[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 113-11]
ASSURING VIABILITY OF THE
SUSTAINMENT INDUSTRIAL BASE
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON READINESS
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 28, 2013
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SUBCOMMITTEE ON READINESS
ROBERT J. WITTMAN, Virginia, Chairman
ROB BISHOP, Utah MADELEINE Z. BORDALLO, Guam
VICKY HARTZLER, Missouri JOE COURTNEY, Connecticut
AUSTIN SCOTT, Georgia DAVID LOEBSACK, Iowa
KRISTI L. NOEM, South Dakota COLLEEN W. HANABUSA, Hawaii
J. RANDY FORBES, Virginia JACKIE SPEIER, California
FRANK A. LoBIONDO, New Jersey RON BARBER, Arizona
MIKE ROGERS, Alabama CAROL SHEA-PORTER, New Hampshire
DOUG LAMBORN, Colorado WILLIAM L. ENYART, Illinois
E. SCOTT RIGELL, Virginia PETE P. GALLEGO, Texas
STEVEN M. PALAZZO, Mississippi
Michele Pearce, Counsel
Vickie Plunkett, Professional Staff Member
Nicholas Rodman, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2013
Page
Hearing:
Thursday, February 28, 2013, Assuring Viability of the
Sustainment Industrial Base.................................... 1
Appendix:
Thursday, February 28, 2013...................................... 35
----------
THURSDAY, FEBRUARY 28, 2013
ASSURING VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Bordallo, Hon. Madeleine Z., a Delegate from Guam, Ranking
Member, Subcommittee on Readiness.............................. 2
Wittman, Hon. Robert J., a Representative from Virginia,
Chairman, Subcommittee on Readiness............................ 1
WITNESSES
Avdellas, Dr. Nicholas J., Senior Consultant for Materiel
Readiness and Sustainment, Logistics Management Institute...... 10
Johns, John, Deputy Assistant Secretary of Defense for
Maintenance Policy and Programs, U.S. Department of Defense.... 3
Steffes, Pete, Vice President, Government Policy, National
Defense Industrial Association................................. 5
Sterling, Cord, Vice President, Legislative Affairs, Aerospace
Industries Association......................................... 8
APPENDIX
Prepared Statements:
Avdellas, Dr. Nicholas J..................................... 75
Johns, John.................................................. 41
Steffes, Pete................................................ 52
Sterling, Cord............................................... 65
Wittman, Hon. Robert J....................................... 39
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Ms. Shea-Porter.............................................. 91
ASSURING VIABILITY OF THE SUSTAINMENT INDUSTRIAL BASE
----------
House of Representatives,
Committee on Armed Services,
Subcommittee on Readiness,
Washington, DC, Thursday, February 28, 2013.
The subcommittee met, pursuant to call, at 8:00 a.m., in
room 2212, Rayburn House Office Building, Hon. Robert J.
Wittman (chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. ROBERT J. WITTMAN, A REPRESENTATIVE
FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON READINESS
Mr. Wittman. I would like to call to order the House Armed
Services Subcommittee on Readiness. I want to welcome you to
this morning's hearing. And I would like to thank our panel
experts for being here today to address the viability of the
defense sustainment industrial base and the implications for
mission readiness as we try to resolve the current budget
crisis.
As we debate the way forward and try to resolve the
continuing resolution and sequestration dilemmas, it is
important not to lose sight on what is really at stake here,
this country's ability to project power and to properly train
and equip our warfighters, our men and women in uniform who, at
this very moment, are fighting for us on the battlefields in
Afghanistan and will continue to do so for the foreseeable
future.
As the debates have raged on I have been struck by how
starkly our military leaders have described the dilemma. As
General Dempsey and the other service chiefs recently informed
this committee, ``the readiness of our armed forces is at a
tipping point. We are on the brink of creating a hollow
force.'' About the same time, we learned of the delayed
deployment of the USS Truman carrier strike group to the
central command AOR [Area of Responsibility], a region where
our missions continue to grow rather than go away. Never in my
lifetime did I imagine we would again be forced to confront the
very real possibility of a hollow military force and the
devastation it entails for our Nation and our men and women in
uniform.
Make no mistake, our readiness crisis is real and it is
important to understand exactly what is at risk. During this
hearing, I would like you to share your perspective on this and
help us answer some basic questions.
In terms of risk, what does it mean to our national
security, particularly our sustainment industrial base to have
ships moored to the pier, or sitting in dry dock, or waiting
for depot maintenance. What, in your views, are the implication
of having airplanes grounded on ramps?
And finally, what is the impact on our warfighters when we
delay or defer reset and retrograde of our equipment?
Joining us today are Mr. John Johns, the Deputy Assistant
Secretary of Defense for Maintenance and Policy Programs; Mr.
Pete Steffes, Vice President for Government Policy at the
National Defense Industrial Association; Mr. Cord Sterling,
Vice President for Legislative Affairs at the Aerospace
Industries Association; and Dr. Nicholas Avdellas, Senior
Consultant For Material Readiness and Sustainment at the
Logistics Management Institute.
Gentlemen, thank you all very much for being here, and I
appreciate your thoughtful statements, and particularly
appreciated your views regarding the need for a detailed
strategic planning for the future. Just as I have been an
advocate for a 30-year shipbuilding plan and the benefits
associated with determining strategy first and budgetary
requirements second, I believe we need to similarly focus on
strategic planning when it comes to the viability of the
industrial base.
With that, I would like to wish a warm welcome to my new
partner on the Readiness Subcommittee, Madeleine Bordallo, who
I have worked with in the past and who I have the highest
regard for. I am truly honored to have such a distinguished
ranking member working with me as we address these weighty
issues, Mrs. Bordallo.
[The prepared statement of Mr. Wittman can be found in the
Appendix on page 39.]
STATEMENT OF HON. MADELEINE Z. BORDALLO, A DELEGATE FROM GUAM,
RANKING MEMBER, SUBCOMMITTEE ON READINESS
Ms. Bordallo. Why, thank you, Mr. Chairman, my sentiments
are the same. I want to welcome our witnesses to the hearing
today, we are discussing some important topics that touch on
the second- and third-order effects of sequestration and its
impact on readiness. I find this a helpful discussion to truly
understand the impact of sequestration. I am, however,
disappointed that we are not having a more robust discussion in
Congress about how to solve sequestration. We all agree and
understand that sequestration is catastrophic for the prospects
of a full economic recovery in our country. Cuts to defense and
other discretionary programs will have significant negative
impacts on the long-term economic growth of the country.
I remain steadfast that the leadership of both parties must
put everything on the table to find ways to avoid
sequestration. And I hope that our discussion today and our
hearing about viability of the sustainment industrial bases
will encourage our Members of both parties to get leadership
back to the table and address our debt and deficit issue in a
more responsible manner.
Our Nation faces significant economic challenges over the
coming years. This will undoubtedly have a significant and
potentially negative impact on the sustainment and the
industrial bases. History shows us that if we do not align
strategy with the need for sustainment, we create a situation
where we are negatively affecting the readiness of our military
forces. The sustainment industrial base provides the backbone
for the military to respond to a variety of contingencies. As
we face these difficult budget times, I hope today that our
witnesses will touch on what efforts are under way to marry our
military strategy with our sustainment requirements.
What steps are under way to look at the fundamental
underpinnings of how we reset our equipment so that it is done
in a most cost-effective and efficient manner and ready and
available for training, and for battle? Moreover, how do we
posture our sustainment industrial base in such a fashion to
adapt to future challenges? We have learned many lessons from
how we sustained equipment during the Iraq and Afghanistan
wars, so how do we take these lessons learned and apply to our
future anticipated sustainment needs?
In the near term, our most pressing issue is how we
maintain the sustainment industrial base in the face of
sequestration. Members of the committee need to better
understand how we can find a balance between strategy and
sustainment in that extremely fiscally constrained environment
that does not allow for proper planning and supply lead times.
So I hope that the witnesses can touch on the impact that
sequestration would have on the timeline for reset of equipment
that is retrograding from Afghanistan. I hope that all our
witnesses can highlight the increase in cost that will occur
when strategy and sustainment are not coordinated.
What is the additional cost that is borne by the Government
in the long term with such a significant cut in the short term?
Some accounts could face 40 to 50 percent cuts before the end
of this fiscal year. So along these lines, I also hope that all
our witnesses can discuss the reversibility of these cuts to
the sustainment industrial base. At what point are these cuts
irreversible? How long can sequestration endure before we gut
core capabilities? For example, I am particularly concerned
that thousands of shipyard employees will be laid off if
sequestration is allowed to continue for some time into the
future. These layoffs could decimate a critical capability both
for the Government, as well as with private shipyards and ship
repair facilities. So again, I want to thank you, Mr. Chairman,
for this opportunity and I look forward to the testimony of our
witnesses.
Mr. Wittman. Thank you, Mrs. Bordallo.
We now go to the testimony from our witnesses, and begin
with Mr. Johns.
STATEMENT OF JOHN JOHNS, DEPUTY ASSISTANT SECRETARY OF DEFENSE
FOR MAINTENANCE POLICY AND PROGRAMS, U.S. DEPARTMENT OF DEFENSE
Mr. Johns. Chairman Wittman, Ranking Member Bordallo,
distinguished members of the subcommittee, thank you for the
opportunity to appear before you to discuss the viability of
the sustainment industrial base. I also thank you for your
continued support and interest in a topic so critical to our
ability to support readiness. Over the past several months, you
have heard from the Department senior leadership on the
potential devastating impacts of our developing fiscal
situation and the bottom line effects on the strength of our
Nation's military and the ability to support national security
strategy. It is in this context that I offer my comments. I am
proud to be speaking to you today as the senior maintainer
within the Department of Defense.
My prepared statement submitted for the record contains
more detail than I can provide here in my opening remarks, so I
will attempt to cover the major points and then welcome your
questions later. To fully appreciate the future viability of
the sustainment industrial base, I believe it is important to
understand the basic fiscal and operational dynamics that
govern our industrial base activities. First, it is important
to understand that the Department's total requirement for
sustainment industrial base funding, and in turn, its ability
to generate readiness is directly dependent on appropriate
resourcing of both our base program and OCO [Overseas
Contingency Operations] requirements.
With respect to contingency funding, each military
department is dependent on OCO funding levels to resource
critical requirements associated with both operations in
theater, as well as maintenance, repair and overhaul of
military equipment returning from Iraq and Afghanistan. This
latter activity, or reset of equipment, has for a decade been
responsible for correcting damage induced by harsh environments
and high OPTEMPOs [Operational Tempo], extending the useful
life of valuable equipment, drastically reducing the need for
acquisition and replacement equipment, and enabling force
generation strategies of each military service.
With respect to operating under continuing resolution,
there is not much more that I can add to what the Department
senior leadership has already explained. So let me just
emphasize that operating under restrictions of a continuing
resolution with account-level funding that does not match our
fiscal year 2013 requirements, has created an increased burden
on the operation and maintenance accounts, effectively creating
a funding shortfall in the accounts that resource our
industrial based operation.
With respect to sequestration if implemented, the funding
implications are far greater in operations and maintenance
accounts than may appear at the surface. The President has
exercised his authority to exempt military personnel accounts
from sequestration in fiscal year 2013 so other accounts must
accommodate the full reduction to the Department. Moreover,
because of the need to protect programs directly supporting
wartime operations, the reduction to most base-budget O&M
[Operations and Maintenance] accounts will be significantly
greater than the single-digit percentages currently being
discussed. The impact of these reductions will then be
effectively doubled by having to accommodate the full fiscal
year 2013 reductions in the last 7 months of the fiscal year.
While each of these factors has significant negative impact
in isolation, the combined effects must be considered to fully
appreciate the impact on the national industrial base. And in
turn, the impact on both near- and far-term readiness. The
combined potential shortfalls and cuts are so large, we
anticipate reductions, delays, and cancellation in work orders
within our public depots and shipyards and on contract with the
private sector. These actions will begin as early as March and
continue throughout the fiscal year.
The military services will manage existing funded workload,
resource the highest priority maintenance, and take all
possible actions to mitigate harmful effects on readiness and
on our sustainment industrial base capability and workforce. In
addition, reversibility will play a key factor in
prioritization of actions. However, given the magnitude of the
combined concentrated reductions, even the most effective
mitigation strategies will not be sufficient to protect the
sustainment industrial base. As a result, third- and fourth-
quarter inductions will be cancelled in many areas, gross
financial and production inefficiencies will be generated,
thousands of Government temporary and term employees and
contractor personnel will be impacted immediately, hundreds of
small businesses and businesses with strong military market
dependency will be placed at risk and readiness of numerous
major weapon systems and equipment and in turn each Service's
ability to satisfy future mission requirements will be
seriously degraded.
The damage may be so severe in some areas full recovery
within our national industrial base both public and private
sectors from just fiscal year 2013 reductions could take up to
a decade.
Finally, from what I just highlighted, it may appear
obvious that if sequestration is not reversed and outyear
reductions occur, each Service's industrial base strategy is at
risk. Adjustments in funded workload will exceed our ability to
responsibly adjust workforce and evolve our industrial
capability. As a result, critical skills will be lost, reduced
investment levels will impact competitiveness and relevance,
major inefficiencies will emerge, and key public-private
partnerships will be unsupportable. The bottom line is, each
Service's ability to support surge and sustained operations
will be seriously damaged.
Thank you, Mr. Chairman, Ranking Member Bordallo, and
distinguished members of the subcommittee for the opportunity
to address these critical issues.
[The prepared statement of Mr. Johns can be found in the
Appendix on page 41.]
Mr. Wittman. Mr. Steffes.
STATEMENT OF PETE STEFFES, VICE PRESIDENT, GOVERNMENT POLICY,
NATIONAL DEFENSE INDUSTRIAL ASSOCIATION
Mr. Steffes. Thank you, Mr. Chairman, Ranking Member
Bordallo, and members of the subcommittee. On behalf of the
1,715 corporate members, and nearly 95,000 individual members
of the National Defense Industrial Association, I am pleased to
appear before the Subcommittee on Readiness concerning issues
that are of great importance to the viability and sustainment
of the industrial base, and therefore, national security.
I am also very pleased to be sitting on this side of the
table after 20 years sitting on the other side of table as a
staffer on the committee.
In trying to understand the immediate impacts of a
continuing resolution and the impending Governmentwide
sequestration, it is important to realize that many of the
potential impacts of these actions are already occurring,
especially for small business. Some examples of companies and
communities these real life impacts include cuts to prime
contractors such as the MRAP [Mine-Resistant Ambush Protected
vehicle], which totals over 6 billion in contracting will
impact over 1.5 billion subcontracts performed by small
businesses.
A company in Oregon that manufactures periscopes, vision
blocks, ballistic windows, transparent armor, and specialty
components for the past 35 years is shuttering their doors due
to the uncertainty of potential budget cuts and a concern over
the trends in defense procurement practices. The manufacturer
of one-of-a-kind, high-tech, hot-press furnaces used to
manufacture ceramic body-armor plates and the manufacture of
carbon tooling, specialty foils, and other specialized products
are close to going out of business. It would take 18 to 24
months to reconstitute these capabilities and at a larger cost
to taxpayers. Some of these examples may not be directly
attributable to sequestration or the impact of year-after-year
continuing resolutions, but are the realities of a reduction in
the defense budget and the uncertainties of a normal
appropriations process.
Sequestration certainly will speed up the process of plant
closures for many, but the real danger here is the forced
closure of critical technology suppliers at a time when we must
maintain a current level of readiness and be prepared to face
inevitable challenges to national security in the future.
Reconstituting these capabilities, not if, but when needed
again, will take a lot of time and a lot of money and will have
a significant impact on readiness. Managing these realities
will be a challenge for all. Some of the big defense producers
may be able to adjust to forced and unplanned changes that a
sequestration and continuing resolutions will inevitably cause.
However, the big businesses also heavily depend on second-,
third-, and sometimes fourth-tier suppliers who will be most
vulnerable to going out of business. Small business do not have
the resources to weather the storm.
As concerned as we are about the ability for the defense
industrial base to provide acceptable levels of support to
sustain national security, it is also just as important to
maintain an organic source of repair and maintenance in the
Department of Defense. Since the 1940s the Nation's
manufacturing depots, arsenals, and shipyards have been the
cornerstone of our ability to not only fight but to
overwhelmingly win any and all conflicts.
After significant downsizing during the last several BRAC
[Base Closure and Realignment] rounds in a current future
fiscal reality, the Nation's organic capabilities are feeling
the same pressures as the private sector. One of the major
contributors to these pressures is the declining workloads due
to the scaling back of our war efforts, and that most of the
work currently accomplished in our depots is on legacy systems.
Fewer and fewer new weapons systems are being fielded and those
that are do not require the heavy long-term maintenance that
our depots system was originally designed.
The military depots are also heavily dependent upon the
private sector for repair parts and equipment. Overshadowing
these fact-of-life realities is the impact of a sequestration,
continuing resolution, and an inevitable budget reduction.
Sequestration will necessitate a cancellation of program work
orders in the third and fourth quarter, as Mr. Johns has
mentioned, in this fiscal year, an action that will not only
impact our readiness and material and equipment, but it will
also leave us with a workforce with not much to do, an
expensive proposition as the losses this year will be carried
into next year's rates. Operating under a continuing resolution
significantly restricts the Department's ability to transfer
funding between accounts, a major hindrance in the proper
management of the taxpayer funds.
The debate on the most efficient manner providing for
maintenance and repair needs of the Department has been going
on for decades. Over the past 30 years Congress taken special
interest in public maintenance facilities by enacting
legislation meant to ensure their continued viability,
especially in times of national emergency. Some will say that
parts of existing legislation inhibit DOD's [Department of
Defense's] ability to economically and efficiently manage these
needs.
Over the past 2 years, there have been good-faith efforts
by Congress, the Department, and industry to find the solutions
agreeable to all. Unfortunately to date, these efforts have not
been successful. It clear that with a probable sequestration,
continuing resolutions, and budget reductions irrespective of
the sequestration, something must be done so that our world-
class repair and overall capabilities, public and private, are
not lost.
As budget constraints and force structure reductions make
the management of effective public and private depot-level
maintenance capabilities more challenging, the framework in
chapter 146 of Title 10, the process of determining core
logistics and minimum organic workload requirements should be
reviewed by representatives of all stakeholders in a structured
and open process that would serve well to inform future
decisions by Congress and the Department of Defense on the
efficient and affordable management support.
One way to achieve this much-needed review is for Congress
to direct DOD to establish an all stakeholders panel to
thoroughly review the applicable sections of chapter 146 Title
10 with the aim of updating current legislation to ensure
viability and affordability of logistics support and depot-
level maintenance and repair activities of the Department in
the future.
DOD's new procurement policy, known as ``Better Buying
Power 2.0,'' calls for more efficient use of tax dollars and
endorses the concept of performance-based logistics, or PBLs.
As the mechanism to lower the cost of weapons maintenance and
create incentives for supplier to cut costs. Under a PBL
arrangement a contractor will agree to provide a certain
outcome for a prenegotiated price rather than get paid for
individual products and services. If a PBL is for aircraft
engines, for instance, the contractor would be held accountable
for ensuring that a certain number of engines are available at
any given time. However, at a time when DOD is advocating more
efficient contracting methods, only 5 percent of the military's
maintenance work is performed under such arrangements. About 87
PBL contracts are in place today, compared with more than 200
in 2005.
A proven solution is partnering. Partnering has been
discussed for many years and would appear to be an efficient
way of utilizing public facilities capabilities along with
industry. Legislation has been written by this committee over
the years to incentivize and promote partnering. There have
been very successful partnering arrangements, including the
tank upgrade program at Anniston Army Depot of engineering
support and logistic services between GE [General Electric] and
Corpus Christi Army Aviation Depot, and the operative
communications capabilities at Tobyhanna Army Depot, just to
name a few.
However, much more can and should be done. Further
integration of the organic and private industrial bases will
provide the additional flexibility demanded by an unstable and
uncertain budget future.
Mr. Chairman, at a time when the Department of Defense and
the defense industrial base must adapt inevitable budget
restrictions, regardless how they come about, there must be a
change in how we do business. Congress, the Department of
Defense and industry must come together and find ways to
provide a manageable and affordable sustainment industrial
base. As America's leading defense industry, NDIA [National
Defense Industrial Association] is committed to working with
all stakeholders to ensure that we continue to provide cutting-
edge technology and superior weapons and equipment, training,
and support for our warfighters. Thank you, Mr. Chairman,
Ranking Member Bordallo, and I will take any of your questions.
[The prepared statement of Mr. Steffes can be found in the
Appendix on page 52.]
Mr. Wittman. Thank you, Mr. Steffes. Mr. Sterling.
STATEMENT OF CORD STERLING, VICE PRESIDENT, LEGISLATIVE
AFFAIRS, AEROSPACE INDUSTRIES ASSOCIATION
Mr. Sterling. Chairman Wittman, Ranking Member Bordallo,
other distinguished subcommittee members, thank you for the
opportunity to appear today and discuss the negative
consequences of the continuing resolution and sequestration on
the U.S. aerospace and defense industrial base. AIA [Aerospace
Industries Association] represents 380 U.S. manufacturing firms
in the aerospace and defense industries, a sector of our
economy with over 1 million dedicated and talented employees.
Many of you have seen the studies we have made available which
look at economic and industrial impact of the current budget
situation. Most widely used is one conducted by George Mason
economist Dr. Stephen Fuller that concludes sequestration will
put at risk 2.1 million jobs nationwide. This figure includes
473,000 manufacturing workers. Many of these will be in the
aerospace industry, including small suppliers. While the timing
of these impacts will be spread over a couple of years and may
be slightly diminished as a result of the small reduction in
cuts made as part of the American Taxpayers Relief Act of 2012,
they will still be large and devastating to families and
communities across the country.
Defense manufacturers have been laying off workers and
canceling future investments for many months because of this
uncertainty. The process accelerated so significantly at the
end of last year that our national economy actually shrunk in
the fourth quarter of 2012. This was a shock to economists who
attribute it largely to the decline in defense spending, and
the process continues.
Last year we formed the Defense Industrial Base Task Force
in partnership with the National Defense Industrial Association
and the Professional Services Council. As these private-sector
executives looked at the initial impact of just the $487
billion in budget cuts already programmed, they determined
these cuts could cripple certain defense sectors, resulting in
an industrial base that is smaller, less innovative, and less
responsive to urgent wartime needs. These impacts would most
likely force industry to close production lines and lay off
skilled full-time workers, letting go specialized manufacturing
capacity and human capital that cannot be regenerated without
great cost and significant time; reduce or eliminate
investments and capabilities beyond those needed to meet
existing contracts, and consolidate further, exit the defense
sector altogether, or be divested by parent corporations.
Consequently, defense executives predicted an erosion of
the continuum of goods and services provided by industry from
R&D [research and development] and design, to advanced
development, to production and then sustainment and upgrade
that could result in critical gaps in military capability over
time. And all of this is just based on the first $487 billion
in defense cuts, not the additional $500 billion from
sequestration.
Sequestration will cause us to lose the design teams,
system integrators, skilled technicians and others that are
critical for us to maintain our technological lead. The
Department of Defense also has serious impacts operating under
a long-term continuing resolution. We know that there is a $14
billion shortfall in the operations and maintenance accounts
under the CR [Continuing Resolution]. This means that critical
training and sustainment activities will not be performed
unless a shortfall is corrected. For example, the Navy, which
has a $4.5 billion O&M shortfall has reported that 23 ship
availabilities will not by performed if increased funding is
not provided.
Aircraft maintenance will be cancelled in the third and
fourth quarters. And modernization programs will be deferred as
we are forced to rely upon aging, antiquated systems that are
less capable and more expensive to maintain.
Sustaining current readiness will be impossible with the
Joint Chiefs reporting that we are on the brink of creating a
hollow force with sequestration and the CR triggering a 20-
percent cut in the operating budgets. With less funding
available for maintaining the equipment, buying fuel and
purchasing spare parts training on our equipment will not be
possible at the levels deemed necessary by operational
commanders.
The CR is also preventing a number of programs from moving
forward as rules of the CR do not allow new starts. As a
result, personnel and equipment stand idle waiting for the
authority to begin work. This increases cost and creates
program delays that will be felt for years. Impacts will not
all be immediate, they will build over time as agencies grapple
with implementing the order. Our analysis all concluded that
most private sector job losses would occur within 6 to 18
months of the sequester order as contracts expire.
The sheer magnitude of these nationwide effects will not be
evident in the first month. What we do know is that the cuts
will be deep and unless quickly reversed, will result in the
loss of critical industrial skills and capabilities. Some have
suggested that additional flexibility will solve most of these
problems. However, flexibility without additional resources may
end up savaging the very accounts that warfighters depend on
for advance equipment and long-term readiness. The investment
accounts will lose billions of dollars which translate to
significant equipment reductions. This magnitude of cuts in the
investment accounts could result in fewer, older, and less
capable tools for our young warfighters in harm's way. It would
terminate promising R&D that would help us keep our
technological advantage and future conflicts, and it would
cause irreversible damage to a fragile defense industrial base.
Mr. Chairman, thank you again for the opportunity to testify
today on this important topic.
[The prepared statement of Mr. Sterling can be found in the
Appendix on page 65.]
Mr. Wittman. Thank you, Mr. Sterling. Dr. Avdellas.
STATEMENT OF DR. NICHOLAS J. AVDELLAS, SENIOR CONSULTANT FOR
MATERIEL READINESS AND SUSTAINMENT, LOGISTICS MANAGEMENT
INSTITUTE
Dr. Avdellas. Chairman Wittman, Ranking Member Bordallo,
and members of the committee. Thanks very much for the
opportunity to provide a short opening statement on assuring
the viability of the Department of Defense's sustainment
industrial base in the context of a yearlong CR and sequester.
In the time allotted, I will offer a brief perspective on
what assuring the viability of the sustainment industrial base
entails given clear fiscal pressures, and then highlight a few
key consideration for a feasible way ahead. There is no doubt
that DOD is faced with both substantial and sudden resource
decreases as well as longer-term fiscal challenges. The looming
and flexible and across-the-board nature of the most impending
of these difficulties will undoubtedly cause specific
disruption in DOD's sustainment industrial base.
I would suggest that in that the near term, the challenges
are primarily to what this base delivers, and in the longer
term, to its shape and capabilities. Central issues then relate
to the impact and strategies necessary to address reductions
while reshaping what remains in that base to assure readiness
capabilities for the future. In that regard DOD should work to
define the right amount of sustainability to produce viable and
responsive readiness. I believe the situation must prompt
Congress and the DOD to critically deliberate the nature of the
relationship of logistics or sustainment to our military
strategy.
Discussions about tooth or tail, readiness or sustainment,
maintenance or operations, equipment or personnel must be
approached from a wide-ranging, inclusive perspective.
Viability of the industrial base should be considered in
the context of force structure and operational needs, and what
workloads and capabilities requirements those needs drive. In
general, multiyear sequestration affects will logically reduce
force structure and operational capabilities, and the
industrial base will react to those reductions in what should
be a balanced way. By ``balanced,'' I mean shaping an
industrial base so it is efficiently structured and funded to
deliver what the forces need or require or ask for in terms of
readiness and capability. Overall, it is important to recognize
that workload shifts or reductions will have a significant
effect on the sustainment capabilities that support the force
structure, and perhaps should have significant effects on
shaping that force structure.
If CR's budget reduction and sequestration are focused
disproportionately on one aspect of these equations--force
structure, operations, a particular element of sustainment, or
some part of the industrial base--imbalance will result. If we
focus on the industrial base or sustainment without relation to
force structure and our operations, then readiness and
capability cannot be delivered over time and deferred
maintenance will result. This sort of imbalance was a
contributing cause of the hollow force of the late 1970s.
On the whole, the resource realities implicit in the CR and
the sequestration signal a smaller workload over time that must
be effectively positioned within our sustainment industrial
base. These realities may require innovative approaches in
addition to sound strategic thinking. In that regard, I offer
several suggestions for considerations by the Department and
the Congress.
First, emphasize the need for detailed planning, the kind
of planing that reflects adjustments to the realities of force
structure, operational requirements, and readiness needs. Here,
a clear need is characterized current conditions and to
identify requirements for new capabilities and modernization
that extend through the decade, not just the Future Years
Defense Program, or the FYDP. This should apply to both organic
and contract providers and might include consideration for an
integrated management arrangement.
Second, stress the integration of public and private sector
sustainment efforts beyond primarily depot maintenance to
achieve plan performance base support. Formulate and implement
partnering approaches that could have some additional
dimensions, including arrangements that leverage modernization
that could be well provided by the private sector.
Third, further evolve the core capability determine process
towards a strategic risk management framework. Utilize the
Army's plan as a baseline to drive constructive public and
private sector behavior and workload management and provide
strategic oversight through OSD [Office of the Secretary of
Defense] and the military service relationships.
Finally, rationalize centers of industrial and technical
excellence or sites within a consistent framework across the
Department to optimize the public sector industrial base and
better integrate key private sector capabilities.
This concludes my opening statement. I would be pleased to
respond to any questions you have.
[The prepared statement of Dr. Avdellas can be found in the
Appendix on page 75.]
Mr. Wittman. Very good. Thank you, Dr. Avdellas, appreciate
your testimony as well as that of the other panel members.
I want to begin with questioning. I want to remind the
members we want to make sure we get to as many questions as we
can, so I will be very brief with mine. We heard some common
themes among our witnesses today, and essentially, they all
boil down to this, and that is an erosion and degradation of
capability, and that is not just a short-term issue, but a
long-term issue, and many of you spoke very eloquently about
the long-term nature of that with sustainability, what happens
with personnel, what happens with equipment, what happens with
our industrial base, I think all those things are
extraordinarily important.
What I would like to get is just a brief comment from each
of you about in the face of a resource-challenged environment.
Let's face it, we know we have got the $100 billion reduction
from Secretary Gates, the 2011 $487 billion on top of whatever
ultimately makes its way out of the budgeting decision
processes in front of us. Where does the scenario leave us to
do the best that we can under that particular scenario in
making sure that we not only meet the short-term needs, but
make sure the long-term needs are met. Also, in a pretty
challenging environment where we have drawdowns, we have yet-
to-be-determined activities there in Afghanistan, challenges
obviously will blossom in years to come, too. Just give me your
perspective on how do we best meet that? Mr. Johns, we will
start with you.
Mr. Johns. Thank you, Mr. Chairman. I guess this is sort of
the essence of the basic problem. I would first say that it is
very, very difficult to comment definitively. Given the
uncertainty associated with what might happen in a week, and
what might happen for fiscal year 2015 and beyond levels of
funding. Actions that we may take in fiscal year 2013 should,
in fact, be shaped by what we anticipate happening in 2014 and
2015. We want to be completely consistent with that to the
degree possible. Very clearly, the situation that we are in
right now, and the impacts associated with the potential
reductions and shortfalls will cause us to stay within the top
line and create some pretty significant impacts in our
workforce, in our capability, in our ability to produce
readiness.
To mitigate those issues we need to factor in a variety of
different considerations. What is reversible, first of all? Are
there actions that we can take that can be reversed if the
fiscal situation changes over the next 6 months to a year?
Very, very important. The other one is are we taking actions
that are consistent with the long-term desired capability of
the United States military? That relates back to protection of
critical capabilities and the analysis associated with that and
linking those critical capabilities to warfighting
requirements, absolutely essential. That dominates back into
the workforce. The workforce is the most critical element and
probably the most perishable and longest to recover if damaged
in that equation. So we need to be very careful about what we
do with our workforce. And in fact in the near term, we may
take fiscal risk to protect that workforce so that we can
protect long-term capability and reduce long-term risk by
protection of the workforce.
Mr. Wittman. Very good, thank you. Mr. Steffes.
Mr. Steffes. Mr. Chairman, I totally agree with what Mr.
Johns is saying, and part of the problem is what we do in the
short term is going to have a very significant impact on how we
should plan in the future years. No one knows really what the
impact is going to be pretty much until it happens. The
workforce is a perfect example, once you lose that talent, they
are not going to sit there waiting for a call to come back. It
is a very slippery slope, once you start making adjustments in
the near term, there is a whole series of things that may fall
out in the long time that is really going to be bad. A perfect
example from my Air Force time, I have seen airplanes parked
for a time on a ramp and they will break all on their own; you
don't have to touch them, they will break.
So if you don't do the things you need to do on a regular
basis, it will cost you a lot more in the future. That falls
into the reversible area because some of the stuff may not be
reversible, you may get to the point where it is too expensive
and you can't get there.
Mr. Wittman. Mr. Sterling.
Mr. Sterling. We know things will be broken, the cuts are
just too steep, the magnitude is too large for there not to be
a problem of some nature. What will be broken, it is too early
to tell because that will be dependent upon decisions made over
at the Pentagon. I think it is important to remember, and we
talked about workforce. When we talked about the industrial
base, we really are talking about the people. Plant and
equipment is relatively easy to rebuild in a relatively short
time, but you are not going to want to fly on a plane or sail
on a ship that was designed by somebody who just graduated from
engineering school or built by someone who just got out of
trade school, a skilled technician, you want experience--
experience matters.
We are going to lose a lot of that experience a lot of
those people, whether it is through furloughs as people start
to look for jobs elsewhere, temporary layoffs as some might
portend this to be, the simple fact is people will look for
stability, especially high-skilled people that are in our
industry and our sector, and as a result, we will lose them to
being able to provide what the warfighter needs.
Mr. Wittman. Thank you, Mr. Sterling. Dr. Avdellas.
Dr. Avdellas. Yes, I would harken back to Mr. Johns'
comments about some of the uncertainty and kind of the
immediacy of a lot of cuts that have been sort of hoisted upon
the Department. I think the turning radius for the industrial
base can and will be shaped and it will be moving forward. And
I think the Department had been planning for resource
reductions of certain levels, and as you mention, they were
already going about a lot of sort of major efficiency
initiatives. I think there are tools within the Department
including, the core capability determination process where
there is a work breakdown structure where, from an industrial
base perspective, from a skill and a workload perspective,
there is a starting point to really be able to understand the
commodities within the industrial base that we really either
are at risk or we really need to be paying attention to.
For example, as we are aware, and we talk about readiness
of aircraft because of the engineering standards and things for
them to fly, a lot of readiness issues we will--I would say in
that commodity area, we would see probably quicker than some of
the ground vehicles in other places.
So there is both a critical and core determination process
and there are management tools within the Department that I
think will just have to be used and applied.
Mr. Wittman. Very good. Thank you, Dr. Avdellas. Ms.
Bordallo.
Ms. Bordallo. Thank you, Mr. Chairman. My first question is
for Secretary Johns. Can you comment on how the reductions in
the operations and maintenance accounts will impact our
rebalance of forces to the Pacific. Naturally I am interested,
since I represent the U.S. territory of Guam. And what impact
will these reductions have in our ability to have equipment
that is available for training with our partners in the region?
Mr. Johns. Responsible relationship of maintenance to what
happens to the asset once we produce them really is up to the
Department.
Ms. Bordallo. Do you have your mic on?
Mr. Johns. I am sorry, ma'am. Staying within my lane, I am
responsible for maintenance. I will attempt to comment on the
production of assets that will then be used and employed by the
Service and then allocated throughout the world. But to comment
on the actual capabilities of the Navy throughout the world
would be a little bit of a stretch for me. I will go up to
where I think I am safe in doing that. What I can tell you is
the impacts in the Navy, most of which you are aware of, has
significant impact in the private yards, 70 percent of the
ships maintenance in the private yards in the third and fourth
quarter will be cancelled, that is 25 ship availabilities and
potentially two carrier refuelings and complex overhauls.
On the aviation side, 320 airframes, approximately 10
percent of the fleet and over 1,200 engines and modules. This
will result in bare firewalls and readiness problems in four
air wings. There will be impacts on the industrial base in all
three fleet readiness centers there as well as across the
entire shipyard complex.
Very clearly, this level of impact is going to have an
associated effect on the assets available for the Navy to
deploy worldwide, there is no doubt about that. Whether the
priorities as they are now favoring CENTCOM [U.S. Central
Command] and the western Pacific are upheld and the resources
allocated in a way to adequately support those areas of
operation at the sacrifice of other areas in support of Africa
and other theaters really is a decision that needs to be made
by the senior military personnel responsibility for planning.
Ms. Bordallo. Thank you, Mr. Johns. Mr. Avdellas, what
other approaches or techniques that DOD should consider to
protect reversibility of maintenance capabilities given budget
pressures and uncertainty? Could you give us specifics?
Dr. Avdellas. Certainly. A couple of things that could be
considered, particularly going back to the kinds of commodities
that might be affected first, whether we are looking at
airplanes or combat vehicles or ships and things is, some
techniques that similar to a core capability process where
either in the public sector or the private sector, we would
keep parts of the industrial base warm, if you will. In other
words, we may keep a very small amount of workload, or keep
certain technicians, or certain skills that we know are
critical moving forward should there be a certain surge
requirement in these areas.
I know that has been tried in the past and I know some
people call it ``mothballing,'' certain things in terms of the
equipment, but the whole idea is, and all of this is kind of
hedging against risk and making sure that the whole system from
the surge perspective is ready to respond if needed. So there
are techniques, the one I mentioned is one of them, and others
from a workforce perspective that could be done. I think the
key idea is kind of balancing uncertainty with some known
factors about what is happening in the future and what we might
anticipate coming and trying to keep at least a minimum sort of
capability, whether it is from a workforce perspective,
technical skills, certain elements or things that are part of
the construction and I think that should be something that
should be focused on.
Ms. Bordallo. Thank you. One last question for Secretary
Johns. What is the impact of the planned drawdown of military
force levels on the required capability and capacity of the
sustainment industrial base? And what is the general impact of
these actions on the workforce?
Mr. Johns. Wonderful question. The complexity associated
with that is understanding what is the difference between
capability and capacity. Capability has to do with the basic
ability of a particular service.
Ms. Bordallo. I think your mic----
Mr. Johns. Yes, I will get this eventually. Capability has
to do with the basic ability of a service or a maintenance
enterprise to actually conduct an individual repair on a piece
of equipment and the nature of that repair. Capacity has to do
with how much equipment and the nature of the maintenance that
has to be worked to actually execute that maintenance, so
capability and capacity are actually two different things
though they are interrelated. The bottom line is that
capability will be adjusted based on the type of equipment in
the inventory, and capacity will be adjusted based on how much
equipment, the nature of the use of that equipment, the age of
that equipment within the inventory.
So it is likely that in our situation, capability will
actually increase with the induction of new weapon systems, the
capacity will decrease with the decreased OPTEMPO, decreased
force structures, and decreased inventories.
Ms. Bordallo. Thank you, Mr. Secretary. Thank you, Mr.
Chairman.
Mr. Wittman. Thank you, Ms. Bordallo. Mr. Bishop. Ms.
Hartzler.
Mrs. Hartzler. All right. Well, thank you, gentlemen. I
appreciate you all being here and your testimony. Mr. Johns, I
was just wondering what is the Department's overall industrial
base sustainment strategy?
Mr. Johns. I got it right that time. The overall strategy
really, and I will go back to the Army's strategy because we
are doing a lot of work in using the Army's strategy as the
basic foundation for what we are developing for the Department.
So within the Army strategy, and we are sharing this across the
Services, each Service has very similar strategies. Three major
objectives: Retain critical capabilities, maintain efficient
operations, and ensure regeneration of capabilities to maintain
relevance.
We have four basic tenets that we are working towards: one
is managing capacity to support operations; focusing resources
to sustain core and critical capabilities; promoting public and
private partnerships; and aligning decisionmaking at all levels
to achieve common goals. From a departmental perspective, we
have added to that our enterprise tenets of operation so that
we can enable the Services to work together to create
enterprise, and the most efficient solutions across the entire
industrial base.
Our vision in that sense includes words like ``enterprise
structured,'' and ``resourced,'' and ``operated,'' ``integrated
and synchronized,'' ``collaborative global maintenance
network,'' and the basic tenets support that. We have actually
tested this recently to include the establishment of new
capabilities in the organic sector with regard to unmanned
aerial vehicles and it has worked very well. We have been able
to identify single site sources of repair in the most efficient
way across the entire Department, leveraging the critical
capabilities and centers of excellence within each one of the
Services to best allocate that workload across that entire
Department.
Each Service has contributed in that following the basic
tenets of that Department strategy. While that is yet to be
formalized, we are very encouraged that the first test in
application of that strategy has worked very well for us.
Mrs. Hartzler. That is good. You have a very difficult
task, and I am very concerned about the impact of sequestration
on all of our national defense, and certainly on our industrial
base.
Mr. Sterling, in your opinion, what critical skills in the
industrial base need to be retained and what ones are at
jeopardy if sequestration goes through?
Mr. Sterling. Which ones are in jeopardy is a little more
difficult to outline because lot of decisions will be made in
the Pentagon over the course of the next several months as they
implement it and looking at the future budget. The ones that
are most critical to maintain, you have to look, and I know
Brett Lambert, Secretary Lambert over in the Pentagon has been
doing sort a deep dive looking at this cross-industrial base.
People like systems engineers, they can bring a weapon system
together from all the various suppliers. You want to look at
skills such as that, you want to look at some of your, what I
will call low-density skills, that they are working on critical
unique elements, whether it is in the area of chips,
manufacturing of that nature, whether it is in nuclear work for
shipyards because you have got relatively small number of units
coming out. Those are the skills you have to really make sure
you retain because adding them back in later--I know one of our
CEOs [Chief Executive Officers] was often noted as talking
about the fact that we don't have a new manned aircraft under
design now within the Pentagon. And it is the first time in 100
years; we have the Joint Strike Fighter [F-35 Lightning II]
coming on line, we have the F/A-18 E and F [Super Hornet
fighter aircraft] that is out there. The F-22 [Raptor fighter
aircraft], but a new one coming on line. That presents some
unique challenges because the skills, the requirements you have
on people to try to design a new system and bring that to
through the various phases, you lose that skill. It atrophies,
the people retire and so that is one of the challenges you have
to look at.
Mrs. Hartzler. What about the long-range strike fighter?
Mr. Sterling. You are just not at the phase where you have
the design teams in the Department.
Mrs. Hartzler. Very good. Thank you very much. I yield
back.
Mr. Wittman. Thank you, Mrs. Hartzler. Now we can go to Mr.
Loebsack.
Mr. Loebsack. Thank you, Mr. Chair. Thank you for having
this hearing today, I think it is absolutely critical,
especially given that we are a day away from no doubt what will
be sequestration. I think it is really quite unfortunate, and
at a time when we are also operating under a continuing
resolution. And I was reading today that it may very well be
the case that at least in this body, there will be another
continuing resolution moving forward after March 27th that will
actually build in sequestration cuts into the base.
So sequestration seems to be a reality, or at least that is
the assumption at this point. So I think we have just got to
move forward and be realistic in that sense. I am disappointed
if, in fact, a continuing resolution after March 27th assumes
sequestration as part of the base, I understand why that might
be the case, but that is going to put even more pressure
obviously on all the things that we are talking about, it seems
to me today.
I was one of those who voted against sequestration in the
Budget Control Act in the first place, because quite honestly,
I said at the time, I thought we might very well get to this
point because someone in my seventh year here in this body, I
am probably as pessimistic about the chances that this place
will somehow be run by rationality as the average citizen and
that is really unfortunate, but that is where we are right now,
and I represent the Rock Island Arsenal, I represent the Iowa
Army Ammunition Plant, we have lots of folks who are doing
great work at both of those places to make sure that our troops
have what they need if they are called overseas. And as a
military parent, that is really important to me on a personal
level I have to say.
And clearly, our depots, our arsenals, our ammunition
plants are doing a great job. I do have some questions; I guess
I have a followup first more than anything for you, Mr. Johns,
because when our chair was asking about what steps could be
taken to protect the workforce, I guess you mentioned that some
steps could be taken by DOD. What steps could those be, what
steps could actually be taken to effectively manage workforce
under sequestration, if you could offer some details?
Mr. Johns. Yes, Congressman, of course. Again, as we all
had indicated, the workforce is the key element behind
capability both in the short term and long term. And we would
hesitate to do anything that would damage them unduly. We would
be looking for some indication about what future requirements
looked like and future funding levels looked like in fiscal
year 2014 and beyond to try to create some certainty there. But
in the absence of that, we will make some assumptions about
what level of workforce and what skills are required to support
future operations. We will protect, to the best of our ability,
those capabilities and those workforce skills to ensure that as
we enter 2014 and come out of this sort of crisis situation in
2013, that we have the workforce in place that can actually
execute those requirements.
Mr. Loebsack. Are we talking about a red line here? Is that
what we are talking about?
Mr. Johns. We would hope to not cross a red line, if I
understand your question correctly.
Mr. Loebsack. Right.
Mr. Johns. Where that red line is, is obviously very, very
difficult to predict, especially given what you just indicated.
Mr. Loebsack. I hope I am not correct and I hope what I was
reading today is not correct. We will see.
Mr. Johns. Yes, Congressman. So in the meantime, our
commanders and Services have latitude to adjust inductions,
adjust funded workload to try to smooth out to the best of
their ability the workload and the actual work that is being
done within our industrial facilities, so that we can keep as
many people and many skill sets actively employed and engaged
to the maximum degree possible. The idea would be to be keeping
warm production lines open as long as we possibly can, because
once you shut down a production line, now you have effectively
crossed a threshold that will require significant time to
recover. As long as its warm and operating at even a marginal
level, we will be protecting capability and ensuring
reversibility.
Mr. Loebsack. That goes to Mr. Avdellas' comments about
keeping the organic base warm. Again, that comes back to really
protecting our national security in the event of another
contingency or another conflict, we have to have that organic
manufacturing base, it has to be there and it has to be ready
to be ramped up again as it was previously. And the Rock Island
Arsenal, uparmoring Humvees, it was very, very important,
something the private sector couldn't do as quickly as the
arsenal did. Thanks to all of you. I really appreciate it.
Thank you, Mr. Chairman, I yield back.
Mr. Wittman. Thank you, Mr. Loebsack.
Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
I want to thank all four of you for being here today. I
think, though, you do share some of the blame. If you had
refused to testify at an 8 o'clock hearing, I wouldn't have to
be here as well. It is not that I am opposed to mornings, it is
just so dark. So thank you for that.
Mr. Johns, I have appreciated your efforts for many, many
years at the Department of Defense.
Mr. Steffes, welcome back to HASC [House Armed Services
Committee].
Mr. Sterling, I understand you cut your teeth at the Senate
Armed Services Committee. I am sorry. And I hope you have had
enough time to be away from the dysfunctional side of the
Capitol to get your bearings back.
I do have six specific questions, so maybe there will be a
second round, I hope.
Let me start first of all with, Mr. Johns, I don't want an
entire historical dissertation, but let's face it, you know,
when the stimulus bill was built, every element of Government
was increased so they have some cushion against sequestration
cuts, except for the military. If this was the first cut for
the military, I wouldn't feel any kind of compassion for you,
but this is basically the third cut you have faced, and which
is significant.
I would like you just to give me historical perspective,
because when the Soviet Union fell, the Berlin Wall came down,
we had the so-called Peace Dividend, in which the
infrastructure of our military was basically decimated at the
same time.
Is sequestration worse than that Peace Dividend, or is it
similar to it, or is it every--it is going to be similar to it?
And quickly, a simple answer.
Mr. Johns. Yes. First, I appreciate your comments with
regard to us, the entire panel.
The simple answer to the question is while we expect a
peace dividend, given the full-spectrum threat that we are
facing, I am not sure that we should actually be seeking one.
Now, unfortunately, the fiscal situation that we are
involved with right now is so drastic in such a short
timeframe, the drawdown in the post-Cold War era is nowhere
near the slope that we are looking at in fiscal year 2013.
Mr. Bishop. Okay. Timeframe versus the amount of money we
are talking about makes it more significant.
Mr. Johns. Timeframe and magnitude in that short amount of
time.
Mr. Bishop. All right. Let me go to one of the most
significant questions. I have been hearing a great deal of talk
about changing to the 50/50 program that we had in statute as a
means of temporary relief. Is that a reality? And if it is, are
we talking about permanent, temporary? If it is temporary, how
do we replace the competency at depots, which may be lost by
that kind of change?
Let me go back. Is there any legitimacy to an effort to
change that 50/50 complex?
Mr. Johns. Well, the question is a little difficult as
worded. Legitimacy, there has been discussion about potential
impacts associated with 50/50.
Mr. Bishop. Are we talking permanent or temporary changes
to 50/50?
Mr. Johns. If we look at just fiscal year 2013, I would say
that that may be temporary, but I am not even convinced at this
point that we will have to execute a waiver. It is a very
complex situation; multiple things have to be balanced,
requirements for readiness, protection of critical capabilities
in both the public and private sectors. There will be
reductions on both sides, so if I give you a final answer on
what that number might be, it is likely to change and is
probably incorrect.
Mr. Bishop. That is a fair enough answer. If we do come
back with a temporary change to that, I would like to see a
definite cause-effect relationship that would justify such a
change ever taking place. Once we lose those competencies at
our depot bases, it will be very hard to bring those
competencies back in again, and I think all of you have said
something similar to that.
Mr. Johns, let me try and get a couple more in on you, if I
could. When we assess depot cost, are the force services
similar or dissimilar in how they assess the costs of their
depot? Does every Service take the same cost of overhead into
coming up with their cost per unit?
Mr. Johns. The simple answer, Congressman, is no, they are
not similar. In many cases, though, the differences are
marginal and dependent on the use of lexicon, different
lexicons across the Department. They are probably more similar
than they are dissimilar, but there are differences.
Mr. Bishop. Okay. Thank you.
And I guess, how easy would it be to standardize that
process of especially overhead costs from Service to Service?
Are the core responsibilities so different, it becomes
difficult to do that?
Mr. Johns. I would venture to say, Congressman, that the
core processes are not the driver, but probably the long
institutionally cultural differences between the Services have
resulted in just simply different accounting and allocation
structures. Those are adjustable, but we would be changing
institutional processes.
Mr. Bishop. Thank you. I appreciate that.
I am over time. I got four of the seven I wanted, though.
Mr. Wittman. You did great.
Mr. Bishop. So I will be looking for a second round.
Mr. Wittman. Thank you, Mr. Bishop.
Mr. Courtney.
Mr. Courtney. Thank you, Mr. Chairman.
And thank you to the witnesses for evidence today that
shows that this sort of--I wouldn't call it conventional
wisdom, but sort of noise out there that while it is only $85
billion in terms of a, you know, Federal budget of $3 trillion,
I mean, the fact is, as I think your testimony elicits today,
is that when the sequestration was actually first designed in
1985, I mean, because that is really the formula that we are
operating under, is the Gramm-Rudman-Hollings design, it was
designed to hurt, and it was focused on one aspect of the
Federal Government: discretionary spending. And this is, you
know, the place that all of you are sort of stuck trying to
deal with right now.
And I guess, Mr. Johns, you know, one sort of proposal that
is floating out there is, well, we will add flexibility to the
sequestration, and you know, that will allow the scalpel rather
than the hatchet. And so if Admiral Greenert was given
flexibility to sort of deal with his shortfall that he is going
to have to deal with in the final 7 months of this fiscal year,
I mean, would that change anything? I mean, is that going to
mean that we will have repair work at the Lincoln [USS Abraham
Lincoln nuclear-powered supercarrier] or at the Providence [USS
Providence nuclear-powered attack submarine] or, you know,
these other availabilities that he is already being forced to
cancel, or has he really already used whatever flexibility he
has got to come up with the plan that we are now seeing?
Mr. Johns. Yes, Congressman.
I believe that flexibility associated with elimination or
reduction of the limitations associated with continuing
resolution would provide some relief in some cases, more
significant in others.
As General Odierno and Admiral Greenert have testified, I
think probably the Army would see the best benefit behind
increased flexibility and latitude to move money from
investment accounts into operations and maintenance accounts,
and probably the Navy is very closely behind them. There is no
doubt that any increased flexibility would help alleviate, and
obviously, that money would be placed against the most critical
priorities.
I do believe that the two RCOHs [Refueling and Complex
Overhaul], at least one refueling and complex overhaul is
associated with continuing resolution-driven limitations. So,
yeah, there is going to be some relief associated with that.
Mr. Courtney. But in terms of real savings, I mean, that is
where I think, you know, holding off repair work is kind of
like not getting your oil change in your car. I mean, at the
end of the day, you are not really saving anything; you are
just sort of deferring, and you are going to have to recal---
you know, you are going to sort of spend the money or getting
these ships, you know, ready for their missions. Isn't that
correct?
Mr. Johns. That is absolutely correct. Any kind of third
and fourth quarter reductions and deferred maintenance is going
to have a ripple effect in multiple ways throughout the system,
not only schedules but also fiscally in the generation of
losses inside the working capital fund that will ripple in
multiple years in the future. So not only would we not spend a
billion dollars in maintenance this year, the losses that are
generated with that because of our inability to adjust rapidly
enough our fixed costs will show up as rate increases in fiscal
year 2015. That same loss in fiscal year 2013 will show up in
decreased buying power in fiscal year 2015. So we are creating
these every-other-year ripples.
The same thing could be seen in reduced OPTEMPO and
training. That results in decreased depot-level orders from
about 3 to 6 months in lag time from the decreased demand in
the field. So when we reduce OPTEMPO and training in fiscal
year 2013, we are creating a reduced demand within the depot
for depot-level repairables in 2014, which will create losses
in 2014, which will create rate increases in 2016, okay, not to
mention the degradation in material condition, the reduced
availability. We are creating a multiple significant fiscal and
operational ripple effect with this deferred maintenance.
Mr. Courtney. And lastly, I mean, that maintenance work
keeps folks like nuclear welders and electricians busy while
other projects are making their way through the pipeline in
terms of production. And, again, that is something that we are
already seeing in Groton, is that, you know, that bridge that
the work on the Providence and others was going to provide
while the construction schedule reached the waterfront is now,
that bridge is being definitely made shaky or eliminated.
So thank you, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Mr. Courtney.
Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. And, gentlemen, thank
you being here.
And it seems to me that in this room, we get the
opportunity to have fact-based, rational decisionmakers testify
before us, and maybe in another room right down the hallway, we
don't get that sometimes, so thank you for your testimony. And
you hit on a couple of things, Mr. Courtney and Mr. Bishop both
hit on things that are important to me.
I will tell you, I think any rational business owner would
look at our current fiscal situation and say, you can cut 3
percent out of the Federal budget. The problem is when you
begin to exempt, piece by piece, the vast majority of the
budget, then it pushes significant, significant percentage
reductions to areas that are extremely important to us, like
depot maintenance.
And I represent Robins Air Force Base. We have a tremendous
number of skilled, dedicated craftsmen and women there that are
extremely concerned about what is going to happen, not only to
their jobs but to the equipment that they are producing for the
warfighters.
So a couple of things that you hit on, protecting our
workforce, these skilled craftsmen are not going to sit around
and do nothing. There are going to be jobs available for them.
And I certainly think that we have to maintain core
capabilities inside our depots. We have to be able to do that
work. I am glad that we have the private sector participate
with us, but some of it we have to do ourselves.
So when you talk about what is reversible and what is not
reversible and when you talk about the fact that we can't shut
down a line and expect to reopen it without significant
additional costs, and I hear the leadership of the Air Force
talking about the 50/50 rule and relief from the 50/50 rule,
one of my concerns is that it implies that our depots are not
as efficient as the private sector. We are not building widgets
here. We are building weapons systems, and we have a lot of
classified information. You can't just put this stuff out for a
bid to the general public with the equipment systems that they
are.
So why is the Air Force asking for relief and the Army and
the Navy are suggesting that they don't need the relief? And I
would ask that to you, Mr. Johns.
Mr. Johns. Congressman, if you would let me, I will answer
your question directly, and then I would like to come back and
talk about the Air Logistics Center at Robins as well, because
I think it is important to recognize that as well as the
workforce that contributed to superior performance there.
The Air Force is probably the one that has been most vocal
about this issue about approaching 50/50, because historically
and projecting into the future, they are closest to the
boundary. So any perturbations in the public sector workload
will push them that much closer to the boundary. They probably
have some critical contracts that may cost a significant amount
if they were to terminate them. So these are balancing issues
that the Air Force is going to have to go through. I think that
probably what they are issuing is a potential warning order
that they are approaching that boundary and that they may need
to execute a waiver.
At this point, I am not convinced that it has to happen.
And again, as I answered Congressman Bishop, I believe that if
we contain these impacts to fiscal year 2013, then this is a
temporary measure, and as the statute allows, it is a year-to-
year waiver, so waive for 1 year and then go back and revisit
it for the next.
If these actions, however, continue beyond fiscal year
2013, then we are going to have to relook at the entire issue
of the split between the two sectors.
Mr. Scott. Thank you.
Mr. Johns. So if I could comment.
I recently visited Warner Robins, the Air Logistics Center
there, and just so you know, which you probably know, is that
they were the winner of the Depot Maintenance of the Year
Award.
Mr. Scott. Yes, sir.
Mr. Johns. Fabulous capability there. And I would hate to
see, as well as many other exceptional maintenance activities
across the Department, impacted by this.
Mr. Scott. Yes, sir. And we are proud of that base and the
men and women there and what they do for the warfighter.
I know I am going to run over just a second here, Mr.
Chairman, if you will bear with me, but thank you for coming
down there and for those comments.
One thing I would like to, and you can put this in writing,
but from the private sector, one of the things that hasn't been
addressed is fixed cost versus variable cost, especially with
regard to the areas that you are talking about. And the fixed
cost is going to be there no matter how many weapons systems we
repair. It is the variable costs that is the only thing that
you can get to. And my concern is that we are going to have a
tremendous amount of increase in the price per unit being
repaired if we do this thing.
And, again, we can cut the Federal budget by 3 percent, but
this is ``penny-wise and pound-foolish'' the way we are doing
this.
So, thank you, gentlemen, for being here and testifying.
Mr. Wittman. Thank you, Mr. Scott.
Mrs. Noem.
Mrs. Noem. Yes. Thank you.
And thank you all for being here.
Mr. Avdellas, I have a question for you regarding your
testimony. It is on the bottom of page 3, but it is where you
talk about because of the continuing resolutions that we face,
the budget reductions and now the sequester, that we are seeing
a pattern develop that much resembles what happened in the
1970s. And I am curious about that, because I would like to
know if you see where we have some ability within what we are
doing today to avoid what happened in the 1970s, if our hands
are tied to that, if we have some mechanisms that we can
utilize that will prevent something like that happening again.
It was a thought process I had thought about a month or so ago,
and the fact that you touched on it really brought it back to
light again.
Dr. Avdellas. Certainly. And thanks for the opportunity to
comment. I think there are a couple of similarities and a
couple of differences. I think that, as has been mentioned
today, the quickness of how this has been brought upon the
Department is very drastic, particularly from an orientation
over the past 10 years really that has been so much on a
mission orientation and getting the job done and using very
effective tools, like reset and other things, to do that.
So I think what you have heard initially from some of the
military services, given a very short timeframe to kind of
respond to all this and knowing the complexities of all of it
is, you know, this could really be bad, this really has
effects, because everything is based on the requirement. And we
have been working so hard to try to meet those requirements
over, as I say, the past decade.
I think from a hollow force perspective, one major
difference that you have got on the industry side and maybe
some other folks could comment on it, but a lot of
consolidations were done on the industry side between, say, the
1970s and the period we are in now. We have one or two
companies working on major weapons systems. We have single
sourcing for efficiency reasons on the Government side. And I
think a real risk that you could run and what is different is
if these people get out of the business, so to speak, and they
are seeing these signals, these very kind of clear signals over
the past couple of months that, hey, there is a big change
coming, it could really be quite substantial.
And I think on the Government side, what you have seen in
good faith from the military perspective is just trying to warn
of the real impacts that could be happening. I will say, as Mr.
Johns has mentioned, that I think the Department is probably a
little better equipped in terms of management structures,
communication structures, to manage better, if you will, but I
do think, as I mentioned, there is some serious risk on the
private sector side and then as well on the public sector side
that probably need to be considered.
Mrs. Noem. Do you think that it is more difficult in
today's day and age for the industrial base to recover in this
type of a situation than maybe it was decades ago, back in the
1970s, when they were able to get their feet back under them,
but it obviously took some time? But now with the technology
developments that we have, the equity investment that has to
happen, do you believe that it is more difficult to recover?
Dr. Avdellas. I would say that the longer this goes on with
these sort of drastic hits to the system, that, yes, it would
probably be more difficult.
Mrs. Noem. Okay. Mr. Steffes, I had a question for you. You
talked a little bit about DOD's nuclear procurement policy,
known as the Better Buying Power 2.0, but also what was
interesting was that you talked about even though DOD is
advocating for more efficient contracting methods, that we have
also seen a decrease in the percentage of military maintenance
work that is performed under arrangements such as that. It
looks like before, we were operating at much higher
percentages, but now we are down to about 5 percent of the
military's maintenance work is performed using a PBL. So I am
wondering if could you explain to me a little bit why we have
had a decrease in that when that has been proven to be more
efficient?
Mr. Steffes. Thank you. One of the main reasons I think the
numbers have gone down is the contracting officers are getting
very concerned about going forward with long-term contracts,
you know, 4- or 5-year contracts, which to make a PBL work, it
has to be long-term.
The whole acquisition workforce has changed significantly
over the last 5, 6, 8 years, and there is a concern that they--
I think at the contracting officer level, that they don't want
to go down this road, because of the unknown. Irrespective of
the fact that you could look at the record to see what the
savings has been under PBLs, which is significant. I can't say
every single one was significant, but a huge majority certainly
was.
If you go back to a different way of just paying for it,
you know, as you need it, there is no incentive by the
contractor to make improvements, to do things that would give
them more of a profit, and the customer, the military, more of
a high level of readiness.
Mrs. Noem. So the long-term efficiency of a PBL just isn't
possible under the situation of continuing resolutions?
Mr. Steffes. I don't know quite how the--well, continuing
resolutions, as you would continue anything that was on the
books in 2012, you can't write any new contracts; you can't go
forward, until you get into a regular appropriations, so that
is significantly going to hold them back.
Mrs. Noem. Okay. Thank you very much. I appreciate it.
Mr. Wittman. Thank you, Mrs. Noem.
We are going to go into a second round of questioning, and
I just want to follow up. You all have given us some great
perspective, I think some pretty sobering assessments with
where we are.
I want to ask this: You had talked all along about the
importance of the people part of the organic industrial base,
the talents and skills that rest there. And if we look at that
and how important that is overall in our military sustainment,
why wouldn't we want to have the same type of planning that
takes place with shipbuilding and in our airframes as we would
with our organic industrial base? And how would we go about
achieving that? What sort of form should it take if we were
going to go down the path of saying, let's do a strategic plan
on the same scale as we do in other areas? And obviously, we do
a lot of planning. We do the QDR [Quadrennial Defense Review].
We do the 30-year shipbuilding plan. And I want to get your
perspective on how we could do something similar with the
organic industrial base so we understand what our longer-term
needs are and how we can lay out how we meet those needs.
Mr. Johns, I will begin with you.
Mr. Johns. Thank you, Mr. Chairman.
As we had indicated before, I think all of us are in
unanimous agreement that the workforce and protection of the
workforce are critical to us retaining capabilities for us in
the future in the industrial base. And certainly protection of
the workforce and the critical skills that we would identify in
that analysis would be a centerpiece of our Department-level
strategy.
And so we would be looking at, and I know the other
witnesses had indicated several areas that would be areas that
would be protected, but from a strategic perspective, we would
be looking at protection of highly complex work associated with
highly complex equipment, work associated with software
maintenance, critical safety items and material requiring true
artisans. These four areas can be extended, broadened to
encompass a wide variety of skills.
These would be centerpieces of any national strategy, but
what happens practically is these basic tenets or protections
in these critical areas are flowed down within organizations,
where commanders have the latitude to shape their workforce in
that context to best satisfy the production requirements that
are laid on them, and that is in fact what happened. So they do
their workforce shaping in that strategic context.
Mr. Wittman. Very good.
Mr. Steffes.
Mr. Steffes. Yeah. I think to accomplish what you have
mentioned, you have got to make sure you give the Department
all the management tools that it needs to do this, and
operating under a continuing resolution is pretty tough to do a
strategic plan. You have a yearly appropriations, so it is a
challenge to try to lay out in a long term what it is, where
you want to go, but I think you need to give them all the tools
that they need to do this with, and rather than a system where
they just have to, you know, make it up as they go along, if
you will, because of what is happening on a day-to-day basis.
Mr. Wittman. Very good.
Mr. Sterling.
Mr. Sterling. I think the planning aspect may be the simple
approach. I mean, it is complex; there are things you got to
do, but you mentioned for a shipbuilding plan, we have the QDR,
we had the FYDP. On the private sector side, we look at what
those programs are that are coming on line and we put together
a workforce, plant and equipment to go along with it. And the
Department could do the same thing.
However, Mr. Steffes noted the CR, you know, sequestration,
all these elements. The plan is irrelevant if the funding
profile changes on an annual or a monthly basis to where you
can't execute that plan, and that is the challenge that we are
all facing. It doesn't matter if it is the public side or the
private side, it is when you have introduced that uncertainty.
When we do things, it is customer predictability. We need
to know where that market is, and then we will invest in the
plant and equipment and the people to do that. The Department's
going to be much the same way. If they know that ship
availability, that aircraft is coming into the depot, the Air
Logistics Center, then they can put in the plant, the
equipment, the people in an efficient and effective manner.
They can make sure they have those skills.
But if you are operating under a continuing resolution, if
the budget is going down like it is in this case by about 20
percent, then much of that is going to be absorbed in the O&M
and in the investment accounts because personnel has been
exempted, then you have a real unpredictable environment that
it doesn't matter if you are a depot commander or if you are in
the private side: you just can't do an effective plan that you
can expect to maintain.
Mr. Wittman. Sure. I think that is a great point. I know I
have been frustrated since I have been here. It seems that
budgets drive strategy, not vice versa. And strategy needs to
be coming first, and then we make decisions from there. And it
seems like to me that if we have that strategy first, at least
you can make the argument when you have got competition for
resources. So that is why I was asking the question about, you
know, making sure you had that basis.
I understand, and I completely agree with you. It is very
complicated now in the way the process, decisionmaking process
takes place.
Dr. Avdellas, I will just ask you in 15 seconds to give me
your opinion.
Dr. Avdellas. I would say that the, as has been mentioned,
the Army's industrial base plan does have a good component
looking at workforce, again, related to capabilities and
requirements. And as Mr. Johns noted, I think combining that
with some sort of higher level diagnostics about those sorts of
skills and things you would want to look at from a Department
perspective would be important.
Mr. Wittman. Very good.
Ms. Bordallo.
Ms. Bordallo. Thank you, Mr. Chairman.
I have just a followup clarification question for Secretary
Johns. I want to be sure that I understand you. Are you saying
that if a depot or arsenal has a funded workload, then it may
not be required to furlough its Federal civilian employees up
to 22 days?
Now, we have been told that all DOD activities have no
flexibility in this regard, but you appear to be saying your
depot and arsenal commanders may have choices.
Mr. Johns. Well, they have choices, Congresswoman, to
allocate workload based on what has been funded. Given the
situation, many of the third- and fourth-quarter inductions
generally across the board will not happen, the budget cuts are
so severe. So you could imagine no new inductions starting
midyear. The workload that remains in the depot will ramp down
to almost nothing, with potential production shutdowns by the
end of the year.
So, as we are ramping down, the demand for the workforce
actual touch labor in that workload that has been assigned is
diminishing in effectively a linear fashion. So the furloughs
in that context actually alleviate the fiscal problems and the
generation of losses in that environment. So furloughs, among
all other tools that the Department is using to try to stay
within its top line, manage workload, protect critical skill
capabilities, they fit in well into that overall spectrum of
actions.
Ms. Bordallo. Very good. Thank you.
Mr. Steffes and Mr. Sterling, could you please talk more
about the potential impact on the supplies you represent? Who
are put at risk by sequestration, and what level of potential
loss are we facing in terms of the supply base?
I guess, Mr. Steffes, you first.
Mr. Steffes. Yes. Well, the problem is, as I mentioned, the
ability for the second- and third- and fourth-tier suppliers is
very limited if they don't have work. You know, the big guys
all need the smaller providers in the supply chain to make
everything work. And once you start losing that capability and
those people, they are gone. You are just not going to get them
back.
And in some cases, as I mentioned, they could be one or
only two of a kind in the Nation. So if we lose that
capability, it is going to be very difficult and very expensive
to get back to even to where we are now.
Mr. Sterling. I agree with Mr. Steffes.
When you look at the larger companies, they are going to
have greater access to capital. It will hurt. They will have to
shed workforce and operations, but when you get down to some of
these small suppliers, a lot of people talk about, well,
competition, you have got these large companies that can
compete on various products. Oftentimes, what is lost is as
they go down into the supply chain, they may have a critical
supplier that is common across each of those companies for some
part, some piece.
The thing to remember is those small suppliers, they are
small companies; they don't have nearly the access to capital
that the larger ones have, so when they lose a contract, even
if it is for maybe a 30-day or 60-day period, they don't
necessarily have the ability to weather that. And when they are
the critical supplier of a component of a piece, you lose that
to the entire defense industrial supply chain, and that could
have devastating impact across the board, one that will be very
expensive to replicate in the future.
Ms. Bordallo. Thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Ms. Bordallo.
Mr. Bishop.
Mr. Bishop. Thank you. Let me see if I can get the last
three in here.
Mr. Wittman. I know you can do it.
Mr. Bishop. Secretary Johns, if I could hit you up first.
What strategies does--sequestration will probably hit. You are
going to have 30 days before furloughs will be implemented.
What strategies does DOD have, or do you have any flexibility
to create such strategies, to ensure that when furloughs take
place, you will not lose essential, skilled personnel from any
of your complexes?
Mr. Johns. Excellent question, Congressman. I think the
answer depends on the perception that a furlough has on the
individual employee. And this is related to perceived value
that the employee has and how the country is treating them, as
well as the job satisfaction that they may continue to retain
in their work.
Very clearly, the workforce that we are talking about in
both the public and private sector are probably some of the
most patriotic citizens that we have in the country. They have
experienced the war through the equipment that they have had to
refurbish that have bullet holes in them, that have IED
[Improvised Explosive Device] damage, battle damage, sand and
dust damage. They know and have contributed significantly to
the success of the war.
A furlough is probably going to send a very strong signal
to them of indiscriminate actions and lack of value associated
with their contribution to the national defense. It is not
going to be viewed very well. As well as the diminishing
workload that they are going to be required to do and the
uncertainty of future workload is not going to be a good signal
to them.
Mr. Bishop. Let me try and focus once again, because I
appreciate the answer; it is a good answer. But do you have
tactics that you can use, or can you come up with tactics you
can use to make any kind of discrimination in the furloughs, or
is there going to have to be a blanket approach?
Mr. Johns. I am not aware of any discrimination between
various sectors or various skills that we are prepared to
implement. Obviously, the Department will be relooking at that
strategy. I don't know if there will be any areas that will be
exempt or whether individual commanders will have----
Mr. Bishop. Do you have the power to do that, or is it
prohibited from you to do that?
Mr. Johns. I am certain that the Department has latitude to
do that.
Mr. Bishop. Okay. I don't know to whom to ask this
question. Maybe Mr. Steffes, I will ask the same thing. I was
talking to one of my subcontractors, who was obviously
complaining, and I think you have all mentioned the same
concept: the larger business, the better they will have a
chance of weathering this. Some of the small business
subcontractors will not have that flexibility.
He was arguing to me, and so I would like you just to
assess the validity of this argument, that if he goes under,
there are certain companies that are abroad, who are not
involved in the system now, who will remain, and therefore, if
we come past this concept and we start to ramp up again, that
his subcontracting ability will not be there, but there will be
foreign companies who can do the same thing.
Are we indeed, as he complains, setting ourselves up to be
even more dependent and more reliant on foreign companies to
provide services and goods than we are right now?
Mr. Steffes. I believe that is a probability. I mean, in
some very specialized areas where we have lost that capability,
you know, within the United States, if the needs require items
that are only produced overseas, we are almost going to be
forced to do that.
Mr. Bishop. Okay. As I said earlier, you know, if this was
the first cut we were asking to you do, tough, but this is the
third cut. We have already taken in the last 5 years a trillion
and a half away from you, and now this is another roughly half-
trillion dollars.
So gloom and doom from other sources, I am somewhat
skeptical, but when you say it, I am somewhat convinced that it
is actually hitting, because we are treating the military
differently than we are treating every other segment of Federal
Government, which means as--and one of you mentioned, we are
not dealing with a new generation of aircraft for the first
time in decades.
Acquisitions sometimes is much more sexy than maintenance
becomes, but in the situation we are in, where the first two
cuts basically took away our R&D, the amount of men we have to
do the work, as well as weapon system, are we in a situation
now where maintenance becomes even more critical than it was
before? I guess, Secretary Johns, you are the logical person
for that.
Mr. Johns. Congressman, I agree with you absolutely.
Mr. Bishop. That was too easy on answer. I am sorry.
So I got 10 seconds left. I am giving it back to you.
Thank you. I appreciate your answers.
Mr. Wittman. Thank you, Mr. Bishop.
Mr. Loebsack.
Mr. Loebsack. Thanks again, Mr. Chairman.
I want to thank you for organizing this hearing, and also
the ranking member.
And I think this is really important. We have really
fleshed out a lot of issues, and we have gotten some answers. I
think a lot of the things that we are talking about today, we
really don't have any idea what the answer is because of the
uncertainty, and if we have another CR, as I said, after March
27th, it is going to add even more uncertainty to this whole
process.
I do want to address the public-private partnership issue,
because we do know for a fact that public-private partnerships
are really key to the workload and readiness of the organic
industrial base. This is something that we have simply got to
move forward on. I was happy in the NDAA [National Defense
Authorization Act] of 2012, I was able to get a language in
there that lifted a cap on those public-private partnerships.
And there are folks around this country, at the Rock Island
Arsenal and other places, where they are moving forward on
that, and it is really critical, and Mr. Bishop brought up
foreign manufacturing possibly taking the place of domestic
manufacturing.
Public-private partnerships, as we all know, are very
important, too, for foreign military sales. And that is
something that we haven't even talked about here, but that is
really critical for our balance of trade, for our economy, for
a number of reasons.
I guess what I would like to ask all of you, but Mr. Johns,
if you would start out, how are public-private partnerships
going to be affected by sequestration and the CR? What kind of
long-term effects are we talking about here?
Mr. Johns. Well, Congressman, I agree with you that public-
private partnerships are absolutely critical to be able to
protect the critical capabilities in both the public and
private sector, now more than ever, as we are seeing
significant downsizing.
The capacity within the national sustainment industrial
base is going to be insufficient to retain the capabilities and
capacities that we currently enjoy. So, as we downsize, we will
need to be able to leverage those critical capabilities in both
sectors.
So the impacts, however, will be dependent on the nature of
the reductions in each one of the partners. So, typically, in a
partnership agreement or in a contract that links two entities
together, there are certain terms and conditions that must be
met in that partnership for the greater good under that
partnership. If we cross a threshold because of a reduction,
either in the contractor side or on the organic side, then we
put that partnership at risk. The level of reductions that we
are looking at will do that in many cases.
Mr. Loebsack. Thank you.
Would any of the others like to comment on public-private
partnerships?
Mr. Steffes. Yes, sir.
To add to what Mr. Johns said, the instability of the
budgets over the last few years has not led to a huge
outpouring of public-private partnerships.
Mr. Loebsack. Right.
Mr. Steffes. On the industry side, industry is very much
interested in this, but unless they can get some assurances
from their Government partner that they are going to be around
and there is going to be workload for a period of time, they
are very reluctant to make the investments that are needed to
do these particular partnerships. And the CRs and sequestration
stuff just adds to the instability and to the wariness on both
sides of doing these partnerships.
Mr. Loebsack. Thank you.
Again, I would just add that, and really reiterate that
these public-private partnerships go back to keeping our
industrial organic base warm. This is another way that that can
happen. It is another method for keeping that base warm and,
therefore, ready in the event of another contingency down the
road, so--thanks to all of you. And I have got time to yield
back.
Thank you, Mr. Chair.
Mr. Wittman. Thank you, Mr. Loebsack.
Mr. Rogers.
Mr. Rogers. Thank you, Mr. Chairman.
I want to follow up on Mr. Loebsack's line of questioning.
In my district, in my home town, I have the Anderson army
depot. And many of these folks and their families
generationally have spent enormous amount of time committed to
our Nation, volunteered to go to Iraq and Afghanistan to help
in sustaining the troops over there.
I would like for you, Mr. Johns, to speak first to
sequestration's effect on the workload that they may deal with
toward the end of the year, and then, secondly, talk about the
CR's effect.
Mr. Johns. Well, Congressman, it is actually very difficult
for me to separate the effects associated with that. Clearly,
continuing resolution is impacting our ability to move money
from one account to another. The shortfalls associated with
that within the operations and maintenance accounts affect the
Army across the entire depot and arsenal system. There are
impacts in multiple weapons system maintenance activities, at
Anniston and across the board.
The split associated with that between sequestration, I
believe General Odierno has estimated about 50/50; 50 percent
of that impact associated with continuing resolution, 50
percent associated with sequestration. Effective----
Mr. Rogers. Give me some examples of how that manifests
itself in their daily lives and their workload.
Mr. Johns. Well, collectively, it impacts in reduction of
third- and fourth-quarter orders, reduced workload for those
employees that remain onboard. And certainly the impact to
temporary employees, term personnel and contractor support in
each one of our facilities. They will be directly affected, and
very shortly, they will be affected.
So, under sequestration, that affect will take--that will
take effect once we understand what the situation is very
shortly. Under CR, that is going to happen anyway, unless we
fix the problems associated with the restrictions under a
continuing resolution, but collectively, they will have
significant impacts on every one of our depots.
Mr. Rogers. In which lines are you specifically worried
about as an Army depot being affected most directly, their core
capability?
Mr. Johns. Clearly, core capability associated with armored
vehicles. I mean, that is one of your core capabilities, and so
there will be a natural impact in that area.
Mr. Rogers. Mr. Loebsack was talking about the importance
of public-private partnerships, and I couldn't agree more. In
fact, at this particular depot, it leads the Nation in public-
private partnerships. Tell me how, in your view, sequestration
and/or the CR would affect companies like BAE, General
Dynamics, Honeywell, all of whom, along with others, have a
presence at the depot.
Mr. Johns. Certainly, the support contractors will feel the
burden along with the temporary and term employees almost
immediately. Any adjustments or reductions in addition to what
we currently expect under CR and sequestration will have deeper
cuts into that.
The exact magnitude and whether we cross a threshold with
regard to viability of a contract has yet to be determined.
There may be impacts that cross contractual thresholds, but I
can't tell you that right now. I don't know those details.
Mr. Rogers. Well, you seem to be grouping those kinds of
companies in with the term and temps. In my questioning of
General Odierno a couple weeks ago, as well as General Dempsey,
they indicated at that particular installation, that because we
have a lot of orders in the pipeline that have already been
paid for, that the third and fourth quarter is the time when
the core employees may actually experience some furloughs.
Why would the contractors be treated differently? I
understand the term and temps may see an effect in the next 30
to 45 days. Why would the contractors be in that category?
Mr. Johns. Again, this will have to be a balance between
retention of critical capabilities and skills. In some cases,
we will need to protect critical capabilities and skills in
workforce on the organic sector, and some cases, we will have
to protect critical capabilities and skills in the contractor
workforce.
The actual balance between those two will almost be line-
by-line dependent, facility-by-facility dependent, so it is
very difficult for me to comment on what the exact nature is
going to be between impact to Government personnel other than
temps and terms and impacts to contractor personnel.
Mr. Rogers. I guess what I am getting at is, is it your
opinion that, given that the core employees won't feel the
effect until the third and fourth quarters, that may be the
same case with the contract employees as well, or would they be
impacted in the second quarter, adversely?
Mr. Johns. Yeah. My understanding is that there will be not
be any impacts until the third quarter.
Mr. Rogers. Okay.
Thank you, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Mr. Rogers.
I wanted to just ask one more question of Mr. Johns. In
kind of putting this in perspective, understanding where we are
right now, I know that originally OMB [Office of Management and
Budget] came out and said plan as though sequestration is not
going to happen, but I wanted to know within that context, when
was the direction given to restrain operation and maintenance
execution? And if that is the case, if it was restrained,
wouldn't that have lessened the impact in the third and fourth
quarters of the fiscal year so that you could lessen some of
the impact of sequestration? I wanted to get your perspective
on where those directives and how they might have occurred and
then where we are now.
Mr. Johns. Yes, Mr. Chairman. Clearly, for a good portion
of last year and into this fiscal year, we were assuming
effectively across the board that sequestration was not going
to happen. That kind of conversation was occurring through all
sectors of the Government, everybody anticipating that we were
going to fix this problem one way or the other, and so the
demand for planning associated with that seemed to be second
priority in terms of getting to a level of detail.
Certainly, there were high-level thoughts that were being
considered about what and where things might be impacted, but
detailed planning and detailed analysis did not occur, start
occurring until early this calendar year when it became
apparent that this situation is likely not to be avoided.
Mr. Wittman. So, at that time, was any consideration given
to the execution of operation and maintenance efforts within
DOD? And if that is the case, at what point were those
resources restrained, and wouldn't that have had an impact on
the third and fourth quarters?
Mr. Johns. Yes. There was an immediate consideration about
allocation of reductions. Certainly, with the President's
authority to exempt military personnel, it became very apparent
that the impacts in the other O&M accounts would be larger. And
certainly with the priority to protect warfighting capabilities
and those supporting capabilities directly related to wartime
operations, the cuts in O&M accounts, especially those in the
sustainment industrial base, grew.
Mr. Wittman. Thank you.
Do any other members have questions? Okay.
Panelists, thank you so much for joining us today. We
appreciate your candid and in-depth testimony. It is very, very
helpful to us. This gives us a great opportunity to put in
perspective where we are and what we need to be doing ahead as
we face these challenging times. So I thank you very much.
And with that, the House Armed Services Subcommittee on
Readiness is adjourned.
[Whereupon, at 9:46 a.m., the subcommittee was adjourned.]
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A P P E N D I X
February 28, 2013
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
February 28, 2013
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Statement of Hon. Robert J. Wittman
Chairman, House Subcommittee on Readiness
Hearing on
Assuring Viability of the Sustainment Industrial Base
February 28, 2013
Welcome to this morning's hearing. I'd like to thank our
panel of experts for being here today to address the viability
of the Defense Sustainment Industrial Base and the implications
for mission readiness as we try to resolve the budget crisis.
As we debate the way forward and try to resolve the continuing
resolution and sequestration dilemmas, it's important not to
lose sight of what's really at stake here: this country's
ability to project power and to properly train and equip our
warfighters--our men and women in uniform who at this very
moment are fighting for us on the battlefields in Afghanistan
and will continue to do so for the foreseeable future.
As the debates have raged on, I've been struck by how
starkly our military leaders have described the dilemma. As
General Dempsey and the other service chiefs recently informed
this committee: ``the readiness of our Armed Forces is at a
tipping point. We are on the brink of creating a hollow
force.'' About this same time, we learned of the delayed
deployment of the USS Truman Carrier Strike Group to the
Central Command AOR--a region where our missions continue to
grow rather than go away.
Never in my lifetime did I imagine we would again be forced
to confront the very real possibility of a hollow military
force and the devastation it entails for our Nation and our men
and women in uniform. Make no mistake--our readiness crisis is
real and it's important to understand exactly what's at risk.
During this hearing, I'd like you to share your perspective on
this and help us answer some basic questions:
LIn terms of risk, what does it mean to our
national security, particularly our sustainment
industrial base, to have ships moored to the pier, or
sitting in dry dock, waiting for depot maintenance?
LWhat, in your views, are the implications of
having airplanes grounded on ramps?
LAnd finally, what's the impact on our
warfighters when we delay or defer reset and retrograde
of our equipment?
Joining us today are:
LMr. John Johns, the Deputy Assistant
Secretary of Defense for Maintenance Policy and
Programs;
LMr. Pete Steffes, Vice President for
Government Policy at the National Defense Industrial
Association;
LMr. Cord Sterling, Vice President for
Legislative Affairs at the Aerospace Industries
Association; and
LDr. Nicholas J. Avdellas, Senior Consultant
for Materiel Readiness and Sustainment at the Logistics
Management Institute.
Gentlemen, thank you all very much for being here. I
appreciated your thoughtful statements and particularly
appreciated your views regarding the need for detailed
strategic planning for the future. Just as I've been an
advocate of the 30-Year Shipbuilding Plan and the benefits
associated with determining strategy first and budgetary
requirements second, I believe we need to similarly focus on
strategic planning when it comes to the viability of the
industrial base.
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
February 28, 2013
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QUESTION SUBMITTED BY MS. SHEA-PORTER
Ms. Shea-Porter. The Portsmouth Naval Shipyard lies at the eastern
edge of the district I represent, the First Congressional District of
New Hampshire. Since the strength and efficiency of our shipyards is an
essential factor in overall naval readiness, I am very concerned about
the severe defense budget constraints, the uncertainty, and the
indiscriminate sequester cuts that are taking an immediate toll on
civilian workers and on shipyard readiness, with furloughs imminent and
the attendant decline in productivity that will entail. While the
immediate impacts of such resource pressures on several aspects of the
sustainment industrial base were the primary focus of the hearing, can
you discuss the longer-term strategic risks that Congress and the
Department of Defense will face with regard to the sustainment
industrial base, should these severe constraints continue? What
processes exist to address such strategic risks?
Dr. Avdellas. The fiscal situation that the Department of Defense
(DOD) finds itself in is unprecedented in many respects. I believe DOD
will work to mitigate the long term organic sustainment risks of
sequestration through implementation of core (10 USC Sec. 2464). The
core capabilities determination process identifies the capabilities and
sustaining workloads necessary to help ensure a ready and controlled
source of technical competence. The process also addresses the
resources needed to respond to military mobilization, contingencies and
other risks or emergencies. As the Military Services seek to minimize
the operational impacts of sequester, there will be increased pressure
on sustainment resources. DOD's logisticians will have to be vigilant
to ensure core sustaining workloads are funded in order to retain
strategic sustainment industrial base capabilities and competencies.
Additionally, I believe the DOD is addressing longer-term strategic
risks in the sustainment industrial base by supporting the development
of improvements to the core capability determination process. Aspects
of it are being incorporated as part of an updated and improved depot
maintenance source or repair decision process. These developments could
help protect critical capabilities within the Nation's depots,
shipyards, and arsenals should anticipated resource constraints
continue.