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USD Zakheim Briefing on the DoD Financial Management Program

Presenter: Under Secretary of Defense(Comptroller) Dov S. Zakheim
April 10, 2002 1:15 PM EDT

(Briefing on the department's financial management program. Also participating was Tina Jonas, deputy under secretary of defense for financial management.)

Zakheim: Well, good to see you all again.

This is a slightly different subject, but one we're very proud of. It's a key element in the secretary's efforts to transform this department. And in general, transformation has been viewed as new weapons systems or communications, or even culture. And those are all important and accurate and key elements of transformation, but there's another one, too, and that's transforming the way we do business in this place.

And one of the highest priorities for the secretary is to ensure that decision-makers, not just now, but for a long time to come, will have reliable and accurate and timely financial-management information. That's how business decisions get made everywhere else. The Pentagon, on the other hand, somehow got left behind somewhere, some years ago. And you're all familiar with many of the stories about the implications of not having a truly viable 21st-century financial-management system.

Now yesterday we took a major step toward transforming our financial management processes by releasing what's called a blanket purchase agreement to develop -- and this is term of the art -- a financial management enterprise architecture.

Now what is an enterprise architecture? If you look over there at -- and that is truly a challenge for the eyeballs -- that chart shows you -- and I think that one only has about 600-some-odd system, 673 or something like that. The number's gone up. We have now identified 900 and some-odd systems. These are individual systems. They relate not just to dollars and finances per se. But they relate to health, medical. They relate to supply. They relate to other elements of personnel. A host of different, what are called feeder systems, systems that obviously affect the cash flow of this department, and that are critical if you're going to come up with financial statements that make any sense, much less are auditable. There is no way on God's good earth that that kind of system will lead to financial statements that pass any kind of muster with any auditors worth their salt. That is what we are trying to reform -- to transform.

And this new arrangement, this new purchase agreement will do just that. It will set up this architecture to re-structure all of that. Any my fond hope is that those 900 systems will be reduced by 90 percent. You're not going to have one supersystem that deals with every transaction in this department. If you do, you're probably going to be just as badly off as you are with 900 of them. What you need is a rational way of doing business. And we have selected IBM, which has a pretty good track record -- including transforming itself, by the way. It was one of the success stories of the '90s -- and has done this kind of work for the federal government before, notably the Coast Guard. They have partnered with AMS -- American Management Systems, KPMG, DynCorp, SAIC -- Science Applications International, and Accenture. They're going to work with us to construct this new financial management enterprise architecture.

Now, the way this agreement works is that essentially it allows for what are called calls, or task orders, that the government puts together based on its needs. They're tailored each time. And you then just request that these tasks be carried out. And as we go through the system, because we have to devise an architecture, we've got to test the new systems that we're trying to put together, we're going to have to have prototypes, this does not take a year. This is a five-year effort. But we think it could last maybe seven years until we're really completely confident that we have totally re- engineered and transformed the system.

The business experience, by the way, with companies whose revenues are a fraction of this department's budget, demonstrates that it takes about that time for much smaller companies to do this kind of -- this is a mammoth undertaking. And so we can't say what will the task be that we ask the contractor to do in four years' time. It's going to be a function of how things evolve. That's why this agreement was arranged the way it was, and that's why our estimate is it will run between $50 million and $100 million. Congress gave us, in fiscal year '02, $98 million to do this. We're asking for approximately the same amount of money for fiscal year '03 -- '02 is to get this architecture designed; '03 is then to move it to the next step where you start testing and planning for prototyping, and so on.

And by the way, I should say, with me is Tina Jonas, who is the first-ever deputy under secretary of Defense for Financial Management. Tina, why don't you -- if you come up here, everybody can see you. And Tina has been the key person behind our financial management modernization program. We have stood up a program office; it's got 21 people. That got stood up very early on. We used internal resources to do that. The program office is working with all parts of this department. This cannot be done in an uncoordinated fashion. I mean, that's what you get when things are not coordinated. And Tina is the driving force behind that. And at the end of the year, under her leadership, we're going to have this blueprint, this architecture, which will be the guide for our financial management transformation. We will develop a plan that moves us from the mess you see in front of you to a truly effective future business environment. We are going to develop standards for all parts of the department.

Again, this is a department whose budget exceeds the revenues of the world's largest corporation by I think around a hundred billion dollars. You can check me on that, but it's a pretty good round number. We have to work with all parts of this department to get this right. And we've got to get every defense component, agency, field activity, whatever to identify and use data the same way. If the data isn't being used the same way, it is not useful at all, because again, there's no cross-talking, no cross-walking, and you don't get the right kind of information to the right level of decision maker in the right time. What you do is get the wrong information to the wrong decision maker late. And that happens, unfortunately, too frequently.

So we're going to re-organize the business processes. We're looking at industry, we have looked at industry, to develop best practices. And again, job number one is to get the architecture done within a year. And so that's our plan.

Tina, would you like to add anything to that?

Jonas: I would just say that this is a -- this effort is really a cornerstone of the secretary's transformation of financial reform and that it's a major step. Many of you have covered some of the things that we've been doing over the last several months, which include developing this inventory, which is a substantial effort in and of itself. But we're looking forward to this coming year.

Zakheim: You know, the secretary made it very clear from day one that he just couldn't come to grips with a system that was so alien to the kind of business he had been conducting in the previous 25. And I've gone on the record and said, Well, I haven't been out of the department as long as he. But certainly, in my 14 years in the private sector, if the business I was involved with had run anything like this, it wouldn't have lasted 14 years, or much more than one.

So this is something the secretary sees as absolutely essential, as just as important a part of transformation as the other elements that you read and write about so frequently. And I can't underscore the importance of having the person at the top behind us. I can't -- it's impossible to overstate that. I've heard this over and over again from people on the Hill, from people in the financial community, from people outside our little sector here in the Pentagon: what's key is the driver at the top. And that's what the secretary's doing. He is driving this.


Q: A couple of questions.

Zakheim: Sure.

Q: I know what your annual budget is, but you guys deal with a lot more money than that --

Zakheim: Yes.

Q: -- because you've got previous year funding. Can you give us an idea of how much money flows through these accounts? And can you give us a sense of how it is that you will be reducing these? Are you going to identify good systems in there and then get rid of redundant systems? Are you going to migrate everything to new?

Zakheim: Okay. Let me start, and let Tina finish.

Obviously, when you read about numbers such as trillions of dollars, it gives you a sense of the magnitude of the transactions. You have lots and lots and lots of transactions of all sizes and kinds. That's why it's so important to get that resolved.

Now does that mean we're going to get rid of every one of those systems? In theory, that's possible, too. In practice, what they're going to do, I understand, at least as a going-in effort, is review each system, look at compatibility with other systems, look at its ability to provide the kind of information that's needed to be relevant for an overall financial management structure, see whether indeed these systems can work within a larger construct. There will be new systems brought in. But there is software out there, some of which is incorporated in different parts of these systems. Remember, all these systems use software of different kinds. The question is, is it the right software for a more efficient, more centrally managed and directed structure than the one we've got now?

So it's not a matter of saying all of this is no good; it's a matter of rather looking at it and saying: What is it that we wish to preserve from these 900-odd systems, and what needs to be redesigned within this overall architecture? If these systems don't fit within the architecture, you don't want them. You don't want to create new stovepipes. We've got enough of those.

Tina, do you want to add to that?

Jonas: Yes. There is a significant amount of attention to systems because this is the inventory work that needed to be done for what they call an "as is" state. In other words, what do we look like today?

But a large part of what the contractor will be at looking at with us is the business processes that are inefficient and that are associated with this architecture. So it'll be a more comprehensive, I think, a more thorough look at this than just picking and choosing systems.

Zakheim: Again, the tradition has been to effectively sub- optimize. A unit, an agency, a sub-unit says, "What are my needs?" Goes out, buys the system that meets their needs. The question is never asked, "How do I fit in within the larger whole?" And therefore what you will get is timely and useful information, but only for one narrow sector at one particular level. That just doesn't work when you're looking at a department-wide effort.


Q: You said that this effort is as important as the other transformation effort in terms of the military. If I understand right, you wear sort of two hats, and you're leading this, but you're also involved in trying to help formulate a budget that reflects the transformational priority.

Zakheim: Right.

QCan you say a little bit about how this effort relates to the other, and maybe even is a precondition for effective transformation, military?

Zakheim: Yeah. I mean, if you're asking me, I wear two hats, am I still at peace with myself, the answer is yeah. Clearly you cannot, with the other elements of transformation, simply wait until this is done. I mean, we can't say, well, you know, this is going to take five to seven years so we shouldn't do anything for five to seven years.

Moreover, the fact is that because of the nature of the planning, programming and budgeting system, we are able to track activities via budget execution. And there's a lot of confusion about this, and I don't want to make it more confusing, but essentially, what this is addressing are issues like cash flow management. It addresses questions like how do you deal with the impact of accrual accounts. Accrual accounts don't show up in terms of buying a UAV, which is transformational, or an SSGN, a cruise-missile-carrying submarine. That's a different kind of issue. And what happens when you're totally budget-focused in terms of the appropriations accounts on the Hill, you lose sight of these other issues, which are just as important. They go alongside each other.

Now, you therefore cannot simply say, well, until I've transformed my financial management system, I really shouldn't do anything about transforming my weapons systems because I do have a planning, programming and budgeting system that allows me to do that, allows me to have coherence, and after all is said and done, maybe the financial statement isn't clear about where my F-16 is, but my PPB system tells me exactly where my F-16 is, and it hasn't disappeared into thin air -- if you can follow me on that.

So that these two transformation efforts, and really on the other side, beyond financial management, there are several transformation efforts, those go on side by side. And the idea is that when you finally have the right architecture, you have tested it, you have fielded it, that will simply underpin the transformation that we are trying to mount on the battlefield.

Q: Can you say a little bit more about that? Why and how will it underpin that?

Zakheim: Well, again, what this allows you to do is to identify whether indeed you are managing your cash most efficiently, for example; what are the impacts of your accrual accounting, is another example.

There's another issue, too, and this goes to public confidence. The public at large -- Wall Street, for example, but anybody out there -- doesn't necessarily understand appropriation accounts. They do understand financial statements. They do understand clean audits. And so you do have -- and we've seen this over and over again -- folks who will try to link the fact that we don't have clean audits to whatever we're trying to do on the defense budget side.

Now, there's a good answer to that, which is, as I just told you, the PPB system, the Planning, Programming and Budget system, in fact allows you to manage your monies carefully and to know where they've gone, and so on. But there is a public confidence factor. So that in addition to cash-flow management, in addition to accrual accounting, what this does is provide confidence to the public that the money is being spent the way we say it's being spent, and indeed, the way it is being spent. So it's a reinforcing tool, and that's why I use the term "underpinning."

Yes, ma'am?

Q: You mentioned that the contract with IBM is based on task orders. Can you explain --

Zakheim: "Calls" is the actual technical term.

Q: Can you explain exactly what that means? And how many task orders do you have in DOD on a monthly basis or annual basis?

Zakheim: Well, they can vary. That's the point.

Tina, why don't you give them an example of the first one that we've put together.

Jonas: Sure. Yeah. I think we will -- we have an aggressive schedule. But we've got about a 30-day window that we want to see from the contractor a high-level plan; how they're going to approach. And then I believe we have another one at 90 days out. One of the advantages of this mechanism is we can see how they're performing. Dr. Zakheim has put a great emphasis on making sure that the taxpayers get their money's worth. And so we can use these discrete tasks to understand how well the contractor is performing.

Q: So what would be an example of a task?

Jonas: It involves a number of things, and we can probably provide you with additional details. But it's a written task order as to what the contractor will deliver and within the time-frame.

Zakheim: Why don't you describe the 30-day one, because you have a pretty clear --

Jonas: The first 30 days, like I said, we want to understand -- the contractor will be coming in with a high-level schedule and time line of what they will deliver, what their approach is for this one-year effort. Okay? So we want to see -- I mean, the secretary included in his guidance to the department that he wanted this done with -- the enterprise architecture within a year. So we need to be very clear as to what the deliverables are. And the first step in anything you do is laying out a time frame and a deliverable schedule. So we'll be working that on Thursday, I think is our first meeting with the contractor.

Zakheim: Let me give you a sense of how the next five years would play out, and that might give you a feel of why we structured it as a task order effort. We want to have the enterprise architecture developed by March of '03, a year from now. And as Tina just said, step number one, the first task, is, okay, you've won this agreement, you've convinced us that you're capable of doing the job, but now give us a concrete timetable, something that really tells us what are you going to do from here to the end of the year. So that's typical task. And there will be tasks related to developing this architecture through the course of the first year.

From April to November of '03, we are going to be validating the architecture, making sure it works. There will be a series of tasks to do that.

Then we have to select the right software. As I mentioned, there's lots of different software out there. Different companies have used different kinds of software, with different degrees of success. We will now have an architecture. It'll look like it works. You've got to get the software to make it all happen.

So between April of '03 and March of '04 -- in other words, two years down, by two years down the pike -- we will have selected and acquired what we think is the software solution. And this is something we work -- the government team and the contractor team work together on. So there will be a series of tasks telling them what they need to do.

Then from April '04 to February of '05, we have to install the solution at some prototype sites. In other words, you want to fly before buy, if you will. And then you want to test those sites from December '04 to May '05, and then install it DOD-wide from '05 to '07.

So each of those stages require different kinds of taskings, and as you move through those stages, you know exactly how you want to task. And this, I felt, was a much better way to protect the taxpayer. Rather than let one contract and say, "Just go out and do it," I want to be able to have the department monitor on a regular basis, with real milestones, real measures of progress, how this thing is moving.

Q: So if they fail in one of the steps, will you fire the contractor?

Zakheim: In theory, we could just stop issuing tasks.


Q: I want to come at his question a little different way. One of the problems that I know folks in your shoes have had with this issue is explaining to folks out in the field why they should care about this and why should I follow an architecture at all, why does all this matter to me. What do you tell them?

Zakheim: Well, I'll tell them -- I'll tell you what I've been telling them, which is, in the first place, there are larger and larger parts of the budgets that affect them; that, as I mentioned, relate now to accruals, retirement, health care, and so on; that require tools that the PPB process in and of itself doesn't offer up, and that affects them. I mean, you all know this year's defense health program totals $22 billion, and it's likely to double within six years at current rates of increase. That's not chump change.

So the folks out in the field are very aware of the fact that you've got these new factors coming in that are calculated and estimated differently, that have different sorts of cash flow implications, which the classic PPB system doesn't really come to grips with the same way.

The other key element, I believe, for them is that this secretary has stated repeatedly that to the extent that we can be more efficient, that money will go back to those who made the efficiencies, who realized the efficiencies. There is an incentive to the people in the field to be more efficient because it means that they will get the money back for things that otherwise they might not.

Let me give you a simple example. Every time we are paying late -- okay? -- for whatever it is, we wind up, the U.S. government, the Department of Defense, winds up paying interest. Okay, now at the end of the day, that's a waste of taxpayer money. That means the taxpayer is paying interest because were late. That's ridiculous. But in the first instance, not the last instance, that's got to come out of somebody's budget.

So let's say there was a -- it doesn't matter which service, pick a service -- they were late on some payment because their financial management system just didn't talk to itself or didn't talk to the Defense Finance and Accounting System, DFAS, and there were interest payments, and the interest payments totaled -- you know, altogether, these total tens and tens of millions of dollars each year, so they were interest payments of some amount, all of a sudden it comes out of that service's hide. That's bullets that wound up becoming interest payments.

Now, if the service knows, if the program manager knows, if the cognizant military person knows that by having the ability to prevent those situations from taking place there will be money saved that will remain within the service, that's a heck of an incentive.


Q: Sir, the impact, if any, that this will have on the working capital funds for the ways the different services operate their businesses, can you talk about that?

Zakheim: Well, they're going to be incorporated into the overall architecture. You know, there are some -- a whole host of other issues that constantly arise with respect to the working capital funds. But again, working capital funds are basically cash- management, cash-run systems. And so by definition, if you have a system that allows you to have a better handle on your cash management, it's going to help the working capital funds, too.


Q: Two things: You said early on that you want to get every defense component to identify and use data the same way. And I notice on here, you say, establish defense-wide data and process standards. Do you know what you want to measure now? Or do you have an idea what would be helpful to defense managers?

Zakheim: Part of this -- this agreement -- this long-term arrangement that we have is to do just that. There are all kinds of metrics out there. In fact, we have already collected metrics of -- that are used by the department at each level; we've even looked at metrics that industry uses, that might compare with what given parts of the department use. And there are thousands upon thousands of them. And so the issue then becomes, what are the appropriate metrics? You want metrics? I'll give you metrics.

Q: But ones that are helpful.

Zakheim: Bingo. And that's part of what this effort is about. We expect the government contractor team to come up with meaningful metrics, because what you will get are different metrics for different levels of activity. The metrics that are important to the secretary of Defense are not the same metrics that are important to the program managers. They're both important metrics, but there are different metrics for different kinds of supervision and scope. And that's part of what this effort is about.

Tina, do you want to add to that?

Jonas: I think Dr. Zakheim has got it exactly right. One of the other things that -- one of the more mundane aspects of this. You've heard that we use a 250-character accounting code which -- everybody has their different codes. So it's -- you know, it's in the bowels of all this. But that's another aspect of standardizing what the department does. Many other areas -- the services all use different codes; they have different forms. So we want to get everybody into sync and simplify it, just like we will be doing with the architecture.

Zakheim: Yeah.

Q: Back in June you signed a PBD -- I think it was 818 -- where it set aside about $100 million --

Zakheim: Your memory's better than mine, but that's not allowed.

Q: (Laughs.) You've nearly set aside about $100 million to do basically this.

Zakheim: Yes.

Q: Could you fill in the blank between the time of your signing that and now? Is that also being used for this, or is that separate? Was that used to pick this up?

Zakheim: The higher -- the PBD that was for '02 -- obviously we couldn't start spending '02 money until we had '02 money, so that brings you to December. That also means that in terms of finding a contractor, having a competition, and so on, we couldn't get started.

What we did out of our own resources, where we didn't, therefore, have to use '02 money, was do that, where Tina and her team, some of whom are sitting here, and if you want to chat with them later, by all means. De Ritchie is here, for example, our deputy chief financial officer. Where they looked at what's out there. How do we get our arms around the problem if we don't know the size of the problem? And just to show you how difficult that is, the first set of talking points that I was given listed 673 systems, and the latest set of talking points was, I think, 976 or something like that. So just between -- they found 300 more systems just between the first and the last draft of my talking points.

Q: And all of these have to talk to each other? Is that that 900 systems, they all have to talk to one another?

Zakheim: No, they don't have to talk to all one another. What has to happen is that the activities that these systems currently represent have to operate in a coherent, interrelated fashion. That's why I say it would -- I would hope that, you know, now we're at nearly a thousand systems, we go down to about 100 systems. That's still a lot of systems, but that means I got rid of 900. And those hundred systems could talk to each other to the extent they have to. If you want to have your top-level management having a department-wide view of what's going on, then these systems better talk to one another.

So, to get back to your question -- so we put that together. We organized the Financial Management Modernization Program Office. We have a program office; it's got 21 people.

Q: When did you stand that up?

Zakheim: We stood that up in August, okay? So we got that going. We developed the "as is" inventory. We started looking at the various activity codes, North American industrial activity codes, which essentially look at all the different things DOD does. I mean, it is amazing. We do floor polishing, okay? Now, should we do floor polishing? Should we farm that out? Talked to Pete Aldridge, talked to a few other people. But it's interesting that no one had really looked at the breadth and scope of all our activities. But when you've got a department with a budget of $350 billion, you know you're doing something. So we did that.

And that meant that as soon as Congress passed the bill for '02, we were ready to roll; we knew what we wanted, we knew what we were going to ask contractors to bid on, and we went ahead and did that.

And the fact is, I phoned some people on -- some members yesterday, because I had promised that we would have a decision on who the contractor would be by the end of March, and I had to apologize and say I was nine days late. But they all said to me, that's pretty good for government. (laughter) I didn't want to be one day late.


Q: Ah, just a question. How confident are you -- (inaudible) -- the as is inventory if you found 300 systems -- (inaudible)? Does that give you a good feeling here?

Zakheim: Well, we're actually pretty confident now that we're about 85 percent there. Okay? In other words, what we had up here and what I'm now giving you, it is about 970-odd, is what we've absolutely determined are really working, functioning systems. Now, of course, that's what I can talk to. But, you know, it's an effect, like a draft, where you have a sense of what's left. So we're about 15 percent off. So you got to figure probably another 150 systems to go. We're in the region of a thousand, 1,100 systems. That is huge. It is untenable.

Q: Can I follow-up? The hope, the -- the famous phrase "can't get a clean audit" opinion --

Zakheim: Right, right.

Q: -- is it fair to say now at this point on your current time line that phrase is going to continue till maybe 2007, 2008?

Zakheim: Absolutely. In fact, it'll continue as long as the majority of DOD elements don't have clean audits.

Now, in fact, there are some DOD elements that do. DFAS, which is part of the comptroller organization, got one. DCAA, our auditors, got a clean audit, which, thank God they did, because they're auditors. (laughter)

Q: It helps.

Zakheim: It does help, doesn't it? (laughs) But, you know, we have a lot of different organizations, a lot of different agencies. The majority have to get a clean audit.

The real question, though, isn't do you get a clean audit. I mean, we could go out and spend a fortune getting people to band-aid these financial statements to get a clean audit. And there are some parts of government that, at least in the past, were known to have done that. That doesn't do the taxpayer any good. The taxpayer doesn't need to get a clean audit because we were able to get a contractor that would fiddle with the numbers. What the taxpayer needs to know is there is a basic substructure that yields up a clean audit. That's what we're going for.

Q: Would you agree with the notion that this issue -- problems with this issue and the purchase card issue, the perceptions out there could be your version here of overpriced spare parts in terms of undercutting public confidence and how you spend money at a time when you're trying to get the largest increase in 20 years?

Zakheim: Well, that's why -- that was the -- in sense that's the answer to one of the earlier questions about why would somebody in the field care about this, why is it important, why does it matter, you didn't worry about this. That's one of the reasons: public confidence. I personally believe that when the public sees that we are vigorously going after financial management in a serious way, lots of people --

I personally served on a previous defense reform task force. There have been lots of nice words and lots of good intentions. The first thing that's different is, we got some money. Money talks in this building, and that's not just because I'm comptroller. Congress bought into this, with nearly a hundred million dollars, and we're asking for more. There is a serious effort that is unprecedented. Again, this is driven by the secretary. That's number one.

The cards issue is the same exact thing. The fact that we have put together a task force, that unlike some time in the past, on other activities, where one agency fights with another agency and "Don't get into my turf," we bring everybody in -- we're working with GAO. We have reached out to everybody that has ever criticized what we are doing and said, "Okay, you're right. Now help us fix it."

I think if -- you know, in my taxpayer hat, I feel a lot more confident knowing there are folks who care about my money than those who just say, "Well, you know" -- basically blow smoke.

Q: Can I ask you one final dollar question? The hundred million is just the beginning. Can you --

Zakheim: Yes, absolutely.

Q: You know, eight years -- four, five, six years down the line, are we talking about billions of dollars here to possibly --

Zakheim: I don't know. I mean, I know that it's -- you know, developing the architecture, we figured, was around a hundred million. Validating it, we -- and selecting the software solution, I figured, must be, I guess, about 96 million -- you know, another hundred million. I don't know.

I do know this: that if you want something good, you got to pay for it. You get what you pay for. And if we want -- and you can ask around in industry what industry paid to clean up their own internal financial management act. If we don't do it this way, if we try to do it on the cheap, ultimately the system will remain inefficient, there will be no confidence in the system, and the taxpayer will lose out in the end.


Q: What would be better on April 1, 2003, that wasn't so good on April 1, 2002?

Zakheim: On April 1, 2003, we will know how we are restructuring that. We will have a game plan, a blueprint -- pick whatever metaphor you want to use -- and we will be able to say we've got our arms around the problem, we have identified the fix, and we're moving forward. I can't do that today. I can say I know the size of my problem. I think I'm 15 percent short, as Tony just pointed out. But I've got a pretty good handle on the size of the problem. Where am I going? I know where I want to go, but I don't know how to get there yet. In a year's time, I think, I can come up in front of you and say, "Here's how I want to get there, here's how I'm going to get there, and here's when I'm going to get there."


Q: A very small question, but if we want to use these charts, you've mentioned 970 systems, and before you said --

Zakheim: I don't know if I can squeeze all of those onto a little piece of paper.

Q: (laughs)

Q: Well, I had a little time to kill before you came, and there's 497 there, and on these charts there's 876.

Zakheim: Yeah. We keep adding little boxes. (laughter)

Q: Are we so confused we don't even know how confused we are, or what's this?

Zakheim: No. It's not that we're more confused than we think. I mean, A, I agree that's a pretty confusing situation. The issue has always been to do the research right. You identify the system. You have to see how it's supposed to link in with others, because it's not just those little boxes. But you can see that -- well, maybe you can't -- there are lines going between all those boxes and among them. So you want to see how they're meant to interface and how they do, in fact, interface. And so when we put a new box on that chart, we're also showing how it links up with other boxes that are already on the chart. It just takes time. You want to identify the system, you have to find out what it's meant to do, what it's feeding into, how it's feeding into it, what is supposed to be feeding into that system. Once you answer all those questions, you get to add it to the list.


QYou've toted up a price tag of at least 300 million, possibly more.

Zakheim: Actually, I said 200, but I grant you it's going to be higher than that.

Q: Higher than 200?

Zakheim: Oh, absolutely.

Q: Okay. How much do you think you'll be able to save? Is this more of a, as you say, a confidence issue? Are there any actual --

Zakheim: No, I think there will be savings. I think there have to be because what you get -- again, just the interest payments one is a simple example. If you indeed have systems that talk to one another, that allow you to pay your bills in time, in a way that right now you can't, you're saving on interest. Do I think this will pay for itself over time? Absolutely. Absolutely. And you know what the proof of the pudding is? What industry has done. Industry is a profit-making exercise. Those guys don't do anything unless it shows profits and returns to shareholders. Now, if they've done this, they've obviously concluded that there's a return on the investment. And if it's good enough for industry, it ought to be good enough for us.


Q: The folks who own these systems, are they cooperating? Are they happy about this?

Zakheim: Absolutely. Absolutely. The reason they're cooperating and the reason they're prepared to cooperate is because of what I said earlier. They know that the efficiencies and the savings that will be realized will redound to them. That's the incentive. It's not, "Hey, find me the money and then I'll take it away."


QSir, about the competition that was held?

Zakheim: Yeah.

Q: Could you give us a sense of from which pool of contractor hopefuls IBM was selected?

Zakheim: I can't do that yet. The reason is pretty -- first of all, the competition was excellent and it was a really serious competition, and we spent a lot of time evaluating these proposals.

I mentioned already IBM had a number of attractive things going for it in terms of the people, the experience they had, the corporate experience in doing this; the fact that they did it to themselves so successfully.

But there's a process in the contracting business where you debrief the people who didn't win the contract, who didn't win the agreement. And so, as a courtesy to them, we need to talk to them before we talk to everybody else.

Q: Is it significant that the lead vendor on this is an information technology company rather than a KPMG or one of the consulting firms or something like that?

Zakheim: Well, I think, again, IBM has a broad array of experience, and of course KPMG is part of the team. But what you're looking at is -- let me put it this way. Financial management isn't just accounting; it isn't just green eyeshade stuff. Financial management is a strategic activity. Everybody in industry knows that. Not everybody in government understands that. You cannot -- no CEO worth his or her salt is going to make a strategic decision without good financial information. And so what we were looking at was who could put together a team that would bring to bear all aspects of this strategic activity.

I think -- one last one.

Q: You said that Congress bought into the system you're using -- (off mike). For a while now, a lot of folks in Congress, mainly Senator Byrd and some other folks, have been very adamant that you really push this. Were there any sort of other proposals that you were sort of floating around that didn't seem to work, that they didn't buy into?

Zakheim: Well, no. I mean, we've been consulting, particularly with -- in fact, I spoke to Senator Grassley yesterday. We've been consulting with people like Senator Grassley, Senator Byrd, Senator Lieberman, Congressman Shays, Congressman Horn. I mean, the people who for years have been concerned about this, we've been consulting with them, we've been consulting with their staffs.

Again, as I said earlier, I feel it's terribly important that we get everybody who cares about this stuff -- I mean, ultimately, this isn't a partisan thing at all. This is for the taxpayer of America. And so anybody who wants to help us is welcome, and so we talk to everybody. And right now, the feedback that we've received has been positive, because, as I say, we're not just touching base, we're actively soliciting their advice.

Thanks very much.


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