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i 

25–148 2017

[H.A.S.C. No. 115–32] 

ASSESSING PROGRESS AND IDENTIFYING 

FUTURE OPPORTUNITIES IN 

DEFENSE REFORM 

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

APRIL 4, 2017 
(II) 

COMMITTEE ON ARMED SERVICES 

ONE HUNDRED FIFTEENTH CONGRESS

WILLIAM M. ‘‘MAC’’ THORNBERRY, Texas, Chairman 

WALTER B. JONES, North Carolina 

JOE WILSON, South Carolina 

FRANK A. LOBIONDO, New Jersey 

ROB BISHOP, Utah 

MICHAEL R. TURNER, Ohio 

MIKE ROGERS, Alabama 

TRENT FRANKS, Arizona 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROBERT J. WITTMAN, Virginia 

DUNCAN HUNTER, California 

MIKE COFFMAN, Colorado 

VICKY HARTZLER, Missouri 

AUSTIN SCOTT, Georgia 

MO BROOKS, Alabama 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

BRAD R. WENSTRUP, Ohio 

BRADLEY BYRNE, Alabama 

SAM GRAVES, Missouri 

ELISE M. STEFANIK, New York 

MARTHA MCSALLY, Arizona 

STEPHEN KNIGHT, California 

STEVE RUSSELL, Oklahoma 

SCOTT DESJARLAIS, Tennessee 

RALPH LEE ABRAHAM, Louisiana 

TRENT KELLY, Mississippi 

MIKE GALLAGHER, Wisconsin 

MATT GAETZ, Florida 

DON BACON, Nebraska 

JIM BANKS, Indiana 

LIZ CHENEY, Wyoming 

ADAM SMITH, Washington 

ROBERT A. BRADY, Pennsylvania 

SUSAN A. DAVIS, California 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

JIM COOPER, Tennessee 

MADELEINE Z. BORDALLO, Guam 

JOE COURTNEY, Connecticut 

NIKI TSONGAS, Massachusetts 

JOHN GARAMENDI, California 

JACKIE SPEIER, California 

MARC A. VEASEY, Texas 

TULSI GABBARD, Hawaii 

BETO O’ROURKE, Texas 

DONALD NORCROSS, New Jersey 

RUBEN GALLEGO, Arizona 

SETH MOULTON, Massachusetts 

COLLEEN HANABUSA, Hawaii 

CAROL SHEA–PORTER, New Hampshire 

JACKY ROSEN, Nevada 

A. DONALD MCEACHIN, Virginia 

SALUD O. CARBAJAL, California 

ANTHONY G. BROWN, Maryland 

STEPHANIE N. MURPHY, Florida 

RO KHANNA, California 

TOM O’HALLERAN, Arizona 

THOMAS R. SUOZZI, New York 

(Vacancy) 

ROBERT L. SIMMONS II, Staff Director 

ANN MCDONOUGH-HUGHES, Professional Staff Member 

DOUGLAS BUSH, Professional Staff Member 

BRITTON BURKETT, Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Langevin, Hon. James R., a Representative from Rhode Island, Committee 

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

Thornberry, Hon. William M. ‘‘Mac,’’ a Representative from Texas, Chairman, 

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

WITNESSES 

Flournoy, Miche`le, Chief Executive Officer and Co-Founder, Center for a 

New American Security, Former Under Secretary of Defense (Policy) ........... 5 

Hamre, Dr. John J., Chief Executive Officer and President, Center for Strategic and International Studies, Former Deputy Secretary of Defense ........... 3 

Zakheim, Dr. Dov S., Senior Adviser, Center for Strategic and International 

Studies, Former Under Secretary of Defense (Comptroller) ............................. 8 

APPENDIX 

PREPARED STATEMENTS: 

Flournoy, Miche`le ............................................................................................. 60 

Hamre, Dr. John J. ........................................................................................... 51 

Smith, Hon. Adam, a Representative from Washington, Ranking Member, 

Committee on Armed Services ..................................................................... 49 

Zakheim, Dr. Dov S. ......................................................................................... 74 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Langevin ..................................................................................................... 91 

(1) 

ASSESSING PROGRESS AND IDENTIFYING FUTURE 

OPPORTUNITIES IN DEFENSE REFORM 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Tuesday, April 4, 2017. 

The committee met, pursuant to call, at 10:01 a.m., in room 

2118, Rayburn House Office Building, Hon. William M. ‘‘Mac’’ 

Thornberry (chairman of the committee) presiding. 

OPENING STATEMENT OF HON. WILLIAM M. ‘‘MAC’’ THORNBERRY, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, COMMITTEE ON ARMED SERVICES 

The CHAIRMAN. Committee will come to order. 

This week the committee will hold two hearings that focus on the 

two major pillars of our agenda. Tomorrow we will hear from the 

service chiefs on repairing and rebuilding our military. Today, however, we will concentrate on the other pillar, which is defense reform. 

We have done a lot of reform over the past 2 years. That includes 

acquisition reform, a new military retirement system, major 

changes in military health care, commissary reform, a rewrite of 

the Uniform Code of Military Justice, as well as significant organizational reform. 

While a lot has been done, however, a lot more needs to be done. 

The world around us is simply moving too fast for us to sit still and 

assume that the organizations and processes of the past will suffice 

for today and especially for tomorrow. 

Yes, we all have an obligation to see that taxpayer dollars are 

spent as efficiently and as effectively as possible, especially in fulfilling the first job of the Federal Government, which is to defend 

the country. But we all know from the news and from our intelligence briefings that we face a wide, diverse array of threats, and 

those threats change day by day as adversaries develop systems designed to deny us any military advantage. We must be prepared for 

each of these threats. 

We also know that the pace of technological change is accelerating and that more and more innovation takes place in the private 

sector. 

All of these trends stress our existing organizations and processes. We will not be able to defend the country with outdated technology or sluggish bureaucracy. 

Much of the responsibility for making needed reforms rests with 

us, with Congress. We cannot do everything in a single bill or even 

in 3 years, but we must be willing to move aggressively to make 

the reforms needed in this volatile, dangerous world. 
2 

There are no individuals who can provide wiser, more considered 

guidance than the three witnesses we have today, each of whom 

has held high office in the Department of Defense, each of whom 

has testified many times before this committee, and each of whom 

has devoted their careers to helping provide for the national security of the United States. I appreciate each of them being with us 

today. 

Before turning to those witnesses, let me yield to the distinguished acting ranking member, the gentleman from Rhode Island, 

Mr. Langevin. 

STATEMENT OF HON. JAMES R. LANGEVIN, A REPRESENTATIVE FROM RHODE ISLAND, COMMITTEE ON ARMED SERVICES 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

I want to welcome our witnesses here today, and proud to be able 

to speak on behalf of Ranking Member Smith this morning. And 

I will be submitting his statement for the record after I read it. 

[The prepared statement of Mr. Smith can be found in the Appendix on page 49.] 

Mr. LANGEVIN. But thank you, again, to our witnesses. 

So thank you, Mr. Chairman, for holding today’s hearing on this 

topic of critical importance. 

And again, I also want to say a thank you to our witnesses for 

sharing their opinions on past and future defense reform opportunities. I know you all have a wealth of knowledge, and I appreciate 

you sharing this with the committee. 

I look forward to hearing the views on what the Department of 

Defense should or should not address in the future as it relates to 

acquisition policy, organizational structure, and military personnel 

reform efforts. The fiscal year 2016 and fiscal year 2017 National 

Defense Authorization Acts included significant changes to the acquisition division of the Office of the Secretary of Defense. 

First, decision-making authority for large acquisition programs 

moved from the Under Secretary of Defense for Acquisition, Technology, and Logistics to the service secretaries; and second, that 

the same under secretary position was split into two under secretary positions. This shift has created an unknown dynamic for 

the Department of Defense and private sector companies who 

produce goods and provide services for DOD. 

So here we are in 2017 working on next year’s NDAA [National 

Defense Authorization Act] and key acquisition positions are yet to 

be filled, and it is too early to tell if this reform—these reforms will 

prove to be successful. 

In my view, before we make additional acquisition reforms we 

should see if last year’s changes are effective because, frankly, it 

seems as if current changes may be overwhelming the system. The 

Department of Defense can only absorb so much new acquisition 

reform legislation. 

However, one area where DOD does not need congressional support is in helping it to right-size its infrastructure by authorizing 

a new round of base realignment and closure [BRAC]. DOD has 

been asking Congress to authorize a new BRAC round each year 

for the past 5 years, and they estimate a new BRAC can help save 
3 

$2 billion a year. At a time of constrained resources we cannot afford to waste $2 billion a year holding onto infrastructure that is 

in excess to the military’s requirement. 

While some may question the force structure levels or raise concerns with the 2005 round, I believe Congress can and should work 

with DOD to address these issues and authorize a new round of 

BRAC this year. 

I am also interested in where the Department and the services 

will go with personnel reforms. The fiscal year 2016 NDAA reformed the military retirement system to provide 83 percent of the 

force a strong, portable retirement plan that they can take with 

them when they complete their service obligation but do not reach 

a 20-year retirement. 

It is time that the personnel system complements the retirement 

system with more flexibility and ability to target certain skill sets 

when needed. The services have been discussing for years the need 

for a more flexible personnel system but have done little with the 

existing authorities they have to make any meaningful changes. 

People join the military and depart the military for a variety of 

reasons, and the system cannot be one-size-fits-all. I understand 

due to the nature of the missions and organizations there have— 

there are requirements and standards that need to be maintained. 

I am interested in exploring concrete options that create flexibility 

to attract the qualified individuals it needs to fit the requirements 

and, as those requirements change, retaining the quality the military needs to maintain high standards. 

With that, I thank the ranking member for letting me read his 

statement on his behalf, and I yield back to the chairman. 

The CHAIRMAN. I thank the gentleman. 

Let me again welcome each of our witnesses: Dr. John Hamre, 

chief executive officer and president for the Center for Strategic 

and International Studies [CSIS]; Miche`le Flournoy, chief executive 

officer and co-founder, Center for a New American Security; and 

Dr. Dov Zakheim, senior advisor for the CSIS. 

As I mentioned, each of them have held high position in the Department of Defense and we are grateful for y’all being here. 

Without objection, your full written statement will be made part 

of the record. But at this point we would be pleased to hear any 

oral comments you would like to make. 

Dr. Hamre. 

STATEMENT OF DR. JOHN J. HAMRE, CHIEF EXECUTIVE OFFICER AND PRESIDENT, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, FORMER DEPUTY SECRETARY OF DEFENSE 

Dr. HAMRE. Mr. Chairman, Ranking Member Smith, it is a real 

privilege to be invited back and I want to say thank you to you not 

just for inviting us but for this committee taking so seriously this 

important work of defense reorganization reform. You know, this is 

not the kind of thing that most committees are doing these days. 

I am so proud that you are, and thank you for that. 

I was on the staff of the Senate Armed Services Committee when 

the—— 
4 

The CHAIRMAN. Excuse me, Dr. Hamre. Would you get that microphone right up to your mouth—— 

Dr. HAMRE. I am sorry. I apologize. 

The CHAIRMAN. Thank you. Thank you. 

Dr. HAMRE. I was on the staff of the Senate Armed Services 

Committee when we passed Goldwater-Nichols and then the Packard Commission reforms. We worked on that very hard, but we 

made a real—some serious mistakes with the Packard Commission 

reform, and I would—it was—we didn’t understand it at the time 

but we—when we took the chief of staff of the services out of the 

chain of command for acquisition, that was a mistake. 

You fixed that 2 years ago, and I am very grateful for that. 

We made a mistake by decapitating the ecosystem for innovation 

in the Department when we created the under secretary for acquisition, made it the third most important position in the building, 

and we diminished the role of the defense research and engineering. That was a mistake at the time. 

You fixed that last year, but—and I am—I haven’t—I know that 

you are working on legislation this year. I haven’t seen what you 

are proposing, so I am really—what I really am here to talk about 

is what happened last year. 

You did the right thing by elevating the research and engineering function, but unfortunately, in the conference I think you undermined the impact of this when you created the second under 

secretary for acquisition. 

The purpose of your goal last year—and we had conversations 

with the committee—was to make the innovation secretary the 

third most important position in the building, and that was the 

right thing to do. You did that. 

But by introducing a second under secretary who takes care of 

acquisition, that is where the money is. You know, I was the comptroller, you know, so I know what it is like in the building. The guy 

that controls the money has got more clout. 

So your desire to elevate in prominence the innovation ecosystem 

in the Department so that we become more dynamic in addressing 

new technology and new threats was, unfortunately, undermined 

when you created this second under secretary. And I would ask you 

to go back and take a look at that. 

You did the right thing by delaying implementation 1 year, so 

you have a chance to really get this right. We need to recruit the 

biggest person we possibly can to come into that job. 

We have to recruit a very prominent person. They are not going 

to come in if the job looks like it is undermined by the structure 

of the rest of the senior leadership. 

So I would plead with you to take another look at that. I would 

be happy to come up and talk at any time. 

The other thing I would wish to talk to you about is you put in— 

in the Authorization Act last year you created the chief management officer. As written now, it isn’t—it doesn’t really do anything 

new. It carves out all the functions that are currently with the deputy secretary as the chief management officer into that new position as an under secretary. 

I think there is a great promise in what you are looking at, but 

I think we need to make clear the way it is written in last year’s 
5 

bill it is a staff function. What I think we need in the Department 

is a line manager over the defense agencies. We do not have a line 

manager over the defense agencies. We have line manager for the 

Army, for the Air Force, for the Navy and Marine Corps; we don’t 

for the defense agencies. 

I would ask you to consider looking at making that chief management officer position, which you created, not a staff function but a 

line function. Give it responsibility to manage, oversee, hire, fire, 

promote, you know, to make capital investments, et cetera, for this 

very important function, to oversee the defense agencies. It is about 

$130 billion, so there is a lot of work to be done here, but you are 

not going to get management out of the job the way you wrote it 

last year. 

So I apologize for being blunt here, but I—you absolutely are on 

the right track. I think some minor adjustments you will carry this 

across the line. 

And, of course, I would be very flattered to work with you on 

anything this year. I haven’t seen your draft bill, but I look forward 

to working with you and the committee, sir. 

Thank you. 

[The prepared statement of Dr. Hamre can be found in the Appendix on page 51.] 

The CHAIRMAN. Thank you, sir. 

Ms. Flournoy. 

STATEMENT OF MICHE` LE FLOURNOY, CHIEF EXECUTIVE OFFICER AND CO–FOUNDER, CENTER FOR A NEW AMERICAN 

SECURITY, FORMER UNDER SECRETARY OF DEFENSE (POLICY) 

Ms. FLOURNOY. Mr. Chairman, Ranking Member Smith, and distinguished members of the committee, truly an honor to be here to 

testify before you on such a critical topic as defense reform. 

You know, it is hard to remember a time when the need for defense reform was more acute, given the incredible challenges that 

our military is likely to face in the future. We have a military that 

is more capable than ever before, but also it is a military that is 

on an unsustainable cost curve. 

And so fundamental reforms are needed to actually free up resources that can be reinvested in the critical concepts and capabilities and operations that will need—that will enable us to really 

maintain our technological edge in the future in a far more challenging security environment. So now is the time to continue with 

a plan for robust reform that ensures that we get the most possible 

out of every taxpayer dollar invested. 

And I, too, want to applaud the work that this committee has 

done in leading the charge on defense reform, particularly in the 

acquisition area. But what I wanted to do this morning is suggest 

four new areas that you may want to go deeper in this legislative 

cycle and in the future. 

The first is right-sizing DOD headquarters and, in particular, 

transforming the defense agencies. If you look today at the Office 

of the Secretary of Defense, the Joint Staff, the combatant command headquarters, and the defense agencies, they total about 
6 

240,000 people, excluding contractors. That is about 20 percent of 

the defense budget. 

The substantial growth in DOD headquarters is not just a matter 

of inefficiency but also one of effectiveness. You know, in the private sector bloated headquarter staffs have been documented to 

slow decision making, push too many decisions too far up in the organization, incentivize risk-averse behavior, undermine organizational performance, and compromise agility; and I think the same 

can be true in government. 

Perhaps the greatest opportunity for potential savings lies with 

the largest defense agencies, which account for about $134 billion 

of the DOD budget. So highest priority in my mind should be given 

to those large agencies that operate most like civilian businesses, 

including DLA, the Defense Logistics Agency; DISA, the Defense 

Information Systems Agency; DHA, the Defense Health Agency; 

and DFAS, which is the [Defense] Finance and Accounting Service. 

And what I would encourage you to do is to require the Secretary 

of Defense to undertake a comprehensive management assessment 

of these agencies, looking at where best business practices, new 

technologies, and automation might actually improve performance 

and reduce cost, and create savings that could be reinvested in 

higher-priority areas. 

Beyond this focus on defense agencies, I think it would also be 

a good thing for Congress to provide the Secretary with the flexibility and breathing room to assess across the DOD headquarters 

areas of potential overlap and look for opportunities to restructure, 

consolidate, reassign personnel, eliminate unnecessary offices and 

functions. Just hearing John’s proposal for giving the CMO [chief 

management officer] line responsibility over the agencies, I think 

that is very much worthy of consideration. 

Second key area I would love for you to grapple with is BRAC. 

The Department desperately needs a BRAC round. The estimate is 

that 22 percent of current infrastructure is excess to military need. 

The service chiefs have repeatedly testified that that infrastructure 

overhang is taking money away from readiness and from modernization and critical future warfighting capabilities. 

Based on past experience, the Department is estimating that at 

least $2 billion a year could be saved. And although concerns about 

potential job loss are understandable, there are also a number of 

studies of past closures that concluded that most jobs are ultimately replaced and most affected communities actually do recover 

quite well. 

I think in a year where the Congress is also considering a major 

infrastructure investment bill you could imagine directing some of 

that investment to affected communities and potentially easing 

their transition and mitigating some of the job losses associated 

with BRAC. 

So bottom line is every dollar we spend on unneeded infrastructure is a dollar that we are not using to support the men and 

women who serve in harm’s way, so I would encourage you this 

year to act. 

The third area is reshaping and reinvigorating the civilian workforce. Today DOD employs about 770,000 civilian employees, plus 
7 

a comparable number of civilian contractors. Multiple efforts have 

been made to streamline the system with mixed success. 

I think you have an opportunity this year to provide the Secretary with a package of authorities to help reinvigorate the civilian workforce. I would encourage you—I list them in my testimony; 

I will just briefly touch on some of them here. 

But requiring the Secretary to develop a comprehensive human 

capital strategy for how we recruit, develop, retain, and shape the 

civilian workforce, including in that assessing the optimal mix between military, civilian, and contractor workforces; secondly, to set 

realistic personnel cost reduction targets over the FYDP [Future 

Years Defense Program]; to actually further modify the VSIP [voluntary separation incentive payments] authority to allow it to be 

targeted on specific employees that are judged appropriate to leave 

government service; to encourage the Secretary to use the modified 

RIF [reduction in force] authority that you provided last year but 

hasn’t been used by the Department yet; to give the Secretary flexibility to reallocate and reassign personnel as he right-sizes and reshapes the organization; and really to look at consolidating the personnel system. 

Currently there are 66 different personnel systems that are being 

used for the civilian workforce in the Department of Defense 

today—66. Imagine trying to manage that. 

Can we look at a consolidated approach under title 10 that would 

really allow the Secretary to tailor one system to hire, manage, develop, compensate, retain DOD’s civilian workforce. And there are 

a number of other ideas that I list there, as well. 

The fourth area is improving the quality of health care while reducing costs. Today the military health care system—costs have 

nearly doubled over the last decade, with the CBO [Congressional 

Budget Office] estimating an additional $40 billion by 2030. 

What is even more important in my mind is that survey data 

suggests that the quality of care received by military personnel and 

their dependents remains uneven and customer satisfaction is 

below civilian benchmarks in key areas. So I think this is an area 

where DOD and the Congress have an opportunity to explore ways 

of both improving the quality of care while also leveraging approaches like values-based health care to reduce costs. 

In my written testimony I actually draw from an excellent report 

that Bob Hale, the former DOD comptroller, did for CNAS [Center 

for a New American Security] on reforming defense, and particularly he highlights five areas for health care reform that I think 

are worthy of looking at: wartime readiness, value-based reimbursement, utilization of services, productivity, and availability of 

choice. 

Let me just conclude by saying that I really do think we have 

a tremendous opportunity with this Secretary and this Congress to 

move forward on these issues. I think now is the time to provide 

the Secretary of Defense with the authorities and flexibility he 

needs to actually get better performance and free up resources for 

reinvestment in higher-priority areas. 

But that said, defense reform, as you all know, is not a panacea. 

It is my hope that this Congress will also consider how to establish 

a more predictable and more robust levels of defense spending over 
8 

the next 5 to 10 years without gutting diplomacy and development 

accounts that are also critical to our national security. 

I believe that reaching a comprehensive budget deal that includes all of the obvious elements—from tax reform, to entitlement 

reform, to smart investment in the drivers of our economic vitality 

and growth—is not only an economic imperative; it has become a 

national security imperative. 

Lastly, I hope that through the dialogue that this committee is 

fostering, the Congress and the executive branch will be able to 

partner more closely together and make some of the hard choices 

and undertake the reforms necessary to ensure that we truly keep 

faith with the men and women who serve in the best fighting force 

in the world. As I think you would all agree, they deserve nothing 

less. 

Thank you. 

[The prepared statement of Ms. Flournoy can be found in the Appendix on page 60.] 

The CHAIRMAN. Thank you. 

Dr. Zakheim. 

STATEMENT OF DR. DOV S. ZAKHEIM, SENIOR ADVISER, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, FORMER UNDER SECRETARY OF DEFENSE (COMPTROLLER) 

Dr. ZAKHEIM. Mr. Chairman, Ranking Member Smith, Mr. 

Langevin, and the committee, like my colleagues here, I have been 

in front of this committee several times and it is a real privilege 

to be here again and to testify yet again on defense reform. 

The last 2 years in particular this committee has literally led the 

charge on implementing—first legislating and then helping to, in 

effect, implement reforms that were sorely needed in the Department. But, as my colleagues have pointed out and everyone here 

recognizes, there is still a way to go. 

I want to focus on some of the topics that have already been 

mentioned. The list is very long. 

Let me begin first with civilian personnel. I have a slightly different take than some of my colleagues have on what to do about 

the fact that civilian personnel has grown. It is 36 percent right 

now of—excuse me, of all personnel in DOD. Civilian personnel 

added 77,000 people over the last 15 years, an 11.5 percent jump. 

Military end strength, as we know, has gone down over that period 

by 8 percent. 

And civilian pay has gone up 31 percent. Most of that has gone 

to the General Schedule, the white-collar folks. Wage Board folks, 

the blue-collar folks, have barely gotten an increase at all, and I 

think that is worth noting. 

It is not at all clear that all these increases have actually provided DOD with more efficiencies. If it had, we wouldn’t be talking 

about it today. 

And one of the serious issues involving efficiency is the degree 

to which civil servants offload too much work to contractors, and 

particularly to what are called euphemistically ‘‘staff augmentees.’’ 

We have got a problem with that because it creates a sort of 

unhealthy symbiosis where civilian workers essentially give contractors work that they probably could and should do themselves. 
9 

And I had that when I was comptroller. I saw reports that were 

meant to go to the Congress that were poorly written. Turned out 

they weren’t written by the civil servants; they were barely reviewed by the civil servants. 

They were written by contractors. And when I said this just 

wasn’t the right thing to send up to the Hill the answer was, 

‘‘Okay. We will send it back to the contractor.’’ There is something 

fundamentally wrong with that. 

Another serious problem is the education of our civil servants. 

You can get a degree at the age of 25 and not take another course 

again for 40 years. That just doesn’t work with Moore’s law—particularly with the acquisition corps, but for human resource management, as well. 

I think my colleagues are absolutely right: We need to focus on 

human resource management. If we don’t train people, how are 

they going to know how to manage? 

We really need to ensure that we—anybody who wants to get 

particularly into the Senior Executive Service should spend a year 

at a top-notch university either doing business school-type work or 

going to a top technology school so that they really become educated consumers and educated managers. Without that you are 

going to find people flailing around, as they do today. 

It doesn’t help. And the military system, whatever you think 

about the need to improve professional military education, at least 

they have it. And you cannot become a flag or a general officer 

without going to the National War College or one of the service war 

colleges or the equivalent. 

We need that for our civilians, as well. It is not fair to them. 

And last year’s NDAA had some relationships established between the Defense Acquisition University and outside organizations, whether it is think tanks, universities, whatever. But the Defense Acquisition University is fundamentally a training institution, and if you go online and you look at the offerings you will see 

so many of them are distance learning. Well, distance learning has 

its points, but it is not really going to educate people in the way 

that face-to-face, yearlong education will do. 

As long as the course offerings are primarily for learning how to 

do something for training rather than education, you are not going 

to get what you need out of the DAU. The DAU has its place, but 

it is not the be-all and end-all. 

I would also argue that because the civilian personnel levels are 

just so high, we need to look at something like the REDUCE [Rebalance for an Effective Defense Uniformed and Civilian Employees] Act. Unless you literally specify cuts—and it can—and obviously the Department will allocate those cuts, but unless you specify something along the lines of the REDUCE Act, you are never 

going to get the civilian force levels down. 

And if you want to spend more money on the military force levels, you want to spend more money on procurement and acquisition, you have got to do something with the size of the civilian 

workforce. There are no two ways around it. 

And as for dealing with the staff augmentees, I would recommend that nobody who leaves the Department as a civilian or 
10 

a military person can go back to the Department as a contractor 

for 5 years. 

In other words, you can’t flip your badge and come back on Monday doing the same work you did on Friday. It just doesn’t work 

out. It adds to the overload in terms of numbers of civilians, and 

obviously if people have to stay out for 5 years they are going to 

find other jobs and you won’t have this phenomenon of people literally doing the same job, just getting paid more and wearing a different badge. 

I would also like to briefly talk about the reorganization of OSD 

[Office of the Secretary of Defense]. I don’t feel as strongly as my 

colleague, John Hamre, does about the split of the two—of the 

under secretary into two under secretaries, but one thing: We really need to make sure that their staffs don’t grow so that, again, you 

are increasing headquarters instead of reducing them, as Miche`le 

would like to see and I think we all would like to see. 

If you don’t limit what they can add to themselves—one idea that 

I have had for many years is have the principal deputy double as 

the assistant secretary in some—some assistant secretary simply so 

that you don’t have duplication of staffs. You don’t need to have a 

principal deputy who has a staff of his or her own in addition to 

the under secretary, in addition to an assistant—to the number of 

assistant secretaries. 

And, by the way, I would recommend the committee look again 

at how many assistant secretaries the Defense Department really 

needs. In my testimony I indicate some areas where some changes 

could be made there and reductions could be made. 

And finally, regarding the CMO, I totally agree with John. The 

CMO ought to be, in effect, the under secretary—not with that 

term, but, in effect, the under secretary for the Fourth Estate. 

Have them focus—the CMO focus on that area. We are talking 

about Fortune 500 companies that are managed by people who 

would not be CEOs [chief executive officers] of Fortune 500 companies. 

So we need to get somebody good in there; we need to get somebody with business experience in there. And that CMO should 

focus on that. 

Right now the mandate is so broad that what is going to happen 

is there will be inefficient focus on any one area, plus lots and lots 

of turf wars. There is nobody who focuses only on the defense agencies and field activities. 

That is because the under secretaries who have them in their org 

charts simply are focused primarily on other things. When I was 

comptroller, I suspect when John was comptroller, yes we had 

DFAS, and yes we had DCAA [Defense Contract Audit Agency] 

under us, but that was not our primary task. Our primary task 

was to focus on the budget. 

So I would strongly recommend, as I think John does, that the 

CMO focus on that Fourth Estate. 

And finally, on acquisition reform, because I know my time is 

running out, I would simply say this: I know that there has been 

some skepticism about DIUx [Defense Innovation Unit Experimental] and about, to some extent, the Third Offset. Frankly, I think 

the Third Offset is necessary; it is—it only shouldn’t be a replace-
11 

ment for force level increases, which to some extent was the implication that many people took away from when the Third Offset was 

first introduced. 

As for DIUx, it seems to me that they have overhauled their personnel, they are clearly focused on innovation, but if you want 

them to succeed you have got to do some other things. In particular, the Defense Department needs to default not to FAR [Federal Acquisition Regulation] part 15, which is the classic way of 

contracting, but either to FAR part 12 or some other system where, 

in effect, you are buying directly from the contractor, who doesn’t 

have to be part of the defense base. 

If you do that you are going to totally overhaul the culture of the 

Department, which right now thinks profits is some kind of sin, 

which essentially wants to go through many hurdles and hoops before anything gets done, and that is where we get our delays, that 

is where we get our cost overruns, and that is where we get frustration on the part of your committee and Congress generally, and 

the consumers of defense, who are the taxpayers. 

Mr. Chairman, thank you very much for allowing me to repeat 

many of the things I have said before, but you are—the committee 

is doing a wonderful job, and just keep it up. 

Thank you. 

[The prepared statement of Dr. Zakheim can be found in the Appendix on page 74.] 

The CHAIRMAN. Sometimes we need to hear it more than once, 

so that is okay. 

I want to go back and examine some of the specifics y’all have 

talked about at the end if other members don’t ask about them, but 

let me just start with a couple big-picture questions. 

Seems to me when it comes to defense reform there are two 

major justifications. One is efficiency, squeeze more money out so 

it can be used for other purpose; the other is agility, so you can 

keep up with changing threats, changing technology, adaptive enemies, and so forth. 

Do each of you agree that the efficiency part—if you—if everything were perfect and you could squeeze out all the inefficiency 

possible, do you believe that is enough money to rebuild the military, to repair the damage that CRs [continuing resolutions] and 

sequestration have created over the past number of years? 

Dr. HAMRE. Do you mean the budget as—the slim budget that 

was proposed? 

The CHAIRMAN. No. What members ask me is they will see a 

headline and says, ‘‘Oh, greater efficiencies could save this much 

money.’’ And the question is, can you reform your way to health if 

you are just looking at the dollars? 

Dr. HAMRE. Yes. My personal view is that you are going to need 

additional resources. You cannot find enough savings inside the 

Department to compensate for the readiness issues we have now, 

the force structure issues we have now. I think you are going to 

need more money, personally. 

Now, that isn’t to say you shouldn’t dig in on getting rid of the 

inefficiencies, but I think you are—we just need more money because the Department is stretched. 

The CHAIRMAN. Yes. That is what I am trying to understand. 
12 

Ms. FLOURNOY. I would agree that you can’t—defense reform 

alone will be—not be enough to generate the investment we need 

in future capabilities to deal with a more daunting security environment. 

By the same token, I don’t think we can afford to simply put 

more money into the defense budget without defense reform, both 

from an efficiency perspective but also from the very important 

point you made about agility, that this is also about improving the 

organizational performance of the Department, not just reducing 

cost. 

The CHAIRMAN. Dr. Zakheim. 

Dr. ZAKHEIM. I would agree, as well. I would use a business metaphor, if you will: If you cut your operating costs all the way down 

and you don’t increase your revenues you are out of business. 

And in a sense, this is the same thing. I mean, you can push efficiencies only so far, but if you don’t increase your top line you are 

going to be out of business. 

And agility, I think, is equally if not more important because the 

fact of the matter is we do rely primarily on our edge in high technology, and if we are not agile enough we are going to lose that 

edge because so much of that technology is no longer DARPA’s [Defense Advanced Research Projects Agency’s] province or DOD’s 

province. It is out there. And so agility is absolutely critical. 

We need both. And I think the direction the committee has taken 

I think does allow the Department to achieve both if the Department is willing to cooperate. 

The CHAIRMAN. Well, and let me just pick up on that for my second question. On the agility side, I think you heard earlier the 

statement that we need to just give it a rest, let the reforms we 

have already instituted have a chance to get—because they are— 

is a cost to churn, to change, and I think we ought to be, you know, 

cognizant of that. 

But I guess what I would—and, again, a big-picture sense from 

y’all is as you see the threats evolving, do you believe we should 

kind of back off and let what we have already done give a chance 

to set in, or do you think we need to continue to move, maybe even 

more aggressively, at the kinds of reforms that each of you have 

laid out? Just, again, this kind of bigger picture: Is the churn worth 

it, given what is happening in the world? 

Dr. ZAKHEIM. Well, Mr. Chairman, I would say move as aggressively as you can, and the reason I say that is twofold. 

First, churn doesn’t necessarily lead to bad things. Secondly, if 

you essentially call a timeout what you are going to do is allow the 

bureaucrats in the Department to figure out a way to get around 

everything you have done. 

That has happened in the past. I have seen it when I was in the 

Weinberger Defense Department; I saw it in the Rumsfeld Defense 

Department; I saw it when Mr. Rumsfeld tried to do things and the 

bureaucracy figured out how to get around him, much less you all. 

No. It is critical that you keep on pushing. 

The CHAIRMAN. Okay. 

Ms. Flournoy. 

Ms. FLOURNOY. I would agree with that. I do think that a lot of 

the change is focused in the acquisition area, and I think the De-
13 

partment probably needs some period of consolidation of actually, 

maybe with some of the tweaks that John Hamre described, but to 

have—needs some time to actually be able to implement and fully, 

you know, comply with what you have already asked them to do 

in the acquisition domain. 

Beyond that, I think it is—now is a time where you have an opportunity to move much more aggressively now in other areas, 

which are equally important to bringing both agility and efficiency. 

The CHAIRMAN. Dr. Hamre. 

Dr. HAMRE. Mr. Chairman, I would argue that I think you should 

move actively, aggressively on reform because the American public 

is questioning the value we are getting out of what we put into the 

Defense Department. That was the real challenge of that study 

that was done by the Defense Business Board last year. 

It came at a time when people were saying, ‘‘Do we need to give 

DOD more money or don’t we need to give them more money?’’ I 

happen to think we do, but I also think the American public is 

questioning whether they ought to. 

I think you have to push on reform in order to convince them 

that you are being a good steward of these resources. 

The CHAIRMAN. Okay. Thank you all. That is very helpful. 

Mr. Langevin. 

Mr. LANGEVIN. Thank you, Mr. Chairman. Again, I want to 

thank our witnesses for your insightful testimony here today. 

So modernization approaches in our major programs have traditionally taken years to execute. For example, Increment 3.1 on the 

F–22 began development in 2006 and the first upgrade wasn’t delivered to the fleet until 2012. While this strategy has worked in 

the past, the commoditization of advanced computing power has 

rendered it unsustainable, especially when you look at Moore’s law, 

I mean, squaring—technology is squaring every 18 months. 

So our adversaries are now accomplishing multiple upgrades during our weapon systems development and acquisition timeline. 

How do we transform the military-industrial policy complex to restore our advantage in the timeline it takes to field new technologies? 

Ms. FLOURNOY. I think it is one of the principal challenges we 

face. And, you know, I think one of the things—there are certain 

platforms that are going to take very long lead times to create, but 

I think we want to—one of the things we want to do is have more 

modularity in the designs of those platforms so that you can plug 

and play new information technologies, new electronic warfare systems, new, you know, modular components. 

Because it is those capabilities that are developing much more 

rapidly and those areas where we want to be able to change out 

capabilities on a platform that may have to last 20, 30 years. But 

that is key. 

The other key part is being able to approach the acquisition of 

commercial technologies and their integration with a much more 

responsive, agile, quick-turn set of authorities. One of the things 

that, you know, this committee has done is pushed some of those 

other authorities, those new authorities to the Department. 

I think what is now lacking is the change of culture and behavior 

that Mr. Zakheim highlighted as needed in the acquisition work-
14 

force. We need to actually educate, train a cadre who really knows 

how to use those new authorities, who has more of an innovation 

mindset, who is most comfortable acquiring commercial technologies and bringing them in. And that is a very different skill set 

and mindset than what you need to manage a major traditional defense acquisition program over a 20-year timescale. 

Dr. ZAKHEIM. And the only thing I would add to what Miche`le 

Flournoy just said is it is necessary if you are going to change the 

culture to have the bureaucracy default to buying commercial as 

opposed to default to the system that we now have. The Defense 

Business Board, which I am on, and the task force that I also was 

on, recommended, as I mentioned, focusing on the portion of the 

FAR part 12 that essentially deals with commercial off-the-shelf 

procurement as opposed to the classic system. 

You can do that. You can do other things. What really is important is ensuring that the default mechanism for buying the 

modularity that Miche`le talked about is commercial. As long as 

that is not the default mechanism, A, you are not going to change 

the culture; and B, you are going to have the same problems you 

just spoke about, Mr. Langevin. 

Dr. HAMRE. May I just briefly add that I—you are right to highlight that when we build platforms we—gosh, it takes a long time 

to do it. But we also have examples where we have done things 

quickly and we have done them effectively. We put Hellfire on 

Predator. I mean, that was just done in months. 

I mean, we are able to do things very quickly and we should be 

studying why do we have places where we do it well, and then why 

do we get bogged down in other things? And a lot of it revolves 

around the commitment of the leadership and how closely the leadership is supervising the bureaucracy. You know, if a boss wants 

to pull something through the system, it works, you know? 

So I think we need to probably go back and take a look. This is 

why you did the right thing when you put the chairman of the 

chiefs of staff back in the chain of command. That is how we are 

going to get more—it is making people more accountable and giving 

them more flexibility and say, ‘‘We are not satisfied with 12-yearlong development programs.’’ 

You are right to highlight it. Let’s look at the examples where 

we have been successful, too. 

Dr. ZAKHEIM. If I could jump in a second time, you know, we 

have a rapid acquisition system now that was created to get 

around our acquisition system. So that is where you ought to start 

looking. 

And I think what you will find is that the rapid system simply 

eliminates a lot of the checkoffs and reviews and passing of paper 

that otherwise would take place. But that is where you should look. 

When a department creates a system to get around its own system, 

you ought to scratch your head and say, ‘‘Why?’’ 

Mr. LANGEVIN. Thank you for those answers, and still on the 

topic of acquiring advanced technologies more quickly and allow 

them to be adapted more quickly, so technological advantage and 

the innovation that drives it have been key foundations of strength 

for our armed services. Our technology sector, from major corporations to small businesses, are crucial to invigorating research, yet 
15 

they have limited access to and participation in our defense industry. 

While the Defense Innovation Unit Experimental, or DIUx, is an 

excellent initiative to change this paradigm, the contracts awarded 

through this mechanism accounted for less than 0.01 of a percent 

of DOD’s research and procurement budgets in fiscal year 2016. So 

how do we reform our acquisition cycle to promote participation 

and access for both giants of Silicon Valley and the entrepreneurial 

small businesses that fuel our American tech industry? 

Ms. FLOURNOY. And I think the primary task and opportunity of 

the new under secretary—I like to call it the under secretary of innovation, but it is the research, development, engineering under 

secretary—is to take that soda straw that is coming through places 

like DIUx or DARPA, and so forth, and to make it a superhighway, 

to really perfect the Department’s leveraging of these other authorities to access commercial technologies, to have it be commonplace to be prototyping a number of systems, and then choose 

which ones you are going to bring all the way into full acquisition. 

To be putting—incentivizing real experimentation and concept 

development that goes along with how we are going to better—how 

we are going to allow these new technologies to actually transform 

how we fight. 

And again, that is going to take a different organizational culture, a different set of incentives and rewards, a different kind of 

training for the civilian and military workforces that actually have 

that task. 

So I think that is—you have done the organizational change, but 

if—to make that effective you really have to get into how are you 

going to create the incentives, the career paths, the training to 

make that new organization behave fundamentally differently than 

the traditional acquisition corps. 

Dr. ZAKHEIM. I would add a couple of other things. 

First, DIUx essentially develops prototypes. Then it goes into the 

system. Once it goes into the system you have got all the problems 

that the system has and that we have talked about. 

So again, that is another reason for accelerating reform rather 

than sitting back and waiting, because otherwise you just shot 

DIUx in the foot. It won’t be able to do anything. 

Another area related to that is you can MIL–SPEC [military 

standard] everything to death and if you start MIL–SPECing what 

DIUx has prototyped you are going to have a problem again. And 

I have spoken to the head of DIUx about it and he acknowledged 

that that was a serious issue because they don’t MIL–SPEC. That 

is the whole idea of what DIUx is doing. So you have gotta take 

a close look at that. 

Third area is just keep the DIUx leadership there. If somebody 

comes in from industry and is there 18 months, that is not really 

very, very good. You are not going to get anything out of an innovation like DIUx unless you have got somebody there for 3 years who 

figures out how the system works, how to get around the roadblocks, and so on. 

You heard about the training from Miche`le. I won’t repeat that 

again. 
16 

But one other thing: DIUx now has leaders who are reservists— 

many of them. And our whole Reserve system doesn’t really account enough for the people who are in the high-tech area in their 

civilian lives and then come in and they will be sent to clean the 

bilge or something. And I am not kidding. 

So DIUx provides a vehicle for bringing in Reserves who are 

doing really well in the high-tech area—for example, down in Austin. The guy who is down in Austin who is running that Austin office is a Reserve who reports directly to the CEO of Apple. That 

is what you want. 

Dr. HAMRE. May I humbly offer a suggestion? 

The President has nominated Mr. Patrick Shanahan to be the 

next Deputy Secretary of Defense. Pat has a long and very storied 

career as a very effective program manager in one of our aerospace 

companies. You don’t have a formal role with confirmation, but you 

should have him come up to talk to you, either in a formal hearing 

or in an informal hearing, and ask him—say, ‘‘We are going to be 

measuring you by how well you accelerate the efficiency of this system, and I want you to come back to us in 3 months with each of 

the chiefs of staff of the military departments to say how are we 

going to do it.’’ 

This is about leadership, and I think you have a golden opportunity because we have got a new leader who has a lot of experience in managing in industry. I think it is a great opportunity for 

you to take advantage of that. 

Mr. LANGEVIN. Very good. Great suggestions. I thank you all for 

your answers and your insights, and although I have other questions and I like this idea of not being on the clock, I am going to 

be respectful of other members’ time. 

And I will yield back and perhaps submit these for the record. 

Thank you. I yield back. 

The CHAIRMAN. Mr. Wilson is recognized for 5 minutes. 

Mr. WILSON. Thank you, Mr. Chairman. Thank you each for 

being here today and your service to our country. 

Dr. Zakheim, in your own experience as Under Secretary of Defense, what was one defense reform that stands out as being particularly effective, and what lessons should be learned and taken 

from that reform to inform ongoing and future reform efforts? 

Dr. ZAKHEIM. That is a tough question. Remember, I was there 

at the—— 

Mr. WILSON. We need some good news. I would like to hear it. 

Dr. ZAKHEIM. I was there at the beginning of the 2000s. 

One reform that clearly did make a difference, I thought, was the 

ability of DARPA essentially to go directly to the comptroller and 

get money. And I will give you a concrete example of that. 

Ron Sega at the time was director of DARPA. We had gone into 

Afghanistan; we knew a lot of the bad guys were hiding in caves. 

He comes to me and he says—this is November of 2001—he 

comes to me and he says, ‘‘If you give me X amount of millions of 

dollars I have got this weapon called a thermobaric weapon that 

will smoke all these people out of caves, and I will have it in the 

field for you by March.’’ 

Gave him the money. That was that. It was in the field by March 

and it smoked a lot of people out. 
17 

So there are ways, and I think my colleagues have pointed it out. 

There are ways to cut through this red tape. That was one example. 

Mr. WILSON. Well, as a grateful dad of a son who served as an 

engineer in Afghanistan, thank you for what you did. 

Ms. Flournoy, if you recommend a shift to new issues, what criteria should the committee use to determine issues of focus for future defense reform efforts? 

Ms. FLOURNOY. I guess I would encourage you to sort of plot 

them on two axes: One is sort of bang for the buck, biggest return 

on the effort; and second would be political—the heaviness of the 

political lift, and to focus first and foremost on the things that are 

most impactful in terms of both improving that organizational performance and agility on one hand, and potentially reducing cost on 

the other, and that are also in the politically feasible square. That 

is where I would start. 

You know, I think one of the things—the dynamics that has 

taken hold sometimes is, you know, the Department of Defense will 

propose and Congress will say, ‘‘Well, we don’t really like that 

agenda,’’ and we go back and forth trading. 

I would love to see the executive branch and the Congress sit 

down and say, ‘‘Let’s create a target for how much money we want 

to be able to move from—you know, to save and move into reinvestment,’’ and let you all really determine or have the lead in determining of all the target-rich environment of all the possible reforms, what are the ones that you think make sense and that you 

think politically we can get a consensus on to move forward on. 

And, I mean, because the truth is there are many more opportunities than we can possibly handle in 1 year, and I think the key 

is keeping momentum going. And so, you know, that is—I would 

say bang for the buck and political feasibility. 

Mr. WILSON. And very constructive. Thank you very much. 

And, Dr. Hamre, under the leadership of Chairman Mac Thornberry of this committee our reform efforts have largely been focused in the past few years successfully on acquisition, military 

personnel, and structural reforms at the Department. In your opinion, should the committee continue to—its focus on primary reform 

efforts in these areas in order to capitalize on progress that has 

been made to date, or shift to new issues? If you recommend shifting to new issues, what issues do you recommend? 

Dr. HAMRE. Sir, I do think—first of all, you are going to have to 

monitor the reforms—efforts that you have put in place because the 

reforms of last year are unsettled. And you did the right thing by 

giving a year implementation period, but that means you are going 

to have to be on top of it for this year to make sure that they follow 

through. 

I do think you should look at additional things. And I have my 

own set of pet-rock issues. 

For example—and I know this is something your staff is working 

at—the question of materiality for audit standards in the Department. There is no materiality standard for the auditors. 

So they chase 10 cents; they chase parking tickets; they chase, 

you know, who had the blue cheese dressing. You know, I mean, 

it is crazy without having a materiality standard. We are wasting 
18 

a lot of money and we are bottling up the defense industry because 

we can’t close out our—close our contracts. 

I mean, these are very mechanical, very arcane, but stuff like 

that is really important. It drives a lot. 

I personally think we need to bring back A–76, where we conducted objective competitions between public and private sector 

over contracting out activities. Half of the time the government 

wins. But the government redesigned the way it did the business 

and it saved money every time. 

I think there are a lot of things like that that we could be doing 

that—and I hope you tackle these. These are not the big, glamorous, exciting things, but they drive a lot of money in this department, and I would be grateful. I am happy to come up at any time 

and talk with you about some of them. 

There is no purple property book for the Department of Defense. 

Every bit of property is owned by one of the military services. 

There is no central management. We are the biggest renter of 

real estate for the Federal Government, outside of the General 

Services Administration, but it is all decentralized. We get no value 

for scale in our system. 

There are so many things we could do like this that would—but 

we have to change the way we do our business. 

Mr. WILSON. Well, supporting an audit, thank you for what you 

are suggesting. Thank you. 

The CHAIRMAN. Mr. Suozzi. 

Mr. SUOZZI. Thank you, Mr. Chairman. 

I am new to this, but I am a former mayor and a county executive of a large county with a $2.8 billion budget, and it was a 50- 

year-old government that kind of—just kind of grew over time. 

There was no central listing of the properties that were owned; 

there were multiple different IT [information technology] technologies in all the different departments. 

So when I hear you talk about 66 different—what did you say— 

HR [human resource] personnel systems, and when you talk about 

no, you know, no centralization of management—and I just visited 

Guantanamo yesterday and, you know, it is a sprawling facility 

with a new building here and another one over there, and it is very 

typical to what I saw in my experience. 

Now, I always felt it was, you know, the executive branch who 

really is the one that has to get their hands around this. They are 

the ones who have to drive the ball here and, you know, the legislative body can sometimes be more of a hindrance by trying to pass 

an additional law like, you know, no standards for the audits, for 

example. So, you know, I don’t really care who had the blue cheese 

dressing; I want to know about the big things that are going on. 

So I have a couple different questions. 

Number one is, you suggested before, Ms. Flournoy, that if—we 

should target a number as to how much we would like to try and 

target in savings that should be used for reinvestment. So the first 

question is, what do you think that number should be? You know, 

just to—you know, I am not going to hold you to it, but it is just 

an order of magnitude type of number that we should be targeting 

for savings and then reinvestment. 
19 

Second question is when I look at the overall budget of the De- partment of Defense, personnel is $138 billion; operation and maintenance is $250 billion; and procurement is $112 billion. So operation and maintenance is bigger than either personnel or procurement, and that is—and I don’t hear anybody talking about operation and maintenance that much, so it seems like there is a lot 

of—that could be a target-rich environment. And what do you think 

about that basic observation, just looking at the numbers? 

And that is where I will—I will leave it there for now. 

So I am just going to ask all of you, what is your target number 

that we should be looking for for—set a goal for, ‘‘This is what we 

want to get as savings to reinvest back into the military.’’ 

And second is: What about operation and maintenance? 

Dr. ZAKHEIM. Well, the Defense Business Board, as you may 

know, came up with a study—it has been referenced before—a couple years ago which pointed out a host of different efficiencies and 

argued that over 5 years you could save $125 billion. That is a lot 

of—— 

Mr. SUOZZI. That would be $25 billion a year. 

Dr. ZAKHEIM. $25 billion a year. I personally think that that 

number is on the high side, and they actually had high, low, and 

middle. But it just does seem to me that somewhere between $15 

billion and $20 billion is not out of the question. That is number 

one. 

On the—— 

Mr. SUOZZI. Just $25 billion is, you know, less than 5 percent of 

the budget. 

Dr. ZAKHEIM. That is correct. 

On the operations and maintenance [O&M], you are absolutely 

right. One of the issues that has been ongoing for years is real cost 

growth in operations and support. And part of the problem for— 

with that is that when you buy a new system the focus is always 

on the upfront costs and not on how much it is going to cost you 

out there. In fact, very often the people who produce the system 

say, ‘‘Well, you are going to save a ton of money in the future,’’ but 

if you start discounting you discover you are not saving all that 

much. In fact, you are going to wind up spending a lot more than 

you thought. 

And so you need to have somebody very senior who is responsible 

for the O&M side when they get into discussions about procurement. I remember at the—at meetings of the acquisition board the 

person who worried about sustainment and operations was not as 

senior as just about everybody else around the table. Well, you 

know what happens when that is the case. 

I think high-level focus on O&M will get to the goal that you are 

laying out. 

Ms. FLOURNOY. I don’t have a magic number in mind, but I do 

believe that the sort of order of magnitude that the Defense Business Board study talked about is probably correct over time. The 

challenge is you are going to require—it is going to require some 

upfront investment so your initial savings will be smaller and it 

will grow over time. 

For example, base realignment and closure. There is actually— 

it costs money up front to close bases and then you get the savings 
20 

over time. But it is documented that in most cases you do get the 

savings. 

Similarly, for things like IT transformation and automation you 

are going to have—DOD is going to have to invest to move to the 

cloud or to a secure cloud and to start treating software as a service rather than some—you know, building proprietary systems. 

That is going to require upfront investment, but over time potential 

for dramatic savings. 

So I think you want to think about it as ramping up over time. 

The other key thing is the incentives, and this I watched Secretary Gates struggle with this on the efficiencies mission effort 

the—that he undertook. The first time he went out and sat down 

with all the services and the components he said, ‘‘Okay, we are 

going to aim for’’—you know, 10—I can’t remember what the number was—‘‘X billion dollars of efficiencies. Next meeting come back 

with your suggestions.’’ 

Everybody came back the next meeting—really hard to find anything. Just, you know, really couldn’t do it. 

So he said, ‘‘Well, how about if I told you you could keep half of 

what you find?’’ 

Oh. So next time people came back—unbelievable ideas. Wonderful, creative ideas because each of the components knew that they 

could now keep half those savings and reinvest in their priority 

areas. 

So I think the incentive structure is very—as important as setting the target level. 

Mr. SUOZZI. Thank you. 

Dr. HAMRE. Just to build on what Secretary Flournoy has said, 

it is about incentives. And, you know, both Dr. Zakheim and I were 

comptrollers. You know, the patron saint of all comptrollers is 

Judas Iscariot, you know? 

So nobody is ever going to come and give you money. And so it 

sets up this very bad dynamic, you know, within the Department. 

But there is one very important dimension: If any dollar that a 

military department—any one of the service chiefs—saves in the 

out-years of the FYDP, they get 100 percent of that. It is only when 

it comes into the budget year when we arm wrestle with them and 

take some from them and give them a little bit back and all that. 

Everything they save in the FYDP, the out-years, is something 

they get to pocket and they can reinvest inside their own service. 

The most important review that the Department does is the program review, which is run by CAPE [Cost Assessment and Program Evaluation]. We have kind of let that fall apart, honestly. If 

we were to get back to the—where the program review becomes 

more prominent in how we manage the Department and the service 

chiefs know if they make hard choices now, in 2 and 3 years they 

get 100 percent of that money. 

Mr. SUOZZI. Yes. 

Dr. HAMRE. So we can get the incentives right, but we don’t have 

it right now. 

Mr. SUOZZI. Okay. Thank you very much. Thank you, Mr. Chairman. I am very interested in this topic if there is anything that we 

can do further. Thank you. 

The CHAIRMAN. Great. 
21 

Mrs. Hartzler. 

Mrs. HARTZLER. Thank you. Thank you, Mr. Chairman. Great 

testimony, great suggestions, and appreciate my colleague’s comments there. 

I wanted to hone in on the—Dr. Zakheim, the Defense Business 

Board at—the report that you put out that you just referenced. And 

as you know, that kind of caused a big stir when that came out, 

$125 billion, and that is $25 billion a year. 

You know, current and former Department leaders and others 

have expressed concerns that some of the savings came from private sector initiatives that may not be achievable in the public sector. So in your opinion, what are the differences between accomplishing successful reform in the public sector versus the private 

sector? 

Dr. ZAKHEIM. Well, let me start with unions. We have in the Defense Department unions that bitterly oppose any civilian personnel reform, where you could save a bunch of money. You could 

save probably initially anywhere between $5 billion and $8 billion 

a year just through human resource management. 

Well, Mr. Rumsfeld tried it and it blew up in his face, thanks to 

the unions. 

Now, the law, the Civil Service Reform Act of 1979, actually has 

a provision where the President could exempt Defense Department 

employees from being unionized. Already CIA [Central Intelligence 

Agency] employees, military employees, others are, indeed, exempt. 

Now, once you exempt them then you can start pursuing those 

sorts of reforms, and that is one key area. In fact, that is probably 

the richest area for immediate reform because that is money that 

you spend immediately each year. 

There obviously are differences beyond that between the commercial sector and the government sector. But nevertheless, if you actually look at the report it does scale: $125 billion is kind of midlevel; there is less than that and more than that, as well, as options. 

But the key is, what kind of efficiency—what percent efficiencies 

could you realize? And if you took half the percent of what goes on 

in the commercial sector, you would still save $60 billion over 5 

years. 

So it does seem to me that the argument, ‘‘Well, you know, we 

are different,’’ and you throw your hands up in the air—it has got 

some validity, but not total validity. 

Mrs. HARTZLER. Yes. Very good. 

Ms. FLOURNOY. One thought—data access and transparency. 

There is no entity in the world that has more data than the Department of Defense, but we keep it locked up in little stovepipes 

that individual components own. 

And so if you are looking at real property, for example, right now 

the Department is trying to do a cost accounting exercise where 

they just are trying to understand how are we actually spending 

money on different properties. And if you do that—if you unlock 

that data and you apply analytics across it, the problem children 

pop out and you see, well, in one case you are paying five times 

more for electricity in the same region than another facility down 
22 

the road. Why is that? Or, you know, maintenance, or whatever the 

issue is. 

So I think there is a huge—there is—it is very powerful if we 

could figure out a way to unlock and access and analyze the data 

that the Department already has in stovepipes to get at some of 

these efficiencies. 

Mrs. HARTZLER. That is very good. Dr. Hamre, do you have anything you wanted to add to that? 

Dr. HAMRE. Well, if I may, just, you know, we really have two 

different kinds of budgets in the Department of Defense. We have 

got budgets we manage from the top down. That is procurement, 

MILCON [military construction], military personnel. And then 

there are budgets that are bottom up. That is O&M, and we do not 

manage that in any detail. 

The way we handle it is we deal out—we give cash at various 

levels to people. We give them a little bit less than they ask for 

and we see how loud they scream. 

That is really how we manage O&M. I mean, we do not manage 

O&M in an effective way. And everybody knows they are sandbagging dollars at lower levels because they know they are going to get 

cut. 

So we really do have to find a different way we get at how we 

analyze and understand the O&M budget. And the O&M budget 

now is doing a lot of procurement. It is not just operations anymore. We are buying a lot of procurement through the O&M budget. 

So you are on to something very big here, and I—but I—you are 

going to have to drill down to say, ‘‘If we were to change the way 

we budget and manage the execution of O&M, how would we do 

that?’’ 

Mrs. HARTZLER. Very good. Thank you very much. I yield back. 

The CHAIRMAN. Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. And I really appreciate 

your having this hearing. It tells me how serious you are about this 

topic, and I know it has been going on for some time. 

One of the questions that really is looming out there right now— 

and you have talked so much about the people who are in important places, leadership, but I am wondering right now, we have a 

Federal hiring freeze. We are also having a great deal of difficulty 

getting people into appointed positions, nominations, and even the 

confirmations. 

How is that affecting all of this? 

Ms. FLOURNOY. I think it is creating a very challenging environment. I think the hiring freeze in particular is sort of, you know, 

using a meat ax when you need a scalpel, and many administrations across, you know, political—of all different stripes have used 

this. 

It is a very blunt instrument because what it does is it cuts off 

your talent pipeline and so it prohibits you from hiring the best talent coming in, the next generation, even in the most high-priority 

areas. And so you basically create a personnel bathtub that will follow you through over time, you know, as the—as your talent pool 

progresses. 
23 

I was on the CIA advisory board and we watched this bathtub 

that was created—I think it was in the Carter years—follow all the 

way through the workforce, where still in very senior grades today 

you have a paucity of the right kind of expertise and personnel because of that hiring freeze decades ago. 

And so I think it is—there are better ways to manage that personnel infrastructure. 

The other thing is as you are right-sizing, reshaping the workforce and making cuts, it is very important to also be investing in 

the workforce and the talent that you want to keep so that you are 

continuing professional development, you are continuing to groom 

and promote the high-performers, and so forth, because if you don’t 

do that you will actually break the workforce in the process of reshaping it. 

Which is why that human capital strategy piece up front is so 

important to pull all of the different pieces together. 

Mrs. DAVIS. So I am wondering, then, and certainly for this committee, you have had a lot of suggestions about how to try and get 

at some of these issues. Some of them are cultural; others are 

just—I think people just haven’t tackled those issues. 

What is the best way of going about that? I know on personnel 

over the last few years some changes were made. There were commissions that looked at some of those issues. Sometimes it feels as 

if there is going to—that only creates a delay in getting things 

done. 

But if we had, you know, this year, looking at what is it specifically that could be done to get at that—you mentioned one of the 

positions that I think hasn’t—someone who hasn’t even taken that 

position yet trying to get to—what would you do on a lot of these? 

Do we need a—— 

Ms. FLOURNOY. I think it starts—— 

Mrs. DAVIS [continuing]. A task force here or—— 

Ms. FLOURNOY. Well, I think it—I think the—what this committee could do is ask the Secretary of Defense to create a human 

capital strategy for the civilian workforce of the Department and 

then he would task each of his line managers to do component 

strategies. 

I harp on this because, you know, if I were going to ask that— 

answer that previous question about what was the most successful, 

powerful reform you witnessed when you were in government, it 

was implementing a human capital strategy in my own organization as we were having to downsize, because I knew that if you 

didn’t complement the downsizing with investment and keeping the 

best talent and incentivizing the participation and the morale and, 

you know, people buying into—even though it was going to be a 

smaller organization, a still vigorous organization. 

To me that is the key. You have got to have a strategy of where 

you are trying to go that isn’t just about cuts, but also reinvesting 

in what you are going to keep. 

And so that is where I would start, and I would encourage the 

Secretary to report to you on that and to hold all of his direct reports accountable for helping him develop that Department-wide. 

Mrs. DAVIS. Dr. Zakheim. 

Dr. ZAKHEIM. Yes. I would focus on two things. 
24 

First, we have all talked about training and education, and I do 

believe that no one should enter the Senior Executive Service and 

be a top manager without getting the kind of education the same 

way the military does: a year where you are really learning about 

either technology or human resource management. 

The other one is if you are going to formulate any kind of requirement for a human resource management plan, like Miche`le 

just talked about, be careful not to create the kind of loopholes that 

DOD always blows right through. And I will give you an example. 

The 2013 NDAA called for an efficiencies plan, but it allowed DOD 

to identify exemptions of—from the total workforce. Out of 776,000 

people 538,000 were exempted. 

If that is going to be the situation, you are not going to get anywhere. 

So I would strongly urge, if you follow Miche`le’s advice, make it 

as tight as possible. 

Mrs. DAVIS. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Byrne. 

Mr. BYRNE. Thank you, Mr. Chairman. 

Ms. Flournoy, you brought up a topic that has been sort of a hot 

topic around here and some of us have been skeptics about it. I am 

going to go back to it with you. That is BRAC. 

We have had discussions about BRAC ever since I have been on 

the committee 31⁄2 years now, and some of us have tried to look 

into past BRACs to determine if those BRACs actually resulted in 

savings—real, substantial savings. And we couldn’t find any evidence that, in fact, there were those sorts of demonstrable savings 

that would make the BRAC effort worth it. 

So I would like for you to disabuse me of my skepticism. Tell me 

where I am wrong and other members of the committee are wrong. 

Will BRAC—based upon past experience, will it really bring savings to us? 

Ms. FLOURNOY. I am not an expert on this topic, but I have—I 

believe the GAO [Government Accountability Office] has done a 

number of reports that—and the way—my understanding of their 

conclusions was that the early rounds of BRAC actually did result 

in recurring savings over time in the single-digit billions. And I 

could get the exact figure for you but, you know, I am sure your 

staff can get to that report or I can provide it. 

The BRAC round that sort of poisoned the well was the last one 

because it really was a realignment and consolidation BRAC; it 

really wasn’t a closure BRAC, by and large. And so it really didn’t 

save a lot of money, and the way in which the process worked I 

think left a lot of—a sour taste in the mouths of many people who 

participated. 

So I think there are certainly lessons to be learned in how to go 

about this to ensure that it is worth the pain associated with doing 

it, but I do think the early rounds of BRAC demonstrate that real 

savings can be had over time. And given the extent of the overhang—when you have got service chiefs saying, ‘‘I have 20 to 25 

percent more infrastructure than I need and it is taking money 

away from readiness and investment in future capability for the 

people we are sending into harm’s way,’’ I think we have to wrestle 

with this. 
25 

Mr. BYRNE. Would either one of you gentlemen want to respond 

to that? 

Dr. HAMRE. If I may, sir, the secret is that BRAC was the biggest 

MILCON program in history. We built stuff all over in the gaining 

bases and gave them modern new facilities. So you really have to 

look at this—at BRAC—as having made possible the real plant 

modernization for major elements of the departments. 

I was just down in Huntsville last week. My gosh, the fabulous 

facilities down in Huntsville—it was all made possible by BRAC. 

So the reason that you don’t see big savings is because, frankly, 

we spent it along the way to modernize. We would have had to 

have done something with modernization anyway. 

I would look at this in a slightly different way: How do we find 

a way to internally finance the modernization of our forces—especially real property? I think we should look at BRAC in a slightly 

different way than just, ‘‘Are we going to rack up big savings that 

we can show to the American taxpayer?’’ 

Mr. BYRNE. Well, but that is the way it has typically been sold 

to us—you know, to save money. And when we look—— 

Dr. HAMRE. Yes, sir. I understand. 

Mr. BYRNE. And so I am not saying that it is not appropriate to 

look at what you are saying we should look at, but the way we are 

being approached with it is, ‘‘Hey, we need to save this money.’’ We 

just are skeptics about that part of it. 

Maybe it is something worth doing beyond the fact that it saves 

money. Maybe it achieves some other things for us. But it seems 

to me we haven’t had a good enough case made by the services that 

a BRAC would actually save money. 

I mean, do you all have—Dr. Zakheim, did you have something 

you want to add to that? 

Dr. ZAKHEIM. Well, I tend to agree with John Hamre on this. If 

you look at BRAC the way we have been talking about other efficiencies, where the idea is—you know, there are two ways to benefit from efficiencies. 

One is to save the money and give it back to OMB [Office of 

Management and Budget]. I wouldn’t want to do that. I tried to 

avoid it when I was comptroller. 

The other way is to take the money, I think as Miche`le pointed 

out, and said, ‘‘Yes, we are going to put it back into service priorities.’’ 

If you approach BRAC that way—we are going to take the money 

and put it back into service priorities—you are in a completely different place. But I totally agree with you that if the case is made 

on the basis of savings, the case is weak. 

Ms. FLOURNOY. I think that is why you have the service chiefs 

pushing for this so strongly, because they want that money to reinvest elsewhere, whether it is in readiness or, even more so, in future capabilities that they know they are going to need to deal with 

more challenging adversaries. 

Mr. BYRNE. Well, I appreciate that. 

Mr. Chairman, I would just say I would hope that if we could get 

that information from the service chiefs, what is it that you would 

do with this money that you think you are going to save, and how 

is it you think that that is going to make your operation more effi-
26 

cient and more effective? That would be helpful to me to be able 

to take a closer look at the BRACs and see if they really make 

sense. 

And I yield back. 

The CHAIRMAN. Thank the gentleman. 

I would just mention, we asked the services a couple years ago 

to give us some data to support the idea that they have 20 percent 

excess infrastructure. What we got back basically was the 2004 estimate and nothing really updated since then. 

So I think the attitude a lot of us have is we want to work with 

you to save money, but we are going to have to have something 

more than something that goes back more than a decade before the 

last round of BRAC upon which to base a decision. 

I appreciate the gentleman raising the issue. 

Mr. Brown. 

Mr. BROWN. Thank you, Mr. Chairman. 

My question pertains to changes in acquisition. 

I know that, Dr. Hamre, you identified some specific things that 

perhaps we should consider undoing from previous years. 

But I also know that, Ms. Flournoy, in your submitted testimony—and I missed some of your responses to questions as I had 

to step out; I apologize—you advocate for a pause, perhaps a yearlong pause in further acquisition reform to allow the Department 

of Defense to realize and measure the impact of changes made in 

the last few NDAAs. I wanted you to elaborate on that. 

And let me throw out all my questions so this way each of you 

can respond, perhaps. 

Dr. Zakheim, you had mentioned the workforce training for acquisition. I know in October of 2002 the Army stood up the Acquisition Corps to identify, recruit, retain, develop that civilian and 

military workforce. Is that working? Is it a good model? Should it 

go service-wide, Department-wide? 

Thank you. 

Ms. FLOURNOY. Let me clarify. I don’t mean a full stop pause. 

What I was trying to say is last year’s authorization bill gave the 

Secretary and the Department a lot of guidance on how to change 

the acquisition system, and particular the—how the Department— 

the organizational structure: you know, dividing the under secretary into two, creating new authority staff procedures, et cetera. 

Just having lived through many organizational changes in the 

Department, I think that I would say that the focus, as Dr. Hamre 

said, this year should be on really working very, very closely with 

the Department to make sure those changes are perhaps tweaked 

and refined a little bit as needed, but also fully implemented as intended before you sort of take your eye off that ball and go on to 

the next round, particularly of any further organizational changes. 

So it is not really a pause, but I think you have put a lot on the 

plate in terms of acquisition reform, and I think it is—I would say 

it is a good time to switch to some other areas while really monitoring closely the implementation of what you have already asked 

the Department to do in that regard. 

Dr. ZAKHEIM. Well, I differ somewhat with my colleague and 

friend, Miche`le Flournoy. I personally believe that you have got to 

go full-bore, because if you give the bureaucracy time to figure out 
27 

what you have asked for, they will also figure out a way to get 

around what you asked for. Happens over and over again. You 

have got to keep pushing, in my view. 

On your question about training, remember when the Army 

brought this in they had had a string of disasters—of acquisition 

disasters. They have done better, although find me a good new 

light helicopter. They are still working on that. 

But again, the focus was on training, and there has to be training. But there also needs to be a focus on education. You don’t keep 

up with Moore’s law through a training course at DAU [Defense 

Acquisition University]. You just don’t. 

A year at MIT [Massachusetts Institute of Technology] might do 

it, though. And so you need both. 

And it should be, obviously, defense-wide because even if a service has a pretty efficient way of getting its systems through its own 

process. Look at Stackley at the Navy, who is really a terrific assistant secretary and has worked, I think, for both Democrats and 

Republicans. They don’t want to let him go. 

But what happens when whatever has passed through him now 

hits OSD? You run into a roadblock again. 

So any reform that you think about implementing needs to be 

DOD-wide, in my view. 

Mr. BROWN. Just a follow-up: And Maryland has gained a lot in 

BRAC 2005 on a per capita basis, big plus-ups there. I am hearing 

sort of conflicting views from the services that I speak with, different service personnel, leadership, as to Navy, Army, and Air 

Force, who is in for BRAC, who is not, and what is the—can you 

just characterize, perhaps, it by service, where they are? 

Ms. FLOURNOY. I do not have the fidelity to give you an accurate 

answer. I am sorry. 

The CHAIRMAN. Mr. Wittman. 

Mr. WITTMAN. Thank you, Mr. Chair. I would like to thank our 

witnesses for joining us today. 

Ms. Flournoy, I would like to begin with this: You know, we hear 

today about all the strategic challenges we have—our adversaries, 

whether it is terrorism and the groups associated with that, China, 

Russia, North Korea, Iran. And since World War II every administration has gone through the process of acquisition reform. 

But I argue today for the United States, with where we are, that 

our adversary, our challenge that is as strategically important as 

the other adversaries we talk about all the time, are time and resources, of which we have excess of neither. 

Give me your perspective on how do we get an acquisition process that treats the adversaries of time and resources at the same 

level as it treats our adversaries of extremist groups, of Russia, of 

China, or Iran, and North Korea. 

Ms. FLOURNOY. It is a great question, and I think is the—what 

should be the driver behind really building out not this—not just 

this new under secretary but a whole end-to-end system of how you 

go from—you know, how you really create a pipeline for rapid acquisition and rapid access to commercial technologies and integration of those technologies. 

Because I share your view—and I think this is a common assumption—that, you know, what we do in the next decade will de-
28 

termine whether we keep our military technological edge. It is 

under challenge in many domains: cyber, space, maritime, electronic—I mean, you can go down a list. If we stand still and rest 

on our laurels we will not have the edge in 10 years’ time. 

In many of these areas it is not going to be the new acquisition 

platform bill that is going to yield fruit in 20 years; it is going to 

be how rapidly can we upgrade and modify and improve what we 

have? 

And so the efforts of DIUx; the efforts of the Strategic Capabilities Office that is currently tucked—you know, that is housed in 

DARPA but an independent organization; the efforts of DARPA— 

these are—and how quickly we can prototype and get those into 

the field, that is what is going to determine whether we can prevail 

in the future. 

So I think you—we can’t have a great enough sense of urgency 

here. And I think building out the bypass system is the most immediate goal, and then I would love to keep reforming the main system. 

But the urgency is building out the bypass and making it a superhighway instead of a one-lane dirt road. 

Mr. WITTMAN. Dr. Zakheim, let me ask you, in addition to this 

question, let me ask you to expand, because where I see the United 

States today in relation to our adversaries is this: When our adversaries look to start a new system, whether it is a combat system, 

whether it is a new class of ships or aircraft, they start with a 

blank piece of paper and they go through and they put their ideas 

on there and they go, ‘‘Okay, we are going to do this; we are going 

to do that,’’ and they problem-solve and get to decision making 

quickly through that realm. 

When we start here in the United States we have a sheet of 

paper that is filled with ‘‘noes.’’ No, you can’t do this. No, you can’t 

do that. No, you can’t do this. So we look for portholes through that 

whole sheet of paper with noes. 

How do we pull out our eraser and take those noes off the page 

so we can start with the blank sheet of paper, which is where our 

adversaries start? And they add to that blank sheet of paper by 

stealing some things, too, so they can bypass us even more quickly. 

Give me your perspective on how we get there. 

Dr. ZAKHEIM. Well, again, I think the key is to open the door as 

wide as possible to commercial acquisition. If you buy into the notion that the big weapon systems are essentially platforms for 

things you put in them, then the question becomes, ‘‘How do I get 

the things that I want to put in them as quickly as possible and 

as advanced as possible?’’ 

Look, if you go out to Silicon Valley, they are ahead of time. You 

go to the Defense Department, we are behind time. 

And so that is the key. How wide can you force that door open? 

And unless there is legislation to force it open, it ain’t going to 

open because the culture of the Department is anti-profit, anti-commercialization, lots and lots of inboxes and outboxes, and you know 

all the rest. 

By the way, I heard something really interesting, which shows 

even the bad guys steal from each other. Russians came to China 

and discovered that the Chinese had stolen their plans for the lat-
29 

est airplane and they discovered it was exactly the same. So if they 

are stealing from each other you can imagine how much they are 

stealing from us. 

We have to focus on that, as well. And we are doing a lot in that 

regard, but unless we go after the things that everybody else wants 

to steal, then we are not going to make that 10-year gap that 

Miche`le talked about. 

Mr. WITTMAN. Thank you, Mr. Chairman. I yield back. 

Dr. HAMRE. Would you permit me to—you didn’t ask me the 

question, but may I just offer something? 

Mr. WITTMAN. Please. Please, yes. 

Dr. HAMRE. And, you know, I go back to when I was nominated 

to be the comptroller, Senator John Glenn asked me to come up, 

sit in on a hearing he was holding in Government Affairs Committee about how bad the finance and accounting system was in 

the Department of Defense. That had a searing impact on me, and 

I probably spent 20 percent of my time when I was the comptroller 

trying to go after that problem. 

I would suggest—again, I mentioned—you were out at—because 

you had another obligation, but I would recommend you bring in 

the new Deputy Secretary of Defense—he is an acquisition professional; he has been working inside industry—and you tell him you 

want him to give you a plan in 6 months on how he is going to 

streamline the system. It isn’t going to give you all the answers, 

but I promise you he is going to spend a third of his time working 

on that problem, and it is about leadership. That is what the real 

key is. 

I apologize for interrupting. 

Mr. WITTMAN. No problem. Thank you, Mr. Chairman. I yield 

back. 

The CHAIRMAN. That is great. 

Ms. Hanabusa. 

Ms. HANABUSA. Thank you, Mr. Chairman. It is nice to see Ms. 

Flournoy again. 

I have a question, and I am following up with Congressman 

Wittman’s ideas. I am a fan of DARPA. I think DARPA is amazing. 

It has been explained to me once like, he said, ‘‘Imagine about 

100 or so geniuses just doing whatever they do and just one like 

a travel agent, making sure that they are staying in their right 

places.’’ And as we all know, when Prime Minister Abe was looking 

at trying to reform the Japanese military the one thing he wanted 

that we had was like a DARPA because it just worked so well. 

Having said that, however—and this is in line with what Miche`le 

Flournoy was saying, as well as you, Dr. Zakheim—it is this idea 

of the reality is we can have this thing about silos and what we 

need to do, but the reality is we are here every 2 years, you know? 

The President is there every 4. It takes him a while to maybe pick 

whoever is going to be in the respective positions. And therefore 

the concepts of what we should do to modify how we do things can 

come and go very quickly. 

So how do you anticipate—like if—it seems to me like getting rid 

of the silos is a great idea, something that should have been done 

a long time ago but hasn’t. But then the question becomes, okay, 

it seems like some other kind of bureaucracy is going to have to 
30 

take over to do away with the silos and, like Ms. Flournoy was saying with BRAC, there is going to be an expense that may make it 

seem inefficient before you have the benefit. 

So as you all sit there, tell me, given the political reality of how 

Congress and how administration operates, how do we—how are 

we going to be able to accomplish this if you have a totally changed 

philosophy in 2 years or 4 years? And what I really want to make 

sure of is that we don’t do things to entities like DARPA, that 

works. 

And those are my concerns. I agree, we need to do something. 

But how do you do it in the political reality of which we deal with? 

Dr. ZAKHEIM. Let me take a stab at that. 

I am a Republican. My two colleagues are Democrats. We are 

pretty much in agreement on a lot of this, and this is a very bipartisan committee. 

The point is when it comes to efficiencies in defense reform it is 

not a political issue in the sense that many other things are. So 

that is already an advantage in your favor. 

The second thing is, this is one of the reasons why I would argue 

push for reforms as quickly as you can precisely because it is a 2- 

year turnover. And also, once the legislation is there the Department always adapts if you don’t give them the flexibility to wiggle 

out of it. So that is the second thing. 

The third thing is Congress can—and I think John Hamre alluded to this several times—Congress can call the leadership of the 

Department in and say, ‘‘Okay, what have you done? What have 

you accomplished?’’ Because what you want is consistency. 

I wouldn’t get rid of the DIUx just because Ash Carter brought 

it in. That is ridiculous. 

And what I have seen over the years is you get new secretaries, 

new under secretaries, they come in, and they reinvent the wheel. 

They have a 100-day plan and they basically say, ‘‘The guy before 

me was an idiot,’’ which, if you think about it, means that everybody was an idiot because the new guy said that about the old guy. 

You have got to get away from that. The way you get away from 

that is Congress keeps pushing and saying, ‘‘We have legislated X. 

Demonstrate how you have effectively made X to work.’’ That you 

can do, and you can do it over time. 

Ms. HANABUSA. And as Ms. Flournoy answers, but, you know, everyone knows this, Ms. Flournoy. You have talked about it for 

years and years. But we don’t do it. 

So, go ahead. 

Ms. FLOURNOY. And I think one of the challenges is we too often 

focus, in my view, on moving the organizational boxes without 

changing the underlying incentives that drive behavior. And I will 

give you a great example that John Hamre gets lots of credit for 

because he worked on it when he was up on the Hill of legislating 

a change of incentive that we are still feeling the effects of today: 

Goldwater-Nichols. 

It used to be that joint service was the death of a military career. 

You are out of sight, out of mind. Forget promotion if you leave 

your service. 

Once you passed Goldwater-Nichols and you said, ‘‘You may not 

become a general or a flag officer unless you, A, get joint education, 
31 

and B, you have joint experience,’’ it completely flipped the incentive and now all of the hard-chargers are looking for that joint experience and looking for that joint education and how am I going 

to do—be that so I can get the stars on my shoulder? 

It is very powerful, and over a generation or two that is the bedrock of joint culture. It is all that time being educated together, 

serving together. 

So I think the thing we have to wrestle with is what is the— 

what are the incentive changes that you all could legislate that 

would create fundamentally different behavior in the acquisition 

and innovation domain? To me that is going to be more powerful 

and enduring than any tweaks we make to the organizational 

chart. 

Now you are going to ask me what that is. 

[Laughter.] 

Ms. HANABUSA. I am out of time. 

Dr. HAMRE. But do you mind if I may just—— 

Ms. HANABUSA. You have to ask the chair. 

Dr. HAMRE. There are five reasons why DARPA has been a huge 

success. 

First, the chairman serves a 5-year term—the director. And so 

there is—it is a long enough period of time for you to be accountable, and you want to show results. That is the first thing. 

Second thing is there is an astounding amount of financial flexibility for DARPA. There are only four line items in DARPA’s account, and they can move money across any of them. 

You know, Congress has tied the Department’s hands. You can- not move more than two—I think it is $4 million from one line item 

to another in R&D [research and development] without coming 

back for permission. DARPA has total flexibility to do that. That 

is the second. 

The third reason is almost all of their work is placed entirely in 

the private sector. And they can do rapid acquisition by going out 

to the private sector. They have special authorities to do that. But 

they place it in the private sector. 

The fourth reason is program managers are not allowed to stay 

more than 4 years, you know, so they don’t build up entrenched bureaucracies around themselves. It is a fairly small, fairly lean organization, and they can only stay for 4 years. 

And the last thing is they get Secretary of Defense protection. 

Now, you put those five factors together, that is what—why we 

have success. 

I would have to tell you—and I say this respectfully. We are 

doing just the reverse with our legislation. We are creating more 

overhead, more fracturing of it; we are putting more restrictions on 

where you can put money and how you spend it. 

I mean, please step back to look at how you could take that 

model and bring more flexibility to the Department, because that 

is why DARPA works. 

Ms. HANABUSA. Thank you, Mr. Chair, and I apologize I went 

over. 

The CHAIRMAN. No, we are a little more flexible today with these 

witnesses. 

General Bacon. 
32 

Mr. BACON. Thank you, Mr. Chairman. 

And as someone who served nearly 30 years in the Air Force I 

tell you, your stellar reputations precede you, so thank you for 

being here. 

Two quick comments and then a couple of questions. 

I was part of the rapid acquisition as an operator within the Air 

Force, the Big Safari really works. One thing that doesn’t work is 

the manning of those weapon systems once we produce them. 

We typically only man them at 50 percent even though we have 

done a good job fielding them, so I would hope—we have to match 

the rapid acquisition with other things that the service provides 

there, I think, for it to be effective. 

I am thinking of the MC–12 as an example—50 percent manned 

while we had it in the Air Force, and put a lot of risk into the system. Just one example. 

Secondly, I am very proud that this committee has worked on reducing the size or the number of general officers and SESes [Senior 

Executive Service], particularly in the Pentagon. It has been my experience we have been overstaffed there. 

Now for a couple questions. 

Have we reduced the OSD staff at the same levels that we have 

with the services? Because I think we need to. This is my impression, but I would love to have your thoughts on that, and whoever 

would like to answer. 

Dr. ZAKHEIM. They want me to go first—— 

Mr. BACON. Put you up first. 

Dr. ZAKHEIM. My impression is that we have not. And in fact, 

each time you add an assistant secretary or you have a congressionally mandated deputy under secretary, somebody who needs 

confirmation, you have created an excuse to hire more and more 

staff. 

In my written testimony you will see I give a few examples of 

where, in fact, you can combine assistant secretaries so that you 

can cut back on the staff. I think you should cut back on principal 

deputies; I don’t think you need them. 

And finally, when we talk about splitting the Under Secretary for 

AT&L [Acquisition, Technology, and Logistics], make sure that the 

total number of OSD staff working for the two is no greater than 

working for the one, which was too big to begin with. If you look 

back at the growth of the AT&L bureaucracy over the last 20 

years, it skyrockets. 

Mr. BACON. Should the Armed Services Committees of both the 

Senate and the House drive this, or does the Secretary of Defense—should he take ownership of doing what you are saying? 

Dr. ZAKHEIM. I would say that this is something that requires 

consultation with the Secretary, and if the Secretary is forthcoming—and this particular Secretary is very forthcoming about just 

about everything—I would say that it may well be that the Secretary could handle it. The only downside to that is what happens 

when a new Secretary comes in? 

Mr. BACON. All right. 

Dr. ZAKHEIM. That is my concern. 

Mr. BACON. Anyone else care to answer? 
33 

Ms. FLOURNOY. And I think the—I think you should put the onus 

on, you know, on the Secretary of Defense to come back to you with 

what is the optimal mix, where is the optimal reallocation. And 

there may be areas where he needs to grow capability and there 

may be areas where he can reduce the capability, but giving him 

the flexibility to move—to, you know, consolidate organizations, 

eliminate low-priority functions, reassign staff—I mean, those 

kinds of authorities and flexibilities are key to do that reshaping. 

Because again, there may be some cutting but there is also going 

to need to be some reinvestment—— 

Mr. BACON. Right. 

Ms. FLOURNOY [continuing]. In the human capital. 

Mr. BACON. Well, sure fits in with my perception that we need 

to reduce the size of the OSD team. 

Another question for you: Use it or lose it at the end of the year. 

How do we reform that better, because we get a lot of new desks, 

a lot of new paintings, a lot of new rugs, and it is wasteful. Endof-year spending, use it or lose it—anybody—any thoughts on that? 

Dr. HAMRE. You know, I was a comptroller and I remember we 

had a process where we would move money from time zone to time 

zone the last day to be able to spend it. 

Mr. BACON. I saw it too. 

Dr. HAMRE. Okay. So yes, we are—part of it is you have done 

some of that. I don’t know if the authority is still in place, but 

funds that are not spent in the O&M account by the end of the fiscal year, normally they lapse but they are allowed to go into the 

Foreign Currency Fluctuation Fund. So it provides an—you don’t 

have the incentive just to spend it on anything, you know, because 

you can put it into something that you need. 

I think that is how you ought to think about this. I think you 

ought to find a way where you can take the, you know, the funds 

that are otherwise close to expiring and give them an opportunity 

to live in a different way for something that the Department needs. 

In this case, foreign currency fluctuation was a—it was a big 

deal, you know, in the 1990s. I don’t know if it is as much a problem today as it was back then, but I think it is something like that. 

The other thing is, frankly, O&M is—it is managed on a decentralized basis. You know, we don’t really know how it is being 

spent in the field. 

And until we start developing different approaches—here probably the committee should find out how big corporations manage 

O&M. You know, they must have a different way of doing it than 

we do in the government. 

But like I just said, we don’t know—— 

Mr. BACON. They have profit. 

Dr. HAMRE. Yes. They have an incentive for it, so—— 

Mr. BACON. Right. Thank you very much. I yield back, Chairman. 

Dr. ZAKHEIM. Mr. Chairman, may I just add a couple things? 

I agree with John. The way, by the way, that private corporations do it is they are monitoring the funds on a daily basis. And 

one thing that I tried to do, I brought in the E to PPBE [Planning, 

Programming, Budgeting, and Execution] with these, which is execution, and I wanted to have an execution review every quarter, 
34 

which is nothing compared to daily reviews of where the monies 

are. 

But if you have an execution review every quarter as opposed to 

one midyear review then the comptroller is in a better position, 

working with the Joint Staff in particular, to move those monies 

around and minimize that last-minute spending that you are talking about. Moving the monies into an account that would allow 

them to be used for other purposes, well some people are going to 

turn around and say it is a slush fund. So you have got to be very 

careful about what accounts you are talking about. 

But it seems to me that the more visibility you have into what 

are called bishop’s funds—and it is actually a total church hierarchy because the further down you go the monsignor has got his 

money, and so on and so forth. The more transparency you get— 

and we have all talked about that—the more likely it is you are 

going to prevent what you are talking about. 

Mr. BACON. Well, thank you again. 

And I just submit, Mr. Chairman, that use-it-or-lose-it reforms is 

something we should be looking at. I think it is an embarrassment. 

Thank you. 

The CHAIRMAN. Well, as a matter of fact, I am hopeful that if 

there is a supplemental that we enact that it can be spent beyond 

September 30th, at least for that money for this year. We have 

done it a few times before to extend beyond the fiscal year, and it 

seems to me, getting at the problem you are talking about, that it 

would make some sense. 

Mr. Lamborn. 

Mr. LAMBORN. Thank you, Mr. Chairman. Thank you for having 

this hearing. Thank you all for being here. 

Research and development is critical, and that is part of having 

the best weapons platforms and innovations for the future. But 

sometimes research dollars are vulnerable because in the beginning 

stages of researching new technologies, it is not yet tied to a program. 

So how can research dollars in these times of constrained budgets be protected so that we still have the great capabilities that our 

finest minds in the world are able to come up with and stay ahead 

of any potential adversaries, but those dollars might be taken for 

something else if we are not careful? 

Dr. HAMRE. Well, this is a big problem because, you know, we— 

when we were back in the days when we had R&D budgets that 

were about half the size of the procurement budget, we couldn’t 

possibly turn the breakthroughs into weapons systems. We didn’t 

have enough procurement money. 

You know, and so part of the reason that it was scaled back, you 

know, the last couple years as a percentage was because there just 

was not sufficient capacity to take advantage of what we were inventing. 

The whole fresh look at R&D would be very helpful. It is one of 

the things that would be very good for this new Under Secretary 

for Research and Engineering to do, I mean, because the current 

DDR&E [Director of Defense Research and Engineering] largely 

just looks after the 6.1 and 6.2 account, you know, they don’t have 
35 

a capacity to look at the whole. And I think that would be a good 

thing for you to ask the next under secretary to do. 

Corporations will have—I was with one for a time—I was on the 

board of one for a time that had something called a vitality index, 

which is: How much of our R&D that we spend today shows up on 

the shelf as a product we sell within 5 years? And there was a— 

there were objective measures that they had as a company to say, 

‘‘Where are we willing to spend money because we want to see a 

return on it?’’ 

Now, it is hard for us to do that in the Defense Department, but 

we should have some kind of a mechanism where we are looking 

at the R&D program and saying, ‘‘Where does this fit in?’’ You 

know, ‘‘Where does it fit in and what difference will it make?’’ 

You are hard-pressed to find that, so there is some real management we need to bring to this problem. 

Dr. ZAKHEIM. All companies basically look at capital expenditures, which includes R&D expenditures, and the CEO has to report back to the board and say, ‘‘Here is what I think is going to 

come of this,’’ precisely because they are bottom-line operations. 

One possibility that might help deal with the concern you raise 

is if this new under secretary really is committed to having a partnership with the commercial sector, with the non-defense commercial sector, so that our bureaucrats—and again, I mean, you want 

to talk about measures of merit and changing culture, I have said 

in my testimony, don’t let anybody become a senior executive servant unless they have spent a year in—at MIT, or Caltech, or what 

have you, if they want to be in the Acquisition Corps because it is 

going to make a difference. 

I have also suggested that there is a program called the Secretary of Defense Corporate Fellows, where they send about 18 or 

20 people to corporations. Triple that and then have an equal number of civilians there so they know what it is like in industry. 

The more you cross-pollinate with industry, the more they will 

think about, ‘‘Yes, where do my R&D dollars lead to? What will I 

really get?’’ Because now they will be thinking in terms of CAPEX 

[capital expenditure], if I can use the term that everybody uses. 

I think that might be a way to help out. 

Mr. LAMBORN. Miche`le, do you have any thoughts to add? 

Ms. FLOURNOY. The one thing I would say is that if you are going 

to move towards a system that puts more emphasis on experimentation, innovation, prototyping, you know, your—you have to have 

a slightly—you have to have a somewhat higher tolerance for failure, that there are going to be certain things that you prototype, 

they don’t work out, but you learn from the experience and that 

makes the next thing better. 

So I actually think in the model that you are trying to create 

with this new organization you want to have a higher proportion 

of R&D spending relative to what we have had vis-a-vis procurement, and that you don’t want to have such an emphasis on ultimate ROI [return on investment] that you miss the learning curve 

that you get out of, you know, a very robust experimentation and 

prototyping plan. 

Mr. LAMBORN. Mr. Chairman, could I ask a quick follow-up? 

The CHAIRMAN. Sure. 
36 

Mr. LAMBORN. Very quickly, Iron Dome in Israel—that was done 

in 3 years, from pad of paper to operation, and I just can’t see that 

kind of result here in the U.S. And yet, there are times we are 

going to need that kind of quick turnaround. 

Ms. FLOURNOY. I think that is a great example of urgent operational need. You had civilians in Israel being killed by rockets 

from Gaza. 

They went out and saw, what is possible today? What can we put 

together that works? And they went out and procured it and fielded 

it as fast as possible, with our help. 

I think this gets to one of the things that I hope will be on your 

plate is the whole military requirement-setting process, that—obstacle to doing things quickly. We spend so much time trying to get 

consensus and we over-specify the requirements that, you know, we 

spend so much time—we spend years on that up front—that we are 

already behind the curve when we finally get to trying to actually 

acquire the thing. 

So figuring out where do you need—really do need to have the 

military specs, and where can you rely on commercial and integration and adaptation kind of—I think that is a key distinction that 

we need to work on. 

Dr. ZAKHEIM. Well, the Israeli system, by the way, is so different 

from ours in another respect. They are totally integrated, the commercial side and the ministry of defense, so that when they go out 

and say, ‘‘Yes, we need X,’’ the commercial folks are on it quickly. 

We have this gap because for too many of our people in the acquisition system the commercial side is the enemy. We have got to 

break down that barrier. 

Mr. LAMBORN. Thank you all. Thank you, Mr. Chairman, for 

your indulgence. I yield back. 

The CHAIRMAN. Mr. Veasey. 

Mr. VEASEY. Thank you, Mr. Chairman. 

I know that people have varying opinions on how the Congress 

should go about tackling these issues, and other than legislation, 

I was wondering what do you think Congress can do or refrain 

from doing that could improve the efficiency or the—and the effectiveness of the acquisition process. 

Dr. HAMRE. Well, I would go back to what I mentioned about 

DARPA. I think that DARPA is such a success because it has so 

much flexibility but accountability. 

The director is there for 5 years. That individual is totally accountable for what comes out, that product, out of their budget 

every year. They have a lot of flexibility in the budget. They are 

not bound by the civil service system for finding program managers. 

You know, so it—what it—it is a very different model. It is a 

model where it is more about leadership and trusting leadership 

and less about arcane and very rigid rules. 

And I think, honestly, we are on a path where we are writing 

legislation so much just dictating how the Department has to do 

things that we are undermining what I think is really the key, 

which is hold them accountable, give them the flexibility, and use 

the other power that you guys have, which you don’t use enough 

of, which is to bring them up and talk to them. 
37 

You have no idea how frightening it is when they get a call and 

say: I want to—the committee wants to hear—it is not going to be 

a hearing; we are just going to have a private meeting. 

They are going to—that has enormous impact. But right now 

most people think they just have to write big bills to have impact 

with the Department. 

You don’t. There is so much more you could do by utilizing this 

power that you have from this position. 

So I would look—do less, create more accountability, think about 

a model where you are trying to recruit the very best people that 

want to come in and serve because they have a lot of authority to 

get things done and you are trying to help them do it. 

Dr. ZAKHEIM. You know, John Hamre was my predecessor, actually, but one as comptroller. And I can say as comptroller, as well, 

the congressional restrictions on moving money from one account 

to another are just too tight. John mentioned the director of 

DARPA doesn’t have to worry about that to any degree that just 

about anybody else does. And when we are talking about a budget of approximately $600 

billion and then you are told we must go to four committees to 

move $25 million from one account to another, I mean, that is ridiculous. Certainly not how industry works. Certainly not how any 

successful company would work. 

So it seems to me that—I fully understand why Congress wants to watch how monies move, but there is a long way between $20 

million or $25 million and a $600 billion budget. And it seems to 

me raising those ceilings would be one way to create the ability to 

be flexible and agile, and then if you combine it with some of the 

other reforms that this committee is pushing then you are going to 

start to see a real synergy. 

Ms. FLOURNOY. I would just add that same flexibility in moving 

and managing people is really, really key. 

And then the last thing I would say is, you know, there have 

been lots of reform attempts over the year, and when something 

doesn’t work, rather than removing it we just add another layer. 

And so I think clearing away some of the layered complexity of 

past reform and regulatory efforts that haven’t necessarily yielded 

the desired results but people still feel accountable to go by, that 

can also add a lot of needed flexibility. 

Mr. VEASEY. And so with all of that, what do you think is the 

most appropriate mix and the most cost-effective mix that the military should try to achieve as it relates to military, civilian, and 

contractor personnel to accomplish its mission? 

Ms. FLOURNOY. Again, I think that will be—the answer to that 

question requires a comprehensive assessment that I don’t think 

has been done in a long time. But I think the general assumption 

that I have heard this morning is, you know, there is likely to be 

some reshaping of the civilian career workforce while investing in 

that workforce’s development and education and training, and 

probably a reduction in the level of contractors that we rely on to 

support those civilian functions. 

Dr. ZAKHEIM. And we also have to look very closely at what we 

want the military to do, as opposed to what someone else can do. 

And that is important, as well. 
38 

So it is not just a matter of cutting this level or that level of civilians, or cutting contractors; it is also a matter of who is doing 

what. And so it really has to be a comprehensive view. 

Mr. VEASEY. Thank you. Thank you, Mr. Chairman. 

Dr. HAMRE. And if I may add, it has to be a comprehensive review where we have the honest price of each of the forms of labor. 

We do not have a uniform way in which we put the full cost of having a uniform or a civilian or a contractor side by side to say, 

‘‘Which is the most cost-effective way to do this job?’’ 

So you could demand—again, this is a plea—you could demand 

that the Congress give—or that the Department develop a real objective cost assessment that you can see the difference between 

military labor, civilian labor, contracted labor. 

The CHAIRMAN. Ms. Flournoy, as y’all were talking about it earlier I had in my mind that you were talking about, say, a human 

capital plan for OSD. But you are really talking about something 

broader than that when you start bringing in who does what— 

what do contractors do, what do civilians do, what do military people do. 

Am I right, or—I am trying to think, okay, how do—what is 

the—what—how do we write this? What is the charge here? 

Ms. FLOURNOY. You know, ideally you would want a full assessment Department-wide, but that is a pretty herculean task. So I 

think where I would start is with the Secretary’s own staff, and to 

ask him to lay out for the functions of OSD what is the right mix 

of military, civilian, and contractor, and how does he need to reshape and re-educate, train, develop his workforce to be as effective 

and efficient as possible. 

But I think you could then look at other components beyond 

OSD, and should, because, you know, from a resources perspective 

the OSD is dwarfed by the staffs of the services, the staffs of the 

defense agencies, and so forth. 

But if you are looking for a way to pilot the approach and get 

your arms around a piece of the puzzle and then learn from that 

experience to then go after other pieces, it is not a bad place to 

start. 

Dr. ZAKHEIM. I would agree with that, except I would expand it 

to include the Joint Staff. There is a lot of overlap there. 

There are some people who say we just ought to combine them 

the way the Canadians and the Brits do. I am not sure that is the 

right way to go. In fact, I am pretty sure it is not the right way 

to go. 

But still, there is an awful lot of overlap, and I think looking at 

them together as a unit might be one way to deal with this pilot 

project, as Miche`le puts it. 

The other thing is I wouldn’t allow this to stand in the way of 

mandating reductions in the civilian workforce. The civilian workforce is just too big, and I haven’t seen any efficiency out of it. 

There is no correlation between the growth of the workforce and its 

efficiency. In fact, it is a negative correlation. 

The CHAIRMAN. Well, that really gets to the second part—or the 

other question I wanted to ask. 

There are some suggestions that we ought to give the Secretary 

of Defense authority to reorganize, say, OSD however he wanted to 
39 

in 6 months’ time. But is your view that we ought to expect this 

human capital report before there is authority to move the boxes 

around and have buyouts and so forth? 

Ms. FLOURNOY. I think that ultimately you want the review, first 

of all—you want form to fit function. You want the focus to be first 

on, you know, what are the most—what are the important functions that—where I need, you know, potentially more investment? 

Where am I willing to take some risk and do less? 

And then you need to adapt, I think, the—add on the human 

capital layer to fill out how are we going to actually staff that. 

So one of the things that I—when I had my little world of Policy, 

which was by then 1,000 people—it, you know, had grown a lot 

since I had first been in there in the Clinton administration—we 

did them simultaneously. And one of the things we asked is, ‘‘If you 

had more—10 percent more to invest, where would you invest it? 

If you had to cut 10 percent, where would you cut?’’ 

And we did that at the—a very low level all the way through the 

organization, and it gave you a pretty good sense of where we were 

short and we really needed to plus-up, and where people really 

thought, ‘‘You know, I am doing this because I am told I have to 

do it but I really don’t think there is much value here.’’ 

And so we sort of did the two streams in a complementary way, 

or overlapping way. I don’t think they have to be strictly sequenced. 

Dr. HAMRE. Sir, I am not—I just think you are going to have to 

impose cuts and then tell them, ‘‘Figure out what is the most efficient way to do what you have got to do, and if there are things 

that you don’t need to do or you think are low-value, tell us what 

that is.’’ 

But, you know, I am close enough to a number of corporations, 

when they have to do a downsizing they don’t start with a bottomup review, you know, they start with a top-down goal. 

And I think Bill Perry used to say, you know, reform does not— 

can’t remember what he said now. Forgive me. You have to make 

cuts first and commit yourself to those cuts before you can figure 

out how you are going to get the best value out of it. 

I just honestly think you—I have been around it too much. You 

are going to get very incremental, marginal suggestions if you do 

it on a bottom-up basis. 

Ms. FLOURNOY. I agree with that. I think you have to have a target but then allow a combination of a functional review and a 

human capital review, in terms of figuring out how you are going 

to get there. But the target is key to incentivizing the result. 

Dr. ZAKHEIM. And that is where I would come out, as well. If you 

don’t give them some clear directive as to how much they should 

cut over what period of time, they just—they are not going to do 

it. 

First of all, they are going to try to wait you out. That is number 

one. 

Number two is they are going to try to—like I had mentioned 

somewhat earlier, they will—if you give them any sort of vehicle 

for exemption they will exempt as many people as they could— 

500,000 out of 700,000, and that sort of thing. 
40 

So it has got to be tightly written, it has got to be clearly directed, and then you give the Secretary—and, I would argue, the 

Secretary together with the Chairman, because I think it is important if you are focusing on OSD, OSD and the Joint Staff I really 

think need to be looked at together—have them both, give them the 

flexibility within that overall number, and then have them come 

back and report to you. And not a written report, because a written 

report is going to be written by a contractor, but have them actually come and testify in front of you. 

Ms. FLOURNOY. But I think a cost-saving target, you know, it 

gives them maximum flexibility of how to get there. 

And this is where the other authorities come in—they are so important, you know, as you gave last year, a RIF authority that is 

not just about seniority but actually about performance. VSIP authority you raised the level, which is great, but still supervisors 

can’t use that on an individual basis to actually incentivize individuals who need to depart to depart. 

So, I mean, I think those accompanying authorities are really, 

really important to turn the—you know, to really give the flexibility required to reshape the organization in a productive manner. 

Dr. ZAKHEIM. The only thing that worries me about authorities, 

Mr. Chairman, is that bureaucrats will say, ‘‘Okay, I have got the 

authority and I want to use it.’’ And what will then happen is the 

deadwood always stays, which is why deadwood bureaucrats love 

hiring freezes, because who goes? The junior people. 

They don’t come in. The ones who come in last, they are the ones 

who go out. That is just not the way to get the Department up to 

speed with all our enemies out there. 

The CHAIRMAN. Okay. 

If y’all will indulge me just a few moments more, Dr. Hamre, I 

have got to go back to the beginning and this under secretary business. I understand your point, that you dilute the effectiveness of 

the one by having the second, and you addressed this in your written testimony but I still need to hear it again. 

So if you have the Under Secretary for Research and Development but then you give under him the acquisition authority, how 

is that not recreating AT&L under a different name? 

Dr. HAMRE. Yes, sir. I think the most important thing we are trying to do is to change AT&L from a giant compliance organization 

into an innovation organization. 

You are not going to get that done unless you break it up, and 

I think breaking it up means you take those mechanical functions 

of acquisition—you know, procurement policy, FAR review, you 

know, all that kind of stuff—you put that under an assistant secretary. That is what the assistant secretary does. 

The under secretary is responsible for all the big choices that the 

Department is going to make that involves acquisition—development and purchase of things. But you have to make that job big 

enough so that you are going to recruit somebody really big who 

will want that job because it really is meaningful. 

All of the acquisition—you took a big step 2 years ago when you 

pushed a lot of the acquisition back to the services. A very good 

thing to do. 
41 

So we need to get the bulk of the acquisition process back to the 

services, get a smaller organization at the top that is overseeing 

the process that the services implement, and then a powerful person who makes big choices for the Department. And I think having 

two under secretaries I think could confuse that. 

It is really disassembling what we built up with the Packard 

Commission and going back to having the services play much more 

of a role and OSD play much more of an oversight role with a creative person being a decider about big choices. 

The CHAIRMAN. But the assistant secretary reports to the under 

secretary—— 

Dr. HAMRE. Yes, sir. 

The CHAIRMAN [continuing]. So it is still within the one—— 

Dr. HAMRE. It is still within that orbit. You have one acquisition 

secretary but you are taking all of those mechanical functions and 

you are taking them down a level and you are pushing them out 

to the services. 

The CHAIRMAN. Okay. Okay. Y’all have anything more on that? 

Okay. 

Mr. Langevin, you have questions? 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

So one additional question that I had—and we had a discussion 

just a minute ago about cost-cutting targets. Last winter we 

learned of a report out of the DOD that stated that $125 billion 

could be saved over the course of 5 years by attending to waste 

within the Department. So this accounts for about 4 percent of 

DOD outlays and is well within the types of savings that companies also try to achieve through cost-cutting practices. 

And while I am disappointed this report was initially buried 

within the Department, I think there are certainly valuable lessons 

that can be learned from it. 

How do you believe we can best meet these cost-saving objectives, and how have you seen the Department implement some of 

the more actionable efficiencies? 

Dr. ZAKHEIM. Well, the report came out of the Defense Business 

Board, as you know, Mr. Langevin, and it wasn’t really buried at 

all. I mean, it was easily accessible on the web; it was publicly 

briefed; we all talked about it; nobody was told you couldn’t talk 

about it. So I don’t know where that whole thing came from, quite 

frankly. 

But to the substance of your concern, it does seem to me that 

what that report essentially is saying is in the first place your best 

start is with civilian personnel, and it seems to me that that is one 

where the—their legislation, in terms of levels of civilian personnel, 

might be very much worthwhile. I believe that if you take their 

numbers from 2 years ago and update the numbers to fiscal 2017 

numbers you could save $5 billion to $8 billion. Not trivial. Not a 

lot, but not trivial. 

Then they have five other categories, and in fact, the Secretary 

of Defense listed those very same categories in his memorandum 

on efficiency. And so again, picking up on what John Hamre said, 

get them in here. Ask them, ‘‘Okay, what have you done on each 

of these categories?’’ And to the extent that you don’t get a straight 

answer you start thinking about legislation for it. 
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Ms. FLOURNOY. I would just add, I also think you need to think 

about how the deputy secretary and the CMO—what kind of capacity they will have to do this kind of management transformation 

work. You know, your typical political appointee is not going to 

necessarily have that kind of background and experience, and so a 

senior official who wants to take a transformation step is either— 

you know, either they have to go hire a very expensive outside consultant or they decide, you know, they just don’t have the bandwidth to take something on. 

One of the things that was included in the last authorization bill 

was authorization for what is called a delivery unit, which is actually taking a page from the U.K. [United Kingdom], who basically 

brought, you know, 30, 40 people with deep experience transforming organizations coupled with some real experienced folks from 

within the Department and basically created an internal resource 

for the deputy and the CMO to work with the line managers of the 

organization on transformation plans and to really drive that 

change internally. 

But I do think you have to think about where is—where are 

these two critical officials actually going to get the capacity—the 

kind of change that you are talking about and to really drive that. 

Dr. HAMRE. You know, I personally think you could save $115 

billion, but very hard choices. Really tough choices we have to 

make. 

You know, the average—I think the average server in a computer 

center in the Department runs at about 10 percent of capacity, but 

we—because each of the services is buying their own stuff. But 

that means you are going in and you are ripping it out of a service. 

That is painful. It is hard to do that. 

We do not take advantage of the pricing power we have as the 

biggest renter of property in the United States because it is fractured. It is all over the place. We don’t have a central place where 

we are good at that. 

We spend money getting rid of things rather than making money 

getting rid of things. You know, we have got 500 people at the disposal center. We are paying for them to get rid of stuff. We are not 

making any money off of it. 

I mean, look, there are—but these are very hard things to do. 

They involve people’s jobs in very specific locations. You know, it 

involves a lot of—freeing up a lot of restrictions that have been put 

on the Department in recent years. 

So can we do it? Yes. I think we can do it. They are very painful. 

Does that avoid us needing to increase money for the Department because of the problems we have got now? No. I think we 

need to—we are—we have got real readiness issues in the Department. Real readiness issues. 

We have got a lot of airplanes that are really old, you know, that 

we need to replace. I mean, so I—we need to be objective about it. 

I strongly think we should try to save that—the $115 billion, 

$125 billion, whatever that is, especially because it would give 

credibility to the Department when it asks for additional resources. 

Dr. ZAKHEIM. One other area where—related to this is the whole 

area of contract auditing, which is highly controversial right now. 

But the fact of the matter is DCAA is billions of dollars behind. 
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That is hurting industry in another way, which is they have to reserve money that they can’t spend because they don’t know if they 

are going to have to give it to DCAA. 

But leave that aside. The fact is if you get a good outside auditor 

they will start to tell you where some of this money that John 

Hamre just referred to is or isn’t, and that gives you the vehicle 

to start moving monies around, to being more efficient, and, in fact, 

to reaching that $125 billion goal. 

Mr. LANGEVIN. Well, certainly I know that we are moving in the 

direction of being able to audit the Department. I know we are trying to get to that point, and certainly this is another area where 

data analytics will come into play and help us to get where we 

want to be. 

So thank you all for your testimony. And with that I will yield 

back. 

The CHAIRMAN. Yes. I want to just emphasize on the Defense 

Business Board issue not only did we not bury it, we cited it in our 

committee report 2 months later. And the increase in incentives to 

voluntarily leave the Department that we had in last year’s bill 

was one of the specific recommendations that they made. 

Now, the bigger dollar savings comes from the sort of civilian 

personnel reform that we have been talking about, which is part 

of the reason I have asked y’all several questions about that. As 

Dr. Zakheim mentioned, there was an effort that didn’t go so well 

to do that a few years ago, but yet, it is a significant area that 

needs our attention. 

Y’all have been very helpful. I have got lots of notes, but I also 

know where to find you to elicit more information and more questions. 

So thank you all for being here and for all that you assist this 

committee with. 

The hearing stands adjourned. 

[Whereupon, at 12:15 p.m., the committee was adjourned.] 

A P P E N D I X 

APRIL 4, 2017 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

APRIL 4, 2017 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

APRIL 4, 2017 

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QUESTIONS SUBMITTED BY MR. LANGEVIN 

Mr. LANGEVIN. In the 1940s and 1950s, almost 40 combat aircraft were competed 

and awarded, invigorating the industrial base in the process. This period of development stands in stark contrast to the last 25 years when only 4 new fighters or 

bombers were developed: the B–2, the F–22, the F–35, and the B–21 last year. 

Today, if a company does not prime or partner on a winning design, they risk being 

shut out of the industry until the next competition a decade or more later. How do 

we increase the number of competitions and reduce this feast or famine cycle to increase the vitality of our defense industrial base? 

Dr. HAMRE. I recall this history, and it was astounding how many different aircraft design efforts we were able to sustain during that period. Part of the answer 

is greater resources. Back during this period, defense spending was between 6–7% 

of GDP, and today it is less than 3% GDP. We also have seen huge real cost increases in the price of labor, both civilian and military, which reduces the amount 

we can devote to research, development and acquisition. I mention these two factors 

because I think this will hugely constrain our ability to solve the problem you outlined. In fairness, during the last 15 years we have launched major efforts to use 

unmanned air vehicles. But your point is still valid. 

I think the only practical way to do this with the constrained budgets we currently have is through expanded emphasis on prototyping. That will support the design teams, but would not necessarily support the shop floors. It is hard to see how 

this can change until we allocate more resources to aircraft procurement. 

Mr. LANGEVIN. In the 1940s and 1950s, almost 40 combat aircraft were competed 

and awarded, invigorating the industrial base in the process. This period of development stands in stark contrast to the last 25 years when only 4 new fighters or 

bombers were developed: the B–2, the F–22, the F–35, and the B–21 last year. 

Today, if a company does not prime or partner on a winning design, they risk being 

shut out of the industry until the next competition a decade or more later. How do 

we increase the number of competitions and reduce this feast or famine cycle to increase the vitality of our defense industrial base? 

Ms. FLOURNOY. Increasing the number of competitions is indeed critical to enhancing the vitality of our defense industrial base. It is also essential to ensuring 

that our armed forces can fully leverage rapidly evolving technological innovation 

to maintain their military edge in the future. Working with Congress, the Department of Defense can and should take several steps to increase the opportunities for 

competition. 

First, and perhaps most importantly, Congress must act to restore predictability 

in defense budgeting so the military services can plan and execute their programs 

over a multiyear period without constant uncertainty and disruption. Nothing does 

more to undermine DOD’s ability to make smart investments in future defense capabilities than not knowing whether and when defense authorization and appropriations bills will be passed or how much defense spending will be approved over the 

FYDP. Negotiating a budget deal that would permanently lift the BCA caps, end 

the threat of sequestration, and return the system to regular order should be a top 

national security priority. Restoring predictability would enable the services to let 

contracts with greater frequency and regularity while increasing industry’s confidence in having more bites at the apple. 

Second, Congress should fully support DOD’s efforts to enact defense reforms that 

would enable the reallocation of resources to priority investment accounts. The list 

of promising reforms is long and includes, among others: authorizing another round 

of Base Realignment and Closure (BRAC), streamlining DOD headquarters staffs 

and defense agencies, leveraging information technologies and big data to transform 

DOD’s business practices, and adopting a value-based approach to health care that 

would improve the quality of care while reducing costs. Every dollar saved by improving the performance and efficiency of the DOD enterprise is a dollar that could 

be reinvested in ensuring our troops have the capabilities they will need in the future. 

Third, DOD should adopt a new approach to acquisition that incentivizes innovation and strengthens the vitality of the defense industrial ecosystem. As described 
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in greater detail in the recent CNAS Report, Future Foundry: A New Strategic Approach to Military-Technological Advantage, by Ben Fitzgerald, Alexandra Sander, 

and Jacqueline Parziale, the Department should pursue an ‘‘optionality strategy’’ to 

develop an expanded and more diverse portfolio of defense capabilities and concepts. 

This approach would provide industry with more opportunities to innovate and rapidly prototype and field new technologies. It would generate more opportunities for 

companies, both traditional defense firms and new entrants to the market, to compete for a wide variety of contracts, stimulating a healthier industrial base while 

generating greater technological advantage for the U.S. military. 

These steps are necessary not only to ensure the future health and vitality of the 

U.S. defense industrial base but also to ensure that the U.S. armed forces maintain 

their technological edge and, most importantly, their ability to deter and prevail in 

a more complex and challenging future security environment. 

Mr. LANGEVIN. In the 1940s and 1950s, almost 40 combat aircraft were competed 

and awarded, invigorating the industrial base in the process. This period of development stands in stark contrast to the last 25 years when only 4 new fighters or 

bombers were developed: the B–2, the F–22, the F–35, and the B–21 last year. 

Today, if a company does not prime or partner on a winning design, they risk being 

shut out of the industry until the next competition a decade or more later. How do 

we increase the number of competitions and reduce this feast or famine cycle to increase the vitality of our defense industrial base? 

Dr. ZAKHEIM. A number of factors enabled the United States to produce a larger 

set of combat aircraft in the 1940s and 1950s. First, aircraft were less complex, rendering it easier for more firms to enter the market, or remain in it. Second, the complexity of modern aircraft increases the financial and related scheduling penalties 

that accompany engineering change proposals; one change will likely affect many 

other aircraft components and even sub-systems. Greater costs limit aircraft buys. 

Third, although the War and Navy Departments, and, succeeding them, the Defense 

Department, imposed military specifications during that era, there were far fewer 

such specifications than is the case today. Meeting all specifications can drive up 

costs, again limiting production. Fourth, the overwhelmingly bureaucratic nature of 

the current acquisition process itself causes delays, and increased costs that always 

accompany such delays. There are too many approval levels. Fifth, while operational 

testing is critical, government development testing should be minimized. Industry 

should be held accountable for testing at the developmental level. Sixth, the huge 

backlog of DCAA audits forces companies to reserve cash that might otherwise be 

spent on new development, or serve as dividends. This too, inhibits companies from 

participating in the defense sector. Finally, bureaucracy is also a deterrent to new 

companies entering the defense industrial sector. Excessive paperwork (apart from 

milspec); excessive oversight; limits on profit; restrictions on retention of intellectual 

property; and a different cost accounting method (government cost accounting standards (CAS) as opposed to commercial Generally Accepted Accounting Principles 

(GAAP), are among the leading factors inhibiting companies from working with government. Therefore, in order to increase competition, and ramp up production of 

new aircraft, the DOD must, to the extent it can, reverse the foregoing factors. 

1) While aircraft are not likely to become less complex, DOD can minimize the 

frequency of engineering change proposals by requiring that any proposal involving 

more than a month’s effort be certified at a flag, general officer, or SES level. 2) 

DOD should mandate an immediate fifty per cent. reduction in military specifications. 3) Approval levels should be reduced by twenty per cent. DOD-wide, to include service and OSD approvals. 4) Development tests should be reduced by at 

least twenty per cent. 5) Mandate than any DCAA audit that has not been completed in twelve months shall be dropped entirely, enabling companies to free funds 

currently held as reserves. 6) DOD, working with OMB, should modify CAS so that 

it more nearly approximates GAAP. 

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