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Secretary of Defense Cohen Swearing In Ceremony, Chancellor of Education

Presenter: Deputy Secretary of Defense Dr. John J. Hamre
October 08, 1998 1:30 PM EDT

Deputy Secretary Hamre: I realize that all of you probably have a lot more things you're interested in than business practice changes in the Department of Defense, and I'm sure there will be no questions about anything else, but I would like if I could just to try to say a little bit.

We've been working at this fairly hard for the last year and I'd like to have a chance just to update people and talk about it.

If I could, just to take a second to put it in context for what brought us to the Defense Reform Initiative last November. When Secretary Cohen came into office, one of the things he heard repeatedly was, you need to take a fresh look at how you're going to take this Department into the next century. Some things I think we do exceptionally well. I think when we get down to warfighting, I think we do that better. I think we're a world class organization. I don't think there's any organization in the world that's as good as we are when it comes to our primary line of work which is fighting and winning the country's battles.

But when it came to the support side of this organization, frankly, we aren't a world class organization. We're far from it. So the Secretary said we really have to take a very, very hard look at how well we do the support side of the organization, and are we able to take that into the next century, and will it work.

He spent the first half year that he was in office looking at, again, the warfighting side and our strategy, and then he turned to the second half and we brought that to a focus with everyone last November. You may recall, we talked about this in several broad categories. We talked about it in terms of first downsizing at least the management. Of course he said we're going to start with home, start with his own organization. The Office of the Secretary of Defense is about 3,000 people, and he said I'm going to cut out a third of that. We are now about 75 percent done with that. We've eliminated 750 positions from OSD. About half of them were transfers that went elsewhere where the work...

For example last week when we stood up and created the new Defense Threat Reduction Agency, a fair amount of people who were in OSD went out there because they were really doing line activity and we needed to put it in that agency. So that was an example, I think, of the transfer.

A second focus of the Secretary's program was to really dramatically change the way we do our business practices. Frankly, what I've got set up over here, these folks -- I know none of you are going to want to take the time, but I wish you would see. This is real, it's live, it's available today.

You can go out and buy things electronically in this Department now. You no longer have to go through the process of filling out endless vouchers and looking through book after book for ordering documents and this sort of thing. You can get right on that screen, you can call up any one of those areas. We're selling literally hundreds of thousands of items of clothing a month now through this electronic mall, and it's made available worldwide to our troops. You're going to see this expand dramatically. It's a genuine success story.

Again, I would say, these folks are prepared to take you through any of that if you just have a minute when we get done because it is worth seeing. It's the kind of business process change that the Secretary wanted to bring home. It has revolutionary dimensions because it so changes the way we do business that it really lets you think in very dramatic and different ways.

We did the same thing by saying we no longer wanted to process everything the old fashioned way with vouchers. I remember giving you the analogy out at Columbus, Ohio, where we have our contract payment operation. We process $43, $44 million an hour out there. We're now doing dramatically more of our work through commercial credit cards.

Eighty-six percent of all of our micropurchases will be done with commercial credit cards. I think we even have a little replica. I hope it doesn't have my name with an expiration date on it, but that credit card now -- and we're using this literally for millions of transactions now in the Department, and instead of sitting there taking literally hundreds and thousands of little contract actions for $100 and $200 and $400, we're now doing it with a credit card for the first time, and it's a dramatic success story.

We also had some important organizational changes that the Department wanted to make, and we had a major consolidation last week. I don't know how many of you saw it, but we took those three major defense agencies that were all born in the Cold War and we've retooled them now into a post Cold War organization which is probably even more important now than ever, which is to deal with the proliferation of weapons of mass destruction and to bring that to genuinely a more agile and frankly more creative focus. The world is now so much more challenging so we're going to need that sort of thing. That, I think, has been a great success. In this regard, I would like to say how much I appreciate the great support we've received from Congress on dealing with our Defense Reform Initiative. This was one.

We had some genuine, serious, heart to heart discussions about [this] especially for the Defense Technology Security Administration. DTSA has been getting a lot of criticism because of the China satellite issue. They've actually done a great job, but a lot of people asked us about that. When we got down to it, we explained everything we were trying to do, Congress supported us, and they've given us great support on almost all of our defense reform initiatives, with one modest exception -- base closures. We didn't do quite as well there.

The third major component of our initiative was for competitive sourcing of work done in the Department of Defense. We say competitive sourcing. This is not privatizing at all costs. We said we are going to commit to dramatically larger scale competition between government employees and private sector employees for work that's not inherently governmental, that has to be done by a government employee.

We committed, at the time that we rolled out the Defense Reform Initiative, we committed to compete 150,000 jobs. Just this morning the Defense Management Council met, and the plan now is for 237,000 jobs that we're going to be competing.

I've got to tell you, this is probably some of the hardest work that we have to do. It is not easy to compete jobs. You're asking organizations that think they do a good job now to put their neck on the line and potentially lose their jobs in competition. That's a very hard thing for us to do, but we've had good success. I think we're going to have 35,000, 40,000 that are being processed so far out of that total. We're a little behind, to be honest, but we are very strongly committed and we've actually gone to a much greater commitment to competitive sourcing.

The last area where, as I mentioned, we weren't as successful, and that was, of course, with base closures. We tried very hard to get permission to proceed with additional rounds of base closures. We have too much infrastructure. For the things that we can deal with ourselves, we are working on infrastructure. Our budget that we submit in January will call for knocking down over 80 million square feet of excess buildings. I think it's 8,000 buildings we are going to knock down that are surplus to our needs. Of course you can do that inside a base when you've got an old building or something. And we're privatizing our utilities. I think every one of our utility systems -- we have about 550 of them -- every one of them now is under review for privatization. A substantial number are already fairly far along in the process.

The one area where we weren't successful was with base closures. It just was not an issue that the Congress was willing to entertain this year.

To anticipate a question you may have, I'm not sure what we're going to do. We felt and still honestly believe that that was by far the most fair process for infrastructure reduction because it let everybody come to the table in an explicit, above board, and open manner. We were not successful, and I think we're going to have to enter into a discussion now with Congress -- what do we do, how are we going to handle that? Because we are still counting on savings from infrastructure reduction for our long term modernization program. It doesn't affect our near term because you don't get savings in the first five years--substantial savings. But we do count on it for our modernization program in the long run, so we have to sit down and work this through again.

But I don't want that to unduly cast the way you view this past year. I think this past year has been really remarkably successful with that one exception. So on an individual basis it was just one, although it was a big deal.

Let me stop with that. I would like to just let you know Bill Houley, who is responsible on a day to day basis for all of our Defense Reform Initiative is here, and Bill can answer many more of the detailed questions than can I, but I would like to at this stage -- could I ask that we try to keep the questions on this, because it is what I prepared for.

Q: Two policies that seem to contradict each other: the policy on the web that went out last week, and the thrust towards electronic commerce. When the Army took down all its web sites, it took down wholesale electronic commerce sites, and I imagine the vendors are getting a little irritated. How do you balance the two, and is there going to be direction to bring those electronic commerce sites back up?

A: They do not have to be in contradiction with each other. And if you think about it in advance, they're not in tension with each other, either.

What has happened is over the years we have had an explosion of use of Internet-based technology and homepages and web sites across the board. This was never really viewed systematically from a counterintelligence and from a strategic security standpoint. That doesn't mitigate our desire to move to a paper-free acquisition environment, to move to as much as possible to a paper-free publishing environment. We would like very much to go to Internet-based publishing. But it does mean that we have to bring into that a more systematic evaluation of the security dimensions associated with it.

We're going to have a period, months of time, when there are going to be some rough edges as we're working out to harmonize those two policy goals. I absolutely believe that they are compatible. I know you've heard of examples of where we can provide better security using our web sites. For example, not publishing social security numbers on the web sites and things of this nature will help. It makes it a lot harder for bad guys to correlate and track down data. We can do that. It's going to take us just a bit.

The rather abrupt nature of the security issue didn't let us work out as neatly as we probably should have and would like to have in terms of the electronic commerce. But there is no backing away from our interest in or priority for electronic commerce.

Q: You probably won't like this question, but now that it's about a year since the DRI's been implemented, is there any sense as to whether or not the Pentagon has in fact saved money over the last year, or is it all pretty much investing in future savings?

A: Of course there are lots of individual case examples. First let me just say something about savings. We made a very explicit decision at the time, the Secretary did. I must say I recommended it and I was glad he agreed with it, that we would not make this a budget drill. I've lived through the DMRs, Defense Management Reform program in the early '90s. They started off by advertising giant savings and everybody saw it as a cut drill. It was dollars taken out of departments,and it became a scorekeeping nightmare, and everybody was keeping score. It became a little bit like the Combined Federal Campaign thermometer, you know. You're working your way up to try to get to your goal for the year. It distorted what the Secretary was really after, which was management reform, not savings. Because he said to everybody, you get to keep what you save. Whatever you save through this process I'm not going to take it away from you and harvest dollars because it undermined the incentives.

So we never, ever aggregated what we thought we could save from the program intentionally. We've never even done it internally.

On individual cases, and for example on the competitive sourcing, if we follow through, and I think we will, on our plans for competitive sourcing, that alone is going to save $10 billion over the period from '99 to '05. But again, those dollars have already been reprogrammed in the services' budget submissions because we said, you get to keep the money. So their privatization efforts, or I should say their competitive sourcing efforts, they've turned around and now put into their modernization programs.

So , we very much are saving money, but we're also intentionally not trying to make that the criteria. Trying to get this organization on the warfighting side where we're world class today, and we're not at all close to world class on the management side, we're trying to do the same thing. That was his real goal.

Q: One of the major issues was reforming DoD's travel system, the way people moved around. You brought in TRW to try to get their hands around the beast. How is that issue proceeding right now?

A: I'm encouraged. We got hung up just a tad because there was a competition for that and one of the companies that did not win chose to pursue the appeal process with the General Accounting Office. The General Accounting Office upheld us, and I was gratified for that. And so really for all practical purposes the travel reform thing is just starting, it's a month that we're into it.

Forgive me for not having a current update on it, but when we did, as you recall, we prototyped the new system at 29 different locations and used representative software that were in competition. On the average, performance went up between 100 to 150 percent and costs went down 67 percent. So we expect to see that when we have the new travel system.

The travel system is, of course, now starting just in Region 6 which is the upper midwest. That's the prototype area. Also, I must say, it's also the lead for our public key infrastructure security dimension for electronic commerce as well. So there's an awful lot that's riding on that first contract that's very important.

Q: Do you expect TRW to make some major improvements over what the system now, or will they be judged against...

A: They're bringing together the best commercial software that exists, but they're integrating it in ways that have not yet been integrated in the private sector. So we're actually going to be asking them to do things that are a little more advanced than what you see in state of the art business right now. It will be totally paper-free. The authorization will be done totally paper-free. Everything from the authorization through the final accounting is going to be in a paper-free environment. That's part of the reason why we have to get the public key infrastructure worked out, so you have an electronic signature that goes with it.

So it turned out of all things, travel reengineering was the lead for how the government was going to deal with computer security, but it's coming to pass.

Q: I couldn't let you get away without just asking you one brief question on Kosovo, if I could.

A: Let me just hold it, if I may. I really would still like to try to stay on the subject.

Q: Fine. Could you take some Kosovo questions afterwards?

A: Let me come to Kosovo at the very end. And it will be very limited because in all honesty, this is a very critical time. But let me come back to it.

Q: Dr. Gansler testified a couple of hours ago on the Hill to the effect that even with all the successes you're having here, he now believes that it will be necessary to eliminate some major procurement programs in order to generate the money that's necessary for the next generation systems.

Is that the Department's position now, or do you still believe that reforms can generate all the money that you need?

A: The reason I pause is that we're still in the middle of very significant discussions with the President and with OMB as to what funds we're going to need for the Department to take care of readiness problems and other things beyond FY99. I think it's a little premature to say we're going to have to terminate weapon systems. That certainly is not the Department's current plan, and we have nothing on the boards. But we're not that far along in the final budget review. We were able to go through the program review without requiring terminations of weapon systems. But we still have to come to grips with some of the other issues such as readiness shortfalls, contingency funding. We've got a big pay raise that we've got to pay for. The President's given it to us and we've now got to figure out how we're going to do that, and that's part of our discussion.

So there's an awful lot still in play before I can give you a definitive answer to that, I think.

Q: On the subject of, accounting standards came up. I want to know what role does that play in terms of Defense Reform Initiatives?

A: I don't know what Dr. Gansler said about...

Q: It's not Dr. Gansler. From the General Accounting Office.

A: Oh. There is a fairly, and I must say I'm now a little away from it. I used to be much more familiar with it when I was the Comptroller. There has been a fairly extensive discussion between DoD, OMB, General Accounting Office, and FASAB, Federal Accounting Standards Advisory Board, I think it's called, about some changes that should be made.

For example, one of the things is should we have valuation of inventory, weapon system inventories in a consolidated financial statement for the Department of Defense? We've always argued that we don't manage on the basis of accounting records in terms of weapon systems, so the current estimated value of an M113 doesn't enter into how we think about managing the M113 fleet. That's not the case for all inventories, of course: spare parts and things of that nature. And there has been a fairly extensive discussion about that.

I'd have to defer you really to Bill Lynn, who's the Comptroller who's been working [on this] and much more closely involved with that. If you wouldn't mind following up your question with him because I think he can give you a better answer than can I.

Q: Can you take on the matter of readiness and a budgetary increase as if you were Comptroller, an expert in these matters. What do you think is needed? Are you on board with how much? Do you have a figure?

A: I'll tell you what's happened. The President met with the Chiefs and with the Commanders in Chief -- the CINCs, the regional CINCs and the specified CINCs -- about a month ago out at National Defense University. At that time he said this is a serious national issue and we're going to follow through on it. And he directed us to do that, to bring that into the core of our budget preparation for the fiscal year 0005 five year plan. We're doing that now.

The services have submitted to us their recommendations for additional funding beyond the dollar levels that they provided when they submitted what was called the budget estimate submission on the 15th of September. We now have those in for the first time and we're now going through the review process just as we do with the BES, the Budget Estimate Submission, to evaluate and scrub and [see] what sense does it make.

The first snapshot reaction that I got in talking with Mr. Lynn was that they looked fairly well crafted. But again, I don't know how that's going to work out and I don't know the proportion, for example, that's in readiness, purely readiness. And what does "purely readiness" mean? In some cases base operations, if we have been shaving too deeply the funding we put on base operations, it has a readiness impact, so some of the dollars may actually be going for things which are not directly combat units or OpTempo, but it does have an effect on readiness.

So I don't really have a good answer for you right now. I'd certainly be willing to come back and talk when we know more about it. It is being handled in the regular process here in the Department, and it will go through the same discipline. There's always a tendency to want more than I'm sure we'll have when it's all settled. We haven't yet sat down to know what the administration feels it can accommodate. We don't yet even know what the economic projections are going to show for revenues that might be available. So we still are ways away from being able to finally answer the question.

Q: Do you think that all this talk of increasing the defense budget is actually going to have an effect of easing the pressure both in Congress and in this building to pursue these types of reforms? Including base closings, but all the way down the line.

A: Defense reform involves a lot of hard decisions. As I said, this morning we met with the Defense Management Council. There are a lot of hard decisions.

It is difficult to hold A76 competitions, let alone to try to do 237,000 of them. It's very hard. And of course some people would like to think that now that we're going to have money we don't need to do any of that. I personally don't believe that on two counts.

One is, again, nobody has indicated how many additional resources really are going to be made available and I don't even think that OMB knows the answer to that because they haven't got a good forecast on what the economy is going to be like. So we don't know how much is going to be made available, number one.

Number two, we still have to tackle the inefficiency that comes with this Department carrying forward a 1970s, 1980s support structure into the next century. It just isn't going to work. If ten years ago we said we want to still continue to have government owned telephone circuits and switches and networks into the future and we don't have to privatize that because we're going to get extra money, that would have been a colossal, strategic mistake.

I really think this is not so much about saving money as it is about becoming an agile support organization for the future.

My fear, of course, is that with all of the discussion that there's additional funds, that some people think they don't have to go through the hard business of reform. I think that's wrong. I think we still have to stay very much on that.

Is it going to make it harder for us? I think so. I think it absolutely will. Do we need to do it? I think we absolutely have to do it.

Q: As part of the DRI there were also some structural changes that were called for within the Office of the Secretary, the Assistant Secretary positions. Can you update us on that? I know specifically the Director of Defense Research and Engineering, the top scientist in the Pentagon, that seems to be kind of in flux. It's not really clear what that person's going to do. The Congress, evidently, has some problems with the plan that's been laid out. Talk about that specifically, but more generally...

A: Absolutely. First to the specifics.

This was one of my many mistakes in dealing with the Defense Reform Initiative. I really failed to think this through adequately at the time.

When we initially unfolded part of the recommendation which was to create the Defense Threat Reduction Agency, at the time we also said we wanted to do away with the Office of the Assistant to the Secretary for Nuclear, Chemical, Biological [Defense Procedures]. We don't build chemical or biological weapons. We haven't done that for years, but [we have] protection against them.

What I failed to do at the time--we only put I think literally two paragraphs in the white paper to explain this. Then that created a lot of confusion.

Our goal at the time was to take the Director of Defense Research and Engineering and to expand that position so it would be responsible not only for basic science and technology, but to expand it to also make it our primary focus for counterproliferation. Dr. Hans Mark is in that position. He absolutely believes this is the right thing to do. He is uniquely well--skilled to do that. But we didn't do it initially when we rolled it out, and then we created lots of confusion -- I created lots of confusion in the process.

So we sat with the Congress and tried to talk to them about that, and frankly, that was one of the things I couldn't get done this year was to convince them... They've agreed on everything else that we requested in terms of consolidating the agency, but we wanted to change the title of Director of Defense Research and Engineering to I think it was Director for Defense Technology and Counterproliferation. They chose not to do that in the authorization bill.

We'll go back and ask to do that next year. So Dr. Mark's portfolio will be enlarged, become larger.

At the same time they told us that we should continue to have this Assistant to the Secretary for Nuclear, Chemical, Biological Defenses, and our view is, again, this is part of my failing for not having adequately explained it, that once they see there is a higher level focus for counterproliferation concerns, I believe they're going to endorse our proposal in that area.

The other major structural, in terms of office alignment that we had proposed was, of course, we had initially recommended to do away with the Office of the Assistant Secretary for Command, Control, Communications and Intelligence. There it was always a close call. Our view was that it was the right thing to have an Assistant Secretary for Intelligence, and then to have the acquisition functions of C3I brought under A&T. What we bumped into was the dilemma we couldn't get anybody confirmed in the time period, so we decided we would back down from that, or step down from that. As you know, Art Money is our nominee. He's been acting as the senior civilian official in C3I. Art's done just a terrific job. One of those little hiccups. We'll get his nomination through next year.

Q: You talked from the DoD side, about the effectiveness of some of the reforms. What kind of feedback are you getting from industry, and are there any particular problems that they're pointing out that still have to be looked at?

A: We talked with industry first just to get their advice when we were doing Defense Reform Initiative. And I think that to the extent that they gave us their varying experiences, we've tried to incorporate as much of that as possible. I think they all understand we don't operate in entirely the same kind of environment that they do. We don't have the flexibility to just close installations when we want, for example, as industry can. We don't have the same flexibility to adjust compensation schedules for paying people.

So within the limits of what we have, I think we've tried fairly hard and I think largely we've...I think we've done well and I think they would agree we've done well given the constraints that we've faced.

There was one idea I think I could cite, an insight they brought very early on that we did incorporate that became, I think, a definite improvement. As you all know, we had to compete the work at the depots -- the depot at San Antonio and the depot at Sacramento. When we held the first competition which was for the C-5 work, that was a competition between a government depot -- and that was Warner Robbins -- and a private company that was going to do the work at San Antonio. And as you know in that competition the government depot won in Warner Robbins.

One of the recommendations that we got from industry was you really need to modify and make these public/private competitions so that both parties are kind of quasi-public/private. And that's, indeed, what we did with Sacramento. So when the Sacramento competition was held, Sacramento which was the old depot, the old McClellan depot, was teamed up with one company, and Utah was teamed up with another private company. So what we actually had was a public/private competitor versus a private/public competitor. Frankly, we got the best of all worlds that way. We ended up saving over $630 million. That was a good insight that we were able to bring forward into that competition and that, of course, is the way we're proceeding with the one in San Antonio, the remaining engine work at San Antonio.

I think that's a major area where we learned from them. I think there are other areas that go beyond defense reform where industry is still talking with us. One of the major areas that we're working now is our foreign military sales system. It's cumbersome, and it's been quite a few years since anybody went back and pruned it back significantly to find ways to make it work more efficiently. I think the environment has also changed fairly significantly.

We are now entering into a fairly significant discussion inside the Department about changes we should make in the system -- both to make it more efficient and to frankly improve the industrial security dimensions of it. We need to enter into this kind of a discussion with our counterparts at the State Department. I'm going to meet with John Holum tomorrow about that.

Q: I just want to go back to the downsizing of management. You gave the example of starting at the top. What is the overall goal as far as trimming management, and where are you at versus how many positions? And one related question, you said there's no dollar figures that y'all are...

A: We're not aggregating it intentionally.

Q: But personnel is normally a pretty heavy cost part of a budget. So is there any way you have, you're tracking your cost savings as far as personnel? Also, if you're not using cost savings, what's the measuring stick as far as reform?

A: As I mentioned to you, all of the... The goal was to improve the way we manage the Department, so we've said very explicitly to each of the services and defense agencies, you get to keep what you save, and you reprogram that inside your normal budget submission. That's what's happening. We would have to get the data for you. I don't currently have it. I don't know if even we're supposed to talk about our current budget we're working on for the year 2000 and the five year plan. But there's something like 35,000 civilian positions that we're eliminating, many of which are basically management reform positions.

As for the management downsizing, as I mentioned, our goal in OSD is to eliminate about 1,000 out of the 3,000. I think we're about 75 percent done with that now. I think we've got about 75 percent of that finished. The last 25 percent's going to be hard. We probably will have to have some RIFs. I hope we can minimize that.

We had 4,000 that we were cutting out of what's called the direct support activities, the DSAs. These are kind of adjunct staff support activities around management headquarters -- about 4,000 out of the 9,000.

Then it seems to me the defense agencies altogether, about 36,000. I forget the number, but something like that. That was our goal. I believe that's all programmed in the budgets that have been submitted.

Q: What percentage...

A: About 20 percent, I think. Twenty-five percent. Just over 20 percent.

Again, let me reiterate, we've all turned that around and we've already spent that money. Part of the reason is I don't want anybody to go out and say you can cut our budget, or you don't need to give us X because we've got this surplus. We're already spending that. That's part of the way we're getting our procurement dollars up to $60 billion a year and trying to hold that.

Q: You can't even cite how much the shift of funds is then?

A: I'd have to cite 4,000 different movements inside a budget that's submitted. I must tell you, I'm intentionally not trying to do it because I don't want to all of a sudden go down that path. This year both the authorization and appropriations committees-- we had huge hunks of money that were just cut out-- said because you're now reforming X we're going to cut out $200 million. This is what happens all the time when you do... And we had to fight to get some of that back, and we didn't get it all back. So...

Q: The Hill was less than thrilled with what you now call competitive sourcing, which used to be outsourcing. And put very restrictive language in the appropriations bill including I think that if you want to outsource more than 15 jobs you have to jump through about eight hoops. How do you reform the Defense Department if every 15 job deal you go through you have to jump through all these hoops?

A: It is very difficult. Let me say it now takes us on the average two years to hold a competition for an office that has more than 15 people in it. It's very hard.

On the one hand, half of the authorization bill beats us up for not becoming more efficient and doing a better job of being modern managers, then the other half says, but you can't eliminate more than 15 jobs without going through fairly extensive and extraordinary procedures. It's getting hard, I must be honest. I think a lot of the pressure, back pressure we got this year from Congress on A76 was largely because people saw it in the context of base closures. So they thought if we agree to an A76 drill here, that it is only going to open up the door toward closing this base with the next base closure round.

Indeed, I think the logic is exactly the opposite of that. If you become much more efficient at operating that base you have a much better chance of being successful and surviving future base closure rounds. But I guess if you're at a local community and you hear that jobs are going to be competed, everybody just stirs them up and uses that fear of base closure to force people to oppose it.

We're struggling, but frankly we're pushing ahead. As I said, we've increased our goal. We were going to only do 150,000. We're now going to do 237,000. But it is very tough sledding.

Q: I just wondered, are you developing any kind of contingency plan in light of if you don't get base closures? Obviously it's failed this year, but I'm wondering what steps may be taken if you don't get it next year. What kind of contingency plan do you have?

A: Most everyone who is involved with the process, they almost always said yeah, I know you need more base closures, but not this year. I think we can do it next year. Of course our view was that it wasn't going to be easier next year than this year. But we're going to take them up on what they said at face value, that they are willing to talk with us about alternative approaches. We heard many suggestions at the time we were asking to go ahead with the base closure round, and I think what we're going to have to do is just start talking to people about that and seeing what is available. I think this means [there is] going to be a fair amount of consultation over the next couple of months. I don't know if we can get to a consensus for next year. I know we'll try. But we're going to have to do our best. There isn't a clear path right now.

Q: On Kosovo?

A: Okay.

Q: The answer may be obvious, but what's the reason for pledging B-2s, very expensive B-2s and F-117s as part of a potential package for NATO strikes in Kosovo? Have any of the planes been sent yet? How long will it take to send them...

A: Let me make, if I may, a very general comment about Kosovo.

We're at an enormously sensitive stage in dealing with this Kosovo issue. Obviously the lead effort here is a diplomatic effort. Far and away that's our goal... to find a diplomatic solution. Secretary Albright is, I don't think Secretary Albright's gotten more than two hours of sleep in the last week, and she's meeting today with important counterparts to try to find what does it take to get the final push to make the diplomatic initiative a success. She's joined, of course, by Ambassador Holbrooke and Ambassador Hill. And at this very sensitive and important stage, the Secretary of Defense is in, even though he is out of the country, he is in direct communication with them.

I'm going to minimize what I say about it just so that you don't have extraneous commentary that gets played that distorts I think at the most important time right now...I think it's very clear that diplomacy is the preferred course, but diplomacy has to be backed up with a credible willingness to use force. The Secretary has spoken to that. We're not going to talk about any specific weapon system application, of course. We are prepared to use the full breadth of the resources that are available to the Department of Defense if we have to go that step. I think he indicated kind of the character and the magnitude of it.

But to get into talking about individual things I think would lead to a bit of confusion, because right now it's the Secretary's voice that has to be prominent, I think, in talking for the Department on this. And forgive me, I hope you understand how important this is.

Q: I understand. But given the effectiveness of Yugoslav air defenses, and the Secretary of Defense has said they're effective, could stealth become an effective way to overcome that, stealth technology?

A: Charlie, you're right to point out that no one should minimize that this is, or characterize this as a trivial problem. This is not a trivial air defense environment. And that does mean that the full range of the Department's resources have to be considered, but to go beyond that is not something that I really can do, and I think it would be the wrong thing to do right now, given how sensitive and important the stage of discussions are.

Q: Another sensitive one you might want to dodge. But is it true, let's do true or false, or do you know if it is true...

A: That's always a trick question, true or false. (Laughter)

Q:...that Secretary Cohen has said that no U.S. troops would be included in any ground forces in Kosovo? On the other hand, the President has said well, maybe, I haven't made up my mind. Has Secretary Cohen convinced the President, or do you know what the state of play is on that?

A: Again, and you probably will think I'm ducking you on this, but this is... The use of force...this is not an act of revenge. This is an act of trying to bring military force to bear to produce diplomatic, the success for diplomacy that produces real development on the ground. It is far more complex and multidimensional than just American troops, non-American troops. It's much more the character of the success of these negotiations, of this diplomacy right now, as to what will characterize what follows, be it in direct military action and follow through military action.

The Secretary's personal counsel to the President is something that I wouldn't get into, I couldn't get into, obviously. And it really is one that still represents nothing that's been finalized because we are at this very stage where the character of the discussions directly from the contact group, directly with Mr. Milosevic could very well determine the content and character of what we have to do.

So I think for me to say yes, no, in, out, any of that would mislead you, and it would be wrong because I think it still is much to be decided.

Q: Isn't it necessary to put, to substitute the authority on the ground of the Serb police, for the Serb police to pull out for there to be immediately some authority there to keep order? Is that a correct piece of logic?

A: Unfortunately, elements of the Serb police have been not the cause of order but of disorder, so finding ways to put observers in place to make sure that they do what they at least rhetorically say they are supposed to do and are willing to do, could be the centerpiece of a solution. So again, you're absolutely right to focus on what constitutes order in the countryside in Kosovo. This is still a province inside Serbia. It is one where a structure of military and police discipline that can be adequately monitored is in the best interest for everyone, and therein lies why I have to be fairly non-specific as to the content of what U.S. participation will be, both directly and immediately as well as in any follow/on activity.

Q: What you said about foreign military sales, I don't want to preempt your meeting with Mr. Holum tomorrow, but can you give us what's inefficient about it, maybe what are some things that can be changed?

A: Sure. This sprung out of our defense reform work but it was not originally part of it. And by the way, I think that also is how we think about these things. It's in general, what do we need to change to become more efficient in the future?

One of the things we've noticed is that there's been a definite trend of countries wanting to abandon foreign military sales as an approach and going to direct commercial sales as an alternative. In large measure, I think that's being driven by the inefficiencies that come with foreign military sales. It's cumbersome, it's time consuming, it's heavily rule bound. The security rules that guide it are somewhat dated. I don't think they're current with the more, in some ways much more, complex environment that we have.

So we sat down with General Davison who is the head of the Defense Security Cooperation Agency and asked him to bring together an integrated process team to include contractors, contract lawyers, as wide as we can go to say how should we change this process, and to bring in more of the efficiencies of a commercial sale, but bring it into the foreign military sales area.

The advantage of course with FMS is that you get the full faith and credit of the United States government behind that sale. That's a huge advantage if you're another country. You don't have to... you become the integrating prime contractor if you do commercial sales, whereas we do that for them under a foreign military sale. But it has now become so difficult in some cases, so many licenses, so many restrictions, so many ground rules, and a lot of our allies are saying to us -- every time I travel overseas I invariably get complaints about foreign military sales. They'll say here I'm buying something from you but you won't let my own procurement specialist walk through the factory where you're making it. I say you're right. We've got to do something about that. So it's really a fundamental scrub and relook at how we do foreign military sales. And there are some other issues too.

Q: How about dropping FMS? There's this move to go commercial...

A: I think there are very distinct advantages both for us and for the customer for FMS, and as I said, with FMS, you're getting the full faith and credit of the United States government, not just a U.S. defense contractor. For that reason we think that FMS still represents a very strong, and should remain, a very strong tool.

We are right now burdening it because of not having gone back after 25 years and really fundamentally looked to see are these rules still protecting America's industrial secrets? Do we need to revise them? Are there certain ways that we can accommodate changes? There are some countries that have very good industrial security policies in place and they enforce them well. We ought to rely on those as being our first line of defense, for example, rather than imposing lots of little rules and regulations. I'm speaking hypothetically because we still haven't got the final product. But there's an important reason why you still want to do FMS.

Q: What does IMPAC stand for?

A: International Merchants Purchase and something Card. I don't know what it stands for. (Laughter)

Press: Thank you.

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