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i 

79–953 2013

[H.A.S.C. No. 113–11] 

ASSURING VIABILITY OF THE 

SUSTAINMENT INDUSTRIAL BASE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON READINESS 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

FEBRUARY 28, 2013 
(II) 

SUBCOMMITTEE ON READINESS 

ROBERT J. WITTMAN, Virginia, Chairman 

ROB BISHOP, Utah 

VICKY HARTZLER, Missouri 

AUSTIN SCOTT, Georgia 

KRISTI L. NOEM, South Dakota 

J. RANDY FORBES, Virginia 

FRANK A. LOBIONDO, New Jersey 

MIKE ROGERS, Alabama 

DOUG LAMBORN, Colorado 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MADELEINE Z. BORDALLO, Guam 

JOE COURTNEY, Connecticut 

DAVID LOEBSACK, Iowa 

COLLEEN W. HANABUSA, Hawaii 

JACKIE SPEIER, California 

RON BARBER, Arizona 

CAROL SHEA-PORTER, New Hampshire 

WILLIAM L. ENYART, Illinois 

PETE P. GALLEGO, Texas 

MICHELE PEARCE, Counsel 

VICKIE PLUNKETT, Professional Staff Member 

NICHOLAS RODMAN, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2013 

Page 

HEARING: 

Thursday, February 28, 2013, Assuring Viability of the Sustainment Industrial Base .............................................................................................................. 1 

APPENDIX: 

Thursday, February 28, 2013 ................................................................................. 35 

THURSDAY, FEBRUARY 28, 2013 

ASSURING VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Bordallo, Hon. Madeleine Z., a Delegate from Guam, Ranking Member, Subcommittee on Readiness ...................................................................................... 2 

Wittman, Hon. Robert J., a Representative from Virginia, Chairman, Subcommittee on Readiness ...................................................................................... 1 

WITNESSES 

Avdellas, Dr. Nicholas J., Senior Consultant for Materiel Readiness and 

Sustainment, Logistics Management Institute .................................................. 10 

Johns, John, Deputy Assistant Secretary of Defense for Maintenance Policy 

and Programs, U.S. Department of Defense ...................................................... 3 

Steffes, Pete, Vice President, Government Policy, National Defense Industrial 

Association ............................................................................................................ 5 

Sterling, Cord, Vice President, Legislative Affairs, Aerospace Industries Association .................................................................................................................... 8 

APPENDIX 

PREPARED STATEMENTS: 

Avdellas, Dr. Nicholas J. .................................................................................. 75 

Johns, John ....................................................................................................... 41 

Steffes, Pete ...................................................................................................... 52 

Sterling, Cord .................................................................................................... 65 

Wittman, Hon. Robert J. .................................................................................. 39 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Ms. Shea-Porter ................................................................................................ 91 

(1) 

ASSURING VIABILITY OF THE SUSTAINMENT 

INDUSTRIAL BASE 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON READINESS, Washington, DC, Thursday, February 28, 2013. 

The subcommittee met, pursuant to call, at 8:00 a.m., in room 

2212, Rayburn House Office Building, Hon. Robert J. Wittman 

(chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. ROBERT J. WITTMAN, A REPRESENTATIVE FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE 

ON READINESS 

Mr. WITTMAN. I would like to call to order the House Armed 

Services Subcommittee on Readiness. I want to welcome you to this 

morning’s hearing. And I would like to thank our panel experts for 

being here today to address the viability of the defense 

sustainment industrial base and the implications for mission readiness as we try to resolve the current budget crisis. 

As we debate the way forward and try to resolve the continuing 

resolution and sequestration dilemmas, it is important not to lose 

sight on what is really at stake here, this country’s ability to 

project power and to properly train and equip our warfighters, our 

men and women in uniform who, at this very moment, are fighting 

for us on the battlefields in Afghanistan and will continue to do so 

for the foreseeable future. 

As the debates have raged on I have been struck by how starkly 

our military leaders have described the dilemma. As General 

Dempsey and the other service chiefs recently informed this committee, ‘‘the readiness of our armed forces is at a tipping point. We 

are on the brink of creating a hollow force.’’ About the same time, 

we learned of the delayed deployment of the USS Truman carrier 

strike group to the central command AOR [Area of Responsibility], 

a region where our missions continue to grow rather than go away. 

Never in my lifetime did I imagine we would again be forced to 

confront the very real possibility of a hollow military force and the 

devastation it entails for our Nation and our men and women in 

uniform. 

Make no mistake, our readiness crisis is real and it is important 

to understand exactly what is at risk. During this hearing, I would 

like you to share your perspective on this and help us answer some 

basic questions. 

In terms of risk, what does it mean to our national security, particularly our sustainment industrial base to have ships moored to 

the pier, or sitting in dry dock, or waiting for depot maintenance. 
2 

What, in your views, are the implication of having airplanes 

grounded on ramps? 

And finally, what is the impact on our warfighters when we 

delay or defer reset and retrograde of our equipment? 

Joining us today are Mr. John Johns, the Deputy Assistant Secretary of Defense for Maintenance and Policy Programs; Mr. Pete 

Steffes, Vice President for Government Policy at the National Defense Industrial Association; Mr. Cord Sterling, Vice President for 

Legislative Affairs at the Aerospace Industries Association; and Dr. 

Nicholas Avdellas, Senior Consultant For Material Readiness and 

Sustainment at the Logistics Management Institute. 

Gentlemen, thank you all very much for being here, and I appreciate your thoughtful statements, and particularly appreciated your 

views regarding the need for a detailed strategic planning for the 

future. Just as I have been an advocate for a 30-year shipbuilding 

plan and the benefits associated with determining strategy first 

and budgetary requirements second, I believe we need to similarly 

focus on strategic planning when it comes to the viability of the industrial base. 

With that, I would like to wish a warm welcome to my new partner on the Readiness Subcommittee, Madeleine Bordallo, who I 

have worked with in the past and who I have the highest regard 

for. I am truly honored to have such a distinguished ranking member working with me as we address these weighty issues, Mrs. 

Bordallo. 

[The prepared statement of Mr. Wittman can be found in the Appendix on page 39.] 

STATEMENT OF HON. MADELEINE Z. BORDALLO, A DELEGATE 

FROM GUAM, RANKING MEMBER, SUBCOMMITTEE ON READINESS 

Ms. BORDALLO. Why, thank you, Mr. Chairman, my sentiments 

are the same. I want to welcome our witnesses to the hearing 

today, we are discussing some important topics that touch on the 

second- and third-order effects of sequestration and its impact on 

readiness. I find this a helpful discussion to truly understand the 

impact of sequestration. I am, however, disappointed that we are 

not having a more robust discussion in Congress about how to solve 

sequestration. We all agree and understand that sequestration is 

catastrophic for the prospects of a full economic recovery in our 

country. Cuts to defense and other discretionary programs will 

have significant negative impacts on the long-term economic 

growth of the country. 

I remain steadfast that the leadership of both parties must put 

everything on the table to find ways to avoid sequestration. And I 

hope that our discussion today and our hearing about viability of 

the sustainment industrial bases will encourage our Members of 

both parties to get leadership back to the table and address our 

debt and deficit issue in a more responsible manner. 

Our Nation faces significant economic challenges over the coming 

years. This will undoubtedly have a significant and potentially negative impact on the sustainment and the industrial bases. History 

shows us that if we do not align strategy with the need for 

sustainment, we create a situation where we are negatively affect-
3 

ing the readiness of our military forces. The sustainment industrial 

base provides the backbone for the military to respond to a variety 

of contingencies. As we face these difficult budget times, I hope 

today that our witnesses will touch on what efforts are under way 

to marry our military strategy with our sustainment requirements. 

What steps are under way to look at the fundamental 

underpinnings of how we reset our equipment so that it is done in 

a most cost-effective and efficient manner and ready and available 

for training, and for battle? Moreover, how do we posture our 

sustainment industrial base in such a fashion to adapt to future 

challenges? We have learned many lessons from how we sustained 

equipment during the Iraq and Afghanistan wars, so how do we 

take these lessons learned and apply to our future anticipated 

sustainment needs? 

In the near term, our most pressing issue is how we maintain 

the sustainment industrial base in the face of sequestration. Members of the committee need to better understand how we can find 

a balance between strategy and sustainment in that extremely fiscally constrained environment that does not allow for proper planning and supply lead times. So I hope that the witnesses can touch 

on the impact that sequestration would have on the timeline for 

reset of equipment that is retrograding from Afghanistan. I hope 

that all our witnesses can highlight the increase in cost that will 

occur when strategy and sustainment are not coordinated. 

What is the additional cost that is borne by the Government in 

the long term with such a significant cut in the short term? Some 

accounts could face 40 to 50 percent cuts before the end of this fiscal year. So along these lines, I also hope that all our witnesses can 

discuss the reversibility of these cuts to the sustainment industrial 

base. At what point are these cuts irreversible? How long can sequestration endure before we gut core capabilities? For example, I 

am particularly concerned that thousands of shipyard employees 

will be laid off if sequestration is allowed to continue for some time 

into the future. These layoffs could decimate a critical capability 

both for the Government, as well as with private shipyards and 

ship repair facilities. So again, I want to thank you, Mr. Chairman, 

for this opportunity and I look forward to the testimony of our witnesses. 

Mr. WITTMAN. Thank you, Mrs. Bordallo. 

We now go to the testimony from our witnesses, and begin with 

Mr. Johns. 

STATEMENT OF JOHN JOHNS, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MAINTENANCE POLICY AND PROGRAMS, U.S. DEPARTMENT OF DEFENSE 

Mr. JOHNS. Chairman Wittman, Ranking Member Bordallo, distinguished members of the subcommittee, thank you for the opportunity to appear before you to discuss the viability of the 

sustainment industrial base. I also thank you for your continued 

support and interest in a topic so critical to our ability to support 

readiness. Over the past several months, you have heard from the 

Department senior leadership on the potential devastating impacts 

of our developing fiscal situation and the bottom line effects on the 

strength of our Nation’s military and the ability to support national 
4 

security strategy. It is in this context that I offer my comments. I 

am proud to be speaking to you today as the senior maintainer 

within the Department of Defense. 

My prepared statement submitted for the record contains more 

detail than I can provide here in my opening remarks, so I will attempt to cover the major points and then welcome your questions 

later. To fully appreciate the future viability of the sustainment industrial base, I believe it is important to understand the basic fiscal and operational dynamics that govern our industrial base activities. First, it is important to understand that the Department’s 

total requirement for sustainment industrial base funding, and in 

turn, its ability to generate readiness is directly dependent on appropriate resourcing of both our base program and OCO [Overseas 

Contingency Operations] requirements. 

With respect to contingency funding, each military department is 

dependent on OCO funding levels to resource critical requirements 

associated with both operations in theater, as well as maintenance, 

repair and overhaul of military equipment returning from Iraq and 

Afghanistan. This latter activity, or reset of equipment, has for a 

decade been responsible for correcting damage induced by harsh 

environments and high OPTEMPOs [Operational Tempo], extending the useful life of valuable equipment, drastically reducing the 

need for acquisition and replacement equipment, and enabling 

force generation strategies of each military service. 

With respect to operating under continuing resolution, there is 

not much more that I can add to what the Department senior leadership has already explained. So let me just emphasize that operating under restrictions of a continuing resolution with accountlevel funding that does not match our fiscal year 2013 requirements, has created an increased burden on the operation and maintenance accounts, effectively creating a funding shortfall in the accounts that resource our industrial based operation. 

With respect to sequestration if implemented, the funding implications are far greater in operations and maintenance accounts 

than may appear at the surface. The President has exercised his 

authority to exempt military personnel accounts from sequestration 

in fiscal year 2013 so other accounts must accommodate the full reduction to the Department. Moreover, because of the need to protect programs directly supporting wartime operations, the reduction to most base-budget O&M [Operations and Maintenance] accounts will be significantly greater than the single-digit percentages currently being discussed. The impact of these reductions will 

then be effectively doubled by having to accommodate the full fiscal 

year 2013 reductions in the last 7 months of the fiscal year. 

While each of these factors has significant negative impact in isolation, the combined effects must be considered to fully appreciate 

the impact on the national industrial base. And in turn, the impact 

on both near- and far-term readiness. The combined potential 

shortfalls and cuts are so large, we anticipate reductions, delays, 

and cancellation in work orders within our public depots and shipyards and on contract with the private sector. These actions will 

begin as early as March and continue throughout the fiscal year. 

The military services will manage existing funded workload, resource the highest priority maintenance, and take all possible ac-
5 

tions to mitigate harmful effects on readiness and on our 

sustainment industrial base capability and workforce. In addition, 

reversibility will play a key factor in prioritization of actions. However, given the magnitude of the combined concentrated reductions, 

even the most effective mitigation strategies will not be sufficient 

to protect the sustainment industrial base. As a result, third- and 

fourth-quarter inductions will be cancelled in many areas, gross financial and production inefficiencies will be generated, thousands 

of Government temporary and term employees and contractor personnel will be impacted immediately, hundreds of small businesses 

and businesses with strong military market dependency will be 

placed at risk and readiness of numerous major weapon systems 

and equipment and in turn each Service’s ability to satisfy future 

mission requirements will be seriously degraded. 

The damage may be so severe in some areas full recovery within 

our national industrial base both public and private sectors from 

just fiscal year 2013 reductions could take up to a decade. 

Finally, from what I just highlighted, it may appear obvious that 

if sequestration is not reversed and outyear reductions occur, each 

Service’s industrial base strategy is at risk. Adjustments in funded 

workload will exceed our ability to responsibly adjust workforce 

and evolve our industrial capability. As a result, critical skills will 

be lost, reduced investment levels will impact competitiveness and 

relevance, major inefficiencies will emerge, and key public-private 

partnerships will be unsupportable. The bottom line is, each Service’s ability to support surge and sustained operations will be seriously damaged. 

Thank you, Mr. Chairman, Ranking Member Bordallo, and distinguished members of the subcommittee for the opportunity to address these critical issues. 

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

Mr. WITTMAN. Mr. Steffes. 

STATEMENT OF PETE STEFFES, VICE PRESIDENT, GOVERNMENT POLICY, NATIONAL DEFENSE INDUSTRIAL ASSOCIATION 

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

Bordallo, and members of the subcommittee. On behalf of the 1,715 

corporate members, and nearly 95,000 individual members of the 

National Defense Industrial Association, I am pleased to appear before the Subcommittee on Readiness concerning issues that are of 

great importance to the viability and sustainment of the industrial 

base, and therefore, national security. 

I am also very pleased to be sitting on this side of the table after 

20 years sitting on the other side of table as a staffer on the committee. 

In trying to understand the immediate impacts of a continuing 

resolution and the impending Governmentwide sequestration, it is 

important to realize that many of the potential impacts of these actions are already occurring, especially for small business. Some examples of companies and communities these real life impacts include cuts to prime contractors such as the MRAP [Mine-Resistant 

Ambush Protected vehicle], which totals over 6 billion in con-
6 

tracting will impact over 1.5 billion subcontracts performed by 

small businesses. 

A company in Oregon that manufactures periscopes, vision 

blocks, ballistic windows, transparent armor, and specialty components for the past 35 years is shuttering their doors due to the uncertainty of potential budget cuts and a concern over the trends in 

defense procurement practices. The manufacturer of one-of-a-kind, 

high-tech, hot-press furnaces used to manufacture ceramic bodyarmor plates and the manufacture of carbon tooling, specialty foils, 

and other specialized products are close to going out of business. 

It would take 18 to 24 months to reconstitute these capabilities and 

at a larger cost to taxpayers. Some of these examples may not be 

directly attributable to sequestration or the impact of year-afteryear continuing resolutions, but are the realities of a reduction in 

the defense budget and the uncertainties of a normal appropriations process. 

Sequestration certainly will speed up the process of plant closures for many, but the real danger here is the forced closure of 

critical technology suppliers at a time when we must maintain a 

current level of readiness and be prepared to face inevitable challenges to national security in the future. Reconstituting these capabilities, not if, but when needed again, will take a lot of time and 

a lot of money and will have a significant impact on readiness. 

Managing these realities will be a challenge for all. Some of the big 

defense producers may be able to adjust to forced and unplanned 

changes that a sequestration and continuing resolutions will inevitably cause. However, the big businesses also heavily depend on 

second-, third-, and sometimes fourth-tier suppliers who will be 

most vulnerable to going out of business. Small business do not 

have the resources to weather the storm. 

As concerned as we are about the ability for the defense industrial base to provide acceptable levels of support to sustain national 

security, it is also just as important to maintain an organic source 

of repair and maintenance in the Department of Defense. Since the 

1940s the Nation’s manufacturing depots, arsenals, and shipyards 

have been the cornerstone of our ability to not only fight but to 

overwhelmingly win any and all conflicts. 

After significant downsizing during the last several BRAC [Base 

Closure and Realignment] rounds in a current future fiscal reality, 

the Nation’s organic capabilities are feeling the same pressures as 

the private sector. One of the major contributors to these pressures 

is the declining workloads due to the scaling back of our war efforts, and that most of the work currently accomplished in our depots is on legacy systems. Fewer and fewer new weapons systems 

are being fielded and those that are do not require the heavy longterm maintenance that our depots system was originally designed. 

The military depots are also heavily dependent upon the private 

sector for repair parts and equipment. Overshadowing these factof-life realities is the impact of a sequestration, continuing resolution, and an inevitable budget reduction. Sequestration will necessitate a cancellation of program work orders in the third and fourth 

quarter, as Mr. Johns has mentioned, in this fiscal year, an action 

that will not only impact our readiness and material and equipment, but it will also leave us with a workforce with not much to 
7 

do, an expensive proposition as the losses this year will be carried 

into next year’s rates. Operating under a continuing resolution significantly restricts the Department’s ability to transfer funding between accounts, a major hindrance in the proper management of 

the taxpayer funds. 

The debate on the most efficient manner providing for maintenance and repair needs of the Department has been going on for 

decades. Over the past 30 years Congress taken special interest in 

public maintenance facilities by enacting legislation meant to ensure their continued viability, especially in times of national emergency. Some will say that parts of existing legislation inhibit DOD’s 

[Department of Defense’s] ability to economically and efficiently 

manage these needs. 

Over the past 2 years, there have been good-faith efforts by Congress, the Department, and industry to find the solutions agreeable 

to all. Unfortunately to date, these efforts have not been successful. 

It clear that with a probable sequestration, continuing resolutions, 

and budget reductions irrespective of the sequestration, something 

must be done so that our world-class repair and overall capabilities, public and private, are not lost. 

As budget constraints and force structure reductions make the 

management of effective public and private depot-level maintenance capabilities more challenging, the framework in chapter 146 

of Title 10, the process of determining core logistics and minimum 

organic workload requirements should be reviewed by representatives of all stakeholders in a structured and open process that 

would serve well to inform future decisions by Congress and the 

Department of Defense on the efficient and affordable management 

support. 

One way to achieve this much-needed review is for Congress to 

direct DOD to establish an all stakeholders panel to thoroughly review the applicable sections of chapter 146 Title 10 with the aim 

of updating current legislation to ensure viability and affordability 

of logistics support and depot-level maintenance and repair activities of the Department in the future. 

DOD’s new procurement policy, known as ‘‘Better Buying Power 

2.0,’’ calls for more efficient use of tax dollars and endorses the concept of performance-based logistics, or PBLs. As the mechanism to 

lower the cost of weapons maintenance and create incentives for 

supplier to cut costs. Under a PBL arrangement a contractor will 

agree to provide a certain outcome for a prenegotiated price rather 

than get paid for individual products and services. If a PBL is for 

aircraft engines, for instance, the contractor would be held accountable for ensuring that a certain number of engines are available at 

any given time. However, at a time when DOD is advocating more 

efficient contracting methods, only 5 percent of the military’s maintenance work is performed under such arrangements. About 87 

PBL contracts are in place today, compared with more than 200 in 

2005. 

A proven solution is partnering. Partnering has been discussed 

for many years and would appear to be an efficient way of utilizing 

public facilities capabilities along with industry. Legislation has 

been written by this committee over the years to incentivize and 

promote partnering. There have been very successful partnering ar-
8 

rangements, including the tank upgrade program at Anniston 

Army Depot of engineering support and logistic services between 

GE [General Electric] and Corpus Christi Army Aviation Depot, 

and the operative communications capabilities at Tobyhanna Army 

Depot, just to name a few. 

However, much more can and should be done. Further integration of the organic and private industrial bases will provide the additional flexibility demanded by an unstable and uncertain budget 

future. 

Mr. Chairman, at a time when the Department of Defense and 

the defense industrial base must adapt inevitable budget restrictions, regardless how they come about, there must be a change in 

how we do business. Congress, the Department of Defense and industry must come together and find ways to provide a manageable 

and affordable sustainment industrial base. As America’s leading 

defense industry, NDIA [National Defense Industrial Association] 

is committed to working with all stakeholders to ensure that we 

continue to provide cutting-edge technology and superior weapons 

and equipment, training, and support for our warfighters. Thank 

you, Mr. Chairman, Ranking Member Bordallo, and I will take any 

of your questions. 

[The prepared statement of Mr. Steffes can be found in the Appendix on page 52.] 

Mr. WITTMAN. Thank you, Mr. Steffes. Mr. Sterling. 

STATEMENT OF CORD STERLING, VICE PRESIDENT, LEGISLATIVE AFFAIRS, AEROSPACE INDUSTRIES ASSOCIATION 

Mr. STERLING. Chairman Wittman, Ranking Member Bordallo, 

other distinguished subcommittee members, thank you for the opportunity to appear today and discuss the negative consequences of 

the continuing resolution and sequestration on the U.S. aerospace 

and defense industrial base. AIA [Aerospace Industries Association] 

represents 380 U.S. manufacturing firms in the aerospace and defense industries, a sector of our economy with over 1 million dedicated and talented employees. Many of you have seen the studies 

we have made available which look at economic and industrial impact of the current budget situation. Most widely used is one conducted by George Mason economist Dr. Stephen Fuller that concludes sequestration will put at risk 2.1 million jobs nationwide. 

This figure includes 473,000 manufacturing workers. Many of these 

will be in the aerospace industry, including small suppliers. While 

the timing of these impacts will be spread over a couple of years 

and may be slightly diminished as a result of the small reduction 

in cuts made as part of the American Taxpayers Relief Act of 2012, 

they will still be large and devastating to families and communities 

across the country. 

Defense manufacturers have been laying off workers and canceling future investments for many months because of this uncertainty. The process accelerated so significantly at the end of last 

year that our national economy actually shrunk in the fourth quarter of 2012. This was a shock to economists who attribute it largely 

to the decline in defense spending, and the process continues. 

Last year we formed the Defense Industrial Base Task Force in 

partnership with the National Defense Industrial Association and 
9 

the Professional Services Council. As these private-sector executives looked at the initial impact of just the $487 billion in budget 

cuts already programmed, they determined these cuts could cripple 

certain defense sectors, resulting in an industrial base that is 

smaller, less innovative, and less responsive to urgent wartime 

needs. These impacts would most likely force industry to close production lines and lay off skilled full-time workers, letting go specialized manufacturing capacity and human capital that cannot be 

regenerated without great cost and significant time; reduce or 

eliminate investments and capabilities beyond those needed to 

meet existing contracts, and consolidate further, exit the defense 

sector altogether, or be divested by parent corporations. 

Consequently, defense executives predicted an erosion of the continuum of goods and services provided by industry from R&D [research and development] and design, to advanced development, to 

production and then sustainment and upgrade that could result in 

critical gaps in military capability over time. And all of this is just 

based on the first $487 billion in defense cuts, not the additional 

$500 billion from sequestration. 

Sequestration will cause us to lose the design teams, system integrators, skilled technicians and others that are critical for us to 

maintain our technological lead. The Department of Defense also 

has serious impacts operating under a long-term continuing resolution. We know that there is a $14 billion shortfall in the operations 

and maintenance accounts under the CR [Continuing Resolution]. 

This means that critical training and sustainment activities will 

not be performed unless a shortfall is corrected. For example, the 

Navy, which has a $4.5 billion O&M shortfall has reported that 23 

ship availabilities will not by performed if increased funding is not 

provided. 

Aircraft maintenance will be cancelled in the third and fourth 

quarters. And modernization programs will be deferred as we are 

forced to rely upon aging, antiquated systems that are less capable 

and more expensive to maintain. 

Sustaining current readiness will be impossible with the Joint 

Chiefs reporting that we are on the brink of creating a hollow force 

with sequestration and the CR triggering a 20-percent cut in the 

operating budgets. With less funding available for maintaining the 

equipment, buying fuel and purchasing spare parts training on our 

equipment will not be possible at the levels deemed necessary by 

operational commanders. 

The CR is also preventing a number of programs from moving 

forward as rules of the CR do not allow new starts. As a result, 

personnel and equipment stand idle waiting for the authority to 

begin work. This increases cost and creates program delays that 

will be felt for years. Impacts will not all be immediate, they will 

build over time as agencies grapple with implementing the order. 

Our analysis all concluded that most private sector job losses would 

occur within 6 to 18 months of the sequester order as contracts expire. 

The sheer magnitude of these nationwide effects will not be evident in the first month. What we do know is that the cuts will be 

deep and unless quickly reversed, will result in the loss of critical 

industrial skills and capabilities. Some have suggested that addi-
10 

tional flexibility will solve most of these problems. However, flexibility without additional resources may end up savaging the very 

accounts that warfighters depend on for advance equipment and 

long-term readiness. The investment accounts will lose billions of 

dollars which translate to significant equipment reductions. This 

magnitude of cuts in the investment accounts could result in fewer, 

older, and less capable tools for our young warfighters in harm’s 

way. It would terminate promising R&D that would help us keep 

our technological advantage and future conflicts, and it would 

cause irreversible damage to a fragile defense industrial base. Mr. 

Chairman, thank you again for the opportunity to testify today on 

this important topic. 

[The prepared statement of Mr. Sterling can be found in the Appendix on page 65.] 

Mr. WITTMAN. Thank you, Mr. Sterling. Dr. Avdellas. 

STATEMENT OF DR. NICHOLAS J. AVDELLAS, SENIOR CONSULTANT FOR MATERIEL READINESS AND SUSTAINMENT, 

LOGISTICS MANAGEMENT INSTITUTE 

Dr. AVDELLAS. Chairman Wittman, Ranking Member Bordallo, 

and members of the committee. Thanks very much for the opportunity to provide a short opening statement on assuring the viability of the Department of Defense’s sustainment industrial base in 

the context of a yearlong CR and sequester. 

In the time allotted, I will offer a brief perspective on what assuring the viability of the sustainment industrial base entails given 

clear fiscal pressures, and then highlight a few key consideration 

for a feasible way ahead. There is no doubt that DOD is faced with 

both substantial and sudden resource decreases as well as longerterm fiscal challenges. The looming and flexible and across-theboard nature of the most impending of these difficulties will undoubtedly cause specific disruption in DOD’s sustainment industrial base. 

I would suggest that in that the near term, the challenges are 

primarily to what this base delivers, and in the longer term, to its 

shape and capabilities. Central issues then relate to the impact and 

strategies necessary to address reductions while reshaping what remains in that base to assure readiness capabilities for the future. 

In that regard DOD should work to define the right amount of sustainability to produce viable and responsive readiness. I believe the 

situation must prompt Congress and the DOD to critically deliberate the nature of the relationship of logistics or sustainment to 

our military strategy. 

Discussions about tooth or tail, readiness or sustainment, maintenance or operations, equipment or personnel must be approached 

from a wide-ranging, inclusive perspective. 

Viability of the industrial base should be considered in the context of force structure and operational needs, and what workloads 

and capabilities requirements those needs drive. In general, 

multiyear sequestration affects will logically reduce force structure 

and operational capabilities, and the industrial base will react to 

those reductions in what should be a balanced way. By ‘‘balanced,’’ 

I mean shaping an industrial base so it is efficiently structured and 

funded to deliver what the forces need or require or ask for in 
11 

terms of readiness and capability. Overall, it is important to recognize that workload shifts or reductions will have a significant effect 

on the sustainment capabilities that support the force structure, 

and perhaps should have significant effects on shaping that force 

structure. 

If CR’s budget reduction and sequestration are focused disproportionately on one aspect of these equations—force structure, operations, a particular element of sustainment, or some part of the industrial base—imbalance will result. If we focus on the industrial 

base or sustainment without relation to force structure and our operations, then readiness and capability cannot be delivered over 

time and deferred maintenance will result. This sort of imbalance 

was a contributing cause of the hollow force of the late 1970s. 

On the whole, the resource realities implicit in the CR and the 

sequestration signal a smaller workload over time that must be effectively positioned within our sustainment industrial base. These 

realities may require innovative approaches in addition to sound 

strategic thinking. In that regard, I offer several suggestions for 

considerations by the Department and the Congress. 

First, emphasize the need for detailed planning, the kind of 

planing that reflects adjustments to the realities of force structure, 

operational requirements, and readiness needs. Here, a clear need 

is characterized current conditions and to identify requirements for 

new capabilities and modernization that extend through the decade, not just the Future Years Defense Program, or the FYDP. This 

should apply to both organic and contract providers and might include consideration for an integrated management arrangement. 

Second, stress the integration of public and private sector 

sustainment efforts beyond primarily depot maintenance to achieve 

plan performance base support. Formulate and implement 

partnering approaches that could have some additional dimensions, 

including arrangements that leverage modernization that could be 

well provided by the private sector. 

Third, further evolve the core capability determine process towards a strategic risk management framework. Utilize the Army’s 

plan as a baseline to drive constructive public and private sector 

behavior and workload management and provide strategic oversight through OSD [Office of the Secretary of Defense] and the 

military service relationships. 

Finally, rationalize centers of industrial and technical excellence 

or sites within a consistent framework across the Department to 

optimize the public sector industrial base and better integrate key 

private sector capabilities. 

This concludes my opening statement. I would be pleased to respond to any questions you have. 

[The prepared statement of Dr. Avdellas can be found in the Appendix on page 75.] 

Mr. WITTMAN. Very good. Thank you, Dr. Avdellas, appreciate 

your testimony as well as that of the other panel members. 

I want to begin with questioning. I want to remind the members 

we want to make sure we get to as many questions as we can, so 

I will be very brief with mine. We heard some common themes 

among our witnesses today, and essentially, they all boil down to 

this, and that is an erosion and degradation of capability, and that 
12 

is not just a short-term issue, but a long-term issue, and many of 

you spoke very eloquently about the long-term nature of that with 

sustainability, what happens with personnel, what happens with 

equipment, what happens with our industrial base, I think all 

those things are extraordinarily important. 

What I would like to get is just a brief comment from each of you 

about in the face of a resource-challenged environment. Let’s face 

it, we know we have got the $100 billion reduction from Secretary 

Gates, the 2011 $487 billion on top of whatever ultimately makes 

its way out of the budgeting decision processes in front of us. 

Where does the scenario leave us to do the best that we can under 

that particular scenario in making sure that we not only meet the 

short-term needs, but make sure the long-term needs are met. Also, 

in a pretty challenging environment where we have drawdowns, we 

have yet-to-be-determined activities there in Afghanistan, challenges obviously will blossom in years to come, too. Just give me 

your perspective on how do we best meet that? Mr. Johns, we will 

start with you. 

Mr. JOHNS. Thank you, Mr. Chairman. I guess this is sort of the 

essence of the basic problem. I would first say that it is very, very 

difficult to comment definitively. Given the uncertainty associated 

with what might happen in a week, and what might happen for fiscal year 2015 and beyond levels of funding. Actions that we may 

take in fiscal year 2013 should, in fact, be shaped by what we anticipate happening in 2014 and 2015. We want to be completely 

consistent with that to the degree possible. Very clearly, the situation that we are in right now, and the impacts associated with the 

potential reductions and shortfalls will cause us to stay within the 

top line and create some pretty significant impacts in our workforce, in our capability, in our ability to produce readiness. 

To mitigate those issues we need to factor in a variety of different considerations. What is reversible, first of all? Are there actions that we can take that can be reversed if the fiscal situation 

changes over the next 6 months to a year? Very, very important. 

The other one is are we taking actions that are consistent with the 

long-term desired capability of the United States military? That relates back to protection of critical capabilities and the analysis associated with that and linking those critical capabilities to 

warfighting requirements, absolutely essential. That dominates 

back into the workforce. The workforce is the most critical element 

and probably the most perishable and longest to recover if damaged 

in that equation. So we need to be very careful about what we do 

with our workforce. And in fact in the near term, we may take fiscal risk to protect that workforce so that we can protect long-term 

capability and reduce long-term risk by protection of the workforce. 

Mr. WITTMAN. Very good, thank you. Mr. Steffes. 

Mr. STEFFES. Mr. Chairman, I totally agree with what Mr. Johns 

is saying, and part of the problem is what we do in the short term 

is going to have a very significant impact on how we should plan 

in the future years. No one knows really what the impact is going 

to be pretty much until it happens. The workforce is a perfect example, once you lose that talent, they are not going to sit there 

waiting for a call to come back. It is a very slippery slope, once you 

start making adjustments in the near term, there is a whole series 
13 

of things that may fall out in the long time that is really going to 

be bad. A perfect example from my Air Force time, I have seen airplanes parked for a time on a ramp and they will break all on their 

own; you don’t have to touch them, they will break. 

So if you don’t do the things you need to do on a regular basis, 

it will cost you a lot more in the future. That falls into the reversible area because some of the stuff may not be reversible, you may 

get to the point where it is too expensive and you can’t get there. 

Mr. WITTMAN. Mr. Sterling. 

Mr. STERLING. We know things will be broken, the cuts are just 

too steep, the magnitude is too large for there not to be a problem 

of some nature. What will be broken, it is too early to tell because 

that will be dependent upon decisions made over at the Pentagon. 

I think it is important to remember, and we talked about workforce. When we talked about the industrial base, we really are talking about the people. Plant and equipment is relatively easy to rebuild in a relatively short time, but you are not going to want to 

fly on a plane or sail on a ship that was designed by somebody who 

just graduated from engineering school or built by someone who 

just got out of trade school, a skilled technician, you want experience—experience matters. 

We are going to lose a lot of that experience a lot of those people, 

whether it is through furloughs as people start to look for jobs elsewhere, temporary layoffs as some might portend this to be, the 

simple fact is people will look for stability, especially high-skilled 

people that are in our industry and our sector, and as a result, we 

will lose them to being able to provide what the warfighter needs. 

Mr. WITTMAN. Thank you, Mr. Sterling. Dr. Avdellas. 

Dr. AVDELLAS. Yes, I would harken back to Mr. Johns’ comments 

about some of the uncertainty and kind of the immediacy of a lot 

of cuts that have been sort of hoisted upon the Department. I think 

the turning radius for the industrial base can and will be shaped 

and it will be moving forward. And I think the Department had 

been planning for resource reductions of certain levels, and as you 

mention, they were already going about a lot of sort of major efficiency initiatives. I think there are tools within the Department including, the core capability determination process where there is a 

work breakdown structure where, from an industrial base perspective, from a skill and a workload perspective, there is a starting 

point to really be able to understand the commodities within the 

industrial base that we really either are at risk or we really need 

to be paying attention to. 

For example, as we are aware, and we talk about readiness of 

aircraft because of the engineering standards and things for them 

to fly, a lot of readiness issues we will—I would say in that commodity area, we would see probably quicker than some of the 

ground vehicles in other places. 

So there is both a critical and core determination process and 

there are management tools within the Department that I think 

will just have to be used and applied. 

Mr. WITTMAN. Very good. Thank you, Dr. Avdellas. Ms. Bordallo. 

Ms. BORDALLO. Thank you, Mr. Chairman. My first question is 

for Secretary Johns. Can you comment on how the reductions in 

the operations and maintenance accounts will impact our rebalance 
14 

of forces to the Pacific. Naturally I am interested, since I represent 

the U.S. territory of Guam. And what impact will these reductions 

have in our ability to have equipment that is available for training 

with our partners in the region? 

Mr. JOHNS. Responsible relationship of maintenance to what 

happens to the asset once we produce them really is up to the Department. 

Ms. BORDALLO. Do you have your mic on? 

Mr. JOHNS. I am sorry, ma’am. Staying within my lane, I am responsible for maintenance. I will attempt to comment on the production of assets that will then be used and employed by the Service and then allocated throughout the world. But to comment on 

the actual capabilities of the Navy throughout the world would be 

a little bit of a stretch for me. I will go up to where I think I am 

safe in doing that. What I can tell you is the impacts in the Navy, 

most of which you are aware of, has significant impact in the private yards, 70 percent of the ships maintenance in the private 

yards in the third and fourth quarter will be cancelled, that is 25 

ship availabilities and potentially two carrier refuelings and complex overhauls. 

On the aviation side, 320 airframes, approximately 10 percent of 

the fleet and over 1,200 engines and modules. This will result in 

bare firewalls and readiness problems in four air wings. There will 

be impacts on the industrial base in all three fleet readiness centers there as well as across the entire shipyard complex. 

Very clearly, this level of impact is going to have an associated 

effect on the assets available for the Navy to deploy worldwide, 

there is no doubt about that. Whether the priorities as they are 

now favoring CENTCOM [U.S. Central Command] and the western 

Pacific are upheld and the resources allocated in a way to adequately support those areas of operation at the sacrifice of other 

areas in support of Africa and other theaters really is a decision 

that needs to be made by the senior military personnel responsibility for planning. 

Ms. BORDALLO. Thank you, Mr. Johns. Mr. Avdellas, what other 

approaches or techniques that DOD should consider to protect reversibility of maintenance capabilities given budget pressures and 

uncertainty? Could you give us specifics? 

Dr. AVDELLAS. Certainly. A couple of things that could be considered, particularly going back to the kinds of commodities that 

might be affected first, whether we are looking at airplanes or combat vehicles or ships and things is, some techniques that similar 

to a core capability process where either in the public sector or the 

private sector, we would keep parts of the industrial base warm, 

if you will. In other words, we may keep a very small amount of 

workload, or keep certain technicians, or certain skills that we 

know are critical moving forward should there be a certain surge 

requirement in these areas. 

I know that has been tried in the past and I know some people 

call it ‘‘mothballing,’’ certain things in terms of the equipment, but 

the whole idea is, and all of this is kind of hedging against risk and 

making sure that the whole system from the surge perspective is 

ready to respond if needed. So there are techniques, the one I mentioned is one of them, and others from a workforce perspective that 
15 

could be done. I think the key idea is kind of balancing uncertainty 

with some known factors about what is happening in the future 

and what we might anticipate coming and trying to keep at least 

a minimum sort of capability, whether it is from a workforce perspective, technical skills, certain elements or things that are part 

of the construction and I think that should be something that 

should be focused on. 

Ms. BORDALLO. Thank you. One last question for Secretary 

Johns. What is the impact of the planned drawdown of military 

force levels on the required capability and capacity of the 

sustainment industrial base? And what is the general impact of 

these actions on the workforce? 

Mr. JOHNS. Wonderful question. The complexity associated with 

that is understanding what is the difference between capability and 

capacity. Capability has to do with the basic ability of a particular 

service. 

Ms. BORDALLO. I think your mic—— 

Mr. JOHNS. Yes, I will get this eventually. Capability has to do 

with the basic ability of a service or a maintenance enterprise to 

actually conduct an individual repair on a piece of equipment and 

the nature of that repair. Capacity has to do with how much equipment and the nature of the maintenance that has to be worked to 

actually execute that maintenance, so capability and capacity are 

actually two different things though they are interrelated. The bottom line is that capability will be adjusted based on the type of 

equipment in the inventory, and capacity will be adjusted based on 

how much equipment, the nature of the use of that equipment, the 

age of that equipment within the inventory. 

So it is likely that in our situation, capability will actually increase with the induction of new weapon systems, the capacity will 

decrease with the decreased OPTEMPO, decreased force structures, 

and decreased inventories. 

Ms. BORDALLO. Thank you, Mr. Secretary. Thank you, Mr. Chairman. 

Mr. WITTMAN. Thank you, Ms. Bordallo. Mr. Bishop. Ms. 

Hartzler. 

Mrs. HARTZLER. All right. Well, thank you, gentlemen. I appreciate you all being here and your testimony. Mr. Johns, I was just 

wondering what is the Department’s overall industrial base 

sustainment strategy? 

Mr. JOHNS. I got it right that time. The overall strategy really, 

and I will go back to the Army’s strategy because we are doing a 

lot of work in using the Army’s strategy as the basic foundation for 

what we are developing for the Department. So within the Army 

strategy, and we are sharing this across the Services, each Service 

has very similar strategies. Three major objectives: Retain critical 

capabilities, maintain efficient operations, and ensure regeneration 

of capabilities to maintain relevance. 

We have four basic tenets that we are working towards: one is 

managing capacity to support operations; focusing resources to sustain core and critical capabilities; promoting public and private 

partnerships; and aligning decisionmaking at all levels to achieve 

common goals. From a departmental perspective, we have added to 

that our enterprise tenets of operation so that we can enable the 
16 

Services to work together to create enterprise, and the most efficient solutions across the entire industrial base. 

Our vision in that sense includes words like ‘‘enterprise structured,’’ and ‘‘resourced,’’ and ‘‘operated,’’ ‘‘integrated and synchronized,’’ ‘‘collaborative global maintenance network,’’ and the 

basic tenets support that. We have actually tested this recently to 

include the establishment of new capabilities in the organic sector 

with regard to unmanned aerial vehicles and it has worked very 

well. We have been able to identify single site sources of repair in 

the most efficient way across the entire Department, leveraging the 

critical capabilities and centers of excellence within each one of the 

Services to best allocate that workload across that entire Department. 

Each Service has contributed in that following the basic tenets 

of that Department strategy. While that is yet to be formalized, we 

are very encouraged that the first test in application of that strategy has worked very well for us. 

Mrs. HARTZLER. That is good. You have a very difficult task, and 

I am very concerned about the impact of sequestration on all of our 

national defense, and certainly on our industrial base. 

Mr. Sterling, in your opinion, what critical skills in the industrial 

base need to be retained and what ones are at jeopardy if sequestration goes through? 

Mr. STERLING. Which ones are in jeopardy is a little more difficult to outline because lot of decisions will be made in the Pentagon over the course of the next several months as they implement it and looking at the future budget. The ones that are most 

critical to maintain, you have to look, and I know Brett Lambert, 

Secretary Lambert over in the Pentagon has been doing sort a deep 

dive looking at this cross-industrial base. People like systems engineers, they can bring a weapon system together from all the various suppliers. You want to look at skills such as that, you want 

to look at some of your, what I will call low-density skills, that they 

are working on critical unique elements, whether it is in the area 

of chips, manufacturing of that nature, whether it is in nuclear 

work for shipyards because you have got relatively small number 

of units coming out. Those are the skills you have to really make 

sure you retain because adding them back in later—I know one of 

our CEOs [Chief Executive Officers] was often noted as talking 

about the fact that we don’t have a new manned aircraft under design now within the Pentagon. And it is the first time in 100 years; 

we have the Joint Strike Fighter [F–35 Lightning II] coming on 

line, we have the F/A–18 E and F [Super Hornet fighter aircraft] 

that is out there. The F–22 [Raptor fighter aircraft], but a new one 

coming on line. That presents some unique challenges because the 

skills, the requirements you have on people to try to design a new 

system and bring that to through the various phases, you lose that 

skill. It atrophies, the people retire and so that is one of the challenges you have to look at. 

Mrs. HARTZLER. What about the long-range strike fighter? 

Mr. STERLING. You are just not at the phase where you have the 

design teams in the Department. 

Mrs. HARTZLER. Very good. Thank you very much. I yield back. 
17 

Mr. WITTMAN. Thank you, Mrs. Hartzler. Now we can go to Mr. 

Loebsack. 

Mr. LOEBSACK. Thank you, Mr. Chair. Thank you for having this 

hearing today, I think it is absolutely critical, especially given that 

we are a day away from no doubt what will be sequestration. I 

think it is really quite unfortunate, and at a time when we are also 

operating under a continuing resolution. And I was reading today 

that it may very well be the case that at least in this body, there 

will be another continuing resolution moving forward after March 

27th that will actually build in sequestration cuts into the base. 

So sequestration seems to be a reality, or at least that is the assumption at this point. So I think we have just got to move forward 

and be realistic in that sense. I am disappointed if, in fact, a continuing resolution after March 27th assumes sequestration as part 

of the base, I understand why that might be the case, but that is 

going to put even more pressure obviously on all the things that 

we are talking about, it seems to me today. 

I was one of those who voted against sequestration in the Budget 

Control Act in the first place, because quite honestly, I said at the 

time, I thought we might very well get to this point because someone in my seventh year here in this body, I am probably as pessimistic about the chances that this place will somehow be run by 

rationality as the average citizen and that is really unfortunate, 

but that is where we are right now, and I represent the Rock Island Arsenal, I represent the Iowa Army Ammunition Plant, we 

have lots of folks who are doing great work at both of those places 

to make sure that our troops have what they need if they are called 

overseas. And as a military parent, that is really important to me 

on a personal level I have to say. 

And clearly, our depots, our arsenals, our ammunition plants are 

doing a great job. I do have some questions; I guess I have a followup first more than anything for you, Mr. Johns, because when 

our chair was asking about what steps could be taken to protect 

the workforce, I guess you mentioned that some steps could be 

taken by DOD. What steps could those be, what steps could actually be taken to effectively manage workforce under sequestration, 

if you could offer some details? 

Mr. JOHNS. Yes, Congressman, of course. Again, as we all had indicated, the workforce is the key element behind capability both in 

the short term and long term. And we would hesitate to do anything that would damage them unduly. We would be looking for 

some indication about what future requirements looked like and future funding levels looked like in fiscal year 2014 and beyond to 

try to create some certainty there. But in the absence of that, we 

will make some assumptions about what level of workforce and 

what skills are required to support future operations. We will protect, to the best of our ability, those capabilities and those workforce skills to ensure that as we enter 2014 and come out of this 

sort of crisis situation in 2013, that we have the workforce in place 

that can actually execute those requirements. 

Mr. LOEBSACK. Are we talking about a red line here? Is that 

what we are talking about? 

Mr. JOHNS. We would hope to not cross a red line, if I understand your question correctly. 
18 

Mr. LOEBSACK. Right. 

Mr. JOHNS. Where that red line is, is obviously very, very difficult to predict, especially given what you just indicated. 

Mr. LOEBSACK. I hope I am not correct and I hope what I was 

reading today is not correct. We will see. 

Mr. JOHNS. Yes, Congressman. So in the meantime, our commanders and Services have latitude to adjust inductions, adjust 

funded workload to try to smooth out to the best of their ability the 

workload and the actual work that is being done within our industrial facilities, so that we can keep as many people and many skill 

sets actively employed and engaged to the maximum degree possible. The idea would be to be keeping warm production lines open 

as long as we possibly can, because once you shut down a production line, now you have effectively crossed a threshold that will require significant time to recover. As long as its warm and operating 

at even a marginal level, we will be protecting capability and ensuring reversibility. 

Mr. LOEBSACK. That goes to Mr. Avdellas’ comments about keeping the organic base warm. Again, that comes back to really protecting our national security in the event of another contingency or 

another conflict, we have to have that organic manufacturing base, 

it has to be there and it has to be ready to be ramped up again 

as it was previously. And the Rock Island Arsenal, uparmoring 

Humvees, it was very, very important, something the private sector 

couldn’t do as quickly as the arsenal did. Thanks to all of you. I 

really appreciate it. Thank you, Mr. Chairman, I yield back. 

Mr. WITTMAN. Thank you, Mr. Loebsack. 

Mr. Bishop. 

Mr. BISHOP. Thank you, Mr. Chairman. 

I want to thank all four of you for being here today. I think, 

though, you do share some of the blame. If you had refused to testify at an 8 o’clock hearing, I wouldn’t have to be here as well. It 

is not that I am opposed to mornings, it is just so dark. So thank 

you for that. 

Mr. Johns, I have appreciated your efforts for many, many years 

at the Department of Defense. 

Mr. Steffes, welcome back to HASC [House Armed Services Committee]. 

Mr. Sterling, I understand you cut your teeth at the Senate 

Armed Services Committee. I am sorry. And I hope you have had 

enough time to be away from the dysfunctional side of the Capitol 

to get your bearings back. 

I do have six specific questions, so maybe there will be a second 

round, I hope. 

Let me start first of all with, Mr. Johns, I don’t want an entire 

historical dissertation, but let’s face it, you know, when the stimulus bill was built, every element of Government was increased so 

they have some cushion against sequestration cuts, except for the 

military. If this was the first cut for the military, I wouldn’t feel 

any kind of compassion for you, but this is basically the third cut 

you have faced, and which is significant. 

I would like you just to give me historical perspective, because 

when the Soviet Union fell, the Berlin Wall came down, we had the 
19 

so-called Peace Dividend, in which the infrastructure of our military was basically decimated at the same time. 

Is sequestration worse than that Peace Dividend, or is it similar 

to it, or is it every—it is going to be similar to it? And quickly, a 

simple answer. 

Mr. JOHNS. Yes. First, I appreciate your comments with regard 

to us, the entire panel. 

The simple answer to the question is while we expect a peace 

dividend, given the full-spectrum threat that we are facing, I am 

not sure that we should actually be seeking one. 

Now, unfortunately, the fiscal situation that we are involved with 

right now is so drastic in such a short timeframe, the drawdown 

in the post-Cold War era is nowhere near the slope that we are 

looking at in fiscal year 2013. 

Mr. BISHOP. Okay. Timeframe versus the amount of money we 

are talking about makes it more significant. 

Mr. JOHNS. Timeframe and magnitude in that short amount of 

time. 

Mr. BISHOP. All right. Let me go to one of the most significant 

questions. I have been hearing a great deal of talk about changing 

to the 50/50 program that we had in statute as a means of temporary relief. Is that a reality? And if it is, are we talking about 

permanent, temporary? If it is temporary, how do we replace the 

competency at depots, which may be lost by that kind of change? 

Let me go back. Is there any legitimacy to an effort to change 

that 50/50 complex? 

Mr. JOHNS. Well, the question is a little difficult as worded. Legitimacy, there has been discussion about potential impacts associated with 50/50. 

Mr. BISHOP. Are we talking permanent or temporary changes to 

50/50? 

Mr. JOHNS. If we look at just fiscal year 2013, I would say that 

that may be temporary, but I am not even convinced at this point 

that we will have to execute a waiver. It is a very complex situation; multiple things have to be balanced, requirements for readiness, protection of critical capabilities in both the public and private sectors. There will be reductions on both sides, so if I give you 

a final answer on what that number might be, it is likely to change 

and is probably incorrect. 

Mr. BISHOP. That is a fair enough answer. If we do come back 

with a temporary change to that, I would like to see a definite 

cause-effect relationship that would justify such a change ever taking place. Once we lose those competencies at our depot bases, it 

will be very hard to bring those competencies back in again, and 

I think all of you have said something similar to that. 

Mr. Johns, let me try and get a couple more in on you, if I could. 

When we assess depot cost, are the force services similar or dissimilar in how they assess the costs of their depot? Does every 

Service take the same cost of overhead into coming up with their 

cost per unit? 

Mr. JOHNS. The simple answer, Congressman, is no, they are not 

similar. In many cases, though, the differences are marginal and 

dependent on the use of lexicon, different lexicons across the De-
20 

partment. They are probably more similar than they are dissimilar, 

but there are differences. 

Mr. BISHOP. Okay. Thank you. 

And I guess, how easy would it be to standardize that process of 

especially overhead costs from Service to Service? Are the core responsibilities so different, it becomes difficult to do that? 

Mr. JOHNS. I would venture to say, Congressman, that the core 

processes are not the driver, but probably the long institutionally 

cultural differences between the Services have resulted in just simply different accounting and allocation structures. Those are adjustable, but we would be changing institutional processes. 

Mr. BISHOP. Thank you. I appreciate that. 

I am over time. I got four of the seven I wanted, though. 

Mr. WITTMAN. You did great. 

Mr. BISHOP. So I will be looking for a second round. 

Mr. WITTMAN. Thank you, Mr. Bishop. 

Mr. Courtney. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

And thank you to the witnesses for evidence today that shows 

that this sort of—I wouldn’t call it conventional wisdom, but sort 

of noise out there that while it is only $85 billion in terms of a, 

you know, Federal budget of $3 trillion, I mean, the fact is, as I 

think your testimony elicits today, is that when the sequestration 

was actually first designed in 1985, I mean, because that is really 

the formula that we are operating under, is the Gramm-RudmanHollings design, it was designed to hurt, and it was focused on one 

aspect of the Federal Government: discretionary spending. And this 

is, you know, the place that all of you are sort of stuck trying to 

deal with right now. 

And I guess, Mr. Johns, you know, one sort of proposal that is 

floating out there is, well, we will add flexibility to the sequestration, and you know, that will allow the scalpel rather than the 

hatchet. And so if Admiral Greenert was given flexibility to sort of 

deal with his shortfall that he is going to have to deal with in the 

final 7 months of this fiscal year, I mean, would that change anything? I mean, is that going to mean that we will have repair work 

at the Lincoln [USS Abraham Lincoln nuclear-powered supercarrier] or at the Providence [USS Providence nuclear-powered attack 

submarine] or, you know, these other availabilities that he is already being forced to cancel, or has he really already used whatever flexibility he has got to come up with the plan that we are 

now seeing? 

Mr. JOHNS. Yes, Congressman. 

I believe that flexibility associated with elimination or reduction 

of the limitations associated with continuing resolution would provide some relief in some cases, more significant in others. 

As General Odierno and Admiral Greenert have testified, I think 

probably the Army would see the best benefit behind increased 

flexibility and latitude to move money from investment accounts 

into operations and maintenance accounts, and probably the Navy 

is very closely behind them. There is no doubt that any increased 

flexibility would help alleviate, and obviously, that money would be 

placed against the most critical priorities. 
21 

I do believe that the two RCOHs [Refueling and Complex Overhaul], at least one refueling and complex overhaul is associated 

with continuing resolution-driven limitations. So, yeah, there is 

going to be some relief associated with that. 

Mr. COURTNEY. But in terms of real savings, I mean, that is 

where I think, you know, holding off repair work is kind of like not 

getting your oil change in your car. I mean, at the end of the day, 

you are not really saving anything; you are just sort of deferring, 

and you are going to have to recal-—you know, you are going to 

sort of spend the money or getting these ships, you know, ready for 

their missions. Isn’t that correct? 

Mr. JOHNS. That is absolutely correct. Any kind of third and 

fourth quarter reductions and deferred maintenance is going to 

have a ripple effect in multiple ways throughout the system, not 

only schedules but also fiscally in the generation of losses inside 

the working capital fund that will ripple in multiple years in the 

future. So not only would we not spend a billion dollars in maintenance this year, the losses that are generated with that because of 

our inability to adjust rapidly enough our fixed costs will show up 

as rate increases in fiscal year 2015. That same loss in fiscal year 

2013 will show up in decreased buying power in fiscal year 2015. 

So we are creating these every-other-year ripples. 

The same thing could be seen in reduced OPTEMPO and training. That results in decreased depot-level orders from about 3 to 6 

months in lag time from the decreased demand in the field. So 

when we reduce OPTEMPO and training in fiscal year 2013, we 

are creating a reduced demand within the depot for depot-level 

repairables in 2014, which will create losses in 2014, which will 

create rate increases in 2016, okay, not to mention the degradation 

in material condition, the reduced availability. We are creating a 

multiple significant fiscal and operational ripple effect with this deferred maintenance. 

Mr. COURTNEY. And lastly, I mean, that maintenance work keeps 

folks like nuclear welders and electricians busy while other projects 

are making their way through the pipeline in terms of production. 

And, again, that is something that we are already seeing in Groton, 

is that, you know, that bridge that the work on the Providence and 

others was going to provide while the construction schedule 

reached the waterfront is now, that bridge is being definitely made 

shaky or eliminated. 

So thank you, Mr. Chairman. I yield back. 

Mr. WITTMAN. Thank you, Mr. Courtney. 

Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. And, gentlemen, thank 

you being here. 

And it seems to me that in this room, we get the opportunity to 

have fact-based, rational decisionmakers testify before us, and 

maybe in another room right down the hallway, we don’t get that 

sometimes, so thank you for your testimony. And you hit on a couple of things, Mr. Courtney and Mr. Bishop both hit on things that 

are important to me. 

I will tell you, I think any rational business owner would look 

at our current fiscal situation and say, you can cut 3 percent out 

of the Federal budget. The problem is when you begin to exempt, 
22 

piece by piece, the vast majority of the budget, then it pushes significant, significant percentage reductions to areas that are extremely important to us, like depot maintenance. 

And I represent Robins Air Force Base. We have a tremendous 

number of skilled, dedicated craftsmen and women there that are 

extremely concerned about what is going to happen, not only to 

their jobs but to the equipment that they are producing for the 

warfighters. 

So a couple of things that you hit on, protecting our workforce, 

these skilled craftsmen are not going to sit around and do nothing. 

There are going to be jobs available for them. And I certainly think 

that we have to maintain core capabilities inside our depots. We 

have to be able to do that work. I am glad that we have the private 

sector participate with us, but some of it we have to do ourselves. 

So when you talk about what is reversible and what is not reversible and when you talk about the fact that we can’t shut down 

a line and expect to reopen it without significant additional costs, 

and I hear the leadership of the Air Force talking about the 50/50 

rule and relief from the 50/50 rule, one of my concerns is that it 

implies that our depots are not as efficient as the private sector. 

We are not building widgets here. We are building weapons systems, and we have a lot of classified information. You can’t just put 

this stuff out for a bid to the general public with the equipment 

systems that they are. 

So why is the Air Force asking for relief and the Army and the 

Navy are suggesting that they don’t need the relief? And I would 

ask that to you, Mr. Johns. 

Mr. JOHNS. Congressman, if you would let me, I will answer your 

question directly, and then I would like to come back and talk 

about the Air Logistics Center at Robins as well, because I think 

it is important to recognize that as well as the workforce that contributed to superior performance there. 

The Air Force is probably the one that has been most vocal about 

this issue about approaching 50/50, because historically and projecting into the future, they are closest to the boundary. So any 

perturbations in the public sector workload will push them that 

much closer to the boundary. They probably have some critical contracts that may cost a significant amount if they were to terminate 

them. So these are balancing issues that the Air Force is going to 

have to go through. I think that probably what they are issuing is 

a potential warning order that they are approaching that boundary 

and that they may need to execute a waiver. 

At this point, I am not convinced that it has to happen. And 

again, as I answered Congressman Bishop, I believe that if we contain these impacts to fiscal year 2013, then this is a temporary 

measure, and as the statute allows, it is a year-to-year waiver, so 

waive for 1 year and then go back and revisit it for the next. 

If these actions, however, continue beyond fiscal year 2013, then 

we are going to have to relook at the entire issue of the split between the two sectors. 

Mr. SCOTT. Thank you. 

Mr. JOHNS. So if I could comment. 
23 

I recently visited Warner Robins, the Air Logistics Center there, 

and just so you know, which you probably know, is that they were 

the winner of the Depot Maintenance of the Year Award. 

Mr. SCOTT. Yes, sir. 

Mr. JOHNS. Fabulous capability there. And I would hate to see, 

as well as many other exceptional maintenance activities across the 

Department, impacted by this. 

Mr. SCOTT. Yes, sir. And we are proud of that base and the men 

and women there and what they do for the warfighter. 

I know I am going to run over just a second here, Mr. Chairman, 

if you will bear with me, but thank you for coming down there and 

for those comments. 

One thing I would like to, and you can put this in writing, but 

from the private sector, one of the things that hasn’t been addressed is fixed cost versus variable cost, especially with regard to 

the areas that you are talking about. And the fixed cost is going 

to be there no matter how many weapons systems we repair. It is 

the variable costs that is the only thing that you can get to. And 

my concern is that we are going to have a tremendous amount of 

increase in the price per unit being repaired if we do this thing. 

And, again, we can cut the Federal budget by 3 percent, but this 

is ‘‘penny-wise and pound-foolish’’ the way we are doing this. 

So, thank you, gentlemen, for being here and testifying. 

Mr. WITTMAN. Thank you, Mr. Scott. 

Mrs. Noem. 

Mrs. NOEM. Yes. Thank you. 

And thank you all for being here. 

Mr. Avdellas, I have a question for you regarding your testimony. 

It is on the bottom of page 3, but it is where you talk about because 

of the continuing resolutions that we face, the budget reductions 

and now the sequester, that we are seeing a pattern develop that 

much resembles what happened in the 1970s. And I am curious 

about that, because I would like to know if you see where we have 

some ability within what we are doing today to avoid what happened in the 1970s, if our hands are tied to that, if we have some 

mechanisms that we can utilize that will prevent something like 

that happening again. It was a thought process I had thought 

about a month or so ago, and the fact that you touched on it really 

brought it back to light again. 

Dr. AVDELLAS. Certainly. And thanks for the opportunity to comment. I think there are a couple of similarities and a couple of differences. I think that, as has been mentioned today, the quickness 

of how this has been brought upon the Department is very drastic, 

particularly from an orientation over the past 10 years really that 

has been so much on a mission orientation and getting the job done 

and using very effective tools, like reset and other things, to do 

that. 

So I think what you have heard initially from some of the military services, given a very short timeframe to kind of respond to 

all this and knowing the complexities of all of it is, you know, this 

could really be bad, this really has effects, because everything is 

based on the requirement. And we have been working so hard to 

try to meet those requirements over, as I say, the past decade. 
24 

I think from a hollow force perspective, one major difference that 

you have got on the industry side and maybe some other folks 

could comment on it, but a lot of consolidations were done on the 

industry side between, say, the 1970s and the period we are in 

now. We have one or two companies working on major weapons 

systems. We have single sourcing for efficiency reasons on the Government side. And I think a real risk that you could run and what 

is different is if these people get out of the business, so to speak, 

and they are seeing these signals, these very kind of clear signals 

over the past couple of months that, hey, there is a big change coming, it could really be quite substantial. 

And I think on the Government side, what you have seen in good 

faith from the military perspective is just trying to warn of the real 

impacts that could be happening. I will say, as Mr. Johns has mentioned, that I think the Department is probably a little better 

equipped in terms of management structures, communication structures, to manage better, if you will, but I do think, as I mentioned, 

there is some serious risk on the private sector side and then as 

well on the public sector side that probably need to be considered. 

Mrs. NOEM. Do you think that it is more difficult in today’s day 

and age for the industrial base to recover in this type of a situation 

than maybe it was decades ago, back in the 1970s, when they were 

able to get their feet back under them, but it obviously took some 

time? But now with the technology developments that we have, the 

equity investment that has to happen, do you believe that it is 

more difficult to recover? 

Dr. AVDELLAS. I would say that the longer this goes on with 

these sort of drastic hits to the system, that, yes, it would probably 

be more difficult. 

Mrs. NOEM. Okay. Mr. Steffes, I had a question for you. You 

talked a little bit about DOD’s nuclear procurement policy, known 

as the Better Buying Power 2.0, but also what was interesting was 

that you talked about even though DOD is advocating for more efficient contracting methods, that we have also seen a decrease in the 

percentage of military maintenance work that is performed under 

arrangements such as that. It looks like before, we were operating 

at much higher percentages, but now we are down to about 5 percent of the military’s maintenance work is performed using a PBL. 

So I am wondering if could you explain to me a little bit why we 

have had a decrease in that when that has been proven to be more 

efficient? 

Mr. STEFFES. Thank you. One of the main reasons I think the 

numbers have gone down is the contracting officers are getting 

very concerned about going forward with long-term contracts, you 

know, 4- or 5-year contracts, which to make a PBL work, it has to 

be long-term. 

The whole acquisition workforce has changed significantly over 

the last 5, 6, 8 years, and there is a concern that they—I think at 

the contracting officer level, that they don’t want to go down this 

road, because of the unknown. Irrespective of the fact that you 

could look at the record to see what the savings has been under 

PBLs, which is significant. I can’t say every single one was significant, but a huge majority certainly was. 
25 

If you go back to a different way of just paying for it, you know, 

as you need it, there is no incentive by the contractor to make improvements, to do things that would give them more of a profit, 

and the customer, the military, more of a high level of readiness. 

Mrs. NOEM. So the long-term efficiency of a PBL just isn’t possible under the situation of continuing resolutions? 

Mr. STEFFES. I don’t know quite how the—well, continuing resolutions, as you would continue anything that was on the books in 

2012, you can’t write any new contracts; you can’t go forward, until 

you get into a regular appropriations, so that is significantly going 

to hold them back. 

Mrs. NOEM. Okay. Thank you very much. I appreciate it. 

Mr. WITTMAN. Thank you, Mrs. Noem. 

We are going to go into a second round of questioning, and I just 

want to follow up. You all have given us some great perspective, 

I think some pretty sobering assessments with where we are. 

I want to ask this: You had talked all along about the importance 

of the people part of the organic industrial base, the talents and 

skills that rest there. And if we look at that and how important 

that is overall in our military sustainment, why wouldn’t we want 

to have the same type of planning that takes place with shipbuilding and in our airframes as we would with our organic industrial base? And how would we go about achieving that? What sort 

of form should it take if we were going to go down the path of saying, let’s do a strategic plan on the same scale as we do in other 

areas? And obviously, we do a lot of planning. We do the QDR 

[Quadrennial Defense Review]. We do the 30-year shipbuilding 

plan. And I want to get your perspective on how we could do something similar with the organic industrial base so we understand 

what our longer-term needs are and how we can lay out how we 

meet those needs. 

Mr. Johns, I will begin with you. 

Mr. JOHNS. Thank you, Mr. Chairman. 

As we had indicated before, I think all of us are in unanimous 

agreement that the workforce and protection of the workforce are 

critical to us retaining capabilities for us in the future in the industrial base. And certainly protection of the workforce and the critical 

skills that we would identify in that analysis would be a centerpiece of our Department-level strategy. 

And so we would be looking at, and I know the other witnesses 

had indicated several areas that would be areas that would be protected, but from a strategic perspective, we would be looking at 

protection of highly complex work associated with highly complex 

equipment, work associated with software maintenance, critical 

safety items and material requiring true artisans. These four areas 

can be extended, broadened to encompass a wide variety of skills. 

These would be centerpieces of any national strategy, but what 

happens practically is these basic tenets or protections in these 

critical areas are flowed down within organizations, where commanders have the latitude to shape their workforce in that context 

to best satisfy the production requirements that are laid on them, 

and that is in fact what happened. So they do their workforce shaping in that strategic context. 

Mr. WITTMAN. Very good. 
26 

Mr. Steffes. 

Mr. STEFFES. Yeah. I think to accomplish what you have mentioned, you have got to make sure you give the Department all the 

management tools that it needs to do this, and operating under a 

continuing resolution is pretty tough to do a strategic plan. You 

have a yearly appropriations, so it is a challenge to try to lay out 

in a long term what it is, where you want to go, but I think you 

need to give them all the tools that they need to do this with, and 

rather than a system where they just have to, you know, make it 

up as they go along, if you will, because of what is happening on 

a day-to-day basis. 

Mr. WITTMAN. Very good. 

Mr. Sterling. 

Mr. STERLING. I think the planning aspect may be the simple approach. I mean, it is complex; there are things you got to do, but 

you mentioned for a shipbuilding plan, we have the QDR, we had 

the FYDP. On the private sector side, we look at what those programs are that are coming on line and we put together a workforce, 

plant and equipment to go along with it. And the Department could 

do the same thing. 

However, Mr. Steffes noted the CR, you know, sequestration, all 

these elements. The plan is irrelevant if the funding profile 

changes on an annual or a monthly basis to where you can’t execute that plan, and that is the challenge that we are all facing. It 

doesn’t matter if it is the public side or the private side, it is when 

you have introduced that uncertainty. 

When we do things, it is customer predictability. We need to 

know where that market is, and then we will invest in the plant 

and equipment and the people to do that. The Department’s going 

to be much the same way. If they know that ship availability, that 

aircraft is coming into the depot, the Air Logistics Center, then 

they can put in the plant, the equipment, the people in an efficient 

and effective manner. They can make sure they have those skills. 

But if you are operating under a continuing resolution, if the 

budget is going down like it is in this case by about 20 percent, 

then much of that is going to be absorbed in the O&M and in the 

investment accounts because personnel has been exempted, then 

you have a real unpredictable environment that it doesn’t matter 

if you are a depot commander or if you are in the private side: you 

just can’t do an effective plan that you can expect to maintain. 

Mr. WITTMAN. Sure. I think that is a great point. I know I have 

been frustrated since I have been here. It seems that budgets drive 

strategy, not vice versa. And strategy needs to be coming first, and 

then we make decisions from there. And it seems like to me that 

if we have that strategy first, at least you can make the argument 

when you have got competition for resources. So that is why I was 

asking the question about, you know, making sure you had that 

basis. 

I understand, and I completely agree with you. It is very complicated now in the way the process, decisionmaking process takes 

place. 

Dr. Avdellas, I will just ask you in 15 seconds to give me your 

opinion. 
27 

Dr. AVDELLAS. I would say that the, as has been mentioned, the 

Army’s industrial base plan does have a good component looking at 

workforce, again, related to capabilities and requirements. And as 

Mr. Johns noted, I think combining that with some sort of higher 

level diagnostics about those sorts of skills and things you would 

want to look at from a Department perspective would be important. 

Mr. WITTMAN. Very good. 

Ms. Bordallo. 

Ms. BORDALLO. Thank you, Mr. Chairman. 

I have just a followup clarification question for Secretary Johns. 

I want to be sure that I understand you. Are you saying that if a 

depot or arsenal has a funded workload, then it may not be required to furlough its Federal civilian employees up to 22 days? 

Now, we have been told that all DOD activities have no flexibility in this regard, but you appear to be saying your depot and 

arsenal commanders may have choices. 

Mr. JOHNS. Well, they have choices, Congresswoman, to allocate 

workload based on what has been funded. Given the situation, 

many of the third- and fourth-quarter inductions generally across 

the board will not happen, the budget cuts are so severe. So you 

could imagine no new inductions starting midyear. The workload 

that remains in the depot will ramp down to almost nothing, with 

potential production shutdowns by the end of the year. 

So, as we are ramping down, the demand for the workforce actual touch labor in that workload that has been assigned is diminishing in effectively a linear fashion. So the furloughs in that context actually alleviate the fiscal problems and the generation of 

losses in that environment. So furloughs, among all other tools that 

the Department is using to try to stay within its top line, manage 

workload, protect critical skill capabilities, they fit in well into that 

overall spectrum of actions. 

Ms. BORDALLO. Very good. Thank you. 

Mr. Steffes and Mr. Sterling, could you please talk more about 

the potential impact on the supplies you represent? Who are put 

at risk by sequestration, and what level of potential loss are we facing in terms of the supply base? 

I guess, Mr. Steffes, you first. 

Mr. STEFFES. Yes. Well, the problem is, as I mentioned, the ability for the second- and third- and fourth-tier suppliers is very limited if they don’t have work. You know, the big guys all need the 

smaller providers in the supply chain to make everything work. 

And once you start losing that capability and those people, they are 

gone. You are just not going to get them back. 

And in some cases, as I mentioned, they could be one or only two 

of a kind in the Nation. So if we lose that capability, it is going 

to be very difficult and very expensive to get back to even to where 

we are now. 

Mr. STERLING. I agree with Mr. Steffes. 

When you look at the larger companies, they are going to have 

greater access to capital. It will hurt. They will have to shed workforce and operations, but when you get down to some of these small 

suppliers, a lot of people talk about, well, competition, you have got 

these large companies that can compete on various products. Oftentimes, what is lost is as they go down into the supply chain, they 
28 

may have a critical supplier that is common across each of those 

companies for some part, some piece. 

The thing to remember is those small suppliers, they are small 

companies; they don’t have nearly the access to capital that the 

larger ones have, so when they lose a contract, even if it is for 

maybe a 30-day or 60-day period, they don’t necessarily have the 

ability to weather that. And when they are the critical supplier of 

a component of a piece, you lose that to the entire defense industrial supply chain, and that could have devastating impact across 

the board, one that will be very expensive to replicate in the future. 

Ms. BORDALLO. Thank you. 

Thank you, Mr. Chairman. I yield back. 

Mr. WITTMAN. Thank you, Ms. Bordallo. 

Mr. Bishop. 

Mr. BISHOP. Thank you. Let me see if I can get the last three 

in here. 

Mr. WITTMAN. I know you can do it. 

Mr. BISHOP. Secretary Johns, if I could hit you up first. What 

strategies does—sequestration will probably hit. You are going to 

have 30 days before furloughs will be implemented. What strategies does DOD have, or do you have any flexibility to create such 

strategies, to ensure that when furloughs take place, you will not 

lose essential, skilled personnel from any of your complexes? 

Mr. JOHNS. Excellent question, Congressman. I think the answer 

depends on the perception that a furlough has on the individual 

employee. And this is related to perceived value that the employee 

has and how the country is treating them, as well as the job satisfaction that they may continue to retain in their work. 

Very clearly, the workforce that we are talking about in both the 

public and private sector are probably some of the most patriotic 

citizens that we have in the country. They have experienced the 

war through the equipment that they have had to refurbish that 

have bullet holes in them, that have IED [Improvised Explosive 

Device] damage, battle damage, sand and dust damage. They know 

and have contributed significantly to the success of the war. 

A furlough is probably going to send a very strong signal to them 

of indiscriminate actions and lack of value associated with their 

contribution to the national defense. It is not going to be viewed 

very well. As well as the diminishing workload that they are going 

to be required to do and the uncertainty of future workload is not 

going to be a good signal to them. 

Mr. BISHOP. Let me try and focus once again, because I appreciate the answer; it is a good answer. But do you have tactics that 

you can use, or can you come up with tactics you can use to make 

any kind of discrimination in the furloughs, or is there going to 

have to be a blanket approach? 

Mr. JOHNS. I am not aware of any discrimination between various sectors or various skills that we are prepared to implement. 

Obviously, the Department will be relooking at that strategy. I 

don’t know if there will be any areas that will be exempt or whether individual commanders will have—— 

Mr. BISHOP. Do you have the power to do that, or is it prohibited 

from you to do that? 
29 

Mr. JOHNS. I am certain that the Department has latitude to do 

that. 

Mr. BISHOP. Okay. I don’t know to whom to ask this question. 

Maybe Mr. Steffes, I will ask the same thing. I was talking to one 

of my subcontractors, who was obviously complaining, and I think 

you have all mentioned the same concept: the larger business, the 

better they will have a chance of weathering this. Some of the 

small business subcontractors will not have that flexibility. 

He was arguing to me, and so I would like you just to assess the 

validity of this argument, that if he goes under, there are certain 

companies that are abroad, who are not involved in the system 

now, who will remain, and therefore, if we come past this concept 

and we start to ramp up again, that his subcontracting ability will 

not be there, but there will be foreign companies who can do the 

same thing. 

Are we indeed, as he complains, setting ourselves up to be even 

more dependent and more reliant on foreign companies to provide 

services and goods than we are right now? 

Mr. STEFFES. I believe that is a probability. I mean, in some very 

specialized areas where we have lost that capability, you know, 

within the United States, if the needs require items that are only 

produced overseas, we are almost going to be forced to do that. 

Mr. BISHOP. Okay. As I said earlier, you know, if this was the 

first cut we were asking to you do, tough, but this is the third cut. 

We have already taken in the last 5 years a trillion and a half 

away from you, and now this is another roughly half-trillion dollars. 

So gloom and doom from other sources, I am somewhat skeptical, 

but when you say it, I am somewhat convinced that it is actually 

hitting, because we are treating the military differently than we 

are treating every other segment of Federal Government, which 

means as—and one of you mentioned, we are not dealing with a 

new generation of aircraft for the first time in decades. 

Acquisitions sometimes is much more sexy than maintenance becomes, but in the situation we are in, where the first two cuts basically took away our R&D, the amount of men we have to do the 

work, as well as weapon system, are we in a situation now where 

maintenance becomes even more critical than it was before? I 

guess, Secretary Johns, you are the logical person for that. 

Mr. JOHNS. Congressman, I agree with you absolutely. 

Mr. BISHOP. That was too easy on answer. I am sorry. 

So I got 10 seconds left. I am giving it back to you. 

Thank you. I appreciate your answers. 

Mr. WITTMAN. Thank you, Mr. Bishop. 

Mr. Loebsack. 

Mr. LOEBSACK. Thanks again, Mr. Chairman. 

I want to thank you for organizing this hearing, and also the 

ranking member. 

And I think this is really important. We have really fleshed out 

a lot of issues, and we have gotten some answers. I think a lot of 

the things that we are talking about today, we really don’t have 

any idea what the answer is because of the uncertainty, and if we 

have another CR, as I said, after March 27th, it is going to add 

even more uncertainty to this whole process. 
30 

I do want to address the public-private partnership issue, because we do know for a fact that public-private partnerships are 

really key to the workload and readiness of the organic industrial 

base. This is something that we have simply got to move forward 

on. I was happy in the NDAA [National Defense Authorization Act] 

of 2012, I was able to get a language in there that lifted a cap on 

those public-private partnerships. And there are folks around this 

country, at the Rock Island Arsenal and other places, where they 

are moving forward on that, and it is really critical, and Mr. Bishop 

brought up foreign manufacturing possibly taking the place of domestic manufacturing. 

Public-private partnerships, as we all know, are very important, 

too, for foreign military sales. And that is something that we 

haven’t even talked about here, but that is really critical for our 

balance of trade, for our economy, for a number of reasons. 

I guess what I would like to ask all of you, but Mr. Johns, if you 

would start out, how are public-private partnerships going to be affected by sequestration and the CR? What kind of long-term effects 

are we talking about here? 

Mr. JOHNS. Well, Congressman, I agree with you that public-private partnerships are absolutely critical to be able to protect the 

critical capabilities in both the public and private sector, now more 

than ever, as we are seeing significant downsizing. 

The capacity within the national sustainment industrial base is 

going to be insufficient to retain the capabilities and capacities that 

we currently enjoy. So, as we downsize, we will need to be able to 

leverage those critical capabilities in both sectors. 

So the impacts, however, will be dependent on the nature of the 

reductions in each one of the partners. So, typically, in a partnership agreement or in a contract that links two entities together, 

there are certain terms and conditions that must be met in that 

partnership for the greater good under that partnership. If we 

cross a threshold because of a reduction, either in the contractor 

side or on the organic side, then we put that partnership at risk. 

The level of reductions that we are looking at will do that in many 

cases. 

Mr. LOEBSACK. Thank you. 

Would any of the others like to comment on public-private partnerships? 

Mr. STEFFES. Yes, sir. 

To add to what Mr. Johns said, the instability of the budgets 

over the last few years has not led to a huge outpouring of publicprivate partnerships. 

Mr. LOEBSACK. Right. 

Mr. STEFFES. On the industry side, industry is very much interested in this, but unless they can get some assurances from their 

Government partner that they are going to be around and there is 

going to be workload for a period of time, they are very reluctant 

to make the investments that are needed to do these particular 

partnerships. And the CRs and sequestration stuff just adds to the 

instability and to the wariness on both sides of doing these partnerships. 

Mr. LOEBSACK. Thank you. 
31 

Again, I would just add that, and really reiterate that these public-private partnerships go back to keeping our industrial organic 

base warm. This is another way that that can happen. It is another 

method for keeping that base warm and, therefore, ready in the 

event of another contingency down the road, so—thanks to all of 

you. And I have got time to yield back. 

Thank you, Mr. Chair. 

Mr. WITTMAN. Thank you, Mr. Loebsack. 

Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. 

I want to follow up on Mr. Loebsack’s line of questioning. In my 

district, in my home town, I have the Anderson army depot. And 

many of these folks and their families generationally have spent 

enormous amount of time committed to our Nation, volunteered to 

go to Iraq and Afghanistan to help in sustaining the troops over 

there. 

I would like for you, Mr. Johns, to speak first to sequestration’s 

effect on the workload that they may deal with toward the end of 

the year, and then, secondly, talk about the CR’s effect. 

Mr. JOHNS. Well, Congressman, it is actually very difficult for me 

to separate the effects associated with that. Clearly, continuing resolution is impacting our ability to move money from one account 

to another. The shortfalls associated with that within the operations and maintenance accounts affect the Army across the entire 

depot and arsenal system. There are impacts in multiple weapons 

system maintenance activities, at Anniston and across the board. 

The split associated with that between sequestration, I believe 

General Odierno has estimated about 50/50; 50 percent of that impact associated with continuing resolution, 50 percent associated 

with sequestration. Effective—— 

Mr. ROGERS. Give me some examples of how that manifests itself 

in their daily lives and their workload. 

Mr. JOHNS. Well, collectively, it impacts in reduction of thirdand fourth-quarter orders, reduced workload for those employees 

that remain onboard. And certainly the impact to temporary employees, term personnel and contractor support in each one of our 

facilities. They will be directly affected, and very shortly, they will 

be affected. 

So, under sequestration, that affect will take—that will take effect once we understand what the situation is very shortly. Under 

CR, that is going to happen anyway, unless we fix the problems associated with the restrictions under a continuing resolution, but 

collectively, they will have significant impacts on every one of our 

depots. 

Mr. ROGERS. In which lines are you specifically worried about as 

an Army depot being affected most directly, their core capability? 

Mr. JOHNS. Clearly, core capability associated with armored vehicles. I mean, that is one of your core capabilities, and so there will 

be a natural impact in that area. 

Mr. ROGERS. Mr. Loebsack was talking about the importance of 

public-private partnerships, and I couldn’t agree more. In fact, at 

this particular depot, it leads the Nation in public-private partnerships. Tell me how, in your view, sequestration and/or the CR 
32 

would affect companies like BAE, General Dynamics, Honeywell, 

all of whom, along with others, have a presence at the depot. 

Mr. JOHNS. Certainly, the support contractors will feel the burden along with the temporary and term employees almost immediately. Any adjustments or reductions in addition to what we currently expect under CR and sequestration will have deeper cuts 

into that. 

The exact magnitude and whether we cross a threshold with regard to viability of a contract has yet to be determined. There may 

be impacts that cross contractual thresholds, but I can’t tell you 

that right now. I don’t know those details. 

Mr. ROGERS. Well, you seem to be grouping those kinds of companies in with the term and temps. In my questioning of General 

Odierno a couple weeks ago, as well as General Dempsey, they indicated at that particular installation, that because we have a lot 

of orders in the pipeline that have already been paid for, that the 

third and fourth quarter is the time when the core employees may 

actually experience some furloughs. 

Why would the contractors be treated differently? I understand 

the term and temps may see an effect in the next 30 to 45 days. 

Why would the contractors be in that category? 

Mr. JOHNS. Again, this will have to be a balance between retention of critical capabilities and skills. In some cases, we will need 

to protect critical capabilities and skills in workforce on the organic 

sector, and some cases, we will have to protect critical capabilities 

and skills in the contractor workforce. 

The actual balance between those two will almost be line-by-line 

dependent, facility-by-facility dependent, so it is very difficult for 

me to comment on what the exact nature is going to be between 

impact to Government personnel other than temps and terms and 

impacts to contractor personnel. 

Mr. ROGERS. I guess what I am getting at is, is it your opinion 

that, given that the core employees won’t feel the effect until the 

third and fourth quarters, that may be the same case with the contract employees as well, or would they be impacted in the second 

quarter, adversely? 

Mr. JOHNS. Yeah. My understanding is that there will be not be 

any impacts until the third quarter. 

Mr. ROGERS. Okay. 

Thank you, Mr. Chairman. I yield back. 

Mr. WITTMAN. Thank you, Mr. Rogers. 

I wanted to just ask one more question of Mr. Johns. In kind of 

putting this in perspective, understanding where we are right now, 

I know that originally OMB [Office of Management and Budget] 

came out and said plan as though sequestration is not going to 

happen, but I wanted to know within that context, when was the 

direction given to restrain operation and maintenance execution? 

And if that is the case, if it was restrained, wouldn’t that have lessened the impact in the third and fourth quarters of the fiscal year 

so that you could lessen some of the impact of sequestration? I 

wanted to get your perspective on where those directives and how 

they might have occurred and then where we are now. 

Mr. JOHNS. Yes, Mr. Chairman. Clearly, for a good portion of last 

year and into this fiscal year, we were assuming effectively across 
33 

the board that sequestration was not going to happen. That kind 

of conversation was occurring through all sectors of the Government, everybody anticipating that we were going to fix this problem one way or the other, and so the demand for planning associated with that seemed to be second priority in terms of getting to 

a level of detail. 

Certainly, there were high-level thoughts that were being considered about what and where things might be impacted, but detailed 

planning and detailed analysis did not occur, start occurring until 

early this calendar year when it became apparent that this situation is likely not to be avoided. 

Mr. WITTMAN. So, at that time, was any consideration given to 

the execution of operation and maintenance efforts within DOD? 

And if that is the case, at what point were those resources restrained, and wouldn’t that have had an impact on the third and 

fourth quarters? 

Mr. JOHNS. Yes. There was an immediate consideration about allocation of reductions. Certainly, with the President’s authority to 

exempt military personnel, it became very apparent that the impacts in the other O&M accounts would be larger. And certainly 

with the priority to protect warfighting capabilities and those supporting capabilities directly related to wartime operations, the cuts 

in O&M accounts, especially those in the sustainment industrial 

base, grew. 

Mr. WITTMAN. Thank you. 

Do any other members have questions? Okay. 

Panelists, thank you so much for joining us today. We appreciate 

your candid and in-depth testimony. It is very, very helpful to us. 

This gives us a great opportunity to put in perspective where we 

are and what we need to be doing ahead as we face these challenging times. So I thank you very much. 

And with that, the House Armed Services Subcommittee on 

Readiness is adjourned. 

[Whereupon, at 9:46 a.m., the subcommittee was adjourned.] 

A P P E N D I X 

FEBRUARY 28, 2013 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

FEBRUARY 28, 2013 

(39) 

Statement of Hon. Robert J. Wittman 

Chairman, House Subcommittee on Readiness 

Hearing on 

Assuring Viability of the Sustainment Industrial Base 

February 28, 2013 

Welcome to this morning’s hearing. I’d like to thank our panel 

of experts for being here today to address the viability of the Defense Sustainment Industrial Base and the implications for mission 

readiness as we try to resolve the budget crisis. As we debate the 

way forward and try to resolve the continuing resolution and sequestration dilemmas, it’s important not to lose sight of what’s 

really at stake here: this country’s ability to project power and to 

properly train and equip our warfighters—our men and women in 

uniform who at this very moment are fighting for us on the battlefields in Afghanistan and will continue to do so for the foreseeable 

future. 

As the debates have raged on, I’ve been struck by how starkly 

our military leaders have described the dilemma. As General 

Dempsey and the other service chiefs recently informed this committee: ‘‘the readiness of our Armed Forces is at a tipping point. 

We are on the brink of creating a hollow force.’’ About this same 

time, we learned of the delayed deployment of the USS Truman 

Carrier Strike Group to the Central Command AOR—a region 

where our missions continue to grow rather than go away. 

Never in my lifetime did I imagine we would again be forced to 

confront the very real possibility of a hollow military force and the 

devastation it entails for our Nation and our men and women in 

uniform. Make no mistake—our readiness crisis is real and it’s important to understand exactly what’s at risk. During this hearing, 

I’d like you to share your perspective on this and help us answer 

some basic questions: • In terms of risk, what does it mean to our national security, 

particularly our sustainment industrial base, to have ships 

moored to the pier, or sitting in dry dock, waiting for depot 

maintenance? • What, in your views, are the implications of having airplanes 

grounded on ramps? • And finally, what’s the impact on our warfighters when we 

delay or defer reset and retrograde of our equipment? 

Joining us today are: • Mr. John Johns, the Deputy Assistant Secretary of Defense 

for Maintenance Policy and Programs; 

• Mr. Pete Steffes, Vice President for Government Policy at 

the National Defense Industrial Association; 
40 

• Mr. Cord Sterling, Vice President for Legislative Affairs at 

the Aerospace Industries Association; and 

• Dr. Nicholas J. Avdellas, Senior Consultant for Materiel 

Readiness and Sustainment at the Logistics Management Institute. 

Gentlemen, thank you all very much for being here. I appreciated 

your thoughtful statements and particularly appreciated your 

views regarding the need for detailed strategic planning for the future. Just as I’ve been an advocate of the 30-Year Shipbuilding 

Plan and the benefits associated with determining strategy first 

and budgetary requirements second, I believe we need to similarly 

focus on strategic planning when it comes to the viability of the industrial base. 
41 

HOLD UNTIL RELEASED BY THE 

U.S. HOUSE OF REPRESENTATIVES 

STATEMENT OF 

MR. JOHN JOHNS 

DEPUTY ASSISTANT SECRETARY OF DEFENSE 

FOR MAINTENANCE POLICY AND PROGRAMS 

BEFORE 

HOUSE ARMED SERVICES COMMITTEE 

SUBCOMMITEE ON READINESS 

ON 

ASSURING THE VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE 

FEBRUARY 28, 2013 

HOLD UNTIL RELEASED BY THE 

U.S. HOUSE OF REPRESENTATIVES 
42 

Chairman Wittman, Ranking Member Bordallo, and members of the Subcommittee, 

thank you for the opportunity to appear before you to discuss the viability of the 

Sustainment Industrial Base. I would also like to thank you for your continued support 

and interest in a topic so critical to the Department of Defense's ability to produce 

readiness. 

SITUATION ASSESSMENT: 

Over the past several months you have heard from the Department's senior leadership 

on the potential devastating impacts of the combined effects of operating under 

Continuing Resolution, implementation of sequestration, and shortfalls due to higher than 

expected costs in Overseas Contingency Operations (OCO). These assessments have 

clearly outlined the bottom-line effects on the strength and capabilities of our Nation's 

Military and the Department's ability to support our National Security Strategy. It is in 

this context that I offer my comments on the defense sustainment industrial base. 

Before I get into the specific questions the Subcommittee has asked, I believe it is 

important to understand the basic fiscal and operational planning and dynamics that have 

govemed our industrial base activities to fully appreciate the answers to your questions. 

First, it is important to understand that the Department's total requirement for 

sustainment industrial base funding and, in tum, its ability to generate readiness is 

directly dependent on appropriatc resourcing of both our Base Program and OCO 

requirements. 

With respect to contingency funding, each Military Department had anticipated OCO 

funding levels sufficient to resource critical requirements associated with both operations 

in theater, as well as maintenance, repair and overhaul of military equipment retumed 

from Iraq and Afghanistan. This later activity, or RESET of equipment, has for a decadc 

been responsible for not only correcting damage induced by harsh environments and high 

OPTEMPOs, but also enabling extension of useful life of valuable equipment. Our 

succcss in RESET operations has drastically reduced the need for acquisition of 

replacement or new equipment. Equally important, it has enabled us to support the force 

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43 

generation strategies of each Military Department that have been so critical in sustaining 

long-teon operations in Iraq and Afghanistan. 

With respect to operating under Continuing Resolution, there is not much I can add to 

what the Department's senior leadership has already explained. So let me just emphasize 

that operating under the restrictions of a Continuing Resolution, with an allocation of 

account-level funding that does not match our FY2013 requirements, has created an 

increased burden on the Opcrations and Maintenance accounts, effectively creating a 

shortfall in funding in the accounts that resource our industrial base operations. 

With respect to Sequestration, if implemented, the funding implications are far greater in 

the O&M accounts than may appear at the surface. The President has exercised his 

authority to exempt Military Personnel accounts from sequestration in FYI3, so other 

accounts must accommodate the full reduction to DoD. Moreover, the reduction to most 

base-budget O&M activities will be significantly greater than single-digit percentages 

being announced because of the need to protect OCO-funded programs directly 

suppOliing wartime operations. The impact of these reductions will then be effectively 

doubled by having to accommodate the full FYI3 reductions in the last seven months of 

the fiscal year. 

While each of these factors has significant negative impact in isolation, we must consider 

the combined effects to fully appreciate the impact on the National Industrial Base and, in 

tum, the impact on both near and far-tcrm readiness. The combined potential shortfalls 

and cuts are so large, we anticipate reductions, delays and cancelations in work ordcrs 

within our public depots and shipyards, and on contract with the private sector. These 

actions will begin as early as March and continue throughout the fiscal year. The 

Military Services will manage existing funded workload, resource the highest priority 

maintenance, and take all possible actions to mitigate the harmful effects on our 

sustainment industrial base capability, workforce and readiness. In addition, reversibility 

will playa key factor in prioritization of actions. However, given the magnitude of the 

combined, concentrated reductions, even the most effectivc mitigation efforts will not be 

sufficient to protect the sustainment industrial base. Both public and private sector 

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44 

capability will sustain long-tenn damage and readiness will be seriously degraded. Full 

recovery, from just FY13 reductions, could take up to a decade. On top of that, current 

law requires additional reductions of approximately $55 billion to defense funding caps 

in each year from FY 14 to FY21. 

With that backdrop, I will address each of the questions you posed in an attempt to 

provide the underpinnings of the top-level situation assessment I just offered. 

IMP ACTS ON WORKLOAD TRENDS FOR DEPOTS AND ARSENALS: 

For the last decade, as we engaged, surged, and then executed a drawdown in Iraq and 

Afghanistan, our sustainment industrial base responded to ensure both the readiness of 

deployed forces and the effective execution of each Service's force generation strategy. 

Sustainment requirements and workload in our industrial base have followed this basic 

trend. Sustainment industrial base requirements in support of in-theater operations have 

appropriately led force deployment levels to ensure readiness in theater; while 

sustainment requirements in support of RESET of retrograde equipment have 

appropriately lagged force deployment levels. This later point is critical in the 

understanding of the requirement to ensure proper and timely RESET of our equipment 

as we withdraw from Afghanistan. This is particularly critical for the Marine Corps and 

the Army that are depending on this funding to complete their RESET operations. While 

continually exploring ways to expedite repairs, increase efficiency, and reduce 

requirements, past estimates have indicated that RESET requirements would extend 2-3 

years post-redeployment. 

It is equally important to understand, while we have been strict in application of OCO 

funding in accordance with how it has been appropriated, our contingency sustainment 

operations inelude requirements that will endure beyond cessation of operations in 

Afghanistan. 

In this context, the combined effect of operating under Continuing Resolution, potential 

reductions associated with sequestration, and emerging additional OCO costs, radically 

4 
45 

impact FY 13 sustailU11ent industrial base funding levels. With effects concentrated in the 

last half of the fiscal year, unavoidable and immediate actions will result in maintenance 

production slowdowns, deferrals and cancellations within our public depots and 

shipyards. This situation will also result in reduction of contract orders and delayed new 

starts. Examples include: 

For the Army: 

Major workload reductions at: 

Tobyhanna Army Depot impacting Standardized Integrated Command Posts, 

Tactical Operations Centers, Electronic Shelters, and Firefinder Radar 

Letterkenny Army Depot impacting PATRIOT, 

Corpus Christi Army Depot impacting ArnlY Aviation airframes, engines, and 

components, 

Anniston Army Depot impacting Mis, M88s, Howitzers, and Field Artillery 

Ammunition Support Vehicles, and 

Rock Island Arsenal impacting joint manufacturing capabilities. 

The Army will need to release approximately 3100 temporary workers and term 

employees, and reduce contracted support across its depots and arsenals. 

For the Navy: 

Major workload reductions will result in cancellation of approximately 70% of ship's 

maintenance in private yards in the 3rd and 4th quarters ofFY13, to include deferral of up 

to 25 ship availabilities impacting approximately 7000 contract employees, and work 

stoppage on refueling and ovcrhaul of two carricrs (Lincoln and Roosevelt). There arc no 

current plans to cancel FYI3 ship maintenance availabilities in public shipyards, but 

production will be impacted by the combined effect of hiring freezes, furloughs, and 

limits on overtime. The Government hiring freeze alone will result in a shortfall of 

required labor of approximately 2, I 00 personnel by the end ofFY13. 

On the aviation side, all aircraft maintenance inductions will be cancelled in the 3rd and 

4th quarter aHecting the maintenance of approximately 320 airframes and 1200 engines 

with major workload impacts at Fleet Readiness Centers at Jaeksonville, San Diego, and 

5 
46 

Cherry Point. As a result, diminished operational availability of these platforms will 

degrade Navy's ability to support future Fleet mission requirements. 

For the Marine Corps: 

The depot maintenance base program supporting ground systems will be reduced to 

below 30% of the baseline requirement. Major workload reductions will be required at 

both Albany and Barstow resulting in the release of over 800 term and contractor support 

personnel (approximately 1/3 of the workforce). These actions will substantively affect 

the maintenance of MIA Is, MRAP vehicles, AAVs, LAVs and a variety of tactical 

trucks, and delay RESET for 12 to 18 months. 

Marine Aviation depot maintenance is resourced from Naval Aviation accounts and will, 

therefore, be directly affected by the reduction in Naval Aviation depot maintenance. 

Over 100 Marine aircraft will not be inducted as scheduled in FYI3 and overall F / A -18 

availability could drop to below 50%. 

For the Air Foree: 

Reductions of approximately 30% of remaining workload will affect all three Air 

Logistics Centers and result in deferred programmed depot maintenance inductions of 

approximately 150 aircraft (the equivalent of 8 fighter squadrons) and 85 engine 

overhauls, as well as deferred sustaining engineering tasks, to include structural integrity 

programs, across all fleets. Additionally, contractor logistics support will be significantly 

impacted, with reductions of up to $750M, affecting numerous contractor sites and depotindustry partnerships. Collectively, these actions will push aircraft availability below 

standard on more than 30 weapon systems and degrade the Air Force's ability to support 

critical mission demands. 

Department-wide: 

These actions I just highlighted, across the Department, will degrade the condition of our 

military equipment, push substantial amounts of deferred maintenance and costs into the 

following years, and clearly impact our ability to execute future requirements. This is 

analogous to the effect a cancelled airline flight has on other scheduled nights it creates 

6 
47 

a ripple effect. Except the magnitude of the impact here is like the effect a major winter 

storm has on flights throughout the entire commercial airspace. In our case, the ripple 

effect will last for years and impact every part of our industrial base. 

Further, the gross inefficiencies generated by these actions will also spill into future 

years. Financial losses generated within Working Capital Fund operations, as a result of 

reduced and cancelled 3rd and 4th quarter orders, will manifest themselves as substantial 

increases in rates, which will decrease the future buying power of the Services and 

defense agencies. As an illustration, a loss of$IB in FYI3 must be accommodated, by 

statute and policy, as a rate increase in FY15 equivalent to that $IB. Those increased 

rates, then applied to FYI5 workload, effectively reduce the amount of maintenance that 

can be purchased in FYI5 by approximately that amount. 

It is also important to understand the downstream effect reduced training and OPTEMPO 

have on sustainment industrial base requirements and operations. The anticipated 

operational reductions to accommodate the required funding reductions will, in turn, 

result in a reduction in spare parts demand. This reduction in sparc parts demand has a 

downstream effect on the entire supply chain, to include depot workload associated with 

reparable parts. The lag time from a demand change in the field to the impact on depot 

orders is dependent on available inventory, but is typically between 3 and 9 months. 

With the magnitude of anticipated reductions in OPTEMPO for the remaining half of 

FYI3, we should expect a significant decrease in funded depot and contract work orders 

for rcparable parts in FY14, effectively creating another fiscal ripple that must be 

absorbed. 

Tn the private sector, required actions will place a significant portion of our commercial 

industrial base capability in jeopardy. Large companies with diverse business bases will 

be able to absorb the impact; however, smaller companies and companies with strong 

Defense Department dependency will be at substantially more risk. Thousands of 

companies will be affected and hundreds will be placed at risk of bankruptcy. Any 

failures here will have direct impact on supply chain and maintenance operations and 

would likely take years to recover. 

7 
48 

In the long-term, if sequestration is not reversed, the impacts on the sustainment 

industrial base will be severe. Our "Core" capabilities, or what we consider critical in 

support of our ability to support the national defense strategy, will be in jeopardy. Nearterm measures to protect critical skills and capabilities will not be sustainable in the longterm. Futurc funding levels and associated workload reductions under sequestration and 

the associated out-year cap reductions will begin to drive industrial base capability below 

"Core" levels as early as FYI4. And given our relatively fixed infrastructure and costs, 

work-hour rates will rise correspondingly, decreasing our efficiency and buying power. 

IMPACTS ON FORWARD-DEPLOYED LOGISTICS: 

In the near-term, there is no risk to forward-deployed logistics. The Department's clear 

priority is the protection of in-theater capabilities in support of military operations. As a 

result sustainment industrial base activity and supporting maintenance and supply 

operations will be resourced to cover essential requirements. While necessary, 

resourcing these priorities will result in a higher percent reduction in funding in other 

accounts. 

If sequestration and related out-year reductions endure beyond 2013, our ability to surge, 

deploy depot teams, or provide reach back capability in support of contingency 

operations and emerging threats will be impacted. The magnitude of this impact will be 

directly related to the duration and magnitude of the reductions. 

IMPACTS ON NEW WEAPON SYSTEM MAINTENANCE: 

Early in the process of fielding and operations, new weapon system maintenance is 

typically executed using contractor support and funded out of procurement accounts. As 

fielded quantities increase and operational capability matures, system maintenance 

transitions to a mix of public and private sector support and is resourced out of operations 

and maintenance accounts. With regard to impacts on new systems, there is nothing 

significantly unique that separates them from legacy weapon systems. They are all 

8 
49 

subject to cuts under Sequestration with priorities going to systems that support current 

wartime operations. 

IMP ACTS ON THE ARMY'S NEW ORGANIC INDUSTRIAL BASE 

STRATEGY: 

The Army's industrial base strategy is focused on three o~jectives: retain critical 

capabilities, maintain efficient operations, and ensure investment and regeneration. This 

strategy is founded on four basic tenets: 

manage capacity to satisfy sustained and surge operations as required, 

focus resources to meet operational requirements and sustain Depot "Core" and 

Arsenal critical manufacturing capabilities, 

promote public-private partnerships to leverage and protect critical capabilities in 

both sectors, and 

align decision-making at all levels to achieve common goals and continually 

improve efficicncy and effectiveness. 

I've summarized the Army's strategic approach here, but it should be noted these 

objectives and basic strategic framework are shared across the Military Services. This 

structured approach to managing the industrial base is particularly important to the Army 

as it adjusts to post-Iraq and Afghanistan operations. More than any other Service, the 

Army will undergo the most significant adjustment in its industrial base because of the 

relative magnitude of the past growth required to support wartime operations and postconflict RESET. Their strategy is appropriately structured to enable a synchronized and 

responsible drawdown and yield a stronger, more agile and efficient industrial base as a 

result. 

If sequestration is not reversed and the out-year reductions occur, the Anny's, and each 

Service's, industrial base strategy is at risk. Adjustments in funded workload will exceed 

the Department's ability to responsibly adjust its workforce and evolve its industrial 

capability. As a result, critical skills will be lost, reduced investment levels will impact 

competitiveness and relevance, mqjor inefficiencies will emerge, and key public-private 

9 
50 

partnerships will be unsupportable. The bottom-line is the Army's, and each Service's, 

ability to support surge and sustained operations will be seriously damaged. 

Thank you Mr. Chairman, Ranking Member Bordallo, and distinguished members of the 

Subcommittee for the opportunity to address these critical issues. 

10 
51 

John B Johns 

Deputy Assistant Secretary of Defense 

for Maintenance Policy & Programs 

Mr. Johns is Deputy Assistant Secretary of Defense for 

Maintenance. In this position, he is responsible for 

oversight of the Department's annual $90 billion 

maintenance program. 

In 2010, Mr. Johns served in Iraq as Director, Training 

and Advisory Mission, Iraqi Ministry of Defense, and 

Director, Iraqi Security Forces Logistics where he was 

responsible for both the full range of advisory and 

training functions required to establish govemance of 

Iraqi Defense operations, as well as, develop the 

logistics infrastructure and processes to maintain 

readiness of both conventional military forces and police forces. 

In past assignments, Mr. Johns has served the Army and Navy in technology development, 

engineering, program management, and logistics positions. His assignments with the U.S. 

Army Aviation and Missile Command included Associate Director for Systems, Aviation 

Research, Development, and Engineering Center where he was responsible for the provision 

of engineering support to all Army Aviation systems, Principal Assistant Deputy for Systems 

Acquisition where he was responsible for lifecycle management of over 20 Army aviation, 

missile, and ground systems with an annual budget of approximately one billion dollars, and 

Deputy Commander for Systems Support where he managed overhaul and maintenance, or 

RESET, of all aviation and missile systems redeployed from Iraq and Afghanistan. He also 

served as Special Assistant to the Commanding General, U.S. Army Materiel Command from 

July 2004 to August 2005. In August 2005, he joined the Navy as a member of the Senior 

Executive Service as the Director of Industrial Operations, Naval Air Systems Command, and 

Deputy Commander of Fleet Readiness Centers, Naval Air Forces where he was responsible 

for naval aviation maintenance operations across six subordinate commands, with a 

workforce of over 14,000 personnel and an operating budget of approximately four billion 

dollars, and oversaw annual maintenance and repair of over 600 aircraft, 7500 engines and 

modules, and 500,000 components and support equipment. 

Mr. Johns holds a Bachelor of Science in Aerospace Engineering from Penn State University 

and a Master's in Aeronautics and Astronautics from Purdue. He is also a graduate of the 

National Security Management Program, National Defense University. 
52 

Testimony 

Of 

Peter M. Steffes 

Vice President, Government Policy 

National Defense Industrial Association 

Subcommittee on Readiness, 

House Committee on Armed Services 

February 28, 2013 
53 

Mr. Chairman, Ranking Member Bordallo, and members of the Subcommittee. On 

behalf of the 1715 corporate members and nearly 95,000 individual members of the 

National Defense Industrial Association, I am pleased to appear before the 

Subcommittee on Readiness concerning issues that are of great importance to the 

viability of the sustainment industrial base and therefore to national security. I am also 

very pleased to be sitting on this side of the table after 20 years on the other side as an 

Armed Services Committee professional staff member. 

In trying to understand the immediate impacts of a continuing resolution and the 

impending government-wide sequestration, it is important to realize that many of the 

potential impacts of these actions are already occurring, especially for small business. 

Some examples of companies and communities these real life impacts include: 

• Cuts to primes on contracts such as the MRAP, which totals over $6 billion in 

contracting, will impact over $1.5 billion of sub-contracts performed by small 

businesses. 

A company in Oregon that manufactures periscopes, vision blocks, ballistic 

windows, transparent armor and specialty components for the past 35 years is 

shuttering their doors due to uncertainty of potential budget cuts and their 

concern over evolving trends in defense procurement practices. 

• The manufacturer of one of a kind high tech "Hot Press" furnaces used in the 

manufacture of ceramic body armor plates and the manufacture of carbon 

tooling, special foils and other specialized products are close to going out of 

2 
54 

business. It would take 18-24 months to reconstitute these capabilities, and at a 

huge cost to taxpayers. 

Some of these examples may not be directly attributable to "sequestration" or the 

impact of year after year continuing resolutions, but are the realities of a reduction in 

the defense budget and the uncertainties of a normal appropriations process. 

Sequestration will certainly" speed" up the process of plant closures for many, but the 

real danger here is the forced closures of critical technology suppliers at a time when we 

must maintain current levels of readiness and be prepared to face inevitable challenges 

to national security in the future. Reconstituting these capabilities, not if, but when 

needed again, will take a lot of time and a lot of money and will have a significant 

impact on readiness. Managing these realities is and will be a challenge for all. 

Some of the big defense producers may be able to adjust to forced and unplanned 

changes that a sequestration and continuing resolutions will inevitably cause. 

However, big businesses also heavily depend on second, third and sometimes forth tier 

suppliers, who will be the most vulnerable to going out of business. Small businesses 

do not have the resources to "weather the storm." 

As concerned as we are about the ability for the defense industrial base to provide 

acceptable levels of support to sustain national security, it is also just as important to 

maintain an organic source of repair and maintenance in the Department of Defense. 

3 
55 

Since the 1940's the nation's maintenance depots, arsenals, and shipyards have been the 

cornerstone of our ability to not only fight but overwhelming win any and all conflicts. 

After significant downsizing during the last several BRAe rounds and the current and 

future fiscal realities, the nation's organic maintenance capabilities are feeling the same 

pressures as the private sector. One of the major contributors to these pressures is the 

declining workloads due to the scaling back on our war efforts and that most of the 

work currently accomplished in our depots is on legacy systems. Fewer and fewer 

new weapons systems are being fielded, and those that are, do not require the heavy, 

long-term maintenance that our depot systems were originally designed. The military 

depots are also heavily dependent on the private sector for repair parts and equipment. 

Overshadowing these fact-of-life realities is the impact of a sequestration, continuing 

resolutions, and the inevitable budget reductions. Sequestration will necessitate the 

cancellation of programmed work orders in the third and fourth quarter of this fiscal 

year, an action that will not only impact the readiness of material and equipment, but it 

will also leave us with a workforce with nothing to do - an expensive proposition as the 

losses this year will be carried over into next year's rates. Operating under a continuing 

resolution significantly restricts the department's ability to transfer funding between 

accounts - a major hindrance in the proper management of tax payers funds. 

The debate on the most efficient manner of providing for the maintenance and repair 

needs of the department has been going on for decades. Over the past 30 years, 

4 
56 

Congress has taken a special interest in public maintenance facilities by enacting 

legislation meant to ensure their continued viability, especially in times of a national 

emergency. Some would say that parts of existing legislation inhibit DoD's ability to 

economically and efficiently manage these needs. Over the past two years, there have 

been good faith efforts by Congress, the department and industry to find a solution 

agreeable to aiL Unfortunately, to date these efforts have not been successfuL It is clear 

that with the probable sequestration, continued continuing resolutions, and budget 

reductions irrespective of a sequestration, something must be done so that our worldclass repair and overhaul capabilities, public and private, are not lost. 

As budget constraints and force structure reductions make the management of an 

effective public and private depot-level maintenance capability more challenging, the 

framework in Chapter 146 of title 10 USC for the process of determining core logistics 

and minimum organic workload requirements, should be reviewed by representatives 

of all stakeholders in a structured and open process that would serve well to inform 

future decisions by the Congress and the Department of Defense on the efficient and 

affordable management of support. One way to achieve this much needed review is for 

Congress to direct DoD to establish an all-stakeholders panel to thoroughly review the 

applicable sections of chapter 146 of title 10, with the aim of updating and revising 

current legislation to ensure the viability and affordability of maintenance of logistics 

support and depot-level maintenance and repair activities of the department in the 

future. 

5 
57 

DoD's new procurement policy, known as "Better Buying Power 2.0," calls for more 

efficient use of tax dollars, and endorses the concept of "performance-based logistics," 

or PBLs, as a mechanism to lower the cost of weapons maintenance and create 

incentives for suppliers to cut costs. Under a PBL arrangement, a contractor will agree 

to provide a certain" outcome" for a pre-negotiated price, rather than get paid for 

individual products and services. If the PBL is for aircraft engines, for instance, the 

contractor would be held accountable for ensuring that a certain number of engines are 

available at any given time. However at a time when DoD is advocating more efficient 

contracting methods, only 5 percent of the military's maintenance work is performed 

under such arrangements. About 87 PBL contracts are in place today, compared to more 

than 200 in 2005. 

A proven solution is partnering. Partnering has been discussed for many years and 

would appear to be an efficient way of utilizing the public facilities capabilities along 

with industry. Legislation has been written, by this committee, over the years to 

incentivize and promote partnering. There have been some very successful partnership 

agreements, including the tank upgrade program at Anniston Army Depot, the 

engineering support and logistics services between GE and Corpus Christi Army Depot, 

and the upgrade of communications capabilities at Tobyhanna Army Depot to name a 

few. However, much more can and should be considered. Further integration of the 

6 
58 

organic and private industrial bases will provide the additional flexibility demanded by 

an unstable and uncertain budget future. 

Mr. Chairman, at a time when the Department of Defense and the defense industrial 

base must adapt to inevitable budget reductions, regardless of how they come about, 

there must be changes in how we all do business. Congress, the Department of Defense 

and industry must come together to find ways that will provide a manageable and 

affordable sustainment industrial base. As America's leading defense industry 

association, NDIA is committed to working with all stake-holders to ensure that we 

continue to provide cutting-edge technology and superior weapons, equipment, 

training, and support for our war-fighters. 

Thank you Mr. Chairman and members of the committee. 

7 
59 

BIOGRAPHICAL SKETCH 

PETER M. STEFFES 

VICE PRESIDENT, GOVERNMENT POLICY 

NATIONAL DEFENSE INDUSTRIAL ASSOCIATION 

Peter M. Steffes joined the National Defense Industrial Association as Vice 

President, Government Policy on January 2nd, 2003. His responsibilities include directing 

the Government Policy activities of NDIA that include the Procurement Division, the 

Legislative Information Division and the Government Policy Advisory Division. Mr. 

Steffes acts as the primary NDIA interface with Congress and the relevant Executive 

Branch departments. 

Prior to joining NDIA, Mr. Steffes was a Professional Staff Member on the House 

Committee on Armed Services, United States House of Representatives (1983-2003) and 

served as Lead Staff on the Military Readiness Subcommittee (1996-2002) where, in 

addition to directing the activities of the subcommittee concerning readiness and 

operation and maintenance account of the military services, he was also responsible for 

issues concerning maintenance and repair depots and shipyards, special operations forces, 

the Naval Petroleum Reserves, the Armed Forces Retirement Home, and the National 

Defense Stockpile of Critical and Strategic Materials. Prior to serving on the Military 

Readiness Subcommittee, Mr. Steffes served (1983-1995) on the Military Construction 

Subcommittee. 

8 
60 

Prior to service with the House Committee on Armed Services, Mr. Steffes served in 

the United States Air Force, retiring in 1983 as a Chief Master Sergeant having served in 

North Dakota, England, Germany, Andrews AFB, MD, and the Pentagon. Primary duties 

in the Air Force included Air Traffic Control, Airlift/ Aircraft Management, and 

Legislative Affairs. 

Mr. Steffes and his wife, Barbara reside on Chincoteague Island, Virginia 

9 
61 

DISCLOSURE FORM FOR WITNESSES 

CONCERNING FEDERAL CONTRACT AND GRANT INFORMATION 

INSTRUCTION TO WITNESSES: Rule 11, clause 2(g)(S), of the Rules of the U.S. House of Representatives 

for the 113'h Congress requires nongovernmental witnesses appearing before House committees to 

include in their written statements a curriculum vitae and a disclosure of the amount and source of any 

federal contracts or grants (including subcontracts and subgrants) received during the current and two 

previous fiscal years either by the witness or by an entity represented by the witness. This form is 

intended to assist witnesses appearing before the House Committee on Armed Services in complying 

with the House rule. Please note that a copy of these statements, with appropriate redactions to 

protect the witness's personal privacy (including home address and phone number) will be made 

publicly available in electronic form not later than one day after the witness's appearance before the 

committee. 

Witness name: Peter M. Steffes 

Capacity in which appearing: (check one) 

_Individual 

If appearing in a representative capacity, name of the company, association or other entity being 

represented: National Defense Industrial Association 

FISCAL YEAR 2013 

federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 

10 
62 

FISCAL YEAR 2012 

federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 

FISCAL YEAR 2011 

Federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 

Federal Contract Information: If you or the entity you represent before the Committee on Armed 

Services has contracts (induding subcontracts) with the federal government, please provide the 

following information: 

Number of contracts (induding subcontracts) with the federal government: 

Current fiscal year (2013}: ___ None ___________ _ 

Fiscal year 2012: None ___________ _ 

Fiscal year 2011: ______ None ___________ _ 

11 
63 

Federal agencies with which federal contracts are held: 

Current fiscal year (2013): ____ None __________ _ 

Fiscal year 2012: None ____________ _ 

Fiscal year 2011: None 

List of subjects of federal contract(s) (for example, ship construction, aircraft parts manufacturing, 

software design, force structure consultant, architecture & engineering services, etc.): 

Current fiscal year (2013): ____ None __________ _ 

Fiscal year 2012: None ___________ _ 

Fiscal year 2011: None __________ _ 

Aggregate dollar value of federal contracts held: 

Current fiscal year (2013): ____ None 

Fiscal year 2012: None __________ _ 

Fiscal year 2011: None __________ _ 

Federal Grant Information: If you or the entity you represent before the Committee on Armed Services 

has grants (including subgrants) with the federal government, please provide the following information: 

Number of grants (including subgrants) with the federal government: 

Current fiscal year (2013): ____ None _________ _ 

Fiscal year 2012: None __________ . 

Fiscal year 2011: None _________ _ 

Federal agencies with which federal grants are held: 

Current fiscal year (2013): _____ None _________ _ 

Fiscal year 2012: None ________ _ 

Fiscal year 2011: None _________ _ 

12 
64 

List of subjects of federal grants(s) (for example, materials research, sociological study, software design, 

etc,): 

Current fiscal year (2013):, _____ None __________ _ 

Fiscal year 2012: None __________ _ 

Fiscal year 2011: None ___________ _ 

Aggregate dollar value of federal grants held: 

Current fiscal year (2013):, _____ None, __________ _ 

Fiscal year 2012: None _________ _ 

Fiscal year 2011: None _________ _ 

13 
65 

"THE IMPACTS OF SEOUESTRATION AND THE CONTINUING RESOLUTION ON DEFENSE 

INDUSTRIAL BASE ACTIVITIES" 

Testimony of Cord A. Sterling 

Vice President 

Aerospace Industries Association of America 

House Armed Services Committee-Subcommittee on Readiness 

Washington, DC 

Thursday, February 28, 2013 

Chairman Wittman, Ranking Member Bordallo, other distinguished committee members, thank 

you for the opportunity to appear today and discuss the negative consequences of the 

continuing resolution and sequestration on the U. S. aerospace and defense industrial base and 

critical government programs that we support. My name is Cord Sterling and I am a Vice 

President at the Aerospace Industries Association (AlA). AlA represents 380 U. S. 

manufacturing firms in the aerospace and defense industry, a sector of our economy with over 

one million dedicated and talented employees. 

The U. S. aerospace industry is one of the nation's most vibrant manufacturing sectors. The 

industry generated $324 billion in sales in 2010 and is the nation's largest net exporter. 

Aerospace and defense contributes 2.2 percent to the nation's GDP, including the payment of 

$38 billion in federal, state, and local taxes. 

Economic Impacts of Sequestration 

Many of you have seen some of the studies that we have made available which look at the 

economic and industrial impact of the current budget situation. Most widely used is the study 

conducted by George Mason economist Dr. Stephen Fuller that outlines the economic impact of 

the Budget Control Act. We estimate that sequestration will put at risk 2.1 million jobs 

nationwide. This includes 473,000 manufacturing workers and 510,000 federal employees. 

Many of these will be in the aerospace industry, which provides good, middle class wages and 

benefits for a highly skilled workforce. We estimate an additional 1.5 percent will be added to 

the nation's unemployment rate, which would put us back over 9 percent. While the timing of 

these impacts will be spread over a couple years and may be slightly diminished as a result of 

the small reduction in cuts made as part of the American Taxpayer Relief Act of 2012, they will 

still be large and devastating to families and communities across the country. 
66 

The economic impact of sequestration would be felt nationwide. No state would be immune 

from job losses and cutbacks in federal services. However, some states are hit especially hard. 

In fact, ten states would experience more than half of the job losses. When you add up the 

defense and non-defense cuts, Virginia, Maryland and Washington, DC would lose 450,000 

combined jobs. California would lose 225,000 and Texas 159,000. The entire nation will face a 

tidal wave of job losses, just as we struggle to recover from the economic recession. 

Mr. Chairman, these are not theoretical impacts or future projections. As you know, defense 

manufacturers have been laying off workers and canceling future plans for many months now 

because of this uncertainty. The process accelerated so significantly at the end of last year that 

our national economy actually shrunk in the fourth quarter of 2012. This was a shock to 

economists, who attributed it largely to the decline in defense spending. And this process 

continues. Just last week, the federal government reported that defense contract awards 

dropped by almost two-thirds in January, from $36 billion in December 2012 to only $12 billion 

in January 2013. This is forty percent below the amount experienced in the same month for 

the previous year. 

Defense Impacts of Sequestration and the Continuing Resolution 

Mr. Chairman, the impacts of sequestration on Department of Defense (DOD) programs are 

dangerous to both our national security and our economic revitalization. The fact is that DOD is 

being asked to bear a disproportionate amount of the cuts. Defense spending accounts for 20 

percent of federal spending but must absorb 50 percent of the budget cuts. This comes on top 

of $487 billion reduction already imposed by the first round of the Budget Control Act. 

Last year, we formed the Defense Industrial Base Task Force in partnership with the National 

Defense Industrial Association and the Professional Services Council. The task force worked 

with senior executives at manufacturing and service companies that support the U.s. military. 

As they looked at their business and the initial impact of the $480 billion in budget cuts 

prOjected over the next decade as part of the Budget Control Act, they determined these cuts 

could cripple certain defense sectors, resulting in an industrial base that is smaller, less 

innovative, and less responsive to urgent wartime needs. Impacts of major cuts would most 

likely include: 

Forcing firms to close production lines and layoff skilled full-time workers - beyond 

the thousands already let go in the wake of previous budget cuts and program 

cancellations- specialized manufacturing capacity and human capital that cannot be 

regenerated without great cost and significant time; 

Reducing or eliminating investments in capabilities beyond those needed to meet 

existing contracts; and 

Making defense companies and business units - manufacturing and service, up and 

down the supply chain - more likely to exit the sector altogether, consolidate further, or 

be divested by their parent corporation. 
67 

Consequently, defense executives predicted an erosion of the continuum of goods and services 

provided by industry - from R&D to advanced development and design, to production, and then 

sustainment and upgrade - that could result in critical gaps in military capability over time--and 

all of this is based just on the first $487 billion in defense cuts, not the $500 billion extra from 

sequestration. 

We must also take into account that in the case of the Pentagon, Military Personnel, which 

constitutes 25 percent of defense spending, is exempt from sequestration, which means the 

other accounts such as Operations and Maintenance and Procurement, will have to absorb a 

larger portion of the cuts. This means the operating, training, and equipment maintenance 

accounts - and civilians supporting the DOD - must bear a heavier burden. Second, the BCA 

requires sequestration to "reach back" and cut not only FY13 accounts, but also prior year 

appropriations that remain unobligated. 

Sequestration would severely undercut our long term national security efforts. The United 

States must invest in military capabilities to deny potential adversaries the ability to counter 

technological advantages that allow us to see battlefields with greater clarity and strike targets 

from greater distances with minimum collateral damage. We are already Witnessing some of 

the world's major military powers making large strategic investments in anti-satellite weapons, 

cyberwarfare, advanced submarines, unmanned undersea vehicles, and other capabilities that 

could put our technological edge at risk. These investments are a potent reminder of the 

importance of maintaining robust defense procurement and research and development funding 

in the context of future budget decisions. 

Mr. Chairman, amid all the discussion and debate about the negative impacts of sequestration, 

relatively little has been reported about the negative impacts of operating the Department of 

Defense under a long-term continuing resolution. However, we know that there is a $14 billion 

shortfall in the Operations and Maintenance accounts under the CR. This means that critical 

training and sustainment activities will not be performed unless this shortfall is corrected. 

For example, the Navy, which has a $4.5 billion O&M shortfall, has reported that 23 ship 

availabilities will not be performed if increased funding is not provided in the next CR. Aircraft 

maintenance will be cancelled in the 3rd and 4th quarters, and modernization programs will be 

deferred as we are forced to rely upon aging, antiquated systems that are less capable and 

more expensive to maintain. 

Sustaining current readiness will be impossible with the Joint Chiefs reporting that we are "on 

the brink of creating a hollow force" with sequestration coupled with the continuing resolution 

triggering a 20 percent cut in the operating budgets-grounding aircraft, idling ships, and 

parking combat vehicles. With less funding available for maintaining the eqUipment, buying 

fuel, and purchasing spare parts, training on our eqUipment will not be possible at the levels 

determined necessary by operational commanders. 
68 

The Continuing Resolution is also preventing a number of programs from moving forward as the 

rules of the CR do not allow "new starts." As a result, personnel and equipment stand idle, 

waiting for the authority to begin work. This increases costs, and creates programs delays, that 

wi II be felt for yea rs. 

Common Misperceptions of the Sequester 

There are three common misperceptions about the sequester. All are dangerous, because they 

foster the impression that sequestration's impacts would not be as immediate or as bad as 

many have predicted. 

The first misperception is that any agency should be able to find 7.2% in savings to its budget. 

This sounds plausible until you realize that the actual reduction is greater than that. 

Sequestration cancels a uniform percentage of each agency's annual appropriation on March 1, 

2013. However, at this point in the fiscal year, agencies already have spent 40% or more of 

their appropriation. In reality then, DOD will have to cut its programs by at least a third more 

than this percentage suggests. 

The second misperception we hear from some Congressional offices is that leaders can survey 

the damage after March 1 and restore funding to the hardest hit programs in the next CR. As 

you know, the sequester order is scheduled for March 1 and the current CR expires on March 

27. Some have speculated that Congress could decide final funding levels for fiscal year 2013 

in the next CR and selectively restore funds cut by the sequester. 

The problem with this approach is that the impacts will not all be immediate. They will build 

over time, as agencies grapple with implementing the order. Our analyses all concluded that 

most private sector job losses would occur within 6-18 months of the sequester order as 

contracts expire. Furloughs of DOD civilians are not scheduled to begin until April 1. The sheer 

magnitude of these nationwide effects will not be evident in the first month. 

Soon after these line-item cuts are announced- presumably this Friday -- individual programs 

will begin notifying industry of contract cutbacks and cancellations. Many of these changes 

include termination liabilities that will cost the agencies precious funding. And once the workers 

are gone, it will be difficult or impossible to get them back. 

The final misperception is that increased flexibility can solve all of DOD's problems. While 

greater flexibility would undoubtedly aid the DOD in absorbing these huge reductions, it is not a 

panacea for providing an adequate budget. These cuts hit in the middle of the year, and as 

you know the Office of Management and Budget directed DOD and other agencies not to slow 

down obligation rates at the beginning of the year. Now in crisis mode, it is not surprising that 

DOD needs flexibility to address its near-term operating shortfalls. 

However, when you look more closely, flexibility without additional resources ends up savaging 

the very accounts that warfighters depend on for advanced equipment and long-term readiness. 

The investment accounts would lose billions of dollars which translate to significant equipment 
69 

reductions. Mr. Chairman, I would respectively submit that this committee did not overestimate 

the military's needs by $9 billion when you reviewed and authorized these programs for FY13. 

This magnitude of cuts in the investment accounts would result in fewer, older, and less 

capable tools for our young warfighters in harm's way. It would terminate promising R&D that 

would help us keep our technological advantage in future conflicts. And it would cause 

irreversible damage to a fragile defense industrial base. Mr. Chairman, the echoes of the old 

phrase "hollow Army" are ringing in our ears. We cannot let that happen again. 

In conclusion, AlA supports approaches to our long-term fiscal situation that do not cause 

irreparable harm to our national security or to our defense industrial base. Thus far, our deficit 

reduction efforts have disproportionately targeted discretionary programs, which are a relatively 

small and decreasing share of the federal budget. Continuing to hold these programs hostage 

to a broader agreement has not worked for the past two years, and has brought us to the brink 

of disaster where we find ourselves today. 

We also support reaching some resolution so that will end the use of long-term continuing 

resolutions that hinder the Department's, and industry's ability to operate efficiently and 

effectively starting new programs when they are ready and required, not when there is a 

political solution. 

Mr. Chairman, thank you again for the opportunity to testify today on this important topic. 
70 

Cord A. Sterling 

Vice President, AlA 

As the Vice President for the Aerospace Industries Association, Cord is responsible 

for overseeing much of the external communication activities of the Association to 

the Congress, administering the staff, and establishing priorities at the direction of the 

President and the Executive Committee. Specific areas of legislative responsibility 

include defense budget including the impacts of sequestration, procurement policy, 

tax issues, and support of special projects such as campaign outreach. Cord supports 

the work and carries out the legislative agenda ofthc Executive Committee and the 

Procurement and Finance Council. 

From 1992 to 1995 Cord worked for the U.S. General Accounting Office, National 

Security and International Affairs Division, where he performed independent research 

and participated in numerous evaluations of a variety of national defense issues. 

From 1995-2001 Cord served as the Lead Professional Staff Member of the 

Readiness and Management Support Subcommittee of the Senate Armed Services 

Committee, responsible for keeping Senators advised on all issues involving the 

rcadiness of the U.S. Armed Forces and installations including oversight of the $88.3 

billion budget request for military readiness accounts, depot maintenance, business 

operations, and other activities. 

From 2002-2006 Cord served as the Military Legislative Assistant responsible for 

advising Senate Armed Services Committee Chairman John Warner on key national 

security matters and executing the Senator's decisions in relation to these matters. 

Cord has been active and seen government from not just the federal, but also local 
71 

and state levels. In 2007 Cord was elected to the Stafford County Board of 

Supervisors which, as the executive/legislative body governing Stafford County, is 

responsible for enacting laws and setting policies. approving the Stafford County 

budget and appointing eitizens to the several boards, commissions, and committees in 

Stafford County, Virginia. Cord serves as Chairman of the Finance and Budget 

Committee and the Infrastructure Committee. 

In 2006 Cord was appointed by Governor Tim Kaine and confirmed by the Virginia 

General Assembly as one of 17 members of the Commonwealth Transportation Board 

whieh establishes the administrative policies for Virginia's transportation system and 

allocates funding to specific projects, awards contracts for those projects, locates 

routes and provides funding for airports, seaports, and public transportation systems. 

Cord was re-appointed in 2010 by Governor Robert McDonnell and works with 

localities, MPOs, and state transportation organizations in efforts to build and operate 

a more effective and efficient transportation system. 

Cord was appointcd by the Speaker of the Virginia House of Delegates, Bill Howell, 

in 2005 to the 17 member Virginia National Defense Industrial Authority which was 

created through an act of the 2005 Virginia General Assembly to continue the work 

of supporting future defense and military-related opportunities in the Commonwealth. 

A former Marine, Cord has a Bachelors degree in economics and a Masters degree in 

National Security Studies, from California State University, San Bernardino. 
72 

DISCLOSURE FORM FOR WITNESSES 

CONCERNING FEDERAL CONTRACT AND GRANT INFORMATION 

INSTRUCTION TO WITNESSES: Rule II, clause 2(g)(5), of the Rules of the U.S. 

House of Representatives for the II3'h Congress requires nongovernmental witnesses 

appearing before lIouse committees to include in their written statements a curriculum 

vitac and a disclosure of the amount and source of any federal contracts or grants 

(including subcontracts and subgrants) received during the current and two previous 

fiscal years either by the witness or by an entity represented by the witness. This form is 

intended to assist witnesses appearing before the House Committee on Armed Services in 

complying with the House rule. Please note that a copy of these statements. with 

appropriate redactions to protect the witness's personal privacy (including home address 

and phone number) will be made publicly available in electronic form not later than one 

day after the witness's appearance bcfore the committee. 

Witness name: Cord Sterling 

Capacity in which appearing: (check one) 

Individual 

If appearing in a representative capacity, name of the company, association or other 

entity being represented: Aerospace Industries Association 

FISCAL YEAR 2013--NONE 

federal grant( s) / federal agency dollar value subject(s) of contract or 

contracts grant 

FISCAL YEAR 2012--NONE 

federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 
73 

FISCAL YEAR 2011--NONE 

Federal grant(s)j federal agency dollar value subject(s) of contract or 

contracts grant 

Federal Contract Information: If you or the entity you represent before the Committee 

on Armed Services has contracts (including subcontracts) with the federal government, 

please provide the following information: 

Number of contracts (including subcontracts) with the federal government: NONE 

Current fiscal year (2013): 

Fiscal year 2012: _____ " ______ " _____ _ 

Fiscal year 2011 : __________________ _ 

Federal agencies with which federal contracts are held: NONE 

Ctm-ent fiscal year (2013): _______________ _ 

Fiscal year 2012: ____________________ _ 

Fiscal year 2011 : ________________ _ 

List of subjects offederal contract(s) (for example. ship construction, aircraft parIs 

manufacturing, software design, force structure consultant, architecture & engineering 

services, etc.): NONE 

Current fiscal year (2013): ___ "_ 

Fiscal year 2012: 

Fiscal year 2011:_ 

Aggregate dollar value offederal contracts held: NONE 

Current fiscal year (2013): ______________ _ 

Fiscal year 2012: ____________ _ 

Fiscal year 2011: 

2 

--
74 

Federal Grant Information: If you or the entity you represent before the Committee on 

Armed Services has grants (including subgrants) with the federal government. please 

provide the following information: 

Number of grants (including subgrants) with the federal government: NONE 

Current fiscal year (2013): __ ._. ____________ _ 

Fiscal year 

Fiscal year 2011: ----------.---

Fcderal agencies with which federal grants are hcld: NONE 

Current fiscal year (2013): _______________ _ 

Fiscal year 

Fiscal year 2011 : _____ _ 

List of subjects of federal grants( s) (for example, materials research, sociological study, 

software design, etc.): NONE 

Current fiscal year (2013): __________ _ 

Fiscal year 

Fiscal year 2011: ____________________ _ 

Aggregate dollar value of federal grants held: NONE 

Current fiscal year 

Fiscal year 

Fiscal year 2011: 

3 
75 

FINAL VERSION OF TESTIMONY 

DR. NICHOLAS J. A VDELLAS 

PREPARED TESTIMONY 

COMMITTEE ON ARMED SERVICES 

SUBCOMMITTEE ON READINESS 

THURSDAY, FEBRUARY 28, 2013 

CLEARED 

For Open publication 

FED I) 2 (.uI3 4'-

Office of SeCUi"lty Review 

Department of Defense 

FINAL VERSION OF TESTIMONY 
76 

FINAL VERSION OF TESTIMONY 

DR. NICHOLAS J. A VDELLAS 

PREPARED TESTIMONY 

HOUSE ARMED SERVICES SUBCOMMITTEE ON READINESS 

THURSDAY, FEBRUARY 28, 2013 

Chairman Wittman, Ranking Member Bordallo, and Members of the Committee, 

thank you for the opportunity to provide testimony on assuring viability of the 

sustainment industrial base. The opinions and positions expressed by me today are my 

own and not those of LMI or the government. 

This is an issue that is critically important for future force-projection capabilities. I 

sincerely appreciate the Committee's ongoing efforts to make sure that our troops are 

properly trained and their equipment is properly sustained so they can succeed in their 

missions, and that they have the facilities and services they will need when they return 

home. 

As requested, I will address my sense of the immediate impacts of a Continuing 

Resolution and Sequestration on workload trends for depots and arsenals, forwarddeployed logistics, new weapon system maintenance, and the Army's new Organic 

Industrial Base Strategy. I do not have visibility into all aspects of Department of 

Defense (000) or commercial provider activities in these areas, so some of my remarks 

are necessarily general in nature. 

I would like to begin with a broad description of the sustainment situation that the 

Military Services, and particularly the ground forces, will face over the next few years, 

as American forces withdraw from Afghanistan and force structure adjustments occur. 

In addition to an ongoing troop reduction, the Services will also need to withdraw large 

amounts of combat and support equipment from Afghanistan. Much of this materiel has 

been in use in austere and often harsh environments for years, and will require 

refurbishment or overhaul before it can be re-issued to operating units. Our earlier 

research has shown that there is normally a two-year lag between withdraw of forces 

until their materiel is actually inducted into overhaul depots or commercial facilities for 

repair. This is a typical time interval, but the implication is that the depot maintenance 

repair sites will need to continue operating at some elevated level of effort after the 

troops come home if existing combat units are to recover their combat capabilities in the 

near term - assuming that a similar force structure is contemplated in the near-term. 

The need for refurbishment of retrograde materiel implies a need for sustained 

funding levels at the very time we are discussing substantial resource reductions. This 

apparent contradiction serves as the backdrop for my testimony. 

Given that backdrop, I would like to briefly address some key tenets about my 

sense of what assuring viability of the sustainment industrial base entails. While your 

subcommittee is now focusing on potentially damaging resource reductions, we must be 

cautious to examine these reductions in the context of readiness requirements and their 

related sustainment processes. There is no doubt that the 000 is faced with both 

2 

FINAL VERSION OF TESTIMONY 
77 

FINAL VERSION OF TESTIMONY 

considerable and sudden resource decreases as well as longer term fiscal pressures. 

The looming, inflexible and "across the board" nature of these potential nearer term 

actions will undoubtedly cause some disruption in our sustainment industrial base. So 

the real issues relate to the extent of the impact, and the strategies necessary to cope 

with reductions while re-shaping what remains in that base to assure readiness 

capabilities for the future. DoD needs to define the right amount of sustainability to 

produce viable and responsive readiness. Ultimately, the process for doing so needs to 

be included in a new and forward-looking strategic planning effort that I will discuss 

further in these remarks. 

I believe the situation must prompt Congress and the DoD to do some critical 

deliberating about the nature of the relationship of logistics, or sustainment, to our 

military strategy. Discussions about tooth or tail, readiness or sustainment, maintenance 

or operations, equipment or personnel must be approached from a wide-ranging, 

inclusive perspective. There is also a pressing need to discuss sustainment; it is 

expensive, accounting for as much as two thirds of weapon system life cycle costs. 

The unity of sustainment and strategy must be stressed because this relationship 

is becoming more important, in fact it is necessary to view these two elements as critical 

aspects of U.S. military capability. I would propose that responsiveness is the link we 

must focus on and this is central to what sustainment viability means moving forward. In 

fact, in our system, the two (sustainment and strategy) must be mutually responsive. 

The sustainment industrial base is part of a larger set of activities that generates military 

capability, it underpins our fighting capability. 

Viability of the industrial base, then, should be considered in the context of force 

structure and operational needs - and what workloads and capability requirements 

those needs drive. In general, multi-year sequestration effects will logically reduce force 

structure and operational capabilities, and the industrial base will react to those 

reductions - hopefully in a balanced way. By balance, we mean that what we must 

work towards is an industrial base that is efficiently structured and funded to deliver 

what the forces need, or require, or ask for in terms of readiness and capability. 

Workload reductions associated with the prospective end of overseas contingency 

operations, the budgetary effects of sequestration, and parallel efforts to reduce the 

Defense budget could have a significant combined effect on force structure itself, and 

the sustainment capabilities that support that force structure. 

If Continuing Resolutions, budget reductions and Sequestration are focused 

disproportionately on one aspect of the equation - force structure, operations, an 

element of sustainment, or a particular part of the industrial base, imbalance will result. 

If we focus on the industrial base or sustainment without relation to force structure 

and/or operations, then readiness and capability cannot be delivered over time and 

deferred maintenance will result. This sort of imbalance was a contributing cause of the 

"hollow force" of the late 1970s. 

In reality, decisions about potential hollow force issues may need to be shaped 

by logistics support realities, i.e., can or should logistics and sustainment affordability 

FINAL VERSION OF TESTIMONY 

3 
78 

FINAL VERSION OF TESTIMONY 

influence force structure - in this case the question could become, should total life cycle 

costs and affordability shape the force? Is it better to have hardware that's not ready or 

capable or perhaps a smaller but balanced, ready capability? Or is there some 

alternative approach that can achieve both readiness and balanced hardware capability, 

albeit with lower resource expenditures? 

Viability of the industrial base, then, should mean that it is responsive, capable, 

and efficient in the context of the future requirements for which it is established and 

maintained - not in reference to its past size, nature, strength or composition. Viability 

of our sustainment industrial base means to support a continuing state leading into the 

future - it is sustainment of a balanced set of force support requirements. 

Overall, it appears that crafting this new balanced baseline is going to occur in an 

environment of continuously declining funding levels. Competition for available funding 

is going to increase. To the extent feasible, it will be essential to extract substantially 

improved productivity from a smaller and potentially shrinking sustainment base. For 

this reason, major management efforts must be tailored to improve productivity despite 

a declining workload. This is a daunting challenge; one that calls for effective strategic 

planning that starts with a comprehensive baseline of current capabilities. It also 

requires a considerable shift in thinking for a sustainment system that has not faced 

much in the way of declining resource levels over the past decade. 

Impacts of a Continuing Resolution and Sequestration on Workload Trends for 

Depots and Arsenals 

A Continuing Resolution and Sequestration will aggravate on-going actions that 

the depots and arsenals have underway to address Overseas Contingency Operations 

(OCO)-driven and related force structure adjustments. Overall organic workload is 

going to reduce after about two more years of catch-up with a concurrent reduction of 

overtime and non-career employees and contract workers, and a further reduction of 

career government hires towards a new baseline level comparable, in some respects, to 

2003 levels. The actual level of costs should be somewhat higher than 2003, reflecting 

a decade of escalations for both labor and material. 

There has already been a slight reduction in force structure, and related 

sustainment workload, which has been masked to some extent with modernization 

requirements for the remaining fleet. As this remaining fleet is modified, and the 

modification workload prospectively reduces, the declining workload associated with the 

remaining force structure will become more evident and public and private sector 

sustainment workloads will most likely decline again to some degree. That is, they will 

decline first for the return to a new baseline (less OCO) and again from programmed 

reductions in the peacetime workload. The potential replacement for that lost workload, 

defined as depot activations for new weapon system bed downs, is generally slipping to 

the right for most major systems, leaving a prospective "hole" in workload as we move 

towards the end of the decade. Both government and industry will be affected by this 

probable workload "hole," especially since the private sector has a substantial share of 

the modernization funding, which will be declining. 

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What is the nature of the 000 reaction going to be in the different force structure 

and related commodity areas? For example, will aviation see a lesser impact than, say, 

ground combat vehicles, especially in support of a new Pacific strategy? Given the 

potential for disproportionate force structure reductions, it is quite likely that depots, 

arsenals, and commercial providers responsible for supporting the declining portions of 

the force structure will also be drawn down more in relation to the overall sustainment 

base. It is reasonable to expect that there may be more serious issues for particular 

segments of the sustainment base as it accommodates these uneven force structure 

reductions. On the other hand, there will probably be other areas that can adjust 

workload mixes to maintain sustainment capabilities until the funding situation stabilizes 

(albeit at a new normal level) and new weapon systems are actually fielded. 

Impacts of a Continuing Resolution and Sequestration on Workload Trends for 

Forward-Deployed Logistics 

Operation Iraqi Freedom (OIF) required and benefitted from directed forward 

capabilities that were deployed from the sustainment maintenance establishment It is 

not easy or quick to deploy a depot capability, because of the infrastructure and human 

resources required, and in that respect the length of OIF operations allowed 

establishment of longer-term capabilities. To the extent that forward deployment of 

sustainment capabilities offers a model for future engagements it will probably be 

evidenced in prepositioning of such capabilities at or near contingency locations. On the 

other hand, fiscal constraints will probably tend to constrain the amount of contingency 

infrastructure that can be built for the future. 

It is interesting to note that there has been relatively less sustainment capability 

deployed into Afghanistan, reflecting the necessity of airlifting a great deal of day-to-day 

sustainment requirements at relatively higher cost; for that reason, forward deployment 

has not seemed to be as applicable in Afghanistan. Nevertheless, Iraq demonstrated 

that forward deployment can be both successfully done and beneficial, at least when 

related workload requirements are surging. It is a model we should consider as part of 

future viable sustainment and maintenance capabilities. 

Impacts of a Continuing Resolution and Sequestration on New Weapon System 

Maintenance 

New systems may not need as much maintenance as the systems they replace, 

especially if we achieve reliability and availability goals envisioned in system design. 

New systems also tend to be contract-supported while they are under development, and 

current trends indicate new systems may be in development status for protracted 

periods of time. A key example is the Marine Corps version of the Joint Strike Fighter, 

the F-35B, which now has a planned initial operational capability, or 10C, about fiscal 

year 2016. If depot maintenance capability must be established for that aircraft by 

IOC+4, then it will be established by fiscal year 2020 at the earliest Since the Marine 

variant is the earliest planned 10C for the JSF, we can conclude that the JSF is not 

likely to replace other lost workload for the better part of the current decade. Further 

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slips in 10C may result from the funding impacts of continuing resolutions and 

sequestration, and could easily impact additional workload requirements, 

Meanwhile, as already mentioned, planned retirements of existing force structure 

will inevitably change the workload requirements for the depots as older workloads 

decline and new technologies are introduced, To the extent the new capabilities reflect 

smaller force structures with higher reliability components; it is possible we will see the 

new requirements pushing workload trends down, In addition, to the extent that newer 

systems are being supported by an increasing proportion of Performance-Based 

Logistics (PBL) contracts, the majority of the logistics support requirement that has 

come back to the 000 thus far is the depot maintenance hands-on effort through 

partnerships, So far, we haven't seen much return of other logistics functions to the 

organic sustainment base, at least when compared to historical proportions that were 

largely organic, This is a matter under active review by Office of the Secretary of 

Defense (OSD) and the Military Services, 

Impacts of a Continuing Resolution and Sequestration on the Army's Organic 

Industrial Base Strategy 

The Army's recently released Organic Industrial Base Strategy includes some 

essential structure that could be applied analytically across the Military Services, It can 

have an impact on associated budget mechanisms by supporting holistic consideration 

of sustainment industrial base options and risks, 

The Army's plan addresses the need to define future requirements, but only in 

terms of specific goals and objectives for core-supported Program Objective 

Memorandum (POM) funding levels, The POM focus could be extended to the end of 

the decade, 

As outlined in the plan, new baseline workloads for certain weapon systems are 

projected to be as little as a third of peak OCO years; there is an implication that it could 

be time to single-up public sector organic sourcing (HWWMVs are a clear example), 

This implication requires thorough analysis and planning to make sure such workload 

shifts yield predictable consequences and cost-effective outcomes, 

The Army's plan addresses the need for capital investment to establish repair 

capability for new technologies and workloads, and that investment is usually 

associated with the new weapon systems themselves as a part of the expense of 

establishing their capability, It suggests a second reason why the depots need 

modernization, and that relates to the existing infrastructure, worn from a decade of 

high-surge operations and now in need of productivity-enhancing investments that will 

lower the cost of their future operations, 

Plans such as the Army's need to address sustained operational funding, 

modernization funding that can be offset through reduced cost of operations, and capital 

investment funding for new weapon system sustainment The Military Services need to 

plan for what the related requirements will actually entail, and assess the impacts of a 

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lack of any category of the funding, in their long-term strategic planning. That kind of 

planning will give the Services better visibility into their long-term requirements, provide 

better justification for the funding itself, and provide a basis for exploring alternatives 

when funding constraints limit necessary capabilities. 

Conclusions and Recommendations 

Overall, the resource realities exacerbated by a Continuing Resolution and 

Sequestration suggest a smaller workload that must be effectively positioned within the 

sustainment industrial base. These realities may require innovative approaches in 

addition to sound strategic thinking. In that regard, I conclude that 000 and the 

Congress should consider moving to: 

• Emphasize the need for detailed strategic planning for the future, 

characterizing current conditions, identifying requirements for new 

capabilities and modernization that extend through the decade, not just 

the Future Years Defense Program (FYDP). This should apply to both 

organic and contract providers and might include considerations for an 

integrated management arrangement. 

• Contemplate longer-range proposals for sustainment concepts that 

embrace the broad programs with their many goals, agents, and 

stakeholders, including public and private sector actors. This kind of 

planning will require some resource investment and a rise in the level of 

visibility and comprehension for the areas in which the Services intend to 

improve. In this case, the Department could consider expanding on-going 

industrial base reviews to include greater sustainment understanding and 

scrutiny. 

• Formulate and implement partnering approaches that could have some 

additional dimensions, including arrangements that leverage 

modernization that could be provided by the private sector. In general, we 

must support efforts in modernization and collaboration that achieve the 

best possible result from taxpayer investment, which should include both 

sectors. We must seek truly co-operative networks that increase 

responsiveness through flexibility. 

• Review and potentially revise Centers of Industrial and Technical 

Excellence (CITE) designations in the midst of the draw-down. 000 may 

need to apply CITEs in a more structured manner to improve future depot 

capability. 

• Apply the core capability determination process as a foundation for a new 

and powerful risk management process. Use the Army's plan as a 

baseline model to drive constructive public and private sector behavior 

and workload management. Devise more constructive OSD and Military 

Service relationships in this context and provide some degree of strategic 

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oversight. 

• Consider experimental development of dual-use facilities that can 

economically support commercial workloads under public-private 

partnerships while also being able to quickly be converted to support 

contingency-driven requirements, 

I recommend that 000, industry and the Military Services establish strategic planning 

capabilities that can address the challenges of maintaining responsive sustainment 

capabilities in the face of declining resources, including the application of experiments 

or prototype arrangements that could substantially contribute to the objective, 

That concludes my testimony, I would be pleased to respond to any questions you may 

have, 

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Dr. Nicholas J. Avdellas is a program manager at LMI. LMI is a government consulting 

firm committed to helping government leaders and managers reach decisions that make 

a difference. LMI draws on its 50 years of experience as a pioneer in logistics by 

applying an unmatched knowledge of people, processes, and assets to a variety of 

sectors, including defense, intelligence, healthcare, energy and environment, homeland 

security, and civil government. 

Dr. Avdellas supported the congressionally mandated study on the future of the DoD 

depots in 2009-2011. He is a career logistician with extensive experience in Navy 

supply chain management, management consulting with the original 

PriceWaterhouseCoopers, and a variety of management studies at LMI. 

FINAL VERSION OF TESTIMONY 

9 
84 

Nicholas J. Avdellas 

Address 

609 Longfellow Drive, Leesburg, VA 20176 

Professional Qualifications 

Dr. Avdellas is a systems analyst and program manager with 26 years of experience as a federal 

civil servant and management consultant. He has developed Department of Defense (DoD) 

supply chain and maintenance management policies and programs, developed and implemented 

logistics information systems, analyzed and improved processes, and performed strategic 

planning. Dr. Avdcllas has also published several articles about strategic and resource issues that 

face the federal government, and he has used his project management and consulting skills for all 

branches of DoD and many public institutions. 

He currently supports analytical projects for the DoD in the areas of maintenance requirements, 

capability and workload analysis, maintenance planning and source-of-repair determination, 

industrial operations analysis, public-private sector integration, and maintenance management 

systems assessment and development. In this role, he has provided key resource and capability 

analyses focused on war-fighting capabilities, maintenance efficiencies and capacities, readiness 

requirements, and maintenance resource requirements. 

During 2009-2011 he was a primary author of a congressionally directed report regarding the 

future capability of DoD maintenance depots. This report addressed the capability and efficiency 

of DoD's maintenance depots to help ensure that they can provide the logistics capabilities and 

capacity necessary for national defense. This independent study served as a foundational 

document for DoD and Congress as they work to improve this important area of defense logistics 

management. The study highlights key factors that will be critical in shaping the future of DoD 

maintenance depots. 

Education 

PhD, Public Administration and Policy, Virginia Polytechnic Institute and State University, 

2005 

MA, Public Administration and Policy, Virginia Polytechnic Institute and State University, 

1995 

BA, English, Dickinson College, 1987 

Certifications and Licenses 

Lean Six Sigma Black Belt Certification, January 2007 
85 

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3 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

FEBRUARY 28, 2013 

(91) 

QUESTION SUBMITTED BY MS. SHEA-PORTER 

Ms. SHEA-PORTER. The Portsmouth Naval Shipyard lies at the eastern edge of the 

district I represent, the First Congressional District of New Hampshire. Since the 

strength and efficiency of our shipyards is an essential factor in overall naval readiness, I am very concerned about the severe defense budget constraints, the uncertainty, and the indiscriminate sequester cuts that are taking an immediate toll on 

civilian workers and on shipyard readiness, with furloughs imminent and the attendant decline in productivity that will entail. While the immediate impacts of 

such resource pressures on several aspects of the sustainment industrial base were 

the primary focus of the hearing, can you discuss the longer-term strategic risks 

that Congress and the Department of Defense will face with regard to the 

sustainment industrial base, should these severe constraints continue? What processes exist to address such strategic risks? 

Dr. AVDELLAS. The fiscal situation that the Department of Defense (DOD) finds 

itself in is unprecedented in many respects. I believe DOD will work to mitigate the 

long term organic sustainment risks of sequestration through implementation of 

core (10 USC § 2464). The core capabilities determination process identifies the capabilities and sustaining workloads necessary to help ensure a ready and controlled 

source of technical competence. The process also addresses the resources needed to 

respond to military mobilization, contingencies and other risks or emergencies. As 

the Military Services seek to minimize the operational impacts of sequester, there 

will be increased pressure on sustainment resources. DOD’s logisticians will have 

to be vigilant to ensure core sustaining workloads are funded in order to retain strategic sustainment industrial base capabilities and competencies. 

Additionally, I believe the DOD is addressing longer-term strategic risks in the 

sustainment industrial base by supporting the development of improvements to the 

core capability determination process. Aspects of it are being incorporated as part 

of an updated and improved depot maintenance source or repair decision process. 

These developments could help protect critical capabilities within the Nation’s depots, shipyards, and arsenals should anticipated resource constraints continue. 

Æ