[Senate Hearing 109-172] [From the U.S. Government Publishing Office] S. Hrg. 109-172 WAGING WAR ON WASTE: AN EXAMINATION OF DOD'S BUSINESS PRACTICES ======================================================================= HEARING before the OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ APRIL 28, 2005 __________ Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 21-436 WASHINGTON : 2005 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Amy B. Newhouse, Chief Clerk OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE GEORGE V. VOINOVICH, Ohio, Chairman TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii NORM COLEMAN, Minnesota CARL LEVIN, Michigan TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Andrew Richardson, Staff Director Richard J. Kessler, Minority Staff Director Nanci E. Langley, Minority Deputy Staff Director Tara E. Baird, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Voinovich............................................ 1 Senator Akaka................................................ 3 Senator Lautenberg........................................... 5 Senator Levin................................................ 20 WITNESSES Thursday, April 28, 2005 Hon. David M. Walker, Comptroller General, U.S. Government Accountability Office.......................................... 7 Hon. Clay Johnson, III, Deputy Director for Management, Office of Management and Budget.......................................... 10 Bradley M. Berkson, Acting Deputy Under Secretary for Logistics and Materiel Readiness, U.S. Department of Defense............. 11 Alphabetical List of Witnesses Berkson, Bradley M.: Testimony.................................................... 11 Prepared statement........................................... 71 Johnson, Hon. Clay, III: Testimony.................................................... 10 Prepared statement........................................... 68 Walker, Hon. David M.: Testimony.................................................... 7 Prepared statement........................................... 33 APPENDIX Responses to questions for the Record from: Mr. Walker................................................... 92 Mr. Johnson.................................................. 95 Mr. Berkson.................................................. 96 Charts submitted by Mr. Berkson: Focus on continuous improvement (Maintenance Cycle Time Days) 104 Performance Based Logistics (PBL) proven in the Global War on Terrorism.................................................. 105 IRAQ Air Shipments Cycletime................................. 106 WAGING WAR ON WASTE: AN EXAMINATION OF DOD'S BUSINESS PRACTICES ---------- THURSDAY, APRIL 28, 2005 U.S. Senate, Oversight of Government Management, the Federal Workforce and the District of Columbia Subcommittee, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 2:09 p.m., in room SD-562, Dirksen Senate Office Building, Hon. George V. Voinovich, Chairman of the Subcommittee, presiding. Present: Senators Voinovich, Akaka, Levin, and Lautenberg. OPENING STATEMENT OF SENATOR VOINOVICH Senator Voinovich. The hearing will please come to order. The Subcommittee on Oversight of Government Management will be in order. Good afternoon, and thank you all for coming. This afternoon's hearing is entitled ``Waging War On Waste: An Examination of the Department of Defense's Business Practices.'' The rules of this Committee give the Subcommittee jurisdiction over the management, efficiency, and effectiveness, and economy of all departments, agencies, and programs of the Federal Government. I will never forget what my predecessor in the Senate John Glenn said, ``If you can get on Governmental Affairs, George, do it, because it means that you can meddle in anything you want to.'' It is pursuant to this broad oversight jurisdiction that this Subcommittee is holding the first of what will be a series of oversight hearings on the programs and operations of the Department of Defense that have been designated as high risk by the Government Accountability Office. High-risk programs and operations are considered especially vulnerable to waste and mismanagement. This past January, GAO designated eight areas of DOD as high risk. Many of these problem areas were first identified in the 1990's. In addition, there are six government-wide high- risk areas that DOD shares with all Federal agencies. Today's hearing focuses specifically on a new area designated by GAO--DOD's approach to business transformation. This high-risk area impacts many facets of the Department's business systems and program areas, including business systems modernization, support infrastructure management, financial management, weapon systems acquisitions, contract management, and supply chain management. In other words, improvements in this high-risk area are essential to ensure that the Department manages its people, systems, and programs in an efficient manner. We are holding this hearing because these high-risk areas and the resources and management efforts they consume degrades the ability of our Armed Forces to perform their missions as effectively as possible. We are holding this hearing because the men and women serving abroad and fighting for our freedom and interests deserve the best support possible from the agencies responsible for those missions. I think there would be a universal agreement that, despite our current best efforts, we need to do better. Let me also say at the onset that we are all in this together. We are all interested in reducing inefficiency at the Department of Defense and providing the best possible support. As I mentioned at the Subcommittee's hearing on the high- risk list in February, I intend to address the management challenges confronting the Department of Defense in a manner similar to how we have addressed the Federal Government's human capital challenges. In fact, the management challenges at DOD remind me of the government's human capital challenges in a key respect. It is a case of good people caught in a flawed system. At DOD, these challenges are exacerbated by the enormous scope of its operations involving millions of people spanning the globe. The Subcommittee will examine and explore the management challenges at DOD. Once we have a firm grasp on the challenges, I will work with Senator Akaka, Senator Collins, and all other interested parties in trying to find solutions. Legislation may be required. Indeed, just last week, Senator Akaka and I joined Senator Ensign in introducing S. 780, which would establish the Deputy Secretary of Defense for Management at the Department of Defense. Other solutions may require new approaches to doing business and can be done internally by the Executive Branch of government. When the Secretary of Defense Rumsfeld began his efforts to transform the Department of Defense, he meant far more than just the way the Armed Forces fight in the field. He also meant the way the Pentagon itself works on a daily basis. Ironically, Secretary Rumsfeld began his own campaign to transform the defense bureaucracy on September 10, 2001. At a speech at the Pentagon, Secretary Rumsfeld stated, ``The modernization of the Department of Defense is a matter of urgency. In fact, it is a matter of life and death, ultimately, every American's.'' He went on to say, ``This effort will succeed because it must. We really have no choice. It is not in the end about business practices, nor is the goal to improve figures on the bottom line. It's really about the security of the United States of America. Our job is defending America, and if we cannot change the way we do business, then we cannot do our job well, and we must.'' In our invitation letter to the Secretary, Senator Akaka and I asked for DOD's response to GAO's assessment, as well as an outline of DOD's comprehensive plan to address these challenges. We also wanted to learn the Department's views on establishing a nonpolitical chief management officer to oversee the Department's operations. Based upon the testimony of Under Secretary Wynne before the Armed Services Committee on April 13, DOD is opposed to the idea. As this concept has not yet been fully explored, this strikes me as a little premature in terms of their judgment. It is my hope that, through oversight, we can affect positive change for the Department of Defense so that the men and women who defend our Nation can get the best possible support. I now yield to Senator Akaka. Quite frankly, he is far more familiar with these issues than I am, due to his service on the Armed Services Committee, where he is the Ranking Member of the Readiness and Management Support Subcommittee. Senator Akaka, I thank you for your leadership. And it is just wonderful that the two of us are involved in this Subcommittee, particularly on this subject. OPENING STATEMENT OF SENATOR AKAKA Senator Akaka. Thank you very much, Mr. Chairman. Again, I say it is a pleasure working with you to increase government efficiency through the oversight of government operations in high-risk programs. And I also want to say it is good to see our witnesses again, as they have really helped to shape what we are doing here. As you know, 2 weeks ago, the Armed Services Readiness Subcommittee held a hearing on management weaknesses at DOD. As that panel's Ranking Member, I had the opportunity to discuss with Comptroller General Walker and DOD officials the problems facing the Department. At that hearing, I reiterated my disappointment that out of 25 high-risk areas on the year 2005 list, 8 are unique to DOD, and 6 are government-wide areas that apply to DOD. I sincerely appreciate Senator Voinovich's interest in working on this issue by adding DOD's management challenges to the portfolio of this Subcommittee. I am proud to join you, Mr. Chairman, in this effort because I believe we are at a crossroads with the Department of Defense, given the growing deficit and the costs associated with the war in Iraq. GAO has long pointed to the billions of taxpayer dollars wasted annually because of systemic weaknesses in DOD's business operations. Every extra tax dollar that DOD spends on business systems is one less dollar for our war fighters. Today's hearing, which builds upon both our February hearing and this month's Armed Services Readiness Subcommittee hearing, keeps the pressure on DOD to resolve its long-standing financial and business management problems. Until DOD drops its cultural resistance to change and addresses the lack of sustained leadership within the Department, we will continue to see DOD occupying the bulk of the high-risk list. To deal with these challenges at DOD, the Readiness Subcommittee has enacted legislation addressing several of the DOD high-risk areas. For example, after DOD failed to have a promised enterprise architecture blueprint for its business systems in place by March 2003, we required the Department to develop and implement a new financial management architecture and transition plan by early 2004. I am troubled that there is no plan today, despite statutory requirements. To improve efficiencies across the more than 4,000 non- integrated and duplicative business systems, the Fiscal Year 2005 Defense Authorization Act placed conditions on the obligation of funds for defense business systems modernization, which included approval requirements and accountability for purchases over $1 million. As I noted, the barriers to DOD's business transformation are long-standing and deep-rooted. But there is progress. In addressing congressional mandates, and as Mr. Berkson will testify, DOD has taken steps toward improvement. For example, in May 2003, DOD established the Business Management Modernization Program Committee. However, despite these efforts, there continues to be an overall lack of progress in DOD's business transformation efforts. Wheels are turning without much forward movement. The lack of sustained leadership and commitment to business transformation is why I worked with Senator Ensign, the Chairman of the Readiness Subcommittee, and with you, Chairman Voinovich, on a legislative proposal recommended by the Comptroller General to establish the position of chief management officer, a CMO, within DOD. I am hopeful our measure, S. 780, will be included in this year's DOD authorization bill. This new position will create a Level 2 deputy secretary, who will be responsible for business operations at DOD, including planning and budgeting, acquisitions, logistics, financial management, and human resources and personnel. The CMO would also be responsible for developing and implementing a department-wide strategic plan for business reform. Our bill does not add another layer of bureaucracy at DOD. Rather, it divides the responsibilities of the existing deputy secretary between policy and management so that both areas receive adequate attention. DOD needs one person whose term of office overlaps administrations and who will be accountable and responsible for leading change. Without one person in charge of overall business transformation within DOD, I fear the Department's programs will remain on GAO's high-risk list for many years to come. Our war fighters are supported through the various management systems within DOD. We can no longer afford a fragmented and half-hearted approach to DOD business transformation. No less than the security of our Nation depends upon it. Our growing deficit puts us on an unsustainable fiscal path that will damage our national security, as General Walker observes in his testimony. This is not a partisan issue, and it can only be resolved by bipartisan cooperation. I want to again commend Chairman Voinovich for his efforts. We intend to do everything we can to ensure DOD solves these management problems. I look forward, Mr. Chairman, to the testimony of our distinguished witnesses, and I thank you for having this hearing. Senator Voinovich. Senator Lautenberg, I want to thank you very much for being here today and I am looking forward to your statement. OPENING STATEMENT OF SENATOR LAUTENBERG Senator Lautenberg. Thanks very much, Mr. Chairman. It is a pleasure to work with you and Senator Akaka. In particular, you have established a reputation for getting to the bottom of things in your term as mayor, governor, and U.S. Senator. We greatly admire that quality. Two weeks ago, Comptroller General Walker told the Senate Subcommittee that the DOD, the Department of Defense, can't account for tens of millions of dollars that it spent in Iraq, Afghanistan, and elsewhere in the U.S. war on terrorism. And I quote you here, General Walker, trying to figure out where the money went is ``like pulling teeth.'' This isn't, unfortunately, anything new. For years, the Government Accountability Office has reported that DOD squanders billions of taxpayer dollars through waste, fraud, and abuse, and poor management. Now this would be a serious matter for any part of our government. It is especially serious in this case because the Department of Defense is the Federal Government's largest purchaser. Now reference was made to Secretary Rumsfeld's speech on September 10, 2001, the day before the great American tragedy took place. Secretary Rumsfeld then said that he never saw an organization that couldn't save 5 percent of its budget with better management. In DOD's case, that comes to $21 billion. So we should all be concerned about management practices at the Pentagon. Now I am especially concerned about several sweetheart contracts that were given to the Halliburton Company. They had been the beneficiary of a $2.5 billion no-bid contract and a cost-plus contract that actually provides an incentive to waste taxpayer dollars. Now under this cost-plus arrangement, also known as LOGCAP, Halliburton gets reimbursed for every dime that it spends. And then, on top of that, it gets a calculated percentage for profit. And that is why Halliburton didn't hesitate to pay $1.50 for a can of soda. After all, it wasn't their money. And that is why they overcharged taxpayers more than $27 million for meals that were never even served to our troops. After all, it wasn't their money. And that is why they overcharged the Army $61 million for gasoline delivered to Iraq. Once again, it wasn't their money. It came out of the pockets of American taxpayers. Now, Mr. Chairman, I understand that cost-plus contracts are sometimes justified by special circumstances. When that is the case, the contractor must account for every dollar spent. And Halliburton hasn't done that. Army auditors wanted to withhold payments from Halliburton because it couldn't account for how it spent hundreds of millions in taxpayer dollars. But as it always seems to do, the Pentagon gives Halliburton special treatment, waiving the requirement for accountability. Now we saw something in the newspapers just a couple of days ago about four Marines who had been in combat, and they were brave, loyal troopers. But they pointed out that lack of proper armor on the Humvees was responsible for the deaths of their colleagues because the armor was not only inadequate, it also was too short to really protect them. So the head wounds that came from shrapnel killed four of their colleagues. Families in this country are giving their sons and daughters, husbands and wives. And when they see this profligate spending, when they couldn't get the equipment they want, they are justifiably complaining about the lack of appropriate protections for themselves. The American people want to get to the bottom of these contracts, and allegations that they are not available turn out to be truths. The public wants to know whether Halliburton or any other company is engaged in war profiteering. Yet no Senate committee has held a bipartisan hearing about these specific allegations of waste, fraud, and abuse. Mr. Chairman, once again, I thank you for convening this hearing today. And I hope that when the full Committee holds a hearing in the future that one of the things that they will focus on, Halliburton and its contracts. Not because I want to pick on Halliburton, but because they are the most glaring example of unaccountability. And coming from the corporate world, as I have, and good sense, as my colleagues here have, you just can't favor anybody to that extent and then complain about waste. Thanks, Mr. Chairman. Senator Voinovich. Thank you, Senator Lautenberg. Today, we have a distinguished panel of witnesses before us. The Hon. David Walker is Comptroller of the United States. I understand you have just flown back from Indonesia to make this hearing. I thank you for your efforts. Mr. Walker has been sounding the alarm from GAO and conducting valuable evaluations of DOD's business practices for some time. Joining him is the Hon. Clay Johnson, Deputy Director for Management at the Office of Budget and Management. Mr. Johnson is the leading the charge at OMB on addressing DOD's management challenges. Mr. Johnson, I commend you and the Bush Administration for the no-nonsense approach you have taken to management issues. The President's management agenda is the most comprehensive results-oriented program that I have seen of any administration during my years in public service. I tell many people that this is one of the Administration's most overlooked achievements, and I believe it will be one of the Bush Administration's greatest legacies. I would like to state that there are a lot of issues that we are getting into today that, quite frankly, we just haven't bothered with. There is a tendency sometimes to just do nothing. If we do nothing, then we will never see change within the DOD. I had Steve Perry in my office yesterday from General Services Administration. He was talking about pay-for- performance and how they have changed the attitude over there in the Department in terms of their rating and so on. Quite frankly, he was a yellow on where he was and a green on his progress. So that people are being held accountable for the things that they are doing. And that is something that we ought to be doing, and I congratulate you for that. Representing the Department of Defense is Bradley Berkson, Acting Deputy Under Secretary of Defense for Logistics and Materiel Readiness. Mr. Berkson, thank you for your service to this country. On Tuesday, I had the opportunity to meet Ken Krieg, the President's nominee for the Under Secretary of Defense for Acquisition, Technology, and Logistics. He began his service at the Defense Department in July 2001, and it is admirable that Mr. Krieg has decided to remain in public service. One of the things that I appreciate is the fact that people who have served in the first 4 years of the President's Administration have stuck around because they have all this knowledge and everything. And the fact that they are going to stick around and continue, I think, is really important because their contribution will be so much greater because of the time that they have spent. I understand that your office will play a role in reforming the Department's business practices. I look forward to working with both of you. When it comes to managing the Department of Defense, we have to do better. I know you realize that. The Secretary does. I applaud your efforts to address these challenges, and we look forward to learning what you intend to do. If you will stand, it is the custom of this Subcommittee to swear in the witnesses. Do you swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth, so help you, God? [Witnesses sworn.] Senator Voinovich. Let the record show that they answered in the affirmative. We will start with Mr. Walker. TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Walker. Thank you, Mr. Chairman, and other Senators. It is a pleasure to be back before this Subcommittee today to discuss business transformation at the Department of Defense. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Walker appears in the Appendix on page 33. --------------------------------------------------------------------------- At the outset, I would like to thank you, Mr. Chairman, and all Members of this Subcommittee for your continued commitment to engage in oversight of key management operations and issues, including the Department of Defense. Mr. Chairman, I would also like to commend you, Senator Akaka, and Senator Ensign for your leadership and your sponsorship of proposed legislation to establish a Deputy Secretary of Defense for Management. Implementing a CMO position, in our opinion, is critical to successfully transforming DOD's business operations. While DOD maintains military forces with unparalleled capabilities, it continues to confront pervasive and decades- old management problems related to business operations that support these forces. These management problems cost the American taxpayer billions of dollars a year. DOD senior leadership is committed to transforming DOD's business operations to correct these problems and has taken a number of steps to begin this effort. We recognize that overhauling the business operations of one of the largest and most complex organizations in the world represents a daunting challenge, and it is not a new challenge. The extent of this challenge is further demonstrated by our 2005 high-risk list, which you touched on before, Mr. Chairman. Counting the six government-wide high-risk areas, DOD has 14 of 25 high-risk areas, and several of these have been on the list since the beginning. Although OMB has worked closely with a number of agencies that have high-risk areas historically, over several administrations, OMB has been much less engaged with regard to DOD. Quite candidly, Mr. Chairman, the Congress has been much less engaged in oversight of DOD over many years as well. That must change. To his credit, Clay Johnson, OMB's Deputy Director for Management, recently reaffirmed plans to re-engage with GAO on the new high-risk list and to make as much progress as possible in the second term of the Bush Administration. He is also committed to working with DOD on a much more active basis to help make sure that they put together a plan to address all their high-risk areas. I think it is critically important that they do so. In addition to OMB's engagement, it is critically important that Congress stay on the case as well with regard to these matters. There are a number of institutional barriers to change at DOD. DOD has begun several broad-based reform efforts to transform its business operations over several decades. But to date, there has been little tangible evidence of substantial and sustained progress. Yes, there has been progress, but not substantial enough and, clearly, not sustained. We do not fault the ability or commitment of those individuals who have been involved in these efforts over the years, including those who are involved at the present point in time. Our work has identified four underlying causes or institutional barriers that we think represent real impediments to long-term progress. First, the lack of sustained leadership and accountability for correcting problems. Mr. Chairman, the simple truth is that nobody is in charge of business transformation at DOD. If there was, I would want to know why they are not here today and why they weren't at the hearing last week. Nobody is in charge of overall business transformation at DOD. Second, cultural resistance, service parochialism, and stove-piped operations--or I call them hardened silos--that end up reinforcing the status quo. The absence of a department- level, results-oriented business culture that places values on plans containing results-oriented goals and performance measures, coupled with centralized monitoring processes, inadequate incentives, and accountability mechanisms for change, and historically inadequate oversight has led to our current situation. There are three key elements that we have noted in my testimony--which I would respectfully request, Mr. Chairman, be included in the record--that have to be addressed in order to be successful. First, there has to be a plan. There is no comprehensive strategic and integrated business transformation plan at DOD, which sets priorities, has appropriate key milestones, and puts individuals responsible for accomplishing certain objectives within specified timeframes. To my knowledge, there never has been one over decades. But there clearly is not one now. Second, there needs to be more centralized control over the billions of dollars in systems investments. Third, DOD needs a chief management official. I want to conclude by talking about the chief management officer position. I want to discuss what it would and would not do, because there is some misinformation with regard to this position. First, the CMO would be responsible and accountable for overall business transformation, not for policy issues such as military transformation. This responsibility would involve planning, integrating, and executing an overall business transformation plan. That is, with all due respect, a full-time job that has never been filled. The CMO would not assume the responsibility of the under secretaries of defense, the service secretaries, or other DOD officials for day-to-day management of various business activities. Quite candidly, the under secretaries and the service secretaries have full-time jobs dealing with their day- to-day responsibilities, and it is inappropriate to have a new layer involved in discharging those responsibilities. At the same time, the breadth and complexity of DOD's management problems and the overall level that this has to be addressed within the Department precludes the under secretaries, such as the DOD comptroller and also the under secretary for AT&L, for asserting the necessary authority over selected players and processes while continuing to fill their substantial day-to-day responsibilities. Since the CMO and DOD managers would have clearly delineated roles and responsibilities, creating a CMO would not add another hierarchical layer to oversee day-to-day management of the Department. As Senator Akaka mentioned your legislation clearly delineates roles and responsibilities and makes it very clear that this is not a new layer. It does, however, for the first time, make somebody responsible and accountable for business transformation. Some say this concept was tried in the past and didn't work. I would respectfully suggest that people need to go back and read the legislation and the related legislative history. Such an assertion compares apples and oranges. Over 30 years ago, Secretary of Defense Mel Laird asked Congress to establish an additional deputy secretary of defense for many of the same reasons we are proposing now, and Congress did so. But there were a number of substantive differences. Your legislation clearly delineates responsibility and authorities, makes it clear that it is not a new layer and level, and focuses the individual full time on business transformation. That past legislation did not do that. It did not specify duties and responsibilities for the new position thereby creating potential confusion and overlaps. Second, unlike your legislation, which would provide for a 7-year term appointment, therefore, making sure that you had a professional which had enough continuity to try to be able to make real and sustainable progress. The past legislation did not do that. Therefore, in form, you may call it the same thing, but in substance, it is very different. Mr. Chairman, I believe that we have to focus on substance, not form. In closing, I would like to quote two secretaries of defense. The first quote, ``Management deficiencies that we have all observed in the past have, in large measure, been due to insufficient senior management attention to the affairs of the Department of Defense. I am convinced that authorization for an additional deputy secretary will provide the capability for this necessary level of attention. At the same time, I think it is particularly important that we do not increase the layers of management within the department.'' That was Secretary Mel Laird, February 9, 1972--33 years ago. The second secretary of defense's quote. ``Our challenge is to transform not just the way we deter and defend, but the way we conduct our daily business. Let us make no mistake. The modernization of the Department of Defense is a matter of some urgency. In fact, it could be said that it is a matter of life and death, ultimately, every American's. Every dollar squandered on waste is one denied to the war fighter.'' That was Secretary of Defense Donald Rumsfeld, September 10, 2001. I strongly agree with both secretaries. How many more years and decades will we have to continue to deal with the status quo? Mr. Chairman, as you and Senator Akaka mentioned before, this is all about supporting the war fighter and recognizing fiscal realities. The status quo is unacceptable and unsustainable, and we appreciate your, and the Members of this Subcommittee's, interest. Thank you. Senator Voinovich. Thank you, General Walker. Mr. Johnson. TESTIMONY OF HON. CLAY JOHNSON, III,\1\ DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET Mr. Johnson. Mr. Chairman and Senators, thank you. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Johnson appears in the Appendix on page 68. --------------------------------------------------------------------------- We are all working to make sure the Defense Secretary's commitment to business transformation is translated into demonstrable improvement in all of DOD's business operations. OMB's experience is that management opportunities--normal opportunities and super complex opportunities, like those at DOD--get addressed 100 percent of the time when four things exist. There is top management commitment to solving the problem. There is a clear picture of what needs to be accomplished. There is a clear, aggressive action plan, like General Walker talked about, for solving the problem. And there is a clear definition of who is responsible overall, and who is supposed to do what by when. OMB's role in this is that we help ensure that these elements exist so DOD, or any agency, can most assuredly get to where it wants to be in the desired timeframe. We also help agency leadership ensure that progress occurs as planned and scheduled. In the case of the high-risk items, we also help ensure that Congress and GAO are satisfied with the Agency's plans and progress. Mr. Chairman, I look forward to working with you and your Subcommittee on these matters. You have a proven record of getting more for the taxpayers' money, and that is what all of us are focused on and capable of doing here. Thank you. Senator Voinovich. Thank you. Mr. Berkson. TESTIMONY OF BRADLEY M. BERKSON,\1\ ACTING DEPUTY UNDER SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS, U.S. DEPARTMENT OF DEFENSE Mr. Berkson. Chairman Voinovich, Senators, thank you for the opportunity to appear before this Subcommittee and discuss business transformation at the Department of Defense, and thank you for your kind comments. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Berkson appears in the Appendix on page 71. --------------------------------------------------------------------------- Since this is my first appearance before the Senate, I would like to briefly describe to you my background and how it is relevant to DOD business transformation. I have been working on business transformation full time since arriving at the DOD 2 years ago. I am currently serving as Acting Deputy Under Secretary of Defense for Logistics and Materiel Readiness. In this role, I am the senior DOD logistics official. Logistics, by the way, is probably the largest business operation at the Pentagon. I am engaged daily in transforming our Nation's $129 billion DOD logistics and supply chain enterprise. I am an engineer by training. I earned an MBA from Harvard, and I was a partner in McKinsey & Company, where I was serving leading commercial enterprises around the globe on matters of strategy, organization, finance, and business operations. I have worked in the commercial sector from start-ups to the world's largest corporations. Mr. Chairman, you mentioned in the last hearing on this subject the need for talent from the private sector that would come into government and help ensure and accelerate transformation. I hope my background had some of the qualities that you would like to see. I would like to frame the challenge of business transformation within DOD. What has been most surprising to me in coming from the commercial world to DOD is the dramatic difference in scale and complexity. DOD has the world's largest fleet of aircraft, but it is not an airline. We have the largest fleet of ships, but are not a shipping company. We have one of the largest fleets of trucks, and we are not a trucking company. We have the largest fleet of ground vehicles, and we are not a car rental company. We are the second-largest operator of warehouse space, but logistics is a supporting mission. In the private world, any one of our programs, armories, depots, shipyards, transportation modes, or logistics systems would be of sufficient scale to compete in the global market. A key point to note, though, is although we have world- scale business operations, business is not our mission. In every commercial forum in which I have ever served or worked for, the business missions were primary, particularly finance. For example, the mission of General Electric is to make money for its stockholders. It does so by aligning its business operations, personnel, and capabilities to maximize its financial performance. As I understand it, the mission of the Department of Defense is to defend the United States of America from its enemies. The job of the secretary of defense is to see that that mission is accomplished. Business transformation is necessary, but it is not sufficient for the secretary to be successful in his duties. When Secretary Rumsfeld announced his intentions to transform the Department of Defense, I feel certain that business transformation was central to that intent. Twenty-four hours later, our country faced the most significant challenge to its security in several decades, requiring complete attention be focused on defending our country. While he and our senior leadership have remained consistent in driving their vision for transformation, the ability of the Department of Defense to focus exclusively on fixing business operations in the midst of our largest sustained military campaign since Vietnam is problematic. That said, I would like to show you what we have been doing over there. The chart to my right depicts some of the results of DOD business transformation. In this case, it is the cycle time performance for the F404 engine.\1\ This is the engine on the F-18 Superhornet. --------------------------------------------------------------------------- \1\ The chart entitled ``Focus on continuous improvement (Maintenance Cycle Time Days)'' submitted by Mr. Berkson appears in the Appendix on page 104. --------------------------------------------------------------------------- Overall cycle time for this engine has been reduced by an order of magnitude. We have taken it from 85 to 5 days. This was accomplished using Lean 6 Sigma. Lean 6 Sigma is a business process improvement methodology widely used in industry, and it has helped us to achieve dramatic performance improvements not only in the F404, but in dozens of systems and locations from Pearl Harbor to Warner Robins, from tank engines to radar systems. In my opinion, Lean 6 Sigma has the most potential of any single initiative to transform the business operations of the Department. We have plans within each of the services and at OSD to accelerate and institutionalize it. Another bold transformation is found in our performance- based approach to buying.\2\ Historically, DOD has been a buyer of parts and labor. This left us with the job of integrating these and other production factors across the Department. Led by us in logistics and materiel readiness, through performance- based logistics, we are emphasizing the more valuable task of managing outputs vice inputs. --------------------------------------------------------------------------- \2\ The chart entitled ``Performance Based Logistics (PBL) proven in the Global War on Terrorism'' submitted by Mr. Berkson appears in the Appendix on page 105. --------------------------------------------------------------------------- In the last 4 years, DOD has migrated over 100 systems to performance-based contracts. The results of this can be seen in the chart to my left. This chart shows the readiness of several of our critical weapon systems in a PBL regime on the left and under a traditional support approach on the right. We have responded to suggested improvements from people, from folks like Mr. Walker, not only by improving the traditional approaches, like inventory management, but in transformational ways, like eliminating the need for inventory. The next chart shows our distribution cycle time to the CENTCOM area of operations.\3\ This is for aerial shipments. It shows that we have cut the time nearly in half. --------------------------------------------------------------------------- \3\ The chart entitled ``IRAQ Air Shipments Cycletime'' submitted by Mr. Berkson appears in the Appendix on page 106. --------------------------------------------------------------------------- Using leading-edge technologies, like radio frequency identification, or RFID, and unique identification, or UID, the DOD is leading the world in applying these cutting-edge technologies to its business operations. In closing, Mr. Chairman, I would like to reiterate the great strides we are making in transforming the business operations of the DOD. We have daunting challenges in scale and complexity. At the same time, we have an unswerving commitment to mission accomplishment. We are convinced that transforming the business operations at DOD, as you are, are key to serving our war fighters and our Nation. My colleagues and I are dedicated to making that happen. I invite you and your fellow Subcommittee Members to receive our briefings on the business process changes we are making, especially Lean 6 Sigma. I would also encourage you to visit the locations and meet the people that have been making it happen. Thank you for the opportunity to testify, and I would be happy to answer your questions. Senator Voinovich. Thank you, Mr. Berkson. General Walker, last month, the deputy secretary of defense moved DOD's business transformation efforts from the under secretary of defense comptroller to the under secretary of defense for acquisitions, technology, and logistics. Do you think that this organizational shift will create a clear and accountable business transformation effort? Mr. Walker. No, I don't think it is enough. There is a lot of work that needs to be done in AT&L. There are high-risk areas that deal with AT&L. It is true to say that some progress has been made. There is no question about that. You have just heard several examples of where progress has been made. But much more work needs to be done. As you know, AT&L is involved both on the policy side, as well as on the operational management side, and there are major challenges on both sides of the house dealing with AT&L. So I believe you still need a chief management official. I don't believe that the head of AT&L can do both jobs. I believe it is important that, in addition to having a person at the right level focus full time on business transformation, they need to have a term appointment. You need somebody who has a proven track record of success, who has the requisite experience, who, if they do a good job, is going to be there for at least 7 years. I have been in the private sector for 21 years and consulted all over the world on change management it takes 7- plus years to achieve effective cultural transformation. Namely, to make changes that will stick beyond the person who started it. We don't have anybody at DOD that long. It is going to take more than 7 years at DOD, but we don't have a fighting chance unless we have somebody with the right kind of track record focused full time for a sustainable period in order to give us a fighting chance of success. Senator Voinovich. Could you point to some other agencies where this concept has worked? Mr. Walker. This is a relatively new concept. If you look in the government, most of the presidential appointee positions that exist with Senate confirmation are not term appointments. There are some notable exceptions. The comptroller general of the United States, my position, has a 15-year term appointment. Believe me, that makes a huge difference in being able to take on serious management challenges and to engage in a fundamental transformation of an agency. I have been at GAO now 6\1/2\ years. I would respectfully suggest that we have engaged in a fundamental transformation in that 6\1/2\ years. If I got hit by a truck tomorrow, it is a different place today than it was 6\1/2\ years ago. But other than the comptroller general, then you go to what other positions? The head of the FBI, which is 10 years. The Federal Reserve is 14 years. There are very few term appointments other than board positions like SEC commissioners. Senator Voinovich. How about the Internal Revenue Service? Mr. Walker. You are correct. Thank you, Mr. Chairman. The commissioner of the Internal Revenue Service, I believe, has a 5-year appointment. Mr. Johnson. Social Security is now term. Mr. Walker. Social Security is now term. I think both of those are very good examples. Thank you, Clay. Those are very good examples because both of those jobs are not intended to be policy jobs. As you know, tax policy is set by the Treasury Department in conjunction with the White House and others. The Internal Revenue commissioner is supposed to basically handle tax administration. The head of the Social Security Administration is supposed to handle administration of Social Security's huge retirement income, disability, and survivors benefits responsibilities. They are not in policy positions. So there are some analogies in government, Mr. Chairman. Thank you, Clay, for mentioning that. Senator Voinovich. Mr. Johnson, this afternoon, you outlined a template for addressing DOD's supply chain management challenges in your testimony. I commend you for your efforts because this issue has been on the list since 1990. Based on your testimony, it appears that the Administration is taking what I would like to refer to it as a ``bottom-up approach'' to solving DOD's business transformation efforts. What steps will the Administration take to ensure that the Department of Defense is taking also a ``top-down approach'' to solve the overreaching high-risk area of business transformation? Mr. Johnson. Right. You talked about Ken Krieg earlier. I have talked to Ken about this because it is one thing to look at, how to tackle each one of the seven, but then with what priority? All seven probably can't and shouldn't be tackled with the same priority. Some are more important than others. Some are more problematic. Some have huge costs associated with them. All that needs to be looked at as a total. And there is a change now taking place, as you know, with the deputy secretary. And so, what Ken suggested we do is if and when Secretary England is confirmed for being the deputy secretary, that we then sit down with him and review this and understand what he would recommend be the priorities and the timeframes. Because we can agree on amongst ourselves and GAO on a 3-year timeframe or a 6-year timeframe on some of these things, but it should not be done without the consent and the full participation of, today without a CMO, of the deputy secretary. So you talk about as soon as Gordon, if and when he is confirmed for the position, gets in there and gets settled, that we sit down and work out the corporate timeframes for this. He has to be there to create an attitude and an approach to business transformation. One of the things that needs to be understood about a chief management officer is that the most fantastically talented chief management officer will be totally ineffective if the secretary of defense and the President are not fully supportive of management change to the Defense Department. No term, no set of credentials can make a management officer effective at the Defense Department, or any place else, if the head of that Department or the President don't consider it to be a very high priority. And so, it is important in this case that the deputy be there and be involved, intimately involved, in setting the timeframes and the priorities for overall business transformation. I think, as I understand it from Ken, and his suggestion to Senator Ensign on the subject of a chief management officer is that he be allowed a little time to get in there and survey the situation. I think he had agreed totally that there needs to be a person that is clearly in charge of this, and that is working with the relevant under secretaries to drive their individual initiatives. Let him have a chance to take a look at the situation and come back and engage you all in a more intelligent debate about the pros and cons of a chief management officer. Senator Voinovich. As I mentioned, I think that Mr. Krieg has been with the current administration for 3\1/2\ years and hopefully is going to stick around. But once a new administration steps in, how do we keep the momentum going? I would like to know that if we get things moving in the DOD, and I leave this place, that there is somebody who will be there to make sure that business transformation is accomplished. Senator Akaka. Senator Akaka. Thank you very much, Mr. Chairman. Mr. Berkson, the GAO has testified previously that cultural resistance to change and the lack of sustained leadership are two underlying causes of DOD's inability to resolve its long- standing financial and business management problems. As you know, I joined with Senators Voinovich and Ensign in introducing legislation establishing the position of chief management officer. In your written testimony, you said that the creation of this office would ``further remove the Secretary of Defense from vital and timely information on the workings of the department.'' In the absence of such a new position, who, in your opinion, is responsible for creating and implementing the business transformation plan at DOD? Mr. Berkson. Senator, thank you for the question, and I appreciate your comments. In reaction to the notion of the cultural efforts and the term efforts, I would also like to just also get us back to the scale. At one point, we were talking about when an issue was raised about separation of the military and the business side of the Department of Defense. I will just give you it from where I am working, Senator. My job has been full time on business transformation for the last 2 years. And if I look at what do I need, did I need another supervisory role with expertise like a number of our senior officials--Secretary Wynne, Secretary England, Ken Krieg? I mean, Mr. Krieg actually hired me. So that requirement for more bosses hasn't been what I have been missing. To really get this done, you need fundamental transformation across a $130 billion logistics enterprise and a $450 billion overall enterprise. And my experience so far, in doing this every day, has been actually driving the change down to the workers, the managers, and the people who run shipyards, the people who run depots, the people who run our distribution warehouses. That is where the real business operations occur. And transformation, in my experience so far there, has really been about introducing and driving change in transformation ways of thinking. Lean 6 Sigma is a transformation way of thinking. Unique identification and RFID is a transformation way of thinking. We just had our first receipt of RFID. Radio frequency identification tag was placed on by one of our suppliers and received in a DLA distribution warehouse this week, using Wide- Area Work Flow. I just picked off three of the major business transformations we have been working on, and they are starting to come together. I agree that it takes a long time to do this. But the thing that I am not sure of and I haven't seen is how another supervisor in this role, given how complex and vast this enterprise is, how that person would bring me something that would allow me to do this. If I look at what the real characteristics of the proposed legislation, I think definitely we are looking at it and considering it carefully. If I just tick off a few of the things, a Level 2 with business experience who is third in precedence. Currently, that describes for the business operations, the under secretary of defense for acquisition, technology, and logistics. Under Title 10, he must have business experience. Or he or she must have business experience. The chief business operations of the Department of Defense, in my experience so far, are in those acquisition, technology, and logistics arenas. And the secretary has just designated and as the Congress has designated a chairman for business transformation, the BMM program. And again, now that Secretary Wynne and the AT&L has that role by law, he is the third in the order of precedence for all matters related to that. So as I look at the structure of what is being proposed, I try to understand how it is going to continue to move us down. I know the intent is very strong, and we really want to improve. And we are all desperately working to make that happen, but I step back, and I have secondary questions. One is I have a role that can do that. Another issue that I would raise--these are my personal opinions--is that I ask what does the AT&L do in the event that all the business operations at the Defense Department, which he is currently responsible for--acquisition, technology, logistics--are now superseded and taken up to a level, and a level which, as I am hearing more about it, which is not going to interact with the military. In my experience, I am the chairman of the Joint Logistics Board. So I have all of the joint logistics leadership in my room when I am leading that board. That board is primarily made up of three-star and four-star general officers and admirals in our Nation's defense. They are the senior business leadership who is driving a majority of our business operations. The notion of separating the business from the military operations in logistics at least, where I am familiar, is something I cannot even imagine. Logistics in our operations is a military maneuver. A convoy is a military operation. And the notion of that separation is something that I struggle to understand. Senator Akaka. General Walker, do you have anything to add? Mr. Walker. If I can, Senator. I thought your question was who is in charge? The answer is nobody. Memos get issued from time to time at DOD. I have seen plenty of them. The problem is you don't solve problems with issuing memos, and you can't take a command and control approach to the civilian side of business transformation. I can show you memo after memo after memo appointing somebody in charge. It's not memos but results that count. With all due respect, Management 101, you have to have somebody who is in charge. You have to have, as Clay Johnson said, committed and sustained leadership from the top. You have to have a plan that clearly sets priorities and fixes responsibility and accountability. You have to link institutional unit and individual performance measurement and rewards systems in order to make sure everybody is pulling in the same direction in order to achieve the priorities within the specified timeframes. We also have to recognize these things are interrelated. But my point is that none of these things have been done in 30- plus years. Senator Akaka. Mr. Chairman, may I ask Mr. Walker just one more question to follow up on what he said? Mr. Walker, the issue is span of control. Mr. Wynne has no authority over financial systems, which are the responsibility of the comptroller. He has no responsibility for personnel systems, which are Dr. Chu's responsibility. Mr. Walker, would you care to comment on that? Mr. Walker. Thank you, Senator Akaka. You are exactly right. The fact of the matter is AT&L is right now the third- ranking person. It is a Level 2 position. I would respectfully suggest that the under secretary for AT&L has a full-time job dealing with the logistical and acguistion transformation that Brad has mentioned. Some progress has been made, no doubt about it. But much remains to be done. That sounds like a typical GAO report. In addition to that, AT&L has to deal with a number of high-risk areas and also is involved in the military transformation side of the business in addition to the business transformation side. Ordinarily there is no way that we are going to be able to afford and sustain all the weapon systems that are currently in the pipeline. It isn't going to happen. So you are correct, Senator Akaka, in noting that in Chairman Voinovich's, Senator Ensign's and your bill recognizes that we need to take a more strategic and intergrated approach crossing a number of different under secretaries of which AT&L doesn't have responsibility and authority, as well as the service secretaries and the military. Thank you. Senator Akaka. Thank you, Mr. Chairman. Senator Voinovich. Senator Lautenberg. Senator Lautenberg. Thank you very much, Mr. Chairman. There is a culture in the military, I think, that almost defies the kind of control that we like to see. The war fighters have their job, and they do it wonderfully. We want them to pay attention to it. But I see a difference in availability of materiel, when we are budgeting, especially with these supplementals. I mean, there frankly is not a lot of detail that is explored when we do these things. Mr. Berkson, we are happy that you are here. You bring a lot of experience. But I think there is another look to be had at whether or not the business side of the thing can be separated from the management side of the war fighters. And I served on a hospital board. They never had a doctor in charge, chairman of the board. And there are lots of examples where the skilled person, the scientist, doesn't run the company. Someone else runs the company, and those who are assigned their responsibilities pick up from there. Because, very frankly, Mr. Chairman, I am delighted that you are holding this hearing because I think it triggers a kind of thinking in our minds that doesn't go into the budgeting process. Yes, there is an Armed Services Committee, and they are diligent, and there are good people on the committee. But I think it needs an intermediate step. You have budgeting. You have reauthorization. You have appropriations. And when it comes to the military and you see the stars. It took me 3 years to make corporal. And when I used to see a captain's bars, my knees used to knock, and you know, here we sit among the stars. And it is transformational. Here comes a guy with all these ribbons that he has earned in his lifetime and his career, heroic medals, many of them, and they make the case. And it is really kind of hard to say no. It is hard to say, ``Hey, but how are you spending this money?'' Mr. Chairman, I went full time in uniform in 1943, and I drew KP on a train going from New Jersey to Camp Crowder, Missouri, where I had basic training. And the worst guy in the world to work for was the cook because he had very few people to pick on. So he picked on those who were assigned KP duty, and I was one of those. And when we got to the end of the journey, we had these full jars. I remember them. I think they are number 10 size. But they are big ones with pickles and mustard and ketchup, and he said, ``Throw them out.'' I said, ``Throw them out?'' I came from a poor family, and we would have given anything to have a jar of pineapple that size. And I said, ``Sarge, why are we throwing these away?'' He said, ``Shut up and throw them away. Because you know what happens if I get there, and I have got stuff left over? Do you know how much I get the next time?'' Well, you don't have to be a mathematician to figure that one out. And we have seen flagrant abuses in the contracting side. This high-risk list began, I believe, in 1990? In 1992, contracting was listed as one of the worst parts of the DOD expenditures or purchasing routine. And there were eight areas of high risk listed then. And Mr. Berkson, you have a right to be satisfied or at least encouraged with some of the progress made, as demonstrated by your proofs here. But we still have eight units, high-risk units listed as areas that need serious attention, that are easily subjected to waste, fraud, and abuse. So I don't know when we catch up, but I think thought has to be given to how the whole management process is done. A four-star general may be a brilliant tactician, strategist in fighting the battle, but that doesn't mean that he also ought to be making the financial decisions. He ought to be making the recommendations, but I think there ought to be some intermediary step that should get a look. We have lots of questions, and I appreciate the fact that Senator Akaka and Senator Voinovich have asked some of the questions. I am going to ask one here because you have heard me talk about Halliburton, and I, for some time now, have wanted to look at how Halliburton has managed its own money. One question I have, Mr. Johnson--forgive me. I understand that DOD recently decided to pay Halliburton in full for its work, overruling Army auditors' recommendation that it be penalized for overcharging on its contract. Do you, or perhaps Mr. Berkson is the one that I should address this to. Do you know why DOD overruled the Army auditors' recommendations? Mr. Berkson. Sir, I would have to take that question for the record. I am not familiar with it. Senator Lautenberg. Well, I hope so. Was OMB, Mr. Johnson, involved in this decision? Mr. Johnson. I really know nothing about it. I can get back to you on that. Senator Lautenberg. Well, I would appreciate it. And Mr. Walker, earlier this month, you said that in a Senate subcommittee that DOD is unable to track how it spent tens of millions of dollars in Iraq and Afghanistan and elsewhere in the war against terror. I just heard you say a couple of minutes ago that no one was responsible or no one in charge for tracking these things? Mr. Walker. There are persons in charge of tracking that. What I said was that there is not a single person who is responsible and accountable for overall business transformation. As you know, Senator Lautenberg, DOD's financial management is one of the areas that has been on GAO's high-risk list for a long time. There are interrelated problems here. I mean, DOD has thousands of legacy systems that are non-integrated. In many cases, you have to input a 16-digit code for a single transaction, and you might have to enter the same transaction into multiple systems. The comptroller may have recently taken a step to make sure that there is separate visibility over the use of supplemental funds, such that, hopefully, you would be able to find out how that pot of money was used in a more efficient manner than has been the case in the past. We are doing work, at the request of the Congress, to find out how the supplemental funds were spent. It is very difficult getting detailed records. Furthermore, a lot of costs are based upon estimates rather than actual. We will be reporting later this summer, but I expect that there will potentially be a material difference between what we come up with and what has been reported. Senator Lautenberg. Colleagues, I just say this. That DOD is the one place where if you make mistakes, it doesn't matter. You can always get more money if you need it. And once again, Mr. Chairman, I commend you for holding this hearing, and I think follow-up is critical here. I thank the witnesses. Senator Voinovich. Thank you, Senator Lautenberg. We are going to follow up, just like I did on reform of the personnel system. I am going to devote 5\1/2\ years to this. We are going to have a lot of hearings on DOD transformation. We are going to stay on this. I am really pleased that we have the Ranking Member today with us and anxious to hear the questions he would like to ask the witnesses. It seems to me that we just can't keep going on like this. We are talking about a $22 billion savings. Today, we have a tight Federal budget and a rising deficit. A billion dollars would make a big difference. This has got to stop. Senator Levin. OPENING STATEMENT OF SENATOR LEVIN Senator Levin. Thank you very much, Mr. Chairman. I think half of our discretionary spending now is Department of Defense spending. First, let me thank you and commend you and Senator Akaka for what you are doing here. This is not particularly glamorous work, and that is an understatement. I remember back in the early 1980's, when Bill Cohen and I served as Chairman and Ranking Member of this Subcommittee, we took on a lot of issues. We made some progress in some of those issues--competition in contracting. We made progress in inventory management. We used to have hundreds of warehouses stocked with stuff, when we wanted just-in-time delivery to replace it. We made some real progress there. We made some real progress on commercial products, making it easier to buy commercial products. But there is a whole area of financial management which you have identified, where we did not make much progress. Despite some efforts, we just have not made progress. And it is essential that there be Senators such as the two of you who are just willing to sink your teeth into this subject, and your determination to do this for 5\1/2\ years, or whatever it takes, is as far as I am concerned not just music to my ears, it should be music to the ears of every taxpayer in this country. Because it takes Senators like you or Members of Congress like you who will just take it on and not let it go. And I am very appreciative of that. Just a few questions, and I apologize that I couldn't get here earlier. First, for you, Mr. Walker, I want to congratulate the GAO. Without your efforts here, the task of the few senators and members of Congress who are willing to take on an unglamorous area would just be probably impossible. They need your full assistance, and I know they have had it, and they are going to continue to have it. But shortly after the then-DOD comptroller Dov Zakheim was confirmed, he came before the Armed Services Committee. He testified that the Department would prepare a comprehensive business enterprise architecture and transition plan to serve as a blueprint for fixing the Department's ``systems and business processes--now isolated from each other across the functional areas--logistics, health care, accounting, finance, and others.'' He promised to have that blueprint in place by March 2003. And we went through this with the then-comptroller to press him for the very type of blueprint which, you have so effectively pointed out, does not exist. Well, March 2003 obviously has come and gone. It is 2 years later. DOD spent hundreds of millions of dollars on a contract to develop a business enterprise architecture. So, Mr. Walker, is it fair to say that more than 2 years after the date set by Dr. Zakheim that we still do not have that blueprint that he promised us? Mr. Walker. We don't have it yet, Senator. My understanding is they are working on it and trying to put something together by the end of this fiscal year, but you may want to ask the DOD witness. Senator Levin. OK. I will do that in a moment. You, I think, told the Armed Services Committee last year that the Department had made no significant progress in addressing its financial management problems. Is that still true? Mr. Walker. They still do not have a comprehensive plan for dealing with their financial management problems. Senator Levin. All right. So now, Mr. Berkson, where is the plan? Where is the beef? Where is the plan? Mr. Berkson. On which aspect, Senator? Senator Levin. Well, we were promised--I will read it to you again--a comprehensive business enterprise architecture to serve as a blueprint to fix the Department's--and I am quoting Dr. Zakheim here--the Department's ``systems and business processes--now isolated from each other across the functional areas--logistics, health care, accounting, finance, and others.'' Where is that architecture? Mr. Berkson. OK. First of all, I want to take that question for the record. I will tell you about my knowledge of where that plan is. At this point, and I think pursuant to legislation that described a new structure for the business management modernization plan, they are currently developing and, in fact, installed Mike Wynne as the vice chairman of a group that will be actively reviewing all of the investments in what is called, I think the term is, an investment review board. So all investments over $10 million, I think that is the threshold, for IT systems, we are setting up the architecture and the infrastructure and the efforts to manage that consistent with the legislation. In doing that, there has also been a transfer of that role, of driving that process from the comptroller to the AT&L side. And there are a number of folks that are in the midst of, and I think Mr. Wynne testified to this as well, in the midst of redrafting and formulating how we are going to proceed and go forward on that. It is very challenging. In fact, again, this is my experience in serving and seeing dozens and hundreds of these implementations put in in different companies around the world. Ours is, by far, the most challenging of any that I have ever seen. And the team is at work and is, I think, putting a plan together that will address that. And again, I need to take that for the record because it is not exactly what I do. Senator Levin. What is the time table? Mr. Berkson. I think in order to be compliant with the authorization act, that team and process is to be in place, with regard to business systems approval of the investment review board, by the end of the fiscal year is my understanding. Senator Levin. This fiscal year? Mr. Berkson. My understanding is, again, according to the act, we---- Senator Levin. Well, forget the act, putting the act aside for a moment, how are you coming along? Will you meet that deadline? Mr. Berkson. The deadline for being compliant with the act? Senator Levin. In the act. Assuming it is the end of the fiscal year, will you meet that deadline? Mr. Berkson. My understanding--again, it is not my area of the Defense Department--is that they are working to meet that deadline. Senator Levin. Mr. Johnson, last year's defense authorization act, this is what the Armed Services Committee basically did. We told the Department to stop spending money on financial audits. And the reason for this was as follows. The GAO consistently told us that there is a right way and a wrong way to fix the Department's financial management problems. The right way is to attack the problems at the root by fixing the business systems that yield bad data. The wrong way is to unleash an army of auditors to audit the system into compliance, to try to audit the system into compliance but without addressing the underlying systems' problems. Now the DOD agreed with that assessment. The Department told us last year, however, that it still wanted as much as $2 billion to try to achieve an auditable financial statement by fiscal year 2007, which is before the Department is going to address its underlying system problems. We responded by prohibiting them from spending more money on financial audits until they have a business enterprise architecture and transition plan in place, which is the origin, I believe, of what Mr. Berkson made reference to. Now I understand, Mr. Johnson, that some of the pressure on DOD to get an auditable financial statement as soon as possible comes from OMB. Do you agree with the assessment that the right way to fix DOD's financial management problems is to attack them at the root, rather than just try to get a favorable audit without fixing the underlying system problems? Mr. Johnson. I do. Senator Levin. Long question, short answer? Mr. Johnson. And I don't think the 2007 goal came from us. It was what I heard the very first time I met with Dov Zakheim. And I had a meeting last week with Defense Comptroller Tina Jonas, and they laid out exactly what you talked about, which is the goal is not to get a clean audit. The goal is to have an audit reflect the business practices that are as they should be and that are creating the disciplines within the Defense Department that will allow us to address material weakness, that will allow us to get a clean audit, or both are, in fact, the business practices that would allow us to save money or improve service. That it is a reflection of just what you said, improved disciplines, improved method of operation, and it is not a clean audit for the sake of a clean audit. So I agree totally with that. And they do, too. Mr. Walker. Clay Johnson is correct, 2007 was the DOD's date. They don't have a plan to meet that date, and they don't have a prayer to meet that date. Mr. Johnson. They don't have a desire to meet that date. Mr. Walker. Well, good thing. But they need a plan, just like they need a plan for the other areas that we are talking about. Furthermore, I think it is important to note some of the words that you touched on. There are assertions coming out of DOD saying that they can't make progress in certain areas because the act is written such that they can't spend money on things that they want to address. To me, there is a fundamental difference between financial management and financial auditing. Executive leadership has an ongoing responsibility to assure that they have appropriate controls in place, that they have appropriate financial management systems in place, and that they continuously improve those controls and systems. That is different than spending a lot of money to try to re-create the books and engage in work-around auditing procedures or by doing preliminary audit assessments before you have done the basic work. I think there may be some problems with regard to nomenclature here. I think they need to be able to make progress with regard to internal controls, and with regard to improving financial management systems. What they shouldn't be doing is spending money on audits or work-around procedures or preaudit assessments before they have layed the fundamental foundation. Senator Levin. Thank you, Mr. Chairman. And the defense authorization bill is being marked up in a few weeks. If you or Senator Akaka or our witnesses have suggestions for any steps that can be taken immediately that will move in the direction that I know we all want to move, I am sure that Senator Warner and I will be happy to consider any suggestions. These are long-term solutions, not the next few week solutions. But I just say that on the chance that there may be something immediate which does need attention. And I also want to assure you and Senator Akaka that both Senator Warner and I are very open to any suggestions and recommendations that this Subcommittee may have. Senator Voinovich. I really appreciate that because you have all of this history, and so does Senator Akaka. I have very little. And I think that if we can collaborate on some of these things because part of the problem around here is you have the authorization committee, then you have the appropriations committee. And it is going to take, I think, in many instances, appropriations and authorization to work together and team up to get the kind of result that we would like to get. I am going to have another round, if it is all right with you, Senator Akaka? Mr. Berkson, I have a question that has two parts. First, on April 13, Under Secretary Wynne testified before the Senate Armed Services Committee on readiness and management. In his testimony, he said the acquisition, technology, and logistics workforce fell from 149,439 employees in March 1998 to 134,000 employees in September 2004. At the same time, the number of contract actions, over 100,000, increased from 101,663 in fiscal year 1998 to 160,338 in 2004. Could you describe the impact that these dynamics have on AT&L's ability to manage its workload? Mr. Berkson. Yes. Senator, I will have to, respectfully, take that one for the record. The acquisition workforce is outside of my domain. So I will have to get back with you on that one. Senator Voinovich. The Deputy Secretary of Defense moved business transformation from the Under Secretary of Defense Comptroller to the Under Secretary of Defense for AT&L. AT&L's workforce is already operating with the resource limitations. The question is do they have the ability to take this on? Mr. Berkson. With regard to the place with which I would want to have responsibility for business transformation, I actually support and think it is very valuable to have the acquisition, technology, and logistics under secretary driving the business management modernization program. The majority--again, as you look in commercial industry and you look in our system--the majority of the business functions and operations are in the AT&L portfolio. And to the extent that we are trying to go beyond audits and we are trying to improve processes and improve operations, the senior executive leading those business operations should, in my opinion, be actively responsible for the systems that support those. So that migration is a very good move and, I think, will actually improve the progress we make. And we will apply the improvements we need to the places where the business operations are most significant and most large scale. Senator Voinovich. One thing you said earlier was that you are trying to drive it down to where the people are that are actually getting the work done. Is there any effort in the Department to look at total quality management and empowering the people in those agencies to come back with recommendations on how they can do it better? Or are we in the same area we have been for years, where somebody comes in and says, ``This is the way you are going to get the job done because some consultant told us this is the way you are supposed to do it.'' Mr. Berkson. What has been most successful in business process change, and TQM was a term that was popular and an active program pursued over 10 years ago. What we have found to be more successful in taking TQM and actually going on as it has evolved--as you know, TQM drove concepts like 6 Sigma, GE's program to minimize variance and get working on quality. Quality and 6 Sigma are closely related. And then the Toyota production system, which is Lean, has also driven a lot of value. And we have combined those. But what the most valuable force of application of those has actually been directly from the working-level of the Department, literally at the business operations. The example I showed you where we went from 85 to 5 days is a group of sailors out at the Lemoore Naval Air Station. Those sailors-- those aren't a kind of business gurus or consultants--and their experiences in industry, a very strong and intelligent commander came in from industry and realized how much value these processes could have. And she took it upon herself to make that happen at Lemoore. And we have now dozens and dozens of cases where we have started that business transformation literally from the ground up, and we are essentially constructing a network now that connects and provides resources so that those happen and can accelerate, and best practices can be shared across the massive scale we have. So, it is an interesting concept. But the top-down, one has to be very careful when you apply it. ``I am from the Office of Secretary of Defense. I am here to help you'' is sometimes helpful and necessary. But also it is often better to let many of those changes start springing up and then feed them and grow them and make them accelerate. And that is what we have found so far. These changes, as they are coming, and we have been putting the vision out and providing resources and driving them, now we are actually working at the working levels to create them and make them happen. Another one that we just have to be really clear on. There seems to be this discussion that came up, some of the discussion today. I have three air logistics centers. They are the largest industrial operations of the Department of Defense. I have three air logistics centers at Hill Air Force Base; Ogden, Utah; and Oklahoma City. These are run by military leaders. I have three NADEPs, naval aviation depots, again, $500 million businesses--huge businesses. These are run by military officers, 06s--captains, Navy captains. I have probably a half dozen Army depots also run by 06s. Our business operations are run by the military. So the separation of the business from the military is very difficult. And driving change, therefore, isn't something I just do as a civilian workforce. I have to have every sailor, soldier, airman, and marine in the logistics side capable as any GM employee of driving change and working their team out and being able to provide that kind of expertise at that level. And again, the notion is I have to go work that right down at the cold face, and I have to drive that change from there and then accelerate it. And again, driving it from the top is, again, we have a focus on it. But I struggle in trying to figure out, as I have been doing this, I can't separate the military from the civilian. The change has to happen in a thousand different places around the system. And to do that requires things--process changes, Lean 6 Sigma, taking the next generation of TQM--and efforts that have been done in the commercial sector and applying them here. So I think your hypothesis and your drive on a TQM as an approach is right. I think I would suggest some alternatives. But it has to be driven in these hundreds and thousands of different locations where we are running the business. Senator Voinovich. In Ohio, we have Wright-Patterson Air Force Base and the materiel command in Dayton, Ohio. One thing that bothers me is, we get general after general, at the end of their career, taking over command. They are there for 3 years and then leave. I don't understand why the military moves these people around every 3 years. I think we need to look at time commitment, when it comes to reforming the DOD. We can't expect reform to happen when turnover is so frequent. Mr. Walker. Mr. Chairman, I think that is a good point. In fact, I remember testifying several years ago before a Senate Subcommittee of Armed Services regarding how much turnover there is. Starting from the secretary of defense, deputy secretary, under secretary, all the way down to the program managers or program directors. I mean, there is preprogrammed turnover in the case of some of these critical positions, and it just doesn't make sense to have preprogrammed turnover to the extent that we currently have it. I have to follow up on something that both Clay and Brad said. You absolutely need committed and sustained leadership when you are talking about transformation. Let's talk about one of the most important transformation efforts going on at the Department of Defense right now, NSPS, normally the National Security Personnel System. They are currently in the meet and confer period. I asked this morning whether or not there are any PASs, presidential appointees, with Senate confirmation--participating actively in the face-to-face meetings among the meet and confer period. The answer I was given was no. As a result, it is my understanding that the president of AFGE, and other key unions, have not been participating either. This is the most probably fundamental transformation issue on the civilian side that is going to happen in the Department of Defense. I mean, how can you not have top people actively and visibly engaged in these types of substantive discussions. In my view, human capital is key to my successful transformation effort? I hope I am wrong on that, and I am going to follow up to try to make sure. But I am very disappointed if that is the case. Senator Voinovich. I agree with you, Mr. Walker. NSPS is the most important transformation effort going on within the DOD. Having all parties involved with the process is imperative. I have received many complaints about the process and I hope the DOD is listening. I spent time yesterday with Steve Perry and stressed to him my support for NSPS but also my concerns with involvement of all interested parties. I plan to monitor the implementation. Senator Akaka. Senator Akaka. Thank you, Mr. Chairman. After hearing the comments from General Walker, I can't help but think of our Chairman and human capital, which is rearing up as a huge problem for our country. And I know, Mr. Chairman, we will certainly look at NSPS. We know if it is not done correctly, we are going to be in trouble. Let me follow up on something, Mr. Berkson, since we have heard a response from General Walker, can you respond to Mr. Walker's comments on NSPS? Mr. Berkson. Unfortunately, no, sir. I am not involved in the NSPS rollout. So I can't do it. I absolutely support and know how important that a human capital change is, and I get very parochial about it. I need very high-performing business people. And if you were to give me something, it probably wouldn't be another boss. It would be 50, 100 people I could get in quickly to help me go about the change in the Department at the various levels that we can work. So I am clearly committed to making that happen, and it is a very daunting personnel challenge. Senator Akaka. Mr. Johnson. Mr. Johnson. On NSPS, there is one person in charge, who is talking about whether there should be a chief management officer. Gordon England is the person that the secretary has put in charge of the NSPS adoption process. So if things are not working there, it is not because--or if they are working there, it is because there is a very capable person in charge. So what I suggest you do is ask Gordon England because he is the one that is responsible for that, and he is very involved in all of that. I don't know about your particular claim was if someone from the union was there, they cut them off. But whether there are PAS people involved or not in individual meetings, I don't know. But I do know there is a very well-regarded, high-ranking PAS person in charge of the whole thing, and he is the one that needs to be held accountable for whether it works or not. Senator Akaka. Mr. Walker. Mr. Walker. Senator Akaka, yes, it is my understanding that Gordon England is responsible and accountable, he has been deputized by the secretary for NSPS. He is a very capable professional and an excellent choice by the President to nominate as deputy secretary. It is also my understanding that during this very critical meet and confer period, that no PAS--not just Gordon England, but any PAS--is involved in any meet and confer meetings dealing. I am hoping that is wrong, but that is what I was told this morning. We are going to follow up and try to find out whether or not that is accurate. Mr. Johnson. But that is a process concern. The question is, is it having an impact? But I mean, again, Gordon England is the one to ask that. Mr. Walker. I would respectfully suggest there are two things you have to get right because if you don't get them right, you fight a 2-front war. One, you have to get the policy framework right. Two, you have to get the process right. If you don't get both right, your odds of success change dramatically. Process is important. You need to have top people visibly involved. Not in every meeting, however, you are not going to get the top labor leaders there if you don't have top people from the Department there. They are going to delegate it, too. You are going to have people there who are not empowered to make a decision, and this isn't negotiations. It is meet and confer. But nonetheless, you have to have people who are empowered to make decisions at some of the meetings. There is a lot more details that it wouldn't be appropriate for a PAS to be involved with. Senator Akaka. Well, I really appreciate learning from your experiences and having your wisdom. Mr. Berkson, I am asking that you bring our concerns to Secretary Rumsfeld so he will be aware of them. Mr. Johnson, DOD, and you, have alluded to this DOD business transformation requires a commitment from both the Legislative and Executive Branches. Do you support creating a chief management officer at DOD? Mr. Johnson. Let me give you my personal opinion. It is probably a pretty good idea. It is not a silver bullet. You can put the kind of person that General Walker has suggested, put them in a term, although I don't think the term buys you anything. But again, that is my personal opinion. And it is possible that you won't get the transformation that we all want. It has to be, as I mentioned earlier, a high priority for the administration, for the President and the secretary. Because if it is not, the most effective chief management officer can be made to be ineffective. For instance, I am in a specific management position that has been created at OMB. This position has existed since 1990. Some of the people in my position have been effective. More than that have not. So the presence of a management person in that at OMB has not necessarily guaranteed that the Federal Government, the Executive Branch would be as focused on management as I think we are today. It is not a silver bullet. Senator Akaka. General Walker. Mr. Walker. I agree with Clay, but it is not a silver bullet. You have to have the President's commitment. You have to have the secretary of defense's commitment. You need more OMB involvement. So I agree with that. However, I would respectfully suggest that while it, in and of itself, is not a silver bullet, having a CMO is essential if you want to be successful. Senator Akaka. Let me ask a final question, Mr. Chairman. Mr. Johnson, today and at our February hearing, you pledged your commitment to working more closely with DOD on addressing the high-risk areas. And you heard Mr. Berkson say there is no business modernization plan. DOD needs help. So my question is what are your goals over the next 3 years regarding DOD high-risk areas? Mr. Johnson. Well, let me tell you what we have been doing since the hearing in February. OMB, the people that work for the DOD, the DOD branch, and GAO have been working on supply chain management to figure out, get agreement on what a good plan looks like, and we are very close. We will be back to you within not days, not months, but in a few weeks with a plan for that particular area as an example of the level of detail--the clarity of the definition of success, the specificity of due dates, the clarity about who is responsible for doing what to whom by when--for you all to say this is adequate or inadequate. Then once there is agreement on that, the staff at DOD and GAO and OMB are generally pleased with what we have. I think if you would ask any of them, they would say there has been very good working relationship between the three entities. We think we are going to come to you in a couple of weeks with something that you all will be impressed with. Once there is agreement on that, or if there is not, then we will get something to where we are in agreement on, and we will go back and work with DOD and GAO to develop similar templates, similar plans for the other six areas. So then, all of a sudden now, there is a plan with all of the clarities that I have talked about and all of the implied accountabilities that I have talked about when you talk about your next 5\1/2\ years, my suggestion to you is that is what all your hearings be focused on is their adherence to those plans. And it shouldn't be a hearing upon the due date or a month after the due date when the whole thing is supposed to be finished. It ought to be with the kind of regularity that you are talking about, where it is every 6 months or whatever. And the same thing with OMB working with DOD on whether they are adhering to the plan and accomplishing the subgoals that they laid out for themselves. So that is the approach we are taking. And that is the approach we have taken with the one area. And it is very important that it be to everybody's satisfaction, and we are close to getting back to you with a proposed approach using one of the seven areas as an example. Senator Akaka. General Walker, Mr. Berkson's testimony discusses the accomplishments of the Defense Acquisition University. However, you testified that, and I am quoting, ``DOD also needs to have the right skills and capabilities in its acquisition workforce to effectively implement best practices and properly manage the goods and services it buys.'' You correctly point to DOD workforce reductions between 1989 and 2002 that resulted in a loss of skills and competencies needed to ensure proper acquisition and contracting. Do you believe this is an issue of insufficient staff or improperly trained contract and auditing staff, or both? And has GAO examined the training issue? Mr. Walker. We believe that the acquisition workforce is under significant stress. We believe that there are real issues with regard to whether or not it is an adequate size. There are clearly skills, imbalances, and succession planning challenging. The Defense Acquisition University does a good job. We have partnered with the Defense Acquisition University on some areas of mutual interest and concern. We have actually provided some information and I think even co-instructed certain classes from time to time. We have also taken some of their classes. It is a quality organization. But the workforce as a whole is part of the high-risk area that deals with human capital at DOD. I might note that with regard to Clay's comment, he is correct that we are trying to work on a constructive basis with OMB and DOD to come up with a model for one area, namely, supply chain management. But I would respectfully suggest that DOD has 14 because it has got 8 on its own and 6 that it shares with others in high risk, and they need to have plans on all 14. Senator Akaka. All right. Well, thank you very much, Mr. Chairman. Senator Voinovich. Thank you very much for your testimony. Clay, I would like to stress to you the importance of having everyone involved in implementing your plan to reform the DOD's supply chain management process. Mr. Johnson. Well, that has got to be a key part of that plan, what is the plan. Senator Voinovich. Yes. But the people that are doing the work are the ones that should have input in driving the plan and saying this is what we think needs to be done. I have been visiting bases in Ohio and it has been a great experience for me. About 8 years ago, Patterson Air Force base in Springfield, Ohio was asked to put together an additional training facility for F-16 pilots. The reason why they have been successful is that team has been working together. They worked it out. They talked about it. They brought in the technology. It is an example of where you have had a team together that can feed off each other. This was their baby, they had a plan, and they were really proud of what they were doing. I would like to find out who decides that these people are rotated every 3 years. Mr. Walker. My son is in the Marine Corps. He is a Captain and fought in Iraq. That, my understanding, is long-standing policy to try to be able to make sure that military officers get a broad range of experience within a certain period of time in order to position them for promotion to the next level. I think that we need to relook at a number of the critical positions, especially in the acquisitions area. The problem is when you have preprogrammed turnover nobody is really responsible and accountable. Everybody is focused on trying to make sure nothing bad happens during their, in many cases, 2- year or 3-year tours. We are talking about weapon systems that, in some cases, involve hundreds of billions of dollars. Senator Voinovich. So the Joint Chiefs of Staff probably, that is---- Mr. Walker. Well, no. It is a combined effort. Mr. Chairman, I will provide more for the record because I know I am under oath here. My understanding is that the desire for the frequent turnover has come from the services. That is not something that has come from the OSD or from the under secretaries or even from the service secretaries. It is something that the services have wanted to do, and I think it is something that has been in existence for many years. This needs to be relooked at. Senator Voinovich. I want to thank all of you for testifying today. This hearing is adjourned. 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