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22–191 PDF 2016

S. HRG. 114–391 

DEPARTMENT OF DEFENSE REFORM: OVERCOMING 

OBSTACLES TO EFFECTIVE MANAGEMENT 

HEARING 

BEFORE THE

COMMITTEE ON ARMED SERVICES 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 17, 2015 

Printed for the use of the Committee on Armed Services 

( 

Available via the World Wide Web: http://www.fdsys.gov/ 

COMMITTEE ON ARMED SERVICES 

JOHN MCCAIN, Arizona, Chairman 

JAMES M. INHOFE, Oklahoma 

JEFF SESSIONS, Alabama 

ROGER F. WICKER, Mississippi 

KELLY AYOTTE, New Hampshire 

DEB FISCHER, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

JONI ERNST, Iowa 

THOM TILLIS, North Carolina 

DAN SULLIVAN, Alaska 

MIKE LEE, Utah 

LINDSEY GRAHAM, South Carolina 

TED CRUZ, Texas 

JACK REED, Rhode Island 

BILL NELSON, Florida 

CLAIRE MCCASKILL, Missouri 

JOE MANCHIN III, West Virginia 

JEANNE SHAHEEN, New Hampshire 

KIRSTEN E. GILLIBRAND, New York 

RICHARD BLUMENTHAL, Connecticut 

JOE DONNELLY, Indiana 

MAZIE K. HIRONO, Hawaii 

TIM KAINE, Virginia 

ANGUS S. KING, JR., Maine 

MARTIN HEINRICH, New Mexico 

CHRISTIAN D. BROSE, Staff Director 

ELIZABETH L. KING, Minority Staff Director 

(II) 

C O N T E N T S 

NOVEMBER 17, 2015

Page 

DEPARTMENT OF DEFENSE REFORM: OVERCOMING OBSTACLES TO EFFECTIVE

MANAGEMENT ........................................................................................................ 1 

Walker, Hon. David M., Former Comptroller General of the United States ...... 5 

Punaro, Major General Arnold L., USMC (Ret.), Member of the Defense 

Business Board ..................................................................................................... 10 

Spencer, Richard V., Former Member of the Defense Business Board ............... 30 

Bisaccia, Lisa G., Executive Vice President and Chief Human Resources Officer, CVS Health Corporation .............................................................................. 34 

Questions for the Record ......................................................................................... 60 

(III) 

(1) 

DEPARTMENT OF DEFENSE REFORM: OVERCOMING OBSTACLES TO EFFECTIVE MANAGEMENT 

TUESDAY, NOVEMBER 17, 2015 

U.S. SENATE, 

COMMITTEE ON ARMED SERVICES, 

Washington, DC. 

The committee met, pursuant to notice, at 9:35 a.m. in Room 

SD–G50, Dirksen Senate Office Building, Senator John McCain 

(chairman) presiding. 

Committee members present: Senators McCain, Inhofe, Ayotte, 

Fischer, Cotton, Rounds, Ernst, Sullivan, Lee, Reed, Nelson, 

McCaskill, Manchin, Gillibrand, Blumenthal, Donnelly, Hirono, 

Kaine, King, and Heinrich. 

OPENING STATEMENT OF SENATOR JOHN MCCAIN 

Chairman MCCAIN. Well, good morning, all. 

Before we begin, I’d like to briefly address recent events of profound consequence to the work of this committee. Over the past few 

weeks, the massacre in Paris, attacks in Beirut, Baghdad, and Ankara, and the likely bombing of a Russian airliner, now confirmed 

by the Russians, over Egypt have signaled the beginning of a new 

phase of ISIL’s [the Islamic State of Iraq and the Levant] war on 

the civilized world. This committee has held several hearings on 

U.S. strategy against ISIL over the past several months, yet no administration witness to date has presented a plausible theory of 

success to degrade and destroy ISIL. With ISIL determined to 

launch more attacks across the globe, we cannot afford more of the 

same insufficient strategy. And in the coming weeks and months, 

this committee will continue to focus our oversight on the urgent 

development of a new strategy to achieve the decisive and lasting 

defeat of ISIL. 

The committee meets this morning to continue our series of oversight hearings focused on defense reform. Today, we will focus on 

reforming the management of the Department of Defense. This is 

a perennial and enormously costly problem, precisely because it’s 

one of the most difficult. But, if the Department is to meet the diverse and complex national security challenges that our Nation 

confronts around the world both now and in the future, it must 

make far more effective and efficient use of its resources, especially 

when budgets are tight. 

We’re very fortunate to have a distinguished group of witnesses 

to discuss how to overcome the obstacles to better management in 

2 

the Department of Defense: The Honorable David Walker, former 

Comptroller General of the United States, who has a long and very 

productive relationship with this committee; Major General Arnold 

Punaro, member of the Defense Business Board, as well as former 

Staff Director of this committee, which he did a terrible job while 

he was a member—— 

[Laughter.] 

Chairman MCCAIN. Mr. Richard V. Spencer, a former member of 

the Defense Business Board with a decades—with decades of experience in the private sector; and Lisa Bisaccia, Executive Vice 

President and Chief Human Resources Officer at CVS Health Corporation. I’d like to point out that, while CVS has the misfortune 

of being headquartered in the State of Rhode Island, it does have 

more than 6,000 employees and over 500 pharmacists working in 

Arizona, administrating some of our Nation’s—administering some 

of our Nation’s most important Federal health programs. And we’re 

thankful for the work that they do. 

The United States military is without peer in delivering combat 

capability anywhere on the globe. Our soldiers, sailors, airmen, and 

marines are the greatest fighting force the world has ever seen. 

However, it’s also the case that the management, what is sometimes called the ‘‘back office’’ of the Department of Defense, is in 

dire need of improvement. In constant dollars, our Nation is spending about the same as we did three decades ago. However, for this 

money today, we’re getting 35 percent fewer combat brigades, 53 

percent fewer ships, 63 percent fewer aircraft squadrons, and a lot 

more overhead. How much more is somewhat unclear, because the 

Department cannot even produce complete and reliable data on its 

overhead expenses. 

What we do know is, these reductions in combat power have occurred while the Department’s overhead elements, especially its 

contracted workforce, have exploded. Nearly 1.1 million personnel 

now perform overhead activities in the defense agencies, the military departments, and the service staffs. And the money spent on 

these overhead functions is staggering. Indeed, of the top 10 entities that contract for business with the Department of Defense, half 

of them are the Department’s own agencies. In annual dollars, the 

Defense Logistics Agency does nearly twice as much business with 

the Department as Lockheed Martin. 

A few years ago, an analysis by McKenzie & Company found that 

less than one-quarter of Active Duty troops were in combat roles, 

with a majority instead performing overhead activities. Recent 

studies by the Defense Business Board and others confirmed that 

little has changed in this regard. The United States tooth-to-tail 

ratio is below the global average, including such countries as Russia, India, and Brazil. For years, decades in some cases, the Government Accountability Office [GAO] has identified some of the 

major overhead and headquarters functions of the Department of 

Defense at being at high risk of waste, fraud, abuse, and duplication of effort. Business systems modernization and transformation, 

supply chain management, contract management, infrastructure 

management, and financial management have all been on GAO’s 

high-risk list for years. And yet, these problems have grown 

through administrations of both party, and persist to this day. 

3 

It is not as if the Department has not tried to address these 

problems. Indeed, it has spent billions of dollars to bring so-called, 

quote, ‘‘private-sector best practices’’ into the Department of Defense through the adoption of commercial off-the-shelf information 

technology programs. Unfortunately, these efforts have little to 

show for them. Information technology programs intended to create 

lasting business transformation at the Department have either collapsed from their own weight and size, such as the Air Force’s Expeditionary Combat Support System, or were merely reconfigured, 

at great cost, to replicate the inefficient and outdated business 

processes that the Department of Defense was already employing. 

In order to improve its management skills and transform its 

business process, the Department has also paid consultants and 

contractors billions of taxpayers’ dollars to conduct analysis of 

problems in the areas of supply chain, logistics, financial management, and contract management. Here, too, there is precious little 

to show for the effort, which has persisted over decades. But, despite this spending, none of the high-risk areas that GAO has identified have been removed from that list. What’s worse, it’s hard to 

address management problems when you lack basic data that are 

essential to understanding and diagnosing those problems. And yet, 

that is the case with the Department of Defense. 

Here is how former Secretary of Defense Robert Gates described 

the dilemma. He said, quote, ‘‘My staff and I have learned that it 

was nearly impossible to get accurate information and answers to 

questions such as, ’How much money did you spend?’ and, ’How 

many people do you have?’’’ The result is not just greater inefficiency and wasted resources, it also harms the effectiveness of the 

Department of Defense; and thus, our national security. 

The result of these shortfalls in information, as Secretary Gates 

has explained, is that Department leaders and their overseers in 

Congress cannot measure the results of our national security policies or make judgments about priorities for our military or accurately assess the tradeoffs involved in different courses of action. 

If the Department cannot do these basic things, it will struggle to 

be effective. We cannot afford to continue on this way. The stakes 

are too high, and the consequences of failure are too dire. 

I thank our witnesses for helping us to better understand these 

defense management problems and how to overcome them. 

Senator Reed. 

STATEMENT OF SENATOR JACK REED 

Senator REED. Well, thank you very much, Mr. Chairman. 

Let me join you in thanking our witnesses for coming here to the 

panel and to testify, with their great expertise, on the difficulties 

of managing the largest organization in the world, the Department 

of Defense, and how, more importantly, such management can be 

improved, which it must be, as the Chairman has pointed out. 

Each of our witnesses has a unique perspective, both inside and 

outside the government, and will help significantly improve the 

committee’s review of possible reforms to the Department of Defense. Thank you all. 

I’d like to extend a special welcome to Lisa Bisaccia. Lisa is an 

Executive Vice President and Chief Human Resources Officer for 

4 

CVS Health Corporation, which the Chairman noted is 

headquartered in Rhode Island, but it has a much larger presence 

in Arizona. So, that’s why they’re—she—he’s—she’s here today, I 

think. 

Chairman MCCAIN. I understand why they moved there. 

Senator REED. Yes, yes. Yeah. 

[Laughter.] 

Senator REED. CVS is also the recipient of the 2015 Secretary of 

Defense Employer Support Freedom Award for its support of employees who serve in the National Guard and Reserves. So, thank 

you for joining us today, Lisa, very much. 

The Pentagon, with its fundamental mission being the defense of 

our Nation, is not a business, in a classic sense, and it’s unrealistic, 

in some respects, to believe it would completely operate like a business. However, there may be important process and organizational 

lessons learned from the private sector that can and must help the 

Department to accomplish their mission and our objective, which is 

make them more effective in the face of new threats, globalization 

of technology, and budget uncertainty. 

Although DOD [Department of Defense] and commercial industry 

measures success in different ways and we are under different constraints, in terms of laws and regulations and congressional oversight—that is, the Department of Defense—there are still many 

challenges that the Department of Defense shares with the commercial world. For example, both DOD and the commercial sector 

are continuously striving to reinvent themselves against external 

competitors. Both are trying to attract and grow the best talent. 

And both are trying to find the best partners so that their goals 

can be achieved as efficiently and effectively as possible. 

During last week’s hearing, Jim Locher proposed that DOD 

adopt the concept of cross-functional teams, a private- sector innovation that is designed to integrate representatives with relevant 

organizational components to rapidly address a specific problem or 

set of problems. Mr. Locher made the point that there is currently 

no place in the DOD where such functional expertise can be 

brought together quickly by the Secretary or Deputy Secretary of 

Defense. I hope today’s witnesses will build upon that discussion by 

relating examples from their corporate experiences that will help 

us better frame the question we need to ask, the scope and the 

changes we need to make, and the likely resistance we will face 

when we do so. 

Specifically, I hope that our witnesses will touch on organizational individual incentives that encourage a culture of continuous 

improvement and innovation in the DOD workforce. For example, 

Can such an effort be supported through changes in management 

policy, organizational structures, hiring, training, and compensation practices or increased engagement with the commercial sector? 

I hope, also, that our witnesses will shed light on methods for attracting and employing the most effective workforce for all DOD 

missions, ranging from operational warfighting, to performing cutting-edge research, to managing a huge and complex defense enterprise. 

I think that the common thread connecting these issues is the 

importance of good, modern, innovative management and governVerDate Nov 24 2008 12:31 Oct 19, 2016 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 C:\USERS\WR47328\DESKTOP\22191.TXT WILDA
5 

ance. And I’m confident that DOD and this committee can learn a 

lot from the commercial experiences in these areas. And I look forward to your testimony. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. I welcome the witnesses. 

Mr. Walker, welcome back. 

STATEMENT OF HON. DAVID M. WALKER, FORMER 

COMPTROLLER GENERAL OF THE UNITED STATES 

Mr. WALKER. Chairman McCain, Ranking Member Reed, members of the Armed Services Committee, thank you for the opportunity to be here today. 

My testimony will be based upon my experience as head of GAO, 

a former member of the Defense Business Board, and a senior strategic advisor with PricewaterhouseCoopers today. But, these will 

be my personal views. 

Chairman MCCAIN. Before you continue—— 

Mr. WALKER. Yes, sir. 

Chairman MCCAIN.—all the written testimony of the witnesses 

will be made part of the record. 

Please proceed. 

Mr. WALKER. Thank you. Thank you, Senator. I will move to 

summarize. 

As you mentioned, Mr. Chairman, DOD has seven high-risk 

areas directly. It also shares two other high-risk areas. DOD, in its 

latest January 2015 report, noted that they are making progress to 

differing degrees, but yet none of the items have come off the list 

in recent years. GAO has consistently stated that the responsibility 

for the overall business transformation effort needs to be a fulltime endeavor, and it needs to be led by a person with an appropriate level of expertise and prior experience. The new Under Secretary of Defense for Management and Information position is at 

a higher level, but I am concerned that the way that it’s structured 

will not maximize the chance of success, nor will it maximize the 

ability to integrate a number of other submanagement functions 

within the Department of Defense. 

Specifically, I believe that the new position should be at the Deputy Secretary level and that all key DOD-wide management functions should report to this position. By doing so, it would result in 

a reasonable separation of duties and span of control for the two 

resulting deputies. Specifically, the existing Deputy would be focused on policy and external matters, and the new Deputy would 

focus on internal and management matters, including all business 

transformation initiatives. The new CEO [chief executive officer] 

should be appointed based upon specific statutory qualification requirements. In my view, it is highly preferable that that CMO 

[chief management officer] have both public- and private-sector experience. And ideally, the new Deputy for Management and CMO 

would have a term appointment of 5 years, with a performance contract. The above approach is much more consistent with what GAO 

and I recommended 10 years ago to help accelerate and better institutionalize the large, complex, and multidimensional business 

transformation effort within DOD. 

6 

Importantly, it will take more than one person. Any—one CMO 

is not going to make the difference to achieve sustainable success. 

DOD needs to review and reconsider its approach to the appropriate appointment process and reporting lines for the military 

services and fourth-estate CMOs, as well. In my view, all military 

service and fourth- estate CMOs need to be appointed by the Secretary of Defense, with the advice of the new DOD Deputy for 

Chief Management Officer. These appointments should be based, 

also, on statutory qualification requirements, and should involve a 

requisite period of time with a performance contract. 

Based on my past experience, the DOD is currently organized 

and operating under management models that were prevalent in 

the 1950s, and it’s been doing so for many years. It’s also clear that 

an increasing portion of DOD’s budget is being allocated to administrative and overhead costs, and DOD still has far too many uniformed personnel in civilian positions. As a result, there needs to 

be a fundamental review and reassessment of the current organizational structure, operational and personnel practices within DOD. 

Specifically, there needs to be a baseline review of all current organizations and key positions to determine their continued appropriateness. 

In addition to that, we know that more and more of the budget 

of DOD is being spent on healthcare, disability, and other types of 

costs. These programs also need to be reviewed and reconsidered. 

I can—I have firsthand experience in making transformational 

change happen in the government. At DOD—pardon me—at the 

GAO, for example, we engaged in a similar transformation effort. 

The result was as follows. We reduced our footprint by a third. We 

eliminated a layer of management. We consolidated 35 organizational units into 13. We upgraded our management, information, 

and knowledge- sharing system. We revitalized our recruiting, 

training, and succession planning functions. We infused new talent 

from the private sector and elsewhere in government into the agency. We restructured our performance management reward systems. 

We reduced our personnel by 13 percent. And, despite that, our 

outcome-based results were tripled during that period of time. This 

approach is transferable and scalable within government if you 

have the right people in the right jobs for the requisite amount of 

time, which we don’t in DOD at the present point in time. 

The DOD culture is very mission-focused and chain-of- commandoriented. When a decision is made to take a specific action, no matter what the nature of the action is, and when it’s no longer realistic or when there have been changes in conditions on the ground 

or within the Department, there is a hesitancy to change course. 

There’s also a hesitancy to tell—to state the ground truth with regard to where things are. And, as a result, there are significant expectation gaps that exist within the Department with regard to 

major management and other activities. These expectation gaps result in additional cost and other adverse outcomes. 

In summary, DOD personnel are capable, caring, and totally 

committed to the mission of protecting the national security interests of the United States. We have good people in a bad system. 

We also have the best military capabilities in the world, and no one 

else is close at this point in time. At the same point in time, the 

7 

Pentagon has become a bloated bureaucracy, and overhead costs 

are way too high. There are too many layers, players, and hardened silos in the DOD. This is both undesirable and unsustainable. 

The Pentagon needs to be streamlined and simplified in order to 

free up resources for direct mission- critical activities. This will involve deciding what needs to be done, who needs to do it, and how 

best to accomplish the objective between public- and/or private-sector personnel, as well as how we measure success. 

We can succeed in this effort, but we need to have the right people in the right job for the requisite period of time, and we need 

to change our performance measurement reward systems to incent 

innovation and to hold people accountable for real results or the 

lack thereof. 

Thank you again, Mr. Chairman. More than happy to answer the 

questions of this committee. 

[The prepared statement of Mr. Walker follows:] 

PREPARED STATEMENT BY HON. DAVID M. WALKER

Chairman McCain, Ranking Member Reed, and members of the Senate Armed 

Services Committee, thank you for the opportunity to testify today. My testimony 

is based on my past positions of Comptroller General of the United States and head 

of the U.S. Government Accountability Office (GAO), as a prior member of the Defense Business Board (DBB), and my current position as a Senior Strategic Advisor 

for PricewaterhouseCoopers’ (PwC) Public Sector Practice. While my comments are 

based on my experience in all of these positions, they represent my personal views 

and not the views of the respective organizations. 

Today’s hearing is on business transformation and management challenges within 

the U.S. Department of Defense (DOD). As you know, DOD has by far the most 

items on the GAO’s High Risk List. Specifically, DOD has seven direct high risk 

areas (i.e., Business Transformation, Systems Modernization, Infrastructure Management, Supply Chain Management, Financial Management, Weapons Systems Acquisition, and Contract Management). DOD also shares certain Government-wide 

High Risk items (e.g., Human Capital, Real Property). These high risk areas cost 

the DOD and American taxpayers many billions of dollars every year in waste and 

inefficiency. 

Importantly, GAO has noted in its most recent High Risk Report Update that 

progress is being made on these High Risk areas to differing degrees. GAO also 

noted that the leadership within DOD has been much more supportive of the needed 

transformation efforts in recent years, especially in connection with the financial 

management, supply chain management and contract management areas. However, 

according to the GAO’s latest High Risk Report dated January 2015, the DCMO office had a limited impact on accelerating the business transformation process up to 

that point in time. Importantly, there has been significant turnover in this office 

since its creation. Peter Levine was confirmed as the current DCMO in late May. 

He has been fully engaged in a range of business transformation efforts. GAO has 

not issued a report on the DCMO office’s activities since his confirmation. 

GAO has consistently stated that the responsibility for the overall business transformation effort is a full-time endeavor that needs to be led by a person at an appropriate level with requisite prior experience. The new Under Secretary of Defense for 

Management and Information position has the potential to make a bigger difference 

if the right type person is appointed. However, I am concerned that this new CMO 

(PAS Level 2) position is not structured to maximize the chance of success or in a 

manner that could help to facilitate a needed delayering and integration of the key 

management functions within DOD. 

Specifically, I believe that the new position should be at the Deputy Secretary 

level and that all key DOD-wide management functions, including the Comptroller, 

AT&L, Personnel and Readiness, Information Management, etc. should report to 

this position. By doing so, it would result in a reasonable separation of duties and 

span of control for the resulting two Deputies. Specifically, the existing Deputy 

would be focused on policy and external matters and the new Deputy would focus 

on internal and management matters, including all business transformation initiatives 

8 

The new CMO should be appointed based on specific statutory qualification requirements. Such requirements should include the individual having significant 

leadership and operational management experience as well as a demonstrated track 

record of achieving transformational change. In my view, it is highly preferable for 

the new CMO should have both public and private sector experience given the nature of the DOD and its key stakeholder groups. Ideally, the new Deputy would 

have a term appointment (e.g., five years) with a performance contract. Under this 

approach, you would also have an opportunity to reconsider the proper level and titles for various positions that report to the new Deputy - CMO. 

The above approach is much more consistent with what GAO and I recommended 

about 10 years ago to help accelerate and better institutionalize the large, complex 

and multi-dimensional business transformation effort within DOD. I respectively 

suggest that Congress reconsider the nature of this new Level 2 position and the 

related possibility for restructuring related management positions and functions so 

they could be effective at the beginning of the next Administration. Importantly, it 

will take more than one key person (DOD CMO) to achieve sustainable success. 

DOD needs to review and reconsider its approach to the appropriate appointment 

process and reporting lines for the Military Services and ‘‘Fourth Estate’’ CMO’s as 

well. 

In my view, all Military Service and Fourth Estate CMO’s need to be appointed 

by the SecDef with the advice of the DOD CMO. These appointments should also 

be made based on statutory qualification requirements and should be for a specified 

term with a performance contract. The SecDef should be able to use his/her temporary appointment authority to fill these positions in a timely manner but that authority should be modified to be able to make such appointments for up to five 

years. This approach would help to enhance the quality and consistency of DOD 

CMO’s while also increasing continuity within these key positions. The resulting 

CMO’s should have dual solid line reporting authority to the head of the Service 

or Fourth Estate entity and to the DOD CMO. Any resulting conflicts would be resolved by the SecDef, as and if necessary. 

Based on my past experience, the DOD is currently organized and operating 

under management models that were prevalent in the 1950s and has been doing so 

for many years. It is also clear that an increasing portion of DOD’s budget is being 

allocated to administrative and overhead costs. For example, according to the Congressional Budget Office (CBO), Defense Health Agency, BAH and housing, and 

total civilian compensation costs, costs grew by 101 percent, 59 percent and 35 percent in excess of inflation during the period 2000–2014, respectively. The DOD still 

has far too many uniformed personnel in civilian oriented positions. In addition, 

DOD’s escalating health care, disability and other employee benefits related costs 

are crowding out the ability to enhance force structure and modernize weapons systems. As a result, there is also a clear need to restructure these programs in a fair 

and equitable manner. 

Given the above, there needs to be a fundamental review and reassessment of the 

current organizational structure, operational and personnel practices within DOD. 

Specifically, there needs to be a baseline review of all current organizations and key 

positions to determine their continued appropriateness. Some need to be eliminated 

and others need to be consolidated. This fundamental review and reassessment 

needs to be driven from the top with the clear support of the Secretary of Defense 

(SecDef) and the committees of jurisdiction in Congress. 

I have some first-hand experience making this type of transformational change a 

reality in the federal government. For example, when I was Comptroller General we 

undertook a comprehensive review and reassessment of GAO’s organization and 

operational practices. The objective of this effort was to modernize GAO’s organization and operations to improve performance in a time of resource constraints. 

Among other things, I wanted GAO to maximize its mission related resources with 

adequate but controlled mission support capabilities. My philosophy was to minimize the number of layers, players and organization entities in order improve both 

flexibility and accountability. This transformation effort resulted in, among other 

things, an elimination of 1/3 of GAO’s footprint, elimination of a layer of management, the consolidation of 35 organizational units into 13, an upgrade of our management information and knowledge sharing systems, a revitalization of GAO’s recruiting, training and succession planning functions, an infusion of new talent within the agency, a fundamental restructuring of GAO’s performance management and 

reward systems, and a 13 percent reduction in the number of personnel. At the 

same time, GAO’s outcome-based results more than tripled during my tenure. This 

type of transformation effort is transferable and scalable within government, including within DOD, but it takes a commitment from the very top, the right type people 

to lead it, and adequate time and resources to achieve sustainable success. 

9 

Importantly, some progress is being made in certain business lines within the 

DOD that has resulted in real cost reductions and service improvements. For example, major process improvements and accountability mechanisms within 

USTRANSCOM have resulted in about $1.5 billion in real savings and 10–20 percent service level improvements. This type of cost reduction focused process improvement and performance enhancement is also transferable and scalable. Progress 

has been made in other business lines in the past, including NAVSEA. The real 

question is - ‘‘How can we best proliferate and sustain these business transformation efforts and promote continuous improvement within DOD.’’ 

Despite the above, the American people continue to see periodic examples of clear 

waste and mismanagement within the federal government, including within the 

DOD. One recent example is the multi-million dollar warehouse in Afghanistan that 

was built even though it was not needed and is still not being used. While this does 

not involve a lot of money given the size of the DOD budget, it is symbolic of a systemic problem within the DOD that needs to be addressed. 

The DOD culture is very mission focused and chain of command oriented. When 

a decision is made to take a specific action, no matter what the nature of the action 

is, efforts are undertaken to do so even when the action is not realistic or no longer 

makes sense. Many people within DOD hesitate to speak candidly and to advise 

their superiors to change course when current conditions and subsequent events dictate that a change in course is clearly called for. In addition, there are too many 

cases where DOD leaders are told what people think they want to hear rather than 

what that need to hear based on the ‘‘ground truth’’. As a result, there are too many 

cases where expectation gaps exist and bad news comes as a surprise. Furthermore, 

when failure and mismanagement occurs, there is rarely anyone who is held accountable. This is simply unacceptable and it serves to undercut the American people’s trust and confidence in government. 

Another key cultural challenge is the fact that too many people in DOD think 

they have a ‘‘veto’’ over key cross organizational initiatives within the department. 

Additional steps need to be taken to make it clear that the responsible official for 

major DOD transformation issues has the full support of the SecDef and playing 

‘‘rope a dope’’ or attempting to exercise ‘‘pocket vetoes’’ are unacceptable practices 

that will not be tolerated. This includes people at all levels, including PAS positions. 

My previously mentioned recommendations to establish a second Deputy level CMO 

position and to integrate and modify the reporting lines for various internal management functions can help to address this problem. 

In my view, these cultural and accountability issues need to be addressed headon in the recruiting, training and performance management systems within the 

DOD. These changes need to be combined with enhanced incentives, transparency 

and accountability mechanisms for major business transformation projects within 

the Department. Individuals who make strong contributions should be recognized 

and rewarded and those who fail to do their part or act irresponsibly should be held 

accountable, including being demoted or fired in appropriate circumstances. 

I believe that additional steps need to be taken to gain additional private sector 

expertise within the DOD in connection with major transformation efforts. This 

would be a supplement to rather than a substitution for the CMO positions noted 

previously and selected independent contractor efforts. DOD could accomplish this 

through using the temporary appointment authority that the SecDef has to appoint 

persons at any civilian level to perform specified functions. This could be particularly helpful in connection with addressing highly technical information technology, 

financial management and other operational matters. I had similar authority when 

I was Comptroller General. I used it to fill critical mission and mission support positions in a timely manner with qualified personnel. It clearly made a difference in 

connection with the GAO’s transformation effort and it can make an even bigger difference in connection with the DOD’s transformation efforts. 

Furthermore, adequate resources and control mechanisms need to be provided to 

the individual who is responsible and accountable for any major transformation initiative. As has been said, individuals must have the authority, as well as reasonable 

levels of human and financial resources in order to get the job done if they are to 

be held accountable. 

With regard to financial management and audit issues. I am concerned that an 

‘‘expectation gap’’ may exist regarding the current state of the audit readiness efforts and when and how a successful audit of DOD’s consolidated financial statements can best be achieved in a reasonably timely and cost-effective manner. One 

possibility is to use the SecDef’s temporary authority to bring in a retired audit 

partner from a major CPA firm on a full-time basis to help with the Department’s 

FIAR efforts. I am confident that DOD could find a qualified person who would be 

willing to give several years of public service to his/her country in connection with 

10 

this important initiative. I am also confident that there are similar people in other 

disciplines who would be willing to do the same in connection with other key DOD 

business transformation initiatives if this approach was made a priority within 

DOD. These could be great Capstone opportunities for successful private sector leaders who have achieved financial and other success and who want to do something 

for their country. 

The new Chairman of the DBB recently asked me to suggest a few areas that the 

DBB might best address. I suggested several, including the FIAR and related financial management and reporting issues (e.g., financial reporting and the DOD audit, 

internal controls, cost accounting and performance management information, and 

related governance issues); DOD bureaucracy streamlining and shared service opportunities; DOD/VA coordination and selected integration, and; disability and retirement program reforms, especially retiree health care for individuals who are 

working with no service related injuries or serious impairments in light of the ACA. 

The Chairman has stated that he would like to meet with me in the near future 

to discuss these areas further. 

The truth is, DOD personnel are mission focused and totally committed to the 

mission of protecting the national security interests of the United States. We have 

the best military capabilities in the world and no one else is close to us at this point 

in time. At the same time, the Pentagon has become a bloated bureaucracy and 

overhead costs are way too high. There are too many layers, players and hardened 

silos within DOD. This is both undesirable and unsustainable. 

The Pentagon needs to be streamlined and simplified in order to free up resources 

for direct mission critical activities. This will involve deciding what needs to be 

done, which DOD entity should be responsible, how best to accomplish the objective, 

whether it should be performed by public and/or private sector personnel, and how 

we should measure success. In addition, effective internal controls and related performance management systems and accountability mechanisms need to be in place 

to ensure the economy, efficiency and effectiveness of DOD’s ongoing activities. 

When the new CMO position is filled and operationalized, that person needs to 

bring a ‘‘tough love’’ attitude to DOD. They will also need to support of the Congress, the President, and the SecDef in order to achieve sustainable success. We can 

succeed in this effort with the right people and approach; however, it will take 

years. 

Thank you again for the opportunity to testify today. I would be happy to answer 

any questions you may have. 

Chairman MCCAIN. General Punaro. 

STATEMENT OF MAJOR GENERAL ARNOLD L. PUNARO, USMC 

(RET.), MEMBER OF THE DEFENSE BUSINESS BOARD 

General PUNARO. Mr. Chairman, Senator Reed, members of the 

committee, I, also, want to thank you for the privilege of testifying 

on the urgent need to get the full cost of DOD’s massive overhead 

and infrastructure identified, analyzed, and ultimately under control, but, most importantly, reduced from both a cost and people 

standpoint. 

Mr. Chairman, as part of my prepared statement you put in the 

record, I included a presentation that I made as chairman of the 

Defense Reform Task Force to Secretary Don Rumsfeld in March 

2001 with a series of recommendations on how to control DOD’s infrastructure, which, at the time, was $100 billion. Today, it is $240 

billion, and larger than the GDP [Gross Domestic Product] of the 

country of Ireland. So, the growth in defense infrastructure has 

been continuous. The tendency has been to add, rather than subtract. As we have added more staff, more layers, and more infrastructure, we have slowed the decision process, expanded the number of players, and made the over system more risk-averse at a 

time when we need to take more risk and make quicker decisions. 

If we wait for certainty, we will have waited too long and imperiled 

our warfighting forces as they continue to decrease. 

11 

We must distinguish between working hard and working well. 

And with the fiscal pressures we face, with the strategic challenges 

erupting all around us, with the operational demands accumulating 

on the force, we can no longer afford the luxury of a growing imbalance between what we must feel operationally and what we feel 

managerially. We need to generate more combat power from our 

military end strength and the fiscal resources associated with it, 

not less. And today we are fielding less in what I have called the 

ever-shrinking fighting force. 

So, I applaud the committee for taking a hard look at this problem. But, any Pentagon reforms will be insufficient without serious 

reforms in the Congress as well as reforms in the National Security 

Council and OMB [Office of Management and Budget]. And I’ve put 

a long list of my recommended reform in these areas in my prepared statement. 

A major problem in defense today, as you pointed out, Mr. Chairman, is the internal composition of the defense budget, how the internal Pac-Man of growing costs in personnel, acquisition, and 

overhead are gobbling up our warfighting forces. In constant dollars, we are spending more today than we spent at the peak of the 

Reagan buildup, roughly 30 percent more, but the warfighting 

forces are 40 to 50 percent smaller. You’ve made this point very 

clear. However, defense-wide spending has gone from 5 percent to 

20 percent of the budget. And again, infrastructure running about 

240 billion, with over a million people. The defense agencies have 

grown in number, scope, and cost. And they’re not just defense 

agencies, these are large business enterprises that account for over 

20 percent of all the money that DOD spends. And you have the 

ballooning of the defense agencies, the OSD [Office of the Secretary 

of Defense], the combatant commands, and many other overhead 

organizations. The Office of the Secretary of Defense alone, we believe, has 5,000 people. Some argue it’s even higher. The Defense 

Department would probably argue it’s lower. And there are too 

many layers in the bureaucracy. Twenty-eight layers of—— 

Chairman MCCAIN. Excuse me. You said the Office of Secretary 

of Defense has 5,000 people? 

General PUNARO. Mr. Chairman, all our analysis shows that if 

you add the number of military, civilians, contractors, it’s roughly 

between 5- and 8,000. Typically on their books at Washington 

Headquarters Services, they tell you it’s either 2,200 or 3,000. And 

so, if you add in the DOD IG [Inspector General] and associated, 

it could be 10,000 people. 

Chairman MCCAIN. Thank you. 

General PUNARO. Twenty-eight layers, way too many. 

Another problem is—David Walker has pointed out—too many of 

our Active Duty military personnel, over 330,000 Active Duty military, are performing commercial activities that could be done by civilians or contractors, and frankly, many not done at all. So, before 

listing my recommended course of actions, you need to address the 

basics of DOD infrastructure and overhead. How big is it? How 

much does it cost? What size do you want it to be? Questions are 

easy. The answers are very difficult. Let me give you my suggestions on some of the answers: 

12 

Number one, establish a firm benchline of headquarters organizations and activities, including OSD, JCS [Joint Chiefs of Staffs], 

combatant commands, defense agencies and field activities, service 

headquarters and commands, including the layers of management. 

Mr. Chairman, we have got to come to an agreement on the definitions and the baseline. 

Number two, then require DOD to report, in the Annual Defense 

Manpower Requirement Report, all categories of personnel in the 

overhead and infrastructure functions. 

Number three, also require DOD to report the Annual Defense 

Manpower Requirements Report, the fully burdened and lifecycle 

costs of all categories and personnel. Not the budgeted costs, but 

what the true cost to the taxpayer is over the lifecycle of these personnel for Active Duty, Guard and Reserve, defense civilians, defense contractors, and federally funded research and development. 

These are the people that work in the overhead. 

Number four, legislate end strengths for military, civilians, and 

contractors to be assigned to and employed by the various overhead 

and infrastructure functions once these headcount costs are firmly 

established. And I know there will be a lot of pushback when you 

say, ‘‘Let’s legislate end strengths for overhead.’’ But, in the late 

’70s, there were no end strengths for Active Duty, personnel, or 

Guard or Reserve. This committee put them into law, and they’ve 

worked pretty well, so I believe that’s something that you could do. 

Number five, reduce the number of senior officials to include the 

number of Under Secretaries, Principal Deputies, Deputy Assistants, Deputy Unders, and other layers, while improving the supervisor-to-led ratios. 

Number six, review the Goldwater-Nichols legislation in the context that the joint approach is now accepted and our most senior 

military leaders no longer need all the strictures of the legislation. 

Organizations, processes, and restrictions brought in by that legislation could be eliminated. 

Number seven, approve another round of BRAC [Base Realignment and Closure] using an improved process. Carrying excess facilities costs billions of dollars every year. 

Number eight, reauthorize the A–76 process. Congress should lift 

the moratorium on A–76 public/private competitions, but revise the 

procedures to make it fair. 

Number nine, eliminate duplications. There are numerous places 

in the Pentagon—— 

Chairman MCCAIN. Let me—— 

General PUNARO.—where we have significant—— 

Chairman MCCAIN. Let me—for the benefit of the record, describe A–76. 

General PUNARO. Mr. Chairman, I’m not a—the A–76 is the opportunity where a local base commander will look at a commercial 

function and decide whether it ought to be done by government employees or it ought to be contracted out. And they will have a competition. The way the Office of Management and Budget has written the rules, there’s always tilted towards the government. They 

get a 10- to 20-percent advantage on cost. So, most of big companies don’t even want to go through with it, because it’s kind of 

rigged. And Congress doesn’t like outsourcing the government jobs, 

13 

so they put a moratorium on them. So, we don’t even do the competitions anymore. 

Chairman MCCAIN. Thank you. 

General PUNARO. Eliminate duplications. There are numerous 

places in the Pentagon where we have significant duplications of 

effort. An obvious place is the overlaps that exist between OSD and 

the Joint Staff. Also in the military departments between the military and civilian staff. 

Number ten, reduce the 28 management layers. Between OSD, 

the Joint Staff, Service Secretaries, military staff, the combatant 

commanders and their staffs, and the various standing groups and 

committees, such as the Joint Requirements Oversight Council, 

Command Action Groups, there are far too many management layers populated by well-meaning official and officers who feel they 

have a major role in any issue, large or small. 

And the last two, number eleven, carefully examine best business 

practices. The DOD needs to learn from world-class organizations 

which have to compete in the global economy, keep costs low, and 

deliver products on time and on cost. I’ve listed a chart that outlines these: focus on core functions, use flat structures, use performance goals, and control headcounts. 

And finally, Mr. Chairman, revise the executive branch and Senate processes for recruiting, confirming, and appointing personnel 

that need to go in these very key top management positions. The 

Packard Commission said all of their key provisions that they put 

in were tied to getting individuals in government with significant 

experience in running large, complex organizations and technical 

programs. And it’s very, very difficult to both recruit those kind of 

individuals now or get them through the vetting process. 

So, thank you, Mr. Chairman and Senator Reed and the committee, for giving me this opportunity. And I’ll look forward to your 

questions. 

[The prepared statement of General Punaro follows:] 

PREPARED STATEMENT BY GENERAL ARNOLD L. PUNARO

THE URGENT NEED TO REFORM AND REDUCE DOD’S OVERHEAD AND INFRASTRUCTURE

Mr. Chairman, Senator Reed, members of the committee, I want to thank you for 

the opportunity to appear today to discuss the urgent and overdue need to get the 

full costs of the Defense Department’s massive overhead and infrastructure identified, analyzed, and ultimately under control, but, most importantly, reduced from 

both a cost and a people standpoint. 

Using DOD’s own definition, its overhead and infrastructure is over 40 percent 

of the total annual DOD budget—$240 billion. If these overhead costs were a gross 

domestic product, it would rank ahead of the country of Ireland. DOD’s infrastructure has more people working in it than the entire population of Senator Reed’s 

home state of Rhode Island—one million. 

At the same time, we need to reverse the trend of what I have called the ‘‘ever 

shrinking fighting force.’’ We need to increase the size, readiness, and response time 

of our war fighting forces while developing 21st century command and control of 

these forces. 

I appear exclusively as a private citizen and not as a member of the Defense Business Board, or Chairman of the Secretary of Defense Reserve Forces Policy Board, 

or Chairman of the National Defense Industrial Association. I believe, however, my 

personal experience is relevant to your inquiries. I have 24 years working with the 

Senate Armed Services Committee, 35 years in the United States Marine Corps (4 

active, 31 reserves), 14 years as a senior executive of a Fortune 250 company, and 

six years as a small business owner advising Fortune 50 companies. I have both 

14 

chaired and served on multiple commissions analyzing these issues and making recommendations in the areas of your focus today. 

Let me emphasize that my comments today do not reflect any criticism of current 

or past Administrations or Congresses. This is not a report card on individual leaders—these problems have built up over decades. And despite many serious efforts 

in the Pentagon and in Congress over the years, the bureaucratic and antiquated 

processes have proven more resilient than the recommended reforms. Though we 

have hard-working and dedicated military and civilian personnel ensuring our nation’s security every day, as a former Secretary of Defense told me recently, ‘‘Bad 

processes will trump good people every day.’’ And we have a proliferation of bad 

processes both in the Pentagon and in the Congress. 

A good example of this occurred after I left the SASC [Senate Armed Services 

Committee] in 1997. I was asked by then Secretary of Defense Bill Cohen to chair 

the Defense Reform Task Force. The other members included Rhett Dawson, Jim 

Locher, Dov Zakheim, Kim Wincup, David Chu, and Michael Bayer. Secretary 

Cohen wanted to bring world-class business practices to the management side of the 

Pentagon. After eight months of review, we reported to the Secretary that DOD 

needed to focus on core functions, reduce multiple layers of management, eliminate 

the duplication between OSD and the Joint Staff, control the headcounts in the 

headquarters, and streamline the defense agencies among other recommendations. 

Secretary Cohen was delighted with our results, saying that this was exactly what 

he was looking for. But I pointed out to him these were actually the conclusions of 

a Commission set up by President Eisenhower in 1956, which included notable 

members such as General Hap Arnold and Vannevar Bush, with Henry Kissinger 

serving as staff director. Our Task Force came to the same conclusion they had 

some 40 years earlier and presented Secretary Cohen with five major studies on 

how to reform OSD, JCS, the defense agencies, the military departments, and the 

health care agencies. Because of the length of the original study, I have attached 

a summary of a presentation we made to Secretary of Defense Donald Rumsfeld in 

2001. You will find recommendations to reduce the size and duplication in OSD and 

the JCS, reducing the number of senior personnel and multiple layers of management, streamlining the defense agencies and installing performance-based management, and divesting or eliminating non-core activities. 

Almost twenty years after the work we did for Secretary Cohen, and sixty years 

after the work Henry Kissinger did for President Eisenhower, the management 

chain-of-command in DOD still requires significant improvements, since the tooth 

is getting smaller while the tail is getting larger and more expensive. 

I know this Committee is willing to take up such a daunting challenge. This is 

the Committee that passed the sweeping changes that created the national security 

establishment after World War II, that addressed its problems in 1956, that shifted 

the military from the draft to the All-Volunteer Force in 1973 and then saved the 

AVF when it needed reforms in the late 1970s, that passed Goldwater-Nichols and 

Special Operations legislation, and continues to tackle the problems with the acquisition process. We know from history that large institutions like DOD cannot make 

significant organizational and process reforms from within. This Committee has an 

enviable history in solving major defense problems. The SASC will need to be the 

battering ram of reform once more. 

You do have a real advantage because the leaders in the Department today are 

willing to change. In Secretary of Defense Ash Carter, you have what I call a ‘‘bureaucracy buster.’’ He is committed to genuine reform, evident from his 

groundbreaking push for the Force of the Future to his unrelenting drive to bring 

innovation into the Department and implement Better Buying Power. I know he 

shares the concerns about significantly improving the management of the Department. While many in the Pentagon below his level may resist any change, this Committee has key allies working with the Secretary, including Deputy Secretary Bob 

Work and Deputy Chief Management Officer Peter Levine. 

REVISITING GOLDWATER NICHOLS

Thirty years ago many of us on the major defense committees were working hard 

on what became the Goldwater-Nichols Act. The act focused primarily on the operational chain of command and basically had the objective of improving defense processes in nine areas: 

1. Strengthen civilian authority 

2. Improve military advice to civilian authorities 

3. Place clear responsibility on combatant commanders 

4. Ensure commensurate authority for the combatant commanders 

5. Enhance the effectiveness of military operations 

15 

6. Improve joint officer management 

7. Increase attention to strategy and contingency planning 

8. Provide for more efficient use of resources 

9. Improve DOD management 

As my friend and former colleague Jim Locher testified last week, the attention 

of the committees back then focused on the first six items, and accordingly spent 

considerably less time and effort on the last three. I believe most of us share the 

view expressed by Jim that the first six elements have resulted in significant improvements, while the last three have changed little, if at all. It is in these remaining areas that I believe we must concentrate future efforts. If there is to be something called Goldwater-Nichols II, it needs to seriously address those areas that 

were never sufficiently addressed in Goldwater-Nichols I. I will also have some recommendations for needed changes in some of the first six. After thirty years, they 

should be revisited in light of today’s threats and the fact that GNA has improved 

joint-ness, making some of its provisions no longer necessary. 

CONGRESSIONAL REFORM IS NECESSARY

Any Pentagon reforms will be insufficient without serious reforms in the Congress 

as well. The Pentagon and Congress are drowning in budget detail and duplicative 

processes and procedures. Congress should consider re-establishing the Joint Committee on the Organization of the Congress, which has produced major recommendations three previous times. The last time was in 1993 when it was chaired by Congressman Lee Hamilton and Senator David Boren with ranking members Senator 

Pete Dominici and Congressman Dave Dreyer. Congress should move to a two-year 

budget: the first year Congress would make decisions on the request and the second 

year would be reserved for extensive Congressional oversight and fact-of-life 

changes. We did this in the early 1990s with the defense authorization bill. Congress should consider reducing the three processes, budget, authorization, and appropriations, into two by combining the authorization and appropriations committees. Congress should authorize and appropriate in the same bill. The chairs and 

rankings of the new combined authorization and appropriation committee could constitute the budget committees and set the overall framework for the revenues, 

spending, and whether we are in surplus or deficit, including estimates on long-term 

entitlement spending. If collapsing the committees is not possible, then stricter procedures should be adopted to preclude unauthorized appropriations in both defense 

and domestic accounts. And Congress needs to complete its work on time. Consideration should be given to move the fiscal year start to the calendar year start on January 1, but the budget for the next fiscal year would still be submitted on February 

1. The joint committee should have a presumption of reducing the size of Congress’ 

staffs and support agencies as well. In a world where events move in nanoseconds, 

DOD needs significantly more flexibility from Congress in how it spends it money 

to adjust to changing circumstances. To credibly reform the Pentagon, Congress 

needs to reform itself as well. 

WHITE HOUSE AND OMB REFORM IS ALSO NECESSARY

Pentagon and Congressional reforms must also be coupled with reforms in the 

White House. It must reduce the proliferation of executive offices and staffs, and 

establish controls on a National Security Council that is widely known to have trouble distinguishing between its ‘‘coordination’’ role and the ‘‘operational’’ functions of 

the line cabinet officers. We need to return the NSC to the Andrew Goodpaster and 

Brent Scowcroft model, both in approach and size. And the Office of Management 

and Budget needs to spend much more time on government-wide management and 

much less time on budget micro-management, which is more prevalent for the domestic agencies than DOD. 

CLOSE THE STRATEGIC DISCONNECT

I want to compliment this Committee for the leadership role it played in delivering the budget compromise recently enacted by Congress and signed by the President. It sets national security spending near the levels that both the Administration 

and the budget and defense committees indicated. The increased resources flowing 

to defense will have a near-term, positive impact on readiness, modernization, and 

quality of life. I hope that this will be a precursor to wider actions that set aside 

artificial spending caps and will end the threat of sequestration, an approach to 

budget control that has few merits and even fewer advocates. Nonetheless, sequester remains the law for Fiscal Year 2018 and beyond, but it should be given a quiet 

burial. 

16 

The idea behind the Budget Control Act of 2011 was to get control of the deficit 

through a broad approach. Even former Chairman of the Joint Chiefs of Staff Admiral Mike Mullen called the nation’s long-term deficits our number one national security threat. In the BCA, capping discretionary spending was the first step. The joint 

committee was supposed to come up with revenue increases and entitlement reductions to reduce the deficit as well, but it was not successful. 

When a new Administration and Congress are sworn in 2017, they should immediately work on the grand compromise that addresses all elements of spending, revenues, and entitlements. 

We need to ensure that DOD resources are sufficient and stable to deal with the 

current chaotic strategic environment. The past drawdowns of our fighting forces 

and defense resources, most recently after Vietnam, after the Cold War, and adjustments tied to the drawdowns in Iraq and Afghanistan have been driven by a perceived improvement in the strategic environment. 

The resources we devote to national security must be driven by the challenges the 

nation faces and those challenges are increasing: the growing chaos in the Middle 

East; the rise of religious extremism and non-state actors; an irredentist, aggressive, 

and in the words of some, ‘‘reckless’’ Russia; an emboldened China, a state that is 

quickly expanding both its conventional and unconventional military capabilities 

and flexing its muscles in often novel ways; and the continued provocation of an unpredictable and persistently irresponsible regime in North Korea. 

Yet, in the face of all these immediate challenges, under the BCA and the sequestration regime, we are reducing our war fighting forces. As you have suggested yourself, Mr. Chairman, it may be no coincidence that we are seeing increased global 

challenges as we reduce our capabilities and lower our regional profiles. Such a reaction by such a diverse set of international players may not be proven, but neither 

can it be dismissed. 

DEFINING THE PROBLEM

Senator Russell Long had a saying: ‘‘You should not solve a problem for people 

before they know they have one.’’ The major problem in defense today is the internal 

composition of the defense budget—how the internal PAC–Man of growing costs in 

personnel, acquisition and overhead are gobbling up our war fighting forces. As the 

chart below shows in a telling way, even as we have continued to spend more on 

defense—matching historically high levels—each dollar supports a significantly 

smaller active duty military end strength. The $600 billion we spent on defense in 

1953—a draft era force—supported 3.5 million troops. In the All-Volunteer Force 

era—at the peak of the Reagan buildup, $600 billion supported 2.2 million active 

troops. Today, $600 billion supports 1.2 million—the same amount of money for one 

million less active forces. 


15-86_Punaro_1.eps
17 

Mr. Chairman, the chart you included in your kick-off to these hearings demonstrated that the rising all-in costs of personnel over the last thirty years have 

gone up 270 percent. In just the last ten years, they have risen almost 100 percent 

for a slightly smaller force. 

The Military Compensation and Retirement Modernization Commission, in its oftoverlooked interim report on what programs actually cost, included a chart that 

showed that the total cost for pay, benefits, health care, retirement, was over $400 

billion a year and that there is a $1 trillion unfunded liability over the next ten 

years in the military retirement fund that is not in any budget. The commission 

challenged the notion put forth by some that military compensation represents 30 

percent of the budget, and is therefore not a concern. The commission said: 

The fact that military compensation costs consistently represents roughly 

one-third of the DOD budget does not provide evidence of fiscal sustainability. The commission considers the growth rate in Gross Domestic Product (GDP) to be the maximum rate at which compensation funding, holding 

force size constant, can grow while representing the same share of national 

income. 

When they looked at this comparison from 1998 to 2014, growth in military pay, 

quality of life, retired pay, VA and DOD health care far exceeded both the GDP and 

the Employment Cost Index. This is why the immediate three former Secretaries 

of Defense—Gates, Panetta, and Hagel—have said publicly that this cost growth is 

unsustainable. Secretary Carter has expressed similar concerns. 

The main objective of the Defense Department, and its management processes, is 

to produce as much combat capability and power as possible with the resources 

available. Unfortunately, we spend too much time focusing on how much we spend, 

rather than on how well that money is spent and what the results are. In short, 

as an old phrase described it best: we need ‘‘more bang for the buck’’—the nation 

needs, especially in the current strategic and fiscal environment, more ‘‘trigger-pullers’’ in operational units and fewer ‘‘paper-pushers’’ in back-office management. I believe we all share that aspiration, but the trends are not moving us in that direction 

as seen in the chart below: 

In constant dollars, we are spending more today than we spent at the peak of the 

Reagan buildup—up by 30 percent, but the war fighting forces are 40 to 50 percent 

smaller. We see this trend for three major reasons: 1) the all-in costs for the allvolunteer force and its support structure, as well as the costs of the retired force; 

2) the $400 billion we spend annually on goods and services, supplies, and equipment where the outcome can best be described as ‘‘spend more, take longer and get 

less’’; and, 3) DOD’s massive overhead and infrastructure, with defense-wide spending going from 5 percent of the budget to 20 percent of the budget and the combined 

OSD, JCS, Defense Agencies, combatant commands, and other HQ with over 

250,000 people costing $120 billion a year. We are not getting the defense capability 


15-86_Punaro_2.eps
18 

we should for the dollars we spend and, if uncorrected, we will not have the military 

we need in the years ahead. 

Recent Army plans, for example, indicate the Army will reduce its number of active duty soldiers between 2010 and 2017 by 20 percent (567,000 to 450,000), and 

it will reduce its active brigade combat teams by 33 percent (45 to 30). In other 

words, the number of combat brigades is being reduced proportionately more than 

the reduction in the number of soldiers would suggest—meaning trigger-pullers are 

leaving and paper pushers are staying. There are examples like this throughout all 

the services. 

This one data point is merely suggestive of a broader issue: the enduring size of 

the defense infrastructure that has so far been resistant to reductions. Efforts to 

tame the tooth-to-tail ratio have never resulted in the outcomes we had envisioned, 

and over the years the ratio has, if anything, grown worse. 

That raises a major issue. Overall, when it comes to defense infrastructure, we 

simply don’t know how big it actually is. Likewise, we don’t know what it actually 

costs. In some areas we have the data, but disagree over the definitions; in other 

areas we agree on definitions, but don’t have the data. Getting to the bottom of this 

problem merits intense study and close attention. We must better understand why 

it appears we can’t afford Army brigade combat teams, Air Force Tactical Fighter 

Squadrons, and Navy Battle Force ships, but we have larger management staffs 

within the Pentagon than ever before. 

Let me elaborate briefly using only one example, though there are many to choose 

from. When Congress passed the National Security Reorganization Act of 1947, it 

created the structure that basically exists today. Among the organizational structures created was the Joint Staff, and legislation capped the staff at 100 officers. 

The 1949 Amendment, which created the office of the Chairman of the Joint Chiefs 

of Staff, more than doubled the Joint Staff manpower to 210. The Department of 

Defense Reorganization Act of 1958 doubled the Joint Staff again to 400. So what 

do we have in joint staff numbers today? 

As the chart below shows, the Joint Staff today, including the separately reported 

Office of the Chairman, numbers nearly 4,000—military, civilians, and contractors. 

Since 1958 the size of the Joint Staff has increased by a factor of 10. When Secretary Gates disestablished the Joint Forces Command in 2010, the military assigned there—over 2,000—were reassigned to the Joint Staff. This is one of the reasons there is no accurate headcount: when one agency goes down, another one is 

created to absorb the shock. 


15-86_Punaro_3.eps
19 

When we look at the staffing of the combatant commands, the total number of 

those assigned to Joint billets is over 40,000—yet another increase by a factor of 

10. The combatant commands have expanded from lean, war fighting headquarters 

to sprawling mini-Pentagons with thousands of staff members. They no longer fight 

wars themselves, but must create new joint task forces to accomplish that mission. 

The regional combatant commanders have evolved into political-military ambassadors who focus heavily on peacetime engagement. Given the inability of other 

parts of our government to fulfill their proper role, this is a very important mission. 

Yet Goldwater-Nichols specifically resisted the notion of adding requirements to the 

combatant commanders, such as budgeting and acquisition, so they would not lose 

focus on their primary duty—war fighting. The proper role and size of the combatant commanders, their service component commanders, and the standing ad-hoc 

joint task forces should be the subject of your careful review 

DEFENSE AGENCIES ARE BIG BUSINESS

The defense agencies have also grown in number, scope, and costs. They are not 

just defense agencies; these are very large business enterprises. 

If one looks at the staffing of the various defense agencies that have been established over time, the trend is similar. Today the various defense headquarters and 

agencies have a headcount of over 400,000 active duty military, defense civilians, 

and contractors. To put this in perspective, the manpower of these activities is well 

over double the active duty size of the United States Marine Corps, and, should current Army plans continue, is approaching the size of the active duty Army. 

Many people will incorrectly guess that the largest government contractor is Lockheed or Boeing or one of the other large primes. It is, in fact, one of DOD’s own 

agencies: the Defense Logistics Agency. DLA does over $44 billion a year of business 

with DOD compared to Lockheed’s $28 billion. In the top ten largest businesses, five 

are the department’s own agencies, not including several of the intelligence community agencies. Most of the defense agencies would rate in the Fortune 250 and several are in the Fortune 50. Yet they are not managed as businesses—even though 

one is, in fact, a grocery business. Another is a worldwide communications provider 

and another is one of the world’s largest and most expensive health care providers. 


15-86_Punaro_4.eps
20 

* Contractor data is prime contracts with DOD from federal contract database. 

The number one reason these defense agencies should be managed more as a 

business is that their total expenditures are in excess of 20 percent of the entire 

defense budget. Worse yet, for the most part, they are supervised by OSD civilian 

political appointees whose day-to-day jobs do not provide them with ample time for 

management and leadership. These entities lack strong, disciplined business leadership, performance management systems and several perform functions that are noncore to the essential missions of the Department. 

WHERE IS PRIVATE WALDO: ACTIVE MILITARY IN COMMERCIAL ACTIVITIES

We also need to focus on DOD’s most important employees: its active duty military personnel. They are the most expensive personnel, whether from a recruiting, 

training, and retaining standpoint or from a life-cycle standpoint. Our military 

should be at the pointed end of the spear as much as possible—they are the only 

ones who can perform that role. And yet, we continually hear about the strains on 

the force, not having sufficient dwell time, and needing to cross level personnel to 

make up units. 

Of those 1.3 million serving on active duty, some 220,000 are currently stationed 

overseas or forward deployed in the Middle East or Afghanistan. So what are the 

other one million doing? Where is Private Waldo? Some are just back from deployments; some are getting ready to deploy. But the 2014 Department of Defense’s Federal Activities Inventory Reform (FAIR) Act Inventory report reviewing the number 

of active duty military serving in commercial activities showed over 330,000 active 

duty military personnel—our most expensive personnel asset by far—in jobs that 

could be done by civil servants or contractors. There are several hundred unique descriptions for commercial activity positions in the FAIR Inventory reports. Some examples include budget support, commissary operations, ambulatory care services, 

contract administration and operations finance and accounting services, and stateside supply services. We should not have our most capable and expensive military 

in the rear with the gear instead of at the tip of the spear. 


15-86_Punaro_5.eps
21 

This is another area the Congress and the Department must correct. Here, we are 

using the most expensive personnel to perform activities that could otherwise be 

performed by less expensive personnel or not done at all. Furthermore, freeing-up 

the uniformed personnel makes them more available for the inherently governmental and military activities. The charts below show the number of military personnel in each component serving in commercial activity positions. By conservative 

estimates, if by removing even 10 percent of the 330,563 active duty from this category, the Department could free up $5.3 billion for combat purposes. This estimate 

is based on the programming figure for active personnel. If you use the fully-burdened annual costs, you would save over $10 billion. DOD works hard to improve 

in this area, but unfortunately there are more active military working in commercial 

activities in this most recent report than the previous one. 


15-86_Punaro_6.eps
22 

DOD OVERHEAD

Let me draw particular attention to the more than 5,000 people employed in the 

Office of the Secretary of Defense, as seen in the chart below. We would all agree 

that serving as the Secretary of Defense in the current world is a most difficult and 

demanding undertaking, but we must ask ourselves if he truly needs a staff of over 

5,000 people. In the early 1960s, when DOD had 2.8 million active duty personnel 

and 1.6 million reservists, there was one Deputy, no Unders, and only three Assistant Secretaries. Today, with about half as many total military personnel, there is 

still one Deputy, but five Unders, and seventeen Assistants with a proliferation of 

Deputy Unders, Deputy Assistants, Principal Deputies, and so on. And GAO says 

they do not have confidence in the size of OSD as carried on DOD’s books. There 

are some estimates that it could be as high as 8,000. For example, the chart below 

differentiates between OSD, OIG, PFPA, and WHS—all which could arguably be defined as part of OSD. Altogether, this would put the count over 10,000. 


15-86_Punaro_7.eps
23 

In his 1984 autobiography, Lee Iacocca, the legendary CEO of Chrysler Corporation, who successfully turned that company around from the brink of extinction in 

the late 1970s, noted that he had a very small headquarters staff at Chrysler— 

much smaller than he had as a senior executive at Ford. But Iacocca argued that 

with a smaller staff, the headquarters was forced to focus on the big issues, did not 

have time to micro-manage, and could not present him with a decision to be made 

with any greater than 80 percent certainty. Iacocca felt that it was his job to provide, with his experience and intuition, the remaining 20 percent. At Ford, he stated 

that senior management used its much larger staff to provide 95 percent certainty. 

Iacocca argued that achieving such certainty was made by sacrificing speed and increasing the cost of overhead, and with a company that was initially in serious financial distress, he could not afford the cost burden of additional overhead. 

That experience is worth some serious consideration. One could strongly argue 

that the current management structure in the Pentagon is too large, too complex, 

too layered, and heavily invested in overseeing processes that are, in general, too 

slow. In terms of just the number of personnel in OSD, the Joint Staff, the Combatant Commands and the Defense Agencies there are nearly a quarter million— 

240,000 people—and this does not include the very large contractor counts. The 

costs for these people are $113 billion. These organizations have shown consistent 

growth from 2000. Secretary Gates, in his ‘‘overhead reduction’’ efforts, subsequently 

supported by Secretary Panetta, identified these areas for reductions. However, the 

ratio of the overhead accounts to the combat side of the military is still adverse. 

The tooth-to-tail ratio—which was poor when both Secretaries began pushing to improve this area—has unfortunately gotten worse. 


15-86_Punaro_8.eps
24 

We have also known for years that the military structure of DOD institutionalizes 

layers of management. When you have so many senior personnel, more layers follow. For example, when you have the top person in a layer, the ‘‘head dawg,’’ that 

person will have a ‘‘deputy dawg’’ and the ‘‘deputy dawg’’ will have a ‘‘deputy, deputy dawg’’ and so on. DOD needs to cut out some of these management layers—by 

some accounts, there are 28 layers from the action-officer in the military department to the Secretary of Defense. This drives huge staffs and support personnel 

which continue to increase. 

DOD LOGISTICS

Another area ripe for review is the overall activity in logistics. DOD operates one 

of the largest logistics enterprises in the world: its annual cost is over $170 billion, 

including supply, maintenance and transportation. DOD has over 100,000 suppliers, 

$96 billion in inventory, and is supported by 18 maintenance depots, 25 distribution 


15-86_Punaro_9.eps 15-86_Punaro_10.eps
25 

depots, and over 49,000 customer sites. Our logistics enterprise does provide a real 

war fighting advantage, a fact that must be kept in mind. Despite much effort to 

bring DOD’s logistics enterprise up to the level of today’s world-class business practices, it has a long way to go. I am currently chairing a task force of the Defense 

Business Board reviewing this area to make recommendations to the Secretary of 

Defense in early 2016. 

REAL PROPERTY MAINTENANCE

DOD also maintains one of the largest property books in the world—with over 

562,000 facilities, on more than 4,800 sites, in all 50 states, 7 U.S. territories, and 

40 foreign countries. The annual cost to operate and maintain these facilities is estimated at over $30 billion a year, but GAO has stated that here, as well there, is 

significant room for improvement. DOD is currently conducting surveys to establish 

how much real estate is needed and how much is excess. 

BRINGING WORLD CLASS BUSINESS PRACTICES TO THE DEPARTMENT OF DEFENSE

It is often pointed out when one suggests that DOD needs to significantly improve 

its management chain of command that DOD is not a business—this is correct. But 

there are world-class business practices that are definitely applicable to government, as outlined in the chart below: 

This chart lists certain world-class business practices that are applicable to DOD, 

how OSD stacks up against those practices and how they could be applied to OSD. 

This list is very consistent with multiple studies that have been done in this area 

over the decades. Several of the points above I have touched on earlier in my testimony, such as the need to focus on core functions, reduce layers, tightly control 

overhead personnel, and use performance goals to incentivize change, are underscored here. 

ESSENTIAL FIRST STEPS

So what should be done? We must first take three preliminary steps to address 

this problem of large, and seemingly growing, defense infrastructure and overhead 

before any further actions can be taken. 

Step 1: You must establish a definitional agreement on what defense infrastructure actually is. Many will argue that some of those problem areas mentioned previously are actually tooth, not tail. Others, like Business Executives for National Security, will argue the overhead is much larger than DOD admits. We need consensus on what is counted as infrastructure and overhead. Having addressed the 

definitional challenge, we then need to determine where this infrastructure and 

overhead resides. In other words, where do the people work? And it needs to include 


15-86_Punaro_11.eps
26 

active military, defense civilians, guard and reserve, defense contractors, and 

FFRDC personnel. 

A particular challenge to this exists in determining total contractor personnel in 

overhead and infrastructure. Currently, there is not a data source that fully and accurately captures the exact numbers of contractors or where they work. While some 

data exist, contractors are typically paid from O&M accounts. Therefore, their exact 

numbers are not as easily derived as are military personnel—with their own appropriations, and civilian FTEs—who are paid through the Defense Finance and Accounting System. 

Step 2: After determining who and what comprises infrastructure and overhead, 

and determining with much higher confidence where they work, we then need to 

know what they cost. Not just their salary, but the fully-burdened and life-cycle 

costs of active military, government civilians, guard and reserve, contractor personnel, and FFRDC personnel supporting these activities. 

It is imperative that we reach an agreement on what constitutes the fully-burdened and life-cycle costs of the All-Volunteer Force, taking into account all cost elements, including education, health care, and future retirement costs. Of equal significance is that the defense retiree population is growing and is now at 2.4 million 

people. They are living longer, and their health care costs are growing, and under 

the current system their retirement income is inflation indexed. This means that 

it will be difficult to afford the force of tomorrow as we continue to pay large 

amounts for the force of yesterday. DOD does not know and does not track the fullyburdened and life-cycle costs of active military personnel, defense civilians, guard 

and reserve personnel, defense contractors, and FFRDCs. Some say because it is too 

difficult—it is difficult—but some suspect that DOD does not want do the calculations to reveal the actual costs because of the sticker shock. 

The Reserve Forces Policy Board did a year-long study as a FACA body, deliberating in open sessions, coordinating in the Department and with outside experts 

like GAO and CBO and made a lengthy report to the Secretary of Defense with six 

major recommendations. The following two charts outline what the RFPB found: 

27 

Step 3: Once we have agreed upon definitions, determined work locations, and calculated fully-burdened costs, we need to determine the right size for the various activities. This is difficult, and we might not get it right the first time, but it is not 

enough to just study the issue. With headquarters size, we need to make the same 

tough decision about how much is enough just like with force structure. Certainly 

we should all agree that we cannot allow the status quo to continue. There are too 

many people—active duty, defense civilians, guard and reserve, FFRDCs and contractors—working in OSD, JCS, the combatant commands, and the fourth estate. 

CONCRETE ACTIONS FOR THE COMMITTEE TO CONSIDER

After taking the steps above to establish definitions, identify infrastructure, and 

agree upon metrics, costs, and size, several additional steps should follow: 


15-86_Punaro_12.eps
28 

1. Establish a firm baseline of headquarters organizations and activities including OSD, JCS, Combatant Commands, defense agencies and field activities, 

service headquarters, and commands including layers of management and 

measure reductions through annual reporting of all categories of personnel, 

end strength, and average strength. The FY15 Defense Manpower Requirements Report (DMRR) provides a breakout of personnel strength. It could provide a starting point for validation of the baseline. The FY15 estimates could 

be used as a ceiling for Fiscal Year 2016 and beyond, but at a more detailed 

level. The key is to establish a firm baseline and not allow DOD to constantly 

change it. This baseline needs to be the ‘‘allin’’ count which does not exist 

today. 

2. Require DOD to report in the annual Defense Manpower Requirement Report 

all categories of personnel in the overhead and infrastructure functions following the agreements reached on definitions, size, and cost. 

3. Require DOD to report in the annual Defense Manpower Requirements Report the fully-burdened and life-cycle costs of all categories of these personnel 

in the functions in step 2 above. 

4. Legislate end-strengths for military, civilians, and contractors to be assigned 

to, and employed by, the various overhead and infrastructure functions, once 

these headcounts and costs are firmly established. This is, of course, never a 

popular undertaking and one that DOD will resist. It should be done after 

careful consideration of the potential impacts on outputs required elsewhere, 

but it is an effective way to get numbers down and force the exploration of 

efficiencies. In budgeting, we have found that caps force hard discussions 

about tradeoffs—if decision makers want more money to go to one area they 

must make cuts to others. This discussion about priorities needs to happen 

with overhead personnel as well. Once Congress has determined there is sufficient discipline in this area, any caps could be eliminated. 

5. Reduce management layers in all HQ and overhead functions; reduce the 

number of Undersecretaries, Principal Deputies, Deputy Assistants, Deputy 

Unders, and other layers, while improving the supervisor to led ratios. Eliminate the new Undersecretary of Management and Information and the two 

Deputy Undersecretaries before they go into effect in January 2017. In their 

place, create one Assistant Secretary for Command, Control, Communication, 

Computers and Cyber. In a pilot program, take several of the defense agencies 

and replace active duty military leaders with proven civilian private sector 

leaders with contract performance goals and incentives. 

6. Review the Goldwater-Nichols legislation in the context that the joint approach is now accepted and our most senior military leaders no longer need 

all the strictures of the legislation. I also recommend the terms of the Chairman and Vice Chairman be converted to one four-year term (vice two two-year 

terms) to ensure their independence and ability to always offer their professional military judgments. I would stagger the terms so they do not turn over 

at the same time and that will require either an extension or a short-tour for 

one at some point. As part of the additional flexibilities and non-traditional 

career options that are reported to be part of the Force of the Future initiative, apply more flexibility to joint duty management and joint education by 

removing some of the highly restrictive gates. 

7. Approve another round of BRAC using an improved process. As difficult as 

this is, and as unpopular, DOD needs to get rid of its excess facilities. Despite 

earlier BRAC rounds, DOD believes the excess to be in the range of 20 percent. Carrying those unneeded facilities costs billions of dollars every year. 

8. Reauthorize and revise the A–76 process. Congress should lift the moratorium 

on A–76 Public-Private Competitions. But even before the moratorium, we 

had many governmental commercial operations and depots that were protected by the A–76 process. In brief, contractors bidding for work had to report and account for the fully-burdened costs of their work force, but in general the government did not—giving it an advantage in such competitions. At 

the very least, if the moratorium is lifted, the playing field for such competitions needs to be leveled. As an inherently OMB function, over the years they 

have written rules and regulations that decidedly favor the government. 

Therefore, fewer and fewer A–76 studies were done and potential contractors 

did not want to waste money and time bidding on something where the ‘‘fix 

was in.’’ Congress did not want to take any chances on outsourcing, so the 

ban went into effect. 

9. Eliminate duplications. There are numerous places in the Pentagon where we 

have significant duplications of effort. An obvious place is in the overlaps that 

exist between OSD and the Joint Staff. For example, there is overlap between 

29 

OSD Policy and J–5 on the Joint Staff, as well as other areas including J– 

1, J–6, and J–8. In addition, there is the common view that the formal requirements process takes too long. Accordingly, eliminating the JROC should 

be considered as it adds a significant burden to the process and produces little 

of value with its highly bureaucratized and complex JCIDS process. All the 

personnel and paper work and bureaucracy associated with these activities 

should be deleted. Creating the JROC was an aspiration of the GoldwaterNichols Act, but in my view it would be one of those areas where, as John 

Hamre mentioned, we just did not quite get it right despite serious efforts by 

recent Vice-Chairmen to improve it. 

10. Reduce management layers. Between OSD, the Joint Staff, Service Secretariats, Military staffs, the Combatant Commanders and their staffs, and the 

various standing groups and committees, such as the JROC and the Command Action Groups, there are far too many management layers populated 

by well-meaning officials and officers who feel they have a major role in any 

issue—large or small. In general, with such rich staffing there is a natural 

tendency towards micro-management where macro-management is required. 

As stated earlier, the trend in the private sector, and one quite visible in the 

major players in the defense industry, is towards small corporate staffs that 

provide the oversight and guidance that can only come from the top, but a 

transfer of basic management authority to line units. On the battlefield the 

services have learned that modern conflict requires that authority, and responsibility, be pushed down to lower levels. They call it ‘‘powering down.’’ It 

needs to be practiced more widely in the Pentagon. At a minimum, we ought 

to put a statutory limit on the number of Deputy, Under, and Assistant Secretaries in OSD and in the services, and collapsing the service staff would remove some duplication. Any increases must be offset by decreases. 

11. Carefully examine business best practices. In so many ways, the Department 

of Defense is a unique organization. It is, by far, the largest department of 

government. Defense infrastructure costs are essentially larger than the GDP 

of all but forty countries. But, there are private firms that also have large 

scale operations, such as Wal-Mart, diverse international operations, such as 

Exxon, and extensive supply chains supporting highly distributed product 

lines, such as Trader Joe’s. The DOD needs to learn from these organizations, 

which have to compete in the global economy, keep costs low, and deliver 

products ‘‘on time and on cost.’’ Several years ago a senior Army general 

asked his head logistician what was the order-to-ship time for a repair part. 

The logistics officer proudly announced it had been reduced to 15 days, to 

which his superior replied, ‘‘General Motors’ time is 15 hours. So why can’t 

we do that?’’ Although the incentive structures between the public and private 

sectors are much different, performance objectives in similar functions should 

produce positive results. 

12. Revise the executive branch and Senate processes for recruiting, confirming, 

and appointing personnel for key management positions. One of the major tenets of the Packard Commission, in addition to streamlining the decision 

processes, reducing layers, and eliminating paperwork and regulations, was 

recruiting and confirming personnel who had extensive experience running 

large, complex organizations and technical programs for the key management 

positions in the Department. We need to remove all the disincentives for personnel with those qualifications to serve. 

CONCLUSION

I want to close by reiterating that none of my comments are meant as criticism 

of the dedicated, patriotic people who come to work every day across the Department of Defense with the intention of doing their part to keep the country safe. One 

senior officer recounted that on September 12, 2001, hundreds of military and civilian employees reported to work at the Pentagon even though the building was still 

on fire. They went to their offices to salvage what they could, gather up classified 

materials that had been scattered about by the explosion, and essentially, as we say 

in the military: ‘‘Charlie Mike—Continue Mission.’’ We are all proud that such people serve the nation. And this dedication is mirrored in the Congressional staffs as 

well. 

I applaud the Committee for taking a hard look at this problem. As I mentioned, 

the growth in defense infrastructure has been quite similar and continuous through 

both Republican and Democratic administrations. The tendency has always been to 

add rather than subtract. And as we have added more staff, more layers, and more 

infrastructure, we have slowed the decision-making process, expanded the number 

30 

of players, and made the overall system more risk-averse at a time where we need 

to allow the assumption of more risk. We need to reverse the process. The test for 

making infrastructure reductions should not be ‘‘beyond a reasonable doubt’’ as it 

is today, but a ‘‘preponderance of the evidence.’’ We need to take some risks to make 

reductions, recognizing that some may not stand the test of time. But if we wait 

for certainty, we will have waited too long and imperiled our war fighting forces as 

they continue to decrease. 

We must distinguish between working hard and working well. And with the fiscal 

pressures we face, with the strategic challenges erupting all around us, with the 

operational demands accumulating on the force, we can no longer afford the luxury 

of a growing imbalance between what we must field operationally and what we field 

managerially. We need to generate more units—more combat power—from our military end-strength and the fiscal resources associated with it, not less. And today we 

are fielding less. 

Thank you very much for offering me the opportunity to share my views with you. 

Chairman MCCAIN. Thank you. 

Mr. Spencer. 

STATEMENT OF RICHARD V. SPENCER, FORMER MEMBER OF 

THE DEFENSE BUSINESS BOARD 

Mr. SPENCER. Chairman McCain, Ranking Member Reed, distinguished members of the committee, I’m really invigorated to be 

here to testify before the Senate Armed Service Committee addressing the topic of managing the DOD. 

My testimony today is based on my time in the private service— 

sector, but, more recently, 6 years on the Defense Business Board 

[DBB], most recently as vice chairman. 

You have asked what primary attributes make an outstanding 

organization sustainable. In a recent task completed by the DBB 

2 years ago, we interviewed about 24 Fortune 250 CEOs who had 

led critical turnarounds for their respective companies. In the clear 

supermajority of cases, they stated that their success was based 

upon laser-like focus on the mission of the organization. 

When it comes to the subject of enhancing the operation of the 

Department of Defense, my point of view is concentrated on one 

thing: the mission. The mission of the Department of Defense is to 

provide the military forces needed to defer a war and to protect the 

security of our country. The Department is charged to protect the 

citizens of the United States of America. The Department is not an 

entity to support full employment nor a petri dish for managerial 

or social experimentation. And today it certainly cannot afford to 

be all things to all people as it strives to support its missions. 

When corrective or construction actions are applied within the 

Department, we must keep the mission clearly in focus. Recent 

studies have shown there are numerous operational areas within 

the DOD where equal, if not better, external solutions can be provided more effectively and more efficiently, but they will involve 

heavy lifting and, in many cases, unsavory political decisions. From 

my point of view, fortitude and leadership are the two most important ingredients needed to enhance the operation of the DOD. 

As an early outsider attempting to understand the building and 

its attendant issues of an ecosystem so immense in size, diversity, 

and span, it was akin to drinking from a fire hydrant. One walked 

away with an appreciation for the organization’s communications 

systems, neurosystems, digestive and equally important immune 

systems. What impressed me the most, both historically and in the 

present, is the core competency of the Department’s ability to solve 

31 

problems associated with its mission. Since inception, the Department has been tasked with the excruciating and amazing goals— 

daunting goals. In the early years, they were trailblazers, providing 

unique successful solutions for their organization that was similar 

to none. But, therein lies the rub today. Progress in the private sector has increased at a logarithmic rate. The solutions that were applied inside the building, in many cases, were immortalized, with 

no call for current benchmarking or impact assessment. And, as 

the private sector became equally as good, if not better, industryspecific problem-solvers, there was little ability in the building, nor 

cultural inquisitiveness, to compare core competencies. 

Cases in point. The commissary system was a solution to provide 

basic consumables to bases and posts that were off the beaten path. 

DOD [Department of Defense] education was a solution for dependent education during the days of segregation. DLA [Defense Logistics Agency] was borne from a diverse cabal of buyers and distributors of resources. Maintenance depots, created to repair unique systems. Research labs, personnel management, the cases are numerous. That was then. This is now. 

Rather than attempt to boil the ocean, let’s look at a few example 

of actions that can be taken internally and externally: 

You heard, earlier this month, that one should not expect candlestick-makers to develop electricity. In many cases, external forces 

are needed to motivate or—for organizations to change. There are 

few example of groups that have voluntarily downsized themself or 

self-selected to cease doing business. This committee and the Congress have the ability to provide some elegantly clean solution to 

certain issues at hand while freeing resources to be used more— 

on more meaningful initiatives within the DOD. 

Here are some topics to consider: 

Depot maintenance. The uniqueness of depot-maintained equipment has devolved to the sum of the standardized systems: the engine in a tank, the transmission in a tug. Let those organizations 

having expertise in the systems provide the needed maintenance. 

The mission of the DOD is security, not repair. 

Commissaries. The attachment that was circulated to you all in 

the Washington Post had a response from one retailer who was 

asked if they could provide a sustainable solution for the commissary networks in CONUS [Contiguous United States]. Here is 

an example of an organization with a well-developed core competency being able to offer an equal, if not better, service more efficiently than the existing system. The mission of the DOD is defense, not retailing. 

Defense Logistics Agency. Arguably one of the better- run organizations in the DOD, but there’s room for improvement. The DBB 

group addressing DOD logistics interviewed a multitude of organizations that were highly dependent upon their supply chain: retailers, manufacturers, assemblers. And their responses were constant. 

Supply-chain management is a critical contributor to the value of 

the enterprise. As an example, upon restructuring their supply 

chain and instituting strategic sourcing, IBM believes their 

logistical efficiency adds $16 billion in the value to the—of their enterprise while providing a competitive advantage over others in 

their industry. In every case, we saw there was one person ultiVerDate Nov 24 2008 12:31 Oct 19, 2016 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6601 C:\USERS\WR47328\DESKTOP\22191.TXT WILDA
32 

mately responsible for the organization’s logistics. The DOD should 

strive for the same efficiencies and have a chief logistic officer combining both the acquisition and distribution resources under one 

command. The mission of the DOD is to deter war, not to maintain 

the status quo. 

DOD Education Activity [DODEA] in CONUS. It can be said that 

DODEA CONUS is the largest school district in the country. It has 

served its purpose well. But, is it needed now? The argument has 

been put forward that there would be mutual benefit from having 

military families integrated with their civilian counterparts in communities. The mission of the DOD is security, not education. 

BRAC. Anytime the DOD needs to dispose of assets, it should be 

considered and acted on appropriately. It is the right thing to do. 

The DOD mission is to protect citizens of the United States, not 

provide local employment. 

Let me quickly address what I believe is one of the largest internal issues within the Department. Successful organizations state 

that the quality of their employees is the driver for their performance. Human capital is a critical component of success. The DOD, 

still using the 1950 departmental title of ‘‘Personnel,’’ needs to address this issue in earnest. I don’t want to steal any thunder from 

my colleague from CVS, who is an expert in the area, but we do 

owe it to the Department to put a light on the topic. 

On the civilian side, we need to adopt meaningful management 

performance measurement tools and educate managers on how to 

use those tools in order to craft a high- performance government 

service and senior executive service cadre. To quote a hard-charging GS–14 we interviewed, How can the building compete for the 

best and brightest when the strategy for long-term success and promotion is, ‘‘Just don’t die′′? 

On the uniformed side, P&R [Personnel and Readiness] needs to 

provide the tools and technologies, such as performance-based benefits optimization, to the services so they have the ability to understand and react to the needs of the servicemember on a realtime 

basis, just as it’s done in the private sector today. 

These topics are simply the tip of the iceberg. We must move the 

conversation to action in order for the Department to effectively 

and efficiently support their mission. 

I stand by to assist in any way. 

[The prepared statement of Mr. Spencer follows:] 

PREPARED STATEMENT BY RICHARD SPENCER

Chairman McCain, Ranking Member Reed, distinguished members of this committee, I am invigorated to testify before the Senate Armed Services Committee addressing the topic ‘‘Managing the DOD’’. 

Upon graduating from a liberal arts college with a degree in economics in 1976 

I entered the Marine Corps and spent six and a half years on active duty. I then 

transitioned out and entered the private sector building a career that was focused 

on .finance and operations. In February of 2008, after regular prodding from fellow 

Marine and friend Sen. Jim Webb, I found myself in the SecDef’s Conference room 

as a member of the Defense Business Board. The following six years proved to be 

one of the most exciting and educational experiences to which I have been exposed. 

I was involved with task group assignments ranging from logistics to technology to 

personnel. I was ‘‘lucky’’ enough to chair reviews of the uniformed members benefits 

and retirement systems. The outcomes range the full gambit from success to silence, 

but in every case the conversation was started, and as this committee hearing 

proves, the conversation continues. 

33 

You have asked what primary attribute makes outstanding organizations sustainable. In a recent task completed by the DBB two years ago we interviewed about 

20 Fortune 250 CEO’s who had lead critical turn arounds for their respective companies. In the clear super majority of cases they stated that their success was based 

upon a laser like focus on the mission of the organization. When it comes to the 

subject of enhancing the operation of the Department of Defense my point of view 

is concentrated on one thing: the mission. The mission of the Department of Defense 

is to provide the military forces needed to deter war and to protect the security of 

our country. The Department is charged to protect the citizens of the United State 

of America. The Department is not an entity to support full employment, nor is it 

a petrie dish for managerial or social experiments, and today it certainly cannot afford to be all things to all people as it strives to support its mission. When corrective 

or constructive actions are applied within the Department we must keep the mission 

clearly in focus. Recent studies have show that there are numerous operational 

areas within the DOD where equal if not better external solutions can be provided 

more effectively and more efficiently, but they will involve heavy lifting and in many 

cases unsavory political decisions. From my point of view fortitude and leadership 

are the two most important ingredients needed to enhance the operation of the 

DOD. 

As an early outsider, attempting to understand ‘‘The Building’’ and the attendant 

issues of an ecosystem so immense in size, diversity and span was akin to drinking 

from a .re hydrant. One walked away with an appreciation for the organization’s 

communication, neuro, digestive and equally important immune systems. What impressed me the most, both historically and presently, is the core competency of the 

Department’s ability to solve problems associated with it’s mission. Since inception 

the Department has been tasked with the execution and support of daunting goals. 

In the early years they were trail blazers, providing unique, successful solutions for 

their organization that was similar to none. But therein lies the rub today. Progress 

in the private sector increased at a logarithmic rate. The solutions, in many cases, 

were immortalized with no call for current benchmarking or impact assessment, and 

as the private sector became equally as good if not better industry specific problem 

solvers there was little ability in the Building nor cultural inquisitiveness to compare core competencies. Cases in point: the Commissary system was a solution to 

provide basic consumables to bases and posts that were off the beaten path, DOD 

Education was a solution for dependent education during the days of segregation, 

DLA was born from a diverse cabal of buyers and distributors of resources, maintenance depots created to repair unique systems, research labs, personnel management the cases are numerous. That was then, this is now. 

Rather than attempt to boil the ocean lets look at a few examples of actions that 

can be taken internally and externally. You heard earlier this month that one 

should not expect candlestick makers to develop electricity. In many cases external 

forces are needed to motivate organizations to change. There are few examples of 

group’s that have voluntarily downsized themselves or self selected to cease doing 

business. This committee and the Congress have the ability to provide some elegantly clean solutions to certain issues at hand while freeing resources to be used 

in more meaningful initiatives within the DOD. Here are some topics to consider: 

Depot Maintenance—The uniqueness of depot maintained equipment has been devolved to the sum of the standardized systems (the engine in a tank, the transmission in a tug). Let those organizations having expertise in the systems provide 

the needed maintenance. The mission of the DOD is security not repair. 

Commissaries—The attachment is a response from one retailer who was asked if 

they could provide a sustainable solution for the Commissary network in CONUS. 

Here is an example of an organization with a well developed core competency being 

able to offer an equal if not better service more efficiently than the existing system. 

The mission of the DOD is defense not retailing. 

Defense Logistics Agency—Arguably one of the better run organization in the 

DOD community, but there is room for improvement. The DBB task group addressing DOD Logistics interviewed a multitude of organizations that were highly dependent upon their supply chain (retailers, manufacturers, assemblers) and their responses were constant; supply chain management is a critical contributor to the 

value of the enterprise. As example, upon restructuring their supply chain and instituting strategic sourcing IBM believes their logistical efficiency adds $16B in value 

to the enterprise while providing a competitive advantage over others in their industry. In every case we saw that there was one person ultimately responsible for the 

organization’s logistics. The DOD should strive for the same efficiencies and have 

a Chief Logistics Officer combining both the acquisition and distribution of resources 

under one command. The mission of the DOD is to deter war not retain the status 

quo. 

34 

DOD Education Activity (CONUS)—It can be said that DUODENA (CONUS) is 

the largest school district in the country. It has served its purpose well, but is it 

needed now? The argument has been put forward that there would be mutual benefit in the having military families integrated with their civilian counterparts. The 

mission of the DOD is security not education. 

BRAC—Any time the DOD is need to dispose of assets it should be considered 

and acted on appropriately. It is the right thing to do. The DOD mission is protect 

the citizens of the United States not provide local employment. 

Let me quickly address, what I believe is, one of the largest internal issue within 

the Department. Successful organizations state that the quality of their employees 

is the driver for their performance. Human capital is a critical component of success. 

DOD, still using the 1950 departmental title of Personnel, needs to address this 

issue in ernest. I do not want to steal any thunder from my colleague from CVS 

who is an expert in this area, but we owe it to the Department to put a light on 

topic. On the civilian side we need to adopt meaningful management performance 

measurement tools, and education managers on how to use the tool in order to craft 

a high performance GS and SES cadre. To quote a hard charging GS–14 we interviewed ‘‘How can the Building compete for the best and brightest if the strategy for 

long term success and promotion is ‘‘Just Don’t Die’’? On the uniformed side P&R 

needs to provide the tools and technology, such as performance based benefits optimization, to the services so they have ability to understand an react to the needs 

of the service member on a real time basis just as the private sector does today. 

These topics are simply the tip of the iceberg. We must move the conversations 

to action in order for the Department to efficiently and effectively support their mission. I stand by to assist in any way possible. 

Chairman MCCAIN. Thank you. 

Ms. Bisaccia. 

STATEMENT OF LISA G. BISACCIA, EXECUTIVE VICE PRESIDENT AND CHIEF HUMAN RESOURCES OFFICER, CVS 

HEALTH CORPORATION 

Ms. BISACCIA. Thank you. Chairman McCain, Ranking Member 

Reed, and distinguished members of the committee, thank you for 

the opportunity to testify today. 

Chairman MCCAIN. Would you correct my pronunciation, please? 

Ms. BISACCIA. ‘‘Bizotchia.’’ 

Chairman MCCAIN. ‘‘Bizotchia.’’ Thank you very much. 

Ms. BISACCIA. Thank you. 

It’s an honor to be able to speak to you about some of the organizational and operational best practices at CVS Health, and our 

hope is, it will may—it may provide some key learnings as you consider reform of the Department of Defense. 

As our company has grown from a regional drugstore to a fully 

integrated national pharmacy healthcare provider, we’ve learned 

valuable lessons about how to make a complex organization nimble 

and effective. 

To give you a glimpse into how our company developed into the 

diverse enterprise that it is today, let’s consider where we began. 

In 1963, we started out selling name-brand health and beauty merchandise at discount prices when brothers Sid and Stanley Goldstein opened our first store in Lowell, Massachusetts. In 1967, we 

began building trusted relationships with patients when we opened 

our first CVS pharmacy in Rhode Island, where we are still 

headquartered today. 

In addition to our 7,900 retain drugstores, today CVS Health 

brings together CVS/Caremark, our pharmacy benefit management 

business; MinuteClinic, our 1,000 walk-in retail clinics; Omnicare, 

our senior pharmacy care business; and our expanding specialty 

pharmacy services. In all, we employ more than 215,000 colleagues, 

35 

with major hubs in Scottsdale, Arizona; Irving, Texas; and Northbrook, Illinois; in addition to our home in Rhode Island. We work 

in almost every State represented here today. 

It’s worth noting that CVS Health is a proud employer of veterans following their service, as well as those still serving in the 

National Guard and Reserve. We recognize the value of military 

service and know that our veterans’ skills and experience are unparalleled. And, as Senator Reed noted, earlier this year we were 

honored to receive the Secretary of Defense Employer Support 

Freedom Award, the highest honor the Department gives to employers for outstanding support of employees who are National 

Guard and Reserve members. 

As we think about the drivers behind our success, we know the 

quality of our workforce, including our colleagues who are veterans, 

has been an important driver of that success. What have been some 

of our other key lessons learned? First, developing a culture around 

our company’s purpose. Our president and CEO, Larry Merlo, 

made this concept real for all of our colleagues when he championed our purpose, which is helping people on their path to better 

health. This simple purpose, just eight words, has had the power 

to unite our colleagues behind a common cause. Our purpose has 

permeated our organization, improved colleague engagement, 

which, in turn, improves all of our business outcomes. Embracing 

our purpose from the top down has been an example of the type 

of leadership we prioritize in career development for our colleagues, 

which is another core principle for us. 

Cultivating a pipeline of leaders who can inspire is woven into 

our business processes. We hold our current leaders responsible for 

coaching the next generation of talent. And we’ve created programs 

to develop those leaders and keep them engaged in their careers at 

CVS Health. With more than 50 development and training programs focused on career advancement, we’ve made producing highquality leaders a long-term investment. We use coaching, mentoring, and classroom programs to hone problem-solving, strategic 

thinking, and leadership capabilities for the next generation of CVS 

Health leaders. 

As we’ve grown, a third fundamental lesson has been the value 

of adopting an enterprisewide viewpoint. Seeing ourselves as one 

pharmacy innovation company rather than as separate businesses 

under one roof has helped us take advantage of the synergies in 

our business, and has helped us to innovate. For example, when 

two of our lines of business came together, it gave us a different 

perspective on our plan members, and we were able to deliver what 

they want: the choice of receiving their maintenance medications 

by mail or picking them up at any of our CVS pharmacy retail locations for the same price. Although there were significant logistics 

to work out on the back end, creating our maintenance choice program was the successful result of an enterprise wide mindset that 

pioneered a new way to serve our customers. 

At CVS Health, we deeply value purpose, leadership, and enterprise thinking. And I hope that there are ways that these lessons 

can benefit this committee as you consider the best ways to motivate, develop, and inspire the men and women who serve our country at the Department of Defense. 

36 

Thank you, Mr. Chairman. And I’m happy to answer any questions. 

[The prepared statement of Ms. Bisaccia follows:] 

PREPARED STATEMENT BY LISA BISACCIA

Chairman McCain, Ranking Member Reed, and distinguished Members of the 

Committee, thank you for the opportunity to testify today. 

It is an honor to be able to speak to you about some of our organizational and 

operational best practices that may provide some key learnings as you consider reform of the Department of Defense. 

As our company has grown from a regional chain drug store to a fully integrated 

national pharmacy health care provider, we’ve learned valuable lessons about how 

to make a complex organization nimble and effective. To give you a glimpse into 

how our company has developed into the diverse enterprise it is today, consider 

where we began. 

In 1963, we started out selling name-brand health and beauty merchandise at discount prices, when brothers Sid and Stanley Goldstein opened our first store in 

Lowell, Massachusetts. 

In 1967, we began building trusted relationships with patients when we opened 

our first CVS/pharmacy in Rhode Island, where we are still headquartered today. 

In addition to our 7,900 retail drugstores, today CVS Health brings together: CVS/ 

caremark, our pharmacy benefit management business; MinuteClinic, our 1,000 

walk-in retail clinics; Omnicare, our senior pharmacy care business; and our expanding specialty pharmacy services. 

In all, we employ more than 215,000 colleagues, with major hubs in Scottsdale, 

Arizona; Irving, Texas and Northbrook, Illinois, in addition to our home in Rhode 

Island. We work in almost every state represented here today. 

It is worth noting that CVS Health is a proud employer of veterans following their 

service, as well as those still serving in the National Guard and Reserve. We recognize the value of military service and know that our veterans’ skills and experience 

are unparalleled. 

Earlier this year CVS Health was honored to receive the Secretary of Defense Employer Support Freedom Award, the highest honor the department gives to employers for outstanding support of employees who are National Guard and Reserve 

members. 

As we think about the drivers behind our success, we know the quality of our 

workforce—including our colleagues who are veterans—has been an important driver of success. 

What have been some of our other key lessons-learned? First, is developing a culture around our company’s purpose. 

Our President and CEO Larry Merlo made this concept real for all our colleagues 

when he championed our purpose which is ‘‘helping people on their path to better 

health.’’ 

This simple purpose—with just eight words—has had the power to unite our colleagues behind a common cause. Our purpose has permeated our organization and 

improved colleague engagement, which in turn improves our business outcomes. 

Embracing our purpose from the top down has been an example of the type of 

leadership we prioritize in career development for our colleagues, which is another 

core principle for us. 

Cultivating a pipeline of leaders who can inspire is woven into our business processes. We hold our current leaders responsible for coaching the next generation of 

talent. And we’ve created programs to develop those leaders and keep them engaged 

in their careers at CVS Health. 

With more than 50 development and training programs focused on career advancement, we’ve made producing high-quality leaders a long-term investment. We 

use coaching, mentoring and classroom programs to hone problem solving, strategic 

thinking and leadership capabilities for the next generation of CVS Health leaders. 

As we’ve grown, a third fundamental lesson has been the value of adopting an 

enterprise-wide viewpoint. Seeing ourselves as one pharmacy innovation company, 

rather than as separate businesses under one roof, has helped us take advantage 

of the synergies in our business model and innovate. 

For example, when our two lines of business came together, it gave us a different 

perspective on our plan members and we were able to deliver what they want: the 

choice of receiving their medications by mail, or picking them up in any of our CVS/ 

pharmacy locations for the same price. 

37 

Although there were significant logistics to work out on the back end, creating our 

Maintenance Choice program was the successful result of an enterprise-wide 

mindset that pioneered a new way to serve our customer. 

At CVS Health, we deeply value purpose, leadership and enterprise thinking, and 

I hope that there are ways these lessons can benefit this Committee, as you consider 

the best ways to motivate, develop, and inspire the men and women who serve our 

country at the Department of Defense. 

Thank you, Mr. Chairman. I’ll be happy to answer any questions. 

Chairman MCCAIN. Thank you very much. 

You know, one of the things that confounds some of my constituents when I tell them is that we’ve never been able to get an audit 

of the Department of Defense. I guess I have two questions. One, 

isn’t that a fundamental requirement if—for reform? And how do 

we get it? Do we have to go to Silicon Valley? And, second, which 

is connected to that, How do we get—how do we motivate qualified 

people to leave very well-paying, comfortable positions in private 

industry and come and be part of the Department of Defense? 

Without them, I’m not sure we can successfully implement many 

of the reforms that are advocated here. 

I guess we’d begin with you, David. 

Mr. WALKER. Thank you, Mr. Chairman. 

Well, as Richard mentioned, I think the mission of the Defense 

Department is to protect the national security interests of the 

United States. And I think the people in the Defense Department 

have been focused on that, first and foremost. And, quite frankly, 

they haven’t been focused as much with regard to economy, efficiency, effectiveness, and accountability, including with regard to 

financial management. They’ve taken it more seriously within the 

last several years. They’ve made more progress within the last several years than they did, you know, for the decade prior to that. 

At the same point in time—— 

Chairman MCCAIN. I’ve only got 5 minutes, now, David. 

Mr. WALKER. Sure. 

[Laughter.] 

Mr. WALKER. At the same point in time, they do not have—they 

have thousands of nonintegrated legacy information systems that 

do not communicate with each other, they do not have adequate internal controls. And you touched on a very important point. They 

don’t have an adequate number of people within the Department 

of Defense who have the requisite knowledge and experience to 

know what needs to be done and to get it done. Do you need contractor assistance? Absolutely. But, you need a certain number of 

people within the Department who have the relevant experience, 

who can manage it on a day-to-day basis. 

One of the things I mentioned in my testimony is, the Secretary 

has the authority to appoint people for term appointments. And I 

think that, in the area of financial management, as an example, information technology being another, you should use that authority 

to try to take people who have had successful business careers— 

for example, partners in international accounting firms who may 

have auditing experience and financial management experience, 

who have made money, and who want to spend a period of time— 

let’s say 3 years to 5 years—to serve their country. I think there 

are supplies of people like that, that could be tapped to be embedded within the Department of Labor—pardon me—Department of 

38 

Defense. And I think that that’s something that needs to be pursued much more aggressively than it has been in the past. 

Chairman MCCAIN. Thank you. 

General? 

General PUNARO. Mr. Chairman, on the ‘‘How do you get good 

people in government in these top positions?′′—I believe you could 

recruit a Dave Packard or Norm Augustine if you told them, ‘‘We’re 

going to bring you in, you’re going to run this $48 billion logistics 

enterprise called DLA’’—— 

Chairman MCCAIN. You know—go ahead, but—I think you could 

get the head guy, but what about others that—you know, you need 

more than—— 

General PUNARO. Well, if you—— 

Chairman MCCAIN. Go ahead. 

General PUNARO. Mr. Chairman, if you get the head guy, and 

you give them—allow them to put a lot of their assets in a true 

blind trust, which I believe you could do, have different divestiture 

rules and things like that, a more speedy vetting process in the executive branch, they would be able to bring in other people below 

the levels to do the same kind of things. But, the most important 

thing would be, they have to understand they’re going to be able 

to have a meaningful job and make meaningful reforms. And I 

truly believe you would motivate people like that to come in. 

There’s too many disincentives now. 

Chairman MCCAIN. What about the audit? 

General PUNARO. On the audit, I mean, you’ve got to the audit 

expert right here. I know the Department is struggling with that. 

Chairman MCCAIN. For 15 years. 

General PUNARO. Right. And they have not been even able to get 

the Statement of Budgetary Resources audited. And when Peter 

Levine testified before this committee, I think he gave the honest 

answer that he was very skeptical that the Department would be 

able to meet their internal deadlines. And I think the Congress has 

just got to keep that unrelenting pressure on them. 

Chairman MCCAIN. Doesn’t that mean bringing in some outside 

organization, like a good, crack outfit in Silicon Valley, to try to 

tackle it themselves? I don’t—obviously, internally, it hasn’t 

worked. 

General PUNARO. The external audit firms that audit the forprofit companies have tremendous amount of expertise and could 

be brought to bear to help the Department, in my judgment. 

Chairman MCCAIN. Mr. Spencer. 

Mr. SPENCER. I would echo both David and Arnold’s comments. 

Having simply been exposed for my first time, coming on the Defense Business Board, the disclosures and the—which, at the Defense Business Board, aren’t nearly a onerous, but, I mean, we 

have to streamline the ability for private sector to come into the 

system. They’re out there. The people are out there. They want to 

help. We’ve been wandering around, looking for candidates on the 

Board. They are there. When they look at what is encumbering to 

enter the system, they shy away. 

Chairman MCCAIN. And the audit? 

Mr. SPENCER. The audit, we talked a little bit about this earlier. 

I think a streamlined way is just to do the actual consolidated 

39 

audit. We’re working on building up to the final audit, which is the 

way it is done in the private sector. But, I think, for the matter 

of expedience, what you really want as a tool is the audit of the 

consolidated entity, and that’s what should be audited, without getting into too much technical jargon in auditing. But, we’re spending 

so much time and money working our way up—you can do a buildup and then audit the actual consolidated entity. And it is needed 

for control and management. 

Mr. WALKER. Mr. Chairman, as a CPA [Certified Public Accountant]—— 

Chairman MCCAIN. I’ve got to—— 

Mr. WALKER.—could I come back on that real quick? 

Chairman MCCAIN. I’ve got to go to Ms. Bisaccia, and then—— 

Mr. WALKER. Sure. 

Chairman MCCAIN. We’ll come back. 

Mr. WALKER. Yes, sir. 

Chairman MCCAIN. Thank you. 

Ms. BISACCIA. So, what we have found at CVS Health, although 

we are a private company that certainly has more compensation levers to pull than the government might, we have found that the 

motivators that really drive change in our organization are not 

compensation, but, in fact, are much more intrinsic: the desire for 

public—professional development, the desire to be part of something bigger than yourself to align with a purpose and make a difference and make an impact, the desire to have full accountability 

for something and to own something. So, what we encourage with 

our executives and with our emerging leaders is to feel accountable 

for enterprise results while delivering on your local portfolio. And 

we stress, in fact, the need to align yourself with the company’s 

purpose and connect it to your work. 

In terms of the audit, we are a metric-driven company. It is not 

just financial, it’s operational; it’s people results, as well. And our 

leaders are only successful if they own all their metrics, if they 

know their numbers, if they’re able to speak to their whole portfolio 

of numbers, and, more importantly, explain any variances and do 

something about them. So, what that has required is a significant 

investment in measurement tools, including outside support from 

big-four accounting firms and other partners. But, the ownership is 

internal. 

Chairman MCCAIN. Very quickly, David. 

Mr. WALKER. Thank you, Mr. Chairman. 

As a CPA, I know a little bit about auditing. I believe that one 

of the things that needs to be considered is to look at auditing the 

consolidated financial statements of the DOD rather than individual services and rather than the individual fourth-estate entities. You have to have a comprehensive audit plan that looks 

vertically at the organizations, horizontally at the line items and 

the systems. But, if you approach it this way, then, (a) you’re going 

to eliminate a lot of intragovernmental activities; secondly, you’re 

not going to have to define reporting entities; thirdly, the level of 

materiality is going to be much higher with regard to the work the 

auditors have to do. And I think that it would be easier to accomplish, and we’d be able to free up resources for performance management, cost accounting, internal controls, the things that, quite 

40 

frankly, are most important in order to accomplish the objectives 

of the Department. 

Chairman MCCAIN. Senator Reed. 

Senator REED. Well, thank you very much. 

It strikes me that the Department of Defense today is the—an 

industrial model, and we’re in a post-industrial age. And it was 

quite effective in the ’50s, you’ve pointed out. And so, how do we 

sort of make that transition? The—my sense—and again, the industrial model is hierarchical. And, guess what? The military is 

hierarchical. It’s a lot different. 

So, starting with Ms. Bisaccia, you know, How do—you have, I 

would assume, a much more sort of flat organization, the ability to 

work around, versus the military. So, you might comment, and 

then everyone else can comment, Is that one of the big problems 

we’re facing, even if we change some rules of this hierarchy? 

Ms. BISACCIA. At CVS Health, what we found is, we moved from 

a pharmacy drugstore chain that had a very hierarchical model, in 

terms of vice presidents, regional managers, district managers— 

that, once we expanded our business commitment and once we 

came more diverse, we needed to look horizontally as well as 

vertically, and we needed to realize that the key to success as an 

enterprise was collaboration and shared resources, that we could 

no longer count on owning everything we needed to get our particular portfolio done, that, in fact, we needed to share resources 

across the enterprise and frequently make difficult decisions about 

what to prioritize. And, in fact, some businesses found that their 

needs had to be subordinated to those initiatives which benefited 

the enterprise. It’s a difficult process. It goes beyond budget. But, 

what we have focused on is what’s best for the company as a whole 

and then, as a leadership team, aligning behind that, in terms of 

making the decisions to support those priorities. 

Senator REED. Mr. Spencer—I’ll go right down the line—Mr. 

Spencer, please. And—— 

Mr. SPENCER. I think you—— 

Senator REED.—I have one other question. 

Mr. SPENCER.—you hit the nail on the head, Senator. If you were 

to just take a look at one probably big lever that you could really 

change the organization over across the river, performance metrics 

on the civilian side. The military has had it for years. The fitness 

report system. Yes, it has some flaws, but it works. Yes, there’s a 

performance management system on the civilian side, but I think 

there needs to be a retool of that and an education of the managers 

on how to use that. If you take the old adage of Jack Welch, every 

single manager ought to have a list in his back—his or her back 

pocket anytime, having the A, B, and C players, because, at any 

one time, you want to challenge the A’s, you want to nurture the 

B’s up to A’s, and you probably want to get rid of the C’s. We have 

to start doing that actively in the organization. It’s going to cause, 

I think, more energy to be focused in the appropriate places, and 

get the right people in there. 

Senator REED. Thank you. 

General. 

General PUNARO. We’re talking about DOD significantly improving its management chain of command. And many times, critics 

41 

will say, ‘‘Well, wait a minute. It’s not a business.’’ Correct. And 

every business—world-class business practice is not applicable to 

government or DOD, but many are. And let me list them. And I 

would say the staff could look at, ‘‘Here are the world-class business practices that are applicable. Assess where DOD is today, and 

then say, What’s the application?′′ 

Focus on core functions. That is a world-class business practice 

that ought to be put into DOD. Today, they have a diffused work 

effort. If you did that, they would define and focus on core functions, and you would divest other activities. 

Flat, flexible structures. All—everything in business now is flat. 

DOD is layered and rigid with their 28 layers. So, you would delayer and consolidate. This is tough, because you’re going to get rid 

of a lot of principal deputies and deputy deputies and deputies to 

the deputies. 

In companies today, you have widely shared information and 

knowledge, and they don’t do that in the Department, so you need 

a powerful CIO [Chief Information Officer]. I believe you need to 

get rid of some of the unders and bring back the Assistant Secretary for Command, Control, Communication, Computers, and 

Cyber to have that kind of cross. And you need performance goals. 

They don’t have them. 

And finally, every business has tight controls over overhead personnel. And, as we’ve seen, DOD does not have that. They can’t 

even tell you with precision how many people they have in overhead. So, you have to establish an effective overhead control system. 

Senator REED. Mr. Walker, please. 

Mr. WALKER. There are way too many organizations. When I was 

Comptroller General, I had the good fortune of being able to participate in the Capstone program for flag officers. One of the things 

I was shocked to find out, as an example, is, in order to activate 

and deploy 25 members of the Guard and Reserve, over 20 units 

within the Pentagon had to sign off on that. So, way too many organizations, way too many layers. As General Punaro said, there 

are 28 layers in the Defense Department. We had eight at GAO 

[Government Accountability Office]. And we have to have much 

more from the standpoint of performance metrics, outcome-based 

performance metrics that we are holding people accountable for. So, 

it’s layers, players, and hardened silos. That’s what we have to do. 

Senator REED. Let me just quickly follow up, if the Chairman 

will allow, for one question to you, Mr. Walker. Sometimes I get 

the impression that, you know, we look across to the river, and it’s 

their problem, but many times it’s our problem. The way we do 

budgets, for example, it looks cheaper to hire lots of contractors 

than to hire one civilian long-term with pension benefits and other 

benefits. Would it be useful for us to look the way we sort of do 

the budget or give them credit, in terms of to incentivize them, to 

bring more full-time government employees, rather than hiring 

contractors left and right to do the problem? That’s—— 

Mr. WALKER. I do think that you have to look at how you keep 

score. I do think that we have to have an understanding as what 

is inherently governmental, what should be done by the government, and what could be done by the private sector. I agree with 

42 

General Punaro that we ought to revitalize the A–76 process. I also 

agree that we need to look at fully absorbed cost accounting. Okay? 

We have to have a level playing field. What is it costing for an outside contractor? Frankly, what is it costing for a government worker, including pensions—— 

Senator REED. Right. 

Mr. WALKER.—retiree healthcare benefits—— 

Senator REED. Right. 

Mr. WALKER.—and all these other things. So, how we keep score 

matters, and the way we keep score now does not facilitate sound 

decisionmaking, in my view. 

Senator REED. Thank you. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. Senator Lee. 

Senator LEE. Thank you, Mr. Chairman. 

Thanks, to all of you, for appearing today and offering your helpful testimony. I want to thank the Chairman for holding this hearing, which covers an important topic, one that we need to address 

from time to time. 

You know, there’s no question that the Department of Defense 

needs to be reformed so that we can prepare it to address 21st century realities. And this includes a different security situation that 

existed 30 years ago, certainly. It also includes, you know, the need 

to address fiscal and economic realities, realities that many experts 

today believe present national security threats in and of themselves. 

Mr. Walker, I’d like to speak—like to ask you some questions 

first. You spoke, in 2008, about the striking similarities between 

America’s current circumstances and the circumstances that led to 

the decline of the Roman Empire. Now, it’s a pretty big assertion. 

And you backed it up by analyzing a number of factors that you 

think warrant the comparison. You mentioned, I believe, that we’re 

experiencing declining moral values and political civility domestically, and an overextended military in foreign lands, combined with 

fiscal irresponsibility by the central government. And you identified 

all of those as characteristics displayed by the late Roman Empire, 

and characteristics that we can see within the United States today. 

Can you elaborate on what some of the precipitating factors are, 

specifically with regards to having an overextended military abroad 

that can lead to a country’s decline? And tell us a little bit about 

how the overextension of our military might lead to some of the 

mismanagement problems that we’re experiencing today. 

Mr. WALKER. Senator, I think what I said was that we had a decline in moral and ethnical values, we had fiscal irresponsibility by 

the central government, we had an inability to control our borders, 

and we had an overextended military around the world. I think 

those factors are relevant, and I think they’re a reality. 

Senator LEE. Have we solved all those problems since—— 

Mr. WALKER. Well, first, I think we have to understand, in order 

to stay strong militarily, in order to be the leading nation around 

the world, you have to be strong economically. And if you don’t put 

your financial house in order, then all those aspects—the military 

will suffer, our position in the world will suffer, our economy and 

43 

job opportunities will suffer. So, we have to put our finances in 

order. 

I think the issue is, we have assumed a disproportionate responsibility for global security in the United States, in part because 

somebody has to lead, and thank God it’s the United States; in part 

because others have not done their part and others have cut back 

on their allocation to the military, and they’ve been relying upon 

the United States to assume a disproportionate share. And I think 

that’s something that obviously has to be looked at, because the 

type of security challenges that we face today are diffused, they are 

global, they do not respect geopolitical boundaries, and we need a 

collective effort in order to be able to effectively solve it. At the 

same point time, as the Chairman and others have said, the United 

States must lead, because there’s nobody else to fulfill that role. 

Senator LEE. Now, in 2008, you appeared in a documentary 

called ‘‘IOUSA.’’ You talked about some of the threats we might 

face, some of the crises we might face as our national debt continues to rise. At the time, significantly, our national debt was $8 

trillion. It’s funny how we can look back on that now and say ‘‘only 

$8 trillion,’’ because, of course, that’s a staggering sum of money. 

But, since then, our debt has significantly more than doubled. And 

so, other than facing possible insolvency, sooner rather than later, 

what consequences, specifically to our national security, do you 

project from this trend if we stay on our current path? 

Mr. WALKER. Just to reiterate, if we don’t put our finances in 

order, then everything is going to suffer, including national security. Let me give you something that I think most people don’t 

know. Discretionary spending, which includes national defense, includes all of the express and enumerated responsibilities envisioned by our Nation’s founders for the Federal Government. All of 

them. National security, homeland security, foreign policy, et 

cetera. That’s what’s getting squeezed. It’s down to 32 percent of 

the budget. Thirty-two percent of the budget. Sixty-eight percent is 

mandatory spending. A hundred years ago, only 3 percent was 

mandatory spending. So, you know, we—we’ve lost control of the 

budget. We’re spending more and more on consumption, more—less 

and less on investment, more and more on non-constitutionally 

specified responsibilities, less and less on the ones that are. And 

that’s not sustainable. It’s absolutely not sustainable. 

At the same point in time, as we’ve testified in this hearing, 

there is a tremendous amount of waste with regard to overhead 

and management practices within the Defense Department. And 

so, we need to have an adequate allocation of the budget to defense. At the same point in time, we need to improve the economy, 

efficiency, and effectiveness of the resources that are being allocated to the Defense Department at the present point in time. 

Senator LEE. That’s a great point. I like your point about the 

comparison with 100 years ago. And another thing that goes along 

with that is, 100 years ago, we were spending only 2 or 3 percent 

of our Nation’s GDP on the Federal Government. And so, not only 

has the pie grown, it’s grown—— 

Mr. WALKER. Two percent. A hundred years ago, the U.S. Government was 2 percent of GDP. Now we’re—you know, now we’re 

about 21 percent of GDP, so it’s 10 and a half times bigger. A hunVerDate Nov 24 2008 12:31 Oct 19, 2016 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 C:\USERS\WR47328\DESKTOP\22191.TXT WILDA
44 

dred years ago, we controlled 97 percent of spending, Congress did, 

every year, now it’s 38, going down. It’s out of control. 

Senator LEE. Well said. I see my time is expired. Thank you, Mr. 

Walker. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. We all yearn for those golden days of yesteryear. 

[Laughter.] 

Mr. WALKER. It’s not too late, Senator. 

Chairman MCCAIN. Senator Manchin. 

Senator MANCHIN. Thank you, Mr. Chairman. 

Thank all of you for being here. 

And I think you agree, the same as that—when I first came, Admiral Mullens, we were asking—Joint of Chiefs of Staff are sitting 

where you all—and we asked—the question was asked by somebody on the panel, ‘‘What’s the greatest challenge the United 

States faces, the greatest challenge we face around the world?’’ 

And, you know, we were waiting to hear some military, terrorist 

attack, and on and on and on. And Admiral Mullen put it quite 

clear and succinctly. He says, ‘‘The defense of our Nation is the 

greatest challenge we face.’’ And I think you all seem to agree to 

that, that we’re in serious challenges here. 

I’ll ask a simple question, basically. Is there enough money in the system? We put around $600 billion in defense. Is there—is that 

enough money to defend this country, to keep our people safe and 

defend the homeland? And what we seem to have a inability to do 

is to legislate good management. I don’t know how you can do that. 

So, my point is this. If there’s enough money—and they don’t think 

there is enough money, the way they’re managing now—will they 

change their management practices, since we can’t seem to do it 

through legislation? Do you think it will change? Will it hit a crisis 

to where we’re—basically have to change? So, we can start, Mr. 

Walker, with you, if you don’t mind. 

Mr. WALKER. Thank you, Senator. 

First, the government is a monopoly. It doesn’t face competition. 

And therefore, it doesn’t have the same type of competitive pressures that forces it to be economical, efficient, effective, to innovate, 

to seek continuous improvement. I do believe that, absent other 

contingent operations, which we have some—— 

Senator MANCHIN. Sure. 

Mr. WALKER.—now, we may have others in the future, that there 

are adequate resources. But, I do think you have to think about the 

fact that the—that national security is fundamental, that only the 

Federal Government can do that, and whether or not, frankly, 

there ought to be some minimum allocation of a percentage of GDP 

to defense. 

Senator MANCHIN. Well, what we hear, if I don’t—I’m sorry to interrupt—what we hear is, basically, sequestering is choked, and basically, everybody, Democrats and Republicans, want to do away 

with sequestration. Now, I understand, because we all want to 

keep the homeland safe. We’ll do whatever we can to defend this 

great country. With that being said, is $600 billion enough? What is the figure? 

Has anyone looked and seen what it would take, if it was efficiently 

45 

managed, to run this Department of Defense to keep us safe? 

That’s what we—I would hope that somebody at—you all, at your 

stature, could be able to do that, or look and see, and say, ‘‘No, 

you’re still 20 billion short,’’ or, ‘‘You have more than enough 

money, if it was managed properly.’’ 

General PUNARO. Well, Senator, as the Chairman pointed out, we 

are at historically high spending levels. We are in constant—FY16 

[fiscal year 2016] constant dollars, $100 billion—at $600 billion, 

$100 billion higher than the previous lows. We’re roughly spending 

at the same peak as the Reagan buildup. And yet, we—our 

warfighting forces are 40–50 percent smaller. And the problem is, 

there’s so much of it chewed up in overhead. 

You’ve got three big problems in the Department of Defense 

that’s gobbling up our warfighting forces. You have, basically, the 

unsustainable, long-term, fully burdened cost of personnel, which 

includes the retired force, and we certainly don’t want to change 

anybody’s benefits. Everybody would have to be grandfathered. 

But, we all know, when Congress deals with the grand compromise 

on entitlements, it’s going to look forward, it’s going to take 20 to 

30 to 40 years to fix it. The same thing happens in defense. The 

acquisition system, we spend $400 billion a year on goods and services, supplies, and equipment, and about the only polite thing you 

can say, ‘‘We spend more, we take longer, we get less.’’ Now, the 

committee’s made a lot of reforms here. 

And then you have the massive overhead, which we have to get 

under control. If you look at the Army, for example—and they’re 

not making all the right decisions in the Department—from 2010 

to 2017, the Active end strength’s going to go down by 20 percent, 

from 567,000 to 450,000. Whether you agree with that, or not, the 

problem is, they’re going to reduce the Active combat brigades by 

30 percent. So, when they’re reducing the end strength of the 

Army, instead of taking it out of the overhead, they’re taking it out 

of the combat side. So, I believe—— 

Senator MANCHIN. Who’s making those decisions? 

General PUNARO. Well, the leadership in the Department of Defense. It’s not the Congress. And they come up with the budget, 

and they are allocating—they are keeping too much in the tail, and 

there’s too little on the combat side. 

And I believe—Albert Einstein had a quote, and I don’t know if 

I’m getting it just right. He said, ‘‘You can’t solve problems with 

people who created them.’’ This committee has a history, going all 

the way back to the creation of the defense establishment after 

World War II, the amendments in ’56, Goldwater-Nichols acquisition reform. It’s going to have to have to come from this committee. 

The Department cannot reform itself internally. It is just too, too 

difficult for them. So, the reform—— 

Senator MANCHIN. Do you believe there’s enough money in the 

system if we managed it properly? 

General PUNARO. At $600 billion, and in the FYDP [Future Years 

Defense Program] that the administration requested over the next 

5 years, if they could get control of the overhead, if they could get 

the reforms and the acquisition, if they could start containing—— 

Senator MANCHIN. I mean—quickly, but, basically, you’re saying 

yes? 

46 

General PUNARO. I’m saying yes. 

Senator MANCHIN. How about you, Mr. Spencer, very quickly? 

Mr. SPENCER. I’d say yes, Senator. And in just sort of a quick 

aside, if you take the study that we did on the Fortune 250 companies that faced massive turnarounds, looking into the black hole, 

the first thing the management did when they came in was cut 20 

percent. And we kept going back and looking at the records, and 

it was 20 percent across the board. We said, ‘‘Why?’’ They said it 

was a great place to start. And, at the end of the day, it was probably too little. There has to be some event or external efforts, as 

General Punaro said, to get the organization going. 

Senator MANCHIN. Ms. Bisaccia, yes or no, $600 billion? 

Ms. BISACCIA. I’m not in a position to comment. I’ve—— 

Senator MANCHIN. Okay. 

Ms. BISACCIA.—had no experience with Department of Defense. 

However, I would say, if you believe that leadership is the key element necessary to drive change, I can’t think of a better reservoir 

of leadership than our Armed Forces. So, it seems to me that, given 

uniformity around the mission, our leaders can lead through the 

necessary changes. 

Senator MANCHIN. And very quickly, Mr. Walker. 

Mr. WALKER. Yes, with the requisite reforms. However, those reforms will take time. I’ve publicly said it before, that I believe that 

if the overhead was 25 percent lower in the Pentagon, we’d be 50 

percent more productive. 

Senator MANCHIN. So, by lifting the budget caps and the sequestering basically going away, that’s not going to be the answer 

to—— 

Mr. WALKER. I think—— 

Senator MANCHIN.—better management. 

Mr. WALKER. I think you have to look at the top line, you have 

to look at how you’re allocating the money. And I come back to 

something that General Punaro said. I do think you have to end 

up forcing change with regard to overhead and the administrative 

functions. I do think you need to figure out what you have, you 

have to benchmark it, you have to put caps on it, and you have to 

force people to drive that down. That’s what’s not happening. It’s 

got to be forced to be driven down. 

Senator MANCHIN. Thank you. My time’s up. I appreciate it. 

Senator REED [presiding]: On behalf of the Chairman, let me recognize Senator Rounds. 

Senator ROUNDS. Thank you, sir. 

In doing just the review for this hearing today, the Congressional 

Research Service provided us with a list of some of the overall reforms that have been proposed in just the—well, since 1983. It 

began with the Grace Commission, the 1985 defense organization, 

The Need for Change, the Packard Commission in 1986, ending 

with the 2014 Quadrennial Report, the QDR. There were 24 different organizational reform proposals that have been made, ending, as General Punaro pointed out, with a grand total of 28 layers 

of bureaucracy now found within the Department. 

My question for you is this. And I’ll begin with Mr. Spencer. 

You’ve suggested, specifically, areas that could be looked at for efficiencies. Is it possible to take them, department by department or 

47 

location by location—depot maintenance, commissaries, Defense 

Logistics Agency, DOD Education Activity and so forth—is it possible to take one and separate it out and actually reform it, proving 

that it is not only doable, but it is desirable within the Department 

to actually make change based upon the mission that that particular part of the organization is responsible for? 

Mr. SPENCER. Senator, I’d say yes to your question, in one area: 

Department of Defense education. Ironically, the largest school district in North America is not hamstrung like any of the school districts in public America. You could actually probably put dollars 

saved from commissary realignment, depot realignment, BRAC, 

whatever, and make it an institution that was extraordinary for recruiting purposes, for retention purposes. That would be one area 

where I’d say you could. The others that are on my list, I would 

say that that does not fall into the mission of the Department of 

Defense. 

Senator ROUNDS. When you say it ‘‘does not fall into the mission 

of the Department of Defense,’’ do you mean that they are incapable of making the changes internally? Is that what you’re saying? 

Or are you saying that they should be separated out? 

Mr. SPENCER. They should be separated out. It’s not a core function. 

Senator ROUNDS. But, nonetheless, it is critical for the operation 

of the entire—for the mission of defending the country, correct? 

Mr. SPENCER. Certainly is, but there are more organizations that 

can do it more effectively and more efficiently. 

Senator ROUNDS. But, should there not be some sort of an oversight or an area within the Pentagon responsible for seeing that 

they get accomplished? As an example, depot maintenance, the 

maintenance activities for there, isn’t there some place within the 

Pentagon that should have the organizational responsibility to see 

that it gets done? 

Mr. SPENCER. Yes. 

Senator ROUNDS. So—— 

Mr. SPENCER. The actual tank getting fixed, yes. 

Senator ROUNDS. So, if we take that as one area, which is the 

mission, to get the tank fixed, can we separate out that particular 

mission, the maintenance mission, pull it apart, and say, ‘‘Let’s dissect this, let’s fix it, let’s put it back in and prove that this particular operations within the Pentagon could be made more efficient,’’ and use that as a sample that could be used in other areas, 

as well, similar to, as you’ve suggested, with the educational aspects? 

Mr. SPENCER. I see where you’re headed, Senator, but I come 

back to private sector. If it is not in your core competency wheelhouse and there are better providers out there that do it, you access the most efficient path you can, because your mission is not 

aligned with that. Yes, it’s a subsupport of it, but somebody else 

can do it better and more effectively. Why waste resources on doing 

that, when you can apply it to your direct mission?—would be my 

response. 

Senator ROUNDS. When we look at making reforms, when—if 

we’ve looked back at it and we’ve got 24 different reform proposals 

that have occurred since 1983, have any of them actually worked? 

48 

Is there anything in them which has actually worked? Can we list 

an example of where they’ve been successful? 

General PUNARO. Well, I would say the Goldwater- Nichols reforms, which tremendously changed the operational chain of command in the military pioneered by this committee, worked. I would 

say there’s very little on the management side that you could point 

to from all the various commissions. I do think you’ve got a kernel 

of really great idea, in that you could take two or three of these 

areas that you’ve talked about and create a pilot program. For example, we have 18 maintenance depots in the Department of Defense as part of their $170-billion-a-year logistics enterprise. Why 

not take one of those organic depots and run a pilot program where 

outside enterprise could come in, keep it right where it is, and run 

it on the base? Let’s take a DOD-dependent school. There are a lot 

of local school districts that could come in and run that school system on the base and see if it could be run more efficiently than the 

government is running it. With a commissary, for example, you 

could take the Marine Corps commissary at Camp Pendleton, as 

General Jim Jones was willing to do in 1998, when he was the 

Commandant, and bring in a Walmart or a Costco and let them 

run it, and see if it would be more efficient. And then you could— 

and then you would have some data, and then you could deal with 

some of the emotional arguments that you run into when people 

say, ‘‘Well, they can’t do it.’’ So, test it out. So, as you look at these 

management reforms, which are going to be very tough and very 

hard, do some pilot programs and test out your proof of concept, 

and then decide if you want to take it to a broader set. So—but, 

I do think, in all these areas that are not core to the Department, 

these are the ripe areas for these kind of pilot programs. 

Senator ROUNDS. Thank you. 

Thank you, Mr. Chairman. 

Chairman MCCAIN [presiding]: Could I just comment? We kicked 

that idea around about the commissary, and I can tell you, we have 

a PR [public relations] challenge. We—the hornet’s nest that we ignited. So, we’ll have to go back. Maybe pilot programs are the best 

way to address that issue. There are, as I understand it, 15,000 

employees, and—— 

General PUNARO. Mr. Chairman, spot on. And I think the messaging ought to be, ‘‘We’re not trying to get rid of the benefit, we’re 

not trying to get rid of the commissary in their locations. We’re trying to reduce the taxpayer subsidy.’’ So, give the troops and the 

families and the retirees the same benefit they have today, but if 

you run it and manage it more efficiently—you know, but the way 

the headlines come out, the bumper sticker is; ‘‘We’re trying to 

close the commissary.’’ So, you’re right, we’ve got to change the 

packaging. 

Mr. WALKER. Mr. Chairman, I would respectfully suggest you’ve 

touched on one of the important four-letter words in politics, and 

that is ‘‘jobs.’’ And part of the question is; Can this be done more 

economically, more efficiently, and more effectively? And, if so, 

what does that mean with regard to the number of employees 

you’re going to have? And that’s—— 

Chairman MCCAIN. Right. 

49 

Mr. WALKER.—you know, that’s the elephant in the room. You 

know, if you—— 

Chairman MCCAIN. Well, it—it’s more than that in this issue. 

Mr. WALKER. Yes, sir. 

Chairman MCCAIN. It’s the perception that we are taking away 

from our—particularly our retirees, not to mention Active Duty—— 

Mr. SPENCER. Mr. Chairman, can I add something here, though? 

Having chaired the—lucky enough to chair the DBB Task Force on 

Modernization of the Military Retirement System. 

Chairman MCCAIN. You were lucky? 

[Laughter.] 

Mr. SPENCER. Thank you, sir. One of the VSOs [Veterans Service 

Organizations] was nice enough to publish my home phone number, and I took 127 phone calls. I kept a log on this. And I actually 

wanted to speak to the people. And once you got the expletives out 

of the way and realized that I wasn’t a communist agent trying to 

defer any sort of benefit, you could speak to—— 

Chairman MCCAIN. That took a while. 

Mr. SPENCER. It took a while. It took a while. You could speak 

to everybody. And if you started rationalizing and saying, as an example, ‘‘You have one dollar to spend on your benefits. Your 

healthcare costs 50 cents, your retirement costs 33 cents, your commissary costs 26 cents, and you add it up and you have $1.70 of 

expenses and a dollar to spend,’’ there was a great rational answer 

at the end of the day. There was an understanding. I think that 

if, in fact, this committee and Congress wants to sit and provide 

a preference-based selection with the information available, you 

can scale this monster. 

Chairman MCCAIN. Well, I appreciate your confidence. 

Senator King. 

Senator KING. Thank you. 

Your discussion of the 28 layers and the Deputy Under Secretary—40 years ago, I sat in one of these seats. I was a staff member here in the Senate and was once called upon to set up a hearing; called OMB, asked for a witness from the administration. The 

fellow said, ‘‘We will send you the Deputy Under Secretary of Suchand-Such.’’ My question was, ‘‘Who is this person? I don’t know 

about the titles?’’ The fellow gave an answer, which, if I ever write 

a book about Washington, will be the title. He said, ‘‘He’s at the 

highest level where they still know anything.’’ 

[Laughter.] 

Senator KING. Unfortunately, I’m keenly aware that I’m above 

that level today. 

[Laughter.] 

Senator KING. I think one thing we haven’t talked about today 

is the President. I don’t mean this particular President, I mean 

Presidents in general. One of the problems, it seems to me, is that 

people that we elect President generally are politicians, and politicians generally don’t think much about management. This has to 

start with the President, it seems to me, a President who cares 

about the management issues. 

One of Lincoln’s greatest unappreciated qualities was as a manager. When he was—when he became President, there were 16,000 

members of the United States Army. By the end of the Civil War, 

50 

they had scaled up to over 2 million people that fought on the 

Union side in the Civil War. Think of that as a management challenge. But, it occurred because Lincoln cared about it and put people in a position and required results, in terms of everything from 

making buttons to bullets to railroad ties. 

So, I would like just a quick reflection, Mr. Walker, on the role 

of the President in this process. I think we can lob ideas here, but 

the person who’s in charge at the other end of Pennsylvania Avenue, it seems to me, has an enormous role to play, if they choose 

to play it. 

Mr. WALKER. I agree, Senator. When you’re hiring a President, 

you’re really looking for three things, in my view. You’re looking for 

the Chief Executive Officer [CEO] of the largest, most complex, 

most important entity on the face of the Earth, the U.S. Government, which has got a lot of challenges, some of which we’re talking today; secondly, the Commander in Chief of the U.S. military; 

and thirdly, the leader of the free world. But, I also think you have 

to understand that, in order for them to discharge their CEO responsibilities, they’ve got to have good people. 

Senator KING. Absolutely. 

Mr. WALKER. They’ve got good people with the right skills in the 

right position for a requisite amount of time. And I think, when 

you look at presidential appointments, Senate confirmation, for example, there’s three kinds of jobs. There are policy jobs, there are 

operational jobs, and there are oversight jobs. And you want different kinds of people in those jobs. And I would respectfully suggest, as I did for the CMO [Chief Management Officer] position and 

the sub-CMO positions, that you need statutory qualification requirements, that we need to be thinking about term appointments 

with performance contracts for those jobs that are operational jobs. 

They are not policy. They may be political appointees, but they are 

operational jobs. 

Senator KING. But, I would suggest if the oversight from the 

White House is more about policy and politics than it is about running the enterprise—I mean, there’s a reason it’s called ‘‘the administration.’’ But, in many cases—and again, I’m not pointing the 

finger at the—this particular President, but it’s just not in our political culture to care too much about how the structure at the Pentagon functions. 

Let me move on for a minute. Data and metrics. The fact that 

you were saying that there’s an argument about how many people 

work in the Secretary of Defense’s office is unbelievable—I mean, 

that we don’t have—we can’t possibly make good decisions if we 

don’t have data. Would you concur? 

General PUNARO. Absolutely, Senator. I go back to when I was 

serving on the committee. We couldn’t get the data. When Secretary Cohen asked me to chair a task force in 1997, Doc Cook, the 

legendary mayor of the Pentagon, ‘‘Doc, how large is OSD?’’ ‘‘Oh, 

Arnold, we’ve only got about 2,000 people.’’ Well, Jim Locher and 

Rhet Dawson and others were on that task force. We went around 

and counted the names on the doors, we counted the computers, we 

counted the badges. There was another 1,300 more than they admitted. And Secretary Gates, when he—in 2010, when he tried to 

downsize, they couldn’t get the accurate baseline. If you look at the 

51 

defense-wide headcounts that are in the Defense Manpower Requirements Report, today the Office of the Secretary of Defense, 

with military, civilian, and contractors: 5,273. You could argue that 

the Office of the Inspector General, which is 1,823, comes under 

OSD. You could argue that the Pentagon Force Protection—— 

Senator KING. Well—— 

General PUNARO. So, the problem is, GAO has said they don’t 

have reliable data. Now, Peter Levine, the new DCMO [Deputy 

Chief Management Officer], former staff director of this committee, 

he’s working this really, really hard right now. And in all the years 

I’ve been looking at this and doing this, he’s the first senior Pentagon official that has admitted, ‘‘You know, Arnold, I’m not sure 

we have accurate data. I’m going to try to get the accurate data.’’ 

Before, they’d just stonewall you. So, maybe there’s going to be— 

but, the committee is going to have to put pressure on it and mandate and get the information. 

Senator KING. You just answered my last question, which was, 

How is Peter doing? And isn’t he in the position that you were defining at the beginning? And it sounds like he’s manfully trying to 

get a handle on that. 

General PUNARO. He is, but that is a tough—that whole management operation is really tough, because the old Washington Headquarters Services, they have succeeded, you know, for 50 years, in 

stonewalling a lot of information. And so, he’s having to dig it out 

with a pick and shovel. 

Senator KING. Thank you, Mr. Chairman. 

Chairman MCCAIN. Senator Ernst. 

Senator ERNST. Thank you, Mr. Chair. 

And thank you very much, to our witnesses, for being here today. 

Effective management of government programs is—especially in 

the DOD, is something that I have taken great interest in since I 

have come to the Senate. And I’ve found out that there really are 

no government-wide standards, especially when it comes to program management, whether it’s in the DOD or some of our other 

departments. And I do believe they need to be more in tune with 

what is going on in the private sector. And there’s a study—it was 

done by Accenture, a group out there—that says the U.S. Government could save as much as $995 billion by 2025 by increasing 

public-sector efficiency by just 1 percent. And that, again, is across 

the government. And that includes improving program management practices. 

And so, this is a great topic for today. And I’m glad to have the 

discussion on it. I would like some feedback from the panel. Mr. 

Spencer, I’ll start with you. But, it’s my understanding that the 

Federal Government spends around $530 billion in procurement. 

And when we talk about procurement, a lot of that discussion is 

really focused on the $177 billion that we spend on DOD weapon 

systems acquisition. And this type of procurement for tangible 

goods—so, out of that $530 billion—for the tangible goods, only 

about 45 percent of that is on items in the acquisition program. 

The other—another 45 percent is spent on service contracts and 

those types of things, not actual goods that you receive. And then 

another 10 percent, or the remaining 10 percent, is spent on R&D 

[research and development] for future acquisition programs. So, the 

52 

Defense Acquisition Workforce Improvement Act only applies to 

those goods that are tangible in nature. And so, it leaves those 

service contracts out. 

So, with that said, what is your assessment of the effectiveness 

of the Defense Acquisition Workforce Improvement Act and it’s providing a standardized program management outcomes across all of 

DOD in the acquisition portfolio? Do you think it’s something that 

could be improved? 

Mr. SPENCER. Definitely. I think that it’s a terrific step forward. 

When one looks at how the government, let alone the DOD, acquires, there are different pockets and different channels for which 

things are acquired. We do need to set standards. It sounds like a 

simple answer, but you have to take it across the board. There— 

it has to be a unified leadership demand that the standards are applied whether contracting services, whether hard goods purchased, 

whatever the case may be. It sounds very simple. It’s—as I think 

I said in my testimony earlier, there’s heavy lifting that has to be 

done. But, that would be one of the things to do, would be to force 

the standards across all purchasing areas within the building, at 

least. 

Senator ERNST. Thank you. 

Controller General Walker? 

Mr. WALKER. The scope should be expanded. There’s a lot of contracting that doesn’t deal with goods. It also—it deals with services. We have to understand what are our goals, what are our objectives, what are our metrics, what are our measurement systems. 

And that applies both to, you know, defense weapons acquisitions, 

as well as a range of services. 

Part of the problem in the weapons acquisition, in my experience, 

has been—is that people have a dream about what they would like. 

That dream keeps on changing, so the requirements keep on changing. Every time the requirements change, that means it takes 

longer, it costs more money. And the other thing that we talked 

about earlier is personnel. We have people that stay in positions for 

2-year periods of time automatically, rather than wait until a major 

milestone has been achieved. That is tremendously costly with regard to money as well as timing on these projects. 

Senator ERNST. Yes, General. 

General PUNARO. I would step it back to broader issue that Senator King brought up, which is management. The Office of Management and Budget needs to emphasize more on the management 

side and less on the budget micromanagement. But, the biggest 

change we—that would affect what you’re talking about—because 

55 percent of DOD’s spend now is on services—would be a reform 

in the Congress in going to a 2-year budget. So, the first year—because the Congress and the Pentagon are drowning in budget details. Everything is just tied to these microbudget details. Not as 

much oversight and management occurs, either in the executive 

branch or in the Congress. So, the first year, you would deal with 

the budget request; the second year, you would do detail oversight 

on the management side. You’d have much more time to basically 

bring in witnesses that could basically have a back-and-forth. And 

so—and, in terms of the broader management, the Eisenhower 

Cabinet—I mean, he basically believed in true Cabinet line officers, 

53 

as opposed to the kind of micromanagement that we’ve seen White 

Houses do today. So, the—so, you really aren’t going to get to the 

bottom line until you go to this broader construct. 

Mr. WALKER. May I jump in quickly? 

Senator ERNST. Yes. 

Mr. WALKER. I strongly endorse the concept of a biennial budget. 

I’m 64 years old. I know that may be hard to believe, but I am. 

[Laughter.] 

Mr. WALKER. And the fact of the matter is, Congress has passed 

timely appropriations and budget bills four times in my lifetime. 

We spend a tremendous amount of time—and most of the States 

have gone to biennial budgeting. I think it’s something we need to 

consider, as well as the separation between the capital budget and 

an operating budget, and to focus not on deficits and debt, but debt 

as a percentage of the economy. That’s what matters. 

Senator ERNST. All very good points. 

Thank you, Mr. Chair. 

Chairman MCCAIN. We thought you were older. 

Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

Mr. Walker, you just mentioned today, just now, that we should 

separate out the capital budget from the operating budget. Can you 

talk a little bit more about what that would do and what that 

would involve? 

Mr. WALKER. Whether you talk about critical infrastructure, 

whether you talk about weapon systems acquisition, there’s a difference between trying to be able to acquire things that have 

multigenerational benefit that end up—benefit society broadly over 

an extended period of time. Most States have capital budgets and 

operating budgets. Most corporations have capital budgets and operating budgets. And that’s why I’m saying you have to be careful. 

Sometimes people want to play games to say, ‘‘Well, this is really 

a capital item, this is really an investment, it’s really not an expenditure, so I should have more flexibility.’’ That’s why I’m saying 

one of the things that you do is focus on debt-to-GDP [gross domestic product]. When you do that, when you focus on debt-to-GDP, 

which has gone from 31 percent in 1980 to—pardon me, 30—to 54 

percent in 2000 to 103 percent today, when you count what we owe 

Social Security and Medicare, we’ve got to get that down to about 

60 by ’20 to 2035. Let’s use best practices from the private sector. 

Let’s look to the States. And I think they would tell you, you need 

separate budgets for that. 

Senator HIRONO. Yeah, I’ve often wondered why it is that we 

don’t separate out these budgets, because, in the States, it’s—the 

capital budgets are usually called the capital improvements budget 

[plans], CIP. That’s a totally different way to look at long-term 

debt, et cetera. And so, why do you think we have not adopted that 

at the Federal level? 

Mr. WALKER. Well, it’s before—— 

Senator HIRONO. With any—— 

Mr. WALKER.—it’s before my time, but, you know, our budget 

process is—it’s a cash-based—and it’s focused on 1 year at a time. 

And I think some people have been concerned that you might lose 

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54 

et from an operating budget, ‘‘Let’s just put it all together.’’ But, 

again, that’s what I’m saying. 

Senator HIRONO. Oh. 

Mr. WALKER. If we focus on debt-to-GDP, it’s—have specific targets, triggers, and enforcement mechanisms on debt-to-GDP, that’s 

the way to manage that problem. Private sector and States separate it. States have 2-year budgets. We ought to learn from the 

States. 

Senator HIRONO. Well, do the other panelists also agree that we 

should separate out these two budgets? 

General PUNARO. I agree. 

Senator HIRONO. Mr. Punaro? 

Mr. SPENCER. Completely. 

Ms. BISACCIA. Seems like good management to do so, yes. 

Senator HIRONO. We probably need to figure out how to get 

there, because to make this kind of a—what I would consider a 

really reasonable, fundamental change in how government operates 

and how we make decisions around here would be very challenging, 

but one that I particularly would be interested in. 

Going to a larger question, what do you think are the most important areas for the committee to begin with as we consider reforming the defense organization? For example, would you recommend—and any of the panelists can respond—first, addressing 

the culture and leadership issues, or would you look at organization and processes first? 

General PUNARO. I’ll—— 

Senator HIRONO. Mr. Punaro. 

General PUNARO.—start. The—— 

Senator HIRONO. General. 

General PUNARO.—culture is too hard. You can’t start there, because you don’t—we don’t know what we have. I think you—you 

know, the basic—we have to, basically, get the basic information. 

How big is the DOD infrastructure? How much does it cost? What 

is the size that you want it to have? How are you going to get the 

really good top managers to come in that can drive cultural 

change? And, once you get on top of that, then I think you could 

focus on organization and culture. But, until we, basically, know 

what we have and what we’re spending, you can’t deal with any 

of those other—they are—those are the most important issues: 

leadership and cultural change. But, until you get the fundamentals, you can’t really deal with the other. 

Mr. SPENCER. I think that—in my testimony, I talked about internal and external forces at work. You all hold the external acts. 

There are things that you can do. Totally am sympathetic and understand that some of them are going to be, as I said, politically 

unsavory. But, you have the ability to force the issue. You also 

have internal activities that can happen, such as providing performance metrics for management. So, I think you can do them, actually, simultaneously. 

Chairman MCCAIN. Senator Sullivan. 

Senator SULLIVAN. Thank you, Mr. Chair. 

Appreciate panelists on a very important topic. 

I want to drill down a little bit more on the tooth-to-tail ratio 

issue and just get a sense—you know, General Punaro, you talked 

55 

a lot about it in your testimony, what the Army’s trying to do, in 

terms of their reduction of its Active Duty Force, which, as you 

mentioned in your testimony, seems to be taking a very significant 

hit on the trigger-pullers versus the tail part of the Army. But— 

and then, if you look at charts internationally, where we stand as 

a military compared to other militaries in the world, we have a 

very large tail, relative to the tooth element, relative to other countries, almost every other country in the world. 

You hear some people, though, argue that the reason our military is so effective is because we’re so good a logistics, and we’re 

so good at other aspects of, kind of, the tail component of the military. How can—can you help us kind of tackle that issue? Our— 

is our military so effective because we have such a large tail? Or 

should we be looking historically, say, World War II, where I think 

the ratio was a lot less than it is today? And we obviously had a 

pretty darn effective military back then. How do you suggest we 

think about this? Because I think it’s a critically important issue, 

and your testimony really drills down on it. 

General PUNARO. I mean, I think you have to look at what makes 

our military the finest military in the world. It’s really three 

things. And it is high quality people, it is constant and realistic 

training, and it is giving the troops the cutting-edge technology so 

they’re never in a fair fight. Logistics is important. It’s a discriminator that we have, vis-a-vis other countries. And a lot of logistics 

is not tail. There’s a lot of combat logistics that I would put on the 

forces side. So, when I talk about the 40 percent of the Department 

that’s infrastructure, a lot of the logistics is combat logistics. 

So, the problem is—you know, I have a cartoon that I drew up 

years ago called, ‘‘Where is Private Waldo?’’ So, today you have 1.2 

to 1.3 million Active Duty personnel, roughly 220,000 forward deployed, including troops in the Middle East and in Afghanistan. So, 

you have to ask yourself the question, What is the other 1 million 

doing? And 330,000, and particularly a sizable number in the 

Army, are working in inherently commercial activities: laundry, retail, clerks, finance. These are jobs—and these are our most expensive personnel, the Active Duty military—that either a defense civilian or a contractor could do. And so, the problem in the Department, when you’re talking about tooth-to-tail, is, we have too—we 

have so many people, defense civilians, in military that’s in—part 

of the tail that really is not fundamental to warfighting. 

Senator SULLIVAN. So, how would—— 

General PUNARO. Part—yeah. 

Senator SULLIVAN. So, General Milley has talked about trying 

to—as the Army is looking to draw down—to kind of make sure 

that the warfighters are the last elements of the reduction that the 

Army is undertaking. However, as your testimony points out, that’s 

certainly not the case, that’s not what they’re doing. 

General PUNARO. That’s right. 

Senator SULLIVAN. How can this committee help the service 

chiefs and others focus in a way that does maintain the triggerpullers and warfighters as the last troops that need to be cut, 

versus the guys who are doing laundry and other things, as you 

mentioned? 

56 

General PUNARO. I think you’re going to have to do authorized 

end strengths in the overhead area, just like you do for Active personnel in Guard and Reserve. For example, the committee authorizes, let’s say, 450,000 Active Duty Army. That means, on September 30th of each year, the Army’s authorized end strength has 

to be within one-half of 1 percent above or below that authorized 

number. 

Senator SULLIVAN. And should that look at not only—— 

General PUNARO. And so—— 

Senator SULLIVAN.—authorized numbers, but the number of 

BCTs [brigade combat teams], to make sure there’s a heavy tooth 

element? 

General PUNARO. Well, what I would do—the way I would do is, 

I’d come at it the other way. I would say that the Army can only 

have so many people in the institutional Army. You would legislate 

end strengths for overhead, headcounts, things of that nature, in 

layers, and then, when they see they can’t have as many—they— 

when they see they can’t have a battalion of soldiers guarding prisoners at Fort Leavenworth, they’re going to then put those soldiers 

back into the combat side. So, the way you control it is by controlling the overhead and not letting them have the tail grow at the 

expense of the forces, and they—and then they’re going to say, 

‘‘Okay, holy smokes, we’ve got 50,000 soldiers that we can’t put in 

the institutional Army. Let’s create, you know, 5 more combat brigades.’’ I think that’s the way to do it. 

You’re never going to—you’re never going to get there by encouraging them. Warren Rudman, when he was here in the Senate, 

from New Hampshire, on the Appropriations Committee, working 

with the Armed Services Committee, was a fanatic about tooth-totail and going after it and just encouraging the Department to do 

a better job of putting more in combat and less in tail—has not 

proven to be a successful model. 

Senator SULLIVAN. Mr. Walker? 

Mr. WALKER. The Defense Department really has a subset of the 

same problem the Federal Government has with regard to the 

budget. You’ve got out-of-control overhead cost. That’s what’s eating things alive. That’s why your end strength is going down. Your 

overhead’s out of control. Just like if—the Federal Government, as 

a whole, our mandatory spending costs are cutting into discretionary spending, which you are all the express enumerated responsibility. So, you have to have limits. You have to have limits. 

You also have to have the right people in the right job for the requisite period of time who are responsible for driving this change. 

We don’t have that now. And that’s what I tried to focus on with 

regard to my testimony. 

Senator SULLIVAN. Thank you. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. Senator McCaskill. 

Senator MCCASKILL. You know, I—one of the things I find ironic 

about this hearing is that one of my pet peeves at all of these hearings—and it’s particularly true with the subcommittee hearings— 

is, usually the first two rows behind the witnesses are all people 

from the Pentagon. In one hearing of a subcommittee, I said—I 

asked the audience how many of them worked at the Pentagon, 

57 

and almost every seat in the hearing room, hands went up. I said, 

‘‘You know you can get this on TV.’’ And it’s a symptom of a Deputy Deputy Deputy Dog, General, that—I mean, when you have a 

three-star come to the Hart Building, it takes four SUVs to bring 

one three-star. There is this culture that you’re not really important unless you’ve got a really big posse at the Pentagon. And I 

don’t know how to get at that. 

I was really interested, General, in your recommendation that we 

statutorily limit the number of Deputy Deputy Deputy Dogs that 

are going to be in the Office of the SECDEF [Secretary of Defense], 

of the Secretary of Defense. And have you actually put a pen to 

paper as to what that should be? How would we specifically limit 

that? Because I believe that that might be one of the most important things we could do to strengthen our military. 

General PUNARO. Well, there’s—I agree with you, and I agree the 

entourage syndrome is alive and well in Washington. And it’s a 

leadership issue. And I think Joe Dunford is going to be talking to 

a lot of these senior generals about perks and things of that nature. 

But, there’s two ways to get at the problem you said. One would 

be working with the Department of Defense. I believe Secretary 

Carter is very reform-minded. He is on acquisition, on the Force of 

the Future. And I know he would like to get control of these management headquarters and get agreement on what—how big is the 

Office of the Secretary of Defense? How—you know, and what size 

should it be? Then you could put the mandatory caps in. 

Another way of doing it—and I would say this has been my experience when I served on the committee, because it was always hard 

to find somebody that was willing to do something like that in a 

cooperative way—I believe Ash Carter is different, so I would try 

that first—is, let’s say we believe OSD should be 3,000, and let’s 

say they say it’s 5,000, but we don’t really know. So, put the cap 

at 3,000. They’ll scream and holler and say, ‘‘Holy smokes, that’s 

too small.’’ You’ll then get the right number. But, you’re going to 

have to legislate caps for OSD, the Joint Staff, the combatant commanders, and the management headquarters to be able to get control of the overhead. 

Senator MCCASKILL. As we cut the money under the budget constraints, none of those have gone away, right? 

General PUNARO. The—— 

Senator MCCASKILL. We’ve reduced end strength, but not the 

Deputy Deputy Deputy Dogs. 

General PUNARO. There’s too many ways—the money is too fungible. Cutting money doesn’t do—will not cut the headcount. I 

mean, when Secretary Gates eliminated the Joint Forces Command, people believed that we eliminated the Joint Forces Command in July of 2010. The 2,000 military serving in the Joint 

Forces Command were added to the roster of the Joint Staff. 

Senator MCCASKILL. Right. 

General PUNARO. All the defense civilians were just put in other 

locations. The only thing we got rid of were the contractors. Now, 

we don’t have that headquarters, so there’s—the shell game—the 

Chairman—I saw something dealing with the Air Force, where 

they were taking credit. Now, I didn’t look into the details on this, 

so—but, whatever it is, the problem is, the Defense Department, 

58 

over the years, not unique to any one administration, they are the 

duty experts at, ‘‘Hey, we just cut this defense agency,’’ and then 

you look over here, and, ‘‘Oh, my God, they just created a brandnew field activity that doesn’t count against that total.’’ 

Senator MCCASKILL. Right. 

General PUNARO. That’s why I’m for these firm end caps. The Department won’t like this. Maybe members of the committee won’t 

like this. We don’t like to try to have to micromanage in this area. 

But, to get control of it, I think—— 

Senator MCCASKILL. It may be—— 

General PUNARO.—you’re going to have to do it. 

Senator MCCASKILL.—necessary, yeah. 

I’m not going to have time to get to all the contractor stuff, but 

obviously this is something I’m spending a great of time on, and 

I worry a little bit—I know my dad peeled potatoes in World War 

II, and I know we shouldn’t have anybody, an expensive 

warfighter, peeling potatoes, but we know that LOGCAP [U.S. 

Army’s Logistics Civil Augmentation Program], at least the first 

two or three versions, were a disaster, in terms of costs, in terms 

of handling costs. And so, I don’t want us to lose sight of the fact 

that, while we move these functions to a civilian force, a contractor 

force, that we lose sight of the fact of the kind of money we’ve 

wasted on bad contracting practices. I just want to get that on the 

record, because we’ve spent an awful lot of time trying to dig deep 

on that issue. 

General PUNARO. You have to have—that’s why David Walker 

and all of us here believe you’ve got to bring in these world-class 

business managers and manage these contracts. You all created the 

Wartime Contracting Commission. They made a lot of good recommendations. But, again, you’ve got to bring—these are businesses. LOGCAP—— 

Senator MCCASKILL. Right. 

General PUNARO.—is a business enterprise. You need people that 

know how to run business. There are very, very few people in government that know how to manage a business. 

Senator MCCASKILL. Finally, just briefly—and if you want to answer this for the record, because I know I’m almost out of time, 

but—— 

Chairman MCCAIN. No, please go ahead. 

Senator MCCASKILL. I want to talk about the audit. David, 

should we—it’s almost like the systemwide audit is the bright, 

shiny object. And the amount of resources and time we’re trying to 

get—this systemwide financial audit, I might add—we are not, 

probably, putting the time into performance-based audits. And as 

a fellow auditor, both of us understand that the real gold is in performance audits, in terms of figuring out how much wasted payroll 

there is at the Pentagon. Are we getting distracted by the effort to 

synchronize systems across various branches for the financial 

audit? And should we, in fact, refocus on how many performance 

audits are actually going on at DOD, and how much are we consuming them and using the information in them? 

Mr. WALKER. As you know—you having been the State auditor 

for Missouri, myself having been Comptroller General—the fact is, 

internal controls are the most important thing. In addition, having 

59 

effective cost accounting systems with full cost accounting is important. In addition, understanding what you have, where it is, what 

condition it’s in, and then performance metrics, those are the most 

important things. 

Peter Levine—I’ve spent some time with Peter recently—Peter 

recognizes that he needs to spend more time on controls, on cost 

accounting, and on performance management. I agree with that. I 

think we have to reassess where they are with regard to the financial statement audit. As I mentioned before, my personal view is, 

you need a plan, a matrix plan that talks about organizations and 

line items, focused on getting an opinion on the consolidated DOD 

financial statements, rather than the sub-entities. 

I would also respectfully suggest that, once we have clean opinions on all major U.S. departments and agencies, then I think we 

have to think about whether or not we need to have opinions on 

the financial statements of individual departments and agencies, 

and we focus on the consolidated, which GAO [Government Accountability Office] would lead, and they would end up working 

with the inspector generals and contract out with private sector, 

independent public accountants, as appropriate, so we could discharge our responsibility to the taxpayers with regard to what’s 

happening with their resources, but we can spend a lot more time 

and money on exactly what you’re talking about. 

Senator MCCASKILL. Right. 

Mr. WALKER. Let’s talk about performance audits—what’s working, what’s not working—so we can focus economy, efficiency, effectiveness, and continuous improvement. 

Senator MCCASKILL. Thank you. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. I thank the witnesses. And the—— 

Senator KING. Mr. Chairman? Mr. Chairman? 

Chairman MCCAIN. Senator King. 

Senator KING. Very quickly, I just wanted to mention that Senator Enzi and a number of us have a bill on biennial budgeting. 

And, in fact, we had a hearing at the Budget Committee, just last 

week. So, that’s under very active consideration. And on the performance audit question, my favorite way to approach that is, ask 

two question: Does it work, and how do you know? And that’s 

something that we don’t do frequently enough. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. General Punaro mentioned the Air Force exchange I had with the Secretary of the Air Force, who volunteered, 

twice, that they had reduced the size of the headquarters by 10 

percent, I believe it was, ahead of the years they were supposed to. 

And finally, I asked her, ‘‘Well, how many jobs were eliminated?’’ 

Zero. So—— 

And again, I still, frankly, am challenged by this requirement to 

get particularly Silicon Valley as well as other wise people into the 

Department of Defense. And I agree with you, there’s a certain 

number out there that were—are just patriotic Americans. But, 

that’s in spite of the system that they would be joining, not because 

of. And so, I’m hoping we can work out some better way of 

incentivizing people of the kind of talents we need in this InformaVerDate Nov 24 2008 12:31 Oct 19, 2016 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6601 C:\USERS\WR47328\DESKTOP\22191.TXT WILDA
60 

tion Age, and the cyber challenge that we’re facing to serve the 

government. 

So, I thank you for this very important hearing. 

General Punaro? 

General PUNARO. Mr. Chairman, I wanted to add one thing. In 

one of my other recommendations for reform in the Congress is to 

collapse the authorizing and appropriation committee and have the 

Senate Armed Services Committee authorize and appropriate in 

the same bill. That’s a serious recommendation. It goes with biennial budgeting. 

And, number two, on the Goldwater-Nichols, I think we need to 

go back to giving the Chairman and the Vice Chairman a 4-year 

tour instead of two 2-years, like we set it up. I’m very worried— 

and I’ve studied this and looked at it over time. I’ve talked to Senator Nunn, Senator Warner, Jim Locher, and others. I worry that 

the Chairman—I’m not pointing fingers at any one particular one— 

we’re losing—they’re losing their independence. And it—fundamental to this committee has always been that, when a military 

person is asked their professional views, independent of the administration in power, they give them. But, because we set it up so 

they have to be reconfirmed, I really worry about that. And I hope 

you will take a serious look at that. 

Chairman MCCAIN. I think that’s an excellent point. We recently 

had the Secretary of Defense come before this committee and 

refuse to confirm something that had—an event, of going inside the 

12-mile limit, which was widely reported—television, radio, and 

print media—refusing to confirm that. Later, in the New York 

Times, it said that they didn’t want him to confirm it because it 

would irritate the Chinese over climate change. We have come a 

long, long way since my earliest days here on this committee. As 

much as I admire the Secretary, I find that kind of thing absolutely 

unacceptable. 

I thank you witnesses today. I thank you for being here. And 

this, again, contributes enormously to what we will really make a 

serious effort, hopefully, and I believe optimistically, that we will 

be working with the Secretary and others as we try to implement 

these reforms. But, we will implement these reforms, with or without the Secretary of Defense. 

This hearing is adjourned. 

[Whereupon, at 11:27 a.m., the hearing was adjourned.] 

[Questions for the record with answers supplied follow:] 

QUESTIONS SUBMITTED BY SENATOR JONI ERNST

LACK OF OCCUPATIONAL SERIES FOR PROGRAM MANAGEMENT

1. SENATOR ERNST. What role does the lack of a core occupational series for program management and a lack of a holistic program management framework rooted 

in industry standards and practices play in all acquisition outcomes? 

According to the Defense Acquisition Workforce Human Capital Initiative 

PowerPoint on Program Management from March 31, 2015—only a quarter of Program Managers are identified with OPM’s 0340 job series. Moreover, the job description for the 0340 job series states, ‘‘There are no individual occupational requirements for this series.’’ Similarly the same presentation shows that there are engineers, IT, contracting professionals and others all fulfilling the role of Program 

Manager. How you are certain these individuals have the necessary credential to 

successful manage an acquisition program from start to finish? 

61 

Major General Punaro did not respond in time for printing. When received, answer will be retained in committee files. 

Mr. Spencer did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. Walker did not respond in time for printing. When received, answer 

will be retained in committee files. 

RETENTION AND GROWTH OF PROGRAM MANAGERS: 

2. SENATOR ERNST. Information from the Defense Acquisition Workforce Human 

Capital Initiative PowerPoint on Program Management from March 31, 2015, also 

shows that of the ‘‘experienced’’ PM’s . . . 45 percent are eligible for retirement within 10 years and 17 percent are already eligible for retirement. What is DoD doing 

to ensure there is an experienced workforce and talent pipeline that is ready to keep 

up with the growing complexity and demand of defense acquisition and where is 

that talent pool going to come from? 

Major General Punaro did not respond in time for printing. When received, answer will be retained in committee files. 

Mr. Spencer did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. Walker did not respond in time for printing. When received, answer 

will be retained in committee files. 

Æ