[House Hearing, 115 Congress] [From the U.S. Government Publishing Office] $125 BILLION IN SAVINGS IGNORED: REVIEW OF DOD'S EFFICIENCY STUDY ======================================================================= HEARING BEFORE THE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION __________ MARCH 21, 2017 __________ Serial No. 115-19 __________ Printed for the use of the Committee on Oversight and Government Reform [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.fdsys.gov http://oversight.house.gov __________ U.S. GOVERNMENT PUBLISHING OFFICE 26-498 PDF WASHINGTON : 2017 ---------------------------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Publishing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. Committee on Oversight and Government Reform Jason Chaffetz, Utah, Chairman John J. Duncan, Jr., Tennessee Elijah E. Cummings, Maryland, Darrell E. Issa, California Ranking Minority Member Jim Jordan, Ohio Carolyn B. Maloney, New York Mark Sanford, South Carolina Eleanor Holmes Norton, District of Justin Amash, Michigan Columbia Paul A. Gosar, Arizona Wm. Lacy Clay, Missouri Scott DesJarlais, Tennessee Stephen F. Lynch, Massachusetts Trey Gowdy, South Carolina Jim Cooper, Tennessee Blake Farenthold, Texas Gerald E. Connolly, Virginia Virginia Foxx, North Carolina Robin L. Kelly, Illinois Thomas Massie, Kentucky Brenda L. Lawrence, Michigan Mark Meadows, North Carolina Bonnie Watson Coleman, New Jersey Ron DeSantis, Florida Stacey E. Plaskett, Virgin Islands Dennis A. Ross, Florida Val Butler Demings, Florida Mark Walker, North Carolina Raja Krishnamoorthi, Illinois Rod Blum, Iowa Jamie Raskin, Maryland Jody B. Hice, Georgia Peter Welch, Vermont Steve Russell, Oklahoma Matthew Cartwright, Pennsylvania Glenn Grothman, Wisconsin Mark DeSaulnier, California Will Hurd, Texas John Sarbanes, Maryland Gary J. Palmer, Alabama James Comer, Kentucky Paul Mitchell, Michigan Jonathan Skladany, Staff Director William McKenna, General Counsel Cordell Hull, Senior Counsel Brick Christensen, Senior Military Advisor Sharon Casey, Deputy Chief Clerk David Rapallo, Minority Staff Director C O N T E N T S ---------- Page Hearing held on March 21, 2017................................... 1 WITNESSES Mr. David Tillotson III, Acting Deputy Chief Management Officer, U.S. Department of Defense Oral Statement............................................... 5 Written Statement............................................ 7 Mr. Scott Rutherford, Senior Partner, McKinsey & Company Oral Statement............................................... 14 Written Statement............................................ 16 Mr. Michael Bayer, Chairman, Defense Business Board Oral Statement............................................... 21 Written Statement............................................ 22 Mr. Robert ``Bobby'' Stein, Former Chairman, Defense Business Board Oral Statement............................................... 25 Written Statement............................................ 27 Mr. Kenneth ``Kenny'' Klepper, Former Board Member, Defense Business Board Oral Statement............................................... 29 Written Statement............................................ 31 Mr. Lawrence J. Korb, Ph.D., Senior Fellow, Center for American Progress Oral Statement............................................... 59 Written Statement............................................ 61 $125 BILLION IN SAVINGS IGNORED: REVIEW OF DOD'S EFFICIENCY STUDY ---------- Tuesday, March 21, 2017 House of Representatives, Committee on Oversight and Government Reform, Washington, D.C. The committee met, pursuant to call, at 10:25 a.m., in Room 2154, Rayburn House Office Building, Hon. Jason Chaffetz [chairman of the committee] presiding. Present: Representatives Chaffetz, Duncan, Issa, Jordan, Amash, DesJarlais, Massie, Meadows, DeSantis, Walker, Blum, Hice, Russell, Grothman, Hurd, Palmer, Cummings, Maloney, Norton, Lynch, Connolly, Kelly, Lawrence, Watson Coleman, Plaskett, Demings, Krishnamoorthi, Raskin, Welch, DeSaulnier, and Sarbanes. Chairman Chaffetz. The Committee on Oversight and Government Reform will come to order. And, without objection, the chair is authorized to declare a recess at any time. I appreciate you all being here. We have an important topic today to talk about the potential of $125 billion in savings that has been ignored, and we're going to have a discussion about the review of the Department of Defense's efficiency study. On December 5th of 2016, The Washington Post reported on a Department of Defense study that found the Pentagon could potentially save $125 billion over 5 years on back-office, noncombat expenses. The Post's story detailed the desire of DOD leadership to squelch the findings of the Defense Business Board--sometimes referred to as the DBB, but the Defense Business Board--for fear that the Congress would ultimately end up cutting their budget. That is the concern. The DBB is an advisory board commissioned by the Pentagon to provide independent advice and recommendations with regard to governance and management at the Department of Defense. For the study, the Defense Business Board was charged with finding savings the Pentagon could recapitalize into more troops, more ships, and more planes. Enlisting the management consulting firm of McKinsey & Company, one of the premier consulting companies we have in this country, the DBB spent months analyzing the Pentagon's business systems and back-office operations. The result of the report concluded the Department of Defense could save billions from overhauling its back-office functions, including contract management, IT, business processes, real estate, and human resource management. The savings could be reinvested to better equip our men and women in uniform. But the Department of Defense leadership squelched the report. In response to the Post's story, 31 members of this committee from both sides of the aisle signed a letter to then- Secretary Carter asking for answers. With the change in administration, the urgent need for reform at the Pentagon has not changed. There are a number of statistics that tend to support the DBB's recommendation for rigorous oversight. First, the Pentagon continues to expand its use of contractors. From 2001 to 2015, the Department of Defense increased the number of civilian employees by roughly 14 percent. Compared to our men and women in uniform, government contractors are less likely to be subject to oversight of the Pentagon. Some of the government's most effective tools for holding its employees accountable are not available when it comes to contractors. Second, the Pentagon study noted the potential $125 billion savings could fund 50 Army brigades or 10 Navy carrier strike group deployments or 83 Air Force F-35 fighter wings. So, while our troops are engaging the enemy in Iraq and Syria and patrolling the South China Sea and really helping make sure that this world and the United States is a safe place, the Pentagon is resistant to back-office cuts that would better fund and equip these men and women who are doing the hard work on the front lines. Given how dangerous our world is, we really, truly have to get this right. And if we're going to ensure our troops are the best equipped possible, it is our responsibility to oversee how this money is expended. It is a lot of money. It is the single biggest line item in our discretionary spending budget. The Constitution delegates the Congress the role of providing the training and equipment of the Army and to, quote, ``maintain a navy,'' end quote. It is our job to make sure that our warfighters are getting all the support that they need to do their jobs. We have a very astute panel, and we look forward to having discussions with them about this report and what can be done to save money at the Pentagon. With that, I will yield my time back, and I now recognize the ranking member, Mr. Cummings. Mr. Cummings. Thank you very much, Mr. Chairman, for holding this critical hearing today. The Department of Defense is charged with the most serious mission there is: Protecting and defending every man, woman, child in our country. In this dangerous world, the readiness of our warfighters is essential to national security, and Congress has a duty to provide our military with all the necessary resources. However, we also have a duty to ensure that every taxpayer's dollar is put to its most effective and efficient use. Every dollar that is squandered through waste, duplication, or fraud is a dollar not available for military training, advanced weaponry, and salaries and benefits for our uniformed and non-uniformed personnel. It is also a dollar we do not have for critical domestic programs like education, job training, and feeding the poor. In January 2015, the Defense Business Board, a panel that provides management advice from a private sector perspective, issued a study finding, and I quote, ``a clear path to saving over $125 billion in the next 5 years,'' end of quote. Last December, a Washington Post story written by Bob Woodward and his colleagues reported allegations that Pentagon leadership deliberately buried the study amid fears that Congress might reduce the defense budget. On December 8, all committee Democrats and 31 total committee members signed a bipartisan letter requesting information about this report and these allegations. The Defense Department disputes the amount in the report, the $125 billion over 5 years, but nobody disputes that the Defense Department could save billions of dollars by streamlining the way it conducts business. Senator John McCain and Representative Mac Thornberry, chairmen of the Senate and House Armed Services Committees, issued the following joint statement on the study, and I quote: ``The Defense Business Board's key findings, that the Department of Defense could save as much as $125 billion over 5 years by limiting unnecessary back-office bureaucracy, are not a surprise,'' end of quote. Nor are the problems identified by the Board new. We have known for many years that the Department's business practices are archaic and wasteful, and this inability to pass a clean audit is a longstanding travesty. In the United States of America, we have one department that just cannot get through an audit. That is amazing. This is also not new to this committee. We have done years of work examining wasteful spending at the Defense Department. Just last month, the Comptroller General of the United States testified before us that, and I quote, ``probably a third of the areas on the high-risk list are DOD business management practices,'' end of quote. The Defense Department is the only Federal agency that has never--never--passed an independent audit. I wonder if they're spending too much money to be able to do an audit. And then we hear that the President wants another $54 billion, and here we have a report that says we can save $125 billion in 5 years. But President Trump's new budget ignores all of this. He proposes boosting defense spending by billions and billions of dollars. He proposes funding this increase by slashing dozen of programs that promote our national security and our Nation's most vulnerable communities, the elderly, children, and the rural working class. The President would slash funding for the State Department and the U.S. Agency for International Development, reducing contributions for U.N. peacekeeping, the International Atomic Energy Agency that monitors Iran's compliance with the nuclear agreement, and the World Bank's antipoverty programs. The President would decimate foreign aid for humanitarian efforts in Iraq, Afghanistan, and Nepal, as well as antidrug trafficking efforts in Latin America. Last month, more than 120 former generals signed a letter to Congress warning, and I quote, ``the State Department, USAID, Millennium Challenge Corporation, Peace Corps, and other development agencies are critical to preventing conflict and reducing the need to put our men and women in uniform in harm's way.'' In 2013, Defense Secretary James Mattis, who was then serving as the Commander of CENTCOM, testified, and I quote: ``If you don't fully fund the State Department, I need to buy more ammunition ultimately. The more that we put into the State Department's diplomacy, hopefully the less we have to put into a military budget,'' end of quote. The President's budget also weakens our maritime, border, and airport security by redirecting billions of dollars from the Coast Guard and TSA to constructing an outrageously expensive wall on the border with Mexico. But to me, the most disturbing cuts are to critical, domestic programs. The President would eliminate Community Development Block Grants, which fund antipoverty programs like Meals on Wheels, which feeds approximately 2.4 million of our elderly citizens, veterans, and other homebound individuals every year. The President would also eliminate funding for the 21st Century Community Learning Centers, which helps fund afterschool programs, serving more than 1.6 million children across the country, many of them in low-income neighborhoods. The President's budget does not effectively serve our national security interests, nor does it serve the interests of the everyday American family. The United States must invest in a strong national defense to face our global challenges. This means not just spending more, but spending wisely. So I want to thank all of the witnesses for being with us today and for their valuable contributions toward improving the Defense Department's effectiveness and the national security of all of our Americans. With that, I yield back. Chairman Chaffetz. The gentleman yields back. I will hold the record open for 5 legislative days for any members who wish to submit a written statement. We'll now recognize our panel of witnesses. We're pleased to welcome Mr. David Tillotson III, Acting Deputy Chief Management Officer, from the United States Department of Defense; Mr. Scott Rutherford, senior partner at McKinsey & Company; Mr. Michael Bayer, current chairman of the Defense Business Board; Mr. Robert Stein, former chairman of the Defense Business Board; Mr. Kenneth Klepper, former board member of the Defense Business Board; and the Honorable Lawrence Korb, senior fellow at the Center for American Progress. We thank you all. Pursuant to committee rules, all witnesses are to be sworn before they testify. So if you will please rise and raise your right hand. Do you solemnly swear or affirm that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God? Thank you. You may be seated. Let the record reflect that all the witnesses answered in the affirmative. Mr. Tillotson, we will start with you, and we will go right on down the line. You'll each be recognized for 5 minutes. If you'd please limit your testimony to those 5 minutes so members have a chance to ask you questions. We have a big panel today. Your entire written statement and any attachments will be made part of the official record. Mr. Tillotson, you are now recognized for 5 minutes. WITNESS STATEMENTS STATEMENT OF DAVID TILLOTSON III Mr. Tillotson. Thank you, Mr. Chairman, Ranking Member, members of the committee. As my written statement will be entered into the record, I will keep my remarks brief in the interest of giving you time to ask whatever questions the committee chooses to ask. I will say a couple of things very quickly, however. I think the one thing that I would take unequivocal issue with is that the report was in any way suppressed. It was actively discussed within the Department at the time. It has formed the basis of discussion since that time. It was posted in the public record. It was actually discussed with Members of the House and Senate back in 2015, shortly after it was issued, albeit not with this committee, but with the HASC and SASC. So the fact is this has not been suppressed. The actions that led to the results of the DBB report, among other things, were actually kicked off by the current Deputy Secretary of Defense acting through my office. Two actions were taken: One, we initiated a contract through the DCMO office to Ryan Consulting to do some work on understanding where the costs of the Department rested in terms of back-shop activity. So this was a deliberate attempt on the part of the Department to, in fact, identify the opportunity space, not associate with the--directly associated with Defense Business Board. Ryan Consulting in turn subcontracted to McKinsey. So that's the relationship to that company. The second activity was that the Deputy Secretary chartered the Defense Business Board at the time to do a corporate-style review, looking at the information generated by McKinsey and coming up with recommendations about how the Department might proceed to address opportunities generated by whatever the cost opportunities presented us. So those were the actions that were taken. The question about moving forward on efficiencies is hardly new to the Department. Secretary Gates led a significant efficiency initiative that resulted in multiple billions of dollars repurposed within the Department. Secretary Hagel continued that tradition. Secretary Carter continues to do so. After the study was published, several things got addressed. There were two concrete areas for recommendations in the report and a third recommendation that basically said: Go do some more homework. We acted on the two concrete recommendations, which were to address some IT efficiencies. We have not gone as far as the report would suggest we could. I agree with that. We also pushed ahead on some services' contract reviews, particularly on the OSD staff, the Defense Agencies and Field Activities, an area where, candidly, not as much attention had been rendered as needed to have been done in the past. When we look at the result of those sets of actions, that added an additional $7.9 billion in efficiencies to an already double-digit billions of efficiencies that we had put in place in prior years. Having said all that, there is more to do. There is ample opportunity. The DBB report, the supporting McKinsey material would suggest there are things we can do. There are two challenges to moving forward. I will be candid about both. There is an internal challenge. That's our job. We will go fight those battles. We have to have those discussions internal to the Department, and in some instances, we are assisted by actions on the Hill. So, in the most recent National Defense Authorization bill, in 2017, there was a very specific requirement for us to redirect and look at the management of the medical community in the Department of Defense. We agree from the DCMO's office that that is worth looking at. We certainly would endorse moving forward with that, and we appreciate the support of Congress in doing that. Having said that, ``efficiencies'' means we take a look at moving money and activities from current activities into new activities. One of the areas that both the GAO and the DBB report and independent DBB reports have all pointed at is our use of leased property and owned real property. It's intriguing to me that, when we opt to let a lease contract for a building lapse--not terminate it, let the contract run out--that we spend three trips to a State delegation explaining why we can't close that contract. So I'm prepared and the Department is prepared to work on this going forward. Mr. Korb in a recent article has suggested five steps that the Department should build on, including build on the DBB report. We agree. But his fifth recommendation is a recommendation the Department brings forward with regularity and which, candidly, at least one member of this committee in a prior testimony has asked me if we thought we needed, and that is, do we need a BRAC? And the answer is yes. So there are actions that we need to take, working in conjunction with Congress. By the way, BRAC is not the only action. I'm going to say that right now. It is not the only thing we should do. Thank you for your time, Mr. Chairman. [Prepared statement of Mr. Tillotson follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you. Mr. Rutherford, you're now recognized for 5 minutes. STATEMENT OF SCOTT RUTHERFORD Mr. Rutherford. Chairman Chaffetz, Ranking Member Cummings, and members of the committee, my name is Scott Rutherford. I'm a senior partner at McKinsey & Company, and I'm the managing partner of the Washington, D.C., office. I'm pleased to be here today to discuss McKinsey's work for the Department of Defense under contract with the Department's Deputy Chief Management Officer. From the fall of 2014 to the spring of 2015, we were engaged by the Department to conduct a comprehensive assessment of its spending in six core business functions: human resource management; healthcare management; financial flow management; logistics and supply chain; acquisitions and procurement; and real property management. Our work began with the development of what we called a cost baseline, which assembled data on existing spending across the entire Department in these six areas. To our knowledge, that kind of crosscutting analysis of back-office spending at the DOD had never before been conducted. McKinsey's work has since been used by the Department in a number of important ways. First, the Deputy Chief Management Officer shared our baseline with the DBB, and that baseline was used by the Defense Business Board in its own analysis and report released in January 2015. Although the McKinsey baseline was a starting point for the DBB's efforts--and McKinsey is one of many inputs into their approach--the projections, assumptions, and analysis of the potential cost savings were those of the DBB. Second, McKinsey's work for the DOD continued using the cost baseline into what we would call benchmarking, which compares the Department against other large companies, and roughsizing, which began the process of estimating the magnitude of the savings that might be achieved in different categories. So, in May of 2015, McKinsey estimated that the Department could achieve about $4 to $5 billion in new savings per year over a 5-year period across the six functional areas we examined. That translates into cumulative savings of between $62 billion and $84 billion over a 5-year period. Third, it's our understanding that the Department has used our baseline, our benchmarks, and our cost savings estimates to implement changes on its own that are generating actual cost savings. The projected cost savings we identified are somewhat different than those estimated by the DBB's January 2015 report because, while both estimates started with the McKinsey baseline, McKinsey had the benefit of working collaboratively with the DOD, allowing us to drill down further and do additional analytic work for a couple months afterwards. Based on that work, we also assumed a somewhat slower pace of change than the DBB assumed. This resulted in a lower estimate of how much savings could be achieved over the first 5 years relative to the DBB's projections. We're very proud of our work. We have been helping private sector and government agencies identify opportunities to reduce costs for many years and have accumulated a body of proprietary databases and methodologies that allow us to bring that experience to bear in very concrete ways. And in this case, we provided the Department with a set of tools and approaches to move forward on realizing cost savings opportunities, and we believe the Department's potential return on that investment it made in our effort is substantial. Thank you for the opportunity to be here today, and I'm happy to answer any questions you might have. [Prepared statement of Mr. Rutherford follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you. I appreciate it. Mr. Bayer, you're recognized for 5 minutes. STATEMENT OF MICHAEL BAYER Mr. Bayer. Thank you, and good morning, Chairman Chaffetz and Ranking Minority Member Cummings and members of the committee. My last engagement with this committee was many years ago when my then-boss, Bud Brown, was the ranking minority member of the then-named Government Operations Committee. But today I appear before you as the fifth chairman of the Defense Business Board. As are all the members of the Business Board, I am a private citizen, not a paid government employee. We all volunteer our time to serve the Department of Defense by offering our collective advice on how to manage the Department more efficiently in order to enable the Secretary and the Deputy Secretary to maximize the allocation of scarce resources for the warfighter. The men and women of the Business Board and its sister advisory boards, Policy and Science, who donate their time and energy to help the Department, each consider it a tremendous honor and a great responsibility. As I've communicated to you and your staff, I have no direct knowledge about the effort at hand. My first meeting after returning as chairman of the Defense Business Board was in July of 2015, more than 6 months after this study had ended and its presentation publicly in January of that year. As this was under the direction of a previous chairman and long before I became chair, I have no particular insight or access into the actions and decisions made about how this effort was conducted or delivered. I can say in the year and a half since I became chairman, the board has been very busy. It has completed eight studies, and our most recent effort, ``Focusing a Transition,'' was a product of every member of the board, of the Defense Business Board, and it was very well received by the Department's leadership at the time and the incoming leadership of Secretary Mattis' team. But there is more work to be done in the months and years ahead as we all strive to support Secretary Mattis' priorities, particularly his third, and I quote, ``bringing business reforms to the Department of Defense,'' which we believe are essential for his ability to deliver the other two. I will close with saying that this hearing appears from its title to be focused on what the Department did or did not do with a particular study. And speaking for the Department is an inherently governmental function, and I as a private citizen am strictly prohibited from assuming that role, which makes appearing before you to discuss a study of this which I wasn't part of a bit challenging. My duties include speaking for the Business Board to the Department and others but not speaking for the Department of Defense to anyone. Thank you, Mr. Chairman. This concludes my opening remarks, and I look forward to your and Mr. Cummings' and the rest of the members' questions. [Prepared statement of Mr. Bayer follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you, Mr. Bayer. I now recognize Mr. Stein for 5 minutes. STATEMENT OF ROBERT ``BOBBY'' STEIN Mr. Stein. Chairman, Ranking Member, and members of the committee, thank you for inviting me to provide testimony today. Congressman Cummings, it is great seeing you again since our time on the Naval Academy Board of Visitors. My name is Bobby Stein, and I'm here to discuss the Department of Defense efficiency study commissioned by Secretary Hagel and created under my leadership as former chairman of the DOD Defense Business Board, known as the DBB. I was honored to serve as a member of the DBB between 2010 and 2014, and chairman from 2014 to 2015. As you know, the DBB is an advisory panel comprised of a select group of our Nation's business leaders. Our purpose was to provide advice to the Secretary and Deputy Secretary of Defense and other senior leaders on best practices that could be applied to DOD. My priority for the DBB was that members be not selected for any partisan reasons, but based on tried and true experience results in the business world. I was honored to serve because I understood our mission to be strengthening the defense of our country. I was appointed as chair of the DBB by then-Secretary Hagel in 2014. After becoming chair, I went on a listening tour of senior retired uniformed and non-uniformed leadership to determine areas where the DBB could support the agency. During the listening tour, we took note of key facts and figures about how money was being spent. It generated concerns because, as a retired Chairman of the Joint Chiefs of Staff said, the biggest threat to our national security is our national debt. Key takeaways included our national debt is $20 trillion. Our Federal Reserve has taken their balance sheet from 800 billion to 4.5 trillion. At the Pentagon, overhead and support comprise 40 percent of spending, or $240 billion. This equals twice the combined total budgets, defense budgets, of France and England. The expenses on DOD headquarters alone amounts to $40 billion, more than the German defense budget. At the same time, since 2001, DOD civilian personnel has increased over 15 percent, but military personnel has decreased by 5 percent. While everyone wants reform in the Pentagon, the status quo remains. The antibodies get you every time. Indeed, clean audits and services continue to fail. In some estimates, we have spent $6 billion to try to get clean audits in our different departments. This listening tour predated the commissioning of the efficiency study but highlights the importance of the effort. The DBB efficiency study was one of many reports undertaken by the DBB under my leadership. This study was the first effort ever in DOD history to comprehensively evaluate labor cost data and create a picture of how much money is being spent on noncombat operations at the agency. As the chair of the DBB during the study, I felt that my role was to help ensure that the study was done accurately so we could meet our ultimate goal of identifying inefficiency and cost savings that could then be moved to better uses. In particular, I helped to identify the people with the right experience to handle this type of project. For something like this, you need a heart surgeon if you have a heart problem, not a country doctor, as said by one of the retired CNOs. And I've spent time looking for who that right person is and who can help that path to work with the Department of Defense to get these savings. And the name that kept coming up was Kenny Klepper. Kenny has done this in a Fortune 50 company. He understands that the DOD is not a business. It is government, and there's not easy efficiency opportunities. So, with that, we got Kenny to lead this study. The study succeeded in its goal in highlighting inefficiency that, if remedied, could generate significant cost savings to the Department. This cost savings could then be transferred to other priorities, like improving readiness, modernizing our defense, and creating jobs. The study was presented to the full DBB at public hearing January 25 and won a unanimous approval for its findings and recommendations. The General Accountability Office also reviewed the study and found the methodologies and analysis adequate to confirm its conclusions. At the completion of the study, along with other members of DBB, we were ready to move forward to assist the DOD in reviewing the study's findings and recommendations. I believe the DBB efficiency study represents a quality analysis of costs and inefficiencies at DOD, and it is my hope that it will be useful to the agency's efforts to streamline. It was an honor to lead the DBB during the creation of the study, and I'm proud of the work achieved in support of a strong national defense. Thank you for your time, and I'm pleased to answer any questions the committee may have. [Prepared statement of Mr. Stein follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you. Mr. Klepper, you're now recognized for 5 minutes. STATEMENT OF KENNETH ``KENNY'' KLEPPER Mr. Klepper. Good morning. Chairman Chaffetz. If you can move that microphone up close. Just straighten it out. There you go. Thank you. Mr. Klepper. Thank you. Good morning, Chairman Chaffetz and minority Ranking Member Cummings. It's a pleasure to be here. I've served as adviser on the CNO's executive panel for five CNOs, and this is a first for me for over a decade. So I am happy to be here to tell the story of the work that we have done. The effort that we embarked on for the Defense Business study is something I took very, very seriously. Just briefly, a little of my background: I spent 40 years with the tradecraft of organizational modernization and change. I spent about 20 years in chemical plant refinery operations out in Texas. And I spent the second 20 years in health care. And I chose in my written remarks that I submitted to the panel an example that I think has a lot of stark parallels. Even though, as Bobby said, I understand that the Defense Department is not a business, there are some very strong parallels. I was asked to come in and help do a turnaround for a company in New York called Empire Blue Cross Blue Shield. It was financially insolvent at the time, not enough reserves to pay for claims, the largest health plan in the Northeast of the United States. One of the things we did as part of the recovery of that company was understand that we had no money, and we had an obsolete legacy infrastructure running it, and we were losing millions of members a year. The company was in a death spiral. Since we didn't have cash to spend, the only way we could fund the things that urgently needed to be addressed to improve the performance of the business was to self-fund those things through productivity. So we put in place an opportunity to take productivity savings as a way to generate the money to invest in the platforms and automation and the improvements to recover the company, which we did, and we were doing really well. And then, on September 11, we were the second-largest tenant in the World Trade Center. And through all the things that we did to improve speed, agility, optimize our operations for the private sector, to improve our service to our members and the physicians, we never recognized the inherent ability that it gave us to survive a devastating disaster for our facility. We had over 2,000 people in the building at the time, and with great pride I can tell you, if we can separate the human tragedy for just a moment--we lost 11 people that day--that when the Tower collapsed, we were able to maintain the operation of the business. We lost three call centers, two large server farms. They all failed over to other operations, and the company continued to operate. The Kennedy Business School did a case study that we included in my written remarks. And the reason I bring that up is, when you look at the state of the operation of DOD, the obsolescence of the legacy infrastructure is not just a bad cost situation and not just creating bad service. I think it increases the vulnerability of the operation to other threats. Whether it is a kinetic attack, an EMP attack, cyber attack, it is almost impossible to harden those types of legacy cores. So part of what I hope that we can achieve through the modernization of these assets is not just improve the cost basis and not just improve the service, but to also harden and provide a much more resilient infrastructure for the Department of Defense. The last thing I would mention is the $125 billion savings. We did something that had never been done before--and I give great credit to the Deputy Secretary, Bob Work--is, whenever I talk to him, that the one thing that we had to have to really start was we had to have transparency of where the money was, where the cash flows were. He did something I think has never been done before. He sponsored presentations by Bobby and myself to the DEXCOM, the Defense Executive Committee. He described the process of evaluation that we wanted to do and that we advised him to do, and to his credit, he got approval from all the civilian leadership to let us get the money. And we brought in--I actually asked to have McKinsey brought in because I've done this study before with them, and they did a great job for me. We had over a hundred people pulling data out of these systems. And people before that had said: The data is not there. The data is no good. The antibodies will get you. What we found was the data was there, and the data was not perfect, and believe me, the study is not perfect, but I believe that the savings that we identified are there with a high degree of certainty. So I think the debate and the big question for us is, and I think it was stated by Mr. Tillotson and Mr. Rutherford, is-- the money is there--it is, can we get the institution out of the way to help us do the things that can obviously help us improve the operation of the business? And that's the purpose of us being here. Thank you. [Prepared statement of Mr. Klepper follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you. Mr. Korb, you're now recognized for 5 minutes. STATEMENT OF LAWRENCE J. KORB Mr. Korb. Chairman Chaffetz, Ranking Member Cummings, thank you very much for inviting me here today. I think this hearing comes at a very critical time. As Ranking Member Cummings mentioned, President Trump wants to add $54 billion to the fiscal year 2018 budget. It's also important to keep in mind that they're proposing to add $30 billion to the fiscal 2017 budget, and then the Congress last year added $23 billion in the National Defense Authorization Act. So we're talking about adding $100 billion to the defense budget compared to what we thought about a year ago. It's also important to keep in mind, as has been very well documented and even people in the Pentagon admit, that the overseas contingency budget, or the warfighting budget, about half of it is used to fund items from the enduring items or from the base budget, and then the Pentagon has gotten relief for the last 5 years from the budget cap. So I want to put that into perspective. Now, in terms of what the Defense Business Board recommended, let me give you some examples from my own career that I think buttress the points that they made. Basically, I've been working on these issues ever since I was in the service in the sixties; at AEI in the seventies, working with former Secretary of Defense Melvin Laird, who I think was probably the most effective Secretary we have ever had; the privilege I had of serving for 5 years in the Reagan administration administering about 70 percent of the defense budget; and then continuing to focus on these areas at Brookings, the Council on Foreign Relations, and now the Center for American Progress. When I was Assistant Secretary of Defense, my title was Manpower, Installations, and Logistics. Right now, you do not have anybody in that position. They have taken the manpower or personnel part of it, elevated it to an Under Secretary, even though he or she does not have responsibility for installations and logistics. During most of the Cold War, we had one Assistant Secretary serving in the policy area. It was called the Assistant Secretary for International Security Affairs. Now you have seven confirmable positions in the policy area. All of these men and women have their own staffs. When I was working in government, the Congress took the lead in proposing the Goldwater-Nichols Reform Act, which was really very, very critical to get the Department to really be unified for the first time. All of my colleagues fought it because they felt that it was saying that they were not doing their job. I thought, having based on my own research and testifying on it, I supported it. What we did is we empowered the Chairmen of the Joint Chiefs of Staff and the Joint Staff, and so they increased their staffs. The service chiefs did not decrease their staffs, and so what you ended up with was an increase in the staff. Similarly, when we set up new commands, like the Africa Command and the Central Command, you did not decrease the staffs of the commands that used to have responsibilities for those areas. And then, finally, and this is very, very critical, and in the Bob Woodward article, they quote the former Secretary of the Navy Ray Mabus talking about the fact that he says 20 percent of the budget goes to overhead in agencies, and he mentioned the Defense Intelligence Agency and the Defense Logistics Agency. Well, the fact of the matter is, when those agencies were created, the idea was that the services would transfer those functions to a unified organization, and they would cut their own staffs. They didn't. And I mention in my testimony when I did my dissertation and wrote my book on the Joint Chiefs of Staff, when I asked a former Chief of Naval Operations, you know, how did you handle this? He said: Oh, we never cut the size of our own logistics organizations or intelligence. Let me conclude with this point. I can assure you that if you add the additional funds that have been proposed by President Trump, you will ensure that those reforms do not get made. The best way to ensure that it happens is don't give them any more money. Thank you. [Prepared Statement of Mr. Korb follows:] [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] Chairman Chaffetz. Thank you all for your testimony. I'll now recognize myself for 5 minutes. Mr. Tillotson, let's go back to the study. You originally awarded the study to--name the company again. Mr. Tillotson. Ryan Consulting. Chairman Chaffetz. Do you happen to know R. Keith Harding, the president, I believe. Mr. Tillotson. I do not know. Chairman Chaffetz. If I have the right website. Mr. Tillotson. You may, but I'll be honest with you. No. I do not know. Chairman Chaffetz. And how much money was paid to Ryan Consulting? Mr. Tillotson. For the two elements of the contract that were executed during the DBB study, about $2.9 million. There was a third deliverable that was not incorporated in the DBB study, and that was another, I think it was, $3 million; so overall about $6. Chairman Chaffetz. Six million? Mr. Tillotson. Yes, sir. Chairman Chaffetz. And how much of the work did they actually do? Mr. Tillotson. I can't tell you. I do know that the McKinsey team lead, the lead for the study was from McKinsey, and I don't know what the actual work split is. Chairman Chaffetz. Mr. Rutherford, how much were you paid to do this study? Mr. Rutherford. $8 million. Chairman Chaffetz. So you got $8 million, but you let out this contract for $6 million. How does that work? Mr. Tillotson. I don't know. That's not how the numbers---- Chairman Chaffetz. Where did the other $2 million come from? Mr. Rutherford. I was just referring back to what--looked at our contracts for the totality of the full contract. I thought it was $8 million. Mr. Tillotson. Excuse me. Let me correct myself. I think it was closer to $9, is what we actually wound up with. Sorry. It was an additional 6. That's why I'm remembering a $6. Chairman Chaffetz. Oh, an additional $6? Mr. Tillotson. Yes, sir, $6 plus $2.9. So it's about $9. That sounds about right. Chairman Chaffetz. So $8.9- or $9 million, and McKinsey gets $2 million--or $6 million. Mr. Tillotson. Right. Chairman Chaffetz. Or $8 million, and we don't know what percentage of the work Ryan did. Mr. Tillotson. I do not know percentage of the work Ryan did. Chairman Chaffetz. Is that something you can figure out and get back to this committee? Mr. Tillotson. I can certainly go ask. I'll have to go ask Ryan. Chairman Chaffetz. Yeah. How in the world did you select Ryan Consulting? With all due respect--I'm sure they're nice people--if I have the right website, they got three senior people. Their head of human resources has a grand total of 6 years, and I'm sure that Tiffany Hollis, again, if I have the right website, is a very nice person. Mr. Tillotson. I will get back to you with the answer. Chairman Chaffetz. But how do they get such a contract? I mean, the Pentagon, we're talking about $600 billion or something in annual expenditures, and I'm rounding by big numbers here. Mr. Tillotson. Yes. Chairman Chaffetz. McKinsey & Company is a huge, massive company with a great reputation. I really am curious because I think we're starting to see where a lot of waste starts to go, right? What did we get for the $900,000 or million dollars that Ryan kept if the math you gave me already was working? Mr. Tillotson. Sure. Chairman Chaffetz. You give them 9. They give McKinsey 8. What did we get for that other million dollars? Mr. Tillotson. I will get back to you and let you know how much work they put in. Chairman Chaffetz. That's what I worry about. Even just doing a study, we can't figure out what we cost and what it didn't cost and who got paid and who did the work. And then we give a contract to somebody, with all due respect--and I'd love to look at their background, and we will--but how in the world did they even get the contract to start with, because you're going to need the expertise and the depth and the knowledge of a McKinsey to actually get it done? So if you could let us know. Mr. Tillotson. Sure. Chairman Chaffetz. I also want to know specifically from the time you decided to do this study to the time you actually let out the contract and actually McKinsey started working on it, because that's part of the problem: whether you're buying an F-35 or whether you're buying a study, again this is the problem in the bureaucracy of the Pentagon. Let me go to you, Mr. Stein. I only have a minute left here. What's your biggest takeaway from all of this? You've got a lot of expertise. What's your biggest takeaway and maybe add to that what your biggest frustration is? Mr. Stein. The biggest takeaway is that the focus has to be on the warfighter, and the process has got to be a partnership between Congress and DOD. And I think we're all in this together, and there's a lot of work that needs to be done. And this is critical. The $20 trillion that one of the retired Chairman of the Joint Chiefs says is we got a $20 trillion---- Chairman Chaffetz. Yeah, but specific to this study. Come on. We've spent all this money. You've looked at this. You were the chairman. Now you're former chairman. What's working, and what's not working? Mr. Stein. Well, the key thing that works is you got to have heart surgeons, as I said, to help the DOD. There are only certain people that can do this type of work. And you need their help, and I will say that McKinsey did a great job, and I will say that there's a lot of work around--both uniformed and non-uniformed people in the DOD that did great work. But you need people like Kenny Klepper. If not Kenny Klepper, you need people that understand this process to make change. And once you figure out what those changes are, you got to coordinate between Congress and DOD, and you've got to change culture, and culture is tough to change. Chairman Chaffetz. Thank you. I now recognize the ranking member, Mr. Cummings. Mr. Cummings. Thank you very much. Mr. Connolly. Would the ranking member just yield for 1 second before he starts? Mr. Cummings. Of course. Mr. Connolly. I thank my friend and not to count against his time. I want to welcome a lot of my constituents from Herndon, Virginia, who are here watching a hearing, and we are delighted to have them here today. Chairman Chaffetz. We welcome you all for being here, and you're very sharply dressed. Let the record reflect how sharply dressed, well, at least row four is. Thank you. We appreciate your attendance. I now recognize the ranking member, Mr. Cummings. Mr. Cummings. Thank you very much. Mr. Stein, you all volunteer for this, right? Mr. Stein. Yes. Mr. Cummings. That's what I thought. And how confident are you about the potential savings? You know, you were the chairman of the Defense Business Board when the study was conducted. Is that right? Mr. Stein. Yes, sir. Mr. Cummings. And I know how dedicated you are to these kinds of causes. But, you know, it just seems like we talk about this all the time, but it seems like we never get a hold of it. In other words, we talk about it, savings. We talk about overspending, but it seems that we can never--you know, we get a lot of good recommendations, but we never get there. Do you follow me? So, first of all, I guess, you feel pretty comfortable that the potential savings are there? Mr. Stein. I absolutely feel that the savings are there, number one. Number two, when we looked at this, our focus was, how do we do this without firing people? You know, you have almost 30 percent of the workforce retiring in the next 5 years, which, you know, this was 2 years back. You have 1 percent of the contracts is 65 percent of the--is a spend. You got 1,500 data centers in today's world of the cloud. And the big thing, Congressman, is everybody says that, you know, we are--the number is too low or the number is too high, but nobody sat in the room with us and with Kenny. And this is a process that I hope comes out of this, is people sit in the room and sit down with Kenny and go through the numbers, and we have to update the numbers. But the numbers don't lie. And what we have got to do is adults sitting around--because this is for our kids and grandkids to get this right. There are not many times that we will have to get this thing right. And what I was saying is we do have $20 trillion of debt, and if interest rates go up 3 points, that wipes out the defense budget. What I'm saying is what I would love to come out of this is we have got very bright people in Congress, in DOD, and Kenny spent a year talking about--this was an unpaid job--he spent a year on this. And I think if we can work toward what he has done, his process, and seeing how we take advantage of that process, I think this country will be better off. Mr. Cummings. And I got that. Well, let me go back. You know, we have had all of these--I'm going to come to you in one second, Mr. Klepper, and you may want to answer this too. We have had all these instances--I haven't heard about any recently--where we are paying like $500 for a trash can. I mean, is that kind of waste and fraud--I see you laughing, Mr. Korb--I mean, are we still doing that? Mr. Korb. When I was in government I had to handle the $500 toilet seat. I had to deal with that before Congress. Mr. Cummings. Must have been a hell of a toilet seat; $500 you said? Mr. Korb. Yes, that was a big issue, and Senator Grassley and I were able to work together to stop that type of stuff. Mr. Cummings. Is that a large part of the problem, Mr. Klepper, do you think? In other words, you got a system that's just, it's almost on automatic--let me finish--then you got some old boys in there, too, hello, and they've been used to getting these contracts. And nobody, everybody wants folks to make a profit, but we don't want to be ripped off either. So I'm trying to figure out, do you see a lot of waste? What are you seeing? Anybody else on the panel that might be able to answer that? Mr. Klepper. So we focused on, in the study, as far as the analysis, trying to find the areas where we thought there was the biggest opportunity to get savings quicker. You don't see big IT reengineering kind of things or multiyear projects. There's lots of savings through automation that you could have there. So we focused really on two areas: contract optimization and restructuring and an early retirement opportunity to avoid having to fire people. Big numbers on both sides. Two key areas that we saw in the contracting piece, and it is there--the data is there. It's inescapable. One, and I think you heard some conversation, is there's a lot of tiered contracts. So somebody has a contract, and the only way you can get on the contract is you have to be a sub and maybe a sub of a sub and a sub. So what happens is, in the subs, it's like a credit card transaction fee. So, when you get down to the bottom, what did you actually pay for the service by the time it went through this bureaucracy, forgetting even the cost of the bureaucracy and all the people that worked all of those contracts---- Mr. Cummings. That's what the chairman, that's what you were alluding to, right? Chairman Chaffetz. Yes. Mr. Klepper. So it's rampant, and it's massive. And so, when we looked at that, we went in specifically looking at those things because you can get at that, not necessarily even reducing contractors' services, looking at what you end up paying and going out and rebidding large-scale bids for like- type services and getting a much, much bigger rate, better rate at the same kind of services. So that was one of the key deliverables in the contract optimization component. Mr. Cummings. I see my time is up. Thank you. Chairman Chaffetz. I thank the gentleman. I now recognize the gentleman from Ohio, Mr. Jordan, for 5 minutes. Mr. Jordan. Thank you, Mr. Chairman. Mr. Stein, you were chairman of the DBB when the Department of Defense commissioned you guys to do the study. Is that accurate? Mr. Stein. Yes. Mr. Jordan. And the goal was to look at how to make back- office operations more efficient, save money? That was the objective of the study? Mr. Stein. Yes, sir. Mr. Jordan. I just want to walk through the basics here, and as I understand it, you felt like you needed some help on a study of this size, so you worked with McKinsey. They did a lot of the work to come up with the findings. Is that right? Mr. Stein. No. The way it worked is I asked Kenny to lead this effort. Mr. Jordan. Okay. So the DBB led the effort. Mr. Stein. The DBB led the effort. Mr. Jordan. McKinsey helped. Mr. Stein. McKinsey helped. Mr. Jordan. Okay. And the conclusions were that you could save $125 billion in taxpayer dollars over 5 years at the Department of Defense. Is that accurate? Mr. Stein. Yes, sir. Mr. Jordan. And that savings meant that you could save money in back-office operations. That money could then go to upgraded weapons systems and to our troops in the field. Mr. Stein. Yes. Mr. Jordan. Great objective. I think that's exactly what we all want to have happen. Now, so you get this study that says you can save $125 billion over 5 years and put the money in troops and better weapons systems. All sounds good. My guess is this wasn't the first study that the DBB had authorized the commission to do. You probably do studies all the time and have reports. Is that accurate? This wasn't your first study? Mr. Stein. This was not our first study. Mr. Jordan. So you do this all the time, right? Mr. Stein. Yes. Mr. Jordan. So all these other studies--you commission a study. You work with some outside group, maybe or maybe not. You get back the report. What typically happens with the report and all those other studies? What do you do with the report? Mr. Stein. They're put on the website, and they're distributed, bound and---- Mr. Jordan. The DOD website, right? Mr. Stein. Yes. Mr. Jordan. Are they typically printed out, lots of copies published, wide dissemination? Does that all happen? Mr. Stein. Yes, sir. Mr. Jordan. Every other time you've done a study and got the conclusions, that's the normal course of business? Mr. Stein. Yes, sir. Mr. Jordan. Okay. Well, that sort of raises the obvious question: Did that happen with this report? Mr. Stein. I think it was taken off the website. Mr. Jordan. So all the other times, you use taxpayer dollars, you do a study, find out something important for taxpayers and potentially savings, there's a normal, normal way that information is presented to the public. DOD puts it on their website. They take that report; they print it. They make several copies; i.e., it's published. And it gets wide dissemination so we can learn the valuable information that we spent a lot of taxpayer dollars to get? Mr. Stein. Yes, sir. Mr. Jordan. In this case, was the report put on the website? Mr. Stein. It was put on the website and taken down. Mr. Jordan. Oh, so it didn't stay on the website? Mr. Stein. After I left the DBB. Mr. Jordan. And that's not the normal course of business, right? Mr. Stein. No, sir. Mr. Jordan. Okay. Was it printed? Mr. Stein. I think their people were told not to print the report. Mr. Jordan. So it wasn't printed. Mr. Tillotson looks like he's disagreeing based on his hand motion over there. Mr. Tillotson. There's your printed report. Mr. Jordan. Okay. Was it widely disseminated, Mr. Stein? Mr. Stein. Kenny, you can talk---- Mr. Jordan. Mr. Klepper? Mr. Klepper. I don't know if it was widely disseminated. I know, after I left the board, I called back in and asked if I could get a printed copy, and they told me they were told not to print it. That's the first printed copy I've ever seen. Mr. Jordan. Mr. Tillotson, is that the only printed copy, or were there lots of copies? Mr. Tillotson. There were lots of copies. Mr. Jordan. Really? Mr. Tillotson. Yes, and they were distributed at the time and were available---- Mr. Jordan. Why does the guy who chaired the DBB at the time the report was commissioned and at the time that the report was actually completed say that it wasn't widely disseminated, it wasn't printed, and was taken off the website? Mr. Tillotson. So I have no idea why he wasn't given a copy of the printed report. Mr. Jordan. Why did The Washington Post report what Mr. Stein seems to be and Mr. Klepper seem to be saying here today and not what you're saying? Mr. Tillotson. Because they also believe, as Mr. Stein believes, that it was taken off of the website. It was not. To be accurate, it was moved from one location to another location. It was never taken off the website. Mr. Jordan. Was it moved from a high-profile location to a somewhat less high-profile location? Mr. Tillotson. It was moved to the meeting minutes location, which is publicly available. It's been downloaded 2,800 times since January of 2015. Mr. Jordan. Mr. Stein, is that consistent with how things are normally done with the other reports, the many other reports you've commissioned? Mr. Stein. This is to the best of my knowledge. I've not checked. Kenny, do you have any comment there? Mr. Jordan. Well, let's just assume you guys are--assume that what you are saying is exactly right, because I've got just a few seconds here. Tell me why; why the difference? Why was this report treated different? Mr. Stein, why would it be treated different? Mr. Stein. I don't understand it. Mr. Jordan. Maybe it was the magnitude of the findings. Could that be? Seems logical to me. Mr. Chairman, if I could just read one, we have an email from Deputy Secretary of Defense, Mr. Work, that he sent to the Secretary of the Navy, Mr. Mabus, and he says this. He criticizes a speech that Mr. Mabus made where he referred to the very report we're talking about right here. And he said: ``There were problems with your speech.'' And let me just quote: ``Senator McCain believes we can take a 30-percent reduction in management headquarters.'' He says to Mr. Mabus: ``Your comments could easily be used by him and his staff as justification for the size of the cuts referenced in the report.'' So maybe the reason it was treated different is because some folks at DOD didn't actually want this out there, this $8 million study that shows $125 billion in savings over 5 years? Could that be a logical explanation why it was treated different, Mr. Stein? Mr. Stein. I have no idea. I really don't. I left the DBB, and after I left DBB, I had no responsibility on what happened to the report. All I know is, if I was still chairman of the DBB, that report would have been---- Mr. Jordan. Treated like it normally--like all the reports are treated, right? Mr. Stein. Yes, sir. Mr. Jordan. Thank you, Mr. Stein. Thank you, Mr. Chairman. Chairman Chaffetz. I thank the gentleman. I now recognize the gentleman from Virginia, Mr. Connolly, for 5 minutes. Mr. Connolly. Thank you, Mr. Chairman. And welcome to the panel. Mr. Tillotson, it's your contention in response to Mr. Jordan's questioning that there was no attempt to downplay or hide or suppress the results of this study. Is that correct? Mr. Tillotson. That's correct, Congressman. Mr. Connolly. How many copies of the report were, in fact, printed? Mr. Tillotson. I can't tell you, but I will find out and let you know. I don't know I've been dropping them off every place I've gone since The Washington Post article came out because people have been asking. So we have a stack of them. They've been available throughout the period. Mr. Connolly. So have copies been made available to the current members of the DBB? Mr. Tillotson. Yes. Mr. Connolly. You have one, Chairman Bayer. Mr. Bayer. Yes, sir, I do. Mr. Connolly. So were copies made available to former members and the former chairmen of the DBB, such as Mr. Stein. Mr. Tillotson. This is the first I've heard that anybody had not been given a copy when it was requested. So I can't answer. Mr. Connolly. So maybe we can accomplish something here today. Would you promise under oath, Mr. Tillotson, to make sure Mr. Stein and company have copies of the report? Mr. Tillotson. Yes, Mr. Congressman. Mr. Connolly. I thank you so much. Mr. Tillotson, in your testimony, you identify potentially $1.9 billion in savings under the IT rubric. Mr. Rutherford, I believe the comparable number in your report, McKinsey's report, is actually $5 to $9 billion. Is that correct? Mr. Rutherford. I believe so, sir. Mr. Connolly. So, Mr. Tillotson, why the discrepancy? Why are you so low and McKinsey so high? And as you may know, this committee is pretty interested in the IT management and procurement issue, and DOD is the one agency that's been, from our point of view, a reluctant partner in compliance with FITARA, also known as Issa-Connolly. Mr. Tillotson. The answer to your question, Mr. Congressman is I don't disagree with the numbers from McKinsey. I also don't disagree with the DBB report that suggests there are many more billions to find. What we have provided in the response to date is what we have actually put in place to date as opposed to other activities that we need to do. Mr. Connolly. Okay. Mr. Tillotson. So we put $1.9 billion worth of initial work in the 2017 budget. In the 2018 budget, we added another 250 million, which I would acknowledge, by the way, to this committee is not anywhere close to what's possible. But there was a deliberate decision made as we constructed our discussions in 2018 to allow headroom for new administration to walk in and make decisions. Mr. Connolly. All right. Fair enough. Mr. Tillotson. I think there is ample more dollars to be saved in the IT space alone that would even actually come up close to the total number McKinsey is suggesting we could achieve. I think we can achieve those numbers, which are kind of more in line with the DBB numbers. Mr. Connolly. Well, let me ask this, I would ask that you submit to the committee that potential plan. We would be very interested to see a little fleshed-out plan in terms of what are the savings we think we could strive for, not for the purpose of making you face the inquisition, but from the point of view, we want to get better compliance for FITARA across the entire Federal Government; you're the biggest. Mr. Tillotson. I understand, Mr. Congressman. We agree with you. Mr. Connolly. Terrific. Mr. Korb, I mentioned to you before the hearing, but for the average citizen, looking at a relatively indisputable number of $125 billion over 5 years, maybe at least, but all right, that is wasted in Pentagon spending or grossly inefficient. Why in the world would we want to add $54 billion to the Pentagon's budget this year when we haven't addressed the critical issue of efficiency? Why would we want to throw more good money after bad? If this were a civilian agency, I know my friends on the other side of the aisle would be all over it. Mr. Korb. I agree with you, Congressman. In fact, my feeling is, if you give them the extra money, and as I mentioned in my testimony, it's not just the 54; they want to add $30 to the 2017 budget in addition to the $28 that the Congress has added in the 2017 NDAA. They won't do it. If you really want them to do this and make a full-faith effort to implement these recommendations, you cannot give them more money, because if you do, there will be no incentive to do it. And I think that's really the key issue. I mentioned in my testimony about my work with former Secretary Laird. If you go back and you take a look at the Nixon administration when the defense budget was cut substantially, in today's dollars, it was like $350 billion. Look at the reforms they made under the leadership of David Packard. That's the point I'm trying to make, and I couldn't agree with you more. Mr. Connolly. And I would just add, because my time is up, but I mean, there is a huge opportunity cost too. So, in addition to throwing good money after bad potentially--I'm talking about by leaving waste unaddressed, this waste--we're also taking away from civilian domestic investments that are all so critical. So it's a double cost when we do this if we don't address this issue. Mr. Chairman, I thank you for having the hearing today. I think it's a very important one. And I appreciate very much all of our witnesses being here. Chairman Chaffetz. I thank the gentleman. I will now recognize the gentleman from Florida, the chairman of our Subcommittee on National Security, Mr. DeSantis of Florida, for 5 minutes. Mr. DeSantis. Thank you, Mr. Chairman. Thank you to the witnesses. Mr. Tillotson, when the results of the study indicating these potential savings were revealed, what was your reaction? Mr. Tillotson. My reaction was that the potential for the savings was certainly there, but the timetable was not going to be executable in a Federal Government setting. And I had long conversations with Kenny, with Mr. Klepper, at the time. Recognizing that the basis of his recommendation was largely a corporate model, he agreed. And part of that issue is because we have an interaction in the process that occurs both within the executive side of the Federal Government and then a subsequent interaction that occurs with Congress in decisions of significant magnitude that involve changing organizations and structures. Mr. DeSantis. I understand that. But at bottom, though, you do welcome--you did welcome the opportunity to try to save money and make the operations better? Mr. Tillotson. Unequivocally. I think the study was well done. I think the work done by McKinsey was significant. In fact, we followed on from the McKinsey work to try and put better cost repetition in place so that we can get a better handle on these issues. So everything that was done in the study has actually now allowed us to form the basis of how we approach the problem going forward. Mr. DeSantis. To your recollection, who briefed the Deputy Secretary on the results of the study? Mr. Tillotson. It was Mr. Klepper and Mr. Stein. Mr. DeSantis. Were you there when he was there? Mr. Tillotson. Yes. Mr. DeSantis. What was his reaction? Mr. Tillotson. His reaction was also positive. Mr. DeSantis. It was positive? Mr. Tillotson. Yes. Mr. DeSantis. Then why did he ultimately dismiss the findings? Mr. Tillotson. He did not. In fact, when the reference that was made to the email exchange in which he allegedly referenced or dismissed the findings, he was--he, Secretary Work, was actually addressing the fact that Secretary Mabus was raising the issue in public rather than bringing it forward as an internal conversation. And in the same email, I quote, from Secretary Work to Secretary Mabus: ``There is absolutely nothing wrong with your call for the Department to get more efficient. It is timely and on point. I'd simply request that you continue to push internally to get the Department more efficient and focus your public comments on the Department of the Navy.'' Mr. DeSantis. And I did see that, and I appreciate that. So let me ask this: The Washington Post article claims that Deputy Secretary Work suppressed the DBB study from wider dissemination and tried to keep--now you have disputed that Washington Post story. Is it your testimony that this report received the fullest possible dissemination within the Department? Mr. Tillotson. The report was discussed within the Department at the highest levels. It was discussed with all the senior leaders of the Department at the time. I will tell you I think there were---- Mr. DeSantis. You said say it was widely disseminated. Mr. Tillotson. Yes, sir. Mr. DeSantis. Is that your testimony? Mr. Tillotson. Yes, sir. Mr. DeSantis. Was this study shown to the Secretary of Defense? Mr. Tillotson. Yes, I believe it was at the DEXCOM meeting; it was discussed at the DEXCOM with Secretary of Defense at the time. Mr. DeSantis. Okay. And what was the reaction from the SecDef? Mr. Tillotson. I think he was positive at the time. Mr. DeSantis. Okay. Let me ask, Mr. Bayer, have you read the study? Mr. Bayer. What I have read are the slides. I have not read the--it was never formalized into a completed study report. Mr. DeSantis. That was there--since you've become chairman, has there been discussion about limiting the distribution within DOD? Have you been privy to--obviously, you read The Washington Post article, I am sure, when that came out. Mr. Bayer. Yes. Absolutely not. It's never been limited. It's been available on the website from the moment it was briefed to the board and the public in January. Mr. DeSantis. You don't have a role? Your testimony would be you have no role in limiting it in any way? Is that correct? Mr. Bayer. I didn't limit it in any way. Mr. DeSantis. Okay. And you didn't have any discussions with anybody at DOD about limiting the report, the dissemination. Mr. Bayer. It was--having been on the Defense Business Board for a decade--perhaps a little context here is that we are--the board is tasked by terms of reference to do a particular piece of work: in this case, this effort, this effort. When that effort is completed, it is briefed to the public, and the chairman and the members of the committee then brief the other senior leadership in the Department, at which point, the board moves on to other work. From the time in which this board is--this effort was completed, the effort at hand, the board has done nine other pieces of work in the normal progression of things. Mr. DeSantis. So what is your response to the questions that were asked? You have some of these things that are publicly available, more prominent? This one is, I would say, a little bit harder to find location. Why is that? Mr. Bayer. Well, very simply, there are three places on the Defense Business Board website where previous work is displayed. When you dial on to the website at the beginning, there is a banner of work that flies by. That's always the most current work. For a while, this effort was there, but it was-- -- Mr. DeSantis. For how long? Do you know? Mr. Bayer. I don't. I'd have to go back and look at---- Mr. DeSantis. Was it still on when you took over? Mr. Bayer. When I took over, it was on, but it was replaced by the next piece of work: ``Fostering an Innovative Culture through Corporate Engagement and Partnership.'' It was always available on the minutes of that board meeting in January of 2015. It was erroneously listed as a report because, with the greatest respect, this is what a report looks like. It has all the context and the verbiage associated with the briefing and the deliberation of the board. What was on the board's site at that time was this, which is now hardbound. That is a collection of slides. There is no narrative, no explanation, no discussion. And, further, every single page of this thing says on it: ``The full DB report will later contain detailed text which will reflect the totality of the points discussed and modifications.'' Those were never delivered, and it was never put into final form. So that's why it stayed on the report section--on the minutes section of the meeting and not a report. It was never a report. It's a collection of slides. Mr. DeSantis. Well, my time is up. I think there will probably be some followup to that for some of our other members. Chairman Chaffetz. Yeah. With the committee's indulgence here, Mr. Rutherford, was there ever a final report written? Mr. Rutherford. From the DBB's report? Chairman Chaffetz. From the work you did, did you ever write a final report? Mr. Rutherford. Yes. So our deliverables from the final report we did in May were delivered to the DCMO; that was the work we did. The DBB report leveraged our baseline. We continued on after 2015. Chairman Chaffetz. Those taxpayers paid you $8 million. Did you write a final report? Mr. Rutherford. We delivered a number of deliverables, both the baseline tools for them to leverage that going forward to actually measure the effectiveness. We gave them actually the breakdown of where the cost savings would be, where they should---- Chairman Chaffetz. I asked a pretty simple question: Is there a final report out there? Mr. Rutherford. There is a set of deliverables that we gave. Mr. Cummings. May I ask one question? Chairman Chaffetz. Go ahead. Mr. Cummings. Did you complete the contract? Mr. Rutherford. Yes, sir, we did. Mr. Cummings. And how do you define completion of the contract? How is that defined? Mr. Rutherford. The contract asks for a number of deliverables. Number one was a baseline assessment of all of the six comprehensive support functions to the business board. So what we did is we provided a view of all of the numbers for the DCMO for them to measure on a go-forward basis where to spend across these six areas. In addition to that, we gave them a set of efficiency metrics they can use going forward to measure this baseline as they go forward. Thirdly, we provided them a number of things when it came to where the cost savings may be. Mr. Tillotson. If I may offer a point of clarity here, Mr. Rutherford is speaking accurately. The contract that was let was between the DCMO office and Ryan/McKinsey to deliver a series of information products, which includes a database, which included a number of documents. Those documents were there. They were not on contract--they were not on contract--to write a DBB report. The DBB report, as Mr. Stein has indicated, is the responsibility of the Defense Business Board, and we delivered information from the government that we generated through McKinsey to the Defense Business Board for them to use as the basis of evaluation. So, when you ask if the--Mr. Chairman, respectfully, if you ask if they delivered a DBB report, the answer is no, they did not, but it was not their job to do so. Did they deliver the things we requested in the contract? Unequivocally yes. I have those documents. Those are separate documents. Mr. Cummings. I just have one more question. Mr. Klepper, do you agree with this, this report slide thing? See, I'm confused---- Mr. Klepper. I can offer some clarity. Mr. Cummings. Yes, offer some clarity, because I'm used to a contract says you do certain things for a certain amount of money and you deliver them, period. So is this something that's open-ended, by the way? Mr. Tillotson. No, sir. There were specific clean deliverables. We got those deliverables, and those were delivered. Mr. Cummings. And then---- Mr. Klepper. Some of this is new information to me. I can tell you about the report. The final report was being written. It was almost completed. I was waiting for it, and then I had made a decision to leave. And they were very close, because I was going to proofread, go ahead and do a proofread. So we were very close; they were working on it. So I called back, and I said--it was a few weeks later--I said: ``Have you finished your report? Can I take it?'' And the officer that was working it said they were told to stand down. So never got it. Now this document that David's got, that's the first time I've seen it. I can't answer what happened after that. Chairman Chaffetz. So I think it is safe to say that this thing you were waving around, Mr. Tillotson, this is not the report, is it? Mr. Tillotson. That is all I have is a report. Chairman Chaffetz. Yeah. It's not a report. It's a slide deck. In fact, it refers to a report that's forthcoming that never--didn't get produced. And we spent $9 million and never did get a report. Is that accurate? Mr. Tillotson. No, that's not accurate. Chairman Chaffetz. Where is the report? Where is the report? Mr. Tillotson. So, with all due respect, Mr. Chairman, again, the contract wasn't to deliver a DBB report. There is no---- Chairman Chaffetz. You can keep going in circles. We paid $9 million of taxpayers' to get a report. You started flailing around saying, ``Here it is; it's printed.'' This is a slide deck; it's not a report. Mr. Tillotson. With all due respect, Mr. Chairman, the contract specified---- Chairman Chaffetz. No, don't give me--did you report--did they develop and produce and publish and put on the internet a report? Yes or no? Mr. Tillotson. McKinsey did not put a report on the internet, nor were they---- Chairman Chaffetz. This is why we're having this hearing, and this is why you're overseeing a Department that is in chaos. Mr. Tillotson. --nor were they contracted to do so, with all due respect, Mr. Chairman. They were not---- Chairman Chaffetz. I will now recognize Mrs. Watson Coleman of New Jersey. Mrs. Watson Coleman. Thank you, Mr. Chairman. I thank you for holding this hearing today. The topic of waste within the Department of Defense is vitally important, and it deserves our utmost consideration, especially considering that President Trump's budget proposal is stripping other parts of the Federal budget to fund the Defense Department by an additional $52 billion. Dr. Korb, during your January appearance before the Senate Armed Services Committee, you began your written remarks by noting that, in the defense budget, and I quote, ``dollars are policy.'' Shifting $52 billion from other Federal programs speaks loudly about policy priorities, does it not? Mr. Korb. Yes, it does. Mrs. Watson Coleman. Thank you. This committee has a duty to ensure that we are effective stewards of the taxpayer dollars, and that also includes ensuring the effectiveness of the programs that Congress funds. Mr. Klepper, it sounds like one of the findings of your study was that the Defense Department has significant inefficiency and waste in its business processes. Is that correct? Mr. Klepper. Yes, ma'am. Mrs. Watson Coleman. Dr. Korb, do you agree that Defense Department could implement changes that would result in billions of dollars of efficiency savings? Mr. Korb. Yes. It is. And I testified before that, before the Senate Armed Services Committee, and one of my colleagues here, Mr. Tillotson, mentioned a report that I just did last week on this. Mrs. Watson Coleman. Thank you. Instead of looking for efficiency savings at the Defense Department, President Trump's so-called skinny budget released last week slashes critical domestic programs to provide more than $50 billion in additional funding to the Defense Department. Despite the President's claim that this budget ``puts America first''--and I put that in quotes--based on recent reporting, the budget would actually hurt some vulnerable communities, such as low-income and elderly Americans. For instance, the budget would eliminate funding for the Appalachian Regional Commission, a program in 13 States that has, since 1965, provided funding used to promote economic growth. Most recently, it has helped to retrain coal miners who have lost their jobs. Dr. Korb, would you agree that it is important for the Federal Government to spend its dollars wisely? Mr. Korb. I certainly would. Mrs. Watson Coleman. And one way to do that is to measure a program's effectiveness. Is that not correct? Mr. Korb. That's correct. Mrs. Watson Coleman. The Appalachian Regional Commission cites a dramatic decline in poverty rates in Appalachia from 30 percent to under 17 percent between 1960 and 2017, a substantial reduction in the number of high-poverty counties from 295 to 84 during that same period. Dr. Korb, assuming those numbers are correct, that sounds like the program has been working for America, does it not? Mr. Korb. It certainly does. Mrs. Watson Coleman. The President's proposed budget would also eliminate funding for the Low-Income Home Energy Assistance Program, which helps low-income people pay for heat in the winter. It would also cut funding for the 21st Century Community Learning Centers, which helps fund afterschool programs serving more than 1.6 million children nationwide, and reducing Meals on Wheels, where millions of meals have been delivered to the vulnerable and the elderly. Mr. Chairman, while I agree that we should provide the warfighter with everything that he or she needs, I do not believe that should come at the expense of critical domestic programs that serve our Nation's most vulnerable. I agree that the dollars are indeed policy. So some of these dollars should go to the neediest of Americans. And, with that, I yield back. Thank you, Mr. Chairman. Chairman Chaffetz. I thank the gentlewoman. I will now recognize Mr. Issa of California for 5 minutes. Mr. Issa. Thank you. I'm going to pick up a little bit where the chairman left off, no surprise. Yes, sir, it's you. You said there was a contract for a report. Who determines when you put the word ``report'' onto a PowerPoint stack? I know that terms are loose, but this thing purports to be a report in hard printing, right? Mr. Tillotson. Yes. Mr. Issa. But it's not a report? Mr. Tillotson. It is the report to the extent that one exists for this study by the Defense Business Board. And the answer as to who owns that is the Defense Business Board owns that product, and we provide support, administrative support, to the board when they do that. The information from McKinsey was government information that we would provide to the Defense Business Board as we would to the Defense Science Board or anybody else. Mr. Issa. Okay. Let me go to the chairman for a second. This is a new era, and I think we've got to ask some tough questions. And I support this money being used. If I calculate it roughly, right, as an old Army guy, those 50 brigades would be over 100,000 men that we would be able to add in end strength. That's basically a full rotation, a whole group of people that don't have to redeploy in a given year if we had that many more in the Army. So this is the difference between Army people finding themselves coming and going back and forth to combat when you look at 50 brigades. I didn't focus on the other two branches; I'm not as familiar with them. So, Chairman, let me ask a couple of questions. One of them was it was stated that they lost focus. Mr. Tillotson, I think, said that. How do you lose interest in $125 billion once you identify that number? Mr. Bayer. Which of us do you want to answer that question? Mr. Issa. I'm sorry, Chairman Bayer, I thought--two chairmen, but only one has a title underneath there. But I'll take both of you. How do you lose interest once you recognize, even if it's not in a report but a stack of PowerPoint, how is it you lose interest in saving $125 billion? Chairman Bayer, I'd like you first. Mr. Bayer. Well, Mr. Chairman--I'm sorry. Mr. Issa, we don't lose interest in saving money. The board was formed 15 years ago. It's done far more than 100 pieces of work, all of which the great sweep of that work is about how the Department can do things more efficiently. Mr. Issa. Let me go through a question then because, obviously, this is a little bit like--it is an economic 9/11, if you will. On 9/11, we didn't connect the dots; so the bad guys bombed our country with our own aircraft. So let's talk about $125 billion. Did you connect the dots between you and the appropriators or any other Members of Congress so we would know there is $125 billion in savings in your report--in your nonreport--that we could have had? Mr. Bayer. That would have been done under the previous chairman, who served for an additional 90 days after that effort was voted out of the---- Mr. Issa. No. My question is did anyone, not--are you saying you don't know? Mr. Bayer. Well, I prefer to defer that to Chairman Stein at that time. Mr. Issa. Chairman Stein, did you report to Members of Congress, who would have been able to reprogram 125 billion if they took advantage of these savings? Mr. Stein. Well, first of all, there's--and this is the first time I have heard this, the difference between slides and a report, but we fully approved a report, this--I left after 90 days, and we started to move out to make--talk to Congress, and then we were stopped. Mr. Issa. Okay. Who stopped you? Who stopped you from telling Congress there were 100,000 men that could be deployed with this money? Mr. Stein. The best I--and remember these numbers are compounding. So, if you save a billion this year, it will be $2 billion---- Mr. Issa. You mean eventually a billion here, a billion there, it adds up to real money? It's still true---- Mr. Stein. It adds up to real money. This is real money. The thing I want to make sure of, first of all, I will say, and I want to make this clear, this was the first ever that a-- the work that McKinsey did was important. It's the first time it was ever done. So I just want to make sure that that is said. The second thing is we had full approval in a public hearing on this report and Ash Carter or you know, we were told that---- Mr. Issa. But I asked you who stopped it. Mr. Stein. We don't know. I was asked---- Mr. Issa. Let me ask more than a rhetorical question because I'm going to run out of time, Chairman. How do we on this side of the dais ensure that never again are there tens or hundreds of billions of dollars in savings that the American people are denied because some unknown person in the Department of the Defense puts a kibosh on it for whatever reason and Congress doesn't find out about it? How do we stop that from happening? What law do we have to pass to guarantee the transparency to that gentleman or to the appropriators or to whoever in Congress so that in fact the American people never get a raw deal after good money has been spent to study something that could save the American people or at least save American lives by plussing up our military? Mr. Stein. I will say two things: Look, when I left, Mr. Bayer took over as chairman, and he didn't want to continue this. Secretary Carter did not want to continue this. So let me say the second thing here is that we have--and you're a businessman, Congressman. You know, having a great plan is one thing; having people that can implement it is another. You have one of the great people here that spent a year working on this. And you have McKinsey who spent a year and the people Scott had involved were as good as you can get. What I'd like to do is get people in the same room with Kenny Klepper, whoever that might be--and that's the one thing that frustrated me is not the same people would sit in a room, and they disagree or agree, but we're talking about very important things and nobody will get in the same room. And I'm saying that Dave Tillotson is as good a person as you can find. Bob Work is as good a person as you can find, and the antibodies got us. And the antibodies is going to kill this country if we don't stop. We have got to change culture, and we have got to make things happen. Mr. Issa. Mr. Chairman, I only ask that you and the ranking member and all of us commit ourselves to make sure that we never again allow the absence of this body knowing that there is an opportunity on a study like this and never again allow it to be buried. Certainly this is an example where I wish an IG had brought it to you, Chairman and Ranking Member Cummings. But since they didn't, I look forward to working with you on mandating that in the future so it can't happen again. Chairman Chaffetz. Thank you. And, Mr. Stein, just to clarify with the questioning from Mr. Issa, was there a final report that you had approved that did not get published? Mr. Stein. The best I know--and this is process now, and I want to make sure--we approved in a public hearing this report. It was fully vetted, fully--right now, you know, these guys are saying something different. I'm not technicalities, but when somebody talks about $125 billion, you had a change of Secretaries and you had change of chairmen. This chairman didn't want to pursue it, and the Secretary didn't want to pursue it. I can follow that. What I'm saying is we spent a year. We met with almost 80 executives in and out of the Department. We worked well with Dave Tillotson, and I give him a lot of credit. I give Bob Work a lot of credit, and I give the McKinsey team a lot of credit, and I give the most credit to Kenny Klepper. These guys bled their life for this for a long time. Chairman Chaffetz. Mr. Stein, I'm trying to get real clear here. This is a slide deck. Is this the final report, or was there a different report that was not published? Mr. Stein. I have not seen that. I have not seen that. Chairman Chaffetz. We'll hand it to you. Let's now go to Mrs. Demings of Florida is now recognized. Mrs. Demings. Thank you so much, Mr. Chairman. Mr. Tillotson, in your testimony, you indicated that, after the recommendations from the study or report came out, that you did address some IT inefficiencies but that you did not go as far as the study recommended. What are some examples of some of the other recommendations that you chose not to implement? Mr. Tillotson. So, actually, it's not so much that we didn't choose to implement. There's a time interval to get the work done to do the implementation. So, in the report--slide deck, whatever version you'd like--in the report, there is actually work required to be done to go put the details into place. We started on some of the obvious things that actually Mr. Klepper and Mr. Stein have already mentioned, like data center consolidation. There is a broader set of activities that regard moving information into a cloud environment that we would need to pursue. We did look at contracts for enterprise license agreements. So we looked at some of those. So part of this is just time phase for implementation. We did take on consolidation of some of the medical IT systems. We abandoned some of those. So there was reduced--cost savings in that activity, and there is more to be done in that. We are actually continuing to work that. So we viewed this much--by the way, the recommendation the DBB did, that this was going to take a period of time to do. Again, commercial time schedule one thing; government time schedule another. But the answer is it is not work that ends; it is work that goes on. Mrs. Demings. Mr. Klepper, you said: ``The money is there, but can we get the agency out of the way to move forward?'' What did you mean by that? Mr. Klepper. You know, as I go in there and look at this enormous waste at a time where, no matter where you want to spend the money, we see this happening. And there is this sense of helplessness; we can't fix it. I just have to believe that if we could show the aggregate economic impact to the Nation, not just the Defense Department--but these budgets are fungible; as you know, they bleed over into other areas--that if we could identify the savings and with clarity show the roadmap to fixing things, to getting to the savings, and identify for Congress those things that we need Congress to help us with. A lot of this is unintended consequences of policies and laws to solve one problem that created big inefficiencies and bureaucracies; it just happened. Nobody has ever measured this. So nobody has ever seen the aggregate historical financial consequence of those things over many years. So my belief--maybe I'm an optimist--I just believe that there is so much money here, and we are so desperate in need for these funds, if we can make the case to Congress and to the leadership of the Defense Department of the things that we need help with, that people will help us. Now, are we going to go from the very little savings that we had in the 2 years since this study was published to 125? There's more than that. Or is there going to be somewhere--I think the answer to that range between Scott's 60 to 80 and where I think we have a real possibility is in, can we work together to move self-imposed barriers out of the way to let us do that? And I just believe we can. I'm not ready to give up. Mrs. Demings. Mr. Korb, as you know, last week, the Trump administration released the budget proposal that would increase defense spending by 54 billion. At the same time, the budget would cut the State Department and U.S. Agency for International Development's base budget by 28 percent, the largest cut of a department the size of the Environmental Protection Agency. As you know, our national security is paramount, but the Trump administration fails to recognize how these draconian cuts make America less safe. Last month, 120 retired generals and admirals wrote a letter urging Congress not to slash the funding for diplomacy and international development. They stated, and I quote: ``The State Department, USAID, Millennial Challenge Corporation, Peace Corps, and other developmental agencies are critical to preventing conflict and reducing the need to put our men and women in uniform in harm's way.'' Mr. Korb, would you agree with that statement? Mr. Korb. I certainly would agree, and I would also add the Environmental Protection Agency because our military leaders have said climate change is a threat to national security. And essentially the Defense Department is not the only agency that provides for national security. As you pointed out, all of these other agencies do contribute as military people know full well. Mrs. Demings. Thank you. When he was Commander of Central Command, Secretary James Mattis spoke to Members of Congress stating, and I quote: ``I would start with the State Department's budget. Frankly, they need to be as fully funded as Congress believes appropriate because if you don't fund the State Department fully, then I need to buy more ammunition ultimately.'' Mr. Korb, would you agree with Secretary Mattis' assessment? Mr. Korb. Absolutely. And I hope that he continues to make that case to the President now that he's a Cabinet officer. Mrs. Demings. Is it fair to say preventing military conflict through diplomacy would cost less than engaging in it? Mr. Korb. Very definitely. Mrs. Demings. Foreign aid is a popular target for those who say they want to seriously cut down on waste. However, many Americans may not realize foreign assistance makes up less than 1 percent of Federal budget. Mr. Korb, is that right? Mr. Korb. That's correct. Mrs. Demings. Are there national security implications that result from slashing foreign aid for our allies or humanitarian efforts? Mr. Korb. Very, very definitely. Mrs. Demings. The Trump administration says that these extreme budget cuts for diplomacy are about putting America first, but America has a lot to lose if we stop making smart investments for our own global security. Thank you very much. And I yield back, Mr. Chairman. Mr. Palmer. [presiding.] I thank the gentlelady. The chair now recognizes the gentleman from Oklahoma, Mr. Russell. Mr. Russell. Thank you, Mr. Chairman. And thank all of you gentlemen for being here today. Mr. Tillotson, in the course of evaluating savings and a lot of the other things, I want to try to get back to some of the evaluations that were examined. How many positions currently filled by contractors could be filled by uniformed Active-Duty personnel? Mr. Tillotson. I can't give you a number. And I would also answer that I would not necessarily fill those positions with uniformed personnel. In some cases, if we were going to replace them, we would fill them with contractors--pardon me, with civilians. I'll be honest with you, Mr. Chairman--or Mr. Congressman-- the issue that we are faced with in the Department is to look at the appropriate labor mix, and I do think one of the things that I'm in complete agreement with Mr. Klepper and Mr. Stein on is an aggressive review of our contracts to just see whether we need them at all. Mr. Russell. Well, I think there's a whole array of issues: nondeployability, efficiency, base salary. I mean, there's a number of things that we can see for efficiencies. And I'm just surprised that you would not have any type of estimation of a number. I mean, since we're saving money by keeping contractors, which I would dispute, we ought to have some idea of what percentage or what numbers some of that might be. We see a continued decline on our military personnel, and yet we see a continued increase in bloat of the bureaucracy. Do you not see that as a problem, Mr. Tillotson? Mr. Tillotson. I do see that as a problem, Mr. Russell. And I agree with you that--what I don't agree with is I don't see that the contractors are necessarily a savings. I think if I hire a contractor for a very finite job and they are done, then that's cheaper than hiring a full-time employee of any kind. Mr. Russell. Unless they can't perform the mission. Mr. Tillotson. Unless they can't perform the mission, in which case it is inappropriate; I agree. Mr. Russell. Mr. Rutherford, in your analysis with McKinsey, you looked at a wide array of things. Did your baseline show any savings by replacing contractors with uniformed personnel or what those mixes might be, or did you examine any of that? I know you did examine both military and contracting personnel. Did you see any savings there? Mr. Rutherford. When we did our comprehensive assessment on the actual savings and we looked at the different business processes, we looked at changing demand management, changing actually the contract, the contracts within themselves, and renegotiating those, where you could do automation like Mr. Klepper talked about. We did not look at whether or not you could replace contractors and military personnel. What we looked at is where the compressible spend was within those different areas and that there was opportunities for savings within the contract services. Mr. Russell. Secretary Korb, if you don't mind me using that title in deference to your long service to our country-- and I actually remember when you were in that capacity as a young soldier--when you were serving in the Navy, was it possible for a seaman to do a contracting personnel job more efficiently with less expense? Mr. Korb. I would say very definitely. Mr. Russell. I suspected you might say that. And I guess, Mr. Klepper, I'm just amazed at your background and how you've been able to rescue what should have been destroyed and yet is resurrected from, unfortunately, the ashes. As you evaluated the structural and management processes of this problem, did you determine that there would be any efficiency in savings by replacing contractor functions with military personnel as a way to get at net saving? Mr. Klepper. No, sir. What we actually did was a little bit the opposite. We looked at productivity and savings, and we did not touch any uniformed positions. So, if you look at all the savings that we listed, they were all nonmilitary--non- uniformed---- Mr. Russell. Was this assuming though a steady line of military units, or did it take constant folding of flags and mothballing of ships and parking of aircraft? Mr. Klepper. I'm not sure I understand that. Mr. Russell. Well, okay. So, as you're studying this, and you are looking at maybe we want to keep this contract, but as you lose a unit, then--would you take that into account, or was it a steady state of end strength that you made these evaluations on? Mr. Klepper. We made it on a steady state of end strength. So we took--if I may, just for a second--the math, was we took the prior year--which, by the way, an important point here was 2013 actual; so the study needs to be updated. But we took 2013 because I needed a full year's savings, and we extrapolated that over a 5-year period for productivity. Mr. Russell. I would argue, and having been in the military myself, from 2013 to 2017, we've diminished our Armed Forces a great deal, and we are putting our Republic at risk in its defense. I would be the first to say that we need to reform contracting; we need to find saving. But I also think that when you pay a specialist E-4 or a seaman E-4 something like that, a sailor, at $24- to $30,000 a year, they can probably do the personnel job cheaper than a contractor. Would you agree with that or not? Mr. Klepper. I would. And just if I could build on that point, the other piece that is the really big lever here is automation and compute power, where you have a higher intellectual worker versus low-end people doing papers and things, and I think there the opportunity for military personnel to self-serve is sort of an aspirational state that you would design to. So they can configure the changes they need without filling out forms and sending it back to come back months and months later to put self help. If I were going to improve, increase the amount of service that uniform did, I'd do it through upping the intellectual level of value and providing the automation tools that they could interact with much, much more efficiently. Mr. Russell. Thank you. And thank you for your indulgence, Mr. Chairman. I yield back. Mr. Palmer. I thank the gentleman. The chair now recognizes the gentleman from Maryland, Mr. Raskin, for 5 minutes. Mr. Raskin. Mr. Chairman, thank you very much. Mr. Korb, let me start with you. Is there an inspector general at the Department of Defense? Is that a person that we would rightfully expect to be doing the kind of work that the volunteers with the Defense Business Board have been doing? Mr. Korb. Well, they would do some of it, but when you bring in groups like the Defense Business Board, they are people who understand how big organizations run. I mean, the inspector general a lot of times deals with waste, fraud, and abuse or, you know, people are not behaving themselves. You could ask them, but I do think and these gentlemen all--and men and women serve on there are nonpaid, and they bring--my experience has been they bring great expertise to help us because, a lot of times, you need somebody from the outside to---- Mr. Raskin. To take a look from the outside. Mr. Tillotson, let me ask you, did we waste $8- or $9 million of the taxpayers' money on a report on identifying waste in the Pentagon? And if we didn't waste it, what have been the savings that have come out of this report? Mr. Tillotson. I don't believe we wasted the money. I think the work that was done that was actually contracted has been high payoff, and we continue to build on it. My direct answer to your question is to date we have loaded in approximately $7.9 billion worth of savings over the next 5 years based on the results of that study alone and eliminating any other savings that we've been doing in prior years? Mr. Raskin. So it's a good start, you are saying, around 7- or 8 billion. Mr. Tillotson. And I will continue to reiterate my position that this is not a one-and-done activity. Mr. Raskin. Okay. Forgive me for interrupting; we just have limited time. My concern is I represent the Eighth Congressional District in Maryland, which includes NIH, which is now slated for a $6 billion cut. These are the scientists who are trying to rescue the population from lung cancer and breast cancer and colon cancer and cystic fibrosis and asthma and these killer diseases. And just cavalierly we would just slash $6 billion from the NIH when we have a report 2 or 3 years old now saying we could save $125 billion just by reducing bureaucratic bloat and contractor fraud and waste and abuse and overruns. I looked into the history of that last night. This goes back to the 1960s, the cost overruns, and the 1980s, with the $2,500 coffee makers and $600 toilet seats, scandal after scandal after scandal. I want to ask someone--maybe, Mr. Korb, let me come back to you, you have a long history in the military--you know, when you have that kind of systemic repeat dysfunction over the decades, you've got to believe it's not totally pathological; it's working for somebody. Who is this system of bloat, waste, fraud, and corruption working for? Mr. Korb. Well, unfortunately, it works for the individual groups. The real problem you have obviously---- Mr. Raskin. When you say ``groups,'' you mean which groups? Mr. Korb. You have organizations, and in the Department of Defense and the history, the services have not wanted to give up functions to the Office of the Secretary of Defense to the extent that they should. You have basically--you have people, as I pointed out in my testimony, you've got a Defense Logistics Agency, but the services won't give up a lot of their logistics function. I used to argue with them all of the time to let us manage that. I think you have--and I mentioned this, too, creating all these Under and Assistant Secretaries. My goodness, I mean, why do you need that many people up there in the Office of the Secretary of Defense, and we keep creating them. And as I've looked at that, the real key to running it correctly and making the savings is when you have a strong Deputy Secretary of Defense. As I mentioned earlier, David Packard came in from Hewlett-Packard, and Google back and you look at the fact we didn't have the cost overruns. Our budget was half of what it is now. And I tell you who else was very effective; when Dick Cheney was Secretary of Defense and brought in Don Atwood from General Motors. It was very well done. But when you don't have that strong deputy in there, it becomes very, very difficult. Mr. Raskin. Okay. Mr. Klepper, you talked about changing the culture at the Department of Defense. What are the concrete steps that can be taken legislatively by Congress to help shock the system and change the culture so the taxpayers are getting their money's worth and we are not wasting our money in this way? Mr. Klepper. As the guy that's had a life as a change agent, that may be the biggest question I've heard today because, when you look at large cultures that have--often an organization as big as DOD is not one culture; it is a whole bunch of tribes out there that have their own cultures because the size of it--there are three key things I will always say to focus on, is that, if you want to change the behaviors, it starts with leadership, and it is what gets recognized, reinforced, and rewarded. And to the extent as we worked our study across the institution, there is almost no trace--there are no metrics of productivity or reliability. There are mastery skills in appropriations. So I would say the key would be start with the head, and it would be that there is accountability for real measures of productivity. And as a leader in an organization, the most important people that you can influence are your direct reports because, as you look through the chain of command--and it is a long one in an organization the size and complexity of Defense--anywhere in the chain of command you fail to get the support, the recognizing, reinforcing, and rewarding of these kind of values, it creates a black hole in the organization. A black hole is where change goes to die. So I would put enormous emphasis at that part. The mechanics, the operation, the skill sets: we can get that. There's lot of talented people that we can bring in to do that. But if it is not driven from the top, reinforced, recognized, and rewarded, its odds of sustaining fall really, really dramatically. That is certainly true in the commercial, and I think that's human nature. Mr. Raskin. Thank you. And I yield back, Mr. Chairman. Mr. Palmer. I thank the gentleman. The chair now recognizes Mr. Blum from Iowa for 5 minutes. Mr. Blum. Thank you, Mr. Chairman. Thank you to the panel for being here today. I'd like to read something to you; in fact, I'll read it twice. The Department of Defense remains the only Federal agency that can't get a clean audit opinion of its statement of budgetary resources. Once again, the Department of Defense remains the only Federal agency that can't get a clean audit opinion of its statement of budgetary resources. I'm from the private sector. I am a businessman. I'm a CEO of a public company. I understand audits. I understand clean audits. Taxpayers have invested $6 billion of their money over the last decade trying to fix the audit problem at the Department of Defense. We did a little research, and I found out that the Department of Defense has the world's largest accounting and finance organization of any company, any organization, in the free world, the largest. It doesn't seem to me to be a lack of resources. Will somebody, anybody--maybe we'll go one by one--please tell me, please tell the taxpayers, please tell my constituents in the State of Iowa why we can't have a Department of Defense that has a clean audit? Mr. Tillotson, let's start with you. And I'm very interested in these answers. Mr. Tillotson. No problem, Mr. Congressman. And the direct answer to your question is I find the situation to be unacceptable as well. I have been working very steadily since I was moved up to OSD to try and put a lot more stick and rudder into getting the audit position cleaned up. I agree with you: it is an unacceptable position. Mr. Blum. Who do you report to? Mr. Tillotson. I report to the Deputy Secretary of Defense. Mr. Blum. Do they agree it is unacceptable? Mr. Tillotson. Yes. Mr. Blum. To your knowledge. Who do they report to? Mr. Tillotson. The Secretary of Defense. Mr. Blum. Do they agree it is unacceptable? Mr. Tillotson. The current Secretary agrees it is unacceptable. And so the answer to your question is the very size of that organization--this will go to the point that I'm sure Mr. Klepper will build on--when we look at the business practices of the Department within financial management, when we did that research with the McKinsey folks, it is the very size and kind of age of that process and the skill set of the people who are doing it that actually stand in our way, coupled with, candidly, our failure--and I'm going to say it this way-- to enforce sound business practices in the nonfinancial community. We have very good rules, and sometimes we don't follow them. So I'm not going to sit here and make an excuse for you. The answer is we are working to fix that, and I agree with---- Mr. Blum. Thank you for not making an excuse. I appreciate your candor. Mr. Rutherford? Mr. Rutherford. Thank you, sir. We are not an accounting firm, and the focus of our effort was really on the cost savings potential. But with that said, when we came in, one of the big deliverables that we did--with any cost savings effort--is having an authoritative data set, to having real numbers that everyone can agree to that this is the baseline. We spent an inordinate amount of time making sure we developed that so we could leverage it on a go-forward---- Mr. Blum. Does the Department of Defense pay their bills with checks, or do they pay their bills with cash? They use checks I assume, right? How can we not know where the money goes? How does that happen? Mr. Rutherford. We had to pull from 20 different data sets, one view on this, and on that view, it had over 5 million lines. Mr. Blum. Does that go back to the tribes we were talking about 5 minutes ago? Mr. Rutherford. And also to this, where the IT and where the data sits--it is a part of what Mr. Klepper was talking about as well--is just, how do you actually have a view of what the true spend is, and how do you actually take metrics on a go-forward basis to measure that over time to see if you're making---- Mr. Blum. If we started cutting people's pay at the top, not the enlisted man, would this problem get solved? Maybe that's what we need to do. Mr. Bayer? Mr. Bayer. Mr. Blum, I had a substantial career on being on boards of directors of publicly and privately traded companies. So my diagnosis of the situation is that it is appalling, and it's all a direct result of leadership. If you--I would encourage you to take a look at the transition report that we offered the incoming administrations. We offered it to the team of Hillary Clinton. We offered it to the team of Donald Trump. We said that the challenge in the Department is getting a hold of its fiscal destiny, and the way you do that is put people who have business training expertise in these jobs. Mr. Blum. How many years have you been saying this? Mr. Bayer. A long time. Mr. Blum. Is anybody listening? Is Congress listening? Mr. Bayer. Trying to find some light in the darkness, the current Secretary, Jim Mattis, was at the time, when I chaired the Business Board the last time, was the chairman of Joint Forces Command. The Business Board felt very strongly that the Department had an excessive command infrastructure, one of which was Joint Forces Command. And we recommended to the Secretary of Defense at that time, Bob Gates, that he shut down Joint Forces Command. The Commander was General Jim Mattis. He embraced it and thought it was a spectacular idea and led the reformation. What I find now is that he has picked an individual, if press is accurate, that he has picked an individual to be the deputy who has had a lifetime of being a chief operating officer and, frankly, a very tough customer about wringing out costs and achieving accountability in a very large defense aerospace company. I haven't met this guy; wouldn't know him if he came in the room. But what I have read about him on the internet leads me to believe that, perhaps, General Mattis is in, fact, embodying the recommendations that we made, picking really tough people to run these positions. The deputy is critical in that--who is Mr. Tillotson's boss. So I think it's all about leadership. It's all about toughness, and it's all about making it important. If it's not important, it's not going to get done, and you know that. Mr. Blum. I'm happy to hear that. Maybe there is light at the end of the tunnel. Mr. Chairman, can I have--would you indulge just to have the rest of them answer, very briefly? Mr. Palmer. The witnesses may answer. Mr. Blum. Try to keep it brief. Mr. Stein. I'll go quickly and answer your specific question. It's responsibility, and it's: Be determined to get this done. If it is determined to get it done, it will get done. Mr. Klepper. I would repeat the leadership emphasis. I would also say that one of the things that we see that is a confounding issue is a culture where almost anyone can say no and very few people can say yes to the changes that you need to connect a lot of those dots. So that's part of it, but that still goes back to leadership---- Mr. Blum. Culture. Mr. Korb. Mr. Korb. I think it requires a strong deputy. The Secretary, he or she is very busy running around the world and doing things. But you need someone like a David Packard; or Charles Duncan, who came in from Coca-Cola; Don Atwood, who came in from General Motors. When I have looked at this, that's when the Department has been run well because they are the chief management, and they also have the gravitas to make things happen that you suggest. Mr. Blum. Thank you, gentlemen. And thank you for your indulgence, Mr. Chairman. I yield back. Mr. Palmer. The gentleman yields. The chair recognizes the gentlelady from the District of Columbia, Ms. Holmes Norton, for 5 minutes. Ms. Norton. My thanks to the chair. We've looked at the Trump budget, which purports to achieve huge savings that it says can be done by looking at inefficiency and waste. Now the largest budget in the domestic budget is, of course, the defense budget. So let's begin, as I think anybody would, by looking at the largest first. I might ask this to any of you, to all of you; let me begin with Mr. Korb: If you were making a serious effort to target inefficiency and waste in the Federal Government, could you possibly exclude the Defense Department budget? Mr. Korb. Absolutely not, and I made that point: If you give them money, they will have no incentive--if you give them more money--to make the reductions that they should. Ms. Norton. Do any of you believe that you would exclude the Defense Department, set it aside, if you were looking at your entire domestic budget and not look at the Defense Department? Do any of you believe that that's how you would proceed? Hearing none, as they say. Well, if we look at the budget of the administration, far from looking for inefficiency and waste there, what we see is an unheard of increase, a $50 billion increase, in that budget, taken of course out of the flesh of the rest of the domestic budget. So let's look at the State Department budget, for starters. You look at the State Department and the Agency for International Development; it's a 28-percent cut. Some might say: You cut that much, you starve the agency to death. Mr. Korb, you believe there would be any agency left standing if you took 20 percent out of a combination of USAID and the State Department? Mr. Korb. I think if you do that, you will jeopardize national security. And as has been already pointed out by your colleagues, most military people have objected to that, including the current Secretary of Defense. Ms. Norton. Do you think you would get a more efficient State Department, for example, and USAID by cutting them 28 percent? Mr. Korb. I don't think so. For example, you have more people in military bands than you do in the Foreign Service. So the idea that somehow or another you can cut back really just doesn't make a great deal of sense. Ms. Norton. So I ask you to look at this combination because I was interested in how all this adds up. You take--the USAID and the State Department has a 28-percent cut. Then you look at the rest of the domestic budget. Look at the EPA; that's a 31-percent cut. Or the Labor Department, that's a 21- percent cut. Perhaps it's a coincidence, but you get a total there of $58 billion, which is about the same as the increase proposed in the Defense Department budget. So let's assume you could get such a huge amount pouring into one budget so quickly. Is that the way--could you get that amount used efficiently so as to justify lobbing in such a huge amount at one time on one agency? Mr. Korb. Mr. Korb. I don't think so. Particularly, as I mentioned earlier, the new administration is adding $30 billion to their 2017 budget. So they are going to put that in, and the fiscal year ends 1 October. So we're already a good way through it. And then adds another $54; I think we'll find it very tough to do it in an efficient--efficient way. That's why I commend the Business Board here because they talked about the savings over 5 years, not having them all right in the first year. Ms. Norton. Mr. Tillotson, this is an increase over 1 year. Can you cite me any precedent where such a huge amount got spent efficiently over a single year? Mr. Tillotson. I can't cite a precedent, but I can cite the concern of the Secretary of Defense that we not ask for something that is not executable. And I can also cite the fact that the Secretary of Defense is internally on record with the tasking to the Department through the DepSecDef to look for additional efficiencies. And I can also state that the White House and the Office of Management and Budget is still holding the Defense Department accountable for offsetting part of the proposed increase in spending by continuing to find efficiencies within the Department. I don't think anybody is letting the Department off the hook in this conversation. And I will defer the rest of the prioritization of the budget to the White House. That is their decision, and I'm not privy to that conversation. Ms. Norton. Of course. And the way to do credible savings is to do across-the-board savings. Then maybe somebody will believe your budget. Thank you, Mr. Chair. Mr. Palmer. I thank the gentlelady. I will now recognize myself for questions. Mr. Tillotson, The Washington Post article, investigative report actually, said that the Pentagon knew their back-office bureaucracy was overstaffed and overfunded. If you knew that, why didn't do you anything about it? Mr. Tillotson. So, respectfully, we have been doing something about it. Since Secretary Gates, we have been continuing to draw down the headquarters' staffs at the Department of Defense. That was an initiative from Secretary Gates years ahead even of the DBB study. We continue on that trend, and we're meeting those goals. We have reviewed the defense agencies. I would take a bit of issue with the so- called back shop that we talk about in some cases because we talk about the defensewide account, includes the Defense Logistics Agency, which does central purchasing and procurement---- Mr. Palmer. Sir, I want to continue on with some other stuff. And I appreciate the detail, but we have only got a few minutes. Or we can take as long as we need to, I guess. But you said you did something about it. I would assume that the fact that Chairman Bayer, Mr. Stein, Mr. Klepper, Mr. Rutherford are here, is that that was part of the actionable effort, this study. Would that be correct, Mr. Rutherford? Mr. Rutherford. Our study finished almost 2 years ago, and in that study, we laid out a path forward with the DCMO on how to measure this on a go-forward basis with line of sight into what is due the savings. Mr. Palmer. Now how much of that has been implemented? Mr. Rutherford. You'd have to ask Mr. Tillotson. Mr. Palmer. Mr. Tillotson, how much of that has been implemented? Can you give me a percentage amount? Mr. Tillotson. Yes, sir. I will go and say that $7.9 billion worth of efficiencies have been laid in, which includes---- Mr. Palmer. Less than 8 percent. Mr. Tillotson. Less than 8 percent. But as acknowledged in the DBB study itself, we needed to start; we needed to put some pieces in place; and then we needed to continue and sustain the effort. And that's our intent Mr. Palmer. How much of your recommendations, Mr. Rutherford, do you think could be implemented? Mr. Rutherford. We think all the recommendations---- Mr. Palmer. That's a great answer. Thank you very much. Do you think that they could have quickly implemented 20 percent? Mr. Rutherford. The speed is the biggest issue. So what we have laid out with the DCMO is that the speed in which you would do this would actually have to be quite deliberate of year-over-year productivity, which is around, from our estimations, a 3-percent productivity gain every year, which would only be about 4- to $5 billion every year. To get something so quickly upfront would take something much more robust than we laid out. Mr. Palmer. I want to ask you something else about--and I will stick with you, Mr. Rutherford. The investigative article also made this: the average administrative job at the Pentagon was costing taxpayers more than $200,000, including salary and benefits. Was that salary and benefits, or are there other costs in there? I mean, I find that shocking that that was the average cost. Mr. Rutherford. My understanding of the salary and benefits, but I should go back and get that for you. Mr. Palmer. I would like for you to provide some answers to some questions to the committee because I'm not sure you'll be able to answer them right now. But I'd like to know how many people overall were in those administrative positions? How many were civilian versus military? And if you know the answer, I'd love to hear it. And I'd like to know how many of those earned over $200,000 because, if the average is $200,000, including salary and benefits, frankly, that's shocking to me. And how many are over $250,000? We're seeing this throughout the Federal Government. This is something I'd like to know. Could you provide those answers? How many total people are working administrative jobs, and how many are civilian versus military? How many of those earn over $200,000, and how many of those earn over $250,000? Mr. Rutherford. Since our work ended 2 years ago, I can go back and look at those numbers and pull together what our view was at that time. Mr. Palmer. Mr. Tillotson, I would request the same information from you. You should be able to provide. Mr. Tillotson. I was going to say, I think respectfully, Mr. Chairman, I'm the accountable agent for answering your question. And I understand the question. We'll be happy to take it on. Mr. Palmer. Do you think we could get that next week? Mr. Tillotson. I see no reason why not. Mr. Palmer. Thank you. I've only got a few seconds here. Here's the thing that bothers me about this. You realize that the appearance--even the appearance of a coverup of a report like this undermines the Pentagon's credibility. It undermines your credibility, frankly. You hurt personnel that work at the Pentagon who show up for work every day and do their job. You hurt the taxpayers. You add to their burdens. You hurt the finances of the United States government. Every dollar that's wasted is another dollar, because we're doing deficit spending, that we're having to pay interest on. You know, the total amount of waste is more than 125 billion when you take that into account. Finally, by wasting the resources committed to our national defense, I think you compromise the military's ability to carry out its mission. That's what is so troubling here. You look at the total financial picture of the United States Government and the path that we're on. I mean, we're at $20 trillion in debt. If we're having to pay interest on that entire debt, a 1- percent increase in interest on that, Mr. Stein, is $200 billion. So you begin to understand why everybody on this committee is so sensitive to this because you're adding to the burden of the American taxpayer. I think it was the Joint Chiefs of Staff Chairman, Admiral Mullen, that said that the single greatest threat to our national security is our debt. So I appreciate the seriousness with which this hearing has been accorded by each one of you, and I appreciate it very much. But we have got to get a handle on this, not just at the Pentagon, but throughout the Federal Government, but particularly at the Pentagon because that's-- constitutionally that's our first obligation, is our national security. With that, I'll yield back and recognize--sorry. The chair recognizes Mr. DeSaulnier from California for 5 minutes. Mr. DeSaulnier. Thank you, Mr. Chairman. I want to thank the chair and the ranking member for this hearing. I'm reminded of many conversations I used to have with my father-in-law, who was a highly decorated Air Force general in World War II, who ended his career, near the end of his career, he was the auditor general of the Air Force, major general. He won a Distinguished Flying Cross, but he also won something, if memory serves me, called a Zuckert Award, which at its time was the highest achievement for management. He used to say that was harder to get than the Distinguished Flying Cross flying over Germany. But he also told me that too many people in the Department of Defense were more interested in keeping their jobs than doing their jobs well. So, Mr. Korb, you mentioned the Packard Initiative. I often think back to Peter Grace and the Grace Commission. Why were those effective in having business people being able to make observations? This is not new: having business people come in and look at the public sector, acknowledge that they're different, and be able to get both Congress and the bureaucracy to change their culture and implement those. The frustrating thing, as you have said, is it doesn't seem sustainable. Although I do want to congratulate the Department of Defense in this instance for bringing Republicans and Democrats together in common cause. Mr. Korb? Mr. Korb. I think it's because of the fact that they've managed large organizations, and they understand how to make them work; plus they have the gravitas to be able to stand up to generals, admirals, and other people. And I think that's the key thing. When I worked in government, we had--things got pretty bad, and it was mentioned earlier about the toilet seats and all of that. We had to bring David Packard back to help straighten things out. I think if you take, as I've looked at this all the time, when you have a deputy like that, and many times the Presidents will pick the deputy even before the Secretary. Before Dick Cheney took the job, Brent Scowcroft had picked up Don Atwood from General Motors. So I think that's the key because you have a lot of people, military people, like your father-in-law, done all these distinguished things. So you're going to need a big presence to be able to tell them, you know, what to do. And I think that's how it's worked best. I mean, after all, David Packard, and everybody knew Hewlett Packard, and back in the seventies, because of how important that company was, when he said stuff, he made it happen. Just to give you an example, the services didn't want to have a single transportation command, okay. He was able to get that done. Mr. DeSaulnier. So here's the struggle, and, Mr. Klepper, to you--and you've gone from different industries and been able to look at cultures, and as the McKinsey report says very clearly, that culture is a big thing, the willingness to accept criticism, to acknowledge that you need to accept that criticism in a manner that would be corrective, but it seems to be uniquely difficult in this environment. One quote from the McKinsey report, as acknowledged through The Washington Post investigation, said McKinsey noted that, while the Defense Department was, in quotes, ``the world's largest corporate enterprise,'' end quotes, it had never, in quotes, ``rigorously measured the cost effectiveness, speed and agility, or quality of its business corporation.'' It seems rather striking that that hasn't happened. So, both on that comment and then on a comment you made in the same article where you're quoted as saying, ``You're about to turn on the light in a very dark room''--and I won't read the rest of the quote. It's quite colorful. But it strikes me that that's really the essence of it, and there have been different periods of time where your kind of effort has worked in the Department of Defense or in large public agencies. But this keeps coming up, that the culture is the most resistant to changing. And oftentimes, as my father-in-law said, the rewards and promotion within that culture is more about just getting by than actually performing well. Mr. Klepper. Well, I haven't been in a number of organizations where the task was a major disruption, a major change from the status quo and some of the business direction. A couple of things--look, this isn't a study; this is sort of what Kenny's learned, you know, along the way--is I talked about leadership as sort of the irreplaceable. Without that, you're sort of lost. But the other two things that I think are vitally important, and I do think they apply here, and we have heard different versions of it, is transparency and accountability, whether it's the audit system that we talked about, because you can't have an accountable organization without a transparent organization. I understand there's a lot of classified stuff, but the things that we're working on here, this is not classified stuff, and I do believe that sunshine is a good disinfectant. One of the greatest things that we could do is to make the kind of inefficiency information more available to third parties and have ideas and have innovations to do that. But even then, if you don't deal with the tribal, cultural, who gets promoted in and for what--that's the recognized, reinforced, and rewarded--you got to go really, really hard on that. And at some place, efficiency and productivity have to become a more dominant marquee in that story. And I think if you start there from the top, and if we can successfully begin to bring transparency, we'll attract good practices, and there's an unbelievable amount of talent. And the other thing I think where the article misrepresented somewhat the Pentagon, almost all the senior military people that we talked to were extremely supportive. I outbriefed General Odierno, and he was going up to testify during sequestration, and there was a whole roomful of people. It was like you're going in the coliseum. Is Kenny and Bobby going to get their head chopped off, or this is not--and we outbriefed to General Odierno. And he looked at us, and he said: ``You know, I think you guys did a good job on this study, and I think the savings is there.'' And he paused and he said: ``Your timing is not perfect.'' But he tasked people to move ahead, and then we weren't able to follow through. So the talent is there. Transparency and leadership I think are the starting place, and I think it is something that we can do. This is an achievable goal, and there's lots of reward for us if we do it. Mr. DeSaulnier. Thank you. Thank you, Mr. Chairman. Mr. Duncan. [presiding.] Thank you. I'll recognize myself now. Let me just say a couple things. First of all, the easiest thing in the world to do is to spend other people's money. Secondly, you can never satisfy any government agency's appetite for money or land. They always want more. And I have wondered for many years whether there are any fiscal conservatives at the Pentagon. I'll tell you a little story. I've been here a long time. This is my 29th year. When I first came here, I believed everything the Defense Department said. And I voted for the first Gulf war because I went to all the briefings and heard how great a threat Saddam Hussein was. And then I watched that war, and I saw his same so-called elite troops surrendering to CNN camera crews and empty tanks. So, by the time the second war rolled around, I had a lot more questions. And I got called to a meeting in a little room at the White House with Condoleezza Rice and George Tenet and John McLaughlin, the top two people at the CIA, and I asked them that day many questions. But I asked them: Lawrence Lindsey, the President's main economics adviser, had been on the front page of The Washington Post saying a war with Iraq would cost us $200 billion. I asked about that, and Condoleezza Rice said, oh, no, it wouldn't cost nearly that much; it would be 50- or 60 billion, and we would get some of that back from our allies. Now we're up in the trillions. That must have been the worst estimate in the history of the Federal Government. And I can tell you that when I was one of the six Republicans who voted against going to war in Iraq, it was the most unpopular vote that I ever cast in my district because I'd seen a poll the night before saying 74 percent of the people in my district favored the war, and 9 percent were against, and the rest undecided. But slowly over the years, that most unpopular vote ended up becoming the most popular vote that I ever cast. As I sit here now, I hear all these people say that the Defense Department has been decimated or it's underfunded, and yet I look at the historical tables of the official budget, and it says that, in 2002, the defense budget was 348 billion. By 2010, it had gone to 693 billion. And it's just gone up every year. And this past year, in the budget, we spent 177.5 billion on new equipment. Well, we spend that much or close to it I guess just about every year. Well, that equipment doesn't wear out in 1 year's time. And the defense--the military construction budget is a separate budget. You can't go to any military base in this U.S. or in the world that there's not all kinds of new construction going on. We somehow have got to bring this under control. We have got to get some more fiscal conservatives at the Pentagon, and I mean, I believe and I think most of us believe that national defense is the most important function or certainly one of the most important functions of our entire Federal Government, but it's getting kind of ridiculous when the Pentagon has done a masterful public relations job in convincing people all over this country that they're underfunded or been decimated, and I think it's almost gotten to the point that it's, in my opinion, it's pretty ridiculous. I am a very conservative Republican, but I think conservative Republicans should be the ones most horrified by the excessive overspending that's going on at the Pentagon. And I commend the work that your board has done. I mentioned this 125 billion in the last newsletter a few months ago, a couple months ago, that I sent out to my constituents. We need more work that will go on like that. And now I yield to Mr. Lynch for 5 minutes. Mr. Lynch. Thank you, Mr. Chairman. And I associate myself with much of what you have just said. I don't think you need to be a conservative, but I do think your outlook needs to be fact-based, and I think that's where the differential comes in. I just have one bone to pick, not necessarily with you, and I want to thank all the witnesses here. You've all been very, very helpful. I appreciate your report. I haven't gone through all of it yet, but I will. President Trump came in, and one of the first things he did was to put a freeze on all Federal hiring. And, Mr. Tillotson, DOD is the biggest employer of returning veterans and veterans in this country. The Federal Government is collectively the largest employer of our veterans coming back from Iraq and Afghanistan and those who have served this country. First of all, the economics, we have had two other hiring freezes--one under Reagan, one under Jimmy Carter--and both of them, according to the GAO, increased spending in the Federal Government because we went to contracting, private contracting, and it boosted up the cost. And I think that's going to continue here. I don't think we're going to save any money. The other thing is, because we are such, in the Federal Government, such a large employer of veterans, what this hiring--so 30 percent of our Federal employees are veterans, about 30 percent. So what this does now is it puts a freeze in. So, as these kids are coming back from Iraq and Afghanistan, the Federal Government, which normally would hire them, is saying no. And so we're already dealing with an elevated suicide rate. We have got substance abuse problems. We have got big, big problems with transition coming back in because of the multiple deployments that these kids have done. I was over at Camp Leatherneck there in Afghanistan, and I asked some of those kids how many tours. I got all the way up to seven tours. One of those young men was on his seventh tour. So that's got to cause some psychological problems. In the meantime, when they come home, we're telling them we can't hire them. And also it's costing us more money. So that's just a statement I got that is in opposition clearly to what the President is doing. Now my background--here's where the question comes in--my background is in construction, steel erection. I used to build bridges. I was an ironworker for about 20 years. My degree is in construction management. So this stuff with DOD is infuriating to me. It really is. And from my own experience, transparency, Mr. Klepper, right on the money; that's what it's all about. In my business, my prior business, transparency and competitiveness in bidding, that whole process was really what gave the end user, the taxpayer, the biggest bang for their buck. When there was no workaround, our contractors would come in and sharpen their pencils, and, boy, that dollar would go a long, long way. And when there was a lot of work and people could just throw a number at you, things were much more expensive. This process that we have with DOD, and we have got 36 major defense laboratories all around the country, including my own, where I can't figure out how to get a person who wants to bid on some of that work into the process. It's all smoke and mirrors. You need a secret handshake or something. I can't get people on the job who want to offer a lower price for those services. You know, it looks like to me--I have to say this-- that a lot of retired generals have gone to work for these contractors and are in the system now, and it's like this good old boy network where the smaller companies can't get in there and offer lower prices. It's a problem. There are exceptions. I know Raytheon brings in all these subs, and they try to help with competition, and they'll educate the smaller subs so they can use them. They use the sub to the sub to the sub. But is that at the heart of this problem? That's the question I have. Is that the heart of this problem? To make this--and I do agree with you, Mr. Klepper, some of this stuff is confidential; some of it is classified. But a lot of it is not, and we should throw it out there and make people bid openly, publicly, and competitively to make our government run more efficiently and at a lower cost to the taxpayer. Mr. Klepper. Mr. Klepper. Sir, the answer is yes. I think that's a significant part. If you look at contracting, I was just thinking as you were talking: You know the way that you get in is you find a sub of a sub of a sub, and you get on somewhere, which means you've got to know somebody that knows somebody generally to find them. Then there's a big, you know, by the time the government pays the tab, there's a lot of additional cost on it. The other thing there's a practice here that's been around for a long time that drives all the worst possible behavior for spending. And it's a process--I don't know what the official. Maybe David could help--it's use-it-or-lose-it. If you don't spend all your money, then you get your budget cut. And one of the things we saw in the study, at the end of the year, there's a tsunami of contracts that completely overwhelm the contracting unit. There were anecdotal conversations with the McKinsey team where a single contract officer had to sign 60 contracts in one day because, if they don't get them signed, whoever the authoring contract, it's going to be heck to pay because now you've got my budget cut. So you have that practice, and that's a practice I just have to believe--I'm not smart enough to know how you guys could fix it. There has to be a way to fix it because that's driving an insane waste of money, use-it-or-lose-it. And I think the contracting structures are where there are some quick hits. And I would add, lastly, the key to getting the numbers at the level that we are talking about is we need a large mobilization. To go at this study should take a mobilization of 4- or 500 people that we're putting in teams, and we're training them or deploying them, and they got targets and goals. Until we scale up how we even think about attacking this problem, we'll continue to just get dribs and drabs of savings. Mr. Duncan. They tell me we have got to speed this up because we have got votes coming up, but I will tell you I have a bill in that gives an incentive award that lets the Department keep half the money that they save, and half goes back to the budget. Mr. Lynch. Mr. Chairman, if I could, I also have a bill that would allow veterans to be exempt from this hiring freeze so, at least when our kids come home from Iraq and Afghanistan, the government can hire them if they're qualified for those jobs, and the jobs are available. Mr. Duncan. All right. Thank you very much. Mr. Grothman. Mr. Grothman. Thank you. I have a question for either Mr. Stein or Mr. Klepper. What steps have the DBB team taken to ensure that benchmarks are applicable to the Department? Mr. Klepper. I really can't answer that. We intentionally in our study try to avoid benchmarking because we were looking at such a high level. In benchmarking, you end up spending all your time arguing about apples-and-oranges comparisons. So benchmarking, I think, has an appropriate--I don't know, David, if you can answer that, but I can't speak for the Department there. Mr. Tillotson. Mr. Congressman, one of the deliverables that we asked for from McKinsey was, in fact, benchmarking in some of these business areas compared to commercial sector. And it's what points us to some of the first areas to look at. So, specifically, financial, IT, and human resource management were identified as areas where the departments spend on certain activities, which has a good commercial analog, which is the first question we asked, which suggests we could find additional savings. So we are, in fact, using it. Mr. Grothman. How would you characterize your overall level of confidence in the cost and savings presented in the report? And I guess that's really more for Mr. Stein. Mr. Stein. Ask the question one more time. Mr. Grothman. Okay. How would you characterize your overall level of confidence in the cost and savings presented in the report? Mr. Stein. Until you have a full process of mobilization and a commitment to this process, one of the things that was talked about--I think this study by McKinsey was done 2 years ago--and I think you are going to have to update those numbers to see what actuals are, and I think you have a full commitment from the Secretary of Defense that this is what's going to happen. Mr. Grothman. Okay. There were a number of individuals interviewed as part of the report. Were those same individuals providing the preliminary findings from the report, and if so, what feedback did they provide on the data sources used as well as the magnitude of the savings identified? Mr. Klepper. The primary feedback--and I could yield to Mr. Rutherford from McKinsey because I wasn't personally present during the actual data pool. But we knew that when we build the base case--I've done this type of work and know that the data always gets attacked. For anybody, if it makes something look bad, the first thing you do is say the data is not good, and that's often where you get stopped at. So we took extraordinary effort in the data pool to be sure that, when the data was pulled from the system and it was arrayed against the core processes, that there was a local signoff within the agency or the military department that said that the way that the data was stacked was reasonable, because we also wanted to be able to do, to rerun the models on an annual basis so you can track financial performance over time. So those are the two things that we put a lot of rigor in that. And when we got into the data pool, we found some of the same issues that may affect the audit systems, financial systems, et cetera. But I have to say the McKinsey team, working with Dave Tillotson and the people he provided us--and there were over 100 people involved in this data pool; it is the biggest one that, I believe, has ever happened at DOD--that the foundational data is pretty solid. And we also offered a challenge process that, if somebody saw the data and said, ``Hey, this is wildly wrong, your analysis is bad,'' that we could actually come in, audit the numbers, and if we found an error--look, if it was wrong, we want to know that the model is wrong--we could correct it. So the model came through, and today I don't think we have had any substantial challenges, at least that I've heard, that the base case model is wrong. The real debate, and maybe to your earlier question, is there's two parts of it: Is the savings there, the potential? And I would say it is absolutely there, and it's probably conservative. The big question is, can all of us together resolve, move the barriers, and get the implementation of the leadership? How much of it can we get and how fast? And I think that's sort of the wild card answer. And I believe we have a shot at the numbers that we published. I really do. But we certainly would need help from you and others like you to get some of the barriers out of the way. Mr. Grothman. I guess I have time for one more question. Mr. Tillotson, what level of independence was given to the McKinsey team? Mr. Tillotson. The McKinsey team was basically on their own. Other than the assistance it took to get them into the databases, their analysis then was their own. And the DBB analysis, which was also done, was also independent. We did not influence either outcome. Mr. Grothman. Okay. Thank you. Mr. Duncan. Thank you. Ms. Kelly. Ms. Kelly. Thank you, Mr. Chair, and thank you for holding the hearing today. The topic of waste within the Defense Department is extremely important, and it deserves our attention, especially considering President Trump's budget proposes funding a $52 billion increase in the Defense Department by cutting other parts of the Federal budget. While I definitely agree that we should support the Nation's warfighters with everything they need, I am concerned that this budget proposal would hurt our national security in other ways. Dr. Korb, our national security depends on more than just a properly resourced Defense Department, does it not? Mr. Korb. Yes, it certainly does. As we have talked about here, several other agencies that are being cut to pay for this are actually going to undermine national security. Ms. Kelly. Thank you. And we have talked about, I know, the State Department and the contributions it makes on national security. I would like to ask about another cut. Under the President's proposal, Federal funding for the National Institutes of Health would fall by 5.8 billion, roughly a 20- percent cut. As chair of the Congressional Black Caucus Health Braintrust, this is very concerning to me. The President's proposed cuts would halt cancer research and other invaluable medical research among the more than 2,600 institutions that receive NIH funding. The cuts would also affect research of infectious diseases, which respects no national boundaries. According to The New York Times, over the last 50 years, 700,000 Americans have died from AIDS; 1.2 million died from the flu; and 2,000 died from the West Nile virus; and 1 died from Ebola. During a television appearance on March 17, Republican Congressman Tom Cole stated: ``I don't favor cutting NIH or Centers for Disease Control. You're much more likely to die in a pandemic than a terrorist attack, and so that's part of the defense of the country as well.'' Congressman Cole called the President's proposed cuts very short-sighted. Do you agree that short-sighted cuts should be avoided? Mr. Korb. I certainly do, and I'd like to quote my favorite President, Eisenhower, who said you can't be strong abroad if you're not strong at home. And if you don't deal with these diseases, you're going to have a difficult time getting enough people to volunteer for the military who meet all of the requirements that you need. Ms. Kelly. Thank you. Anybody else care to comment? No? Okay. Mr. Chairman, while I fully support providing necessary resources again to our Nation's warfighters, we need to carefully consider whether we hurt our national security on other important fronts like global health. And I yield back the balance of my time. Mr. Duncan. Thank you. Mr. Sarbanes. Mr. Sarbanes. Thank you, Mr. Chairman. I thank the panel. I want to commend you for the incredible amount of work that you've all put into this. You've bled for it. I commend you for not just sitting there and engaging in a primal scream for the last 2 or 3 hours. A couple things, and I know my colleagues have been reading from some of these quotes, but we have talked about how the President's budget is going to impose draconian cuts on a lot of domestic programs, things that we have all acknowledged are important, as well as foreign aid and so forth. NIH, I know my colleagues have spoken to those cuts. This quote from OMB Director Mick Mulvaney, though, is just priceless, where he, in regards to the NIH cuts, said: ``These were made because of the tremendous opportunity for savings at NIH and''--I'm sure someone else has read this quote, but I just want to repeat it--quote, ``the President's businessperson view of government is focusing on efficiencies and focusing on doing what we do better.'' I have to assume you all, when you saw that quote, just grabbed this report--we'll call it a report--and just ran as fast as you could up to the White House and handed it to President Trump because it's all about a businessperson's view of government and focusing on efficiencies and on doing what we do better. Let's talk about the culture because that's the name of the game here: breaking the culture. And I've heard you speak, Mr. Klepper and Mr. Korb and Mr. Stein, about leadership being important, transparency and accountability being important. How high do you have to go to get the person who can actually make the change in the culture? Is it enough to go to an Assistant Secretary of Defense? You got to get at least to the Secretary of Defense to embrace the change in culture, or do you actually have to get to the President, who gets up every day and says, ``The Pentagon has got lot of waste and inefficiency in it, and one of the priorities today and tomorrow and the next day is going to be for us to attack that and make it work more effectively''? How high do you have to go to find the person who you think can break the culture in a meaningful way? You can just start with Mr. Korb there. Mr. Korb. Well, I think it's really got to be your Deputy Secretary of Defense. The Secretary whoever he, and hopefully some day soon she, is basically is going to be traveling around the world and doing a lot of things. The deputy is the one who has to do it. And as I mentioned here, people like David Packard, Charlie Duncan from Coca-Cola, Don Atwood from General Motors, they've been able to do these things. And I think that's really where it has---- Mr. Sarbanes. So, in terms of deploying the culture change, you need that level. But you would certainly agree, I guess, that if you don't have acquiescence in it or the buy-in or the approval of it from the levels above, all the way up to the President, then that person can't be effective presumably? Mr. Korb. Well, that's true. If you take President Trump at his word, you would think this is what he wants to do, and if the Secretary, whoever he or she may be, should certainly buy into that and then get a strong deputy to make sure that it happens. Mr. Sarbanes. Other thoughts? Mr. Klepper. You know, it's the sponsor model for change, and it starts with the President. He is mega sponsor ultimately because, even though the size of the Department of Defense from an efficiency standpoint has a bigger potential, it's an issue across all of government. It's an issue in all of industry. So this is--organization--high-performance organization needs to be reinforced all the way from the top. Now, that's delegated, and I would say we had a case in the Department of Defense where the Deputy Secretary was all in. It was a change of leadership at the top, and we kind of went dark. So, in that situation, it really starts within the Department of Defense with the Secretary of Defense because if he's reinforcing and holding accountable to some tangible metric, organizational efficiency, the odds are that those direct reports are going to hold their staff accountable, and that's that cascading chain to where, at any point, somebody decides they're not interested in this and they're going to get evaluated differently, that's the black hole where change goes to die. So that's a really essential key---- Mr. Sarbanes. I'm going to run out of time. So I just want to emphasize what you said. Culture change can't happen if it doesn't start at the top, all the way at the top. And this is the Federal Government. The person who's all the way at the top is the President of the United States. So leadership matters from there, but transparency and accountability, if those are going to be standards that can accomplish the kind of change you want to see and that you worked so hard to produce, to tee up for us, then that commitment to transparency and accountability has to begin at the very, very top. And this committee has had the opportunity just in the last few weeks to demonstrate that we're not seeing that kind of accountability and transparency coming from the very top of this organization, which is the Federal Government and, in this case, the executive branch of the Federal Government. I hope we see more of it. Mr. Duncan. I'm sorry. We have got to go to Mrs. Maloney. I apologize. Mrs. Maloney. Thank you. Thank you very much, and I thank you, Mr. Chairman. And I thank all of you for your service. It's really, personally, I think it's a scandal. It's an incredible scandal. Of the 34 areas the GAO highlighted this year, seven for mismanagement or high risk, seven were in the Defense Department. And basically what your report showed, that if you had implemented the findings of this report that you all worked so hard on, you would have resulted in 125 billion in savings so that the losses that my colleagues are talking about for essential services for people wouldn't happen. I think that this is an absolutely scandal, and it seems to me like if you can't, in reading some of the history of this, it's the Defense Department itself that stops the investigations, that stops the reforms, that says the data should be kept secret. It struck me, Mr. Rutherford, that you said you couldn't even get your hands on it, and especially what you said, you didn't know where it was. Do you have any sense of how much of the bureaucracy, of the many levels that they go through, is in the budget? Is it half of it? Is it a quarter of it? Is it a tenth of it? How much of it is in this permanent bureaucracy that has been created of the Defense Department spending, would you say? Mr. Rutherford. So what we looked at in our work was looking at the six core business functions, and within those business functions, we had to pull from 20 different data sets to pool all the information to actually give the transparency that Mr. Klepper is talking about so then Mr. Tillotson can move out against that to see what they can make adjustments against. As far as the percent of that that is bureaucracy, that's where we started to cut down; where can they actually find the savings? And that's when we came away with our 62- to $84 billion number over a 5-year period because it adjusted for a little bit more of a deeper dive into some of these sub- functions. Mrs. Maloney. That is amazing. Just to respond, I think if the culture can't seem to change, I think Congress should step in and help them change it, Mr. Chairman. Why don't we pass a bill that the data has to be transparent so that people can see it, so that people can report on it? If they're hiding their data, number one--number two, on their contract system that the sub of the sub of the sub of the sub gets to a small business, why don't we have competitive bidding to the best qualified? Forget--I read someplace you have like 155 contractors. For what? You write up the specs, you throw it out, and you see what comes in, instead of going through all these processes that end up giving it to the ex-general. So I would like to see competitive bidding for all of these processes and all of this new equipment. Why do you need all of this new equipment? I think you ought to bring in McKinsey and have them do a service to their Nation and run the State Department--I mean the Defense Department. One thing struck me, that the contracting out of the Defense Department is more than about 10 agencies combined. I mean, it's huge. I want to ask, Mr. Rutherford, you had slightly different numbers than what the Defense Business Board came out with on what the final numbers were. Is that true? Mr. Rutherford. Yes, ma'am. Mrs. Maloney. Why was that, do you think? Mr. Rutherford. So they finished the report in January of 2015. We spent then 3, 4 months longer with the DCMO going deeper into the sub-functions, so we had the luxury of actually looking at some of the lower level data. We actually then brought in different types of benchmarks that we used in how you can actually achieve productivity gains, and that came up with a number that both in terms of the amount of spend came down, but it had more to do with the timing on how much you can achieve over a 5-year period. Mrs. Maloney. And your contract spend optimization, do you think that that would have potential savings, and how, much and what is contract spend optimization? What is that? Mr. Rutherford. The contract spend optimization is when you look at the contracts every year they come up. Are you actually, for rebidding purposes or renegotiation purposes, actually looking at, one, what does the Department of Defense really need from a requirements standpoint, and then, two, from a bottom-up standpoint, what should it cost the Department of Defense with more of a bottom-up view? And then you get a sense of where your negotiation power is to actually do optimization of those contracts over time. So, every year, you're getting better and better at the contracting process. Mrs. Maloney. Well, see, what I don't understand--we have the greatest military in the world, but they can't seem to manage anything. We're the best and the strongest. And how much savings did you attribute to aggregating and renegotiating contracts? Mr. Rutherford. I'd have to go back and look at the numbers, but what we looked for there on the contract spend-- that was going to be from a year-over-year savings--we were looking at 4- to $5 billion every year for our 62 billion. Of that, it was going to be about 20 percent to 25 percent of that number would be in the contract optimization. Mrs. Maloney. These are huge savings. I have one report that they gave me, but it's from the business group. Could I see the original report that McKinsey did? Mr. Rutherford. I believe all of our deliverables that we gave to the DCMO were provided, but I can go back and check to make sure that that happened. Mrs. Maloney. But I mean, you know, I didn't--could I see your report? This is the report that we have. Was that yours? Mr. Rutherford. So there's the DBB report that they did, which was published on January 15. Our contract went beyond that, and our contract had a number of deliverables that were inputs into that report. But what we provided for the DCMO was a set of contract deliverables that looked not only at what the baseline was, but what metrics did they use for productivity gains, and then what was the estimated savings in each of those categories? Mr. Duncan. I'm sorry. We have got votes going on on the floor now. So I want to thank all the witnesses for taking the time to appear before us today. You've been very patient. You've been here a very long time. I ask unanimous consent that members have 5 legislative days to submit questions for the record. Without objection, so ordered. If there is no further business, without objection, the committee stands adjourned. [Whereupon, at 1:11 p.m., the committee was adjourned.] [all]