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S. Hrg. 112–210 

TOOLS TO PREVENT DEFENSE DEPARTMENT 

COST OVERRUNS 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MARCH 29, 2011 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

JOHN ENSIGN, Nevada 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

MARK BEGICH, Alaska 

SCOTT P. BROWN, Massachusetts 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

JOHN KILVINGTON, Staff Director 

WILLIAM WRIGHT, Minority Staff Director 

DEIRDRE G. ARMSTRONG, Chief Clerk 

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C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator Brown .................................................................................................. 4 

Prepared statements: 

Senator Carper ................................................................................................. 59 

Senator Brown .................................................................................................. 62 

WITNESSES 

TUESDAY, MARCH 29, 2011 

Frank Kendall, Principal Under Secretary of Defense for Acquisition, Technology, and Logistics, U.S. Department of Defense; and Richard Burke, 

Ph.D., Deputy Director, Cost Assessment, Office of the Secretary of Defense/Cost Assessment and Program Evaluation, U.S. Department of Defense ...................................................................................................................... 7 

John J. Young, Jr., Senior Fellow, The Potomac Institute for Policy Studies .... 41 

Michael J. Sullivan, Director, Acquisition Sourcing Management, U.S. Government Accountability Office ............................................................................. 43 

Moshe Schwartz, Specialist in Defense Acquisition Policy, Congressional Research Service, The Library of Congress ............................................................ 45 

ALPHABETICAL LIST OF WITNESSES

Kendall, Frank: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 64 

Schwartz, Moshe: 

Testimony .......................................................................................................... 45 

Prepared statement .......................................................................................... 89 

Sullivan Michael J.: 

Testimony .......................................................................................................... 43 

Prepared statement .......................................................................................... 78 

Young, John J. Jr.: 

Testimony .......................................................................................................... 41 

Prepared statement .......................................................................................... 74 

APPENDIX 

Questions and responses for the Record from: 

Mr. Kendall ....................................................................................................... 102 

Mr. Burke .......................................................................................................... 139 

Mr. Sullivan ...................................................................................................... 159 

Chart referenced by Senator Carper ...................................................................... 163 

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TOOLS TO PREVENT DEFENSE DEPARTMENT 

COST OVERRUNS 

TUESDAY, MARCH 29, 2011 

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

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

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Pryor, Brown, Coburn, and Portman. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The hearing will come to order. We will be 

joined during the course of the afternoon by some of my colleagues, 

but I just want to go ahead and get started. Welcome to our witnesses and to our guests. 

I have asked Harlan Geer, also known as ‘‘Cahoon,’’ just to start 

us off with a chart, and this is a brand-new chart. We are looking 

at major weapons system cost growth or major weapons system 

cost overruns going back to fiscal year (FY) 2000 when the number 

was about $42 billion; and in 2005 the number had gone up to $202 

billion; in 2007 the number was up to $295 billion; and the major 

weapons system cost growth or overrun today is about $402 billion. 

In fiscal year 2000, you may recall we actually had a balanced 

budget in this country. In fact, we had not been able to balance our 

budget since 1968, and we had a bipartisan group that worked— 

Erskine Bowles—on behalf of the President, President Clinton, and 

the Republicans, who were in the majority in the House and Senate, worked with Democrats, and we ended up with a balanced 

budget approach that worked on the defense side, defense spending, worked on domestic discretionary spending, worked on entitlements, and also revenues, and actually some reorganizing of government to try to be more efficient in the way we ran the government. We ended up with a balanced budget, but in that year when 

we had a balanced budget, the contribution to the unbalance, if you 

will, was $42 billion because of major weapons system growth. So 

I just thought we would start off with that kind of—what is the old 

saying? As Senator Scott Brown likes to say, ‘‘A picture is worth 

a thousand words,’’ so we thought we would start off with one of 

yours, Scott. Welcome. 

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I just brought the hearing to order, and I am going to go ahead 

and give a statement, then yield to the Ranking Republican on the 

Subcommittee, Senator Brown. 

But today’s hearing will focus, as you can probably tell here, on 

how the Department of Defense (DOD) can more efficiently develop 

our Nation’s largest and most costly weapons and weapons systems. This hearing comes amidst joint efforts by the United States 

and NATO allies to avoid a humanitarian catastrophe in Libya. 

The major weapons systems of the U.S. military and of our NATO 

allies have helped to level the playing field against a regime that 

has chosen to launch air strikes against protesters and deploy 

tanks to attack their own population. 

As we applaud the efforts to stop this regression, though, we 

need to keep in mind that the cost of our involvement in three simultaneous wars—Iraq, Afghanistan, and now Libya—contributes 

to already unsustainable levels. 

In addition to our costly national security challenges, our Nation 

still faces equally costly economic challenges that have led to 

record budget deficits in recent years. Between 2001 and 2008, we 

actually accumulated as much new debt as we had in the previous 

208 years of our Nation’s history. We are on track to double our 

Nation’s debt again over the next decade if we do not do something 

about it. And our national debt now stands at more than $14 trillion. 

In an earlier hearing that Senator Brown and I had earlier this 

month, one of the things that we noted was debt, our Nation’s debt, 

as a percentage of Gross Domestic Product (GDP) now stands at 

about 65 percent. As best we can tell, the last time we were at that 

level was at the end of World War II, and the folks in Greece and 

in Turkey, they have higher numbers than that. But we do not 

want to go there because we know where that road led them. 

While most Americans want us to reduce the deficit, determining 

the best path forward will not always be easy. Many believe that 

those of us here in Washington are not capable of doing the hard 

work we were hired to do—that is, to effectively manage the tax 

dollars that we are entrusted with. A lot of folks look at the spending decisions we have made in recent years and question whether 

the culture here is broken. They question whether we are capable 

of making the kind of tough decisions that they and their families 

make with their own budgets. It is hard to blame them for being 

skeptical. 

We need to establish a different kind of culture. We need to establish a different kind of culture here in our Nation’s capital, in 

Washington, when it comes to spending. We need to establish what 

I call a culture of thrift to replace what some would call a culture 

of spendthrift. We need to look in every nook and cranny of Federal 

spending—domestic, defense, entitlements, along with tax expenditures—and ask this question: Is it possible to get better results for 

less money? Or is it at least possible to get better results for not 

a whole lot more money? 

The hard truth is that many program funding levels will need to 

be reduced. Even some of the most popular programs, programs 

that most of us would support and do support will likely be asked 

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1The chart referenced by Senator Carper appears in the appendix on page 163. 

to do more with less, or at least to do more with the same level 

of funding. 

Most of us, however, understand that we cannot simply cut our 

way out of the debt, cannot tax our way out of the debt, or save 

our way out of debt. We need also to grow our way out of the debt. 

And that is what happened in the late 1990’s. It was not just cutting domestic spending or defense spending. It was not just working on the entitlement program. It was like we grew the economy 

rather robustly, and that helped get the job done. But we were able 

to spur the level of growth needed to repair our Nation’s fiscal 

health, and we must invest in the kind of research and development that will enable us to out-innovate the rest of the world once 

again. 

Given the limited resources available for this kind of investment, 

we can not afford to waste taxpayers’ money on inefficient Federal 

programs that do not help us achieve our goals as a country. And 

today we are going to look at inefficient spending in the Department of Defense, specifically its acquisition system for major weapons programs. 

Three years ago, the Government Accountability Office (GAO) 

testified before this Subcommittee that the cost growth in major 

weapons systems had increased significantly over the past decade, 

and we can see that from the chart1 to my left from about $44 billion—actually $42 billion in 2000 to today something like $402 billion. 

These cost overruns were not only a waste of taxpayer money, 

they also prohibited us from investing in the highest needs of our 

military. Some of you will recall last year Secretary Bob Gates, our 

Secretary of Defense, said that every dollar wasted on weapons system cost overruns—and this is a quote—‘‘is a dollar not available 

to take care of our military, reset the force, win the wars we are 

in, and improve capabilities in areas where we are underinvested 

and potentially vulnerable.’’ 

Now, if we are going to have any hope of strengthening our military and achieving a balanced budget down the line, we have to reverse the trend of growing weapons system costs, and as with 

many of our Federal programs, we just get better results for less 

money in this area, too. 

In today’s hearing we will look at some of the root causes of 

mounting cost overruns that we have seen in recent years, and for 

the next hour or two, we will examine the effectiveness of the tools 

available to the Department of Defense and to Congress to guard 

against even greater cost escalation. 

One of Congress’ and the Department of Defense’s tools for managing cost overruns is the Nunn-McCurdy law, which serves as a 

tripwire to alert Congress and the Department of Defense to weapons systems with costs that are spiraling out of control. This tool 

is simple. If a program’s growth of costs grows by more than 15 

percent, Congress must be notified. If its cost increases by 25 percent or more, then the program is terminated unless the Secretary 

of Defense certifies that it meets key requirements. 

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We have asked GAO to look at trends in the past Nunn-McCurdy 

breaches that might be able to help us determine the effectiveness 

of this tool. Once again their findings reveal a serious problem. According to GAO, since 1997, one in three major weapons systems 

has experienced cost overruns big enough to trigger Nunn-McCurdy 

breaches. One in three. Thirty-six programs’ costs grew by more 

than 25 percent, subjecting them to the possibility of termination. 

Yet only one program has ever actually been terminated. 

GAO also identified Nunn-McCurdy trends in the military services that indicate mismanagement. For example, the Air Force has 

had nearly as many Nunn-McCurdy breaches—and that is 29—as 

they did major weapons systems in development, which was 36, between 1997 and 2009. And the contractors that build and develop 

these systems are not without fault either. For 1997 to 2009, 16 

companies had more than one of their weapons systems trigger a 

Nunn-McCurdy breach. Moreover, two major contractors accounted 

for more than 50 percent of the weapons systems that breached 

Nunn-McCurdy over this 12-year period. 

These trends in Nunn-McCurdy breaches tell us that too many 

of our weapons systems have costs that are spiraling out of control. 

This underscores a key fiscal reality that our Nation must face. We 

simply cannot balance our budget when we must consistently pay 

hundreds of billions of dollars more than expected for our major 

weapons systems. 

Our witnesses here today will help us identify the causes of these 

cost overruns, the tools available to control them, and the tools we 

will need to prevent them in the future. 

With that having been said, we welcome Senator Pryor to our 

midst, and I want to turn it over to Senator Brown for any comments he would like to make. Scott, thank you. 

OPENING STATEMENT OF SENATOR BROWN 

Senator BROWN. Thank you, Mr. Chairman. Good to see you 

again. 

Senator CARPER. Nice to see you. 

Senator BROWN. I will be bouncing back and forth. We are actually moving offices today, so I am going to certainly—— 

Senator CARPER. I would just mention—excuse me for a minute. 

I would just mention how pleased we were to see Senator Pryor. 

I did not say anything about the Senator from Cincinnati. 

Senator BROWN. The Enforcer. 

Senator CARPER. The Enforcer. It is great to see you, Rob. Welcome. 

Senator BROWN. Thank you, Mr. Chairman, for holding this important hearing to protect our tax dollars from waste, fraud, and 

abuse. It is critical and I appreciate your partnership in this pursuit, and our Nation is in a perilous financial position with our national debt over $14.2 trillion. 

It is funny. When I got here, it was $11.95 trillion. In a little 

over a year, we are at $14.2 trillion. 

Senator CARPER. What do they say? Cause and effect. You got 

here and it just shoots right up. [Laughter.] 

Actually, it had not gone down all that well under my watch either. 

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Senator BROWN. Yes, thanks. Keep going. I am pretty quick on 

the retort as well. [Laughter.] 

Now, more than ever we have to find the best value for our tax 

dollars, and I am amazed as I stay here longer as to how much we 

actually waste and how we do things and how we really should be 

doing it better. And with spending exceeding $700 billion, the Defense Department budget consumes 18 percent of our total budget, 

and obviously with everything that is happening, we have a lot of 

challenges. And, unfortunately, we need to be mindful also that the 

DOD budget is not exempt from the necessity of ensuring that we 

protect the taxpayers’ funds. So it is fairly simple, and especially 

when we deal with cost overruns and major defense system acquisitions. 

It is no secret that the overruns in the DOD acquisitions consume billions of dollars every year, and I am still amazed. I have 

not quite gotten a good answer as to why we not only have the 

overruns, but if we have overruns, why there aren’t penalties. And, 

in fact, if we try to stop a program, then not only do we have to 

pay a penalty, but if we do not we get sued. And I would rather 

spend the money, quite frankly, going after the people that have 

either breached the contract or not performed instead of just saying 

here is the check, we are going to close you down. What is happening here? It is just—I do not even want to talk about it. It is 

unbelievable the amount of money we are spending for a weapons 

system that is over budget and where they are apparently going to 

shut down, and we have nothing to show for it, and we may have 

to pay another $804 million just to close it out. I do not get it. So 

I am going to be zeroing in on my inquiry on those types of things. 

I understand that sometimes projects go over budget, and I understand that it is sometimes based on the changing need of the 

battle or the warfighting needs of our soldiers. I get that. But it 

seems to be the norm rather than the exception. We need to change 

the process that allows programs like MEADS to go on for almost 

20 years without any acceptable results. Like I said, I am flabbergasted. 

We need to change the thinking that if only we give a program 

a couple more years and a couple more billion dollars the program 

will ultimately be successful. And, listen, if a program has not 

worked in 20 years and we are giving it another few years, by then 

the technology is obsolete, and it makes no sense to me. So especially now under these tough fiscal circumstances, I would hope 

that if we are going to divert our precious tax dollars, we do it to 

programs that are working and that can be done quicker, more effectively, and timely. 

Let me state that we must not be afraid of taking the risks necessary to develop the next generation of weapons systems that our 

Nation will depend on. Based on what we are seeing around the 

world, it is clear that we will continue to be the world leader when 

it comes to trying to solve the world’s problems. And encumbered 

in that risk is failure and, unfortunately, sometimes cost overruns. 

Once again, I do understand that. But as we are here looking at 

the MEADS program, for example, it just does not make sense to 

me. 

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So I would like to thank the witnesses for being here today. I appreciate it and look forward to your testimony. I will try not to go 

on too long. I would rather hear from you so we can get right to 

the questions. 

Thank you, Mr. Chairman. 

Senator CARPER. Thank you, Senator Brown. 

Senator Pryor, welcome. Thanks for joining us. 

Senator PRYOR. Thank you. I do not have an opening statement, 

but thank you very much for doing this, both of you. 

Senator CARPER. You are welcome. You are good to come. Thanks 

so much. I was looking forward to introducing you. For the first 

time I have ever been able to introduce you as the senior Senator 

from Arkansas, and I let it slip by. But we are delighted that you 

could join us. 

Senator Portman. 

Senator PORTMAN. I do not have an opening statement. 

Senator CARPER. OK. Fair enough. 

All right. A quick introduction for our witnesses, and we will get 

right into it. 

Senator BROWN. Mr. Chairman, can I just make—I meant 

MEADS program. I apologize. I was reading versus talking. 

Senator CARPER. That is OK. Thank you for that clarification. 

Our first witness today is the Honorable Frank Kendall, who 

serves as the Principal Deputy Under Secretary of Defense for Acquisition, Technology, and Logistics at the Department of Defense. 

The Office of Acquisition, Technology, and Logistics oversees the 

development and purchase of all DOD weapons systems and works 

with each service’s acquisition officials to ensure that our military 

requirements are met through the acquisition of appropriate military technologies. Mr. Kendall has more than 35 years of experience in engineering, defense acquisition, and national security affairs serving as the Deputy Under Secretary of Defense for Strategic Defense Systems. Mr. Kendall is here today to tell us how the 

Department of Defense intends to curb potential cost overruns in 

the future and what tools his office will need in order to achieve 

this goal and to save scarce taxpayer dollars. And we not only 

thank you for being here, we thank you for your service. 

We were talking a little bit earlier, and I asked him where he 

went to school, and he said he went to a place called West Point 

and served some time in the Army. 

How long did you serve? 

Mr. KENDALL. I was on active duty for about 11 years and remained in the Reserves for about another 15 after that. 

Senator CARPER. Good for you. And when you retired, did you retire as a Major General? 

Mr. KENDALL. Lieutenant Colonel. 

Senator CARPER. All right. Good for you. 

Well, we have another colonel up here and a retired Navy Captain. We are happy to have you. Thank you very much for that 

service as well. 

Our second witness today is Dr. Richard Burke. Dr. Burke is the 

current Deputy Director for Cost Assessment in the Cost Assessment and Program Evaluation Office at the Department of Defense. The Cost Assessment and Program Evaluation Office proH605-41331-79W7 with DISTILLER

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1The prepared statement of Mr. Kendall appears in the appendix on page 64. 

vides independent cost estimates of major weapons systems for the 

Department of Defense and is empowered to do so under the Weapon Systems Acquisition Reform Act passed into law in 2009. In addition to serving as the Deputy Director of the Cost Assessment 

and Program Evaluation Office, Dr. Burke serves as the Deputy Director for Resource Analysis in the Program Analysis and Evaluation Division of the Office of the Secretary of Defense and as the 

Chairman of the Cost Analysis Improvement Group in the Department of Defense. That is a mouthful. Dr. Burke will spend time 

with us today answering our questions about how we can achieve 

accurate cost estimates in the beginning of a weapons system’s life 

so that we do not experience cost overruns in the later stages of 

the systems development. 

Dr. Burke, we thank you for being here and for your testimony. 

As I understand, Mr. Kendall is going to be delivering the oral 

statements for both himself and for you, and both of you will be 

available for questions. We are going to be watching carefully to 

see, when Mr. Kendall speaks, if your lips move. We will see how 

good you are at this. All right? Thanks for joining us today. Please 

proceed. Your entire statement will be made part of the record, and 

you may proceed. 

I would ask you to take around 5 minutes. If you go a little bit 

beyond that, that is OK. If you go a lot beyond that, it is probably 

not so good. 

Thank you. Welcome. 

STATEMENT OF FRANK KENDALL,1 PRINCIPAL UNDER SECRETARY OF DEFENSE FOR ACQUISITION, TECHNOLOGY, AND 

LOGISTICS, U.S. DEPARTMENT OF DEFENSE; AND RICHARD 

BURKE, PH.D., DEPUTY DIRECTOR, COST ASSESSMENT, OFFICE OF THE SECRETARY OF DEFENSE/COST ASSESSMENT 

AND PROGRAM EVALUATION, U.S. DEPARTMENT OF DEFENSE 

Mr. KENDALL. Thank you for the latitude, Mr. Chairman. 

Chairman Carper, Senator Brown, distinguished Members of the 

Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, I am 

Frank Kendall, the Principal Deputy Under Secretary of Defense 

for Acquisition, Technology, and Logistics. I am honored to be here 

today for the opportunity to discuss the DOD acquisition program 

and the tools to prevent cost overruns. Accompanying me is Mr. 

Richard Burke, Deputy Director, Cost Assessment, and the Senior 

Cost Analyst for the Department of Defense. 

What I would like to do with my opening statement, instead of 

just summarizing my written submission, is to step back and address directly the reasons we have cost overruns in defense programs. I am going to address causes now, and I will be happy to 

take your questions about tools later. 

My written statement discusses a number of measures the Department is taking to improve our controls over cost and cost 

growth. This includes our response to recent statutory direction, 

particularly of the Weapon Systems Acquisition Reform Act of 

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8 

2009, but also the measures included in the recent Defense Appropriation Act. 

My written statement also highlights some of Under Secretary 

Carter’s set of initiatives, which we refer to collectively as ‘‘Better 

Buying Power,’’ as well as other internal measures we are taking. 

Rather than summarize all those measures now, I would like to 

discuss the deeper issue the Subcommittee has asked me here to 

address: Why is cost growth so endemic to the defense acquisition 

enterprise? 

I have been involved with the Defense Department for over 45 

years, 31 of which have been spent in acquisition-related work, either in government or in the defense industry. I was on the Secretary of Defense’s acquisition staff when the first Under Secretary 

for Acquisition was appointed. I worked for the first several defense 

acquisition executives, and I know and I have great respect for all 

of those persons who have served in this position, including Mr. 

Young, who will testify later today. I have served in several Administrations, and I can tell you that this is not a partisan issue or 

problem. 

In my written statement, I refer to the struggle to control acquisition costs. It is not just cost overruns. It is to control costs overall. 

Every defense acquisition executive, every principal deputy to the 

acquisition executive, every service or component acquisition executive has engaged in this struggle. Why has this been so difficult? 

Why do we still have cost overruns? 

There are a number of reasons why this problem has been so intractable. Understanding these root causes has to be the first step 

in addressing cost control and cost overruns in DOD. 

I would like to say, somewhat glibly perhaps, that the acquisition 

system only has two problems: Planning and execution. Let us 

start with planning. 

Planning is largely a government responsibility. It includes: 

First, setting the requirements for a new product; second, setting 

key schedule dates; third, estimating total program costs; fourth, 

establishing budgets; and evaluating plans, finally, including the 

bids we receive from industry. In each and every case there are 

strong pressures on our institutions and the people in them to be 

optimistic. 

The United States has been militarily dominant in the world for 

decades. That dominance rests in large part on the superior weapons systems we acquire for our fighting men and women. In order 

to acquire these weapons, we are always pushing the state-of-theart in our requirements. And to give credit where credit is due, we 

have to a large part been successful in this endeavor. But we have 

had to take risks to achieve success. 

We almost always set out to build a product that is better than 

anything that has ever been built before. Our appetite for innovative and beyond-current-state-of-the-art systems is also influenced 

by industry’s desire to sell us new products. As one would expect, 

industry is not shy about marketing attractive new capabilities to 

our operational communities. Marketing people do not emphasize 

the technological risk and the cost risk in their products. 

Likewise, there is always pressure on our system from the user 

community and others to do things faster, independent of the scale, 

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complexity, and risk associated with the product. The acquisition 

system is frequently criticized for taking too long and being too risk 

averse. One has to ask: If we are so risk averse, why do we have 

so many overruns and schedule slips? 

The competition for resources within the planning system provide more incentives toward optimism. Our budget formulation 

process is an ongoing effort to squeeze as much capability as possible into a zero-sum constraint. To some degree, it is a competitive 

process to secure funding. That money has to be divided among a 

number of interest groups who are all vying for a share of the pie. 

All of them would like to obtain new capabilities. 

People in our system who are trying to get their programs into 

the budget have a strong incentive to be optimistic in their assumptions. Selling a given program in our system is also linked to 

the total cost of the program. Here again there are strong incentives to optimism by the proponents. 

Finally, industry has a strong incentive to take risks and to be 

optimistic in its bids. A defense contractor cannot stay in business 

by bidding realistically or conservatively and never winning a contract. Here also government plays a key role, ideally by insisting 

that industry justify its projections and its cost elements. But, 

again, here there is tremendous pressure to accept the lowest offer 

price, independent of the risk that is being taken. 

On the planning side, these are the forces that Dr. Carter and 

I and other acquisition executives have always had to struggle 

against, while at the same time doing everything we can to push 

the system to deliver more and better products sooner and at lower 

cost. 

Execution, on the other hand, is largely an industry responsibility. Once we set the terms of an acquisition strategy, basically 

our contracting strategy, it is up to industry to design and deliver 

the products. Now, the government always has a responsibility to 

ensure that prices we pay are fair and reasonable, that the quality 

of the work we accept meets our standards, and that the costs we 

reimburse are justified. But the execution of design and production 

functions falls primarily on industry. If the plan is sound, then cost 

overruns and execution are a matter of management, engineering, 

and production capability—or, more harshly, competency in these 

disciplines. 

At one time in my career, I would have said that our biggest 

problem by far leading to cost overruns was failures in planning. 

I am no longer as certain of that. I am seeing too many indicators 

that both government and industry need to improve their internal 

capacity to manage and to execute programs. To the extent that 

this observation is correct, we have a lot of work to do over time 

to build or rebuild the capacity in our workforces, both in industry 

and in government. 

For government, we have some direct control over this outcome, 

and we are moving aggressively to reconstitute and strengthen our 

workforce. Industry must also be strengthened, but this will have 

to happen indirectly through the incentives that we provide, largely 

through the way we contract. Incentives, primarily business incentives, are the primary tool the Department has to influence indusH605-41331-79W7 with DISTILLER

10 

try’s performance, and we need to use them creatively and aggressively. 

So what is the Department doing about all this? My written testimony summarizes about 20 of the actions that we are taking to 

address these problems. We are building on the work of all the professionals who came before us, such as Mr. Young, who will testify 

before the Committee later today. We are working closely with 

other elements of the Department, particularly the cost assessment 

and program evaluation organization, where Mr. Burke serves as 

the head of the cost estimating group, but also the Joint Staff, 

which approves requirements; the Comptroller, which sets budgets; 

and others. We are working hard to make the entire acquisition 

chain of command and all the people who serve in it more effective. 

To achieve better performance in cost control and execution in general, we are strengthening the incentives we provide to industry. 

The Department has moved out smartly to implement the Weapon Systems Acquisition Reform Act and other legislation. Better 

Buying Power is a set of 23 initiatives designed to control and reduce costs across all of our contracted activities, not just major programs. With Secretary Gates’ full support, we are increasing the 

size and, just as importantly, the capacity and capability of the 

government acquisition workforce. Despite the difficult financial 

climate, we fully recognize the force multiplier that a quality acquisition workforce has on the ultimate success of our programs. 

For Dr. Carter and me, this is all a process of continuous improvement. This will characterize our entire tenure in office. The 

struggle I have described will never end. It is not a short-term battle or a simple policy change or two that will solve all of our problems. If that were the case, it would have been solved long ago. It 

takes professionalism, tenacity, and singleness of purpose at all 

levels of the acquisition enterprise to make progress. We are totally 

committed to bringing the cost of our products and services under 

control and reducing them wherever possible. As Secretary Gates 

has indicated, the alternative is simply not acceptable. 

With that, we would be happy to answer your questions. Thank 

you, Mr. Chairman. 

Senator CARPER. Thanks so much. 

How did he do, Dr. Burke? What do you think? Pretty good? 

Mr. BURKE. He did very well. 

Senator CARPER. I thought he did well. 

Let me start off with this: Tell us the name of the person who 

you succeeded, if you will, Mr. Kendall. 

Mr. KENDALL. There was no one in my specific position. Jim Finley was in the closest position to mine. It was Deputy Under Secretary for Acquisition and Technology. For a few years, there was 

no Principal Deputy Under Secretary. 

Senator CARPER. OK. So your position was vacant? 

Mr. KENDALL. It did not exist. 

Senator CARPER. It did not exist. 

Mr. KENDALL. It essentially was retitled in the National Defense 

Authorization Act of fiscal year 2010. 

Senator CARPER. OK. Jim Finley was a witness here about a year 

or so ago, and John Young was a witness here maybe 2 or 3 years 

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ago. And I think, as I understand it, John Young held the position 

that Ash Carter now holds. Is that correct? 

Mr. KENDALL. That is correct. 

Senator CARPER. OK. The year that Jim Finley came to testify, 

I asked him, ‘‘How long have you been in your position?’’ And he 

told me how many months he had been there. And I said, ‘‘What 

kind of turnover did you receive from your predecessor?’’ And he 

said, ‘‘Well my predecessor had left,’’ I think he said, ‘‘18 months 

before I got there.’’ I said, ‘‘No kidding.’’ And I said, ‘‘Well, how 

many direct reports do you have in your position, Mr. Finley?’’ Or 

is it Dr. Finley? I am not sure. And he said, ‘‘I have six and,’’ he 

said, ‘‘only two of them were filled when I arrived.’’ Only two. 

One of the questions I often ask of witnesses, particularly when we see a real problem, $402 billion worth in cost overruns, what 

can we do to help? What can we do to help? And one of the things 

that occurs to me that we could to help, particularly in positions 

that require Senate confirmation, is we can either confirm people 

or turn them down and say to the Administration, ‘‘Send us another name. Send us a better name.’’ 

We are going through a process, as my colleagues know, we are 

going through a process led by Senator Chuck Schumer, Democrat 

from New York, and Lamar Alexander, Republican from Tennessee, 

where we would take—I think about out of roughly 1,200 confirmable position that require Senate confirmation in the Executive 

Branch, I think we are going to try to take about 400 or 450 out 

of that so that we reduce by about 30, 35 percent the number of 

positions that require confirmation. That might just help, and I 

have asked my staff to look at those positions that are involved and 

see, are there any of those that we would take out of those that 

need to be confirmed, are there any that are within the Department of Defense in the acquisition area, whether it is in the Secretary’s office or in the Army, Navy, Air Force, Marines, to see 

what—maybe that is another area where we can help. 

My recollection is that when it comes to confirming Secretaries 

of Departments, we do pretty well. When we get into the Deputy 

Secretaries, not bad. By the time we get to Assistant Secretaries, 

we do not do a good job at all. And sometimes my colleagues and 

I—hopefully not me—will put a hold on someone’s name in order 

to get some kind of leverage for an entirely unrelated item. And the 

folks who suffer, and particularly in the acquisition area, are the 

taxpayers because we do not have the kind of horsepower we need 

in acquisition watching over the process and making sure that we 

are holding the feet of our contractors to the fire. 

Does any of that make any sense to either of you? 

Mr. KENDALL. I would echo that completely. I was thinking about 

the thing that I would give as the first thing that the Congress 

could do, and you hit it. I waited 15 months after the Administration started before I came in. I was on hold for several months during my confirmation process because of the tanker acquisition. It 

had nothing to do with my candidacy. 

It is a very onerous and time-consuming process, and people are 

often held in limbo for a long period of time. It is very hard to recruit people who know they have to go through that process. We 

have a few more people coming up. 

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I do not know if there is any Department position on this, so this 

is a personal opinion, but I would do just as you suggest. I would 

have more people come in as non-career Senior Executive Services 

(SESs). At the Assistant Secretary level, we have four or five Assistant Secretaries that report to Dr. Carter and me. Each of the 

acquisition executives for the services is an Assistant Secretary. 

And I think those people could easily be brought in as non-career 

SESs, and we could have our team on board much more quickly, 

and we would probably have a very capable team in place much, 

much more quickly than we did. 

Senator CARPER. Let me just say, too—and I am going to ask, Dr. 

Burke, for you to respond as well. I would just say to Senator 

Brown and Senator Portman, could we just—I just want to make 

sure we are following what they are saying. What they are saying 

is we have this huge problem with cost overruns. The folks that are 

supposed to be serving in these acquisition jobs, senior acquisition 

jobs, we leave these positions vacant for months, in some cases 

longer than months. And we are trying to figure out what we can 

do on our end to better ensure that this $402 billion—that we start 

sending this curve the other way, not to continue to see it escalate. 

And we may have an opportunity in the Schumer-Alexander legislation to-—we may have—there you go, that is right. We are on it. 

I suspect—my guess is that Senator Portman is or will be. But we 

may want to look at the jobs that we would remove the requirement for confirmation to see how many of those fall in this bailiwick and if there—I would ask you, if you will for the record, just 

to come back to us and recommend confirmable positions within 

the acquisition area at the Department of Defense that are confirmable that in your judgments should not be. And that does not 

mean we will sign off on all those, but at least we would be making 

a better, more informed decision. 

Dr. Burke, your response to what I have been saying, if you will, 

and to what Mr. Kendall said. 

INFORMATION FOR THE RECORD

I defer to the Senate on Senate-confirmed positions. 

Mr. BURKE. Mr. Chairman, as a career member of the SES, I 

have had to deal with the situation that Mr. Kendall describes and 

which you describe, which is often there are vacancies at policymaking levels for extended periods of time, often early in an Administration, and it is not a helpful thing for anybody involved, essentially, in terms of efficient operation of the government. 

Senator CARPER. All right. Thank you. I have some more questions, but let me just yield to Senator Brown. Thanks for those responses. 

Senator BROWN. Thank you, Mr. Chairman. 

So, Mr. Kendall, the Secretary of Defense has recently decided to 

continue the Medium Extended Air Defense System (MEADS) program, by requesting from Congress another $800 million, as I referenced in my earlier testimony. This program has already cost the 

taxpayers almost $1.9 billion, and we are over 14 years into the 

program. 

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Why should we continue with this failed program that the Department has characterized as, No. 1, subject to a high degree of 

risk; two, not needed because we can utilize existing assets to provide the capabilities; and, three, too costly? 

Mr. KENDALL. Senator Brown, MEADS is a very unusual program in a number of respects. It is an international cooperative 

program, and our teammates have been to Germany and Italy. And 

the program, as you say, has been going on for quite a few years. 

It has gotten into developmental problems, cost overruns in the development phase, that have caused us to question whether or not 

it should continue. 

We looked at the program carefully. We looked at other options 

that we have to meet the same mission requirements essentially, 

and decided that we should not continue it into production. It was 

largely an affordability decision, but it was also looking at the actual progress on the program. 

The reason there is still money in the program for the next 2 

years is that we have a very unusual arrangement with our partners. The memorandum of understanding (MOU)—the contract, effectively—that we have with Italy and Germany is that if anybody 

withdraws, any of the partners withdraws, that partner is liable for 

all the termination liability associated with that withdrawal up to 

their full obligation to the program. Now, our obligation to the program is the money that you see still in budget, that $804 million. 

So we are basically in a position where we would have to pay a 

termination liability and get nothing, or we can go ahead and 

spend the money on the program and try to get some technology 

and perhaps some components that will be of value to us. 

So we looked at three options: We looked at just stopping, which 

would have led to a termination liability; we looked at continuing 

to the end of our agreement; and we looked at putting in an additional over $1 billion to meet the requirements of the program to 

finish development—the overrun, effectively. And we decided the 

best business option for us at this point was the middle option, the 

one to let the program continue to the end of the MOU. 

Senator BROWN. So who—sorry to interrupt, but who signed this 

contract? I mean, isn’t there also a provision in the contract to 

allow for non-performance which would mitigate the ability or the 

responsibility to pay that type of—— 

Mr. KENDALL. There are two agreements. There is an agreement 

between the Nations which sets up the terms by which we will execute the—— 

Senator BROWN. And who signed—who got us into that deal? 

Mr. KENDALL. It was about 8 or 9 years ago, and I am not actually sure who actually signed up to the deal. 

Senator BROWN. Well, I mean, it just seems that—I mean, I am 

not—I do not know how we—how we managed to get the taxpayers 

in a situation where we have to waste another $800 million to 

build an air defense system with the Italians and Germans when 

we do it very well ourselves here, and then we also—so we are 

going to spend $800 million extra just to get a little bit of technology and knowledge. Are you kidding me? 

Mr. KENDALL. Our problem is we do not have a better option 

right now because if we terminate, we will still be obligated to pay 

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termination liability, which could be—which is capped at that 

amount. 

Senator BROWN. And there is nothing in the contract that allows 

you to mitigate because of failure to deliver? 

Mr. KENDALL. I believe that this contract is essentially a costplus vehicle, so essentially—and the termination liability is the 

costs associated with stopping, the costs that basically have to be 

borne because of all the work that has been done so far and what 

it costs to wind down the program, if you will. So that is—and the 

agreement was set up—and I was not party to the agreement when 

it was initially set up between the Nations. But the agreement between the Nations was designed to make it hard for people to leave 

because there is a long history in cooperative programs of one or 

more partners bailing out of the program because of budget difficulties. 

Senator BROWN. But if—— 

Mr. KENDALL. It was set up as a way to keep everybody in, and 

now, of course, we are the persons who would like to get out 

but—— 

Senator BROWN. Right, but if the cost is roughly the same and 

without having pushed the Germans and Italians to agree to a mutual termination, without having negotiated actual termination 

costs, how can we claim that the taxpayers are better off by going 

forward and moving forward through the remaining term of the 

program to 2014? 

Mr. KENDALL. Senator Brown, we are taking this one step at a 

time. We are currently in negotiations or discussions with our partners about—— 

Senator BROWN. I hope you have good attorneys or something. 

Mr. KENDALL. Well, we—— 

Senator BROWN. I hope you have somebody who—you ought to 

give it to them on a contingency fee and give them a third or something. 

Mr. KENDALL. We have to separate the agreement between the 

countries and the contract. The contract is straightforward, relatively speaking. We have to deal with that. Once the Nations decide how they want to proceed—— 

Senator BROWN. Well, I cannot imagine the other countries are 

too happy and they would want to get out as well. 

Mr. KENDALL. I do not believe they are very happy either. 

Senator BROWN. So wouldn’t there be the ability to work together 

and try to kind of find some type of common ground so everybody 

saves some money? 

Mr. KENDALL. That is exactly what we are trying to do right 

now. But we have to stay in the MOU while we have those discussions. At the end of the day, we may come to an agreement together to terminate. We may decide to go forward. It depends to 

a large extent on what the other partners say at this point. 

Senator BROWN. So just so I am clear, what do the taxpayers 

have to show for their $1.8 billion of money so far? Anything? 

Mr. KENDALL. What is being discussed now is what we can do 

to take the components that have been developed as far as they 

have: The two radars, the missile system, the—— 

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Senator BROWN. But isn’t it—really, it is nothing new, is it? 

There is no new technology that we already do not have in existence, right? 

Mr. KENDALL. These are new systems. The missile will be an 

American missile. Basically it is being developed for Patriot, intended to be. The radars are new radars. The—— 

Senator BROWN. But don’t we already have the technology in 

play now? The Colonel behind you is saying, ‘‘No, sir.’’ Do you want 

to testify? 

Mr. KENDALL. These are new design systems. They have been in 

design for quite some time, but they are new systems. 

Senator BROWN. OK. So new better new or just new? 

Mr. KENDALL. New better new. Patriot has been upgraded, which 

is our comparable system. It is a much older system. Patriot was 

in development in the 1970’s, so it has been around for a long time. 

It has been upgraded a few times, and it can be upgraded more. 

But this is a much newer technology system than Patriot. 

Senator BROWN. So if I could just add, maybe go to Dr. Burke, 

the Weapon Systems Acquisition Reform Act, which became law in 

2009, included a provision which required contractors, where practical, to develop competitive prototypes in major defense acquisition 

programs. And if the Department implemented the competitive prototype in MDAPs prior to production and deployment, how much 

money could we have actually saved, do you think? 

Mr. BURKE. On this program specifically, on the MEADS program? It would have been very difficult to implement that on this 

program because of what Mr. Kendall has described. This is an 

international program that has been structured—— 

Senator BROWN. Do we do that often, international type programs like this? Is this kind of a kiss to the Italians and Germans 

to say, ‘‘Hey, let us do this deal together,’’ it is great? 

Mr. KENDALL. This is a pretty unusual program. I do not recall 

one—— 

Senator BROWN. Do not do it again, all right? 

Mr. KENDALL [continuing]. Quite like this. 

Senator BROWN. We are way over, and we are getting nothing, 

so please, do me a favor, do not do it again. All right? And, obviously, I am a little bit—I do not want to be a wise guy, but it is 

just—it is crazy. And getting back to Mr. Kendall, in what programs has the Department implemented competitive prototyping? 

And where in the acquisition process has this taken place, pre-systems acquisition, systems acquisition, or sustainment? 

Mr. KENDALL. Is your question where have we implemented competitive prototyping? 

Senator BROWN. Yes, where has it been done successfully before, 

this prototyping? 

Mr. KENDALL. It was done for Joint Strike Fighter, initially. That 

is one of the larger programs we have done it for. I am trying to 

think of a more recent program. 

Senator BROWN. A littoral combat ship? Has it—— 

Mr. KENDALL. We have done it for some of the munitions programs. Two that come to mind right away are Small Diameter 

Bomb and the Joint Air-to-Ground Missile System. So we have 

done it for those. It is the preferred path. 

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Senator BROWN. It is the law now, isn’t it, though, to include it, 

where practical, I guess? 

Mr. KENDALL. Yes, where practical. 

Senator BROWN. Do we ever say to whomever, hey, is it practical? 

Do we ask that next question? 

Mr. KENDALL. Absolutely. Carrying competition as far as possible 

into development is a very good thing for the Department. It really 

does a lot to reduce the risk in the program and reduce costs overall. So—— 

Senator BROWN. And it is interesting you say that because we 

are canceling a second engine, and you are talking about competition, on the one hand, you just said it is great, and yet we are not 

doing it. In fact, if we continued on with that program, there is a 

potential savings of billions of dollars—what, hundreds of millions 

of dollars? What is the number? But it is substantial, and yet we 

are not doing it. 

Mr. KENDALL. The Department has looked very hard at the engine situation. 

Senator BROWN. Twenty billion. 

Mr. KENDALL. And I think you are well aware of our conclusions 

there. We do not see the case for the engine development, second 

engine development. That has been—— 

Senator BROWN. I am going to come back, Mr. Chairman—— 

Mr. KENDALL [continuing]. In the Department’s budget for a long 

time. 

Senator BROWN [continuing]. Because I have a bunch more questions. 

Senator CARPER. OK. Senator Pryor. Senator Portman, Senator 

Bob Portman, from Queen City. 

Senator PORTMAN. Mr. Chairman, I appreciate it, and thank you 

for being here today and for your service. Let me just followup on 

some of the things that Senator Brown was talking about in terms 

of how we do save money. I look at the Quadrennial Defense Review (QDR) Independent Panel recently concluded: ‘‘History has 

shown that the only reliable source of price reduction to the life of 

a program is competition between dual sources.’’ Do you agree with 

that? Do you disagree with the Quadrennial Review? 

Mr. KENDALL. Competition is probably our most effective single 

tool to bring down costs. I would agree with that, absolutely. 

Senator PORTMAN. The life of a program is competition between 

dual sources. You said in your testimony you are looking to create 

new systems constantly, to create incentives. You said we need to 

use incentives aggressively. You talked about accountability. You 

talked about competition. You just now confirmed that. I assume 

you think the competition is consistent with the 2009 legislation 

that actually was championed by Senators Levin and McCain, the 

Weapon Systems Acquisition Reform Act. Part of that bill is to require contractors, where practical, to develop these competitive prototypes of a major defense acquisition program. So would you say 

that competition is consistent with that 2009 legislation? 

Mr. KENDALL. Yes, absolutely. We are doing competition wherever we can. Ground Combat Vehicle (GCV) is a new startup that 

Dr. Carter and I have had coming through, and we will be doing 

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competition there and carrying it well into development, perhaps 

all the way through. 

There are other programs like SSBN–X, which is another new 

start that we are looking at, where for a new ballistic missile submarine we just simply cannot afford to carry two competitors 

through the full design phase or prototype. So it is a case-by-case 

judgment call based on what is affordable. But wherever we can, 

we absolutely do want to carry competitive prototypes. 

One of the changes that Mr. Young made when he was in office 

was to move the start of engineering, manufacturing, development, 

our full-scale development phase, to after preliminary design review. So you have now in our system for normal programs, as 

many as we can, you do competitive risk reduction, you go to preliminary design, and then you down-select. If possible, we would 

like to go even further with competition, but we usually cannot afford to do that. 

Senator PORTMAN. Let us talk about how it has worked because 

you have mentioned that you have used the prototype competition 

with the Joint Strike Fighter. You said that a moment ago. How 

is that going? 

Mr. KENDALL. Well, the original competition—— 

Senator PORTMAN. Where is the Joint Strike Fighter program 

right now compared to its initial forecast? 

Mr. KENDALL. It is not performing to its initial forecast. I think 

that—— 

Senator PORTMAN. How much over is it? How much over? 

Mr. KENDALL. It is over by at least 100 percent, I think, from its 

original estimates, if I remember the numbers. Rick, do you have 

those—— 

Senator PORTMAN. Over 100 percent would be how many billions 

of dollars? 

Mr. KENDALL. Let me get a number for you. 

Fifty percent is the overrun from the original baseline—I am 

sorry. At the time of Nunn-McCurdy, it was a 57-percent overrun. 

Nunn-McCurdy we did last year. Joint Strike Fighter went 

through—— 

Senator PORTMAN. From the original program, how many billions of the over $400 billion that the Chairman has on his chart there 

is the Joint Strike Fighter over? 

Mr. KENDALL. I believe it is the biggest contributor. 

Senator PORTMAN. How many billions? 

Mr. KENDALL. I would have to check the report to see, but—— 

Senator PORTMAN. I would hope you all would know what the 

number is on your biggest cost overrun. 

Mr. KENDALL. I will get you a number, Senator Portman. I do not 

have a number right now. 

Senator PORTMAN. OK. I have a number. I may be wrong, but I 

would like to hear it from you all. 

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INFORMATION FOR THE RECORD

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Senator PORTMAN. How about the—so the program is, let us just 

stipulate, billions of dollars over, and—— 

Mr. KENDALL. Yes, it is. 

Senator PORTMAN [continuing]. It is behind time, and—— 

Mr. KENDALL. Yes, it is. 

Senator PORTMAN. And part of the program of creating this Joint 

Strike Fighter, which would be about 80 to 85 percent of our military warfighters at the point of its completion because it would be 

a Navy, Air Force, and Marine aircraft, part of this is the engine. 

And you said earlier that you had done your analysis and determined that competition is not appropriate with the engine. The 

GAO has done this study that Senator Brown indicated earlier, 

shows that through competition you save money, and they analyzed 

the F–16 program, for instance, and said it is roughly a 10-to 20- 

percent savings. I think 20 percent was their number. So it is 

about a $100 billion program, although cost overruns are every 

day, so we will see. So that would be about $20 billion. But you 

said earlier you think that there are not cost savings through competition on the engine side. What is going on with the engine? 

Where is the engine that—you have apparently chosen as of last 

week when you did a stop order on the alternative engine. How is 

that engine doing? Is it meeting the projections? 

Mr. KENDALL. It is making progress. Its deliveries are currently 

scheduled to be consistent with the aircraft that it is going to go 

on. There are—— 

Senator PORTMAN. Are there any cost overruns in it? 

Mr. KENDALL. There have been some overruns, and—— 

Senator PORTMAN. How much? 

Mr. KENDALL. I would have to get that number for you, too. 

Senator PORTMAN. OK. When you get the other number, I would 

love to hear that number. 

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Senator PORTMAN. The number I have is $2.5 billion already in 

cost overruns—— 

Mr. KENDALL. That engine has thousands of hours of testing, and 

it is a much more mature design than the alternative. The alternative has had a relatively small number of hours of testing. There 

is still a good deal of risk in that program, and we do not see the 

benefit of diverting resources from other projects or from the F–35 

airframes to that second engine. We just do not see the benefit of 

that at this point in time. 

The engine that we are relying on—— 

Senator PORTMAN. You do not see the benefit in this fiscal year, 

or you do not see the benefit over the—— 

Mr. KENDALL. Over the—— 

Senator PORTMAN [continuing]. Life of the program? 

Mr. KENDALL. At this point we cannot predict—— 

Senator PORTMAN. This is meant to be—Joint Strike Fighter 

is—— 

Mr. KENDALL [continuing]. Benefit over the life. 

Senator PORTMAN [continuing]. Meant to be the program for our 

Armed Forces for a couple decades, right? 

Mr. KENDALL. I understand. 

Senator PORTMAN. And you do not see any benefit from competition? 

Mr. KENDALL. We do not think that there is enough assurance 

of that benefit to justify the risk of diverting the resources over to 

the engine. 

Senator PORTMAN. What is the risk of diverting resources—is the 

second engine over cost? 

Mr. KENDALL. Yes, the second engine has had developmental 

problems also. 

Senator PORTMAN. Is it over cost? 

Mr. KENDALL. I do not have those numbers. I would have to 

check on that. 

INFORMATION FOR THE RECORD

Yes. The F136 System Development and Demonstration contract was signed in 

2005 for $2.5 billion. At the time the contract was terminated, in April 2011, the 

JSF program office estimate to complete was approximately $3.2 billion. 

Senator PORTMAN. OK. My understanding is that the first engine 

is over cost by $2.5 billion already. The overall program is tens of 

billions of dollars if not hundreds of billions of dollars over cost. I 

have heard different numbers—$104 billion over cost. And you 

have testified before us today brilliantly about the need for competition and how you believe in competition, and certainly the 2009 

legislation, the Quadrennial Review, and every other study that 

has been done, including GAO, says competition works. These numbers are unsustainable. I mean, if we did not have the largest deficit in the history of our country and the biggest debt obviously in 

the history of our country and as a percent of our economy, as the 

Chairman has said—it is numbers we have never had to deal with 

before. In fact, as a percent of our economy, our debt is actually 

bigger than it has ever been. Our deficit has only been bigger one 

time, and that was World War II, when it was the same, roughly 

10 percent. So we are in a situation now where we have to do what 

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the Chairman said, which is thrift versus spendthrift, better results for less money, and using competition is certainly something 

that you have today talked about as a way to get at this cost overrun of $400 billion. 

So I would hope that the Department of Defense, instead of, as 

it did last week, putting a stop order in place while Congress is in 

the middle of its appropriations process and working with this 

exact program trying to find cost savings in it, that instead you 

would embrace the idea of competition in order to save money for 

the taxpayer over time. 

My time is up. I hope to have a chance to come back. I look forward to your numbers on the Joint Strike Fighter program overall. 

Thank you, Mr. Chairman. 

Senator CARPER. Thank you, Senator Portman. Senator Pryor. 

Senator PRYOR. Thank you, Mr. Chairman. We have already 

clarified what Mr. Kendall’s rank was when he left the military. 

What was your rank? 

Senator CARPER. I think it was Captain. 

Senator PRYOR. Captain, all right. 

Senator CARPER. But I could not get in the Army. I had to stay 

in the Navy. 

Senator PRYOR. Well, thank you for your service there. 

Let me followup, if I can, just on the Joint Strike Fighter, and 

I think you were about to offer an explanation, and my understanding is that one of the reasons it is so far off budget, and so 

late is because there have been redesigns? 

Mr. KENDALL. There are a combination of factors that affect the 

Joint Strike Fighter’s increase in cost. One of them was just poor 

estimating originally. There have been difficulties in the design 

phase and in production where things have not gone as well as the 

original estimates were made. We are working very, very hard now 

to get the production processes under control. 

One of the aircraft, the STOVL aircraft in particular, has had 

problems with the design, is having to have some rework because 

of that. It is the reason we have put the STOVL aircraft essentially 

on a pause while we sort out those problems. And it is on—I think 

the Secretary has even used the words—probation for 2 years until 

we get some of the problems with it sorted out. 

Senator PRYOR. Mr. Burke, did you have any comments on that? 

I saw you nodding your head over there. 

Mr. BURKE. I agree with those comments. 

Senator PRYOR. You understand Congress’ frustration. All politicians are squeamish when it comes to cutting defense spending. 

That is politically a dangerous thing to do, but in this budget environment we are going to have to become more efficient and stretch 

our dollars and make sure that when we are spending dollars on 

defense they are actually going to productive pursuits, whatever 

those may be. 

That leads me to my next question. I know we have NunnMcCurdy on the books and I would like to get your read on how 

well it is working and if it goes far enough. Because even though 

it is on the books, it seems that we constantly are plagued with 

cost overruns, et cetera. So does Nunn-McCurdy need to be 

strengthened? Does it need to go further? Does it need to be 

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changed in any way to make sure we can get a handle on these 

cost overruns? 

Mr. KENDALL. Nunn-McCurdy is a useful tool for us. The problem with Nunn-McCurdy is it comes after the cost overrun has already been realized. And then it asks the very reasonable questions 

you should ask in that situation. Do I still need the product? Are 

there other alternatives that would be less costly in giving you 

something with the same capability, et cetera. Those are reasonable questions to ask. And what we are doing now is actually we 

are asking them well before a formal Nunn-McCurdy breach has to 

be declared. 

The problem is that they come after the cost overruns have already occurred. What we are much more interested in right now is 

prevention and making sure we start programs that are designed 

for success. 

Senator PRYOR. And do you feel like you are being successful in 

that and catching these potential overruns earlier in the process? 

Mr. KENDALL. That is our intent, and I think we now are having 

some success. A lot of that has to do with the planning function 

that I described and setting the requirements right early. 

I wanted to mention that we are as interested in cost control as 

in preventing cost overruns. We have to get more product out the 

door for the money that we have. That is what we are fundamentally about right now. We are not delivering enough to the 

warfighters for the money that we have. So we are stressing affordability in our programs, which means that basically early on people 

have to set an affordability target, which we are calling a requirement, for what that program will cost, and then they have to design to that cost. That is a fundamental change. I think cultural 

change was mentioned earlier. This is a different mindset. We cannot allow our operational communities to just ask for anything and 

then go try to build it. 

If you look at the programs we have canceled over the last few 

years, look at the program Secretary Gates canceled about 2 years 

ago, the ones we just canceled in this budget, what runs through 

them more than anything else is that they are unaffordable programs. EFV is a good example, the Expeditionary Fighting Vehicle. 

We spent years in development chasing a requirement and a 

project that turned out to be unaffordable. We were forced to confront eventually that it was unaffordable, kind of around the time 

Nunn-McCurdy breach would occur. That is way too late. We 

should not be starting unaffordable programs. So we are really 

stressing the beginning of the process. 

We are also stressing something that we are calling in general 

to change the culture of our workforce, and maybe change the culture of industry, getting more cost control into everything we do. 

We are emphasizing something called ‘‘should cost,’’ which is the 

idea that you do not just accept the independent estimate. One of 

the ways we can avoid having cost overruns is just put a lot of 

money into everything or to take no risk. What we want to do is 

get as inexpensive a product as we can and get superior products 

at the same time. 

So what we are funding to now is the independent cost estimate 

that Mr. Burke’s shop generally generates for us. We are 

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incentivizing our own managers and we are going to incentivize industry to deliver below that, to get the costs down. 

Now, in the world that I have lived in all my life, we tend to 

overrun the independent cost estimate. But if I can just get to that 

level, then I will have prevented all these cost overruns that we are 

talking about. If we can get below that level, then we can deliver 

more products to the warfighter. That is our ultimate goal, and we 

want to define that as success. 

For too many of our people, success is spending the money, and 

that is not what we want. We want people to get more value for 

that money. 

Senator PRYOR. I do think that the Department of Defense is in 

sort of a different category than the other departments and agencies. Congress is afraid sometimes to push too hard on cost containment because it might be used in a 30-second ad that we are cutting spending on defense. 

From time to time, it appears that the leadership over at the 

Pentagon will spend everything that we give them and try to find 

ways to spend it, and it almost sometimes appears they are not 

that interested in cost containment, although I would say that Secretary Gates has shown a lot of courage on that. 

And then I think the contractors have a lot of incentive to keep 

going and keep building and keep producing and spending. 

DOD is different than pretty much any other agency because of 

the political dynamic of trying to pressure you to cut your spending. 

Mr. KENDALL. What I think Secretary Gates has caused the Department to confront is that it cannot continue that type of behavior. When he started his Abilene speech of about a year ago now, 

I think it was a revolutionary statement. People had to pay attention to that. 

Senator PRYOR. It was impressive and it was appreciated. 

Mr. KENDALL. We are implementing that across the board. In ac- quisition, where we spend $400 billion of the $700 billion that was 

in the budget today in 2010, we are going after everything that we 

are contracting out: Service contracts, which were about half of 

that $400 billion that we spent, as well as all of our programs. The 

major programs are a substantial fraction of that, about 40 percent 

overall. So we are trying to do everything we can to change the 

way people think about the money that they are spending. 

On the government side, that is a cultural change. That is an attitude change and the way people think about what success is in 

a way. 

On the industry side, we have to have stronger incentives. We 

have to have consequences. I think Senator Brown mentioned this. 

When people do not deliver, there have to be consequences. Now, 

most of the time we like to do that in fees. We often do not want 

to kill a program. We want to get the program. But we do not want 

people to be rewarded for poor performance so we are strengthening our incentives in order to do that. 

Senator PRYOR. That is a very valid point because the Department of Defense does so much contracting. It is an enormous number of contracts and amount of money involved. And there are companies out there that routinely breach the contracts, that do not 

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meet the expectations, that do not perform. There are these cost 

overruns. In some cases they are not paying their taxes. In some 

cases they have had problems in contracting either with this agency or other agencies for non-performance or whatever it may be. 

But, nonetheless, they still get the contract, and we really need to 

focus and clean that up. 

Mr. Burke, did you have anything you wanted to add? You 

looked like you were going to chime in there a minute ago. 

Mr. BURKE. I was. Thank you, Senator. I was going to say that 

my observation is that this is actually a very important law. The 

Nunn-McCurdy tool actually influences the Military Departments. 

And you have been in the Military Departments, and it influences 

their behavior. We are trying to move them so that when they 

make decisions about spending resources or making trades, delaying production to save money, that we actually have them calculate 

what the percentage increase of that cost metric. So Nunn-McCurdy gives you 15 percent. Well, if I delay a production a year, it 

might cost me six of that just off one small incremental decision. 

And we are really—they are beginning to take that seriously to try 

to avoid those limits. So I think it is an important statute. 

Senator PRYOR. Thank you, and thank you, Captain. 

Senator CARPER. You are welcome, Your Excellency. General. He 

was a General. He was an Attorney General, so we call him ‘‘General.’’ I was just a Captain. 

I want to revisit a little bit of the territory that Senator Pryor 

just covered, and it is interesting. I think it was you, Mr. Kendall, 

who spoke about prevention, the power of prevention for cost overruns. Senator Brown and I have held I think at least one of those 

hearings in recent months. Senator Portman and maybe Senator 

Pryor were with us as well. We were focusing on how do we prevent fraud in Medicare, how do we prevent fraud in Medicaid. 

What we are trying to do is to improve our ability, when fraud occurs or when we just make overpayments, mistakes, to be able to 

go out and recover—after the fact, recover the money from those 

that have been overpaid or who have defrauded money from the 

Medicare trust fund. 

One of our witnesses sitting right where you sit, Mr. Kendall, a 

couple of weeks ago said we want to move away from what he described as ‘‘pay and chase.’’ We actually pay the providers up front. 

Then we figure out it was wrong, and mistake, and then chase 

them down and try to get the money back. And he said what we 

have to do is do not pay them in the first place, make sure that 

we are not allowing unethical, really criminal providers to get involved in the payment system in the first place so that we do not 

pay people and then have to chase them down to get the taxpayers’ 

money back. 

We try to work on prevention with respect to health care. In the 

health care legislation we actually provide—we call it the Safeway 

amendment. Senator Ensign and I offered legislation that allows 

employers to provide premium discounts to their employees of up 

to 30 percent if employees who are overweight lose weight, bring 

their weight down, keep it down; if they smoke, stop smoking; that 

kind of thing. But there is actually a big focus on prevention there. 

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Those of us who served in the military before, we got annual 

physicals, usually in our birthday month. The military does that in 

order to save money, to identify problems when they are small, fixable, rather than when they get really serious and expensive. And 

in Medicare, we never allowed folks to get a physical except one 

time in their life: When they became eligible for Medicare. It was 

the welcome-to-Medicare physical. We have changed that so folks 

can now get a physical every year. And, again, the reason why is 

prevention. An ounce of prevention, as my grandmother used to 

say, ‘‘Is worth a pound of cure.’’ 

So it is interesting that the theme has actually been part of several hearings that we have focused on. We are trying to rein in the 

growth of costs. I would almost call it cultural change. I keep coming back to the idea of a cultural change. 

You spoke of a cultural change in the Department, in the acquisition area, in the different branches of the armed forces. Talk a little bit more about the cultural change that is needed there. 

Mr. KENDALL. We have some incentives—I mentioned some of 

the incentives earlier in my opening remarks. We give incentives 

to people to spend the money, and we have to reverse that. An email came across my desk last summer, last fall, where the Comptroller was looking at obligation rates, and he was saying to people, 

OK, if you are not spending your money fast enough, I am going 

to cut your budget in the current year because you have shown 

that you are not obligating quickly enough. And I sent him an email back saying this was inappropriate, this was the wrong kind 

of behavior to encourage. 

Senator CARPER. Good for you. 

Mr. KENDALL. He and I and Dr. Carter and a couple of others 

met, and we had a meeting and we discussed the subject. We were 

talking about how pervasive this behavior was. 

One of the people in the room was a fighter pilot, and he talked 

after the meeting about how at the end of every year the fighter 

pilots in his squadron would get out and fly their airplanes around, 

to burn holes in the sky—— 

Senator CARPER. Burn that gas. 

Mr. KENDALL [continuing]. To burn their gas so they would not 

have cuts in their funding for operations for training in the next 

year. That is not the kind of behavior that taxpayers expect, and 

that is not what they should get. That is a cultural change. People 

have to stop sub-optimizing like that. Getting your money on contract, getting your money obligated is not the figure of merit we 

should be looking at. It should be getting the most value for the 

taxpayers. That is a huge cultural change for our institution. 

Should costs—in trying to emphasize that to people, incentivizing 

people that if they do achieve savings, if they do save us money, 

they will get rewarded for that. They will be rewarded for that in 

their careers. We tend to be very focused on meeting the near-term 

milestone as an example of success. 

As we go around and talk to our contracting people, one of the 

complaints I get—and we have been visiting the buying commands, 

Dr. Carter and I—is that contracting people feel they are under 

pressure to award contracts. You do not want to be on the side of 

a negotiation where time is not on your side. You want to give 

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those contracting people time to get the best deal they can for the 

government, which means you just take that time. 

Now, your money may expire. You may get yelled at by your 

boss. We want to change that. But basically we want to get the 

best business deal we can. So success is coming back with a better 

price for the government and a better business deal, not getting 

things on contract fast. That is a big cultural change we are after. 

Senator CARPER. All right. Thank you. 

Do you want to add to that, Dr. Burke? No? OK. 

Let me go back to what triggers a Nunn-McCurdy breach. My 

recollection is if we have a cost increase that is, I think, 15 percent 

more than the last time we measured the cost, then that triggers 

Nunn-McCurdy. And also if we get a price increase that is 25 percent above the original cost, that can trigger Nunn-McCurdy. 

We have had some discussion with my staff and myself and others that we are trying to look for a way to forecast before that 15- 

percent trigger, the 25-percent trigger, a way to forecast that or anticipate it, kind of look over the horizon. Can you talk with us 

about that and maybe tie it in with an R&D budget to see, looking—maybe an R&D budget could help us identify early and forecast a potential Nunn-McCurdy breach? 

Mr. KENDALL. Tools we use to forecast cost growth in development contracts, we used Earned Value Management, which is a 

system of tracking progress relative to plan, where you can get 

very good early warning indicators. 

On production contracts it largely depends upon the nature of 

the contract. There, too, there are things that can tell us early 

when things are headed in the wrong direction, and we can try to 

step in and take action. 

I would not encourage a Nunn-McCurdy-like process for development. Development is about 10 percent, maybe at the most 20 percent, of the total cost of a program. It is the place where you really 

want to spend money to save money later. So if we put constraints 

on—we have to be careful of unintended consequences. So if we put 

constraints on development where people trim and take risk in development to avoid a Nunn-McCurdy-like situation—and Rick was 

right. People try to avoid Nunn-McCurdys. It is not always the behavior we want that they use to try to avoid them, but they do try 

to avoid them. 

So I would be a little careful about development. I want people 

to spend a little money in development; they can save a lot of 

money in production as a result of that. And, more importantly, 

even they can save money in sustainment. So development is 

where we need to make good business choices and not be pennywise and pound-foolish. We tend to do the opposite, I am afraid. 

Senator CARPER. All right. Do you want to add anything to that 

Dr. Burke? 

Mr. BURKE. I would just say that one of the key tools to forecast 

overruns is Earned Value Management, and in Mr. Kendall’s written remarks, he talks about the fact that in the Department we 

have not paid enough attention to the Earned Value Management 

tools. Industry also—— 

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Senator CARPER. Just explain what you mean by that. We have 

talked about this at other hearings, but just for our purposes today, 

what do you mean by Earned Value Management? 

Mr. KENDALL. The Earned Value system basically forces you to 

plan your work and break it up into small segments and attach 

costs to each of those segments. So essentially as you start to execute, you then report against that. So you can track whether your 

budgeted work and your budgeted costs are actually coming in according to plan. And it is a very good leading indicator of problems 

in a project. 

It is also a very important planning tool. It has become—in my 

earlier years in the Department, it was used extensively and for 

those purposes. But I think in the last 10 or 15 years, it has atrophied. It has become much more of a bookkeeping kind of program 

as opposed to a management kind of tool. So we are trying to get 

our people to move back in that direction and use it more aggressively. We are reviewing in our monthly reviews now to see what 

kind of progress there is. 

It does not apply to every type of contract. It is most useful in 

development contracts. It is less useful in production contracts. But 

it is a great leading indicator of problems if it is set up properly. 

Senator CARPER. All right. Good. Thanks. Thanks very much. 

Senator Brown, second round. And welcome, Senator Coburn. 

Nice to see you. 

Senator BROWN. I will defer to Senator Coburn and give him a 

shot. 

Senator COBURN. Well, I apologize for not being here first at the 

hearing, and you may have covered the questions I am going to 

ask—that I apologized or that you deferred? [Laughter.] 

OK. I used to sit in that chair. I understand what it is like. 

Senator CARPER. He used to sit in this chair, too. 

Senator COBURN. Yes, I did. 

I just want to have a general conversation with you, having the 

manufacturing background for 10 years and the business background, and what I want you to do is tell me where I am wrong 

in my thinking. What I see in the last 6 years and the 6 years I 

was in Congress is we do not have good control on requirement 

creep. And the way I understand it, we actually incentivize requirement creep to the tune that the fact that on our contracting there 

is more remuneration the more requirements that you have. 

So my question is: How do you set it up where the decisionmakers can actually control the requirement creep? Because if you 

come to me and I am a purchaser and I am not really concerned 

about my budget in the long run and I know I have a cost-plusdevelopment contract or something like that, and I know, hey, this 

bell or whistle would really be good, this is cool, versus what is 

needed when we start out with what our needs are in defense, 

what do we actually need, and then have a parallel track of some 

sort on these extra things, so that when you go to a second 

iteration of it, you add in the new bells and whistles as you go. Because what I have seen too often is it is not that the guys that are 

trying to get this original piece of idea out the door for a major defense, it is that we get the requirement creep that markedly inH605-41331-79W7 with DISTILLER

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creases both the developmental cost but ultimately the unit cost 

when we go into production. Am I wrong in that? 

Mr. KENDALL. No, I think you are right, Senator Coburn. The 

things we are doing about that—there are several things. Let me 

start out with affordability constraints. 

One of the things we are doing now in all our programs, all our 

new starts, is we are requiring that there be an analysis of the affordability of the program up front that dictates the cost you are 

capable of paying for it. A good example is our Ground Combat Vehicle, the Army’s new program. Essentially my analogy I use for 

this all the time is if your teenage son comes to you and says, 

‘‘Dad, I have a requirement for a Ferrari.’’ You have to say, ‘‘Son, 

I have a budget for a Ford, and that is what you are going to get.’’ 

So it is something like that, OK? Because the requirements community will tend, even at the beginning, to ask for everything it 

can conceive of that it would like to have, and I can understand 

that motivation. But we do not have budgets that can support that, 

and we have to make tradeoffs. 

Ground Combat Vehicle, we actually—Dr. Carter and I and Dr. 

O’Neill, who is the Assistant Secretary of the Army, pulled back 

the RFP that was on the street and said we had an RFP that was 

basically all the requirements that the user could put down and no 

constraints on cost. So we said, OK, we are going to do two things. 

We are going to figure out what the cost cap is for this program. 

How much can the Army really afford in production? We ended up 

with a number of about $10 million per platform, and we did that 

by looking out at the Army’s Ground Combat Vehicle fleet and saying, OK, given the budgets you can expect to have, how much can 

you expect to be able to spend per new item that you are going to 

buy out there? That came out to be the number. And that left the 

Army with enough money to do some upgrades on it to other systems when that was pretty much all, at least for the next 20, 25 

years. So we had a cost cap. 

Then we made the Army sit down and look at its requirements 

and prioritize them, and the ones that it absolutely had to have 

were in the top end. Then others were tradeable and others were 

kind of in the nice-to-have category. And that is the way the RFP 

finally went out on the street. So that is the sort of thing we have 

to do to discipline the process. 

Another thing we’re doing that the Joint Staff is doing actually 

now—and it is in line with the idea of tripwires. The Joint Staff 

is now requiring that if the cost of a program goes up by 10 percent, just 10 percent, the program has to come back in and its requirements have to be reassessed to see if any requirements can 

be removed to get that cost back down. So that is another tool that 

we are using. 

Senator COBURN. All right. Let me ask you one other question. 

You guys spend a lot of money purchasing weapons systems, right? 

And on the developmental side of that, what is wrong with having 

a requirement of some capital contribution by those that are going 

to be in the development potential get the product later on? In 

other words, one of the things that I think—and I learned this by 

talking to the CEO of Honeywell—is if, in fact, they have capital 

at risk, the efficiency with which the development is undertaken is 

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much greater because they have some of their money at risk, not 

our money at risk. 

What are your thoughts about that? 

Mr. KENDALL. You make a good point. I have not looked at that 

idea. Generally speaking, we pay people to do the R&D, and then 

we pay them to facilitize for production. So they are not taking the 

same kind of risks. 

I would have to go back and take that on board and see how we 

could do that. The tool that we have that I think is probably most 

effective for us is their profitability. Because we tend to do things 

that are difficult to do, most of our development programs are costplus. We are not in a commercial market where there is any other 

customer. We are it. And basically if we are only going to buy one 

of something, you will gamble your entire company trying to build 

a product for us on the odds—in fact, Northrop Grumman did this 

once. They built a fighter plane on their own, and we never bought 

it. They lost a huge amount of money on that. So we are not going 

to get that kind of an investment. But we can get some investment 

perhaps. 

Senator COBURN. Yes, that is what I am saying, some shared 

capital exposure so that you have the driver on their side saying, 

wait a minute, guys, we are going to be a lot more efficient in this 

development. 

Mr. KENDALL. I could go back and take a look at that and see 

if we could structure things that way. I do not think we ever tried 

to do that per se. What we are doing is looking at is the profitability of the company, and one of the things that you mentioned 

was that requirements creep up, and in a cost-plus environment 

you just keep adding on, and the bigger it is, the bigger fee you 

get. We are trying to shift our profit more into the production side 

of the house. 

The world I used to live in was the cold war when I got into this 

business initially. The metric was get out of development, you win 

the development contract, and you probably break even maybe in 

development, and then you get into production and you make your 

money in production. We have been in a world where people have 

been able to make money in development for a long time now, and 

we need to shift that. We need to shift the emphasis and the incentive system so people get into production sooner so they can start 

to make money. That is a fundamental change we need to engender. 

Senator COBURN. One area that you all have had massive cost 

overruns on are IT systems and radios, and actually this country 

spends $64 billion a year on IT systems and $34 billion is at risk 

all the time. They are on the EAO’s High-Risk List all the time. 

A lot of that is commercially available and the application. I am involved in all the auditing and the new systems and everything else 

that is going on over there. I just wonder if we could emphasize 

maybe a little more taking off-the-shelf products where we can because having a son-in-law that works for Oracle and who used to 

work for SAP, I get to see all this stuff from the inside, and the 

waste. I mean, they are not real efficient organizations either. And 

when they can see one of these contracts, I mean, it is big dough 

to them. Big dough. 

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Mr. KENDALL. That is an area where there is a lot of potential 

for improvement. Dr. Carter, when I came in a year ago, gave me 

the opportunity to look at our business systems and some of our 

radio systems and communications command-and-control systems, 

and I have been doing that. We have tried to do too much sometimes. We have had too large of programs which are too difficult. 

To give you a sense, though, of the fact that you cannot always 

just bring in a commercial product, I talked to one of our integrators, and I said why did we get into so much trouble on a specific 

program. I think it was a human resources program. He said, well, 

there are 170,000 compliance requirements that were unique to the 

government that had to be put into the software, and that is where 

the cost is going. It is all that development cost up front, and that 

is where we tend to get into trouble. 

What we are doing—— 

Senator COBURN. That is where you need to come to us and say, 

How do we get a waiver on some of these compliance costs? 

Mr. KENDALL. Yes. 

Senator COBURN. I mean, we are in a whole new day on budgets. 

You all know that. 

Mr. KENDALL. We understand that fully. 

Senator COBURN. And so that is the kind of creative thing. You 

need to come back to Congress and say, ‘‘Can we have some relief 

on this where we could save some money?’’ 

Mr. KENDALL. We will do that where we can. What we are doing 

in addition is breaking up those jobs into increments that are reasonable, and we are insisting on delivered capability, testable capability at least, if not field-able, before we go on to the next phase. 

Senator COBURN. Got you. 

Mr. KENDALL. So that approach, it is a standard large, complex 

software program approach. But we are implementing it in our 

business systems, we are implementing it in our command-and-control systems where we tend to have the most difficulty. 

We are also using more commercial hardware. The Navy had a 

great success in Virginia with its off-the-shelf hardware for the 

combat system, so we are emulating that in other places as well. 

Senator COBURN. All right. I am way over my time. 

Mr. KENDALL. There is a lot of room for improvement there. 

Senator COBURN. Thank you, Mr. Chairman. 

Senator CARPER. You bet. Thanks for your great work in this 

area with us. 

Senator Brown, you are back. 

Senator BROWN. Thank you, Mr. Chairman. I know you have to 

take a break, so if you want, I will just continue to march. 

I just want to zip back just for a minute. I am going to get you 

some questions for the record because I want to make sure I understand everything that is going on with the two engines for the 135, 

136, and—because, I mean, the numbers I have—you talk about 

competition, you talk about cost savings, you talk about everything. 

But then it just does not make sense when you have one engine 

that is a projected $11.45 billion and another one is $3.87 billion, 

give or take. So I am going to designate—I just want you to know 

what is coming, and I would like within a reasonable time—and it 

will be something like what is the cost, why is it over—why is the 

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engine that you picked so far over budget? When is it going to be 

done? What is the projected cost? And a detailed explanation, aside 

from a phone call on a Saturday morning, like, hey, by the way, 

we are canceling an engine. And I do not really know based on everything we are seeing here, like why? And if competition is good 

and we are going to save money. Sometimes you have to pay a little money to save a little money, and I think competition in any 

type of business breeds a better product and a more aggressive entity producing. But that being said, that will be forthcoming. 

I just wanted to touch base on and just kind of shift gears a little 

bit, the acquisition program managers should have increased authority commensurate with the accountability to make responsible 

decisions about spending taxpayers’ money, Mr. Kendall. Is that an 

accurate statement? They have increased authority to make responsible decisions about spending taxpayer money? Do they have 

a certain amount of authority to spend or not spend? 

Mr. KENDALL. I am not sure of the context of the question. 

Senator BROWN. The acquisition workforce. I am going to shift to 

acquisition workforce, and the acquisition program managers 

should have increased authority commensurate with their accountability. 

Mr. KENDALL. Yes. Basically one of the things we are emphasizing is that the acquisition chain of command needs to be responsible and accountable for what it does, so people who are in our 

chain of command include the program executive officers and the 

program managers, service acquisition executives as well. 

An observation I have made in coming back in to government is 

that authority and responsibility tended to have shifted away from 

them to the staff too much, and I want those people to be professionals, and I want them to be held accountable and responsible for 

the things that they are in charge. 

Senator BROWN. And what incentives are in place to actually reward the efficient and effective program management and ensure 

that these critical positions are filled for the duration of the program life cycle? 

Mr. KENDALL. Those are largely career-related incentives for government people: Promotions, obviously, great responsibility, recognition, those sorts of things. 

Senator BROWN. And with responsibility should come accountability. I am presuming you would agree with that. 

Mr. KENDALL. Absolutely. 

Senator BROWN. And in the last 10 years, how many people have 

actually been fired for bad program management, if any? 

Mr. KENDALL. I am aware of one individual. 

Senator BROWN. One out of how many program—— 

Mr. KENDALL. We have 100 major programs, so roughly 100 

major programs, 98. 

Senator BROWN. So how many acquisition program managers are 

there total then? Are there 100? 

Mr. KENDALL. At any given time there are about 100 major programs. 

Senator BROWN. So in the last 10 years—— 

Mr. KENDALL. In the last 1 or 2 years, I only know of one that 

has been fired from his position. 

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Senator BROWN. So are all the programs running well? 

Mr. KENDALL. I wish I could say so, Senator Brown. 

Senator BROWN. So where is the accountability? I mean, what 

happens? Do they get bad reviews? Do they not get promotions? I 

mean, what—where is the accountability on the negative? I mean, 

if everyone is getting all these great promotions based on rewarding efficient and effective program management, on the other side 

I would think that if, in fact, the programs are not running well 

that somebody would basically be held accountable. And you are 

saying with the last 2 years there has only been one person, and 

I am assuming in the last 10 years there has only been one or two. 

So how do we—— 

Mr. KENDALL. There may be others. I only know of one personally. 

Senator BROWN. OK, but I think you know what I am saying. 

Where is the accountability for the folks that are doing the bad 

program management? Because there seems to be a heck of a lot 

of it. 

Mr. KENDALL. You raise a good point. I would have to go back 

and check to see if—— 

Senator BROWN. Well, what will you do about—— 

Mr. KENDALL [continuing]. There are others, but let me—— 

Senator BROWN. You are in charge—are you in charge on that? 

Mr. KENDALL. Let me make a comment, though, about a situation we have in the government with program managers. Our program managers rotate. Nominally, they are supposed to stay in 

place for 4 years, but they actually rotate right now a little bit less 

than that. Part of that is because we are at war and people are cycling through different jobs faster. 

Because people come and go throughout the life cycle of a program, often the problems that are basically built into a program 

happened in a previous tenure, so it is not always possible to hold 

the person who is there now responsible for the sins of someone 

who was before him. So that is one of the problems. Longer tenures 

can help to do that, but we do have that problem. It is kind of inherent in the fact that we rotate officers in particular through 

these jobs. 

Senator BROWN. That is great, but you are in charge of all—are 

you in charge of all these people? 

Mr. KENDALL. I am not in charge of the military personnel system now. We do have—— 

Senator BROWN. Right, but how about—— 

Mr. KENDALL [continuing]. Influence over the tenure of program 

managers—— 

Senator BROWN. How about the acquisition program managers? 

Are you in charge of those? 

Mr. KENDALL. Through the acquisition executives and the services’ components, yes. 

Senator BROWN. So is there somebody who is going to actually 

look at these program managers and say, wow, this guy is—these 

people are not doing a good job, we are going to take some—— 

Mr. KENDALL. We do take corrective action. In fact, I will double 

my numbers. There are actually two people that have. 

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35 

Senator BROWN. I would like for the record, Mr. Chairman, I 

would like to know in the last 10 years—how many program acquisition managers there are in the system, and also how many, in 

fact, have been disciplined or fired or reduced in pay grade or 

whatever based on their poor performance? Because there seems to 

be a ton of it going around and—I mean, at these hearings it is like 

over and over and over you just hear the same thing, well, we are 

going to do this, we are going to do that. I remember when we had 

the last hearing, the gentleman said we were going to fix it, and 

it is 20 years. He almost said the same thing as the other guy said 

20 years earlier, and we are still in that cycle which is over and 

over and over. 

Now, I got to be honest with you I expect more, I know the President expects more, and the taxpayers expect more. So, I mean, I 

would think with everything that is happening, we are in deep 

trouble right now. We need to find and squeeze out every last piece 

of savings so we can provide the tools and resources to our men 

and women that are fighting. And I am not feeling it right now, 

Mr. Chairman. I do not want to beat a dead horse, but I am going 

to submit a bunch of questions for the record because I do not want 

to embarrass anybody or prove a point. I just want it finally answered so we can collectively work in a bipartisan manner, like we 

always do, to solve some of these problems, because it is just broken. The way we award contracts is broken, the way we hold people to the letter of the contract is broken, the way we provide bonuses is broken, the way we hold people accountable in their job 

performance is broken. And it is just over and over and over again, 

and it is unacceptable. 

So I am going to just terminate my questioning because I am getting a little frustrated, and I am going to submit them for the 

record, OK? 

Senator CARPER. Fair enough. 

Thank you for all those questions. 

One of the things I said at the beginning, I think before Senator 

Brown arrived, was we need a change of culture around here. We 

need to change the culture throughout the Federal Government, including the Department of Defense. And we need to change the culture from one of what I describe as spendthrift to a culture of 

thrift. And I know my colleagues think I sound a lot like Johnny 

One Note, but that is an important note to sound, and we are going 

to continue to sound that note. 

Senator Coburn is going to try to come back, and if he comes 

back in the next minute or so, then I would be happy to recognize 

him for an additional round of questions. But I just want to kind 

of reflect, if I could, on a conversation here this afternoon. I am interested, Senator Brown is interested, Senator Coburn, Senator 

Portman, and Senator Pryor, we are interested in solving problems. 

And, obviously, we have a problem here. When we have seen major 

weapon systems cost overruns rise from $42 billion in fiscal year 

2000 to $402 billion in fiscal year 2010, we have a problem. 

I think we also have discussed and identified a number of solutions. No silver bullets but a lot of them—maybe a little of silver 

BBs, and a bunch of them pretty big, pretty good size. One of them 

is the culture. We talked about that. Another is the confirmation 

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36 

process, and the idea is we are going to look hard and we will be 

asking you for the record to help us to identify positions in the acquisition system of the Department of Defense and each of our 

service branches, help us to identify positions where we require the 

President to nominate and the Senate to confirm where maybe we 

should not be doing that. And what we will do is consider that, discuss it with the relevant committees of jurisdiction—the Armed 

Services Committee—and see if we cannot find some agreement to 

maybe amend, if needed, the legislation that Senator Schumer and 

Senator Alexander are introducing with the sponsorship of Senator 

Brown and myself and others. 

The other thing is in terms of culture, we need to change our culture here. The idea of putting holds on these positions, confirmable 

positions for reasons that have nothing to do—nothing to do with 

the quality of the nomination. It is hard enough to get people to 

be willing to serve in these positions and work hard in these positions and go through the nominating process. And to know you 

have to put up with holds that might last for a year for no good 

reason, it is very, very frustrating. So that is part of our culture. 

We have talked about requirement creeps in the agencies. It is 

a problem in the IT systems, too. Senator Coburn referred to that. 

One of the reasons why we have all these cost overruns in our IT 

system development is because we continue to change the requirements of the program, and it is not uncommon here in the Department of Defense. That, again, sort of falls maybe in the area of culture change. 

Dr. Burke raised the issue of earned value and said it is something we maybe used to focus on a good deal more than we do now, 

and I think he suggested that we began to get back to that. 

Competition, I think we had a good discussion here on competition, whether or not we actually are using it enough. There are 

some times when obviously it does not work, but to the extent that 

we can make it work and harness it, it can be hugely effective. A 

friend of mine used to say, ‘‘Competition is like cod liver oil. First 

it makes you sick, then it makes you better.’’ And I think there is 

a lot of truth to that. Ernie Ganman would appreciate—he is now 

deceased, but he would appreciate me saying that. 

The other thing that we talked about was whether or not there 

is an early indicator, some kind of early indicator of a problem 

later on that could trigger a Nunn-McCurdy breach, either the 15 

percent or is it a 25-percent trigger? And I just want us to work 

with you on helping to identify those. 

Let me just close this down, this part of our hearing down, but 

I want each of you, if you will, just to make a closing statement. 

We always ask you to make opening statements. Dr. Burke, you 

were not called on to do an opening statement. I will ask you to 

do a closing statement. This is sort of like the benediction before 

the second panel. But I would just like for you to reflect on the conversation that we have had here, what you have had to say, sort 

of what we have had to say, and then our questions, I would like 

to hear you make some reflections on what we have been talking 

about here, and with the idea that we want to solve this problem. 

We have to do better than this. Otherwise, we will end up having 

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$1.5 trillion deficits for as far as the eye can see. We cannot afford 

that. 

Dr. Burke, a closing thought or two, please. 

Mr. BURKE. Well, we have covered a lot of territory today, but 

I would make a few observations. 

One is that one of the most important things that the Congress 

did for us in WSARA was actually made the Department conduct 

Milestone A reviews early on in programs. I think it is very, very 

important because that is where as many of the questions have 

come up, and trades between requirements and costs come together. That is going to be a change of culture in the Department 

of Defense. You are trying to change a culture where requirements 

have been thrown over the transom to the acquisition community, 

go buy something that meets these requirements, and now what 

you are trying to do is really engender a conversation, enable that 

conversation between the people that set requirements and what 

systems are going to cost. 

On the cost community particularly it is challenge because we 

need tools and we are developing tools to inform that trade space. 

Early on can we trade requirements and come up with less costly 

systems that meet the needs in the national security environment 

for the Department of Defense? We have done it a few times. We 

are at the start. Mr. Kendall mentioned GCV. Another good one is 

the—— 

Senator CARPER. What did he mention? 

Mr. BURKE. The Ground Combat Vehicle in his testimony. 

Senator CARPER. Thank you. 

Mr. BURKE. I would also refer the Committee to the discussions 

that happened on the Ohio Class replacement program where some 

very interesting conversations happened that have not happened in 

the Department of Defense in the past. 

Senator CARPER. Just briefly characterize those conversations. 

Just briefly. 

Mr. BURKE. Well, the conversations were about essentially we 

know we will need a replacement submarine for the Ohio Class at 

some point in the future. What can the country afford? And what 

will the characteristics of that submarine look like? Those are very, 

very useful conversations and will affect these charts like the one 

you are showing 10 to 20 years from now. But my point is really 

it is a culture change, and the conversations we had are not perfect 

yet. But I think we are actually beginning to make some progress, 

and I would encourage the Committee to continue to support us in 

having us, forcing us essentially to have those conversations and 

in a transparent environment where we can see requirements and 

costs traded together. Thank you. 

Senator CARPER. Mr. Kendal. 

Mr. KENDALL. I agree with your comments in your summary, Mr. 

Chairman, and I agree with Mr. Burke’s comments also. I just 

want to emphasize people. John Young is going to give an opening 

statement shortly, I think, and he is going to talk about people 

quite extensively. It is the people in the acquisition workforce, it 

is the people in industry. It is their capability to do the work, it 

is the incentive systems that are in place that motivate them. 

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At the end of the day, this is about professionals who really understand how to do very difficult jobs being given the tools and the 

opportunity and held responsible for executing those jobs. 

We are working very hard to strengthen the acquisition workforce. We have a lot of support from the Secretary of Defense on 

this. We are increasing the size. We are also working very hard to 

increase the capability of that workforce. 

We need to provide incentives to industry so that it brings back 

the kind of engineering strength that it once had. We do that 

through the motivation of profit, primarily, and we reward better 

behavior and do not reward poor behavior. 

It is a long, long journey to do that. Improving the culture of our 

workforce, improving the inherent capacity of our workforce takes 

a long time. Dr. Carter and I both refer to it as our No. 1 program, 

is to do that. So that is central. 

To come back to your original point about confirmations, the Senate has an oversight responsibility here obviously. It is the time of 

the process that is the problem. Whether they are confirmed or not, 

if we can get people into office quickly, that is what really makes 

the difference. And make sure that they are professionals, that 

they do know what they are doing. These are not the type of jobs 

that people can do who do not have a background that is relevant, 

some typical background and a fair amount of experience with the 

defense system. 

I think that summarizes it for me. 

Senator CARPER. One last quick question. Each of you ought to 

take a shot. Just for takeaways, again, just—and I may be asking 

you to repeat yourself. Give me like one or two things—again, one 

or two things that we ought to be doing on the legislative side to 

make sure that these numbers do not keep going that way and 

come down, and one or two things that may be the most important 

things for the Executive Branch, particularly in the Department of 

Defense, to do. You talked around this, maybe to it, but just say 

one or two things for us on this side of the dais and one or two 

things for those of you who sit on the other side. Go ahead. 

Mr. KENDALL. Helping us get good people in sooner. Helping us 

reward people better. The government system, as I think kind of 

was mentioned, does not have a good system to reward people for 

the kind of performance that we need. We do not have the kind of 

bonuses industry has. We do not have the kind of salary incentives 

that people have. It is very hard to promote people in government 

outside the system. It is very cumbersome and tedious. It took me 

forever to bring one senior executive into my staff when I was trying to hire somebody with technical capability. It took almost a 

year. So giving us more flexibility in terms of our own people, to 

identify the best people and to bring them in, would be extremely 

helpful. 

Senator CARPER. Good. Thanks. Thanks for that. 

Mr. BURKE. I think one of the most important things you can do 

is actually—and actually the Senate has been very helpful in terms 

of adjusting some of the changes that were made in the Weapon 

Systems Acquisition Reform Act. There have been some changes. 

We have actually been trying to implement the act as it was 

passed. We had some suggestions on how to improve things and 

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make it actually work, and I hope we can continue that dialog over 

the course of the next few years because there were some important changes enacted in legislation even this year that help us 

quite a bit. 

Senator CARPER. OK. Mr. Kendall. 

Mr. KENDALL. If I can piggyback on that, I think we have the 

tools we need. We have to sharpen those tools, and we have to use 

them. But that is our responsibility. I think the things you have 

done have really given us the things that we need, and now it is 

up to us. 

Senator CARPER. All right. Well, this is a two-way street in terms 

of who is to blame for this, and that is sort of the question that 

Senator Brown asked. I think none of us escape blame. None of us 

escape blame. And if we are going to turn this around, all of us 

have a role to play. And one of our roles is to do consistent, extensive oversight. And we do that religiously on this Subcommittee 

and on our Committee, and we will continue to do that. But we will 

do it in a way that is constructive and not just what we call 

‘‘gotcha.’’ We have never been into that. But what we really want 

to get are better results for less money. 

All right, gentlemen. Thanks so much again for joining us today, 

and there will be some followup questions Within the next 2 weeks, 

people can still submit questions. You will probably get some. We 

just ask that you respond to them promptly. Again, thank you so 

much for joining us today and for joining us in this dialog. Thanks. 

Mr. KENDALL. Thank you, Mr. Chairman. 

Mr. BURKE. Thank you. 

Senator CARPER. Thank you very much. 

And with that, we welcome our second panel. Gentlemen, welcome. John Young, nice to see you. Welcome. Michael Sullivan, the 

real Michael Sullivan. And Moshe Schwartz, thank you. Let me 

just provide a brief introduction. Were you all here for the entire 

first panel? OK, good. How did they do? All right. We will see. I 

think they did pretty well. 

Our lead-off hitter today on the second panel is John Young, no 

stranger here. It is very nice to see you, all of you again, but especially John. Mr. Young served as the Under Secretary of Defense 

for Acquisition, Technology, and Logistics until April 2009. Now I 

understand he is hanging his hat over at the Board of Regents of 

the Potomac Institute for Policy and Studies, where I think he is 

a Senior Fellow and Member of the Board of Regents there. During 

his career Mr. Young has held numerous positions in the Department of Defense acquisition community, including Director of Defense Research and Engineering in the Office of the Secretary and 

Assistant Secretary of the Navy for Research and Development and 

Acquisition. Mr. Young, again, no stranger to Capitol Hill, having 

served for 10 years as a staff member of the Defense Subcommittee 

of the Senate Appropriations Committee. 

Who were the Chairs that you worked for there? OK. Your microphone is not on. Say that again. Who did you—— 

Mr. YOUNG. I worked for Senator Stevens and Senator Inouye at 

different times as Chairman. 

Senator CARPER. And Senator Inouye is still with us. He is still 

going strong. He is amazing. 

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During his tenure at the Department of Defense, Mr. Young 

oversaw, among other things, the Mine Resistant Ambush Protected (MRAP), vehicle program and secured the Virginia Class 

submarine multi-year contract. Mr. Young will also show us his experience as managing weapons systems because when he was a 

chief acquisition officer for the U.S. Navy and for all of the Department of Defense, and he is remembered fondly in our Subcommittee for the great work that he did on C–5 modernization to 

make sure that we got the kind of value out of those old C–5s to 

turn them into like-new C–5s, one of which set, I think, 41 world 

records in a flight from Dover Air Force Base to Turkey last year. 

We have just gotten our fourth one in. We are about to get our fifth 

C–5 into Dover, and the reviews we are getting are actually quite 

good. So thanks for that as well. 

The next witness is Michael Sullivan from the Government Accountability Office. Who is your Comptroller General? What is his 

name? 

Mr. SULLIVAN. Gene Dodaro. 

Senator CARPER. Gene Dodaro. I have heard of him. Actually, he 

has been here many times. 

Mr. SULLIVAN. Yes. 

Senator CARPER. When he comes and testifies, he does not use 

any notes. He is just talks right off the top of the head, all of his 

testimony, all of his answers. Is that part of the new policy at 

GAO? 

Mr. SULLIVAN. I do not have quite those talents. That is why he 

is where he is. 

Senator CARPER. I have to say, there are two people I have seen 

do that. One was John Roberts, Chief Justice of the Supreme 

Court, who testified for days before the Judiciary Committee and 

never used a note. He answered all the questions and never used 

a note. And then you have Gene Dodaro. Maybe in his next job he 

could be Chief Justice. Who knows? We will see. 

Mr. Sullivan, I do not know what your next job will be, but you 

are currently the Director for Acquisition Sourcing Management at 

GAO. You have worked there for—this says 25 years. Is that possible? 

Mr. SULLIVAN. Yes, it is. 

Senator CARPER. All right. Mr. Sullivan’s team at GAO is responsible—anybody here from your team? 

Mr. SULLIVAN. Yes. 

Senator CARPER. Would you all raise your hand, please, team 

members? OK. Thank you. 

Mr. Sullivan’s team is responsible for examining the effectiveness 

of the Department of Defense’s acquisition and procurement practices in meeting its mission performance objectives and requirements. This is, I think, Mr. Sullivan’s second time testifying before 

this Subcommittee on cost overruns. In 2008, he testified about 

GAO’s annual weapons system audit that showed that major weapons system cost overruns amounted to $295 billion, and I think Mr. 

Young was here at that same hearing. As I mentioned before, my 

office enlisted Mr. Sullivan and his team to analyze trends of those 

weapons systems that have reached Nunn-McCurdy because their 

costs have spiraled out of control, and Mr. Sullivan’s testimony will 

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1The prepared statement of Mr. Young appears in the appendix on page 74. 

shed some light on these trends. And, again, we thank you and 

your team for being here today and for your preparation for this 

hearing. 

Last, but not least, Moshe Schwartz. Has anybody ever called 

you ‘‘Moshie’’? 

Mr. SCHWARTZ. Among other things. 

Senator CARPER. Well, Mr. Schwartz is a Specialist in Defense 

Acquisition at the Congressional Research Service. He has written 

numerous reports for Congress on various issues relating to defense acquisitions and contracting during contingency operations. 

Before joining CRS, Mr. Schwartz served as senior analyst at GAO 

where he worked on a variety of DOD acquisition issues. 

Did you all ever work together? OK. 

Mr. SCHWARTZ. Sorry. Excellent training. 

Senator CARPER. All right. Well, good. Today Mr. Schwartz will 

outline efforts to accurately estimate weapons system costs, the 

characteristics of the acquisition programs that can lead to cost 

growth and potential opportunities to strengthen the Nunn-McCurdy law to more effectively prevent against future cost overruns, and 

we appreciate what you did then and we appreciate what you are 

doing now. 

One of the things that I am going to be looking for at the end 

of this hearing—and I am going to telegraph this pitch right now. 

One of the things I am going to be looking for is for you to think 

back to the first panel, what our first witnesses had to say, and 

what each of you are about to say in responses to the questions. 

Then I want to ask you to say where you think there is a confluence of agreement. One of the things, in order to get anything 

done down here, you have to get people to agree, and so I am always looking for ways to build consensus. So just be thinking about 

that, if you would. All right? 

Mr. Young, you are up first, and your clock with run for 5 minutes. You can take a little bit beyond that but hopefully not a 

whole lot beyond that. So please proceed. 

STATEMENT OF JOHN J. YOUNG,1 JR., SENIOR FELLOW, THE 

POTOMAC INSTITUTE FOR POLICY STUDIES 

Mr. YOUNG. Thank you very much, Mr. Chairman. I will try well 

to finish in the time. 

It is a privilege to get to testify to you. I appreciate your help 

during my past tenure as Under Secretary. You were a knowledgeable and interested member, and that is, I think, worthwhile on 

both sides of the river, if you will. 

I want to highlight a few brief principles and then note several 

tools that are fundamental, I think, to the defense acquisition enterprise. 

First, as you have already heard today, people run programs. In 

the Goldwater-Nichols legislation, I believe the Congress was 

amazingly prescient in assigning acquisition responsibility to the 

civilian chain of command working for the President. The defense 

and service acquisition executives are critical positions, and these 

individuals are the key to successfully executing and improving deH605-41331-79W7 with DISTILLER

42 

fense acquisition. As the Under Secretary, I wrote a memo to Secretary Gates emphasizing this point. The acquisition executive 

must serve as the first line of defense against overstated requirements, understated budgets, unrealistic schedules, immature technology, and service-unique programs. Every unaffordable program 

a service wants cannot be adjudicated by the Secretary of Defense 

or the President, and it is harmful for the defense acquisition enterprise to delay filling these positions with qualified people. 

Second, the President’s acquisition team must enable the defense 

acquisition team working for them to make the thousands of necessary, timely, and required hard decisions every day. Military requirements officers and industry are constantly seeking to change 

and improve ongoing programs, for legitimate reasons. But the 

tough job is locking the design and executing the program. The acquisition executives must support the managers who say no. The 

military promotions system will reward the requirements officer 

who pushes for more requirements and punish a military acquisition program manager who resists making costly changes to a program. Similarly, civil servants in acquisition who want successful 

careers are cautious about taking on hard issues. The President’s 

acquisition team must support and empower these program managers when they try to make responsible decisions about spending 

taxpayer money. 

Third, people execute programs, again, but not paper. It is not 

possible to write a universally applicable procedure that will deliver successful results. No amount of process or procedure and certification will make the hard decisions that trained people make. 

The growing volume of legislation and certification requirements do 

pose a risk of adding months and higher costs at a time when our 

adversaries are doing things faster and cheaper. We should resist 

the urge to add to the acquisition laws and certifications and regulations which already resemble the Tax Code and consume a program manager’s time and energy for limited results. 

As a student of defense acquisition, I can tell you there are many 

valid examples of people delivering great results when freed from 

the constraints of the normal process. Frequently, this is in the 

classified programs arena. 

Fourth, we need to increase the authority of acquisition program 

managers commensurate with the public accountability being levied on the team. People without accountability chop documents, cut 

budgets, increase requirements, impose new certification standards, and then everyone wants to know why a program manager 

is late and over budget. 

Finally, I think there are several tools that can be used to help. 

The Department must use competitive prototyping to evaluate the 

validity of requirements, to mature technologies with smaller 

teams at lower cost, to inform our estimates of final development 

and procurement costs, and to assist in the refinement of concepts 

of operations, how we are going to use the things, and to access 

new companies. I used to tell program managers that the cost of 

a program is known the day the contract is signed. The only question is whether they know the cost. It is very difficult to estimate 

that cost and the schedule based solely on paper. Appropriate 

prototyping is important. 

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1The prepared statement of Mr. Sullivan appears in the appendix on page 78. 

At a more general level, DOD needs to pursue the development 

of prototypes to train our people in program management and systems engineering, to attract talented scientists and engineers to 

work on defense programs, and even to inspire a new generation 

of young people to pursue technical educations. 

DOD must use collaborative processes to make timely program 

development decisions and to appropriately include all stakeholders 

to achieve alignment—acquisition, budget, and requirements. The 

Configuration Steering Board process was used in the past on programs like the F–16, the low-cost fighters, and I reinstituted this 

practice in DOD. I used this similar collaborative process on the 

MRAP program that you mentioned, Mr. Chairman, the DOD Biometrics Program, the Virginia Class submarine, the DDG 1000 destroyer, the P–8 maritime aircraft, and other programs. 

We instituted Joint Analysis Teams to review portfolios of programs which cut across services. These are difficult decisions, and 

you need to achieve consensus with multiple stakeholders. 

The Department often used blue ribbon panels or independent 

teams to assess problems. I sought to make this a regular process 

through creating defense support teams which seek to harness experienced outside experts to review program development plans 

and review program progress before we have problems. Defense 

Supports Teams (DSTs), can partially offset the Department’s inability to hire government personnel to manage our programs. 

Further, the Congress has instituted technology readiness assessments which are of great value, but it is of no value to spend tax 

dollars and reached Milestone B to determine that the technology 

is immature. Quick-look assessments are necessary to drive investment in the timely maturation of those technologies. 

These are just a few of the tools which I believe are fundamental 

to the proper creation and management of complex programs. The 

tools must be employed by capable people with adequate authority. 

The press stories will always report the programs which go badly. 

There are programs which successfully deliver capacity to the 

warfighter. The real key, again, is trained and experienced acquisition team members with management support, decisionmaking authority, realistic requirements, adequate budgets. Under these conditions, program managers will carefully spend tax dollars and deliver capability to the men and women that serve this Nation. 

I appreciate the chance to testify, and I look forward to your 

questions. 

Senator CARPER. Great. Thanks for that excellent testimony. Mr. 

Sullivan. 

STATEMENT OF MICHAEL J. SULLIVAN,1 DIRECTOR, ACQUISITION SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. SULLIVAN. Thank you, Mr. Chairman. It is a pleasure to be 

here today to discuss our work on the Nunn-McCurdy process and 

other tools to improve acquisition outcomes. I will make a brief oral 

statement. I have submitted a written statement for the record. 

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Let me begin by just summarizing our findings on Nunn-McCurdy very quickly. Since 1997, there have been 74 breaches from 47 

major acquisitions. Eighteen of those programs have had multiple 

breaches—more than one: Seven have had three, and one, the 

space-based infrared satellite, has had four. The Department points 

to engineering, schedule, and quantity changes and revised cost estimates as factors most frequently responsible for these breaches in 

the programs. 

We have questions about the meaning and the validity of some 

of these factors and have our own ideas about potentially better 

tools which we can perhaps get into during Q&A. 

The Department has also established a tripwire process that it 

believes will provide early warning for potential breaches, and I believe you heard a little bit about that from the first panel. We believe that what they are doing with that process has merit, and 

they should think about institutionalizing that. The Department 

also plans to propose new legislation that would reduce some statutory requirements that were added in 2009 for cases where there 

is evidence that a Nunn-McCurdy breach was caused by quantity 

changes and not necessarily by poor performance, and we believe 

this proposal deserves further study as well. 

Senator CARPER. When you say poor performance, by the contractor? 

Mr. SULLIVAN. By the government and the contractor, yes. 

Senator CARPER. OK. Thank you. 

Mr. SULLIVAN. Cost, schedule performance. 

Senator CARPER. All right. 

Mr. SULLIVAN. Mr. Chairman, let me conclude with a few words 

about the current process, what we believe the key tools for improving acquisitions are, and how we think the Department is 

doing with its implementation of reform up until now. 

The current Nunn-McCurdy process is an oversight tool and not 

particularly designed for cost management because it is a report on 

what has already gone wrong, and I believe you got a little bit of 

that from the first panel as well. The Department currently uses 

its annual selected acquisition reports to track program cost, schedule, and performance. It is these reports that attempt to trace root 

causes of the breaches, as I stated above. Most of the causes we 

believe are poorly analyzed or miscategorized. For example, the selected acquisition report typically recites nine factors that are responsible for breaches. At least two of those—schedule issues and 

revised estimates—are not casual in nature. They usually depend 

on some other root cause taking place before they get out of whack. 

They reflect the impact of other factors. 

In addition, when it is generally recognized that requirement 

changes happen frequently during a program and are anathema to 

healthy cost control—I am talking about requirements creep 

there—the Department chose this factor as sixth out of the nine 

factors in terms of frequency of problems. We believe there are 

other key tools for improving outcomes, and they continue to be 

things that we have heard a lot about from the first panel. I think 

Mr. Young referred to some. We look at them as robust systems engineering analysis early in a program and often, clear and well-defined requirements, cost estimates that are based on systems engiH605-41331-79W7 with DISTILLER

45 

1The prepared statement of Mr. Schwartz appears in the appendix on page 89. 

neering knowledge, a robust science and technology base to mature 

technologies before they get to an acquisition program, and an incremental knowledge-based approach to delivering weapons more 

quickly—in other words, perhaps a shorter development time period or time cycle that program managers could shoot for. 

Our written statement has a picture of the current process in it 

and where we think those tools would fit into it well, and I would 

be happy to walk you through that during Q and A’s. 

The Department has been working to implement many of the 

tools we mentioned above as it implements its own revised policies 

and the statutory criteria that was mandated under the Weapon 

Systems Acquisition Reform Act and some other legislation that 

has been passed in the last couple of years, and it has made some 

progress. 

Our annual assessment of major weapons systems was issued 

today, and I believe the $402 billion number there was reported in 

that. In that report we do make quite a few observations about the 

progress the Department has made in moving toward a more 

knowledge-based process and trying to get more efficiencies into 

the programs. However, it remains clear that a lot more must be 

done to achieve a reasonable level of cost efficiency. 

For example, due to budgetary constraints, the Department is 

currently struggling to build a robust systems engineering and developmental test workforce. Because pressure will remain on budgets for the foreseeable future, the Department must remain diligent 

in trying to establish that workforce. I think Mr. Young spoke eloquently about that. And the Congress must remain vigilant in trying to control these costs. 

Mr. Chairman, that completes my statement. I would be happy 

to answer questions. 

Senator CARPER. Great. Thanks for the statement. Thanks very 

much for the work that preceded that statement, too. Mr. 

Schwartz, please. 

STATEMENT OF MOSHE SCHWARTZ,1 SPECIALIST IN DEFENSE 

ACQUISITION POLICY, CONGRESSIONAL RESEARCH SERVICE, THE LIBRARY OF CONGRESS 

Mr. SCHWARTZ. Thank you, Mr. Chairman. Thank you for the opportunity to discuss cost overruns in weapons systems acquisitions. 

Over the years major defense acquisition programs have been 

plagued by substantial cost growth, as has been pointed out by a 

number of people here already. Cost growth has been so systemic 

and widespread that time and again the Department of Defense 

has resorted to terminating or substantially curtailing many programs in which billions of dollars had already been invested. In the 

1980’s a number of weapons systems experienced dramatic cost 

overruns, increasing the defense budget by billions of dollars. The 

last 3 months of 1980 alone saw a $47 billion increase for 47 major 

weapons systems. It is against this backdrop that the NunnMcCurdy Act was enacted as a way to notify Congress of cost overruns in major weapon systems. 

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46 

Under Nunn-McCurdy, as has been discussed, DOD must notify 

Congress if a program’s cost growth exceeds certain thresholds. The 

act was intended to inform Congress as to whether or not the acquisition process was working effectively. It was also intended to 

publicly expose cost overruns in the belief that such exposure 

would compel DOD to rein in cost growth. 

Despite Nunn-McCurdy and other reform efforts, cost growth 

continues to plague many programs, as some of the GAO’s work 

has excellently reflected. In response, Congress has amended 

Nunn-McCurdy numerous times, transforming it from primarily a 

reporting system into more of a robust information-gathering and 

management tool. These changes were fueled in part by concerns 

that programs with chronic cost growth and schedule delays were 

not being terminated and that Congress was not receiving useful 

information on the causes of cost overruns. 

Many experts have pointed to poor cost estimating as a primary 

cause of cost growth, and that has come up a number of times already at these hearings. Program advocates have strong incentives 

to underestimate what a program will cost. Contractors often use 

low estimates to win contracts. Program representatives often use 

low estimates to argue for their system over competing systems. 

Once established, unrealistically low estimates make future cost 

growth almost inevitable. 

Since the early 1970’s, Congress and DOD tried a number of initiatives to improve cost growth and over optimistic cost estimates. 

Most recently in 2009, the Office of the Director of Cost Assessment and Program Evaluation was established in the Weapon Systems Acquisition Reform Act to help develop more accurate and realistic cost estimates. Given how recently the new Office of Cost 

Assessment was established, only time will tell whether the Director of Cost Assessment and Program Evaluation will be more effective than past efforts to make DOD cost estimates more realistic. 

Other factors in cost growth that have been alluded to include 

unstable funding, insufficient testing early in the acquisition process, requirements creep, and poor contract management. Analysts 

have also argued that it simply takes too long to develop and field 

major weapons systems. Ten-to 20-year development programs 

often indicate that a program is seeking ill-defined capabilities or 

pursuing technologies that are not yet achievable. As a result, some 

have suggested that limits be set on the time it takes to develop 

and field new systems. 

Nunn-McCurdy does not apply to operation and support costs, 

which often account for two-thirds or more of a system’s total lifecycle cost. Because many of the decisions that determine operation 

and support costs are made early in the development process before 

these costs are actually incurred, operation and support costs do 

not always receive the same attention as acquisition costs. Requiring DOD to report on cost growth in operation and support might 

give Congress a better understanding of the long-term cost of weapons systems. 

Another option for Congress could be to consider shortening the 

time DOD has to notify Congress of cost growth and certify a program. Condensing the reporting requirements could give Congress 

more of an opportunity to weigh in earlier on the future of troubled 

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programs. When Nunn-McCurdy was first enacted, no more than 

97 days passed from the end of the quarter in which a critical 

breach occurred to when a program was certified to Congress. 

Today it could take more than 195 days. 

Congress took an approach similar to this in the Intelligence Authorization Act for fiscal year 2010, which applied a Nunn-McCurdy-like requirement to intelligence acquisition programs but, in 

fact, shortened the time that is required to certify a program to 

Congress. 

Mr. Chairman, when weapons systems end up costing far more 

than originally anticipated, the scramble to plug budget shortfalls 

undermines long-term strategic planning. Systemic cost growth 

jeopardizes the ability of the United States to execute a long-term, 

coherent, and stable strategy that will give U.S. Armed Forces the 

weapons they need to meet future threats. 

This concludes my testimony. Thank you for the opportunity to 

appear before you to discuss these issues, and I will be pleased to 

respond to any questions you might have. 

Senator CARPER. All right. Good. Thank you. 

I think I want to return to a theme that we have touched upon 

in a number of previous hearings involving different government 

programs, and the theme is that of realigning our incentives. I will 

use an example. We held hearings here, oh, gosh, within the last 

month or so, on something called the Tuition Assistance Program 

for active-duty military personnel where they can be reimbursed 

for a portion of their postsecondary education costs while they are 

on active duty. And we have a situation where active-duty personnel can—like at Dover Air Force Base, they can go to Delaware 

State University or Wesley College or other schools in the area— 

Wilmington University—and take postsecondary courses. They can 

actually take courses on the base. Some of these universities and 

colleges come to the base. Or they can use distance learning and 

remotely take courses. 

Some of the for-profits, some of the private, and some of the nonprofit colleges and universities do a great job. They do a great job 

actually with the taxpayers’ money. In many cases, whether it is 

Pell grants, whether it is the GI bill, whether it is tuition assistance payment, some colleges and universities do a terrific job. 

Some of them do not. 

One of the things that has become apparent to us is that at least 

in that program, we need to realign the incentives so that we are 

rewarding or incentivizing the college or university, whether it is 

for-profit, whether it is nonprofit, whether it is private, we need to 

realign them so that we are rewarding quality, not quantity, and 

so they actually reward students who complete their course work, 

reward colleges and universities that help students complete their 

course work, provide tutoring or whatever assistance is needed. We 

reward colleges and universities for actually making sure that not 

only do students complete their course work but they actually graduate or complete their certification requirements and that they actually get placement or help get placement in jobs where they can 

pay off their loans or go on to live productive lives. We are focused 

there on how do we change and realign those incentives. 

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Talk with us here today about how we have been trying to better 

align the incentives in the acquisition field, maybe some changes 

that we have made that you are aware of, and particularly 

changes, additional changes that we might need to make in order 

to derive the kind of behavior that the taxpayers need and, frankly, 

deserve. 

Do you want to go first, Mr. Young? 

Mr. YOUNG. I would welcome the chance to comment on that. 

During my tenure, I talked a lot about changing the profit that you 

heard about in the earlier panel, the award fees, to be objective instead of subjective, and I will tie that to something I said. Program 

managers need time to focus on their programs, and I think we 

would all like to see, as Secretary Kendall noted, a nice program 

plan laid out that could be—earned value management could be applied to because the work is focused, and within that system, I 

want that program manager responsible and accountable to the 

taxpayer to decide which pieces of work are on the critical path and 

when a company succeeds and executes that piece of work and 

meets that interim milestone, you pay them profit, a million dollars 

or whatever. These are bigger pieces of money, so they are big decisions. 

Instead, in a lot of cases, we have beauty contests with a lot of 

viewgraphs and companies tell very good stories, and they have 

done good work. But that is not a good basis for deciding whether 

to give somebody an 80-or 85-or 90-percent award fee. Results that 

is on the critical path to success is what is needed. 

Back-end-loading the fees so that you have a lot of work accomplished—and we did this on Joint Strike Fighter. This was a tough 

discussion with industry. Industry in the end accepted it, and that 

is why Secretary Gates has a pool of fee now on the back end of 

that program to use to incentivize success in that program. 

I feel strongly we should move away from subjective fees and 

more to objective fees. Designating fee against events will force better program planning and lend itself to better earned value management. 

Senator CARPER. Mr. Sullivan. 

Mr. SULLIVAN. Yes, I would first comment that right now the incentives, as we have kind of discussed here today, are almost backward. When you think about a vibrant, competitive market outside 

of the defense industrial base, where you have world-class firms 

that are in some ways outpacing the defense industry in terms of 

innovation and bringing things to market very quickly, they are 

very, very incentivized, and what incentivizes them, obviously, is 

that they do not make their money until they get into production. 

So the one thing, one set of incentives would have to do with how 

can you establish—it has to do with defining requirements so that 

they are doable and they can kind of encourage competition. So 

how can you establish development programs where—I do not 

think fixed-price development contracts are necessarily a good idea. 

They have been tried in the past. But how do you incentivize a contractor to be able to develop a high-quality product as quickly as 

possible so that they can get to production to make their money. 

And competition has a lot to do with that, so I think that would 

be—how can you compete development more, how can you do comH605-41331-79W7 with DISTILLER

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petitive prototyping, a lot of the discussion we had around the 

Joint Strike Fighter engine, I believe the LCS Navy ship is another 

one where they are trying to induce competition. 

I know that on the—I believe it is the joint light tactical vehicle, 

which I think Mr. Young had a lot to do with, infusing a lot more 

competition into that program, they are going to try to be kind of 

your class program, I think. And, the AT&L stopped them and 

said, no, no, go back out and do some prototyping and let us get 

some competition going. So the competition is very important. 

Just quickly, I would say shorter programs, really shorter development programs, when you start a program with ill-defined requirements and say let us take 15 years to develop the F–22 or the 

Joint Strike Fighter or the next-generation bomber or whatever is 

coming down the pike, I think you set up a program manager for— 

that is a recipe for cost and schedule growth. So shorter programs, 

really, and the way you do that is you get more incremental, much 

as the private sector does, the private sector will—they might put 

a clean sheet of paper new product out there you can take a lot of 

things—the iPad, for example, and put out a product that the requirements are established and doable with an understanding that 

you are going to continue to improve that, but you deliver quickly 

that basic product. 

And, finally, I think a more vibrant tech base for the government, and we have argued in the past that the S&T budget could 

probably be increased. If you looked at—— 

Senator CARPER. I am sorry. The S and what? 

Mr. SULLIVAN. The science and technology budget. 

Senator CARPER. Thank you. 

Mr. SULLIVAN. For the Department of Defense. I am sorry. We 

have tried to analyze that a little bit, and it seems to us that for 

every dollar you would put into developing more technology, which 

right now I think is probably maybe 3 percent of the defense budget, you would probably save a lot more money in product development because you would have new technologies that were more mature as they hit product development. 

So a vibrant tech base I think is something that would 

incentivize a lot of the contractors in the defense industry. Those 

are some ideas. 

Senator CARPER. Good. All right. Thanks. 

Mr. Schwartz, realigning incentives. 

Mr. SCHWARTZ. Sorry? 

Senator CARPER. Realigning incentives. 

Mr. SCHWARTZ. Yes, and my colleague spoke a lot about 

incentivizing the—— 

Senator CARPER. It is fine to repeat what they have said. Sometimes repetition is a good thing. 

Mr. SCHWARTZ. Well, then, I would definitely echo some of the 

sentiments as far as, for example, time-certain development or how 

long it takes to field. In fact, that is a flag that was raised also by 

the Quadrennial Defense Review independent panel, which recommended 5 to 7 years time-certain development to include development and initial deployment for that reason. But I also perhaps 

want to talk a little bit about incentivizing the acquisition workforce within the government as well, if I can. 

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Mr. Young testified before and he mentioned Goldwater-Nichols. 

I think Goldwater-Nichols perhaps is an excellent example of how 

Congress helped incentivize the Department of Defense by 

incentivizing joint assignments as a useful tool for promotion within the Department of Defense, and that was one example. 

When you have a program like the V–22, which had approximately a 20-year development cycle, you have had five, possibly 

even ten program managers on that. You had different people who 

set the requirements and perhaps different people that did the cost 

estimating. Well, who is responsible? Is it the people that did the 

requirements? Is it the people that did the initial cost estimate? Or 

is it the five to ten different program managers that you have? It 

is hard to incentivize when you do not really know who to 

incentivize or how long they are there. 

I will just give one other example. The Joint Strike Fighter is a 

joint program, and as a result, it bounces back between services 

every 2 years, which can result in a different program manager 

every 2 years, and possibly different acquisition rules, depending 

on the service. So there, too, the question is: Who are you 

incentivizing and how do you do that? And that might be another 

issue to look at as far as incentivization. 

Senator CARPER. All right. Good. 

I am going to ask a question for the panel. I think I know the 

answers here. Be very brief in responding. OK? But a point-blank 

question. Are weapons system cost overruns growing? As a followup, is the Department of Defense acquisition system becoming 

more or less efficient? And, third, are we committing more to acquisition costs than we were, say, 5 years ago? 

Those three questions: Are weapons systems cost overruns growing? Is DOD’s acquisition system becoming more or less efficient? 

And are we committing more to acquisition costs than we were 5 

years ago? 

Mr. Schwartz, do you want to lead us off? 

Mr. SCHWARTZ. Sure, and I left the talk button on, so that is perfect. 

Senator CARPER. Perfect. 

Mr. SCHWARTZ. RAND did a study a couple years ago that, adjusting for the change in the mix of what weapons we are buying, 

whether cost growth has increased or not, and what they determined looking back to the 1970’s was that cost growth basically as 

a percentage of initial cost estimates has stayed somewhat stable. 

The absolute dollars, of course, as we see, have increased because 

weapons systems have gotten more expensive. But, generally, the 

performance has pretty much been from a cost growth perspective 

roughly the same, and you can even hark back to the 1980’s when 

Carlucci testified before the McCurdy hearings, which started 

Nunn-McCurdy. He pegged initial cost estimates at approximately 

10 percent of the cost of the source of cost growth, which is roughly 

the same number that, adjusted for inflation, the RAND report 

came out with. 

So from that perspective, one could say that it has not necessarily gotten much worse, but it has not necessarily gotten much 

better. We are roughly in the same situation that we have been in 

before. 

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Senator CARPER. Mr. Sullivan, would you take a shot at those 

three questions, please? 

Mr. SULLIVAN. Yes. The first one on cost growth, I think I would 

probably tend to agree with Mr. Schwartz that it is probably about 

the same. It has been the same for a long time. If you look at the 

$402 billion number up there the Department takes issue with 

this. I know when Mr. Young was there he did, too. It was a fair 

argument that, in fact, we have been trying to straighten out over 

the 3 years. There is a lot of cost increase in that number that is 

the result of quantities, additional quantities. MRAP is a good example. 

Senator CARPER. Buying additional quantities. 

Mr. SULLIVAN. Yes. 

Senator CARPER. As opposed to fewer? 

Mr. SULLIVAN. Fewer, yes. 

Now, there is also, however, cost growth when they reduce quantities because cost has gotten so out of control. The F–22, of course, 

is a good example of that. The F–22 spent about the same amount 

that they originally estimated, and they got a third of the aircraft. 

But if look at programs like the MRAP, I think F–18E/F is probably an example. There were quantity increases that drove some of 

that cost, which is not necessarily a bad cost increase. But I do not 

think it represents—probably the cost increases on programs where 

they have reduced quantities easily offsets that. So you have a 

number of $402 billion there. Probably 25 percent of that number 

is one program, and that is the Joint Strike Fighter. They were 

talking earlier about cost growth. Cost growth on the Joint Strike 

Fighter from its original estimate of Milestone B is probably $125 

billion, or thereabouts. That program was an ill-defined program at 

the outset, and it has been very difficult. It has played out that 

way. 

If you look at the top ten programs, the big giant programs, they 

are driving more than half of that cost. So I think cost growth is 

probably the same, and it usually is the big monoliths. The Future 

Combat System for years was doing it to the Army. F–22 was doing 

it to the Air Force for years. Joint Strike Fighter is a joint program 

that is driving costs. 

And then you had two other points. One was—— 

Senator CARPER. The first one, again, was: Are weapons systems 

cost overruns growing? And you suggest, well, maybe a big piece 

of this, maybe as much as a quarter of it is the—— 

Mr. SULLIVAN. Is one program. 

Senator CARPER. Is the Joint Strike Fighter. Second—hold on. 

Pardon me. The second was: Is DOD’s acquisition system becoming more or less efficient? And, last, are we committing more to acquisition costs than we were 5 years ago? They are all sort of intertwined. 

Mr. SULLIVAN. I think the answer to the third one probably is 

that we are committing more to acquisition costs than we were 5 

years ago. I could get those numbers for you. I think that is probably a safe bet. 

Senator CARPER. All right. 

Mr. SULLIVAN. And then the middle one is—it is hard to tell, but 

I would argue after the last reforms, a lot of what Under Secretary 

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Young did when he was there, he started the Configuration Steering Boards. Those are there in order to keep requirements from 

creeping out of control. Good idea. The Department is beginning to 

implement them. We have looked at how well they are doing that, 

and I think-—I could be mistaken, but less than half of all of the 

major programs have held Configuration Steering Board reviews to 

date, but they are beginning to do that. So I think a lot of the 

WSARA reforms, the Department is trying to implement them, but 

this becomes a workforce issue as well. If you want them to maintain efficient oversight, they probably do need more professional 

staff. 

Senator CARPER. All right. Thanks. 

Mr. Young, do you want to take a shot at these questions? Just 

briefly. 

Mr. YOUNG. I will try to be brief. Obviously, I think we are 

spending more and the costs are growing unacceptably. I have 

never felt that was acceptable. I think the acquisition team is actually becoming gradually and steadily more efficient. Why is that 

not producing the results would probably be your question, and my 

answer to that is—we had a lot of discussions about this in the 

past. If you look, the acquisition workforce through the 1990’s came 

down dramatically. So you come to the 2000 timeframe, and the 

budget starts going up significantly, and I built a couple charts for 

Secretary England to show how many programs we were running 

through NAVAIR and through NAVSEA, essentially concurrently. 

And I said if you let me stagger these programs, I can take this 

team and do a better job. But if we are going to concurrently push 

programs through a small team, it is a struggle. And I think not 

only have you seen that struggle happen, but then we found ourselves in two major engagements with significant supplemental dollars, and a lot of those supplemental dollars had to be spent on urgent wartime capability. 

So you have seen a stretch team gradually be more efficient, but 

I think the undercapacity for what they were asked to do in the 

aftermath of how much that workforce was reduced through the 

1990’s. 

Senator CARPER. Sometimes when we hold these oversight hearings, we focus on disappointing performance, bad actors, that sort 

of thing. But I also like to focus on exemplary work and be able 

to put a spotlight not just on disappointing behavior or results, but 

actually quite good ones. And I am going to ask if you all could provide us—and one or two of you have touched on this during the 

course of your testimony, as did our first panel, but just provide us 

with examples of a couple weapons systems where they are getting 

it right, and maybe you can name some weapons systems that are 

being delivered on time, even under budget. And where I really 

want to go with this is: What do you think the keys are for that 

better performance? 

Do you want to lead us off, John? 

Mr. YOUNG. I would love to talk to you for like an hour about 

this. 

Senator CARPER. We do not have quite that long. 

Mr. YOUNG. I understand, so I will try to be brief and clear because I want to use it to illuminate some other issues. 

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One of the things I fought through in the Navy was SSGN, the 

conversion of Trident submarines to carry Tomahawks—a very efficient program, well done. If I had the chart, I could show you a 

graphic where I sketched out the way to do that program just the 

way I told you. We are going to do one—there was an insistence 

that we do it on both coasts and do it as fast as possible. Part of 

that came from even the White House level because they said the 

President mentioned this so we must do this program. 

The submarine community, very happy to do that program as 

fast as possible. John Young saying, no, we are not going to concurrently do this; we are going to do one submarine, and then take 

some of those people to the other coast if you make me do them 

on both coasts and exchange learning. And it was a public-private 

partnership, a difficult program, and—— 

Senator CARPER. So John Young trumped the President. 

Mr. YOUNG. Well, I will not say the President—— 

Senator CARPER. OK. You do not have to say it. 

Mr. YOUNG. But I certainly had to have a discussion with the 

National Security Council members and say, we have—— 

Senator CARPER. Which President was this? Which President was 

this? 

Mr. YOUNG. President Bush. 

Senator CARPER. George W. Bush, right? I remember meeting 

with him once, and he said to me, ‘‘Who is John Young?’’ [Laughter.] 

I am kidding. Go ahead. 

Mr. YOUNG. I would highlight another set of factors. So I have 

talked to you about the fact that lots of different forces can get engaged in trying to do the program the right way. DDG 1000, today 

that debate is diminished. When I was there, there were a lot of 

different debates about it, but a lot of things were done right. Essentially, prototyping is very important at multiple levels. There 

were, I think, 13 engineering development models of the power 

plant, the gun, the peripheral VLS, all the systems on the DDG 

1000 that were proven so that we could then take that ship into 

design and then build that ship. And it was designed in a CATIA 

system. There were claims of that ship being $5 or $6 billion. 

Today the first ship is 40 percent complete, and it is on budget, and 

the lead ship is going to be about $3.5 billion and the follow ships 

will be cheaper. The programs performed pretty well because a lot 

of the right things were done along the way. 

The program has been somewhat killed, if you will, because of 

the debate and the projections of overages that have not happened. 

So you have to work your way through those things. 

I would highlight the C–5 program that you mentioned. It came 

off the rails, but with a lot of discipline, the program was put back 

on the rails. And I think it is performing going forward. Its continued success is critical to the budget being stable going forward, 

treating it almost like a multi-year, which is what I tried to insist 

from the Air Force. 

Virginia class, the Congress extended an unprecedented authority to us in the Department before we had the first submarine because we were being asked, largely by the Congress, to build the 

submarines at one a year in two different yards. That is a horrible 

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strategy to build one submarine a year between two yards. But 

Congress at least gave us the authority to put those submarines 

until a multi-year, and that brought enormous stability of that program and let you in a very lean production environment deliver effectively along with other tools, good management and other 

things. 

I could give you a lot of good examples. I really appreciate the 

chance to give you some of those examples. 

Senator CARPER. Good. And, again, a special appreciation for 

your great work on C–5 modernization. 

Mr. Sullivan, any good examples you want to cite just very briefly? 

Mr. SULLIVAN. Small Diameter Bomb, the first increment of that 

was a really well done program. P–8A, which is in development 

now, appears to have a very—— 

Senator CARPER. What is P–8A? 

Mr. SULLIVAN. P–8A is—— 

Mr. YOUNG. A multi-mission—— 

Senator CARPER. P–8, oh—— 

Mr. YOUNG. Replacement for the P–3s. 

Senator CARPER. The mighty P–3, of which I was a mission commander. My sons, when they were little, used to call it ‘‘the mighty 

P–3.’’ 

Mr. SULLIVAN. That has been an excellent program. F–18/E/F actually, a lot of the F–18—because they basically are mods in many 

ways, big mods, but nonetheless they were allowed to come in with 

a realistic cost estimate and have all done well. The Growler is the 

same way, the EA–18G. 

There have been a lot of programs—the Joint Direct Attack Munition (JDAM) was kind of a favorite. It was a very small, 

unsexy—— 

Senator CARPER. The what? 

Mr. SULLIVAN. I am sorry. The Joint Direct Attack Munition. 

Senator CARPER. Thank you. 

Mr. SULLIVAN. Which really kind of explored precision strike a 

long time ago, and it was basically a program where they took a 

dumb bomb and strapped software, a kit on it to make it be able 

to go where they wanted it to go. That was a very successful program. 

There have been a lot, and I think—— 

Senator CARPER. Did you say they took a dumb bomb and 

strapped a kid? 

Mr. SULLIVAN. Kit. 

Senator CARPER. Thank you. 

Mr. SULLIVAN. A dumb bomb, a gravity bomb, I guess. I think 

what all of those programs share—by the way, the F–15 and the 

F–16 were very successful programs, and we have argued a lot that 

they should go back and look at how they did that upgrade approach and try to do that again. But they all share common 

themes, and I think it is—the No. 1 thing is they all have an awful 

lot of support from very senior leadership. Senior leadership is on 

board, and they are going to get that job done. They all seem to 

have a real need out there that they are going to fulfill. So there 

is an extra added incentive, patriotic, if you will. The P–8A is very 

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much like that. I think the P–3 has about had it. And so they 

need—— 

Senator CARPER. How about their old mission commanders from 

the P–3? 

Mr. SULLIVAN. They are still doing really good. They are doing 

fine. In fact, some may run for President. Who knows? 

Senator CARPER. Not in this hearing. [Laughter.] 

Mr. SULLIVAN. But they share those things in common. There is 

a real need, and senior leadership has gotten onboard, and someone has allowed that core team that is going to sell that program 

to do a realistic cost estimate and to keep requirements reasonable. 

Senator CARPER. All right. Thanks. 

Mr. Schwartz, the last word on this question, and then I am 

going to kick it back to you, and you are going to help us develop 

consensus before we close. Thanks. Mr. Schwartz. 

Mr. SCHWARTZ. Thank you. I will give two examples of programs 

for considering and then perhaps add one other point. 

One is, to go back to what Mr. Young said, the Virginia class 

submarine. While it is true that it had some cost estimating problems early on, the actual execution of the program is one that 

many people have pointed to as an example of excellent program 

management, and now the results will still take some time to come 

in. But some of the reasons that have been pointed to are that particularly a submarine program has put a lot of effort into hiring 

talented and capable program managers and acquisition personnel 

as well as limiting the management spend. For the last decade or 

so, the program manager has had one program, the submarine program, to focus on. That is distinct from other situations. For example, the Joint High-Speed Vessel and the TAKE—and I believe another program that I do not recall at the moment—were all under 

one program manager, so that is also another contributing factor. 

Another one is one of the approaches that the Virginia class submarine has used is block buys and technology insertion programs, 

and what I mean by that is they buy some submarines and they 

are developing technology at the same time. And as those technologies are becoming more ripe, they are inserting them into the 

next block buy to try to avoid some of the concerns that have been 

raised as far as immature technology. That has been another approach. 

And third is they have had a very carefully planned, disciplined 

approach to cost reduction that they have spelled out and sought 

to stick to. 

The other program that I would mention is, I believe, the Super 

Hornet, which is the upgrade of the Hornet. It has been a program 

that generally has been viewed by a number of people that I have 

heard from as a good example, and it was more than just an upgrade. It had a little bit more challenges than just upgrading the 

Hornet, including, I believe, a larger airframe. So I would mention 

that one. 

But the other point I would like to add perhaps is—and I will 

quote John Young. He wrote a memo recently that said half of— 

and Mr. Sullivan, who said that half of the cost growth is five or 

ten programs. So one way to look at it is which programs are doing 

well, how can we emulate that. Another potential approach that 

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56 

can be thought of is which programs caused the high cost growth 

risk and how can we take a different approach with those. 

Some people will say heightened scrutiny of everybody is heightened scrutiny of nobody. But what are the driving forces of high 

risk? And perhaps we should look at those differently or require 

them to be budgeted at a higher confidence level, and I will just 

give one example. 

In 2001, there were five helicopter programs. Four of them had 

Nunn-McCurdy breaches, and they represented four of the complete number of nine Nunn-McCurdy breaches in the entire Department. Now, RAND work and GAO work has indicated that helicopter programs, as an example, have a higher risk of cost growth 

than most other major defense acquisition programs. If that is the 

case, one way to approach this is, well, how do we think of these 

programs differently than the other 70 or 80 programs that might 

not have generally as high a history of cost growth risk? Thank 

you. 

Senator CARPER. Thank you. 

That brings us almost to our conclusion here. You may recall, before we started asking questions of this panel, I said that I wanted 

you to help us really focus on consensus because that is what we 

really need in order to get much if anything done around here. And 

you have had the benefit of hearing from the first panel. You have 

had the benefit of hearing one another and some of the questions 

that I have entered into. And you have the benefit of all your years 

of experience. 

So just some closing thoughts here, things you want to just emphasize, re-emphasize, underline that you think might be especially 

helpful for us as we try to develop consensus, not just at the legislative side but executive as well. 

Please, Mr. Young, do you want to go first? 

Mr. YOUNG. Well, I would like to go backward, but go forward 

with it. I would be remiss if I did not emphasize that I believe the 

MRAP program would be on the list of good-performing programs. 

It was a program where we had money—that was not even a question—we had requirement, but we had the—the requirement was 

really to do the best we could as fast as we could. It was not an 

unobtainable requirement, and we were not even—if something 

was unobtainable, we were asked to step back and deliver faster 

rather than slower. We had leadership support, and all of that 

could have gone south if you did not have the teamwork and collaboration. Secretary Gates’ big fear that I feared, therefore, and 

worked hard on was to make sure once we built 10,000 vehicles, 

they could be deployed; the people could be trained; spare parts 

could arrive for those vehicles so the soldiers could actually use 

them. So the program was executed by very capable people comprehensively. 

And so that is how I go forward, with that example, and tell you 

we have to have leadership, and I think some of that leadership is 

from people that are accountable to the President so they can try 

to do the right thing. They are accountable to the Congress, too, 

in general because they are confirmed. They are spending taxpayer 

money. They need to have trained people working for them that are 

empowered to make hard decisions, and they need to be supported. 

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57 

They cannot not be promoted because they said no to some new requirement that was going to disrupt the program. 

You have to have realistic and honest budgets. You have heard 

all of us say that. And I think you do need to change some of the 

incentive structures in the contracts. 

The Department as a whole needs to build a meaningful 5-year 

budget. I said this all the time I was in the Pentagon. The building 

right now is actively and busily building the 2013 budget. The 

truth is they just built the 2012 budget. That ought to be quality. 

But the truth is it is a 1-year budget with 4 out-years that are not 

as meaningful as they should be. And so if we had a meaningful 

5-year budget, we would then have a meaningful and stable outlook 

for acquisition programs to execute to. And I believe that is an important thing that has not been said today. 

So I really appreciate your pursuit of this knowledge and consensus, and I thank you for the chance to testify. 

Senator CARPER. It is great of you to come, and we applaud your 

continued efforts here. Thanks so much for helping us. Mr. Sullivan. 

Mr. SULLIVAN. So much has been said today that I agree with, 

including the first panel. I mean, I think that the Department at 

this point understands what it has to do. It is beginning to understand the budget constraints. But I would focus on—I think the 5- 

year budget is a good idea. I would not start a program unless the 

requirements were very well defined with preliminary design review, a lot of this engineering knowledge to prove that everything 

is there. I would not let them exceed 5 years, and I think it is good 

to use an incremental approach. 

I think the F–16 program is a potential model. Some of the ones 

we named earlier, Small Diameter Bomb, those are good examples 

of how to do a program. 

Competition. We talked a lot about—the Department, it does not 

seem to me, has come out with a clear policy or message or plan 

on how or when it is going to compete things, and there are different levels of times when you can compete. You can compete technologies, which the Ground Combat Vehicle is doing now. You can 

compete during product development, and each step gets more expensive. You could even compete into production. And I think if you 

are talking about missiles or munitions, you can do that sort of 

thing. If you are talking about a bomber, it gets a little more difficult. 

But competition, I think that the Department could focus on how 

it can use competition at varying times during an acquisition and 

then stick to that, I guess. Have a clearer policy about how it is 

going to use that. 

Senator CARPER. OK. Thanks. 

Mr. Schwartz, do you want to close this out? 

Mr. SCHWARTZ. Sure. Thank you. With the goal of consensus, I 

think there are three themes that I have heard recurring that I believe everyone agreed on. One is the need to try to improve cost estimating early on because without good cost estimates you sort of 

start behind the eight ball, as it were. 

The second one is requirements creep, and I would add change 

orders. For example, the LCS, Littoral Combat, had millions of dolH605-41331-79W7 with DISTILLER

58 

lars in change orders, which is something that requires you to renegotiate the contract sometimes and is going to raise costs, and 

the more that those orders and requirements, as was stated, could 

be stable earlier in the process, that should help. 

And the third was workforce incentivization, and I mean from 

the Department of Defense side as well as the contractor side, 

which is a role that Congress was very helpful with, as we mentioned, in Goldwater-Nichols and could also play a very key role 

here. 

The only thing I would like to add, though, is, as great as a lot 

of these ideas are and as optimistic as many people are, it all 

comes down to execution, and actually making sure that the initiatives are being adhered to, because you could have a policy that is 

not necessarily being followed. And the example I would give, for 

example, is in 1972 the Cost Analysis and Improvement Group was 

established with the sole purpose of improving DOD cost estimates. 

In 1987, the Defense Acquisition Board was established, and one 

of their goals was to improve cost estimates and require further reliance on the Cost Analysis and Improvement Group. 

In 2009, the Cost Analysis and Program Evaluation Group was 

established with the primary purpose of improving cost estimates. 

So the initiatives have been there, but very often it comes down 

to execution and, as was stated before—and that is the point I 

want to end with—changing the culture to truly embrace the goals 

of these policies. Thank you. 

Senator CARPER. All right. Well, that is a good note to close on. 

Again, we are in debt to each of you. We appreciate very much your 

preparation for today and your participation here today and in previous years. 

As you probably heard me say earlier, some of the folks on our 

Subcommittee are probably going to have some extra questions, 

and we may have some extra questions as well. And if you receive 

those, we would just ask that you respond to them promptly. Other 

Members have 2 weeks to submit those questions. 

With that having been said, I just want to thank our staffs, both 

Democrat and Republican staffs, for their work in helping us to 

prepare for today. It has been, I think, a very constructive hearing 

and one that gives us a lot to chew on. And my hope is that we 

continue to do our oversight in the years to come, and if we extend 

that bar graph or bar chart a couple years forward into the future 

that we will see not only a plateauing, but we will see those numbers coming back down, a little bit less red ink. Maybe a lot less. 

All right. Maybe today’s hearing will help get us on the right track. 

Thank you all very, very much, and with that, this hearing is adjourned. 

[Whereupon, at 5:13 p.m., the Subcommittee was adjourned.] 

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