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51–665 2010

[H.A.S.C. No. 111–21] 

THE DEPARTMENT OF DEFENSE AT HIGH 

RISK: RECOMMENDATIONS OF THE 

COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT 

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 12, 2009 
(II) 

HOUSE COMMITTEE ON ARMED SERVICES 

ONE HUNDRED ELEVENTH CONGRESS

IKE SKELTON, Missouri, Chairman 

JOHN SPRATT, South Carolina 

SOLOMON P. ORTIZ, Texas 

GENE TAYLOR, Mississippi 

NEIL ABERCROMBIE, Hawaii 

SILVESTRE REYES, Texas 

VIC SNYDER, Arkansas 

ADAM SMITH, Washington 

LORETTA SANCHEZ, California 

MIKE MCINTYRE, North Carolina 

ELLEN O. TAUSCHER, California 

ROBERT A. BRADY, Pennsylvania 

ROBERT ANDREWS, New Jersey 

SUSAN A. DAVIS, California 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

JIM COOPER, Tennessee 

JIM MARSHALL, Georgia 

MADELEINE Z. BORDALLO, Guam 

BRAD ELLSWORTH, Indiana 

PATRICK J. MURPHY, Pennsylvania 

HANK JOHNSON, Georgia 

CAROL SHEA-PORTER, New Hampshire 

JOE COURTNEY, Connecticut 

DAVID LOEBSACK, Iowa 

JOE SESTAK, Pennsylvania 

GABRIELLE GIFFORDS, Arizona 

NIKI TSONGAS, Massachusetts 

GLENN NYE, Virginia 

CHELLIE PINGREE, Maine 

LARRY KISSELL, North Carolina 

MARTIN HEINRICH, New Mexico 

FRANK M. KRATOVIL, Jr., Maryland 

ERIC J.J. MASSA, New York 

BOBBY BRIGHT, Alabama 

JOHN M. MCHUGH, New York 

ROSCOE G. BARTLETT, Maryland 

HOWARD P. ‘‘BUCK’’ MCKEON, California 

MAC THORNBERRY, Texas 

WALTER B. JONES, North Carolina 

W. TODD AKIN, Missouri 

J. RANDY FORBES, Virginia 

JEFF MILLER, Florida 

JOE WILSON, South Carolina 

FRANK A. LOBIONDO, New Jersey 

ROB BISHOP, Utah 

MICHAEL TURNER, Ohio 

JOHN KLINE, Minnesota 

MIKE ROGERS, Alabama 

TRENT FRANKS, Arizona 

BILL SHUSTER, Pennsylvania 

CATHY MCMORRIS RODGERS, Washington 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROB WITTMAN, Virginia 

MARY FALLIN, Oklahoma 

DUNCAN HUNTER, California 

JOHN C. FLEMING, Louisiana 

MIKE COFFMAN, Colorado 

THOMAS J. ROONEY, Florida 

ERIN C. CONATON, Staff Director 

ANDREW HUNTER, Professional Staff Member 

JENNESS SIMLER, Professional Staff Member 

CATERINA DUTTO, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Thursday, March 12, 2009, The Department of Defense at High Risk: Recommendations of the Comptroller General for Improving Departmental 

Management ......................................................................................................... 1 

APPENDIX: 

Thursday, March 12, 2009 ...................................................................................... 29 

THURSDAY, MARCH 12, 2009 

THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS 

OF THE COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

McHugh, Hon. John M., a Representative from New York, Ranking Member, 

Committee on Armed Services ............................................................................ 2 

Skelton, Hon. Ike, a Representative from Missouri, Chairman, Committee 

on Armed Services ................................................................................................ 1 

WITNESSES 

Dodaro, Gene L., Acting Comptroller General of the United States; accompanied by Janet St. Laurent, Managing Director, Defense Capabilities and 

Management, Government Accountability Office; and Katherine Schinasi, 

Managing Director, Acquisition and Sourcing Management, Government 

Accountability Office ............................................................................................ 4 

APPENDIX 

PREPARED STATEMENTS: 

Dodaro, Gene L., Acting Comptroller General of the United States ............ 33 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Skelton ....................................................................................................... 67 

Mr. Taylor ......................................................................................................... 67 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Murphy ....................................................................................................... 72 

Mr. Smith .......................................................................................................... 71 

(1) 

THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE COMPTROLLER GENERAL 

FOR IMPROVING DEPARTMENTAL MANAGEMENT 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Thursday, March 12, 2009. 

The committee met, pursuant to call, at 10:02 a.m., in room 

2118, Rayburn House Office Building, Hon. Ike Skelton (chairman 

of the committee) presiding. 

OPENING STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM MISSOURI, CHAIRMAN, COMMITTEE ON ARMED 

SERVICES 

The CHAIRMAN. Ladies and gentlemen, welcome to our hearing 

on ‘‘The Department of Defense At High Risk: Recommendations of 

the Comptroller General.’’ 

Today, we focus on the issue of how well the Department of Defense (DOD) is doing at the routine business of managing its business operations, its finances, its investments and its contracts. 

I would note that today’s hearing fulfills one of the committee’s 

responsibilities under H. Res. 40, the Tanner Resolution, which 

amended the House rules to require the standing committees of the 

House to perform additional oversight. 

I use the phrase ‘‘routine business,’’ but the truth is that the Department of Defense is almost certainly the largest and most complex organization in the world. Managing such an organization can 

never truly be just routine. 

I might add that providing oversight to such an organization is 

also a significant responsibility. We must also today thank our witness, Gene Dodaro, the acting Comptroller General of the United 

States and the Government Accountability Office (GAO), which he 

leads, for taking on this task. 

For the last 19 years, the GAO has annually reviewed the Federal Government’s operations and published a list of those areas 

presenting the highest risk. Due in large part to the size and complexities of the Department of Defense, the DOD has been a significant presence on the list since its inception. 

The Department has not been able to completely eliminate its 

risk in any of the areas identified by GAO over the years, nor has 

this committee been able to do so through its legislative or oversight activities. 

That is not to say, however, that nothing has been done. In fact, 

a great deal has been done. 

During the 110th Congress, this committee tackled many of the 

problems identified by the GAO. To cite a few, we codified the du-
2 

ties of the Chief Management Officer (CMO) of the Department of 

Defense, a step recommended by the GAO. 

We also enacted two significant pieces of acquisition reform legislation: the Acquisition Accountability and Improvement Act of 2007 

and the Clean Contracting Act of 2008. And just last week, this 

committee established a panel on reform of the defense acquisition 

system to bring additional resources to its efforts in this area. 

The committee has certainly not been alone in its efforts. Secretary Gates, former Deputy Secretary Gordon England, incoming 

Deputy Secretary Bill Lynn have also devoted a great deal of effort 

to these problems, and they have shown a lot of progress. 

We must concede, however, that a tremendous amount remains 

to be done. It is unacceptable that only one significant organization 

within the Department of Defense, the Army Corps of Engineers, 

is able to reconcile its books with an outside auditor. 

It is unacceptable that the Department has allowed a cost growth 

of $295 billion in its pending major weapons systems. It is unacceptable that the Department’s business systems remain 

stovepiped and incapable of generating the decision quality information that senior leaders need. 

We have not done enough, obviously. 

Today, the acting Comptroller General will update us on the 

high-risk areas of the Department of Defense and, most importantly, provide us with his recommendations on how we can eliminate or mitigate these risks. 

I would note for my colleagues that, in a few weeks, we will 

bring before this committee some of the senior managers of the Department of Defense, to hear their plans for addressing these problems. 

Joining Mr. Dodaro are Ms. Katherine Schinasi. Pronounce it. 

Did I get it? Thank you. She is managing director for acquisitions 

and sourcing management. Ms. Janet St. Laurent—did I get that? 

All right. She is managing director for defense capabilities and 

management. 

Before we hear from our Comptroller General friend, let me turn 

to my colleague, my friend, John McHugh—— 

Mr. MCHUGH. Thank you very much. 

The CHAIRMAN [continuing]. The gentleman from New York. 

STATEMENT OF HON. JOHN M. MCHUGH, A REPRESENTATIVE 

FROM NEW YORK, RANKING MEMBER, COMMITTEE ON 

ARMED SERVICES 

Mr. MCHUGH. Thank you, Mr. Chairman. As always, you 

summed up the purpose of our getting together and our challenges 

very, very well. 

Let me note that, as I considered today’s hearing, as you noted, 

it has been the better part of two decades that GAO’s good counsel 

has been presented to us about high-risk Federal Government programs. And also as you noted, Mr. Chairman, in that time, the Department of Defense regrettably has consistently made that roll. 

And today, in fact, as we look at the current listing, the Department still has responsibility, at least in part, for about half of 

GAO’s list of high-risk management programs. 
3 

But it seems to me that, even more disturbing than that is that, 

once a DOD program makes the list, it does not seem to ever get 

fully removed. And this is, I guess, remarkable. It is also, obviously, somewhat disturbing. 

And it has to be an indication of one of two things. Surely, this 

is either DOD management, systems, and processes and their inherent risk, or DOD management is incapable of addressing the 

root causes. 

It would appear this axiom holds true, regardless of a particular 

administration, regardless of the controlling party in Congress, but 

is a consistent theme. 

But I think we would all be in dereliction of our duties were we 

to throw up our hands and simply accept as truth the Department 

cannot or will not address these challenges. 

As you noted, Mr. Chairman, there have been significant efforts, 

both from the Department side, as well as from the oversight side 

here in this Congress. And yet, any kind of significant resolution 

evades us. 

And at the end of the day, as I know you believe very strongly, 

Mr. Chairman, it is always the responsibility of this committee to 

assume a leadership role in advocating for reforms, particularly for 

those high-risk areas. 

More importantly, we are really at a critical juncture here, as ongoing military readiness needs and fiscal pressures place DOD increasingly in a position where it cannot tolerate ineffective and inefficient management processes and technology. 

To put it very bluntly, we cannot stand by and allow some in 

Congress, or in the Department, or anywhere, to cut programs supporting our military families or programs desperately needed to 

maintain and modernize our force in lieu of the concerted effort by 

both branches of government—the Administration as well as Congress—to boost efficiency of spending and to root out waste. And 

members of this committee do, I know. But we must stand as the 

vanguard against hasty and ill-conceived reductions to programs 

that some might try to cloak under the guise of reform. 

We have to be realistic. Nearly half of the areas for which DOD 

is responsible require interagency solutions, thereby compounding 

the challenge. 

I would add, as well, before we admonish DOD and other agencies too vociferously we should also examine how our own structure 

within the Congress impedes or fosters interagency solutions. And 

I would certainly be interested in any recommendations GAO 

might have on this score. 

In the end, risk is inherent in any organization responsible for 

so many personnel, so many dollars, so many contracting actions 

and systems. And that is why GAO has recommended, DOD has 

adopted and Congress has codified, the role of the Chief Management Officer. 

Currently, the Deputy Secretary of Defense (DEPSECDEF) 

serves as the CMO. The ability of the DEPSECDEF to take an active role in internal DOD management may be dependent on personality or circumstances. And how do we ensure that the management of the day-to-day DOD processes is not just an ad hoc duty? 
4 

Mr. Chairman, I want to thank you for having this hearing 

today. I am certainly grateful for the opportunity. I want to add my 

words of welcome and deep appreciation to our guests here today. 

GAO, certainly here in matters of defense, but across the board in 

government operations, has been often a guiding light in our efforts 

to do a better job with our charges. And we look forward to their 

comments today. 

And let me note in conclusion that, I want to underscore that, 

although I strongly believe continued reforms of procurement and 

DOD’s other business processes are essential, I have to break with 

those that might point to waste and mismanagement in the Department of Defense as grounds for tightening the defense budget. 

Cuts in programs that suffer from cost overruns are warranted 

when they reform behaviors that lead to negative procurement outcomes. But employing across-the-board cuts, as some in Washington propose, is, in my judgment, a blunt instrument that does 

little to restructure the Defense Department’s business practices. 

And with that, Mr. Chairman, I yield back the balance of my 

time. 

The CHAIRMAN. Thank the gentleman. 

Mr. Dodaro, you are on. 

As I understand it, the gentleladies with you will be here for 

questions, and you will—but you will have a formal statement. Am 

I correct? 

Mr. DODARO. That is correct, Chairman. 

The CHAIRMAN. Thank you. 

STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER 

GENERAL OF THE UNITED STATES; ACCOMPANIED BY 

JANET ST. LAURENT, MANAGING DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE; AND KATHERINE SCHINASI, MANAGING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE 

STATEMENT OF GENE L. DODARO 

Mr. DODARO. Good morning, Mr. Chairman, Congressman 

McHugh, members of the committee. We are very pleased to be 

here today to discuss the status of DOD’s high-risk areas. 

As has been pointed out in our latest update, DOD represents 

approximately half of the 30 areas we currently have on the list. 

I would note, however, that over the years since we have been 

doing this, in 1990, that we started out with the program focused 

largely on fraud, waste, abuse and mismanagement and those 

areas that were vulnerable to that. But over time, we also added 

areas in need of broad-based transformation to meet 21st century 

challenges. And so, DOD’s areas on the list really represent both 

of those areas in terms of vulnerabilities and areas in need of 

transformation. 

Now, I would like to highlight a few of those areas for you today, 

and then take questions on any of the areas as we enter into that 

period of the session. 

First is in the weapons systems acquisition area, which has seen 

significant cost growth. The last time we updated our work in 2007, 
5 

we looked at the 95 programs in that portfolio. And over the original estimates that were in place for those programs, the cost 

growth was a total of $295 billion. 

Forty-four percent of those programs had cost growth of over 25 

percent from the original estimates. And also, importantly, the 

delay in the scheduled delivery time was up to 21 months, which 

was 4 months longer than just 2 months—or 2 years, excuse me— 

previously in 2005. So, the cost growth was up, and it was taking 

longer to deploy. 

Now, the problem in the weapons systems area really has two dimensions at a strategic level. There are difficulties and not enough 

prioritization across the programs. And the process for determining 

and getting the requirements from the military commanders is 

fragmented. So, that part of the issue needs to be addressed, as 

well. It is still pretty much a service-by-service type of determination. 

But also, at the individual program level, we consistently find 

that projects are moved forward without the maturity of the technologies that are under development, without application of sound 

systems engineering process with a good understanding of what the 

cost would be. The cost estimates continue to remain optimistic 

during the development period of time, and requirements keep getting introduced into the process as it moves forward, which further 

compounds the situation. So, there needs to be a more disciplined 

process in place. 

Now, one area that we have been very pleased with, back in December 2008, DOD modified its policy guidance in this area and 

implemented a number of the best practices that we have been advocating for a period of time. So, we are very encouraged by that. 

If they follow those practices, that will ensure more disciplined development of these weapons systems acquisitions, and we think 

would go a long way. 

This is the first time we have reported progress in this area since 

we have been tracking the high-risk areas, so we are very encouraged. 

The big challenge for DOD will be to translate policy into practice. And that is what we will be looking at as we continue to review their efforts. 

Now, similarly, in the contracting area, including service contracting, that is an area where DOD has grown a lot more reliant 

on contractors over a period of time. In fact, in the last five years 

in real terms, that contracting growth has more than doubled to 

about $387 billion, which includes about $200 billion in service contracting. 

Now, that decision to attain more reliance on the contractors has 

not been one that has been a systematic, strategic decision. It is 

the result of the amalgamation of thousands of decisions that have 

been made across the Department to pursue additional contracting, 

often as a result of exigencies and the lack of the necessary means. 

However, we found that DOD too often has turned to time and 

materials contracting, or undefinitized contracts, whereby the work 

proceeds without a final agreement, including costs, with the contractor. These are highly risky contracting vehicles to be used, and 

more risk is borne by the government. 
6 

But also, part of the equation here is that the amount of people 

that DOD uses to monitor and evaluate these contracts has not 

grown hardly at all. In fact, while the contracting has doubled in 

real terms over a four- or five-year period, the career contracting 

organization has grown less than one percent. 

So, this formula of high-risk contracts and lack of people to oversee the contracts adequately is not a prescription for success. And 

we think it needs to change. 

To DOD’s credit, they have put in place stronger policies and procedures to deal with these issues. And if they use, like, for example, undefinitized contracts, we recommend they solidify the agreements within the 180 days required after that approach. And they 

are trying to better understand their contract workforce needs. 

These activities need to be completed. And just like the weapons 

systems acquisition area, they need to be put into practice and consistently implemented across the Department. 

Now, we are encouraged again here by some of the recent activities, but the proof will be in implementation going forward, which 

is one of the areas that we are concerned about in terms of the Department’s track record in this regard. 

Now, we are also encouraged by other developments in the contracting and acquisition area. I would like to commend, Mr. Chairman, you and this committee for establishing your panel on DOD 

acquisition reform. I think that is important. 

And the Senate has introduced some legislation that we think 

will be helpful, as well. They have created also an ad hoc committee on contracting on the Homeland Security and Governmental 

Affairs Committee, on the Senate side. 

I was very pleased to see the President come out and announce 

contracting reform, and directing Office of Management and Budget (OMB) to address a number of issues and implementation guidance to the agencies, and we will be monitoring that very closely. 

But we think it is long overdue and much needed, and hope that 

it really addresses the issue and gains traction in DOD and other 

agencies across government. 

Now, a couple of other high-risk areas I would highlight quickly. 

One is supply chain management. This is an area in terms of being 

able to meet DOD’s goal of getting the right items to the right people at the right time, whether they be spare parts or other support 

activities. 

We continue to see that they are challenged by demand forecasting in this area. And that means that they have a lot of spare 

parts in inventory that are not needed to meet current requirements. In fact, over a four-year period of time, on average, on an 

annual basis, the Army and the Navy had about $11 billion of 

spare parts that were not needed to meet current requirements. 

They developed a logistical road map to try to address the challenges in this area. And we think it was a good first step, but it 

does not address all the gaps that are needed. It does not have performance measures. And DOD has agreed that it needs some additional work going forward. 

You mentioned, Mr. Chairman, the lack of the ability of any of 

the major military services to get an opinion on the financial statements there. We are encouraged, at least, that the Army Corps of 
7 

Engineers was able to move in that direction. But much more work 

in that area is needed. We are currently looking at DOD’s plans to 

make improvements in this area. 

But I would point out, one of GAO’s other responsibilities is to 

audit the consolidated financial statements of the Federal Government. And the lack of progress in financial management in DOD 

is the single largest impediment to our ability to be able to give an 

opinion on the Federal Government’s financial statements. 

For 12 years now, we have had to disclaim an opinion, because 

of that issue, as well as problems with the Department of Treasury, 

and some other areas. So, this is a very critical area. It would be 

the underpinnings of also getting better cost information and have 

better reliable data, as well. 

In the human capital area, 30 percent of DOD’s personnel are 

going to be eligible to retire over the next few years. This is a huge 

challenge. We have looked at their plans. They have made some 

good progress in this area. But those plans continue to need to be 

refined to meet the legislative requirements that have been imposed on them. 

In summary, there are some common issues here that we see 

across all the high-risk areas. There needs to be sustained leadership on the part of the Department. That has been lacking over a 

period of time. That needs to change, if there is going to be any 

progress made in these areas. 

There needs to be good, strategic plans to address the root causes 

of the problems. The plans have to have interim milestones and 

measures, so you can track progress. 

I mean, these are the things we look for when we decide to take 

an area off the high-risk list. You have got a commitment from 

your leaders, you have a good plan, and then you monitor and execute the plan in order to demonstrate progress. And that is the 

time where we consider taking some areas off the list. 

So, in DOD’s case, they have got some good intentions here and 

revisions to their policies, but they really have to deliver along 

these lines. 

Now, important to that will be how they implement the new 

Chief Management Officer concept within DOD. Since the legislation has been passed, it really has not been implemented, because 

it came in the waning days of the prior administration. 

And there are still some people currently—positions that are unfilled there at the Deputy Chief Management Officer level and at 

some of the Chief Management Officers of the services. And that 

needs to be clarified in terms of the roles and responsibilities of the 

Deputy Chief Management Officer, and how they relate to the 

Chief Management Officers in the services. 

So, basically, you know, from an overall standpoint, some of the 

infrastructure is in place, and things are poised to make great 

progress. But a lot will depend on actions and implementation, and 

a lot of hard work that will have to be put forth by the Department. 

Congressional oversight is imperative in this area. I applaud you 

for taking on this initiative and your future hearings. And that 

concludes my opening remarks. I would be happy to take any questions. 
8 

[The prepared statement of Mr. Dodaro can be found in the Appendix on page 33.] 

The CHAIRMAN. Mr. Dodaro, thank you so much. 

I think you will see some yeoman’s work out of this committee 

this year. What we do hopefully will be very thorough, but also 

very effective. And we will not, I assure you, rush to judgment, but 

try to get it right the first time. 

I have two questions before I ask my friend from New York. 

Why is it the Army Corps of Engineers can balance its books, 

and not the rest of the Department of Defense? 

My second question is, how do we get our arms around the medical issue, the high costs of the medical issue within, or across the 

board, in the various services? 

Mr. DODARO. First, with regard to the Army Corps of Engineers, 

for many years, they have put a lot of effort into developing a good 

financial management system. And they were one of the leaders 

within the Department, even many years ago, in terms of developing that. And they made a commitment that they wanted to 

achieve that goal. And they have a lot of unique financial operations there, because of the revolving fund type issue that they 

have over there. 

So, it was a matter of, they laid the foundation with some system 

development and good practices. But equally as important, if not 

more important, they made a commitment to get it done. And I 

think that is what is needed to be replicated throughout the Department. 

They also are able to—you know, one of the bigger challenges— 

let me put it this way. One of the bigger challenges for the services 

is they need a lot of cooperation across the Department. Congressman McHugh mentioned the cooperation across the Department. 

A lot of the information necessary for financial reporting is kept 

in some logistics systems, property systems, and others. And that 

needs to be brought together. 

And this is an area where I think there has to be leadership by 

the chief management offices—and officer within a department to 

support—even the comptroller does not necessarily have all the 

data necessary to pull the systems together. It is really a Department effort. 

The Corps of Engineers has somewhat of a more limited issue in 

that respect. 

With regard to the medical services, I would ask Janet to comment on this. But I would say—I mean, this is an issue in the private sector. It is an issue in the government generally. The largest 

single cost driver in the Federal Government’s budget right now is 

escalating health care costs. And a lot of that is being driven by 

new technologies and utilization that differs across the government. 

We have issued a lot of reports on this and pointed to the need 

for the government to do this. So, I think, in that respect, DOD is 

not alone in trying to get a handle on this. And I think the efforts 

that have been announced to address health care reform generally 

are, I think, much needed. 

Janet. 

Ms. ST. LAURENT. Thank you very much, Mr. Chairman. 
9 

Again, as Gene mentioned, this is an overarching issue for the 

Federal Government. Within DOD, we have looked overall at the 

average cost of compensation for military personnel, and have 

issued a number of studies looking at both the active component 

and the reserve component, showing that those total costs are increasing. 

And a large part of that increase is being driven by health care 

costs. So, we certainly agree that it is a key issue that has to be 

studied in more detail. 

There are a number of options on the table. One would be, again, 

looking at plans to possibly increase or charge service members a 

fee for certain services. That would be an option. But overall, I 

think a lot of the increase is also focused on the pharmaceutical 

issues and the costs associated with the rising cost. And again, it 

is very much linked to the overall problem that the nation is facing. 

We have not done specific work to look particularly at that issue 

with regard to DOD, however. 

Mr. DODARO. And Mr. Chairman, we have also done work looking 

at the relationship between DOD and the Veterans’ Administration 

(VA), and how they could leverage some of their purchasing power 

to help in this area. And I would be happy to provide a summary 

of that for the record. 

The CHAIRMAN. It would be outstanding if you would do that. 

Mr. DODARO. We will. 

[The information referred to can be found in the Appendix on 

page 67.] 

The CHAIRMAN. Mr. McHugh. 

Mr. MCHUGH. Thank you, Mr. Chairman. 

I do not want to be unfair here. But, Mr. Dodaro, you mentioned 

the weapons acquisition changes. And I believe your comments 

were roughly, ‘‘this is the first time since they were designated 

high risk that they have actually done some things to move forward.’’ 

As I look at the chart, they were designated in 1990. And in my 

opening comments, I talked about—as I believe the chairman did, 

as well—in all of the time that DOD programs have been designated high risk, not a single one has ever been undesignated high 

risk. 

That seems pretty remarkable to me. I remember when the GAO 

put certain operations of the postal service on high risk. L’Enfant 

Plaza almost blew up trying—at least trying to do some things in 

a very proactive way to remove themselves. And I am sure that is 

the behavior in other agencies. 

What is the problem with DOD? 

I do not want to be unfair. Help me understand why, after nearly 

20 years, they just now did something that acted toward the highrisk actions, because as I read your high-risk reports, it is pretty 

clear why they are there and what they need to do to get off. 

Mr. DODARO. I think—and I will ask Katherine to add in the 

weapons systems area—we gave them credit for progress this year. 

We might have noted some other attempts that they made previously, Congressman, to be fair. And I will let her, since she has 

been following this for a number of years, add context to that area. 
10 

But I would say, overall, you know, one of the issues here is really senior leader commitment. I can tell you that I have received 

calls over the years from top agency officials, concerned they are 

on the list. They want to get off the list. They want to know what 

they need to do to be able to do that. 

We have had some discussions with DOD over the years. But I 

have not had that type of discussion with them in that regard, and 

I think that is needed. 

You know, in some other areas, too, the Congress has taken some 

steps to provide rigorous oversight. In some cases discussions have 

been taken as it relates to funding, and making sure progress is 

made in those areas. 

So, I think there needs to be some incentives for the Department 

to move forward in that regard. And it has to come with the Congress. 

We are prepared—and I am going to be outreaching to the Secretary and the Deputy Secretary, the Comptroller and all the new 

leaders that are put in place—to do what we can to give them advice on how to make progress in this area. I can assure you of that. 

Mr. MCHUGH. Yes. I am not worried about you. 

As a manager, I would have done something just to try to shut 

you up, frankly. But—— 

Mr. DODARO. Most—— 

Mr. MCHUGH. It is frustrating. But I assure you the chairman 

and I—and we had dinner the other night with Senators Levin and 

McCain, and as you noted very graciously, are very committed to 

this. And we are going to work. 

And I don’t know as I would place the word ‘‘incentive’’ quite 

what we may have in mind if we are met with a deaf ear, but we 

will take some steps. I look forward to that. 

And I want to commend the Administration, the new Administration, that have been—and you noted again—for tackling this issue, 

because certainly from the DOD perspective, as you look at these 

high-risk designations, how long it has been, understand that the 

losses, as you put in your testimony, billions of dollars in bad procurement practices, et cetera, et cetera. 

The Administration has targeted, I believe, $40 billion in savings 

in procurement areas. What a shock. They could find other people 

who had different opinions. And they ranged all over the map. I 

have no idea what the target out there reasonably might be, but 

GAO has talked about billions in savings. 

Have you ever assessed the figure that could help the chairman 

and I kind of look at where we need to be in terms of savings and 

real return on tax dollars? 

Mr. DODARO. We have not come up with figures beyond a couple 

that I mentioned earlier. I mean, there are pretty good figures regarding the spare parts that are developed that are unneeded. That 

is probably where we have the best baseline information. It is hard 

to predict in some of these other areas, because they are so unique 

in some of the developments. 

And I have not looked at the Administration’s figures yet. I am 

anxious to see what the details will be of how they will try to implement the reforms. But I do not think it is unreasonable to try 
11 

to set some targets that are reasonable, and there is some flexibility there. 

But part of the issue with DOD is there are not interim targets. 

And that is part of the problem with the plan. 

And we have seen this on large-scale developments. There is 

nothing quite like the weapons systems development areas, but in 

other big development efforts there is more incremental development and specific goals that are needed to be met before you move 

to the next phase. 

And unless you do that, you never really get a handle on the 

issue that you are talking about. It might cost a little bit more up 

front, but it will save you long run, you know, more costs in the 

out years. 

But I think the direction that you are headed is a good direction, 

and I would encourage you to continue to do that. We will do what 

we can to support you. 

Mr. MCHUGH. Well, and I appreciate that. And I will just reiterate before I yield back, how much I know we all—but I certainly 

deeply am—deeply grateful for the great work that GAO does. And 

I suspect, Mr. Chairman, with your leadership, that as we go forward on procurement reform, we are going to be relying on these 

good folks even more. 

This is a critically important challenge. And as important as it 

is, I look forward to joining with you in taking it on. 

So, I would yield back, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

I think it is important as our committee approaches or attacks 

this problem, which we have looked at off and on through the 

years, to get it right. And to have to revisit it periodically is—we 

would like to get this behind us, but we have to get it right. 

You know, Rome was not built in a day, so we will do our very 

best. 

Mr. Johnson. 

Mr. JOHNSON. Thank you. Thank you, Mr. Chairman. And I applaud the holding of this hearing to elucidate us on the—— 

The CHAIRMAN. Can you get just a little bit closer to the mike, 

please? 

Mr. JOHNSON. Sorry. 

The CHAIRMAN. And the witnesses do the same, because the 

acoustics in here are not very good. 

Mr. JOHNSON. All right. Thank you, Mr. Chairman and Mr. 

Ranking Member, for holding this very necessary and timely hearing at a time when there are cries from Americans to reduce the 

amount that this country spends on defense. 

And the areas of fraud, waste, and mismanagement, getting a 

handle on those can certainly yield some significant reductions in 

the amounts that the taxpayers are called upon to spend on defense—on the Department of Defense. 

And I would like to—you know, it is very strange that, for the 

last 19, 20 years, that there has really been no meaningful changes 

in the high-risk areas that GAO has identified since then. 

What are some of the reasons why the situation remains the 

same, after 20 years? 
12 

Mr. DODARO. I think, you know, basically—I mentioned some of 

the common denominators that we find across these departments. 

One is an inability to set the requirements properly up front, to 

take a disciplined approach to management, to have adequate follow-through and measures in the process. 

But underlying it all is a culture and incentives that are relatively unique within the Department. And I think that that needs 

to be modified, to be able to address some of these issues. 

I would ask—— 

Mr. JOHNSON. Does that culture include one of perhaps over-reliance on private contractors? 

Mr. DODARO. Well, one of the recommendations that we have 

made is to ask for the Department to make a systematic assessment of where it should be contracting and where it should build 

in-house capabilities. 

I think, given the magnitude, size and challenge facing the Department, contractors will always be important. The question is, 

you know, determining where you want to use contracting, and if 

you make that determination, that you have adequate acquisition 

workforce to manage the contractors well, so the government gets 

what it pays for—deliverables on time and support to the 

warfighters. That is really important. 

But I would ask Katherine to make a couple of comments, because she has been traveling this road for a while. 

Ms. SCHINASI. Thank you. 

One of the most difficult things that the Department has been 

unable to do is translate its policies into practice. 

Mr. JOHNSON. Could you pull that mike up a little bit? 

Ms. SCHINASI. Yes. 

Mr. JOHNSON. Thank you. 

Ms. SCHINASI. The Department, even when it has good policies 

in place, translating those policies into practice does not happen 

very often. 

So, the question that we ask is: Why? And what we find very 

often is that there are no consequences if you do not follow policies. 

So, there is always an exception made to the policy. For almost 

every—certainly in the weapons system area—for every program 

that we look at individually, there is an exception made for that 

program. And then what you have is the opportunity cost that falls 

into other programs, so that overall, you are faced with a very difficult situation and come up with the numbers that we have seen, 

$295 billion in cost overruns. 

But it is this basic lack of discipline and consequences for taking 

decisions and actions that do not follow the good policies that they 

have in place. 

Mr. JOHNSON. Thank you. 

What kind of consequences for these cost overruns, what kind of 

consequences would you deem appropriate and effective? 

Ms. SCHINASI. There are very clear guidelines, some of which are 

legislatively mandated, about the kinds of information that you 

need before you make major investments in weapons systems. So, 

before you start a program, you have to understand that your technologies are mature. You have to understand that you can put together a design, and as you move forward through that process, 
13 

that you can produce an item at the quality and at the cost, and 

in the time that you need it. 

So, there are very clear markers as to what you have to know 

before you make a decision to make a large investment. Those 

markers are not followed. And the decisions are made by the Department to continue to invest money, even when we do not know 

what the outcome of a program is going to be. 

Mr. JOHNSON. But which—— 

Mr. DODARO. And I think—congressman, excuse me—I think 

there also have to be consequences for the contractors in this area. 

I mean, we did a study a year or two ago that Katherine led, that 

looked at the award fees that were given the contractors, even 

though some of the terms of the contract were not met in the manner in which they were laid out. 

Now, the Department has moved, to its credit, to try to address 

that issue. But it is not only for the Department managers. There 

has to be some consequences for the contractors to incentivize them 

to perform consistently within time, on budget, as well. 

Mr. JOHNSON. Thank you. And just one final thought. 

If the DOD were a private corporation, it would have been bankrupted many years ago with this, facing these same challenges. 

Ms. SCHINASI. But I think that is a very important point, because 

a private corporation is focused on putting a product into the field, 

and the Department is focused on starting a program. And those 

created two very different sets of incentives. 

The CHAIRMAN. Mr. Bartlett. 

Mr. BARTLETT. Thank you very much. 

There is an old adage that says, what is everybody’s business is 

nobody’s business. I think of that as I walk through the Pentagon, 

through those halls, and see all of those names on the doors. 

Dr. Parkinson noted that, no matter how small the British Navy 

got, the British Admiralty—I guess their equivalent of our Pentagon—got larger and larger. 

I suspect both of these entities have grown, because things go 

wrong in administering contracts, and so forth. And so every time 

something goes wrong, we set up a new office to make sure that 

is not going to happen again. 

Every one of these new offices functions kind of as a committee. 

And, of course, committee functions always revert to the lowest 

common denominator, which means that the output is always going 

to be mediocre. It will never be stellar when everybody has to 

agree, you have to reach a consensus. 

It reminds me of our solution to mediocre teachers. We have a 

meticulously detailed curriculum, hoping that even a poor teacher 

will produce something in the classroom, because they have to follow a meticulously detailed curriculum. 

I think that kind of thing happens in the Pentagon. We just add 

rules and rules and rules to make sure nothing goes wrong, and 

I think this stifles creativity. 

Another problem I think is that, if you are going to advance in 

government, you cannot make a mistake. And the best way not to 

make a mistake is to never reach out and never to do anything. If 

you don’t do anything, you do not make mistakes. And I think that 

is one of our big problems there. 
14 

Dr. Parkinson again noted that there are far too many of what 

he called the ‘‘abominable no-man’’ in our government. Somebody 

wants to do something a little bit out of the box. No, you cannot 

do that. 

Dr. Parkinson also noted that, as institutions grew, more and 

more of their energies were exerted in internal communications. 

And depending upon the institution, they can reach a size when all 

of their energies are expended in internal communication, and 

nothing productive outside the organization happens. 

Are we stuck with what we have got? Or can we kind of start 

again? 

Mr. DODARO. Well, our recommendation to create a focused, dedicated chief management official over at the Department was an attempt to try to penetrate some of the issues that you mentioned, 

or things that could get built up over time. There are clearly stovepipes that need to be brought together. 

That can only be done through top-level, dedicated leadership. 

And that is why we advanced this concept, and the Congress has 

acted. It was not entirely what we had recommended. 

We recommended a dedicated, full-time chief management official that would transcend administrations, so you would not lose 

momentum in some of these more basic financial and business systems over time. But that is what—you know, we were trying to advance something to create a new dynamic that would focus on 

these activities. 

As has been indicated here, this is one of the largest entities in 

the world. It has a lot of complexities associated with it. If you do 

not have dedicated, full-time management focused on it, and focused on it all the time, you are not going to create the type of 

changes that are needed. 

Mr. BARTLETT. A number of years ago, one of our senior managers in government retired, so that he could speak freely. And he 

said that he thought that, if we simply took our government employees and marched them through a cutting gate and kept every 

tenth one—without any regard to whether they were good or bad— 

that our government would probably be more productive, because 

we were so ponderous, so much internal communications, that we 

were doing very little outside work. 

Do you think there could be an element of truth in that? 

Mr. DODARO. Congressman, you know, most of the people that I 

meet—and I have been in government service for a long—— 

Mr. BARTLETT. Sorry, but there are very good people. They are 

working very hard. They are very dedicated. It is not the people, 

sir. It is the system. 

Mr. DODARO. Well, there is a lot of truth to that. And it is up 

to leaders to change the system when it needs change. And that is 

my assessment of the Department of Defense. And it is up to the 

leadership to change that. 

Because there is no reason—I mean, we have the best military 

in the world, and when they are mission-focused on the military 

side, it gets done. On the business side, you do not have that same 

level of, you know, a sense of urgency and focus and clarity of what 

you want to achieve. 
15 

And if that type of commitment and energy and dedication that 

is on the military side can be focused on these business systems, 

this can be done. It is not an unsolvable problem. 

Mr. BARTLETT. Thank you, Mr. Chairman, for calling this hearing. It is more important than our attendance would indicate. 

Thank you very much. 

The CHAIRMAN. Dr. Snyder from Arkansas. Please. 

Dr. SNYDER. Thank you, Mr. Chairman. 

I actually feel some empathy for the Department of Defense on 

this. You know, we are talking about the 19 years or the 20 years. 

This is my 13th year here, and we still do not have a microphone 

system that works. [Laughter.] 

I mean, you would think that would be something that would be 

readily fixable. 

Mr. Dodaro, I wanted to ask, you mentioned the Levin-McCain 

bill. And the Chairman mentioned having their meeting the other 

night with Mr. Levin and Mr. McCain. And I think you thought 

that there were some good things in it. 

One of the concerns I have about that bill is its overwhelming 

focus. I mean, it is a bill about hardware. It is not a bill about service contracts. 

And I can see a possibility, if we do pass something a lot like 

that bill, there will be, as you talked about, the laser focus of the 

bill in the Congress will go on hardware. And, in fact, 60 to 65 percent of the money we are talking about is not spent on hardware, 

it is spent on service contracts. 

And if we do something major this year, I hope that we will not 

neglect service contracts, because I think that has even, in my 

view, more looseness to it than some of the hardware issues. 

Do you have any comment on that? 

Ms. SCHINASI. As you know, the 2006 National Defense Authorization Act took a hard look at services and put a structure in place 

for the Department to be better managing its service contracts, just 

for the reasons that you stated. 

We are now looking at how well that is happening. They have 

made some move toward improving the focus on service contracting. But whether or not the outcome has started turning 

around yet, that is something that we will be looking at. 

But certainly, service contracting, in terms of dollars, has gotten 

more important over the years and needs the kind of attention 

that—— 

Dr. SNYDER. I think the attention of the public and the attention 

of the Congress, it is a lot easier to talk about Presidential helicopters or, I mean, something that we can see and touch. It is more 

difficult to talk about, okay, how much was this contract for the 

management of information technology supposed to cost, and why 

didn’t it work? 

I mean, a lot of us can get confused fairly quickly—not just members of Congress, but people who follow the money issues pretty 

closely. But in fact, that is where a lot of the money is. And I think 

we need to not forget that. 

I wanted to ask about, if I might, Mr. Skelton mentioned the 

issue, we want to get it right. And I am not sure that we can get 

it right if—I am going to overstate what the chairman said, which 
16 

is the implication that somehow we will come up with a bill or an 

architecture that this will work, this is perfect. All we have to do 

is the President signs it, and everything is back to where we want 

it to be. 

I do not think it is going to work that way. I mean, I think it 

is going to be a process that will just keep going on and on, that 

you will—I think workforce training, getting the right blend of 

workforce is going to be something we will work at. But that will 

not happen overnight. 

That is years right there in terms—first of all, we have got to 

stop the bleeding, as you pointed out, losing a lot of senior people. 

We are going to have to be training people. We are going to have 

to train people in a way that we think things need to be done. 

But talk about that, if you would, about the whole issue of how 

we go about doing the kind of reform that we think is necessary. 

Mr. DODARO. I think, first of all, having an appropriate reform 

framework that goes to some of the root causes of the issues is a 

very important starting place. And I think some of those are outlined in the Senator McCain and Levin bill for those areas that are 

talked about. And I agree with you, it needs to be a broader focus. 

Secondly, you have to have good management accountability in 

the legislation, so that that accountability then sort of cascades 

down through the Department. You need to be able to hold people 

accountable. 

Thirdly, you need to have interim measures. You cannot, I believe, institute a large-scale reform that everybody knows will take 

a number of years to implement satisfactorily. But after six 

months, you should see some level of progress, after a year, another level of progress. 

That is what is lacking, I think, at the Department, because you 

do not have these interim milestones that are reasonable, that 

could be negotiated. But you do not know if you are on track or not 

over a period of time. 

So, I think a good legislative framework, followed by a very detailed implementation plan that the Congress understands and has 

realistic implementation milestones, is the only way that you are 

going to be able to achieve the progress over time and do it right, 

because a lot of these things are going to require mid-course corrections and refinements. 

Dr. SNYDER. Thank you. 

The CHAIRMAN. Mr. Coffman. 

Mr. COFFMAN. Thank you, Mr. Chairman. 

I had a meeting with the Secretary of Defense. He opened it up 

to all freshmen Members of Congress to go over to the Pentagon 

and to meet with him, as well as the Joint Chiefs of Staff. 

And I asked him a question. I said, well, I expressed a concern 

that the United States had been engaged in counterinsurgency operations for a period of time, and that maybe our forces were being 

reoriented permanently in that direction, of light forces versus the 

heavier ground forces, air power, sea power, needed to effect a deterrence against our potential enemies. 

And he bristled at that notion and said that he was focused on 

both fronts, on maintaining strategic deterrence as well as fighting 

two counterinsurgency wars. 
17 

But he went on to say something that I thought was very interesting about his view of the Congress of the United States, because 

he said, one of the difficulties that he confronted was that any time 

he had a discussion—these are his words—with a Member of the 

Congress of the United States, they always had a list in their back 

pocket of weapons systems produced in their district that they 

wanted implemented, according to him, his view. 

What is your estimate of the Secretary’s view of the role of Congress in weapons procurement? And is that an issue from your perspective that is problematic in procurement, in the weapons acquisition process? 

Mr. DODARO. I think, you know, clearly, Congress has a role to 

play in reacting to and responding to the requests that the Department has put forward. Congress has the ultimate power of the 

purse, and they have decisions on how they want to allocate resources. So, in my view, it is a joint responsibility in these areas 

for people to be able to do that. 

But part of the issue here, I think, as reforms are put in place, 

I think the Congress needs to decide how it will behave and act in 

order to support and encourage those reforms going forward. So, I 

think it is an area that ought to come under some debate and discussion within the Congress about how it will support and 

incentivize and support good management decisions within the Department. 

And so, I think that is a very important point that needs attention. 

Mr. COFFMAN. Thank you. 

Mr. Chairman, I yield back the balance of my time. 

The CHAIRMAN. Mr. Ortiz. 

No, excuse me. Mr. Marshall and then Mr. Ortiz. 

Mr. ORTIZ. Thank you, Mr. Chairman. 

The Government Accountability Office found that the Department of Defense actually unified or coordinated a command structure to plan for the management and execution of the return of material and equipment from Iraq. With less than 18 months left to 

redeploy combat forces from Iraq, does the logistic road map have 

enough support within the Department of Defense to facilitate the 

withdrawal by the date mandated by the Administration? 

And I know that—the reason I asked this question is because I 

think we have more contractors in Iraq than we have troops. And 

when we talk about withdrawing the contractors and the equipment and our soldiers, we just want to be sure that what we do, 

that we do it right. 

Maybe you can touch on that and see if there is enough support 

to be able to accomplish that by the date given by the Administration. 

Mr. DODARO. This is a very important issue. I am going to ask 

Janet to talk about our report, because we looked at whether or not 

they had a, you know, a command structure, unified command 

structure and a plan in place to do this. 

There is about $16.5 billion of equipment that is there. As you 

point out, there are a lot of contractors, and there are more than 

the military troops. 
18 

There are a lot of factors that need to be considered. You know, 

we studied the withdrawal for the first Gulf War back in the early 

1990s. And even that, that had far less deployment, took about 15 

months, I believe, during that period of time. 

And so, there are a lot of issues here associated with cleaning, 

moving the equipment, getting the clearances from the countries in 

which we have to transport the material, environmental issues and 

other things. And we issued, I thought, a very good, early, thoughtful report on this. I will let Janet talk about it. 

Mr. ORTIZ. That will be fine. Thank you. 

Yes, ma’am. 

Ms. ST. LAURENT. Thank you very much. 

I agree that it is going to be a very complex effort to coordinate 

closely. 

Since we issued our report, the Department has taken some 

steps to address some of the command issues. But, of course, there 

is going to be much more work that needs to be done, develop a 

more detailed plan for bringing equipment back out of Iraq. 

It is going to require a lot of analysis to determine how much 

equipment should be brought back, what if any equipment should 

be left for the Iraqis, whether or not the equipment is in good 

enough condition to be refurbished, or whether it needs to be replaced. And then, just coordinating all of the mechanics of moving 

considerable quantities of equipment out of the country to the point 

that it has to be cleaned, meet up with United States Department 

of Agriculture (USDA) inspections is going to be very comprehensive. 

Also, as you mentioned, the plan for removing U.S. combat forces 

and equipment needs to be closely coordinated with the plan for 

contractors. We think the plan for contractors is less mature at this 

point. We know the Department is working on developing some 

plans. But again, we need to see—would like to see—more detailed 

plans for the management of contractors and how it is going to be 

coordinated with the overall plans for drawdown. 

Turning back to the logistics road map, this is a very broad, departmental-wide effort to improve logistics across the Department. 

And again, our observation there is that, that effort needs to be improved in a couple of respects. 

It does not fully identify the most important gaps from a supply 

chain or logistics standpoint. So, we think the next iteration of it 

should identify more clearly what the priorities are. 

It does not fully address the funding needs associated with the 

initiatives. Again, prioritize those. 

And it is not clear how the senior leadership of the Department 

is going to use the road map to really manage and effect change, 

and a senior leadership focus on bringing about improvements in 

supply chain issues. 

Mr. ORTIZ. See, it is not that I have anything against contractors 

or that I am against contracting, but let us do it when it makes 

sense. 

In my opinion—because we have had other hearings—it has kind 

of had morale problems with the soldiers, too. Because when I talk 

to some of the soldiers who are about to get out of the military, 

they say, ‘‘You know what? I am going out, and I am going to do 
19 

security work for a private company, because I am being paid 

$40,000 a year, and I am going to get paid $150,000.’’ 

And then, lo and behold, they are kept in the military. They cannot get out. And this has happened sometime back. 

So, me, as a member and chairman of the Readiness Subcommittee, I have no idea what criteria they use to hire contractors. I do not know what kind of pay scale they utilize to pay them. 

And many times we found out through hearings that, instead of 

the services doing some of the work that they are supposed to do, 

some of this work is given to contractors, to where the contractors 

are doing the work that the service people should be doing. 

So, I hope that we can correct that. And maybe you can elaborate 

on what needs to be done to correct something like this that has 

been happening for a long time. 

Mr. DODARO. Yes, we made, and emphasize in our statement 

today, a fundamental recommendation to the Department, that 

they lay out and specify their criteria for making those decisions 

in a systematic way over time. And I would encourage the Congress to follow up with the Department, and make sure that that 

happens. 

I think that is very important, and it will address directly your 

issue. 

Mr. ORTIZ. Thank you so much. My time has run out. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Mary Fallin, and then followed by Mr. Marshall. 

Ms. FALLIN. Thank you, Mr. Chairman. 

I have kind of a general question. As we are going through this 

process of meeting with various folks back home in our states and 

in our districts, there are a lot of people coming up to us as Members and saying, we have specific needs in our states—specific 

needs with the various branches of the military. And they are asking us for funding requests for those different projects. 

And so, when you analyze the Department of Defense, the criteria, the systems and the decision-making, you talked a little bit 

about leadership knowing, you know, what is needed down below. 

What recommendations do you have for us as Members of Congress when people come to us from our National Guard, from our 

Air Force or Army bases, or even from the private sector, or even 

from higher education, the universities with research and development, coming to us saying, these are things we believe will be beneficial for the Department of Defense, military branches, as far as 

those spending requests? 

Have you found any good way for us to work through these 

things? 

I know that we best know, I think, what our states need and 

what our local military branches need. But sometimes it seems to 

be that we fund things maybe they do not need at the top, or 

maybe the top does not know what the people down here need. 

Have you got some good suggestions on that? 

Mr. DODARO. I am going to ask Janet to elaborate on this. But 

the first suggestion I have is, I think the Congress has to have confidence in the Department’s ability to take all the requirements, 

and in a thoughtful, consistent way set priorities, and present that 

back to the Congress. 
20 

Because there will probably never be a situation where 

everybody’s wants are going to be able to be met or sustained over 

a period of time. 

So, there has to be some priorities that are set within a coherent 

framework that is understandable and transparent to the Congress. 

So, I think that—I would say that as a backdrop. 

Now, Janet has done a lot of work in this area, particularly with 

the Guard and Reserve. I will let her comment. 

Ms. ST. LAURENT. Another, I think, key piece of this is the notion 

of risk-based assessment, because, if you look at any one particular 

state—and I will use the example of National Guard—they may 

have equipment shortfalls, personnel shortfalls currently. 

But I think it is more important to look across the Department 

and how they are managing risk, whether or not they are looking 

at the cumulative requirements, how they are balancing risk and 

then allocating their resources effectively. 

And again, in some of our work, we have seen that that process 

is not necessarily occurring as well as it could be. And as a result, 

it does lead to issues, again, within particular states. 

I think there has been progress made on the National Guard 

issue over the past few years. Congress has certainly appropriated 

significant additional amounts of money for equipment. 

And the Department is also making strides in determining how 

to balance equipment across regions and across the country as a 

whole, to provide adequate capacity to have enough equipment here 

to deal with any potential homeland issues, and have a reserve, but 

then also to support forces that are going overseas. 

Ms. FALLIN. I guess, Mr. Chairman, what I am trying to find out 

is, how do we establish that balance between what the Department 

of Defense needs, what the President wants, what people from our 

local communities are coming to us saying, this is what our states 

need, without us allocating resources that maybe are not in line 

with the priorities of the Department of Defense, be it having them 

know what our needs are back home. 

So, sometimes I think there is a little bit of a disconnect between 

the two. And, of course, I see that as being our responsibility as 

members of this committee, is to take our needs to the committee, 

take our needs to the top leadership and say, these are some of the 

things we see back with our folks, back in our districts. 

Mr. DODARO. I think a large part of this is really a communications issue, too. 

In other words, I mean, you have issues, and your community 

has issues. What you need to be sure of is they have a vehicle to 

get their needs communicated to the Department, and that you 

have confidence that the Department will listen to those needs, 

make a decision, an informed decision, and communicate back to 

the Congress what its priorities are, and whether or not those 

needs are going to be included or not. And if not, why not? 

And Congress would have to be satisfied with those decisions, or 

take action to provide a modification to the Department’s proposal. 

And I think that is the way the process needs to work. 

Ms. FALLIN. Thank you so much. 

Mr. DODARO. You are welcome. 
21 

Ms. FALLIN. I yield back my time. 

The CHAIRMAN. Thank you. 

Mr. Marshall. 

Mr. MARSHALL. Thank you, Mr. Chairman. 

It is not at all uncommon in business—or government, for that 

matter—for efficiency experts, auditors, accountants, et cetera, to 

come in and look at a process, crank the numbers, what have you, 

and then make recommendations which the CEO, or the board, or 

the mayor says, ‘‘Thank you very much. I am not going to do that. 

I do not think that is a good idea. In fact, what you have asked 

me to do is going to cost us more money than any possible savings 

we could realize as a result of doing what you have requested.’’ 

That is just not an unusual event at all in business and in government. I have done it myself. 

And when it happens, typically, those who reject the recommendation have very precise, clear reasons why they are going 

to reject the recommendation. ‘‘No, I am not going to add that person to trace those pennies, so that we know to a penny what has 

been spent, because we know it is within this realm, and that person—it is within a margin of error that is less than the cost of adding the person,’’ for example. 

I find myself wondering if—the Department of Defense, it reminds me of—it greatly reminds me of a book published by a Yale 

professor. I cannot remember his name at the moment. But the 

book is wonderful. The title is wonderful. 

And actually, the title was the best part of the book, and it is 

‘‘Beyond Human Scale.’’ And it refers to organizations that get to 

a point, as my friend, Roscoe Bartlett, was trying to describe, that 

no individual within the organization truly understands how it 

works. 

But I find myself wondering, are there apologists within the Department of Defense, or are there apologists outside of the Department of Defense, who have said to you all, ‘‘Look. You are asking 

this institution—obviously can approve—they need to head in the 

direction that you are suggesting. But the institution is a different 

kind of beast. It has got a different kind of mission. You all just 

do not understand this. You are trying to take one model and apply 

it to what is inappropriate.’’ 

Do you get any kind of feedback like that? If you are not getting 

feedback like that, it is just amazing to me that 20 years later, we 

are still talking about how to meet your goals. 

What kind of feedback do you get from anybody? What sort of 

pushback do you get from anybody? 

Mr. DODARO. Yes. I will ask both Katherine and Janet to give 

you a perspective on it, because we make a lot of recommendations 

to the Department of Defense. And from my vantage point, the reaction is quite mixed. In many areas they agree, they put in places. 

I have just mentioned today many examples where they have implemented our recommendations by changing their policies, but the 

implementation of those policies is not consistently applied going 

forward. 

So, I do not think, you know, we have run in—I am sure over 

time we have run into some disagreements, where they disagree 

with us. And I will ask them to give some examples. But it is not 
22 

a consistent type of issue. And certainly, in many cases, we are not 

asking or recommending things that we have not recommended in 

other departments and agencies, as well. 

Katherine, and then Janet. 

Ms. SCHINASI. Perhaps I will start. 

It is true that we have mixed reactions. And I will give you a 

number of examples. 

Most of the work we do on individual programs, the program 

manager is the advocate for that program. And his or her responsibility is to support that program through whatever process that it 

is put through. And so, many times we will get from the program 

office a different perspective than we have brought to the problem. 

That said, however, when we raise those issues up to a higher 

level in the Department that has responsibility across many, many 

programs, we often hear a different story, because they are responsible for managing at a level that represents the Department’s 

budget as a whole, not the individual program manager. 

So, for example, we have heard from officials in the Department 

that they hope weapons acquisition never comes off the high-risk 

list, because they see that as a force for change. And they like us 

coming in and pointing out with sort of that independent, once removed view, what we are seeing, particularly because we are able 

to, in many cases, quantify the effect of those decisions that you 

talked about, when they say, ‘‘No, we are not going to do it. We 

have other reasons. You know, we do not like what you are saying. 

We are going to take another course.’’ 

Part of our responsibility is to come back and say, ‘‘Fine. But 

this, you know, this is the effect of making that decision.’’ 

So, it is a mix. It is a mixed response. 

I would say, part of our optimism comes from the fact that, over 

the last five or six years, we have been much more in step with 

what the Department’s top leadership—— 

Mr. MARSHALL. I am going to run out of time. It would be very 

helpful to me, perhaps to the committee, to have some concrete examples of that, that you think reflect fairly the difference of opinion between program managers and GAO with regard to how 

things should evolve. That would be very helpful. 

Mr. DODARO. Sure. We would be happy to provide that. 

[The information referred to was not available at the time of 

printing.] 

The CHAIRMAN. Mr. Wilson. 

Mr. WILSON. Thank you, Mr. Chairman. 

I am Joe Wilson from South Carolina and appreciate very much 

your service and the extraordinarily difficult challenge. I am very 

grateful that I have three Michelin plants located in the district I 

represent. South Carolina is home to extraordinary French investments. 

And a success story that you have been responsible for is the tire 

privatization program. And Michelin was successful in the competitive contract, working together with Goodyear as a subcontractor, 

providing the aviation and ground tires to the American military. 

And there are specifics here that are extraordinary, that I think 

the American public would be reassured to know. And that is that 

aviation tires are provided with a delivery time of 3.3 days, with 
23 

the allowable standard of 9.2 days, and an on-time delivery of 98.9 

percent of the time. And for ground tires, the delivery is 3.7 days 

with a standard of 8.8 days, and 94 percent delivery rate time. 

Additionally the Defense Logistics Agency has indicated this saves the American taxpayers $170 million. And to me, it is very 

significant for the health and safety of our service members, but it 

also provides for protection and advancement of our industrial base 

here within the United States. 

My question is that in July 2008, DOD released its Logistics 

Roadmap to guide improvement efforts in the area of logistics, including the supply chain management. Will the road map be effective in helping DOD to substantially improve supply chain management? 

Mr. DODARO. The road map, from our perspective, was a good 

first step, but it will not be effective unless they make several 

changes. One is that the road map needs to address additional, significant gaps that we see that need to be addressed. It does not include performance measures, and it needs to. The Department has 

recognized some of these shortcomings and is beginning to work on 

them. 

But I would ask Janet if she has any additional points. 

Ms. ST. LAURENT. Yes. The road map, the current version of it, 

is also the latest version of a plan to improve supply chain and logistics issues. So, I think the challenge for the new administration 

in place is to make the further improvements on it that Gene 

talked about—identify the gaps, prioritize the gaps, identify the associated funding, identify the performance measures—and then 

move out to implement the most important aspects of the initiatives in that plan. 

There have been numerous similar plans that preceded this current version of the Logistics Roadmap. So, that is why, again, this 

issue has been on our high-risk list for a number of years. And 

what really needs to happen at this point is the focus on achieving 

outcomes and being able to demonstrate within the next couple of 

years some key successes. 

Mr. WILSON. And I appreciate your bringing up the successes. 

Additionally, a concern all of us have are cost overruns. And it 

has been a situation where contractors are under-bidding, low-balling their cost estimates to receive the contract, so that they will 

have the contract. And then, from there, there are modifications to 

the contract, which are obviously much, much higher. 

Is there some process where low-balling could be avoided or 

eliminated? 

Mr. DODARO. You know, one of the issues in best practices is to 

have independent cost estimates along the way, so you have benchmarks against the bids that are in. And we think that is one suggestion that has a lot of merit. 

Mr. WILSON. And I can see a real need for it, based on the Littoral Combat Ship (LCS), which was estimated to cost $220 million, 

and that bids were processed on that. But it has come back at halfa-billion. 

And so, I hope with your expertise and efforts that this can be 

addressed about low-balling, under-bidding, and the reforms that 

are necessary. 
24 

And so, thank you again for your service. 

Mr. DODARO. Thank you. 

The CHAIRMAN. Thank you. 

Mr. Kissell. 

Mr. KISSELL. Thank you, Mr. Chairman. 

I think this is an incredibly important subject matter. And normally, I really do ask questions without a lot of preamble. But I 

think today, as I sit and listen, I think preamble is what I need 

to do. 

And Mr. Bartlett started out with an adage, and I am going to 

start with one, too. The last seven years before coming here, I was 

a high school social studies teacher. And as teachers tend to do, I 

had a little sign in my classroom. And one of the ones that I had 

that I called to attention a lot is, ‘‘Insanity is expecting different 

results, while continuing to do the same thing.’’ 

And as I sit here and listen today to the words of procedures, and 

lack of procedures, and a lack of consequences, and that certain 

issues are staying on the table for 20 years, it seems to me that 

we have a lot of doing the same thing while wanting results. 

I also want to point out, which was mentioned earlier, and I was 

in a hearing earlier this week that this was greatly emphasized, 

were services are 60 to 65 percent of the expenditures. 

And I happened to have another conversation this week with a gentleman who is in the construction business. They do $600–$700 

million a year. But the complexity of bidding on Department of Defense contracts is so much that they just will not do it anymore. 

Which, in itself, tends to eliminate all but certain groupings. 

So, all of that said, it obviously is very important, Mr. Chairman, 

and we do not want to do this in a way that is a knee-jerk reaction. 

But it seems to me that consequences has to be a very important 

part of what we are doing. 

And before I taught, I spent 27 years in industry. And we always 

went to the people who did the job every day, to ask them for their 

opinions before we did anything. And sometimes I wonder, are we 

doing enough of talking to the people that make this work day to 

day. 

And as Mr. Bartlett also said, are we having a system and supporting a system where we encourage them to hide? 

And so, I am finally leading to a question. And I apologize for 

this rambling, but I think I just—it is important sometimes to kind 

of have an understanding of where this is coming from. 

Do we have functioning and well-understood ways that people, 

when they see that these procedures are not being followed, where 

people can offer suggestions? Or is that part of the complex that 

we tend to cover up, so that we do not draw attention to people? 

Mr. DODARO. I think that the issue that you are raising is an important one. 

The people, the program managers, say, for the weapons systems, really do not have any ability to make any decisions in that 

process. And there needs to be, I think, probably greater incentive 

for them to raise some of the issues up through the system. 

But I would ask Katherine to elaborate on that point. But I appreciate your prologue, and it was not rambling. Plus, my father 

is a social studies teacher, so I understand. 
25 

Katherine. 

Ms. SCHINASI. I am not sure I have an answer for you, but I will 

agree. And one of the things that we try and do in our work is find 

success, and try and find people who are doing things to manage 

the system and manage the process, instead of letting the process 

manage them, and to highlight that, because it helps us to show 

things can be done differently, because some people have stepped 

up to do that. But we do not find that many examples. 

Mr. DODARO. But I think your focus on saying that consequences 

are important is really a key element. But in implementing that, 

there has to be not only putting accountability and consequences, 

but you have to have a constructive, open line of communication 

there, because you could incentivize and make things worse, unless 

you have that ability to do what you are talking about, to have 

open disagreements, if you will, or people can raise issues up without fear of having problems. 

Mr. KISSELL. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I have remaining Mr. Taylor and Ms. Bordallo. 

Mr. Taylor. 

Mr. TAYLOR. Thank you, Mr. Chairman. 

I want to thank our witnesses. 

Mr. Dodaro—is that correct? 

Mr. DODARO. That is. 

Mr. TAYLOR. A couple of things I would like you to comment on. 

Mr. Wilson mentioned the LCS program, and it has got to be right 

up there amongst the poster children of just absolutely waste of 

taxpayer money—no effort to take advantage of any economies at 

any step, whether it is on acquisition, modernization. 

It is like we are going to send the government a bill. We will 

send them a bigger bill. They are going to keep paying it, because 

we have got them where we want them. 

Having said that, I have been lucky enough to serve at the city 

level, the state level, and now here. I know that cities and states 

very often require performance bonds on a project. 

Whether it is a building, a highway, a sewer and water line, they 

see to it that whoever bids on that posts a performance bond. And 

that way, if the contractor fails to do it properly, if he fails to do 

it on time, that the city gets the money that they would have 

squandered, back. 

I realize that there is a cost associated with a performance bond. 

But when a program like the LCS program is two-and-a-half times 

over the initial budget, even a 20 percent premium on the performance bond would have you way ahead at the end of the day. 

My question to you is, has your organization—and I am not a fan 

of the insurance industry by any means, but there is a place for 

that industry—has anyone in your organization looked into when 

the last time we required that, and whether or not it would be 

worthwhile now? 

Mr. DODARO. Let me just check. 

Apparently, we do not have an answer for it that—— 

Mr. TAYLOR. Can I ask you to do that? 

Mr. DODARO. We will look at it. 
26 

[The information referred to can be found in the Appendix beginning on page 67.] 

Mr. TAYLOR. It is not just that program. It is the Coast Guard ruining the 110/123 conversions, 8 ruined ships, $80 million that 

Bollinger shipbuilding got to ruin 8 ships, so that you had the 

value of the 110s before they were ruined going on top of the $80 

million. That is a lot of money squandered, that maybe a performance bond could have prevented. 

The second thing I would ask you to look at is, I understand you 

are concerned about buying spare parts we do not need. I understand you are concerned about buying, historically, commodities we 

do not need. 

But the world has changed so dramatically with things like computer-assisted drafting, where before—if it is done right—before 

you ever start an airplane, before you ever start a ship, you are 

going to know exactly how many pieces you are going to need, what 

shapes they are going to be, how many of them there are, where 

every single one of them is going to go. 

I mean, I could take you to the Maersk shipyard or the Hyundai 

shipyard. And they literally, as a piece of steel is rolled into that 

yard, hit it with a barcode, and they will show you on the laptop 

exactly on that 1,000-foot ship where that one piece of steel is 

going to be, which machines it is going to pass over, in which sequence, as it is molded to the right shape. 

So, you know, the idea of buying stuff we do not need does not 

have to happen. 

The reason I say all this is, it has recently come to my attention 

that the price of aluminum is half of what it was two years ago. 

The price of steel is less than half of what it was two years ago. 

The price of titanium is down a third from two years ago. 

Who, if anyone, in your organization is encouraging people, for 

us as a Nation, to be countercyclical in our acquisitions on those 

things we know we are going to buy? C–130s, DDG–51s—not the 

risky programs that may not survive, but the ones we know we buy 

every year. 

Who in your organization is going to them saying, you know 

what? We need to be aggressive. We need to tie down some contracts right now, while these suppliers are desperate for work. We 

can get good prices, and we know we can get them. By the way, 

we can keep them in business, and we can save the taxpayers a 

lot of money. 

Mr. DODARO. Yes, we—that is not a normal function we would 

do. I would talk—— 

Mr. TAYLOR. Well, Mr. Dodaro. 

Mr. DODARO. Yes—— 

Mr. TAYLOR. I know it is not a normal function. 

Mr. DODARO. Right, right. 

Mr. TAYLOR. But these are not normal times, and you would hope 

that you are the organization that is providing some insight to the 

other organizations of how they ought to be doing things better. 

Mr. DODARO. Right. Well, we can certainly raise the question to 

the Department, to see if it is looking at the issues that you are 

talking about, and making some decisions. We do not want to insert ourselves as a management function, Congressman. 
27 

But we can and we will follow up to see if they are considering 

these issues, and as part of their normal management process. 

[The information referred to can be found in the Appendix on 

page 68.] 

Mr. TAYLOR. Well, those are two things that I very much want 

to pursue. 

Mr. DODARO. Okay. 

Mr. TAYLOR. I am open-minded on both of them, so I am asking 

you to look into them and get back to us and say whether or not 

you think this would be a good idea, and for what reason—or 

whether or not you think it is a bad idea, and for what reason. 

Mr. DODARO. Okay. We will do that. 

Mr. TAYLOR. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Would you make your answer to both of those inquiries to the entire committee? We would appreciate that. 

Mr. DODARO. Well, that is our normal procedure, Mr. Chairman. 

I would be happy to. 

The CHAIRMAN. You bet. Thank you. 

Ms. Bordallo. 

Ms. BORDALLO. Thank you very much, Mr. Chairman. 

I was not going to ask a question, but I came here, because I was 

very interested in the subject matter. 

With the impending military buildup occurring in my area, on 

Guam, the movement of 8,300 Marines from Okinawa at the cost 

of $14 billion, I can see where many of the high-risk areas, at 

least—maybe not many, but a few of them—on your list would certainly be involved in our buildup. 

And I want to bring up the fact that this is probably one of the 

largest military relocations of a base in the history of the military. 

And our chairman, Mr. Skelton, and several members here on the 

Armed Services Committee, just visited the area, both Guam and 

Okinawa. 

And I would like to repeat what our chairman says. We want to 

do this, and we want to do it right. 

So, I am curious. Are you aware of this buildup that is occurring? 

And things are already going on, contracting and that type of 

thing. 

Could you give me some—— 

Mr. DODARO. Yes. We are well aware of it. We have been asked 

to do quite a bit of work as it relates to the Guam situation. I will 

let Janet talk about what we know, and what we are currently 

doing. 

Ms. ST. LAURENT. We have three engagements going on right 

now, or studies, that are focused on various aspects of the buildup 

on Guam. And also, we are doing a lot of work worldwide to look 

at global reposturing. 

But specifically, we have an engagement looking at the utilities 

issues and how the Navy is going to meet those needs, working 

with Guam, the government of Guam. And I think you are well 

aware of that one. 

We are also monitoring and looking at the overall costs associated with the buildup, how those cost estimates are changing, all 

of the military players involved. 
28 

Again, as you mentioned, this is going to be a complex move involving all of the services. There is a joint effort being done by the 

services to do the planning in a coordinated fashion, and we are 

looking at how that is going. 

And then third, we also have another effort underway that is focused on how the federal agencies are coordinating, again, with the 

government of Guam, to look at any further enhancements in infrastructure that may be needed, and how those issues are going to 

be addressed. 

Ms. BORDALLO. All right. I do want to thank you. I am just concerned, because I have said over and over in this committee during 

hearings, that we are going to be monitoring this process as it goes 

along. And hopefully, contracting and all of that will be very transparent. 

And I do not want to be sitting here later on and hear that there 

were all kinds of abuses with this move. 

So, I want to thank you again. 

And I want to especially thank our chairman here, who has been 

very interested in this movement. And as he says, and I say now, 

I quote him, let us do it, and let us do it right. 

So, thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Certainly thank the gentlelady. 

Is there any member that wishes to ask additional questions 

while we have this panel before us? 

Are there any additional questions? 

Well, we thank each one of you. And Mr. Dodaro, it is just excellent testimony, as usual. We look forward to your answers, specifically to Mr. Taylor’s questions. And we look forward to working 

with you. 

We have, as you know, and it has been mentioned earlier, a 

panel on acquisition reform. And I am sure we will call upon your 

expertise to be of assistance in that. 

Without further ado, thank you. 

[Whereupon, at 11:32 a.m., the committee was adjourned.] 
A P P E N D I X 

MARCH 12, 2009 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

MARCH 12, 2009 

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WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

MARCH 12, 2009 

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1 VA/DOD Joint Executive Council, Annual Report Fiscal Year 2008, (Washington, D.C.: Feb. 

2009). 2Pub. L. No. 110–181, § 703(a)(2), 122 Stat. 3, 188 (codified at 10 U.S.C. § 1074g(f)). 

3 40 U.S.C. §§ 3131 to 3134 (2007). 

RESPONSE TO QUESTION SUBMITTED BY MR. SKELTON 

Mr. DODARO. Over the past several years, we have performed work on issues related to the cost of pharmaceuticals, including the relationship between DOD and 

VA. (In submitting my written responses for the record, I will also provide copies 

of any products cited in my response.) For example, in May 2000, we testified that 

VA and DOD could save millions of dollars by expanding their use of joint contracts 

for pharmaceuticals (See GAO/T–HEHS–00–121). In a subsequent report in May 

2001, we found that VA and DOD had made important progress in leveraging joint 

purchasing power for pharmaceuticals by expanding the number of joint pharmaceutical contracts (See GAO–01–588). At the time, most of their joint contracts were 

for generic drugs. We concluded that more significant cost reductions could be realized through joint procurement of high-cost brand name drugs, although we noted 

that DOD and VA faced challenges to do so. We recommended, among other things, 

that VA and DOD include information on ongoing and planned joint contracts in an 

annual report to the Congress, which they did most recently in February 2009.1

This report notes that there were 59 VA and DOD joint national contracts for the 

first three quarters of fiscal year 2008, resulting in $115 million in cost avoidance. 

We also reported in June 2005 on a pilot program for DOD to use VA’s mail order 

pharmacy to dispense outpatient refill prescriptions (See GAO–05–555). We noted 

that DOD’s costs were much higher when beneficiaries used retail pharmacies than 

when they used military treatment facility pharmacies or mail order options. In addition, we concluded that DOD could achieve cost savings at very high levels of beneficiary satisfaction by delivering drugs to beneficiaries using the VA’s mail order 

pharmacy rather than military treatment facility outpatient refill operations. In 

2008, we reported that DOD’s drug spending had more than tripled from fiscal year 

2000 to fiscal year 2006, and that retail pharmacy spending drove most of this increase. We noted that the growth in retail spending reflected the fact that federal 

pricing arrangements, which generally result in prices lower than retail prices, were 

not applied to drugs dispensed at retail pharmacies during this time. However, we 

noted that future growth in retail pharmacy spending may slow as the National Defense Authorization Act for Fiscal Year 2008 required that federal pricing arrangements be applied to drugs dispensed at retail pharmacies.2 We recommended that 

DOD monitor the effect of federal pricing arrangements for drugs dispensed at retail 

pharmacies along with ongoing efforts to limit pharmacy spending to determine the 

extent to which they reduce the growth in retail pharmacy spending, and to identify, 

implement, and monitor other efforts as needed to reduce the growth in retail pharmacy spending (See GAO–08–327). DOD stated that it concurred with these recommendations. [See page 9.] 

[The GAO reports referred to above are retained in the committee files and can 

be viewed upon request.] 

RESPONSES TO QUESTIONS SUBMITTED BY MR. TAYLOR 

Mr. DODARO. Although we have not done audit work looking at performance bonds 

on DOD contracts, we are familiar with the use of this tool. Just like many cities 

and states, the federal government provides for the use of performance bonds on 

construction contracts. In this regard, the Miller Act requires performance bonds for 

any construction contract exceeding $100,000.3 The bond is intended to assure fulfillment of the contractor’s obligations under the contract by providing for payment 

of a penal amount to the government in the event of nonperformance. In general, 

the penal amount of the performance bond is equal to the amount of the contract. 

The FAR provides, however, that agencies generally should not require performance bonds for other than construction contracts. The exceptions to this general pro-
68 

hibition for the most part involve situations in which the government is providing 

property or other assets to the contractor early in the performance of the contract. 

The rationale for the general prohibition on the use of performance bonds outside 

the construction area is based on a number of factors. First, unlike construction contracts that are structured around well-defined specifications, contracts for weapon 

system development such as for the Littoral Combat Ship often lack fixed objective 

specifications. Second, the length of time for which a surety is willing to issue a 

bond is typically less than two years, far shorter than most weapon system development projects. Third, the cost of obtaining a performance bond would be reflected 

in the contract price paid by the government. This means the government would be 

paying higher prices on all contracts requiring a bond even though only a small percentage of the contractors might fail to perform to contract requirements. And finally, the government has other means available to it to ensure good contract performance. Chief among these is the requirement in the FAR that the government 

do business only with responsible contractors. For all contracts, the contracting officer must make an affirmative determination that the prospective contractor has 

adequate financial resources, is able to meet schedule, has a satisfactory performance record, and is otherwise equipped to perform all contract requirements. [See 

page 26.] 

Mr. DODARO. We have contacted the cognizant office within the department, the 

Director, Defense Procurement and Acquisition Policy, within the office of the Undersecretary for Acquisition, Technology and Logistics. We have conveyed Congressman Taylor’s concern over the issue of countercyclical purchases of materials when 

they are in the best interests of the government, as well as the need to be aggressive in taking advantage of such opportunities. The Director replied that this issue 

has been discussed within the department and that he is taking steps to have the 

Defense Contract Management Agency pursue countercyclical purchases. He noted 

that enhancing the Defense Contract Management Agency’s capacity in this area is 

one component of the department’s overall workforce initiative. [See page 27.] 
QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

MARCH 12, 2009 

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QUESTIONS SUBMITTED BY MR. SMITH 

Mr. SMITH. Many of the systems on your list are software-intensive IT systems. 

In your analysis, did you find common characteristics that typify high-risk IT efforts 

from more successful programs? 

Mr. DODARO. One of the more formidable challenges to addressing the business 

systems modernization high risk area is ensuring that the thousands of DOD business system programs and projects and IT services employ acquisition management 

rigor and discipline. This is because our work has shown that DOD has implemented acquisition management controls on large business system investments to 

varying degrees of effectiveness. In the last year, our reviews of major defense business system acquisitions have disclosed patterns of system-specific management 

weaknesses, including: 

• not economically justifying investments on the basis of reliable estimates of future costs and benefits, which increases the risk that the department is not pursuing the most cost effective solutions for satisfying its business mission needs; 

• not pursuing investments within the context of an enterprise architecture, 

which increases the risk of system implementations that are duplicative and not 

well integrated; 

• not adequately defining and controlling system requirements, which increases 

the risks of producing a system that cannot be effectively tested and does not 

meet expectations; 

• not proactively managing acquisition risks, which results in potential cost, 

schedule, and performance problems becoming actual problems; and 

• not sufficiently testing system functions and performance, which increases the 

chances of developed and deployed capabilities not performing as intended and 

not meeting users operational needs. 

Until DOD addresses these characteristics of ‘‘at risk’’ acquisitions, it will be severely challenged in its ability to ensure that its system investments are the right 

solutions for addressing its business needs, that they produce expected capabilities 

and mission benefits, and that stakeholders are satisfied. 

Mr. SMITH. Because the time cycle for technology development and refresh are so 

different, major automated information systems have different developmental needs 

compared to traditional hardware acquisition programs. Do you feel that the new 

DOD 5000 acquisition directives adequately address the specific challenges for IT 

systems? If so, what changes would you recommend? 

Mr. DODARO. Based on our prior work, DOD has taken some action consistent 

with our recommendations, but additional steps are needed to address the challenges for IT systems. (In submitting my written responses for the record, I will also 

provide copies of the cited products). Specifically, in 2004, we reported that DOD’s 

5000 acquisition directive and guidance were consistent with some, but not all, key 

acquisition practices for IT systems (See GAO–04–722). Specifically, while the policies and guidance largely incorporated the best practices that are relevant to any 

business systems acquisition, they did not incorporate key best practices that relate 

to acquiring commercial component-based business systems. For example, they included the requirement that acquisitions be economically justified on the basis of 

costs, benefits, and risks. However, they did not address basing any decision to modify commercial components on a thorough analysis of the impact of doing so, and 

they did not address preparing system users for the business process and job roles 

and responsibilities changes that are embedded in the functionality of commercial 

products. Moreover, they did not contain sufficient controls to ensure that DOD organizations appropriately follow the best practices that are incorporated in the department’s policies and guidance. 

DOD has since revised its 5000 acquisition guidance to incorporate some of these 

practices. For example, they now provide for conducting an analysis of lifecycle costs 

and benefits before modifying commercial components. However, they do not yet incorporate provisions for measurement and verification that the best practices provided for are appropriately followed. Moreover, DOD’s Business Transformation 
72 

1 Agencies are required to consider past performance in all negotiated procurements above the 

simplified acquisition threshold of $100,000 and in all procurements for commercial goods or 

services. 

Agency, which is responsible for leading and coordinating, among other things, acquisition of business systems across the department, has recognized the need for an 

acquisition management approach that reflects the unique characteristics of major 

automated information systems. Specifically, it has drafted a lifecycle management 

methodology, referred to as the Business Capability Lifecycle that provides an approach for acquiring business systems. However, this methodology has been in draft 

for about two years and has yet to be approved or fully implemented. Our May 2009 

report reiterates existing recommendations and includes new recommendations to 

address the business systems modernization high risk area (See GAO–09–586). 

These recommendations are aimed at strengthening institutional controls and ensuring that these controls are implemented on each and every business system investment. 

For example, at the institutional level, DOD still needs to: 

• extend (federate) DOD’s corporate business enterprise architecture and related 

transition plan to its component organizations and ensure that it reflects the 

department’s complete investment portfolio; and 

• evolve the department’s corporate and component business system investment 

management processes and ensure that they are institutionalized at all levels 

of the organization. 

At the program-level, DOD still needs to ensure that the thousands of DOD business system modernization and IT services programs and projects employ program 

management rigor and discipline, to include: 

• economically justifying investments on the basis of reliable estimates of future 

costs and benefits; 

• pursuing investments within the context of an enterprise architecture; and 

• adequately conducting key acquisition functions, such as requirements management, risk management, test management, performance management, and contract management. 

DOD has largely agreed with GAO’s recommendations aimed at improving these 

institutional and program-specific controls and described either commitments or actions being planned or under way to address them. 

[The GAO reports referred to above are retained in the committee files and can 

be viewed upon request.] 

QUESTIONS SUBMITTED BY MR. MURPHY 

Mr. MURPHY. Why are contractors who have a track record of providing substandard services because of the failure to maintain a well-trained and stable workforce continuing to receive additional government contracts? 

Mr. DODARO. The federal government has tried for many years to find a way to 

give appropriate weight to firms’ track record in selecting firms for new contracts. 

Today, agencies are required to consider past performance in selecting contractors, 

but, as discussed below, it is only one of a number of factors they consider. In addition, while a seemingly simple concept, using past performance information in 

source selections can be complicated in practice. Further, we recently identified several underlying problems that limit the usefulness of information in the government’s past performance database for governmentwide sharing. 

The government contracting process provided under the Federal Acquisition Regulation (FAR) requires consideration of contractor performance at multiple points: 

• Source selection: Past performance is required to be an evaluation factor in selecting contractors, along with factors such as price, management capability, 

and technical approach to the work.1 Although past performance must be a significant evaluation factor in the award process, agencies have broad discretion 

to set the precise weight to be afforded to past performance relative to other 

factors in the evaluation scheme. 

• Responsibility determinations: Prior to the award of a contract the contracting 

officer must make an affirmative determination of responsibility regarding the 

prospective contractor. One of the factors a contracting officer must consider in 

making this determination is the prospective contractor’s ability to perform the 
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2GAO, Federal Contractors: Better Performance Information Needed to Support Agency Contract Award Decisions, GAO–09–374 (Washington, D.C.: April 23, 2009). 

contract. This includes, for example, whether the prospective awardee has a satisfactory performance record on prior contracts. 

• Surveillance under the current contract: Once a contract is awarded, the government monitors a contractor’s performance throughout the life of the contract. 

This record of performance will generally be one of the evaluation factors considered by the government when evaluating and awarding future contracts. 

• Debarment: To protect the government’s interests, agencies can debar, that is 

preclude, contractors from receiving future contracts for various reasons, including serious failure to perform to the terms of a contract. 

DOD has issued additional guidance on the use of past performance data during 

contract award and what systems will be used to store and retrieve past performance data. For example, DOD offers instructions on using past performance in 

source selection and contractor responsibility determinations through the Defense 

Federal Acquisition Regulation Supplement and related Procedures, Guidance, and 

Information. DOD’s Office of Defense Procurement and Acquisition Policy also made 

available a guide that provides more detailed standards for the collection and use 

of past performance information, including criteria applicable to various types of 

contracts. 

We recently assessed federal agencies’ use of past performance information and 

the challenges that hindered the systematic sharing of past performance information.2 We found that the lack of accountability or incentives at agencies to document 

assessments in the government’s past performance information system, a lack of 

standard evaluation factors and rating scales across agencies, and a lack of central 

oversight to ensure the adequacy of information fed into the system limited the usefulness of information for governmentwide sharing. We made several recommendations to the Office of Federal Procurement Policy aimed at improving the sharing 

and use of past performance information in contract award decisions. We also recommended that the agencies we reviewed establish management controls and appropriate management review of past performance evaluations to improve management 

and accountability for documenting contractor past performance information. The 

Office of Federal Procurement Policy and the agencies agreed with our recommendations. In addition, most of these agencies outlined plans or actions to implement our 

recommendation on management controls and reviews of past performance. 

Mr. MURPHY. In your opinion, do you believe that by incorporating measures that 

allow procurement officers to evaluate the treatment of those employees that will 

be performing the contract we can obtain contracts that better service the needs of 

the government and the American people? 

Mr. DODARO. Contracting officers are to consider a number of factors such as 

price, quality of the product or service, and past performance when awarding government contracts. As part of the quality of the product or service the government 

considers one or more non-cost evaluation factors such as technical excellence, management capability, and personnel qualifications. Contracting officers have broad 

discretion in the selection of evaluation factors used in assessing the relative merit 

of competing proposals for contracts for the procurement of goods and services, and 

a contractor’s treatment of its employees can thus be used as an evaluation factor. 

In addition to evaluation factors, which are set out in a solicitation and used in the 

selection of the apparent winner of the competition for a contract, another issue relevant to your question is the determination of ‘‘responsibility.’’ Before an apparently 

successful firm can actually be awarded the contract, the contracting officer must 

determine that the firm is ‘‘responsible,’’ a term of art that means, among other 

things, that the contractor: 

• has adequate financial resources to perform the contract, or the ability to obtain 

them; 

• be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments; 

• has a satisfactory performance record; 

• has a satisfactory record of integrity and business ethics; 

• has the necessary organization, experience, accounting and operational controls, 

and technical skills, or the ability to obtain them; 

• has the necessary production, construction, and technical equipment and facilities, or the ability to obtain them; and 
74 

• is otherwise qualified and eligible to receive an award under applicable laws 

and regulations. 

A contractor’s treatment of its employees is not a required evaluation factor nor 

is it necessarily considered by contracting officers in responsibility determinations. 

We have not done work that assessed the merits of the use of such a factor either 

in source selection or responsibility determinations. 

Mr. MURPHY. Do you believe that by encouraging the selection of responsible contractors who employ a stable and well-trained workforce, the procurement process 

would better serve the needs of the government and the American people? 

Mr. DODARO. In general, the selection of responsible contractors who employ a stable and well-trained workforce can help contribute to meeting the needs of the government and the American people. The stability and training of the contractors 

workforce are, however, not the only criteria used in selecting contractors, as explained above. Moreover, the government’s selection of qualified contractors is just 

one of many factors associated with the performance of a successful acquisition. 

Other factors include, for example (1) the development of well-defined requirements; 

(2) the use of an appropriate contract type; (3) selection of a responsive and responsible contractor; and (4) proper government oversight of contractor performance. We 

have reported on DOD’s contract management challenges in these four areas, which 

contribute to unmet expectations and continue to place the department at risk of 

potentially paying more than necessary for contracted services. 

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