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Are We Buying the Right Weapons in the Best Way?

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April 3, 2001

The Pentagon’s Weapons Buying Systems: Lessons Learned

Participants:
Dr. Jacques S. Gansler
Under Secretary for Acquisition and Technology 1997-2001
Mr. Philip E. Coyle, III
Assistant Secretary of Defense and Director, Operational Test and Evaluation 1994-2001
Dr. Kenneth Oscar
Acting Assistant Secretary for Acquisition, Logistics and Technology

Moderated by:
Mr. James Doyle

A founder of Defense News and former executive editor of Army, Navy, and Air Force Times

Room 562 Dirksen Senate Office Building
Washington, D.C.
Tuesday, April 3, 2001
9:00 AM [EST]

Transcript by:
Federal News Service
Washington, D.C.

MS. DANIELLE BRIAN: I realize it must have been a real conflict for you to join us for this panel today given that the Napster hearings are happening at the same time in this building, but I'm glad you could make it to this important discussion. I wanted to point out that this is a panel celebrating the Project On Government Oversight's 20th anniversary. And in your folders is a report describing all the work that we've done over the past 20 years.

I am very excited to have Jim Doyle as our moderator, who will give the formal introductions of our guests. Mr. Doyle himself was one of the founders of Defense News and was executive editor of Army and Navy and Air Force Times and so obviously has got tremendous experience at looking at how we are buying our weapons and whether we buying them the right way.

While the formal introductions will be done by Mr. Doyle, I did want to make a few points. One is that last night our organization awarded Mr. Coyle our “Beyond the Headlines Award,” which was designed to recognize someone who has worked behind the scenes to improve public policy. And we're very pleased to do that. And I also wanted to point out that I actually studied Dr. Gansler’s work when I was in college in a course called The Economics of Defense, and he inspired me, but he inspired me to come here so I could disagree with him a lot. So I'm thrilled to have him here. And I am thrilled that we can have this panel discussion, which I hope might even become a lively debate.

So I will turn it over to you, Mr. Doyle.

MR. JAMES DOYLE: Thank you, Danielle. And I, too, welcome everyone. Thank you for coming.

We have three panelists here today who personify the best in public service, men who have devoted the better part of their lives to making government work better for the American people. I am going to ask each of them to begin in five minutes or less to start by answering the general question about defense acquisition, and then we will continue the colloquy with the help of all of you, I hope. If as we go along you have questions about the point under discussion, please raise your hand or do whatever to get my attention, and I will try to call on you fairly promptly. If you hear acronyms being used, please raise your hand fast, and I will ask people to explain the acronym. If you have a question on a brand new subject, pull back a bit and signal me as we go along and we will try to get to every subject.

I would like to introduce all three panelists first and then get to the subject at hand, which is how we can improve the ways that we buy national defense. On my far left is Dr. Jacques Gansler, who is Roger Lipitz Professor at the University of Maryland, the Center for Public Policy and Private Enterprise and professor at the School of Public Affairs at the University of Maryland. Dr. Gansler was Under Secretary of Defense for acquisition and technology in the last administration, responsible for all matters relating to acquisition research and development, logistics, acquisition reform, advanced technology, international programs, environmental security, nuclear, chemical and biological programs in the defense technology and industrial base. He has also served as deputy Assistant Secretary of Defense for material acquisition and has written extensively in articles and contributions to 12 books on defense conversion, on affording defense, on the defense industry, on national security, managing research and development, and public administration.

He has served as vice chairman of the Defense Science Board, chairman of the board of visitors at the Defense Acquisition University, director of the Procurement Roundtable, a senior consultant on acquisition reform to the Packard Commission, chairman of the board of the visitors at the University of Virginia and a similar board at the University of Maryland. He was a visiting scholar at the Kennedy School of Government at Harvard, a visiting professor at the University of Virginia, an honorary professor at the Industrial College of the Armed Forces. He has held executive positions with Raytheon, the Singer Corporation, and Task, Incorporated, an information technology company.

He graduated from Yale and has master’s degrees from Northeastern and the New School and his doctorate from American University.

On my left is Philip E. Coyle, III. Phil Coyle just retired after six years as the longest serving director, Operational Test and Evaluation in the Department of Defense. In other words, he was the Pentagon guru for operational testing and principal advisor on the subject to the Secretary of Defense, and the Under Secretary for acquisition and technology. His job was mandated by Congress, and Mr. Coyle has enormous credibility here on Capitol Hill. He has 40 years experience in the field, much of it at the Lawrence Livermore National Laboratory in a number of high positions, including associate director and associate director for tests.

When he retired from Livermore after 33 years, he was honored for outstanding service to the University of California and named associate director emeritus of the laboratory. In the past, he served as principal Deputy Assistant Secretary of Energy for defense programs where he had oversight responsibility for the nuclear weapons testing programs, as test director at the Nevada test site, test director of the full scale underground tests of the Spartan warhead on Amchitka Island in the Aleutians, scientific advisor to the Nevada Operations Office, and as a key deputy in Lawrence Livermore programs developing high-power lasers.

Besides the many awards he has received as a scientist, there are others for pioneering equal opportunity programs at Lawrence Livermore, which the laboratory has established an award in his name for excellence in diversity. The Department of Labor honored him for exemplary voluntary efforts to advance equal opportunity. He's been active in East Bay community affairs and is a member of the Alameda County Economic Development Advisory Board. He has also served on the boards of several educational organizations.

Mr. Coyle graduated from Dartmouth College with a BA in 1956 and an MS in mechanical engineering in 1957.

And on my right is Dr. Kenneth Oscar, Acting Assistant Secretary of Defense for Acquisition, Logistics, and Technology. Dr. Oscar has a long and distinguished career in this field. He served as the acting administrator for the Office of Federal Procurement Policy at OMB last year and took up his present responsibilities at the beginning of this administration. He has been Deputy Assistant Secretary of the Army for procurement, responsible for oversight and policy of all Army procurement, acquisition reform, industrial-base advocacy, and proponent for the contracting career field. He was acting assistant secretary of the Army for research, development, and acquisition; principal deputy for acquisition at the Army Material Command; deputy commander for research, development and engineering at TACOM, the Army Tank Automotive Command; and he is also adept at using cell phones.

During Operation Desert Storm, Dr. Oscar was appointed as TACOM’s deputy commander for procurement and readiness and led a successful effort to provide billions of dollars of spare parts, vehicle spares, and maintenance resulting in extraordinary readiness rates for Army ground vehicles.

He was deeply involved in fielding the Army’s first digital vehicle, the Abrams M1A2 Tank. He and his commands have won any number of quality improvement awards, and he has won a dozen or more personal awards for outstanding service, including two presidential WAC (ph) awards.

Dr. Oscar entered Pentagon service from United Aircraft. He holds a BS in physics from Clarkson University, a MS and a Ph.D. in physics from American University. And he has published more than 55 papers, many in international scientific journals.

Gentlemen, in the past several years, all of you have been through many battles in your efforts to improve our national defense, to develop new systems in the best ways. I'm sure that each of you could, if you chose, tell us some hair-raising tales about this. This country spends enormous amounts on defense, far more than our potential enemies, far more than our allies. In the best of worlds, the stewardship of these literally trillions of dollars would be difficult. In the real world of Washington, the problem has too often overwhelmed conscientious men and women, distorted the outcomes and sometimes led to discouraging failures, outrageous abuses, lost treasure and spilled blood.

The Project on Government Oversight has been among those who have raised questions about the military system for acquiring new weapons and the continuing doubts about the efficacy of that system and the resulting weapons. I will leave to the panelists and to you, but I would like to mention a few areas of concern. One is the V-22 Osprey tilt-rotor aircraft, its design, its testing, as well as 15 years of procurement decisions. Three more are the F-22, the FA-18-EF, and the Joint Strike Fighter Aircraft, questions as to how we can afford the $350 billion-plus to buy all three of these planes and the way we have gone about buying them. Another is national missile defense, how we designed it, how we have tested it or not tested it, and how we plan to buy it.

That's the top of the list. Eleven years after the end of the Cold War, we may finally get an honest review of what we have been buying -- or we may not. My question for the three of you is, and we will start with Dr. Gansler and then come across -- my question is when are we going to fix the acquisition system? What lessons have you learned from past battles and past mistakes? Why aren’t we trying before we buy, that is making defense contractors assume more of the risk of testing their own products before handing them over? Why not insist the system work before giving a go-ahead? Why do we take shortcuts to the production stage when the threat is less than it was and different than it was during the Cold War when most of these systems were conceived? What's the hurry? Why are we adding to the procurement budget by cutting testing facilities and testing personnel?

So, first, Dr. Gansler, then Mr. Coyle, and finally Dr. Oscar, tell us in five minutes or less how you think we're doing on acquisition reform, how we might learn from the past, and what you would do if you were Don Rumsfeld?

DR. JACQUES S. GANSLER: Let me start by saying I think -- I'm used to taking on the press, Jim. I think that the question of fixing the acquisition process is really the wrong question. It is not a zero-sum game, it is not one in which you can say, “It is broken and it needs to be fixed.” I think what we need to do is to continuously improve the process in the presence of a dramatic set of changes going on around it in technology and geopolitics and industrial base and globalization, and so forth.

What I thought I would do in the five minutes you allocated to me was to look at some of the -- in fact, I identified 10 areas that I noted, in which there has been progress but in which there is an enormous opportunity to make much more progress and use those as sort of a stepping-off point for questions that we will address both in terms of what's been done and what the Rumsfeld group needs to look at.

I start off with the first item is creating new weapons for the 21st Century. Warfare is going to be different in the 21st Century, mobility, smart weapons, smart sensors. Those are the areas that need to be focused on. And if you look at our research allocation, it's very clear that the researchers are still focused on the old platforms and there needs to be a shift in resources. Some of that has taken place. A lot more needs to take place.

The second area I would argue is how to deal with the new threats that we didn’t have, that we expect that I would guess are almost 100 percent likely in the 21st Century, early 21st Century. This deals, of course, with the asymmetric area, not just the obvious things of mines against ships and things, but much more the chemical, biological, nuclear, information warfare, homeland defense. These are the things that we haven’t been spending money on in the past, that we started in the last few years to spend money on, and for which we have a lot more to go if we are going to be successful in defending against these, from a variety of threats, from terrorism or through -- I guess I can use this administration -- rogue nations.

The third area I think is the joint and coalition operations. In the beginning of the last administration, we had lots of speeches about jointness, but most of the equipment really wasn’t being designed to take advantage of jointness, in fact wasn’t even a requirement for jointness. We now have a firm requirement that all systems be designed for interoperability as a critical performance parameter, one that needs to be tested. And then I think we'll have a very significant impact on the systems. I think the coalition operations, however, still are yet to come. I think it is very important when you look at Joint Vision 20/10 that you saw, coalition operations weren't even described in there. If you look at Joint Vision 20/20, coalition operations are included in there. But planning for it and the use of it still needs to be done. I think there's a major initiative taken in terms of trying to worry about reviving expert controls that haven’t been done for many years in order to be able to share technology with our allies while assuming they would control it. That's an effort that needs to be greatly strengthened. I personally was very encouraged by the fact that the UK had signed up to the Joint Strike Fighter. I think that will help a great deal in terms of interoperability.

The fourth area I'd mention is modernization. We need to reduce the O&M costs in order to be able to pay for modernization. It's very clear when you look at the cycles of weapon systems that we are at the point where we need to modernize, and the hope would be that we don’t modernize with the old systems but, instead, we go to the next generation of systems and, in fact, focus on the things that I mentioned earlier -- smart sensors, smart weapons, CQ mobility, things of that sort. That does mean that we have to reduce our operating and support costs dramatically. Things like the smart ship are an example of that. Things like the DD-21 where you are focused on reducing fuel and reducing manpower is another example of it. We clearly need to -- and the Army has a major initiative Ken may talk about in terms of trying to invest in those areas that are low liability items in order to be able to reduce the operating support costs.

The fifth area is the high cost and the long cycles of our weapons, and I think this is where we get into a lot of discussion, Jim, on acquisition reform. Perhaps one of the most important things that's happened recently is the fact that cost is now a military requirement, so that when you design something, you not only have got to maximize the cost -- I mean maximize the performance, you actually result in maximizing the cost as well. Rather than do that, you want to be able to have an affordable system. Again, I think the Joint Strike Fighter is an excellent example of that where it is designed to be high performance, stealthy, and relatively lower cost. Changing the requirements process there so that also not only do you have a cost requirement, operability requirement, but you have evolutionary design as an important requirement so that you, in fact, put in systems technology that has been proven into the systems in an evolutionary fashion rather than try to develop the sub-systems and the technology at the same time as the weapons system. That has a very big impact on, for example, the test cycles. And I am sure Phil will cover that, but the integration of development tests and operational tests and the requirement to keep competition in these programs in order to keep introducing the new technology that has a cycle time of 18 months, and new weapon systems, as you know, that have cycle times more like 18 years.

The sixth area is the modernization of our logistics system. Here we spend $80 billion a year and don’t have world-class performance on either responsiveness, dependability, or cost. We have an opportunity here to have an enormous improvement in our logistics system with modern information technology, rapid transportation, and shift literally billions of dollars, probably at least $10 billion or more a year from logistics into modernization.

The seventh area that I felt was very, very important, and I am really concerned about in terms of the new administration, whether they'll recognize the importance of long-term investments in science and technology. We just can’t afford to keep eating the seed corn. And with the shortage of resources to pay for all the things that I just went through, there's a tendency to forsake science and technology. During the last administration, the Congress was very helpful, the White House was very helpful, and I think that has to continue in order to maintain that long-term investment. But it has to shift into the new areas, in other words, the new technologies, and give up some of the older areas in order to be able to fund, for example, high-energy lasers and NOW (ph) technology, things of that sort.

The eighth area I would mention is the importance of the defense industrial base and its new structure. In the old days, the government could sit back and put out RFPs and we would get six or eight people bidding on them. Today there're only two or three firms in any given sector. The government now has the responsibility to assure you can maintain competition in that sector, and yet you want to make sure you have a healthy industrial base. And so, as you know, one of the things we have to do was stop some of the mergers in other areas to make sure that they can be achieved in an efficient fashion rather than simply at an accounting level.

Two areas that I tried to focus on that I think are important in the industrial base are civil-military integration and globalization of the industrial base. And we can talk about those during the Q&A.

The ninth area is attacking excess infrastructure. Here Congress has been totally remiss in not going on to additional base closures. Every analysis that anybody has ever done shows we have 25 percent or more excess capacity. In the absence of Congress facing up to that, then I think the alternative is simply to try to shift more and more into a competitive environment where you compete public and private. But all the empirical data there shows that the competition tends to improve the performance at an average cost reduction of around 30 percent, sometimes up to 50 percent. And through things such as housing privatization where we have something like $20 to $30 billion of unfunded housing just to get up to minimum acceptable standards, not budgeted, privatization will allow you to get that. And I think those are the shifts that we have to encourage the administration and the Congress to push.

And my last area of note would be to focus on the acquisition work force. Here we have a dramatic shift taking place in the types of things that the government does. The government is shifting from the doer to the manager of the doer. The government is required to oversee very high technology activities, modern information technology. We need a work force that's compatible with that. What we have is over the next four years now about 50 percent of the people eligible for retirement. That does give us an opportunity but we do need to restructure the acquisition work force, both in government and in industry.

Now, each of those 10 areas, I think things have happened, and that's why I emphasized in my first comment that the issue isn't fixing it; it's continuing to improve it. But there is a long way to go in each of those areas, and that is the challenge for the incoming administration, I think. If they continue to focus in these areas, I think we can continue to make progress. I suspect we will always be able to do better. At least the part I was responsible for was about $180 billion. If you can make some improvements in the effectiveness and the efficiency of those, you can make an enormous impact in our national security.

Thanks.

MR. DOYLE: Phil?

MR. PHILIP E. COYLE, III: Thank you, Jim. I want to note from the outset that many military acquisition programs work out very well. You never read about them in the newspapers, and they provide the user, the war-fighters, with all the intended capabilities. However, there have been some disturbing trends. In some recent years, 80 percent of Army systems did not achieve 50 percent of their required reliability in operational testing. In recent years, two-thirds of Air Force systems had to halt operational testing because they weren’t ready. The Navy has had to deal with such difficulties also. In 1992, only 58 percent of Navy systems undergoing operational testing to support a milestone trade decision were successful. The Navy instituted several changes to their acquisition process, including not going into operational testing before they were ready. And a few years later, their success rate was up to 92 percent.

When such problems arise, it's usually because of a general lack of realism, a lack of realism which manifests itself in, I think, four basic ways. Incidentally, none of these observations are original with me. Many others have noted these same issues, and these topics were the subject of a conference put on by the National Defense Industrial Association out in Long Beach just last week.

The first area is unrealistic requirements. Naturally, we want our soldiers, sailors, airmen and Marines to have the very best new equipment, and they want that too. The users, the war-fighters, want fewer more capable systems. Or to put it somewhat different, they want multi-mission systems. This leads to more complicated, multi-functional systems, often with computers and sensors working together for decision-making and information fusion. These days practically everything has a computer in it. For example, the Crusader Howitzer has roughly a million lines of code in its computer, about the same as the F-22 fighter aircraft.

The second area is unrealistic costs and schedules. It's not uncommon for the Department to have unrealistic expectations for cost and schedule as well as performance. This leads the contractors to buy in in order to be competitive. Also, with the intent of saving time and money, sometimes the military departments turn to so-called “commercial off-the shelf” or non-developmental items. Usually, these items are not on anyone’s shelf, commercial or otherwise, and often the designers never contemplated that the commercial product would be put to military use in a military environment.

The third area is unrealistic contractual environment. Too often the Department goes into highly complex, high-technology programs expecting the contractor to deliver a firm, fixed-price contracts. Even when the contracts are not at firm fixed price, many contracts are structured with no incentive to continue to develop to improve the system and every incentive to get into production as soon as possible. You heard the phrase, “You can make it up in production.” Later, if production quantities are cut, which they often are, that further reduces the prospects for profit. Also, the contractual environment for these contracts requires defense companies to make unrealistic bids simply to stay in the defense business. Jacques talked about consolidation, and that has increased the pressures there. If you have tracked the stock prices of defense industry stocks, you can see that Wall Street has figured this out also.

And a fourth area is preparing for realistic operational environments. Sometimes defense acquisition programs underestimate the operational environment. This can be an operational environment such as simply bad weather. The B-2 is an example there. But it also can be the stresses of battle or operational loading. For example, computer systems may be loaded much more heavily in battle than in the laboratory, something the Army has been dealing with with its digitization programs. Sometimes acquisition programs do not prepare adequately for operational tests, which, by definition, will be operationally realistic. Complex systems that have done well in the controlled environmental laboratory sometimes do not perform well in realistic operational tests.

Well, talk is cheap. What would you do about that? Here are eight things the Department could do that I think would help. The first is make requirement changes, go back to the JROC, the Joint Requirements Oversight Council, for approval. While the JROC is doing a lot, too often user requirements are changed without JROC involvement.

Second, in case the first doesn’t happen, I would have development costs be reimbursable so that when the services do change requirements, they have to pay for requirements creep.

Third, allow defense companies to make a reasonable profit for doing development before production. Until the fall of the Berlin Wall a dozen years ago, development was allowed to be up to 90 percent cost reimbursable. Today, development is discouraged, leading defense companies to want to get into production as soon as possible, whether they're ready or not.

Fourth, structure procurement outcomes that encourage sustained competition that are not winner-take-all outcomes. For example, you could have contracts with a 60 percent leader, 40 percent follower arrangement or say 40 percent for two successful bidders with 20 percent more for the more competitive contractor later.

Fifth, get realistic in defense contracting. By this I mean avoid firm fixed price contracts for high-risk programs and avoid putting defense contractors in cut-throat unconditional surrender competitions where they have to buy in or low-ball to stay in the defense business at all.

Sixth, don’t consider a product commercial, off-the-shelf unless you truly can buy it off the shelf, it comes with a user’s manual, and has been tested in the same environments in which it is to be used by the military.

Seventh, get the testers involved early. Among other things, this means funding the service operational test agencies so that they have the people, equipment, and money to participate in acquisition programs from the very outset, something they don’t have now.

And, eight, deal with the death spiral, as Dr. Gansler put it so well. He correctly explained how the sustainment costs for military systems far exceed their first costs. We often concede that these systems will be expensive to maintain early in operational testing. Sustainment ought to become a regular part of every operational test so as to identify sustainment issues earlier and correct them before they become a burden to our operational forces in the field.

Thank you.

MR. DOYLE: Dr. Oscar?

DR. KENNETH OSCAR: Thank you. You first asked, “What is the rush? Why are we doing all this?” Over the last 10 or 12 years, both Democrat and Republican Presidents have deployed forces in anger over 35 times. In the 30 years prior to that, we deployed forces less than 10 times. So there has been a nine-fold increase in deployment of forces. Those forces are our sons and daughters and the goal is to have them win quickly and come back alive. And with the rapid proliferation of technology around the world, we need to constantly improve the weapons, the defenses, the survivability, the equipment we give them.

Now, you also asked, “How is it going?” I think it is going wonderful. When you think at any given point in time the Defense Department has approximately a thousand items that is in development or procurement, everything from night vision goggles to a GPS, Global Position System, to tell you where you are anywhere on earth, to a Patriot missile, which this weekend, by the way, was unbelievably stressed. We shot a long-range, high-altitude rocket at it that used rapid defensive maneuvers. We simultaneously shot a lower-altitude, shorter range rocket at it. It detected both in the air and simultaneously knocked them both down. There's just millions of successes, many of which spill over into the civil world, like night vision or Global Position Systems or computers or many of these weapons become commonplace.

And so, you have do -- and I agree with Jacques, there have been many, many successes. What you hear about is once in a while the testing doesn’t turn out the way we thought it would. But that’s the purpose of the test. It's impossible to develop anything the first time. You develop it, you test it, you find its weaknesses, you re-develop it, you test it again, you find its weaknesses. And that’s the normal process of developing anything, whether it’s an automobile, which every once in a while we have recalls on, or whether it’s even a Boeing 777, which is the most phenomenal, quickest aviation airplane that was ever developed. But it took over five years. We tend to forget that.

This is a normal process.

So the rush is that those are our sons and daughters, and we’re trying to give them the best equipment possible. And since we’re pushing the state of the art, we don’t want to give them an off-the-shelf rifle. We want to give them a better rifle so we can defeat the enemy. We don’t want to give them Russian night vision goggles. We want to give them the best, that he can see farther than the enemy.

And so we’re pushing is the state-of-the-art. And when you do that, you’re going to design it, you’re going to test it to see if it works, you’re going to re-test it and re-test it again. And it’s not unusual to find problems in those items. That’s the purpose of those tests.

The equipment that they have out there is phenomenal. It’s very good. It’s been very successful. We can continue to improve the system. We always work on improving the system. It’s a continuous improvement operation.

Some of the things we’re working on now -- I think modernization is a misnomer. You know, if you have a taxi cab fleet and you have 100 taxi cabs, and each taxi cab were to last ten years, you should buy ten taxi cabs a year. If you don’t buy ten taxi cabs this year, you should buy 20 next year. And if you don’t buy any taxi cabs for ten years, at the end of ten years you have 100 beat-up, old taxi cabs and it's going to cost you a lot to replace them.

Modernization is different. Modernization is when I buy my taxi cab, maybe they ought to put a GPS in it, or maybe a fancy radio, or maybe I ought to get a Cadillac instead of a Ford. That Delta is modernization. So when you look in the military budgets and say, hey, we're arguing this weapon against that weapon, it’s really not true.

What you’ve got to look at is we have trucks out there, we have helicopters out there, we have ships out there, we have tanks out there, we have rifles out there, and just like that taxi cab fleet they’re all aging. And you should buy so many a year. Now when you buy a new machine gun, the question is do you buy a little better one or do you buy the same old one? Sometimes we buy the same old one. Sometimes we buy a little better one. That is how the Defense Department makes up its budget.

And so the real argument is that little Delta of modernization, because the fact is right now, today, we are not keeping up. Our equipment is aging and that’s why our maintenance costs are going up. It’s just like your automobile. The longer you keep your car the more your maintenance costs are. And so there's some optimum time to buy a car. There’s an optimum time to replace these weapons. We’re not doing that right now, and so they’re aging. And so we need to catch up with that phenomena.

I’ll stop there and throw it open for questions.

MR. DOYLE: First of all, any reactions from the panel to each other’s remarks?

I would like to ask Dr. Oscar, using his taxi cab analogy, I think many of the critics argue that because we’re asking for, designing and procuring 21st century taxi cabs, we’re not replacing the taxi cabs in the fleet. At least that’s what the critics argue, and that that’s part of the problem; that we’re, first of all, not testing the new taxi cabs well enough. We’re changing the buys, all the things that Mr. Coyle mentioned in his presentation. And so we’re running out of present-day fleets to put on the street.

DR. OSCAR: I’m not sure of your question. We are testing. We test every single thing we field. We test it several times. We test it before it goes into development. We test it after it goes into development. We test it at its first initial production, and we test it at full production. Most every single weapon gets tested four times, complete tests, both a development test and an operational test. And, yes, those tests find problems, and we fix them. And that’s the normal cycle we go through.

Are we short money? Absolutely. I mean one of the problems you mentioned is we’re buying new weapons and we don’t have enough of them to replace all the old ones. And so then we have two different models. It’s sort of like you're buying some new taxi cabs, but you don’t have enough money to buy your ten, so you only buy eight. And next year you don’t have enough money to buy ten, and you buy eight again. Now you’re four taxi cabs behind. And that’s what’s happening to us. The fleet is aging. There’s no question that that's driving up the maintenance costs.

MR. GANSLER: Ken I think what happened also is in the post Cold War, in the 90s, we basically stopped buying a lot of equipment. The procurement account, as you know, plummeted 70 percent. We had a lot of equipment. We had built up a lot of it during the Reagan build-up. And we, in fact, went further than not only not buying equipment, we even gutted a lot of that equipment instead of buying spare parts.

And then that combined effect of having this old equipment without spare parts is what’s caused our operating and maintenance costs to skyrocket and now is prohibiting us. In fact, every year, if you look back over the last few years, we’ve shifted billions of dollars from what had been planned to be modernization into operating and maintenance and to buy just spare parts and to keep that old stuff going. And then on top of that, you have a lot of new things you have to buy if you’re going to bother to worry about information warfare or homeland defense or chemical-biological weapons, and things like that. And it’s this compression that we hadn’t been replacing our taxi cabs in your analogy for a decade that’s caused, I think, the crunch right now.

DR. OSCAR: And I think what happened is we got out of sync. When the Cold War stopped we reduced people, nearly 30 percent of the active military and about 40 percent of the civilians. We reduced -- we were reducing the infrastructure. The BRAC stopped, and so the infrastructure was only reduced about 19 percent where the actual soldiers and civilians were reduced around 40 percent. So we kind of got out of whack.

Also we deployed troops more often, which upped the op tempo and further aged the equipment because it was wearing out more, especially your equipment like trucks. You may not be in a shooting war, but when your in Bosnia you have to drive your truck from Hungary to Bosnia every day. And so we’re putting on tons of mileage and you're wearing this equipment quite a bit.

And so we kind of got out of sync, and so we really dipped down, as you said, in the procurement budget and now we’re trying to build back up. But it’s going to take a while to do that.

MR. DOYLE: Phil?

MR. COYLE: Well, if you talk to program managers, they’ll tell you the thing that’s most important to them is stability. And anything that shakes up their program -- and the four areas that I mentioned are areas that often do shake up programs -- will reduce their stability and cause them to get into trouble.

But there’s a fifth area, and Ken may want to comment about this also, we probably have too many programs, and the services are probably trying to do too many programs. The analogy that’s often used is it’s like a big basket full of all different sized balls, basketballs and volleyballs and baseballs and golf balls, and even maybe some BBs. And the small programs can fit amongst the interstices of the big ones, but every year we shake that basket. The Congress shakes it a couple of times. The Department of Defense shakes it, by that I mean OSD. The service controllers shake that basket. And sometimes all the balls don’t fit back in the basket again. And so you have changes in the budget of the program, changes in the planned acquisition schedule that go with that, and that leads to a lack of stability also.

So I think maybe a fifth area -- I didn’t put it in my original remarks, but I want to bring it out -- where stability can be a problem is simply trying to do too many programs.

MR. DOYLE: Yes, Otto.

Q: -- Mr. Coyle, the question is the V-22 program worse than you’ve seen in the past? [Inaudible.] The question is, are these programs any worse than in the past….?

MR. COYLE: Well, there’s a legitimate argument that the V22 went into operational testing about a year before they were ready. And the particular areas where they were not ready was, number one, not understanding some basics about the flying qualities in high rates of descent. And the second area was generally poor reliability and high maintainability, a lot of maintenance hours per flight hour.

The tragedy, of course, in the V22 is that in an aircraft a lack of reliability can also be a safety problem. And, you know, it may be that the V22 wouldn’t have another accident for quite a long while. But it’s not a good thing to have, you know, low reliability in a complex aircraft. It’s actually an example of one of the areas that I cited, namely a multi-mission system.

The Marine Corps wants it for a good reason, because of its ability to do a lot of different things. But it’s more complicated than a regular helicopter. It’s more complicated than a C-130, the things that it would replace, perhaps, for the Marines. And being more complicated, that introduces new mechanical, electrical and software issues which came out, unfortunately, not only in operational testing but also in the accidents.

MR. DOYLE: Dr. Gansler?

DR. GANSLER: The only comment I would add to that is, you know, the pilot error in the first fatality was clearly something they were flying outside of the domain that had been tested, Phil’s point about the fact that you want to normally test beyond the domain. One of the problems we’ve had in the test community is that the press, the Congress and a lot of others assume that if you have a failure that that’s a problem. What you really want to do is to learn from failures, and, therefore, you want to test outside of the normal bounds to see how basically flexible the system is, how robust it is. They hadn’t done the testing outside of the boundary, but they had done the testing inside the boundary, and then they just flew outside of the boundary, which was the wrong thing to do.

The other lesson that I think was very clear and that Phil highlighted in his reviews of the program was the fact that it had to have a reliability, maintainability improvement program. And, in fact, we would not allow it to go ahead without that and did fund that, and the Marines had that planned as part of the program. That’s an essential, I think, for all programs to continue to improve the reliability and maintainability in order to cut down the operating support costs so that you can, in fact, gain the life cycle benefits of doing that.

MR. DOYLE: Danielle?

Q: Don't you think so that we can avoid problems like we've seen with the V-22 that we should work through these problems with testing before we rush into production? My second question is that given we have a fleet of 1,600 F-15s and F-16s and we are talking about an F-22 buy of about 300 to replace that fleet because of the extraordinary unit costs for each F-22, aren't we unilaterally disarming?

MR. GANSLER: The first point about testing early, I think all three of us violently agree with. the importance of doing it and the fact that -- gradually the cultural shift that took place of viewing testing as a final exam is now going back to what testing originally was supposed to be, which is part of the development process and you want to do it as early as you can and you want to do operational testing as early as you can, not just development testing as early as you can. And I think all of us strongly -- I know Phil and I have had many discussions about the importance of early operational testing. And so I don’t think there’s any question about that.

On the F-22 and the aging of the aircraft, it’s very clear that we have an aging problem in the aircraft, even if we limit it to the current plans that the fighter aging which is now about 20 years or 30 years with the current replace rates, so, and these are designed more for 15 years. So we’re going to have to put in a life extension program, for example, on the F-16s.

Now, the F-22 is probably can be viewed as sort of a silver bullet. Its objective is air superiority in the first few days of conflict, and that’s what it’s intended for. And probably a few of those is about all you could justify. The question is whether you could justify the high cost for just a few of them. And that’s, I think, what’s going on in the evaluation today.

The much bigger issue is the one you’ve raised, which is do we cut the Air Force in half or not? In other words, if the F-16s, which are eventually going to lose their wings and fall off even with the replacement, are they going to be replaced by a 40 year old airplane, namely more new F-16s, the taxi cab analogy, or do you buy the Joint Strike Fighter?

Now, there've been a lot of people saying the Joint Strike Fighter is the most expensive program in history. Of course it is. If you’re going to buy 3,000 of them, you take "x" times 3,000 and you get a very big number. On the other hand the unit cost of those are relatively low; in fact dramatically low compared to either the F-22 or the Euro-fighter, or any of the other alternatives. And I think that’s the reason that the Air Force and the Marines and the Navy are all committed to the Joint Strike Fighter and why the U.K. and probably other countries will be committed to it, because it satisfies that combination of needed quantity and getting a high-performance, stealthy aircraft at low cost.

That’s what I would argue is the answer to your problem, which is a very real one, of your choice of either buying a few F-22s for the Air Force and gutting the Air Force wings and, you know, number of airplanes dramatically, or keeping the Air Force size about what it is now and using the Joint Strike Fighter to replace it. Beginning in the 2011, 2012 time period, you really have a serious drop-off in the F-16 because they were all bought about the same time.

DR. OSCAR: What the Army's doing is actually a very similar thing. The Army in the near term has created a program called recapitalization. And the purpose of that program is to overhaul and improve the older weapons. So what we’re doing is the same kind of thing. We’re buying newer ones, but we can’t afford to buy enough new ones to replace the whole fleet. So we’re buying the newer ones, putting them in the first units to deploy. With the older weapons, since we can’t afford to buy new ones, either the old model or the new model, we’re bringing them back to depots. We’re overhauling them. We're inserting selective new technologies. We may take like, say, a Blackhawk helicopter, Apache helicopter. We bring that back to the depot, try to get it back down to zero hours by overhauling the engine and maybe put one or two things in it like a second generation flare, night vision device.

And so on one hand we are creating kind of a two-tiered thing in the near term, unfortunately, with some very new sophisticated weapons and then some re-build of older ones just because we don’t have enough money to totally do it. In the long term what we’re doing is trying to figure out, in the Army, a whole better way to fight that’s more lethal but, at the same time, perhaps cheaper. And what the Army’s doing is just looking at -- with the power of information management, we’re able to separate, perhaps, the weapon from the platforms, from the sensor. And what you do then is by creating a mobile internet and interfacing everything digitally, it gives you a synergistic effect. And the best way I can describe it, if you give me one more minute, is like two infantrymen.

You know, this infantry guy is hiding behind this tree. And this infantry guy is hiding behind this tree. Now the old way of doing business is this infantry guy would call up on the radio and say, “Do you see any enemy?” And this infantry guy would say, “Yeah, they’re coming over the hill.” And this guy would say, “Which hill?” And this guy would call on the radio and say “The hill in front of my tree.” And this guy would say, “What tree are you hiding behind?” And it would go on like that. You know, it’s kind of the fog of war.

Well now, everyone has a GPS, every vehicle, every person, every helicopter, every tank. They’re all interconnected digitally so they don’t have to use a voice. This person looks on their little computer, sees where they are, sees where his buddy is hiding behind that tree. When the buddy sees the enemy, he touches the screen. Now he sees where the enemy is. You get a certain synergism.

So as we add sensors to the battlefield, unmanned flying vehicles and other kinds of sensors, we can have sensors that are not on platforms. And so you get kind of a battle cloud where you get perfect situational awareness. Now you have weapons, some of which are on platforms, some of which are not, indirect and direct fire, which are able then to put lethal effect where that enemy is. And then the people may be in those weapons, may not be in those weapons. And so what you’re doing is separating them and getting a bigger synergistic effect.

And so our future combat system is really trying to leap ahead in technology, leap ahead in the way we fight and trying to do it at a lower cost and be able to deploy that force anywhere on earth in 96 hours.

And so while we’re working on that, we’re trying to say what do we do in the meantime? That will take us ten years. In the meantime, we’re trying to recapitalize some equipment and buy selective new leap-aheads to improve the force. I mean there’s not much alternative with the money you have. You try to make best use of that money.

MR. DOYLE: Questions on the specific subject of how DOD tests and buys its taxi cabs? Yes, go ahead.

Q: With the globalization of --

MR. DOYLE: Can we hold that just a minute because I want to stay on the subject we’re on. Somebody have a question on this? If not, I do. Yes.

Q: [Inaudible.] Or are we so far behind that it won’t make that much difference?

MR. OSCAR: Are you saying if deployments increase?

Q: Decrease.

MR. OSCAR: Decrease.

Q: -- Will it enable you to catch up?

MR. OSCAR: Yes, it will. Yeah. It will make a difference. It won’t make all the difference, but it'll help. The less you deploy, the less you run out your equipment, the less it costs.

MR. GANSLER: Well, the estimates for, you know, individual deployments in, say, the Bosnia case or Kosovo case in the range of a couple of a billion dollars a year out of $300 billion. You know, it’s not a dramatic impact. There is an impact that includes the wear-out and the operating times, and so forth. So it’s not going to make a dramatic difference in dollars. It probably will make a dramatic difference in our policy of national security, and that’s the trade one has to make.

But that’s not where the big dollars are. In terms of deployment, I mean even the largest share of the numbers of people are the 100,000 in Europe or the 100,000 in Asia. It’s not the few that we have in Bosnia or Kosovo.

MR. DOYLE: Phil Coyle, you declared in a report that the V22 Osprey was operationally effective, but not operationally suitable. What does that mean and should we be buying a weapon that is not operationally suitable? And how often do systems turn out to be effective but unsuitable or, you know, ineffective but suitable? Whatever.

MR. COYLE: Yeah, I think the trend is when systems have a problem in operational tests, it’s more often a problem with suitability. Suitability is a term of art in the Defense Department which means -- whether it drives you crazy to use it or not, you think of your own computer on your own desk. It works fine, but if you have to re-boot it all the time, it may work great when it works, but if you have to re-boot it all the time it’s not suitable.

So suitability captures all the "ilities": maintainability, reliability, availability and incidentally, safety. And with the systems becoming more complex, with systems having computers in them, we’re seeing a tendency for some of them to not do so well in operational tests in the suitability area.

I want to go back to the question about the F-22 also, if I could for just a second. The thing that I’ve been most concerned about with the F-22 is that they would go into operational tests before they were ready. It’s an example of something I cited in my five minutes, namely a complex, new military system with computers and sensors, flying faster than an airplane like that, whatever, has ever flown, also trying to be stealthy, try to do a lot of things at once. But the dilemma they’ve had was if they took more time to get ready for operational testing, something which they recently have agreed to do, that put them in a difficult contractual situation. Their contract with Lockheed was not set up anticipating this would take more time. And it also caused a problem with the Congress because they were now over the cost cap.

So they were in a Catch-22 situation where if they took more time to get ready for operational testing, something which I felt they should do and which they’re starting to do now, they had both a contractual problem, something I alluded to earlier, and a problem with the Congress with the cost cap. And so, again, this was going to cause a lack of stability in the program. This was going to shake up that basket again, and maybe some of the F-22s were going to fall out.

MR. DOYLE: I want to ask specifically about the try before you buy concept. I asked this question, and I didn’t hear a direct answer. Shouldn’t the contractors, in the way we set up, be expected to take on more of the risk of presenting a product that they’ve tested and that when they give it to the services, the services are not in a position of saying, well, we’re ready to go into initial low-rate production, et cetera, when the testing is still to be done.

MR. COYLE: Well, I would say the answer to that is, no, that the contractor should not be expected to spend their own money to do development of military systems. I don’t think that’s realistic to expect contractors to spend their own money in development. So if you mean by "Should they take more responsibility?," namely should they take it out of hide, I don’t think they should. I think they should be allowed to make a reasonable profit for doing development like they used to be some years ago allowed to do. And if you mean take responsibility in that sense, then I’d say the answer is yes.

MR. GANSLER: I think, again, the model you have in mind of the contractor developing and then handing it over to the government is not the model that, I think, will result in the best product for the government. The model that I would like to see, the one the commercial world uses, is a continuous user involvement in the development. The government needs to be involved right at the beginning with people who are going to do operational testing, who understand how it’s going to get used.

And it’s much more analogous to what the software world does today. In order to be able to develop software relatively rapidly, you have a spiral development process where the user is constantly testing each modification as it comes along and you continue to improve that product with user involvement continuously. You get it faster into the field and you get something that’s operationally useful very early.

That requires, in a sense, an integrated product team between government and industry developing that product in a continuous process, trading performance against cost and schedule. That has to be done by the government, the trade-offs. The contractor shouldn’t be making those trades; the user should be making those trades. And I think that process still needs oversight in order to assure that you're not driving the costs up or coming in with a product too quickly. But on the other hand, I would view it much more as an integrated product team between government and industry through the development process.

MR. DOYLE: Question on this subject? Yes.

Q: [Inaudible.] -- the testing schedule or the schedule of acquisition, pushing people -- contracts pushing people to do things faster than they actually can do it.

MR. GANSLER: What we have been doing is to set up acceptance criteria for each modification. And if you do that beforehand, you know what it is you’re going to test. You don’t go on to the next one until you pass those. You can’t -- I agree with you. You just can’t keep -- it can’t be schedule driven. It has to be performance driven.

DR. OSCAR: What Jacques is saying is absolutely true for a commercial product like, say, a new software. You often get in the mail a beta copy and you play with it and there’s a couple of things wrong and you tell the company and they fix that. The military is actually trying to push it even farther. The military is saying I want something that’s better than anybody else has. And so we set goals.

Now as Phil Coyle tried to describe, sometimes you don’t meet those goals, but that isn’t necessarily bad. If I say, oh, I want an airplane that goes 550 miles an hour, and it turns out it goes 540 miles an hour and that’s way better than anything in the world today, you probably still want it.

I mean, you’re setting goals. Sometimes they’re arbitrary goals. You’re trying to push, you’re trying to make it better. You test it. Sometimes it’s very important and so you keep working and re-design it and test it again. Other times you say that’s good enough. It wasn’t quite the goal I wanted but it’s head and shoulders better than anything out there. And so it is on the military side, versus the commercial side, where they’re trying to -- the commercial side is doing the market survey and they’re saying is there a niche? Can I make money selling a $350 VCR? And they tend to put as much technology in there until they get to $250 and cut it off.

The military is the other way around. It says I want a missile that’s bigger range and better than anybody’s in the world. And so you keep putting the technology in until you get there, or get something that’s at least better than anybody else’s. And sometimes it takes you a little longer and costs a little more than you hoped. But it’s a different kind of thing. It’s not driven by the niche in the market. It’s driven by a goal or a desire to win.

MR. DOYLE: Our next subject, because we’ve got -- let’s take the globalization, the industrial base question.

Q: I wanted to pick up on a remark that Dr. Gansler made. You spoke of the importance of protecting U.S. defense industrial base and the desire to preserve competition. Where does globalization fit into that?

I wanted to ask you specifically about a case that’s pending now before this Treasury-led interagency panel that decides on investments with possible national security implications. There’s a Dutch company that wants to buy a California silicon chip equipment maker. It also happens to own an outfit called, I think, Tisley (ph) Laboratories, which makes lenses and optics and mirrors for reconnaissance satellites, among other things. The Defense Department has requested a more in-depth 45-page review of that.

I’m wondering, how does that fit into your concern about preserving the at-home industrial base?

MR. GANSLER: Let me start by explaining why the whole issue of globalization and technology transfer is really being pushed. It comes from a military requirement not an industrial requirement. It comes from the fact that we’re going to be fighting with our allies. None of us can conceive of any kind of a military operation, from peacekeeping through war, that isn’t going to be in a coalition environment, not for military reasons, but for geopolitical reasons. If you say for geopolitical reasons you’re going to have allies sitting next to you, you have U.S., or French, or British or German troops that are out there and the missile is coming along. Now they can’t afford to call up, as Ken was saying, and say you take the first one, I’ll take the third one, you get the French to take the second one; you know, that kind of thing. They all have to have interoperable command and control systems that will respond instantly to those missiles that are coming at them.

That requires us to have technology transfer far greater than what we had in the past. It requires us to have interoperability with our allies, to be willing to share our technology. And you assume that they control it, and they control it both industrially and governmentally. That’s the rationale for wanting to push the technology transfer.

Now it also says that there are companies in Europe and the Far East that could contribute to our technology base and could become competitors to the U.S. and thus introduce competition. And that may very well be desirable, if we have one U.S. firm in a given area, to have a foreign firm be allowed to compete and create competition, which would get us better performance at lower cost.

Now there’s a big difference between becoming dependent on a foreign source and being vulnerable to a foreign source. The fact that we buy a part -- if you open any weapon system today, you’re going to find lots of foreign parts in that system. That doesn’t mean that we are vulnerable to any foreign action, whether at the component level or even at the system level. I think you have to analyze whether or not there’s a single firm in a single country that might cut us off. That makes us vulnerable. But having foreign ownership or foreign sources -- and there’s a huge difference between foreign ownership in the U.S. versus buying from off-shore. Those are the things we need to analyze in terms of a broader view of our defense industrial base.

As Ken was saying and Phil, the idea that we buy some commercial stuff -- that broadens our industrial base. Buying from foreign sources broadens our industrial base. When our real concern should be, I think, that they control that technology that we share with them.

In the case of the fighter, we're going to be sharing some technology with BAE Systems, and we're going to be sharing technology maybe with Upton Mechanica, you know, or other countries that are involved. They have, in turn, control that technology. But I think it's coming from military need, that interoperability, that is really critical here.

MR. COYLE: Another aspect of globalization, to follow along with what Jacques was saying, is what is your desired end state. Would you rather have one company left in the United States and one company left in the United Kingdom and one company left in Germany. Or would you rather globalization where the company that does business in Germany and England and the United States and another company that does business in England and Germany: would you rather have three companies across those three states where there was competition? You know, so this end state is in many cases your desire for more globalization, more integration of companies. Otherwise, each country is only going to have one company, and then they're not going to work with each other and deal with each other and become very nationalistic.

Q: How do you look at this business of the pending matter of the Dutch bid for the U.S. semiconductor equipment?

MR. COYLE: Each one of these, we delve into the details of them as far as the security aspects and what's involved. And so there's no one answer to those kind of questions. I mean it's just like two U.S. companies merging. We always look at the details. Are they going to get an unfair share of the market, or are they going to have technology flowing a bad way? And so we'll look into those details.

DR. GANSLER: And the question of ownership, particularly in the U.S., is really an interesting one. I mean there's one law that the Congress has passed about an American company, you can't give them certain things. And I looked at it one time and I was wondering whether Nokia was an American company since it's largely owned by Americans. It happened to be located in Finland. But the law would say it's okay because it was an American owned company.

I mean I think you have to -- what we do, as Ken said, is we would look at an ownership in a company in the U.S. and see what kind of controls they were proposing in terms of the technology and in terms of security. Each case is a special case.

DR. OSCAR: I'm concerned about the defense industrial base also. If American companies were allowed to make a reasonable profit on development, they wouldn't have to worry about whether -- Lockheed wouldn't have to worry, like, say, about whether there're going to be 1,000 F-22s, or 750, or 400, or 339, if it keeps going down. They would have made a reasonable profit on the development side all along. And so you wouldn't have to worry about the defense industrial base, because as long as it was a profitable business to be in, companies would want to be in it. The situation I think that we are pushing companies into is that it's not a profitable business to be in, and so we keep going to successive levels of consolidation.

There're other benefits here. Defense companies, if you talk to them, will tell you that they're having a hard time attracting bright young people from school, from college, who would rather go into whatever, dot.coms, or something else. If defense companies can make a profit doing development, they will be able to attract bright young people from college because that work, that kind of development work is what would be most appealing to those young people. So it works in lots of different ways.

MR. DOYLE: Yes.

Q: Dr. Oscar you are suggesting that failed tests are simply a case of an aircraft not quite flying as fast as its requirement but, in fact, what we are faced with are far more fundamental problems like the fact that we have a bomber that can't fly in the rain and a cargo airlifter that can't land on wet runways. Why do we keep buying weapons that are not suitable? I'd love to hear some real discussion on that issue.

DR. OSCAR: I'm not sure what you're talking about when you say Crusader. We're not buying Crusader; I mean, we're developing it. I believe, as Phil said, we should not buy things that aren't suitable. But there's a difference, as you said, between one area not going 550 miles an hour versus 540, another area being unsafe. We should never buy and fuel anything that's unsafe.

Crusader is not in that phase. Crusader's in development. We're not buying it; we're still developing the weapon. I'm very confident that when it gets along, we won't buy it unless it's safe.

MR. DOYLE: And can I read you two GAO statements about the Crusader and get your reaction. One of them is the following. "The Army is making critical program scheduling decisions that will compress the program's schedule beyond its already compressed schedule under the streamlined acquisition process. In the past, such schedule adjustments have resulted in reduced testing and/or concurrent testing, allowing programs to enter low rate initial production before they were ready." And the following from a work that's dated March, 2001.

"The Crusader artillery vehicle is another case in which systems engineering was not performed by the product developer to a large extent until after the acquisition program had been launched. The development program was launched based on a notional design done by the Army's Program Office, not extensive systems engineering done by the contractor that would design and build the product. Key to this notional design was the use of a liquid propellant, new technology for firing weapons projectiles. Program officials stated that the optimal range that the Crusader is required to fire a weapon is still based on the use of this liquid propellant. The Army technology -- the Army assessed various aspects of the risk of developing the liquid propellant technology and integrating it into the weapon system between low and moderately high. Nevertheless, on the basis of the notional design, the Army committed to launching product development." And now I understand we're not going with that propellant.

What's your response to the GAO report?

DR. OSCAR: We set an operational requirement. We say we want the howitzer to shoot so far, shoot so fast, use a certain speed. There are the requirements we make. Then in the development, the contractor thought liquid propellant -- liquid propellant would be an ideal way to achieve all of those. And we started testing, and we started development. It turned out it wasn't as good as they thought. And so we shifted it to a kind of a modular solid propellant. Right now, the way artillery works is you have bags of propellant. You're going to put it on top, and you put bags of propellant underneath, and the farther you wanted it to shoot, the more bags of propellant.

They came up with a new concept of having kind of a modular propellant that would allow you to do that. And so we shifted from the liquid to this modular, solid propellant to reduce the risk, basically.

MR. DOYLE: This gentleman has been waiting a long time for a question.

Q: -- Some in Congress, I think, have been concerned that these test programs, in general, need some serious fixing. And the Defense Science Board recently published an assessment of weapons evaluation and has come up with some recommendations and observations about that. And I would just like to ask the panel if they're familiar with that study and if they could comment on what are the basic elements?

DR. OSCAR: I think there're three things that could be improved. One is I think we need to do more simulation throughout the whole cycle. If you go to Detroit and you look at the racecars versus the automobiles, it's full of simulation. They don't test those things thousands and thousands of miles on the track. They simulate it and then do verifying tests. Actually, the test -- they test the simulator or the model. And we need to do more simulation.

Crusader actually is one of the weapon systems that has more simulation than any other weapon I know, which allows us to change that design rather quickly without going through a whole two, three cycle where we would change the design in the computer.

So I think throughout the system there needs to be more simulation and modeling, and we need to test those simulations and models so they're validated models. And then once you do that, you can speed up the cycle.

Another thing I think we need to do is the testing needs -- and we've been talking about this for years, but for some reason I don't think we've achieved it, and I'm not sure exactly why. We need to have continuous testing throughout the cycle. And Jack mentioned this as one of his changes to 5000, the regulations. We talk about it, but it's not happening adequately. We need to the test data little by little as you're going along rather than do it all at the end.

The third thing I think we need to do is we need to tailor our tests more to a strategy. For example, the UAV. The UAV is an unmanned flying vehicle. It's a great disappointment to me because the Army invented this probably 25 years ago. And we kept writing requirements that this thing had to do everything in the world, and it kept failing. And a couple of years ago, we looked around and find out that we are the only country in the world, Army in the world that still didn't have a UAV, even though we invented and fielded a whole bunch of them, but, I mean, got them into the test phase, and they also flunked the tests because the goal was so high.

And so finally we changed the strategy and said let's just take the best one that's out there and buy it. Well, the law does not allow you to buy anything without a requirement document. The law also doesn't allow you to spend production money without a requirement document. And so, as best we could, we wrote a requirement document and then we bought the best one, and now if we don't go back and change that requirement document, we're going to fail the test. You know what's going to happen. But the theory was buy the best that's available. Well, if you buy the best that's available, how can you flunk a test? I mean that doesn't make any sense.

So the testing has to be more modular, more dependent on what it is you're buying, and your strategy for buying it. Now you may want to do the test to make sure it's safe, but you certainly don't want to test it against an artificial goal when your strategy was buy the best one.

And so we really have to adapt the test strategy to more conform with the acquisition strategy. That's the third area.

Q: Dr. Gansler has said that we need to push beyond some of the old weapon systems. And I'm wondering now that you're a private citizen again and perhaps can speak a little more freely if you could talk to us about which systems we should abandon?

DR. GANSLER: That's funny. I keep getting calls from the press saying, well, now that you're out of the government, why don’t you tell us the truth, you know. And I kept saying I always told you the truth, and I've not changed my opinion.

What I was really referring to was some of the systems under evaluation for next generation systems versus some of those that I would categorize as, you know, bring back last generation systems. What I really feel we need to be stressing is the fact that the technology and the nature of war-fighting has changed so much that we now have distributed sensors, distributed shooters, a very real need for a sophisticated command and control communications integration. And we're not taking enough advantage of that as a requirement. It's really a system of systems, and we don't know how quite to manage that, and we're having trouble trying to write that in terms of requirements, and we're having trouble trying to test to it. The whole Army digitization is now evolving into a system of systems and of testing and a management program for that. You have the same thing in most of the weapons that are now being developed. I would argue that as we move towards the recognition of this next generation of war-fighting that the nature of the weapon systems have to be compatible with that. And most importantly, that our resources need to be compatible with that. And we'll have an evolutionary set of requirements that go along with that, requirements based on interoperability, requirements based on cost, requirements basically that are evolutionary as the technology is proven that keeps being inserted. And that begs for a different set of the requirements bases and then the testing program that's going to change dramatically because it now has to change as the program continues to evolve.

We don't have sort of a philosophy of development and then test and then produce, but rather a continuous process of development and testing and continuous upgrading as you're producing throughout the life of the system.

DR. OSCAR: I think that we have canceled one or two hundred weapons over the last ten, fifteen years. You really have to make that trade-off. Do I improve what I've got? Do I go with this one? I've seen a new weapon; how do I afford it? I've only got so much money, so I've got to kill one of the ones I have. And we've had a steady stream of killing weapons over the years, and we'll continue that in the future.

MR. COYLE: On that question of interoperability, one of the things that the Defense Science Board recommended was that there needs to be new investment at the nation's test ranges in order to be able to do a better job of interoperability testing, and I certainly agree with that. They also recommended continuous testing, such as we've all been talking about, and I agree with that. And they recommended more investment for new equipment at the test ranges, especially for targets for missile defense targets and for other systems where very high technology targets are needed as part of the test.

MR. DOYLE: Could I ask this question? It's broader than acquisition. But I'm quoting from Senator Robert Byrd during the Rumsfeld confirmation hearings in a floor speech. And he was citing a GAO report.

"The Defense Department, which is talking about needing an additional $50 billion a year to meet readiness requirements, does not know with any certainty how much money it currently has available. It cannot pass the test of receiving a clean audit opinion on its financial statements, that despite the fact the Chief Financial Officer's Act of 1990 requires the DOD to prepare annual audited financial statements. So DOD is not living up to the law. Ten years after the enactment of that law, DOD has yet to produce financial statements that can be certified as complying with generally accepted accounting principles.

"Given this lack of accountability, is it any wonder that the DOD is constantly pressed for cash?"

DR. OSCAR: If you look into what fails, we account for every dollar. What fails is we do not depreciated equipment like a company does. Okay? And so, I mean, we don't pass that audit. The part that we don't pass is not the dollars we've given and what did we do with them. The part that we don't pass is the present value of every single piece of equipment that's out there. See, when you do a company audit, you do the assets and you do the count in and the count out. Our accounts in and accounts out we can do to the penny. The problem is trying to get a scheme that allows you to put a value on every single asset you have, every piece of property, every vehicle, every truck, every jeep, how old is it, what it's worth, and what's that scheme. Companies do it very simply because they depreciate. They bought it for a certain price. That depreciates over time, and after five years or ten years, it's written off the books.

The military doesn't do that. There's no depreciation. So it keeps this stuff forever. And then we've got to put a value on all of that. That's the part of the audit that we don't pass. As far as keeping track of our money, we keep track of it to the penny.

DR. GANSLER: In a certain sense, the original planning, programming and budgeting system didn't have the last part of it, which was the tracking of it as an integrated entity. As Ken says, we keep track of all of the dollars. I mean it's a bookkeeping system, unfortunately, not a management system.

What I think would be the answer to the question, and it is a valid question to ask, I think as we go to electronic commerce and look at the total supply chain and the tagging of all of the items and knowing where they all are at all times, I mean it's crazy that FedEx and Wal-Mart and other people know where all items are at all times and can depreciate them and can bill for them and can take care of invoices, as well as tracking them when they're being audited up at the front end. When we get the whole system on electronic commerce, that's the direction we're clearly moving rapidly in, and the rest of the world is. We're actually behind the commercial world in this area. But the government will have to go in that direction, and quite quickly. It will require some changes, a lot of changes in our processes, and possibly in some of our laws.

DR. OSCAR: Also the other half of your question is why do we need more money. If you look at the percent of the amount we spend in defense as part of the GDP, it has gone down steadily from over 8% to 5%, and now it's down to, like, 2%. The military is a bargain. We spend less money percentage-wise of the whole government on defense than we ever have.

MR. DOYLE: Did you want to ask about the GDP?

Q: Yes. I think its disengenuous to use the GDP argument because our GDP has grown immensely in recent years. In fact, it's tripled since 1980. I don't think that argument holds a lot of water. Eritrea spends 44% of its GDP on defense but no one would argue that they are military powerhouse. There are better ways to gauge how much our country spends on defense. One of those is to compare defense spending to other discretionary spending for domestic purposes. Right now defense spending comprises about 50% of our discretionary spending. With the exception of the 1980s Reagan military build-up, that percentage rivals spending during the Cold War. Our current military spending is about 95% of the Cold War average. We actually spend 15% more in inflation-adjusted figures than when Secretary Rumsfeld finished his first term as Secretary of Defense. How much do you think we need to go up to get to where you'd like to be for defense?

DR. OSCAR: I think it's probably about 15% off. You're either going to have to change the mission or change the money. I mean you can't keep steaming around the world and flying planes and deploying troops and replace equipment that is aging. I mean something's going to have to give. We've been at acquisition reform for a long time. The reason we spend so much time trying to shorten cycles and do all this is we're trying to save money. And so clearly the equipment's aging. And so we're either going to have to change the mission and do it differently or you're going to have to have more money, or a combination, which is probably -- like most things work out in life, it's a combination of both.

MR. DOYLE: I want to thank the three panelists for spending this time with us. And I've brought them a party favor to thank them, and it goes to this last question. If the chart that comes out of a pen -- and I have a pen for each of them. And on one side is a couple of years old, but numbers of net military spending, U.S. and allies, China, Russia and rogues. And if you doubled China, figuring they're lying, if you take a good look at this -- it's a good pen to keep in your pocket. On the other side of it is federal spending on selected programs. The Pentagon is that tall one, and the others are children, housing, education, EPA and Head-Start. We are the only industrial country in the world that has 11 million kids, or any kids, who do not have guaranteed health care, insured health care. Every other industrial nation. We used to have to say that South Africa joined us, but they now have a program. We have Head-Start programs that are under-funded. We have all kinds of child development programs that are under-funded. And I know it's not considered appropriate in this town to talk about defense spending and domestic spending. But there is a cost to these large budgets. So I want to give you all a pen to take with you.

[Laughter.]

And thank you all for coming.

PANELISTS: Thank you.

[APPLAUSE AND END OF EVENT.]

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