U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

i 

30–685 2019

[H.A.S.C. No. 115–104] 

HEARING 

ON

NATIONAL DEFENSE AUTHORIZATION ACT 

FOR FISCAL YEAR 2019 

AND

OVERSIGHT OF PREVIOUSLY AUTHORIZED 

PROGRAMS 

BEFORE THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

FULL COMMITTEE HEARING 

ON

OVERSIGHT AND REFORM OF THE 

DEPARTMENT OF DEFENSE ‘‘4TH ESTATE’’ 

HEARING HELD 

APRIL 18, 2018 
(II) 

COMMITTEE ON ARMED SERVICES 

ONE HUNDRED FIFTEENTH CONGRESS

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

WALTER B. JONES, North Carolina 

JOE WILSON, South Carolina 

FRANK A. LOBIONDO, New Jersey 

ROB BISHOP, Utah 

MICHAEL R. TURNER, Ohio 

MIKE ROGERS, Alabama 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROBERT J. WITTMAN, Virginia 

DUNCAN HUNTER, California 

MIKE COFFMAN, Colorado 

VICKY HARTZLER, Missouri 

AUSTIN SCOTT, Georgia 

MO BROOKS, Alabama 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

BRAD R. WENSTRUP, Ohio 

BRADLEY BYRNE, Alabama 

SAM GRAVES, Missouri 

ELISE M. STEFANIK, New York 

MARTHA MCSALLY, Arizona 

STEPHEN KNIGHT, California 

STEVE RUSSELL, Oklahoma 

SCOTT DESJARLAIS, Tennessee 

RALPH LEE ABRAHAM, Louisiana 

TRENT KELLY, Mississippi 

MIKE GALLAGHER, Wisconsin 

MATT GAETZ, Florida 

DON BACON, Nebraska 

JIM BANKS, Indiana 

LIZ CHENEY, Wyoming 

JODY B. HICE, Georgia 

ADAM SMITH, Washington 

ROBERT A. BRADY, Pennsylvania 

SUSAN A. DAVIS, California 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

JIM COOPER, Tennessee 

MADELEINE Z. BORDALLO, Guam 

JOE COURTNEY, Connecticut 

NIKI TSONGAS, Massachusetts 

JOHN GARAMENDI, California 

JACKIE SPEIER, California 

MARC A. VEASEY, Texas 

TULSI GABBARD, Hawaii 

BETO O’ROURKE, Texas 

DONALD NORCROSS, New Jersey 

RUBEN GALLEGO, Arizona 

SETH MOULTON, Massachusetts 

COLLEEN HANABUSA, Hawaii 

CAROL SHEA–PORTER, New Hampshire 

JACKY ROSEN, Nevada 

A. DONALD MCEACHIN, Virginia 

SALUD O. CARBAJAL, California 

ANTHONY G. BROWN, Maryland 

STEPHANIE N. MURPHY, Florida 

RO KHANNA, California 

TOM O’HALLERAN, Arizona 

THOMAS R. SUOZZI, New York 

JIMMY PANETTA, California 

JEN STEWART, Staff Director 

TIM MORRISON, Counsel 

WILLIAM S. JOHNSON, Counsel 

JUSTIN LYNCH, Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

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

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

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

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

WITNESSES 

Dunlap, Preston C., National Security Analysis Mission Area Executive, 

Johns Hopkins University Applied Physics Laboratory ................................... 5 

Levine, Peter, Senior Research Fellow, Institute for Defense Analyses ............. 2 

APPENDIX 

PREPARED STATEMENTS: 

Dunlap, Preston C. ........................................................................................... 53 

Levine, Peter ..................................................................................................... 45 

Smith, Hon. Adam ............................................................................................ 44 

Thornberry, Hon. William M. ‘‘Mac’’ ............................................................... 43 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

OVERSIGHT AND REFORM OF THE DEPARTMENT OF 

DEFENSE ‘‘4TH ESTATE’’ 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Wednesday, April 18, 2018. 

The committee met, pursuant to call, at 10:02 a.m., in room 

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

Thornberry (chairman of the committee) presiding. 

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

The CHAIRMAN. The committee will come to order. 

Over the years, Congress has focused most of our attention on 

the military services and on weapons and equipment, personnel, 

and policy issues. We have paid relatively little attention to the 

rest of DOD [Department of Defense] that makes up the 4th Estate; in fact, one expert has said the 4th Estate is untouched by 

human hands. 

Yet, this portion of the Department of Defense spends about 20 

percent of the budget, includes about 25 percent of the civilian 

workforce, and hires about 600,000 contractors. As we are working 

to get more value for the taxpayer dollar, to get more resources 

into the hands of the warfighter faster, and to make the Department more agile and innovative in the face of the wide array of security challenges before us, we cannot neglect to examine this large 

portion of DOD. 

Yesterday, I offered a proposal to make reforms to a portion of 

the 4th Estate. I look forward to receiving reactions to that legislative text. But beyond the specific proposals, I believe it is essential 

that we work across the entire Department, leaving no stone 

unturned, to ensure that the warfighters have the best that this 

country can provide, and that this enormous organization of DOD 

is ready and able to defend the Nation. 

I yield to the ranking member. 

[The prepared statement of Mr. Thornberry can be found in the 

Appendix on page 43.] 

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM 

WASHINGTON, RANKING MEMBER, COMMITTEE ON ARMED 

SERVICES 

Mr. SMITH. Thank you, Mr. Chairman. And I agree; this is an 

important hearing that we are having today on a substantial portion of the budget that does not get as much attention as it deserves. 
2 

I wouldn’t go so far as to say it is untouched by human hands. 

I think that there are others that have come before us that have 

taken a swing at this, both in the Department and in Congress, to 

try to look at the portion of the budget that is not directly related 

to the warfighter. 

And there is without a doubt, and I don’t think anyone would 

argue, there is savings that can be found there, and I think we 

should look and try and do that. And I think the chairman’s bill 

that he introduced yesterday or, I guess, the portion of our markup 

he introduced yesterday to attempt to do that is a good starting 

point. 

I would say, however, what these people do is not irrelevant. 

There are a number of portions in the so-called 4th Estate that are 

essential to assisting the warfighter and making sure that they are 

ready for the fight. 

So what we have to do in this committee is figure out how can 

we find savings without doing damage. And, as I said, others have 

come before us and tried to do that. The Pentagon is a very difficult bureaucracy to get at. I certainly admit that. 

And I will just close by saying, I certainly applaud the chairman’s efforts to take that run. I look forward to working with him 

to figure out the best way to do that, to make sure we cut in a sensible way that saves money, and at the same time, makes sure that 

we can continue to provide the services that our warfighters need 

so we can fight as efficiently as possible. 

I will stop there because the two gentlemen who are testifying 

today know a lot more about this than I do, so it will be better to 

hear from them and get to our questions and answers. 

Thank you, Mr. Chairman. I yield back. 

[The prepared statement of Mr. Smith can be found in the Appendix on page 44.] 

The CHAIRMAN. Thank you. I certainly agree with the gentleman 

on all of that, including the fact that our witnesses have a lot of 

expertise to bring to the table. 

We welcome Mr. Peter Levine, senior research fellow at the Institute for Defense Analyses, but who has also been Deputy Chief 

Management Officer at the Department of Defense. And what I 

won’t mention is some of his associations across the capital. 

We also have Mr. Preston Dunlap, who is the National Security 

Analysis Mission Area Executive at Johns Hopkins Applied Physics 

Laboratory, but he too has experience in the Pentagon including 

serving in CAPE [Cost Assessment and Program Evaluation] and 

in other positions. 

Thank you both for being here. Without objection, your full written statements will be made part of the record. And we look forward to any oral comments you would like to make. 

Mr. Levine. 

STATEMENT OF PETER LEVINE, SENIOR RESEARCH FELLOW, 

INSTITUTE FOR DEFENSE ANALYSES 

Mr. LEVINE. Thank you, Mr. Chairman, Congressman Smith, 

members of the committee. 

First, it is good to see you all again. I thank you for inviting me 

here to address defense management and the DOD’s 4th Estate. I 
3 

think it is a tremendously important issue which is well worth your 

attention, and I believe that there are significant savings that are 

possible in this area. 

When I served as the Department’s Deputy Chief Management Officer I was responsible for a program to carry out about $7 billion 

worth of savings over the course of the FYDP [Future Years Defense Program], and most of that we were looking to the 4th Estate 

to achieve. 

I think it is important though not to have unreasonable expectations as we look at the 4th Estate. As I point out in my prepared 

statement, a huge part of the 4th Estate budget goes to the Defense Intelligence Agencies, the Missile Defense Agency, and the 

U.S. Special Operations Command. By some definitions, the combatant commands are also part of the 4th Estate, so there is a huge 

warfighting function that is in the 4th Estate. 

Within the balance, we pay for the Defense Health Program 

which provides health care to our service members and their families, as well as the DOD schools and commissaries, which Members 

of Congress have generally considered to be off limits for large cuts. 

The 4th Estate also includes DARPA [Defense Advanced Research Projects Agency], SCO [Strategic Capabilities Office], and 

DIUx [Defense Innovation Unit Experimental], all of which perform 

cutting-edge research needed to maintain our technological edge. If 

all those entities are considered to be essentially off the table for 

budget reductions, and I don’t mean to imply that there are no efficiencies possible, but the large budget reductions, if we are looking 

at the rest of it, we have about a quarter of the 4th Estate left to 

look at. So you can’t achieve 25 percent reduction in the 4th Estate 

by looking at only a quarter of the budget. 

Unfortunately, the everything else also performs essential functions. I think these are functions that can be performed more efficiently and that deserve close attention from the committee, but 

they are important functions, nonetheless. 

This includes a number of small defense agencies that perform 

specialized functions, like DPAA [Defense POW/MIA Accounting 

Agency], DSCA [Defense Security Cooperation Agency], DTRA [Defense Threat Reduction Agency], DTIC [Defense Technical Information Center], DTSA [Defense Technology Security Administration], 

DTRMC [Department of Defense Test Resource Management Center]. We can go through any of those that you want, but my point 

on that would be the overall cost of those small agencies is relatively small. Their functions have to be performed somewhere. So 

there are savings. I believe that the small agencies can be made 

more efficient, but you are not looking for big dollars there. 

If you are looking for big dollars, you are probably looking where 

others have looked, which is to the big business-type defense agencies, like DLA [Defense Logistics Agency], DFAS [Defense Finance 

and Accounting Services], and DISA [Defense Information Systems 

Agency]. That is sort of everybody’s favorite target for budget cuts 

in the 4th Estate. 

Before those agencies were established, the Department ran parallel activities in each of the services, multiplying the overhead and 

the number of people needed to perform the work. DLA and DFAS, 

the two agencies that get most of the complaints because of their 
4 

size, had almost 100,000 employees between them when they absorbed functions from the services in the 1990s. 

Today they perform the same work better with 34,000 employees. 

That is about a $6 billion a year annual savings from the personnel 

reduction that they were able to accomplish by bringing in tasks 

from the services and consolidating them. 

I have been following DLA for almost 30 years now, and I have 

watched it evolve as a business, reaping savings by instituting best 

practices from the private sector like direct vendor delivery, prime 

vendor contracts, electronic contracting, electronic tracking, asset 

visibility programs, and business systems that actually work, unlike most of those in the Department of Defense. 

Over the last 5 years, DLA has executed a cost reduction program that targeted contracting, personnel, acquisition of assets, 

travel, transportation, supplies and equipment, rent and maintenance. This program was expected to achieve about $5 billion of 

savings over the FYDP. 

As a result of these efforts, I think DLA is one of the best run 

businesses in the Department. That doesn’t mean that further savings aren’t possible—they are and the committee should pursue 

them—I think we just need to understand what has gone before as 

we look at those. 

DFAS is also a relatively efficient organization and outperforms 

what the services did 25 years ago, but I see a difference here. 

Both DFAS and the services have evolved considerably and have 

new capability since DFAS was formed 25 years ago. 

Given the new ERPs [enterprise resource programs] in the services, and the new capabilities that they have, I think it is long past 

time for a complete re-examination of the role that DFAS and the 

services play. And there should be streamlining that’s possible. 

There may be functions that can be transferred from DFAS to the 

services, but a real considered approach to that and figuring out 

how those functions work is necessary. 

I am less familiar with DISA, but I know that it runs data centers that are sometimes considered to be underutilized and overstaffed. It is tough cutting these kinds of things in the Department 

without a BRAC [base realignment and closure] though, so you 

might—you know, if you are willing to take that issue on, not a 

BRAC issue but the issue of data centers and whether they are efficiently utilized, more power to you. 

Finally, I would like to say just a few words about two agencies, 

two defense agencies that reported directly to me when I was in 

the Department. Everybody in the Pentagon loves to criticize 

Washington Headquarters Services [WHS]. It can be maddeningly 

unresponsive at times, but it performs essential functions without 

which the Pentagon could not operate. 

It runs the power plant and utilities, maintains the building, allocates office space, contracts for food, handles the budget, runs 

personnel system, controls ID [identification] cards and parking 

permits, among other functions. 

It would be nice to think that we could save money by eliminating WHS, but somebody has to provide these services. Similarly, 

with the Defense Human Resources Activity [DHRA], which re-
5 

ported to me when I was Acting Under Secretary for Personnel and 

Readiness, that is a notoriously inefficient agency. 

And there have to be savings that are possible, but recognize 

that it performs a bunch of activities that cannot—that we really 

cannot avoid and many of which are mandated by Congress. It 

runs the Department’s education and training programs and its 

manpower data systems. 

It staffs the JAMRS [Joint Advertising, Market Research and 

Studies] program, the Suicide Prevention Office, the SAPRO [Sexual Assault Prevention and Response] office, and the Defense Travel System. It is responsible for the accommodation program for disabled employees, the veterans transition program, employer support for the Guard and Reserve. The elimination of DHRA makes 

no sense unless those programs are also going to be eliminated. 

So, Mr. Chairman, in conclusion, I appreciate the committee’s 

ambition in looking at this issue. I think it is tremendously important. I think you can find efficiency. I think you can find significant 

savings, and any savings that you achieve will be a tremendous 

victory for the Department and the taxpayers. 

I look forward to your questions. 

[The prepared statement of Mr. Levine can be found in the Appendix on page 45.] 

The CHAIRMAN. Thank you. 

Mr. Dunlap. 

STATEMENT OF PRESTON C. DUNLAP, NATIONAL SECURITY 

ANALYSIS MISSION AREA EXECUTIVE, JOHNS HOPKINS UNIVERSITY APPLIED PHYSICS LABORATORY 

Mr. DUNLAP. Chairman Thornberry, Ranking Member Smith, 

distinguished members of the committee, it is an honor to appear 

before you today to discuss the oversight and reform of the 4th Estate and defense agencies and field activities in particular. 

It is also excellent to be joined by my colleague, Peter Levine, 

here today. 

Though, as the chairman said, I currently work at Johns Hopkins Applied Physics Lab, I am here today in a personal capacity. 

In 2013, I led a review on this topic for Secretary of Defense Chuck 

Hagel as part of the Strategic Choices and Management Review 

when I was the Director of Program Analysis and Chief of Staff in 

the Office of Cost Assessment and Program Evaluation in OSD [Office of the Secretary of Defense]. 

While I readily admit that my experience is slightly dated, the 

principles that were true then and what we found in reviews past, 

I think, remain relevant and true today. To that end, I am going 

to walk through six false assumptions that plagued our review and 

other reviews that we looked at, and I hope that we might be able 

to progress here more quickly past them. 

And I do thank the chairman for throwing out the first pitch and 

getting the ball rolling on this, so thank you. 

Assumption number one: Defense agencies and field activities are 

homogenous back offices. Each of the current 27 agencies and activities was initially created by statute to achieve greater effectiveness, spanning multiple military departments. These missions vary 
6 

widely, as you know, from groceries to geospatial analysis, to educating kids, to engineering, and so on. 

Though each organization does indeed have a back office or overhead, and a few do function as consolidated back offices, like the 

Washington Headquarters Services, the majority conduct a variety 

of what many consider valuable direct missions to the Department 

of Defense. 

Assumption number two: The appropriated budget is the total 

budget. We are using publicly available data, unclassified data—so 

setting aside things like the intelligence agencies—the agencies get 

appropriated, as the chairman alluded to, roughly $65 billion, but 

some also receive additional funding via defense working capital 

funds from other DOD agencies, military departments, and even individuals that pay them for services. 

Working capital funds allow consumers, in some sense, some 

choice as to where to buy their services from as well as flexibility 

and agility to respond to pressing needs. That included, all told, 

they execute roughly 16 percent of the DOD budget or over $116 

billion, but as I mentioned before, each in a different way. 

And when you think about 25 percent to the right target, thinking about both the appropriated as well as revenues and other appropriated budgets that get sent to these agencies for execution 

should be considered. 

Assumption number three: The agencies can take cuts and still 

perform the same level of mission. And I appreciate the chairman’s 

comments that—and when you look at this you should think about 

not only cuts but also dropping missions that might not be important or relevant in today’s time. 

In a bureaucracy it is often harder to cut a mission than it is 

simply to cut funding, but, of course, they are related. It is appropriate to take hard looks at doing the same mission or even more 

for less, but if savings are an objective then tough decisions may 

have to be made about actually doing less for less. 

For example, one that is often cited is DOD’s grocery stores or 

commissaries or DOD schools, which, of course, provide a valued 

service to military families that can be difficult to find in some 

areas overseas or remote areas in the U.S. 

That said, roughly 85 percent of commissaries are located within 

a 15-minute drive of a grocery store or a big-box store with full grocery selections. Options to save here or these type of agencies 

would include a careful review of the business case for each particular location, store, school, and so on. 

Assumption number four: Peanut butter spread cuts are helpful. 

When faced with tough decisions past reviews often defaulted to a 

peanut butter spread approach to efficiencies, such as multiple 

years of 10 percent cuts in a generic fashion. 

A better approach, I think, as the Congress recognizes, is to focus 

on what the Nation most needs from these organizations to emphasize those missions for the warfighter and take efficiencies in lower 

priority areas or obsolete missions. 

Assumption number five: Reorganization is the answer. Is it wise 

for the same person to oversee an intelligence agency, a grocery 

store, and the Missile Defense Agency? Well, maybe. So our study 

in 2013 examined the implications of consolidating all those agen-
7 

cies under one leader versus grouping them by missions, similar to 

the way they are today. And we found it helpful to consider both 

the personal expertise of the leader as well as dividing the missions 

across the Department in the 4th Estate. 

Assumption number six: It is all about metrics and reporting. 

The agencies and activities have been required to provide a biannual report to Congress and in the past also produced metrics that 

were tracked by organizations like CAPE, my old organization, and 

at the time the Deputy Chief Management Officer. 

However, ultimately, there is no substitute for strong leadership. 

In our experience, the vision and experience of a leader who understands the mission of the particular defense agency or field activity 

they oversee and the need for greater efficiencies can, together with 

oversight and action from Congress, I think, achieve the greatest 

steps. 

So going forward, any reform efforts might consider these and 

other lessons learned to give a sense of the magnitude of the issue, 

along with the 25 percent sort of target that is on the table. If all 

seven agencies—we will say six of those mentioned are eliminated, 

that is roughly a 2 percent budget cut in total. So there is a long 

way to go between 2 and 25 percent if you set aside DISA and the 

transfer. 

So how do we think about that? There is four categories that 

could find further efforts to be able to get from that level of percentage up to 25 or whatever the right percent is. First, large agencies that have not recently been reviewed, like the Defense Logistics Agency or the Defense Information Systems Agency, which is 

put on the table already; second, missions that may be partially accomplished outside the government like Defense Commissary Agency or Education Activity on a location basis; third, missions that 

are split between the 4th Estate and the services still, like intelligence agencies, satellite development organizations, and these 

cases, of course, in coordination with the Director of National Intelligence; and fourth, those currently decentralized missions that 

may require increased leadership focus, given advances in both 

threat and technological opportunities like artificial intelligence 

and hypersonics, which could either be accomplished with existing 

structures like the Missile Defense Agency and Defense Advanced 

Research Project Agency or with their own organizations. 

Ultimately, for any reform to be successful it must be true both, 

as was said here, to the taxpayer as well as to the talented men 

and women in uniform who put themselves in harm’s way each and 

every day around the globe. 

And I thank you for the opportunity to testify before you today 

on this important topic, and I look forward to your questions. 

Thank you. 

[The prepared statement of Mr. Dunlap can be found in the Appendix on page 53.] 

The CHAIRMAN. Thank you. Thank you both. 

Mr. Levine, you have got a magic wand and you can wave it and 

do one or two things when it comes to the 4th Estate reform. What 

would you do? 

Mr. LEVINE. The first thing I would do is to take a close look at 

the working capital funds. My colleague, Mr. Dunlap, referred to 
8 

the fact that a significant amount of the funding going into the 4th 

Estate comes from the services through the working capital funds. 

My concern about the working capital funds is they do what they 

are supposed to with regard to the buyer. The services have a pressure to become more efficient because they see the cost of what 

they are buying. 

But they don’t have the desired effect in terms of efficiency with 

a seller, because the way the rates are set, they are set to make 

sure that the fund breaks even. So no matter how high your expenses are, you will always know you are going to recover them. 

My belief is we need a mechanism that will give the customers 

the services, visibility into essentially how the defense agencies are 

spending their money, how DLA, DISA, and DFAS are spending 

their money so they can see the overhead and push back at excess 

expenses. 

I think that kind of mechanism would create sort of a cop on the 

beat to look at those expenses on a day-to-day basis, and nobody 

has more incentive to save money than the person who is actually 

paying the bills. So I think we need to build that kind of mechanism into the Department. 

Second, there are a number of specific areas I would look at. The 

first one is healthcare management. I know that the committee just 

went through a major exercise of passing legislation on that. It is 

very significant legislation. The Department has a long way to go 

to execute it. 

But I can’t help but say the overhead in the healthcare area is 

extraordinary when we are maintaining three separate surgeon 

generals and the Defense Health Agency. I don’t think that is an 

area where we are efficient. 

And you and the Department are going to have to keep a very 

close eye on the implementation of this to make sure that it is actually implemented in a way that brings down the overhead and 

doesn’t just add new organizations to an inefficient system. 

The third area that I would look at—and there are others we can 

talk about. The third area I would look at is finance and accounting. And I really think it is important to relook the whole relationship between DFAS and the services. When I was the DCMO [Deputy Chief Management Officer], some of the service comptrollers 

would come to me and say, look, there are things that DFAS is 

doing for me that I can now do myself because I have an ERP, an 

enterprise resource program. 

It has the capability built into it, but I am required to ship this 

stuff over to DFAS and have them do it. And the consequence is 

then it is in two systems and then I have to hire—DFAS has to 

hire more people. They have to go through a reconciliation process 

because it is in two systems. If I just did it myself I could not only 

do it within the system I already have but I could do it cheaper 

without the manpower to do the reconciliation. 

That is a substantial task to do that re-examination. But as I 

said in my prepared statement, there has been a lot of evolution 

and capability on both the DFAS side and the service side, and I 

think that whole relationship of who does what finance and accounting tasks deserves a comprehensive relook. 
9 

The CHAIRMAN. Okay. Mr. Dunlap, magic wand, what would you 

do? 

Mr. DUNLAP. Thank you. 

I appreciate the comments of my colleague here. I think working 

capital funds are both a bit of a mystery as well as a gem. Why 

do I say that? It is hard to track where everything goes and the 

pricing, as my colleague pointed out. 

A gem because I think the Congress is also interested in agility 

and flexibility in the agencies to respond appropriately, and that is 

certainly pointed to as a mechanism to allow that flexibility and 

some choice where the choice is available for the different organizations to choose one organization or another. 

So there is both pros and cons to the approach. But it is, you 

know, roughly half of the sort of total appropriations that the defense agencies oversee, so it is appropriate to take a careful look 

at that. 

I think the biggest thing here would be to splice out those functions across all the organizations that truly are a more overhead 

and back office functions with an assessment that they be done 

more efficiently or effectively. I think a careful, hard look needs to 

be done. 

We did that in our review by bringing in each of the defense 

agency and activities heads, so I personally met with each of them, 

went through the org [organizational] chart, the missions, what 

they were doing, and why they were doing them. To be able to get 

at that, it takes something like that pressurizing leadership in the 

Department to go have a careful, intricate look to support that. 

On the reform in terms of making them more effective and capable for the service members, they also provide a variety of capabilities that I think, you know, the Congress thinks are important, intelligence information in light of foreign adversaries’ capabilities, 

missile defense capabilities, and so we want to make sure that we 

emphasize those. 

And to that end, there remains, as I mentioned in the opening 

remarks, elements of those structures that remain both divested 

amongst the services and other organizations as well as in the 4th 

Estate. 

I don’t have a position on whether it is better to be in the 4th 

Estate or to be divested back to the services, but I think there are 

several missions still in defense agencies where we could look at 

that as part of this review and where things could be done better 

or worse. 

To get to that target of 25 percent or whatever the right amount 

is, we are going to have to take—the Congress is going to have to 

take a careful look at what to cut and what to stop doing. 

So I appreciate the seven agencies mentioned, one of which is 

more of a transfer. But as I said, that only gets to about 2 percent 

of the budget if they were all eliminated, 2 percent of the 25 percent, I should say. 

And so I think the Congress will have to take a careful look at 

whether they are open to issues like Mr. Levine mentioned with 

what has typically been off the table with BRACs, or education, or 

commissaries, because you have to get agencies that are large to 

be able to achieve that kind of savings. 
10 

So I just put that out there for consideration. Thank you. 

The CHAIRMAN. Okay. I have got several things I want to pursue, 

but first, I will turn to other members. Ranking Member. 

Mr. SMITH. Thank you, Mr. Chairman. 

You mentioned the word ‘‘BRAC’’ in that last little sentence 

there, and it is the first thing I want to ask you about. Of all the 

savings, how important would it be to give the Department of Defense greater flexibility in closing bases and moving personnel? 

Because we all know, I mean, BRAC is the big bite that people 

are reluctant to take in terms of actually closing bases and realigning them. But they are—even within simply moving equipment 

around within DOD or if you wanted to close an office in one place 

and open it up someplace else, you have always got this massive 

fight with, well, us, whatever district it is that you are closing 

down. 

So there is two questions in there. Number one, are there things 

that we could do to make it easier for DOD to shut things down, 

to move personnel, to sort of resist the political pressures that inevitably come from the district in question? 

And I am talking about something as simple as if they wanted 

to move four C–130s from one base to another. There will always 

be a fight, and it will always take longer than it should. So there 

is that smaller stuff. And then on the larger point, how important 

would be having a BRAC round to getting at some of the efficiencies that is we are talking about here? 

Mr. LEVINE. Mr. Smith, I am not going to take on the political 

question of how you could possibly get a BRAC passed in the Congress. I—— 

Mr. SMITH. I didn’t actually ask you that question. I am allowing 

you to live in your perfect nonpolitical world there, so—— 

Mr. LEVINE. I did manage to go through that once, and it was 

a remarkable experience. 

But in terms of the importance of BRAC, you may remember a 

few years ago there was this Defense Business Board study that 

said we could save $125 billion in all these different areas. And 

about half of the savings were—that they projected, if I remember 

right, were in logistics and real property management. 

And so when I became Deputy Chief Management Officer, which 

was several, you know, a little while after that Defense Business 

Board study, I tasked the Defense Business Board, the Deputy Secretary tasked them, but at my suggestion he tasked the Defense 

Business Board to go and look at logistics and real property management. 

Here you said that there is $50 billion of savings here. Tell us 

what we would do in order to achieve those savings. The one overwhelming recommendation the Defense Business Board came back 

with was, you need a BRAC. 

So I don’t know that they thought when they looked specifically 

at logistics and real property management that they believed that 

there was really $50 billion of savings there or that they had recommendations. But they said, if you want significant savings in 

these areas, what you need to have is a BRAC. So that is sort of 

one marker anyway. 
11 

Mr. SMITH. Okay. Mr. Dunlap, do you have anything to add to 

that? 

Mr. DUNLAP. I can’t answer how much of the defense agency reform, you know, would require BRAC or not BRAC. Just a general 

comment is that on average we sort of see a 10-year or so return 

on investment there, so there would have to be a recognition of upfront cost to be able to move out. 

There are some examples in the agencies not requiring BRAC 

where they are able to achieve efficiencies. I think Defense Finance 

and Accounting Services is a good organization to look to for that 

where they consolidate a bunch of their offices across the country. 

I don’t believe they required any BRAC authority to go do that, 

but they were able, on their own volition, to take efficiencies there. 

Mr. SMITH. Thanks. 

A related question, and just, if you want to comment on it, you 

may. You mentioned the commissaries. You mentioned some of the 

stuff locally. I mean, frankly, most of this stuff that we are looking 

at, when you say, you know, we want to reform it, BRAC is a very 

good example of what we run into. 

We asked the question, you know, why don’t we reform it. And 

at the end of the day, it is because of, you know, politics in a lot 

of cases. People don’t want jobs lost in their district. They don’t 

want things moved. 

So, I mean, if we are going to do this, we are all going to have 

to figure out some process for saying we are going to bite the bullet, allow the DOD to have greater efficiency despite how it may 

impact our individual districts. Yes, I understand the fantasy of 

that comment, but I think it is important, because everything we 

are doing here is going to run into that brick wall. 

Even if we could all agree that there is one particular agency 

that, you know, has 5,000 people working at it, it is a total waste 

of money, we ought to do it elsewhere, it is going to be the mother 

of all fights, because those 5,000 people are somewhere, and some 

group of people are going to fight for them. 

But on the commissary issue, and there are a number of issues 

like this, that are basically things that the men and women who 

serve and their families, it is a convenience. It is something they 

like. It is something that they are used to. It is something that improves the quality of their lives in their belief system. 

Do you really think there are areas within that, like commissaries and elsewhere, that we could get to? And if so, how do 

we get to it in a way that convinces the service members and their 

families that this is okay, that we have a better option that is not 

going to negatively impact your life while we save money? 

Mr. LEVINE. You may remember that a few years ago the Department proposed to eliminate the commissary subsidy and Congress 

said no. 

Mr. SMITH. I do. 

Mr. LEVINE. After that we were able to work out with you and 

with your approval and with legislation an alternative course, 

which we hope, if it is successfully implemented, will reduce the 

subsidy without reducing the benefit to service members. 
12 

So that, to me, is an example of the kind of reform that you can 

do being cognizant of the benefits that you are providing without 

removing those benefits but still to provide them more efficiently. 

Just to take just a minute on the defense schools, my recollection 

is that the defense schools in the United States, we spend about 

$300 or $400 million a year, something in that range is my memory. For that price, we get extraordinarily good schools. 

The DOD schools match up very well against the better school 

districts in the country in terms of performance, and they are doing 

it with a sensitivity to the needs of service members and their children, who move frequently. 

And so just the fact that they are defense schools means that 

they are more understanding of what kids are going through with 

their parents’ absence and with their parents in combat situations. 

They provide a tremendously valuable service. 

When we looked at that, the general consensus was, if we got rid 

of the defense schools, we were going to have to provide an almost 

equivalent subsidy to local school districts around the country. So 

the savings would not be $300 or $400 million a year; it would be 

maybe some fraction of that, maybe a quarter of that or something. But for that $100 million, say, a year of savings, you were going 

to lose all the special capabilities provided for the defense school. 

So it is not just a matter of politics. I mean, there is a real value 

to some of these things, and a real value to the benefits that we 

provide to our service members and what they do for us in terms 

of recruiting, retention, quality of life for service members. 

So it is easy to say, you know, if it weren’t for the politics, we 

would get rid of it, but you have got to remember that there is a 

real value that we are providing as well. 

Mr. SMITH. Thank you for making that point. That is really all 

you need, and that is exactly—what you just said is what I will say 

about that. A lot of times the savings looks big upfront, but then 

you have got to factor in everything that you just said. And I can’t 

say it any better, so I won’t repeat it. 

But I think you are right. The commissary model is the model 

that we are going to have to go through, and this is how can we 

do it in a way—forgetting the politics for a moment, like you said— 

there is a real service that is being provided. 

So we are going to have to work very, very closely with the communities and with the service members to figure out, you know, 

how can we balance this out in a way that is going to make sure 

that the benefits are the same and the savings actually is realized. 

With that, I yield back. Thanks. 

The CHAIRMAN. Mr. Wilson. 

Mr. WILSON. Thank you, Mr. Chairman. 

And thank you, Chairman Mac Thornberry, for addressing this 

important matter of the 4th Estate which manages a significant 

portion of the defense budget and represents oversight responsibilities of a large number of civilian and contractor workforces with 

roughly an annual budget of $100 billion. 

And, Mr. Levine and Mr. Dunlap, thank you both for being here 

today. 

And even before I begin, Mr. Levine, I appreciate you commending the DOD schools and the sensitivity to military families. I feel 
13 

the same is being done with commissaries with a sensitivity and 

support of military families and giving opportunities for not just 

having the conveniences of home worldwide but also providing for 

military family members, spouses, to have employment understanding that they could be rotated out. And so we are really fortunate to have systems in place that are so positive and meaningful 

for morale and welfare. 

And for both of you, what is your assessment of the successes or 

failures of the past efforts to reform or render more efficient the 

4th Estate of the Department of Defense? And especially I would 

like for you to begin with the description of the 4th Estate for the 

benefit of observers of this hearing. 

Mr. LEVINE. So the 4th Estate includes the Office of the Secretary of Defense, the defense agencies and field activities. Most 

people would also include the Joint Staff and the combatant commands. So that is sort of what you are talking about when you try 

to get your arms around the 4th Estate. 

That oversimplifies it though, because, as Mr. Dunlap and I have 

been describing, those defense agencies are incredibly diverse and 

perform a wide range of missions. I can’t say all of them are essential to the Department but many of which are essential to the Department, many of which are directly related to warfighting. 

I think there have been repeated efforts to get at the management of the 4th Estate. Most every administration takes that on 

at some point because most every administration is under budget 

pressure. I mean, we have gone through sequestration. We know 

what budget pressure is around here, but it is not new to the Department of Defense. 

My view is that each of those reform efforts has made a contribution. I look at DLA as an example. DLA today is a completely different entity from what it was when I first visited DLA in the 

1990s, and it was this huge, unruly mass that was barely managed. 

I think that improvements have been made over the years, but 

I believe that management reform is a continuous responsibility. It 

is something you can never leave, and every new leadership cadre 

needs to focus on it because it is not something that takes care of 

itself or that you are ever done with. 

Mr. DUNLAP. Great description of the 4th Estate. I completely 

agree. Just the one large thing that results in one of the frustrations, which is if you do reduce a mission and you end up not seeing the efficiencies or the savings, it can be quite frustrating, both 

for the Department and Congress. 

So, you know, sometimes you can do these and to make a decision to reduce an agency. And the Department has done this in the 

past as well, and it is kind of like squeezing a balloon. You move 

it over here; it just reorgs and shows up somewhere else. So keeping track on when you decide to cut an organization, reduce or 

eliminate, making sure that that, in fact, happens holistically. 

And in past efforts it sort of stops there without being able to 

track the ultimate completion of those actions and direction. So it 

is an effort that isn’t an instantaneous result. It is going to take 

time and oversight. 

Mr. WILSON. And in line with your balloon analogy, how frequently does the Department assess the roles, functions, and rel-
14 

ative value of the defense agencies and field activities that comprise such a significant element of the 4th Estate? Each of you. 

Mr. LEVINE. I think the Department is always looking for cuts 

in 4th Estate and efficiencies in the 4th Estate. I am not sure that 

it does a bottoms-up review of is this mission still needed in the 

way you are describing as often as it should, and I think it is something that can always be used. 

Mr. DUNLAP. I think, you know, legislatively I think 2 years, sort 

of biannual type of report and assessment is required. That said, 

every year for the President’s budget and program and budget review they are part of that process and evaluation. 

In terms of a holistic review, the closest and nearest one that I 

am aware of was the 2013 review that Secretary Hagel oversaw. 

And I am not sure about years prior. 

Mr. WILSON. And really quickly, the GAO, Government Accountability Office, has assessed many of the cross-enterprise business 

operations of DOD, Department of Defense, as high risk due to 

waste, fraud, and abuse. Is that what you believe has occurred? 

Each of you. 

Mr. LEVINE. The GAO has assessed all of DOD as high risk due 

to waste, fraud, and abuse. I am not sure that the defense agencies 

are any different from the rest of the Department in that regard. 

Mr. WILSON. And thank you very much. My time is up. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Mrs. Davis. 

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

I certainly appreciate your efforts here in attempting to reform 

the defense agencies. Tough thing to do, and I think you all are 

speaking to that. Of course, we don’t have the advantage of having 

that draft and neither do you, but I think trying to look ahead now 

and see where are those instances in which you have seen some 

successes in doing this and those areas in which you think that 

perhaps the intent was a good one, but in the end it wasn’t able 

to achieve the required results. 

So I look forward to getting into this and seeing how we can do 

it in the most inclusive way. What have you seen in terms of models, perhaps that is BRAC in some ways or other reorganization attempts, that you think we should be looking to to try and really 

reflect here in our discussions? 

Mr. LEVINE. BRAC goes to facilities. Facilities aren’t the only 

things we pay for. 

Mrs. DAVIS. Right. 

Mr. LEVINE. We have a couple of other things that we need to 

look at. Basically the other category, you buy things, you buy—you 

have facilities, and you have manpower. If you are not focusing on 

things—because we are not talking about the acquisition system. 

That is a whole different issue. 

Mrs. DAVIS. Yeah. I think—— 

Mr. LEVINE. You are really focusing on manpower and how can 

you save manpower. That is military, civilian, and contractor. You 

have to look at the total force. 

Mrs. DAVIS. Yeah. 

Mr. LEVINE. So there are issues you can look at about the balance of the total force. Military tends to be much more expensive 
15 

because we have to train and retain and so that we have a lifetime 

investment in military. If we are using military for functions that 

could be performed by civilians or contractors, that is probably not 

a good idea. There is analysis that can go into that. 

Mrs. DAVIS. Mr. Levine, if I may, is there an organization or 

really a process that you think has been a good model? And I am 

thinking of making sure that people who are on the ground, who 

know this stuff and work with it everyday, are included as well as 

those who have fresh eyes on the prize, essentially. 

Mr. LEVINE. So a model I would offer you is what we use for 

looking at service contracts, which is an important area to look at. 

We had throughout the Department something called Service Requirement Review Boards, SRRBs—they are sometimes called contractor courts—where the leadership of an agency or an entity, 

service, systematically reviews its own service contracts and requires a bottoms-up justification for what they are spending on 

service contracts. 

And so the people who were responsible for those contracts have 

to come in and present, this is what I am spending and why I am 

spending it. That SRRB process started in the services. When I was 

DCMO we expanded to the defense agencies to make sure that they 

were under that same kind of review. But that model of the contractor court, the SRRB, is something that can be applied, I think, 

to other areas of the Department as well. 

Mrs. DAVIS. Uh-huh. Mr. Dunlap, would you agree with that? 

And do you get people that are willing to say, you know, listen, we 

don’t need this? 

Mr. DUNLAP. So I think the important thing—and I think you 

might be alluding to this—is talking particularly to the people both 

that run the organizations and the beneficiaries of the organizations and outside perspectives as well. 

That was extremely valuable in the review that I was involved 

in. And I found, depending on the particular leader at the time, 

some actually quite open to talking about where they could see 

their organization being more efficient and effective yet were limited, for a variety of reasons that have been mentioned here, outside and inside the Department. 

And so I think that has been excellent. I think there are good 

examples, like DARPA, with technologies that are a great idea of 

what the defense agencies are about. 

Mrs. DAVIS. If I could stop you because I have so little time, how 

do you see doing this within healthcare management? I mean, I 

know this is a really difficult one in terms of hierarchies within the 

different services. Is that a good model? Is that something—how 

would you do it to really get to where we want to go? 

Mr. LEVINE. I am not always convinced that Congress is the best 

mechanism for defense management reform because you need to 

have hands on within the Department to get it right and to do the 

details. And so I am a skeptic sometimes of defense management 

reform. 

But the healthcare area is actually one where I would urge the 

committee to keep hands on. I think that the Department is going 

to be unable to come to grips with this by itself without direct pressure and direct oversight from Congress. I just think that the orga-
16 

nization is big enough and dysfunctional enough that it is going to 

be hard for the Department to overcome that. 

Mrs. DAVIS. And one other question. Yesterday we had a hearing 

really looking at the culture of innovation, and one of the concerns 

is all the requirements, processes, and the many layers of people 

who really want to express their opinion. So how do we help and 

reform the 4th Estate knowing that that is going to be an issue? 

Mr. DUNLAP. I will just offer, you know, I used the example of 

DARPA, Defense Advanced Research Project Agency, and organizations like that, that have the flexibility. They exist in the 4th Estate as the defense agency, and yet, due to leadership, passion, vision that they have, and risk-taking, they are able to cut through 

a lot of that. Strategic Capabilities Office is another one. So supporting organizations like that doing the mission that the Nation 

needs is useful for the committee. 

Mrs. DAVIS. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Turner. 

Mr. TURNER. Thank you, Mr. Chairman. 

Mr. Levine, I appreciate your description. As you were giving a 

list of all the things that we are going to be executing in the Department of Defense with civilians that are not what people consider bureaucracy, I basically heard you describing many of the 

functions that are at Wright-Patterson Air Force Base, which is in 

my district. 

And I too believe we need significant overhaul of processes in the 

Department of Defense and areas to find savings. I served as 

mayor of my community and had to do that in my own bureaucracy 

and organization. 

But you made a pretty important distinction, which is how do 

you preserve—this is just not just a civilian workforce issue versus 

a uniform workforce issue. It is a function. How do you preserve 

from a legislative perspective what is coming from Congress in trying to address issues of civilian personnel and not hurt those functions? 

Because we all know what a bureaucrat is, right. A bureaucrat 

is not an accountant. It is not an engineer. It is not a scientist. It 

is these functions that you have that are being executed. There is 

a product. I am not quite certain how you would carve that out. 

Let me give you some examples. Air Force Institute of Technology is at Wright-Patterson Air Force Base, all the graduate programs for the Air Force. There are programs that no other college 

or university has, many of which are classified programs. 

Air Force Research Labs are based at Wright-Patterson Air Force 

Base, scientists, engineers. In addition to being a civilian workforce 

that manages materials, sensors, UAVs [unmanned aerial vehicles], 

they also oversee the university research portfolio of the Air Force. 

Life Cycle Management Center, which oversees a portion of depot 

maintenance and looks to contractor oversight, has to have engineers, scientists to oversee contractors. And, of course, the bidding 

process is they also have the foreign military sales aspect and have 

the interface with those—with our military counterparts. 

Human Performance Wing, scientists, engineers, how we marry 

our men and women in uniform to technology and also issues of, 
17 

you know, physiological episodes that we are having. We send it to 

those engineers and scientists. 

So how do we take those things—you know, NASIC, National Air 

and Space Intelligence Center, 3,000 people, largely civilians that 

are specialists in missiles and what our counterparts are doing, 

how do we look at trying to streamline and pare bureaucracy but 

make certain that we don’t impact those functions that are actually 

being executed as missions of Department of Defense, or in this 

case the Air Force, that are inherently going to be civilian functions? 

Mr. LEVINE. Thank you for that question. 

In response to the last question or one of the last questions, I 

was saying that I thought the Department needed to be hands-on 

with health care but you can be too hands-on in the management 

area. At the end of the day, management is going to be a leadership task within the Department of Defense. You can’t manage the 

Department of Defense from here. 

So what I think that the committee can do and constructively is 

to set goals, make sure those goals are reasonable, and that enough 

time is provided to be realistic that you may implement it. If you 

have unreasonable savings expectations, you are going to have irrational action. But if you have reasonable goals, reasonable timelines that will keep the pressure on the Department. And you can 

have the senior officials at the Department come over, you know, 

establish plans, come over and brief you on that. 

Mr. Dunlap did that in his time. I did that in my time. I think 

you need to keep the pressure on that and keep the oversight of 

that. But the management, the hands-on management at the end 

of the day needs to be done within the Department, and there is 

no substitute for leadership. 

What they have got to do is they have got to get into the nittygritty of how processes work, what organizations look like, and 

where there are inefficiencies or where there are unnecessary 

tasks. And that is just not something that you can do in legislation. 

You have to do it really with a hands-on management style. 

Mr. TURNER. Thank you. I yield back. 

The CHAIRMAN. Mr. Langevin. 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

I want to thank our witnesses for being here today. And let me 

start with Mr. Dunlap. In your statement you provide four categories by which to think about agencies and potential reforms. So 

I am particularly interested in the last two categories, agencies 

with missions split between the 4th Estate and the services and 

those with decentralized missions. 

So responsibilities for artificial intelligence [AI] and hypersonics, 

I believe, fall into both these categories. Can you elaborate further 

on how you would think about reforming the agencies currently responsible for AI and hypersonics so that we achieve and sustain 

world leadership in each of these areas? 

Mr. DUNLAP. Thank you for the question. 

I think, you know, those are a couple areas, hypersonics, artificial intelligence, that this Congress recognizes is important both to 

today and in the future. The reason why I mention it is that what 

can often happen is that each entity is trying to do the right thing 
18 

in and of themselves, but, as Mr. Levine mentioned, leadership 

focus can be important to drive innovation and change throughout 

a large organization like the Department of Defense. 

And so I offer those not as thoughts for increasing bureaucracy 

and overhead but instead to maintain both vision, passion, excitement, and energy, and resources on those capabilities. And so those 

can take place both in the 4th Estate as well as in the services. 

I mentioned intelligence agencies, satellite developers, things 

that in the past defense agencies were created to be able to do good 

things to achieve efficiencies, gain greater effectiveness by working 

together. And so I think that is an important tenet. Whether or not 

organizational change is a part of that is a separate question. 

Mr. LANGEVIN. Thank you. 

So yesterday in this same room we held a hearing on innovation, 

and both witnesses detailed how we essentially have good people 

working within a tricky system, and that ultimately we should 

place more of our focus on outcome rather than resources—I am 

sorry, rather than processes. 

Do you agree, or do you feel that there are elements within the 

defense field activities and combat support agencies that require 

existing processes to achieve the desired outcome? 

Mr. LEVINE. My view on defense innovation is that a huge part 

of the issue that is too often overlooked is money, resources. Are 

we putting our resources in the right places to promote innovation. 

If you want to do what the Department says they want to do 

now, which is to try lots of things and be willing to fail, you don’t 

want to be doing that in your acquisition programs. I don’t think 

any of us want to see a major acquisition program where we are 

investing $50 billion fail. That is not where you try something and 

fail. You need to try and fail before you get there. 

The problem that I see in the way our acquisition system works 

is that the way you get defense development dollars in large quantities is you start a program. Until you have a program, you have 

nickels and dimes and try this and try that. But if you want the 

big money for development, it is going to be in a program. Well, 

once you put it in a program you can’t afford to fail. 

What we need to do, to figure out a way to do, is to have big dollars out there, substantial investment that we make that is separate from weapons programs so that we can be running prototypes 

and tests and experiments where we can try lots of different things 

and be willing to fail, that is not a part of programs where we can’t 

afford to fail. 

Mr. LANGEVIN. Good observation. Thank you. 

Mr. Dunlap, do you have anything to add on that point? 

Mr. DUNLAP. I will just add, I think one of the most interesting 

comments that I heard, you know, yesterday was, you know, that 

we don’t reward people for failing. We shouldn’t for wrongful failing, but when you are failing for taking risks, failing early and fast 

to be able to achieve the greatest effectiveness, we ought to be rewarding those people in the bureaucracy. 

Mr. LANGEVIN. Yeah. I completely agree. 

So support agencies to the Department of Defense play critical 

roles in addressing the needs of the Pentagon here at home and 

around the world. And while I support looking holistically at our 
19 

reform efforts in saving money through efficiencies like headquarters reductions, new technologies, and business practice efficiencies, I also believe that we must tread lightly before rapidly cutting 

these programs. 

Where is the sweet spot between preserving these entities and 

making tough cuts so that we can maximize efficiencies and 

streamline our efforts? 

Mr. DUNLAP. I am not sure there is a sweet spot that is known, 

which is why it should be done carefully, understanding both the 

pros and cons and impacts of each choices, which is why, you know, 

I would recommend, you know, a conversation with the Department and the agency heads about what we can—what can be done, 

what can’t be done, and how to move forward so that that sort of 

illuminated through those conversations. And, of course, you can’t 

ever quantify enough the value of strong leadership of those organizations, too. 

Mr. LANGEVIN. Thank you both. 

The CHAIRMAN. Dr. Wenstrup. 

Dr. WENSTRUP. Thank you, Mr. Chairman. 

Thank you, gentlemen, for being here. 

One quick question: Is the 4th Estate, I assume, it is part of the 

DOD audit that is taking place? 

Mr. LEVINE. Yes, sir. 

Dr. WENSTRUP. Okay. So, Mr. Levine, I want to get into a process 

perhaps. You said many times that we can find savings. You said 

that, I think, two or three times at least. And I would certainly 

agree with you. So what percent of the budget do you think—do 

you estimate could be saved? 

Mr. LEVINE. It depends on what you are willing to give up. I will 

give you an example since you just mentioned audit. If I were the 

master of the universe, I would give up the audit; $5 billion over 

5 years, I would say it is not worth it. 

Dr. WENSTRUP. Well, that may be for the 4th Estate, but I don’t 

know if that is the same throughout the DOD. This is the first 

audit in the history of America of the DOD, so I am hoping that 

we see some benefits from that. 

Mr. LEVINE. If we had a chance of being successful, I suppose I 

might agree with you. But I would say that we already know the 

problems that—the deficiencies we have in our financial systems. 

We know what we—we know we have a long laundry list of things 

that need to be fixed. And until we fix them, we are going to continue to fail audits. So to spend $5 billion over 5 years auditing 

when you already know what the results can be, to me, is not a 

useful expenditure of public funds. 

Dr. WENSTRUP. Well, I can’t say that I know what the results are 

going to be, but bravo to you for knowing what the results will be. 

But it is hard for us here to really decide what could be cut without 

the advice from experts, those that are in the trenches. 

Mr. LEVINE. I am sorry. I shouldn’t have been so flip. I just put 

that out as an example of something that people don’t want to cut 

but there is a lot of money there. And that tends to be the kind 

of thing that we see if we really want to save big money. 

We have to make a tough decision, say we are just not going to 

do something that we would like to do, but it is too much money. 
20 

And so that kind of judgment about what is it we are willing to 

give up is something that I think that members of this committee 

have to reach for themselves. No expert is going to tell you what 

you are willing to give up. 

Dr. WENSTRUP. Well, so audit aside, let’s go back to process of 

what we are trying to do today. Mr. Dunlap, you talked about peanut butter spread type of cuts, you know, just making it 10 percent 

or whatever it may be across the board. 

But what if agency leaders were tasked with the notion that if 

you had to cut 10 percent, what would that look like and where 

would it be, what would it be, why would it be, and then confer 

with Congress and appropriators, et cetera, on where we may need 

to go with that? Would that be an appropriate process to put into 

place? 

Mr. DUNLAP. So the Department, as I understand it and certainly when I was there, looked at things like that. And I think it 

is always good to pressurize the system to come up with solutions 

and choices. 

You might get a suboptimal solution there in the end because 

with that approach you are also looking only within the individual 

organizations themselves. And to have a large impact in terms of 

savings or efficiencies, I think you want to think about sort of holistically across the missions. 

And you may not want to give a 10 percent cut to agencies that 

are, you know, optimal, efficient, and highly effective. And so I 

would just suggest some flexibility in that to be able to pressurize 

the Department as a whole to find out not only where they are 

going to take those efficiencies but perhaps even an opportunity to 

apply those resources in a more effective manner so there is a—— 

Dr. WENSTRUP. Well, but that is my point too, to what you just 

said. I am just asking you to say, if you had to, what would that 

look like. Then we would decide does it need to be done or can it 

be done and still produce the results that we want to produce. Do 

you see what I am saying? 

So why not have a process where we challenge people to say, 

well, if I was forced to do it, this is what I would do? And then we 

take a look at it and say, well, is that realistic? Should it happen? 

Or maybe somebody comes back and says, I can cut more than 10 

and still function well. But challenge ourselves to that process so 

that we begin, because what is the optimal way then, you know? 

If either one of you want to answer. 

Mr. LEVINE. I think you are right that you need to set objectives, 

and I think that is where Congress can play a role. And there is 

no science that is going to tell you what the sweet spot is, but you 

have got to use your best judgment and decide what it is. 

I think that you have to watch out for if you are going to tell everybody, tell me what you would cut and come back and I will decide. You get what they used to call gold watching. Somebody will 

come back and tell you their most valuable programs. This is what 

I have to cut. And obviously you can’t do that so you don’t do anything. You need to watch out for that. 

But I think that in terms of setting goals, my personal view, 25 

percent is way more than you are going to get. But you have got 

to have some goal or the Department—because the Department can 
21 

justify everything it does. There is no activity that takes place in 

the Department where somebody can’t explain to you that there is 

a good reason for it. 

So if you want to get cuts, you are going to have to set some kind 

of goal that will get you some pressure to identify what the lowhanging fruit is. 

Dr. WENSTRUP. Thank you. I yield back. 

The CHAIRMAN. Ms. Shea-Porter. 

Ms. SHEA-PORTER. Thank you. And thank you both for being 

here. 

I was a military spouse, and my husband actually grew up in the 

military, so I am always very sensitive when I start to hear the 

word ‘‘cuts’’ or looking at any programs that military communities 

benefit from. 

And I have to say, Mr. Dunlap, that reading the testimony when 

you talked about the big-box stores are a 15-minute drive away, I 

started to think about the people that I knew in the military who 

didn’t have a car, so that 15 minutes might as well have been an 

hour because it was not accessible. 

So that just brings it right down to the ground level of what we 

are talking about when we are looking at these budgets and how 

they actually have impact. And so I just wanted to throw that out 

there and say that there is a community there that needs to be 

heard. 

We are sitting here—and I am so grateful for both of you and 

what you have done in the way you have outlined this and the testimony is excellent, but it still has an impact. And those kinds of 

stories might not be told if there isn’t somebody sitting here who 

actually has been in the military or been in a family that can say, 

yeah, but we don’t have a car. Or yes, but it may only be a half 

of 1 percent savings when you go to a commissary but still that. 

And the other thing I wanted to say, and I recognize that we 

have responsibilities and fiscal responsibilities here, but it does 

seem like it is a small fraction of the overall budget, and I am looking at the personnel and the impact. 

My husband talks often with others about what that was like to 

grow up on different military bases. And that is why I appreciate 

your comment, Mr. Levine, about the schools, that they had to 

move to places they had never been, but they always had one kid 

that they had come across somewhere. So for all of the moves, and 

back then they were frequent, I think more frequent moves for 

many families, there was somebody that they could identify with. 

My mother-in-law taught in the DOD schools and they were excellent. They were a source of pride. So what I am talking about 

here is community, that when we look at the dollars we also have 

to talk about what constitutes a community. 

We know in our own communities when we choose neighborhoods 

to live in, we say, well, you know, where are the stores, where are 

the access points for our children, what is their comfort level in 

schools, et cetera. 

So I would just urge us, as we take out our pens to do budgets, 

that we remember, again, that these are people who get moved frequently, who leave family, who leave their support systems. And I 

know you know this, but I want to state it again. 
22 

And that it is so important for them, wherever they land, that 

they have a sense that they are in a special community and that 

we don’t inadvertently chip away from that sense of belonging to 

a community and being part of that. 

So, Mr. Levine, I want to ask you something about that. You 

know, the strength of our militaries obviously are people, and it is 

predicated on the recruitment, the retention of the men and the 

women. And they need to know that their families are always in 

good care and safe. 

These spouses and children who form the backbone of every 

member’s career depend on those services by these 4th Estate 

agencies, such as DOD Education Activity and the DeCA [Defense 

Commissary Agency]. We know that that is pretty critical to them. 

So are there any analysis of the impact on recruitment and retention and any impact on family finances and stability as we are 

looking at this? I heard you say earlier that we haven’t really had 

any recent studies on just simply the cost. What about the cost on 

these families and our ability to recruit and retain? 

Mr. LEVINE. There are studies of impact of compensation changes 

on recruitment and retention. There are models that some of the 

think tanks have, that IDA [Institute for Defense Analyses] has, 

that RAND has, that will predict what the impact on recruitment 

and retention is of a change in compensation. 

Those don’t tell you what the impact is on an individual family 

from some of these benefits. You know, the one family—or the family that doesn’t have a car and needs to walk to the commissary 

and can’t shop otherwise. So it doesn’t tell you about personal impacts. It tells you about aggregate impacts. But we do have studies 

that tell you that, that provide that kind of information. 

Ms. SHEA-PORTER. And is it your belief that if we go after these 

programs or we in some way find, you know, small reductions or 

large reductions, that it will have that impact on, not just quality 

of life—obviously, we are talking about the quality of life—but also 

on actually retaining. 

Mr. LEVINE. So I believe we need to be very sensitive to changes 

that impact the quality of life. 

Having said that, I think that there are very few things that we 

do in the Department that we can’t do better and more efficiently. 

So I don’t see any reason to put something off the table just because it deals with quality of life. We can still be more efficient. 

We can still do things better. 

I mentioned in my opening statement the Defense Human Resources Activity, which used to report to me as Acting Under Secretary for Personnel and Readiness, it is a notoriously inefficient 

entity. It provides vital services. So you have to deal with both of 

those things. You don’t want to cut off the services and programs 

that it runs, but you want to have it run better. 

I was privileged to be able to name a new Director for DHRA, 

who is taking management reforms seriously and I believe will reorient it and make it run better. That should eventually result in 

savings, but it is a hard job, because if you want to produce savings 

without eliminating activities, you need to look into the details of 

how your organization is set up, how your processes work. 
23 

Those are hands-on management activities that can only be done 

by a manager within the Department. You can’t do that from Congress. You can only set the goal. 

Ms. SHEA-PORTER. Right. And I appreciate that. 

Mr. Dunlap, would you like to comment on that. 

Mr. DUNLAP. I would just like to say that I appreciate your underscoring the truth, I think, in general about these agencies, 

which is that it is really hard to get a free lunch. There is always 

an impact to get real savings out of any of these organizations. So 

thank you. 

Ms. SHEA-PORTER. Okay. Thank you. And, again, I thank you for 

the work that you have done because it is critical, and we understand our debt is pretty out of control and that we need to do something. I just want to make sure we target, you know, the right 

budget and the right places, instead of inadvertent impacts on military families and communities. 

Thank you, again. 

The CHAIRMAN. Mr. Gallagher. 

Mr. GALLAGHER. Thank you, Mr. Chairman. 

Gentlemen, thank you both for being here today. I appreciate it. 

And I know you sort of talked about this broadly in your testimony, 

but I think it is worth sort of reviewing a little bit and foot stomping, or at least for me it would be useful. 

Obviously, we have had various efforts in the past at streamlining the 4th Estate, and you have been involved in a variety of 

them. And I just, you know, we have talked about the ‘‘More Disciplined Use of Resources’’ review in 2012, the Core Business Process Review of 2014, the delayering initiative 2015, on and on. 

Could you distill for me what you think we have learned from 

these collective efforts on how to embark on successful reform efforts? What was the source of failure? What was the source of success? If you could just kind of distill it down into the bottom line 

for me, that would be very helpful. 

Mr. LEVINE. I will give you one thought, which is, in my view, 

in management reform, you get what you pay for, not only in terms 

of dollars but in terms of time. 

Top management has to be willing to devote a lot of time and 

stick with an issue in order to make it work. 

Mr. Dunlap, when he did the SCMR [Strategic Choices and Management Review], he had to spend, I am, sure vast amounts of 

time. When I was DCMO and I had my savings initiative, the delayering initiative that you mentioned, among others, that was 

something that was a solid commitment of a big chunk of my time 

every day over the course of a year. 

Mr. GALLAGHER. Sure. 

Mr. LEVINE. And it had to continue after I left. I hope it continued after I left, but you can’t take your hands off the wheel and 

expect it to happen. And you can’t expect savings to magically appear. Frankly, you don’t expect much savings in the first year. 

Mr. Dunlap mentioned with BRAC that there is the 10-year payback period. With most management types of savings, you are investing upfront. And maybe it is just the time and effort of management that you are investing upfront, but you have to invest upfront in order to get payback in the long run. 
24 

Mr. GALLAGHER. Sure. 

Mr. DUNLAP. If I could just augment that. I appreciate that. 

Three things: Number one, strong leadership, which my colleague 

just mentioned, vital through the duration. Second, watch the balloon. I talked about squeezing in one area—— 

Mr. GALLAGHER. Sure. 

Mr. DUNLAP [continuing]. And it moving to another. And, third, 

and perhaps the most difficult for both Congress and the Department, which is the tough decisions to cut or reduce or completely 

eliminate missions. And that often is the difference between sort of 

marginal savings and significant savings but, of course, more difficult choice. 

Mr. GALLAGHER. And I commend your testimony for drawing out 

sort of how difficult it is to cut mission relative to cost but how the 

two are related. 

Another thing that seems to come up is a lot of these reform efforts are baked into the FYDP, so we expect savings redistributed 

out to support other priorities in the out-years. So can you just 

kind of, again to foot stomp this, how has DOD planning been impacted by these kind of phantom savings that are projected in future years but sometimes do not appear? 

Mr. LEVINE. If you put a wedge in the DOD budget of savings 

that are anticipated and then they don’t appear, what happens is 

you have to cut something else. And what you usually cut something else ends up being operations and maintenance. And operations and maintenance can impact every phase of your activity 

and your ability to perform the mission. So, if you put in savings 

and they are not achieved, at the end of the day, you are going to 

impact mission. 

Mr. DUNLAP. I will just add that it is tough for any company to 

run if you don’t have realistic projections of what you are going to 

do and what you are not going to do. So you want to be realistic 

in your planning and budgeting. 

Mr. GALLAGHER. And then, if we just kind of look at, even if you 

adjust for inflation I believe, and you compare what we are spending today versus the 1980s, we were spending less during the 

Reagan building in the 1980s and getting more in terms of quantity. 

Now, you could say that, just as my iPhone cost more than whatever people were using back in 1980s, I don’t know, I was like 5 

years old, you are paying more for a more sophisticated piece of 

equipment, but I do think what we are talking about today is the 

way in which other priorities have crowded out a lot of the things 

that we want to spend money on, which is to buy lethality and sort 

of support the direct mission of the Department of Defense. 

Among those many things, it seems health care, just like it is affecting the rest of society and crowding out other priorities, is affecting DOD. As you look at the many problems we face, does 

health care stand out among the rest of them as an area where cost 

continues to outpace inflation and it is crowding out other priorities? 

Mr. LEVINE. Health care is a big block, which makes it attractive 

to look at when you are looking at trying to be more efficient. To 
25 

me, the place you will look for a lot of savings is not big blocks but 

little chunks. 

An example I would give you is something the Department is 

undertaking right now, which is just to look at all the training programs, mandatory training that they require the troops to put 

through. Just an extraordinary expenditure of time, which is not 

going to military training but is going to awareness training of 

this, readiness, you know, prep training for that. Sort of every program that everybody has ever thought of, it is great to think that 

you are going to train people, but when you have 15 different requirements and you have to go through this training and that 

training and the other training, you are distracting from the mission. So that is one example. 

Another example I would give you is when I was the DCMO, I 

looked at the hiring process for the Office of the Secretary of Defense. Everybody knew it was dysfunctional, but they just lived 

with it because it was what the hiring process was. 

One of the things I discovered was it was, one of the reasons it 

was dysfunctional was because, at some point, the personnel authority had been removed from the individual offices, centralized, 

which is great, except then what the individual offices did, each of 

the Under Secretaries then put their own personnel people in because they didn’t trust the central function. 

And what happened was they spent all their time negotiating 

with each other. So it would take months and months and months 

just to get a position description because the guy who was working 

for the Under Secretary for X would put together a position description, and then he would have to negotiate with the personnel 

people over in WHS [Washington Headquarters Services] about 

whether he was allowed to say that. And they’d go back and forth 

and back and forth over a period of months before they’d even get 

a simple position description written. 

So you have to think about consequences of your actions. Sometimes you centralize; sometimes maybe centralizing isn’t such a 

great idea. And you have to get into the nitty-gritty of processes 

like that. And I had an approach that I was taking to untie that 

knot, but you can’t do that without analyzing the actual process 

and digging in. 

You don’t expect great savings, but if you never look at processes 

like that, then everybody does what they did with the hiring system, ‘‘Well, it is just something I have to look at, something I have 

to live with.’’ If nobody looks at it and nobody takes it on, that will 

stay that way forever. 

Mr. GALLAGHER. Thank you. 

Mr. DUNLAP. I will just offer to you the Defense Health Agency, 

somewhere around $34 billion, it is 25 percent or so of the 4th Estate defense agency cost. You know, the Congress has done a lot 

to work on that and reform that, you know, in recent years as well. 

I agree with your assessment that personnel costs have increased 

dramatically recently, and that could be, you know, that could be 

good if we have good people. That may make sense. But health care 

is certainly one of those areas that has increased at a rapid rate. 

Mr. GALLAGHER. Thank you both. 

The CHAIRMAN. Mr. Veasey. 
26 

Mr. VEASEY. Thank you, Mr. Chairman. 

I want to ask both of you about your assessment on the role of 

civilians and military personnel and contractors in performing the 

work of the 4th Estate. And do you think that we have the right 

proportion of each of them to do the work of defense agencies and 

field agencies? 

Mr. LEVINE. Military, civilian, and contractors are all vital parts 

of the DOD workforce. 

We rely on all of them, and we need all of them. They perform 

different functions, and we don’t always have it right. There are 

some functions that we put military people in which could really 

be performed by civilians and contractors and would be much less 

expensive. 

There are also functions that we have contractors performing 

where we really need to have organic capability and we cannot and 

should not be relying on contractors. And you need to have that 

ability in-house. 

Your civilian workforce tends to be your institutional knowledge, 

and if you divest too much of your civilian workforce and lose that 

institutional knowledge, you may lose the ability to do the job. 

So it is not that any one of those parts, components of the workforce is more important than the other. They all have their roles, 

and we need to keep a balance. And, no, I can’t tell you that we 

have it right. I think that that is an area which is ripe for re-examination, not only now but at all times. We need to constantly be on 

top of that to try to make sure we are perfecting that balance. 

Mr. VEASEY. I wanted to specifically ask you about what you 

think the appropriate relationship of the newly created Chief Management Officer to the defense agencies and field activities should 

be, especially as it relates to the Department’s cross-enterprise 

business functions, like civilian resource management, or service 

contracting? 

Mr. LEVINE. I believe that the CMO, the Chief Management Officer, can play an important role in providing common services and 

ensuring that common services are provided in an efficient manner. 

I am much less convinced that the CMO should be in the direct 

management chain for the defense agencies, for a couple of reasons. 

One is, that, to me, one of the big advantages I had when I was 

DCMO, the predecessor to the position, over other senior officials 

in the Department, was that my day job was less burdensome. The 

routine tasks of the office didn’t fill up my inbox. So I had time and 

ability to get into a management improvement program, to take on 

the issue of hiring in the Pentagon, to take on a $7 billion savings 

program, because my inbox wasn’t always full. 

Most senior officials in the Department, the inbox is so pressing 

that they have maybe 5 percent of their time is discretionary that 

they can spend on their own initiatives. 

My concern with the CMO being in direct line of authority over 

defense agencies is that that could overwhelm the office, that it 

could overwhelm the individual, and then, all of a sudden, that 

time that the CMO has to develop management initiatives that cut 

across the Department, you no longer have that time and ability. 

The second concern I have is that I am not sure that the CMO 

right now has the institutional capability, that that office has the 
27 

institutional capability to do that. There about 100 people in the 

CMO office and most of them have relatively routine jobs. They are 

not the people you would want to have if you were managing all 

the defense agencies. 

So, if you are going to give the CMO that task, the first thing 

the CMO is going to want to do is to build up new capabilities. Essentially, you will be building a new office and a new bureaucracy. 

I am just not sure that that is the direction that you want the 

CMO to go. I won’t tell you it is the wrong thing to do. There are 

other factors that weigh in the other direction, but those are my 

concerns with putting the CMO in the direct line of authority. 

Mr. VEASEY. Thank you very much. That is very good to know. 

Thank you, Mr. Chairman. I yield back my time. 

The CHAIRMAN. Mr. Jones. 

Mr. JONES. Mr. Chairman, thank you very much. And thank you, 

gentlemen, for your research, your hard work, and being here today 

to give us, hopefully, some ideas to make DOD more efficient. 

You know, recently in Stars and Stripes, there was an article 

written that DOD could not locate 95,000 vehicles in Afghanistan. 

That equaled out to about $3.1 billion lost. 

Okay. One other story, and then I have a question. Years ago, 

John Sopko testified in front of the Senate that DOD spent $6 million to buy nine goats. Well, it is almost the end of it. Nobody ever 

picks up to say: Well, how are we going to recover the money? How 

are we going to recover the vehicles? It just is endless. 

My question to you, because you are an expert in the areas that 

you are talking about today, why do we in Congress keep increasing the budget? I am all for the warfighter. He or she deserves 

whatever we can give them. But the system itself continues to 

spend and spend in a way that there is no accountability. 

What would be wrong with putting the responsibility in the Office of the Secretary of Defense—it wouldn’t happen overnight, but 

in a period of time—and saying to the Secretary of Defense: You 

have the responsibility for accountability. If you cannot account for 

95,000 vehicles in Afghanistan, then we are going to take $3.1 billion out of your budget. 

How does Congress—and I have heard some your comments, I 

was late getting here, sorry, but some of your comments—how do 

we put the responsibility? It can’t be on Congress, because we will 

always continue to fund the military because of the families and 

the warfighting. That, I understand. I am in favor of that. But 

somewhere along the way, somebody has got to be accountable. 

And I don’t think it is going to be Congress, to be honest with 

you. I think we have done a great job under Democrat leadership 

and Republican leadership of trying. But until you put one Department or one person overseeing the problem, and that person knows 

if we can’t account for moneys that we have lost, then we are going 

to lose money from Congress the next year. 

How can we, as the American people, not Congress, how can we 

get a control of the waste, fraud, and abuse if sombody is not held 

responsible? 

Mr. LEVINE. Congressman, I suppose that, in a way, we are all 

responsible. Before I went to the Department of Defense, I spent 

better than a quarter century working for Senator Levin and help-
28 

ing write legislation and addressing defense management, so I suppose that makes me responsible and accountable. 

I don’t know, I don’t know how you do it, other than to say that 

the idea that you do it by cutting the defense budget, to me, doesn’t 

work. If you are unhappy with performance, you have got to go 

after that performance, but to say you are going to take away $3 

billion, well, that is going to come right out of the mission and undermine the mission. 

So I don’t know what the right answer is, but I am pretty sure 

that is not it. 

Mr. DUNLAP. I will just offer, and I think you alluded to some 

of this, which is a theme that we had been talking about, which 

is strong, you know, leadership, both at the top and throughout 

and accountability. 

So I certainly underscore the need to have people that oversee 

this in a way that care about the mission, care about accountability 

and waste and abuse and fraud and so on, and that action should 

be taken. I can’t speak to the specific examples that you are referring to, but in general and in principle, I think the Department of 

Defense certainly wants to be accountable and not have those types 

of activities happen. I can’t point to a specific reform the defense 

agencies that would affect that, but appreciate that we certainly 

don’t want those kinds of things to happen. 

Mr. LEVINE. Having said that I was accountable, I want to clarify: I never bought any goats. 

Mr. JONES. Well, I am going to close in 1 second. 

It is almost like you are saying there is nothing we can do about 

it. And that is sad for the taxpayers because we are headed for a 

financial collapse as a country. Then we won’t have any money to 

pay the troops. Anyway, thank you. 

Mr. LEVINE. If I could offer a ray of hope there, I think you can 

do something and it is what you are doing right now. 

You can hold hearings. You can shine spotlight. You can identify 

problems. And the primary tool that Congress has to hold senior 

DOD officials accountable is to bring them in here and make them 

explain what they have done and why. And believe me: It has an 

impact on the way senior officials at the Department manage. They 

know the power that you have, and they know, if they screw up, 

they are going to have to come in here and report to you on it. 

Mr. JONES. Thank you very much. 

The CHAIRMAN. Mr. Norcross. 

Mr. NORCROSS. Thank you, Chairman, and thank you for having 

this hearing. Although it feels like de ́ja` vu all over again, especially 

to you who spent so much time. 

Over the past month, I have spent a considerable amount of my 

time going through a couple of programs that we are running. The 

Columbia class, and certainly our warfighters in terms of dealings 

with ships. And chart after chart is talking about the workload of 

the workforce building those ships—there is going to be a downplay; we are going to have to lay off people and then rehire them; 

and how tough it is to keep that quality workforce—which I have 

to agree with. But it doesn’t seem that we have that same conversation when we are talking about eliminating or downsizing 
29 

parts that affect the quality of life of our warfighters, whether it 

is schools, the commissary. 

People by their nature are inefficient at times. They get sick. 

They are humans. And this seems that those who don’t have the 

paid lobbyists tend to get hit the worst. What sort of analysis do 

you do in terms of the human side, how it affects our warfighters 

and their families when they go home? Gee, the commissary was 

closed; we have to drive down the street. That quality of life that 

affects the decision making whether or not they want to remain in 

the Armed Forces. 

How do you go through that side of analysis, because you have 

extensive analysis when it comes to the efficiency of building something. How about building the human side of the quality of life for 

our warfighters? How do you handle that? 

Mr. LEVINE. Congressman, that is the responsibility at the OSD 

level of the Under Secretary of Defense for Personnel and Readiness, has an entire office that looks at those functions and tries to 

protect them. 

Within each of the military services, we have an Assistant Secretary for Manpower and Reserve Affairs who has that responsibility. 

On each of the service staffs, we have a Deputy Chief of Staff for 

Personnel, the one who is responsible for that. At the base level, 

we have base commanders who are responsible for that. 

We have people throughout the military system who are responsible for the well-being of people, of the men and women in uniform. 

Mr. NORCROSS. We fully understand, but how does it come to 

you. 

Mr. LEVINE. It is and has been and will be a major priority for 

the Department of Defense. I don’t think it is a responsibility the 

Department takes lightly. 

Mr. NORCROSS. But I don’t hear you discussing that today until— 

whether it was, Ms. Shea-Porter, that side of the equation. How do 

you deal with that? Just, oh, we can save 10 percent; that is a nice 

goal to go for. 

Mr. LEVINE. I believe that my colleague and I have tried to emphasize that, as you look at potential cuts, you have to think about 

the programs that are going to be cut and you have to make 

choices and understand the impacts of your action. 

I still believe, even so, that there are things that we can do more 

efficiently, that we can run our business more efficiently, we can 

run our business more efficiently even in the personnel area, even 

when it comes to quality of life. 

I am not convinced that the Human Resources management of 

the Department is efficiently run. I believe, without having done a 

detailed study—but I believe that we have an extraordinary number of human resource officials in the Department at every layer 

of the organization. And there may be so many of them that that 

is an overhead factor that could be looked at. 

So I don’t want to say, that deals with quality of life, that is off 

the table. We need people who care about that. We need people 

who work on it. We need to maintain quality of life. We need to 
30 

pay attention to that, but it doesn’t mean we can’t do it more efficiently. 

Mr. NORCROSS. Nobody has argued with that. So let me ask you 

a very direct question. 

Do you think that warfighters and their families, say, are 

happier in their service to their country than they were 10, 20 

years ago? Do you any quality-of-life measurements across the entire organization? 

Mr. LEVINE. There are quality-of-life surveys that take place regularly in the Armed Forces. I can’t tell you what—— 

Mr. NORCROSS. Do you know if they are more satisfied with what 

they are doing today than they were 5 years ago? 

Mr. LEVINE. I can’t tell you offhand what the trend is over the 

recent period. I don’t know. But I know that those surveys are 

taken and that information is—— 

Mr. NORCROSS. You certainly could tell us the inefficiencies of 

many of the other programs. 

Here is one of the most important—I am not digging just on you. 

I am trying to suggest that is as important as sometimes some of 

the classes of submarines we buy or ships we buy, whether or not 

those people who call the military their home or their community 

is just as important. 

Mr. LEVINE. Congressman, I am going to agree with you. It is not 

only as important; it is more important. Our most important asset 

is our people. 

Mr. NORCROSS. Thank you. Mr. Dunlap, do you have anything to 

add? 

Mr. DUNLAP. I will just underscore Mr. Levine’s last point, which 

is, I think the Department’s people are its most effective capability, 

and that should always be held in mind. It is hard to analyze sort 

of the hearts and minds and perspectives of people sort of in a 

quantitative, analytical fashion. And so—— 

Mr. NORCROSS. And by the way, it is not hard to measure. It is 

measured every day. It is called the retail outlets. They know exactly what people want. And I think we can know that information 

also. 

I yield back the balance of my time. 

The CHAIRMAN. Mr. Russell. 

Mr. RUSSELL. Thank you, Mr. Chairman. And thank you, gentlemen, for being here. There is an old adage that says that which is 

not inspected is not done. 

I would find that to be true. And I think, in many cases, when 

we look at the Department of Defense on the personnel side, you 

have got people actually that are involved with units, that are involved with programs, and they generally will try to clean up their 

individual agencies, much like you did when you were working in 

the five-sided building. 

But I have to say that there is a solution here. And when you 

look at the Department of Defense: $700 billion annually is the 

norm now for its budget; $2.4 trillion in assets; 3 million Americans 

both in and out of uniform committed to defending our Republic, 

and yet only 1,700 Department of IG [inspector general] staff oversee all of that. 
31 

Well, there is part of your solution: that which is not inspected 

is not done. When I was a commander, both on battlefields or in 

peacetime, if I didn’t go down and inspect my equipment or do layouts or look at motor pools or have uniform inspections or do any 

of those things, I guarantee you that all of those things, like plates 

spinning on a pole, they will wobble and they will break. 

And I have to totally agree with my colleagues, Mr. Norcross and 

Ms. Shea-Porter. We are not going to see reform in saving or realize anything close to that by eliminating Mrs. Russell’s ability to 

go buy a can of beans in the commissary. I think that is absurd. 

We have to take care of our people. 

But the big ticket things, you know, why wouldn’t we increase 

and authorize instead of 1,700 Department of IG staff or Department of Defense, why not make that 3,400. That would cost a lot 

less than your audit concerns. 

Really? Eliminate the audit? Do you realize that the Department 

of Defense is the only agency ever in the United States Government that has never been audited, held to absolutely no account? 

I am a retired warrior. I still got a little fight left in me. But we 

need an audit. That which is not inspected is not done. 

Here are a few things: Payment to grantee verification. Yeah, we 

grant all kinds of stuff. Department of Defense improper payments, 

just last year in 2017 accounted for $1 billion of improper payments. I wouldn’t call it low-hanging fruit because we like to eat 

fruit, but there is some weeds that we could pull right there. 

Department of Defense improper payments. Procurement management. Here is from a recent Department IG CIGIE [Council of 

the Inspectors General on Integrity and Efficiency] report, quote: 

Many DOD programs fall short of costs, schedule, and performance 

expectations. As a result the Department of Defense regularly pays 

more than anticipated, buys less than expected, and delivers less 

capability than its contracts require. 

And we have been doing it since we have been wearing tricorn 

hats. 

So how do we stop it? That which is not inspected is not done. 

And so, you know, while I appreciate your comments here, and I 

have great admiration for IDA and so many other great organizations that do so much to promote proper defense of our Republic, 

we have to have accountability. 

We are not going to realize it off of, you know, Ms. Shea-Porter’s 

dependents or, you know, Mrs. Russell being able to buy beans at 

the commissary. We are not going to do it that way. We are going 

to do it by going after these bigger programs. 

And you had made mention, and I agree with your comments, 

Mr. Levine, about the big dollars that get sucked into these programs, and then they are locked in, and it creates enormous inefficiency. And I would suggest to you that, as a Congress, we owe ourselves to bolster programs that DIUx, SOFWERX, Skunk Works, 

things like that where the innovation comes out where you have 

something actually developed, and then it ends up going from, 

‘‘Wow, this works, can we immediately get it fielded,’’ and then we 

just fund it. Those things work. 
32 

Big primes provide big things, and there are lot of implements 

for the things that we come to rely on, but they also buy up innovation and squash it. 

And so I would hope, Mr. Chairman, as we look at the problems 

in the future on the 4th Estate stuff, we could bolster those innovative programs to prevent some of that waste. 

We are all frustrated with it. I even found myself associated with 

Mr. Jones’ comments on Afghanistan today. That is a rare thing, 

being an Afghanistan veteran as well. But he is right. Our overseas 

contingency dollar programs, three biggies right now, where is the 

oversight and accountability? 

Mr. Chairman, I don’t really have any questions, but I would 

suggest that we ought to do everything we can to increase the Department of IG numbers, even double them, and we will get to billions right away. 

Thank you. I yield back. 

The CHAIRMAN. Do you all have any comment? 

Mr. LEVINE. Mr. Chairman, I think those were helpful comments. 

And, frankly, I agree with the point that, if it is not inspected, it 

often doesn’t get done. 

I think that you saw some examples of that with previous management reform efforts at times. And one I would point to is, in the 

1990s, we cut back quality inspection on our major acquisition programs. And what we discovered is, when we cut back the DOD inspectors, the contractors responded by cutting back their own inspectors, too. And so we had quality problems. 

More recently than that, the reason that the DOD Test Resource 

Management Center, the DTRMC, was created because the Air 

Force was neglecting its major test facilities. It was allowing really 

valuable assets to atrophy. It wasn’t putting money into them. We 

created an oversight entity. 

So it is not just IGs who look at things. Other people have that 

responsibility for the inspections and oversight and can bring attention to these kinds of problems and make sure that important 

issues don’t get neglected. 

The CHAIRMAN. Let me just pick up on that for a second. Because 

it seems to me one of the ways we got to where we are, is, okay— 

and I will just take this example: Air Force is neglecting its key 

testings. What do we do? We create another office that is supposed 

to oversee them to make sure that they take care of their test resources rather than hold the Air Force accountable for doing what 

they should have done to begin with. 

And isn’t it true that, over time, that layer after layer, and we 

are as much responsible—‘‘we,’’ Congress—is as much responsible 

as anybody of reacting to a problem by creating a new process or 

a new bureaucracy. 

Do you think I am wrong? 

Mr. LEVINE. I think you are right, Mr. Chairman. I would say 

that, in the case of the Test Resource Management, that the number of people who actually review the budget—to me, budget review 

is a plus. 

The number of people who actually review the DOD budget for 

the MRTFB [Major Range and Test Facility Base] is relatively 

small. I think that most of the budget of that entity is for invest-
33 

ment in test capabilities—science and technology, investment in 

test capabilities, the National Cyber Range Complex. They maintain important capabilities. 

There is a handful of people who review the service budgets. 

And, frankly, that is at the core of what OSD’s job is, is to review 

the service budgets to make sure they are spending their money 

wisely. 

The CHAIRMAN. But there is also a separate DOD entity responsible for independent testing. 

Mr. LEVINE. There is, but it doesn’t have the responsibility for 

the test base, for the investment in facilities, which is what TRMC 

does. 

The CHAIRMAN. Okay. Let me, if I can, just go back to the beginning for just a second. 

My sense is, as one looks out, not only at business but at nonprofit and essentially every sort of organization outside government, the trend in recent years has been flatter organizational 

structure, savings in the back office. The supporting functions of 

the key missions have been reduced or at least squeezed to gain 

greater efficiency so that more resources can go to the core mission. 

And, yet, the Department of Defense, anyway, has not kept up, 

at least to the extent that all the rest of the world has, in that regard. 

Now, do you all agree or disagree with that premise? 

Mr. LEVINE. I would say that I believe that is a constant focus 

of defense management. I believe that was Mr. Dunlap’s focus 

when he was doing the SCMR. That was my focus when I was 

working in DCMO. 

Nonetheless, you are absolutely right. More needs to be done. 

More always needs to be done on this. I would point to the Air 

Force, when the Army was working on its delayering activity, the 

report that came back was that there would be times when the 

Army’s Chief of Staff would issue an order to a subordinate, and 

it would have to go down through 13 different people. And a couple 

of months later, somebody would do the job and then would have 

to report back up to 13 different people. And by the time you 

played that game of telephone, the job that was done was completely different from what the Chief Staff had asked for. 

So, of course, you have to look at that, and you always have to 

look at that because it builds up over time, and it will continue to 

build up over time. If you don’t keep fighting, you are never going 

to get there. 

Mr. DUNLAP. Sir, thank you. I certainly agree with the trend that 

I see in industry. And I think that I completely agree with you in 

flattening the organization can make it more effective. 

I think there is a natural tension between that, as I tried to allude to earlier in my opening statement, where there is a good 

chunk of those agencies in the 4th Estate that are more direct mission than they are overhead function. 

And so looking at sort of the overall budget of the defense agencies and activities as a whole and putting a specific target on that 

and thinking that that can be achieved purely through efficiencies 

and delayering might be optimistic because I think you really have 
34 

to cut into mission, which I commend you for thinking about that, 

in sort of your opening volley that you put out this week. 

So I would just offer that I completely agree with you, but I also 

think to achieve the savings to be able to put towards the warfighter that you are talking about, you know, cuts in missions are 

going to have to be made. 

The CHAIRMAN. Well, let me just pick up on that for just a second. Because even—and I will use Defense Health Agency as an example. Even if you say they are doing their mission, you know, perfectly, which I take your point that they are not, but even if you 

say they are, there are certain supporting functions within that organization, their business practices, their real estate management, 

their logistics, their contracting, their personnel management, and 

those things can be improved across-the-board. 

I mean, we tend to think of it as all our charts do like this, but 

there are some commonalities here across the 4th Estate where 

greater savings and efficiency, as well as compatibility, could be 

achieved. 

That is my premise. Tell me what you think. 

Mr. LEVINE. I agree with you. 

Mr. DUNLAP. I agree. We tried to get to that in 2013 as well to 

dissect overhead versus mission functions. And any new reform 

going forward ought to consider that. So I agree. 

The CHAIRMAN. And to me—I don’t know if it is going to be 25 

percent, but that is a lot of where some of this can come from, is 

in some of that back office. 

Mr. LEVINE. Mr. Chairman, you have two tasks, though. One is 

to separate the overhead from the mission and then to figure out 

how much you can cut the mission. And I think that looking at the 

defense agencies, it is important to recognize that is not the overhead. There is a lot of mission in there. 

The CHAIRMAN. Yeah, no, I understand your point. 

Mr. Levine, I want to just ask you once again, because you talked 

at the beginning about the Defense Finance and Accounting Service. 

One of my suggestions in my proposal is to look at—I know them 

by acronyms, I have got look at exactly, the Defense Contract Audit 

Agency [DCAA] and DCMA—whatever that is. 

Mr. LEVINE. DCMA, and Defense Contract Management Agency. 

The CHAIRMAN. Defense Contract Management Agency, yeah. So 

we have three separate entities that are essentially dealing with finance and accounting, which, as I have tried to drill down, the difference in responsibilities is not always as clear as maybe I thought 

it was. 

Can you comment? Because you talked a lot about DFAS, but 

talk about DFAS in connection with DCMA and DCAA, and I guess 

to some extent the comptroller’s office, in how all that financial 

management—— 

Mr. LEVINE. DFAS works for the comptroller and is essentially 

the finance and accounting, the authoritative finance and accounting entity for the Department of Defense. So they are the ones who 

are responsible for DOD’s books. They have to work with others to 

do that, but they have the accountability. 
35 

DCMA and DCAA deal with acquisition. They don’t deal with finance and accounting, so DCMA is an acquisition support agency. 

They support program managers and contracting officers by doing 

onsite inspection and onsite management of contracting facilities. 

DCAA is a contract audit agency. That is different from what 

DFAS does because what they are doing is auditing contractors. 

They are not doing DOD’s finances. They are looking at contractor 

finances. 

So three separate functions. Three separate agencies. 

The CHAIRMAN. And I guess the essence of my question is you 

believe there needs to continue to be three separate agencies to do 

each of these discrete—or each of these responsibilities? 

Mr. LEVINE. I do because I believe they are discrete responsibilities. This is an area where I think you can achieve efficiencies 

within any one of those, but I don’t think that they can appropriately be combined. 

My particular concern with combining DCMA and DCAA, for example, is DCMA is an acquisition support activity. It is part of the 

acquisition community, working for them. DCAA is an auditor. 

They have to maintain audit independence. If you combine them, 

then you lose the audit independence. GAO is going to say that 

none of their audits are valid. So you have a problem. 

The CHAIRMAN. Yeah. Do you have any opinion on this, Mr. Dunlap? 

Mr. DUNLAP. I think we have actually had, at least in my experience, some successes. So I mentioned DFAS consolidating, on their 

own, some headquarters functions, which is good for efficiency. 

DCMA, you know, is often out there with the contractors, and so 

they will catch things in support of the contractors early, you know. 

DCAA kind of comes in on the back side with the audit. And they 

can actually report out, as they did for me, particular metrics on 

the cost savings that they have been able to find. 

Now, that is retroactively. You know, you would like to get ahead 

of that in the process as well, but, you know, each have their own 

function. 

The CHAIRMAN. Okay. Let me just ask about one other area right 

quick, and that is DLA. And, Mr. Levine, you talked about how you 

believe that DLA has made great strides in improving its management and so forth. 

I am probably like a number of members, and I remember, I 

don’t know, 2 or 3 years ago, a number of news articles about vast 

warehouses, they didn’t know what they had, throwing things 

away, and a number of items that at least called into question their 

ability to manage their inventory and to get items where they 

needed to be on a timely basis. 

I mean, I want you to elaborate a little. Do you think they have 

overcome those problems? But then, secondly, I am also looking at 

commercial companies that I can click on and have something delivered to my front door that day or the next day. The just-in-time 

sort of approach that business is using. 

And so I would appreciate from each of you an evaluation of 

DLA’s ability to meet the military’s needs in the context of the way 

that business has also moved. Understanding, you know, DLA will 

never be exactly like Walmart or some business, you know. I think 
36 

we can all agree to that. But have they kept up at least with those 

trends? 

Mr. LEVINE. So, when I first looked at DLA in the early 1990s, 

they were a mess. They didn’t know where anything was. They 

couldn’t track what they had. They lost things. There were reports 

that things would fall off of trucks, and the truck would arrive and 

they didn’t even know something had fallen off because they had 

no idea what was coming. 

They have made tremendous progress in their own system. They 

have asset visibility systems which allow them to know what they 

have in much greater detail than ever before, pretty much comparable to what is available in the private sector. 

Not only that, they have come to rely on the private sector. So, 

where, in the 1990s, they used to stock things like medical supplies 

and hardware, they figured out 15, 20 years ago, they didn’t need 

to stock those because they could buy them from the commercial 

sector. And not only could they buy them, they could rely on commercial distribution networks so that they could have hospital, 

medical supplies, for example, delivered directly to the hospitals, 

never touched by anybody at DLA. So they are dramatically more 

efficient today. 

I won’t tell you that that means that they don’t have problems. 

They still do have problems. The one that always comes back up 

is the unneeded inventory that they have on hand, the excess inventory. What I would say is there is more work that can be done 

on that, but that is largely a consequence of demand signals that 

they get from the services: I think I am going to need this, and by 

the way, these are critical spare parts, so I have got to have delivery within 30 days when I need it. And they are a unique build, 

so, in a 9-month advance time, you are going to have to have them 

on hand or airplanes aren’t going to fly. 

So you have a lot of stuff that you have to have on hand. And 

then, sometimes, the product is discontinued; you don’t need it anymore, and we are stuck with that on hand. But it is a consequence 

of a need to be responsive, which DLA has, because it is servicing 

military hardware in a way that the private sector doesn’t necessarily have. 

It is not just a matter of avoiding the error in terms of not buying too much; it is at least as important to avoid the error in terms 

of not having a critical part on hand when it is needed. 

Mr. DUNLAP. DLA is an interesting case, not only because it is 

the second largest agency in terms of revenue that it oversees, but 

also sort of historically. So it, at least to my understanding and 

reading, it had not done well, and then it sort of turned its game 

around and started being much more successful in terms of logistics, delivery. It split off DCMA actually from DLA in the nineties 

to focus on logistics, delivery. It gained sort of more efficient, effective notoriety in the Department, and then became, perhaps recently, more of a victim of its own success where it began to be 

asked to take on more and more responsibility sort of outside the 

core logistics and fuel delivery. It provides nearly 100 percent of 

the fuel for the warfighters, for example. 

Mr. LEVINE. And if I could, DLA now provides personnel support 

services. It now buys IT [information technology] systems. It does 
37 

things for other parts of the Department of Defense because they 

have been good at it. And so this is where they get additional assignments that can become a problem. 

Mr. DUNLAP. Yeah, so I think sometimes it is hard when you 

take your eye off the target and forget what your core mission is 

and get diluted. And it, you know, might be time to think about 

those additional missions that were added that could possibly be 

done elsewhere. 

In that sense, I think it might be a victim of its own success. You 

know, that said, I think where it can look to adopt commercial 

practices or use commercial vendors directly is an excellent idea, 

won’t always work getting fuel to your ship in the middle of the 

ocean, but in other cases, it could be the right choice. 

The CHAIRMAN. Well, just two things right quick on that. Number one, I am hopeful that our e-commerce provision, which is on 

the way to being implemented, can assist for basic off-the-shelf 

commercial items. And that can include some medical equipment 

which can provide that delivery. 

Secondly, we are hearing recently about advances in artificial intelligence that can improve predictive maintenance so that you 

don’t have, you know, 10 things on the shelf, just in case. But you 

have a database of evidence that can give you very much higher 

probability of when you are going to need what to repair. 

And my hope is that cannot only make DLA more efficient but 

also, as we move towards additive manufacturing, may also play a 

role. 

Mr. LEVINE. Mr. Chairman, I think you have correctly identified 

the next frontier for DLA. Better algorithms, to predict use and 

identifying, you know, the just-in-time manufacturing with 3D can 

get you out of having to stock parts in some cases. 

So identifying those kinds of uses of new technology is probably 

the direction they need to go. But I still say, for what they are 

doing, they are so much more efficient now than they ever were before, and so much more efficient than a lot of other parts of the Department of Defense that they really ought to be given credit for 

that. 

Mrs. DAVIS. Mr. Chairman, I was just going to say, I think it has 

been, you know, you have been excellent in trying to help us see 

where some of the pitfalls are in moving forward and, at the same 

time, that we need to move forward. And I just want to thank you 

for that. 

I think we want to move in that way very thoughtfully, not rhetorically. You know, I think people are always concerned that you 

can make cuts that may sound good, but a lot of people could get 

hurt along the way. And I think that the discussion today has been 

helpful in understanding that there is a lot more to this. It is not 

as easy as it looks, and, yet, at the same time, it is an important 

thing for us to be doing. So thank you very much. 

The CHAIRMAN. I appreciate it. Actually, that is what I was 

about to say to wind up. I think it is important to acknowledge the 

efforts and the progress that has been made. Both of you-all have 

had part of that. And the folks who work at the Pentagon now are 

looking to take the next steps. 
38 

We, I believe, have a key role in also pushing that along. But the 

purpose of all this is not just to make cuts; it is to have more resources in the hands of the warfighter faster. And as everybody on 

both sides of the aisle keeps reminding me, we don’t have unlimited resources around here, and the world is not getting any safer. 

And if we are going to meet our obligations when facing sophisticated adversaries as well as terrorism as well as the other threats 

around the world, we are going to have to make some of these reforms in order to meet those obligations. 

Thank you both for being here. 

I would just alert members that, in approximately 15 minutes, 

we will reconvene upstairs in 2216 for a briefing on some of the 

management initiatives underway at the Department. 

The hearing now stands adjourned. 

[Whereupon, at 11:52 a.m., the committee was adjourned.] 
A P P E N D I X 

APRIL 18, 2018 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

APRIL 18, 2018 

(43) 

House Armed Services Committee Chairman William "Mac" Thornberry 

Opening Statement 

Full Committee Hearing on: 

Oversight and Reform of the Department of Defense '4th Estate' 

April18, 2018 

Over the years, Congress has focused most of its attention on the military 

services and on weapons and equipment, personnel, and policy issues. We have 

paid relatively little attention to the rest of DOD that make up the "Fourth Estate." 

In fact, one expert has said, "the Fourth Estate is untouched by human hands." Yet, 

this portion of the Department of Defense spends about 20 percent of the budget, 

includes about 25 percent of the civilian workforce, and hires about 600,000 

contractors. 

As we are working to get more value for the taxpayer dollar, to get more 

resources into the hands of the warfighter faster, and to make the Department more 

agile and innovative in facing the wide array of security challenges before us, we 

cannot neglect to examine this large portion of DOD. 

Yesterday, I offered a proposal to make reforms in a portion of the Fourth 

Estate. I look forward to receiving reactions to that legislative text. 

But beyond the specific proposals, I believe that it is essential that we work 

across the entire Department, leaving no stone untumed, to ensure that the 

warfighters have the best that this country can provide and that this enormous 

organization is ready and able to defend our nation. 
44 

House Armed Services Committee Ranking Member Adam Smith Opening 

Statement 

Full Committee Hearing on: 

Oversight and Reform of the Department of Defense '4th Estate' 

Apri118, 2018 

Thank you, Mr. Chairman. l wish to welcome our witnesses and to thank 

them for appearing today. Their expertise will undoubtedly assist us in assessing 

the status of the disparate collection of offices, organizations, agencies, and field 

activities that make up the portion of the Department of Defense that is separate 

from the military services-the so-called Fourth Estate. 

We have a duty to manage our country's resources responsibly in fielding an 

effective military force. I have said many times that we must invest wisely in 

national security and that we must be realistic in managing limited resources. We 

will need to find new ways to realize savings within the defense budget, and, in 

doing so, we will need to scrutinize tradeoffs within the defense enterprise and 

make tough budgetary choices. To an extent, the new National Defense Strategy 

recognizes this need, as it identifies "reforming the Department's business 

practices for greater performance and affordability" as a primary line of effort. 

The idea of searching for savings within the Fourth Estate isn't new, 

however. Since 2010, the Department has engaged in numerous organizational, 

managerial, and business practice reform efforts to establish greater efficiencies 

and to achieve overhead cost reductions. Although these efforts predicted material 

savings, it remains unclear how much money was actually recaptured. It is clear 

that meaningful reform requires long-term commitment. 

Yesterday, the Chairman proposed legislation that would cut the Fourth 

Estate's funding levels by at least twenty-five percent by the end of fiscal year 

2020, while exempting the military services. The Chairman's proposal would also 

target seven entities within the Fourth Estate for elimination, including the Defense 

Technical Information Center, the Office of Economic Adjustment, the Test 

Resource Management Center, the Washington Headquarters Services, the Defense 

Information Systems Agency, the Defense Technology Security Administration, 

and the Defense Human Resources Activity, and it would require plans for 

combining the functions of the Defense Contract Audit Agency and the Defense 

Contract Management Agency and for streamlining the Defense Finance and 

Accounting Services. These would be major changes. 

I commend the Chairman's dedication to departmental reform, and I 

appreciate that his legislative proposal is intended to spark substantive public 

discussion. It raises many significant questions. I am concerned that, in its current 

fonn, the proposal could deprive several critical defense functions of resources and 

sufficient institutional capacity. I look forward to evaluating the Chairman's 

proposal in further detail, and I will work with him to address concerns and to 

improve the Department's mission perfonnance. 

Thank you, Mr. Chairman. I look forward to our witnesses' testimony. 
45 

Statement of Peter Levine 

Former Deputy Chief Management Officer, Department of Defense 

House Armed Services Committee Hearing 

On DoD Management and the "Fourth Estate" 

April18, 2018 

Mr. Chairman, Members of the Committee, thank you for inviting me here 

today to address defense management and DoD's "Fourth Estate" the Office of 

the Secretary of Defense (OSD) and the Defense Agencies and Field Activities 

(DAFAs). The views I express are entirely my own, and should not be interpreted 

as reflecting any position of my employer, the Institute for Defense Analyses 

(IDA). IDA is a Federally Funded Research and Development Center (FFRDC), 

which means that it is considered to be a government contractor. However, I am 

testifYing in my individual capacity as a former Deputy Chief Management Officer 

(DCMO) of the Department of Defense, and as such, I do not have any federal 

contracts or grants, or any contracts or payments from a foreign government, to 

report. 

I understand that the current DoD management team, headed by CAPE 

Director Bob Daigle and Chief Management Officer Jay Gibson, has established 

the ambitious goal of saving tens of billions of dollars through internal reforms and 

efficiencies over the course of the Future Years Defense Program (FYDP). It is a 

worthy objective, but it won't be easy. Getting savings planned and programmed 

is just the first step; the hard work comes with driving through implementation and 

ensuring that meaningful changes are really made. Otherwise, the effort will just 

create a "wedge" in the budget, leaving essential work unfunded and unperformed. 

When I served as DCMO, we established a more modest goal of saving $7 

billion over the FYDP. We were able to achieve the goal through headquarters 

reductions, service contractor cuts, information technology (IT) efficiencies, and a 

new business model for the defense commissaries. We focused our efforts on the 

Fourth Estate, for the simple reason that the Services had their own DCMOs and 

already had their own efficiencies initiatives underway, attacking many of the 

same areas that we were looking at. For example, the contractor courts that we 

established for the defense agencies were modeled on service contract 

requirements review processes that were already under way in the Services. 
46 

There is still plenty of waste and inefficiency to go after, but it is hard work 

to attack it especially after a decade of cuts that have brought "efficiencies 

fatigue" to many of the Department's senior civil servants. As former Secretary of 

Defense Robert Gates explained a few years ago, it is tempting to try to achieve 

savings through arbitrary, across-the-board cuts, but that isn't real reform. "True 

reform," he said, "requires making trades and choices and tough decisions, 

recognizing that some activities are more important than others. It is hard to do, 

but essential if you are to re-shape any organization into a more effective and 

efficient enterprise." 

If you want to make DoD more efficient, you have to understand how the 

Department's organizations and processes work, so that you can figure out how 

things can be done better. For example, I tried to rationalize the OSD hiring 

process, expedite the system for approving congressional reports and 

correspondence, and eliminate bottlenecks in the approval of conference 

attendance for scientists and engineers. I brought in new managers for the Defense 

Human Resources Activity (DHRA) and the Defense Manpower Data Center 

(DMDC) to streamline their organizational structure and bring order to their 

chaotic information systems. Those kind of changes take time to bear fruit, but if 

successful, result in more lasting improvement than arbitrary cuts. 

A couple of years ago, Secretary of the Navy Ray Mabus complained that 

the Fourth Estate had grown like a weed, to the point where it was consuming 

almost 20 percent of the defense budget. "Pure overhead," he called it. In fact, 

DoD spent about $120 billion for the Fourth Estate in FY 2017 roughly 17 

percent of the defense budget. These numbers can be misleading, however. Onethird of the Fourth Estate budget goes to the Defense Health Program. More than a 

third goes to the defense intelligence agencies, the Missile Defense Agency, and 

U.S. Special Operations Command hardly what we usually think of as "pure 

overhead." The $30 billion a year that is left is still a Jot of money, but it's less 

than 5 percent of the total defense budget. 

Large defense agencies like the Defense Logistics Agency (DLA), the 

Defense Finance and Accounting Service (DF AS), the Defense Contract Audit 

Agency (DCAA), and the Defense Contract Management Agency (DCMA) 

perfom1 functions that are needed by all of the military Services. Before these 

agencies were established, the Department ran parallel activities in each of the 

2 
47 

Services, multiplying the overhead and the number of people needed to perform 

the work. The consolidated agencies have the advantage that they are essentially 

businesses, so their leadership is able to focus full attention on management 

activities. The Secretaries of the military departments and the Service Chiefs care 

about efficiency, but they have to worry about a hundred other priorities, covering 

everything from the well-being of the troops to the vision for a future force. 

DLA and DF AS the two agencies that get the most complaints because of 

their size- are among the most efficient entities in the Department. DF AS took 

over more than 300 separate finance and accounting systems and 27,000 

employees from the Services when it was established in the early 1990s. It now 

runs a much-improved finance and accounting operation with a handful of business 

systems and just 11,000 people. DLA absorbed functions from the Services over a 

longer period of time, but managed to go from 64,000 employees in 1992 to 23,000 

in 2014, while dramatically reducing warehouse space and other overhead. That's 

an annual savings of about $6 billion a year in manpower reductions alone from 

the consolidation of the two agencies. 

Unfortunately, not all DAF As are run as well as DF AS and DLA. Three of 

the DAF As that reported to me as Acting Under Secretary of Defense for 

Personnel and Readiness the Defense Health Agency (DHA), the Defense 

Commissary Agency (DeCA), and the Defense Human Resources Activity 

(DI-IRA)- are probably more typical of the average defense agency. I found them 

to be heavy on bureaucracy and not good enough on performance. They are 

underfunded for what they do, but what they do is not efficient. DHA and DeCA 

have embraced congressionally-mandated reforms, while DHRA has a new leader 

who has initiated significant reforms himself. They're on the right track, but they 

still have a long way to go. 

Other defense agencies were established to perform specific tasks that do not 

fall naturally into the purview of the military services. These include the Defense 

POW/MIA Accounting Agency (DPAA), the Defense Security Cooperation 

Agency (DSCA), the Defense Threat Reduction Agency (DTRA), the Joint 

Improvised-Threat Defeat Agency (JIDA), the Defense Technical Information 

Center (OTIC), the Defense Technology Security Administration (DTSA), and the 

Defense Test Resource Management Center (DTRMC). These are not business 

entities, so their leaders and the political appointees to whom they report in the 

Pentagon tend to be more interested in policy than management. r have no doubt 

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that these agencies could benefit from close management oversight and review, but 

their budgets are small, so the potential savings are also small. 

So, is it possible to wring significant additional savings out ofthe Fourth 

Estate? Absolutely, but significant savings are likely to require some radical 

thinking. I would suggest two possible directions for the Committee and the 

Department to consider. 

First, the Department may be able to achieve significant savings by 

increasing the transparency of its working capital funds. You all know the 

principle behind the working capital funds: a working capital-funded activity 

purchases supplies or performs work on behalf of operational customers, who then 

reimburse it for the cost out of appropriated funds. The idea is that the 

reimbursement process makes operational entities the "buyers" more aware of 

costs, so that they make better business decisions. Unfortunately, if prices do not 

appropriately reflect costs, they can incentivize bad business decisions instead of 

good ones. For example, it may appear less expensive for an operational command 

to use "free" military labor rather than paying the fees of a working capital fund, 

but the cost to the Department is likely to be much greater. 

The DoD Comptroller establishes overhead rates for the working capital 

funds with one overriding objective in mind: to make sure that the working capital 

funds break even. As important as it is that the working capital funds do not 

overcharge or undercharge their customers, this system has not done enough 

encourage efficient operations, because the defense agency- the "seller"- is 

guaranteed to recover its overhead and stay in business whether or not its prices are 

reasonable. As a result, DoD customers often believe that they are paying too 

much. This problem could be addressed by establishing customer oversight 

councils which would require the working capital funded entities to justify their 

expenses to their customers and act like public utility commissions to balance 

customer cost concerns against long-term investment needs. Nobody has a greater 

incentive to eliminate wasteful spending than the person who is paying the bills. 

Second, the Department may be able to achieve additional savings by 

increasing the responsibilities of the Defense business agencies and the working 

capital funds in a few key areas. IfDFAS and DLA were able to save the 

Department billions of dollars a year through consolidation, we should be looking 

for other opportunities for similar economies. I would suggest a few areas for 

consideration. 

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First, administrative services. Washington Headquarters Services (WHS) 

was created to handle building and facilities, contracting and procurement, 

financial, human resources, and other support functions for the Pentagon -but 

even in the Pentagon, the military Services continue to perform many of these 

functions on their own. The Defense Media Activity has underutilized website 

hosting, television and audio studios, and other media support capabilities yet the 

Services maintain their own media facilities and capabilities. Considerable 

efficiencies could be achieved by consolidating these activities in a single defense 

agency, which would be responsible for property management, building 

maintenance, purchasing and stocking of supplies, and other support activitiesnot only for the Pentagon, but for all defense installations. 

Second, health care management. This Committee enacted important 

legislation a year ago to restructure the military health care system. You rightly 

recognized that a system developed to serve two incompatible goals -supporting 

the readiness of the military medical force and providing routine peacetime care to 

service members and their families ends up doing neither one well. The DoD 

leadership is working hard to implement that legislation. However, it is hard to see 

how the military medical system can really be efficient as long as it has to support 

a 12,000-person headquarters in four separate medical hierarchies- one each for 

the Army, Navy and Air Force, plus one more in the Defense Health Agency. I 

believe that the Department should be as aggressive as possible in consolidating 

organizations and paring back bureaucracy as it implements the FY 2017 

legislation. 

Third, information technology and cyber activities. The DoD CIO is 

supposed to be in charge of the entire DoD information enterprise, including 

cybersecurity, communications, and information systems. However, most of the 

Department's communications and information systems are actually owned and 

operated by the individual components. As a result, the Services have continued to 

go their own way despite efforts by the CIO to institute defense-wide policies to 

achieve efficiencies through data center consolidation, enterprise licensing, and 

consolidated cloud contracts. The Department saved tens of millions of dollars by 

establishing the Joint Service Provider (JSP) as the single source ofiT services to 

defense facilities throughout the National Capitol area. The savings from a nationwide consolidation could be many times greater. 

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Finally, finance and accounting. DFAS was established 25 years ago to 

consolidate finance and accounting functions previously perfonned by the military 

services, and it has certainly made the functions that it performs far more efficient. 

However, the roles and capabilities on both sides have evolved considerably over 

the last quarter of a century. As a result, it may no longer make sense for the 

Services to ship transaction data to DF AS, so that DF AS can compile financial 

statements, to which the Services then have to certify. The Services now have 

modem Enterprise Resource Programs (ERPs), which they believe could perform 

some of the work currently provided by DF AS at no additional cost. I believe that 

a comprehensive reexamination ofthe relationship between DFAS and the military 

services could result in significant streamlining and improved finance and 

accounting operations. 

I understand that the DoD leadership team has established a series of crossfunctional teams to look at these and other areas. This is an important first step 

toward management reform and infrastructure savings, but only a first step. 

Intense leadership guidance and engagement is essential for a cross-functional 

team to produce useful results. I have no doubt that the mid-level military and 

civilian officials who make up these teams are incredibly hardworking public 

servants. Even so, they cannot be expected to sign off on disruptive changes that 

threaten to restructure organizations, unsettle existing relationships and reduce 

resources without strong and consistent encouragement and engagement from the 

Department's leadership. 

Even if the cross-functional teams come up with solid recommendations for 

management refonns, it will be a huge challenge to implement them. In the 

absence of an all-out effort, a refonn that looks good on paper may amount to 

nothing at all. In my time at the Department, it took me far more time to ensure 

that an initiative was actually implemented than it did to get the approval of the 

Secretary or the Deputy Secretary. Penciling in future budget cuts was not good 

enough: we had to work with the components and insist that they document what 

actions were taken, what contracts were cut, what positions were eliminated, and 

when. 

Mr. Chairman, the new management team at the Pentagon has set incredibly 

ambitious objectives for themselves. If they can achieve even a small part of the 

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efficiencies that they are after, it will be a tremendous victory for the Department 

and for the taxpayers. I look forward to the Committee's questions. 

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PETER LEVINE 

Work Experience: 

2017- Present: Senior Fellow, Institute for Defense Analyses 

2016 - 2017: Acting Under Secretary of Defense for Personnel and 

Readiness 

2015-2016: Deputy Chief Management Officer, Department of 

Defense 

2013 2015: Staff Director, Senate Armed Services Committee 

2001-2003,2007-2013: General Counsel, Senate Armed Services 

Committee 

1996-2001, 2003-2007: Minority Counsel, Senate Armed Services 

Committee 

1995-1996: Counsel, Office ofSenator Carl Levin (D-MI) 

1987- 1995: Counsel, Subcommittee on Oversight of Government 

Management, Senate Committee on Governmental Affairs 

1983- 1987: Associate, Crowell and Moring 

Education: 

J.D., magna cum laude, Harvard Law School, 1983 

A.B., summa cum laude, Harvard College, 1979 
53 

PREPARED SATEMENT 

OF 

MR. PRESTON C. DUNLAP 

EXECUTIVE, NATIONAL SECURITY ANALYSIS 

JOHNS HOPKINS UNIVERSITY APPLIED PHYSICS LABORATORY 

BEFORE THE 

HOUSE ARMED SERVICES COMMITTEE 

llS'h CONGRESS 

April18, 2018 
54 

Introduction 

Preston C. Dunlap 

Oversight and Reform of the Department of Defense 4'h Estate 

House Armed Services Committee 

April18, 2018 

Chairman Thornberry, Ranking Member Smith, and distinguished members of the Committee, it 

is an honor to appear before you today to discuss oversight and reform of the Department of 

Defense 4th Estate and in particular Defense Agencies and Field Activities. Though I currently 

work at the Johns Hopkins University Applied Physics Lab, I am here today in a personal 

capacity. In 2013, I led a review on this topic for Secretary of Defense Chuck Hagel as part of 

the Strategic Choices and Management Review when I was working as the Director of Program 

Analysis and Chief of Staff in the Office of the Secretary of Defense Cost Assessment and 

Program Evaluation office. While I will readily admit that my experience is now slightly dated, 

the principles that were true then, as well as the years prior, are still relevant today. To that 

end, I will walk through 6 false assumptions that plagued the efforts that I was involved in and 

reviewed, in the hope that you might progress more quickly past them in this effort. 

Assumption #1: Defense Agencies and Field Activities (DAFA) are homogenous back offices 

Each of the current 27 agencies and activities was initially created to achieve greater 

effectiveness for missions spanning multiple military departments. These missions vary widely: 

from groceries to geospatial analysis, from cutting edge research to contract auditing, from 

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educating children to engineering, and so on. Though each organization does indeed have a 

"back office," and a few do function as consolidated back offices like Washington Headquarters 

Service, the majority conduct a variety of valuable direct missions for the Department of 

Defense (DoD). 

Assumption #2: The appropriated budget is their total budget 

Using publically available unclassified data, the agencies and activities receive roughly 10% of 

the DoD budget (about $65 billion). Some also receive revenue via Working Capital Funds from 

other DoD agencies, military departments, and individuals that pay them for services. Working 

Capital Funds allow consumers some choice as to where they buy services as well as flexibility 

and agility to respond to pressing needs. All told, they execute roughly 16% of the DoD budget, 

or over $116 billion, but as I mentioned in Assumption #1 each in a different way. 

Assumption #3: OAF As can take cuts and still perform the same level of mission 

In a bureaucracy, it is often harder to cut a mission than it is to cut funding, but of course they 

are related. It is appropriate to take hard looks at doing the same mission or even more for less, 

but if savings are an objective, then tough decisions may have to be made about actually doing 

less for less. For example, commissaries (DoD's grocery stores) and DoD schools provide valued 

services to our military families that can be difficult to find in some overseas areas or remote 

parts of the U.S. That said, in the U.S., roughly 85% of commissaries are within a 15 minute 

drive of a grocery store or "big box" store with full grocery selections. Options for savings here 

might include a careful review of the business case for each domestic store or school. 

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Assumption #4: Peanut butter spread cuts are helpful 

When faced with tough decisions, past reviews often defaulted to a peanut butter spread 

approach to efficiencies, such as multiple years of generic 10% cuts. A better approach is to 

focus on what the nation and DoD need from these organizations and enhance efforts that 

support that vision and take efficiencies in lower priority or obsolete missions. 

Assumption #5: Reorganization is the answer 

Is it wise for the same person to oversee an Intelligence agency, a grocery store, and the Missile 

Defense Agency? Maybe. Our study examined the implications of complete consolidation of all 

agencies under one leader versus grouping them by mission similar to the way they are today, 

and we found it helpful to consider both the personal expertise of the senior leader- could 

they be knowledgeable about all the missions in their portfolio- as well as the benefits and 

drawbacks of remaining aligned by related missions to each 4th Estate principal. 

Assumption #6: It's all about metrics and reporting requirements 

The agencies and activities have been required to provide a biannual report to Congress and in 

the past also produced metrics that were tracked by organizations like CAPE and the, at the 

time, Deputy Chief Management Officer. However, ultimately there is no substitute for strong 

leadership. In our experience, the vision and experience of a leader who understands the 

missions of the particular DAFA or DAFAs they oversee, and the need for greater efficiency can, 

together with oversight and support of Congress, drive the greatest reforms. 

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Potential next steps 

Going forward, any reform efforts might consider these and other lessons learned. Though 

there are many DAFAs to focus on, considering them in 4 categories could help guide efforts: 

• First, the largest agencies that have not recently been reviewed (Defense logistics 

Agency and the Defense Information Systems Agency), 

• Second, missions that might be partially accomplished outside the government (Defense 

Commissary Agency and DoD Education Activity at least domestically), 

• Third, missions that are still split between the 4'h Estate and the Services (Intelligence 

Agencies and satellite development organizations- in these cases in coordination with 

the Director of National Intelligence), and 

• Fourth, those currently decentralized missions that may require increased leadership 

focus given advances in both threat and technological opportunities, such as artificial 

intelligence and hypersonics, which could be accomplished either within existing 

structures like the Defense Advanced Research Projects Agency and Missile Defense 

Agency or with a new office. 

Conclusion 

Ultimately, for any reform to be successful it must be true both to the taxpayer and to the 

talented men and women in uniform who put themselves in harm's way to defend our nation 

around the globe. Thank you again for the opportunity to testify before you today on this 

important topic and I look forward to your questions. 

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