U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

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

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

56–190 PDF 2010

OVERSIGHT OF DEFENSE DEPARTMENT

ACQUISITIONS

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY

AND FOREIGN AFFAIRS

AND THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

APRIL 29, 2008

Serial No. 110–211

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS

JOHN F. TIERNEY, Massachusetts, Chairman

CAROLYN B. MALONEY, New York

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

PETER WELCH, Vermont

——— ———

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

TODD RUSSELL PLATTS, Pennsylvania

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

DAVE TURK, Staff Director

(III)

C O N T E N T S

Page

Hearing held on April 29, 2008 .............................................................................. 1

Statement of:

Sullivan, Michael J., Director, Acquisition and Sourcing Management,

Government Accountability Office; James Finley, Deputy UnderSecretary of Defense for Acquisition and Technology; and David Patterson,

Principal Deputy Undersecretary of Defense for Comptroller .................. 39

Finley, James ............................................................................................. 65

Patterson, David ........................................................................................ 81

Sullivan, Michael J. .................................................................................. 39

Letters, statements, etc., submitted for the record by:

Davis, Hon. Tom, a Representative in Congress from the State of Virginia, prepared statement of ........................................................................ 29

Finley, James, Deputy UnderSecretary of Defense for Acquisition and

Technology, prepared statement of .............................................................. 68

Patterson, David, Principal Deputy Undersecretary of Defense for Comptroller, prepared statement of ...................................................................... 83

Sullivan, Michael J., Director, Acquisition and Sourcing Management,

Government Accountability Office, prepared statement of ....................... 41

Tierney, Hon. John F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 33

Waxman, Hon. Henry A., a Representative in Congress from the State

of California:

Prepared statement of ............................................................................... 20

Staff report ................................................................................................. 3

(1)

OVERSIGHT OF DEFENSE DEPARTMENT

ACQUISITIONS

TUESDAY, APRIL 29, 2008

HOUSE OF REPRESENTATIVES, COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM, JOINT WITH THE SUB- COMMITTEE ON NATIONAL SECURITY AND FOREIGN AF- FAIRS, COMMITTEE ON OVERSIGHT AND GOVERNMENT

REFORM, Washington, DC.

The committee and subcommittee met, pursuant to notice, at

10:04 a.m., in room 2154, Rayburn House Office Building, Hon.

Henry A. Waxman (chairman of the Committee on Oversight and

Government Reform) presiding.

Present: Representatives Waxman, Cummings, Tierney, Watson,

Davis of Virginia, Burton, Duncan, and Issa.

Staff present from the Committee on Oversight and Government

Reform: Phil Barnett, staff director and chief counsel; David

Rapallo, chief investigative counsel; John Williams, deputy chief investigative counsel; Margaret Daum, counsel; Earley Green, chief

clerk; Caren Auchman and Ella Hoffman, press assistants; William

Ragland, Miriam Edelman, and Sam Buffone, staff assistants.

Staff present from the Subcommittee on National Security and

Foreign Affairs: Dave Turk, minority staff director; Andrew Su, minority professional staff member; and Davis Hake, minority clerk.

Chairman WAXMAN. The committee will come to order. Today’s

hearing is this committee’s 10th hearing in this Congress on waste,

fraud and abuse in the Federal Government.

The subject of today’s hearing is weapons acquisitions programs

at the Department of Defense. This hearing was suggested by

Ranking Member Tom Davis, and I commend him for his bipartisan leadership on this important issue.

We are holding this hearing for a simple reason: Weapons programs at the Defense Department are one of the biggest sources of

wasteful spending in the Federal budget. The Department of Defense will spend hundreds of billions of dollars over the next 5

years buying weapons systems needed for our Armed Forces. And

no one questions the need to give our troops the best possible

equipment. But the American taxpayers are footing the bill for

these weapons programs and no one seems to be looking out for

their interests. Billions of dollars have been squandered due to

waste and mismanagement at the Defense Department.

According to a recent report from the Government Accountability

Office, cost overruns in major weapons acquisitions programs now

reach nearly $300 billion. At the same time, delivery schedules are

2

slipping. The GAO says that delays of 2 years or more are the

norm for weapons systems. The contractors and senior defense officials say that some cost increases and delays are inevitable given

the complexity of building new weapons systems. I accept that. But

that doesn’t explain the persistent level of waste and mismanagement that GAO identifies.

In 2001, a GAO report found pervasive problems in weapons systems acquisition, including poor planning, inadequate requirements, unrealistic cost estimates, and the use of high-risk acquisition strategies.

Today, 7 years after that report was written, GAO says nothing

has changed. There seems to be absolutely no accountability to the

taxpayer. Despite report after report documenting mismanagement

in weapons acquisition, nothing seems to improve. The contractors

keep getting richer, senior Pentagon officials keep receiving lucrative job offers, and the taxpayer keeps getting stuck with the check.

In preparation for this hearing, my staff examined in detail one

of the weapons acquisition programs identified in the GAO report,

the Marine Corps’ Expeditionary Fighting Vehicle [EFV]. And I ask

that the staff report on the EFV be included in today’s Record.

[The information referred to follows:]

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

Mr. DAVIS OF VIRGINIA. Mr. Chairman, reserving the right to object, as I mentioned, we requested this hearing with you and you

agreed to it. We are grateful for that. You and I and the subcommittee chairman and the ranking member signed joint invitation letters to witnesses, asking them to be prepared to testify

about broad trends, incentives and challenges present in the defense system’s current acquisition systems for major weapons programs.

The briefing memorandum to witnesses and to Members discussed only departmentwide problems and issues, not any specific

weapons system. So we were disappointed to learn just late last

evening about the decision to release a majority staff report critical

of one specific program: the EFV, the Expeditionary Fighting Vehicle. And even if the EFV is illustrative of some systematic flaw in

the DOD acquisition process, refocusing on that project at the last

minute does a disservice to our Members and the witnesses. It

needlessly injects a ‘‘gotcha’’ element into what should be a discussion of good government.

It was an unexpected and, frankly, an unnecessary departure

from the the wholly cooperative and bipartisan approach leading

up to this hearing. Had we had the opportunity to review the EFV

analysis, we might have been in a position to agree it added a constructive case study around which to build today’s discussion, but

we weren’t given that opportunity. So under the circumstances I

would object to the unanimous consent request to include the staff

report in the record of today’s hearing.

Chairman WAXMAN. I thank the gentleman for his statement,

and I regret his objection to the unanimous consent request. He

has made some good points which we will take into consideration.

And I won’t, at this point, pursue the matter. But I think at some

point in the committee hearing, we will make a motion to include

this in the committee report, which would subject it to a vote, but

I won’t do it at this time.

Mr. DAVIS OF VIRGINIA. And I will remain open to discussion

with the chairman on that.

Chairman WAXMAN. Thank you very much. When the EFV program was launched in 1996, the goal was to build a new state-ofthe-art amphibious tank for use by the Marines, but the program

has been so badly mismanaged that the Defense Department now

says they have decided to start the program over again essentially

from square one.

The story of the EFV acquisition is an embarrassment. Six years

ago, Defense Department auditors called the project a paper dream

and said management does not have a handle on reality. They

pointed out elementary flaws in the Marine Corps acquisition strategy, such as the failure to set a realistic schedule, the reliance on

an expensive test-fix-test approach, and a lack of anyone with overall responsibility for integrating the various components of the

project.

But when a second set of auditors looked at the program 4 years

later, they told us they saw no improvement. They found disarray,

uncoordinated design decisions, reliability issues and a general lack

of planning and status monitoring. A key milestone for the EFV occurred in 2006 when the vehicle was subject to a battery of tests

19

called an operational assessment. The EFV failed miserably. The

prototype vehicles experienced over 600 breakdowns and could operate for only 4 hours before requiring extensive maintenance.

We have obtained a copy of the report on the operational assessment. The list of problems it describes is nearly endless. The vehicles weighed too much. In the water, they could reach cruising

speeds only if the Marines on board left their equipment behind.

On land, the gun turret bent and broke from the stress of crosscountry movement. There was poor crew visibility during water operations, and the driver’s vision was periodically washed out by

water spray. The ammunition feed jammed and crews were unable

to identify vehicle targets. The vehicles were so noisy that the Marines on board had to wear both ear plugs and ear muffs and could

not respond to voice commands.

The contract with General Dynamics to develop the prototype EFVs cost the taxpayers $1.2 billion. But now this investment is

going to be scrapped.

Last year the Marine Corps announced that the EFVs performed

so poorly that the entire system development and demonstration

process would have to be redone. This means additional cost to the

taxpayer of nearly $1 billion or more, and at least 3 more years of

delay.

While the project—and this is only one project we have singled

out—has been a fiasco for the taxpayer, there has been at least one

beneficiary, General Dynamics, the prime contractor. The contract

for building and testing the prototype was a cost-plus contract, so

the company got paid even though the vehicle flunked its tests. Incredibly, General Dynamics even received over $60 million for

its work on the development contract. What’s more, the Marine

Corps says that General Dynamics will now get the new contract

for $700 million to $800 million to build another prototype, while

the signal it sends is unmistakable: No matter how bad a job you

do, there will be no accountability.

As we will learn today, the EFV experience appears to be the

rule, not the exception. The GAO report that will be the focus of

our hearing today looked at 72 weapons programs now underway

at the Department. Not every program was as bad as the EFV

project, but not a single one had followed the best practices recommended by both GAO and the Department of Defense.

We need to find a new and better way to procure weapons for

our military. Everyone on this committee wants our military to

have the equipment it needs to protect our Nation. But we simply

cannot afford to continue to waste hundreds of billions of dollars

on poorly planned and mismanaged weapons programs. And I hope

our witnesses today will be able to help you understand what has

gone wrong in these programs and what steps can be taken to protect the interests of the American taxpayer.

[The prepared statement of Hon. Henry A. Waxman follows:]

20

21

22

23

24

25

26

27

Chairman WAXMAN. I want to recognize Mr. Davis for his opening statement.

Mr. DAVIS OF VIRGINIA. Thank you, Mr. Chairman. Chairman

Waxman and subcommittee Chairman Tierney, I want to thank

you for agreeing to our request to convene this hearing on chronic

and costly problems plaguing major weapons system programs at

the Department of Defense. This is critical oversight that transcends party, as the challenges we will discuss today have been

faced in some form or another by virtually every administration

since the earliest days of our Republic.

The recent report by the Government Accountability Office on 72

large-scale acquisitions once again found most programs’ outcomes

‘‘sub-optimal.’’ Apparently, that’s understated auditor shorthand for

‘‘incredibly bad.’’ In the aggregate, the systems analyzed exceeded

original budget targets by $295 billion and were 21 months behind

schedule.

This committee has spent substantial time and effort probing allegations of malfeasance and wrongdoing by contractors in Iraq and

elsewhere. This GAO report reminds us there are far larger problems on the other side of the ledger, far from the war zone, where

program managers continually fail to follow established best practices to measure the technical maturity and feasibility of these

complex projects. To put these cost overruns in perspective: The $295 billion in cumulative cost growth found by the Government Accountability Office is more than 2,000 times the alleged overage in the State Department’s Baghdad Embassy project which the committee continues to probe extensively. We welcome sustained attention to deeply

ingrained abuses and inefficiencies in weapons system programs already budgeted to costs many hundreds of billions of dollars.

As I have said, the problems cited by GAO—systemic failures to

refine requirements, acquire mature technologies, and capture production efficiencies—are not new. In 1794, Congress authorized

construction of six frigates. In order to ‘‘spread the work among the

several States as equitably as possible and with the greatest political advantage,’’ six private shipyards were leased to carry out the

shipbuilding. The project was soon behind schedule. The six keels

were not laid until the end of 1795, 17 months after construction

had been authorized. Subsequent mismanagement, delays and cost

overruns resulted in scaling back the ultimate requirements to

three frigates. Does any of this sound familiar?

From those frigates to the F–22, that has been the sad history

of weapons systems development throughout our history. In the

modern era, major system acquisition has been on GAO’s ‘‘high

risk’’ list for many years because DOD processes ‘‘have often proved

costly and inefficient, if not wasteful.’’ In 1997, GAO found ‘‘many

new weapons systems cost more and do less than anticipated, and

schedules are often delayed.’’

To address these issues, the Pentagon has convened any number

of task forces, working groups, committees and commissions, whose

reports have resulted in sequential case waves of promised reforms

and layers of ambitious initiatives. But, as cautious GAO auditors

often conclude, ‘‘Challenges remain.’’ Perhaps that’s because DOD

reforms, as well as congressional attempts to tame this inefficient

28

process, have focused too often on symptoms, while overlooking the

root causes of chronic dysfunction in major system development

projects.

This GAO report blames a lack of skilled managers, overuse of

contractor employees, and the tendency to ‘‘gold-plate’’ new designs

with immature technologies for cost, performance and schedule

problems. But we’ve known about these issues in varying degrees

for decades.

Today, we should look beyond the persistent symptoms to the

broader, deeply ingrained personnel and management practices

that can empower, or cripple, complex procurements like these.

Freed from the cold war imperative to beat the Soviets by rushing

into high-risk production of new weapons platforms, we now have

the opportunity to retool the major systems acquisition process.

Technical knowledge and sound management decisions should

drive programs to key benchmarks, not internal DOD budget duels

or military service rivalries.

In this discussion, it has to be acknowledged these are highly

complex, large-scale, inherently risky programs. Commercial and

industrial best practices provide many valuable lessons, but offer

only limited wisdom about packaging and projecting lethal technology across continents. Very often this is rocket science, not an

automobile assembly line, and some measure of budgetary risk,

even the occasional failure, may be an unavoidable cost of doing

this aspect of the Nation’s vital defense business.

This is a government problem. But the major defense contractors

can exploit the system’s weakness as well. If the Pentagon asks for

a gold-plated flying Cadillac, that is what contractors will bid on,

even if both sides of the deal know they are going to get much less

that will end up costing much more. Even companies that should

know better play the game.

The Boeing Corp. is the prime contractor on 16 of the 72 major

systems in which GAO found requirements creep, schedule delays,

or significant cost overruns.

Oversight like this, when consistent and constructive, can help

mitigate those inherent risks while modernizing and improving

major acquisitions at the Department of Defense and throughout

government. We appreciate the extensive body of work GAO has

undertaken on this subject and we hope this will be the beginning

of an extended, in-depth focus by the committee on these issues.

Thank you.

Chairman WAXMAN. Thank you very much, Mr. Davis.

[The prepared statement of Hon. Tom Davis follows:]

29

30

31

Chairman WAXMAN. This is a joint hearing with the subcommittee of our committee on National Security and Foreign Affairs, and

I want to recognize the chairman of that subcommittee, Mr.

Tierney, for his opening statement.

Mr. TIERNEY. Thank you, Chairman Waxman and Ranking Member Davis, both for scheduling the hearing and agreeing to hold it

with the subcommittee. The Government Accountability Office’s report—and, Mr. Sullivan I thank you and your colleagues for it—as

the centerpiece of this hearing is pretty striking and should be reason for concern by Congress and the American people for at least

two reasons: First, the scope of the money that we are talking

about is immense. We currently spend as much as on military as

every other country in the world combined. Last year we allocated

53 percent of all of our discretionary funding to Defense, $549 billion. And that doesn’t even include the $115 billion as supplemental funding for the wars in Iraq and Afghanistan.

As the Government Accountability Office points out, we have $1.6 trillion in total planned commitments for weapons, and in

2007 the Pentagon exceeded original budget estimates by $295 billion.

Second, the Pentagon stewardship of our taxpayer money seems to be getting worse. In 2000 the Pentagon exceeded cost by $42 billion. Now it is exceeded by $295 billion. In 2000 original weapons

cost grew by 6 percent. This year it was 26 percent in growth. In

2000 our average delays in delivering initial weapons capabilities

were 16 months. Now it is almost 2 years. So today’s hearing certainly asks the question whether we are being responsible to our

taxpayers.

In other words when it comes to developing and buying weapons,

are we spending America’s tax dollars wisely? On that front, the

report raises many, many important questions. Why are things getting worse when it comes to cost overruns and delays, especially

when the underlying problems have been known about for years

and years? In other words, why can’t we do better? Why has the

Pentagon failed to meet industry-accepted best practices in any of

the 72 programs surveyed by GAO?

Why do we continually reward contractors, who now make up

nearly half of the work force on these weapons programs. When

they apparently are not delivering on budget and on time?

Is it unreasonable to ask that any proposed weapons systems

have clear expectations, realistic technology, and appropriate testing? Why do we continue to buy before we fly? Tomorrow this subcommittee is going to hold its third hearing on the missile defense

program, which I think exemplifies some of these issues very well.

That is a decades-old program that has already cost taxpayers $120

to $150 billion. And according to the Congressional Budget Office,

it may cost an additional $277 billion over the next 20 years. It has

been plagued by delays and cost overruns and a lack of realistic

testing. Yet we continue to throw good money after bad.

Our core defense budget, that is the defense excluding the hundreds of millions of dollars being funding for Iraq and Afghanistan

has grown by an average of 8 percent per year over the last 8

years. As part of the problem here in terms of cost overruns, the

fact that we currently lack any discipline or any budgetary presVerDate 11-MAY-2000 11:02 Jun 14, 2010 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 U:\DOCS\56190.TXT KATIE PsN: KATIE
32

sures on the Defense budget with these nearly double-digit yearly

percentage budget increases; is there any fiscal discipline being exerted to hold down costs and to make difficult tradeoffs between

what we really need and we can afford versus a system that gives

everybody what they want?

Where is the evidence that the Pentagon or this administration

has any broad strategy for identifying all of the threats or risks to

our security; that is, threats or risks ranging from concerns of penetration of our seaports all the way through acts of terror in foreign

territories that result in any prioritization of defenses to be engaged?

If it is clear that we have that kind of strategy, then let’s have

the joint chiefs of staff in, Mr. Chairman and Mr. Davis, and have

them explain to the American people and show us how in fact there

is any prioritization of weapons system production with those

threats and the realistic likelihood of deployment against the

United States.

Further, let’s see what the cost/benefit analysis is when you compare those weapons systems with the value of other defensive systems that could have been or are being employed, or the need to

strengthen the core of this country; the physical infrastructure and

human capital, for instance.

One gets a sense from reading this Government Accountability

Office report, and those that have preceded it, that the Pentagon

is functioning as if the resources were unlimited and there are no

competing demands existing. Moreover, as Defense Secretary Gates

himself has repeatedly pointed out, national security in the 21st

century must emphasize smart power as much as hard. He stated,

‘‘My message is that if we are to meet the very challenges around

the world in the coming decades, this country must strengthen

other reports of national power, both institutionally and financially,

and create the capability to integrate and apply all of the elements

of national power to problems and challenges abroad.’’

At a time of economic hardship and these myriads of foreign

challenges facing us, couldn’t we find a better way to spend $295

billion other than for weapons cost overruns? Thank you, Mr.

Chairman.

Chairman WAXMAN. Thank you Mr. Tierney.

[The prepared statement of Hon. John F. Tierney follows:]

33

34

35

36

Chairman WAXMAN. The Chair would like to recognize Mr. Duncan for a statement.

Mr. DUNCAN. Well, thank you, Mr. Chairman. And I thank you

and Ranking Member Davis and subcommittee Chairman Tierney

for calling this very important hearing. When I read the front-page

story in the Washington Post on April 1st concerning this situation,

I was disgusted. But I am sad to say that I doubt that anybody was

very surprised by it, although everyone should have been shocked

by this story.

I want to put in the record a couple of paragraphs from that

story that said ‘‘Government auditors issued a scathing review yesterday of dozens of the Pentagon’s biggest weapons systems, saying

ships, aircraft and satellites are billions of dollars over budget and

years behind schedule. The Government Accountability Office

found that 95 major systems have exceeded their original budgets

by a total of $295 billion, bringing their total cost to $1.6 trillion

and are delivered almost 2 years late on average.’’

Apparently there are no fiscal conservatives at the Pentagon. Apparently they believe that the Congress will just keep giving them

more money no matter how wasteful or inefficient they become. Of

course, the International Herald Tribune said a few years ago—had

a major article about the revolving door at the Pentagon, and the

fact that all the defense contractors had hired, I think it was, 300

retired admirals and generals over the previous 10 years so that

most of these contracts seemed to be sweetheart deals in the first

place. But it is really shocking; $1.6 trillion in total costs and $295 billion in cost overruns, and this was just on the major systems. No

telling how much has been wasted on the hundreds of smaller contracts the Pentagon has; $295 billion would run the entire Government of the State of Tennessee, our schools, our health care, roads,

prisons, parks, and on and on for the next 11 years.

Conservatives, above all, should realize that any gigantic government bureaucracy is always going to ask for more money and always find reasons to justify it. And Congress is afraid to cut the

Defense Department for fear of being seen as unpatriotic. Yet it is

a very false and very blind patriotism that allows the Pentagon to

continually waste megabillions and allows the Defense Department

to spend like there’s no tomorrow.

In a few short years we will not be able to pay all of our veterans

pensions and Social Security and all the other things we promised

our people if we do not bring spending under some type of control.

Conservatives, above all, should realize, as Jonah Goldberg wrote

in a recent issue of National Review, that the insight that government abroad fuels the expansion of the State was central to the formation of the modern conservative and libertarian movements.

In other words, perpetual war leads to bigger government and

goes very much against traditional conservativism.

Finally, Mr. Chairman, I would just like to read something that

was in a column in the Washington Post yesterday by Dov Zakheim

and Ronald Kadish. They wrote this. They said, ‘‘The GAO report

lays bare a festering problem in our Nation’s military procurement

system: Competition barely exists in the defense industry and is

growing weaker by the day.

37

‘‘It was a different story just two decades ago. In the 1980’s, 20

or more prime contractors competed for most defense contracts.

Today, the Pentagon relies primarily on six major contractors to

build our Nation’s aircraft, missiles, ships and other weapons systems.

‘‘It is a system that largely forgoes competition on price, delivery

and performance, and replaces it with a kind of ‘design bureau’

competition, similar to what the Soviet Union used—hardly a recipe for success.’’

I think this is a very sad situation that we have at the Pentagon.

And I suppose it will continue. But I certainly am pleased that at

least we are trying to do a little something about it.

And I will ask, again, are there no fiscal conservatives at the

Pentagon? Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you very much, Mr. Duncan.

Ms. Watson, did you have any comments?

Ms. WATSON. Thank you, Mr. Chairman. And I, too, want to join

my colleagues in reflecting on the findings of the recent GAO report which I find very disturbing as well.

The report, as we know, found that the Defense Department’s 95

major weapons acquisition programs currently exceed their original

budgets by nearly $300 billion and are, on average, 21 months late

in delivering these weapons systems to warfighters.

The GAO report concludes that the current underperformance

must be rectified, particularly in light of competing needs from

other military and major nondiscretionary programs. In a time of

declining discretionary spending, the fact that the DOD is not receiving expected returns on large investments in weapons systems

has implications far beyond the DOD, where other government

agencies and departments are competing for increasingly scarcer

resources.

$300 billion in excess spending on weapons systems is a sizable

amount of money that could be put to use for many other competing and worthy projects governmentwide. This is particularly true

in an age of declining discretionary spending where every dollar

not spent optimally translates into less money available for other

budget priorities, both for domestic, entitlement, and other national

security programs.

Mr. Chairman, the GAO Report on Defense Acquisitions notes

that DOD has begun to develop several initiatives to improve outcomes. But GAO notes that there also must be a change in the

DOD culture that led the military services to overpromise capabilities and underestimate costs in order to sell new programs.

If the DOD’s current culture remains in place, it will circumvent

and I believe, ultimately, undermine any new systems that are put

in place to improve outcomes. I am looking very forward to hearing

from our witnesses to see if they can make some sense of this procedure.

Thank you, Mr. Chairman.

Chairman WAXMAN. I turn to Mr. Burton if he has an opening

statement.

Mr. BURTON. Mr. Chairman, I think the defense of the Nation is

one of the most important things that we are charged with in our

responsibilities as Congressmen. And we want to make sure that

38

we have the weapons and the ability and the equipment necessary

to preserve and protect and defend this country.

I am a fiscal conservative, of course, and I want to make sure

there is no waste, fraud and abuse in the Department of Defense,

or at least we keep it to a minimum. So I am anxious to hear our

witnesses today and to question them about this to see if there are

ways we can economize and cut out waste, fraud and abuse.

But at the same time, I think one of the things we ought to keep

paramount in our mind is that the defense of the Nation is our No.

1 consideration. And also we ought to make sure that we don’t

waste any money in the process. Thank you Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Burton.

Mr. Davis.

Mr. DAVIS OF VIRGINIA. Mr. Chairman, you had made a unanimous consent request, and I had raised an objection. I am prepared

to withdraw my objection and make a unanimous consent that the

majority report on the Expeditionary Fighting Vehicle and the

GAO report on the Capitol Visitors Center, just to show that Congress isn’t always great when we do our own procurements, that

both of these be allowed to be entered into the Record to show the

systematic problems we have throughout government.

Chairman WAXMAN. I think that is a reasonable request and I

will certainly go along with it. Any objection? If not, then the unanimous consent agreement is ordered.

Well, we are pleased to welcome Michael J. Sullivan, Director of

Acquisition and Sourcing Management Division at the Government

Accountability Office, James Finley is the Deputy Undersecretary

of Defense for Acquisition and Technology at the Department of

Defense. And David Patterson, the Principal Deputy Undersecretary of Defense for Comptroller at the Department of Defense.

We want to welcome all three of you to our hearing today. It is

the practice of this committee that all witnesses testify under oath.

So I would like to ask if you would please stand and raise your

right hands.

[Witnesses sworn.]

Chairman WAXMAN. The record will indicate that each of the witnesses answered in the affirmative.

We have your prepared statements, and they will be made part

of the record in its entirety. We would like to ask, if you would,

to try to keep the oral presentation to around 5 minutes. We have

a clock that will indicate green while the 5 minutes is going. The

last minute will be yellow, and then red when the 5 minutes has

concluded.

Mr. Sullivan, there is a button on the base of the mic. Be sure

it is pressed in. And we want to hear from you first.

39

STATEMENTS OF MICHAEL J. SULLIVAN, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE; JAMES FINLEY, DEPUTY UNDERSECRETARY OF DEFENSE FOR ACQUISITION AND TECHNOLOGY;

AND DAVID PATTERSON, PRINCIPAL DEPUTY UNDERSECRETARY OF DEFENSE FOR COMPTROLLER

STATEMENT OF MICHAEL J. SULLIVAN

Mr. SULLIVAN. Chairman Waxman and Chairman Tierney, Ranking Member Davis, and other members of the committee, it is my

pleasure to be here today to discuss our sixth annual assessment

of the Department’s major weapons systems acquisition programs.

My statement today will focus on outcomes for the major acquisition programs, what we believe are the reasons for them, and potential solutions, some of which we believe the Department recognizes and is now trying to implement.

With regard to outcomes since we began these assessments in

2000, the number of major weapons system acquisitions has grown

by 20. The total investment has doubled. Cost overruns have increased from 27 percent, on average, to 40 percent. Overall acquisition cost overruns have increased from 6 percent to 26 percent. And

delays in delivering initial capability have increased from 16

months to 21 months.

Our analysis of 72 separate programs reveal the lack of knowledge-based decisions at three critical junctures as some of the

causes for this. For example, 88 percent of these programs started

before required technologies to meet weapons systems capabilities

were ready. Because technology development cannot be scheduled,

neither can the cost of these programs be credibly estimated. A

lack of technology design and manufacturing knowledge at critical

junctures in each program accounts for the additional cost and time

from original estimates to field the weapons system.

There are systemic problems that we believe contribute mightily

toward these poor outcomes. At the strategic level, there are simply

too many programs chasing available dollars. Two key processes in

the Pentagon that precede the acquisition process, the requirement

setting process and the funding process, should be responsible for

ensuring a balanced investment strategy that matches the

warfighters’ needs with available funds. However, they do not work

together very well to ensure that this happens.

The requirements process, which validates the need for a new

program, tends to be stovepiped, meaning each of the services may

offer different solutions to fill the same capability gap. This means

that candidate programs, in order to compete, usually must promise very high, sometimes unachievable performance requirements,

given available resources. They must also promise very low cost in

order to fit into the Department’s funding plan.

Because the funding process starts with overly optimistic cost estimates, problems with cost and schedule are a fait accompli for

most programs. Each program begins with an unmanageable business case: cost and schedule estimates heavy on optimistic assumptions and light on data. Their definition of success is usually to become a program of record with a funding stream attached to it. As

40

a result, programs begin with cost and schedules that are, frankly,

impossible to forecast.

To be sure, problems resulting from a poor match between program requirements and the resources available will quickly cascade

into design changes, manufacturing inefficiencies, quality problems,

parts shortages, and delays to testing that must eventually demonstrate the weapons systems capabilities.

Solutions are available. A well-balanced, well-prioritized mix of

candidate acquisition programs would alleviate the pressure that

each program now faces in winning the competition for funding.

This means the Department must make early hard decisions and

must truly move toward a joint process for validating requirements.

A business case that applies solid systems engineering practices

to properly match a program’s capability requirements with available resources before a program is approved would allow more predictable cost and schedule estimates at the outset of the program.

Finally, rules once a program begins, that require program managers who now, by the way, would be empowered with a business

case that was much more reasonable, to show evidence that technology design and manufacturing knowledge have been achieved at

the right places before moving past critical investment points in a

program. This would bring accountability to each program as it is

executed.

The Department understands all of this and, to its credit, it has

been trying very hard in the past, I would say 12 to 18 months,

very hard to move things in that right direction. However, the

issue is large and complex. We have recommended several ways

that we believe this process can be improved, such as limiting acquisition timeframes and embracing evolutionary knowledge-based

product development processes that would allow earlier fielding of

new weapons systems and then incrementally improving them as

new technologies become mature.

However, as was stated by this committee earlier, the cultural

barriers remain high. The transitory nature of the positions at the

top in the Pentagon that can guide change makes this difficult.

Often, policy does not translate into practice because of this. Significant and lasting change can only take place with greater and

continued support and advocacy from the Department’s leadership

as well as sustained oversight from this Congress. I conclude with

that, and I look forward to any questions you may have.

Chairman WAXMAN. Thank you Mr. Chairman, Mr. Sullivan.

[NOTE.—The GAO report entitled, ‘‘Defense Acquisitions, Assessments of Selected Weapon Programs, GAO–08–467SP, March

2008,’’ may be found in committee files.]

[The prepared statement of Mr. Sullivan follows:]

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

Chairman WAXMAN. Mr. Finley. We will hear from you next.

STATEMENT OF JAMES FINLEY

Mr. FINLEY. Good morning. Chairman Waxman, Ranking Member Davis, subcommittee chairman Tierney, and distinguished

members of the Committee on Oversight and Government Reform

and the Subcommittee on National Security and Foreign Affairs, I

am pleased to come before you today to address the broad trends,

incentives, and challenges present in the Defense Department’s

current acquisition system for major weapons programs. I will also

discuss the report recently issued by the GAO entitled, ‘‘Defense

Acquisitions Assessments of Selected Weapons Programs.’’

I am fully committed to acquisition excellence and the restoration

of the confidence in our leadership for our acquisitions system.

Thank you for the opportunity to appear here today.

The history of acquisition reform for the Department of Defense

covers more than 60 years. The most recent studies of the Defense

Acquisition Performance Assessment [DAPA], the Center of Strategic International Studies [CSIS], and the Defense Science Board

[DSB], serves to assist my preparation for confirmation as the Deputy Undersecretary of Defense for Acquisition Technology by the

U.S. Senate in February 2006.

My perspectives come from industry, with over 30 years of experience in aerospace and defense, have been shaped utilizing that

experience along with the acquisition reform and transformation

initiatives, especially those most recent studies by DAPA, CSIS,

DSB and the GAO reports.

At the time of my confirmation hearing, the consensus seemed to

be that the DOD acquisition process, the DOD 5000.2, was broken.

Once confirmed, we quickly moved to recruit and fill key positions with civilian executives that had significant industry and

military experience and a passion to serve our country. We eliminated a layer of management to tighten communication. We

aligned the organization for better accountability and we improved

the efficiency of our work force within AT&L and OSD, the joint

staff and the components.

After my first 90 days in office, where I listened, discussed, and

reflected on the leadership perspectives of Congress, industry, and

DOD military and civilian personnel, my opinion was that the acquisition process was not broken. We needed to add discipline into

the process and ensure that the basic blocking and tackling in executing the acquisition process was being done correctly. We also

needed to properly scale and tailor processes, where and when

needed, to implement changes that streamlined and simplified

processes, to reduce cycle times to increase competition, and to

broaden communications up down and across with Congress industry, academia, our coalition partners and within DOD.

We developed a 3-year plan, established our vision and strategy,

and implemented goals and initiatives with a sense of urgency.

Today, we are 26 months into implementing that plan.

We are striving for acquisition excellence with a broad set of objectives by using short- and long-term initiatives. These objectives

include: One, enabling decisionmaking for balancing the program

and portfolio trade space with convergence of affordability, schedVerDate 11-MAY-2000 11:02 Jun 14, 2010 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6633 U:\DOCS\56190.TXT KATIE PsN: KATIE
66

ule and performance. Two, getting programs started right with improved upfront planning and awareness of risk. Three, improving

process efficiency with focus on tailored, agile, open and transparent communications with checks and balances. Four, providing

program stability with program management tenure, utilization of

capital funding accounts and configuration steering boards.

These objectives and initiatives are examples, with more examples provided in the semiannual section 804 Congressional Report,

in accordance with the John Warner National Defense Authorization Act of Fiscal Year 2007.

In addition, contracting terms and conditions for weapons systems have shifted over the past couple of decades due to increased

technical complexity, associated affordability issues, and predictable performance challenges. Accordingly, DOD has shifted from

the fixed firm price environments to the fixed price incentive and

cost-plus award, incentive fee structures to motivate and encourage

industry performance.

Our goal is to utilize objective criteria to measure contract performance where incentive structures are being implemented. A

comprehensive analysis of the GAO report 08–467 SP, Assessments

of Selected Weapons Systems, has not been completed. However,

we are developing questions to better understand the report and

work with the GAO.

For example, our initial perspectives of conclusions from the

GAO report are summarized as follows: One, the GAO report opening statement excerpt, ‘‘Of the 72 programs, none of them proceeded through systems development and meeting best practices

standards for mature technology, stable design or mature production processes by critical junctures of the program, each of which

are essential for achieving planned cost, schedule, and performance

outcomes.’’ That statement is not understood.

The DOD drives Lean Six Sigma, continuous process improvement as an example for best practices and best of best practices

with CPI across all our organizations in Department of Defense, including acquisition.

Two, the GAO report opening statement talks about ‘‘The average tenure to date of program managers has been less than half

of of what is called for by DOD policy.’’ The DOD policy is 24

months. The actual average tenure of program managers today

across all services is 23.8 months with an expected tenure of 42

months average. I see I am out of time so I will cut to my summary.

We look forward to working with the GAO to better understand

their data, methodologies, and conclusions associated with the assessments of selected weapons systems.

In summary, measurable progress for acquisition excellence has

been accomplished on a broad front of initiatives. We have traction.

We will continue to improve. Much work remains to be done. A

plan for that work has been established.

67

Chairman Waxman, Congressman Davis, subcommittee Chairman Tierney and distinguished members of the committee, thank

you for supporting our troops. I will be pleased to address any

questions.

Chairman WAXMAN. Thank you very much Mr. Finley.

[The prepared statement of Mr. Finley follows:]

68

69

70

71

72

73

74

75

76

77

78

79

80

81

Chairman WAXMAN. Mr. Patterson.

STATEMENT OF DAVID PATTERSON

Mr. PATTERSON. Chairman Waxman, Ranking Member Davis,

subcommittee Chairman Tierney, and distinguished members of

this committee and subcommittee, thank you for the opportunity to

discuss the Department of Defense’s current acquisition process for

major weapons systems and other concerns arising from the Government Accountability Office’s recent report on this issue.

First, let me make it very clear that we appreciate the mutually

beneficial relationship that the Office of the Undersecretary of Defense Comptroller shares with the GAO as we strive to ensure that

the American taxpayer is well served.

We also appreciate Congress’ frustration with what is quite literally one of the oldest problems in government. And to Ranking

Member Davis’ point it was George Washington, I believe, who first

complained about the ineffective response to his request for cannon

castings. And we have been trying to improve the process for acquiring weapons ever since.

In more than 130 acquisition studies, reviews and evaluations

that have been conducted over the past two decades, most, if not

all of them, found that the key elements in successful programs are

program stability and funding predictability. Instability drives cost

growth. Schedule slippages, and in some cases, failure of the weapons systems to perform as anticipated.

Several initiatives have been cosponsored by the Undersecretary

of Defense for Acquisition Technology and Logistics and the Department to address this problem. But from a Comptroller’s perspective, the most noticeable is the Capitol Funding Pilot Program.

Under the capital funding concept, the Department guaranties a

certain level of funding for a fixed period of time—from Milestone

B, the beginning of system development and demonstration to initial operating capability of the program. Funding is then held at

a guaranteed level by avoiding up-and-down adjustments until the

project is delivered.

When industry and program managers know that the annual

program funding will be provided at a predictable level and that

other aspects of the program, such as unfunded performance or requirements changes are not allowed, there is an increasing probability that the program will be delivered on schedule and within

budget.

To qualify for capital funding, a program must have a well-understood funding profile from Milestone B to initial operating capability, will not be used as a bill-payer by the services or the Department. It will provide by biannual reports to the Congress on cost,

schedule and performance progress, will have a technology readiness level of at least six at Milestone B. It will be time-definite.

Finally, capital funding programs will be canceled if they fail to

make established cost, schedule, and performance objectives three

reviews in a row.

The capital funding concept is being formalized in three pilot programs: The Combat Search and Rescue Helicopter program by the

Air Force, as soon as that program is a program of record; the Joint

High Speed Sea Lift Vessel managed by both the Army and the

82

Navy; and the General Funds Enterprise Business Systems managed by the Army. Because these systems are within the Department’s current authorities, they can be implemented in the neartime term.

Finally, I would offer that this administration has made solid financial management a serious and successful priority. With sound

financial management, successful acquisition program management

is far less likely.

In 2001 critics predicted that the Department would be unable

to turn around its complex management operations. Today, the Department is poised to achieve a clean audit opinion in 2009 on

more than two-thirds of the $2.4 trillion of assets and liabilities—

an extraordinary achievement.

We are on track to eliminate the remaining 18 of the original 116

managers’ internal control weaknesses, and we are lowering costs

and increasing productivity and saving the taxpayer billions of dollars.

The Defense Finance and Accounting Service alone has increased productivity by 52 percent, saving $317 million since 2001.

Audits conducted by the Defense Contract Audit Agency on fiscal year 2007 contracts not only saved the Department $2.4 billion, but

armed investigators with information that recovered an additional

$225 million. These are only a few areas where we have made

progress since 2001.

Whether it is sound financial management or providing the

American taxpayers with the most effective weapons systems acquisition process, the Department of Defense is absolutely committed to the wise and efficient management of resources. The American people deserve nothing less.

Thank you for this opportunity and I am ready to take your

questions.

Mr. TIERNEY [presiding]. Thank you, Mr. Patterson.

[The prepared statement of Mr. Patterson follows:]

83

84

85

86

87

88

89

90

Mr. TIERNEY. I thank all of you for your testimony here. Mr.

Waxman has been called away for a short period of time.

We are going to have initial 10-minute rounds from the ranking

member and the chairman before we move to 5-minute rounds to

the Members.

Mr. Davis, you are recognized for 10 minutes.

Mr. DAVIS OF VIRGINIA. Let me start with our GAO rep. You

state that improving acquisition outcomes will require changes in

environment and incentives as well as improved processes.

Is there anything we in Congress can do to help change that environment that leads the DOD to overpromise capabilities and underestimate the cost of these programs? Or is this basically just executive branch management issues?

Mr. SULLIVAN. I think that the oversight capability that the Congress has is critical to keeping these, the Department on track. But

I think basically it’s the Department. The way we see it is the Department has plenty of funding to invest properly in the major

weapons system acquisitions that they believe they need to equip

the warfighter; and even within that universe within the Department, oversight within there needs to improve significantly.

Probably the bigger problem is between the Department and the

stovepipes that they have to deal with, meaning the acquisition

communities, the various acquisition communities within the Pentagon.

You know, there is an oversight mechanism that these gentlemen

obviously have to take care of. The services all have different solutions that they want to provide in terms of capabilities. And there

are other acquisition agencies in the Department as well. That is

the critical place. I think when you have the parochial nature and

the stovepipes of the acquisition community coming forward, the

oversight that happens within the Pentagon is critical. That is

where hard decisions have to be made. Of course, I think the Congress, your responsibility and your power of the purse, obviously,

is critical to all of that.

Mr. DAVIS OF VIRGINIA. You have mentioned that the DOD often

asks contractors to develop cutting-edge systems under cost-type

contracts, in essence reimbursing the firm for its best efforts rather

than results. Do you think that the Defense Department would be

better served by awarding some of these contracts under fixed-price

contracts and placing more of the risk on the contractor, and do

you think they would get the requisite number of bidders there?

Mr. SULLIVAN. You know, Congressman, that is a very sensitive

issue because of the technical nature, the really cutting-edge nature of these programs. There are a number of reasons I think that

the, cost-plus contracts are important for these major development

programs.

No. 1 is these companies, no matter how well you understand the

technologies for these, there is going to be tremendous risk in moving forward to build a thoroughbred system that is going to meet

all the performance requirements they have. So even integration

risk, which we think is a little more knowable, probably there are

no contractors that would take on that kind of risk with a fixed

price, in a fixed-price kind of environment.

91

But in addition to that, the low volumes and the lack of a market, an after market for products and things like that, just makes

it much easier for contract. If they are going to expend the $20 or

$30 billion that it sometimes takes to develop a weapons systems,

they have to have protection to do that. So we understand that.

The critical thing there is that if you’re going to take on a risky

project like that, the first thing that you want to know is you need

to understand the requirements. And you don’t want to sign that

contract until you’ve done really proper systems engineering analysis, maybe even to the point of prototyping before you would actually begin a weapons systems program.

The way that is done today is many of these programs are started before they even do a preliminary design. You know the requirements process comes out with the needed capabilities, the funding

process, the process that is going to resource that, tends to get cost

estimates, one from the program office that is going to run the acquisition, and maybe another one from the Department of Defense’s

cost analysis improvement group, that are based on very little systems engineering analysis, very little reality. There has not been,

you know, forget about prototypes. They are not even close to that.

So these programs begin without any knowledge about, you

know, the studies that we’ve done in the past, on some of the big

major weapons systems, F–22 or the B–2 bomber long ago, those

programs began and received a funding stream that would allocate

billions of dollars in investments to them over the years, before

they really had any true understanding whether or not they would

ever be able to build that weapons systems.

And so I would say that cost-plus contracting, that is a contracting mechanism that certainly is important here. You have to be

able to keep risk under control for the defense industrial base.

But if you don’t have the requirements, well established, well understood, with available technologies and the funding process has

the available funding stream, this is going to continue to happen.

Mr. DAVIS OF VIRGINIA. I have always felt cost-plus was probably

appropriate in these cases, given the flexibility and changing requirements. But you know what? If you went out fixed price, somebody would bid; they would just be much higher. But given the cost

overruns here, I am not sure that shifting the risk, I think that is

the——

Mr. SULLIVAN. Congressman, an analogy. If you are building a

new house or if you want to buy a new car and you just want a

contract, you expect that there are going to be some cost overruns.

So you’re not necessarily signing a fixed price with them. You get

their estimate and you have an agreement that they’re going to deliver within 10 percent of that perhaps.

Well, if you then ask for, you know, a nuclear-powered furnace

to power the heating and cooling in the house—and what is the

contractor going to say to you? ‘‘That is impossible.’’ Well, in the

Department of Defense they might have a requirement like that,

and the contractor is not in any way constrained at that point to

say, ‘‘You know, we don’t think we can do that.’’ Because it is a requirement that has been put on, it is best effort.

Mr. DAVIS OF VIRGINIA. They always say they can do it don’t

they?

92

Mr. SULLIVAN. They always say they can do it because they have

been released from the cost risk.

Mr. DAVIS OF VIRGINIA. That is part of the problem. I don’t know

how you get at that, but there may be a portion that you can fix

prices on pieces of that or somewhat.

Mr. SULLIVAN. I think those are things that can be looked at, but

the critical thing to me there is not to start that program unless

you have documented you know what you want.

Mr. DAVIS OF VIRGINIA. You know what you want.

We just held a hearing on this, the chairman and myself, on the

Census Bureau with some hand-held computers that jeopardized

the census now, because they didn’t know what they wanted. They

came in with so many changes and it is way behind schedule. It

is not getting what we wanted. This is not just DOD. It has been

going on for a long time. But I tell you what we will spend time

on the floor fighting over $20, $30 million for funding for the arts,

and then you have cost overruns here that go into billions of dollars.

And it seems when government needs to lose weight in a tight

budget, then we chop off fingers and toes, but in point of fact, the

fat is layered throughout the system in the way we do our acquisition in our business processes. And we need to give a lot of focus

to that. And this is just a prime example.

Let me ask this. Your report recommends that DOD holds program managers more accountable. What do you mean by holding

managers more accountable? I don’t think anybody is ever fired

over this. Is anybody ever fired for any of these? Are you familiar

with any managers being fired over these acquisitions? I know you

are paying out, the contractors are getting their fees, their award

fees. But are managers being fired?

Mr. FINLEY. Yes, there are actions taken in the Pentagon to remove program managers from their duties and reassign them. Yes.

Mr. DAVIS OF VIRGINIA. They are reassigned. They don’t lose

their job.

Mr. FINLEY. Well, they are serving their country. They get reassigned to another requirement for the service. They are removed

from their positions.

Mr. DAVIS OF VIRGINIA. Does it happen very often?

Mr. FINLEY. In my short tenure, I have probably seen it happen

more than I have seen in industries in a comparable time.

Mr. DAVIS OF VIRGINIA. What’s the downside? Traditionally,

managers are risk-averse. I understand. That is good or it’s bad.

But, in a case like this, in managing something that’s difficult,

what does a manager do in a situation like that? Do they go upstairs for help when they have to get the change orders? Explain

to me the manager’s perspective on this. Because they are seeing

these things creep out of control. They can’t be too comfortable with

with it.

Mr. FINLEY. I believe Mr. Young is very focused in this area as

well to help facilitate the environment for program managers to

come forward and be far more open and transparent about what

are the real issues. And in that respect, we have done a lot of

streamlining and simplifying of the monthly processes for executive

reviews. For example, risk management of these programs is funVerDate 11-MAY-2000 11:02 Jun 14, 2010 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6633 U:\DOCS\56190.TXT KATIE PsN: KATIE
93

damental to making the proliferation of cost overruns, you know,

a thing of the past. And it is an absolute must-do. And it is an absolute—my opinion—doable.

The programs, in my opinion, should not be starting—a CAT I

one program should not be starting with low technology levels. We

have TRL’s, Technology Readiness Levels that are measured. Programs do not go through Milestone B without a level 6 approval.

We believe that is adequate to start.

Programs in the pipeline that have been cited in the GAO report,

for example, have started with IIs, IIIs, IVs. All of the histories

and all of the stories are there of why these programs should not

started.

Mr. DAVIS OF VIRGINIA. Let me just ask this last question.

GAO reports that a significant increase in the number of major

defense acquisition programs since 2000, huge increase, but the acquisition work force has remained static in terms of numbers. With

this type of program growth and the lack of concurrent increase in

the numbers of acquisition personnel, should we have seen the current growth in the use of contracting support for the management

of these systems? Has that been a problem?

Mr. SULLIVAN. Is that for me?

Mr. DAVIS OF VIRGINIA. It is for all of you.

Mr. SULLIVAN. You know, this year when we did this, this is a

survey we do and we send it out to all these programs. This year

because of interests, congressional interest and the use of service

contracts and things like that, we included a question on how much

of your program office work force is contracted out. The response

we got back, I don’t think that we are prepared to say if that is

good or bad yet. But it is something that seems questionable to us

where the use of outsource contractors is growing and it just is a

trend that we want to keep an eye on.

We don’t have anything, any evidence, that’s good or bad at this

point.

But if I could go back to the program manager discussion, you

brought up the accountability of program managers. The report

that we did, that was another thing we asked in the survey. We

asked—Secretary Finley had the numbers that DOD has, and those

are probably more up to date and more universal than what we

had.

I just want to make it clear that in our report we indicate that

our analysis of that included 39 of these programs that gave us information back on what the tenure was of their program managers.

Of those 39, it was 17 months. But, in addition, the way we hold

program managers more accountable is you give them a better

business case, I think we were talking about early.

I don’t think you can really hold someone accountable for managing risk given the business case of the capabilities that they are

going to need to achieve with the funding that they are going to

be given and the cost estimates that are based on really not enough

data at the time. Not only that, but the timeframes of these programs can be 10, 12, 15 years.

Mr. DAVIS OF VIRGINIA. Let me ask you this. If you are doing a

$25 billion program or $50 billion program and you manage it

94

under time or under budget, what about a bonus system? Does that

make sense?

Mr. SULLIVAN. Yes, I think that would make a lot of sense.

Mr. DAVIS OF VIRGINIA. You certainly would get a bonus if you

were in the private sector.

Mr. FINLEY. Yes, I think a bonus system does make sense. I

think that——

Mr. DAVIS OF VIRGINIA. It certainly would be cost-effective, as opposed to these other issues.

How about you, Mr. Patterson?

Mr. PATTERSON. As a matter of fact, when we have civilian employees who are program managers, they do get bonuses; and their

bonus is commensurate with their success in the program. But

military program managers, it’s a little bit more problematic, as

you might suspect.

Mr. DAVIS OF VIRGINIA. All right. Thank you.

Chairman WAXMAN [presiding]. Thank you, Mr. Davis.

We are talking in a more general way, and GAO gave us a lot

of examples, but I want to focus on one example that I brought up

in my opening statement earlier of just how money seems to be

used without any accountability and without any result.

The Expeditionary Fighting Vehicle, supposed to be an amphibious tank that was developed to transport Marines from ship to

shore and then to conduct land-based combat operations; and this

was thought up in 2001. The Marine Corps awarded a contract to

General Dynamics to design and test the EFV in order to prepare

it for large-scale production, and they thought through a schedule.

They were supposed to finish this phase of development by 2003,

and then the Marines would have the vehicle available to them by

2006.

The original budget was $712 million. Through a series of con- tract modifications, the budget grew to $1.2 billion, and the deadline for completing the system development and demonstration was

pushed back to 2006. When the Marine Corps tested the EFV in

2006, it broke down every 41⁄2 hours; crucial parts for the vehicle,

including the bow flap and the gun turret, had serious structural

problems.

I have a chart that I am going to put up on the screen. It shows

the slide that the Marine Corps prepared discussing the results of

this test—and I don’t know if it’s visible enough to you—but, according to the slide, the vehicle will only reach high speeds in the

water if Marines don’t bring their combat and personal equipment

with them on the craft. Well, that means that the vehicle could

only work as envisioned if the Marines left behind their battle

gear.

Since those tests failed, the program has gone back to square

one.

Last year, the Defense Department announced that the EFV

would have to go through a second development and demonstration

process at an additional cost of the taxpayer of nearly $1 billion

more. In effect, the Department said, even though we spent $1.2

billion and 6 years on the first system development contract, we

need to start the process all over again and spend another billion

dollars to build a new prototype vehicle.

95

Mr. Finley, how could this have happened? Why didn’t the contractor deliver what it promised? Why didn’t the Defense Department manage the program better? Why are the U.S. taxpayers out

over $1 billion as a result?

Mr. FINLEY. Thank you, Mr. Chairman.

I do not have the facts on EFV with me. I am not as prepared

as I would like to be for this particular subject.

I will share with you that, in my tenure, this program came up

for Nunn-McCurdy. It was recertified as a program and restructured last year, 2007. It is my understanding that coming into the

Nunn-McCurdy as part of the causal mechanisms behind the performance on this program was funding stability, and yet for some

number of years, the funding on this program had been cut dramatically from some level but approaching 50 percent of what they

had.

Chairman WAXMAN. I don’t see any cuts. I see only increases in

the amount of money that went into this program. It was a costplus project, and the costs were paid. In fact, at the end of the day

the contractor got bonuses for a failed effort.

Mr. FINLEY. I would have to take the question for the record, sir.

Chairman WAXMAN. Mr. Sullivan, I believe you have looked at

this EFV contract. What, in your view, went wrong?

Mr. SULLIVAN. I think with the EFV they had very tough requirements to begin. Actually, in the beginning of this program,

they tried to go forward before they had mature technologies, particularly with the engine, the propulsion that you would need to literally skip across the ocean like a stone with this thing.

To their credit at the time—we are going back to the mid-’90’s—

the Navy told them to hold up and work on some of those technologies. I think that led to some of the—you know, the annual

funding increments they did reduce, a lot of the annual funding increments in the beginning, which slowed them down in that regard.

But once they did get mature technologies and begin, they had

reliability—as you mentioned, I believe it was 4 hours between

breakdowns on this. I think the reliability requirement was 47

hours.

So when they finally got to a point where they thought they had

designed a full-up prototype, they had ignored the critical design

review. That second thing that we talk about is, you know, managing the design, building a prototype before you go forward, having

a good critical design review at about midpoint. That was ignored,

I think. As a result, they got the reliability problems that they

have, and they have to start over.

Chairman WAXMAN. Well, there were plenty of warning signs

that the contract was not going to work, but nobody seemed to pay

attention to those warning signs.

In 2002, the Defense Department auditors issued a scathing report that found that the program was being poorly managed. Here

is what the 2002 report said, ‘‘Management does not have a handle

on reality, particularly with unrealistic schedules.’’

The report also said the project lacked leadership, and there

seems to be ‘‘no one steering the ship’’ and that the project was a

‘‘paper dream that everyone accepts but has only a casual resemblance of reality.’’

96

Mr. Finley, that was 6 years ago. These warnings weren’t heeded

in 2002. Why do you think that happened? You don’t know specifically about this, but if there are warnings, doesn’t the DOD take

those warnings seriously?

Mr. FINLEY. That’s an unequivocal yes. We do take all warnings

seriously. I cannot speak for 2002. I will be happy to take the question for the record, though, sir.

Chairman WAXMAN. Well, in 2006, they had another audit that

was performed; and this audit found exactly the same problems

that were reported in 2002. Four years had passed, hundreds of

millions of dollars had been spent, but there was no improvement

in the contract management.

Here is what the auditor said in their 2006 report: ‘‘Oversight of

the program is ineffective.’’

‘‘The system’s engineering process is inadequate and a major

shortcoming of the EFV program. It is a root cause of disarray, uncoordinated design decisions, reliability issues, and the general lack

of planning and status monitoring.’’

Well, it appears that everyone who examined the EFV contract

knew for years that it had serious flaws, yet the Defense Department still committed more than $1 billion of taxpayer funds to the

contract.

Mr. Sullivan, you mentioned this earlier, there are supposed to

be checks and balances in this process to prevent this kind of thing

from happening. What do you think went wrong here? Why weren’t

there checks and balances to take these warnings seriously?

Mr. SULLIVAN. One of the things that happened on this program

is they signed the contract to go to system demonstration and development, which is the cost-plus contract to go ahead that opens

up the funding. In December 2000, they declared the design stable.

In January 2001, in 1 month, they had a complete critical design

review that OKed the program to continue toward manufacturing,

engineering, manufacturing and development.

Obviously, in 1 month—and I don’t think that they had the proper engineering prototypes—they had not accumulated the knowledge that any program manager in any world-class company would

have to accumulate before they got more investment dollars in that

timeframe. So I really think probably, as a major defense acquisition program, it wasn’t getting the oversight it probably deserved.

Now, that’s back in the 2000 timeframe—that’s probably the genesis of when this really started going wrong.

Chairman WAXMAN. If I hire a contractor to do work for me and

they run over budget and run out over time and then they fail, I

would want my money back. Why can’t the government get its

money back?

Mr. SULLIVAN. I think, probably, you know, one of the things that

has to happen in this environment that we are talking about is decisions like that have to be made. This is a program that probably

was a very good candidate for, you know, if not termination, then

somehow, you know, scaling back the dollars that were going into

it back in that timeframe.

Chairman WAXMAN. Is it possible to get the money back if it’s a

cost-plus contract? Or do the contractors say they are not taking

the risk; it’s the government that’s taking the risk?

97

Mr. SULLIVAN. I don’t think—you know, that’s kind of outside—

I would have to talk to some of our lawyers that we have to understand the legalities of that. But I don’t think it’s—it’s not easy to

get the money back. I know that.

Chairman WAXMAN. Well, the problem I see is that nobody in

this process is advocating on behalf of the taxpayers. The company

is doing fine. It has a contract. It’s structured so that it will get

paid no matter what the result, even if the result is total failure.

The responsible officials at DOD are not being disciplined. In

fact, they may get lucrative job offers from other defense contractors.

But the Marines who need this equipment have to go without,

and the taxpayers that foot the bill pay out billions of dollars, and

we get nothing in return. That just can’t be a system that we ought

to be sustaining. I think that’s the reason we are holding this hearing, and many of us are very concerned.

Mr. Finley, I do want you to be able to respond to the record. I

don’t think you were adequately advised we were going to focus in

on this weapons system. So I apologize to you for surprising you.

But this is something that the GAO looked at and our staff looked

at, and I do think it’s an illustration of our frustration with this

whole system that we have.

Mr. FINLEY. I would be happy to, sir.

Chairman WAXMAN. Thank you very much.

Mr. Burton.

Mr. BURTON. Thank you, Mr. Chairman.

Well, from your testimony, it sounds like there needs to be improvement in oversight and management; and, in many cases, it’s

inadequate. But if you have a cost-plus contract, the contractor

pretty much, as long as he is doing the best he can, you can’t really

go back and say, hey, we want our money back, as long as he is

going to perform as he said he was going to.

Some of these weapons systems—and I have tried to follow this

over the years. You are talking about such things that are so complex that, even if you have a design, once you get into the actual

production of a prototype, you start finding design flaws that you

didn’t think there were. I mean, it’s not an exact science, is it?

Mr. SULLIVAN. No, it isn’t.

Mr. BURTON. Because of that, the contractor pretty much has to

work with the Defense Department. The contractor has to work

with the Defense Department in order to make sure that those

flaws or the design changes are corrected and need to be made.

That sometimes involves cost overruns, right?

Mr. SULLIVAN. Yes, sir.

Mr. BURTON. I think that’s one of the things we want to talk

about. I don’t think anybody here—Democrat, Republican liberal or

conservative—doesn’t want to make sure that we minimize waste,

fraud and abuse in the Defense Department or any other department, but the thing that is important to me is that we have the

defense capability to defend this country against any enemy, domestic or foreign.

That means sometimes we have to look at weapons systems that

may be new and on the drawing boards that we think are going

to be necessary to defend this country and we let a cost-plus conVerDate 11-MAY-2000 11:02 Jun 14, 2010 Jkt 000000 PO 00000 Frm 00101 Fmt 6633 Sfmt 6633 U:\DOCS\56190.TXT KATIE PsN: KATIE
98

tract for design and engineering. Once they get into it, we find out

that, hey, this thing really needs a lot more work. So you have to

go back to the drawing boards and try to make those corrections.

Then when you get a prototype built, you find, many times, more

design problems and changes that have to be made; and the contractor and the Defense Department have to go back to the drawing boards one more time to make sure that those corrections are

made.

I have seen helicopters that are supposed to be the best in the

world, and we have seen them crash. I have seen planes that we

have developed that were supposed to be the best in the world.

During the test phase, and even after the test phase, they found

flaws and they caused crashes and people were killed. When you

are talking about defense items, many times you are going to have

to make those changes.

Now, one of the things I want to ask is, you know, we go up and

down with Defense budgets; and the Defense Department has to

pick and choose which Defense programs, which weapons systems

that they want to produce. Do the fluctuations between administrations, for instance, change the amount of money that could be allocated, say, for different defense programs, different programs?

I mean, do you have a program to say, OK, we are going to allocate this much, this amount of money through the Defense Department for a program and then the Defense budget is reduced and

so the funds aren’t there and you have to pick and choose? What

kind of an impact does that have on defense design and programs?

Mr. SULLIVAN. Is that for me?

Mr. BURTON. For any of you.

Mr. SULLIVAN. You know, we have looked at—the trend of acquisition funding over the past, I would say, 25 years shows a kind

of a buildup in acquisition funding for weapons systems beginning

in the 1980’s. And then, as the Soviet Union fell and world events

changed, we talked about the peace dividend. So you do see a

trough beginning in the late 1980’s when the Soviet Union fell,

through the 1990’s, and it is up again now. A lot of that is due to

the war and other things.

But acquisition spending, the RDT&E budget and the procurement budget right now are as about as high as they have ever

been, probably, for the last——

Mr. BURTON. Let me pose this question. Let’s say we have a

weapons system that we are developing right now that we think is

going to be very imperative for the 21st century to deal with nuclear development by an enemy or a lot of other things; and a new

administration comes in and says, OK, we want to cut the Defense

budget. There’s too much going on, and the Defense Department

has to pick and choose the programs that they want to proceed

with.

Isn’t it possible that some of those programs will be shortchanged

and so they have to cut back on research and development? And

then as time goes by, if it becomes necessary for that program to

be restarted or funded to a higher degree because of the necessity

of it, that there needs to be changes, design changes, and there

needs to be more money because enough money wasn’t allocated in

the first place?

99

Mr. SULLIVAN. If I could just take a minute, and I think you just

gave a very good description of what happens to a weapons system.

Everyone knows you are going to have to deal with a lot of unknowns and contractors. You signed a cost-plus contract for a reason, because contractors are going to have to deal with a lot of risk,

just as you explained.

I think the problem we have here is there are two processes, the

requirements process that validates a need and the funding process

that will establish the available funding for that. What comes out

of the requirements process may validate a need that would overwhelm a threat that they see 10 or 15 years out. But the reality

of it is that there’s nothing available today that can achieve that

need. It’s got to come out of the tech base.

They begin the product development for that before that tech

base has even invented it. That’s where they need—there’s a process and the 5,000 process, the acquisition policy. There’s a milestone A, and then you work maybe a 2-year process between the

milestone A to a milestone B to where that’s where you get your

big money and you start your program.

That process is really what you are talking about. That’s where

the need and the available resources and technologies have to—

somebody has to come in and apply some reason to that and say,

you know, can we get that F–22 fighter to do all of these things

by 1996? The systems engineers have to say, no, we can’t do that.

Let’s try to get this—you know, the requirements have to be level.

Oftentimes, that’s not done; and that’s what really gets them in

trouble.

If these programs were coming in at 25 percent, 30 percent even,

over cost in product development, I think, while that’s not acceptable, that is not in the area, really, of wasteful dollars. I think we

would understand. But often these programs, EFV is an example,

that’s over 100 percent over cost.

Not only that, the quantities eventually have to be reduced. So

the warfighter doesn’t get the numbers that they were talking

about; and they are always late, as a result of that.

Mr. BURTON. Mr. Chairman, let me just make one final comment.

No question. I agree with you and everybody on the committee

that we need to really police the amount of money that’s being

spent on these weapons systems. Wherever possible, Congress

ought to, you know, pound whoever is in charge over there to make

sure that they are not wasting taxpayers’ dollars.

But, on the other hand, it’s extremely important that we realize

on these cost-plus contracts with defense systems that are extremely important in the opinion of the people at the Defense Department and the administration that we properly fund those, even

though we know that there may be cost overruns, to make sure

that this country is well protected.

Thank you very much, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Burton.

Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

Let me continue on that vein, because I am not sure that it looks

like anybody ever makes a decision that some of these systems

ought not to proceed.

100

When you look at 92 systems and so many of them behind schedule by such large periods of time and so many over budget by so

many dollars, let me ask you, Dr. Finley and Mr. Patterson, have

any of these systems ever been scaled back or eliminated?

Has there ever been a decision where somebody finally says, you

know what? This thing has been going on for decades showing no

progress. We can build now only a fraction of the ones we really

intended to build, doesn’t meet the original specifications or the

change requirements. Let’s move on. Let’s just put this one on the

burner and move on.

Mr. PATTERSON. Yes, sir.

Mr. TIERNEY. Maybe about a half a dozen of those?

Mr. PATTERSON. Joint common missile comes to mind, where we

determined that the requirement was not sufficient to continue the

program; and the program was terminated. That’s the most recent

example.

Mr. TIERNEY. Well, how about the F–22, where at one point Vice

President Cheney was all for eliminating it? It’s, what, two or three

decades overdue now. It’s billions of dollars—tens of billions of dollars over budget. It was originally designed to go deep in the Soviet

Union. That doesn’t exist any more. Is the real problem that some

parts of it are made in 48 States, and we can’t get Congress to kill

this beast? Or what’s going on with that?

Mr. PATTERSON. I believe it’s the Defense Department V–22 that

Secretary Cheney had a problem with. As you know, the V–22 is

performing quite well in Iraq today. Had we canceled it, it probably

would have been a bad thing, but it did take a long time.

But your point is well taken, quite frankly, the fact that we oftentimes live under a circumstance where we live in hope. We hope

that it will perform the way that we intended it to. We hope that

it will be on budget. But the fact is that the circumstances we find

ourselves in oftentimes make that impossible.

I would like to point out and to comment on the GAO’s reports

that have, in fact, prompted a great deal of effort on the part of

the Department of Defense. Back in 2005, the GAO reported a report similar to this one that was used extensively in the confirmation hearing for the Deputy Secretary of Defense that then prompted him to ask for a complete review of the Defense Department acquisition system from the bottom to the top; and those recommendations, which we have started to implement, as Secretary

Finley has expressed, are beginning to show progress and promise.

Things don’t happen overnight, but the fact is that we have started

to do that, and I think that we will show success in the future.

Mr. TIERNEY. One of the problems, I think, is that people keep

changing; and it’s always, we are talking about the past. That’s not

us. We are doing a better job. Then you move on. Somebody comes

in and says that was them. That’s not us. But we are doing a better job.

But, Mr. Sullivan, you laid out in the report pretty clearly the

best practices. At what point in time do you do the concept refinement and technology development? Then you should move on to the

system development and demonstration and then move on to production and deployment.

101

From your report, it looks like these are overlapping significantly. That just doesn’t seem to make sense. We are flying before

we are buying on so many of these systems, and then it just creates

more work down the line.

The story in the New York Times on the littoral ship being one

of those cases where they put it all together and they thought it

would work in small spaces and they go backward on the project.

So do you see that this is going to change?

Mr. Finley, I would ask you to answer as well. Are we going to

get back to the best practices where we actually test and get them

to a point of time where we have some assurance they will be able

to work in a realistic operational environments before we can move

to the next stage? You certainly are not recommending that we

don’t do that, that we just continue to keep building and paying,

building and paying when they don’t work and go to the point go.

Mr. SULLIVAN. You know, the way that we look at this, the recommendations that we come up with would be literally it would be

a good idea to fully fund a product development program. In order

to do that, the thing pretty much has to take 5 years or less. So

you have to have requirements that you know are achievable in

that timeframe, and that way you can upgrade.

We talk about an evolutionary knowledge-based acquisition process that might get you an F–22A, an F–22B, an F–22C, understanding your requirements all the way along.

There’s significant overlap still in most of the big weapons systems that they are building now. The joint strike fighter, there’s

overlap now. They are going into production. They are in the limited procurement contracts now, and they have just begun testing

the aircraft, so that’s risky to us.

I would like to say that in the past couple of years—in fact, the

Congress, with this section 804 from the Defense Authorization Act

a couple of years ago, asked the Department to start looking at

things.

I really, to be fair, would like to say in the past 18 months or

so there have been—even us, GAO, looking at it from the outside,

we have seen things happening at the OSD level that indicate that

harder decisions are being made.

I think the JLTV you could probably talk about better that I, but

that is an example where they have asked them to go back and

look at the requirements before they let them be in a program.

That, as we say in our statement, there’s reason for optimism.

But, as you said, the transitory nature of the people at the top is

really what keeps anyone from being able to change the underlying

culture.

Mr. TIERNEY. That and I think just the unending desire, apparently, by Congress to keep writing a check. Nobody ever says this

is how much money we have to spend, given all of our other challenges here.

We have to keep the core of the country solid as well as a better

defense and morality, but we say, well, that will have to just set

aside. Because we will keep writing the Pentagon as many checks

they want, no matter how many billions of dollars they go over

budget or how many decades they go behind schedule.

102

I would suggest that some of these auditors ought to come up at

some point and say, you know what? Here are X billion dollars off

the table. Now realign your strategy here and tell us what you can

do.

Mr. FINLEY. I think we are completely aligned on that, Congressman Tierney. We have made a lot of changes, probably way too

many, to discuss in this particular hearing, as pointed out by both

Mr. Patterson and Mr. Sullivan. And they are very wide-ranging.

They are very sweeping.

To your point about people, people oftentimes ask me, you know,

I have 265 days to go—my wife is counting.

Mr. TIERNEY. Counting, yes.

Mr. FINLEY. But when I came in we brought in very senior executive people that had the industry experience and the military experience and the passion to serve their country, our country. That has

made an astounding difference from a leadership point of view.

These are career SESs.

What we have been doing for these 26-some odd months is getting the traction empowered and embedded and, you know, deployed throughout the building, if you will. So the relationship with

the four-stars, the three-stars, all the way down to the iron majors

is what’s been going on.

I can do the tests. I can go to the field today, and I can see

things like Lean Six Sigma, continuous process and improvement

working in the field in terms of dramatic performance at that end.

At our end of the food chain up here in acquisition, where they

think of us at the front end, you know, early preliminary design

reviews. We’re pushing this entire acquisition process to the left by

years. That’s what we are talking about. We are talking about competitive prototyping, one of Mr. Young’s top strategic initiatives to

prototype at milestone A or sooner.

Industry, I believe, is more than happy to invest their R&D

money to get better performance out of products before we start

making major milestone decisions at B early. And more competition

even through milestone B, more competition through milestone C,

I believe, will enable us to get our industrial base far more mobilized and able to afford affordable solutions for our warfighter

needs.

Right after we sign contracts, for example, at milestone B, we

have also instituted what we call a B prime. At B prime, within

30 days, what we want to try to do is have a meeting of the minds

that what we are going to sign on the contract is, in fact, what we

actually need. Eyeball to eyeball, what have we really got here that

we think that we need, make sure we are both talking from the

same sheet of paper.

I have heard a lot about contracting. We have shifted from fixed

firm price. We are trying to get ACAT 1 programs with predictable

performance. That means it needs an additional acquisition strategy. That means it needs a block acquisition strategy. ACAT 1 programs should not have a spiral acquisition strategy mainstreamed

into that program planning.

The discovery of some of the programs—in fact, that is what we

have found. That is where you see technology, low maturity starting at the get-go, and that’s where you see requirements creep at

103

the get-go. It just does not get stopped without having mature technology.

I fundamentally believe today we have got technology maturity

and requirement creep in hand. We have those systems stopped.

We have the processes working so that we can move on to other

critical issues like funding stability. I think funding stability is imperative to be fixed.

Chairman WAXMAN. Thank you very much.

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

260—how many days?

Mr. FINLEY. Five, 265, I think.

Mr. ISSA. Is your wife also counting when you go from four to five

grandchildren? Does she keep track of all of these things for you?

Mr. FINLEY. No.

Mr. ISSA. I appreciate your service.

Since we have a wealth of historic information here and we are

in the waning days of an administration, I am not going to dwell

on what this administration can’t change; and I am certainly going

to try not to overly dwell on the fact that this administration

doesn’t seem to have done worse than its predecessors. It’s just we

are disappointed it may not have done as much better than we

would have hoped.

Just historical, you know—I mean, I grew up in the military during the MX missile, failed night vision devices, secure radios that

were never secure. They were theoretically secure, but they

couldn’t stay secure long enough to communicate, so, ultimately,

you transmitted in the open.

I watched the Vulcan system repeatedly fire an amazing amount

of rounds and never hit anything. I know that the A–10 was a disaster, unable to kill or survive in a Soviet environment, and we

kept buying and building them. But I was told it got better. They

got so good that the Governor of Pennsylvania objected when we

tried to retire them on him because he needed them for homeland

defense in case there was a riot in Pittsburgh.

I have sort of enjoyed a little bit of history here with you, but

I would like to dwell for a moment on how we can change the future so that the next administration and, more importantly, the

next Congress can make sure we do a better job.

Mr. Patterson, you are intimately familiar with the C–17.

Mr. PATTERSON. I have been acquainted with the C–17 for a very

long time, yes.

Mr. ISSA. I am going to dwell for a moment—by the way, I noticed you are an old 19O2 Ford observer.

Mr. PATTERSON. That’s correct.

Mr. ISSA. Now there was an inexpensive contract. We just bought

a Cessna 182, put a big engine in it and hoped it would stay in

the air. I hope it always did for you in Vietnam.

Mr. PATTERSON. It did, quite frankly. I wouldn’t be here otherwise.

Mr. ISSA. Well, that’s how you do something on the cheap. You

buy a Cessna and say, can you make it a little more powerful? We

will put the radios in it and hope that no one shoots it down, because it has no armor.

104

The C–17 has been a tremendous success. Why is it—two questions. Why is it that the C–17 continues to be bought in bits and

pieces? We never shut down the line, because, ultimately, it is a

great performer, and we keep realizing that we can and should

have more of them. But, at the same time, we have never made a

purchase essentially for the end game. Even today, we are not really accurately stating the end game. We zero it out, and then we

plus up in order to keep the line running.

I will make it a two-part question for a good reason. The GAO,

rightfully so, talked about the C–130J. The C–130J appears as

though we are trying to morph endlessly the C–130 from a basic

short field, deliver a small amount of cargo in theater to something

in many, many fields that it wasn’t. As a result, it creeps up to the

cost of a C–17 and it exceeds it on a payload basis.

Can you touch on those two areas and how we got there? I really

want to know how we got through this trouble. We are not going

away from it yet. How is this Congress going to begin thinking

about giving instructions to this next generation so we will stop

making the same mistake we made in plain sight?

Mr. PATTERSON. Let me talk to the C–17 first. The C–17, in fact,

continues to perform in a more capable way than we had anticipated. It performs its night mission. It lands in the short field, carrying the amount of cargo that we had thought it would; and it

continues to do that.

While the C–17 performs as well, we have problems that you are

well aware of in terms of the C–5 and re-engining the C–5 and

having it available——

Mr. ISSA. Please don’t go to the C–5. I am on record as saying,

except for special missions, we should shut them down. It is the

worst decision of the Air Force, but because it is an ongoing Air

Force decision that I have fought and lost, I would rather not go

there.

I am concerned about these other aircraft—including, by the way,

the short-field version of the C–17. We look and say that’s sort of

like the Cessna 182 with the big engine. We know it can work. We

know we can get a guaranteed contract to deliver it at a fixed price

and make sure that it meets that requirement or we don’t pay. But,

at the same time, we continue to go buy C–130’s as though it’s the

only thing that can do a short-field message.

That’s why I am limiting you in my limited 5 minutes.

Mr. PATTERSON. The C–17, in fact, does land in short fields, carries a lot of stuff, carries three times what the C–130 carries. The

fact that the C–130 is truly a less expensive airplane that the Air

Force believes that it can use that in an effective way in the

intratheater mission and has chosen to emphasize the intratheater

mission.

The C–17, on the other hand, has been used in its long range

and long-range direct delivery capability. It is a question of the instant mission that they are having to deal with, and I think that’s

where the Air Force is going.

I don’t want to put words in the Air Force’s mouth—and they are

probably better able to tell you why they do things—but those are

the issues that I believe continue to make the two airplanes marketable to the Department of Defense.

105

Mr. ISSA. Mr. Chairman, if you could just finish up on the C–

130J and how we can justify the continued cost increases there, because that is sort of the mirror of the first half he has answered.

Mr. PATTERSON. I believe—and I will get you the precise answer

for the record—but Lockheed has come in with a reduced cost for

the C–130J, which is an appealing cost for a continued purchase

of that airplane, and that is why the Air Force has seen this as an

opportunity, sir.

Mr. ISSA. Thank you, Mr. Chairman.

I would only say that you can tell I would love to have a whole

hearing on sort of our lift capability and those—because I believe

those, in the long run—you and I will be long retired, and we will

still be paying for a fleet of C–5s that can’t be cost justified.

Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Issa.

Ms. Watson.

Ms. WATSON. Thank you so much, Mr. Chairman.

Dr. Finley, can you justify paying General Dynamics $60 million

in bonuses to build a vehicle that didn’t work and had to be

scrapped?

Mr. FINLEY. Congresswoman, I am not familiar with the facts. I

would, I think, certainly be honored to take the question for the

record.

Ms. WATSON. Well, let me inform you that over $25 million—and

you better write this down, since you don’t have the facts—over $25

million in bonuses was paid to General Dynamics for doing its

work on time and under budget. But the work wasn’t done on time

and wasn’t done on budget.

Under the contract, General Dynamics was supposed to build a

working prototype by the year 2003. It’s now 2008, I believe, and

we still don’t have a working prototype. In fact, the Defense Department is about to issue a new contract worth nearly $1 billion

to build a new prototype because the one General Dynamics built

didn’t work.

I just feel that if you set out a contract, regardless of the problems the contractor runs into, how do we reward poor behavior? I

would like to know how the Defense Department can justify giving

a bonus—and this is taxpayers’ money. We have a war going on in

Iraq, and we still have conflicts in another nation, and we are giving a bonus to a contractor who failed to live up to the contract.

So you can give it to me in writing and please help me to understand so I can go back to my constituents who pay their taxes and

let them know what is happening with their precious dollars.

Thank you.

Mr. FINLEY. You are welcome.

I would just comment, shortly after I was confirmed, award fee

policy was one of the first things that came up on my radar screen,

and we immediately did initiate policy change.

Where we are today is we really do not believe award fee structures are appropriate. We are promulgating policy to conduct business with objective goals and requirements for being paid in terms

of incentive fees and not award fees.

We will be happy to take this question for the record.

106

There’s rollover provisions that our contracts had historically

that we have eliminated. You know, the rollover provisions that

they used to have, you know, when not earned in one period could

roll over to the next period. So we will be delighted to take the

question for the record and get back to you.

Ms. WATSON. Mr. Chairman, reclaiming my time, may I ask Mr.

Sullivan to respond to the question I was raising with Mr. Finley.

Mr. SULLIVAN. This is something—if you would like, I could look

into that further and get back to you. You are talking about the

expeditionary fighting vehicle contract?

Ms. WATSON. Yes.

Mr. SULLIVAN. The one thing I would add to that is I think the

new contract they have established has a lot more incentives in it

today that are tied to achieving reliability targets. So the Department may have at least looked back at the mistakes they have

made with it.

Ms. WATSON. Well, let me ask you this. How is it you would say

they justify paying the bonus money out when they didn’t meet

their contract at all and we are looking at maybe a new contractor?

It’s inexplicable to me. Maybe you can help me.

Mr. SULLIVAN. Well, Congresswoman, you know, we, actually,

wrote a report about award fees in general and the policies that the

Department uses. Because we feel, you know, we had the same

idea, that the award fee policies were a bit too generous, given the

outcomes that they have. I think we found that the Congress did,

I think, eventually pass some laws in one of the authorization acts

for the Department to look at that. I think that’s what Mr. Finley

is talking about now, is that the Department has looked at that

thoroughly. I think they did recognize that the award fee process

had gotten a little bit undisciplined and are trying to tighten it up

now again. So I don’t think it is justified. I agree with you.

Ms. WATSON. I would hope so, because there’s another emergency

supplement coming our way, and we have to find out a way to fund

it. We want to protect our troops and give them what they need.

But when we throw money away and reward bad behavior, it’s unjustifiable to me.

Thank you so much. I yield back.

Chairman WAXMAN. Thank you very much, Ms. Watson.

Mr. Cummings.

Mr. CUMMINGS. This is a very interesting discussion, and I am

trying to figure this thing out. Because, to be very frank with you,

it’s a bit confusing.

The question is, how do we move to a culture of excellence? I

think that we are mired in a culture of mediocrity, a culture of

complacency and a culture of just don’t give a hoot. I mean, if we

listen to everything that was said—and, Mr. Sullivan you just said

something that was very interesting. You were talking about items

delivered, delivery of items, and you said they are always late.

I am not here knocking anybody. I am really not. You know, I

sit as a chairman of the Deepwater—of the Coast Guard Subcommittee on Transportation, and this thing—I tell you, if I closed

my eyes and didn’t read a document I would swear I was going

through Deepwater.

107

It’s the same kinds of problems: product not delivered on time,

bonuses given out to people who don’t deserve them, not getting

what we bargained for. That’s a basic contract concept. You pay.

You get what you bargain for.

I mean, I could go on and on; and it seems to me that there is

some type—I think we can back up. You just keep backing up,

backing up, backing up, and say, OK, guys, it’s going to be all

right. Just slap your hand. We will correct that for you.

But what is happening is that we have this—time passes on,

money being spent, product not being produced, bonuses being

given out, American people being cheated. That’s a problem; and,

at the same time, our national security—and this is probably No.

1—our national security being compromised.

So I guess what I am trying to figure out is, you know, in the

Deepwater program, one of the problems was they didn’t have the

kinds of people—this is my opinion—in the Coast Guard who had

the skill to even put together a contract that made sense.

As I said to the Coast Guard, I believe that a first-year law student could have done a better job than having, for example, the

person who—the contractors deciding whether they get bonuses, for

example.

But I am trying to figure out where are—I heard you, Mr. Finley,

talk about we are bringing in all of these people, and then I hear

us talking about how we have this turnover and how at what

point—going back to some of the things that Mr. Issa was saying—

how do we make sure that we are not—we are in a place where

we are not having this same discussion 5 or 10 years from now, for

example, Mr. Finley, when you are retired and chilling out, you

know, in the summer sun.

I am very serious. I mean, what kinds of things must we do now?

Because a lot of this stuff comes down to reaching for the very best

in America.

I have this saying I tell my kids. I tell them, you know, we can—

at some point, you have to meet your maker.

What I say is that people will—you can jive and play games and

act like we are doing something successfully and everything is

going to be fine, but sometimes the rubber is going to have to meet

the road. And the sad part is sometimes we discover there’s no

road. This is happening more and more in this country. It’s not just

you guys. Like I said, the Coast Guard is almost a mirror image

of this.

So the question then is, how do we make sure that we have the

kind of people that we need? How do we lift up that standard of

excellence? Because if we are going to be No. 1 in the world and

maintain No. 1 status in the world, we have to be on that level.

We just can’t say, well, they are going to be late.

I see my time is run out, but I hope I can get an answer to that

question.

Mr. FINLEY. Well my answer to that question is, sir, we do not

accept mediocrity. It does start with the leadership. We do set the

pace. We set the bar. I am a very big believer in Lean Six Sigma,

been through it numbers of times with a number of companies. It

is being implemented in the Pentagon.

108

There’s a shift in the way we do business in the Pentagon to

measure performance objectives. Performance bonuses don’t come

unless you have achieved your objectives. If you have excelled in

your objectives, then maybe you get a little bit more. But it starts

with leadership; and it ends with the fact that you simply do not

accept mediocrity, as you have very eloquently stated.

In the Lean Six Sigma—the good thing about the Lean Six

Sigma is you establish a bar of performance, and that performance

bar is not measured by who is in charge or personalities. That’s

measured by process control.

Once you have achieved that processability, you then raise the

bar another notch, and you raise the bar. They call it Six Sigma

for a reason. You can go to Nine Sigma if you want. It’s a continuous process of improvement.

The balance you have to strike is we cannot invest in process improvement at the cost of complex outputs. My process can be so

complicated, as 5000.2 has been accused of from time to time.

The process is so complicated we can’t find our way through it.

That’s where we have to slash, cut and simplify the process for better outcomes, not compromise quality, do not accept mediocrity.

This is a way of doing business, and we do it as a team.

Mr. CUMMINGS. Thank you.

Chairman WAXMAN. Thank you, Mr. Cummings.

Mr. Tierney.

Mr. TIERNEY. Thank you very much.

There’s a lot to go over that we won’t have time for here today,

but I appreciate the give and take on this a little bit.

I want to clarify something if I can between Dr. Finley and Mr.

Sullivan. Mr. Patterson, if you have something to say—I am not

sure where you are with Dr. Finley’s role—sort of overlap a little

bit.

Can we be comfortable now going forward that all the projects,

the 92 various programs, are going to go through sort of the knowledge achievement process that the GAO outlined in its report? Do

you have that confidence, Mr. Sullivan?

Mr. SULLIVAN. Well, if you look at the portfolio that we are examining, the 95 programs, many of them are beyond that. I mean,

this is a snapshot in time of all the major——

Mr. TIERNEY. Some of them have gone by the by.

Mr. SULLIVAN. We have F–22 in there. We have Global Hawk.

There are a lot of programs beyond that.

But a study should be done of what is starting now and begin

to track these new ones. So the 95 programs that we are talking

about, these are not all new starts. I would hope that——

Mr. TIERNEY. I would just ask Dr. Finley just that. The programs

that you are starting now, Dr. Finley, can we anticipate that they

will follow the knowledge achievement system that the GAO talks

about in its report?

Mr. FINLEY. Well, the knowledge achievement system in itself is

one I don’t understand necessarily; and I need more work with my

friend, Mike, to figure that out.

Mr. TIERNEY. Where did you get that, Mr. Sullivan? This isn’t

something you invented, is it?

109

Mr. SULLIVAN. It’s something that we probably articulate for the

first time, but I think the three points that we talk about are——

Mr. TIERNEY. Pretty confident.

Mr. FINLEY. Yes, but the programs that are in this pipeline of acquisition at the ACAT 1 level, all of these programs are in the process of going through very simplified, very streamlined reporting to

OSD, first of all.

These have leading metrics. We are looking ahead 8, 12 months,

performance, cost, schedule performance and survivability.

We are also, as a result of all the Nunn-McCurdy actions that

we have had last year, are looking at what we call triage; and we

are able to discern programs that may not be in trouble today but

at leading indicators that’s where they may be tomorrow. As he implied, not only the pipeline but to programs that are typically outside of the so-called OSD pipeline and milestone C.

Once you get into production, once you get in sustainment, oftentimes, these programs lose our radar screen. We are bringing all

of those back into our radar screen; and we are pushing the front

end of the radar screen, if you will, at the very, very beginning into

the format 13170 requirements process to help facilitate dialog

about our critical technologies, what our readiness is to make the

entire process end to end far more streamlined and effective.

Mr. TIERNEY. Thank you.

Mr. Sullivan, can you talk a little bit about the ground-based,

mid-course defense systems block system of finding—the spiral development thing, whether they are developing it in blocks and so

forth. Does that comport with best practices in the industry, and

how does that affect or not affect the ability to make sure we don’t

fly before we buy?

Mr. SULLIVAN. Is this part of the Missile Defense Agency?

Mr. TIERNEY. It is.

Mr. SULLIVAN. Congressman, it is something I can look into and

get back to you on. I don’t know enough. I know a little bit about

how the MDA is going through the three points or not going

through the three points that we talk about. I can get something

for you and give you my opinion on that in writing.

Mr. TIERNEY. Thank you. I would appreciate that if you would.

Dr. Finley, do you have any say over that MDA program?

Mr. FINLEY. I am sorry? Can you repeat the name of the program

at MDA?

Mr. TIERNEY. Missile defense?

Mr. FINLEY. No, I am familiar with missile defense, but which

program?

Mr. TIERNEY. It was the ground-based, mid-course defense system itself. We also involved the Aegis, airborne laser, that stuff.

Mr. FINLEY. I am sorry. What is the question again?

Mr. TIERNEY. The question had been whether or not you are directly involved with establishing that block sort of accountability

process.

Mr. FINLEY. Yes, sir, we are involved. Oversight of MDA and ballistic missile defense has fallen into the four different committees,

subcommittees, standing subcommittees. I am on two of those

standing subcommittees as co-chairman.

110

One committee that Mr. Patterson and myself are involved in is

the budgeting and the programmatics end of the business. The

other committee is testing evaluation.

Mr. SULLIVAN. One of the things that I thought of there is the

Missile Defense Agency is interesting in that it has one selected acquisition report; and there are probably 20—I am not sure how

many—but many major acquisitions going on within that. And

that’s a—you know, there’s a difference being able to manage properly and being able to fund elements across a wide matrix of things

you are trying to get done and oversight.

But from our point of view it’s very difficult to have oversight of

20 different programs when they are all part of one report. That’s

just kind of an aside.

Mr. TIERNEY. That’s our point as well, and we have issues on

that.

Let me just, if I can—and I don’t want to overstay my welcome

here, but I want to talk a little bit about the contractors that are

out there.

Mr. Sullivan, you indicated, of the 72 programs, about 48 percent

of the personnel involved in that were contractors. So I guess the

question is, are we relying too heavily on contractors? What are the

dangers? If we are—dangers in terms of how that might affect the

program and the inability to say no when it’s necessary? But also

dangers—are we not having enough people on the government payroll able to manage these contracts? Whether that seems to be a

problem with people retiring. I have noticed that the age group is

in the 40’s and up on that. And from all three of you, what are we

going to do about that, and what are the problems of having so

many contractors?

Mr. SULLIVAN. If I can clarify, we did look at 72 programs overall. But when we sent the survey out, I am not sure—there was

some percentage of those programs that actually answered that

question for us. So it is some—probably half of those we have data

back on. So it’s a much smaller subset.

Mr. TIERNEY. Of half of those programs they had almost half of

the personnel.

Mr. SULLIVAN. That’s right. I think the reason we were asking

that question is because of interest in the Government, generally,

speaking about, well, are you raising it? Are you contracting out

some of the things that the government really needs to keep in

hand?

As I stated earlier, we have not found any evident bad effect of

that yet, but we question it a lot. We think that the Government

should try to maintain a more organic work force than they have

now. I think it goes to some of the things that Mr. Cummings was

talking about. You know, as you contract things out, you lose the

organic capability and probably get more mediocre and lose the

Government’s interests in the process.

Chairman WAXMAN. Thank you, Mr. Tierney.

Mr. Issa, do you wish a second round?

Mr. ISSA. Yes, Mr. Chairman. Thank you.

Mr. Sullivan, when did you join the government?

Mr. SULLIVAN. 1986.

Mr. ISSA. I apologize. Yours was the only bio I couldn’t get.

111

So you sort of came in at the height of Nixon’s buildup. The 600

ships was somewhere in sight over the horizon.

Mr. SULLIVAN. Six hundred ship Navy, right.

Mr. ISSA. During that period of time, was contracting better or

less well done than it is here today? Did we do a better job? Was

there less waste?

Mr. SULLIVAN. Just kind of generally speaking, I would say that

it is about the same, really.

Mr. ISSA. Ten years into your career, midway through your rise,

was it any better, any worse in 1996?

Mr. SULLIVAN. From my perspective, the things that were taking

place in the Department, there was an acquisition reform movement that began with the end of the cold war. It seems to me that

there was at least initiative and the idea that things could improve, a lot of acquisition reform with very good thinking trying to

be put in place by people like William Perry.

Mr. ISSA. Did they pull it off?

Mr. SULLIVAN. No.

Mr. ISSA. And I am not going to overly pick on one thing, but the

Crusader was ordered, designed, nearly procured all post cold war

so that we would have a big frigging gun that could shoot a long

way and weighed not just a ton but more tons than any road can

hold.

Isn’t it essentially true that if we’re going to really improve government procurement to get us the right systems, the right time,

with the minimum mistakes—and there will always be mistakes.

When you say I want to see at night, I want to fight at night, I

want to know where the enemy is and where the friendlies are, and

I want to be able to pinpoint them with a smart bullet, that is not

going to be easy to do. But if we are going to do that, we are going

to have to take career professionals like yourself and not these two

gentlemen who came from industry but the people who worked on

the BFE program, and we are going to have to change how they

do business. We’re going to have to do another reform. Isn’t that

true?

Mr. SULLIVAN. I think that the culture needs a change, yes.

Mr. ISSA. And just for the record, because I think it is critical.

And not only are you a career professional but how many people

on these programs that you cite in your report that failed, how

many people in one of those programs was a political appointee?

Out of every 10, essentially 10 were career professionals. Either

they were active duty military or they were career professional civilian.

Mr. SULLIVAN. Yes, sir.

Mr. ISSA. So because the other side of the aisle sometimes wants

to make it seem as though a change in Congress or a change in

administration really hasn’t made any change in your oversight,

your job and how well it is done, could I ask it straightforward—

the administration per se or the previous administration, this Congress or the previous Congress, realistically, although we may have

failed to improve things, did we really have any impact? Or isn’t

it essentially what you are complaining about in your report part

of a culture that has been unwilling or unable to be changed by

112

both previous administrations and this administration, previous

Congresses and this Congress?

Mr. SULLIVAN. I would say that is fair. It is about the culture of

this acquisitions community that we talk about has been impervious.

Mr. ISSA. Secretary Finley and Mr. Patterson, I am going to ask

you both together. You both came from industry. You both have

been on both sides now on this. Going forward as part of your legacy to the next administration, because you have tried for 7 years,

I am sure, to improve things, and I know you can cite things you

have improved, but what is it that this committee, the primary

Committee of Government Reform—and the oversight’s worked. We

found out that this is a problem that has been around since not the

cold war but since World War II. What is it you leave us with that

should be the beginning of our process of reforming the system so

that these career professionals who want to do a good job will do

a better job?

Ms. PATTERSON. Well, I think the first thing that I would recommend is that—and I don’t want anybody to get the idea that, despite that we have a great relationship with the GAO, that I embrace this particular study. I don’t. But——

Mr. ISSA. We will assume for a moment that, if it wasn’t there,

there would be other things that could be done.

Mr. PATTERSON. That I do embrace, yes. But what I would say

is we should be directed to work together with the Government Accountability Office to come up with a mutually agreeable way forward that takes into consideration the pressures and limitations

and resources that the Department has, the kinds of requirements

and budgetary and acquisition rules, regulations and limitations

that we have, with the clear—the clarity that the Government Accountability Office brings in terms of what the government and its

oversight requirements need in order to achieve the end state of on

cost, on schedule and performing. And that is really what we are

all about.

And I think that also having been the executive director of the

Defense Acquisition Performance Assessment, having had over

1,000 different observations, over 100 different people coming and

talking to us, I concluded that, because we have a dearth of competent people as a consequence of us reducing the real skill levels

during the 1990’s, we have to replace it with a series of rules.

And Secretary Finley has talked to you about the process in

which we are starting to implement those kinds of things. But

something very simple; and he raised this, that you build what you

bid. I know it sounds simple. But the fact is that, oftentimes, while

the ink is drying on a contract, everybody has better ideas; and we

start to change what we had originally asked for. We have to stop

that kind of behavior.

And those are the kinds of things that I would offer, and that

came out of the DAPA study. And I appreciate the question, and

we certainly appreciate being here with the Government Accountability Office.

Chairman WAXMAN. Thank you, Mr. Issa.

Mr. ISSA. Mr. Sullivan, had one more comment.

113

Mr. SULLIVAN. You know, I was thinking through this as Mr.

Patterson was talking. I don’t know how long ago it was but the

Goldwater-Nichols Act by the Congress, 20 years ago, whenever it

was——

Mr. PATTERSON. 1986.

Mr. SULLIVAN [continuing]. The year I came into the government—looked at how the warfighters fought wars and wanted more

jointness in that and wrote a law to do that; and I think we now

have warfighters that fight wars jointly very well. I think the same

thing, that kind of focus has to be given to how we acquire weapons

systems, too. Because in a lot of ways it is the stovepipes and the

parochial nature of this culture that creates all of the inefficiencies.

Mr. ISSA. So you are calling for a Waxman-Issa reform before the

Senate beats us to it. It is OK to say yes, as long as the chairman

lets you.

Mr. SULLIVAN. Sounds good.

Mr. ISSA. Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Mr. Issa. This hearing was requested by Mr. Davis, so I am thinking we will have him as the

co-author of the reform.

Mr. ISSA. We will make it the Davis-Waxman, just one for the

Gipper.

Chairman WAXMAN. Sounds good to me.

Ms. Watson, did you want a second round?

OK, I had some further questions to wrap up the hearing. Because we want to be constructive, but we can’t be constructive unless we get accountability in the system. And I talked about the

EFV program. I am troubled even more by the complete lack of accountability for the mistakes in that program. There were massive

screw-ups that cost the taxpayers billions of dollars.

Yet, Dr. Finley, you seem—you are going to get back to us on the

record on some of these things. I am looking forward to your responses. But GAO has reported that the Defense Department failed

to follow best practices in its weapons development programs. Your

comments were that, to the GAO, that the GAO was wrong. On

page 10 of your written statement you said, ‘‘the best practices are

embraced and practiced throughout the Department of Defense.’’

So I want to ask you about specifics. First, as I understand it,

you are generally supposed to complete your engineering drawings

before you conduct the critical design review. Mr. Sullivan, in the

GAO report, you say that a program should complete at least 90

percent of the engineering drawings before the critical design review, is that right?

Mr. SULLIVAN. That is general. And when we speak to large

world-class firms that do these sorts of things, that is the general

rule.

Chairman WAXMAN. And I think it makes sense.

Mr. SULLIVAN. In fact, the Department of Defense has policies

that agree with that.

Chairman WAXMAN. You want your engineers to plan everything

out and make all their calculations to make sure the project will

work on paper before you proceed. You agree with that, Dr. Finley.

But in the case of the EFV, the Defense Department didn’t do

that. They didn’t wait until the engineering drawings were done.

114

In fact, they started the critical design review in January 2001.

That was just 1 month after the program started, and GAO concluded this was a major problem. GAO warned that this did not

allow adequate time for testing, evaluating the results, fixing the

problems and retesting to make sure that the problems are fixed

before moving forward.

So, Dr. Finley, this contradicts what you said in your testimony.

The Department didn’t follow the best practices. It did not complete

the engineering plans before it launched the critical design review.

GAO warned that this would cause major problems; and, in fact,

it did.

What I would like to know is who made that decision? And you

may have to supply that for the record. Who decided not to follow

the standard procedure? Who decided that you didn’t need to complete the engineering plans before proceeding? And what accountability has there been for that mistake? That decision has resulted in more than $1 billion in taxpayer

funds being wasted. Has that person been fired? Has that official

been disciplined?

And I assume that you’re not prepared to answer that question

now, but you will get an answer to us.

Mr. FINLEY. I will be pleased to take it for the record, sir.

Chairman WAXMAN. Another best practice according to GAO is to

have an official responsible for ensuring that all of the different

parts of the program work together and a senior-level engineer

whose job it is to make sure that all the plans make sense when

combined into one coherent system. But the Defense Department

didn’t do that.

According to the audit from 2002, ‘‘There is no overall system engineer or architect with the authority and responsibility to ensure

products meet their allocated and integration requirements.’’ Here

is what the auditor said. ‘‘There seems to be no one steering the

ship.’’

Dr. Finley, this also appears to me to contradict your testimony

that the Pentagon follows best practices. What accountability has

there been for this mistake? And we will look forward to getting

your answer on that.

Our oversight and GAO’s oversight both show the same thing.

The same problems happen over and over and again. One reason

that this happens is that there seems to be a culture of complacency at the Defense Department. When mistakes are made, there

is no accountability. That leads to more mistakes and more ways

to spending. There seems to be no one looking out for the taxpayer,

and that is the concern that we have about this system.

And I know you are not prepared to answer the questions about

this particular system at this moment, but we would like to have

you submit in writing for the record responses to these questions.

Mr. FINLEY. Yes, sir.

Chairman WAXMAN. Members may want to ask additional questions for the record, and we would like to ask the three of you to

be prepared to respond in writing to further questions, and we will

hold the record open for such requests.

I thank you for your participation at this hearing. I think it has

been a good one to get to the point where maybe we can change

115

the direction and in another 10 years, Mr. Sullivan, you won’t come

back here and say, it is pretty much the same now as it was 10

years ago. We’ll have you come in and say, things have improved

a lot; and then we will argue with you why we haven’t even done

better. But with all of your help we will do better in the future.

That concludes our hearing today, and the hearing stands adjourned.

[Whereupon, at 12:15 p.m., the committees adjourned.]

Æ