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SEN. LEVIN: Good afternoon, everybody. Thanks for coming.
We are introducing the Weapons Systems Acquisition Reform Act because of the massive cost overruns which afflict the acquisition of our weapons systems. Last year, the GAO reported that the cost overruns on the Department of Defense's 95 largest acquisition systems alone totaled over $300 billion over the original program estimates, even though the Department of Defense cut the quantities in the program and they reduced the performance expectations in an effort to hold down costs. So that's a 30 percent increase in the cost of those programs.
Now, there are many causes. A number of them can be lumped number the heading of rosy assumptions that are made by the Department of Defense in starting off. They unrealistic performance expectations, including reliance on immature technologies. They make unreasonable cost and schedule assumptions. And they change the program requirements in the middle of the stream.
And just a couple of examples.
First, the Army's Warfare Information Network, so-called WINT-T, which is a communications program. That program entered into system development in demonstration phase with only three of its 12 critical technologies at the appropriate level of maturity. The program cost, as a result, doubled, and the program was delayed by more than four- and-a-half years.
Another example is the Navy's Littoral Combat Ship, the LCS program. The initial goal was $220 million a ship and a two-year construction cycle. We're now at $500 million a ship and it's way beyond two years.
Now, what can be done about this? The bill that we're introducing addresses these cost overrun problems in a number of ways.
First, we are establishing a director of independent cost assessment. That director is going to be participating in the deliberations of the so-called Joint Requirements Oversight Council, so that we can not just look at the military requirements of new systems but we also will look at the cost of those new systems as part of that Requirement -- Requirements Oversight Council participation.
Second, we're also going to be reestablish something which was disestablished by the Department of Defense, which is the director of development testing. A lot of the testing which should have been done early in the development stages has not been done, and one way to make sure that it is is to reestablish that position.
We are also going to require that there are be a preliminary design review before approval of acquisition. And we're going put some teeth into what's called the Nunn-McCurdy Law. That's the law which says that if a weapons system is going 25 percent over the baseline, you then must notify the Congress. The trouble is that that's now a routine notification. We're going to make that no longer routine.
Under our bill, if the Nunn-McCurdy line is breached, we're going to assume that that program is going to end unless the Department of Defense can specifically demonstrate from the beginning, as though they were starting a program fresh, why it is essential that the program be developed, what the alternatives are. But they're going to have to go back and rejustify the cost and necessity of that program once the Nunn-McCurdy line is breached.
That's kind of a shorthand for a bill which has got a lot more provisions -- a lot more complicated provisions than the ones I've just outlined, but those are some of the highlights. We are determined that we are going to do everything we can legislatively to put an end to this (sic) horrific cost overruns that we have seen.
And the Department of Defense has the major responsibility to make sure that these programs are run efficiently. Congress has an oversight responsibility. Neither of those activities have been carried out adequately. But there's a legislative role here as well, and that's what we are trying to fill.
SEN. MCCAIN: I'd like to say how much I appreciate Chairman Levin's leadership on this issue, and it's been a great pleasure for me to have the opportunity to work with him for many years. Again, I want to thank you, Chairman Levin, for allowing me to join you on this very important issue.
As many of you know, yesterday, Senator Levin and I and others gathered at the White House and had a long discussion about procurement. There was members of the House of Representatives, members of the administration -- including Governor Napolitano, now the head of Homeland Security -- and we had a couple-hour discussion on this issue. When Senator Levin and I were putting together this legislation, we didn't know that was going to happen, but it -- but it was very helpful.
The fact is, as far as defense acquisition is concerned and the defense budget is concerned and spending is concerned, we're facing a train wreck. As we continue the increase the size of the military personnel-wise, which is very expensive, we continue to have to, as we know, to fund another war in Afghanistan, as the president has just ordered 17,000 additional troops and all the associated equipment along with it, which is very expensive. And now we are coupled with these dramatic cost overruns associated with acquisition of the equipment. Some of it -- most of it very necessary, some of it maybe not necessary for us to continue to win two wars. We will continue to have expenses in Iraq as well.
So the reason why I say that it's a train wreck is because, as Senator Levin mentioned, we can't have a ship that's a small ship that's supposed to be built in two years run completely out of control, to double or triple or quadruple its original cost estimates. We can't afford to have a helicopter built for the president of the United States that costs more than Air Force One. I'm sure that many of you recall the president and I had a conversation about that yesterday, and I didn't mention that I didn't have as much interest in the presidential helicopter as I had several months ago. (Laughter.)
But the fact is I still have a deep concern about spending these many billions of dollars for a helicopter that was originally estimated to be far, far lower. But it's just an example. It's ships. It's airplanes. It's the Future Combat Systems for the Army. It is a broad array where the cost have gotten completely out of control.
Senator Levin -- and I'll -- and I'll try to conclude -- but Senator Levin mentioned, quote, "Nunn-McCurdy." A lot of Americans don't know what Nunn-McCurdy is, and I don't blame 'em. But it was supposed to trigger action on the part of Congress and on the part of the Pentagon when a program exceeded a certain cost overrun. It's happened so often now that it's become routine. We've been numb to these dramatic cost overruns.
What Chairman Levin and I are trying to do here is to get accountability, transparency, and put in renewed measures to bring this system back under control. Secretary Gates recently gave a speech where he said that we should be, unfortunately, instead of being satisfied with a system that's 80 or 90 percent of what we want, we try it make it a hundred percent, and the quote, "technical changes" then dramatically escalate the cost. And again, as Senator Levin pointed out, then we buy fewer of them, and then we don't have the sufficient equipment to provide for the men and women who are serving in the military and defending our nation's security.
So this is a modest step and it's a beginning. Chairman Levin has said that we will have hearings on defense acquisition reform and procurement reform. I look forward to joining with him. I know that the committee will continue to work in a bipartisanship basis.
But this is a compelling problem for America as we increase spending in a(n) ailing economy and trillions of dollars are spent. It is vital that we get defense spending under control, and provide the men and women with the equipment they need, and preserve our nation's security. We cannot continue on this path of escalating costs without at some point making some tough choices which may endanger our nation's security.
I thank you, Chairman Levin.
SEN. LEVIN: Thank you, Senator McCain.
Q Thank you. Senator McCain, you referred to yesterday's White House breakout session on procurement. According to a pool report --
SEN. MCCAIN: Senator Levin and I, yes.
Q Both of you --
SEN. MCCAIN: And House members of Government Affairs as well as Defense.
Go ahead. I'm sorry.
Q You -- in that session, according to the reports, you advocated for making fixed-price contracts the norm rather than the exception, as opposed to cost(-fixed ?) contracts. And according to the report, Senator Levin, you advocated for putting technological changes which you have long argued are predictable into the original cost estimate. Neither of these two changes is something you've advocated for years and years or (valued ?), so I'm wondering why not.
And as a quick follow up, how does this bill become a law? Authorization? (Inaudible.)
SEN. LEVIN: They actually are in this bill. Everything about this bill is aimed at producing fixed-cost contracts. The reason we have so few fixed-cost contracts is because of all the risks that are now in a contract. If you don't do prototype, if you don't do preliminary testing, if you don't -- if your technologies are not mature, if all those things occur -- and that's what's happening now -- then you've got contractors who are going to say, wait a minute, that is a high-risk contract. You're asking me to sign a fixed-price contract when there are huge risks in there.
We're trying to eliminate those risks so that we can promote the thing which John McCain yesterday so eloquently talked about at that meeting, which is we want more fixed-price contracts. But to get there, you've got address all of the -- most -- as many as you can -- of the uncertainties that now exist and the risks that are now exist -- that now exist in these contracts. And so everyone -- almost everyone; not everyone -- but most of the items in our bill are aimed at eliminating those risks so that we can move in the direction which Senator McCain mentioned.
And I want to just say one other thing, because he ended on a note which is very important. The president yesterday stressed the importance of our proceeding on a bipartisan basis, and John McCain has reached out on a bipartisan basis over and over and over again through his Senate career. So it's really great to have him as a partner in this effort. And what it does is not just reflect the determination to reduce these costs of these contracts and to get rid of these overruns, but it also reflects a determination on our -- on our part to operate that committee as it always has been operated, as a bipartisan committee.
SEN. MCCAIN: Could I also just say that Senator Levin and I, under his leadership, have agreed to further hearings on procurement reform. We view this, frankly, as an additional step.
The Pentagon just named the assistant deputy secretary for the acquisition, Ash Carter. We look forward to working with him.
But I don't think that we are trying to reinvent some things. I think we're trying to go back to a process that was working much better. Twenty or 30 years ago, we just didn't have cost-plus contracts. They were the rarity. Now they're the norm. Why is that? Why is it that Microsoft and Cisco and many of the other high-tech corporations that are on the cutting edge of technology, they don't have cost-plus contracts? They tell their customer how much it's going cost and they produce a product. Why can't we do that in defense acquisition? I would argue that their technologies are as untested and new and on cutting edge as defense technology is.
The system is broken, and I don't pretend that, as important as what Senator Levin and I have proposed today, is the answer. But we continue -- we're going to pursue it under his leadership for the rest of this year and next year.
SEN. LEVIN: Yes.
Q Senator McCain --
Q Will it be -- are you saying it's going to be --
SEN. LEVIN: Will it be a what?
Q Will it be a stand-alone bill or will it be part of the defense --
SEN. LEVIN: It could be either one.
Q Either one. And have you looked at -- this was part of my question -- have you looked at the amount of money that you may be able to take from -- (off mike) -- type of acquisitions -- (off mike)? And would you also be -- there's an effort in the House to cut the defense budget by 25 percent. Do you think this could take care of some of the, you know -- some of those cuts?
SEN. LEVIN: We haven't put a dollar estimate on the savings of this bill. We do know what the overruns are on just 95 of the major systems, which are $300 billion, as I mentioned, and about a trillion dollars worth of systems. So that's, what, a 30-percent overrun. I would say the savings will be significant, but I have not attempted to put a dollar figure on them.
SEN. MCCAIN: In a perfect world -- in a perfect world, and we don't expect to achieve that, Senator Levin mentioned earlier that instead of a trillion dollars, 1.3 trillion (dollars) was spent. So you can do the math of $300 billion. Now, I don't expect us to achieve that kind of perfection, but we are talking about huge amounts of money.
On the issue of cuts in defense spending, I'd just like to mention that personnel costs are the most expensive part of our budget, as well it should be. We've just announced an additional 17,000 troops being sent -- the president has just announced. Look, it's very clear that the president committed himself to winning in Afghanistan. That's going to be very expensive. Do we send the message that we're going to cut the defense budget by 25 percent at a time when we're announcing that we're going to do what's necessary to achieve success in Iraq -- excuse me, in Afghanistan? No.
I think with all the savings that we have to make, that those are going to have to be -- a lot of it, frankly, to take care of the men and women, the personnel costs, in the military. I would be adamantly opposed to announcing that we are cutting the defense budget when we're in two wars.
SEN. LEVIN: I think we'll wait to see what the president's budget proposal is. I agree with Senator McCain. We are not going to cut the support for our troops, whether it's in terms of pay, benefits, their families, their health care. We're not going to do that. We're going to provide them everything they need to prevail. We're going to do that. But whether or not there can be some reductions in other parts of the budget such as future weapons systems by having greater competition or not, I think we'll -- at least I will reserve judgment on that.
Q Thanks. You mentioned 95 contracts that are fairly well screwed up now. Is there any way this law can be applied retroactively to them, or are they lost causes at this point?
SEN. LEVIN: Well, the next Nunn-McCurdy -- it will apply to the next Nunn-McCurdy event. I don't think we can undo what's been done but we surely can apply it. As the Nunn-McCurdy reports come in, they would be subject to this very strict requirement if we can get this bill passed.
Q Senator, if I can ask this, on the omnibus there are 9,000 earmarks there, or more. I'm wondering how you think we've done in terms of earmark reform. And, secondly, given that this is so filled with earmarks, and given that Barack Obama, during the campaign, said that he was going to do something about this, would you call on him to veto this bill if those earmarks remain?
SEN. MCCAIN: Yes, I would call on him to veto it, as I called on President Bush to veto previous bills that were full of earmarks as well.
SEN. LEVIN: This bill, by the way, was adopted -- these are the appropriation bills which were adopted before President Obama was elected. So this is kind of -- you're catching kind of a horse in the middle of the stream on this one. The new reforms were not in place at the time these bills were passed, so that kind of complicates the situation.
Q Sir, as you know, Bob Gates made defense acquisition reform a focus of his. What does the legislation say about his ability to rein in -- (off mike)? And also, what's the mood of Congress here, when anything that might take away jobs is not going to be looked at -- (off mike)?
SEN. MCCAIN: Everything that we're doing is trying to help the secretary of Defense do his job. We work closely with the secretary of Defense. There is nothing in this legislation that he doesn't totally agree with, or is in disagreement with. And we're going to need his input as we move forward through the hearings and further reforms.
SEN. LEVIN: You know, as Senator McCain said, you need an aggressive Defense Department to keep costs down. A lot of these changes, which were made 10 or 15 years ago, were not legislative changes. Those were changes that were made unwisely, as it turns out, but the Department of Defense. So we're going to continue to rely on Secretary Gates to do the kind of very tough decision-making which will go after cost overruns, and I think both of us have a lot of confidence in Secretary Gates. Legislation cannot be a substitute, as Senator McCain pointed out, for administering contracts and administering an agency. That is the critical part, but it's essential that he gets support from the Hill, both in terms of legislation but also in terms of oversight. And we have not done an adequate job on oversight, so we have also got responsibility.
In terms of the jobs thing, it will complicate it, but we cannot have wasteful spending because that makes our economic situation worse.
Q Senator Levin, this doesn't -- (off mike) -- on the Defense Department, but when it comes to increased defense spending, a lot of times Congress is to blame. The Defense Department makes tough choices and then Congress puts the money back in anyway. Would you like to do anything in this Congress to prevent those things from happening and to work with the Pentagon to maybe uphold some of these tough choices that Gates -- that he has to make?
SEN. LEVIN: It's always been a mixed bag. Sometimes the Congress shifts around spending from one priority to another. Sometimes it adds in one area and subtracts significantly in another area. So I don't think that I could say that Congress is either most of the blame or that most of the blame for the excess spending comes in the failure to have tough rules about excess spending or going over the contract amount. That's an administrative problem. So these costs overruns are not legislated by Congress. The cost overruns which we're talking about are the result of what we've described here and what we hope the bill will correct.
In terms of add-ons or changes in priorities, all we can do is make our -- use our best judgment as to what is useful, what's essential, what is wasteful, and each one of us will do that. We may not always reach the same conclusion, but we'll each do that in our best judgment.
SEN. MCCAIN: Let me just say that unfortunately in the last couple, three years, the appropriations bill has been passed before the authorization bill. That makes it very difficult. And I know that Senator Levin and the majority, along with my side, want to get our authorization bill done as quickly as possible so we would guide the appropriations bill. And I would mention what I've said many times. There's three kinds of members of Congress: Republican members, Democrat members, and appropriators. And when you look at the add-ons and excess spending and unnecessary spending, you will find them in the appropriations bills.
SEN. LEVIN: Yes?
Q Senator, is this the time to make fundamental decisions, before the 2010 budget comes down, on whether we're going to largely go with the weapons we've got and new improvements to them, or build the military of the next 20 years? Do we have to make the fundamental choice in that --
SEN. LEVIN: I don't think we'll be able to. I don't think we're going to have the detail in this budget, which will come to us in the next couple weeks. It's likely to be a tap-line budget without much detail, and we're going to have to wait I believe until late March, I guess, or early April. Now, that's just my own kind of gut instinct. I don't know what's going to be in this budget that's coming in the next week, so there may be enough there so we can make -- or at least begin to debate some of the critical issues. And we're going to use this next month or two -- even though we may not made budget decisions because we don't have the budget -- we will use the next month or two before we get that detailed budget to look into, at our hearings, some of the various issues which we are going to have to resolve when we get that detailed budget.
SEN. MCCAIN: Let me just point out again, the team over in the Pentagon, the administration's team, is still being put in place. We're going to have a hearing, I guess, soon on Carter, the acquisition -- on Ash Carter. So we want to work with the administration and with the team on a bipartisan basis, and so that means hopefully getting the people in place as quickly as possible that we can work with.
Q Senator Levin -- (off mike) -- do you think the Pentagon should do more in terms of joint procurement with -- (off mike) -- allies to bring down -- (off mike)?
SEN. LEVIN: There's a lot of issues which have been floating around about the F-22 but I can't say that I know enough about that specific aspect of the issue that I could give you an answer that I'd be comfortable with. I mean, the issues that we have focused on relative to the F-22 -- at least that I've focused on, and other members perhaps have focused on your issue but I have not, so I couldn't give you a good answer to that.
Q What about more generally -- (off mike)?
SEN. LEVIN: In general I think we always need to work with allies, not just to bring costs down, to make sure we get the best equipment for our troops. It's both cost and quality.
Yeah, one more? Should we just try one more, John?
Q Talk a little bit about -- I mean, this Nunn-McCurdy law as it stands now -- (off mike) -- needs to certify that, you know -- (off mike) -- make the correct changes. They also need to certify that it's vital to national security. How -- (off mike) -- does this bill change that, because under the current law, the program would have to be terminated -- (off mike).
SEN. MCCAIN: Yeah, well, they always do meet that criteria. Under the bill that we're introducing, you assume the end of a program unless, from scratch, the Department of Defense looks at all of the financials, looks at the need for the program and -- I mean, analyze costs of the program. What are the alternatives to the program? They can't just send a boilerplate certification. They're going to have to go through the kind of a financial assessment that they do when they start up a weapons system. That is a major requirement for the Department of Defense, and it's going to be a major incentive not to breach those Nunn-McCurdy limits.
Thank you all.
SEN. LEVIN: Thank you very much.