[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                                     

                         [H.A.S.C. No. 115-104]

                                HEARING

                                   ON

                   NATIONAL DEFENSE AUTHORIZATION ACT

                          FOR FISCAL YEAR 2019

                                  AND

              OVERSIGHT OF PREVIOUSLY AUTHORIZED PROGRAMS

                               BEFORE THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                         FULL COMMITTEE HEARING

                                   ON

    OVERSIGHT AND REFORM OF THE DEPARTMENT OF DEFENSE ``4TH ESTATE''

                               __________

                              HEARING HELD

                             APRIL 18, 2018


                                     
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
30-685                      WASHINGTON : 2019                     
          
--------------------------------------------------------------------------------------




                                     
                      COMMITTEE ON ARMED SERVICES                   
                     
                     One Hundred Fifteenth Congress

             WILLIAM M. ``MAC'' THORNBERRY, Texas, Chairman

WALTER B. JONES, North Carolina      ADAM SMITH, Washington
JOE WILSON, South Carolina           ROBERT A. BRADY, Pennsylvania
FRANK A. LoBIONDO, New Jersey        SUSAN A. DAVIS, California
ROB BISHOP, Utah                     JAMES R. LANGEVIN, Rhode Island
MICHAEL R. TURNER, Ohio              RICK LARSEN, Washington
MIKE ROGERS, Alabama                 JIM COOPER, Tennessee
BILL SHUSTER, Pennsylvania           MADELEINE Z. BORDALLO, Guam
K. MICHAEL CONAWAY, Texas            JOE COURTNEY, Connecticut
DOUG LAMBORN, Colorado               NIKI TSONGAS, Massachusetts
ROBERT J. WITTMAN, Virginia          JOHN GARAMENDI, California
DUNCAN HUNTER, California            JACKIE SPEIER, California
MIKE COFFMAN, Colorado               MARC A. VEASEY, Texas
VICKY HARTZLER, Missouri             TULSI GABBARD, Hawaii
AUSTIN SCOTT, Georgia                BETO O'ROURKE, Texas
MO BROOKS, Alabama                   DONALD NORCROSS, New Jersey
PAUL COOK, California                RUBEN GALLEGO, Arizona
JIM BRIDENSTINE, Oklahoma            SETH MOULTON, Massachusetts
BRAD R. WENSTRUP, Ohio               COLLEEN HANABUSA, Hawaii
BRADLEY BYRNE, Alabama               CAROL SHEA-PORTER, New Hampshire
SAM GRAVES, Missouri                 JACKY ROSEN, Nevada
ELISE M. STEFANIK, New York          A. DONALD McEACHIN, Virginia
MARTHA McSALLY, Arizona              SALUD O. CARBAJAL, California
STEPHEN KNIGHT, California           ANTHONY G. BROWN, Maryland
STEVE RUSSELL, Oklahoma              STEPHANIE N. MURPHY, Florida
SCOTT DesJARLAIS, Tennessee          RO KHANNA, California
RALPH LEE ABRAHAM, Louisiana         TOM O'HALLERAN, Arizona
TRENT KELLY, Mississippi             THOMAS R. SUOZZI, New York
MIKE GALLAGHER, Wisconsin            JIMMY PANETTA, California
MATT GAETZ, Florida
DON BACON, Nebraska
JIM BANKS, Indiana
LIZ CHENEY, Wyoming
JODY B. HICE, Georgia

                      Jen Stewart, Staff Director
                         Tim Morrison, Counsel
                      William S. Johnson, Counsel
                          Justin Lynch, Clerk
                           
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page

              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Smith, Hon. Adam, a Representative from Washington, Ranking 
  Member, Committee on Armed Services............................     1
Thornberry, Hon. William M. ``Mac,'' a Representative from Texas, 
  Chairman, Committee on Armed Services..........................     1

                               WITNESSES

Dunlap, Preston C., National Security Analysis Mission Area 
  Executive, Johns Hopkins University Applied Physics Laboratory.     5
Levine, Peter, Senior Research Fellow, Institute for Defense 
  Analyses.......................................................     2

                                APPENDIX

Prepared Statements:

    Dunlap, Preston C............................................    53
    Levine, Peter................................................    45
    Smith, Hon. Adam.............................................    44
    Thornberry, Hon. William M. ``Mac''..........................    43

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:

    [There were no Questions submitted post hearing.]
    
    
    OVERSIGHT AND REFORM OF THE DEPARTMENT OF DEFENSE ``4TH ESTATE''

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                         Washington, DC, Wednesday, April 18, 2018.
    The committee met, pursuant to call, at 10:02 a.m., in room 
2118, Rayburn House Office Building, Hon. William M. ``Mac'' 
Thornberry (chairman of the committee) presiding.

  OPENING STATEMENT OF HON. WILLIAM M. ``MAC'' THORNBERRY, A 
    REPRESENTATIVE FROM TEXAS, CHAIRMAN, COMMITTEE ON ARMED 
                            SERVICES

    The Chairman. The committee will come to order.
    Over the years, Congress has focused most of our attention 
on the military services and on weapons and equipment, 
personnel, and policy issues. We have paid relatively little 
attention to the rest of DOD [Department of Defense] that makes 
up the 4th Estate; in fact, one expert has said the 4th Estate 
is untouched by human hands.
    Yet, this portion of the Department of Defense spends about 
20 percent of the budget, includes about 25 percent of the 
civilian workforce, and hires about 600,000 contractors. As we 
are working to get more value for the taxpayer dollar, to get 
more resources into the hands of the warfighter faster, and to 
make the Department more agile and innovative in the face of 
the wide array of security challenges before us, we cannot 
neglect to examine this large portion of DOD.
    Yesterday, I offered a proposal to make reforms to a 
portion of the 4th Estate. I look forward to receiving 
reactions to that legislative text. But beyond the specific 
proposals, I believe it is essential that we work across the 
entire Department, leaving no stone unturned, to ensure that 
the warfighters have the best that this country can provide, 
and that this enormous organization of DOD is ready and able to 
defend the Nation.
    I yield to the ranking member.
    [The prepared statement of Mr. Thornberry can be found in 
the Appendix on page 43.]

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON, 
          RANKING MEMBER, COMMITTEE ON ARMED SERVICES

    Mr. Smith. Thank you, Mr. Chairman. And I agree; this is an 
important hearing that we are having today on a substantial 
portion of the budget that does not get as much attention as it 
deserves.
    I wouldn't go so far as to say it is untouched by human 
hands. I think that there are others that have come before us 
that have taken a swing at this, both in the Department and in 
Congress, to try to look at the portion of the budget that is 
not directly related to the warfighter.
    And there is without a doubt, and I don't think anyone 
would argue, there is savings that can be found there, and I 
think we should look and try and do that. And I think the 
chairman's bill that he introduced yesterday or, I guess, the 
portion of our markup he introduced yesterday to attempt to do 
that is a good starting point.
    I would say, however, what these people do is not 
irrelevant. There are a number of portions in the so-called 4th 
Estate that are essential to assisting the warfighter and 
making sure that they are ready for the fight.
    So what we have to do in this committee is figure out how 
can we find savings without doing damage. And, as I said, 
others have come before us and tried to do that. The Pentagon 
is a very difficult bureaucracy to get at. I certainly admit 
that.
    And I will just close by saying, I certainly applaud the 
chairman's efforts to take that run. I look forward to working 
with him to figure out the best way to do that, to make sure we 
cut in a sensible way that saves money, and at the same time, 
makes sure that we can continue to provide the services that 
our warfighters need so we can fight as efficiently as 
possible.
    I will stop there because the two gentlemen who are 
testifying today know a lot more about this than I do, so it 
will be better to hear from them and get to our questions and 
answers.
    Thank you, Mr. Chairman. I yield back.
    [The prepared statement of Mr. Smith can be found in the 
Appendix on page 44.]
    The Chairman. Thank you. I certainly agree with the 
gentleman on all of that, including the fact that our witnesses 
have a lot of expertise to bring to the table.
    We welcome Mr. Peter Levine, senior research fellow at the 
Institute for Defense Analyses, but who has also been Deputy 
Chief Management Officer at the Department of Defense. And what 
I won't mention is some of his associations across the capital.
    We also have Mr. Preston Dunlap, who is the National 
Security Analysis Mission Area Executive at Johns Hopkins 
Applied Physics Laboratory, but he too has experience in the 
Pentagon including serving in CAPE [Cost Assessment and Program 
Evaluation] and in other positions.
    Thank you both for being here. Without objection, your full 
written statements will be made part of the record. And we look 
forward to any oral comments you would like to make.
    Mr. Levine.

 STATEMENT OF PETER LEVINE, SENIOR RESEARCH FELLOW, INSTITUTE 
                      FOR DEFENSE ANALYSES

    Mr. Levine. Thank you, Mr. Chairman, Congressman Smith, 
members of the committee.
    First, it is good to see you all again. I thank you for 
inviting me here to address defense management and the DOD's 
4th Estate. I think it is a tremendously important issue which 
is well worth your attention, and I believe that there are 
significant savings that are possible in this area.
    When I served as the Department's Deputy Chief Management 
Officer I was responsible for a program to carry out about $7 
billion worth of savings over the course of the FYDP [Future 
Years Defense Program], and most of that we were looking to the 
4th Estate to achieve.
    I think it is important though not to have unreasonable 
expectations as we look at the 4th Estate. As I point out in my 
prepared statement, a huge part of the 4th Estate budget goes 
to the Defense Intelligence Agencies, the Missile Defense 
Agency, and the U.S. Special Operations Command. By some 
definitions, the combatant commands are also part of the 4th 
Estate, so there is a huge warfighting function that is in the 
4th Estate.
    Within the balance, we pay for the Defense Health Program 
which provides health care to our service members and their 
families, as well as the DOD schools and commissaries, which 
Members of Congress have generally considered to be off limits 
for large cuts.
    The 4th Estate also includes DARPA [Defense Advanced 
Research Projects Agency], SCO [Strategic Capabilities Office], 
and DIUx [Defense Innovation Unit Experimental], all of which 
perform cutting-edge research needed to maintain our 
technological edge. If all those entities are considered to be 
essentially off the table for budget reductions, and I don't 
mean to imply that there are no efficiencies possible, but the 
large budget reductions, if we are looking at the rest of it, 
we have about a quarter of the 4th Estate left to look at. So 
you can't achieve 25 percent reduction in the 4th Estate by 
looking at only a quarter of the budget.
    Unfortunately, the everything else also performs essential 
functions. I think these are functions that can be performed 
more efficiently and that deserve close attention from the 
committee, but they are important functions, nonetheless.
    This includes a number of small defense agencies that 
perform specialized functions, like DPAA [Defense POW/MIA 
Accounting Agency], DSCA [Defense Security Cooperation Agency], 
DTRA [Defense Threat Reduction Agency], DTIC [Defense Technical 
Information Center], DTSA [Defense Technology Security 
Administration], DTRMC [Department of Defense Test Resource 
Management Center]. We can go through any of those that you 
want, but my point on that would be the overall cost of those 
small agencies is relatively small. Their functions have to be 
performed somewhere. So there are savings. I believe that the 
small agencies can be made more efficient, but you are not 
looking for big dollars there.
    If you are looking for big dollars, you are probably 
looking where others have looked, which is to the big business-
type defense agencies, like DLA [Defense Logistics Agency], 
DFAS [Defense Finance and Accounting Services], and DISA 
[Defense Information Systems Agency]. That is sort of 
everybody's favorite target for budget cuts in the 4th Estate.
    Before those agencies were established, the Department ran 
parallel activities in each of the services, multiplying the 
overhead and the number of people needed to perform the work. 
DLA and DFAS, the two agencies that get most of the complaints 
because of their size, had almost 100,000 employees between 
them when they absorbed functions from the services in the 
1990s.
    Today they perform the same work better with 34,000 
employees. That is about a $6 billion a year annual savings 
from the personnel reduction that they were able to accomplish 
by bringing in tasks from the services and consolidating them.
    I have been following DLA for almost 30 years now, and I 
have watched it evolve as a business, reaping savings by 
instituting best practices from the private sector like direct 
vendor delivery, prime vendor contracts, electronic 
contracting, electronic tracking, asset visibility programs, 
and business systems that actually work, unlike most of those 
in the Department of Defense.
    Over the last 5 years, DLA has executed a cost reduction 
program that targeted contracting, personnel, acquisition of 
assets, travel, transportation, supplies and equipment, rent 
and maintenance. This program was expected to achieve about $5 
billion of savings over the FYDP.
    As a result of these efforts, I think DLA is one of the 
best run businesses in the Department. That doesn't mean that 
further savings aren't possible--they are and the committee 
should pursue them--I think we just need to understand what has 
gone before as we look at those.
    DFAS is also a relatively efficient organization and 
outperforms what the services did 25 years ago, but I see a 
difference here. Both DFAS and the services have evolved 
considerably and have new capability since DFAS was formed 25 
years ago.
    Given the new ERPs [enterprise resource programs] in the 
services, and the new capabilities that they have, I think it 
is long past time for a complete re-examination of the role 
that DFAS and the services play. And there should be 
streamlining that's possible. There may be functions that can 
be transferred from DFAS to the services, but a real considered 
approach to that and figuring out how those functions work is 
necessary.
    I am less familiar with DISA, but I know that it runs data 
centers that are sometimes considered to be underutilized and 
overstaffed. It is tough cutting these kinds of things in the 
Department without a BRAC [base realignment and closure] 
though, so you might--you know, if you are willing to take that 
issue on, not a BRAC issue but the issue of data centers and 
whether they are efficiently utilized, more power to you.
    Finally, I would like to say just a few words about two 
agencies, two defense agencies that reported directly to me 
when I was in the Department. Everybody in the Pentagon loves 
to criticize Washington Headquarters Services [WHS]. It can be 
maddeningly unresponsive at times, but it performs essential 
functions without which the Pentagon could not operate.
    It runs the power plant and utilities, maintains the 
building, allocates office space, contracts for food, handles 
the budget, runs personnel system, controls ID [identification] 
cards and parking permits, among other functions.
    It would be nice to think that we could save money by 
eliminating WHS, but somebody has to provide these services. 
Similarly, with the Defense Human Resources Activity [DHRA], 
which reported to me when I was Acting Under Secretary for 
Personnel and Readiness, that is a notoriously inefficient 
agency.
    And there have to be savings that are possible, but 
recognize that it performs a bunch of activities that cannot--
that we really cannot avoid and many of which are mandated by 
Congress. It runs the Department's education and training 
programs and its manpower data systems.
    It staffs the JAMRS [Joint Advertising, Market Research and 
Studies] program, the Suicide Prevention Office, the SAPRO 
[Sexual Assault Prevention and Response] office, and the 
Defense Travel System. It is responsible for the accommodation 
program for disabled employees, the veterans transition 
program, employer support for the Guard and Reserve. The 
elimination of DHRA makes no sense unless those programs are 
also going to be eliminated.
    So, Mr. Chairman, in conclusion, I appreciate the 
committee's ambition in looking at this issue. I think it is 
tremendously important. I think you can find efficiency. I 
think you can find significant savings, and any savings that 
you achieve will be a tremendous victory for the Department and 
the taxpayers.
    I look forward to your questions.
    [The prepared statement of Mr. Levine can be found in the 
Appendix on page 45.]
    The Chairman. Thank you.
    Mr. Dunlap.

  STATEMENT OF PRESTON C. DUNLAP, NATIONAL SECURITY ANALYSIS 
   MISSION AREA EXECUTIVE, JOHNS HOPKINS UNIVERSITY APPLIED 
                       PHYSICS LABORATORY

    Mr. Dunlap. Chairman Thornberry, Ranking Member Smith, 
distinguished members of the committee, it is an honor to 
appear before you today to discuss the oversight and reform of 
the 4th Estate and defense agencies and field activities in 
particular.
    It is also excellent to be joined by my colleague, Peter 
Levine, here today.
    Though, as the chairman said, I currently work at Johns 
Hopkins Applied Physics Lab, I am here today in a personal 
capacity. In 2013, I led a review on this topic for Secretary 
of Defense Chuck Hagel as part of the Strategic Choices and 
Management Review when I was the Director of Program Analysis 
and Chief of Staff in the Office of Cost Assessment and Program 
Evaluation in OSD [Office of the Secretary of Defense].
    While I readily admit that my experience is slightly dated, 
the principles that were true then and what we found in reviews 
past, I think, remain relevant and true today. To that end, I 
am going to walk through six false assumptions that plagued our 
review and other reviews that we looked at, and I hope that we 
might be able to progress here more quickly past them.
    And I do thank the chairman for throwing out the first 
pitch and getting the ball rolling on this, so thank you.
    Assumption number one: Defense agencies and field 
activities are homogenous back offices. Each of the current 27 
agencies and activities was initially created by statute to 
achieve greater effectiveness, spanning multiple military 
departments. These missions vary widely, as you know, from 
groceries to geospatial analysis, to educating kids, to 
engineering, and so on.
    Though each organization does indeed have a back office or 
overhead, and a few do function as consolidated back offices, 
like the Washington Headquarters Services, the majority conduct 
a variety of what many consider valuable direct missions to the 
Department of Defense.
    Assumption number two: The appropriated budget is the total 
budget. We are using publicly available data, unclassified 
data--so setting aside things like the intelligence agencies--
the agencies get appropriated, as the chairman alluded to, 
roughly $65 billion, but some also receive additional funding 
via defense working capital funds from other DOD agencies, 
military departments, and even individuals that pay them for 
services.
    Working capital funds allow consumers, in some sense, some 
choice as to where to buy their services from as well as 
flexibility and agility to respond to pressing needs. That 
included, all told, they execute roughly 16 percent of the DOD 
budget or over $116 billion, but as I mentioned before, each in 
a different way.
    And when you think about 25 percent to the right target, 
thinking about both the appropriated as well as revenues and 
other appropriated budgets that get sent to these agencies for 
execution should be considered.
    Assumption number three: The agencies can take cuts and 
still perform the same level of mission. And I appreciate the 
chairman's comments that--and when you look at this you should 
think about not only cuts but also dropping missions that might 
not be important or relevant in today's time.
    In a bureaucracy it is often harder to cut a mission than 
it is simply to cut funding, but, of course, they are related. 
It is appropriate to take hard looks at doing the same mission 
or even more for less, but if savings are an objective then 
tough decisions may have to be made about actually doing less 
for less.
    For example, one that is often cited is DOD's grocery 
stores or commissaries or DOD schools, which, of course, 
provide a valued service to military families that can be 
difficult to find in some areas overseas or remote areas in the 
U.S.
    That said, roughly 85 percent of commissaries are located 
within a 15-minute drive of a grocery store or a big-box store 
with full grocery selections. Options to save here or these 
type of agencies would include a careful review of the business 
case for each particular location, store, school, and so on.
    Assumption number four: Peanut butter spread cuts are 
helpful. When faced with tough decisions past reviews often 
defaulted to a peanut butter spread approach to efficiencies, 
such as multiple years of 10 percent cuts in a generic fashion.
    A better approach, I think, as the Congress recognizes, is 
to focus on what the Nation most needs from these organizations 
to emphasize those missions for the warfighter and take 
efficiencies in lower priority areas or obsolete missions.
    Assumption number five: Reorganization is the answer. Is it 
wise for the same person to oversee an intelligence agency, a 
grocery store, and the Missile Defense Agency? Well, maybe. So 
our study in 2013 examined the implications of consolidating 
all those agencies under one leader versus grouping them by 
missions, similar to the way they are today. And we found it 
helpful to consider both the personal expertise of the leader 
as well as dividing the missions across the Department in the 
4th Estate.
    Assumption number six: It is all about metrics and 
reporting. The agencies and activities have been required to 
provide a biannual report to Congress and in the past also 
produced metrics that were tracked by organizations like CAPE, 
my old organization, and at the time the Deputy Chief 
Management Officer.
    However, ultimately, there is no substitute for strong 
leadership. In our experience, the vision and experience of a 
leader who understands the mission of the particular defense 
agency or field activity they oversee and the need for greater 
efficiencies can, together with oversight and action from 
Congress, I think, achieve the greatest steps.
    So going forward, any reform efforts might consider these 
and other lessons learned to give a sense of the magnitude of 
the issue, along with the 25 percent sort of target that is on 
the table. If all seven agencies--we will say six of those 
mentioned are eliminated, that is roughly a 2 percent budget 
cut in total. So there is a long way to go between 2 and 25 
percent if you set aside DISA and the transfer.
    So how do we think about that? There is four categories 
that could find further efforts to be able to get from that 
level of percentage up to 25 or whatever the right percent is. 
First, large agencies that have not recently been reviewed, 
like the Defense Logistics Agency or the Defense Information 
Systems Agency, which is put on the table already; second, 
missions that may be partially accomplished outside the 
government like Defense Commissary Agency or Education Activity 
on a location basis; third, missions that are split between the 
4th Estate and the services still, like intelligence agencies, 
satellite development organizations, and these cases, of 
course, in coordination with the Director of National 
Intelligence; and fourth, those currently decentralized 
missions that may require increased leadership focus, given 
advances in both threat and technological opportunities like 
artificial intelligence and hypersonics, which could either be 
accomplished with existing structures like the Missile Defense 
Agency and Defense Advanced Research Project Agency or with 
their own organizations.
    Ultimately, for any reform to be successful it must be true 
both, as was said here, to the taxpayer as well as to the 
talented men and women in uniform who put themselves in harm's 
way each and every day around the globe.
    And I thank you for the opportunity to testify before you 
today on this important topic, and I look forward to your 
questions. Thank you.
    [The prepared statement of Mr. Dunlap can be found in the 
Appendix on page 53.]
    The Chairman. Thank you. Thank you both.
    Mr. Levine, you have got a magic wand and you can wave it 
and do one or two things when it comes to the 4th Estate 
reform. What would you do?
    Mr. Levine. The first thing I would do is to take a close 
look at the working capital funds. My colleague, Mr. Dunlap, 
referred to the fact that a significant amount of the funding 
going into the 4th Estate comes from the services through the 
working capital funds.
    My concern about the working capital funds is they do what 
they are supposed to with regard to the buyer. The services 
have a pressure to become more efficient because they see the 
cost of what they are buying.
    But they don't have the desired effect in terms of 
efficiency with a seller, because the way the rates are set, 
they are set to make sure that the fund breaks even. So no 
matter how high your expenses are, you will always know you are 
going to recover them.
    My belief is we need a mechanism that will give the 
customers the services, visibility into essentially how the 
defense agencies are spending their money, how DLA, DISA, and 
DFAS are spending their money so they can see the overhead and 
push back at excess expenses.
    I think that kind of mechanism would create sort of a cop 
on the beat to look at those expenses on a day-to-day basis, 
and nobody has more incentive to save money than the person who 
is actually paying the bills. So I think we need to build that 
kind of mechanism into the Department.
    Second, there are a number of specific areas I would look 
at. The first one is healthcare management. I know that the 
committee just went through a major exercise of passing 
legislation on that. It is very significant legislation. The 
Department has a long way to go to execute it.
    But I can't help but say the overhead in the healthcare 
area is extraordinary when we are maintaining three separate 
surgeon generals and the Defense Health Agency. I don't think 
that is an area where we are efficient.
    And you and the Department are going to have to keep a very 
close eye on the implementation of this to make sure that it is 
actually implemented in a way that brings down the overhead and 
doesn't just add new organizations to an inefficient system.
    The third area that I would look at--and there are others 
we can talk about. The third area I would look at is finance 
and accounting. And I really think it is important to relook 
the whole relationship between DFAS and the services. When I 
was the DCMO [Deputy Chief Management Officer], some of the 
service comptrollers would come to me and say, look, there are 
things that DFAS is doing for me that I can now do myself 
because I have an ERP, an enterprise resource program.
    It has the capability built into it, but I am required to 
ship this stuff over to DFAS and have them do it. And the 
consequence is then it is in two systems and then I have to 
hire--DFAS has to hire more people. They have to go through a 
reconciliation process because it is in two systems. If I just 
did it myself I could not only do it within the system I 
already have but I could do it cheaper without the manpower to 
do the reconciliation.
    That is a substantial task to do that re-examination. But 
as I said in my prepared statement, there has been a lot of 
evolution and capability on both the DFAS side and the service 
side, and I think that whole relationship of who does what 
finance and accounting tasks deserves a comprehensive relook.
    The Chairman. Okay. Mr. Dunlap, magic wand, what would you 
do?
    Mr. Dunlap. Thank you.
    I appreciate the comments of my colleague here. I think 
working capital funds are both a bit of a mystery as well as a 
gem. Why do I say that? It is hard to track where everything 
goes and the pricing, as my colleague pointed out.
    A gem because I think the Congress is also interested in 
agility and flexibility in the agencies to respond 
appropriately, and that is certainly pointed to as a mechanism 
to allow that flexibility and some choice where the choice is 
available for the different organizations to choose one 
organization or another.
    So there is both pros and cons to the approach. But it is, 
you know, roughly half of the sort of total appropriations that 
the defense agencies oversee, so it is appropriate to take a 
careful look at that.
    I think the biggest thing here would be to splice out those 
functions across all the organizations that truly are a more 
overhead and back office functions with an assessment that they 
be done more efficiently or effectively. I think a careful, 
hard look needs to be done.
    We did that in our review by bringing in each of the 
defense agency and activities heads, so I personally met with 
each of them, went through the org [organizational] chart, the 
missions, what they were doing, and why they were doing them. 
To be able to get at that, it takes something like that 
pressurizing leadership in the Department to go have a careful, 
intricate look to support that.
    On the reform in terms of making them more effective and 
capable for the service members, they also provide a variety of 
capabilities that I think, you know, the Congress thinks are 
important, intelligence information in light of foreign 
adversaries' capabilities, missile defense capabilities, and so 
we want to make sure that we emphasize those.
    And to that end, there remains, as I mentioned in the 
opening remarks, elements of those structures that remain both 
divested amongst the services and other organizations as well 
as in the 4th Estate.
    I don't have a position on whether it is better to be in 
the 4th Estate or to be divested back to the services, but I 
think there are several missions still in defense agencies 
where we could look at that as part of this review and where 
things could be done better or worse.
    To get to that target of 25 percent or whatever the right 
amount is, we are going to have to take--the Congress is going 
to have to take a careful look at what to cut and what to stop 
doing.
    So I appreciate the seven agencies mentioned, one of which 
is more of a transfer. But as I said, that only gets to about 2 
percent of the budget if they were all eliminated, 2 percent of 
the 25 percent, I should say.
    And so I think the Congress will have to take a careful 
look at whether they are open to issues like Mr. Levine 
mentioned with what has typically been off the table with 
BRACs, or education, or commissaries, because you have to get 
agencies that are large to be able to achieve that kind of 
savings.
    So I just put that out there for consideration. Thank you.
    The Chairman. Okay. I have got several things I want to 
pursue, but first, I will turn to other members. Ranking 
Member.
    Mr. Smith. Thank you, Mr. Chairman.
    You mentioned the word ``BRAC'' in that last little 
sentence there, and it is the first thing I want to ask you 
about. Of all the savings, how important would it be to give 
the Department of Defense greater flexibility in closing bases 
and moving personnel?
    Because we all know, I mean, BRAC is the big bite that 
people are reluctant to take in terms of actually closing bases 
and realigning them. But they are--even within simply moving 
equipment around within DOD or if you wanted to close an office 
in one place and open it up someplace else, you have always got 
this massive fight with, well, us, whatever district it is that 
you are closing down.
    So there is two questions in there. Number one, are there 
things that we could do to make it easier for DOD to shut 
things down, to move personnel, to sort of resist the political 
pressures that inevitably come from the district in question?
    And I am talking about something as simple as if they 
wanted to move four C-130s from one base to another. There will 
always be a fight, and it will always take longer than it 
should. So there is that smaller stuff. And then on the larger 
point, how important would be having a BRAC round to getting at 
some of the efficiencies that is we are talking about here?
    Mr. Levine. Mr. Smith, I am not going to take on the 
political question of how you could possibly get a BRAC passed 
in the Congress. I----
    Mr. Smith. I didn't actually ask you that question. I am 
allowing you to live in your perfect nonpolitical world there, 
so----
    Mr. Levine. I did manage to go through that once, and it 
was a remarkable experience.
    But in terms of the importance of BRAC, you may remember a 
few years ago there was this Defense Business Board study that 
said we could save $125 billion in all these different areas. 
And about half of the savings were--that they projected, if I 
remember right, were in logistics and real property management.
    And so when I became Deputy Chief Management Officer, which 
was several, you know, a little while after that Defense 
Business Board study, I tasked the Defense Business Board, the 
Deputy Secretary tasked them, but at my suggestion he tasked 
the Defense Business Board to go and look at logistics and real 
property management.
    Here you said that there is $50 billion of savings here. 
Tell us what we would do in order to achieve those savings. The 
one overwhelming recommendation the Defense Business Board came 
back with was, you need a BRAC.
    So I don't know that they thought when they looked 
specifically at logistics and real property management that 
they believed that there was really $50 billion of savings 
there or that they had recommendations. But they said, if you 
want significant savings in these areas, what you need to have 
is a BRAC. So that is sort of one marker anyway.
    Mr. Smith. Okay. Mr. Dunlap, do you have anything to add to 
that?
    Mr. Dunlap. I can't answer how much of the defense agency 
reform, you know, would require BRAC or not BRAC. Just a 
general comment is that on average we sort of see a 10-year or 
so return on investment there, so there would have to be a 
recognition of upfront cost to be able to move out.
    There are some examples in the agencies not requiring BRAC 
where they are able to achieve efficiencies. I think Defense 
Finance and Accounting Services is a good organization to look 
to for that where they consolidate a bunch of their offices 
across the country.
    I don't believe they required any BRAC authority to go do 
that, but they were able, on their own volition, to take 
efficiencies there.
    Mr. Smith. Thanks.
    A related question, and just, if you want to comment on it, 
you may. You mentioned the commissaries. You mentioned some of 
the stuff locally. I mean, frankly, most of this stuff that we 
are looking at, when you say, you know, we want to reform it, 
BRAC is a very good example of what we run into.
    We asked the question, you know, why don't we reform it. 
And at the end of the day, it is because of, you know, politics 
in a lot of cases. People don't want jobs lost in their 
district. They don't want things moved.
    So, I mean, if we are going to do this, we are all going to 
have to figure out some process for saying we are going to bite 
the bullet, allow the DOD to have greater efficiency despite 
how it may impact our individual districts. Yes, I understand 
the fantasy of that comment, but I think it is important, 
because everything we are doing here is going to run into that 
brick wall.
    Even if we could all agree that there is one particular 
agency that, you know, has 5,000 people working at it, it is a 
total waste of money, we ought to do it elsewhere, it is going 
to be the mother of all fights, because those 5,000 people are 
somewhere, and some group of people are going to fight for 
them.
    But on the commissary issue, and there are a number of 
issues like this, that are basically things that the men and 
women who serve and their families, it is a convenience. It is 
something they like. It is something that they are used to. It 
is something that improves the quality of their lives in their 
belief system.
    Do you really think there are areas within that, like 
commissaries and elsewhere, that we could get to? And if so, 
how do we get to it in a way that convinces the service members 
and their families that this is okay, that we have a better 
option that is not going to negatively impact your life while 
we save money?
    Mr. Levine. You may remember that a few years ago the 
Department proposed to eliminate the commissary subsidy and 
Congress said no.
    Mr. Smith. I do.
    Mr. Levine. After that we were able to work out with you 
and with your approval and with legislation an alternative 
course, which we hope, if it is successfully implemented, will 
reduce the subsidy without reducing the benefit to service 
members.
    So that, to me, is an example of the kind of reform that 
you can do being cognizant of the benefits that you are 
providing without removing those benefits but still to provide 
them more efficiently.
    Just to take just a minute on the defense schools, my 
recollection is that the defense schools in the United States, 
we spend about $300 or $400 million a year, something in that 
range is my memory. For that price, we get extraordinarily good 
schools.
    The DOD schools match up very well against the better 
school districts in the country in terms of performance, and 
they are doing it with a sensitivity to the needs of service 
members and their children, who move frequently.
    And so just the fact that they are defense schools means 
that they are more understanding of what kids are going through 
with their parents' absence and with their parents in combat 
situations. They provide a tremendously valuable service.
    When we looked at that, the general consensus was, if we 
got rid of the defense schools, we were going to have to 
provide an almost equivalent subsidy to local school districts 
around the country. So the savings would not be $300 or $400 
million a year; it would be maybe some fraction of that, maybe 
a quarter of that or something.
    But for that $100 million, say, a year of savings, you were 
going to lose all the special capabilities provided for the 
defense school. So it is not just a matter of politics. I mean, 
there is a real value to some of these things, and a real value 
to the benefits that we provide to our service members and what 
they do for us in terms of recruiting, retention, quality of 
life for service members.
    So it is easy to say, you know, if it weren't for the 
politics, we would get rid of it, but you have got to remember 
that there is a real value that we are providing as well.
    Mr. Smith. Thank you for making that point. That is really 
all you need, and that is exactly--what you just said is what I 
will say about that. A lot of times the savings looks big 
upfront, but then you have got to factor in everything that you 
just said. And I can't say it any better, so I won't repeat it.
    But I think you are right. The commissary model is the 
model that we are going to have to go through, and this is how 
can we do it in a way--forgetting the politics for a moment, 
like you said--there is a real service that is being provided.
    So we are going to have to work very, very closely with the 
communities and with the service members to figure out, you 
know, how can we balance this out in a way that is going to 
make sure that the benefits are the same and the savings 
actually is realized.
    With that, I yield back. Thanks.
    The Chairman. Mr. Wilson.
    Mr. Wilson. Thank you, Mr. Chairman.
    And thank you, Chairman Mac Thornberry, for addressing this 
important matter of the 4th Estate which manages a significant 
portion of the defense budget and represents oversight 
responsibilities of a large number of civilian and contractor 
workforces with roughly an annual budget of $100 billion.
    And, Mr. Levine and Mr. Dunlap, thank you both for being 
here today.
    And even before I begin, Mr. Levine, I appreciate you 
commending the DOD schools and the sensitivity to military 
families. I feel the same is being done with commissaries with 
a sensitivity and support of military families and giving 
opportunities for not just having the conveniences of home 
worldwide but also providing for military family members, 
spouses, to have employment understanding that they could be 
rotated out. And so we are really fortunate to have systems in 
place that are so positive and meaningful for morale and 
welfare.
    And for both of you, what is your assessment of the 
successes or failures of the past efforts to reform or render 
more efficient the 4th Estate of the Department of Defense? And 
especially I would like for you to begin with the description 
of the 4th Estate for the benefit of observers of this hearing.
    Mr. Levine. So the 4th Estate includes the Office of the 
Secretary of Defense, the defense agencies and field 
activities. Most people would also include the Joint Staff and 
the combatant commands. So that is sort of what you are talking 
about when you try to get your arms around the 4th Estate.
    That oversimplifies it though, because, as Mr. Dunlap and I 
have been describing, those defense agencies are incredibly 
diverse and perform a wide range of missions. I can't say all 
of them are essential to the Department but many of which are 
essential to the Department, many of which are directly related 
to warfighting.
    I think there have been repeated efforts to get at the 
management of the 4th Estate. Most every administration takes 
that on at some point because most every administration is 
under budget pressure. I mean, we have gone through 
sequestration. We know what budget pressure is around here, but 
it is not new to the Department of Defense.
    My view is that each of those reform efforts has made a 
contribution. I look at DLA as an example. DLA today is a 
completely different entity from what it was when I first 
visited DLA in the 1990s, and it was this huge, unruly mass 
that was barely managed.
    I think that improvements have been made over the years, 
but I believe that management reform is a continuous 
responsibility. It is something you can never leave, and every 
new leadership cadre needs to focus on it because it is not 
something that takes care of itself or that you are ever done 
with.
    Mr. Dunlap. Great description of the 4th Estate. I 
completely agree. Just the one large thing that results in one 
of the frustrations, which is if you do reduce a mission and 
you end up not seeing the efficiencies or the savings, it can 
be quite frustrating, both for the Department and Congress.
    So, you know, sometimes you can do these and to make a 
decision to reduce an agency. And the Department has done this 
in the past as well, and it is kind of like squeezing a 
balloon. You move it over here; it just reorgs and shows up 
somewhere else. So keeping track on when you decide to cut an 
organization, reduce or eliminate, making sure that that, in 
fact, happens holistically.
    And in past efforts it sort of stops there without being 
able to track the ultimate completion of those actions and 
direction. So it is an effort that isn't an instantaneous 
result. It is going to take time and oversight.
    Mr. Wilson. And in line with your balloon analogy, how 
frequently does the Department assess the roles, functions, and 
relative value of the defense agencies and field activities 
that comprise such a significant element of the 4th Estate? 
Each of you.
    Mr. Levine. I think the Department is always looking for 
cuts in 4th Estate and efficiencies in the 4th Estate. I am not 
sure that it does a bottoms-up review of is this mission still 
needed in the way you are describing as often as it should, and 
I think it is something that can always be used.
    Mr. Dunlap. I think, you know, legislatively I think 2 
years, sort of biannual type of report and assessment is 
required. That said, every year for the President's budget and 
program and budget review they are part of that process and 
evaluation.
    In terms of a holistic review, the closest and nearest one 
that I am aware of was the 2013 review that Secretary Hagel 
oversaw. And I am not sure about years prior.
    Mr. Wilson. And really quickly, the GAO, Government 
Accountability Office, has assessed many of the cross-
enterprise business operations of DOD, Department of Defense, 
as high risk due to waste, fraud, and abuse. Is that what you 
believe has occurred? Each of you.
    Mr. Levine. The GAO has assessed all of DOD as high risk 
due to waste, fraud, and abuse. I am not sure that the defense 
agencies are any different from the rest of the Department in 
that regard.
    Mr. Wilson. And thank you very much. My time is up.
    Thank you, Mr. Chairman.
    The Chairman. Mrs. Davis.
    Mrs. Davis. Thank you. And thank you, Mr. Chairman.
    I certainly appreciate your efforts here in attempting to 
reform the defense agencies. Tough thing to do, and I think you 
all are speaking to that. Of course, we don't have the 
advantage of having that draft and neither do you, but I think 
trying to look ahead now and see where are those instances in 
which you have seen some successes in doing this and those 
areas in which you think that perhaps the intent was a good 
one, but in the end it wasn't able to achieve the required 
results.
    So I look forward to getting into this and seeing how we 
can do it in the most inclusive way. What have you seen in 
terms of models, perhaps that is BRAC in some ways or other 
reorganization attempts, that you think we should be looking to 
to try and really reflect here in our discussions?
    Mr. Levine. BRAC goes to facilities. Facilities aren't the 
only things we pay for.
    Mrs. Davis. Right.
    Mr. Levine. We have a couple of other things that we need 
to look at. Basically the other category, you buy things, you 
buy--you have facilities, and you have manpower. If you are not 
focusing on things--because we are not talking about the 
acquisition system. That is a whole different issue.
    Mrs. Davis. Yeah. I think----
    Mr. Levine. You are really focusing on manpower and how can 
you save manpower. That is military, civilian, and contractor. 
You have to look at the total force.
    Mrs. Davis. Yeah.
    Mr. Levine. So there are issues you can look at about the 
balance of the total force. Military tends to be much more 
expensive because we have to train and retain and so that we 
have a lifetime investment in military. If we are using 
military for functions that could be performed by civilians or 
contractors, that is probably not a good idea. There is 
analysis that can go into that.
    Mrs. Davis. Mr. Levine, if I may, is there an organization 
or really a process that you think has been a good model? And I 
am thinking of making sure that people who are on the ground, 
who know this stuff and work with it everyday, are included as 
well as those who have fresh eyes on the prize, essentially.
    Mr. Levine. So a model I would offer you is what we use for 
looking at service contracts, which is an important area to 
look at. We had throughout the Department something called 
Service Requirement Review Boards, SRRBs--they are sometimes 
called contractor courts--where the leadership of an agency or 
an entity, service, systematically reviews its own service 
contracts and requires a bottoms-up justification for what they 
are spending on service contracts.
    And so the people who were responsible for those contracts 
have to come in and present, this is what I am spending and why 
I am spending it. That SRRB process started in the services. 
When I was DCMO we expanded to the defense agencies to make 
sure that they were under that same kind of review. But that 
model of the contractor court, the SRRB, is something that can 
be applied, I think, to other areas of the Department as well.
    Mrs. Davis. Uh-huh. Mr. Dunlap, would you agree with that? 
And do you get people that are willing to say, you know, 
listen, we don't need this?
    Mr. Dunlap. So I think the important thing--and I think you 
might be alluding to this--is talking particularly to the 
people both that run the organizations and the beneficiaries of 
the organizations and outside perspectives as well.
    That was extremely valuable in the review that I was 
involved in. And I found, depending on the particular leader at 
the time, some actually quite open to talking about where they 
could see their organization being more efficient and effective 
yet were limited, for a variety of reasons that have been 
mentioned here, outside and inside the Department.
    And so I think that has been excellent. I think there are 
good examples, like DARPA, with technologies that are a great 
idea of what the defense agencies are about.
    Mrs. Davis. If I could stop you because I have so little 
time, how do you see doing this within healthcare management? I 
mean, I know this is a really difficult one in terms of 
hierarchies within the different services. Is that a good 
model? Is that something--how would you do it to really get to 
where we want to go?
    Mr. Levine. I am not always convinced that Congress is the 
best mechanism for defense management reform because you need 
to have hands on within the Department to get it right and to 
do the details. And so I am a skeptic sometimes of defense 
management reform.
    But the healthcare area is actually one where I would urge 
the committee to keep hands on. I think that the Department is 
going to be unable to come to grips with this by itself without 
direct pressure and direct oversight from Congress. I just 
think that the organization is big enough and dysfunctional 
enough that it is going to be hard for the Department to 
overcome that.
    Mrs. Davis. And one other question. Yesterday we had a 
hearing really looking at the culture of innovation, and one of 
the concerns is all the requirements, processes, and the many 
layers of people who really want to express their opinion. So 
how do we help and reform the 4th Estate knowing that that is 
going to be an issue?
    Mr. Dunlap. I will just offer, you know, I used the example 
of DARPA, Defense Advanced Research Project Agency, and 
organizations like that, that have the flexibility. They exist 
in the 4th Estate as the defense agency, and yet, due to 
leadership, passion, vision that they have, and risk-taking, 
they are able to cut through a lot of that. Strategic 
Capabilities Office is another one. So supporting organizations 
like that doing the mission that the Nation needs is useful for 
the committee.
    Mrs. Davis. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. Levine, I appreciate your description. As you were 
giving a list of all the things that we are going to be 
executing in the Department of Defense with civilians that are 
not what people consider bureaucracy, I basically heard you 
describing many of the functions that are at Wright-Patterson 
Air Force Base, which is in my district.
    And I too believe we need significant overhaul of processes 
in the Department of Defense and areas to find savings. I 
served as mayor of my community and had to do that in my own 
bureaucracy and organization.
    But you made a pretty important distinction, which is how 
do you preserve--this is just not just a civilian workforce 
issue versus a uniform workforce issue. It is a function. How 
do you preserve from a legislative perspective what is coming 
from Congress in trying to address issues of civilian personnel 
and not hurt those functions?
    Because we all know what a bureaucrat is, right. A 
bureaucrat is not an accountant. It is not an engineer. It is 
not a scientist. It is these functions that you have that are 
being executed. There is a product. I am not quite certain how 
you would carve that out.
    Let me give you some examples. Air Force Institute of 
Technology is at Wright-Patterson Air Force Base, all the 
graduate programs for the Air Force. There are programs that no 
other college or university has, many of which are classified 
programs.
    Air Force Research Labs are based at Wright-Patterson Air 
Force Base, scientists, engineers. In addition to being a 
civilian workforce that manages materials, sensors, UAVs 
[unmanned aerial vehicles], they also oversee the university 
research portfolio of the Air Force.
    Life Cycle Management Center, which oversees a portion of 
depot maintenance and looks to contractor oversight, has to 
have engineers, scientists to oversee contractors. And, of 
course, the bidding process is they also have the foreign 
military sales aspect and have the interface with those--with 
our military counterparts.
    Human Performance Wing, scientists, engineers, how we marry 
our men and women in uniform to technology and also issues of, 
you know, physiological episodes that we are having. We send it 
to those engineers and scientists.
    So how do we take those things--you know, NASIC, National 
Air and Space Intelligence Center, 3,000 people, largely 
civilians that are specialists in missiles and what our 
counterparts are doing, how do we look at trying to streamline 
and pare bureaucracy but make certain that we don't impact 
those functions that are actually being executed as missions of 
Department of Defense, or in this case the Air Force, that are 
inherently going to be civilian functions?
    Mr. Levine. Thank you for that question.
    In response to the last question or one of the last 
questions, I was saying that I thought the Department needed to 
be hands-on with health care but you can be too hands-on in the 
management area. At the end of the day, management is going to 
be a leadership task within the Department of Defense. You 
can't manage the Department of Defense from here.
    So what I think that the committee can do and 
constructively is to set goals, make sure those goals are 
reasonable, and that enough time is provided to be realistic 
that you may implement it. If you have unreasonable savings 
expectations, you are going to have irrational action. But if 
you have reasonable goals, reasonable timelines that will keep 
the pressure on the Department. And you can have the senior 
officials at the Department come over, you know, establish 
plans, come over and brief you on that.
    Mr. Dunlap did that in his time. I did that in my time. I 
think you need to keep the pressure on that and keep the 
oversight of that. But the management, the hands-on management 
at the end of the day needs to be done within the Department, 
and there is no substitute for leadership.
    What they have got to do is they have got to get into the 
nitty-gritty of how processes work, what organizations look 
like, and where there are inefficiencies or where there are 
unnecessary tasks. And that is just not something that you can 
do in legislation. You have to do it really with a hands-on 
management style.
    Mr. Turner. Thank you. I yield back.
    The Chairman. Mr. Langevin.
    Mr. Langevin. Thank you, Mr. Chairman.
    I want to thank our witnesses for being here today. And let 
me start with Mr. Dunlap. In your statement you provide four 
categories by which to think about agencies and potential 
reforms. So I am particularly interested in the last two 
categories, agencies with missions split between the 4th Estate 
and the services and those with decentralized missions.
    So responsibilities for artificial intelligence [AI] and 
hypersonics, I believe, fall into both these categories. Can 
you elaborate further on how you would think about reforming 
the agencies currently responsible for AI and hypersonics so 
that we achieve and sustain world leadership in each of these 
areas?
    Mr. Dunlap. Thank you for the question.
    I think, you know, those are a couple areas, hypersonics, 
artificial intelligence, that this Congress recognizes is 
important both to today and in the future. The reason why I 
mention it is that what can often happen is that each entity is 
trying to do the right thing in and of themselves, but, as Mr. 
Levine mentioned, leadership focus can be important to drive 
innovation and change throughout a large organization like the 
Department of Defense.
    And so I offer those not as thoughts for increasing 
bureaucracy and overhead but instead to maintain both vision, 
passion, excitement, and energy, and resources on those 
capabilities. And so those can take place both in the 4th 
Estate as well as in the services.
    I mentioned intelligence agencies, satellite developers, 
things that in the past defense agencies were created to be 
able to do good things to achieve efficiencies, gain greater 
effectiveness by working together. And so I think that is an 
important tenet. Whether or not organizational change is a part 
of that is a separate question.
    Mr. Langevin. Thank you.
    So yesterday in this same room we held a hearing on 
innovation, and both witnesses detailed how we essentially have 
good people working within a tricky system, and that ultimately 
we should place more of our focus on outcome rather than 
resources--I am sorry, rather than processes.
    Do you agree, or do you feel that there are elements within 
the defense field activities and combat support agencies that 
require existing processes to achieve the desired outcome?
    Mr. Levine. My view on defense innovation is that a huge 
part of the issue that is too often overlooked is money, 
resources. Are we putting our resources in the right places to 
promote innovation.
    If you want to do what the Department says they want to do 
now, which is to try lots of things and be willing to fail, you 
don't want to be doing that in your acquisition programs. I 
don't think any of us want to see a major acquisition program 
where we are investing $50 billion fail. That is not where you 
try something and fail. You need to try and fail before you get 
there.
    The problem that I see in the way our acquisition system 
works is that the way you get defense development dollars in 
large quantities is you start a program. Until you have a 
program, you have nickels and dimes and try this and try that. 
But if you want the big money for development, it is going to 
be in a program. Well, once you put it in a program you can't 
afford to fail.
    What we need to do, to figure out a way to do, is to have 
big dollars out there, substantial investment that we make that 
is separate from weapons programs so that we can be running 
prototypes and tests and experiments where we can try lots of 
different things and be willing to fail, that is not a part of 
programs where we can't afford to fail.
    Mr. Langevin. Good observation. Thank you.
    Mr. Dunlap, do you have anything to add on that point?
    Mr. Dunlap. I will just add, I think one of the most 
interesting comments that I heard, you know, yesterday was, you 
know, that we don't reward people for failing. We shouldn't for 
wrongful failing, but when you are failing for taking risks, 
failing early and fast to be able to achieve the greatest 
effectiveness, we ought to be rewarding those people in the 
bureaucracy.
    Mr. Langevin. Yeah. I completely agree.
    So support agencies to the Department of Defense play 
critical roles in addressing the needs of the Pentagon here at 
home and around the world. And while I support looking 
holistically at our reform efforts in saving money through 
efficiencies like headquarters reductions, new technologies, 
and business practice efficiencies, I also believe that we must 
tread lightly before rapidly cutting these programs.
    Where is the sweet spot between preserving these entities 
and making tough cuts so that we can maximize efficiencies and 
streamline our efforts?
    Mr. Dunlap. I am not sure there is a sweet spot that is 
known, which is why it should be done carefully, understanding 
both the pros and cons and impacts of each choices, which is 
why, you know, I would recommend, you know, a conversation with 
the Department and the agency heads about what we can--what can 
be done, what can't be done, and how to move forward so that 
that sort of illuminated through those conversations. And, of 
course, you can't ever quantify enough the value of strong 
leadership of those organizations, too.
    Mr. Langevin. Thank you both.
    The Chairman. Dr. Wenstrup.
    Dr. Wenstrup. Thank you, Mr. Chairman.
    Thank you, gentlemen, for being here.
    One quick question: Is the 4th Estate, I assume, it is part 
of the DOD audit that is taking place?
    Mr. Levine. Yes, sir.
    Dr. Wenstrup. Okay. So, Mr. Levine, I want to get into a 
process perhaps. You said many times that we can find savings. 
You said that, I think, two or three times at least. And I 
would certainly agree with you. So what percent of the budget 
do you think--do you estimate could be saved?
    Mr. Levine. It depends on what you are willing to give up. 
I will give you an example since you just mentioned audit. If I 
were the master of the universe, I would give up the audit; $5 
billion over 5 years, I would say it is not worth it.
    Dr. Wenstrup. Well, that may be for the 4th Estate, but I 
don't know if that is the same throughout the DOD. This is the 
first audit in the history of America of the DOD, so I am 
hoping that we see some benefits from that.
    Mr. Levine. If we had a chance of being successful, I 
suppose I might agree with you. But I would say that we already 
know the problems that--the deficiencies we have in our 
financial systems. We know what we--we know we have a long 
laundry list of things that need to be fixed. And until we fix 
them, we are going to continue to fail audits. So to spend $5 
billion over 5 years auditing when you already know what the 
results can be, to me, is not a useful expenditure of public 
funds.
    Dr. Wenstrup. Well, I can't say that I know what the 
results are going to be, but bravo to you for knowing what the 
results will be. But it is hard for us here to really decide 
what could be cut without the advice from experts, those that 
are in the trenches.
    Mr. Levine. I am sorry. I shouldn't have been so flip. I 
just put that out as an example of something that people don't 
want to cut but there is a lot of money there. And that tends 
to be the kind of thing that we see if we really want to save 
big money.
    We have to make a tough decision, say we are just not going 
to do something that we would like to do, but it is too much 
money. And so that kind of judgment about what is it we are 
willing to give up is something that I think that members of 
this committee have to reach for themselves. No expert is going 
to tell you what you are willing to give up.
    Dr. Wenstrup. Well, so audit aside, let's go back to 
process of what we are trying to do today. Mr. Dunlap, you 
talked about peanut butter spread type of cuts, you know, just 
making it 10 percent or whatever it may be across the board.
    But what if agency leaders were tasked with the notion that 
if you had to cut 10 percent, what would that look like and 
where would it be, what would it be, why would it be, and then 
confer with Congress and appropriators, et cetera, on where we 
may need to go with that? Would that be an appropriate process 
to put into place?
    Mr. Dunlap. So the Department, as I understand it and 
certainly when I was there, looked at things like that. And I 
think it is always good to pressurize the system to come up 
with solutions and choices.
    You might get a suboptimal solution there in the end 
because with that approach you are also looking only within the 
individual organizations themselves. And to have a large impact 
in terms of savings or efficiencies, I think you want to think 
about sort of holistically across the missions.
    And you may not want to give a 10 percent cut to agencies 
that are, you know, optimal, efficient, and highly effective. 
And so I would just suggest some flexibility in that to be able 
to pressurize the Department as a whole to find out not only 
where they are going to take those efficiencies but perhaps 
even an opportunity to apply those resources in a more 
effective manner so there is a----
    Dr. Wenstrup. Well, but that is my point too, to what you 
just said. I am just asking you to say, if you had to, what 
would that look like. Then we would decide does it need to be 
done or can it be done and still produce the results that we 
want to produce. Do you see what I am saying?
    So why not have a process where we challenge people to say, 
well, if I was forced to do it, this is what I would do? And 
then we take a look at it and say, well, is that realistic? 
Should it happen? Or maybe somebody comes back and says, I can 
cut more than 10 and still function well. But challenge 
ourselves to that process so that we begin, because what is the 
optimal way then, you know? If either one of you want to 
answer.
    Mr. Levine. I think you are right that you need to set 
objectives, and I think that is where Congress can play a role. 
And there is no science that is going to tell you what the 
sweet spot is, but you have got to use your best judgment and 
decide what it is.
    I think that you have to watch out for if you are going to 
tell everybody, tell me what you would cut and come back and I 
will decide. You get what they used to call gold watching. 
Somebody will come back and tell you their most valuable 
programs. This is what I have to cut. And obviously you can't 
do that so you don't do anything. You need to watch out for 
that.
    But I think that in terms of setting goals, my personal 
view, 25 percent is way more than you are going to get. But you 
have got to have some goal or the Department--because the 
Department can justify everything it does. There is no activity 
that takes place in the Department where somebody can't explain 
to you that there is a good reason for it.
    So if you want to get cuts, you are going to have to set 
some kind of goal that will get you some pressure to identify 
what the low-hanging fruit is.
    Dr. Wenstrup. Thank you. I yield back.
    The Chairman. Ms. Shea-Porter.
    Ms. Shea-Porter. Thank you. And thank you both for being 
here.
    I was a military spouse, and my husband actually grew up in 
the military, so I am always very sensitive when I start to 
hear the word ``cuts'' or looking at any programs that military 
communities benefit from.
    And I have to say, Mr. Dunlap, that reading the testimony 
when you talked about the big-box stores are a 15-minute drive 
away, I started to think about the people that I knew in the 
military who didn't have a car, so that 15 minutes might as 
well have been an hour because it was not accessible.
    So that just brings it right down to the ground level of 
what we are talking about when we are looking at these budgets 
and how they actually have impact. And so I just wanted to 
throw that out there and say that there is a community there 
that needs to be heard.
    We are sitting here--and I am so grateful for both of you 
and what you have done in the way you have outlined this and 
the testimony is excellent, but it still has an impact. And 
those kinds of stories might not be told if there isn't 
somebody sitting here who actually has been in the military or 
been in a family that can say, yeah, but we don't have a car. 
Or yes, but it may only be a half of 1 percent savings when you 
go to a commissary but still that.
    And the other thing I wanted to say, and I recognize that 
we have responsibilities and fiscal responsibilities here, but 
it does seem like it is a small fraction of the overall budget, 
and I am looking at the personnel and the impact.
    My husband talks often with others about what that was like 
to grow up on different military bases. And that is why I 
appreciate your comment, Mr. Levine, about the schools, that 
they had to move to places they had never been, but they always 
had one kid that they had come across somewhere. So for all of 
the moves, and back then they were frequent, I think more 
frequent moves for many families, there was somebody that they 
could identify with.
    My mother-in-law taught in the DOD schools and they were 
excellent. They were a source of pride. So what I am talking 
about here is community, that when we look at the dollars we 
also have to talk about what constitutes a community.
    We know in our own communities when we choose neighborhoods 
to live in, we say, well, you know, where are the stores, where 
are the access points for our children, what is their comfort 
level in schools, et cetera.
    So I would just urge us, as we take out our pens to do 
budgets, that we remember, again, that these are people who get 
moved frequently, who leave family, who leave their support 
systems. And I know you know this, but I want to state it 
again.
    And that it is so important for them, wherever they land, 
that they have a sense that they are in a special community and 
that we don't inadvertently chip away from that sense of 
belonging to a community and being part of that.
    So, Mr. Levine, I want to ask you something about that. You 
know, the strength of our militaries obviously are people, and 
it is predicated on the recruitment, the retention of the men 
and the women. And they need to know that their families are 
always in good care and safe.
    These spouses and children who form the backbone of every 
member's career depend on those services by these 4th Estate 
agencies, such as DOD Education Activity and the DeCA [Defense 
Commissary Agency]. We know that that is pretty critical to 
them.
    So are there any analysis of the impact on recruitment and 
retention and any impact on family finances and stability as we 
are looking at this? I heard you say earlier that we haven't 
really had any recent studies on just simply the cost. What 
about the cost on these families and our ability to recruit and 
retain?
    Mr. Levine. There are studies of impact of compensation 
changes on recruitment and retention. There are models that 
some of the think tanks have, that IDA [Institute for Defense 
Analyses] has, that RAND has, that will predict what the impact 
on recruitment and retention is of a change in compensation.
    Those don't tell you what the impact is on an individual 
family from some of these benefits. You know, the one family--
or the family that doesn't have a car and needs to walk to the 
commissary and can't shop otherwise. So it doesn't tell you 
about personal impacts. It tells you about aggregate impacts. 
But we do have studies that tell you that, that provide that 
kind of information.
    Ms. Shea-Porter. And is it your belief that if we go after 
these programs or we in some way find, you know, small 
reductions or large reductions, that it will have that impact 
on, not just quality of life--obviously, we are talking about 
the quality of life--but also on actually retaining.
    Mr. Levine. So I believe we need to be very sensitive to 
changes that impact the quality of life.
    Having said that, I think that there are very few things 
that we do in the Department that we can't do better and more 
efficiently. So I don't see any reason to put something off the 
table just because it deals with quality of life. We can still 
be more efficient. We can still do things better.
    I mentioned in my opening statement the Defense Human 
Resources Activity, which used to report to me as Acting Under 
Secretary for Personnel and Readiness, it is a notoriously 
inefficient entity. It provides vital services. So you have to 
deal with both of those things. You don't want to cut off the 
services and programs that it runs, but you want to have it run 
better.
    I was privileged to be able to name a new Director for 
DHRA, who is taking management reforms seriously and I believe 
will reorient it and make it run better. That should eventually 
result in savings, but it is a hard job, because if you want to 
produce savings without eliminating activities, you need to 
look into the details of how your organization is set up, how 
your processes work.
    Those are hands-on management activities that can only be 
done by a manager within the Department. You can't do that from 
Congress. You can only set the goal.
    Ms. Shea-Porter. Right. And I appreciate that.
    Mr. Dunlap, would you like to comment on that.
    Mr. Dunlap. I would just like to say that I appreciate your 
underscoring the truth, I think, in general about these 
agencies, which is that it is really hard to get a free lunch. 
There is always an impact to get real savings out of any of 
these organizations. So thank you.
    Ms. Shea-Porter. Okay. Thank you. And, again, I thank you 
for the work that you have done because it is critical, and we 
understand our debt is pretty out of control and that we need 
to do something. I just want to make sure we target, you know, 
the right budget and the right places, instead of inadvertent 
impacts on military families and communities.
    Thank you, again.
    The Chairman. Mr. Gallagher.
    Mr. Gallagher. Thank you, Mr. Chairman.
    Gentlemen, thank you both for being here today. I 
appreciate it. And I know you sort of talked about this broadly 
in your testimony, but I think it is worth sort of reviewing a 
little bit and foot stomping, or at least for me it would be 
useful.
    Obviously, we have had various efforts in the past at 
streamlining the 4th Estate, and you have been involved in a 
variety of them. And I just, you know, we have talked about the 
``More Disciplined Use of Resources'' review in 2012, the Core 
Business Process Review of 2014, the delayering initiative 
2015, on and on.
    Could you distill for me what you think we have learned 
from these collective efforts on how to embark on successful 
reform efforts? What was the source of failure? What was the 
source of success? If you could just kind of distill it down 
into the bottom line for me, that would be very helpful.
    Mr. Levine. I will give you one thought, which is, in my 
view, in management reform, you get what you pay for, not only 
in terms of dollars but in terms of time.
    Top management has to be willing to devote a lot of time 
and stick with an issue in order to make it work.
    Mr. Dunlap, when he did the SCMR [Strategic Choices and 
Management Review], he had to spend, I am, sure vast amounts of 
time. When I was DCMO and I had my savings initiative, the 
delayering initiative that you mentioned, among others, that 
was something that was a solid commitment of a big chunk of my 
time every day over the course of a year.
    Mr. Gallagher. Sure.
    Mr. Levine. And it had to continue after I left. I hope it 
continued after I left, but you can't take your hands off the 
wheel and expect it to happen. And you can't expect savings to 
magically appear. Frankly, you don't expect much savings in the 
first year.
    Mr. Dunlap mentioned with BRAC that there is the 10-year 
payback period. With most management types of savings, you are 
investing upfront. And maybe it is just the time and effort of 
management that you are investing upfront, but you have to 
invest upfront in order to get payback in the long run.
    Mr. Gallagher. Sure.
    Mr. Dunlap. If I could just augment that. I appreciate 
that. Three things: Number one, strong leadership, which my 
colleague just mentioned, vital through the duration. Second, 
watch the balloon. I talked about squeezing in one area----
    Mr. Gallagher. Sure.
    Mr. Dunlap [continuing]. And it moving to another. And, 
third, and perhaps the most difficult for both Congress and the 
Department, which is the tough decisions to cut or reduce or 
completely eliminate missions. And that often is the difference 
between sort of marginal savings and significant savings but, 
of course, more difficult choice.
    Mr. Gallagher. And I commend your testimony for drawing out 
sort of how difficult it is to cut mission relative to cost but 
how the two are related.
    Another thing that seems to come up is a lot of these 
reform efforts are baked into the FYDP, so we expect savings 
redistributed out to support other priorities in the out-years. 
So can you just kind of, again to foot stomp this, how has DOD 
planning been impacted by these kind of phantom savings that 
are projected in future years but sometimes do not appear?
    Mr. Levine. If you put a wedge in the DOD budget of savings 
that are anticipated and then they don't appear, what happens 
is you have to cut something else. And what you usually cut 
something else ends up being operations and maintenance. And 
operations and maintenance can impact every phase of your 
activity and your ability to perform the mission. So, if you 
put in savings and they are not achieved, at the end of the 
day, you are going to impact mission.
    Mr. Dunlap. I will just add that it is tough for any 
company to run if you don't have realistic projections of what 
you are going to do and what you are not going to do. So you 
want to be realistic in your planning and budgeting.
    Mr. Gallagher. And then, if we just kind of look at, even 
if you adjust for inflation I believe, and you compare what we 
are spending today versus the 1980s, we were spending less 
during the Reagan building in the 1980s and getting more in 
terms of quantity.
    Now, you could say that, just as my iPhone cost more than 
whatever people were using back in 1980s, I don't know, I was 
like 5 years old, you are paying more for a more sophisticated 
piece of equipment, but I do think what we are talking about 
today is the way in which other priorities have crowded out a 
lot of the things that we want to spend money on, which is to 
buy lethality and sort of support the direct mission of the 
Department of Defense.
    Among those many things, it seems health care, just like it 
is affecting the rest of society and crowding out other 
priorities, is affecting DOD. As you look at the many problems 
we face, does health care stand out among the rest of them as 
an area where cost continues to outpace inflation and it is 
crowding out other priorities?
    Mr. Levine. Health care is a big block, which makes it 
attractive to look at when you are looking at trying to be more 
efficient. To me, the place you will look for a lot of savings 
is not big blocks but little chunks.
    An example I would give you is something the Department is 
undertaking right now, which is just to look at all the 
training programs, mandatory training that they require the 
troops to put through. Just an extraordinary expenditure of 
time, which is not going to military training but is going to 
awareness training of this, readiness, you know, prep training 
for that. Sort of every program that everybody has ever thought 
of, it is great to think that you are going to train people, 
but when you have 15 different requirements and you have to go 
through this training and that training and the other training, 
you are distracting from the mission. So that is one example.
    Another example I would give you is when I was the DCMO, I 
looked at the hiring process for the Office of the Secretary of 
Defense. Everybody knew it was dysfunctional, but they just 
lived with it because it was what the hiring process was.
    One of the things I discovered was it was, one of the 
reasons it was dysfunctional was because, at some point, the 
personnel authority had been removed from the individual 
offices, centralized, which is great, except then what the 
individual offices did, each of the Under Secretaries then put 
their own personnel people in because they didn't trust the 
central function.
    And what happened was they spent all their time negotiating 
with each other. So it would take months and months and months 
just to get a position description because the guy who was 
working for the Under Secretary for X would put together a 
position description, and then he would have to negotiate with 
the personnel people over in WHS [Washington Headquarters 
Services] about whether he was allowed to say that. And they'd 
go back and forth and back and forth over a period of months 
before they'd even get a simple position description written.
    So you have to think about consequences of your actions. 
Sometimes you centralize; sometimes maybe centralizing isn't 
such a great idea. And you have to get into the nitty-gritty of 
processes like that. And I had an approach that I was taking to 
untie that knot, but you can't do that without analyzing the 
actual process and digging in.
    You don't expect great savings, but if you never look at 
processes like that, then everybody does what they did with the 
hiring system, ``Well, it is just something I have to look at, 
something I have to live with.'' If nobody looks at it and 
nobody takes it on, that will stay that way forever.
    Mr. Gallagher. Thank you.
    Mr. Dunlap. I will just offer to you the Defense Health 
Agency, somewhere around $34 billion, it is 25 percent or so of 
the 4th Estate defense agency cost. You know, the Congress has 
done a lot to work on that and reform that, you know, in recent 
years as well.
    I agree with your assessment that personnel costs have 
increased dramatically recently, and that could be, you know, 
that could be good if we have good people. That may make sense. 
But health care is certainly one of those areas that has 
increased at a rapid rate.
    Mr. Gallagher. Thank you both.
    The Chairman. Mr. Veasey.
    Mr. Veasey. Thank you, Mr. Chairman.
    I want to ask both of you about your assessment on the role 
of civilians and military personnel and contractors in 
performing the work of the 4th Estate. And do you think that we 
have the right proportion of each of them to do the work of 
defense agencies and field agencies?
    Mr. Levine. Military, civilian, and contractors are all 
vital parts of the DOD workforce.
    We rely on all of them, and we need all of them. They 
perform different functions, and we don't always have it right. 
There are some functions that we put military people in which 
could really be performed by civilians and contractors and 
would be much less expensive.
    There are also functions that we have contractors 
performing where we really need to have organic capability and 
we cannot and should not be relying on contractors. And you 
need to have that ability in-house.
    Your civilian workforce tends to be your institutional 
knowledge, and if you divest too much of your civilian 
workforce and lose that institutional knowledge, you may lose 
the ability to do the job.
    So it is not that any one of those parts, components of the 
workforce is more important than the other. They all have their 
roles, and we need to keep a balance. And, no, I can't tell you 
that we have it right. I think that that is an area which is 
ripe for re-examination, not only now but at all times. We need 
to constantly be on top of that to try to make sure we are 
perfecting that balance.
    Mr. Veasey. I wanted to specifically ask you about what you 
think the appropriate relationship of the newly created Chief 
Management Officer to the defense agencies and field activities 
should be, especially as it relates to the Department's cross-
enterprise business functions, like civilian resource 
management, or service contracting?
    Mr. Levine. I believe that the CMO, the Chief Management 
Officer, can play an important role in providing common 
services and ensuring that common services are provided in an 
efficient manner.
    I am much less convinced that the CMO should be in the 
direct management chain for the defense agencies, for a couple 
of reasons. One is, that, to me, one of the big advantages I 
had when I was DCMO, the predecessor to the position, over 
other senior officials in the Department, was that my day job 
was less burdensome. The routine tasks of the office didn't 
fill up my inbox. So I had time and ability to get into a 
management improvement program, to take on the issue of hiring 
in the Pentagon, to take on a $7 billion savings program, 
because my inbox wasn't always full.
    Most senior officials in the Department, the inbox is so 
pressing that they have maybe 5 percent of their time is 
discretionary that they can spend on their own initiatives.
    My concern with the CMO being in direct line of authority 
over defense agencies is that that could overwhelm the office, 
that it could overwhelm the individual, and then, all of a 
sudden, that time that the CMO has to develop management 
initiatives that cut across the Department, you no longer have 
that time and ability.
    The second concern I have is that I am not sure that the 
CMO right now has the institutional capability, that that 
office has the institutional capability to do that. There about 
100 people in the CMO office and most of them have relatively 
routine jobs. They are not the people you would want to have if 
you were managing all the defense agencies.
    So, if you are going to give the CMO that task, the first 
thing the CMO is going to want to do is to build up new 
capabilities. Essentially, you will be building a new office 
and a new bureaucracy. I am just not sure that that is the 
direction that you want the CMO to go. I won't tell you it is 
the wrong thing to do. There are other factors that weigh in 
the other direction, but those are my concerns with putting the 
CMO in the direct line of authority.
    Mr. Veasey. Thank you very much. That is very good to know. 
Thank you, Mr. Chairman. I yield back my time.
    The Chairman. Mr. Jones.
    Mr. Jones. Mr. Chairman, thank you very much. And thank 
you, gentlemen, for your research, your hard work, and being 
here today to give us, hopefully, some ideas to make DOD more 
efficient.
    You know, recently in Stars and Stripes, there was an 
article written that DOD could not locate 95,000 vehicles in 
Afghanistan. That equaled out to about $3.1 billion lost.
    Okay. One other story, and then I have a question. Years 
ago, John Sopko testified in front of the Senate that DOD spent 
$6 million to buy nine goats. Well, it is almost the end of it. 
Nobody ever picks up to say: Well, how are we going to recover 
the money? How are we going to recover the vehicles? It just is 
endless.
    My question to you, because you are an expert in the areas 
that you are talking about today, why do we in Congress keep 
increasing the budget? I am all for the warfighter. He or she 
deserves whatever we can give them. But the system itself 
continues to spend and spend in a way that there is no 
accountability.
    What would be wrong with putting the responsibility in the 
Office of the Secretary of Defense--it wouldn't happen 
overnight, but in a period of time--and saying to the Secretary 
of Defense: You have the responsibility for accountability. If 
you cannot account for 95,000 vehicles in Afghanistan, then we 
are going to take $3.1 billion out of your budget.
    How does Congress--and I have heard some your comments, I 
was late getting here, sorry, but some of your comments--how do 
we put the responsibility? It can't be on Congress, because we 
will always continue to fund the military because of the 
families and the warfighting. That, I understand. I am in favor 
of that. But somewhere along the way, somebody has got to be 
accountable.
    And I don't think it is going to be Congress, to be honest 
with you. I think we have done a great job under Democrat 
leadership and Republican leadership of trying. But until you 
put one Department or one person overseeing the problem, and 
that person knows if we can't account for moneys that we have 
lost, then we are going to lose money from Congress the next 
year.
    How can we, as the American people, not Congress, how can 
we get a control of the waste, fraud, and abuse if sombody is 
not held responsible?
    Mr. Levine. Congressman, I suppose that, in a way, we are 
all responsible. Before I went to the Department of Defense, I 
spent better than a quarter century working for Senator Levin 
and helping write legislation and addressing defense 
management, so I suppose that makes me responsible and 
accountable.
    I don't know, I don't know how you do it, other than to say 
that the idea that you do it by cutting the defense budget, to 
me, doesn't work. If you are unhappy with performance, you have 
got to go after that performance, but to say you are going to 
take away $3 billion, well, that is going to come right out of 
the mission and undermine the mission.
    So I don't know what the right answer is, but I am pretty 
sure that is not it.
    Mr. Dunlap. I will just offer, and I think you alluded to 
some of this, which is a theme that we had been talking about, 
which is strong, you know, leadership, both at the top and 
throughout and accountability.
    So I certainly underscore the need to have people that 
oversee this in a way that care about the mission, care about 
accountability and waste and abuse and fraud and so on, and 
that action should be taken. I can't speak to the specific 
examples that you are referring to, but in general and in 
principle, I think the Department of Defense certainly wants to 
be accountable and not have those types of activities happen. I 
can't point to a specific reform the defense agencies that 
would affect that, but appreciate that we certainly don't want 
those kinds of things to happen.
    Mr. Levine. Having said that I was accountable, I want to 
clarify: I never bought any goats.
    Mr. Jones. Well, I am going to close in 1 second.
    It is almost like you are saying there is nothing we can do 
about it. And that is sad for the taxpayers because we are 
headed for a financial collapse as a country. Then we won't 
have any money to pay the troops. Anyway, thank you.
    Mr. Levine. If I could offer a ray of hope there, I think 
you can do something and it is what you are doing right now.
    You can hold hearings. You can shine spotlight. You can 
identify problems. And the primary tool that Congress has to 
hold senior DOD officials accountable is to bring them in here 
and make them explain what they have done and why. And believe 
me: It has an impact on the way senior officials at the 
Department manage. They know the power that you have, and they 
know, if they screw up, they are going to have to come in here 
and report to you on it.
    Mr. Jones. Thank you very much.
    The Chairman. Mr. Norcross.
    Mr. Norcross. Thank you, Chairman, and thank you for having 
this hearing. Although it feels like deja vu all over again, 
especially to you who spent so much time.
    Over the past month, I have spent a considerable amount of 
my time going through a couple of programs that we are running. 
The Columbia class, and certainly our warfighters in terms of 
dealings with ships. And chart after chart is talking about the 
workload of the workforce building those ships--there is going 
to be a downplay; we are going to have to lay off people and 
then rehire them; and how tough it is to keep that quality 
workforce--which I have to agree with. But it doesn't seem that 
we have that same conversation when we are talking about 
eliminating or downsizing parts that affect the quality of life 
of our warfighters, whether it is schools, the commissary.
    People by their nature are inefficient at times. They get 
sick. They are humans. And this seems that those who don't have 
the paid lobbyists tend to get hit the worst. What sort of 
analysis do you do in terms of the human side, how it affects 
our warfighters and their families when they go home? Gee, the 
commissary was closed; we have to drive down the street. That 
quality of life that affects the decision making whether or not 
they want to remain in the Armed Forces.
    How do you go through that side of analysis, because you 
have extensive analysis when it comes to the efficiency of 
building something. How about building the human side of the 
quality of life for our warfighters? How do you handle that?
    Mr. Levine. Congressman, that is the responsibility at the 
OSD level of the Under Secretary of Defense for Personnel and 
Readiness, has an entire office that looks at those functions 
and tries to protect them.
    Within each of the military services, we have an Assistant 
Secretary for Manpower and Reserve Affairs who has that 
responsibility.
    On each of the service staffs, we have a Deputy Chief of 
Staff for Personnel, the one who is responsible for that. At 
the base level, we have base commanders who are responsible for 
that.
    We have people throughout the military system who are 
responsible for the well-being of people, of the men and women 
in uniform.
    Mr. Norcross. We fully understand, but how does it come to 
you.
    Mr. Levine. It is and has been and will be a major priority 
for the Department of Defense. I don't think it is a 
responsibility the Department takes lightly.
    Mr. Norcross. But I don't hear you discussing that today 
until--whether it was, Ms. Shea-Porter, that side of the 
equation. How do you deal with that? Just, oh, we can save 10 
percent; that is a nice goal to go for.
    Mr. Levine. I believe that my colleague and I have tried to 
emphasize that, as you look at potential cuts, you have to 
think about the programs that are going to be cut and you have 
to make choices and understand the impacts of your action.
    I still believe, even so, that there are things that we can 
do more efficiently, that we can run our business more 
efficiently, we can run our business more efficiently even in 
the personnel area, even when it comes to quality of life.
    I am not convinced that the Human Resources management of 
the Department is efficiently run. I believe, without having 
done a detailed study--but I believe that we have an 
extraordinary number of human resource officials in the 
Department at every layer of the organization. And there may be 
so many of them that that is an overhead factor that could be 
looked at.
    So I don't want to say, that deals with quality of life, 
that is off the table. We need people who care about that. We 
need people who work on it. We need to maintain quality of 
life. We need to pay attention to that, but it doesn't mean we 
can't do it more efficiently.
    Mr. Norcross. Nobody has argued with that. So let me ask 
you a very direct question.
    Do you think that warfighters and their families, say, are 
happier in their service to their country than they were 10, 20 
years ago? Do you any quality-of-life measurements across the 
entire organization?
    Mr. Levine. There are quality-of-life surveys that take 
place regularly in the Armed Forces. I can't tell you what----
    Mr. Norcross. Do you know if they are more satisfied with 
what they are doing today than they were 5 years ago?
    Mr. Levine. I can't tell you offhand what the trend is over 
the recent period. I don't know. But I know that those surveys 
are taken and that information is----
    Mr. Norcross. You certainly could tell us the 
inefficiencies of many of the other programs.
    Here is one of the most important--I am not digging just on 
you. I am trying to suggest that is as important as sometimes 
some of the classes of submarines we buy or ships we buy, 
whether or not those people who call the military their home or 
their community is just as important.
    Mr. Levine. Congressman, I am going to agree with you. It 
is not only as important; it is more important. Our most 
important asset is our people.
    Mr. Norcross. Thank you. Mr. Dunlap, do you have anything 
to add?
    Mr. Dunlap. I will just underscore Mr. Levine's last point, 
which is, I think the Department's people are its most 
effective capability, and that should always be held in mind. 
It is hard to analyze sort of the hearts and minds and 
perspectives of people sort of in a quantitative, analytical 
fashion. And so----
    Mr. Norcross. And by the way, it is not hard to measure. It 
is measured every day. It is called the retail outlets. They 
know exactly what people want. And I think we can know that 
information also.
    I yield back the balance of my time.
    The Chairman. Mr. Russell.
    Mr. Russell. Thank you, Mr. Chairman. And thank you, 
gentlemen, for being here. There is an old adage that says that 
which is not inspected is not done.
    I would find that to be true. And I think, in many cases, 
when we look at the Department of Defense on the personnel 
side, you have got people actually that are involved with 
units, that are involved with programs, and they generally will 
try to clean up their individual agencies, much like you did 
when you were working in the five-sided building.
    But I have to say that there is a solution here. And when 
you look at the Department of Defense: $700 billion annually is 
the norm now for its budget; $2.4 trillion in assets; 3 million 
Americans both in and out of uniform committed to defending our 
Republic, and yet only 1,700 Department of IG [inspector 
general] staff oversee all of that.
    Well, there is part of your solution: that which is not 
inspected is not done. When I was a commander, both on 
battlefields or in peacetime, if I didn't go down and inspect 
my equipment or do layouts or look at motor pools or have 
uniform inspections or do any of those things, I guarantee you 
that all of those things, like plates spinning on a pole, they 
will wobble and they will break.
    And I have to totally agree with my colleagues, Mr. 
Norcross and Ms. Shea-Porter. We are not going to see reform in 
saving or realize anything close to that by eliminating Mrs. 
Russell's ability to go buy a can of beans in the commissary. I 
think that is absurd. We have to take care of our people.
    But the big ticket things, you know, why wouldn't we 
increase and authorize instead of 1,700 Department of IG staff 
or Department of Defense, why not make that 3,400. That would 
cost a lot less than your audit concerns.
    Really? Eliminate the audit? Do you realize that the 
Department of Defense is the only agency ever in the United 
States Government that has never been audited, held to 
absolutely no account? I am a retired warrior. I still got a 
little fight left in me. But we need an audit. That which is 
not inspected is not done.
    Here are a few things: Payment to grantee verification. 
Yeah, we grant all kinds of stuff. Department of Defense 
improper payments, just last year in 2017 accounted for $1 
billion of improper payments. I wouldn't call it low-hanging 
fruit because we like to eat fruit, but there is some weeds 
that we could pull right there.
    Department of Defense improper payments. Procurement 
management. Here is from a recent Department IG CIGIE [Council 
of the Inspectors General on Integrity and Efficiency] report, 
quote: Many DOD programs fall short of costs, schedule, and 
performance expectations. As a result the Department of Defense 
regularly pays more than anticipated, buys less than expected, 
and delivers less capability than its contracts require.
    And we have been doing it since we have been wearing 
tricorn hats.
    So how do we stop it? That which is not inspected is not 
done. And so, you know, while I appreciate your comments here, 
and I have great admiration for IDA and so many other great 
organizations that do so much to promote proper defense of our 
Republic, we have to have accountability.
    We are not going to realize it off of, you know, Ms. Shea-
Porter's dependents or, you know, Mrs. Russell being able to 
buy beans at the commissary. We are not going to do it that 
way. We are going to do it by going after these bigger 
programs.
    And you had made mention, and I agree with your comments, 
Mr. Levine, about the big dollars that get sucked into these 
programs, and then they are locked in, and it creates enormous 
inefficiency. And I would suggest to you that, as a Congress, 
we owe ourselves to bolster programs that DIUx, SOFWERX, Skunk 
Works, things like that where the innovation comes out where 
you have something actually developed, and then it ends up 
going from, ``Wow, this works, can we immediately get it 
fielded,'' and then we just fund it. Those things work.
    Big primes provide big things, and there are lot of 
implements for the things that we come to rely on, but they 
also buy up innovation and squash it.
    And so I would hope, Mr. Chairman, as we look at the 
problems in the future on the 4th Estate stuff, we could 
bolster those innovative programs to prevent some of that 
waste.
    We are all frustrated with it. I even found myself 
associated with Mr. Jones' comments on Afghanistan today. That 
is a rare thing, being an Afghanistan veteran as well. But he 
is right. Our overseas contingency dollar programs, three 
biggies right now, where is the oversight and accountability?
    Mr. Chairman, I don't really have any questions, but I 
would suggest that we ought to do everything we can to increase 
the Department of IG numbers, even double them, and we will get 
to billions right away.
    Thank you. I yield back.
    The Chairman. Do you all have any comment?
    Mr. Levine. Mr. Chairman, I think those were helpful 
comments. And, frankly, I agree with the point that, if it is 
not inspected, it often doesn't get done.
    I think that you saw some examples of that with previous 
management reform efforts at times. And one I would point to 
is, in the 1990s, we cut back quality inspection on our major 
acquisition programs. And what we discovered is, when we cut 
back the DOD inspectors, the contractors responded by cutting 
back their own inspectors, too. And so we had quality problems.
    More recently than that, the reason that the DOD Test 
Resource Management Center, the DTRMC, was created because the 
Air Force was neglecting its major test facilities. It was 
allowing really valuable assets to atrophy. It wasn't putting 
money into them. We created an oversight entity.
    So it is not just IGs who look at things. Other people have 
that responsibility for the inspections and oversight and can 
bring attention to these kinds of problems and make sure that 
important issues don't get neglected.
    The Chairman. Let me just pick up on that for a second. 
Because it seems to me one of the ways we got to where we are, 
is, okay--and I will just take this example: Air Force is 
neglecting its key testings. What do we do? We create another 
office that is supposed to oversee them to make sure that they 
take care of their test resources rather than hold the Air 
Force accountable for doing what they should have done to begin 
with.
    And isn't it true that, over time, that layer after layer, 
and we are as much responsible--``we,'' Congress--is as much 
responsible as anybody of reacting to a problem by creating a 
new process or a new bureaucracy.
    Do you think I am wrong?
    Mr. Levine. I think you are right, Mr. Chairman. I would 
say that, in the case of the Test Resource Management, that the 
number of people who actually review the budget--to me, budget 
review is a plus.
    The number of people who actually review the DOD budget for 
the MRTFB [Major Range and Test Facility Base] is relatively 
small. I think that most of the budget of that entity is for 
investment in test capabilities--science and technology, 
investment in test capabilities, the National Cyber Range 
Complex. They maintain important capabilities.
    There is a handful of people who review the service 
budgets. And, frankly, that is at the core of what OSD's job 
is, is to review the service budgets to make sure they are 
spending their money wisely.
    The Chairman. But there is also a separate DOD entity 
responsible for independent testing.
    Mr. Levine. There is, but it doesn't have the 
responsibility for the test base, for the investment in 
facilities, which is what TRMC does.
    The Chairman. Okay. Let me, if I can, just go back to the 
beginning for just a second.
    My sense is, as one looks out, not only at business but at 
nonprofit and essentially every sort of organization outside 
government, the trend in recent years has been flatter 
organizational structure, savings in the back office. The 
supporting functions of the key missions have been reduced or 
at least squeezed to gain greater efficiency so that more 
resources can go to the core mission.
    And, yet, the Department of Defense, anyway, has not kept 
up, at least to the extent that all the rest of the world has, 
in that regard.
    Now, do you all agree or disagree with that premise?
    Mr. Levine. I would say that I believe that is a constant 
focus of defense management. I believe that was Mr. Dunlap's 
focus when he was doing the SCMR. That was my focus when I was 
working in DCMO.
    Nonetheless, you are absolutely right. More needs to be 
done. More always needs to be done on this. I would point to 
the Air Force, when the Army was working on its delayering 
activity, the report that came back was that there would be 
times when the Army's Chief of Staff would issue an order to a 
subordinate, and it would have to go down through 13 different 
people. And a couple of months later, somebody would do the job 
and then would have to report back up to 13 different people. 
And by the time you played that game of telephone, the job that 
was done was completely different from what the Chief Staff had 
asked for.
    So, of course, you have to look at that, and you always 
have to look at that because it builds up over time, and it 
will continue to build up over time. If you don't keep 
fighting, you are never going to get there.
    Mr. Dunlap. Sir, thank you. I certainly agree with the 
trend that I see in industry. And I think that I completely 
agree with you in flattening the organization can make it more 
effective.
    I think there is a natural tension between that, as I tried 
to allude to earlier in my opening statement, where there is a 
good chunk of those agencies in the 4th Estate that are more 
direct mission than they are overhead function.
    And so looking at sort of the overall budget of the defense 
agencies and activities as a whole and putting a specific 
target on that and thinking that that can be achieved purely 
through efficiencies and delayering might be optimistic because 
I think you really have to cut into mission, which I commend 
you for thinking about that, in sort of your opening volley 
that you put out this week.
    So I would just offer that I completely agree with you, but 
I also think to achieve the savings to be able to put towards 
the warfighter that you are talking about, you know, cuts in 
missions are going to have to be made.
    The Chairman. Well, let me just pick up on that for just a 
second. Because even--and I will use Defense Health Agency as 
an example. Even if you say they are doing their mission, you 
know, perfectly, which I take your point that they are not, but 
even if you say they are, there are certain supporting 
functions within that organization, their business practices, 
their real estate management, their logistics, their 
contracting, their personnel management, and those things can 
be improved across-the-board.
    I mean, we tend to think of it as all our charts do like 
this, but there are some commonalities here across the 4th 
Estate where greater savings and efficiency, as well as 
compatibility, could be achieved.
    That is my premise. Tell me what you think.
    Mr. Levine. I agree with you.
    Mr. Dunlap. I agree. We tried to get to that in 2013 as 
well to dissect overhead versus mission functions. And any new 
reform going forward ought to consider that. So I agree.
    The Chairman. And to me--I don't know if it is going to be 
25 percent, but that is a lot of where some of this can come 
from, is in some of that back office.
    Mr. Levine. Mr. Chairman, you have two tasks, though. One 
is to separate the overhead from the mission and then to figure 
out how much you can cut the mission. And I think that looking 
at the defense agencies, it is important to recognize that is 
not the overhead. There is a lot of mission in there.
    The Chairman. Yeah, no, I understand your point.
    Mr. Levine, I want to just ask you once again, because you 
talked at the beginning about the Defense Finance and 
Accounting Service.
    One of my suggestions in my proposal is to look at--I know 
them by acronyms, I have got look at exactly, the Defense 
Contract Audit Agency [DCAA] and DCMA--whatever that is.
    Mr. Levine. DCMA, and Defense Contract Management Agency.
    The Chairman. Defense Contract Management Agency, yeah. So 
we have three separate entities that are essentially dealing 
with finance and accounting, which, as I have tried to drill 
down, the difference in responsibilities is not always as clear 
as maybe I thought it was.
    Can you comment? Because you talked a lot about DFAS, but 
talk about DFAS in connection with DCMA and DCAA, and I guess 
to some extent the comptroller's office, in how all that 
financial management----
    Mr. Levine. DFAS works for the comptroller and is 
essentially the finance and accounting, the authoritative 
finance and accounting entity for the Department of Defense. So 
they are the ones who are responsible for DOD's books. They 
have to work with others to do that, but they have the 
accountability.
    DCMA and DCAA deal with acquisition. They don't deal with 
finance and accounting, so DCMA is an acquisition support 
agency. They support program managers and contracting officers 
by doing onsite inspection and onsite management of contracting 
facilities.
    DCAA is a contract audit agency. That is different from 
what DFAS does because what they are doing is auditing 
contractors. They are not doing DOD's finances. They are 
looking at contractor finances.
    So three separate functions. Three separate agencies.
    The Chairman. And I guess the essence of my question is you 
believe there needs to continue to be three separate agencies 
to do each of these discrete--or each of these 
responsibilities?
    Mr. Levine. I do because I believe they are discrete 
responsibilities. This is an area where I think you can achieve 
efficiencies within any one of those, but I don't think that 
they can appropriately be combined.
    My particular concern with combining DCMA and DCAA, for 
example, is DCMA is an acquisition support activity. It is part 
of the acquisition community, working for them. DCAA is an 
auditor. They have to maintain audit independence. If you 
combine them, then you lose the audit independence. GAO is 
going to say that none of their audits are valid. So you have a 
problem.
    The Chairman. Yeah. Do you have any opinion on this, Mr. 
Dunlap?
    Mr. Dunlap. I think we have actually had, at least in my 
experience, some successes. So I mentioned DFAS consolidating, 
on their own, some headquarters functions, which is good for 
efficiency.
    DCMA, you know, is often out there with the contractors, 
and so they will catch things in support of the contractors 
early, you know. DCAA kind of comes in on the back side with 
the audit. And they can actually report out, as they did for 
me, particular metrics on the cost savings that they have been 
able to find.
    Now, that is retroactively. You know, you would like to get 
ahead of that in the process as well, but, you know, each have 
their own function.
    The Chairman. Okay. Let me just ask about one other area 
right quick, and that is DLA. And, Mr. Levine, you talked about 
how you believe that DLA has made great strides in improving 
its management and so forth.
    I am probably like a number of members, and I remember, I 
don't know, 2 or 3 years ago, a number of news articles about 
vast warehouses, they didn't know what they had, throwing 
things away, and a number of items that at least called into 
question their ability to manage their inventory and to get 
items where they needed to be on a timely basis.
    I mean, I want you to elaborate a little. Do you think they 
have overcome those problems? But then, secondly, I am also 
looking at commercial companies that I can click on and have 
something delivered to my front door that day or the next day. 
The just-in-time sort of approach that business is using.
    And so I would appreciate from each of you an evaluation of 
DLA's ability to meet the military's needs in the context of 
the way that business has also moved. Understanding, you know, 
DLA will never be exactly like Walmart or some business, you 
know. I think we can all agree to that. But have they kept up 
at least with those trends?
    Mr. Levine. So, when I first looked at DLA in the early 
1990s, they were a mess. They didn't know where anything was. 
They couldn't track what they had. They lost things. There were 
reports that things would fall off of trucks, and the truck 
would arrive and they didn't even know something had fallen off 
because they had no idea what was coming.
    They have made tremendous progress in their own system. 
They have asset visibility systems which allow them to know 
what they have in much greater detail than ever before, pretty 
much comparable to what is available in the private sector.
    Not only that, they have come to rely on the private 
sector. So, where, in the 1990s, they used to stock things like 
medical supplies and hardware, they figured out 15, 20 years 
ago, they didn't need to stock those because they could buy 
them from the commercial sector. And not only could they buy 
them, they could rely on commercial distribution networks so 
that they could have hospital, medical supplies, for example, 
delivered directly to the hospitals, never touched by anybody 
at DLA. So they are dramatically more efficient today.
    I won't tell you that that means that they don't have 
problems. They still do have problems. The one that always 
comes back up is the unneeded inventory that they have on hand, 
the excess inventory. What I would say is there is more work 
that can be done on that, but that is largely a consequence of 
demand signals that they get from the services: I think I am 
going to need this, and by the way, these are critical spare 
parts, so I have got to have delivery within 30 days when I 
need it. And they are a unique build, so, in a 9-month advance 
time, you are going to have to have them on hand or airplanes 
aren't going to fly.
    So you have a lot of stuff that you have to have on hand. 
And then, sometimes, the product is discontinued; you don't 
need it anymore, and we are stuck with that on hand. But it is 
a consequence of a need to be responsive, which DLA has, 
because it is servicing military hardware in a way that the 
private sector doesn't necessarily have.
    It is not just a matter of avoiding the error in terms of 
not buying too much; it is at least as important to avoid the 
error in terms of not having a critical part on hand when it is 
needed.
    Mr. Dunlap. DLA is an interesting case, not only because it 
is the second largest agency in terms of revenue that it 
oversees, but also sort of historically. So it, at least to my 
understanding and reading, it had not done well, and then it 
sort of turned its game around and started being much more 
successful in terms of logistics, delivery. It split off DCMA 
actually from DLA in the nineties to focus on logistics, 
delivery. It gained sort of more efficient, effective notoriety 
in the Department, and then became, perhaps recently, more of a 
victim of its own success where it began to be asked to take on 
more and more responsibility sort of outside the core logistics 
and fuel delivery. It provides nearly 100 percent of the fuel 
for the warfighters, for example.
    Mr. Levine. And if I could, DLA now provides personnel 
support services. It now buys IT [information technology] 
systems. It does things for other parts of the Department of 
Defense because they have been good at it. And so this is where 
they get additional assignments that can become a problem.
    Mr. Dunlap. Yeah, so I think sometimes it is hard when you 
take your eye off the target and forget what your core mission 
is and get diluted. And it, you know, might be time to think 
about those additional missions that were added that could 
possibly be done elsewhere.
    In that sense, I think it might be a victim of its own 
success. You know, that said, I think where it can look to 
adopt commercial practices or use commercial vendors directly 
is an excellent idea, won't always work getting fuel to your 
ship in the middle of the ocean, but in other cases, it could 
be the right choice.
    The Chairman. Well, just two things right quick on that. 
Number one, I am hopeful that our e-commerce provision, which 
is on the way to being implemented, can assist for basic off-
the-shelf commercial items. And that can include some medical 
equipment which can provide that delivery.
    Secondly, we are hearing recently about advances in 
artificial intelligence that can improve predictive maintenance 
so that you don't have, you know, 10 things on the shelf, just 
in case. But you have a database of evidence that can give you 
very much higher probability of when you are going to need what 
to repair.
    And my hope is that cannot only make DLA more efficient but 
also, as we move towards additive manufacturing, may also play 
a role.
    Mr. Levine. Mr. Chairman, I think you have correctly 
identified the next frontier for DLA. Better algorithms, to 
predict use and identifying, you know, the just-in-time 
manufacturing with 3D can get you out of having to stock parts 
in some cases.
    So identifying those kinds of uses of new technology is 
probably the direction they need to go. But I still say, for 
what they are doing, they are so much more efficient now than 
they ever were before, and so much more efficient than a lot of 
other parts of the Department of Defense that they really ought 
to be given credit for that.
    Mrs. Davis. Mr. Chairman, I was just going to say, I think 
it has been, you know, you have been excellent in trying to 
help us see where some of the pitfalls are in moving forward 
and, at the same time, that we need to move forward. And I just 
want to thank you for that.
    I think we want to move in that way very thoughtfully, not 
rhetorically. You know, I think people are always concerned 
that you can make cuts that may sound good, but a lot of people 
could get hurt along the way. And I think that the discussion 
today has been helpful in understanding that there is a lot 
more to this. It is not as easy as it looks, and, yet, at the 
same time, it is an important thing for us to be doing. So 
thank you very much.
    The Chairman. I appreciate it. Actually, that is what I was 
about to say to wind up. I think it is important to acknowledge 
the efforts and the progress that has been made. Both of you-
all have had part of that. And the folks who work at the 
Pentagon now are looking to take the next steps.
    We, I believe, have a key role in also pushing that along. 
But the purpose of all this is not just to make cuts; it is to 
have more resources in the hands of the warfighter faster. And 
as everybody on both sides of the aisle keeps reminding me, we 
don't have unlimited resources around here, and the world is 
not getting any safer.
    And if we are going to meet our obligations when facing 
sophisticated adversaries as well as terrorism as well as the 
other threats around the world, we are going to have to make 
some of these reforms in order to meet those obligations.
    Thank you both for being here.
    I would just alert members that, in approximately 15 
minutes, we will reconvene upstairs in 2216 for a briefing on 
some of the management initiatives underway at the Department.
    The hearing now stands adjourned.
    [Whereupon, at 11:52 a.m., the committee was adjourned.]

     
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