[Senate Hearing 110-500]
[From the U.S. Government Publishing Office]
S. Hrg. 110-500
IMPROVING FINANCIAL AND BUSINESS MANAGEMENT AT THE DEPARTMENT OF
DEFENSE
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 16, 2007
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES,
AND INTERNATIONAL SECURITY SUBCOMMITTEE
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri PETE V. DOMENICI, New Mexico
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
John Kilvington, Staff Director
Katy French, Minority Staff Director
Claudette David, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 3
Senator McCaskill............................................ 21
Prepared statement:
Senator Voinovich............................................ 37
WITNESSES
Tuesday, October 16, 2007
Hon. David M. Walker, Comptroller General of the United States,
U.S. Government Accountability Office.......................... 6
J. David Patterson, Principal Under Secretary of Defense
(Comptroller), U.S. Department of Defense...................... 7
Paul A. Brinkley, Deputy Under Secretary of Defense for Business
Transformation, U.S. Department of Defense..................... 9
Dov S. Zakheim, Former Under Secretary of Defense (Comptroller),
U.S. Department of Defense..................................... 12
Alphabetical List of Witnesses
Brinkley, Paul A.:
Testimony.................................................... 9
Prepared statement........................................... 86
Patterson, J. David:
Testimony.................................................... 7
Prepared statement........................................... 81
Walker, Hon. David M.:
Testimony.................................................... 6
Prepared statement........................................... 38
Zakheim, Dov S.:
Testimony.................................................... 12
Prepared statement........................................... 97
IMPROVING FINANCIAL AND BUSINESS
MANAGEMENT AT THE DEPARTMENT
OF DEFENSE
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TUESDAY, OCTOBER 16, 2007
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:19 p.m., in
Room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, McCaskill, and Coburn.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Welcome, one and all. The Subcommittee will
come to order. Dr. Coburn and I were talking and it looks like
we are going to start voting. We are working on one of our 13
appropriations bills, the Commerce-Justice appropriations bill,
and they have an amendment at 3:30. We are probably doing
amendments about every 15 minutes after that. It will make this
a long hearing. No, hopefully it won't be that often, but it
will seem that way, I am sure.
I am grateful my colleague here is with us, Dr. Coburn. We
are going to be joined by some others on our Subcommittee
later. Senator McCaskill is presiding right now. As soon as she
can get someone to relieve her, she will be over to join us and
some others will, too.
I think it was the day before September 11, 2001, former
Secretary of Defense Donald Rumsfeld, with whom and for whom
some of you have worked, gave a blunt and accurate assessment
of one of our greatest adversaries while speaking to Pentagon
employees and this is what he said, ``The topic today is an
adversary that poses a serious threat to the security of the
United States,'' and he went on to say, ``the adversary is
closer to home. It is the Pentagon bureaucracy, not the people,
but the processes; not the civilians, but the systems; not the
men and women in uniform, but the uniformity of thought and
action that we too often impose upon them.''
Unfortunately, some 6 years later, those words are as true
today as they were back then and our hearing today will focus
on this adversary. Specifically, we will discuss how to
continue to improve financial and business management at the
Department of Defense, focusing on both the progress made by
the Department in the area of business transformation as well
as on the monumental challenges that the Department continues
to face.
I am told that the Department of Defense is one of the
largest, most complex entities in the world. It employs nearly
1.4 million people on active duty, roughly 825,000 in the
Reserve and National Guard, and nearly 720,000 civilians. Its
fiscal year 2006 financial statements included $1.4 trillion in
assets and nearly $2 trillion in liabilities.
To support DOD's operations, the Department performs an
assortment of interrelated and interdependent business
functions using almost 3,000 business systems. For fiscal year
2007, the Department of Defense spent approximately $4.5
billion to operate, maintain, and modernize these business
systems, including their infrastructure. The ability of these
systems to operate as intended affects the lives of our war
fighters both on and off the field.
While the Department of Defense has long been acknowledged
for its premier war fighting capabilities, the dismal state of
its financial and business management practices leave the
Department vulnerable to waste, fraud, and abuse.
We all share the same objective, and that is to try to
figure out how the Department of Defense can successfully
transform its financial management and business systems. The
questions I hope will be addressed today are the following
ones.
The Department recently assigned Chief Management Officer
duties to the current Deputy Secretary of Defense. One of the
questions that I have is, is this action sufficient?
Since 1999, the GAO has urged the Department to develop a
strategic enterprise-wide business transformation plan. Why has
this plan not yet been developed?
Given the personnel turnover that will happen between now
and January 2009, how will the Department ensure that progress
is sustained?
And finally, how can Congress play a constructive role in
charting the best path forward for the Department?
The Department of Defense has needed a Chief Management
Officer who puts taxpayers first and is committed to sound
financial and business management and transparency. Some of us,
including the Comptroller General, have been pushing for this
change literally for years. In fact, along with Senators
Ensign, Voinovich, and Akaka, I joined them in cosponsoring
legislation to establish in the Department of Defense, a Deputy
Secretary of Defense for Management, who would serve as a Chief
Management Officer.
Now, certainly, Deputy Secretary of Defense Gordon England,
for whom I have enormous respect, has ably served in this
capacity unofficially even while tackling the challenges of
being at the Department itself. Furthermore, Secretary Gates
took a step in the right direction when in a September 18,
2007, DOD Directive he expanded Secretary England's official
role to include serving as Chief Management Officer, as we
know.
But a number of others, and certainly myself, and that
includes GAO, the Institute for Defense Analysis, and the
Defense Business Board, do not believe this action is
sufficient. I believe this additional title will not
necessarily result in the kind of meaningful reform that we are
looking for. Only a full-time, term-based senior management
official will be able to provide focus and sustained leadership
over DOD's business transformation.
Sound financial and business management is critical to the
success of the Department. It is the foundation of any
organization, any program, or any activity. The Department of
Defense has one of, if not the most, important missions of any
U.S. Government agency, and that is to protect and secure our
homeland. Waste and mismanagement undermine that very important
mission. Anything that weakens the Department weakens its
ability to respond quickly and effectively to meet the real
threats that our country continues to face.
As elected Members of Congress, we have an obligation to
the United States of America and to our people to ensure that
their dollars are being used as effectively and as efficiently
as possible. To date, the war in Iraq has cost us just over a
half-trillion dollars and the meter is still running. Since
2003, we have passed eight supplemental bills for Iraq and
Afghanistan. We will soon consider another $150 to $190
billion. The deficit this year is forecasted at roughly $160
billion, and although that is a little better than last year,
it is not great.
At home, we are faced with huge growing fiscal imbalances
due at least in part to our aging population and skyrocketing
health care costs. This is not the time to be frivolous with
our hard-earned money. But we know that there is never a time
to be frivolous with the hard-earned money of the people of our
country.
Congressional oversight is imperative to make sure that
Federal agencies like the Department of Defense step up to the
plate, confront the waste of precious taxpayers' dollars, and
take immediate corrective action so that more of our dollars
support the real mission of the Department of Defense, and that
is protecting Americans and our national interest both here and
abroad.
Dr. Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Senator Carper, thank you for having this
hearing. It is our biggest expenditure, the Department of
Defense. That is where we have the most money.
I was glad you alluded to former Secretary Rumsfeld's
statements. I am anxious to hear how things have changed since
then. As I have studied and prepared for this hearing, I am not
sure large quantities of measurable change have, in fact,
happened.
My primary concern pertaining to DOD's financial management
is the goal for DOD to become audit-capable. Whether they pass
or fail the audit, you have to become audit-capable first, and
the fact that we are not anywhere closer to that now than we
were when I came to the Senate is simply unacceptable.
DOD continues to play the key role, with 15 programs or
activities on GAO's 2007 high-risk list. Six of them have been
on the list for at least 10 years, some dating as far back as
1990. The DOD contracting continues to be unaccountable. I want
to restate that word, unaccountable, unmeasurable, not
manageable. It still is unaccountable. It is plagued with
longstanding problems and it has been on the high-risk list for
15 years, almost three Administrations.
There have been numerous initiatives and strategies that
have been implemented, but there still hasn't been any
demonstrable progress in the key areas, or there hasn't been
any significant metrics that I am aware of or benchmarks to
gauge the progress of new standards and guidelines.
I am almost to the point where I agree with David Walker
that there ought to be a permanent position at DOD called the
Chief Management Officer. I know that is not in the framework.
I know it is not there. But I am wondering how long--6 years
from now, we will continue to sit at a hearing like this and
still have 15 to 20 programs on the high-risk list, still not
have metrics, and still not measure things?
And this is not meant to reflect on any of you gentlemen. I
am not talking about you personally. I am talking about the
leadership above you that has to be there to make this happen.
The efforts have to be held accountable, and that is part of
the reason that we are having this hearing. I hope that there
are clear milestones and firm commitments in both planning,
financial planning as well as purchasing planning, that I
haven't seen.
What I am hoping that will come out of this hearing is a
commitment from the Defense Department to sit down with this
Subcommittee and the GAO on a regular basis to try to hash some
of this out. To me, I think we are kind of like we are on a
paddleboat and we are going against the current. We haven't
lost any, but I am not sure we have made any headway. As we
continue to change things and change techniques and change
strategies, I am not sure we are any closer to the goal. So I
look forward to hearing that.
I want to thank Comptroller Walker for his work and
analysis and I thank each of you all for the input and the
effort that you are--this is a daunting task. If it was easy,
you would have already fixed it, I am sure. But the fact is,
the frustration level and the financial consequences to not
having an audited financial statement, to not having
procurement under control, is, in fact, costing lives. And more
importantly, it is costing the future of the next two
generations of Americans because this is the largest
expenditure that we have and if we can't get this right, we
can't get any of it right.
So I look forward to your testimony and I am hopeful that
we can start a dialogue with both Chairman Carper and myself
and really get some benchmarks for you all in terms of the
implementation of this.
The other thing that I worry about, as your staff and you
have so ably pointed out and I know you are going to bring up,
is there going to be an Administration change coming up in
2009? Are we going to see another great big setback? Are we
going to start all over again? I want some assurance today that
the things that are in place are going to continue to move
forward rather than we are going to change it again and change
the goal. What are we, at 2016 now, I believe, is when we said
we can have an auditable financial statement? That is not
acceptable anywhere else in this country and it shouldn't be
acceptable here. Thank you.
Senator Carper. Let me go ahead and take a minute or two
and introduce our witnesses. Again, welcome to each of you.
We are going to lead off today with our Comptroller
General, General David Walker. I said to General Walker before
we started that I am glad we don't have to pay him on a
piecemeal basis for every time that he testifies. Otherwise,
you would run this deficit up even more than it has. He said he
would like to go to work on a commission basis, I think is what
he said. But it is not going to happen anytime soon.
He is currently serving his ninth year of a 15-year term.
Part of me says it would be nice to have a 15-year term, but I
am not sure sometimes. But General Walker has been a vocal
advocate of ensuring fiscal stewardship in the Federal
Government. We are grateful for your service and for that of
the team that you lead.
J. David Patterson is the Principal Deputy Under Secretary
of Defense, the Comptroller. As the Principal Deputy, he is
directly responsible for advising and assisting the Under
Secretary of Defense as Comptroller for oversight of DOD's
financial management activities. His responsibilities also
include developing and implementing DOD financial policy,
financial management systems, and business modernization
programs.
Mr. Patterson served in the Air Force, I am told, from 1970
to 1973 and retired at the rank of Colonel. During that time,
he held responsible leadership and management positions with
assignment at the Air Wing level as--are you ready for this,
Dr. Coburn--a C-5A aircraft commander. Were you the wing
commander for a wing that included C-5s?
Mr. Patterson. I was the deputy forward air controller at
Dover.
Senator Carper. At Dover? Good for you. Welcome, a special
welcome.
Next, we have Paul Brinkley--welcome, Mr. Brinkley--Deputy
Under Secretary of Defense for Business Transformation at the
Department of Defense. Mr. Brinkley leads business management
modernization for the Department of Defense. Prior to assuming
his current role, Mr. Brinkley served as Senior Vice President
of Customer Advocacy and Chief Information Officer for the JDS
Uniphase Corporation. I hear from my staff that you have been
doing great economic development work over there in Iraq and we
commend you for that and say welcome.
Last, we are glad to have Dr. Dov Zakheim with us today,
currently a Vice President at Booz Allen Hamilton. Dov was
appointed to be the Under Secretary of Defense and Comptroller
from 2001 to 2004. I think his tenure there began as my tenure
here in the U.S. Senate started. I remember fondly the
opportunities we had to work together and we are delighted that
you could be with us today. Dr. Zakheim is a member of the
Defense Business Board and the Council on Foreign Relations. He
has taught at the National War College, at Yeshiva University
and Columbia University to name but a few. We are delighted to
see you and thank you for coming today.
I don't know if we started a vote or not. Could somebody--
--
Senator Coburn. Yes, we have.
Senator Carper. Have we? OK.
Senator Coburn. Let me just add something. It takes a lot
of courage for Booz Allen Hamilton to allow you to come and
testify here. They are a contractor at the Defense Department
and I want to thank them for their courage. Input into our
government is the thing that we need and we value, and when
people are intimidated to not do that because of the fear that
they might not have the next contract, we all lose. So I want
to thank your employer for that, Dov.
Mr. Zakheim. Thank you. I am speaking in my own personal
capacity, but I am glad to be here.
Senator Carper. Dr. Coburn, do you want to just----
Senator Coburn. Do you want me to go vote? We have got
three.
Senator Carper. In a row? Let us just get started and then
we will take a break.
General Walker, you are on. Welcome.
TESTIMONY OF HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL OF
THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Walker. Chairman Carper, Dr. Coburn, it is a pleasure
to be back before the Subcommittee again to talk about this
time the Department of Defense's efforts to transform its
business operations and what further action is needed to
maintain continuity of effort, to change the status quo, and to
achieve sustainable success.
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\1\ The prepared statement of Mr. Walker appears in the Appendix on
page 38.
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As has already been mentioned, DOD represents 15 of 27
high-risk areas on our latest list. Eight are DOD-specific.
Seven are government-wide challenges.
As you all know, in addition to representing the largest
single domestic agency as far as spending--discretionary
agency, I should say, for spending, our Nation is already
running deficits and they are going to get a lot worse in the
future because of the retirement of the baby boomers of the
generation, absent reforms.
Every dollar of waste is a dollar we don't have to meet a
need, and every dollar of waste is an additional dollar of debt
with compound interest that our kids and grandkids are going to
have to pay off. We should have zero tolerance for waste at any
time, but especially at a time of deficits and facing a period
of sustained deficits and debt burdens that lie before us
absent meaningful reforms.
Transformation takes a long time to make happen, even in
the private sector. And clearly, the senior leadership at DOD
is committed to transformation and there are a lot of good
people working very hard in order to try to achieve success.
Progress has been made at differing rates in these 15 different
areas, but candidly, there are a number of critical things that
have to be done that have not been done, and I am here to tell
you unless and until they are done, we will never be
successful.
We have to have a single integrated, comprehensive,
strategic business transformation plan that goes beyond
systems, that deals with all 15 high-risk areas, a
comprehensive strategic and integrated plan with key metrics
and milestones and with assigned accountability and
responsibility for achieving results. We don't have it.
Second, we need a Chief Management Official, a full-time
job, not a part-time job, with a term appointment, with
responsibility and authority to develop, implement, and oversee
that plan, to work in partnership with others who would provide
continuity both within and between Administrations. GAO, the
Defense Business Board, and IDA have all recommended a new
full-time position with a term appointment.
The recent action to appoint Deputy Secretary Gordon
England as the CMO, in my view, is form, not substance, and let
me be clear here. I have tremendous respect for Secretary
England. He is an extremely capable individual, and this has
nothing to do with him as an individual. In fact, what we need
to start doing is look beyond individuals and recognize that we
have got an institutional problem that cries out for
institutional and sustainable solutions, and that is not what
is being done.
The only outlier in this debate is the Department of
Defense. That is the only outlier in the debate about what we
need to do to move this thing forward, and frankly, I am
growing more frustrated as time goes on, not because of these
good people here. These are very capable, dedicated people who
are making a difference because the status quo is not going to
achieve sustainable success, and the sooner the Congress
recognizes that and the sooner that the Executive Branch acts,
the better off we will all be.
I will be happy to answer any questions you may have after
hearing from my co-panelists.
Senator Carper. Thank you, General Walker.
From a General to a Colonel. David Patterson, please
proceed. You are recognized for 6 minutes. If you want to
summarize your testimony, that would be fine. Your entire
statement will be entered into the record. Please proceed.
TESTIMONY OF J. DAVID PATTERSON,\1\ PRINCIPAL UNDER SECRETARY
OF DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE
Mr. Patterson. Thank you very much, Mr. Chairman, Dr.
Coburn. Again, it is a great privilege to be here to talk to
this Subcommittee and discuss the progress that I believe we
have made in the Department in improving our business and
financial management and preparing the Department for an
independent audit.
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\1\ The prepared statement of Mr. Patterson appears in the Appendix
on page 81.
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We are always happy to bring the Subcommittee up to date
and to clarify any questions you may have about the
Department's modernization efforts. Indeed, before I finish
today, I would hope that I would leave you with a better
understanding of what I consider to be the three most important
considerations on this topic.
First, to your point, Chairman Carper, the size and the
scope of the Department of Defense is indeed a great challenge.
But to address that challenge, we are making progress in the
Department along a sound plan for success. And the DOD's strong
commitment to wise stewardship with our resources, sustained
business and financial modernization, and a solid leadership
support.
To the first point, the size and scope of our challenge, we
often hear it asked with some astonishment, how can it possibly
be that the Department of Defense has never been independently
audited? Well, on its face, it seems like a simple question and
a relatively straightforward task. In an organization as large
as the Department of Defense, the task is anything but simple.
To put it in perspective, the Department of Defense is not
only the largest department in the Federal Government, but the
largest and most complex organization in the entire world. With
an annual budget nearly twice the annual revenues of Wal-Mart
and assets three times the size of Wal-Mart, IBM, and
ExxonMobil combined, it is also the largest entity in the world
ever to consider being audited end to end.
And again to your point, Chairman Carper, we are also a
global enterprise with 600,000 facilities in 163 countries
around the globe, over five million inventory items, and $3.4
trillion in assets and liabilities.
Now, before the Chief Financial Officers Act of 1990, the
Department of Defense operated under a very simple system. We
received appropriations from Congress and tracked expenditures
to ensure their proper execution. Business processes were slow,
business operations inefficient, and because systems that had
evolved over decades were incompatible across a spectrum of the
agencies and components, information was inaccurate and
incomplete. The result: Inaccurate inventories, material
weaknesses, and an inability to obtain a clean audit.
So that is the first point. The Department of Defense is a
huge organization, a huge enterprise that for decades has
utilized an outmoded collection of disparate systems
incompatible with each other in a modern systems world.
The second I would like to bring to your attention is the
progress in light of that challenge that we have made toward a
sound path for success. In 2005, a detailed plan was launched
to modernize DOD financial management and prepare the
Department for audit. Today, that plan is producing measurable
results, transforming the way we do business, improving
process, and reducing costs and making the Department more
accountable.
In 2001, only two Department of Defense entities were
auditable, the Defense Finance and Accounting Service and the
Military Retirement Fund. Today, seven Defense enterprises are
auditable, whose combined assets and liabilities comprise 15
percent of the Department's total assets and 49 percent of its
total liabilities, and they all have clean audit opinions. By
the end of fiscal year 2009, we expect to have nearly 40
percent of DOD assets and 90 percent of the liabilities, or
nine of our financial enterprises, with clean audit opinions.
So we have the largest enterprise in the world, but thanks
to a solid plan that is working, we will have gone from two
auditable entities in 2001 to nine Department entities, or 90
percent of our liabilities and nearly 40 percent of our assets
being auditable by the end of next fiscal year. And I might add
just in passing that those seven auditable agencies that we
have today have a combined value of assets and liabilities
twice the next largest government agency, Health and Human
Services.
So that brings me to my third point, and I would like to
leave with you a very strong understanding that the Department
of Defense, the heads of our agencies, and military leaders are
absolutely committed to wise stewardship of resources and
sustained modernization that supports not a bureaucracy, but
the mission and the brave fighting men and women who put their
lives on the line every day to accomplish that mission.
So we have the largest and most complex organization. We
have a plan to achieve success. And we have an organization,
and more importantly a senior leadership that is absolutely
committed to achieving that success.
So, Mr. Chairman, thank you again for allowing us to come
and talk to you. I look forward to your questions.
Senator Carper. Thank you, Colonel Patterson.
We are going to take a little break here. We have a series
of three votes. We are going to get there for the end of the
first one, vote two more times, and be back probably in about
20 minutes. We will get back as quickly as we can.
The hearing will stand in recess and we will return
shortly. Thank you.
[Recess.]
Senator Carper. The hearing will come to order. I am
delighted that you are all still here. Thank you. I apologize
for the interruption.
Mr. Brinkley, you are next in line, so please feel free to
proceed. I am going to ask you to summarize in about 6 minutes
and we will enter your full statement into the record. You are
recognized. Thank you.
TESTIMONY OF PAUL BRINKLEY,\1\ DEPUTY UNDER SECRETARY OF
DEFENSE FOR BUSINESS TRANSFORMATION, U.S. DEPARTMENT OF DEFENSE
Mr. Brinkley. Thank you, sir. Chairman Carper, Senator
Coburn, Members of the Subcommittee, it is my honor to appear
here today to discuss Defense business transformation and its
associated governance.
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\1\ The prepared statement of Mr. Brinkley appears in the Appendix
on page 86.
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As the largest industrial organization in the world, the
size and complexity of the Department of Defense combined with
its singular mission present unique challenges not faced by
other entities undergoing transformational change. The
Department's mission requires that its business operations
adapt to meet new challenges not faced by other organizations
undergoing transformation. The Department must be able to react
with precision and speed to support our Armed Forces. Despite
these challenges, I believe the progress the Department has
made at all levels under the leadership of Deputy Secretary of
Defense Gordon England over the past 3 years has been
remarkable.
Fundamentally, business transformation requires a number of
things, including a sound enterprise-level strategy for
transforming business processes and the culture that our people
work within, leadership commitment, and a strong investment,
management, and governance structure to ensure alignment to
that strategy.
Over the last 3 years, the Deputy Secretary of Defense has
led our transformation efforts, devoting extensive time and
energy to the effort to improve the Department's business
operations. In many ways, Secretary England has been acting in
the capacity of Chief Management Officer throughout his tenure,
most notably in his role as the Chairman of the Deputy's
Advisory Working Group and the Defense Business Systems
Management Committee (DBSMC), the overarching governance board
for the Department's business activities.
Since its inception in 2005, the DBSMC, in concert with
functionally aligned investment review boards, has served as
the governance structure that guides transformation activities
of the business areas of the Department, such as finance,
acquisition, personnel management, and logistics. Authorized by
the fiscal year 2005 National Defense Authorization Act and
reiterated in the DBSMC charter, the DBSMC has responsibility
for approving business systems modernizations over $1 million,
the Business Enterprise Architecture for the Department of
Defense, and the Enterprise Transition Plan, a comprehensive,
milestone-based plan that lays out, in 6-month increments,
measurable progress that the entire Department has opened up to
scrutiny and measures itself on 6-month increments in published
reports to the Congress. This gives the DBSMC statutory
oversight and control of spending to ensure alignment to
Department-wide objectives, the key to our success to date.
The DBSMC charter extends the authority of the DBSMC beyond
statutory requirements to include responsibility for ensuring
the strategic direction of the Department's business operations
are aligned with the rest of the DOD and for measuring and
reporting the progress of our business transformation efforts.
With this expanded focus, the DBSMC has become an integral
driving force behind the Department's adoption of continuous
process improvement and Lean Six Sigma methodologies. The
Department's shared focus on enterprise resource planning
system and process deployments, and the requirement to change
longstanding business practices necessary for these ERP
projects to succeed. In each of these areas, the DBSMC has
provided invaluable top-level direction for the business
transformation efforts of the Department.
As you mentioned, the Deputy Secretary's role in business
transformation was recently codified in a September 18, 2007
directive issued by the Secretary of Defense designating the
Deputy Secretary of Defense as the Chief Management Officer
(CMO) of the Department. This ensures that the Department's top
leadership will continue to make business transformation a top
priority.
The directive formally institutes into departmental policy
the Deputy Secretary's responsibilities as the CMO. As CMO, the
Deputy Secretary shall ensure Department-wide capability to
carry out the strategic plan of the DOD in support of national
security objectives; ensure that the core business missions of
the Department are optimally aligned to support the
Department's war fighting mission; establish performance goals
and measures for improving and evaluating overall economy,
efficiency, and effectiveness, and to monitor and measure the
progress of the Department; and finally, to develop and
maintain the Department's Department-wide strategic plan for
business reform.
The official designation of the Deputy Secretary of Defense
as the CMO affords the President and the Secretary of Defense
necessary flexibility to implement an integrated management
team that can quickly meet the changing requirements of
business transformation and positively affect outcomes while
formally instituting accountability at the top levels of the
Department for the future of our transformation activities.
Finally, I want to highlight a few points. The Department
under Secretary England's leadership, we have successfully
established the Business Transformation Agency in 2005. This
organization provides an accountable entity for all DOD-wide
business and system improvement efforts, staffed by the best
and brightest career civil servants along with highly-qualified
experts hired from private industry, bringing best practices to
the business of government.
We have developed and continue to evolve the Business
Enterprise Architecture and its associated federation strategy.
Biannually, we do publish the Enterprise Transition Plan, which
serves as our business transformation strategic road map.
We are implementing the Department-wide adoption of
continuous process improvement principles and implementing Lean
Six Sigma, as I mentioned, and we are improving the acquisition
and fielding process for information systems, the development
of what we call the Business Capability Lifecycle (BCL). This
BCL process will help resolve longstanding challenges that have
impacted the delivery of business capabilities in a timely
manner. Under process rules, initial operating capability of an
IT program must be reached within 12 to 18 months of the
contract award or else the business case will not be approved
for funding. This shifts the entire mentality of how we invest
in business systems within the Department of Defense.
There are over 20 DOD-wide systems programs that are
critical to the DOD and its interoperability that have directly
benefitted from this transformation approach. Using a similar
approach, programs like the Defense Travel System (DTS) and
Defense Integrated Military Human Resources System (DIMHRS)
have been restructured and are on a path to deliver
longstanding value to the Department of Defense.
Finally, I have two last points I want to make that I think
we lose sight of. Some of the most effective and rewarding work
the business transformation effort is involved in is in the
midst of our fighting forces in Iraq, working to ensure
business processes that directly support military operations in
the field are agile and that they are aligned to war fighting
needs.
Three years ago, the business mission of the Department and
the war fighting mission were viewed as very separate
activities. In three short years, that mentality has changed.
The effect of our business operations on stability operations
in the war fighting arena are now widely understood and
seamlessly linked. In considering any changes to organizational
structure, it is critical that we not structurally recreate a
boundary between these two mission areas.
Finally, regarding sustaining our effort, we have taken
several steps to ensure our progress is sustained.
Transformation of an entity this size cannot be achieved in a
single Presidential term. It took Lou Gerstner 10 years to
transform IBM into the global competitor it is today, as an
example. By establishing a culture of measured 6-month
incremental improvements, published and clearly articulated in
our transition plan, by establishing the new entity within
government, the BTA, staffed with career and business
professionals, and creating a sense of direct customer focus by
engaging with our war fighters, we believe the Department now
has the tools needed to help ensure continued progress and to
avoid lost momentum in a change of Administration.
Thank you, and I look forward to your questions.
Senator Carper. Mr. Brinkley, you are recognized. Please
proceed. Thank you.
TESTIMONY OF DOV S. ZAKHEIM,\1\ FORMER UNDER SECRETARY OF
DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE
Mr. Zakheim. Thank you, Mr. Chairman and Senator Coburn. It
is a privilege to be here before you today to discuss ways to
improve financial management in the Department of Defense, and
as I said to Senator Coburn earlier, I am speaking in a
personal capacity.
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\1\ The prepared statement of Mr. Zakheim appears in the Appendix
on page 97.
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When I appeared in 2001 before the Senate Armed Services
Committee at the hearing for my confirmation as Under Secretary
of Defense, I told the Members of the Committee that I
considered being CFO as important as being Comptroller. The
fact is that financial management traditionally has been a
backwater at DOD and that is for two reasons. The first is
because the Department's primary task is to support the
military's mission, to fight and win the Nation's wars. So
everything else, and particularly everything that can be
categorized as back office, tends to be subordinated to this
essential task.
The second reason is that while the Under Secretary of
Defense (Comptroller) is also the Chief Financial Officer, the
CFO role has traditionally been subordinated to that of
Comptroller, because as Comptroller, it is the Under Secretary
of Defense's responsibility to formulate the budget and secure
its passage through the Congress. This activity is naturally
critical to the ongoing functioning of the Department while
financial management is seen as an ancillary exercise. As one
of my predecessors put it to me just as I was taking on the
job, ``as long as you can get your budget submitted on time,
you have done your job.'' He never mentioned CFO at all.
This situation, by the way, is exactly the reverse of what
goes on in the private sector. In most corporations, it is the
Comptroller who is subordinated to the CFO. Budget preparation
is just one financial task and hardly the most important at
most private firms. It is a lot more important to know how the
money actually is spent and managed throughout the year, what
DOD terms ``budget execution.'' But it is noteworthy that only
in 2002-2003 did the Department of Defense formally include
execution as part of what is now called the planning,
programming, budgeting, and execution process.
This focus on the budget is a natural outgrowth of the
Department's relationship with the Congress. It is by means of
the budget that the Congress exercises its control over the DOD
program. In the private sector, shifting funds from one
division to another is a routine matter. For DOD, those actions
are strictly regulated by the Armed Services and Appropriations
Committees as well as, in some cases, the Intelligence
Committee. There are severe, and in my view excessively low,
limits on reprogramming funds. Reprogrammings of any
significance require prior Congressional approval, normally
from the four defense-related committees. The combination of
Congressional practice and rules with the culture of a
Department whose top priority is war fighting poses a
fundamental challenge to any effort to improve the Department's
ability to improve upon the management of its business finances
and all of its business management operations.
Nevertheless, the last 7 years have witnessed considerable
progress in the financial management arena and that of business
management. DOD is realizing the objectives that result from
sound financial and business management. You have heard details
from my former colleagues who are sitting alongside me. But as
in other aspects of DOD activity, business transformation
remains and must remain an ongoing effort.
In addition, the Department continues to face major hurdles
well beyond those created by Congressional limitations and
execution management. That is understood. So improving
financial management is going to be a painstaking process.
There is no quick fix or panacea that is going to change the
situation overnight.
Beyond those actions already taken to improve the situation
over that which prevailed in the 1990s, I would suggest the
following. None of these are particularly original ideas.
First, Congress should reconsider its reprogramming
ceilings. These should be raised to 5 percent of the baseline
budget so as to give the Department's financial managers the
ability to execute budgets more efficiently. Congress would
still retain prior approval to satisfy its oversight role.
Second, I believe the Department should ensure that the
Business Transformation Agency be led by a three-star general
or flag officer or the civilian equivalent, and that the agency
report directly to the Department's Chief Management Officer,
currently the Deputy Secretary of Defense. While I currently
see no need for legislation to codify such a relationship, that
may have to be considered in the future.
Finally, since I am running out of time, I would like to
address this question of a Chief Management Officer. In my
view, the Department should have one with the rank of a
principal under secretary who would hold office for a fixed
term. I stated this view during my final appearance before the
Congress when I was still Comptroller, when I sat alongside
Comptroller General David Walker, with whom I agreed then and
with whom I still agree.
I recognize, and you have heard this before and I am in
complete agreement, that the Department currently has a strong
CMO. In my opinion, Deputy Secretary Gordon England is the most
capable senior manager the Department has had in decades. But
Secretary England's term expires with that of the
Administration. He hasn't indicated that he wants to serve
another 20 years. There is no guarantee that his successor will
bring the same managerial background to the job as, by the way,
did Secretary Rumsfeld, who in many ways was his own CMO.
Moreover, the post of CMO should be one that is for a fixed
term, perhaps 5 years. Nevertheless, a way needs to be found
that the CMO should serve at the pleasure of the Secretary and
Deputy to whom he or she would report.
Some say it is going to be exceedingly difficult to find a
top manager willing to take the job. They point to the fact
that Congress has imposed increasingly onerous financial and
reporting burdens on those who otherwise would be willing to
serve the Nation in a senior capacity. Clearly, the Congress is
going to have to do its part. It is going to have to ease
restrictions to the point where senior people would be prepared
to leave industry and finance to serve as CMO without, for
example, putting their pensions at risk. Otherwise, the right
people will never be available and the CMO concept for DOD will
remain just that, just a concept.
Again, I appreciate the opportunity to testify before this
Subcommittee and I am prepared to respond to questions the
Members might put to me. Thank you.
Senator Carper. Dr. Zakheim, thanks very much for your
testimony.
We have been joined by Senator McCaskill. I understand you
choose not to offer an opening statement, is that correct?
Senator McCaskill. No. I just have questions.
Senator Carper. OK. Well, you will have them. Thank you for
joining us today.
Dr. Zakheim, very briefly restate your four points right at
the end.
Mr. Zakheim. The four points about CMO or generally?
Senator Carper. The last four points that you made.
Mr. Zakheim. What I said, first of all, is the----
Senator Carper. Starting with reprogramming ceilings----
Mr. Zakheim. Yes. Reprogramming ceilings are just far too
low.
The second point that I made was that the Business
Transformation Agency needs to be permanently linked at a high
level to the Deputy Secretary and the Secretary and to the CMO
if there is one. In this case, it is still the Deputy
Secretary.
And then I made several other points in my written
statement, but finally I did address the question of the CMO. I
believe it should be someone with a fixed term, preferably 5
years, a principal under secretary, that is to say outranking
the other under secretaries, reporting to the Secretary and the
Deputy, obviously having to work with them, but if this person
is a technocrat, it shouldn't be that much of a problem.
Finally, that Congress needs to take action to ensure that
the reporting requirements that make it so difficult for people
to get through the confirmation process are made a little
easier. You are just not going to get Wall Street bankers and
industrial tycoons who really know this domain well to come in,
go out or come back into government. It is not so much the
salaries. They don't care about the salaries. They are serving
their country. It is the agony of the process. Why should they
want to do that? Congress just has to ease up, I think.
Senator Carper. I remember being nominated by former
President Clinton when I was Governor of Delaware to serve on
the Amtrak Board of Directors and going through the process
itself, just the paperwork alone was enough to, as much as I
wanted to do it, I almost said a couple of times, that is it. I
am not going to do this.
Let us just go with the last point that Dr. Zakheim
mentioned and that is the issue of whether we ought to have
basically a Chief Management Officer. Is this somebody who
should serve a set number of terms, somebody who would not be
part of the team, if you will, appointed by a President? I know
Messrs. Patterson and Brinkley have different perspectives, but
let us just go back to you on that point.
One of the things that the Secretary has done, I think, is
by executive order or by direction he has said that Gordon
England, Deputy Secretary, who is, I think we all acknowledge,
very talented and valuable leader, he ought to be the CMO. Is
that action sufficient? That is one question. The second is how
is this designation any different from some of the previous
arrangements that we have had?
Mr. Walker. First, the action is not sufficient. It is
largely a status-quo scenario. I have great respect and
admiration for Gordon England. He is an extremely capable
professional. But the simple fact of the matter is, Secretary
England is G-O-N-E on January 20, 2009, gone, and we don't know
who the next Deputy Secretary is going to be. We have no idea
what their background is going to be. We have no idea what
their interest is going to be. There is no statutory
requirement for the Deputy Secretary to have the kind of
qualifications that would lead to sustainable success with
regard to business transformations. If you look at recent
deputy secretaries, some have had backgrounds that would lend
them towards being successful and some have had backgrounds
that would not lead them to be successful in that role.
And so as I have said before, I think there is agreement
between the Defense Business Board, IDA, and GAO that there is
a need for a new position as a full-time job with a term
appointment and certain other elements. There is agreement on
that, and I think it is essential.
Senator Carper. One of the statements, it maybe came from
Secretary England, but someone, I think, has indicated that CMO
position that meets GAO's recommendations and the
recommendations of Dr. Zakheim will interfere with future
Presidents' and Secretaries of Defense's ability to create
their own management team. Would you just respond to that?
Mr. Walker. Clearly, there has to be a basis that if there
are irreconcilable differences between the CMO and the
Secretary or potentially the Deputy Secretary, depending on the
reporting relationships, then there has got to be a mechanism
in place to be able to deal with that, and one way you could
deal with that is to have some type of a reporting requirement
to the Congress where they could end up proposing to take an
action to end somebody's term before the end of that term for
specified reasons and just advise the Congress.
But I think one of the things we have to keep in mind is
that by getting somebody to agree on the front end to serve a
specified period of time, with the right type of qualification
requirements and with the potential to be reappointed if they
do a good job, that sends a powerful signal within the
organization, as well, that you can't underestimate because I
have been a Presidential appointee of Ronald Reagan, George
Herbert Walker Bush, and William Jefferson Clinton, and my
prior positions have been at the pleasure of the President
until this current one.
The fact is that PAS-es, by definition, are temporary help.
I mean, they are only going to be there for a temporary period
of time if you serve at the pleasure of the President, and the
kind of things that we are talking about needing to get done
here--that these gentlemen are making a very meaningful
contribution towards, I might add--they are going to take a
long time.
Senator Carper. I just want to turn to Mr. Brinkley, if we
could, to follow up on this question. I know you and, I think,
Mr. Patterson have a different take on this, but there is
concern about if we don't allow the President to appoint the
CMO as part of his or her team, that it is going to interfere
with their ability to create a management team to their liking.
I just wonder, why does the Department hold this position if
the CMO is supposed to be nonpartisan and focused solely on
business transformation.
Mr. Brinkley. I can only offer observations. The sense the
Department has is that a new Secretary coming into the
Department with a management agenda aligned to the
Administration's managerial priorities should have as much
freedom as possible to take the people that he has available
and build the team that he believes best aligns to his
management style and his management discipline, and the more
statutory structure you build in place--a private sector
analogy would be you hire a new CEO into a major corporation.
He needs to be able to build his team. He needs to be able to
organize.
So anywhere that you have a statutorily-defined structure,
you reduce the flexibility of the CEO of the organization to
organize effectively, and so I believe there is a natural
resistance within the Executive Branch of government to efforts
to legislate and put in statute things that hinder the ability
of the accountable individual because it will be the Secretary
of Defense held accountable for execution within the Executive
Branch, there is a resistance to having statutory structures
imposed. And so I believe that is the source of the concern
that the Department has about having a position this senior
defined in a way that is not--having this statutorily put into
place.
Senator Carper. Dr. Zakheim, would you just comment on
that, please?
Mr. Zakheim. It seems to me that, first of all, as you
said, Senator, we are talking about a technocrat here. We have
lots of people who have served as technocrats inside the
Department of Defense under a variety of Secretaries. Let me
give you two.
The late Doc Cook, David O. Cook, who was called the
``Mayor of the Pentagon.'' He had lots of power. Some people
said he had more power than the Secretary. When he swore me in,
he told me the Bible that he used was the same one he had sworn
in Don Rumsfeld 25 years earlier in the same job. He always was
the Secretary's purse man, whoever the Secretary was.
Another example, and he should be alive and well, is Andy
Marshall, who has been serving as the head of Net Assessment in
the Department of Defense since he was appointed by Secretay
Jim Schlessinger, Mr. Rumsfeld's predecessor the first time Mr.
Rumsfeld was Secretary, which was a couple of years ago.
So it is quite possible for somebody who is technically
brilliant at what they do to serve as the Secretary and the
Deputy Secretary, and obviously, as David Walker said, there
has to be some leeway that they have to serve at the pleasure
of the top two people. In other words, if there is a
fundamental personality disagreement that is paralyzing the
Department, you can't turn around to the Secretary and the
Deputy and say, well, you are stuck with this individual. That
wouldn't work, either.
Senator Carper. General Walker.
Mr. Walker. Very quickly, Mr. Chairman. First, look, there
is a balancing of interest here that we have to keep in mind.
On one hand, any President or any Secretary would like to have
total discretion to pick whoever they want and remove whomever
they want. That is understandable. That is human nature.
On the other side of the coin, we have an institutional
need. You have to balance the two. What is more important, to
meet the institutional need irrespective of who the President
and the Secretary is, or to meet the individual want based upon
who that is.
The other thing is, is this is not a new issue. The
Commissioner of Social Security and the Commissioner of the
Internal Revenue Service are Presidential appointments with
Senate confirmation with significant responsibilities and they
have term appointments.
Senator Carper. Have they always been that way?
Mr. Walker. They have been that way for a number of years.
I mean, we are not crossing the rubicon here, and those jobs
are at least equivalent in level of responsibility as this one.
Senator Carper. All right. Good. Thanks. Dr. Coburn.
Senator Coburn. Thank you. Let me just go back for a
minute. General Walker, last year's appropriation had $9
billion in earmarks in the Defense Department, something like
12,000 earmarks, which we are trying to get a handle on now
with the Defense Department on how the money was spent. You are
talking about progress being made. I just want to make it
clear. Is there any interference in the progress of managing
the Defense Department when we have 12,000 earmarks out there
laid out for things that they have to do that are non-
competitively bid that have to happen?
Mr. Walker. I think earmarks are a problem. I think not all
earmarks are equal. Some earmarks, frankly, represent waste. I
recently was asked by the House to come up with a definition of
waste and some examples, and my definition was basically on the
following lines. When the taxpayers as a whole do not receive
reasonable value for money because of an inappropriate act or
omission by a party that has discretion over government
resources, that is waste. That can happen by Executive Branch
officials, by Legislative Branch officials, by contractors or
grantees. One example I gave was inappropriate earmarks that
are not based upon value and risk, where we would not be doing
it but for the earmark.
But as you know, Dr. Coburn, an earmark by itself doesn't
increase government spending, but if you have got constrained
resources, the fact that you are telling somebody how to spend
the money when you are going to have tighter and tighter
budgets causes other problems and it serves to undercut the
integrity of the process and the credibility of the Congress in
the eyes of the American people.
Senator Coburn. General Patterson, you went from two to
seven. You expect to be nine entities in 2009. How many total
entities are there in the Defense Department?
Mr. Patterson. There are roughly 15.
Senator Coburn. Fifteen?
Mr. Patterson. Fifteen, yes.
Senator Coburn. In your report, this report, you list the
DOD reporting entities. It is 15 percent of assets, 49 percent
of liabilities. What percentage of net operating expenditures
is that?
Mr. Patterson. We don't audit net operating expenditures.
That is an appropriation and we don't audit--and as I
understand it, we don't intend to audit net operating
expenditures.
Senator Coburn. What percentage of the Defense Department
is it?
Mr. Patterson. Well, it is about $152 billion in O&M, which
is operations and maintenance, of a roughly $460 billion----
Senator Coburn. So it is about 30 percent?
Mr. Patterson. Yes, sir, that is about right.
Senator Coburn. OK. So we have 30 percent of the Pentagon
or the DOD now auditable, correct?
Mr. Patterson. That is correct. But sir, if I could
explain----
Senator Coburn. OK.
Mr. Patterson [continuing]. I don't want to leave the wrong
impression. Within the O&M account, you have a number of other
things--civilian personnel, you have the contractors, you have
services, you have maintenance, and depot maintenance. You have
a variety of things within it, all of which are accountable
line items in a budget. Those are the things within the
services and the various agencies that we would look at for
auditing.
Senator Coburn. OK. But as a percentage of the DOD, that is
what my point is, we are up to about 30 percent where we were
at 5 percent before.
Mr. Patterson. I couldn't attest to that sir, I mean----
Senator Coburn. Well, it is about 30 percent of the DOD
budget?
Mr. Patterson. Yes, sir.
Senator Coburn. That is my point. But none of the Army
isn't in there, right?
Mr. Patterson. Yes, sir, it is. The Army is in operating
and maintenance accounts, of course.
Senator Coburn. I am talking about auditing.
Mr. Patterson. Oh, I am sorry.
Senator Coburn. The Army isn't in there. The Air Force
isn't in there. The Marines and Navy are not in there.
Mr. Patterson. That is correct.
Senator Coburn. So this 70 percent would include the
services.
Mr. Patterson. The 90 percent on liabilities and 40 percent
in assets would include, when we get to that point, the Marine
Corps, it would include the Corps of Engineers and the Army, it
would include the Defense Information Systems Agency, and it
would include the Medicare fund that we have.
Senator Coburn. When you get there.
Mr. Patterson. When we get there in--correct.
Mr. Walker. Dr. Coburn, the answer to your question, I
think, is yes. The 70 percent of net operating costs that have
not been audited yet include the services.
Senator Coburn. OK. Paul, you are in a appointed position,
correct? So unless you are reappointed, everything you are
doing now at the Business Transformation Agency is going to
have a jump start with the next Administration?
Mr. Brinkley. We have staffed an SES-level director of the
BTA that reports to my office. My office is a political
appointment, a non-Senate-confirmed political appointment that
supports that Deputy Secretary of Defense's business
transformation objectives. My role will be replaced no later--
no earlier--maybe no later--than January 20, 2009.
Senator Coburn. OK. And so understanding the political
nature of this, if you were asked to serve no matter what the
next Administration, would you give that a consideration? We
are not going to hold you to it---- [Laughter.]
Mr. Brinkley. I don't want to be on the spot here----
Senator Coburn. This is a great point. Look at our problem.
We have somebody fairly effective, or highly effective at what
they are doing now, and because we are going to have an
election, we are going to gut that. That is the whole point.
The point is, we don't have the ability to put great managers
in and keep them there. Go to the point of David Walker or Dov
Zakheim.
Give me, Mr. Zakheim, if you will, give me some examples of
where the military or DOD could have used a higher
reprogramming, or some examples where we were wasting or not
being able to effectively do things because we have so much--
such a limitation on reprogramming.
Mr. Zakheim. You are asking me to think back 3 or 4 years.
We have had cases, as I recall, where we needed to move money
into faster spending accounts. I will give you an example of
where it would have been nice to be able to reprogram a lot of
money quickly.
Up-armored Humvees, we moved the money eventually. We had
to move mountains on the Hill to make that happen. There
shouldn't have been anything requiring that kind of work. There
were kids out there getting killed. It is that sort of thing,
or the body armor, where it needs to be left to the discretion
of the managers.
Again, as you heard from Dave Patterson and Paul Brinkley,
we know generally where the money is, and nobody is running off
to the Swiss banks with the DOD budget. The real question is,
do the managers of that budget today, who are executing the
budget, have the ability to move money around to where it needs
to be spent urgently. The answer is ``no'', 99 percent of the
time, and that just makes no sense in any context, including
the government.
Senator Coburn. So your position is if you had a 5 percent
limit, still reportable----
Mr. Zakheim. Yes.
Senator Coburn [continuing]. You still had to come and get
clearance----
Mr. Zakheim. Absolutely.
Senator Coburn [continuing]. That would give the
flexibility?
Mr. Zakheim. Sure, because then you----
Senator Coburn. What kind of resistance, when you talk to
appropriators, do you get on that?
Mr. Zakheim. Well, it is not just the appropriators. I
mean, we have to get the authorizers to agree and you have to
get the Intelligence Committees, when it is their budgets, as
well. The staffers feel that this is the way they control, and
I can understand that. I agree that Congress needs to maintain
oversight. But it seems to me that as long as you still have
the prior approval requirement, you are maintaining that
control.
Senator Coburn. Do you think there is adequate oversight in
Congress of the Department of Defense?
Mr. Zakheim. Very often, the Congress seems to be looking
for the key under the lamp post, because you get oversight that
verges on or actually is like micromanagement. In other cases
you don't get it at all, and it seems to me that what you
really need is a dialogue between responsible leaders on both
sides of the river, where both sides have the country's
interest at heart. There just hasn't been that kind of a
dialogue to say, ``Look, how do we straighten this out?'' In
fact, we are still functioning in the realm of financial
management and budgeting as if we were living in the 1960s.
If you permit me to relate an anecdote about this. Around
the time I took over as Comptroller, I bumped into Robert
McNamara and we got to talking about the planning, programming,
and budgeting process because there wasn't execution even as
part of that process. And McNamara said to me, ``You have got
to be kidding. This is what I was dealing with 40 years ago.''
Now, think about that. We are still functioning in many
ways, because of the interplay between Congress and the
Pentagon, the same way we were at the height of the Cold War.
Something has got to give here.
Senator Coburn. Earlier, you alluded to the fact that you,
or maybe Mr. Brinkley, I don't know which, that you have a
management structure and that in the private sector, we have a
business plan, we have auditing, we have financial controls, we
have benchmarks, we have metrics, and we have reassessment all
the time of what we are doing. The point was made is that their
primary thing is to defend the country, and so therefore this
is second. I will put forward to you is you can't defend the
country unless you have the other first.
Mr. Zakheim. I don't disagree. I am just saying that there
is a culture here that exists, and when you think about it,
these are folks who are laying their lives on the line every
day. Many of them are coming home pretty badly beaten up, if
they come home alive, and so naturally when the requirement
comes, when I want to pull some people off to do some of this
anolytical management activity, the military is going to say,
``Well, wait a minute. We are short of people out in the
field.''
Senator Coburn. Yes.
Mr. Zakheim. You have this tremendous tension there. It is
not just money resources, it is human resources, maybe even
more so human resources. It is very understandable, and that is
why I think you can't really start pointing fingers at anybody
and blame anyone. We have a system that just needs to be
revisited.
Senator Coburn. All right. Thank you, Mr. Chairman.
Senator Carper. I think we are about to start another vote.
If we do, I am going to ask Dr. Coburn if he would be willing
to go over and vote and then just come back and, while I vote,
chair the hearing.
Senator McCaskill, welcome. We are glad you are here.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you. I have, as usual, like 14
different things I would like to pursue with this particular
group, but let me for a minute focus on contracting.
Clearly, we are going to be contracting in the future
forever, and clearly, DOD and the various branches have done a
miserable job of contracting in this conflict. Whether it is
LOG CAP, whether it is reconstruction funds, there has been a
lack of definitization. There has been a lack of oversight.
There has been a lack of monitoring. There has been a lack of
competitive bidding. And we have example after example after
example.
We have had several references to the private sector. I
have got to tell you, and I think, Mr. Brinkley, you mentioned
a CEO and having the ability to organize. Somebody would have
been fired in a private business over the way these contracts
have been overseen. Someone would have been held accountable,
not necessarily maybe the CEO, but I guarantee you the Board of
Directors, if all the information had come forward about
literally--I had actually the contracting people at LOG CAP in
Iraq, when they put up the bar graph of LOG CAP going from $20
billion to $15 billion to $12 billion. When I asked them what
caused the difference, I actually had this woman say to me in
Baghdad it was a fluke, a $5 billion fluke that the contract
went down that much.
Now, what I would ask of you, Mr. Brinkley, any of you, and
Mr. Walker and all of you, is don't we need to either have a
Reserve component for conflicts that are contracting
specialists, or more importantly, don't we need to engrain
contract oversight in military training? I had a general say to
me over there, I don't care if it costs $10 billion or $15
billion. I wanted it yesterday and I wanted to make sure there
was ice cream in the mess hall. It didn't make any difference
to me. And he was kind of offended that I was trying to drill
down on this.
And ultimately, this comes back to a level of trust.
Congress is going to continue to overreact and over-regulate
because they don't trust that the military is going to be
responsible, and the military is going to run around and do
whatever they can to go around the regulations because they
need what they need when they need it. And it doesn't appear to
me that this dog is going to ever catch his tail, because it
hasn't for 40 or 50 years.
What do we do about the contracting piece to provide some
measure of accountability? Can we demote someone? Can we
promote someone? More importantly, can we fire someone?
Mr. Brinkley. I will answer the first two questions and
comment on the rest. Your points, and it was good to hear the
focus on the root cause of what exactly has transpired, the
idea of a Reserve component for contracting, I have seen
firsthand, and I will give you an anecdote from the private
sector.
The company I worked for before I came to DOD bought about
a billion dollars worth of materiel all over the world, just $1
billion, right. It seemed like big money at the time. We had a
large staff of engineers and contracting, procurement experts,
we called them, contracting experts who managed those supply
relationships, ensured that product was delivered on time. It
was key to our ability to ship a product to our customer.
Now, compare and contrast within government. The scale of
the spending to support our mission in Iraq and the number of
people we have doing a phenomenally good job--I am in awe of
how our contracting officers are able to manage the scale of
the spending they oversee.
We do need to look at, in my opinion, and I know that this
has been acknowledged and people are looking at how to do this,
Joint Forces Command is looking at a contracting, a scalable
Reserve component for contracting, but we do need, if we
anticipate future conflict that requires us to contract at this
level, and also to ensure that the economic effect of our
contracting is being applied to support the economic
stabilization missions that we have in places like Iraq, that
we ensure that we create a contracting corps that has the
expertise not just in contracting in peacetime, but also
contracting in times of conflict when a general is going to
pound the table and he is going to want his forces to have the
very best they can get and you get overwhelmed with the natural
desire to support immediately the needs of the force and to
balance that trade against your ability to adhere to contract
regulations and rules and have systems and processes that
support that mission.
That is a very important area that we must focus on going
forward, and there are some bright folks who are looking at how
we structure the contracting community to do that in the
future.
Senator McCaskill. Yes, Me. Walker.
Mr. Walker. Senator, on pages 40 and 41 of my testimony,
which is Appendix 1,\1\ there are 15 longstanding systemic
structural problems within the Defense Department with regard
to acquisition and contracting that need to be addressed.
You're tough on another issue, and that is when you have a
conflict or another type of contingency, for example, Hurricane
Katrina. To the extent that you have systemic weaknesses that
have not been addressed, they are exacerbated and multiplied
when you have a contingency operation, whether that be in Iraq,
which is a military operation, or whether that be Hurricane
Katrina, which is a natural disaster.
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\1\ Appendix 1 appears in the Appendix on page 81.
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And yes, one of the challenges on the 15 is the capacity
and the capability, both in numbers as well as skills and
knowledge, to get the job done, and I think we do need to
consider having some type of Reserve for contingency
operations, but we also need to make sure we have enough for
just day-to-day ongoing operations and I question whether we
do.
Senator McCaskill. Mr. Patterson, I have a letter from a
constituent who used to work at KBR. He is retired Navy and he
left in November 2006. His job at KBR was a subcontract close-
out specialist. His job was basically an auditing function to
look at the contracts and find if there had been errors,
omissions, and money that was paid inappropriately.
He found a number of problems, and when he left in November
2006, he not only talked to KBR about it, he also talked to
DCAA about it, the Defense Contract Audit Agency. It is $50
million. He hasn't heard a word. So he sent me all the
documentation and it is pretty obvious, and this is the other
issue. At some point in time, it is like Monopoly money. Who
cares about $50 million? I mean, we have got billions that are
out there.
Who is responsible within the Comptroller's Office to take
obviously very credible--this is the work we paid for, by the
way. This is somebody who we paid for, found this money that we
are owed, and nothing has happened and it has been almost a
year. I mean, not a word. So he recently forwarded it to me
because he figured out that I am talking about this stuff a lot
out here and figured I was interested, and I am.
I would certainly appreciate, first of all, your response
about how successful have we been at getting money back that
was paid that shouldn't have been paid? I know that lack of
definitization of the contracts is a big problem, but this is
definitely definitized, and this was not a cost-plus. This is a
firm fixed price subcontract.
And so this is a situation where there is $50 million here
ripe for the picking and nobody seems interested in picking it.
Multiply that times thousands of contracts. We are talking real
money.
Mr. Brinkley. Well, I certainly appreciate that, and I will
be more than happy--if you ask, who is responsible, it is the
Comptroller and myself. I will ensure that you get an answer
back on that particular incident.
Senator McCaskill. And I would like to know how many of
these there are. How many auditors have we paid to find money
that we are owed and how successful have we been at getting
that money back?
Mr. Brinkley. Well, to that particular point, we have done
33,800 audits through the Defense Contract Audit Agency (DCAA)
throughout the entire Department of Defense. We have recovered
$1.2 billion from vendors that were overpaid incorrectly. We
have a very high incidence of--the percentage of improper
payments is extremely low in a very large organization.
But to your point, we take it very seriously, particularly
with regard to what is going on in the theater. We have Defense
Finance and Accounting Service (DFAS) representatives who are
in theater. We have DCAA, as you point out, in theater and
looking at all of the contracts. The KBR has been a
particularly important company for us to look at because it has
had such high visibility.
So I can assure you that the Department of Defense takes
its contracting responsibilities extremely seriously, and when
we find that there are areas where we find discrepancies, we
send teams to immediately work through those things. We have
sent people to jail, as you well know, because they have
defrauded the government.
Senator McCaskill. And there are going to be,
unfortunately, in a heartbreaking way, there are going to be a
lot more that go to jail----
Mr. Brinkley. Absolutely.
Senator McCaskill [continuing]. Because we are a long way
from done, and I think the American people, when they realize
that for the first time, really, we have had men and women who,
unlike the 99.9 percent of the men and women who step forward
and across the line for us, have stolen millions and millions
and millions of dollars, and it is a dramatic failure of the
Department of Defense. I appreciate you take it seriously that
this has been a complete breakdown of appropriate financial
accountability.
Mr. Walker. Senator McCaskill, we have a report coming out
on improper payments dealing with the Defense Department within
2 weeks that I would commend to you.
Senator McCaskill. OK, and I will read it in depth and
hopefully I can get back and ask some more questions after I go
vote.
Senator Carper. We are going to take a quick recess. Dr.
Coburn will be back momentarily and resume the hearing. But
until he returns, we will just be in recess for a few minutes.
[Recess.]
Senator Coburn [presiding]. Well, we will start again, if
we may.
General Patterson, in 2006, the DOD spent $300 billion on
contracts, 71 percent of the entire Federal Government's
contract work. Many of these contracts were time and materials,
one of the riskiest contract types for the government because
they could be awarded quickly and labor hours or categories can
be adjusted if the requirements are unclear or the funding is
uncertain. DOD's management of contracts have been on the GAO's
high-risk list since 1992, 15 years. Why in contracting has
this not been resolved in 15 years?
Mr. Patterson. Well, I can't account for the years prior to
my coming to the Department of Defense, but I can----
Senator Coburn. Well, what are your thoughts about it?
Mr. Patterson. I think that we use too many time and
materials contracts. Within 2 weeks of my taking the job, I
came in and found out that the logistics management program had
a $1.3 billion time and materials contract that looked as
though it had no end and we simply refused to fund it because
that is ridiculous.
I have a very negative reaction to people who use time and
materials contracts because they can't figure out how to
justify the individual elements of what they want to do and we
have to get to a point where we apply structure and discipline
to the way in which we use the taxpayers' dollars. To simply go
in and say, well, I don't know exactly what I want to do, so I
guess a time and materials, or an Indefinite Delivery/
Indefinite Quantity (IDIQ) contract, is the way I should go.
Particularly odious to us has been the interagency
contracting, and we have gone a long way to eliminate the
abuses that have taken place----
Senator Coburn. Explain what that is, interagency.
Mr. Patterson. As you know, you have GSA and NASA, the
Treasury, they all have open contracts, IDIQ contracts. They
all have them. Well, when something is very urgent and there is
an open contract that is open in that category, it is perfectly
reasonable to sign a MPR over to another agency because you
need to get something very quickly.
Well, what we found was that wasn't the case at all. People
were having Multi Interagency Procurement Requests (MIPR)
signed over to the GSA or the Department of the Interior that
said things like office equipment. I can't tell whether that is
urgent or not. So consequently, we have taken very strong steps
to eliminate that as a potential area for fraud, waste, and
abuse. The Department of Defense IG has identified 640
potential ADAs. Of those, we have done a cursory review and
found that, effectively, it is people using the wrong
appropriation or doing something else. It is simply an
administrative error. But there are some that we are taking
action on, and 90 of those are now for official review by the
Department of Defense General Counsel.
Senator Coburn. What percentage of contracts at DOD are
fixed price?
Mr. Patterson. I couldn't tell you right off the top of my
head.
Senator Coburn. Would that seem to be an important number
for us as we look at this?
Mr. Patterson. I am not sure that it is, because the
exigencies of what you want to purchase drive you to make a
determination as to whether or not you will use a fixed-price
contract or a cost-plus contract. If you know very clearly what
the bounds are of what you want to buy and how long you are
going to purchase it for and the cost of that is very well
known, then a fixed price is perfectly reasonable.
Senator Coburn. Let me give you a little example. We had
the Air Force and Lockheed here on the C-5 problems and the
Nunn-McCurdy breach that was just filed about the time we were
having that hearing.
Mr. Patterson. Yes, sir.
Senator Coburn. You can have all sorts of fixed-price
contracts in the private sector where you say, if we buy this
many, it is this price. If we buy this many over this time, it
is this price. If we buy this many over an extended period of
time, it is this price.
I guess what I am going towards is it seems like we are not
sharing some of the risk with the suppliers of the Defense
Department. All the risk is being placed on the American public
because we go cost-plus for a limited fixed-price contract.
What is wrong with contracting the way the private sector does?
How many contracts are you aware of that the private sector
does that 70 percent are cost-plus? Mr. Brinkley, would you
want to answer that?
Mr. Brinkley. I think the motive in that, and I am not sure
it is applicable anymore given all the consolidation that has
taken place, but I think the desire for cost-plus and the
motives that drove that and continue to drive that, in the
private sector, you can always find another customer. In
government, you win a big government contract, you do cost-
plus, and in the event that you lose that contract, you have
the ability to ramp down your cost structure as opposed to just
instantly facing a bankruptcy situation. So I think the
structural definition or why we got into cost-plus was lent to
that. Now whether in a globalized defense environment that is
still a motive or not, I think may be worth looking at in terms
of whether that structure and those motives that drove the
creation of that still make sense.
Mr. Zakheim. There is something else, too. If you look at
shipbuilding, in the 1970s, there were huge cost overruns on
fixed-price contracts, so the decision was made to go to cost-
plus because that way, you accounted for a lot of front-end
research. You don't have formal R&D accounts as much in the
shipbuilding account, but it is basically front-end R&D for the
first ship. It is very difficult to predict a fixed price on
research and development, and so they moved to cost-plus. Then
there was a swing back to fixed price because then no one was
happy with cost-plus. Then they realized why they had gone away
from fixed price in the first place.
So to some extent because--and this is what Mr. Brinkley
was talking about--because of the peculiar nature of a lot of,
of a monopsony environment, there is only one buyer here, it is
much more difficult to say there is a cookie cutter answer,
whether it is for cost-plus or fixed price, or for that matter,
as Mr. Patterson said, in some cases, time and materials also
is legitimate.
I think maybe having a better sense of what is the most
appropriate, we have some distance to go there, but I don't
think you can just have a meat ax approach to a particular kind
of contract.
Senator Coburn. Mr. Patterson, I am going to go to you in
just a second because I think a lot of our problems with these
contracts is a lack of oversight in the contracts. In other
words, the contract is out there and we don't have the
oversight. That brings me up to another problem which I would
like both Mr. Brinkley and Mr. Patterson to address. It is my
understanding that we have a real shortage of contract purchase
managers. What are we doing to address that? What are we doing
to train for that? What are we doing to get those people in,
get them the experience so that we have them on board?
Mr. Patterson. I think there is something that we can do in
the near term, and we are, and that is to train people within
the individual units on very rudimentary statement of work,
purchase order. A lot of the problems that we have are at the
very lowest level and they don't amount to a great deal of
money, but they continue to be problems. We have a dearth of
qualified contracting officers, that is true, and I would
attribute that to the zeal at which we reduced the number of
professional government employees in the 1990s. We went from
550,000 in the acquisition world, down to something less than
300,000 in a matter of 7 years. We basically took the very guts
out of the talented pool of professionals that did this kind of
thing.
Now, I am not saying that if we got them all back that
everything would be wonderful again, but at least it is
symptomatic, I think, of what you are getting at, and that is a
lack of contracting officials to do the work.
Senator Coburn. Are there certain regulations that should
be waived in terms of hiring to help solve this problem?
Mr. Patterson. I think there just needs to be a very
strong, enthusiastic management emphasis on bringing back
qualified and skilled government employees.
Senator Coburn. Where do you get those?
Mr. Patterson. You get them from the private sector. I
would start out--the Congress gave us the authority to bring
back IPAs and highly-qualified experts. We need to use that
authority more liberally.
Senator Coburn. General Walker.
Mr. Walker. Well, first, I think training clearly is an
issue, especially--including for our deployed forces. They need
to have more training with regard to some of the basic issues
of contracting that they are responsible for executing and they
don't necessarily have that type of training.
Second, cost-plus contracts are a problem to the extent
that they are used in circumstances where they shouldn't be,
but they are only one of many challenges that we have. And I
come back to page 40 and 41 of my testimony where I lay out a
number of them. I mean, part of the problem is that we know we
have a want. The want may or may not be a need. We may or may
not have defined it clearly enough. And then we ask a
contractor to go out and try to work on a want, or even if it
is a need that is not clearly defined, and we do it on a cost-
plus basis with inadequate training, with inadequate risk
sharing between the taxpayer and the contractor, with
inadequate oversight. You get a combination and a compounding
of problems of which cost-plus is only one element.
Mr. Patterson. And to follow up on what Dr. Zakheim said, I
think that what we are missing here is we are missing a set of
clear standards that drive you to make decisions on whether or
not you are going to use a cost-plus incentive fee, a fixed
price. We don't have those kinds of standards whereby we would
be driven one place or the other. We also live in a world of
extraordinary vagaries in terms of what the next year will
bring in terms of budgetary authority.
Senator Coburn. I am going to go back to the Lockheed----
Mr. Patterson. OK.
Senator Coburn. We have a contract that by the Air Force's
assessment has a Nunn-McCurdy breach because it looks like the
costs are going to be--why accept that contract in the first
place? Why not say, Lockheed, if you want this business, you
are going to have to share a good portion of the risk and here
is what we will commit to, and you take, based on what an
appropriations plan is and an authorization plan is, and the
only out for Lockheed would be is that we are not going to ever
fund this again. And ask Lockheed to quote on the basis of
those parameters.
We don't do that. We say, well, here is the way it works,
and so therefore that is the only way we are going to contract.
Well, the fact is, we could change to a different paradigm in
defense contracting if we said, look, you get a bunch of gravy
but you're going to take a bunch of risk. We have a defense
contracting business, I believe, in this country that doesn't
have much risk. We have conditioned them to low risk and they
make billions of dollars off the Federal Government every year,
and it is time that their contracting reflected them taking
some of the risk.
So I am asking, why can't you change the paradigm under
which you buy, and maybe shipbuilding is an exception, but in
Lockheed, we did all the steps. Now the question is, the real
question is does the Air Force want the C-5 or not. That is the
real question. It is not whether or not we are going to buy it
or whether or not there is going to be a contract. It is
whether or not the generals really want it.
Mr. Patterson. Well, aside from your last question, the
fact is, you are exactly right. We can modify contracts. We can
write contracts to get the very best advantage for the
government. But we are also responsible for getting cost
schedule and performance, and what I believe and what I think
we found when we did the Defense Acquisition Performance
Assessment a couple or 3 years ago is that what we are missing
here is stability in programs.
The C-5 program, for example, starts in 2007 and doesn't
finish until 2021 for 108 airplanes. In the 1950s, we bought
535 Boeing 707s for air refueling. That price, I guarantee you,
stayed fairly consistent over the 5 years in which those
airplanes were purchased.
What we need to understand, and to your point, we need to
revamp the way in which we consider contracts. They can't be
what I refer to, and it is unfair, I realize that, but it
appears as though what we say is we need it faster, better,
cheaper. The contractors say, outstanding. We can make it
faster, better, cheaper, no matter how long it takes or how
much it costs. And we say, where do we sign? We have to change
that fundamental way of thinking in order to get a better deal
for the American taxpayer, and I can guarantee you that we are
committed to doing that.
Senator Coburn. Well, I think General Walker's point is the
reason we have trouble bidding contracts on research is because
we oftentimes don't know what we want.
Mr. Patterson. We have no idea.
Senator Coburn. And so why are we letting contracts when we
don't know what we want? That is management. That is the thing
that Mr. Brinkley has brought to this, is this has to be
clarified. What is your intent? What is your need? And is it a
real need, and that is where upper management has to make those
decisions. Where are the standards for cost-plus versus fixed-
price contracting in the Pentagon? Is there a set of standards
that people have to follow?
In other words, the Secretary says, here is when you will
make a decision fixed price versus cost-plus. Are there
standards within the Pentagon, or is there just freedom to do
whatever you want?
Mr. Patterson. Well, I think to your immediate question,
and I am somewhat embarrassed, I have not seen those
standards----
Senator Coburn. So why not? Where are the standards that
should drive the management of purchasing things that say, here
are the circumstances in which it should be correct to use a
cost-plus contract. Here are the circumstances when it is not.
Where is the management tools? Mr. Walker.
Mr. Walker. Well, first, there is something in the Federal
Acquisition Regulations (FAR), that lays out guidance. To what
extent has that been communicated and to what extent is that
being followed?
Senator Coburn. And where is the follow-up to see if it is
correctly followed?
Mr. Walker. Right.
Mr. Patterson. But I think to General Walker's point that
it is guidance, and there is nothing that tells us if these
conditions, A, B, C, exist, then you have the conditions
necessary for a fixed-price contract. If other conditions
exist, then you will choose some other way of contracting. I
think that very specificity needs to be part of the way we do
our business in the Department of Defense.
There may have been in the past people, as I mentioned, who
knew this stuff intuitively and it wasn't necessary to come to
this, what I refer to as the rules of acquisition. But in the
absence of that skilled labor, I am coming to the point where I
believe we need a strong set of rules.
Senator Coburn. Is that in the planning?
Mr. Patterson. The planning. I provided what I consider to
be a reasonable set of rules to the acquisition community. But
it is a process and we will talk about it and we will come to
some accommodation because, quite frankly, I mean, as much as I
would like to think so, I don't have the inside track on
everything that takes place. But I do know from my experience
both in government and in the corporate world that you need
discipline and structure if you are ever going to achieve cost,
schedule, and performance as you expect to have it.
Senator Coburn. It is called line management. Here is your
area of accountability. Step up to it. You step over, you are
in trouble, but if you don't come up to it, you are in trouble,
and that is the kind of management techniques that we need.
Mr. Brinkley, do you have any comment on that?
Mr. Brinkley. I just want to reinforce. I mean, Federal
Acquisition Regulations and to be Defense Acquisition Workforce
Improvement Act (DAWIA) certified as an acquisition
professional requires you to learn those guidelines, and they
are guidelines. I have witnessed myself courageous contracting
and acquisition professionals put in place fixed firm price
agreements for large programs that almost immediately then went
off the rails, and the pressures then that they felt because
now their whole program was at risk given all of the issues
that General Walker pointed out in terms of the up-front
requirements definition that was not well crafted. And so I
know that the pressure on a contracting professional or an
acquisition professional is to use the most flexible vehicle
possible in the absence of that up-front requirements
definition discipline that exists.
Senator Coburn. That makes a lot of sense. When was the
last time the Pentagon sued a contractor for non-performance
based on a fixed-price contract?
[No response.]
Senator Coburn. There is the problem. The fact is, if we
haven't, that means we have been contracting poorly. There
should have been people taking enough risk that some didn't
perform and we aren't holding them accountable. Most of these
are very wealthy companies that do the big contracts for the
Pentagon, and so with risk comes reward. I have no problem with
them making a lot of money off of our purchasing, but they also
ought to have to carry a lot of risk and I don't see that risk
in our contracting and that is a big problem and one of the
reasons the costs are so great. If it goes off the rails, why
isn't the contractor on the hook? And that is my point. We are
on the hook, you and I as taxpayers, not the contractor.
Mr. Chairman.
Senator Carper [presiding]. Mr. Brinkley, do you head the
Business Transformation Agency?
Mr. Brinkley. The Business Transformation Agency reports
through my office within the Department, within the Office of
the Secretary of Defense.
Senator Carper. All right. That is the way it looks today.
Help me figure out who is included under the Defense Business
System Management Committee. Does that include the Deputy
Secretary?
Mr. Brinkley. That would be chaired by the Deputy
Secretary. It includes all of the Service Secretaries, the
heads of the Defense agencies, as well as the under secretaries
in the business mission area of the Department, so the
Comptroller, AT&L, personnel, and readiness.
Senator Carper. All right. Fair enough. And then we have
the Principal Staff Assistants. These would be the Comptroller,
the Under Secretary of Defense for Acquisition Technology and
Logistics, and then the Under Secretary for Personnel and
Readiness, right?
Mr. Brinkley. Correct.
Senator Carper. OK. Let us move ahead to January 2009. I
don't think any of us know who is going to be the next
President, but there is strong suspicion that there will be
some changes, as there normally is at the end of an
Administration after 8 years. What our staff has done is they
color-coded these different boxes with red, which suggests
majority turnover, beige, which is sort of partial turnover,
and yellow, which is relatively no turnover. I don't know if
that is a vote of confidence in you, Mr. Brinkley, or not, but
we don't have much turnover at all expected at the Business
Transformation Agency.
But up here, a lot of turnover from among the senior
governing body. Among the Principal Staff Assistants, we have a
fair amount of turnover. Here, we have some turnover at the
Investment Review Board and relatively little down here below.
Mr. Brinkley, with this much turnover at the Department,
especially at some of the higher levels up here, how do you
think the next Administration will continue the transformation
efforts that have begun?
Mr. Brinkley. So this is something we have thought about
since the very beginning, and early on, we did some research on
this problem, and I counted up nine times since 1960 that
bright people came into the Department of Defense and launched
efforts to modernize the Pentagon's business operations, and
they all follow a trajectory: A head of steam, a vision, a
strategy, some talented people come in, establish some
momentum, a change of Administration, start over. That is a
problem.
Senator Carper. Have there been nine changes? How many
changes in Administration since 1960?
Mr. Brinkley. You would have to count. I guess I have to do
the math.
Senator Carper. You said nine times.
Mr. Brinkley. I counted nine times since 1960 we have
attempted to do a business modernization----
Do some quick math. Anyway, so the question is whether it
is turnover of individuals, turnover of Administrations, that
is a concern. So we have taken tangible steps to address this.
Some of this is codified into statute and none of that
structure existed prior to the efforts we have had underway for
the past 3 years, building on what Dr. Zakheim launched back in
2001.
We believe that establishing the civilian agency, Business
Transformation Agency, we moved all of the people who were part
of that political structure into a civilian organization. That
organization in yellow there will not see turnover in the
transition. It is a Defense agency. It is directed by David
Fisher, a gentleman from the private sector who has come in at
the SES level. He is the BTA's Director. I am a political
appointee within the Office of the Under Secretary for AT&L in
the middle there. I will turn over.
But we also believe that there are a series of other steps
we have taken to mitigate the risk of a loss of momentum. We
publish, and sometimes I think we take this lightly, but it was
a monumental achievement to publish for the entire Department
of Defense our transition plan, and in some of the testimony
earlier, people claim that such a plan doesn't exist or it is
not complete enough and we will probably continue to debate
that forever, whether it is comprehensive enough or not. But
that plan lays out 6-month milestones, which was a change in
thinking for the Department, that we publish and we measure
ourselves to, and we make clear to you and we make clear to the
public. And we hit about 70 to 80 percent of those milestones
every 6 months. The ones we miss, we put in place recovery
plans for.
There are milestones in that plan that go out well past
this Administration, 2012, 2013. Those are things that the
Congress can hold the next Administration accountable to. And
if the next Administration decides they think some of those are
bad ideas, political--Democratic or Republican supply chain,
right, or a Democratic or Republican accounting system, if they
can identify things like that and they want to stop or
redirect, well, then they can do that, but they do it in a way
that is transparent and that you can hold them accountable to,
and that is a very powerful tool that has been placed in your
hands as an overseeing body to hold the Department of Defense
accountable not to lose momentum, and I think that is
important.
So those are tangible steps. The structure that you have
defined, that is in statute. The Congress put that structure
into place, the DBSMC, these Investment Review Boards were put
into place in the 2005 National Defense Authorization Act. The
next Administration can't just wipe that structure out. It must
place new leaders into those key roles and they must assume
their responsibilities.
So there are things that are continuity that have never
existed before, that are necessary steps to create continuity
beyond Administrations. What you have to decide is are they
sufficient. I know Mr. Walker doesn't believe they are
sufficient. There are people who argue passionately that this
is good progress but not sufficient. That is above my pay
grade. But I do think we have taken steps for the first time to
see this work.
My worst nightmare is to wake up back in California in
March 2009 and read in the paper that all the work we have done
has been washed away and that we are going to start over--
because I know what will happen. A few months later, we will
start again, right, because the need for this isn't going to go
away.
Senator Carper. General Walker, you are raising your hand?
Mr. Walker. First, there have been nine Administrations
since 1960, all right.
Senator Carper. All right.
Mr. Walker. Second--and some were two-term Presidents.
Second, there is a plan for systems. There is not a
comprehensive integrated strategic business transformation plan
that deals with all 15 high-risk areas with metrics and
milestones. There has never been one.
Senator Carper. Why do you suppose that is?
Mr. Walker. Because there is nobody in charge. You can't
run a country by committee. You can't run an agency by
committee. Now, don't get me wrong. I think the DBSMC is a very
positive thing, and let me reinforce, I think that Gordon
England is one of the most talented executives that the Defense
Department has ever seen, all right. But there is going to be
massive turnover. It is a reality. It is not a theory, it is a
reality.
Now, one of the things, and I will just mention this
briefly, that I think we need to think about as a country is
how many political appointees should we have? How deep should
they go? How many of them should be Presidential appointees
with Senate confirmation? How many of them ought to be
Presidential appointees?
And of the ones that are Presidential appointees with
Senate confirmation, I think we have to recognize the reality
that there are three kinds of positions. There are policy
positions, which clearly ought to serve at the pleasure of the
President because they are executing the President's policy.
There are operational and management positions which are
different where you ought to have statutory qualification
requirements and maybe a term appointment. And then there are
independent adjudicatory and oversight positions, like
Comptroller General, IGs, judges, where not only do you need
the right kind of qualifications and potentially a term, but
you also need independence. You need people who are
independent.
We have one-size-fits-all approaches in government and we
need to kind of step back and fundamentally reassess that.
Senator Carper. All right. Thank you. Mr. Zakheim.
Mr. Zakheim. Obviously, you have pointed to a very serious
problem. Let us play a mind game and say that the next Deputy
Secretary of Defense, who still would be CMO, is someone who is
not interested in management. We have had some of those. How
effectively do you think that individual will run that
committee that he or she will chair? The committee then will
become useless.
What does that do? It totally undermines the Business
Transformation Agency because now the head of the agency, who
by the way stays on, as I understand it, now doesn't really
have any real reporting chain because the head of that agency
has to deal with three quarrelling barons, the Comptroller--
again note Comptroller is in the title, it is not CFO in the
title. It is very interesting. So the Comptroller--you may have
a Comptroller that is only interested in the budget and not
even interested in financial management. We have had some of
those.
And so it would be the Comptroller, the Acquisition Under
Secretary, and the Personnel Readiness. How do you expect the
business transformation person to deal with all three of those
if there is a weak chairman of that business management
committee at the top? It just doesn't work. It doesn't work in
business and it won't work in government.
So I feel that you have to have, in effect, a parallel to
what we have already done. I mean, the fact is the Defense
Department has a permanent managerial person, namely the head
of the Business Transformation Agency. I believe that person
has got a term, That person is seen as a technocrat, as an
expert. Well, if that is the case, the same model ought to
apply to a CMO, as I said in my testimony, and I would have the
head of the Business Transformation Agency report directly to
that CMO to get out from under competing baronies who are all
legitimately claiming resources, but you just can't satisfy
everybody.
Senator Carper. All right. Thank you. Colonel Patterson, if
you want to say anything on this one, feel free. Otherwise, I
have another question for you. Do you want to opine on this
briefly?
Mr. Patterson. Well, obviously, I support the Deputy
Secretary of Defense and the position that he has taken on
this. I would also mention the fact that one of our
responsibilities and that we take very carefully and very--it
is an important responsibility, and that is we hire good
managers. That is our responsibility. We vet them. Sometimes we
are not perfect. But we are accountable for what happens to
them and what happens on their watch. And so I would tell you
that we take that very seriously and that is our
responsibility, is to hire good managers. Good managers are
people and sometimes we don't make the right choice.
But to pick up on what Dr. Zakheim said, I think it is an
extraordinarily important point, and it was the point that when
you asked me the last time I was here, you said, what could we
do for you, and I said you could help eliminate the byzantine
labyrinthine process by which good people are systematically
eliminated from being candidates for these important jobs, and
I can't stress that enough.
Senator Carper. I remember you saying that. It is good that
you are staying on message.
Mr. Patterson. Thank you, sir.
Senator Carper. Let me move on to Mr. Walker for a quick
question. We will come right back to you for my last question.
General, how do challenges in DOD's business operations affect
the war fighters?
Mr. Walker. Well, first, I would say that there are three
Ms in the Department. Mission is No. 1, and it should be, and
it should be in every department and agency. Money is No. 2.
Get the money, spend the money. And management is No. 3. Now,
don't get me wrong. I am not trying to downplay what has been
accomplished because a considerable amount has been
accomplished. And I think to be fair, you have to analyze
things based upon where do things stand now, what type of
progress is being made, and then how do you benchmark it
against a comparable organization. You need to look at all
three to be fair and to provide contextual sophistication.
Progress has been made.
To the extent that we have inefficient and ineffective
business processes, several things happen. One, we waste a lot
of money. And if we waste a lot of money, when the crunch
comes, and the crunch will come, including for the Department
of Defense, we won't be able to acquire some things that we
need.
Second, we may not have good accounting over what we have
in deciding what we are going to buy. We may not have an
ability to deliver things that we do have, and we know where
they are, as effectively as we should. And so I can give you
more and more examples, but there are consequences to the war
fighter and those consequences are anywhere from short-term
tactical to longer-range strategic implications, not just for
the war fighter, but quite frankly, for our national security.
Senator Carper. Say those three Ms one more time.
Mr. Walker. OK. Those three Ms are mission, money, and
management.
Senator Carper. All right. Thank you.
Mr. Patterson, one more question for you and that is it for
the questions I want to ask here today. But GAO has previously
reported that it has found, I think, numerous problems with
DOD's process for recording and reporting costs for ongoing
operations related to the Global War on Terrorism, raising
significant questions about the reliability of DOD's reported
costs and its future requirements. Are the steps that DOD has
previously taken regarding reliability having an impact in
improving its reported Global War on Terrorism costs?
Mr. Patterson. Yes, sir, I believe they have.
Senator Carper. Would you talk about that a little bit?
Mr. Patterson. Yes, sir. I would be happy to. Because it is
so visible and we have a responsibility to be very accurate
about the cost of this war, we have established a senior
executive working group that I am a co-chair and the lead chair
with the Director of the Defense Finance and Accounting System.
And to this day, our processes and improvements have brought us
to a point where we believe and we can show that 92 percent of
all of the costs that we identify are costs that come from an
accounting system, so that you can trace it back to an
established accounting system.
Only 8 percent of the costs of the Global War on Terror are
attributed to modeling or estimating, and more modeling than
estimating. We are attempting in every way possible to start to
eliminate completely estimates and use actual costs in our
Global War on Terror reporting and we are coming very close. I
believe that the GAO in their latest accounting of the way in
which we do things have given us credit for the fact that we
are making progress in that area.
Senator Carper. Is there anything to what he just said
there, General Walker? Are you here to back him up?
Mr. Walker. They are making progress and I have been asked
to be briefed on this matter and I have yet to be briefed on
it, but I am scheduled to be briefed on it in the near future
and I will be happy to report back to this Subcommittee when I
am.
Senator Carper. Thank you. I said that would be my last
question, but I want to go back to Mr. Brinkley, one thing we
have not really gotten into. I understand one of the things
that you focus on deals with how do we help foster economic
development and job creation within Iraq. It is an important
subject, real important, actually. I would be interested in
your telling us how we are doing. Are we doing any better? What
are some of our lessons learned?
Mr. Brinkley. To synthesize quickly on this, Iraq has a $35
to $40 billion gross domestic product (GDP), most of that
generated with oil sales.
Senator Carper. Is that both before and after the war?
Mr. Brinkley. I think it has grown a bit in terms of the
price of oil has gone up. Therefore, GDP has grown since 2003.
Now, it was an industrial economy prior to 2003. Under U.N.
sanctions, they were not allowed to import anything other than
what they could smuggle in. They had a large industrial base.
We are bringing DOD's industrial expertise to bear to get that
industrial base up and running again. It provided employment
for, the World Bank estimates, about half-a-million people in
Iraq. That served as the core engine of the Iraqi economy, and
so where we can bring business expertise from the Department of
Defense to bear to restore industrial operations in Iraq, we
are doing that.
The way we are doing that is we are spending, as you know,
well in excess of $10 billion a month in Iraq. Now, you are
spending over $10 billion a month in Iraq to sustain our troop
presence, acquiring a wide variety of goods and things that are
necessary to sustain our presence there. That can be a huge
economic stimulus to that country. So this area of contracting,
not just how we do it transparently and more effectively so
that the Congress and the American people have confidence in
where their dollars are going, but also so that the war
fighting community can wield our spending as a tool of economic
policy in Iraq to help stabilize and restore employment and
normalcy in areas.
As General Petraeus establishes a security footprint, we
follow with rapid economic reconstruction and development by
restoring employment and the industrial base there. That is
what we are working on today, and we have made significant
progress and anticipate significant ongoing progress in that
effort.
Senator Carper. How do you measure your progress?
Mr. Brinkley. Progress is measured in multiple levels.
First and foremost is the efforts we have in partnership with
Joint Contracting Command for Iraq-Afghanistan. Major General
Darryl Scott under MNF-I Command has--we have registered over
5,000 Iraqi companies, private companies, that are currently
receiving almost $400 million a month in U.S. Government
contracts for goods and services to sustain our forces. Four-
hundred-million dollars a month is a significant economic
stimulus in the Iraqi economy, and these were goods that were
not being imported from America but were being purchased in the
region to support our mission. So this is not removing economic
stimulus from home, but actually channeling regional economic
stimulus into the place where we need it most, Iraq.
The other measurement is in our restarting of factories. Up
until September of this year, we brought back online 17
industrial operations in Iraq that restored sustained
employment to over 5,000 Iraqis. We will impact 30 more
factories between now and January. Unlike construction or some
of the other jobs, programs that we have underway in Iraq, a
manufacturing job is a sustained employment that has a
multiplier effect on the economy in Iraq, and so in partnership
and in support of MNF-I Command objectives, we believe this is
a key element to helping continue the stabilization we see
starting to take hold in areas in Iraq today.
Senator Carper. Dr. Zakheim.
Mr. Zakheim. Yes. I was just going to say as the one non-
member of any part of the government, I am reasonably
objective, I think. Paul Brinkley has done a remarkable job out
there. He has paid a very high personal cost. He spends most of
his time in what is now the garden spot of the world. He has
been developing U.S. investments in Iraq, which is good for our
businesses and good for the Iraqis, as well as what he has
talked about. And fundamentally, if we are going to turn that
place around, and now I am biased because I am an economist, it
is only going to be done by turning the economy around. And so
the gentleman to the right of me has done a remarkable job in
that regard.
Senator Carper. Mr. Brinkley, are you going to let him get
away with saying that about you?
Mr. Brinkley. Yes. [Laughter.]
Senator Carper. All right. Dr. Coburn, any closing words?
Senator Coburn. No, I am fine.
Senator Carper. We appreciate each of you being here. We
appreciate your current service to our country and your
previous service. Dr. Zakheim, it is great to see you again.
Your testimony has been valuable, but I think our questions
have been of value to us and I hope to some of you.
One request that I asked Mr. Patterson before was what can
we do to be of help, and he has again reminded us of one of the
things that we can do to be of help and we will try to be
helpful there. Go ahead.
Senator Coburn. I just wanted you to know that I elevated
his rank while you were gone to General. [Laughter.]
Mr. Patterson. And consequently, my answers to you were
much better. [Laughter.]
Senator Carper. That is not always the case. [Laughter.]
We have field hearings. That would be a field promotion.
This hearing record is going to be open for a couple of
weeks for any additional statements that our colleagues might
have and questions. To the extent that you receive those, we
would appreciate your promptly responding to them.
Thank you for bearing with us today through all these
votes, and again, we appreciate very much your presence and
testimony. Thank you so much.
The hearing is adjourned.
[Whereupon, at 5:58 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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PREPARED STATEMENT OF SENATOR VOINOVICH
Senator Carper and Senator Coburn, thank you for holding this
important hearing to address the business management and financial
challenges facing the Department of Defense. Improvements in these
areas are essential to ensuring that the Department manages its people,
systems, and programs in an efficient manner.
Since 2005, as Chairman and now Ranking Member of the Subcommittee
on Oversight of Government Management, the Federal Workforce, and the
District of Columbia, I have held hearings on the Department's GAO
high-risk areas; three on DOD supply chain management and one on the
Department's transformation efforts.
My interests in this area is three fold. First, the Government
Accountability Office designated eight areas within the Department as
high-risk for waste, fraud, abuse, and mismanagement. In addition,
there are seven government-wide high-risk areas for which DOD shares
responsibility. Many of these problem areas have been on GAO's list
since 1990. These high-risk areas, and the resources and management
efforts they consume, diminish the ability of the Department to perform
its missions effectively.
Second, the men and women serving abroad and fighting for our
freedom deserve the best support possible from their government.
Finally, the American taxpayer deserves a Department that is
transparent and held accountable for every penny it spends. With a
budget of well over $400 billion, the Department must be a good steward
of the taxpayers' money.
As I have noted in the past, former Secretary of Defense Donald
Rumsfeld once estimated that the Department wastes 5 percent of its
budget--more than $20 billion a year at current budget levels--on
redundant or outdated business practices. Based on my experience, I
believe the actual number is much higher.
I have been extremely pleased with the work Mr. Brinkley and the
Business Transformation Agency have been able to accomplish in such a
short period of time. By developing and issuing the Enterprise
Transition Plan every 6 months, BTA has been able to monitor the
Department's transformation. Mr. Brinkley, I look forward to hearing
how you plan to institutionalize BTA's transformation plan.
Regardless of the progress, the Department will never see true
transformation until they have a Chief Management Officer dedicated
solely to management. While I applaud the decision of Secretary Gates
to name a Chief Management Officer, the designation of the existing
Deputy Secretary does not get the job done. After all, there are only
24 hours in a day, and Gordon England is already responsible for a
multitude of tasks. I think Comptroller General Walker will agree with
me that we need a dedicated senior level official whose full-time job
is focused on management.
True transformation is driven by committed leadership and must
stand the test of time. With the coming transition to a new
Administration, we need to ensure that progress continues. I look
forward to hearing from our witnesses today.
Thank you, Senator Carper.
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