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DEFENSE ACQUISITIONS: ONE YEAR AFTER

REFORM

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY

AND FOREIGN AFFAIRS

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

MAY 19, 2010

Serial No. 111–151

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

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS

JOHN F. TIERNEY, Massachusetts, Chairman

CAROLYN B. MALONEY, New York

PATRICK J. KENNEDY, Rhode Island

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

STEVE DRIEHAUS, Ohio

STEPHEN F. LYNCH, Massachusetts

MIKE QUIGLEY, Illinois

JUDY CHU, California

JEFF FLAKE, Arizona

DAN BURTON, Indiana

JOHN L. MICA, Florida

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JEFF FORTENBERRY, Nebraska

BLAINE LUETKEMEYER, Missouri

ANDREW WRIGHT, Staff Director

(III)

C O N T E N T S

Page

Hearing held on May 19, 2010 ............................................................................... 1

Statement of:

Sullivan, Mike, Director, Acquisition and Sourcing Management, U.S.

Government Accountability Office; John Roth, Deputy Comptroller for

Program/Budget, Office of the Under Secretary of Defense—Comptroller; and Nancy Spruill, Ph.D., Director, Acquisition Resources and

Analysis, Office of the Under Secretary of Defense for Acquisition,

Technology and Logistics .............................................................................. 7

Roth, John .................................................................................................. 30

Spruill, Nancy, Ph.D. ................................................................................ 35

Sullivan, Mike ........................................................................................... 7

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

Roth, John, Deputy Comptroller for Program/Budget, Office of the Under

Secretary of Defense—Comptroller, prepared statement of ...................... 32

Spruill, Nancy, Ph.D., Director, Acquisition Resources and Analysis, Office of the Under Secretary of Defense for Acquisition, Technology

and Logistics, prepared statement of .......................................................... 37

Sullivan, Mike, Director, Acquisition and Sourcing Management, U.S.

Government Accountability Office, prepared statement of ....................... 11

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

of Massachusetts:

Information concerning competition ............................................................... 56

Prepared statement of ...................................................................................... 4

(1)

HEARING ON DEFENSE ACQUISITIONS: ONE

YEAR AFTER REFORM

WEDNESDAY, MAY 19, 2010

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN

AFFAIRS, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2154, Rayburn House Office Building, Hon. John F. Tierney (chairman of the subcommittee) presiding.

Present: Representatives Tierney, Murphy, Welch, Foster,

Driehaus, Quigley, Flake, and Luetkemeyer.

Staff present: Andy Wright, staff director; Talia Dubovi and Scott

Lindsay, counsels; LaToya King, professional staff member; Boris

Maguire, clerk; Bronwen DeSena and Aaron Blacksberg, interns;

Adam Fromm, minority chief clerk and Member liaison, Stephen

Castor, minority senior counsel; Ashley Callen, minority counsel;

and Christopher Bright, minority senior professional staff member.

Mr. TIERNEY. Good morning. A quorum being present, the Subcommittee on National Security and Foreign Affairs hearing entitled, ‘‘Defense Acquisitions: One Year after Reform,’’ will come to

order.

Before we begin this hearing, I would like to quickly address one

piece of business that was left over from the subcommittee’s April

28, 2010, hearing that was entitled, ‘‘The Rise of the Drones II: Examining the Legality of Unmanned Targeting.’’ We have an additional statement for the record to submit, as well as a corrected

version of a statement that was submitted already.

I therefore ask unanimous consent that the hearing record be reopened, that the written statement of Professor Michael W. Lewis

be submitted for the record, that the corrected version of Professor

Hina Shamsi’s statement be submitted for the record, and that,

thereafter, the hearing record be reclosed. Without objection, so ordered.

With respect to today’s hearing, I ask unanimous consent that

only the chairman and ranking member of the subcommittee be allowed to make opening statements. Without objection, so ordered.

I ask unanimous consent that the hearing record be kept open

for 5 business days so that all members of the subcommittee be allowed to submit a written statement for the record. Without objection, so ordered.

So again, good morning to our panelists that are here and other

folks that have come by. Today, the subcommittee is exercising one

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of its fundamental responsibilities, which is the oversight of Defense Department spending. Specifically, we will be examining the

acquisition of major weapon systems.

The United States has the most advanced military force in the

world. Our men and women in uniform operate the most sophisticated, highly developed, and technologically superior array of weapon systems this world has ever seen. This subcommittee recently

held hearings on one of the newest additions to the military’s toolbox, the unmanned aerial vehicle. New and improved weapon systems can help our military to be more effective and efficient, while

keeping our troops out of harm’s way to the greatest extent possible.

However, fielding such a force has been difficult and costly, as

seen by the numerous reports of cost overruns, schedule delays,

and performance failures that have plagued our acquisitions programs for years and years. Numerous efforts to reform the acquisition system have been undertaken, including the Weapon Systems

Acquisitions Reform Act of 2009, which is now law, and the IMPROVE Acquisitions Act of 2010, which passed the House in late

April and is currently being considered by the Senate.

In addition, the Defense Department has made its own changes

to its acquisition policy, and there have been countless recommendations made for improving acquisitions by various commissions, think tanks, and non-governmental organizations. Still, as

we will hear today, problems do persist.

On April 29, 2008, the subcommittee held a joint hearing with

the full Oversight and Government Reform Committee that focused

on the cost overruns and scheduling delays that persisted throughout the Department of Defense’s acquisition system. The centerpiece for that hearing was the Government Accountability Office’s

2008 Assessment of Selected Weapon Programs. At that time, the

Government Accountability Office found that the Department of

Defense’s largest weapon programs had exceeded their original

costs by $295 billion, and their 2009 report showed little improvement.

I do have to note, as an aside to this remark, that I also saw in

GAO’s report that there was no such assessment for performance

of DOD’s portfolio. It had been precluded because the Department

of Defense did not issue timely or complete selected acquisition reports on its major defense acquisition programs, and I would like,

during the course of remarks for somebody to address why that

wasn’t done and why we are left without that valuable information,

if you would.

In these tough economic times, when Americans are out of work

and families are struggling to make ends meet, we have to redouble our efforts to ensure that every precaution is in place to avoid

wasting taxpayer money.

Contrary to the longstanding recommendations of GAO, the Department has still not fully implemented a knowledge-based approach of its weapons acquisitions program. It boils down to the

need for the Department to take some common-sense steps in its

processes, such as testing prototypes to ensure that they meet all

program requirements before starting production, confirming that

manufacturing processes are repeatable, sustainable, and capable

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of consistently producing quality products, and making every effort

to keep program requirements from changing in ways that cause

increased costs and schedule delays.

Now, that seems a no-brainer. It seems to be a best practice. And

the question that I have that I think GAO asked at the very end

of its report: Why do you need laws to do things that are best practices? Why do you need to continue to be whipped with new procedures to get these things done that ought to be done by common

sense by anybody that has ever run a small business or a household? So if somebody will address that, it would be helpful.

GAO found that none of the 42 programs assessed have attained

or are on track to attain all the required amounts of knowledge at

the critical phases in the acquisition system.

As an example, one of these programs, which Secretary of Defense Robert Gates designated as the Department’s highest priority

acquisition in 2007, is the Mine Resistant Ambush Protected Vehicle [MRAP], and its new lighter and more agile MRAP All Terrain

Vehicle [M–ATV]. The cost of this critical program grew by 161

percent from 2007 to 2009, due in large part to problems that were

discovered during testing that was initiated after production began.

Nevertheless, according to GAO, the new M-ATV program still

has concurrent production and testing schedules that are likely to

require post-production fixes and result in cost growth and scheduling delays. In fact, all 6,644 vehicles are scheduled to be delivered

by the time developmental tests are scheduled to be completed.

While I understand that the military has deemed this an urgent

requirement, and that may be somewhat of an exception and we

can talk about that, but I question whether all of the programs

that are moving forward that have not met those requirements on

time fall into that category, and I question why we are making the

same costly mistakes over and over again.

On May 8th, Secretary Gates directed every component within

the Department ‘‘To take a hard, unsparing look at how they operate,’’ with the goal of finding real, long-term cost savings in the defense budget. I applaud Secretary Gates for taking this important

step. Congress also has to do more in that effort. The IMPROVE

Act that was recently passed by the House makes critical changes

to help bring down the cost of our defense programs and save taxpayer money. I hope that the Senate will act on this legislation

soon.

I never miss an opportunity to report that there are some 249

bills that have passed the House that are sitting over in the other

body, waiting for them to do something. This would be an important one for them to take action on.

As Secretary Gates noted, ‘‘given America’s difficult economic circumstances and parlous fiscal condition, military spending on

things large and small can and should expect closer, harsher scrutiny.’’ That scrutiny continues today.

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

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Mr. TIERNEY. Mr. Flake.

Mr. FLAKE. Thank you, Mr. Chairman. Thanks for holding this

hearing. I appreciate the witnesses coming forward.

Members of Congress and taxpayers alike have long been concerned about reports of cost overruns, billions of Federal dollars

going to cost overruns associated with defense spending and weapon systems. Congress can and should exercise its oversight responsibilities when it comes to spending, particularly when it comes to

defense spending.

Whether it is relatively small defense earmarks that allow Members of Congress to give a no-bid contract to a private company or

multi-billion dollar defense weapon systems being handled by the

Pentagon, defense spending remains difficult to rein in. It is one

area that I have been concerned about, and I know it makes your

job more difficult to deal with the congressional earmarks that

come as well, and I would like to hear some of what you have to

say about that process.

It appears that we have an ally in the Pentagon. As the chairman mentioned, Secretary Gates said military spending on things

large and small can expect closer, harsher scrutiny. That is what

this hearing is all about and I am glad to be a part of that tougher,

harsher scrutiny, and I look forward to the testimony. Thanks.

Mr. TIERNEY. Thank you.

Now we will receive testimony from the witness panel before us

today. I will introduce all of them before we start.

Mr. Michael J. Sullivan serves as the Director for Acquisition

and Sourcing Management at the U.S. Government Accountability

Office. His team is responsible for examining the effectiveness of

agency acquisition and procurement practices in meeting their mission performance objectives and requirements. He also manages a

body of work designed to help the Department of Defense apply

best commercial practices to better develop advanced weapon systems, and he holds both a B.A. and an MPA from Indiana University.

Mr. John Roth is the Deputy Comptroller for Program/Budget in

the Office of the Under Secretary of Defense. He has been in the

Senior Executive Service since 1990 and is currently responsible for

the budget review and analysis of all Defense programs. Mr. Roth

is also an honorary professor at the Defense Systems Management

College. He received his B.A. from the University of Virginia and

earned an MPA from George Washington University. Mr. Roth has

also completed a number of prestigious programs in executive excellence, national security leadership, and senior management.

Dr. Nancy Spruill is the Director of Acquisition Resources and

Analysis for the Under Secretary of Defense for Acquisition, Technology, and Logistics. In this capacity, she is responsible for all aspects of AT&L’s participation in planning, programming, budgeting, and execution of Defense Acquisition systems, and the congressional process. She serves as the Executive Secretary to the Defense Acquisition Board and is responsible for the timely and accurate submission to Congress of selected acquisition reports and unit

cost reports for major defense acquisition programs.

She is a certified acquisition professional and has received several distinguished honors and awards, including Department of DeVerDate 11-MAY-2000 15:28 Jun 23, 2011 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65552.TXT KATIE PsN: KATIE
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fense Medal for Distinguished Civilian Service. She holds a B.S. in

Mathematics from the University of Maryland, as well as an M.A.

and a Ph.D. from George Washington University.

So I want to thank all of you again for coming here to testify

today and sharing your substantial expertise. It is, as you know,

the policy of this committee to swear you in before you testify, so

I ask you to please stand and raise your right hands. If there is

anyone who is also going to be responding to the questions, I would

ask that you also have them stand, as well.

[Witnesses sworn.]

Mr. TIERNEY. The record will please reflect all the witnesses answered in the affirmative.

And, with that, we would be pleased, Mr. Sullivan, if you would

please give us your remarks in around 5 minutes or so, and the

lights will indicate when your time is up. You are familiar with

those? Thank you.

STATEMENTS OF MIKE SULLIVAN, DIRECTOR, ACQUISITION

AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; JOHN ROTH, DEPUTY COMPTROLLER FOR PROGRAM/BUDGET, OFFICE OF THE UNDER SECRETARY OF DEFENSE—COMPTROLLER; AND NANCY

SPRUILL, PH.D., DIRECTOR, ACQUISITION RESOURCES AND

ANALYSIS, OFFICE OF THE UNDER SECRETARY OF DEFENSE

FOR ACQUISITION, TECHNOLOGY AND LOGISTICS

STATEMENT OF MIKE SULLIVAN

Mr. SULLIVAN. Thank you, Mr. Chairman, Ranking Member

Flake, members of the subcommittee. I am pleased to be here today

to discuss the department’s management of its major weapon systems acquisition program. My statement today is based on the report we did on March 31st of this year that assessed the portfolio

of major weapon systems acquisitions over at the department, and

it includes observations about DOD’s effort to manage its portfolio,

the knowledge attained at key junctures of a subset of 42 weapon

systems programs that we drilled down into, and the department’s

implementation of recent acquisition reforms.

We made two observations this year on the department’s overall

portfolio management. First, priorities were clearly examined for

this year’s budget and reset. In fiscal year 2010, the Secretary of

Defense proposed canceling or curtailing programs with projected

total costs of at least $126 billion that he characterized as too costly or no longer relevant. Congress supported several of the recommended terminations.

Second, the portfolio did grow to 102 programs in 2009, a new

increase of five since December 2007, the last time we had selected

acquisition reports to do that analysis. And the additional programs added about $72 billion that entered the portfolio. Thirteen

programs, including the Future Combat Systems, left the portfolio.

Those programs took a total cost of about $179 billion with them

out of the portfolio, including over $47 billion in cost growth.

As you stated, Mr. Chairman, we weren’t able to place a value

on the overall portfolio or determine its cost growth this year due

to the lack of selected acquisition reports available from the departVerDate 11-MAY-2000 15:28 Jun 23, 2011 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65552.TXT KATIE PsN: KATIE
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ment. I think a lot of that had to do with the changeover in administration, but I will let the department explain that, I guess. We

plan to do that analysis again this year and the selected acquisition

reports are back in place, so we do have those.

Some observations from our assessment of knowledge on the 42

programs that we drilled down into and looked at. At the program

level, there is still kind of a mixed picture. While program knowledge is increasing, and we have found that for the last couple of

years now, none of the 42 programs we assessed have attained all

of the requisite amounts of knowledge that are needed at key junctures in the program to keep risk in place.

Our analysis allows us to make the following observations. First,

the newer programs in the portfolio are beginning with higher levels of technology maturity, and this is a very good sign. But they

are not yet benefiting from a lot of the early systems engineering

reviews that, for example, the legislation that just passed will

bring in and what the department has brought in in their own policies. We haven’t seen that taking place yet. We hope to see improvement as that does come in, get a better match between capabilities that are needed and the resources available.

Second, programs that have held critical design reviews, which

is more or less the second juncture in a program where you need

to reduce risk for systems integration, in recent years, those programs have reported higher levels of design knowledge, usually in

the way of releasable design engineering drawings. However, few

are using prototypes to ensure design stability, and, again, that

was a facet of the acquisition reform legislation we hope would

pick-up.

Third, most programs still rely on after-the-fact metrics to get

manufacturing processes and control before they go to production.

That is something that we think should be done with statistical

process control and other ways. They should be able to get those

processes in control much sooner than they do.

Fourth, most programs continue to change key system requirements after program start. The department has put a lot of policy

in place, and the acquisition reform legislation addresses this too,

and we would like to see that improve in the future. Many programs continue to struggle with software development; it is a huge

issue on these complex weapon systems and they continue to have

problems. And we have found that many program offices that manage these weapon systems rely on non-government personnel more

than they used to, and that reliance seems to be increasing. That

is something we want to keep our eye on.

Now I would like to make some observations about how DOD is

implementing the reforms. As you know, it is still relatively early,

just under a year since they went into effect. Both DOD’s December

2008 acquisition policy revisions and the Weapon Systems Acquisition Reform Act of 2009 require programs to invest more time and

resources in the front-end of the acquisition process, when programs are just beginning or actually even before they begin. And

they are doing this to refine concepts through early systems engineering, developing technologies so that they are more mature, and

building more prototypes of both systems and subsystems before

system development actually starts.

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We made two observations concerning how well the department

is implementing the reforms. First, the department is incorporating

acquisition reforms into the newer acquisition programs. In fact, 8

of the 10 programs that were new in our 2010 assessment, that

had not yet entered system development, which is the milestone B,

which is really where an acquisition program begins, reported that

they either have or have plans to hold the very important early

system engineering reviews prior to the milestone B decision. This

is consistent with both DOD’s policy and the reform legislation.

Second, the department has established the new position of the

Director of Cost Assessment and Program Evaluation, and this

group is already up and running and has already weighed in on a

number of programs, some new programs in order to get more realistic cost estimates and other programs that have been in trouble,

including the Joint Strike Fighter program, which just went

through a drastic kind of budget scrub; and I think that this new

position, the CAPE did a pretty nice job in defining the risks on

that program. And I believe that we are seeing signs of that new

position resulting in more reasonable cost estimates.

To conclude, I would kind of like to echo what the chairman was

talking about. I would just like to offer a few thoughts about other

factors that should be considered so that we make the most of today’s opportunity for meaningful change, especially when we have

the leadership we have in the department right now that seems to,

as Congressman Flake said, is stepping up and trying to make

some good decisions.

First, poor outcomes on these programs delays cost growth, reduced quantities, have been persistent for decades, and everybody

has known about it. If we think of these processes as merely broken, then some of the targeted repairs that we have in this reform

legislation should fix them. I think the challenge is greater than

that, and if we understand the current inefficiencies—right now

they are kind of accepted as a cost of doing business—then the

challenge for getting better outcomes is greater. It really becomes

much more leadership oriented than anything else. Seen in this

light, it will take considerable and sustained leadership and effort

to change the incentives and inertia that reinforce this status quo,

and I think the Congress has a role in that as well.

Second, while actions taken and proposed by the department and

Congress are constructive and will serve to improve acquisition

outcomes, one has to ask the question why extraordinary actions

are needed to force practices that should occur normally? I think

just as the chairman stated. Clearly, more independence, methodological rigor that we are now beginning to get from the CAPE,

and better information about risk areas like technology will make

estimates more realistic. On the other hand, realism is compromised as competition for funding within the Pentagon encourages programs to make themselves appear affordable. Reform must

recognize and counteract these pressures as well.

Finally, if reform is to succeed, then programs that present realistic strategies and resource estimates must succeed in winning approval and funding over those that present potential capabilities

for unrealistic costs, and this will take a firm cooperative effort between the department and the Congress.

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Mr. Chairman, this completes my statement. I would be happy

to respond to any questions.

[The prepared statement of Mr. Sullivan follows:]

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Mr. TIERNEY. Well, thank you, Mr. Sullivan. I want to again congratulate you and your team for the work on that and how helpful

it is to all of us.

Mr. SULLIVAN. Thank you.

Mr. TIERNEY. Mr. Roth, unfortunately, he used your 5 minutes

as well, so we are going to skip over you. No, I am only kidding.

[Laughter.]

We do want to hear from you as well, so we would appreciate

your comments now.

STATEMENT OF JOHN ROTH

Mr. ROTH. Thank you, Mr. Chairman. Chairman Tierney, Ranking Member Flake, members of the committee, thank you for this

opportunity to participate in this hearing and for your continued

support of America’s armed forces.

I am here today representing the Office of the Comptroller and

the annual budget process in the Department of Defense. The

budgets we develop for congressional consideration each year include the amounts requested for these acquisition programs. As a

result, our office has in fact considerable interest in acquisition reform, which is the subject of today’s hearing.

We are currently executing the fiscal year 2010 budget. We are

working with Congress on our fiscal year 2011 budget request, and

we have begun internally working already on the budget for fiscal

year 2012. So it is clearly an overlapping and complex process that

we are trying to manage as best we can.

As we proceed, we have been directed by Secretary Gates, ‘‘to

take an unsparing look at how the department operates.’’ In his recent speech, the Secretary explained ‘‘the goal is to cut out overhead costs and to transfer those savings to force structure and

modernization within the program budget. In other words, to convert sufficient ‘tail’ to ‘tooth’ to provide the equivalent of roughly

2 to 3 percent real growth, resources needed to sustain our combat

power at a time of war and to make investments to prepare for an

uncertain future.’’

This policy builds on the progress that has already been made

over the past couple years, including the initiatives with a significant impact on Defense spending.

First, it builds on the department’s progress in acquisition reform, which we will discuss this morning, including the creation of

the Office of Cost Assessment and Program Evaluation, as well as

in the implementation of the Defense Acquisition Workforce Development Fund. Through March 31st of this year, almost half of the

amount appropriated for this working capital fund, nearly $400

million, has been obligated, and over 3,000 new Workforce Development Fund employees have been brought on board. This is a critical first step in strengthening the in-house acquisition work force.

Hiring projections for the remainder of fiscal year 2010 are on

track to meet the department’s targets. The fiscal year 2011 budget

builds on this by including another $218 million for the Workforce

Development Fund.

Acquisition work force development is a part of a much larger effort to reduce the department’s reliance on contractors by insourcing what is considered to be essential government work. The

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goal is to reduce contractors from the recent high of 39 percent of

DOD’s work force back to 26 percent, the level that existed before

2001.

Second, in addition to the department’s progress in acquisition

reform, the budget request for fiscal year 2011 takes account of the

savings generated by canceling programs that were deemed to be

underperforming or over budget. The Secretary has clearly demonstrated his commitment to making difficult choices on acquisition

programs, including an unprecedented number of program cancellations in the fiscal year 2010 budget, as well as the 2011 budget.

Amongst them were the VH–71 Presidential helicopter, the F–22

aircraft, and the Army’s Future Combat Systems ground vehicle

program. These further cancellations recommended for 2011 included the alternate engine for the F–35 aircraft, additional acquisitions of C–17 aircraft, the Next Generation Cruiser, the new

Navy Intelligence Aircraft, and the Defense Integrated Military

Human Resources Systems, so-called DIMHRS, which simply failed

to live up to expectations.

Last, the Secretary’s guidance to DOD budgeteers follow several

years of significant progress in financial management, especially in

the areas of financial information and audit readiness. Several of

our defense agencies now maintain auditable statements. Two

large trust funds managed by DOD have either qualified or unqualified opinions. In particular, the Marine Corps has asserted

audit readiness for their Fiscal Year 2010 Statement of Budgetary

Resources, and an audit is currently underway. The dollar value of

those elements of defense currently either auditable or under audit

is greater than 10 of the current CFO agencies, though there is

still much more to accomplish.

The department has introduced a change of emphasis that reinforces the fact that a financial audit is really an enterprise initiative. We are now concentrating on the kinds of budgetary information DOD managers use everyday, specifically budget information

and existence and completeness of assets. A stronger, better controlled business environment will produce both improved quality

and more transparent financial information. We appreciate the

support of the Congress to this new approach and we have pledged

to keep you apprised of our progress through semiannual reports

on financial improvement and audit readiness.

Mr. Chairman, this concludes my statement, and I am open to

any questions you have.

[The prepared statement of Mr. Roth follows:]

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Mr. TIERNEY. Thank you, Mr. Roth.

Dr. Spruill.

STATEMENT OF NANCY SPRUILL, PH.D.

Dr. SPRUILL. Thank you. Can you hear me? Thank you.

Chairman Tierney, Ranking Member Flake, and other distinguished members of this subcommittee, I am honored to be here

today. Thank you for the nice summary of my history. I would like

to add two things. First, I am proud to be a third generation Federal employee. My grandfather worked at the Bureau of Engraving

and Printing, and my father spent his career at the Federal Reserve. And I am glad to follow in those footsteps.

Also, an additional thing that I do for AT&L is that I provide authoritative data and analysis in support of the oversight of the acquisition programs.

I am pleased to come and talk today about defense acquisitions

and discuss the broad trends, incentives, and challenges present in

the Defense Department’s current acquisition system for major

weapons programs.

For the past several years, the department has been making

changes to improve the acquisition process, changes such as putting increased emphasis on the front end of the process. That

means starting programs right, making and using material development decisions at program initiation, conducting preliminary design reviews before milestone B, budgeting to independent cost estimates, requiring competitive prototyping, implementing configuration steering boards, establishing program management agreements, and completing independent program reviews. We have

made support to the war fighter our highest priority, and we are

increasing and improving the acquisition work force.

The department has initiated many improvements to the Defense

Acquisition System since the enactment of the Weapon Systems Acquisition Reform Act of 2009 [WSARA] in the areas of system engineering, development tests and evaluation, technology maturity,

and cost estimation with the goal of reestablishing a culture of acquisition excellence in the Department of Defense. The department

is committed to making tradeoffs among cost, schedule, and performance to significantly reduce cost growth in major defense acquisition programs.

The procedural and organizational changes required by WSARA

complemented and reinforced many of the department’s recent policy changes, as Mr. Sullivan mentioned. The department strongly

supports and is aggressively implementing the WSARA requirements and will continue to seek additional ways to improve the effectiveness of our weapon systems process.

As you mentioned, another important piece of the legislation is

the IMPROVE Acquisition Act currently under debate. We look forward to working with Congress as they finalize the provisions of

this act and we have several issues we would like to discuss.

We are committed to addressing the issues outlined in the IMPROVE legislation, as well as WSARA, so that improvements in acquisition systems serve and support the Nation’s war fighters and

reduce cost growth in defense acquisition programs.

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Finally, I wanted to mention improving the acquisition work

force. Good people are the essential elements of any successful acquisition reform strategy. We are on track to meet the growth targets for rebuilding the civilian acquisition work force in 2010 and

beyond, and we are focusing on more than numbers; we are focusing on quality. We are pleased that we are attracting talented people to help us address the important issues we face every day. We

look forward to working with Congress as we develop an acquisition system that develops value to the taxpayer and is responsive

to the 21st century operating environment.

Thank you for the opportunity to appear before you today. I will

do my best to answer any question that you may have for me.

Thank you.

[The prepared statement of Dr. Spruill follows:]

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Mr. TIERNEY. Thank you. That is all we can ask.

Dr. SPRUILL. Pardon?

Mr. TIERNEY. Doing your best to answer the questions.

I thank all of you for your testimony on that; it makes me think

somewhat, in listening to Mr. Roth and Dr. Spruill, that maybe it

is our patience of getting to where we want to go a little bit quicker

that drives some of our concern. It is good to hear that a lot of the

recommendations made formally by the Government Accountability

Office and by Congress in its legislation is being implemented.

I guess the question is, as I started at the outset, why were those

things not done to begin with, which is probably an unfair question

to ask you. It wasn’t on your watch and it seems that you are addressing them. Are we moving as quickly as we can be moving I

guess would be the next question. Are we really progressing? Why

are there still programs that are moving forward with immature

technology? Why are there still programs that aren’t getting the

knowledge base that they need early enough in the system program?

Dr. SPRUILL. I will try to answer that. As you know, there are

now 102 major defense acquisition programs at all different phases

of their life. After talking with Congress and staffers, we have focused on programs that are at the beginning. We personally just

do not have the capability to address all 102 at once. The thinking

was if I get the programs up front, then they will be on the right

track as they go down.

As you know, WSARA required us to look at meeting the milestone B certification requirements for any programs that were between milestone B and milestone C. We have started down that

path. It is a difficult path in the sense that the older a program

is, the harder it is to find the information to talk about the structure of the program.

Mr. TIERNEY. I guess that would have been why it would have

been helpful to have the information and giving us an assessment

of where we were on those. Is that something you are moving toward doing as well?

Dr. SPRUILL. Yes, we are. As you know, right now we are working to implement the WSARA. We have stood up new offices. They

have some responsibilities, cost estimating, performance assessment.

So we have started moving through the makeup certifications, as

we call them. The long pull in attempting to getting them done is

the cost estimates, and you all expanded in WSARA the responsibility and the scope of the CAPE folks, and we have started to

beef up those staffs, as Mr. Roth mentioned, but there are still a

lot of programs that need cost estimates as they are moving

through the process today, so doing additional ones has been difficult, especially a while ago, when they didn’t have the staff.

But we are moving toward doing those makeup certifications and

we hope to complete them. We have not completed them within the

1-year, but we hope to complete them as soon as possible thereafter. But the cost estimates are the hardest thing to move us

through that process.

Mr. TIERNEY. Thank you.

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Mr. Sullivan, if I ask you to assess Dr. Spruill’s performance so

far in terms of going to the early programs, the programs that are

beginning, and it is not unreasonable to start there, how are we

doing with those? Are 100 percent of those getting the sort of

knowledge-based assessments that they need early on?

Mr. SULLIVAN. The critical indicator that we look at to see if a

program is developing a good business case that will result in a

good cost estimate is the technologies, as you know, and we are

pleased to report, in the last 2 years, we have seen increased

knowledge about the technologies, more mature technologies as the

things that are required for the business case than in the past.

In fact, last year the department, I think 100 percent of the new

starts were at what we call a technology readiness level 6, which

is a reasonable technology maturity. We would like to see it at 7.

We disagree with them on that. But that is unprecedented, really,

that they have had that kind of thing.

I think one of the reasons for that was congressional action and

the department itself changing policies a couple of years prior to

this reform, where they beefed up the certification process for looking at technology maturity. Now, I believe DDR&E must assess all

of the technologies going into a weapon system.

But it is also more than that. I think the rest of it is kind of time

will tell, because technologies are the critical thing. But then, of

course, to make a good business case, to really have a good match,

you have to understand your requirements.

So this preliminary design review that the legislation pushes up

to before milestone B, if the department takes that seriously, that

will be another way to get a better cost estimate. And a number

of other things that we would like to see the department start

doing, we see indications that the department is working hard to

try to implement those things.

So we are optimistic right now given the 2-year trend of technology maturity and what we seem to see as a good faith effort to

try to implement some of these reforms. But time will tell.

Mr. TIERNEY. Thank you.

Mr. Flake.

Mr. FLAKE. Mr. Sullivan, you talk about knowledge-based acquisition process. Can you explain in plain English what that means?

Mr. SULLIVAN. Yes. We get that a lot, which means we probably

should make it simpler. For years, GAO has looked at weapon systems, and we have drilled down into them and reported on problems with weapon systems, usually after the fact. And Congress

sent us a clear message that they would like to get information

sooner.

So beginning about 10 years ago, we started our best practices

work in order to try to change the way that we audit and look at

things and try to get more proactive, and what we found out was

we found a pretty good methodology at world-class commercial

firms, where there were three kind of junctures that they would invest money if they could eliminate risk enough to make the next

move forward.

The first was when they would start a development program and

establish what we call the business case, which is a match between

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what it is you are trying to build and the resources you have available.

The knowledge-based aspect of that is the technologies, for the

most part. For example, we went to Caterpillar and asked them

how they built the mining truck that had some fairly exotic requirements in terms of what environment it would operate in, how

many subsystems it would have on it, what kind of grades it would

have to go up and down. Thirteen different mines wanted this mining truck and it was a 300 ton bed that they were making. It was

unprecedented.

And we talked to them about how they had to make trades early

to establish a business case that, No. 1, they would be able to deliver in 3 years, so they could make the market; No. 2, have the

capabilities that their customers wanted. They went through painstaking process—and this is just one example; we went to a lot of

places and got this—and eliminated a lot of requirements along the

way. Most of their customers wanted a single engine to propel this

big mining truck, and their engineers said we can’t do that, we

can’t promise to deliver this on time and for the cost, the price that

we have to have to make money. We have invention on this. We

can’t do it. So they eliminated that and kept their business case.

So the business case is the knowledge of technologies. If a company feels good about the technologies they have and the resources

they have to be able to start a program, they make that decision.

And then just very briefly, there are two other knowledge points.

One is at the point where you want to have a prototype that shows

that the design is capable and will perform. We call that the design

knowledge point. And usually you want to retire the technology

risk, then the design risk before you would make the next leap into

understanding how to scale up and manufacture it at a very high

production rate. And then that is where you want processes and

control, so you want knowledge of your processes at that point.

Mr. FLAKE. Thanks for clarifying.

Mr. Roth, the IMPROVE Act, according to CBO, is slated to cost

about $250 million to implement. How long will it take to recoup

the additional cost by implementing the IMPROVE Act do you estimate, or do you think that we ever will?

Mr. ROTH. Just the cost of implementation alone?

Mr. FLAKE. Yes. Yes.

Mr. ROTH. To be honest with you, I haven’t seen a good cost estimate of what it takes in terms of just implementing it.

Mr. FLAKE. That is a number that the CBO gave us.

Mr. ROTH. Yes. I would have to get back on it. I hadn’t seen the

CBO number. It would appear to me I think we have the infrastructure in place probably to implement much of what I saw in

the IMPROVE Act, but, that said, I would have to go back.

Do you have any better feel for that?

Dr. SPRUILL. No. I am not aware of the number.

Mr. FLAKE. OK, Dr. Spruill, I mentioned before one of the things

that has concerned me and makes your job, I am sure, a lot more

difficult, is when Members of Congress will move in with their own

priorities. We saw in the defense bill last year about 1,000 earmarks that Members of Congress will say, ‘‘I want.’’ We have to fill

52

out a certification form that says this earmark is to go to this company.

Now, despite that, we hear from the Department of Defense that

it is their policy to have fair and open competition for each of these

programs. How does that jibe when a Member of Congress will say

I want it to go to this company at this address; yet there is free

and open competition? Now, we have asked procurement over at

DOD to kind of reconcile this, and there seems to be an uncanny

alignment between those who are supposed to get the earmark and

those who actually do in the end. How do you have a process of fair

and open competition within that framework?

Dr. SPRUILL. I am not an expert on earmarks. All of those come

through DDR&E. I focus more on the major weapons programs.

What I believe is if an earmark is in law, it will go to the organization it was earmarked for. I think that they are working very hard

with Congress to make improvements in how we handle that. But

I would have to answer that one for the record; I do not know

enough in-depth to give you a good answer.

Mr. FLAKE. OK. If you could for the record, I would appreciate

that.

Dr. SPRUILL. Be happy to.

Mr. FLAKE. Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you.

Mr. Welch, you are recognized for 5 minutes.

Mr. WELCH. Thank you very much, Mr. Chairman.

Thank you. One of the questions I have is how much of the challenge we face is a result of acquisition system failures versus political failures. And the reason I ask that is that it does seem that

Congress at least pays lip service to the notion of trying to have

a streamlined acquisition process, but repeatedly comes up with a

new ‘‘reform’’ after yet the latest example of a massive cost overrun.

So it leads me to ask the question how much of the problem is

really political in nature. The weapon systems that we develop are

oftentimes the initiative of private industry that see an opportunity

to fill what they define as a need, as opposed to our battlefield commanders generating a real world battlefield need definition. Obviously, a weapon system gets a constituency because it is a jobs program, and eventually the debate about yes or no on proceeding

comes down to jobs, as opposed to how it fits into a strategic defense framework.

So you have been through this, have been through panels like

this before, and what my question is expressing is some skepticism

that we can come up with an acquisition mechanism that will,

independent of political reform, be successful. And I will start with

you, Mr. Sullivan, to just comment on that, if you would.

Mr. SULLIVAN. Well, I think what I would say is when we look

at the major weapon system acquisition programs, normally these

are started by the department because they are filling either a

structural threat, a strategic threat that is out there like our fighter aircraft, for example, or any other, the cargo aircraft tankers,

things like that, or more specific threats like MRAP, which came

directly as an urgent need from the field.

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So I don’t think there is necessarily a lot of big P politics involved with that. What happens is there are three major processes:

there is the requirement setting process; the funding process, what

they call the PPBE; and then the acquisition system that is supposed to take the results of that and execute a program. They don’t

necessarily do a good job of talking to each other, and I think within the department itself there is an awful lot of resource shifting

and shuffling around that goes on on weapon systems programs.

But if you take an F–22 program, for example, that performed,

cost and schedule-wise, very poorly, I don’t think you could necessarily say that was a political problem. It was a problem with

people inside the building not being able to get those three major

processes and the processor owners not necessarily being held accountable for what the others were doing.

Mr. WELCH. Thank you.

Mr. Roth.

Mr. ROTH. I would echo some of the same thoughts. The years

I have been in this business, one of the things that would help in

terms of precluding, let’s say, some of the cost growth we have in

acquisition programs is more stability in the programs, and that

means both from a requirement standpoint, from a funding standpoint; that once you decide a path you go down, that the various

stovepipes in the building, whether they be financial, acquisition,

technical, whatever, get behind the program.

Too often in the past we have had too few dollars chasing too

many programs. We start too many programs, then ultimately we

have to make suboptimal decisions in terms of necking down the

many programs to the dollars that are available. So then you end

up stretching programs and you are doing all other kinds of things

that are suboptimal. So from the best I have seen in past studies

and all, one of the key elements is to try to introduce greater stability in all the various and sundry programs.

Mr. WELCH. Dr. Spruill.

Dr. SPRUILL. I would say that many of the initiatives, and maybe

this gets to the chairman’s point, that Congress has identified for

us to do as we go through different milestones is either something

we were doing already or something we should have been doing. In

many cases, for example, when the 2366 A & B certifications came

up, when we sat down and really looked at them, we said, we are

doing these today, but pulling them all together and viewing them

as one thing that we need to check before we move into the milestone was actually a helpful initiative from Congress. So I think

that some of the political help we get is very helpful.

One of the things that John says about stability is an issue for

the acquisition community. However, on the other side, if we would

keep to the cost estimates we had when programs started, I believe

it would be easier to keep that stability down the line.

So I think there is kind of both sides of it. I think there may be

some political aspects, but I think a lot of what Congress and we,

back and forth, and I will say back and forth with GAO, are making improvements to the system that need to be made.

Mr. SULLIVAN. I would just summarize that by saying it is a matter of accountability and leadership, is what it really boils down to,

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and when you see a leader taking charge of things, things can happen that don’t happen often.

Mr. WELCH. Thank you very much.

Mr. TIERNEY. Thank you, Mr. Welch.

Mr. Luetkemeyer, you are recognized for 5 minutes.

Mr. LUETKEMEYER. Thank you, Mr. Chairman.

Just kind of walk me through the process here a little bit; I am

kind of new to what we are doing here. With regards to the cost

for changes, what percentage of the increase in cost to the programs is due to changing requirements or new technologies that

are developed as you go through the process, versus what it was

initially when an item was bid? Or is there a process in place that

leaves a lot of that open and just sort of ballparks it?

Mr. SULLIVAN. I think the best way to measure that, if you are

looking for cost growth as a result of requirements, changes, or design problems, you would look at the programs are broken into development, cost, and procurement costs, so usually those kind of

problems, if you have immature technologies and problems with design and problems with ramping up to production, it will come out

in what are kind of the nonrecurring costs of the development of

the weapon system.

For example, when we looked at this 2 years ago, we broke out

development costs, and there was a 42 percent growth in development costs. That is not in this year’s written statement, but to give

you an idea. I think you could look at that 42 percent growth as

resulting from poor estimating or immature technologies or changing requirements and things like that.

Mr. LUETKEMEYER. On the information here, back in 2008, 63

percent of the programs had change requirements once the system

development began. I mean, I can understand to a certain point the

need for being able to be flexible and improve the product or service, or whatever we are purchasing, based on new requirements,

new technologies, but I am just kind of curious. Can you give me

a figure of the total increase in cost that we had that was due to

the changes that were like that, versus just poor estimating up

front? Have you got that information?

Mr. SULLIVAN. We can’t break it out that way. We just know that

when you have a major change in requirements in the middle of

a development program, it is clearly going to perturbate everything

you are doing in terms of design and manufacturing. So we can’t

give you a specific number, but it is a major contributor, probably

the major contributor in cost growth during development.

Mr. LUETKEMEYER. What is the financial incentive for the manufacturer or the awardee of the contract to get the figure right up

front? How much of this underbidding goes on, and then whenever

it comes time to produce the prototype or produce another stage,

all sudden it is, oops, we forgot this, oops, we forgot that; and

whenever a change comes along they double or triple in order to

recoup their moneys? Is there a financial incentive there for them,

or I guess a deterrent for them not to do that?

Mr. SULLIVAN. I think what happens is, first of all, these weapon

systems are very complex. There is no market for these weapon

systems, so there is an incredible amount of risk that the government asks the contractor to take on. Therefore, they tend to use

55

what they refer to as cost reimbursable or time and material kind

of contracts with a profit attached to that, which is fine.

I mean, you wouldn’t expect a contractor to take on all that risk

by themselves with a fixed price contract, but the problem comes

in—and I think the legislation addresses an awful lot of this—they

begin the programs before they have a good understanding of the

requirements. Usually the preliminary design reviews and all those

systems engineering reviews that the department is putting into

place now, gives the department, the customer a much better feel

for a much better cost estimate. They have lacked that in the past

and it leaves you susceptible to low-balling and all those other

things. Nobody really knows how much it costs. There is not a lot

of knowledge about that. That is our take on it.

Dr. SPRUILL. Could I answer both the previous one, or try to answer? I do not know the statistic on how much is due to requirements. I do know that over the last few years the JROC, the folks

who set the requirements, have made it very clear to the program

manager if you find that the requirements are driving your cost up,

please come back to us and let’s have a discussion on whether the

requirement makes sense or if it could be adjusted. So the department is very aware of the requirements’ contribution and has taken

initiative to fix it.

On the technology side, one of the reasons that we need to improve the acquisition work force along the lines of systems engineering and testers is exactly what you say. We should not be letting a contract for an amount of money that is way underbid; we

should have the technical knowledge in the department to say, no,

that doesn’t make sense, that bid is not a good bid. So we are trying to deal with both of those issues.

Mr. LUETKEMEYER. OK.

Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you. Good questions.

Mr. Driehaus.

Mr. DRIEHAUS. Thank you very much, Mr. Chairman. I would

just like to pick up.

Mr. Sullivan mentioned a bit earlier the example of a single engine and the need for competition in procurement. I would like to

followup a little bit on that conversation around competition.

I would ask unanimous consent, Mr. Chairman, to enter two documents in the record. The first is a memorandum from the Office

of the Under Secretary of Defense for Acquisition, Technologies,

and Logistics, dated September 4, 2009. The document states that

competition is the cornerstone of our acquisition process and the

benefits are well established.

The second document, Mr. Chairman, is a slide show that is used

to train those in the procurement career field from the Department

of Defense itself around competition and weapons acquisitions.

Mr. TIERNEY. Is there any objection?

[No response.]

Mr. TIERNEY. Without objection, so ordered.

[The information referred to follows:]

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Mr. DRIEHAUS. Thank you very much, Mr. Chairman.

This issue of competition and procurement is one that obviously

Congress is in the midst of, and it seems that we are in the midst

of on a regular basis. As you know, Congress has long established

its preference for procurement of goods and services through competition. The Congressional Research Service cites that the Federal

Government has supported procurement through competition since

1781.

Just over 200 years later, Congress passed the Competition in

Contracting Act of 1984. And since 1996 nine bills have been

signed into law by the President that requires the design and development of a primary and secondary propulsion system. The

Weapon Systems Acquisition Act of 2009 stresses the use of competition for major defense acquisition programs. This you all know.

I am particularly interested, as we talk about competition, in

propulsion systems and the F–35, and I, after going through the

testimony and looking at some of the criteria that have been established for competition and contracting by the Department of Defense, it is my understanding that there are seven criteria that

would allow the Secretary of Defense to waive competition for significant contracts, such as propulsion systems. Those are: single

source for goods or services, unusual and compelling circumstances,

maintenance of the industry base, requirements of international

agreements, statutory authorization or acquisition of brand name

items for resale, national security, and necessary in the public interest.

As we look at competition, especially in propulsion systems, and

we look specifically at the significant investment Congress has already made in the propulsion system, the competitive engine program for the Joint Strike Fighter, help me better understand how

the opposition of the Secretary to the continuation of this program

aligns with the Department of Defense’s own criteria for waiving

such competition and procurement.

Mr. Sullivan, if you would like to start.

Mr. SULLIVAN. I don’t know if I can help you understand all of

that, but I think the department has made clear that they believe

that they have very low risk in a single point of failure on the engine that they have in place now, and I believe the Secretary believes that the remaining investment costs that would be needed

short-term to make sure that the alternate engine program could

be competitive are prohibitive in this budget environment.

Mr. DRIEHAUS. Just to followup on that, did we not learn this lesson in the F–15 and the F–16, that in fact having the competitive

engine does in fact drive down cost over the long-term and ensures

stability over the long-term in a propulsion system?

Mr. SULLIVAN. Yes, I think on that situation, where they infused

competition into a single source. There are studies that show that

they did get quite a bit of benefit out of that not only in terms of

reducing the life cycle costs of the engine, but also with contractor

responsiveness, reliability rates, and things like that.

Mr. DRIEHAUS. Mr. Roth, could you comment on the seven waiver

criteria?

Mr. ROTH. Well, I think the issue, as Mr. Sullivan alluded to, is

really the opportunity cost of additional investment in an alternate

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engine versus the potential savings or the potential payback that

one might get for it. I think it is important to note where we are

in this program. We arrived here to where we are today through

a competitive contracting process, so the team that is in place

today was one that essentially won that competition and has moved

forward.

The estimates that we have, as best as we can tell, that in order

to pursue an alternate engine in this particular budget climate, we

would have to invest at least $21⁄2 billion to $3 billion in this engine; the second engine needs to be developed as well; and the payback, as best as we can tell, is somewhat argumentative in terms

of whether we would ever get that money back.

And our fear is that you are not really going to end up with true

competition, but you are essentially going to end up with two single

source engines, because the users of the airplanes have made it

fairly clear that the kind of logistics complexities that would be introduced by having to manage two engines is not something they

are particularly interested in.

So, for those reasons, and given the opportunity costs of trying to invest another $21⁄2 billion, $3 billion in an engine in this particular budgetary climate, the leadership has made a decision that

it wasn’t worth the cost.

Mr. DRIEHAUS. Well, as you know, Mr. Roth, CRS has disputed

whether or not there was in fact true competition in the process.

And we have learned that the competitive engine is actually reducing cost. As a matter of fact, the competitor has come out with a

fixed price bid over time, which would drive down cost for the engine over time. We have made billions of dollars in investments in

this competitive engine to date. It is now leading to procurement

competition that is significantly driving down costs over the longterm through fixed pricing, which is unheard of in propulsion systems.

So I find it difficult to stomach the department’s understanding

of what the long-term costs might be, or what their projection of

what the long-term costs might be, when in fact we have before us

the opportunity to engage in a competition where we have fixed

pricing, which is unprecedented.

Mr. ROTH. Well, we will have to take a look in terms of whether

the so-called fixing will hold up to analysis and scrutiny. Again,

what we do know is it is going to take more money to invest in another engine. What we are not sure of is whether the savings will

ever materialize. So that is our concern.

Mr. TIERNEY. Thank you.

Mr. Sullivan, did you want to respond to the competition?

Mr. SULLIVAN. I think that you may be correct. I don’t think that

there was a competition on the Joint Strike Fighter for the engine.

I think the competition was at the prime contractor level, and GE

happened to be a part of that team. But they never competed the

engine.

Mr. ROTH. That is true. I won’t dispute that. I meant the program in general. Absolutely. I agree.

Mr. DRIEHAUS. Thank you.

Mr. TIERNEY. Thank you, Mr. Driehaus.

Thank the panel on that.

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Mr. Foster, you are recognized for 5 minutes.

Mr. FOSTER. Thank you.

I was wondering if you think that, as a general principle, it

would be a good idea to carry alternatives farther into the project

cycle, so that when you get to the final design review, if you say,

oh boy, we are facing a real cost growth here, if we had to repeat

the analysis of alternatives, we would have gone down another

path. If you make the investment so that other path is still viable

later than the project design cycle than we currently do, if there

is a merit do that or whether you would end up wasting more R&D

money. If you have any reaction to that?

Mr. SULLIVAN. Yes. In fact, I think the legislation drives at that

a little bit. They have competitive prototyping now before milestone

B at the subsystem level and, in fact, the department itself has expressed an interest in trying to compete prototypes all the way up

to a critical design review for the exact reason that you point out.

The problem with that is that it could get very costly depending

upon the size and the complexity of the weapon system.

But going back to this knowledge-based process that we talk

about, if you do incremental kind of development, much like the F–

16, where you do block upgrades, it becomes much more palatable

to do that, and then usually you will have some competitive viable

alternatives. You don’t get held hostage as easily.

Dr. SPRUILL. We agree. We think that competitive prototyping

makes sense. Obviously, as Mr. Sullivan said earlier, you have to

do a business case. In some cases you are probably not going to do

competitive prototyping of an aircraft carrier, but of subsystems

and smaller weapons, it probably makes sense. And carrying them

through longer than we had previously, it is a policy change, which

we think is the right way to go.

Mr. FOSTER. Any comments, Mr. Roth? No? OK.

Are there any countries that get this right? I mean, people talk

fondly about the Israelis as having a lean, mean military. Does

every country that you know of have fiascos?

Dr. SPRUILL. I don’t know. That is a good question. I just don’t

know.

Mr. SULLIVAN. That is a good question, and I hear similar horror

stories, but I don’t know if there are any that do it really well.

Mr. FOSTER. OK. In terms of lessons learned, if you find that you

have gone down what, in retrospect, seems like the wrong path,

and that you wish you could back up to the analysis of alternatives

and use it with correct data, what turns out to be correct data, do

you ever do retrospective analysis of alternatives to try to figure

out how you could have done the analysis of alternatives in such

a way that you would have gotten the right answer?

Dr. SPRUILL. I am not aware of that. I know that for weapons

that have not made it through the process, for example, the Presidential helicopter, we spent a lot of time figuring out where the

problems were. We were aware of them. I don’t know that we went

back to the AOA, but we surely laid out where we had gone down

the wrong path so that next time, when we try to do it, we won’t

have that same problem.

Mr. FOSTER. Well, I was referring not to the specifics of a case,

but the design of the AOA process; whether you could actually go

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back and say, OK, here is why the AOA was structured wrong. Or

in some cases you simply won’t have technical information and

then you are dead. But there are other times when you say, look,

we didn’t ask the right question perhaps because of the design of

the AOA process. I was wondering if there is a systematic effort to

improve that or just lessons learned applied to the AOA process.

Mr. SULLIVAN. If I could, we did a report on that not too long

ago, looking at how well the AOA process was operating for the department, and we found a lot of problems with it. Most of it had

to do with not choosing enough alternatives. A lot of times, there

may be a bias to the AOA if a certain service is looking at it.

Mr. FOSTER. Someone has some specific product that he has in

mind.

Mr. SULLIVAN. Yes. That was one problem, perhaps not looking

at a full universe of alternatives. And another key problem was

that they would do them too late. Oftentimes, we found cases

where AOAs were done after the program had started.

Dr. SPRUILL. However, I would say, as a result of WSARA, we

have refocused on AOAs. They have now been given to the Cost Assessment and Program Evaluation folks, the CAPE folks, to work

on. So I think we are taking the AOA much more seriously. I don’t

know about a feedback mechanism yet. I know we do try to have

Defense Acquisition University look at programs, for example, that

are canceled or that had problems, but I don’t know if it feeds back

to the AOA process. But I think that is probably a good idea.

Mr. FOSTER. Thank you.

Yield back.

Mr. TIERNEY. Thank you.

Mr. Murphy, you are recognized for 5 minutes.

Mr. MURPHY. Thank you very much, Mr. Chairman.

Thank you to the panel for being here today. I wanted to talk

briefly with you for a moment about one of the most common and

increasing ways to cut costs on acquisition, and that is foreign

sourcing of parts. The numbers of waivers to the Buy American law

have grown, to my mind, a very disturbing pace. From 2007 to

2008, the number of waivers to Buy America increased by 450 percent in just 1 year. The numbers for 2009 are due to come out very

shortly and, unfortunately, I expect that there will be a similar

jump.

Obviously, the foreign sourcing of parts for weapon systems is an

easy and quick way to cut cost, but it adds tremendous cost to the

overall amount of money that the U.S. Government has to throw

in to compensate for the jobs that are lost.

So I guess my first question is when we are analyzing reasons

for cost overruns, when we are analyzing the full cost of weapons

programs, how does the amount of foreign sourcing of parts for a

particular product come into play, and is it something that DOD

looks at when evaluating the overall long-term cost?

I can imagine clear reasons why it would lead to lower costs; it

is often cheaper to buy parts overseas than it is to buy parts in the

United States, but there are reasons why it could be a factor in

cost overruns. As you create a much more diffuse and decentralized

sourcing system for a particular product to DOD, it is much harder

to track where the overruns may come from.

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So I wanted to ask Mr. Roth and Dr. Spruill how do we factor

in the increasing degree of foreign sourcing when we are evaluating

the potential cost of a system.

Mr. ROTH. Mr. Congressman, the short answer is I am not aware

where it is. I don’t work at that level. We would have to get back

to you on that. I don’t know to what extent it works into the cost

estimates.

I defer to you if you have a better idea.

Dr. SPRUILL. I would say that the tradeoff should be made that

it is cost-effective for the program. I am not aware of any of the

root cause analyses that are looking at the cost growth. I am not

aware of this being raised as one of the potential sources of cost

growth.

I just saw a report come through and I will have to get you more

details, it may be the Buy American report that is due to you, but

it talked about, yes, we make the tradeoffs, but often we get, in return, something from the country and they look at the overall economic effect.

So I would have to get back to you on that. It is an issue that

is raised. I am not aware of it being identified in, for example, the

Nunn-McCurdy cost growth analysis. And we now have an organization, the Parker Organization, that looks at root cause analysis.

I am not aware of that as being identified as a source of cost

growth, but we can ask.

Mr. MURPHY. In the award process today, is there any ability to

factor in the amount of supply sources coming from domestic

sources versus foreign sources in the award process? Or does it

work inversely in that to the extent that more foreign sourcing can

lead to lower price, the existing award process effectively creates

an incentive for more foreign sourcing? Is there any ability to give

a bonus in the award process to companies that agree to do more

domestic sourcing?

Dr. SPRUILL. I don’t know. I would have to get back to you on

that. I just don’t have the facts. I am sorry.

Mr. MURPHY. Mr. Roth.

Mr. ROTH. [No audible response.]

Mr. MURPHY. Well, I would appreciate your getting back to me

on this subject. I think a 1-year jump in waivers to the Buy America provisions of 450 percent is something that should concern

every Member of Congress, especially as we seek to grow jobs here

in the United States.

We are spending more and more of our taxpayer dollars within

the Department of Defense budget overseas. I think that there is

a very strong argument that can lead to the increased cost of acquisition for many of these products as you create a source network

that is much harder to track from DOD’s perspective. And I would

hope that we could have a conversation about this issue going forward and we can talk about the reasons and the causes for an increasing amount of work being done overseas and the extent to

which that is part of the problem that we are seeing within the

overall acquisition costs.

With that, I would yield back.

Mr. TIERNEY. Thank you, Mr. Murphy.

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I ask unanimous consent that all Members be given 5 days to

submit additional questions for the record.

You may choose, Mr. Murphy, to do just that. I think that is a

good line of questioning, along with that in the industry base aspects of that.

Any objection?

[No response.]

Mr. TIERNEY. No objection.

We are not letting you off the hook. Those are written questions

that are coming, but we do have a couple more questions. We will

do another round for those that are interested in that.

Mr. Sullivan, I notice one of the comments that the Government

Accountability Office has previously made, and you mention again

in this report, is the Department of Defense should work to balance

its weapons systems portfolio with available funding.

So my question to Mr. Roth is what do you determine is available

funding, just whatever gets appropriated?

Mr. ROTH. No. We clearly, in any given fiscal year, we operate

within well defined fiscal controls. First and foremost, as we build

the budgets, we work with whatever the current administration is

to build a budget within the fiscal controls they have, general fiscal

controls.

Mr. TIERNEY. Who sets the fiscal controls?

Mr. ROTH. Well, it is worked collaboratively with the Office of

Management and Budget, and ultimately the Office of Management

and Budget, at the behest of the White House, sets those fiscal controls. Then, as you well know, the budgets come to the Congress

and it goes through the appropriations process.

Mr. TIERNEY. I make the point because I am parroting a little bit

of what Secretary Gates said just the other day. This Defense

budget in this country has doubled in the last decade. Things like

11 aircraft carrier units out there. The next country in competition

with us has one. That is $11 billion a year to build those.

My real wondering is who determines that is available? Or do we

just keep building as long as we can get Congress to think it is a

jobs program and keep appropriating, as Mr. Welch said? And

going back to Mr. Sullivan’s comment about leadership, somebody

has to step forward, and I think Secretary Gates has been stepping

forward.

It is incumbent on Congress to kick in as well and start saying

we have a defense system that is so much larger than all of our

allies and protagonists combined. At some point, what are the

other needs of the country on that?

And I don’t think it comes to your level on that, but it does come

in to Congress and the Executive Office trying to decide what it is

we are doing here in terms of that, and then looking at those programs that have some of the deficiencies you talked about here

today and weeding out the ones that aren’t really relevant in today’s fighting systems and needs on that, and moving forward and

getting rid of those that just aren’t working and being done right.

So your testimony on that has been helpful.

How do you assess affordability of a new program, Mr. Roth or

Dr. Spruill, whichever? That is another thing they were talking

about. You assess the affordability. We know that is a little bit

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above your pay grade and we have responsibility to do that with

the White House, but how do you assess capabilities in the context

of the overall Department of Defense spending?

Mr. ROTH. Well, as you may be aware, we actually go through

a very systemic structured process, as Mr. Sullivan alluded, the

planning, programming, budgeting, and evaluation, the so-called

PPBE process, where we, first of all, set up the strategic plan and

we take a look in terms of what are the threats out there, what

are the requirements out there. What do you need to resource?

Then we go into an extensive programming and budgeting process where we try to balance off the needs between the various and

sundry mission areas that we have, and we look at where you can

manage risk and where you don’t want to take additional risk, and

those types of things. So, for better or worse, it is a fairly long,

comprehensive, convoluted in many ways, process where you take

a look and say, OK, what are my needs in a tactical air community? What are my needs in the ship building area? And within

those fiscal controls you try to get as balanced a program as you

possibly can.

Mr. TIERNEY. Well, exclusive of GAO’s good work here, does the

department itself have a system where somebody raises the red

flag at some point and says what GAO has said well before they

have said it: look, we have a program that is way over schedule,

way over budget; they are not following the protocols that we have

set up in our own systems, they are certainly not following the

laws that Congress passed; and let’s start weeding these things

out? It seems like we are waiting all the time for GAO to come out

with a report and then reacting, but I hope that is not the case.

Mr. ROTH. No, I think Dr. Spruill can answer. We have a very

well documented acquisition process as well, but in terms of resources, again, frankly, there is competition virtually every day of

the week, so to speak, for resources, so those programs that are

underperforming, those programs that aren’t meeting a need frankly are at risk against those programs that demonstrate they are.

Mr. TIERNEY. Well, I wonder, I guess, because I don’t see the decisions being made, I see the budget doubling. So it seems to me

that they are all competing with each other and they are all at

risk, so what do we do? We throw a little more money and we keep

them all going. I hope that is changing. I think the Secretary has

indicated that he has a mind to change. But if we don’t, where does

this thing go, a trillion dollars a couple of years from now?

Dr. SPRUILL. Could I jump in on affordability?

Mr. TIERNEY. Yes, sure.

Dr. SPRUILL. Because I really think it is important. I think that,

at least from the acquisition perspective, we try to do two things.

But when programs start at system development, when they are

coming to their milestone B, the certifications that Congress has

laid out for us, we must say that it is affordable, OK? So we look

at the entire program.

And what we did last year, AT&L, along with the comptroller

and the CAPE folks, when we got to the program budget review,

when we were developing the President’s budget, we looked at all

the programs that had come through the process and were new. We

looked at were they funded as the service committed. The service

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must commit to fund when they go through milestone B. Were they

still funded like that in the program? If not, why not? And if not,

were there changes that need to be made?

So I think we are stepping down the affordability road. And it

is clear from what the Secretary said ‘‘the budget will not continue

to grow, so we must make sure that we live within our means, and

that means some programs will not get started; some programs, as

demands change, will have to be terminated.’’

Mr. TIERNEY. The indulgence of Mr. Flake for 1 second.

I think that is right as a statement, but then I look back at what

the Secretary did. He basically made his recommendations with respect to the Army’s Combat Systems Program; and that was smart,

it was about $87 billion on that. But all of a sudden we look up

and there is the portfolio growing again. They are going to reintroduce it under new names, new size programs. So here we go again

as the $47 billion cost growth on this.

Mr. Sullivan, do you have any comment?

Mr. SULLIVAN. In fact, that is a good point, because one of the

things we are concerned with right now, and, in fact, we testified

at the Armed Services Committee on this, is that new Brigade

Combat Team, the initial increment, after all this acquisition reform and everything else, it looks like the Army has made a decision to commit to producing that increment before all the testing

is complete. So that gave us great pause, and we testified to that.

That was not a good signal to us.

Mr. TIERNEY. And I would hope, Dr. Spruill, it would give you

great pause. I expect to find the F–22 back at this pace. I mean,

if the decision is made, $87 billion, you should be hopping all over

that when it starts coming up as little animals along the way for

a little bit of money but the same darned thing over again, without

the right procedures in place, on top of that.

Dr. SPRUILL. Yes, sir. The Army does have a need for the capability, so we are trying to address it. We are trying to address it in

an affordable way. I will have to go back and look at more detail,

but it was clear that the FCS program was not started out under

the recommendations or the policies that GAO recommends.

But we still have to meet the need, so there will be additional

dollars spent in that area. Hopefully not anywhere near what we

were talking about in FCS.

Mr. TIERNEY. Well, is there any exercise when you look at the

budget having doubled in the last several years, this defense budget, you say, well, if that is a need and we determine that we are

going to kill the program, then bring it back to life, where else in

the Department of Defense are we going to free up the money to

do that? What else ought to die?

Dr. SPRUILL. And that is what the Secretary has challenged us

to do as we develop the budget.

Mr. TIERNEY. It would be real nice if the challenge was you don’t

get the money for the new thing until we see something else fall

off the table.

Dr. SPRUILL. And that may be the case. And I don’t know what

will fall off the table between now and the next budget that comes

over.

66

Mr. TIERNEY. Hopefully, it will fall off before we start spending

the next amount of money for something else.

Mr. Flake.

Mr. FLAKE. Just a statement to echo what has been said here.

I mean, we are talking about rules and regulations to implement

the process in acquisition, but it is new weapon systems or the failure to get rid of old ones that we are talking on the margins here,

with all due respect. So it is not just this Defense Secretary who

made these noises; the last one did as well.

Mr. TIERNEY. Same guy.

Mr. FLAKE. We heard the same things.

Mr. TIERNEY. It was the same Secretary. I was just teasing him

on that.

Mr. FLAKE. No, no, I am just saying the one before him under

the previous administration. We heard from Secretary Rumsfeld

some of these same noises, but yet we have seen a doubling in the

last couple of years. And that fault does not lie at your feet, obviously; we have to make some decisions here. But what the chairman said, when we decide we are going to kill these systems, we

need to make sure that they remain so.

Mr. TIERNEY. Mr. Driehaus.

Mr. DRIEHAUS. Thank you, Mr. Chairman.

I would just like to followup on this issue of competition, because

one of the challenges that is faced by, I think, Armed Services and

this committee, quite frankly, is access to information. Just yesterday there was an article in the paper about the Department of Defense not giving access to certain documentation and estimates that

are being made at the Department for Members of Congress to review. It is estimated that the alternative engine by the Department

of Defense will need another $2.9 billion. What we are getting from

the contractor is far, far less in terms of the estimate.

It is difficult for us to make decisions in terms of authorization

and appropriation when we know that the department isn’t following its own guidelines in terms of waiving competition standards;

when we know there hasn’t been competition for major propulsion

systems; and now we are being told by the department that engaging in competition will cost us a tremendous amount of money, yet

we don’t have the documentation to show that. And we are supposed to just take at face value the department’s assertion that we

should put competition aside in major weapons acquisition when

we know that is not the policy of the department overall.

So this is an ongoing challenge, I believe, for us to do our job in

terms of oversight when it comes to cost of weapon systems if access to information is held up by the department itself. And, Mr.

Roth and whoever else, I would like you to comment on that.

Mr. ROTH. I am not familiar with the specific request for information; I would have to look into it. I would argue if we have a

case, we should make our case, and I don’t have any basic fundamental problem with that. But in terms of your specific request

for information, if I can, let’s get back to you, because I am not familiar with it.

Dr. SPRUILL. And I am not aware of it either. In fact, I thought

we were sharing everything that Congress had asked us on the

Joint Strike Fighter. So I would have to go back and ask.

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Mr. SULLIVAN. The information that we received on that issue,

it was difficult to get information I think mainly because the department took a position that was no longer part of the budget, so

they didn’t have the numbers for that; they had excluded it.

But we worked with the Program Office a little bit. And the

other thing is the Joint Strike Fighter program just went through

a major shakeup, so all of the buys, the annual production buys

and how they are going to buy the engines and everything, changed

quite a bit. So that was real shaky data as well.

We eventually got what we thought we needed, but it was hard

to get it.

Mr. DRIEHAUS. Can you speak a little bit, Mr. Sullivan, about

your own assessment of the Joint Strike Fighter and the competitive engine over time and what you see as we move forward in

terms of the various scenarios that you have laid out in terms of

cost savings over time?

Mr. SULLIVAN. Well, we have done studies for other committees.

The House Armed Services asked us to look at that and we can’t

say with any authority at all. We don’t forecast the future.

But what we did do was make some assumptions based on historical data, which was, I think you referred to earlier the F–15,

F–16 when they infused competition into that. And given those assumptions, if we looked at what happened historically on that, we

found that it was possible to achieve enough savings through the

life cycle to get a return on the investment for the competitive engine.

Mr. DRIEHAUS. And those savings occur because of the competition. And if there is a failure of the single engine, then obviously

there is tremendous cost associated if you don’t have that competitive engine.

Mr. SULLIVAN. The savings that we assumed were as a result of

having competition, yes.

Mr. DRIEHAUS. Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you.

Mr. Murphy.

Mr. MURPHY. Thank you, Mr. Chairman.

I would just quickly note that for those of us that support the

current policy, the administration’s policy on the single source engine, we note that some of the costs are very hard to estimate at

this time. To have two single source engines with all of the enduse cost to the operators is hard to evaluate at this time, but I

think has real consequences for the ongoing defense budget.

My question is just back to my line of questioning on the true

cost of acquisition. A quick one to Mr. Sullivan. My contention is

obviously that when we look at the cost of purchasing a weapons

system or a product for the Defense Department that has a heavy

emphasis on foreign sourcing versus domestic sourcing, that there

is a cost to that is outside of the defense budget, that the additional

cost to the government of unemployment benefits, the lost revenue

that comes with foreign jobs rather than domestic jobs, that the

true cost of acquisition, when you are looking at a product that is

made in majority overseas, is not seen within the confines of the

defense budget.

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So just a question, Mr. Sullivan. Has GAO ever undertaken an

estimate of the overall holistic costs to the government of the increased foreign sourcing within DOD’s budget?

Mr. SULLIVAN. Congressman, I just don’t even know the answer

to that, but I can definitely take that back and get back to you on

that, see if we do have anything along those lines.

Mr. MURPHY. To the extent that it has not been done, it seems

like an analysis that is long overdue, and I would appreciate a further conversation on that.

Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you, Mr. Murphy.

Mr. Sullivan, one of the recommendations that you made going

forward, observations that you made was that it might make sense

to set some limits on a reasonable length of time for developing a

system. How would that happen? How would that be done?

Mr. SULLIVAN. Well, we don’t press this hard because it would

be taken as somewhat arbitrary, but what we found when we did

a lot of work in the commercial work and at some world class technology firms is that they enforce a schedule and they do it for a

couple of reasons: No. 1, it limits the amount of time that people

have to change requirements and things like that; No. 2, it gets

products to market quicker, before the world changes; it gives people a piece of time that is more manageable.

And in terms of the department, we think that it would be good

to operate within what the Department calls its Future Years Defense Plan, which is typically a 5 to 6 year plan, and fully fund the

development of weapon systems in that plan.

You were talking earlier about why there is no control. A lot of

times when programs are 10, 12 years long, the Future Years Defense Plan plans the first 5 or 6 years of them and then things

start happening outside of those years. So that would be a constraining mechanism too.

Mr. TIERNEY. What happens, last year we moved to get rid of

part of the intercontinental ballistic missile, the Missile Defense

Program. It was $188 million. Not a big item by terms of the defense budget, but an item that the Missile Defense Agency [MDA]

didn’t want, so they wanted to see it cut. The Secretary wanted to

see it cut; the White House wanted to see it cut. Everybody wanted

to see it cut. And the argument in return for that was we have all

this money invested, so some of it survived on that.

So my question was really how do you avoid that? Are you going

to say, if a program is done in 5 years or it gets cut, at the end

of 5 years aren’t we going to hear back from everybody, look at all

the money you put in for 5 years; how can you just end this thing?

Mr. SULLIVAN. It is a good question. That is why we move slowly

with those kind of things. But if you keep the requirements in line

with what is doable in a 5-year increment, which is what world

class firms do——

Mr. TIERNEY. Stop it at that stage where it doesn’t meet the requirement.

Mr. SULLIVAN. Yes. The F–16 was built that way, as I mentioned

earlier. One of the key premises of all of this is that you have to

separate technology development from product development. You

can’t be trying to invent technologies while you have the factory

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running. In essence, that is what the department has been doing

for years. F–22 was a technology product and they had an entire

army to feed in terms of factory going and suppliers going. So it

is all in the requirement setting, I think, is the answer.

Mr. TIERNEY. Is there any contemplation going on within the department about setting lengths of time, reasonable lengths of time

on that? Is that something that is discussed?

Dr. SPRUILL. It has been discussed more in the IT world than in

the weapon systems world. However, I think the department is

very aware of the need, most of the development is within a 5 or

6 year period. There are some that are not. It would be more that

would be set at the beginning of the program, but I am not aware

of, except in the IT area, talking about limiting the time, say, 5

years, 3 years, whatever, before you try to lay out a reasonable program. Obviously, once you lay out the program, you should stick to

the program.

Mr. SULLIVAN. Your point is well taken, though, on MDA, because MDA, as a Presidential directive back whenever it was started, was given its own rules, and it is kind of like a technology development program at large.

Mr. TIERNEY. It is the most ridiculous concept, spiral development.

Dr. SPRUILL. I am sorry, I didn’t realize you were talking specifically about missile defense.

Mr. TIERNEY. No, no, we were not. Your answer was fine. But I

think he makes a good point.

Is there a plan to deal with the situation on the software and all

of the additional lines that are always required on that? I see it

noted by Mr. Sullivan. I think we all recognize it as a problem, but

I am not sure how we get on top of that, or if you have any ideas

or the department does on what we are going to do about that.

Dr. SPRUILL. Well, again, we would look to both the systems engineering folks, the new folks that we are bringing in as a result

of WSARA and the developmental testers, to get a handle on it up

front. It is a big issue for the independent cost estimators. They

have developed data bases and they will bring in what they think

is a best estimate.

I am not aware of any special emphasis. I know it is an important component and becoming a bigger component of most of the

weapon systems and, therefore, it requires a lot of attention, especially from the cost estimators and the scheduling folks.

Mr. TIERNEY. Thank you.

Mr. Flake.

Mr. FLAKE. [No audible response.]

Mr. Driehaus.

Mr. DRIEHAUS. I will take one more shot, Mr. Chairman.

I want to continue this discussion about the Joint Strike Fighter

and the competitive engine because it is important. It is one of the

most expensive systems that we are funding right now, and, by

Pratt & Whitney’s own estimate, the F–135, the design and development has gone from $4.8 billion to $7.3 billion.

That is without competition. We don’t know what it will be next

year or the year after that, or the potential increases. We have a

major manufacturer coming in that we have already invested bilVerDate 11-MAY-2000 15:28 Jun 23, 2011 Jkt 000000 PO 00000 Frm 00073 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65552.TXT KATIE PsN: KATIE
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lions in for an alternative engine that is now coming through with

a fixed price, so we know there won’t be cost increases in the future.

Yet, the department is aggressively trying to kill the very competition that we know has worked in the F–15 and the F–16. We

have already learned these lessons. By the department’s own

standards, we should be pursuing competition. When you look at

the waiver requirements, it doesn’t meet any of them in terms of

the justification being made by the department.

So I am continuing to struggle with this idea that, while competition is good almost across the board, we make major exceptions,

and we make major exceptions when we know the weapon systems

is already over cost significantly, and we don’t pursue competition.

I need better justification for this from those in procurement that

understand it.

So I would love to hear a reasonable explanation other than just

short-term investment in competitive engine. Yes, it is going to cost

more in the short-term, because you are investing in two engines.

But the idea is that over the long term we will improve the competition, we will improve the engine, and we will reduce costs. Help

me understand why this exception is being made in this specific

case.

Mr. ROTH. Again, in this particular case, I am going to have to

defer to the contracting community. I hear you. Again, it is my understanding of the program that the projected savings would only

take place if in fact you really had true competition throughout the

life of the program, and that apparently is problematic. That may

or may not occur.

But let me not get into areas that are outside my bailiwick. You

have raised some legitimate contractual sorts of questions. I think

the best course is let’s get back to you. To the extent we haven’t

provided you some of this information, in my humble view, we

should. It is, I think, an issue that needs to be debated and needs

to be sorted out.

Dr. SPRUILL. I believe we need to get back to you also. The department’s argument about the up-front costs being real and concern about the savings, but we should share with you those numbers, and I don’t have them off the top of my head, so we will have

to get back to you on that.

Mr. DRIEHAUS. But is it safe to say that given that the primary

contractor is already well over budget, that, in the future, we might

expect them to continue to go over budget? I mean, isn’t that a safe

assumption? And that the whole idea of cost containment through

competition is to disincentivize those cost overruns and to provide

the competition so that those costs are held in check?

Dr. SPRUILL. I would not say that we expect them to have further

cost overruns. The cost estimates that we are providing, that we

provide for the budget and we are providing here for Joint Strike

Fighter, are best estimates of the actual occurrence, so I would not

expect additional cost growth. One never knows, obviously, but the

estimates we are giving are not showing additional cost growth.

Mr. DRIEHAUS. But, Dr. Spruill, I assume that you would admit

that this is a significant exception to the policy of the Department

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of Defense through procurement to encourage competition in major

weapons acquisition?

Dr. SPRUILL. It was a special consideration by the department to

look at the costs and benefits along the business case line that Mr.

Sullivan talks about, and the decision was that it was not cost-effective and, therefore, they are going with a single engine.

Mr. DRIEHAUS. Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you.

Not to jump on your issue on that, but I know two things. One,

I know we put the cost estimates and didn’t think they were not

going to grow, but we only had $300 billion worth of cost overgrowth in the last report GAO did. And if we had gotten the information from the department, we would know what it was more recently on that.

Dr. SPRUILL. Could I say something about that?

Mr. TIERNEY. Sure.

Dr. SPRUILL. And Mr. Sullivan and I arm-wrestle over this periodically. We have 102 programs in our portfolio. Many of those programs are older programs that did have cost growth since their initial start; however, a lot of them are now performing very well. So

to take that number and apply it to the department’s acquisition

today may be just a little bit overly harsh.

Mr. TIERNEY. It might, but I remind you again if we had had the

information given to GAO that could give us that assessment of

what it was last year, then we would be able to make that kind

of measurement on that. So it is not helpful to us to judge whether

or not there is accuracy on that. I know there are good intentions.

Can you tell me, Mr. Roth or Dr. Spruill, what changed between

February’s budget rollout and now that the Secretary decided to

make the alternative engine an issue?

Mr. ROTH. I don’t think this is a new issue. We made the same

issue when we submitted the fiscal year 2010 budget as well and,

frankly, in previously budgets as well. We have not funded an alternative engine for the last 5 or 6 years; the program has lived

on congressional ads over the last 5 or 6 years. So the decision was

made years ago. This is not a new position on the part of the department at all.

Mr. TIERNEY. Let me wrap up just by asking one question about

personnel on that. You have recognized it, you seem to be working

on that. The rise in contractor work shows a hollowing out of a capacity for management and oversight which isn’t just unique to the

Department of Defense, it is the Department of State, it is the

USAID, it is a lot of agencies down the line.

Do you think we are on a glide path to correct that situation?

How long do you think it will be before we have the inherently governmental functions back in-house so that, when we are looking at

a contractor who otherwise wouldn’t necessarily have any incentive

to be concerned about some of the things that the government,

whose money it is, might be concerned about? What is the glide

path there?

Dr. SPRUILL. Well, we have an initiative, as you know, to grow

the acquisition work force by 20,000 folks. Those are in-sourcing to

the department; they will be government folks.

Mr. TIERNEY. By when?

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Dr. SPRUILL. In the next 5 years, over the fit up period. And we

have already started that in 10 and have made good progress. I

will quote a number that is probably wrong, but it was about 4, I

believe; 4 of the 20 would be in the first years. And so we have

been going through the jobs, looking at them, deciding which ones

we can in-source.

Now, some of that we are in-sourcing comes from taking contractors that are doing the job today and no longer doing them with

contractors; others we are bringing in new people because, as you

know, over the last 10 years, we cut the acquisition work force

quite a bit, and we believe we cut it too much. So we have an active initiative.

Now, the department is also doing some in-sourcing beyond the

acquisition work force, but we are definitely looking to bring those

inherently governmental functions in, and at a reasonable rate. We

didn’t think we could do 20,000 in a year, so it is over a 5-year period.

Mr. TIERNEY. Do we have the work force development capacity

to get those people up to where they need to be on their skills and

education levels?

Dr. SPRUILL. Yes. And we have the Defense Acquisition University. We sent over a strategy for human capital initiatives and

plans for the acquisition work force. I think it just came over a couple weeks ago. So we have laid out a process. I happen to be the

functional leader for the business portion of the acquisition work

force that is about 7,000 folks. But we have increased the training

requirements and the experience requirements for those folks and

we are moving people into and through that process so that they

will be level 3 certified acquisition professionals.

Mr. TIERNEY. Great. Good.

Well, thank you all very, very much. I appreciate your testimony

here today and your exchange of ideas. People will be submitting

questions, I assume, within that 5-day period. If you would be kind

enough to respond to those when you can as well. This is helpful

to us and I appreciate both the progress that is being made at the

Department of Defense and the work of the Government Accountability Office.

I see a number of people from both of those areas sitting behind.

I want to thank them as well for their good work on this. It is good

to see people working together in this sense. You take what you

can learn from GAO and decide on that. Push back on them and

arm-wrestle with them if you have to to keep it in line.

But the idea is that, with what we have passed in the department for new regulations, we have to get a grip on this, and we

appreciate the guidance and the work. So thank you all very much.

Meeting adjourned.

[Whereupon, at 11:45 a.m., the subcommittee was adjourned.]

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