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Hearing of the House Oversight and Government Reform Committee - Oversight of Defense Department Acquisitions

Location: Washington, DC

REP. WAXMAN: The meeting will come to order. Today's hearing is the committee's 10th hearing this Congress on waste, fraud and abuse in the federal government. The subject of today's hearing is weapons acquisitions programs at the Department of Defense.

This hearing was suggested by Ranking Member Tom Davis and I commend him for his bipartisan leadership on this important issue. We are holding this hearing for a simple reason: Weapons programs at the Defense Department are one of the biggest sources of wasteful spending in the federal budget.

The Department of Defense will spend hundreds of billions of dollars over the next five years buying weapons systems needed for our armed forces, and no one questions the need to give our troops the best possible equipment. But the American taxpayers are footing the bill for these weapons programs, and no one seems to be looking out for their interests.

Billions of dollars have been squandered due to waste and mismanagement at the Defense Department. According to a recent report from the Government Accountability Office, cost overruns in major weapons acquisitions programs now reach nearly $300 billion. At the same time, delivery schedules are slipping. GAO says that delays of two years or more are the norm for weapons systems.

The contractors and senior Defense officials say that some cost increases and delays are inevitable given the complexity of building new weapons systems. I accept that. But that doesn't explain the persistent level of waste and mismanagement that GAO identifies.

In 2001, a GAO report found pervasive problems in weapons systems acquisition, including poor planning, inadequate requirements, unrealistic cost estimates, and the use of high-risk acquisition strategies. Today, seven years after that report was written, GAO says nothing has changed.

There seems to be absolutely no accountability to the taxpayer. Despite reports after report documenting mismanagement in weapons acquisition, nothing seems to improve. The contractors keep getting richer. Senior Pentagon officials keep receiving lucrative job offers, and the taxpayer keeps getting stuck with the check.

In preparation for this hearing, my staff examined in detail one of the weapons acquisition programs identified in the GAO report: the Marine Corps' Expeditionary Fighting Vehicle, the EFV, and I ask that the staff report on the EFV be included in today's record.

REP. TOM DAVIS (R-VA): Mr. Chairman?


REP. DAVIS: Reserving the right to object. As I mentioned, we requested this hearing with you and you agreed to it and we're grateful for that. You and I and the subcommittee chairman and the ranking member signed joint invitation letters to witnesses asking them to be prepared to testify about broad trends, incentives and challenges present in the defense system's current acquisition system for major weapons programs. The briefing memorandum to witnesses and to members discussed only departmentwide problems and issues, not any specific weapon system.

So we were disappointed to learn just late last evening about the decision to release a majority staff report critical of one specific program, the EFV, the Expeditionary Fighting Vehicle. And even if the EFV is illustrative of some systematic flaw in the DOD acquisition process, refocusing this hearing on that project at the last minute does a disservice to our members and the witnesses.

It needlessly injects a "gotcha" element into what should be a discussion of good government. It was an unexpected and, frankly, unnecessary departure from the wholly cooperative and bipartisan approach leading up to this hearing.

Had we had the opportunity to review the EFV analysis, we might have been in a position to agree it added a constructive case study around which to build today's discussion, but we weren't given that opportunity.

So under the circumstances, I think I would object to a unanimous consent request to include the staff report in the record in the record of today's hearing.

REP. WAXMAN: I thank the gentleman for his statement and his -- I regret his objection to the unanimous consent report -- request. He has made some good points which we will take into consideration. And I won't at this point pursue the matter, but I think at some point in the committee hearing we will make a motion to include this in the committee report, which would subject it to a vote, but I won't do it at this time.

REP. DAVIS: And I remain open to discussion with the chairman.

REP. WAXMAN: Thank you very much.

When the EFV project was launched in 1996, the goal was to build a new state-of-the-art amphibious tank for use by the Marines, but the program has been so badly mismanaged that the Defense Department now says they have decided to start the project over again, essentially from square one.

The story of the EFV acquisition is an embarrassment. Six years ago, Defense Department auditors called the project a paper dream and said management does not have a handle on reality. They pointed out elementary flaws in the Marine Corps acquisitions strategy, such as the failure to set a realistic schedule, the reliance on an expensive test-fix-test approach, and the lack of anyone with overall responsibility for integrating the various components of the project.

But when a second set of auditors looked at the program four years later, they told us they saw no improvement. They found disarray, uncoordinated design decisions, reliability issues, and general lack of planning and status monitoring.

A key milestone for the EFV occurred in 2006 when the vehicle was subject to a battery of tests called an operational assessment.

The EFV failed miserably. The prototype vehicles experienced over 600 breakdowns and could operate for only four hours before requiring extensive maintenance.

We have obtained a copy of the report on the operational assessment. The list of problems it describes is nearly endless. The vehicles weighed too much. In the water, they could reach cruising speeds only if the Marines on board left their equipment behind. On land, the gun turret bent and broke from the stress of cross-country movement.

There was poor crew visibility during water operations and the driver's vision was periodically washed out by water spray. The ammunition feed jammed, and crews were unable to identify vehicle targets. The vehicles were so noisy that the Marines on board had to wear both earplugs and ear muffs and could not respond to voice commands.

The contract with General Dynamics to develop the prototype EFVs cost the taxpayer $1.2 billion, but now this investment is going to be scrapped. Last year, the Marine Corps announced that the EFVs performed so poorly that the entire system development and demonstration process would have to be redone. This means additional costs to the taxpayer of nearly $1 billion or more and at least three more years of delay.

While the project -- and this is only one project we've singled out -- has been a fiasco for the taxpayer, there has been at least one beneficiary: General Dynamics, the prime contractor. The contract for building and testing the prototype was a cost-plus contract, so the company got paid even though the vehicle flunked its tests. Incredibly, General Dynamics even received over $60 million for its work on the -- for its work on the development contract. What's more, the Marine Corps says the General Dynamics will now get the new contract for $700 million to $800 million to build another prototype. Well, the signal it sends is unmistakable. No matter how bad a job you do, there will be no accountability.

As we will learn today, the EFV experience appears to be the rule, not the exception. The GAO report that will be the focus of our hearing today looked at 72 weapons programs now under way at the department. Not every program was as bad as the EFV project, but not a single one had followed the best practices recommended by both GAO and the Department of Defense.

We need to find a new and better way to procure weapons for our military. Everyone on this committee wants our military to have the equipment it needs to protect our nation, but we simply cannot afford to continue to waste hundreds of billions of dollars on poorly planned and mismanaged weapons programs.

And I hope our witnesses today will be able to help us understand what has gone wrong in these programs and what steps can be taken to protect the interests of the American taxpayer.


REP. WAXMAN: Thank you, Mr. Davis.

We're talking in a more general way, and GAO gave us a lot of examples, but I want to focus on one example that I brought up in my opening statement earlier of how money just seems to be used without any accountability and without any results.

The Expeditionary Fighting Vehicle is supposed to be an amphibious tank. It was developed to transport Marines from ship to shore and then to conduct land-based combat operations, and this was thought up in 2001.

The Marine Corps awarded a contract to General Dynamics to design and test the EFV in order to prepare it for large-scale production, and they thought through a schedule. They were supposed to finish this phase of development by 2003 and then the Marines would have the vehicle available to them by 2006. The original budget was $712 million. Through a series of contract modifications, the budget grew to $1.2 billion and the deadline for completing the system development and demonstration was pushed back to 2006. When the Marine Corps tested the EFV in 2006, it broke down every four and a half hours. Crucial parts for the vehicle, including the bow flap and the gun turret, had serious structural problems.

I have a chart that I'm going to put up on the screen. It shows that -- the slide that the Marine Corps prepared discussing the results of this test -- I don't know if it's visible enough to you, but according to the slide, the vehicle will only reach high speeds in the water if Marines don't bring their combat and personal equipment with them on the craft. Well -- (laughs) -- that means that the vehicle could only work as envisioned if the Marines left behind their battle gear, and since those tests failed, the program has gone back to square one.

Last year, the Defense Department announced that the EFV would have to go through a second development and demonstration process at an additional cost to the taxpayer of nearly $1 billion more. In effect, the department said, even though we spent $1.2 billion and six years on the first system development contract, we need to start the process all over again and spend another $1 billion to build a new prototype vehicle.

Mr. Finley, how could this have happened? Why didn't the contractor deliver what it promised, why didn't the Defense Department manage the program better, and why are the U.S. taxpayers out over $1 billion as a result?

MR. FINLEY: Thank you, Mr. Chairman.

I do not have the facts on EFV with me; I'm not as prepared as I would like to be for this particular subject.

I will share with you that in my tenure this program came up for a Nunn-McCurdy. It was recertified as a program and restructured last year, 2007. It's my understanding that coming into the Nunn-McCurdy as part of the causal mechanisms behind the performance on this program was funding stability and that for some number of years the funding on this program had been cut dramatically from some level but approaching 50 percent of what they had before.

REP. WAXMAN: I don't see any cuts. I see only increases in the amount of money that went into the program. It was a cost-plus project and the costs were paid, and in fact at the end of the day, the contractor got bonuses for a failed effort.

MR. FINLEY: I'd have to take the question for the record, sir.


Well, Mr. Sullivan, I believe you've looked at this EFV contract. What, in your view, went wrong?

MR. SULLIVAN: I think with the EFV they had very tough requirements to begin. Actually, in the beginning of this program, they tried to go forward before they had mature technologies, particularly with the engine -- the propulsion that you would need to literally skip across the ocean like a stone with this thing.

To their credit at the time -- we're going back to the mid-'90s -- the Navy told them to hold up and work on some of those technologies, and I think that led to some of the -- you know, the annual funding increments they did reduce, a lot of the annual funding increments in the beginning, which slowed them down in that regard.

But once they did get mature technologies and begin, they had reliability -- as you mentioned, I believe it was four hours between breakdowns on this. I think the reliability requirement was 47 hours. So when they finally got to a point where they thought they had designed a full-up prototype, they had ignored the critical design review; that second thing that we talk about is, you know, managing the design, building a prototype before you go forward, having a good critical design review at about midpoint -- that was ignored, I think, and as a result, they got the reliability problems they have, and they have to start over.

REP. WAXMAN: Well, there were plenty of warning signs that the contract was not going to work, but nobody seemed to pay attention to those warning signs.

In 2002, the Defense Department auditors issued a scathing report that found that the program was being poorly managed, and here's what the 2002 report said, quote: "Management does not have a handle on reality, particularly with unrealistic schedules," end quote. The report also said the project lacked leadership and there seems to be, quote, "no one steering the ship," and that the project was a "paper dream that everyone accepts but has only a casual resemblance of reality," end quote.

Mr. Finley, that was six years ago. These warnings weren't heeded in 2002. Why do you think that happened? You don't know specifically about this, but if there are warnings, doesn't the DOD take those warnings seriously?

MR. FINLEY: That's an unequivocal yes. We do take all warnings seriously. I cannot speak for 2002. I'll be happy to take the question for the record, though, sir.

REP. WAXMAN: Well, in 2006, they had another audit that was performed, and this audit found exactly the same problems that were reported in 2002. Four years had passed, hundreds of millions of dollars had been spent, but there was no improvement in the contract management.

Here's what the auditors said in their 2006 report. Quote: "Oversight of the program is ineffective," end quote. Quote: "The systems engineering process is inadequate and a major shortcoming of the EFV program. It is a root cause of disarray, uncoordinated design decisions, reliability issues, and the general lack of planning and status monitoring," end quote.

Well, it appears that everyone who examined the EFV contract knew for years that it had serious flaws, yet the Defense Department still committed more than $1 billion of taxpayer funds to the contract.

Mr. Sullivan, you mentioned this earlier; there's supposed to be checks and balances in this process to prevent this kind of thing from happening. What do you think went wrong here? Why weren't there checks and balances to take these warnings seriously?

MR. SULLIVAN: One of the things that happened on this program is they initially -- they signed the contract to go to system demonstration and development, which is the cost-plus contract to go ahead, that opens up the funding, in December of 2000. They declared the design stable in January of 2001. So in one month, they had a complete critical design review that okay'd the program to continue towards manufacturing -- engineering, manufacturing and development.

Obviously in one month -- I don't think that they had the proper engineering prototypes; they had not accumulated the knowledge that any program manager in any world-class company would have to accumulate before they got more investment dollars in that time frame. So I really think that probably, as a major defense acquisition program, it wasn't getting the oversight it probably deserved. Now, that's back in the 2000 time frame is when -- that's probably the genesis of when this really started going wrong.

REP. WAXMAN: If I hire a contractor to do work for me and they run over budget and run out over time and then they fail, I'd want my money back. Why can't the government get its money back?

MR. SULLIVAN: I think probably, you know, one of the things that has to happen in this environment that we're talking about is decisions like that have to be made. This is a program that probably was a very good candidate for, you know, if not termination then somehow, you know, scaling back the dollars that were going into it back in that time frame.

REP. WAXMAN: Is it possible to get the money back if it's a cost-plus contract, or do the contractors say they're taking the -- they're not taking the risk, it's the government that's taking the risk?

MR. SULLIVAN: I don't think -- you know, that's kind of outside. I'd have to talk to some of our lawyers that we have to understand the legalities of that, but I don't think -- you know, it's not easy to get the money back, I know that.

REP. WAXMAN: Well, the problem I see is that nobody in this process is advocating on behalf of the taxpayers. The company's doing fine. It has a contract, it's structured so that it will get paid no matter what the result, even if the result is total failure. The responsible officials at DOD are not being disciplined. In fact, they may get lucrative job offers from other defense contractors. But the Marines who need this equipment have to go without, and the taxpayers who foot the bill pay out billions of dollars and we get nothing in return. That just can't be a system that we ought to be sustaining. And I think that's the reason we're holding this hearing and that many of us are very concerned.

Mr. Finley, I do want you to be able to respond to the record. I don't think you were adequately advised we were going to focus in on this weapon system, so I apologize to you for surprising you, but this is something the GAO had looked at and our staff looked at and I think it's an illustration of our frustration with this whole system that we have.

MR. FINLEY: I'd be happy to, sir.

REP. WAXMAN: Thank you very much.


REP. WAXMAN: Sounds good to me.

Ms. Watson, did you want a second round? Okay.

Well, I had some further questions to wrap up the hearing because we want to be constructive. But we can't be constructive unless we get accountability in the system. And I talked about the EFV program. I'm troubled even more by the complete lack of accountability for the mistakes in that program. There were massive screw-ups. They cost the taxpayers billions of dollars.

Yet, Dr. Finley, you seem -- you're going to get back to us on the record on some of these things and I'm looking forward to your responses. But GAO has reported that the Defense Department failed to follow best practices in its weapons development programs. Your comments were that -- to the GAO that the GAO was wrong. On Page 10 of your written statement you said, "The best practices are embraced and practiced throughout the Department of Defense," end quote.

So I want to ask you about some specifics. First, as I understand it, you're generally supposed to complete your engineering drawings before you conduct the critical design review.

Mr. Sullivan, in the GAO report you say that a program should complete at least 90 percent of engineered drawings before the critical design review. Is that right, that's your view?

MR. SULLIVAN: That's generally -- and when we speak to large world-class firms that do these sorts of things, that's the general rule.

REP. WAXMAN: And I think it makes sense.

MR. SULLIVAN: And in fact it's -- and I think the Department of Defense has policies that agree with that.

REP. WAXMAN: You want your engineers to plan everything out, make all their calculations, make sure the project will work on paper before you proceed.

Do you agree with that, Mr. Finley?

But in the case of the EFV, the Defense Department didn't do that. They didn't wait until the engineering drawings were done. In fact, they started the critical design review in January 2001. That was just one month after the program started and GAO concluded this was a major problem. GAO warned that this would not allow adequate time for testing, evaluating the results, fixing the problems and retesting to make sure the problems are fixed before moving forward.

So, Dr. Finley, this contradicts what you said in your testimony. The department didn't follow the best practices.

It did not complete the engineering plans before it launched the critical design review. GAO ordered that this would cause major problems and, in fact, it did. What I would like to know is who made that decision? And you may have to supply that for the record. Who decided not to follow the standard procedure? Who decided that you didn't need to complete the engineering plans before proceeding? And what accountability has there been for that mistake?

That decision has resulted in more than a billion dollars in taxpayer funds being wasted. Has that person been fired? Has that official been disciplined? And I assume that you're not prepared to answer that question now, but you'll get an answer to us. Is that --

MR. SULLIVAN: I'll be pleased to take it for the record, sir.

REP. WAXMAN: Okay. Another best practice, according to GAO, is to have an official responsible for ensuring all of the different parts of the program work together. You need a senior-level engineer whose job it is to make sure that all the plans make sense and combine into one coherent system.

But the Defense Department didn't do that. According to the audit from 2002, quote, "There is no overall system engineer or architect with the authority and responsibility to ensure products meet their allocated and integration requirements," end quote. Here's what the auditor said, quote, "There seems to be no one steering the ship," end quote.

Dr. Finley, this also -- it appears to me to contradict your testimony that the Pentagon follows best practices. What accountability has there been for this mistake? And we'll look forward to getting your answer on that.

Our oversight and GAO's oversight both show the same thing. The same problems happen over and over again. One reason that this happens is that there seems to be a culture of complacency at the Defense Department. When mistakes are made there's no accountability. That leads to more mistakes and more wasted spending. There seems to be no one looking out for the taxpayer. And that's the concern that we have about this system.

And I know you're not prepared to answer the questions about this particular system at this moment, but we would like to have you submit that in writing for the record, responses to these questions.

MR. FINLEY: Yes, sir.

REP. WAXMAN: Members may want to ask additional questions for the record and we'd like to ask the three of you to be prepared to respond in writing to further questions. And we'll hold the record open for such requests.

I thank you for your participation at this hearing. I think it's been a good one to get to the point where maybe we can change direction.

And in another 10 years, Mr. Sullivan, you won't come back here and say, "It's pretty much the same now as it was 10 years ago."

MR. SULLIVAN: That wouldn't be good.

REP. WAXMAN: Have you come in and say if things have improved a lot and then we'll argue why we haven't even done better.


REP. WAXMAN: With all of your help, we will do better in the future. That concludes our hearing today and the hearing stands adjourned.

MR. FINLEY: Thank you.

MR. PATTERSON: Thank you, Mr. Chairman.

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