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45–699 PDF 2008

S. HRG. 110–639

THE ACQUISITION OF MAJOR WEAPONS SYSTEMS

BY THE DEPARTMENT OF DEFENSE

HEARING

BEFORE THE

COMMITTEE ON ARMED SERVICES 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JUNE 3, 2008

Printed for the use of the Committee on Armed Services

(

COMMITTEE ON ARMED SERVICES 

CARL LEVIN, Michigan, Chairman 

EDWARD M. KENNEDY, Massachusetts 

ROBERT C. BYRD, West Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

JACK REED, Rhode Island 

DANIEL K. AKAKA, Hawaii 

BILL NELSON, Florida 

E. BENJAMIN NELSON, Nebraska 

EVAN BAYH, Indiana 

HILLARY RODHAM CLINTON, New York 

MARK L. PRYOR, Arkansas 

JIM WEBB, Virginia 

CLAIRE McCASKILL, Missouri 

JOHN MCCAIN, Arizona 

JOHN WARNER, Virginia, 

JAMES M. INHOFE, Oklahoma 

JEFF SESSIONS, Alabama 

SUSAN M. COLLINS, Maine 

SAXBY CHAMBLISS, Georgia 

LINDSEY O. GRAHAM, South Carolina 

ELIZABETH DOLE, North Carolina 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

MEL MARTINEZ, Florida 

ROGER F. WICKER, Mississippi 

RICHARD D. DEBOBES, Staff Director 

MICHAEL V. KOSTIW, Republican Staff Director 

(II) 

C O N T E N T S 

CHRONOLOGICAL LIST OF WITNESSES 

THE ACQUISITION OF MAJOR WEAPONS SYSTEMS BY THE DEPARTMENT OF DEFENSE

JUNE 3, 2008

Page

Young, Hon. John J., Under Secretary of Defense for Acquisition, Technology, 

and Logistics ......................................................................................................... 9

Schinasi, Katherine V., Managing Director, Acquisition and Sourcing Management, Government Accountability Office ........................................................... 20

GAO Report to Congressional Committees on Defense Contracting: Post-Government Employment of Former DOD Officials Needs Greater Transparency .................................................................................................................. 109

(III) 

(1)

THE ACQUISITION OF MAJOR WEAPONS 

SYSTEMS BY THE DEPARTMENT OF DEFENSE 

TUESDAY, JUNE 3, 2008 

U.S. SENATE, COMMITTEE ON ARMED SERVICES, Washington, DC. 

The committee met, pursuant to notice, at 9:35 a.m. in room SD–

50, Dirksen Senate Office Building, Senator Carl Levin (chairman) 

presiding. 

Committee members present: Senators Levin, Lieberman, Reed, 

Akaka, Pryor, McCaskill, Warner, Collins, Dole, Thune, and Martinez. 

Committee staff members present: Richard D. DeBobes, staff director; and Leah C. Brewer, nominations and hearings clerk. 

Majority staff members present: Madelyn R. Creedon, counsel; 

Creighton Greene, professional staff member; Michael J. Kuiken, 

professional staff member; Peter K. Levine, general counsel; Michael J. McCord, professional staff member; William G.P. 

Monahan, counsel; and William K. Sutey, professional staff member. 

Minority staff members present: Michael V. Kostiw, Republican 

staff director; William M. Caniano, professional staff member; 

Gregory T. Kiley, professional staff member; David M. Morriss, minority counsel; Christopher J. Paul, professional staff member; and 

Sean G. Stackley, professional staff member. 

Staff assistants present: Jessica L. Kingston, Ali Z. Pasha, Benjamin L. Rubin, and Breon N. Wells. 

Committee members’ assistants present: Jay Maroney, assistant 

to Senator Kennedy; Frederick M. Downey, assistant to Senator 

Lieberman; Elizabeth King, assistant to Senator Reed; Bonni 

Berge, assistant to Senator Akaka; Christopher Caple, assistant to 

Senator Bill Nelson; Jon Davey, assistant to Senator Bayh; M. 

Bradford Foley, assistant to Senator Pryor; Gordon I. Peterson, assistant to Senator Webb; Sandra Luff, assistant to Senator Warner; 

Anthony J. Lazarski and Nathan Reese, assistants to Senator 

Inhofe; Lenwood Landrum and Todd Stiefler, assistants to Senator 

Sessions; Mark J. Winter, assistant to Senator Collins; Clyde A. 

Taylor IV, assistant to Senator Chambliss; Lindsey Neas, assistant 

to Senator Dole; Jason Van Beek, assistant to Senator Thune; and 

Erskine W. Wells III, assistant to Senator Martinez. 

OPENING STATEMENT OF SENATOR CARL LEVIN, CHAIRMAN 

Chairman LEVIN. Good morning, everybody. The committee 

meets today to consider the performance of the Department of DeVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
2

fense (DOD) major acquisition programs at a time when cost 

growth on these programs has reached crisis proportions. We don’t 

have to look very far to find examples. Over the last few years, unit 

costs on the Air Force’s largest acquisition program have grown by 

almost 40 percent, costing us an extra $37 billion. Over the last 3 

years, unit costs on the Army’s largest program, the Future Combat System (FCS), have grown by more than 45 percent, costing us 

an extra $40 billion. Last year, the Navy had to cancel the planned 

construction of the two Littoral Combat Ships (LCSs) after the program cost doubled in just 2 years. 

Since the beginning of 2006, nearly half of DOD’s 95 largest acquisition programs have exceeded the so-called Nunn-McCurdy cost 

growth standards established by Congress. Overall, these 95 Major 

Defense Acquisition Programs (MDAPs) have exceeded their research and development (R&D) budget by an average of 40 percent, 

have seen their acquisition costs grow by an average of 26 percent, 

and experienced an average schedule delay of almost 2 years. 

The Government Accountability Office (GAO) tells us that cost 

overruns on these MDAPs now total $295 billion over the original 

program estimates, even though we have cut unit quantities and 

reduced performance expectations on many programs in an effort 

to hold down costs. 

Now, just to put the size of these cost overruns in perspective, 

what would that $295 billion buy? We could buy at current prices 

2 new aircraft carriers for $10 billion each, and 8 Virginia-class 

submarines for $2.5 billion each, and 500 V–22 Ospreys for $120 

million each, and 500 Joint Strike Fighters (JSFs) for $100 million 

each, and 10,000 mine resistant ambush protected vehicles for $1.4 

million each, all of that, and still have enough money left over to 

pay for the entire $130 billion FCS program. 

These cost overruns happen because of fundamental flaws that 

are built into our acquisition system. We know what those flaws 

are. DOD acquisition programs fail because the Department continues to rely on unreasonable cost and schedule estimates, establish unrealistic performance expectations, insist on the use of immature technologies, and direct costly changes to program requirements, production quantities, and funding levels in the middle of 

ongoing programs. 

As Secretary Gates recently acknowledged, we’ve been ‘‘adding 

layer upon layer of cost and complexity onto fewer and fewer programs that take longer and longer to build.’’ He said, ‘‘This must 

come to an end.’’ Well, it’s been long overdue that that come to an 

end. 

Let me just give you a few examples of how these programs have 

impacted weapons systems. With regard to unrealistic cost and 

schedule estimates, the Navy initially established a goal of $220 

million and a 2-year construction cycle for the two lead ships on 

the LCS program. These goals were completely inconsistent with 

the Navy’s historic experience in building new ships and with the 

complexity of the design required to make the program successful. 

As a result, program costs doubled and the Navy started to run out 

of money long before the ships were complete, forcing it to cancel 

follow-on ships. 

3

With regard to unrealistic performance expectations, the National Polar Orbiting Operational Environmental Satellite System 

was designed to include 14 different environmental sensors on 6 

different satellites, plus a ground system. Now, the system turned 

out to be so complex and unmanageable that the cost doubled, forcing DOD to eliminate one of the planned satellites and five of the 

planned sensors and make several of the other sensors less complex. The Department is now trying to figure out how to restore 

some of the capability that will be lost as a result of the elimination of the planned sensors. 

With regard to immature technologies, the Army’s Warfare Information Network-Tactical program entered the System Development 

and Demonstration (SDD) phase with only 3 of its 12 critical technologies at the appropriate level of maturity. As the Army struggled to develop these technologies or to substitute alternative technologies that were more ready for production, program costs grew 

by 88 percent and the program was delayed by more than 41⁄2

years. 

With regard to changing program requirements, the Air Force 

has repeatedly restructured its Global Hawk program to add new 

and sometimes unproven technologies. While the new technologies 

have added to the capability of the Global Hawk, the changes have 

led to space, weight, and power constraints that have more than 

doubled production costs and have significantly disrupted the program. 

Over the last few years this committee has taken a number of 

steps to try to address these problems. For example, we have required senior acquisition officials to certify that cost estimates are 

realistic and technologies are mature before new programs are 

started, we’ve required that program managers be held accountable 

for meeting measurable performance objectives to which they have 

agreed in writing, and we’ve tightened the so-called Nunn-McCurdy 

thresholds to prevent DOD from hiding underperforming programs. 

The Under Secretary of Defense for Acquisition, Technology, and 

Logistics (AT&L), who will be testifying before us today, has carried out our new certification requirements and he has used the 

Nunn-McCurdy process to require the serious reexamination of 

troubled programs. He has also required the military departments 

to establish Configuration Steering Boards (CSBs) to prevent unnecessary and costly changes to program requirements, which is a 

constructive step that we propose to enact into law in this year’s 

National Defense Authorization Act (NDAA). 

However, those efforts have fallen far, far short. No matter how 

well intentioned Secretary Young and other senior acquisition officials may be, they remain dependent upon the information that is 

provided to them by contractors and program officers. These contractors and program officers have every reason to produce overly 

optimistic cost estimates and unrealistic performance expectations 

because programs that promise revolutionary change and project 

lower costs are more likely to be approved and funded by senior administration officials and by Congress. In other words, we get the 

information we need to run our programs from people who have a 

vested interest in overpromising. 

4

In a draft report that will be issued later this month, GAO concludes that ‘‘The Department of Defense’s inability to allocate funding effectively to program is largely driven by the acceptance of unrealistic cost estimates and a failure to balance needs based on 

available resources. Development costs for major acquisition programs are consistently underestimated,’’ they said, ‘‘at a program’s 

initiation by 30 to 40 percent, in large part because the estimates 

are based on limited knowledge and optimistic assumptions about 

system requirements and critical technologies.’’ 

The consequences of using such optimistic estimates were correctly identified by the DOD acquisition performance assessment 

panel 2 years ago. That panel found that using ‘‘optimistic budget 

estimates force excessive annual reprogramming and budget exercises within the Department, which in turn cause program restructuring that drive long-term costs, cause schedule growth, and open 

the door to requirements creep.’’ 

It’s going to take a fundamental change in the structure and culture of the acquisition system to address that problem. For this 

reason, I believe that we need a Director of Independent Cost Assessment in the DOD, with authority and responsibility comparable 

to those of the Director of Operational Test and Evaluation 

(DOT&E) that we established 20 years ago. This new independent 

office would review cost estimates on all MDAPs and develop its 

own independent cost estimates to ensure that the information, on 

which so many of our program and budget decisions are based, are 

fair, unbiased, and reliable. I plan to offer an amendment to this 

year’s defense bill when it comes to the Senate floor to establish 

this office. 

Today the committee will hear from John Young, the Under Secretary of Defense for AT&L, who is the top acquisition official for 

DOD, and from Katherine Schinasi, who is GAO’s top expert on the 

acquisition system. We look forward to the testimony of our witnesses on these important issues. We thank both of you for your 

commitment and your service to improving these systems. 

Senator Warner. 

STATEMENT OF SENATOR JOHN WARNER 

Senator WARNER. Thank you, Mr. Chairman. I join you in welcoming our witnesses today. I thought you laid out a very factual 

and pragmatic assessment of the situation as this committee views 

it. 

Mr. Chairman, I roughly estimate that DOD, over the next 5 

years, has $900 billion with which to inject in the procurement system. We simply must make the adjustments that are required to 

obviate what you have recited. 

You and I have been on this committee a long time. I remember 

one very clear chapter when Dave Packard put forward the Packard Commission reports and that was to solve all the problems. It 

didn’t seem to work. We awakened here one day and it was this 

committee that put a stop to the Boeing tanker situation, and it’s 

taken these many years to remedy that and hopefully get back on 

the rails again. 

5

So I join you, Mr. Chairman. I think the committee, the members 

on our side, are very much in favor of seeing what we can do to 

take positive action to correct the situation. 

I’d like to put in a statement on behalf of Senator McCain at this 

point and amplify my own. Thank you. 

[The prepared statements of Senator McCain and Senator Warner follow:]

PREPARED STATEMENT BY SENATOR JOHN MCCAIN

Mr. Chairman, thank you for calling this important hearing. The committee meets 

to examine the management and oversight of Department of Defense (DOD) acquisition programs. 

Defending our Nation against its enemies is the first and most fundamental commitment of the Federal Government. Resourcing our military to defend this nation 

requires an appropriate working relationship among defense industries, the DOD, 

and Congress with an eye toward faithful and efficient expenditure of every taxpayer dollar that is made available for defense procurement. 

However, I believe it is important to recall that President Eisenhower warned in 

1961 that, ‘‘We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.’’ 

Over the last 6 years—since the Air Force-Boeing tanker procurement scandal 

where we learned of the most egregious abuse of power from a government acquisition official—this committee has been active in its oversight responsibilities and approved the largest number of acquisition reform measures since the mid-1980s when 

a series of procurement scandals plagued the Pentagon. If DOD follows these laws, 

they could exercise more discipline in how the Pentagon develops and buys new 

weapon systems. 

Unfortunately, despite these recent reforms drafted by this committee and enacted into law, cost overruns for major weapon programs are still staggering. We 

are here today to find out if these policy changes have improved the way the DOD 

buys new weapon systems, and to determine whether additional reforms are necessary. According to the Government Accountability Office (GAO), none of the weapons programs that they assessed this year had proceeded through system development and met the ‘‘best practices’’ standards for mature technologies, stable design, 

and mature production processes—all prerequisites for achieving planned cost, 

schedule, and performance outcomes. Equally as disturbing are the GAO reports 

that the Department has not used system engineering tools—preliminary design reviews and prototyping—to demonstrate the maturity of the planned weapon system. 

The need for acquisition reform is paramount. Most civilian and uniformed leaders, as well as outside defense experts, believe that military spending is going down. 

A short time ago, the former Chairman of the Joint Chiefs, General Peter Pace, 

showed me a chart called ‘‘Future Investments? 10-Year Cyclical DOD Outlays.’’ It 

examined defense spending since the beginning of the Vietnam War, and the results 

described 10-year cyclical spending cycles. 

6

What is clear from the chart is that investment in weapon acquisition programs 

is now at its highest level in two decades—but is at its apex and heading downward. 

No other organization understands this better than the GAO which has authored 

several reports on defense acquisition. GAO has stated that since the mid-1990s, the 

acquisition costs for major weapons programs has increased almost 120 percent and 

that current programs are experiencing, on average, nearly a 2-year delay in delivering initial capabilities to the warfighter. 

The Department expects to invest about $900 billion over the next 5 years on development and procurement and invest nearly $340 billion specifically in major defense acquisition programs. Every dollar spent inefficiently in acquiring weapon systems is less money we spend on our budget priorities—such as the global war on 

terror. Nearly half of DOD’s major defense acquisition programs are paying at least 

25 percent or more per unit than originally expected. 

Given this situation, some will simply call for increasing defense spending or fixing it to a greater percentage of the Gross National Product. I believe, instead, that 


603ful77.eps 603ful78.eps
7

what our Nation spends on defense should be dictated by the threat. So how do we 

ensure our defense budget is adequate and cost-effective? First and foremost, we 

must stop wasteful spending on congressional earmarks. Second, we must maximize 

the value of the defense dollar while providing the maximum protection to the taxpayer. A core element of this is to execute a sound acquisition strategy that remedies systemic problems at the senior management and the program level, which 

causes alarming increases in costs and schedule delays. A sound acquisition strategy 

will help improve accountability in acquisition management and ensure that program decisions are consistent with the requirements of the unified commands. 

Defense acquisition policy has been a major issue ever since President Eisenhower 

first warned the Nation about the military-industrial complex. Yet, as Operation Ill 

Wind in the 1980s and the more recent Boeing Tanker scandal show, Eisenhower’s 

admonitions should be paramount in our examination today. Despite the lessons of 

the past, the acquisition process continues to produce poor cost-, scheduling-, and 

performance-outcomes—to the detriment of the taxpayer and the warfighter. 

In the 109th and 110th Congresses, major acquisition policy issues have come up 

on several multi-billion dollar programs: the Army’s Future Combat Systems contract conversion; the Navy’s Littoral Combat Ship (LCS); the Air Force’s F–22 

Raptor, C–130J contract conversion, replacement tanker program, and Combat 

Search and Rescue helicopter; the Marine Corps’ Expeditionary Fighting Vehicle 

(EFV); and one of the largest aviation acquisition programs ever, the Marine Corps, 

Navy, and Air Force F–35, Joint Strike Fighter. 

There is much we can do to help ensure taxpayers’ dollars are spent wisely as 

we develop, test, and acquire major defense systems. By increasing transparency 

and accountability and maximizing competition, broad acquisition reform can deliver 

the best value to the taxpayer and minimize waste, fraud, and abuse. Most importantly, it can help assure that the United States maintains the strongest fighting 

force in the world. The Senate Armed Services Committee’s efforts, along with the 

help of the GAO and strong oversight of the Office of the DOD Inspector General 

(IG), can improve an acquisition system that is fundamentally broken. 

At one time or another, all of the military Services have received failing grades 

in the development and acquisition of weapon systems. Where problems have been 

identified, some of the military Services have recognized the need for more discipline and accountability and in some cases fired program managers, directors, and 

service acquisition executives. That was the case with the Marine Corps’ EFV and 

the Navy’s LCS programs. But, when the Services have not held people to the level 

of excellence they espouse in glorified mission statements, there have been more 

systemic problems. Unfortunately, that is the case with the Air Force, where protests in competitive acquisition awards are seven times more likely to occur than 

with the other Services. 

The Secretary of Defense (SECDEF), the Deputy Secretary of Defense—as the 

Secretary’s Executive Officer—and the Under Secretary of Defense for Acquisition 

must pay more attention to these acquisitions, especially when poor decisions are 

made and procedures ignored. 

In the Boeing tanker scandal, actions by a top Air Force acquisition official, 

Darleen Druyun, not only disgraced herself and resulted in her conviction on public 

corruption charges, but also disgraced the Air Force, the DOD, and the entire defense establishment. I continue to believe that Ms. Druyun was not solely responsible for the Air Force’s failure. On the contrary, it is the Air Force’s inability to 

accept any responsibility for wrongdoing that predicates potential failures in the future. 

For example, the DOD IG has recently reported that within a year after Darleen 

Druyun and a Boeing CEO went to jail over the proposed Air Force tanker acquisition, a former Air Combat Commander and 4-star Air Force general improperly influenced senior Air Force officers to steer a high visibility Air Force contract 

through a non-competitive process for the Thunderbirds to a friend and his new 

company. Clearly, the recent Air Force scandal was not the rare example of mismanagement and oversight failure we thought it would be. 

No one was held accountable when the Air Force misled Congress after being directed by statute to convert a contract for C–130Js from a commercial contract to 

a traditional military contract. Despite this legal requirement, the Air Force reported to Congress the contract had been converted, even though it had not yet been 

done. Furthermore, no one was held accountable when the DOD IG found that the 

Air Force apparently presented Congress false information on the C–130J multiyear contract termination costs and the F–22A Program Manager who was among 

those responsible for apparently exaggerating the termination costs—is responsible 

for executing the F–22 multi-year contract today. 

8

We shall see if anyone will be held accountable when the DOD IG completes its 

ongoing investigation examining how senior Air Force officials may have inappropriately solicited new orders for C–17s, contrary to the orders of the President and the 

SECDEF. This occurred in spite of clear guidance from the DOD that they did not 

want additional C–17s, because there is no military ‘‘requirement’’ for them and 

buying more C–17s is contrary to the Pentagon’s current budget plan. 

Again, while legislation and policy revisions can help guide change, the DOD must 

begin making better choices that reflect joint capability needs and match requirements with resources, or the department will continue to experience acquisition failures. This Hobson’s choice must ensure that the military Services do not continue 

to over promise capabilities and underestimate the costs of developing and buying 

weapon systems. 

Acquisition problems will continue to prevail in DOD until the Secretary provides 

a better foundation for buying the right assets, the right way. This requires making 

tough decisions as to which programs should be pursued, and more importantly, not 

pursued; making sure programs are executable; locking in requirements before programs are ever started; and making it clear who is responsible for what and holding 

people accountable when responsibilities are not fulfilled. Moreover, we must change 

the culture that leads DOD and the military Services to over-compromise on capability and underestimate costs in order to sell new programs and capture funding 

will need to change. 

We must also reverse the trend of Service leaders not understanding the complexity of developing systems through adequate oversight and holding those accountable for failing to follow acquisition laws and regulations. We simply cannot 

afford further acquisition failures, not if we are to maximize the value of the defense 

dollar and buy the right weapon systems for our service men and women. 

Finally, let me recommend to the committee, and ask that it be placed into the 

record, a recent GAO report titled, ‘‘Defense Contracting, Post-Government Employment of Former DOD Officials Needs Greater Transparency.’’ This report recommends additional statutory and policy changes in this area and finds significant 

under-reporting by as much as half of the contractors’ employment of former DOD 

officials. Time and again, some poor acquisition decisions are made because of a lack 

of transparency at all levels of the acquisition process. The report cites recent highprofile cases involving former senior DOD officials’ violations of post-government 

employment laws that are worth reviewing to understand the breadth of the problem, and demonstrate the need for further reform. 

The bottom line is this: DOD must implement acquisition initiatives quickly if we 

are to ensure that warfighter capabilities are delivered when needed and as promised. In addition, I call on the Defense Secretary, Deputy Secretary, and Under Secretary for Acquisition to enforce the acquisition laws and regulations in the department and hold people accountable when they do not follow them. When we do this 

we should be able to more effectively and efficiently buy weapon systems and we 

will regain the confidence of the taxpayer and our soldiers, sailors, marines, and airmen. 

I look forward to hearing from today’s witnesses and receiving an update on the 

execution of and implementation of acquisition policies that this committee has carefully drafted and were enacted into law over the past 3 years. 

Thank you, Mr. Chairman. 

[The GAO Report to Congressional Committees entitled ‘‘Defense Contracting: 

Post-Government Employment of Former DOD Officials Needs Greater Transparency’’ dated May 2008 is located at the end of this hearing.] 

PREPARED STATEMENT BY SENATOR JOHN WARNER

Mr. Chairman, thank you for calling this hearing to examine the management 

and oversight of Department of Defense (DOD) acquisition programs. The topic of 

our hearing today is of the utmost importance to me. I believe that the way we resource the military Services to defend our Nation requires an appropriate working 

relationship among defense industries, the DOD, and Congress. But we must always 

strive to be mindful that we are making efficient and effective use of every taxpayer 

dollar that is made available for defense procurement. 

Recall that President Eisenhower warned in 1961 that, ‘‘We must guard against 

the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.’’ 

I believe that this committee has been very active and attentive in its oversight 

responsibilities over the last several years. In particular, since the Air Force-Boeing 

9

tanker procurement scandal, this committee has approved the largest number of acquisition reform measures since the mid-1980s. I believe that if DOD takes these 

reforms seriously and implements the changes required by these laws, it could instill more discipline into how the Pentagon develops and buys new weapon systems. 

But, I am very concerned that despite our efforts to seek changes at the Pentagon 

that will make defense acquisitions effective and efficient for our military Services 

and for taxpayers, cost and schedule outcomes for major weapon programs are not 

improving. As a result, we are here today to find out if our recent policy reforms 

have improved the way the DOD buys new weapon systems, and to determine what 

additional steps and reforms are necessary. 

I would like to mention a few other key areas of concern that are relevant to this 

discussion. Currently, most civilian and uniformed leaders, and outside defense experts, believe that military spending, which is at its highest point now, is heading 

down. This is a very troubling trend at such a critical time given our national security situation and our military Services’ needs, and it reinforces the need for real 

and timely acquisition reform. 

In addition, a recent report by the Government Accountability Office (GAO) found 

that none of the weapons programs that they assessed this year had proceeded 

through system development and met the ‘‘best practices’’ standards for mature 

technologies, stable design, and mature production processes—all prerequisites for 

achieving planned cost, schedule, and performance outcomes. GAO has also stated 

that since the mid-1990s, the acquisition costs for major weapons programs have increased almost 120 percent and that current programs are experiencing, on average, 

a nearly 2-year delay in delivering initial capabilities to the warfighter. This demonstrates that the DOD acquisition process remains inefficient and costly across a 

wide range of programs, and we need to determine what can be done to significantly 

improve this situation. 

Mr. Chairman, defense acquisition policy has been a major issue ever since President Eisenhower first warned the Nation about the military-industrial complex. Yet, 

as Operation Ill Wind in the 1980s and the more recent Boeing Tanker scandal 

demonstrate, Eisenhower’s admonitions should be front and center in our examination today. Despite the lessons of the past, the acquisition process continues to result in troubling outcomes, to the detriment of the warfighter and the taxpayer. 

I believe the need for acquisition reform is paramount, and as DOD expects to 

invest nearly $900 billion over the next 5 years on development and procurement, 

every dollar spent inefficiently and ineffectively will limit the funding available for 

other budget priorities. A sound acquisition strategy will help improve accountability in acquisition management and will also help ensure that decisions made on 

programs are consistently cross-checked with the requirements of the unified commands. 

I look forward to hearing from our witnesses today. Thank you again Mr. Chairman for holding this important hearing.

Chairman LEVIN. Thank you, Senator Warner. 

Secretary Young, I think we will begin with you. Again, our 

thanks to you. 

STATEMENT OF HON. JOHN J. YOUNG, UNDER SECRETARY OF 

DEFENSE FOR ACQUISITION, TECHNOLOGY, AND LOGISTICS 

Mr. YOUNG. Thank you, Chairman Levin, members of the committee. 

Members of the defense acquisition team and I are working very 

hard to improve the cost and schedule performance of defense acquisition programs and I welcome the chance to talk with you 

about this. I would ask that my written statement be made part 

of the record and I would like to open with a discussion of the key 

elements necessary for a successful program. 

First, people devise and execute programs. The DOD procurement budget has experienced 34 percent real growth since 2001 

and the R&D budget has risen 70 percent. The DOD acquisition 

workforce has actually decreased slightly in this time period and 

there has been a cap on management and headquarters staff to 

10

oversee these programs. Programs cannot be successfully executed 

without adequate, experienced, and capable people. 

Indeed, I have recently reviewed several troubled programs and 

one factor was inadequate staffing in the government program office. 

Next, I agree with the many assessments that suggest that systems should only move to the final stages of development when key 

technologies are appropriately mature. Congress’ requirement for 

certification of technology readiness at Milestone B is a very helpful decision. 

Third, a weapons program must have reasonable and stable requirements and understood certification standards. While many 

factors are involved, there’s been a tendency, as you noted, to establish requirements which exceed the budget, schedule, and maturity of technology. Additionally, the application of certification and 

technical authority standards to programs has driven dramatic cost 

growth and schedule impacts. 

Finally, successful program execution is totally dependent upon 

a stable and adequately funded budget. In most cases we should 

fund major programs through an independent cost estimate. Fully 

funding the initial phases of a program is most critical. I’ve seen 

many instances where DOD has underfunded programs and Congress has cut programs, ensuring cost growth and schedule slippage. 

While there are other relevant factors, a summary of all of this 

is: Hope is not a strategy. As my previous comments suggest, many 

of the factors necessary to successfully execute programs are not 

currently in the control of the program manager. In the GoldwaterNichols legislation, Congress was amazingly prescient in assigning 

acquisition responsibility to the civilian chain of command working 

for the President. 

I believe the Defense and Service Acquisition Executives (SAEs) 

are critical positions and these individuals are the key to many aspects of improving defense acquisition. SAEs must support program 

managers in their efforts to moderate or adjust requirements to get 

best value for the warfighter and the taxpayer, must fight in the 

military personnel system for promotion of program managers, 

must prioritize jointness and interoperability above service equities, and must set high standards for program development and 

execution. 

I’d like to talk briefly about some of the many steps I am taking 

to address these obligations. Program managers must have a forum 

to discuss program execution decisions and requirement changes 

with key stakeholders. CSBs, as you noted, sir, were used on programs like F–16 in the past and we are renewing this practice in 

the Defense Department. In hopes of constructing a joint, interoperable, executable and properly priced development program, we 

have used Joint Analysis Teams with membership that includes all 

relevant DOD stakeholders to mature program plans or review 

portfolios of programs to avoid duplication. 

The Department has often used blue ribbon panels or independent reviews to assess problems. I have formalized this process 

into Defense Support Teams which seek to harness experienced 

outside experts to help us solve program execution problems and 

11

to assess the adequacy of our development plans and technologies. 

These Defense Support Teams also help partially offset DOD’s inability to hire adequate government personnel to manage our programs. 

As the Director of Defense Research and Engineering (DDR&E), 

I began a practice of quick-look technology readiness assessments. 

It is of no value to reach Milestone B and determine that we have 

technology which is immature. Quick-look assessments are necessary to drive investments in the maturation of technologies in advance of Milestone B. 

Historically, the Defense Department built prototype systems. 

DOD has evolved from this strategy to moving to paper competitions for contract awards for final development of systems. I rarely 

believe this is the best strategy. We need to build prototypes competitively to demonstrate the validity of requirements, to mature 

technology, to inform our estimates of development and procurement costs, and to insist in the development of concepts of operation. 

At a more general level, DOD needs to pursue the development 

of prototypes to train our personnel in program management and 

systems engineering, to attract talented scientists and engineers to 

work on defense programs, and to inspire a new generation of people to pursue technical education. 

Shifting the culture and discipline of the enterprise will take 

time. In a small way, I constantly work towards this goal by sending weekly notes across, broadly across, the acquisition team highlighting the challenges, problems, and best practices which I see. 

Alternately, I would tell you that I do not think we can assure program performance through rules and certifications. Indeed, these 

processes diffuse accountability from the fact that responsible and 

accountable people must manage acquisition programs. 

Finally, I’m grateful to the Senate for this chance to serve as the 

Defense Acquisition Executive. My primary responsibility is to 

serve as Milestone Decision Authority for major acquisition programs and set these higher standards. Recently I have sought to 

further address many of these issues through Acquisition Decision 

Memorandums (ADMs). In recent decision memorandums I have 

locked program requirements, prohibited changes, directed full 

funding, encouraged program managers to pursue trades which 

could reduce costs, and forced jointness. I recognize the need for 

improvement in the planning and execution of the defense acquisition programs and, I’m seeking to honor your trust by making necessary changes. 

I’m most grateful for the chance to talk with you today about 

these issues and I look forward to your questions. 

[The prepared statement of Mr. Young follows:]

PREPARED STATEMENT BY HON. JOHN J. YOUNG

INTRODUCTION

Chairman Levin, Senator McCain, and distinguished members of the committee, 

thank you for the opportunity to appear before you today to discuss the Department’s policies and practices in the acquisition of major weapons systems. 

12

VISION

Since I last appeared before this committee for my confirmation 8 months ago, 

I have taken a number of actions to implement my vision for Acquisition, Technology, and Logistics, which is to drive the capability to defeat any adversary on 

any battlefield. I have focused my approach into four strategic thrust areas, each 

of which has a guiding principle, desired outcomes, and specific initiatives with 

metrics or steps against which we can measure progress. These four strategic thrust 

areas are:

• Define Effective and Affordable Tools for the Joint Warfighter • Responsibly Spend Every Single Tax Dollar • Take Care of Our People • Department of Defense (DOD) Transformation Priorities

In identifying both the problems we face, and the solutions we are seeking, I am 

committed to transparency throughout the acquisition process. It is my belief that 

we need to be clear, concise, and open with regard to what the DOD is seeking, and 

the work it is completing. It is our responsibility as stewards of tax dollars to ensure 

complete openness, fairness, and objectivity in the acquisition process. I intend that 

we will be accountable to ensure the success of these initiatives. 

I have charged the acquisition team to create an inspired, high-performing organization where:

• We expect each person must make a difference; • We seek out new ideas and new ways of doing business; • We constantly question requirements and how we meet them; and • We recognize that we are part of a larger neighborhood of stakeholders 

interested in successful outcomes at reasonable costs.

We live in an increasingly complex world. Our missions vary widely, so we need 

strategic resilience and depth; and must ensure our Nation has response options 

today and for the future with the appropriate capacity and capability to prevail at 

home and abroad. 

I would like to highlight some specific initiatives that capture these philosophies 

and are fundamental to transforming the acquisition process and workforce. They 

are: 

(1) Program Manager Empowerment and Accountability 

Program managers play a critical role in developing and fielding weapon systems. 

I have put in place a comprehensive strategy to address improving the performance 

of program managers. Key to this are program manager tenure agreements for Acquisition Category (ACAT) I and II programs, which are our largest programs. My 

expectation is that tenure agreements should correspond to a major milestone and 

last approximately 4 years. Another fundamental piece I have established is Program Management Agreements—a contract between the program manager and the 

acquisition and requirements/resource officials—to ensure a common basis for understanding and accountability; that plans are fully resourced and realistically 

achievable; and that effective transparent communication takes place throughout 

the acquisition process. 

(2) Configuration Steering Boards (CSBs) 

I have directed the military departments to establish CSBs. My intent is to provide the program manager a forum for socializing changes that improve affordability 

and executability. Boards will be in place for every current and future ACAT I program and will review all proposed requirement changes, and any proposed significant technical configuration changes which potentially could result in cost and 

schedule changes. Boards are empowered to reject any changes, and are expected 

to only approve those where the change is deemed critical, funds are identified, and 

schedule impacts are truly mitigated. For example, the Navy decided to terminate 

the Extended Range Munition (ERM) contract after the CSB review because the effort on the ERM contract was not meeting the performance needs of the Department. The Department is now looking at other alternatives to satisfy the requirement. I require every acquisition team member to fully engage the Planning, Programming, Budgeting, and Execution (PPBE) process thus creating an avenue for 

program managers to ensure they are funded to execute their responsibilities or alternatively descope their programs to match reduced budget levels. 

(3) Defense Support Teams (DSTs) 

To address the challenge of acquisition execution and assist both industry and 

DOD program managers, I have expanded the use of these teams who are made up 

of outside world-class technical experts to address our toughest program technical 

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issues. I expect the teams to resolve emergent problems and help the Department 

successfully execute tough programs before problems develop. For example, the Net 

Enabled Command Capability (NECC) program benefitted from a DST that clarified 

the critical coordination points necessary to bring the Defense Information Support 

Agency, the Service acquisition authorities, and operational sponsors into a coherent 

approach balancing military needs, technology solutions, and funding requirements. 

A refocused NECC team demonstrated significant progress on developing actionable 

military need definitions and establishing a collaborative environment for design 

and testing of software application modules enabling elements of a joint command 

and control tool set. 

(4) Prototyping and Competition 

I have issued policy requiring competitive, technically mature prototyping. My intent is to rectify problems of inadequate technology maturity and lack of understanding of the critical program development path. Prototyping employed at any 

level—component, subsystem, system—whatever provides the best value to the taxpayer. 

For example, the Joint Light Tactical Vehicle (JLTV) is currently using competitive prototyping. The JLTV program will eventually provide our soldiers and marines with a truck that combines the off-road mobility of a High Mobility Multi-purpose Wheeled Vehicle with protection approaching that of a Mine Resistance Ambush Protected vehicle. To do this, the Joint Program Office is having three separate 

teams of contractors compete to make multiple prototypes which will be rigorously 

tested. At the end of this competition, the best of these prototypes will proceed on 

to Systems Demonstration and Development having already proven that they have 

the technical maturity to satisfy the requirements in a timely and cost effective 

manner. 

(5) AT&L Notes 

I am writing weekly notes to the acquisition workforce. These notes share lessons 

learned and provide leadership guidance on expected procedures, processes and behaviors within the acquisition workforce. These notes provide a powerful training 

tool directly from me. 

COST AND SCHEDULE DELAYS IN MAJOR DEFENSE ACQUISITION PROGRAMS AND OTHER

PROGRAMS

Let me now address cost overruns and schedule delays in the Department’s Major 

Defense Acquisition Programs (MDAPs). First let me say that many programs do 

well in terms of cost and schedule. But for those programs that do have cost and 

schedule growth, the biggest drivers are unstable requirements, immature technologies, and funding instability. 

I am addressing requirements instability through increased partnering with the 

Joint Staff on requirements and through CSBs. CSBs review all proposed requirements changes and any proposed significant technical configuration changes which 

have the potential to result in cost and schedule impacts to an MDAP. Such changes 

will generally be rejected, deferring them to future blocks or increments. Changes 

may not be approved unless funds are identified and schedule impacts mitigated. 

CSBs also create a collaborative forum for program managers to propose and describe reductions in requirements which can significantly lower cost without substantially reducing capability. Program managers desperately need these forums to 

try to improve the pace of requirements decisions and match that pace to the pace 

of program execution. The Joint Staff has also asked the programs to come back to 

them, if requirements are driving costs, and discuss if it makes sense to change the 

requirements. 

I also require technical maturity of programs before program initiation (Milestone 

B). Statute requires that Milestone Decision Authorities (MDA) certify that the technology in an MDAP is demonstrated in a relevant environment for Milestone B (or 

Key Decision Point B for space programs). I must also certify that the program demonstrates a high likelihood of accomplishing its intended mission. These are 2 of the 

10 criteria I certify. Congress’ direction that the DOD ensure appropriate technical 

maturity at Milestone B was very helpful. I think the additional nine criteria add 

time and paperwork, and these criteria can conflict with making needed progress 

on developing tools for our warfighters. 

Where I have had questions about a program’s readiness for program initiation, 

I have used Independent Program Assessments (IPAs), DSTs, and other tools to do 

a thorough assessment of the program and to present their findings to me and other 

members of the Defense Acquisition Board (DAB). For example, I directed the creation of a DST to assist the Space-Based Infrared System High program in 

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rearchitecting the Flight Software System. This became the critical path to launch 

due to architecture problems found late in development. The DST team brought an 

outside expert perspective, enabling the contractor team to leverage years of embedded systems development and management experience, to assess the viability of the 

new architecture and highly streamlined development process. Currently, the revised architecture is proving to meet expectations and the development team is 

meeting critical delivery dates although some minor delays have been experienced. 

I give explicit funding and schedule direction to programs at their milestone decisions, and ensure those funding directions are implemented in the budget process. 

In addition, I am also focusing a great deal of attention on the contractual incentives put in place for programs I review to ensure we incentivize improved outcomes 

and not reward poor ones. 

Finally, I have tried to improve discipline in the process by citing the governing 

requirements document in acquisition decision memorandums (ADMs), prohibiting 

any changes to the requirements, and directing the program managers to seek adjustments in requirements which reduce cost and program risk, and insisting the 

program manager execute within the budget and limit the excessive demands of 

technical authority and derived requirements. 

Taken together I believe these initiatives, along with those I discussed earlier will 

put us on a path towards achieving markedly improved acquisition outcomes. 

GOVERNMENT ACCOUNTABILITY OFFICE REPORT

Let me now address our cost and schedule performance that was detailed in the 

Government Accountability Office (GAO) Report ‘‘Assessments of Selected Weapon 

Programs.’’ This report made headlines citing cost growth of $295 billion on 95 Defense programs. It was a catchy headline in the newspapers. But having reviewed 

the report in detail, I can only conclude that we and the GAO have some important 

work ahead of us to develop appropriate metrics to evaluate DOD’s acquisition system. The current report has some significant limitations that I will discuss briefly. 

Has there been cost growth in some DOD programs? Yes, and I am not here to condone it. Indeed, I am seeking to strictly limit cost growth. Do all programs behave 

as it is implied in the GAO report? Absolutely not. Our acquisition system is not 

on a downward spiral—it is on a path to improvement. 

As I am sure you know, DOD is working to field some of the most technologically 

complex and revolutionary systems to ensure our national security, while taking 

into consideration other aspects, such as immediate national security needs, industrial base considerations, legislative direction, congressional requirements, and 

changing capability needs. I have yet to see an assessment that takes these kinds 

of factors into account when developing a report card for DOD. I believe that it is 

essential that we, and the GAO, account for these issues when assessing the DOD 

acquisition system to ensure the taxpayer and Congress get an accurate picture of 

the health of our acquisition system. 

I do not plan to dissect the report, but I am going to offer a few specific comments 

about the GAO’s analytical approach to temper any conclusions you might have 

drawn from their study. I hope to build on this, so that we might all move towards 

sound future analysis on which to measure the progress of our acquisition system. 

First, I believe GAO overstates the magnitude of many of the issues they raise 

by making generalizations from limited subsets of data. A few poor performers incorrectly drive many of the conclusions that GAO makes. Many of these conclusions 

are not indicative of most programs in the portfolio nor of DOD acquisition performance trends. 

Second, the report does not differentiate between cost growth due to wise and intentional choices and cost growth from programs that are struggling. For example, 

$18 billion of the cost growth in the GAO’s 2007 Selected Acquisition Report portfolio can be attributed to programs with quantity increases. This growth is intentional and intelligent decisionmaking, representing deliberate choices to increase capability. For instance, we recently purchased more Unmanned Aerial Vehicles 

(UAVs) than originally envisioned because the UAV provides our warfighters with 

unprecedented capability that enhances their survivability in Iraq and Afghanistan. 

Under GAO’s methodology, these additional UAVs would be counted as cost growth. 

Similarly, purchasing an additional 76 C–130J aircraft counts as $8 billion of cost 

growth. Buying almost 500 additional Advanced Threat Infra-Red Countermeasure 

systems to defend more helicopters from heat seeking missiles counts as cost growth 

too. These are exactly the kinds of things that are helping the warfighter in both 

Iraq and Afghanistan, but are used to bolster the perception that the DOD is performing poorly. 

15

We look forward to working with GAO to select better metrics and displays that 

will portray our incremental performance changes. 

GAO High Risk Areas within DOD 

All but one of the Department’s High Risk Areas fall under my purview. I am 

committed to aggressively addressing our High Risk Areas including:

(1) Weapons Systems Acquisition; 

(2) Contract Management and Interagency Contracting; 

(3) Supply Chain Management; 

(4) Support Infrastructure Management and Managing Federal Real Property; 

(5) Business Systems Modernization; 

(6) Financial Management; and 

(7) Protection of Technologies Critical to U.S. National Security Interests.

I am tracking the progress of each High Risk Area goal and milestone and receive 

periodic updates from the respective Department leads. We are working closely with 

both the Office of Management and Budget (OMB) and GAO staff on developed 

plans and progress on milestones and metrics to reduce risks in these areas critical 

to DOD. Last month, we met with OMB leaders and GAO auditors to discuss those 

plans and review appropriate metrics in details. These exchanges are extremely valuable. Our high level focus and associated initiatives are demonstrating tangible 

progress in the weapon systems, contract management, supply chain, and infrastructure areas. 

INVESTMENT PLANNING—DOD’S IMPLEMENTATION OF SECTION 817 OF THE NATIONAL

DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2008

Let me now address section 817, which requires a report on the DOD strategies 

for balancing the allocation of funds and other resources among MDAPs. In my response to section 817, I will assess the benefits of several ongoing initiatives, such 

as capability portfolio management and the incorporation of the benefits of the Concept Decision (CD) Pilot Initiative, which was completed in March 2008. Through 

CSBs, Joint Analysis Teams (JATs), and the CD Pilot Initiative, we have learned 

much about bringing the requirements, acquisition, technology and programming 

processes together to determine potential materiel and non-materiel solutions for 

Joint Requirements Oversight Council (JROC) approved capability gaps from among 

a portfolio of choices. As such, I am instituting a more rigorous review prior to entering the acquisition process, called the Material Development Decision which will 

replace the current Concept Decision point in DODI 5000.2. Additionally, in accordance with the National Defense Authorization Act (NDAA) for Fiscal Year 2007, we 

are instituting a requirements manager certification course developed in conjunction 

with the Joint Staff and Defense Acquisition University (DAU) to ensure that requirements are written with a better understanding of and appreciation for the 

needs of the acquisition process. 

The department continues to identify and incorporate additional opportunities for 

strategic resource balancing and prioritization through initiatives such as the ongoing Capability Portfolio Manager implementations. As the benefits from these initiatives are recognized, we will develop further recommendations for changes in processes and, as appropriate, legislative proposals. However, in order to conduct the 

necessary in-depth review of all the data and metrics gathered, we will not be ready 

to submit the report required by section 817 until the second quarter of fiscal year 

2009, after we have had an opportunity to view fourth quarter 2008 and first quarter 2009 outcomes and to assess their value added to our ability to make strategic 

resourcing decisions. 

MILESTONE A REQUIREMENTS—DOD IMPLEMENTATION OF SECTION 943 OF THE

NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2008

Let me now address section 943, which enacts a new section 2366b of title 10 that 

adds requirements for certification of MDAPs before Milestone A, or Key Decision 

Point A (KDP A) for space programs. This approval must be granted prior to entrance into the technology development phase of the acquisition lifecycle. We have 

been actively reviewing this legislation in an attempt to establish an implementation plan. Based upon that review, and advice from legal counsel, we have not yet 

determined how to make the language actionable. Some examples of the issues we 

are struggling with in section 2366b are:

1. The use of the term ‘‘system’’ to describe a Milestone A technology concept is problematic—there is no ‘‘system’’ or ‘‘program’’ at Milestone A. InVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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deed, the DOD needs the flexibility to consider a wide range of prototyping 

concepts in a post-Milestone A development effort. 

2. Section 941 of the NDAA for Fiscal Year 2008 enacted a new section 

118b of title 10. We have not completed implementation of section 118b at 

this time, and in fact it will be some time before that will happen because 

of the comprehensive reviews it requires. Therefore, the requirement in the 

new Milestone A certification that the ′′system be executed by an entity 

with a relevant core competency as identified by the Secretary of Defense 

under section 118b of this title′′ is premature. 

3. There is ambiguity over the application of the requirement for priority 

levels assigned by the JROC. Indeed, it is actually essential that post-Milestone A prototyping and development efforts be used to inform the setting 

of requirements. Excessive requirements are almost always a factor in the 

high cost and long timelines for DOD development programs. Seeking to 

grant excessive validity to requirements at Milestone A is exactly the wrong 

approach to improving DOD development programs.

We are working with our General Counsel in an effort to resolve our concerns and 

determine how to address Milestone A, or KDP A, approval for programs otherwise 

ready to enter the Technology Development phase. We will work closely with the 

committees to resolve our concerns with this new legislative language. 

MILESTONE B REQUIREMENTS—DOD IMPLEMENTATION OF SECTION 801 AS AMENDED BY

SECTION 812 OF NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2008

Let me now address section 801 as amended by section 812 of the NDAA for Fiscal Year 2008, which requires the milestone decision authority to receive a business 

case analysis for an MDAP under consideration for Milestone B, or KDP B for space 

programs, approval and to certify on the basis of the analysis that the program is 

affordable, reasonable cost and schedule estimates have been developed, and funding is available to execute through the Future Years Defense Plan. In February 

2008, I enacted policy implementing section 812. This policy directs the MDA, without further delegation, to certify the program against the components of the business case analysis and the remaining provisions as specified in the law before granting Milestone B (or KDP B) approval. Although not mandated by statute, the policy 

also requires a similar certification if the program is initiated at Milestone C. Indeed, the most literal interpretation of the Milestone C certification would appropriately require full funding and effectively create a beneficial, stable multi-year 

procurement. However, the lack of multi-year authority prevents the taxpayer from 

realizing potential savings. 

We have been in compliance with the amended Milestone B/KDP B requirements. 

Some aspects of these certifications serve to make the acquisition process more robust, but the process adds time and paperwork and limits DOD’s flexibility. To date, 

in accordance with the amended statute, I have certified four MDAPs for Milestone 

B decisions and one MDAP for a KDP–B decision. The four programs receiving Milestone B certifications were the KC–X Tanker Replacement program, the Joint Tactical Radio—Airborne, & Maritime/Fixed Station program, the Mission Planning 

System (MPS) Increment IV program, and the Broad Area Maritime Surveillance 

(BAMS) program. The KDP B certification was for Global Positioning System IIIA. 

NUNN MCCURDY—DOD IMPLEMENTATION OF SECTION 802 OF THE NATIONAL DEFENSE

AUTHORIZATION ACT FOR FISCAL YEAR 2006

Let me now address section 802, which amended section 2433 of title 10, U.S.C., 

by adding specifications for ‘‘significant’’ and ‘‘critical’’ cost growth thresholds; and 

established the requirement for unit cost reporting against an original baseline—

the baseline description established at program initiation for all MDAPs. Prior to 

this change, unit cost reporting was done only against the current baseline—which, 

in practice, once approved, replaced all previous versions. 

This change has increased our visibility into unit cost changes over time, however, 

traditionally the Department has used the Acquisition Program Baseline (APB) both 

for congressional tracking and for program execution management. The restrictions 

imposed by section 802 that limit changes of the current APB to Milestones (or Key 

Decision Points), Low Rate/Full Rate Production, and critical breaches have hampered the usefulness of the APB in the Department as a management tool. To be 

clear, I have always been an advocate of measuring program results against the 

original cost baseline. 

The Department has a rigorous, intensive, Department-wide review process to assess all programs that have experienced critical Nunn-McCurdy baseline breaches. 

This process has provided a comprehensive basis of analysis and a review of possible 

17

alternatives for me to consider before making a decision on whether or not to certify 

each program. I take very seriously the responsibility to keep programs within cost 

and schedule and to restructure or reset programs with significant or critical cost 

growth, such as the unit cost growth measured for the Nunn-McCurdy criteria. 

Since the changes to the law were enacted, seven programs have had critical 

Nunn-McCurdy baseline breaches. Of these seven, five had critical breaches to both 

the current and the original baselines. Only two programs had a critical breach to 

the original baseline only—Joint Primary Aircraft Training (JPATs) and Joint Air 

to Surface Missile. All seven programs were certified, although in all cases, except 

JPATS, those programs were restructured to increase greatly the probability they 

will remain within cost and schedule. 

PROGRAM MANAGER REQUIREMENTS—DOD IMPLEMENTATION OF SECTION 853 OF THE

NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2007

Let me now address section 853 of the NDAA for Fiscal Year 2007, which directs 

the Department to develop a strategic plan for enhancing the role of program managers in developing and carrying out defense acquisition programs. The Department 

has taken steps to empower its program managers and to hold them accountable 

for their performance. As a result of our efforts to develop that plan, we developed 

a series of initiatives in the areas of program manager development and incentives, 

knowledge sharing, and stability and support. Those initiatives, described below, are 

in various stages of implementation. 

In the area of ‘‘program manager development and incentives,’’ we are actively 

pursuing program manager financial incentives linked to those positions that develop our program managers and also to their tenure in those positions. These incentives will make the program management field more appealing, especially to the 

civilian workforce. In addition, we are increasing our use of just-in-time training. 

DAU is deploying its ‘‘Core Plus’’ concept that involves additional position-specific 

coursework for program managers in specialty areas. To improve the civilian program manager workforce, we are planning to implement a single occupational specialty for use across the Department. This will allow for more consistent career 

management of civilian program managers and provide better opportunities for 

them to compete for positions in other Services. 

As part of our ‘‘knowledge sharing’’ initiatives, we are participating in the National Defense Industrial Association’s Industrial Committee on Program Management (ICPM). Under the auspices of the ICPM, we are teaming with industry to develop and expand the use of Program Startup Workshops to improve communication 

and clarify expectations up front. Within the Department, we have held Program 

Manager Forums that allow me and my senior staff to interact directly with program managers and to get their feedback on issues important to them. We have initiatives led by DAU to ensure our program managers have access to an array of 

tools and templates. 

GANSLER COMMISSION RECOMMENDATIONS

Finally let me briefly address the Gansler Commission, which was established in 

August 2007 to look at Army Acquisition and Program Management in Expeditionary Operations. This initiative was prompted by the contracting problems identified largely in Kuwait, but the report is not limited to Kuwait or just to the Army. 

The work of this commission provides us a clear way ahead on contracting reform 

that offers detailed analysis and recommendations both large and small. This was 

a totally independent, objective assessment. 

The Commission provided four overarching recommendations, as follows:

(1) Increase the stature, quantity, and career development of military and 

civilian contracting personnel (especially for expeditionary operations); 

(2) Restructure organization and restore responsibility to facilitate contracting and contract management in expeditionary and CONUS operations; 

(3) Provide training and tools for overall contracting activities in expeditionary operations; and 

(4) Provide legislative, regulatory, and policy assistance to enable contracting effectiveness in expeditionary operations.

The DOD is addressing improvement in contracting in several ways. We have increased the staffing within the Defense Procurement, Acquisition Policy, and Strategic Sourcing Directorate that is specifically dedicated to Contracting in Expeditionary Operations. This team is staffed with contracting personnel who have expeditionary deployment experience. In addition, I stood up the Task Force on Contracting and Contract Management in Expeditionary Operations to address the speVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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cific Commission recommendations and to integrate activities responding to the 

Commission’s recommendations with the many other relevant activities already underway within the DOD. The Task Force is guided by senior leaders within the Acquisition, Technology, and Logistics organization, including the Deputy Under Secretary (Acquisition and Technology), as well as the Director, Defense Procurement, 

Acquisition Policy, and Strategic Sourcing. These senior leaders are working closely 

with key personnel throughout the Department. They meet weekly to track progress 

and monthly with Dr. Gansler himself to discuss any points of clarification regarding the Commission’s recommendations. Progress of the Task Force is of utmost importance to me. 

The Task Force actions implement section 849 of the NDAA for Fiscal Year 2008, 

which directed the Secretary of Defense, in consultation with the Joint Chiefs of 

Staff, to evaluate the Commission’s recommendations to determine the extent to 

which such recommendations are applicable to the other Armed Forces. The evaluation required by section 849 is underway, and the report to the congressional committees is on schedule for submission within a month. 

With regard to increasing the number of contracting personnel, we are conducting 

a competency assessment for the entire DOD Contracting Career Field. The Department is actively assessing and developing its position regarding the appropriate 

numbers of General and Flag Officers, and Senior Executive Service authorizations 

for contracting positions. To be clear, it will take time to recruit, hire, train, develop, 

and promote the full range of contracting personnel required by DOD. 

The Commission recommended that the Defense Contract Management Agency 

should be responsible for all base, post, camp and station contracting, and that it 

should be resourced to accomplish that mission. The Task Force is developing alternative approaches to achieve the Commission’s goal of enhanced post-award contract 

management during routine times as well as during times of contingency and war. 

Through monthly discussions with Dr. Gansler, we believe he agrees we are on a 

path to achieving the Commission’s intent. 

Recently, the Department sent forward legislative proposals to implement some 

of the recommendations of the Gansler Commission that require legislation. These 

proposals include:

• Authority to Acquire Products and Services Produced in a Contingency 

Theater of Operations Outside the United States 

• Exceptions for National Security and Emergency Operations 

• Requirement for Use of Express Option for Deciding Protests of Contracts 

and Task Delivery Orders in Support of Emergency Operations 

• Optional Life Insurance Election Opportunity for Certain Federal Civilian 

Employees 

• Expedited Hiring Authority for Defense Acquisition Positions

I would be happy to discuss further my work in implementing the Commission’s 

recommendations and about our legislative proposals. I appreciate the committee’s 

support of these legislative changes that will greatly improve expeditionary contracting and beyond. 

PERSPECTIVE

I would like to add some broader perspective to this more specific discussion of 

acquisition matters. In each of my Senate confirmed positions, I have talked with 

the previous office holders in order to try to benefit from their experiences. I believe 

there are many relevant insights in these discussions. 

First, this Nation had the chance to lead all other Nation’s on some technology 

efforts because there was available funding to pursue innovative, cutting edge 

ideas—technology push in many cases. Our current budget processes and timelines 

seriously limit our ability to pace most nation-states and offer no prospect of pacing 

aggressive terrorist organizations. 

Several of my predecessors highlighted the need for extremely capable people. In 

the past, there was robust exchange of people at all career stages between industry 

and government. Indeed, Jacques Gansler was hired from industry based on a phone 

call from Johnny Foster in search of an extremely capable electronics expert. Today, 

for a host of reasons, we have virtually eliminated the exchange of personnel between industry and government—to the detriment of the defense research, development and procurement program. DARPA is the only organization which has managed to successfully maintain a reasonable level of industry personnel rotation for 

the benefit of the DOD and the Nation. 

Indeed, after several years in government, I can tell you that it is virtually impossible to hire a mid-career industry person into the DOD. There are many, many imVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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pediments. However, I believe this detrimental situation hinders the ability of the 

defense acquisition team to be maximally effective. 

Further, Congress has enacted greater restrictions on the acquisition team members who do choose to serve in the Federal Government. I believe the latest set of 

restrictions governing post government employment will seriously discourage the 

very best and brightest from entering the defense acquisition field and serving for 

their full careers. The legislation will certainly make the wall between industry and 

government even higher. Many people in all walks of life now pursue two careers. 

The prospect of devoting years to one career of dedicated public service and then 

confronting severe restrictions on one’s ability to use those experiences in a second 

career is unfair. While the DOD has some useful opportunities to hire retired military and government personnel into acquisition positions, the Department needs 

tools to balance these options with the ability to hire industry personnel and nonmilitary personnel into entry, mid, and senior career positions to ensure the highest 

level of creativity, alternative thinking and balanced perspectives. 

Current caps on management headquarters and past focused efforts on ‘‘shoppers’’ 

have seriously harmed the defense acquisition workforce. As government employees 

lived through these times, some of the most capable personnel left the government 

for the lucrative opportunities presented by industry. As the DOD’s procurement 

and research and development budgets have grown significantly since 2001, there 

has been no linkage to the personnel process or corresponding ability to hire government personnel. Indeed, several programs which I have recently reviewed that experienced cost and schedule problems cited a shortage of program office personnel as 

one of the contributing factors. I have recently asked the AT&L team to consider 

the use of personnel plans in conjunction with new major acquisition programs. 

However, these efforts will still face the constraints of management headquarters 

caps. The situation has driven the DOD to greater use of contractor personnel, a 

solution which has several deficiencies. However, it is necessary to have trained people to manage major acquisition programs spending significant tax dollars. It is unfair to expect flawless execution without adequate manpower. 

One additional impediment to industry personnel joining the DOD is the restrictions DOD personnel face regarding participating in the stock market. The threshold for defining defense contractors is doing $25,000 of business with DOD, and this 

threshold has not been adjusted for over 35 years. This restriction prevents many 

defense personnel from participating in the stock market like the rest of America. 

The DOD has an abundance of rules and processes to prevent an honest individual 

from assisting a single company. However, the low threshold prevents DOD appointees from participating in the stock market and restricts other members of the 

acquisition team. All of these issues can be carefully and appropriately managed 

and do not require the blanket restrictions and rules which are going to discourage 

people from working for the DOD in defense acquisition. 

The DOD needs to work with Congress on appropriate changes which can help 

DOD retain a highly capable acquisition team, recruit talented individuals from all 

levels of industry, and give the acquisition team greater flexibility to deliver technology and products to protect our Nation’s security. 

CONCLUSIONS

In conclusion, I am working extensively with others in the Department and our 

industry partners to improve Defense Acquisition as outlined by the numerous initiatives I have described today. We have taken a multi-faceted approach to improve 

both our processes and our products. Our goal is to have the best equipment for the 

warfighter, while spending the taxpayer’s money wisely. The review boards and 

teams that I have instituted provide an excellent forum for integrating technology, 

and improving affordability and executability. Prototyping ensures competition and 

technological maturity. Analysis, through business case development at Milestone 

Reviews and Nunn-McCurdy reviews, creates a framework for cost/schedule/performance tradeoffs. Most importantly, our people, from the contract specialist to the 

program manager are becoming more knowledgeable and multi-functional through 

the training and professional development initiatives I have implemented. 

In summary, we work in a very dynamic environment, and as such we must constantly be balancing stability and flexibility in our requirements, resources, and reporting. I believe we have developed a solid set of checks and balances that I am 

confident will support our current acquisition posture and keep us on a path to improvement. 

I thank the committee for their time in allowing me to describe my vision for improving our acquisition system and some specific initiatives we have undertaken to 

improve program outcomes. I look forward to answering your questions.

20

Chairman LEVIN. Thank you very much, Secretary Young. 

Ms. Schinasi? 

STATEMENT OF KATHERINE V. SCHINASI, MANAGING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. SCHINASI. Thank you, Mr. Chairman, Senator Warner, and 

members of the committee, for inviting me here today to talk about 

DOD’s management of its acquisition. 

In preparing for this hearing, I looked at a statement that we 

had delivered in front of this committee a decade ago. The title of 

that statement was ‘‘Defense Acquisition: Improved Program Outcomes Are Possible.’’ I’m trying hard to hold on to that optimism 

as I come before you today. Part of the reason I think I may be 

able to is some of the things that the Under Secretary has talked 

about. 

But I’m going to start from a different place. I’m going to start 

from a position that says I believe DOD’s acquisition process has 

failed in two important ways. First, it’s failed the warfighter because it’s delivering capabilities late and in fewer quantities than 

planned, or both. Many times when equipment is delivered to the 

field, it is not what’s needed for the current operations. I think 

you’ve heard Secretary Gates’ frustration lately with the Air Force, 

who continues to produce fighter aircraft when really it’s unmanned aerial vehicles that are needed in current operations. The 

Army is spending billions of dollars that it did not plan to on legacy 

radios because its development efforts for a new radio have gotten 

so bogged down. The Navy is apt to have a net loss in its carrier 

fleet capacity, because it has been delayed in developing a new carrier beyond the point where it will have to start retiring its current 

carriers. The Marine Corps will have to wait at least 5 years to get 

half of the quantities of expeditionary vehicles that it has planned. 

The space community, after years of trying and failing to develop 

the Space-Based Infrared System-High program, is going to be left 

with a constellation of missile warning satellites that are nearing 

the end of their useful life. 

I believe the acquisition process has also failed the taxpayer, as 

continuing and significant cost overruns mean less value for the 

dollar spent. There are concerns about what is known about program costs and, Mr. Chairman, you referred to a number of those 

in your opening statement. But there also needs to be concern for 

what is not known about program costs. The change that Congress 

made in 2005 to Nunn-McCurdy is telling in that respect. In the 

3 years before the rebaselining was done in 2005, DOD reported 12 

cost breaches. In the 3 years since that change was made, DOD has 

reported 4 times as many, or 48 cost breaches. 

In addition to that, the work we have done shows that cost 

growth is not recognized in the Department until after the critical 

design review, and there are many programs that the Department 

currently has in development that have not yet reached that point. 

So there is cost growth coming that we don’t yet know about. 

In addition to the individual program cost growth, there is also 

the matter of cost growth in the modernization account as a whole. 

The Department estimates its costs over the 6-year Future Years 

21

Defense Program (FYDP). What we have seen in work that we 

have done for this committee recently, is that that period of time 

does not really give a full picture of the cost of the programs overall. In fact, it obfuscates that cost. It is always the next year, after 

the FYDP program, when we see that bow wave that we will not 

be able to continue to support. 

If you look at the period 1992 to 2007, what you see is the costs 

needed to complete DOD’s portfolio increased 120 percent, but over 

that time period the funding that was provided to do so was only 

57 percent. So that bow wave is going to continue. 

But an evaluation cannot just look at the acquisition process to 

see what’s gone wrong and what needs to be fixed. DOD actually 

knows pretty well how to buy things, which is what the acquisition 

process does. DOD’s policies are sound in that regard, some of 

those put in place because of legislation from this committee. The 

challenge is to figure out why managers and decisionmakers don’t 

do what they say they should do. 

But the evaluation must also include the proper focus on what 

to buy, because until that condition is fixed we will continue to see 

dysfunction in the acquisition process. What to buy, of course, 

starts with the requirements process. The requirements process is 

broken. Program requirements are established on wants, not needs, 

and moving from a threat-based evaluation to establish the need 

for new equipment to a capabilities-based evaluation I believe has 

only exacerbated this problem. Solutions developed by the military 

departments and approved by the military vice chiefs reflect parochial service interests, rather than current and future warfighter 

needs. 

What to buy also includes the resource allocation process and the 

resource allocation process is broken. Resource needs are almost an 

afterthought in requirements decisions. As a consequence, DOD 

has too many programs chasing too few dollars. When priorities are 

not established, the continual battle for funding that results creates damaging instability. 

What to buy increasingly relies on a defense industry that has 

shrunk to just a handful of companies. The government has increasingly turned to industry to help them find and develop almost 

unbelievably complex technical solutions, without ensuring that 

sufficient in-house capacity exists to manage contractor activities. 

The defense industry is too willing a participant in continuing business as usual. 

Finally, I need to say a word about oversight. Oversight has not 

made much of a difference. As much as I would agree with many 

of the policies that the current under secretary and his team have 

put forward, the transitory nature of leadership in the Department 

makes it almost impossible to get lasting change. Just as an example, Mr. Young is the seventh individual in the under secretary’s 

position in the 15 years that I’ve been working in this area. 

In fulfilling their own oversight role, the Members of Congress 

have their own ideas about authorizing and appropriating individual weapons programs. It’s the decisions on those individual 

programs that determine whether or not policies will work. 

Some believe that more money is the answer, but DOD has already tried spending more money. Investment in the weapons acVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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quisition programs is now at its highest level in 2 decades and the 

outcomes have only gotten worse. I have one chart that I brought 

with me today that has cost and schedule overruns, and you only 

need to look at that to see the discouraging detail. 

Chairman LEVIN. Do we have copies of that chart in your testimony? 

Ms. SCHINASI. Yes, I believe you do, yes. 

What we have to do is redefine success. Success should be defined as producing needed equipment that can be delivered to the 

warfighter as promised, and at a predictable cost that the country 

can afford. The goal of any changes as we go forward should be to 

create a system in which this is the natural outcome. 

The perverse incentives now contained in the requirements, 

funding, acquisition, and oversight processes are there because success is currently defined as attracting funding and the way to attract funding is to get a program started. The system that has arisen as a consequence is one in which all participants get just 

enough so as to maintain the status quo—the military departments, the Office of the Secretary, defense companies, the press, 

Congressional sponsors, and even the auditors—who have lifetime 

employment. Negative consequences now accrue only to the 

warfighter and to the taxpayer, who don’t really participate in the 

process. 

We have to find a way to establish consequences. Another way 

of saying that is that we have to create a system in which we can 

assign accountability and then make it stick. Advocates in the system must be recognized for what they are. Their individual needs 

must be explicitly balanced in the context of constrained resources, 

and as a check independence must exist in key functions. 

In some cases, changes to DOD organizations or the authority of 

DOD officials may need to be made. Congress can help by reinforcing sound Department policies with laws, and by providing or 

withholding funding as necessary. 

As I said when I started, I’m trying to hold on to the optimism 

contained in our statement from a decade ago. But we have to start 

thinking in terms of the opportunity costs that we’re facing. 

Mr. Chairman, you made the point in your opening statement 

that the $295 billion that was not planned that we are now spending on weapons programs could be used for so many other things. 

They say that if you do what you’ve always done you’ll get what 

you’ve always gotten. I hope the witness appearing before you 10 

years from now will have a different and better story to tell. 

Thank you for your continued leadership in these matters and I 

look forward to your questions. 

[The prepared statement of Ms. Schinasi follows:]

PREPARED STATEMENT BY KATHERINE V. SCHINASI

Mr. Chairman and members of the committee: I am pleased to be here today to 

discuss the Department of Defense’s (DOD) management of its major weapon system acquisitions—an area that has been on the Government Accountability Office’s 

(GAO) high risk list since 1990. Prior to and since that time, Congress and DOD 

have continually explored ways to improve acquisition outcomes without much to 

show for their efforts. DOD’s major weapon system programs continue to take 

longer, cost more, and deliver fewer quantities and capabilities than originally 

planned. Current operational demands have highlighted the impact of these perVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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sistent problems as DOD has been forced to work outside of its traditional acquisition process to acquire equipment that meet warfighter needs. 

Investment in weapons acquisition programs is now at its highest level in two 

decades. The department expects to invest about $900 billion (fiscal year 2008 dollars) over the next 5 years on development and procurement with more than $335 

billion invested specifically in major defense acquisition programs. Given the size of 

this investment, poor outcomes in DOD’s weapon system programs reverberate 

across the entire Federal government. Every dollar wasted during the development 

and acquisition of weapon systems is money not available for other internal and external budget priorities—such as the war on terror and mandatory payments to 

growing entitlement programs. 

My statement today is drawn from our body of work on DOD’s acquisition, requirements, and funding processes, as well as our annual assessment of selected 

DOD weapon programs. As you requested, I will focus on (1) the performance of 

DOD’s major defense acquisition program portfolio; (2) the underlying systemic 

problems that contribute to poor cost and schedule outcomes; (3) recent legislative 

initiatives and DOD actions aimed at addressing these problems; and (4) the extent 

to which those initiatives and actions can be expected to improve the future performance of DOD’s major defense acquisition programs. Our work was conducted in 

May 2008 in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 

SUMMARY

Since fiscal year 2000, DOD significantly increased the number of major defense 

acquisition programs and its overall investment in them. During this same time period, acquisition outcomes have not improved. Based on our analysis, total acquisition costs for the fiscal year 2007 portfolio of major defense acquisition programs 

increased 26 percent and development costs increased by 40 percent from first estimates—both of which are higher than the corresponding increases in DOD’s fiscal 

year 2000 portfolio. In most cases, the programs we assessed failed to deliver capabilities when promised—often forcing warfighters to spend additional funds on 

maintaining legacy systems. Our analysis shows that current programs are experiencing, on average, a 21-month delay in delivering initial capabilities to the 

warfighter, a 5-month increase over fiscal year 2000 programs. 

Several underlying systemic problems at the strategic level and at the program 

level continue to contribute to poor weapon system program outcomes. At the strategic level, DOD does not prioritize weapon system investments and the department’s processes for matching warfighter needs with resources are fragmented and 

broken. Furthermore, the requirements and acquisition processes are not agile 

enough to support programs that can meet current operational requirements. At the 

program level, programs are started without knowing what resources will truly be 

needed and are managed with lower levels of product knowledge at critical junctures 

than expected under best practices standards. In the absence of such knowledge, 

managers rely heavily on assumptions about system requirements, technology, and 

design maturity, which are consistently too optimistic. This exposes programs to significant and unnecessary technology, design, and production risks, and ultimately 

damaging cost growth and schedule delays. DOD officials are rarely held accountable for these poor outcomes and the acquisition environment does not provide the 

appropriate incentives for contractors to stay within cost and schedule targets, making them a strong enabler of the status quo. 

Recent congressionally mandated changes to the DOD acquisition system, as well 

as initiatives being pursued by the department, include elements that could improve 

DOD’s overall investment strategy and the soundness of the programs it allows to 

move forward. However, it is still too early to determine the impact those changes 

have had on programs. Recognizing the need for more discipline and accountability 

in the acquisition process, Congress enacted legislation that requires decision-makers to certify that programs meet specific criteria at key decision points early in the 

acquisition process, and are measured against their original baseline estimates for 

the purpose of assessing and reporting unit cost growth. 

Recent legislation also requires DOD to report on its strategies for balancing the 

allocation of funds and other resources among major defense acquisition programs 

and to identify strategies for enhancing the role of program managers in carrying 

out acquisition programs. DOD has begun several policy initiatives including a new 

concept decision review initiative, acquisition approaches with shorter and more cerVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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1Our analysis in this area reflects comparisons of performance for programs meeting DOD’s 

criteria for being a major defense acquisition program in fiscal year 2007 and programs meeting 

the same criteria in fiscal years 2005 and 2000. The analysis does not include all the same systems in all 3 years. 

tain delivery timeframes, a requirement for more prototyping early in programs, 

and the establishment of review boards to monitor weapon system configuration 

changes, which are designed to enable key department leaders to make informed decisions before a program starts and maintain discipline once it begins. 

While legislation and policy revisions can help guide change, DOD must begin 

making better choices that reflect joint capability needs and match requirements 

with resources or the department will continue to experience poor acquisition outcomes. DOD and the military Services cannot continue to view success through the 

prism of securing the funding needed to start and sustain new programs. Sound programs should be the natural outgrowth of a disciplined knowledge-based process. 

DOD’s policy emphasizes the importance of a knowledge-based approach, but practice does not always follow policy. The transitory nature of leadership and the 

stovepiped process further undermines successful reform. Meaningful and lasting reform will not be achieved until the right incentives are established and accountability is bolstered at all levels of the acquisition process—both within the department and in the defense industry. Finally, unless all of the players involved with 

acquisitions—Congress, DOD, and perhaps most importantly, the military Services—have unified goals, outcomes are not likely to improve. 

DOD HAS TOO MANY ACQUISITION PROGRAMS COMPETING FOR LIMITED RESOURCES, 

WHILE PROGRAM COSTS AND SCHEDULES CONTINUE TO INCREASE

DOD’s portfolio of major acquisition programs has grown at a pace that far exceeds available resources. From 1992 to 2007, the estimated acquisition costs needed 

to complete the major acquisition programs in DOD’s portfolio increased almost 120 

percent, while the funding provided for these programs only increased 57 percent, 

creating a fiscal bow wave that may be unsustainable (see fig. 1). 

The total acquisition cost of DOD’s 2007 portfolio of major programs under development or in production has grown by nearly $300 billion over initial estimates. 

While DOD is committing substantially more investment dollars to develop and procure new weapon systems, our analysis shows that the 2007 portfolio is experiencing 

greater cost growth and schedule delays than the fiscal years 2000 and 2005 portfolios (see table 1).1 For example, total acquisition costs for programs in DOD’s fiscal 

year 2007 portfolio have increased 26 percent from first estimates—compared to a 

6-percent increase for programs in its fiscal year 2000 portfolio. We found a similar 

trend for total RDT&E costs and unit costs. 


603ful1.eps
25

Continued cost growth results in less funding being available for other DOD priorities and programs, while continued failure to deliver weapon systems on time 

delays providing critical capabilities to the warfighter. Put simply, cost growth reduces DOD’s buying power. As program costs increase, DOD must request more 

funding to cover the overruns, make trade-offs with existing programs, delay the 

start of new programs, or take funds from other accounts. Delays in providing capabilities to the warfighter result in the need to operate costly legacy systems longer 

than expected, find alternatives to fill capability gaps, or go without the capability. 

The warfighter’s urgent need for the new weapon system is often cited when the 

case is first made for developing and producing the system. However, DOD has already missed fielding dates for many programs and many others are behind schedule. On average, the current portfolio of programs has experienced a 21-month delay 

in delivering initial operational capability to the warfighter, and 14 percent are 

more than 4 years late. 

FRAGMENTED PROCESSES, UNEXECUTABLE BUSINESS CASES, AND LIMITED

ACCOUNTABILITY UNDERLIE POOR ACQUISITION OUTCOMES

Poor program execution contributes to and flows from shortfalls in DOD’s requirements and resource allocation processes. Over the past several years our work has 

highlighted a number of underlying systemic causes for cost growth and schedule 

delays both at the strategic and at the program level. At the strategic level, DOD’s 

processes for identifying warfighter needs, allocating resources, and developing and 

procuring weapon systems—which together define DOD’s overall weapon system investment strategy—are fragmented and broken. At the program level, the military 

Services propose and DOD approves programs without adequate knowledge about 

requirements and the resources needed to successfully execute the program within 

cost, schedule, and performance targets. In addition, DOD officials are rarely held 

accountable for poor decisions or poor program outcomes. 

Key Acquisition Support Processes Are Fragmented and Result in Unsound Programs 

DOD largely continues to define warfighting needs and make investment decisions 

on a service-by-service basis, and assess these requirements and their funding implications under separate decisionmaking processes. While DOD’s requirements process provides a framework for reviewing and validating needs, it does not adequately 

prioritize those needs and is not agile enough to meet changing warfighter demands. 

A senior Army acquisition official recently testified before Congress that because the 

process can take more than a year, it is not suitable for meeting urgent needs related to ongoing operations; and a recent study by the Center for Strategic and 

International Studies indicates that the process is unwieldy and officials are now 

trying to find ways to work around it. Ultimately, the process produces more demand for new programs than available resources can support. This imbalance promotes an unhealthy competition for funds that encourages programs to pursue overly ambitious capabilities, develop unrealistically low cost estimates and optimistic 


603ful2.eps
26

schedules, and to suppress bad news. Similarly, DOD’s funding process does not 

produce an accurate picture of the department’s future resource needs for individual 

programs—in large part because it allows programs to go forward with unreliable 

cost estimates and lengthy development cycles—not a sound basis for allocating resources and ensuring program stability. Invariably, DOD and Congress end up continually shifting funds to and from programs—undermining well-performing programs to pay for poorly performing ones. 

Initiating Programs with Unexecutable Business Cases Sets Them Up to Fail 

At the program level, the key cause of poor outcomes is the consistent lack of disciplined analysis that would provide an understanding of what it would take to field 

a weapon system before system development. Our body of work in best practices has 

found that an executable business case is one that provides demonstrated evidence 

that: (1) the identified needs are real and necessary and that they can best be met 

with the chosen concept and (2) the chosen concept can be developed and produced 

within existing resources—including technologies, funding, time, and management 

capacity. Although DOD has taken steps to revise its acquisition policies and guidance to reflect the benefits of a knowledge-based approach, we have found no evidence of widespread adoption of such an approach in the department. Our most recent assessment of major weapon systems found that the vast majority of programs 

began development with unexecutable business cases, and did not attain, or plan 

to achieve, adequate levels of knowledge before reaching design review and production start—the two key junctures in the process following development start (see figure 2). 

Knowledge gaps are largely the result of a lack of disciplined systems engineering 

analysis prior to beginning system development. Systems engineering translates 

customer needs into specific product requirements for which requisite technological, 

software, engineering, and production capabilities can be identified through requirements analysis, design, and testing. Early systems engineering provides knowledge 

that enables a developer to identify and resolve gaps before product development begins. Because the government often does not perform the proper upfront analysis 

to determine whether its needs can be met, significant contract cost increases can 

occur as the scope of the requirements change or become better understood by the 

government and contractor. Not only does DOD not typically conduct disciplined 

systems engineering prior to beginning system development, it has allowed new requirements to be added well into the acquisition cycle. The acquisition environment 

encourages launching ambitious product developments that embody more technical 

unknowns and less knowledge about the performance and production risks they entail. A new weapon system is not likely to be approved unless it promises the best 


603ful3.eps
27

2GAO, Best Practices: Increased Focus on Requirements and Oversight Needed to Improve 

DOD’s Acquisition Environment and Weapon System Quality, GAO–08–294 (Washington, DC: 

Feb. 1, 2008). 

capability and appears affordable within forecasted available funding levels. We 

have recently reported on the negative impact that poor systems engineering practices have had on several programs such as the Global Hawk Unmanned Aircraft 

System, F–22A, Expeditionary Fighting Vehicle, Joint Air-to-Surface Standoff Missile and others.2

With high levels of uncertainty about technologies, design, and requirements, program cost estimates and related funding needs are often understated, effectively setting programs up for failure. We recently assessed the service and independent cost 

estimates for 20 major weapon system programs and found that the independent estimate was higher in nearly every case, but the difference between the estimates 

was typically not significant. We also found that both estimates were too low in 

most cases, and the knowledge needed to develop realistic cost estimates was often 

lacking. For example, program Cost Analysis Requirements Description documents—used to build the program cost estimate—are not typically based on demonstrated knowledge and therefore provide a shaky foundation for estimating costs. 

Cost estimates have proven to be off by billions of dollars in some of the programs 

we reviewed. For example, the initial Cost Analysis Improvement Group estimate 

for the Expeditionary Fighting Vehicle program was about $1.4 billion compared to 

a service estimate of about $1.1 billion, but development costs for the system are 

now expected to be close to $3.6 billion. Estimates this far off the mark do not provide the necessary foundation for sufficient funding commitments and realistic longterm planning. 

Constraining development cycles would make it easier to more accurately estimate costs, and as a result, predict the future funding needs and effectively allocate 

resources. We have consistently emphasized the need for DOD’s weapon programs 

to establish shorter development cycles. DOD’s conventional acquisition process 

often requires as many as 10 or 15 years to get from program start to production. 

Such lengthy cycle times promote program funding instability—especially when considering DOD’s tendency to change requirements and funding as well as frequent 

changes in leadership. Constraining cycle times to 5 or 6 years would force programs to conduct more detailed systems engineering analyses, lend itself to fully 

funding programs to completion, and thereby increase the likelihood that their requirements can be met within established timeframes and available resources. An 

assessment of DOD’s acquisition system commissioned by the Deputy Secretary of 

Defense in 2006 similarly found that programs should be time-constrained to reduce 

pressure on investment accounts and increase funding stability for all programs. 

Accountability Suffers When Program Managers Lack the Authority to Shape Programs 

When DOD consistently allows unsound, unexecutable programs to pass through 

the requirements, funding, and acquisition processes, accountability suffers. Program managers cannot be held accountable when the programs they are handed already have a low probability of success. In addition, program managers are not empowered to make go or no-go decisions, have little control over funding, cannot veto 

new requirements, and have little authority over staffing. At the same time, program managers frequently change during a program’s development. Our analysis indicates that the average tenure for managers on 39 major acquisition programs 

started since March 2001 was about 17 months—less than half the length of the 

average system development cycle time of 37 months. Such frequent turnover makes 

it difficult to hold program managers accountable for the business cases that they 

are entrusted to manage and deliver. 

The government’s control over and accountability for decisions is complicated by 

DOD’s growing reliance on technical, business, and procurement expertise supplied 

by contractors. This reliance can reach a point where the foundation on which decisions are based may be largely crafted by individuals who are not employed by the 

government, who are not bound by the same rules governing their conduct, and who 

are not required to disclose whether they have financial or other personal interests 

that conflict with the responsibilities they have performing contract tasks for DOD. 

Further, in systems development, DOD typically uses cost-reimbursement contracts, 

in which DOD generally pays the allowable costs incurred for the contractor’s best 

efforts, to the extent provided by the contract. This may contribute to an acquisition 

environment that is not conducive for incentivizing contractors to follow best practices and keep cost and schedule in check. 

28

RECENT CONGRESSIONAL INITIATIVES AND DOD ACTIONS AIM TO PROMOTE A MORE

DISCIPLINED, KNOWLEDGE-BASED ACQUISITION APPROACH

Recognizing the need for more discipline and accountability in the acquisition 

process, Congress recently enacted legislation that, if followed, could result in a better chance to spend resources wisely. Likewise, DOD has recently begun to develop 

several initiatives, based in part on congressional direction and GAO recommendations that, if implemented properly, could also provide a foundation for establishing 

a well balanced investment strategy and sound, knowledge-based business cases for 

individual acquisition programs. 

Legislation Could Have a Positive Impact on Acquisition Outcomes 

Over the past 3 years, Congress has enacted legislation that requires DOD to take 

certain actions which, if followed, could instill more discipline into the front-end of 

the acquisition process when key knowledge is gained and ultimately improve acquisition outcomes. For example, 2006 and 2008 legislation require decisionmakers to 

certify that specific levels of knowledge have been demonstrated at key decision 

points early in the acquisition process before programs can enter the technology development phase or the system development phase. The 2006 legislation also requires programs to use their original baseline estimates—and not only their most 

recent estimates—when reporting unit cost threshold breaches. It also requires an 

additional assessment of the program if certain thresholds are reached. Other key 

legislation requires DOD to report on the department’s strategies for balancing the 

allocation of funds and other resources among major defense acquisition programs, 

and to identify strategies for enhancing the role of program managers in carrying 

out acquisition programs. (For more detailed description of recent legislation, see 

appendix I). 

Recent DOD Actions Provide Opportunities for Improvement 

DOD has initiated actions aimed at improving investment decisions and weapon 

system acquisition outcomes, based in part on congressional direction and GAO recommendations. Each of the initiatives is designed to enable more informed decisions 

by key department leaders well ahead of a program’s start, decisions that provide 

a closer match between each program’s requirements and the department’s resources. For example:

• DOD is experimenting with a new concept decision review, different acquisition approaches according to expected fielding times, and panels to review weapon system configuration changes that could adversely affect program cost and schedule. 

• DOD is also testing portfolio management approaches in selected capability areas to facilitate more strategic choices about how to allocate resources across programs and also testing the use of capital budgeting as a 

potential means to stabilize program funding. 

• In September 2007, the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics issued a policy memorandum to ensure 

weapons acquisition programs were able to demonstrate key knowledge elements that could inform future development and budget decisions. This policy directed pending and future programs to include acquisition strategies 

and funding that provide for contractors to develop technically mature prototypes prior to initiating system development, with the hope of reducing 

technical risk, validating designs and cost estimates, evaluating manufacturing processes, and refining requirements. 

• DOD also plans to implement new practices that reflect past GAO recommendations intended to provide program managers more incentives, support, and stability. The department acknowledges that any actions taken to 

improve accountability must be based on a foundation whereby program 

managers can launch and manage programs toward greater performance, 

rather than focusing on maintaining support and funding for individual 

programs. DOD acquisition leaders have told us that any improvements to 

program managers’ performance hinge on the success of these departmental 

initiatives. 

• In addition, DOD has taken actions to strengthen the link between award 

and incentive fees with desired program outcomes, which has the potential 

to increase the accountability of DOD programs for fees paid and of contractors for results achieved. 

If adopted and implemented properly these actions could provide a foundation for establishing sound, knowledge-based business cases for indiVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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vidual acquisition programs, and the means for executing those programs 

within established cost, schedule, and performance goals. 

CONCLUDING OBSERVATIONS ON ACHIEVING SUCCESSFUL AND LASTING REFORM

DOD understands what it needs to do at the strategic and at the program level 

to improve acquisition outcomes. The strategic vision of the current Under Secretary 

of Defense for Acquisition, Technology, and Logistics acknowledges the need to create a high-performing, boundary-less organization—one that seeks out new ideas 

and new ways of doing business and is prepared to question requirements and traditional processes. Past efforts have had similar goals, yet we continue to find all too 

often that DOD’s investment decisions are service- and program-centric and that the 

military Services overpromise capabilities and underestimate costs to capture the 

funding needed to start and sustain development programs. This acquisition environment has been characterized in many different ways. For example, some have 

described it as a ‘‘conspiracy of hope,’’ in which industry is encouraged to propose 

unrealistic cost estimates, optimistic performance, and understated technical risks 

during the proposal process and DOD is encouraged to accept these proposals as the 

foundation for new programs. Either way, it is clear that DOD’s implied definition 

of success is to attract funds for new programs and to keep funds for ongoing programs, no matter what the impact. DOD and the military Services cannot continue 

to view success through this prism. Adding pressure to this environment are 

changes that have occurred within the defense supplier base. In 2006, a DOD-commissioned study found that the number of fully competent prime contractors competing for programs had been reduced from more than 20 in 1985 to only 6. This 

limits DOD’s ability to maximize competition to reduce costs and encourage innovation. 

More legislation can be enacted and policies can be written, but until DOD begins 

making better choices that reflect joint capability needs and matches requirements 

with resources, the acquisition environment will continue to produce poor outcomes. 

It should not be necessary to take extraordinary steps to ensure needed capabilities 

are delivered to the warfighter on time and within costs. Executable programs 

should be the natural outgrowth of a disciplined, knowledge-based process. While 

DOD’s current policy supports a knowledge-based, evolutionary approach to acquiring new weapons, in practice decisions made on individual programs often sacrifice 

knowledge and realism in favor of revolutionary solutions. Meaningful and lasting 

reform will not be achieved until DOD changes the acquisition environment and the 

incentives that drive the behavior of DOD decisionmakers, the military Services, 

program managers, and the defense industry. Finally, no real reform can be 

achieved without a true partnership among all these players and Congress. 

Mr. Chairman, this concludes my prepared statement. I would be happy to answer 

any questions you may have at this time. 

CONTACTS AND STAFF ACKNOWLEDGMENTS

For further information about this statement, please contact Katherine V. 

Schinasi at (202) 512–4841 or schinasik@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this 

testimony. Individuals who made key contributions to this statement include Michael J. Sullivan, Director; Ronald E. Schwenn, Assistant Director; Megan Hill; 

Travis J. Masters; Karen Sloan; and Alyssa B. Weir. 

30


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Chairman LEVIN. Thank you so much and thanks for the work 

of the GAO in this area. We’re also hopeful that the story will improve instead of getting worse over the years. Even though our efforts and your efforts and Secretary Young’s efforts have not been 

successful in correcting these problems yet, to the extent at least 

that we want them to be corrected, and they’ve gotten worse in 

many instances, we just have to keep plugging away at it. It’s our 

responsibility and it’s, I hope, a responsibility which DOD accepts 

and feels. 

Secretary Young, the GAO reported in March 2006 that DOD 

was paying hundreds of millions of dollars of award and incentive 

fees to contractors without regard to acquisition outcomes. The 

GAO found that most contractors were paid 90 percent or more of 

available award and incentive fees even when they failed to meet 

basic cost, schedule, and performance requirements. 


603ful7.eps
34

We responded by enacting a provision in the NDAA for Fiscal 

Year 2007 which requires DOD to tighten up requirements for 

award and incentive fees and tie those fees more closely to acquisition outcomes and contractor performance. Is the provision that we 

enacted in the NDAA for Fiscal Year 2007 having any effect on the 

Department’s behavior and do you believe that this provision succeeds in tying contractor profits to acquisition outcomes, or is further action needed? 

Mr. YOUNG. Mr. Chairman, there are so many things I want to 

tell you today. I want to try to be efficient. I believe the provision 

is helpful. As the Navy acquisition executive, I issued three memos 

on the use of profit and incentive fees. As the Defense Acquisition 

Executive, I am constantly pushing to tie fees to objective criteria 

that are on the critical path of a program so that we pay taxpayer 

dollars for results. I am against the subjective award of fees based 

on a bunch of viewgraphs and other such things. I have consistently turned down or pushed down on base fees that are basically 

awarded for people coming to work. It takes your efforts and my 

efforts to constantly change the culture to more objective awards 

of fees. 

Chairman LEVIN. You mentioned, Mr. Secretary, that some of the 

problems in our acquisition system can be attributed to a workforce 

that has been cut over the last 15 years. We addressed that, or attempted to address that problem by establishing an acquisition 

workforce development fund to provide the resources needed to 

begin rebuilding DOD’s core of acquisition professionals. Section 

852 of the NDAA for Fiscal Year 2008 provided $300 million to be 

transferred to the fund this fiscal year, starting no later than August 1. 

Has the Comptroller supported that change? 

Mr. YOUNG. We are working with the Comptroller to transfer 

those funds. We’re working on a fairly thorough plan to execute 

that program. The one thing I would add to that is that I think 

there are hurdles we have to work our way through. The personnel 

system is one of the most dysfunctional systems in the government. 

You could have money, but not billets. You could have billets, but 

not money. Then the hiring process is excruciatingly long. All of 

these have not contributed to people with the right talents wanting 

to come to work for the government. 

Chairman LEVIN. The $300 million, though, to put additional 

people there has not yet been transferred? 

Mr. YOUNG. No, sir. 

Chairman LEVIN. Will it be transferred no later than August 1? 

Mr. YOUNG. It is my expectation. The Comptroller understands 

that we have a plan to execute to that, and they are working with 

us. 

Chairman LEVIN. If it’s not going to be transferred, will you let 

this committee know? 

Mr. YOUNG. Yes. 

Chairman LEVIN. Unrealistic cost and schedule estimates have 

been really at the heart of this problem. DOD’s own acquisition 

performance assessment panel concluded in 2006 that using optimistic budget estimates forces excessive annual reprogramming 

and budget exercises within the Department, which in turn causes 

35

program restructuring that drives up long-term costs, causes schedule growth, and opens the door to requirements creep. 

By the way, before I ask the question on this, let’s have an 8-

minute round for our first round of questions, so our staff can alert 

me when I’ve hit 8 minutes. 

I want to talk about these optimistic and unrealistic cost and 

scheduling estimates that are almost always based on information 

that comes from contractors, who have a conflict of interest obviously. Now, let me ask you this, Ms. Schinasi; what is your view 

of my suggestion that we establish a new director of independent 

cost assessment in the DOD, with authorities and responsibilities 

comparable to those of the DOT&E, so that we can attempt to ensure that the information on which we base program and budget 

decisions is objective and reliable? 

Ms. SCHINASI. Clearly that is something that is needed. In our 

work we have found that neither the program office cost estimates 

nor the independent cost estimates that are currently developed by 

the Cost Analysis Improvement Group (CAIG) come anywhere close 

to what the real costs of the program would be. An independent 

look at that, if the individual also has the ability to set policies that 

say we need to have cost estimates that actually are informed by 

knowledge, I think would help to ameliorate the situation that 

you’ve described. 

Chairman LEVIN. That knowledge has to be objective information. 

Ms. SCHINASI. It does, and most of it has to do, frankly, with 

technologies. What we see is that we promise new programs based 

on technologies, which oftentimes come from industry, and we don’t 

really understand what it will take to bring those technologies to 

the field. So cost estimates based on those immature technologies 

are not going to be very reliable. 

Chairman LEVIN. We’re going to bring an amendment to establish this new director to the floor and your testimony is very helpful in that regard. 

Does DOD have a position yet on this, Secretary Young? 

Mr. YOUNG. I wouldn’t say we have a position on this, but I 

would like to comment if I could. 

Chairman LEVIN. Sure. 

Mr. YOUNG. Contractors don’t build the defense budget. It starts 

with programmers. I labored in the Navy as programmers programmed an 18,000-ton DDX destroyer to cost about 15 percent 

more than a 9,000-ton DDG destroyer. The program manager 

should have never accepted that as his challenge, and across the 

board I need to get my acquisition team not to accept it. 

In my ADMs, as I mentioned, I am directing the use of independent cost estimates, and I give the greatest weight to the 

CAIG’s Director, who does do that independent cost estimate for 

the Department at every milestone, at Milestone B. 

Chairman LEVIN. Would you take a look at the language which 

we’re going to submit to you? We’ve obviously not succeeded, despite efforts, good faith efforts, of people like yourself. It’s a history 

of failure to keep these costs under control, and we have to find 

ways and keep looking for ways that we can do better. We know 

what the problems are. We’ve not solved these problems. We’ve had 

36

these huge excessive costs, way above what were projected. We 

have the responsibility of trying to rein them in, and we’re going 

to continue to see if we can’t do that through various methods. 

If you would take a look at this particular recommendation for 

a new director of independent cost assessment in the Department, 

in the next week or 2, we’d appreciate it because we’re hopeful our 

bill will come to the floor in a couple of weeks. 

Three years ago, we attempted to address the problem of immature technologies by requiring senior officials to certify that critical 

technologies have reached the required maturity level before giving 

the so-called Milestone B approval. I think you’ve made reference 

to that already this morning, Secretary Young. 

I’d like to ask Ms. Schinasi, though, as to whether or not in her 

judgment the new technological maturity requirement has been effectively implemented and enforced? Have you gotten into that 

issue? 

Ms. SCHINASI. We haven’t looked specifically at the total programs that have gone through that process. I am aware of some in 

which the DDR&E has turned back technology readiness assessments that were submitted by the programs because they were not 

ready, but there are others that have gone through even though 

the technology readiness assessments did not show that the technologies were sufficiently mature. So anecdotally I would say that 

it’s been a mixed experience. 

Chairman LEVIN. Did you want to comment on that, Secretary 

Young? 

Mr. YOUNG. I do, sir. I’d like to know which ones haven’t gone 

through. We’ll go back and find that out. I had one particular program recently, a major program, $1 billion, Net Enabled Command 

Capability, where there was a difference of opinion between 

DDR&E and the program about technology readiness. I refused the 

Milestone B. 

The Department does have needs, though, that have to go forward. I granted a Milestone A to go do prototypical work on that 

program, improve their process, to mature their technology, let 

DDR&E review that, the readiness of the technology. They’ll come 

back to me later for a Milestone B. So I am not seeking to grant 

Milestone approvals. There are certain programs that have unique 

features, like shipbuilding programs, where a radar may not be 

today at Milestone B appropriately technology mature, but the radar’s not needed for 2 or 3 years down the road for ship construction and delivery and they have a valid path to get to that appropriate technology maturity. 

But in general, consistent with law, we are not approving programs without that technology maturity. We need to give this process a chance to prove that it’s leading to better management of acquisition programs. 

Chairman LEVIN. Ms. Schinasi, would you after this hearing is 

over get together with the Secretary and give him the items that 

you made reference to? 

Ms. SCHINASI. Yes. 

Chairman LEVIN. Thank you. 

Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. 

37

Perhaps no program in contemporary history here is of greater 

importance to the United States, not only from the standpoint of 

its own need for inventory of a weapon system, but some eight or 

nine other nations that are looking to the U.S. to build it, and 

that’s the JSF. Coincidentally, we’re greeted this morning with a 

press report which reads as follows: ‘‘Lockheed Martin Corp. system for tracking costs and schedules has generated useless or suspect data on the F–35 JSF ever since the program started in 2001.’’ 

Mr. Young, I think perhaps you should first address that issue. 

This rattles all across the world. 

Mr. YOUNG. Yes, sir. 

Senator WARNER. We’ve spent a great deal of time on it here in 

this committee. How did this happen? 

Mr. YOUNG. Mr. Chairman, I’ve looked into the details, some 

level of the details of this. I think the goodness is that the Defense 

Contract Management Agency (DCMA)——

Senator WARNER. What is? 

Mr. YOUNG. The DCMA. 

Senator WARNER. No, you said ‘‘the goodness’’? I didn’t get that. 

Chairman LEVIN. You said ‘‘good news’’ or ‘‘goodness’’? 

Mr. YOUNG. The goodness is that the DCMA did an audit and 

discovered this issue. I want to make clear there are two aspects 

of this. The DCMA did not address the billing system, where valid 

bills and invoices are turned in and the government pays them. 

There is not a discrepancy in the billing process. 

The discrepancy is taking that billing process and loading it into 

an earned value management system (EVMS) that lets us see our 

performance and predict our progress going forward, which is what 

I think you saw in the report. It says that the EVMS does not provide a confident basis for projecting future performance of the program. 

Within that, Jim Finley, the Deputy Under Secretary, has met 

with Lockheed and DCMA. They’ve outlined a corrective action 

plan for the next 12 months. DCMA meets with them every 2 

weeks. Lockheed’s agreed to the corrective action plan. Furthermore, there are Milestones, 12 Milestones. The first one’s been met. 

At each of those Milestones, if Lockheed does not meet the corrective action plan we will withhold $10 million in payments from the 

corporation. 

So we are working to rectify this situation. It does need to be corrected, you are right. 

Senator WARNER. Ms. Schinasi, do you have some views on this? 

Ms. SCHINASI. Yes, Senator. We found in the most recent work 

we’ve done on the JSF, and we issued that report earlier this 

spring, that the cost estimate was unreliable and we recommended 

that another cost estimate be prepared. 

Senator WARNER. I hope both of you recognize the two-fold problem here, and that is, the essential need for this aircraft in inventories for purposes of our defense structure; and also, it’s the image 

of the United States, being the principal manager of a major program, and a lot of trust and confidence of other nations was given 

to the United States to run it right. 

Do we know why, at this late date in the program, we’re discovering this deficiency? 

38

Mr. YOUNG. I’d like to come back to you on the record as to 

whether previous audits didn’t uncover this. But the audits in general have focused on the billing system, where again we have paid 

properly for the work that’s been performed. The changes—the 

loading of that information into the EVMS, Lockheed made 

changes in that. They should not have and it undermined our confidence of projecting our current and future performance. We’re 

going to go fix that for exactly the reasons you said, sir. We have 

to have confidence in this aircraft. 

[The information referred to follows:]

There were no audits of Lockheed Martin Aero’s (then General Dynamics) system 

since the initial validation in 1980. In 1991, General Dynamics’ Fort Worth, TX, 

Cost Schedule Control System was called into question with the findings of the A–

12 Program cancellation. Subsequently in 1995, the Department switched to an industry-based Earned Value Management System (EVMS), which placed more reliance on industry for enforcement. However, based on the results of several audits, 

it was determined in 2004 that industry’s stewardship of EVMS has been inadequate. Since that time, the Department’s response has been to create a robust, government-monitored earned value management compliance regime, which has been 

effective in identifying issues across industry. 

Senator WARNER. Is our program manager accountable for this? 

Mr. YOUNG. Yes, the program manager is accountable for it. 

Senator WARNER. Well, that’s clear. I hope that you address that 

properly. 

Do you have any views on why it took so long to catch it, Ms. 

Schinasi? 

Ms. SCHINASI. Senator, I believe that the cost growth in the program has been in place from the very beginning. This most recent 

review of the contractor’s systems is new, but the program, the JSF 

program, has had many of the same problems that we’ve seen in 

other programs. The original justification was that this would be 

a plane that would be very low cost to operate, which was a great 

idea when it was conceived. But the technologies required to get 

those low operations and maintenance costs were not mature, and 

I think the program has gone forward without getting the knowledge that it needed to understand what the true costs would be. 

So many of these cost overruns could have been predicted earlier 

on. 

Senator WARNER. Mr. Chairman, I think we should invite Lockheed to review this record and provide for the committee its perspective on this issue. 

Mr. YOUNG. Mr. Chairman. 

Senator WARNER. Yes? 

Mr. YOUNG. Can I comment on this for a moment? There are 

definitely some accuracies in what Ms. Schinasi said. Every program has unique details that we need to look at. We’re applying 

a bumper sticker of cost growth to everything and we need to look 

at it. Here’s one example where I believe the requirements have 

been well managed on JSF. We have a CSB. The JSF was 

prototyped early on. 

My frustration is we did not prototype the right things in JSF. 

So when we went into system design and development, we found 

the short take-off, vertical landing (STOVL) variant, the variant for 

the Marine Corps, was heavy. We had to take an extra 18 months 

39

to get the weight out of that program. That 18 months cost us 

about $7 billion. 

So we can explain how we got from there to here. Now, I have 

reported and have testified that we have some additional cost 

growth on JSF. I can couple that directly to the fact that over the 

last 5 years DOD and Congress have taken over $1 billion out of 

the program. If you have a reasonably well managed and planned 

program and you take $1 billion out, it probably shouldn’t be a surprise that you need that billion dollars with some premium back. 

So there were people who bet that the STOVL variant would not 

fly this year. The good news side of this is that variant probably 

is going to fly this week or next week. The software is largely done 

for the first deliverable aircraft. So I would appeal that we look at 

the details of some of these things and learn the right lessons going 

forward. 

Senator WARNER. Just out of curiosity, Mr. Young, you’re well 

known to this committee and to Congress. You’ve performed your 

services here in Congress very ably and we were all extremely 

pleased you took this position. Ms. Schinasi, I presume you’ve had 

an equally distinguished career. Do you ever get together before 

you come here in Congress and square off on each other and try 

and avoid some of these hearings? 

Mr. YOUNG. Actually, I would say there’s a good bit of common 

ground between us. We haven’t personally done it, but members of 

my team have worked closely with GAO to understand the $295 

billion overrun and agreed to work more closely going forward. So 

we are doing what you suggest. 

Senator WARNER. I would hope that you would share views and 

viewpoints without having to write up all these reports and come 

in to Congress and sort of set it out. That’s the way government 

should work. You are the GAO and he’s government also. 

Ms. SCHINASI. Yes, sir, and we try very hard when we make recommendations in our individual reports to make sure that we consult with DOD, because if we put something out that’s not doable 

that doesn’t help anyone. 

Senator WARNER. Let’s touch on just the prototyping, Mr. Secretary. When it comes to ships, you simply can’t prototype an entire ship. 

Mr. YOUNG. Yes, sir. 

Senator WARNER. I think we learned some very tragic lessons 

with the LCS program. I think you ought to provide for the record 

what you felt went wrong with that program and what steps you’ve 

put in place not to have it reoccur. 

Mr. YOUNG. A short comment. You’re exactly right. I’ve pushed 

for the signing of the contracts for the first two DDG–1000s. I 

think there is another program that’s not talked about as much because the development program for DDG–1000 has gone very well. 

You’re right, we didn’t prototype the ship, but we prototyped I 

think 12 different engineering development models. We installed a 

fire and battle damage control system in an old Navy ship and 

proved it. We had a land-based test site for the electric motor. 

There were a dozen, I believe, development models that built our 

technological maturity, and our confidence in designing the whole 

40

of the system, which are essentially component prototyping efforts 

necessary for that program. 

So largely that development program has gone well, a very complicated development program. The remaining tests that Congress 

is rightly asking us to pass is: can you now build that ship for the 

price that you’ve advertised? We have signed contracts for that and 

we have to prove we can go do that. 

[The information referred to follows:]

The Navy conducted several reviews of the Littoral Combat Ship (LCS) program, 

including the establishment of a Program Management Assist Group to conduct a 

review of cost growth associated with LCS 1, and to review projected costs for LCS 

2, LCS 3, and LCS 4. The Navy assessment identified the following root causes of 

cost growth:

• Aggressive cost and schedule goals. • Pressure to build to schedule was strongly emphasized and generated 

cost growth. 

• The ambitious schedule relied upon concurrent design and construction 

that was not achieved. 

• For LCS 1, the timing of Lockheed-Martin’s bid to the finalization of 

Naval Vessel Rules resulted in underestimated efforts for design and construction by the contractor. 

• The competitive environment created disincentive for the contractor to 

disclose execution challenges to the Navy.

The Navy has taken the following action for the LCS program to address cost 

growth and prevent recurrence:

• Increased oversight has been assigned to monitor industry performance. • More realistic schedule objectives have been assigned. • To address cost growth, resources were reprogrammed from fiscal year 

2007 LCS procurement. 

• The plan also includes reduced procurement of LCS seaframes in fiscal 

year 2008 and fiscal year 2009.

Additionally, overall the Navy has strengthened its acquisition policy to improve 

rapid acquisition in support of the global war on terror, to control cost growth, and 

to monitor contractor performance more effectively. The Navy has established a 

Center of Excellence for Earned Value Management (CEVM) to adopt a more centralized approach to managing EVM and to improve visibility of the status of all 

Navy acquisition programs. Navy oversight includes acquisition program reviews 

and portfolio reviews of acquisition programs and the supplier base. The Navy also 

is working improvement initiatives in accountability, portfolio assessment, and acquisition workforce management. To bolster the Navy’s acquisition leadership, the 

Navy added a three-star admiral to serve as Principal Deputy Assistant Secretary 

of the Navy for Research, Development, and Acquisition (ASN(RDA)), and recently 

established the position of Principal Civilian Deputy Assistant Secretary of the 

Navy for Research, Development, and Acquisition (PCDASN(RDA)). The PCDASN 

will be responsible to ASN(RDA) for all acquisition workforce programs and functions. 

Specifically, on February 26, 2008, the Navy issued guidance implementing Navy 

acquisition governance improvement through a six-gate reporting, reviewing and 

oversight process. Its purpose is to ensure early and frequent involvement and collaboration among the leadership of the requirements, resources, and acquisition 

communities. Configuration Steering Boards will oversee changes to the requirements baselines as well as consider cost and funding availability. In addition, the 

Department of the Navy will implement a systems design specification which will 

provide more clarity to the requirements development process and convert and interpret operational specifications into affordable design requirements. It is important to note that the success of all these initiatives is heavily dependent on personnel with the correct training and experience commensurate with responsibilities 

assigned. 

Senator WARNER. As we look back in our oversight, I recall very 

specifically that DOD made a decision under the last Secretary 

that he was going to bring in the top industrial leaders and their 

portfolio was to solve these various problems on procurement. 

While the committee had some different views as to different types 

41

of individuals that might serve as Service Secretaries, Rumsfeld’s 

view prevailed: I’m going to bring in the top proven executives of 

industry. 

I guess history is going to have to judge how successful they have 

been in this problem, which they presumably had the expertise 

coming in to solve. Would you not agree with that? 

Mr. YOUNG. I think I’ll take the fifth amendment on that one. I 

think it’s an important question, but my response is really too complex and mixed. I just think that there are people, obviously, in industry that can make a difference, but there’s also people who have 

expertise outside of industry that sometimes can be stronger and 

have a bigger impact. So it’s a blend you need, I think, essentially 

of the industrial experience, but also experience in government and 

the academic experience that needs to be put in place. 

I hate to duck a question from a friend like you, but I think I’d 

have to give a more complex answer to that. I do agree that Secretary Rumsfeld did put in place this system and the people in it. 

That part of it I surely agree with, and I don’t think that we’ve 

seen the kind of success that was promised. 

Senator WARNER. Or hoped for. 

I thank the chair. 

Chairman LEVIN. Thank you, Senator Warner. 

Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman. I think this 

is a very important hearing and I commend you and Senator Warner for hosting it. 

Secretary Young, one of the major challenges is reducing technical risks in these programs. Sometimes we discover it too late 

and it costs a great deal of money. What is your view with respect 

to investment in science and technology (S&T), investment in the 

defense laboratories to systematically try to reduce technical risk 

as a way of lowering costs? Is that a useful option? 

Mr. YOUNG. Absolutely, sir. I’ve consistently gone on record, 

mostly at Secretary Gates’s request, explaining that S&T investment has not kept pace with the numbers I mentioned earlier, that 

the procurement account is up I think 34–35 percent, and the R&D 

budget is up 70 percent; S&T is not comparably up. We need in 

several areas more robust S&T investment. 

To his great credit, Secretary Gates responded to that and he’s 

increased and provided real growth in basic research, as well as 

some augmenting incentives in the S&T base for key technologies 

that we think are enablers of the future. 

Then another piece of the process, if we execute prototyping we’ll 

need to pull money back in later stages of development into the 

S&T program and invest it in these prototypical efforts that again 

inform us. They develop management skills, they inform us on the 

engineering and technology maturity, they inform us of the costs 

if we decide to take it forward into development. I believe that’s a 

critical element of what DOD did well in the past, 20 and 30 years 

ago, and we need to go back to it. 

Senator REED. So this is a deliberate, conscious approach in 

order to reconnect the S&T, the defense laboratories, with the procurement process? 

Mr. YOUNG. Yes, sir. 

42

Senator REED. Very explicit. 

Ms. Schinasi, could you comment on that? 

Ms. SCHINASI. Yes, Senator Reed. We’ve made that recommendation in the past. I think what you’re seeing is that DOD tends to 

push those leading edge disruptive technologies inside of programs, 

and that’s a lot of the reason that we’re seeing the problems that 

we’re seeing, cost growth and schedule delays. 

If in fact they would use the tech base to develop those technologies, you can afford to fail in the tech base and that’s what it 

takes to do that kind of development. 

Senator REED. Just a question, Secretary Young. You’ve made 

the point, and I think Senator Levin’s question was right on target, 

about the need for additional resources in contracting, oversight, et 

cetera. First, I think there is a difficult tension between our requirements in Iraq today because everything we read is of the need 

for additional contracting officers, additional people on the ground, 

which is basically taking away from your potential pool of procurement and contracting officers. Is that accurate? 

Mr. YOUNG. I think it’s more complicated than that. The higher 

demand issue, as Secretary Gates has testified, is that the DCMA 

in 2000 had 12,550 people, and if you go back to 1990 they had 

over 20,000 people. Today we project at the end of the year that 

they’ll have 9,899 people. That’s for a normal course of business. 

We don’t have a normal course of business. We have Iraq and Afghanistan and a procurement budget that’s up 34 percent, an R&D 

budget that’s up 70 percent, and the challenge of finding people 

with the skills necessary to come in and perform those contracting 

management and contract oversight functions. 

It will take us time to recover from this. It took time to get here. 

But there is no question we are understaffed in these areas. 

Senator REED. I presume there are other areas where the maturity level of your existing workforce would be 45-plus rather than 

35-minus. 

Mr. YOUNG. Yes, sir, you are very correct. We have an older and 

experienced workforce. We really need to do some hiring and get 

some knowledge transfer, and we will have to use other tools, such 

as these defense support teams I mentioned, that use people who 

have retired and are willing to come back and help the government 

to help us go troubleshoot and problem-solve on programs. 

Senator REED. Do you have a nominal kind of workforce structure with different levels of expertise that is available to this committee, so that we can see the matchup between what you think 

is the best and what you have at the moment? Again, these are 

very capable, dedicated, and extraordinarily talented people. 

Mr. YOUNG. If I could for the record, I’d give you a longer answer, but we are working in the enterprise—it involves heavily the 

Defense Acquisition University (DAU)—to build a competency 

model that will assess the skills we have, the skills we need, where 

some of our gaps are, and help us work more deliberate workforce 

planning going forward. 

[The information referred to follows:]

Yes, for each of the approximately 126,000 Department of Defense acquisition positions, the Department has an acquisition workforce structure where the military 

departments and defense agencies require a minimum certification level, by career 

43

field (e.g., program management, engineering, contracting, et cetera) for each acquisition position: Level One - Entry; Level Two - Journeyman; and Level Three - Expert. The assigned certification level corresponds to minimum experience, education, 

and training standards. As of March 2008, 54 percent meet or exceed position requirements. Members are required to meet the certification requirements within 24 

months of encumbering an acquisition position. The new Acquisition Workforce Development Fund, established pursuant to section 852 of the National Defense Authorization Act in Fiscal Year 2008 that enacted 10 U.S.C. 1705, will be used to increase our training capacity. Additionally, our updated competency models and assessments will provide us the ability to identify more precisely gaps and target 

training to priority needs.

Mr. YOUNG. That’s in progress. It’s an important tool to be used in conjunction with the $300 million fund in the section that Chairman Levin referenced. 

Senator REED. First, Ms. Schinasi, if you want to comment on 

any of these issues, please. 

Ms. SCHINASI. If I just may comment on that last point, I think 

the focus lately has been on oversight, which clearly we need more 

oversight, but I think there’s a more basic question about attracting people to the acquisition workforce. A report that was put out 

by the acquisition advisory panel about a year and a half ago now 

went out and looked at the private sector. One of the things that 

they found was that companies invest very large resources in their 

acquisition workforce because they realize how important that 

workforce is to their case getting a profit. In the Department’s case, 

I would say to accomplishing a mission. 

This is something we’re looking at across the government as a 

whole. You need to pay more attention and raise the prominence 

of the acquisition function in order to be able to attract and retain 

good people. 

Senator REED. Do you have a comment? 

I have one more question, Mr. Chairman. 

Mr. YOUNG. At some risk, I’d like to comment about that. The 

first thing I said is that people manage and execute programs, and 

that’s important and I meant that. At this point in time, I mentioned that we have a dysfunctional personnel system. I have virtually no hope of hiring a midcareer person back into government 

from industry. 20 years ago, Johnny Foster and some of the great 

people that had this job—I cite in my written statement I think one 

example—Johnny Foster called and asked for an expert in electronics technology and he got Jacques Gansler on the DDR&E 

staff, and Jacques Gansler eventually became the Under Secretary 

of Defense for AT&L. 

That can’t happen today. Industry people will not come into the 

government because of the restrictions that have been placed. At 

this point in time, I will have increasing trouble getting government people to stay in the acquisition workforce because of postemployment restrictions. We are at serious risk of being able to 

keep competent people in the government acquisition process. 

Senator REED. Thank you, Mr. Secretary. 

Ms. Schinasi, you made the distinction between threat-based programs and capabilities-based. Could you elaborate on, first, the difference in your mind, and the consequences to the acquisition process? 

Ms. SCHINASI. For a number of years in the post-Cold War environment, we had a system whereby requirements were developed 

44

based on what we thought an enemy was likely to be able to do. 

Once we lost that peer competitor, we also lost the ability, or we 

changed our process from going to that peer competitor threatbased to one which said capabilities, we need to look at the capabilities we need. 

That, some people would argue, opened up the floodgates for a 

wants-driven requirements process as opposed to a needs-driven requirements process. 

Senator REED. Is it your recommendation or comment that we 

should return to a threats-based program? Would that help us in 

this endeavor? 

Ms. SCHINASI. I think what we’re seeing now is the need for flexibility in the requirements process. So we would argue that what 

you need to do is bring resources to the requirements determination process at an earlier point in time than it is right now, because there is no limit to the kind of capability that we would want 

to have. 

Senator REED. A quick response, Mr. Secretary. My time has expired. 

Mr. YOUNG. I think I would agree strongly with her comments 

and go beyond it. One of the cancers on the enterprise right now 

is the competition for resources, and it is fueled by setting a threat 

level, setting a requirements level, and then saying, I must have 

budget resources to deal with that, and the competition among the 

Services for resources. 

It really is one of the underlying problems in this space, combined with other factors and that is why I’m constantly in favor of 

Congress’ Goldwater-Nichols legislation, because I believe that the 

Service Chiefs do have control of that requirements process and it 

is critical for Congress to hopefully continue to understand that you 

do not want to move the acquisition process under the Service 

Chiefs. What you did in Goldwater-Nichols was the right way to 

handle the business. 

Senator REED. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman LEVIN. Thank you, Senator Reed. 

Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Secretary Young, your comments on the JSF brought to mind the 

realization that part of the problem with cost growth is attributable 

to the failings of the contractors, part of it is attributable to changing requirements and insufficient oversight by DOD, but part of it 

is the failure at times of Congress to provide predictable, stable 

funding. 

I see you’re nodding in agreement. I think we have an example 

of that with the DDG–1000 program, where we’re seeing the House 

move in the direction of pausing or perhaps terminating the DDG–

1000 program after the first two ships. The Senate, far more wisely 

in my judgment, fully funded the budget request for a third DDG–

1000. 

What would be the impact if the House position should prevail 

on the cost of the first two DDG–1000, shipbuilding in general, and 

the industrial base for shipbuilding if the House position were to 

prevail? 

45

Mr. YOUNG. I think we should assess that in more detail, but I 

am extremely concerned about several aspects of the House mark 

in that deliberation. When we’ve established a manufacturing—

these processes take time to put into place and then they execute 

very well over a period of time. To stop the DDG–1000 program at 

two ships would unquestionably add substantial costs to that program. 

To restart the DDG–51 program, which is stopped, has been 

stopped for several years, it is difficult for us to properly estimate 

the cost of that. Then the question becomes, do you buy more ships 

after that, because just buying a couple of DDG–51s will be inordinately expensive and I am confident we cannot estimate that. Suppliers will talk to you if you want to buy many of things over several years. If you want to buy a few things for 1 year, I have no 

idea what that will cost. 

So the DDG–1000 will go up. I don’t know what those DDG–51s 

will cost, but I can offer to get you some information for the record. 

It will destabilize the destroyer industrial base. Then it’s a requirements issue, as we’ve discussed today. We have 62 DDG–51s. The 

Navy is moving forward because it needs additional capability, it 

believes. The discussions I’ve had with the Navy, they do not seek 

more DDG–51s; they seek a DDG–51 possibly with plugs to carry 

a bigger radar, and that ship will quickly approach the cost or exceed the cost of a DDG–1000, so we will not be addressing the 

issues that I think the House has tabled. 

We need to look at this combination of requirements, stability of 

the industrial base, and cost to get a better solution here. 

Senator COLLINS. It would be helpful to have your information on 

the cost estimate. 

Are you familiar with the May 7, 2008, letter that the Chief of 

Naval Operations (CNO) sent to Senator Kennedy attempting to 

compare the cost of restarting the DDG–51 line versus pursuing 

continuing with the DDG–1000? 

Mr. YOUNG. I’ve recently learned of the letter and, based on reviewing it, have a number of concerns with the letter that was provided to the CNO for his signature. The letter’s numbers are based 

on key assumptions and are incorrect in some cases. The DDG–51 

prices assume continuing DDG–51 procurement, as I said. So those 

prices in that letter mean you would buy more DDG–51s. If those 

were the only ones, they would be more expensive, I believe. 

Second, the DDG–51 prices assume that the two ships, in the 

case of the two-ship case, could be awarded to one yard. I have no 

process right now to give two DDG–51s to one yard, as you well 

know, and if I build them between yards that will be significantly 

more expensive. 

It’s questionable whether the DDG–51 prices are accurate if no 

DDG–1000 is built in fiscal year 2009, because, to talk more technically, this is about overhead absorption and use of the business 

base. If there’s no DDG–1000 beyond the first two, then those 

DDG–51s will be more expensive, I believe, than the record suggests. 

Then the DDG–1000 prices for the two lead ships, as we already 

discussed, would certainly increase. Operations and support costs 

are reported in DOD’s Selected Acquisition Reports. The DDG–51 

46

ship costs $10 million more per year to operate and I don’t think 

that’s correctly reflected in the letter. 

But I can expand on this and reply to you if you would like. 

[The information referred to follows:]

There are two cases to consider for acquisition costs. The first case maintains the 

DDG–1000 program of record and begins procuring additional DD–51 ships beginning in fiscal year 2009 and continuing for a few years. In this case, the costs for 

one and two additional DD–51 ships in fiscal year 2009 are provided in the table 

below. The second case stops building DDG–1000 ships after the two lead ships, so 

there would be no fiscal year 2009 DDG–1000 procurement. Instead, one or two 

DD–51 ships would be procured. Again, it is essential to recognize that these numbers assume continuing DD–51 procurement. The Navy would likely see significant 

premiums added to the following prices if only one or two DD–51s were purchased. 

The following table summarizes the costs for these two acquisition cost cases:

[In billions of dollars] 

Fiscal Year 2009 DDG–1000 DDG–51 DDG–51

Case 1

Quantity ........................................................................... 1 +1 +2

Cost ................................................................................. $2.7 +$2.1 +$3.3

Case 2 

Quantity ........................................................................... ¥1 +1 +2

Cost ................................................................................. ¥$2.7 +$2.2 +$3.5 to +$3.6

It is important to recognize the following about these cost estimates:

• There would not be sufficient funding to procure two additional DD–51 

ships in fiscal year 2009 at a cost less than or equal to one DDG–1000 ship. 

• A single DD–51 class ship in fiscal year 2009, with no other DD–51 ships 

to follow, would not support the current surface combatant industrial base, 

unless DDG–1000 production is continued. 

• Direct production hours for one DDG–1000 ship are about 2.5 times that 

of one additional DD–51 ship. This validates DOD’s experience that two to 

three DD–51 destroyers need to be purchased annually to maintain the two 

yard surface combatant industrial base. 

• Cost increases for the two lead DDG–1000 ships, with no follow ships, are 

unknown. 

• The RDT&E efforts for the DDG–1000 program must continue in order 

to deliver two complete ships and to support the Dual Band Radar for the 

CVN 21 program.

The estimated cost to terminate the DDG–1000 program at the third ship ranges 

from $2.5 billion to over $4 billion. These costs include increased execution risk on 

the two lead ships; class services costs and integrated data environment costs that 

were budgeted in future years; additional Government Furnished Equipment costs 

for mission systems equipment; class shutdown and closeout costs; cost impacts on 

other Navy shipbuilding programs as a result of cancelling future DDG–1000 ships; 

and allowances to recoup lost investments for litigation, and for other liabilities that 

might be claimed by the DDG–1000 program contractors. 

As for annual Operating and Support (O&S) costs for the two ship classes, the 

Department reports annual O&S costs to the Congress in the Selected Acquisition 

Record (SAR). The table below shows the annual O&S costs from the most recent 

SAR, reported as of December 2007, but the values are adjusted to fiscal year 2005 

dollars for comparison. As the table shows, there is about a $10 million per year 

difference between the two classes, but this is based on estimates for the DDG–1000 

ships as compared to several years of operating experience with the DDG–51 class 

ships.

[In millions of dollars] 

Fiscal Year 2005 DDG–1000 DDG–51

Mission Pay & Allowance ........................................ 6.8 20.7

Unit Level Consumption .......................................... 10.1 11.6

Intermediate Maintenance ....................................... 0.7 0.7

Depot Maintenance .................................................. 10.0 7.0

47

[In millions of dollars] 

Fiscal Year 2005 DDG–1000 DDG–51

Contractor Support .................................................. 0.0 0.9

Sustaining Support .................................................. 14.2 3.0

Indirect .................................................................... 4.4 12.7

Other ........................................................................ ........................................................ ........................................................

Total (average annual O&S) .......................... 46.2 56.6

The operating cost data provided in the CNO letter to Senator Kennedy compared 

the programming information used to construct the latest budget, but did not include items not directly budgeted to a specific program, for example, indirect support costs. 

Senator COLLINS. That would be very helpful to me and to this 

committee. 

Two more points on that. It’s my understanding that the DDG–

51 requires a reduction gear that is no longer in production and 

that you would have to start up that line, which is very expensive. 

Is that accurate? 

Mr. YOUNG. I believe that’s correct for that and several other 

cases, because again I believe the last DDG–51s were bought in fiscal year 2005. I have programs that are in current development 

that experience obsolescence issues. This is a program that’s been 

out of production, so there’s no question we will have multiple obsolete parts issues. 

Senator COLLINS. Do you believe that the current contract strategy for the DDG–1000 has sufficient cost control elements to meet 

the program’s objectives? 

Mr. YOUNG. The best thing I can do is what I had a chance to 

state to the chairman, I believe: The DDG–1000 R&D program has 

gone very well. The drawing designs have been produced. The technology is matured. We did, I believe in that case the right component prototyping to inspire that maturity. We’ve recently successfully negotiated priced contracts with both yards for the lead ships. 

We have to go prove we can execute that, and so, in light of this 

hearing, I’m anxious about guaranteeing that performance, but I 

believe every measure has been taken to try to ensure that performance and I’m optimistic about it. 

Senator COLLINS. Finally, the Navy’s requirements for at least 

seven DDG–1000 have not changed, have they? 

Mr. YOUNG. I’m not aware. That’s obviously a question for the 

Navy. We contemplated some of these issues going forward. The 

very simple version for me is the Navy needs to study carefully removing the guns from the DDG–1000s and replacing them with 

missile cells, and then you have the potential for a first generation 

cruiser with modest changes. That was my goal in setting up the 

strategy for DDG–1000, to balance the Navy’s long-term cruiser requirements with the Marine Corps’s fire support requirements. 

Senator COLLINS. Thank you. 

Chairman LEVIN. Thank you, Senator Collins. 

Senator Lieberman. 

Senator LIEBERMAN. Thanks, Mr. Chairman. 

Secretary Young, Ms. Schinasi, thank you. I was thinking as I 

listened to the testimony, I’ve been privileged to be on this Armed 

Services Committee of the Senate for 16 years and in that time I’ve 

48

developed the highest regard for the Pentagon, for our military, in 

just so many ways. I must say that this area of acquisition is the 

one really unsettling exception. 

When you think of the consequences, I find the report that you, 

Ms. Schinasi and GAO, have issued to be exasperating and embarrassing, and ultimately very harmful to our attempts to provide for 

our national security in exactly the strong, and appropriately 

strong, and eloquent terms that the chairman, Senator Levin, 

spoke of in his opening statement. In the work of this committee 

and the various subcommittees, we hear constantly of the shortfalls 

in major systems that our military needs down the road. 

We are far from the 313-ship Navy that was the goal and we’re 

not closing that gap. We held a hearing in the Airland Subcommittee a while back, the Navy and the Air Force talking about 

projected shortfalls of aircraft some years down the road which are 

really troubling. 

I could go on and on. I thought Senator Levin’s opening state- ment, in which he basically took that $295 billion, which is what 

GAO reported earlier this year had been the cost growth on these 

programs, and talked about what we could buy with that money. 

It’s really a shame. 

So in that spirit, Secretary Young, I wanted to ask you this question. I have high regard for you and you’ve spoken here today 

about memoranda issued and decisions rendered that caused persons responsible to act in compliance with recommendations and 

best practice. 

I want to say to you today that I think those people who are responsible for acquisition ought to be held accountable, and that accountability should include consequences for failure, because our 

military, our national security, is now paying the price of the consequences of, in other words, lack of real personal accountability? 

Mr. YOUNG. Yes, sir, I’m aware of several. It’s not a large number, but I’m certainly aware of a handful of instances where government and industry program managers were held accountable 

and relieved of their responsibilities for program issues. 

Senator LIEBERMAN. So this is not—this is not just the system? 

I understand the problem with recruiting and retaining personnel 

in this area. But you agree that some of this is just a failure to 

do the job that we expect people to do? 

Mr. YOUNG. I’d be happy to talk to you in this hearing or outside. 

I’ve had—I could cite for you easily ten programs that have come 

all the way to the Under Secretary level for approval that I felt 

failed to meet the standards that we’re talking about meeting today 

and I have directed changes in those programs. So I am working 

with the whole of the acquisition team to shift that culture to 

greater discipline, and we have to make progress there. 

Senator LIEBERMAN. But there are some cases in which adverse 

career actions have been taken? 

Mr. YOUNG. Yes, sir. 

Senator LIEBERMAN. What are those kinds of actions? What are 

the adverse—do you know the number on your watch? 

Mr. YOUNG. I could get you some information for the record. Off 

the top of my memory, I know on one particular program a flag officer and a program manager who were relieved. On the industry 

49

side, I’ve known of both a flag officer and a major corporate program leader being relieved. I could probably cite for you seven or 

eight. But I’ll get some information to you for the record. 

Some of these are a little harder because these are done with 

some grace here, because there are people that make mistakes, but 

they can still contribute in other places. 

[The information referred to follows:]

The Department is committed to sound program management and holds program 

managers accountable for their program’s cost and schedule performance. In cases 

where we experience poor program outcomes and we determine the program manager’s actions were responsible for those outcomes, we will take steps to correct the 

situation including appropriate personnel actions. In general, that means the individual is reassigned. Depending on the circumstances, he or she may not be recommended for promotion and may be asked to retire. In general, there is no public 

release on the rationale for the removal of a servicemember or employee. 

During my tenure as the Under Secretary of Defense for Acquisition, Technology, 

and Logistics, one program executive officer and four program managers have been 

reassigned due to program performance. 

It is incumbent on the acquisition team, and in particular the acquisition executives, to monitor program performance closely and to take early corrective action 

when problems arise rather than wait for programs to fail. We need to ensure that 

our program managers have the proper education and training and that they are 

empowered to act in the best interest of their program, the warfighter, and the taxpayer. It is the acquisition team’s responsibility, too, to structure programs so that 

our program managers can succeed. However, it is equally critical for the programming and budgeting community to fully fund programs to the program manager’s 

estimate. Underfunding which produces bad outcomes is not the program manager’s 

fault. Equally, allowing requirements officers to change requirements during execution creates negative results which again are not totally attributable to the program 

manager.

Senator LIEBERMAN. I’d like to see that report. Nobody wants to 

be punitive without justification, but the point is when you think 

about the consequences of the failures in acquisition then we have 

to hold people accountable and hope that that’s part of the message 

we send that improves the process. 

I think it’s gotten, in the time I’ve been here, notwithstanding all 

the efforts of a lot of people, I think the problem has gotten worse, 

not better. 

Mr. YOUNG. Could I address this with a couple of brief examples? 

Senator LIEBERMAN. Go right ahead. 

Mr. YOUNG. The one I use frequently is T–45. The Navy bought 

the expected number, I think 221, T–45 aircraft. But beyond the 

control of the program manager, although he should have complained and objected, the programming and budgeting process 

bought those planes at ranges from 6 per year, at which point 

they’re about $30 million a copy, to 18 a year, at which point 

they’re $20 million a copy. Optimal is about 15. 

Had we bought at the optimal rate, we could have bought that 

program and saved $632 million. It is the program manager’s fault 

that the taxpayer paid $630 million extra dollars for absolutely no 

more capability. So in my enterprise I have a source document 

where I ask program managers to behave in certain ways. One way 

is exactly as Chairman Levin said: Look to save money every day 

on your program; fight the programming process, fight the 

comptrolling process, and ask for economic order quantity. 

To emphasize that, I sent a note on the T–45 example to Secretary Gates a month ago. He wrote back and said: Bring me some 

of these examples. I just last week sent him a memo of things we 

50

can do to buy more efficiently and help avoid that, because the 

source document says what you are saying and what GAO is saying; that is, every time I pay more for no more capability, I’m essentially denying the warfighters a tool that we could have. 

Senator LIEBERMAN. That’s the ultimate victim here, the 

warfighter. 

Let me ask you a question, the question on the other side. What 

about a program manager who really does the job, an acquisition 

official who really does the job and saves money? Are you able to 

reward that person? 

Mr. YOUNG. Especially if they’re a military person in uniform, I 

have nothing to give them other than end-of-service commendations. 

Senator LIEBERMAN. Well, that’s something we ought to think 

about. 

Let me go on to one more question briefly, because we’ve seen a 

lot of progress in the private sector in the reduction of waste. The 

Pentagon I know has tried to embrace some of those systems. But 

the report suggests that it’s not just the business model and efficiency systems that are being used, but how closely the programs 

are being followed. 

Here I want to get really to the question of organization. While 

a private sector business has a CEO with wide-ranging control of 

programs, as you’ve touched on briefly a while ago, each military 

department is organized differently. So I want to ask you to deal 

for a moment with these two questions: Is each Service organized 

ideally to manage these programs; and then, more broadly, does 

the senior acquisition official have authority equivalent to a CEO 

in a private business on not only the process, but on requirements, 

costs, and what’s required to manage the system? 

Mr. YOUNG. I believe—as I stated earlier, I think the SAEs are 

critical functions in the enterprise. I do not believe that that responsibility has been adequately exercised to achieve jointness and 

interoperability. They have the authority to refuse to sign contracts, and I’ll give you an example. 

The Navy and Marine Corps wanted to pursue an LHAR, a new 

amphibious ship, that was basically going to be taking an LHS and 

put two plugs in it and make it ten feet wider and change 80 percent of the drawings and spend a billion dollars in nonrecurring. 

I stood up and said: Why do we have to do this? Is the requirement 

adequately compelling to spend that money? That ended up in discussions with even the Commandant of the Marine Corps, but in 

the end the Commandant agreed that requirement should be relooked and we didn’t go down that path and we saved that money. 

So I give you an example that the SAE does have the authority 

to refuse to sign contracts and call into question the requirements. 

That’s the power of them reporting and working for the President 

under Goldwater-Nichols. Have we adequately exercised that authority? I think the answer is no. 

Senator LIEBERMAN. Okay. Needless to say, and you know it and 

we all know it, this is real important. So let’s work together to try 

to make it better. 

Thank you. 

Chairman LEVIN. Thank you, Senator Lieberman. 

51

Senator Thune. 

Senator THUNE. Thank you, Mr. Chairman. 

Secretary Young, I have a question that regards a current program that’s at least in the formative stages that I’d like to get your 

reaction to, how that’s progressing, and what can be done to keep 

it on schedule. The Air Force is currently undertaking a new major 

weapons system acquisition program in the Next Generation Bomber. As this is a brand new acquisition program with an aggressive 

time line of being fielded by the year 2018, what acquisition strategies is the Department exercising to successfully field this platform 

on time without significant cost growth? 

Mr. YOUNG. I would think, consistent with what I believe the 

committee would expect of me, I would take this as one of my fundamental responsibilities. I cannot afford for the Department to 

embark on a new bomber and not do it accurately. So a couple of 

things would happen. One, I would give the Air Force credit; they 

have laid out a program that includes some level of prototyping 

and the things that I’ve insisted upon. 

I have independently asked the Defense Science Board team to 

review this program and help advise me on the technology maturity, the achievability of the requirements, and those factors. Then 

I’ve personally gone out last week and looked at the potential for 

this program. 

Through the work of that process, already the Air Force has concluded that more money and possibly a little more time is required 

than they initially laid out, and I am determined to try to bring 

and present to Congress an achievable program that’s properly 

resourced, properly scheduled, and has appropriate technology maturity in it. 

That’s the goal. I strongly support the need for the new bomber, 

but I do not intend to put my name on a piece of paper that will 

start a program that is going to be in the next hearing a few years 

from now about how the costs grew on it. 

Senator THUNE. One of the issues that’s related to that, and the 

GAO report noted that the long development cycles make it difficult to estimate cost and funding needs. Some development cycles 

take 10 to 15 years from start to finish. The GAO recommended 

constraining cycles to 5 to 6 years. 

I guess my question is, is that recommendation realistic? How 

can we continue to shorten the development time of these very 

complex programs? 

Mr. YOUNG. I think I believe the chairman has mentioned a few 

times the Defense Acquisition Performance Assessment Report, 

which advocated a tool called time-defined acquisition. I think it’s 

a very potentially useful tool, but it’s only useful if you can define 

requirements that can be achieved in that time period. If you set 

out and say, I’m going to do something in 5 years, but the something you have set out to do in terms of requirements can’t be 

done, then it’ll just be another program that misses its schedule 

and its budget. 

So I do think we need to look at that. In many of those things 

where you define short windows of time, you will be looking for incremental improvements in capability, and that may be a reasonable and very affordable strategy for the Department. In other 

52

places the Department does have requirements that go beyond an 

incremental change and so I don’t know that I can always demand 

that a time-defined approach be the strategy. 

Senator THUNE. The GAO also noted that DOD typically uses 

cost reimbursed contracts, in which the DOD generally pays the allowable costs incurred for the contractor’s best efforts to the extent 

provided by the contract. It further notes that this may contribute 

to an acquisition environment that’s not conducive for incentivizing 

contractors to follow best practices and keep costs and schedule in 

check. 

Would you agree with that statement and, if so, what’s being 

done to correct these misdirected incentives? 

Mr. YOUNG. I think we have to—I believe there’s work to be done 

in this space. We have to balance risks and costs. Where we are 

seeking to push the state of the art in technology, industry will not 

do this on a fixed-price basis and I’m not sure it’s reasonable to ask 

that it be done. 

Other places we possibly could look at a more aggressive contract 

structure that will help keep in check the requirements and help 

us deliver for affordable costs. 

Then there are other places where we’ve used cost-type contracts, 

that I think have been unfair to the government and we need to 

seek reform in that area. The best example I can give you is on the 

LPD–17 ship, where some significant fraction of the welds in that 

ship were flawed and had to be redone. At some point in time, I 

should expect some reasonable level of performance by industry on 

a cost basis. I shouldn’t be able, forced, if you will, to pay on behalf 

of the taxpayer any price for any level of deficient performance. 

That’s an area where we need to do some work on our contracts. 

Senator THUNE. The GAO testimony concluded with the statement that in practice DOD’s decisions made on individual programs often sacrifice knowledge and realism in favor of revolutionary solutions. Would you agree with that assessment, and if so 

what are the two or three biggest initiatives that you think could 

correct that problem? 

Mr. YOUNG. I think—if I misunderstood your question, please 

correct me—but I believe the key to that is technology readiness. 

So there are a couple of steps to that. One, I am a strong advocate 

of the acquisition team working with the requirements team to try 

to make sure the initial requirements are set in a reasonable place 

and informed by what technology can do. 

Then, to a finer level of detail, you have to do what Congress has 

rightly asked us to do, and that is at the milestone points ensure 

that the technology is appropriately mature to move to the next 

phase of development. So in both those cases I think we need to 

address those issues. 

Senator THUNE. Thank you, Mr. Chairman. 

Thank you. 

Chairman LEVIN. Thank you so much, Senator Thune. 

Senator McCaskill. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

There are depressing failures in this area of DOD. The saddest 

thing about these failures is that we pass laws and we talk about 

them, and we pass laws and we talk about them, we have audits 

53

and we have audits, and it just keeps getting worse. What do they 

say, that insanity is to continue doing the same thing over and over 

again and expecting a different outcome. 

It seems to me we ought to implode something here. The system 

needs to be really looked at in terms of a crisis of leadership. There 

is—if you look at two broad principles in terms of any government 

program, it’s, first, what’s the definition of success; and second, is 

there accountability? Because people aren’t going to change what 

they’re doing if they’re not held accountable for it. 

We’ve discussed that briefly in this hearing. But it seems to me 

that the definition of success, and that’s part of the problem, in acquisitions is to get the money and keep getting the money. Well, 

if the definition of success is to get the money and keep getting the 

money, then we’re going to continue to have these problems. 

That’s what the whole community’s about, is getting the money 

and keeping the money. It doesn’t—well, I think that’s what the 

contracting community’s about. I think that that’s what sometimes 

the leadership of the various branches is about, and certainly it’s 

about what Members of Congress are about sometimes, getting the 

money for their own individual systems that they care about, their 

pet systems based on what contractors they have in their States or 

whatever. 

I want to focus in on turnover. I asked my staff why the military 

branches were not going to be represented today and they said, 

well, two out of the three positions are vacant. Ms. Schinasi, how 

long have you had your job? 

Ms. SCHINASI. 30 years. 

Senator MCCASKILL. How long have you been focusing on this 

area? 

Ms. SCHINASI. About 18. 

Senator MCCASKILL. So for 18 years you have watched these 

problems. 

Secretary Young, how long have you had your job? 

Mr. YOUNG. Which one? 

Senator MCCASKILL. The one you have now. 

Mr. YOUNG. I was made acting at the end of July. I was confirmed by the Senate in November 2007. 

Senator MCCASKILL. How long did the person serving before you 

have that job? 

Mr. YOUNG. Approximately 2 years. 

Senator MCCASKILL. Do you know off the top of your head how 

long the average program manager stays in place in your system? 

Mr. YOUNG. I do. 

Senator MCCASKILL. It’s 17 months, correct? 

Mr. YOUNG. That’s not correct. 

Senator MCCASKILL. Well, the GAO audit says it’s 17 months. 

Mr. YOUNG. I asked my team yesterday to go through the data 

and identify, and at least for the places where you had data, the 

Army and the Navy, we surveyed program managers who have left 

since 2000 and the average tenure of those program managers was 

37 months. 

Senator MCCASKILL. Well, you all need to get together, because 

the audit says that of the 39 systems since 2001 the average length 

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of a program manager was 17 months, and that is half the life of 

the development of those systems. 

How do we expect any accountability if you know you’re going to 

be gone before the you-know-what hits the fan? 

Mr. YOUNG. I think I will certainly let Ms. Schinasi speak, but 

we have a snapshot in time that says today the current average is 

about 24 months, but that’s a snapshot in time. It doesn’t say how 

much longer they’ll serve, and we are seeking to address this very 

issue with program manager tenure agreements that says that—

where program managers agree to serve for a period of time or to 

the next nearest milestone. 

So I agree with you about this. If I could, I’d use this opportunity 

to say there’s another dimension to this. When I was the Navy acquisition executive for 41⁄2 years, I had I think four rotations in the 

senior requirements officer. The requirements officers are a party 

to this situation. They rotate on much more regular intervals. They 

come in and they potentially want to change the requirements, and 

then I have my acquisition program manager trying not to change 

and to keep stability and a requirements officer who just came in 

from the fleet and has the potential to make flag saying you have 

to change, and it creates a lot of tension in the system. 

That’s why I believe again the acquisition executives have to 

take care of their program managers who try to manage with discipline, because it’s not an easy discussion with the flag officer requirements person who says: You must change this part of the contract. 

Senator MCCASKILL. Where are these people going when they 

leave? 

Mr. YOUNG. The program managers? 

Senator MCCASKILL. Yes, or where are the senior acquisition people at the Navy and the Air Force, where are they going? Where 

do they go? When they leave these jobs, where are they going? 

Mr. YOUNG. Well, I was the Navy acquisition executive and I got 

moved to be the DDR&E, and I got moved to be the Under Secretary for AT&L. Others, SAEs, my colleagues that I knew, one’s 

at the DAU now, one’s in industry. Most people I do believe return 

and work in industry in general, is the vast majority. 

Senator MCCASKILL. So what would it take for us to—and I 

mean the sky’s the limit here. What would it take for us to get 

someone like Ms. Schinasi to stay in some of these jobs for a decade 

maybe, something remarkable like 10 years, where they could actually manage and be accountable for these programs? Is it a matter 

of money? 

You talked about that you’re having trouble getting people to 

come back because we are limiting what they can do when they 

leave. If you could write your wish list, why is it that somebody at 

GAO—I guarantee you she’s not getting rich. I guarantee you she’s 

not in this job for the money or the fame. I’m not implying that 

people that leave DOD are going for money or fame. 

But something is terribly wrong when the Government Accountability auditor stays 18 years and the average program manager—

and we want to quibble about how long—are turning over like hotcakes. There is something terribly wrong with this system, and 

55

there’s no way we’re ever going to fix it if we don’t have longevity 

in these leadership positions. 

Mr. YOUNG. The questions I had were largely about politically, 

presidentially appointed senior leadership positions in the acquisition community. If you move levels down from that, we have lots 

of government civilians who just like Ms. Schinasi, have been in 

place for 20 and 30 years. I believe Senator Reed asked about this. 

In fact, my issue is refreshing that leadership with people that are 

about to retire. 

So at the deputy under secretary levels and the next level and 

even in other places, we have a lot of that leadership. In general, 

we have a bias to run programs and oversee portfolios of programs 

with program executive officers (PEOs) who are military. In that 

regard, the acquisition system parallels to some extent the military 

assignment system, where people don’t serve indefinitely in those 

jobs. Again, acquisition rotates far less frequently. I have PEOs 

and program managers for at least 3 years. Many of the line officer 

organizations—commands of ship rotate on an 18-month to 24-

month basis. 

Senator MCCASKILL. Well, shouldn’t we fix that? Shouldn’t we 

change it? Obviously it’s not working. We have cost overruns, we 

have scheduling. This is a disaster. We’re talking about hundreds 

of billions of dollars. Isn’t it time for someone to stand up and say, 

this is a crisis and we can no longer use this model in terms of the 

kind of longevity it’s producing in these critical oversee and accountability positions? 

Mr. YOUNG. The issue has multiple dimensions. I believe this is 

one that’s reasonably addressed when people are serving 36 to 40 

months. I have program managers serving more than 4 years. I 

think we should look at it, but I would urge you that more significant factors are rotating the requirements officers and letting the 

requirements officers lean very hard on those program managers to 

change things. Then as I cited in the T–45 example, it’s also programmers and comptrollers giving acquisition team members a 

budget they can’t execute, and they need the backing to stand up 

and say: I can’t execute that budget. 

Senator MCCASKILL. We’ll follow up with you and with you, Ms. 

Schinasi, because I think it’s time that we try—and I know that 

the chairman talked about a new position that might be outside of 

the process at this point in terms of the oversight. I think that 

might be a key example. 

I’m new here, but this is sickening. This is unacceptable. This 

would never be tolerated in the private sector. The reason it’s tolerated here is because we care about our military, we want them to 

have the best, and because, frankly, it’s not our money. It’s taxpayer money. 

I think we need to do something dramatic and different in terms 

of how these processes are working. 

Let me finally address a question about the number of contractors. We’re down to six. I think all of us that are being honest 

about this know that this is a cross-pollinated incestuous deal here, 

that the contractors and the military—I’m aware of an incredibly 

inappropriate incident that occurred with the highest ranking of 

56

our military in an acquisition contract dealing with a PR screen for 

the Thunderbirds that we will go into another day. 

But when we get down to one or two contractors, what should 

we do, Ms. Schinasi? I mean, when we’ve gone from what, something down to six, what do you recommend? How do we create 

more competition if we’re down to six, and how do we keep it from 

going to one or two? If we’re going to do that, why don’t we just 

bite the bullet and say that we have in fact become like other countries, where the government controls the business of supplying 

equipment to the government, because right now we kind of do; we 

just don’t admit it. 

Ms. SCHINASI. I’m going to give you an answer that touches on 

a couple of the issues you’ve raised, and that is, it would be good 

if we could get more production going because production is where 

contractors look for efficiencies for themselves. That’s where you 

can go into a fixed-price environment and you can rely on them to 

do what’s in their best interests, that’s also in the government’s 

best interest. 

One way to do that is to shorten these development cycles, and 

shorter programs will also address the problem that you talked 

about for accountability of program managers. If we only need 

somebody to stay 5 years, we’re more apt to get that kind of match 

between what the system wants out of its program managers and 

what the system needs out of the program managers. So that 

would be one part of the answer. 

I think you are right in that we cannot rely on competition the 

way the procurement system has been set up, because the bedrock 

of our procurement system is competition. So we have to put more 

rules in place and we have to legislate more and we have to have 

more oversight. I’m not sure that’s the most efficient way to do 

things, but that’s where we are left right now. 

There are ways to encourage competition if we look at the supplier base as a whole. The six companies I talked about are the 

major defense contractors, but there is an industry out there that 

can be created. Congress has looked at different ways to do that, 

the use of other transaction authority, for example, or other ways 

to bring in nontraditional contractors. I think some of those initiatives have merit, that we can get companies involved in government business that will provide some of that incentive and initiative to the ones who are already there to do their job better. 

Senator MCCASKILL. Secretary Young, do you have any comments about that? 

Mr. YOUNG. I think I would agree completely with that. I’ve 

issued—I mentioned that I issue weekly notes to the broad acquisition team to try to keep moving the culture forward. At least two 

or three of those notes are aligned with the chairman’s comments, 

and your comments. I have asked people to stop viewing success as 

getting more money, growing your program office, getting more 

people. In fact, I view that as a failure if you’re doing it at the expense of contributing more capability. I’d be happy to give you that 

note for the record. 

[The information referred to follows:]

See the attached DUSD(AT&L) notes. 

57


603ful79.eps
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603ful80.eps
59

Mr. YOUNG. I have issued notes that said we have to have more 

open competition and do it as fairly as possible. I created acquisition strategies where a smaller business and a larger business 

were going to go head to head and the large business went and 

bought the smaller business. So I’ve watched an acquisition strategy through competition fall apart. We need some serious attention 

in this space. 

We have another problem where I’ve seen some of the venture 

capital models work well, like In-Q-Tel for the Central Intelligence 

Agency. I’ve talked to those companies and those companies in general won’t come and do business with the Pentagon because of the 

complexities of trying to do business with us. So we need to go attack some of those issues. 


603ful81.eps
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All these small companies may not have adequate cost accounting systems, but they have technology that our warfighter needs. 

We need to find a way to deal with that. 

Senator MCCASKILL. Well, the irony is that because we are pretending like we have a competitive system, we are putting myriad 

rules and regulations in place to actually compensate for the fact 

that it’s not true competition, and it’s those myriad rules and regulations that are keeping venture capitalists out. So it is a circle of 

failure. This is like—it’s almost surreal, how ridiculous it is. 

I don’t have any more time——

Chairman LEVIN. Senator, I’m afraid your time is up. 

Senator MCCASKILL. I’m out of time. Thank you very much. 

Chairman LEVIN. Thank you, Senator McCaskill. 

Senator Martinez. 

Senator MARTINEZ. Thank you, Mr. Chairman. 

Secretary Young, I want to focus on the issue of shipbuilding. I 

know the CNO has had a goal of a 313-ship Navy. We’ve talked 

about that a little bit this morning. We also know that from time 

to time in recent years this plan has not been meeting the goals 

that we need in order to see that to fruition. 

We’ve also heard from shipbuilders that they argue that the formula for bringing down construction costs has to include volume 

and stability. My question to you is essentially, do you believe that 

the Navy at this point has adequately addressed the concerns in 

the shipbuilding plan which will then enable the Navy to get on 

the road to a 313-ship Navy? 

Mr. YOUNG. Well, I believe the Navy—I have not seen the latest 

iteration—the Navy is building, possibly with modest changes, the 

shipbuilding plan for the program objective fiscal year 2010 to fiscal year 2015 budget. Your current plan, as it exists in the current 

President’s budget, I believe, provides moderate stability. Certainly 

you wouldn’t call it robust, but a moderate stability and a path to 

the 313-ship Navy. 

DDG–1000 is an important piece of that plan. I believe trying to 

regain cost control on the LCS is an important piece of that plan 

for capability reasons as well as some degree of industrial base concern. 

Senator MARTINEZ. In your prior job you worked on the LCS procurement program. Specifically on that, where are we today in your 

estimation in terms of—I know we have the two prototypes and 

they’re about to come out I guess in the next 2 or 3 months. Once 

those are sea-tried and a model is selected on which to go forward, 

do you think that the system, the procurement system, is ready to 

go so that we can then proceed to the construction of a LCS and 

get a production line going that’s going to be successful? 

Mr. YOUNG. A couple of things. One, the LCS was formed ahead 

of Operation Iraqi Freedom, where the Department did several 

thousand—I went to Fifth Fleet and they did several thousand 

boardings in the Gulf. We were boarding small ships that could 

have been a danger with billion dollar DDG–51 destroyers. We 

need a smaller, faster ship in our Navy. 

I couldn’t be more frustrated than all of you that that ship, 

which we set out based on some commercial designs that we were 

going to make modest changes to, has now grown, more than douVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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bled in cost. I would like the Navy to revisit, trying to get some 

cost control of that program. But I believe the capability is still 

needed and I think you will see in the POM10 budget the Navy 

tries—because you can’t deny the capability—the Navy will try to 

buy those ships and restore that program. 

The cost cap right now is causing a problem. I was asked, and 

I will provide extended comments for the record, but one of the fundamental issues is we took a more commercial-like ship that we 

were going to add some systems to and applied a lot of Navy technical authority and turned it into a militarized ship. We drove that 

cost growth. I don’t even know—it’s some mix of cost growth and 

the fact that we made new demands on this ship that drove the 

price of it to a higher level. ‘‘Cost growth’’ is such a general word 

applied here. 

[The information referred to follows:]

Yes. The procurement system is prepared to proceed with further production of 

the Littoral Combat Ship (LCS). 

The Navy has worked diligently with the industry teams to identify and evaluate 

program cost, schedule and technical risk. The Navy has taken the following action 

for the LCS program to address cost growth and prevent recurrence of the problems 

found during production of LCS 1 and LCS 2, including increased oversight assigned 

to monitor industry performance, and allowing for more realistic schedule objectives. 

An updated acquisition strategy for the fiscal year 2008 and fiscal year 2009 procurements was approved by the Under Secretary of Defense for Acquisition, Technology, and Logistics. The Navy is seeking to award one ship in fiscal year 2008 

using the funding appropriated by Congress, along with material from one of the 

ships terminated in calendar year 2007. The fiscal year 2009 President’s budget requests two additional LCS ships. 

The following relates to the incorporation of military specifications into the LCS 

designs. 

In February 2003, the Naval Sea Systems Command and Program Executive Officer ships made two joint decisions. The first was to work with the American Bureau 

of Shipping (ABS) to develop a set of design standards, or rules that could be applied to non-nuclear naval combatant ships. The second was to utilize ABS to class 

both LCS and DDG–1000 using the new rules. ‘‘To class’’ means to certify adherence 

to the rules through design approval and construction surveillance. 

In the Preliminary Design Phase Request for Proposal (RFP) issued February 28, 

2003, the LCS Industry Teams were required to team with ABS to aid in producing 

an acceptable design, and to conduct an early assessment of each design to gauge 

its ability to comply with the design rules that were under development at that 

time. 

The Preliminary Design RFP stated:

‘‘It is the Government’s intention that the Preliminary Design be evaluated by ABS and judged acceptable at that stage of design. This evaluation 

will be repeated at the end of Final System Design. It is also Government’s 

intention to have the LCS classed by ABS at delivery. The Government understands that there is currently no complete set of U.S. approved rules applicable to LCS. The Government expects that the U.S. naval ship rules 

currently under development will be available prior to the award of Final 

System Design.’’

At that point, the Navy established ship structure design requirements under the 

High Speed Naval Craft (HSNC) Guide and communicated this to the teams. The 

HSNC was freely available, having been released the previous year. The Navy also 

established that other Mechanical and Electrical systems would be designed to the 

Naval Vessel Rules (NVR) and communicated that fact. At that early stage of the 

design process, the above dialogue provided sufficient guidance to conduct the Preliminary Design phase. 

To provide advance insight into the required rules set, ABS issued a Draft Final 

Rules Matrix for LCS to the Industry Preliminary Design teams in October 2003. 

From January 2004 to May 2004, the Navy worked to finalize the first issue of the 

NVR. This first edition NVR was released May 21, 2004, and was immediately provided to the Industry Teams by ABS. 

62

The December 19, 2003 Final System Design (FSD) Phase RFP reiterated the requirement for the ships to be delivered in class as a naval combatant ship in accordance with the NVR. By the time of FSD contract award on May 28, 2004, the Industry Teams were aware of the February 3, 2004 draft NVR. It is during the FSD 

phase that the Industry Teams were tasked to fully describe detailed design requirements for all aspects of the ship in the course of preparing the Shipbuilding Specification. It was expected that the ship designs would be further developed during 

the FSD phase to conform to the design rule requirements (i.e., HSNC for Structure 

and NVR for the remainder of the mechanical and electrical systems), which is a 

normal part of the ship design progression. 

Both teams inserted reference to the May 21, 2004 NVR in their approved Specified Performance Documents (SPDs), thereby noting the NVR among the applicable 

requirements documents. After accepting the Teams’ SPDs in final form, they were 

made contractually effective for the succeeding portions of the program. 

These comments clearly represent the Navy’s statement and view of the circumstances. However, it should be clear that these are ambiguous statements which 

predict the application of undeveloped standards. It is inappropriate on the part of 

the Navy to claim that industry clearly and concisely understood the rules and certification requirements which would be applied to LCS. The Navy bears a share of 

responsibility for the poor management and execution of the LCS program.

Mr. YOUNG. Is it a more capable ship at the price of $400 million 

plus? Yes, it’s a more capable ship. Is it as affordable to the Navy 

as it should have been? Absolutely not. 

Senator MARTINEZ. Well, given that, do you think that the vision 

for the LCS can be actually accomplished, given where we are 

today? 

Mr. YOUNG. I think I’d stay with the first—I think the vision has 

to be accomplished. I need a ship that can go 40 or 50 knots and 

chase down the small vessels. Our adversaries buy ships now that 

are faster than DDG–51s. DDG–51s really weren’t intended for the 

maritime interdiction operation missions. We need a ship in this 

class for the missions our Navy faces in today’s environment. 

I think this is very consistent with Secretary Gates’ comments 

about what are the threats and the missions we will have to execute in the next few years. There’s a gap in the Navy to do this 

job. Can we now go in and undo some of the changes that were 

done to the LCS to make it more affordable for the Nation so we 

can buy them in quantity for our Navy’s warfighter? 

Senator MARTINEZ. So give me some confidence that we’re on the 

right track to be able to get that done. Because I agree with you, 

we need the ship. 

Is the Navy on track to be able to pull this off? Is the acquisition 

system in place? Once we select the prototype, are we ready to go? 

Mr. YOUNG. Are we able to buy the ship that the LCS has become? Probably, but it’s not as affordable as it should be. Has the 

Navy made enough effort to get costs back out of that ship? I think 

that’s not answered yet and I intend to have discussions and meetings with the Navy to seek to accomplish that goal. 

Senator MARTINEZ. In terms of the overall ship acquisition challenges, do you believe that we have reversed or have taken the 

steps necessary to reverse this long-term trend which we’ve seen 

that has not allowed us to get the ships that the Navy needs, just 

in the overall fleet, not just the LCS? 

Mr. YOUNG. I think, unfortunately, the requirements process has 

driven us to ships that are more expensive because they have more 

capability. You have to look at those factors. I face this constantly 

in the Navy, and that’s my job, is to try to find that middle ground. 

There are places where I could buy a less capable ship and it would 

63

be more affordable and run some risk of the threat being able to 

match that ship. 

So I think the Navy’s trying to find that reasonable balance. I 

believe we’ve restored some degree of stability to the Navy shipbuilding program. The program is expensive, more expensive than 

we would like it to be. But it is linked to the capabilities that reasonable people have assessed the threat to have, particularly when 

you look at nations that are building capable ships out there. 

So I think the Navy’s finding that some degree of reasonable 

ground—unfortunately, ships are more expensive. They’re more expensive—I think, as Ms. Schinasi pointed out, we’re not buying 

anything in the quantities we bought them in the past. That alone 

is driving a significant cost into our systems across the board, not 

just ships. 

Senator MARTINEZ. This last question for both you, Secretary 

Young and Ms. Schinasi as well. In the 109th Congress this committee passed legislation that was enacted into law which requires 

that the Defense Department give a preference to fixed-price contracts for major developmental defense programs. Fixed-price contracts shift the risk to the contractor and incentivize the contractor 

to increase the reliability of the system components. 

GAO has determined that cost-type contracts cost the taxpayer 

$80 billion in cost overruns in the past decade. So what has been 

the practical effect of this legislation in helping the military Services to end the practice of overpromising capabilities and underestimate cost of development in buying weapons systems? 

Ms. SCHINASI. I would say that the contract type should reflect 

the risk associated. So when we have a preference for fixed-price 

contract, what we’re saying is let’s get some of the risk out of the 

programs that we’re trying to develop and produce here. There 

have been experiments in the past with fixed-price development 

contracts that have not worked because we have not taken on the 

more difficult piece of the risk of the technology maturity and the 

other things that are associated with all the cost growth that we’ve 

been talking about this morning. 

A program I would look at now is the JSF, where we are going 

into production and still looking at costs with some cost-type contracts, which says that perhaps the cost of the program is a little 

bit greater than we would expect to see going into production. 

But again, the contract type has to be put in place associated 

with the risks that the government is undertaking. 

Senator MARTINEZ. Mr. Secretary? 

Mr. YOUNG. I would agree with Ms. Schinasi’s comments and add 

to that. One thing I have to ask—I don’t have any way around—

I have to ask your patience with is, you pass legislation and it 

takes time to implement steps in that regard and move forward. 

Then it takes some years to see. I’ve been frustrated with the discussion about that transition. To me this isn’t a transition business. I have something like 16 programs seeking Milestone Bs this 

year and all of those programs will execute over the 3 to 8 years 

beyond the end of this administration. 

We need to make those decisions well. We will make those decisions well. We have done exactly what she said. I have asked the 

program office and Lockheed to look at fixed-price incentive conVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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tracts at the right point for these JSF aircraft. So we will, with 

your legislation—and partly because it’s just the right thing to do—

I will continue to push in this space to get better terms and conditions for the government, and it will take us a couple of years to 

see the benefits of all those activities. 

Senator MARTINEZ. Thank you both very much. 

Chairman LEVIN. Thank you, Senator Martinez. 

Senator Akaka. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

Ms. Schinasi and Secretary Young, in that order, I want to welcome you here today to talk to me about the problems that have 

been going on for years. I want to deal with production process control and also with best practices. I think there is an agreement that 

achievement of quality and production is nearly impossible without 

process control, and it also makes for casting of cost and timelines 

extremely difficult to do accurately. 

One of the many problems we’ve heard today deals with poor 

business and engineering practices. Specifically, I am most concerned that in all cases there was not a single instance where all 

critical production processes were in statistical control prior to the 

beginning of the production phase. 

My question to both of you is, could you please describe why this 

previously identified best practice has failed to be enforced? Second, what steps the Department is taking with its current programs that are still in the pre-production stage to break this trend? 

We’re talking about attacking and breaking these trends? 

So these two parts of the question, about describing the best 

practice and also what steps are you taking. 

Ms. SCHINASI. Senator, I will defer to the Under Secretary on the 

enforcement piece, but I would like to say, on the manufacturing 

the process control, that is an indicator that we use to look at 

whether or not a system is ready to go into production. What we 

find in many cases is the reason that you don’t have process controls is because you don’t have a stable design, and in some cases 

you don’t have stable design because you’re working with immature 

technologies. 

So it’s a cascading problem that we see in a lot of programs. 

Process controls is one way that you can measure the readiness of 

your manufacturing to go forward. It’s not the only one. But the 

thing that I think is most troubling to us is that in many cases, 

even if program offices do not capture that metric, they do not capture any metric because they don’t—they have not seen the importance of getting the manufacturing processes ready. 

Senator AKAKA. Secretary Young? 

Mr. YOUNG. I would add a comment. This is one of the more difficult decision spaces that I face in the business. I’ll use a couple 

of examples. JSF will be one. Right now we have 15 system design 

and development, the end of the development of JSF, aircraft in 

construction. So we have teams of people that are learning, improving the processes to build that aircraft. We have signed for two lowrate production contracts for that aircraft. 

My choices are to build the SDD aircraft, come to a halt and test 

and design that production process and then start it back up. That 

guarantees me a loss of time and a loss of learning and an inVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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creased cost to the taxpayer. Or the risk issue that’s come up many 

times today, do you take some appropriate level of risk and begin 

the process of fabrication and production at low rates and continue 

to gain maturity in the processes? 

I certainly can’t disagree with the GAO comment that you’d love 

to have everything. But I believe the everything path will cost me 

more and so I have to take some measured and prudent risks, I believe, on the heels of developmental aircraft construction to begin 

to do low rate production, and then seek to go to rate production. 

I believe that in our rate production decisions we seek to have 

much more maturity, if not good maturity, in that production process control you’ve talked about. 

Senator AKAKA. To both of you, to what degree has the current 

security environment and the wars in Iraq and Afghanistan contributed to what you call a sense of operational necessity that allows waiving of requirements established in recent legislation regarding these practices? 

Mr. YOUNG. Can I comment on that? 

Ms. SCHINASI. Yes, please. 

Mr. YOUNG. I had a meeting yesterday that I think potentially 

answers your question, sir. The H–1 upgrade program to get new 

helicopters to the Marine Corps, known as the Y and the Z, the H–

1Y and the H–1Z. The program manager came to me and there are 

pieces of the AH–1Y that are not ready for test. They are in operational test right now, and successful operational test would have 

paved the way for a decision this September to buy low-rate production Zs, and then again in 2009 the issue before you is to buy 

low-rate production Zs. 

The Marine Corps has a gap and they need these aircraft. So 

they come to me and all the risk comes to me and they say—we 

didn’t go—we cancelled operational tests, we’re now not going to do 

operational tests until 2010, and still we seek to buy and deliver 

aircraft in 2011, hoping for success. I’m faced with the challenge 

of how do I come talk to you, when you’re asking me to execute 

more discipline in the system and demonstrate that greater discipline. Yet the best way to do this would be stop. If I stop on the 

Y-Z—on the Z program right now, the Marine Corps will not get 

helicopters in 2011, they will be short of helicopters, the costs will 

unquestionably go up, but I could possibly deliver the program 

more confidently, for a known increase in cost. Or I’m faced with 

the alternative, to stay the course and take some reasonable measures to demand testing and operational assessments and developmental tests that will help build my and your confidence, with the 

idea that I possibly need to go ahead and buy the Z aircraft for the 

Marine Corps’s operational need. 

I haven’t made that decision yet, but that’s a perfect example of 

the kind of decisions, where I’m trying to balance the risks and 

your request to me to execute the program with more stability and 

the warfighter’s need today in the theater. 

Ms. SCHINASI. I think the Under Secretary was correct earlier 

when he said every program has its own story and it’s important 

to recognize the story in every program. But I also think it’s important to step back and look at what is happening across the board. 

So the question I think that’s important from the question that you 

66

just raised and the example that was just given is why are we in 

this position? Why are we in a place where we have to rush, where 

we have to push through, where all of a sudden it’s urgent, urgent, 

urgent, because in many cases once we say it’s urgent and we move 

forward, it takes us longer to get where we’re going anyway. 

Mr. YOUNG. Maybe could I offer another example, because here 

we have great alignment. Another example I dealt with this year 

is the Multi-User Objective System (MUOS). It’s a replacement for 

the ultra-high frequency (UHF) satellite. I feel like the requirements and budgeting enterprise should have recognized the need 

for that satellite earlier and budgeted for it. Instead, we were late 

to need, and they came to the acquisition team and said: We need 

a replacement for the UHF satellites in 60 months. The Department historically had taken 78 months to build every communications satellite. 

The program office accepted the challenge, said, we’ll try to do 

everything we can to meet the 60-month schedule. They are going 

to deliver MUOS in 77 months. So they beat the average by 1 

month. Is this viewed as program office failure? In one sense it is, 

because they never should have agreed to do it in 60 months. 

Are they the sole responsible party? Absolutely not. The programming and requirements community could have recognized this 

need, I think, as Ms. Schinasi said, if I could borrow her words, 

and budgeted for a program that has a reasonable probability of 

succeeding to meet that schedule and budget. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

Chairman LEVIN. Thank you, Senator Akaka. 

Senator McCaskill. 

Senator MCCASKILL. I have looked at the audits that were done 

by the Defense Contract Audit Agency concerning Lockheed cost estimating systems and also the report that was issued in November 

of last year by the DCMA that called Lockheed’s systems ‘‘deficient 

to the point where the government is not obtaining useful program 

performance data to manage risks.’’ 

There is a GAO audit also that was highly critical. This is not 

a new issue. Back in 1998, the president of Lockheed Martin said: 

‘‘Our current program and functional reviews are not capable of 

providing what we need.’’ 

I understand there was a meeting in February between the Lockheed officials about the cost estimating system problem, and obviously this is a big, big problem, because we’re talking about the 

JSF. We’re talking about almost $1 trillion, and we’re basing payments on a system that all of our auditing agencies and management agencies are saying doesn’t work. 

Back in 2005 you withheld 2 percent of your payments to Bell 

Helicopters under a circumstance, frankly, that sounds as egregious as this. Are we going to expect and are you planning on withholding payment from Lockheed because of the deficiencies in their 

EVMS? 

Mr. YOUNG. Senator, you’re obviously well-informed on this. One 

thing I want to distinguish here is to make clear, the report addresses the EVMS and not the billing system. So the government 

has valid invoices for the moneys that we have paid Lockheed Martin, and I’ve had this discussion with the CEO. We believe the 

67

money paid and the billings match. The translation by Lockheed 

Martin of invoicing and billing into an EVMS to assess their 

progress and their projection of future success on the program, 

there were flaws in that practice found in that report. 

We met with Lockheed, as you noted. Secretary Finley, the Deputy Under Secretary of Defense for AT&L, met with them, highlighted the report, and then he and the DCMA outlined a plan to 

address and remedy all these issues. There are 12 milestones in 

that plan. The first milestone’s been met. The other 11 are ahead 

of us. 

DCMA meets with Lockheed’s staff every 2 weeks to address progress on this, and we will withhold $10 million for every milestone that is not met as we continue to progress, with the goal of 

remedying the Lockheed EVMS within a year. 

Senator MCCASKILL. So you’re going to withhold $10 million 

every time they don’t meet one of these. I do want to—that’s good, 

and I would love to be kept apprised of that as to how much is 

withheld and what the milestones are and what is being reached, 

because clearly this has been a continuing problem. 

I think the thing as an auditor that concerned me most is in the 

audit they also noted their control environment and accounting at 

Lockheed was inadequate. Well, when an auditor cites a control environment the sirens and bells and whistles should go off. That 

means that there is an environment where bad, bad things could 

happen if the controls are not in place and if it’s a matter of their 

accounting system. 

So I would specifically like that issue to be addressed if possible 

in a follow-up, as to how they are taking steps specifically based 

on the audit findings about their control and accounting. 

Mr. YOUNG. We’ll provide you more detail for the record or personally, or both, whichever you like. 

[The information referred to follows:]

Lockheed Martin is making adequate progress against their Corrective Action 

Plan. Twelve withhold milestones have been identified. $10 million penalty represents 3 percent of monthly JSF billings which is in line with Bell withholds. All 

four withhold milestones have been met on time with none missed.

Senator MCCASKILL. Both would be great. Thank you so much. 

Thank you, Mr. Chairman. 

Chairman LEVIN. Thank you so much, Senator McCaskill, and 

thanks for your energy and commitment in this area. It’s absolutely invaluable to us. 

I want to pursue a matter that you made reference to earlier 

today, and that’s this so-called Thunder Vision contract, which has 

come up many times now. But there’s an Inspector General (IG) report that was issued in May which identified an additional seven 

contracts on which senior Air Force military officers were perceived 

to have used the powers of their position to award contracts to specific companies. 

I’m wondering, Secretary Young, whether or not you’re aware of 

that IG report and, if so, what steps you’ve taken to provide accountability where you thought accountability was needed. 

Mr. YOUNG. I’m aware of the IG report. It is working in the normal disciplinary process, first to the Air Force, and I need to see 

what actions they take. Many aspects of that report highlight an 

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issue I’ve talked about around today, where I believe the report 

cites that the acquisition team members sought to have a competition and felt like they needed standards against which to compete. 

The report talks more about people outside the acquisition process 

seeking to exert undue influence on that process. 

Those are disciplinary matters that are not within my purview, 

but they exist. They exist in lots of different ways and manifest 

themselves with people who have authority becoming frustrated 

with an acquisition team who is explaining, we need to do this in 

a competitive manner, in an open manner, and consistent with the 

laws and regulations. We run into that challenge on a regular 

basis, Mr. Chairman. 

Chairman LEVIN. I think that it’s clear to us the issue of accountability is critically important. This morning Senator McCaskill has 

highlighted it. It’s been raised also in your testimony, I think, Ms. 

Schinasi. It’s critically important. So even though this may not be 

precisely in your area of jurisdiction, would you let this committee 

know on this particular report that the IG has issued in May as 

to what the outcome was relative to accountability? 

Mr. YOUNG. Yes, sir, I’d be happy to. 

[The information referred to follows:]

The Air Force and Air Combat Command believes they responded aggressively to 

the second report issued on contracts awarded at Nellis Air Force Base. The Department of Defense (DOD) Inspector General (IG) Report on Air Force Air Combat 

Command Contracts recommended that the Assistant Secretary of the Air Force for 

Acquisition issue guidance to Air Force General Officers, military commanders, and 

senior executive servicemembers within the Air Force that reemphasizes the need 

to eliminate the appearance of conflicts of interest situations in Air Force contracting. On March 26, 2008, the Secretary of the Air Force and the Air Force Chief 

of Staff co-issued a memorandum reemphasizing to senior Air Force military and 

civilian personnel the need to eliminate the appearance of conflicts of interest situations and emphasizing ethical responsibilities while conducting procurements. Additional guidance was issued by the Assistant Secretary of the Air Force for Acquisition on April 2, 2008, and the Deputy Assistant Secretary (Contracting) on April 5, 

2008, by memorandum. The Commander of Air Combat Command (ACC) distributed 

the March 26, 2008, memorandum to all commanders within ACC. 

As requested by the Commander of ACC, and at the direction of the Deputy Assistant Secretary for Contracting, an independent review team visited the Nellis 

Contracting Squadron to review contracts from fiscal year 2006–2008 to see if the 

practices occurring in the period of the DOD IG reports, 2003–2005, were ongoing. 

The independent review team concluded that internal controls were still weak. 

As a result of the audits and independent review, the Commander of ACC completed many actions and has actions planned for the near future to improve internal 

controls for contracting activities at Nellis Air Force Base and throughout ACC. The 

commander of the Nellis Contracting Squadron was relieved from command and has 

been replaced by an experienced and engaged commander who is committed to turning the organization around. Additional personnel improvements have been started 

for DOD civilians at the Nellis Contracting Squadron. The Nellis Contracting 

Squadron and all squadrons in ACC have completed mandatory training directed by 

ACC headquarters. Inspection checklists throughout ACC Contracting and the Air 

Force Contracting comprehensive checklist have been updated to include checks for 

the weaknesses identified in these reports. During the week of July 8, the Director 

of Installation and Mission Support for ACC, a brigadier general, along with a member of the Judge Advocate General’s Corps and senior contracting officials, will visit 

Nellis to brief senior leaders of host units and tenants units, such as the Air Warfare Center and the Thunderbirds, on lessons learned from past contracting failures 

and their responsibilities in the future success of the contracting mission. As part 

of the visit, employees of the contracting squadron will receive additional training 

on ethics and competition requirements and reaffirmation of their responsibility to 

seek assistance when they feel pressured to take shortcuts around competition and 

ethics rules. Finally, the Air Force General Counsel is reviewing additional measures in broader ethics training. 

69

However, I think these statements by the Air Force indicate some of the fundamental cultural and disciplinary problems in the system. While disciplinary actions 

were implemented for contracting personnel, it is not clear to me that appropriate 

disciplinary measures have been applied to the individuals who were outside the acquisition process and took actions to improperly influence and pressurize the individuals responsible for acquisition and contracting.

Chairman LEVIN. If there’s no other questions, we will, with 

thanks to our panel, stand adjourned. 

[Questions for the record with answers supplied follow:]

QUESTIONS SUBMITTED BY SENATOR JACK REED

REDUCING TECHNICAL RISK IN ACQUISITION PROGRAMS

1. Senator REED. Secretary Young, it is well understood that one of the problems 

facing many of our major acquisition programs is the high level of technical risk 

that is not rationalized with limited budgets and optimistic delivery schedules. I 

think that the Department of Defense’s (DOD) science and technology (S&T) programs can play a bigger role in researching fundamental phenomenon and technology design, performance, and integration issues to reduce the costs and risk of 

major programs. What do you think is the role of relatively small investments in 

S&T in helping to reduce the large and growing costs of the DOD major acquisition 

programs? 

Mr. YOUNG. Reducing costs of major acquisition programs has been one of my specific goals as the Under Secretary. In my previous position, as the Director of Defense Research and Engineering (DDR&E), I saw the specific role the S&T investment can have in helping to meet this goal and I have continued the integration 

of both the DDR&E and Systems Engineers in acquisition programs. In addition, 

we have directed the use of competitive prototyping both before and where appropriate after Milestone B. For those systems before Milestone B, the S&T community 

is responsible for the competitive prototyping efforts. We believe that by developing 

prototypes before locking down system design and development, we will be able to 

make tradeoffs between requirements, cost, and technological feasibility. 

Finally, we have expanded the application of technology maturity assessments for 

major acquisition programs. All of these things—prototypes, demonstrations, and 

technology assessments—come from the S&T investments of the DOD should help 

to control costs by providing better information from which decisions can be made. 

DEFENSE LABORATORIES

2. Senator REED. Secretary Young, our network of defense laboratories house 

equipment and expertise which can be better utilized by many accounts to help address the problems that are resulting in cost and schedule overruns in many acquisition programs. How specifically are you tapping into your defense laboratories to 

address acquisition problems? 

Mr. YOUNG. For the most part, the laboratories provide technical expertise to 

evaluate feasibility. In the past few years, the DOD has substantially expanded its 

use of technical experts from DOD labs to support the acquisition process. The use 

of immature technologies is a major risk factor for cost and schedule over-runs in 

Defense acquisitions. To minimize the possibility of going forward into System Development and Demonstration (SDD) with immature technologies, DOD conducts 

technology readiness assessments for all acquisition programs as they approach the 

Milestone B decision point. Technical experts from the DOD laboratories are active 

participants on the review teams that analyze technology maturity to ensure only 

mature technologies enter the SDD phase. In addition, the Department employs defense support teams, which often comprise expert technical staff from DOD laboratories to assist specific acquisition programs with technical problems.

3. Senator REED. Secretary Young, what new authorities can this committee provide the laboratories to enhance their ability to support your efforts at reducing acquisition program problems? 

Mr. YOUNG. The laboratories have sufficient authority within their expertise and 

resources to assist acquisition programs.

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MANUFACTURING PROGRAMS

4. Senator REED. Secretary Young, the Department’s Manufacturing Technology 

(MANTECH) programs play a key role in reducing the costs of weapons systems and 

creating innovation in the defense industrial base. However, these programs are 

often underfunded and do not have the impact that they possibly could. What role 

do you think the MANTECH program should play in helping to address acquisition 

issues? 

Mr. YOUNG. The MANTECH program develops and matures key manufacturing 

processes to accelerate technology improvements in the acquisition and sustainment 

of DOD systems and components. In fiscal year 2008, the Department established 

a Defense-wide Manufacturing S&T program to focus on cross-cutting manufacturing processes. We are in our first year of execution of this program but I believe 

it will pay dividends soon. In addition, the military department’s MANTECH program investments are critical to affordably equipping the warfighter. As such, the 

MANTECH programs are closely coordinated with military department’s requirements for achieving affordability goals. The Navy MANTECH program is actively 

participating with the Virginia class submarine, CVN, and DDG–1000 programs to 

achieve shipbuilding affordability goals. The Army MANTECH program is developing manufacturing processes of critical technologies, such as Focal Plane Arrays, 

where MANTECH investments reduced item costs from $1.6 million to $60,000 per 

large format arrays to enable proliferation of new sensor capability on ground platforms. The Air Force MANTECH program worked with the F–22 program office to 

identify new materials and manufacturing processes for the F–22 canopy, resulting 

in an increase of canopy life of more than 500 percent with an estimated $450 million life cost avoidance for F–22. 

Finally, the MANTECH program, under the guidance of the Joint Defense Manufacturing Technology Panel (JDMTP), has worked to develop Manufacturing Readiness Levels (MRL), providing a communication framework for identifying and managing manufacturing risks through the development process.

RESOURCES FOR TECHNOLOGICAL MATURATION

5. Senator REED. Secretary Young, you have implemented a set of procedures to 

ensure that programs are to use mature technology if they are to pass Milestone 

B decisions. Technologies do not mature without resources. Has the Department developed any methodologies that would enable estimates of resource requirements 

and timing of investments in research and early stage technology development to 

ensure adequate technological maturation to support the reduction of cost and delivery time of major programs? 

Mr. YOUNG. Currently, we do not have an estimate of the resource requirements 

needed in early technology development to ensure adequate technology maturation. 

We do believe, however, that prudent use of both Advanced Technology Development and Advanced Component Development and Prototype funds (Budget Activities 3 and 4 of major Force Programs 6) should give the Department better cost predictability for late-stage development activities that contribute to reduction of cost 

and delivery time of major programs. The current DOD-wide S&T budget request 

of $11.4 billion is the second highest request in history, in constant year dollars; 

embedded within this request are funds for a number of demonstrations and prototypes. 

Also, my policy for competitive prototyping is intended specifically to mature technology, inform requirements and better define costs prior to Milestone B. Competitive prototyping should effectively identify potential issues associated with immature technology and lack of understanding of the critical program development path. 

It is too soon to provide definitive data on how earlier prototyping will impact the 

cost and delivery time of major programs, but in general, for those systems before 

Milestone B, the S&T community is responsible for the technology-based competitive 

prototyping. This increased investment should reduce risk. We believe that by developing prototypes before locking down system design and development, we will be 

able to make tradeoffs between requirements, cost, and technological feasibility.

6. Senator REED. Secretary Young, do you have quantitative estimates of the S&T 

investments necessary to mature technologies to the point that we can reduce cost 

and time to deliver systems for any existing programs of record? 

Mr. YOUNG. Currently, we don’t have refined quantitative estimates of the S&T 

investment necessary to mature technologies to the point that can reduce cost and 

time to deliver systems. We do believe, however, that prudent use of both Advanced 

Technology Development and Advanced Component Prototype Development ProtoVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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type funds (Budget Activities 3 and 4 programs) should give the DOD better cost 

predictability. The current DOD-wide S&T budget request of $11.4 billion is the second highest request in history, in constant year dollars. This investment highlights 

our belief in S&T as an enabler of cost control. In this area of maturing and prototyping technologies for weapon systems, it will not be easily possible to provide an 

annual dollar amount or percentage of the budget. What is required is that the 

Services and the DOD accept the requirement and demonstrate the will to invest 

larger amounts of research and development (R&D) funds in the early phases of a 

program. The rush to move immediately to the final stage of development with one 

bidder based on a paper proposal has proven to be a formula for risk, cost growth 

and schedule delays. The Joint Lightweight Tactical Vehicle (JLTV) program provides a great example. It is not likely that the JLTV program would have successfully executed based on selecting one paper proposal for aggressive development 

against unrealistic requirements. However, it was a struggle to get the Department 

to fund three prototype JLTVs.

RESOURCES FOR COMPETITIVE PROTOTYPING

7. Senator REED. Secretary Young, your initiative to expand efforts at competitive 

prototyping prior to major program initiation will naturally lead to increased resource requirements to support these activities. Do you expect these increased investments to be made by the Department in defense industry only, or will additional 

resources be provided to DOD labs and technical centers as well? 

Mr. YOUNG. As noted in my testimony, my intent in establishing policy for competitive prototyping is to rectify problems associated with immature technology and 

lack of understanding of the critical program development path. Prototyping at any 

level—component, subsystem, or system—earlier in the milestone development process will improve the knowledge associated with estimating development and procurement cost. It is too soon to provide definitive data on how earlier prototyping 

will impact the resource level in the DOD labs and technical centers. But, in general, we expect increased attention to prototyping and competition in our late-stage 

technology demonstration programs to help reduce technical risk, validate designs 

and manufacturing processes, and refine requirements. The DOD needs to demonstrate the will to properly fund the initial technology maturation and prototyping 

efforts necessary to succeed in the final phases of weapon system development programs. Concurrently, these strategic DOD decisions will necessarily require lab and 

center Directors to address the need for more robust and diverse technical, system 

engineering and program management skills within the R&D community to support 

earlier development programs. Ultimately, a shift in a program’s total funding to 

enable competitive prototyping through milestone B is expected to improve cost efficiencies across the acquisition life.

8. Senator REED. Secretary Young, has any estimate been made about the increased funding required to support this initiative? 

Mr. YOUNG. No comprehensive estimate has been done. My view is that prototyping can and should be accomplished within available resources. The purpose is 

to achieve higher confidence in the technology and manufacturing readiness before 

we initiate major investment in the system development. In general, there are many 

cases where we can mature our knowledge, and sensibly avoid the kinds of cost 

growth we have seen that resulted from not prototyping. 

Frankly, the alternative of taking immature, unproven, and untested technology 

into the final phase of system design and development without prototyping has 

proven in several cases to be extremely costly for the DOD. I believe it is fair to 

suggest that only a fraction of the funds DOD has paid for SDD phase cost growth 

could have paid for multiple, robust, competitive prototypes.

INDUSTRIAL BASE STRATEGIES

9. Senator REED. Secretary Young, please describe the processes by which the Department assesses the adequacy of the government acquisition and industrial base 

to support current and planned future defense acquisitions. 

Mr. YOUNG. The Department periodically conducts analyses/assessments to identify and evaluate those industrial and technological capabilities needed to meet current and future defense requirements. It then uses the results of these analyses/assessments to make informed budget, technology investment, acquisition, and logistics decisions. 

72

DOD-wide industrial assessments evaluate and address changes in key system, 

subsystem, component, and/or material providers that supply many programs, and 

affect competition, innovation, and product availability. 

DOD components conduct their own assessments when: (1) there is an indication 

that industrial or technological capabilities associated with an industrial sector, subsector or commodity important to a single DOD component could be lost; or (2) it 

is necessary to provide industrial capabilities information to help make specific programmatic decisions. These ‘‘programmatic’’ assessments generally are conducted, 

reviewed, and acted upon internally within the DOD components. For example, as 

part of the program acquisition strategy, individual program offices conduct industrial assessments in accordance with the requirements of title 10, U.S.C., section 

2440, as implemented in the Defense Acquisition Guidebook (Chapter 2.3. Systems 

Acquisition: Acquisition Strategy). These assessments address DOD investments 

needed to create or enhance required industrial capabilities; the risk of industry 

being unable to provide program design or manufacturing capabilities at planned 

cost and schedule; and issues associated with product technology obsolescence, replacement of limited-life items, regeneration options for unique manufacturing processes, and conversion to performance specifications at the subsystems, component, 

and spares levels. 

These periodic assessments are summarized in the Department’s Annual Industrial Capabilities Report to Congress, most recently completed in March 2008.

10. Senator REED. Secretary Young, does this assessment lead to a single or a set 

of industrial base planning documents that the Department implements? 

Mr. YOUNG. There is no single set of industrial base planning documents that the 

Department implements. However, the Department’s Annual Industrial Capabilities 

Report to Congress (most recently completed in March 2008) summarizes for Congress, Department acquisition officials, industry, and other stakeholders: (1) new departmental industrial capabilities-associated guidance; (2) methods and analyses undertaken to identify and address concerns regarding technological and industrial capabilities of the national technology and industrial base; (3) industrial capabilitiesrelated assessments conducted within the Department; and (4) programs designed 

to sustain specific essential technological and industrial capabilities and processes. 

Nevertheless, the Department’s goal is to integrate and address industrial base 

issues within its existing budget, acquisition, and logistics processes to the maximum extent practicable. Written reports play a constructive role in identifying and 

evaluating integrated polices and actions, but at best are vehicles that reflect and 

document the analyses necessary to develop stronger policies, make informed decisions, and take effective actions. In many cases, these assessments cannot be successfully performed and recommendations implemented on a centralized basis. Industrial concerns affecting individual programs can best be properly and effectively 

integrated into budgets and acquisition decisions only if the responsible acquisition 

officers themselves are conscious of issues that affect their programs, and address 

them within program confines.

11. Senator REED. Secretary Young, what authorities, programs, and other tools 

does the Department have at its disposal to shape the industrial base to meet its 

needs? 

Mr. YOUNG. The industrial strategy of the DOD is to rely on market forces to the 

maximum extent practicable to create, shape, and sustain those industrial and technological capabilities needed to provide for the Nation’s defense. The Department 

will intervene in the marketplace only when absolutely necessary to create and/or 

sustain competition, innovation, and/or essential industrial capabilities. 

Having said that, the Department creates market forces—most frequently within 

defense-dominant market segments—through its budget, acquisition, and logistics 

processes. DOD research, development, acquisition, and logistics policies, analyses, 

and decisions guide and influence industry in four fundamental ways. First, DOD 

evaluations and assessments of industry segments or specific industry-related issues 

help identify future budgetary and programmatic issues and inform policy-making 

and requirements generation. Second, DOD defense system acquisition strategies 

and decisions shape the technological and programmatic focus of industry. Third, 

the Department incorporates industrial base-related policies into its acquisition regulations to protect national security, promote competition and innovation, and, in 

certain specific cases, preserve critical defense industrial and technological capabilities. Fourth, DOD decisions made on mergers and acquisitions involving defense 

firms directly shape the structure of the industry. 

When market forces are insufficient, the Department can use other tools to focus 

industry attention on critical technology development, accelerate technology inserVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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tion into manufacturing processes, create or expand critical production facilities, and 

direct production capacity towards meeting the most urgent warfighter needs. For 

example, the Defense Production Act (DPA) Title III Program strengthens the economic and technological competitiveness of the U.S. defense industrial base, accelerates the transition of technologies from R&D to affordable production and insertion 

into defense systems, and can reduce U.S. dependency on foreign sources of supply 

for critical materials and technologies. The MANTECH program develops and matures key manufacturing processes to accelerate technology improvements in the acquisition and sustainment of DOD systems and components. In fiscal year 2008, 

Congress added $24 million to the Fiscal Year 2008 Research, Development, Testing, and Evaluation (RDT&E) Defense-wide appropriations to establish an Industrial Base Innovation Fund (IBIF) to develop advanced manufacturing processes and 

technologies to support long-term and short-term needs of the Department. The 

IBIF is executed through the Defense Logistics Agency’s MANTECH program. 

Another tool unavailable to the DOD is the Military Critical Technologies List 

(MCTL). As DDR&E, I successfully added funds to this program to enhance and update the MCTL process. I believe the MCTL determinations should be used for multiple purposes, including to guide decisions about critical elements of the U.S. industrial base. 

DOD has the ability to use the DPA, Title 3, to make investments in the preservation and creation of unique industrial capability required for manufacturing military 

systems. I believe DOD should significantly expand our utilization of, and funding 

for, the DPA program. 

Finally, the Department has the ability to establish, and has established, administratively-imposed (imposed by DOD policy, not statute) restrictions within the Defense Federal Acquisition Regulation Supplement (DFARS) precluding the use of 

foreign products for specific defense applications when necessary to ensure military 

readiness.

12. Senator REED. Secretary Young, how much do you invest in these industrial 

base planning and shaping activities? 

Mr. YOUNG. Generally, the Department leverages its significant market clout 

through its budget, acquisition (research, development, production), and logistics 

processes to facilitate an industrial base that is reliable, cost-effective, and sufficient 

to meet strategic objectives. With respect to the ‘‘interventionist’’ programs noted 

earlier, in fiscal year 2008, the DPA Title III program appropriation was about 

$94.8 million and the MANTECH program appropriation was about $273.3 million.

13. Senator REED. Secretary Young, what new authorities do you feel are required 

by the Department to support efforts in this area? 

Mr. YOUNG. The Department has sufficient authorities to identify, evaluate, create, and/or sustain industrial and technological capabilities important to defense. 

QUESTIONS SUBMITTED BY SENATOR DANIEL K. AKAKA

OPERATIONAL CAPABILITY DELIVERY DELAY

14. Senator AKAKA. Secretary Young and Ms. Schinasi, according to the Government Accountability Office (GAO) findings, the current portfolio of programs has experienced a 21-month delay in delivering initial operational capability to the 

warfighter, and a full 14 percent of these are more than 4 years late. These delays 

are unprecedented, and represent approximately a 33 percent increase over 2,000 

portfolio levels. Two of the reasons you have identified as contributing significantly 

to these delays include both request for changes in system capability by the DOD 

and the failure of contractors to meet agreed upon timelines. Which of these two 

factors do you feel pose the biggest challenge to on-time program completion, and 

why? 

Mr. YOUNG. I agree that we can and must do better delivering capability on-time 

and within budget. It is difficult to identify one dominant factor in schedule delays. 

I would list several factors which are generally present to varying degrees in every 

program delay—moving immature technology into final development stages, excessively optimistic industry proposals, lack of full funding or funding cuts in the DOD 

or congressional budget process, and changes in requirements during program execution. 

Thus, to improve program outcomes we must start programs right and align expectations among the key stakeholders. We have several such initiatives in place. 

I am instituting a Materiel Development Decision (MDD) as the formal entry point 

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1GAO, Defense Acquisitions: Assessments of Selected Weapon Programs, GAO–08–467SP 

(Washington, DC: Mar. 31, 2008). 2GAO, Federal Contracting: Use of Contractor Performance Information, GAO–07–1111T 

(Washington, DC: Jul. 18, 2007). 3DOD Inspector General, Contractor Past Performance Information, D–2008–057 (Arlington, 

VA: Feb. 29, 2008).

into the acquisition process. The MDD will assess potential materiel solutions and 

is mandatory for all programs. I am insisting that, with rare exceptions, we conduct 

a robust Technology Development phase that provides for two or more competing 

teams producing prototypes of the system and/or key system elements prior to, or 

through, Milestone B. Prototypes reduce technical risk, validate designs and cost estimates, evaluate manufacturing processes, and refine requirements. These steps 

will ensure that when a program is initiated at Milestone B it is positioned to develop a system or an increment of capability; complete full system integration (technology risk reduction having occurred during Technology Development); and transition to an affordable and executable manufacturing phase. Along with these initiatives, we need to stay disciplined in keeping to the requirements we agreed to at 

the start of the program and in holding everyone in the acquisition community accountable for doing so. 

We can improve program execution by early dialogue with our contractors. We 

have begun using the Program Startup Workshop soon after contract award to align 

the government and contractor teams’ understanding of the contract and to ensure 

they have a shared understanding of contract requirements. 

While our industry partners need to improve their schedule performance, we in 

the Department can do our part by starting programs right and by working with 

our industry partners to ensure a shared understanding of their responsibilities. 

Ms. SCHINASI. Requirements instability and failure to meet agreed upon timelines 

can contribute significantly to delays in delivering needed capabilities to the 

warfighter. Our work has consistently emphasized that DOD should require each 

proposed program to demonstrate that the established requirements are achievable 

within resource limitations—that is that the program’s business case is executable. 

However, as our most recent Assessment of Selected Weapon Programs indicates, 

DOD continues to allow programs to progress through the acquisition process before 

key knowledge has been attained.1 These knowledge gaps are largely the result of 

a lack of disciplined systems engineering analysis. Early systems engineering provides knowledge that enables a developer to identify and resolve gaps before product 

development begins. Because the government often does not perform the proper upfront analysis to determine whether its needs can be met, significant contract cost 

increases can occur as the scope of the requirements change or become better understood by the government and the contractor. This lack of upfront knowledge can also 

affect the contractor’s ability to meet agreed upon timeframes. 

15. Senator AKAKA. Ms. Schinasi, unrealistic development and production 

timelines have been highlighted as one of the problems that plague defense programs right from the start, and lead to inevitable delays and cost overruns as the 

reality of the requirement being sought becomes fully clear. In some cases, however, 

contractors agree to timelines they subsequently are unable to meet. In cases involving the failure of contractors to meet what you have asserted are often overly optimistic timelines, to what extent do you believe that there is adequate documentation 

being kept regarding instances of contractor poor performance? 

Ms. SCHINASI. Past performance information is critical to enhancing contractor accountability and it is essential the government has past performance systems in 

place to help ensure that contractor performance is reflected in the award of new 

contracts. With that said, it is questionable whether contracting officials are documenting and maintaining contractor performance information in a timely, complete, 

and consistent manner. The House Oversight and Government Reform Committee’s 

Subcommittee on Government Management, Organization, and Procurement held a 

hearing in July 2007 in which we testified on issues related to the use of contractor 

past performance information.2 The hearing raised concerns regarding an apparent 

disconnect between actual contract performance, how performance reviews are calculated, and the weight given to past performance in the source selection process. 

In addition, a February 2008 DOD Inspector General report highlighted the lack of 

emphasis across the military Services in accurately and timely reporting of past performance and training for past performance assessment report preparation.3 The report stated that 82 percent of past performance assessment reports reviewed did not 

contain detailed, sufficient narratives to establish that ratings were credible and 

justifiable. At the request of the House Oversight and Government Reform ComVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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mittee and the Subcommittee on Government Management, Organization, and Procurement, we are currently assessing how agencies—including DOD—collect contractor past performance information for use in source selection. 

16. Senator AKAKA. Ms. Schinasi, are contracting officers making the best use of 

available information when issuing contract awards? 

Ms. SCHINASI. Although a seemingly simple concept, using past performance information in source selection can be complicated in practice. GAO bid protest decisions 

illustrate some of the complexities of using past performance information as a predictor of future contractor success. A key consideration is whether the performance 

evaluated can reasonably be considered predictive of the offeror’s performance under 

the contract being considered for award. For example, a June 2008 congressional 

hearing regarding a $300 million contract the U.S. Army awarded to supply ammunition to Afghan security forces raised concerns about the nature and extent of past 

performance information that is currently available for contracting officers to use in 

source selection decisions. In this specific case, questions were raised regarding the 

contractor’s qualifications and whether DOD exercised due diligence in considering 

all past performance information. A senior Army contracting official testified that 

certain information regarding the past performance of this particular contractor, 

such as several previous contracts terminated for cause, was not available to the 

contracting officer since the contracts fell below DOD’s dollar threshold for collecting 

past performance information.

PROGRAM MANAGER TURNOVER

17. Senator AKAKA. Secretary Young, one of the main problems highlighted in the 

defense acquisition process is frequent turnover of program managers, as well as 

senior acquisition officials. I find it interesting that this finding should come to light 

now, despite the decades old practice of DOD rotating its personnel every few years. 

It would seem that for some reason, the impact of program manager turnover has 

been identified as more problematic with the current portfolio of weapons programs 

than in the past. Traditionally, an officer’s career development was contingent upon 

seeing multiple assignments covering a variety of missions and leadership positions. 

However, continuous fresh faces in a defense acquisition program over the course 

of its life is a liability. Why do you think this finding is especially important today, 

and are there any initiatives within the Services to work with their respective personnel offices to come up with a potential solution of limiting assignment rotations 

for their project managers and acquisition officers? 

Mr. YOUNG. I am aware of several reports that depict higher turnover in program 

manager assignments than is expected or acceptable. These reports are not accurate. The average program manager tenure for those who have served and left positions since 2000 is 37 months. Again, since 2000, program managers have served 

in their positions, on average, for 37 months. The average tenure for program managers departing in the last year was 40 months. Indeed, 23 percent of the program 

managers who completed their tours last year had served more than 48 months. 

However, our review of the current data shows that the average expected tenure 

of program managers today, across all Services, is 42 months, based on Program 

Manager Agreements, assignment plans, and program milestone points. 

I would highlight equally relevant concern is the frequent rotation of requirements officers. I have personally seen senior requirements officers rotate in cycles 

of 18 months or less. Now requirements officers or resource sponsors frequently seek 

to fundamentally change acquisition programs at substantial cost. Indeed, the new 

substantial changes in the DDX program are directly related to unexpected requirements changes after years of development and billions of expended tax dollars. 

I expect that major system program managers’ tours will comply with statutory 

guidelines and current Department policy. Section 1734 of Title 10, U.S.C., generally requires the Program Manager and Deputy Program Manager of a major defense acquisition program to be assigned to their position until completion of the 

major milestone (e.g., system design and development) that occurs closest to four 

years in their position. DOD Instruction 5000.66 provides additional guidance and 

establishes the requirement for a written tenure agreement. 

In May 2007, an Under Secretary of Defese for Acquisition, Technology, and Logistics (USD(AT&L)) policy memorandum, ‘‘Program Management Tenure and Accountability,’’ emphasized the need for program managers to have sufficient tenure 

to achieve expected outcomes and to improve both systemic and personal accountability. Signed tenure agreements capture that expectation. There are waiver provisions in place, but the military departments are aggressive in limiting approvals of 

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waiver requests. The Navy reports, for example, that nearly two-thirds of their program managers serve until the agreed upon tenure is completed. 

In response to section 853 of the National Defense Authorization Act (NDAA) for 

Fiscal Year 2007, we developed a comprehensive strategy for enhancing the role of 

DOD program managers in developing and carrying out defense acquisition programs. The strategy addressed a number of initiatives to improve program manager 

empowerment and accountability. One of these that we are working to implement 

is a financial incentive for key members of program offices. While the details of that 

incentive program are still being worked out, tenure will be one of the key requirements. Our intent is to structure the financial incentives in such a way as to encourage highly qualified people to compete for positions of increased responsibility 

and to serve long enough to apply their experience for the good of the program. 

We have long recognized the need to balance the need for individual career development with sufficient tenure to provide for stability and accountability. Department policy already calls for longer tour lengths for assignments to acquisition positions and our planned financial incentive program will further encourage people to 

stay in their positions longer. However, the Department also believes there is value 

in rotating experienced members of the acquisition corps to other programs so they 

transfer lessons learned across the acquisition community. 

This, too, is recognized in statute (10 U.S.C. 1734) which generally calls for the 

rotation of those serving in critical acquisition positions (both military and civilians) 

after 5 years. 

The military departments all recognize the need to balance program manager tenure with the career development needed to grow future acquisition leaders. They are 

using available flexibilities to tailor tenure appropriately based on the program and 

its point in the life cycle. For example, the Army staggers rotations to ensure continuity of program goals and responsibilities. At their Project and Product Managers 

level, they attempt to ensure all Program Managers in one office do not rotate out 

of their positions in the same year. In addition, civilians who serve as Deputy Program Executive Officers and Deputy Program Managers are often in their positions 

for five or more years, providing dedicated continuity of effort. 

We will continue to use assignment policies that look at individuals’ career development and overall program manning to improve the acquisition workforce as a 

whole and still meet individual program objectives.

CONFIGURATION STEERING BOARDS

18. Senator AKAKA. Secretary Young, one of the initiatives you have described as 

fundamental to transformation of the acquisition process and its workforce is the 

establishment of Configuration Steering Boards (CSB). These boards have the responsibility to critically review any proposed changes to system requirements and 

ensure what few changes are allowed, are deemed critical. Was your decision to establish these CSBs a direct response to the GAO findings? 

Mr. YOUNG. No. I formed the first CSB in 2002, for the Joint Strike Fighter (JSF), 

during my tenure as the Navy Acquisition Executive. That CSB was formed specifically to allow us to manage requirements for a joint program with international participation. There were many stakeholders and the CSB process proved to be a most 

effective and efficient way to address requirement changes. My experience with the 

successful JSF CSB led me to broaden its application to all ACAT I programs.

19. Senator AKAKA. Secretary Young, was the Navy CSB example you cited in 

your prepared testimony an already-established entity under a different name, or 

was it the first in this new initiative? 

Mr. YOUNG. For the Extended Range Munition example I cited the CSB was 

newly established as a result of my July 2007 memorandum.

20. Senator AKAKA. Secretary Young, what is the current status of these CSBs 

within each of the military Services, and how are you going to ensure standardization among the Services, given the competition for resources that exists within the 

building? 

Mr. YOUNG. The military departments, along with the Defense Information Systems Agency and the Missile Defense Agency, have implemented my July 2007 

memorandum directing establishment of CSBs for all current and future ACAT I 

programs. Most are adapting the concept to or in conjunction with existing forums. 

To date, the Navy has conducted 14 CSBs, the Air Force has conducted 4, and the 

Army, 1. The Services have an active schedule of CSB reviews in the upcoming 

months. 

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Implementation is the responsibility of each component; however, my memorandum provided specific guidance on the focus of CSB reviews. We are finding that 

Service implementation is evolving as they gain experience with the CSB construct. 

CSBs review proposed changes to requirements that have a cost and schedule impact with a predilection to reject them, or defer them to future blocks/increments. 

Proposed changes are to include an assessment of the impacts to performance and 

schedule, a plan to mitigate them, and a funding source. Changes are to be coordinated with Joint Staff and military department requirements owners before they 

are considered by the CSB. 

CSBs include senior AT&L and Joint Staff members. I have assigned a senior 

member of my staff as the primary point of contact for CSBs. He is tasked to ensure 

that CSBs meet my expectations and to ensure standardization in Component implementation.

CONTRACTING OFFICER REPRESENTATIVES

21. Senator AKAKA. Secretary Young, according to an October 2007 report on 

Army Acquisition and Program Management in Expeditionary Operations, it was 

found that Contracting Officer Representatives (COR) were assigned as an additional duty, requiring no experience. It also found that these individuals received 

little to no training in the performance of their contracting-related duties. To what 

extent is COR duty assigned as an additional duty for military personnel, and has 

there been any effort to establish standardized training for this mission, given the 

multi-billion dollar value of some contracts overseen? 

Mr. YOUNG. The duties of a COR are generally additional duties for military personnel. The Department is working to ensure that trained CORs are available for 

performing surveillance of the Department’s service contracts. COR management, 

training, and funding for training are being addressed at a strategic level through 

the development of COR certification requirements dictating training and experience levels prior to assuming their responsibilities. The Department is working to 

ensure that properly trained and ready CORs are assigned prior to contract award. 

Further, to validate the training and experience leads to improved oversight, CORs 

will be rated based on their duty performance on their assigned contracts. The Department has developed a preliminary list of common COR functions and responsibilities and an initial framework for a DOD standard for COR certification. The 

proposed standard consists of three categories, each based on the nature of the work 

to be performed, size and complexity of the requirement, and contract type. Each 

COR category will map to minimum training requirements to ensure personnel performing designated COR functions can perform effectively. The proposed standard 

will allow sufficient flexibility for additional training beyond the minimum, if 

deemed appropriate. On December 6, 2006, the Department issued a policy memorandum titled ‘‘Designation of Contracting Officer’s Representatives on Contracts for 

Services in Support of Department of Defense Requirements.’’ It states the role of 

CORs and emphasizes the need to have a properly trained COR designated for contracts for services in support of the Department’s requirements before contract performance begins. On July 14, 2008, the Department issued another policy memorandum titled ‘‘Management of Contractor Performance under Time & Material and 

Labor Hour Contracts for Services.’’ It discusses the COR’s role in assisting with the 

technical monitoring or administration of these types of contracts, and it requires 

the contracting officer (CO) to designate a properly trained COR in writing before 

contract award. Presently, the Department is staffing another policy memorandum 

that would require the COR to be identified early in the acquisition cycle and included in pre-award activities when appropriate. Further, it would require the CO 

to provide the requiring activity a list of responsibilities for the COR, and it would 

oblige the requiring activity to provide to the contracting activity with nominations 

for CORs as part of the purchase request package. The package must contain: qualifications of the individual; affirmation that the COR will be afforded necessary resources (time, supplies, and equipment) to perform the designated functions; and affirmation that the performance of the designated functions will be addressed as part 

of the COR’s duty performance evaluation and that the COR must be trained prior 

to contract award. Finally, the Defense Acquisition University has completed development of, and has conducted a pilot test of, a new COR training course. This training is in addition to the component level training made available to CORs. 

78

QUESTIONS SUBMITTED BY SENATOR JOHN MCCAIN

REVOLVING DOOR

22. Senator MCCAIN. Secretary Young, the GAO recently issued a report called, 

‘‘Defense Contracting, Post-Government Employment of Former DOD Officials 

Needs Greater Transparency.’’ The DOD fully agreed with the findings in the report 

and concurred with its recommendations. Based on recent statutory changes directed by this committee, do you think that DOD policies need to be changed or new 

policies need to be put in place (additional reporting requirements, for example) to 

guard against violations of the government’s post-employment rules? 

Mr. YOUNG. Section 813 of the John Warner NDAA for Fiscal Year 2007 directed 

the establishment of a ‘‘Panel on Contracting Integrity.’’ Subcommittee #9, Contractor Employee Conflicts of Interest, was formed to review, evaluate and provide 

recommendations in response to recent reports by the GAO concerned with defense 

contracting and conflicts of interest. The scope of this subcommittee was expanded 

to include the recently issued report that you referenced, GAO Report 08–485, ‘‘Defense Contracting, Post Government Employment of Former DOD Officials Need 

Greater Transparency.’’ The subcommittee reported to the Panel in May that they 

have begun to review the recommendations, will do further research, and will discuss relative value and feasibility of the recommendations. The subcommittee is expected to report its findings and recommendations at the next Panel meeting in August. 

Personally, I think new policies are not necessary. Indeed, the recent legislation 

in this area is likely to discourage military and civilian personnel from entering the 

defense acquisition field at senior levels. Already, the excessive restrictions on stock 

ownership have led many capable private sector experts to reject opportunities to 

work for the DOD. At this point, we have totally destroyed the exchange of personnel between industry and the DOD—an exchange which some previous 

USD(AT&L)’s feel was critical to successful program management and execution.

23. Senator MCCAIN. Secretary Young, one recommendation made by the GAO 

was that within a set number of days after contract award, defense contractors who 

are awarded a contract should disclose to the contracting officer the names of employees who are certain former DOD officials, such as civilian senior executives, 

high-level military officers, or acquisition officials, who worked on the response to 

the solicitation and certify that these employees are in compliance with the applicable post-government employment restrictions. Do you agree with that recommendation? 

Mr. YOUNG. The DOD generally agrees with the recommendations of the GAO. 

Further evaluation will be conducted by Subcommittee #9, Contractor Employee 

Conflicts of Interest, of the Section 813 Panel on Contracting Integrity. In addition, 

DFARS Case 2008-D007 has been initiated to implement section 847 of the NDAA 

for Fiscal Year 2008 that requires certain DOD employees and former DOD employees to obtain a written legal opinion from a DOD ethics official as to the applicability of post employment restrictions prior to accepting compensation from a DOD 

contractor. 

These people have served and returned to the private sector. As long as these individuals honor the existing post employment restrictions, they should be able to 

work freely in the private sector. The standards and restrictions in the DOD far exceed the restrictions and standards applied to other Federal Agencies or Congress.

ACQUISITION OVERSIGHT

24. Senator MCCAIN. Secretary Young and Ms. Schinasi, in 1986, the Commission 

on Defense Management (commonly referred to as the Packard Commission) identified structural problems within the DOD, especially the absence of a responsible 

senior official, to oversee the acquisition process. The Packard Commission recommended a commercial model adopted by successful industrial companies that centralized the decisionmaking process and decentralized the execution of defense procurement. Since then, do structural problems continue to persist within the Department that limit oversight of the acquisition process? If so, in what area(s) are they 

most apparent? 

Mr. YOUNG. The Packard Commission recommended creation of the position I currently occupy and comparable positions within the military departments to oversee 

the acquisition process. The changes that have been made create clear lines of authority and accountability for the operation of our acquisition system. In addition, 

service acquisition executives (SAEs) can and do appoint subordinate officials at the 

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4GAO, Best Practices: An Integrated Portfolio Management Approach to Weapon System? Investments Could Improve DOD’s Acquisition Outcomes, GAO–07–388 (Washington, DC: Mar. 30, 

2007). 5GAO, Defense Acquisitions: Major Weapon Systems Continue to Experience Cost and Schedule Problems under DOD’s Revised Policy, GAO–06–368 (Washington, DC: Apr. 13, 2006).

appropriate grade to review programs at the lowest level of investment. Consequently, I believe we have the necessary management infrastructure to ensure 

comprehensive acquisition process oversight. 

The largest structural problem in the DOD is the lack of control and authority 

provided to program managers in the face of being held accountable. Individuals 

who are not accountable for acquisition program execution are allowed to annually 

change the program budget and requirements. The DOD has an adequate oversight 

structure and process. Responsible acquisition officials do not have adequate control 

and authority within the broader Pentagon budgeting and requirements structures. 

Ms. SCHINASI. Yes. One of the primary structural problems within the department 

that continues to limit oversight of the acquisition process is that the three major 

processes that support acquisitions are fragmented and service-centric. To plan, execute, and fund its weapon system acquisition programs, DOD relies on three principal decisionmaking systems: the Joint Capabilities Integration and Development 

System (JCIDS), which is used to assess gaps in warfighting capabilities and recommend solutions to resolve those gaps; the Defense Acquisition System, which is 

used to manage the development and procurement of weapon systems and other 

equipment; and the Planning, Programming, Budgeting, and Execution process, 

which is used to allocate resources. In March 2007, we reported that although the 

military Services fight together on the battlefield as a joint force, they do not identify warfighting needs and make weapon system investment decisions together in 

an integrated manner.4 Although, DOD has taken steps to identify warfighting 

needs through a joint requirements process, its service-centric structure and fragmented decisionmaking processes do not allow for the same portfolio management 

approach used by successful commercial companies to make investment decisions 

that benefit the organization as a whole. DOD largely continues to define 

warfighting needs and make investment decisions on a service-by-service basis, an 

approach that has contributed to duplication in programs and equipment that does 

not operate effectively together. Further, while DOD’s JCIDS process provides a 

framework for reviewing and validating the initial requirements, it does not focus 

on the cost and feasibility of acquiring the capabilities to be developed and fielded. 

Instead, these considerations are addressed through separate budgeting and acquisition processes. Moreover, although DOD policy provides for a series of early reviews—focused on the concept refinement and technology development phases of 

proposed weapon system programs—in prior work we found that the reviews are 

often skipped or are not fully implemented.5

25. Senator MCCAIN. Secretary Young and Ms. Schinasi, what issues have evolved 

in the acquisition process not addressed by the Packard Commission? 

Mr. YOUNG. As required by section 804 of the John Warner NDAA for Fiscal Year 

2007, Public Law 109–364, the Department is submitting the semi-annual Defense 

Acquisition Transformation Report which takes into account the recommendations 

made by the following:

1. The ‘‘Defense Acquisition Performance Assessment (DAPA) Report’’ of 

January 2006

2. The Defense Science Board 2005 Summer Study: ‘‘Transformation: A 

Progress Assessment Volume I’’ of February 2006

3. The Center for Strategic and International Studies’ Phase 2 Report, 

‘‘Beyond Goldwater-Nichols: U.S. Government and Defense Reform for a 

New Strategic Era,’’ of July 2005 

4. The 2006 Quadrennial Defense Review, issued February 6, 2006

These four studies were commissioned by different authorities and intended to 

serve different purposes within the DOD. However, the recommendations from these 

studies are focused on transforming the entire spectrum of the Defense Acquisition 

System. Our semi-annual reporting focuses on three of these studies: the DAPA Report, the Defense Science Board Study and the CSIS ‘‘Beyond Goldwater-Nichols’’ 

Report. The studies contain a total of 55 major recommendations to improve the Defense Acquisition System. Recommendations from the studies and DOD Transformation Priorities, along with the AT&L ‘‘Source Document,’’ provide a strategic 

blueprint for the future. The source document is intended to provide a framework 

that gives the Defense Acquisition System a shared purpose, while shaping our way 

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6GAO, Defense Acquisitions: DOD’s Practices and Processes for Multi-year Procurement 

Should Be Improved, GAO–08–298 (Washington, DC: Feb. 7, 2008).

of being, thinking, and working. It is intended to be the basis by which individual 

goals are set, planning is done, decisions are made, and actions are taken. 

The report, frequently referred to as the 804 report, highlights the progress we 

are making towards these recommendations as well as towards other initiatives 

supporting AT&L goals and priorities. 

Ms. SCHINASI. We believe that the lack of accountability remains one of the major 

impediments in the acquisition process. DOD has found it difficult to apply the controls or assign the accountability necessary for successful outcomes. There are no 

consequences for actions that run counter to the intent of DOD acquisition policies, 

in part, because officials responsible for approving programs are no longer in their 

positions by the time the consequences of their actions become evident. In addition, 

it is difficult to assign accountability to individual program managers because they 

are often handed programs that are unrealistic from the start. Accountability must 

extend not just to those involved in the product development process, but also to 

those involved in the underlying budgeting and requirements processes that define 

problems and find solutions. First, the budgeting process requires that funding for 

a program is put on the table 2 to 3 years in advance—this creates pressure to proceed with the program regardless of its technological maturity. Next, the requirements process tends to settle on ultimate performance, which puts pressure on programs to reach for exotic technology. Finally, it is easier to say ‘‘yes’’ than ‘‘no’’ to 

Service and warfighter demands for new requirements and new programs. Removing these incentives from the system and instilling discipline and accountability will 

be necessary to get lasting change and improved outcomes.

MULTI-YEAR PROCUREMENT

26. Senator MCCAIN. Secretary Young and Ms. Schinasi, the statutory criteria for 

determining whether a major system can be procured under a multi-year contract 

require that a candidate program have associate with it realistic cost estimates, substantial savings, and stability in terms of funding, requirements, and design. However, the stability and saving associated with some programs for which the DOD 

has sought multi-year contracting authority have been questionable. This has raised 

concerns about DOD’s management and controls for justifying multi-year candidates. When it examined this, the GAO specifically cited the Under Secretary of 

Defense for Acquisition as providing sufficient guidance and direction in this regard. 

In order to improve the ability of the Services to enter into multi-year contracts in 

a responsible manner when buying weapons, this committee passed important legislation last year that provided guidance to the Services on which programs are suitable candidates for multi-year contracting authority. Do you believe that the multiyear statute is well understood by the SAEs? 

Mr. YOUNG. I believe the SAEs understand the requirements of the multi-year 

statute. To save the taxpayer money and deliver more capability to the warfighter, 

the DOD should be allowed to significantly expand the use of multi-year contracts. 

Additional restrictions and criteria on the use of this authority are detrimental to 

efficient program management and are generally resulting in less use of multi-year 

contracts and higher costs to the taxpayer. 

Ms. SCHINASI. While we found no evidence that the multi-year statute was not 

understood by the SAEs, our recent review identified significant deficiencies in the 

Department’s guidance and implementation of multi-year contracting.6 Our February 2008 report discussed the need to improve DOD’s review process to adequately capture important information and events, document decisions, and help ensure that consistent and reliable determinations are made regarding multi-year criteria. We also observed turnover at every level of the multi-year justification process—from program offices, through higher headquarters, and on to primary action 

offices in the Office of the Secretary of Defense (OSD) which we believe has contributed to ‘‘knowledge gaps,’’ historical recordkeeping deficiencies, and differences in 

interpretation and application of multi-year decision criteria. In addition, DOD’s 

supplemental guidance does not adequately operationalize the criteria laid out by 

the multi-year statute by amplifying terms such as ‘‘reasonable,’’ ‘‘substantial,’’ and 

‘‘stable’’ and quantifying where possible to provide more objectivity and rigor to the 

multi-year review process. Guidance for the most part restates the statutory criteria 

and establishes formats for submitting multi-year procurement budget justification 

materials, but does not provide much elucidation for interpreting and applying the 

criteria and establishing internal evidence standards for demonstrating criteria are 

81

met. From our review of justification packages and our discussions with DOD officials responsible for generating and reviewing multi-year justification packages, we 

determined that reviewers interpret and apply criteria differently and that the 

methods and data used to compute contract costs and savings and provide evidence 

to document program stability vary in quality and sophistication. The new guidance 

provided by this committee in the NDAA for Fiscal Year 2008 should improve consistency in the multi-year review process and result in the Services submitting only 

those candidates for approval with adequate savings potential. 

27. Senator MCCAIN. Secretary Young and Ms. Schinasi, have you done anything 

to help ensure the Services’ compliance with it? 

Mr. YOUNG. The plan to pursue a multi-year procurement strategy for a Major 

Defense Acquisition Program is addressed in its acquisition strategy, which is approved by the Under Secretary of Defense for Acquisition, Technology, and Logistics 

on ACAT ID programs. My staff participates in budget hearings hosted by the 

Under Secretary of Defense (Comptroller/Chief Financial Officer) to advise on budget requests with multi-year justifications. 

Ms. SCHINASI. In our February 2008 report, we made four recommendations designed to improve the outcomes of DOD’s multi-year justification reviews and military Service compliance with the statutory guidance and to provide lessons learned 

for future multi-year procurements. We recommended that DOD: (1) improve and 

expand guidance provided to military Services to better define multi-year decision 

criteria for major weapon systems and to facilitate more consistent, objective, and 

knowledge-based evaluations of these multi-year candidates; (2) establish a process 

for third party validation of the costs and savings data submitted for candidate programs to Congress for approval; (3) implement a central database for maintaining 

historical records and for effectively monitoring and tracking major weapon system 

multi-year procurements, to include documenting the specific decisions made by 

stakeholders and their rationales for decisions; and (4) conduct after-action assessments of multi-year contracts to provide lessons learned for informing and improving future multi-year candidates and to ensure DOD is earning a sufficient return 

on its investments in multi-year contracts. DOD generally concurred with these recommendations and—in keeping with our quality standards—we will follow up periodically with DOD to evaluate its plans for implementing our recommendations and 

any improvements that result from these efforts.

28. Senator MCCAIN. Secretary Young and Ms. Schinasi, what more, if anything, 

have you done to help ensure that the process by which multi-year candidates are 

prepared and reviewed is made more disciplined and supported by adequate empirical data? 

Mr. YOUNG. As a result of the GAO audit on this subject, the Director of Defense 

Procurement, Acquisition Policy, and Strategic Sourcing tasked the military departments to perform a review of their multi-year contracts to determine whether the 

projected savings were realized; what impact adjustments related to economic price 

adjustment clauses had on the actual savings; and what changes, if any, are required in their use of multi-year contracts. We expect the results of this review will 

help inform more realistic support for budget requests that propose multi-year procurements. 

To be clear, when the DOD has firm requirements, the Services should be allowed 

and encouraged to use multi-year contracts at even modest levels of savings in order 

to provide funding and production stability. 

Ms. SCHINASI. During our review of multi-year procurement, we noted the general 

paucity of records for tracking multi-year candidates, documenting decisions, and 

assessing contract performance. In performing our work, we helped officials identify 

data sources for compiling information required to maintain more complete and disciplined records. We also made three recommendations designed to improve the empirical data available to make decisions and the validity of DOD’s cost and savings 

estimates. First, we recommended that DOD maintain a central database for collecting historical data and tracking multi-year performance. The department is beginning to implement this recommendation. A June 20, 2008, memo from the Director of Defense Procurement, Acquisition Policy, and Strategic Sourcing tasked each 

of the Services to review multi-year contracts and start gathering data in a prescribed format, to include such data as contract price, projected savings, profit rates, 

and adjustments. We also recommended that independent third party validations of 

cost and savings estimates from candidate programs would improve the fidelity and 

completeness in data used to justify multi-year contracts. The Department partially 

concurred with our recommendation, stating that such validations are done on some 

programs and that it would consider whether the benefits of requiring validation on 

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7GAO, Congressional Directives: Selected Agencies’ Processes for Responding to Funding Instructions, GAO–08–209 (Washington, DC: Jan. 31, 2008).

all programs would warrant the delays and costs of validation. Our review found 

that third party validations are rarely done, and we continue to believe that third 

party reviews would be cost-effective and result in more accurate and comprehensive cost and savings information critical to congressional and DOD decisionmaking 

on multi-year candidates. Lastly, we recommended DOD conduct after-action assessments of multi-year contracts. These assessments should provide lessons learned for 

informing and improving future multi-year candidates and empirical data to gauge 

whether DOD is earning sufficient returns on its multi-year contract investments. 

In their initial response to our draft report, DOD partially concurred with this recommendation, noting that such assessments may have value in some cases, but 

questioned its worth in all instances. DOD later revised its response, indicating that 

it fully concurred with the recommendation and intends to require the Services to 

complete after-action assessments.

EARMARKS

29. Senator MCCAIN. Secretary Young and Ms. Schinasi, recently, the DOD Inspector General (IG) reviewed the Fiscal Year 2007 Appropriations Act Conference 

Report to, among other things, determine the overall impact of earmarks on advancing the primary mission and goals of DOD. The DOD IG determined that 70 earmarks totaling over $6.4 billion did not fully support the mission and goals of DOD. 

Please describe how congressional earmarks harm a sound acquisition process and 

deter the DOD from buying weapon systems that meet the requirements of the joint 

warfighter. 

Mr. YOUNG. Defense acquisition is a complex process that involves a constant reevaluation of priorities, taking into account availability of resources. The DOD uses 

the Planning, Programming, Budgeting, and Execution (PPBE) process to establish 

priorities and allocate resources. Within the process, departmental objectives are established based on desired capabilities and national military strategy. Limited resources are allocated based on these objectives, and programs are developed within 

these parameters according to the needs of the DOD and the joint warfighter. The 

acquisition process results in a DOD program to acquire specific equipment, in specific quantities, to address specific defense requirements. Earmarks have the effect 

of diverting valuable resources from projects and programs considered necessary by 

the Department, reallocating these limited funds to projects or programs that may 

be considered of lesser or no value to the DOD’s mission. In addition, it is of utmost 

importance that the acquisition process allow for complete competition in the awarding of contracts for R&D, procurement and sustainment of military systems. Earmarks generally contain specific language that does not allow for free, open competition, which must exist in order to ensure the most efficient use of funds. 

Further, the process of trying to get value from these directed projects consumes 

enormous effort on the part of DOD program managers and contract officers. Finally, the process is detrimental to the culture and values of the acquisition team. 

After carefully considering the needs of the warfighters and working through a complicated and difficult DOD budget process to find a project, program managers 

watch an alternate system that earmarks funds for lower priority, non-competitive 

projects. 

Ms. SCHINASI. Our current work on earmarks does not provide insights into how 

congressional directives impact the requirements of the joint warfighter. However, 

in prior work, we interviewed DOD officials who had responsibility for budgeting, 

financial management, and legislative issues regarding congressional directives impact on budget and program execution.7 DOD officials from the six components we 

interviewed provided a range of views on this topic. Among the views we heard were 

the following: 

• DOD officials indicated that congressional directives can sometimes place 

restrictions on the ability to retire some programs and invest in others. 

These restrictions have an effect on the budget because they require the 

components to support an activity that was not in their budget. 

• Congressional directives could tend to displace ‘‘core’’ programs that have 

been requested through the formal budget submission. 

• There has always been a feeling that the billions of dollars of congressional directives must come from somewhere, but it is not possible to determine whether any specific directive resulted in reducing funding for another program. 

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8GAO, Department of Energy Key Challenges Remain for Developing and Deploying Advanced Energy Technologies to Meet Future Needs, GAO–07–106 (Washington, DC: Dec. 20, 

2006).

• Congressional directives are viewed as tasks to be implemented and are 

opportunities to enhance their mission requirements through additional 

funding in areas that would not have been priority areas due to budget constraints.

30. Senator MCCAIN. Secretary Young and Ms. Schinasi, in about as aggressive 

of remarks as I have seen from a Service Chief regarding earmarks, here is what 

the Commandant of the U.S. Coast Guard, Admiral Thad Allen, said in a interview 

to Defense Daily:

‘‘[I am] happy with the fiscal year 2009 budget, but, the Coast Guard 

needs all of the fiscal year 2009 funds. There is no fat, no largess in the 

fiscal year 2009 request. We need every single penny of it. And to the extent we can have it not diluted by earmarks and get exactly what we ask 

for. If you don’t get the full President’s request then you are increasing your 

risk position for what you are able to do for the country. Or if you have 

to absorb other commitments in terms of earmarks that divert money from 

what you are doing. Then you are also increasing risk in what you can do 

for the country.’’

Do you agree with Admiral Allen’s statement? Please explain. 

Mr. YOUNG. I agree with Admiral Allen’s statement. Earmarks greatly impede the 

ability of any program or agency to fully and cost-effectively carry out its duties, 

and in no agency is this more of a problem than in the DOD. Earmarks that reward 

companies in specific Congressional districts as recipients increase risk due to decreased competition. Competition for contracts provides incentives for thorough research, testing, and cost-reduction, steps which are necessary to avoid the problems 

of cost growth and schedule delays that already challenge the Department. Another 

central problem is that most earmarked projects are not included in the original 

DOD budget, and therefore do not usually address specific agency needs. DOD’s formal, cyclical process called PPBE is used to determine optimal resource allocation 

for the Department. Within PPBE, four overlapping phases work to establish organizational priorities, develop new programs and enhance existing ones to satisfy 

these priorities, find cost-effective solutions, and forward these funding recommendations as part of the President’s budget to Congress. Throughout this process, important programs and activities often get sacrificed due to sheer lack of 

funds. An organization that must constantly realign resources among its own 

prioritized programs cannot afford to devote time, money, and personnel to non-essential activities. For every earmark in a defense appropriations bill, there is a Departmental priority that will not achieve completion. 

Ms. SCHINASI. We have not analyzed the Coast Guard’s budget and the potential 

effect of congressional earmarks on the agency’s risk position. However, officials in 

other agencies have raised similar concerns. For example, in December 2006, we 

found that the Department of Energy (DOE) diverted funds to accommodate earmark.8 DOE officials indicated that the rising number of biomass earmarks shifted 

funds away from R&D programs causing them to change priorities and terminate 

some cost shared programs. 

ANALYSIS OF ALTERNATIVES AND OPERATIONAL REQUIREMENTS DOCUMENT

31. Senator MCCAIN. Secretary Young and Ms. Schinasi, during the 109th Congress, this committee passed legislation that was enacted into law which requires 

that, before the DOD acquires a major defense system, among other things, the Department has completed an Analysis of Alternatives (AOA), the Vice Chairman of 

the Joint Chiefs of Staff has completed an Operational Requirements Document 

(ORD)—now called a Capabilities Decision Document (CDD)—and the program is affordable given the total resources available during the period covered by the 6-year 

defense budget in the year the certification is made. What effect has this legislation 

had to improve cost-, scheduling- and performance-outcomes and better align the requirements, acquisition, and budget spheres in a way that will help the Pentagon 

make more informed, powerful investment decisions on weapons programs? 

Mr. YOUNG. Congress has instituted a number of legislative changes that are useful in this respect, but there is still considerable work to be done by the acquisition 

community. Many of these changes have been in place only a short time, and significant changes will take time to be visible across the entire acquisition portfolio. 

84

Ms. SCHINASI. Although we have not done any work directly assessing the effect 

of this legislation on cost, schedule, and performance outcomes, we believe that the 

requirements it establishes have the potential to drive more discipline into the early 

phases of the acquisition process. If implemented properly by DOD, we believe that 

the legislative requirements could ultimately result in the attainment of higher levels of knowledge about requirements, technologies, costs, and schedules before DOD 

commits to a new development program—a best practice that much of our work over 

the past decade has emphasized. At the same time, DOD must also move towards 

a joint, portfolio management approach to weapon system acquisitions—with functionally aligned entities that have the requisite responsibility, authority, and control 

over resources—in order to effectively prioritize requirements, make informed tradeoffs, and achieve a balanced mix of weapon systems that are affordable, feasible, 

and provide the best military value to the warfighter.

LEASING OF MAJOR WEAPONS PROGRAMS

32. Senator MCCAIN. Secretary Young and Ms. Schinasi, in the 109th Congress, 

this committee passed legislation that was enacted into law which requires that, before acquiring combat vehicles, aircraft, or vessels under a lease, the Secretary of 

Defense certify to Congress that leasing these systems is more cost-effective than 

buying them. This legislation was meant to reverse the tendency for the Services 

toward leasing of weapon systems by directing the Department to treat leases the 

same way as a purchase and to ensure a more rigorous, disciplined process supported by adequate empirical data for preparing and reviewing candidate programs 

for leases. In your view, has this legislation had its desired effect and improved acquisition processes, thereby injecting proper oversight to costs and pricing, among 

other things, and ensuring that monstrosities like the Boeing tanker lease do not 

occur again? 

Mr. YOUNG. There have been no major lease proposals subject to the provisions 

of the statute since it was enacted in January 6, 2006. 

Ms. SCHINASI. We have not evaluated the effects of the recent legislation on 

DOD’s use of equipment leases. However, the legislation addressed some of the 

problems and concerns we previously raised about leasing by providing direction to 

treat leases the same way as purchases and to use a more rigorous, disciplined approval process. In addition, while we have not taken a position on the overall policy 

of leasing versus purchasing defense equipment, we believe an analysis of the costs 

and benefits should be done on a case-by-case basis, and should consider issues in 

addition to cost, such as the nature of the equipment, the criticality of the need, 

readiness impacts, and industrial base issues. Also, to make informed judgments on 

resource allocation, decisionmakers need accurate comparisons of the relative longterm effects of acquisition decisions. Before the recent legislation was enacted, we 

noted that leases could obscure those comparisons. The military Service was not required to set aside funds for the full term of the lease (as it would for a purchase). 

In addition, the lease would likely be paid through the operation and maintenance 

budget and would not have to compete for procurement funding with other defense 

priorities. The recent legislation directs that a lease-purchase shall be treated as an 

acquisition, subject to all applicable statutory and regulatory requirements for defense weapon systems, and cannot use operation and maintenance funds.

INAPPROPRIATE LOBBYING BY THE SERVICES FOR WEAPON SYSTEMS

33. Senator MCCAIN. Secretary Young, against the backdrop of wholly inappropriate communications between the Air Force and the Boeing Company that facilitated the folly that we now know as the Boeing tanker scandal, at the request of 

this committee, the DOD IG has opened an investigation to examine apparently improper communications between Air Force officials and Boeing on the C–17 program, in a manner that induced the company into putting up millions of its shareholders’ dollars to keep the production line for spare parts associated with that program open. As you of course appreciate, doing so was contrary to the administration’s commitment to the program of record and could compromise other Department-wide acquisition priorities. What are your thoughts about the appropriateness 

of the Air Force’s role in influencing earmarks then, in the Boeing tanker scandal, 

and now, in lobbying for nearly $4 billion in C–17 aircraft? 

Mr. YOUNG. I am not aware of any such communications, but I do discourage such 

actions. It would be entirely inappropriate to have any such communications with 

a contractor, other than via formal contracting actions.

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9GAO, Defense Acquisitions: Role of Lead System Integrator on Future Combat Systems Program Poses Oversight Challenges. GAO–07–380 (Washington, DC: Jun. 6, 2007).

34. Senator MCCAIN. Secretary Young, as the DOD’s top acquisition executive and 

number three official, is this type of Service lobbying helpful as you determine priorities across all the Services? 

Mr. YOUNG. I am not aware of any such lobbying efforts, and I do not condone 

efforts to undermine full support for the President’s budget.

35. Senator MCCAIN. Secretary Young, what can be done to end this practice of 

blatant and aggressive Service lobbying for huge weapons systems, the purchase of 

which may compromise defense-wide procurement priorities? 

Mr. YOUNG. I am not aware of any such lobbying efforts, and I do not condone 

efforts to undermine full support for the President’s budget.

36. Senator MCCAIN. Secretary Young, what policies can be instituted within DOD 

to ensure that even into future administrations, the same problem will not occur? 

Mr. YOUNG. I do not condone efforts to undermine support of the President’s budget. As I have stated, I am not aware of the lobbying efforts you have described and 

believe it is inappropriate to comment on policy changes while the DOD IG has an 

ongoing investigation.

USE OF OTHER TRANSACTION AUTHORITY FOR MAJOR WEAPONS SYSTEMS

37. Senator MCCAIN. Secretary Young and Ms. Schinasi, in the 109th Congress, 

this committee investigated the Future Combat System (FCS) Other Transaction 

Authority (OTA) and determined that FCS OTA negotiated by Boeing and the Army 

lacked many of the standard legal protections that accompany major DOD acquisitions. This committee passed legislation that was enacted into law which restricts 

the DOD from buying large weapons systems under a prototype contract which does 

not provide the government with a number of significant protections, including cost 

and pricing data, Truth in Negotiations Act, and Procurement Integrity Act protections, among other things. Did this legislation significantly improve the Department’s oversight and stop the growing practice by certain Services to extend OTA 

to production contracts, as was the case with the FCS? 

Mr. YOUNG. The Department implemented a rigorous review and approval process 

to implement section 823 of the NDAA for Fiscal Year 2006. It includes the requirement for me, as the Under Secretary of Defense for Acquisition, Technology, and Logistics, to approve the use of Other Transaction Authority for a prototype project 

that is expected to cost the DOD in excess of $100,000,000. This process has ensured 

that the Other Transaction Authority is used only for prototype projects. 

Ms. SCHINASI. We have not looked at the DOD-wide effect of the legislation passed 

by the committee as described in the Senate report accompanying the NDAA for Fiscal Year 2006. That legislation included two specific provisions that added to previous legislation on contracting approaches; specifically:

(1) Prohibition of ‘‘other transactions’’ in excess of $100 million and ensuring that the Procurement Integrity Act (41 U.S.C. 423) applies to all such 

transactions; and 

(2) Requirement for a specific authorization for the purchase of major 

weapon systems under procedures established for the procurement of commercial items. We have, however, reported in 2007 that the Army converted 

its ‘‘other transaction agreement’’ (OTA) with the Lead Systems Integrator 

(LSI) for the Future Combat System (FCS) program—the Boeing Company—to a Federal Acquisition Regulation (FAR) based contract.9 A FARbased contract provides significant oversight mechanisms for the government customer that are not required under an OTA. These items were included in the FAR contract for FCS SDD as definitized in 2006. 

CHANGES TO ACQUISITION REFORM

38. Senator MCCAIN. Secretary Young and Ms. Schinasi, what specific changes do 

you recommend in the area of acquisition reform, to ensure that we can get the 

right equipment first and the best equipment at the best price for the taxpayer? 

Mr. YOUNG. I have taken a number of actions to implement my vision for Acquisition, Technology, and Logistics. My approach is focused into four strategic thrust 

areas, each of which has a guiding principle, desired outcomes, and specific initiaVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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10GAO, Best Practices: An Integrated Portfolio Management Approach to Weapon System Investments Could Improve DOD’s Acquisition Outcomes, GAO–07–388 (Washington, DC: Mar. 30, 

2007); and Best Practices: Better Matching of Needs and Resources Will Lend to Better Weapon 

System Outcomes, GAO–01–288 (Washington, DC: Mar. 8, 2001).

tives with metrics or steps against which we can measure progress. These four strategic thrust areas are:

• Define Effective and Affordable Tools for the Joint Warfighter • Responsibly Spend Every Single Tax Dollar • Take Care of Our People • DOD Transformation Priorities

In identifying both the problems we face, and the solutions we are seeking, I am 

committed to transparency throughout the acquisition process. It is my belief that 

we need to be clear, concise, and open with regard to what the DOD is seeking, and 

the work it is completing. 

As I mentioned in my testimony, it is our responsibility as stewards of tax dollars 

to ensure complete openness, fairness, and objectivity in the acquisition process. I 

intend that we will be accountable to ensure the success of these initiatives. 

I have charged the acquisition team to create an inspired, high-performing organization where:

• We expect each person must make a difference; • We seek out new ideas and new ways of doing business; • We constantly question requirements and how we meet them; • We recognize that we are part of a larger neighborhood of stakeholders 

interested in successful outcomes at reasonable costs.

My testimony highlighted specific initiatives that capture these philosophies and 

are fundamental to transforming the acquisition process and workforce. They are: 

(1) Program Manager Empowerment and Accountability 

Program managers play a critical role in developing and fielding weapon systems. 

I have put in place a comprehensive strategy to address improving the performance 

of program managers. 

(2) Configuration Steering Boards 

I have directed the military departments to establish CSBs. My intent is to provide the program manager a forum for socializing changes that improve affordability 

and executability. Boards will be in place for every current and future ACAT I program and will review all proposed requirement changes, and any proposed significant technical configuration changes which potentially could result in cost and 

schedule changes. Boards are empowered to reject any changes, and are expected 

to only approve those where the change is deemed critical, funds are identified, and 

schedule impacts are truly mitigated. 

(4) Prototyping and Competition 

I have issued policy requiring competitive, technically mature prototyping. My intent is to rectify problems of inadequate technology maturity and lack of understanding of the critical program development path. Prototyping employed at any 

level—component, subsystem, system—provides the best value to the taxpayer. 

(5) AT&L Notes 

I am writing weekly notes to the acquisition workforce. These notes share lessons 

learned and provide leadership guidance on expected procedures, processes and behaviors within the acquisition workforce. These notes provide a powerful training 

tool directly from me. 

Ms. SCHINASI. The first step toward improving acquisition outcomes is implementing a new DOD-wide investment strategy for weapons systems. We have reported that DOD should develop an overarching strategy and decisionmaking processes that prioritize programs based on a balanced match between customer needs 

and available department resources—that is the dollars, technologies, time, and people needed to achieve these capabilities.10 We also recommended that capabilities 

not designated as a priority should be set out separately as desirable but not funded 

unless resources were both available and sustainable. This means that the decisionmakers responsible for weapon system requirements, funding, and acquisition execution must establish an investment strategy in concert. Once DOD has prioritized 

capabilities, it should work vigorously to make sure each new program is executable 

before the acquisition begins. More specifically, this means assuring requirements 

for specific weapon systems are clearly defined and achievable given available resources, and that all alternatives have been considered. DOD should also require 

87

all new programs have manageable development cycles, realistic cost estimates, and 

have planned and programmed full funding for the entire development cycle. Finally, DOD should pursue an evolutionary path toward meeting user needs rather 

than attempting to satisfy all needs in a single step. One way to do this is to limit 

the time available for weapon system development. Constraining development cycles 

would make it easier to more accurately estimate costs, and as a result, predict the 

future funding needs and effectively allocate resources. Program managers could 

also be kept for the entire development cycle. It would also force programs to conduct more detailed systems engineering analyses, lend itself to fully funding programs to completion, and thereby increase the likelihood that their requirements 

can be met within established timeframes and available resources. 

FIXED-PRICE CONTRACTS

39. Senator MCCAIN. Secretary Young and Ms. Schinasi, in the 109th Congress, 

this committee passed legislation that was enacted into law which requires that 

DOD gives a preference to fixed-price contracts for major developmental defense 

programs. Fixed-price contracts shift the risk to the contractor and incentivizes the 

contractor to increase the reliability of the system components. GAO determined 

that cost-type contracts cost the taxpayer $80 billion in cost overruns over the past 

decade. What has been the practical effect of this legislation in helping the military 

Services to not continue the practice to over-promise capabilities and under-estimate 

costs of developing and buying weapon systems? 

Mr. YOUNG. Section 818 of the John Warner NDAA for Fiscal Year 2007 requires 

the Milestone Decision Authority (MDA) to select the contract type for a development program at the time that Milestone B is approved and to make a written determination if the MDA authorizes the use of a cost type contract. The required determination has been made for each program for which a cost type contract has been 

authorized since the enactment of this requirement. In each case, the facts have justified the use of a cost type contract because there have been uncertainties involved 

in contract performance that did not permit costs to be estimated with sufficient accuracy to permit use of a fixed price contract, and the circumstances justified proceeding with Milestone B approval before the program risk could be reduced. 

Ms. SCHINASI. We have not assessed the practical impact of this legislation on 

DOD’s choice of contract types for major defense acquisition programs. DOD awards 

cost reimbursement type contracts for the development of major weapon systems because of the risk and uncertainty involved with its programs. Because the government often does not perform the necessary systems engineering analysis before a 

contract is signed to determine whether a match exists between requirements and 

available resources, significant contract cost increases can occur as the scope of the 

requirements change or become better understood by the government and contractor. The legislation addressed this issue by stating that DOD’s decisions to use 

cost-reimbursable contracts for weapon system development cannot be driven by its 

failure to meet other statutory requirements designed to put programs on solid footing at their start. In other words, DOD can not use contract type to manage risks 

that could be avoided through better management of its acquisition system. Examples of these requirements include certifying that: the technology in the program 

has been demonstrated in a relevant environment; the program demonstrates a high 

likelihood of accomplishing its intended mission; the program is affordable when 

considering the per unit cost and the total acquisition cost in the context of the total 

resources available during the period covered by the Future Years Defense Program 

(FYDP) submitted during the fiscal year in which the certification is made; and the 

DOD has completed an AOA with respect to the program. As a result, the legislation 

has the potential to improve the way DOD does business because it ties contracting 

strategy to the development of sound executable business cases.

REALISTIC BUDGET ESTIMATES

40. Senator MCCAIN. Secretary Young and Ms. Schinasi, there is a lot of pressure 

on the military Services to gain funding for a weapons program. According to GAO, 

to gain funding, often a program manager will drastically under-estimate the cost 

of a program. Then once in the FYDP, the true costs begin to emerge. What causes 

a program manager to go to these extremes and how can DOD avoid that in the 

future? 

Mr. YOUNG. I fundamentally disagree with the implication that our program managers intentionally or deliberately underestimate costs. Rather, underestimating results from a lack understanding of what is needed to satisfy warfighter requireVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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11GAO, Defense Acquisitions: A Knowledge-Based Funding Approach Could Improve Major 

Weapon System Program Outcomes, GAO–08–619 (Washington, DC:Jul. 2, 2008).

ments, exercise requirements, a lack of technology maturity, weakness in software 

development and what is needed to fully integrate and test the system, all combined 

with schedules and budgets that are too optimistic. Frankly, in many cases, the program manager tells the enterprise what a program will cost and then the defense 

enterprise budgets significantly less money and asks the program manager to deliver the full result on schedule. There are entirely too many programmer and comptroller decisions to underfund a program. A classic example is the DDX program, 

where initial budget, provided DDX procurement costs at levels about 20 percent 

greater than DDG–51s in order to buy a destroyer with twice the displacement tonnage and significantly more technology. 

Thus, to improve program outcomes we must ‘‘start programs right.’’ I have instituted a Materiel Development Decision (MDD) as the formal entry point into the 

acquisition process. The MDD will assess potential materiel solutions and is mandatory for all programs. I am insisting that, with rare exceptions, we conduct robust 

a Technology Development phase that provides for two or more competing teams 

producing prototypes of the system and/or key system elements prior to, or through, 

Milestone B. Prototypes reduce technical risk, validate designs and cost estimates, 

evaluate manufacturing processes, and refine requirements. These steps will ensure 

that with program initiation at Milestone B the program is positioned to develop 

a system or an increment of capability; complete full system integration (technology 

risk reduction having occurred during Technology Development), and develop an affordable and executable manufacturing process. The improvement in program definition resulting from ‘‘starting programs right’’ will result in more realistic cost estimates. 

I am also holding the acquisition team, including program managers, accountable 

for program performance. For program managers, there is a renewed emphasis on 

tenure agreements so that program managers will remain with their programs 

longer. Signed Program Management Agreements (PMAs) establish a ‘‘contract’’ between a program manager and the enterprise setting expectations for cost, schedule, 

and performance against the Acquisition Program Baseline. The PMA must be reaccomplished if conditions change. Overarching CSBs review requirements changes 

and technical configuration changes that have the potential to increase costs or 

delay schedules. 

This combination of better definition at the start of the program and holding the 

acquisition team accountable will provide for more realistic cost estimates and improve program outcomes. 

Ms. SCHINASI. Inaccurate cost estimates are often the result of limited knowledge 

and optimistic assumptions about requirements and technologies. The acquisition 

environment encourages launching programs that embody more technical unknowns 

and less knowledge about the performance and production risks they entail. In the 

absence of knowledge, cost estimators must rely heavily on assumptions about system requirements, technology, and design maturity as well as the time and funding 

needed. In addition, a new weapon system is encouraged to possess performance features that significantly distinguish it from other systems and promises the best capability. A new program will not be approved unless its costs fall within forecasts 

of available funds and, therefore, look affordable. Because cost and schedule estimates are comparatively soft at the time, successfully competing for funds encourages the program’s estimates to be squeezed into the funds available. This practice 

often leads to programs being initiated without adequate funding. Further, as programs progress and costs increase, DOD often makes unplanned and inefficient 

funding adjustments, such as moving money between programs, deferring work and 

associated costs into the future, or reducing procurement quantities. Ultimately, 

such reactive practices obscure true program costs and contribute to the instability 

of many programs and poor acquisition outcomes. 

In a recently issued report we made recommendations that we believe would help 

DOD avoid these cost estimating and funding problems in the future.11 Specifically 

we recommended that the Secretary of Defense take the following actions: 

• Develop and implement a strategy to bring the department’s current portfolio into balance by aligning the number of programs and the cost and 

schedule of those programs with available resources. In developing and implementing a strategy, the department should determine ways to prioritize 

needs and identify whether the budget and the FYDP should be increased 

to more accurately reflect the actual costs of current programs or whether 

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12GAO, Defense Contracting: Contract Risk in a Key Factor in Assessing Excessive PassThrough Charges, GAO–08–269 (Washington, DC: Jan. 25, 2008).

the portfolio of current programs should be reduced and lower-priority programs terminated to match available resources. 

• Require that all new programs have manageable development cycles, realistic cost estimates, and have planned and programmed full funding for 

the entire development cycle. 

• Require all cost estimates submitted for funding a program at milestone 

decisions to be reported as a range of likely costs and reflect the associated 

levels of risk and uncertainty. At Milestone A, require estimates that allow 

for a wide range of likely costs. At Milestone B, require estimates that, 

based on knowledge gained, are more precise.

PASS-THROUGH CHARGES

41. Senator MCCAIN. Secretary Young and Ms. Schinasi, in the 109th Congress, 

this committee passed legislation that was enacted into law which requires that 

DOD prescribe regulations prohibiting excessive pass-through fees on defense contracts and subcontracts. I understand that DOD is requiring a contract clause in 

all eligible contracts, which allows it to recoup contractor payments that contracting 

officers determine to be excessive. Has this worked? 

Mr. YOUNG. To implement section 852 of the NDAA of Fiscal Year 2007, on April 

26, 2007, we published an interim rule changing the DFARS. However, this first interim rule resulted in significant public comment in response to the rule. Consequently, we made significant changes to the first interim rule, and we issued a 

second revised interim rule on May 13, 2008. As a result, there has not been adequate time since the issuance of the second interim rule to assess the impact of this 

legislation. 

Ms. SCHINASI. At this point, it is too early to determine the effectiveness of DOD’s 

efforts to prohibit excessive pass-through charges. In May 2008, DOD issued a second interim rule that includes a solicitation provision and a contract clause requiring offerors and contractors to identify the percentage of work that will be subcontracted and, when subcontract costs will exceed 70 percent of the total cost, to provide information on indirect costs and profit and value added with regard to the 

subcontract work. While this provision and the clause are currently in place, we 

have not examined their effectiveness. In addition, DOD has yet to develop implementing guidance for contracting officers that addresses the rule or recommendations from our January 2008 report, which include taking contract risk into account 

when assessing value added.12 Further, while the regulation allows contracting officers to recoup charges that they determine to be excessive, it does not specify the 

roles of the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA)—organizations that play a key role in assessing cost information. Officials from both of these agencies indicated that they would play a role 

in implementing this regulation and in assisting contracting officers in determining 

whether costs are excessive, but have not fully considered the extent or the resources needed to do so. DOD procurement policy officials have told us that, in accordance with the recommendations in our January 2008 report, they will develop 

implementing guidance and emphasize that contracting officers need to include contract risk in conducting their contractor value added assessments, document the results, and obtain assistance from DCAA and DCMA as appropriate. 

42. Senator MCCAIN. Secretary Young and Ms. Schinasi, I understand that the 

DOD is also requiring detailed information from contractors on their value-added 

when subcontracting costs reach 70 percent or more of total contract cost. However, 

the GAO has reported that the DOD rule on this issue needs improvement and specifically, more guidance to ensure effective implementation and consistent application of cost and pricing tools to mitigate excessive costs. What is DOD doing to address this critical issue to provide greater insight into DOD’s supply chain and 

costs—information companies say they use to mitigate costs? 

Mr. YOUNG. As a result of numerous public and government comments received, 

we revised the initial interim rule on Excessive Pass-Through Charges that we had 

added to the DFARS on April 26, 2007. We issued the revised DFARS interim rule 

on May 13, 2008. Once the final DFARS rule is in place, the Department intends 

to issue extensive guidance in our Procedures Guidance and Instructions (PGI) to 

ensure a clear understanding of the new DFARS rule on Excessive Pass-Through 

Charges. 

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13GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees Regardless 

of Acquisition Outcomes, GAO–06–66 (Washington, DC: Dec. 19, 2005).

Ms. SCHINASI. Historically, DOD has lacked insight into its supply chain and subcontractor costs, raising questions about the value added when multiple layers of 

contractors perform the work. DOD contracting officials generally apply tools in 

Federal and DOD acquisition regulations to assess contractor value added. However, 

as we stated in our January 2008 report, the extent to which these tools are applied 

depends on the contract risk—that is, whether the contract was competed and 

whether the type of contract required the government to pay a fixed-price or costs 

incurred by the contractor. Under DOD’s interim rule, prime contractors are required to inform a contracting officer of the value added that they are providing 

when subcontract costs exceed 70 percent of the total contract value. While the rule 

may enhance insight into contractor value added under these circumstances, it alone 

will not address DOD’s challenges in obtaining insight into its supply chain and 

costs. Successfully identifying and preventing excessive pass-through charges requires DOD to obtain insight into their supply chain and incorporate contract risk 

into the assessment of contractor value added.

AWARD AND INCENTIVE FEES

43. Senator MCCAIN. Secretary Young and Ms. Schinasi, in the 109th Congress, 

this committee passed legislation that was enacted into law which ensures award 

and incentive fees in military contracts reward only outstanding performance by 

linking them to excellent acquisition outcomes and are used appropriately as an incentive for excellent performance. This legislation limits taxpayers’ exposure in defense contracts. The GAO reported that the DOD’s use of neither award nor incentive fees was effective in helping the Department achieve the outcomes it desired. 

Has the statute and following DOD regulations improved this situation and reversed 

what the GAO referred to DOD’s use of award and incentive fees as a waste of taxpayers’ dollars? 

Mr. YOUNG. The Department initially revised award fee policies in response to the 

GAO report in a memorandum signed out by the Under Secretary of Defense 

(AT&L) on March 29, 2006. Also, in response to section 814 of the John Warner 

NDAA for Fiscal Year 2007, two additional memoranda, signed by the Director, Defense Procurement and Acquisition Policy (DPAP) on April 24, 2007, were issued focusing on both award fee and incentive fee contracts and effective for all solicitations issued on August 1, 2007, and thereafter. Since most contracts based on this 

latest policy have only recently been awarded, it is too early to gauge effectiveness. 

Nonetheless, I remain strongly committed to ensuring the Department’s use of 

award and incentive fee contracts is properly incentivizing contractor performance. 

Ms. SCHINASI. DOD has taken actions to strengthen the link between award and 

incentive fees and desired program outcomes, which could increase the accountability of DOD programs for fees paid and of contractors for results achieved. DOD 

is collecting data that could be used to evaluate the effectiveness of DOD’s actions, 

but we have not yet conducted any follow up analysis. In response to congressional 

actions and GAO recommendations, the Director, DPAP issued a memo in April 

2007 that required each military department and defense agency to collect information on the amount of award fees and performance incentives available and paid as 

well as the contractor’s cost and schedule performance for all contracts with a value 

of greater than $50 million.13 This information is to be reported to the Director, 

DPAP, and used by the military Services and defense agencies to ensure that the 

fees paid are commensurate with performance. The policy stated that this data collection was supposed to occur semi-annually starting with the 6 month period ending June 30, 2007. 

RESISTANCE TO CHANGE

44. Senator MCCAIN. Secretary Young, the problems of cost growth and delays in 

getting new weapons into warfighters’ hands seem to be persistent despite the efforts of DOD and Congress to fix them. We have given the Department more money 

and that has not worked; DOD has changed acquisition policies to reflect best practices and that has not worked; commissions and panels have been chartered; and 

yet nothing changes. Why are these issues so immune to change? 

Mr. YOUNG. I think things can and have changed. But those changes will take 

some time to be visible in the macro level cost performance of the entire acquisition 

portfolio. I focus a tremendous amount of attention on ensuring we have things 

91

‘‘right’’ before we start a major program. Congress has instituted a number of certifications that are useful in this respect, but those have been in place less than 3 

years and therefore applied to roughly 10 percent of the Major Defense Acquisition 

Program (MDAP) portfolio. 

I require each MDAP to have a CSB to review all proposed changes to a program 

with the intent to ensure requirement ‘‘creep’’ is minimized, cost growth is understood and addressed proactively, and trade-offs are considered at senior levels to 

preserve cost and schedule objectives. These trade-offs are expected to include reducing capability if necessary. However, committing to always reduce content or requirements in each and every program that experiences cost or schedule growth 

doesn’t consider the strategic or performance impacts that are essential to the 

warfighter and national security. We have to be smart and balanced in our approach 

and manage program-by-program, while considering impacts across the DOD enterprise. 

I also seek to ensure we have the right kinds of contractual mechanisms to 

incentivize industry to control costs, and avoid rewarding poor cost performance 

with unreasonable profit margins. I want industry to clearly understand the difference between good and poor performance. 

We also have to realize that some cost increases in programs are a result of valid 

reasons. Some cost increases in programs are due to choices to increase quantities 

or content for legitimate reasons. We need to recognize that program estimates are 

subject to a variety of factors that are impossible to control in the long run. Assumptions about labor rates, productivity and materials costs are some factors that can 

significantly affect an estimate. We try to base our estimates on the best available 

data at the time, but usually cost estimates are developed many years before a system is actually produced. In addition to the program office estimate, I ensure that 

an independent cost estimate is also done prior to program initiation. 

Some cost and schedule growth should be avoidable with good management and 

oversight and it is those issues that I attempt to address with the policies that I 

have put forth and am enforcing. 

Finally, it is important to note that many, many programs are successfully executed. The media and congressional attention is focused on the much smaller set 

of programs which do indeed have cost growth and delays that we must take action 

to avoid.

45. Senator MCCAIN. Secretary Young, what makes your efforts to address them 

different than all those efforts in the past? 

Mr. YOUNG. My efforts are different than historical efforts because I am personally enforcing policies that:

1. Ensure tenure agreements and program management agreements exist 

to improve accountability. 

2. Ensure CSBs are used to review and approve or reject requirement 

changes that may increase costs or schedules. 

3. Ensure that Defense Support Teams are used to accurately assess technical risks and resolve technical and management challenges. 

4. Ensure competitive prototyping is used to reduce cost and schedule risk 

during development. 

5. Ensure technology readiness assessments are performed and that no 

technology moves forward before it is ready to do so. 

6. Ensure that the independent cost estimates are fully considered during 

any MDAP’s milestone review and that realistic cost estimates and schedule projections are adopted. 

7. Ensure that programs consider cutting content prior to realizing cost or 

schedule growth and impacting other acquisition programs.

It will take time to show the impact of my commitment to enforce these policies, 

but I believe that lasting change starts with good common-sense policies that are 

measurable, enforceable, and widely accepted as good policy. I believe my policies 

are embraced as good ideas by the acquisition community and Congress. My actions 

will be consistent with these policies, and I believe that future leaders will be held 

accountable for their decisions according to these policies.

46. Senator MCCAIN. Secretary Young, during your career, you have seen things 

from the industry perspective, congressional perspective, military Service perspective, and now the Department’s perspective. What needs to change to get the incentives for each of those groups aligned to get better outcomes on individual programs? 

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Mr. YOUNG. I agree that alignment among stakeholders in the domains you mention, as well as with resource and requirements stakeholders, is necessary for better 

outcomes on individual programs. Gaining that alignment for each program is one 

of the key challenges of my current position. My approach is continuous involvement 

of all domains as programs are conceived, developed, tested, fielded and sustained. 

One of the domains may be leading the definition of the program at a particular 

stage, as does the requirements domain early in program definition; but even in 

that example industry, resources and acquisition domains must be represented. 

When a program transitions to the development and production phases, I ensure the 

other domains remain involved to maintain the alignment achieved during the requirements phase. My bottom line for stakeholder alignment on performance, cost 

and schedule is continuous involvement—no domain ever totally ‘‘owns’’ a program 

during its life-cycle—all domains must be continuously involved and all aspects of 

the program must be totally transparent to, and understood by, key stakeholders 

in each of the domains. 

At the macro level, I see a need for several changes. The hardest change is to 

change the culture. I believe the competition for funds among the Services is a cancer on the defense enterprise. This competition encourages overstating requirements 

and excessive inventory objectives. This competition leads to underfunded development programs and low rate procurement programs—partially driven by a desire to 

compete for more resources within the Pentagon, at the White House, and with Congress. I offer as evidence the Service Unfunded Requirements (UFR) lists. These cultural behaviors need to change. 

The Services budget, allocate and execute the vast majority of DOD funds. I have 

repeatedly found that joint programs struggle to gain adequate manpower, budget, 

and support. Alternately, the Services have many Service-unique programs that 

could be joint. For example, each Service is buying or developing their own unique 

satellite communications terminal. In many areas, these Service-unique systems, 

which are not interoperable, create operational problems for combatant commanders 

(COCOMs). As the Department moves to greater reliance on network systems and 

shared intelligence, surveillance and reconnaissance, these issues grow even more 

complicated and problematic for the COCOMs. Thus, another change required is 

greater corporate activism and direction in the formulation of program requirements 

and budgets. OSD leadership must drive and fund jointness and interoperability. 

A related issue is derived requirements applied by military technical certification 

authorities. The application of technical authority standards to the VH–71 Presidential helicopter led to a significant and costly redesign of what was planned as 

a modified commercial helicopter. There are very few mechanisms that question 

whether the application of technical authority results in costly excessive margins or 

good value for the taxpayer. We need to review and pragmatically change the Services’ implementation of technical authority. 

Another needed change is greater funding stability. Program managers are held 

accountable for successful execution and blamed for cost growth. However, program 

managers have almost no control over their budgets. The programming and budgeting offices in the Services and OSD make final decisions on program budgets. End 

game cuts, trims, taxes, balancing and other reductions become fact of life adjustments to a program manager’s budget. A program manager’s budget is generally 

linked to a signed contract. When the budget is adjusted by the ‘‘system,’’ the program manager has to replan his work and schedule and potentially renegotiate the 

contract. As many people know, changing your house plans during construction is 

expensive—this is equally true in defense acquisition. 

Similarly, we must stop changing requirements. As we speak, the Navy is reconsidering a DDX requirement that has been validated for over 10 years and led to 

the expenditure of over $8 billion. We need greater discipline in requirements, and 

we should avoid letting the rotation of requirements officers lead to churn in requirements, and thus program execution plans. 

In addition to the cultural and process changes, there are a number of changes 

we are making in the actual management and execution of DOD programs. For example, I am insisting that, with rare exceptions, we conduct a robust Technology 

Development phase that provides for two or more competing teams producing prototypes of the system and/or key system elements prior to, or through, Milestone B. 

Prototypes reduce technical risk, validate designs and cost estimates, evaluate manufacturing processes, and refine requirements. These steps will ensure that with 

program initiation at Milestone B the program is positioned to develop a system or 

an increment of capability; complete full system integration (technology risk reduction having occurred during Technology Development), and develop an affordable 

and executable manufacturing process. 

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I have directed the establishment of Configuration Steering Boards to address 

program changes with the potential to drive cost increases and schedule delays. Proposed requirement changes are coordinated with key program stakeholders throughout the program’s life. I also require technical maturity of programs before program 

initiation (Milestone B). Where I have questions about a program’s readiness for 

program initiation, I use Independent Program Assessments, Defense Support 

Teams, and other tools to do a thorough assessment of the program and to present 

their findings to me and other members of the Defense Acquisition Board. I also 

give explicit funding and schedule direction to programs at their milestone decisions, and ensure those funding directions are implemented in the budget process. 

In addition, I am focusing a great deal of attention on the contractual incentives 

put in place for programs I review to ensure we incentivize improved outcomes and 

not reward poor ones. 

The Department is engaging with industry continuously. That dialogue occurs not 

only on a program-by-program basis where industry holds a contract, but also via 

industrial associations that involve many contractors. For example, we participate 

in the National Defense Industrial Association’s Industrial Committee on Program 

Management (ICPM). The ICPM is working with us on topics of interest to both industry and government, for example the use of new Program Startup Workshops 

and improved application of Earned Value Management Systems. Forums like this 

also help align interests of the various domains.

INSTITUTIONALIZING BEST PRACTICES

47. Senator MCCAIN. Secretary Young, with a new administration taking office 

next year, you may or may not find yourself in your current position. What actions 

are you taking to ensure your initiatives take hold and endure potential leadership 

changes? 

Mr. YOUNG. I have undertaken a number of initiatives to implement my vision 

for Acquisition, Technology, and Logistics. Two of these initiatives, which are fundamental to transforming the acquisition process, are CSB and Competitive Prototyping. Using the authorities of the Office of the Under Secretary of Defense, I have 

directed the establishment of Departmental policy for CSBs and Competitive Prototyping. 

Concerning CSBs, my intent is to provide the program manager a forum for socializing changes that improve both affordability and executability. Boards will be 

in place for every current and future ACAT I program and will review all proposed 

requirement changes and any proposed significant, technical configuration changes 

which could result in cost and schedule changes. These boards are empowered to 

reject any changes, and expected to only approve changes deemed critical, in which 

funds are identified and schedule impacts are truly mitigated. 

Also, I have issued policy requiring competitive, technically mature prototyping. 

My intent is to rectify problems of inadequate technology maturity as well as a lack 

of understanding of critical program development paths. Prototyping employed at 

any level-component, subsystem, system-whatever provides the best value to the 

taxpayer. 

It is my intent that these polices be institutionalized in the forthcoming update 

to DOD Instruction 5000.2. As importantly, I have written weekly AT&L notes to 

the broadest possible acquisition team audience. These notes convey my principles 

and lessons, seeking to change the acquisition community culture and develop better 

practices. These efforts to influence the broadest possible audience in the acquisition 

community represent critical efforts to produce lasting, enduring improvements.

48. Senator MCCAIN. Secretary Young, given the problems that DOD has had ensuring that sound policy translates into practice, what do we need to do to support 

you on this? 

Mr. YOUNG. I believe we have the necessary authority and the management ability to translate those policies into effective day-to-day business practice and improved acquisition outcomes. However, funding instability detracts from our ability 

to achieve those outcomes. While we are doing all we can to ensure that program 

costs are accurately estimated and fully funded, we would appreciate your support 

in eliminating funding instability as an issue that inevitably contributes to increased costs and extended cycle times.

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STRATEGIC VISION

49. Senator MCCAIN. Secretary Young, in your Acquisition, Technology, and Logistics strategic goals implementation plan, you stated that DOD needs to accurately 

price programs and insist that the program’s schedule and budget reflect this realistic pricing. How do you plan to accomplish this? 

Mr. YOUNG. Strategic Thrust 2 of my Strategic Goals Implementation Plan describes how I intend for the Department to responsibly spend every single tax dollar. We must ensure that every program reflects realistic costs and schedules. To 

do this, we must adhere to proven practices and institute new promising ones. It 

has been the Department’s policy to fund programs at the Cost Analysis Improvement Group’s (CAIG) estimate. Over the years, this has proven to be the most accurate prediction of actual costs. We will continue this policy. To ensure that the cost 

estimates and programs deliver expected capabilities in a timely manner, I am supporting and monitoring a number of initiatives, including the following:

• Competitive Prototyping: Successful competitive prototyping will inform 

us on the realism of requirements, mature technology before final development phases, and significantly improve our cost estimates. 

• Technology Readiness Assessments (TRA): TRAs will ensure technology 

is appropriately mature at each sequential phase of development and ensure the Department budgets adequate funds for necessary technology maturation. 

• Incentive Policies: Careful, aggressive use of profit and incentives are 

critical to the program manager’s efforts to achieve cost control and disciplined behavior by industry. 

• Enhanced Acquisition Decision Memorandum (ADM): I am signing ADMs 

which specify the requirements document and its date and prohibit changes 

to program requirements. The ADMs also require full program funding. 

• CSBs: CSBs will review requirements and technical configuration 

changes, which have the potential to result in significant increases to program cost and schedule. 

• Concept Decision (CD): CD is designed to develop DOD policy and procedures that will synchronize affordable, risk-informed, strategic investment 

decisions to ensure that priority joint warfighter needs are addressed. It 

will result in portfolio-based investment decisions that enable predictable 

acquisition performance that is responsive to warfighter needs. 

• Life Cycle Management (LCM): By integrating LCM principles into the 

acquisition and sustainment processes, we will increase system readiness 

while lowering total life cycle costs.

50. Senator MCCAIN. Secretary Young, who will be responsible for developing 

these cost estimates and program baselines? 

Mr. YOUNG. The Department has an established process for developing cost estimates and program baselines. The responsibility is shared among offices from the 

requirements, programming, budgeting, acquisition, and other appropriate functional communities. Depending on the size of the program, this is done at either the 

component or OSD level. Each Service has one or more independent cost estimating 

offices which operate independent of the program offices. After the cost estimates 

and program baselines are developed, they must be approved. Again, depending on 

the size of the program, they may be approved by the SAE, or, if the program is 

an Acquisition Category (ACAT) ID program, they must be approved by me. For 

ACAT ID programs, my policy is to ensure the program is funded at the level estimated by the CAIG. This estimate, over the years, has consistently been the most 

accurate. I will not approve cost estimates and program baselines unless I am convinced they reflect accurate pricing and scheduling, and that they recognize the 

technical risks involved.

51. Senator MCCAIN. Secretary Young, you added that DOD would then hold itself 

accountable for delivering to the schedules and budgets established. What does it 

mean to hold people or programs accountable for delivering these results? 

Mr. YOUNG. I am insisting that program managers build coherent acquisition programs with manageable risk. These programs must then be fully funded to the program manager or an independent cost estimate. Finally, the requirements for the 

program cannot change. If these criteria are met, I will have a basis for holding program manager’s fully accountable and taking management or disciplinary action for 

poor performance. 

Program Manager Empowerment and Accountability is a piece of the strategy I 

am putting into place which captures this philosophy. Program managers play a 

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critical role in developing and fielding the weapon systems. I have put into place 

a comprehensive strategy to address improving the performance of program managers. Key to this is program manager tenure agreements for ACAT I and II programs, our largest programs. My expectation is that tenure agreements should correspond to a major milestone, and last approximately 4 years. 

Also, I think we have to make improvement in the education and training of our 

program managers. Our current acquisition program execution is deficient, and 

some responsibility for this must be attributed to our education and training programs. 

Another fundamental piece I have established is Program Management Agreements—a contract between the program manager and the acquisition and requirements/resource officials—to ensure a common basis for understanding and accountability. This ensures that plans are fully resourced and realistically achievable and 

that effective transparent communication takes place throughout the acquisition 

process. 

PROTOTYPING AND COMPETITION

52. Senator MCCAIN. Secretary Young, you recently signed out a memo calling for 

the increased use of prototyping and competition prior to starting a development 

program to gain more knowledge about costs and technical risks. What is your intent and how would you like to see this implemented? 

Mr. YOUNG. My intent is to understand the technical risks inherent in a system 

development effort through physical demonstrations that help us reduce risk prior 

to initiating new programs. Competing teams producing prototypes of key system 

elements will not only reduce technical risk but also validate designs and cost estimates, evaluate manufacturing processes, and refine requirements. In total, this approach will also reduce time to fielding. Further, this approach can help the DOD 

make source selection decisions based on hardware and performance instead of 

thousands of pages of paper. This policy will be implemented in the technology development phase for emerging acquisition programs, and it will be included in the 

next publication of DOD Instruction 5000.2.

53. Senator MCCAIN. Secretary Young, do you expect programs to fund full-up 

prototypes by competing contractors (fly-off)? 

Mr. YOUNG. Prototypes may be full-up systems or subsystems depending upon the 

technical risks that need to be assessed. I expect programs to fully fund the prototype activities that will be defined in the technology development strategy for the 

program.

54. Senator MCCAIN. Secretary Young, how does the approach outlined in your 

memo differ from that used on the JSF and F–22 programs—both of which held flyoffs but still experienced billions in cost growth and years in schedule delays? 

Mr. YOUNG. Both the F–22 and F–35 JSF programs held thorough, competitive 

prototyping phases that captured many of the key elements identified in my September 19, 2007, memorandum. In both cases, the prototypes provided valuable information that reduced program risk, validated key technical concepts, and reduced 

costs. 

The simple answer to this question is that the program manager must carefully 

and wisely choose to prototype the right components to reduce risk and provide confidence in production. The JSF prototypes did not incorporate any production representative structure, even if only in selected areas. As the prototypes were 

transitioned to a production design, the short takeoff and vertical landing (STOVL) 

variant was overweight. This fact is the dominant reason for JSF development cost 

growth. I am less familiar with the prototype phase of F–22. However, F–22 cost 

grew because of the highly integrated avionics architecture and the demanding 

manufacturing process. I believe it is likely that a detailed review of the history 

would reveal that the F–22 prototypes failed to adequately focus prototype development effort on these key issues. 

The F–35 JSF held an almost 5-year Concept Development Phase (CDP). During 

CDP, the 2 competing teams built 4 prototypes, and achieved 700 test points apiece. 

The CDP enabled the program to better understand many of the risks involved in 

designing a family of common aircraft that would satisfy the requirements for three 

U.S. Services and eight international partners. While the JSF program experienced 

cost growth and schedule delays, the JSF prototype efforts almost certainly helped 

avoid cost growth and schedule slips in other areas of the JSF program. 

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F–35 cost growth and schedule delay are mainly attributed to the weight issues 

surrounding the design of the STOVL variant. The program was extended during 

the SDD phase to make sure the design could meet the rigorous requirements necessary to operate in the STOVL’s expeditionary role. Additional cost growth in the 

unit cost of the aircraft is primarily the result of a reduced Department of the Navy 

procurement objective, the rising cost of specialty metals, and increased labor and 

overhead rates; all of which would have affected the program regardless of the 

prototyping and competition phase. 

The F–22 also conducted a thorough competition with two competitors developing 

two prototype aircraft. The F–22 CDP was valuable in validating the 5th generation 

capabilities in the areas of propulsion, aircraft handling, and stealth. Much of the 

program cost growth experienced by the F–22 program is attributed to technology 

challenges associated with design complexities. These complexities led to numerous 

restructures, caused funding instability and extended the Engineering and Manufacturing Development phase to 14 years. In addition, procurement quantities decreased due to changing national defense strategies, the evolution of the less costly 

F–35 aircraft to complement the capabilities of the F–22, and requirements to fund 

other Department priorities.

55. Senator MCCAIN. Secretary Young, what lessons learned did you draw from 

those programs? 

Mr. YOUNG. The key lesson learned is that competitive prototyping is an effective 

component for acquisition excellence and is only part of a tool kit that includes stable requirements, mature technology, manufacturing and integration levels, funding 

stability, upfront integrated planning baselines, and CSBs.

SHIFT MORE RISK AND RESPONSIBILITY TO CONTRACTORS

56. Senator MCCAIN. Secretary Young, we have recent examples, such as the Expeditionary Fighting Vehicle and Advanced SEAL Delivery System, in which the 

contractor delivered an item that failed to perform. In both cases, the government 

accepted full responsibility and gave the contractor a do-over. What causes the Department to make those types of decisions? 

Mr. YOUNG. Decisions to significantly restructure, terminate, or continue troubled 

acquisition programs are complex. We have found the principal drivers for troubled 

programs are unstable requirements, immature technologies, and funding instability. Additionally, we are focusing a great deal of attention on contractual incentives—and ensuring we incentivize improved outcomes, with demonstrated performance, and not reward poor outcomes. I am an extreme advocate for back-end loading 

fees in contracts, that is, reserving a very significant portion of the contract fee until 

the final stages of development and product delivery when it is clear and measurable that the warfighter and taxpayer received value for the Nation’s investment. 

As stewards of tax dollars, our responsibility for acquisition decisions must ensure 

complete openness, fairness, and objectivity. We in the acquisition enterprise are accountable for those decisions to deliver successful outcomes at reasonable costs. 

The decision related to the Expeditionary Fighting Vehicle acquisition was based 

on detailed assessments which determined the capability required was critical, the 

reliability performance shortfalls were correctable, and the replanned program was 

the most cost-effective means to deliver the required capability. 

The Advanced SEAL Delivery System (ASDS) program was cancelled based on numerous subsystem reliability issues identified by operator use. U.S. Special Operations Command has employed a reliability improvement program in order to field 

and deploy the ASDS–1 unit produced. The Department continues to evaluate ways 

to address the capability gap that now exists. 

Many of these cases come down to a very difficult, straightforward determination. 

The Department and the taxpayer have invested millions of dollars to get to the initial item delivery which has problems. If the requirement for the capability remains 

valid, then the DOD must decide whether to start over with a new competition or 

invest additional dollars to correct the deficiencies. Starting over means a new development program which likely requires the Nation to spend twice to develop the 

required capability. Further, while there is some value in terminating the failed effort, the industry team that failed to perform would have a very substantial competitive and cost advantage in any new competition. These are difficult issues to 

weigh and judge in seeking to recover from program failures to perform. One of my 

fundamental goals is to structure programs initially with a higher probability of success, using technology readiness assessments, prototyping, CSBs, realistic requireVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00100 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
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ments, and full funding. This is critical to our efforts to avoid ever having to make 

difficult decisions on failed programs.

57. Senator MCCAIN. Secretary Young, what can we do to shift appropriate risk 

back on the contractors? 

Mr. YOUNG. The fundamental lesson that we have learned is that we must have 

stable requirements to hold contractors accountable for performance. It starts with 

having a clear understanding of what available technology can accomplish before we 

invest in the development of a new system. We can use competitive prototyping to 

anchor our predictions of performance with physical demonstrations of capability. 

This requires financing multiple approaches to develop a materiel solution, and 

while the benefits from a long-term perspective justify this investment, there are affordability pressures on programs in the near term that make it difficult to execute. 

After prototype demonstrations have reduced risk for the program, it is essential 

that contract requirements remain stable. I have implemented CSBs to provide 

oversight over the evolution of system designs during development and testing 

which carefully evaluate the introduction of changes to contract requirements. It is 

also important to focus the attention of contractors on the program objectives. I 

favor the use of measurable performance incentives whereby in order to earn fee, 

the contractor must deliver product that demonstrates the required capability. 

Taken together, along with support of Congress to maintain funding stability for 

well managed programs, these actions will have the effect of reducing opportunities 

for increasing contract costs while rewarding contractors who deliver what was 

promised. 

In general, Industry will price risk into their contracts and proposals. In more instances, the price of this risk is unaffordable and poses the risk of the DOD overpaying for a particular program. The key is for the government to recognize and understand risk and build appropriate program plans, acquisition strategies, and execution schedules to deal affordably with risk.

UNDERSTANDING THE ACQUISITION PROCESS

58. Senator MCCAIN. Secretary Young, the cost of the VH–71 program has now 

grown from around $6 billion to over $11 billion. The contractor, Lockheed Martin, 

claims that the Navy changed its requirements, while the Navy claims that it did 

not understand the technical challenges. What does it say about the acquisition 

process when the Navy can sign a multibillion dollar contract with a company who 

does not understand the requirements of the system it is supposed to build and the 

government does not know enough to say the contractor’s proposal won’t work? 

Mr. YOUNG. On VH–71, the Department purposely accepted more cost and schedule risk than is normal. The post-September 11 security environment drove an urgent need to replace legacy VH–3D/VH–60N with a safer, more reliable and more 

survivable presidential transport helicopter. To help meet the high risk schedule the 

program executed a short risk reduction period with potential vendors vice entering 

a technology development phase. A more thorough technology development phase 

prior to entering the SDD phase would have helped ensure complete flow down of 

the government’s performance-based specification into the contractor’s proposed configuration. It would have allowed the government to fully define the technical scope 

of this highly concurrent Increment 1 and Increment 2 VH–71 program and to develop more accurate cost and schedule baselines. 

Increment 1 was to address the immediate need of providing the President with 

safe, reliable and survivable transportation. Increment 2 was to address the full set 

of requirements capable of performing both administrative and contingency missions. While the technical baseline for Increment 2 should have been fully defined 

at contract award, the urgency was of a sufficient concern that a programmatic decision was made to proceed forward with Increment 1. Although the program’s cost 

and schedule have increased significantly, the Department believes that had it 

known at the beginning of the program what it knows now the cost would have been 

very close to current projections. 

A performance-based contract was competitively awarded in January 2005 to 

Lockheed Martin Systems Integration-Owego (LMSI–O). Slow progress in requirements and technical definition of the performance contract (not requirements 

changes), design completion, and lack of coordination of the proposed design between LMSI–O and their subcontractors adversely affected an already high risk 

schedule. Solid systems engineering processes were not adhered to in this program 

as it made compromises in order to keep schedule, which compounded the problem. 

Concurrency in the Increment 1 and Increment 2 development, and a larger amount 

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of Increment 2 redesign than was originally planned, caused further schedule delays 

and cost increases. 

With this factual history as background, I would offer a few additional summary 

comments. First, the initial White House requirements have not changed. However, 

there are classified aspects of this program. In my reviews, there seems to have 

been some confusion between the Navy and industry on Appendices F and G related 

to structural and performance requirements for the VH–71 and how industry was 

to consider these requirements in their proposal. Some members of the government 

feel industry exploited this confusion to argue that performance requirements were 

tradeable, thus choosing not to flow down all requirements and produce a more realistic estimate of workload and cost. This confusion should not have existed or occurred because the White House requirements were firm and never changed. It is 

unclear whether this confusion had a real impact on underestimation of program 

cost or this confusion is a convenient explanation for a dramatic underestimation 

of the VH–71 program cost. 

There have been changes in the ‘‘derived requirements’’ relative to initial assumptions. The White House assumed it would be a straightforward process to integrate 

new communications and safety equipment on an existing commercial helicopter. Industry may have legitimately believed that this was the government objective. However, the Naval Air Systems Command (NAVAIR), which has technical authority for 

selected military aviation systems including the Presidential helicopter, imposed derived requirements for the VH–71 to improve safety and reliability. NAVAIR required changes in the helicopter fuel system, structure, tail design and other areas 

to meet their airworthiness certification requirements. These changes have led to 

substantial redesign of the proposed commercial helicopter and significant additional cost. Industry may reasonably perceive these as changed requirements. In 

early discussions about the program, I did not perceive or understand the Navy 

would demand so many design changes in the commercial helicopter, such as dictating the number of bolts attaching the transmission to the airframe. I think a full 

understanding and recognition of these derived requirements should have called into 

question the initial industry and government cost estimates. 

I believe that all of these issues could have been better understood. An existing 

EH–101 will not meet the White House range and payload requirements. Adding 

several thousand pounds of weight to the EH–101, even with a new engine, further 

guarantees that the helicopter will not meet range and payload requirements. In reviewing the VH–71 program, I asked for a comparison to the CH–53 redesign effort. 

Indeed, the CH–53 effort will require about $5 billion of new design and test work—

a number comparable to the new estimate for VH–71 Increment 2 development. The 

initial estimate of $800 million for Increment 2 development was clearly incorrect. 

The stringent requirements and the application of government certification requirements and standards have driven substantial cost growth on VH–71 over the original estimates. While risk and urgency can account for some of the growth, it is clear 

that misunderstandings on the requirements and failed assumptions about the use 

of a commercial helicopter airframe were significant contributors. Even in light of 

all of these issues, I believe errors were made in planning and pricing the VH–71 

program which should not have been made. 

Despite initial difficulties with regard to what was necessary to fulfill program requirements, the Program Office, LMSI–O and its major subcontractors now understand and agree on contract requirements. A restructured program has been proposed which meets the White House military requirements on a schedule with better understood risk.

59. Senator MCCAIN. Secretary Young, is DOD fulfilling its fiduciary responsibilities when it enters into long-term, cost-plus contracts for development when it 

knows so little about what it intends to develop and build? 

Mr. YOUNG. I agree that DOD is responsible for ensuring that every taxpayer dollar is spent in the most efficient and effective manner in providing for the Nation’s 

defense. Consistent with that objective, the contract vehicles we employ should be 

consistent with our assessment of overall program risk. When we determine that 

the program is so complex and technically challenging that it would not be practical 

to reduce program risk to a level consistent with the use of a fixed price contract 

vehicle, we should choose a cost type contract because we believe that approach is 

the one most likely to provide the greatest benefit to national defense and the taxpayer. These decisions must be made on a contract-by-contract basis and with a full 

appreciation of our fiduciary responsibility. 

I would agree that the Department should avoid entering contracts with excessive, 

unknown risks. The Department must spend more in the early phases of program 

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nology demonstrations. The Department must also complete Quick Look Technology 

Readiness Assessments to guide program planning and investment in the early 

stages. Even with these tools, industry will conservatively price risk into contracts 

if the department insists on fixed price contracts. This strategy runs the risk of 

DOD significantly overpaying for development programs. With proper planning, risk 

reduction and management, I believe the taxpayer gets the lowest price and the best 

product by using cost type contracts when the requirements are demanding and the 

level of risk is substantial. In other situations, DOD may be able to consider fixed 

price incentive fee contracts for development programs.

ACCOUNTABILITY

60. Senator MCCAIN. Secretary Young, Congress has expressed its intent to have 

the Missile Defense program follow the same rules as other major programs, i.e. accountability for cost increases, full funding with procurement dollars, and budgeting 

from the right pots of money—Procurement; Research, Development, Testing, and 

Evaluation; Military Construction; Operations and Maintenance; etc. Are you in 

support of this? 

Mr. YOUNG. For the Ballistic Missile Defense program, I support the implementation of program oversight and processes that contribute to efficient execution. I intend to ensure that a rigorous Ballistic Missile Defense System baseline agreement 

with defined cost, schedule and performance parameters be fully implemented to 

allow continuous evaluation of program execution and accountability for changes to 

program plans. Consistent with the NDAA for Fiscal Year 2008, MDA was authorized to use incremental procurement authority for fiscal years 2009 and 2010. The 

Department will assess the impact of full versus incremental funding applied to 

MDA procurement actions beyond fiscal year 2010, and will formulate direction. The 

Missile Defense Executive Board initiated activity to develop a Ballistic Missile Defense System Life Cycle Management Process to assess Missile Defense Agency requirements, development, procurement and transition plans. Future budget submissions will include appropriate requests, to the extent possible, for the different types 

of funding to include: Procurement, Research Development Test and Evaluation, 

Military Construction, and Operations and Maintenance.

ACQUISITION WORKFORCE

61. Senator MCCAIN. Secretary Young, there is a debate over whether the acquisition workforce is sufficient in terms of skill mix and quantity. What is your view? 

Mr. YOUNG. I’m well aware of the debate. At the highest level, I do not believe 

the acquisition workforce is adequately manned, and I believe there are a number 

of areas where we need more robust and comprehensive skills. There is not an allor-nothing answer. I am working to adjust skill mixes and to build up numbers 

where that is the right thing to do. To ensure our defense acquisition workforce is 

sufficient in terms of skill mix and quantity, we deployed several initiatives under 

my AT&L strategic thrust, ‘‘Take Care of Our People.’’ Two primary initiatives are 

Competency Management and Human Capital Strategic Planning. The Competency 

Management initiative is taking a hard look at critical acquisition occupations such 

as Program Management, Cost Estimating, Financial Management, Contracting, 

Systems Engineering Management, Testing and Evaluation, and Logistics. We will 

learn about existing skill mixes and gaps. The Human Capital Strategic Planning 

initiative addresses the gaps between the mix and size needed and in place; a report 

to Congress is in process. We will use the DOD Acquisition Workforce Development 

Fund (10 U.S.C. 1705) to address both skill and quantity gaps through recruiting 

and hiring; training and development; and recognition/retention initiatives.

62. Senator MCCAIN. Secretary Young, are we relying too much on contractors to 

perform work the government used to perform? 

Mr. YOUNG. Consistent with applicable laws and regulations defining inherently 

governmental functions, the DOD identifies opportunities where competitive 

sourcing of contractor support allows DOD to concentrate its manpower on distinctly 

military activities. The department recognizes the extent to which our use of contractors has grown. I am concerned that we may not have the right balance between 

government personnel and contractors.

63. Senator MCCAIN. Secretary Young, does the government have the systems engineering talent needed to execute the policies you enumerated in your recent memo 

on prototyping? 

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14GAO, Defense Acquisitions: A Knowledge-Based Funding Approach Could Improve Major 

Weapon System Program Outcomes, GAO–08–619 (Washington, DC: Jul. 2, 2008). 15GAO, Best Practices: An Integrated Portfolio Management Approach to Weapon System Investments Could Improve DOD’s Acquisition Outcomes, GAO–07–388 (Washington, DC: Mar. 30, 

2007).

Mr. YOUNG. The promulgation of DOD’s competitive prototyping policy does indeed place additional emphasis on systems engineers during early phases of the acquisition lifecycle. We are addressing this critical need through several initiatives 

as part of our Human Capital Strategic Plan. First, we are working to leverage Section 852 (the DOD Acquisition Workforce Development Fund) of the NDAA for Fiscal Year 2008 to recruit, train, and retain systems engineers. Second, we are in the 

process of conducting a top-to-bottom assessment of our systems engineering workforce to identify the number of systems engineers needed and the specific skills they 

require. Third, we continue to enhance our systems engineering guidance, tools, and 

education and training certification courses to assist the workforce in implementing 

new policies such as competitive prototyping, integrated developmental and operational test, and preliminary design reviews. Finally, as I mentioned in my prototyping policy memorandum, our intent is that the demand for earlier knowledge and 

reduction of risk provide the incentive to further develop and enhance the systems 

engineering skills in our current workforce. System engineering talent is vital for 

program success, and we are actively working to ensure we meet and sustain our 

acquisition workforce needs.

IMPROVING PROGRAM OUTCOMES

64. Senator MCCAIN. Ms. Schinasi, in your written statement you note that GAO 

designated DOD weapon system acquisitions as a high risk area in 1990, and that 

programs continue to experience poor cost, schedule, and performance outcomes. 

Your statement identifies problems at the strategic level and at the program level 

that you believe continue to contribute to these poor outcomes. At the strategic 

level, what is needed to improve program outcomes? 

Ms. SCHINASI. We recently recommended that the Secretary of Defense develop 

and implement a strategy to bring the department’s current portfolio into balance 

by aligning the number of programs and the cost and schedule of those programs 

with available resources.14 In developing and implementing a strategy, the department should determine ways to prioritize needs and identify whether the budget 

and the FYDP should be increased to more accurately reflect the actual costs of current programs or whether the portfolio of current programs should be reduced and 

lower-priority programs terminated to match available resources. We have also recommended in the past that the Secretary of Defense implement an enterprise-wide 

portfolio management approach to making weapon system investments that integrates the assessment and determination of warfighting needs with available resources and cuts across the Services by functional or capability area.15 To ensure 

the success of such an approach, the Secretary should establish a single point of accountability at the department level with the authority, responsibility, and tools to 

ensure that portfolio management for weapon system investments is effectively implemented across the department. In addition, the Secretary should ensure that the 

following commercial best practices are incorporated: 

• implement a review process in which needs and resources are integrated 

early and in which resources are committed incrementally based on the 

achievement of specific levels of knowledge at established decision points; 

• prioritize programs based on the relative costs, benefits, and risks of each 

investment to ensure a balanced portfolio; 

• require increasingly precise cost, schedule, and performance information 

for each alternative that meets specified levels of confidence and allowable 

deviations at each decision point leading up to the start of product development; 

• establish portfolio managers who are empowered to prioritize needs, 

make early go/no-go decisions about alternative solutions, and allocate resources within fiscal constraints; and 

• hold officials at all levels accountable for achieving and maintaining a 

balanced, joint portfolio of weapon system investments that meet the needs 

of the warfighter within resource constraints.

65. Senator MCCAIN. Ms. Schinasi, at the program level, what is needed to increase the likelihood of program success? 

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16GAO, Best Practices: Better Support of Weapon System Program Managers Needed to Improve Outcomes, GAO–06–110 (Washington, DC: Nov. 30, 2005). 

Ms. SCHINASI. To increase the likelihood of program success, DOD must ensure 

that appropriate knowledge is captured and used at critical junctures to make decisions about moving a program forward and investing more money. While DOD has 

incorporated into policy a framework that supports a knowledge-based acquisition 

process similar to that used by leading organizations, it must establish stronger controls to ensure that decisions on individual programs are informed by demonstrated 

knowledge. Moreover, congressional approval of programs that have not taken these 

steps encourages DOD’s subsequent requests for additional funding. 

A path can be laid out to make decisions that will lead to better program choices 

and better outcomes. Much of this is known and has been recommended by one 

study or another. GAO itself has issued hundreds of reports. The key recommendations we have made have been focused on the product development process:

• constraining individual program requirements by working within available resources and by leveraging systems engineering; 

• establishing clear business cases for each individual investment; 

• enabling S&T organizations to shoulder the technology burden; 

• ensuring that the workforce is capable of managing requirements trades, 

source selection, and knowledge-based acquisition strategies; and 

• establishing and enforcing controls to ensure that appropriate knowledge 

is captured and used at critical junctures before moving programs forward 

and investing more money.

66. Senator MCCAIN. Ms. Schinasi, what changes in the acquisition environment 

need to be made to ensure program success? 

Ms. SCHINASI. DOD is not enforcing a knowledge-based approach, discipline is 

lacking, and business cases do not measure up. This is occurring, in part, because 

there are no consequences for actions that run counter to the intent of DOD acquisition polices—officials responsible for approving program starts are no longer in their 

positions by the time the consequences of their actions become evident. The department routinely accepts high levels of technology risk at the start of major acquisition programs. Mature technologies are pivotal to developing new products. Without 

mature technologies at the outset, a program will almost certainly incur cost and 

schedule problems. However, DOD’s acquisition community moves forward on programs with technologies before they are mature and takes on responsibility for technology development and product development concurrently. Our work has also 

shown that DOD allows programs to begin without establishing a sound business 

case that matches requirements with technology, acquisition strategy, time, and 

funding. And once these programs begin, their requirements and funding change 

over time. In fact, program managers consider shifting requirements—which can result in added program complexity and costs—and funding instabilities—which occur 

throughout the program—to be their biggest obstacles to success. Fundamentally, 

DOD will need to reexamine the entirety of its acquisition process and how it is affected by requirements and funding processes. This includes making significant 

changes to program requirements setting, funding, and execution; as well as to the 

incentives that drive the behavior of DOD decisionmakers, the military Services, 

program managers, and the defense industry. Finally, no real reform can be 

achieved without a true partnership among all these players and Congress.

67. Senator MCCAIN. Ms. Schinasi, GAO cites tenure or turnover issues for both 

program managers and senior DOD leaders as impediments to better program outcomes and lasting reform. What recommendations would GAO make to alleviate this 

issue? 

Ms. SCHINASI. We have made several recommendations related to the issue of 

management tenure as it relates to weapon system development programs. For example, in our November 2005 report on program managers, we recommended that 

DOD develop and implement a process to instill and sustain accountability for successful program outcomes.16 In developing this process, we note that, in part, DOD 

should consider matching program manager tenure with delivery of a product or for 

system design and demonstration, and tailoring career paths and performance management systems to incentivize longer tenures. We have also noted that if DOD limited development cycle times to between 5 and 7 years it would be possible to extend 

the tenure for a single program manager to the entire product development phaseproviding the manager a more realistic responsibility but with more accountability. 

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17GAO, Defense Acquisitions: Employing Best Practices Can Shape Better Weapon System 

Decisions, GAO/T–NSIAD–00–137 (Washington, DC: Apr. 26, 2000). 18 Assessment Panel of the Defense Acquisition Performance Assessment Project for the Deputy Secretary of Defense, Defense Acquisition Performance Assessment Report (Jan. 2006).

In 1998, the Under Secretary of Defense for Acquisition, Technology, and Logistics 

stated that the department’s objective must and will be to achieve acquisition cycle 

times no longer than 5 to 7 years. 

In 2000, we testified that we had identified a 5-year limit for weapon system development programs—which reflected both commercial practices and DOD guidance. 

DOD’s acquisition policy, revised in 2003, suggests that system development should 

be limited to a manageable timeframe—about 5 years.17 An assessment of DOD’s 

acquisition system commissioned by the Deputy Secretary of Defense in 2006 similarly recommended that programs should be time-constrained with development cycles no longer than 6 years from Milestone A to low-rate initial production.18

68. Senator MCCAIN. Ms. Schinasi, GAO describes cost growth as reduced buying 

power and lost opportunity costs for DOD. What are the implications of continued 

cost and schedule problems? 

Ms. SCHINASI. Cost and schedule problems for DOD programs have implications 

both within the department and for the Federal Government as a whole. Within 

DOD, continued cost growth results in less funding being available for other DOD 

priorities and programs, while continued failure to deliver weapon systems on time 

delays providing critical capabilities to the warfighter. As program costs increase, 

DOD must request more funding to cover the overruns, make trade-offs with existing programs, delay the start of new programs, or take funds from other accounts. 

Delays in providing capabilities to the warfighter result in the need to operate costly 

legacy systems longer than expected, find alternatives to fill capability gaps, or go 

without the capability. In a broader sense, poor outcomes in DOD’s weapon system 

programs reverberate across the entire Federal Government because of the sheer 

size of the investment in these programs. Every dollar wasted during the development and acquisition of weapon systems is money not available for other internal 

and external budget priorities—such as the war on terror and mandatory payments 

to growing entitlement programs.

69. Senator MCCAIN. Ms. Schinasi, does GAO feel that DOD’s recent flurry of initiatives takes acquisition change to needed levels? If so, what steps does DOD need 

to take to reinforce these initiatives and translate them into practice? 

Ms. SCHINASI. DOD’s recent initiatives appear to have some promise, but we have 

found that practices do not always follow promise. DOD must ensure that programs 

follow the new policies and that people are held accountable for their compliance 

with them as well. Many of DOD’s recent initiatives are contained in policy memos 

signed by the current Under Secretary of Defense for Acquisition, Technology, and 

Logistics and are not guaranteed to survive the transition to the next administration. DOD is taking a positive first step by revising its overall acquisition policy, 

referred to as the DOD 5000 series, to include many of these initiatives. Preliminary 

indications are that the revised policy will establish more controls and metrics by 

which to assess program progress. In order to get better outcomes, DOD will need 

to avoid service- and program-centric investment decisions that allow the military 

Services to overpromise capabilities and, underestimate costs and enforce the controls in its revised policy. For its part, Congress should support DOD’s efforts to instill discipline and accountability into its acquisition process, while continuing to 

monitor the department’s efforts through vigorous oversight.

70. Senator MCCAIN. Ms. Schinasi, what additional guidance and steps are needed 

to bolster DOD’s recent initiatives? 

Ms. SCHINASI. DOD’s recent initiatives indicate that in large part the department 

knows what needs to be done to improve acquisitions. However, we have found that 

the department does not apply the controls or assign the accountability necessary 

to achieve successful outcomes. To strengthen accountability, DOD must also clearly 

delineate responsibilities among those who have a role in deciding what to buy as 

well as those who have role in executing, revising, and terminating programs. At 

the program level once a program begins, DOD will need to: (1) match program 

manager tenure with development or the delivery of a product; (2) tailor career 

paths and performance management systems to incentivize longer tenures; (3) 

strengthen training and career paths as needed to ensure program managers have 

the right qualifications to run the programs they are assigned to; (4) empower program managers to execute their programs, including an examination of whether and 

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19GAO, Defense Acquisitions: DOD’s Revised Policy Emphasizes Best Practices, but More 

Controls are Needed, GAO–04–53 (Washington, DC: Nov. 10, 2003). 20GAO, Defense Acquisitions: Major Weapon Systems Continue to Experience Cost and Schedule Problems under DOD’s Revised Policy, GAO–06–368 (Washington, DC: Apr. 13, 2006).

how much additional authority can be provided over funding, staffing, and approving requirements proposed after the start of a program; and (5) develop and provide 

automated tools to enhance management and oversight as well as to reduce the time 

required to prepare status information. In addition, rewards and incentives must be 

altered so that success can be viewed as delivering needed capability at the right 

price and the right time, rather than attracting and retaining support for numerous 

new and ongoing programs.

71. Senator MCCAIN. Ms. Schinasi, do you believe there are sufficient controls embedded in DOD’s policy and processes to ensure a knowledge-based decision process 

is followed? 

Ms. SCHINASI. Twice in the last 5 years, we have reported that DOD’s acquisition 

process did not contain sufficient controls to ensure a knowledge-based approach is 

followed. We reported in November 2003 that DOD’s leaders had taken noteworthy 

steps by incorporating into the policy a framework that supports a knowledge-based, 

evolutionary acquisition process, similar to one used by leading commercial companies to get successful outcomes.19 This framework was an important and significant 

step. However, we noted that while DOD’s policy included some controls that leading companies use to capture knowledge at the start of a program, additional controls were needed to ensure that decisions made throughout product development 

are informed by demonstrated knowledge. In April 2006, we reported again that 

DOD’s revised acquisition policy lacked sufficient controls and noted that acquisition 

officials were not effectively implementing the policy’s knowledge-based process.20

72. Senator MCCAIN. Ms. Schinasi, what additional controls are needed in place 

to ensure the intent of the policy (evolutionary and knowledge-based process) is carried out? 

Ms. SCHINASI. DOD must instill discipline and accountability into the acquisition 

process and ensure that practice follows policy. DOD must demand that appropriate 

knowledge is captured and used at critical junctures to make decisions about moving a program forward and investing more money. Our 2003 assessment of DOD’s 

revised acquisition policy found that it included some of the controls that leading 

companies use to capture knowledge at the start of a program—such as holding decision reviews—but additional controls were needed. We recommended that the Secretary of Defense require program officials to demonstrate that they have captured 

knowledge at three key points—program start, design review for transitioning from 

system integration to system demonstration, and production commitment—as a condition for investing resources. In our subsequent 2006 report, we noted that, at a 

minimum, those controls should require program officials to demonstrate that they 

have achieved a level of knowledge that meets or exceeds the following criteria at 

each respective decision point: 

Program start (Milestone B): Start of product development 

• Demonstrate technologies to high readiness levels 

• Ensure that requirements for the product are informed by the systems 

engineering process 

• Establish cost and schedule estimates for product on the basis of knowledge from preliminary design using system engineering tools 

• Conduct decision review for program start 

Design readiness review: Beginning of system demonstration 

• Complete 90 percent of design drawings 

• Complete subsystem and system design reviews 

• Demonstrate with prototype that design meets requirements 

• Obtain stakeholders’ concurrence that drawings are complete and producible 

• Complete the failure modes and effects analysis 

• Identify key system characteristics 

• Identify critical manufacturing processes 

• Establish reliability targets and growth plan on the basis of demonstrated reliability rates of components and subsystems 

• Conduct decision review to enter system demonstration 

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21GAO, Joint Strike Fighter: Recent Decisions by DOD Add to Program Risks, GAO–08–388 

(Washington, DC: Mar. 11, 2008). 

Production commitment (Milestone C): Initiation of low-rate Production 

• Demonstrate manufacturing processes 

• Build production-representative prototypes 

• Test production-representative prototypes to achieve reliability goal 

• Test production-representative prototypes to demonstrate product in operational environment 

• Collect statistical process control data 

• Demonstrate that critical processes are capable and in statistical control 

• Conduct decision review to begin production

Over the past several years, Congress has taken legislative action to establish 

controls that we believe have the potential to instill more discipline into the frontend of the acquisition process and ultimately improve program outcomes. For example, the NDAA for Fiscal Year 2006 requires that before a major defense program 

can receive approval to start system development, the MDA must certify that the 

program meets specified criteria, such as:

• the technology in the program has been demonstrated in a relevant environment; 

• the program is affordable when considering DOD’s ability to accomplish 

the program’s mission using alternative systems and the per unit and total 

acquisition costs in the context of the FYDP; 

• reasonable cost and schedule estimates have been developed for system 

development and production; and 

• appropriate market research has been conducted prior to technology development to reduce duplication of existing technology and products.

COST TRACKING SYSTEM

73. Senator MCCAIN. Secretary Young, you dispute the GAO’s finding that our acquisition system is broken—and you have testified that ‘‘it is on a path to improvement’’—however, in the press today we are learning that the Pentagon has found 

‘‘significant concerns . . . regarding [Lockheed Martin’s] ability to mitigate emerging costs and schedule issues in a timely manner . . . this undisciplined approach 

to program . . . diminishes the purchasing power of the Department.’’ How can you 

suggest that DOD’s acquisition process is not broken—and that DOD fully understands the costs for developing and buying weapon systems? 

Mr. YOUNG. The specific example you cite deals with a single contractor and its 

compliance with standard Earned Value Management procedures. This system is 

one tool we use in program management, and this case is not, in my view, indicative 

of a systemic problem associated with the acquisition system. I take this matter 

very seriously and as I testified, there is a corrective action plan in place, Lockheed 

has agreed to it and met three of the milestones already. There are substantial financial incentives associated with meeting the milestones. One specific instance 

among thousands of programs, thousands of contracts and hundreds of companies 

does not constitute a broken acquisition system. The media and Congress have 

failed to focus any attention on the vast number of successfully executed and managed DOD acquisition programs which deliver extraordinary capability and develop 

world class technology.

74. Senator MCCAIN. Ms. Schinasi, what is the impact of this failed cost tracking 

system? 

Ms. SCHINASI. We recently reported that the current JSF program cost estimate 

is not reliable; in part because it is based on the prime contractor’s earned value 

management data and other information which has been found to be inaccurate and 

misleading.21 The immediate impact of this unreliable estimate is that Congress and 

DOD management do not have an accurate picture of JSF current cost and schedule 

performance and future funding requirements. In our report, we recommended specific improvements needed to prepare a new estimate that is comprehensive, accurate, well-documented, and credible. 

JSF program officials told us that they use Lockheed Martin earned value management data in creating their estimate of JSF development costs. The Defense Contract Management Agency (DCMA) identified this data as being of very poor quality, 

calling into question the accuracy of any estimate based on these data. In November 

2007, DCMA issued a report saying that Lockheed Martin’s tracking of cost and 

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schedule information at its aerospace unit in Fort Worth, TX—where the JSF program is managed—is deficient to the point where the government is not obtaining 

useful program performance data to manage risks. Among other problem areas, 

DCMA found that Lockheed Martin had not clearly defined roles and responsibilities, and was using management reserve funds to alter its own and subcontractor 

performance levels and cost overruns. DCMA officials who conducted the review at 

Lockheed Martin told us that the poor quality of the data invalidated key performance metrics regarding cost and schedule, as well as the contractor’s estimate of the 

cost to complete the contract. In 2005, the Naval Air Systems Command (NAVAIR) 

raised similar concerns about Lockheed Martin’s earned value system. NAVAIR officials told us that most deficiencies identified in the DCMA report have the effect 

of underreporting costs, and that the official program cost estimates will increase 

if the deficiencies are corrected.

75. Senator MCCAIN. Ms. Schinasi, isn’t it true that this failure to adequately 

track costs has reduced DOD’s flexibility by causing it to cut two developmental test 

JSFs? 

Ms. SCHINASI. Cutting two development test aircraft, especially one of the carrier 

variants for testing mission systems and ship suitability, reduces DOD’s flexibility 

in completing development testing on time to support the start of operational testing 

and the subsequent full-rate production decision. The decision to cut two test aircraft was part of the Mid-Course Risk Reduction Plan—a risky and controversial 

plan put in place to replenish management reserves. Specifically, the plan reduces 

development test aircraft and test flights, and accelerates the reduction of the contractor’s development workforce in order to restore management reserves to the 

level considered prudent to complete the development contract as planned and within the current cost estimate. The test community and others within DOD believe 

the plan puts the development flight program at considerable risk and trades known 

cost risk today for unknown cost and schedule risk in the future. The number of 

development flight tests had already been reduced twice before the Mid-Course Risk 

Reduction plan. Over the last 2 years, test flights have been reduced by more than 

1,800 flights or 26 percent.

76. Senator MCCAIN. Ms. Schinasi, what impact could this setback in testing have 

on the entire program? 

Ms. SCHINASI. The program had originally planned to conduct development flight 

tests using 15 aircraft. The recent decision to reduce test aircraft to 13 (including 

a non-production representative prototype), cut back the number of flights, and 

change how some capabilities are tested will stress resources, compress time to complete testing, and increase the number of development test efforts that will overlap 

with the planned start of operational testing in October 2012. Test officials are concerned that capacity will be too constrained to meet schedules and adequately test 

and demonstrate aircraft in time to support operational testing and the full-rate 

production decision in October 2013. The full extent of changes and impacts from 

a revised test verification strategy are still evolving. Program officials reported that 

if test assets become too constrained, production aircraft may eventually be used to 

complete development testing. This would reduce the number of operational assets 

and delay training pilots. 

QUESTIONS SUBMITTED BY SENATOR SUSAN COLLINS

PROCUREMENT OF LPD–17 CLASS SHIPS

77. Senator COLLINS. Secretary Young, the committee recently approved the President’s budget request to fund the third of seven planned DDG–1000 Zumwalt class 

destroyers in fiscal year 2009. The House, however, failed to approve the budget request for the DDG–1000 shipbuilding program and would leave only $400 million 

of a $2.5 billion budget request for surface combatant ship procurement in fiscal 

year 2009. This would amount to only a small down payment for a delayed third 

DDG–1000 in fiscal year 2010 or a down payment toward the procurement of unplanned DDG–51 class ships in fiscal year 2010. The House approach would mean 

that no destroyer of any kind would be procured or contracted for construction in 

fiscal year 2009 from either surface combatant shipbuilder and would basically 

eliminate surface combatant shipbuilding to procure an additional LPD–17 class 

ship for which funds were not requested in the President’s budget. Can you please 

comment on the likely impact on shipbuilding acquisition costs, program continuity, 

as well as industrial base stability, workforce retention, and cost efficient production 

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at our surface combatant shipyards, if Congress fails to fund the procurement of the 

third DDG–1000 this year? 

Mr. YOUNG. The failure to fully fund the third DDG–1000 ship in fiscal year 2009 

would pose risk to the surface combatant shipbuilding industrial base, would pose 

risk to the overall shipbuilding plan, and would inject additional cost. Direct production hours for one DDG–1000 ship are about 2.5 times that of one DDG–51 restart 

ship. This validates DOD’s experience that two to three DDG–51 destroyers need 

to be purchased annually to sustain the production workload base for two surface 

combatant shipyards. Current estimates project that two DDG–51 ships would cost 

more per year than one DDG–1000 follow ship. The cost per year for modified DDG–

51 ships would be even higher. Several ship and vendor base issues including equipment obsolescence, main reduction gears, configuration change issues, and re-start 

of production lines would need to be resolved in order to award and construct additional DDG–51 class ships in the following years. If the DDG–1000 program is truncated after only two ships, the costs for the two DDG–1000 lead ships would increase by $2–4 billion according to Navy estimates, and program shutdown costs 

would have to be funded. It also is important to recognize that the research, development, testing, and evaluation efforts for the DDG–1000 program must continue 

in order to deliver two complete lead ships and to support the Dual Band Radar 

for the CVN 21 program. With a gap year in fiscal year 2009, as the House plan 

would insert, industrial base stability, workforce retention, and cost efficiency would 

suffer at the surface combatant shipyards regardless of whether the Navy continues 

DDG–1000 production in fiscal year 2010 or restarts DDG–51 production in fiscal 

year 2010. 

78. Senator COLLINS. Secretary Young, does the DOD support congressional funding of an additional LPD–17 class ship at the expense of surface combatant shipbuilding procurement in fiscal year 2009? 

Mr. YOUNG. No. The Department’s position is reflected in the President’s budget 

fiscal year 2009 submission. It represents the Department’s funding requirements 

after balancing needs across all product lines. 

QUESTIONS SUBMITTED BY SENATOR SAXBY CHAMBLISS

TAX INCREASE PREVENTION AND RECONCILIATION ACT

79. Senator CHAMBLISS. Secretary Young, your office recently submitted a letter 

to Congress outlining impacts on the DOD of implementing Section 511 of the Tax 

Increase Prevention and Reconciliation Act (TIPRA) of 2005. I understand that complying with TIPRA will require DOD to modify the Defense Financial Accounting 

System, increase personnel requirements, and pay an additional $17 billion to DOD 

contractors over the next 5 years. I understand that the intent of this law is to crack 

down on government contractors who do not pay their taxes, but I am wondering 

if there will not be some unintended consequences. Although the cost to DOD is $17 

billion over 5 years, I understand the reduction in the tax gap is miniscule compared to this, and also that DOD also gets no savings but is only burdened with 

the cost. What do you think the impact to DOD will be if this requirement is not 

repealed? 

Mr. YOUNG. The Department is concerned that the withhold will limit the number 

of companies willing to enter into the government market. As a result, it will reduce 

competition and our access to new technologies. Also, it would significantly restrict 

the available cash of tax-compliant companies that would otherwise be used to develop new technologies. In addition, the withhold will apply to payments made by 

third parties such as those made to banks under the government commercial credit 

card program. The banks processing payments under this commercial credit card 

program have already informed the government that they do not intend to implement the section 511 withholds on behalf of the government. Therefore, the Department will lose its ability to use the commercial purchase card and other third party 

payment mechanisms and will have to bring these small purchase functions back 

in-house. This will exacerbate the Department’s current procurement personnel 

staffing shortages by the additional workload that would result from the alternate 

use of purchase orders or other paper intensive processes. 

80. Senator CHAMBLISS. Secretary Young, where do you envision the money coming from to pay the additional costs since it is doubtful Congress will be appropriating more money specifically for this? 

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Mr. YOUNG. The additional costs associated with changing DOD financial management systems and processes will be borne by either the Defense Finance and Accounting Service (DFAS) or the military departments and other defense agencies 

(ODAs), depending on the systems. Since DFAS is a working capital fund organization, it would make the necessary changes to the systems it owns or controls and 

increase the costs to its customers. The cost to modify the systems owned or controlled by the military departments and ODAs would come from appropriated funds. 

In addition, commercial vendors are expected to pass on the incremental cost of 

goods and services due to added cost for commercial vendors to modify their systems 

and processes. These costs will also be passed on to the military departments and 

ODAs. 

81. Senator CHAMBLISS. Secretary Young, will there be an impact on force readiness due to the extra funds that will have to be expended to comply with this law? 

Mr. YOUNG. Yes. The cost to the contractors to comply with this law will be 

passed to the government through increased costs of systems, spares, supplies and 

services purchased by the Department. Without additional funds to offset either 

these increases or the additional costs the Department will have to bear to implement this additional withholding requirement, the Department will have fewer 

funds to support our warfighters.

82. Senator CHAMBLISS. Secretary Young, while the 3 percent withholding requirement does not go into effect until 2011, when does the DOD expect to change its 

regulations and financial management systems to become compliant with TIPRA? 

Mr. YOUNG. The Internal Revenue Service (IRS) is developing implementing regulations to establish the process for section 511 withholds. Once the IRS issues the 

implementing regulations, the requirements will be known, and DOD can begin 

modifying its regulations and financial management systems. If DOD can begin 

these modifications in fiscal year 2009, we would expect to have them completed in 

time to be in compliance when section 511 goes into effect on January 1, 2011. 

83. Senator CHAMBLISS. Secretary Young, how do you expect TIPRA to affect future contracts as well as small businesses that are pursuing military contracts? 

Mr. YOUNG. The Department is concerned the withhold will limit the number of 

companies willing to enter into the government market, thereby reducing competition and access to new technologies. We believe many small businesses will no 

longer do business with the government due to the potential cash flow problems created by TIPRA of 2005.

MILITARY HOUSING PRIVATIZATION INITIATIVE

84. Senator CHAMBLISS. Secretary Young, your responsibilities as Under Secretary 

for Acquisition, Technology, and Logistics include oversight of installation and environmental issues within DOD. Over the past year I have been heavily involved with 

an issue relating to DOD’s military housing privatization initiative (MHPI) which 

falls within this area. To be honest, we have four extremely successful housing privatization projects in the State of Georgia. However, we have a disaster at Moody 

Air Force Base. The Air Force has four projects known as the American Eagle 

projects at four different Air Force bases. Work has ceased at all these projects and 

they are years behind schedule and, collectively, hundreds of millions of dollars in 

debt. Specifically at Moody Air Force Base, approximately $9 million has been owed 

to around 30 subcontractors for over a year and at least one of these subcontractors 

has lost both his hope and his business as a result of this failed project. 

As I have looked at this, I believe there is enough blame to go around and that 

everyone involved, the bondholders, the project owner, but also the Government, 

made mistakes here that should not have been made, could have been avoided, and 

need to be prevented in the future. 

Senator Mark Pryor and I included legislation in this year’s NDAA to increase 

DOD’s oversight process in this area and require closer attention to the way these 

projects are designed, executed, and requiring the Services to more closely oversee 

the projects so that problems are detected and corrected early on. 

It greatly concerns me that, in the case of the project at Moody, there was not 

a single government person on site monitoring the project, that the government representative on site had essentially no authority, and that after being aware of problems with the Moody project for several years, that the Air Force either did not have 

the necessary mechanisms or did not use the mechanisms they had to either correct 

the problem or replace the project owner in a timely fashion. And obviously it conVerDate 0ct 09 2002 12:02 Dec 09, 2008 Jkt 000000 PO 00000 Frm 00111 Fmt 6633 Sfmt 6621 C:\DOCS\45699.TXT SARMSER2 PsN: JUNEB
108

cerns me greatly that we are almost 4 years into this project and that we have essentially no houses built, are millions of dollars in debt, and that there are small 

businesses suffering as a result. Above all, I’m concerned that there are thousands 

of airmen moving to Moody Air Force Base and that they may not have a place to 

live. Are you aware of this issue, and what is your assessment? 

Mr. YOUNG. Since the MHPI was enacted in the NDAA for Fiscal Year 1996, the 

military Services have awarded 87 housing privatization projects. Over 174,000 

housing units have been privatized and more than 130,000 previously inadequate 

units will be revitalized during the initial 10 years of the program. DOD’s $2 billion 

contribution has generated $24 billion in upfront private sector housing construction. 

One developer, American Eagle, currently owns five projects and is performing 

poorly. American Eagle is comprised of Carabetta Enterprises and the Shaw Group. 

In November 2007, American Eagle sold its Navy Northwest, WA, project to Forest 

City Enterprises, Inc., who assumed the role of general partner. American Eagle is 

the general partner in one Army project at Fort Leonard Wood, MO, which is stable 

and in the process of being sold to another developer. This project sale is expected 

to close in June 2008. American Eagle owns four Air Force projects at Hanscom Air 

Force Base, MA; Patrick Air Force Base, FL; Little Rock Air Force Base, AR; and 

Moody Air Force Base, GA. At the four Air Force installations, American Eagle is 

behind its construction schedule, behind in paying subcontractors, and in default 

under private and Air Force project documents. The bondholders have stopped funding construction draws while the projects are sold to another developer. Execution 

of the purchase and sale agreement for the Air Force projects is expected in fall 

2008. 

The Air Force did monitor and was aware of the Moody project deficiencies and 

reported them to the project owner and bondholders as early as 2005. Since the Government was not a party to the private sector contract between the Moody project 

owner and its contractors, the government had no authority to intervene in those 

contracts. The Air Force sent cure notices to the project owner in August 2007 and 

continued to work closely with the bondholders regarding the project owner’s deficiencies. The Moody project was put into receivership in late summer 2007, and all 

action on the project requires the court’s approval. The Air Force continues to work 

the project owners and the bondholders for a consensual sale of the Moody project 

to a new owner by the fall 2008. As part of the consensual sale, Air Force is working 

with the prospective project owners to properly size the project to meet future Air 

Force housing needs and ensure adequate housing is available for the military families moving to the installation. 

The current MHPI authorities provide a creative and effective solution to addressing the shortage of quality family rental housing for servicemembers and their families. The proposed MHPI authority amendments contained in Section 2803 of S. 

3001 would impose undesirable and unnecessary additional government oversight 

and reporting on MHPI projects, contrary to the privatization model and the legislative intent of the original authorizing language. Under the original MHPI, private 

sector developers and lenders develop, maintain, and operate the privatized housing 

and resolve issues when they arise. Market forces drive contractor performance and 

the primary enforcement mechanism is the ability of the military members to choose 

where to live. If a housing project fails to meet performance expectations lenders 

have the option, with the approval of the Services, to replace the owner with a more 

viable entity. The American Eagle problems have been unfortunate, but the MHPI 

has enabled the military Services to revitalize their housing significantly faster than 

they would have under traditional military construction.

85. Senator CHAMBLISS. Secretary Young, can you give me your assurances that 

you will review DOD’s policies in this area to ensure yourself that DOD has the 

proper oversight policies in place to protect the Government’s interests and ensure 

that our soldiers, sailors, airmen, and marines receive the quality housing they deserve in a timely manner through housing privatization initiative projects such as 

these? 

Mr. YOUNG. The MHPI is key to the Department’s efforts to ensure that 

servicemembers and their families have access to high quality, safe, secure, and affordable housing. The Department continually reviews its policies regarding military 

housing privatization, to ensure that the Department maintains an effective oversight program for MHPI project performance. Current Department policy includes 

detailed upward reporting by the military Services, completion of a biannual program evaluation plan (PEP report), and mandatory project reviews and approvals 

by the Office of the Deputy Under Secretary of Defense for Installations and Environment. In addition, the Department’s quarterly reports and biannual PEP reports 

109

are submitted to the congressional defense committees for ongoing congressional 

oversight. The difficulties with American Eagle projects were identified as early as 

the MHPI PEP Report #10, which was submitted to Congress on March 30, 2006. 

The Department is willing to work with the congressional defense committees to improve these areas of our oversight. 

[The report referred to follows:] 


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[Whereupon, at 11:41 a.m., the committee adjourned.]

Æ


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