[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 113-65]
IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION
AND MODERNIZATION
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 23, 2013
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__________
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SUBCOMMITTEE ON TACTICAL AIR AND LAND FORCES
MICHAEL R. TURNER, Ohio, Chairman
FRANK A. LoBIONDO, New Jersey LORETTA SANCHEZ, California
JOHN FLEMING, Louisiana MIKE McINTYRE, North Carolina
CHRISTOPHER P. GIBSON, New York JIM COOPER, Tennessee
JON RUNYAN, New Jersey JOHN GARAMENDI, California
MARTHA ROBY, Alabama RON BARBER, Arizona
PAUL COOK, California DANIEL B. MAFFEI, New York
JIM BRIDENSTINE, Oklahoma JOAQUIN CASTRO, Texas
BRAD R. WENSTRUP, Ohio TAMMY DUCKWORTH, Illinois
JACKIE WALORSKI, Indiana WILLIAM L. ENYART, Illinois
MAC THORNBERRY, Texas PETE P. GALLEGO, Texas
WALTER B. JONES, North Carolina MARC A. VEASEY, Texas
ROB BISHOP, Utah
John Sullivan, Professional Staff Member
Doug Bush, Professional Staff Member
Julie Herbert, Clerk
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2013
Page
Hearing:
Wednesday, October 23, 2013, Impacts of a Continuing Resolution
and Sequestration on Acquisition and Modernization............. 1
Appendix:
Wednesday, October 23, 2013...................................... 37
----------
WEDNESDAY, OCTOBER 23, 2013
IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION AND
MODERNIZATION
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Sanchez, Hon. Loretta, a Representative from California, Ranking
Member, Subcommittee on Tactical Air and Land Forces........... 3
Turner, Hon. Michael R., a Representative from Ohio, Chairman,
Subcommittee on Tactical Air and Land Forces................... 1
WITNESSES
Barclay, LTG James O., III, USA, Deputy Chief of Staff, G-8, U.S.
Army........................................................... 31
LaPlante, Dr. William A., Principal Deputy Assistant Secretary of
the Air Force (Acquisition).................................... 8
Moeller, Lt Gen Michael R., USAF, Deputy Chief of Staff for
Strategic Plans and Programs, U.S. Air Force................... 34
Myers, VADM Allen G., USN, Deputy Chief of Naval Operations for
Integration of Capabilities and Resources (N8), U.S. Navy...... 32
Shyu, Hon. Heidi, Assistant Secretary of the Army for
Acquisition, Logistics and Technology.......................... 4
Stackley, Hon. Sean J., Assistant Secretary of the Navy for
Research, Development and Acquisition.......................... 6
Walters, LtGen Glenn M., USMC, Deputy Commandant for Programs and
Resources, U.S. Marine Corps................................... 33
APPENDIX
Prepared Statements:
LaPlante, Dr. William A., joint with Lt Gen Michael R.
Moeller.................................................... 72
Sanchez, Hon. Loretta........................................ 41
Shyu, Hon. Heidi, joint with LTG James O. Barclay III........ 44
Stackley, Hon. Sean J., joint with VADM Allen G. Myers and
LtGen Glenn M. Walters..................................... 55
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:
Mr. Turner................................................... 89
Mr. Veasey................................................... 121
IMPACTS OF A CONTINUING RESOLUTION AND SEQUESTRATION ON ACQUISITION AND
MODERNIZATION
----------
House of Representatives,
Committee on Armed Services,
Subcommittee on Tactical Air and Land Forces,
Washington, DC, Wednesday, October 23, 2013.
The subcommittee met, pursuant to call, at 3:30 p.m., in
room 2118, Rayburn House Office Building, Hon. Michael R.
Turner (chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. MICHAEL R. TURNER, A REPRESENTATIVE
FROM OHIO, CHAIRMAN, SUBCOMMITTEE ON TACTICAL AIR AND LAND
FORCES
Mr. Turner. The hearing of the Subcommittee on Tactical Air
and Land Forces will come to order. Good afternoon. The
Tactical Air and Land Forces Subcommittee meets today in open
session to receive testimony from each of the four military
services on the impacts of sequestration and the continuing
resolution, known as CR, on acquisition programs and the
associated industrial base. For over 2 years now, this
committee has held numerous hearings on the impact of
sequestration to our national security in attempts to try to
capture some of the decisionmaking and the effects on our
national security. We have warned of the catastrophic impact
sequestration would have on the military's capabilities if it
was allowed to continue.
I voted against sequestration because I believed that it
would happen and its effects might be devastating.
Since sequestration began on March 1, we have seen dramatic
effects on military force readiness, such as the grounding of
17 Air Force combat squadrons, reductions in force squadrons,
training exercises reduced, modernization programs curtailed,
and the furloughs of Department of Defense [DOD] civilians. In
my district alone, we saw the furlough of roughly 12,000 hard-
working men and women from Wright-Patterson Air Force Base. If
left unchecked, I fear that many of these employees could lose
their jobs permanently.
I raise this particular point at this hearing because many
of these individuals work in the acquisition community and are
directly linked to the Air Force modernization. The hearing
today will focus on the effects sequestration is having on
DOD's investment accounts; that is, those accounts for
procurement and research and development acquisition programs.
Thus far, the effect on the investment accounts has been
much less apparent, but we believe this to be a false sense of
security. If sequestration continues, DOD investment and
modernization will be impacted, and those impacts are expected
to grow exponentially in fiscal years 2014 and 2015. This
hearing will focus on those impacts. Through the end of fiscal
year 2013, the Government Accountability Office has reported to
the subcommittee that approximately 30 percent of sequestered
funding for investment accounts has been taken from prior-year
unobligated funds. Additionally, some funding requirements for
fiscal year 2013 have been pushed into fiscal year 2014,
creating must-pay bills during this fiscal year.
These actions have allowed the Department to only delay the
effects of sequestration on investment for fiscal year 2013.
Beginning in fiscal year 2014, the situation will be different.
Although sequestration is an approximate 9 percent decrease to
the Department's budget, because military pay and Wounded
Warrior programs will not be subject to sequestration
decreases, other accounts, primarily the investment accounts,
will have to make up the difference. Unlike last year, funds
from unobligated balances have now been used up, and the must-
pay delayed bills from fiscal year 2013 are also now due. This
means that investment accounts are likely to see an approximate
14 percent decrease in fiscal year 2014. If this continues into
fiscal year 2015, the combined impacts will continue to
increase, affecting every acquisition program and thus severely
impacting future readiness, the defense industrial base, as
well as leading to possible program terminations.
Last month, the committee received testimony from the four
service chiefs about the near- and long-term effects that
sequestration will have on the total force, and their remarks
were sobering. Today, I expect to hear in very clear terms how
investment and modernization will be impacted in fiscal year
2014 and beyond should sequestration continue. We need to
provide better clarity as to the consequences of these budget
cuts and help make the case to Congress and the Nation as to
why sequestration needs to be fixed.
I would like to welcome our distinguished panel of
witnesses. We have at the beginning of our panel Ms. Heidi
Shyu, Assistant Secretary of the Army for Acquisition,
Logistics and Technology. Then we have Lieutenant General James
O. Barclay III, Deputy Chief of Staff, G-8. Representing the
Navy and Marine Corps, we have Mr. Sean J. Stackley, Assistant
Secretary of the Navy, Assistant Secretary of the Navy,
Research, Development and Acquisition [RDA]. We have Vice
Admiral Allen G. Myers, Deputy Chief of Naval Operations,
Integration of Capabilities and Resources, N8. We have
Lieutenant General Glenn M. Walters, Deputy Commandant for
Programs and Resources. And representing the Air Force, we have
Dr. Bill LaPlante, Principal Deputy Assistant Secretary of the
Air Force for Acquisition. We also have Lieutenant General
Michael Moeller, Deputy Chief of Staff for Strategic Plans and
Programs.
I want to thank you all for being here. And I have had the
opportunity to speak with each of you. I am certainly hopeful
today that we will hear in very clear terms of the effects of
sequestration. This is not something that should be sugar-
coated. And these impacts are real, and they need to be
avoided. So often we hear that sequestration has not had dire
consequences. But I think in part it is because the story in
the Department of Defense has not yet been told because you all
have been very busy trying to implement sequestration and
minimize its overall effects.
Today, you have the opportunity to paint a clear picture to
us not only of the work that you have done in trying to protect
our national security under very difficult circumstances of
sequestration; you have the ability to tell the picture of the
future. And that is what is going to be really important,
because right now, in the halls of Congress, there are people
who are working on the issue of how do we lift sequestration?
How do we complete the budget for fiscal year 2014? And that
requires that your story be clear and unequivocal of the
dangerous and damaging effects of sequestration to our national
security and to the Department of Defense. And I appreciate
your dedication and the message that you have for us today.
With that, I want to turn to my ranking member, Ms.
Sanchez.
STATEMENT OF HON. LORETTA SANCHEZ, A REPRESENTATIVE FROM
CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON TACTICAL AIR AND
LAND FORCES
Ms. Sanchez. Thank you, Mr. Chairman.
Thank you, Madam and Gentlemen, for being before us today.
We appreciate it. Today's hearing comes at a very strange time
of the year, so I am happy that the Department of Defense could
be here with us and that you are willing to testify before us
today. In a normal year, of course, we would have probably been
in conference or out of conference with the NDAA [National
Defense Authorization Act], and the appropriations for defense
probably would have already been passed, and we would have been
moving forward.
But as you know, this is not a normal year. This year, not
only with the shutdown, but with the second set of
sequestration, with the Senate not even bringing its bill yet
to the floor of the Senate, we are definitely in a very strange
time. So I appreciate you being here. You know, we have passed
our authorizing bill, and we are hoping that we will get a
Senate version to conference in.
But I think it must be very difficult for you all to try to
figure out what programs move forward and what doesn't and what
gets placed on hold. And in particular for me, it is a little
striking that we would have a GAO [Government Accountability
Office] report that would say that the first point that we have
on the line, a data point that we have on the line, is telling
us that for the Department of Defense not a lot happened for
fiscal year 2013. In other words, for the first year of
sequestration, not a lot--you know, we didn't face all the
drastic or all the fears that we heard for a year that
something terrible was going to happen to, you know, acquiring
the equipment we need, et cetera, for the DOD, that terrible
things were going to happen. The GAO report tells us that is
not the case.
Now, I would have to say that that probably is because
there was a lot of unprogrammed or leftover moneys, or programs
that didn't come to be, or weren't there. In other words, there
was a lot of slack in the system. And maybe that is one of the
major reasons why we didn't see what we had thought that we
would see.
And that raises a question, why was there so much slack in
the whole programming?
But I am worried about, and I know Mr. Chairman, this is
about forward thinking, and what is going to happen in the
second year of sequestration, and what is going to happen if we
have a third year and a fourth year. Because as you know, this
is a 10-year sequestration effort. So I really want to, I hope
we concentrate on what this really means for DOD and what we
are going to see.
Because I have a fear, I mean I saw when I went out and
visited the 82nd and other arenas, what it meant for training
to our people. I was in Nevada; what it meant, you know, to our
air shows. You know, the Thunderbirds are used to flying 200-
plus shows, and they flew one so far in this past season. So I
have seen what has happened to the operating and the training
of our soldiers and airmen and seamen, et cetera, marines. But
the GAO says really nothing has happened in the acquisition
arena. So I think it is important for us to know, well, what
will happen if this continues forward? And I hope you will be
pretty straightforward with us, and talk to us about your
concerns with respect to that.
And I guess, Mr. Chairman, I will put my official statement
in the record.
But I am very interested to hear from you all what you
think as we move forward, how this will really affect the
programs, the major programs in particular that are required
for our troops to be as effective as they need to be.
Thank you, Mr. Chairman. And I will submit my full
statement for the record and move forward.
Thank you.
[The prepared statement of Ms. Sanchez can be found in the
Appendix on page 41.]
Mr. Turner. Thank you.
We will begin opening statements with Secretary Shyu.
STATEMENT OF HON. HEIDI SHYU, ASSISTANT SECRETARY OF THE ARMY
FOR ACQUISITION, LOGISTICS AND TECHNOLOGY
Secretary Shyu. Chairman Turner, Ranking Member Sanchez,
and other distinguished members of the subcommittee, thank you
for this opportunity to testify before you, and providing
comments for the record regarding impacts associated with the
continuing resolution and sequestration on the Army and the
industrial base in fiscal year 2014 and beyond.
Joining me today is Lieutenant General James Barclay,
Army's Deputy Chief of Staff, G-8. Our assessment of the
combined CR and long-term sequestration impact to the Army
acquisition programs and modernization investment is sobering.
The current funding instability fundamentally hampers our
ability to plan and execute acquisition programs in support of
the warfighter. Key development, testing, and production
activities that is planned months in advance are subject to
limited funds available under a CR and were disrupted by the
shutdown. Under a continuing resolution, we lack the authority
to start new programs or authorize planned increases in
production quantities for fielding.
Sequestration reductions in fiscal year 2013 already
reduced or eliminated our margin for error on many of our
programs with our efforts to mitigate the impacts using prior-
year funds. Reductions in fiscal year 2014 and beyond will
directly result in reduced production quantities, deferred
investment in new capabilities, and delays in many programs.
The hiring freeze, civilian furloughs, and government shutdown
decimates our current and future ability to recruit and retain
critical skills and expertise in the government workforce. This
creates devastating impacts to the execution of our S&T
[science and technology] projects, our acquisition programs,
our testing, our contracting, our logistics, and depot
maintenance.
The long-term effects of this instability are yet to be
fully discerned, but we know that the combined effects of
sequestration and a yearly CR will significantly increase the
costs of our vital soldier weapons systems. Constrained budgets
will lead to reduced investment in new soldier capabilities at
a time when we must work to prevent erosion of our
technological edge. Investments in Army's research,
development, and acquisition [RDA] programs face the alarming
prospect of a nearly 40 percent reduction over a 3-year span,
reaching a historical low. Because we are unable to reduce
manpower costs significantly, RDA takes the brunt of the hit,
especially in the short term.
We are facing an unprecedented challenge in staying on
track to develop the next generation of capabilities to our
soldiers to counter emerging threats. Over 192 Army programs
are potentially affected by CR limitations. These include 59
planned new program starts. In addition, assuming the most
inflexible and significant reductions under the BCA [Budget
Control Act] sequestration across Army funding lines, we can
anticipate to see effects, such as procurement of 12 fewer
Apache helicopters and 11 fewer Chinook helicopters; delays in
scheduled engineering change proposal upgrades to the Abrams
tank and Bradley infantry fighting vehicles; 45 to 50 fewer
Stryker vehicles that are modified to a double-V hull
configuration, which delays the fielding of a 3rd Brigade set
of Stryker double-V hull by 6 months; up to 120 new grants for
new basic research in universities across the United States may
be cut; and up to 40 or more existing second- and third-year
grants may be cut.
All of these impacts also affects the Army's defense on
organic industrial base. When I meet with CEOs and industrial
leaders, most frequently I hear about the shared desire for
stability and predictability in our resources and planning for
future soldier capabilities. The untold effects of lost
expertise, innovation, investment within the industrial base
among large corporations and small suppliers alike remains one
of the most significant risks associated with the current
fiscal environment. There are also significant human capital
costs. Our capacity to maintain expertise in science and
technology, engineering, contracting, cost estimation,
logistics are all at risk, because one of the most attractive
benefits to the government employee, the stability, has been
undermined. These skills are critical to equipping and
sustaining weapons systems directly affecting our programs.
These examples provide just a snapshot of the cumulative
effects of the fiscal instability. The current environment
fundamentally challenges our ability to manage public resources
in a prudent manner, while upholding the vital responsibility
to provide the best equipment to our warfighters.
Mr. Chairman, Ms. Sanchez, and other members, thank you
again for the opportunity to testify, and I look forward to
your questions.
[The joint prepared statement of Secretary Shyu and General
Barclay can be found in the Appendix on page 44.]
Mr. Turner. Thank you.
Mr. Stackley.
STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE
NAVY FOR RESEARCH, DEVELOPMENT AND ACQUISITION
Secretary Stackley. Chairman Turner, Ranking Member
Sanchez, distinguished members of the subcommittee, thank you
for the opportunity to appear before you today to address the
impacts of a fiscal year 2014 continuing resolution and
sequestration on the Department of the Navy acquisition and
modernization. Joining me today are the Deputy Chief of Naval
Operations for Capabilities and Resources, Vice Admiral Myers,
and the Deputy Commandant for Programs and Resources,
Lieutenant General Walters.
Today, about half of our fleet is underway, and near 100 of
these ships, including the Nimitz, George Washington, and
Truman carrier strike groups, and the Kearsarge, Boxer, and
Bonhomme Richard amphibious groups, and 21,500 marines are
deployed around the world. From ground operations in
Afghanistan to maritime security along the world's vital sea
lanes, to missile defense in the Mediterranean and Sea of
Japan, to intelligence, surveillance, and reconnaissance where
needed, as needed, from strategic deterrence to building
partnerships, deterring enemies and responding to crises and
contingencies, naval forces provide persistent presence and the
ability to project power in regions of interest to America. In
doing so, they place in the hands of our Nation's leaders tools
and options to respond to today's world events and shape future
events. The Department of the Navy's 2014 budget request
provides the resources needed to meet this full range of
missions. And two, it provides the investment called for by the
Defense Strategic Guidance to execute tomorrow's missions
against the future threat.
Today, however, we are here to discuss the unfinished work
of the Congress as it relates to final passage of a defense
authorization bill and defense appropriations bill, and then
the consequences that sequestration poses to our operations,
our capabilities, our readiness, current and future, as
provided for by those defense bills. Account by account,
program by program, a $156 billion Navy and Marine Corps budget
authorized by the Armed Services Committee is severely undercut
by the limitations of the continuing resolution and the across-
the-board cuts imposed by sequestration. Operations and
maintenance, and investment accounts are particularly hard hit,
such that, as you described in your opening remarks, an
approximate 10 percent cut to the 2014 budget would equate to a
14 percent reduction to those accounts, due to military
personnel exemptions.
These reductions in 2014 would be additive to the $11
billion sequestered in 2013, which, after depleting unobligated
prior-year balances, removing management reserve, and deferring
significant bills to future year budgets, ultimately resulted
in cancelled deployments, reduced training, deferred
maintenance, delays to development schedules, and reductions to
procurement quantities.
For 2014, in the near term, the Navy and Marine Corps will
prioritize the global presence requirements set for the force,
however with reduced ability to surge additional forces in
response to crises. Depot maintenance, affecting greater than
half of our planned surface ship depot periods, all in private
shipyards, and nearly 200 aircraft depot maintenance actions
are at risk. This missed maintenance will ultimately impact
these ships' readiness for future deployments, as well as their
expected surface life.
Training will be curtailed and readiness will follow
because of cuts to steaming hours and flight hours and
maintenance and the procurement of spare parts; and the net of
these impacting next year's operations, forward presence, and
our ability to surge our forces. Maintaining current readiness
and forward presence to the extent possible under sequestration
comes at expense to our investment in future readiness. In
fiscal year 2014 alone, absent congressional action or
mitigating circumstances, the continuing resolution and
sequestration would cause cancelled procurements of up to three
major warships and 25 aircraft, including four Growler
electronic attack aircraft, two Joint Strike Fighters, two
maritime patrol aircraft, an advanced Hawkeye, three MH-60
maritime helicopters, three MV-22 Ospreys, and various utility,
training, and unmanned aircraft. To this total, about 400
missiles and weapons at risk, cutting our inventory at a time
when we are striving to restore our weapons to levels called
for by the combatant commanders.
Further, the combined impacts of a continuing resolution
and sequestration deny us the ability to execute the multiyear
procurements this committee authorized for E-2D advanced
Hawkeye, the MV-22, the MH-60, DDG-51 destroyers, Virginia
class submarines, and the evolved Sea Sparrow missile, placing
at risk greater than $5 billion savings these multiyears
provide. And two, our carrier force, which today falls below
the statutory requirement for 11 carriers, will be greatly
impacted, with a risk of halting construction of our newest
carrier CVN-78, delaying construction of the CVN-79, and
delaying the refueling complex overhaul of CVN-73. This outcome
we must avoid.
Beyond these procurement impacts, virtually every Navy and
Marine Corps major development comprising those advanced
capabilities that are critical to ensuring our future military
superiority--Joint Strike Fighter, Ohio replacement, air and
missile defense radar, Navy Integrated Fire Control, next-gen
jammer, AIM-9X Sidewinder, the Joint Light Tactical Vehicle,
the Amphibious Combat Vehicle, the Ground/Air Task Oriented
Radar--every major development suffers delay, or reduction, or
cancellation in this budget environment where uncertainty
seemingly guides every decision.
Further, we need to consider the impacts on our industrial
base and acquisition workforce, which we wholly rely upon to
develop and deliver these warfare systems that underpin our
military superiority. We need to be mindful that as many as
100,000 professional jobs are at risk as a result of the
potential cuts to Navy-Marine Corps operations and programs,
particularly skilled workers and engineering talent across
government and industry at critical design and manufacturing
facilities across the country. The same professionals who have
been bearing great stress while performing their critical jobs
in the face of furloughs and layoffs triggered by distortion of
this budget process, which Congress has otherwise faithfully
executed in prior years. These examples do not capture the full
magnitude, and they do not begin to approach the impacts that
will result from subsequent budget year reductions. Unabated,
the reductions will profoundly affect the size and shape and
readiness of your Navy and Marine Corps and the roles and
missions which they are able to perform. Again, I thank this
committee for its work on the 2014 authorizations bill. Our
appeal is that Congress complete its work on the 2014 budget
request with the passage of the authorizations and
appropriations bills, and that this mechanism for addressing
the Nation's budget impasse, which was devised to be so
unacceptable that it would be averted, somehow be reversed
before we are driven to irreversible actions which impair our
collective responsibility to provide for the Nation's defense.
Thank you, Mr. Chairman.
[The joint prepared statement of Secretary Stackley,
Admiral Myers, and General Walters can be found in the Appendix
on page 55.]
Mr. Turner. Thank you.
Before I go to Dr. LaPlante, I just want to point out,
because we are in a House hearing, that the House has passed
both the National Defense Authorization Act and defense
appropriations, which are sitting in the Senate. Although
Congress, in order for us to congregate together as the House
and the Senate, must complete it together, the House has done
all of its work and sent it to the Senate, where we continue to
be in this period where the House does its work and we wait for
the Senate. That period of uncertainty really makes it very
difficult for us. So I understand your frustration, but I do
want to point out there are bills that are sitting there for
action.
Dr. LaPlante.
STATEMENT OF DR. WILLIAM A. LAPLANTE, PRINCIPAL DEPUTY
ASSISTANT SECRETARY OF THE AIR FORCE (ACQUISITION)
Dr. LaPlante. Thank you, Chairman Turner, Ranking Member
Sanchez, and the rest of the distinguished members of the
subcommittee.
Thank you for holding this hearing to discuss the state of
affairs with sequestration. And I will address the Air Force,
and particularly the investment in the Air Force.
I am joined by Lieutenant General Mike Moeller, who is the
A-8 for the Air Force.
And again, thank you for holding this hearing.
We are committed, of course, as the Air Force, as remaining
the best in the world, the best in the world in 2020, 2023,
2028. That means being able to fight and win against peer
adversaries in highly contested environments. In the middle of
trying to make sure we meet that future and keep readiness
high, we of course have had to deal with the sequester. When
the sequester hit back in February, it was well known that
there were really only two places in the budget to find the
dollars to match what was needed to be cut. One was in
operations and sustainment and maintenance, essentially hitting
our readiness. And eventually, that also hit our workforce with
the furloughs. The second place, the second place to go is our
investment, which is RDT&E [research, development, test, and
evaluation] and procurement.
We started with our investment accounts looking at
somewhere between a 10 and 11 percent cut, and we ended up, by
using prior-year dollars and other flexibilities, being able to
soften that to about 8 percent. But I should make no mistake,
there is damage being done.
So what I am going to talk about is the investment
situation and what is going on there. So to begin with, what
was done was each program was scrubbed. A lot of risk money,
commitments that were going to be done in next years was taken,
was swept up, with the case, hope, and promise that some of it
would be returned. What also was done was, in some cases, major
programs were simply stopped. I can speak to one specifically
that we have been public about, it is called the Space Fence,
which is an Air Force program, an important program for space
situation awareness.
We were ready to award the contract after a lot of
excellent work by contractors and laboratories. We had a great
acquisition strategy. And we stopped. We stopped the program.
And it may or may not get started. If it does get started
again, it is going to at least be one year away from IOC
[initial operational capability], but more importantly, it is
going to cost $70 million for the same program one year later.
There are going to be other programs, new programs coming along
that are going to be in exactly the same situation. In
addition, in 2013, we, of course, had the furloughs. And the
furloughs, I will talk about the effect on morale, which is
harder to assess. But there was absolutely an effect on our
acquisition programs. The F-35 lost 1 to 2 months of schedule
overall in the program due to the furloughs. The reason was the
testing, both at Eglin and Pax, was prohibited to test on
overtime with civilians. And if you have been around testing,
you know nothing gets done in a regular even 40-hour week, let
alone a 32-hour week. So it directly impacted already our
acquisition programs.
Of course, the effect on the morale is something that is
harder to measure. We unfortunately won't know until probably
it is too late. The lagging indicator is usually turnover.
I can tell you what my instinct is, and it is purely
anecdotal. And that is, based upon individual resignations that
have already occurred, I believe we have broken with the
particularly the younger acquisition and science workforce. In
other words, these are folks who are at a point in their career
they are trying to make a decision, is this something that I
can do for my full career? Am I ready, starting a family, is
this something that is reliable? Particularly the highly
talented and marketable ones, they are very vulnerable. We
already have cases, including specific letters, of
resignations.
And oh, by the way, that was before October 1. The first
week of October, half of the PEOs in the Air Force, PEOs,
program executive officers, they are senior acquisition
executives that run our programs, were home. We were within
about 2 days, 2 weeks, 3 weeks ago, of shutting down the F-35
line. Okay. I know that these are differences between sequester
versus government shutdown, but the effect in the field is not
terribly distinctive to the individuals in the programs that is
going on.
Now, talking about 2014, where we are right now, all the
numbers that have been already mentioned apply to the Air
Force. The 14 percent number, the number that could be higher,
depending on what flexibility is there. I will also say, as I
already mentioned, there will be other programs like Space
Fence that are going to be cancelled or delayed. And in
addition to that, entire fleet of aircraft are on the table for
consideration of divestment by the leadership. I can't say
which ones will end up being divested or not, I can't say which
programs are going to be stopped or not, but the math,
particularly in 2015 and 2016, is that bad. And so the final
comment I will make is, as we mentioned, in 2013, there was
some flexibility allowed for using prior-year dollars to soften
the blow. In particular, we were able to also transfer some of
that money to the operations accounts to try to soften
readiness cuts. That is gone. That is gone.
So, in 2013, F-35 was at risk of losing three airplanes. In
the realm of no good deed goes unpunished, the F-35 program
with the contractor was able to negotiate a very good price on
lots 6 and 7, and essentially buy back those three airplanes.
We don't have an opportunity to do that in 2014. We will lose
somewhere between four and five airplanes in 2014. And I could
go through some other programs. Anyway, that is a summary of
kind of the severity of the situation within the Air Force. I
look forward to working with the subcommittee in answering your
questions. Thank you very much.
[The joint prepared statement of Dr. LaPlante and General
Moeller can be found in the Appendix on page 72.]
Mrs. Walorski [presiding]. Thank you.
Secretary Shyu, I just want to say that personally I have
enjoyed the privilege and opportunity to work with you. I share
your concern on sequestration. I appreciate what you do and
your work.
Could you speak specifically, if sequestration is allowed
to continue to roll out, what kind of impact that is going to
have on the JLTV [Joint Light Tactical Vehicle] program, which
is super important to my district. And then also, just as far
as modernization and acquisition, just speak briefly on the
JLTV forecast if we can't curtail what is happening here.
Secretary Shyu. JLTV currently is a great model program.
Okay. Each of the 3 contractors have delivered 22 vehicles, and
they are currently in test. The government shutdown has already
impacted our testing plan because our civilians, who do the
vast majority of our testing, can't travel to the test site.
They don't have TDY [temporary duty] money. Okay.
So the rippling effect of these government shutdowns, just
the short period during the government shutdown, is stretching
out--starting to stretch out the program. Because now we have
got to get back into the queue to do the testing. Okay. And
exactly with what Dr. LaPlante had talked about, part of the
testing is usually our testers do more than 8 hours per day of
testing. If you limit their number of hours, it is going to
impact them. Okay.
So, right now, the program is very well executed. We are
trying to get back on schedule. But with sequestration cutting
the RDA account heavier than the rest of the accounts, cutting
the research, the development and acquisition accounts
disproportionately higher than the other accounts, it will have
impacts to us in terms of schedule. So that means we
potentially may delay the program by a year due to the schedule
cuts.
Mrs. Walorski. I appreciate that.
General Walters or Mr. Stackley, would you like to address
that as well with JLTV?
Secretary Stackley. I would simply add, as Ms. Shyu
described, the developmental scale is going to slide to the
right. That is going to hold up when we can get into
production. So it will delay the start of production. I think a
year is a conservative estimate in terms of that impact. And
then it is going to impact each year of production. So the
front end, when you are trying to climb up a ramp and get to
efficient quantities, the front end will be suppressed in terms
of the number of vehicles we can procure. And that is going to
ultimately stretch the program out further on the back end. It
is going to drive the cost up. These are all spiraling impacts
that take a strong performing program at the front end and
reverse its course, which, obviously, we are trying to avoid.
Mrs. Walorski. General Walters.
General Walters. Yes, ma'am. I echo the sentiments already
displayed here. But I will also tell you that the longer-term
effect year by year as sequestration marches on, if it
continues to march, it will put us in a, from a program
perspective, a more difficult position to make harder and
harder choices as we try and buy out a vehicle portfolio that
will become unaffordable in the out-years.
Mrs. Walorski. Thank you.
Representative Cooper.
Mr. Cooper. Thank you, Madam Chair.
Chairman Turner had said earlier that the House had
basically done its work and was implying that it was the
Senate's fault. Of course, we need to operate as a Congress and
fulfill our Article I responsibilities as a Congress so that
you gentlemen and ladies can do your work. I thought your
testimony was excellent. And I wish you had the ability to
question us. Because the fault is on our side of the dais. So I
don't want to put you in a tough spot, so I will go ahead and
make some points on my own about the House's and Congress'
inability to perform adequately in these trying times. Because
as one of the witnesses noticed, defense contractors, defense
workers, others don't really distinguish between sequester and
shutdown and also threatened default of U.S. credit. This is a
nightmare that they should not have to go through and a
nightmare the country should not have to go through.
But let me cite a couple of articles here. One is Politico,
October 14, an article by David Rogers. Headline, ``GOP Hawks
Suddenly Silent on Sequestration.''
An article that cites the excellent study by the Bipartisan
Policy Center entitled, ``The Sequester: From the Merely Stupid
to Dangerous.''
Another article, this week's Wall Street Journal, an
article by Fred Barnes. Fred Barnes, ``The Upside of the GOP
Shutdown Defeat.'' He points out, quote, ``'Saving the
sequester has been the top priority for me and my Republican
colleagues throughout the debate about the shutdown,' Senate
Majority Leader Mitch McConnell said.''
They go on to say, ``The survival of the sequester wasn't
an unalloyed win for Republicans. The automatic cuts take a
huge bite out of Pentagon spending, which is bound to weaken
military readiness. This has distressed many Republicans, and
rightly so.''
But then the article goes on to say, ``Yet most Republicans
have been willing to swallow the defense cuts so far. They
regard the sequester as a rare victory in their fight to reduce
the size of government.''
Another article, this one in the American Spectator,
jointly authored by Steven Moore and Art Laffer. It says,
``Treasury Secretary Jack Lew made a catastrophic
miscalculation. He believed that defense hawk Republicans would
never agree to the sequester cuts to the Pentagon. The White
House bet that Republicans would raise taxes before cutting
military spending. They were wrong. House Republicans rightly
decided that as the wars in Afghanistan and Iraq were winding
down, defense would be cut under any scenario, so it made the
most strategic sense to uphold the sequester to ensure that the
peace dividend did not get spent elsewhere.''
As I mentioned, it is our fault. Congress should be blamed.
In my opinion, the House in particular because it is not enough
for us to pass our legislation; we have to conference it with
the Senate. Both Houses finally passed budgets this year. But
only this week did we go to conference on the budget. Because
after 5 years of begging our Senate brethren to pass a budget,
then we refused to conference it with them.
The Wall Street Journal on its editorial pages correctly
pointed out, you can't govern America with one half of one
branch of government. It takes more than that. And it takes
cooperation. It takes that dread word ``compromise'' to get
along and get things done.
So I am proud of the work that you gentlemen and ladies are
doing at the Pentagon. I am sorry that you are under this
distress. And I hope and pray that Congress will get its act
together fast. We only have a few days before the budget
conference is supposed to come up with a conclusion, a few
legislative days. And by the way, we are only meeting next week
like 1 or 2 days. We take the following week after that off.
So I think the entire conference, the hope of compromise by
December 13 only has a few possible days to come up with an
agreement. That is appalling. The folks back home are expecting
us to work 24/7/365 to get this done. They should be outraged
that we haven't done it already because the fiscal year started
October 1. So this is the time for this body to get its act
together. As you know, the Armed Services Committee is the
largest committee in the House of Representatives. But we don't
act like it. We don't exercise the commensurate influence
within the body. And in this crucial hearing on the damaging
effects of sequester, how many people are here? Six? And this
is just a subcommittee; it is not the full committee. But this
is an embarrassing response to a national crisis that you
gentlemen and ladies are correctly informing us of.
So maybe one day you will have the right to question this
side of the dais. I look forward to that. In the meantime, we
should be punished for congressional misbehavior, both Houses,
both parties, until we get the job done.
Thank you, Madam Chair.
Mrs. Walorski. Mr. Runyan.
Mr. Runyan. Thank you, Madam Chair.
And my question is actually going to be for General
Moeller. Since I have been here, I have been a big supporter of
the new tanker. There has been, obviously, some questions arose
as of lately specifically dealing with things in my district.
If you don't know, I represent Joint Base McGuire-Dix-
Lakehurst, which is home to most of our KC-10s on the East
Coast. That being the workhorse of most of the refueling here
on the East Coast and a lot of things overseas, in Iraq and
Afghanistan, and dealing with homeland security. With the new
tanker coming online slower than expected, obviously, because
of many things we are discussing here today, the fact that
there is probably really not much of a decrease in how we use
those aircraft here, and if there is a delay in the 46 coming
online, for the record, what does the Air Force plan for this
critical platform? And is there program funding in fiscal year
2015 to support this vital refueling asset?
General Moeller. Congressman Runyan, thank you for the
opportunity to talk with you. Before I talk specifically about
platforms, let me just say that the blunt mechanism of
sequestration drove us to look at all options, from across the
Air Force. As Dr. LaPlante said, looking at our readiness
accounts, our personnel accounts, force structure, and our
modernization programs. We had to look everywhere in order to
get to the billions of dollars in savings--not millions,
billions of dollars in savings, especially in the near years in
fiscal year 2015 and 2016. Because that is where sequestration
drives the biggest cuts for us, for all of us, for all of the
services, including the Air Force. With that in mind then, as
we looked at where we were going to go to get--to gather the
savings required to balance the program, we had to look at
cutting entire fleets of aircraft. And the reason why we had to
look at that is that in order to get the billions of dollars
needed, we had to essentially go after overhead as much as we
did force structure. Now, the cuts that we are talking about
across the FYDP [Future Years Defense Program] are, for the Air
Force specifically right now under sequestration, will be over
25,000 people and over 550 aircraft. That is the magnitude of
the challenge that we face across the FYDP. Specifically,
because all of our fiscal year 2015 through 2019 program
submission is pre-decisional, we can't talk about specific
platforms. But I will tell you that we looked in priority order
at avoiding further readiness degradation, that was our top
priority, especially in the near years, cutting the more
capable aircraft, and/or doing irreversible damage to high
priority investment programs, like the KC-46A.
Mr. Runyan. That is just puzzling to me, because I get what
you are saying about needing to find the places to cut that
stuff. The readiness hole that I think it would create, I have
yet to find anyone in the Air Force to give me an answer to say
how you backfill that. This, potentially, with the 46 being
delayed, could potentially be a huge problem. And if you are
going to take out a whole air wing that supplies critical
refueling, how do you fill that gap?
General Moeller. Well, Congressman, we will have gaps
across the entire Air Force. Because it is not just, it is not
just one platform. It is not just one capability.
Sequestration, the levels of cuts require us to look across the
Air Force. And so mitigating risk in one area is going to
require offsets in others. The bottom line is that the Air
Force, after sequestration, is going to be smaller. It is going
to be less capable. It is going to be less ready, and it is
less flexible. That, at the end of the day, is the bottom line
of the effects of sequestration on your Air Force.
Mr. Runyan. I would love to at some point personally sit
down with you and have the numbers put out on the table and
talk about it. I look forward to that.
General Moeller. Be glad to come over.
Mr. Runyan. I yield back.
Mr. Turner [presiding]. Thank you. I want to thank Jackie
Walorski for sitting in while I had the opportunity to attend a
classified briefing for a few moments on the East Coast missile
defense site. So I appreciate her taking the gavel for me.
So now we will return to regular order. And regular order
is such that we go through each of the members who were present
at the gavel and then turn to those post-gavel.
I want to start with, I always hate it when people make an
issue partisan. Because nothing is describable or resolvable in
its real effects on a partisan basis. This is a committee that
very rarely will you ever hear anybody at any microphone say
``the Democrats'' or ``the Republicans,'' because we are really
all just working together on the same issue.
I think when you look here at the number of Members who are
present, we certainly have on this side of the aisle a great
deal of attention on this, as we have had at the number of
hearings that we have had. I can tell that on a bipartisan
basis, my ranking member and I have both worked equally
diligent on this, one being a Republican and one being a
Democrat.
I voted against sequestration. I voted against the
President's recommended legislation of sequestration. I voted
against it because I felt that the administration did not have
a commitment to resolving sequestration. When we talk about
resolving sequestration, what we are talking about is finding
offsets elsewhere in the budget. With sequestration, we have
taken over half of the budget of the allocated cuts for
sequestration and applied it to less than 18 percent of the
overall budget, which is the Department of Defense. The task
that the President had charged Congress with was finding cuts
in this issue--cuts elsewhere in the budget to offset those to
lift sequestration. So when people talk about that they want
sequestration to be applied, and there are Members who openly
say that, they are not saying that they want this to be applied
to the Department of Defense. They say they want the conclusion
of it to occur, that is the identification of those cuts,
elsewhere. No one, no one in Congress believes that the
Department of Defense should continue to be subject to
sequestration. It is irresponsible for any Member to say,
especially on a partisan basis, that any Member believes the
Department of Defense should be subject to sequestration.
There are Members who believe that we cannot continue to
spend out of control, and sequestration needs to be addressed
by the process concluding, which is finding the source of those
offsets.
Now, people who voted for the Budget Control Act and for
sequestration, who then speak about it disparagingly, as if it
is everyone else's responsibility, is one also I think is of
question. That is why I am proud of the fact that I opposed it,
and I oppose it now. And I want to turn to your answers as to
its effects so that we can get the motivation for Congress to
conclude the process of offsetting them. Now, I know there are
many people who would like to characterize it otherwise. But
today you get to help us characterize it as a real problem and
one that needs to be resolved.
Secretary Shyu, you said that the issue of uncertainty is
wrecking the ability for both the Department of Defense to
plan, for contractors to plan, for acquisition, and for the
industrial base. You said that they need predictability. As we
go forward with sequestration, we also have, beyond the what
level these cuts will be or how they will be applied, the issue
of the aggregate numbers and what their effects will be upon
the choices that you have to make. Can you speak for a moment
of the fact that these numbers themselves are so egregious that
many of the tasks that you have been assigned in acquisition
are not going to be able to be achievable and therefore could
harm our long-term sustainability in our national security?
Secretary Shyu. Yes. The fiscal year 2014 sequestration
will have significant impacts. Because as we talked a little
bit earlier, we don't have any more buffer room left. Okay. We
are going to defer maintenance on 172 of our aircraft, more
than 900 of our vehicles, over 2,000 of our weapons systems,
over 10,000 pieces of communication equipment. We will field
less equipment to our brigade combat teams. It will impact our
production in terms of quantities. We will buy fewer aircraft,
eight less Apache helicopters in fiscal year 2014
sequestration. That is on top of eight reduction that was due
to fiscal year 2013. So this means this will have a rippling
effect in terms of fielding to our units. Okay. All of the ECP
[engineering change proposal] upgrades that we had talked
about, upgrades to our Abrams, to our Bradleys, to our Stryker
vehicles are going to be impacted. Okay. So what does that mean
in terms of rippling effect? It means, our contractor that is
looking for stability of their workforce and of the contracts
that they have can no longer plan for it. They continuously ask
me what type of--what do I anticipate the budget is going to be
so they can plan for their workforce? It is very difficult to
give them any numbers, because we are planning for our POM
[program objectives memorandum] at the PB [President's budget]
level, we are planning for our POM at the BCA level. And those
have very, various different impacts. So the other rippling
effect it has created for us is an enormous amount of
additional work for our internal government folks to plan the
what-if contingencies. We go through multiple iterations of
planning. That is very, very disruptive. So I think, in my
mind, if there is anything that this Congress can do to help us
in terms of stop sequestration, to bring back stability in our
budget, that is the one key critical thing that we need, not
just for the Army, but for our industrial base as well.
General Barclay, you want to add?
General Barclay. Sir, as Ms. Shyu said, across all the
different categories. Because as the Secretary and chief have
testified earlier, because if we cannot bring our force
structure down fast enough we are going to have dramatic
impacts on both readiness, the training, and on the
modernization programs. So, as we look at both of those
categories, there is a large impact on cancelling training, the
rotations out at the national training centers on units. As Ms.
Shyu said, with the Apache helicopters, not only are we not--
reducing the numbers that we are purchasing, we have also gone
away from the new buys, and we are now remanufacturing those
platforms. We are taking old platforms and not purchasing new
platforms. So, in an effort to meet the dollar cuts we have
got, we are doing that across the fleet in several different
categories, both in our ground combat vehicle category and also
in our aviation category. So, as Ms. Shyu said, this will have
a large impact on us as we move forward.
Mr. Turner. Mr. Stackley.
Secretary Stackley. Yes, sir. I don't want to repeat the
theme, but the theme is the same. What I would simply add is,
first, stability is absolutely critical to performance in our
programs across the board. And what we have been experiencing
over the last one and a half to 2 years, frankly, has been
extraordinarily destabilizing. So this uncertain environment,
budget environment that we are marching through is unraveling
all the efforts that the Department has put into driving
affordability in our programs. All those programs underpin
current and future readiness. So, at the higher level, as the
Commandant and as the CNO [Chief of Naval Operations]
testified, what sequestration poses is a steady decline across
the board in terms of operations, readiness, force structure,
which ultimately equates to presence, response, and national
security. And so we are on the front end of that today. In
2013, we saw deployments being cancelled. We saw the front end
of procurements being cancelled. You are seeing delays to
programs. When you compound that year over year, as posed
through sequestration, it is not a straight line, it will
quickly devolve in terms of, as the CNO testified, the 300-ship
Navy that we require to meet our Strategic Defense Guidance, we
are staring today at potentially a Navy of 250 ships in number.
Eleven aircraft carriers and associated groups and amphibious
groups are jeopardized to drop down to numbers of 10 and 9. And
all that poses in terms of the ability of the Navy and Marine
Corps to meet its role and responsibility toward the Nation's
defense.
Mr. Turner. Mr. LaPlante.
Dr. LaPlante. So I agree with the theme.
So, specifics, would say start with something that Dr. Paul
Kaminski talked about in the 1990s, which was program
stability, or more importantly, program instability was
actually one of the principal causes of some of the acquisition
woes. And the implication being one of the things us in
leadership and acquisition must try to do is offer that
stability to the extent we can. I don't think any of that
anticipated the situation we are in today.
Clearly, from a taxpayer's perspective, taking a longer
view term view beyond 6 months, beyond 3 months of buying
complex weapons systems done correctly is smarter. A simple
example is multiyear contracts done correctly are usually much
better for the taxpayer than single-year contracts. Done
correctly, fixed-price contracts are better for the taxpayer
than cost-plus on programs where we can do it. Long-term
efforts, like what we are doing right now with the F-35, under
the leadership of Secretary Stackley, of looking at how, with
the contractors we can bring down the operations and
sustainment costs, which is really looking 5 to 10 years from
now, all of that is better off in an environment where we have
some idea. We understand things change. We understand what
things go in and out of the budget. But just some basic idea on
what the situation is. All that is put at risk by the situation
we are in right now. Contracts that we put in place 2 years ago
for the highest priority programs that remain so today, where
we had no idea we would have the situation we are in today,
where those contracts, because of the situation, are put at
risk. Just 2 weeks ago, we had one of our fixed-price contracts
come within about 24 hours of having a major problem until the
President signed the continuing resolution. Had he signed it 24
hours later, we would have broken one of our fixed-price
contracts, because that is how it works. So instability, or
program stability is so important to us. We recognize the fact
that things change. But we have to do better than where we are
right now. Thank you.
Mr. Turner. It is my understanding--again, I am saying the
issue that I hate it when people make issues partisan that are
not partisan because it impedes our ability to get things
done--it is my understanding that while I was out, Mr. Cooper
made the statement that the Republicans, there are Republicans
who want sequestration to continue in effect and its effects on
the Department of Defense. So I have to ask you all, you have
been up here talking to Congress, Members of Congress, trying
to tell them the effects of sequestration and its immediacy of
the needs for relief. Have you ever had, Democrat or
Republican, a Member of Congress say to you that sequestration
for the Department of Defense should remain intact and that you
should remain under sequestration? Any of you had a Member of
Congress tell you that? No. Not one Democrat, not one
Republican. So I just want to make that point, as we try to
avoid people turning this into partisan.
I am going to go to Mrs. Roby.
But one other thing before I do. By the way, Mr. Cooper did
vote for sequestration.
Mrs. Roby.
Mrs. Roby. Thank you, Mr. Chairman, and I should take this
opportunity as always to tell each of you thank you for your
service to our country and to your families' service and
sacrifice, that means a lot to all of us here.
Mr. Turner just touched on what I was going to ask to
General Barclay and Mrs. Shyu as it relates to overall
priorities when it comes to, you know, acquisition and
procurement but also from a development standpoint. So I will
just defer to the two of you to determine who is best to answer
my next questions, but General Odierno previously testified
that the ITEP [Improved Turbine Engine Program] program was a
key priority for the Army, and I know you mentioned in your
written testimony that the ITEP program would be placed at
risk. Can you elaborate on that as to whether it remains a
priority and to what extent that the sequester may impact the
Army acquisition strategy of maintaining competition to
milestone B to reduce the risk and the cost?
Secretary Shyu. The ITEP program is a very important
program to the Army because it offers significant capabilities
that we currently don't have; namely, 25 percent fuel
efficiency, as an example. We very much would like to have
competition on all of our programs, but if the sequestration
continues in its compounding effect, we may be forced to down
select earlier than we would like, and that is the risk of
sequestration, okay?
I would like to give an example. That is exactly what had
happened on JAGMs program, Joint Air-to-Ground Missile program
that we had. We had a $33 million mark, then a $3 million
sequestration on top of that, so it was a $36 million cut. We
were forced to drop one of the contractors. It is not that we
wanted to, but we were forced because of budget shortfall.
General Barclay, would you like to add?
General Barclay. Yes, ma'am, and as you know the ITEP
engine is critical not only because of, you know, as Ms. Shyu
said, we have fuel savings, 25 percent there, it also has a
maintenance savings, and it is key to our developmental
programs out in the future. We are working to get that into the
current platforms, the Black Hawk and Apache, but it is also
tied to our joint multirole aircraft, which is out in the
future, so sequestration places this program at risk of having
to do an early down select, which will, if we continue, and it
appears that we will, for several years in this environment,
that program not only will we do an early down select, it could
put that entire program at risk because it is tied to other
programs. So, I mean, all this links together as you move
forward, ma'am.
Mrs. Roby. Can we talk for just a minute also about the
impact on modernization of Army aviation and specifically how
that is going to impact the Army Aviation Center of Excellence
in Fort Rucker as it relates to the sequester?
General Barclay. Yes, ma'am. As you know, Fort Rucker is in
your district, and it is not only just sequestration. I mean,
it is the continuing--as you move all those linked together, it
already has had an impact at Fort Rucker. Fort Rucker was
working around a 1,400 student throughput for the aviation
force. This past year they have dropped that down below 1,200.
We are probably looking to go below a thousand students simply
because of the cost rate. We are already at about a--you know,
we worked very hard for about a 3-year period to get the
student back load down to a manageable level. We are now back
over 500 students in the back load, which that is about a 2-
year problem to get that back, and it will only continue to
grow as we move forward. So, from that training aspect, that
also has an impact.
The other part of that is as we start looking at our
aviation portfolio modernization program, the training
helicopter at Fort Rucker was one of those aircraft that we
were looking at having to replace because of the age of that.
That again will be part of our look at the future to just
determine what we can afford and if we will still be able to
incorporate that into our future buys and programs.
Mrs. Roby. And just real quickly, I mean, I think this is
the point that we want to emphasize. I mean, I, too, was
opposed to the sequester for these very reasons, but let's talk
about how those numbers and the decrease in training of these
aviation, these pilots, both in the Air Force and the Army,
affects our readiness and our ability to do what we need to do,
and I just--if you could just quickly comment on that because,
you know, it has just--it is what keeps me up at night.
General Barclay. Yes, ma'am, it is not only the Army. I
mean, it is in the Navy, it is in the Air Force.
Mrs. Roby. Right, I know it affects everybody.
General Barclay. All of our pilots are, we are restricting
all of their flight hours. For example, we are only focusing on
those combat aviation brigades that are getting ready to deploy
back into Afghanistan. Those that are coming home, we have
reduced their flight hours now to where they are not even at
the proficiency level. We are only barely maintaining currency
levels, and in some areas, as night vision goggles and some of
the others, we are not able to maintain that level of currency
because of the flight hour restrictions we are placing on those
units that are not part of the war fight, are not categorized
as next into the war fight into Afghanistan.
Mrs. Roby. Right.
General Barclay. So that has a huge impact on the training
readiness of those units.
Mrs. Roby. Well, again, my time has expired, but I just, I
know it affects every person here in your position, and it is
something that we absolutely have to address, not just in this
committee but as the Congress because this hearing today, Mr.
Chairman, demonstrates exactly where we are going to be when we
enter year two. So thank you all for being here today, and
again thank you for your service.
Mr. Turner. Great. Before I go to my ranking member for her
comments and questions, I just want to note that our military
officers will be given a chance to give a closing. We have had
opening from all of our Secretaries, and then after their
closing comments, if any of the Secretaries have additional
thoughts that they would like to add to the record, you will
also be given that opportunity. Hopefully our questions will be
directed and elicit the types of information you want to give
us, but in case not, you know that you will have that
opportunity at the end.
Turning to Ms. Sanchez.
Ms. Sanchez. Thank you, Mr. Chairman.
This subcommittee had the GAO take a look at the
implementation of sequestration for fiscal year 2013, and I
know that you have seen that. In their primary finding, they
said no weapons systems programs were cancelled and no programs
reported cancelling or severely changing program contracts. And
they said OSD [Office of the Secretary of Defense] officials
agreed with this assessment.
So that kind of contradicts what DOD and the industry
people were telling us would happen under sequestration. We
were told that the impacts would be significant, dramatic,
immediate. Instead, it appears that, again, through a
combination of unused funds and reprogramming and delaying
development and reducing procurement quantities or getting
better prices, as we did with the F-35, that we basically
avoided disaster in fiscal year 2013.
So my first question, and you can just say yes or no to
this, is do you agree with the assessment by GAO that no
weapons systems programs were cancelled and no programs
reported cancelling or severely changing program contracts?
And we will start with Ms. Shyu.
Secretary Shyu. Yes.
General Barclay. Ma'am, I have not fully read that program,
so I will not comment on that.
Secretary Stackley. I would say that every program was
impacted. In the budget year 2013 in which sequestration hit,
we were able to use prior year to absorb some of the impact,
but, frankly, the Department of the Navy had to push a
significant amount of that impact into the out-years, so the
impact is still staring at us across the board in those same
programs. Did we cancel any? No. Our priority was not to cancel
and create more harm over and above what sequestration caused.
Admiral Myers. I concur with Secretary Stackley. What you
didn't see was the ability of the services to use unobligated
investment funds, but those funds were earmarked or identified
for each investment that we still have to reconcile either
throughout the FYDP or past the FYDP. So we still have to pay
those bills. We were able to make good decisions in the near
term with only 6 months in the fiscal year to avoid cancelling
programs. The services are always looking for an opportunity
for reversibility with the hope that the inflexibility of the
sequester could be remedied by Congress.
General Walters. Ma'am, I agree with my mates here, but I
will tell you that every program we had in the Marine Corps was
affected either by quantity or schedule, and I also think the
sequester in 2013 has set the conditions to cancel programs in
2014 depending on how the budget plays out.
Ms. Sanchez. Okay. But I am asking about the report itself
because, you know, it says nothing was cancelled, no programs
reported cancelling, and not severely changing program
contracts. Is that correct or not? Because the OSC [Office of
the Special Counsel] agreed with the GAO, so I am just----
General Walters. I am at a loss because I haven't read the
report, and I don't know what the definition of ``severe'' is.
Ms. Sanchez. Okay.
General Barclay. Ma'am, I would like to state that I would
be willing to talk to them immediately. GAO did not come in--I
don't know if they talked to any of the service components at
all.
Ms. Sanchez. Thank you, General.
Dr. LaPlante. Cancelled, that perfectly--that could well be
correct, absolutely correct what the GAO report says, but I
will say the way it works is the step to cancellation is delay,
and that is already started, and I am not saying the program is
going to be cancelled because that decision has not been made,
but Space Fence, the major Air Force program for space
situational awareness has been put on hold, okay? Contractors
were told to stop work on that program about September 15th. Is
that cancelled? No, but----
Ms. Sanchez. Okay, that is why we are having this hearing,
Doctor, because we want to get--you know, we get one report,
but we want to get the truth here.
Mr. Turner. If I could for just a moment, and I think you
have been, in your comments, you have been indicating you have
not had an opportunity to fully review the report and digest or
even some of you have not even seen it, correct?
General Moeller. I have not.
Mr. Turner. Have you seen it at all? Has anyone on the
panel seen the report?
Ms. Sanchez. Okay.
Mr. Turner. Well, let's do this.
Ms. Sanchez. Well, then I won't ask that question. We will
do that for the record.
Mr. Turner. Let's provide you the report and leave this
record open for you----
Ms. Sanchez. Perfect.
Mr. Turner. To give an opportunity in writing to answer
what the statements are in the report----
Ms. Sanchez. Perfect.
Mr. Turner [continuing]. To include in our record.
Ms. Sanchez. Perfect.
Mr. Turner. And we have your answers.
Ms. Sanchez. Okay, for the Air Force, you stated previously
that it would do whatever it takes to protect your top three
acquisition programs, the F-35, the KC-46, and the long-range
bomber. So assuming you would get reprogramming authority in a
timely manner, which this committee somewhat controls, do you
think you could protect those programs fully in fiscal year
2014?
Dr. LaPlante. So I will give an answer for that. To begin
with, of those three programs, the two in general that I think
are at the biggest risk regardless, depending on the scenario,
are F-35 as well as the KC-46, and the reason is quite simple
in that the LRSB [Long Range Strike Bomber], the dollars in
that tend to pick up in the production much later, so it just
is fortunate in the case of that program.
Let's address each one at a time. For F-35, as I said
earlier, without doing any relief, we are at risk of about four
to five airplanes this next year, and we are not going to have
the opportunity, unfortunately, to take advantage of another
great negotiation to buy them back. Unfortunately, we just
won't have that in 2014, that is just the way it works. So,
with some flexibility, certainly that can be mitigated to some
extent, to some extent, I can't claim that all the airplanes
will be bought back.
The other part of the F-35 that we have to really pay
attention to, which is beyond 2014, but it is really important,
is finishing the development program, that is getting to Block
3F software, okay? And Block 2B before that. The Marines IOC
with Block 2P in 2017, the Air Force roughly 2017, and then we
get 3F in 2018. That is critical. Okay. So anything we do that
will prevent us from protecting that development program is
bad. Can we protect it? I am hopeful we could, depending on how
much flexibility.
In the case of the tanker, if we were not given
flexibility, and it comes out to be like a 13.5 percent cut
like we said, that is a problem. The tanker is one of those
fixed-price contracts that the government has a very, very good
arrangement with. That was a lot of excellent work after a lot
of difficult lessons learned.
Ms. Sanchez. But if you could reprogram to save your top
three, do you think you could do it?
Dr. LaPlante. I think we could likely save those two that I
am worried about with the following caveat. What that means for
every other program is it means if we could----
Ms. Sanchez. That was my next question, what does it mean
for the other things.
Dr. LaPlante. If we could wall off, the numbers shoot up to
cutting the other programs somewhere, I would say, close to 30
percent.
Ms. Sanchez. What are the other big programs that you think
would fall by the wayside or----
Dr. LaPlante. So this is where we get to the discussion of
everything being on the table. So the types of dollars that one
would have to find are only in the large platform programs, and
that is where you get into the discussions of looking at
divestiture, and you are looking at discussions of not starting
new programs. So if you look at the Air Force plan and you say,
you see new programs that would be starting, assume that that
is at risk, and so that is all on the table.
Ms. Sanchez. All right. A quick question on that, and then
I am sorry, Mr. Chairman, but I am very interested in this
issue, obviously. You talked about development two and a third
development of the software with F-35. Is that because of
concurrence?
Dr. LaPlante. No, that is separate from concurrence.
Ms. Sanchez. So software doesn't have anything to do with
the fact that we are building and doing, and we are coming back
and----
Dr. LaPlante. No, no.
Ms. Sanchez [continuing]. And doing things better?
Dr. LaPlante. No.
Ms. Sanchez. This is not--just yes or no so I know. Yes or
no, with respect to concurrence because we bid this, and we are
building it in a different manner, so for the future, I need to
know, are we running into problems? Are you worried about
development with respect to the software because we are doing
things at the same time?
Dr. LaPlante. I would say the answer is concurrence is not
driving that issue at all.
Ms. Sanchez. Okay, okay, I just wondered. The last question
I have has to do with the Army. So the testimony lays out a
range of programs which would be cut because of sequestration
in 2014, including helicopters, armored vehicles, and
communications equipment. Obviously, I think that is probably
unacceptable, but I am thinking about the fact that I keep
reading articles all over defense monthlies and dailies and
weeklies where press reports keep telling us that the active
duty Army will be down to 420,000 by 2019. So that is a
pretty--that is a smaller Army than we have today, and it is
done fairly quickly. If, in fact, these guys who go out and
report are getting this information from our generals and
others who are in the know, maybe from some of us, given this
rapid decline in force structure, how has the Army adjusted its
procurement requirements, and do your comments today take into
account the reductions that people are projecting for the Army?
General Barclay. Well, first of all, on force structure, we
started this at an Army of 570,000. We were going to an Army of
490,000 by fiscal year 2017. The Secretary and chief have both
testified that that was the level we were going to. Under
sequestration we know that we cannot support an Army, not only
can we not afford to pay for it, we can't afford to train it,
and we can't afford to equip it with the sequestration. So the
490 is the force that we are at. We are looking at the impacts
of sequestration and where we will have to take the Army down
to. There are numbers that range anywhere from 380 in the AC
[Active Component], back to about a 450 number, and our chief
and Secretary have talked about those different scenarios based
on how we look at the plans, how we balance between readiness,
we balance between modernization, and then where we will end up
being, and so there is still a lot of space here to make some
of those decisions.
Ms. Sanchez. So refresh my memory. Before we got into the
two land wars of Afghanistan and Iraq, what was the active
number in the Army, do you recall?
General Barclay. 482,400, ma'am.
Ms. Sanchez. 482. So you were thinking you were going to
come down to 490, so even more than what you had before we got
into two major wars.
General Barclay. Yes, ma'am.
Ms. Sanchez. And what you are telling me these numbers I am
hearing of 420 or you were saying 380 or 450 or whatever have
to do with the fact that the Army is actually taking a look at
sequestration and other budget issues to bring it down even
further.
General Barclay. I would say OSD is taking a look at
sequestration.
Ms. Sanchez. OSD, okay.
General Barclay. And the impacts, and then as they spread
that across the services, then we are all then coming back to
lay out how we are going to address those sequestration cuts
that are then given to the services. For us, we are manpower
intensive. That is what the Army is. We are about people. We
are a land force.
Ms. Sanchez. Thank you. I know that; my husband spent 23
years in the Army.
General Barclay. So when about 48 percent of your budget
goes against paying the bill for the manpower, then that is
part of our equation to get to where we need to go, so we are
going to have to take the force structure down. Do we know
exactly how low we are going? No. And also I want to add that
it is not only just Active Component. It is all components. It
is Active Component, National Guard, and Reserve. They all take
proportional cuts. We have no choice but to do that to all
components to get down. And, yes, we have taken that into
account as we are looking at all of these different programs,
changing the quantities and buys and modernization impacts at
different levels of where we will be and then how that will
result in changing some of those numbers. So, yes, ma'am, we
are.
Ms. Sanchez. Perfect. Thank you for your answer, I
appreciate it.
Mr. Turner. Mr. Cook.
Mr. Cook. Thank you, Mr. Chairman.
The cuts, because of the sequester and everything else, I
have heard a few of the comments about significant impacts and
some of the other things, and we have had other hearings, and I
think all of us heard some very startling information, at least
the hearings I was at, which basically said, we were not
combat-ready to meet our current military contingencies and our
treaty obligations. Now, I might be paraphrasing that
incorrectly, but I know that specific question was addressed to
all the different armed services, and I think the chair was
there, so he can correct me if my memory fails me. But my point
or the question that I am leading up to, what you have said
here, it almost leads to a permanent C4 or a permanent
declaration that each one of our armed services will not be
combat-ready in perhaps the near future, 10 years. This is
very, very scary. And I would like you to comment on what I was
saying because a lot of the things with the sequester, I don't
think the average person understands it. They understand
something where our Armed Forces are not prepared or combat-
ready to go to war or a military situation where young men and
young women can die, and that resonates, at least in my
opinion, at least to me, at least to my district. So if you
could kind of comment on where I am going with this because
obviously, I am not a big fan of the sequester, particularly in
regards to DOD and national security.
General Barclay. Well, sir, from an Army perspective, I
will tell you that I can break it down into a couple
categories. First on the equipment side, if you look at it, and
I will tell you that you run them from the CR impact to the
sequestration impacts in 2014, brought forward by 2013, and
then the future budget impacts. For example, we are putting
soldiers at risk just because of the CR with a new start
program for the counterhazard program for the protection
against IEDs [improvised explosive devices]. Because of that we
can't start that. There are no new starts. So the CR has an
impact on providing something that we currently want to start
for soldiers that are in the fight now. Some of the delays that
result from this, the Third Stryker double-V hull. As you know,
the double-V hull protects against the IED and trying to get
that third Stryker organization so we can get it into theater
for the last part of the fight to protect soldiers.
Ms. Shyu has already mentioned the delaying of the JLTV
fielding and LIRP [low-rate initial production], so that has an
impact. And then, again, on the COCOM [combatant command] side,
the Patriot missiles, we will have four sets, four units that
we will not field the new PAC-3 missile set to because of this,
and as we have already talked about, the ITEP engine doing
that. It is also going to desync some programs that we are
trying to attach to the future programs, which deal with our
network modernization, and as we remove some of our capability
sets moving into theater, we are going to have to slow that
down. When we started, we were going to field to 10 brigade
combat teams a year. We are now fielding only to those combat
teams going into theater. And then so that has a training
impact.
On the readiness side, sir, you hit that; we have
testified, I know the Secretary and the Secretary of the Army
and the chief of staff of the Army have testified of the fact
that those units that are going into the war are the only ones
that we are training to the fullest level. Those are the only
ones that are getting into our national training centers. All
other brigade combat teams are not getting that opportunity
because we don't have the money to send in to those. So, as you
continue to move forward, the readiness levels continue to come
down from C3 to C2. Some of those that came home out of the war
were the C2. They are going to continue to degrade down to a
C3, C4 because we don't have the funds to train them to the
highest readiness levels.
Admiral Myers. First, thank you for the question, and this
is part and parcel similar to Chairman Turner's question, and I
would like--the way I would like to answer it is in two parts,
and the two take-aways are the terms uncertainty and
inflexibility. Uncertainty is the budget environment that we
are in right now. The uncertainty of not knowing when we are
going to have a budget or what that budget is going to be. As a
Navy, we are asked to provide forward presence with capable
ships to do our Nation's business. To do that, we have to plan,
we have to plan strategy, a budget, we have to plan for
aviation and ship depot maintenance. We have to train our
people, and we have to have a plan for that. We also have to
have our maintenance schedules. With the uncertainty, it is
disruptive when it comes to the planning. With the
inflexibility that we see with the budget environment that we
are in right now, we have already seen what happened in 2013,
and when we look at 2014, the combination of a continuing
resolution and a sequester is going to impact our training. It
is going to reduce the number of carrier air wings that can
effectively train. In 2013, we had two carrier air wings that
had to go to reduced training. In 2014, it is going to be more
than twice; half of our carrier air wings are going to be at
reduced training. Those that are overseas or getting ready to
go overseas will have the training that they need, but this is
starting to impact our ability to surge.
The sequester in 2014 is going to impact depot maintenance,
it is going to impact procurement, it is going to impact every
facet of the Navy because it is inflexible, and so when you
take that inflexibility and you stretch it out for 10 years,
what you have is a Navy that is less and less capable of
providing the surge that we used to. It is a Navy that is
increasingly challenged to have the readiness standards that we
need for the nondeployed units. It is a Navy that is challenged
when it comes to filling the missions of the Defense Strategic
Guidance, specifically to project power, to deter and defeat,
to provide the kind of support that we need for
counterterrorism and regular warfare.
Mr. Turner. Thank you.
Turning to Mr. Wenstrup, but I just want to make one note
in that the issue of the language that we used with respect to
sequestration, when we talk of lifting sequestration, people
who are discussing it want generally offsets to occur so that
sequestration can be removed from the Department of Defense, so
they are not just saying increased spending. But the other
issue is, Admiral, as you were saying, the issue of flexibility
or inflexibility. There are two aspects to sequestration, and I
would just ask you in your closing comments to address this
after Mr. Wenstrup and the others get to question.
The bottom-line number under sequestration is also not
right. If we say flexibility is what is needed, you are stuck
with a lower number that is going to cause you to be incapable
of achieving a lot of your goals. As the President structured
sequestration, it was supposed to be an irrational program and
that was indiscriminate in its effects and was to not have the
Department of Defense have flexibility because, as he
structured it, it was intended to be a penalty for, you know, a
budget deal to be found that would solve the issue of
sequestration, which is what we are hoping that certainly is
solved now. But I don't want, in your very clear statements of
its effects being damaging because of inflexibility, I don't
want people to conclude that the answer is we will just provide
flexibility, and we don't have to provide additional dollars,
and the Department of Defense is good and made whole. I know it
is not what you intended, but I just wanted to make that
footnote.
Dr. Wenstrup.
Dr. Wenstrup. Thank you, Mr. Chairman.
I appreciate you being here and all that you do. I am an
Army reservist, been in 15 years, a year in Iraq, and I--you
know, before I came here, I know like anyone else that there
are places we can make cuts. There are things that we can cut
out, we can reprioritize, but I have a grave concern about our
readiness at this point, and I have seen the numbers, at least
on the Army side, what the projections will look like, and
clearly, it is not a force that is ready to take on the
problems in the world, and what we have seen recently, we cut
the military and then deploy them. We ask them to go into
Libya, and we talk about going into Syria. I mean this is a
combination that obviously can't go on, and I still serve as a
surgeon at Walter Reed, and I can tell you, I know firsthand by
what the people I see coming through that we are still at war
now. We are asking way too much with way too little, and I am a
firm believer, and I have always told veterans, and you can
appreciate this, you meet a veteran who says, Well, I served
but not during a war. And I tell them, if you weren't there, we
would never have peace.
And we need to maintain a strong deterrent force in this
country whether we are at war or not, and there should be a
baseline that we maintain always and have the ability to ramp
it up when we need to and do it quickly because we can't expect
the industry to be able to turn on and off. And we can't expect
our personnel to be able to turn it on and off, and when I look
at what we are doing today with cutting personnel in this
economy, you are going to have people going on unemployment.
And I know that comes out of your budgets ultimately. We are
paying them anyway. So it is really a shame the trend that we
are on, and I sit on these committees, and I see everyone is
concerned. And I know you have to testify in front of other
people. And I know you meet with the Senate and hopefully the
administration.
And I really just want to ask, is there anyone who doesn't
get it? Do you find opposition to what you are saying when you
say we aren't ready? Is anyone saying back to you, Oh, yes, you
are, you are okay, we are going to be fine with what you have
got? I need to know that because I am wondering why we aren't
getting this taken care of, and if anyone would care to comment
on that I would appreciate it.
General Moeller. Congressman, I have never heard anyone say
that sequestration has had a positive effect on service
readiness across the board. You know the negative impacts on
the Air Force in fiscal year 2013, and I will go back to
Ranking Member Sanchez's question about the GAO report. One of
the key places that we went in 2013 was to our readiness
accounts in order to cover down on our investment accounts. In
fiscal year 2013, 31 combat-coded squadrons in the Air Force
stood down for a significant amount of time. Seven of those,
seven additional squadrons were reduced to takeoff and landing
currency only. They were flying at the minimum rates. Just as
with the other services, we deferred critical, critical
maintenance on our aging platforms in order to make sure that
we could pay the bills and continue with our investment
accounts with minimal impact--that is not true--with less
impact on our investment accounts that we would have had if we
didn't go to the readiness accounts. So, from an Air Force
perspective, we were not ready in 2013. It drives readiness
degradation into 2014, and under sequestration, we will not
recover our readiness so that we are ready to fight tonight.
General Barclay. Well, sir, as I stated earlier, again, we
are only preparing those brigade combat teams that are going
into the fight. The rest of them, where in the past we would
try to maintain at the battalion and brigade level of
proficiency, we are now going down to the platoon level,
sometimes to the squad level, and the National Guard and
Reserves, based on sequestration, they may go down to the
individual crew and squad level, which is the lowest level of
training that we have ever been, and that is due to only having
the money to train those forces to the level that are the next
deployers that are getting ready to go into the fight.
Dr. Wenstrup. So when I talk about--in followup to that, if
I may, General, when I talk about a deterrent force, basically
what you are saying is we really don't have one right now
because the ones that are trained and ready to go are the ones
that are going. Would that be correct?
General Barclay. Yes, sir. We are not training to full-
spectrum operations for the rest of the force.
Dr. Wenstrup. This is on us, and I yield back.
Mr. Turner. Mr. McIntyre.
Mr. McIntyre. Thank you very much.
Thank you, gentlemen, for being here. Two questions in two
different areas, and I know I had to come in a little bit late
because of some other situations. Everything is happening today
now that we are back on a regular schedule. But I just want to
clarify, one is on the F-35. I know that the recent flight
hours now exceed 10,000 hours, recent estimates based on actual
flight hour testing reveal life-cycle costs about 20 percent
lower than originally estimated, with the Marine Corps analysis
the cost per flying hour of the F-35V model about 16.6 percent
lower than earlier Pentagon estimates, which achieves a savings
of $12.3 billion over the next five decades. I guess my
question to the three services that have the F-35 is, do you
feel like the initial operation capabilities as well as the
life cycle for your respective version of the F-35, in what way
will that be impacted by sequestration?
Secretary Stackley. Let me start, sir, and I will ask
Admiral Myers and General Walters to join in. First, the data
that you just described in terms of costs reflect the positive
trend that the program is on in terms of driving down costs,
not just procurement, but also as we enter the in-service
period of the program, greater visibility, fidelity to the
operating support costs that we are able to attack, and in
fact, we are seeing projections come down in that regard, and
that is all good. The IOC dates that were set by the service
chiefs earlier in this year that they reported to Congress,
those dates were set with a clear understanding of what the
requirement, the capabilities would need to be to support those
IOCs and as well realistic schedules that go with those. So
both the Marine Corps and the Navy IOC dates and the 2015 with
Block 2B and then 2018 with Block 3F capabilities with the
aircraft. We have a good track on those, we understand
performance to those goals. We understand what the capability
will deliver, and equally and more important is maintaining the
path that goes beyond those initial capabilities through the
continued development of the program. So, right now, after much
great effort on the part of the program, industry to turn
things around in terms of cost and technical performance, we
are seeing the positive returns that we have been yearning for
through a long program.
Admiral Myers. I would like to add that the sequester
pressurizes the Navy's ability to get to IOC in 2018 with Block
3F. We remain committed. We know that unchecked or unaverted,
that the sequester will remove a F-35C from the U.S. Navy and
F-35B tail from the U.S. Marine Corps, but the continued
sequester is--when I use the term ``inflexible,'' I mean that
the sequester applies a percentage to a program project or
activity, so as you take those percentages in the case of
fiscal year 2014, which is the 10 percent sequester when we
exempt military personnel, for the Navy is a 14 percent impact
to the program. That puts pressure, and it puts delays into the
development and ultimately it puts at risk our ability to get
to IOC in 2018.
General Walters. Sir, to your point on the F-35B, I know a
lot of the data that we have is from the F-35B that the Marines
are flying right now. We are still on track. We note that a
sequester in 2014 will take a tail out. We still think we can
get to our 2017 IOC and then deployment of that aircraft to
where it needs to be.
But more to your point on sequester and related to the cost
to operate the aircraft, like all aircraft that I have seen in
my career, the flying hour costs if we do due diligence and we
get the money in the program and we get the engineers to look
at it, cost to operate will come down. Sequester, you know, I
fear if we continue on that path, will reduce those efforts,
and I would hate to see us bottom out on the cost to operate
those aircraft. I would like to continue. We need those efforts
to continue so we can operate the aircraft at the most cost-
effective cost way in the future. I think that is what you were
looking for.
Dr. LaPlante. Yeah, just a quick comment that the Air Force
is seeing the same potential positive developments. We have
some momentum going on controlling the O&S costs, but a lot
more work has to be done.
Mr. McIntyre. Thank you.
Thank you, Mr. Chairman.
Mr. Turner. Mr. Bridenstine.
Mr. Bridenstine. Thank you, Mr. Chairman.
I appreciate the comments on IOC. Beyond IOC, when you talk
about multiyear procurement--I am a Navy pilot by trade. I flew
E-2 Hawkeyes and F-18s, and we worked hard to get multiyear
procurement of the E-2D, something I thought was critically
important for our carriers, and my concern is I have heard
testimony from Admiral Greenert that because of the sequester,
we are in a situation where we are going to have to give up an
E-2 Hawkeye in the procurement process, and of course, the
reason is the cost per unit is going to be higher if we can't
do multiyear procurement. And I guess my question would be,
there are a number of concerns. Number one, the cost per unit
of course is going to be higher than it otherwise would be, so
that is a problem for the taxpayers, and beyond that we have an
industrial base that is going to in the future want to enter
into long-term contracts for multiyear procurement, and now
there is a political risk in doing so beyond just the technical
risk, and I guess, Mr. Stackley, if you could comment on how
does the sequester affect multiyear procurement?
Secretary Stackley. Yes, sir, and there is two parts to
this, and I think since you brought up E-2D, I will talk to
that one specifically. E-2D's multiyear procurement
authorization is awaiting passage of the Defense Authorization
Act, so it has been supported by both House and Senate, but we
cannot move forward without that authorization. So step one is
we need it authorized, and as well it has to be included in the
appropriations bill. So we need an authorizations bill and an
appropriations bill that provide for the E-2D multiyear.
The second impact when we put together the multiyear
construct for E-2D 5 years procurement, 32 aircraft, that
brought the requirement for substantial savings that goes with
the certification. When you look at the impact of
sequestration, in the first year of the multiyear, where you
are at risk of losing one of the first five aircraft, and then
the potential over the 5 years of continued sequestration, now
you have got this destabilizing impact on a program plan that
is trying to bring stability and bring the affordability that
comes with that. So what we are trying to hold on to here is
the stability that the multiyear provides, not just for the
affordability it gives us but also for the industrial base, and
we are trying to do that in the face of this storm called
sequestration, and we are working with industry, the
contractor, as we negotiate this multiyear, and we are waiting
on Congress to pass it in both the authorization and
appropriations bills, so we can execute it. And what we have to
do is we have to do this in such a fashion that if downstream,
there is another shift in terms of the budget, we will plan for
the multiyear that we provided, but if the budget, if there is
a tectonic shift in the budget, then that may well impact the
E-2D program. We have to construct this so we don't lose the
savings for the aircraft that we ultimately buy.
Mr. Bridenstine. As far as contracts, would there be
cancellation of contracts as a result of the sequester, the
longer-term contracts?
Secretary Stackley. If you look across the board in terms
of Navy multiyears, I think we have seven multiyears on the
books right now, and one of them, for example, is the MV-22. So
that is an ongoing multiyear. Sequestration in 2014 threatens
three of the aircraft in that budget year. That would break the
terms of that multiyear contract.
I will tell you that the savings that we get across the
multiyear are just, they are core to our total program plan.
So, regardless of what comes out of the Congress in terms of
appropriations in 2014, we are going to continue to work with
industry to hold together the goodness of the multiyear going
forward, and for each of the multiyears that we are staring at,
we are going to go down that same path.
Mr. Bridenstine. When you think about the future of
multiyear contracts, would it seem, you know, I guess,
reasonable that industry would build into the price of their
products the risk that multiyear contracts might not be worth
what they otherwise, you know, indicate on paper, and as such,
they would--we wouldn't benefit as much from future multiyear
contracts. Is that a fair assessment?
Secretary Stackley. Almost. Frankly, the risk is on the
government's part because when we sign up to that multiyear, we
are making a commitment to a certain quantity over a number of
years. Now, what industry provides back to us is a cancellation
ceiling. If they cancel at any point in the program, we
understand what our liability is associated with some of the
nonrecurring costs that they have incurred in order to achieve
the savings that the multiyear promised. If we break--if we,
the government, break our part of the contract, then we are in
a negotiation situation with industry to make it right for
whatever we ultimately procure on the balance of the multiyear,
and that negotiation is a bilateral negotiation. And we are
going to ultimately arrive at what is fair and reasonable for
both parties.
Mr. Bridenstine. Got it. I yield back. I yield back. Thank
you.
Mr. Turner. Thank you.
Well, I appreciate your comments today including your
written statements. We greatly appreciate your dedication. With
each of you, you have very complex issues to manage, funding,
technology, contract vehicles, congressional lack of action or
action, and with each of you not only are you anchored
currently in the present, you are seeing the future. You see
what we need to do and what is possible and what our options
are as we go to new threats. So that is why I think your
statements on sequestration are so important because it is not
just about what is happening today or tomorrow, it is also what
is happening in the future as a result of these effects.
As I indicated, I want to give each of the military
officers an opportunity to add to their comments anything that
they believe they would like to conclude with on the record,
and then I will offer that also to the Secretaries.
We will begin with General Barclay.
STATEMENT OF LTG JAMES O. BARCLAY III, USA, DEPUTY CHIEF OF
STAFF, G-8, U.S. ARMY
General Barclay. Chairman Turner, Ranking Member Sanchez,
and other distinguished members of the subcommittee, again, I
would like to thank you for the opportunity to present this
statement today and answer your questions.
The Army's leadership understands the gravity of our
Nation's current fiscal situation, and as the Army's G-8, I
must allocate resources that balance manpower, readiness, and
equipping for our Army to meet the Defense Strategic Guidance
and the defense budget priorities. However, the combined
effects of the continuing resolutions and the magnitude and
inflexible nature of sequestration put at risk our ability to
fully meet the requirements of that Defense Strategic Guidance.
Annual continuing resolutions cumulatively weaken equipping
efforts over time. Delaying new starts and reducing procurement
quantities in short order drive up our costs and ultimately
postpone the fielding of much needed equipment to our soldiers.
For the purpose of illustration, if the Army operates under a
full CR in fiscal year 2014, we would be forced to defer new
counterhazard programs for our soldiers' protection against
IEDs. We would also delay the filling of the Stryker double-V
hulls to the Third Stryker brigade combat team, and we would
reduce combatant commanders' Patriot missile loads for four
units.
As the Army Chief of Staff has recently testified about
sequestration, the Army cannot reduce its end strength fast
enough, so readiness and modernization will take the brunt of
cuts through fiscal year 2017. The cuts result in significantly
degraded readiness and extensive modernization shortfalls in
the near term. Over the fiscal year 2018 to fiscal year 2023,
the Army may begin to rebalance some readiness and
modernization and try to meet those requirements that are laid
upon us by our Nation, but we will do that by paying in force
structure and end strength, and we will add significant risk to
the Army's ability to conduct even one sustained major combat
operation in the future. If sequestration levels continue in
fiscal year 2014, they would compound the cumulative effects of
the CR. The detriments imposed would cause the Army to assume
significant risk in our combat vehicle development, it would
reduce our Apache helicopter procurement by 50 percent, which
is the equivalent of one attack battalion, it would halt the
procurement of the warfighter information network, and that
would have an impact on 58 brigade combat teams. And without
relief from sequestration in the future, we would be required
to take increasingly significant actions by ending,
restructuring, or delaying about 100 acquisition programs. The
sequestration levels would result in decreased capabilities for
the soldiers in every area, from our combat vehicles to
aviation to air missile defense.
In the end we strive to be good stewards of the taxpayer
dollars while balancing the existing resources we have to meet
the Defense Strategic Guidance. However, the combined effect of
CRs and sequestration undermines these endeavors. The end state
is a less modernized force at an increased cost today that
results in an inefficient and wasteful use of taxpayer dollars
and an undersized, less capable force in the future. We urge
Congress to provide fiscal stability and predictability, pass
timely annual appropriations and eliminate sequestration. If we
must operate under a continuing resolution, we ask you to
provide new start authority. Doing so would help us mitigate
some of these effects.
Chairman Turner, Ranking Member Sanchez, members of the
subcommittee, again thank you for your unwavering support of
the men and women of the United States Army, our Army civilians
and their families, and I appreciate the opportunity to testify
today.
[The joint prepared statement of General Barclay and
Secretary Shyu can be found in the Appendix on page 44.]
Mr. Turner. Thank you.
Admiral Myers.
STATEMENT OF VADM ALLEN G. MYERS, USN, DEPUTY CHIEF OF NAVAL
OPERATIONS FOR INTEGRATION OF CAPABILITIES AND RESOURCES (N8),
U.S. NAVY
Admiral Myers. Chairman Turner, Ranking Member Sanchez, and
members of the committee, it has been an honor to appear before
you today to discuss the impacts of the continuing resolution
and the budget sequester on the Navy's fiscal year 2014
acquisition programming and industrial base. Our fiscal year
2014 budget request supports the Defense Strategic Guidance,
and it will enable us to continue to rebalance our effort
towards the Asia-Pacific rebalance, supports our partners in
the Middle East, and focuses our presence at key strategic
maritime crossroads. It also enables us to meet the highest
priority capability demands of the geographic combatant
commanders.
To be frank, sequestration combined with a continuing
resolution in fiscal year 2014 will be very hard on our Navy.
We will have to absorb a larger reduction than we did in fiscal
year 2013 from a smaller amount, a smaller submission. In
fiscal year 2014, we don't have the prior-year assets that we
can use to mitigate the impacts as we did before, and we don't
have the ability to just defer carryover bills into the future
years like we did in the past. These are going to start to
compound.
As the CNO has testified, sequestration and continuing
resolution will reduce our readiness in the near term, and it
exacerbates program reductions that are required under the
current law and long term. We have been compelled to cancel or
defer maintenance and investments in critical aviation
programs, unmanned systems, and weapons systems.
As the Nation continues to find a fiscal balance, the Navy
is endeavoring to ensure that the near-term readiness and the
future warfighting capabilities are properly balanced. To do
this, it is important that we establish and pursue a plan for
the future to develop a deliberate nature on how we go about
finding fiscal certainty.
Now, we are committed to an efficient use of the American
taxpayer dollars, but the reductions of this magnitude take
time to implement, and it takes time to reap the savings from.
They also need to be done very carefully and strategically.
As I previously testified to Congress, I feel like the most
serious impact of sequestration and the continuing resolution
is uncertainty. It is imperative that we have a predictable
budget and associated authorities. Stability, that is what we
need. It will enable us to plan and develop and execute a
strategy that guides our efforts to sustain the appropriate
readiness for today's Navy while building a fleet for the
future that is able to deliver the most important presence and
capabilities that our warfighters need.
As I testified just a few minutes ago, the role of the Navy
is to operate forward and to be ready with a trained and
capable force, but to do that we have to plan, we have to plan
a strategy, a budget, aviation and shipbuilding plans,
operations plans, training plans, maintenance schedules. We
need sailors that are trained and ready to man and operate our
ships and aircraft when they are needed and where they are
needed. Sequestration and the budget uncertainty and the
immensely disruptive nature of the combination impacts our
ability to plan and act strategically and execute efficiently.
It disrupts our ability to operate. We saw that in fiscal year
2013. It disrupts our ability to train and maintain the way
that we need to, which then impacts the way that we are going
to operate in the next fiscal year, and most significantly, it
disrupts our dedicated sailors, civilians, and their families
because of all the uncertainty that is now a challenging part
of their everyday life.
We understand what our responsibilities are. We also
understand that this is something that we need to work through
together, and anything that we can do together to put certainty
and stability back into the budget process, to end the
automatic and inflexible sequester and the BCA caps, would not
only be appreciated, but it would be embraced by the 634,000
Navy sailors and civilians that are operating around the globe
protecting this Nation. Thank you for the opportunity to
testify on behalf of the United States Navy.
[The joint prepared statement of Admiral Myers, Secretary
Stackley, and General Walters can be found in the Appendix on
page 55.]
Mr. Turner. It is my understanding that votes have been
called, so we have about 10 more minutes.
So, General Walters and General Moeller, I am going to ask
if you could keep your comments relatively brief and giving
some opportunity to the Secretaries. Saved by the bell.
STATEMENT OF LTGEN GLENN M. WALTERS, USMC, DEPUTY COMMANDANT
FOR PROGRAMS AND RESOURCES, U.S. MARINE CORPS
General Walters. Got it, sir. I will throw this piece of
paper away here.
Chairman Turner, Ranking Member Sanchez, distinguished
members of the subcommittee, thank you for the opportunity to
testify today. As the Commandant of the Marine Corps testified
before this subcommittee a little over a month ago, the Marine
Corps is the Nation's expeditionary force in readiness, our
Nation's hedge against uncertainty with forces poised to
swiftly respond to crisis and disaster, offering immediate
options for strategic decisionmakers while simultaneously
buying time for a follow-on joint force. We mitigate this, we
mitigate the risk inherent in an uncertain world while being
ready to respond to today's crisis with today's force today.
However, our ability to mitigate these risks is compromised
by our inability to get a budget approved and the facilities
and sound management of personnel and equipment and limited
resources from one year to the next. Since our readiness is
directly linked to resources, sequestration-level cuts in
fiscal year 2014 will force us to forfeit long-term priorities
to fund near-term readiness.
The impacts we face on readiness today will have primary
and secondary effects. While the primary effects on short-term
readiness will begin to be observable in fiscal year 2014,
longer-term effects will be even more devastating. We are
consuming tomorrow's seed corn today to feed our requirements
for readiness today.
Sequestration has and will continue to have a significant
negative impact on our civilian workforce. Our civilians play a
critical role in the acquisition process, financial management,
ground equipment maintenance, training range operations and
installation support services, and all of our family support
programs.
In fiscal year 2013, our civilian workforce took a 6-day
furlough and started this fiscal year on furlough. Money was
not the reason they chose to work for the Marine Corps. They
chose to work for public service and to serve their fellow
civilians. They chose public service to do their part in making
the United States the best country in the world.
If we don't value their contributions, many will choose to
find a line of work elsewhere. The specter of further furloughs
or reductions in force present significant challenges to our
ability to retain and attract the talent we need.
I thank you for this opportunity to share my thoughts.
[The joint prepared statement of General Walters, Secretary
Stackley, and Admiral Myers can be found in the Appendix on
page 55.]
Mr. Turner. General Moeller.
STATEMENT OF LT GEN MICHAEL R. MOELLER, USAF, DEPUTY CHIEF OF
STAFF FOR STRATEGIC PLANS AND PROGRAMS, U.S. AIR FORCE
General Moeller. Chairman Turner, members of the
subcommittee, the continuation of sequestration will make the
Air Force significantly smaller, less capable, less flexible,
and less ready to meet our Nation's current military
obligations. Most importantly, it will make it very difficult
for us to prepare to meet the challenges we will face in the
future. The erosion of readiness will carry far greater
consequences. It means we may not get there in time. It means
less--it may take longer for the joint team to win. And when we
do respond, we will put our invaluable men and women who go
into harm's way at greater risk. Simply put, if sequestration
is fully implemented over the course of the next 10 years, the
Air Force will not be ready to fight tonight; it will struggle
to be prepared to meet tomorrow's challenges.
To maintain the minimum levels of readiness and sustain our
highest investment programs, the Air Force will be forced to
cut thousands of total force airmen and hundreds of platforms.
As we divest force structure, our priorities are to retain the
global long-range capabilities and multirole platforms that are
required to operate in highly contested environments. We will
focus on divestiture of entire fleets of aging and costly
platforms and those less capable and less survivable in heavily
defended airspace. We don't want to do this. But the bottom
line is sequestration will mean a smaller Air Force, period.
[The joint prepared statement of General Moeller and Dr.
LaPlante can be found in the Appendix on page 72.]
Mr. Turner. Do any of the Secretaries have any closing
comments?
Secretary Shyu. Quickly, the combined effects of CR and
sequestration are devastating. We are reaching a historical low
in research, development, and acquisition in the Army, which
will continue to degrade our capabilities and our
modernization, and put our soldiers' lives at risk in future
contingencies. We need budget stability without sequestration.
We need to have the ability to plan without CR, sequestration,
furloughs, and government shutdowns.
Thank you for the opportunity to testify, and thank you for
your unwavering support of our soldiers.
Secretary Stackley. Sir, briefly, the Congress and the
Department of Defense share the common responsibilities to
protect the Nation and take care of our men and women in
uniform. We have presented the Defense Strategic Guidance as
the document, that tool to describe how we intend to meet those
responsibilities, and we have submitted the President's budget
request as a determination of the funding we believe is
necessary to meet the Defense Strategic Guidance. And in 2013,
and again before separate committees in 2014, that budget
request was fully supported by the Congress. And yet the
invisible hand of sequestration for the Department of the Navy
took $11 billion out in 2013 and threatens to take another $16
billion out in 2014. That results in a smaller Navy, smaller
Marine Corps, less presence, less ability to meet the Defense
Strategic Guidance. And this at a time when peer competitors
are increasing their investment in their capabilities and their
force around the world.
Mr. Turner. Mr. LaPlante.
Dr. LaPlante. Thank you, Chairman Turner, and thank you to
your committee, your subcommittee's work. I would finally just
add that we need help in getting our readiness back, and we
need to get stability so we can do acquisition for the
warfighter and for the taxpayer. Thank you.
Mr. Turner. The title of this hearing was ``Impacts of a
Continuing Resolution and Sequestration on Acquisition and
Modernization.'' I think for impacts, with all of your
testimony, we can say that the conclusion is ``Sequestration:
Bad and Getting Worse.'' With your help, hopefully we will be
able to offset it. I am very proud to have voted against this.
I know all members of the Armed Services Committee are very
proud to continue to work to get it lifted, and by ``lifted''
we mean, of course, that there are offsets elsewhere in the
budget so that sequestration will not have these devastating
impacts on the Department of Defense. Thank you all for what
you do. We will be adjourned.
[Whereupon, at 5:31 p.m., the subcommittee was adjourned.]
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A P P E N D I X
October 23, 2013
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
October 23, 2013
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
October 23, 2013
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QUESTIONS SUBMITTED BY MR. TURNER
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
Secretary Shyu. An extended Continuing Resolution (CR) and the FY14
proposed sequestration reductions would adversely impact the following
aviation programs: Apache, Chinook, and Gray Eagle. The CR limitations
and the sequester cuts would reduce procurement quantities, delay
fielding of critical aviation systems, impede contract negotiations and
put some existing contracts at increased risk.
An extended CR would also delay the start of some network programs
in FY14 and challenge program execution efforts due to funds released
later in the fiscal year. Sequestration reductions have reduced
procurement quantities across all existing network programs such as
WIN-T, Tactical Radios, and Waveform Development, and will delay
development and testing of some critical networking capabilities beyond
the Future Years Defense Program.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
Secretary Shyu. In general, the earlier a program is in the
acquisition lifecycle, the less disruptive a funding reduction. Unless
the program is responding to an Urgent Operational Need Statement, most
early contractual efforts are based on cost type contract vehicle where
the government and the contractor share risk. In the later phase of a
program, in production, contract vehicles for operational testing or
for fielding efforts become fixed price oriented in general, where the
contractor assumes more risk than the government.
For example, a program that is pre-Milestone B (in Technology
Development) is able to absorb shifts in funding easier than a program
that is post-Milestone B. Once the Acquisition Program Baseline is
established, a program must meet the established baseline or it must
report to Congress on why it did not meet them, either through a
significant change or a critical change.
The most grievous concern would be a statutory violation as a
result of a funding reduction, a Nunn-McCurdy Statutory violation or
the equivalent for a Major Automated Information System program
(failure of a program to achieve Initial Operational Capability prior
to five years from Milestone A or funds first obligated). These
violations must be avoided. Other statutory requirements levied on the
Department of Defense must also be taken into consideration as well,
for example, the Army's statutory requirement to be financially
auditable by the end of Fiscal Year 2017.
Reducing procurement funding usually reduces the quantity purchased
with a resulting increase to the per unit cost. Quality reductions may
result in a production line break, industrial base impacts --
particularly to second and third tier vendors--and delayed delivery to
the Warfighter.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
Secretary Shyu. Sequestration reduces the level of available
appropriated funding which will affect all programs, regardless of
contract type. On many fixed-price contracts the quantities would be
reduced to meet the available dollars and we would expect the unit
costs to rise. The effects on multi-year procurements are more
pronounced: if sequestration reduces the quantity buys to below the
minimum level, a new negotiation may be required on the terms and
conditions of the new contract. This will delay procurement of the
system and delay the fielding to Warfighters. In addition, multi-year
contracts typically generates significant amount of savings for the
Army compared to annual procurement--the savings will be lost if the
multi-year contract is broken. Furthermore, the Army will have to pay a
termination liability.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
Secretary Shyu. The impacts of reductions depend on how the Budget
Control Act is applied to the specific sources of appropriated funds.
All contracts impacted by funding changes may need to be modified to
adjust the requirements and dollars. Other courses of action include
reduced order quantities against indefinite delivery indefinite
quantity contracts, not exercising contract option periods, and
contract terminations.
The Army, unlike other services, has only a small number of multi-
year (MY) procurement contracts. Significant funding reductions could
lead to breaking minimum production quantities and loss of efficiencies
and cost savings in MY contracts. Funding reductions under
sequestration could lead to renegotiations or possibly cancellations of
these contracts.
The combined effects of a continued CR and sequestration reductions
in FY14 extend across the full range of diverse capabilities we field
in support of our Warfighters. Assuming the most inflexible reductions
to funding to programs, as many as 12 Apache helicopters in FY14 could
be reduced. Development of the Improved Turbine Engine Program, the
Armed Ariel Scout Helicopter, and upgrades to the MQ-1 Gray Eagle would
be placed at risk.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
Secretary Shyu. No, we have reached a point where further delaying
new starts, cancelling additional programs, and continuing to reduce
existing programs will result in unacceptable risks for the Army. As a
result of repeated Continuing Resolutions, the Budget Control Act, and
sequestration, many Army programs have been cancelled, deferred,
delayed, or restructured in an effort to maintain efficiencies and
effectiveness in our major defense acquisition programs. Many of the
programs impacted, some multiple times, are small programs that provide
critical capabilities to the Army and the Joint force. These include
Liquid Logistics, heavy machine guns, sniper rifles, construction
equipment, and tactical bridging.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
Secretary Shyu. The Army has not delayed contract awards or reduced
spending rates in an effort to prepare for sequestration in fiscal year
2014 (FY14). The Army's ability to execute acquisition program
timelines and contract awards is actually impacted by the absence of an
appropriation in FY14 and the enactment of a continuing resolution that
limits funding to prior-year levels. However, the continued instability
of our fiscal environment limits the Army's ability to accurately
develop and execute planned timelines for the design, engineering,
manufacturing and fielding of weapon systems.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
Secretary Shyu. The current funding instability fundamentally
hampers our ability to plan and execute acquisition programs in support
of the Warfighter. Key development, testing and production activities
are subject to the limited funds available under a continuing
resolution (CR). Under a CR, we lack the authority to start new
programs or authorize planned increases in production quantities for
fielding. Sequestration reductions in Fiscal Year (FY) 2013 already
reduced or eliminated our margin for error on many of our programs,
even with our efforts to mitigate using prior-year funds. Reductions in
FY14 and beyond will directly result in reduced production quantities,
deferred investment in new capabilities, and delays in many programs.
The hiring freeze, civilian furloughs and government shutdown decimates
our current and future ability to recruit and retain critical skills
and expertise in the government workforce. This creates significant
impacts to the execution of our Science and Technology projects,
acquisition programs, testing, contracting, logistics and depot
maintenance. Delays in testing, contracting, and depot maintenance will
have a rippling effect on our program execution by increasing cost due
to inefficiencies garnered. The long-term effects of this instability
are yet to be fully discerned but we know that the combined effects of
sequestration and a yearly CR will significantly increase the costs of
vital Soldier weapon systems.
The combined effects of a continued CR and sequestration reductions
in FY14 extend across the full range of diverse capabilities we field
in support of our Warfighters. Assuming the most inflexible funding
reductions, as many as 12 Apache helicopters in FY14 would be reduced.
Continued cuts in FY14 may result in the reduction of up to 11 Chinook
aircraft in FY14 and place the Army's ability to maintain the multi-
year production contract at risk. The Army will assume risk in its
aviation modernization efforts for Chinook and Blackhawk contracts.
Development of the Improved Turbine Engine Program, planned
modernization of the Armed Aerial Scout Helicopter, and upgrades to the
MQ-1 Gray Eagle will all be at risk. Modernization of combat vehicles
will be affected and result in delays to scheduled Engineering Change
Proposal upgrades to Abrams tank and Bradley Infantry Fighting
Vehicles.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
department's flexibility in managing programs moving forward including
dealing with further sequestration?
Secretary Shyu. The lack of prior year funding significantly
reduces the Army's flexibility and increases risk when addressing
sequestration impacts. In FY13, the Army was able to mitigate many of
the impacts that would otherwise have come to fruition against a number
of programs by offsetting sequestration reductions with prior year
unobligated funds. As prior year funds became scarce, the margin for
error as programs decreases, pushing the programs towards critical
breaches in delayed fielding to Soldiers.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
Secretary Shyu. Delays in systems development correlate to delayed
production which ripples into delayed fielding of capabilities to the
Warfighter. Inefficiencies created from the delays will lead to
increased program cost. Deferring testing leads to stretch-out of
program schedule since development and operational testing must be done
to demonstrate that the system met performance requirements. Reducing
testing during sequestration will lead to increased program risk which
may result in deficiencies not discovered until later. Generally
speaking, the later a deficiency is discovered in a program, the more
expensive it is to fix the problem. Reducing testing in FY13 may also
result in postponing the necessary residual testing until FY14 which
leads to stretch-out of program schedule and increased cost.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
Secretary Shyu. Programs incur increased costs when schedules are
extended, including development, personnel, test, and production. When
capabilities are reduced and brought back at a later date, there are
costs associated with schedule increases resulting in the loss of
efficiencies and impacting the overall acquisition program. In an
effort to avoid additional costs associated with delayed development
activities and procurement in FY13, the Army used unobligated prior
year funds to mitigate the effects of sequestration. In doing so, the
Army accepted risk for programs with approved development and
procurement contract actions scheduled in FY14. In the event that a
Continuing Resolution or Appropriation is not passed, the Army has
limited prior year funds available to support spending limitations in
FY14, which could significantly impact new start programs, production
rate increases or programs that are limited in funding due to
sequestratoin. The Army thus far has been successful in mitigating
added costs from sequestration. However, failure to enact a timely and
sufficient Appropriation in FY14 could counteract these efforts to
protect taxpayer dollars.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
Secretary Shyu. Funding reductions under the Budget Control Act
were absorbed in fiscal year 2013 (FY13), but not without hostile
effect to the Army's acquisition programs. The very nature of these
indiscriminate cuts resulted in disproportionate impacts within many of
our programs that may not be discerned right away. These reductions
translated to varying delays in program schedules, reduced quantities
of equipment procured and challenges imposed on the program's ability
to meet development timelines planned well in advance. In many cases,
the lasting effects of these disruptions are revealed as development
programs reach milestone events planned months or years in advance. The
Army's ability to endure these effects in FY13 ultimately depends, in
large part, on the availability of stable resourcing at requested
levels in ensuing fiscal years.
Moreover, in FY13, the Army was able to mitigate many of the
impacts by offsetting sequestration reductions with prior year
unobligated funds. The increasingly scarce sources of prior year
unobligated funding, combined with the cumulative disruptive effects of
reductions in FY13 and prolonged Continuing Resolutions in FY13 and
FY14, will continue to significantly impact the Army's weapon system
programs in FY14.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
Secretary Shyu. Sequestration reductions in FY14 could put the
Apache and Black Hawk programs at risk of a Nunn-McCurdy breach. The
significant funding reductions resulting from sequestration would
undermine the assumptions used in the programs' cost estimating models,
prevent favorable contract negotiations, and potentially result in
breach of the Black Hawk multiyear contract. Sequestration reductions
have reduced procurement quantities across all existing network
programs such as WIN-T, Tactical Radios, and Waveform Development, to
specifically include the Small Airborne Networking Radio. These funding
reductions will delay development and testing of some critical
networking capabilities beyond the Future Years Defense Program.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
Secretary Shyu. Current Nunn-McCurdy breaches generally reflect
poor programmatic management and cost growth. Based upon the continued
sequestration challenges to execution years, as well as out-year
sequestration planning controls, programs will hit Nunn-McCurdy
breaches due to funding constraints and pushing programs beyond
scheduled end dates. As a result, Nunn-McCurdy breaches will generally
be outside of the Program Manager's span of control if funding controls
are significantly altered from the approved Acquisition Program
Baselines. We recommend that Congress consider allowing programs that
hit Nunn-McCurdy breaches due to sequestration to rebaseline under the
rules of a Critical Breach. This would allow programs to ``re-set'' and
would prevent significant cost and schedule delays caused by Nunn-
McCurdy breaches.
Mr. Turner. Please elaborate on the second and third order effects
that could result from significant reductions in the Army's procurement
and research and development budget accounts, e.g. industrial base
impacts at the supplier and vendor levels.
Secretary Shyu. Given the drawdown of operations in Iraq and
Afghanistan and current budgetary pressures, the Army is working
closely with industry to better understand the impacts to the defense
industrial base and mitigate significant adverse effects. Since Army's
Research, Development, Test & Evaluation and Procurement budget is
declining faster than the Army's top-line reduction, second and third
order impacts could potentially create significant problems as
companies, both large and small, must rapidly adjust to reduced
revenue. Large companies have been shedding workforce, restructuring
and consolidating businesses to adjust to the shrinking top-line.
Smaller companies have to diversify their portfolio or risk becoming
unprofitable.
The Army is concerned with the ability to retain critical
engineering design, development and manufacturing capabilities in the
defense industrial base across the entire supply chain. The Army has
taken specific steps to mitigate critical impacts to the supply chain.
Mitigation of adverse impacts is being addressed through measures that
include: advocacy for FMS, extending production at lower levels to
mitigate impacts of layoffs, increased quantity buys to meet minimum
sustainable rates at second tier companies, investments in R&D to
develop the next generation products for critical supply chain, monthly
reporting by each PEO on industrial base impacts of their supply chain
for the products within their portfolio, and ensuring the organic
industrial base can step in to produce the critical component as a
second source.
The Army continues to conduct an assessment of the industrial base,
both independently and in conjunction with broad DOD initiatives. The
Army's Industrial Base assessment, the AT Kearney Combat Vehicle
Industrial Base assessment, the DOD's Sector-by-Sector, Tier-by-Tier
analysis are focused on identifying potential weak points in the
Industrial Base and guiding efforts that support critical elements
found to be at risk.
Mr. Turner. How would the Army's planned growth of an additional
combat aviation brigade be impacted?
Secretary Shyu. To comply with the Budget Control Act of 2011, the
Army continues to plan the drawdown to 490,000 Active Component spaces
and assess our force structure today to achieve the right force mix for
required missions. However, the 4th Infantry Division Combat Aviation
Brigade (the additive CAB) remains programmed in the force with the
activation of the CAB at Fort Carson earlier this year.
Mr. Turner. In February you had stated that 1,100 companies (over a
third of the critical vendor industrial base) were in moderate to high
risk of bankruptcy? Do you still stand by that statement?
Secretary Shyu. Because of the rapidly changing landscape and a
myriad of factors that contribute to the overall business climate, it
is difficult to accurately assess overall bankruptcy risk in the
Industrial Base. The Army is actively engaged in efforts to assess risk
in the Industrial Base. The Department of Defense the Sector-by-Sector,
Tier-by-Tier (S2T2) effort seeks: (1) to establish early warning
indicators of risk, particularly at lower-tiers; (2) to strengthen the
supply chain and mitigate potential points of failure; and (3) to
perform joint agency assessments providing the Army the ability to
capture impacts on market sectors, manufacturers, and the Warfighter
requirements across the Services. The Army Industrial Base Baseline
Assessment seeks to analyze three factors: (1) to conduct a sector and
sub-sector assessment of programs identified as critical by Program
Executive Offices and Life Cycle Management Commands; (2) to determine
the impact of reductions in funding to program requirements; and (3) to
develop recommendations which enable the industrial base to sustain
current and future Warfighter requirements. The AT Kearney Combat
Vehicle Industrial Base assessment is focused on identifying potential
weak points and guiding efforts to support critical elements found to
be at risk in the Combat Vehicles portfolio.
Mr. Turner. If the continuing resolution is in place for a full
year, what impact does this have on execution of the Joint Light
Tactical Vehicle program?
Secretary Shyu. The JPO is making every effort to keep the test
program on schedule in order to meet the scheduled Milestone C and Low
Rate Initial Production (LRIP) contract award dates in Fiscal Year 2015
(FY15). Unfortunately, the collective impacts of sequestration,
congressional decrements in FY13, furloughs, and the government
shutdown resulted in the program behind its planned testing schedule.
While this does not yet require a slip in the program's overall
schedule, a FY14 continuing resolution that reduces program funding by
an additional $30.7M ($17.8M for the U.S. Army and $12.9 million (M)
for the Marine Corps) beyond reductions already levied would impose a
tremendous challenge. Such cumulative program budget reductions would
require the test schedule to be extended, since the majority of FY14
funding supports EMD phase testing. This could potentially cause up to
a 12-month delay in the Milestone C decision and LRIP contract award.
Mr. Turner. How would sequestration and a year-long CR scenario
impact your ability to fund weight reduction initiatives for personnel
protection equipment? How would this impact the PPE industrial base,
e.g. body armor, night vision devices, etc.
Secretary Shyu. The impact of a year-long Continuing Resolution,
which effectively translates into a 30 percent funding cut, would be
delays in the introduction of this improved, lighter protective
capability. Limited User Evaluations of the SPS Vital Torso, Integrated
Head Protection and Transition Combat Eye Protection subsystems, and
the Phase II contract awards for the Torso Protection subsystem would
be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15
and the Milestone C decisions on these subsystems, depending upon
receipt of funding, would slip 6-9 months from the planned third
Quarter FY15 date.
There is no immediate impact to the Industrial Base for ongoing
procurement and fielding of head, eye, pelvic, torso armor, and other
personal protective equipment. Funding is currently at the minimum
sustaining rate for maintaining two qualified armor vendors in hard and
soft armor solutions. Further funding reductions may place the Army's
ability to maintain competition (and expertise) at risk.
Projected Fiscal Year 2013 orders from the Army did not support
minimum sustainment rates as reported by the two vendors for night
vision image intensification tubes. However, both vendors have
restructured and are still producing image intensification tubes.
Further funding decreases from sequestration may stress image
intensification tube manufacturing and ultimately drive up system costs
if competitive pressure is lost due to the loss of one vendor. However,
the Office of the Secretary of Defense ``Report to Congress on the
Assessment of Industrial Base for Night Vision Image Intensifier
Sensors,'' completed in September 2012, concluded that Warfighter
readiness would not be negatively impacted if the industrial base was
further reduced.
Mr. Turner. If sequestration remains in FY14 and FY15, what impact
will this have on the execution of the Joint Light Tactical Vehicle
program? Please provide the subcommittee with an update on this
critical program.
Secretary Shyu. The JLTV Joint Program Office (JPO) has made
substantial progress in streamlining the program timeline, and both the
Army and Marine Corps remain fully committed to this program. The
Engineering and Manufacturing Development (EMD) Phase of the program is
proceeding well; all 66 of the EMD phase prototype vehicles were
delivered on time and are currently undergoing ballistic, Reliability
Availability and Maintainability (RAM), and performance testing.
Although testing is in its early stages, the JPO remains confident in
each vendor's ability to meet requirements.
The JPO is making every effort to keep the test program on schedule
in order to meet the scheduled Milestone C and Low Rate Initial
Production (LRIP) contract award dates in Fiscal Year 2015 (FY15).
Unfortunately, the collective impacts of sequestration, congressional
decrements in FY13, furloughs, and the government shutdown resulted in
the program behind its planned testing schedule. While this does not
yet require a slip in the program's overall schedule, a FY14 continuing
resolution that reduces program funding by an additional $30.7M ($17.8M
for the U.S. Army and $12.9M for the Marine Corps) beyond reductions
already levied would impose a tremendous challenge. Such cumulative
program budget reductions would require the test schedule to be
extended, since the majority of FY14 funding supports EMD phase
testing, this could potentially cause up to a 12-month delay in the
Milestone C decision and LRIP contract award.
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
Secretary Stackley. An FY2014 continuing resolution (CR) and
sequestration take away from the Department's ability to provide
warfighting capability and capacity with the measures of efficiency
essential to balancing the requirements of the Defense Strategic
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon
system development timelines will be extended and costs will be higher,
production unit costs will increase, and the risk to the long-term
viability of the defense industrial base will increase. Reductions to
investment accounts will slow production on factory floors across the
defense industrial base adding cost and schedule to weapon systems.
Equally critical, these reductions will drive delays into the
development of those leading edge weapon systems that contribute to our
warfighters' asymmetric advantage over our adversaries.
If fiscally constrained to sequestration level funding over the
long term, the Navy of 2020 would not be able to execute the missions
described in the Defense Strategic Guidance. The 2014 Quadrennial
Defense Review will analyze the Department of Defense force structure
as a whole and set the long term course for DOD strategy and
priorities.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
Secretary Stackley. The effects of sequestration vary depending on
a program's stage of development and fielding, but also vary from
program to program. Sequestration impacts to some Naval programs in the
development stage will result in loss of capability, while other Naval
programs will experience a delay in delivery. Most of Navy's
development work is tied directly to acquisition programs of record.
Consequently, reductions in the development stage will potentially have
an impact on their production schedules and costs.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
Secretary Stackley. Yes, if sequestration remains in place, the
effects may differ for different contract types, but the limited funds
will cause the Department of the Navy to reduce the products and/or
services being purchased on many existing contracts. Limited funds
forces the Department to prioritize all our requirements, including
mission critical programs, then determine how much money we have
available for those programs.
From a contractual obligation perspective, some types of contract
vehicles provide the Department with more flexibility than others.
Given current regulatory requirements, the Department has more
flexibility with existing Cost Reimbursement, Indefinite Delivery,
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they
provide the Department with maximum flexibility in avoiding hard budget
limits. Typically, cost reimbursement contracts provide greater
flexibility than firm fixed price contracts.
The amount of obligations under a ``firm fixed price'' contract is
the face value of the contract that is fully funded at contract award.
The Department has less flexibility with existing fixed price
contracts, but can choose, if deemed necessary, to re-negotiate
established pricing based on our decision to de-scope quantity,
capability and breadth of contract performance. The Department may also
choose to not exercise and/or re-negotiate any contract options for
future supplies or services.
Multi-year contracts require added management focus in this
sequestration environment. Unlike annual contracts, obligations under a
multi-year contract have established contract terms and conditions
including cancellation payment; therefore particular attention must be
paid to meet these terms and conditions or otherwise re-negotiate the
contract.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
Secretary Stackley. The Department of the Navy does not currently
anticipate the need to renegotiate a large number of fixed price or
multiyear procurement (MYP) shipbuilding contracts due to sequestration
in FY 2014. No major previously awarded fixed price shipbuilding or
aviation contracts will require deobligation of funds, and no Marine
Corps contracts will need to be renegotiated.
However, the Department's ability to continue to absorb
sequestration reductions without impacting multiyear contracts is
increasingly tenuous. The impacts of the FY 2013 sequester were
mitigated by the use of prior-year investment balances and
authorization to reprogram funds. Additionally, many planned costs were
deferred to preserve multiyear contracts. As these limited stop-gap
measures are exhausted, there will soon be few options for resources
and multiyear contracts may have to be renegotiated at reduced
quantities, putting substantial savings at risk.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
Secretary Stackley. The Department of the Navy (DoN) implemented
these mitigation measures in developing the FY13 President's Budget
submission in accordance with the Budget Control Act of 2011, and in
managing the FY13 continuing resolution and sequestration. FY13
sequestration resulted in curtailed operations, deferred maintenance,
depleted unobligated prior-year balances in our investment accounts,
and deferred costs to future year budgets. While this mitigated the
immediate impacts, it was insufficient to bear the full weight of
sequestration, resulting in delays to development schedules and
reductions to procurement quantities. The net effects of these
deferrals, delays, and program cuts are added bills and increased costs
in FY14 and beyond. While we continue to employ these measures to the
extent possible, the margin for mitigating the impacts of sequestration
with these measures has been depleted and they are no longer sufficient
to prevent significant reductions in major defense acquisition programs
if sequestration continues in FY14.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
Secretary Stackley. All major defense acquisition programs have had
to take actions to deal with the impact of the FY 2013 sequester.
To minimize impacts in FY 2013, the Department of the Navy was able
to use reprogramming authorization, prior-year investment balances, and
deferral of costs to future years. For example, in the FY 2013 SCN
account, we were able to use $640M of prior year SCN assets to finance
some of the $1.75B sequestration bill. The Department requested, and
the Congress approved, reprogramming for $240M to finance an additional
portion of the SCN sequestration reduction. Proposed FY 2014
Congressional action adds $358M, which may further finance the
sequestration reduction. However, the Department is still faced with
future cost to complete bills of $515M, which hinder future ship
procurements. If sequestration continues, these future bills in the
shipbuilding and other accounts will be larger without the benefit of
prior year funds and will accumulate to the point where we will be
compelled to reduce the number of ships or systems procured.
Under the FY 2014 continuing resolution (CR), budget controls have
been set at estimated FY 2014 sequestration levels and program spending
rates have been slowed to match. In addition, OSD is closely managing
DOD obligations and expenditures. This approach has allowed all
programs to continue executing in accordance with the CR and has not
yet caused delays in awarding contracts. However, the CR has impacted
the ability of programs to execute planned production increases or new
starts. In addition, all programs are working to identify the impacts
of potential FY 2014 sequestration cuts, when those impacts will begin
to occur, and mitigating actions or deferrals that could reduce those
impacts.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
Secretary Stackley. Sequestration and the continued budget
uncertainty will have varying impacts on each of the Department of the
Navy's programs. Overall, an FY2014 CR and sequestration take away the
Department's ability to provide warfighting capability and capacity
with the measures of efficiency essential to balancing the requirements
of the Defense Strategic Guidance with the fiscal constraints under
current law. Without Congress acting to change the current path, our
warfighters will have less surge capability and our long-term
priorities will be traded off to fund near-term readiness. Further,
weapon system development timelines will be extended and costs will be
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
Secretary Stackley. If sequestration continues, automatic
percentage cuts are required to be applied without regard to strategy,
importance, or priorities, resulting in adverse impact to almost every
program and project within the Navy. Sequestration would adversely
impact many of our R&D programs through contract cancellations,
contract terminations, and undetermined cost increases caused by
inefficient contracting and schedule delays. These impacts will reduce
and delay our R&D efforts and negatively impact key procurement
strategies in future years.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
Secretary Stackley. The FY 2013 sequestration impacts to
acquisition programs were mitigated by depleting unobligated prior-year
balances in our investment accounts, reprogramming funds from other
accounts, and deferring costs to future year budgets. However, this
resulted in increased costs in FY 2014 and beyond and longer
acquisition timelines. If sequestration continues in FY 2014, program
impacts will include schedule delays, reduced acquisition objectives,
postponed modernization and upgrades, and the subsequent cost increases
due to delayed programs and decreased procurement quantities. In
addition, sequestration will slow production on factory floors across
the defense industrial base, adding cost and schedule risks to today's
weapon systems. Equally critical, these reductions will add risk by
delaying the development of leading edge weapon systems that provide
our warfighters with the asymmetric advantage they hold over our
adversaries.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
Secretary Stackley. The effects of FY13 sequestration were
addressed by curtailing operations, deferring maintenance, depleting
unobligated prior-year balances in our investment accounts, deferring
costs to future year budgets, and employing the limited transfer
authority provided to the DON. These measures, which mitigated the
immediate impacts, were insufficient to bear the full weight of
sequestration, resulting in delays to development schedules and
reductions to procurement quantities. The net effects of these
deferrals, delays, and program cuts are added bills and increased costs
in FY14 and beyond. We estimate the total deferred ``carry over'' due
to FY13 sequestration to be approximately $2 billion over the FY14-FY18
future years defense program (FYDP) in operation and maintenance
accounts, and an additional approximately $2B over the FY14-FY18 FYDP
in investment accounts.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
Secretary Stackley. The effects of FY13 sequestration were
addressed by curtailing operations, deferring maintenance, depleting
unobligated prior-year balances in our investment accounts, deferring
costs to future year budgets, and employing the limited transfer
authority provided to the DON. These measures, which mitigated the
immediate impacts, were insufficient to bear the full weight of
sequestration, resulting in delays to development schedules and
reductions to procurement quantities. The net effects of these
deferrals, delays, and program cuts are added bills and increased costs
in FY14 and beyond. While these mitigation measures will be repeated to
the extent possible in FY14, we do not have the prior-year assets to
protect investment accounts if FY14 sequestration occurs. In addition,
deferred ``carry over'' bills from FY13 will need to be addressed in
FY14. FY14 sequestration will compound the impacts of the FY13
continuing resolution and sequestration.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
Secretary Stackley. There is a high probability that if
sequestration continues in FY14 and subsequent years, some major
defense acquisition programs will have significant unit cost increases
reportable as ``Nunn-McCurdy breaches.'' Increasing the duration of
programs (in development and/or production) causes programs to incur
additional costs with no offsetting benefit to the government.
Program's annual ``fixed'' costs are incurred for a greater number of
years, reduced rates of production result in lower economies of scale,
and programs face greater exposure to obsolescence or changes in the
supply base with the added expense that generates.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
Secretary Stackley. Whether or not a Program will incur a Nunn-
McCurdy breach will not be a significant factor in selecting Programs
for reductions. Cuts will be distributed on a requirements basis with
cost implications and collateral costs (e.g. cancellation costs or
breakage to other Programs) being factors. Exempting the department
from Nunn-McCurdy reporting responsibilities caused by CR or
Sequestration would be beneficial in reducing Program workloads.
Mr. Turner. How would sequestration and a CR scenario impact the V-
22 program? Would there be impacts to the V-22 industrial base?
Secretary Stackley. The V-22 program office is actively pursuing
alternatives to minimize the overall impact of sequestration in FY14.
But at the highest projected sequestration level, the program would be
required to cut one aircraft in FY14, breaking the V-22 Multi-Year
Procurement (MYP) contract and requiring renegotiation of the price for
all remaining aircraft. This would directly impact the $1 billion in
cost savings over the span of the MYP. The delay associated with
negotiations could also increase costs due to a production break for
Lot 18 (FY14) aircraft. As advance procurement funds for the Lot 18
aircraft are already on contract, a partial termination for convenience
would need to be negotiated. As a joint program, the Air Force and
SOCOM will also be affected by the reductions through increased unit
cost for procurement of their CV-22 aircraft.
Reduction in FY14 aircraft quantity would delay full standup of the
V-22 squadron in Kaneohe Bay, delay all units from reaching Primary
Authorized Allowance of aircraft, and subsequently delay MV-22 Full
Operational Capability. Furthermore, if V-22 quantities are reduced,
the impact of a smaller business base at Bell Helicopter would cause
labor rate increases which would negatively impact the cost for USMC H-
1 aircraft (which shares production facilities with V-22).
At lower levels of sequestration, the primary impact would be to
defer additional Peculiar Ground Support Equipment (PGSE) and Peculiar
Training Equipment planned for procurement in FY14. A funding shortfall
already exists due to the impact of FY13 sequestration. Additional
reductions in FY14 would worsen the shortfalls for an expanding fleet
of aircraft that's taking on additional deployments to support crisis
response. Additionally, a significant portion of capability and
readiness modifications would be cancelled or delayed, resulting in
decreased readiness and ultimately resulting in higher operational
cost.
Mr. Turner. How would sequestration and a CR scenario impact the
procurement of F-35Cs and F-35Bs? Would lower procurement numbers
affect the strike fighter shortfall?
Secretary Stackley. The Department of the Navy is working closely
with the F-35 Program Office and the Under Secretary of Defense for
Acquisition, Technology and Logistics to assess the impacts of
sequestration on the F-35 program. Currently, the Department is
investigating: the balance between preserving the development program
and maintaining capabilities of Block 2B Initial Warfighting
Capability; support and sustainment for all delivered aircraft;
preserving production efficiencies and production capacity; and
aircraft procurement. However, sequestration in FY14 would compel us to
reduce aircraft procurement by one F-35B and one F-35C and delay the
Block 3 development test and evaluation flights resulting in increased
risk of meeting planned initial operating capability (IOC) dates. The
reduced procurement will further pressurize unit recurring flyaway
costs at a time when the program was achieving positive cost trends. A
continuing resolution hampers the ability to properly fund required F-
35 modifications because they are considered new starts within FY14.
The concurrency and block upgrades are critical to the IOC schedule
since they are required for the operational testing and evaluation and
for fleet operations.
The Navy actively manages the strike fighter shortfall to minimize
impacts in each execution year. The projected strike fighter shortfall
is a compilation of a number of factors including legacy usage,
meticulous management of fatigue life, and F-35 procurement. Delays in
the F-35 procurement will aggravate challenges in meeting inventory
requirements.
Mr. Turner. Would sequestration and a CR affect life extension
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter
shortfall this year or in the years ahead?
Secretary Stackley. Yes. Sequestration and the CR are having an
adverse effect in the short term and are expected to exacerbate the
long term strike fighter shortfall. Sequestration and the CR are
currently causing cancellations and delays in depot inductions and High
Flight Hour inspections which are negatively impacting the ability to
source Navy and Marine Corps squadrons.
Additionally, sequestration and the CR would impact the Marine
Corps Readiness Management Program for the AV-8B. Some initiatives
within this program would be delayed or cancelled, decreasing readiness
and increasing flight hour costs due to decreasing component
reliability.
Mr. Turner. How would sequestration and a CR scenario impact your
ground combat and tactical vehicle strategy? What programs will be
delayed or impacted by this budget uncertainty?
Secretary Stackley. The objective of the U.S Marine Corps' Ground
Combat and Tactical Vehicle (GCTV) Strategy is to field a ground combat
vehicle portfolio structured to support Marine Expeditionary Forces,
two Marine Expeditionary Brigades (MEB) capable of conducting sea-based
Joint Forcible Entry Operation, two maritime prepositioned MEBs (sea-
basing enabled), and one geographically prepositioned MEB. These
scalable Marine Air-Ground Task Forces will be capable of supporting
theater engagement plans, irregular warfare, sea-based operations, and
sustained operations ashore across the range of military operations.
Ultimately, the discreet components of the portfolio are designed to
come together as a unitary whole that provides Combatant Commanders
(COCOM) and the Nation the capabilities necessary to support the
operations listed above that gives COCOMs the greatest range of options
possible from the sea, in a balanced manner.
Our GCTV Strategy is comprised of components that include the
acquisition of Amphibious Combat Vehicles (ACV), Marine Personnel
Carriers (MPC), and Joint Light Tactical Vehicles (JLTV); as well as
the sustainment and modernization of our Assault Amphibious Vehicle
(AAV), Light Armored Vehicle (LAV), M1A1 tank, and HMMWV fleets in
sufficient quantities necessary to maintain capability during the
transition to our objective GCTV force for the 21st century.
The enduring challenge to the strategy is managing the increase in
procurement and sustainment costs of vehicles needed for the 21st
century operating environment. Historical expenditures for vehicles
will not support ground maneuver and mobility needs as stated for our
future force.
The impacts of sequestration that include not only scarcity of
resources, but also a large measure of uncertainty, have compromised
our ability to approach the planning and execution of our GCTV Strategy
with the coherence necessary for sound capital investment planning.
While it remains a primary requirement in our GCTV Strategy, we
have been forced to defund MPC in the near term due to insufficient
funding. We have also been forced to adjust the timelines for ACV and
JLTV due to reduced funding which, if unabated, may move the timelines
for IOC to the right by up to three years and one year, respectively.
The uncertainty created by the significant restructuring of our plan
has created a need to redefine our requirements for aligning resources
with the sustainment and modernization of our AAV, LAV, and M1A1
fleets.
Mr. Turner. What programs do the Marine Corps anticipate it will
have to cancel or extend due to the budget uncertainty?
Secretary Stackley. If sequestration were fully implemented, the
Marine Corps would have to assess every program. Sequestration will
cause interruptions during program acquisition that would increase the
total program cost. Schedules would slip and contracts would be
delayed. Efficiencies would be lost. This would negatively impact
development and production schedules requiring program restructures and
potentially cause Nunn-McCurdy breaches. For procurement programs,
existing contracts will have to be renegotiated, preventing the Marine
Corps from receiving Economic Order Quantity pricing.
The Marine Corps will also have to sustain legacy systems longer
than planned, which will drive up current operation and support costs.
We will have to shift our attention to developing and replacing
obsolescent parts for legacy systems that are no longer available in
the market place, which will shift the workforce to a focus of
reengineering old and inefficient technology. Finally, technologies
designed to improve efficiencies (fuel, lightweight armor, etc.) will
have to be postponed, preventing the Marine Corps from reaping planned
savings while simultaneously driving up costs due to the use of older,
more expensive technologies.
Mr. Turner. What are impacts we are seeing on the execution of the
Marine Personnel Carrier and Joint Light Tactical Vehicle program?
Secretary Stackley. While it remains a primary requirement in our
Ground Combat and Tactical Vehicle Strategy, we have been forced to
defund Marine Personnel Carriers (MPC) in the near term due to
insufficient funding. We have also been forced to adjust the timelines
for the Amphibious Combat Vehicle (ACV) and Joint Light Tactical
Vehicle (JLTV) due to reduced funding which may move the timelines for
Initial Operational Capability to the right by three years and one year
respectively. The uncertainty created by the restructuring of our plan
has created a need to redefine our requirements for aligning resources
with the sustainment and modernization of our Assault Amphibious
Vehicle, Light Armored Vehicle, and HMMWV fleets.
For FY14 and FY15, impacts to the JLTV program depend entirely on
how sequestration or other reductions are implemented. The program is
currently executing a test-intensive Engineering and Manufacturing
Development phase already challenged by the cumulative effect of FY13
Congressional decrements, sequestration, and furloughs, but this well-
structured program faces no inherent cost, schedule, or performance
challenges. Consequently, if budget flexibility permits funding of JLTV
to its Acquisition Program Baseline, the program should continue on-
budget and on-schedule. Conversely, across-the-board cuts in FY14 and
FY15 would likely delay the program's Milestone C decision and Low Rate
Initial Production (LRIP) contract award by up to 12 months, into FY16.
The Services will continue to explore mitigation strategies to reduce
the potential impact of sequestration on JLTV and to preserve the FY15
Milestone C decision and LRIP contract award as currently planned. The
JLTV program remains a critical opportunity to close capability gaps in
today's light tactical wheeled vehicle fleets and to re-balance
payload, performance, and protection for a wide range of demanding
mission profiles.
Mr. Turner. If sequestration remains in FY14 and FY15, what impact
will this have on the execution of the Joint Light Tactical Vehicle
program? Please provide the subcommittee with an update on this
critical program.
Secretary Stackley. While it remains a primary requirement in our
Ground Combat and Tactical Vehicle (GCTV) Strategy, we have been forced
to adjust the timeline for the Joint Light Tactical Vehicle (JLTV) due
to reduced funding which may move the timelines for Initial operational
capability to the right by one year. The uncertainty created by the
restructuring of our plan has created a need to redefine our
requirements for aligning resources with the sustainment and
modernization of our HMMWV fleet.
If sequestration remains in FY14 and FY15, impacts to the JLTV
program depend entirely on how sequestration cuts are implemented. The
program is currently executing a test-intensive Engineering and
Manufacturing Development phase already challenged by the cumulative
effect of FY13 Congressional decrements, sequestration, and furloughs.
This well-structured program faces no inherent cost, schedule, or
performance challenges. If budget flexibility permits funding of JLTV
to its Acquisition Program Baseline despite sequestration, the program
should continue on-budget and on-schedule. Conversely, across-the-board
cuts in FY14 and FY15 would likely delay the program's Milestone C
decision and Low Rate Initial Production (LRIP) contract award by up to
12 months, into FY16. The Services will continue to explore mitigation
strategies to reduce the potential impact of sequestration on JLTV and
to preserve the FY15 Milestone C decision and LRIP contract award as
currently planned. The JLTV program remains a critical opportunity to
close capability gaps in today's light tactical wheeled vehicle fleets,
and to re-balance payload, performance, and protection for a wide range
of demanding mission profiles.
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
Dr. LaPlante. Sequestration, combined with another continuing
resolution (CR), continues to inflict painful, palpable, and ultimately
expensive disruptions throughout our Air Force. We are making every
effort to minimize the impact of the CR and Sequestration to our
readiness and modernization. All of this comes at a time when our Air
Force is long-overdue for vital reconstitution. Our fleets are aging,
and our force is at its smallest since its inception.
At this time, we are doing our best to balance near-term readiness
with modernization while ensuring our ability to project Global
Vigilance, Global Reach, and Global Power in the heavily defended
environments of 2023. FY14 sequestration reductions force sharp
declines in our readiness and modernization accounts. The blunt,
indiscriminate mechanism of sequestration undermines the combat
capability of your Air Force and the entire joint force, and it is
unworthy of the servicemen and women who risk their lives in service to
our great Nation.
We know the Air Force has a role in helping our Nation get its
fiscal house in order. However, the abrupt and arbitrary nature of
sequestration drives the Air Force into a ``ready force today'' versus
a ``modern force tomorrow'' dilemma. This dilemma is dangerous and
avoidable. If we are given the flexibility to make prudent cuts over
time, we can achieve the savings required under current law. However,
sequestration robs us of that flexibility. We're left with options that
simply don't make business sense. We need your help. We need funding
bills that give us stability so we can achieve real savings in a
strategically and managerially sound way.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
Dr. LaPlante. The effects of sequestration disrupt major defense
acquisition programs throughout the development and fielding phases.
The single largest impact of sequestration and current budgetary
unknowns is the very serious impact they have on the meticulous cost
and schedule planning mandated in numerous public laws and DOD
acquisition policy directives. The increasing budgetary inefficiency
makes it very difficult, if not impossible, for our program managers to
do their jobs.
Sequestration cuts deeply into Air Force investment accounts, which
under the law must be applied equally at the program, project, and
activity level; consequently, it impacts every one of the Air Force's
acquisition programs. For example, a potential FY14 sequestration
impact for the F-35A low rate initial production, relative to the
request, could be the loss of four to five aircraft from the requested
amount of 19. This potential reduction will increase unit costs
resulting in production funding shortfalls.
Moreover, the across the board cuts will likely remove funding for
our program managers to address emerging technical issues discovered
during the development effort. This directly impacts our ability to
achieve the original program baseline, and will undoubtedly escalate
program costs. The Air Force would like to be granted the ability to
move appropriations to mitigate, to the maximum extent possible,
devastation to the highest priority programs. However, even with
flexibility, the Air Force may not eliminate all risks associated with
meeting the Combatant Commander requirements.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
Dr. LaPlante. Regardless of contract type, the effects of
sequestration could drive a program to de-scope requirements, delay
performance of required work, or terminate the contract. Any of these
developments will likely result in a contract modification regardless
of whether the contract is fixed-price or cost-reimbursement. The only
difference is in the flexibility and responsiveness to react to those
changes; a cost-reimbursement arrangement usually provides more
flexibility and quickness to react to changes than does a fixed-price
arrangement. Making changes to a fixed price contract could have
unintended consequences by opening a door for a contractor to claim
additional costs.The effects of sequestration would differ on a multi-
year (MY) versus annual procurement. For an annual procurement, you
could negotiate a reduction in the required number of items or level of
service and only affect that current year acquisition without affecting
subsequent years. MY procurements generally assume some constant level
of production or service. For example, if budgets change and this
causes a reduction of product or service requirements, it will likely
result in the following: increased unit prices; a requirement to pay
for subcontracted items delivered early to need per the MY agreement;
and possibly an action for breach of contract if the requirements fall
below a minimum commitment in the MY agreement.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
Dr. LaPlante. In FY13, we carefully managed our multi-year and
large fixed price contracts for development, production and sustainment
to avoid breaks in production or service as much as possible. However,
some of our smaller fixed price agreements at the installation-level
were affected. Another sequestration cut in FY14 is projected to have a
larger effect on a higher number of our fixed-priced contracts for
procurement, sustainment and installation.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
Dr. LaPlante. The deep cuts brought on by sequestration-level
funding will force the Air Force to make profound cuts to readiness and
investment major defense acquisition programs to achieve the targeted
reduction amounts in the first few years of the fiscal year defense
plan. When forced to make tough decisions, we will favor new
capabilities over upgrades to our legacy forces and our top three
acquisition priorities remain the KC-46, the F-35, and the Long Range
Strike Bomber (LRS-B).
To maintain minimum levels of readiness and sustain our highest
investment programs, the Air Force will have to cut up to 25,000 Total
Force Airmen and up to 550 aircraft. As we divest force structure, our
priorities are to retain the global, long-range capabilities and multi-
role platforms that are required to operate in highly contested
environments. We will focus on divestiture of entire fleets of aging
and costly platforms as well as those less capable and less survivable
in heavily defended airspace. We will look to cut aircraft fleets
because divesting an entire weapons system results in greater savings
than cutting a portion of an aircraft fleet; because, every fleet has
relatively fixed sustainment (overhead) costs. Beyond our top three
acquisition priorities, all options are on the table.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
Dr. LaPlante. All major defense acquisition programs have started
to plan for sequestration. Air Force Program Executive Officers have
been evaluating sequestration impacts to programs in their portfolios.
For example, the Space Fence contract was ready for award in early June
2013; however, a DOD-level review driven by sequestration, delayed the
decision to proceed to later in 2013. With an affirmative decision in
November, initial capability will slip about one year and costs will
increase by over $70M. We cannot afford to mortgage the future of our
Air Force and the defense of our Nation.
In FY13, the Air Force used $1.5B in unobligated prior year funds
that will not be available in FY14. With respect to the O&M account, we
started FY14 under a Continuing Resolution that provided funding that
is $500M less than we originally programmed for the year. The remaining
FY14 funding does not allow us to even cover the readiness shortfall
from last year.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
Dr. LaPlante. When forced to make tough decisions, we will favor
new capabilities over upgrades to our legacy forces and our top three
acquisition priorities remain the KC-46, the F-35, and the Long Range
Strike Bomber. The current fiscal environment compels the Air Force to
consider difficult budgetary choices. The current law caps and the
abrupt and arbitrary nature of sequestration drive the Air Force into a
``ready force today'' versus a ``modern force tomorrow'' dilemma. The
indiscriminate application of these additional reductions drives us to
eliminate significant capability and capacity and it does not provide
the flexibility needed to maintain near-term readiness at levels to
accomplish our assigned national security missions.
Sequestration cuts deeply into Air Force investment accounts, which
under the law must be applied equally at the program, project, and
activity level; consequently, it impacts every one of the Air Force's
acquisition programs. For example, a potential FY14 sequestration
impact for the F-35A low rate initial production, relative to the
request, could be the loss of four to five aircraft from the requested
amount of 19.
A year-long Continuing Resolution will also delay fielding needed
capabilities to our warfighters. For example, without Congressional
approval to enter into new multi-year procurements, an inability to
execute the planned C-130J program multi-year buy will impact the
production line, delivery schedule, and potentially increased cost.
The Air Force would like to be granted the ability to move
appropriations to mitigate, to the maximum extent possible, devastation
to the highest priority programs. However, even with flexibility, the
Air Force may not eliminate all risks associated with meeting the
Combatant Commander requirements. We need the Congress' support to
better align our future force to the needs of the current defense
strategy.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
Dr. LaPlante. In FY13, the AF used $1.5B in unobligated prior year
funds that will not be available in FY14. In addition, the current
Continuing Resolution contains $500M less than was programmed for the
AF FY14 budget. The remaining FY14 funding does not allow the AF to
even cover the readiness shortfall from last year.
As with force structure and readiness, if the reduced caps under
current law continue, our modernization forecasts are bleak. This
funding level will impact every one of the AF modernization programs.
These disruptions will, over time, cost more taxpayer dollars to
rectify contract breaches, raise unit costs, and delay delivery of
critical equipment. When it comes to future investment and
modernization, the public may not recognize the effects of these
reductions initially. The damage will compound with time.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
Dr. LaPlante. With FY13 sequestration, programs assumed risks in
schedule and cost by deferring near-term risk reduction activities,
delaying contract awards and decreased investments in development.
Additionally, the Air Force used $1.5B in unobligated prior year funds
to reduce risks but that option will not be available in FY14. For FY14
and beyond, deferrals are likely to extend program schedules and
increase costs due to the restructuring of activities and contracts,
which will likely delay the planned operational capabilities to
warfighters. A potential FY14 sequestration impact for the F-35A low
rate initial production, relative to the request, could be the loss of
four to five aircraft from the requested amount of 19. This potential
reduction will increase unit costs resulting in production funding
shortfalls.
Moreover, the across the board cuts will likely remove funding for
our program managers to address emerging technical issues discovered
during the development effort. This directly impacts our ability to
achieve the original program baseline, and will undoubtedly escalate
program costs. The Air Force would like to be granted the ability to
move appropriations to mitigate, to the maximum extent possible,
devastation to the highest priority programs. However, even with
flexibility, the Air Force may not eliminate all risks associated with
meeting the Combatant Commander requirements.
The Strategic Choices and Management Review found the President's
FY14 budget proposal is the most prudent option of those currently
being considered. FY14 sequestration reductions force sharp declines in
our readiness and modernization accounts.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
Dr. LaPlante. The Air Force has not conducted this analysis at the
at the program, project, and activity level. With the continued budget
uncertainties, the department has focused on protecting top
modernization programs while maintaining readiness.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
Dr. LaPlante. In FY13, the Air Force used $1.5B in unobligated
prior year funds that will not be available in FY14. With respect to
the O&M account, we started FY14 under a Continuing Resolution that
provided funding that is $500M less than we originally programmed for
the year. The remaining FY14 funding does not allow us to even cover
the readiness shortfall from last year.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
Dr. LaPlante. We did not experience any Nunn-McCurdy breaches with
the FY13 sequestration, but there is potential for a breach with the
FY14 sequestration. This will not be determined with certainty until
the FY15 President's Budget is complete.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
Dr. LaPlante. The Air Force builds its budget based on the needs of
the service consistent with resources available. The Air Force will
make prioritized investments to ensure an ability to project Global
Vigilance, Global Response, and Global Power. When forced to make tough
decisions, we will favor new capabilities over upgrades to our legacy
forces and our top three acquisition priorities remain the KC-46, the
F-35, and the Long Range Strike Bomber.
The fact that a program may or may not have a Nunn-McCurdy breach
does not drive the overall programming process. Those decisions may
result in terminations and truncations of investment programs. We would
work to re-baseline and restructure the remaining major defense
acquisition programs to be executable in FY14 and beyond, as well as
minimize Nunn-McCurdy impacts.
It is the Department's position not to seek any legislative relief
for sequestration-driven Nunn-McCurdy breaches. The current Nunn-
McCurdy legislation has a mechanism to mitigate quantity-related
critical breaches. The Department has not experienced any significant
impact in terms of breaches to date. There were no Nunn-McCurdy
breaches reported for FY13; however, the potential for a breach with
sequestration for FY14 exists. The cumulative reductions over time in
quantity from the baseline may eventually result in an increase in
Nunn-McCurdy unit cost breaches.
Mr. Turner. How would sequestration and CR scenario impact the
procurement of F-35As? Would lower procurement numbers results in a
future strike fighter shortfall?
Dr. LaPlante. Sequestration in FY14 could result in a loss of 4-5
F-35A aircraft. A full year continuing resolution (CR) could result in
a loss of 3-4 F-35A aircraft. A combination of sequestration plus a
full year CR could result in a loss of 5-7 aircraft. The FY14
President's Budget request is for 19 F-35A aircraft.
The exact impact of sequestration on the future strike fighter
force is still being assessed. We do know that more reductions will
drive additional risks to our readiness, force structure, and ability
to modernize our aging aircraft inventory. As we navigate the uncertain
way ahead, we will continue to work with Congress.
Mr. Turner. Would sequestration and a CR affect life extension
programs for F-15s, F-16s, and A-10s resulting in a higher fighter
shortfall this year or in the years ahead?
Dr. LaPlante. F-15 Program--The F-15 has no Service Life Extension
Program (SLEP), therefore no known impact at this time.
F-16 Program--FY14 sequestration and continuation resolution (CR)
could affect the ongoing developmental efforts associated with the F-16
Legacy SLEP program by slowing the program. Production is scheduled to
begin in FY18 and may be impacted if there is a delay in development.
There is no immediate shortfall in aircraft, but future years may be
impacted.
A-10 Program--The A-10 Wing Replacement Program would buy fewer
wings this year. No fighter shortfall this year but may occur as early
as FY19 without future buys based on FY13 NDAA mandated fleet size
(283).
Mr. Turner. What effects could sequestration and a CR have on the
military aviation industrial base?
Dr. LaPlante. We are now approaching a second year of operations
under the Budget Control Act (BCA) and operating under Continuing
Resolutions. Risk and uncertainty are the key words that I would use to
characterize the results. The nation's security is at greater risk,
your Air Force is at greater risk and most importantly our Airmen,
military and civilians, are at greater risk as they attempt to cope
with the uncertainties of this fiscal crisis.
Clearly, there have been broad impacts to the national technology
and industrial base. The immediate and drastic reductions imposed by
the BCA caused the Air Force to cut flying hours; reduce training,
exercises, and travel; defer maintenance and modernization; and
painfully, furlough our civilian Airmen. The instantaneous drop in
demand flowed across and through the tiered network of companies, large
and small, that supply the goods and services needed to sustain Air
Force capabilities and our infrastructure. The resulting personnel
reductions and reorganizations of the larger firms, such as Lockheed
Martin and Raytheon, have been reported in the press. Adjustments made
by the lower tiers of the supply chain are less publicized yet, on the
individual level, are just as devastating.
Without relief, the impacts will not get better in the near future.
As the Air Force shrinks in size, divesting capacity while preserving
core capabilities and key investments, our demand on both the organic
and commercial industrial bases will continue to drop. Some companies
may be able to offset the drop in Air Force business by shifting to
commercial or private sector customers. The segment of concern is that
group which has both the intellectual capacity and physical plant
capability to design, develop, produce, and sustain military-unique
aircraft and systems. Without investment, that sector will wither. The
nation may pay dearly in the future to reinvigorate that sector. My
hope is the cost will be measured only in terms of dollars and time and
not those whose mission it is to fly, fight and win when called upon.
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
General Barclay. An extended Continuing Resolution (CR) and the
FY14 proposed sequestration reductions would adversely impact the
following aviation programs: Apache, Chinook, and Gray Eagle. The CR
limitations and the sequester cuts would reduce procurement quantities,
delay fielding of critical aviation systems, impede contract
negotiations and put some existing contracts at increased risk.
An extended CR would also delay the start of some network programs
in FY14 and challenge program execution efforts due to funds released
later in the fiscal year. Sequestration reductions have reduced
procurement quantities across all existing network programs such as
WIN-T, Tactical Radios, and Waveform Development, and will delay
development and testing of some critical networking capabilities beyond
the Future Years Defense Program.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
General Barclay. In general, the earlier a program is in the
acquisition lifecycle, the less disruptive a funding reduction. Unless
the program is responding to an Urgent Operational Need Statement, most
early contractual efforts are based on cost type contract vehicle where
the government and the contractor share risk. In the later phase of a
program, in production, contract vehicles for operational testing or
for fielding efforts become fixed price oriented in general, where the
contractor assumes more risk than the government.
For example, a program that is pre-Milestone B (in Technology
Development) is able to absorb shifts in funding easier than a program
that is post-Milestone B. Once the Acquisition Program Baseline is
established, a program must meet the established baseline or it must
report to Congress on why it did not meet them, either through a
significant change or a critical change.
The most grievous concern would be a statutory violation as a
result of a funding reduction, a Nunn-McCurdy Statutory violation or
the equivalent for a Major Automated Information System program
(failure of a program to achieve Initial Operational Capability prior
to five years from Milestone A or funds first obligated). These
violations must be avoided. Other statutory requirements levied on the
Department of Defense must also be taken into consideration as well,
for example, the Army's statutory requirement to be financially
auditable by the end of Fiscal Year 2017.
Reducing procurement funding usually reduces the quantity purchased
with a resulting increase to the per unit cost. Quality reductions may
result in a production line break, industrial base impacts --
particularly to second and third tier vendors--and delayed delivery to
the Warfighter.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
General Barclay. Sequestration reduces the level of available
appropriated funding which will affect all programs, regardless of
contract type. On many fixed-price contracts the quantities would be
reduced to meet the available dollars and we would expect the unit
costs to rise. The effects on multi-year procurements are more
pronounced: if sequestration reduces the quantity buys to below the
minimum level, a new negotiation may be required on the terms and
conditions of the new contract. This will delay procurement of the
system and delay the fielding to Warfighters. In addition, multi-year
contracts typically generates significant amount of savings for the
Army compared to annual procurement--the savings will be lost if the
multi-year contract is broken. Furthermore, the Army will have to pay a
termination liability.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
General Barclay. The impacts of reductions depend on how the Budget
Control Act is applied to the specific sources of appropriated funds.
All contracts impacted by funding changes may need to be modified to
adjust the requirements and dollars. Other courses of action include
reduced order quantities against indefinite delivery indefinite
quantity contracts, not exercising contract option periods, and
contract terminations.
The Army, unlike other services, has only a small number of multi-
year (MY) procurement contracts. Significant funding reductions could
lead to breaking minimum production quantities and loss of efficiencies
and cost savings in MY contracts. Funding reductions under
sequestration could lead to renegotiations or possibly cancellations of
these contracts.
The combined effects of a continued CR and sequestration reductions
in FY14 extend across the full range of diverse capabilities we field
in support of our Warfighters. Assuming the most inflexible reductions
to funding to programs, as many as 12 Apache helicopters in FY14 could
be reduced. Development of the Improved Turbine Engine Program, the
Armed Ariel Scout Helicopter, and upgrades to the MQ-1 Gray Eagle would
be placed at risk.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
General Barclay. No, we have reached a point where further delaying
new starts, cancelling additional programs, and continuing to reduce
existing programs will result in unacceptable risks for the Army. As a
result of repeated Continuing Resolutions, the Budget Control Act, and
sequestration, many Army programs have been cancelled, deferred,
delayed, or restructured in an effort to maintain efficiencies and
effectiveness in our major defense acquisition programs. Many of the
programs impacted, some multiple times, are small programs that provide
critical capabilities to the Army and the Joint force. These include
Liquid Logistics, heavy machine guns, sniper rifles, construction
equipment, and tactical bridging.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
General Barclay. The Army has not delayed contract awards or
reduced spending rates in an effort to prepare for sequestration in
fiscal year 2014 (FY14). The Army's ability to execute acquisition
program timelines and contract awards is actually impacted by the
absence of an appropriation in FY14 and the enactment of a continuing
resolution that limits funding to prior-year levels. However, the
continued instability of our fiscal environment limits the Army's
ability to accurately develop and execute planned timelines for the
design, engineering, manufacturing and fielding of weapon systems.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
General Barclay. The current funding instability fundamentally
hampers our ability to plan and execute acquisition programs in support
of the Warfighter. Key development, testing and production activities
are subject to the limited funds available under a continuing
resolution (CR). Under a CR, we lack the authority to start new
programs or authorize planned increases in production quantities for
fielding. Sequestration reductions in Fiscal Year (FY) 2013 already
reduced or eliminated our margin for error on many of our programs,
even with our efforts to mitigate using prior-year funds. Reductions in
FY14 and beyond will directly result in reduced production quantities,
deferred investment in new capabilities, and delays in many programs.
The hiring freeze, civilian furloughs and government shutdown decimates
our current and future ability to recruit and retain critical skills
and expertise in the government workforce. This creates significant
impacts to the execution of our Science and Technology projects,
acquisition programs, testing, contracting, logistics and depot
maintenance. Delays in testing, contracting, and depot maintenance will
have a rippling effect on our program execution by increasing cost due
to inefficiencies garnered. The long-term effects of this instability
are yet to be fully discerned but we know that the combined effects of
sequestration and a yearly CR will significantly increase the costs of
vital Soldier weapon systems.
The combined effects of a continued CR and sequestration reductions
in FY14 extend across the full range of diverse capabilities we field
in support of our Warfighters. Assuming the most inflexible funding
reductions, as many as 12 Apache helicopters in FY14 would be reduced.
Continued cuts in FY14 may result in the reduction of up to 11 Chinook
aircraft in FY14 and place the Army's ability to maintain the multi-
year production contract at risk. The Army will assume risk in its
aviation modernization efforts for Chinook and Blackhawk contracts.
Development of the Improved Turbine Engine Program, planned
modernization of the Armed Aerial Scout Helicopter, and upgrades to the
MQ-1 Gray Eagle will all be at risk. Modernization of combat vehicles
will be affected and result in delays to scheduled Engineering Change
Proposal upgrades to Abrams tank and Bradley Infantry Fighting
Vehicles.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
General Barclay. The lack of prior year funding significantly
reduces the Army's flexibility and increases risk when addressing
sequestration impacts. In FY13, the Army was able to mitigate many of
the impacts that would otherwise have come to fruition against a number
of programs by offsetting sequestration reductions with prior year
unobligated funds. As prior year funds became scarce, the margin for
error as programs decreases, pushing the programs towards critical
breaches in delayed fielding to Soldiers.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
General Barclay. Delays in systems development correlate to delayed
production which ripples into delayed fielding of capabilities to the
Warfighter. Inefficiencies created from the delays will lead to
increased program cost. Deferring testing leads to stretch-out of
program schedule since development and operational testing must be done
to demonstrate that the system met performance requirements. Reducing
testing during sequestration will lead to increased program risk which
may result in deficiencies not discovered until later. Generally
speaking, the later a deficiency is discovered in a program, the more
expensive it is to fix the problem. Reducing testing in FY13 may also
result in postponing the necessary residual testing until FY14 which
leads to stretch-out of program schedule and increased cost.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
General Barclay. Programs incur increased costs when schedules are
extended, including development, personnel, test, and production. When
capabilities are reduced and brought back at a later date, there are
costs associated with schedule increases resulting in the loss of
efficiencies and impacting the overall acquisition program. In an
effort to avoid additional costs associated with delayed development
activities and procurement in FY13, the Army used unobligated prior
year funds to mitigate the effects of sequestration. In doing so, the
Army accepted risk for programs with approved development and
procurement contract actions scheduled in FY14. In the event that a
Continuing Resolution or Appropriation is not passed, the Army has
limited prior year funds available to support spending limitations in
FY14, which could significantly impact new start programs, production
rate increases or programs that are limited in funding due to
sequestratoin. The Army thus far has been successful in mitigating
added costs from sequestration. However, failure to enact a timely and
sufficient Appropriation in FY14 could counteract these efforts to
protect taxpayer dollars.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
General Barclay. Funding reductions under the Budget Control Act
were absorbed in fiscal year 2013 (FY13), but not without hostile
effect to the Army's acquisition programs. The very nature of these
indiscriminate cuts resulted in disproportionate impacts within many of
our programs that may not be discerned right away. These reductions
translated to varying delays in program schedules, reduced quantities
of equipment procured and challenges imposed on the program's ability
to meet development timelines planned well in advance. In many cases,
the lasting effects of these disruptions are revealed as development
programs reach milestone events planned months or years in advance. The
Army's ability to endure these effects in FY13 ultimately depends, in
large part, on the availability of stable resourcing at requested
levels in ensuing fiscal years.
Moreover, in FY13, the Army was able to mitigate many of the
impacts by offsetting sequestration reductions with prior year
unobligated funds. The increasingly scarce sources of prior year
unobligated funding, combined with the cumulative disruptive effects of
reductions in FY13 and prolonged Continuing Resolutions in FY13 and
FY14, will continue to significantly impact the Army's weapon system
programs in FY14.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
General Barclay. Sequestration reductions in FY14 could put the
Apache and Black Hawk programs at risk of a Nunn-McCurdy breach. The
significant funding reductions resulting from sequestration would
undermine the assumptions used in the programs' cost estimating models,
prevent favorable contract negotiations, and potentially result in
breach of the Black Hawk multiyear contract. Sequestration reductions
have reduced procurement quantities across all existing network
programs such as WIN-T, Tactical Radios, and Waveform Development, to
specifically include the Small Airborne Networking Radio. These funding
reductions will delay development and testing of some critical
networking capabilities beyond the Future Years Defense Program.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
General Barclay. Current Nunn-McCurdy breaches generally reflect
poor programmatic management and cost growth. Based upon the continued
sequestration challenges to execution years, as well as out-year
sequestration planning controls, programs will hit Nunn-McCurdy
breaches due to funding constraints and pushing programs beyond
scheduled end dates. As a result, Nunn-McCurdy breaches will generally
be outside of the Program Manager's span of control if funding controls
are significantly altered from the approved Acquisition Program
Baselines. We recommend that Congress consider allowing programs that
hit Nunn-McCurdy breaches due to sequestration to rebaseline under the
rules of a Critical Breach. This would allow programs to ``re-set'' and
would prevent significant cost and schedule delays caused by Nunn-
McCurdy breaches.
Mr. Turner. How would sequestration and a year-long CR scenario
impact your ability to fund weight reduction initiatives for personnel
protection equipment? How would this impact the PPE industrial base,
e.g. body armor, night vision devices, etc.
General Barclay. The impact of a year-long Continuing Resolution,
which effectively translates into a 30 percent funding cut, would be
delays in the introduction of this improved, lighter protective
capability. Limited User Evaluations of the SPS Vital Torso, Integrated
Head Protection and Transition Combat Eye Protection subsystems, and
the Phase II contract awards for the Torso Protection subsystem would
be delayed from the fourth Quarter of Fiscal Year (FY) 2014 into FY15
and the Milestone C decisions on these subsystems, depending upon
receipt of funding, would slip 6-9 months from the planned third
Quarter FY15 date.
There is no immediate impact to the Industrial Base for ongoing
procurement and fielding of head, eye, pelvic, torso armor, and other
personal protective equipment. Funding is currently at the minimum
sustaining rate for maintaining two qualified armor vendors in hard and
soft armor solutions. Further funding reductions may place the Army's
ability to maintain competition (and expertise) at risk.
Projected Fiscal Year 2013 orders from the Army did not support
minimum sustainment rates as reported by the two vendors for night
vision image intensification tubes. However, both vendors have
restructured and are still producing image intensification tubes.
Further funding decreases from sequestration may stress image
intensification tube manufacturing and ultimately drive up system costs
if competitive pressure is lost due to the loss of one vendor. However,
the Office of the Secretary of Defense ``Report to Congress on the
Assessment of Industrial Base for Night Vision Image Intensifier
Sensors,'' completed in September 2012, concluded that Warfighter
readiness would not be negatively impacted if the industrial base was
further reduced.
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
Admiral Myers. An FY2014 continuing resolution (CR) and
sequestration take away from the Department's ability to provide
warfighting capability and capacity with the measures of efficiency
essential to balancing the requirements of the Defense Strategic
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon
system development timelines will be extended and costs will be higher,
production unit costs will increase, and the risk to the long-term
viability of the defense industrial base will increase. Reductions to
investment accounts will slow production on factory floors across the
defense industrial base adding cost and schedule to weapon systems.
Equally critical, these reductions will drive delays into the
development of those leading edge weapon systems that contribute to our
warfighters' asymmetric advantage over our adversaries.
If fiscally constrained to sequestration level funding over the
long term, the Navy of 2020 would not be able to execute the missions
described in the Defense Strategic Guidance. The 2014 Quadrennial
Defense Review will analyze the Department of Defense force structure
as a whole and set the long term course for DOD strategy and
priorities.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
Admiral Myers. The effects of sequestration vary depending on a
program's stage of development and fielding, but also vary from program
to program. Sequestration impacts to some Naval programs in the
development stage will result in loss of capability, while other Naval
programs will experience a delay in delivery. Most of Navy's
development work is tied directly to acquisition programs of record.
Consequently, reductions in the development stage will potentially have
an impact on their production schedules and costs.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
Admiral Myers. Yes, if sequestration remains in place, the effects
may differ for different contract types, but the limited funds will
cause the Department of the Navy to reduce the products and/or services
being purchased on many existing contracts. Limited funds forces the
Department to prioritize all our requirements, including mission
critical programs, then determine how much money we have available for
those programs.
From a contractual obligation perspective, some types of contract
vehicles provide the Department with more flexibility than others.
Given current regulatory requirements, the Department has more
flexibility with existing Cost Reimbursement, Indefinite Delivery,
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they
provide the Department with maximum flexibility in avoiding hard budget
limits. Typically, cost reimbursement contracts provide greater
flexibility than firm fixed price contracts.
The amount of obligations under a ``firm fixed price'' contract is
the face value of the contract that is fully funded at contract award.
The Department has less flexibility with existing fixed price
contracts, but can choose, if deemed necessary, to re-negotiate
established pricing based on our decision to de-scope quantity,
capability and breadth of contract performance. The Department may also
choose to not exercise and/or re-negotiate any contract options for
future supplies or services.
Multi-year contracts require added management focus in this
sequestration environment. Unlike annual contracts, obligations under a
multi-year contract have established contract terms and conditions
including cancellation payment; therefore particular attention must be
paid to meet these terms and conditions or otherwise re-negotiate the
contract.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
Admiral Myers. The Department of the Navy does not currently
anticipate the need to renegotiate a large number of fixed price or
multiyear procurement (MYP) shipbuilding contracts due to sequestration
in FY 2014. No major previously awarded fixed price shipbuilding or
aviation contracts will require deobligation of funds, and no Marine
Corps contracts will need to be renegotiated.
However, the Department's ability to continue to absorb
sequestration reductions without impacting multiyear contracts is
increasingly tenuous. The impacts of the FY 2013 sequester were
mitigated by the use of prior-year investment balances and
authorization to reprogram funds. Additionally, many planned costs were
deferred to preserve multiyear contracts. As these limited stop-gap
measures are exhausted, there will soon be few options for resources
and multiyear contracts may have to be renegotiated at reduced
quantities, putting substantial savings at risk
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
Admiral Myers. The Department of the Navy (DoN) implemented these
mitigation measures in developing the FY13 President's Budget
submission in accordance with the Budget Control Act of 2011, and in
managing the FY13 continuing resolution and sequestration. FY13
sequestration resulted in curtailed operations, deferred maintenance,
depleted unobligated prior-year balances in our investment accounts,
and deferred costs to future year budgets. While this mitigated the
immediate impacts, it was insufficient to bear the full weight of
sequestration, resulting in delays to development schedules and
reductions to procurement quantities. The net effects of these
deferrals, delays, and program cuts are added bills and increased costs
in FY14 and beyond. While we continue to employ these measures to the
extent possible, the margin for mitigating the impacts of sequestration
with these measures has been depleted and they are no longer sufficient
to prevent significant reductions in major defense acquisition programs
if sequestration continues in FY14.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
Admiral Myers. All major defense acquisition programs have had to
take actions to deal with the impact of the FY 2013 sequester.
To minimize impacts in FY 2013, the Department of the Navy was able
to use reprogramming authorization, prior-year investment balances, and
deferral of costs to future years. For example, in the FY 2013 SCN
account, we were able to use $640M of prior year SCN assets to finance
some of the $1.75B sequestration bill. The Department requested, and
the Congress approved, reprogramming for $240M to finance an additional
portion of the SCN sequestration reduction. Proposed FY 2014
Congressional action adds $358M, which may further finance the
sequestration reduction. However, the Department is still faced with
future cost to complete bills of $515M, which hinder future ship
procurements. If sequestration continues, these future bills in the
shipbuilding and other accounts will be larger without the benefit of
prior year funds and will accumulate to the point where we will be
compelled to reduce the number of ships or systems procured.
Under the FY 2014 continuing resolution (CR), budget controls have
been set at estimated FY 2014 sequestration levels and program spending
rates have been slowed to match. In addition, OSD is closely managing
DOD obligations and expenditures. This approach has allowed all
programs to continue executing in accordance with the CR and has not
yet caused delays in awarding contracts. However, the CR has impacted
the ability of programs to execute planned production increases or new
starts. In addition, all programs are working to identify the impacts
of potential FY 2014 sequestration cuts, when those impacts will begin
to occur, and mitigating actions or deferrals that could reduce those
impacts.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
Admiral Myers. Sequestration and the continued budget uncertainty
will have varying impacts on each of the Department of the Navy's
programs. Overall, an FY2014 CR and sequestration take away the
Department's ability to provide warfighting capability and capacity
with the measures of efficiency essential to balancing the requirements
of the Defense Strategic Guidance with the fiscal constraints under
current law. Without Congress acting to change the current path, our
warfighters will have less surge capability and our long-term
priorities will be traded off to fund near-term readiness. Further,
weapon system development timelines will be extended and costs will be
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
Admiral Myers. If sequestration continues, automatic percentage
cuts are required to be applied without regard to strategy, importance,
or priorities, resulting in adverse impact to almost every program and
project within the Navy. Sequestration would adversely impact many of
our R&D programs through contract cancellations, contract terminations,
and undetermined cost increases caused by inefficient contracting and
schedule delays. These impacts will reduce and delay our R&D efforts
and negatively impact key procurement strategies in future years.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
Admiral Myers. The FY 2013 sequestration impacts to acquisition
programs were mitigated by depleting unobligated prior-year balances in
our investment accounts, reprogramming funds from other accounts, and
deferring costs to future year budgets. However, this resulted in
increased costs in FY 2014 and beyond and longer acquisition timelines.
If sequestration continues in FY 2014, program impacts will include
schedule delays, reduced acquisition objectives, postponed
modernization and upgrades, and the subsequent cost increases due to
delayed programs and decreased procurement quantities. In addition,
sequestration will slow production on factory floors across the defense
industrial base, adding cost and schedule risks to today's weapon
systems. Equally critical, these reductions will add risk by delaying
the development of leading edge weapon systems that provide our
warfighters with the asymmetric advantage they hold over our
adversaries.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
Admiral Myers. The effects of FY13 sequestration were addressed by
curtailing operations, deferring maintenance, depleting unobligated
prior-year balances in our investment accounts, deferring costs to
future year budgets, and employing the limited transfer authority
provided to the DON. These measures, which mitigated the immediate
impacts, were insufficient to bear the full weight of sequestration,
resulting in delays to development schedules and reductions to
procurement quantities. The net effects of these deferrals, delays, and
program cuts are added bills and increased costs in FY14 and beyond. We
estimate the total deferred ``carry over'' due to FY13 sequestration to
be approximately $2 billion over the FY14-FY18 future years defense
program (FYDP) in operation and maintenance accounts, and an additional
approximately $2B over the FY14-FY18 FYDP in investment accounts.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
Admiral Myers. The effects of FY13 sequestration were addressed by
curtailing operations, deferring maintenance, depleting unobligated
prior-year balances in our investment accounts, deferring costs to
future year budgets, and employing the limited transfer authority
provided to the DON. These measures, which mitigated the immediate
impacts, were insufficient to bear the full weight of sequestration,
resulting in delays to development schedules and reductions to
procurement quantities. The net effects of these deferrals, delays, and
program cuts are added bills and increased costs in FY14 and beyond.
While these mitigation measures will be repeated to the extent possible
in FY14, we do not have the prior-year assets to protect investment
accounts if FY14 sequestration occurs. In addition, deferred ``carry
over'' bills from FY13 will need to be addressed in FY14. FY14
sequestration will compound the impacts of the FY13 continuing
resolution and sequestration.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
Admiral Myers. There is a high probability that if sequestration
continues in FY14 and subsequent years, some major defense acquisition
programs will have significant unit cost increases reportable as
``Nunn-McCurdy breaches.'' Increasing the duration of programs (in
development and/or production) causes programs to incur additional
costs with no offsetting benefit to the government. Program's annual
``fixed'' costs are incurred for a greater number of years, reduced
rates of production result in lower economies of scale, and programs
face greater exposure to obsolescence or changes in the supply base
with the added expense that generates.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
Admiral Myers. Whether or not a Program will incur a Nunn-McCurdy
breach will not be a significant factor in selecting Programs for
reductions. Cuts will be distributed on a requirements basis with cost
implications and collateral costs (e.g. cancellation costs or breakage
to other Programs) being factors. Exempting the department from Nunn-
McCurdy reporting responsibilities caused by CR or Sequestration would
be beneficial in reducing Program workloads.
Mr. Turner. How would sequestration and a CR scenario impact the
procurement of F-35Cs and F-35Bs? Would lower procurement numbers
affect the strike fighter shortfall?
Admiral Myers. The Department of the Navy is working closely with
the F-35 Program Office and the Under Secretary of Defense for
Acquisition, Technology and Logistics to assess the impacts of
sequestration on the F-35 program. Currently, the Department is
investigating: the balance between preserving the development program
and maintaining capabilities of Block 2B Initial Warfighting
Capability; support and sustainment for all delivered aircraft;
preserving production efficiencies and production capacity; and
aircraft procurement. However, sequestration in FY14 would compel us to
reduce aircraft procurement by one F-35B and one F-35C and delay the
Block 3 development test and evaluation flights resulting in increased
risk of meeting planned initial operating capability (IOC) dates. The
reduced procurement will further pressurize unit recurring flyaway
costs at a time when the program was achieving positive cost trends. A
continuing resolution hampers the ability to properly fund required F-
35 modifications because they are considered new starts within FY14.
The concurrency and block upgrades are critical to the IOC schedule
since they are required for the operational testing and evaluation and
for fleet operations.
The Navy actively manages the strike fighter shortfall to minimize
impacts in each execution year. The projected strike fighter shortfall
is a compilation of a number of factors including legacy usage,
meticulous management of fatigue life, and F-35 procurement. Delays in
the F-35 procurement will aggravate challenges in meeting inventory
requirements.
Mr. Turner. Would sequestration and a CR affect life extension
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter
shortfall this year or in the years ahead?
Admiral Myers. Yes. Sequestration and the CR are having an adverse
effect in the short term and are expected to exacerbate the long term
strike fighter shortfall. Sequestration and the CR are currently
causing cancellations and delays in depot inductions and High Flight
Hour inspections which are negatively impacting the ability to source
Navy and Marine Corps squadrons.
Additionally, sequestration and the CR would impact the Marine
Corps Readiness Management Program for the AV-8B. Some initiatives
within this program would be delayed or cancelled, decreasing readiness
and increasing flight hour costs due to decreasing component
reliability.
Mr. Turner. How will the CR and sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
General Walters. An FY2014 continuing resolution (CR) and
sequestration take away from the Marine Corps our ability to provide
warfighting capability and capacity with the measures of efficiency
essential to balancing the requirements of the Defense Strategic
Guidance. Our warfighters will have less surge capability and our long-
term priorities will be traded off to fund near-term readiness. Weapon
system development timelines will be extended and costs will be higher,
production unit costs will increase, and the risk to the long-term
viability of the defense industrial base will increase. Reductions to
investment accounts will slow production on factory floors across the
defense industrial base adding cost and schedule to weapon systems.
Equally critical, these reductions will drive delay into the
development of those leading edge weapon systems that provide our
warfighters with the asymmetric advantage they hold over our
adversaries.
While the specific impact on each program will not be known until
the Marine Corps receives their final FY 2014 appropriation, including
sequestration allocations, and future year appropriations become more
predictable, we anticipate schedule delays, reduced acquisition
objectives, postponed modernization and upgrades, and the subsequent
cost increases due to delayed programs and decreased procurement
quantities. Marine Corps Ground Major Defense Acquisition Programs will
not be dramatically affected in the near term.
The 2014 Quadrennial Defense Review will analyze the DOD force
structure as a whole and set the long term course for DOD strategy and
priorities.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
General Walters. The effects of sequestration vary depending on a
program's stage of development and fielding, but also vary from program
to program. Sequestration impacts to some Marine Corps programs in the
development stage will result in loss of capability, while other Marine
Corps programs will experience a delay in delivery. Most of the Marine
Corps' development work is tied directly to acquisition programs of
record; consequently, reductions in the development stage will
potentially have an impact on their production schedules and costs.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
General Walters. Yes, if sequestration remains in place, the
effects may differ for different contract types, but the limited funds
will cause the Marine Corps to reduce the products and/or services
being purchased on many existing contracts. Limited funds forces the
Marine Corps to prioritize all our requirements, including mission
critical programs, then determine how much money we have available for
those programs.
From a contractual obligation perspective, some types of contract
vehicles provide the Department with more flexibility than others.
Given current regulatory requirements, the Department has more
flexibility with existing Cost Reimbursement, Indefinite Delivery,
Indefinite Quantity (IDIQ) and ``Requirements'' contracts, because they
provide the Department with maximum flexibility in avoiding hard budget
limits. Typically, cost reimbursement contracts provide greater
flexibility than firm fixed price contracts.
The amount of obligations under a ``firm fixed price'' contract is
the face value of the contract that is fully funded at contract award.
The Marine Corps has less flexibility with existing fixed price
contracts, but can choose, if deemed necessary, to re-negotiate
established pricing based on our decision to de-scope quantity,
capability and breadth of contract performance. The Marine Corps may
also choose to not exercise and/or re-negotiate any contract options
for future supplies or services.
The multi-year contract provides the least amount of flexibility
for the Marine Corps in this sequestration environment. Unlike annual
contracts, obligations under a multi-year contract must follow the
established contract terms and conditions to avoid any cancellation
payment arrangements established in the contract.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
General Walters. No Marine Corps contracts will need to be
renegotiated. However, the Marine Corps' ability to continue to absorb
sequestration reductions without impacting multiyear contracts is
increasingly tenuous. The Marine Corps made extensive use of
unobligated prior year funds to avoid impacts to multiyear contracts in
FY 2013. Additionally, many planned ancillary purchases for such things
as support equipment and training devices were deferred to free up
budget and preserve the multiyear contracts. As these limited stop-gap
measures are exhausted, there will soon be little where else to go for
resources and multiyear contracts may have to be renegotiated at
reduced quantities, putting substantial savings at risk.
While the Marine Corps has not renegotiated any major defense
acquisition contracts to date as a result of FY 2014 budget decisions,
the uncertainty associated with FY 2015 and outyear budgets will
require the Marine Corps to continually review and adjust program plans
consistent with the changing budget environment. Adjustments to these
program plans may require renegotiation of procurement contracts.
However, the Marine Corps will strive to minimize the number of these
renegotiations to maintain the best value for the limited resources.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
General Walters. The Marine Corps implemented a variety of
mitigation measures to manage FY13 while operating under a continuing
resolution for the first six months of the fiscal year and
sequestration. FY13 sequestration resulted in curtailed operations,
deferred maintenance, depleted unobligated prior-year balances in our
investment accounts, and deferred costs to future year budgets. While
this mitigated the immediate impacts, it was insufficient to bear the
full weight of sequestration, resulting in delays to development
schedules and reductions to procurement quantities. The net effects of
these deferrals, delays, and program cuts are added bills and increased
costs in FY14 and beyond. While we continue to employ these measures to
the extent possible, the margin for mitigating the impacts of
sequestration with these measures has been exhausted and will be unable
to prevent significant reductions in major defense acquisition programs
if sequestration continues in FY14.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
General Walters. Now that the FY 2013 sequester has been realized,
all major defense acquisition programs have had to take actions to deal
with the impact.
To minimize impacts in FY 2013, the Marine Corps was able to use
prior year funding, FY 2013 Above Threshold Reprogramming actions,
potential FY 2014 Congressional adjustments, and the deferral of
certain costs
Attempting to further plan for sequestration is difficult since
more than half way through the first quarter of FY 2014, program
funding levels for the year remain unknown. All programs are working to
identify the impacts of potential cuts, when those impacts will begin
to occur, and mitigating actions or buy backs that could diminish or
alleviate those impacts.
With the passing of the continuing resolution (CR) for FY 2014,
budget controls have been set at estimated FY 2014 sequestration levels
and program spending rates have been slowed to match. In addition, OSD
is closely managing DOD obligations and expenditures and has recently
revised a policy whereby all obligations in excess of $250M require
prior approval from the Under Secretary of Defense for Acquisition,
Technology, and Logistics (USD(AT&L)). This approach has allowed all
programs to continue executing in accordance with the CR and has so far
not caused delays in awarding contracts. The CR has impacted the
ability of programs to execute planned production increases or new
starts. However, with the uncertainty surrounding the FY 2014 budget
and the potential for a yearlong CR, the Marine Corps will continue to
use the funding available to execute the programs to provide the needed
capabilities to our warfighters.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
General Walters. Sequestration and the continued budget uncertainty
will have varying impacts on each of the Department of the Navy's
programs. In FY 2013, no Marine Corps Major Defense Acquisition
Programs were delayed in fielding due to the CR or sequestration cuts.
We anticipate other schedule delays, reduced acquisition
objectives, and postponed or cancelled modernization and upgrades will
also be required. However, the specific impacts will not be known until
a final budget level for FY 2014 is established and priorities and
tradeoffs can be made.
Overall, a FY2014 CR and sequestration act to take away the Marine
Corps' ability to provide warfighting capability and capacity with the
measures of efficiency essential to balancing the requirements of the
Defense Strategic Guidance with the fiscal constraints under current
law. Without Congress acting to change the current path, our
warfighters will have less surge capability and our long-term
priorities will be traded off to fund near-term readiness. Further,
weapon system development timelines will be extended and costs will be
higher, production unit costs will increase, and the risk to the long-
term viability of the defense industrial base will increase.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
General Walters. If sequestration continues, automatic percentage
cuts are required to be applied without regard to strategy, importance,
or priorities, resulting in adverse impact to almost every program and
project within the Marine Corps. Sequestration would adversely impact
many of our R&D programs through contract cancellations, contract
terminations, and undetermined cost increases caused by inefficient
contracting and schedule delays. These impacts will reduce and delay
our R&D efforts and negatively impact key procurement strategies in
future years.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
General Walters. The FY 2013 sequestration reduced the Marine
Corps' top-line by approximately $1.2 billion and impacted our
readiness, operations and procurement. The effects were addressed by
curtailing operations, deferring maintenance, depleting unobligated
prior-year balances in our investment accounts, and deferring costs to
future year budgets. The net effects of these deferrals, delays, and
program cuts are added bills; increased costs in FY 2014 and beyond;
and longer acquisition timelines. These impacts are compounded with
reductions to the FY 2014 budget in accordance with the mechanics of
sequestration. The compounded effects eliminate the Marine Corps'
ability to provide warfighting capability and capacity with the
measures of efficiency essential to balancing the requirements of the
Defense Strategic Guidance with the fiscal constraints of the Budget
Control Act of 2011. Across the board reductions to investment accounts
will slow production on factory floors across the defense industrial
base adding cost and schedule to today's weapon systems; and equally
critical, these reductions will drive delay into the development of
those leading edge weapon systems that provide our warfighters with the
asymmetric advantage they hold over our adversaries.
Certain Marine Corps program tasks originally scheduled for FY 2013
were moved to future years as a result of sequestration funding
reductions. No testing was deferred or reduced. All Marine Corps
programs remain within current schedule baselines at this time.
Additional reductions in funding will begin to increase delays and risk
to the programs.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
General Walters. The effects of FY13 sequestration were addressed
by curtailing operations, deferring maintenance, depleting unobligated
prior-year balances in our investment accounts, deferring costs to
future year budgets, and employing the limited transfer authority
provided to the DON. These measures, which mitigated the immediate
impacts, were insufficient to bear the full weight of sequestration,
resulting in delays to development schedules and reductions to
procurement quantities. The net effects of these deferrals, delays, and
program cuts are added bills and increased costs in FY14 and beyond.
Overall, sequestration required a reduction of $212 million in
investment accounts.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
General Walters. The effects of FY13 sequestration on the Marine
Corps were addressed by depleting unobligated prior-year balances in
our investment accounts, deferring costs to future year budgets, and
employing the limited transfer authority provided to the DON. These
measures, which mitigated the immediate impacts, were insufficient to
bear the full weight of sequestration, resulting in delays to
development schedules and reductions to procurement quantities. The net
effects of these deferrals, delays, and program cuts are added bills
and increased costs in FY14 and beyond. While these mitigation measures
will be repeated to the extent possible in FY14, we do not have the
prior-year assets to protect investment accounts if FY14 sequestration
continues.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
General Walters. There is a probability that if sequestration
continues in FY 2014 and subsequent years, some major defense
acquisition programs (MDAPs) will have significant unit cost increases
reportable as Nunn-McCurdy breaches. However, that risk will not be a
significant factor in selecting programs for reduction.
Increasing the duration of programs (in development and/or
production) causes programs to incur additional costs with no
offsetting benefit to the government. Program's annual fixed costs are
incurred for a greater number of years, reduced rates of production
result in lower economies of scale, and programs face greater exposure
to obsolescence or changes in the supply base with the added expense
that generates. Although Nunn-McCurdy unit cost thresholds are
evaluated against base year dollars, the aerospace manufacturing sector
has seen costs rising at a rate exceeding that of overall inflation.
Therefore, even after general inflation is backed out of program costs,
costs pushed further into the future still result in higher base year
costs.
Currently, the Navy does not anticipate that any shipbuilding or
ship weapon system MDAPs will incur the risk of a Nunn-McCurdy unit
cost breach as a result of potential sequestration effects, and no
Marine Corps MDAPs have experienced Nunn-McCurdy level unit cost
issues.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
General Walters. Within the line item level restrictions of
sequestration, whether or not a Program will incur a Nunn-McCurdy
breach will not be a significant factor in selecting Programs for
reductions. Cuts will be distributed on a requirements basis after
reviewing and assessing cost implications and collateral costs (e.g.
cancellation costs or breakage to other Programs).
Unless forced to incur across the board sequestration funding
reductions similar to Fiscal Year 2013, Marine Corps Major Defense
Acquisition Programs (MDAPs) will most likely obtain adequate funding
via re-programming actions from non-MDAP programs.
Exempting the Department from Nunn-McCurdy reporting
responsibilities caused by a continuing resolution or Sequestration
would be beneficial in reducing Program workloads.
Mr. Turner. Would sequestration and a CR affect life extension
programs for F/A-18s and AV-8Bs resulting in a higher strike fighter
shortfall this year or in the years ahead?
General Walters. Yes. Sequestration and the CR are having an
adverse effect in the short term and are expected to exacerbate the
long term strike fighter shortfall. Sequestration and the CR are
currently causing cancellations and delays in depot inductions and High
Flight Hour inspections which are negatively impacting the ability to
source Navy and Marine Corps squadrons.
Additionally, sequestration and the CR would impact the Marine
Corps Readiness Management Program for the AV-8B. Individual initiative
timelines and specific initiatives within this program may be
cancelled, decreasing readiness and increasing flight hour costs due to
component reliability.
Mr. Turner. How would sequestration and a CR scenario impact your
ground combat and tactical vehicle strategy? What programs will be
delayed or impacted by this budget uncertainty?
General Walters. The objective of the U.S Marine Corps' Ground
Combat and Tactical Vehicle (GCTV) Strategy is to field a ground combat
vehicle portfolio structured to support Marine Expeditionary Forces,
two Marine Expeditionary Brigades (MEB) capable of conducting sea-based
Joint Forcible Entry Operation (JFEO), two maritime prepositioned MEBs
(sea-basing enabled), and one geographically prepositioned MEB. These
scalable MAGTF's will be capable of supporting theater engagement
plans, irregular warfare, sea-based operations, and sustained
operations ashore across the range of military operations. Ultimately,
the discreet components of the portfolio are designed to come together
as a unitary whole that provides Combatant Commanders (COCOM) and the
Nation the capabilities necessary to support the operations listed
above that gives COCOMs the greatest range of options possible from the
sea, in a balanced manner.
Our GCTV Strategy is comprised of components that include the
acquisition of Amphibious Combat Vehicles, Marine Personnel Carriers,
and Joint Light Tactical Vehicles; as well as the sustainment and
modernization of our AAV, LAV, M1A1 tank, and HMMWV fleets in
sufficient quantities necessary to maintain capability during the
transition to our objective GCTV force for the 21st century.
The enduring challenge to the strategy is managing the increase in
procurement and sustainment costs of vehicles needed for the 21st
century operating environment. Historical expenditures for vehicles
will not support ground maneuver and mobility needs as stated for our
future force.
The impacts of sequestration that include not only scarcity of
resources, but also a large measure of uncertainty, have compromised
our ability to approach the planning and execution of our GCTV Strategy
with the coherence necessary for sound capital investment planning.
While it remains a primary requirement in our GCTV Strategy, we
have been forced to defund MPC in the near term due to insufficient
funding. We have also been forced to adjust the timelines for ACV and
JLTV due to reduced funding which may move the timelines for IOC to the
right by three years and one year respectively. The uncertainty created
by the significant restructuring of our plan has created a need to
redefine our requirements for aligning resources with the sustainment
and modernization of our AAV, LAV, and M1A1 fleets.
Mr. Turner. What programs do the Marine Corps anticipate it will
have to cancel or extend due to the budget uncertainty?
General Walters. If sequestration were fully implemented, the
Marine Corps would have to assess every program. Sequestration will
cause interruptions during program acquisition that would increase the
total program cost. Schedules would slip and contracts would be
delayed. Efficiencies would be lost. This would negatively impact
development and production schedules requiring program restructures and
potentially cause Nunn-McCurdy breaches. For procurement programs,
existing contracts will have to be renegotiated, preventing the Marine
Corps from receiving Economic Order Quantity pricing.
The Marine Corps will also have to sustain legacy systems longer
than planned, which will drive up current operation and support costs.
We will have to shift our attention to developing and replacing
obsolescent parts for legacy systems that are no longer available in
the market place, which will shift the workforce to a focus of
reengineering old and inefficient technology. Finally, technologies
designed to improve efficiencies (fuel, lightweight armor, etc.) will
have to be postponed, preventing the Marine Corps from reaping planned
savings while simultaneously driving up costs due to the use of older,
more expensive technologies.
Mr. Turner. What are impacts we are seeing on the execution of the
Marine Personnel Carrier and Joint Light Tactical Vehicle program?
General Walters. While it remains a primary requirement in our GCTV
Strategy, we have been forced to defund MPC in the near term due to
insufficient funding. We have also been forced to adjust the timelines
for ACV and JLTV due to reduced funding which may move the timelines
for IOC to the right by three years and one year respectively. The
uncertainty created by the restructuring of our plan has created a need
to redefine our requirements for aligning resources with the
sustainment and modernization of our AAV, LAV, and HMMWV fleets.
For FY14 and FY15, impacts to the Joint Light Tactical Vehicle
(JLTV) program depend entirely on how sequestration or other reductions
are implemented. The program is currently executing a test-intensive
Engineering and Manufacturing Development phase already challenged by
the cumulative effect of FY13 Congressional decrements, sequestration,
and furloughs, but this well-structured program faces no inherent cost,
schedule, or performance challenges. Consequently, if budget
flexibility permits funding of JLTV to its Acquisition Program
Baseline, the program should continue on-budget and on-schedule.
Conversely, across-the-board cuts in FY14 and FY15 would likely delay
the program's Milestone C decision and Low Rate Initial Production
(LRIP) contract award by up to 12 months, into FY16. The Services will
continue to explore mitigation strategies to reduce the potential
impact of sequestration on JLTV and to preserve the FY15 Milestone C
decision and LRIP contract award as currently planned. The JLTV program
remains a critical opportunity to close capability gaps in today's
light tactical wheeled vehicle fleets and to re-balance payload,
performance, and protection for a wide range of demanding mission
profiles.
Mr. Turner. If sequestration remains in FY14 and FY15, what impact
will this have on the execution of the Joint Light Tactical Vehicle
program? Please provide the subcommittee with an update on this
critical program.
General Walters. While it remains a primary requirement in our GCTV
Strategy, we have been forced to adjust the timeline for JLTV due to
reduced funding which may move the timelines for IOC to the right by
one year. The uncertainty created by the restructuring of our plan has
created a need to redefine our requirements for aligning resources with
the sustainment and modernization of our HMMWV fleet.
If sequestration remains in FY14 and FY15, impacts to the Joint
Light Tactical Vehicle (JLTV) program depend entirely on how
sequestration cuts are implemented. The program is currently executing
a test-intensive Engineering and Manufacturing Development phase
already challenged by the cumulative effect of FY13 Congressional
decrements, sequestration, and furloughs. This well-structured program
faces no inherent cost, schedule, or performance challenges. If budget
flexibility permits funding of JLTV to its Acquisition Program Baseline
despite sequestration, the program should continue on-budget and on-
schedule. Conversely, across-the-board cuts in FY14 and FY15 would
likely delay the program's Milestone C decision and Low Rate Initial
Production (LRIP) contract award by up to 12 months, into FY16. The
Services will continue to explore mitigation strategies to reduce the
potential impact of sequestration on JLTV and to preserve the FY15
Milestone C decision and LRIP contract award as currently planned. The
JLTV program remains a critical opportunity to close capability gaps in
today's light tactical wheeled vehicle fleets, and to re-balance
payload, performance, and protection for a wide range of demanding
mission profiles.
Mr. Turner. How will the CR and Sequestration impact your major
defense acquisition programs and will these reductions require a change
in national military strategy?
General Moeller. Sequestration, combined with another continuing
resolution (CR), continues to inflict painful, palpable, and ultimately
expensive disruptions throughout our Air Force. We are making every
effort to minimize the impact of the CR and Sequestration to our
readiness and modernization. All of this comes at a time when our Air
Force is long-overdue for vital reconstitution. Our fleets are aging,
and our force is at its smallest since its inception.
At this time, we are doing our best to balance near-term readiness
with modernization while ensuring our ability to project Global
Vigilance, Global Reach, and Global Power in the heavily defended
environments of 2023. FY14 sequestration reductions force sharp
declines in our readiness and modernization accounts. The blunt,
indiscriminate mechanism of sequestration undermines the combat
capability of your Air Force and the entire joint force, and it is
unworthy of the servicemen and women who risk their lives in service to
our great Nation.
We know the Air Force has a role in helping our Nation get its
fiscal house in order. However, the abrupt and arbitrary nature of
sequestration drives the Air Force into a ``ready force today'' versus
a ``modern force tomorrow'' dilemma. This dilemma is dangerous and
avoidable. If we are given the flexibility to make prudent cuts over
time, we can achieve the savings required under current law. However,
sequestration robs us of that flexibility. We're left with options that
simply don't make business sense. We need your help. We need funding
bills that give us stability so we can achieve real savings in a
strategically and managerially sound way.
Mr. Turner. Please describe how the effects of sequestration differ
for major defense acquisition programs in different stages of
development and fielding? For example, would it be less disruptive for
programs still in development, which are primarily based on a level of
effort, than those in production?
General Moeller. The effects of sequestration disrupt major defense
acquisition programs throughout the development and fielding phases.
The single largest impact of sequestration and current budgetary
unknowns is the very serious impact they have on the meticulous cost
and schedule planning mandated in numerous public laws and DOD
acquisition policy directives. The increasing budgetary inefficiency
makes it very difficult, if not impossible, for our program managers to
do their jobs.
Sequestration cuts deeply into Air Force investment accounts, which
under the law must be applied equally at the program, project, and
activity level; consequently, it impacts every one of the Air Force's
acquisition programs. For example, a potential FY14 sequestration
impact for the F-35A low rate initial production, relative to the
request, could be the loss of four to five aircraft from the requested
amount of 19. This potential reduction will increase unit costs
resulting in production funding shortfalls.
Moreover, the across the board cuts will likely remove funding for
our program managers to address emerging technical issues discovered
during the development effort. This directly impacts our ability to
achieve the original program baseline, and will undoubtedly escalate
program costs. The Air Force would like to be granted the ability to
move appropriations to mitigate, to the maximum extent possible,
devastation to the highest priority programs. However, even with
flexibility, the Air Force may not eliminate all risks associated with
meeting the Combatant Commander requirements.
Mr. Turner. Will the potential effects of sequestration differ for
major defense acquisition programs using different contract types and
acquisition strategies (fixed-price v. cost-reimbursement; multi-year
procurement v. annual procurement)?
General Moeller. Regardless of contract type, the effects of
sequestration could drive a program to de-scope requirements, delay
performance of required work, or terminate the contract. Any of these
developments will likely result in a contract modification regardless
of whether the contract is fixed-price or cost-reimbursement. The only
difference is in the flexibility and responsiveness to react to those
changes; a cost-reimbursement arrangement usually provides more
flexibility and quickness to react to changes than does a fixed-price
arrangement. Making changes to a fixed price contract could have
unintended consequences by opening a door for a contractor to claim
additional costs. The effects of sequestration would differ on a multi-
year (MY) versus annual procurement. For an annual procurement, you
could negotiate a reduction in the required number of items or level of
service and only affect that current year acquisition without affecting
subsequent years. MY procurements generally assume some constant level
of production or service. For example, if budgets change and this
causes a reduction of product or service requirements, it will likely
result in the following: increased unit prices; a requirement to pay
for subcontracted items delivered early to need per the MY agreement;
and possibly an action for breach of contract if the requirements fall
below a minimum commitment in the MY agreement.
Mr. Turner. Would large numbers of fixed price or multiyear
procurement contracts need to be renegotiated due to sequestration?
General Moeller. In FY13, we carefully managed our multi-year and
large fixed price contracts for development, production and sustainment
to avoid breaks in production or service as much as possible. However,
some of our smallest fixed price agreements at the installation-level
were affected. Another sequestration cut in FY14 is projected to have a
larger effect on a higher number of our fixed-priced contracts for
procurement, sustainment and installation.
Mr. Turner. Could the potential effects of sequestration on major
defense acquisition programs be mitigated by delaying new starts,
canceling lower priority programs, or curtailing existing programs?
General Moeller. The deep cuts brought on by sequestration-level
funding will force the Air Force to make profound cuts to readiness and
investment major defense acquisition programs to achieve the targeted
reduction amounts in the first few years of the fiscal year defense
plan. When forced to make tough decisions, we will favor new
capabilities over upgrades to our legacy forces and our top three
acquisition priorities remain the KC-46, the F-35, and the Long Range
Strike Bomber (LRS-B).
To maintain minimum levels of readiness and sustain our highest
investment programs, the Air Force will have to cut up to 25,000 Total
Force Airmen and up to 550 aircraft. As we divest force structure, our
priorities are to retain the global, long-range capabilities and multi-
role platforms that are required to operate in highly contested
environments. We will focus on divestiture of entire fleets of aging
and costly platforms as well as those less capable and less survivable
in heavily defended airspace. We will look to cut aircraft fleets
because divesting an entire weapons system results in greater savings
than cutting a portion of an aircraft fleet; because, every fleet has
relatively fixed sustainment (overhead) costs. Beyond our top three
acquisition priorities, all options are on the table.
Mr. Turner. Have any major defense acquisition programs started to
take actions now to plan for sequestration? For example, have any
programs delayed contract awards planned for fiscal year 2013 or slowed
spending plans so that they can carry over additional funds to fiscal
year 2014, 2015?
General Moeller. All major defense acquisition programs have
started to plan for sequestration. Air Force Program Executive Officers
have been evaluating sequestration impacts to programs in their
portfolios. For example, the Space Fence contract was ready for award
in early June 2013; however, a DOD-level review driven by
sequestration, delayed the decision to proceed to later in 2013. With
an affirmative decision in November, initial capability will slip about
one year and costs will increase by over $70M. We cannot afford to
mortgage the future of our Air Force and the defense of our Nation.
In FY13, the Air Force used $1.5B in unobligated prior year funds
that will not be available in FY14. With respect to the O&M account, we
started FY14 under a Continuing Resolution that provided funding that
is $500M less than we originally programmed for the year. The remaining
FY14 funding does not allow us to even cover the readiness shortfall
from last year.
Mr. Turner. Please provide details on the major defense acquisition
programs that would experience any delays in fielding needed
capabilities to the warfighter as a result of the effects of
sequestration and CR?
General Moeller. When forced to make tough decisions, we will favor
new capabilities over upgrades to our legacy forces and our top three
acquisition priorities remain the KC-46, the F-35, and the Long Range
Strike Bomber. The current fiscal environment compels the Air Force to
consider difficult budgetary choices. The current law caps and the
abrupt and arbitrary nature of sequestration drive the Air Force into a
``ready force today'' versus a ``modern force tomorrow'' dilemma. The
indiscriminate application of these additional reductions drives us to
eliminate significant capability and capacity and it does not provide
the flexibility needed to maintain near-term readiness at levels to
accomplish our assigned national security missions.
Sequestration cuts deeply into Air Force investment accounts, which
under the law must be applied equally at the program, project, and
activity level; consequently, it impacts every one of the Air Force's
acquisition programs. For example, a potential FY14 sequestration
impact for the F-35A low rate initial production, relative to the
request, could be the loss of four to five aircraft from the requested
amount of 19.
A year-long Continuing Resolution will also delay fielding needed
capabilities to our warfighters. For example, without Congressional
approval to enter into new multi-year procurements, an inability to
execute the planned C-130J program multi-year buy will impact the
production line, delivery schedule, and potentially increased cost.
The Air Force would like to be granted the ability to move
appropriations to mitigate, to the maximum extent possible, devastation
to the highest priority programs. However, even with flexibility, the
Air Force may not eliminate all risks associated with meeting the
Combatant Commander requirements. We need the Congress' support to
better align our future force to the needs of the current defense
strategy.
Mr. Turner. DOD took 30 percent of sequestered funding from RDT&E
and procurement accounts from prior year unobligated balances instead
of from FY13 funds. What effects, if any, does the use of prior year
unobligated balances to satisfy the FY13 sequestration have on the
Department's flexibility in managing programs moving forward including
dealing with further sequestration?
General Moeller. In FY13, the AF used $1.5B in unobligated prior
year funds that will not be available in FY14. In addition, the current
Continuing Resolution contains $500M less than was programmed for the
AF FY14 budget. The remaining FY14 funding does not allow the AF to
even cover the readiness shortfall from last year.
As with force structure and readiness, if the reduced caps under
current law continue, our modernization forecasts are bleak. This
funding level will impact every one of the AF modernization programs.
These disruptions will, over time, cost more taxpayer dollars to
rectify contract breaches, raise unit costs, and delay delivery of
critical equipment. When it comes to future investment and
modernization, the public may not recognize the effects of these
reductions initially. The damage will compound with time.
Mr. Turner. A number of programs reported delaying aspects of
development and deferring or reducing testing in response to the FY13
sequestration? What risks were assumed in these delays or reductions
and what impacts will programs feel in FY14 and beyond as a result?
General Moeller. With FY13 sequestration, programs assumed risks in
schedule and cost by deferring near-term risk reduction activities,
delaying contract awards and decreased investments in development.
Additionally, the Air Force used $1.5B in unobligated prior year funds
to reduce risks but that option will not be available in FY14. For FY14
and beyond, deferrals are likely to extend program schedules and
increase costs due to the restructuring of activities and contracts,
which will likely delay the planned operational capabilities to
warfighters. A potential FY14 sequestration impact for the F-35A low
rate initial production, relative to the request, could be the loss of
four to five aircraft from the requested amount of 19. This potential
reduction will increase unit costs resulting in production funding
shortfalls.
Moreover, the across the board cuts will likely remove funding for
our program managers to address emerging technical issues discovered
during the development effort. This directly impacts our ability to
achieve the original program baseline, and will undoubtedly escalate
program costs. The Air Force would like to be granted the ability to
move appropriations to mitigate, to the maximum extent possible,
devastation to the highest priority programs. However, even with
flexibility, the Air Force may not eliminate all risks associated with
meeting the Combatant Commander requirements.
The Strategic Choices and Management Review found the President's
FY14 budget proposal is the most prudent option of those currently
being considered. FY14 sequestration reductions force sharp declines in
our readiness and modernization accounts.
Mr. Turner. In addition to delaying or reducing development
activities, including testing, the Department accommodated
sequestration by reducing the procurement of quantities and
capabilities in a number of weapon programs. Does the Department have
an estimate of the added costs, if any, associated with delayed
development activities and procurement associated with the FY13
sequestration?
General Moeller. The Air Force has not conducted this analysis at
the at the program, project, and activity level. With the continued
budget uncertainties, the department has focused on protecting top
modernization programs while maintaining readiness.
Mr. Turner. A fair number of programs appear to have been able to
absorb the FY13 sequestration with minimal or little immediate impact.
How was this possible and does the Department anticipate that this
would again be the case if sequestration occurs again in FY14?
General Moeller. In FY13, the Air Force used $1.5B in unobligated
funds that will not be available in FY14. We start on a Continuing
Resolution for the beginning of FY14 that is roughly, just on our O&M
account, $500M less than we had programmed for in FY14. The remaining
funding does not allow us to even cover the readiness shortfall from
last year.
Mr. Turner. Will the potential effects of sequestration--which
could include longer development phases and lower production rates--be
significant enough to cause some major defense acquisition programs to
experience significant unit cost increases reportable as ``Nunn-McCurdy
breaches''?
General Moeller. We did not experience any Nunn-McCurdy breaches
with the FY13 sequestration, but there is potential for a breach with
the FY14 sequestration. This will not be determined with certainty
until the FY15 President's Budget is complete.
Mr. Turner. How will you make cuts to major defense acquisition
programs without forcing them into a Nunn-McCurdy breach? Should
Congress modify the requirements that currently apply when a Nunn-
McCurdy breach occurs?
General Moeller. The Air Force builds its budget based on the needs
of the service consistent with resources available. The Air Force will
make prioritized investments to ensure an ability to project Global
Vigilance, Global Response, and Global Power. When forced to make tough
decisions, we will favor new capabilities over upgrades to our legacy
forces and our top three acquisition priorities remain the KC-46, the
F-35, and the Long Range Strike Bomber.
The fact that a program may or may not have a Nunn-McCurdy breach
does not drive the overall programming process. Those decisions may
result in terminations and truncations of investment programs. We would
work to re-baseline and restructure the remaining major defense
acquisition programs to be executable in FY14 and beyond, as well as
minimize Nunn-McCurdy impacts.
It is the Department's position not to seek any legislative relief
for sequestration-driven Nunn-McCurdy breaches. The current Nunn-
McCurdy legislation has a mechanism to mitigate quantity-related
critical breaches. The Department has not experienced any significant
impact in terms of breaches to date. There were no Nunn-McCurdy
breaches reported for FY13; however, the potential for a breach with
sequestration for FY14 exists. The cumulative reductions over time in
quantity from the baseline may eventually result in an increase in
Nunn-McCurdy unit cost breaches.
Mr. Turner. How would sequestration and CR scenario impact the
procurement of F-35As? Would lower procurement numbers results in a
future strike fighter shortfall?
General Moeller. Sequestration in FY14 could result in a loss of 4-
5 F-35A aircraft. A full year continuing resolution (CR) could result
in a loss of 3-4 F-35A aircraft. A combination of sequestration plus a
full year CR could result in a loss of 5-7 aircraft. The FY14
President's Budget request is for 19 F-35A aircraft.
The exact impact of sequestration on the future strike fighter
force is still being assessed. We do know that more reductions will
drive additional risks to our readiness, force structure, and ability
to modernize our aging aircraft inventory. As we navigate the uncertain
way ahead, we will continue to work with Congress.
Mr. Turner. Would sequestration and a CR affect life extension
programs for F-15s, F-16s, and A-10s resulting in a higher fighter
shortfall this year or in the years ahead?
General Moeller. F-15 Program--The F-15 has no Service Life
Extension Program (SLEP), therefore no known impact at this time.
F-16 Program--FY14 sequestration and continuation resolution (CR)
could affect the ongoing developmental efforts associated with the F-16
Legacy SLEP program by slowing the program. Production is scheduled to
begin in FY18 and may be impacted if there is a delay in development.
There is no immediate shortfall in aircraft, but future years may be
impacted.
A-10 Program--The A-10 Wing Replacement Program would buy fewer
wings this year. No fighter shortfall this year but may occur as early
as FY19 without future buys based on FY13 NDAA mandated fleet size
(283).
Mr. Turner. What effects could sequestration and a CR have on the
military aviation industrial base?
General Moeller. We are now approaching a second year of operations
under the Budget Control Act (BCA) and operating under Continuing
Resolutions. Risk and uncertainty are the key words that I would use to
characterize the results. The nation's security is at greater risk,
your Air Force is at greater risk and most importantly our Airmen,
military and civilians, are at greater risk as they attempt to cope
with the uncertainties of this fiscal crisis.
Clearly, there have been broad impacts to the national technology
and industrial base. The immediate and drastic reductions imposed by
the BCA caused the Air Force to cut flying hours; reduce training,
exercises, and travel; defer maintenance and modernization; and
painfully, furlough our civilian Airmen. The instantaneous drop in
demand flowed across and through the tiered network of companies, large
and small, that supply the goods and services needed to sustain Air
Force capabilities and our infrastructure. The resulting personnel
reductions and reorganizations of the larger firms, such as Lockheed
Martin and Raytheon, have been reported in the press. Adjustments made
by the lower tiers of the supply chain are less publicized yet, on the
individual level, are just as devastating.
Without relief, the impacts will not get better in the near future.
As the Air Force shrinks in size, divesting capacity while preserving
core capabilities and key investments, our demand on both the organic
and commercial industrial bases will continue to drop. Some companies
may be able to offset the drop in Air Force business by shifting to
commercial or private sector customers. The segment of concern is that
group which has both the intellectual capacity and physical plant
capability to design, develop, produce, and sustain military-unique
aircraft and systems. Without investment, that sector will wither. The
nation may pay dearly in the future to reinvigorate that sector. My
hope is the cost will be measured only in terms of dollars and time and
not those whose mission it is to fly, fight and win when called upon.
______
QUESTIONS SUBMITTED BY MR. VEASEY
Mr. Veasey. As the Army addresses reductions in end-strength, you
must also be looking to make commensurate cuts to equipment and weapons
systems. Is Army basing these decisions not only on acquisition cost
savings, but also on related life cycle cost expenditures? It's my
concern that any saving initially reaped by divesting of one weapons
system will be more than offset by the operating and maintenance costs
associated with retaining or expanding the use of another system if
operating expenses are ignored. Are you taking a holistic approach and
assessing all the costs involved when you make these decisions?
General Barclay. The Army requirements and programming process
specifically addresses life cycle costs and cost-benefits associated
with retaining existing equipment and modernization. All programs
undergo a life cycle cost assessment to determine the investments
necessary to develop, acquire, sustain, and divest the system.
Modernization planning includes sustainment costs to keep older
equipment longer if new or modification programs are delayed.
The Army faces critical resource issues regarding sustainment costs
and modernization costs. Continued delays in modernization will
increase the sustainment costs of existing equipment.
Throughout the year, the Army and Secretariat staff team to address
near- and long-term life cycle costs. This is conducted at the program
level and portfolio levels during the Program Objective Memorandum
development, and in our recently instituted Long-Range Integrated
Requirements Analysis reviews that bring together acquisition,
sustainment, training, and installations to ensure the long-range plans
are synchronized.
The current sequestration pressures reduce the Army's ability to
find the right balance to reduce overall life cycle costs. Resource
stability and flexibility are fundamental building blocks to improving
effective life cycle cost management
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