System. This is two and a half hours. Committee will come to order. This week the committee will hold two hearings that focus on the two major pillars of our agenda. Tomorrow we will hear from the Service Chiefs of repairing and rebuild the military. Today well concentrate on the other pillar which is defense reform. We have done a lot of reform over the past two years. That includes acquisition reform, a new mail tear retirement system, mayor changes in military health care, commissary reform, a rewrite of the uniform code of military justice as well as significant organizational reform. While a lot has been done, however, a lot more needs to be done. The world around us is simply moving too fast for us to sit still and assume that the organizations and processes of the past will suffice for today and especially for tomorrow. Yes, we all have an obligation to see that taxpayer dollars are spent as efficiently and effectively as possible. Especially in fulfilling the first job of the federal government which is to defend the country. But we all know from the news and from our Intelligence Briefings that we face a wide, diverse array of threats and those threats change day by day as adversaries develop systems designed to deny us any military advantage. We must be prepared for each of these threats. We also know that the pace of technological change is accelerating and more and more innovation takes place in the private sector. All of these trends stress our existing organizations and processes. We will not be able to defend the country without dated technology or sluggish bureaucracy. Much of the responsibility for making needed reforms rests with us. With congress. We cannot do everything in a single bill or even in three years but we must be willing to move aggressively to make the reforms needed in this volatile, dangerous world. There is are no individuals who can provide wiser, more considered guidance than the three witnesses we have today. Each of whom has held high office in the department of defense, each of whom has testified many times before this committee and each of whom have devoted their careers to helping provide for the National Security of the United States. I appreciate each of them being with us today. Before turning to those witnesses, let me yield to the distinguished acting Ranking Member of rhode island. Thank you, mr. Chairman. I want to welcome our witnesses here today and proud to be able to speak on behalf of Ranking Member smith this morning and ill be submitting his statement for the record after i read it. But thank you, again, to our witnesses. So thank you, mr. Chairman, for holding todays hearing on the topic of critical importance. Again, i also want to say thank you to the witnesses for sharing opinions on future and past defense reform. I know you have a wealth of knowledge and i appreciate you sharing this with the committee. I look forward to hearing the views on what the department of defense should or should not address in the future of acquisition policy, structure and military personnel Reform Efforts. The fy 16 and fy 17 National Defense authorization acts of significant changes to the Acquisition Division of the office of the secretary of defense. First, Decision Making authority for large acquisition programs move from the undersecretary of defense for Acquisition Technology and logistics to the Service Secretaries and same undersecretary position split in two undersecretary positions. The shift created an unknown dynamic for the department of defense and private Sector Companies that produce goods and provide services for dod. So here we are in 2017 working on next years ndaa and Key Acquisition positions yet to be filled and too early to tell if the reform will prove to be successful. In my view, before we make additional acquisition reforms, we should see if last years changes are effective because, frankly, it seems as if current changes may be overwhelming the system. Department of defense can only absorb so much new acquisition reform legislation. However, one area where ddo does not need help is authorizing a new round of closure. Dod is asking congress to authorize new break round each year for past five years and they estimate a new break can help save 2 billion a year. At a time of constrained resources, we cannot afford to waste 2 billion a year holding on to infrastructure that is inexcess to the militarys requirement. While some may question the four structural levels or raise concerns with the 2005 round, i believe congress can and should work authorize new round of brak this year. Im also entrusted in where the department and the services will go with personnel reforms. The fy 16 reformed the military service for 83 of the force, strong portable Retirement Plan that can take that they can take with them when they complete the Service Obligation but do not reach a 20year retirement. Its time that the personnel system compliments the retirement system with more flexibility and ability to target certain skill sets when needed. The services have been discussing for years the need for more flexible personnel system but have done little with the existing authorities they have to make any meaningful changes. People join the military and depart the military for a variety of reasons and the system cannot be one size fits all. I understand due to the nature of the missions and organizations there are requirements and standards that need to be maintained. Im interested in exploring concrete options that create flexibility to attract the qualified individuals needs to fit the requirements and as those requirements change retain the quality the military needs to maintain high standards. With that, i thank the Ranking Member for letting me read his statement on his behalf and i yield back to the chairman. I thank the gentleman. Let me again welcome each of our witnesses dr. John ham ri, chief executive officer and president for the center for strategic and international studies. Michelle floi know, center for a new american security. And dr. Dov zakeim for the csis. Each held high position in the department of defense and were grateful for you all being here. Without objection your full written statement is made part of the record and at this point we would be pleased to hear oral comments you would like to make. Doctor hamre . Mr. Chairman, Ranking Member smith, its a real privilege to be invited back and i want to say thank you to you, not just for inviting us but for this committee taking so seriously the important work of defense resorgs reform. This is not the kind of things so many committees are doing an im proud that you are and thank you for that. I was on the staff of the Senate Arms Services committee would you get that microphone right up to your mouth. I apologize. I was on the staff of the Senate Arms Services committee when we passed the Goldman Nichols and packard reforms. We worked on that very hard but we made a real some serious mistakes with the Packard Commission reform and i we didnt understand it at the time. But we when we took the chief of staff of the services out of the chain of command for acquisition, that was a mistake. You fixed that two years ago and im very grateful for that. We made a mistake decapitating the ecosystem for innovation in the department when we created the undersecretary for acquisition, made it third most important position in the building and we diminished the role of the Defense Research and engineering. That was a mistake at the time. You fixed that last year. But and i havent i know youre working on legislation this year. I havent seen what youre proposing so im really what i really am here to talk about is last year. You did the right thing el vatding the engineering and research function but in the conference you undermined the impact of this creating the second undersecretary for acquisition. The purpose of your goal last year, we had conversations with the committee, was to make the innovation secretary the third most important position in the building. And that was the right thing to do. You did that. By introducing a second undersecretary who takes care of acquisition, thats where the money is. I was the comptroller. I know what its like in the building. The guy that controls the money has more clout so your desire to elevate in prominence the ecosystem in the department to become more dynamic in addressing new technology and new threats unfortunately undermined when you created the second undersecretary and i would ask you to go back and take a look at that. You did the right thing delays implementation by a year so you have a chance to get this right. We need to recruit the biggest person we possibly can to come into that job. We have to recruit a very prominent person. They wont come in if the job looks like its undermined by the structure of the rest of the Senior Leadership so i would plead with you to take another look at. That id be happy to come up and talk at any time. I wish to talk to you about you put in the authorization act last year, the chief management officer. Its as written now it doesnt do anything new. It carved out the functions with the deputy secretary as the chief management officer into that new position as an undersecretary. I think theres a great promise in what youre looking at but we need to make clear. The way its written in last years bill, it is its a staff function. What i think we need in the department is a line manager over the defense agencies. We do not have a line manager over the defense agencies. We do for the army, the air force, navy and marine corps. We dont for the defense agencies. I would ask you to consider looking at making that chief management officer position which you created not a staff function but a line function. Give it responsibly to oversee, hire, fire, promote, you know, to make alcohol investments, et cetera for the very important function, to oversee the defense agencies. About 130 billion. A lot of work to be done here and not going to get management out of the job the way you wrote it last year. So i apologize for being blunt here but you absolutely are on the right track. I think some minor adjustments you will carry it across the line. Of course, i would be very flattered to work with you on anything this year. Thank you. Thank you, sir. Ms. Flournoy. Mr. Chairman, Ranking Member smith and distinguished members of the committee, truly an honor to be with you on defense reform. You know, it is hard to remember a time when the need for defense reform was more acute given the challenges that the military is likely to face in the future. We have a military more capable than ever before and on an unsustainable cost curve and fundamental reforms are needed to free up resources that can be reinvested in the Critical Concepts and capabilities and operations that enable us to maintain our technological edge in the future in a far more challenging security environment. Now in the time to ensure that we get the most possible out of every taxpayer dollar invested and i, too, want to applaud the work that this committee has done in leading the charge on defense reform, particularly in the acquisition area, but what i wanted to do this morning is suggest four new areas that you may want to go deemer in this legislative cycle and the future. The first is right sizing dod headquarterses and in particular transforming the defense agencies. If you look today at the office of the secretary of defense, the joint staff, the combatant command headquarters and the defense agencies, they total about 240,000 people excludeing contractors. Thats about 20 of the Defense Budget. The substantial growth in dod headquarters is not just a matter of inefficiency but also one of effectiveness. In the private sector, bloated headquarters staffs have been documented to slow Decision Making, pushing the decisions up in the organization, incentivize risk averse behavior, undermine performance and compromise agility. I think the same can be true in government. Perhaps the largest savings with largest agencies accounting for 134 billion of the dod budget. So highest priority in my mind should be given to those large agencies that operate most like civilian puz l businesses including dla, the defense Information Systems agency, dha, the Defense Health agency and dfas, account and finance services and i would encourage you to require the secretary of defense to undertake a comprehensive management assessment of the agencies looking at where best business practices, new technologies and automation might actually improve performance and reduce cost. And create savings that could be reinvested in higher priority care yeahs. Beyond the focus i think it would also be a good thing for congress to provide the secretary with the flexibility and breathing room to assess across the dod headquarters areas of potential overlap and look for opportunities to restructure, consolidate reassign personnel eliminate unnecessary offices and functions and i just hearing johns proposal for giving the cmo line responsibility over the agencies i think thats very much worthy of consideration. Second key area id love for you to grapple with is brack. The department desperately needs a brack round. The estimate is at 22 of current infrastructure is access to military need. The Service Chiefs have repeatedly testified that that infrastructure overhang is taking money away from readiness and from modernization and critical future war fighting capabilities. Based on past experience the department is estimating that at least 2 billion a year could be saved. And although concerns about potential job loss are understandable, there are also a number of studies of past closures that concluded that most jobs are ultimately replaced and most affected communities actually do recover quite well. I think in the year where the congress is considering a major Infrastructure Investment bill, you could imagine directing some of that investment to affected communities and potentially easing their transition and mitigating some of the job losses associated with brack. So bottom line is every dollar we spend on unneeded infrastructure is a dollar were not using to support the men and women who serve in harms way. So i would encourage you this year to act. The third area is reshaping and reinvigorating the civilian workforce. Today dod employs about 770,000 civilian employees, plus a comparable number of civilian contractors. Multiple efforts have been made to streamline the system with mixed success. I think you have an opportunity this year to provide the secretary with a package of authorities to help reinvigorate the civilian workforce. I would encourage you, i list them in my testimony. Ill just briefly touch on some of them here but requiring the secretary to develop a comprehensive Human Capital strategy for how we recruit, develop, retain, and shape the civilian workforce. Including in that assessing the optimal mix between military, civilian, and contractor workforces. Secondly, to set realistic personnel Cost Reduction targets over the fidip to actually further modify the vcip authority to allow it to be targeted on specific employees that are judged appropriate to leave government service. To encourage the secretary to use the modified riff authority that you provided last year but hasnt been used by the department yet. To give the secretary flexibility to reallocate and reassign personnel as he right sizes and reshapes the organization. And really to look at consolidating the personnel system. Currently there are 66 different personnel systems that are being used for the civilian workforce in the department of defense today, 66. Imagine trying to manage that. Can we look at a consolidated approach under title 10 that would really allow the secretary to tailor one system to higher manage, develop, compensate, retain dod civilian workforce . And there are a number of ideas that i list there, as well. The forty area is improving the quality of healthcare while reducing costs. Today the military Healthcare System costs have nearly doubled over the last decade with the cbo estimating an additional 40 billion by 2030. Whats even more important, in my mind, is that survey data suggests that the quality of care received by military personnel and their dependents remains uneven and Customer Satisfaction is below civilian benchmarks in key areas. So i think this is an area where dod and the congress have an opportunity to explore ways of both improving the quality of care while also leveraging approaches like values based healthcare to reduce costs. In my written testimony i actually draw from an excellent report that bob hail, the former dod comptroller, did for cnas on reforming defense. Particularly he highlights five areas for healthcare reform that i think are worthy of looking at. Wartime readiness, valuebased reimbursement, utilization of services, productivity and availability of choice. Let me just conclude by saying that i really do think we have a tremendous opportunity with this secretary the authority and flexibility he needs to actually better performance and free up resources for reinvestment and higher priority areas. That said, the defense reform, as you all know, is not a panacea. Its my hope that this congress will also consider how to establish a more predictable and more robust levels of defense spending over the next five to ten years without gutting diplomacy and Development Accounts that are critical to our National Security. I believe that reaching a comprehensive budget deal that will has all the elements from tax re