Committee on the future of the u. S. Armed forces and recommendations to improve the services. Including cost savings and efficiencies, incentivizing and managing the civilian work force. [ gavel ] committee will come to order. This week, the committee will hold two hearings that focus on the two major pillars of our agenda. Tomorrow well hear from the Service Chiefs on repairing and rebuilding our military. Today, however, well concentrate on the other pillar, which is defense reform. Weve done a lot of reform over the past two years, that includes acquisition reform, a new military retirement system, major 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. If 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 tax dollars are spent as effectively and efficiently as possible. 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 that more and more innovation takes place in the private sector. All of these trejds stress our existing organizations and processes. We will not be able to defend the country with Outdated Technology or sluggish bureaucracy. Much of the responsibility for making 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, gentleman from rhode island. Thank you mr. Chairman. I want to welcome our witnesses here today and proud to be able to speak on behalf of congressman smith. Thank you again to our witnesses. Thank you, mr. Chairman for holding todays hearing on this topic of critical importance. Again, i want to say thank you to our witnesses for sharing their opinions. I know you all have a wealth of knowledge and i appreciate you sharing this with did committee. I look forward to hearing the views on what the department of defense should or should not address in the future as relates to acquisition policy, organizational structure, and military personnel Reform Efforts. The fy 1617 National Defense organization acts included 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 secretaries and the same undersecretary position was split into two positions. Private Sector Companies who produce goods and provide services for d. O. D. Here we are in with 2017 working on next years daa. Its too earlier to tell if these reforms will prove to be successful. In my view, before we make additional acquisition reforms, we should see if last years changes were effective. It seems as if current changes may be overwhelming the system. Department of defense can only absorb so much reform legislation. One area where dod does not need support is helping to right size its infrastructure by authorizing new round of phase realignment and closure. D. O. D. Has been interesting congress to establish new ground each year for the past five years and estimate a new bracket can help save 2 billion a year. We cannot afford to waste 2 billion a year holding on to infrastructure that is in excess to the militarys requirement. While some may question the four structure levels or raise concerns with the 2005 round, i believe congress can and should work with d. O. D. To address these issues and authorize a new bracket this year. Im also interested in where the department and the services will go with personnel reforms. The fy16 provides 13 of the plan that they can take with them when they complete their Service Obligation but do not reach 20year retirement. Its time that the personnel system complements the retirement system with more flexibility and built to target certain skill sets when needed. The services have been discussing for years the need for more personnel system but has done little with the existing authorities they have. People join the military and department of 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 have there are requirements and standards that need to be maintained. Im interested in exploring concrete options that create flexibility to attract the qualified individuals to fit the requirements and as those requirements change, maintain high standards. With that, i thank the Ranking Member for letting me read his statement on behalf and i yield back to the chairman. I thinkthank the gentleman. Let me again welcome each of our witnesses, dr. Jon hammry, Michelle Flournoy and dr. Dug zackhe irks m. Each of them have held high position in did department of defense and we are grateful for yall being here. Without objection your full yin statement will be made part of the record. At this point wed be pleased to hear any oral comments youd like to make. Mr. Chairman, Ranking Member smith, its a real privilege to be invited back. I want to be sigh thank you to you not just for inviting us but for this committee taking so seriously this important work of Defense Organization reform. This is not the kind of thing most committees are doing these days. Im so proud that you are and thank you for that. I was own the staff of the senate excuse me, dr. Hamre, wo you get that microphone right up to your mouth . Im sorry. Thank you. I was on the Senate Committee and the Packard Commission reforms, we worked on it very hard but made some serious mistakes with the Packard Commission reform. We didnt understand it at the time, but 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 by decapitating the ecosystem. When we created the undersecretary, made it the third most important position in the building, and diminished the research and engineering. That was a mistake at the time. You fixed that last year. Kbu o but i know theyre working on legislation this year and havent seen what youre proposing. What i really am here for is to talk about last year. You did the right thing by elevating the research and engineering function. But unfortunately, in the context i think you undermined the impact of this when you created the second undersecretary for acquisition. The purpose of your goal last year and we had conversations with the committee was to make the innovative secretary the third most important position in the building and that was the right thing to do. You did that, but by introducing a second undersecretary who takes care of acquisition that is where the money is. And i was the comptroller. So i know what its like in the building. The guy that controls the money has more clout. So your desire to balance the innovation in the eco christm es unfortunately undermined when you created the second undersecretary. I would ask you to take a look at that. You did the right thing by delaying implementation, so you have the chance to really 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, theyre not going to come in if the job looks undermined by the threat of the leaders. I would be happy to come up and talk tonight. The other thing i would wish to talk to you about is you put in the authorization act last year, you created the chief management officer. As written now it doesnt really do anything new. It carves out all the functions that are currently with the deputy secretary as the chief management officer into that new position as an undersecretary. I think there is a great promise in what youre looking at. But i think we need to make clear the may its written in last years bill, 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 have line manager for the army, for 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 responsibility to manage, oversee, hire, fire, promote, you know to make capital investments, et cetera, for this very important function to oversee the defense agencies. Its about 130 billion, there is a lot of work to be done here but youre 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 this across the line. And of course i would be very flattered to work with you on anything this year. I have not seen your draft bill but i look forward to working with you in the committee, sir. Thank you. Thank you, sir, ms. Flournoy. Mr. Chairman, distinguished members of the committee. Truly an honor to be here to testify before you on such an important element as defense reform. There was a time it was more acute given the incredible challenges our military is likely to face in the future. We have a military that is more capable than ever before, but also its on a mission that is on an unsustainable cost curve. So the resources that are needed to be reinvested in the Critical Concepts and capabilities and operations that will enable us to really maintain our technological edge in the future in a far more secure environment. So now is a time to continue with a plan for robust reform to make sure we get the most out of every taxable dollar invested. And i, too, want to applaud the committee 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 deeper in. This legislative cycle, in the future the first is rightsizing dod headquarters and in particular transforming the defense agencies. If you look today at the office of the secretary of defense, the joint staff, the combat and command headquarters and defense agencies they total about 240,000 people, excluding contractors. That is about 20 of the Defense Budget. The substantial growth in dod headquarters is not just a matter of inefficiency but also one of ineffectiveness. In the past, the headquarters have been documented to slow decisionmaking, pushing decisions too far up in the organization and incentivize risk versus behavior, undermine performance and compromise a agility, and the same can be said for government. The agencies account for about 134 billion of the dod budget. So the high priority, in my mind, should be given to the large agencies that operate most like civilian businesses, including doa, the defense logistics agency, dha, the Defense Health agency, and the finance and accounting service. And what i would encourage you to do is to require the secretary of defense to undertake a comprehensive accessment assessment of these agencies, to determine where they could reduce cost and create savings that could be reinvested in high priority areas. Beyond this focus on defense agencies i think it would also be a good thing for congress to provide the secretary to have 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 just hearing johns proposal for giving the cmo line responsibility over the agencies i think its very much worthy of consideration. Second key area i would love for you to grapple with is brac, the department desperately needs this background. The estimate is currently 22 of infrastructure, estimated needs, they have testified that the infrastructure overhang is taking money away from readiness and from modernization and critical future warfighting 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 a year where congress is also 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 brac, so bottom line, every dollar we spend on unneeded infrastructure is not used 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 Employee Work force. Today, the dod maintains about 170,000 employees, you have an opportunity this year to provide the secretary with a package of authorities to help reinvigorate the civilian work force. I would encourage you i list them in my testimony. Ill just briefly touch on some of them here. But retiring the secretary to develop a comprehensive Human Capital strategy for how we recruit, develop, and maintain and shape the civilian work force, including in that, assessing the optimum mix between military contracts and work forces. Secondly to set realistic personnel Cost Reduction target. So actually further modify the visap 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 authority that you provided last year but has not been used by the department yet. To give the secretary flexibility to reallocate and reassign personnel as he reshapes the organization and really looking to consolidate the personnel system, currently there are 66 systems being yous today. Can we manage a program to allow them to hire, manage, develop, compensate, retain dod civilian work force. And there are a number of other ideas that i list there as well. The fourth area is improving the quality of health care while reducing costs. Today, the military Health Care System costs have nearly doubled over the last decade. With the cbo estimating an additional 40 billi 40 billion what is even more important in my mind is that survey data suggests that the quality of care received by the military personnel and their dependents remains uneven, and below the benchmark in key areas so i think this is an area where the dod and congress have an opportunity to both explore the ways to help the quality of care but also approach the levels of costbased health care to reduce costs. In my written testimony is actually draw from an excellent report that the former comptroller did for reforming defense and particularly he highlights five areas for Health Care Reform that i think are worthy of looking at. Wartime readiness, valuebased reimbursement, utilizing services and availability of choice. Let me conclude by saying i really think we have a tremendous opportunity with this secretary and this congress to move forward on these issues. I think now is the time to provide the secretary of defense with the authority and flexibility he needs to actually get better at performance and free up performance for reinvestment and high priority areas. But that said, 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 vetting diplomacy and Development Accounts that are also critical to our security. I believe that reaching a comprehensive budget deal including all the elements from tax reform to entitlement reform to Smart Investments in the drivers of our economic portion and growth, its not only economic, its become a National Security imperative. Lastly, i hope the dialogue this committee is fostering, the congress and executive branch will be able to partner more closely together and make hard choices and look at reforms necessary to make sure we truly keep face to the men and women who are in the best fighting force in the world. I think you would at agree they deserve nothing less. Thank you, dr. Zakheim. Thank you, mr. Chairman, Ranking Member smith, like my colleagues here ive been in front of this committee several times and its a real privilege to be here again and to testify yet again on defense reform. The last two years this committee has really led the charge first on implementing, first legislating and helping to in effect implement reforms that were sorely needed in the department. But as my colleagues pointed out and everybody here recognizes its still a way to go i want to focus only some of the topics that have already been mentioned. The list is very long. Let me begin first with civilian personnel. I have a slightly different take than some of my colleagues have on what to do abo