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S. HRG. 114–394 

ACQUISITION REFORM: NEXT STEPS 

HEARING 

BEFORE THE

COMMITTEE ON ARMED SERVICES 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 1, 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 

DECEMBER 1, 2015

Page 

ACQUISITION REFORM: NEXT STEPS ........................................................................ 1 

Gansler, Hon. Jacques S., Chairman and CEO, The Gansler Group and Professor Emeritus, University of Maryland ........................................................... 5 

Augustine, Norman R., Coauthor, The Defense Revolution ................................. 13 

Fitzgerald, Ben, Senior Fellow and Director of the Technology and National 

Security Program, Center for a New American Security .................................. 17 

Ward, Lieutenant Colonel Dan, USAF (Ret.), Consultant and Author of 

F.I.R.E.: How Fast, Inexpensive, Restrained, and Elegant Methods Ignite 

Innovation ............................................................................................................. 24 

Questions for the Record ......................................................................................... 58 

(III) 

(1) 

ACQUISITION REFORM: NEXT STEPS 

TUESDAY, DECEMBER 1, 2015 

U.S. SENATE, COMMITTEE ON ARMED SERVICES, Washington, DC. 

The committee met, pursuant to notice, at 9:30 a.m. in Room SDG50, Dirksen Senate Office Building, Senator John McCain (chairman) presiding. 

Committee members present: Senators McCain, Inhofe, Wicker, 

Ayotte, Fischer, Cotton, Rounds, Ernst, Tillis, Reed, Nelson, 

McCaskill, Manchin, Shaheen, Gillibrand, Donnelly, Hirono, King, 

and Heinrich. 

OPENING STATEMENT OF SENATOR JOHN MCCAIN, CHAIRMAN 

Chairman MCCAIN. Well, good morning. The Senate Armed Services Committee meets this morning to discuss the next steps for reforming the Pentagon’s broken acquisition system. 

Last week, the President signed the National Defense Authorization Act [NDAA] for Fiscal Year 2016 into law, and that legislation 

marked the beginning of a significant revamping of the defense acquisition system that has been broken for decades. Schedule delays 

and cost overruns are par for the course. Complex regulations and 

stifling bureaucracy impede innovation and restrict access to critical commercial technologies. Worse still, it seems no one in the defense acquisition system is ever held accountable for these repeated 

failures. That’s why in this year’s NDAA, Congress sought to improve access to nontraditional and commercial innovation by removing barriers to new entrants into the defense market, adopting 

commercial buying practices for the Defense Department, and ensuring these firms are not forced to cede intellectual property that’s 

developed at their own expense. The NDAA also expanded flexible 

acquisition authorities in the development of alternative acquisition pathways to acquire critical national security capabilities. 

And perhaps most importantly, the NDAA took important steps 

to ensure accountability in the defense acquisition system. The 

NDAA gave greater authority to the military services to manage 

their own programs and enhance the role of the service chiefs in 

the acquisition process. Service chiefs, service secretaries, service 

acquisition executives and program managers will now sign up to 

binding management requirement and resource commitments. And 

if military services fail to manage a program effectively, they will 

lose authority and control over that program and be assessed an 

annual cost penalty on their cost overruns. This committee will be 

watching closely to ensure the Department implements these reVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6602 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
2 

forms in keeping with both the letter and spirit of the law. At the 

same time, we will continue to press forward to make lasting reform a reality. 

It’s been almost 30 years since the landmark Goldwater-Nichols 

Act and the Packard Commission. It’s been 20 years since the Federal Acquisition Streamlining Act and the Clinger-Cohen Act. In recent years, the Pentagon has been given unprecedented authorities 

to bypass the existing acquisition system and access new technologies and innovative companies, yet today the defense acquisition system is more risk-averse, costly, inefficient, and less open to 

commercial solutions than it was 30 years ago. 

This morning, we welcome a distinguished panel of witnesses to 

help us identify what else Congress can do to change the current 

incentive structure and culture to achieve improved acquisition outcomes that meet the needs of our servicemembers and taxpayers: 

The Honorable Jacques Gansler, Chairman and CEO [Chief Executive Officer] of The Gansler Group and Professor Emeritus at the 

University of Maryland. Mr. Gansler previously served as Under 

Secretary of Defense for Acquisition, Technology, and Logistics in 

the Clinton administration; Mr. Norman Augustine, founder of InQ-Tel, former Chairman and CEO of Lockheed Martin, and Acting 

Secretary of the Army; Mr. Ben FitzGerald, Senior Fellow and Director of the Technology and National Security Program at the 

Center for a New American Security; and retired Air Force General—Lieutenant Colonel Dan Ward, a former Air Force acquisition 

officer who specialized in leading high-speed, low-cost technology 

development programs. 

We simply cannot tolerate the vast management failure that is 

the defense acquisition system. All too often, programs are delayed, 

over budget, and underperforming. Worse still, the Pentagon has 

wasted billions on programs that produce no combat capability 

whatsoever: $20 billion spent on the Future Combat System, with 

little to show for it; over $1 billion spent on the Expeditionary 

Combat Support System; a failed attempt to implement a, quote, 

‘‘commercial off-the-shelf logistics IT [information technology] system’’ that resulted in no usable capability for the Air Force; $3 billion in 15 years spent on the expeditionary fighting vehicle; and 

$3.2 squandered on the presidential helicopter without ever fielding a single helicopter. And to think we used to be able to field zero 

helicopters for free. 

Still, the management failures and the colossal waste of taxpayer 

dollars may not be the worst of our problems. As the bureaucracy 

fiddles and fails to modernize our forces, our adversaries are catching up with us in the development of critical defense technologies. 

At the same time, the Defense Department struggles to incorporate 

advanced commercial technologies into its operations as they become more widely available to our enemies. Our national security 

cannot rest on the assumption that our adversaries will be as inefficient and clueless as we are about buying defense capabilities. 

We’ve reached a critical inflection point. We are confronting an 

emerging technology gap with the commercial market in electronics, information, security, robotics, communications, and data 

analytics. Combined with budget cuts that prevent us from modernizing our forces or deploying them in sufficient numbers around 

3 

the world, such a gap will be disastrous, emboldening our adversaries and feeding instability. We must not allow any such technology and capability gap to grow. The United States has the 

greatest military in the world, but, make no mistake, protecting 

our military technological superiority is the urgent work of today, 

not tomorrow. For acquisition reform to be successful, we must 

change the current culture of inefficiency, risk aversion, and complacency. There is only so much that legislation can do to accomplish this goal. It will require changing incentives and focused and 

continuous leadership from Congress, the Secretary of Defense, and 

industry. Every year we fail to do so, billions more in taxpayers’ 

dollars will be wasted, and our military will be left less capable of 

performing its missions. That is dangerously unsustainable, and 

that’s what we must prevent. And that’s why we must continue to 

press the cause of acquisition reform. 

And finally, I’d like to say that the President, as we all know, 

signed the defense authorization bill, a product of which all of us, 

Republican and Democrat, can be proud of the bipartisan effort. 

Our constituents are very unhappy about our lack of achieving results here in Washington. And I think all of—every member who 

has been heavily engaged in this process can look with some satisfaction, the fact that, in a bipartisan fashion, we were able to craft 

legislation that is a beginning of reform and also continues our obligation to help train, equip, and defend the men and women who 

serve this Nation. 

Senator Reed. 

STATEMENT OF SENATOR JACK REED 

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

let me also echo your comments about the defense authorization 

bill and make it clear that, without your leadership, it would not 

have been a bipartisan and innovative and important piece of legislation. So, thank you, Mr. Chairman. 

And, gentlemen, thank you for joining us today. You have a 

wealth of experience in acquisition and management in the Department of Defense. You will help us sort of look forward to the next 

steps that we must take to follow on the—what is included in this 

defense authorization bill to improve defense acquisition. Your experience, your insight, will be absolutely critical as we review additional steps that we will take, going forward. 

The Pentagon’s fundamental mission is the defense of our Nation, which requires that our military procure technologically advanced weapons platforms and invests in cutting-edge research and 

development. According to the Congressional Defense—excuse me— 

the Congressional Research Service, the Department of Defense obligated $285 billion in contracts in FY [fiscal year] 2014, which was 

more than all other Government agencies, combined. This amount 

included funding for high-end critical weapon systems, such as the 

Joint Strike Fighter and the Ohio-class replacement submarine, as 

well as service support contracts, which have much less visibility. 

In fact, the Government Accountability Office has stated that, within the Federal Government, the Pentagon has the largest share of 

all service contracts, totaling $156 billion in FY 2014. And many 

times, we overlook these service contracts, where, in fact, that’s a 

4 

critical item, in terms of reforming and making more efficient the 

operation of the Department of Defense. 

In an era of fiscal constraints, it’s become more important to ensure that we spend every dollar wisely. While the Department has 

made progress in addressing cost overruns for some major acquisition programs, more work remains. For every dollar that is spent 

on the weapon systems that are underperforming, that is a dollar 

that we cannot spend on other important requirements of the military services, including other acquisition programs and important 

readiness activities, including flying hours for aircraft, steaming 

days for ships and submarines, and all training that supports the 

national military strategy. 

The good news is that the acquisition procurement reforms undertaken by this committee, again under the leadership of the— 

Chairman McCain and, preceding that, under his leadership and 

that of Senator Carl Levin, such as the Weapon Systems Acquisition Reform Act, have been, I think, combined with the better buying power reform led in the Department by Secretary Carter and 

Under Secretary [of Defense for Acquisition, Technology, and Logistics] Kendall, have begun to make an impact on our ability to control costs and schedules of acquisition, but we can’t sit back on our 

laurels; we’ve got to do much more. Programs, I think, are being 

run with more realistic cost estimates, more rigorous systems engineering, and with lower technological risk. Programs that have 

been initiated under the rules of these later reforms have experienced less cost growth and fewer schedule slips than we’ve seen 

previously. Fewer programs are breaking large cost-growth thresholds—in other words, Nunn-McCurdy [Act] breaches. We also seem 

to be making progress with halting the cost for increases for some 

major troubled acquisition initiated under the old rule. 

Unfortunately, progress has been more elusive in other areas. 

The Department still struggles to develop and field large information technology systems and managed businesses processes, like 

personnel, pay, and accounting. DOD [Department of Defense] still 

does not have a good handle on how to control its spending on the 

lower visibility service contracts, as I mentioned before. DOD also 

finds it very difficult to compete with the private sector for worldclass technical, engineering, and program management talent. We 

are rapidly losing important pieces of our defense industrial base 

through merges and consolidations. And, perhaps most importantly, the Pentagon is in the unfamiliar role of chasing global and 

commercial innovation, rather than acting as the technological 

leader that it has been in the past. And I hope our witnesses can 

help us shed light on all these different topics. 

Thank you again for your service to the Nation. And I look forward to your testimony. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. Dr. Gansler. 

By the way, all of your complete statements will be made part 

of the record. 

Dr. Gansler. 

5 

STATEMENT OF HON. JACQUES S. GANSLER, CHAIRMAN AND 

CEO, THE GANSLER GROUP AND PROFESSOR EMERITUS, 

UNIVERSITY OF MARYLAND 

Dr. GANSLER. Thank you. 

Well, I don’t have to tell this committee that this is a critical period in the future security of the United States. Our defense budget 

is being cut significantly to help pay for the Nation’s debt, and a 

significant share of these cuts are coming out of R&D [research and 

development], which, of course, Senator Reed, your statements 

there are in conflict with that, taking cuts in R&D as we are now 

doing to help balance the budget. I think the way this strikes me 

is, we’re preparing for 20th century warfare, but not 21st century 

needs. And I think that’s not what we should be doing. 

Well, clearly, the world is not at peace today. We have concerns 

about ISIS [the Islamic State of Iraq and Syria], Syria, the Crimea, 

the South China Sea, nuclear weapons and ICBM [intercontinental 

ballistic missile] proliferations, terrorism, and cybersecurity. And, 

as we become more and more dependent on cyber, and as Senator 

McCain mentioned, things like robotics and other areas, we’re becoming increasingly concerned about cyber—use of cyber—and 

therefore, this threat is becoming more and more real, the cybersecurity threat. And the recent OPM [Office of Personnel Management] cyber attack certainly alerted all of us to that. 

The overall security problem is compounded by the rising costs 

of the current weapon systems and the high cost of their support. 

And I agree with Senator Reed’s point about emphasizing the support, as well. And then, of course, the lengthening development 

times for the new systems—for example, the F-22 took 22 and a 

half years; during that 22 and a half years, technology changes 

rapidly, geopolitics changed rapidly, and so we have to be able to 

adjust more rapidly. 

Without a question in my mind, significant change is clearly required in the way the DOD goes about the acquisition of goods and 

services. And, to achieve this, the historical data is very clear—in 

order to make change, to make significant change, two things are 

required: widespread recognition of the need for change, and leadership with a vision, a strategy, and a set of implementation actions. 

On a positive note, the first of these is demonstrated by the current SASC [Senate Armed Services Committee] and HASC [House 

Armed Services Commitee] proposals, under the leadership of Senator McCain or Representative Thornberry, for significant defense 

acquisition reform. Now we need agreement from the executive and 

legislative branches on the specific actions required to address this 

need for greater security with fewer dollars. 

In the past, the U.S. defense and economic competitiveness strategies for the Nation have been based on technological superiority. 

But, today, as shown in the first of my figures that I hope you all 

have copies of, it’s very clear that, as was mentioned, the commercial world is now spending significantly more money on their R&D, 

and the global world is spending significantly more on R&D. And 

because there should be a correlation between R&D expenditures 

and results achieved, there are many critical national security 

areas in which the DOD is no longer leading. 

6 

For example, like when I got a briefing from the Army Night Vision Lab recently, the French are the leaders in night-vision devices. And also, when the DOD decided to armor the next-generation infantry fighting vehicles because roadside bombs were the 

number-one killer of U.S. soldiers and marines in Iraq and Afghanistan, so the DOD chose armor from Israel, and the foreign firm 

agreed to build the armor in the U.S. At least that’s positive. Clearly, the congressional and DOD cutbacks and the share of the budgets going to R&D must be reversed in order for the DOD to achieve 

technological leadership in the 21st century. 

Under Secretary Frank Kendall stated, in the—in his Better 

Buying Power 3.0, the removal of the barriers to buying commercial is an area that has to change. And in the figures that I gave 

you, Figure 2 shows the comparison that came out of the Packard 

Commission that Bill Perry certainly pushed hard when Bill was 

Secretary, for the difference between a commercial electronics 

item—in this case, semiconductors, and a MIL-SPEC [U.S. Military 

Standard] one—in this case, as you can see from the data, the commercial is more than an order of magnitude cheaper, and more 

than an order of magnitude more reliable, and even more advanced 

in technology. And so, why wouldn’t we use them? It seems to me 

sensible to consider doing that. 

And, in fact, on Figure 3, you’ll notice, this is the code of Federal 

regulations today, and it’s now up to 180,000 pages. I’m sure every 

one of you have memorized every one of those requirements. 

[Laughter.] 

Dr. GANSLER. And there’s no question about—that is a barrier to 

using commercial—— 

Chairman MCCAIN. Say that again. How many pages? 

Dr. GANSLER. 180,000 pages. 

Chairman MCCAIN. Thank you. 

Dr. GANSLER. And not only that, Senator, but every year—— 

Chairman MCCAIN. Yeah, I read them all the time. 

[Laughter.] 

Dr. GANSLER. Every—that’s—look at the slope of that curve. 

Every year, we’re adding another 2,000 pages of requirements that 

are coming from a combination of legislation and regulation. That’s 

where they’re coming from. And it has been independently estimated by OMB [Office of Management and Budget] and the Small 

Business Administration that the cost of that compliance is $1.75 

trillion in 2008, when they did their analysis. So, it’s not a trivial 

point that is—this is just one of the barriers that Frank Kendall 

was trying to identify. And clearly we have to address that. 

And so, why, if you’re a commercial firm, would you then want 

to go into the defense business? It’s not expected to be a growth 

market. It’s—as we’re seeing, it—the dollars are shrinking. It’s 

being used to pay for the Nation’s debt. And we are legislating, in 

effect, a smaller profit than what the company would make in the 

commercial business. So, you know, if you don’t have a growth 

market and you’re guaranteed to get a lower profit, why is that a 

good business for you to go into? And this growth in the Federal 

regulations pages is killing the desire for any good commercial firm 

to get into this business. 

7 

So, in 2005, the test of desirability of using commercial parts to 

lower the costs of weapon systems, we tried, when I was Under 

Secretary, to apply this logic to the JDAM [joint direct attack munition] missile. The JDAM missile is converting dumb bombs into 

smart bombs. Precision-guided rather than simply gravity-dropped. 

Chairman MCCAIN. Doctor, could you summarize, since we have 

three other witnesses and so we could move forward with the questions, please? 

Dr. GANSLER. Sure. 

Chairman MCCAIN. Thank you. 

Dr. GANSLER. Okay. 

Chairman MCCAIN. Go ahead. 

Dr. GANSLER. Well, Senator Nunn once told me, ‘‘Jack, don’t give 

me a lot of theory, give me some examples.’’ So, this—the JDAM 

is an example, where it was independently estimated that, if you 

use MIL-SPEC parts for the JDAM missile, it was going to cost 

$69,000 each. They now—we allowed them to use commercial 

parts, and they’re now building them for $18,000 each. So, there’s 

a $50,000 difference there, times the 10- to 20,000 of dumb bombs 

that we had stored, that we wanted to now put into them, that we 

can now have precision delivery with. So, it makes a significant difference, not only in cost, but in reliability and performance, getting 

the combination of that out of it. So, we got the savings both ways, 

performance improvements and cost. 

So, clearly, we should be using affordability now to drive our system. And the keys to affordability, it seems to me, are six items 

that—one of which is increased—let me summarize this—increased 

competition. And I—and in my paper, I’ve described some of those 

issues. For example, in a lot of these services that Senator Reed 

mentioned, we have a choice of doing public sector versus private 

sector. But, Congress has outlawed A–76 competitions. And when 

we had over 3,000 of those competitions, the average savings was 

over 30 percent. Why wouldn’t we continue them? I understand 

what the political considerations were. 

Second thing that you need to do in order to address more efficiency and effectiveness is greater civil/military, industrial integration. 

Third thing, more emphasis on innovation. Cutting the R&D 

budget is, for example, not an emphasis on innovation, and people 

don’t just—are resisting cultural change, or resist change. And 

that’s one of the things that’s happening. 

And I think we also need to look at more innovative financing 

techniques. Other countries are now using leasing, for example. 

And I know we went through that once on a—the tankers, but we 

had to stop it because of the illegal action, but not because of the 

leasing. And it’s important. 

Okay. And the fifth area was overcoming the resistance to 

change, both in industry and in the DOD. And we have to—that 

takes leadership to do that. 

And then the last item, that you did address, and they also addressed it in the House, which is the education and training of the 

DOD acquisition workforce. That’s critical that we get these people 

with better education and training. And one of the things that at 

least I had noticed that was being cut out was graduate education 

8 

1Former Under Secretary of Defense Acquisition, Technologic and Logistics, 1997–2001. Currently, CEO The Gansler Group, McLean, Virginia, and also Professor Emeritus, School of Public Policy and Glenn L Martin Professor, School of Engineering, University of Maryland. 

funding for the DOD. And strikes me that that’s going in the opposite direction. 

So, let me thank you, Senator McCain, and you, Senator Reed, 

for this opportunity to present this information. 

[The prepared statement of Dr. Gansler follows:] 

PREPARED STATEMENT BY HON. JACQUES S. GANSLER, PH.D. 1

I do not have to tell this Committee that this is a critical period for the future 

security of the United States. Our defense budget is being cut significantly to help 

pay for the Nation’s debt and a significant share of these cuts are coming out of 

R&D. Clearly, we are preparing for 20th century warfare, but not 21st century 

needs. 

Yet the world is not at peace. We have to be concerned about ISIS, Syria, the Crimea, the South China Sea, nuclear weapons and ICBM proliferations, terrorism, 

and cybersecurity—as we have become more and more dependent on cyber, and as 

the threat capability becomes more real (as the recent OPM cyber attack alerted us). 

The overall security problem is compounded by the rising costs of current weapon 

systems and the high cost for their support, as well as by the lengthening development times for new systems—for example, the F–22 took 22.5 years. This long cycle 

is counter to the rapid and continuing changes occurring today in the areas of both 

technology and geopolitics. 

Without question, significant change is required in the way DOD does its acquisition of goods and services and, to achieve this, the historical data is clear. To 

achieve significant change, two things are needed. 

1. Widespread recognition of the need for change; and 

2. Leadership—with a vision, a strategy and a set of implementation actions. 

On a positive note, the first of these is demonstrated by the current SASC and 

HSAC proposals, under the leadership of Senator McCain and Representative 

Thornberry, for significant defense acquisition reform. Now we need agreement, 

from the Executive and Legislative branches, on the specific actions required to address the need for greater security with fewer dollars. 

In the past, the US defense and economic competitiveness strategies have been 

based on ‘‘technological superiority.’’ But today (as shown in figure 1) the commercial and international worlds are greatly exceeding the federal government’s expenditures on R&D. Since there is a correlation between R&D expenditures and results 

achieved, there are many critical national security areas in which the DOD is no 

longer leading. For example, the French are the leaders in night-vision devices. 

Also, when the DOD decided to armor their next generation infantry fighting vehicles (since road-side bombs were the No.1 killer of US soldiers and marines in Iraq 

and Afghanistan), they chose armor from Israel (and the foreign firm agreed to build 

the armor in the US). Clearly, the Congressional and DOD cut back in the share 

of the budgets going to R&D must be reversed in order for the DOD to achieve technological leadership in the 21st century. 

Under Secretary Frank Kendall stated, in ‘‘Better Buying Power 3.0,’’ the ‘‘removal of the barriers to buying commercial’’ is an area that has to change. Figure 

2, from the Packard Commission, compares commercial semiconductors to militaryspecification semiconductors, and shows that the commercial parts are an order of 

magnitude cheaper, more than an order of magnitude more reliable, and more technologically advanced. But, there are significant ‘‘barriers’’ to commercial firms wanting to do business with the Department of Defense—it is not expected to be a 

growth market, the profit margins are mandated to be low, and the incredible number of regulations for doing government business drives up costs and also drives 

away commercial firms. In fact, Figure 3 shows that the Code of Federal Regulations is now around 180,000 pages (and growing by 2,000 pages a year). In 2008, 

OMB and SBA estimated the regulatory compliance cost to be 1.752 trillion dollars. 

In 2005, to test the desirability of using commercial parts (to lower the costs of 

weapon systems), the Joint Direct Attack Munition, or JDAM (see Figure 4), which 

is a precision-guided weapon to convert ‘‘gravity bombs’’ into ‘‘smart bombs’’ was allowed to use commercial parts for electronics, sensors, and actuators. The result was 

greatly improved performance at dramatically lower cost. In fact, an independent 

cost analysis determined that by using military specified parts the cost would be 

9 

$69,000 each, while the actual price, using commercial parts, is $18,000 each. Since 

the DOD had tens of thousands of gravity-dropped dumb bombs to be converted to 

smart bombs, the use of commercial parts on JDAM resulted in very significant savings, and the performance greatly improved. 

To achieve the required overall DOD objective of ‘‘greater capability for fewer dollars,’’ the driving requirement must be ‘‘affordability.’’ This can be achieved by six 

specific actions: 

1. Increased competition, at both the prime contractor level and at the subcontractor level—for the acquisition of both goods and services—with awards 

based on ‘‘best value,’’ not simply ‘‘lowest price.’’ 

The benefits of competition, both in performance gains and in lower costs, have 

been demonstrated over and over—and is the basis of the American economy. 

Similarly, in over 3,000 examples of public/private competitions for non-inherently governmental work, the average savings has been over 30 percent; but 

these so-called ‘‘A–76 competitions’’ have been outlawed by Congress. Without 

a doubt, for all future acquisitions of goods and services, at both the prime contract and subcontract levels, competition must be considered. 

2. Greater civil/military industrial integration in both hardware and software 

by removing the barriers to buying commercial 

The JDAM example clearly proves the value of civil/military integration. A second example I might note is the dramatic price increase that occurred when 

Boeing was forced, by the government, to separate the building of military and 

commercial transports. Boeing had been building both in the same production 

facility and achieving lower cost for both by taking advantage of the economiesof-scale from the higher combined volume. 

3. Increased emphasis on funding for innovation. The fact that both Congress 

and the DOD have decided to cut the R&D budgets as the total defense budgets are declining, is a clear demonstration of the resistance to innovation (i.e. 

the resistance to change) and an indication that the US will no longer be able 

to lead through ‘‘technological superiority’’—especially, since (as shown in Figure 1) both the US commercial world and other countries are significantly increasing their R&D budgets. However, the DOD must continue to focus on innovation investments in order to stay ahead. 

I might note, at this point, that recent data (as seen in Figure 5) indicates that 

the greatest source of significant innovation comes from government-supported 

small-business-innovative-research (SBIR). It is a no brainer that this should 

continue to be supported. 

4. Greater use of innovative financing techniques such as leasing and public/ 

private partnerships. Currently many other countries are using leasing as a 

way to spend less and still get the needed performance. This is a technique 

we all use regularly; for example, if we need a car somewhere across the country, we do not buy one, we just lease it when we need it. 

In fact, DOD decided to use leasing for the tanker. Unfortunately, there was 

a criminal personnel scandal (in 2002) which, by the way, had nothing to do 

with the concept of leasing, that killed the deal. I believe the potential benefits 

are sufficient to explore the concept again—especially when the leased items 

have dual-use value, both for commercial and military applications. 

5. Greater emphasis on the need to overcome the institutional resistance to 

change. A critical change required is greater use of innovation, with a focus 

on higher performance at lower costs. 

To overcome the Congressional and DOD’s institutional resistance to change, 

the literature is clear, it takes two things to implement successful change: 

• General agreement on the need for change. Today, the HASC and the 

SASC acquisition reform bills, show that there is widespread agreement on 

the need for change. 

• Therefore, what is required is legislative and executive branches’ leadership pushing for the needed changes; specifically, to get more capability for 

the available dollars—with a focus on the six areas covered herein. 

6. A focus on the education and training of the DOD’s acquisition workforce. The last change required is reform of education and training for the 

DOD’s acquisition workforce. This is clearly recognized in both the SASC and 

the HASC acquisition reform proposals. 

A 2009 Defense Science Board Task Force found that 55 percent of the DOD 

acquisition workforce had less than five years of experience and that most of 

10 

the senior, potential mentors, had retired. For example, in 1990 the Army had 

five general officers with contracting experience, while in 2009 it had none. Instead of educating the acquisition workforce on compliance with the 180,000 

pages of the code of federal regulations, they should be taught about ‘‘best practices.’’ Also, instead of solely case studies on the acquisition of prior weapon systems, they should learn with comparable examples of complex commercial acquisitions (faster and at lower costs). 

Finally, the DOD acquisition workforce should be encouraged to attend relevant 

Graduate school classes (at government’s expense). The cost is small but the potential benefits are significant. 

Senator McCain and Senator Reed, thank you both for the opportunity to express 

my views on the needed defense acquisition reforms at this critical point in our Nation’s security posture. 


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12 

Chairman MCCAIN. Thank you, Doctor. 

Mr. Augustine, welcome back. 


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13 

STATEMENT OF NORMAN R. AUGUSTINE, COAUTHOR, THE 

DEFENSE REVOLUTION 

Mr. AUGUSTINE. Thank you, Mr. Chairman—it’s good to be 

back—Senator Reed, members of the committee. I appreciate the 

opportunity to share my thoughts on the defense acquisition process. And I have submitted a statement for the record, Mr. Chairman. 

I need to emphasize that I’m appearing as a private citizen, and 

so the views I express are purely my own. 

Chairman MCCAIN. It’s never constrained you in the past. 

[Laughter.] 

Mr. AUGUSTINE. That’s true, and it may not today. But, I probably should give a little bit of my perspective. I must confess that 

I’ve spent nearly 60 years now in the defense acquisition process, 

either in it or around it, both in government and in industry. And 

I’ve also had the opportunity to work with a number of commercial 

firms sort of on the side. 

In the United States, as you know, we’ve chosen to have the private enterprise system provide much of our military equipment, as 

opposed to having it provided in government-owned arsenals and 

government-operated arsenals. That’s not true of much of the 

world. From everything I’ve seen, our system works far better than 

the other alternative. But, the fact remains that there are many 

complications that go along with that decision that we’ve made. 

One of them is that the companies that provide most of our military equipment, not only compete with each other, they also have 

to compete for talent and for capital with all the other firms in the 

U.S., whether it’s Google or IBM or Intel, or eBay, or whoever. Furthermore, our defense system is necessarily—defense acquisition 

system is necessarily not true free enterprise, because it’s a monopsony. And the sole buyer is a very powerful buyer. That places a 

huge fiduciary responsibility, not only on the buyer, but on the seller. The buyer, to assure that short-term actions don’t harm the 

long-term sustainability of the industry. And it places a huge responsibility on those who run the industry, because this is not an 

industry that makes video games or sailboats. We’re dealing with 

the Nation’s defense. We’re dealing with the lives of our servicemen 

and -women. A huge responsibility. 

Having said all that, arguably—and I think, strongly arguably— 

the defense equipment that we’ve had in the past has been such 

that almost any other nation would have traded theirs for ours. 

But, the fact remains that the process of producing that equipment 

has been far less efficient than it could be or that it should be, and 

that very often that equipment was produced in spite of the system 

rather than because of the system. 

There’s probably one fundamental problem that underlies most of 

this, and that is that we’ve tried to manage by regulation. Dr. 

Gansler mentions 180,000 pages. My experience is that the only 

way to manage is with talented, experienced, dedicated people, and 

to give those people the authority to make judgments. Yes, sometimes they will fail, indeed. But, the free market says, yes, that 

they fail far less often than does management by regulation. 

In industry, we delegate responsibility. We place great emphasis 

on past accomplishments, past experience, placing people in posiVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
14 

tions of responsibility. And we fire people who fail to perform. None 

of these takes place in the government, to my experience. Furthermore, in the government, ‘‘risk’’ is considered to be a four-letter 

word. 

How do you fix the acquisition process? Unfortunately, there’s no 

silver bullet. There are a lot of very talented people who have tried 

in the past. You all know many of them. The—but, there are certain things I think that we’ve learned, and number one is that we 

have to have talented people in positions to make judgments, give 

them the authority to make those judgments, and to hold them responsible. That is, to have consequences. 

Furthermore, we should take greater advantage of the immense 

power in the free enterprise system that’s served this country so 

well in so many areas, whether it be industry or a higher education 

system or what have you. How do you do that? The fundamental 

basis of free enterprise is competition. And competition is not always possible, but it’s usually possible to some degree. And to 

make it possible, one needs to have large buys, multiyear buys; one 

needs to rely, often, on competition at the subcontractor level if it 

can’t be done at the prime level; one also can investigate such approaches as what was used at In-Q-Tel. Mr. Chairman, you mentioned my involvement in setting that up. And it addressed exactly 

the problem this committee is talking about. And I’m told that it’s 

viewed by many as having been relatively successful. 

We need to take advantage of the private sector, commercial sector, and the products that it produces, wherever we can, which 

would be to a far greater degree than we do. We need to be sure 

we use appropriate contracting methods. We need to provide funding stability. We need to shift authority from staff to line. That’s 

extremely important, not only in the Defense Department, but in 

many other departments of the government. We need to totally revamp the requirements process. We need to provide contingency 

funding. We need to permit talented people, experienced people to 

move from government to industry, and back. And that could be 

done without creating conflicts of interest, in my view, but it’s rarely done anymore. And I believe we’ve paid a price for that. People 

like Dave Packard probably couldn’t serve in the government 

today. We should avoid these conflicts of interest. And I say I think 

we can. We should emphasize prototyping to a greater extent. We 

need to fund basic research far more than we do. 

And I just would conclude by saying that none of this is rocket 

science. This is Management 101. We just have to have the will to 

go do it. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Augustine follows:] 

PREPARED STATEMENT BY NORMAN R. AUGUSTINE

Mr. Chairman and Members of the Committee, thank you for this opportunity to 

share my views on the defense acquisition system. I should emphasize that I am 

appearing as a private citizen, representing only myself. 

In the way of background, my perspective is that of one who has participated for 

sixty years in defense acquisition at virtually every level and has observed the process from both the industry and government standpoints. I have also participated in 

over 500 board meetings of Fortune 100 commercial firms concentrating in the energy, manufacturing and consumer products fields. 

15 

If one is to seek to improve defense procurement ‘‘while doing no harm,’’ recognition of at least ten facets of the environment in which the process functions is essential. 

The first of these is that in terms of capability no other nation on Earth would 

trade their defense equipment for that of the United States. 

Second, there is an enormous number of dedicated, talented individuals both within government and in industry who somehow make the system work as well as it 

does. 

Third, in America we have chosen, unlike many other countries, to rely largely 

upon the private sector, operating as a free-enterprise endeavor, to equip our armed 

forces; the alternatives being to have government arsenals entirely fill that role or 

to de facto nationalize the industry. Having traveled in some 112 countries around 

the globe, I have observed nothing that causes me to believe that either of the latter 

two approaches would in any way be superior. This conclusion of course carries 

many implications and consequences, perhaps foremost among these is that socalled ‘‘defense companies’’ must compete not only against one another but also 

must compete for talent and capital against Google, Amazon, Facebook and IBM. 

This in turn means that the industry’s shareholders will demand a competitive return on their investments and that sought-after employees will demand to work in 

an innovative, creative environment where they have the freedom to excel and contribute. 

Fourth, unlike virtually all the rest of U.S. industry, the defense sector operates 

in a monopsony. Its defense products have in essence but one customer, a customer 

that makes the rules, interprets the rules and enforces the rules. At the same time, 

the customer, in this case the U.S. government, occasionally, and sometimes unavoidably, finds itself dealing with a monopoly. If, for example, the government decided it needed one more B–2 bomber there was only one place where it could be 

practicably obtained. 

Fifth, in most commercial businesses a ‘‘bad year’’ means the loss of two or three 

points of market share. In defense procurement, where major contracts come in rare 

but enormous quanta, it can mean going out of business. Consider the case of the 

iconic McDonnell Douglas Corporation being absorbed into Boeing shortly after the 

former lost the F–35 contract competition. 

Sixth, unlike when I entered the industry, the leading edge of most technology 

no longer resides in the defense industry. The latter was where such things as commercial jet aircraft, satellite communications, nuclear power, GPS, robotics and the 

internet originated. That was where young scientists and engineers wanted to work. 

Today, the leading edge of the state of the art and innovation is often to be found 

in commercial firms, and many of those firms are not eagerly seeking the opportunity to participate in the defense acquisition process—or even with the government in general. A canonical example would be the situation that existed some sixteen years ago when the CIA recognized that the state of the art in its very lifeblood, informatics, had moved to Silicon Valley, Route 128, Research Triangle, Houston and other such environs, places where many of the leaders, probably most, 

wanted absolutely nothing to do with government procurement policies. Having at 

that time just retired from my job in industry, I was asked to help address this impasse that was increasingly becoming a danger to our nation’s intelligence capability. This led to the establishment of an organization that we called In-Q–Tel, the 

concept of which was very simple: conduct business on behalf of the government 

with Silicon Valley and others as they would deal with any other commercial firms. 

I believe that it is fair to say that this has been an immensely successful endeavor 

from virtually every perspective. 

Seventh, and again unlike when I first entered the industry and the average 

shareholder held a share of stock for eight years, today that period is four months— 

and declining. This implies that a firm’s owners—including those firms supporting 

national defense—have little interest in what happens to the firm ten or fifteen 

years from now. And this, in turn, implies that the government must be particularly 

mindful of the fragility of the nation’s overall defense enterprise and its long-term 

importance. 

Eighth, the industrial foundation of national security is not the defense sector per 

se, as important as it may be. Rather, it resides in the nation’s economy as a whole. 

Without a strong economy our nation will be unable to afford a strong military with 

modern equipment. That is a formula for greater casualties in warfare . . . or worse. 

Numerous studies, including one that formed the basis of a Nobel Prize, have shown 

that 50 to 85 percent of the growth in America’s GDP during roughly the past half 

century are attributable to advancements in just two fields: science and technology. 

Yet, in recent years America has fallen from first to seventh place in basic research 

as a fraction of GDP and from first to tenth place in R&D by the same measure. 

16 

China is projected to outspend the U.S. in R&D in less than ten years, both in absolute terms and relative to the economy. The U.S. government now ranks 29th in 

the fraction of research performed in the nation that is federally funded. We rank 

79th out of 93 nations in the fraction of all baccalaureate degrees that are granted 

in the field of engineering. The nation most closely matching us in this regard is 

Mozambique. Our 15-year-olds rank 21st in science and 27th in math among the 

34 OECD nations participating in standardized tests. It is my view that these factors are far more consequential to our nation’s defense than shortcomings of our defense acquisition process, as serious as the latter may be. 

Ninth, those individuals and firms who work on projects supporting our nation’s 

defense bear a special fiduciary responsibility that far transcends that of those who 

operate in the more conventional commercial marketplace. This implies that in some 

instances these individuals and firms must be prepared to accept special constraints. 

Tenth, the defense acquisition process does not function nearly as well as it could 

or should. 

Which brings us to the questions of what is broken and how can we fix what is 

broken without destroying the system’s underlying strengths. I could of course offer 

a long list of specific actions and in fact have done so on a number of occasions. 

The problem is that there is no silver bullet—if there were it would have been implemented long ago. But if there is anything approaching a silver bullet it is to use 

wherever possible the power inherent in the free enterprise system that has made 

America’s business, its universities and its innovative process the envy of the world. 

But in doing so one is constantly confronted with paradoxes. Competition is the 

heart and soul of free enterprise, but where limited numbers of items are procured, 

as is often the case in defense procurement today, at what point does it no longer 

make economic sense to establish a second producer to maintain competition? When 

does it make sense to distort procurement policies to promote worthy social goals, 

such as aiding small businesses? Fixed price contracts make a great deal of sense 

under many circumstances, say performing serial production, but when applied to 

risky endeavors, say R&D, only the desperate, foolish or dishonest would bid other 

than an inordinately, and probably unacceptably high, fixed price. Where is the 

point in the continuum at which one type of contract or the other no longer makes 

sense? When relying on past performance to select contractors such as is widely 

done in the free market, what does one do when the CEO’s of the two firms in a 

major competition suddenly switch jobs—as actually happened on one occasion? Or 

how does one evaluate a firm possessing no prior record that seeks to enter the market? 

The answer to such questions resides in a single word: ‘‘judgment’’ . . . and judgment regarding complex issues is an attribute that can only be found in one place— 

competent, dedicated, experienced people who are given the freedom to exercise 

judgment. 

This of course means that bad judgments will occasionally occur . . . judgments are 

made by humans. In the private sector, when particularly bad judgments are made 

people lose their jobs. In government, when bad judgments are made, nothing happens. Too often when good judgments are made, nothing happens either. In industry 

people are rarely placed in positions for which they have not accumulated years of 

relevant experience. This is often not the case in government. Further, there are few 

people in senior or relatively senior government line-positions possessing any experience in industry; and the converse is also true. 

The essence of my message today is the compelling need for a personnel system 

that delegates authority, rewards success and penalizes failure. This is by no means 

an original idea. It has been espoused for a half-century by friends of mine such 

as Air Force General Bennie Schriever, Army General Bob Baer, Admiral Wayne 

Meyer, and industry executives such as Dave Packard and Kelly Johnson. Virtually 

every successful major defense program that I can recall has had as its leader an 

extraordinary individual such as these folks. 

But today’s policies strongly discourage leaders in industry from serving in government; military officers from going into acquisition; and government civilians from 

aspiring to hold senior positions in their organizations. (For example, today there 

are no fewer than 168 presidential appointees—not all Senate confirmed—in leadership roles in the Department of Homeland Security, not all of whom have experience 

in homeland security.) 

If we are to make the acquisition process work more like a business, the first 

thing we must do is run the personnel management system more like a business. 

Only then can we get down to lesser matters such as fixing the requirements process, increasing prototyping, milestone budgeting, contingency funding, enhancing 

competition, shifting management authority from staff to line, providing funding 

17 

stability, and encouraging prudent risk-taking. Fortunately, none of this is rocket 

science . . . it is done every day in the free enterprise marketplace. 

Thank you again for permitting me to share my views, and thank you for devoting 

your attention to this critically important topic. 

NORMAN R. AUGUSTINE was raised in Colorado and attended Princeton University where he graduated with a BSE in Aeronautical Engineering, magna cum 

laude, and an MSE. He was elected to Phi Beta Kappa, Tau Beta Pi and Sigma Xi. 

In 1958 he joined the Douglas Aircraft Company in California where he worked 

as a Research Engineer, Program Manager and Chief Engineer. Beginning in 1965, 

he served in the Office of the Secretary of Defense as Assistant Director of Defense 

Research and Engineering. He joined LTV Missiles and Space Company in 1970, 

serving as Vice President, Advanced Programs and Marketing. In 1973 he returned 

to the government as Assistant Secretary of the Army and in 1975 became Under 

Secretary of the Army, and later Acting Secretary of the Army. Joining Martin 

Marietta Corporation in 1977 as Vice President of Technical Operations, he was 

elected as CEO in 1987 and chairman in 1988, having previously been President 

and COO. He served as president of Lockheed Martin Corporation upon the formation of that company in 1995, and became CEO later that year. He retired as chairman and CEO of Lockheed Martin in 1997, at which time he became a Lecturer 

with the Rank of Professor on the faculty of Princeton University where he served 

until 1999. 

Mr. Augustine was Chairman and Principal Officer of the American Red Cross for 

nine years, Chairman of the Council of the National Academy of Engineering, President and Chairman of the Association of the United States Army, Chairman of the 

Aerospace Industries Association, and Chairman of the Defense Science Board. He 

is a former President of the American Institute of Aeronautics and Astronautics and 

the Boy Scouts of America. He serves on the Board of Trustees of the National 

World War II Museum and is a former member of the Board of Directors of 

ConocoPhillips, Black & Decker, Proctor & Gamble and Lockheed Martin, and was 

a member of the Board of Trustees of Colonial Williamsburg. He is a Regent of the 

University System of Maryland (12 institutions), Trustee Emeritus of Johns Hopkins and a former member of the Board of Trustees of Princeton and MIT. He has 

been a member of advisory boards to the Departments of Homeland Security, Energy, Defense, Commerce, Transportation, and Health and Human Services, as well 

as NASA, Congress and the White House. He was a member of the Hart/Rudman 

Commission on National Security, and served for 16 years on the President’s Council of Advisors on Science and Technology under both Republican and Democratic 

presidents. He is a member of the American Philosophical Society, the National 

Academy of Sciences and the Council on Foreign Relations, and is a Fellow of the 

National Academy of Arts and Sciences and the Explorers Club. 

Mr. Augustine has been presented the National Medal of Technology by the President of the United States and received the Joint Chiefs of Staff Distinguished Public 

Service Award. He has five times received the Department of Defense’s highest civilian decoration, the Distinguished Service Medal. He is co-author of The Defense Revolution and Shakespeare in Charge and author of Augustine’s Laws and Augustine’s 

Travels. He holds 34 honorary degrees and was selected by Who’s Who in America 

and the Library of Congress as one of ‘‘Fifty Great Americans’’ on the occasion of 

Who’s Who’s fiftieth anniversary. He has traveled in 112 countries and stood on 

both the North and South Poles of the earth. 

Chairman MCCAIN. Thank you. 

Mr. FitzGerald. 

STATEMENT OF BEN FITZGERALD, SENIOR FELLOW AND DIRECTOR OF THE TECHNOLOGY AND NATIONAL SECURITY 

PROGRAM, CENTER FOR A NEW AMERICAN SECURITY 

Mr. FITZGERALD. Mr. Chairman, Ranking Member Reed, distinguished members of the committee, thank you for the opportunity 

to speak with you all today. It’s a considerable honor. In fact, it’s 

such an honor, I’ve taken the unusual step of putting on a tie, 

something I don’t normally do. 

I offer my remarks today from two perspectives, that of a researcher at a think tank, but also as the former managing director 

of a small business that worked predominantly for the Department 

of Defense. 

18 

It’s a generally held article of faith today that the locus of technological innovation is now firmly rooted outside of the United 

States Department of Defense in the global private sector. My testimony seeks to unpack this bumper-sticker statement and explore 

the implications for necessary reforms to our R&D and acquisition 

systems. 

The democratization of technology to a global user base is not 

new and has been underway since at least the early 1980s. The 

United States Government cannot arrest this trend. In fact, the Department’s R&D budget is higher today, in constant dollars, than 

it was in the early 1970s. This trend is simply due to the growth 

of the global economy. Our challenge today is that, despite the efforts of this committee and others across the defense establishment, our implicit strategy and organizational methods for developing military capability remain optimized for a bygone era, and 

we continue to cling to the methods of past success in ways that 

unnecessarily disadvantage us. 

At a high level, it is helpful to think about this challenge in 

terms of the alignment between our strategic needs, the technological environments, and our underlying models of doing business. 

The canonical case for what ‘‘good’’ looks like comes from the increasingly popular second offset strategy. 

During the ’70s and ’80s, the U.S. faced a clear and singular 

threat, in the form of the Soviet Union. Concomitant with the strategic imperative, the DOD possessed privileged access to critical 

technical components—microprocessors, computer processing, networking, data compression, GPS, and software—that, when integrated, would yield the precision munitions, ISR [intelligence, surveillance, and reconnaissance] networks, and command-and-control 

systems that underpin our current military technical advantages. 

The positive alignment of U.S. strategy, technology, and business 

during the Cold War meant that the DOD could simultaneously establish a conventional deterrent to the Soviet Union, develop the 

most capable fighting force in human history, and lock in at the 

privileged access to enabling technologies through a series of export 

controls. As if this was not enough, those investments helped establish U.S. businesses that came to dominate entire global industries. 

We would not have Intel, Cisco, or Apple or the following generation of Internet businesses, like Google and Facebook, without 

those early investments. 

In contrast today, we face a range of rapidly evolving threats and 

competitors from near-peer powers to nonstate actors, with no one 

capability providing game-changing advantages across likely contingencies. We face many more technological options to which we 

might apply our finite resources—AI [artificial intelligence] and automation, big data, additive manufacturing, hypersonics, and directed energy weapons, to name a few. And the U.S. no longer 

holds a monopoly on emerging technologies with military relevance. 

Most importantly, while the DOD budget is still significant and 

influential, it is no longer compelling. Apple Corporation currently 

has $203 billion cash on hand, enough to buy Lockheed Martin, 

General Dynamics, Raytheon, Northrop Grumman, and BAE Systems without having to get a loan. In this environment, it is hard 

to convince many businesses to build technologies specific to DOD 

19 

requirements. Despite these many differences and the work of this 

committee and others, our acquisition system is still optimized for 

that prior Cold War environment, creating a misalignment between 

our strategy, technology, and business. 

So, what do we need to do to address this strategic misalignment? Accessing technology, people, and capital from commercial 

markets will be vital to providing our military with advanced capabilities today and in the future. I commend this committee for its 

work on the 2016 NDAA, which will make it much easier for the 

DOD to acquire commercial technology, should it choose to make 

use of those authorities. The DOD has also undertaken smart initiatives, such as better buying power and establishing a presence 

in Silicon Valley with the DIUx [Defense Innovation Unit Experimental]. However, commercial technology is available globally, to 

our allies and our adversaries, alike. Our challenge, therefore, is 

not simply how better to acquire commercially available technology, 

but, rather, how to generate and maintain unique military advantage in a global marketplace driven by demand for increasingly 

powerful commercial technologies. 

To achieve this objective will require a more nuanced and varied 

approach than we have in our current system, which operates on 

similar principles, regardless of whether you were developing an 

aircraft carrier or a microdrone. We cannot expect the same market 

conditions, product life cycles, export controls, or business models 

to create optimal outcomes for the full range of capabilities we require in our arsenal. We will need to create a business environment that incentivizes the best companies and individuals to help 

solve our hardest problems. This naturally conjures images of Silicon Valley, an important innovation hub, but we must also include 

other hubs around the country and the world. 

Importantly, reforms to our acquisition system must also 

incentivize traditional defense industry to innovate and collaborate 

with nontraditional businesses. Traditional defense industry will be 

an important conduit to deploy new technology and ideas inside the 

DOD at scale. This committee can provide the legal basis and 

strong incentives for the DOD to adapt appropriately. Updated approaches to intellectual property, export control, our requirements 

regime, and contracting methods would help lay the foundation for 

a more competitive, innovative, and sustainable set of industries 

from which the DOD can generate unique military advantages. 

Acquisition reform will never have the same urgency as the frequent international crises we face, or garner the same interests as 

decisions on new weapon systems. And yet, our ability to respond 

effectively to the crises of today and tomorrow, to generate unique 

military advantage, and to support healthy industries for the DOD 

require us to improve our acquisition system. While DOD’s recent 

history does not provide much hope for our ability to change, I believe we have a small window within which we might make significant progress. The leaders of this committee, your colleagues on the 

HASC, and the current DOD senior leaders are uniquely qualified 

and willing to take action. 

So, in closing, I thank the committee for its work, and I encourage you to continue on your current path of investigation and reform. 

20 

Thank you again for the opportunity to speak with you all today. 

[The prepared statement of Mr. FitzGerald follows:] 

PREPARED STATEMENT BY BEN FITZGERALD

It is a generally held article of faith today that the locus of technological innovation is now firmly rooted outside of the United States Department of Defense (DOD) 

in the global private sector. 

This testimony seeks to unpack this bumper sticker statement to establish its historic context, frame the impact it has on the DOD and, most importantly, explore 

the implications for necessary reforms to our research and development (R&D) and 

acquisition systems. 

The democratization of technology to a global user base is not new and has been 

underway since global R&D spending outgrew DOD spending in the early 1980s. 

There is little the U.S. can do to arrest this trend and this is not an issue of declining spending on the part of the DOD. In fact, the Department’s R&D budget is higher today, in constant dollars, than it was in the early 1970s when many of the investments that underpin our current technological advantage were made. Rather, 

this trend is a function of the global economy and, indeed, there are many benefits 

to the U.S. in terms of global prosperity. 

Our challenge today is that, despite the efforts of this committee and others 

across the defense establishment, our implicit strategy and organizational methods 

for developing military capability remain optimized for a bygone era and cling to 

the methods of past success in ways that unnecessarily disadvantage us. 

STRATEGIC ALIGNMENT AND MISALIGNMENT

It is helpful to think about this challenge in terms of the alignment between our 

strategic needs, the technological environment, and underlying models of doing business. Considering this alignment in the context of the Second Offset Strategy offers 

a case study in a positive relationship between these factors. 

During the 1970s and 1980s the U.S. faced a clear and singular threat from the 

Soviet Union in the context of the Cold War. In an era of mutually assured destruction, the U.S. required a qualitative technological advantage to ‘offset’ the numerical 

superiority of Warsaw Pact forces. Concomitant with this strategic imperative, the 

U.S. possessed privileged access to the technical components that would enable so 

called ‘information based force multipliers’ that would manifest themselves in precision munitions, intelligence, surveillance, and reconnaissance (ISR) networks, and 

command and control systems. During this period the DOD was the overwhelmingly 

dominant provider of funding for technology including: microprocessors, computer 

networking, data compression, global positions system (GPS), and the software required to tie these elements together. 

The positive alignment of these various factors meant that the DOD could establish a conventional deterrent to the Soviet Union, develop the most capable fighting 

force in human history, and lock in its privileged access to the enabling technology 

through a series of export controls. As if this was not enough, these investments 

helped establish U.S. businesses that came to dominate entire global industries. We 

would not have Intel, Cisco or Apple or the following generation of internet businesses like Google and Facebook without these early investments. 

In contrast, today we face a range of rapidly evolving threats and competitors 

from so called near peer powers to non-state actors and terrorists. We also face 

many more technological options to which me might apply our finite resources: artificial intelligence and automation, big data, additive manufacturing, hypersonics, 

and directed energy weapons to name a few. The U.S. no longer holds a monopoly 

on emerging technologies with military relevance. And, while the DOD budget is 

still significant and influential, it is no longer compelling in the way that it used 

to be. Samsung corporation’s R&D budget is larger than that of DARPA. Apple 

Corp. currently has $203b cash on hand, enough to buy Lockheed Martin ($70b), 

General Dynamics, ($45b) Raytheon ($38b) Northrop Grumman ($34b) and BAE 

Systems ($16b). 

But despite the many differences in our strategic and technological environments 

the DOD largely operates today as though the conditions of the early 1970s still prevail – especially regarding the acquisition of major weapons systems. We establish 

formal requirements, competitively select a contractor from a relatively small number of businesses, develop and test it over a period of years or decades, and then 

control access to that technology through a regime of export controls. 

This committee is well aware of the myriad implications of this lack of adaptation. 

I will offer a short example from the world of drones. We are currently unable to 

21 

1George Arnett, ‘‘The numbers behind the worldwide trade in drones,’’ The Guardian, March 

16, 2015. 2 Rania Khalek, ‘‘Sixty percent of global drone exports come from Israel—new data,’’ 

electronicintifada.net, March 24, 2015. 3 Rajat Pandit, ‘‘Army rejects US offer of Raven mini-drones for its foot-soldiers,’’ The Times 

of India, July 18, 2015. 4 Ben FitzGerald and Katrina Timlin, ‘‘Time for a Private-Sector Pivot On Military Technology,’’ WarOnTheRocks.com, May 14, 2015, http://warontherocks.com/2015/05/time-for-a-private-sector-pivot-on-military-technology/. 

sell armed Predator drones to our ally Jordan due to the provisions of the Missile 

Technology Control Regime—with China now seeking to take our natural place and 

sell their drones to Jordan instead. In a prior era, keeping this technology in the 

hands of the U.S. alone may have prevented proliferation but today, many nations 

compete in the global drone market. 1 In fact, Israel has supplied over 60 percent 

of the world’s drones since 1985, with the U.S. only supplying 24 percent. 2 This policy decision does not just adversely impact the revenue of U.S. businesses, it makes 

us less competitive technologically. This was seen in July of this year when the Indian Army rejected the U.S. Raven drone, currently in use by the Army and Marine 

Corps, as being insufficiently ‘futuristic’ for its needs. 3

Yet, the U.S. military and defense industry have been pioneers in the use of 

drones—no other nation has a stealth drone that can land on an aircraft carrier. 

This is clearly a problem of law and policy not of military, technical, or business 

acumen. In a world of rapidly proliferating drones other nations have many avenues 

by which they can acquire these systems. By choosing not to sell drones to our allies 

we risk making U.S. businesses less competitive, allowing strategic competitors to 

establish arms sales relationships with our allies, diminish interoperability, and 

have less influence over how drone technology is used by others. 

THE ADVANTAGES OF COMMERCIAL TECHNOLOGY

The driving force behind this (not so) new reality is the spread of powerful technologies, particularly information technologies, from a handful of government customers to thousands of business customers and now, most potently, to billions of individual users around the globe. Operating at vast scale has rapidly driven down 

prices while increasing the capability of systems that were highly classified mere 

decades ago. The global availability of these technologies creates a number of challenges to the U.S. from highly capable non-state actors to competitor nation-states 

able to proliferate their own military technologies. However, commercial technology 

is also fundamental to generating and maintaining our military-technical advantage. Specifically: 

• Efficient resource allocation—Commercial technology is increasingly able to 

meet demanding military requirements. For information technology (IT), the 

Department of Defense frequently seeks commercial solutions, ranging from 

Apple and Galaxy smartphones to enterprise email, rather than developing proprietary systems for basic functions. This trend is increasingly moving from the 

back office to the battlefield. The government should enhance this approach beyond IT and think creatively about how to quickly adapt a broader range of 

technologies to various military environments. While the market will not yield 

a stealthy, armed drone, commercially available drones may be utilized for tactical applications at a fraction of the cost of military models. An effective division of labor that utilizes cheap and readily available commercial products can 

save the department time, personnel, and money to devote to more challenging, 

military specific endeavors. 4

• Effectively incorporating commercial components in unique military 

systems—The Department of Defense, as a long-time user of commercial components in major platforms, is seeking to better incorporate emergent commercial technologies by designing modular military systems. Designing and fielding 

exquisite platforms and systems is expensive and time-intensive, as evidenced 

by the long and costly history of the F–35. To accelerate this process, the Better 

Buying Power 3.0 procurement initiative will focus on agile development and 

modular, platform-agnostic technologies. Modular design facilitates modernization and avoids situations like the F–22 processor, where software components 

are rendered obsolete by the pace of technological advances. Analyzing what 

components can be developed using existing technology can reduce lifecycle 

costs and ensure the military is positioned to take advantage of technological 

developments. These initiatives can be taken further by adopting commercial 

practices, for example in the areas of user experience design or development 

practices. Updating DOD procurement practices will be the difference between 

22 

a U.S. military that benefits from commercial innovation and one that is superseded by it. 

• Applying military grade engineering to wholly commercial components—Commercial components are rarely deployed prima facie as military 

hardware, but integrating commercially available technology can produce costeffective systems and platforms quickly. Integrating commercial technology affords U.S. armed forces with advantages in rapid fielding, adaptation, and more 

varied force mixes, as well as the ability to easily export weapons systems to 

allies. The Textron Scorpion fighter jet uses only commercial technology, leading 

to an inexpensive aircraft, that used no DOD research and development funding 

but is still appropriate for routine missions. The Air Force has additionally integrated multiple PlayStation 3 consoles to build a supercomputer that is not only 

cheaper, but more energy efficient. Such approaches allow the department to 

manage cost, innovate rapidly, and stay connected with allies—especially for 

contingencies with less technologically advanced adversaries—while preserving 

exclusivity around unique high-end military systems. 

• Commercial tech as a force multiplier for military systems—Commercial 

technology can also be deployed in combination with military systems to expand 

their scope of use. One program that has adapted commercial technology for 

military purposes is DARPA’s Persistent Close Air Support System (PCAS). 

Using Android tablets, PCAS enables closer coordination between ground and 

air troops and provides enhanced situational awareness by integrating various 

data streams and lines of communication for close air support. While currently 

deployed on the MV–22, DARPA is looking to expand to other air platforms, 

which is possible due to the modular, software-based PCAS system. This approach extends the utility and lifespans of existing military systems but also 

imbues commercial systems with military advantages. Anyone can purchase an 

Android tablet, but they can’t use it to call for precision fires in a secure communications environment. The Qinetiq robotic applique kits are another example of imbuing traditionally commercial platforms, in this case a Bobcat truck, 

with functionality for military applications and missions. Adapting common applications for a military purpose allows the Department of Defense to leverage 

a tested, functional product in the private domain and adapt it to a military 

environment. 

DOD’S PUSH FOR COLLABORATION

It is in this context that the Secretary of Defense Ash Carter is seeking to improve DOD’s relationships with Silicon Valley and other hubs of innovation around 

the country. This is absolutely the right instinct but for the DOD to benefit in any 

meaningful way from this collaboration will require policy, legal and ultimately cultural changes in the way we do business. In the period from the 1960s to today, 

the DOD has gone from being the customer for technology to a customer for technology and has not adjusted accordingly. With global R&D spending topping $1 trillion and with abundant venture capital available to startups, the Department’s 

roughly $60 billion R&D budget remains large but far from the only option available. 

In an era with ready access to capital, doing business with the Department of Defense often represents too great an opportunity cost for many new and innovative 

businesses. The Pentagon’s investment and purchasing model operates on sales cycles measured in years. Contracts run even longer—the F–22 fighter took more than 

two decades to develop—with some engineers working their entire careers on a single project. Rigid requirements and testing regimes designed to mitigate risk also 

mitigate innovation, often to the extent that a company’s product would not be competitive or desired by non-DOD users. Worse, these businesses would then have to 

suffer through prescriptive accounting and compliance requirements, frequent audits and arcane contract vehicles that lock in prices and even profit margins. It is 

therefore natural for commercial businesses, including startups, to focus on other 

markets despite the DOD’s, and particularly military professionals’, burning desire 

for collaboration. 

Without realigning the incentive structures for collaboration the DOD will be unable to take advantage of partnerships with innovative commercial businesses. 

Worse, the Pentagon’s early investments and new technology opportunities will continue to be acquired by Silicon Valley companies, denying DOD the chance to fully 

capitalize on its own investments. Boston Dynamics, DARPA’s leading robotics provider; Skybox, a provider of micro satellites and data analytics; and much of the 

driverless car technology generated by DARPA’s Grand Challenge have all found a 

more welcoming and sustainable home at Google. 

23 

Despite this gloomy outlook, significant potential remains for healthy collaboration between the DOD and commercial businesses. Indeed, smart businesses should 

want to collaborate because the DOD: 

• Remains on the leading edge of technical challenges and has early access to 

compelling problems. Businesses able to help solve those problems will find 

themselves in advantageous technical and market positions. 

• Is willing to invest in and experiment with immature technology that commercial investors would be unwilling to consider. 

• Can provide access to a large, singular user base, particularly active duty military personnel, comfortable with testing and adapting to new technology. 

• Owns significant testing facilities and ranges that can provide rare and discreet 

opportunities to test new technologies. 

• Is willing to pay above commercial rates for new technology. 

• Can provide capital to startup and small businesses that does not dilute their 

equity in the ways that seed or venture capital would. 

• Provides a sense of purpose, mission and meaning greater than most other industries. 

However, for commercial businesses to invest their time and capital into collaboration with DOD they will need to be able to transition their product from a national security context to a commercial one. If we look to aerospace, a related field 

experiencing similar dynamics, companies like Space X and Blue Horizon are applying innovative practices to the business of private space launch. There are a number 

of national security benefits to their work but the end game for these businesses 

is commercial space flight not military satellite launches. If we stifle their ambitions, that capital and innovation will go elsewhere, leaving the U.S. with insufficient launches to justify a robust domestic market for rocket engines and an ongoing 

need to purchase these engines from Russia. 

Without reforming our current laws, policies and acquisition culture create many 

impediments for commercial businesses that might otherwise wish to capitalize on 

the natural advantages of collaboration with the Department of Defense. 

BEYOND COMMERCIAL TECHNOLOGY

Accessing technology from commercial markets will be vital to providing our military with advanced capabilities today and in the future. However, commercial technology is widely available and therefore cannot provide the U.S. with unique military advantage. In this context, our challenge is not simply how to better acquire 

commercially available technology but rather how to generate and maintain technical advantage in a global marketplace driven by demand for powerful commercial 

technologies. This will require an acquisition system that can integrate a mix of 

military and commercial technologies in compelling ways. 

Achieving this objective will require a more nuanced and variegated approach 

than we have in our current system, which operates on similar principles regardless 

of whether you are developing an aircraft carrier or a micro-drone. We cannot expect 

the same market conditions, product lifecycles, export controls, or business models 

to create optimal outcomes for the full range of capabilities we require in our arsenal. 

Additionally, in seeking to take advantage of commercial technology, we must not 

overlook the important role of defense industry. DOD reforms to compete more effectively in commercial marketplaces is just as important for defense businesses to enable them to innovate and reorient their organizations to focus on growth and technology investment. Defense industry will also continue to play an important role integrating technologies—commercial and military—into capabilities that our services 

can use. Accessing non-traditional sources of defense technology will be good for traditional defense industry as well. 

Left unchanged, our current regime will continue to provide the DOD with strong 

control over the technology acquired for its own personnel but will make it almost 

impossible to build technology compelling to a global user base—the key area of 

focus for the best technology companies. 

Ultimately, our acquisition and R&D challenges are strategic, organizational, and 

cultural in nature and we do not have a strong track record of updating these factors over the last thirty years. That said, I commend this committee for its work 

on the National Defense Authorization Act of 2016, particularly for the contributions 

made in providing additional authorities to the DOD for purchasing commercial 

technologies. These authorities, should the DOD choose to make use of them, provide an excellent basis for purchasing commercial off the shelf technology, a critical 

aspect of maintaining our technical advantage. 

24 

However, to truly and effectively compete in the global market for technology, talent, and capital will require further action. This committee can provide the legal 

basis and strong incentives for the DOD to adapt appropriately. Most significant 

will be updated approaches to intellectual property, export control, as well as our 

requirements regime and contracting methods. 

CONCLUSION

Improving our acquisition system will never have the same urgency as the daily 

crises we face or garner the same interest as decisions on new weapons systems. 

And yet, our ability to respond effectively to the crises of today and tomorrow, to 

create compelling options for weapons systems, and support healthy industries for 

defense require us to improve our methods for developing military capability. 

While our recent history does not provide much hope for our ability to change, 

we have a small window within which we might make significant progress. The 

leadership of this committee and your colleagues on the House Armed Services Committee combined with the leadership from Secretary of Defense Carter, Deputy Secretary Work, and Undersecretary Kendall are uniquely qualified and willing to take 

action. I encourage you to do so. 

Chairman MCCAIN. Thank you, Mr. FitzGerald. It’s a nice-looking tie. 

Mr. FITZGERALD. Thank you. I bought it specially. 

Chairman MCCAIN. Thank you. 

[Laughter.] 

Chairman MCCAIN. Thought maybe you had borrowed it. Thank 

you. 

[Laughter.] 

Chairman MCCAIN. Colonel Ward. 

STATEMENT OF LIEUTENANT COLONEL DAN WARD, USAF 

(RET.), CONSULTANT AND AUTHOR OF F.I.R.E.: HOW FAST, 

INEXPENSIVE, RESTRAINED, AND ELEGANT METHODS IGNITE INNOVATION 

Colonel WARD. Good morning, everybody. 

Mr. Chairman, Ranking Member Reed, and distinguished committee members, thank you for the opportunity to be here this 

morning and to share some thoughts. 

My perspective on acquisition reform can be summed up in two 

words: constraints work. That perspective is based on my 20 years 

of service as an Air Force acquisition officer and my research over 

the past decade. I’ve observed that small teams who embrace constraints tend to outperform large teams who adopt an expansive 

mentality of ‘‘take your time and spare no expense.’’ It may seem 

counterintuitive, but, beyond a certain point, there is an inverse relationship between how much we spend on a project and the value 

of what it produces. I contend that if we want the acquisition community to deliver world-class, affordable systems at the speed of 

need, we need to establish small teams with short schedules, tight 

budgets, and a deep commitment to simplicity. We should resist 

the urge to launch big, slow, expensive programs which inevitably 

cost more, take longer, and do less than promised. 

As I explained in an article about technology lessons from Star 

Wars, we need to build droids, not death stars. Droids work, death 

stars keep getting blown up. And this doesn’t just happen in the 

movies, it happens in real life, too. The opening story in my first 

book, F.I.R.E.,’’ is about a supercomputer developed by the Air 

Force Research Lab in 2010. At the time, it was the fastest supercomputer in the entire Department of Defense. Remarkably, it cost 

25 

less than a tenth of what a typical supercomputer would cost. How 

did AFRL produce a best-in-class technology on a shoestring budget? They built it out of 1,760 Play Station IIIs, which makes it an 

interesting story and a funny story, but also an important story. 

If the scientists and engineers at the Air Force Research Lab had 

a large budget for that particular project, what would they have 

done? They would have bought a standard, typical supercomputer, 

which would have cost more and performed more slowly than the 

system they actually developed. Their small budget forced them to 

pursue a different path, which not only saved money, it also—and 

I can’t emphasize this enough—outperformed every other supercomputer in the Pentagon’s inventory. And that is a key point. A 

constrained approach can help save money, yes, but that’s a secondary objective. The primary objective is to ensure we deliver 

best-in-class capabilities so that our men and women in uniform 

continue to enjoy unsurpassed technological advantages. As a person who has strapped on body armor and carried a loaded weapon 

into a combat zone, I take this very seriously. And the data is overwhelmingly consistent. We get better acquisition outcomes, programmatically and operationally, when we take a constrained approach. That’s what I mean when I say ‘‘constraints work.’’ 

So, the question is, How do we build a culture that incentivizes 

constraint? And the first is to recognize that constraint is not a foreign concept. The Armed Forces are full of people who embrace constraints, who take pride in doing the most when they have the 

least. And I had the privilege of leading one such team during my 

final year on Active Duty. There were six of us in uniform, along 

with a handful of civilian partners. Our $84 million project was one 

of the smallest in our division, so constraints are relative. $84 million is a lot of money. But, outside experts said this project should 

take 7 years. My predecessor wisely decided to do it in 2. I took 

over for the last year. Our first test flight was a month ahead of 

schedule. We flew twice as many test flights as originally planned. 

And, when the program ended, I was able to go into my commander’s office and report that we were $8 million under budget. 

Now, this is not a typical outcome, but it’s more common than 

you might think. And if we want more projects to look like this— 

world-class technologies, ahead of schedule, and under budget—my 

suggestion for—is for leaders to seek, support, and celebrate such 

teams. Take steps to find these high-performing innovators, and 

support them, and tell their stories. If prominent leaders tell the 

world, ‘‘This is what right looks like. This is us at our best,’’ that 

will help provide incentives for others to move in that direction, as 

well. 

Look, the U.S. military is fantastic at achieving its goals. Give 

us an objective, and we will do whatever it takes to satisfy that objective. Military innovators have proven we can deliver world-class 

capabilities ahead of schedule and under budget when that’s the 

goal. But, acquisition programs run into problems when that’s not 

the goal, when concepts like speed and thrift are dismissed, when 

they’re viewed skeptically or written off as impossible. Acquisition 

programs run into problems when big budgets are treated as signs 

of prestige, when long timelines are treated as signs of strategic genius, and when high degrees of complexity are treated as signs of 

26 

sophistication. We need to set better goals and incentivize the right 

things. 

If we’re going to reform the acquisition system, we must take 

steps to measure and incentivize three things: speed, thrift, and 

simplicity. And we need leaders who will seek, support, and celebrate the teams who pursue these goals. And we need to do these 

things for a very, very simple reason: constraints work. 

Thank you. 

[The prepared statement of Colonel Ward follows:] 

PREPARED STATEMENT BY LT. COL. DAN WARD

Constraints work. 

Earlier this year a study in the Oxford Journal of Consumer Research looked at 

the way ‘‘resource availability’’ affects behavior and concluded that scarcity promotes creativity. That is, when people have fewer resources, they tend to exhibit 

more creative behaviors. The researchers explained that having less helps to foster 

a ‘‘constraint mindset,’’ which leads to more innovative outcomes. Abundance on the 

other hand is correlated with less creative behaviors. The implication is that if we 

want to foster creative, innovative approaches, we should start by restricting resource availability. 

The results of this study match my own experience serving for more than 20 years 

as an Air Force acquisitions officer, where I observed that limited resources tend 

to drive innovative outcomes. This study and my experience are also consistent with 

large body of data on the effectiveness of technology development programs in general and defense acquisition programs in particular. This data shows that small 

teams with short schedules, tight budgets, and deep commitments to simplicity— 

in other words, teams with a constraint mindset—are not only more creative but 

also more effective. Small teams consistently outperform large, unconstrained teams 

who pursue complexity and adopt a ‘‘take your time, spare no expense’’ mentality. 

In other words, we tend to do the most when we have the least. 

This is particularly true in the Defense Department. Time and again, military 

program offices working under tight constraints reliably hit their budget and schedule targets while the technologies they produce contribute significantly to achieving 

operational objectives in the field. In fact, the military’s most important, impactful, 

and innovative systems tend to come from these small, thrifty, speedy teams. In 

contrast, when a cast of thousands spends billions and decades, the result inevitably 

costs more, takes longer, and does less than promised. 

It bears repeating: constraints work. They help acquisition professionals deliver 

affordable world-class technologies that are available when needed and effective 

when used. 

Despite overwhelming evidence that focusing on speed, thrift, and simplicity leads 

to positive programmatic outcomes and outstanding operational performance, the 

DOD continues to foster an environment where expansive budgets and long 

timelines are rewarded, pursued, and valued. The predominant culture treats budget overruns and schedule delays as inevitable attributes of advanced technology development programs, if not desirable attributes. This is a flawed belief, based on incorrect assumptions rather than actual data. The truth is that constraints are an 

important precursor to creativity and innovation. This also means that fiscal responsibility and technical excellence are not incompatible goals. 

Specific examples of these dynamics within defense acquisition programs are easy 

to find and well documented. While this statement does not aim to provide a comprehensive summary of the data, I will briefly refer to a handful of examples while 

primarily focusing on the overall trend, then provide a specific recommendation for 

an initiative that would encourage and incentivize a constraint mindset. 

Let’s begin with a brief look at how constraints work: 

1. Constraints foster creativity. When time and money are limited, status quo 

solutions are off the table. Program teams must instead pursue alternative solutions. For example, in 2010 the Air Force Research Laboratory built a 500 

TFLOPS supercomputer named the Condor Cluster. When it was delivered, it 

was the fastest supercomputer in the entire DOD. Remarkably, it cost less 

than one-tenth the price of a comparable machine and used one-tenth the electricity of a traditional supercomputer. How did AFRL manage to produce a 

best-in-class technology on such a shoestring budget? They built the Condor 

Cluster out of 1,760 PlayStation 3’s. 

27 

The reason they took this approach is clear: they had no other option. They 

were operating under strict financial constraints. If the scientists and engineers at AFRL had a large budget, they would have simply bought a standard, 

expensive supercomputer . . . which would have been less capable than the system they actually developed. Instead, their small budget forced them to pursue 

a different path—which not only saved a significant amount of money, it also 

outperformed every other supercomputer in the Pentagon’s inventory. And that 

is key. The fact that a constraint mentality helps us save some money is only 

a secondary objective. The primary objective is to ensure we deliver best-inclass capabilities. 

2. Constraints foster focus. When time and money are limited, a program team 

is forced to prioritize and restrict their requirements. They simply cannot afford to do everything and are unable to accommodate requirement creep. This 

leads to a more focused approach on requirements that matter the most and 

have the largest impact on operations. There is less clutter (organizationally, 

procedurally, and technically), less passive engagement, and less social loafing. 

For example, the JDAM famously had just three requirements from the Air 

Force Chief of Staff (‘‘It should work; it should hit the target; and it should 

cost under $40,000 each.’’), an approach that provided a very useful sense of 

priorities and focus to the development team. The resulting system performed 

admirably and ended up costing approximately $17,000 each, well under the 

$40,000 requirement. 

Feedback from the field shows that simple, focused systems tend to do more 

than they were designed to do, while complicated systems with long lists of 

features tend to underperform. Simple systems tend to be more reliable and 

less fragile, easier to use and easier to maintain. 

3. Long timelines increase exposure to change. Over time, new threats 

emerge and old threats go away. New technologies are developed, new political 

and economic situations unfold, and new leadership comes on the scene. All of 

these changes contribute to increase the odds that the product under development will be operationally irrelevant, technologically obsolete, or both by the 

time it is delivered. 

For example, the F–22 Raptor was intended to counter the Soviet Air Force. 

However, the USSR collapsed 15 years before the Raptor program declared its 

Initial Operational Capability (IOC). Because so many things in the world 

changed between program inception and IOC, the final product was ill-suited 

for the military’s actual combat needs and the F–22 did not fly a single combat 

mission in Afghanistan, Iraq or Libya. It was even declared ‘‘not relevant’’ by 

the Secretary of Defense himself. 

In contrast, shorter timelines increase the odds of a close alignment between 

the state of the art and the user’s needs. For example, an ISR aircraft known 

as the MC–12W Project Liberty flew its first combat mission a mere 8 months 

after receiving funding, then went on to fly thousands of missions in Iraq and 

Afghanistan. 

By constraining the development timeline, programs present a smaller target 

to the forces of change and increase the likelihood of alignment between what 

the system can do and what the users need it to do. Long timelines, in contrast, rely on long-term predictions about future needs and amplify any predictive errors. 

4. Delays foster delays. Extending a program’s development schedule or slipping the delivery date creates a vicious circle that necessitates additional 

delays, because the more time a program spends in development, the more 

changes it is exposed to (see #3 above). It takes time to respond to these 

changes, but the world does not stand still while the program office responds. 

The net result is that delays cause delays, and the program ends up presenting 

a larger target to the forces of change. This ends up adding to the cost and 

complexity of the system as well as adding to the schedule. 

In contrast, speed fosters speed, and programs which set aggressive delivery 

timelines have a remarkable tendency to deliver ahead of schedule. For example, the US Navy’s Virginia Class Submarine program set an aggressive goal 

of delivering two submarines for $2B each, every two years (referred to as ‘‘2 

for 2 in 2’’). These firm constraints helped shape the program office’s behavior 

across the whole spectrum of decision making, and the result is that the Navy 

consistently delivers Virginia submarines months ahead of schedule and tens 

of millions of dollars under budget. Specifically, in 2008 the USS New Hampshire was delivered 8 months early, $54 million under budget. In 2011 the USS 

28 

Mississippi was a year ahead of schedule, $60 million under budget. In 2014 

the USS North Dakota continued the trend, delivering on time and under 

budget. This is a remarkable achievement and a stark contrast to the previous 

Seawolf program, which was terminated in 1995 after delivering only three of 

the planned 29 submarines, each of which cost $4.4B. 

Given this reality, why do so many defense programs continue to operate in an 

unconstrained manner? In large part this is caused by the presence of perverse incentives and an absence of positive incentives. The defense acquisition community 

tends to be skeptical of constraints rather than guided by the idea that constraints 

foster quality. The prevailing mindset views complexity as a sign of sophistication, 

long timelines as a sign of strategic genius, and large budgets as signs of prestige. 

Quick, simple, low-cost solutions are dismissed as simplistic, hasty, and cheap. 

The result is an acquisition environment where large budgets and long timelines 

are viewed as inevitable attributes of advanced technology programs, and adding 

time and money to a program is a common problem-solving strategy. While some 

organizations within the military take pride in accomplishing a lot despite minimal 

resources (e.g. SOCOM), they are a distinct minority. 

Further, the acquisition environment does very little to reward program offices for 

delivering under budget or ahead of schedule. If a thrifty program ends up with 

unspent funds, either at the end of the fiscal year or at the end of the program, 

these dollars are generally transferred to some other project (usually one that is 

overspending). The team who worked hard to save money receives virtually no benefit aside from a single line in an annual evaluation. The team which is overspending ends up receiving more money. 

The good news is that we can improve this situation without having to completely 

recreate the entire enterprise. In a broad sense, congressional and military leaders 

can make a concerted effort to seek, support, and celebrate the organizations, programs, and individuals who exhibit this constrained mindset. Find the teams which 

are already delivering ahead of schedule and under budget, encourage them to continue along that path, and celebrate their achievements in public. Point to them as 

an example of what right looks like, hold them up as exemplars for other programs 

to follow, as viable and valuable alternatives to the status quo. Identifying these 

teams as the top performers can provide a strong incentive to the rest of the acquisition community to follow suit. 

Let’s look at one specific way to do this, which is entirely allowable within the 

current regulations. A few small policy adjustments would be sufficient to get things 

started, and a minor legislative effort could boost it considerably. 

GIVE PROGRAM OFFICES ‘‘A TIP’’ 

I propose creating an Acquisition Thrift Incentive Program (A TIP), through 

which Pentagon leaders give program offices a ‘‘tip’’ for good performance. This 

could be initially implemented on a small number of programs, then expanded to 

the wider enterprise if proven successful. Here is how that would work. 

When a program office delivers a new capability under budget, a portion of the 

saved funds (nominally 10 percent) would be formally set aside for the team to 

spend on a project of their choosing. They would be granted considerable freedom 

and autonomy in deciding how to invest these funds. The available options would 

vary depending on how much money is involved, but might include the following: 

1. Establish an incentive prize on Challenge.gov to fund a relevant technology 

contest 

2. Fund a Small Business Innovation Research (SBIR) effort at SBIR.gov 

3. Sponsor a small research project with a university 

4. Purchase the necessary hardware (3D printers, etc) to set up and maintain a 

Maker Space on their local base 

The A TIP initiative would grant top performers an opportunity to do more of 

what they are good at and would equip front-line practitioners the freedom to explore alternatives which might otherwise be overlooked. It would also reward speed, 

because the longer the program takes to complete, the less likely there will be 

money left over and the less likely the people involved early in the program will 

still be involved as the program ends. Focusing on speed, thrift, and simplicity (i.e. 

adopting a constraint mindset) would maximize the team’s odds of receiving A TIP 

funds. Any funds spent on an incentive prize or SBIR award would likely produce 

additional low-cost solutions to important needs and would help fill gaps in current 

plans. 

It would be difficult to game this system by inflating initial estimates and budgets, because all the existing incentives would still apply (i.e. low bidders tend to win, 

29 

etc). The A TIP concept directly incentivizes the desired outcomes (not merely the 

desired behavior), as it encourages program teams to deliver capabilities under 

budget and ahead of schedule. 

One important aspect of A TIP is not to add new reporting requirements or excessive restrictions on how the funds will be spent. The mechanisms, reporting requirements, and controls already in place for managing government incentive prizes or 

SBIR programs should be sufficient. Senior executives should refrain from dictating 

exactly which program, technology, or endeavor to fund. The idea is to allow the 

front-line practitioners to decide as a team which areas to pursue. 

This is a sensible position to take because if the team was efficient enough to 

come in under budget in the first place, it is reasonable to suggest that they would 

be similarly efficient and effective with the A TIP funds. The program will still comply with all the accountability requirements associated with the particular contracting vehicle or channel, but should be given wide latitude within those boundaries. 

Let’s consider an actual example. From January through November of 2014, I was 

the program manager for the Dismount Detection Radar (DDR) program, an $84M 

effort to develop a new radar system. When we finished the effort and closed out 

the contract, our thrifty approach meant we had $8M in unspent funds to return 

to the government. Under an A TIP initiative that provides 10 percent of the savings to the program office, the DDR team would receive $800,000 to invest and manage (approximately 1 percent of the program’s original budget), while the Air Force 

would retain $7.2M. This is the very definition of a win-win-win situation. 

With $800,000, my team could have funded several small experiments via SBIRS, 

as well as a handful of incentive prizes at Challenge.gov. There would likely have 

been money left over to send the whole team to a technology conference or to pay 

for formal training at a place such as the University of Tennessee’s Aerospace and 

Defense division or Georgia Tech’s Contracting Education Academy. 

The benefits of this program include: 

1. Increased incentives to adopt a constraint mindset. 

2. Increased incentive to complete programs under budget and ahead of schedule. 

3. Increased morale among program offices as they are granted autonomy to experiment with the A TIP funds. 

4. Increased training opportunities for the workforce with no additional funds 

needed. 

5. Increased opportunities to pursue disruptive innovations and alternative technologies, suppliers, and methods via SIBR.gov and Challenge.gov. 

6. Increased access to innovative solutions (incentive prize winners and SBIR 

awards). 

One potential barrier to implementation is the legislative restriction based on 

‘‘color of money’’ and fund expiration dates, but this is easily overcome. For starters, 

there are plenty of opportunities to use the saved funds within the original funding 

category and timelines. A team that saves R&D funds could simply put their 10 percent towards an additional R&D effort, staying within the category of the original 

budget. The fact that they are not allowed to spend those funds in a completely unrestricted manner would likely have a minimal impact on the incentive nature of 

the A TIP initiative. However, it would also be possible to establish a simple mechanism to convert the A TIP funds (which will inevitably be a small portion of the 

original program budget) into ‘‘colorless money,’’ which does not expire and could be 

used in a wider range of situations. 

CONCLUSION

There are many ways for military and congressional leaders to provide a strong, 

creative, empowering incentive to encourage acquisition professionals to adopt a 

constraint mindset. The A TIP idea is one such method that seems particularly 

promising. It is designed to help our best performers do more of what they are good 

at and is likely to convey a rich benefit to the acquisition workforce and the armed 

forces as a whole. 

Launching such an initiative would be a matter of issuing a Department-level policy, as the majority of the actual mechanisms necessary are already in place. The 

first step is to launch A TIP as a small pathfinder program, available to a select 

group of programs. If it succeeds in delivering the desired results, it could then be 

rolled out on a larger scale. The initial A TIP programs might focus on leveraging 

existing legislative mechanisms, and over time additional opportunities could be introduced through the legislative process (i.e. changing color of money). 

30 

Lt Col Dan Ward, USAF (ret) is the author of The Simplicity Cycle: A Field Guide 

To Making Things Better Without Making Them Worse and F.I.R.E.: How Fast, Inexpensive, Restrained, and Elegant Methods Ignite Innovation. He holds three engineering degrees and served in the U.S. Air Force for over two decades as an acquisition 

officer before launching Dan Ward Consulting LLC. He is a Cybersecurity Fellow at 

the New America Foundation and a Senior Associate Fellow at the British Institute 

for Statecraft. 

Chairman MCCAIN. Thank you. 

Silicon Valley seems to be a place where innovation and quick 

turnaround and quick progress on their products is the order of the 

day. And we continue to see new products, new advances in information technologies, new ways of communicating. And therefore, 

many of us, including the Secretary of Defense, have tried to involve and engage Silicon Valley more in the issue of acquisition. 

And also, the attempts, at least, have been made to help us with 

this challenge of cyber. And that part, we seem to be at somewhat 

odds, but—so, we formed up In-Q-Tel. That was a CIA [Central Intelligence Agency] operation, and seemed to be very successful. It 

provided funds for startups, which have—many of which have been 

successful. And I think it’s quite a—really remarkable progress in 

the area that we are looking for and engaging Silicon Valley, who 

I think we all know are not particularly interested, because of the 

constraints which the witnesses just described. But, then we had 

DIUx, and that seems to be a tour guide for government officials 

that visit Silicon Valley and matchmaking—and vastly different 

from what In-Q-Tel has done. 

So, I guess my overall question to you is, How do we engage Silicon Valley? How do we really adopt some of the practices, which 

obviously have astounded and led the world, and employ some of 

those, at least in our reform—our efforts to reform the acquisition 

process? 

I guess we’d begin with you, Dr. Gansler. 

Dr. GANSLER. Well, the—— 

Chairman MCCAIN. And what role does Silicon Valley play in 

that effort? 

Dr. GANSLER. I think what Secretary Carter started there was 

the right thing to be considering, is to try to come up with some 

innovative, nontraditional approaches, you know, because clearly 

we’ve had some great success with the Small Business Innovative 

Research Program. And that probably, right now, is being emulated 

around the world. Other countries are trying to copy us, because 

we’ve had such success with the SBIR program. And the same concept is behind the move toward Silicon Valley. And what we’re trying there to do is to, again, think about, How do we get disruptive 

things done? I mean, you mentioned, earlier, unmanned systems. 

And that’s an example of where there’s enormous cultural resistance to introducing some of these new ideas. And we have to continue to fight that. 

I mean—I’ll give you an example again. I like to use examples 

wherever we can. The Global Hawk is an example of that, where, 

if you remember, for 2 years in a row, while I was Under Secretary, 

the Air Force refused to fund the Global Hawk, because it was an 

unmanned airplane, and that was countercultural to the Air Force 

culture of pilots. And so, the—we—I actually had Bill Cohen send 

a note to the Air Force saying, ‘‘Fund the Global Hawk.’’ And they 

31 

did fund it, but then they got back at me by saying the person sitting at a desk in Las Vegas flying an airplane over Afghanistan 

must be a rated pilot. So, what we had to do was to spend a million 

dollars to get that person to be trained as a pilot, each—you know, 

for each person. And then, when you realize it, those people didn’t 

want to sit at a desk anymore, they wanted to fly airplanes, so we 

had trouble trying to get them to stay as the remote piloting systems. 

Chairman MCCAIN. Could—— 

Dr. GANSLER. And there’s an example, it strikes me, that what 

we need is something like the innovation that comes out of the 

Small Business Innovative Research Program. 

Chairman MCCAIN. Thank you. 

Dr. GANSLER. It’s a self-sustaining program. It—by the way, it 

often has this—the people from the universities involved in that. 

They’re, in many areas, ahead of the technology. 

Chairman MCCAIN. Thank you. 

Mr. Augustine. 

Mr. AUGUSTINE. Yes, I think there are two characteristics of Silicon Valley that are particularly important. One is the willingness 

to take risk, and the other is that young people getting out of college today, where do they want to work? They want to work in Silicon Valley; whereas, when I first got out of engineering school, 

where you wanted to work was in the Defense Department, because the latter was where the state-of-the-art was, the excitement 

was. 

You mentioned In-Q-Tel. I—my experience with that was in 

1998. George Tenet was head of the CIA, and George called me. I 

had just retired from my other job. The—George said that they 

were having a terrible problem at the CIA because they were totally dependent on the information industry, that it was their— 

their lifeblood, obviously, is information. But, the state-of-the-art 

had moved from defense contractors to Silicon Valley. And the Silicon Valley wanted absolutely nothing to do with the government, 

particularly the CIA—and asked what we might do. And, anyway, 

a group of us got together, and we decided maybe what we should 

do is form In-Q-Tel. And I was the first chairman of that. And the 

model is extremely simple. What—— 

Chairman MCCAIN. But, DIUx has not followed that model. 

Mr. AUGUSTINE. I’m sorry? 

Chairman MCCAIN. But, the Department of Defense, DIUx, has 

not followed in the In-Q-Tel model. 

Mr. AUGUSTINE. No, it’s totally different approach. And the InQ-Tel model was simply to deal with Silicon Valley as other commercial firms—— 

Chairman MCCAIN. Right. 

Mr. AUGUSTINE.—deal with each other not as the Defense deals 

with you—Department—deals with you. And so, through great 

courage of the people at the CIA, we created an outside organization in the private sector, not for profit, and we were given the authority to grant contracts, to give grants, to take equity positions, 

and to make decisions overnight without competition, whatever we 

thought was the best interest of the government. And we did it. 

32 

And I might add, sir, we spent the first 2 years being investigated 

by every IG [inspector general] in the world, but—— 

Chairman MCCAIN. Could—— 

Mr. AUGUSTINE.—once they became convinced that we were sincere in our belief, In-Q-Tel, I think, has been an enormous success. 

And I would think, just maybe there’s some prototype of In-Q-Tel 

that could be adopted by the DOD. I wouldn’t suggest you could develop aircraft carriers with In-Q-Tel, but I think there are a lot of 

things you can. And I would encourage thinking about a prototype 

version of it. 

Chairman MCCAIN. Thank you. 

Mr. FitzGerald. 

Mr. FITZGERALD. Senator, I think that the way to engage Silicon 

Valley is by solving hard problems with mutual benefit. If we’re 

able to align our interests and Silicon Valley interests, help them 

kick off new work on new ideas and hard problems, let them innovate rapidly, and then if we have the ability to purchase those solutions commercially later and allow them to pursue a global commercial market, things will line up neatly. 

I agree—I almost always agree, unfortunately, with Mr. Augustine, we’re not going to see a Google aircraft carrier or the Apple 

iBomber. The Department of Defense shouldn’t try to become 

Google. It’s not—that would not work, and it would be a bad idea. 

But, if we align—— 

Chairman MCCAIN. But, in the area of cyber, which is a major 

challenge, it’s seems to me that we could have some alliance there. 

Mr. FITZGERALD. Absolutely, we can, although I note that Silicon 

Valley thinks about information security and information risk in 

very—— 

Chairman MCCAIN. I know. 

Mr. FITZGERALD.—different ways. So—— 

Chairman MCCAIN. I’m very aware. 

Mr. FITZGERALD. But, we can—but, I think that we can line that 

up. I think a good model for what ‘‘good’’ looks like here is if we 

think about SpaceX. So, SpaceX, in the aerospace industry—and I 

have some writing about this in my written statement—they’re 

supporting NASA [National Aeronautics and Space Administration] 

through commercial spaceflight. They’re not interested in going 

after ULA’s satellite launch business. They want to do commercial 

spaceflight. But, in the interim, NASA can benefit from commercial 

practices, and the United States will develop—will redevelop a 

healthy space industry. If we don’t allow organizations like SpaceX 

and BlueOrigin to get into this environment, we’re not going to 

have a sufficiently healthy space industry to build our own rocket 

engines, and we’re going to have to keep buying them from the 

Russians. So, we can’t—despite the fact that I agree with—that we 

need constraints, we can’t constrain Silicon Valley to a purely DOD 

market. We need to find common interests and leverage those, and 

then let them go do their thing outside of that. 

Chairman MCCAIN. Thank you. 

Colonel Ward, briefly. I’m way over time. 

Colonel WARD. Yes, sir. When I was on Active Duty, I actually 

had a very successful engagement with a nontraditional company 

from Silicon Valley. The reason they were interested in working 

33 

with us is that we had a—an interesting series of small, quick, rapidly developed and rapidly delivered new capacities. Look, Silicon 

Valley looks at the big traditional acquisition programs, and they 

get uninterested because the pace is so slow and the bureaucracy 

so heavy. They want to deliver something quickly, not just because 

they are interested in speed, but because they know speed works 

and they know that long timelines increase the risk of delivering 

something that’s operationally irrelevant, technologically obsolete, 

or both. And that’s the type of risk that we don’t want to pursue. 

So, by keeping the timelines short, we can make ourselves more interesting and more engaging to the Silicon Valley folks. 

Chairman MCCAIN. Thank you. 

Senator Reed. 

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

Let me start with Colonel Ward and go down. And the general 

topic are the service contracts. You know, usually when there’s a 

front page story, it’s about overrun on a system—a land-based system, an aircraft, or something. But, there’s so much money being 

devoted to service contracts—and Mr. Gansler referred to one of 

the constraints already—but your insights about how we can get 

our handle on these service contracts to be more efficient, more effective, and hopefully free up dollars for other higher priorities. 

And, Colonel Ward, you start, and we’ll go right down. 

Colonel WARD. Yes, sir. So, a couple of years ago, the Air Force 

announced that they were spending more money on service projects 

than they were on, you know, traditional R&D and technology-type 

things. So, it is a huge amount of money. I think one of the first 

steps is to not treat service contracts that same as we treat contracts to build an aircraft, for example. However, I think a lot of 

the similar constraints can apply. Rather than assembling a cast 

of thousands, I think we’re better off with smaller teams. And I 

think if we sort of modularize these service contracts—again, this 

idea of centralized—centralizing everything in one big service contract to rule them all—the economies of scale that were promised 

never seem to emerge, the efficiencies that are supposed to come 

along with those never quite happen, because the bureaucracy just 

gets so heavy when we’re managing that. Large numbers of small 

teams have their own challenges, and none of this is easy. But, 

large numbers of small teams, I think gets you better results than 

a small number of really large teams. 

Senator REED. Thank you. 

Mr. FitzGerald, please. 

Mr. FITZGERALD. Senator, I don’t have much more to add on top 

of Colonel Ward’s excellent points. The only thing that I would add 

is: shorter duration allows for continued competition; and we need 

to ensure that there are strong incentives for these companies to 

continue to compete for that business. They can’t view them as an 

annuity business which just allows them to generate revenue in 

perpetuity. 

Senator REED. Very good. 

And Mr. Augustine. 

Mr. AUGUSTINE. Senator, everything I have seen with regard to 

service contracts or hardware contracts is that the successful ones 

always have somebody at the leadership position who has authorVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
34 

ity, who has the willingness to put their career on the line, who 

has experience at what they’ve been asked to do. And I think it 

comes down to leadership, with people. 

Senator REED. And that leadership would be in the company or 

in the Department of Defense, or both? I agree with you. 

Mr. AUGUSTINE. I—it’s obviously both, but the real issue, I think, 

is in the Department of Defense. The way we’ve filled many of the 

leadership positions really discourages people from joining the Department of Defense today. 

Senator REED. There’s another aspect of this, too, I think, in 

terms of—sometimes you have to plug the gap at the middle and 

lower level with contractors, because of the reason you point out. 

You cannot attract, as you did 30 or 40 years ago, you know, the 

very best to go in for a career in the Department of Defense. Is that 

another problem we have in—we have to deal with? 

Mr. AUGUSTINE. I think it is absolutely a problem. And in my 

mid-career, when you—it was during the Cold War—when you 

were asked to take a position in the government, even if it meant 

a huge pay cut, you took it. Today, I know of jobs that a dozen people have turned down, senior positions in the government. And I 

think we pay a great price for that, sir. 

Senator REED. Thank you. 

Dr. Gansler, please. 

Dr. GANSLER. Well, the most obvious place where I think this 

would be applicable to your point about services is in the information technology area. I mean, the example that I think would be 

appropriate here is a comparison between FedEx, UPS, and Department of Defense logistics systems, where FedEx and UPS have 

total asset visibility, but the DOD doesn’t have that. That’s inexcusable. It seems to me that we should be learning how to take advantage—I mean, right now, our IT systems tend to follow the 

same rules as building a tank. And that’s not sensible. I mean— 

and that’s one of the main areas I think we have to address, is the 

information system technology acquisition, and how to take full advantage of what commercial technology is doing in the IT area 

today; for example, that logistics case I just gave you. 

Senator REED. Just one follow—a quick point—is that, you know, 

we’ve come to realize that information technology is a double-edged 

sword. It moves things around very quickly, but if you can get into 

that system, you can stop everything in a moment. So, part of what 

we’re—we want to do is emulate what they do, but also make sure 

it’s invulnerable to penetration, I would presume. Is that fair? 

Dr. GANSLER. Correct. No, that’s—right now, we’re becoming increasingly vulnerable, and that’s the danger in the system. And it’s 

been demonstrated with that OPM attack recently. And it’s very 

clear that—when people were talking, a few minutes ago, about 

supercomputing, that the number-one supercomputer in the world 

today is actually the National University of Defense Technology in 

China. And it’s obvious that they are focusing on the software aspects of that. And, by the way, when I toured that facility, those 

were all American parts in there. There’s a globalization of parts. 

And—but, it’s clear that their focus is on the software side of that. 

And so, other countries are going to be—not just countries, but people—are going to increasingly be attacking our systems. And it 

35 

makes them more vulnerable as we become more dependent on 

cyber. 

Senator REED. Thank you. 

Thank you, gentlemen, very much. 

Thank you. 

Chairman MCCAIN. Senator Inhofe. 

Senator INHOFE. Thank you, Mr. Chairman. 

I’ve been waiting for the right panel to come along for several 

years now. So, I’m going to only ask one question, and I’m going 

to carry you through. And it’s something that’s very personal to 

me, because I was elected to the Senate in 1994. My first year was 

1995. In 1995, they came up with the idea that we’ve had the old 

Paladin system for many years. It’s old World War II technology. 

And we needed to have something that would really be substantial, 

really protect our kids out there. And they came out with the Crusader. That was 1995. 

In fact, let me get the timeline down here so I’m accurate on it. 

In 1995, it’s when they approved the—to commence the program. 

And the first prototype—this is the Howitzer—was—and you’re all 

familiar with this, of course—was in the year 2000. Then, in 2002, after some $2 billion had been spent, it was terminated. Now, I’m a Republican, I’m conservative, but I can’t blame 

the Democrats on this, because this was done with Rumsfeld in the 

Bush administration. In fact, it was so seriously considered that 

one of—you remember the Congressman, J.C. Watts, he actually 

retired from the House of Representatives because he was so upset 

with spending 7 years on a program and then dropping the thing. 

And at that time, $2 billion seemed like a lot. 

Well, then we go through with this thing, and carry it through. 

And they say, ‘‘All right, we need to have something that’s lighter.’’ 

The Crusader started out at 65 tons, ended up at 40 tons. They 

went into bringing it down to 18 tons. They said, ‘‘No, that’s not 

heavy enough to offer the protection that’s necessary, so let’s’’—we 

dropped that program, started the NLOS Cannon, none-line-ofsight cannon. That was one that was—they brought down to 18 

tons because they wanted to make sure they could transport it on 

a C-130. And so, we went through this—all of this program. And 

finally, at the end of a period of time, they went into—that was 

part of the FCS program, then they dropped that one. As the 

Chairman mentioned in his opening remarks, that was a $20 billion program that we had already spent on that. 

Now, the interesting thing is, they brought the weight down. 

We’re now going back to a part of an improved Paladin, the PIM 

system. And what’s the weight of that? It’s right back up to where 

the Crusader was. It’s 40 tons. 

Now, what I’d like to ask you—and I know you can’t do it in 

here—I’d like to have your opinions on the record, later on, getting 

around to it, as to how we went through that chronology, that transition. 

Senator INHOFE. Because you start a program, the requirements 

really didn’t change that much, because the requirements were, 

‘‘It’s got to be transferable, it’s got to be mobile, and it’s got to offer 

the protection.’’ And other than the fact that we had different systems down there, we’re going right back to one that offered essenVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
36 

tially the same protection that—in the final years of the Crusader. 

Do you have any comments now about just that one combat vehicle 

that we’ve gone through in that period of time? In your—and in 

your opinion. Is it because requirements changed and then didn’t 

we end up where we started? 

Dr. GANSLER. Well, I think one of the things we should start to 

think about is making affordability a requirement. Because it’s 

very clear, if you think about Lanchester’s Law, that—you know, 

of total force effectiveness is proportional to individual weapon effectiveness times numbers squared. 

Senator INHOFE. Yeah. 

Dr. GANSLER. And so, the question is, Are—is it affordable to get 

the numbers we need? And therefore, that’s the unit cost. Why isn’t 

that a requirement? 

Senator INHOFE. Yeah. Well, let me do this. Because I’m out of 

time anyway. If you all wouldn’t mind tracing that through, that 

little history through for me. And I’d like to be—very much to have 

your comments on how we ended up in that situation. 

Senator INHOFE. Thank you, Mr. Chairman. 

Chairman MCCAIN. Senator Heinrich. 

Senator HEINRICH. Thank you, Mr. Chairman. 

I want to return, if I could, to something that both Mr. FitzGerald and Mr. Augustine have brought up a couple of times now, 

and it’s just how much things have changed since even I got my 

engineering degree, back in the early to mid-’90s, where people 

really tracked to working in DOD, working in our National Labs, 

because of the attractiveness particularly of the problems. It was 

seen as the place to be. And I saw that change very quickly as I 

left and went to work as—for a contractor at Air Force Research 

Labs, how quickly Silicon Valley and other innovative tech clusters 

around the country became the place to be for the talent coming 

out of our engineering schools, in particular. 

Some of that is based on the problems that are being put forth. 

People want to work on the things that really make them excited, 

that are difficult, where they feel like innovative solutions are 

going to emerge. Some of that’s also cultural. And you see this anytime you—you know, if you go and tour some of the innovators at 

Silicon Valley, and the culture of workplace is so dramatically different than, you know, what I experienced at Air Force Research 

Labs. And that is something that has an enormous draw for engineering and STEM [science, technology, engineering, and mathematics] talent coming out of our universities today. 

What can we learn, in terms of inserting some of those cultural 

elements into what is obviously a slow-to-change and rigid and, in 

many cases, for a reason, culture of DOD? 

And, Mr. FitzGerald and Mr. Augustine, in particular, I’d like to 

get your thoughts. 

Mr. AUGUSTINE. Well, it’s a great question. And I think there are 

examples within DOD that do exactly what you describe. DARPA 

[Defense Advanced Rsearch Projects Agency], ARPA-E [Defense Advanced Rsearch Projects Agency-Energy], In-Q-Tel could attract the 

very best people coming out of college today. Whereas, many of the 

more established, rigid organizations can’t. And I think the difference is the culture or the freedom to do things. And I’ll cite the 

37 

example of my son, who is an engineer. Went to work for a company—not the one I was involved with—and was working on a defense contract. And he and these young engineers were told how 

very important this was. They worked through the Thanksgiving 

holidays. He went to work on Christmas Day. Early in January, 

the customer decided they really didn’t need this after all and canceled the program. Well, those kids all got out of the defense business and headed to Silicon Valley. And so, it’s a cultural issue. And 

this issue of the lack of stability is something that costs us a great 

deal. 

Mr. FITZGERALD. I agree, this is a great question. 

I’d come back to how we frame the problem. Part of the challenge 

is that we frame problems in really boring or esoteric ways. So, if 

I give a short example. The Secretary of Defense, when he was in 

Silicon Valley, talked a lot about GPS, and rightly so. If I described 

the problem to you in military technical speak, I would say, ‘‘We 

face an ongoing challenge of, How do we maintain persistent precision timing in navigation in A2/AD [anti-access/area-denial] environments against a near-peer threat specifically in the South China 

Sea?’’—at which point most people under the age of 30 are in a 

microsleep. If we say, ‘‘I’m talking about the future of GPS that 

does not require expensive satellite technology, that would revolutionize how every mobile handset on the planet operates, and then 

all the opportunities that come from the apps that you’ll build on 

top of that,’’ that’s a compelling and interesting problem to go after. 

So, we need to frame it, and then we need to let people go directly 

to the problem. 

Most of the folks I speak to in Silicon Valley would love to work 

on an actual military problem. If they get to hang out with marines 

in a quonset hut in the desert, that’s a good time. What they don’t 

want to do is sit in an office park somewhere in Northern Virginia 

and do a capabilities-based assessment for 3 months. So, if we can 

keep things—if we can operate on short timeframes, I think we can 

make it more interesting. Overall, I think that this is one of those 

sort of addition by subtraction. Remove constraints, in terms of unnecessary bureaucracy, let people go at the problems, and they’ll 

want to do it. 

Senator HEINRICH. Thank you both. 

I want to, with the remainder of my time—and this is for anyone 

on the panel—How much of these challenges just result from sort 

of an inherent bias towards sort of exquisite one-off solutions at the 

cost of off-the-shelf solutions as a result of the sort of regulatory 

process that we’ve created? 

Mr. AUGUSTINE. Well, your question, really, I think, points to the 

requirements process, which, in my view, is a fundamental part of 

the problem that we face. The requirements process is very sterile, 

very formalized, lacks feedback, lacks financial input. And I think 

that—I won’t take a lot of time, because we don’t have it, but I— 

the first thing I would start doing would be to change the way we 

do requirements. 

Senator HEINRICH. That’s very helpful. 

Thank you very much, Mr. Chair—— 

Dr. GANSLER. My comment on the—— 

Senator HEINRICH. Oh. Hello. 

38 

Dr. GANSLER.—GPS—I didn’t realize I was going to turn the 

lights off, but—I mean, it’s—but, your example of GPS is an interesting one, in the sense that one of the things we might look for 

is dual-use capability in some of these innovative ideas. 

Senator HEINRICH. Right. 

Dr. GANSLER. I mean, it’s very clear. At the time when GPS was 

started, I was responsible for electronics R&D. And what was interesting about that is, both the Navy and the Air Force separately 

came to me and wanted their own satellite navigation system. I 

suggested to them they’re using the same earth. You know, it 

doesn’t seem to me it makes much sense, because it was so expensive. And why do you need a separate one? You know. And—but, 

it—obviously, it had lots of commercial application. So, if you were 

thinking about what career you want to go into, you would want 

to go into something that had both dual-use. And a lot of the things 

we’ve talked about today are dual-use kinds of things. And so, you 

might think about it in that model rather than simply saying something that’s unique for defense. In the past, where defense was always ahead, it’s no longer the case. 

Chairman MCCAIN. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Gentlemen, I’d just—what I would like to do is a little bit of an 

exercise. Based on a series of premises, I’d like you to rate and suggest to us, as policymakers, better ways to provide specific guidance. 

Let me just lay this out. I’d—the old comic strip story of, ‘‘We 

have met the enemy, and the enemy is us.’’ It sounds as though, 

in this particular case, when you have laid out for us the challenges that you’ve seen, it comes back down to the policy that has 

been established. And let me just work my way through this for 

just a second. 

Dr. Gansler, in your testimony, you’ve noted the incredible number of regulations for doing government business. You’ve indicated 

2,000 more pages are being added of regulations, 180,000 already 

in place. I think currently the total cost for regulatory compliance 

to the United States is up to about $1.9 trillion today, and climbing. 

Mr. Augustine, you talk about the fact that, in the private sector, 

when particularly bad judgments have been made, people lose their 

jobs. In government, when bad judgments were made, nothing happens. You’ve also identified, earlier in our conversations today, the 

fact that there was a time, when someone asked someone to go to 

work in a government agency to help, people said yes. Today, we 

have those positions open, and we’re having a tough time filling 

them. There’s a reason for it. 

When we talk—Colonel Ward, in your testimony, you comment 

that, time and again, military program offices, working under tight 

constraints, reliably hit their budget and schedule targets while the 

technologies they produce contribute significantly to achieving 

operational objectives in the field. And then you lay out the fact 

that constraints work. 

It looks to me, though, that when we sit back and we look at the 

actual products that have been established, whether you talk about 

an F-22, where you talk about the total number of dollars invested 

39 

in the development of the program, and then, midstream, we end 

up with less than 200 aircraft operational when we’re all done. 

Look at the F-35, where the challenge of developing it is one thing, 

and yet we’re going to debate how many we actually build. We 

have an LRSB, which is under development today, and yet the cost 

of it will go up unless we commit to the number of aircraft that 

we’re actually going to build. 

At some stage of the game, when we look at all of these different 

issues, they all point back to policy, which is either being changed 

in midstream or there is not accountability demanded, or it appears as though, when we do see something wrong, the first thing 

we do is, is we jump back into this thing to say there ought to be 

a law to stop it from happening again, none of which seems to be 

working very well. 

So, if I could, would you each just, in—briefly as you can—lay 

out for us one or two items that you think would be critical as we 

move forward that we could do, as policymakers, specifically to help 

the Department of Defense to actually be able to comply and to become more efficient, things that we could either stop doing or 

things that we should be doing as policymakers. 

Colonel WARD. So, a program with a long timeline presents a 

larger target to the forces of change, whether it’s legislative 

change, changes in the threat environment, changes in the technology environment, changes in the economics or the politics of the 

thing. So, anything we can do to incentivize and reward shorter 

timelines will help provide that stability, in terms of requirements, 

legislative requirements, all these things. So, we start sort of by 

measuring it. And if we’re really legislatively, you know, saying, 

‘‘We must measure not just how much time we’re—we spend, but 

how much time we plan to spend’’—because a lot of times, when 

we plan to spend a long time, we end up spending even more; when 

we plan to spend a short amount of time, we end up spending even 

less. 

One of my favorite examples is the Virginia-class submarine. My 

friends in the Navy have done a fantastic job with the Virginiaclass subs. I have some numbers here. The—in 2008, the USS New 

Hampshire delivered 8 months early, 54 million under budget. In 

2011, the USS Mississippi was a year ahead of schedule, 60 million 

under budget. So, on the order of a year ahead of schedule, on the 

order of tens of millions of dollars under budget for something as 

large and expensive and complicated as a nuclear-powered sub. The 

reason they did that, they set a goal: two for two in two. Two subs, 

$2 billion every 2 years. And then they said, ‘‘Not a day more, not 

a dollar more. In fact, we expect you to beat these timelines.’’ And 

$2 billion is a lot of money, but compare that to the Sea Wolf submarine, which was $4.4 billion—that was the one that came before 

and was canceled—it’s less than half the price of the Sea Wolf. It 

can be done, even on something as big and complicated as that, by 

setting these tight constraints. Things like two for two in two, 

which is a nice, handy bumper-sticker, but there was deep engineering beneath it, as well. 

Senator ROUNDS. Got it. 

Mr. FITZGERALD. I’ll pick two things. The first would be export 

controls. I think that we should blow the current system up and 

40 

start again. It made sense in an era when we had access to unique 

technology that we needed to protect. But other people have this 

technology already. The great example is our desire to sell drones 

to Jordan, an ally of ours. We sell them F-16s. Thanks to MTCR 

[Missile Technology Control Regime], we can’t sell them drones. In 

the past, that would have meant they didn’t have any. Now they’re 

buying, or they have the opportunity to buy, Chinese drones that 

look suspiciously like our drones, and we have fewer means by 

which we control—we can influence the way that the Jordanians 

use them. And, at the same time, our businesses are not as competitive globally because they’re not able to sell drones as frequently. I think that’s a huge—one way we can just start again. 

I would also—while it’s not legislative, I would encourage the 

committee to establish incentives whereby we can start many more 

programs, each of which is smaller and shorter. That will mean 

that we have less risk in each program and we can shoot things 

earlier, and they won’t be trying to move requirements onto one big 

megaprogram, as we’ve seen with all of the failures that we’ve been 

talking about today. 

Senator ROUNDS. Thank you. 

Mr. AUGUSTINE. Two things that I think the Congress could do 

to address the issue you raise. One would be to provide the Defense 

Department with a 10-year planning budget that you update every 

year, and require that all new starts fit within that budget. One 

of the problems is that we start out approving programs one by 

one, in isolation, and we don’t fit together the total cost. And so, 

we start out to build a—I’ve forgotten how many B-2s, but we 

wound up building 21 of them and then wondered why they cost 

so much. So, if the Congress provided a planning budget, kept it 

up to date, that would, I think, be very helpful. 

The second is to make it very much harder to start new programs and very much harder to change them once they’re started. 

When I worked in the Pentagon, I was an aerospace engineer, they 

put me to work in the Army because they thought that was where 

the biggest problem was, I guess, or that’s what I was told. And, 

at that time, there had been five—the Army ‘‘big five’’ had just 

started. And whether I agreed with them or not, I said, ‘‘By golly, 

we’re going to stick with them to avoid the Crusader problem. 

We’re going to stick with them, and we’re going to make them happen.’’ Well, those five programs today were the Apache, the Black 

Hawk, the Patriot, and Abrams tank, and the combat vehicle. 

Those are the systems we’re fighting with today, and that was in 

1973. And so, if we just stick with these things and make it—don’t 

start them. Let’s keep track of how many we finish, not how many 

we start. 

Senator ROUNDS. Thank you. 

Chairman MCCAIN. Got to move on to—— 

Senator ROUNDS. Thank you, Mr. Chairman. 

Chairman MCCAIN. Yeah. 

Senator Manchin. 

Senator MANCHIN. Thank you, Mr. Chairman. 

Thank all of you all for being here today and your service to our 

country. 

41 

Mr. Ward—Colonel Ward, I was—I checked your bio and everything. I was very impressed. And you went over the numbers 

again, 8—was it $8 billion under budget? 

Colonel WARD. Million with an ‘‘m.’’ 

Senator MANCHIN. Eight million, oh, okay. I was giving you a little bit more credit. Anyway, time constraints. You know, we hear 

an awful—I want to hear all of your—the sequestering and budget 

caps. You’re talking about time constraints. It seems like Congress 

has to—you want us to micromanage, since the Department of Defense can’t put time constraints on themselves? Where should it 

come from? This committee? From Congress, telling how quick 

these programs should be—come to fruition? If not, then you move 

on. But, how did you get to where you all—the ‘‘two for two for 

two’’ you just mentioned, how did that come about? 

Colonel WARD. I think that was Navy leadership who made that 

decision. And, again, I wouldn’t recommend—I’m a big fan of decentralized decisionmaking and pushing—— 

Senator MANCHIN. Yeah. 

Colonel WARD.—decisions down to the lowest possible level and 

as close—— 

Senator MANCHIN. Okay. 

Colonel WARD.—to the action as possible. The challenge is, 

though, that what gets rewarded and incentivized is managing a 

program that—you know, if you want to get promoted, work on a 

long, big, expensive, complicated program. 

Senator MANCHIN. There’s schools of thoughts here, because 

some people think that we throw so much money, and it’s just 

wasted, and there’s no time, and there’s no accountability and responsibility. And then others say that we basically have strangled 

with budget caps and sequestration. Give me all—give me your all 

thoughts on those real quick. 

Colonel WARD. Sure. I think that there’s a widespread belief that 

spending more money and spending more time is a good problemsolving technique and a good way to get us better outcomes. And 

the data just doesn’t support that. In fact, we tend to get better results with short timelines and—— 

Senator MANCHIN. What’s your thoughts on sequestration? 

Colonel WARD. I think there’s a way to do budget constraints 

that’s intelligent and thoughtful, and then sequestration tends to 

be more of a broad—— 

Senator MANCHIN. Hammer down? 

Colonel WARD. Yeah, more of a hammer than the scalpel. 

Senator MANCHIN. Gotcha. 

Colonel WARD. So, we can do it well, we can do it, you know, 

more of a brute force. 

Senator MANCHIN. Do you think there’s enough money in the system right now to defend our country? 

Colonel WARD. I do. I do. 

Senator MANCHIN. Just not using it wisely, right? 

Colonel WARD. Right. Right. And the idea is not that we spend 

less money overall, but that we spend it on smaller individual 

projects. And we could have a portfolio of programs which distributes the risk, distributes the learning, and increases accountability. 

42 

Senator MANCHIN. Mr. Augustine, I’d like to hear your thoughts 

on that real quick. 

Mr. AUGUSTINE. Yes. I think that not only is the amount of 

money important, but the stability of the amount of money is extremely important. And with regard to sequestration, everything 

I’ve seen, looking from the bottom up, is that it’s been very damaging. 

Senator MANCHIN. Mr. Gansler? 

Dr. GANSLER. I think the one thing we’ve got to do is gain better 

confidence in the stability of the budget. And if—for planning purposes, that’s going to be absolutely critical, in terms of how much 

you can afford for each individual system and how many of those 

you can buy. 

Senator MANCHIN. Mr. Augustine, real quick, do you think 

there’s enough money in the system right now, as far as our budget 

in—if we chose to spend it differently or, basically, appropriate it 

differently? 

Mr. AUGUSTINE. I suspect I’m not in a position to really answer 

whether it’s an adequate amount, but I do think that we could get 

a great deal more for what we have. 

Senator MANCHIN. Efficiency. 

Mr. AUGUSTINE. Through efficiency. And I’m talking about probably 25 percent or something like that, a big number. 

Senator MANCHIN. Oh, boy. 

Mr. FitzGerald. 

Dr. GANSLER. But, it also depends upon how many more new regulations and legislation you write, because if those are driving the 

costs up and the—and stretching—— 

Senator MANCHIN. Well, you all have been very clear in your testimonies about, basically, the regulations. Almost—more than a 

trillion dollars of cost has been added because of regulations that 

have been sent from us, from Congress, or is it developed within 

the Department of Defense? 

Dr. GANSLER. Some of each. 

Senator MANCHIN. Some of each. 

Mr. FITZGERALD. Senator, when I was running a small business, 

the majority of government input was about my reporting and my 

accounting and the audits that I had to go through to get paid, 

rather than, ‘‘Did I do good work? Were my ideas strong? Did they 

impact the Department of Defense in a positive way?’’ So, we’re 

putting—we’re strangling on the wrong things, not strangling on 

the right things. 

I strongly agree with the point Mr. Augustine made, in terms of 

sequestration and budget clarity. I almost went out of business 

twice because of continuing resolutions. I had Department of Defense customers who wanted to purchase my services for things 

that mattered, but there were new starts during a CR [continuing 

resolution], and we couldn’t do it. That meant that I had to keep 

significant cash on hand just to keep the business going. I couldn’t 

invest that in new ideas. It was a very inefficient way of running 

a business. 

Senator MANCHIN. Makes all the sense in the world. 

Thank you. 

43 

Chairman MCCAIN. Some feel that a meat axe approach, which 

is sequestration, is the wrong approach. And I don’t know of many 

experts who disagree with that. I am proud of this committee’s reductions in excess spending, fact I can name it in the billions. But, 

to have a meat axe approach, it takes—throws the baby out with 

the bath water. And every military—uniformed military leader who 

has testified before this committee has said that sequestration is 

harming their ability to defend the Nation. And if the attack on 

Paris doesn’t wake us up, then nothing will. And so, to somehow 

allege that we’re spending enough money right now in the right 

way is, in my view, sheer fallacy and ignorance of the threats that 

we face. Total ignorance. 

Senator Ernst. 

Senator ERNST. Thank you, Mr. Chair. 

Gentlemen, thank you for being here today. 

Colonel Ward, just thank you. You shared some great examples 

there of servicemen and -women that have really taken that extra 

step and exhibited some great ingenuity. So, thank you for doing 

that for us today. 

Gentlemen, we do have a substantive budget allocation that’s directly dependent on our program management, our program project 

management being done right. I mean, it must be done right. However, we don’t have a fully standardized workforce leading those 

programs with a baseline of people and processes and the culture, 

which we’ve talked about today, how we need a culture that works 

a little differently than it has in the past, that culture that’s necessary for predictable outcomes—on time, on target, on budget. 

And the Defense Acquisition Workforce Improvement Act was a 

great first step in this process. However, it only deals with weapon 

systems, it doesn’t deal with the service contract side that we’ve 

discussed about earlier. 

So, just very briefly, if each of you could comment on your assessment of DAWIA. And is it providing the necessary program management across the whole of our acquisition process? And just some 

brief thoughts on that. 

Colonel Ward, if we could start with you, please. 

Colonel WARD. Yes, ma’am. So, I think there’s a lot of good 

things that happened with DAWIA, in terms of the emphasis on 

education. I think there’s certainly more room for improvement. 

One thing that I’ve done recently is, I kind of—I went through and 

I read the FAR [Federal Acquisition Regulation], or as much of it 

as I could, and I collected a series of the phrases, the clauses, the 

sections of the FAR that I could really hang my hat on, that moved 

us in the direction of speed, thrift, and simplicity, flexibility, agility, and these types of things. So, I mean, granted, the FAR is too 

long and too complicated and difficult to comply with, but there’s 

a lot in there that does tell us to do the right things and do good 

things. And so, if we can kind of include that type of analysis. And 

I wrote a little booklet on it, and it’ll be coming out in the new 

year, that says, ‘‘Here are the simplifications, the opportunities, 

and the agilities that the FAR not just allows us to do, but encourages us to do.’’ A greater awareness of those types of things, I 

think, would go a long way to improve the quality of decisionmaking at the practitioner level, which is sort of my area. 

44 

Senator ERNST. Certainly. Thank you. 

Mr. FitzGerald. 

Mr. FITZGERALD. I agree with you. I think that the legislation is 

a good first step, that that needs to be followed up with strong 

management and getting the incentives right at the individual 

level. So, celebrating success, when required, and, without being indelicate, punishing failure. It’s—all of this legislation will be immaterial to the practitioner if they can’t see the implications for themselves. So, I would encourage this committee to engage in that sort 

of management, and also to encourage the Department of Defense 

to do that, as well. 

Senator ERNST. Very good, thank you. 

Mr. Augustine. 

Mr. AUGUSTINE. Yes. My experience has been that, where you 

really develop managers for very, very complex undertakings, 

whether it’s software or hardware or services or what have you, is 

really in industry, not in the government. And I think the reasons 

for that are that, in industry, you’re given authority, and you’re 

held accountable. And one of the things that’s changed during the 

period of my career is that it used to be quite common for people 

to—in industry who have been trained to manage big projects, they 

serve in government for a period of time and manage those 

projects, and then can go back and have a career in industry. They 

have to disqualify themselves for many things to avoid conflicts of 

interest. And that’s important. But, today it’s so hard to go back 

and forth. And many would say it—you shouldn’t go back and 

forth. But, I truly believe that if we don’t have some of the industrial experience managing major projects in our government, we’re 

losing an opportunity. 

Senator ERNST. Very good, thank you. 

Dr. Gansler. 

Dr. GANSLER. I agree with Norman, it’s highly desirable to have 

both experiences to understand—but, the incentives in industry, 

from the government side—that that’s absolutely critical. And to 

the extent that maybe you can get that in business school, or something like that, it would be highly desirable to have that understanding. I also think that we should have a promotion system 

within the government, based upon success, achievements, you 

know, meeting schedules, meeting cost, meeting performance, 

things like that, that we need to evaluate the incentive systems, 

both ways. And, of course, it wouldn’t hurt to have some salary 

compensation, either. I mean, twice I’ve gone into the government—first time, I took an 80-percent cut, and the second time, a 

90-percent cut. That’s not bad. 

Senator ERNST. Right. 

Well, I thank you all very much for your testimony today. 

Thank you, Mr. Chair. 

Chairman MCCAIN. Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

Our acquisition process is highly complicated, and yet we are 

stuck in a bygone era, from not just the testimony from today’s 

hearing, but from other hearings that the Chairman has called. 

I was very intrigued, therefore, by Colonel Ward’s focus on ‘‘constraints work,’’ where speed, thrift, and simplicity are the areas 

45 

that we ought to be looking at. And I’m interested to know from 

the other three panelists whether you think that this approach, the 

attitude, ‘‘constraints work,’’ whether that would be applicable to 

the acquisition process in—for example, in our space systems, in 

the building of aircraft carriers, to our cybersecurity area. Would 

this be a good approach for us to move toward: ‘‘constraints work’’? 

Mr. AUGUSTINE. Well, I’ll comment. And the Colonel makes a 

very important point. I think there’s a real semantics hazard here. 

And the 180,000 pages that Jacques mentions are constraints. And 

I’m sure those are not what the Colonel is referring to. And so, I 

would probably use the word ‘‘freedom’’ instead of ‘‘constraints.’’ 

But, I understand his point, and I think his point is correct. 

Dr. GANSLER. Yeah, I would think that the—I agree with Norman—the concept of removing the constraints would be highly desirable, in the sense of the regulatory aspects of them. You know, 

the—right now, with the—one of the problems, I think, that we 

have is in the training of our acquisition officials in the Department of Defense. They learn all the constraints, but they don’t 

learn to think about whether those constraints are good or bad, 

and how they could be modified. 

So, I think what we probably do need is something like another 

Packard Commission, in effect, that—I mean, we didn’t take advantage of what came out of the Packard Commission, in terms of how 

to use commercial stuff. That was one of the main things that Bill 

Perry was trying to do in the chart that I showed of the comparison 

of mill standard parts with commercial parts, is an example of 

where we could be more flexible in our judgment of how we apply 

commercial things. We talked information systems, for example, in 

the support functions. 

Senator HIRONO. So, I think that if we define ‘‘constraints’’ as, 

really, speed, thrift, simplicity, I think that’s what we’re getting at, 

not, ‘‘Let’s add another 100,000 pages of requirements.’’ So, if we 

use those kinds of words to define what we mean, and then I think 

that’s when you get a decision such as ‘‘two for two in two.’’ And 

I think that that’s perhaps where we need to go. 

There’s one more person who I’d like to hear from. 

Mr. FITZGERALD. Yeah. So, I’m slightly biased. I’m a Dan Ward 

fan. I actually reviewed his first book. So, I agree. But, this is 

about putting constraints in the right areas, not through regulation, but through management. I’d also say that we can’t have one 

system to build everything. So, building aircraft carriers requires 

a different system to building—to integrating ISR [intelligence, 

surveillance, and reconnaissance] systems and to acquiring commercial technologies. Building an aircraft carrier, you can still create constraints. It’s a series of small projects, not one 50-year 

project. 

We can also benefit ourselves by not building stuff. This version 

of the NDAA encourages or, I think, mandates that the Department of Defense look more at the persistent close air support 

project, which I think is an excellent project by DARPA and the 

Marine Corps. They build new software that they put on top of an 

Android tablet. We didn’t have to build the Android operating system. We didn’t have to build the tablet. That’s a great way of constraining your project. Just don’t build that. Focus on the hard 

46 

stuff that you need the military unique advantage. I think it’s a 

great approach. 

Senator HIRONO. Some of you have talked about the competition 

that exists between, for example, the engineers wanting to go and 

work at—in Silicon Valley, as opposed to the DOD. And as we look 

at the need of our country for STEM—people with STEM backgrounds, are we—how do you see us, vis-a-vis the rest of the world, 

in terms of our ability to have people with STEM educations? How 

are we doing? And what do we need to do? Very briefly. I’m running out of time. 

Mr. AUGUSTINE. Well, I’m so glad you asked that question, because, I think, in the long term, that may be the biggest hazard 

we face in defense. And today—there was a recent study of 93 

countries, as where they looked at what percentage of the baccalaureate degrees were awarded, were awarded in science of engineering. The United States ranked 79th out of the 93. The country 

we were closest to was Madagascar. If you look into the scores on 

standardized tests of 15-year-olds in this country, of the OECD [Organization for Economic Co-operation and Development] nations, 

34 nations, the United States ranks 21st—— 

Senator HIRONO. So, we’re not doing well. What—do you have 

any thoughts on what we can do to improve this situation? 

Mr. AUGUSTINE. The first thing to do is to fix the K- through-12 

system, and second is, don’t have the States starve our great research universities. 

Senator HIRONO. Anyone else? 

Dr. GANSLER. Also—— 

Senator HIRONO. Yes, Colonel Ward. 

Dr. GANSLER.—funding advanced research would certainly be one 

of the ways of doing it. 

Senator HIRONO. Colonel Ward. 

Colonel WARD. So, I was at a technology conference out in Silicon 

Valley, and Todd Park, from D.C., went out there and spoke to a 

big room of people, and basically said, ‘‘Your government needs 

you.’’ We have important challenges to help serve our veterans— 

VA [Veterans Affairs] healthcare and—and he laid out a number 

of interesting challenges. And he said, ‘‘I’m going to be in that room 

over there. If you want to come talk to me about coming to D.C. 

and working, you know, give me your card.’’ He was mobbed. The 

line was out the door. I couldn’t even get—and I was still in uniform at the time, so I was already there. But, people want meaningful challenges. And I was listening to people talk, and it’s like, 

‘‘This is a chance to go—I’m doing—designing video games, which 

is fun, but I could be helping to save lives. That’s what I want to 

go do.’’ And the just simple outreach of, ‘‘Hey, I’m here. Here are 

some of the problems. Come talk to me’’—seemed to have a huge 

impact. 

Senator HIRONO. Thank you. 

Chairman MCCAIN. Senator Ayotte. 

Senator AYOTTE. Thank you, Chairman. 

I want to thank the witnesses. 

In Secretary Gates’ books, he discusses the extraordinary measures he had to take to get the MRAPs [Mine-Resistant Ambush 

Protected Vehicles] fielded to our troops to save lives. And I think 

47 

that’s one of—that’s not the only story we have of where we’ve 

needed to really go around the entire system to get to our men and 

women in uniform, lifesaving equipment and the best, so that we 

could make sure that they’re protected and we’re able to address 

what we needed to do to fight the enemy on the ground. So, what 

do you all take from the MRAP experience? And how do we—especially as we think about our engagement in conflicts, and we’re 

still, obviously, engaged in Afghanistan, we’re fighting this war 

against ISIS [Islamic State of Iraq and Syria]. And we’ve been notably bad at predicting what our next conflict will be. How do we 

avoid this? What lessons do we take from that, from what he described he had to do for—to get the MRAPs to the troops? 

Colonel WARD. Sure. I have sort of two observations on the 

MRAP. The first is that the defense acquisition system and all the 

requirements and things are super important for us to all comply 

with them, unless we have an important and urgent need in where 

it really matters to deliver it, and then we sort of throw that out 

the window and we come up with a new rapid approach. And so, 

this idea that, you know, we can only be fast when we have to be, 

is sort of a weird perverse incentive that goes on. 

With the MRAP, the leadership made it very clear, ‘‘This needs 

to be quickly and spend as much money as you need to.’’ So, what 

happened? It was done quickly, and we spent a lot of money. I wonder what would have happened if they had said, ‘‘Needs to be done 

quickly, and it needs to thrifty, and we need to plan for future upgrades.’’ But, again, those goals weren’t as clearly emphasized 

as—— 

Senator AYOTTE. Do you think that that’s what distinguishes the 

Virginia-class success? Where we had a measurable, ‘‘It has to be 

done in this period, this amount of money, and this is how much 

we have produce’’? 

Colonel WARD. I do. I do. And I think that the tendency—again, 

to hit the goals that we set is very strong. We’ve got a great track 

record of doing that. And again, with the MRAP, they said, ‘‘Hey, 

speed matters. Cost doesn’t matter so much.’’ So, we got it fast, and 

it was expensive. But, the idea of ‘‘faster, better, cheaper, pick 

two,’’ that’s the one conclusion that the data absolutely doesn’t support. It’s possible to simultaneously improve all three dimensions— 

the speed, the quality, and the performance, and the cost. We can 

only pick two. And if we do only pick two, it becomes a self-fulfilling prophecy, but it’s possible to pick all three. And the Virginia, 

I think, is a great example of when we’ve done that. 

Mr. FITZGERALD. Senator, I think that the MRAP example shows 

that our system is geared for crisis. The thing that really concerns 

me is that we’re getting to a point where the size of the crisis required to drive change is greater than the crisis we’re trying to respond to in the world, at which point we’ve lost. We didn’t just lose 

that conflict, we’ve lost all conflicts. So, it also shows that the only 

way to succeed in crisis is to go around the system. We saw that 

with the MRAP, we saw that even in the 1970s and ’80s, with the 

second offset strategy. That was Bill Perry managing around the 

system. It’s a call for the action that you guys are already taking. 

So, I get incredibly frustrated. The answer is always, ‘‘Change the 

system.’’ And the one thing that we don’t seem to be able to do is 

48 

change the system. We can’t afford to—in the current environment, 

we can’t assume that we’re going to be able to jam through one or 

two capabilities—— 

Senator AYOTTE. Right. 

Mr. FITZGERALD.—to get us out of a jam in the future, given the 

range of threats that we face. 

Senator AYOTTE. I want to—before my time goes up, Dr. Gansler, 

I want to ask you about something that you—which I think is related to this, as well—in your written statement, you emphasize 

the importance of utilizing best value. And one provision that 

I’ve—got included in the defense authorization this year is to really 

focus on—in particular, on the personal protective equipment that 

are critical to life or death for our troops, of making sure that it’s 

not—that it’s best value. I mean, obviously, best value, in terms of 

best equipment and best cost, looking—doing it both. So, I wanted 

to get your thoughts on that since you included that in your—— 

Dr. GANSLER. Yeah, I’ve been very shocked by the fact that we’ve 

been drifting towards low pricing settings to be acceptable as a 

source selection criteria. I mean, you and I don’t buy that way. You 

know, that’s cheap. 

Senator AYOTTE. Well, especially when it means bullets are coming at us and we—— 

Dr. GANSLER. Exactly. 

Senator AYOTTE.—want to make sure that we’re protected. 

Dr. GANSLER. Yeah. I mean, it’s—it just doesn’t make any sense. 

Senator AYOTTE. It’s like when you’re going cold-weather hiking. 

You know, do you get the cheapest thing you can find, or you get 

the thing that keeps you warm and so that you don’t get frostbitten? 

Dr. GANSLER. Exactly. I mean, well, I—we don’t use best choice— 

combination of performance and cost. That’s the way I think the 

DOD should be buying today. 

Senator AYOTTE. So, my time is running up. So, I’ve got 10 seconds here, Mr. Augustine. You talked about In-Q-Tel. I’ve been 

very impressed with their success. What can we learn from that experience, from In-Q-Tel and that? 

Mr. AUGUSTINE. I think that it—put very shortly is, it—it’s going 

to take a long time to fix the system. And, in the meantime, for 

those things that are really important, take them out of the system, treat them separately. 

Senator AYOTTE. Yeah. The irony, of course, the fact that we 

have to, like, essentially, go around the system to get something so 

important to our men and women on the ground, and to our 

warfighters, is that it’s supposed to be set up to be warfighting and 

defend the Nation. 

Mr. FITZGERALD. And then, once that contingency is over, we 

shut down the system that we created to go around—— 

Senator AYOTTE. It’s unbelievable, because there’s always going 

to be another contingency, and that’s what we need to be dynamic 

enough to address. 

Colonel WARD. My proposal is, sort of, shift the default. We have 

the rapid method that we only use in emergencies, and we have the 

big, expensive, complicated one. How about the rapid be the default 

49 

approach, and you only do the big, expensive, complicated one 

when you have to? 

Senator AYOTTE. Sounds great. 

Thank you. 

Dr. GANSLER. You might also think about the distinction that 

Clay Christensen points out between disruptive technology and traditional incremental technology. And we’re having trouble funding 

the disruptive technologies, the new innovation stuff. And that’s 

the direction that we should be moving, because the world is 

changing rapidly. Technology is changing, geopolitics are changing 

rapidly. But, tradition constrains us to thinking that what we’ve 

been doing for the past, you know, 30 years is the right thing to 

continue doing. 

Chairman MCCAIN. Senator King. 

Senator KING. Thank you, Mr. Chairman. 

Mr. Ward—Colonel Ward, I’m fascinated by the concept of constraints. Reminds me of when Edward Bennett Williams fired the 

general manager of what I refer to as ‘‘the team which plays its 

home games in Washington.’’ He said, ‘‘I gave him an unlimited 

budget, and he overspent it. I gave him infinite patience, and he 

exhausted it.’’ And it’s common sense what you say, and yet, it’s 

so rarely thought about that—of course we can’t put a cap on this, 

because we don’t know what it’s going to cost, and ‘‘Take all the 

time you need,’’ and, by definition, the work expands to fill the 

time available. I would love to see further thoughts from you. You 

said you have a book coming out. As—I hope it touches on this 

point. 

Colonel WARD. I—my first book came out in May of 2014, and it 

goes into this in a good amount of detail. 

A great example, though, is NASA’s ‘‘faster, better, cheaper’’ missions during the 1990s. For the total cost—they launched 16 missions under this ‘‘faster, better, cheaper’’ initiative, and the idea 

was low cost, high-speed access to space. The amount of money 

that they spent on all 16 missions was less than what we’ve spent 

on Cassini. Now, Cassini is a huge success. I love Cassini. We’re 

getting great science and great arc out of Cassini. But, for that 

amount of money, we got 16 other missions. Only 10 of them succeeded, so we only got a 10-for-1 return on that investment. But, 

it was things like the Pathfinder mission to Mars, which was onefifteenth the cost of the Viking mission to Mars from 20 years earlier. Viking was a huge success, but it was so expensive, so complicated, NASA said, ‘‘Let’s never do that again.’’ It was 20 years 

before they tried to go back. Later on, for about half the time, a 

third of the team, one-fifteenth the cost, it was designed to last a 

week, they hoped it would last a month, it drove around for 83 

days on the surface of the planet. And they said, ‘‘That was great. 

That was awesome. Let’s do it again.’’ They went back three more 

times: Spirit, Curiosity, Opportunity. 

Senator KING. Well, I think that’s a very important concept, and 

ought to be part of our thinking. 

By the way, Mr. Chairman, I commend to you a book that Mr. 

Augustine sent me a couple of years ago called ‘‘The Free Enterprise Patriot.’’ It’s a humorous account of a blacksmith trying to 

make cannons for the Continental Army under today’s procurement 

50 

process. The cannons never got built until, you know, 1785 or so. 

It’s a fabulous story. 

Mr. Augustine, you’ve been—you’ve mentioned several times the 

importance of good people. It seems to me we’ve built a system— 

I was just talking to another Senator about this, this morning— 

where good people don’t want to put up with what they have to put 

up with in order to go to work for the government—financial disclosure, FBI [Federal Bureau of Investigation] checks, then you do everything else and your nomination can sit here for a year or more— 

not in this committee, but in the Senate. Talk to me about the 

problems—the mount—I’ve considered it a mounting problem of a 

disincentive of anybody that is—has, you know, consciousness of— 

why would they want to put themselves through this? 

Mr. AUGUSTINE. Well, the Colonel mentioned going to Silicon 

Valley and that there were all kinds of people who were very excited about taking on some of these big challenges. The problem is, 

when they walk in the door to work on the big challenges, they’re 

handed Jacques’ 180,000-page set of rules, and they don’t want to 

deal with that. And—— 

Senator KING. But, I’m talking about the top-level people to come 

in and manage. I mean, that’s where a lot of the important decisions have to be made. 

Mr. AUGUSTINE. I think that the mission is so important that 

that’s very attractive, but it is so hard to go from industry to government. I’ll just tell a story, if I might, briefly. I was asked—— 

Senator KING. Briefly, because the Chairman watches this little 

clock that—— 

Mr. AUGUSTINE. I’m looking at it, here, too. But, I was asked to 

take a position in the government. And—a few years ago—and 

they—I get a call from the White House, and they said they see 

I own stock in Lockheed Martin. And I said, ‘‘Yes, I own one 

share.’’ And they said, ‘‘How much do you make on that?’’ And I 

said, ‘‘73 cents every 3 months.’’ And they said, ‘‘Boy, that’s a big 

problem. We probably can’t deal with that. Will you sell it?’’ And 

I said, ‘‘No.’’ And they said, ‘‘Why won’t you sell it?’’ And I said, 

‘‘It’s share number one of Lockheed Martin. I—it’s my signature 

approving the sale of it. I bought it.’’ And I said, ‘‘I won’t sell it.’’ 

And they said, ‘‘Well, that’s a big problem.’’ And the conversation 

went downhill from there. 

[Laughter.] 

Mr. AUGUSTINE. I didn’t take the job. 

Senator KING. Well, that—I think that’s the point. 

This is a question for the record. Many of you have mentioned 

the problem of regulations and how it impedes our ability to go— 

I would like some specific examples of regulations and how they 

impede our ability to contract effectively and efficiently. You know, 

Rule 14(a), 302(b), which says you have to file all your applications 

in triplicate, or whatever it is. I think it would be helpful to understand exactly what we’re talking about. 

Senator KING. And then, finally, Mr. FitzGerald—and again, perhaps for the record—modularity, it seems to me, is an important 

concept. When we’re building 40-year platforms, that we not try to 

cram all the technology into the new Ohio-class, but that we build 

51 

it in such a way that it can be upgraded. I’d like your thoughts on 

that. 

Mr. FITZGERALD. Sir, I completely agree. There are multiple 

ways that we can address this. Modularity in the design of systems, but also pairing the payloads with the platforms, as former 

CNO [Chief of Naval Operations] Greenert talked about. So, the B– 

52 was flown for a long time. It’s not an especially smart platform, 

but if you put a smart munition in it, it becomes a very effective 

way of thinking about things. So, I think modularity there is important. I think there are also significant opportunities that are 

soon to be available to us technologically, in terms of advanced 

manufacturing, where we can use 3D printing and robotic assembly 

to assemble different components in very compelling ways. I’m 

happy to share with you a paper that I wrote on this a couple of 

years ago that explains how that might work. 

So, if we take that approach, that allows us to get positive constraints, it allows us to compete out different parts and mitigate 

risks in very compelling ways. The challenge becomes, How do we 

take that approach and put it into our current acquisition system? 

Again, this is where things fall down. 

Senator KING. Thank you. 

Thank you, Mr. Chairman. 

Chairman MCCAIN. You know, I agree, Mr. FitzGerald, but I also 

can cite you an example, the Littoral Combat Ship. Modularity has 

not succeeded. In fact, it’s been disastrous, as far as the mine countermeasures modularity. So, I guess the moral of the story is, these 

are—there’s not real simple answers. But, maybe you could begin 

by sending Senator King the 1,800 pages of regulations that need 

to be changed. And I’m sure he will enjoy reading them. It’s very 

cold up in Maine this time of year. 

Senator Shaheen. 

Senator SHAHEEN. Thank you, Mr. Chairman. 

And thank you all very much for being here. 

And, as Senator King and Mr. Augustine, you note, talk about 

that book on the revolution of the continental army, it had to abide 

by the rules of the British Army. We never would have won the 

war. So, it’s an important lesson in the importance of innovation. 

Mr. AUGUSTINE. We would be speaking with a British accent 

here. 

[Laughter.] 

Senator SHAHEEN. Yes. Yes, we would. 

Mr. FITZGERALD. I don’t know what you’re talking about. I’m 

Australian. 

[Laughter.] 

Senator SHAHEEN. You know, I don’t really have a question, but 

I want to agree with the point that everybody has made about how 

we attract good people into work for the government. And it seems 

to me that some of the actions that Congress has taken have contributed significantly to that, whether it’s sequestration or our ability to reach budget agreement so there’s some certainty. You know, 

the Portsmouth Naval Shipyard is between New Hampshire and 

Maine. Senator King and I fight about that on a regular basis. But, 

it’s one of our premier public shipyards. And they have very—a 

very good skilled workforce who is—that is now aging. And the 

52 

challenge of trying to replace that workforce in an environment 

where people are uncertain about the budget prospects and what 

sequestration is going to mean has been very challenging. And so, 

I think it’s a good admonition to all of us that we need to try and 

address those concerns to keep good people here. 

I want to, Dr. Gansler, ask you about the SBIR [DOD Small 

Business Innovation Research] program, because that’s a program 

that was started by Warren Rudman, from New Hampshire, so we 

feel a lot of personal commitment to that program. And I serve on 

the Small Business Committee as the Ranking Member, and I 

know how long it took us to get it reauthorized in the last goround. It’s up for renewal again in 2017. I think we need to start 

right now in order to get that done. 

But, can you comment on how important you think it would be 

to make that program permanent so that we don’t have to do this 

and, again, provide the uncertainty every go-round on the SBIR 

program? 

Dr. GANSLER. Yes. I feel strongly that we should make it a permanent thing. What you’ll notice is, a lot of country around the 

world are starting to copy us now with the SBIR program. I put 

into my presentation, my talk, for—specifically, that one figure, 

that last figure in there—that shows that, where we used to get 

most of our good ideas from industry, that industry is reluctant to 

make changes if they think it’ll be disruptive to their business. 

Where the same thing is true about universities. Many cases now, 

the people in universities who have the good ideas are starting to 

set up their own small business. And I think increasingly that’s 

going to become an opportunity for them. And I think, in many 

cases, we’re getting many of our ideas—and that’s what that chart 

shows—from now—if you just list the—— 

Senator SHAHEEN. Let—I don’t want to interrupt you, but the 

clock is running, and so I just want to get—— 

Dr. GANSLER. Yeah. 

Senator SHAHEEN. Is there anybody who disagrees that that program should be made permanent? 

[No response.] 

Senator SHAHEEN. Okay, thank you. 

Mr. AUGUSTINE. I would just comment very briefly. I do think it 

should be made permanent, but there—as you know, there have 

been abuses. We need—— 

Senator SHAHEEN. Right. 

Mr. AUGUSTINE.—we need to fix those. And I come from a world 

where our goal was not to become a small business, but it’s a truth 

that I think could be shown that most of the new, creative disruptive ideas do come from small businesses. 

Senator SHAHEEN. I agree. 

And, Mr. FitzGerald, I know you wanted to respond to that, but 

let me ask you, as part of that—you talked about the problems 

with the export control system, which I totally agree with. I think 

we’ve got to do more to address that. And there have been efforts 

to reform it over the last couple of years. Do you think those have 

been helpful, or should we—do we need to scrap those and start all 

over? 

53 

Mr. FITZGERALD. So, just briefly, on the small business thing, I 

think that the SBIR program is excellent. The challenge is not that 

program. We have many ways of getting new ideas funded in the 

Department of Defense, from In-Q-Tel, from other places. The challenge is what happens after that initial funding. How do we integrate that into the—— 

Senator SHAHEEN. Right. 

Mr. FITZGERALD.—mainstream Department of Defense? Otherwise, we are funding stuff that we never get a benefit on or it becomes commercial and, therefore, our adversaries and other people 

can buy it, and we can’t. Very frustrating. 

From an export-control perspective, I think that the current—the 

recent work has been excellent. We’ve removed a number of things 

from the lists. I think, ultimately, the challenge is the lists, themselves. I think of it kind of like the DHS alert system. No political 

leader is going to say, ‘‘We’re moving from status red to status orange.’’ You need to blow up the system and say, ‘‘It’s going to be 

alpha-numeric now, and we’re going to come up with a letter, instead, that will be a lower level of threat.’’ Otherwise, we’re going 

to have, sort of, the high priests of ITAR [International Traffic in 

Arms Regulation] continue to come out and tell us how the world’s 

going to explode if we take something off the list. It’s not going to— 

we can’t reform that way. 

Senator SHAHEEN. I totally agree. 

And I’m out of time, but can I ask just one more question, Mr. 

Chairman, of Colonel Ward? 

I was in Kuwait when they were bringing back a lot of the equipment from Iraq. And one of the things they showed me with great 

pride was the MRAP with the little contraption on its nose that 

could—had a heat source that detected IEDs, and how successful 

that had been. And they said that that had been designed by men 

and women in the field who had this idea about how to help. How 

do we get those kinds of ideas into our innovation research into the 

acquisition process so we can actually respond to what works in the 

field? 

Colonel WARD. Sure. So, field mods are an important source of 

innovative ideas. Oftentimes, after they’re successfully used and 

demonstrated, ‘‘Hey, this works great,’’ the official response is, 

‘‘Take that off. It’s not authorized.’’ So, there are some mechanisms 

and channels to provide those ideas and provide those inputs. I 

think those tend to be, again, sort of held at arm’s length, much 

like the—but, again, the Army OIF [Operation Iraqi Freedom] report said that field mods are the primary channel of feedback to 

developers. As an engineer, I often didn’t hear those, and—because 

they got filter out—filtered through—over-filtered. 

So, the idea is that we need to encourage and—again, seek, support, and celebrate. Tell those stories, say, ‘‘Hey, this was a great 

example. We should do more of this.’’ Because, for every situation 

and every story we hear, there’s ten more that we didn’t hear 

about—again, that got over-filtered. So, we need to create some 

channels to let those ideas filter through. 

Senator SHAHEEN. Thank you all very much. 

Chairman MCCAIN. Senator Cotton. 

54 

Senator COTTON. Thank you all very much for your thought-provoking testimony on this important topic. 

Mr. Augustine, you had mentioned in your written testimony 

that you were present at the creation, so to speak, of In-Q-Tel, back 

in the 1990s. I’m familiar with the organization from my work on 

the Intelligence Committee. Could you give us your take on the lessons learned from the creation of In-Q-Tel and the way it’s worked, 

and how it would apply to the Department of Defense, given their 

differences in mission and scale and so forth? 

Mr. AUGUSTINE. Yes. I don’t believe that In-Q-Tel can solve the 

broad problems of the Department of Defense, but I think a Department of Defense version of In-Q-Tel to deal with very high priority specific challenges could be very valuable. And the secret to 

In-Q-Tel is fairly straightforward, and that is that it has the capability to deal with firms just as they would deal with each other, 

as opposed to the way they have to deal with the government. And 

In-Q-Tel had a lot of latitude, it had a lot of flexibility. Is there 

room for abuse? Yes. But, thus far, there has not been a problem. 

Senator COTTON. All right. 

Mr. FitzGerald, the interaction between the Department of Defense and the private sector, especially given that technological development is now largely located outside of our defense industry, 

is something about which you wrote. You said there needed to be 

policy, legal, cultural changes, in your written testimony. Do you 

care to comment on the In-Q-Tel approach? You just—you had 

some comments earlier, but also what Mr. Augustine just said? 

Mr. FITZGERALD. I think that the In-Q-Tel model is an excellent 

one. A number of the advantages that it takes—that it is based on 

are particular to the intelligence community. Partially, that’s about 

size, and it’s also about their ability to link the people who own the 

problem with the people who fund the solution very quickly. And 

it’s difficult for us to do that in the Department of Defense. So, I 

think that it helps us address a number of challenges. 

The challenge with—for the Department of Defense is, How do 

you do that at scale? So, that’s how we can build prototypes, that’s 

how we can get new entrants into the marketplace. But, it—I 

don’t—we don’t have a good model yet to take us from that new 

idea into a large program of record, which isn’t the failing of InQ-Tel or those models, it’s a failure of our program-of-record system. 

Senator COTTON. Okay. 

When you say that the Department of Defense needs—is going 

to need legal and policy and cultural changes, which one of those 

do you think are most important? 

Mr. FITZGERALD. Ultimately, it’s the cultural change, but that’s 

probably going to be driven, in the first instance, by the law and 

policy. And I think the other factor, something that we’ve talked 

about significantly today, is about leadership and human capital. 

So, ultimately, I think—and I think this has been shown in our testimony and the understanding of the committee today—we know 

what most of the challenges are, and we have a pretty good sense, 

idea of what needs to be done. It’s a—just a question of, How do 

we move the large institutions to implement on what we know 

needs to be done? 

55 

Senator COTTON. And, Colonel Ward, the human capital and 

leadership development is something about which you spoke in 

your written testimony; specifically, the ability of constraint-driven 

teams to innovate rapidly at lower cost. What’s your perspective on 

this about the cultural or mindset shift that may need to occur? 

Colonel WARD. Absolutely. So, the culture shift, I agree, is absolutely the right piece of the puzzle that’s going to be the—have the 

biggest impact on improving acquisition outcomes. And when I say 

‘‘acquisition outcomes,’’ I mean programmatically as well as operationally. So, the ability to get the mission done on time, on budget. 

The culture shift, I think—right now, we have a culture that 

tends to look at complexity as a sign of sophistication, budgets as 

a sign of prestige, and long timelines as a sign of strategic intelligence and strategic genius, when, in fact, I think we get better 

results when we have a culture that values speed, thrift, and simplicity. 

I think the other piece of it, too, though, is—and we talked a lot 

of about regulations. I’ve found that ignorance of the FAR is a 

greater barrier to innovation than the regulations themselves. The 

prevailing perception in the culture is, ‘‘The FAR won’t let you do 

that, the FAR won’t let you be fast, the FAR won’t let you simplify.’’ In fact, when we go through and read the FAR—and you— 

there’s plenty of clauses, plenty of pieces of the FAR that do, not 

only allow, but encourage speed, thrift, and simplicity. So, a greater awareness of what the FAR actually says, what it allows, what 

it encourages, I think can go a long way towards that. 

Senator COTTON. What—— 

Colonel WARD. And it’s just a matter of—— 

Senator COTTON. What’s behind that lack of awareness among 

people who, by and large, make a living using the FAR? 

Colonel WARD. Right. It’s so big and so expensive—or the FAR, 

itself, is to complex that it’s intimidating. I’ve found that people 

who can quote the FAR, chapter and verse, tend to be more convincing than people who can’t. And the people who can quote the 

FAR, chapter and verse, are very, very few in number. It’s easier 

to just say, ‘‘The FAR,’’ which none of us have read, ‘‘doesn’t let you 

do that.’’ And so, it’s the safer—it’s the more risk-averse-type approach to just say, ‘‘Well, I’m sure we can’t do that, because we 

didn’t do it last time.’’ 

Senator COTTON. The military, by and large, has an up-or-out 

personnel management system. Do you think that’s an appropriate 

system for our—the people who are involved in our acquisitions 

process? 

Colonel WARD. That is a—challenging and problematic. I’m not 

sure I have a better solution for it. But, in my case, for example, 

I decided to retire from the military because I was not interested 

in getting promoted again, I wasn’t interested in moving again, my 

kids were heading into high school, and we wanted them to start 

and finish in one place. And the Air Force’s perspective was, ‘‘Either move or get out.’’ There was no third option to sort of stay and 

keep doing this kind of work. 

Senator COTTON. Okay. 

Thank you. My time is expired. 

56 

Senator REED [presiding]: Thank you. 

On behalf of the Chairman, Senator McCaskill. 

Senator MCCASKILL. There’s a lot of argument, I think, that can 

be made that ‘‘up-or-out’’ has really, in many ways, cannibalized 

our acquisitions processes, because it—longevity and having as 

much knowledge as the people who are trying to do business with 

the Federal Government—knowledge is power. And when there’s a 

new person, then you’ve got opportunities. And I think that there— 

that there’s something to be said for that. 

You know, when you talk about incentives—I’ve spent an awful 

lot of time—and some of you know—on contracting and the problems there. It seems to me that the incentive in the private sector 

is so elegant and simple, speaking of simple—it’s that speed and 

thrift pays more money. You make more money if you are efficient. 

And in the private sector, the bottom line matters. You can’t have 

a new deputy deputy dog if you’re not making money. In the Pentagon, you could have the Under Secretary to the Under Secretary 

to the Assistant Secretary to the Under Secretary, and there is no 

bottom-line pressure. 

So, why is it that we can’t change the incentives in a more simplified way? The incentives are there to get the bid, to be cost-effective in the bid. But, then the incentives kind of get murky. And 

that’s when the regs come in, right? That’s when the regs march 

with a resoluteness towards, ‘‘You must do this, you must do that.’’ 

Because the system is trying to desperately—by fingernails sometimes—hold on to the concept that, ‘‘We’re going to constrain your 

costs, we are going to constrain your costs. We will add a nother 

requirement to constrain your costs.’’ 

Why can’t we incentivize more profit if you constrain the cost? 

I mean, I can think of so many systems—I mean, whether it’s 

DCGS [Distributed Common Ground System] or whether it’s the 

helicopter, or whatever. If you actually, during the lifetime of the 

development, said, ‘‘If you can do this, we will pay you more,’’ as 

opposed to, ‘‘We’re going to layer another regulation on you to 

make sure you don’t up the cost when there’s not a good reason for 

it,’’ which, by the way, ups the cost without a good reason for it. 

So, tell me, historically, have there been attempts that have not 

been successful to incentivize profit for constraining cost? 

Colonel WARD. I think part of the challenge is, on a 10- or 20- 

year project, the incentives that we try to establish for the people 

who are in the early part of the program, we won’t know how the 

program is going to end for another 10 or 20 years, so we don’t see 

the end of other story, so it’s hard to incentivize those outcomes for 

people who won’t be around in 10 or 20 years. But, I—— 

Senator MCCASKILL. But, the company is going to be around, 

whether it makes money or not. I mean, we’re down to—you know, 

I can count on my fingers and toes how many companies there are 

that are getting these bids. They certainly are way more sophisticated than the man or woman of the hour at acquisition, right? 

Colonel WARD. Yes, absolutely. Absolutely. But, I think on the 

military side, on the practitioner side, you know, we want to 

incentivize good decisionmaking for the engineers, the program 

managers, and the contracting officers. On a 3-year assignment, 

which just ends up being a year and a half on this project and a 

57 

year and a half on some other project, but each of them are 10-year 

projects, so the longer timelines really create barriers to smart incentives. 

Senator MCCASKILL. Yeah. Well, they certainly do on the military side. I guess I’m—— 

Colonel WARD. Right. 

Senator MCCASKILL.—trying to think more from on the side of 

the people who are actually getting paid by the government to develop these systems. 

Mr. FITZGERALD. So, in my experience, Senator, the challenge 

was a misapplication of well-intended regulations. So, when I was 

running a small business, I was running a strategy firm. We 

weren’t building products, it was fairly low-risk stuff. Despite that, 

many of the contracts that I suffered under were ‘‘cost-plus-fixedfee.’’ I was—I had to do ‘‘cost-plus-fixed-fee’’ contracts because the 

worker I had done had never been done before, and they were concerned that there would be too much risk. So, I was, like, ‘‘Let me 

understand this. You’re going to tell me up front what my profit 

is going to be, and you’re going to drive that down over time, but 

the amount that I spend can increase almost as much as I would 

like it to.’’ 

Senator MCCASKILL. That’s how we got monogrammed hand towels in Iraq. 

Mr. FITZGERALD. Well, the—well, this was a thing. When I was 

speaking to my board, who were not familiar with the defense— 

with the U.S. defense world, I’m saying, ‘‘So, why don’t you just go 

out and buy, like, really nice furniture and all of these other things 

for the office?’’ And I was, like, ‘‘Because that would make us an 

unhealthy and sick business if we try to do anything other than 

live off this contract.’’ So, ultimately we didn’t, but only for—out of 

self-interest. If all we had done—for the—in terms of the culture 

and health of our organization. If we had followed the incentives 

as they were laid out, we would—— 

Senator MCCASKILL. Right. 

Mr. FITZGERALD.—have become big and bloated, because I was 

only going to get 7 percent profit, so I might as well have nice 

perks in the office so that I could hire people—— 

Senator MCCASKILL. Exactly. 

Mr. FITZGERALD. It was crazy. 

Senator MCCASKILL. I mean, the cost-plus is, like, ridiculous. 

Mr. FITZGERALD. So—— 

Senator MCCASKILL. I mean, if we are going to be a risk-free organization, I think defense is the wrong area to be in. 

Mr. FITZGERALD. I completely agree. 

Senator MCCASKILL. Right? I mean, it’s kind of inherently risky, 

isn’t it? It seems to me embracing risk ought to be part of the equation. 

Well, my time is out. I’ve got a awful lot of other questions. I 

would like—and will have some for the record for you, because you 

all represent an awful lot of expertise. IT drives me crazy, the inability of the various branches to talk to one another, the absolute 

aversion to off-the-shelf that is beyond the pale of ridiculous. 

Speaking of complexity, that—and these are people buying stuff 

that don’t know what they’re buying, so it is needlessly complex 

58 

and needlessly expensive, and there is an aversion to off-the-shelf 

IT products that I think needs to come to a screeching halt at the 

Pentagon. 

So, thank you, Mr. Chairman. 

Senator REED. Thank you, Senator McCaskill. 

And, gentlemen, thank you for your extraordinary testimony and 

also for your great service to the Nation in so many different ways. 

And on behalf of Chairman McCain, I will declare the hearing 

adjourned. 

[Whereupon, at 11:36 a.m., the hearing was adjourned.] 

[Questions for the record with answers supplied follow:] 

QUESTIONS SUBMITTED BY SENATOR JACK REED

LEVERAGING COMMERCIAL PRODUCTS

1. Senator REED. It is imperative that DOD maintain military superiority in the 

global defense space and this will require the department to develop more nimble 

acquisition processes. However, a ‘‘one size fits all’’ acquisition approach may not 

be appropriate. 

In what technologies or weapon systems should DOD pursue a co-development 

strategy with both non-traditional and traditional companies versus incorporating 

available, commercial off the shelf technologies (i.e., harvesting what the market 

has to offer)? 

Under what circumstances / conditions have other transaction agreements been 

used effectively to acquire innovative, commercial technologies? 

What steps can be taken to increase the knowledge of DOD’s acquisition workforce of the flexibilities available to them using other transactions, or for that matter, the flexibilities provided under the FAR, to leverage commercial products? 

Mr. WARD. I would point to two documents. First, the Innovative Contracting Case 

Studies playbook, published by OMB and the White House OSTP, which provides 

information about using OT. It is currently available as a PDF. Second, is an upcoming publication titled A Brief Reference Guide to Agilities, Flexibilities, and Simplifications within the Federal Acquisition Regulation. It is scheduled to be published by Carnegie-Mellon’s Software Engineering Institute in early 2016. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. GANSLER. I agree that ‘‘one size fits all’’ doesn’t apply to DOD acquisitions 

e.g., acquiring an I.T. system is definitely different than acquiring a missile. Similarly, hiring an engineer for a study or a design is definitely different than buying 

a tank—you don’t have to put the engineer through live—fire testing. If we want 

to maintain a strategy of ‘‘technological superiority’’ we can not keep cutting funding 

for R&D (as both the Congress and the DOD have been doing)—while other nations 

are stressing innovation and increasing funding for it. To enhance the understanding of the DOD’s workforce of the ‘‘barriers’’ to buying commercial and/or of 

civil/military industrial integration—and of its benefits: these need to be part of the 

curriculum of the Defense Acquisition University—along with teaching ‘‘best practices’’, vs. just teaching ‘‘conformance to the rules’’. The Acquisition workforce must 

learn what incentivizes industry to achieve higher performance at lower costs—and 

then practice it. (***note that Dr. Gansler was not asked for his response to this 

question, but it will be included in the record) 

SETTING REQUIREMENTS

2. Senator REED. DOD’s approach for setting and articulating requirements was 

raised as a deterrent for attracting non-traditional firms. One commercial solution 

that was mentioned involved DOD articulating its needs in terms of a problem that 

needs to be solved, rather than identify specific requirements that have to be met. 

Defining needs in terms of a problem statement would require a different mindset 

within DOD’s requirements-setting community. 

How could DOD develop well-articulated ‘‘problems’’ internally and effectively 

communicate them to commercial contractors? Are there areas of acquisition where 

DOD might need to continue to offer a more requirements-based approach to articulate its needs to ensure the reliability, maintainability, and cybersecurity of a system? 

59 

Mr. WARD. I think the key word is ‘‘communicate,’’ and the secret to effective communication is to understand it is a two-way process. So rather than trying to develop fully articulated problems, then handing them over to commercial contractors 

(large or small), I recommend the DOD adopt a more interactive, collaborative approach to problem definition. This should be a joint process, in which developers are 

involved from the start. The Coast Guard Logistics Information Management System (CG–LIMS) used this approach very successfully. CAPT Dan Taylor explained 

this in a blog post from 2011, writing ‘‘we’re opening up communications with industry by posting requirements documents early in the process on FedBizOpps, using 

a blog to keep all stakeholders informed, and using the wiki hosted on GSA’s citizen.apps.gov platform to give everyone information on what we’re thinking and solicit industry ideas as we form an acquisition strategy.’’ 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. GANSLER. The one area of the DOD ‘‘requirements process’’ that currently is 

largely ignored is ‘‘unit and life cycle cost as a requirement.’’ The commercial would 

certainly make cost a requirement, and quantity is certainly critical in defense— 

and, with limited dollars, quantity is dependent on unit cost; so this needs to be 

stressed more as a ‘‘military requirement’’. Also, currently a major cost factor on 

DOD acquisitions are the over 180,000 pages of the Code of Federal Regulations— 

which adds over 2000 pages of new regulations each year. Perhaps Congress needs 

to mandate a Commission to see which of these regulations are driving the costs 

up; and which are no longer needed. Incidentally, these regulations, and the auditing of them, not only drive up the costs; but they also drive away commercial firms, 

and the innovative small businesses. 

ADEQUATELY FUNDING AND TARGETING RESEARCH AND DEVELOPMENT FUNDS

3. Senator REED. During the hearing, witnesses repeatedly expressed concern 

about DOD’s research and development funding levels. However, Deputy Defense 

Secretary Bob Work recently stated that DOD will have to curtail some innovationfocused investments DOD had planned because the two-year budget deal reflects 

$14.9 billion less for fiscal year 2017 than DOD had originally sought. 

In an era of budget constraints and big ticket weapon system investments, what 

new approaches can DOD and the Congress use to protect research and development funding, or make the available funding more efficiently and effectively used? 

Dr. GANSLER. As noted in my answer to question #1 we already have been cutting 

innovation funding in DOD, not only in the Service budgets, but even for DARPA. 

Meanwhile other countries (e.g. China, India, Israel, Japan, and Singapore) recognize the value of not only funding innovation, but supporting the leadership who 

are pushing for change (i.e. to overcome the institutions’ resistance to change—both 

from the established defense industries and the military services themselves). Clearly, the leadership needs to be focused on using innovation (both in technology related to processes and to products) to achieve greater performance at lower costs. 

We need to be intellectually honest in continuously comparing current capability (including numbers) with what could be—if we innovate and move ahead to new capability at lower costs. 

DEVELOPING OPEN SYSTEMS

4. Senator REED. What role can open systems architecture play in contributing to 

meaningful acquisition reform? 

What are the most significant barriers to using open systems architectures in 

DOD? 

What are the key enablers or practices used in industry that could most effectively move DOD in the direction of open systems architectures? 

Is there a discrepancy between how the government and contractors define 

‘‘open’’? If so, how can this be resolved? 

Mr. WARD. The most significant barrier to using open system architecture is a 

lack of awareness of the methods and tools available to acquisition professionals. 

While open system approaches are endorsed by regulation, many in the DOD are 

still unaware of what ‘‘open’’ really means, what tools and mechanisms are available, and how to implement open architectures on their programs. The last project 

I led while on active duty (in 2014) was chartered to serve as a ‘‘pathfinder’’ program for open architecture methods, aiming to help validate open architecture as 

an approach and to show how it can be done. The fact that pathfinders are still considered necessary shows that the path has hitherto not been well established. 

Whether the DOD needs more pathfinders or simply more awareness of existing 

pathfinders is an open question. 

60 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

USE OF COMMERCIAL TECHNOLOGY

5. Senator REED. In the past two decades, Congress and DOD have made a number of changes related to the use of commercial items. Dr. Gansler, you noted that 

more needed to be done to further encourage the use of commercial items. At this 

point in time, what steps should be taken, through legislation, policy, or culture, to 

encourage the use of commercial items? 

Dr. GANSLER. Perhaps the best, and easiest, way to convince people to utilize commercial parts and practices is with ‘‘case studies’’ (to show it can be, and should be, 

done). —that’s a lesson Senator Sam Mann taught me; long ago. 

Some examples include: 

• Allowing the JDAM missile to use commercial electronics, sensors, and actuators lowered the cost from 69,000 each to 18,000 each; and with improved accuracy and reliability. • Forcing Boeing to split the common production of military and commercial 

transports raised the prices of both (because they lost the economies of scale 

from the lower quantities). • Logistics comparisons of FedEx and U.P.S. logistics information systems with 

the DOD system. The commercial systems have ‘‘total asset visibility’’ and the 

DOD system doesn’t. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

LOWEST-PRICE TECHNICALLY ACCEPTABLE CONTRACTS

6. Senator REED. In your statement and testimony you expressed concern about 

DOD’s increased use of lowest-price technically acceptable contracts. Can you elaborate on your concerns about the use of this approach? Are there situations where 

you think the use of this approach is particularly detrimental, and/or situations 

where the use of this approach makes sense? 

Dr. GANSLER. When two competitive approaches give the same performance, then 

picking the lower-cost one makes sense. But in the commercial world—which we 

want to be the same—first we check to see if the performance is comparable if not, 

we don’t simply pick the cheapest—even if the performance is significantly worse. 

This balanced—solution criteria is known as ‘‘Best Value’’ (i.e. the combination of 

high performance and low price). However, the DOD approach of ‘‘Low Price, Technically acceptable’’ (without a clear understanding, or even a definition of ‘‘Technically Acceptable) simply is buying ‘‘cheapest’’—even if it doesn’t work, or fails to 

meet ‘‘requirements’’ (including even reliability). Whether it is for professional services or military equipment, the DOD should not simply buy the cheap stuff—too 

much (including lives) is at stake. 

INNOVATIVE FINANCING

7. Senator REED. In addition to leasing, what other alternative financing techniques can DOD adopt to drive affordability and for which types of weapon systems? 

Mr. Ward did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

INCENTIVES TO WORK WITH DOD

8. Senator REED. In your testimony, you stated that government budgetary processes such as sequestration and continuing resolutions allow for funding instabilities 

that negatively affect and potentially jeopardize the viability of commercial companies. 

In this fiscal climate, what incentives exist for commercial companies (particularly 

small to continue to pursue DOD business? What else could DOD do to incentivize 

commercial businesses? 

What sort of funding / contract mechanisms could DOD / Congress create to reduce funding uncertainty or prevent companies from being adversely impacted by 

continuing resolutions and sequestration? 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

61 

CONSTRAINTS

9. Senator REED. In your testimony, you identified three principal areas that DOD 

needs to incentivize: speed, thrift and simplicity. You also stated that small teams 

with short schedules, tight budgets, and deep commitments to simplicity—in other 

words, teams with a constraint mindset—are more creative and effective. 

What short- and long-term changes can DOD make to increase the mix of its 

weapon system portfolio focused on less expensive, quicker turnaround programs? 

What can be done to ensure less expensive programs do not face the same problems as major programs, just on a smaller scale? 

How would this approach change the way DOD staffs program offices? 

To what extent might constraints make program managers less willing to adopt 

innovative technologies into their programs? 

Could the new ‘‘middle tier’’ of acquisition for rapid prototyping and rapid fielding’’ provided by Section 804 of the National Defense Authorization Act for fiscal 

year 2016 encourage the type of speed, thrift, and simplicity that you advocate, 

while also helping minimize program risk? If not, why not? 

In addition to rewarding programs that perform under budget, what else could 

Congress do to create an environment conducive to ‘‘constrained’’ acquisition programs? 

Mr. WARD. One very simple change which could be implemented immediately is 

to require every contract to include a clause that states the contract can be cancelled if cost growth exceeds 15 percent. NASA used this clause very effectively during their Faster, Better, Cheaper missions, and nothing prevents the DOD from inserting this clause into every contract. This would not only provide a straightforward contracting mechanism to allow termination of programs before cost growth 

gets out of control, it would also communicate to all involved that excessive cost 

growth will not be tolerated. It would not require cancellation but would put an important tool in the government’s hands. 

Second, the DOD should limit the number of Key Performance Parameters 

(KPP’s) on each program. More than three or four KPP’s dilutes the importance of 

each one. The US Navy’s Virginia Class submarine program provides an outstanding example—they removed three KPP’s from the requirements list when it 

was determined that they would cost more than they were worth and that the submarines could still accomplish the mission without those KPP’s. 

Many of the problems experienced by large programs are a direct result of the 

program’s size. Smaller, less-expensive programs will therefore not experience the 

same problems that big, expensive programs do. Smaller programs do have problems of their own, but they tend to be fewer, more manageable, and less harmful. 

And even if they do experience the same problems on a smaller scale, this is preferable to experiencing the problem on a large scale. 

The constrained approach could change the way the DOD staffs program offices 

by making them smaller (i.e. fewer people per project). It would also increase alignment between tour length and project length, because programs with shorter 

timelines create the opportunity to increase personnel stability and increases the 

likelihood of having consistent leadership throughout the program’s duration. In 

fact, this would make it easier for the DOD to set a program manager’s tour duration based on the duration of the program they are managing. 

Constraints of time and money should make PM’s less willing to adopt immature 

technologies into their programs, which is very much by design. A program manager 

with a long development timeline may allow a design to include immature technology, based on a belief that the technology will be mature by the time it is needed. 

This often does not come to pass. Constraints help to discourage that type of decision making, and instead encourages PM’s to put existing, mature technology together in new and interesting ways—which is in fact the definition of innovation. 

In addition to rewarding programs for performing under budget, Congress could 

provide rewards for speed and simplicity. The idea is to reward programs for delivering ahead of schedule and for taking steps to simplify their organizations, processes, and technologies. 

FAR FLEXIBILITIES

10. Senator REED. During the hearing, Mr. Ward stated that ignorance of the FAR 

is a greater barrier to innovation to than the regulations themselves. 

What steps can be taken to increase the knowledge of DOD’s acquisition workforce of the flexibilities available to them under the FAR, and to empower the workforce to make better use of these flexibilities? 

Mr. WARD. In a 2013 paper titled Changing Acquisition Culture: What and How 

(Published by the Center for National Policy), I identified four ‘‘influence channels’’ 

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that can be used to inform and influence the federal acquisition workforce. These 

channels are: Leadership, Peer Network, Publications, and Training & Education. 

I would suggest launching a concerted effort to spread the word about FAR flexibilities, using those four channels. The specifics of this strategy are available in the 

aforementioned paper. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

ACQUISITION WORKFORCE TRAINING

11. Senator REED. In testimony, Dr. Gansler stated that one of the six areas for 

improvement is ‘‘A focus on the education and training of the DOD’s acquisition 

workforce.’’ What suggestions do you have for how to improve the training, education, and overall professional development of the acquisition workforce? 

Mr. WARD. While the Defense Acquisition University is formally chartered to provide education and training to the workforce, it tends to focus on compliance rather 

than creativity. I would suggest taking a closer look at DAU’s curriculum and incorporating a greater emphasis on innovation (see answer to question #10. 

I also suggest making greater use of civilian academic institutions. For example, 

the University of Tennessee’s National Defense Business Institute has a very strong 

aerospace MBA program and has also provided very effective training on innovative 

acquisitions, primarily for Air Force customers. To the best of my knowledge UT’s 

focus on defense acquisition is unique, but several other universities have the capacity to contribute to this topic as well, including West Virginia University’s Center 

for Smart Defense, Duke University’s Corporate Education program, and Georgia 

Tech’s Contracting Education Academy. 

Finally, I strongly believe that conferences are an important contributor to professional development. They allow practitioners to establish and strengthen their networks, expose practitioners to new ideas, and provide an important forum for sharing and exploring new approaches. In recent years the DOD has severely limited 

the ability of people to participate in technology conferences, and I suggest this policy is worth re-evaluating. The recent conference policy update (Sept 2015) is a step 

in the right direction, and I hope it will have the intended impact. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

CONFLICT OF INTEREST RULES

12. Senator REED. Do you believe that conflict of interest laws dissuade top-tier 

candidates from joining DOD? 

What steps can be taken to address this issue, while still protecting the public’s 

interests? 

Mr. Ward did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

DETERMINING FAIR PRICES

13. Senator REED. One of the fundamental challenges in defense acquisition is trying to determine if we are paying a fair price for complex systems? that have no 

commercial market. 

What steps can we take to improve our ability to determine what major, complex 

systems should cost so that we pay fair prices? 

How can we take those steps without creating extended review and oversight 

processes or driving potential suppliers away from the defense market? 

How should we think about fair profit margins for defense contractors providing 

unique services and systems to the government? 

Mr. WARD. The government should not waste time trying to guess or estimate 

what a fair price might be for any given program. Instead, determine fair price by 

having a series of real competitions, between multiple vendors, using open system 

architectures and common maintenance capabilities. 

For example, buying a single KC–46 tanker creates artificial pressure on bidders 

and rewards unrealistically low bids, because whichever company loses the competiVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6621 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
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tion is out of the tanker business forever. This situation also provides only a single 

data point on what a tanker aircraft should cost. A better approach is to buy multiple tankers from multiple vendors, perhaps buying one type of tanker in a particular year and having a competition for a new tanker five years later. Open architectures and common maintenance standards can help reduce the costs of maintaining a diverse fleet. Based on the consistent cost growth experienced on previous oneshot programs (B–2, JSF, etc), I suspect the multiple-system approach would actually save money. 

On the topic of profit margins, as long as we treat huge price tags as inevitable 

attributes of defense acquisition programs, it makes sense to limit the profit percentage. However, reducing the total cost of a program and increasing the profit 

margin potential can serve the interests of both the government and industry. For 

example, rather than insisting on a 7 percent profit margin limit on a $1M project, 

both sides might be better served by allowing a 30 percent profit on a $500,000 effort. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

REQUIREMENTS PROCESS

14. Senator REED. One of the major challenges in acquisition reform is reviewing 

the weaknesses and shortfalls in our requirements development processes. For example, some argue that requirements are developed without being informed by cost 

or technical realities, and that they are too ambitious, or continually change over 

the course of a program—which drives up costs and extends schedules. 

What reforms would you recommend for this process? 

Mr. WARD. My recommendation is to introduce tight constraints on cost, schedule, 

and budget. To paraphrase the Hon Richard Danzig’s excellent paper ‘‘Driving In 

The Dark,’’ the DOD should build more for the short term (spend less time and 

money, building simpler systems). Taking a constrained approach to requirements 

in particular introduces several important, impactful limits. First, the sheer number 

of requirements (and KPP’s) should be kept to a minimum (see answer to #9 above). 

This serves to provide focus, priority, and clarity for the project leaders. It also increases the team’s ability to accurately assess, understand, and incorporate realistic 

cost and technical realities. Shorter timelines also reduce the project’s exposure to 

change during the development cycle, thus reducing exposure to factors which increase costs and delay schedules. One particularly helpful FAR reference on this 

point is 39.103, which describes Modular Contracting. 

Second, the requirements process should be a more collaborative approach, involving both technologists and operators in an interactive, incremental discussion that 

addresses both the state of the art and the operational environment. Rather than 

worrying about requirements creep, the focus should be on avoiding stale requirements which no longer describe the operational needs, as well as on avoiding overstated requirements which exceed actual needs. Two particularly helpful FAR references on this point are FAR 15.306(d)(4) and FAR 35.008. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

ACQUISITION REFORM

15. Senator REED. As you know, the most recent National Defense Authorization 

Act (NDAA) restored some authority to the Service Chiefs with respect to acquisition. In contrast, Secretary Carter raised concerns with this approach, indicting in 

a letter to OMB that the language in the NDAA would ‘‘significantly affect my ability to oversee Service programs and overcome the very strong incentives and inherent bias within the military departments to be overly optimistic in their planning, 

particularly when budgets are tight.’’ 

Do you think that the military departments are overly optimistic in their planning? Why? 

If so, what can we do to mitigate against that unwarranted optimism? 

Does OSD provide an appropriate counterbalance against Service optimism? 

Mr. WARD. The problem with optimistic planning is less about optimism as it is 

about the scope, scale, and duration of the plans. An optimistic 1-year project, with 

a well-defined objective, a stable leadership team, and a tightly controlled budget 

64 

will a) be more likely to deliver meaningful & relevant capabilities than a 10-year 

proect, and b) incur less harm if the optimism proves unwarranted. 

So my suggestion on how to mitigate the problem is not to discourage optimism, 

because we want and need acquisition leaders who embrace a can-do mentality and 

are willing to take risks, etc. Rather, we should discourage stretching that optimism 

out into timelines that exceed our capacity to act or exceed our involvement with 

the program. By all means, be optimistic. But do so on a timescale that aligns with 

the Program Manager’s tenure. This introduces a degree of accountability that is 

impossible to provide on a 10+ year program. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

QUESTIONS SUBMITTED BY SENATOR CLAIRE MCCASKILL

BREAKING THE COST CURVE

16. Senator MCCASKILL. Over the past several years, the Department of Defense 

has recognized the unsustainable growth for development programs and has highlighted the need to break the cost curve. In response, some in industry has been 

pursuing ways to reduce development and production costs. Do you believe the Department is doing enough in source selection to recognize industry cost cutting and 

innovation efforts? 

Mr. AUGUSTINE. There can be no question but that we are on an unsustainable 

path with regard to the cost of major items of military equipment. It is my belief 

that this problem has less to do with source selection than with the requirements 

process and the design and development processes. 

We have now reached that point in the so-called ‘‘death spiral’’ wherein items of 

equipment cost so much that we can buy very few of them (usually even fewer than 

were planned when the program was established and program costs initially estimated) and individual unit costs thus become untenable. This is particularly the 

case when development costs must be amortized over the (often reduced) production 

buy. I believe that what is needed in many cases is far greater emphasis on somewhat less sophisticated equipment that can be purchased in substantially larger 

quantities, often drawing on commercial hardware and software. This will require 

a less ‘‘linear,’’ less rigid and less procedural requirements process than exists today. 

Specifically, what is needed is a ‘‘closed-loop’’ process that simultaneously involves 

military operators; design, development and production engineers; cost estimators; 

and budget analysts. Only through an iterative process involving all four of these 

groups do I believe that we can arrive at affordable designs with today’s tight budgets and small quantities of equipment that are generally purchased in peacetime. 

QUESTIONS SUBMITTED BY SENATOR JEANNE SHAHEEN

ACQUISITION WORKFORCE

17. Senator SHAHEEN. How can the contracting workforce be more effective in engaging with small and non-traditional contractors in order to maximize benefits to 

both DOD and the taxpayer? 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. AUGUSTINE. The In-Q–Tel model has proven to be a highly successful means 

for dealing with the kinds of issues addressed in Question 19. It is premised on the 

notion that in many instances the government should enable commercial procurement practices to replace government procurement practices. This is of course not 

without risk, nor is it easy, but that risk, in my experience, is trivial compared with 

the cost of meeting all the so-called ‘‘protections’’ built into defense procurement as 

it has evolved over the years. The In-Q–Tel concept is really quite simple: it allows 

companies to deal with government (intermediaries) much as it deals with other 

firms in the free enterprise system. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Mr. WARD. The contracting workforce could begin by increasing its awareness of, 

understanding of, and compliance with the FAR. For example, FAR 13.003 states 

‘‘Agencies shall use simplified acquisition procedures to the maximum extent practicable,’’ which clearly points in the direction of engaging with smaller and non-traVerDate Nov 24 2008 07:59 Oct 21, 2016 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6621 C:\USERS\WR47328\DESKTOP\22200.TXT.TXT WILDA
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ditional vendors, and yet there is a widespread reluctance to take advantage of this 

procedure. 

Similarly, although FAR 39.103 states that the government should use modular 

contracting ‘‘to the maximum extent practicable,’’ many CO’s seem unaware of what 

modular contracting is, how it works, or how to use it. In the simplest terms, modular contracting involves breaking large efforts into a series of smaller efforts, which 

reduces the barriers to participation for smaller, non-traditional contractors. 

18. Senator SHAHEEN. What is your assessment of the training and education of 

the acquisition workforce? What improvements should be made? 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Mr. WARD. As I mentioned in the answer to Question 11, the Pentagon would do 

well to augment the DAU training with material from civilian academic institutions 

such as the University of Tennessee, West Virginia University’s Center for Smart 

Defense, Duke University’s Corporate Education program, and Georgia Tech’s Contracting Education Academy. 

Similarly, it is definitely time to refresh the curriculum at DAU. They do good 

work and have a challenging charter, but I would like to see a greater emphasis 

on innovation over compliance, on clarity and flexibility over death-by-PowerPoint 

and school-house answers. 

GOVERNMENT CONTRACTING

19. Senator SHAHEEN. In your view, what are the benefits of engaging small and 

non-traditional businesses in contracting for the federal government? What are the 

tools at the government’s disposal to meet these needs? 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. Augustine did not respond in time for printing. When received, answer will be retained in committee files. 

QUESTIONS SUBMITTED BY SENATOR JEANNE SHAHEEN

20. Senator SHAHEEN. Are these tools sufficient? Are there barriers that should 

be removed to better encourage small and innovative companies to participate in defense acquisition? 

Dr. Gansler did not respond in time for printing. When received, answer 

will be retained in committee files. 

Mr. AUGUSTINE. The In-Q–Tel model has proven to be a highly successful means 

for dealing with the kinds of issues addressed in Question 19. It is premised on the 

notion that in many instances the government should enable commercial procurement practices to replace government procurement practices. This is of course not 

without risk, nor is it easy, but that risk, in my experience, is trivial compared with 

the cost of meeting all the so-called ‘‘protections’’ built into defense procurement as 

it has evolved over the years. The In-Q–Tel concept is really quite simple: it allows 

companies to deal with government (intermediaries) much as it deals with other 

firms in the free enterprise system. 

Mr. FitzGerald did not respond in time for printing. When received, answer will be retained in committee files. 

Mr. WARD. My observation is that small, non-traditional businesses are more than 

willing to work on projects for the federal government if they see an opportunity 

to contribute to a meaningful objective on a reasonable timeline. They are discouraged when it takes too long to get started or when their contribution is limited, either because the large prime contractor does not allocate meaningful tasks or because the project itself does not actually address a meaningful problem. Establishing 

short timelines and well-focused projects helps address both of these barriers. 

QUESTIONS SUBMITTED BY SENATOR MAZIE HIRONO

STEM EDUCATION IN THE U.S. 

21. Senator HIRONO. Mr. Augustine, I know that you have done significant work 

in the STEM arena. Preparing our youth for future jobs in the science and engineering fields is vital for our national security and economy. We discussed during the 

hearing that we are being significantly outpaced by other countries in this area. In 

your opinion, what can be done to improve the quality and quantity of our STEM 

graduates? 

66 

Mr. AUGUSTINE. Thank you for this question; it is a very important question indeed. Today, for every PhD that U.S. universities award in engineering to U.S.-born 

individuals, these universities, on average, award two PhDs to individuals who were 

not born in the U.S. In short, we have been importing much of the nation’s engineering talent insofar as the research sector is concerned. 

I believe that when it comes to expanding the nation’s engineering talent base we 

have issues at both the primary and secondary school levels as well as at the university level. In the case of the latter, most states have now chosen to disinvest in 

higher education, and as such the current, extraordinary high ranking of our institutions of higher education are very much endangered. We must encourage our 

states once again to underwrite higher education at a level consistent with its importance. 

With regard to primary and secondary education, simply stated, we need to bring 

the Free Enterprise system to grades K–12. This system has been enormously successful in American business, making our economy the strongest in the world, and 

in higher education, making our universities the finest in the world. This requires 

creating competition among schools, among teachers, and among administrators; 

paying quality teachers much more than they are now paid; and helping teachers 

not suited to the classroom to find other careers which they might more successfully 

pursue. 

We also need a change in the attitude of our engineering schools, which for many 

years seem to have embraced the notion of trying to see how many candidates could 

be driven out of engineering into other fields, presumably to prove how difficult is 

an engineering curriculum. Typically, between a third and half of those beginning 

in engineering at U.S. universities do not graduate in that field. This has recently 

been recognized and the curriculum is being modified at many universities, particularly for the freshman year. 

22. Senator HIRONO. What specific steps should DOD be taking in STEM educational activities to support their missions and needs? 

Mr. AUGUSTINE. I believe there are several constructive pursuits that DOD could 

undertake in STEM education that would also support the DOD mission. One of 

these would be to create practical, out-of-the-classroom experiences in engineering 

for young students. This would help them understand the relevance of their studies 

to everyday work in science and engineering. One very good program in this regard 

is underway at the Pensacola, FL Navy base. 

Another initiative would be to establish a number of Defense Scholarships for extraordinarily exceptional high school graduates. Still another would be to address 

the problem that the children of our military are frequently required to move from 

school to school and often to attend inferior public schools that happen to surround 

many military bases in the United States. In this regard, there is a program called 

the National Math and Science Initiative that is currently working with DOD to 

help improve these schools, particularly in the STEM fields, I would encourage the 

expansion of this relationship. (For the record, I am one of the founders and a member of the board of directors of the National Math and Science Initiative, a not-forprofit organization designed to improve the quality of education offered to America’s 

students.) 

23. Senator HIRONO. What can be done to support STEM education for the children of service members? 

Mr. AUGUSTINE. Please see response to Question 22. 

24. Senator HIRONO. How can we create incentives for industry to work with DOD 

on these issues? 

Mr. AUGUSTINE. Industry is, by and large, devoting a substantial fraction of its 

charitable giving to K–12 education. I believe that a greater portion of these resources could be allocated to schools at which the children of the nation’s service 

members attend. Additionally, one might replicate something that I have done, 

which is to specify that the scholarships that my wife and I have established at various universities give priority to children of individuals serving in the military as 

well as to individuals who themselves have formerly served in the military. 

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