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i 

85–329 2014

[H.A.S.C. No. 113–65] 

IMPACTS OF A CONTINUING RESOLUTION 

AND SEQUESTRATION ON ACQUISITION 

AND MODERNIZATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TACTICAL 

AIR AND LAND FORCES 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

OCTOBER 23, 2013 
(II) 

SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES 

MICHAEL R. TURNER, Ohio, Chairman 

FRANK A. LOBIONDO, New Jersey 

JOHN FLEMING, Louisiana 

CHRISTOPHER P. GIBSON, New York 

JON RUNYAN, New Jersey 

MARTHA ROBY, Alabama 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

MAC THORNBERRY, Texas 

WALTER B. JONES, North Carolina 

ROB BISHOP, Utah 

LORETTA SANCHEZ, California 

MIKE MCINTYRE, North Carolina 

JIM COOPER, Tennessee 

JOHN GARAMENDI, California 

RON BARBER, Arizona 

DANIEL B. MAFFEI, New York 

JOAQUIN CASTRO, Texas 

TAMMY DUCKWORTH, Illinois 

WILLIAM L. ENYART, Illinois 

PETE P. GALLEGO, Texas 

MARC A. VEASEY, Texas 

JOHN SULLIVAN, Professional Staff Member 

DOUG BUSH, Professional Staff Member 

JULIE HERBERT, Clerk 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2013 

Page 

HEARING: 

Wednesday, October 23, 2013, Impacts of a Continuing Resolution and Sequestration on Acquisition and Modernization .................................................. 1 

APPENDIX: 

Wednesday, October 23, 2013 ................................................................................. 37 

WEDNESDAY, OCTOBER 23, 2013 

IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON 

ACQUISITION AND MODERNIZATION 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Sanchez, Hon. Loretta, a Representative from California, Ranking Member, 

Subcommittee on Tactical Air and Land Forces ................................................ 3 

Turner, Hon. Michael R., a Representative from Ohio, Chairman, Subcommittee on Tactical Air and Land Forces ...................................................... 1 

WITNESSES 

Barclay, LTG James O., III, USA, Deputy Chief of Staff, G–8, U.S. Army ........ 31 

LaPlante, Dr. William A., Principal Deputy Assistant Secretary of the Air 

Force (Acquisition) ............................................................................................... 8 

Moeller, Lt Gen Michael R., USAF, Deputy Chief of Staff for Strategic Plans 

and Programs, U.S. Air Force ............................................................................. 34 

Myers, VADM Allen G., USN, Deputy Chief of Naval Operations for Integration of Capabilities and Resources (N8), U.S. Navy .......................................... 32 

Shyu, Hon. Heidi, Assistant Secretary of the Army for Acquisition, Logistics 

and Technology ..................................................................................................... 4 

Stackley, Hon. Sean J., Assistant Secretary of the Navy for Research, Development and Acquisition ....................................................................................... 6 

Walters, LtGen Glenn M., USMC, Deputy Commandant for Programs and 

Resources, U.S. Marine Corps ............................................................................. 33 

APPENDIX 

PREPARED STATEMENTS: 

LaPlante, Dr. William A., joint with Lt Gen Michael R. Moeller ................. 72 

Sanchez, Hon. Loretta ...................................................................................... 41 

Shyu, Hon. Heidi, joint with LTG James O. Barclay III ............................... 44 

Stackley, Hon. Sean J., joint with VADM Allen G. Myers and LtGen 

Glenn M. Walters .......................................................................................... 55 
Page

IV 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Turner ........................................................................................................ 89 

Mr. Veasey ........................................................................................................ 121 
(1) 

IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION AND MODERNIZATION 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES, Washington, DC, Wednesday, October 23, 2013. 

The subcommittee met, pursuant to call, at 3:30 p.m., in room 

2118, Rayburn House Office Building, Hon. Michael R. Turner 

(chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. MICHAEL R. TURNER, A REPRESENTATIVE FROM OHIO, CHAIRMAN, SUBCOMMITTEE ON 

TACTICAL AIR AND LAND FORCES 

Mr. TURNER. The hearing of the Subcommittee on Tactical Air 

and Land Forces will come to order. Good afternoon. The Tactical 

Air and Land Forces Subcommittee meets today in open session to 

receive testimony from each of the four military services on the impacts of sequestration and the continuing resolution, known as CR, 

on acquisition programs and the associated industrial base. For 

over 2 years now, this committee has held numerous hearings on 

the impact of sequestration to our national security in attempts to 

try to capture some of the decisionmaking and the effects on our 

national security. We have warned of the catastrophic impact sequestration would have on the military’s capabilities if it was allowed to continue. 

I voted against sequestration because I believed that it would 

happen and its effects might be devastating. 

Since sequestration began on March 1, we have seen dramatic effects on military force readiness, such as the grounding of 17 Air 

Force combat squadrons, reductions in force squadrons, training exercises reduced, modernization programs curtailed, and the furloughs of Department of Defense [DOD] civilians. In my district 

alone, we saw the furlough of roughly 12,000 hard-working men 

and women from Wright-Patterson Air Force Base. If left unchecked, I fear that many of these employees could lose their jobs 

permanently. 

I raise this particular point at this hearing because many of 

these individuals work in the acquisition community and are directly linked to the Air Force modernization. The hearing today 

will focus on the effects sequestration is having on DOD’s investment accounts; that is, those accounts for procurement and research and development acquisition programs. 

Thus far, the effect on the investment accounts has been much 

less apparent, but we believe this to be a false sense of security. 

If sequestration continues, DOD investment and modernization will 
2 

be impacted, and those impacts are expected to grow exponentially 

in fiscal years 2014 and 2015. This hearing will focus on those impacts. Through the end of fiscal year 2013, the Government Accountability Office has reported to the subcommittee that approximately 30 percent of sequestered funding for investment accounts 

has been taken from prior-year unobligated funds. Additionally, 

some funding requirements for fiscal year 2013 have been pushed 

into fiscal year 2014, creating must-pay bills during this fiscal year. 

These actions have allowed the Department to only delay the effects of sequestration on investment for fiscal year 2013. Beginning 

in fiscal year 2014, the situation will be different. Although sequestration is an approximate 9 percent decrease to the Department’s 

budget, because military pay and Wounded Warrior programs will 

not be subject to sequestration decreases, other accounts, primarily 

the investment accounts, will have to make up the difference. Unlike last year, funds from unobligated balances have now been used 

up, and the must-pay delayed bills from fiscal year 2013 are also 

now due. This means that investment accounts are likely to see an 

approximate 14 percent decrease in fiscal year 2014. If this continues into fiscal year 2015, the combined impacts will continue to 

increase, affecting every acquisition program and thus severely impacting future readiness, the defense industrial base, as well as 

leading to possible program terminations. 

Last month, the committee received testimony from the four 

service chiefs about the near- and long-term effects that sequestration will have on the total force, and their remarks were sobering. 

Today, I expect to hear in very clear terms how investment and 

modernization will be impacted in fiscal year 2014 and beyond 

should sequestration continue. We need to provide better clarity as 

to the consequences of these budget cuts and help make the case 

to Congress and the Nation as to why sequestration needs to be 

fixed. 

I would like to welcome our distinguished panel of witnesses. We 

have at the beginning of our panel Ms. Heidi Shyu, Assistant Secretary of the Army for Acquisition, Logistics and Technology. Then 

we have Lieutenant General James O. Barclay III, Deputy Chief of 

Staff, G–8. Representing the Navy and Marine Corps, we have Mr. 

Sean J. Stackley, Assistant Secretary of the Navy, Assistant Secretary of the Navy, Research, Development and Acquisition [RDA]. 

We have Vice Admiral Allen G. Myers, Deputy Chief of Naval Operations, Integration of Capabilities and Resources, N8. We have 

Lieutenant General Glenn M. Walters, Deputy Commandant for 

Programs and Resources. And representing the Air Force, we have 

Dr. Bill LaPlante, Principal Deputy Assistant Secretary of the Air 

Force for Acquisition. We also have Lieutenant General Michael 

Moeller, Deputy Chief of Staff for Strategic Plans and Programs. 

I want to thank you all for being here. And I have had the opportunity to speak with each of you. I am certainly hopeful today that 

we will hear in very clear terms of the effects of sequestration. This 

is not something that should be sugar-coated. And these impacts 

are real, and they need to be avoided. So often we hear that sequestration has not had dire consequences. But I think in part it 

is because the story in the Department of Defense has not yet been 
3 

told because you all have been very busy trying to implement sequestration and minimize its overall effects. 

Today, you have the opportunity to paint a clear picture to us not 

only of the work that you have done in trying to protect our national security under very difficult circumstances of sequestration; 

you have the ability to tell the picture of the future. And that is 

what is going to be really important, because right now, in the 

halls of Congress, there are people who are working on the issue 

of how do we lift sequestration? How do we complete the budget 

for fiscal year 2014? And that requires that your story be clear and 

unequivocal of the dangerous and damaging effects of sequestration 

to our national security and to the Department of Defense. And I 

appreciate your dedication and the message that you have for us 

today. 

With that, I want to turn to my ranking member, Ms. Sanchez. 

STATEMENT OF HON. LORETTA SANCHEZ, A REPRESENTATIVE 

FROM CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON 

TACTICAL AIR AND LAND FORCES 

Ms. SANCHEZ. Thank you, Mr. Chairman. 

Thank you, Madam and Gentlemen, for being before us today. 

We appreciate it. Today’s hearing comes at a very strange time of 

the year, so I am happy that the Department of Defense could be 

here with us and that you are willing to testify before us today. In 

a normal year, of course, we would have probably been in conference or out of conference with the NDAA [National Defense Authorization Act], and the appropriations for defense probably would 

have already been passed, and we would have been moving forward. 

But as you know, this is not a normal year. This year, not only 

with the shutdown, but with the second set of sequestration, with 

the Senate not even bringing its bill yet to the floor of the Senate, 

we are definitely in a very strange time. So I appreciate you being 

here. You know, we have passed our authorizing bill, and we are 

hoping that we will get a Senate version to conference in. 

But I think it must be very difficult for you all to try to figure 

out what programs move forward and what doesn’t and what gets 

placed on hold. And in particular for me, it is a little striking that 

we would have a GAO [Government Accountability Office] report 

that would say that the first point that we have on the line, a data 

point that we have on the line, is telling us that for the Department of Defense not a lot happened for fiscal year 2013. In other 

words, for the first year of sequestration, not a lot—you know, we 

didn’t face all the drastic or all the fears that we heard for a year 

that something terrible was going to happen to, you know, acquiring the equipment we need, et cetera, for the DOD, that terrible 

things were going to happen. The GAO report tells us that is not 

the case. 

Now, I would have to say that that probably is because there was 

a lot of unprogrammed or leftover moneys, or programs that didn’t 

come to be, or weren’t there. In other words, there was a lot of 

slack in the system. And maybe that is one of the major reasons 

why we didn’t see what we had thought that we would see. 
4 

And that raises a question, why was there so much slack in the 

whole programming? 

But I am worried about, and I know Mr. Chairman, this is about 

forward thinking, and what is going to happen in the second year 

of sequestration, and what is going to happen if we have a third 

year and a fourth year. Because as you know, this is a 10-year sequestration effort. So I really want to, I hope we concentrate on 

what this really means for DOD and what we are going to see. 

Because I have a fear, I mean I saw when I went out and visited 

the 82nd and other arenas, what it meant for training to our people. I was in Nevada; what it meant, you know, to our air shows. 

You know, the Thunderbirds are used to flying 200-plus shows, and 

they flew one so far in this past season. So I have seen what has 

happened to the operating and the training of our soldiers and airmen and seamen, et cetera, marines. But the GAO says really 

nothing has happened in the acquisition arena. So I think it is important for us to know, well, what will happen if this continues forward? And I hope you will be pretty straightforward with us, and 

talk to us about your concerns with respect to that. 

And I guess, Mr. Chairman, I will put my official statement in 

the record. 

But I am very interested to hear from you all what you think as 

we move forward, how this will really affect the programs, the 

major programs in particular that are required for our troops to be 

as effective as they need to be. 

Thank you, Mr. Chairman. And I will submit my full statement 

for the record and move forward. 

Thank you. 

[The prepared statement of Ms. Sanchez can be found in the Appendix on page 41.] 

Mr. TURNER. Thank you. 

We will begin opening statements with Secretary Shyu. 

STATEMENT OF HON. HEIDI SHYU, ASSISTANT SECRETARY OF 

THE ARMY FOR ACQUISITION, LOGISTICS AND TECHNOLOGY 

Secretary SHYU. Chairman Turner, Ranking Member Sanchez, 

and other distinguished members of the subcommittee, thank you 

for this opportunity to testify before you, and providing comments 

for the record regarding impacts associated with the continuing 

resolution and sequestration on the Army and the industrial base 

in fiscal year 2014 and beyond. 

Joining me today is Lieutenant General James Barclay, Army’s 

Deputy Chief of Staff, G–8. Our assessment of the combined CR 

and long-term sequestration impact to the Army acquisition programs and modernization investment is sobering. The current 

funding instability fundamentally hampers our ability to plan and 

execute acquisition programs in support of the warfighter. Key development, testing, and production activities that is planned 

months in advance are subject to limited funds available under a 

CR and were disrupted by the shutdown. Under a continuing resolution, we lack the authority to start new programs or authorize 

planned increases in production quantities for fielding. 

Sequestration reductions in fiscal year 2013 already reduced or 

eliminated our margin for error on many of our programs with our 
5 

efforts to mitigate the impacts using prior-year funds. Reductions 

in fiscal year 2014 and beyond will directly result in reduced production quantities, deferred investment in new capabilities, and 

delays in many programs. The hiring freeze, civilian furloughs, and 

government shutdown decimates our current and future ability to 

recruit and retain critical skills and expertise in the government 

workforce. This creates devastating impacts to the execution of our 

S&T [science and technology] projects, our acquisition programs, 

our testing, our contracting, our logistics, and depot maintenance. 

The long-term effects of this instability are yet to be fully discerned, but we know that the combined effects of sequestration and 

a yearly CR will significantly increase the costs of our vital soldier 

weapons systems. Constrained budgets will lead to reduced investment in new soldier capabilities at a time when we must work to 

prevent erosion of our technological edge. Investments in Army’s 

research, development, and acquisition [RDA] programs face the 

alarming prospect of a nearly 40 percent reduction over a 3-year 

span, reaching a historical low. Because we are unable to reduce 

manpower costs significantly, RDA takes the brunt of the hit, especially in the short term. 

We are facing an unprecedented challenge in staying on track to 

develop the next generation of capabilities to our soldiers to 

counter emerging threats. Over 192 Army programs are potentially 

affected by CR limitations. These include 59 planned new program 

starts. In addition, assuming the most inflexible and significant reductions under the BCA [Budget Control Act] sequestration across 

Army funding lines, we can anticipate to see effects, such as procurement of 12 fewer Apache helicopters and 11 fewer Chinook helicopters; delays in scheduled engineering change proposal upgrades 

to the Abrams tank and Bradley infantry fighting vehicles; 45 to 

50 fewer Stryker vehicles that are modified to a double-V hull configuration, which delays the fielding of a 3rd Brigade set of Stryker 

double-V hull by 6 months; up to 120 new grants for new basic research in universities across the United States may be cut; and up 

to 40 or more existing second- and third-year grants may be cut. 

All of these impacts also affects the Army’s defense on organic 

industrial base. When I meet with CEOs and industrial leaders, 

most frequently I hear about the shared desire for stability and 

predictability in our resources and planning for future soldier capabilities. The untold effects of lost expertise, innovation, investment 

within the industrial base among large corporations and small suppliers alike remains one of the most significant risks associated 

with the current fiscal environment. There are also significant 

human capital costs. Our capacity to maintain expertise in science 

and technology, engineering, contracting, cost estimation, logistics 

are all at risk, because one of the most attractive benefits to the 

government employee, the stability, has been undermined. These 

skills are critical to equipping and sustaining weapons systems directly affecting our programs. 

These examples provide just a snapshot of the cumulative effects 

of the fiscal instability. The current environment fundamentally 

challenges our ability to manage public resources in a prudent 

manner, while upholding the vital responsibility to provide the best 

equipment to our warfighters. 
6 

Mr. Chairman, Ms. Sanchez, and other members, thank you 

again for the opportunity to testify, and I look forward to your 

questions. 

[The joint prepared statement of Secretary Shyu and General 

Barclay can be found in the Appendix on page 44.] 

Mr. TURNER. Thank you. 

Mr. Stackley. 

STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT AND 

ACQUISITION 

Secretary STACKLEY. Chairman Turner, Ranking Member 

Sanchez, distinguished members of the subcommittee, thank you 

for the opportunity to appear before you today to address the impacts of a fiscal year 2014 continuing resolution and sequestration 

on the Department of the Navy acquisition and modernization. 

Joining me today are the Deputy Chief of Naval Operations for Capabilities and Resources, Vice Admiral Myers, and the Deputy 

Commandant for Programs and Resources, Lieutenant General 

Walters. 

Today, about half of our fleet is underway, and near 100 of these 

ships, including the Nimitz, George Washington, and Truman carrier strike groups, and the Kearsarge, Boxer, and Bonhomme Richard amphibious groups, and 21,500 marines are deployed around 

the world. From ground operations in Afghanistan to maritime security along the world’s vital sea lanes, to missile defense in the 

Mediterranean and Sea of Japan, to intelligence, surveillance, and 

reconnaissance where needed, as needed, from strategic deterrence 

to building partnerships, deterring enemies and responding to crises and contingencies, naval forces provide persistent presence and 

the ability to project power in regions of interest to America. In 

doing so, they place in the hands of our Nation’s leaders tools and 

options to respond to today’s world events and shape future events. 

The Department of the Navy’s 2014 budget request provides the resources needed to meet this full range of missions. And two, it provides the investment called for by the Defense Strategic Guidance 

to execute tomorrow’s missions against the future threat. 

Today, however, we are here to discuss the unfinished work of 

the Congress as it relates to final passage of a defense authorization bill and defense appropriations bill, and then the consequences 

that sequestration poses to our operations, our capabilities, our 

readiness, current and future, as provided for by those defense 

bills. Account by account, program by program, a $156 billion Navy 

and Marine Corps budget authorized by the Armed Services Committee is severely undercut by the limitations of the continuing resolution and the across-the-board cuts imposed by sequestration. 

Operations and maintenance, and investment accounts are particularly hard hit, such that, as you described in your opening remarks, 

an approximate 10 percent cut to the 2014 budget would equate to 

a 14 percent reduction to those accounts, due to military personnel 

exemptions. 

These reductions in 2014 would be additive to the $11 billion sequestered in 2013, which, after depleting unobligated prior-year 

balances, removing management reserve, and deferring significant 
7 

bills to future year budgets, ultimately resulted in cancelled deployments, reduced training, deferred maintenance, delays to development schedules, and reductions to procurement quantities. 

For 2014, in the near term, the Navy and Marine Corps will 

prioritize the global presence requirements set for the force, however with reduced ability to surge additional forces in response to 

crises. Depot maintenance, affecting greater than half of our 

planned surface ship depot periods, all in private shipyards, and 

nearly 200 aircraft depot maintenance actions are at risk. This 

missed maintenance will ultimately impact these ships’ readiness 

for future deployments, as well as their expected surface life. 

Training will be curtailed and readiness will follow because of 

cuts to steaming hours and flight hours and maintenance and the 

procurement of spare parts; and the net of these impacting next 

year’s operations, forward presence, and our ability to surge our 

forces. Maintaining current readiness and forward presence to the 

extent possible under sequestration comes at expense to our investment in future readiness. In fiscal year 2014 alone, absent congressional action or mitigating circumstances, the continuing resolution 

and sequestration would cause cancelled procurements of up to 

three major warships and 25 aircraft, including four Growler electronic attack aircraft, two Joint Strike Fighters, two maritime patrol aircraft, an advanced Hawkeye, three MH–60 maritime helicopters, three MV–22 Ospreys, and various utility, training, and 

unmanned aircraft. To this total, about 400 missiles and weapons 

at risk, cutting our inventory at a time when we are striving to restore our weapons to levels called for by the combatant commanders. 

Further, the combined impacts of a continuing resolution and sequestration deny us the ability to execute the multiyear procurements this committee authorized for E–2D advanced Hawkeye, the 

MV–22, the MH–60, DDG–51 destroyers, Virginia class submarines, and the evolved Sea Sparrow missile, placing at risk 

greater than $5 billion savings these multiyears provide. And two, 

our carrier force, which today falls below the statutory requirement 

for 11 carriers, will be greatly impacted, with a risk of halting construction of our newest carrier CVN–78, delaying construction of 

the CVN–79, and delaying the refueling complex overhaul of CVN– 

73. This outcome we must avoid. 

Beyond these procurement impacts, virtually every Navy and 

Marine Corps major development comprising those advanced capabilities that are critical to ensuring our future military superiority—Joint Strike Fighter, Ohio replacement, air and missile defense radar, Navy Integrated Fire Control, next-gen jammer, AIM– 

9X Sidewinder, the Joint Light Tactical Vehicle, the Amphibious 

Combat Vehicle, the Ground/Air Task Oriented Radar—every 

major development suffers delay, or reduction, or cancellation in 

this budget environment where uncertainty seemingly guides every 

decision. 

Further, we need to consider the impacts on our industrial base 

and acquisition workforce, which we wholly rely upon to develop 

and deliver these warfare systems that underpin our military superiority. We need to be mindful that as many as 100,000 professional jobs are at risk as a result of the potential cuts to Navy- 
8 

Marine Corps operations and programs, particularly skilled workers and engineering talent across government and industry at critical design and manufacturing facilities across the country. The 

same professionals who have been bearing great stress while performing their critical jobs in the face of furloughs and layoffs triggered by distortion of this budget process, which Congress has otherwise faithfully executed in prior years. These examples do not 

capture the full magnitude, and they do not begin to approach the 

impacts that will result from subsequent budget year reductions. 

Unabated, the reductions will profoundly affect the size and shape 

and readiness of your Navy and Marine Corps and the roles and 

missions which they are able to perform. Again, I thank this committee for its work on the 2014 authorizations bill. Our appeal is 

that Congress complete its work on the 2014 budget request with 

the passage of the authorizations and appropriations bills, and that 

this mechanism for addressing the Nation’s budget impasse, which 

was devised to be so unacceptable that it would be averted, somehow be reversed before we are driven to irreversible actions which 

impair our collective responsibility to provide for the Nation’s defense. 

Thank you, Mr. Chairman. 

[The joint prepared statement of Secretary Stackley, Admiral 

Myers, and General Walters can be found in the Appendix on page 

55.] 

Mr. TURNER. Thank you. 

Before I go to Dr. LaPlante, I just want to point out, because we 

are in a House hearing, that the House has passed both the National Defense Authorization Act and defense appropriations, which 

are sitting in the Senate. Although Congress, in order for us to congregate together as the House and the Senate, must complete it together, the House has done all of its work and sent it to the Senate, where we continue to be in this period where the House does 

its work and we wait for the Senate. That period of uncertainty 

really makes it very difficult for us. So I understand your frustration, but I do want to point out there are bills that are sitting there 

for action. 

Dr. LaPlante. 

STATEMENT OF DR. WILLIAM A. LAPLANTE, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE (ACQUISITION) 

Dr. LAPLANTE. Thank you, Chairman Turner, Ranking Member 

Sanchez, and the rest of the distinguished members of the subcommittee. 

Thank you for holding this hearing to discuss the state of affairs 

with sequestration. And I will address the Air Force, and particularly the investment in the Air Force. 

I am joined by Lieutenant General Mike Moeller, who is the A– 

8 for the Air Force. 

And again, thank you for holding this hearing. 

We are committed, of course, as the Air Force, as remaining the 

best in the world, the best in the world in 2020, 2023, 2028. That 

means being able to fight and win against peer adversaries in highly contested environments. In the middle of trying to make sure we 
9 

meet that future and keep readiness high, we of course have had 

to deal with the sequester. When the sequester hit back in February, it was well known that there were really only two places in 

the budget to find the dollars to match what was needed to be cut. 

One was in operations and sustainment and maintenance, essentially hitting our readiness. And eventually, that also hit our workforce with the furloughs. The second place, the second place to go 

is our investment, which is RDT&E [research, development, test, 

and evaluation] and procurement. 

We started with our investment accounts looking at somewhere 

between a 10 and 11 percent cut, and we ended up, by using prioryear dollars and other flexibilities, being able to soften that to 

about 8 percent. But I should make no mistake, there is damage 

being done. 

So what I am going to talk about is the investment situation and 

what is going on there. So to begin with, what was done was each 

program was scrubbed. A lot of risk money, commitments that were 

going to be done in next years was taken, was swept up, with the 

case, hope, and promise that some of it would be returned. What 

also was done was, in some cases, major programs were simply 

stopped. I can speak to one specifically that we have been public 

about, it is called the Space Fence, which is an Air Force program, 

an important program for space situation awareness. 

We were ready to award the contract after a lot of excellent work 

by contractors and laboratories. We had a great acquisition strategy. And we stopped. We stopped the program. And it may or may 

not get started. If it does get started again, it is going to at least 

be one year away from IOC [initial operational capability], but 

more importantly, it is going to cost $70 million for the same program one year later. There are going to be other programs, new 

programs coming along that are going to be in exactly the same situation. In addition, in 2013, we, of course, had the furloughs. And 

the furloughs, I will talk about the effect on morale, which is harder to assess. But there was absolutely an effect on our acquisition 

programs. The F–35 lost 1 to 2 months of schedule overall in the 

program due to the furloughs. The reason was the testing, both at 

Eglin and Pax, was prohibited to test on overtime with civilians. 

And if you have been around testing, you know nothing gets done 

in a regular even 40-hour week, let alone a 32-hour week. So it directly impacted already our acquisition programs. 

Of course, the effect on the morale is something that is harder 

to measure. We unfortunately won’t know until probably it is too 

late. The lagging indicator is usually turnover. 

I can tell you what my instinct is, and it is purely anecdotal. And 

that is, based upon individual resignations that have already occurred, I believe we have broken with the particularly the younger 

acquisition and science workforce. In other words, these are folks 

who are at a point in their career they are trying to make a decision, is this something that I can do for my full career? Am I ready, 

starting a family, is this something that is reliable? Particularly 

the highly talented and marketable ones, they are very vulnerable. 

We already have cases, including specific letters, of resignations. 

And oh, by the way, that was before October 1. The first week 

of October, half of the PEOs in the Air Force, PEOs, program exec-
10 

utive officers, they are senior acquisition executives that run our 

programs, were home. We were within about 2 days, 2 weeks, 3 

weeks ago, of shutting down the F–35 line. Okay. I know that these 

are differences between sequester versus government shutdown, 

but the effect in the field is not terribly distinctive to the individuals in the programs that is going on. 

Now, talking about 2014, where we are right now, all the numbers that have been already mentioned apply to the Air Force. The 

14 percent number, the number that could be higher, depending on 

what flexibility is there. I will also say, as I already mentioned, 

there will be other programs like Space Fence that are going to be 

cancelled or delayed. And in addition to that, entire fleet of aircraft 

are on the table for consideration of divestment by the leadership. 

I can’t say which ones will end up being divested or not, I can’t say 

which programs are going to be stopped or not, but the math, particularly in 2015 and 2016, is that bad. And so the final comment 

I will make is, as we mentioned, in 2013, there was some flexibility 

allowed for using prior-year dollars to soften the blow. In particular, we were able to also transfer some of that money to the operations accounts to try to soften readiness cuts. That is gone. That 

is gone. 

So, in 2013, F–35 was at risk of losing three airplanes. In the 

realm of no good deed goes unpunished, the F–35 program with the 

contractor was able to negotiate a very good price on lots 6 and 7, 

and essentially buy back those three airplanes. We don’t have an 

opportunity to do that in 2014. We will lose somewhere between 

four and five airplanes in 2014. And I could go through some other 

programs. Anyway, that is a summary of kind of the severity of the 

situation within the Air Force. I look forward to working with the 

subcommittee in answering your questions. Thank you very much. 

[The joint prepared statement of Dr. LaPlante and General 

Moeller can be found in the Appendix on page 72.] 

Mrs. WALORSKI [presiding]. Thank you. 

Secretary Shyu, I just want to say that personally I have enjoyed 

the privilege and opportunity to work with you. I share your concern on sequestration. I appreciate what you do and your work. 

Could you speak specifically, if sequestration is allowed to continue to roll out, what kind of impact that is going to have on the 

JLTV [Joint Light Tactical Vehicle] program, which is super important to my district. And then also, just as far as modernization and 

acquisition, just speak briefly on the JLTV forecast if we can’t curtail what is happening here. 

Secretary SHYU. JLTV currently is a great model program. Okay. 

Each of the 3 contractors have delivered 22 vehicles, and they are 

currently in test. The government shutdown has already impacted 

our testing plan because our civilians, who do the vast majority of 

our testing, can’t travel to the test site. They don’t have TDY [temporary duty] money. Okay. 

So the rippling effect of these government shutdowns, just the 

short period during the government shutdown, is stretching out— 

starting to stretch out the program. Because now we have got to 

get back into the queue to do the testing. Okay. And exactly with 

what Dr. LaPlante had talked about, part of the testing is usually 
11 

our testers do more than 8 hours per day of testing. If you limit 

their number of hours, it is going to impact them. Okay. 

So, right now, the program is very well executed. We are trying 

to get back on schedule. But with sequestration cutting the RDA 

account heavier than the rest of the accounts, cutting the research, 

the development and acquisition accounts disproportionately higher 

than the other accounts, it will have impacts to us in terms of 

schedule. So that means we potentially may delay the program by 

a year due to the schedule cuts. 

Mrs. WALORSKI. I appreciate that. 

General Walters or Mr. Stackley, would you like to address that 

as well with JLTV? 

Secretary STACKLEY. I would simply add, as Ms. Shyu described, 

the developmental scale is going to slide to the right. That is going 

to hold up when we can get into production. So it will delay the 

start of production. I think a year is a conservative estimate in 

terms of that impact. And then it is going to impact each year of 

production. So the front end, when you are trying to climb up a 

ramp and get to efficient quantities, the front end will be suppressed in terms of the number of vehicles we can procure. And 

that is going to ultimately stretch the program out further on the 

back end. It is going to drive the cost up. These are all spiraling 

impacts that take a strong performing program at the front end 

and reverse its course, which, obviously, we are trying to avoid. 

Mrs. WALORSKI. General Walters. 

General WALTERS. Yes, ma’am. I echo the sentiments already 

displayed here. But I will also tell you that the longer-term effect 

year by year as sequestration marches on, if it continues to march, 

it will put us in a, from a program perspective, a more difficult position to make harder and harder choices as we try and buy out 

a vehicle portfolio that will become unaffordable in the out-years. 

Mrs. WALORSKI. Thank you. 

Representative Cooper. 

Mr. COOPER. Thank you, Madam Chair. 

Chairman Turner had said earlier that the House had basically 

done its work and was implying that it was the Senate’s fault. Of 

course, we need to operate as a Congress and fulfill our Article I 

responsibilities as a Congress so that you gentlemen and ladies can 

do your work. I thought your testimony was excellent. And I wish 

you had the ability to question us. Because the fault is on our side 

of the dais. So I don’t want to put you in a tough spot, so I will 

go ahead and make some points on my own about the House’s and 

Congress’ inability to perform adequately in these trying times. Because as one of the witnesses noticed, defense contractors, defense 

workers, others don’t really distinguish between sequester and 

shutdown and also threatened default of U.S. credit. This is a 

nightmare that they should not have to go through and a nightmare the country should not have to go through. 

But let me cite a couple of articles here. One is Politico, October 

14, an article by David Rogers. Headline, ‘‘GOP Hawks Suddenly 

Silent on Sequestration.’’ 

An article that cites the excellent study by the Bipartisan Policy 

Center entitled, ‘‘The Sequester: From the Merely Stupid to Dangerous.’’ 
12 

Another article, this week’s Wall Street Journal, an article by 

Fred Barnes. Fred Barnes, ‘‘The Upside of the GOP Shutdown Defeat.’’ He points out, quote, ‘‘’Saving the sequester has been the top 

priority for me and my Republican colleagues throughout the debate about the shutdown,’ Senate Majority Leader Mitch McConnell said.’’ 

They go on to say, ‘‘The survival of the sequester wasn’t an unalloyed win for Republicans. The automatic cuts take a huge bite out 

of Pentagon spending, which is bound to weaken military readiness. This has distressed many Republicans, and rightly so.’’ 

But then the article goes on to say, ‘‘Yet most Republicans have 

been willing to swallow the defense cuts so far. They regard the sequester as a rare victory in their fight to reduce the size of government.’’ 

Another article, this one in the American Spectator, jointly authored by Steven Moore and Art Laffer. It says, ‘‘Treasury Secretary Jack Lew made a catastrophic miscalculation. He believed 

that defense hawk Republicans would never agree to the sequester 

cuts to the Pentagon. The White House bet that Republicans would 

raise taxes before cutting military spending. They were wrong. 

House Republicans rightly decided that as the wars in Afghanistan 

and Iraq were winding down, defense would be cut under any scenario, so it made the most strategic sense to uphold the sequester 

to ensure that the peace dividend did not get spent elsewhere.’’ 

As I mentioned, it is our fault. Congress should be blamed. In my 

opinion, the House in particular because it is not enough for us to 

pass our legislation; we have to conference it with the Senate. Both 

Houses finally passed budgets this year. But only this week did we 

go to conference on the budget. Because after 5 years of begging 

our Senate brethren to pass a budget, then we refused to conference it with them. 

The Wall Street Journal on its editorial pages correctly pointed 

out, you can’t govern America with one half of one branch of government. It takes more than that. And it takes cooperation. It 

takes that dread word ‘‘compromise’’ to get along and get things 

done. 

So I am proud of the work that you gentlemen and ladies are 

doing at the Pentagon. I am sorry that you are under this distress. 

And I hope and pray that Congress will get its act together fast. 

We only have a few days before the budget conference is supposed 

to come up with a conclusion, a few legislative days. And by the 

way, we are only meeting next week like 1 or 2 days. We take the 

following week after that off. 

So I think the entire conference, the hope of compromise by December 13 only has a few possible days to come up with an agreement. That is appalling. The folks back home are expecting us to 

work 24/7/365 to get this done. They should be outraged that we 

haven’t done it already because the fiscal year started October 1. 

So this is the time for this body to get its act together. As you 

know, the Armed Services Committee is the largest committee in 

the House of Representatives. But we don’t act like it. We don’t exercise the commensurate influence within the body. And in this 

crucial hearing on the damaging effects of sequester, how many 

people are here? Six? And this is just a subcommittee; it is not the 
13 

full committee. But this is an embarrassing response to a national 

crisis that you gentlemen and ladies are correctly informing us of. 

So maybe one day you will have the right to question this side 

of the dais. I look forward to that. In the meantime, we should be 

punished for congressional misbehavior, both Houses, both parties, 

until we get the job done. 

Thank you, Madam Chair. 

Mrs. WALORSKI. Mr. Runyan. 

Mr. RUNYAN. Thank you, Madam Chair. 

And my question is actually going to be for General Moeller. 

Since I have been here, I have been a big supporter of the new 

tanker. There has been, obviously, some questions arose as of lately 

specifically dealing with things in my district. If you don’t know, 

I represent Joint Base McGuire-Dix-Lakehurst, which is home to 

most of our KC–10s on the East Coast. That being the workhorse 

of most of the refueling here on the East Coast and a lot of things 

overseas, in Iraq and Afghanistan, and dealing with homeland security. With the new tanker coming online slower than expected, 

obviously, because of many things we are discussing here today, 

the fact that there is probably really not much of a decrease in how 

we use those aircraft here, and if there is a delay in the 46 coming 

online, for the record, what does the Air Force plan for this critical 

platform? And is there program funding in fiscal year 2015 to support this vital refueling asset? 

General MOELLER. Congressman Runyan, thank you for the opportunity to talk with you. Before I talk specifically about platforms, let me just say that the blunt mechanism of sequestration 

drove us to look at all options, from across the Air Force. As Dr. 

LaPlante said, looking at our readiness accounts, our personnel accounts, force structure, and our modernization programs. We had 

to look everywhere in order to get to the billions of dollars in savings—not millions, billions of dollars in savings, especially in the 

near years in fiscal year 2015 and 2016. Because that is where sequestration drives the biggest cuts for us, for all of us, for all of 

the services, including the Air Force. With that in mind then, as 

we looked at where we were going to go to get—to gather the savings required to balance the program, we had to look at cutting entire fleets of aircraft. And the reason why we had to look at that 

is that in order to get the billions of dollars needed, we had to essentially go after overhead as much as we did force structure. Now, 

the cuts that we are talking about across the FYDP [Future Years 

Defense Program] are, for the Air Force specifically right now 

under sequestration, will be over 25,000 people and over 550 aircraft. That is the magnitude of the challenge that we face across 

the FYDP. Specifically, because all of our fiscal year 2015 through 

2019 program submission is pre-decisional, we can’t talk about specific platforms. But I will tell you that we looked in priority order 

at avoiding further readiness degradation, that was our top priority, especially in the near years, cutting the more capable aircraft, and/or doing irreversible damage to high priority investment 

programs, like the KC–46A. 

Mr. RUNYAN. That is just puzzling to me, because I get what you 

are saying about needing to find the places to cut that stuff. The 

readiness hole that I think it would create, I have yet to find any-
14 

one in the Air Force to give me an answer to say how you backfill 

that. This, potentially, with the 46 being delayed, could potentially 

be a huge problem. And if you are going to take out a whole air 

wing that supplies critical refueling, how do you fill that gap? 

General MOELLER. Well, Congressman, we will have gaps across 

the entire Air Force. Because it is not just, it is not just one platform. It is not just one capability. Sequestration, the levels of cuts 

require us to look across the Air Force. And so mitigating risk in 

one area is going to require offsets in others. The bottom line is 

that the Air Force, after sequestration, is going to be smaller. It is 

going to be less capable. It is going to be less ready, and it is less 

flexible. That, at the end of the day, is the bottom line of the effects 

of sequestration on your Air Force. 

Mr. RUNYAN. I would love to at some point personally sit down 

with you and have the numbers put out on the table and talk about 

it. I look forward to that. 

General MOELLER. Be glad to come over. 

Mr. RUNYAN. I yield back. 

Mr. TURNER [presiding]. Thank you. I want to thank Jackie 

Walorski for sitting in while I had the opportunity to attend a classified briefing for a few moments on the East Coast missile defense 

site. So I appreciate her taking the gavel for me. 

So now we will return to regular order. And regular order is such 

that we go through each of the members who were present at the 

gavel and then turn to those post-gavel. 

I want to start with, I always hate it when people make an issue 

partisan. Because nothing is describable or resolvable in its real effects on a partisan basis. This is a committee that very rarely will 

you ever hear anybody at any microphone say ‘‘the Democrats’’ or 

‘‘the Republicans,’’ because we are really all just working together 

on the same issue. 

I think when you look here at the number of Members who are 

present, we certainly have on this side of the aisle a great deal of 

attention on this, as we have had at the number of hearings that 

we have had. I can tell that on a bipartisan basis, my ranking 

member and I have both worked equally diligent on this, one being 

a Republican and one being a Democrat. 

I voted against sequestration. I voted against the President’s recommended legislation of sequestration. I voted against it because 

I felt that the administration did not have a commitment to resolving sequestration. When we talk about resolving sequestration, 

what we are talking about is finding offsets elsewhere in the budget. With sequestration, we have taken over half of the budget of the 

allocated cuts for sequestration and applied it to less than 18 percent of the overall budget, which is the Department of Defense. The 

task that the President had charged Congress with was finding 

cuts in this issue—cuts elsewhere in the budget to offset those to 

lift sequestration. So when people talk about that they want sequestration to be applied, and there are Members who openly say 

that, they are not saying that they want this to be applied to the 

Department of Defense. They say they want the conclusion of it to 

occur, that is the identification of those cuts, elsewhere. No one, no 

one in Congress believes that the Department of Defense should 

continue to be subject to sequestration. It is irresponsible for any 
15 

Member to say, especially on a partisan basis, that any Member believes the Department of Defense should be subject to sequestration. 

There are Members who believe that we cannot continue to 

spend out of control, and sequestration needs to be addressed by 

the process concluding, which is finding the source of those offsets. 

Now, people who voted for the Budget Control Act and for sequestration, who then speak about it disparagingly, as if it is everyone else’s responsibility, is one also I think is of question. That 

is why I am proud of the fact that I opposed it, and I oppose it now. 

And I want to turn to your answers as to its effects so that we can 

get the motivation for Congress to conclude the process of offsetting 

them. Now, I know there are many people who would like to characterize it otherwise. But today you get to help us characterize it 

as a real problem and one that needs to be resolved. 

Secretary Shyu, you said that the issue of uncertainty is wrecking the ability for both the Department of Defense to plan, for contractors to plan, for acquisition, and for the industrial base. You 

said that they need predictability. As we go forward with sequestration, we also have, beyond the what level these cuts will be or 

how they will be applied, the issue of the aggregate numbers and 

what their effects will be upon the choices that you have to make. 

Can you speak for a moment of the fact that these numbers themselves are so egregious that many of the tasks that you have been 

assigned in acquisition are not going to be able to be achievable 

and therefore could harm our long-term sustainability in our national security? 

Secretary SHYU. Yes. The fiscal year 2014 sequestration will 

have significant impacts. Because as we talked a little bit earlier, 

we don’t have any more buffer room left. Okay. We are going to 

defer maintenance on 172 of our aircraft, more than 900 of our vehicles, over 2,000 of our weapons systems, over 10,000 pieces of 

communication equipment. We will field less equipment to our brigade combat teams. It will impact our production in terms of quantities. We will buy fewer aircraft, eight less Apache helicopters in 

fiscal year 2014 sequestration. That is on top of eight reduction 

that was due to fiscal year 2013. So this means this will have a 

rippling effect in terms of fielding to our units. Okay. All of the 

ECP [engineering change proposal] upgrades that we had talked 

about, upgrades to our Abrams, to our Bradleys, to our Stryker vehicles are going to be impacted. Okay. So what does that mean in 

terms of rippling effect? It means, our contractor that is looking for 

stability of their workforce and of the contracts that they have can 

no longer plan for it. They continuously ask me what type of—what 

do I anticipate the budget is going to be so they can plan for their 

workforce? It is very difficult to give them any numbers, because 

we are planning for our POM [program objectives memorandum] at 

the PB [President’s budget] level, we are planning for our POM at 

the BCA level. And those have very, various different impacts. So 

the other rippling effect it has created for us is an enormous 

amount of additional work for our internal government folks to 

plan the what-if contingencies. We go through multiple iterations 

of planning. That is very, very disruptive. So I think, in my mind, 

if there is anything that this Congress can do to help us in terms 
16 

of stop sequestration, to bring back stability in our budget, that is 

the one key critical thing that we need, not just for the Army, but 

for our industrial base as well. 

General Barclay, you want to add? 

General BARCLAY. Sir, as Ms. Shyu said, across all the different 

categories. Because as the Secretary and chief have testified earlier, because if we cannot bring our force structure down fast 

enough we are going to have dramatic impacts on both readiness, 

the training, and on the modernization programs. So, as we look 

at both of those categories, there is a large impact on cancelling 

training, the rotations out at the national training centers on units. 

As Ms. Shyu said, with the Apache helicopters, not only are we 

not—reducing the numbers that we are purchasing, we have also 

gone away from the new buys, and we are now remanufacturing 

those platforms. We are taking old platforms and not purchasing 

new platforms. So, in an effort to meet the dollar cuts we have got, 

we are doing that across the fleet in several different categories, 

both in our ground combat vehicle category and also in our aviation 

category. So, as Ms. Shyu said, this will have a large impact on us 

as we move forward. 

Mr. TURNER. Mr. Stackley. 

Secretary STACKLEY. Yes, sir. I don’t want to repeat the theme, 

but the theme is the same. What I would simply add is, first, stability is absolutely critical to performance in our programs across 

the board. And what we have been experiencing over the last one 

and a half to 2 years, frankly, has been extraordinarily destabilizing. So this uncertain environment, budget environment that 

we are marching through is unraveling all the efforts that the Department has put into driving affordability in our programs. All 

those programs underpin current and future readiness. So, at the 

higher level, as the Commandant and as the CNO [Chief of Naval 

Operations] testified, what sequestration poses is a steady decline 

across the board in terms of operations, readiness, force structure, 

which ultimately equates to presence, response, and national security. And so we are on the front end of that today. In 2013, we saw 

deployments being cancelled. We saw the front end of procurements being cancelled. You are seeing delays to programs. When 

you compound that year over year, as posed through sequestration, 

it is not a straight line, it will quickly devolve in terms of, as the 

CNO testified, the 300-ship Navy that we require to meet our Strategic Defense Guidance, we are staring today at potentially a Navy 

of 250 ships in number. Eleven aircraft carriers and associated 

groups and amphibious groups are jeopardized to drop down to 

numbers of 10 and 9. And all that poses in terms of the ability of 

the Navy and Marine Corps to meet its role and responsibility toward the Nation’s defense. 

Mr. TURNER. Mr. LaPlante. 

Dr. LAPLANTE. So I agree with the theme. 

So, specifics, would say start with something that Dr. Paul 

Kaminski talked about in the 1990s, which was program stability, 

or more importantly, program instability was actually one of the 

principal causes of some of the acquisition woes. And the implication being one of the things us in leadership and acquisition must 
17 

try to do is offer that stability to the extent we can. I don’t think 

any of that anticipated the situation we are in today. 

Clearly, from a taxpayer’s perspective, taking a longer view term 

view beyond 6 months, beyond 3 months of buying complex weapons systems done correctly is smarter. A simple example is 

multiyear contracts done correctly are usually much better for the 

taxpayer than single-year contracts. Done correctly, fixed-price contracts are better for the taxpayer than cost-plus on programs where 

we can do it. Long-term efforts, like what we are doing right now 

with the F–35, under the leadership of Secretary Stackley, of looking at how, with the contractors we can bring down the operations 

and sustainment costs, which is really looking 5 to 10 years from 

now, all of that is better off in an environment where we have 

some idea. We understand things change. We understand what 

things go in and out of the budget. But just some basic idea on 

what the situation is. All that is put at risk by the situation we 

are in right now. Contracts that we put in place 2 years ago for 

the highest priority programs that remain so today, where we had 

no idea we would have the situation we are in today, where those 

contracts, because of the situation, are put at risk. Just 2 weeks 

ago, we had one of our fixed-price contracts come within about 24 

hours of having a major problem until the President signed the 

continuing resolution. Had he signed it 24 hours later, we would 

have broken one of our fixed-price contracts, because that is how 

it works. So instability, or program stability is so important to us. 

We recognize the fact that things change. But we have to do better 

than where we are right now. Thank you. 

Mr. TURNER. It is my understanding—again, I am saying the 

issue that I hate it when people make issues partisan that are not 

partisan because it impedes our ability to get things done—it is my 

understanding that while I was out, Mr. Cooper made the statement that the Republicans, there are Republicans who want sequestration to continue in effect and its effects on the Department 

of Defense. So I have to ask you all, you have been up here talking 

to Congress, Members of Congress, trying to tell them the effects 

of sequestration and its immediacy of the needs for relief. Have you 

ever had, Democrat or Republican, a Member of Congress say to 

you that sequestration for the Department of Defense should remain intact and that you should remain under sequestration? Any 

of you had a Member of Congress tell you that? No. Not one Democrat, not one Republican. So I just want to make that point, as we 

try to avoid people turning this into partisan. 

I am going to go to Mrs. Roby. 

But one other thing before I do. By the way, Mr. Cooper did vote 

for sequestration. 

Mrs. Roby. 

Mrs. ROBY. Thank you, Mr. Chairman, and I should take this opportunity as always to tell each of you thank you for your service 

to our country and to your families’ service and sacrifice, that 

means a lot to all of us here. 

Mr. Turner just touched on what I was going to ask to General 

Barclay and Mrs. Shyu as it relates to overall priorities when it 

comes to, you know, acquisition and procurement but also from a 

development standpoint. So I will just defer to the two of you to 
18 

determine who is best to answer my next questions, but General 

Odierno previously testified that the ITEP [Improved Turbine Engine Program] program was a key priority for the Army, and I 

know you mentioned in your written testimony that the ITEP program would be placed at risk. Can you elaborate on that as to 

whether it remains a priority and to what extent that the sequester 

may impact the Army acquisition strategy of maintaining competition to milestone B to reduce the risk and the cost? 

Secretary SHYU. The ITEP program is a very important program 

to the Army because it offers significant capabilities that we currently don’t have; namely, 25 percent fuel efficiency, as an example. We very much would like to have competition on all of our programs, but if the sequestration continues in its compounding effect, 

we may be forced to down select earlier than we would like, and 

that is the risk of sequestration, okay? 

I would like to give an example. That is exactly what had happened on JAGMs program, Joint Air-to-Ground Missile program 

that we had. We had a $33 million mark, then a $3 million sequestration on top of that, so it was a $36 million cut. We were forced 

to drop one of the contractors. It is not that we wanted to, but we 

were forced because of budget shortfall. 

General Barclay, would you like to add? 

General BARCLAY. Yes, ma’am, and as you know the ITEP engine 

is critical not only because of, you know, as Ms. Shyu said, we have 

fuel savings, 25 percent there, it also has a maintenance savings, 

and it is key to our developmental programs out in the future. We 

are working to get that into the current platforms, the Black Hawk 

and Apache, but it is also tied to our joint multirole aircraft, which 

is out in the future, so sequestration places this program at risk 

of having to do an early down select, which will, if we continue, and 

it appears that we will, for several years in this environment, that 

program not only will we do an early down select, it could put that 

entire program at risk because it is tied to other programs. So, I 

mean, all this links together as you move forward, ma’am. 

Mrs. ROBY. Can we talk for just a minute also about the impact 

on modernization of Army aviation and specifically how that is 

going to impact the Army Aviation Center of Excellence in Fort 

Rucker as it relates to the sequester? 

General BARCLAY. Yes, ma’am. As you know, Fort Rucker is in 

your district, and it is not only just sequestration. I mean, it is the 

continuing—as you move all those linked together, it already has 

had an impact at Fort Rucker. Fort Rucker was working around a 

1,400 student throughput for the aviation force. This past year they 

have dropped that down below 1,200. We are probably looking to 

go below a thousand students simply because of the cost rate. We 

are already at about a—you know, we worked very hard for about 

a 3-year period to get the student back load down to a manageable 

level. We are now back over 500 students in the back load, which 

that is about a 2-year problem to get that back, and it will only 

continue to grow as we move forward. So, from that training aspect, that also has an impact. 

The other part of that is as we start looking at our aviation portfolio modernization program, the training helicopter at Fort Rucker 

was one of those aircraft that we were looking at having to replace 
19 

because of the age of that. That again will be part of our look at 

the future to just determine what we can afford and if we will still 

be able to incorporate that into our future buys and programs. 

Mrs. ROBY. And just real quickly, I mean, I think this is the 

point that we want to emphasize. I mean, I, too, was opposed to 

the sequester for these very reasons, but let’s talk about how those 

numbers and the decrease in training of these aviation, these pilots, both in the Air Force and the Army, affects our readiness and 

our ability to do what we need to do, and I just—if you could just 

quickly comment on that because, you know, it has just—it is what 

keeps me up at night. 

General BARCLAY. Yes, ma’am, it is not only the Army. I mean, 

it is in the Navy, it is in the Air Force. 

Mrs. ROBY. Right, I know it affects everybody. 

General BARCLAY. All of our pilots are, we are restricting all of 

their flight hours. For example, we are only focusing on those combat aviation brigades that are getting ready to deploy back into Afghanistan. Those that are coming home, we have reduced their 

flight hours now to where they are not even at the proficiency level. 

We are only barely maintaining currency levels, and in some areas, 

as night vision goggles and some of the others, we are not able to 

maintain that level of currency because of the flight hour restrictions we are placing on those units that are not part of the war 

fight, are not categorized as next into the war fight into Afghanistan. 

Mrs. ROBY. Right. 

General BARCLAY. So that has a huge impact on the training 

readiness of those units. 

Mrs. ROBY. Well, again, my time has expired, but I just, I know 

it affects every person here in your position, and it is something 

that we absolutely have to address, not just in this committee but 

as the Congress because this hearing today, Mr. Chairman, demonstrates exactly where we are going to be when we enter year 

two. So thank you all for being here today, and again thank you 

for your service. 

Mr. TURNER. Great. Before I go to my ranking member for her 

comments and questions, I just want to note that our military officers will be given a chance to give a closing. We have had opening 

from all of our Secretaries, and then after their closing comments, 

if any of the Secretaries have additional thoughts that they would 

like to add to the record, you will also be given that opportunity. 

Hopefully our questions will be directed and elicit the types of information you want to give us, but in case not, you know that you 

will have that opportunity at the end. 

Turning to Ms. Sanchez. 

Ms. SANCHEZ. Thank you, Mr. Chairman. 

This subcommittee had the GAO take a look at the implementation of sequestration for fiscal year 2013, and I know that you have 

seen that. In their primary finding, they said no weapons systems 

programs were cancelled and no programs reported cancelling or 

severely changing program contracts. And they said OSD [Office of 

the Secretary of Defense] officials agreed with this assessment. 

So that kind of contradicts what DOD and the industry people 

were telling us would happen under sequestration. We were told 
20 

that the impacts would be significant, dramatic, immediate. Instead, it appears that, again, through a combination of unused 

funds and reprogramming and delaying development and reducing 

procurement quantities or getting better prices, as we did with the 

F–35, that we basically avoided disaster in fiscal year 2013. 

So my first question, and you can just say yes or no to this, is 

do you agree with the assessment by GAO that no weapons systems programs were cancelled and no programs reported cancelling 

or severely changing program contracts? 

And we will start with Ms. Shyu. 

Secretary SHYU. Yes. 

General BARCLAY. Ma’am, I have not fully read that program, so 

I will not comment on that. 

Secretary STACKLEY. I would say that every program was impacted. In the budget year 2013 in which sequestration hit, we 

were able to use prior year to absorb some of the impact, but, 

frankly, the Department of the Navy had to push a significant 

amount of that impact into the out-years, so the impact is still staring at us across the board in those same programs. Did we cancel 

any? No. Our priority was not to cancel and create more harm over 

and above what sequestration caused. 

Admiral MYERS. I concur with Secretary Stackley. What you 

didn’t see was the ability of the services to use unobligated investment funds, but those funds were earmarked or identified for each 

investment that we still have to reconcile either throughout the 

FYDP or past the FYDP. So we still have to pay those bills. We 

were able to make good decisions in the near term with only 6 

months in the fiscal year to avoid cancelling programs. The services 

are always looking for an opportunity for reversibility with the 

hope that the inflexibility of the sequester could be remedied by 

Congress. 

General WALTERS. Ma’am, I agree with my mates here, but I will 

tell you that every program we had in the Marine Corps was affected either by quantity or schedule, and I also think the sequester in 2013 has set the conditions to cancel programs in 2014 depending on how the budget plays out. 

Ms. SANCHEZ. Okay. But I am asking about the report itself because, you know, it says nothing was cancelled, no programs reported cancelling, and not severely changing program contracts. Is 

that correct or not? Because the OSC [Office of the Special Counsel] agreed with the GAO, so I am just—— 

General WALTERS. I am at a loss because I haven’t read the report, and I don’t know what the definition of ‘‘severe’’ is. 

Ms. SANCHEZ. Okay. 

General BARCLAY. Ma’am, I would like to state that I would be 

willing to talk to them immediately. GAO did not come in—I don’t 

know if they talked to any of the service components at all. 

Ms. SANCHEZ. Thank you, General. 

Dr. LAPLANTE. Cancelled, that perfectly—that could well be correct, absolutely correct what the GAO report says, but I will say 

the way it works is the step to cancellation is delay, and that is 

already started, and I am not saying the program is going to be 

cancelled because that decision has not been made, but Space 

Fence, the major Air Force program for space situational aware-
21 

ness has been put on hold, okay? Contractors were told to stop 

work on that program about September 15th. Is that cancelled? No, 

but—— 

Ms. SANCHEZ. Okay, that is why we are having this hearing, Doctor, because we want to get—you know, we get one report, but we 

want to get the truth here. 

Mr. TURNER. If I could for just a moment, and I think you have 

been, in your comments, you have been indicating you have not 

had an opportunity to fully review the report and digest or even 

some of you have not even seen it, correct? 

General MOELLER. I have not. 

Mr. TURNER. Have you seen it at all? Has anyone on the panel 

seen the report? 

Ms. SANCHEZ. Okay. 

Mr. TURNER. Well, let’s do this. 

Ms. SANCHEZ. Well, then I won’t ask that question. We will do 

that for the record. 

Mr. TURNER. Let’s provide you the report and leave this record 

open for you—— 

Ms. SANCHEZ. Perfect. 

Mr. TURNER. To give an opportunity in writing to answer what 

the statements are in the report—— 

Ms. SANCHEZ. Perfect. 

Mr. TURNER [continuing]. To include in our record. 

Ms. SANCHEZ. Perfect. 

Mr. TURNER. And we have your answers. 

Ms. SANCHEZ. Okay, for the Air Force, you stated previously that 

it would do whatever it takes to protect your top three acquisition 

programs, the F–35, the KC–46, and the long-range bomber. So assuming you would get reprogramming authority in a timely manner, which this committee somewhat controls, do you think you 

could protect those programs fully in fiscal year 2014? 

Dr. LAPLANTE. So I will give an answer for that. To begin with, 

of those three programs, the two in general that I think are at the 

biggest risk regardless, depending on the scenario, are F–35 as well 

as the KC–46, and the reason is quite simple in that the LRSB 

[Long Range Strike Bomber], the dollars in that tend to pick up in 

the production much later, so it just is fortunate in the case of that 

program. 

Let’s address each one at a time. For F–35, as I said earlier, 

without doing any relief, we are at risk of about four to five airplanes this next year, and we are not going to have the opportunity, unfortunately, to take advantage of another great negotiation to buy them back. Unfortunately, we just won’t have that in 

2014, that is just the way it works. So, with some flexibility, certainly that can be mitigated to some extent, to some extent, I can’t 

claim that all the airplanes will be bought back. 

The other part of the F–35 that we have to really pay attention 

to, which is beyond 2014, but it is really important, is finishing the 

development program, that is getting to Block 3F software, okay? 

And Block 2B before that. The Marines IOC with Block 2P in 2017, 

the Air Force roughly 2017, and then we get 3F in 2018. That is 

critical. Okay. So anything we do that will prevent us from pro-
22 

tecting that development program is bad. Can we protect it? I am 

hopeful we could, depending on how much flexibility. 

In the case of the tanker, if we were not given flexibility, and it 

comes out to be like a 13.5 percent cut like we said, that is a problem. The tanker is one of those fixed-price contracts that the government has a very, very good arrangement with. That was a lot 

of excellent work after a lot of difficult lessons learned. 

Ms. SANCHEZ. But if you could reprogram to save your top three, 

do you think you could do it? 

Dr. LAPLANTE. I think we could likely save those two that I am 

worried about with the following caveat. What that means for 

every other program is it means if we could—— 

Ms. SANCHEZ. That was my next question, what does it mean for 

the other things. 

Dr. LAPLANTE. If we could wall off, the numbers shoot up to cutting the other programs somewhere, I would say, close to 30 percent. 

Ms. SANCHEZ. What are the other big programs that you think 

would fall by the wayside or—— 

Dr. LAPLANTE. So this is where we get to the discussion of everything being on the table. So the types of dollars that one would 

have to find are only in the large platform programs, and that is 

where you get into the discussions of looking at divestiture, and 

you are looking at discussions of not starting new programs. So if 

you look at the Air Force plan and you say, you see new programs 

that would be starting, assume that that is at risk, and so that is 

all on the table. 

Ms. SANCHEZ. All right. A quick question on that, and then I am 

sorry, Mr. Chairman, but I am very interested in this issue, obviously. You talked about development two and a third development 

of the software with F–35. Is that because of concurrence? 

Dr. LAPLANTE. No, that is separate from concurrence. 

Ms. SANCHEZ. So software doesn’t have anything to do with the 

fact that we are building and doing, and we are coming back 

and—— 

Dr. LAPLANTE. No, no. 

Ms. SANCHEZ [continuing]. And doing things better? 

Dr. LAPLANTE. No. 

Ms. SANCHEZ. This is not—just yes or no so I know. Yes or no, 

with respect to concurrence because we bid this, and we are building it in a different manner, so for the future, I need to know, are 

we running into problems? Are you worried about development 

with respect to the software because we are doing things at the 

same time? 

Dr. LAPLANTE. I would say the answer is concurrence is not driving that issue at all. 

Ms. SANCHEZ. Okay, okay, I just wondered. The last question I 

have has to do with the Army. So the testimony lays out a range 

of programs which would be cut because of sequestration in 2014, 

including helicopters, armored vehicles, and communications equipment. Obviously, I think that is probably unacceptable, but I am 

thinking about the fact that I keep reading articles all over defense 

monthlies and dailies and weeklies where press reports keep telling 

us that the active duty Army will be down to 420,000 by 2019. So 
23 

that is a pretty—that is a smaller Army than we have today, and 

it is done fairly quickly. If, in fact, these guys who go out and report are getting this information from our generals and others who 

are in the know, maybe from some of us, given this rapid decline 

in force structure, how has the Army adjusted its procurement requirements, and do your comments today take into account the reductions that people are projecting for the Army? 

General BARCLAY. Well, first of all, on force structure, we started 

this at an Army of 570,000. We were going to an Army of 490,000 

by fiscal year 2017. The Secretary and chief have both testified 

that that was the level we were going to. Under sequestration we 

know that we cannot support an Army, not only can we not afford 

to pay for it, we can’t afford to train it, and we can’t afford to equip 

it with the sequestration. So the 490 is the force that we are at. 

We are looking at the impacts of sequestration and where we will 

have to take the Army down to. There are numbers that range anywhere from 380 in the AC [Active Component], back to about a 450 

number, and our chief and Secretary have talked about those different scenarios based on how we look at the plans, how we balance between readiness, we balance between modernization, and 

then where we will end up being, and so there is still a lot of space 

here to make some of those decisions. 

Ms. SANCHEZ. So refresh my memory. Before we got into the two 

land wars of Afghanistan and Iraq, what was the active number in 

the Army, do you recall? 

General BARCLAY. 482,400, ma’am. 

Ms. SANCHEZ. 482. So you were thinking you were going to come 

down to 490, so even more than what you had before we got into 

two major wars. 

General BARCLAY. Yes, ma’am. 

Ms. SANCHEZ. And what you are telling me these numbers I am 

hearing of 420 or you were saying 380 or 450 or whatever have to 

do with the fact that the Army is actually taking a look at sequestration and other budget issues to bring it down even further. 

General BARCLAY. I would say OSD is taking a look at sequestration. 

Ms. SANCHEZ. OSD, okay. 

General BARCLAY. And the impacts, and then as they spread that 

across the services, then we are all then coming back to lay out 

how we are going to address those sequestration cuts that are then 

given to the services. For us, we are manpower intensive. That is 

what the Army is. We are about people. We are a land force. 

Ms. SANCHEZ. Thank you. I know that; my husband spent 23 

years in the Army. 

General BARCLAY. So when about 48 percent of your budget goes 

against paying the bill for the manpower, then that is part of our 

equation to get to where we need to go, so we are going to have 

to take the force structure down. Do we know exactly how low we 

are going? No. And also I want to add that it is not only just Active 

Component. It is all components. It is Active Component, National 

Guard, and Reserve. They all take proportional cuts. We have no 

choice but to do that to all components to get down. And, yes, we 

have taken that into account as we are looking at all of these different programs, changing the quantities and buys and moderniza-
24 

tion impacts at different levels of where we will be and then how 

that will result in changing some of those numbers. So, yes, ma’am, 

we are. 

Ms. SANCHEZ. Perfect. Thank you for your answer, I appreciate 

it. 

Mr. TURNER. Mr. Cook. 

Mr. COOK. Thank you, Mr. Chairman. 

The cuts, because of the sequester and everything else, I have 

heard a few of the comments about significant impacts and some 

of the other things, and we have had other hearings, and I think 

all of us heard some very startling information, at least the hearings I was at, which basically said, we were not combat-ready to 

meet our current military contingencies and our treaty obligations. 

Now, I might be paraphrasing that incorrectly, but I know that 

specific question was addressed to all the different armed services, 

and I think the chair was there, so he can correct me if my memory 

fails me. But my point or the question that I am leading up to, 

what you have said here, it almost leads to a permanent C4 or a 

permanent declaration that each one of our armed services will not 

be combat-ready in perhaps the near future, 10 years. This is very, 

very scary. And I would like you to comment on what I was saying 

because a lot of the things with the sequester, I don’t think the average person understands it. They understand something where 

our Armed Forces are not prepared or combat-ready to go to war 

or a military situation where young men and young women can die, 

and that resonates, at least in my opinion, at least to me, at least 

to my district. So if you could kind of comment on where I am 

going with this because obviously, I am not a big fan of the sequester, particularly in regards to DOD and national security. 

General BARCLAY. Well, sir, from an Army perspective, I will tell 

you that I can break it down into a couple categories. First on the 

equipment side, if you look at it, and I will tell you that you run 

them from the CR impact to the sequestration impacts in 2014, 

brought forward by 2013, and then the future budget impacts. For 

example, we are putting soldiers at risk just because of the CR 

with a new start program for the counterhazard program for the 

protection against IEDs [improvised explosive devices]. Because of 

that we can’t start that. There are no new starts. So the CR has 

an impact on providing something that we currently want to start 

for soldiers that are in the fight now. Some of the delays that result from this, the Third Stryker double-V hull. As you know, the 

double-V hull protects against the IED and trying to get that third 

Stryker organization so we can get it into theater for the last part 

of the fight to protect soldiers. 

Ms. Shyu has already mentioned the delaying of the JLTV fielding and LIRP [low-rate initial production], so that has an impact. 

And then, again, on the COCOM [combatant command] side, the 

Patriot missiles, we will have four sets, four units that we will not 

field the new PAC–3 missile set to because of this, and as we have 

already talked about, the ITEP engine doing that. It is also going 

to desync some programs that we are trying to attach to the future 

programs, which deal with our network modernization, and as we 

remove some of our capability sets moving into theater, we are 

going to have to slow that down. When we started, we were going 
25 

to field to 10 brigade combat teams a year. We are now fielding 

only to those combat teams going into theater. And then so that 

has a training impact. 

On the readiness side, sir, you hit that; we have testified, I know 

the Secretary and the Secretary of the Army and the chief of staff 

of the Army have testified of the fact that those units that are 

going into the war are the only ones that we are training to the 

fullest level. Those are the only ones that are getting into our national training centers. All other brigade combat teams are not getting that opportunity because we don’t have the money to send in 

to those. So, as you continue to move forward, the readiness levels 

continue to come down from C3 to C2. Some of those that came 

home out of the war were the C2. They are going to continue to 

degrade down to a C3, C4 because we don’t have the funds to train 

them to the highest readiness levels. 

Admiral MYERS. First, thank you for the question, and this is 

part and parcel similar to Chairman Turner’s question, and I 

would like—the way I would like to answer it is in two parts, and 

the two take-aways are the terms uncertainty and inflexibility. Uncertainty is the budget environment that we are in right now. The 

uncertainty of not knowing when we are going to have a budget or 

what that budget is going to be. As a Navy, we are asked to provide forward presence with capable ships to do our Nation’s business. To do that, we have to plan, we have to plan strategy, a budget, we have to plan for aviation and ship depot maintenance. We 

have to train our people, and we have to have a plan for that. We 

also have to have our maintenance schedules. With the uncertainty, it is disruptive when it comes to the planning. With the inflexibility that we see with the budget environment that we are in 

right now, we have already seen what happened in 2013, and when 

we look at 2014, the combination of a continuing resolution and a 

sequester is going to impact our training. It is going to reduce the 

number of carrier air wings that can effectively train. In 2013, we 

had two carrier air wings that had to go to reduced training. In 

2014, it is going to be more than twice; half of our carrier air wings 

are going to be at reduced training. Those that are overseas or getting ready to go overseas will have the training that they need, but 

this is starting to impact our ability to surge. 

The sequester in 2014 is going to impact depot maintenance, it 

is going to impact procurement, it is going to impact every facet of 

the Navy because it is inflexible, and so when you take that inflexibility and you stretch it out for 10 years, what you have is a Navy 

that is less and less capable of providing the surge that we used 

to. It is a Navy that is increasingly challenged to have the readiness standards that we need for the nondeployed units. It is a 

Navy that is challenged when it comes to filling the missions of the 

Defense Strategic Guidance, specifically to project power, to deter 

and defeat, to provide the kind of support that we need for 

counterterrorism and regular warfare. 

Mr. TURNER. Thank you. 

Turning to Mr. Wenstrup, but I just want to make one note in 

that the issue of the language that we used with respect to sequestration, when we talk of lifting sequestration, people who are discussing it want generally offsets to occur so that sequestration can 
26 

be removed from the Department of Defense, so they are not just 

saying increased spending. But the other issue is, Admiral, as you 

were saying, the issue of flexibility or inflexibility. There are two 

aspects to sequestration, and I would just ask you in your closing 

comments to address this after Mr. Wenstrup and the others get 

to question. 

The bottom-line number under sequestration is also not right. If 

we say flexibility is what is needed, you are stuck with a lower 

number that is going to cause you to be incapable of achieving a 

lot of your goals. As the President structured sequestration, it was 

supposed to be an irrational program and that was indiscriminate 

in its effects and was to not have the Department of Defense have 

flexibility because, as he structured it, it was intended to be a penalty for, you know, a budget deal to be found that would solve the 

issue of sequestration, which is what we are hoping that certainly 

is solved now. But I don’t want, in your very clear statements of 

its effects being damaging because of inflexibility, I don’t want people to conclude that the answer is we will just provide flexibility, 

and we don’t have to provide additional dollars, and the Department of Defense is good and made whole. I know it is not what you 

intended, but I just wanted to make that footnote. 

Dr. Wenstrup. 

Dr. WENSTRUP. Thank you, Mr. Chairman. 

I appreciate you being here and all that you do. I am an Army 

reservist, been in 15 years, a year in Iraq, and I—you know, before 

I came here, I know like anyone else that there are places we can 

make cuts. There are things that we can cut out, we can 

reprioritize, but I have a grave concern about our readiness at this 

point, and I have seen the numbers, at least on the Army side, 

what the projections will look like, and clearly, it is not a force that 

is ready to take on the problems in the world, and what we have 

seen recently, we cut the military and then deploy them. We ask 

them to go into Libya, and we talk about going into Syria. I mean 

this is a combination that obviously can’t go on, and I still serve 

as a surgeon at Walter Reed, and I can tell you, I know firsthand 

by what the people I see coming through that we are still at war 

now. We are asking way too much with way too little, and I am 

a firm believer, and I have always told veterans, and you can appreciate this, you meet a veteran who says, Well, I served but not 

during a war. And I tell them, if you weren’t there, we would never 

have peace. 

And we need to maintain a strong deterrent force in this country 

whether we are at war or not, and there should be a baseline that 

we maintain always and have the ability to ramp it up when we 

need to and do it quickly because we can’t expect the industry to 

be able to turn on and off. And we can’t expect our personnel to 

be able to turn it on and off, and when I look at what we are doing 

today with cutting personnel in this economy, you are going to have 

people going on unemployment. And I know that comes out of your 

budgets ultimately. We are paying them anyway. So it is really a 

shame the trend that we are on, and I sit on these committees, and 

I see everyone is concerned. And I know you have to testify in front 

of other people. And I know you meet with the Senate and hopefully the administration. 
27 

And I really just want to ask, is there anyone who doesn’t get 

it? Do you find opposition to what you are saying when you say we 

aren’t ready? Is anyone saying back to you, Oh, yes, you are, you 

are okay, we are going to be fine with what you have got? I need 

to know that because I am wondering why we aren’t getting this 

taken care of, and if anyone would care to comment on that I would 

appreciate it. 

General MOELLER. Congressman, I have never heard anyone say 

that sequestration has had a positive effect on service readiness 

across the board. You know the negative impacts on the Air Force 

in fiscal year 2013, and I will go back to Ranking Member 

Sanchez’s question about the GAO report. One of the key places 

that we went in 2013 was to our readiness accounts in order to 

cover down on our investment accounts. In fiscal year 2013, 31 

combat-coded squadrons in the Air Force stood down for a significant amount of time. Seven of those, seven additional squadrons 

were reduced to takeoff and landing currency only. They were flying at the minimum rates. Just as with the other services, we deferred critical, critical maintenance on our aging platforms in order 

to make sure that we could pay the bills and continue with our investment accounts with minimal impact—that is not true—with 

less impact on our investment accounts that we would have had if 

we didn’t go to the readiness accounts. So, from an Air Force perspective, we were not ready in 2013. It drives readiness degradation into 2014, and under sequestration, we will not recover our 

readiness so that we are ready to fight tonight. 

General BARCLAY. Well, sir, as I stated earlier, again, we are 

only preparing those brigade combat teams that are going into the 

fight. The rest of them, where in the past we would try to maintain 

at the battalion and brigade level of proficiency, we are now going 

down to the platoon level, sometimes to the squad level, and the 

National Guard and Reserves, based on sequestration, they may go 

down to the individual crew and squad level, which is the lowest 

level of training that we have ever been, and that is due to only 

having the money to train those forces to the level that are the 

next deployers that are getting ready to go into the fight. 

Dr. WENSTRUP. So when I talk about—in followup to that, if I 

may, General, when I talk about a deterrent force, basically what 

you are saying is we really don’t have one right now because the 

ones that are trained and ready to go are the ones that are going. 

Would that be correct? 

General BARCLAY. Yes, sir. We are not training to full-spectrum 

operations for the rest of the force. 

Dr. WENSTRUP. This is on us, and I yield back. 

Mr. TURNER. Mr. McIntyre. 

Mr. MCINTYRE. Thank you very much. 

Thank you, gentlemen, for being here. Two questions in two different areas, and I know I had to come in a little bit late because 

of some other situations. Everything is happening today now that 

we are back on a regular schedule. But I just want to clarify, one 

is on the F–35. I know that the recent flight hours now exceed 

10,000 hours, recent estimates based on actual flight hour testing 

reveal life-cycle costs about 20 percent lower than originally estimated, with the Marine Corps analysis the cost per flying hour of 
28 

the F–35V model about 16.6 percent lower than earlier Pentagon 

estimates, which achieves a savings of $12.3 billion over the next 

five decades. I guess my question to the three services that have 

the F–35 is, do you feel like the initial operation capabilities as 

well as the life cycle for your respective version of the F–35, in 

what way will that be impacted by sequestration? 

Secretary STACKLEY. Let me start, sir, and I will ask Admiral 

Myers and General Walters to join in. First, the data that you just 

described in terms of costs reflect the positive trend that the program is on in terms of driving down costs, not just procurement, 

but also as we enter the in-service period of the program, greater 

visibility, fidelity to the operating support costs that we are able 

to attack, and in fact, we are seeing projections come down in that 

regard, and that is all good. The IOC dates that were set by the 

service chiefs earlier in this year that they reported to Congress, 

those dates were set with a clear understanding of what the requirement, the capabilities would need to be to support those IOCs 

and as well realistic schedules that go with those. So both the Marine Corps and the Navy IOC dates and the 2015 with Block 2B 

and then 2018 with Block 3F capabilities with the aircraft. We 

have a good track on those, we understand performance to those 

goals. We understand what the capability will deliver, and equally 

and more important is maintaining the path that goes beyond 

those initial capabilities through the continued development of the 

program. So, right now, after much great effort on the part of the 

program, industry to turn things around in terms of cost and technical performance, we are seeing the positive returns that we have 

been yearning for through a long program. 

Admiral MYERS. I would like to add that the sequester pressurizes the Navy’s ability to get to IOC in 2018 with Block 3F. We remain committed. We know that unchecked or unaverted, that the 

sequester will remove a F–35C from the U.S. Navy and F–35B tail 

from the U.S. Marine Corps, but the continued sequester is—when 

I use the term ‘‘inflexible,’’ I mean that the sequester applies a percentage to a program project or activity, so as you take those percentages in the case of fiscal year 2014, which is the 10 percent sequester when we exempt military personnel, for the Navy is a 14 

percent impact to the program. That puts pressure, and it puts 

delays into the development and ultimately it puts at risk our ability to get to IOC in 2018. 

General WALTERS. Sir, to your point on the F–35B, I know a lot 

of the data that we have is from the F–35B that the Marines are 

flying right now. We are still on track. We note that a sequester 

in 2014 will take a tail out. We still think we can get to our 2017 

IOC and then deployment of that aircraft to where it needs to be. 

But more to your point on sequester and related to the cost to 

operate the aircraft, like all aircraft that I have seen in my career, 

the flying hour costs if we do due diligence and we get the money 

in the program and we get the engineers to look at it, cost to operate will come down. Sequester, you know, I fear if we continue on 

that path, will reduce those efforts, and I would hate to see us bottom out on the cost to operate those aircraft. I would like to continue. We need those efforts to continue so we can operate the air-
29 

craft at the most cost-effective cost way in the future. I think that 

is what you were looking for. 

Dr. LAPLANTE. Yeah, just a quick comment that the Air Force is 

seeing the same potential positive developments. We have some 

momentum going on controlling the O&S costs, but a lot more work 

has to be done. 

Mr. MCINTYRE. Thank you. 

Thank you, Mr. Chairman. 

Mr. TURNER. Mr. Bridenstine. 

Mr. BRIDENSTINE. Thank you, Mr. Chairman. 

I appreciate the comments on IOC. Beyond IOC, when you talk 

about multiyear procurement—I am a Navy pilot by trade. I flew 

E–2 Hawkeyes and F–18s, and we worked hard to get multiyear 

procurement of the E–2D, something I thought was critically important for our carriers, and my concern is I have heard testimony 

from Admiral Greenert that because of the sequester, we are in a 

situation where we are going to have to give up an E–2 Hawkeye 

in the procurement process, and of course, the reason is the cost 

per unit is going to be higher if we can’t do multiyear procurement. 

And I guess my question would be, there are a number of concerns. 

Number one, the cost per unit of course is going to be higher than 

it otherwise would be, so that is a problem for the taxpayers, and 

beyond that we have an industrial base that is going to in the future want to enter into long-term contracts for multiyear procurement, and now there is a political risk in doing so beyond just the 

technical risk, and I guess, Mr. Stackley, if you could comment on 

how does the sequester affect multiyear procurement? 

Secretary STACKLEY. Yes, sir, and there is two parts to this, and 

I think since you brought up E–2D, I will talk to that one specifically. E–2D’s multiyear procurement authorization is awaiting passage of the Defense Authorization Act, so it has been supported by 

both House and Senate, but we cannot move forward without that 

authorization. So step one is we need it authorized, and as well it 

has to be included in the appropriations bill. So we need an authorizations bill and an appropriations bill that provide for the E–2D 

multiyear. 

The second impact when we put together the multiyear construct 

for E–2D 5 years procurement, 32 aircraft, that brought the requirement for substantial savings that goes with the certification. 

When you look at the impact of sequestration, in the first year of 

the multiyear, where you are at risk of losing one of the first five 

aircraft, and then the potential over the 5 years of continued sequestration, now you have got this destabilizing impact on a program plan that is trying to bring stability and bring the affordability that comes with that. So what we are trying to hold on to 

here is the stability that the multiyear provides, not just for the 

affordability it gives us but also for the industrial base, and we are 

trying to do that in the face of this storm called sequestration, and 

we are working with industry, the contractor, as we negotiate this 

multiyear, and we are waiting on Congress to pass it in both the 

authorization and appropriations bills, so we can execute it. And 

what we have to do is we have to do this in such a fashion that 

if downstream, there is another shift in terms of the budget, we 

will plan for the multiyear that we provided, but if the budget, if 
30 

there is a tectonic shift in the budget, then that may well impact 

the E–2D program. We have to construct this so we don’t lose the 

savings for the aircraft that we ultimately buy. 

Mr. BRIDENSTINE. As far as contracts, would there be cancellation of contracts as a result of the sequester, the longer-term contracts? 

Secretary STACKLEY. If you look across the board in terms of 

Navy multiyears, I think we have seven multiyears on the books 

right now, and one of them, for example, is the MV–22. So that is 

an ongoing multiyear. Sequestration in 2014 threatens three of the 

aircraft in that budget year. That would break the terms of that 

multiyear contract. 

I will tell you that the savings that we get across the multiyear 

are just, they are core to our total program plan. So, regardless of 

what comes out of the Congress in terms of appropriations in 2014, 

we are going to continue to work with industry to hold together the 

goodness of the multiyear going forward, and for each of the 

multiyears that we are staring at, we are going to go down that 

same path. 

Mr. BRIDENSTINE. When you think about the future of multiyear 

contracts, would it seem, you know, I guess, reasonable that industry would build into the price of their products the risk that 

multiyear contracts might not be worth what they otherwise, you 

know, indicate on paper, and as such, they would—we wouldn’t 

benefit as much from future multiyear contracts. Is that a fair assessment? 

Secretary STACKLEY. Almost. Frankly, the risk is on the government’s part because when we sign up to that multiyear, we are 

making a commitment to a certain quantity over a number of 

years. Now, what industry provides back to us is a cancellation 

ceiling. If they cancel at any point in the program, we understand 

what our liability is associated with some of the nonrecurring costs 

that they have incurred in order to achieve the savings that the 

multiyear promised. If we break—if we, the government, break our 

part of the contract, then we are in a negotiation situation with industry to make it right for whatever we ultimately procure on the 

balance of the multiyear, and that negotiation is a bilateral negotiation. And we are going to ultimately arrive at what is fair and 

reasonable for both parties. 

Mr. BRIDENSTINE. Got it. I yield back. I yield back. Thank you. 

Mr. TURNER. Thank you. 

Well, I appreciate your comments today including your written 

statements. We greatly appreciate your dedication. With each of 

you, you have very complex issues to manage, funding, technology, 

contract vehicles, congressional lack of action or action, and with 

each of you not only are you anchored currently in the present, you 

are seeing the future. You see what we need to do and what is possible and what our options are as we go to new threats. So that 

is why I think your statements on sequestration are so important 

because it is not just about what is happening today or tomorrow, 

it is also what is happening in the future as a result of these effects. 

As I indicated, I want to give each of the military officers an opportunity to add to their comments anything that they believe they 
31 

would like to conclude with on the record, and then I will offer that 

also to the Secretaries. 

We will begin with General Barclay. 

STATEMENT OF LTG JAMES O. BARCLAY III, USA, DEPUTY 

CHIEF OF STAFF, G–8, U.S. ARMY 

General BARCLAY. Chairman Turner, Ranking Member Sanchez, 

and other distinguished members of the subcommittee, again, I 

would like to thank you for the opportunity to present this statement today and answer your questions. 

The Army’s leadership understands the gravity of our Nation’s 

current fiscal situation, and as the Army’s G–8, I must allocate resources that balance manpower, readiness, and equipping for our 

Army to meet the Defense Strategic Guidance and the defense 

budget priorities. However, the combined effects of the continuing 

resolutions and the magnitude and inflexible nature of sequestration put at risk our ability to fully meet the requirements of that 

Defense Strategic Guidance. Annual continuing resolutions cumulatively weaken equipping efforts over time. Delaying new starts and 

reducing procurement quantities in short order drive up our costs 

and ultimately postpone the fielding of much needed equipment to 

our soldiers. For the purpose of illustration, if the Army operates 

under a full CR in fiscal year 2014, we would be forced to defer 

new counterhazard programs for our soldiers’ protection against 

IEDs. We would also delay the filling of the Stryker double-V hulls 

to the Third Stryker brigade combat team, and we would reduce 

combatant commanders’ Patriot missile loads for four units. 

As the Army Chief of Staff has recently testified about sequestration, the Army cannot reduce its end strength fast enough, so readiness and modernization will take the brunt of cuts through fiscal 

year 2017. The cuts result in significantly degraded readiness and 

extensive modernization shortfalls in the near term. Over the fiscal 

year 2018 to fiscal year 2023, the Army may begin to rebalance 

some readiness and modernization and try to meet those requirements that are laid upon us by our Nation, but we will do that by 

paying in force structure and end strength, and we will add significant risk to the Army’s ability to conduct even one sustained major 

combat operation in the future. If sequestration levels continue in 

fiscal year 2014, they would compound the cumulative effects of the 

CR. The detriments imposed would cause the Army to assume significant risk in our combat vehicle development, it would reduce 

our Apache helicopter procurement by 50 percent, which is the 

equivalent of one attack battalion, it would halt the procurement 

of the warfighter information network, and that would have an impact on 58 brigade combat teams. And without relief from sequestration in the future, we would be required to take increasingly significant actions by ending, restructuring, or delaying about 100 acquisition programs. The sequestration levels would result in decreased capabilities for the soldiers in every area, from our combat 

vehicles to aviation to air missile defense. 

In the end we strive to be good stewards of the taxpayer dollars 

while balancing the existing resources we have to meet the Defense 

Strategic Guidance. However, the combined effect of CRs and sequestration undermines these endeavors. The end state is a less 
32 

modernized force at an increased cost today that results in an inefficient and wasteful use of taxpayer dollars and an undersized, less 

capable force in the future. We urge Congress to provide fiscal stability and predictability, pass timely annual appropriations and 

eliminate sequestration. If we must operate under a continuing resolution, we ask you to provide new start authority. Doing so would 

help us mitigate some of these effects. 

Chairman Turner, Ranking Member Sanchez, members of the 

subcommittee, again thank you for your unwavering support of the 

men and women of the United States Army, our Army civilians and 

their families, and I appreciate the opportunity to testify today. 

[The joint prepared statement of General Barclay and Secretary 

Shyu can be found in the Appendix on page 44.] 

Mr. TURNER. Thank you. 

Admiral Myers. 

STATEMENT OF VADM ALLEN G. MYERS, USN, DEPUTY CHIEF 

OF NAVAL OPERATIONS FOR INTEGRATION OF CAPABILITIES AND RESOURCES (N8), U.S. NAVY 

Admiral MYERS. Chairman Turner, Ranking Member Sanchez, 

and members of the committee, it has been an honor to appear before you today to discuss the impacts of the continuing resolution 

and the budget sequester on the Navy’s fiscal year 2014 acquisition 

programming and industrial base. Our fiscal year 2014 budget request supports the Defense Strategic Guidance, and it will enable 

us to continue to rebalance our effort towards the Asia-Pacific rebalance, supports our partners in the Middle East, and focuses our 

presence at key strategic maritime crossroads. It also enables us to 

meet the highest priority capability demands of the geographic 

combatant commanders. 

To be frank, sequestration combined with a continuing resolution 

in fiscal year 2014 will be very hard on our Navy. We will have 

to absorb a larger reduction than we did in fiscal year 2013 from 

a smaller amount, a smaller submission. In fiscal year 2014, we 

don’t have the prior-year assets that we can use to mitigate the impacts as we did before, and we don’t have the ability to just defer 

carryover bills into the future years like we did in the past. These 

are going to start to compound. 

As the CNO has testified, sequestration and continuing resolution will reduce our readiness in the near term, and it exacerbates 

program reductions that are required under the current law and 

long term. We have been compelled to cancel or defer maintenance 

and investments in critical aviation programs, unmanned systems, 

and weapons systems. 

As the Nation continues to find a fiscal balance, the Navy is endeavoring to ensure that the near-term readiness and the future 

warfighting capabilities are properly balanced. To do this, it is important that we establish and pursue a plan for the future to develop a deliberate nature on how we go about finding fiscal certainty. 

Now, we are committed to an efficient use of the American taxpayer dollars, but the reductions of this magnitude take time to implement, and it takes time to reap the savings from. They also need 

to be done very carefully and strategically. 
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As I previously testified to Congress, I feel like the most serious 

impact of sequestration and the continuing resolution is uncertainty. It is imperative that we have a predictable budget and associated authorities. Stability, that is what we need. It will enable us 

to plan and develop and execute a strategy that guides our efforts 

to sustain the appropriate readiness for today’s Navy while building a fleet for the future that is able to deliver the most important 

presence and capabilities that our warfighters need. 

As I testified just a few minutes ago, the role of the Navy is to 

operate forward and to be ready with a trained and capable force, 

but to do that we have to plan, we have to plan a strategy, a budget, aviation and shipbuilding plans, operations plans, training 

plans, maintenance schedules. We need sailors that are trained and 

ready to man and operate our ships and aircraft when they are 

needed and where they are needed. Sequestration and the budget 

uncertainty and the immensely disruptive nature of the combination impacts our ability to plan and act strategically and execute 

efficiently. It disrupts our ability to operate. We saw that in fiscal 

year 2013. It disrupts our ability to train and maintain the way 

that we need to, which then impacts the way that we are going to 

operate in the next fiscal year, and most significantly, it disrupts 

our dedicated sailors, civilians, and their families because of all the 

uncertainty that is now a challenging part of their everyday life. 

We understand what our responsibilities are. We also understand that this is something that we need to work through together, and anything that we can do together to put certainty and 

stability back into the budget process, to end the automatic and inflexible sequester and the BCA caps, would not only be appreciated, but it would be embraced by the 634,000 Navy sailors and 

civilians that are operating around the globe protecting this Nation. Thank you for the opportunity to testify on behalf of the 

United States Navy. 

[The joint prepared statement of Admiral Myers, Secretary 

Stackley, and General Walters can be found in the Appendix on 

page 55.] 

Mr. TURNER. It is my understanding that votes have been called, 

so we have about 10 more minutes. 

So, General Walters and General Moeller, I am going to ask if 

you could keep your comments relatively brief and giving some opportunity to the Secretaries. Saved by the bell. 

STATEMENT OF LTGEN GLENN M. WALTERS, USMC, DEPUTY 

COMMANDANT FOR PROGRAMS AND RESOURCES, U.S. MARINE CORPS 

General WALTERS. Got it, sir. I will throw this piece of paper 

away here. 

Chairman Turner, Ranking Member Sanchez, distinguished 

members of the subcommittee, thank you for the opportunity to testify today. As the Commandant of the Marine Corps testified before 

this subcommittee a little over a month ago, the Marine Corps is 

the Nation’s expeditionary force in readiness, our Nation’s hedge 

against uncertainty with forces poised to swiftly respond to crisis 

and disaster, offering immediate options for strategic decisionmakers while simultaneously buying time for a follow-on joint 
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force. We mitigate this, we mitigate the risk inherent in an uncertain world while being ready to respond to today’s crisis with today’s force today. 

However, our ability to mitigate these risks is compromised by 

our inability to get a budget approved and the facilities and sound 

management of personnel and equipment and limited resources 

from one year to the next. Since our readiness is directly linked to 

resources, sequestration-level cuts in fiscal year 2014 will force us 

to forfeit long-term priorities to fund near-term readiness. 

The impacts we face on readiness today will have primary and 

secondary effects. While the primary effects on short-term readiness will begin to be observable in fiscal year 2014, longer-term effects will be even more devastating. We are consuming tomorrow’s 

seed corn today to feed our requirements for readiness today. 

Sequestration has and will continue to have a significant negative impact on our civilian workforce. Our civilians play a critical 

role in the acquisition process, financial management, ground 

equipment maintenance, training range operations and installation 

support services, and all of our family support programs. 

In fiscal year 2013, our civilian workforce took a 6-day furlough 

and started this fiscal year on furlough. Money was not the reason 

they chose to work for the Marine Corps. They chose to work for 

public service and to serve their fellow civilians. They chose public 

service to do their part in making the United States the best country in the world. 

If we don’t value their contributions, many will choose to find a 

line of work elsewhere. The specter of further furloughs or reductions in force present significant challenges to our ability to retain 

and attract the talent we need. 

I thank you for this opportunity to share my thoughts. 

[The joint prepared statement of General Walters, Secretary 

Stackley, and Admiral Myers can be found in the Appendix on page 

55.] 

Mr. TURNER. General Moeller. 

STATEMENT OF LT GEN MICHAEL R. MOELLER, USAF, DEPUTY 

CHIEF OF STAFF FOR STRATEGIC PLANS AND PROGRAMS, 

U.S. AIR FORCE 

General MOELLER. Chairman Turner, members of the subcommittee, the continuation of sequestration will make the Air 

Force significantly smaller, less capable, less flexible, and less 

ready to meet our Nation’s current military obligations. Most importantly, it will make it very difficult for us to prepare to meet 

the challenges we will face in the future. The erosion of readiness 

will carry far greater consequences. It means we may not get there 

in time. It means less—it may take longer for the joint team to 

win. And when we do respond, we will put our invaluable men and 

women who go into harm’s way at greater risk. Simply put, if sequestration is fully implemented over the course of the next 10 

years, the Air Force will not be ready to fight tonight; it will struggle to be prepared to meet tomorrow’s challenges. 

To maintain the minimum levels of readiness and sustain our 

highest investment programs, the Air Force will be forced to cut 

thousands of total force airmen and hundreds of platforms. As we 
35 

divest force structure, our priorities are to retain the global longrange capabilities and multirole platforms that are required to operate in highly contested environments. We will focus on divestiture of entire fleets of aging and costly platforms and those less capable and less survivable in heavily defended airspace. We don’t 

want to do this. But the bottom line is sequestration will mean a 

smaller Air Force, period. 

[The joint prepared statement of General Moeller and Dr. 

LaPlante can be found in the Appendix on page 72.] 

Mr. TURNER. Do any of the Secretaries have any closing comments? 

Secretary SHYU. Quickly, the combined effects of CR and sequestration are devastating. We are reaching a historical low in research, development, and acquisition in the Army, which will continue to degrade our capabilities and our modernization, and put 

our soldiers’ lives at risk in future contingencies. We need budget 

stability without sequestration. We need to have the ability to plan 

without CR, sequestration, furloughs, and government shutdowns. 

Thank you for the opportunity to testify, and thank you for your 

unwavering support of our soldiers. 

Secretary STACKLEY. Sir, briefly, the Congress and the Department of Defense share the common responsibilities to protect the 

Nation and take care of our men and women in uniform. We have 

presented the Defense Strategic Guidance as the document, that 

tool to describe how we intend to meet those responsibilities, and 

we have submitted the President’s budget request as a determination of the funding we believe is necessary to meet the Defense 

Strategic Guidance. And in 2013, and again before separate committees in 2014, that budget request was fully supported by the 

Congress. And yet the invisible hand of sequestration for the Department of the Navy took $11 billion out in 2013 and threatens 

to take another $16 billion out in 2014. That results in a smaller 

Navy, smaller Marine Corps, less presence, less ability to meet the 

Defense Strategic Guidance. And this at a time when peer competitors are increasing their investment in their capabilities and their 

force around the world. 

Mr. TURNER. Mr. LaPlante. 

Dr. LAPLANTE. Thank you, Chairman Turner, and thank you to 

your committee, your subcommittee’s work. I would finally just add 

that we need help in getting our readiness back, and we need to 

get stability so we can do acquisition for the warfighter and for the 

taxpayer. Thank you. 

Mr. TURNER. The title of this hearing was ‘‘Impacts of a Continuing Resolution and Sequestration on Acquisition and Modernization.’’ I think for impacts, with all of your testimony, we can 

say that the conclusion is ‘‘Sequestration: Bad and Getting Worse.’’ 

With your help, hopefully we will be able to offset it. I am very 

proud to have voted against this. I know all members of the Armed 

Services Committee are very proud to continue to work to get it 

lifted, and by ‘‘lifted’’ we mean, of course, that there are offsets 

elsewhere in the budget so that sequestration will not have these 

devastating impacts on the Department of Defense. Thank you all 

for what you do. We will be adjourned. 

[Whereupon, at 5:31 p.m., the subcommittee was adjourned.] 

A P P E N D I X 

OCTOBER 23, 2013 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

OCTOBER 23, 2013 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

OCTOBER 23, 2013 

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QUESTIONS SUBMITTED BY MR. TURNER 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

Secretary SHYU. An extended Continuing Resolution (CR) and the FY14 proposed 

sequestration reductions would adversely impact the following aviation programs: 

Apache, Chinook, and Gray Eagle. The CR limitations and the sequester cuts would 

reduce procurement quantities, delay fielding of critical aviation systems, impede 

contract negotiations and put some existing contracts at increased risk. 

An extended CR would also delay the start of some network programs in FY14 

and challenge program execution efforts due to funds released later in the fiscal 

year. Sequestration reductions have reduced procurement quantities across all existing network programs such as WIN–T, Tactical Radios, and Waveform Development, and will delay development and testing of some critical networking capabilities beyond the Future Years Defense Program. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

Secretary SHYU. In general, the earlier a program is in the acquisition lifecycle, 

the less disruptive a funding reduction. Unless the program is responding to an Urgent Operational Need Statement, most early contractual efforts are based on cost 

type contract vehicle where the government and the contractor share risk. In the 

later phase of a program, in production, contract vehicles for operational testing or 

for fielding efforts become fixed price oriented in general, where the contractor assumes more risk than the government. 

For example, a program that is pre-Milestone B (in Technology Development) is 

able to absorb shifts in funding easier than a program that is post-Milestone B. 

Once the Acquisition Program Baseline is established, a program must meet the established baseline or it must report to Congress on why it did not meet them, either 

through a significant change or a critical change. 

The most grievous concern would be a statutory violation as a result of a funding 

reduction, a Nunn-McCurdy Statutory violation or the equivalent for a Major Automated Information System program (failure of a program to achieve Initial Operational Capability prior to five years from Milestone A or funds first obligated). 

These violations must be avoided. Other statutory requirements levied on the Department of Defense must also be taken into consideration as well, for example, the 

Army’s statutory requirement to be financially auditable by the end of Fiscal Year 

2017. 

Reducing procurement funding usually reduces the quantity purchased with a resulting increase to the per unit cost. Quality reductions may result in a production 

line break, industrial base impacts —particularly to second and third tier vendors— 

and delayed delivery to the Warfighter. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

Secretary SHYU. Sequestration reduces the level of available appropriated funding 

which will affect all programs, regardless of contract type. On many fixed-price contracts the quantities would be reduced to meet the available dollars and we would 

expect the unit costs to rise. The effects on multi-year procurements are more pronounced: if sequestration reduces the quantity buys to below the minimum level, a 

new negotiation may be required on the terms and conditions of the new contract. 

This will delay procurement of the system and delay the fielding to Warfighters. In 

addition, multi-year contracts typically generates significant amount of savings for 

the Army compared to annual procurement—the savings will be lost if the multiyear contract is broken. Furthermore, the Army will have to pay a termination liability. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 
90 

Secretary SHYU. The impacts of reductions depend on how the Budget Control Act 

is applied to the specific sources of appropriated funds. All contracts impacted by 

funding changes may need to be modified to adjust the requirements and dollars. 

Other courses of action include reduced order quantities against indefinite delivery 

indefinite quantity contracts, not exercising contract option periods, and contract 

terminations. 

The Army, unlike other services, has only a small number of multi-year (MY) procurement contracts. Significant funding reductions could lead to breaking minimum 

production quantities and loss of efficiencies and cost savings in MY contracts. 

Funding reductions under sequestration could lead to renegotiations or possibly cancellations of these contracts. 

The combined effects of a continued CR and sequestration reductions in FY14 extend across the full range of diverse capabilities we field in support of our 

Warfighters. Assuming the most inflexible reductions to funding to programs, as 

many as 12 Apache helicopters in FY14 could be reduced. Development of the Improved Turbine Engine Program, the Armed Ariel Scout Helicopter, and upgrades 

to the MQ–1 Gray Eagle would be placed at risk. 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

Secretary SHYU. No, we have reached a point where further delaying new starts, 

cancelling additional programs, and continuing to reduce existing programs will result in unacceptable risks for the Army. As a result of repeated Continuing Resolutions, the Budget Control Act, and sequestration, many Army programs have been 

cancelled, deferred, delayed, or restructured in an effort to maintain efficiencies and 

effectiveness in our major defense acquisition programs. Many of the programs impacted, some multiple times, are small programs that provide critical capabilities to 

the Army and the Joint force. These include Liquid Logistics, heavy machine guns, 

sniper rifles, construction equipment, and tactical bridging. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

Secretary SHYU. The Army has not delayed contract awards or reduced spending 

rates in an effort to prepare for sequestration in fiscal year 2014 (FY14). The Army’s 

ability to execute acquisition program timelines and contract awards is actually impacted by the absence of an appropriation in FY14 and the enactment of a continuing resolution that limits funding to prior-year levels. However, the continued 

instability of our fiscal environment limits the Army’s ability to accurately develop 

and execute planned timelines for the design, engineering, manufacturing and fielding of weapon systems. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

Secretary SHYU. The current funding instability fundamentally hampers our ability to plan and execute acquisition programs in support of the Warfighter. Key development, testing and production activities are subject to the limited funds available under a continuing resolution (CR). Under a CR, we lack the authority to start 

new programs or authorize planned increases in production quantities for fielding. 

Sequestration reductions in Fiscal Year (FY) 2013 already reduced or eliminated our 

margin for error on many of our programs, even with our efforts to mitigate using 

prior-year funds. Reductions in FY14 and beyond will directly result in reduced production quantities, deferred investment in new capabilities, and delays in many programs. The hiring freeze, civilian furloughs and government shutdown decimates 

our current and future ability to recruit and retain critical skills and expertise in 

the government workforce. This creates significant impacts to the execution of our 

Science and Technology projects, acquisition programs, testing, contracting, logistics 

and depot maintenance. Delays in testing, contracting, and depot maintenance will 

have a rippling effect on our program execution by increasing cost due to inefficiencies garnered. The long-term effects of this instability are yet to be fully discerned 

but we know that the combined effects of sequestration and a yearly CR will significantly increase the costs of vital Soldier weapon systems. 

The combined effects of a continued CR and sequestration reductions in FY14 extend across the full range of diverse capabilities we field in support of our 

Warfighters. Assuming the most inflexible funding reductions, as many as 12 

Apache helicopters in FY14 would be reduced. Continued cuts in FY14 may result 

in the reduction of up to 11 Chinook aircraft in FY14 and place the Army’s ability 

to maintain the multi-year production contract at risk. The Army will assume risk 
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in its aviation modernization efforts for Chinook and Blackhawk contracts. Development of the Improved Turbine Engine Program, planned modernization of the 

Armed Aerial Scout Helicopter, and upgrades to the MQ–1 Gray Eagle will all be 

at risk. Modernization of combat vehicles will be affected and result in delays to 

scheduled Engineering Change Proposal upgrades to Abrams tank and Bradley Infantry Fighting Vehicles. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the department’s flexibility in managing programs moving forward including dealing with further sequestration? 

Secretary SHYU. The lack of prior year funding significantly reduces the Army’s 

flexibility and increases risk when addressing sequestration impacts. In FY13, the 

Army was able to mitigate many of the impacts that would otherwise have come 

to fruition against a number of programs by offsetting sequestration reductions with 

prior year unobligated funds. As prior year funds became scarce, the margin for 

error as programs decreases, pushing the programs towards critical breaches in delayed fielding to Soldiers. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

Secretary SHYU. Delays in systems development correlate to delayed production 

which ripples into delayed fielding of capabilities to the Warfighter. Inefficiencies 

created from the delays will lead to increased program cost. Deferring testing leads 

to stretch-out of program schedule since development and operational testing must 

be done to demonstrate that the system met performance requirements. Reducing 

testing during sequestration will lead to increased program risk which may result 

in deficiencies not discovered until later. Generally speaking, the later a deficiency 

is discovered in a program, the more expensive it is to fix the problem. Reducing 

testing in FY13 may also result in postponing the necessary residual testing until 

FY14 which leads to stretch-out of program schedule and increased cost. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

Secretary SHYU. Programs incur increased costs when schedules are extended, including development, personnel, test, and production. When capabilities are reduced 

and brought back at a later date, there are costs associated with schedule increases 

resulting in the loss of efficiencies and impacting the overall acquisition program. 

In an effort to avoid additional costs associated with delayed development activities 

and procurement in FY13, the Army used unobligated prior year funds to mitigate 

the effects of sequestration. In doing so, the Army accepted risk for programs with 

approved development and procurement contract actions scheduled in FY14. In the 

event that a Continuing Resolution or Appropriation is not passed, the Army has 

limited prior year funds available to support spending limitations in FY14, which 

could significantly impact new start programs, production rate increases or programs that are limited in funding due to sequestratoin. The Army thus far has been 

successful in mitigating added costs from sequestration. However, failure to enact 

a timely and sufficient Appropriation in FY14 could counteract these efforts to protect taxpayer dollars. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

Secretary SHYU. Funding reductions under the Budget Control Act were absorbed 

in fiscal year 2013 (FY13), but not without hostile effect to the Army’s acquisition 

programs. The very nature of these indiscriminate cuts resulted in disproportionate 

impacts within many of our programs that may not be discerned right away. These 

reductions translated to varying delays in program schedules, reduced quantities of 

equipment procured and challenges imposed on the program’s ability to meet development timelines planned well in advance. In many cases, the lasting effects of 

these disruptions are revealed as development programs reach milestone events 

planned months or years in advance. The Army’s ability to endure these effects in 

FY13 ultimately depends, in large part, on the availability of stable resourcing at 

requested levels in ensuing fiscal years. 
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Moreover, in FY13, the Army was able to mitigate many of the impacts by offsetting sequestration reductions with prior year unobligated funds. The increasingly 

scarce sources of prior year unobligated funding, combined with the cumulative disruptive effects of reductions in FY13 and prolonged Continuing Resolutions in FY13 

and FY14, will continue to significantly impact the Army’s weapon system programs 

in FY14. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

Secretary SHYU. Sequestration reductions in FY14 could put the Apache and 

Black Hawk programs at risk of a Nunn-McCurdy breach. The significant funding 

reductions resulting from sequestration would undermine the assumptions used in 

the programs’ cost estimating models, prevent favorable contract negotiations, and 

potentially result in breach of the Black Hawk multiyear contract. Sequestration reductions have reduced procurement quantities across all existing network programs 

such as WIN–T, Tactical Radios, and Waveform Development, to specifically include 

the Small Airborne Networking Radio. These funding reductions will delay development and testing of some critical networking capabilities beyond the Future Years 

Defense Program. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

Secretary SHYU. Current Nunn-McCurdy breaches generally reflect poor programmatic management and cost growth. Based upon the continued sequestration 

challenges to execution years, as well as out-year sequestration planning controls, 

programs will hit Nunn-McCurdy breaches due to funding constraints and pushing 

programs beyond scheduled end dates. As a result, Nunn-McCurdy breaches will 

generally be outside of the Program Manager’s span of control if funding controls 

are significantly altered from the approved Acquisition Program Baselines. We recommend that Congress consider allowing programs that hit Nunn-McCurdy 

breaches due to sequestration to rebaseline under the rules of a Critical Breach. 

This would allow programs to ‘‘re-set’’ and would prevent significant cost and schedule delays caused by Nunn-McCurdy breaches. 

Mr. TURNER. Please elaborate on the second and third order effects that could result from significant reductions in the Army’s procurement and research and development budget accounts, e.g. industrial base impacts at the supplier and vendor levels. 

Secretary SHYU. Given the drawdown of operations in Iraq and Afghanistan and 

current budgetary pressures, the Army is working closely with industry to better 

understand the impacts to the defense industrial base and mitigate significant adverse effects. Since Army’s Research, Development, Test & Evaluation and Procurement budget is declining faster than the Army’s top-line reduction, second and third 

order impacts could potentially create significant problems as companies, both large 

and small, must rapidly adjust to reduced revenue. Large companies have been 

shedding workforce, restructuring and consolidating businesses to adjust to the 

shrinking top-line. Smaller companies have to diversify their portfolio or risk becoming unprofitable. 

The Army is concerned with the ability to retain critical engineering design, development and manufacturing capabilities in the defense industrial base across the entire supply chain. The Army has taken specific steps to mitigate critical impacts to 

the supply chain. Mitigation of adverse impacts is being addressed through measures that include: advocacy for FMS, extending production at lower levels to mitigate impacts of layoffs, increased quantity buys to meet minimum sustainable rates 

at second tier companies, investments in R&D to develop the next generation products for critical supply chain, monthly reporting by each PEO on industrial base impacts of their supply chain for the products within their portfolio, and ensuring the 

organic industrial base can step in to produce the critical component as a second 

source. 

The Army continues to conduct an assessment of the industrial base, both independently and in conjunction with broad DOD initiatives. The Army’s Industrial 

Base assessment, the AT Kearney Combat Vehicle Industrial Base assessment, the 

DOD’s Sector-by-Sector, Tier-by-Tier analysis are focused on identifying potential 

weak points in the Industrial Base and guiding efforts that support critical elements 

found to be at risk. 

Mr. TURNER. How would the Army’s planned growth of an additional combat aviation brigade be impacted? 
93 

Secretary SHYU. To comply with the Budget Control Act of 2011, the Army continues to plan the drawdown to 490,000 Active Component spaces and assess our 

force structure today to achieve the right force mix for required missions. However, 

the 4th Infantry Division Combat Aviation Brigade (the additive CAB) remains programmed in the force with the activation of the CAB at Fort Carson earlier this 

year. 

Mr. TURNER. In February you had stated that 1,100 companies (over a third of 

the critical vendor industrial base) were in moderate to high risk of bankruptcy? Do 

you still stand by that statement? 

Secretary SHYU. Because of the rapidly changing landscape and a myriad of factors that contribute to the overall business climate, it is difficult to accurately assess 

overall bankruptcy risk in the Industrial Base. The Army is actively engaged in efforts to assess risk in the Industrial Base. The Department of Defense the Sectorby-Sector, Tier-by-Tier (S2T2) effort seeks: (1) to establish early warning indicators 

of risk, particularly at lower-tiers; (2) to strengthen the supply chain and mitigate 

potential points of failure; and (3) to perform joint agency assessments providing the 

Army the ability to capture impacts on market sectors, manufacturers, and the 

Warfighter requirements across the Services. The Army Industrial Base Baseline 

Assessment seeks to analyze three factors: (1) to conduct a sector and sub-sector assessment of programs identified as critical by Program Executive Offices and Life 

Cycle Management Commands; (2) to determine the impact of reductions in funding 

to program requirements; and (3) to develop recommendations which enable the industrial base to sustain current and future Warfighter requirements. The AT 

Kearney Combat Vehicle Industrial Base assessment is focused on identifying potential weak points and guiding efforts to support critical elements found to be at risk 

in the Combat Vehicles portfolio. 

Mr. TURNER. If the continuing resolution is in place for a full year, what impact 

does this have on execution of the Joint Light Tactical Vehicle program? 

Secretary SHYU. The JPO is making every effort to keep the test program on 

schedule in order to meet the scheduled Milestone C and Low Rate Initial Production (LRIP) contract award dates in Fiscal Year 2015 (FY15). Unfortunately, the collective impacts of sequestration, congressional decrements in FY13, furloughs, and 

the government shutdown resulted in the program behind its planned testing schedule. While this does not yet require a slip in the program’s overall schedule, a FY14 

continuing resolution that reduces program funding by an additional $30.7M 

($17.8M for the U.S. Army and $12.9 million (M) for the Marine Corps) beyond reductions already levied would impose a tremendous challenge. Such cumulative program budget reductions would require the test schedule to be extended, since the 

majority of FY14 funding supports EMD phase testing. This could potentially cause 

up to a 12-month delay in the Milestone C decision and LRIP contract award. 

Mr. TURNER. How would sequestration and a year-long CR scenario impact your 

ability to fund weight reduction initiatives for personnel protection equipment? How 

would this impact the PPE industrial base, e.g. body armor, night vision devices, 

etc. 

Secretary SHYU. The impact of a year-long Continuing Resolution, which effectively translates into a 30 percent funding cut, would be delays in the introduction 

of this improved, lighter protective capability. Limited User Evaluations of the SPS 

Vital Torso, Integrated Head Protection and Transition Combat Eye Protection subsystems, and the Phase II contract awards for the Torso Protection subsystem would 

be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15 and the 

Milestone C decisions on these subsystems, depending upon receipt of funding, 

would slip 6–9 months from the planned third Quarter FY15 date. 

There is no immediate impact to the Industrial Base for ongoing procurement and 

fielding of head, eye, pelvic, torso armor, and other personal protective equipment. 

Funding is currently at the minimum sustaining rate for maintaining two qualified 

armor vendors in hard and soft armor solutions. Further funding reductions may 

place the Army’s ability to maintain competition (and expertise) at risk. 

Projected Fiscal Year 2013 orders from the Army did not support minimum 

sustainment rates as reported by the two vendors for night vision image intensification tubes. However, both vendors have restructured and are still producing image 

intensification tubes. Further funding decreases from sequestration may stress 

image intensification tube manufacturing and ultimately drive up system costs if 

competitive pressure is lost due to the loss of one vendor. However, the Office of 

the Secretary of Defense ‘‘Report to Congress on the Assessment of Industrial Base 

for Night Vision Image Intensifier Sensors,’’ completed in September 2012, concluded that Warfighter readiness would not be negatively impacted if the industrial 

base was further reduced. 
94 

Mr. TURNER. If sequestration remains in FY14 and FY15, what impact will this 

have on the execution of the Joint Light Tactical Vehicle program? Please provide 

the subcommittee with an update on this critical program. 

Secretary SHYU. The JLTV Joint Program Office (JPO) has made substantial 

progress in streamlining the program timeline, and both the Army and Marine 

Corps remain fully committed to this program. The Engineering and Manufacturing 

Development (EMD) Phase of the program is proceeding well; all 66 of the EMD 

phase prototype vehicles were delivered on time and are currently undergoing ballistic, Reliability Availability and Maintainability (RAM), and performance testing. 

Although testing is in its early stages, the JPO remains confident in each vendor’s 

ability to meet requirements. 

The JPO is making every effort to keep the test program on schedule in order to 

meet the scheduled Milestone C and Low Rate Initial Production (LRIP) contract 

award dates in Fiscal Year 2015 (FY15). Unfortunately, the collective impacts of sequestration, congressional decrements in FY13, furloughs, and the government shutdown resulted in the program behind its planned testing schedule. While this does 

not yet require a slip in the program’s overall schedule, a FY14 continuing resolution that reduces program funding by an additional $30.7M ($17.8M for the U.S. 

Army and $12.9M for the Marine Corps) beyond reductions already levied would impose a tremendous challenge. Such cumulative program budget reductions would require the test schedule to be extended, since the majority of FY14 funding supports 

EMD phase testing, this could potentially cause up to a 12-month delay in the Milestone C decision and LRIP contract award. 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

Secretary STACKLEY. An FY2014 continuing resolution (CR) and sequestration 

take away from the Department’s ability to provide warfighting capability and capacity with the measures of efficiency essential to balancing the requirements of the 

Defense Strategic Guidance. Our warfighters will have less surge capability and our 

long-term priorities will be traded off to fund near-term readiness. Weapon system 

development timelines will be extended and costs will be higher, production unit 

costs will increase, and the risk to the long-term viability of the defense industrial 

base will increase. Reductions to investment accounts will slow production on factory floors across the defense industrial base adding cost and schedule to weapon 

systems. Equally critical, these reductions will drive delays into the development of 

those leading edge weapon systems that contribute to our warfighters’ asymmetric 

advantage over our adversaries. 

If fiscally constrained to sequestration level funding over the long term, the Navy 

of 2020 would not be able to execute the missions described in the Defense Strategic 

Guidance. The 2014 Quadrennial Defense Review will analyze the Department of 

Defense force structure as a whole and set the long term course for DOD strategy 

and priorities. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

Secretary STACKLEY. The effects of sequestration vary depending on a program’s 

stage of development and fielding, but also vary from program to program. Sequestration impacts to some Naval programs in the development stage will result in loss 

of capability, while other Naval programs will experience a delay in delivery. Most 

of Navy’s development work is tied directly to acquisition programs of record. Consequently, reductions in the development stage will potentially have an impact on 

their production schedules and costs. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

Secretary STACKLEY. Yes, if sequestration remains in place, the effects may differ 

for different contract types, but the limited funds will cause the Department of the 

Navy to reduce the products and/or services being purchased on many existing contracts. Limited funds forces the Department to prioritize all our requirements, including mission critical programs, then determine how much money we have available for those programs. 

From a contractual obligation perspective, some types of contract vehicles provide 

the Department with more flexibility than others. Given current regulatory requirements, the Department has more flexibility with existing Cost Reimbursement, Indefinite Delivery, Indefinite Quantity (IDIQ) and ‘‘Requirements’’ contracts, because 

they provide the Department with maximum flexibility in avoiding hard budget lim-
95 

its. Typically, cost reimbursement contracts provide greater flexibility than firm 

fixed price contracts. 

The amount of obligations under a ‘‘firm fixed price’’ contract is the face value of 

the contract that is fully funded at contract award. The Department has less flexibility with existing fixed price contracts, but can choose, if deemed necessary, to renegotiate established pricing based on our decision to de-scope quantity, capability 

and breadth of contract performance. The Department may also choose to not exercise and/or re-negotiate any contract options for future supplies or services. 

Multi-year contracts require added management focus in this sequestration environment. Unlike annual contracts, obligations under a multi-year contract have established contract terms and conditions including cancellation payment; therefore 

particular attention must be paid to meet these terms and conditions or otherwise 

re-negotiate the contract. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 

Secretary STACKLEY. The Department of the Navy does not currently anticipate 

the need to renegotiate a large number of fixed price or multiyear procurement 

(MYP) shipbuilding contracts due to sequestration in FY 2014. No major previously 

awarded fixed price shipbuilding or aviation contracts will require deobligation of 

funds, and no Marine Corps contracts will need to be renegotiated. 

However, the Department’s ability to continue to absorb sequestration reductions 

without impacting multiyear contracts is increasingly tenuous. The impacts of the 

FY 2013 sequester were mitigated by the use of prior-year investment balances and 

authorization to reprogram funds. Additionally, many planned costs were deferred 

to preserve multiyear contracts. As these limited stop-gap measures are exhausted, 

there will soon be few options for resources and multiyear contracts may have to 

be renegotiated at reduced quantities, putting substantial savings at risk. 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

Secretary STACKLEY. The Department of the Navy (DoN) implemented these mitigation measures in developing the FY13 President’s Budget submission in accordance with the Budget Control Act of 2011, and in managing the FY13 continuing 

resolution and sequestration. FY13 sequestration resulted in curtailed operations, 

deferred maintenance, depleted unobligated prior-year balances in our investment 

accounts, and deferred costs to future year budgets. While this mitigated the immediate impacts, it was insufficient to bear the full weight of sequestration, resulting 

in delays to development schedules and reductions to procurement quantities. The 

net effects of these deferrals, delays, and program cuts are added bills and increased 

costs in FY14 and beyond. While we continue to employ these measures to the extent possible, the margin for mitigating the impacts of sequestration with these 

measures has been depleted and they are no longer sufficient to prevent significant 

reductions in major defense acquisition programs if sequestration continues in 

FY14. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

Secretary STACKLEY. All major defense acquisition programs have had to take actions to deal with the impact of the FY 2013 sequester. 

To minimize impacts in FY 2013, the Department of the Navy was able to use 

reprogramming authorization, prior-year investment balances, and deferral of costs 

to future years. For example, in the FY 2013 SCN account, we were able to use 

$640M of prior year SCN assets to finance some of the $1.75B sequestration bill. 

The Department requested, and the Congress approved, reprogramming for $240M 

to finance an additional portion of the SCN sequestration reduction. Proposed FY 

2014 Congressional action adds $358M, which may further finance the sequestration 

reduction. However, the Department is still faced with future cost to complete bills 

of $515M, which hinder future ship procurements. If sequestration continues, these 

future bills in the shipbuilding and other accounts will be larger without the benefit 

of prior year funds and will accumulate to the point where we will be compelled to 

reduce the number of ships or systems procured. 

Under the FY 2014 continuing resolution (CR), budget controls have been set at 

estimated FY 2014 sequestration levels and program spending rates have been 

slowed to match. In addition, OSD is closely managing DOD obligations and expenditures. This approach has allowed all programs to continue executing in accordance 

with the CR and has not yet caused delays in awarding contracts. However, the CR 

has impacted the ability of programs to execute planned production increases or new 
96 

starts. In addition, all programs are working to identify the impacts of potential FY 

2014 sequestration cuts, when those impacts will begin to occur, and mitigating actions or deferrals that could reduce those impacts. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

Secretary STACKLEY. Sequestration and the continued budget uncertainty will 

have varying impacts on each of the Department of the Navy’s programs. Overall, 

an FY2014 CR and sequestration take away the Department’s ability to provide 

warfighting capability and capacity with the measures of efficiency essential to balancing the requirements of the Defense Strategic Guidance with the fiscal constraints under current law. Without Congress acting to change the current path, our 

warfighters will have less surge capability and our long-term priorities will be traded off to fund near-term readiness. Further, weapon system development timelines 

will be extended and costs will be higher, production unit costs will increase, and 

the risk to the long-term viability of the defense industrial base will increase. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

Secretary STACKLEY. If sequestration continues, automatic percentage cuts are required to be applied without regard to strategy, importance, or priorities, resulting 

in adverse impact to almost every program and project within the Navy. Sequestration would adversely impact many of our R&D programs through contract cancellations, contract terminations, and undetermined cost increases caused by inefficient 

contracting and schedule delays. These impacts will reduce and delay our R&D efforts and negatively impact key procurement strategies in future years. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

Secretary STACKLEY. The FY 2013 sequestration impacts to acquisition programs 

were mitigated by depleting unobligated prior-year balances in our investment accounts, reprogramming funds from other accounts, and deferring costs to future year 

budgets. However, this resulted in increased costs in FY 2014 and beyond and 

longer acquisition timelines. If sequestration continues in FY 2014, program impacts 

will include schedule delays, reduced acquisition objectives, postponed modernization and upgrades, and the subsequent cost increases due to delayed programs and 

decreased procurement quantities. In addition, sequestration will slow production on 

factory floors across the defense industrial base, adding cost and schedule risks to 

today’s weapon systems. Equally critical, these reductions will add risk by delaying 

the development of leading edge weapon systems that provide our warfighters with 

the asymmetric advantage they hold over our adversaries. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

Secretary STACKLEY. The effects of FY13 sequestration were addressed by curtailing operations, deferring maintenance, depleting unobligated prior-year balances 

in our investment accounts, deferring costs to future year budgets, and employing 

the limited transfer authority provided to the DON. These measures, which mitigated the immediate impacts, were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement 

quantities. The net effects of these deferrals, delays, and program cuts are added 

bills and increased costs in FY14 and beyond. We estimate the total deferred ‘‘carry 

over’’ due to FY13 sequestration to be approximately $2 billion over the FY14–FY18 

future years defense program (FYDP) in operation and maintenance accounts, and 

an additional approximately $2B over the FY14–FY18 FYDP in investment accounts. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

Secretary STACKLEY. The effects of FY13 sequestration were addressed by curtailing operations, deferring maintenance, depleting unobligated prior-year balances 

in our investment accounts, deferring costs to future year budgets, and employing 
97 

the limited transfer authority provided to the DON. These measures, which mitigated the immediate impacts, were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement 

quantities. The net effects of these deferrals, delays, and program cuts are added 

bills and increased costs in FY14 and beyond. While these mitigation measures will 

be repeated to the extent possible in FY14, we do not have the prior-year assets to 

protect investment accounts if FY14 sequestration occurs. In addition, deferred 

‘‘carry over’’ bills from FY13 will need to be addressed in FY14. FY14 sequestration 

will compound the impacts of the FY13 continuing resolution and sequestration. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

Secretary STACKLEY. There is a high probability that if sequestration continues 

in FY14 and subsequent years, some major defense acquisition programs will have 

significant unit cost increases reportable as ‘‘Nunn-McCurdy breaches.’’ Increasing 

the duration of programs (in development and/or production) causes programs to 

incur additional costs with no offsetting benefit to the government. Program’s annual ‘‘fixed’’ costs are incurred for a greater number of years, reduced rates of production result in lower economies of scale, and programs face greater exposure to 

obsolescence or changes in the supply base with the added expense that generates. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

Secretary STACKLEY. Whether or not a Program will incur a Nunn-McCurdy 

breach will not be a significant factor in selecting Programs for reductions. Cuts will 

be distributed on a requirements basis with cost implications and collateral costs 

(e.g. cancellation costs or breakage to other Programs) being factors. Exempting the 

department from Nunn-McCurdy reporting responsibilities caused by CR or Sequestration would be beneficial in reducing Program workloads. 

Mr. TURNER. How would sequestration and a CR scenario impact the V–22 program? Would there be impacts to the V–22 industrial base? 

Secretary STACKLEY. The V–22 program office is actively pursuing alternatives to 

minimize the overall impact of sequestration in FY14. But at the highest projected 

sequestration level, the program would be required to cut one aircraft in FY14, 

breaking the V–22 Multi-Year Procurement (MYP) contract and requiring renegotiation of the price for all remaining aircraft. This would directly impact the $1 billion 

in cost savings over the span of the MYP. The delay associated with negotiations 

could also increase costs due to a production break for Lot 18 (FY14) aircraft. As 

advance procurement funds for the Lot 18 aircraft are already on contract, a partial 

termination for convenience would need to be negotiated. As a joint program, the 

Air Force and SOCOM will also be affected by the reductions through increased unit 

cost for procurement of their CV–22 aircraft. 

Reduction in FY14 aircraft quantity would delay full standup of the V–22 squadron in Kaneohe Bay, delay all units from reaching Primary Authorized Allowance 

of aircraft, and subsequently delay MV–22 Full Operational Capability. Furthermore, if V–22 quantities are reduced, the impact of a smaller business base at Bell 

Helicopter would cause labor rate increases which would negatively impact the cost 

for USMC H–1 aircraft (which shares production facilities with V–22). 

At lower levels of sequestration, the primary impact would be to defer additional 

Peculiar Ground Support Equipment (PGSE) and Peculiar Training Equipment 

planned for procurement in FY14. A funding shortfall already exists due to the impact of FY13 sequestration. Additional reductions in FY14 would worsen the shortfalls for an expanding fleet of aircraft that’s taking on additional deployments to 

support crisis response. Additionally, a significant portion of capability and readiness modifications would be cancelled or delayed, resulting in decreased readiness 

and ultimately resulting in higher operational cost. 

Mr. TURNER. How would sequestration and a CR scenario impact the procurement 

of F–35Cs and F–35Bs? Would lower procurement numbers affect the strike fighter 

shortfall? 

Secretary STACKLEY. The Department of the Navy is working closely with the F– 

35 Program Office and the Under Secretary of Defense for Acquisition, Technology 

and Logistics to assess the impacts of sequestration on the F–35 program. Currently, the Department is investigating: the balance between preserving the development program and maintaining capabilities of Block 2B Initial Warfighting Capability; support and sustainment for all delivered aircraft; preserving production efficiencies and production capacity; and aircraft procurement. However, sequestration 

in FY14 would compel us to reduce aircraft procurement by one F–35B and one F– 
98 

35C and delay the Block 3 development test and evaluation flights resulting in increased risk of meeting planned initial operating capability (IOC) dates. The reduced procurement will further pressurize unit recurring flyaway costs at a time 

when the program was achieving positive cost trends. A continuing resolution hampers the ability to properly fund required F–35 modifications because they are considered new starts within FY14. The concurrency and block upgrades are critical to 

the IOC schedule since they are required for the operational testing and evaluation 

and for fleet operations. 

The Navy actively manages the strike fighter shortfall to minimize impacts in 

each execution year. The projected strike fighter shortfall is a compilation of a number of factors including legacy usage, meticulous management of fatigue life, and F– 

35 procurement. Delays in the F–35 procurement will aggravate challenges in meeting inventory requirements. 

Mr. TURNER. Would sequestration and a CR affect life extension programs for F/ 

A–18s and AV–8Bs resulting in a higher strike fighter shortfall this year or in the 

years ahead? 

Secretary STACKLEY. Yes. Sequestration and the CR are having an adverse effect 

in the short term and are expected to exacerbate the long term strike fighter shortfall. Sequestration and the CR are currently causing cancellations and delays in 

depot inductions and High Flight Hour inspections which are negatively impacting 

the ability to source Navy and Marine Corps squadrons. 

Additionally, sequestration and the CR would impact the Marine Corps Readiness 

Management Program for the AV–8B. Some initiatives within this program would 

be delayed or cancelled, decreasing readiness and increasing flight hour costs due 

to decreasing component reliability. 

Mr. TURNER. How would sequestration and a CR scenario impact your ground 

combat and tactical vehicle strategy? What programs will be delayed or impacted 

by this budget uncertainty? 

Secretary STACKLEY. The objective of the U.S Marine Corps’ Ground Combat and 

Tactical Vehicle (GCTV) Strategy is to field a ground combat vehicle portfolio structured to support Marine Expeditionary Forces, two Marine Expeditionary Brigades 

(MEB) capable of conducting sea-based Joint Forcible Entry Operation, two maritime prepositioned MEBs (sea-basing enabled), and one geographically prepositioned 

MEB. These scalable Marine Air-Ground Task Forces will be capable of supporting 

theater engagement plans, irregular warfare, sea-based operations, and sustained 

operations ashore across the range of military operations. Ultimately, the discreet 

components of the portfolio are designed to come together as a unitary whole that 

provides Combatant Commanders (COCOM) and the Nation the capabilities necessary to support the operations listed above that gives COCOMs the greatest range 

of options possible from the sea, in a balanced manner. 

Our GCTV Strategy is comprised of components that include the acquisition of 

Amphibious Combat Vehicles (ACV), Marine Personnel Carriers (MPC), and Joint 

Light Tactical Vehicles (JLTV); as well as the sustainment and modernization of our 

Assault Amphibious Vehicle (AAV), Light Armored Vehicle (LAV), M1A1 tank, and 

HMMWV fleets in sufficient quantities necessary to maintain capability during the 

transition to our objective GCTV force for the 21st century. 

The enduring challenge to the strategy is managing the increase in procurement 

and sustainment costs of vehicles needed for the 21st century operating environment. Historical expenditures for vehicles will not support ground maneuver and 

mobility needs as stated for our future force. 

The impacts of sequestration that include not only scarcity of resources, but also 

a large measure of uncertainty, have compromised our ability to approach the planning and execution of our GCTV Strategy with the coherence necessary for sound 

capital investment planning. 

While it remains a primary requirement in our GCTV Strategy, we have been 

forced to defund MPC in the near term due to insufficient funding. We have also 

been forced to adjust the timelines for ACV and JLTV due to reduced funding 

which, if unabated, may move the timelines for IOC to the right by up to three 

years and one year, respectively. The uncertainty created by the significant restructuring of our plan has created a need to redefine our requirements for aligning resources with the sustainment and modernization of our AAV, LAV, and M1A1 fleets. 

Mr. TURNER. What programs do the Marine Corps anticipate it will have to cancel 

or extend due to the budget uncertainty? 

Secretary STACKLEY. If sequestration were fully implemented, the Marine Corps 

would have to assess every program. Sequestration will cause interruptions during 

program acquisition that would increase the total program cost. Schedules would 

slip and contracts would be delayed. Efficiencies would be lost. This would negatively impact development and production schedules requiring program restructures 
99 

and potentially cause Nunn-McCurdy breaches. For procurement programs, existing 

contracts will have to be renegotiated, preventing the Marine Corps from receiving 

Economic Order Quantity pricing. 

The Marine Corps will also have to sustain legacy systems longer than planned, 

which will drive up current operation and support costs. We will have to shift our 

attention to developing and replacing obsolescent parts for legacy systems that are 

no longer available in the market place, which will shift the workforce to a focus 

of reengineering old and inefficient technology. Finally, technologies designed to improve efficiencies (fuel, lightweight armor, etc.) will have to be postponed, preventing the Marine Corps from reaping planned savings while simultaneously driving up costs due to the use of older, more expensive technologies. 

Mr. TURNER. What are impacts we are seeing on the execution of the Marine Personnel Carrier and Joint Light Tactical Vehicle program? 

Secretary STACKLEY. While it remains a primary requirement in our Ground Combat and Tactical Vehicle Strategy, we have been forced to defund Marine Personnel 

Carriers (MPC) in the near term due to insufficient funding. We have also been 

forced to adjust the timelines for the Amphibious Combat Vehicle (ACV) and Joint 

Light Tactical Vehicle (JLTV) due to reduced funding which may move the timelines 

for Initial Operational Capability to the right by three years and one year respectively. The uncertainty created by the restructuring of our plan has created a need 

to redefine our requirements for aligning resources with the sustainment and modernization of our Assault Amphibious Vehicle, Light Armored Vehicle, and HMMWV 

fleets. 

For FY14 and FY15, impacts to the JLTV program depend entirely on how sequestration or other reductions are implemented. The program is currently executing a test-intensive Engineering and Manufacturing Development phase already 

challenged by the cumulative effect of FY13 Congressional decrements, sequestration, and furloughs, but this well-structured program faces no inherent cost, schedule, or performance challenges. Consequently, if budget flexibility permits funding 

of JLTV to its Acquisition Program Baseline, the program should continue on-budget and on-schedule. Conversely, across-the-board cuts in FY14 and FY15 would likely delay the program’s Milestone C decision and Low Rate Initial Production (LRIP) 

contract award by up to 12 months, into FY16. The Services will continue to explore 

mitigation strategies to reduce the potential impact of sequestration on JLTV and 

to preserve the FY15 Milestone C decision and LRIP contract award as currently 

planned. The JLTV program remains a critical opportunity to close capability gaps 

in today’s light tactical wheeled vehicle fleets and to re-balance payload, performance, and protection for a wide range of demanding mission profiles. 

Mr. TURNER. If sequestration remains in FY14 and FY15, what impact will this 

have on the execution of the Joint Light Tactical Vehicle program? Please provide 

the subcommittee with an update on this critical program. 

Secretary STACKLEY. While it remains a primary requirement in our Ground Combat and Tactical Vehicle (GCTV) Strategy, we have been forced to adjust the 

timeline for the Joint Light Tactical Vehicle (JLTV) due to reduced funding which 

may move the timelines for Initial operational capability to the right by one year. 

The uncertainty created by the restructuring of our plan has created a need to redefine our requirements for aligning resources with the sustainment and modernization of our HMMWV fleet. 

If sequestration remains in FY14 and FY15, impacts to the JLTV program depend 

entirely on how sequestration cuts are implemented. The program is currently executing a test-intensive Engineering and Manufacturing Development phase already 

challenged by the cumulative effect of FY13 Congressional decrements, sequestration, and furloughs. This well-structured program faces no inherent cost, schedule, 

or performance challenges. If budget flexibility permits funding of JLTV to its Acquisition Program Baseline despite sequestration, the program should continue onbudget and on-schedule. Conversely, across-the-board cuts in FY14 and FY15 would 

likely delay the program’s Milestone C decision and Low Rate Initial Production 

(LRIP) contract award by up to 12 months, into FY16. The Services will continue 

to explore mitigation strategies to reduce the potential impact of sequestration on 

JLTV and to preserve the FY15 Milestone C decision and LRIP contract award as 

currently planned. The JLTV program remains a critical opportunity to close capability gaps in today’s light tactical wheeled vehicle fleets, and to re-balance payload, 

performance, and protection for a wide range of demanding mission profiles. 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

Dr. LAPLANTE. Sequestration, combined with another continuing resolution (CR), 

continues to inflict painful, palpable, and ultimately expensive disruptions through-
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out our Air Force. We are making every effort to minimize the impact of the CR 

and Sequestration to our readiness and modernization. All of this comes at a time 

when our Air Force is long-overdue for vital reconstitution. Our fleets are aging, and 

our force is at its smallest since its inception. 

At this time, we are doing our best to balance near-term readiness with modernization while ensuring our ability to project Global Vigilance, Global Reach, and 

Global Power in the heavily defended environments of 2023. FY14 sequestration reductions force sharp declines in our readiness and modernization accounts. The 

blunt, indiscriminate mechanism of sequestration undermines the combat capability 

of your Air Force and the entire joint force, and it is unworthy of the servicemen 

and women who risk their lives in service to our great Nation. 

We know the Air Force has a role in helping our Nation get its fiscal house in 

order. However, the abrupt and arbitrary nature of sequestration drives the Air 

Force into a ‘‘ready force today’’ versus a ‘‘modern force tomorrow’’ dilemma. This 

dilemma is dangerous and avoidable. If we are given the flexibility to make prudent 

cuts over time, we can achieve the savings required under current law. However, 

sequestration robs us of that flexibility. We’re left with options that simply don’t 

make business sense. We need your help. We need funding bills that give us stability so we can achieve real savings in a strategically and managerially sound way. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

Dr. LAPLANTE. The effects of sequestration disrupt major defense acquisition programs throughout the development and fielding phases. The single largest impact 

of sequestration and current budgetary unknowns is the very serious impact they 

have on the meticulous cost and schedule planning mandated in numerous public 

laws and DOD acquisition policy directives. The increasing budgetary inefficiency 

makes it very difficult, if not impossible, for our program managers to do their jobs. 

Sequestration cuts deeply into Air Force investment accounts, which under the 

law must be applied equally at the program, project, and activity level; consequently, it impacts every one of the Air Force’s acquisition programs. For example, 

a potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, could be the loss of four to five aircraft from the requested 

amount of 19. This potential reduction will increase unit costs resulting in production funding shortfalls. 

Moreover, the across the board cuts will likely remove funding for our program 

managers to address emerging technical issues discovered during the development 

effort. This directly impacts our ability to achieve the original program baseline, and 

will undoubtedly escalate program costs. The Air Force would like to be granted the 

ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. However, even with flexibility, the Air Force 

may not eliminate all risks associated with meeting the Combatant Commander requirements. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

Dr. LAPLANTE. Regardless of contract type, the effects of sequestration could drive 

a program to de-scope requirements, delay performance of required work, or terminate the contract. Any of these developments will likely result in a contract modification regardless of whether the contract is fixed-price or cost-reimbursement. The 

only difference is in the flexibility and responsiveness to react to those changes; a 

cost-reimbursement arrangement usually provides more flexibility and quickness to 

react to changes than does a fixed-price arrangement. Making changes to a fixed 

price contract could have unintended consequences by opening a door for a contractor to claim additional costs.The effects of sequestration would differ on a multiyear (MY) versus annual procurement. For an annual procurement, you could negotiate a reduction in the required number of items or level of service and only affect 

that current year acquisition without affecting subsequent years. MY procurements 

generally assume some constant level of production or service. For example, if budgets change and this causes a reduction of product or service requirements, it will 

likely result in the following: increased unit prices; a requirement to pay for subcontracted items delivered early to need per the MY agreement; and possibly an action 

for breach of contract if the requirements fall below a minimum commitment in the 

MY agreement. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 
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Dr. LAPLANTE. In FY13, we carefully managed our multi-year and large fixed 

price contracts for development, production and sustainment to avoid breaks in production or service as much as possible. However, some of our smaller fixed price 

agreements at the installation-level were affected. Another sequestration cut in 

FY14 is projected to have a larger effect on a higher number of our fixed-priced contracts for procurement, sustainment and installation. 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

Dr. LAPLANTE. The deep cuts brought on by sequestration-level funding will force 

the Air Force to make profound cuts to readiness and investment major defense acquisition programs to achieve the targeted reduction amounts in the first few years 

of the fiscal year defense plan. When forced to make tough decisions, we will favor 

new capabilities over upgrades to our legacy forces and our top three acquisition priorities remain the KC–46, the F–35, and the Long Range Strike Bomber (LRS–B). 

To maintain minimum levels of readiness and sustain our highest investment programs, the Air Force will have to cut up to 25,000 Total Force Airmen and up to 

550 aircraft. As we divest force structure, our priorities are to retain the global, 

long-range capabilities and multi-role platforms that are required to operate in highly contested environments. We will focus on divestiture of entire fleets of aging and 

costly platforms as well as those less capable and less survivable in heavily defended airspace. We will look to cut aircraft fleets because divesting an entire weapons system results in greater savings than cutting a portion of an aircraft fleet; because, every fleet has relatively fixed sustainment (overhead) costs. Beyond our top 

three acquisition priorities, all options are on the table. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

Dr. LAPLANTE. All major defense acquisition programs have started to plan for sequestration. Air Force Program Executive Officers have been evaluating sequestration impacts to programs in their portfolios. For example, the Space Fence contract 

was ready for award in early June 2013; however, a DOD-level review driven by 

sequestration, delayed the decision to proceed to later in 2013. With an affirmative 

decision in November, initial capability will slip about one year and costs will increase by over $70M. We cannot afford to mortgage the future of our Air Force and 

the defense of our Nation. 

In FY13, the Air Force used $1.5B in unobligated prior year funds that will not 

be available in FY14. With respect to the O&M account, we started FY14 under a 

Continuing Resolution that provided funding that is $500M less than we originally 

programmed for the year. The remaining FY14 funding does not allow us to even 

cover the readiness shortfall from last year. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

Dr. LAPLANTE. When forced to make tough decisions, we will favor new capabilities over upgrades to our legacy forces and our top three acquisition priorities remain the KC–46, the F–35, and the Long Range Strike Bomber. The current fiscal 

environment compels the Air Force to consider difficult budgetary choices. The current law caps and the abrupt and arbitrary nature of sequestration drive the Air 

Force into a ‘‘ready force today’’ versus a ‘‘modern force tomorrow’’ dilemma. The indiscriminate application of these additional reductions drives us to eliminate significant capability and capacity and it does not provide the flexibility needed to maintain near-term readiness at levels to accomplish our assigned national security missions. 

Sequestration cuts deeply into Air Force investment accounts, which under the 

law must be applied equally at the program, project, and activity level; consequently, it impacts every one of the Air Force’s acquisition programs. For example, 

a potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, could be the loss of four to five aircraft from the requested 

amount of 19. 

A year-long Continuing Resolution will also delay fielding needed capabilities to 

our warfighters. For example, without Congressional approval to enter into new 

multi-year procurements, an inability to execute the planned C–130J program 

multi-year buy will impact the production line, delivery schedule, and potentially increased cost. 

The Air Force would like to be granted the ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. 
102 

However, even with flexibility, the Air Force may not eliminate all risks associated 

with meeting the Combatant Commander requirements. We need the Congress’ support to better align our future force to the needs of the current defense strategy. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

Dr. LAPLANTE. In FY13, the AF used $1.5B in unobligated prior year funds that 

will not be available in FY14. In addition, the current Continuing Resolution contains $500M less than was programmed for the AF FY14 budget. The remaining 

FY14 funding does not allow the AF to even cover the readiness shortfall from last 

year. 

As with force structure and readiness, if the reduced caps under current law continue, our modernization forecasts are bleak. This funding level will impact every 

one of the AF modernization programs. These disruptions will, over time, cost more 

taxpayer dollars to rectify contract breaches, raise unit costs, and delay delivery of 

critical equipment. When it comes to future investment and modernization, the public may not recognize the effects of these reductions initially. The damage will compound with time. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

Dr. LAPLANTE. With FY13 sequestration, programs assumed risks in schedule and 

cost by deferring near-term risk reduction activities, delaying contract awards and 

decreased investments in development. Additionally, the Air Force used $1.5B in 

unobligated prior year funds to reduce risks but that option will not be available 

in FY14. For FY14 and beyond, deferrals are likely to extend program schedules and 

increase costs due to the restructuring of activities and contracts, which will likely 

delay the planned operational capabilities to warfighters. A potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, 

could be the loss of four to five aircraft from the requested amount of 19. This potential reduction will increase unit costs resulting in production funding shortfalls. 

Moreover, the across the board cuts will likely remove funding for our program 

managers to address emerging technical issues discovered during the development 

effort. This directly impacts our ability to achieve the original program baseline, and 

will undoubtedly escalate program costs. The Air Force would like to be granted the 

ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. However, even with flexibility, the Air Force 

may not eliminate all risks associated with meeting the Combatant Commander requirements. 

The Strategic Choices and Management Review found the President’s FY14 budget proposal is the most prudent option of those currently being considered. FY14 sequestration reductions force sharp declines in our readiness and modernization accounts. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

Dr. LAPLANTE. The Air Force has not conducted this analysis at the at the program, project, and activity level. With the continued budget uncertainties, the department has focused on protecting top modernization programs while maintaining 

readiness. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

Dr. LAPLANTE. In FY13, the Air Force used $1.5B in unobligated prior year funds 

that will not be available in FY14. With respect to the O&M account, we started 

FY14 under a Continuing Resolution that provided funding that is $500M less than 

we originally programmed for the year. The remaining FY14 funding does not allow 

us to even cover the readiness shortfall from last year. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 
103 

Dr. LAPLANTE. We did not experience any Nunn-McCurdy breaches with the FY13 

sequestration, but there is potential for a breach with the FY14 sequestration. This 

will not be determined with certainty until the FY15 President’s Budget is complete. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

Dr. LAPLANTE. The Air Force builds its budget based on the needs of the service 

consistent with resources available. The Air Force will make prioritized investments 

to ensure an ability to project Global Vigilance, Global Response, and Global Power. 

When forced to make tough decisions, we will favor new capabilities over upgrades 

to our legacy forces and our top three acquisition priorities remain the KC–46, the 

F–35, and the Long Range Strike Bomber. 

The fact that a program may or may not have a Nunn-McCurdy breach does not 

drive the overall programming process. Those decisions may result in terminations 

and truncations of investment programs. We would work to re-baseline and restructure the remaining major defense acquisition programs to be executable in FY14 

and beyond, as well as minimize Nunn-McCurdy impacts. 

It is the Department’s position not to seek any legislative relief for sequestrationdriven Nunn-McCurdy breaches. The current Nunn-McCurdy legislation has a 

mechanism to mitigate quantity-related critical breaches. The Department has not 

experienced any significant impact in terms of breaches to date. There were no 

Nunn-McCurdy breaches reported for FY13; however, the potential for a breach with 

sequestration for FY14 exists. The cumulative reductions over time in quantity from 

the baseline may eventually result in an increase in Nunn-McCurdy unit cost 

breaches. 

Mr. TURNER. How would sequestration and CR scenario impact the procurement 

of F–35As? Would lower procurement numbers results in a future strike fighter 

shortfall? 

Dr. LAPLANTE. Sequestration in FY14 could result in a loss of 4–5 F–35A aircraft. 

A full year continuing resolution (CR) could result in a loss of 3–4 F–35A aircraft. 

A combination of sequestration plus a full year CR could result in a loss of 5–7 aircraft. The FY14 President’s Budget request is for 19 F–35A aircraft. 

The exact impact of sequestration on the future strike fighter force is still being 

assessed. We do know that more reductions will drive additional risks to our readiness, force structure, and ability to modernize our aging aircraft inventory. As we 

navigate the uncertain way ahead, we will continue to work with Congress. 

Mr. TURNER. Would sequestration and a CR affect life extension programs for F– 

15s, F–16s, and A–10s resulting in a higher fighter shortfall this year or in the 

years ahead? 

Dr. LAPLANTE. F–15 Program—The F–15 has no Service Life Extension Program 

(SLEP), therefore no known impact at this time. 

F–16 Program—FY14 sequestration and continuation resolution (CR) could affect 

the ongoing developmental efforts associated with the F–16 Legacy SLEP program 

by slowing the program. Production is scheduled to begin in FY18 and may be impacted if there is a delay in development. There is no immediate shortfall in aircraft, but future years may be impacted. 

A–10 Program—The A–10 Wing Replacement Program would buy fewer wings 

this year. No fighter shortfall this year but may occur as early as FY19 without future buys based on FY13 NDAA mandated fleet size (283). 

Mr. TURNER. What effects could sequestration and a CR have on the military 

aviation industrial base? 

Dr. LAPLANTE. We are now approaching a second year of operations under the 

Budget Control Act (BCA) and operating under Continuing Resolutions. Risk and 

uncertainty are the key words that I would use to characterize the results. The nation’s security is at greater risk, your Air Force is at greater risk and most importantly our Airmen, military and civilians, are at greater risk as they attempt to cope 

with the uncertainties of this fiscal crisis. 

Clearly, there have been broad impacts to the national technology and industrial 

base. The immediate and drastic reductions imposed by the BCA caused the Air 

Force to cut flying hours; reduce training, exercises, and travel; defer maintenance 

and modernization; and painfully, furlough our civilian Airmen. The instantaneous 

drop in demand flowed across and through the tiered network of companies, large 

and small, that supply the goods and services needed to sustain Air Force capabilities and our infrastructure. The resulting personnel reductions and reorganizations 

of the larger firms, such as Lockheed Martin and Raytheon, have been reported in 

the press. Adjustments made by the lower tiers of the supply chain are less publicized yet, on the individual level, are just as devastating. 
104 

Without relief, the impacts will not get better in the near future. As the Air Force 

shrinks in size, divesting capacity while preserving core capabilities and key investments, our demand on both the organic and commercial industrial bases will continue to drop. Some companies may be able to offset the drop in Air Force business 

by shifting to commercial or private sector customers. The segment of concern is 

that group which has both the intellectual capacity and physical plant capability to 

design, develop, produce, and sustain military-unique aircraft and systems. Without 

investment, that sector will wither. The nation may pay dearly in the future to reinvigorate that sector. My hope is the cost will be measured only in terms of dollars 

and time and not those whose mission it is to fly, fight and win when called upon. 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

General BARCLAY. An extended Continuing Resolution (CR) and the FY14 proposed sequestration reductions would adversely impact the following aviation programs: Apache, Chinook, and Gray Eagle. The CR limitations and the sequester cuts 

would reduce procurement quantities, delay fielding of critical aviation systems, impede contract negotiations and put some existing contracts at increased risk. 

An extended CR would also delay the start of some network programs in FY14 

and challenge program execution efforts due to funds released later in the fiscal 

year. Sequestration reductions have reduced procurement quantities across all existing network programs such as WIN–T, Tactical Radios, and Waveform Development, and will delay development and testing of some critical networking capabilities beyond the Future Years Defense Program. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

General BARCLAY. In general, the earlier a program is in the acquisition lifecycle, 

the less disruptive a funding reduction. Unless the program is responding to an Urgent Operational Need Statement, most early contractual efforts are based on cost 

type contract vehicle where the government and the contractor share risk. In the 

later phase of a program, in production, contract vehicles for operational testing or 

for fielding efforts become fixed price oriented in general, where the contractor assumes more risk than the government. 

For example, a program that is pre-Milestone B (in Technology Development) is 

able to absorb shifts in funding easier than a program that is post-Milestone B. 

Once the Acquisition Program Baseline is established, a program must meet the established baseline or it must report to Congress on why it did not meet them, either 

through a significant change or a critical change. 

The most grievous concern would be a statutory violation as a result of a funding 

reduction, a Nunn-McCurdy Statutory violation or the equivalent for a Major Automated Information System program (failure of a program to achieve Initial Operational Capability prior to five years from Milestone A or funds first obligated). 

These violations must be avoided. Other statutory requirements levied on the Department of Defense must also be taken into consideration as well, for example, the 

Army’s statutory requirement to be financially auditable by the end of Fiscal Year 

2017. 

Reducing procurement funding usually reduces the quantity purchased with a resulting increase to the per unit cost. Quality reductions may result in a production 

line break, industrial base impacts —particularly to second and third tier vendors— 

and delayed delivery to the Warfighter. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

General BARCLAY. Sequestration reduces the level of available appropriated funding which will affect all programs, regardless of contract type. On many fixed-price 

contracts the quantities would be reduced to meet the available dollars and we 

would expect the unit costs to rise. The effects on multi-year procurements are more 

pronounced: if sequestration reduces the quantity buys to below the minimum level, 

a new negotiation may be required on the terms and conditions of the new contract. 

This will delay procurement of the system and delay the fielding to Warfighters. In 

addition, multi-year contracts typically generates significant amount of savings for 

the Army compared to annual procurement—the savings will be lost if the multiyear contract is broken. Furthermore, the Army will have to pay a termination liability. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 
105 

General BARCLAY. The impacts of reductions depend on how the Budget Control 

Act is applied to the specific sources of appropriated funds. All contracts impacted 

by funding changes may need to be modified to adjust the requirements and dollars. 

Other courses of action include reduced order quantities against indefinite delivery 

indefinite quantity contracts, not exercising contract option periods, and contract 

terminations. 

The Army, unlike other services, has only a small number of multi-year (MY) procurement contracts. Significant funding reductions could lead to breaking minimum 

production quantities and loss of efficiencies and cost savings in MY contracts. 

Funding reductions under sequestration could lead to renegotiations or possibly cancellations of these contracts. 

The combined effects of a continued CR and sequestration reductions in FY14 extend across the full range of diverse capabilities we field in support of our 

Warfighters. Assuming the most inflexible reductions to funding to programs, as 

many as 12 Apache helicopters in FY14 could be reduced. Development of the Improved Turbine Engine Program, the Armed Ariel Scout Helicopter, and upgrades 

to the MQ–1 Gray Eagle would be placed at risk. 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

General BARCLAY. No, we have reached a point where further delaying new starts, 

cancelling additional programs, and continuing to reduce existing programs will result in unacceptable risks for the Army. As a result of repeated Continuing Resolutions, the Budget Control Act, and sequestration, many Army programs have been 

cancelled, deferred, delayed, or restructured in an effort to maintain efficiencies and 

effectiveness in our major defense acquisition programs. Many of the programs impacted, some multiple times, are small programs that provide critical capabilities to 

the Army and the Joint force. These include Liquid Logistics, heavy machine guns, 

sniper rifles, construction equipment, and tactical bridging. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

General BARCLAY. The Army has not delayed contract awards or reduced spending 

rates in an effort to prepare for sequestration in fiscal year 2014 (FY14). The Army’s 

ability to execute acquisition program timelines and contract awards is actually impacted by the absence of an appropriation in FY14 and the enactment of a continuing resolution that limits funding to prior-year levels. However, the continued 

instability of our fiscal environment limits the Army’s ability to accurately develop 

and execute planned timelines for the design, engineering, manufacturing and fielding of weapon systems. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

General BARCLAY. The current funding instability fundamentally hampers our 

ability to plan and execute acquisition programs in support of the Warfighter. Key 

development, testing and production activities are subject to the limited funds available under a continuing resolution (CR). Under a CR, we lack the authority to start 

new programs or authorize planned increases in production quantities for fielding. 

Sequestration reductions in Fiscal Year (FY) 2013 already reduced or eliminated our 

margin for error on many of our programs, even with our efforts to mitigate using 

prior-year funds. Reductions in FY14 and beyond will directly result in reduced production quantities, deferred investment in new capabilities, and delays in many programs. The hiring freeze, civilian furloughs and government shutdown decimates 

our current and future ability to recruit and retain critical skills and expertise in 

the government workforce. This creates significant impacts to the execution of our 

Science and Technology projects, acquisition programs, testing, contracting, logistics 

and depot maintenance. Delays in testing, contracting, and depot maintenance will 

have a rippling effect on our program execution by increasing cost due to inefficiencies garnered. The long-term effects of this instability are yet to be fully discerned 

but we know that the combined effects of sequestration and a yearly CR will significantly increase the costs of vital Soldier weapon systems. 

The combined effects of a continued CR and sequestration reductions in FY14 extend across the full range of diverse capabilities we field in support of our 

Warfighters. Assuming the most inflexible funding reductions, as many as 12 

Apache helicopters in FY14 would be reduced. Continued cuts in FY14 may result 

in the reduction of up to 11 Chinook aircraft in FY14 and place the Army’s ability 

to maintain the multi-year production contract at risk. The Army will assume risk 
106 

in its aviation modernization efforts for Chinook and Blackhawk contracts. Development of the Improved Turbine Engine Program, planned modernization of the 

Armed Aerial Scout Helicopter, and upgrades to the MQ–1 Gray Eagle will all be 

at risk. Modernization of combat vehicles will be affected and result in delays to 

scheduled Engineering Change Proposal upgrades to Abrams tank and Bradley Infantry Fighting Vehicles. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

General BARCLAY. The lack of prior year funding significantly reduces the Army’s 

flexibility and increases risk when addressing sequestration impacts. In FY13, the 

Army was able to mitigate many of the impacts that would otherwise have come 

to fruition against a number of programs by offsetting sequestration reductions with 

prior year unobligated funds. As prior year funds became scarce, the margin for 

error as programs decreases, pushing the programs towards critical breaches in delayed fielding to Soldiers. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

General BARCLAY. Delays in systems development correlate to delayed production 

which ripples into delayed fielding of capabilities to the Warfighter. Inefficiencies 

created from the delays will lead to increased program cost. Deferring testing leads 

to stretch-out of program schedule since development and operational testing must 

be done to demonstrate that the system met performance requirements. Reducing 

testing during sequestration will lead to increased program risk which may result 

in deficiencies not discovered until later. Generally speaking, the later a deficiency 

is discovered in a program, the more expensive it is to fix the problem. Reducing 

testing in FY13 may also result in postponing the necessary residual testing until 

FY14 which leads to stretch-out of program schedule and increased cost. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

General BARCLAY. Programs incur increased costs when schedules are extended, 

including development, personnel, test, and production. When capabilities are reduced and brought back at a later date, there are costs associated with schedule increases resulting in the loss of efficiencies and impacting the overall acquisition program. In an effort to avoid additional costs associated with delayed development activities and procurement in FY13, the Army used unobligated prior year funds to 

mitigate the effects of sequestration. In doing so, the Army accepted risk for programs with approved development and procurement contract actions scheduled in 

FY14. In the event that a Continuing Resolution or Appropriation is not passed, the 

Army has limited prior year funds available to support spending limitations in 

FY14, which could significantly impact new start programs, production rate increases or programs that are limited in funding due to sequestratoin. The Army 

thus far has been successful in mitigating added costs from sequestration. However, 

failure to enact a timely and sufficient Appropriation in FY14 could counteract these 

efforts to protect taxpayer dollars. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

General BARCLAY. Funding reductions under the Budget Control Act were absorbed in fiscal year 2013 (FY13), but not without hostile effect to the Army’s acquisition programs. The very nature of these indiscriminate cuts resulted in disproportionate impacts within many of our programs that may not be discerned right away. 

These reductions translated to varying delays in program schedules, reduced quantities of equipment procured and challenges imposed on the program’s ability to 

meet development timelines planned well in advance. In many cases, the lasting effects of these disruptions are revealed as development programs reach milestone 

events planned months or years in advance. The Army’s ability to endure these effects in FY13 ultimately depends, in large part, on the availability of stable 

resourcing at requested levels in ensuing fiscal years. 
107 

Moreover, in FY13, the Army was able to mitigate many of the impacts by offsetting sequestration reductions with prior year unobligated funds. The increasingly 

scarce sources of prior year unobligated funding, combined with the cumulative disruptive effects of reductions in FY13 and prolonged Continuing Resolutions in FY13 

and FY14, will continue to significantly impact the Army’s weapon system programs 

in FY14. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

General BARCLAY. Sequestration reductions in FY14 could put the Apache and 

Black Hawk programs at risk of a Nunn-McCurdy breach. The significant funding 

reductions resulting from sequestration would undermine the assumptions used in 

the programs’ cost estimating models, prevent favorable contract negotiations, and 

potentially result in breach of the Black Hawk multiyear contract. Sequestration reductions have reduced procurement quantities across all existing network programs 

such as WIN–T, Tactical Radios, and Waveform Development, to specifically include 

the Small Airborne Networking Radio. These funding reductions will delay development and testing of some critical networking capabilities beyond the Future Years 

Defense Program. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

General BARCLAY. Current Nunn-McCurdy breaches generally reflect poor programmatic management and cost growth. Based upon the continued sequestration 

challenges to execution years, as well as out-year sequestration planning controls, 

programs will hit Nunn-McCurdy breaches due to funding constraints and pushing 

programs beyond scheduled end dates. As a result, Nunn-McCurdy breaches will 

generally be outside of the Program Manager’s span of control if funding controls 

are significantly altered from the approved Acquisition Program Baselines. We recommend that Congress consider allowing programs that hit Nunn-McCurdy 

breaches due to sequestration to rebaseline under the rules of a Critical Breach. 

This would allow programs to ‘‘re-set’’ and would prevent significant cost and schedule delays caused by Nunn-McCurdy breaches. 

Mr. TURNER. How would sequestration and a year-long CR scenario impact your 

ability to fund weight reduction initiatives for personnel protection equipment? How 

would this impact the PPE industrial base, e.g. body armor, night vision devices, 

etc. 

General BARCLAY. The impact of a year-long Continuing Resolution, which effectively translates into a 30 percent funding cut, would be delays in the introduction 

of this improved, lighter protective capability. Limited User Evaluations of the SPS 

Vital Torso, Integrated Head Protection and Transition Combat Eye Protection subsystems, and the Phase II contract awards for the Torso Protection subsystem would 

be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15 and the 

Milestone C decisions on these subsystems, depending upon receipt of funding, 

would slip 6–9 months from the planned third Quarter FY15 date. 

There is no immediate impact to the Industrial Base for ongoing procurement and 

fielding of head, eye, pelvic, torso armor, and other personal protective equipment. 

Funding is currently at the minimum sustaining rate for maintaining two qualified 

armor vendors in hard and soft armor solutions. Further funding reductions may 

place the Army’s ability to maintain competition (and expertise) at risk. 

Projected Fiscal Year 2013 orders from the Army did not support minimum 

sustainment rates as reported by the two vendors for night vision image intensification tubes. However, both vendors have restructured and are still producing image 

intensification tubes. Further funding decreases from sequestration may stress 

image intensification tube manufacturing and ultimately drive up system costs if 

competitive pressure is lost due to the loss of one vendor. However, the Office of 

the Secretary of Defense ‘‘Report to Congress on the Assessment of Industrial Base 

for Night Vision Image Intensifier Sensors,’’ completed in September 2012, concluded that Warfighter readiness would not be negatively impacted if the industrial 

base was further reduced. 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

Admiral MYERS. An FY2014 continuing resolution (CR) and sequestration take 

away from the Department’s ability to provide warfighting capability and capacity 

with the measures of efficiency essential to balancing the requirements of the Defense Strategic Guidance. Our warfighters will have less surge capability and our 
108 

long-term priorities will be traded off to fund near-term readiness. Weapon system 

development timelines will be extended and costs will be higher, production unit 

costs will increase, and the risk to the long-term viability of the defense industrial 

base will increase. Reductions to investment accounts will slow production on factory floors across the defense industrial base adding cost and schedule to weapon 

systems. Equally critical, these reductions will drive delays into the development of 

those leading edge weapon systems that contribute to our warfighters’ asymmetric 

advantage over our adversaries. 

If fiscally constrained to sequestration level funding over the long term, the Navy 

of 2020 would not be able to execute the missions described in the Defense Strategic 

Guidance. The 2014 Quadrennial Defense Review will analyze the Department of 

Defense force structure as a whole and set the long term course for DOD strategy 

and priorities. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

Admiral MYERS. The effects of sequestration vary depending on a program’s stage 

of development and fielding, but also vary from program to program. Sequestration 

impacts to some Naval programs in the development stage will result in loss of capability, while other Naval programs will experience a delay in delivery. Most of 

Navy’s development work is tied directly to acquisition programs of record. Consequently, reductions in the development stage will potentially have an impact on 

their production schedules and costs. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

Admiral MYERS. Yes, if sequestration remains in place, the effects may differ for 

different contract types, but the limited funds will cause the Department of the 

Navy to reduce the products and/or services being purchased on many existing contracts. Limited funds forces the Department to prioritize all our requirements, including mission critical programs, then determine how much money we have available for those programs. 

From a contractual obligation perspective, some types of contract vehicles provide 

the Department with more flexibility than others. Given current regulatory requirements, the Department has more flexibility with existing Cost Reimbursement, Indefinite Delivery, Indefinite Quantity (IDIQ) and ‘‘Requirements’’ contracts, because 

they provide the Department with maximum flexibility in avoiding hard budget limits. Typically, cost reimbursement contracts provide greater flexibility than firm 

fixed price contracts. 

The amount of obligations under a ‘‘firm fixed price’’ contract is the face value of 

the contract that is fully funded at contract award. The Department has less flexibility with existing fixed price contracts, but can choose, if deemed necessary, to renegotiate established pricing based on our decision to de-scope quantity, capability 

and breadth of contract performance. The Department may also choose to not exercise and/or re-negotiate any contract options for future supplies or services. 

Multi-year contracts require added management focus in this sequestration environment. Unlike annual contracts, obligations under a multi-year contract have established contract terms and conditions including cancellation payment; therefore 

particular attention must be paid to meet these terms and conditions or otherwise 

re-negotiate the contract. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 

Admiral MYERS. The Department of the Navy does not currently anticipate the 

need to renegotiate a large number of fixed price or multiyear procurement (MYP) 

shipbuilding contracts due to sequestration in FY 2014. No major previously awarded fixed price shipbuilding or aviation contracts will require deobligation of funds, 

and no Marine Corps contracts will need to be renegotiated. 

However, the Department’s ability to continue to absorb sequestration reductions 

without impacting multiyear contracts is increasingly tenuous. The impacts of the 

FY 2013 sequester were mitigated by the use of prior-year investment balances and 

authorization to reprogram funds. Additionally, many planned costs were deferred 

to preserve multiyear contracts. As these limited stop-gap measures are exhausted, 

there will soon be few options for resources and multiyear contracts may have to 

be renegotiated at reduced quantities, putting substantial savings at risk 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 
109 

Admiral MYERS. The Department of the Navy (DoN) implemented these mitigation measures in developing the FY13 President’s Budget submission in accordance 

with the Budget Control Act of 2011, and in managing the FY13 continuing resolution and sequestration. FY13 sequestration resulted in curtailed operations, deferred 

maintenance, depleted unobligated prior-year balances in our investment accounts, 

and deferred costs to future year budgets. While this mitigated the immediate impacts, it was insufficient to bear the full weight of sequestration, resulting in delays 

to development schedules and reductions to procurement quantities. The net effects 

of these deferrals, delays, and program cuts are added bills and increased costs in 

FY14 and beyond. While we continue to employ these measures to the extent possible, the margin for mitigating the impacts of sequestration with these measures 

has been depleted and they are no longer sufficient to prevent significant reductions 

in major defense acquisition programs if sequestration continues in FY14. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

Admiral MYERS. All major defense acquisition programs have had to take actions 

to deal with the impact of the FY 2013 sequester. 

To minimize impacts in FY 2013, the Department of the Navy was able to use 

reprogramming authorization, prior-year investment balances, and deferral of costs 

to future years. For example, in the FY 2013 SCN account, we were able to use 

$640M of prior year SCN assets to finance some of the $1.75B sequestration bill. 

The Department requested, and the Congress approved, reprogramming for $240M 

to finance an additional portion of the SCN sequestration reduction. Proposed FY 

2014 Congressional action adds $358M, which may further finance the sequestration 

reduction. However, the Department is still faced with future cost to complete bills 

of $515M, which hinder future ship procurements. If sequestration continues, these 

future bills in the shipbuilding and other accounts will be larger without the benefit 

of prior year funds and will accumulate to the point where we will be compelled to 

reduce the number of ships or systems procured. 

Under the FY 2014 continuing resolution (CR), budget controls have been set at 

estimated FY 2014 sequestration levels and program spending rates have been 

slowed to match. In addition, OSD is closely managing DOD obligations and expenditures. This approach has allowed all programs to continue executing in accordance 

with the CR and has not yet caused delays in awarding contracts. However, the CR 

has impacted the ability of programs to execute planned production increases or new 

starts. In addition, all programs are working to identify the impacts of potential FY 

2014 sequestration cuts, when those impacts will begin to occur, and mitigating actions or deferrals that could reduce those impacts. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

Admiral MYERS. Sequestration and the continued budget uncertainty will have 

varying impacts on each of the Department of the Navy’s programs. Overall, an 

FY2014 CR and sequestration take away the Department’s ability to provide 

warfighting capability and capacity with the measures of efficiency essential to balancing the requirements of the Defense Strategic Guidance with the fiscal constraints under current law. Without Congress acting to change the current path, our 

warfighters will have less surge capability and our long-term priorities will be traded off to fund near-term readiness. Further, weapon system development timelines 

will be extended and costs will be higher, production unit costs will increase, and 

the risk to the long-term viability of the defense industrial base will increase. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

Admiral MYERS. If sequestration continues, automatic percentage cuts are required to be applied without regard to strategy, importance, or priorities, resulting 

in adverse impact to almost every program and project within the Navy. Sequestration would adversely impact many of our R&D programs through contract cancellations, contract terminations, and undetermined cost increases caused by inefficient 

contracting and schedule delays. These impacts will reduce and delay our R&D efforts and negatively impact key procurement strategies in future years. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 
110 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

Admiral MYERS. The FY 2013 sequestration impacts to acquisition programs were 

mitigated by depleting unobligated prior-year balances in our investment accounts, 

reprogramming funds from other accounts, and deferring costs to future year budgets. However, this resulted in increased costs in FY 2014 and beyond and longer 

acquisition timelines. If sequestration continues in FY 2014, program impacts will 

include schedule delays, reduced acquisition objectives, postponed modernization 

and upgrades, and the subsequent cost increases due to delayed programs and decreased procurement quantities. In addition, sequestration will slow production on 

factory floors across the defense industrial base, adding cost and schedule risks to 

today’s weapon systems. Equally critical, these reductions will add risk by delaying 

the development of leading edge weapon systems that provide our warfighters with 

the asymmetric advantage they hold over our adversaries. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

Admiral MYERS. The effects of FY13 sequestration were addressed by curtailing 

operations, deferring maintenance, depleting unobligated prior-year balances in our 

investment accounts, deferring costs to future year budgets, and employing the limited transfer authority provided to the DON. These measures, which mitigated the 

immediate impacts, were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement quantities. 

The net effects of these deferrals, delays, and program cuts are added bills and increased costs in FY14 and beyond. We estimate the total deferred ‘‘carry over’’ due 

to FY13 sequestration to be approximately $2 billion over the FY14–FY18 future 

years defense program (FYDP) in operation and maintenance accounts, and an additional approximately $2B over the FY14–FY18 FYDP in investment accounts. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

Admiral MYERS. The effects of FY13 sequestration were addressed by curtailing 

operations, deferring maintenance, depleting unobligated prior-year balances in our 

investment accounts, deferring costs to future year budgets, and employing the limited transfer authority provided to the DON. These measures, which mitigated the 

immediate impacts, were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement quantities. 

The net effects of these deferrals, delays, and program cuts are added bills and increased costs in FY14 and beyond. While these mitigation measures will be repeated 

to the extent possible in FY14, we do not have the prior-year assets to protect investment accounts if FY14 sequestration occurs. In addition, deferred ‘‘carry over’’ 

bills from FY13 will need to be addressed in FY14. FY14 sequestration will compound the impacts of the FY13 continuing resolution and sequestration. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

Admiral MYERS. There is a high probability that if sequestration continues in 

FY14 and subsequent years, some major defense acquisition programs will have significant unit cost increases reportable as ‘‘Nunn-McCurdy breaches.’’ Increasing the 

duration of programs (in development and/or production) causes programs to incur 

additional costs with no offsetting benefit to the government. Program’s annual 

‘‘fixed’’ costs are incurred for a greater number of years, reduced rates of production 

result in lower economies of scale, and programs face greater exposure to obsolescence or changes in the supply base with the added expense that generates. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

Admiral MYERS. Whether or not a Program will incur a Nunn-McCurdy breach 

will not be a significant factor in selecting Programs for reductions. Cuts will be distributed on a requirements basis with cost implications and collateral costs (e.g. cancellation costs or breakage to other Programs) being factors. Exempting the department from Nunn-McCurdy reporting responsibilities caused by CR or Sequestration 

would be beneficial in reducing Program workloads. 
111 

Mr. TURNER. How would sequestration and a CR scenario impact the procurement 

of F–35Cs and F–35Bs? Would lower procurement numbers affect the strike fighter 

shortfall? 

Admiral MYERS. The Department of the Navy is working closely with the F–35 

Program Office and the Under Secretary of Defense for Acquisition, Technology and 

Logistics to assess the impacts of sequestration on the F–35 program. Currently, the 

Department is investigating: the balance between preserving the development program and maintaining capabilities of Block 2B Initial Warfighting Capability; support and sustainment for all delivered aircraft; preserving production efficiencies 

and production capacity; and aircraft procurement. However, sequestration in FY14 

would compel us to reduce aircraft procurement by one F–35B and one F–35C and 

delay the Block 3 development test and evaluation flights resulting in increased risk 

of meeting planned initial operating capability (IOC) dates. The reduced procurement will further pressurize unit recurring flyaway costs at a time when the program was achieving positive cost trends. A continuing resolution hampers the ability 

to properly fund required F–35 modifications because they are considered new starts 

within FY14. The concurrency and block upgrades are critical to the IOC schedule 

since they are required for the operational testing and evaluation and for fleet operations. 

The Navy actively manages the strike fighter shortfall to minimize impacts in 

each execution year. The projected strike fighter shortfall is a compilation of a number of factors including legacy usage, meticulous management of fatigue life, and F– 

35 procurement. Delays in the F–35 procurement will aggravate challenges in meeting inventory requirements. 

Mr. TURNER. Would sequestration and a CR affect life extension programs for F/ 

A–18s and AV–8Bs resulting in a higher strike fighter shortfall this year or in the 

years ahead? 

Admiral MYERS. Yes. Sequestration and the CR are having an adverse effect in 

the short term and are expected to exacerbate the long term strike fighter shortfall. 

Sequestration and the CR are currently causing cancellations and delays in depot 

inductions and High Flight Hour inspections which are negatively impacting the 

ability to source Navy and Marine Corps squadrons. 

Additionally, sequestration and the CR would impact the Marine Corps Readiness 

Management Program for the AV–8B. Some initiatives within this program would 

be delayed or cancelled, decreasing readiness and increasing flight hour costs due 

to decreasing component reliability. 

Mr. TURNER. How will the CR and sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

General WALTERS. An FY2014 continuing resolution (CR) and sequestration take 

away from the Marine Corps our ability to provide warfighting capability and capacity with the measures of efficiency essential to balancing the requirements of the 

Defense Strategic Guidance. Our warfighters will have less surge capability and our 

long-term priorities will be traded off to fund near-term readiness. Weapon system 

development timelines will be extended and costs will be higher, production unit 

costs will increase, and the risk to the long-term viability of the defense industrial 

base will increase. Reductions to investment accounts will slow production on factory floors across the defense industrial base adding cost and schedule to weapon 

systems. Equally critical, these reductions will drive delay into the development of 

those leading edge weapon systems that provide our warfighters with the asymmetric advantage they hold over our adversaries. 

While the specific impact on each program will not be known until the Marine 

Corps receives their final FY 2014 appropriation, including sequestration allocations, and future year appropriations become more predictable, we anticipate schedule delays, reduced acquisition objectives, postponed modernization and upgrades, 

and the subsequent cost increases due to delayed programs and decreased procurement quantities. Marine Corps Ground Major Defense Acquisition Programs will not 

be dramatically affected in the near term. 

The 2014 Quadrennial Defense Review will analyze the DOD force structure as 

a whole and set the long term course for DOD strategy and priorities. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

General WALTERS. The effects of sequestration vary depending on a program’s 

stage of development and fielding, but also vary from program to program. Sequestration impacts to some Marine Corps programs in the development stage will result 

in loss of capability, while other Marine Corps programs will experience a delay in 
112 

delivery. Most of the Marine Corps’ development work is tied directly to acquisition 

programs of record; consequently, reductions in the development stage will potentially have an impact on their production schedules and costs. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

General WALTERS. Yes, if sequestration remains in place, the effects may differ 

for different contract types, but the limited funds will cause the Marine Corps to 

reduce the products and/or services being purchased on many existing contracts. 

Limited funds forces the Marine Corps to prioritize all our requirements, including 

mission critical programs, then determine how much money we have available for 

those programs. 

From a contractual obligation perspective, some types of contract vehicles provide 

the Department with more flexibility than others. Given current regulatory requirements, the Department has more flexibility with existing Cost Reimbursement, Indefinite Delivery, Indefinite Quantity (IDIQ) and ‘‘Requirements’’ contracts, because 

they provide the Department with maximum flexibility in avoiding hard budget limits. Typically, cost reimbursement contracts provide greater flexibility than firm 

fixed price contracts. 

The amount of obligations under a ‘‘firm fixed price’’ contract is the face value of 

the contract that is fully funded at contract award. The Marine Corps has less flexibility with existing fixed price contracts, but can choose, if deemed necessary, to renegotiate established pricing based on our decision to de-scope quantity, capability 

and breadth of contract performance. The Marine Corps may also choose to not exercise and/or re-negotiate any contract options for future supplies or services. 

The multi-year contract provides the least amount of flexibility for the Marine 

Corps in this sequestration environment. Unlike annual contracts, obligations under 

a multi-year contract must follow the established contract terms and conditions to 

avoid any cancellation payment arrangements established in the contract. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 

General WALTERS. No Marine Corps contracts will need to be renegotiated. However, the Marine Corps’ ability to continue to absorb sequestration reductions without impacting multiyear contracts is increasingly tenuous. The Marine Corps made 

extensive use of unobligated prior year funds to avoid impacts to multiyear contracts in FY 2013. Additionally, many planned ancillary purchases for such things 

as support equipment and training devices were deferred to free up budget and preserve the multiyear contracts. As these limited stop-gap measures are exhausted, 

there will soon be little where else to go for resources and multiyear contracts may 

have to be renegotiated at reduced quantities, putting substantial savings at risk. 

While the Marine Corps has not renegotiated any major defense acquisition contracts to date as a result of FY 2014 budget decisions, the uncertainty associated 

with FY 2015 and outyear budgets will require the Marine Corps to continually review and adjust program plans consistent with the changing budget environment. 

Adjustments to these program plans may require renegotiation of procurement contracts. However, the Marine Corps will strive to minimize the number of these renegotiations to maintain the best value for the limited resources. 

Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

General WALTERS. The Marine Corps implemented a variety of mitigation measures to manage FY13 while operating under a continuing resolution for the first six 

months of the fiscal year and sequestration. FY13 sequestration resulted in curtailed operations, deferred maintenance, depleted unobligated prior-year balances in 

our investment accounts, and deferred costs to future year budgets. While this mitigated the immediate impacts, it was insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement 

quantities. The net effects of these deferrals, delays, and program cuts are added 

bills and increased costs in FY14 and beyond. While we continue to employ these 

measures to the extent possible, the margin for mitigating the impacts of sequestration with these measures has been exhausted and will be unable to prevent significant reductions in major defense acquisition programs if sequestration continues in 

FY14. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 
113 

General WALTERS. Now that the FY 2013 sequester has been realized, all major 

defense acquisition programs have had to take actions to deal with the impact. 

To minimize impacts in FY 2013, the Marine Corps was able to use prior year 

funding, FY 2013 Above Threshold Reprogramming actions, potential FY 2014 Congressional adjustments, and the deferral of certain costs 

Attempting to further plan for sequestration is difficult since more than half way 

through the first quarter of FY 2014, program funding levels for the year remain 

unknown. All programs are working to identify the impacts of potential cuts, when 

those impacts will begin to occur, and mitigating actions or buy backs that could 

diminish or alleviate those impacts. 

With the passing of the continuing resolution (CR) for FY 2014, budget controls 

have been set at estimated FY 2014 sequestration levels and program spending 

rates have been slowed to match. In addition, OSD is closely managing DOD obligations and expenditures and has recently revised a policy whereby all obligations in 

excess of $250M require prior approval from the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)). This approach has allowed all 

programs to continue executing in accordance with the CR and has so far not caused 

delays in awarding contracts. The CR has impacted the ability of programs to execute planned production increases or new starts. However, with the uncertainty surrounding the FY 2014 budget and the potential for a yearlong CR, the Marine Corps 

will continue to use the funding available to execute the programs to provide the 

needed capabilities to our warfighters. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

General WALTERS. Sequestration and the continued budget uncertainty will have 

varying impacts on each of the Department of the Navy’s programs. In FY 2013, 

no Marine Corps Major Defense Acquisition Programs were delayed in fielding due 

to the CR or sequestration cuts. 

We anticipate other schedule delays, reduced acquisition objectives, and postponed 

or cancelled modernization and upgrades will also be required. However, the specific 

impacts will not be known until a final budget level for FY 2014 is established and 

priorities and tradeoffs can be made. 

Overall, a FY2014 CR and sequestration act to take away the Marine Corps’ ability to provide warfighting capability and capacity with the measures of efficiency essential to balancing the requirements of the Defense Strategic Guidance with the 

fiscal constraints under current law. Without Congress acting to change the current 

path, our warfighters will have less surge capability and our long-term priorities 

will be traded off to fund near-term readiness. Further, weapon system development 

timelines will be extended and costs will be higher, production unit costs will increase, and the risk to the long-term viability of the defense industrial base will increase. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

General WALTERS. If sequestration continues, automatic percentage cuts are required to be applied without regard to strategy, importance, or priorities, resulting 

in adverse impact to almost every program and project within the Marine Corps. 

Sequestration would adversely impact many of our R&D programs through contract 

cancellations, contract terminations, and undetermined cost increases caused by inefficient contracting and schedule delays. These impacts will reduce and delay our 

R&D efforts and negatively impact key procurement strategies in future years. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

General WALTERS. The FY 2013 sequestration reduced the Marine Corps’ top-line 

by approximately $1.2 billion and impacted our readiness, operations and procurement. The effects were addressed by curtailing operations, deferring maintenance, 

depleting unobligated prior-year balances in our investment accounts, and deferring 

costs to future year budgets. The net effects of these deferrals, delays, and program 

cuts are added bills; increased costs in FY 2014 and beyond; and longer acquisition 

timelines. These impacts are compounded with reductions to the FY 2014 budget 

in accordance with the mechanics of sequestration. The compounded effects eliminate the Marine Corps’ ability to provide warfighting capability and capacity with 

the measures of efficiency essential to balancing the requirements of the Defense 
114 

Strategic Guidance with the fiscal constraints of the Budget Control Act of 2011. 

Across the board reductions to investment accounts will slow production on factory 

floors across the defense industrial base adding cost and schedule to today’s weapon 

systems; and equally critical, these reductions will drive delay into the development 

of those leading edge weapon systems that provide our warfighters with the asymmetric advantage they hold over our adversaries. 

Certain Marine Corps program tasks originally scheduled for FY 2013 were 

moved to future years as a result of sequestration funding reductions. No testing 

was deferred or reduced. All Marine Corps programs remain within current schedule baselines at this time. Additional reductions in funding will begin to increase 

delays and risk to the programs. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

General WALTERS. The effects of FY13 sequestration were addressed by curtailing 

operations, deferring maintenance, depleting unobligated prior-year balances in our 

investment accounts, deferring costs to future year budgets, and employing the limited transfer authority provided to the DON. These measures, which mitigated the 

immediate impacts, were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement quantities. 

The net effects of these deferrals, delays, and program cuts are added bills and increased costs in FY14 and beyond. Overall, sequestration required a reduction of 

$212 million in investment accounts. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

General WALTERS. The effects of FY13 sequestration on the Marine Corps were 

addressed by depleting unobligated prior-year balances in our investment accounts, 

deferring costs to future year budgets, and employing the limited transfer authority 

provided to the DON. These measures, which mitigated the immediate impacts, 

were insufficient to bear the full weight of sequestration, resulting in delays to development schedules and reductions to procurement quantities. The net effects of 

these deferrals, delays, and program cuts are added bills and increased costs in 

FY14 and beyond. While these mitigation measures will be repeated to the extent 

possible in FY14, we do not have the prior-year assets to protect investment accounts if FY14 sequestration continues. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

General WALTERS. There is a probability that if sequestration continues in FY 

2014 and subsequent years, some major defense acquisition programs (MDAPs) will 

have significant unit cost increases reportable as Nunn-McCurdy breaches. However, that risk will not be a significant factor in selecting programs for reduction. 

Increasing the duration of programs (in development and/or production) causes 

programs to incur additional costs with no offsetting benefit to the government. Program’s annual fixed costs are incurred for a greater number of years, reduced rates 

of production result in lower economies of scale, and programs face greater exposure 

to obsolescence or changes in the supply base with the added expense that generates. Although Nunn-McCurdy unit cost thresholds are evaluated against base 

year dollars, the aerospace manufacturing sector has seen costs rising at a rate exceeding that of overall inflation. Therefore, even after general inflation is backed out 

of program costs, costs pushed further into the future still result in higher base year 

costs. 

Currently, the Navy does not anticipate that any shipbuilding or ship weapon system MDAPs will incur the risk of a Nunn-McCurdy unit cost breach as a result of 

potential sequestration effects, and no Marine Corps MDAPs have experienced 

Nunn-McCurdy level unit cost issues. 

Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

General WALTERS. Within the line item level restrictions of sequestration, whether or not a Program will incur a Nunn-McCurdy breach will not be a significant factor in selecting Programs for reductions. Cuts will be distributed on a requirements 
115 

basis after reviewing and assessing cost implications and collateral costs (e.g. cancellation costs or breakage to other Programs). 

Unless forced to incur across the board sequestration funding reductions similar 

to Fiscal Year 2013, Marine Corps Major Defense Acquisition Programs (MDAPs) 

will most likely obtain adequate funding via re-programming actions from nonMDAP programs. 

Exempting the Department from Nunn-McCurdy reporting responsibilities caused 

by a continuing resolution or Sequestration would be beneficial in reducing Program 

workloads. 

Mr. TURNER. Would sequestration and a CR affect life extension programs for F/ 

A–18s and AV–8Bs resulting in a higher strike fighter shortfall this year or in the 

years ahead? 

General WALTERS. Yes. Sequestration and the CR are having an adverse effect in 

the short term and are expected to exacerbate the long term strike fighter shortfall. 

Sequestration and the CR are currently causing cancellations and delays in depot 

inductions and High Flight Hour inspections which are negatively impacting the 

ability to source Navy and Marine Corps squadrons. 

Additionally, sequestration and the CR would impact the Marine Corps Readiness 

Management Program for the AV–8B. Individual initiative timelines and specific 

initiatives within this program may be cancelled, decreasing readiness and increasing flight hour costs due to component reliability. 

Mr. TURNER. How would sequestration and a CR scenario impact your ground 

combat and tactical vehicle strategy? What programs will be delayed or impacted 

by this budget uncertainty? 

General WALTERS. The objective of the U.S Marine Corps’ Ground Combat and 

Tactical Vehicle (GCTV) Strategy is to field a ground combat vehicle portfolio structured to support Marine Expeditionary Forces, two Marine Expeditionary Brigades 

(MEB) capable of conducting sea-based Joint Forcible Entry Operation (JFEO), two 

maritime prepositioned MEBs (sea-basing enabled), and one geographically 

prepositioned MEB. These scalable MAGTF’s will be capable of supporting theater 

engagement plans, irregular warfare, sea-based operations, and sustained operations ashore across the range of military operations. Ultimately, the discreet components of the portfolio are designed to come together as a unitary whole that provides Combatant Commanders (COCOM) and the Nation the capabilities necessary 

to support the operations listed above that gives COCOMs the greatest range of options possible from the sea, in a balanced manner. 

Our GCTV Strategy is comprised of components that include the acquisition of 

Amphibious Combat Vehicles, Marine Personnel Carriers, and Joint Light Tactical 

Vehicles; as well as the sustainment and modernization of our AAV, LAV, M1A1 

tank, and HMMWV fleets in sufficient quantities necessary to maintain capability 

during the transition to our objective GCTV force for the 21st century. 

The enduring challenge to the strategy is managing the increase in procurement 

and sustainment costs of vehicles needed for the 21st century operating environment. Historical expenditures for vehicles will not support ground maneuver and 

mobility needs as stated for our future force. 

The impacts of sequestration that include not only scarcity of resources, but also 

a large measure of uncertainty, have compromised our ability to approach the planning and execution of our GCTV Strategy with the coherence necessary for sound 

capital investment planning. 

While it remains a primary requirement in our GCTV Strategy, we have been 

forced to defund MPC in the near term due to insufficient funding. We have also 

been forced to adjust the timelines for ACV and JLTV due to reduced funding which 

may move the timelines for IOC to the right by three years and one year respectively. The uncertainty created by the significant restructuring of our plan has created a need to redefine our requirements for aligning resources with the 

sustainment and modernization of our AAV, LAV, and M1A1 fleets. 

Mr. TURNER. What programs do the Marine Corps anticipate it will have to cancel 

or extend due to the budget uncertainty? 

General WALTERS. If sequestration were fully implemented, the Marine Corps 

would have to assess every program. Sequestration will cause interruptions during 

program acquisition that would increase the total program cost. Schedules would 

slip and contracts would be delayed. Efficiencies would be lost. This would negatively impact development and production schedules requiring program restructures 

and potentially cause Nunn-McCurdy breaches. For procurement programs, existing 

contracts will have to be renegotiated, preventing the Marine Corps from receiving 

Economic Order Quantity pricing. 

The Marine Corps will also have to sustain legacy systems longer than planned, 

which will drive up current operation and support costs. We will have to shift our 
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attention to developing and replacing obsolescent parts for legacy systems that are 

no longer available in the market place, which will shift the workforce to a focus 

of reengineering old and inefficient technology. Finally, technologies designed to improve efficiencies (fuel, lightweight armor, etc.) will have to be postponed, preventing the Marine Corps from reaping planned savings while simultaneously driving up costs due to the use of older, more expensive technologies. 

Mr. TURNER. What are impacts we are seeing on the execution of the Marine Personnel Carrier and Joint Light Tactical Vehicle program? 

General WALTERS. While it remains a primary requirement in our GCTV Strategy, we have been forced to defund MPC in the near term due to insufficient funding. We have also been forced to adjust the timelines for ACV and JLTV due to reduced funding which may move the timelines for IOC to the right by three years 

and one year respectively. The uncertainty created by the restructuring of our plan 

has created a need to redefine our requirements for aligning resources with the 

sustainment and modernization of our AAV, LAV, and HMMWV fleets. 

For FY14 and FY15, impacts to the Joint Light Tactical Vehicle (JLTV) program 

depend entirely on how sequestration or other reductions are implemented. The program is currently executing a test-intensive Engineering and Manufacturing Development phase already challenged by the cumulative effect of FY13 Congressional 

decrements, sequestration, and furloughs, but this well-structured program faces no 

inherent cost, schedule, or performance challenges. Consequently, if budget flexibility permits funding of JLTV to its Acquisition Program Baseline, the program 

should continue on-budget and on-schedule. Conversely, across-the-board cuts in 

FY14 and FY15 would likely delay the program’s Milestone C decision and Low 

Rate Initial Production (LRIP) contract award by up to 12 months, into FY16. The 

Services will continue to explore mitigation strategies to reduce the potential impact 

of sequestration on JLTV and to preserve the FY15 Milestone C decision and LRIP 

contract award as currently planned. The JLTV program remains a critical opportunity to close capability gaps in today’s light tactical wheeled vehicle fleets and to 

re-balance payload, performance, and protection for a wide range of demanding mission profiles. 

Mr. TURNER. If sequestration remains in FY14 and FY15, what impact will this 

have on the execution of the Joint Light Tactical Vehicle program? Please provide 

the subcommittee with an update on this critical program. 

General WALTERS. While it remains a primary requirement in our GCTV Strategy, we have been forced to adjust the timeline for JLTV due to reduced funding 

which may move the timelines for IOC to the right by one year. The uncertainty 

created by the restructuring of our plan has created a need to redefine our requirements for aligning resources with the sustainment and modernization of our 

HMMWV fleet. 

If sequestration remains in FY14 and FY15, impacts to the Joint Light Tactical 

Vehicle (JLTV) program depend entirely on how sequestration cuts are implemented. The program is currently executing a test-intensive Engineering and Manufacturing Development phase already challenged by the cumulative effect of FY13 

Congressional decrements, sequestration, and furloughs. This well-structured program faces no inherent cost, schedule, or performance challenges. If budget flexibility permits funding of JLTV to its Acquisition Program Baseline despite sequestration, the program should continue on-budget and on-schedule. Conversely, acrossthe-board cuts in FY14 and FY15 would likely delay the program’s Milestone C decision and Low Rate Initial Production (LRIP) contract award by up to 12 months, 

into FY16. The Services will continue to explore mitigation strategies to reduce the 

potential impact of sequestration on JLTV and to preserve the FY15 Milestone C 

decision and LRIP contract award as currently planned. The JLTV program remains 

a critical opportunity to close capability gaps in today’s light tactical wheeled vehicle 

fleets, and to re-balance payload, performance, and protection for a wide range of 

demanding mission profiles. 

Mr. TURNER. How will the CR and Sequestration impact your major defense acquisition programs and will these reductions require a change in national military 

strategy? 

General MOELLER. Sequestration, combined with another continuing resolution 

(CR), continues to inflict painful, palpable, and ultimately expensive disruptions 

throughout our Air Force. We are making every effort to minimize the impact of the 

CR and Sequestration to our readiness and modernization. All of this comes at a 

time when our Air Force is long-overdue for vital reconstitution. Our fleets are 

aging, and our force is at its smallest since its inception. 

At this time, we are doing our best to balance near-term readiness with modernization while ensuring our ability to project Global Vigilance, Global Reach, and 

Global Power in the heavily defended environments of 2023. FY14 sequestration re-
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ductions force sharp declines in our readiness and modernization accounts. The 

blunt, indiscriminate mechanism of sequestration undermines the combat capability 

of your Air Force and the entire joint force, and it is unworthy of the servicemen 

and women who risk their lives in service to our great Nation. 

We know the Air Force has a role in helping our Nation get its fiscal house in 

order. However, the abrupt and arbitrary nature of sequestration drives the Air 

Force into a ‘‘ready force today’’ versus a ‘‘modern force tomorrow’’ dilemma. This 

dilemma is dangerous and avoidable. If we are given the flexibility to make prudent 

cuts over time, we can achieve the savings required under current law. However, 

sequestration robs us of that flexibility. We’re left with options that simply don’t 

make business sense. We need your help. We need funding bills that give us stability so we can achieve real savings in a strategically and managerially sound way. 

Mr. TURNER. Please describe how the effects of sequestration differ for major defense acquisition programs in different stages of development and fielding? For example, would it be less disruptive for programs still in development, which are primarily based on a level of effort, than those in production? 

General MOELLER. The effects of sequestration disrupt major defense acquisition 

programs throughout the development and fielding phases. The single largest impact of sequestration and current budgetary unknowns is the very serious impact 

they have on the meticulous cost and schedule planning mandated in numerous 

public laws and DOD acquisition policy directives. The increasing budgetary inefficiency makes it very difficult, if not impossible, for our program managers to do 

their jobs. 

Sequestration cuts deeply into Air Force investment accounts, which under the 

law must be applied equally at the program, project, and activity level; consequently, it impacts every one of the Air Force’s acquisition programs. For example, 

a potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, could be the loss of four to five aircraft from the requested 

amount of 19. This potential reduction will increase unit costs resulting in production funding shortfalls. 

Moreover, the across the board cuts will likely remove funding for our program 

managers to address emerging technical issues discovered during the development 

effort. This directly impacts our ability to achieve the original program baseline, and 

will undoubtedly escalate program costs. The Air Force would like to be granted the 

ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. However, even with flexibility, the Air Force 

may not eliminate all risks associated with meeting the Combatant Commander requirements. 

Mr. TURNER. Will the potential effects of sequestration differ for major defense acquisition programs using different contract types and acquisition strategies (fixedprice v. cost-reimbursement; multi-year procurement v. annual procurement)? 

General MOELLER. Regardless of contract type, the effects of sequestration could 

drive a program to de-scope requirements, delay performance of required work, or 

terminate the contract. Any of these developments will likely result in a contract 

modification regardless of whether the contract is fixed-price or cost-reimbursement. 

The only difference is in the flexibility and responsiveness to react to those changes; 

a cost-reimbursement arrangement usually provides more flexibility and quickness 

to react to changes than does a fixed-price arrangement. Making changes to a fixed 

price contract could have unintended consequences by opening a door for a contractor to claim additional costs. The effects of sequestration would differ on a 

multi-year (MY) versus annual procurement. For an annual procurement, you could 

negotiate a reduction in the required number of items or level of service and only 

affect that current year acquisition without affecting subsequent years. MY procurements generally assume some constant level of production or service. For example, 

if budgets change and this causes a reduction of product or service requirements, 

it will likely result in the following: increased unit prices; a requirement to pay for 

subcontracted items delivered early to need per the MY agreement; and possibly an 

action for breach of contract if the requirements fall below a minimum commitment 

in the MY agreement. 

Mr. TURNER. Would large numbers of fixed price or multiyear procurement contracts need to be renegotiated due to sequestration? 

General MOELLER. In FY13, we carefully managed our multi-year and large fixed 

price contracts for development, production and sustainment to avoid breaks in production or service as much as possible. However, some of our smallest fixed price 

agreements at the installation-level were affected. Another sequestration cut in 

FY14 is projected to have a larger effect on a higher number of our fixed-priced contracts for procurement, sustainment and installation. 
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Mr. TURNER. Could the potential effects of sequestration on major defense acquisition programs be mitigated by delaying new starts, canceling lower priority programs, or curtailing existing programs? 

General MOELLER. The deep cuts brought on by sequestration-level funding will 

force the Air Force to make profound cuts to readiness and investment major defense acquisition programs to achieve the targeted reduction amounts in the first 

few years of the fiscal year defense plan. When forced to make tough decisions, we 

will favor new capabilities over upgrades to our legacy forces and our top three acquisition priorities remain the KC–46, the F–35, and the Long Range Strike Bomber 

(LRS–B). 

To maintain minimum levels of readiness and sustain our highest investment programs, the Air Force will have to cut up to 25,000 Total Force Airmen and up to 

550 aircraft. As we divest force structure, our priorities are to retain the global, 

long-range capabilities and multi-role platforms that are required to operate in highly contested environments. We will focus on divestiture of entire fleets of aging and 

costly platforms as well as those less capable and less survivable in heavily defended airspace. We will look to cut aircraft fleets because divesting an entire weapons system results in greater savings than cutting a portion of an aircraft fleet; because, every fleet has relatively fixed sustainment (overhead) costs. Beyond our top 

three acquisition priorities, all options are on the table. 

Mr. TURNER. Have any major defense acquisition programs started to take actions 

now to plan for sequestration? For example, have any programs delayed contract 

awards planned for fiscal year 2013 or slowed spending plans so that they can carry 

over additional funds to fiscal year 2014, 2015? 

General MOELLER. All major defense acquisition programs have started to plan 

for sequestration. Air Force Program Executive Officers have been evaluating sequestration impacts to programs in their portfolios. For example, the Space Fence 

contract was ready for award in early June 2013; however, a DOD-level review driven by sequestration, delayed the decision to proceed to later in 2013. With an affirmative decision in November, initial capability will slip about one year and costs 

will increase by over $70M. We cannot afford to mortgage the future of our Air 

Force and the defense of our Nation. 

In FY13, the Air Force used $1.5B in unobligated prior year funds that will not 

be available in FY14. With respect to the O&M account, we started FY14 under a 

Continuing Resolution that provided funding that is $500M less than we originally 

programmed for the year. The remaining FY14 funding does not allow us to even 

cover the readiness shortfall from last year. 

Mr. TURNER. Please provide details on the major defense acquisition programs 

that would experience any delays in fielding needed capabilities to the warfighter 

as a result of the effects of sequestration and CR? 

General MOELLER. When forced to make tough decisions, we will favor new capabilities over upgrades to our legacy forces and our top three acquisition priorities 

remain the KC–46, the F–35, and the Long Range Strike Bomber. The current fiscal 

environment compels the Air Force to consider difficult budgetary choices. The current law caps and the abrupt and arbitrary nature of sequestration drive the Air 

Force into a ‘‘ready force today’’ versus a ‘‘modern force tomorrow’’ dilemma. The indiscriminate application of these additional reductions drives us to eliminate significant capability and capacity and it does not provide the flexibility needed to maintain near-term readiness at levels to accomplish our assigned national security missions. 

Sequestration cuts deeply into Air Force investment accounts, which under the 

law must be applied equally at the program, project, and activity level; consequently, it impacts every one of the Air Force’s acquisition programs. For example, 

a potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, could be the loss of four to five aircraft from the requested 

amount of 19. 

A year-long Continuing Resolution will also delay fielding needed capabilities to 

our warfighters. For example, without Congressional approval to enter into new 

multi-year procurements, an inability to execute the planned C–130J program 

multi-year buy will impact the production line, delivery schedule, and potentially increased cost. 

The Air Force would like to be granted the ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. 

However, even with flexibility, the Air Force may not eliminate all risks associated 

with meeting the Combatant Commander requirements. We need the Congress’ support to better align our future force to the needs of the current defense strategy. 

Mr. TURNER. DOD took 30 percent of sequestered funding from RDT&E and procurement accounts from prior year unobligated balances instead of from FY13 funds. 
119 

What effects, if any, does the use of prior year unobligated balances to satisfy the 

FY13 sequestration have on the Department’s flexibility in managing programs 

moving forward including dealing with further sequestration? 

General MOELLER. In FY13, the AF used $1.5B in unobligated prior year funds 

that will not be available in FY14. In addition, the current Continuing Resolution 

contains $500M less than was programmed for the AF FY14 budget. The remaining 

FY14 funding does not allow the AF to even cover the readiness shortfall from last 

year. 

As with force structure and readiness, if the reduced caps under current law continue, our modernization forecasts are bleak. This funding level will impact every 

one of the AF modernization programs. These disruptions will, over time, cost more 

taxpayer dollars to rectify contract breaches, raise unit costs, and delay delivery of 

critical equipment. When it comes to future investment and modernization, the public may not recognize the effects of these reductions initially. The damage will compound with time. 

Mr. TURNER. A number of programs reported delaying aspects of development and 

deferring or reducing testing in response to the FY13 sequestration? What risks 

were assumed in these delays or reductions and what impacts will programs feel 

in FY14 and beyond as a result? 

General MOELLER. With FY13 sequestration, programs assumed risks in schedule 

and cost by deferring near-term risk reduction activities, delaying contract awards 

and decreased investments in development. Additionally, the Air Force used $1.5B 

in unobligated prior year funds to reduce risks but that option will not be available 

in FY14. For FY14 and beyond, deferrals are likely to extend program schedules and 

increase costs due to the restructuring of activities and contracts, which will likely 

delay the planned operational capabilities to warfighters. A potential FY14 sequestration impact for the F–35A low rate initial production, relative to the request, 

could be the loss of four to five aircraft from the requested amount of 19. This potential reduction will increase unit costs resulting in production funding shortfalls. 

Moreover, the across the board cuts will likely remove funding for our program 

managers to address emerging technical issues discovered during the development 

effort. This directly impacts our ability to achieve the original program baseline, and 

will undoubtedly escalate program costs. The Air Force would like to be granted the 

ability to move appropriations to mitigate, to the maximum extent possible, devastation to the highest priority programs. However, even with flexibility, the Air Force 

may not eliminate all risks associated with meeting the Combatant Commander requirements. 

The Strategic Choices and Management Review found the President’s FY14 budget proposal is the most prudent option of those currently being considered. FY14 sequestration reductions force sharp declines in our readiness and modernization accounts. 

Mr. TURNER. In addition to delaying or reducing development activities, including 

testing, the Department accommodated sequestration by reducing the procurement 

of quantities and capabilities in a number of weapon programs. Does the Department have an estimate of the added costs, if any, associated with delayed development activities and procurement associated with the FY13 sequestration? 

General MOELLER. The Air Force has not conducted this analysis at the at the 

program, project, and activity level. With the continued budget uncertainties, the 

department has focused on protecting top modernization programs while maintaining readiness. 

Mr. TURNER. A fair number of programs appear to have been able to absorb the 

FY13 sequestration with minimal or little immediate impact. How was this possible 

and does the Department anticipate that this would again be the case if sequestration occurs again in FY14? 

General MOELLER. In FY13, the Air Force used $1.5B in unobligated funds that 

will not be available in FY14. We start on a Continuing Resolution for the beginning 

of FY14 that is roughly, just on our O&M account, $500M less than we had programmed for in FY14. The remaining funding does not allow us to even cover the 

readiness shortfall from last year. 

Mr. TURNER. Will the potential effects of sequestration—which could include 

longer development phases and lower production rates—be significant enough to 

cause some major defense acquisition programs to experience significant unit cost 

increases reportable as ‘‘Nunn-McCurdy breaches’’? 

General MOELLER. We did not experience any Nunn-McCurdy breaches with the 

FY13 sequestration, but there is potential for a breach with the FY14 sequestration. 

This will not be determined with certainty until the FY15 President’s Budget is 

complete. 
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Mr. TURNER. How will you make cuts to major defense acquisition programs without forcing them into a Nunn-McCurdy breach? Should Congress modify the requirements that currently apply when a Nunn-McCurdy breach occurs? 

General MOELLER. The Air Force builds its budget based on the needs of the service consistent with resources available. The Air Force will make prioritized investments to ensure an ability to project Global Vigilance, Global Response, and Global 

Power. When forced to make tough decisions, we will favor new capabilities over upgrades to our legacy forces and our top three acquisition priorities remain the KC– 

46, the F–35, and the Long Range Strike Bomber. 

The fact that a program may or may not have a Nunn-McCurdy breach does not 

drive the overall programming process. Those decisions may result in terminations 

and truncations of investment programs. We would work to re-baseline and restructure the remaining major defense acquisition programs to be executable in FY14 

and beyond, as well as minimize Nunn-McCurdy impacts. 

It is the Department’s position not to seek any legislative relief for sequestrationdriven Nunn-McCurdy breaches. The current Nunn-McCurdy legislation has a 

mechanism to mitigate quantity-related critical breaches. The Department has not 

experienced any significant impact in terms of breaches to date. There were no 

Nunn-McCurdy breaches reported for FY13; however, the potential for a breach with 

sequestration for FY14 exists. The cumulative reductions over time in quantity from 

the baseline may eventually result in an increase in Nunn-McCurdy unit cost 

breaches. 

Mr. TURNER. How would sequestration and CR scenario impact the procurement 

of F–35As? Would lower procurement numbers results in a future strike fighter 

shortfall? 

General MOELLER. Sequestration in FY14 could result in a loss of 4–5 F–35A aircraft. A full year continuing resolution (CR) could result in a loss of 3–4 F–35A aircraft. A combination of sequestration plus a full year CR could result in a loss of 

5–7 aircraft. The FY14 President’s Budget request is for 19 F–35A aircraft. 

The exact impact of sequestration on the future strike fighter force is still being 

assessed. We do know that more reductions will drive additional risks to our readiness, force structure, and ability to modernize our aging aircraft inventory. As we 

navigate the uncertain way ahead, we will continue to work with Congress. 

Mr. TURNER. Would sequestration and a CR affect life extension programs for F– 

15s, F–16s, and A–10s resulting in a higher fighter shortfall this year or in the 

years ahead? 

General MOELLER. F–15 Program—The F–15 has no Service Life Extension Program (SLEP), therefore no known impact at this time. 

F–16 Program—FY14 sequestration and continuation resolution (CR) could affect 

the ongoing developmental efforts associated with the F–16 Legacy SLEP program 

by slowing the program. Production is scheduled to begin in FY18 and may be impacted if there is a delay in development. There is no immediate shortfall in aircraft, but future years may be impacted. 

A–10 Program—The A–10 Wing Replacement Program would buy fewer wings 

this year. No fighter shortfall this year but may occur as early as FY19 without future buys based on FY13 NDAA mandated fleet size (283). 

Mr. TURNER. What effects could sequestration and a CR have on the military 

aviation industrial base? 

General MOELLER. We are now approaching a second year of operations under the 

Budget Control Act (BCA) and operating under Continuing Resolutions. Risk and 

uncertainty are the key words that I would use to characterize the results. The nation’s security is at greater risk, your Air Force is at greater risk and most importantly our Airmen, military and civilians, are at greater risk as they attempt to cope 

with the uncertainties of this fiscal crisis. 

Clearly, there have been broad impacts to the national technology and industrial 

base. The immediate and drastic reductions imposed by the BCA caused the Air 

Force to cut flying hours; reduce training, exercises, and travel; defer maintenance 

and modernization; and painfully, furlough our civilian Airmen. The instantaneous 

drop in demand flowed across and through the tiered network of companies, large 

and small, that supply the goods and services needed to sustain Air Force capabilities and our infrastructure. The resulting personnel reductions and reorganizations 

of the larger firms, such as Lockheed Martin and Raytheon, have been reported in 

the press. Adjustments made by the lower tiers of the supply chain are less publicized yet, on the individual level, are just as devastating. 

Without relief, the impacts will not get better in the near future. As the Air Force 

shrinks in size, divesting capacity while preserving core capabilities and key investments, our demand on both the organic and commercial industrial bases will continue to drop. Some companies may be able to offset the drop in Air Force business 
121 

by shifting to commercial or private sector customers. The segment of concern is 

that group which has both the intellectual capacity and physical plant capability to 

design, develop, produce, and sustain military-unique aircraft and systems. Without 

investment, that sector will wither. The nation may pay dearly in the future to reinvigorate that sector. My hope is the cost will be measured only in terms of dollars 

and time and not those whose mission it is to fly, fight and win when called upon. 

QUESTIONS SUBMITTED BY MR. VEASEY 

Mr. VEASEY. As the Army addresses reductions in end-strength, you must also be 

looking to make commensurate cuts to equipment and weapons systems. Is Army 

basing these decisions not only on acquisition cost savings, but also on related life 

cycle cost expenditures? It’s my concern that any saving initially reaped by divesting 

of one weapons system will be more than offset by the operating and maintenance 

costs associated with retaining or expanding the use of another system if operating 

expenses are ignored. Are you taking a holistic approach and assessing all the costs 

involved when you make these decisions? 

General BARCLAY. The Army requirements and programming process specifically 

addresses life cycle costs and cost-benefits associated with retaining existing equipment and modernization. All programs undergo a life cycle cost assessment to determine the investments necessary to develop, acquire, sustain, and divest the system. 

Modernization planning includes sustainment costs to keep older equipment longer 

if new or modification programs are delayed. 

The Army faces critical resource issues regarding sustainment costs and modernization costs. Continued delays in modernization will increase the sustainment 

costs of existing equipment. 

Throughout the year, the Army and Secretariat staff team to address near- and 

long-term life cycle costs. This is conducted at the program level and portfolio levels 

during the Program Objective Memorandum development, and in our recently instituted Long-Range Integrated Requirements Analysis reviews that bring together acquisition, sustainment, training, and installations to ensure the long-range plans 

are synchronized. 

The current sequestration pressures reduce the Army’s ability to find the right 

balance to reduce overall life cycle costs. Resource stability and flexibility are fundamental building blocks to improving effective life cycle cost management 

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