tv Former Defense Officials Say Defense Reform is Necessary CSPAN May 1, 2017 10:42am-1:01pm EDT
china accounting for 90% of north korean trade, china alone has economic leverage of pyongyang that is unique. and its role is therefore particularly important. >> cspan programs are available at cspan.org, on our home page and by searching the video library. >> three former pentagon officials testified recently at a house armed services committee hearing on the future of the u.s. armed forces. and in particular what opportunities exist to improve the services. they provided recommendations for creating cost savings and efficiencies incentivizing defense innovation managing the civilian workforce and streamlining the acquisition system. this is just over two hours. >> committee will come to order. this week the committee will
hold two hearings that focus on the two major pillars of our agenda. tomorrow we'll hear from the service chiefs on repairing and rebuilding our military. today, however, we'll concentrate on the other pillar, which is defense reform. we've done a lot of reform over the past two years. that includes acquisition reform, a new military retirement system, major changes in military health care, commissary reform, a re-write of the uniform code of military justice as well as significant organizational reform. while a lot has been done, however, a lot more needs to be done. the world around us is simply moving too fast for us to sit still and assume that the organizations and processes of the past will suffice for today and especially for tomorrow. yes, we all have an obligation to see taxpayer dollars are spent as efficiently and
effectively as possible, especially in fulfilling the first job of the federal government which is to defend the country. but we all know from the news and from our intelligence briefings that we face a wide diverse array of threats. and those threats change day by day as adversaries develop systems designed to deny us any military advantage. we must be prepared for each of these threats. we also know that the pace of technological change is accelerating and that more and more innovation takes place in the private sector. all of these trends stress our existing organizations and processes. we will not be able to defend the country without outdated technology or sluggish bureaucracy. much of the responsibility for making needed reforms rest with us, with congress. we cannot do everything in a single bill or even in three years. but we must be willing to move aggressively to make the reforms
needed in this volatile dangerous world. there are no individuals who can provide wiser or more considered guidance than the three witnesses we have today each of whom held high office in the department of defense, each of whom testified many times before this committee and each of whom devoted their careers to helping provide for the national security of the united states. i appreciate each of them being with us today. before turning to those witnesses, let me yield to distinguished acting ranking gentleman from rhode island. >> thank you, chairman. proud to be speaking on behalf of ranking member smith this morning and i'll be submitting his statement for the record after i read it. but thank you again to our witnesses. so thank you, mr. chairman, for holding today's hearing on this topic of critical importance. again, i also want to say thank
you to our witnesses for sharing their opinions on past and future defense reform opportunities. i know you all have a wealth of knowledge and i appreciate you sharing this with the committee. i look forward to hearing the views on what the department of defense should or should not address in the future as it relates to acquisition policy, organizational structure and military personnel reform efforts. the fy '16, fy '17 defense authorization acts created significant change to the division of the office of secretary of defense. first, decision making authority for large acquisition programs move from the undersecretary of defense for acquisition technology and logistics to the service secretaries in second that the same undersecretary position was split into two undersecretary positions. the shift has created unknown dynamic for the department of defense and private sector companies who produce goods and provide services for d.o.d. so here we are in 2017 working
on next year's ndaa and key acquisition positions are yet to be filled. and it's too early to tell if these reforms will prove to be successful. in my view before we make additional acquisition reforms we should see if last year's changes are effective because frankly it seems as if current changes may be overwhelming the system. the department of defense can only absorb so much new acquisition reform legislation. however, one area where d.o.d. does not need congressional support is in helping it to right size its infrastructure by authorizing new round of base realignment and closure. d.o.d. has been asking congress to authorize new background each year for the past five years and estimate a new brak can help save $2 billion a year. at a time of constrained resources we cannot afford to waste $2 billion a year holding onto infrastructure that is in excess to the military's
requirement. while some may question the fore structure levels or raise concerns with the 2005 round, i believe congress can and should work with d.o.d. to address these issues and authorize a new round of brac this year. i'm also interested in where the department and services will go with regard to personnel reforms. ndaa reform the military retirement system to provide 83% of the force a strong portable retirement plan that can take -- that they can take with them when they complete their service obligation. but do not reach a 20-year retirement. it's time that the personnel system complements the retirement system with more flexibility and ability to target certain skill sets when needed. the services have been discussing for years the need for more flexible personnel system but done little with the existing authorities they have to make any meaningful changes. people join the military and
depart the military for a variety of reasons. and the system cannot be one size fits all. i understand due to the nature of the missions and organizations there are requirements and standards that need to be maintained. i'm interested in exploring concrete options that create flexibility to attract the qualified individuals needs to fit the requirements and as those requirements change maintain the quality the military needs to maintain high standards. with that i thank the ranking member for letting me read his statement on his behalf and i yield back to the chairman. >> i thank the gentleman. let me again welcome each of our witnesses. dr. john hamre, ceo and president of center for strategic and international studies, michelle, flournoy and dr. dov zakheim.
as i mentioned each have held high position in the department of defense and we're grateful for y'all being here. without ob jux your full written statement will be made part of the record. but at this point we'd be pleased to hear any oral comments you'd like to make. i want so say thank you for your committee taking so seriously this work of defense organization reform. you know, this is not the kind of thing most committees are doing these days. i'm so proud you are and thank you for that. >> could you move your microphone up. >> we worked on that hard but we made some serious mistakes with
the packard commission reform. we didn't understand it at the time. but when we took the chief of staff of the services out of the chain of command for acquisition, that was a mistake. you fixed that two years ago. and i'm very grateful for that. we dmingished the role of defense and engineering. that was a mistake at the time. you fixed that last year. and i haven't -- i know they're working -- unfortunately i think you undermine the impact of this
when created the second undersecretary for that position. the purpose for your goal last year we had conversations with the committee was to make the innovation secretary the third most important position in the building. and that was the right thing to do. you did that. but by introducing a second undersecretary who takes care of acquisition, that's where the money is. i was the comptroller so i know what it's like in the building. the guy that controls the money's got more clout. so your desire to elevate in prominence, the ecosystem within the department so we become more dynamic in addressing new technology and new threats was unfortunately undermined when you created the second undersecretary. and i would ask you to go back and take a look at that. you did the right thing by delaying implementation, so you have a chance to really get this right. we need to recruit the biggest
person we possibly can to come into that job. i would plead to you to take a look at that. you put in the authorization act last year, you created the chief management office, as written now it doesn't really do anything new. to make clear the way it's written in last year's bill, it is -- it's a staff function. what i think we need in the department is a line manager, over the defense agencies.
we do not have a line manager over the defense agencies. we have line manager for the army, for the air force, for the navy and marine corps. we don't for the defense agencies. i would ask you to consider looking at that making that chief management officer position, which you created, not a staff function, but a line function. give it responsibility to manage, oversee, hire, fire, promote, you know, to make capital investments, et cetera, for this very important function, to oversee the defense agencies. it's about $130 billion. there's a lot of work to be done here. but you're not going to get management out of the job the way you wrote it last year. so i apologize for being blunt here, but you absolutely are on the right track. flattered to work with you on anything this year. i have not seen your draft bill but i look forward to working with you in the committee, sir. >> thank you.
>> thank you, sir, ms. flournoy. >> mr. chairman, distinguished members of the committee. truly an honor to be here to testify before you on such an such a critical topic as defense error form. it's hard to remember a time when the need for defense reform was more acute, given the incredible challenges that our military is likely to face in the future. we have a military that is more capable than ever before, but also it's on a mission that is on an unsustainable cost curve. so fundamental reforms are needed to actually free up resources that can be reinvested in the critical concepts and capabilities and operations that will enable us to really maintain our tech knowledge california edge in the future in a far more challenging security environment. so now is a time to continue with a plan for robust reform to make sure we get the most out of every taxable dollar invested. and i, too, want to applaud the
work that this committee has done in leading the charge on defense reform, particularly in the acquisition area. but what i wanted to do this morning is suggest four new areas that you may want to go deeper in. this legislative cycle, in the future. the first is right-sizing do.o.. headquarters and in particular transforming defense agencies. if you look today at the office of the secretary of defense, the joint staff, the combat and command headquarters and defense agencies they total about 240,000 people, excluding contractors. that is about 20% of the defense budget. the substantial growth in dod headquarters is not just a matter of inefficiency but also one of ineffectiveness. in the private sector, bloated head quarter staffs have been documented to slow decision making, push too many decisions too far up in the organization, incentivize risk-averse behavior, undermine
organizational performance, and compromise agility. i think the same can be true in government. the agencies account for about $134 billion of the dod budget. so the high priority, in my mind, should be given to the large agencies that operate most like civilian businesses, including dla, the defense logistics agency, dha, the defense health agency, and the finance and accounting service. and what i would encourage you to do is to require the secretary of defense to undertake a comprehensive management assessment of these agencies, looking at where best business practices, new technologies automation might actually improve performance and reduce cost and create savings that could be reinvested in
higher priority areas. beyond this focus on defense agencies i think it would also be a good thing for congress to provide the secretary to have flexibility and breathing room, to assess across the dod headquarters, areas of potential overlap and look for opportunities to restructure, consolidate, reassign personnel, eliminate unnecessary offices and functions. and just hearing john's proposal for giving the cmo line responsibility over the agencies i think it's very much worthy of consideration. second key area i would love for you to grapple with is brac, the department desperately needs this background. the estimate is currently 22% of current infrastructure is excess to military need. the service chiefs have repeatedly testified that infrastructure overhang is taking money away from readiness and from modernization and critical future war-fighting capabilities. based on past experience, the
department is estimating that at least $2 billion a year could be saved. and although concerns about potential job loss are understandable, there are also a number of studies of past closures that concluded that most jobs are ultimately replaced and most affected communities actually do recover quite well. i think in a year where congress is also considering a major infrastructure investment bill you could imagine directing some of that investment to affected communities and potentially easing their transition and mitigating some of the job losses associated with brac, so bottom line, every dollar we spend on unneeded infrastructure is a dollar we're not using to support the men and women who serve in harm's way. so i would encourage you this year to act. the third area is reshaping and reinvigorating the employee work the civilian work force. today, the dod maintains about 170,000 employees, you have an
an multiple efforts to streamline the system with mixed success. i think you have an opportunity this year to provide the secretary with a package of authorities to help reinvigorate the civilian work force. i would encourage you -- i list them in my testimony. i'll just briefly touch on some of them here. but retiring the secretary to develop a comprehensive human capital strategy for how we recruit, develop, and maintain and shape the civilian work force, including in that, assessing the optimum mix between military civilian and contractor work forces. secondly to set realistic personnel cost reduction target. so actually further modify the visp authority to allow it to be targeted on specific employees that are judged appropriate to leave government service. to encourage the secretary to
use the modified authority that you provided last year but has not been used by the department yet. to give the secretary flexibility to reallocate and reassign personnel as he right-sizes and reshapes the organization. really looking to consolidate the personnel system, currently there are 66 systems being used for the civilian work force in the department of defense today. 66. imagine trying to manage that. can we look at a consolidated approach under title 10 that would really allow the secretary to tailor one system to hire, manage, develop, compensate, retain dod civilian work force. and there are a number of other ideas that i list there as well. the fourth area is improving the quality of health care while reducing costs. today, the military health care system costs have nearly doubled over the last decade. with the cbo estimating an
additional $40 billion by 2013. 2030. what is even more important in my mind is that survey data suggests that the quality of care received by the military personnel and their dependents remains uneven, and below the civilian benchmarks in key areas. so i think this is an area where dod and the congress have an opportunity to explore ways of both improving the quality of care while also leveraging approaches like values-based health care to reduce costs. in my written testimony, i actually draw from an excellent report that bob hale, the former dod comptroller did for cnas, and highlights five areas of health care reform that i think are worthy of looking at. war-time readiness, value-based reimbursement, utilizing services and availability of choice. let me conclude by saying i
really think we have a tremendous opportunity with this secretary and this congress to move forward on these issues. i think now is the time to provide the secretary of defense with the authority and flexibility he needs to actually get better at performance and free up resources for reinvestment and higher priority areas. but that said, defense reform as you all know is not a panacea. it's my hope that this congress will also consider how to establish a more predictable and more robust levels of defense spending over the next five to ten years without vetting diplomacy and development accounts that are also critical to our security. i believe that reaching a comprehensive budget deal including all the elements from tax reform to entitlement reform to smart investments in the drivers of our economic portion and growth, it's not only an economic imperative, it's become a national security imperative. lastly, i hope the dialogue this
committee is fostering, the congress and executive branch will be able to partner more closely together and make hard choices and undertake the reforms necessary to ensure that we truly keep faith with the men and women who serve in the best fighting force in the world. i think you would at agree they deserve nothing less. thank you. >> thank you. dr. zakheim? >> thank you, mr. chairman, ranking member smith, like my colleagues here i've been in front of this committee several times and it's a real privilege to be here again and to testify yet again on defense reform. the last two years this committee the committee has literally led the charge on implementing, first legislating and then helping to in effect implement reforms that were souther sorely needed in the department.
but as my colleagues pointed out and everybody here recognizes there's still a way to go. i want to focus on some of the topics that have already been mentioned. the list is very long. let me begin first with civilian personnel. i have a slightly different take than some of my colleagues have on what to do about the fact that civilian personnel has grown. it's 36% right now -- excuse me, of all personnel in dod. the civilian personnel added 77,000 people in the last several years, and a high jump. military instrument, as we know, has gone down by 8%. civilian pay has gone up 31%. most of that has gone to the general schedule. the white collar folks. wage board folks, the blue collar folks have barely gotten an increase at all and i think that is worth noting. it's not at all clear that these increases have actually provided
dod with more efficiencies. if it had, we would not be talking about it today. and one of the serious issues involving efficiency is the degree to which civil servants offload too much work to contractors, and particularly to what are called euphemistically august mentees. we have a problem with that, because it decreases an unhealthy symbiosis, which workers are essentially given contractors work that they probably could and should do themselves. when i was comptroller i saw reports that were meant to go to the congress that were poorly written. turns out they were not written by the civil servants, and were barely reviewed by the civil servants. they were written by contractors and when i said this wasn't the right thing to send up to the hill, the answer was,
okay, we'll send it back to the contractor. there is something fundamentally wrong with that. another serious problem is the education of our civil servants. you can get a degree at the age of 25 and not take another course for another 40 years. that just doesn't work, for human resource management as well, my colleagues are absolutely right. we need to focus on human resource more. if we don't train people, how are they going to manage? we really need to ensure that anybody who wants to get into the senior executive service, should spend a year at a top-notch university, either doing business school type work or going to a top technology school so that they really become educated consumers and educated managers. without that you're going to find people flailing around as they do today. it doesn't help. and the military system,
whatever you think about the need to improve professional military education, at least they have it. you cannot become a general officer without going to a national war college or one of the service war colleges, the equivalent. we need that for our services as well. it's not fair to them. and last year's ndaa had some relationships established between the defense acquisition university and outside organizations, whether it's think tanks, universities, whatever. but the defense institution is virtually a training institution. and if you go online and you look at the offerings, you'll see so many of them are distance learning. well, distance learning has its points but it's not really going to educate people in the way that face-to-face, year-long education will do. and as long as as the course offerings are primarily doing something for training rather than education, you're not going
to get what you need out of the dau. the dau has its place, but it's not the be-all and end-all. i would also argue that because the civilian personnel levels are just so high we need to look at something like the reduce act. unless you literally specify cuts and obviously the department will allocate those cuts but unless you specify something along the lines of reducing that you're never going to get the force levels down. and if you want to spend more money on the military force levels and spend more money on procurement and acquisition you have to do something with the size of the work force. there are no two ways around that. as for dealing with the staff august mentees, i would recommend that nobody who leaves the department as a civilian or military person can go back to the department as a contractor for five years. in other words, you can't flip your badge and come back on monday, doing the same work you do on friday. it just doesn't work out.
it adds to the overload in terms of numbers of civilians. and obviously, if people have to stay out for five years, they're going to find other jobs. and you won't have this phenomenon of people literally doing the same job just getting paid more and wearing a different badge. i would also like to briefly talk about the reorganization of osd, i don't feel as strongly as my colleague, john hamre does about the split of the two -- of the under secretary into two under secretaries, but one thing. we really need to make sure their staffs don't grow so that again, you're increasing headquarters instead of reducing as michele would like to see and i think we would all like to see. if you don't limit what they can add to themselves, one idea that i have had for many years is have the principle deputy double as the assistant secretary in
some -- some assistant secretary, simply so that you don't have duplication of staffs. you don't need to have a principal deputy who has a staff of his or her own, in addition to the undersecretary, and in addition to the number of assistant secretaries. and by the way, i would recommend the committee look again at the number of assistant secretaries the department really needs. in my testimony, i indicate some areas where some changes could be made there and reductions could be made. and finally, regarding the cmo i totally agree with john. the cmo ought to be in effect, the undersecretary, not with that term. but in effect, the undersecretary for the force of state. have them focus, have the cmo focus on that area. we're talking about fortune 500 companies that are managed by people who would not be ceos of fortune 500 companies. so we need to get somebody good in there, and somebody with business experience in there.
and that cmo should focus on that. right now the mandate is so broad that what will happen is there will be inefficient focus on any one area, plus lots and lots of turf wars. there is nobody who focuses only on the defense agencies and field activities, that is because the undersecretaries who have them in their charts simply are focused on other things. when i was comptroller, and when john was comptroller, yes we had them under us but that was not our primary task. our primary task was to focus on the budget. so i strongly recommend as i think john does that the cmo focus on that force of state. and finally, on acquisition reform, because i know my time is running out, i would simply say this. i know that there has been some skepticism about diux, and about to some extent the third offset. frankly, i think the third offset is necessary.
it only shouldn't be a replacement for force level increases. which to some extent was the implicati implication many people took away from when the third force was introduced. as for diux, it seems to me they overhauled their personnel. they are clearly focused on innovation. if you want them to succeed you have to do some other things, in particular the defense department needs to default, not to far apart 15, which is the classic way of contracting. but either the far part 12 or some other system, where in effect, you are buying directly from the contractor who doesn't have to be part of the defense space. if you do that you are going to totally overhaul the culture of the department which right now thinks profits are some kind of sin. which essentially wants to go through many hurdles and hoops before anything gets done. and that is where we get our
delays and cost overruns and that is where we get frustration on the part of your committee and congress generally and the consumers of defense, who are the taxpayers. mr. chairman, thank you very much for allowing me to repeat many of the things i've said before. the committee is doing a wonderful job and just keep it up, thank you. >> sometimes we need to hear it more than once, so that's okay. i want to go back and examine some of the specifics y'all have talked about at the ends if other members don't ask about them. but let me just start with big picture questions. it seems to me when it comes to defense reform, there are two justifications. one is efficiency, squeeze more money out so it can be used for other purposes. the other is agility so you can keep up with adapting changes
and enemies and so forth. do each of you agree that the efficiency part, if everything were perfect and you could squeeze out all of the inefficiency possible, do you believe that is enough money to rebuild the military and the crs and sequestration that has been created over the past number of years? >> you mean the slim budget that was proposed? >> no -- what members ask me is they will see a headline and says oh, greater efficiencies could save this much money, and the question is can you reform your way to health? if you just -- looking at the dollars -- >> my personal view is that you're going to need additional resources. you cannot find enough savings inside the department to compensate for the readiness issues we have now, the four structure issues we have now. i think you're going to need more money personally. now that is not to say you
shouldn't dig in on getting rid of the inefficiencies. but i think we just need more money because the department is stretched. >> yeah, that is what i'm trying to understand. >> oh -- >> go ahead. >> i would agree that you can't -- defense reform alone will not be enough to generate the investment we need in future capabilities to deal with a more daunting security environment. by the same token, i don't think we can afford to simply put more money into the defense budget without defense reform. both from an efficiency perspective but also from the very important point you made about agility. but this is also about improving the organizational performance of the department, not just reducing costs. >> dr. zakheim? >> i would agree as well and use a business metaphor as well. if you cut your operating costs all the way down and you don't increase your revenues you're out of business. and in a sense this is the same thing.
you can push efficiencies only so far. but if you don't increase your top line you're going to be out of business. and agility i think is equally if not more important. because the fact of the matter is we do rely primarily on our edge in high technology. and if we're not agile enough, we're going to lose that edge, because so much of the technology is no longer dod's province. it's out there. so agility is absolutely critical. we need both. i think the direction the committee has taken does allow the department to achieve both if the department is willing to cooperate. >> well, and let me just pick up on that for my second question, on the agility side i think you heard earlier the statement that we need to just give it a rest. let the reforms we've already instituted have a chance --
because there is a cost to churn, to change. and i think we ought to be cognizant of that. but again, a big picture sense from y'all is -- as you see the threats evolving do you believe we should kind of back off and let what we've already done give a chance to set in, or do you think we need to continue to move maybe even more aggressively at the kinds of reforms that each of you have laid out. just again, this kind of bigger picture is the churn worth it given what's happened in the world? >> well, mr. chairman, i say move as aggressively as you can, the reason i say it is, churn doesn't necessarily lead to bad things. secondly, if you essentially call a time-out, what you're going to do is allow the bureaucrats in the department to figure out a way to get around everything you've done.
that has happened in the past. i've seen it when i was in the weinberg defense department. i saw it in the rumsfeld department, and when mr. rumsfeld tried to do things and the bureaucracy figured out how to get around him much less you all. no, i think it's critical that you keep on pushing. >> i would agree with that. i do think that a lot of the change that is focused in the acquisition area, and i think the department probably needs some period of consolidation actually, maybe with some of the tweaks that john hamre described but needs some time to actually implement and fully comply with what you already asked them to do in the acquisition demand. but beyond that i think -- now is the time where you have an opportunity to move much more aggressively now in other areas, which are equally important to bringing both agility and efficiency. >> mr. chairman, i would argue that i think you should move
actively, aggressively, on reform. because the american public is questioning the value we're getting out of what we put into the defense department. that was the real challenge of that study done by the defense business board last year, coming at a time when people said do we need to give dod more money or don't we? i happen to think we do. but i also think the american public is questioning whether they got it. i think you have to push on reform in order to convince them that you are being a good steward of these resources. >> thank you all. that's very helpful. mr. langevin? >> thank you, mr. chairman, i want to thank our witnesses for your insightful testimony here today. increme increme increment 3.1, 2006, and the first update was not delivered to the fleet until
2012. this tragedy worked in the past. the /* it has been rendered unsustainable. especially when you look at more's law, technology squaring every 18 months. months so our adversaries are now accomplishing goals acquisition-wise and time-wise. how do we transform military industrial policy complex to restore our advantage in the time line it takes to field new technologies? >> i think it's one of the principal challenges we face. and i think one of the things -- there are certain platforms they will take very long lead times to create. i think one of the things we want to do is have more mod later in the designs of those platforms so you can plug and play new information technologies, new electronic warfare systems, new, you know, modular components. because it's those capabilities that are developing much more
rapidly, and those areas where we want to be able to change out capabilities on a platform that may have to last 20 or 30 years. but that is key. the other key part is being able to approach the acquisition of commercial technologies, and their integration with a much more responsive, agile, quick-turn set of authorities. one of the things this committee has done is pushed some of those other authorities, the new authorities to the department. i think what is now lacking is the change of culture and behavior that mr. zakheim highlighted as needed in the acquisition work force. we need to actually educate, train a cadre, who really knows how to use those new authorities. who has more of an innovation mind-set, who is most comfortable acquiring commercial technologies and bringing them in. and that is a very different skill set and mind-set from what you need to manage a defense acquisition program over a 20-year time scale.
>> and the only thing i would add to what michele flournoy just said is it's necessary if you're going to change the culture to have the bureaucracy default to buying commercial. as opposed to default to the system that we now have. and the defense business board, which i am on had -- and the task force i also was on, recommended as i mentioned focusing on the portion of the far par 12 that essentially deals with commercial off the shelf procurement as opposed to the classic system. you can do that and do other things. what really is important is ensuring that the default mechanism for buying the modularity that michele talked about is commercial. as long as that is not the default mechanism, a, you're not
going to change the culture, and b, you're not going to have the problems you just spoke about. >> may i just briefly add, you're right to highlight that when we build platforms gosh it takes a long time to do it. but also we have examples where we've done things quickly and effectively. we put hell fire on predator. that was just done in months, i mean, we're able to do things very quickly and we should be studying why do we have places where we do it well and why do we get bogged down in other things. a lot of it revolves around the commitment of the leadership and how closely to the leadership is supervising the bureaucracy. if the boss wants to pull something through the system it works. so i think we need to go back and take a look -- this is why you did the right thing when you put the chiefs of staffs back in the chain of command. that's how we're going to get more. it's making people more accountable and giving them more flexibility and saying they're
we're not satisfied with 12-year-long development situations. you're right to highlight it. saying let's look at the examples -- >> i want to jump in a second time. we have a quick acquisition system now created to get around their acquisition system. so that is where you ought to start looking. and i think what you will find is that the rapid system simply eliminates a lot of the checkoffs and reviews and passing of paper that otherwise would take place. but that is where you should look. when a department creates a system to get around its own system you ought to scratch your head and say why. >> so thank you for those answers. and -- still on the topic of acquiring -- technologies, quickly allowing them to be adapted. more quickly. so technological advantage and the innovation that drives it are the key foundations of strength for our armed services,
our technology sector from major corporations to small businesses are crucial to invigorating research, yet they have limited access to participation in our defense industry. while the defense innovation, diux, is an excellent initiative to change this paradigm, the contracts awarded through this mechanism are kind of less than 10.01. procurement budgets of 2016. so how do we reform our acquisition cycle to participation and access of both giants of silicon valley, and the entrepreneurial small businesses that fuel our american tech industry? >> i think the primary task and opportunity of the new undersecretary innovation, it's the research development and engineering under the undersecretary is to take that
soda straw that is coming through places like diux and darp and so forth and to make it a super highway. to really perfect the department's leveraging of these commercial technologies. so have it be commonplace, to be prototyping a number of systems. and then choose which ones you're going to bring all the way into full acquisition. to be putting -- incentivizing experimentation and concept development that goes along how we're going to allow these new technologies to actually transform how we fight. and again, that will take a different organizational culture, a different kind of incentives and rewards, a different kind of training for the civilian and military work forces that actually have that task. so i think that is -- you've done the organizational change, but to make that effective, you really have to get into how are you going to create the incentives, the career paths, the training to make that new
organization behave fundamentally differently than the traditional acquisitional core. >> i would add a couple of other things. first, diux essentially develops prototypes. then it goes into the system. once it goes into the system you have all the problems that the system has and that we've talked about. so again, that's another reason for accelerating reform, rather than sitting back and waiting. because you just got shot in the foot, another thing related to that, you can mill spec everything to death. if you start to do that with the diux has prototyped, you're going to have a problem again. and i've spoken to the head of diux about it and he acknowledged that that was a serious issue because they don't mill spec, that is the whole idea of what diux is doing. you have to take a close look at that. third area, just keep the diux leadership there.
if somebody comes in from industry and is there 18 months that is not really very, very good. you're not going to get anything out of an innovation like diux unless you have somebody there for three years who figures out how the system works, how to get around the roadblocks and so on. you heard about the training for michelle, i won't repeat that again. one other thing, diux now has leaders who are reservists, many of them. and our whole reserve system doesn't really account enough for the people who are in the high-tech area in their civilian lives, and then come in and they'll be sent to clean the bilge or something. and i'm not kidding. so diux provides a vehicle for bringing in reserves who are doing really well in the high tech area, for example, down in austin. the guys down in austin, who are running that office who is a reserve who reports directly to the ceo of apple. that is what you want.
>> may i humbly offer a suggestion? the president has nominated pat shanahan to be the secretary of defense. pat has a long and storied career as a very effective program manager in one of our aerospace companies. you don't have a formal role with confirmation. but you should have him come up to talk to you either in a formal hearing or in an informal hearing. and ask him -- say, we're going to be measuring you by how well you accelerate the efficiency of this system and i want you to come back in three weeks with each of the chiefs of staffs and military department to say how we're going to do it. this is about leadership. and i think you have a golden opportunity because we have a new leader who has a lot of experience in managing in industry. i think it's a great opportunity
for you to take advantage of that. >> very good, great suggestions, i thank you all for your answers and insights. and although i have other questions, and i would like this idea of not being on the clock, i'm going to respect the other members' time and i will yield back and perhaps submit these for the record. thank you. i yield back. >> >> mr. wilson is recognized for five minutes. >> thank you, mr. chairman. thank you each for being here today and your service to our country. dr. zakheim, in your own experience as undersecretary of defense what was one defense reform that stands out as being particularly effective, and what lessons should we take from that reform to inform in the ongoing and future reform efforts? >> we need some good news. i would like to hear it. >> i was there beginning of the 2000s. one reform that clearly made a difference that i thought, was
ability of darpa essentially to go directly to the comptroller and get money. i'll give you an example of that, we had gone into afghanistan and knew a lot of the bad guys were hiding in okay in caves. he comes to me in november of '01. he comes to me and he says, if you give me x amount of millions of dollars, i've got this weapon called therma baric weapon that will smoke all of these people out of caves and i will have it in the field for you by march. gave him the money. that was that. it was in the field by march and it smoked a lot of people out. so there are ways and i think my colleagues have pointed it out. there are ways to cut through this red tape. that was one example. >> well, as a grateful dad of a son who served as an engineer in afghanistan, thank you for what you did.
ms. flournoy, if you recommend a shift in new issues what criteria should the committee use to determine issues of focus for future of future defense efforts? >> i guess i would encourage you to sort of plot them on two axes. one is sort of bang for the buck. biggest return on the effort. and second would be political -- the heaviness of the political lift. and to focus first and foremost on the things that are most impactful in terms of improving both the organizational performance and agility on one hand and potentially reducing cost on the other. and that are also in the politically feasible square. that is where i would start. you know, i think one of the things -- the dynamics that is taken hold sometimes is, you know, the department of defense
will propose and congress will say, well, we don't really like that agenda. and we go back and forth trading. i would love to see the executive branch and the congress sit down and say, let's create a target for how much money we want to be able to move from -- you know, to save. and move into reinvestment. and let you all really determine or have the lead in determining of all the target-rich environment of all the possible reforms what are the ones that you think makes sense and that you think make politically you can get a consensus on to move forward. because the truth is there are many more opportunities than we can possibly handle in one year. and i think the key is keeping momentum going. so you know i would say bang for the buck, and political feasibility. >> very constructive. thank you very much. and dr. hamre, under the
leadership of chairman mac thornberry of this committee, are reform efforts have been passed successfully on the military information and the department. in your opinion, should the committee continue its focus on the primary reform efforts in these areas in order to capitalize on progress that has been made to date or shift to new issues, if you recommend shifting to new issues what issues do you recommend? >> sir, i do think -- first of all you're going to have to monitor the reform efforts you put in place. because the reforms of last year are unsettled. and you did the right thing by giving a year implementation period, but that means you're going to have to be on top of it for this year to make sure that they follow through. i do think you should look at additional things. and i have my own set of pet rock issues. for example, and i know this is something your staff is looking at, the question of materiality for audit standards in the
department. there is no materiality standard for the auditors, so they chase ten cents. they chase parking tickets. they chase who had the blue cheese dressing. i mean, it's crazy without having a materiality standard. we're wasting a lot of money and bottling up the defense industry because we can't close out contracts. i mean, these are very mechanical and arcane, stuff like that is very important. it drives a lot. i personally think we need to bring back a-76, where we conducted objective competitions between public and private sector over a contracting out activity. half the time the government wins but the government redesigned it the way it did business and saved money every time. i think there are a lot of things like that we could be doing. and i hope you tackle these. these are not the big glamorous
exciting things but they drive a lot of money in this department. i'm happy to come up with you any time and talk about it. there is no purple property book for the department of defense. every bit of property is owned by one of the military services. there is no central management. we're the biggest renter of real estate but for the federal government outside of the general services administration. but it's all decentralized. we get no value for scale in our system. there are so many things we could do like this but we have to change the way we do our business. >> well, supporting an audit, thank you for what you're suggesting, thank you. >> mr. swaze? >> thank you, mr. chairman, i'm new to this, but a former mayor and accounting executive with a large account with a $2.8 billi2.8 billion budget. it was a 50-year-old budget that grew over time. there were no listed properties, it was multiple accounts of i.t. technologies and different departments. so when i hear you talk about 66
personnel systems. and when you talk about no centralization of management. and i just visited guantanamo, yesterday. and it's a sprawling facility with a new building here and another one over there. it's very typical to what i saw in my experience. now -- i always felt it was you know the executive's branch, really was the one that had to get their hands around this, they're the ones who have to drive the ball here. and the legislative body with sometimes be more of a hindrance by trying to pass a law for no standards for audits, for example. i don't really care about who had the blue cheese dressing. i want to know about the big things. i have a couple of questions, number one you suggested before ms. flournoy that we should target a number as to how much we would like to provide in target and savings that should be used for reinvestment? so the first question is what do you think the number should be?
i'm not going to hold you to it, but just an order type of number we that should be targeted for savings and management. secondly, when i look at the overall budget of management and defense, operation and maintenance is $250 billion, and procurement is $112 billion. so operation and maintenance is bigger than either personnel or procurement and i don't hear anybody talking about operational maintenance that much, so it seems it could be a target-rich environment and what do you think of that basic operation just looking at the numbers? and i'll leave it there for now. i was going to ask you what is the target number we should be looking for, for to set a goal and reinvest back in the military. and second is what about operation and maintenance? >> well, the defense business board as you may know came up with the study that has been
referenced before. a couple of years ago it pointed out a host of different efficiencies and argued over 75 five years, you could save over $125 billion. >> that would be $25 billion a year. >> $25 billion a year. i personally think the number is on the high side and they actually had high, low and middle. but it just thinks that somewhere between 20 and $50 billion is not out of the question. that's number one. >> just $25 billion is less than 5% of the budget. >> yes, correct. on the operations and maintenance, you're absolutely right. one of the issues that has been ongoing for years is real cost growth in operations and support. and part of the problem with that is that when you buy a new system the focus is always on the up-front cost and not how much it will cost you out there. in fact, very often the people who produced the system say well, you will save a ton of money in the future but if you
discounting, you'll discover you're not going to save that much. discuss this, you will find you spend a lot more than you thought. and so you need to have somebody very senior who is responsible for the o & m side when they get into discussions about procurement. i remember at meetings of the acquisition board, the person who worried about sustainment and operations was not as senior as just about everybody else around the table. well, you know what happens when that's the case. i think high level focus on o & m will get to the goal that you're laying out. >> i don't have a magic number in mind but i do believe the sort of order of magnitude that the defense business board study talked about is probably craft cracked over time. overtime. the challenges you -- it will require some up-front investments so your initial savings will be smaller and it will grow over time. for example, it costs money up front to close bases and then
you get the savings over time. but it is documented in most cases you do get the savings. similarly, things like i.t. transformation and automation, you're going to have -- dod is going to have to invest to move to the cloud or move to a secure cloud. they will look at the building and systems that require up-front investments. i think you want to think about it as -- ramping up over time. the other key thing is the incentives. and this is watched secretary gates struggle with this on the efficiencies mission effort, that he undertook. first time he went out and sat down with all the services and components and said okay, we're going to aim for x billion dollars of efficiencies. next meeting, come back with your suggestions, everybody came back next meeting, really hard to find anything, just really couldn't do it.
he said well, how about if i told you you could keep half of what you find? oh, next time people came back with unbelievable ideas, wonderful, creative, because each of the components knew they could now keep half the savings and reinvest in the priority areas. so i imagine the incentive structure is as important as setting the target level. >> thank you. >> just to build on what secretary flournoy has said. it is about incentives. and both dr. zakheim and i were comptrollers. the patron saint of all comptrollers is judas ascariat. nobody is ever going to come give you money. it sets up a bad dynamic in the department. there is an important dimension, if any dollar that a military department, any one of the service chiefs saves in the out-year they get 100% of that. it's only when it comes into the
budget year when we arm wrestle with them and take some from them and give them a little bit back, everything they save is something they get to pocket and can reinvest inside their own service. the most important review the department does is the program review which is run by cape. we kind of let that fall apart honestly. if we were to get back to the program review becomes more prominent in how we manage the department and the service chiefs know if they make hard choices now in two and three years, they get 100% of that money. we don't have the incentives right now. >> thank you, mr. chairman, i'm interested in this topic if there is anything we can do further. thank you. >> great, thank you. >> ms. hartszler. hartzler. >> thank you, thank you, mr. chairman, great testimony and suggestions, appreciate my colleagues' comments there. i wanted to hone in on dr. zakheim's business report, the report you put out that you just referenced.
as you know, that kind of caused a big stir when that came out. $125 billion. 25 a year. current and former department leaders suggested that some of the savings came from private sector initiatives that may not be achievable in the public sector. so in your opinion, what are the differences in accomplishing successful reform in the public sector versus the private sector? >> well, let me start with unions. we have in the defense department, unions that bitterly oppose any civilian personnel reform where you could save a bunch of money. you could save probably initially anywhere between 5 and $8 billion a year. just through human resource and management. well, mr. rumsfeld tried it and it blew up in his face thanks to the unions. now, the law, the civil service reform act has a provision where
the president could exempt the defense department employees from being unionized. already, cia employees, military employees, others, are indeed exempt. once you exempt them you can start to then pursue the reforms. it is one key area, probably the richest area of immediate reform. that is money you spend immediately each year. obviously there are differences beyond that defense the commercial sector and the government sector. but nevertheless if you actually look at the report it does scale $125 billion, kind of mid-level, less than that and more than that as well as options. but the key is what kind of efficiency -- what percent efficiencies could you realize and if you took half the percent of what goes on in the commercial sector you would
still save $60 billion over the next five years. so it does seem to me that the argument -- well, you know, we're different and you throw your hands up in the air, it's got some validity, but not total validity. >> one thought. data access and transparency, there is no entity in the world that has more data than the department of defense but we keep it locked up in little stove pipes that individuals own. so if you're looking for an department, right now the defense system is trying to figure out cost assessments and how much we spend on different properties. if you unlock the data and create analytics, the problems pop out. and you see n one case, you're playing five times more for electricity in the same region that another facility down the road. why is that? or maintenance. or whatever the issue is. so i think there is a huge --
it's very powerful if we could figure out a way to unlock and access and analyze the data that the department already has in stove pipes to get at some of these efficiencies. >> dr. hamre? do you have anything you want to add? >> we have two different types of budgets, mil-com, military personnel, budgets that bottom up, that is o & m. we don't manage it in any detail. the way we handle it, we give cash at various levels to people and give them a little bit less than they ask for and see how loud they scramble. that is really how we manage o & m, we don't manage it in an effective way. everybody knows they're sandbagging dollars at lower levels, because they know they're going to get cut.
so we really do have to understand and analyze the o & m budget. and the o & m budget now is doing a lot of procurement. it's not just operations now. we're buying a lot of procurement. so you're on to something very big here and will have to drill down to say if we were to change the way we budget and manage the execution of o & m, how would we do that? >> very good, thank you very much. i yield back. >> ms. davis. >> thank you, mr. chairman, i really appreciate you having this hearing. it tells me how serious you are about this topic and it has been going on for some time. one of the questions looming out there, and you talked so much about people who are in important places. leadership. but i'm wondering right now, we have a federal hiring freeze.
we're also having a great deal of difficulty getting people into appointed positions. nominations and even the confirmations. how is that affecting all of this? >> i think -- it is creating a very challenging environment. i think the hiring freeze in particular is sort of, you know, using a meat axe when you need a scalpel and many administrations across politicals of all different stripes, it's a blunt instrument because what it does is it cuts off your talent pipeline and it prohibits you from hiring the best talent coming in, the next generation even in the most higher priority areas, and so you basically create a personal bathtub that will follow you through over time. you know, as your talent pool progresses.
i was on the cia advisory board, and we watched this bathtub that was created, i think it was in the carter years follow all of the way through the workforce. we're still in very senior grades today. you have the right kind of expertise and personnel because of that hiring freeze decades ago, and so i think there are better ways to manage that personal infrastructure. the other thing is as you are right sizing and re-shaping the workforce and making cuts, it's very important to also be investing in the workforce and the talent that you want to keep so that you're continuing professional development and continuing with the high performers because if you don't do that you will break the workforce in the process of reshaping it which is yet human capital strategy piece up front is so important to pull all of the different pieces together. >> so i'm wondering then and certainly for this committee,
you've had a lot of suggestions about how to try and get at some of these issues. some of them are cultural and others are just, i think, people just haven't tackled those issues. what -- what is the best way of going about that? i know on personnel the last few years some changes were made and there were commissions that looked at some of those issues and sometimes it feels as if they're there's going to be a delay in getting things done because if we have this year looking at specifically that could be done to get at that? you mentioned one of the positions that someone who hasn't even taken that position yet, trying to get it? what would you do? on a lot of these -- you need the task force here or internally for -- >> i think what this committee
could do is ask the secretary of defense to create a human capital strategy for the civilian workforce of the department and them he would task each of his line managers to do component strategies. i harp on because if i were going to answer that previous question about what was the most successful, powerful reform you witnessed when you were in government, it is implementing a human capital strategy in my own organization as we were having to down size because i knew if you didn't compliment the down sizing with investment and keeping the best talent and -- and incentivizing the participation and the morale and, you know, people buying into -- even though it was a smaller organization, it's still a vigorous organization. to me, that's the key. you have to have a strategy of where you're trying to go that isn't just about cuts and also re-investing in what you're going to keep and that's where i
would start and i would encourage the secretary to report to you on that or to hold all of his direct reports accountable for helping him develop that department wide. >> doctor? >> i would focus two things first. we've all talked about training and education, and i truly believe no one should enter the senior executive service and be a tom manager without getting the type of education the same way the military does in learning technology or human resource management. the other one is if you're going to formulate any kind of requirement for human resource management plan like michelle just talked about, be careful not to create the kind of loopholes that dod always blows right through, and i'll give you an example. the 2013 ndaa had called for an efficiencies plan, but allow dod to identify exemptions from the total workforce. out of 776,000 people, 538,000 were exempted. if that's going to be the
situation you're not going to get anywhere. so i would strongly urge, if you follow michelle's advice, make it as tight as possible. >> thank you. thank you, mr. chairman. >> mr. burn? >> thank you, mr. chairman. you brought up a topic that's been sort of a hot topic around here and some of us have been skeptics about it and want to go back to it with you and that's brac. we've had discussions about brac ever since i've been on the committee three and a half years now, and some of us have tried to look into past bracs to determine if those bracs actually resulted in savings, real, substantial savings, and we couldn't find any evidence that, in fact, there were those sorts of demonstrable savings that would make the brac effort worth it. so i would like for you to disabuse me of my skepticism and tell me where i'm wrong and other members of the committee are wrong. will brac, based upon past
experience, will it really bring savings to us? >> i am not an expert on this topic, but i have -- i believe that gao has done a number of reports that in the way my understanding of their conclusions was at the early rounds of brac actually did result in recurring savings over time in the single-digit billions, and i could get the exact figure for you, but i'm sure your staff could get to that report or i could provide it. the -- the brac ground that sort of poisoned the well was the last one because it really was a realignment and consolidation, brac really wasn't a closure brac, by and large and so it didn't save a lot of money and the way in which the process worked left a lot of sour taste in the mouths of many people who participated. so i think there are certainly lessons to be learned in how to go about this to ensure that it is worth the pain associated with doing it, but i do think
the the early rounds of brac demonstrate that real savings could be had over time. given the extent of the overhang, when you have service chiefs saying i have 20% to 25% more infrastructure than i need and it's taking money away from readiness and investment in future capability for the people we're sending in harm's way, i think we have to wrestle with this. >> would either of you gentlemen like to respond to that? >> the secret is brac is the biggest millcom program in history. we built -- we built stuff all over in the gaining basis and gave them modern, new facilities, so you really have to look at this auto brac at having made possible the real plant modernization for major elements of the department. it financed and i was just down in huntsville last week.
my gosh, fabulous facilities in huntsville. it was all made by brac. the reason why you don't see savings is we spent it along the way. we would have had to have spent it on modernization anyway. i would look at this in a slightly different way. how do we find a way to internally finance the modernization of our forces especially real property? i think we should look at brac in a slightly different way than just are we going to rack up big savings that we can show to the person taxpayer. >> but that's the way it's typically been sold us to. you will save money. yes, sir, i understand. i'm not saying it's not appropriate to say you shouldn't be using it, the way we're approaching this is hey, we need to save this money and maybe it's something worth doing beyond the fact it saves money and it seems to me we haven't had a good enough case made by the services that brac would
actually save money did you have something you want to add to that? >> if you look at brac the way we've been talking about other efficiencies with the ideas -- there are two ways to benefit and one is to save money and give it back to omb. i wouldn't want to do that. i tried to avoid it when i was comptroller. the other way is to take the money as michelle pointed out and say we'll put it back into service priorities. if you approach brac that way we're going to take it back and put it into service priorities you're in a totally different place, but i totally agree with you that if the case is made on the basis of savings, the case is weak. >> i think that's why you have
the service chiefs pushing for it because they want that money to re-invest elsewhere, whether it's in readiness or even more so in future capabilities that they know they're going to need to deal with more challenging adversaries. >> i appreciate that. mr. chairman, if i could get that from service chiefs. what is it that you will do with the money that you think you are going to save and how will that make your operation more efficient and more effective. it would be helpful to me to take a closer look to the bracs to see if they make sense? i yield back. >> i would mention we asked the services to give us some data to support the idea that they have 20% excess infrastructure. perhaps the 2004 and nothing updated since then. so the attitude a lot of us have is we want to work with you to save money, but we're going have to have something more than something that goes back more than a decade before the last round of brac upon which they
base a decision. i appreciate the gentleman raising the issue. mr. brown? >> thank you, mr. chairman. my question pertains to acquisition. you identified some specific things that perhaps we should consider undoing from previous years, but i also know that in your submitted testimony, and i missed some of your responses and questions as i had to step out. i apologize. you advocate for a pause, perhaps a year-long pause in further acquisition reform to allow the department of defense to realize and measure the impact of changes made in the last few ndaas. i wanted you to elaborate on that, and let me throw out all my questions so this way each of you can respond, perhaps. you had mentioned the workforce training for acquisition. i know in october of 2002 the army stood up the acquisition
core to identify, recruit, retain and develop the civilian and military workforce. is it working? should it go service wide? department wide? thank you. let me clarify. i don't mean a full-stop pause. what i was trying to say is last year's authorization bill gave the secretary and the department a lot of guidance on how to change the acquisition system, and particularly the organizational structure, dividing the under secretary into two, creating new authority, staff, procedures, et cetera and just having lived through many organizational changes in the department. i think that i would say that the focus as dr. henry said this year should be on working very, very closely with the department to make sure those changes are perhaps tweaked and refined a little bit as needed, but also
fully implemented as intended before you sort of take your eye off that ball and go on to the next round particularly of any particular organizational changes. so it's not really a pause, but i think you've put a lot on the plate in terms of acquisition reform, and i would say it's a good time to switch to some other areas while really monitoring closely the implementation of what you've asked the department to do in that regard. >> well, i differ somewhat with my colleague and friend, michelle floor. i personally believe that you have to go full boar because if you give them time what you ask for, they'll figure out how to get around what you ask for. on the question of training, remember when the army brought this in they'd had a string of disasters, of acquisition disasters and they've done
better, although findinging a good new light helicopter, they're still working on that, but again, the focus was on training and there has to be training, but there also has to be a focus on education and you don't keep up with a morse law through a training at uau. you just don't and it should be obviously defense wide because even if a service has a pretty efficient way of getting its systems through its own process, look at stackly at the maybe who is a terrific assistant secretary and has worked i think for both democrats and republicans. they don't want to let him go, but what happens when whatever has passed through him now hits osd.
you run into a roadblock again. so any reform that you think about implementing needs to be dod-wide in my view. >> just a follow up and maryland has gaineded a lot on a per capita basis. i'm hearing sort of conflicting views from the services that i speak with different service personnel and leadership as to navy, army and air force, who's in for brac. who's not, and what's the -- can you just characterize it by service where they are? i don't have the fidelity to give you an accurate answer. i'm sorry. >> mr. whitman? >> thank you, mr. chairman. i would like to thank our witnesses for joining us today. >> i would like to begin with this. we hear today about all the strategic challenges we have and our adversaries and whether it's terrorism and the groups associated with that, china, russia, north korea, iran.
and since world war ii, they've gone through the process of acquisition reform, but i would argue today with the united states with where we are that our adversary, our challenge, that is as strategically important as the other adversaries we talk about all of the time are time and resources of which we have excess of neither. give me your perspective on how do we get an acquisition process that treats the adversaries of time and resources at the same level as it treats our adversaries of extremist groups, of russia, of china, of iran and north korea? >> it's -- it's a great question, and i think it is what should be the driver behind really building out not just this new undersecretary, but a whole end to end system and how you create a pipeline for rapid acquisition and rapid access to commercial technologies and integration of those
technologies because i share your view, and i think this is a common assumption that what we do in the next decade will determine whether we keep our military technological edge. it is under challenge in many domains, cyberspace, maritime, i mean, you could go down a list. if we stand still and rest on our laurels we will not have the edge in ten years' time. in many of these areas it's not going to be the new acquisition platform bill that's going to yield fruit in 20 years and how rapidly can we modify and improve what we have? and so the efforts of diux and the efforts of -- the organization and the efforts and how quickly we can prototype and get those into the field, that is what's going to determine
whether we can prevail in the future. so i think we can't have a great enough sense of urgency here and building out the bypass system is the most immediate goal and then i would love to keep reforming the main system, but the urgency is building out the bypass and making it a super highway instead of a one-lane dirt road. >> let me ask you to expand because where i see the united states today in relation to our adversaries is this. when our adversaries look to start a new system whether it's a new class of ships or aircraft, they start with a blank piece of paper and they go through and put their ideas out there and they say weir going to do this and do that and they problem solve and get to decision making quickly through that realm.
when we start here in the united states we have a sheet of paper that's filled with noes. no, you can't do this. no, you can't do that. no, you can't do this so we look at portholes through the whole sheet of paper with noes. how do we pull out our eraser and take those noes off the page so we can start with a blank sheet of paper which is where our adversaries start and they add to that blank sheet of paper by stealing, too, so they can bypass us more quickly. give us your perspective on how to get there. >> the key is to open the door as wide as possible to commercial acquisition. if you buy into the notion that the big weapon systems are essentially platforms for things you put in them, and then the question becomes how do i get the things that i want to put in them as quickly as possible and as advanced as possible. look, if you go out to silicon valley, they're ahead of time. you go to the defense
department, we're behind time and so that's the key. how wide can you force that door open and unless there's legislation to force it open it ain't going to open because the culture of the department is anti-profit, anti-commercialization and lots and lots of inboxes and outboxes and you know the rest. by the way, i read something interesting and even the bad guys steal from each other. russia came to china and they discovered it was exactly the same. so if they're stealing from each other you can imagine how much they're stealing from us. we have to focus on that, as well and we're doing a lot in that regard, but unless we go after the things that everybody else wants to steal then we're not going to -- we're not going to make that ten-year gap that michelle talked about. >> thank you, mr. chairman. i yield back. >> you didn't ask me the question, but if i may -- >> please, please. >> when i was nominated to be the comptroller.
>> senator john glenn asked me to come up to the committee to talk about how bad the system was in the department of defense. that had a searing impact on me, and i probably spent 20% of my time when i was the comptroller trying to go after that problem. i would suggest again, and i mentioned you were out because you had another obligation, but i would recommend that you bring in the new deputy secretary of defense. he's an acquisition professional and he's been working inside and you tell him you want him to give you a plan in six months on how he's going to streamline the system. it isn't going to give you all of the answers and i promise you he'll spend a third of his time working on the problem and it's about leadership. that's where the key is. i apologize for interrupting. >> thank you, mr. chairman. i yield back. >> that's great. >> thank you, mr. chairman. >> it's nice to see miss florno
again. i have a question and i was following with congressman wittman's ideas. i'm a fan of darpa. i think darpa is amazing. it's been explained to me as imagine a hundred or so geniuses and like a travel agent making sure that they're staying in their right places and as we all know, when the prime minister abe was looking at trying to reform the japanese military the one thing he had was like a darna because it just worked so well. having said that, however and this is in line with what michelle was saying as well as you, dr. zarkin is this idea that the reality is we can have this thing about silos and what we need to do, but the reality is we are here every two years, you know.
it depends of the president is there a before? it takes him a while to pick whoever will be in the respective positions and therefore the concepts of what we should do to modify how we do things can come and go very quickly. so how do you anticipate. it seems to me like getting rid of the silos is a great idea, something that should have been done a long time ago, but hasn't, but then the question becomes okay. it seems like some kind of bureaucracy will take over to do away with the silos and like miss floorno was saying, there will be an expense that would make it seem inefficient before you have the benefit. so as you all sit there, tell me given the political reality of how congress and how administration operates, how do we -- how are we going to be able to accomplish this if you have a totally changed philosophy in two years or four years, and what i really want to make sure of is that we don't do
things to entities like darpa that works? and those are my concerns. i agree, we need to do something, but how do you do it in the political reality of what we deal with? >> let me take a stab at that. i'm a republican. my two colleagues are democrats. we're pretty much in agreement on a lot of this and this is a very bipartisan committee. the point is when it comes to efficiencies and defense reform it's not a political issue in the sense that many other things are. so that's already an advantage in your favor. the second thing is this is one of the reasons i would argue push for reform because it's a two-year turnover and once the
legislation is there, the department always adapts. if you don't give them the flexibility to wiggle out of it. that's the second thing. the third thing is congress can, and i think john alluded to this several times, congress can call the leadership of the department in and say, okay, what have you done? what have you accomplished? because what you want is consistency. i wouldn't get rid of a diux just because ash carter brought it in. that's ridiculous. and what i've seen over the years is you get new secretaries and new undersecretaries and they come in and reinvent the wheel and they have a 100-day plan and they say the guy before me was an idiot which if you think about it, everyone is an idiot because everybody said that about the old guy. you have to get away from that. congress has to say we legislated x and think about how you made x to work and that you can do and do it over time.
>> as soon as miss florno answers this, you've talked about it for years and years, but we don't do it, so go ahead. >> i think one of the challenges we too often focus in my view, on moving the organizational boxes without changing the underlying incentives that drive behavior and i'll give you a great example that john gets lots of credit for because he worked on it when he i was up on the hill and legit lating an incentive that we're feeling the effects of today. goldwater nickels. the i don't service was the death of a military career. you're out of of mind, and you may not become a flag officer
unless you get, a, education, and b, you have joint experience. it completely flipped the incentive and now all of the hard chargers are looking for that joint experience and looking for that joint education and how am i going to be that so i can get the stars on my shoulder? it's very powerful and over a generation or two? that's the bedrock of joint culture. it's all that time being educated together and serving together. so i think the thing we have to wrestle with is what are the incentive changes that you all could legislate that would create fundamentally different behavior in the acquisition and innovation domain? to me, that's going to be more powerful enduring than any tweaks we make to the organizational chart. now you're going to ask me what that is. i'm out of time. >> the five reasons why darpa has been a huge success. first, the chairman serves a five-year term, that is the director and so it's a long enough period of time for you to be accountable and you want to show results. that's the first thing. second thing is there is an astounding amount of flexibility for darpa.
there are only four line-items for the account and they can move money across any of them. congress has tied the department's hands. you cannot move more than $4 million from one line-item to another in rnd without coming back for permission. darpa has total flexibility to do that. that's the second. the third is almost all of their work is placed entirely in the private sector, and they can do rapid acquisition by going out to the private sector. they have special authorities to do that, but they place is in the private sector, and the fourth reason is program managers are not allowed to stay more than four years so they don't build up, entrenched bureaucracies around themselves. it's a fairly small, fairly lean organization and they can only stay for four years and the third is they get secretary of defense protection. you put those five factors together, that's why we have
success. i would have to tell you and i would say this respectfully, we're doing just the reverse with our legislation. we're creating more overhead, more fracturing of it, we're putting more restrictions on where you can put money and how we spend it. please step back and look at how you can take that model and bring more flexibility to the department because that's why darpa works. >> thank you, mr. chair. i apologize, we went over. >> no, we're more flexible today with these witnesses. general bacon? >> thank you, mr. chairman. as someone in the air force, i can tell your stellar reputations precede you so thank you for being here. two quick comments and a couple of questions. i was part of the rapid acquisition as an operator within the air force, the big safari and it really works. one thing that doesn't work is the manning of those weapons systems once we produce them. we typically only man them at 50% even though we've done a got job feeling them. we have to match the rapid acquisition with other things that the service provides there
to be effective and i'm thinking of the mc-12 as an example. 50% manned while we had it in the air force and put a lot of risk. just one example. this committee has worked on reducing the size of the general officers particularly in the pentagon. it's been my experience that we've been overstaffed there. now for a couple of questions. have we reduced the staff at the services because we need to. this is my impression and i would love to have your thoughts on that and whoever would like to answer. >> you can go first. >> my impression is we have not and in fact, each time you add an assistant secretary or you have a congressionally mandated deputy undersecretary, somebody who needs confirmation. you have created an excuse to hire more and more staff. in my written testimony you will see i'll give a few examples of where, in fact, you can combine
assistant secretaries so that you can cut back on the staff. i think you should cut back on principle deputies, i don't think you need them and when we talk about splitting the secretary for atnl, make sure that the total number of osd staff working for the two is no greater than working for the one which was too big to begin with. if you look back at the growth of the atnl bureaucracy over the last 20 years, it skyrockets. >> should the arms services committee drive this or does the secretary of defense should take ownership of doing what you're saying? >> i would say that this is something that requires consultation with the secretary and if the secretary is forthcoming and this particular secretary is very forthcoming about just about everything i would say that it may well be that the secretary could handle
it. the only down side to that is what happens when a new secretary comes in? that's my concern. >> anyone else care to answer? >> i think you should put the own us on the secretary of defense to come back to you with what is the optimal mix? where is the optimal allocation and there may be areas where he needs to grow capability and there may be areas where he can reduce the capability, but giving him the move and consolidate organizations and eliminate low-priority functions and reassign staff. those kinds of authorities and flexibilities are key to doing that reshaping because again, there may be some cutting, but there will also need to be some reinvestment in the human capital. >> we need to reduce the size of the team. another question for you, use it or lose it at the end of the year.
how do we reform that better because we get a lot of new desks, a lot of new paintings and a lot of new rugs and it's wasteful and your spending on use it or lose it? your thoughts on that? >> i remember when i was a comptroller where we would move money from time zone to time zone. >> i see that, too. >> yeah, you know, we're -- part of it is you've done part of that and i don't know if it is still in place and funds that are not spent by the end of the fiscal year, normally they lapse, but they're allowed to go into the foreign currency fluctuation. so it provides and you don't have the incentive just to spend it on anything, you know? because you can put it to something that you need. i think that's how you ought to think about this. i think you ought to find a way where you can take the funds that are otherwise close to expiring and give them an opportunity to live in a different way for something that
the department needs and in this case, foreign currency fluctuation was a big deal in the 1990s. i don't know if it's as much a problem today as it was back then, but i think it's something like that. the other thing is, frankly, onm is managed on a decentralized basis. we don't really know how it's being spent in the field and until we start developing different approaches, probably -- find out how big corporations manage 0 and m. they must have a different way of doing it than we do in the government. >> it's a profit. >> they have an incentive. >> i agree with john, by the way that the private corporations do it is they're monitoring the funds on a daily basis and one thing that i trieded to do, i brought in the e to ppbe which is execution, and i wanted to have an execution review every quarter which is nothing compared to daily reviews of where the monies are, but if you have an execution review every quarter as opposed to one
mid-year review then the comptroller is in a better position working with the staff in particular to minimize the last-minute spending that you're talking about. moving the monies into an account that would allow them to be used for other purposes. some people will turn around and say it's a slush fund, so you've got to be very careful about what accounts you're talking about, but it seems to me the more visibility you have into what are called bishops funds and it's a total church hierarchy and you see they got his money and so on and so forth. the more transparency you get and we've all talked about that, the more likely is you will prevent what you talked about. >> thank you again, and i must admit, mr. chairman that use it or lose it reforms is something we should be looking at. i think it's an
embarrassment. thank you. >> well, as a matter of fact, if there say supplemental that can be spent beyond september 30th, at least for that money, for this year. we've done it a few times before to extend beyond the fiscal year and it seems to me getting at the problem that you're talking about that it would make some sense. mr. lambert. >> mr. chairman, thank you for having this hearing. thank you all for being here. research and development is critical and that's part of having the best weapons platforms and innovations for the future and sometimes research dollars are vulnerable because in the beginning stages of researching new technologies,
it's not yet tied to a program. so how can research dollars in these times of constrained budgets be protected so that we still have the great capabilities that our finest minds in the world are able to come up with and stay ahead of any potential adversaries, but those dollars might be taken for something else if we're not careful? >> well, and -- >> this is a big problem because -- when we were back in the days that we had rnd budgets that were half the size of the procurement budget we couldn't possibly turn the breakthroughs into weapons systems. we didn't have enough procurement money, you know. and so part of the reason that it was scaled back, you know, the last couple of years as a
percentage is because there was just not sufficient capacity to take advantage of what we were inventing. so a whole fresh look at rnd would be very helpful. it's one of the things that would be very good for this new undersecretary for research and engineering to do because the current ddr largely looks after the 6-1 and 6-2 account. they don't have the capacity to look at the whole, and i think that would be a good thing to ask the next undersecretary to do. corporations will have -- i was with one, and i was on the board of one that had something called the vitality index and how much shows up on the shelf as a product we sell within five years? and there was -- there were objective measures that they had as a company to say where are we willing to spend money because we want to see a return on it?
>> it's hard for us to do that in the defense department and we should have some kind of mechanism where we're looking at the rnd program and say where does this fit in. where does it fit in and what difference does it make? you're hard pressed to find that. there's real management you need to bring to this problem. >> they look at capital expenditures which include rnd expenditures and the ceo has to report back to the board and says this is what's going to come of this because of the bottom-line operations and one possibility that may help deal with the concern you raise is if this new undersecretary really is committed to having a partnership with the commercial sector, with the non-defense commercial sector so that our bureaucrats and again, you want to talk about measures of merit and changing culture -- i've said in my testimony, don't let anyone become a senior executive servant unless they've spent a year at m.i.t. or cal tech or what have you if they want to be
in the acquisition core because it will make a difference. i've also suggested there say program called the secretary of defense corporate fellows where they've sent 15 to 20 people to corporations and triple that and have an equal number of civilians there so they know what it's like in industry. the more you cross-pollinate in industry the more they think where do my rnd dollars lead to? because now they'll be thinking in terms of capex if i can use the term. i think that might be a way to help out. michelle, do you have any thoughts to add? >> one thing i would say is if you're going to move towards a system that puts more emphasis on experimentation, prototyping, you have to have a slightly -- you have to have a somewhat higher tolerance for failure and there will be certain things that you prototype that don't work out, but you learn from the experience and that makes the
next thing better. so i actually think in the model that you're trying to create with this new organization you want to have a higher proportion of rnd spending relative to what we've had vis-a-vis procurement and that you don't want to have such an emphasis on ultimate roi that you miss the learning curve that you get out of, you know, a very robust experimentation plan. >> can i ask a quick follow up? >> sure. very quickly, iron dome and israel, that was done in three years from pad of paper to operation, and i just can't see that kind of result here in the u.s. and yet there's times when we'll need the kind of quick turnaround. >> that's a great example of urgent, operational needs you have those killed in israel by rockets from gaza. what can work today? what can we put together that works? they went out and procured it and fielded it as fast as possible with our help. i think this gets to one of the things that i hope will be on
your plate is the whole military requirement setting process that sometimes it is an obstacle to doing things quickly. we spend so much time trying to get consensus and we overspecify the requirements that, you know, we spend so much time and we spend years on that up front that we're behind the curve that than we try to get to acquire the thing. so figuring out when we do need to have the military specks and where can you rely on commercial and adaptation kind of -- i think that's a key distinction that we need to work on. >> the israeli system, by the way, is so different from ours in another respect. they are totally integrated, the commercial side and the ministry
of defense so that when they go out and say yes, we need x, the commercial folks are on it quickly and we just -- we have this gap because for too many of our people in the acquisition system the commercial sites the enemy. we've got to break down that barrier. >> thank you all, and thank you, mr. chairman, for your indulgence. i yield back. >> i know that people have varying opinions about how the congress should go about tackling these issues and other than legislation, i was wondering what do you think congress can do or refrain from doing that could improve the efficiency or the effectiveness of the acquisition process? >> well, i would go back to what i mentioned about darpa. i think that darpa is such a success because it has so much flexibility, but accountability. the director is there for five years. that individual is totally accountable for what comes out
of that product, out of their budget every year. they have a lot of flexibility in the budget. they have a -- they're not bound by civil service system for finding program managers. it's a very different model. it's a model where it's more about leadership and trusting leadership and less about arcane and very rigid rules, and i think, honestly, we're on a path where we're writing legislation so much, just dictating how the department has to do things that we're undermining what i think is really the key, which is hold them accountable and give them the flexibility and use the other power that you guys have which you don't use enough of which is to bring them up and talk to them. you have no idea how frightening it is when they get a call and the committee wants to hear and it's not going to be a hearing and we'll just have a private meeting.
that has enormous impact and right now most people have to write big bills to have impact with the department. you don't. there's so much more you can do by utilizing this power that you have for this position. so i would do less, create more accountability and think about a model where you're trying to recruit the very best people that want to come in and serve because they have a lot of authority to get things done and you're trying to help them do it. >> you know, john hanley was my predecessor, actually, but one as comptroller and i can say as comptroller, as well, the congressional restrictions on moving money from one account to another are just too tight. john mentioned the director of darna doesn't have to worry about that to any degree than just about anybody else does and when we're talking about a budget of approximately $600 billion and then you are told we must go to four committees to move $25 million from one account to another, that's
ridiculous. certainly not how industry works. certainly not how any successful company would work. so it seems to me that i fully understand why congress wants to watch how monies move, but there's a long way between 20 or 25 million and a $600 billion budget and it seems to me raising those ceilings would be one way to create the ability to be flexible and agile and then if you combine it with some of the other reforms that this committee is pushing then you will start to see real synergy. >> i would just add that same flexibility in moving and managing people is really, really key, and then the last thing i would say is there have been lots of reform attempts over the year, and when something doesn't work, rather than removing it, we just add another layer and i think clearing away some of the layered complexity of past
reform and regulatory efforts that haven't necessarily yielded the desired results, but people still feel accountable to go by, that can also add a lot of needed flexibility. >> and so with all of that, what do you think is the most appropriate mix and the most cost effective mix that the military should try to achieve as it relates to military, civilian and contractor personnel to accomplish his mission. >> again, the answer to that question requires a comprehensive assessment that i don't think has been done in a long time, but i think the general assumption that i've heard this morning is, you know, there's likely to be some re-shaping of the civilian career workforce while investing in that workforce's development in education and training and probably a reduction in the
level of contractors that we rely on to support those civilian functions. >> and we also have to look very closely at what we want the military to do as opposed to what someone else can do, and that's important, as well. so it's not just a matter of cutting this level or that level of civilians or cutting contractors. it's also a matter of who's doing what. so there really has to be a comprehensive view. thank you. thank you, mr. chairman. >> it has to be a comprehensive review where we have the honest price of each of the forms of labor. we do not have a uniform way in which we put the full cost of having a uniform or a civilian or contractor side by side to say which is the most cost effective way to do this job. so you could, you could demand -- again, this is a plea, you could demand that the congress give -- or that the department develop a real
objective cost assessment that you could see the difference between military labor, civilian labor and contracted labor. >> as you all were talking about it earlier, i had in my mind that you were talking about, say, a human capital plan for osd, but you're really talking about something broader than that when you start bringing in who does what, what do contractors do? what do civilians do? what do military people do. am i right? i'm trying to think, how do we right this? what's the charge here? >> i think that ideally you would want it department wide, but that's a pretty herculean task and where i would start is with the secretary's own staff and to ask him to lay out for the functions of osd what is the right mix of military, civilian and contractor and how does he
need to reshape and reindicate, train his workforce to be as effective and efficient as possible, but i think you could then look at other components beyond -- beyond osd and you should because from a resources perspective, the osd is dwarfed by the staffs of the services, the staffs of the defense agencies and so forth, but if you're looking for a way to pilot the approach and get your arms around a piece of the puzzle and then learn from that experience to then go after other pieces, it's not a bad place to start. >> i would agree with that except i would expand it to join
include the joint staff. there's a lot of overlap there. some say we ought to just combine them the way the brits do. i'm not sure that's the right way to go, in fact, i'm pretty sure that's not the right way to go, but still there is an awful lot of overlap, and i think looking at them together as a unit might be one way to deal with this pilot project as michelle puts it. the other thing is i wouldn't allow this to stand in the way of mandating reductions in the civilian workforce. the civilian workforce is just too big, and i haven't seen any efficiency out of it. there's no correlation between the growth of the workforce and its efficiency. in fact, it's a negative correlation. >> well, that really gets to the second part or the other question i wanted to ask. there is some that you would give to the secretary of defense to omd in six months' time, but
it's your view that we ought to expect this human capital report before there is authority to move the boxes around and have buyouts and so forth. >> i think that ultimately, you want the review, first of all, you want form to fit function. you want the focus to be first on, you know, what are the important functions that where i need potentially more investment and where am i willing to take some risk and do less? and then you need to adapt, i think, the add on the human capital layer to figure out how
we will actually staff that. one of the things when i had my little world of policy which was by then a thousand people. it had grown a lot since i'd first been in there in the clinton administration, we did them simultaneously and one of the things we asked was if you had 10% more where would you invest? if you had to cut 10%, where would you cut? and we did that at a very low level all of the way through the organization and it gave you a pretty good sense of where we were short and we really needed to plus up and where people really thought i'm doing this because i'm told i have to do it, but i don't really think there's much value here, and we sort of did the two streams in a complimentary way or overlapping way. i don't think they have to be strictly sequenced. >> i'm not -- i just think you'll have to impose cuts and figure out what's the most efficient way to do what you need to do, and if there is more value, tell us what that is. i'm close enough to corporations that when they have to do a down sizing they don't start with a bottom-up review. they start with a top-down goal,
and i think bill perry used to say reform does not -- i can't remember what he said now, forgive me. you have to make cuts first and commit yourself to those cuts before you figure out how you will get the best value out of it. i think you've been around it too much and you will get incremental, marginal suggestions if you do it on a bottom-up basis. >> i agree with that. i think you have to have a target, but then allow a combination of a functional review and the human capital review in terms of figuring out how you will get there, but the target is the key to incentivizing the result. >> if you don't give them some clear directive as to how much they should cut over what period of time. they're just not going to do it. first of all, they'll try to
wait you out. that's number one. number two, like i mentioned somewhat earlier, if you give a vehicle for exemption they'll exempt as many people as you could, 500,000 over 700,000 and that sort of thing. it's got to be tightly written and clearly directed and then you give the secretary and i would argue the secretary together with the chairman because i think it is important if you're focusing on osd, the osd and the joint staff, i really think need to be looked at together, and have them both and give them the flexibility within that overall number and them have them come back and report to you and not a written report because a written report will be written by a contractor, but have them actually come and testify in front of you. >> but i think a cost-saving target, you know, that gives the maximum flexibility of how to get there and this is where the other authorities are so important, you know, as you gave last year an authority that wasn't just about seniority, but was about performance. you raised the level which was
great, but still supervisors can't use that on an individual basis to actually incentivize individuals who need to depart to depart. so, i mean, those accompanying authorities are really, really important to turn -- to really give the flexibility required to re-shape the organization in a productive manner. >> the only thing that worries me about authority, mr. chairman, is that bureaucrats will say i've got the authority. i don't want to use it, and what will then happen is the deadwood always stays which is why dead wood bureaucrats love hiring freezes because who knows? the junior people. they don't come in. ones who come in last and the other ones that go out. that's just not the way to get the department up to speed with all of our enemies out there. >> okay. if you all would indulge me just a few moments more and i have to go back to the undersecretary business, and i understand your
point that you dilute the effective one by having the second and you addresseded this in the written testimony that i still need to hear it again and if you have the undersecretary for research and development, but then you give under him the acquisition authority how is that not re-creating atnl under a different name? >> yes, sir. i -- i think the most important thing we're trying to do is change atnl from a giant compliance organization into an innovation organization. you're not going to get that done unless you break it up. and i think breaking it up means you take the mechanical function acquisition and far review and all of that kind of stuff. you put that under an assistant
secretary and that's what the assistant secretary does. the undersecretary is responsible for all of the big choices that the department's going to make that involves acquisition and the development and purchase of things. you have to make that job big enough so that you're going to recruit someone really big who would want that job because it really is meaningful. all of the acquisitions and we took a big step, you took a big step two years ago when you pushed the acquisition back to the services and a very good thing to do. so we need to get the bulk of the acquisition process back to the services and get a smaller organization at the top that's overseeing the process that the services implement and then a powerful person who makes big choices for the department, and i think having two under secretaries, i think, could confuse that. it's really disassembling what we built up with the packard commission and going back to having the services play much more of a role and osd playing much more of an oversight role
with a creative person being a decider about big choices. >> but the assistant secretary to the undersecretary? >> yes, sir. >> it's still within -- >> still within that orbit. you have one acquisition, but you're taking all of those mechanical functions and you're taking them down a level and pushing them out to the services. >> okay. okay. you don't have anything more on that? >> okay. mr. landry, do you have questions? >> thank you, mr. chairman. one additional question i had, we had a discussion a while ago about cost-cutting targets. last winter we learned of a report that stated $125 billion could be saved for five years if you don't waste in the department. this accounts for about 4% of dod outlays and they're the types of savings that companies try to achieve through cost-cutting practices and while i'm disappointed that this
report was initially bierried within the department, i think there are valuable lessons that can be learned from it. how do you believe we can best meet these cost-saving objectives and how have you seen the department implement some o seen the department implement some of the more actionable efficiencies? >> well, the report came out of the defense business board. it wasn't buried at all. easily accessible on the web. it was probably briefed. we all talked about it. nobody was told you couldn't talk about it. so i don't know where that whole thing came from, quite frankly. but to the substance of your concern, it does seem to me that what that report essentially is saying is, in the first place, your best start is with civilian personnel, and it seems to me that that's one where their legislation in terms of levels of civilian personnel might be very much worth while. that i believe that if you take their numbers from two years ago
and update the numbers to fiscal 17 numbers, you save $5 billion to $8 billion. not trivial. not a lot, but not trivial. then they have five other categories, and in fact secretary of defense listed those very same categories in his memorandum on efficiency. and so again, picking up on what john hanley said, get them in here, ask them, okay, what have you done on each of these categories? and to the extent that you don't get a straight answer, you start thinking about legislation for it. >> i also think you need to think about how the deputy secretary and the cmo, what kind of capacity they will have to do this kind of management transformation work. your typical political appointee is not going to necessarily have that kind of background and experience. and so a senior official who wants to take a transformation step is either -- either they have to go hire a very expensive
outside consultant or they decide they just don't have the bandwidth to take something on. one of the things that was included in the last authorization bill was authorization for what is called a tlifrdeliverly unit, which is actually taking a page from the uk which brought 30, 40 people with deep experience transforming organizations, coupled with some real experienced folks from within the department, and basically created an internal resource for the deputy and the cmo to work with the line managers of their organization on transformation plans and to really drive that change internally. but i do think you have to think about where are these two critical officials actually going to get the capacity, the kind of change that you're talking about and to really drive that. >> you know, i personally think you could save $115 billion, but
very hard choices. really tough choices we have to make. you know, the average -- i think average server in a computer center in the department runs about 10% of capacity. because each of the service is buying their own stuff. that means you're going down and ripping it out of the service. that's painful. it's hard to do that. we do not take advantage of the pricing power we have as the biggest renter of property in the united states because it's fractured. it's all over the place. we don't have a central place where we're good at that. we spend money getting rid of things rather than making money getting rid of things. you know, we've got 500 people at the disposal center. we're paying for them to get rid of stuff. we're not making any money off of it. but these are very hard things to do. they involve people's jobs in
very specific locations. it involves a lot of freeing up a lot of restrictions that are put on the department in recent years. so can we do it? yeah, i think we can do it. they're very painful. and is that -- does that avoid us needing to increase money for the department because of the problems we've got now? no. i think we have -- we've got real readiness issues in the department. real readiness issues. we've got a lot of airplanes that are really old that we need to replace. so we need to be objective about it. i strongly think we should try to save that -- the $115 billion, $125 billion, whatever billion that is, especially because it would give credibility to the department when it asks for additional resources. >> one other area where -- related to this is the whole area of contract auditing which is highly controversial right now. but the fact of the matter is,
dcaa is billions of dollars behind. that's hurting industry in another way which is they have to reserve money that they can't spend because they don't know if they're going to have to give it to dcaa. but leave that aside. the fact is that if you get a good outside auditor, they will start to tell you where some of this money that john hammery just referred to is or isn't, and that gives you the vehicle to start moving moneys around, to being more efficient, and in fact to reaching that $125 billion goal. >> well , certainly i know we'r moving in the direction of being able to you had a daudit the de. this is certainly the point where aen littics would come into play and help us get where we want to be. thank you all for your testimony. with that i'll yield back. >> i want to just emphasize on the defense business board issue, not only did we not bury it, we cited it in our committee
report two months later. and the increase in incentives to voluntarily leave the department that we had in last year's bill was one of the specific recommendations that they made. now the bigger dollar savings comes from the sort of civilian personnel reform that we've been talking about which is part of the reason i have asked ayou al several questions about that. there was an effort to do that that didn't go so well a few years ago, but yet it is a significant period that needs our attention. you all have been very helpful. i've got lots of notes. but i also know where to find you to elicit more information and more questions. so thank you all for being here and for all that you assist this committee with, the hearing stands adjourned.