
leverage our successful joint efforts such as integrated healthcare in
Germany at Landstuhl Regional Medical Center. As many as 300 Navy
Medicine and 300 Air Force medical professionals are working
collaboratively in an Army hospital alongside 1,000 Army medical staff
to provide stabilization and enroute care for over 76,000 patients
since the initiation of Operations Enduring Freedom and Iraqi Freedom.
Ms. Conaton. The Air Force does not favor the establishment of a
unified military MEDCOM.
The Air Force Medical Service is fully integrated with the Line of
the Air Force, and medical personnel are key members of the wing
commander's team to accomplish the wing mission. When Air Force units
deploy, their medics deploy with them. The Unified MEDCOM would sever
that close relationship at the expense of our existing effective
organizational structure. We can drive unity of effort within current
authorities without the expense of establishing a Unified MEDCOM and
disrupting the effective alignment of medics to Service oversight. The
synergy created by close alignment of Air Force medics to our
operational mission should not be put at risk in a new unified command
structure.
We believe a more effective and efficient Joint medical solution
can be attained without the expense of establishing a Unified MEDCOM.
Changes to doctrine can be made within current authorities and do not
require a new Unified MEDCOM. Service-specific and joint medical
doctrine must be improved to assure Service capabilities are fully
interoperable and interdependent to bolster unity of effort. The
Services should continue integrating common medical platforms to reduce
redundancy and lower costs.
A Unified MEDCOM may not achieve the intended synergy or unity of
effort. All models of the Unified MEDCOM to date do not include medical
forces intrinsic (line funded vs. DHP funded manpower authorizations)
to Service line units. A Unified MEDCOM would not oversee medical
forces serving in these line units. Air Force line funded medics
represent 5 percent of Air Force medical personnel; Navy shipboard
assets represent 25 percent of medical personnel; and Army line Tables
of Organization and Equipment (TOE) funded medics represent 48 percent
of Army Active Duty medics. The Air Force ability to meet operational
medical requirements would be disproportionately compromised in current
models for Unified MEDCOM.
Any new Unified MEDCOM will require new systems and structure to
oversee component headquarters and assigned forces. This will drive
even higher costs. If a Unified MEDCOM follows the example of the
current Joint Task Force, National Capitol Region Medical, it is highly
unlikely there will be cost savings. There is no need for a fourth
military Service and the establishment of such in the form of a Unified
MEDCOM, without the discipline and historical rule sets that govern
existing Services, will likely drive costs much higher. Even more
critical, a Unified MEDCOM may not be as responsive to the needs of
Service warfighters as is the current oversight by the Services.
BRAC 2005 created many opportunities for joint oversight of medics.
Given time to mature, these initiatives along with the Service Surgeon
Generals' efforts to consolidate oversight of common support functions
(information management, contracting, military health facility
construction and financial management) in the new colocated medical
headquarters will reduce redundancies. Adoption of a single Service
accounting system to allocate Defense Health Program dollars and
improve accountability would do more to reduce costs than a Unified
MEDCOM.
savings through a reduction of overseas u.s. force posture
69. Senator Ayotte. Secretary Hale, the GAO report noted that DOD
spends billions of dollars annually on military installations around
the world. For example, according to data provided by the Military
Services, between fiscal years 2006 and 2009 the Military Services
obligated $17.2 billion for the installations they manage in Europe.
Further, the Military Services estimated a requirement of $24 billion
through fiscal year 2015 to build, operate, and maintain these
installations. Currently, plans to reduce forces in Europe are being
reconsidered. GAO estimated that leaving two brigades in Europe could
cost DOD between $1 billion and $2 billion over 10 years compared to
bringing the forces back to the United States. Has DOD assessed
potential saving to be realized from consolidating bases overseas and
returning U.S. forces to the United States?
Mr. Hale. U.S. overseas defense posture sustains capacity for
global reach and power projection and supports not only defense but
also foreign policy objectives. In this dynamic and evolving geo-
strategic environment, the Department continuously reviews overseas
presence and posture requirements. In 2004, the Department initiated
major consolidation efforts in both Korea and Europe, returning
approximately 30,000 military personnel to the continental United
States (CONUS)--the associated base consolidation efforts are still
underway. In consideration of all potential force posture decisions,
the Department views potential savings from consolidation and return of
forces to CONUS as a key decisionmaking criterion. Regarding the Europe
brigades, the U.S. Army is conducting an analysis to determine the most
efficient and effective method to meet planned end strength
requirements.
70. Senator Ayotte. Secretary Hale, given the current search for
savings, can DOD afford to spend additional billions to support the
stationing of families of U.S. personnel in Korea?
Mr. Hale. A working group has been established to develop options
to achieve full tour normalization in Korea, and to assess each
option's affordability. The group's work is still ongoing.
weapons system sustainment
71. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, GAO just released a report titled,
``Opportunities to Reduce Potential Duplication in Government Programs,
Save Tax Dollars, and Enhance Revenue.'' In the report, GAO noted that
DOD spends billions of dollars each year to sustain weapon systems
through the operating and support (O&S) phase of its life cycle. O&S
costs can account for 70 percent or more of the total ownership costs
over a system's lifetime. It included the direct and indirect costs for
spare parts, fuel, maintenance, personnel, support facilities, and
training. Weapon systems experience O&S cost growth after they are
acquired due to various factors such as lower than expected
reliability, obsolete replacement parts, and increased usage. Please
provide examples where competition has been used to lower lifecycle
costs.
Mr. Hale. Many components of cost in the operating and support
phase of the lifecycle aren't amenable to competition, including fuel,
manning, and usage, among others. Where there are elements of operating
and support costs that could be affected by competition, the Department
is committed to utilizing competition to the greatest extent possible
to maximize savings for the taxpayer.
For example, in restarting the DDG-51 shipbuilding program, DON has
pursued competitive strategies for major components of the ship to
reduce life cycle cost and continues pursuing open architecture
initiatives to achieve design stability, mature technologies and
affordable solutions. Specifically, the DON has implemented a
commercial off-the-shelf (COTS) based Advanced Capability Build (ACB)
computer program to update and stabilize the ships' combat system
baselines, driving down design costs, achieving greater commonality and
allowing for more readily available replacement parts. The ACB computer
program replaces legacy combat system computing programs in new
construction ships and is being back fit into the Fleet through the
Cruiser and Destroyer Modernization Programs. The DON competed the main
reduction gear production for the ships in a breakout strategy, thereby
avoiding pass-through costs to the shipbuilders and establishing future
competitive opportunities for this major component. DON is considering
other component breakout strategies, which reflect our commitment to
affordability.
Another example where the Department is leveraging competition in
the operating and support phase is in the Air Force's Advanced
Targeting Pods-Sensor Enhancement (ATP-SE) program. A program life
cycle cost analysis is currently underway, so the overall savings
impact is not yet known; however, to date, the cost avoidance through
competition is estimated to be $363 million. This includes
approximately $174 million for pod production, approximately $4 million
for ATP-SE support contracts, and approximately $185 million for depot
activation data. The competition in production also results in a lower
spare parts cost, which will likely result in a lower sustainment cost
for the life of the system.
Dr. Westphal. I can think of three examples totaling approximately
$1.1 billion over 5 years and across the complete lifecycle costs of
the product lines.
1. Family of Medium Tactical Vehicles Competition. The Army
awarded a competitive 5-year requirements contract to Oshkosh that
resulted in an average cost savings of 28 percent over the previous
sole source contract. This was due in part to the fact that the
government owned the Technical Data Package (TDP) and an extremely
competitive environment in the market place. The end result is a cost
savings of an estimated $578M over the contract period of performance.
2. Leveraging Real Competition. Joint Tactical Radio System, or
JTRS, Enterprise Business Model: The JTRS Enterprise Business Model
(EBM) is predicated upon fostering and leveraging competition in
production. For the Multifunctional Distribution Information System-Low
Volume Terminal (MIDS-LVT) radio program initial radios started at
$426,000 per unit. Since then, through competition between the two
approved vendor production sources, the radios have decreased steadily
to a cost of only $181,000 per unit, a savings of nearly 60 percent on
each radio. With over 2,600 MIDS units purchased by DOD, the total
savings is almost $500 million thus far.
3. Joint Service General Purpose Mask (JSGPM) Filter Canister
Additional Source. On behalf of the Joint Program Executive Office
(PEO) for Chem-Bio Defense, the Research, Development, and Engineering
Command Contracting Center released a request for proposal for
additional source(s) for spare M-61 filter canisters for the M-50 JSGPM
which is now sole sourced. Qualification of an additional source will
introduce competition and increase surge capability. Up to 3 million
filter pairs could be produced, with an estimated $12 cost reduction
per pair, for a total savings of $36 million, over 5 years.
Mr. Work. For the DON, the most visible example is the Littoral
Combat Ship (LCS) competition where Lockheed Martin and Austal USA were
each awarded a fixed-price incentive contract for the design and
construction of a 10 ship block-buy, for a total of 20 LCS from fiscal
year 2010 through 2015. This strategy resulted in effective competition
and reflects the DON's commitment to affordability. The benefits of
competition, serial production, employment of mature technologies,
design stability, fixed-price contracting, commonality, and economies
of scale will provide a highly affordable ship construction program.
Additionally, both shipbuilders will also deliver a TDP that allows the
DON to establish a foundation for effective future competition
throughout the ships' life cycle.
In restarting the DDG-51 shipbuilding program, the DON has pursued
competitive strategies for major components of the ship to reduce life
cycle cost and continues pursuing open architecture initiatives to
achieve design stability, mature technologies and affordable solutions.
Specifically, the DON has implemented a commercial off-the-shelf (COTS)
based Advanced Capability Build (ACB) computer program to update and
stabilize the ships' combat system baselines, driving down design
costs, achieving greater commonality and allowing for more readily
available replacement parts. The ACB computer program replaces legacy
combat system computing programs in new construction ships and is being
back fit into the Fleet through the Cruiser and Destroyer Modernization
Programs. The DON competed the main reduction gear production for the
ships in a breakout strategy, thereby avoiding pass-through costs to
the shipbuilders and establishing future competitive opportunities for
this major component. We are considering other component breakout
strategies, which reflect our commitment to affordability.
Ms. Conaton. The Air Force uses competition to the maximum extent
practical. The DOD 5000 mandates that PMs plan for competition in their
Acquisition Strategy at the initiation of the program, and at every
milestone decision throughout the acquisition. The Federal Acquisition
Regulation prescribes policies and procedures to be used to promote
full and open competition. 10 U.S.C. 2304 and 41 U.S.C. 253 require,
with certain limited exceptions, that contracting officers shall
promote and provide for full and open competition in soliciting offers
and awarding Government contracts. FAR 6.302 lists exceptions
permitting other than full and open competitions. Within these Federal
regulation parameters, Air Force Contracting looks at each procurement
on a case-by-case basis to determine the best business decision for our
warfighters and our taxpayers. Competitive sourcing has proven
effective in many programs, but it's not the right solution for all
acquisitions.
One example where competition has lowered life cycle costs is found
in Advanced Targeting Pods-Sensor Enhancement (ATP-SE). A program life
cycle cost analysis is currently underway, so the overall savings
impact is not yet known; however, to date, the cost avoidance through
competition is estimated to be $363 million. This includes $174
million for pod production, $4 million for ATP-SE support contracts,
and $185 million for depot activation data. The competition in
production also results in a lower spare parts cost, which will likely
result in a lower sustainment cost for the life of the system.
The B-1 Laptop Controlled Targeting Pod program provides another
example of lower lifecycle costs where the B-1 team used an existing
multiple-award Indefinite Delivery/Indefinite Quantity (ID/IQ) contract
to promote efficiency. Under multiple-award ID/IQ contracts, the
government must provide each awardee a fair opportunity to be
considered for each order. As a result, the B-1 team solicited
proposals from the ID/IQ awardees and received three proposals,
including a proposal from the B-1 prime contractor. Award was made to a
contractor other than the prime contractor for approximately $1.1
million, which was $250,000 less than the prime contractor's proposed
price. In addition to this $250,000 delta, we expect that the prime
contractor's price would have been higher if the government had gone
sole source to the prime. It is difficult to estimate what the prime
contractor's proposal would have been in a sole source environment, but
we roughly estimate the price would have been $200,000 higher,
resulting in total cost avoidance of $450,000.
72. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, how do your department's efficiency
initiatives increase the use of competition as a means to lower
lifecycle costs?
Mr. Hale. The Under Secretary of Defense for Acquisition Technology
and Logistics (USD(AT&L)) November 3, 2010 memo to the military
departments and Defense agencies directed immediate action to increase
competition. The acquisition community is addressing this in the
development of Weapon System Acquisition Strategies. Specifically, the
Secretaries of the Military Departments and Defense Agency Directors
were directed to implement the following:
Present a competitive acquisition strategy at each
program milestone: Provide a one-page competitive strategy for
each Acquisition Category (ACAT) 1D program at each milestone
as part of the overall acquisition strategy.
Report to USD(AT&L) in fiscal year 2011 on how their
military department or agency intends to reduce single-bid
competitions. At a minimum, the report will address market
research, restricted specifications, and adequate time for
proposal preparation.
Achieve a 2 percent reduction in single-bid
competitive contracts in fiscal year 2011, with continuing
reductions thereafter.
Remove obstacles to competition: ensure contracting
officers conduct negotiations with all single-bid offerors,
unless this requirement is specifically waived by the Head of
Contracting Activity or Military Department Secretary. The
basis of these negotiations will be cost or price analysis, as
the case may be, using either certified or non-certified cost
or pricing data, as appropriate.
Have their component or agency competition advocate
develop a plan to improve both the overall rate of competition
and the rate of effective competition. These plans will
establish an improvement rate of at least 2 percent per year
for overall competition and an improvement rate of at least 10
percent per year for effective competition.
Require open systems architectures and set rules for
acquisition of technical data rights:
PMs will conduct a business case analysis in
concert with the engineering tradeoff analysis that
will be presented at Milestone B. The business case
analysis will outline the open systems architecture
approach, combined with technical data rights the
Government will pursue in order to ensure a lifetime
consideration of competition in the acquisition of
weapon systems.
The results of this analysis will be reported
in the Acquisition Strategy Report and in the
competition strategy.
Increase the dynamic small business role in the
defense marketplace competition: All competitive and non-
competitive procurement actions will seek to increase small
business participation through weighting factors in past
performance and fee construct.
These actions apply to all contracts, including MRO, CLS, and PBL
contracts. The result will be PEOs and PMs developing a competitive
strategy early in acquisition that spans the program's life and
improves the ability to compete MRO, CLS, and PBL contracts in
sustainment. For example, the Department of Navy has undertaken a
specific initiative to engage each PEO, PM, and Product Support Manager
(PSM) to emphasize real competition at every stage of acquisition and
sustainment. They directed the PEOs/PMs/PSMs to establish a competitive
environment throughout the life cycle of their programs, and to enable
better competitive opportunities in the sustainment phase.
Additionally, PEOs and PMs are reviewing their existing portfolios in
pursuit of increased competitive opportunities, including consideration
of breakout opportunities, and expanding open architecture solutions
and small business opportunities that fosters additional competition.
The Army is emphasizing the conduct of logistics analyses early to
baseline costs and develop technical data requirements that facilitate
competition in sustainment contracts. The Air Force is also taking
proactive steps to ensure PMs and PSMs correctly identify and pursue
data rights in their contract negotiations to facilitate competition in
sustainment. The outcome will be required warfighting capability at a
reduced cost to the Government.
Dr. Westphal. The Army's Better Buying Power Initiative includes
the requirement to ``Promote Real Competition.'' Army PMs of all
acquisition categories are required to present, and have approved by
their Milestone Decision Authority, a competitive strategy at each
milestone decision. In addition, at the Milestone B review, the point
of formal program initiation, we require a business case analysis in
concert with an engineering trade analysis. The engineering trade
analysis defines the approach for using open systems architectures and
acquiring technical data rights to ensure sustained consideration of
competition, thus lowering the overall costs throughout the acquisition
lifecycle.
Mr. Work. The DON undertook several initiatives to increase
competition, which includes a specific initiative to engage each PEO
and Project Manager (PM) to lead the way for their programs and
emphasize real competition at every stage of our acquisitions. In
addition to initiatives to establish a solid foundation for a
competitive environment throughout the life cycle of our programs, we
have asked our PEOs and PMs to also review their existing portfolios in
pursuit of increased competitive opportunities, including consideration
of breakout opportunities at the subsystem and component levels to
reduce lifecycle costs.
In addition, Navy has been working with OSD researching how
performance based initiatives (i.e. PBLs (Performance Based Logistics))
work within the Services and industry and identifying impediments and
best practices. Research efforts include the Product Support Assessment
Team Industrial Integration Product Support Database analysis and the
DOD PBL Proof Point analysis. Both efforts are identifying best
practices and blueprints for a successful performance based product
support strategy that leads to lower lifecycle costs.
Ms. Conaton. The Air Force requires the use of a competitive
strategy prior to each milestone for each Acquisition Categories (ACAT)
program. Each competitive strategy is included in the Life Cycle
Management Plan and addresses how the program will obtain technical
data, computer software and documentation, and associated intellectual
property rights necessary for operation, maintenance, long-term
sustainment and competition. In order to reduce lifecycle cost the Air
Force conducts should-cost analyses and continues to pursue open
architecture initiatives to achieve design stability, mature
technologies, and affordable solutions. The Air Force is also requiring
more frequent recompetes of knowledge-based services, and service
contracts valued at more than $1 billion are required to include
productivity improvement and cost efficiency objectives. The Air Force
is committed to utilizing competition to the greatest extent practical
to maximize savings for the taxpayer. Competitive sourcing has proven
effective in many programs, but it's not the right solution for all
acquisitions.
73. Senator Ayotte. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, in what areas do you think competition and
commercial investments in technology can be leveraged to achieve
further cost reductions?
Mr. Hale. Achieving cost reductions through competition and
commercial investments in technology are two complementary aspects of
the USD(AT&L)'s ``Better Buying Power'' initiative.
As the Department continues to seek efficiencies as outlined in the
November 3, 2010 implementation directive for Better Buying Power,
titled ``Obtaining Greater Efficiency and Productivity in Defense
Spending,'' the entire Department is striving to improve cost
effectiveness through increased use of commercial technology
investment. Specifically, in that directive, the Director, Defense
Research and Engineering (now the Assistant Secretary of Defense for
Research and Engineering) was tasked to reinvigorate the Independent
Research and Development (IRAD) program. The process is ongoing, with a
plan to increase the visibility of IRAD as a fundamental element of the
broader DOD R&D program. Application of IRAD to DOD projects should
provide guests cost efficiency for the DOD.
On November 24, 2010 the Director of Defense Procurement and
Acquisition Policy issued guidance on improving competition in Defense
procurement. Promoting real competition is an essential focus area
within the ``Better Buying Power'' initiative that requires the
Military Departments and Defense Agencies to develop plans to improve
overall and effective competition by: reducing the number of single-bid
contracts; negotiating better prices on single-bid contracts and task
and delivery orders; and reducing the dollar value of sole-source
contracts and task and delivery orders.
Dr. Westphal. We have found that we can leverage commercial
technology in many areas. That is one reason why in the DOD Directive
5000.01, the procurement or modification of commercially available
products, services, and technologies is the first order of preference
in satisfying a user's requirement. In this same policy, we have
directed that PMs maximize the use of competition as a method for
providing major incentives to industry and Government organizations to
innovate, reduce cost, and increase quality. Further, that same policy
calls for the use of Performance-Based Logistics wherein we can take
advantage of sustainment strategies that include the best use of public
and private sector capabilities. Through government and industry
partnering initiatives, we optimize total system availability while
minimizing cost and our logistics footprint.
Mr. Work. The DON undertook several initiatives to increase
competition, including green energy initiatives. We also issued
specific challenges to program managers to increase competitive
opportunities through obtaining technical data rights, considering the
merits of component breakout, and expanding open architecture solutions
and small business opportunities. We believe continued investment in
these areas will allow achievement of further cost reductions
throughout the life cycle of our weapon systems.
Regarding energy initiatives, we have already flown the F/A-18
``Green Hornet'' using biofuel and have begun a large scale expansion
of solar power. We are partnering with the Department of Agriculture on
research and development of a variety of alternative fuel resources.
One example of savings was the launch of our first hybrid ship, the
amphibious big-deck USS Makin Island. On its first voyage from
Pascagoula, MS, to San Diego, CA, Makin Island saved around $2 million
in fuel costs. In addition, Marines in Helmand province have
demonstrated their ability to reduce use of fossil fuels through
renewable energy devices. The DON will continue investing in energy
initiatives.
An example of the successful and strategic use of open architecture
and obtaining appropriate technical data rights is the Virginia class
SSN program. The Virginia class program uses a modular open systems
architecture and selective subcomponent technical data rights that
promote robust competition at the sub-component supplier level, while
still supporting continual and effective block upgrades to the existing
systems that reduces the overall life cycle cost of the system. The DON
continues expanding these open architecture initiatives to other
systems and developing capabilities examples include: Advanced
Capability Build (ACB) 12 for the AEGIS Weapon System, to Consolidated
Afloat Networks and Enterprise Services, Next Generation Enterprise
Network, and Strategic Systems Programs.
Ms. Conaton. The Air Force fully recognizes and acts on the basic
principle that there is no one source of good ideas. We continually
look to find places, both large and small, where we can leverage
competition or commercial innovation across all our domains--air,
space, and cyber.
We have a strong technology transfer program, to include leveraging
the ``spin in'' of commercial technologies; noise cancelling ear
protection modified for pilots is one recent example. It is important
to point out that the demands of the battlefield often require
modification to commercial technology before it can be used by our
Airmen--we must ensure that the end article both works under
operational conditions and can be supported. The domestic technology
transfer program also leverages Cooperative Research and Development
Agreements, Commercial Technology Agreements, and other cooperative
agreements where commercial companies can leverage our Air Force
laboratory resources and expertise, thereby helping us leverage their
technology advances. The Air Force Commercialization Pilot Program also
promotes the transition of technology developed as part of the Small
Business Innovation Research (SBIR)/Small Business Technology Transfer
(STTR) Program.
As an organization with needs in the areas of administration,
financial management, human resources, education and training,
facilities and installation operation/upkeep, and materiel handling and
storage, the Air Force can more readily directly benefit from
commercial innovation. Most Air Force facilities have some kind of
commercial environmental control and monitoring system to help increase
energy efficiency. We keep better track of our investment in parts and
supplies by tagging them with radio frequency identification devices.
In the space domain, using commercial satellites to host military
payloads enables the Air Force to leverage these commercial technology
investments. We have adopted energy efficient lighting. New facilities,
such as the Air Force Institute of Technology's academic building at
Wright Patterson Air Force Base, are designed and constructed to meet
Leadership in Energy and Environmental Design (LEED) standards--
nationally accepted benchmarks for facility design, construction, and
operation. The efficiencies we gain on our organizational side free up
resources we can apply to our operational side.
proposed navy savings
74. Senator Ayotte. Secretary Work, given the current troubling
rise in the price of oil with no relief in sight, how realistic is the
Navy's projected savings of $566 million in fiscal year 2012 for
reduced energy consumption?
Mr. Work. In order to save energy and money, all of our programs
within our energy strategy need to be in sync and operating at full
capacity. Energy savings are also based on prior year programs and
projects that are now coming to fruition.
DON has set two priorities that illustrate the Department's role in
investing in alternative sources of energy: energy security and energy
independence. The Navy will achieve energy security by utilizing
sustainable sources that meet force sustainment functions and fulfill
tactical, expeditionary, and shore operational requirements. This
allows the ability to protect and deliver sufficient energy to meet
operational needs. Second, energy independence is achieved when Naval
forces rely only on energy resources that are not subject to
intentional or accidental supply disruptions. As a priority, energy
independence increases operational effectiveness by making Naval forces
more energy self-sufficient and less dependent on vulnerable energy
production and supply lines.
The DON uses many different types of alternative energy on our
naval installations such as solar, wind, and waste to energy. We have
over 100 MW of solar planned to be installed in the next few years, and
we have 22 anemometer (wind) studies ongoing. On the operational energy
front, we have flown an F/A-18 Hornet, operated a Riverine Command Boat
(RCB-X), and flown a Seahawk helicopter on a 50/50 blend of biofuels.
The DON has also commissioned the USS Makin Island which is designed
with a gas turbine engine and electric auxiliary propulsion system. We
also consider our nuclear fleet of aircraft carriers and submarines as
part of our alternative energy program. In our expeditionary forward
operating bases, we are using flexible solar panels to recharge
batteries and light the inside of the tents with LED lighting. These
are just a few examples of the different types of alternative energy
sources that the Department of Navy is currently using.
Much of our success is in the technologies that are tried and
true--solar, wind, and geothermal. We are continuing to explore
geothermal resources on our installations in the Southwest. We are
making great strides in helping stand up a biofuels industry that will
supply biofuels to the fleet. This effort will be a key factor in our
overall success of the 50 percent alternative energy goal. We have to
continue to institute energy efficiency into our processes and
programs. We are currently designing and constructing all of our new
buildings to LEED Silver criteria. The bottom line is that the least
expensive BTU or KW-hr is the one that is not used.
There are numerous energy efficient initiatives and renewable/
alternative energy programs that the Navy and Marine Corps are
pursuing. The reduced reliance on fossil fuels will achieve lower
energy consumption, strategic security, avoided energy cost, and a more
sustainable Fleet. Here are examples of projects with estimated
savings.
Examples of Navy Tactical Projects with Estimated Savings
Stern Flaps for Amphibious Ships
Shown to have an average payback period of
less than 1 year on FFG/CG/DDG platforms
Currently undergoing testing on amphibious
ships
Savings estimated at 5,500 BBLs/ship/year for
LHD
Hull/Propeller Coating
Easy release hull/propeller coating system
allows Navy ships to shed bio-fouling once underway
Reduces costly periodic hull/propeller
cleanings
Savings estimated at 1,800 BBLs/ship/year
Solid State Lighting
Uses LEDs for platform illumination
LED lights in commercial applications last
almost 50 times longer than incandescent and 6 times
longer than fluorescent lights; provides the same
illumination with 25 percent of the energy
Currently testing on DDG-108 and LSD-52
Payback estimated at 3 years, depending on
fixture (savings of 335 BBLs/ship/year for DDG)
Navy also continues to develop technologies that will be
implemented in future years; the implementation schedule for these
initiatives is subject to impacts based on the budget:
Hybrid Electric Drive for DDG
Fuel savings by securing LM2500 propulsion
turbines at low speed while loading gas turbine
electric generators to more efficient operating
condition (savings estimated at 8,500 BBLs/ship/year)
Land-based prototype scheduled for testing
mid-2011
USS Truxtun (DDG-103) scheduled to be first
operational installation in fiscal year 2012 as an
afloat test platform
Engine efficiency modifications for the F-35 JSF
Improvement in F135 Block 5+ engine fuel
economy and lifecycle cost through component upgrades
and software cycle optimization
Estimated Fleet-wide savings of 35,000 BBLs
in 2023 (upon delivery of Block 5 aircraft), increasing
to 178,000 BBLs/yr by 2029
75. Senator Ayotte. Secretary Work, how does the Navy propose to
achieve this significant reduction of energy consumption?
Mr. Work. There are numerous energy efficient initiatives and
renewable/alternative energy programs that the Navy and Marine Corps
are pursuing. The reduced reliance on fossil fuels will achieve lower
energy consumption, strategic security, avoided energy cost, and a more
sustainable Fleet. Here are the major program areas along with examples
of projects with estimated savings.
Major Energy Program areas
Shore
Steam plants decentralizations
Lighting systems upgrades
Renewable energy systems (solar &
photovoltaic)
Solar thermal domestic water and pool
heating projects
LED street lighting projects
Ground source heat pumps
Boiler heat recovery upgrades
Control system improvements
Alternative Fuel Vehicles
Tactical/Expeditionary
Hull coatings
Propeller coatings
Stern Flaps
Allison 501K Efficiency Initiatives
Aviation Simulators
Smart voyage planning decision aid
software
USS Truxtun hybrid electric drive
retrofit
Alternative fuels testing and
certification program
Incentivized Energy Conservation
Program (i-ENCON)
Expeditionary Forward Operating Base
(Ex-FOB)
Solar Portable Alternative
Communications Energy System portable solar
systems
Light Emitting Diode (LED) Lighting
Renewable battery charging systems
Examples of Projects for Navy Tactical with estimated savings
Stern Flaps for Amphibious Ships
Shown to have an average payback period of
less than 1 year on FFG/CG/DDG platforms
Currently undergoing testing on amphibious
ships
Savings estimated at 5,500 BBLs/ship/year for
LHD
Hull/Propeller Coating
Easy release hull/propeller coating system
allows Navy ships to shed bio-fouling once underway
Reduces costly periodic hull/propeller
cleanings
Savings estimated at 1,800 BBLs/ship/year
Solid State Lighting
Uses LEDs for platform illumination
LED lights in commercial applications last
almost 50 times longer than Incandescent and 6 times
longer than Fluorescent lights; provide the same
illumination with 25 percent of the energy
Currently testing on DDG-108 and LSD-52
Payback estimated at 3 years, depending on
fixture (savings of 335 BBLs/ship/year for DDG)
Navy also continues to develop technologies that will be
implemented in future years; the implementation schedule for these
initiatives is subject to impacts based on final fiscal year 2011
budget:
Hybrid Electric Drive for DDG
Fuel savings by securing LM2500 propulsion
turbines at low speed while loading gas turbine
electric generators to more efficient operating
condition (savings estimated at 8,500 BBLs/ship/year)
Land-based prototype scheduled for testing
mid-2011
USS Truxtun (DDG-103) scheduled to be first
operational installation in fiscal year 2012 as an
afloat test platform
Engine efficiency modifications for the F-35 JSF
Improvement in F135 Block 5+ engine fuel
economy and lifecycle cost through component upgrades
and software cycle optimization
Estimated Fleet-wide savings of 35,000 BBLs
in 2023 (upon delivery of Block 5 aircraft), increasing
to 178,000 BBLs/year by 2029
76. Senator Ayotte. Secretary Work, the data provided by the Navy
in support of the savings for fuel consumption details a series of
initiatives ranging from lighting systems upgrades to ship hull/
propeller coatings and stern flaps. Are the investments for these
initiatives included in the budget request?
Mr. Work. The investments for DON's energy initiatives are included
in the budget request. The specific energy programs where these
investments are being made support the five Secretary of the Navy
(SECNAV) Energy Goals.
The SECNAV Energy Goals are listed here.
1. Acquisition Process Reform
Evaluation factors used when awarding contracts for platforms,
weapon systems, and facilities will include lifecycle energy costs,
fully-burdened cost of fuel, and contractor energy footprint.
2. Sail the ``Great Green Fleet''
DON will demonstrate a Green Strike Group in local operations by
2012, and sail it by 2016. The strike group will be made up of nuclear
vessels, surface combatants using biofuels with hybrid electric power
systems, and aircraft flying on biofuels.
3. Reduce Petroleum Use in Non-Tactical Vehicles
By 2015, DON will reduce petroleum use in the commercial fleet by
50 percent, through the use of flex fuel vehicles, hybrid electric
vehicles, and neighborhood electric vehicles.
4. Increase Alternative Energy Ashore
By 2020, DON will produce at least 50 percent of shore-based energy
requirements from alternative sources, and 50 percent of all naval
installations will be Net Zero energy consumers.
5. Increase Alternative Energy Use Department-wide
By 2020, 50 percent of total DON energy consumption will come from
alternative sources.
The bulk of the Navy's energy efforts are focused to improve
efficiency of both legacy and future platforms. Initiatives such as
those mentioned above and others in the Navy's Energy investment
portfolio are a strong start not only to meet the stated SECNAV Goals
but also to provide DON greater combat capability, reduced operational
risk, and reduced overall cost for supplying and maintaining forward
deployed forces.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
77. Senator Ayotte. Secretary Work, will this energy consumption
goal include a reduction in flying hours or steam hours?
Mr. Work. No, the Navy's energy consumption goal does not include a
reduction in flying hours or steaming days. Efforts to achieve
reductions in fuel consumption are focused on increasing the fuel
efficiency of legacy platforms through technology upgrades and behavior
changes.
78. Senator Ayotte. Secretary Work, regarding flight operations,
how will the Navy be able to determine whether the increased reliance
on simulators has either a detrimental or positive impact on the
training and currency of naval and marine aviators?
Mr. Work. The planned simulator upgrades were developed in concert
with Fleet Aviators and Instructional Systems Developers to ensure that
the enhanced simulator capabilities would advance training and
readiness without sacrificing safety or tactical excellence. Simulators
will be used to replace live training to the extent that technology and
opportunities will allow where training effectiveness and operational
readiness are not compromised. Commander, Naval Air Forces conducts an
annual training & readiness conference for each type, model, and series
aircraft to align simulator enhancements with the capabilities-based
training and readiness matrix within fidelity and safety limits.
Ultimately, Navy aviators' training and readiness is evaluated through
a number of means: the individual Unit Commander's assessment of their
personnel, Type Wing Weapons Schools' implementation of the Air Combat
Training Continuum Program and pre-deployment training/certification
periods.
79. Senator Ayotte. Secretary Work, on another issue, how does the
Navy propose to develop housing allowance efficiencies without
increasing the amounts sailors and marines will have to pay out-of-
pocket for housing?
Mr. Work. The Secretary of Defense, through the Defense Travel
Management Office (DTMO) within the Office of the Under Secretary of
Defense (Personnel and Readiness), is responsible for setting the
housing allowance rates for all eligible personnel. DOD sets housing
allowance rates annually based on market costs of rent, utilities and
renter's insurance with input from each of the Services. Prior to 2001,
the DOD housing allowance program was structured so that the average
military member paid at least 15 percent of their housing costs. In
January 2000, the Secretary of Defense announced a quality-of-life
initiative to increase housing allowances gradually over a 5 year
period to eliminate a servicemember's average out-of-pocket housing
costs.
DON's ability to adjust housing allowance rates is limited.
However, one planned efficiency is the Marine Corps' initiative to
enforce stricter rules that require unmarried Marines without
dependents to live in Government-furnished bachelor quarters instead of
drawing BAH.
The DON will continue to work with DTMO via the Per Diem Travel and
Transportation Allowance Committee to validate the processes and data
used in setting housing allowance rates. We want to ensure that we are
not paying amounts in excess of prevailing housing market rates;
however, there is no intent on the part of DON to increase out of
pocket housing expenses for servicemembers.
cbo reduction options
80. Senator Ayotte. Secretary Hale, the Congressional Budget Office
(CBO) released a report last week, titled: ``Reducing the Deficit:
Spending and Revenue Options.'' The report provided 14 options for DOD
to reduce both mandatory and discretionary spending. What is your
position on each of the 14 options?
Mr. Hale.
Option 1: Reduce the growth in appropriations for the Department of
Defense.
The Department's annual budget requests will continue to be driven
by the requirements necessary to complete its mission. That is the
reason DOD and OMB perform a thorough, joint budget review each fall--
evaluating funding for each program as it relates to the Department's
mission. Reducing the growth in DOD's appropriations by the arbitrary
amounts mentioned in the CBO report could hamper the Department's
ability to carry out the administration's directives. To the extent
that Administration modifies DOD's mission, we will adjust our funding
requests accordingly.
Option 2: Cap increases in military pay.
We must ensure that military compensation remains highly
competitive and recognizes the sacrifices our servicemembers endure.
However, in light of the current fiscal crisis facing the Nation, the
CBO proposal of adjusting the military pay raise to 0.5 percent below
the ECI for fiscal year 2012-fiscal year 2015 is not an unreasonable
idea given the significant improvements in the military compensation
package that have been made over the last decade. As the Department
wrestles with a shrinking top line, some adjustments to military
compensation will likely need to be considered.
Option 3: Increase medical cost sharing for military retirees who are
not yet eligible for Medicare
Increased enrollment fees for TRICARE Prime from $230/$460
per individual/family to $550/$1,100 annually and established
$30 co-pay for visits to civilian network. Additionally, the
proposal imposes a fee for enrollment in TRICARE standard of
$50/$100 and indexes PRIME and Standard enrollment fees to per
capita growth in health care expenditures.
The Department generally agrees with the savings estimates for
option 3, but has no specific comments on these proposals other than to
indicate that the proposals currently in the bill--submitted by the
Department--represent the Department and administrations current
position on these issues.
Option 4: Limit the TRICARE benefit for military retirees and their
dependents.
Retirees would not have the option of enrolling in TRICARE
Prime. TRICARE Standard would require enrollment and payment of
a fee equal to 28 percent of the cost of providing coverage.
Catastrophic cap would increase from $3,500 to $7,500 per
family and would be indexed to growth in health care
expenditures.
The Department generally agrees with the savings estimates for
option 4, but has no specific comments on these proposals other than to
indicate that the proposals currently in the bill--submitted by the
Department--represent the Department and administrations current
position on these issues.
Option 5: Increase cost sharing for pharmaceuticals under TRICARE.
Increased co-pay for pharmaceuticals for all except active
duty servicemembers. From no cost in military medical
facilities and $3/$9/$22 in retail/mail order networks (for 30/
90 day fill) for generic/formulary/non-formulary to $4/$9 in
military medical facilities and $15/$25/$45 in retail network
(for 30 day fill) and $9/$27/$45 in mail order (for a 90 day
fill).
The first two options are not additive--the third option can be
added to either the first or second option. The Department generally
agrees with the savings estimates for option 5, but has no specific
comments on these proposals other than to indicate that the proposals
currently in the bill--submitted by the Department--represent the
Department and administrations current position on these issues.
Option 6: Consolidate DOD's retail activities and provide a grocery
allowance to servicemembers.
The Department has studied the effects of consolidating the systems
or providing benefits to military members via alternate methods and
rejected the alternatives for the following reasons:
1. Exchanges mark up products to benefit morale, welfare, and
recreation (MWR) activities. A recent Defense Commissary Agency (DeCA)
study reported that if the Government made a profit, however slight, on
the goods sold through commissaries, manufacturers would not support
the pricing level they now offer, so a consolidated retail system would
have the adverse effect of eliminating savings. The Department
estimates a $990 annual price increase to the average commissary
shopper, a much larger cost than supported by CBO's proposed $400
annual grocery allowance. Further, the proposal does not address the
cost-of-living allowance (COLA) implications for servicemembers, and
additional costs borne by the Military Personnel accounts, given the
new, higher proposed retail prices that would be used in COLA surveys.
2. The proposed grocery allowance (paid to only active-duty
members) disregards 80 percent of the eligible commissary shopping
population (4,500,000 retirees, 846,000 Guard and Reserve members, and
14,800 overseas civilians). Further, during the 5-year phase-in period,
the administrative burden of starting and stopping a grocery allowance
as active duty members move from a base that has already consolidated
to one that is pending consolidation, and vice versa, would be onerous.
3. In fiscal year 2010, the exchanges distributed $365 million to
MWR programs. Without this exchange dividend, the Department would have
to increase its appropriation requests for Category A programs
(libraries, fitness centers, etc.) and virtually all Category B
facilities (childcare centers and youth programs, recreational
equipment checkout, etc.).
4. All personnel in a consolidated retail system would be
classified as nonappropriated fund (NAF) personnel. A study of the
feasibility of using the NAF personnel system in DeCA found that
significant implementation risks, including labor and congressional
opposition, outweighed potential savings. Further, without legislation
to allow benefits to transfer from the General Schedule and Wage Grade
systems to the NAF pay system, the Department would have to pay
benefits and leave balances ($173.3 million) to all DeCA employees and
DeCA employees' employment records would restart with zero days of
accrued annual leave and sick leave upon conversion.
5. Finally, the CBO's estimated savings is overstated. Current
appropriations for commissary and exchange operations are $1.5 billion.
If the Department pays a total grocery allowance of $560 million each
year, the Budget Authority savings line could not be $1.3 billion per
year for fiscal years 2017 through fiscal year 2021 unless an
exaggerated inflation factor were applied to the appropriation and the
grocery allowance amount were frozen.
Option 7: Replace the JSF program with F-16s and F/A-18s; and,
Option 8: Cancel the Navy and Marine Corps' JSFs and replace those
aircraft with F/A-18E/Fs.
During recent Nunn-McCurdy certification for the JSF, the
Department assessed whether or not there were alternative aircraft to
the JSF could provide acceptable capability to meet the joint military
requirement at lower cost. Those deliberations included an assessment
of the F-22, F-15E, F-16 Block 52/60 and the F-18E/F aircraft. The
analysis compared the options on the bass of survivability, basing,
lethality, and networking as well as including potential upgrades to
alternative aircraft airframes, weapons, sensors, and communications
networks. Rough order of magnitude data was obtained on the cost of the
basic and upgraded alternative aircraft, scaled to a JSF-size inventory
quantity.
The assessments concluded the following. None of the alternatives
were found to provide the basing capability needed from conventional
and austere land bases and from sea bases. There are no upgrades to
mitigate the basing capability shortfall. The F-15E, F-16, and FA-18E/F
also lack the stealth features to be survivable in higher threat
environments. The F-22 is the strongest alternative in terms of
survivability and lethality in the air-to-air arena, but it lacks the
sensors and weapons to meet required lethality against targets. With
extensive upgrades, the F-22's capability against ground targets could
be improved, but potential design limitations, technical risk, lack of
basing flexibility, and high cost eliminated this alternative. Based on
this analysis, the Department concluded that there is no alternative to
the JSF that provides acceptable capability to meet the joint military
requirement at less cost.
Option 9: Cut the number of aircraft carriers to ten and the number of
Navy air wings to nine.
Reducing the number of deployable nuclear powered aircraft carrier
from 11 to 10, would inhibit the Navy's ability to respond to national
security requirements as mandated by the President of the United
States. Given that approximately one ship is unavailable due to
Refueling and Complex Overhaul, and two or more ships are also
unavailable because of recurring maintenance activities, training
support missions, or transiting from or to the Area of Responsibility,
a reduction to 10 ships would lead to regional coverage gaps, which
would possibly impact the ability of the Navy to respond to worldwide
situations. Furthermore, such a reduction would force the early
retirement of a Nimitz class (CVN 68) aircraft carrier, years ahead of
the end of its service life. The elimination of the 10th Navy Air Wing
would be inconsistent with 11 fleet aircraft carrier battle force.
Option 10: Cancel the Expeditionary Fighting Vehicle
The Department cancelled the Expeditionary Fighting Vehicle (EFV)
in fiscal year 2011 because future fiscal constraints made the program
and subsequent sustainment of the vehicle in the inventory
unaffordable. Based on Marine Corps cost projections, the EFV would
have consumed on average 49 percent of the Marine Corps total
procurement account during the years 2018 through 2025. The EFV would
also consume over 100 percent of what is projected to be available for
all procurement of ground vehicles during the years 2018 through 2025.
Once fully fielded the EFV would consume 91 percent of the Marine
Corps' vehicle-related operations and maintenance account when fully
fielded. The Marine Corps invested in a new, more affordable,
amphibious vehicle starting in fiscal year 2012.
Option 11: Delay funding of the Army's Ground Combat Vehicle.
The Department cancelled the Future Combat Systems including the
Manned Ground Vehicle in fiscal year 2010 but continued the development
of the combat vehicle now called Ground Combat Vehicle as a stand-alone
program. The Department is currently assessing the Army's Analysis of
Alternative (AoA) submission which outlines a variety of materiel
solutions to satisfy the capability need documented in the approved
Initial Capabilities Document (ICD). It is premature at this point to
delay initial fielding to 2025 for this effort since the Defense
Acquisition Board (DAB) has not convened to review all acquisition
documents and establish planned milestones and fielding dates. A better
decision point to make schedule changes will be at the Milestone B when
the program baseline is established and approved.
Option 12: Terminate the Medium Extended Air Defense System Program.
DOD has terminated the MEADS program in the fiscal year 2012 Budget
request. The Department has reduced MEADS to $804 million to execute
the program through fiscal year 2013 for design and development and
complete the prototypes that have already passed critical design
review, such as the radars. The program would complete limited system
integration and demonstrate capability via ground and flight tests of
these prototype systems. This would further allow documentation of the
tested design and the ability to assess the capabilities of the major
system elements and the development of data packages for these
elements. The Department is in a commitment with its allies, Germany
and Italy and if DOD broke the Memorandum of Agreement with our allies
it is estimated the withdrawal liability would be $846 million dollars.
It is in the best interest of DOD to complete its agreement through
fiscal year 2013 for a cost of $804 million.
Option 13: Terminate the Precision Tracking Space System Program.
The Precision Tracking Space System (PTSS) provides a space-based
missile defense sensor which assists the Ballistic Missile Defense
System (BMDS) in successfully overcome an adversaries' future ballistic
missile capabilities. Additionally, space-based sensors offer on-
demand, geographically independent, persistent coverage with no need
for Indications and Warning, enabling earlier intercept opportunities.
Based on modeling and simulation studies, the greatest hedge against
missile defense threats of greatest concern, regional medium-range
ballistic missiles and intermediate-range ballistic missiles, remains a
highly available early missile tracking capability from space based
sensors. The Precision Tracking Space System prototype will demonstrate
early, precise, real-time tracking of ballistic missiles. This
capability significantly improves BMDS performance and the associated
functionalities, when approved, will be captured in future BMDS
Integrated Build documentation.
81. Senator Ayotte. Secretary Hale, one option caught my attention
regarding the consolidation of four retail systems, also known as
commissaries and exchanges operated by DOD as a benefit to military
members and their families. The commissaries receive about $1.3 billion
in annual appropriated subsidies, while the exchanges rely on military
logistics to reduce their overhead costs. The exchanges also serve as a
revenue source for non-appropriated MWR programs. Has DOD considered an
efficiency initiative to consolidate the systems or reduce the annual
appropriated subsidy in lieu of a grocery credit provided to military
members?
Mr. Hale. Yes, the Department has studied the effects of
consolidating the systems or providing benefits to military members via
alternate methods and rejected the alternatives for the following
reasons:
Exchanges mark up products to benefit MWR activities. A recent DeCA
study reported that if the Government made a profit, however slight, on
the goods sold through commissaries, manufacturers would not support
the pricing level they now offer, so a consolidated retail system would
have the adverse effect of eliminating savings. The Department
estimates a $990 annual price increase to the average commissary
shopper, a much larger cost than supported by CBO's proposed $400
annual grocery allowance. Further, the proposal does not address the
COLA implications for servicemembers, and additional costs borne by the
military personnel accounts, given the new, higher proposed retail
prices that would be used in COLA surveys.
The proposed grocery allowance (paid to only Active-Duty members)
disregards 80 percent of the eligible commissary shopping population
(4,500,000 retirees, 846,000 Guard and Reserve members, and 14,800
overseas civilians). Further, during the 5-year phase-in period, the
administrative burden of starting and stopping a grocery allowance as
active duty members move from a base that has already consolidated to
one that is pending consolidation, and vice versa, would be onerous.
In fiscal year 2010, the exchanges distributed $365 million to MWR
programs. Without this exchange dividend, the Department would have to
increase its appropriation requests for Category A programs (libraries,
fitness centers, et cetera) and virtually all Category B facilities
(childcare centers and youth programs, recreational equipment checkout,
et cetera).
All personnel in a consolidated retail system would be classified
as NAF personnel. A study of the feasibility of using the NAF personnel
system in DeCA found that significant implementation risks, including
labor and congressional opposition, outweighed potential savings.
Further, without legislation to allow benefits to transfer from the
General Schedule and Wage Grade systems to the NAF pay system, the
Department would have to pay benefits and leave balances ($173.3
million) to all DeCA employees and DeCA employees' employment records
would restart with zero days of accrued annual leave and sick leave
upon conversion.
Finally, the CBO's estimated savings is overstated. Current
appropriations for commissary and exchange operations are $1.5 billion.
If the Department pays a total grocery allowance of $560 million each
year, the Budget Authority savings line could not be $1.3 billion per
year for fiscal years 2017 through fiscal year 2021 unless an
exaggerated inflation factor were applied to the appropriation and the
grocery allowance amount were frozen.
82. Senator Ayotte. Secretary Hale, in this day and age of
warehouse retail outlets and specialty grocery chains, has a business
cases assessment been accomplished to compare the competitiveness and
efficiency of exchanges and commissaries run by DOD to commercial
counterparts? If so, what were the results?
Mr. Hale. No, the Department has not compared its retail operations
to their commercial counterparts. However, consulting firms have
conducted several studies, and the DeCA and the exchanges routinely
conduct internal studies. For instance, each year, the DeCA publishes
their return on investment; for fiscal year 2010 that figure was 208
percent, as military members saved $2.7 billion compared to the annual
appropriation of $1.3 billion. The DeCA also monitors Commissary
Customer Satisfaction. In fiscal year 2010, they recorded an overall
score of 4.68 (on a scale of 1 to 5), the highest mark in the Agency's
history. In order to apply statistics to the efficiency of the DeCA and
the exchanges, we would have to determine the monetary value these
benefits have on the safety, health, quality-of-life, and security of
the military communities, especially in overseas locations. Equally
difficult to quantify is the readiness, recruitment, and retention
these non-pay benefits provide to the Military Services. We do not have
statistical proof of the payback the retail activities inherently
provide, but we know they exist.
civilian pay and hiring freeze
83. Senator Ayotte. Secretary Hale, DOD proposes to freeze the
hiring of civilian personnel through fiscal year 2013 and to freeze
civilian pay freeze through fiscal year 2012 for a savings of $25
billion over the next 5 years. The combined effect of these two
initiatives will be, in most cases, to ask our DOD workforce to do more
work with less pay once inflation is factored in. It seems from DOD's
data that civilian hiring freezes will save over $2.5 billion each year
over the next 5 years. How specifically will the savings be derived?
Mr. Hale. There are two separate issues:
(1) The Civilian Workforce Freeze for fiscal year 2012 and fiscal
year 2013 is based on freezing the full-time equivalent (FTE) level of
the civilian workforce at the fiscal year 2010 level. This means, that
the Components are not allowed to increase their civilian personnel
FTEs over the fiscal year 2010 levels for fiscal year 2012 and fiscal
year 2013 with limited exceptions. The previously planned increases
over the fiscal year 2010 levels were taken as cost savings.
(2) The Civilian Pay Raise Freeze for fiscal year 2011 and fiscal
year 2012 is a Federal wide pay raise freeze as directed by the
President. The approximate $12 billion cost savings is derived by
reducing the civilian pay budgeted amounts by the previously
anticipated pay raise of 2.3 percent in both fiscal year 2011 and
fiscal year 2012. The civilian pay raise resumes in fiscal year 2013
but based on a lower pay rate. The amounts previously included in the
out year budget were taken as cost savings.
84. Senator Ayotte. Secretary Hale, do the savings assume that once
the freeze is lifted in 2014, hiring actions will not resume to fill
the empty slots?
Mr. Hale. Yes.
85. Senator Ayotte. Secretary Hale, will civilian position
authorizations that go vacant eventually be eliminated? In other words,
does the Department plan a civilian workforce reduction?
Mr. Hale. The components will not have the ability to increase
positions, but they will have the ability to maintain fiscal year 2010
staffing levels by filling positions that go vacant. The components
will need to review all civilian manpower to determine which functions
are a priority and must continue to be performed. Any workforce changes
will be reviewed on a case-by-case basis.
86. Senator Ayotte. Secretary Hale, as for the civilian pay freeze,
do the savings assume that pay will not be adjusted for the accumulated
inflation?
Mr. Hale. The civilian pay raise (inflation) factor is not included
in fiscal year 2011 and fiscal year 2012. It does however, resume in
fiscal year 2013-2015.
87. Senator Ayotte. Secretary Hale, please provide a projection
over the next 5 years of civilian pay increases that was used to
estimate the cost savings.
Mr. Hale. The savings associated with the civilian workforce freeze
were estimated using the fiscal year 2010 funding levels. The savings
by year are:
Fiscal Year 2012 - $2.5 billion
Fiscal Year 2013 - $2.7 billion
Fiscal Year 2014 - $2.9 billion
Fiscal Year 2015 - $2.6 billion
Fiscal Year 2016 - $2.6 billion
88. Senator Ayotte. Secretary Hale, in your opinion, how will the
combined freezes affect the morale and productivity of the DOD civilian
workforce?
Mr. Hale. DOD civilians are extremely dedicated workforce that
understand the fiscal challenges facing the Nation. The Department
anticipates minimal impact to morale and productivity.
______
Questions Submitted by Senator James M. Inhofe
depots
89. Senator Inhofe. Secretary Hale and Secretary Conaton, how is
the efficiencies strategy affecting parts availability?
Mr. Hale. The efficiency strategy for depot maintenance is planned
to have virtually no impact on parts availability. Direct labor and
material costs are assumed to be constant throughout the FYDP and
unchanged as a result of efficiencies.
Ms. Conaton. Air Force Efficiencies Strategy is not intended to
affect current parts availability, but is intended to implement
improvements in the supply chain that have long-lasting impacts.
Desired effects from efficiencies include improving sourcing decisions,
leveraging Air Force funds for more favorable pricing and terms,
optimizing productivity of limited manpower, improving supplier
relationships, generating savings and accelerating the delivery of
materiel (parts availability).
90. Senator Inhofe. Secretary Hale and Secretary Conaton, is a
comprehensive strategy involving the DLA, depots, the Global Logistics
Support Center (GLSC), U.S. Transportation Command (TRANSCOM), and
other stakeholders being worked concurrently with the implementation of
efficiencies measures? If so, when will this plan be available?
Mr. Hale. The efficiency strategy for depot maintenance is planned
to have virtually no impact on parts availability. Direct labor and
material costs are assumed to be constant throughout the FYDP and
unchanged as a result of efficiencies.
Ms. Conaton. OSD along with TRANSCOM has taken the lead in
developing a Joint comprehensive strategy to implement supply chain
based efficiency measures. In support of OSD, the Air Force's Global
Logistics Support Center and Air Force Air Logistics Centers have been
participating in the development of the plan and will continue to do
so. Since this is a Joint strategy, the Air Force must defer the
question on availability of the plan to OSD and TRANSCOM.
91. Senator Inhofe. Secretary Hale and Secretary Conaton, are
reinvestment dollars available to fuel innovation in this area?
Mr. Hale. Efforts to improve Depot Maintenance processes are
continuing within the Department. Funding requirements to implement
these improvements have been re-aligned within existing resources.
Although future proposals may require additional resources, additional
funding requirements are not known at this time. Any proposed funding
realignments will be evaluated through cost benefit analysis to ensure
the most effective measures are implemented.
Ms. Conaton. OSD with TRANSCOM has taken the lead in developing a
joint comprehensive strategy to implement supply chain based efficiency
measures. As this plan is developed by OSD and TRANSCOM, the resources
will be identified and programmed appropriately by the Services.
u.s. industrial base
92. Senator Inhofe. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, how are we balancing efficiencies and
immediate budget concerns with the long-term need to maintain a robust
defense industrial base and niche skills/specialties that disappear if
not consistently cultivated?
Mr. Hale. DOD is pursuing efficiencies and immediate budget
savings, while at the same time working to maintain a robust defense
industrial base and critical niche skills/specialties. In many cases,
the efforts underway will both create savings and enhance the long-term
health of the defense industry. For instance, under the Better Buying
Power initiative the Department is addressing affordability right at
the outset of program initiation, which will reduce the amount of
changes that are made to programs once they are in progress. For
example, the Ohio class replacement missile submarine was unaffordable
as originally conceived, so it was redesigned to drive down the cost
substantially. By making necessary changes at the beginning, the
Department will avoid the problems of breaking or canceling programs
later on, which negatively impacts industry. We are also going to
reduce costs and drive better industry performance by promoting real
competition across the board in our programs. The recent competition
for the LCS is a good example where the bidders were incentivized to
substantially improve their offers because of the head-to-head nature
of the competition. In addition, the Department is reviewing technology
investment policies to encourage greater collaboration with industry.
Finally, we are launching a DOD-wide Superior Supplier Incentive
Program to reward contractors who control their costs and demonstrate
superior performance. Taken together, these and other efforts will
create savings and drive the defense industry to be more efficient and
innovative, which is the key to its long-term health and ability to
compete globally.
Dr. Westphal. We are vigilant in ensuring that the disciplines
found in our population of industrial base specialties are minimally
affected and in fact are being bolstered by reinvesting some realized
saving with contractors and other Service providers found exclusively
in our industrial base. We are limiting solicitations to the National
Technology Industrial Base, thus ensuring the niche skills they provide
are funded and facilitated.
Mr. Work. The fiscal year 2012 President's budget is a product of a
comprehensive examination of the Department's business operations which
has enabled the Navy and Marine Corps to refocus on our critical
warfighting capabilities. Efficiencies were found across three
categories: buying ``smarter', streamlining organizations and
operations, and energy initiatives. DON identified nearly $35 billion
in efficiencies over 5 years, and when combined with Defense Department
level initiatives, the DON fiscal year 2012 FYDP incorporates over $42
billion in savings. Inherent in buying smarter is taking into account
industrial base implications as acquisition strategies and contracting
strategies are developed. For example, the LCS competition where
Lockheed Martin and Austal USA were each awarded a fixed-price
incentive contract for the design and construction of a 10 ship block
buy from fiscal year 2010 through 2015 reflects our commitment to
affordability while minding the industrial base. This LCS strategy
supports the industrial base for shipbuilding by keeping workers
employed at two shipyards along with workers at their various
subcontractors and vendors. Additionally, the Navy has looked to
multiyear procurements in aviation and shipbuilding programs to bring
stability to the industrial base which is reflected in savings achieved
by such procurements.
Ms. Conaton. The Air Force recognizes the benefits of a robust
national industrial base. One step we are taking is to work with OSD
and other Defense components on a sector-by-sector, tier-by-tier review
of the network of firms that support the Department. The knowledge
expected to be gained by this review will enable Air Force decision
makers to better evaluate the potential impact of investment
alternatives and make decisions accordingly.
Beyond this analysis the Air Force also recognizes that as we
implement the efficiencies we have identified, we must also ensure that
we take steps to promote a robust defense industrial base, including
preservation of key skills and capabilities on which we depend. In the
area of space acquisition, for example, in keeping with Secretary
Gates' Efficiencies Initiative, the Air Force is developing specific
strategies that we believe will result in cost savings and a more
efficient approach, while also helping to strengthen the industrial
base. Two important efforts in this area are the ``EASE'' proposal for
satellite acquisition and our developing strategy for acquiring launch
capability.
EASE is designed to drive down costs, improve space industrial base
stability, and allow for investments in technology that will lower risk
for future programs. It has four basic tenets: block buys of
satellites; stable research and development investment; fixed price
contracting; and full funding over multiple years through advance
appropriations.
The first tenet--block buys of satellites--will allow us to
purchase economic order quantities of critical parts, run production
lines more efficiently, and reduce non-recurring engineering costs. The
resulting savings can be reinvested in research and development to
further improve the performance and lower the cost of follow-on
systems. This reinvestment--what we call the Capability and
Affordability Insertion Program--is an essential component of EASE.
Together, these first two tenets will provide much-needed stability and
predictability for a fragile space industrial base.
Another area where the Air Force has devoted significant effort to
developing a more cost-effective acquisition strategy while aiding the
industrial base is space launch. Along with our partners at the
National Reconnaissance Office (NRO), we deliver assured access to
space through the Evolved Expendable Launch Vehicle (EELV) program.
Several studies have independently recommended an acquisition strategy
that procures a minimum eight cores per year, both to help control
costs and to help solidify the industrial base. Consistent with our
commitment to deliver assured access to space, the Air Force has
partnered with the NRO to ensure this level of baseline annual
production. The NRO will buy three per year, and the DOD will buy five
per year, with the Navy picking up one core in each of fiscal year 2012
and fiscal year 2013. Thereafter, the Air Force has pledged to buy five
EELVs per year for the remainder of the FYDP. This will have the effect
of lowering the cost per booster and contributing to a more stable
market for our industrial base.
In addition to taking these steps, the Air Force also recently
signed a joint Memorandum of Agreement with the NRO and NASA designed
to ensure a consistent position on opportunities, certification, and
requirements for potential new entrants to space launch. We expect to
release new entrant criteria by late this summer, and we expect to
allow new entrants to compete for near-term launch missions. These
steps should also promote a healthy industrial base.
93. Senator Inhofe. Secretary Hale, Secretary Westphal, Secretary
Work, and Secretary Conaton, have reinvestment opportunities been
identified in the areas of small business development, research and
development, DARPA, etc . . . to ensure that leaning/cutting of
processes are not followed by loss of expertise and erosion of our
competitive edge?
Mr. Hale. The efficiency initiatives instituted by the Under
Secretary of Defense for Acquisition, Technology and Logistics under
his memorandum titled ``Better Buying Power'' are directed at
increasing productivity in DOD. Of the 23 specific initiatives, 2 are
related specifically to providing greater opportunities to small
businesses. This action reflects the Department's understanding that
efficiencies can be gained through the use of small businesses, which
are often more cost effective than larger businesses.
Another way the Department provides protection of its research and
development investments is under the SBIR program. This program
protects small business by allowing them to retain rights to
intellectual property generated under the program for a period of 5
years after contract award (DFARS 227.71 Rights In Technical Data). New
contract awards during this protection period have the effect of
renewing or extending the protection period.
With respect to preserving our investments in the industrial base,
Title III of the Defense Production Act contains a unique set of
authorities, found nowhere else in law, that enables the Federal
Government to incentivize the creation, expansion or preservation of
domestic manufacturing capabilities to support national security needs.
Title III authorities provide domestic industry with a variety of
incentives that reduce the risks associated with the capitalization and
investments required to establish the needed production capacity. The
authorities provide a bridge from the R&D arena and accelerate the
transition of technologies to affordable production and deployment.
Additionally, Title III investments mitigate domestic industrial base
capability gaps and strengthen the economic and technological
competitiveness of the U.S. industrial base.
Dr. Westphal. As we explore possible efficiencies and opportunities
to meet the Department's Better Buying Power initiatives, we remain
committed to realizing the advantages that competition and small
business innovations bring to the table. We have several ongoing
programs to modernize major weapons systems, and these are excellent
opportunities to introduce new technologies. The Paladin Integrated
Management program is incorporating technologies initially developed
for the Non-Line of Sight-Cannon (NLOS-C). This effort helps preserve
the skills and technologies that might otherwise have been lost due to
a program termination. The Army's near-term plans for modernizing the
Bradley fleet sustains both government and contractor System
Engineering capability. We have other reset programs that incorporate
new technologies where feasible. We understand that these investments
will not provide the same level of production workload at depots and
final assembly facilities, but they do allow us to preserve some level
of the expertise in many areas.
Mr. Work. The DON worked with the Small Business Administration in
launching the website Green Biz Ops to connect contractors and,
especially, small businesses with opportunities to participate in
contracts for our energy initiatives. The Office of Naval Research
(ONR) is constantly looking for innovative scientific and technological
solutions to address current and future Navy and Marine Corps
requirements and maintains Broad Agency Announcements to ensure
continuing investment in research ideas. Additionally, the DON's SBIR
Program gives small businesses the opportunity to address naval needs
in more than 30 science and technology areas to provide the Navy and
Marine Corps with innovative advances in technology developed by small
firms. The DON Office of Small Business Programs maintains a presence
at each of our buying commands to foster small business opportunities
where possible.
A recent leadership development is the establishment of a Deputy
Assistant Secretary of the Navy for Research, Development, Test, and
Evaluation to ensure our investment in research maintains our
competitive edge.
Ms. Conaton. The Air Force focus on lean and continuous process
improvement is intended to improve our expertise and sharpen our
competitive edge. The Air Force is looking at reinvestment
opportunities in many areas, including research and development. Within
its Science and Technology Program, the Air Force plans to reinvest
savings realized from efficiencies back into basic research, applied
research, and advanced technology development efforts supporting
Flagship Capability Concepts, Technology Horizons, and other high
priorities in order to maintain our competitive edge. With regards to
SBIR, reinvestment opportunities may help identify and promote advanced
technologies, translate scientific discoveries into technological
innovations, and accelerate transformational technology aiding in the
creation of jobs and sustaining expertise in areas such as energy and
manufacturing.
______
Questions Submitted by Senator Rob Portman
dod efficiencies partnerships with industry
94. Senator Portman. Secretary Westphal, Secretary Work, and
Secretary Conaton, DOD has been partnering with the aluminum industry
on some cost-shared initiatives to improve performance while lowering
weight and costs. Some of these initiatives include transitioning to
new alloys, joining techniques, and commercial best practices to
defense programs. Please provide a summary of what your Service has
done to date on these efforts and outline the results in terms of cost
reductions, weight reductions, and performance improvements.
Dr. Westphal. The U.S. Army Tank Automotive Research, Development
and Engineering Center (TARDEC) and Alcoa have partnered on a program
called the Army Lightweight Structures Initiative. This program will
integrate Alcoa's proven capabilities particularly into the design of
new but also into older military ground vehicles. The goal of the
program is weight reduction and performance improvement by substituting
new alloys for older heavier metals.
Examples of weight reductions to date are as follows:
EVCII (Expanded Capacity Vehicle II) floor
Drop in to existing aluminum design saved 91
pounds (32 percent).
Prototyped in 2 months; 20,000 miles of
testing.
EVCII Frame
Cross members saved 106 pounds (36 percent)
over existing Al design.
Lower Mission Module (LMM)
330 pound savings (31 percent).
HEMTT (Heavy Expanded Mobility Tactical Truck) - A3 -
Space frame
Design reduced weight by 840 pounds (50
percent).
HEMTT-A3 - Blast Shield
440 pound savings (35 percent).
FMTV (Family of Medium Tactical Vehicles) Spare Tire
Carrier
64 pound weight savings (43 percent).
Mr. Work. Naval Surface Warfare Center Carderock Division
contracted with Alcoa to provide engineering services supporting
research and development of lighter weight aluminum structures with
improved fabrication methods for the LCS and other high speed, shallow
draft vessels. Components for improvement have included flight deck tie
downs, trimaran side hull tips, passageway radius extrusions,
corrugated panels, bolted and bonded splice components, and MK 110 Navy
gun mount system.
For the General Dynamics (GD)-Austal LCS) design, flight deck tie
downs and side hull tips have been redesigned for improved
manufacturability, cost savings, and weight reduction. The redesigned
flight deck tie downs have also been approved for use on the Joint High
Speed Vessel (JHSV). The tie downs were redesigned from a completely
welded component to a welded and bolted component comprised of fewer
parts. The tie downs provide a 50 percent weight reduction over the
baseline tie down currently being used by the Navy resulting in a
weight savings of 2.6 tons for the GD-Austal variant of LCS and 1.5
tons for JHSV. The side hull tip was redesigned from a structure
comprised of numerous welded plates with difficult geometry to a single
piece side hull tip. The redesigned side hull tip provides the
potential for an approximate 70 percent cost reduction or approximately
800 labor hours per ship over the baseline due to significant
reductions in fit-up time, welding, inspection, and rework and has been
installed on LCS 4.
On the Lockheed Martin LCS design, passageway radius extrusions,
single sided corrugated panels, and bolted and bonded longitudinal
splices were redesigned for cost and weight reductions. The redesigned
passageway extrusions have already been installed on LCS 3 and were
redesigned to simplify production of radiused bulkhead corners
eliminating multiple piece-parts and subcomponent welding. The
shipbuilder has reported a 40 to 80 hour labor reduction per corner
with additional savings associated with manufacturing, assembly, and
rework. Single sided corrugated panels are being developed as a
replacement for candidate stiffened panels. The corrugated panels are
anticipated to provide estimated weight reductions of 10 to 20 percent
where used and a potential for cost savings of 5 to 10 percent. Bolted
and bonded splices were designed to replace approximately 1,500 welded
splices done on the LCS 1 and are anticipated to reduce labor cost by
approximately 50 percent when implemented on LCS 3.
The MK 110 Navy gun mount system was redesigned for improved
manufacturability. The baseline component was comprised of 320 welded
parts that was redesigned to 78 parts providing a 75 percent part
reduction in the structure. The parts consolidation results in
reductions in labor costs, welding, and rework.
In addition to the efforts discussed above, the Alcoa contract
involves research and development to improve aluminum joining
technologies. Alcoa is currently developing improved tool designs for
friction stir welding (FSW) of 6XXX series aluminum extrusions and is
being evaluated as a potential technique for joining extruded decking
panels on the GD-Austal LCS. The use of FSW is anticipated to improve
weld quality over the baseline decking panels currently being joined by
conventional arc welding. Alcoa is also developing a new temper for
aluminum 5456 designated as 5456-HX anticipated to have improved
resistance to aluminum sensitization. The Navy will be funding the
certification of 5456-HX. Successful certification and implementation
of 5456-HX on the CG 47 Class would potentially result in reduction in
life cycle costs.
Other industry efforts include the development of an aluminum-
scandium alloy designated as 7XA by Surface Treatment Technologies.
Alloy 7XA is a 7XXX aluminum alloy with scandium additions for improved
strength and extrudability. The alloy was developed with the ONR
funding and is being implemented on CVN 78 for flexible infrastructure
to enable improved weight savings. A co-cast aluminum alloy designated
as 5005/5456 was developed by Novelis. This co-cast material is
anticipated to have improved corrosion resistance over conventional
5456. This alloy was not developed under a cost-share initiative with
the Navy. Both alloy 7XA and Novelis 5005/5456 are undergoing
certification testing that is being funded by the Navy.
Ms. Conaton. The Advanced Aluminum Aerostructures Initiative
(A\3\I) is a congressionally-directed advanced development program
managed by the Air Force and aimed at reducing the installed cost of
aluminum aerospace structures, while lowering maintenance requirements,
improving performance, and reducing life cycle costs. Several vehicle
components have been studied as part of this program including the
Boeing C-17 crew emergency escape door, the Lockheed Martin F-22 nose
landing gear door, and the Lockheed Martin C-130 cargo ramp extension.
The C-17 crew emergency escape door is a forged and high-speed,
machined one-piece frame with a separate aluminum skin. The door design
uses 81 percent fewer parts and offers a 30 percent overall cost
reduction. The redesigned door has been successfully transitioned to
the customer and was put into production in July 2004. Installation of
the door on the C-17 fleet began in spring 2005 with aircraft #134.
The F-22 nose landing gear door is a unitized structure that
utilizes innovative snap-fit fastenerless technology, meaning no holes
need to be drilled. The new door design will reduce maintenance time,
offers better impact damage tolerance, and is expected to save a
significant amount of funding over the life of the F/A-22. The
redesigned F-22 nose landing gear door has been successfully
transitioned to the customer for production and has been installed on
the F-22 aircraft beginning with aircraft #4112.
At 30 pounds, the C-130 cargo ramp extension offers a 40 percent
weight savings over the previous design and uses fewer parts and no
fasteners, which makes it easier and less expensive to manufacture.
Additionally, the new design is safer and easier for the loadmaster to
use. The ramp has ergonomic hand holds along its length and at the end
to facilitate stowage and removal from a tight fitting storage slot
without danger of personnel injury.
95. Senator Portman. Secretary Westphal, Secretary Work, and
Secretary Conaton, in your opinion, have these collaborations increased
the purchasing power of our defense dollars?
Dr. Westphal. Yes. The U.S. Army TARDEC and the aluminum industry
have successfully formed a partnership together for the Army
Lightweight Structures Initiative. This initiative has integrated
proven capabilities into the design of new and legacy military ground
vehicles. The goal of the program is to partner with military ground
vehicle Original Equipment Manufacturers (OEM) to provide the Army with
cost-effective weight reduction through the implementation of industry
and OEM solutions. The technology has shown the potential to reduce
life cycle cost. The aluminum industry has applied their materials and
joining techniques to certain vehicle platforms demonstrating weight
reduction and improved vehicle performance in certain areas.
Mr. Work. When cost reductions from ongoing Navy-Industry
initiatives are realized as cost savings on Navy contracts, the
collaborations will have a positive impact on defense purchasing power.
The Navy is pleased that such savings have been realized and is
optimistic that additional savings will result from ongoing efforts.
Ms. Conaton. Yes; these A\3\I products offer an advantage to Air
Force and DOD aerospace systems, as they reduce the overall part count
and number of fasteners required in the manufacturing process. This
reduces labor costs and overall component weight, which offers fuel
efficient performance benefits for the life of the system.
96. Senator Portman. Secretary Westphal, Secretary Work, and
Secretary Conaton, would you support expanding these cost-shared
initiatives, as resources permit, to other platforms and components?
Dr. Westphal. Yes. The U.S. Army would support expanding these
activities if the necessary resources were available.
Mr. Work. Although the efforts under the Alcoa contract have
resulted in direct cost savings for the shipbuilder, the weight
reductions and performance improvements are a direct benefit to the
Navy.
Outside of the USN-Alcoa contract, Alcoa is continuing to invest in
aluminum research and development for marine applications. Alcoa is
currently developing a new temper for aluminum 5456 to provide improved
resistance to aluminum sensitization. While the new temper is not being
developed under a contract that includes cost-share agreements between
the Navy and Alcoa, the certification of the new alloy will be funded
by the Navy. Alcoa is also pursuing an ONR Manufacturing Technology
(ManTech) project to develop and demonstrate a High-Deposition Gas
Metal Arc (HDGMA) aluminum welding system and procedures. Transition of
the HDGMA process is intended for both the Austal and Lockheed Martin
variants of the LCS as well as Austal's Joint High Speed Vessel (JHSV)
platform after vetting through the Acquisition Governance process. The
successful implementation of HDGMA is anticipated to result in
significant labor and cost savings. In addition to aluminum Research
and Development (R&D) efforts, Alcoa has participated on the CG 47
Class Integrated Product Team (IPT) and has worked with BAE Systems
Ship Repair, the prime contractor for maintenance and modernization on
CG 47 Class, to optimize and develop improved aluminum welding
processes and workmanship.
Based on the above benefits to the Navy continued collaboration
should be supported.
Ms. Conaton. The A\3\I concepts could be applied to all platforms.
When implemented on the aging aircraft fleet, these improvements help
to keep older aircraft in service longer, resulting in a decreased need
for new aircraft. As resources permit, these concepts will be reviewed
for possible application on other platforms.
readiness of army helicopter fleet
97. Senator Portman. Secretary Westphal, with our missions in
Afghanistan and Iraq, our helicopters are seeing more flight hours and
more combat hours than in the past. Increased use of our helicopters
are decreasing their lifespans and increasing the need to refurbish or
upgrade them. With this in mind, please provide an overview of the
overall readiness of the Army's helicopters supporting our efforts in
Iraq and Afghanistan.
Dr. Westphal. Deployed aircraft fleets generally meet or exceed the
Army fully mission capable (FMC) readiness rate standard of 75 percent.
Specifically, over the last year:
AH-64D Apache: average FMC readiness rates of 75-80 percent
(Deployed fleet is 24 percent of the total deployable fleet).
CH-47D/F Chinook: average FMC readiness rate of 70 percent
(Deployed fleet is 32 percent of the total deployable fleet).
OH-58D Kiowa: average FMC readiness rates of 80-85 percent
(Deployed fleet is 41 percent of the total deployable fleet).
UH-60A/L/M Blackhawk: average FMC readiness rate of 80 percent
(Deployed fleet is 31 percent of the total deployable fleet).
Averages are based upon the 12 month period from April 2010 through
March 2011.
98. Senator Portman. Secretary Westphal, what are the average
flight hours between reset for the Apache, Kiowa, and Blackhawk
platforms?
Dr. Westphal. The average flight hours between Reset is:
AH-64D Apache............................. 1,521 hours (ranges from 981
to 2,061 hours)
CH-47D/F Chinook.......................... 902 hours (ranges from 569
to 1,235 hours)
OH-58D Kiowa Warrior...................... 1,400 hours (ranges from 983
to 1,817 hours)
UH-60A Blackhawk.......................... 684 hours (ranges from 456
to 912 hours)
UH-60L Blackhawk.......................... 992 hours (ranges from 678
to 1,306 hours)
HH-60L Blackhawk.......................... 734 hours (ranges from 524
to 940 hours)
These hours are primarily attributed to operational tempo while
deployed. However, there is minimal flight time post deployment before
and after Reset, and during a unit's deployment preparation training.
The current policy objective for aircraft is to remain in the area
of operations for two complete deployment rotations. Active duty units
are 12 month deployments, and Army National Guard and Army Reserves
units are 9 month deployments. This allows for 24 months and 18 months,
respectively, of operational time for each component.
While deployed, the typical operational tempo for each aircraft
mission/design/series is:
AH-64D Apache............................. 59 hours per month
CH-47D/F Chinook.......................... 40 hours per month
OH-58D Kiowa Warrior...................... 75 hours per month
UH-60A/L/M Blackhawk...................... 48 hours per month
99. Senator Portman. Secretary Westphal, how long does the average
helicopter serve before it needs to be reset?
Dr. Westphal. The current policy objective for aircraft is to
remain in the area of operations for two complete deployment rotations.
Active duty units are 12 month deployments, and U.S. Army National
Guard and U.S. Army Reserve units are 9 month deployments. This allows
for 24 months and 18 months, respectively, of operational time for each
component.
100. Senator Portman. Secretary Westphal, how many months average
spent in depots receiving reset work and at what cost per rotorcraft?
Dr. Westphal. Aircraft Reset is Field Level Maintenance performed
at several installation activities within the continental United
States. Major Aircraft Crash or Battle Damage work is performed at the
Corpus Christi Army Aviation depot.
As of the fiscal year 2009 Reset program, average days in work and
cost for the completed aircraft, by mission/design/series:
[In millions of dollars]
AH-64D Apache:............................ average of 82 days at $1.194
CH-47D Chinook:........................... average of 125 days at
$1.934
CH-47F Chinook:........................... average of 87 days at $1.004
OH-58D Kiowa Warrior:..................... average of 82 days at $0.49
UH-60A Blackhawk:......................... average of 87 days at $1.20
UH-60L Blackhawk:......................... average of 83 days at $1.19
UH-60M Blackhawk:......................... (no UH-60Ms were part of the
fiscal year 2009 program)
101. Senator Portman. Secretary Westphal, is the Army leveraging
commercial best practices and new aluminum alloys and joining
techniques within reset activities to enhance performance and
affordability?
Dr. Westphal. Yes. The Army leverages commercial best practices to
include advanced aluminum material and design solutions within new
production. Airframe and engineering modifications, to include
engineering enhancements, are applied during airframe modernization
recapitalization processes.
The Army Aviation Reset program has Reset over 4,000 aircraft since
inception in 2003. The Army conducts periodic reviews of the program to
improve Reset operations, specifically identifying and implementing
efficiencies in cost and production, monitoring and ensuring quality of
work, and reviewing scope of work. Aircraft inducted in Reset
capitalize on the insertion of developing technologies such as the
Common Missile Warning System and the Advanced Threat Infrared
Countermeasures, utilizing rapid fielding initiatives to reduce
aircraft non-available time.
102. Senator Portman. Secretary Westphal, please discuss possible
opportunities to achieve cost and weight reduction on the rotorcraft
structure through the application of commercial best practices and
advanced aluminum material and design solutions.
Dr. Westphal. There are many opportunities to achieve cost and
weight reduction on the rotorcraft structure of the Apache, Kiowa
Warrior, and Chinook through the application of commercial best
practices and advanced aluminum material and design solutions. One
example is the aluminum alloy which comprises a major part of the
Apache airframe structure. As loads have increased on the frame over
time, consideration is given to implementing improvements, with
priority made to both increasing strength and lowering weight,
utilizing both best commercial practices and methods. In this process,
airframe structural and historical data obtained during RESET teardown
is sought and evaluated for use in the redesign of key airframe
components. Working with the OEM, optimal design solutions and material
redistribution, which exhibit lower stress patterns, are analyzed and
employed. In addition to service life extensions of certain components,
reducing component weight is achievable.
We have utilized state of the art lighter base materials, precision
machining, composite material, fastener, and bonding technologies, and
best production and assembly processes during our aircraft
modernization and development programs. Select redesigns and structural
upgrades were incorporated to address fatigue cracking in the field.
While production costs and weight have improved as a result of this
modernization, further improvement is needed as weight and cost are
critical elements to improving equipment for the Warfighter. We have
incrementally used better alloys and joining techniques in our
airframes, but our airframe manufacturers must address qualifications
for air worthiness, corrosion resistance, and material properties.
There is opportunity for improvement in our older airframes, such as
the OH-58 helicopter, which are not yet significantly modernized.
We have addressed a potential area for weight savings in the
airframe structures for the Chinook CH47-F. The current airframe design
technique utilize built-up structures; however, modern manufacturing
techniques have proven to reduce the cost of legacy airframe structures
by replacing labor-intensive built-up structures with monolithic
machined structures. Monolithic machined structures are also ideal
candidates for weight reduction with typical topology optimized
structure weight savings of between 15 percent to 20 percent. The
National Center for Defense Manufacturing and Machining has proven they
can manufacture a monolithic topology optimized structure using
aluminum to replace the legacy built-up structures. The results show
that machining costs were comparative to traditional structure designs,
resulting in no increase to recurring costs. Additionally, billet sizes
for the traditional and the optimized designs were identical. Once
developed and manufactured, the topology optimized structures were
subjected to static and fatigue testing to determine if the components
met the strength criteria for airframe structures. Testing confirmed
that these designs met or exceeded the requirements established for
these airframe structures. Fifty pounds of weight savings is achievable
(if implemented) when extrapolating the 15 percent weight savings to
all of the under floor structures in the Chinook helicopter. The
benefits of topology optimization include: load path visualization,
weight savings, systems design space, ballistic protection, and
improved fatigue resistance. These benefits offer a compelling
incentive to employ this technology into the current design process in
order to increase the overall performance of the airframe structures.
______
Questions Submitted by Senator John Cornyn
joint basing
103. Senator Cornyn. Secretary Hale, the 2005 Defense BRAC
Commission recommended DOD establish 12 joint bases by consolidating
the management and support of 26 separate installations, potentially
saving $2.3 billion over 20 years. One of the 12 joint bases mandated
in 2005 is Joint Base San Antonio. The residents of San Antonio, known
as Military City USA, have long been proud that several military
installations, including Lackland and Randolph Air Force Bases and Fort
Sam Houston, call their city home. To date, what cost savings has DOD
seen from joint basing? If none, what savings do you expect to see in
the coming years as joint base leaders gain experience with
consolidation and common standards?
Mr. Hale. The consolidation of 26 installations into 12 joint bases
represents a fundamental change in our approach to installation
management. Predictably, we are beginning to realize efficiencies from
this initiative, many of them the result of economies of scale. For
example, consolidating all recycling operations at Joint Base McGuire-
Dix-Lakehurst saved $1 million in facility and equipment requirements
and reduced overall contract costs by $200,000 annually. Far more
important, however, is that our joint base commanders--faced with
parallel and often-conflicting Service rules and requirements--are
successfully implementing new, cross-cutting business processes. This
ability to transcend traditional practices and develop innovative
solutions to longstanding inefficiencies is key to positioning
ourselves for future, Department-wide reforms.
104. Senator Cornyn. Secretary Hale, what are your plans to achieve
the efficiencies originally expected from the joint basing initiative?
Mr. Hale. Our joint base commanders--faced with parallel and often-
conflicting Service rules and requirements--are successfully
implementing new, cross-cutting business processes. This ability to
transcend traditional practices and develop innovative solutions to
longstanding inefficiencies is key to positioning ourselves for future,
Department-wide reforms. As one joint base commander put it joint bases
are ``incubators for innovation''. The Joint Base Commands continue to
display a can-do attitude and dedication to providing the highest
quality service, not only in support of the military missions on their
sites, but to servicemembers and their families as well.
reducing lifecycle costs
105. Senator Cornyn. Secretary Hale, both the Weapon System
Acquisition Reform Act (WSARA) of 2009 and the policies related to
DOD's efficiency initiatives call for increasing the use of competition
as a means to lower lifecycle costs. What are some examples of where
competition has been used to lower lifecycle costs?
Mr. Hale. The USD(AT&L) November 3, 2010 memo to the Military
Departments and Defense Agencies directed immediate action to increase
competition. The acquisition community is addressing this in the
development of Weapon System Acquisition Strategies. Specifically, the
Secretaries of the Military Departments and Defense Agency Directors
were directed to implement the following:
Present a competitive acquisition strategy at each
program milestone. Provide a one-page competitive strategy for
each ACAT 1D program at each milestone as part of the overall
acquisition strategy.
Report to USD(AT&L) in fiscal year 2011 on how their
military department or agency intends to reduce single-bid
competitions. At a minimum, the report will address market
research, restricted specifications, and adequate time for
proposal preparation.
Achieve a 2 percent reduction in single-bid
competitive contracts in fiscal year 2011, with continuing
reductions thereafter.
Remove obstacles to competition, ensure contracting
officers conduct negotiations with all single-bid offerors,
unless this requirement is specifically waived by the Head of
Contracting Activity or Military Department Secretary. The
basis of these negotiations will be cost or price analysis, as
the case may be, using either certified or non-certified cost
or pricing data, as appropriate.
Have their component or agency competition advocate
develop a plan to improve both the overall rate of competition
and the rate of effective competition. These plans will
establish an improvement rate of at least 2 percent per year
for overall competition and an improvement rate of at least 10
percent per year for effective competition.
Require open systems architectures and set rules for
acquisition of technical data rights:
PMs will conduct a business case analysis in
concert with the engineering tradeoff analysis that
will be presented at Milestone B. The business case
analysis will outline the open systems architecture
approach, combined with technical data rights the
Government will pursue in order to ensure a lifetime
consideration of competition in the acquisition of
weapon systems.
The results of this analysis will be reported
in the Acquisition Strategy Report and in the
competition strategy.
Increase the dynamic small business role in
the defense marketplace competition. All competitive
and non-competitive procurement actions will seek to
increase small business participation through weighting
factors in past performance and fee construct.
These actions apply to all contracts, including MRO, CLS, and PBL
contracts. The result will be PEOs and PMs developing a competitive
strategy early in acquisition that spans the program's life and
improves the ability to compete MRO, CLS, and PBL contracts in
sustainment. For example, the Department of Navy has undertaken a
specific initiative to engage each PEO, PM, and Product Support Manager
(PSM) to emphasize real competition at every stage of acquisition and
sustainment. They directed the PEOs/PMs/PSMs to establish a competitive
environment throughout the life cycle of their programs, and to enable
better competitive opportunities in the sustainment phase.
Additionally, PEOs and PMs are reviewing their existing portfolios in
pursuit of increased competitive opportunities, including consideration
of breakout opportunities, and expanding open architecture solutions
and small business opportunities that fosters additional competition.
The Army is emphasizing the conduct of logistics analyses early to
baseline costs and develop technical data requirements that facilitate
competition in sustainment contracts. The Air Force is also taking
proactive steps to ensure PMs and PSMs correctly identify and pursue
data rights in their contract negotiations to facilitate competition in
sustainment. The outcome will be required warfighting capability at a
reduced cost to the Government.
106. Senator Cornyn. Secretary Hale, what other programs will this
effort be expanded to in the near future?
Mr. Hale. The Department continues to promote and pursue a
competitive acquisition environment. For example, Directive-Type
Memorandum (DTM) 10-015--Requirements for Life Cycle Management and
Product Support establishes the requirement for a mandatory Product
Support Manager (PSM) position for each ACAT I and II program. One of
the PSM's duties is, ``Promote opportunities to maximize competition
while meeting the objective of best-value long-term outcomes to the
warfighter''. The Services recently completed PSM identification March
30, 2011. Additionally, the military departments are undertaking a
variety of initiatives to increase competition. For example:
The Department of Navy has engaged each PEO and PM to
establish a solid foundation for a competitive environment
throughout a program's life cycle. Therefore, the PEOs and PMs
are reviewing their existing portfolios in pursuit of increased
competition opportunities, including consideration of breakout
opportunities at the subsystem and component levels to reduce
lifecycle costs.
The Department of Air Force has published regulations
and guidebooks that detail the importance of competition. The
Air Force is specifically focusing on sole-source contracts for
software maintenance, as well as engine repairs and parts, to
increase competition.
The Department of Army, over the course of the next
year, plans to review and refine internal practices and
processes that empower the PSM to promote competitive
opportunities.
Beyond DTM 10-015, the USDAT&L, November 3, 2010 memorandum
Implementation Directive for Better Buying Power--Obtaining Greater
Efficiency and Productivity in Defense Spending directs the Department
to ``Promote Real Competition'' across all acquisition programs. At
milestone decision briefs, each program is required to provide a one-
page competitive strategy for each ACAT ID program at each milestone as
part of the overall acquisition strategy. Beginning December 1, 2010,
each program is required to include competition in its acquisition
strategy prior to each milestone for ACAT IC, II, III and IV programs.
107. Senator Cornyn. Secretary Hale, in what areas do you think
competition and commercial investments in technology can be leveraged
to achieve further cost reductions?
Mr. Hale. Achieving cost reductions through competition and
commercial investments in technology are two complementary aspects of
the USD(AT&L)'s ``Better Buying Power'' initiative.
As the Department continues to seek efficiencies as outlined in the
November 3, 2010 implementation directive for Better Buying Power,
titled ``Obtaining Greater Efficiency and Productivity in Defense
Spending,'' the entire Department is striving to improve cost
effectiveness through increased use of commercial technology
investment. Specifically, in that directive, the Director, Defense
Research and Engineering (now the Assistant Secretary of Defense for
Research and Engineering) was tasked to reinvigorate the Independent
Research and Development (IRAD) program. The process is ongoing, with a
plan to increase the visibility of IRAD as a fundamental element of the
broader DOD R&D program. Application of IRAD to DOD projects should
provide guests cost efficiency for the DOD.
On November 24, 2010 the Director of Defense Procurement and
Acquisition Policy issued guidance on improving competition in Defense
procurement. Promoting real competition is an essential focus area
within the ``Better Buying Power'' initiative that requires the
Military Departments and Defense Agencies to develop plans to improve
overall and effective competition by: reducing the number of single-bid
contracts; negotiating better prices on single-bid contracts and task
and delivery orders; and reducing the dollar value of sole-source
contracts and task and delivery orders.
108. Senator Cornyn. Secretary Hale, Section 805 of the National
Defense Authorization Act (NDAA) for Fiscal Year 2010 deals with
lifecycle management, calling for product support managers to maximize
competition and make the best possible use of available DOD and
industry resources at the system, subsystem, and component levels. This
provision was implemented through DOD's Directive-Type Memorandum on
October 6, 2010. Please provide examples of where DOD has pursued
competition at subsystem and component levels to reduce lifecycle
costs.
Mr. Hale. Since the issuance of the DTM, the military departments
continue to implement section 805 and have made significant progress
identifying Product Support Managers (PSMs) for ACAT I and II programs
and issuing the guidance. One of the PSM's major duties is to promote
opportunities to maximize competition while meeting the objective of
best-value, long-term outcomes for the warfighter.
To this end, DOD Life Cycle Management and PSM Rapid Deployment
training, which specifically addresses increased competition, has been
developed and fielded by the Defense Acquisition University, with
strong attendance across the DOD and the industry acquisition
community.
Additionally, the military departments are undertaking a variety of
initiatives to increase competition. For example:
The Department of Navy has engaged each PEO and PM to
establish a solid foundation for a competitive environment
throughout the life cycle. Therefore, the PEOs and PMs are
reviewing their existing portfolios in pursuit of increased
competition opportunities, including consideration of breakout
opportunities at the subsystem and component levels to reduce
lifecycle costs.
The Department of Air Force has published regulations
and guidebooks that detail the importance of competition. The
Air Force is specifically focusing on sole-source contracts for
software maintenance, as well as engine repairs and parts, to
increase competition.
The Department of Army, over the course of the next year, plans to
review and refine internal practices and processes that empower the PSM
to promote competitive opportunities.
army acquisition programs
109. Senator Cornyn. Secretary Westphal, an Inside the Army article
on February 11, 2011, states that the Army ``has an abysmal record of
pumping billions of dollars into weapon systems that will never be
deployed, with a trend of sunk costs pointing upward during the past
decade.'' The article cites briefing slides marked for presentation by
Secretary McHugh which highlight that the Army's canceled programs have
eaten up between $3.3 billion and $3.8 billion per year since 2004,
representing an average of 35 to 45 percent of the Army's annual budget
for development, testing, and engineering. This is very disappointing,
and it represents poor stewardship of taxpayers' dollars. Your prepared
testimony highlights that the Army has identified $29.5 billion in
savings over the fiscal year 2012 to fiscal year 2016 period that will
be invested in modernization and acquisition programs. What steps is
the Army taking to overcome its shocking trend of wasting billions of
dollars on cancelled acquisition programs?
Dr. Westphal. The Army Acquisition Review Panel submitted its
report in February 2011, which includes 76 recommendations in four
broad areas that extend across various Army organizations. Those broad
areas address requirements generation, risk management, organizational
alignment, and resources. The Secretary of the Army has directed the
Assistant Secretary of the Army for Acquisition, Logistics and
Technology (ASA(ALT)) to assess those recommendations. The ASA(ALT)
will provide specific recommendations for implementation of those
portions of the report which are judged to improve the efficiency and
effectiveness of the Army's Acquisition process. That initial
assessment is due to the Secretary in April. Following that, the Army
will determine the path forward on implementation of the
recommendations.
110. Senator Cornyn. Secretary Westphal, how do you plan to ensure
that the $29.5 billion identified in savings for reinvestment in the
Army's budget will actually go towards the modernization and
acquisition of weapons and systems that are in high demand by combatant
commanders?
Dr. Westphal. During the preparation of the fiscal year 2012 budget
request, the Army re-invested $17.1 billion in equipment acquisition
and modernization programs that are high priority to the warfighter. By
taking a holistic look at requirements, priorities, and acquisition
timelines, we were able to focus our investments in areas that will
deliver current capability to the Warfighter quicker or provide future
capabilities to fill critical gaps. Recognizing that our greatest asset
is the soldier, the Army also re-invested $9 billion in force
structure, readiness, and quality of life programs that continue to
ensure we have not only the best equipped, but also the best trained
and supported soldiers in the world.
air force efficiencies
111. Senator Cornyn. Secretary Conaton, it is my understanding that
the Air Force estimates that it has been saving over $1 million per KC-
10 engine overhaul by competitively awarding this contract for work
which is being done at Port San Antonio, TX. Do you believe that the
cost savings realized through competition of the KC-10 engine overhaul
can be effectively applied to other airframes and engines?
Ms. Conaton. Yes, the KC-10 engine overhaul is an example where
competition realized cost savings. The KC-10 engine program was able to
do so because of two key conditions. First, the KC-10 engine is a
commercial derivative. This condition typically ensures a robust
industrial base with several vendors capable of performing the overhaul
work. The second is that the U.S. Air Force owned the data rights to
necessary maintenance overhaul manuals. Government ownership of this
data enabled the Air Force to broadly compete the overhaul work. The
combination of a robust industrial base and government ownership of the
maintenance data created the opportunity to realize cost savings. The
Air Force is committed to competition, and in cases where these
conditions exist, the Air Force actively pursues this strategy and the
opportunity to achieve cost savings.
112. Senator Cornyn. Secretary Conaton, what else is the Air Force
doing to help facilitate competition in the sustainment of major weapon
systems?
Ms. Conaton. The Air Force is more conscientious given reduced
budgets and long-term sustainment of weapons system platforms. As such,
the Air Force is taking a comprehensive approach that looks at both our
legacy platforms and our new platforms in terms of data rights and
ownership. Where our legacy platforms have not included full ownership
of data rights, thus limiting competition, the Air Force has initiated
business case analyses. The analyses determine the level of data rights
most affordable over the life cycle to the government to organically
support the sustainment of our legacy major weapons systems. Where new
platforms are established, the Air Force is taking a proactive planning
approach by determining what type of data rights are required for both
acquisition and sustainment. This approach will lend itself to greater
competition at various milestones through the acquisition and
sustainment lifecycles.
113. Senator Cornyn. Secretary Conaton, on January 27, 2011, the
Air Force released a request for information (RFI) for the procurement
of 150 C-17 engines, bringing the total number of C-17 engines procured
by the Air Force to over 960. Given the WSARA of 2009, section 805 of
the NDAA for Fiscal Year 2010, and the DOD's efficiency initiatives,
why did the RFI not include a requirement to purchase the technical
data rights in order to facilitate competition in sustainment?
Ms. Conaton. The request for information was only issued as a
market research tool to determine the availability and adequacy of
potential sources for C-17 engines and to determine whether any
competitive sources existed.
The C-17 engine was designed and developed by Pratt & Whitney (P&W)
at their expense and has been sustained under Contractor Logistics
Support. The original sustainment approach for the F117 engine did not
include provisions for purchasing technical data. However, in the
future, the Air Force will consider obtaining data rights in a separate
follow-on sustainment effort. OEM willingness to propose and the cost
thereof will drive the decision on purchasing technical data and the
potential for competition in the future. To date, P&W has indicated
little to no interest in providing such data.
114. Senator Cornyn. Secretary Conaton, given that the C-17 engine
is a derivative of a commercial 757 engine, with over 91 percent
commonality, why is the Air Force not seeking competition in the
supplier base as the commercial industry does?
Ms. Conaton. Although there is engine commonality, the nine percent
difference between F117 (Air Force engine) and Pratt and Whitney (PW)
2000 (commercial engine) is significant and prevents a campaign for
sustainment in the commercial supplier base. Furthermore, the PW2000
(on Boeing 757 aircraft) commercial engine manuals are not sufficient
for F117 overhaul and maintenance. The significant differences in the
engines include: the low pressure compressor (LPC) group, LPC drive
shaft group, fan case group, main gearbox assembly group, engine fuel
and control group, engine oil group, and engine indicating system
group. These differences are due to operational profiles required for
military flight (i.e., wartime, max-power take offs causing high engine
exhaust temperatures). Additionally, the F117 supply chain usage data
is different from PW2000. The usage data and the repair manuals for the
F117 are P&W proprietary, and they own the pipeline spares. Using
commercial usage information without pipeline spares would cause
immediate parts shortages and reduction in wartime readiness engines.
The U.S. Air Force intends to pursue these manuals and ownership of
pipeline spares for future sustainment efforts.
red river army depot
115. Senator Cornyn. Secretary Westphal, in 2002, Red River Army
Depot (RRAD) was designated by the Secretary of the Army as a Center
for Industrial and Technical Excellence (CITE) for all Tactical Wheeled
Vehicles (TWV), which include the High Mobility Multipurpose Wheeled
Vehicle (HMMWV). RRAD has the capability to produce an average of 32
HMMWVs per day on a single shift, with the capability and capacity to
handle all Army, National Guard, Army Reserve, and Marine Corps HMMWV
reset and recapitalization requirements in a surge environment.
However, Letterkenny Army Depot (LEAD), which is not a CITE for TWV,
has been designated as the source of repair for SOCOM'S HMMWVs. How can
the Army justify overhead and administrative costs for two separate
contracts for supply chain management when Red River could efficiently
conduct all HMMWV recap efforts, resulting in a reduction of overall
HMMWV recap program costs?
Dr. Westphal. As the CITE for TWVs, RRAD will eventually perform
the entire HMMWV RECAP mission, given the projected decrease in
workload beyond fiscal year 2012. LEAD has been used as a second repair
source during the surge to meet increased warfighter needs for HMMWVs.
With regard to the SOCOM's HMMWVs, although there is repair part
commonality for HMMWVs; the SOCOM HMMWVs are significantly different
from typical HMMWVs and LEAD has been instrumental in the design and in
maintaining the TDP with SOCOM additions. LEAD was selected by SOCOM as
the only depot able to meet their cost, quality, and schedule
requirements for their Ground Mobility Vehicle (GMV) sustainment. LEAD
has developed the engineering staff and has built the necessary
infrastructure to perform the GMV repair mission; reducing
significantly investment in administrative requirements, overhead costs
and supply chain support.
116. Senator Cornyn. Secretary Westphal, as a CITE for all TWV,
RRAD has also been designated as the Army's Depot Source of Repair
(DSOR) for the Mine Resistant Ambush Protected (MRAP) family of
vehicles. RRAD demonstrated successful completion of a pilot program
for the rest of 54 MRAP that was completed below cost estimate,
validating RRAD's capability to reset and repair MRAP. However, LEAD
was assigned as the DSOR for the Route Clearance Vehicle (RCV), an MRAP
derivative with near identical reset and repair processes to the MRAP.
Why did the Army require a separate DSOR decision for the RCV?
Dr. Westphal. Designating LEAD as the DSOR for RCVs provides the
Army flexibility to focus on MRAP repair/MRAP Egress Trainer
manufacturing at RRAD, and RCV repair at LEAD. Continuous upgrades are
being applied to RCVs, and LEAD has extensive knowledge of these highly
specialized vehicles because of their depot-forward operation in
Kuwait. LEAD has also developed an excellent partnership with the OEM
which saves us money and establishes core skill sets as changes are
applied to the RCVs at the organic facility.
117. Senator Cornyn. Secretary Westphal, how can the Army justify
Letterkenny's designation as a separate DSOR for the RCV, duplicating
the Army's capabilities and investments at RRAD, at a time when the
defense budget is under critical review and the Nation is facing a
financial crisis?
Dr. Westphal. The investment in capabilities at LEAD for RCV repair
was made in close coordination with the OEM in support of Operation
Iraqi Freedom. LEAD gained considerable expertise in repair and new
production, and has gained extensive knowledge of the highly
specialized RCVs through its depot-forward operation in Kuwait (having
repaired hundreds of RCVs in theater). LEAD has continued to build on
this great partnering arrangement with the OEM and has continued to
gain efficiencies while meeting warfighter needs.
[Whereupon, at 4:13 p.m., the subcommittee adjourned.]
|
NEWSLETTER
|
|
Join the GlobalSecurity.org mailing list
|
|
|
