U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

71–377 PDF 2011

S. HRG. 112–161 

DEPARTMENT OF DEFENSE EFFICIENCIES 

INITIATIVES 

HEARING 

BEFORE THE

COMMITTEE ON ARMED SERVICES 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 29, 2011 

Printed for the use of the Committee on Armed Services 

( 

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

COMMITTEE ON ARMED SERVICES 

CARL LEVIN, Michigan, Chairman 

JOSEPH I. LIEBERMAN, Connecticut 

JACK REED, Rhode Island 

DANIEL K. AKAKA, Hawaii 

E. BENJAMIN NELSON, Nebraska 

JIM WEBB, Virginia 

CLAIRE MCCASKILL, Missouri 

MARK UDALL, Colorado 

KAY R. HAGAN, North Carolina 

MARK BEGICH, Alaska 

JOE MANCHIN III, West Virginia 

JEANNE SHAHEEN, New Hampshire 

KIRSTEN E. GILLIBRAND, New York 

RICHARD BLUMENTHAL, Connecticut 

JOHN MCCAIN, Arizona 

JAMES M. INHOFE, Oklahoma 

JEFF SESSIONS, Alabama 

SAXBY CHAMBLISS, Georgia 

ROGER F. WICKER, Mississippi 

SCOTT P. BROWN, Massachusetts 

ROB PORTMAN, Ohio 

KELLY AYOTTE, New Hampshire 

SUSAN M. COLLINS, Maine 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

DAVID VITTER, Louisiana 

RICHARD D. DEBOBES, Staff Director 

DAVID M. MORRISS, Minority Staff Director 

(II) 

C O N T E N T S 

CHRONOLOGICAL LIST OF WITNESSES 

DEPARTMENT OF DEFENSE EFFICIENCIES INITIATIVES

MARCH 29, 2011

Page 

Hale, Hon. Robert F., Under Secretary of Defense, Comptroller ......................... 8 

Westphal, Hon. Joseph W., Under Secretary of the Army ................................... 10 

Work, Hon. Robert O., Under Secretary of the Navy ........................................... 11 

Conaton, Hon. Erin C., Under Secretary of the Air Force ................................... 12 

(III) 

(1) 

DEPARTMENT OF DEFENSE EFFICIENCIES 

INITIATIVES 

TUESDAY, MARCH 29, 2011 

U.S. SENATE, SUBCOMMITTEE ON READINESS

AND MANAGEMENT SUPPORT, COMMITTEE ON ARMED SERVICES, Washington, DC. 

The subcommittee met, pursuant to notice, at 2:34 p.m. in room 

SR–232A, Russell Senate Office Building, Senator Claire McCaskill 

(chairwoman of the subcommittee) presiding. 

Committee members present: Senators McCaskill, Begich, and 

Ayotte. 

Majority staff members present: Peter K. Levine, general counsel; Jason W. Maroney, counsel; Roy F. Phillips, professional staff 

member; John H. Quirk V, professional staff member; and Russell 

L. Shaffer, counsel. 

Minority staff members present: Pablo E. Carrillo, minority investigative counsel; and Lucian L. Niemeyer, professional staff 

member. 

Staff assistants present: Hannah I. Lloyd and Breon N. Wells. 

Committee members’ assistants present: Gordon Peterson, assistant to Senator Webb; Tressa Guenov, assistant to Senator 

McCaskill; Lindsay Kavanaugh, assistant to Senator Begich; and 

Brad Bowman, assistant to Senator Ayotte. 

OPENING STATEMENT OF SENATOR CLAIRE MCCASKILL, 

CHAIRWOMAN 

Senator MCCASKILL. The Readiness and Management Support 

Subcommittee of the Senate Armed Services Committee will begin. 

Today we’re going to have a hearing on the Department of Defense 

(DOD) Efficiencies Initiatives. 

The Subcommittee on Readiness and Management Support 

meets this afternoon to hear testimony on the efficiencies initiatives—say that three times real fast—[Laughter] announced by the 

Secretary of Defense. 

We’re pleased to have the DOD Comptroller, Robert F. Hale, and 

the Chief Management Officers (CMO) of the three military departments—Under Secretary of the Army, Joseph Westphal, Under 

Secretary of the Navy, Robert Work, and Under Secretary of the 

Air Force, Erin Conaton—here today to address this important 

issue. I welcome you all, and I thank you not only for your testimony, but for your contributions to the Secretary’s efforts at efficiencies. 

2 

I fully support the Secretary’s objectives in reducing the duplication, overhead, and excess in the Defense enterprise and instilling 

a culture of savings and restraint across DOD. As I stated at our 

previous hearing, I do not believe there is anything DOD is doing 

that we cannot do better, and I do not believe there is any part of 

the budget that can be off limits as we look for savings. 

I believe that the Secretary was on the right track when he announced a reduction in funding for service support contracts by 10 

percent per year for 3 years, a freeze on the number of the Office 

of the Secretary of Defense (OSD), Defense agency, and combatant 

command (COCOM) positions, a freeze on the number of general officer, flag officer, and Senior Executive Service (SES) positions, a 

review and reduction of the number of reports, studies, and advisory boards, new limits on SES positions and support contractors 

for DOD intelligence functions, and the elimination or consolidation 

of several defense commands and agencies. 

I’m also pleased that the military departments have followed up 

by proposing additional economies, including consolidations of functions and facilities, cuts to funding for recruiting and retention, increased use of flight simulators, reductions in inventories in pre-positioned stockpiles of materials, the deferral of military construction (MILCON), and the termination of lower-priority acquisition 

programs. 

I also want to thank our witnesses today for the additional detail 

you have provided on DOD’s efficiencies initiatives over the last 

few days. That information includes written rationales for specific 

elements of the effort and detailed funding tables showing the expected savings. It has seemed like pulling teeth to get the detailed 

information we need to understand exactly what you plan to do and 

why you think it’s going to save money, but the information that 

you have now provided is a huge step in the right direction, and 

puts the entire effort on a much sounder footing. We really appreciate it. 

Nonetheless, the proposed efficiencies initiatives raise some difficult questions, which I hope we will begin to answer in the course 

of today’s hearing. For example, although the Secretary stated on 

August 9 that he intended to reverse the dramatic increase in 

DOD’s use of service support contractors, DOD now proposes to cut 

spending on service contracts by just $1.3 billion this year, less 

than a third of the $4.5 billion it plans to cut from the much smaller amount spent on DOD’s civilian workforce. Will these disproportionate cuts to the civilian workforce accelerate the outsourcing 

trend that the Secretary has promised to reverse? 

In his August 9 speech, the Secretary of Defense announced that 

he would conduct a zero-based review of DOD’s intelligence organizations, require a 10-percent freeze in reduction in funding for the 

advisory and assistance contractors, and freeze the number of senior executive positions in DOD intelligence positions. Yet, the budget calls for a savings in DOD intelligence budget of only $41 million 

in fiscal year 2012 and $372 million over the Future Years Defense 

Program (FYDP), which covers another additional 5 years. Is that 

really the best we can do? 

In addition to the Defense-wide initiatives and the service-specific initiatives, we have a third set of initiatives, the ‘‘better buyVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
3 

ing power’’ acquisition reform initiatives announced by Secretary 

Ash Carter. The Defense-wide initiatives are expected to achieve 

$78 billion in savings, and the service-specific initiatives are expected to save $100 billion—however, no savings at all are credited 

to this acquisition reform initiative. Why not? 

I understand that the CMOs of the three military departments, 

our witnesses here today, are responsible for the implementation of 

the service-specific initiatives in this efficiency effort. However, the 

CMO and Deputy Chief Management Officer (DCMO) of DOD appeared to have played little role in the Defense-wide effort to date. 

Who will be responsible for implementing the Defense-wide efficiencies initiatives? Who can we hold accountable? 

Over the last decade, DOD’s budget has grown from just under 

$300 billion in fiscal year 2001 to almost $550 billion in fiscal year 

2011, an increase of over $250 billion on an annual basis. That’s 

the base budget. That is not counting the cost of Overseas Contingency Operations (OCO). I want to repeat that, make sure that we 

understand what the numbers are we’re working with. In less than 

a decade, we have gone from a base budget at the Pentagon of $300 

billion to a base budget of $550 billion, not counting any of the 

costs that we have incurred in Iraq, Afghanistan, or the current 

international assistance operation that is ongoing in Libya. 

Measured against that yardstick, the Secretary’s proposal to find 

savings of $24 billion and reduce the top line of the Defense budget 

by about $14 billion in fiscal year 2012 seems much more modest 

than draconian. In fact, I question whether, in this time of economic and fiscal duress, we can afford to allow the military departments to reinvest the $10 billion they plan to save this year 

through cuts to excessive bureaucracy and underachieving programs. When we move forward with the National Defense Authorization Act (NDAA) for Fiscal Year 2012, I may offer an amendment to strike this added spending from the bill so that we can 

apply the full savings against our rising budget deficit. 

I welcome all the witnesses today, again, and thank you. 

Now, I will turn to the ranking member, it’s so great to have her 

on board, Senator Ayotte. 

[The prepared statement of Senator McCaskill follows:] 

PREPARED STATEMENT BY SENATOR CLAIRE MCCASKILL

The Subcommittee on Readiness and Management Support meets this afternoon 

to hear testimony on the efficiencies initiatives announced by the Secretary of Defense. We are pleased to have the Department of Defense (DOD) Comptroller Robert 

F. Hale and the Chief Management Officers of the three military departments— 

Under Secretary of the Army Joseph W. Westphal, Under Secretary of the Navy 

Robert O. Work, and Under Secretary of the Air Force Erin C. Conaton—here today 

to address this important issue. I welcome you all, and I thank you not only for your 

testimony, but for your contributions to the Secretary’s efficiencies initiatives. 

I fully support the Secretary’s objectives of reducing ‘‘duplication, overhead, and 

excess in the defense enterprise’’ and instilling ‘‘a culture of savings and restraint’’ 

across DOD. As I stated at our previous hearing, I do not believe there is anything 

the Department is doing that we cannot do better, and I do not believe that there 

is any part of the budget that can be off limits as we look for savings. 

I believe that the Secretary was on the right track when he announced a reduction in funding for service support contracts by 10 percent per year for 3 years; a 

freeze on the number of Office of Secretary of Defense, Defense agency, and combatant command positions; a freeze on the number of general officer, flag officer, and 

Senior Executive Service (SES) positions; a review and reduction of the number of 

4 

reports, studies, and advisory boards; new limits on SES positions and support contractors for DOD intelligence functions; and the elimination or consolidation of several defense commands and agencies. 

I am also pleased that the military departments have followed up by proposing 

additional economies, including consolidations of functions and facilities, cuts to 

funding for recruiting and retention, increased use off light simulators, reductions 

in inventories and prepositioned stockpiles of materials, the deferral of military construction, and the termination of lower priority acquisition programs. 

I also want to thank our witnesses today for the additional detail that you have 

provided on the Department’s efficiencies initiatives in the last few days. That information includes written rationales for specific elements of the effort and detailed 

funding tables showing the expected savings. It has seemed like pulling teeth to get 

the detailed information we need to understand exactly what you plan to do and 

why you think it is going to save money—but the information that you have now 

provided is a huge step in the right direction and puts the entire effort on a much 

sounder footing. We really appreciate it. 

Nonetheless, the proposed efficiencies initiatives raise some difficult questions, 

which I hope we will begin to answer in the course of today’s hearing. For example: 

• Although the Secretary stated on August 9 that he intended to reverse 

the dramatic increase in the Department’s use of service support contractors, the Department now proposes to cut spending on service contracts by 

just $1.3 billion this year—less than a third of the $4.5 billion it plans to 

cut from the much smaller amount spent on the Department’s civilian 

workforce. Will the disproportionate cuts to the civilian workforce accelerate 

the outsourcing trend that the Secretary promised to reverse? 

• In his August 9 speech, the Secretary of Defense announced that he 

would conduct a ‘‘zero-based review’’ of the Department’s intelligence organizations, require a 10 percent freeze in reduction in funding for intelligence advisory and assistance contractors, and freeze the number of senior 

executive positions in DOD intelligence positions. Yet, the budget calls for 

a savings in the DOD intelligence budget of only $41 million in fiscal year 

2012, and $372 million over the Future Years Defense Program. Is that 

really the best we can do? 

• In addition to the defense-wide initiatives and the service-specific initiatives, we have a third set of initiatives—the ‘‘better buying power’’ acquisition reform initiatives announced by Secretary Carter. While the DOD-wide 

initiatives are expected to achieve $78 billion in savings and the servicespecific initiatives are expected to save $100 billion, however, no savings at 

all are credited to the acquisition reform initiatives. Why not? 

• I understand that the Chief Management Officers of the three military 

departments—our witnesses here today—are responsible for the implementation of the service-specific efficiencies initiatives. However, the Chief 

Management Officer and Deputy Chief Management Officer of DOD appear 

to have played little role in the defense-wide effort to date. Who will be responsible for implementing the defense-wide efficiencies initiatives? 

Over the last decade, the DOD budget has grown from just under $300 billion in 

fiscal year 2001 to almost $550 billion in fiscal year 2011, an increase of $250 billion 

per year—and that is the base budget, not including the cost of overseas contingency 

operations. Measured against that yardstick, the Secretary’s proposal to finding savings of $24 billion and reduce the top-line of the defense budget by about $14 billion 

in fiscal year 2012 seems more modest than draconian. 

In fact, I question whether, in this time of economic and fiscal duress, we can afford to allow the military departments to ‘‘reinvest’’ the $10 billion that they plan 

to save this year through cuts to excessive bureaucracy and underachieving programs. When we move forward with the National Defense Authorization Act for Fiscal Year 2012, I may offer an amendment to strike this added spending from the 

bill, so that we can apply the full savings against our rising budget deficit. 

I look forward to the testimony of our witnesses, and I now turn to Senator Ayotte 

for any opening remarks that she may have. 

STATEMENT OF SENATOR KELLY AYOTTE 

Senator AYOTTE. Thank you very much, Madam Chairwoman. 

I thank the witnesses for appearing before our subcommittee 

today, and for your service to our country during these difficult 

times. 

5 

This hearing really goes to the heart of the fiscal crisis that we 

face as a Nation. Certainly, I’ve heard from people in New Hampshire in sending me to Washington, that we need to address our 

Nation’s fiscal crisis and reduce Federal spending. I certainly plan 

to honor that commitment. We cannot continue to spend what we 

don’t have, and we must closely scrutinize every Federal agency, 

including DOD, to identify and eliminate wasteful or duplicative 

programs. As the National Commission on Fiscal Responsibility 

and Reform (Bowles-Simpson) stated in their final report, A Moment of Truth, ‘‘Every aspect of discretionary—the discretionary 

budget must be scrutinized. No agency can be off limits, and no 

program that spends too much or achieves too little can be spared.’’ 

I commend the Secretary of Defense for his commitment to review DOD’s operations to find better ways to do business. The services now plan to fund new modernization initiatives from within 

the budgets that will remain steady, as adjusted for inflation, in 

the next few years. In addition, the Secretary’s review of all DOD 

functions reduces overhead costs by $78 billion over the next 5 

years, starting with $13 billion in fiscal year 2012, from the 

amount projected in last year’s President’s budget for DOD. 

But, let’s be clear: only in the current climate here in Washington, DC, can an agency propose a cut in the rate of growth of 

future budgets and call it a triumph. In a year when we are facing 

close to a $1.6 trillion deficit accruing at over $200 billion a month, 

cutting $13 billion from projected $566 billion requests hardly 

makes a dent. Local and State governments around the country are 

looking at their outlays today and cutting back now just to remain 

solvent. We need to instill that—this same mindset and same sense 

of urgency in DOD. 

DOD funds provided for specific purposes, but no longer needed 

or in excess of that requirement, should be returned to the General 

Fund of the Treasury, as opposed to funding lower priorities. For 

example, our committee has challenged requests to use savings 

from the Base Realignment and Closure (BRAC) accounts to fund 

new MILCON projects, and will continue to do so. We should not 

fund additional projects that did not make the cut the first time. 

I would also like to hear how the witnesses plan to change the 

widespread mindset in the Pentagon, which encourages program 

managers to spend all the money available in order to justify future budget requests. I ask the witnesses to consider an overarching efficiency initiative for DOD’s budgeting system to provide 

incentives to program managers to be rewarded for spending less, 

as opposed to being penalized, in the future budgets, for not spending every dollar that’s given to them. 

In addition, DOD needs to stop carrying out earmarked programs 

that are not core DOD activities. Substantial savings will not be realized until DOD commits to spend only what is absolutely essential for the warfighter and critical DOD functions. 

I’m also concerned that some of the efficiencies may actually 

defer expenditures critical to our military readiness, which increases risk to our military forces and to our national security. Reduced funding for facility maintenance, aircraft maintenance, 

MILCON, and flying hours are not savings or efficiencies. The negative consequences of the continuing resolution on our core readiVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
6 

ness functions, like ship availabilities, we’re already seeing and are 

bad enough. We should not compound the damage of the continuing 

resolution on our military’s readiness by pushing core readiness requirements to future years that will eventually have to be funded. 

I ask our witnesses today, for the record, to delineate those 

spending cuts proposed in the budget request that defer requirements, assess the risk of each one, and propose a plan for their 

eventual payment. This committee needs to honestly and accurately assess this risk, on top of the years of accumulated risk, to 

the readiness and training of our forces. In a time of turmoil and 

uncertainty around the world, which we’ve certainly seen with the 

recent events in Libya and the Middle East, we must be clear 

about the true effects of reduced military spending in critical readiness areas proposed under the guise of efficiencies. 

I also support the chairwoman’s previous call for financial statements for DOD that can be audited. Given how defective DOD’s financial processes and systems are, I have to wonder how the projected savings will actually be realized without having a strong system in place that can be audited. Without tracking and understanding current expenses, DOD has no way to establish a baseline 

to measure the performance of any efficiency initiative. I’m concerned that the Air Force, for example, does not have a plan to be 

audit-ready until the end of 2016. I think the average American 

would be surprised and disappointed to know that DOD does not 

currently have fully auditable statements, and does not expect to 

have them until 2017. This is too late. The Financial Improvement 

and Audit Readiness Initiative should be DOD’s top efficiency priority. 

Finally, Chairwoman McCaskill, I hope you will share my commitment to avoid, today—which I know you have said in previous 

hearings—to avoid using gimmicks to get around the ban on earmarks that Congress has adopted this year. Adding unspecified 

lump sums to certain DOD accounts without a vote by this committee or the full committee, and then allowing DOD to pick and 

choose the special-interest items to fund with the additional money, 

is not consistent with my definition of fiscal responsibility and accountability. 

I look forward to a productive and open discussion with our witnesses today, and appreciate, again, your commitment to our country. This is a very important hearing, and I appreciate you all 

being here today. 

[The prepared statement of Senator Ayotte follows:] 

PREPARED STATEMENT BY SENATOR KELLY AYOTTE

Thank you Chairwoman McCaskill and I thank the witnesses for appearing before 

our subcommittee today. This hearing goes to the heart of the fiscal crisis we face 

as a Nation. During my campaign, I vowed to my constituents in New Hampshire 

that I would come to Washington, DC, to address our Nation’s fiscal crisis and to 

reduce Federal spending. I plan to honor that commitment. We cannot continue to 

spend what we do not have. We must closely scrutinize every Federal agency—including the Department of Defense (DOD)—to identify and eliminate wasteful or duplicative programs. As the National Commission on Fiscal Responsibility and Reform stated in their final report, A Moment of Truth, ‘‘Every aspect of the discretionary budget must be scrutinized, no agency can be off limits, and no program 

that spends too much or achieves too little can be spared.’’ 

I commend the Secretary of Defense for his commitment to review the Department’s operations to find better ways to do business. The Services now plan to fund 

7 

new modernization initiatives from within budgets that will remain steady as adjusted for inflation in the next few years. In addition, the Secretary’s review of all 

Department functions reduces overhead costs by $78 billion over the next 5 years, 

starting with $13 billion in fiscal year 2012 from the amount projected in last year’s 

President’s budget for the Department. 

But let’s be clear. Only in the current climate here in Washington, DC, can an 

agency propose a cut in the rate of growth of future budgets and call it a triumph. 

In a year when we are facing a $1.4 trillion deficit accruing at over $200 billion a 

month, cutting $13 billion from a projected $566 billion request hardly makes a 

dent. Local and State governments around the country are looking at their outlays 

today, and cutting back now to remain solvent. We need to instill this same mindset 

and same sense of urgency in DOD. DOD funds provided for specific purposes, but 

no longer needed or in excess of the requirement, should be returned to the General 

Fund of the Treasury, as opposed to funding lower priorities. For example, our committee has challenged requests to use savings from the base realignment and closure accounts to fund new military construction projects, and will continue to do so. 

We should not fund additional projects that did not make the cut the first time. 

I would also like to hear how the witnesses plan to change the widespread 

mindset in the Pentagon which encourages program managers to spend all money 

available in order to justify future budget requests. I ask the witnesses to consider 

an overarching efficiency initiative for the Department’s budgeting system to provide incentives to program managers to be rewarded for spending less, as opposed 

to being penalized in future budgets for not spending every dollar given to them. 

In addition, the Department needs to stop carrying out earmarked programs that 

are not core DOD activities. Substantial savings will not be realized until the Department commits to spend only what is absolutely essential for the warfighter and 

critical Department functions. 

I am also concerned that many efficiencies actually defer expenditures critical to 

our military readiness, which increases risk to our military forces and to our national security. Reduced funding for facility maintenance, aircraft maintenance, 

military construction, and flying hours are not savings or efficiencies. The negative 

consequences of the continuing resolution on core readiness functions like ship availabilities are bad enough. We should not compound the damage of the continuing resolution on our military’s readiness by pushing core readiness requirements to future 

years that will eventually have to be funded. I ask our witnesses today for the 

record to delineate those spending cuts proposed in the budget requests that defer 

requirements, assess the risk for each one, and propose a plan for their eventual 

payment. This committee needs to honestly and accurately assess this risk, on top 

of years of accumulated risks, to the readiness and training of our forces. In a time 

of turmoil and uncertainty around the world, we must be clear about the true effects 

of reduced military spending in critical readiness areas proposed under the guise of 

efficiencies. 

I also support the chairwoman’s previous call for financial statements for the Department that can be audited. Given how defective the Department’s financial processes and systems are, I have to wonder how the projected savings will be actually 

realized. Without tracking and understanding current expenses, the Department 

has no way to establish a baseline or to measure the performance of any efficiency 

initiative. I am concerned that the Air Force, for example, does not plan to be audit 

ready until the end of 2016. I think the average American would be surprised and 

disappointed to know that the Department does not currently have fully auditable 

statements, and does not expect to have them until 2017. This is too late. The Financial Improvement and Audit Readiness initiative should be the Department’s top 

efficiency priority. 

Finally, Chairwoman McCaskill, I hope you will share my commitment today to 

avoid using gimmicks to get around the ban on earmarks that Congress has adopted 

this year. Adding unspecified lump sums to certain DOD accounts without a vote 

by this committee or the full committee, and then allowing the Department to pick 

and choose the special interest items to fund with the additional money, is not consistent with my definition of fiscal responsibility and accountability. 

I look forward to a productive and open discussion with our witnesses today. 

Senator MCCASKILL. Thank you all for being here. 

I will go down the list in the order that I have them listed on 

the witness sheet, which means we will begin with Secretary Hale. 

8 

STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY 

OF DEFENSE, COMPTROLLER 

Mr. HALE. Thank you. Well, good afternoon, Chairwoman 

McCaskill, Senator Ayotte, Senator Begich. Thank you for the opportunity to discuss our efficiencies initiatives. 

I’m joined today by the Under Secretary’s CMOs. We’ve submitted a statement. I hope you’ll include it in your record. In the 

interests of time, I’ll summarize. I’ll start. Then I’m going to ask 

each of the Service Secretaries to discuss issues for their service, 

and I’ll end with a short summary about implementation. 

At the outset, let me note that, like Congress, we’re mindful of 

the fact that the United States is dealing with significant fiscal and 

economic pressures that affect our Nation and our Nation’s defenses. As a result, our past budgets for fiscal years 2010 and 2011 

included steps to curtail or eliminate weapons. The secretaries’ reform agenda didn’t begin with the budget we submitted to you. 

We’ve terminated seriously troubled programs. We’ve ended some 

where we thought we had bought enough. We terminated or restructured more than 20 weapons programs in the 2010 and 2011 

budget. 

But, the one that we just submitted in 2012, we shifted our focus 

to streamlining our business operations. There are some further 

terminations of weapons, but the focus is on the business side. 

We’ve created plans that will save $178 billion in fiscal years 2012 

to 2016. I’ll say, I’ve been looking in and around Defense budgets 

for more than 30 years. I have never seen one with as far-reaching 

a set of business streamlining as this one. 

The Under Secretaries will briefly describe how their plans are to save about $100 billion of that amount, which they have retained and reinvested in high-priority warfighter capabilities. 

I’ll now speak to the $78 billion in Defense-wide savings. These 

savings were used to accommodate a reduction in the top line in 

support of the administration’s deficit reduction efforts. Now, note 

that this $78 billion, as you pointed out, results in a reduction in 

the rate of growth in Defense spending, not a cut from the current 

level. Even with the $78 billion, we’ll go from $553 billion request 

in 2012 to $611 billion by 2016. There is some modest real growth 

there, and we can discuss this more later. But, I would say, we not 

only have a deficit problem, we also have some very significant national security challenges. We feel that we need this funding to 

handle, whether it’s Afghanistan, getting—finishing the mission in 

Iraq, Libya, Japan, and many things that we are responsible for 

undertaking. 

In order to protect the capability for the warfighter, most of our top-line savings, that $78 billion, came from efficiencies and other 

changes in the portions of our budget less closely related to 

warfighter capability. About $68 billion of the $78 billion came 

from improving business practices, reducing personnel costs, and 

changing economic assumptions. 

Let me cite a couple of examples to give you a flavor for what 

we did. We’re proposing steps to slow the growth in military medical costs. While we continue to provide, and will continue to provide, the troops and the families and retirees with high-quality 

medical care, we’re concerned that DOD’s medical care costs are 

9 

skyrocketing. They’ve gone from $19 billion in fiscal year 2000 to 

$52 billion in fiscal year 2012. To slow that growth, we’ve proposed 

incentives to increase the use of generic drugs and mail-order delivery. We’ve proposed a modest increase in TRICARE enrollment fees 

for working-age retirees, the first since the mid-1990s, and we’ve 

indexed those fees to a medical deflator. We also propose to end 

some special subsidies for private-sector hospitals that currently receive premium claims rates. Expected savings will total $340 million in fiscal year 2012 and $7.9 billion through fiscal year 2016. 

I ask Congress’ help here. I know these are hard things to do, 

but we have to make some of these tough decisions if we’re going 

to find ways to hold down the growth in Defense spending. 

A second example of Department-wide cost-cutting involves personnel decisions. We’ve proposed a DOD-wide freeze on civilian billets, with some limited but important exceptions, such as the one 

for the acquisition workforce. That will save $2.5 billion in fiscal 

year 2012 and $13 billion over the FYDP. 

We also proposed a 30-percent reduction in the number of contractor employees performing staff augmentation work. It’s an important distinction. That is people that are essentially hired to do 

jobs that could be done by government employees. That’ll save $812 

million next year, 5.7 percent over the FYDP. 

Over the next 2 years, we plan to reduce or downgrade 140 general officer and flag billets, and more than 200 senior civilian billets. The savings there will be modest, but it does go toward Secretary Gates’ goal of flattening DOD’s organization. 

Third, we’re streamlining DOD’s organizational structure. That 

includes disestablishing the Joint Forces Command, at a savings of 

$2 billion over the FYDP, and the Business Transformation Agency, which will save another $337 million. 

All together, actions affecting the portion of the budget least directly related to warfighting account for about 87 percent of that 

top-line reduction. The remaining roughly $10 billion involve decisions more directly related to combat capability: a $4 billion restructuring of the Joint Strike Fighter—but, frankly, we would 

have done that anyway, because of slips in the program—and $6 

billion from proposed decreases in the end strength of the Army 

and the Marine Corps in fiscal 2015 and 2016, assuming that future security circumstances allow such reductions with minimal 

risk. 

As I said earlier, in addition to the $78 billion in Defense-wide 

savings, the Services have gone through their own cost-cutting exercises, which saved more than $100 billion, or plan to, in fiscal 

2012 through 2016. These are organizational improvements, 

changes in business practices, termination of underperforming or 

unneeded weapons. Of those savings, $28 billion were reinvested to 

pay for higher operating costs or pay for readiness enhancements, 

essentially. I think that rather than hollowing out or decreasing 

readiness, this initiative is designed to improve it. Certainly in Secretary Gates’ mind. It included depot maintenance. It included 

more flight hours and training. The remaining $70 billion, they reinvested in other higher priorities. 

So, now let me ask each Service Under Secretary to provide some 

details, beginning with Army Secretary—Under Secretary Joseph 

10 

Westphal. That will be followed by Under Secretary Robert Work 

and Under Secretary Erin Conaton. 

Joe? 

STATEMENT OF HON. JOSEPH W. WESTPHAL, UNDER 

SECRETARY OF THE ARMY 

Dr. WESTPHAL. Chairwoman McCaskill, thank you very much for 

having us here today. Senator Ayotte, thank you, and members of 

the subcommittee. 

I will also have a little statement. Rather than read that, I’ll just 

make a few summary points. I think you know everything that’s 

on it already. So, not to belabor the subcommittee’s time. 

I will say that, from our perspective as CMOs, we actually welcome a dialogue with the committee about these issues. I think 

we’re entering upon a very, very turbulent period of time, both in 

terms of the fiscal standing of our Nation’s budgets, but also in 

terms of the nature of operations out there. As we try to draw 

down out of Iraq and gain momentum in Afghanistan, and do all 

the things that we need to do to support this Nation’s security, I 

think these discussions are going to be very important. 

In the Army, what we call the generating force—that is, all those 

elements of military and civilian that support our operational 

force—has been reduced, in significant ways, to support and to be 

part of the operating force. So, part of what we need to do as we 

move forward, in terms of efficiencies, is to ensure that we don’t 

further undermine the generating force so that we always have 

ready and trained troops ready to go. So, a lot of the efficiencies 

that we identified, in our efforts to gain approximately $28 billion 

to $29 billion, were aimed at ensuring that we didn’t undermine 

the generating force. 

For example, we made sure that support for base operations was 

an important investment in ensuring the maintenance and growth 

and sustainability of the generating force, as opposed to simply 

moving all resources over to shifting resources from one side of procurement to another side of procurement. We did some of that, as 

well. 

But, the gist of it is that we believe that the Secretary’s efficiency initiative for the Army was the beginning—as I think Secretary Hale mentioned, the beginning of an effort to really become 

much more adept at addressing the very difficult issues of, how do 

we reduce and shift resources? Whether you’re reducing the workforce or whether you’re eliminating programs, or whether you are 

reducing or taking down structure, the processes that we have to 

follow to do that are complex and often difficult to maneuver 

through. So, we’ve had some valuable lessons learned in this process. I think we’ve employed some techniques that we could talk 

about during the question-and-answer that I think will help us address many of the concerns that both of you have mentioned in 

your opening statements. 

I think you know what we did to gain that $29 billion in savings 

on the procurement side, on the infrastructure side, on the personnel side. So, I won’t detail that to you now. But, I’ll be glad to 

answer any questions and address it as we go forward in the interview. 

11 

Thank you very much. 

Senator MCCASKILL. Thank you, Mr. Secretary. 

STATEMENT OF HON. ROBERT O. WORK, UNDER SECRETARY 

OF THE NAVY 

Mr. WORK. Chairwoman McCaskill, Senator Ayotte, Senator 

Begich, I echo Joe and Robert’s ‘‘thank you very much for having 

us here today.’’ We are very, very interested in continuing a dialogue with both the committee and Congress, writ large. 

I’d like to echo that this is something very different, this entire 

efficiencies effort, than anything that I’ve seen through my 27 

years as an Active-Duty Marine and since my retirement. The 

breadth of the effort was quite striking. We had aggressive topdown targets. Each of the Departments were given $30 billion to 

hit on their efficiencies targets. We were given very explicit types 

of targets. So, I think you know that one-third were supposed to 

come from what we referred to as ‘‘tooth’’ and two-thirds from 

‘‘tail,’’ or, pretty much, overhead. 

We had vibrant debates within DOD on the type of codes that 

we should actually map the efficiencies. We had close interaction 

with all of the Under Secretaries. The Under Secretaries met, if not 

weekly, biweekly. You had a question with the DCMO. We met frequently with the DCMO. We also met with Bob Hale and Christine 

Fox from CAPE. It was a very iterative process. We were pushed 

very hard after the first $30 billion rounds, for example, we were 

given another track II. 

So, the way the Department of the Navy went about this is, we 

tried to have four kind of broad areas. One through reorganizations, which we’ve given several examples of what we might do, but 

we disestablished staffs, the Second Fleet, et cetera. We’ve reduced 

personnel ashore. We did that by going through each of the over 

200 bases and stations, and went through and asked what we 

might be able to do with fewer people. We did better business practices. That included buying smarter. But, to answer Senator 

Ayotte’s question, we actually looked at all of these input metrics 

like Facilities, Sustainment, Restoration, and Modernization 

(FSRM), which are really just models where you would just dial in 

90 percent or 80 percent. You take a look at your flight hours and 

you dial in a certain percentage and you take a look at your ship 

depot maintenance. We tried to do everything from a percentage— 

from the perspective of, how could we do this better? 

So, there would be a model that said you were supposed to do 

90 percent of all of the different types of requirements. What we 

would do is try to go to each base and say, ‘‘Okay, what’s really 

wrong on this base, the highest priority thing, is to replace this 

specific roof, because if this roof caves in, you would have a much 

harder problem. So, we have a much better idea of what the 

prioritization of all of these things are. We think we will be able 

to be far more efficient in this way. The same way on flight hours, 

for example. We went through each type and model series of aircraft and looked to see how that might work. We also looked at program eliminations, as Mr. Hale said, like the expeditionary fighting 

vehicle (EFV) and the Standard Missile-2 (SM–2). 

12 

We took all of this money. What really made this different is 

each of the Under Secretaries and the Service Chiefs and the Service Secretaries were told to reinvest this money into high-priority 

warfighting, since this was the initial goal of this effort. So, we 

were able to put more people to sea. We were able to accelerate 

programs like the next-generation jammer. We were able to buy 

and accelerate new capabilities, like the medium-range unmanned 

aerial system. We were able to fully pay for things that we had 

planned but had yet to put in the budget, like service life extension 

programs, on our aircraft. We were able to take all of the money 

from, for example, the EFV, and put it into Marine Corps ground 

combat equipment strategies, which made the force much more 

whole. 

We also were able to convince DOD that energy should be considered ‘‘tooth.’’ So, we put an awful lot of investment into energy, because we expect that to save us a lot of money downstream. 

I can’t overemphasize that one of the most important things on 

this efficiencies drill is to try to get the continuing resolution resolved. An efficiencies effort has to have a baseline, and with the 

baseline constantly changing, this really causes us a problem. So, 

the continuing resolution itself will allow us to be much more efficient than we are now. We are, quite frankly, doing things that are 

inefficient. I think any other businesswoman or businessman would 

say, ‘‘What in the heck are you doing this for?’’ So, we hope that 

the continuing resolution, in conjunction with this effort, will allow 

us to be much more efficient. 

I look forward to your questions. 

Senator MCCASKILL. Secretary Conaton. 

STATEMENT OF HON. ERIN C. CONATON, UNDER SECRETARY 

OF THE AIR FORCE 

Ms. CONATON. Chairwoman McCaskill, Senator Ayotte, Senator 

Begich, members of the staff, thanks very much for having us here 

today. I join with my partners in appreciating the opportunity to 

continue the dialogue on where we go from here with efficiencies. 

Like the rest of the services, the Air Force worked hard to meet 

the targets that Secretary Gates set out for us; in our case, about 

$33 billion in efficiencies. As Bob was saying, to do this, we looked 

at all aspects of our work. We looked at all categories of support 

activities, from installations to sustainment to acquisition, overhead, and through those whole range of processes. 

We also looked at how we do business. Secretary Work gave, I 

think, a good example with the facilities sustainment account, and 

we can talk more about that. But, there are other areas where 

we’ve changed our business process in order to become more efficient. Then, we also looked at industry best practices to see what 

folks in other parts of the country are doing that could lend lessons 

for us. 

At least within the Air Force—and we can go into any number 

of these details, as you like—but, we had organizational and headquarters consolidations with some of our air and space operation 

centers and with numbered air forces. We had a number of logistic 

support efficiencies, everything from how we sustain our weapons 

13 

systems to over $700 million in fuel savings from additional efficiencies there. 

In the space arena, we’ve tried to improve our acquisition processes, and we’re proposing, for your consideration, and would like 

to work with you as you get ready for the NDAA, on a new approach for how to buy two of our advanced extremely high frequency satellites in a way that we think will reduce costs and provide greater stability to the industrial base. 

We were able to use the funds made available through these efficiencies in a range of enhancements that we believe enhance both 

warfighter capability and readiness. For the Air Force, we put a 

significant amount of money, about $4 billion, into weapons systems sustainment, which has a direct bearing on our readiness 

rates. We’ve developed and are pursuing an affordable long-range 

penetrating bomber as part of DOD’s long-range strike family of 

systems. We’re procuring more evolved expendable launch vehicles, 

both to ensure access to space and to stabilize our industrial base. 

We’re transitioning our MC–12 Intelligence, Surveillance, and Reconnaissance (ISR) aircraft, that’s doing such amazing things over 

in Afghanistan, into our base budget to be an enduring capability. 

We know that in order to achieve these goals we need to make 

individual senior leaders accountable for developing and executing 

detailed implementation plans. I’d be happy to talk about this more 

as we get into your questions. 

The Air Force is using our existing corporate governance structure, including the Air Force Council, which is chaired—cochaired 

by myself and the Vice Chief of Staff, to regularly review the 

progress we’re making on achieving these targets. We’re particularly looking at the readiness impacts to make sure that there’s no 

unintended consequences when it comes to the readiness of the 

force. But, from the Secretary and the Chief on down, we’re committed to achieving these goals. We know that in order to do that, 

we have to work with our partners in DOD and with you all in 

order to be successful. 

So, I think, with that, I’ll turn back my time and just look forward to answering your questions. 

Thank you very much. 

Senator MCCASKILL. Thank you very much. 

Mr. HALE. Can I just finish up with—— 

Senator MCCASKILL. Sure. 

Mr. HALE.—a point on implementation, which is, the CMOs, as 

you said, will monitor for the services. I’ll join with the OSD 

DCMO to look at the OSD-wide initiatives. All of us will report to 

the Department CMO, Deputy Secretary Lynn. 

We will work with Congress. You asked, in the letter, about legislative requirements. Generally, these don’t require that. But, 

there are a couple of cases that do; one in the medical care area, 

one that Erin referred to as the space efficiency. We need legislative authority there. I’m a little embarrassed to say we don’t have 

the language to you yet, but I’m told it’s coming soon. 

Let me just say, lastly, we’re talking a lot about efficiencies. Unfortunately, in fiscal year 2011, I think we’re moving in the opposite direction with the continuing resolution. I know we are. I 

mean, it is causing inefficiencies. We are forcing our contracting ofVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
14 

ficers to go to short-term contracts to preserve capability. We have 

several hundred MILCON projects on hold, as well as a number of 

procurement actions. I’m concerned that an already understaffed 

and under-experienced contracting workforce is going to have trouble catching up in a way that’s efficient. So, anything that you can 

do—I know that there’s difficult issues here—but to get us a budget for fiscal year 2011 would be very helpful. 

Let me just end by thanking you for your support of the men and 

women in the military. We very much appreciate it. We can’t maintain our national security without Congress, and we appreciate it. 

With that, we’ll stop and answer your question. 

[The joint prepared statement of Mr. Hale, Mr. Westphal, Mr. 

Work, and Ms. Conaton follows:] 

JOINT PREPARED STATEMENT BY HON. ROBERT F. HALE, HON. JOSEPH WESTPHAL, HON. ROBERT O. WORK, AND HON. ERIN C. CONATON

Good morning, Chairwoman McCaskill and members of the subcommittee. Thank 

you for this opportunity to discuss our efficiency actions at the Department of Defense. 

I am privileged to be joined today by my colleagues from the Armed Services Committee, the Under Secretaries of the Army, the Navy, and the Air Force, who also 

function as Chief Management Officers for their respective Services. We have a joint 

statement, after which we would be pleased to entertain your questions. 

We would begin by noting that—like Congress—the leadership of the Department 

of Defense is mindful of the fact that our Nation is dealing with significant fiscal 

and economic pressures. Those pressures have a direct impact on the strength of 

our national defense. 

We owe it to the taxpayers to make the most of every dollar they entrust to us 

for the defense of the United States. As Dwight Eisenhower once said, ‘‘The patriot 

today is the fellow who can do the job with less money.’’ That statement is, if anything, truer today than it was when President Eisenhower first said it. It was no 

accident that Secretary Gates recalled those words in a speech at the Eisenhower 

Library a year ago. 

In that spirit, the Department’s budget requests for fiscal years 2010 and 2011 

included steps to curtail or eliminate programs where we had met our procurement 

needs, or where programs were seriously troubled or provided capabilities that were 

judged too narrow to justify their expense. More than 20 programs were restructured or eliminated, among them further production of the F–22 and the C–17 aircraft, the program for the new VH–71 Presidential helicopter, the Navy’s DDG–1000 

ship program, and the Army’s Future Combat System (FCS). Had these and other 

cancelled programs continued as planned, they would have cost taxpayers hundreds 

of billions of dollars. 

As significant as those savings are, however, the goal of our effort was more than 

cost-cutting. Its purpose was to rebalance the U.S. military over the long term by 

reinvesting the savings in force structure and combat capabilities, to meet the needs 

of the wars we are presently engaged in, as well as those we may face in the future. 

In the past year, DOD has continued its cost-cutting effort with particular empha- sis on business operations. We have identified plans to save a total of $178 billion 

in fiscal years 2012 to 2016. The Services identified about $100 billion of savings, 

which they reinvested to increase combat capability. The remaining $78 billion in 

Defense-wide savings was used to accommodate reductions in the defense topline, 

thereby contributing to the administration’s efforts to reduce the Federal deficit. 

I will summarize each of these efforts separately, beginning with the Defense-wide 

reductions. 

$78 BILLION USED TO REDUCE FEDERAL DEFICITS

To be clear: The savings of $78 billion across the Department do not represent 

a cut in the Defense budget compared to current levels; rather, it is a cut in the 

rate of growth. Even with this substantial reduction, DOD requested $553 billion 

for the base budget in fiscal year 2012, growing to $611 billion in fiscal year 2016. 

These budgets permit modest real growth in the near years of the present Future 

Years Defense Program (FYDP). 

It is also important to note that, in order to protect warfighter capability, most 

of this topline reduction was achieved through efficiencies and other changes in porVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
15 

tions of our budget less closely related to warfighter capability. To quote the Secretary of Defense: ‘‘As a result of the efficiencies and reforms undertaken over the 

past year, we have protected programs that support military people, readiness, and 

modernization.’’ 

More specifically, of the $78 billion we saved, $68 billion in savings were achieved 

by shedding excess overhead, improving business practices, reducing personnel 

costs, and changing economic assumptions. Attachment A to our testimony lists the 

specific initiatives involved in achieving these $78 billion in savings. We highlight 

a few of the significant changes. 

They include steps to slow the growth in our medical costs. While we will continue 

to provide high-quality military health care for troops and their families, we are 

concerned that DOD’s medical costs have skyrocketed in recent years—from $19 billion in fiscal year 2001, to more than $52 billion anticipated in fiscal year 2012. To 

slow the growth in the costs of medical care, we are proposing some necessary improvements. They include changes in pharmacy co-pays to provide incentives to increase the use of generic drugs and mail order delivery. We are also proposing a 

modest increase in TRICARE enrollment fees for working-age retirees—the first 

such increase since the mid-1990s—and we will index those fees to a medical 

deflator. We also intend to phase out subsidies for several private-sector hospitals 

where the Department pays premium claims rates. Expected savings from the 

health care reforms will total $340 million in fiscal year 2012 and $7.9 billion 

through 2016. 

A second example of cost-cutting described in the attachment involved personnel 

decisions. They include—with limited exceptions—a freeze on civilian workforce levels that will save $2.5 billion in fiscal year 2012 and $13 billion over the FYDP. 

Also included is a 30 percent reduction in the number of contractor employees who 

have supplemented and supported our government staffs. These cuts in the number 

of contractors will save $812 million next year and $5.7 billion over the FYDP. In 

addition, over the next 2 years, we will reduce or downgrade 140 general and flag 

billets out of 900, and more than 200 senior civilian billets out of a total of 1,400. 

While the savings associated with these changes are modest, they will contribute 

to a flattening of the DOD structure. 

Third, we are taking steps to streamline the Department’s organizational structure. As the Secretary of Defense announced last August, we are disestablishing the 

Joint Forces Command—at a savings of $2 billion over the FYDP—and the Business 

Transformation Agency—which will save another $337 million. 

Altogether, actions affecting the portions of our budget least directly related to 

warfighting capability account for $68 billion—or more than 87 percent—of our 

topline savings. The remaining $10 billion in 5-year topline savings involved decisions more directly related to military combat capability: $4 billion from restructuring the Joint Strike Fighter Program and $6 billion from a proposed decrease in 

end strength of the Army and Marine Corps. 

This last item deserves more explanation. Four years ago—in the midst of our engagements in Iraq and Afghanistan—Secretary Gates increased the Army’s permanent end strength by 65,000 and the Marines’ by 27,000. By 2014, we anticipate 

that U.S. forces will have completed the military mission in Iraq and largely shifted 

the security mission in Afghanistan from allied to Afghan forces. As a result, we 

believe that, in fiscal years 2015 and 2016, we can reduce active duty end strength 

by 27,000 within the Army and by 15,000 to 20,000 in the Marine Corps with minimal risk. If our assumptions about Iraq and Afghanistan turn out to be overly optimistic, or if global conditions change for the worse, we would be able to adjust the 

size and schedule of this change or even reverse it altogether. 

MILITARY SERVICES SAVE AND REINVEST $100 BILLION

In addition to the $78 billion in Defense-wide savings, the Military Services have 

gone through a cost-cutting exercise of their own, identifying savings totaling $100 

billion in fiscal years 2012 through 2016. These savings reflect organizational improvements, changes to business practices, and termination of underperforming or 

unneeded weapons programs. 

Of the savings realized, $28 billion will be devoted to higher-than-expected operating costs. These are ‘‘must pay’’ expenses to meet requirements such as 

sustainment of weapons systems, depot maintenance, base support, flight hours, and 

other training. Without these efficiency savings, we would have been forced to reduce procurement or cut force structure in order to cover these costs. 

Of the remaining savings, roughly $70 billion will be retained by the Military Departments and will be reinvested in higher priority military capabilities. Another $2 

billion is being reinvested by Special Operations Command. 

16 

Attachment B to this testimony lists the full array of planned efficiencies. We will 

briefly highlight a few of the planned efficiencies in each Service and the uses to 

which these savings are being put. 

ARMY

The U.S. Army achieved $29.5 billion in savings over the fiscal year 2012 to fiscal 

year 2016 period. The Army’s plan includes consolidating six installation management command regions into four. They also are closing the Evaluation Task Force 

at Fort Bliss, which was created to assess the now-restructured Future Combat System. This action will make 1,000 service men and women available for other duties 

at that post. The Army is also leveraging the efforts of other organizations, such 

as the Defense Information Systems Agency, to eliminate redundancies and reduce 

the number of their data centers by half. The Army has decided to reduce military construction costs by $1.4 billion over 

the FYDP by deferring lower-priority construction projects. Those savings will be reinvested into base operating accounts in order to sustain existing facilities. 

In the interest of both efficiency and effectiveness in its procurement programs, 

the Army has chosen to terminate the Surface-Launched Advanced Medium-Range 

Air-to-Air Missile surface-to-air missile in favor of higher-priority capabilities, saving $103 million in fiscal year 2012 and $1.1 billion over the FYDP. They are also 

terminating the Non-Line-of-Sight Launch System, which was originally a part of 

the Future Combat System. It is now considered redundant and not cost-effective. 

Its cancellation will save some $605 million next year and $3.2 billion over the 

FYDP. 

The savings will be invested in modernizing the Army’s battle fleet of Abrams 

tanks, Bradley Fighting Vehicles, and Stryker wheeled vehicles. Other investments 

that are planned include accelerated fielding of a new tactical communications network and acquisition of more unmanned aerial vehicles, which are in high demand 

by combatant commanders. The Army has also devoted savings to increased funding 

for suicide prevention and mental health counseling. 

NAVY AND MARINE CORPS

The Department of the Navy achieved a total of $4.3 billion in fiscal year 2012 and $35 billion across the FYDP. Highlights include the elimination of selected 

squadron staffs for submarines, patrol aircraft, and destroyer squadrons. The Navy 

will also disestablish Second Fleet in Norfolk, a relic of the Cold War. Needed functions will be transferred to Fleet Forces Command, and no ships will leave Norfolk. 

This action will save $1.2 billion over the FYDP. These and many other decisions 

will help to cut manpower at about 290 shore commands, which will enable a shift 

of approximately 6,000 billets to shipboard manning. This will in turn help to man 

new ships entering the Fleet. It will help to bolster the submarine force with an 

additional 500 sailors. It will compensate for excessive crew cuts that were made 

under a policy termed ‘optimal manning.’ 

The Navy has also achieved savings through a careful review of critical mission 

requirements, which led to reductions in programs that cost too much or provide too 

little capability. As a case in point, the Marine Corps will terminate the Expeditionary Fighting Vehicle (EFV). Total savings will amount to $2.8 billion over the 

FYDP and $13.3 billion through 2025. In place of the EFV, the Marine Corps will 

continue to support its amphibious assault mission by reinvesting the savings into 

upgrades of existing vehicles and the creation of a new amphibious vehicle based 

on requirements that better reflect likely future fights. 

In addition the Navy will aggressively pursue efficiencies in acquisition. These ef- forts should produce more than $1.7 billion in savings associated with multiyear 

procurement approaches for the F/A–18 aircraft and the E–2D aircraft. 

The Navy plans to use its savings to acquire six more ships than planned in the 

FYDP—a destroyer, a Littoral Combat Ship, a TAGOS oceanographic vessel, and 

three oilers. The Navy will also acquire 41 additional F/A–18s and execute a Service 

Life Extension on about 150 more, actions that together will partially compensate 

for delays with the Joint Strike Fighter. They plan to develop a new generation of 

electronic jammers, to increase repair and refurbishment of Marine equipment, and 

to develop a new generation of sea-borne unmanned aircraft. 

AIR FORCE

The Air Force achieved approximately $33 billion in overhead savings across the 

Future Years Defense Program. The organizational changes include changes to manpower and personnel, consolidation of two Air Operations Centers in the United 

States and another two in Europe, and consolidation of three Numbered Air Force 

17 

staffs in areas where major commands can assume the workload. These moves will 

save $516 million next year and $4.2 billion over the FYDP. 

Implementation of better business practices accounts for $2.2 billion in savings 

next year and $20.6 billion over the FYDP. Actions include: 

• A 25 percent reduction in the cost of communications infrastructure, 

using enterprise-wide services and consolidated data centers that will save 

$1.3 billion over the FYDP. 

• Cuts to fuel and energy costs by Air Force Mobility Command through 

adoption of commercial best practices in flight planning and use of simulators that will require an investment of $120 million but pay back $715 million over 5 years. 

• Adoption of a new method for acquiring satellites—emphasizing block 

buys, sustained funding for engineering, fixed price contracts, and full funding over multiple years through advance appropriations. The Air Force is 

expecting this new acquisition approach—which we refer to as Evolutionary 

Acquisition for Space Efficiency (EASE)—to create more stability in the industrial base and lower the costs of acquiring satellites. 

The savings gained from these and other efforts will help to launch development 

of a new long-range bomber program. Plans call for a long-range penetrating aircraft, which will be able to carry nuclear weapons and to operate in both manned 

and unmanned configurations. This program will leverage existing technologies and 

a streamlined acquisition approach to manage costs. 

Savings will also make it possible for the Air Force to invest in a greater number 

of Evolved Expendable Launch Vehicles to ensure access to space and improve industrial base stability; modern radars for the F–15 C and E model aircraft; additional simulators for F35 training; and transition of the MC–12 program into the 

base budget. 

SUMMARY

As these examples illustrate, our efficiency initiatives will support improvements 

in warfighter capability that would not otherwise have been fiscally feasible. 

We recognize that, in order to achieve the warfighter benefits we have described 

today, we must implement our plans and achieve these efficiency savings. Implementing such a wide array of changes poses formidable challenges. In order to turn 

plans into reality, each Service Chief Management Officer will monitor the implementation process in his or her Service. Within the Office of the Secretary of Defense, the Under Secretary of Defense (Comptroller), and the Deputy Chief Management Officer will work together to monitor compliance and report successes and 

problems to the Deputy Secretary of Defense, DOD’s Chief Management Officer. 

We would also note that we have a powerful incentive to realize these planned 

efficiencies. The dollars that we plan to save have either been removed from the defense budget or have been reinvested to achieve increases in warfighter capabilities. 

If we fail to achieve our efficiency plans, we will be forced to scale back programs 

that contribute to our core mission. That prospect will motivate us to translate 

planned efficiencies into actual efficiencies. 

We will work with Congress as we plan for implementation of these important initiatives. While most of the proposals do not require legislative authority, some do. 

For example, one of our military healthcare initiatives requires legislation, as does 

EASE, the Evolutionary Acquisition for Space Efficiency. We will be submitting required legislative changes. 

We want to end our statement by thanking the committee for your support of the 

Department and the men and women who bear the burdens of our Nation’s defense. 

Thanks to you—and the American people—these men and women have the resources to carry out their missions whenever and wherever they are needed. 

18 


329rms1.eps
19 


329rms2.eps
20 


329rms3.eps
21 


329rms4.eps
22 

Senator MCCASKILL. Thank you very much. Thank all of you. 

Let me start with the idea that the Secretary authorized the 

military departments to bring down $100 billion and then spend 

$100 billion. You probably can guess what my question’s going to 

be. Last summer, none of this spending was in any of your budgets. 

So, you were ready to submit your budgets to the Secretary of Defense without this additional spending. You felt you could do without it, and now you’re presenting to us a budget that includes this 

additional spending, at the exact moment that we can’t get a continuing resolution passed because we can’t agree on how much 

money to cut from the budget. Clearly, you see what’s coming down 

the road. I mean, this is going to be an exercise in cutting the size 

and scope of the Federal Government for the foreseeable future. 

So, how can I agree to allow you to spend the money that you 

find in efficiencies on something that you didn’t even have in your 

budget before the Secretary announced the effort? 

Mr. HALE. Well, let me start by saying that simple number cuts 

are math, not strategy; we need to consider what we won’t do if we 

have to walk back through those cuts. I hear your point; they 

weren’t there last year. But, many of them probably would have 

been. We would have looked at other programs, including, frankly, 

some readiness-related ones, and cut them in order to do the sorts 

of things we were able to achieve through these efficiencies: adding 

ships so that we could maintain a 300-ship force; starting a new 

bomber program, because we feel we need it for access interdiction 

in the future; upgrading some of the Army’s older weapons, which 

we feel we need, because we’re going to have to keep them out on 

the battlefield for many years. 

So, we face some very significant national security challenges. 

Secretary Gates believes, and I certainly agree—I know all of us 

will, here—that we need these funds to invest in order to meet 

those challenges. 

Let me ask my colleagues here. You want to—— 

Dr. WESTPHAL. Well, I’ll—— 

Mr. HALE. You want to start, Joe? 

Dr. WESTPHAL. Yes. 

I think you bring up a good point. There certainly were things 

in the budget that we weren’t possibly going to be able to fund. 

But, by finding these efficiencies and these savings, we were able 

to shift money. In the Army, for example, we knew we had a tremendous need to bring in more folks into the workforce to help us 

with counseling and substance abuse, suicides. We have a pretty 


329rms5.eps
23 

significant personnel need there. We were able to shift some of the 

resources from one end of the savings efficiency initiative to that. 

We were able to do the recap of some of these older systems as a 

result of also eliminating or terminating major weapons systems, 

as a result of our portfolio reviews. 

The network, which is one of the most critical and most important priorities for the Army, something that is very costly, we’re 

able to shift more resources to pushing the network further ahead, 

in the hopes of really making great progress in that particular 

area. 

So, we moved resources to some things that we were funding 

that we needed to fund at higher levels and to things that we really needed, really needed to provide to the warfighter today. 

Mr. WORK. Ma’am, I think Senator Ayotte said it very well. Having the incentive structure to do any type of effort like this is very 

important. So, Senator Ayotte mentioned trying to have incentives 

where contracting officers wouldn’t be rewarded for spending all 

their money. 

In this case, Secretary Gates, who said our rate of growth is 

going to slow down—and he anticipated this—he said we would 

have to find or free up resources within our expected top line, last 

summer. The incentive was that the Services would be able to keep 

the money. 

Now, this was a significant effort. There have been other efficiency efforts that I’ve been into where the incentives, if you don’t 

get to keep the money, then you don’t get as many or as bold reorganizations or efficiencies as you might otherwise expect. 

So, this year is kind of the third year of an extremely turbulent 

time. We went through the Quadrennial Defense Review, which 

was really trying to match our budget to the strategy. Last year, 

it was really trying to be more efficient within that expected budget. As you mentioned, this year is going to be trying to accommodate the new fiscal realities. 

So, I see this as all part of a long 3-year effort. I’m certain that 

the Secretary of Defense did, and he anticipated us going out. But, 

having that incentive for us to look for efficiencies and being able 

to invest it into warfighting was, I think, the key thing that allowed us to do what I consider to be many, many innovative things. 

Senator MCCASKILL. Okay. 

Quickly, if you would. 

Ms. CONATON. I’ll give you two quick examples. Before we got 

started in this effort, the Air Force was having to consider taking 

down major parts of its force structure just to balance the books. 

So, I would say that if we didn’t have the ability to reinvest, we’d 

be looking at making adjustments to the size or capability of the 

force. 

The other thing I’d say, on the readiness side, is that it was only 

because we had the ability to reinvest that we were able to sustain 

our readiness rates through weapon systems sustainment. The 

growth in cost there, because of the new ISR platforms and others 

coming into the fleet, have driven the costs up to a point where it 

would have been very difficult for us to maintain those rates that 

contribute to readiness. 

Thank you, Chairwoman McCaskill. 

24 

Senator MCCASKILL. Thank you. 

This will be my last question for this round, and then we’ll all 

come back, after my colleagues have a chance to ask questions. Let 

me talk about the balance between contractors and civilian employees. 

I mean, the announcement was welcome news to me, and it was, 

we have to wean ourselves off of this incredible explosion of contractors within DOD. I am very aware of the size and scope of that 

explosion. But, then I look, and in reality what’s happened is, 

you’ve cut civilian workforce more than you’ve cut the contracting 

workforce. I thought the idea was, we were going to try to go the 

other way, because the contracting has not turned out to be the 

kind of cost saver that I think it was touted to be in the last decade. 

So, how do we get a handle on this if, even after the Secretary 

says we’re going to do this, we do the opposite? 

Mr. HALE. Well, I need to look at the numbers. The concept was 

what you said, that we froze civilians, with exceptions for the acquisition workforce. They were actually cut below current numbers, 

at least in selected categories of contractors, namely the so-called 

staff augmentees. 

The numbers are slippery. There was an article, a very confusing 

article, in Congressional Quarterly today, that suggested there was 

actually an increase in contractor spending. It was measured off 

the continuing resolution level in a rather arbitrary budget that we 

had to present in 2011, because we don’t have an approved budget, 

so we don’t have a baseline. 

So, I’m not sure I can respond to your direct numbers. I’m going 

to have to look at them for the record. 

[The information referred to follows:] 

(A) During fiscal year 2010, the Department spent $70.6 billion on civilian labor. 

The Department of Defense (DOD) implemented a civilian hiring cap on all the Military Services and Defense Agencies at the fiscal year 2010 authorized and funded 

levels for fiscal year 2011 to fiscal year 2013. The savings are included in the fiscal 

year 2012 budget request. Cumulative annual reductions/savings from the fiscal 

year 2011 budget request level to the fiscal year 2012 budget request level are estimated at: 

• Fiscal Year 2011 - $351 million 

• Fiscal Year 2012 - $2,510 million 

• Fiscal Year 2013 - $2,673 million 

(B) During fiscal year 2010, the DOD spent nearly $4 billion on service support 

contractors providing staff support augmentation for government employees. Using 

this basis, cumulative annual reductions/savings are estimated as: 

• Fiscal Year 2011 - $418 million 

• Fiscal Year 2012 - $812 million 

• Fiscal Year 2013 - $1,221 million 

The savings are included in the fiscal year 2012 budget request. By fiscal year 

2013, this subset of contracts is reduced by 30 percent (from that fiscal year 2010 

basis). 

Mr. HALE. But, the concept is, civilians stay about the same, or 

maybe up slightly for acquisition, and we estimate some cuts in the 

contractor workforce. 

Senator MCCASKILL. Well, let me give you the numbers that we 

think are accurate. We think that you’re cutting spending on service contracts by $1.3 billion this year. That represents less than a 

third of the $4.5 billion you plan to cut in the civilian workforce. 

25 

So, it looks like close to three times as much. We’d love to get to 

the bottom of that, also. 

Mr. HALE. Let’s do that for you. 

Senator MCCASKILL. Senator Ayotte. 

Senator AYOTTE. Thank you very much, Chairwoman McCaskill. 

I wanted to ask a followup to what you just raised—and I believe 

Secretary Work, as well as Secretary Hale—the incentives for contractors and the incentives within the Department. Obviously, it’s 

very important that we’ve undertaken this efficiency incentive to 

come up with these savings. But, how do we put that into the permanent mindset of DOD? What do you view, right now, as the way 

that we carry forward this process so that it is an ongoing process 

and that we’re not left where—I see now, where the duty is—people feel like, at the end of the year, they have to spend everything 

they have, even if they don’t need it? 

Then, second, with our contractors, as the chairwoman has pointed out, where’s the incentive for the contractors to find efficiencies 

and save money? 

So, I view it in two veins, not only those that work in DOD, but 

also those that we contract with. How are we going to memorialize 

these efforts? 

Mr. HALE. Well, let me offer a couple thoughts. One, the end-ofyear problem is an endemic problem in government. I’ve watched 

it for 30 years. In a private business, you have profit. If you meet 

your customers’ needs and cut costs, you’re going to increase profit. 

You’ll probably get a bonus. Unfortunately, in the government it’s 

often the case that if you cut costs, the comptroller, the next year, 

takes your money. Then there is no profit. There’s no bottom line 

in the same way there is. 

We have tried a variety of approaches to that. I’ve never found 

one better than, frankly, just tightening up a bit on the money that 

is available and waiting to see what—or, watching the effects of 

that to be sure you don’t have unintended consequences. But, we 

ought to continue to look for better incentives. I mean, I recognize 

it’s a tough thing to do. 

In terms of the contractor incentives, there I think the best thing 

we can do is pursue competition in contracting, especially services 

contracting. We haven’t always been as good at that as we should 

be. That’s one of Ash Carter’s goals, is to get more competition. Because, if we say to a contractor, ‘‘Okay, here’s what we want done. 

You bid. Several people bid. They will have incentives then to provide us efficient services, keep the dollars low so that they actually 

win. I think that’s—there, it’s harder—you can’t have five navies 

competing with each other. You can’t have five air forces. It’s much 

harder to do for the Department as a whole. But, I think competition is the key, in terms of keeping down contractor costs. 

You—anybody want to add to that? 

Dr. WESTPHAL. I’ll add—— 

Mr. HALE. All right. 

Mr. WESTPHAL.—a couple of things. 

What we did is, we immediately did—I directed a data call of all 

of our service contracts in the Army, across the Army, to look—first 

of all, to understand what the size and scope of the contracts were. 

Then, using the financial manager of the Army, that’s the tool that 

26 

I will be using to direct commands to ensure that any future contracts, and as they move contracts through the process, that we 

will gain efficiencies from that. Then we want to balance it out 

with any insourcing that we do. We also have the directive to move 

jobs that are inherently governmental to the civil service. We want 

to be able to do that in a balanced and strategic and an efficient 

manner. 

So, all of that is something that we’ve created, a new Deputy Assistant Secretary for Services, under our Assistant Secretary for 

Acquisition, to monitor all those contracts, to look at all of the 

workforce and give us some guidance as to how we balance out that 

work we have to do to sustain our soldiers in the current operations. 

Senator AYOTTE. Thank you. 

Secretary Hale, to follow up on what we were just talking about, 

there aren’t any types of incentives in place, whether they be performance-based—any type of—because, I think that mindset has to 

come from the top down, in terms of, we’re going to measure your 

performance, not only on how you perform the qualifications or 

your—but, one of your qualifications of your job would be that the 

more money that you are able to save and return to the Treasury, 

as opposed to finding something you need to spend it on—and I 

think—I agree with you, this is a challenge we have across government. But, obviously, with DOD’s budget and some of the critical 

needs we need to use those funds for, given the challenges we face 

right now in the Middle East, and the challenges we face, obviously, in following through in Afghanistan—to me, making sure 

those dollars are—instead of just being spent for the sake of being 

spent. 

Mr. HALE. There are incentives. I don’t want to leave you—the 

broad ones are hard to come by. Certainly, all the Defense agencies, or many of them, are business-like organizations. They do 

have bottom lines of profit, if you will, or net operating result, as 

we call it in government. They can, to some extent at least, benchmark their activities against the private sector. So, there, I think 

there are good incentives. 

We have some specific programs, fast payback capital incentives, 

where if you invest a certain amount of money and get fast payback, you can keep the savings, which provides an incentive to actually try it. 

But, I still would conclude that it’s much harder in government, 

without an overall bottom line, than it is in a private business, to 

get people not to do things like spend money at the end of the year. 

I know it happens, and we need to keep working on it. 

Ms. CONATON. Can I give you one quick example in our area? It’s 

not specifically on contracts, but it is on energy. 

The Air Force is the largest consumer of energy in the Federal 

Government. Our mobility air forces is the largest consumer of energy within the Air Force. So, part of what we’ve been trying to do 

is incentivize our commands to be more fuel efficient. That means 

being willing to invest some upfront dollars in order to get the payback. But, we’re also thinking about: Once they achieve those dollars, how do we help them see that we will then reinvest to get the 

next level of savings?—so that you’re constantly providing the inVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
27 

vestment needed to get to the next level in the particular area of 

energy. 

Mr. WORK. I would echo Under Secretary Conaton. We’re doing 

the same thing in energy, looking everywhere from nonmonetary 

incentives, like establishing a battle leave for energy efficiency, 

things like that, which, in a military organization, can really lead 

to changes in behavior. 

But, on the—what we’re really starting to see—where we’re really focusing our attention on incentives right now is in the acquisition side, at the program executive officer (PEO) level, where we’re 

doing things with change-orders management, and we are purposely looking for innovative acquisition strategies, et cetera. We 

reward these PEOs for being able to free up money for the broader 

acquisition priorities of DOD. I can’t speak to specific incentives, 

but that is where we’re focused right now—energy and acquisition—on the incentives. 

As far as the contractors and civilian side, we’re now going in 

with our budget-submitting organizations and we’re talking with 

them and saying, ‘‘Do we have the right balance of contractors and 

civilians and military in the budget-submitting organizations to do 

the business of DOD?’’ Over this whole—this next year, as part of 

POM–13, we hope to establish the incentives for those budget-submitting organizations to be able to work within their means and 

free up money for DOD. 

Senator AYOTTE. Well, I certainly appreciate all of your comments on this issue. It’s an issue I would very much like to work 

with you on, because I think that’s something we not only face 

here, but across government. 

I’d like to follow up with one other question. I obviously give, 

with the chair’s latitude, the opportunity to the other Senator here, 

Senator Begich, to ask questions. But, I have a concern—wanted to 

get your view on—right now, we’re obviously in a continuing resolution situation. Secretary Hale, you talked about inefficiencies. 

When you say ‘‘inefficiencies,’’ are there ways where we’re actually 

failing to save money and spending more money, because we 

haven’t passed a budget resolution and the Defense appropriation 

for the rest of the year? 

Mr. HALE. Yes, I think that, unfortunately, is true. One example, 

in order to preserve funding flexibility—I’m sure—it’s hard to see 

this from Washington, but I’m sure that our bases are signing 

short-term contracts, because they don’t know what funding they’ll 

have in 2 months. Those are just inherently inefficient. We have 

had to pull back—the Navy, for example—a number of ships that 

were intended to go into the shipyards for repairs, because of limits 

on funds. It’ll cost more when we do that again. Sometimes we 

won’t be able to do the repair until some future point. 

We have—I worry—again, this is a problem that—I can’t quantify this, but I worry that we have a contracting workforce that’s 

treading water out there, to at least some extent, because they 

can’t move forward, because the continuing resolution limits new 

starts, and therefore, they’ll have to try to catch up. When they do 

that, they won’t have as much time to compete and do a good job 

of contracting. They will do their best. I’m not criticizing them. 

But, I think there are a variety of inefficiencies inherent in this 

28 

Continuing Resolution. As I said before, we very much need a 

budget. 

Senator AYOTTE. I can tell you that certainly—I know, members 

of the Armed Services Committee appreciate that we are at war 

right now, and that—I would like to see us, even if it comes up as 

standalone Defense appropriations bill, come forward for the remainder-of-the-year funding. 

Related to that is also, right now, with the conflict that we’re 

now involved in Libya, and of course the Japanese relief effort— 

is the Department preparing a request to Congress for an—emergency supplemental funds to address both of those situations? 

Mr. HALE. The answer is no. Actually, we couldn’t submit a supplemental now. We don’t have a budget. 

Senator AYOTTE. Right. 

Mr. HALE. We’d have to amend the budget, which—ironic—halfway through the year. But, the administration has said they don’t 

plan to submit a supplemental request at this time. We are looking 

for a dedicated source of funding for the Libyan operations. If we 

can’t arrange that in the fiscal 2011 budget, then we will have to 

use reprogramming to allow us to move the money around to cover 

those funds. 

Senator AYOTTE. Has there been an—my time has expired—but, 

has there been an estimate prepared yet of what the cost of the 

Libyan conflict is? 

Mr. HALE. Yes. Our estimate, we actually—just this morning, so, the added cost incurred to date, about $550 million. About 60 percent of that is for munitions, primarily the Tomahawk Land Attack 

Missiles, that have been used widely. The future costs are very uncertain, because we don’t know the duration or, frankly, the operating tempo. But, given the current plans, it looks like maybe $40 

million a month, if we stay. We’re coming down sharply, in terms 

of the U.S. commitment, as NATO takes control. If we stay at that 

lower level, it would be around $40 million a month in added costs. 

Senator AYOTTE. $40 million a month? 

Mr. HALE. Yes. 

Senator AYOTTE. Thank you very much. I appreciate your answers. 

Thank you for the latitude, Chairwoman McCaskill. 

Senator MCCASKILL. Sure. 

Secretary—excuse me—Senator Begich. 

Senator BEGICH. I don’t know if that was a promotion, or what. 

Senator MCCASKILL. I don’t think, right now. [Laughter.] 

Senator BEGICH. Right now, probably not. 

Senator MCCASKILL. They have challenges right now. 

Senator BEGICH. That’s right. Thank you, Chairwoman 

McCaskill. 

Thank you, all of you, for being here. 

I have several areas of interest, and I’ll try to be concise, here. 

But, I want you to know, I come from a State that’s very strong 

in the area of military support. As a former mayor, that literally 

was right next door to Elmendorf and Fort Rich, an incredible partnership. I’m a hawk when it comes to these issues. But, I’m also 

frugal with the dollars. I want to walk through some of this with 

you. Because, I want to make sure that the resources we are spendVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
29 

ing are being utilized for the best interests of our fighting men and 

women on the front line, as well as the families that are necessary, 

obviously, back home. So, that’s my intention here. I don’t want 

you to assume, at the end of the day, that I’m not supportive of 

the military mission, whatever it may be, depending on the time 

and year and day we are engaged in. We have multiple conflicts 

right now. 

But, let me walk through one, first, easy one. Secretary Conatan, 

I’d love to have you come up to Alaska on energy. 

We would love to show why, strategically, Alaska is critical, not 

only for the Air Force and the resources there, but, also, we know 

aviation fuel and the connection with some of the work you’re doing 

on gas-to-liquids and some other efforts you’re doing in the military 

could benefit not only what’s going on in Alaska, but throughout 

the country. So, I would love to— 

Ms. CONATON. Be happy to. 

Senator BEGICH. It’s only because she mentioned energy; the rest 

of you didn’t mention it, so you’re not invited yet. They’re coming 

in the winter. You can come in the summer. [Laughter.] 

But, I think it’s really a good point you made about the energy 

issue. That is, as I know, your energy budget’s already $1.2 billion, 

maybe $2 billion over budget already for this fiscal year, for a lot 

of reasons. You are the largest producers of renewable and alternative energy. You’re doing a lot of stuff in that arena. I’ve asked 

the chairman of the full committee to actually have a hearing on 

energy in the military, because I think it would be an incredible 

story, but also get us all focused on what’s needed and the resources and the technology you’re all developing that not only could 

help the military, from a national security perspective, but our economic security. So, I do mean to invite all of you. But, she mentioned energy, so I wanted to share that as a comment. 

Second, on the continuing resolution, I want to add to what you 

said, Secretary Hale. That is, I know what it’s doing to my State. 

That is, I know we have over $400 million in MILCON projects— 

and no disrespect to the ranking member and the chairman—I like 

earmarks. I like a lot of earmarks. A lot of these MILCON projects 

are a mixture of earmarks, as well as program money. The problem 

is—and these are all needed projects, critically needed for our military families and our military strategic needs up in Alaska—440- 

plus million, 200-and-some million ready to go, right today. But, 

they cannot sign the contracts, for all the reasons you just said. 

This continuing resolution method that’s going on here—and I’m 

new here—I’ll tell you, is the worst thing you could ever do. It’s the 

worst kind of business that—I mean, if—I just can’t imagine how 

anyone in the private sector looks at this. I know how I would, I 

know how my wife does, who’s in the private sector, running businesses. This is appalling, how we do the business. 

I know contractors, right now—to your question, Senator 

Ayotte—and that is, I have contractors in Alaska who have maxed 

out their bonding capacity waiting for the contract to be signed. We 

have a seasonal construction season. We have an $80 million hangar that was built in World War II. It has to be replaced or it will 

cave in and ruin multimillion dollars worth of equipment. So, when 

you talk about examples, I can give you a shopping list. It’s appallVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
30 

ing that we can’t do them. In a couple of months, by May 15, in 

our season, we’ll be out of the business of constructing, especially 

in the northern sector of Alaska, where Fairbanks has missile defense system, Air Force, Army, Clear Air Force Base, needed for 

our military around the world. 

So, I just wanted to echo what you said. One way or another, we 

have to get this done. It’s appalling. It is a—and it’s not hurting 

the military, in the sense of personnel, off by themselves. It is the 

private sector that is getting hit, all—in conjunction. Because, 

these are contractors that come and do the work. When the Corps 

of Engineers lets the contracts in Alaska, it’s a private contractor 

who’s going to do that construction, along with the military personnel. It’s a combo. So, when I hear people say, ‘‘Well, it’s just the 

government’’—it’s not just the government. It is private-sector contractors that do an enormous amount of work on behalf of the Federal Government. Is—am I off on that? Or—— 

Mr. HALE. Well, I think it’s hurting military personnel. 

Senator BEGICH. Oh no, I agree with that. No, no. I’m saying, in 

conjunction. 

Mr. HALE. It is not issuing permanent change of station (PCS) 

orders with the right notice. We have a hiring freeze in civilians 

in the Army and—— 

Senator BEGICH. Yes. 

Mr. HALE.—the Marine Corps, so we can’t hire the people we 

need. 

Senator BEGICH. Right. No, I agree with you. I think some people 

say it’s just a bunch of government workers we’re affecting. Not 

true. It’s a combo. It’s both private sector. 

To some of my quick questions here, and that is on saving some 

money and trying to figure this out. I know, in the recent Government Accountability Office (GAO) report, they talked about the 

Joint Medical Command (MEDCOM). This seems to be a $200 million to $400 million potential savings. There seems to be a conflict 

of how to do it among the different service agencies. It seems a logical thing to save money. What are you doing to help make that 

happen? 

Mr. HALE. Well, I think it is on the list to look at next year. We 

want to be sure we manage the medical capabilities of DOD carefully. I respect that there are probably different approaches to 

doing that in the Services. But, I know our CMO is interested in 

looking at that. I think we will do it. Whether we come forward 

with that proposal, I’ll have—we’ll have to wait a year. We haven’t 

done so yet. But, we will look at it. 

Senator BEGICH. Will you? Thank you very much. 

Will you respond to the GAO report in saying, if you do not do 

it, why you won’t do it? Because, it seems like we—again, I’m only 

here for a couple years, so far, but I see a lot of these reports that 

talk about all these savings. Then people say, ‘‘Well, maybe we’ll 

look at it.’’ Then they look at it. Nothing happens, 4 years later, 

5 years later, a new report comes out, cites the old report. So, are 

you going to look at it and say, ‘‘This is why we can do it or can’t 

do it,’’ and then report back to—if it’s this committee or somebody 

within armed services, so we at least have knowledge of—— 

31 

Mr. HALE. My guess is, you’ll give us a chance to do that next 

year if we don’t recommend it. [Laughter.] 

But I will say, this is a very far-reaching set of proposals that 

we have put forward. As I said in my opening remarks, having 

watched Defense budgets for 30 years, I’ve never seen one more 

far-reaching, in terms of business streamlining. There are a lot of 

things in here that people have been urging us to do that we are 

now proposing. We need help from Congress on some of them. I’ll 

come back to the medical care initiatives. I know how hard they 

are, but many groups have urged that we do it. Now we need Congress to let us do it. In most cases, they don’t require legislation. 

They require the absence of legislation. 

Senator BEGICH. Does this require legislation? 

Mr. HALE. One part of them. There are four proposals we’ve 

made. One does require legislation. That’s the one where I discovered, yesterday, we haven’t got the legislation here yet. But, it will 

be here soon. The others don’t. But, they require the absence of legislation. Congress has, for example, prohibited us from increasing 

TRICARE fees for working-age retirees for a number of years. You 

have to not do that, and let us go forward—— 

Senator BEGICH. I understand. But—— 

Mr. HALE.—and let us go forward. 

Senator BEGICH.—just specifically on this one, does it require 

legislation? 

Mr. HALE. Which one, now? The Joint— 

Senator BEGICH. Yes. 

Mr. HALE.—MEDCOM? 

Senator BEGICH. Yes. 

Mr. HALE. Oh. I don’t know. I’d have to check on that. 

Senator BEGICH. Okay. 

Mr. HALE. I’m not sure. 

Senator BEGICH. I’d like to know if it does—— 

Mr. HALE. Okay. 

Senator BEGICH.—because—— 

Mr. HALE. We’ll find out. 

[The information referred to follows:] 

There is no legislation required at this time. The Secretary believes he currently 

has the authorities required for organizing the Department in the most effective and 

efficient manner required. 

Senator BEGICH. I don’t think it will. But, that’s—— 

Dr. WESTPHAL. Yes, I think you bring up a really important type 

of issue that we need to be looking at. The three Under Secretaries—we’ve already started engaging, partly because of BRAC, 

where we’re, for example, merging Walter Reed and Bethesda 

Naval. 

Senator BEGICH. Right. 

Dr. WESTPHAL. So, we’ve had lots of issues associated with that, 

partly because of our need to connect better with the VA and the 

medical records—— 

Senator BEGICH. Right. 

Mr. WESTPHAL.—and all of the efforts to make that process easier. The three Under Secretaries—we’ve been engaged in those discussions and working with our surgeon generals to get them to 

work together better. I think we’ve achieved a lot of success in that 

32 

area. The military cultures are there that are going to block—naturally block an effort to do anything like a unified MEDCOM. 

Senator BEGICH. I have faith—— 

Dr. WESTPHAL. But, we’re going to look at that. We’re going to 

look at it hard. We’re going to bring folks into the room to talk 

about that. We need to engage you, in the Senate and this committee and others, to help us figure the best way to do that. 

Senator BEGICH. Good. Let me, if I can—there—I have talked 

about it in a couple meetings, especially in the Budget Committee, 

on medium extended air defense systems (MEADS) and the termination and the process that that will go through, and the cost. I 

know what I’ve been told. I think the termination cost is around 

$800 million—not ‘‘terminate,’’ I’m sorry—to bring it to concept. I 

forget the exact phrase, but it’s the concept that we’ll never use. 

But, it’s—we’re going to pay $800 million to get there. 

Mr. HALE. MEADS has had a troubled history. 

Senator BEGICH. Yes. 

Mr. HALE. Our choice was to continue it through fiscal year 2013, 

because, had we terminated it, our estimate was, we would have 

spent as much to—in termination liability as we would have to continue the program through 2013. We believe that there are some 

technologies we can use and that important allies can use. So, we 

think we will get something out of it. But, I would agree it is a program that’s had a very troubled history. 

Senator BEGICH. If I can—my time has expired. So, let me just 

try to summarize here on that one point. What’s the guarantee, especially—it has had cost overruns—correct?—as part of the equation here. So, I’ve been told it’s $804 million to get to this concept 

of—I forget the exact phrase—but, concept of design versus termination, which is a capped number. So, that’s what I understand, 

unless someone’s misinformed me. But, I just want to make sure. 

I have no faith, to be very frank with you—this project has cost 

overruns, so why would I think that, when I’m told $804 million 

will be the number to continue to design it through 2013—is there 

a way to say, ‘‘Okay, it’s 804. That’s the number.’’ That’s what I’ve 

been told now, in the record, more than once—$804 million. We’re 

capping it. You won’t get another dime, even though you have that 

money already, according to testimony received in the Budget Committee—that you won’t receive another dime. How do—can you 

guarantee me, right now, that that’s the cap? 

Mr. HALE. Well, I suppose you could put that cap into law. I’d 

have to get—— 

Senator BEGICH. Let me ask you. Can you guarantee it will be 

$804 million—versus the termination cost, which is a little bit more 

than that—can you guarantee that? 

Mr. HALE. I can’t sit here and tell you that. I need to get you 

a MEADS expert. I don’t like making statements I can’t back up. 

I’m not an expert in MEADS. 

I can tell you that there were debates within DOD. The judgment 

that Ash Carter and others made were that we would pay more, 

at least as much, in termination costs and that, therefore, continuing the program through fiscal year 2013 and garnering some 

benefits, which he feels we will, in terms of technology that we 

33 

could use or allies could use, that was the better approach. That’s 

the one we recommend. 

Senator BEGICH. Let me end there, Chairwoman McCaskill, and 

just say that my faith is weak here on this. I would love to have, 

if you want to get something for the record back to me or the committee explaining MEADS—the developers of MEADS—and clearly 

making sure that they—how they come to this conclusion that 

number will be it, versus termination, which, today, we can be 

done with, and you have the money in your budget, according to 

what was testified. So, part of me says, ‘‘Cut our losses. Move on.’’ 

It’s going to—and the last thing I’ll say there is multiple terminations—you have two or three more terminations in your efficiency study—do those have clauses? You don’t have to get that 

now. I guess—— 

[The information referred to follows:] 

QUESTION. Explain the development of Medium Extended Air Defense System 

(MEADS). 

ANSWER. The MEADS program was initiated upon the conclusion of the Memorandum of Understanding concerning Cooperation on Project Definition and Validation of a MEADS in 1996. With limited resources, one way to ensure that a program 

involving research, development, testing, and/or evaluation programs is most costeffective is to share developmental costs of the program with one or more of our Allies. A program of cooperative development by the Department of Defense (DOD) 

with other North Atlantic Treaty Organization (NATO) nations enhances our interoperability with these nations, while building our collective missile defense capability. The MEADS program continued under the MEADS Design and Development 

Memorandum of Understanding (which is referred to below as the MOU) among the 

United States, Germany, and Italy in 2005. Based on standard DOD and international agreement practice, the MOU was written in a way that would make it difficult for any participating nation to drop out without paying any associated contract termination costs caused by premature withdrawal from the program. Programs (especially Engineering and Manufacturing Development programs) need stability, not an annual budget fight in the U.S. or in foreign governments. The prime 

contractor selected for the MEADS program is MEADS International, located in Orlando, FL. The MEADS is being developed according to the 2004 MEADS International Cooperative Requirements (ICOR) document. The requirements of the 

ICOR document focus on providing a highly mobile, tactically and strategically 

deployable system, providing both stationary and mobile defensive protection capability for critical maneuver force assets against short- and medium-range ballistic 

missiles, cruise missiles, and air breathing threats. The major MEADS development 

components included are the Surveillance Radar, Multifunction Fire Control Radar, 

Tactical Operations Center, Launcher, and Missile. 

QUESTION. How the Department came to the conclusion that $804 million will be the United States cost share, versus termination? Are the resources ($804 million) 

in the fiscal year 2012 budget request? 

ANSWER. Under the MEADS Design and Development Memorandum of Understanding (referred to as the MOU), the remaining DOD obligation to the MEADS 

program in fiscal year 2012 and fiscal year 2013 is $804 million. If the DOD were 

to withdraw from the MOU (or if Congress were not to appropriate funding, causing 

the DOD to be unable to continue participating in the MEADS program under the 

MOU), the DOD would be responsible for contract cost impacts, up to our ceiling 

commitment under the MOU. Under the MOU, any participant may withdraw from 

the MOU upon 180 days written notification. As noted in the previous answer, 

under the MOU, if the DOD unilaterally withdraws from the program, with respect 

to contracts awarded on behalf of all participants, the DOD would be liable for ‘‘all 

contract modification or termination costs that would not otherwise have been incurred but for the decision to withdraw’’ up to its share of the cost ceiling for financial contributions. 

The MOU cost ceiling is $4 billion (equivalent 2004 U.S. dollars), and the MOU 

provides that each participant will contribute its share of the full financial contributions of the MEADS project. The DOD cost share of the program is 58 percent, for 

a ceiling of $2.324 billion (2004 dollars). To date (including the fiscal year 2011 commitment through February 2011), the DOD has contributed $1.478 billion (2004 

U.S. dollars) under the MOU. As a result, in a ‘‘worst case’’ scenario, the DOD withVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
34 

drawal liability under the MOU would be capped at $846 million (2004 U.S. dollars) 

($2.324 billion–$1.478 billion). 

Contract termination costs (and related government termination costs) would be 

driven by existing obligations like long lead item procurements and orders, targets, 

test and integration infrastructure, and other support costs (lease, support contractors, etc). Should the DOD withdraw from the MOU, the remaining participants 

would be forced to decide how to proceed, and if they decided to terminate the contract, they would have to request a termination proposal from the contractor. Because the other participants have not agreed to pursue termination, we can only estimate the maximum expected termination liability, which would be less than our 

MOU cost ceiling obligation. 

On the other hand, if the DOD and its MOU partners pursue the proposed Proof 

of Concept effort using the remaining MEADS MOU funding, the DOD cost share 

would be limited to the current MOU commitment of $804 million as reflected in 

the Department’s fiscal year 2012 budget request. Essentially, for the cost associated with termination, the DOD and its MOU partners would derive substantial 

benefit in terms of hardware, software, or intellectual property deliverables from the 

MEADS prime contractor that would allow Germany and Italy to proceed into production, and would provide the DOD with an expanded array of future choices with 

regard to future Air and Missile Defense systems capability. At the most recent 

MEADS Board of Directors meeting, both Germany and Italy supported pursuing 

the Proof of Concept. 

The DOD believes that implementation of a Proof of Concept Design and Development program, within the funding limits agreed in the MOU, is the best option for 

the DOD and its partners, Germany and Italy. If the DOD contributes the remainder of its costs under the terms of the MOU, the MEADS program would complete 

the prototypes that have already passed critical design review. In many cases, component parts have been ordered or delivered for these major end items, such as the 

radars. The program would complete limited system integration and demonstrate 

capability via ground and flight tests of these prototype systems. This would allow 

documentation of the tested design and the ability to assess the capabilities of the 

major system elements and the development of data packages for these elements. 

This decision would ensure that the DOD fulfills its obligations under the MOU, 

avoids a situation where the DOD may be viewed as walking away from its international obligations, and allows the DOD to avoid being required to pay termination 

costs that the DOD estimates would be more than the cost of completing the Proof 

of Concept effort under the MOU. Importantly, this course of action would facilitate 

the maturation of key technologies that would be useful to the DOD in other programs and to its MOU partners, Germany and Italy, in any follow-on effort. 

If the MEADS program is terminated, which would require the consent of the 

German and Italian Ministries of Defense; it would effectively force the DOD and 

its German and Italian partners to devote significant funds to cover contract-termination costs—funds that could otherwise be used to bring the MEADS development 

to a useful level of maturity. It is our firm belief that developing and producing 

these key technology developments through the MEADS program would facilitate 

their use in other DOD programs; it would capture the engineering, design, and test 

documentation for the Proof of Concept effort; and it would support our Allies in 

their air defense capability development efforts. Therefore, we believe that these efforts are worthy of the continued funding for the remainder of the Design and Development effort. 

QUESTION. What is the impact if the resources were not appropriated for MEADS? 

ANSWER. Although the MEADS Design and Development Memorandum of Understanding (referred to below as the MOU) provides that the responsibilities of the 

DOD and the other participants are subject to the availability of funds, we believe 

that each participant under the MOU has an obligation to seek the funds necessary 

for it to provide its agreed-upon contributions. Thus, the DOD is seeking current 

and future-year funds, which are necessary to pay its agreed costs under the MOU, 

including any costs due as a result of contract modification and termination stemming from the DOD’s withdrawal from the MOU. If Congress does not appropriate 

and authorize funding for the MOU for fiscal years 2012–2013, the DOD would be 

unable to provide its required contributions to the program under the MOU. 

Under the MOU, a participant is required to notify the other participants promptly that available funds are not adequate to fulfill its responsibilities under the 

MOU. Thus, if the DOD becomes aware that it will not have adequate appropriated 

and authorized resources to fulfill its responsibilities in fiscal year 2012, and/or fiscal year 2013, the DOD would be required to inform its German and Italian counterparts promptly. In such circumstances, the MOU requires the participants to conVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
35 

sult immediately with a view toward continuing the MOU, but on a modified (i.e., 

restructured) basis. 

Without any other viable solution in the absence of the DOD resources, the DOD 

would be forced to withdraw from the MOU. The MOU provides that the DOD (or 

any other participant) may withdraw from it upon 180 days written notification. 

However, if the DOD were to withdraw from the MOU, not only would it be responsible for its own project-related costs associated with its withdrawal, but also for 

costs associated with contracts awarded on behalf of all of the participants. As noted 

in the previous answer, per the MOU, the DOD (as the withdrawing participant) 

would be required to pay all contract modification or termination costs that would 

not otherwise have been incurred but for its decision to withdraw, up to its share 

of the cost ceiling for its financial contributions, as set forth in the financial provisions of the MOU. 

If the DOD withdrew from the MOU, we estimate the withdrawal costs in fiscal 

years 2011 through 2013 would be as high as the MOU cost ceiling amount ($846 

million for the DOD) because the DOD (as the withdrawing participant) would be 

responsible for all contract modification or termination costs that otherwise would 

not have been incurred but for its withdrawal. However, if the DOD and the other 

participants continue pursuing the more limited and focused Proof of Concept effort 

to mature technology, obtaining data packages on such technology where possible, 

with the remaining already-agreed MEADS MOU funding, the DOD’s costs would 

be limited to $804 million. Importantly, there would be the added benefit of having 

funds applied to the maturing of key technologies to a point where they would be 

useful, not only for our partners in any follow-on effort, but also for the DOD for 

use in other programs. 

Per contract provisions, valid contract termination costs would be determined either through negotiation or through arbitration under the North Atlantic Treaty Organization arbitration process. Without the necessary funding for fiscal year 2012– 

2013 being authorized and appropriated for the DOD to continue its participation 

under the MOU, it is likely that there would be inadequate funds available to pay 

the partner nations’ share of contract termination costs. Thus, the DOD would be 

unable to provide funds to the North Atlantic Treaty Organization to cover valid 

contract termination costs owed to the MEADS contractors under contracts entered 

into ‘‘in good faith’’ on our behalf pursuant to the MOU. Although the MOU provides 

that the responsibilities of the DOD and the other participants are subject to the 

availability of funds, it is understood that each participant under the MOU has an 

obligation to seek the funds necessary for it to provide its agreed-upon contributions. 

Thus, the DOD would be required to seek current and future-year funds necessary 

to pay its agreed costs under the MOU, including any costs due as a result of contract modification and termination stemming from the DOD withdrawal from the 

MOU. 

The effects of a DOD decision not to authorize and appropriate funding for 

MEADS might be even more serious since the DOD’s ability or willingness to fund 

similar current or future cooperative program Memorandum of Understanding obligations—intergovernmental or contractual—could be called into question by our 

other partner nations. The DOD has entered into hundreds of international cooperative program agreements with allied and friendly nations that could be adversely 

affected if other nations or foreign contractors perceive the DOD’s decision not to 

authorize and appropriate funding for MEADS, which results in the DOD’s inability 

to cover contract modification or termination costs stemming from its withdrawal 

from the MOU, as a default on an obligation under the terms of an international 

cooperative program MOU. Finally, a perceived ‘‘failure’’ of the DOD to uphold its 

international cooperative program MOU funding obligations could result in other 

nations taking similar action in the future, potentially harming the interests of the 

DOD and other partner nations that, in good faith, entered into legally binding 

international cooperative program agreements. 

The DOD urges Congress to consider these factors in its decisionmaking process 

regarding fiscal year 2012–2013 funding requirements for the MEADS Design and 

Development MOU, and to support the fulfillment of the DOD’s commitment under 

the MOU by authorizing and appropriating the funds that the United States agreed 

to provide to the cooperative MEADS effort. 

QUESTION. You have two or three more terminations in your efficiency study. How 

many other programs being terminated have contract termination clauses as the 

MEADS does? 

ANSWER. In our search for efficiencies in the development of the fiscal year 2012 

President’s budget request, the DOD has not identified another program being terminated that invokes a termination clause similar to the MEADS program. 

36 

Senator BEGICH. Here’s my thought, and I’ll just leave on this, 

Chairwoman McCaskill. It drives me crazy. Every time—so, we get 

a project, we—let me finish—we contract, has cost overruns—it’s a 

private contractor we’re working with, along with our folks—has 

cost overruns, not working out like we thought, then we have to 

pay to get out of it. Now, if that’s the case with these other ones, 

I’d like to know what those termination costs are. Then, the last 

thing I’d like to know how many other contracts do we have like 

this. Because, I’ll tell you, as a mayor, when I had—and I had multimillion-dollar contracts—we never had termination deals like 

this. If you talk about the competitive nature, this is not one thing 

you put into it, because it’s a guaranteed cashflow. If they screw 

it up, they still get paid. I don’t—maybe I’m too simplistic on this, 

coming from the private sector, or just the mayor from Anchorage, 

but I’m telling you, it doesn’t make sense to me and it doesn’t make 

sense to taxpayers, when I talk to them. I’ve just—little bit of frustration—— 

Mr. HALE. Well, just briefly, we are required to fund termination 

liability for cost-plus contracts, which is the ones where these 

occur. Fixed-price contracts, generally you’re not going to see this, 

because there’s a certain requirement to perform, and a certain 

number of dollars. But, on cost-plus contracts, if we terminate for 

the convenience of the government, which—that’s what we’re doing 

in the case of MEADS—there is a termination liability, and it’s 

usually negotiated. So, you don’t know it upfront. But, we do budget for the most likely amount. We’re required to do that under the 

full-funding concept. 

Senator BEGICH. The simplest—— 

Mr. HALE. I don’t know if that reassures you. It probably doesn’t. 

But—— 

Senator BEGICH. The simplest thing we could do is just not appropriate it. Because all the contracts say, ‘‘subject to appropriation.’’ I’d put money on that. Every contract has ‘‘subject to appropriation.’’ So, all we have to do is say we’re not going to appropriate 

money for that project. Guess what? It saves us $800 million. So, 

I’ll just leave it at that. Thought for discussion. 

Senator MCCASKILL. Thank you, Senator Begich. 

Let me just—before I go on to my questions, let me just talk a 

little bit about—I think the challenges you have in terms of the 

culture—there are real challenges. Cost-plus contracts is a good example. In my opinion, having looked at a lot of contracting work 

over the last 4 years since I’ve been here, way too often were we 

using cost-plus, much less noncompetitive cost-plus. 

Second, performance awards for nonperformance. I mean, that is 

on my hit list, that we have contractors that perform terribly, but 

it’s been the culture to pay them performance awards anyway, because we always pay performance awards. It’s like—it’s just an 

added cost of doing business, as opposed to any kind of alignment 

of incentives, like Senator Ayotte was talking about. 

Let me just put out there, today, as we’re talking about culture, 

there is also an entourage culture that is interesting. I mean, let 

me ask, How many people in the room work for DOD or one of the 

branches of the military?—if you’d raise your hands. That’s a lot. 

I mean, I have hearings with a lot of different Federal agencies. 

37 

Typically, they don’t bring as many people to meetings or to hearings. I’m trying to figure out why we need so many people to do 

this, and the culture behind that. 

I remember how pleasantly surprised I was when Admiral 

Mullen came to see me one day and only had one person with him. 

I was going, ‘‘Now we’re getting somewhere.’’ I’m trying to figure 

out what all these people do and why they all need to be here at 

one time. It seems to me that there could be efficiencies if they 

would be doing other jobs right now besides sitting in this hearing 

room. 

So, I mean, those are three good examples. I have a long hit list 

of things like that. I think that’s part of the challenge of what 

you’re trying to do. It’s part of the challenge about the brass creep 

that the Secretary of Defense talked about. It’s part of the challenge of trying to flatten the organization and reduce the number 

of flags and all of those things. I am so proud of our military. We 

do so many things well. But if you take out the medical expenses, 

which is part of the increase—but, I reduced the numbers I talked 

about earlier by what we paid for medical care 10 years ago and 

what we’re paying now; it still went from $280 billion to $500 billion in a decade. That is an amazing increase in a relatively short 

period of time. So, I know we can do better. That’s one of the reasons we’re having this hearing today. 

Let me ask about the Army business transformation cut. Now, 

I—this is where— I get a headache on this one, because—I have 

to be honest with you, I never really quite understood what the 

Army business transformation was. Now what, basically, you’re 

saying is, you’re going to reduce expenditures for transforming 

business operations through, now, something called the Enterprise 

Governance Approach. Enterprise Governance Approach sounds 

like gobbledygook to me. I mean, what is the Enterprise Governance Approach? Can we get more detail about what that really 

means? How do you come up with $3.6 billion in—underneath this 

Enterprise Governance Approach in 5 years? 

Dr. WESTPHAL. Well, Senator, we submitted, just recently, a report to Congress that details, in the form of about 26 to 27 projects, 

what we are doing to transform our business operations. That’s not 

directly related to the efficiencies initiative; it’s—there are parts of 

it in there. But, that’s an overall transformation effort that deals 

with everything from logistics to our enterprise systems to our personnel management to our auditability to all of the issues that you, 

the GAO, and many others have raised about our business transformation. 

One of the things that I have done, as the CMO, is to institute 

governance for all of those kinds of efforts to transform our business operations. That is, to really say that performance evaluations 

and performance measures will be—that people will be held accountable for transforming the kinds of—and the metrics that they 

have laid on the table for that—for those activities. The way we’ve 

done that is, we’ve formed what we call the Army Campaign Plan, 

which is a series of priorities across the gamut of activities of the 

Army. I’ve asked each assistant secretary and each command to develop the matrix by which we measure transformation in those 

business operations. Those metrics then—I have sat down with 

38 

those commanders and those assistant secretaries, reviewed the 

metrics, criticized some of them, sent them back to the drawing 

board to redo them. 

It’s a slow process. But, we are making progress. We have change 

in the culture. We’re changing the attitudes. The Enterprise Approach really means that we are trying to do this in a more integrated fashion. We’re trying to align better with OSD so that, as 

we transform our business operations, we’re not only aligning with 

the transformation efforts at the DCMO level at OSD, but we’re 

also aligned with our sister Services, as well. 

So, it sounds like gobbledygook, but I tell you, that report is fairly detailed. I would be glad to come back and sit with you or your 

staff and—— 

Senator MCCASKILL. Well, I think it’d be helpful—if this is about 

performance metrics—I think it’d be helpful for us to get top-line 

performance metrics, for the various departments, that you’ve developed. I just want to make sure that we’re not investing a lot of 

money in having a whole bunch of people work on PowerPoint presentations that have titles on them, and then we come back later, 

and what we’re really trying to do, now we’re going, call it something different and try to do it again. It feels like that sometimes. 

It feels like you’re running uphill and you’re not getting anywhere. 

Dr. WESTPHAL. Right. 

Senator MCCASKILL. Frankly, obviously, it’s been a problem, writ 

large, because we can’t even audit. I mean, for—how many years 

have we been trying to be able to audit, and we can’t even audit 

DOD. So, I just am frustrated that we aren’t getting to, kind of, 

the commonsense bottom line. But, maybe get another name 

that—— 

Dr. WESTPHAL. Can I give you one more—— 

Senator MCCASKILL. sounds good, but we’re not really sure what 

it means. 

Dr. WESTPHAL. Yes. I’m going to give you one more point on this. 

You mentioned the growth of the Federal budget. I was here in 

2001, before September 11, as the acting Secretary of the Army, 

and I defended an approximately $76 billion budget back then for 

the Army—base budget. That has more than doubled in recent 

years. So, I understand where you’re—what you’re getting at. 

I will tell you that, in this effort, what’s critically important for 

all of us is to be able to look at those metrics and actually make 

the folks that are applying them accountable for implementing and 

executing on those metrics. 

Senator MCCASKILL. Right. 

Dr. WESTPHAL. That is the hardest part that we have—— 

Senator MCCASKILL. That is the hardest part. There’s no question about it. 

The Navy energy efficiency cut, you have savings of $566 million 

in 2012 and 2.3 over the FYDP by reducing energy consumption. 

But, these investments were already included in the budget prior 

to the efficiencies initiative. Are you double-counting them or are 

you just saying, ‘‘We already did the work, and here it is’’? 

Mr. WORK. I’m not exactly certain of the $500 million. 

What we did is, we added—we—it is true that what happened 

is, we were able, as part of the efficiencies drill, to include energy 

39 

investments and energy savings as part of the overall efficiencies 

drill. That is absolutely true. We have tried to add—Secretary 

Mabus has extremely ambitious goals, both to reduce energy at our 

bases and stations, to reduce the—also to have achieved, by 2020, 

50-percent alternative energy sources for all of our fuels. That has 

been taken into account by our new Assistant Secretary of the 

Navy for Energy Installations and the Environment. This is the 

first time we have an assistant secretary that really focuses all the 

time on energy. They were able to put together a pretty broadbased 

plan on where we would get the biggest return on investment. So, 

in 2012, for example, there are three steam plants that we will 

have a return on investment in about 10 years. We—our average 

return on investment on our energy programs across the FYDP is 

about 7.1 years. So, some of them were probably in the program, 

but they are all included as part of the efficiency savings that we’re 

reapplying back into our basic program. 

[The information referred to follows:] 

There are numerous energy efficient initiatives and renewable/alternative energy 

programs that the Navy and Marine Corps are pursuing. The reduced reliance on 

fossil fuels will achieve lower energy consumption, strategic security, avoided energy 

cost, and a more sustainable Fleet. Here are the major program areas along with 

examples of projects with estimated savings. 

• Major Energy Program Areas 

• Shore 

• Steam plants decentralizations • Lighting systems upgrades • Renewable energy systems (solar & photovoltaic) • Solar thermal domestic water and pool heating projects • LED street lighting projects • Ground source heat pumps • Boiler heat recovery upgrades • Control system improvements • Alternative fuel vehicles 

• Tactical/Expeditionary 

• Hull coatings • Propeller coatings • Stern flaps • Allison 501K efficiency initiatives • Aviation simulators • Smart voyage planning decision aid software • USS Truxtun hybrid electric drive retrofit 

• Alternative fuels testing and certification program 

• Incentivized Energy Conservation Program (i-ENCON) 

• Expeditionary Forward Operating Base (Ex-FOB) 

• Solar Portable Alternative Communication Energy System 

• Light Emitting Diode (LED) lighting 

• Renewable battery charging systems 

• Examples of Projects for Navy Tactical with Estimated Savings 

• Stern Flaps for Amphibious Ships 

• Shown to have an average payback period of less than 1 year on 

FFG/CG/DDG platforms 

• Currently undergoing testing on amphibious ships 

• Savings estimated at ∼5,500 BBLs/ship/year for LHD 

• Hull/Propeller Coating 

• Easy release hull/propeller coating system allows Navy ships to shed 

bio-fouling once underway 

• Reduces costly periodic hull/propeller cleanings 

• Savings estimated at ∼1,800 BBLs/ship/year 

• Solid State Lighting 

• Uses LEDs for platform illumination 

40 

• LED lights in commercial applications last almost 50 times longer 

than incandescent and 6 times longer than fluorescent lights; provides 

the same illumination with 25 percent of the energy 

• Currently testing on DDG–108 and LSD–52 

• Payback estimated at 3 years, depending on fixture (savings of ∼335 

BBLs/ship/year for DDG) 

Navy also continues to develop technologies that will be implemented in future 

years; the implementation schedule for these initiatives is subject to impacts based 

on final fiscal year 2011 budget: 

• Hybrid Electric Drive for DDG 

• Fuel savings by securing LM2500 propulsion turbines at low speed 

while loading gas turbine electric generators to more efficient operating 

condition (savings estimated at 8,500 BBLs/ship/year) 

• Land-based prototype scheduled for testing mid-2011 

• USS Truxtun (DDG–103) scheduled to be first operational installation in fiscal year 2012 as an afloat test platform 

• Engine efficiency modifications for the F–35 Joint Strike Fighter 

• Improvement in F135 Block 5+ engine fuel economy and lifecycle cost 

through component upgrades and software cycle optimization 

• Estimated Fleet-wide savings of ∼35,000 BBLs in 2023 (upon delivery 

of Block 5 aircraft), increasing to ∼178,000 BBLs/yr by 2029 

Senator MCCASKILL. Okay. Well, we will ask you to give us specifics—what was in, prior to the initiative, and what you then used 

as part of the initiative after the initiative was announced. 

Mr. WORK. Yes, ma’am. 

Senator MCCASKILL. Senator Ayotte. 

Senator AYOTTE. Thank you very much, Chairwoman McCaskill. 

I want to follow up on—first of all, just given that we can’t—we 

don’t have auditable financial statements, how are we going to 

know that we’re actually achieving the savings and efficiencies 

that—if you don’t have the way to measure it by the financial 

statements that you would in most organizations, how do we know 

we’re even going to achieve the savings? I’m new to this, so—I’m 

a new Senator, and—so, why don’t we? 

Mr. HALE. That’s two questions. Let me take the first one. 

[Laughter.] 

Senator MCCASKILL. First of all, you need to get a sleeping bag 

and a pillow. [Laughter.] 

Because, it is longer than one hearing. Trust me. I asked—— 

Mr. HALE. I’ll complete the first. 

Senator MCCASKILL. the same question 4 years ago, coming 

from—— 

Mr. HALE. We do—— 

Senator MCCASKILL. an auditor’s office. 

Mr. HALE. We do have financial systems. I might add, I think we 

have the best-trained financial managers in government. I’ll go to 

the second question briefly in a moment. But, there are systems. 

They can’t meet commercial audit standards, which means we 

can’t—our systems are old—they can’t track, as auditors require, 

information back to the transaction level. But, I think they do 

present the dollars that you give us reasonably accurately. If you 

want external collaboration, we have probably 2,000 auditors looking over our shoulders. The number of times we actually violate the 

Federal Antideficiency Act, kind of the major crime, is pretty small. 

It’s 20 cents out of every $1,000 that we spend—20 cents out of 

every $1,000. That’s 20 cents more than I’d like. We’re trying to get 

41 

it to zero. But, I don’t think it suggests we have no idea where 

we’re spending the money you give us. I know it doesn’t. 

Incidentally, I might add that our rate of Antideficiency Act violations is a lot lower than the nondefense agencies, even though 

they have auditable statements. 

That said, sometimes we can just take our financial statements 

and—or systems—and immediately tell what’s saved. The civilian 

pay freeze would be a good example of that, the civilian billet 

freeze, because there are lines that govern that. More often, we 

have to have our analysts look through a variety of lines and make 

estimates. That takes some time. But, they can almost always give 

us a pretty good idea where the savings occur. So, yes, I think we 

can tell whether we saved the money. 

Now, do you really want the answer about why we don’t have 

auditable statements? 

Senator AYOTTE. Given what the Chair—The Honorable—— 

Mr. HALE. I’ll be glad to do it. 

Senator AYOTTE.—Chairwoman just told me, I don’t think so. 

Mr. HALE. It hasn’t been—— 

Senator AYOTTE. I will—— 

Mr. HALE.—as systematically—— 

Senator AYOTTE. I will find out. 

Mr. HALE. Let me just say, I think we’ve done some things right, 

but it has not been systematically a high priority. I believe we have 

a streamlined and focused structure. With the help of these guys 

to my right and left, I think that we will—we are committed to 

meeting the goal in 2017. But, more importantly, we’re trying to 

get somewhere in the next 2 years. Part of the problem is, we keep 

setting these goals way out in 2017. I’m not going to be the comptroller in 2017. Or, as I like to say, if I am, I will definitely have 

a new wife, because she’s made it real clear that it ain’t going to 

last that long. So, we need near-—— 

Senator BEGICH. But, you have the legacy you could leave by putting this in place. 

Mr. HALE. We need some near-term goals, and we have some. 

Maybe, if you’d like, I can come and explain them to you and not 

take the time now. 

Senator BEGICH. Well, and I think, really, in all seriousness, 

this—having those—the auditable financial statements should be 

one of the top efficiency—— 

Mr. HALE. It is one of—— 

Senator BEGICH.—initiatives, because—— 

Mr. HALE.—of our nine—we have nine high-priority business 

goals, and that is one of them. 

Senator BEGICH. Thank you. I appreciate that. 

I wanted to ask you about some of the assumptions on the savings, just to make sure that, if those assumptions don’t come to fruition, that we aren’t in a place where the savings really don’t come 

to fruition. A couple of them, for example, Secretary Work, that 

we’re seeing a troubling rise in the price of oil right now as a result 

of—in part, because of the activities in the Middle East. How realistic do you think that the Navy’s projected savings of $566 million 

in fiscal year 2012 is for reduced energy consumption? 

42 

Mr. WORK. Well, our estimated energy savings across the FYDP, 

we track the number of millions of barrels of oil that we will save. 

So, if the price goes up, we are actually going to save more money. 

It would only, if the price goes down—if the price goes up for oil, 

we are going to save that—a certain number of barrels; we don’t 

project a specific cost based on the oil. We also estimate that 70 

trillion British thermal units (BTU) across the FYDP, for sure—we 

will save those as a result of the energy investments we are making. That’s both in shore and tactical. So, we hope that we will 

achieve the 6 million barrels. If we don’t achieve the 6 million barrels, that’s where we will start to say we were really—we didn’t 

make the right projection. 

Senator AYOTTE. But—I mean, I’m trying to follow this, because 

if you don’t track it by cost of barrel, and you just do it by barrel, 

and the—let’s say the price of oil doubles, then even if you are able 

to achieve the number of barrels you want to save, it’s really not 

going to result in the end savings. So, that’s what I’m trying to understand. 

Mr. WORK. I see. What—well, what will happen—what we did in 

the—as part of the entire efficiencies drill is, we had very high— 

what we consider to be very high-risk, medium-risk, and low-risk 

approaches to achieve efficiencies. That was worked out both at the 

Service level, then at the Department level, and then at the OSD 

level. If we—there are fact-of-life increases, like increases to fuel, 

inflation rates, that we make in our economic adjustments, and 

those will be accounted for through—we’ll either have to find other 

efficiencies to offset those or we’ll have to stop—reduce the amount 

of operations that we’re doing. We’ll have a wide variety of things. 

Once the efficiencies and our execution start to work together, we’ll 

be making adjustments every year, as we always do. 

Mr. HALE. Can I build on that and just say, with price at $105, and now it’s $110 billion, there will be some substantial added cost; 

if it stays there, about $1.5 billion over the rest of this fiscal year. 

It won’t be quite as high, because we are able to reduce consumption. There are going to be net increases of costs when we see when 

fuel is up that much higher. It is of concern to all of us. We’re 

going to have to reprogram funds from somewhere—I don’t know 

where, for sure yet—in order to meet those. 

Senator AYOTTE. How are we reaching the consumption reductions that you’re proposing overall? Is it reduction in flying missions? A reduction in naval operations? Or, are we just receiving— 

purely through energy efficiencies? 

Mr. WORK. A wide variety, ma’am. On shore, for example, we’re 

doing—we’re changing—we’re having steam plants replaced. 

There’s a wide variety of photovoltaic systems, solar energy, that 

we’re putting on tops of roofs. On tactical sides, we’re putting hull 

coatings on our ships. Marines who are deploying to Afghanistan 

are using portable solar cells. All of that takes fewer numbers of 

fuel trucks to bring fuel out to the forward operating bases. We’re 

doing smart voyage planning software, so that we can get the most 

efficient uses. We expect to achieve these savings through true energy efficiencies, not by cutting operations. 

Senator AYOTTE. Well, and I would add, also, with the public 

shipyards, for example, the one—the Portsmouth Naval Shipyard— 

43 

I know that there are many energy efficiency projects that will 

save—that you—the Secretary has approved. I want to say that I’m 

very supportive of those efforts. 

I wanted to follow up, just on a couple other assumptions within 

the efficiencies, just to see where we’re at. The assumption with regard to unemployment rates—Secretary Westphal, I think you’ve— 

in the Army’s proposal, the unemployment rate, we assume, is 

going to stay at 9 percent. I’m sure that Senator McCaskill shares 

this with me. We, in Congress, hope that that is not the case. So— 

but, that is an assumption that is made, in terms of retention and 

recruitment throughout, in terms of savings. If our economy does 

pick up, are we going to see those savings disappear? Can you comment on that, and why that assumption was included over those 

years? 

Dr. WESTPHAL. We were trying to model this based on what we 

thought were at least trends over the next—the current fiscal year 

and the next fiscal year. But, we knew that there was some danger 

in doing that, in terms of predicting fluctuations in the marketplace. 

We don’t think it’s going to affect our models in a significant 

way. I think we’ll still obtain the savings. But, we are watching 

that. I mean, all of these kinds of assumptions have to be based 

on things we cannot predict. If we can’t—if we don’t get them right, 

we’ll have to adjust. 

Senator AYOTTE. Well, thank you. 

I also have some additional questions that I would submit to all 

of you for the record, and certainly appreciate your coming before 

the subcommittee today. 

Dr. WESTPHAL. Thank you, Senator. 

Senator MCCASKILL. I just have three things I’d like to cover, 

hopefully fairly quickly, and so we can let you all get back to work. 

Can somebody explain why Ash Carter’s Better Buying Power 

(BBP) Initiatives have not resulted in any savings? 

Mr. HALE. Well, there are actually a number of items—and I’m 

going to ask Bob Work and Erin Conaton to comment—that are in 

here. Savings, in littoral combat ship, multiyear procurement savings, and the evolutionary acquisition for space efficiency. 

Could you—maybe, Erin, you could—you want to start, Erin? 

Ms. CONATON. Sure, I’d be happy to address the specific that Bob 

mentioned. But, I would say, at a more general level, a lot of the 

ideas that Dr. Carter’s put forward, reducing overhead rates in acquisition programs, we’ve laid that into any number of our—— 

Senator MCCASKILL. I see. 

Ms. CONATON.—acquisition programs. So, we can show you, we 

can show the staff, where we’ve— 

Senator MCCASKILL. So, you have pollinated your various efficiency efforts with—— 

Ms. CONATON.—by program. 

Senator MCCASKILL. the ideas, and they just aren’t identified as 

part of Dr. Carter’s program? 

Ms. CONATON. Correct. We’ve laid them in by individual acquisition program. We can do that crosswalk for you to—— 

Senator MCCASKILL. Okay. 

Ms. CONATON.—put them in. 

44 

Senator MCCASKILL. Okay. 

It looks like we have 90-plus major defense acquisition programs 

that we currently have ongoing. Are—and this touches on some of 

the frustrations that Senator Begich has—do you think we’re putting enough energy behind the notion of identifying, as quickly as 

possible, the ones that we’re not going to be able to afford to carry 

forward, and doing everything we can, in terms of early termination? Is there anything about the continuing resolution that 

keeps you from being able to terminate? Because we’ve heard rumblings that they’re saying, ‘‘We can’t terminate things, because 

we’re only under a continuing resolution.’’ I’m thinking, ‘‘Well, the 

continuing resolution is a really good excuse to terminate things.’’ 

Mr. HALE. Well, there are a few specific provisions for items 

where Congress increased funding where we would be prohibited 

from. But, in general, for the major weapons, I don’t think the continuing resolution is stopping us. 

We haven’t done as good a job—and I’ll copy my boss’ answer 

here—Secretary Gates’s answer—as good a job as we probably 

should have of trying to identify, early on, programs that weren’t 

promising. Some of that’s a problem in the building. There’s a cando attitude. Everybody wants to make it work. Even though some 

people might start to realize it’s not going to, there’s a—strong tendencies. Some of it, quite frankly, is in Congress. It’s very difficult 

to terminate major weapons; often run into a lot of opposition. 

But, we need to do better. I think we’ve probably pruned out a 

number of the problems in the herd over the last couple of years. 

We need to be alert, realizing that times will be tight, and try to 

not let them go on as long. I think that’s a fair point. 

Senator MCCASKILL. I really think that that’s a place where 

some incentives would be great, the early identification of programs 

that aren’t going to work out. I know defense contractors do a good 

job of salting various States with parts of programs to keep them 

from being cut, because it’s politically difficult, especially politically 

difficult in a recession, when everyone’s really focused on jobs. But, 

having said that, I thought the Secretary of Defense’s strong, 

strong leadership on the second engine made a difference. It really 

made a difference. I’m confident—even though, unfortunately, Secretary Gates won’t be around for the long haul, I’m confident that 

anytime someone in your position, Secretary Hale, or any of your 

positions, or any of the leadership of the military, you are so revered—the leadership of our military in this country, for all the 

right reasons, is revered, and I think the stronger that you all lead 

on trying to shut down programs that, in the long run, are going 

to cost money that we don’t have, I think, the more responsive that 

Congress will be. I thought it took a lot of courage for Secretary 

Gates to go out as far as he did on the second engine. Ultimately, 

I believe it is his leadership that made a difference. I really do. 

Mr. HALE. You won’t get any objection from me on that. 

Senator MCCASKILL. Yes, I do. 

Dr. WESTPHAL. Senator, can I add—— 

Senator MCCASKILL. Sure. 

Mr. WESTPHAL.—can I add to what you were just saying? 

What we did in the Army is, we did these portfolio reviews. So, 

we took weapons systems across a portfolio, and we looked at the 

45 

range of weapons we were using, the ones we were not using, the 

quantities and the effects. That was a lot of hard work. The Vice 

Chief of Staff, Pete Chiarelli, took on the front part of that. I came 

into that with him. We made recommendations for courses of actions. We terminated some of the major weapons systems as a result of that, and canceled some others—and made some decisions 

about where we should invest. 

But, what we’re doing now, that I think is significant for what 

you’re trying to say here, is that we’ve taken that approach, which 

was just something that was ad hoc, we had never done before, because we knew that our requirements process was out of control; 

we just simply weren’t managing the requirements the way we 

should. This was an attempt to validate longstanding, old requirements. So, what we are doing now—and I’ve been doing this work 

with the Chief—the current Chief of Staff for the Army—he and I 

have embarked on an effort to try to reform the planning, programming, budgeting, and execution process, so that we incorporate this 

kind of review process at the front end. We reform the requirements process, align it with the resourcing so that when we make 

requirements decisions, they are informed by the resourcing available to make those decisions. 

Senator MCCASKILL. So, you’re not doing it in a vacuum anymore. 

Dr. WESTPHAL. Yes. 

Senator MCCASKILL. That’s great. 

Dr. WESTPHAL. Now, that’s—we’re—I can’t tell we’re there. What 

we’re doing is, we’re going to have to—— 

Senator MCCASKILL. I assumed you weren’t there yet. 

Mr. WESTPHAL.—reorganize and train to the way we are—we do 

business. We’re—— 

Senator MCCASKILL. Yes. It’s hard. 

Dr. WESTPHAL. It is. 

Senator MCCASKILL. I think that you all are—the more quickly 

you adapt to some of these strategies, the less painful the next decade is going to be for DOD and for our military. 

The senior-level positions, there was a system of—that the Secretary announced, at—announcing at least 50 general and flag officer positions, eliminating, and eliminating 150 senior civilian executive positions. Now, I—and I look, and 21 senior-level scientific 

positions were eliminated. I’m worried that the people that were 

deciding what to eliminate were not looking as closely at organizations that they were close to. I mean, you guys got rid of the senior 

research scientist for combat casualty care; the senior research scientist for nanomaterial science and engineering; the Navy’s chief 

scientist for nonlinear science; and the senior scientist for rocket 

propulsion. Are—is that—I mean, when I hear 150 SES, I think of 

folks that are—I don’t—that sounds sarcastic and flippant, and I 

don’t mean to, but folks that are doing more PowerPoints, maybe, 

than the scientists. I’m trying to figure out if that’s because the 

folks that were making the decisions didn’t feel as close to the scientists as maybe to some of the other SES positions that need to 

be eliminated. 

Mr. HALE. Well, let me tell you the process, at least—and each 

of the Services did their own process. But, each manager was reVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
46 

quired to rank all their SES positions from 1 to N, and we focused 

on the bottom third, and then, frankly, the bottom of that group. 

Then there was an across-the-board group that made tradeoffs 

among them. So, you weren’t just—everybody didn’t take the same 

proportional cut. 

So, I can tell you, first off, I don’t think we have any SES just 

doing PowerPoint. I mean, I hope not. They’re well beyond that. 

They have others to help them, or are doing it only very small part 

of their time. They’re supposed to be managers, and I think most 

of them are. 

Senator MCCASKILL. That was kind of sarcastic—— 

Mr. HALE. All right. 

Senator MCCASKILL. and inappropriate. Unfair to the hard-working SES staff, I should say. 

Mr. HALE. I think—I’ll accept that. 

Senator MCCASKILL. I was trying to make a point, and—— 

Mr. HALE. I hear you. 

Senator MCCASKILL. didn’t do it very well. 

Mr. HALE. But, there was a very systematic process. It was painful. I mean, I did it myself, for the Defense Contract Audit Agency, 

for Defense Financing and Accounting Services in my own staff. It’s 

not easy to do. But, it’s healthy, because, in the end, there are a 

few that you can say, ‘‘Hey, these probably are lower priority.’’ The 

Secretary was adamant that he wanted us to stop doing things. 

That was hard, also. We did a little; not as much as he wanted, 

but we did do some. So, I think this was a systematic process. 

Let me ask my colleagues—I know we’re running short on time— 

but, if they might briefly comment on your process, because they 

did it for their organizations. 

Dr. WESTPHAL. Yes, not be repetitive, yes, I think we followed a 

similar process. We—the numbers that I have are 10 SES—there’s 

28 Defense intelligence senior level folks, five—that’s highly qualified experts—which are folks that are—can be in a range of different jobs. Then six of the science and technical folks. All this was 

done with a very rigorous process, because obviously we wanted to 

be very analytical and creative about making these decisions in the 

right fashion. Now, whether we hit it right or wrong, or not, or 

whether those numbers are significant or sufficient, we’ll—I think 

we’re going to continue looking at all that. Of course, we came 

down seven general officers in the Army. 

Mr. WORK. The way we tried to keep it at a strategic level is, 

once the managers, as Mr. Hale said, ranked all of their SESs 1 

to N, then it went into a departmental level that was actually managed by the CMOs, through the DCMOs, in the case of the Department of the Navy. You had a department—excuse me—a Chief of 

Naval Operations and Commandant of the Marine Corps representative. They tried to look across the Department of the Navy and 

say, strategically, did we make a bad choice? We did the same 

thing at the Secretary Stanley level. 

In the end, there is a requirement process. So, for example, we 

had a testing and evaluation position that didn’t make the cut. 

Mike Gilmore said, ‘‘Hey, what—why did this happen?’’ We were 

able to go back in and say, ‘‘You’re probably right. We shouldn’t 

have taken this cut. We might have taken another one.’’ So, there 

47 

is a self-correcting method to try to get us the SESs that are the 

highest priority for the Navy. 

Ms. CONATON. The only thing I’d add, Chairwoman McCaskill, is 

that within the Air Force, we asked our major commands to help 

us with that 1 to N list. Then what we did was, we took a functional look across. So, we looked at all the scientists, we looked at 

all the financial management folks, we looked at all the acquisition 

folks to make sure that we weren’t taking individual cuts from different commands that, in the aggregate, had a severely negative 

impact on a particular career field. So, we did try to be conscious 

of the different functional specialties. 

Senator MCCASKILL. I just realized there was one other area I 

wanted to cover. That was the zero-based review of the Department’s intelligence organizations. That’s what the Secretary indicated was going to happen. Yet, we only ended up with 41 million 

in cuts for 2012, and it looks like, from reviewing the documentation, that only the budget of Defense Intelligence Agency was cut. 

Did a zero-based review occur? If so, why are these results so de 

minimis? 

Mr. HALE. Your staff is very good at picking out the areas where 

we didn’t do too well. Secretary Gates has said he was disappointed 

in the review. It is ongoing. The major thing that has come out of 

it—but, I don’t think it made it in time for the budget—is a significant change in the Joint Intelligence Operating Centers. These are 

groups in each COCOM that provide intelligence advice to the 

COCOM. We were essentially staffing these to go to war or for a 

significant operation—all of them. Yet, they don’t—except for U.S. 

Central Command, they don’t do—they only do it periodically. 

We’re going to go to a different approach, which is have enough 

people at each COCOM—for the peacetime needs, and then, during 

the ramp-up period—but, have a group, probably at Defense intelligence agencies—kind of a roving group of people who will augment them. We think that they’ll be—I can’t give you the number; 

I’ll have to do it for the record—but, a number of hundred of positions of reductions there. 

[The information referred to follows:] 

Two hundred twenty-eight positions will be reduced in fiscal year 2012, to include 

civilians, military, and contractors. 

We expect to see increased efficiencies based on the intelligence review in the 

longer term. The zero-based review of Defense intelligence focused on eliminating 

unnecessary redundancy, not necessarily on savings. The review was an integrated 

effort between the Department of Defense (DOD) and Director of National Intelligence (DNI) and looked at baseline resources across the Intelligence Community 

(IC). The analysis team consisted of DOD and DNI members. The partnership was 

critical for success. They reviewed baseline resources across the IC, identifying 

areas of major investment and significant recent growth and focusing on analysis 

and production organizations. 

The decisions made as a result of the review are to: 

1. Resize the Geographic Combatant Command (COCOM) Joint Intelligence Operations Centers (JIOCs) commensurate with their peacetime missions. 

2. Establish a rotational model for Defense Intelligence Agency (DIA) support to 

the COCOMs. 

3. Disestablish the Defense Intelligence Operations Coordination Center and the 

Joint Functional Component Command for Intelligence, Surveillance, and Reconnaissance 

4. Consolidate selected Department Counterterrorism (CT) functions under the 

Joint Intelligence Task Force for Combating Terrorism (JITF–CT). 

48 

5. Consolidate selected Department Counter Threat Finance (CTF) elements 

under a new Joint Intelligence Task Force for CTF (JITF–CTF). 

6. Track emerging intelligence organizations and develop plans to harvest them 

as they redeploy from theater. 

In conjunction with the JIOC resizing, the DIA will begin providing approximately 

20-person rotational teams of subject matter experts to support analysis and collection at each of the JIOCs. If a conflict or crisis breaks out in any combatant commander’s area of responsibility, DIA will surge personnel to the JIOC as appropriate 

for the region and type of crisis. 

Several efforts are underway to identify Defense Intelligence efficiencies and 

evaluate the impact on intelligence support to combat operations, if efforts are reduced or eliminated. Ongoing efficiency efforts within the Department include a 

working group that is tracking and reviewing intelligence organizations formed to 

support operations in Afghanistan and Iraq and to identify which of these would be 

retained as combat operations draw down. 

Last August, we were considering an immediate reduction in funding for intelligence advisory and assistance contracts, but have since conducted a DOD-wide review of our reliance on contractors. As the result of this review, DOD components’ 

funding used to acquire service support contracts was reduced 10 percent per year 

over the next 3 years from their reported fiscal year 2010 level. Based on the DOD 

components’ allocation of the efficiency, the Military Intelligence Program (MIP) was 

assessed a portion of this reduction. Contractor funding reductions in the MIP were 

absorbed by realizing process efficiencies and moving away from higher-priced contractor services. The MIP significantly reduced its reliance on contractor support. 

Compared to fiscal year 2010 actuals, MIP contractor reliance has declined approximately 19 percent. 

There has been an increase in the number of Defense Intelligence organizations 

since 2001. In the Defense arena, large and well-staffed intelligence structures now 

exist in the Services, the Defense Agencies, the COCOMs, and in the war theaters. 

The Intelligence Review Study Group (IRSG) identified areas of major investment 

and focused on the analytic organizations within the IC. While the IRSG findings 

identified areas where efficiencies can be gained by consolidating select functions, 

such as in counterterrorism and counterthreat finance, we continue to look for areas 

to increase efficiency and eliminate redundancy. 

The final report was presented to Secretary Gates and Director Clapper, but the 

bulk of efficiencies so far are in activities funded by the MIP. The DNI is separately 

implementing IC efficiencies funded by the National Intelligence Program. Several 

of the efficiency recommendations made to the Secretary, require the development 

of detailed implementation plans or continued review, before the Department can 

identify any resource savings. 

Mr. HALE. We’re looking at some others, but it has been difficult. 

Counterthreat finance and counterterrorism, we think there may 

be some consolidations that are possible. 

But, we tried, and I don’t think we’ve gotten as far as we’d 

hoped. I think it deserves some continued effort. I think if Secretary Gates were here, he’d probably state it even more forcefully. 

Senator MCCASKILL. Well, I agree with him. 

Mr. HALE. I’ll tell him. 

Senator MCCASKILL. As usual, I think he’s correct. I think that 

this is probably not the kind of zero-based review that he had envisioned when he used that terminology. We’ll look forward to hearing additional work in the area of a zero-based review, in terms of 

that work. 

I don’t have any other questions. We may have some more for 

the record. 

Senator Ayotte, do you have any more?. 

Senator AYOTTE. No, I’m all set. I have some for the record, but 

that’s it. Thank you. 

Senator MCCASKILL. Okay. 

I want to thank all of you for being here today. I thought it was 

very productive. We’ll continue to work closely with you to figure 

49 

out ways we can continue to be the best military in the world with 

less money spent. 

[Questions for the record with answers supplied follow:] 

QUESTIONS SUBMITTED BY SENATOR KELLY AYOTTE

RESPONSIBLE USE OF END OF YEAR FISCAL FUNDS

1. Senator AYOTTE. Secretary Hale, I’m interested in finding efficiencies now, as 

opposed to waiting for the out-years. Starting with spending what you have in order 

to justify future budget requests, what is your assessment of the current climate in 

the Department of Defense (DOD) for the preparation of the fiscal year 2013 budget? 

Mr. HALE. The DOD effort to increase efficiencies will not wait for the out years. 

The efficiency initiatives reflected in the DOD fiscal year 2012 budget continue the 

reform agenda started in the fiscal year 2010 budget. The fiscal year 2010 budget 

focused on weapons programs, e.g., terminating the F–22 fighter production and the 

VH–71 Presidential helicopter. The fiscal year 2011 budget again focused on weapons programs, e.g., ending C–17 production and not funding of an extra engine for 

the Joint Strike Fighter (JSF), and initiated military health care efficiencies. The 

fiscal year 2012 budget focused on DOD business operations efficiencies in addition 

to further program terminations. The efficiencies gained in these budgets form the 

foundation for building the fiscal year 2013 budget. Further efficiencies will be proposed in the fiscal year 2013 budget. 

2. Senator AYOTTE. Secretary Hale, assuming DOD can get a fiscal year 2011 appropriations bill soon, will you still condone a mad rush by the Services at this 

year’s end to obligate all funds available on lower priorities? 

Mr. HALE. There will be no mad rush to spend any funds. The fiscal year 2011 

funds are needed to satisfy valid requirements. The Department will conduct a robust midyear review to ensure these valid requirements are properly funded. As a 

result of the review, any significant funding changes will be included in the Omnibus reprogramming request. The reprogramming request will be forwarded to the 

Defense Oversight Committees for their approval. 

3. Senator AYOTTE. Secretary Hale, why not let unused funds expire as opposed 

to finding other requirements to spend money on? 

Mr. HALE. We don’t seek other requirements to spend money on; unfortunately, 

there are always new emergent requirements that arise that were unanticipated. In 

particular, in fighting a war there are urgent operational needs that are identified 

by the battlefield commander that need immediate attention and cannot wait until 

the next budget request. In recent years the challenge to find good solutions to the 

Improvised Explosive Device threat is the best example of this kind of unexpected 

unobligated need. Other adjustments result from economic conditions (fuel prices), 

unplanned humanitarian relief (Japan and Libya), and shifts in national security 

priorities. This year, the extended Continuing Resolution, decreases in fiscal year 

2011 funding levels, and implementation of the Secretary’s efficiencies demand a 

more critical midyear review of the accounts and an examination of potential impacts on readiness. Unanticipated negative impacts to readiness will be resolved 

within the reprogramming flexibility allowed by the statues. As occurred in fiscal 

year 2010, funds will be allowed to expire if valid requirements don’t exist. 

4. Senator AYOTTE. Secretary Hale, does DOD currently have in place incentives 

to reward the timely completion of requirements in a fiscal year and the return of 

unused funds? 

Mr. HALE. The Department utilizes various contract incentives to encourage the 

timely completion of requirements and the return of unused funds. The midyear review process ensures available funding is identified and either realigned to other 

valid requirements (fuel increases, Japan, Libya, urgent theater needs) or allowed 

to expire. 

5. Senator AYOTTE. Secretary Hale, how can the process be changed to encourage 

program managers (PM) to spend only what is absolutely necessary and planned for 

that year? 

Mr. HALE. Responsible funds stewardship begins with the budget plan. In preparation for the fiscal year 2012 budget submission, DOD launched a comprehensive 

effort to reduce its overhead expenditures. The goal was to sustain the U.S. military’s size and strength over the long term by reinvesting those efficiency savings 

50 

in force structure and other key combat capabilities. The Military Departments and 

the U.S. Special Operations Command (SOCOM) were challenged to identify at least 

$100 billion in savings that they could keep and shift to higher priority programs. 

In addition to the military departments and SOCOM reviews, Secretary Gates directed a number of initiatives with the goal of reducing overhead costs and improving efficiency across the Department as a whole, with special attention to the massive headquarters and support bureaucracies outside the Military Services and 

SOCOM. The Department will implement a process to monitor how it is doing in 

the implementation of the efficiency initiatives. Continued management oversight at 

all levels of the organization helps ensure efficient and effective use of resources. 

6. Senator AYOTTE. Secretary Hale, what is DOD currently doing to institutionalize a mindset of not-spending versus spending? 

Mr. HALE. The entire Department was brought into the comprehensive effort to 

increase efficiencies in the spring of 2010. Many of the cross-cutting initiatives included the DOD fiscal year 2012 budget were started in fiscal year 2011. Specifically, the reductions in service support contracts, reports, studies, boards and commissions began in fiscal year 2011. Other reductions to fiscal year 2011 include the 

civilian workforce freeze and the GS pay freeze. The Department is launching a 

process that will require every component touched by an efficiency to brief their 

plan for achieving the efficiency and their actual progress against the plan. The first 

of these briefings will occur in early summer to inform building the fiscal year 2013 

budget. 

ECONOMIC PROJECTIONS

7. Senator AYOTTE. Secretary Hale, in your written statement you state that of 

DOD’s nearly $78 billion reduction over the next 5 years, ‘‘much of the savings will 

come from reducing personnel costs and changing economic assumptions.’’ I need to 

make sure that we are not relying on speculative economic assumptions in order to 

justify budget cuts. I am sure that the witnesses would agree projected savings must 

be supported with sound and consistent justification. What inflation rate was assumed for fiscal years 2012 through 2016? 

Mr. HALE. DOD uses composite inflation rates that are comprised of rates from 

the Gross Domestic Product Price Index (with DOD outlay rates factored in), civilian 

pay raise rates, military pay raise rates, fuel rates, and CPI–U (Medical) rates. The 

DOD composite rates are as follows: 

Fiscal Year 2012: 1.5 percent 

Fiscal Year 2013: 2.0 percent 

Fiscal Year 2014: 2.1 percent 

Fiscal Year 2015: 2.1 percent 

Fiscal Year 2016: 2.1 percent 

8. Senator AYOTTE. Secretary Hale, do the top lines for each Service budget 

through 2016 assume the same inflation rates? 

Mr. HALE. Yes, each Service assumes the same inflation rates; however there are 

many other non-inflationary factors that play into each Service’s budget development. For example, mission requirements, programmatic priorities, and requirements of the acquisition process vary by Service and would impact their final budget 

requests. 

9. Senator AYOTTE. Secretary Hale, the Army assumed an unemployment rate of 

over 9 percent through fiscal year 2015. Is that DOD’s assessment as well? 

Mr. HALE. While the individual Services may use unemployment rates for particular aspects of their budget development, such as forecasting the recruiting environment, the Department as a whole does not develop or forecast those rates. 

10. Senator AYOTTE. Secretary Hale, what economic projections were used to justify this rate? 

Mr. HALE. DOD as a whole does not develop or forecast unemployment rates. 

11. Senator AYOTTE. Secretary Hale, can you provide your projection for annual 

military pay adjustments through fiscal year 2016 that contributed to your savings 

estimate? 

Mr. HALE. The Department’s efficiencies savings include military pay and allowances economic assumption adjustments totaling to a net savings of $1.1 billion in 

fiscal year 2012 and $2.8 billion from fiscal year 2012–fiscal year 2016. These adVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
51 

justments are based on changes to economic assumptions projected during the previous budget cycle (fiscal year 2011 President’s budget request) to the fiscal year 

2012 budget request. The following table provides a breakout of the adjustments. 

[In billions of dollars] 

Fiscal Year 2012 Fiscal Year 

2012–2016 

Fiscal Year 2012 Military Pay Raise .................................................................................................. $0.5 $3.1 

Retired Pay Accrual Rate Increase ..................................................................................................... –0.9 –4.8 

Medicare-Eligible Retiree Health Care Accrual Rates ........................................................................ 0.9 0.9 

Basic Allowance for Housing Rates ................................................................................................... 0.5 2.7 

Basic Allowance for Subsistence Rates ............................................................................................. 0.1 0.9 

Net MilPay Economic Assumption Changes .............................................................................. $1.1 $2.8 

• Fiscal Year 2012 Military Pay Raise was programmed at 2.3 percent during the previous budget cycle but was adjusted to 1.6 percent based on the 

September 30, 2010, Employment Cost Index (ECI) as required under the 

by-law formula. 

• Retired Pay Accrual Rates for full-time personnel increased from 32.7 

percent to 34.3 percent in fiscal year 2012 and beyond based on annual determination by the DOD Board of Actuaries. 

• Medicare-Eligible Retiree Health Care Accrual per capita rates for fiscal 

year 2012 decreased based on annual determination by the DOD Board of 

Actuaries. 

• Basic Allowance for Housing Rates were budgeted to increase by 4.2 percent on-average in fiscal year 2011 while actual rates increased by only 1.6 

percent on-average. 

• Basic Allowance for Subsistence Rates were budgeted to increase by 3.4 

percent in fiscal year 2011 while actual rates increased by only 0.4 percent 

based on the by-law formula. 

RECRUITING AND RETENTION

12. Senator AYOTTE. Secretary Westphal, following up on a discussion from the 

hearing, the Army has proposed a reorganization of recruiting and retention incentives to cut $764 million in fiscal year 2012 based on ‘‘current and projected economic environments.’’ In particular, the Army assumed that the unemployment rate 

will continue at 9 percent or higher. Is this assumption consistent with the administration’s projection? 

Dr. WESTPHAL. The President’s fiscal year 2012 budget assumes an unemployment rate of 8.8 percent, slightly below the 9 percent assumption we used for planning purposes. However, it should be noted that there are many other factors involved in determining the level of incentives and programs needed to sustain the 

All-Volunteer Force. The propensity to recommend Military Service has increased 

with influencers such as mothers, fathers, guidance counselors, and coaches. Additional factors affecting our success in recruiting and retaining quality soldiers are: 

comparable pay to civilian salaries; comprehensive medical coverage; reduced deployments; and improved family support programs. The combination of all the above 

factors has positioned us for success in our 2012 recruitment and retention programs. 

13. Senator AYOTTE. Secretary Westphal, the Army projects a savings of $5.3 billion over the Future Years Defense Plan (FYDP). What happens if the economy 

picks up, as we all hope it will? 

Dr. WESTPHAL. As the Army works to improve the Soldier deployment cycle, dwell 

time at home with family and quality of life, the desire to reenlist also increases. 

For recruiting, the Army continues to select the highest quality recruiters, and is 

always improving and exploring opportunities such as social media, community involvement, and coordinating with high schools to help students and parents determine whether the military is right for them. The Army stresses the total compensation and benefits available to soldiers and families in order to attract and retain 

quality soldiers. With the support of Congress, we have made substantial improvement in the quality of life of soldiers and their Families across the board. Increases 

in soldier and family programs, education benefits, housing, working conditions, and 

equipment all contribute to the successful maintenance of the All-Volunteer Force. 

52 

14. Senator AYOTTE. Secretary Westphal, will the Army restore recruiting and retention incentives? If so, how will this efficiency provide its projected savings? 

Dr. WESTPHAL. Unless there is a dramatic improvement in the economy or the 

American public’s perception of the Army sours, we do not see a need to place more 

funding in the recruiting and retention budget. We continuously analyze each military occupational skill based on the need for each capability. We use that in-depth 

analysis over time to make decisions concerning incentives. The bonus program is 

designed to incentivize soldiers in critical MOSs and ranks based on current and 

projected shortages. Particular career fields such as Explosive Ordnance Disposal, 

Military Intelligence, Engineers, Linguists, and Special Forces have highly marketable skills that are in demand and well compensated in the civilian economy. We 

have used incentives very effectively to remain competitive and retain the capabilities needed to execute our missions. 

15. Senator AYOTTE. Secretary Westphal, how will the Army reorganize recruiting 

and retention incentives? 

Dr. WESTPHAL. The Army has a highly analytical and flexible recruiting and retention incentive determination process that has proven successful over time. It concentrates on skill and grade requirements and their criticality to maintaining a 

ready Army. We will continue to access our process and make adjustments based 

on sustaining the All-Volunteer Force. To be sure incentives are not the only tool 

on which the Army relies to effect recruiting and retention. We stress the total compensation and benefits package available to soldiers and families to attract and retain quality soldiers. With the support of Congress, we have made substantial investments to improve quality of life programs for our soldiers and families. It is the 

combination of all of these elements that will enable us to successfully man the 

force. 

16. Senator AYOTTE. Secretary Work, the Navy proposes the same reduction in recruiting and retention programs. What economic assumption did you use to make 

those decisions? 

Mr. WORK. In general, the bonus programs considered that unemployment would 

decrease gradually but that the economic impact on recruiting and retention would 

be relatively unchanged. Navy has experienced increased retention and fewer recruiting challenges which have allowed reductions in recruiting and retention incentives. 

LIKELIHOOD OF FURTHER DEFENSE CUTS

17. Senator AYOTTE. Secretary Hale, The Defense News reported on March 27, 

2011, that DOD is preparing for up to $100 billion more in cuts to defense over the 

next 5 years once the Pentagon’s top line budget figures are released from the White 

House for the fiscal year 2013 budget. Acknowledging that speculation about future 

year budgets is a tricky thing, particularly in the press, can you share your opinion 

on what will happen to DOD’s budget in fiscal year 2013 and beyond? 

Mr. WORK. It is premature to provide an assessment of what will happen to 

DOD’s budget in fiscal year 2013 and beyond. 

18. Senator AYOTTE. Secretary Hale, do you anticipate having to make further top 

line cut through the FYDP beyond the $78 billion that DOD has already absorbed? 

Mr. WORK. It is premature to provide an assessment of what will happen to 

DOD’s budget in fiscal year 2013 and beyond. 

INDIVIDUAL SERVICE RISK ASSESSMENT

19. Senator AYOTTE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, in your joint statement, you state ‘‘most of this top line reduction was achieved through efficiencies and other changes in portions of our budget 

less closely related to warfighter capability’’. With that said, The Defense News reported yesterday that DOD may be provided with guidance this week from the Office of Management and Budget (OMB) that will require DOD to cut an additional 

$100 billion from the top lines over the next 5 years. Many of DOD’s efficiencies 

propose spending cuts to flying hours, weapon system maintenance, training programs, facility repairs, as well as cancelling the acquisition of new systems that 

were intended to replace old equipment, such as the Expeditionary Fighting Vehicle 

(EFV). Please provide your assessment of the risk incurred by each Service for each 

efficiencies initiative proposed in the fiscal year 2012 budget request. Specifically, 

53 

I’m looking for an assessment of the operational risk assumed for reducing end 

strength, deferring requirements, eliminating programs, and scaling back training 

accounts. 

Mr. HALE. 

Department of the Army: 

The Army’s efficiency initiatives proposed in the fiscal year 2012 budget request 

are assessed as low operational risk. To achieve savings, the Army used comprehensive capability portfolio reviews to terminate or reduce weapons systems with declining relevance or unneeded redundancy. The Army ensured training programs 

and equipment programs terminated, reduced or deferred would not pose a threat 

to its ability to conduct the full range of military operations. Service and support 

contracts supporting HQ activities were reduced with low risk achieved. The Army 

also leveraged investments in existing infrastructure and information technology, 

which will provide efficiency and maintain or improve effectiveness in supporting 

the Operating Force. 

Department of the Navy (DON): 

Risk was inherently considered as the warfighters were involved from the ground 

floor in defining efficiencies. Lower echelon commands were asked to be bold in challenging current organizations, constructs, and structure focused on ‘‘Buying Smarter’’, ‘‘Streamlining Organizations and Operations’’, and ‘‘Energy Efficiencies’’. This 

resulted in numerous issues being vetted affecting over 1,000 budget lines. 

To address the specific concerns noted, end strength changes are the result of 

eliminating duplicative staffs, streamlining organizations, eliminating unnecessary 

contractor support, and strident reviews of personnel policies and practices. Similarly, the DON identified several investment programs that were underperforming 

or less effective than envisioned and are now proposed to be revamped or terminated in order to pursue more appropriate materiel solutions given the changing 

landscape of the world. Finally, the scaling back of training accounts reflects the reality of technology that now permits more realistic and cost effective training using 

advanced simulators without overall loss of readiness and proficiency. 

In summary, the DON believes the benefits achieved through reinvestments and 

restructuring far outweigh the near-term operational risks of not conducting ‘‘business as usual’’. Business as usual is in fact the greatest risk as inefficient business 

practices will continue to divert resources from the critical needs of the warfighters. 

To prevent this, the DON is aggressively developing processes and practices to monitor the implementation of the proposed efficiencies to ensure savings are realized 

along with corresponding enhancements, and that the DON does not slip back into 

a mindset of ‘‘business as usual’’. 

Department of the Air Force: 

The Air Force estimates that there is little operational risk in the current efficiency plans, and that in fact, the enhancements enabled by the efficiency efforts 

will increase operational capability. 

First, efficiency work is aimed at reducing staff overhead structures and general 

support activities, and reallocating resources to direct operational improvements 

(e.g., modernized F–15E radars, long range bomber, increased funding to weapon 

system sustainment). The Air Force corporate structure will closely monitor 

progress on efficiency goals and, as importantly, mission performance. 

Other than a limited number of senior executives and general officers, the Air 

Force is not reducing any Active, Reserve, and Air National Guard end strength and 

is still continuing to grow government civilian end strength. While the Air Force is 

reducing workforce in selected support activities, that workforce is being reallocated 

to more direct operational and operational support activities. 

In regards to deferring requirements, the efficiency goals represent real savings/ 

reductions versus deferring expenditures to future years. Regarding eliminating programs, the Air Force took a balanced approach considering the costs and savings 

associated with funding the programs vice termination. There are three program 

terminations within the Air Force reported efficiencies. 

The efficiency goal for training is to reduce the cost to sustain current training 

levels and reduce the cost of flying hours while maintaining mission readiness at 

or above current standards. To achieve this, the Air Force must continue to invest 

in high fidelity simulators and mission training centers while continuing to focus 

on fuel management savings and improved planning. 

The Air Force will monitor plans and progress to ensure efficiency outcomes are 

being delivered and will also review readiness and performance data to ensure Air 

Force efficiencies are not inadvertently impacting mission performance or the quality of life of airmen. 

54 

Dr. WESTPHAL. The Army’s efficiency initiatives proposed in the fiscal year 2012 

budget request are assessed as low to operational risk. To achieve savings, the Army 

used comprehensive capability portfolio reviews to terminate or reduce weapons systems with declining relevance or unneeded redundancy; we have ensured training 

programs and equipment programs terminated, reduced or deferred would not pose 

a threat to our ability to conduct the full range of military operations. No efficiencies resulted in end strength reductions; however, some service and support contracts at headquarters activities were reduced within the Army’s Generating Force. 

Leveraging investments in existing infrastructure and consolidating information 

technology will provide efficiency and maintain or improve effectiveness in supporting the Operating Force. 

Mr. WORK. The DON did not pursue a purely ‘‘top down’’ approach by imposing 

efficiencies, but rather directed lower echelon commands to be bold in challenging 

our current organization, constructs, and structure focused on ‘‘Buying Smarter’’, 

‘‘Streamlining our Organizations and Operations’’, and ‘‘Energy Efficiencies’’. This 

resulted in numerous issues being vetted affecting over 1,000 budget lines. The 

CNO and CMC personally weighed the risks associated with every recommended efficiency, and they forwarded for approval only those efficiencies where they judged 

the benefits to outweigh operational risk. These were then reviewed by the Secretary of the Navy as well as OSD before booked as savings. 

To address the specific concerns noted, end strength changes are the result of 

eliminating duplicative staffs, streamlining organizations, eliminating unnecessary 

contractor support, and strident reviews of personnel policies and practices. Similarly, the Department identified several investment programs that were underperforming or less effective than envisioned and are now proposed to be revamped or 

terminated in order to pursue more appropriate materiel solutions given the changing landscape of the world. Finally, the scaling back of training accounts reflects the 

reality of technology that now permits more realistic and cost effective training 

using advanced simulators without overall loss of readiness and proficiency. 

In summary, DON believes the benefits achieved through reinvestments and restructuring far outweigh the near-term operational risks of not conducting ‘‘business 

as usual’’. Business as usual is in fact our greatest risk as inefficient business practices will continue to divert resources from the critical needs of our warfighters. To 

prevent this, the DON is aggressively developing processes and practices to monitor 

the implementation of our proposed efficiencies to ensure savings are realized along 

with corresponding enhancements, and that the DON does not slip back into a 

mindset of ‘‘business as usual’’. 

Ms. CONATON. The Air Force assessment is that there is little operational risk in 

our current efficiency plans, and that in fact, the enhancements enabled by the efficiency efforts will increase operational capability. 

First, our efficiency work is aimed at staff overhead structures and general support activities, and resources are reallocated to direct operational improvements 

(e.g., modernized F–15E radars, long-range bomber, increased funding to weapon 

system sustainment (WSS)). WSS was both an investment and an efficiency area; 

the Air Force increased funding in WSS to improve readiness, and in addition, imposed an efficiency equating to $3 billion by setting the expectation of delivering 85 

percent of requirements at an 80 percent funding level. The Air Force corporate 

structure will closely monitor progress on efficiency goals and mission performance. 

Other than a limited number of senior executives and general officers, the Air 

Force is not reducing any Active, Reserve, and Air National Guard end strength, 

and is still continuing to grow government civilian end strength. While we are reducing workforce in selected support activities, that workforce is being reallocated 

to more direct operational and operational support activities. We are reallocating 

5,600 active duty billets over the FYDP from lower priority support functions to 

higher priority growth areas, such as intelligence, surveillance and reconnaissance 

operations. In the areas where we are reducing staff (either government or contractors), the Air Force plan is to either modify the work itself to eliminate unnecessary 

and redundant tasks or to stop doing a job altogether that is no longer deemed essential. This approach is a means to keep from getting into the trap of ‘‘doing more 

with less’’ and reduces operational risk. 

In regards to deferring requirements, our efficiency goals represent real savings/ 

reductions versus deferring expenditures to future years. Approximately 1 percent 

of our $33.3 billion in Air Force-identified efficiency initiatives are related to rephasing of programs due to fact-of-life slips or program execution status. They include rephasing war reserve material stockpile and training munitions procurement; 

re-phasing Wide Area Airborne Surveillance procurement; re-phasing AFNet support; and Link 16 Crypto Modernization for B–1, B–2, F–15 and F–16 systems. Real 

savings generated by these and other Efficiencies, permitted funds to be realigned 

55 

to increase mission core capabilities including investments in B–1 modernization, F– 

35 simulator procurements and funding MC–12 in the baseline program. All of these 

investments contribute to decreased operational risk. 

Regarding eliminating programs, we took a balanced approach considering the 

costs and savings associated with funding the programs vice termination. We have 

three program terminations within Air Force reported efficiencies: (1) Air Vehicle 

Survivability Facility at Arnold is terminated saving $720,000 in Research Development Test & Evaluation (RDT&E) funds per year across fiscal year 2012–2016. The 

facility was not core to Air Force requirements and no additional costs are associated with this termination; (2) The Air Force Infrared Search and Track Program 

modification to the F–15 was terminated saving $43.8 million in RDT&E funds 

across fiscal year 2012–2013 and $301.6 million in Procurement funds across fiscal 

year 2013–2016; and, (3) Advanced Targeting Pods-Sensor Enhanced was terminated saving $98.7 million in Procurement funds across fiscal year 2012–2016. Efficiency savings allow us to shift resources to modernization and readiness enhancements such as those covered above. 

Our efficiency goal for training is to reduce the cost to sustain current training 

levels and reduce the cost of flying hours while maintaining mission readiness at 

or above current standards. To achieve this, the Air Force must continue to invest 

in high-fidelity simulators and mission training centers while continuing to focus on 

fuel management savings and improved planning. We are conducting several internal studies to help find the right balance of live flying hours and simulator trainings 

in order to provide the best trained airmen. We will closely monitor this initiative 

(as with the others) and explicitly measure mission readiness to preclude increased 

operational risk. 

On a monthly basis, we will monitor plans and progress to ensure efficiency outcomes are being delivered and will also review readiness and performance data to 

ensure Air Force efficiencies are not inadvertently impacting mission performance 

or the quality of life of airmen. 

PROPOSALS FOR END STRENGTH REDUCTIONS

20. Senator AYOTTE. Secretary Hale, reading your statement for this hearing, 

DOD has included a savings of $6 billion in fiscal years 2015 and 2016 for a proposed decrease in end strength for the Army and Marine Corps. You go on to state 

‘‘If our assumptions about Iraq or Afghanistan turn out to be overly optimistic, or 

if global conditions change for the worse, we would be able to adjust the size and 

schedule of this change or even reverse it altogether’’. Given this significant caveat, 

why did DOD include this initiative as a savings contributing to the administration’s efforts to reduce the Federal deficit? 

Mr. HALE. As I said in my remarks during the March 29th testimony, we have 

and will continue to have some significant national security challenges. Certainly, 

the assumptions for proposed force reductions may adjust based on future security 

circumstances, but such reductions were not made without first knowing the risk. 

In the end, these force reductions are achievable, but we also understand that in 

order to protect the capability of the warfighter, the plan must stay aligned with 

global conditions and balance such reductions with minimal risk. It is important to 

remember that even after the planned reductions, the active Army end strength 

would continue to be larger by nearly 40,000 soldiers compared to their end strength 

4 years ago. 

21. Senator AYOTTE. Secretary Hale, to what extent will global conditions have 

to change for the worse in order to trigger a reassessment of the proposed force 

structure reductions? 

Mr. HALE. We will continuously assess global conditions and adjust as necessary 

in order to minimize risk. The current plan is based on the assumption that the 

number of troops in Afghanistan will be significantly reduced by the end of 2014 

in accordance with the President’s and NATO’s strategy. If the assumptions prove 

incorrect, there is plenty of time to adjust the size and schedule of this change. As 

the Services resize their forces according to anticipated demand, we must ensure 

that any reductions avoid unnecessary increased risk or stress on our 

servicemembers. 

22. Senator AYOTTE. Secretary Hale, the downward ramps for both the Marine 

Corps (20,000 in 2 years) and Army (47,000 in 4 years) are very steep. Lacking mandatory spending authority for early retirement authority, enhanced selective retireVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
56 

ment boards, and other legislative initiatives, how do you expect these Services to 

achieve these goals? 

Mr. HALE. It is the Department’s policy to offer voluntary programs prior to taking involuntary separation action. Maintaining readiness while responsibly reducing 

our force structure will be a major challenge in the years ahead and the Department 

needs additional authorities to achieve these goals. The Department is working to 

submit a legislative proposal for force shaping tools to achieve the necessary force 

drawdown. The Department is currently reviewing a package of authorities, which 

includes the following proposals—(1) Reinstatement of authority for enhanced Selective Early Retirement Boards and Early Discharges; (2) Extension of Voluntary Separation Pay; (3) Reinstatement of Temporary Early Retirement Authority; (4) Voluntary Retirement Incentive; and (5) Authority to reduce years of service for mandatory retirement for certain officers in pay grades O–5 and O–6. 

23. Senator AYOTTE. Secretary Hale, if DOD decides to reverse the proposal, 

would you expect to get the $6 billion back in the top line in fiscal year 2015? 

Mr. HALE. Every year, we perform a program and budget review of all DOD programs and prioritize requirements based on the current and projected economic, political, and national security environments. Starting with the fiscal year 2013 program and budget review, we will reassess these programs for the budget year and 

5 years out. Given this schedule, fiscal year 2015 will be readdressed during the 

next three program and budget reviews before submitting the fiscal year 2015 President’s budget. We will work the details of any top line funding adjustments necessary to meet DOD requirements through the Office of Management and Budget, 

as we do on an annual basis. 

24. Senator AYOTTE. Secretary Hale, what other Department-wide efficiency initiatives are subject to the uncertainty of world events? 

Mr. HALE. The Department believes that most of the efficiencies included in the 

fiscal year 2012 budget request are achievable with minimal risk to warfighting capability. The efficiencies in the fiscal year 2012 budget were primarily focused on 

business process and overhead expenditures. Of course, with any plan, there is a 

possibility that implementation may not happen as originally planned for various 

reasons. To ensure implementation risks are mitigated, there will be a recurring review of component plans and actual execution against those plans. 

AUDIT OF SAVINGS

25. Senator AYOTTE. Secretary Hale, given all the shortcomings in DOD’s financial 

management systems, I question whether the efficiencies identified in the fiscal year 

2012 budget request are reliable, realistic, and achievable without a set of auditable 

financial statements. How confident are you that the efficiencies proposed will actually realize the projected savings without having a decent set of financial statements 

that can be audited to track performance? 

Mr. WORK. The Department records and reports expenditures associated with 

budgeted amounts. While not sufficient to meet audit standards, this longstanding 

approach has proven to be an effective means to responsibly manage the public 

funds entrusted to the Department. We have thousands of well-trained financial 

management professionals in the Department dedicated to and motivated by their 

role in providing to warfighters the resources necessary to meet the National security mission of the country. These financial managers know DOD missions cannot 

be executed without timely and sufficient resources, and so are able to track expenditures and report to managers with an accurate status. Because of this capability, 

Secretary Gates and I feel we can demand and track savings from the specific operations targeted by the efficiencies initiative. 

This does not mean that we do not take the financial statement audit requirement 

seriously. Financial statement audits are also a key indicator to the public that we 

have reliable financial management information and can show reliable results of the 

efficiencies implemented. While this is not the intent of financial statement audits, 

they are a signal to the public that we manage funds legally, effectively, and efficiently. We are dedicated to having fully auditable financial statements by 2017, the 

deadline established by Congress. 

26. Senator AYOTTE. Secretary Hale, why is the achievement of a DOD financial 

audit not Secretary Gates’ top efficiency initiative? 

Mr. HALE. The highest priority for the Department’s business enterprise is to 

meet the needs of the warfighters executing our national security mission. Due to 

57 

budgetary constraints for the United States as a whole, and DOD in particular, Secretary Gates has directed the Department to eliminate or reduce overhead tasks and 

transfer the related resources to meet urgent warfigher needs. In other words, 

transfer resources from tail to tooth. This initiative to improve financial management and achieve a financial audit is part of that effort. Improved financial management information will help the Department better identify overhead costs and ensure reductions are realized. 

27. Senator AYOTTE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, which savings or efficiencies proposed by your departments are 

the riskiest, in terms of not being achievable? Please explain your answer. 

Mr. HALE. Experience tells us that some of these initiatives may not proceed entirely according to plan. The Department has no choice but to strictly monitor and 

enforce these efficiencies and make adjustments as needed with the understanding 

that we cannot afford to return to past behavior. At this point, there are no elements that we believe are especially risky 

Dr. WESTPHAL. Of the proposed Army efficiencies, realizing savings from organizational streamlining and the implementation of better business processes represent 

the greatest challenge. Many of those organizational changes were driven by the 

need to address the cumulative effects of over a decade of war on the Army, its soldiers and their families. The Army is mitigating the risk of such challenges by prudently planning to save only 20 percent in these difficult areas during the first 3 

years of the FYDP (i.e., $2 billion fiscal year 2012–2014 of the projected $9 billion 

total over fiscal years 2012–2016). The Army phased its approach to provide the 

time needed to implement future initiatives successfully. 

We are confident we can achieve the necessary savings in fiscal year 2012 through 

fiscal year 2014 by leveraging other types of efficiency savings such as: 

• Terminating or reducing weapons systems with declining relevance or unnecessary redundancy through comprehensive capability portfolio reviews. 

• Leveraging investments in existing infrastructure and implementing a 

balanced facilities investment strategy to save $1.4 billion in military construction (MILCON). 

Mr. WORK. An area of particular challenge pertains to assorted efficiencies that 

have a cumulative effect on the DON Total Force. In an effort to maximize the preservation of ‘tooth,’ aggressive measures were taken to ensure that overhead investments (‘tail’), such as those devoted to manpower, were streamlined. Sample issues 

include reductions in the number and size of staffs, cuts to Senior Executives and 

General Officers, and significant reductions in contractor support. Although not 

easy, taking these steps was necessary to preserve core warfighting capability. 

There are several factors that add to the complexity of realizing efficiencies in the 

workforce. For starters, it is critical to adopt a total force perspective and fully understand the combined impact of adjustments made to military, civilian, and contractor personnel. Obtaining this viewpoint is difficult given the fact that cuts span 

appropriations, organizations, and contracts and are accompanied by varying degrees of specificity in terms of intent. For example, some reductions are defined by 

billet(s) while others are exclusively represented by fiscal adjustments that must be 

translated into billets in order for the savings to be realized. While these efficiencies 

may be achievable in the near term, they may be more difficult to sustain over the 

long term, due in part to circumstances beyond our control (e.g. force reset or surge 

requirements). 

Because the savings have already been recouped in the 2012 budget submission, 

the DON is committed to ensuring that these savings are realized and not inadvertently or unintentionally applied to critical programs or missions. Meeting this objective will require application of oversight and ardent planning on an Enterprise level. 

As Under Secretary Hale testified to Congress (on 29 March 2011 before the Senate 

Armed Services Committee Subcommittee on Readiness), ‘‘ . . . if we fail to achieve 

our efficiency plans, we will be forced to scale back programs that contribute to our 

core mission. That prospect will motivate us to translate planned efficiencies into 

actual efficiencies.’’ Although execution of these savings won’t commence until October 2011, efforts are already underway to plan for implementation and ensure that 

necessary risk mitigation measures are in place. In fact, the DON is already working across the DON Enterprise and closely with OSD to ensure that all 2012 efficiencies, not just those related to the workforce, are being monitored and tracked 

in a manner that will minimize risk and keep leadership informed of emergent challenges. 

Ms. CONATON. First, we have mitigated risk in our efficiency plans through a variety of strategies including ramping up expected efficiencies further out in the FYDP 

58 

allowing additional time for planning and execution of the plans; selecting by-name 

owners of our initiatives to ensure responsibility remains at a personal level of accountability; and, by weaving efficiency planning and execution process into existing 

Air Force Corporate Structure to ensure efficiency plans are aligned with Air Force 

strategy and get reviewed on a regular basis. However, we are unable to eliminate 

risk due to a variety of factors. 

The majority of risk we currently assess in our efficiencies comes from external 

sources and is generally a product of assumptions made in the planning process. 

Commodity prices, for example, represent great risk to energy efficiencies in both 

the aviation and facility areas. Rising fuel prices could completely eliminate all dollar savings from efficiencies. Our business process efficiencies are based on a projected level of demand for service. Real-world contingencies could significantly challenge those projections and drive additional manpower requirements to meet those 

needs in spite of the process efficiencies we were able to garner. The same contingencies would also use our equipment at greater rates than currently projected 

which would require adjustments to acquisition strategies and replacement profiles. 

We monitor risk on a monthly basis, and therefore the type of risk and amount 

associated with that risk varies as we actually execute the efficiency plans. Currently, the Air Force assesses risk in the following areas that translate to $1.2 billion across the FYDP in efficiency plan shortfalls, and an additional amount of approximately $1 billion based on actual cost of fuel: 

• Installation Support/Communication Issues: Current restructure plans for 

installation support result in efficiency estimates that are less than originally anticipated. The Air Force is developing alternative approaches to 

mission support that will allow us to make up the difference. 

• Logistics and Installation Efficiencies and MAF Fuel Efficiencies: We can 

take actions through smart investments and standard operating policies to 

reduce energy consumption, but we cannot control the price of energy. Recent increases in oil prices highlight the inherent risk in achieving financial 

savings based on fuel and energy efficiencies. We expect to reduce energy 

consumption and reduce gallons/energy consumed. However, as price of fuel 

varies, it will impact our ability to achieve financial savings. 

• Weapon System Sustainment: Our aging platforms and equipment create 

upward pressure on costs—obsolescence is a continuing management challenge 

• The Defense Weather Satellite System (DWSS): Decisions were made to 

enhance funding to this program in finalizing the fiscal year 2012 President’s budget submission which impacts projected savings associated with 

this program across the FYDP. We are doing assessments within this program, our space portfolio, and broader acquisition efficiencies as a means 

to fill this efficiency target gap 

The process for managing efficiencies has considered that fact of life issues are 

inevitable. The ability to fill gaps quickly when they arise is essential and is part 

of the ongoing management process. The Air Force will be proposing additional efficiencies to fill any shortfalls in executing fiscal year 2012 and in building the fiscal 

year 2013 budget. 

RELOCATION OF MARINE CORPS FORCE FROM OKINAWA TO GUAM

28. Senator AYOTTE. Secretary Work, the current agreement between the United 

States and Japan to realign forces on Okinawa, and to relocate 8,000 marines and 

their families from Okinawa to Guam is planned to cost over $25 billion between 

the two countries. Given the recent tragic events in Japan, is DOD currently reassessing the terms of the agreement? If so, can you provide details? 

Mr. WORK. A ‘‘2+2’’ meeting between the Secretary of Defense, Secretary of State, 

Japanese Minister of Defense, and Japanese Minister of Foreign Affairs will be 

scheduled for late May or early June in Tokyo. In the preliminary discussions, the 

Government of Japan has assured the U.S Government that since the natural and 

nuclear disaster events of March 11, 2011 it remains committed to the Roadmap 

Agreement, both for the Futenma Replacement Facility and Okinawa as well as the 

Guam realignment. We are working with the Japanese to determine what effect the 

events of March 11, 2011 may have on the near term bilateral agenda. 

29. Senator AYOTTE. Secretary Work, in your opinion, is the closure of Marine 

Corps Air Station Futenma and the relocation of Marine Air activities to Camp 

Schwab still a legitimate option? 

59 

Mr. WORK. We continue to work with the Government of Japan to develop the 

way forward to construct the Futenma Replacement Facility (FRF) at Camp 

Schwab. Per the 2006 Roadmap Agreement, we will continue to use MCAS Futenma 

until a fully operational FRF is completed. 

30. Senator AYOTTE. Secretary Work, what are currently the planned investments 

on Guam and on Okinawa by each country? 

Mr. WORK. Regarding Guam, per the Realignment Roadmap, the Government of 

Japan will contribute up to $6.09 billion in funding towards the relocation of marines from Okinawa to the U.S. territory. The funding contribution is comprised of 

a direct cash contribution of $2.8 billion, plus up to $3.29 billion in financial instruments for utilities and family housing to support the relocation of marines. The 

United States will bear the balance of the costs associated with the realignment. 

The Government of Japan has transferred $834 million to the United States to 

fund the following projects (awards pending): (note Japanese fiscal year (JFY) runs 

from April 1–March 31): 

• JFY09: 

• Utilities & Site Improvements I: $321 million 

• JFY 2010: 

• Apra Harbor Medical Clinic: $96 million 

• Apra Harbor Waterfront HQ: $25 million 

• Utilities & Site Improvements II: $309 million 

• Finegayan Fire Station: $25 million 

• JFY 2011: 

• MLG Admin Building: $59 million 

• Base Admin Building: $70 million 

In JFY 2011, the Government of Japan also approved $415 million in financing 

for water and wastewater projects on Guam. 

Guam projects funded by the U.S. Government thus far are: 

• Fiscal Year 2010: 

• AAFB North Ramp Utilities I: $22 million (awarded in April 2011) 

• AAFB North Ramp Parking I: $89 million (awarded in April 2011) 

• Apra Harbor Wharf Improvements I: $127 million (awarded in Sept. 

2010) 

• Military Working Dog Facility Relocation: $14 million (awarded in Sept. 

2010) 

• Defense Access Road Improvements: $49 million 

• Fiscal Year 2011 

• Apra Harbor Wharf Improvements II: $40 million 

• Defense Access Road Improvements: $67 million 

Additionally, the President’s budget for fiscal year 2012 includes a request for 

$181 million for two MILCON projects (AAFB North Ramp Utilities II, Finegayan 

Water Utilities) and planning and design. We have developed an updated cost estimate and notional timeline for the Guam realignment and have offered to brief committee staff regarding these issues. 

31. Senator AYOTTE. Secretary Work, are the planned investments still affordable? 

Mr. WORK. Given the significance of the realignment of Marine forces in the Pacific, we continue to work to identify opportunities to reduce the costs while at the 

same time implementing the best possible strategic laydown of forces in the Pacific. 

TERMINATION OF WEAPONS SYSTEMS

32. Senator AYOTTE. Secretary Hale, over $21 billion of the projected savings in 

the next 5 years will be achieved through program terminations and reductions. Assuming the requirements still exist, say for example amphibious assault, do these 

savings take into account the additional costs the Services will incur in other programs to compensate for the terminations? If not, why not? 

Mr. HALE. The Army terminated three programs including Non-Line of Sight 

Launch System (NLOS–LS), Surface Launched Advanced Medium Range Air-to-Air 

Missile (SLAMRAAM) and Scorpion. The Army believes existing systems and capabilities are sufficient and do not believe that additional procurement funds will be 

required for other programs. Army also determined that Scorpion was not a cost efVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
60 

fective program and has elected to pursue other anti-vehicular capabilities under 

the Spider Increment II program which is currently funded in fiscal year 2012. 

The Navy termination efficiencies encompassed three programs which include the 

Expeditionary Fighting Vehicle (EFV), restructure of the Joint Light Tactical Vehicle (JLTV), and termination of the Standard Missile 2 Block IIIB Upgrade. DON accounted for additional costs through reinvestment of these savings where required 

within other Navy programs. 

The Air Force corporate structure took into account the costs associated with funding the programs vice terminating. The Air Force reported $3.7 billion for program reductions and termination across fiscal years 2012–2016) including three terminated programs representing 12 percent of that total figure. Operations and 

maintenance funding adjustments to implement fiscal year 2011 costing factors comprised 35 percent, program adjustments, from fact of life changes to adjusting requirements to highest priority needs, comprised 47 percent of the total. The remaining 6 percent is associated with retiring assets as a preferred economic alternative 

to repair and continued operations. 

The Joint Multi-Mission Submersible (JMMS) program is Special Operations 

Forces (SOF) unique and its termination incurred no additional costs. 

33. Senator AYOTTE. Secretary Hale, if so, for each program termination, please 

provide details of the programs in which funding increased to meet the underlying 

requirement. 

Mr. HALE. 

Navy - Two Program Terminations/One Program Restructure. 

The Navy terminated two programs and restructured one saving $5.5 billion including termination of Expeditionary Fighting Vehicle (EFV), restructure of the 

JLTV, and termination of the Standard Missile 2 Block IIIB Upgrade. Navy reinvested EFV funding into upgrades for the current Amphibious Assault Vehicle 

(AAV) fleet, RDT&E for the proposed Amphibious Combat Vehicle (ACV), accelerated procurement of the Marine Personnel Carrier (MPC), and sustainment of legacy ground tactical vehicles to bridge the capabilities gap associated with EFV cancellation. 

Since JLTV is a program struggling with changing capability requirements and 

slow development, the restructure removes procurement funding from fiscal year 

2013 to fiscal year 2016. There is no current impact as the Marine Corps studies 

how this capability ties to its future Ground Combat Tactical Vehicles requirements. 

The SM–2 Block IIIB termination did not require additional investments in other 

programs. The Department will procure SM–6 missiles instead of SM–2 Block IIIB. 

The SM–6 program was already resourced before the SM–2 termination, and as 

such, required no additional funds to meet the Department’s requirements. 

Air Force - Three program terminations. 

1. The Air Vehicle Survivability Facility is terminated saving $3.4 million in Research Development, Test & Evaluation (RDT&E) funds across fiscal years (fiscal year) 2012–2016. The facility was deemed as non-essential at the completion of the post-BRAC 05 Memorandum of Agreement was signed by the Air 

Force and Navy. All subsequent Air Force live-fire test and evaluation workload has been moved to the Navy facility at China Lake. A near term fiscal 

year 2012 closure bill of $250,000 was provided in the offset option. Any potential environmental cleanup cost is pending completion of the environmental assessment. 

2. The Air Force Infrared Search and Track (IRST) Program modification to the 

F–15 was terminated saving $43.8 million in RDT&E funds across fiscal year 

2012–2013 and $301.6 million in procurement funds across fiscal year 2013– 

2016. 

3. Advanced Targeting Pods-Sensor Enhanced (ATP–SE) was terminated saving 

$98.7 million in procurement funds across fiscal year 2012–2016. We have associated support funding reductions from this termination which are included 

in our program reduction accounting. 

U.S. Special Operations Command-One program termination. 

JMMS was terminated saving $800 million from fiscal year 2013 to fiscal year 

2016. The $800 million was realigned to fund the SOCOM Undersea Mobility Way 

Ahead. Longstanding capability gaps persist in SOCOM’s requirement to operate in 

denied maritime areas from strategic distances. The JMMS program resources were 

realigned to the following program requirements: 

• Sea, Air, and Land (SEAL) Delivery Vehicle (SDV) Mk 8 technology refresh 

61 

• SDV upgrades 

• Shallow Water Combat Submersible Block I Program of Record 

• Development of a family of dry combat submersibles 

• Dry Combat Submersible Light 

• Dry Combat Submersible Medium 

• Dry Deck Shelters (DDS) Modifications/Extension 

• Analysis of Alternatives for the Next-Generation Submarine Shelter 

Army—Three programs terminated. 

The Army terminated three programs saving $4.5 billion including Non-Line of 

Sight Launch System (NLOS–LS), SLAMRAAM, and Scorpion. 

The NLOS–LS program was terminated when senior leadership determined that 

NLOS–LS was not cost effective compared to other precision fire capabilities. The 

Army believes existing systems and capabilities are sufficient to attack intended target sets and do not believe that additional procurement funds will be required for 

other programs. 

SLAMRAAM procurement was cancelled when senior leadership determined it 

was not cost effective compared to other air and missile defense capabilities. Sufficient capability currently exists within other programs, e.g., Patriot, to attack lower 

tier targets such as cruise missiles, although funding was added to upgrade Stinger. 

Senior leadership also determined that Scorpion was not a cost effective program 

and has elected to pursue other anti-vehicular capabilities under the Spider Increment II program which is currently funded in fiscal year 2012. 

CUTS TO SERVICE CONTRACTS

34. Senator AYOTTE. Secretary Hale, does DOD have a baseline accounting of the 

funds spent on service contracts annually? 

Mr. HALE. The Department utilizes the Office of Management and Budget directed object class categories to identify the amount of funding spent on contract 

services annually. Object classes are categories in a classification system that 

present obligations by the type of items or services purchased by the Federal Government, for example, supplies, rent, contract services. These amounts include both 

base budget funding and Overseas Contingency Operations (OCO) funding. 

35. Senator AYOTTE. Secretary Hale, if there is a baseline accounting of these 

funds, can you provide details on the amounts spent annually by type of service contract? 

Mr. HALE. The actual amount spent in fiscal year 2010 on Contract Services from 

base budget and Overseas Contingency Operations funding was: 

[In millions of dollars] 

Object Class Object Class Title Fiscal Year 2010 Actual 

25.1 .............. Advisory and Assistance Services ....................................................................................... $19,368 

25.2 .............. Other Services ...................................................................................................................... 20,895 

25.4 .............. Operation and Maintenance of Facilities ............................................................................ 24,923 

25.5 .............. Research and Development Contracts ................................................................................ 3,188 

25.6 .............. Medical Care ........................................................................................................................ 13,985 

25.7 .............. Operation and Maintenance of Equipment ......................................................................... 30,608 

25.8 .............. Subsistance and Support of Persons .................................................................................. 347 

Total $113,314 

36. Senator AYOTTE. Secretary Hale, if there isn’t a baseline accounting of these 

funds, how will you be able to assess the performance of DOD’s goal to cut service 

contracts by 10 percent in each of the next 3 years, resulting in a savings of $5.7 

billion? 

Mr. HALE. The Department plans to monitor compliance with the service support 

contract funding reductions through a data call that will require each component 

to provide an implementation plan that lists actions taken and planned during fiscal 

year 2011. Components will be required to provide an update twice annually. 

62 

CUTS TO FACILITY ACCOUNTS

37. Senator AYOTTE. Secretary Hale, since maintenance of DOD facilities requires 

a minimally adequate level of annual funding, why does DOD consider cuts to those 

accounts as an efficiency savings? 

Mr. HALE. Two Military Services believe they can identify facility sustainment efficiencies. Given the stress on DOD’s budgets now and in the near future, we believe 

it is important to explore opportunities to save resources. The Department will monitor the Navy and Air Force sustainment execution to identify whether they were 

able to maintain or improve delivery of services or just defer them. 

38. Senator AYOTTE. Secretary Hale, does the long-term underfunding facility 

maintenance and repairs have a detrimental impact on readiness? 

Mr. HALE. While the long-term effect of underfunding maintenance and repairs 

results in an increase to the deferred maintenance backlog, the Department 

prioritizes critical facility maintenance and repairs to eliminate significant detrimental impacts to readiness. 

39. Senator AYOTTE. Secretary Hale, will the accompanying reduction of funds for 

MILCON increase the need for maintenance and repair funds, thereby accelerating 

the detrimental impact on readiness? 

Mr. HALE. The fiscal year 2012 MILCON reductions are a result of completing 

BRAC and changes in other initiatives like Grow-the-Force. Because these efforts 

were not recapitalization efforts, these reductions do not correlate to requirements 

for additional restoration and modernization funds. Further, regardless of any reduction of funds for MILCON investments, the necessary annual investments for 

sustainment of existing infrastructure remain. The DOD has processes to determine 

and fund priority critical facility maintenance and repairs to eliminate significant 

detrimental impacts to readiness. 

40. Senator AYOTTE. Secretary Westphal, the Army proposes to save $1.5 billion 

on MILCON costs by sustaining existing facilities, but does not propose a corresponding increase to the facility sustainment account. How will the Army fund the 

increased sustainment load? 

Dr. WESTPHAL. The Army is now focusing on using Operations and Maintenance 

(O&M) funded restoration and modernization as a more cost effective way to meet 

current mission requirements as opposed to replacing facilities through MILCON. 

This approach has been successful in modernizing certain types of permanent party 

barracks and we plan to expand this approach by continuing with training barracks 

modernization using both MILCON and O&M. The fiscal year 2012 budget includes 

$202 million for restoration and modernization, an increase over prior year requests. 

ARMY REDUCTIONS

41. Senator AYOTTE. Secretary Westphal, in reviewing the testimony and supporting documentation, I was struck by the vague descriptions of some of the Army 

initiatives. Please provide more details on the ‘‘adoption of an Enterprise Governance Approach to transforming business operations and obtaining the best possible 

outcomes for the entire Army rather than individual portions of the force’’. 

Dr. WESTPHAL. The Army’s enterprise governance approach supports transforming 

business operations and obtaining best possible outcomes by using broad collaboration and finding innovative Army-wide solutions. We created four functional forums 

called ‘‘Core Enterprises’’ centered on manning, readiness, equipping and services to 

help us better align and integrate our business operations. These Core Enterprises 

are focused on improving Army business processes through collaboration within and 

between the Core Enterprises. This creates a holistic team approach towards transforming business operations. Problems are now exposed in the full light of a multifaceted forum that brings together a broad range and depth of experiences to improve the Army. Some examples of the Army’s enterprise governance approach include the recent stand up of the Business Systems Information Technologies Executive Steering Group and defining 27 Business Initiatives. The Business Systems Information Technologies Executive Steering Group is chaired by the Army Chief 

Management Officer and works in close coordination with the DOD Deputy Chief 

Management Officer to synchronize, integrate, and prioritize resources. The Army 

Chief Management Officer has designated Enterprise Business Initiatives which are 

broad enough in scope to affect the Army in several ways. We use a horizontal integration approach to prevent secondary and tertiary unintended consequences as we 

move toward implementation. The enterprise governance approach for business iniVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
63 

tiatives reduces risk of failure and wasted resources as a mechanism for continuous 

process improvement. 

42. Senator AYOTTE. Secretary Westphal, where can we find the savings of $75 

million in the current budget request? 

Dr. WESTPHAL. Assuming that the referenced $75 million reduction is in Base Operations Support, the Army will realize these savings by taking the following actions: 

• Installation Management Command (IMCOM) restructuring initiatives. 

• IMCOM will generate manpower savings by restructuring the Command’s 

operations staff sections to reduce civilian pay requirements. 

• Family Morale, Welfare, Recreation Command (FMWRC) Inactivation/Integration. The Army is inactivating the two-Star FMWRC Command and 

integrating its mission into the General Staff. This reduces the command’s 

structure and leverages existing capabilities already performed by the 

IMCOM Headquarters staff. 

• Elimination of Staff Augmentation Contracts. Leveraging the Headquarters’ Base Realignment and Closure (BRAC) move from Washington, 

DC to Fort Sam Houston, TX, IMCOM eliminated its dependence on contractor personnel and is staffing the Headquarters with a pure Department 

of the Army Civilian (DAC) workforce in Texas. 

• Consolidation of IMCOM Regions. Midway through fiscal year 2011, IMCOM 

operated with six regional commands. By the end of fiscal year 2011, IMCOM 

will be operating with only four Regions: Pacific, Central, Atlantic and European. As we restructure and rebalance the personnel and subsequently document this restructure, the command will be able to reduce its Regional Headquarters authorized strength from its current level of 1,160 to 945, a savings 

of 215 positions. 

• Garrison Reductions: IMCOM conducted a thorough Force Restructure Review that identified approximately 3,000 Department of the Army civilians and 

Contractor Manpower Equivalent (CME) reductions across the Army’s garrisons. 

43. Senator AYOTTE. Secretary Westphal, can I get the same explanation for your 

goal to ‘‘refine and optimize full spectrum training requirements’’ and exactly how 

$1.1 billion will be saved? 

Dr. WESTPHAL. The Army goal is to train forces for a more balanced readiness 

posture, not just for counterinsurgency, nor exclusively for major combat operations 

as was done in the past. Instead, the Army will prepare contingency forces to conduct offense, defense, and stability operations in a complex 21st century operational 

environment against an adaptive hybrid threat. The $1.1 billion fiscal year 2012– 

2016 savings in training requirements is primarily due to reduced training activity 

in the Reset phase of the Army Force Generation (ARFORGEN) model and the shift 

from major combat operations to full spectrum operations training. The key adjustments for full spectrum operations training include reducing the number of Combat 

Training Center rotations that Brigade Combat Teams (BCTs) execute during an 

ARFORGEN cycle from two to one; reducing the frequency of BCT-level training 

and integrating stability operations into all training events. These changes reduce 

resource requirements, without short-changing the readiness of our forces. 

44. Senator AYOTTE. Secretary Westphal, if we are cutting training requirements 

for our soldiers, will this refinement be accompanied by reduction of the roles and 

tasks currently considered mission essential? 

Dr. WESTPHAL. There will be no reduction in roles or tasks. Moreover, stability 

tasks have been added and are now recognized as ‘‘mission essential’’ to Army operations as part of a joint/interagency/multinational team during contemporary campaigns. The intent of full spectrum operations training is to prepare forces not just 

for major combat operations or counterinsurgency operations, but to prepare leaders 

and forces to conduct offense, defense, and stability operations (or civil support operations within the contiguous United States) simultaneously for assigned missions at 

any point along the spectrum of conflict from stable peace to general war. Full spectrum operations training enables the Army to effectively respond to a broad range 

of contingencies at any point along the spectrum of conflict against hybrid threats. 

We are not cutting requirements or short-changing the readiness of our soldiers; 

rather we are more efficiently allocating training resources to better match planned 

and expected training activity levels. 

64 

CONTROLLING MILITARY HEALTH CARE COSTS

45. Senator AYOTTE. Secretary Hale, in your written statement, you state that 

‘‘DOD’s medical costs have skyrocketed in recent years—from $19 billion in fiscal 

year 2001, to more than $52 billion anticipated in fiscal year 2012.’’ In response, 

the President’s budget request for fiscal year 2012 assumes savings as a result of 

increased enrollment fees for working age retirees, adjustment of pharmacy copayments for all beneficiaries, and other health care payment reforms as well. Expected 

savings from the health care reforms will total $340 million in fiscal year 2012 and 

$7.9 billion through fiscal year 2016. Is this an efficiency or just passing rising costs 

onto retirees? 

Mr. HALE. The health care reform proposal is an efficiency with the goal of maintaining high-quality care while also slowing the growth in costs. For some time, the 

Department has taken a number of internal actions, as recommended by beneficiary 

organizations to achieve greater internal efficiency. The four benefit changes propose a shared responsibility for managing costs while introducing further efficiencies. We consider the proposal for the fiscal year 2012 budget to be fair and equitable. 

46. Senator AYOTTE. Secretary Hale, in each health care cost saving initiatives, 

is there any internal belt tightening by DOD itself that would yield a real efficiency 

savings? 

Mr. HALE. The Department proposed initiatives include $1.3 billion worth of internal Defense Health Program efficiencies across the FYDP. The initiatives include: 

[In millions of dollars] 

Fiscal Years 

2012–2016 

Patient Centered Medical Home (PCMH) Staffing ..................................................................................................... $112 

Consolidation of Initial Outfitting and Transition (IO&T) ......................................................................................... 191 

Medical Supply Chain Sourcing Optimization ........................................................................................................... 129 

Service Support Contractor Reduction ....................................................................................................................... 478 

Baseline Review (DHP/TMA) ....................................................................................................................................... 262 

Reports, Studies, Boards & Commissions Review .................................................................................................... 124 

Total Potential Savings ..................................................................................................................................... $1,296 

• The PCMH concept has been adopted as the foundation for refocusing the 

primary health care delivery model with the Military Health System 

(MHS). PCMH will generate savings by reducing the utilization of specialty, 

critical care, and inherent staffing for implementation. 

• Through consolidated IO&T management of medical/non-medical equipment, technology systems, and furniture for MILCON initiatives efficiency 

savings can be achieved. 

• The Department determined opportunities for supply chain optimization 

through medical materiel sourcing strategies. The reduction is less than 1 

percent of total supply purchases and should be easily achieved primarily 

through efforts of the Defense Logistics Agency (DLA). 

• The Department is currently conducting a complete bottom-up review of 

Programs within the TRICARE Management Activity which rely heavily on 

Contractor Support. Programs will be reviewed based on strategic importance, performance, and affordability. 

• As part of a baseline review, the TRICARE Management Activity will reduce staff and streamline its headquarters management. Significant efficiencies will be realized with no reduction in mission effectiveness. 

• The entire Department, to include Health Affairs, will implement guidance to reduce expenditures on Reports, Studies, Boards and Commissions. 

The cost of producing future initiatives will also be reported for transparency. 

47. Senator AYOTTE. Secretary Hale, how many of the proposed DOD efficiency 

initiatives actually transfer or increase costs to military members or other beneficiaries? 

Mr. HALE. Three of the reform initiatives modestly increase beneficiary’s out-ofpocket costs. 

65 

Increase TRICARE Prime Fees for <65 Retirees 

• This proposal would increase Prime enrollment fees in fiscal year 2012 for working age retirees by $5/month for families or $2.50/month for individuals, but would exclude Survivors, medically retired members, and their 

beneficiaries. In addition, it is recommended that starting in fiscal year 

2013 enrollment fees be indexed to a medical index to keep pace with 

health care inflation. Given that fees have not increased since the inception 

of TRICARE in the mid-1990s, and it protects our most vulnerable populations from additional financial burden, this proposal is viewed as a very 

modest increase, which continues to recognize the sacrifices made by our 

military. 

Pharmacy Co-Pay 

• This proposal will change co-pays for pharmaceuticals to provide incentives for beneficiaries to choose the most cost-effective options for prescriptions, namely use of generic drugs and delivery of prescriptions by mail. Copays are eliminated altogether for generic drugs ordered through the mail 

order program, which will mean a savings to beneficiaries of $3 per prescription. Most non-generic drugs are available via mail order with no increase in co-pays. For retail pharmacies, co-pays are increased by $2 to $3 

per prescription. These changes will help Department to contain medical 

care costs while still meeting the medical needs of our beneficiaries. 

U.S. Family Health Plan (USFHP) 

• This proposal will provide equitable treatment for all Medicare-eligible 

retirees by offering a single program design across the country. Under current law, Medicare-eligible enrollees are allowed to remain in the USFHP, 

whether they enroll in Medicare Part B or not. They are the only military 

retirees using the health benefits who do not have to enroll in Medicare 

when they become eligible. We seek legislative authority that will require 

those who are part of the USFHP to join Medicare upon reaching age 65. 

Our plan will fully grandfather all of those who are already in USFHP, but 

would require future USFHP enrollees to transition to Medicare and 

TRICARE for Life once they become Medicare-eligible. Future retirees covered by the proposal would still be able to obtain services from providers 

associated with USFHP as long as the providers accept Medicare. 

48. Senator AYOTTE. Secretary Westphal, Secretary Work, and Secretary Conaton, 

as you know, the committee has received a letter signed by Admiral Mullen and 

each of the uniformed Service Chiefs supporting the President’s proposal to increase 

TRICARE fees. However, some beneficiary organizations have a different perspective. Are you aware of the concerns expressed by these beneficiary organizations on 

the proposed TRICARE increases, in particular linking fee increases for working age 

retirees to medical inflation rates? 

Dr. WESTPHAL. Yes, we are aware of the concerns expressed by some beneficiary 

organization over the proposed TRICARE rate increases. 

Mr. WORK. We understand that some beneficiary groups have expressed concerns 

about the use of the health care inflation index for deriving future TRICARE Prime 

enrollment fee increases for working age retirees. 

Nevertheless, DON supports the Secretary of Defense’s health care reform initiatives and I believe these proposals are consistent with our efforts over the last several years, which have focused on finding internal efficiencies, incentivizing healthy 

behaviors by our service men and women, and ensuring all of our beneficiaries are 

treated equitably. These proposals are modest and provide an opportunity for all 

participants—the government, providers of health care, and beneficiaries—to share 

in the responsibility to better manage our health care costs. 

Ms. CONATON. Yes, I am aware of the beneficiary organizations concerns with regard to the proposed TRICARE increases. 

The TRICARE Prime enrollment fee was established in 1995 and set at $230/$460 

for individuals/families. This fee has not changed in 16 years. Enrollees who pay 

this fee subsequently pay no TRICARE deductible (reducing the effective cost of enrollment to $80/$160 per year). The expectation had been to raise the enrollment 

fee on a periodic basis, but this has never happened. In 2005, DOD attempted to 

increase the TRICARE enrollment fee by approximately 300 percent over three 

years to again have some parity with civilian health premiums. This proposal was 

met by significant resistance from beneficiary organizations, and Congress ultimately decided the increase was too severe and prohibited any increase in TRICARE 

Prime enrollment fees. 

66 

Having learned lessons from the previous attempts at increasing TRICARE enrollment fees, and out of genuine concern not to introduce unexpected and steep hikes 

in out-of-pocket costs, the Department has put forward a significantly more modest 

fee increase ($2.50 or $5/month for individuals/families). The proposal indexes any 

future enrollment fees to a medical inflation rate, thereby moving to a regular and 

gradual increase from year-to-year, and also excludes from fee increase the following 

special populations of retirees: survivors (regardless of when or how the 

servicemember died), and medically retired military members and their families. 

We believe this proposal represents a fair and responsible increase in TRICARE 

Prime enrollment fees, and provides a balanced approach to managing the escalating healthcare costs of our MHS while ensuring we continue to provide the best 

healthcare in the world for our warriors and their families. 

49. Senator AYOTTE. Secretary Westphal, Secretary Work, and Secretary Conaton, 

how do you respond to these concerns? 

Dr. WESTPHAL. We acknowledge that these proposed changes have created some 

concern among our beneficiaries and various organizations that represent them. 

However, we believe the proposal to raise some TRICARE fees for working age retirees will be modest, gradual, and responsible. We support DOD efforts to work with 

Congress to find ways to help control escalating healthcare costs. The Army, in partnership with DOD, is committed to preserving this healthcare benefit while recognizing that continued increases in costs are not sustainable. Even with proposed fee 

changes, TRICARE would remain one of the Nation’s very best health benefits and 

beneficiaries would continue to have less out of pocket costs than Federal, State, 

and private health plans. These proposals balance our commitment to preserve the 

healthcare benefit while slowing future growth in healthcare costs. We continue to 

support modest fee increases as proposed. 

Mr. WORK. DON supports the Secretary of Defense’s health care reform initiatives. TRICARE Prime enrollment fees have not changed since the mid-1990s and 

aligning future increases to an established index will help us continue to deliver superb benefits while more responsibly managing cost. I believe this and other proposals are consistent with our efforts over the last several years, which have focused 

on finding internal efficiencies, incentivizing healthy behaviors by our service men 

and women ensuring all of our beneficiaries are treated equitably. These proposals 

are modest and provide an opportunity for all participants—the government, providers of health care, and beneficiaries—to share in the responsibility to better manage our health care costs. 

Ms. CONATON. As stated in the aforementioned letter dated 7 Feb 11, I strongly 

support these modest changes to the military healthcare program in the fiscal year 

2012 budget. 

I believe we have included the appropriate safeguards to ensure a careful and 

measured approach to protect our most vulnerable beneficiaries, while continuing to 

provide free healthcare to our active duty personnel. Additionally, all Services and 

the TRICARE Management Activity have looked internally to identify efficiencies 

and incorporate those into the system before the decision to pursue these changes. 

Our commitment to our beneficiaries remains unchanged, with continued investment in wounded warrior care and enhanced access to superior health services to 

all our beneficiaries. I believe these changes to the MHS are critical to our continuing to provide the finest healthcare benefit in the world while also slowing the 

cost growth in the healthcare system. 

50. Senator AYOTTE. Secretary Westphal, Secretary Work, and Secretary Conaton, 

are you concerned about the effect of such increases on recruitment or retention of 

military personnel? 

Dr. WESTPHAL. With the projected economy growing at a slow rate, the Army is 

experiencing a favorable recruiting and retention environment. We acknowledge 

that health care benefits are part of the overall package that recruits consider in 

joining the Army and in staying in the Army; however we do not anticipate any 

shortfalls in recruitment or retention at this time. 

Mr. WORK. Navy anticipates that a fee increase would have little, if any, impact 

on recruiting and retention. TRICARE is a robust health plan with broad coverage 

at costs well below comparable civilian health insurance plans. While the proposed 

modest fee adjustment would increase out-of-pocket expenses for working-age retirees, their total health care expenditure would remain well below comparable commercial plans. It is also unlikely that a modest change in the cost of a retirement 

benefit, to which most potential recruits would never become eligible, and to which 

those who remain until retirement eligibility would not become eligible until at least 

67 

20 years later, would influence an applicant’s decision on whether or not to enlist 

in the Navy. 

Ms. CONATON. While there are many dynamics that impact military recruiting 

and retention, we do not believe the proposed change to TRICARE fees for retirees 

will adversely impact our recruiting and retention. Without these adjustments, we 

will need to reduce funding in other areas such as those programs supporting Airmen and their families. The latter funding reductions would more adversely impact 

recruiting and retention. 

EVOLUTIONARY ACQUISITION FOR SPACE EFFICIENCY

51. Senator AYOTTE. Secretary Hale, the Air Force has proposed an efficiency initiative to adopt a new method for acquiring satellites called Evolutionary Acquisition for Space Efficiency (EASE). The Air Force is expecting this new acquisition 

approach to save up to $1.7 billion to help launch development of a new long-range 

bomber program. We have recently heard that the Assistant Secretary of Defense 

for Acquisition, Technology and Logistics (AT&L) may have some serious concerns 

about the use of a multiyear program authority for the EASE program, putting its 

authorization into doubt. What is DOD’s position on the use of multiyear procurement authority for the Air Force initiative? 

Mr. HALE. The DOD has discussed the Multi-Year Procurement provisions at 

length with the White House and Congressional staffs in reference to the Advanced 

Extremely High Frequency (AEHF) and Space-Based InfraRed System (SBIRS) programs. As a result of these discussions, we have determined that Multi-Year procurement authorization is not required for these space systems. Therefore, the 

model we are implementing is not Multi-Year Procurement. In both of these cases, 

the Air Force is procuring two satellites, in a block buy, in a single year. However, 

funding both satellites, in a single year, is not practically achievable in today’s 

budget environment. In order to finance EASE, in conjunction with OMB, the DOD 

has developed a model that achieves full funding of block buys through Advance Appropriations. 

Savings realized through the AEHF and SBIRS block buys will be reinvested in 

research and development for technology enhancement to advance the SATCOM and 

Overhead Persistent Infrared (OPIR) mission area capabilities. 

52. Senator AYOTTE. Secretary Hale, what is DOD’s view on using multiyear contracts to buy military satellites? 

Mr. HALE. The DOD is not using multiyear procurement contracts to purchase 

military satellites at this time. However, future satellite procurements, such as the 

Global Positioning System (GPS), or future launch vehicle procurements could gain 

significant savings through multiyear procurement contracts. The DOD will evaluate each procurement on a case-by-case basis to determine if the system fulfills all 

United States Code Title 10 requirements for multiyear procurement contracts. 

53. Senator AYOTTE. Secretary Hale, from your perspective, isn’t there a danger 

that using multiyear contracts to buy major systems too aggressively across the enterprise could restrict DOD’s ability to terminate or otherwise effect reductions in 

problem programs? 

Mr. HALE. Thank you for this question, I have a two part response. 

EASE 

The DOD evaluated but decided not to use multiyear contracts to purchase military satellites in the development of the fiscal year 2012 budget. Instead the Department’s PB12 budget employs EASE on AEHF with block buys fully funded 

through Advance Appropriations. The principles that should govern a decision for 

satellite block buys are stable requirements, a stable design, completed development, and readiness for steady state production. 

MYP 

Multiyear Procurement (MYP) can be an effective tool to reduce unit cost in continuous stable production runs. When we buy a certain number of items each year 

for a set amount of years, MYP is one tool available to generate savings. Through 

large lot, sometimes referred to as Economic Order Quantity (EOQ), material buys 

can generate significant savings on purchased material costs. These large procurements also incentivize contractors to be more efficient in their operations as the government has committed to a long-term procurement run. The government can also 

use MYP as a negotiating lever by increasing our buying power, which can encourVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
68 

age companies to commit to lower fee levels in exchange for a longer-term commitment. 

We understand that MYP commits both the Department and Congress, and we 

will analyze each MYP proposal on a case-by-case basis and propose only those that 

meet the principles referred to above. 

54. Senator AYOTTE. Secretary Hale, are DOD efficiencies initiatives inhibited by 

policies in the OMB that prefer multiyear procurements over incremental funding 

for the acquisition of major weapon systems? 

Mr. HALE. The DOD and OMB have collaborated well on identifying potential efficiencies and acquisition initiatives such as EASE. OMB policies do not inhibit DOD 

efficiency initiatives. 

55. Senator AYOTTE. Secretary Hale, if the savings proposed through EASE are 

not realized, how will that affect the long-range bomber program? 

Mr. HALE. Savings realized through the AEHF and SBIRS block buys will not be 

applied to the long-range bomber program. Rather, these savings will be reinvested 

in research and development for technology enhancement to advance the SATCOM 

and Overhead Persistent Infrared (OPIR) mission area capabilities. 

56. Senator AYOTTE. Secretary Conaton, has the Air Force received any recent 

guidance from DOD about EASE? If so, can you share that guidance? 

Ms. CONATON. The Air Force has been working with DOD Office of the Secretary 

of Defense (OSD) the last several months on the EASE construct. The Air Force envisions implementing the EASE concept to drive down costs, improve stability in the 

fragile space industrial base, invest in technology that will lower risk for future programs, and achieve efficiencies through block buys of satellites. EASE achieves 

these benefits through four basic elements: block buys of satellites; stable research 

and development funding; fixed price contracts; and full funding over multiple years 

via advanced appropriations. The Air Force is working closely with the Office of 

Management and Budget (OMB), OSD Acquisition, Technology, and Logistics 

(AT&L), and OSD Cost Assessment and Program Evaluation Office (CAPE) to establish EASE guidelines and achieve these objectives in the event that Congress approves this approach. 

METHODOLOGIES FOR SELECTION OF EFFICIENCIES INITIATIVES

57. Senator AYOTTE. Secretary Hale, I have concerns the due diligence and methodologies used to quantify the spending cuts and benefits, specifically whether those 

methodologies are reliable, traceable, repeatable, and defensible. For example, on 

the closure of U.S. Joint Forces Command (JFCOM), how did you determine the potential savings that would be realized from the closure? 

Mr. HALE. A Transition Planning Team was organized comprised of members 

from the Joint Staff and U.S. Joint Forces Command (JFCOM) to analyze and assess the functional construct of the command and tighten focus on core joint capabilities. The analysis of the JFCOM 6 specified responsibilities assigned in the draft 

2010 Unified Command Plan (UCP) identified 24 of 77 functions that should be 

eliminated, with the remaining functions scaled for efficiency. 

The Transition Planning Team performed a cost-benefit-analysis of every JFCOM 

function using three major factors to evaluate the cost versus benefit of retaining 

or eliminating each function. Each function was evaluated on the merits of its authoritative requirement; its uniqueness and essentiality; and the risk to joint force 

readiness if the function was eliminated. 

58. Senator AYOTTE. Secretary Hale, please share the methods you used to quantify and, more importantly, validate this savings. 

Mr. HALE. All of the cross-cutting efficiency initiatives were quantified in dollars 

and many were also quantified in manpower or other quantitative measures. The 

specific approach for quantifying the savings varied across initiative. For example, 

the service support contract reduction was estimated using the actual inventory of 

contracts for each component. The actual contract values were used to calculate the 

percentage reduction. Actual progress will be monitored by each Component reporting the specific contracts that have been reduced or terminated. Another example 

is the senior executive position reduction which used the actual position eliminated 

to calculate the savings. All of the initiatives had a specific approach for quantifying 

the savings that will be monitored in actual execution. 

69 

59. Senator AYOTTE. Secretary Hale, presumably, the departments and organizations within the DOD have provided you with a Plan of Action and Milestones 

(POAM) document to pursue an effective plan that would identify, eliminate, and 

capture cost savings for reinvestment. Was this completed for JFCOM and all other 

efficiency initiatives? If so, can you describe the process to develop the POAMs? 

Mr. HALE. The Department is implementing a process to collect the component 

plans for the efficiency initiatives. The plans will include the milestones associated 

with the initiative, the financial and nonfinancial metrics for measuring the initiative implementation, and the areas of risk and risk mitigation strategies. The initial 

plans will be collected and briefed to senior Department leadership in early summer. 

This will ensue the baselines are clear before execution begins in fiscal year 2012 

and will also provide information to inform the summer fiscal year 2013 budget review. 

60. Senator AYOTTE. Secretary Hale, please discuss how you plan to manage these 

execution plans so dates don’t slip and savings are not minimized. 

Mr. HALE. The component initial plans will be collected and briefed to senior Department leadership in early summer. This will ensue the baselines are clear before 

execution begins in fiscal year 2012 and will also provide information to inform the 

summer fiscal year 2013 budget review. The components will brief senior Department leadership again in early fall with actual results from the first 2 months of 

fiscal year 2012. These briefings will be used to ensure actions are taken to mitigate 

schedule and savings risks. 

61. Senator AYOTTE. Secretary Conaton, the Air Force’s Deputy Chief Management Officer was recently quoted as saying that if the Service does not meet those 

efficiency goals, it could be pressed to remove money from areas it had not planned 

to cut, making DOD both less efficient and less capable. Do you agree with that assessment? 

Ms. CONATON. Yes, I agree. The Air Force gave careful consideration to the development of efficiency initiatives and the application of savings to support mission and 

force structure requirements. Continuing our longstanding commitment to fiscal responsibility and operational efficiency, the Air Force is committed to a deliberate 

process to enhance capabilities by reducing expenses allocated to overhead and support functions while shifting resources to the modernization and readiness programs. If we find any portion of the efficiencies cannot be achieved in execution, we 

will find and execute another form of efficiency to ensure we preserve the critical 

warfighting enhancements included in the fiscal year 2012 President’s budget request. 

62. Senator AYOTTE. Secretary Conaton, exactly how will you ensure that the Air 

Force actually holds those lines, so that money doesn’t migrate back into those accounts where it intended to spend less? 

Ms. CONATON. The Air Force comptroller is assisting with the means to track actual expenditures and ensure resources are not migrated back into efficiency areas. 

Efficiency initiatives that cannot be readily reported through Air Force financial systems or other sources will be reported to the comptroller through senior leadership 

assigned to those respective priority areas. The Air Force Audit Agency will be assessing the adequacy of financial controls to assure accurate financial data on the 

results of efficiency initiatives beginning in fiscal year 2012. 

The Air Force will use its existing corporate governance structure, the Air Force 

Board and Council, to regularly review status towards achieving identified efficiencies by measuring specific progress against the implementation plans. The Air 

Force Deputy Chief Management Officer is leading the Air Force Board, attended 

by flag officers/senior executives from across Headquarters Air Force and Major 

Commands, in monthly reviews of the execution status of efficiency efforts. 

On a quarterly basis, the Air Force Council, co-chaired by myself and the Vice 

Chief of Staff, will monitor plans and progress to ensure efficiency outcomes are 

being delivered and will also review readiness and performance data to ensure Air 

Force efficiencies are not inadvertently impacting mission performance or the quality of life of airmen. 

63. Senator AYOTTE. Secretary Conaton, to what extent did the Air Force put together a POAM which would help ensure that the savings that the Air Force has 

identified will be realized and will eliminate and capture cost-savings for reinvestment? 

Ms. CONATON. The Air Force has established detailed implementation plans, 

which are the responsibility of senior leadership, to ensure results against proVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
70 

grammed efficiencies. We are compiling and will track updates to plans through an 

Integrated Master Schedule. We have also established fiscal tracking through the 

Air Force comptroller to ensure we allocate and expend funds consistent with efficiency plans. 

64. Senator AYOTTE. Secretary Conaton, can you provide these document(s)? 

Ms. CONATON. The Air Force has established detailed implementation plans, 

which are the responsibility of senior leadership, to ensure results against programmed efficiencies. We are compiling and will track updates to plans through an 

Integrated Master Schedule (IMS). We have also established fiscal tracking through 

the Air Force comptroller to ensure we allocate and expend funds consistent with 

efficiency plans. 

The Air Force has provided to the Senate Armed Services Readiness and Management Support Subcommittee staff, for each of our efficiency initiatives, documents 

that detail what the Air Force is seeking to achieve, why it was selected, and how 

we are going about implementing the initiative. The papers provided addressed: (1) 

organization and headquarters consolidations to include our AOC and NAF consolidation as well as above wing level installation support; (2) manpower and personnel 

efficiencies to include reducing planned growth in civilian manpower and realigning 

military manpower into force structure and readiness; (3) facility sustainment savings targeting 10 percent savings to facility sustainment and reducing non-utility 

Facility Operations (FO) costs by 3 percent without impact to mission; (4) acquisition management efficiencies which included overhead and indirect program cost reductions; (5) logistics support savings which addresses performance improvement 

and efficiencies in logistics and installations, weapon system sustainment, Mobility 

Air Force aviation fuel use, converting product support activities from contracted logistics support to organic, reductions in vehicle fleet size and facility demolition and 

consolidation; (6) space acquisition efficiencies to include achieving a 10 percent reduction in EELV procurement costs without degrading launch capability; (7) 

MAJCOM support efficiencies which targets movement of operation and maintenance funding from support to direct readiness and mission activities; (8) training 

efficiencies related to sustaining Air Force mission readiness at or above current 

standards while reducing the cost to sustain current training levels; and (9) improving information technology (IT) efficiencies and operations across all Air Force IT 

while maintaining Air Force operational cyberspace capabilities. We can readily discuss and review the plans outlined in papers already provided with our staff and 

provide additional detail and discuss our plans if desired by you or your staff. 

UNIFIED MEDICAL COMMAND

65. Senator AYOTTE. Secretary Hale, in its March 1, 2011, report titled, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, 

and Enhance Revenue,’’ the Government Accountability Office (GAO) found that realigning DOD’s military medical command (MEDCOM) structures and consolidating 

common functions could increase efficiency and result in savings ranging from $281 

million to $460 million annually. Although incremental steps have been taken toward reducing duplicative layers of MEDCOM where possible, three separate service medical departments and structures remain essentially unchanged. Please provide DOD’s position on each efficiency proposal contained in the GAO report that 

relates to DOD. 

Mr. HALE. Attached is a letter sent by the Director of Cost Assessment and Program Evaluation to Senator Pryor which outlines the Department’s position on the 

efficiency proposals contained in the GAO report. 

71 


329rms16.eps
72 

66. Senator AYOTTE. Secretary Hale, was further consolidation of MEDCOM functions, including establishment of a unified MEDCOM, considered during the development of the Secretary’s efficiency initiatives? If not, is further consolidation an option that is on the table for future consideration? 

Mr. HALE. We did look at the organizational structure of the MHS as part of the 

Secretary’s efficiency initiatives. We did not consider either a Unified MEDCOM or 

a Defense Health Agency as options to consider for this particular effort. 

The Secretary and the OSD Team, however, did study organizational options that 

streamlined certain functions within the MHS. For example, optimization of the 

medical supply chain is one area in which savings can be achieved through both 

leaner organizational structures and more leveraged purchasing strategies. 

With the physical relocation of the OSD and Service medical headquarters in one 

location as required by BRAC, we will continue to pursue the consolidation of certain functions that may be better delivered as a single entity. BRAC also has allowed us to geographically consolidate our medical education and training functions 

in one location. 

Finally, we also plan to assess the various health governance structures that have 

been introduced in several of the multi-service market areas over the past several 


329rms17.eps
73 

years, and develop a coherent, consistent and integrated governance approach for 

the long-term management of health care services. 

67. Senator AYOTTE. Secretary Hale, what are the benefits that you believe could 

be achieved by establishment of a unified MEDCOM, and would legislation be required? 

Mr. HALE. Secretary Gates has not proposed a Unified MEDCOM for the MHS. 

Although some efficiencies might be achieved through a single command, there are 

policy, force management and other command issues that might offset these efficiencies. The Secretary believes he currently has the authorities required for organizing the Department in the most effective and efficient manner required. 

68. Senator AYOTTE. Secretary Westphal, Secretary Work, and Secretary Conaton, 

the GAO report acknowledges the difficulty in the past in achieving consensus 

among the military departments on changes to governance of medical programs. I 

would like to ask each of you to comment on whether or not your Service agrees 

that realignment of medical programs in a unified MEDCOM would be in the best 

interests of DOD. If so, why? If not, why not? 

Dr. WESTPHAL. We are waiting on DOD to review the desirability of establishing 

a Unified MEDCOM. There are many complex factors that must be carefully taken 

into consideration before moving forward with such a monumental change in managing our health care system. 

Mr. WORK. DON fully supports an integrated health care system that maintains 

the highest standard of medical training, research, and operational support while 

simultaneously delivering world class health care around the world. The MHS is one 

of the most complex programs within DOD; and one of the most important with regard to force readiness, recruitment and retention of military personnel. Ideally, the 

effective operation of the MHS with military and civilian components working at 

maximum efficiency is critical to controlling costs while maintaining force and medical readiness. 

Assessment of existing joint arrangements should be evaluated for the Services’ 

experiences and successes with improvements and enhancements to the delivery of 

care in support of the operational commanders and to the MHS’ worldwide beneficiaries. We fully support the Secretary’s defense health care reform initiatives and 

believe the Services are working collaboratively to implement systemic efficiencies 

and specific initiatives to strategically improve quality and satisfaction while managing costs more responsibly. We can continue to leverage our successful joint efforts such as integrated healthcare in Germany at Landstuhl Regional Medical Center. As many as 300 Navy Medicine and 300 Air Force medical professionals are 

working collaboratively in an Army hospital alongside 1,000 Army medical staff to 

provide stabilization and enroute care for over 76,000 patients since the initiation 

of Operations Enduring Freedom and Iraqi Freedom. 

Ms. CONATON. The Air Force does not favor the establishment of a unified military MEDCOM. 

The Air Force Medical Service is fully integrated with the Line of the Air Force, 

and medical personnel are key members of the wing commander’s team to accomplish the wing mission. When Air Force units deploy, their medics deploy with them. 

The Unified MEDCOM would sever that close relationship at the expense of our existing effective organizational structure. We can drive unity of effort within current 

authorities without the expense of establishing a Unified MEDCOM and disrupting 

the effective alignment of medics to Service oversight. The synergy created by close 

alignment of Air Force medics to our operational mission should not be put at risk 

in a new unified command structure. 

We believe a more effective and efficient Joint medical solution can be attained 

without the expense of establishing a Unified MEDCOM. Changes to doctrine can 

be made within current authorities and do not require a new Unified MEDCOM. 

Service-specific and joint medical doctrine must be improved to assure Service capabilities are fully interoperable and interdependent to bolster unity of effort. The 

Services should continue integrating common medical platforms to reduce redundancy and lower costs. 

A Unified MEDCOM may not achieve the intended synergy or unity of effort. All 

models of the Unified MEDCOM to date do not include medical forces intrinsic (line 

funded vs. DHP funded manpower authorizations) to Service line units. A Unified 

MEDCOM would not oversee medical forces serving in these line units. Air Force 

line funded medics represent 5 percent of Air Force medical personnel; Navy shipboard assets represent 25 percent of medical personnel; and Army line Tables of Organization and Equipment (TOE) funded medics represent 48 percent of Army AcVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
74 

tive Duty medics. The Air Force ability to meet operational medical requirements 

would be disproportionately compromised in current models for Unified MEDCOM. 

Any new Unified MEDCOM will require new systems and structure to oversee 

component headquarters and assigned forces. This will drive even higher costs. If 

a Unified MEDCOM follows the example of the current Joint Task Force, National 

Capitol Region Medical, it is highly unlikely there will be cost savings. There is no 

need for a fourth military Service and the establishment of such in the form of a 

Unified MEDCOM, without the discipline and historical rule sets that govern existing Services, will likely drive costs much higher. Even more critical, a Unified 

MEDCOM may not be as responsive to the needs of Service warfighters as is the 

current oversight by the Services. 

BRAC 2005 created many opportunities for joint oversight of medics. Given time 

to mature, these initiatives along with the Service Surgeon Generals’ efforts to consolidate oversight of common support functions (information management, contracting, military health facility construction and financial management) in the new 

colocated medical headquarters will reduce redundancies. Adoption of a single Service accounting system to allocate Defense Health Program dollars and improve accountability would do more to reduce costs than a Unified MEDCOM. 

SAVINGS THROUGH A REDUCTION OF OVERSEAS U.S. FORCE POSTURE

69. Senator AYOTTE. Secretary Hale, the GAO report noted that DOD spends billions of dollars annually on military installations around the world. For example, 

according to data provided by the Military Services, between fiscal years 2006 and 

2009 the Military Services obligated $17.2 billion for the installations they manage 

in Europe. Further, the Military Services estimated a requirement of $24 billion 

through fiscal year 2015 to build, operate, and maintain these installations. Currently, plans to reduce forces in Europe are being reconsidered. GAO estimated that 

leaving two brigades in Europe could cost DOD between $1 billion and $2 billion 

over 10 years compared to bringing the forces back to the United States. Has DOD 

assessed potential saving to be realized from consolidating bases overseas and returning U.S. forces to the United States? 

Mr. HALE. U.S. overseas defense posture sustains capacity for global reach and 

power projection and supports not only defense but also foreign policy objectives. In 

this dynamic and evolving geo-strategic environment, the Department continuously 

reviews overseas presence and posture requirements. In 2004, the Department initiated major consolidation efforts in both Korea and Europe, returning approximately 

30,000 military personnel to the continental United States (CONUS)—the associated 

base consolidation efforts are still underway. In consideration of all potential force 

posture decisions, the Department views potential savings from consolidation and 

return of forces to CONUS as a key decisionmaking criterion. Regarding the Europe 

brigades, the U.S. Army is conducting an analysis to determine the most efficient 

and effective method to meet planned end strength requirements. 

70. Senator AYOTTE. Secretary Hale, given the current search for savings, can 

DOD afford to spend additional billions to support the stationing of families of U.S. 

personnel in Korea? 

Mr. HALE. A working group has been established to develop options to achieve full 

tour normalization in Korea, and to assess each option’s affordability. The group’s 

work is still ongoing. 

WEAPONS SYSTEM SUSTAINMENT

71. Senator AYOTTE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, GAO just released a report titled, ‘‘Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue.’’ In the report, GAO noted that DOD spends billions of dollars each year to 

sustain weapon systems through the operating and support (O&S) phase of its life 

cycle. O&S costs can account for 70 percent or more of the total ownership costs over 

a system’s lifetime. It included the direct and indirect costs for spare parts, fuel, 

maintenance, personnel, support facilities, and training. Weapon systems experience 

O&S cost growth after they are acquired due to various factors such as lower than 

expected reliability, obsolete replacement parts, and increased usage. Please provide 

examples where competition has been used to lower lifecycle costs. 

Mr. HALE. Many components of cost in the operating and support phase of the 

lifecycle aren’t amenable to competition, including fuel, manning, and usage, among 

others. Where there are elements of operating and support costs that could be afVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
75 

fected by competition, the Department is committed to utilizing competition to the 

greatest extent possible to maximize savings for the taxpayer. 

For example, in restarting the DDG–51 shipbuilding program, DON has pursued 

competitive strategies for major components of the ship to reduce life cycle cost and 

continues pursuing open architecture initiatives to achieve design stability, mature 

technologies and affordable solutions. Specifically, the DON has implemented a commercial off-the-shelf (COTS) based Advanced Capability Build (ACB) computer program to update and stabilize the ships’ combat system baselines, driving down design costs, achieving greater commonality and allowing for more readily available 

replacement parts. The ACB computer program replaces legacy combat system computing programs in new construction ships and is being back fit into the Fleet 

through the Cruiser and Destroyer Modernization Programs. The DON competed 

the main reduction gear production for the ships in a breakout strategy, thereby 

avoiding pass-through costs to the shipbuilders and establishing future competitive 

opportunities for this major component. DON is considering other component breakout strategies, which reflect our commitment to affordability. 

Another example where the Department is leveraging competition in the operating and support phase is in the Air Force’s Advanced Targeting Pods-Sensor Enhancement (ATP–SE) program. A program life cycle cost analysis is currently underway, so the overall savings impact is not yet known; however, to date, the cost 

avoidance through competition is estimated to be $363 million. This includes approximately $174 million for pod production, approximately $4 million for ATP–SE 

support contracts, and approximately $185 million for depot activation data. The 

competition in production also results in a lower spare parts cost, which will likely 

result in a lower sustainment cost for the life of the system. 

Dr. WESTPHAL. I can think of three examples totaling approximately $1.1 billion 

over 5 years and across the complete lifecycle costs of the product lines. 

1. Family of Medium Tactical Vehicles Competition. The Army awarded a competitive 5-year requirements contract to Oshkosh that resulted in an average 

cost savings of 28 percent over the previous sole source contract. This was due 

in part to the fact that the government owned the Technical Data Package 

(TDP) and an extremely competitive environment in the market place. The end 

result is a cost savings of an estimated $578M over the contract period of performance. 

2. Leveraging Real Competition. Joint Tactical Radio System, or JTRS, Enterprise Business Model: The JTRS Enterprise Business Model (EBM) is predicated upon fostering and leveraging competition in production. For the Multifunctional Distribution Information System-Low Volume Terminal (MIDS– 

LVT) radio program initial radios started at $426,000 per unit. Since then, 

through competition between the two approved vendor production sources, the 

radios have decreased steadily to a cost of only $181,000 per unit, a savings 

of nearly 60 percent on each radio. With over 2,600 MIDS units purchased by 

DOD, the total savings is almost $500 million thus far. 

3. Joint Service General Purpose Mask (JSGPM) Filter Canister Additional 

Source. On behalf of the Joint Program Executive Office (PEO) for Chem-Bio 

Defense, the Research, Development, and Engineering Command Contracting 

Center released a request for proposal for additional source(s) for spare M–61 

filter canisters for the M–50 JSGPM which is now sole sourced. Qualification 

of an additional source will introduce competition and increase surge capability. Up to 3 million filter pairs could be produced, with an estimated $12 

cost reduction per pair, for a total savings of $36 million, over 5 years. 

Mr. WORK. For the DON, the most visible example is the Littoral Combat Ship 

(LCS) competition where Lockheed Martin and Austal USA were each awarded a 

fixed-price incentive contract for the design and construction of a 10 ship block-buy, 

for a total of 20 LCS from fiscal year 2010 through 2015. This strategy resulted in 

effective competition and reflects the DON’s commitment to affordability. The benefits of competition, serial production, employment of mature technologies, design 

stability, fixed-price contracting, commonality, and economies of scale will provide 

a highly affordable ship construction program. Additionally, both shipbuilders will 

also deliver a TDP that allows the DON to establish a foundation for effective future 

competition throughout the ships’ life cycle. 

In restarting the DDG–51 shipbuilding program, the DON has pursued competitive strategies for major components of the ship to reduce life cycle cost and continues pursuing open architecture initiatives to achieve design stability, mature 

technologies and affordable solutions. Specifically, the DON has implemented a commercial off-the-shelf (COTS) based Advanced Capability Build (ACB) computer program to update and stabilize the ships’ combat system baselines, driving down deVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00079 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
76 

sign costs, achieving greater commonality and allowing for more readily available 

replacement parts. The ACB computer program replaces legacy combat system computing programs in new construction ships and is being back fit into the Fleet 

through the Cruiser and Destroyer Modernization Programs. The DON competed 

the main reduction gear production for the ships in a breakout strategy, thereby 

avoiding pass-through costs to the shipbuilders and establishing future competitive 

opportunities for this major component. We are considering other component breakout strategies, which reflect our commitment to affordability. 

Ms. CONATON. The Air Force uses competition to the maximum extent practical. 

The DOD 5000 mandates that PMs plan for competition in their Acquisition Strategy at the initiation of the program, and at every milestone decision throughout the 

acquisition. The Federal Acquisition Regulation prescribes policies and procedures 

to be used to promote full and open competition. 10 U.S.C. 2304 and 41 U.S.C. 253 

require, with certain limited exceptions, that contracting officers shall promote and 

provide for full and open competition in soliciting offers and awarding Government 

contracts. FAR 6.302 lists exceptions permitting other than full and open competitions. Within these Federal regulation parameters, Air Force Contracting looks at 

each procurement on a case-by-case basis to determine the best business decision 

for our warfighters and our taxpayers. Competitive sourcing has proven effective in 

many programs, but it’s not the right solution for all acquisitions. 

One example where competition has lowered life cycle costs is found in Advanced 

Targeting Pods-Sensor Enhancement (ATP–SE). A program life cycle cost analysis 

is currently underway, so the overall savings impact is not yet known; however, to 

date, the cost avoidance through competition is estimated to be $363 million. This 

includes ∼$174 million for pod production, ∼$4 million for ATP–SE support contracts, and ∼$185 million for depot activation data. The competition in production 

also results in a lower spare parts cost, which will likely result in a lower 

sustainment cost for the life of the system. 

The B–1 Laptop Controlled Targeting Pod program provides another example of 

lower lifecycle costs where the B–1 team used an existing multiple-award Indefinite 

Delivery/Indefinite Quantity (ID/IQ) contract to promote efficiency. Under multipleaward ID/IQ contracts, the government must provide each awardee a fair opportunity to be considered for each order. As a result, the B–1 team solicited proposals 

from the ID/IQ awardees and received three proposals, including a proposal from 

the B–1 prime contractor. Award was made to a contractor other than the prime 

contractor for approximately $1.1 million, which was $250,000 less than the prime 

contractor’s proposed price. In addition to this $250,000 delta, we expect that the 

prime contractor’s price would have been higher if the government had gone sole 

source to the prime. It is difficult to estimate what the prime contractor’s proposal 

would have been in a sole source environment, but we roughly estimate the price 

would have been $200,000 higher, resulting in total cost avoidance of $450,000. 

72. Senator AYOTTE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, how do your department’s efficiency initiatives increase the use 

of competition as a means to lower lifecycle costs? 

Mr. HALE. The Under Secretary of Defense for Acquisition Technology and Logistics (USD(AT&L)) November 3, 2010 memo to the military departments and Defense 

agencies directed immediate action to increase competition. The acquisition community is addressing this in the development of Weapon System Acquisition Strategies. 

Specifically, the Secretaries of the Military Departments and Defense Agency Directors were directed to implement the following: 

• Present a competitive acquisition strategy at each program milestone: Provide 

a one-page competitive strategy for each Acquisition Category (ACAT) 1D program at each milestone as part of the overall acquisition strategy. 

• Report to USD(AT&L) in fiscal year 2011 on how their military department 

or agency intends to reduce single-bid competitions. At a minimum, the report 

will address market research, restricted specifications, and adequate time for 

proposal preparation. 

• Achieve a 2 percent reduction in single-bid competitive contracts in fiscal year 

2011, with continuing reductions thereafter. 

• Remove obstacles to competition: ensure contracting officers conduct negotiations with all single-bid offerors, unless this requirement is specifically waived 

by the Head of Contracting Activity or Military Department Secretary. The 

basis of these negotiations will be cost or price analysis, as the case may be, 

using either certified or non-certified cost or pricing data, as appropriate. 

• Have their component or agency competition advocate develop a plan to improve both the overall rate of competition and the rate of effective competition. 

These plans will establish an improvement rate of at least 2 percent per year 

77 

for overall competition and an improvement rate of at least 10 percent per year 

for effective competition. 

• Require open systems architectures and set rules for acquisition of technical 

data rights: 

• PMs will conduct a business case analysis in concert with the engineering 

tradeoff analysis that will be presented at Milestone B. The business case 

analysis will outline the open systems architecture approach, combined 

with technical data rights the Government will pursue in order to ensure 

a lifetime consideration of competition in the acquisition of weapon systems. 

• The results of this analysis will be reported in the Acquisition Strategy 

Report and in the competition strategy. 

• Increase the dynamic small business role in the defense marketplace competition: All competitive and non-competitive procurement actions will seek to increase small business participation through weighting factors in past performance and fee construct. 

These actions apply to all contracts, including MRO, CLS, and PBL contracts. The 

result will be PEOs and PMs developing a competitive strategy early in acquisition 

that spans the program’s life and improves the ability to compete MRO, CLS, and 

PBL contracts in sustainment. For example, the Department of Navy has undertaken a specific initiative to engage each PEO, PM, and Product Support Manager 

(PSM) to emphasize real competition at every stage of acquisition and sustainment. 

They directed the PEOs/PMs/PSMs to establish a competitive environment throughout the life cycle of their programs, and to enable better competitive opportunities 

in the sustainment phase. Additionally, PEOs and PMs are reviewing their existing 

portfolios in pursuit of increased competitive opportunities, including consideration 

of breakout opportunities, and expanding open architecture solutions and small 

business opportunities that fosters additional competition. The Army is emphasizing 

the conduct of logistics analyses early to baseline costs and develop technical data 

requirements that facilitate competition in sustainment contracts. The Air Force is 

also taking proactive steps to ensure PMs and PSMs correctly identify and pursue 

data rights in their contract negotiations to facilitate competition in sustainment. 

The outcome will be required warfighting capability at a reduced cost to the Government. 

Dr. WESTPHAL. The Army’s Better Buying Power Initiative includes the requirement to ‘‘Promote Real Competition.’’ Army PMs of all acquisition categories are required to present, and have approved by their Milestone Decision Authority, a competitive strategy at each milestone decision. In addition, at the Milestone B review, 

the point of formal program initiation, we require a business case analysis in concert with an engineering trade analysis. The engineering trade analysis defines the 

approach for using open systems architectures and acquiring technical data rights 

to ensure sustained consideration of competition, thus lowering the overall costs 

throughout the acquisition lifecycle. 

Mr. WORK. The DON undertook several initiatives to increase competition, which 

includes a specific initiative to engage each PEO and Project Manager (PM) to lead 

the way for their programs and emphasize real competition at every stage of our 

acquisitions. In addition to initiatives to establish a solid foundation for a competitive environment throughout the life cycle of our programs, we have asked our 

PEOs and PMs to also review their existing portfolios in pursuit of increased competitive opportunities, including consideration of breakout opportunities at the subsystem and component levels to reduce lifecycle costs. 

In addition, Navy has been working with OSD researching how performance 

based initiatives (i.e. PBLs (Performance Based Logistics)) work within the Services 

and industry and identifying impediments and best practices. Research efforts include the Product Support Assessment Team Industrial Integration Product Support 

Database analysis and the DOD PBL Proof Point analysis. Both efforts are identifying best practices and blueprints for a successful performance based product support strategy that leads to lower lifecycle costs. 

Ms. CONATON. The Air Force requires the use of a competitive strategy prior to 

each milestone for each Acquisition Categories (ACAT) program. Each competitive 

strategy is included in the Life Cycle Management Plan and addresses how the program will obtain technical data, computer software and documentation, and associated intellectual property rights necessary for operation, maintenance, long-term 

sustainment and competition. In order to reduce lifecycle cost the Air Force conducts 

should-cost analyses and continues to pursue open architecture initiatives to achieve 

design stability, mature technologies, and affordable solutions. The Air Force is also 

requiring more frequent recompetes of knowledge-based services, and service contracts valued at more than $1 billion are required to include productivity improveVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
78 

ment and cost efficiency objectives. The Air Force is committed to utilizing competition to the greatest extent practical to maximize savings for the taxpayer. Competitive sourcing has proven effective in many programs, but it’s not the right solution 

for all acquisitions. 

73. Senator AYOTTE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, in what areas do you think competition and commercial investments in technology can be leveraged to achieve further cost reductions? 

Mr. HALE. Achieving cost reductions through competition and commercial investments in technology are two complementary aspects of the USD(AT&L)’s ‘‘Better 

Buying Power’’ initiative. 

As the Department continues to seek efficiencies as outlined in the November 3, 

2010 implementation directive for Better Buying Power, titled ‘‘Obtaining Greater 

Efficiency and Productivity in Defense Spending,’’ the entire Department is striving 

to improve cost effectiveness through increased use of commercial technology investment. Specifically, in that directive, the Director, Defense Research and Engineering 

(now the Assistant Secretary of Defense for Research and Engineering) was tasked 

to reinvigorate the Independent Research and Development (IRAD) program. The 

process is ongoing, with a plan to increase the visibility of IRAD as a fundamental 

element of the broader DOD R&D program. Application of IRAD to DOD projects 

should provide guests cost efficiency for the DOD. 

On November 24, 2010 the Director of Defense Procurement and Acquisition Policy issued guidance on improving competition in Defense procurement. Promoting 

real competition is an essential focus area within the ‘‘Better Buying Power’’ initiative that requires the Military Departments and Defense Agencies to develop plans 

to improve overall and effective competition by: reducing the number of single-bid 

contracts; negotiating better prices on single-bid contracts and task and delivery orders; and reducing the dollar value of sole-source contracts and task and delivery 

orders. 

Dr. WESTPHAL. We have found that we can leverage commercial technology in 

many areas. That is one reason why in the DOD Directive 5000.01, the procurement 

or modification of commercially available products, services, and technologies is the 

first order of preference in satisfying a user’s requirement. In this same policy, we 

have directed that PMs maximize the use of competition as a method for providing 

major incentives to industry and Government organizations to innovate, reduce cost, 

and increase quality. Further, that same policy calls for the use of PerformanceBased Logistics wherein we can take advantage of sustainment strategies that include the best use of public and private sector capabilities. Through government and 

industry partnering initiatives, we optimize total system availability while minimizing cost and our logistics footprint. 

Mr. WORK. The DON undertook several initiatives to increase competition, including green energy initiatives. We also issued specific challenges to program managers 

to increase competitive opportunities through obtaining technical data rights, considering the merits of component breakout, and expanding open architecture solutions and small business opportunities. We believe continued investment in these 

areas will allow achievement of further cost reductions throughout the life cycle of 

our weapon systems. 

Regarding energy initiatives, we have already flown the F/A–18 ‘‘Green Hornet’’ 

using biofuel and have begun a large scale expansion of solar power. We are 

partnering with the Department of Agriculture on research and development of a 

variety of alternative fuel resources. One example of savings was the launch of our 

first hybrid ship, the amphibious big-deck USS Makin Island. On its first voyage 

from Pascagoula, MS, to San Diego, CA, Makin Island saved around $2 million in 

fuel costs. In addition, Marines in Helmand province have demonstrated their ability to reduce use of fossil fuels through renewable energy devices. The DON will 

continue investing in energy initiatives. 

An example of the successful and strategic use of open architecture and obtaining 

appropriate technical data rights is the Virginia class SSN program. The Virginia 

class program uses a modular open systems architecture and selective subcomponent technical data rights that promote robust competition at the sub-component 

supplier level, while still supporting continual and effective block upgrades to the 

existing systems that reduces the overall life cycle cost of the system. The DON continues expanding these open architecture initiatives to other systems and developing 

capabilities examples include: Advanced Capability Build (ACB) 12 for the AEGIS 

Weapon System, to Consolidated Afloat Networks and Enterprise Services, Next 

Generation Enterprise Network, and Strategic Systems Programs. 

Ms. CONATON. The Air Force fully recognizes and acts on the basic principle that 

there is no one source of good ideas. We continually look to find places, both large 

79 

and small, where we can leverage competition or commercial innovation across all 

our domains—air, space, and cyber. 

We have a strong technology transfer program, to include leveraging the ‘‘spin in’’ 

of commercial technologies; noise cancelling ear protection modified for pilots is one 

recent example. It is important to point out that the demands of the battlefield often 

require modification to commercial technology before it can be used by our Airmen— 

we must ensure that the end article both works under operational conditions and 

can be supported. The domestic technology transfer program also leverages Cooperative Research and Development Agreements, Commercial Technology Agreements, 

and other cooperative agreements where commercial companies can leverage our Air 

Force laboratory resources and expertise, thereby helping us leverage their technology advances. The Air Force Commercialization Pilot Program also promotes the 

transition of technology developed as part of the Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR) Program. 

As an organization with needs in the areas of administration, financial management, human resources, education and training, facilities and installation operation/ 

upkeep, and materiel handling and storage, the Air Force can more readily directly 

benefit from commercial innovation. Most Air Force facilities have some kind of 

commercial environmental control and monitoring system to help increase energy efficiency. We keep better track of our investment in parts and supplies by tagging 

them with radio frequency identification devices. In the space domain, using commercial satellites to host military payloads enables the Air Force to leverage these 

commercial technology investments. We have adopted energy efficient lighting. New 

facilities, such as the Air Force Institute of Technology’s academic building at 

Wright Patterson Air Force Base, are designed and constructed to meet Leadership 

in Energy and Environmental Design (LEED) standards—nationally accepted 

benchmarks for facility design, construction, and operation. The efficiencies we gain 

on our organizational side free up resources we can apply to our operational side. 

PROPOSED NAVY SAVINGS

74. Senator AYOTTE. Secretary Work, given the current troubling rise in the price 

of oil with no relief in sight, how realistic is the Navy’s projected savings of $566 

million in fiscal year 2012 for reduced energy consumption? 

Mr. WORK. In order to save energy and money, all of our programs within our 

energy strategy need to be in sync and operating at full capacity. Energy savings 

are also based on prior year programs and projects that are now coming to fruition. 

DON has set two priorities that illustrate the Department’s role in investing in 

alternative sources of energy: energy security and energy independence. The Navy 

will achieve energy security by utilizing sustainable sources that meet force 

sustainment functions and fulfill tactical, expeditionary, and shore operational requirements. This allows the ability to protect and deliver sufficient energy to meet 

operational needs. Second, energy independence is achieved when Naval forces rely 

only on energy resources that are not subject to intentional or accidental supply disruptions. As a priority, energy independence increases operational effectiveness by 

making Naval forces more energy self-sufficient and less dependent on vulnerable 

energy production and supply lines. 

The DON uses many different types of alternative energy on our naval installations such as solar, wind, and waste to energy. We have over 100 MW of solar 

planned to be installed in the next few years, and we have 22 anemometer (wind) 

studies ongoing. On the operational energy front, we have flown an F/A–18 Hornet, 

operated a Riverine Command Boat (RCB–X), and flown a Seahawk helicopter on 

a 50/50 blend of biofuels. The DON has also commissioned the USS Makin Island 

which is designed with a gas turbine engine and electric auxiliary propulsion system. We also consider our nuclear fleet of aircraft carriers and submarines as part 

of our alternative energy program. In our expeditionary forward operating bases, we 

are using flexible solar panels to recharge batteries and light the inside of the tents 

with LED lighting. These are just a few examples of the different types of alternative energy sources that the Department of Navy is currently using. 

Much of our success is in the technologies that are tried and true—solar, wind, 

and geothermal. We are continuing to explore geothermal resources on our installations in the Southwest. We are making great strides in helping stand up a biofuels 

industry that will supply biofuels to the fleet. This effort will be a key factor in our 

overall success of the 50 percent alternative energy goal. We have to continue to 

institute energy efficiency into our processes and programs. We are currently designing and constructing all of our new buildings to LEED Silver criteria. The bottom line is that the least expensive BTU or KW-hr is the one that is not used. 

80 

There are numerous energy efficient initiatives and renewable/alternative energy 

programs that the Navy and Marine Corps are pursuing. The reduced reliance on 

fossil fuels will achieve lower energy consumption, strategic security, avoided energy 

cost, and a more sustainable Fleet. Here are examples of projects with estimated 

savings. 

Examples of Navy Tactical Projects with Estimated Savings 

• Stern Flaps for Amphibious Ships 

• Shown to have an average payback period of less than 1 year on FFG/ 

CG/DDG platforms 

• Currently undergoing testing on amphibious ships • Savings estimated at ∼5,500 BBLs/ship/year for LHD 

• Hull/Propeller Coating 

• Easy release hull/propeller coating system allows Navy ships to shed biofouling once underway 

• Reduces costly periodic hull/propeller cleanings • Savings estimated at ∼1,800 BBLs/ship/year 

• Solid State Lighting 

• Uses LEDs for platform illumination • LED lights in commercial applications last almost 50 times longer than 

incandescent and 6 times longer than fluorescent lights; provides the same 

illumination with 25 percent of the energy 

• Currently testing on DDG–108 and LSD–52 

• Payback estimated at 3 years, depending on fixture (savings of ∼335 

BBLs/ship/year for DDG) 

Navy also continues to develop technologies that will be implemented in future 

years; the implementation schedule for these initiatives is subject to impacts based 

on the budget: 

• Hybrid Electric Drive for DDG 

• Fuel savings by securing LM2500 propulsion turbines at low speed while 

loading gas turbine electric generators to more efficient operating condition 

(savings estimated at 8,500 BBLs/ship/year) 

• Land-based prototype scheduled for testing mid-2011 

• USS Truxtun (DDG–103) scheduled to be first operational installation in 

fiscal year 2012 as an afloat test platform 

• Engine efficiency modifications for the F–35 JSF 

• Improvement in F135 Block 5+ engine fuel economy and lifecycle cost 

through component upgrades and software cycle optimization 

• Estimated Fleet-wide savings of ∼35,000 BBLs in 2023 (upon delivery of 

Block 5 aircraft), increasing to ∼178,000 BBLs/yr by 2029 

75. Senator AYOTTE. Secretary Work, how does the Navy propose to achieve this 

significant reduction of energy consumption? 

Mr. WORK. There are numerous energy efficient initiatives and renewable/alternative energy programs that the Navy and Marine Corps are pursuing. The reduced 

reliance on fossil fuels will achieve lower energy consumption, strategic security, 

avoided energy cost, and a more sustainable Fleet. Here are the major program 

areas along with examples of projects with estimated savings. 

• Major Energy Program areas 

• Shore 

• Steam plants decentralizations 

• Lighting systems upgrades 

• Renewable energy systems (solar & photovoltaic) 

• Solar thermal domestic water and pool heating projects 

• LED street lighting projects 

• Ground source heat pumps 

• Boiler heat recovery upgrades 

• Control system improvements 

• Alternative Fuel Vehicles 

• Tactical/Expeditionary 

• Hull coatings 

• Propeller coatings 

• Stern Flaps 

• Allison 501K Efficiency Initiatives 

81 

• Aviation Simulators 

• Smart voyage planning decision aid software 

• USS Truxtun hybrid electric drive retrofit 

• Alternative fuels testing and certification program 

• Incentivized Energy Conservation Program (i-ENCON) 

• Expeditionary Forward Operating Base (Ex-FOB) 

• Solar Portable Alternative Communications Energy System portable solar systems 

• Light Emitting Diode (LED) Lighting 

• Renewable battery charging systems 

Examples of Projects for Navy Tactical with estimated savings 

• Stern Flaps for Amphibious Ships 

• Shown to have an average payback period of less than 1 year on FFG/ 

CG/DDG platforms 

• Currently undergoing testing on amphibious ships 

• Savings estimated at ∼5,500 BBLs/ship/year for LHD 

• Hull/Propeller Coating 

• Easy release hull/propeller coating system allows Navy ships to shed biofouling once underway 

• Reduces costly periodic hull/propeller cleanings 

• Savings estimated at ∼1,800 BBLs/ship/year 

• Solid State Lighting 

• Uses LEDs for platform illumination 

• LED lights in commercial applications last almost 50 times longer than 

Incandescent and 6 times longer than Fluorescent lights; provide the same 

illumination with 25 percent of the energy 

• Currently testing on DDG–108 and LSD–52 

• Payback estimated at 3 years, depending on fixture (savings of ∼335 

BBLs/ship/year for DDG) 

Navy also continues to develop technologies that will be implemented in future 

years; the implementation schedule for these initiatives is subject to impacts based 

on final fiscal year 2011 budget: 

• Hybrid Electric Drive for DDG 

• Fuel savings by securing LM2500 propulsion turbines at low speed while 

loading gas turbine electric generators to more efficient operating condition 

(savings estimated at 8,500 BBLs/ship/year) 

• Land-based prototype scheduled for testing mid-2011 

• USS Truxtun (DDG–103) scheduled to be first operational installation in 

fiscal year 2012 as an afloat test platform 

• Engine efficiency modifications for the F–35 JSF 

• Improvement in F135 Block 5+ engine fuel economy and lifecycle cost 

through component upgrades and software cycle optimization 

• Estimated Fleet-wide savings of ∼35,000 BBLs in 2023 (upon delivery of 

Block 5 aircraft), increasing to ∼178,000 BBLs/year by 2029 

76. Senator AYOTTE. Secretary Work, the data provided by the Navy in support 

of the savings for fuel consumption details a series of initiatives ranging from lighting systems upgrades to ship hull/propeller coatings and stern flaps. Are the investments for these initiatives included in the budget request? 

Mr. WORK. The investments for DON’s energy initiatives are included in the 

budget request. The specific energy programs where these investments are being 

made support the five Secretary of the Navy (SECNAV) Energy Goals. 

The SECNAV Energy Goals are listed here. 

1. Acquisition Process Reform 

Evaluation factors used when awarding contracts for platforms, weapon systems, 

and facilities will include lifecycle energy costs, fully-burdened cost of fuel, and contractor energy footprint. 

2. Sail the ‘‘Great Green Fleet’’ 

DON will demonstrate a Green Strike Group in local operations by 2012, and sail 

it by 2016. The strike group will be made up of nuclear vessels, surface combatants 

using biofuels with hybrid electric power systems, and aircraft flying on biofuels. 

3. Reduce Petroleum Use in Non-Tactical Vehicles 

82 

By 2015, DON will reduce petroleum use in the commercial fleet by 50 percent, 

through the use of flex fuel vehicles, hybrid electric vehicles, and neighborhood electric vehicles. 

4. Increase Alternative Energy Ashore 

By 2020, DON will produce at least 50 percent of shore-based energy requirements from alternative sources, and 50 percent of all naval installations will be Net 

Zero energy consumers. 

5. Increase Alternative Energy Use Department-wide 

By 2020, 50 percent of total DON energy consumption will come from alternative 

sources. 

The bulk of the Navy’s energy efforts are focused to improve efficiency of both legacy and future platforms. Initiatives such as those mentioned above and others in 

the Navy’s Energy investment portfolio are a strong start not only to meet the stated SECNAV Goals but also to provide DON greater combat capability, reduced operational risk, and reduced overall cost for supplying and maintaining forward deployed forces. 

83 


329rms6.eps
84 


329rms7.eps
85 


329rms8.eps
86 


329rms9.eps
87 


329rms10.eps
88 


329rms11.eps
89 


329rms12.eps
90 


329rms13.eps
91 

77. Senator AYOTTE. Secretary Work, will this energy consumption goal include 

a reduction in flying hours or steam hours? 

Mr. WORK. No, the Navy’s energy consumption goal does not include a reduction 

in flying hours or steaming days. Efforts to achieve reductions in fuel consumption 

are focused on increasing the fuel efficiency of legacy platforms through technology 

upgrades and behavior changes. 

78. Senator AYOTTE. Secretary Work, regarding flight operations, how will the 

Navy be able to determine whether the increased reliance on simulators has either 


329rms14.eps 329rms15.eps
92 

a detrimental or positive impact on the training and currency of naval and marine 

aviators? 

Mr. WORK. The planned simulator upgrades were developed in concert with Fleet 

Aviators and Instructional Systems Developers to ensure that the enhanced simulator capabilities would advance training and readiness without sacrificing safety or 

tactical excellence. Simulators will be used to replace live training to the extent that 

technology and opportunities will allow where training effectiveness and operational 

readiness are not compromised. Commander, Naval Air Forces conducts an annual 

training & readiness conference for each type, model, and series aircraft to align 

simulator enhancements with the capabilities-based training and readiness matrix 

within fidelity and safety limits. Ultimately, Navy aviators’ training and readiness 

is evaluated through a number of means: the individual Unit Commander’s assessment of their personnel, Type Wing Weapons Schools’ implementation of the Air 

Combat Training Continuum Program and pre-deployment training/certification periods. 

79. Senator AYOTTE. Secretary Work, on another issue, how does the Navy propose to develop housing allowance efficiencies without increasing the amounts sailors and marines will have to pay out-of-pocket for housing? 

Mr. WORK. The Secretary of Defense, through the Defense Travel Management 

Office (DTMO) within the Office of the Under Secretary of Defense (Personnel and 

Readiness), is responsible for setting the housing allowance rates for all eligible personnel. DOD sets housing allowance rates annually based on market costs of rent, 

utilities and renter’s insurance with input from each of the Services. Prior to 2001, 

the DOD housing allowance program was structured so that the average military 

member paid at least 15 percent of their housing costs. In January 2000, the Secretary of Defense announced a quality-of-life initiative to increase housing allowances gradually over a 5 year period to eliminate a servicemember’s average outof-pocket housing costs. 

DON’s ability to adjust housing allowance rates is limited. However, one planned 

efficiency is the Marine Corps’ initiative to enforce stricter rules that require unmarried Marines without dependents to live in Government-furnished bachelor 

quarters instead of drawing BAH. 

The DON will continue to work with DTMO via the Per Diem Travel and Transportation Allowance Committee to validate the processes and data used in setting 

housing allowance rates. We want to ensure that we are not paying amounts in excess of prevailing housing market rates; however, there is no intent on the part of 

DON to increase out of pocket housing expenses for servicemembers. 

CBO REDUCTION OPTIONS

80. Senator AYOTTE. Secretary Hale, the Congressional Budget Office (CBO) released a report last week, titled: ‘‘Reducing the Deficit: Spending and Revenue Options.’’ The report provided 14 options for DOD to reduce both mandatory and discretionary spending. What is your position on each of the 14 options? 

Mr. HALE. 

Option 1: Reduce the growth in appropriations for the Department of Defense. 

The Department’s annual budget requests will continue to be driven by the requirements necessary to complete its mission. That is the reason DOD and OMB 

perform a thorough, joint budget review each fall—evaluating funding for each program as it relates to the Department’s mission. Reducing the growth in DOD’s appropriations by the arbitrary amounts mentioned in the CBO report could hamper 

the Department’s ability to carry out the administration’s directives. To the extent 

that Administration modifies DOD’s mission, we will adjust our funding requests accordingly. 

Option 2: Cap increases in military pay. 

We must ensure that military compensation remains highly competitive and recognizes the sacrifices our servicemembers endure. However, in light of the current 

fiscal crisis facing the Nation, the CBO proposal of adjusting the military pay raise 

to 0.5 percent below the ECI for fiscal year 2012–fiscal year 2015 is not an unreasonable idea given the significant improvements in the military compensation package that have been made over the last decade. As the Department wrestles with a 

shrinking top line, some adjustments to military compensation will likely need to 

be considered. 

93 

Option 3: Increase medical cost sharing for military retirees who are not yet eligible 

for Medicare 

Increased enrollment fees for TRICARE Prime from $230/$460 per individual/family to $550/$1,100 annually and established $30 co-pay for visits 

to civilian network. Additionally, the proposal imposes a fee for enrollment 

in TRICARE standard of $50/$100 and indexes PRIME and Standard enrollment fees to per capita growth in health care expenditures. 

The Department generally agrees with the savings estimates for option 3, but has 

no specific comments on these proposals other than to indicate that the proposals 

currently in the bill—submitted by the Department—represent the Department and 

administrations current position on these issues. 

Option 4: Limit the TRICARE benefit for military retirees and their dependents. 

Retirees would not have the option of enrolling in TRICARE Prime. 

TRICARE Standard would require enrollment and payment of a fee equal 

to 28 percent of the cost of providing coverage. Catastrophic cap would increase from $3,500 to $7,500 per family and would be indexed to growth 

in health care expenditures. 

The Department generally agrees with the savings estimates for option 4, but has 

no specific comments on these proposals other than to indicate that the proposals 

currently in the bill—submitted by the Department—represent the Department and 

administrations current position on these issues. 

Option 5: Increase cost sharing for pharmaceuticals under TRICARE. 

Increased co-pay for pharmaceuticals for all except active duty 

servicemembers. From no cost in military medical facilities and $3/$9/$22 

in retail/mail order networks (for 30/90 day fill) for generic/formulary/nonformulary to $4/$9 in military medical facilities and $15/$25/$45 in retail 

network (for 30 day fill) and $9/$27/$45 in mail order (for a 90 day fill). 

The first two options are not additive—the third option can be added to either the 

first or second option. The Department generally agrees with the savings estimates 

for option 5, but has no specific comments on these proposals other than to indicate 

that the proposals currently in the bill—submitted by the Department—represent 

the Department and administrations current position on these issues. 

Option 6: Consolidate DOD’s retail activities and provide a grocery allowance to 

servicemembers. 

The Department has studied the effects of consolidating the systems or providing 

benefits to military members via alternate methods and rejected the alternatives for 

the following reasons: 

1. Exchanges mark up products to benefit morale, welfare, and recreation (MWR) 

activities. A recent Defense Commissary Agency (DeCA) study reported that if 

the Government made a profit, however slight, on the goods sold through commissaries, manufacturers would not support the pricing level they now offer, 

so a consolidated retail system would have the adverse effect of eliminating 

savings. The Department estimates a $990 annual price increase to the average commissary shopper, a much larger cost than supported by CBO’s proposed 

$400 annual grocery allowance. Further, the proposal does not address the 

cost-of-living allowance (COLA) implications for servicemembers, and additional costs borne by the Military Personnel accounts, given the new, higher 

proposed retail prices that would be used in COLA surveys. 

2. The proposed grocery allowance (paid to only active-duty members) disregards 

80 percent of the eligible commissary shopping population (4,500,000 retirees, 

846,000 Guard and Reserve members, and 14,800 overseas civilians). Further, 

during the 5-year phase-in period, the administrative burden of starting and 

stopping a grocery allowance as active duty members move from a base that 

has already consolidated to one that is pending consolidation, and vice versa, 

would be onerous. 

3. In fiscal year 2010, the exchanges distributed $365 million to MWR programs. 

Without this exchange dividend, the Department would have to increase its appropriation requests for Category A programs (libraries, fitness centers, etc.) 

and virtually all Category B facilities (childcare centers and youth programs, 

recreational equipment checkout, etc.). 

4. All personnel in a consolidated retail system would be classified as nonappropriated fund (NAF) personnel. A study of the feasibility of using the NAF 

personnel system in DeCA found that significant implementation risks, including labor and congressional opposition, outweighed potential savings. Further, 

94 

without legislation to allow benefits to transfer from the General Schedule and 

Wage Grade systems to the NAF pay system, the Department would have to 

pay benefits and leave balances ($173.3 million) to all DeCA employees and 

DeCA employees’ employment records would restart with zero days of accrued 

annual leave and sick leave upon conversion. 

5. Finally, the CBO’s estimated savings is overstated. Current appropriations for 

commissary and exchange operations are $1.5 billion. If the Department pays 

a total grocery allowance of $560 million each year, the Budget Authority savings line could not be $1.3 billion per year for fiscal years 2017 through fiscal 

year 2021 unless an exaggerated inflation factor were applied to the appropriation and the grocery allowance amount were frozen. 

Option 7: Replace the JSF program with F–16s and F/A–18s; and, 

Option 8: Cancel the Navy and Marine Corps’ JSFs and replace those aircraft with 

F/A–18E/Fs. 

During recent Nunn-McCurdy certification for the JSF, the Department assessed 

whether or not there were alternative aircraft to the JSF could provide acceptable 

capability to meet the joint military requirement at lower cost. Those deliberations 

included an assessment of the F–22, F–15E, F–16 Block 52/60 and the F–18E/F aircraft. The analysis compared the options on the bass of survivability, basing, 

lethality, and networking as well as including potential upgrades to alternative aircraft airframes, weapons, sensors, and communications networks. Rough order of 

magnitude data was obtained on the cost of the basic and upgraded alternative aircraft, scaled to a JSF-size inventory quantity. 

The assessments concluded the following. None of the alternatives were found to 

provide the basing capability needed from conventional and austere land bases and 

from sea bases. There are no upgrades to mitigate the basing capability shortfall. 

The F–15E, F–16, and FA–18E/F also lack the stealth features to be survivable in 

higher threat environments. The F–22 is the strongest alternative in terms of survivability and lethality in the air-to-air arena, but it lacks the sensors and weapons 

to meet required lethality against targets. With extensive upgrades, the F–22’s capability against ground targets could be improved, but potential design limitations, 

technical risk, lack of basing flexibility, and high cost eliminated this alternative. 

Based on this analysis, the Department concluded that there is no alternative to the 

JSF that provides acceptable capability to meet the joint military requirement at 

less cost. 

Option 9: Cut the number of aircraft carriers to ten and the number of Navy air 

wings to nine. 

Reducing the number of deployable nuclear powered aircraft carrier from 11 to 

10, would inhibit the Navy’s ability to respond to national security requirements as 

mandated by the President of the United States. Given that approximately one ship 

is unavailable due to Refueling and Complex Overhaul, and two or more ships are 

also unavailable because of recurring maintenance activities, training support missions, or transiting from or to the Area of Responsibility, a reduction to 10 ships 

would lead to regional coverage gaps, which would possibly impact the ability of the 

Navy to respond to worldwide situations. Furthermore, such a reduction would force 

the early retirement of a Nimitz class (CVN 68) aircraft carrier, years ahead of the 

end of its service life. The elimination of the 10th Navy Air Wing would be inconsistent with 11 fleet aircraft carrier battle force. 

Option 10: Cancel the Expeditionary Fighting Vehicle 

The Department cancelled the Expeditionary Fighting Vehicle (EFV) in fiscal year 

2011 because future fiscal constraints made the program and subsequent 

sustainment of the vehicle in the inventory unaffordable. Based on Marine Corps 

cost projections, the EFV would have consumed on average 49 percent of the Marine 

Corps total procurement account during the years 2018 through 2025. The EFV 

would also consume over 100 percent of what is projected to be available for all procurement of ground vehicles during the years 2018 through 2025. Once fully fielded 

the EFV would consume 91 percent of the Marine Corps’ vehicle-related operations 

and maintenance account when fully fielded. The Marine Corps invested in a new, 

more affordable, amphibious vehicle starting in fiscal year 2012. 

Option 11: Delay funding of the Army’s Ground Combat Vehicle. 

The Department cancelled the Future Combat Systems including the Manned 

Ground Vehicle in fiscal year 2010 but continued the development of the combat vehicle now called Ground Combat Vehicle as a stand-alone program. The Department 

is currently assessing the Army’s Analysis of Alternative (AoA) submission which 

95 

outlines a variety of materiel solutions to satisfy the capability need documented in 

the approved Initial Capabilities Document (ICD). It is premature at this point to 

delay initial fielding to 2025 for this effort since the Defense Acquisition Board 

(DAB) has not convened to review all acquisition documents and establish planned 

milestones and fielding dates. A better decision point to make schedule changes will 

be at the Milestone B when the program baseline is established and approved. 

Option 12: Terminate the Medium Extended Air Defense System Program. 

DOD has terminated the MEADS program in the fiscal year 2012 Budget request. 

The Department has reduced MEADS to $804 million to execute the program 

through fiscal year 2013 for design and development and complete the prototypes 

that have already passed critical design review, such as the radars. The program 

would complete limited system integration and demonstrate capability via ground 

and flight tests of these prototype systems. This would further allow documentation 

of the tested design and the ability to assess the capabilities of the major system 

elements and the development of data packages for these elements. The Department 

is in a commitment with its allies, Germany and Italy and if DOD broke the Memorandum of Agreement with our allies it is estimated the withdrawal liability would 

be $846 million dollars. It is in the best interest of DOD to complete its agreement 

through fiscal year 2013 for a cost of $804 million. 

Option 13: Terminate the Precision Tracking Space System Program. 

The Precision Tracking Space System (PTSS) provides a space-based missile defense sensor which assists the Ballistic Missile Defense System (BMDS) in successfully overcome an adversaries’ future ballistic missile capabilities. Additionally, 

space-based sensors offer on-demand, geographically independent, persistent coverage with no need for Indications and Warning, enabling earlier intercept opportunities. Based on modeling and simulation studies, the greatest hedge against missile 

defense threats of greatest concern, regional medium-range ballistic missiles and intermediate-range ballistic missiles, remains a highly available early missile tracking 

capability from space based sensors. The Precision Tracking Space System prototype 

will demonstrate early, precise, real-time tracking of ballistic missiles. This capability significantly improves BMDS performance and the associated functionalities, 

when approved, will be captured in future BMDS Integrated Build documentation. 

81. Senator AYOTTE. Secretary Hale, one option caught my attention regarding the 

consolidation of four retail systems, also known as commissaries and exchanges operated by DOD as a benefit to military members and their families. The commissaries receive about $1.3 billion in annual appropriated subsidies, while the exchanges rely on military logistics to reduce their overhead costs. The exchanges also 

serve as a revenue source for non-appropriated MWR programs. Has DOD considered an efficiency initiative to consolidate the systems or reduce the annual appropriated subsidy in lieu of a grocery credit provided to military members? 

Mr. HALE. Yes, the Department has studied the effects of consolidating the systems or providing benefits to military members via alternate methods and rejected 

the alternatives for the following reasons: 

Exchanges mark up products to benefit MWR activities. A recent DeCA study reported that if the Government made a profit, however slight, on the goods sold 

through commissaries, manufacturers would not support the pricing level they now 

offer, so a consolidated retail system would have the adverse effect of eliminating 

savings. The Department estimates a $990 annual price increase to the average 

commissary shopper, a much larger cost than supported by CBO’s proposed $400 annual grocery allowance. Further, the proposal does not address the COLA implications for servicemembers, and additional costs borne by the military personnel accounts, given the new, higher proposed retail prices that would be used in COLA 

surveys. 

The proposed grocery allowance (paid to only Active-Duty members) disregards 80 

percent of the eligible commissary shopping population (4,500,000 retirees, 846,000 

Guard and Reserve members, and 14,800 overseas civilians). Further, during the 5- 

year phase-in period, the administrative burden of starting and stopping a grocery 

allowance as active duty members move from a base that has already consolidated 

to one that is pending consolidation, and vice versa, would be onerous. 

In fiscal year 2010, the exchanges distributed $365 million to MWR programs. 

Without this exchange dividend, the Department would have to increase its appropriation requests for Category A programs (libraries, fitness centers, et cetera) and 

virtually all Category B facilities (childcare centers and youth programs, recreational equipment checkout, et cetera). 

96 

All personnel in a consolidated retail system would be classified as NAF personnel. A study of the feasibility of using the NAF personnel system in DeCA found 

that significant implementation risks, including labor and congressional opposition, 

outweighed potential savings. Further, without legislation to allow benefits to transfer from the General Schedule and Wage Grade systems to the NAF pay system, 

the Department would have to pay benefits and leave balances ($173.3 million) to 

all DeCA employees and DeCA employees’ employment records would restart with 

zero days of accrued annual leave and sick leave upon conversion. 

Finally, the CBO’s estimated savings is overstated. Current appropriations for commissary and exchange operations are $1.5 billion. If the Department pays a total 

grocery allowance of $560 million each year, the Budget Authority savings line could 

not be $1.3 billion per year for fiscal years 2017 through fiscal year 2021 unless an 

exaggerated inflation factor were applied to the appropriation and the grocery allowance amount were frozen. 

82. Senator AYOTTE. Secretary Hale, in this day and age of warehouse retail outlets and specialty grocery chains, has a business cases assessment been accomplished to compare the competitiveness and efficiency of exchanges and commissaries run by DOD to commercial counterparts? If so, what were the results? 

Mr. HALE. No, the Department has not compared its retail operations to their 

commercial counterparts. However, consulting firms have conducted several studies, 

and the DeCA and the exchanges routinely conduct internal studies. For instance, 

each year, the DeCA publishes their return on investment; for fiscal year 2010 that 

figure was 208 percent, as military members saved $2.7 billion compared to the annual appropriation of $1.3 billion. The DeCA also monitors Commissary Customer 

Satisfaction. In fiscal year 2010, they recorded an overall score of 4.68 (on a scale 

of 1 to 5), the highest mark in the Agency’s history. In order to apply statistics to 

the efficiency of the DeCA and the exchanges, we would have to determine the monetary value these benefits have on the safety, health, quality-of-life, and security of 

the military communities, especially in overseas locations. Equally difficult to quantify is the readiness, recruitment, and retention these non-pay benefits provide to 

the Military Services. We do not have statistical proof of the payback the retail activities inherently provide, but we know they exist. 

CIVILIAN PAY AND HIRING FREEZE

83. Senator AYOTTE. Secretary Hale, DOD proposes to freeze the hiring of civilian 

personnel through fiscal year 2013 and to freeze civilian pay freeze through fiscal 

year 2012 for a savings of $25 billion over the next 5 years. The combined effect 

of these two initiatives will be, in most cases, to ask our DOD workforce to do more 

work with less pay once inflation is factored in. It seems from DOD’s data that civilian hiring freezes will save over $2.5 billion each year over the next 5 years. How 

specifically will the savings be derived? 

Mr. HALE. There are two separate issues: 

(1) The Civilian Workforce Freeze for fiscal year 2012 and fiscal year 2013 is 

based on freezing the full-time equivalent (FTE) level of the civilian workforce 

at the fiscal year 2010 level. This means, that the Components are not allowed 

to increase their civilian personnel FTEs over the fiscal year 2010 levels for 

fiscal year 2012 and fiscal year 2013 with limited exceptions. The previously 

planned increases over the fiscal year 2010 levels were taken as cost savings. 

(2) The Civilian Pay Raise Freeze for fiscal year 2011 and fiscal year 2012 is a 

Federal wide pay raise freeze as directed by the President. The approximate 

$12 billion cost savings is derived by reducing the civilian pay budgeted 

amounts by the previously anticipated pay raise of 2.3 percent in both fiscal 

year 2011 and fiscal year 2012. The civilian pay raise resumes in fiscal year 

2013 but based on a lower pay rate. The amounts previously included in the 

out year budget were taken as cost savings. 

84. Senator AYOTTE. Secretary Hale, do the savings assume that once the freeze 

is lifted in 2014, hiring actions will not resume to fill the empty slots? 

Mr. HALE. Yes. 

85. Senator AYOTTE. Secretary Hale, will civilian position authorizations that go 

vacant eventually be eliminated? In other words, does the Department plan a civilian workforce reduction? 

Mr. HALE. The components will not have the ability to increase positions, but they 

will have the ability to maintain fiscal year 2010 staffing levels by filling positions 

97 

that go vacant. The components will need to review all civilian manpower to determine which functions are a priority and must continue to be performed. Any workforce changes will be reviewed on a case-by-case basis. 

86. Senator AYOTTE. Secretary Hale, as for the civilian pay freeze, do the savings 

assume that pay will not be adjusted for the accumulated inflation? 

Mr. HALE. The civilian pay raise (inflation) factor is not included in fiscal year 

2011 and fiscal year 2012. It does however, resume in fiscal year 2013–2015. 

87. Senator AYOTTE. Secretary Hale, please provide a projection over the next 5 

years of civilian pay increases that was used to estimate the cost savings. 

Mr. HALE. The savings associated with the civilian workforce freeze were estimated using the fiscal year 2010 funding levels. The savings by year are: 

Fiscal Year 2012 - $2.5 billion 

Fiscal Year 2013 - $2.7 billion 

Fiscal Year 2014 - $2.9 billion 

Fiscal Year 2015 - $2.6 billion 

Fiscal Year 2016 - $2.6 billion 

88. Senator AYOTTE. Secretary Hale, in your opinion, how will the combined 

freezes affect the morale and productivity of the DOD civilian workforce? 

Mr. HALE. DOD civilians are extremely dedicated workforce that understand the 

fiscal challenges facing the Nation. The Department anticipates minimal impact to 

morale and productivity. 

QUESTIONS SUBMITTED BY SENATOR JAMES M. INHOFE

DEPOTS

89. Senator INHOFE. Secretary Hale and Secretary Conaton, how is the efficiencies 

strategy affecting parts availability? 

Mr. HALE. The efficiency strategy for depot maintenance is planned to have virtually no impact on parts availability. Direct labor and material costs are assumed 

to be constant throughout the FYDP and unchanged as a result of efficiencies. 

Ms. CONATON. Air Force Efficiencies Strategy is not intended to affect current 

parts availability, but is intended to implement improvements in the supply chain 

that have long-lasting impacts. Desired effects from efficiencies include improving 

sourcing decisions, leveraging Air Force funds for more favorable pricing and terms, 

optimizing productivity of limited manpower, improving supplier relationships, generating savings and accelerating the delivery of materiel (parts availability). 

90. Senator INHOFE. Secretary Hale and Secretary Conaton, is a comprehensive 

strategy involving the DLA, depots, the Global Logistics Support Center (GLSC), 

U.S. Transportation Command (TRANSCOM), and other stakeholders being worked 

concurrently with the implementation of efficiencies measures? If so, when will this 

plan be available? 

Mr. HALE. The efficiency strategy for depot maintenance is planned to have virtually no impact on parts availability. Direct labor and material costs are assumed 

to be constant throughout the FYDP and unchanged as a result of efficiencies. 

Ms. CONATON. OSD along with TRANSCOM has taken the lead in developing a 

Joint comprehensive strategy to implement supply chain based efficiency measures. 

In support of OSD, the Air Force’s Global Logistics Support Center and Air Force 

Air Logistics Centers have been participating in the development of the plan and 

will continue to do so. Since this is a Joint strategy, the Air Force must defer the 

question on availability of the plan to OSD and TRANSCOM. 

91. Senator INHOFE. Secretary Hale and Secretary Conaton, are reinvestment dollars available to fuel innovation in this area? 

Mr. HALE. Efforts to improve Depot Maintenance processes are continuing within 

the Department. Funding requirements to implement these improvements have 

been re-aligned within existing resources. Although future proposals may require 

additional resources, additional funding requirements are not known at this time. 

Any proposed funding realignments will be evaluated through cost benefit analysis 

to ensure the most effective measures are implemented. 

Ms. CONATON. OSD with TRANSCOM has taken the lead in developing a joint 

comprehensive strategy to implement supply chain based efficiency measures. As 

98 

this plan is developed by OSD and TRANSCOM, the resources will be identified and 

programmed appropriately by the Services. 

U.S. INDUSTRIAL BASE

92. Senator INHOFE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, how are we balancing efficiencies and immediate budget concerns with the long-term need to maintain a robust defense industrial base and 

niche skills/specialties that disappear if not consistently cultivated? 

Mr. HALE. DOD is pursuing efficiencies and immediate budget savings, while at 

the same time working to maintain a robust defense industrial base and critical 

niche skills/specialties. In many cases, the efforts underway will both create savings 

and enhance the long-term health of the defense industry. For instance, under the 

Better Buying Power initiative the Department is addressing affordability right at 

the outset of program initiation, which will reduce the amount of changes that are 

made to programs once they are in progress. For example, the Ohio class replacement missile submarine was unaffordable as originally conceived, so it was redesigned to drive down the cost substantially. By making necessary changes at the beginning, the Department will avoid the problems of breaking or canceling programs 

later on, which negatively impacts industry. We are also going to reduce costs and 

drive better industry performance by promoting real competition across the board 

in our programs. The recent competition for the LCS is a good example where the 

bidders were incentivized to substantially improve their offers because of the headto-head nature of the competition. In addition, the Department is reviewing technology investment policies to encourage greater collaboration with industry. Finally, 

we are launching a DOD-wide Superior Supplier Incentive Program to reward contractors who control their costs and demonstrate superior performance. Taken together, these and other efforts will create savings and drive the defense industry 

to be more efficient and innovative, which is the key to its long-term health and 

ability to compete globally. 

Dr. WESTPHAL. We are vigilant in ensuring that the disciplines found in our population of industrial base specialties are minimally affected and in fact are being bolstered by reinvesting some realized saving with contractors and other Service providers found exclusively in our industrial base. We are limiting solicitations to the 

National Technology Industrial Base, thus ensuring the niche skills they provide are 

funded and facilitated. 

Mr. WORK. The fiscal year 2012 President’s budget is a product of a comprehensive examination of the Department’s business operations which has enabled the 

Navy and Marine Corps to refocus on our critical warfighting capabilities. Efficiencies were found across three categories: buying ‘‘smarter’, streamlining organizations and operations, and energy initiatives. DON identified nearly $35 billion in efficiencies over 5 years, and when combined with Defense Department level initiatives, the DON fiscal year 2012 FYDP incorporates over $42 billion in savings. Inherent in buying smarter is taking into account industrial base implications as acquisition strategies and contracting strategies are developed. For example, the LCS 

competition where Lockheed Martin and Austal USA were each awarded a fixedprice incentive contract for the design and construction of a 10 ship block buy from 

fiscal year 2010 through 2015 reflects our commitment to affordability while minding the industrial base. This LCS strategy supports the industrial base for shipbuilding by keeping workers employed at two shipyards along with workers at their 

various subcontractors and vendors. Additionally, the Navy has looked to multiyear 

procurements in aviation and shipbuilding programs to bring stability to the industrial base which is reflected in savings achieved by such procurements. 

Ms. CONATON. The Air Force recognizes the benefits of a robust national industrial base. One step we are taking is to work with OSD and other Defense components on a sector-by-sector, tier-by-tier review of the network of firms that support 

the Department. The knowledge expected to be gained by this review will enable 

Air Force decision makers to better evaluate the potential impact of investment alternatives and make decisions accordingly. 

Beyond this analysis the Air Force also recognizes that as we implement the efficiencies we have identified, we must also ensure that we take steps to promote a 

robust defense industrial base, including preservation of key skills and capabilities 

on which we depend. In the area of space acquisition, for example, in keeping with 

Secretary Gates’ Efficiencies Initiative, the Air Force is developing specific strategies that we believe will result in cost savings and a more efficient approach, while 

also helping to strengthen the industrial base. Two important efforts in this area 

99 

are the ‘‘EASE’’ proposal for satellite acquisition and our developing strategy for acquiring launch capability. 

EASE is designed to drive down costs, improve space industrial base stability, and 

allow for investments in technology that will lower risk for future programs. It has 

four basic tenets: block buys of satellites; stable research and development investment; fixed price contracting; and full funding over multiple years through advance 

appropriations. 

The first tenet—block buys of satellites—will allow us to purchase economic order 

quantities of critical parts, run production lines more efficiently, and reduce nonrecurring engineering costs. The resulting savings can be reinvested in research and 

development to further improve the performance and lower the cost of follow-on systems. This reinvestment—what we call the Capability and Affordability Insertion 

Program—is an essential component of EASE. Together, these first two tenets will 

provide much-needed stability and predictability for a fragile space industrial base. 

Another area where the Air Force has devoted significant effort to developing a 

more cost-effective acquisition strategy while aiding the industrial base is space 

launch. Along with our partners at the National Reconnaissance Office (NRO), we 

deliver assured access to space through the Evolved Expendable Launch Vehicle 

(EELV) program. Several studies have independently recommended an acquisition 

strategy that procures a minimum eight cores per year, both to help control costs 

and to help solidify the industrial base. Consistent with our commitment to deliver 

assured access to space, the Air Force has partnered with the NRO to ensure this 

level of baseline annual production. The NRO will buy three per year, and the DOD 

will buy five per year, with the Navy picking up one core in each of fiscal year 2012 

and fiscal year 2013. Thereafter, the Air Force has pledged to buy five EELVs per 

year for the remainder of the FYDP. This will have the effect of lowering the cost 

per booster and contributing to a more stable market for our industrial base. 

In addition to taking these steps, the Air Force also recently signed a joint Memorandum of Agreement with the NRO and NASA designed to ensure a consistent position on opportunities, certification, and requirements for potential new entrants to 

space launch. We expect to release new entrant criteria by late this summer, and 

we expect to allow new entrants to compete for near-term launch missions. These 

steps should also promote a healthy industrial base. 

93. Senator INHOFE. Secretary Hale, Secretary Westphal, Secretary Work, and 

Secretary Conaton, have reinvestment opportunities been identified in the areas of 

small business development, research and development, DARPA, etc . . . to ensure 

that leaning/cutting of processes are not followed by loss of expertise and erosion 

of our competitive edge? 

Mr. HALE. The efficiency initiatives instituted by the Under Secretary of Defense 

for Acquisition, Technology and Logistics under his memorandum titled ‘‘Better 

Buying Power’’ are directed at increasing productivity in DOD. Of the 23 specific 

initiatives, 2 are related specifically to providing greater opportunities to small businesses. This action reflects the Department’s understanding that efficiencies can be 

gained through the use of small businesses, which are often more cost effective than 

larger businesses. 

Another way the Department provides protection of its research and development 

investments is under the SBIR program. This program protects small business by 

allowing them to retain rights to intellectual property generated under the program 

for a period of 5 years after contract award (DFARS 227.71 Rights In Technical 

Data). New contract awards during this protection period have the effect of renewing or extending the protection period. 

With respect to preserving our investments in the industrial base, Title III of the 

Defense Production Act contains a unique set of authorities, found nowhere else in 

law, that enables the Federal Government to incentivize the creation, expansion or 

preservation of domestic manufacturing capabilities to support national security 

needs. Title III authorities provide domestic industry with a variety of incentives 

that reduce the risks associated with the capitalization and investments required 

to establish the needed production capacity. The authorities provide a bridge from 

the R&D arena and accelerate the transition of technologies to affordable production 

and deployment. Additionally, Title III investments mitigate domestic industrial 

base capability gaps and strengthen the economic and technological competitiveness 

of the U.S. industrial base. 

Dr. WESTPHAL. As we explore possible efficiencies and opportunities to meet the 

Department’s Better Buying Power initiatives, we remain committed to realizing the 

advantages that competition and small business innovations bring to the table. We 

have several ongoing programs to modernize major weapons systems, and these are 

excellent opportunities to introduce new technologies. The Paladin Integrated ManVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00103 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
100 

agement program is incorporating technologies initially developed for the Non-Line 

of Sight-Cannon (NLOS–C). This effort helps preserve the skills and technologies 

that might otherwise have been lost due to a program termination. The Army’s 

near-term plans for modernizing the Bradley fleet sustains both government and 

contractor System Engineering capability. We have other reset programs that incorporate new technologies where feasible. We understand that these investments will 

not provide the same level of production workload at depots and final assembly facilities, but they do allow us to preserve some level of the expertise in many areas. 

Mr. WORK. The DON worked with the Small Business Administration in launching the website Green Biz Ops to connect contractors and, especially, small businesses with opportunities to participate in contracts for our energy initiatives. The 

Office of Naval Research (ONR) is constantly looking for innovative scientific and 

technological solutions to address current and future Navy and Marine Corps requirements and maintains Broad Agency Announcements to ensure continuing investment in research ideas. Additionally, the DON’s SBIR Program gives small businesses the opportunity to address naval needs in more than 30 science and technology areas to provide the Navy and Marine Corps with innovative advances in 

technology developed by small firms. The DON Office of Small Business Programs 

maintains a presence at each of our buying commands to foster small business opportunities where possible. 

A recent leadership development is the establishment of a Deputy Assistant Secretary of the Navy for Research, Development, Test, and Evaluation to ensure our 

investment in research maintains our competitive edge. 

Ms. CONATON. The Air Force focus on lean and continuous process improvement 

is intended to improve our expertise and sharpen our competitive edge. The Air 

Force is looking at reinvestment opportunities in many areas, including research 

and development. Within its Science and Technology Program, the Air Force plans 

to reinvest savings realized from efficiencies back into basic research, applied research, and advanced technology development efforts supporting Flagship Capability 

Concepts, Technology Horizons, and other high priorities in order to maintain our 

competitive edge. With regards to SBIR, reinvestment opportunities may help identify and promote advanced technologies, translate scientific discoveries into technological innovations, and accelerate transformational technology aiding in the creation of jobs and sustaining expertise in areas such as energy and manufacturing. 

QUESTIONS SUBMITTED BY SENATOR ROB PORTMAN

DOD EFFICIENCIES PARTNERSHIPS WITH INDUSTRY

94. Senator PORTMAN. Secretary Westphal, Secretary Work, and Secretary 

Conaton, DOD has been partnering with the aluminum industry on some costshared initiatives to improve performance while lowering weight and costs. Some of 

these initiatives include transitioning to new alloys, joining techniques, and commercial best practices to defense programs. Please provide a summary of what your 

Service has done to date on these efforts and outline the results in terms of cost 

reductions, weight reductions, and performance improvements. 

Dr. WESTPHAL. The U.S. Army Tank Automotive Research, Development and Engineering Center (TARDEC) and Alcoa have partnered on a program called the 

Army Lightweight Structures Initiative. This program will integrate Alcoa’s proven 

capabilities particularly into the design of new but also into older military ground 

vehicles. The goal of the program is weight reduction and performance improvement 

by substituting new alloys for older heavier metals. 

Examples of weight reductions to date are as follows: 

• EVCII (Expanded Capacity Vehicle II) floor 

• Drop in to existing aluminum design saved 91 pounds (32 percent). 

• Prototyped in 2 months; 20,000 miles of testing. 

• EVCII Frame 

• Cross members saved 106 pounds (36 percent) over existing Al design. 

• Lower Mission Module (LMM) 

• 330 pound savings (31 percent). 

• HEMTT (Heavy Expanded Mobility Tactical Truck) - A3 - Space frame 

• Design reduced weight by 840 pounds (50 percent). 

• HEMTT–A3 - Blast Shield 

• 440 pound savings (35 percent). 

• FMTV (Family of Medium Tactical Vehicles) Spare Tire Carrier 

101 

• 64 pound weight savings (43 percent). 

Mr. WORK. Naval Surface Warfare Center Carderock Division contracted with 

Alcoa to provide engineering services supporting research and development of lighter weight aluminum structures with improved fabrication methods for the LCS and 

other high speed, shallow draft vessels. Components for improvement have included 

flight deck tie downs, trimaran side hull tips, passageway radius extrusions, corrugated panels, bolted and bonded splice components, and MK 110 Navy gun mount 

system. 

For the General Dynamics (GD)-Austal LCS) design, flight deck tie downs and 

side hull tips have been redesigned for improved manufacturability, cost savings, 

and weight reduction. The redesigned flight deck tie downs have also been approved 

for use on the Joint High Speed Vessel (JHSV). The tie downs were redesigned from 

a completely welded component to a welded and bolted component comprised of 

fewer parts. The tie downs provide a 50 percent weight reduction over the baseline 

tie down currently being used by the Navy resulting in a weight savings of 2.6 tons 

for the GD-Austal variant of LCS and 1.5 tons for JHSV. The side hull tip was redesigned from a structure comprised of numerous welded plates with difficult geometry to a single piece side hull tip. The redesigned side hull tip provides the potential for an approximate 70 percent cost reduction or approximately 800 labor hours 

per ship over the baseline due to significant reductions in fit-up time, welding, inspection, and rework and has been installed on LCS 4. 

On the Lockheed Martin LCS design, passageway radius extrusions, single sided 

corrugated panels, and bolted and bonded longitudinal splices were redesigned for 

cost and weight reductions. The redesigned passageway extrusions have already 

been installed on LCS 3 and were redesigned to simplify production of radiused 

bulkhead corners eliminating multiple piece-parts and subcomponent welding. The 

shipbuilder has reported a 40 to 80 hour labor reduction per corner with additional 

savings associated with manufacturing, assembly, and rework. Single sided corrugated panels are being developed as a replacement for candidate stiffened panels. 

The corrugated panels are anticipated to provide estimated weight reductions of 10 

to 20 percent where used and a potential for cost savings of 5 to 10 percent. Bolted 

and bonded splices were designed to replace approximately 1,500 welded splices 

done on the LCS 1 and are anticipated to reduce labor cost by approximately 50 

percent when implemented on LCS 3. 

The MK 110 Navy gun mount system was redesigned for improved 

manufacturability. The baseline component was comprised of 320 welded parts that 

was redesigned to 78 parts providing a 75 percent part reduction in the structure. 

The parts consolidation results in reductions in labor costs, welding, and rework. 

In addition to the efforts discussed above, the Alcoa contract involves research 

and development to improve aluminum joining technologies. Alcoa is currently developing improved tool designs for friction stir welding (FSW) of 6XXX series aluminum extrusions and is being evaluated as a potential technique for joining extruded decking panels on the GD–Austal LCS. The use of FSW is anticipated to improve weld quality over the baseline decking panels currently being joined by conventional arc welding. Alcoa is also developing a new temper for aluminum 5456 

designated as 5456–HX anticipated to have improved resistance to aluminum sensitization. The Navy will be funding the certification of 5456–HX. Successful certification and implementation of 5456–HX on the CG 47 Class would potentially result 

in reduction in life cycle costs. 

Other industry efforts include the development of an aluminum-scandium alloy 

designated as 7XA by Surface Treatment Technologies. Alloy 7XA is a 7XXX aluminum alloy with scandium additions for improved strength and extrudability. The 

alloy was developed with the ONR funding and is being implemented on CVN 78 

for flexible infrastructure to enable improved weight savings. A co-cast aluminum 

alloy designated as 5005/5456 was developed by Novelis. This co-cast material is anticipated to have improved corrosion resistance over conventional 5456. This alloy 

was not developed under a cost-share initiative with the Navy. Both alloy 7XA and 

Novelis 5005/5456 are undergoing certification testing that is being funded by the 

Navy. 

Ms. CONATON. The Advanced Aluminum Aerostructures Initiative (A3I) is a congressionally-directed advanced development program managed by the Air Force and 

aimed at reducing the installed cost of aluminum aerospace structures, while lowering maintenance requirements, improving performance, and reducing life cycle 

costs. Several vehicle components have been studied as part of this program including the Boeing C–17 crew emergency escape door, the Lockheed Martin F–22 nose 

landing gear door, and the Lockheed Martin C–130 cargo ramp extension. 

The C–17 crew emergency escape door is a forged and high-speed, machined onepiece frame with a separate aluminum skin. The door design uses 81 percent fewer 

102 

parts and offers a 30 percent overall cost reduction. The redesigned door has been 

successfully transitioned to the customer and was put into production in July 2004. 

Installation of the door on the C–17 fleet began in spring 2005 with aircraft #134. 

The F–22 nose landing gear door is a unitized structure that utilizes innovative 

snap-fit fastenerless technology, meaning no holes need to be drilled. The new door 

design will reduce maintenance time, offers better impact damage tolerance, and is 

expected to save a significant amount of funding over the life of the F/A–22. The 

redesigned F–22 nose landing gear door has been successfully transitioned to the 

customer for production and has been installed on the F–22 aircraft beginning with 

aircraft #4112. 

At 30 pounds, the C–130 cargo ramp extension offers a 40 percent weight savings 

over the previous design and uses fewer parts and no fasteners, which makes it 

easier and less expensive to manufacture. Additionally, the new design is safer and 

easier for the loadmaster to use. The ramp has ergonomic hand holds along its 

length and at the end to facilitate stowage and removal from a tight fitting storage 

slot without danger of personnel injury. 

95. Senator PORTMAN. Secretary Westphal, Secretary Work, and Secretary 

Conaton, in your opinion, have these collaborations increased the purchasing power 

of our defense dollars? 

Dr. WESTPHAL. Yes. The U.S. Army TARDEC and the aluminum industry have 

successfully formed a partnership together for the Army Lightweight Structures Initiative. This initiative has integrated proven capabilities into the design of new and 

legacy military ground vehicles. The goal of the program is to partner with military 

ground vehicle Original Equipment Manufacturers (OEM) to provide the Army with 

cost-effective weight reduction through the implementation of industry and OEM solutions. The technology has shown the potential to reduce life cycle cost. The aluminum industry has applied their materials and joining techniques to certain vehicle platforms demonstrating weight reduction and improved vehicle performance in 

certain areas. 

Mr. WORK. When cost reductions from ongoing Navy-Industry initiatives are realized as cost savings on Navy contracts, the collaborations will have a positive impact 

on defense purchasing power. The Navy is pleased that such savings have been realized and is optimistic that additional savings will result from ongoing efforts. 

Ms. CONATON. Yes; these A3I products offer an advantage to Air Force and DOD 

aerospace systems, as they reduce the overall part count and number of fasteners 

required in the manufacturing process. This reduces labor costs and overall component weight, which offers fuel efficient performance benefits for the life of the system. 

96. Senator PORTMAN. Secretary Westphal, Secretary Work, and Secretary 

Conaton, would you support expanding these cost-shared initiatives, as resources 

permit, to other platforms and components? 

Dr. WESTPHAL. Yes. The U.S. Army would support expanding these activities if 

the necessary resources were available. 

Mr. WORK. Although the efforts under the Alcoa contract have resulted in direct 

cost savings for the shipbuilder, the weight reductions and performance improvements are a direct benefit to the Navy. 

Outside of the USN-Alcoa contract, Alcoa is continuing to invest in aluminum research and development for marine applications. Alcoa is currently developing a 

new temper for aluminum 5456 to provide improved resistance to aluminum sensitization. While the new temper is not being developed under a contract that includes cost-share agreements between the Navy and Alcoa, the certification of the 

new alloy will be funded by the Navy. Alcoa is also pursuing an ONR Manufacturing Technology (ManTech) project to develop and demonstrate a High-Deposition 

Gas Metal Arc (HDGMA) aluminum welding system and procedures. Transition of 

the HDGMA process is intended for both the Austal and Lockheed Martin variants 

of the LCS as well as Austal’s Joint High Speed Vessel (JHSV) platform after vetting through the Acquisition Governance process. The successful implementation of 

HDGMA is anticipated to result in significant labor and cost savings. In addition 

to aluminum Research and Development (R&D) efforts, Alcoa has participated on 

the CG 47 Class Integrated Product Team (IPT) and has worked with BAE Systems 

Ship Repair, the prime contractor for maintenance and modernization on CG 47 

Class, to optimize and develop improved aluminum welding processes and workmanship. 

Based on the above benefits to the Navy continued collaboration should be supported. 

103 

Ms. CONATON. The A3I concepts could be applied to all platforms. When implemented on the aging aircraft fleet, these improvements help to keep older aircraft 

in service longer, resulting in a decreased need for new aircraft. As resources permit, these concepts will be reviewed for possible application on other platforms. 

READINESS OF ARMY HELICOPTER FLEET

97. Senator PORTMAN. Secretary Westphal, with our missions in Afghanistan and 

Iraq, our helicopters are seeing more flight hours and more combat hours than in 

the past. Increased use of our helicopters are decreasing their lifespans and increasing the need to refurbish or upgrade them. With this in mind, please provide an 

overview of the overall readiness of the Army’s helicopters supporting our efforts in 

Iraq and Afghanistan. 

Dr. WESTPHAL. Deployed aircraft fleets generally meet or exceed the Army fully 

mission capable (FMC) readiness rate standard of 75 percent. Specifically, over the 

last year: 

AH–64D Apache: average FMC readiness rates of 75–80 percent (Deployed fleet 

is 24 percent of the total deployable fleet). 

CH–47D/F Chinook: average FMC readiness rate of 70 percent (Deployed fleet is 

32 percent of the total deployable fleet). 

OH–58D Kiowa: average FMC readiness rates of 80–85 percent (Deployed fleet is 

41 percent of the total deployable fleet). 

UH–60A/L/M Blackhawk: average FMC readiness rate of 80 percent (Deployed 

fleet is 31 percent of the total deployable fleet). 

Averages are based upon the 12 month period from April 2010 through March 

2011. 

98. Senator PORTMAN. Secretary Westphal, what are the average flight hours between reset for the Apache, Kiowa, and Blackhawk platforms? 

Dr. WESTPHAL. The average flight hours between Reset is: 

AH–64D Apache ........................................................................ 1,521 hours (ranges from 981 to 2,061 hours) 

CH–47D/F Chinook .................................................................... 902 hours (ranges from 569 to 1,235 hours) 

OH–58D Kiowa Warrior ............................................................. 1,400 hours (ranges from 983 to 1,817 hours) 

UH–60A Blackhawk ................................................................... 684 hours (ranges from 456 to 912 hours) 

UH–60L Blackhawk ................................................................... 992 hours (ranges from 678 to 1,306 hours) 

HH–60L Blackhawk ................................................................... 734 hours (ranges from 524 to 940 hours) 

These hours are primarily attributed to operational tempo while deployed. However, there is minimal flight time post deployment before and after Reset, and during a unit’s deployment preparation training. 

The current policy objective for aircraft is to remain in the area of operations for 

two complete deployment rotations. Active duty units are 12 month deployments, 

and Army National Guard and Army Reserves units are 9 month deployments. This 

allows for 24 months and 18 months, respectively, of operational time for each component. 

While deployed, the typical operational tempo for each aircraft mission/design/series is: 

AH–64D Apache ........................................................................ ∼59 hours per month 

CH–47D/F Chinook .................................................................... ∼40 hours per month 

OH–58D Kiowa Warrior ............................................................. ∼75 hours per month 

UH–60A/L/M Blackhawk ............................................................ ∼48 hours per month 

99. Senator PORTMAN. Secretary Westphal, how long does the average helicopter 

serve before it needs to be reset? 

Dr. WESTPHAL. The current policy objective for aircraft is to remain in the area 

of operations for two complete deployment rotations. Active duty units are 12 month 

deployments, and U.S. Army National Guard and U.S. Army Reserve units are 9 

month deployments. This allows for 24 months and 18 months, respectively, of operational time for each component. 

100. Senator PORTMAN. Secretary Westphal, how many months average spent in 

depots receiving reset work and at what cost per rotorcraft? 

Dr. WESTPHAL. Aircraft Reset is Field Level Maintenance performed at several installation activities within the continental United States. Major Aircraft Crash or 

Battle Damage work is performed at the Corpus Christi Army Aviation depot. 

As of the fiscal year 2009 Reset program, average days in work and cost for the 

completed aircraft, by mission/design/series: 

104 

[In millions of dollars] 

AH–64D Apache: ....................................................................... average of 82 days at $1.194 

CH–47D Chinook: ...................................................................... average of 125 days at $1.934 

CH–47F Chinook: ...................................................................... average of 87 days at $1.004 

OH–58D Kiowa Warrior: ............................................................ average of 82 days at $0.49 

UH–60A Blackhawk: .................................................................. average of 87 days at $1.20 

UH–60L Blackhawk: .................................................................. average of 83 days at $1.19 

UH–60M Blackhawk: ................................................................. (no UH–60Ms were part of the fiscal year 2009 program) 

101. Senator PORTMAN. Secretary Westphal, is the Army leveraging commercial 

best practices and new aluminum alloys and joining techniques within reset activities to enhance performance and affordability? 

Dr. WESTPHAL. Yes. The Army leverages commercial best practices to include advanced aluminum material and design solutions within new production. Airframe 

and engineering modifications, to include engineering enhancements, are applied 

during airframe modernization recapitalization processes. 

The Army Aviation Reset program has Reset over 4,000 aircraft since inception 

in 2003. The Army conducts periodic reviews of the program to improve Reset operations, specifically identifying and implementing efficiencies in cost and production, 

monitoring and ensuring quality of work, and reviewing scope of work. Aircraft inducted in Reset capitalize on the insertion of developing technologies such as the 

Common Missile Warning System and the Advanced Threat Infrared Countermeasures, utilizing rapid fielding initiatives to reduce aircraft non-available time. 

102. Senator PORTMAN. Secretary Westphal, please discuss possible opportunities 

to achieve cost and weight reduction on the rotorcraft structure through the application of commercial best practices and advanced aluminum material and design solutions. 

Dr. WESTPHAL. There are many opportunities to achieve cost and weight reduction 

on the rotorcraft structure of the Apache, Kiowa Warrior, and Chinook through the 

application of commercial best practices and advanced aluminum material and design solutions. One example is the aluminum alloy which comprises a major part 

of the Apache airframe structure. As loads have increased on the frame over time, 

consideration is given to implementing improvements, with priority made to both increasing strength and lowering weight, utilizing both best commercial practices and 

methods. In this process, airframe structural and historical data obtained during 

RESET teardown is sought and evaluated for use in the redesign of key airframe 

components. Working with the OEM, optimal design solutions and material redistribution, which exhibit lower stress patterns, are analyzed and employed. In addition to service life extensions of certain components, reducing component weight is 

achievable. 

We have utilized state of the art lighter base materials, precision machining, composite material, fastener, and bonding technologies, and best production and assembly processes during our aircraft modernization and development programs. Select 

redesigns and structural upgrades were incorporated to address fatigue cracking in 

the field. While production costs and weight have improved as a result of this modernization, further improvement is needed as weight and cost are critical elements 

to improving equipment for the Warfighter. We have incrementally used better alloys and joining techniques in our airframes, but our airframe manufacturers must 

address qualifications for air worthiness, corrosion resistance, and material properties. There is opportunity for improvement in our older airframes, such as the 

OH–58 helicopter, which are not yet significantly modernized. 

We have addressed a potential area for weight savings in the airframe structures 

for the Chinook CH47–F. The current airframe design technique utilize built-up 

structures; however, modern manufacturing techniques have proven to reduce the 

cost of legacy airframe structures by replacing labor-intensive built-up structures 

with monolithic machined structures. Monolithic machined structures are also ideal 

candidates for weight reduction with typical topology optimized structure weight 

savings of between 15 percent to 20 percent. The National Center for Defense Manufacturing and Machining has proven they can manufacture a monolithic topology 

optimized structure using aluminum to replace the legacy built-up structures. The 

results show that machining costs were comparative to traditional structure designs, 

resulting in no increase to recurring costs. Additionally, billet sizes for the traditional and the optimized designs were identical. Once developed and manufactured, 

the topology optimized structures were subjected to static and fatigue testing to determine if the components met the strength criteria for airframe structures. Testing 

confirmed that these designs met or exceeded the requirements established for these 

105 

airframe structures. Fifty pounds of weight savings is achievable (if implemented) 

when extrapolating the 15 percent weight savings to all of the under floor structures 

in the Chinook helicopter. The benefits of topology optimization include: load path 

visualization, weight savings, systems design space, ballistic protection, and improved fatigue resistance. These benefits offer a compelling incentive to employ this 

technology into the current design process in order to increase the overall performance of the airframe structures. 

QUESTIONS SUBMITTED BY SENATOR JOHN CORNYN

JOINT BASING

103. Senator CORNYN. Secretary Hale, the 2005 Defense BRAC Commission recommended DOD establish 12 joint bases by consolidating the management and support of 26 separate installations, potentially saving $2.3 billion over 20 years. One 

of the 12 joint bases mandated in 2005 is Joint Base San Antonio. The residents 

of San Antonio, known as Military City USA, have long been proud that several 

military installations, including Lackland and Randolph Air Force Bases and Fort 

Sam Houston, call their city home. To date, what cost savings has DOD seen from 

joint basing? If none, what savings do you expect to see in the coming years as joint 

base leaders gain experience with consolidation and common standards? 

Mr. HALE. The consolidation of 26 installations into 12 joint bases represents a 

fundamental change in our approach to installation management. Predictably, we 

are beginning to realize efficiencies from this initiative, many of them the result of 

economies of scale. For example, consolidating all recycling operations at Joint Base 

McGuire-Dix-Lakehurst saved $1 million in facility and equipment requirements 

and reduced overall contract costs by $200,000 annually. Far more important, however, is that our joint base commanders—faced with parallel and often-conflicting 

Service rules and requirements—are successfully implementing new, cross-cutting 

business processes. This ability to transcend traditional practices and develop innovative solutions to longstanding inefficiencies is key to positioning ourselves for future, Department-wide reforms. 

104. Senator CORNYN. Secretary Hale, what are your plans to achieve the efficiencies originally expected from the joint basing initiative? 

Mr. HALE. Our joint base commanders—faced with parallel and often-conflicting 

Service rules and requirements—are successfully implementing new, cross-cutting 

business processes. This ability to transcend traditional practices and develop innovative solutions to longstanding inefficiencies is key to positioning ourselves for future, Department-wide reforms. As one joint base commander put it joint bases are 

‘‘incubators for innovation’’. The Joint Base Commands continue to display a cando attitude and dedication to providing the highest quality service, not only in support of the military missions on their sites, but to servicemembers and their families 

as well. 

REDUCING LIFECYCLE COSTS

105. Senator CORNYN. Secretary Hale, both the Weapon System Acquisition Reform Act (WSARA) of 2009 and the policies related to DOD’s efficiency initiatives 

call for increasing the use of competition as a means to lower lifecycle costs. What 

are some examples of where competition has been used to lower lifecycle costs? 

Mr. HALE. The USD(AT&L) November 3, 2010 memo to the Military Departments 

and Defense Agencies directed immediate action to increase competition. The acquisition community is addressing this in the development of Weapon System Acquisition Strategies. Specifically, the Secretaries of the Military Departments and Defense Agency Directors were directed to implement the following: 

• Present a competitive acquisition strategy at each program milestone. Provide 

a one-page competitive strategy for each ACAT 1D program at each milestone 

as part of the overall acquisition strategy. 

• Report to USD(AT&L) in fiscal year 2011 on how their military department 

or agency intends to reduce single-bid competitions. At a minimum, the report 

will address market research, restricted specifications, and adequate time for 

proposal preparation. 

• Achieve a 2 percent reduction in single-bid competitive contracts in fiscal year 

2011, with continuing reductions thereafter. 

• Remove obstacles to competition, ensure contracting officers conduct negotiations with all single-bid offerors, unless this requirement is specifically waived 

106 

by the Head of Contracting Activity or Military Department Secretary. The 

basis of these negotiations will be cost or price analysis, as the case may be, 

using either certified or non-certified cost or pricing data, as appropriate. 

• Have their component or agency competition advocate develop a plan to improve both the overall rate of competition and the rate of effective competition. 

These plans will establish an improvement rate of at least 2 percent per year 

for overall competition and an improvement rate of at least 10 percent per year 

for effective competition. 

• Require open systems architectures and set rules for acquisition of technical 

data rights: 

• PMs will conduct a business case analysis in concert with the engineering 

tradeoff analysis that will be presented at Milestone B. The business case 

analysis will outline the open systems architecture approach, combined 

with technical data rights the Government will pursue in order to ensure 

a lifetime consideration of competition in the acquisition of weapon systems. 

• The results of this analysis will be reported in the Acquisition Strategy 

Report and in the competition strategy. 

• Increase the dynamic small business role in the defense marketplace 

competition. All competitive and non-competitive procurement actions will 

seek to increase small business participation through weighting factors in 

past performance and fee construct. 

These actions apply to all contracts, including MRO, CLS, and PBL contracts. The 

result will be PEOs and PMs developing a competitive strategy early in acquisition 

that spans the program’s life and improves the ability to compete MRO, CLS, and 

PBL contracts in sustainment. For example, the Department of Navy has undertaken a specific initiative to engage each PEO, PM, and Product Support Manager 

(PSM) to emphasize real competition at every stage of acquisition and sustainment. 

They directed the PEOs/PMs/PSMs to establish a competitive environment throughout the life cycle of their programs, and to enable better competitive opportunities 

in the sustainment phase. Additionally, PEOs and PMs are reviewing their existing 

portfolios in pursuit of increased competitive opportunities, including consideration 

of breakout opportunities, and expanding open architecture solutions and small 

business opportunities that fosters additional competition. The Army is emphasizing 

the conduct of logistics analyses early to baseline costs and develop technical data 

requirements that facilitate competition in sustainment contracts. The Air Force is 

also taking proactive steps to ensure PMs and PSMs correctly identify and pursue 

data rights in their contract negotiations to facilitate competition in sustainment. 

The outcome will be required warfighting capability at a reduced cost to the Government. 

106. Senator CORNYN. Secretary Hale, what other programs will this effort be expanded to in the near future? 

Mr. HALE. The Department continues to promote and pursue a competitive acquisition environment. For example, Directive-Type Memorandum (DTM) 10–015—Requirements for Life Cycle Management and Product Support establishes the requirement for a mandatory Product Support Manager (PSM) position for each ACAT I 

and II program. One of the PSM’s duties is, ‘‘Promote opportunities to maximize 

competition while meeting the objective of best-value long-term outcomes to the 

warfighter’’. The Services recently completed PSM identification March 30, 2011. 

Additionally, the military departments are undertaking a variety of initiatives to increase competition. For example: 

• The Department of Navy has engaged each PEO and PM to establish a 

solid foundation for a competitive environment throughout a program’s life 

cycle. Therefore, the PEOs and PMs are reviewing their existing portfolios 

in pursuit of increased competition opportunities, including consideration of 

breakout opportunities at the subsystem and component levels to reduce 

lifecycle costs. 

• The Department of Air Force has published regulations and guidebooks 

that detail the importance of competition. The Air Force is specifically focusing on sole-source contracts for software maintenance, as well as engine 

repairs and parts, to increase competition. 

• The Department of Army, over the course of the next year, plans to review and refine internal practices and processes that empower the PSM to 

promote competitive opportunities. 

Beyond DTM 10–015, the USDAT&L, November 3, 2010 memorandum Implementation Directive for Better Buying Power—Obtaining Greater Efficiency and Productivity in Defense Spending directs the Department to ‘‘Promote Real Competition’’ 

107 

across all acquisition programs. At milestone decision briefs, each program is required to provide a one-page competitive strategy for each ACAT ID program at 

each milestone as part of the overall acquisition strategy. Beginning December 1, 

2010, each program is required to include competition in its acquisition strategy 

prior to each milestone for ACAT IC, II, III and IV programs. 

107. Senator CORNYN. Secretary Hale, in what areas do you think competition and 

commercial investments in technology can be leveraged to achieve further cost reductions? 

Mr. HALE. Achieving cost reductions through competition and commercial investments in technology are two complementary aspects of the USD(AT&L)’s ‘‘Better 

Buying Power’’ initiative. 

As the Department continues to seek efficiencies as outlined in the November 3, 

2010 implementation directive for Better Buying Power, titled ‘‘Obtaining Greater 

Efficiency and Productivity in Defense Spending,’’ the entire Department is striving 

to improve cost effectiveness through increased use of commercial technology investment. Specifically, in that directive, the Director, Defense Research and Engineering 

(now the Assistant Secretary of Defense for Research and Engineering) was tasked 

to reinvigorate the Independent Research and Development (IRAD) program. The 

process is ongoing, with a plan to increase the visibility of IRAD as a fundamental 

element of the broader DOD R&D program. Application of IRAD to DOD projects 

should provide guests cost efficiency for the DOD. 

On November 24, 2010 the Director of Defense Procurement and Acquisition Policy issued guidance on improving competition in Defense procurement. Promoting 

real competition is an essential focus area within the ‘‘Better Buying Power’’ initiative that requires the Military Departments and Defense Agencies to develop plans 

to improve overall and effective competition by: reducing the number of single-bid 

contracts; negotiating better prices on single-bid contracts and task and delivery orders; and reducing the dollar value of sole-source contracts and task and delivery 

orders. 

108. Senator CORNYN. Secretary Hale, Section 805 of the National Defense Authorization Act (NDAA) for Fiscal Year 2010 deals with lifecycle management, calling for product support managers to maximize competition and make the best possible use of available DOD and industry resources at the system, subsystem, and 

component levels. This provision was implemented through DOD’s Directive-Type 

Memorandum on October 6, 2010. Please provide examples of where DOD has pursued competition at subsystem and component levels to reduce lifecycle costs. 

Mr. HALE. Since the issuance of the DTM, the military departments continue to 

implement section 805 and have made significant progress identifying Product Support Managers (PSMs) for ACAT I and II programs and issuing the guidance. One 

of the PSM’s major duties is to promote opportunities to maximize competition while 

meeting the objective of best-value, long-term outcomes for the warfighter. 

To this end, DOD Life Cycle Management and PSM Rapid Deployment training, 

which specifically addresses increased competition, has been developed and fielded 

by the Defense Acquisition University, with strong attendance across the DOD and 

the industry acquisition community. 

Additionally, the military departments are undertaking a variety of initiatives to 

increase competition. For example: 

• The Department of Navy has engaged each PEO and PM to establish a 

solid foundation for a competitive environment throughout the life cycle. 

Therefore, the PEOs and PMs are reviewing their existing portfolios in pursuit of increased competition opportunities, including consideration of 

breakout opportunities at the subsystem and component levels to reduce 

lifecycle costs. 

• The Department of Air Force has published regulations and guidebooks 

that detail the importance of competition. The Air Force is specifically focusing on sole-source contracts for software maintenance, as well as engine 

repairs and parts, to increase competition. 

The Department of Army, over the course of the next year, plans to review and 

refine internal practices and processes that empower the PSM to promote competitive opportunities. 

ARMY ACQUISITION PROGRAMS

109. Senator CORNYN. Secretary Westphal, an Inside the Army article on February 11, 2011, states that the Army ‘‘has an abysmal record of pumping billions 

108 

of dollars into weapon systems that will never be deployed, with a trend of sunk 

costs pointing upward during the past decade.’’ The article cites briefing slides 

marked for presentation by Secretary McHugh which highlight that the Army’s canceled programs have eaten up between $3.3 billion and $3.8 billion per year since 

2004, representing an average of 35 to 45 percent of the Army’s annual budget for 

development, testing, and engineering. This is very disappointing, and it represents 

poor stewardship of taxpayers’ dollars. Your prepared testimony highlights that the 

Army has identified $29.5 billion in savings over the fiscal year 2012 to fiscal year 

2016 period that will be invested in modernization and acquisition programs. What 

steps is the Army taking to overcome its shocking trend of wasting billions of dollars 

on cancelled acquisition programs? 

Dr. WESTPHAL. The Army Acquisition Review Panel submitted its report in February 2011, which includes 76 recommendations in four broad areas that extend 

across various Army organizations. Those broad areas address requirements generation, risk management, organizational alignment, and resources. The Secretary of 

the Army has directed the Assistant Secretary of the Army for Acquisition, Logistics 

and Technology (ASA(ALT)) to assess those recommendations. The ASA(ALT) will 

provide specific recommendations for implementation of those portions of the report 

which are judged to improve the efficiency and effectiveness of the Army’s Acquisition process. That initial assessment is due to the Secretary in April. Following that, 

the Army will determine the path forward on implementation of the recommendations. 

110. Senator CORNYN. Secretary Westphal, how do you plan to ensure that the 

$29.5 billion identified in savings for reinvestment in the Army’s budget will actually go towards the modernization and acquisition of weapons and systems that are 

in high demand by combatant commanders? 

Dr. WESTPHAL. During the preparation of the fiscal year 2012 budget request, the 

Army re-invested $17.1 billion in equipment acquisition and modernization programs that are high priority to the warfighter. By taking a holistic look at requirements, priorities, and acquisition timelines, we were able to focus our investments 

in areas that will deliver current capability to the Warfighter quicker or provide future capabilities to fill critical gaps. Recognizing that our greatest asset is the soldier, the Army also re-invested $9 billion in force structure, readiness, and quality 

of life programs that continue to ensure we have not only the best equipped, but 

also the best trained and supported soldiers in the world. 

AIR FORCE EFFICIENCIES

111. Senator CORNYN. Secretary Conaton, it is my understanding that the Air 

Force estimates that it has been saving over $1 million per KC–10 engine overhaul 

by competitively awarding this contract for work which is being done at Port San 

Antonio, TX. Do you believe that the cost savings realized through competition of 

the KC–10 engine overhaul can be effectively applied to other airframes and engines? 

Ms. CONATON. Yes, the KC–10 engine overhaul is an example where competition 

realized cost savings. The KC–10 engine program was able to do so because of two 

key conditions. First, the KC–10 engine is a commercial derivative. This condition 

typically ensures a robust industrial base with several vendors capable of performing the overhaul work. The second is that the U.S. Air Force owned the data 

rights to necessary maintenance overhaul manuals. Government ownership of this 

data enabled the Air Force to broadly compete the overhaul work. The combination 

of a robust industrial base and government ownership of the maintenance data created the opportunity to realize cost savings. The Air Force is committed to competition, and in cases where these conditions exist, the Air Force actively pursues this 

strategy and the opportunity to achieve cost savings. 

112. Senator CORNYN. Secretary Conaton, what else is the Air Force doing to help 

facilitate competition in the sustainment of major weapon systems? 

Ms. CONATON. The Air Force is more conscientious given reduced budgets and 

long-term sustainment of weapons system platforms. As such, the Air Force is taking a comprehensive approach that looks at both our legacy platforms and our new 

platforms in terms of data rights and ownership. Where our legacy platforms have 

not included full ownership of data rights, thus limiting competition, the Air Force 

has initiated business case analyses. The analyses determine the level of data rights 

most affordable over the life cycle to the government to organically support the 

sustainment of our legacy major weapons systems. Where new platforms are estabVerDate Aug 31 2005 11:17 Dec 01, 2011 Jkt 000000 PO 00000 Frm 00112 Fmt 6633 Sfmt 6621 Y:\BORAWSKI\DOCS\71377.TXT JUNE PsN: JUNEB
109 

lished, the Air Force is taking a proactive planning approach by determining what 

type of data rights are required for both acquisition and sustainment. This approach 

will lend itself to greater competition at various milestones through the acquisition 

and sustainment lifecycles. 

113. Senator CORNYN. Secretary Conaton, on January 27, 2011, the Air Force released a request for information (RFI) for the procurement of 150 C–17 engines, 

bringing the total number of C–17 engines procured by the Air Force to over 960. 

Given the WSARA of 2009, section 805 of the NDAA for Fiscal Year 2010, and the 

DOD’s efficiency initiatives, why did the RFI not include a requirement to purchase 

the technical data rights in order to facilitate competition in sustainment? 

Ms. CONATON. The request for information was only issued as a market research 

tool to determine the availability and adequacy of potential sources for C–17 engines 

and to determine whether any competitive sources existed. 

The C–17 engine was designed and developed by Pratt & Whitney (P&W) at their 

expense and has been sustained under Contractor Logistics Support. The original 

sustainment approach for the F117 engine did not include provisions for purchasing 

technical data. However, in the future, the Air Force will consider obtaining data 

rights in a separate follow-on sustainment effort. OEM willingness to propose and 

the cost thereof will drive the decision on purchasing technical data and the potential for competition in the future. To date, P&W has indicated little to no interest 

in providing such data. 

114. Senator CORNYN. Secretary Conaton, given that the C–17 engine is a derivative of a commercial 757 engine, with over 91 percent commonality, why is the Air 

Force not seeking competition in the supplier base as the commercial industry does? 

Ms. CONATON. Although there is engine commonality, the nine percent difference 

between F117 (Air Force engine) and Pratt and Whitney (PW) 2000 (commercial engine) is significant and prevents a campaign for sustainment in the commercial supplier base. Furthermore, the PW2000 (on Boeing 757 aircraft) commercial engine 

manuals are not sufficient for F117 overhaul and maintenance. The significant differences in the engines include: the low pressure compressor (LPC) group, LPC 

drive shaft group, fan case group, main gearbox assembly group, engine fuel and 

control group, engine oil group, and engine indicating system group. These differences are due to operational profiles required for military flight (i.e., wartime, 

max-power take offs causing high engine exhaust temperatures). Additionally, the 

F117 supply chain usage data is different from PW2000. The usage data and the 

repair manuals for the F117 are P&W proprietary, and they own the pipeline 

spares. Using commercial usage information without pipeline spares would cause 

immediate parts shortages and reduction in wartime readiness engines. The U.S. 

Air Force intends to pursue these manuals and ownership of pipeline spares for future sustainment efforts. 

RED RIVER ARMY DEPOT

115. Senator CORNYN. Secretary Westphal, in 2002, Red River Army Depot 

(RRAD) was designated by the Secretary of the Army as a Center for Industrial and 

Technical Excellence (CITE) for all Tactical Wheeled Vehicles (TWV), which include 

the High Mobility Multipurpose Wheeled Vehicle (HMMWV). RRAD has the capability to produce an average of 32 HMMWVs per day on a single shift, with the capability and capacity to handle all Army, National Guard, Army Reserve, and Marine Corps HMMWV reset and recapitalization requirements in a surge environment. However, Letterkenny Army Depot (LEAD), which is not a CITE for TWV, 

has been designated as the source of repair for SOCOM’S HMMWVs. How can the 

Army justify overhead and administrative costs for two separate contracts for supply 

chain management when Red River could efficiently conduct all HMMWV recap efforts, resulting in a reduction of overall HMMWV recap program costs? 

Dr. WESTPHAL. As the CITE for TWVs, RRAD will eventually perform the entire 

HMMWV RECAP mission, given the projected decrease in workload beyond fiscal 

year 2012. LEAD has been used as a second repair source during the surge to meet 

increased warfighter needs for HMMWVs. With regard to the SOCOM’s HMMWVs, 

although there is repair part commonality for HMMWVs; the SOCOM HMMWVs 

are significantly different from typical HMMWVs and LEAD has been instrumental 

in the design and in maintaining the TDP with SOCOM additions. LEAD was selected by SOCOM as the only depot able to meet their cost, quality, and schedule 

requirements for their Ground Mobility Vehicle (GMV) sustainment. LEAD has developed the engineering staff and has built the necessary infrastructure to perform 

110 

the GMV repair mission; reducing significantly investment in administrative requirements, overhead costs and supply chain support. 

116. Senator CORNYN. Secretary Westphal, as a CITE for all TWV, RRAD has also 

been designated as the Army’s Depot Source of Repair (DSOR) for the Mine Resistant Ambush Protected (MRAP) family of vehicles. RRAD demonstrated successful 

completion of a pilot program for the rest of 54 MRAP that was completed below 

cost estimate, validating RRAD’s capability to reset and repair MRAP. However, 

LEAD was assigned as the DSOR for the Route Clearance Vehicle (RCV), an MRAP 

derivative with near identical reset and repair processes to the MRAP. Why did the 

Army require a separate DSOR decision for the RCV? 

Dr. WESTPHAL. Designating LEAD as the DSOR for RCVs provides the Army 

flexibility to focus on MRAP repair/MRAP Egress Trainer manufacturing at RRAD, 

and RCV repair at LEAD. Continuous upgrades are being applied to RCVs, and 

LEAD has extensive knowledge of these highly specialized vehicles because of their 

depot-forward operation in Kuwait. LEAD has also developed an excellent partnership with the OEM which saves us money and establishes core skill sets as changes 

are applied to the RCVs at the organic facility. 

117. Senator CORNYN. Secretary Westphal, how can the Army justify 

Letterkenny’s designation as a separate DSOR for the RCV, duplicating the Army’s 

capabilities and investments at RRAD, at a time when the defense budget is under 

critical review and the Nation is facing a financial crisis? 

Dr. WESTPHAL. The investment in capabilities at LEAD for RCV repair was made 

in close coordination with the OEM in support of Operation Iraqi Freedom. LEAD 

gained considerable expertise in repair and new production, and has gained extensive knowledge of the highly specialized RCVs through its depot-forward operation 

in Kuwait (having repaired hundreds of RCVs in theater). LEAD has continued to 

build on this great partnering arrangement with the OEM and has continued to 

gain efficiencies while meeting warfighter needs. 

[Whereupon, at 4:13 p.m., the subcommittee adjourned.] 

Æ