Monday, February 5, 1996 - 1:30 p.m.
Mr. Bacon: Good afternoon. Nice to see you all here. Our briefer today, Dr. Paul Kaminski, the under secretary for acquisition and technology is well known to you. He was here just as recently as Friday and he's going to talk today about the Federally Financed Research and Development Centers and he has a team which he'll introduce. Dr. Kaminski.
Dr. Kaminski: Let me start right off by introducing the team. Assistant Secretary for C3I is Mr. Emmett Paige. Director of Defense Research and Engineering, Dr. Anita Jones. The Army Acquisition Executive, Gil Decker. And the Air Force Acquisition Executive, Art Money.
We are here today to report on initiatives being implemented by the Department to strengthen the management of our Federally Funded Research and Development Centers known as FFRDCs and University Affiliated Research Centers, the UARCs. And the reason we have the whole team here together, I think, is an expression of the importance which this team as a body places in these key centers.
We are taking these actions to deal with perceptions held by some that these centers have not been right-sized as the rest of the department has; that these centers are working in areas beyond the core interest of the departments; and that the centers are using their special status in some way to gain an unfair competitive advantage over commercial firms.
The Department has scrutinized the operations of our FFRDCs and our University Affiliated Research Centers over the past years. We've conducted numerous independent studies and review and we have now introduced several major initiatives designed to manage these organizations more effectively and four that I would point out would be first, to limit the program content of these R&D Centers to what I will describe as core work.
Second, to establish stringent criteria for the acceptance of non-core work by R&D Center's parent corporation.
Thirdly, the formation of an independent advisory committee -- in essence outside of the Department's day-to-day management -- to review the Department's management and oversight of our FFRDCs and UARCs.
And fourthly, the development of a new set of guidelines to ensure management fees provided to our FFRDCs are, in fact, based on the justified need.
We believe that these initiatives along with the support of Congress will effectively address concerns about FFRDC and UARC management and they will pave the way for continued use of these very critical capabilities provided by the centers to the Department.
As our Department downsizes, these centers have become increasingly important as centers of independent, technical expertise and support in their core areas as expertise. If I might have the first chart. There are 12 FFRDCs listed right here if you could read that. Is that readable in the back? I guess if it's not readable in the back, all of these charts are in your package and six University Affiliated Research Centers.
Together they account for about four percent of the Department's FY `96 RDT&E budget. These are not through profit, private sector organizations that maintain long-term strategic relationships with their sponsors in the Department. By strategic relationships, I mean relationships which are generally long-term in character which may require access to proprietary or sensitive data for a long period of time and the development of core expertise that isn't generated overnight. They maintain this essential expertise and capabilities important to each of their sponsoring organizations and operate in the public interest free from real or perceived conflicts of interest.
Over the past year, we have implemented a core work approach for managing the workload of the FFRDCs and the UARCs. This core approach really is what I would describe as a "stick to your knitting" approach in terms of maintaining the things that are at the core of that strategic relationship. In doing this, each DoD sponsor has developed a statement defining just what core work means for each FFRDC and UARC.
In addition, the sponsors have applied hard criteria to ascertain whether a task is within scope of the core work for each of our research and development centers. These program assessments are now complete. Our sponsors in the Department have identified a total of about $43 million dollars as non-core work in the FFRDCs and the UARC sponsors have identified about $26 million work as non-core. These non-core activities will in essence be divested outside of these research centers in a logical way. The numbers reflected on this chart reflect the FY `96 core work totals for each of the centers. Next chart please.
As I said earlier, this core work performed by our FFRDCs and UARCs continues to be vitally important to our national security. This chart depicts the core competencies and the technical achievements for just one of our FFRDCs. In this case, I've picked the Center for Naval Analysis. In your package, you have a chart like this for each FFRDC and for each UARC. And the charts are in the same format. They indicate the base of core competencies, what the organization has contributed to the Department in the past, and what it's doing today.
The 1942, the Center for Naval Analysis was instrumental in assisting the Navy's development of convoy formations, search tactics and torpedo counter-measures which were critical to defeating the submarine threats in both the North Atlantic and the Pacific. Today, CNA is helping the Navy devise spare parts allowances and also an outsourcing initiatives to better manage its worldwide system at bases and port facilities. Next chart.
Same format in place for UARCs. In this case, the example I picked was the undersea warfare accomplishments provided by the Applied Research Laboratory at Pennsylvania State University. Since 1965, ARL has been responsible for the design and the development of 21 different propulsor approaches and hydrodynamic devices for service ships, submarines, and related weapons. Today, ARL is assisting the Navy as it pursues the research of advanced decoys to aid in ship self defense. May I have the next chart.
The budget for our FFRDCs has come down since the peak levels that were achieved in 1991 and it's come down at about twice the rate of the overall decline of the department's RDT&E budget. This decline has been consistent with the overall trends in defense downsizing and outsizing (sic) outsourcing. It's consistent with what we've got in taking down the forestructure as well as the overall budget.
I believe we have now reached about a steady state conditions and further reduction beyond the core levels will be harmful to the national security interest of the country and the base provided by the FFRDCs. May I have the last chart, please.
The word content and the operations of each of these centers has been closely scrutinized over the past year. They have been sized consistent with the defense acquisition reform initiatives that we are undertaking, our overall strategies in the budget to support them. I believe we have significantly strengthened our management controls including managing the workload of our R&D centers to the core concept.
Ongoing work that is not core is being transferred out of these R&D centers. We have established new stringent criteria for the acceptance of work outside of the core criteria by the parent corporation of an FFRDC when those situations exist.
As we've been doing this, we've also seen some adjustment in some of the organizations. In particular, I would announce the Department's general support for the restructuring of the Mitre Corporation. They will split into two separate non-affiliated companies with no common trustees, officers, or staff. One of the organizations will be split into an FFRDC organization which we -- which split we believe will help focus the Mitre Corporation on its FFRDC operations.
As I close these remarks, let me underscore again my own sense and that of the entire team here what the FFRDCs and the UARCs are critically important national assets. They have provided key contributions in the past and they will be addressing critical needs for the future. Co-active management on the part of the Department will ensure the sustainment of these contributions.
These assets are assets that take a period of time to develop and a long-term care is of utmost importance to all of us. I'll be happy to take any questions. Yes?
Q: What does this mean to the taxpayer?
A: This means to the taxpayer, I think, a better management and lower cost management of the Department over the long run.
Q: Can you be a little more specific? Are you talking about reduction of salary?
A: I am talking about arrangements to prohibit unnecessary restrictions on salaries where those have been imposed in the past. We see some impact on recruiting the kind of people that need to be recruited into the FFRDCs and the UARCs for the long term of the organization.
Q: What is it now, and what restrictions are you talking about?
A: What is what now?
Q: What are the pay limitations now, and are you talking about recurring congressional efforts to limit these salaries?
A: Yes. What we have asked the Congress to do basically, and they complied in FY96, was to remove artificial restraints imposed specifically to the FFRDCs.
Q: At what? How much? How much compensation...
A: In FY96 there were no unique limits imposed on the FFRDCs, so we're operating under the general limit of impositions, and I'll have to get that figure for you there. The general limitation, we have limitations on compensation levels for which executives can be reimbursed, and I have to get that number for you.
Q: Is it $250,000 a year?
A: I don't know what the number is. We'll get it for you.
Q: The Senate Appropriations Committee has been up and down this road several times. They want a limit. I think that was the limit, $250,000. There's also some talk about limiting federal reimbursement to defense contractors, maximum individual compensation of $250,000.
Q: Let the corporations pick up the rest.
Q: What is your position on that?
A: My position would be against imposing limitations. We're working with businesses. I'm trying to set up a practice in the Department of doing things on a commercial-like basis so that we can operate with commercial firms, so that we can use commercial practice, and commercial practice just doesn't end up imposing specific salary constraints on companies.
Q: Well, there's $6 and $7 million a year salaries for some of these examples, and the taxpayer's picking it all up. Why doesn't the corporation take it out of its profits?
A: I go back again. The way I'd like to operate is to use, to the extent we can, commercial practice to buy from commercial firms, and when we impose limitations on firms that we're dealing with, it will cut our access to the commercial technology and production base.
Q: A new subject, on the B-2 bomber.
Not quite a year ago in the same room you said the study which you had performed for you showed additional value provided by more B-2s, but illuminates a much greater cost effectiveness derived from advanced [major] weapons, the PGMs you discussed today.
Q: Is there any reason to expect the White House study which has been reported to come to a different conclusion, if they assume the same budget levels that your study assumed?
A: I really can't comment on the conclusion that they would come to. I think you would ask the White House.
What I would say generally on that subject is that we're in a period where there's been some disagreement between the Congress and the Administration on the B-2. That finds itself, today, in the addition of $493 million. So with that new fact, any Administration would come back and look at the issue to try to understand and resolve the basis of the disagreement, so we're involved in discussions to do that. But fundamentally from my perspective, nothing has changed in the underlying foundation of that study.
Q: So you stand by the study that you all said showed that while more B-2s might be good, you simply couldn't afford them given budget constraints.
A: Yes. From my perspective, nothing in the underlying assumption base of that study has changed.
Q: Which means that in terms of more B-2s or spare parts or any addition to the package which the Pentagon has accepted, what are you saying? That you don't want any? Can you tell us in your words?
A: I can't address all those issues because our study, for example, didn't look at the issue of spare parts. We are looking to see how might the FY96 add be spent most properly. That's a new factor that that addition by the Congress in '96 was not something I was expecting or counting on in the study that we undertook. So that's an area of active engagement as we look to see what's best done with those funds that were provided by the Congress. But the underlying rationale of the study that I spoke of, the assumptions made and the conclusions, I've not seen anything that would change that basis.
Q: What were those conclusions, please?
A: Those conclusions were that buying additional B-2s would add value, but that there were more cost effective things to be done with additional funding. For example, it was more cost effective to weaponize the B-2s that we had rather than to buy new ones. It was also more cost effective to provide some of the upgrades that were available to us on the B-1 fleet.
Q: Wasn't the intention of that heavy bomber study to sort of settle this question independently about whether or not there was a need for additional B-2s? Didn't you feel at the time, don't you feel now that that question has essentially been answered?
A: I think from my perspective it's been answered, and I don't see anything at the moment that would change the conclusion to that study.
Q: Have you been asked, Dr. Kaminski, by the White House to participate in this "fresh look", and is your office taking part in this Administration review of the program?
A: Yes. We've had discussion and we're providing information back as you would expect. As I've said, when there is a disagreement between the Administration and the Congress, I think the Administration is in good faith going back to understand the basis of it, going back to look at our study, the basis for the study and the conclusions, so we've been supplying data.
Q: For example, specifically, based on members of Congress, there's been this discussion of an $800 million line item in the FY97 budget, and the possibility of spending close to $4 billion in addition to that over the following three years. Have you weighed in on that proposal and made a recommendation regarding... We've only got a month go to now before the specifics of the budget are released.
A: I have not weighed in on that specific proposal. We looked at two specific proposals when we did the bomber study. We looked at a three per year procurement and a 1.5 per year procurement profile and folded those into our two analyses.
Q: At that time the three was considered the most efficient.
Q: Other people in this building said anything less than that, they'd just be way too expensive on a per unit cost basis.
A: The per unit cost basis was higher for the 1.5 per year, obviously. You're not building them as efficiently.
Q: Have you been asked by the White House from where you might get this extra money? From what other programs? Or are they going to increase the budget to fit these plans in?
A: I have not been asked that question. Obviously, the new fact, that is the provision of this $493 million in '96 comes with no out year tail.
Q: So either the White House has to increase the budget or you're going to be asked to cut other programs to finish these planes that would be started.
A: If the program went forward, one of those two would have to happen, yes.
Q: On this R&D Center study, are there any implications here for technology transfer involving these centers?
A: Transfer to or from the centers?
Q: I guess from the center is what I'm talking about.
A: I don't see any big change. Several of these centers have been very key in the development of transfer of technology in the past. I don't see that there will be any impediments put into place for that happening in the future. Those are capabilities that we certainly, however, want to maintain.
I use the example of the Penn State ARL. They've developed a base of technology for propulsors through the years that's been critically important to the Department. That is a base of technology that we could then deploy in industry to be able to build the designs that were created. To transfer the technology for that purpose.
I would say one more about these institutions. In some cases they're providing the kind of capability that we would like to have in government service, but we don't really have the flexibility to be able to attract and retain some of the kinds of specialized technical skills that are needed. Long term relationships are required. The access to proprietary data is key.
So these institutions, I said in areas they'll be more important in the future. I think they're going to be very key to helping us work on some of our outsourcing and privatization kinds of activities, to bring some talent to bear on deciding how to best go about some of those.
Q: Just to return to the B-2 for a minute, and not to put you at odds with the White House or the Administration, but you seem to be saying that based on what you know now, what your study shows, that you would advise the White House, at least on current knowledge, against building more B-2s. Is that what you're saying?
A: What I would say, Charlie, is that nothing has changed at this point that I've seen in the study that we did, and that study recommended doing other things before building additional B-2s. So I know of nothing today that's changed that foundation in my mind.
Q: How can a study by the NSC result in a philosophical difference between the Administration and Congress? You said we...
A: I'm not sure it can. But I think if you put yourself in the position of an Administration and there's a disagreement with the Congress, you certainly want to look to understand what the basis of the disagreement is and examine the facts that lead to it. I think that's what's going on.
Q: Don't you think it's pretty obvious what's going on? Do you really need a four week study to figure that out?
A: I don't know how long it has to be. I would suggest you talk to the White House or the NSC staff, but I think a reasonable effort is being made to look into it, and I think that's appropriate.
Q: Throughout all of last year Dr. Perry was on the Hill explaining why this building didn't want more B-2s. Explaining the philosophical difference. I don't see where there's this misunderstanding between the Congress position and the White House position. Up until this point, you and Dr. Perry had led the Administration in saying there are better ways to spend the extra money. Congress throughout the year debated the issue. You knew there was support to add the money. You talked to the lawmakers, you knew what they were thinking. Where is this disagreement?
A: I don't think the thinking in the Congress is uniform on this issue either, in that the two bills we have each have some slightly different language about what best to do with the $493 million. So I am engaged actively in coming forward with recommendations on what best to do with that. As I said earlier, that was not something that was present when we did our study last year.
Q: Is the Pentagon and the White House out of synch on this now?
A: No, I don't think so.
Q: Why not?
A: I go back again, explaining this disagreement between the Administration and the Congress. I think we're working together to try to understand it and review and fill in the factual base. I don't see us working at cross-purposes.
Mr. Bacon: These are questions you should ask the White House. Let's finish what we're talking about here.
Q: In the '86 authorization bill, they ask the Pentagon to come up with a proposal for downsizing the FFRDCs to make them more efficient and so forth. Is this basically going to be your response?
A: Yes, this is our response. Really what we're trying to do here is to move away from arbitrary constraints, just chopping the ceiling or putting salary constraints on organizations when the real issue is, I think, one of sticking to core. That is defining what is it at the center of the strategic relationship, and putting in a process to reasonably manage that, and keeping people sticking to their knitting and not diversifying outside of those areas. Our view is that was a better way to manage this than simply lopping away at the top.
Q: In defining core though, you only cut about -- you identified less than four percent of the overall budget for the services. Are you satisfied that the services took a hard enough look at the core workload of FFRDCs? Was there any revision that...
A: I am satisfied that we've taken a hard enough look at that, but I would also say that it is healthy to have an independent review of what goes on here. It is easy to slip into a situation in which given that there's an existing contract with an FFRDC and there's new work to be done and the new work wants to be done quickly, it's very often easy to put that work on an existing contract and it can be a slippery slope. So what we've set up here is an independent outside body, with a charter that has some teeth in it to come back and look at that at year end.
Q: Might this independent body suggest further cuts?
A: It could well. What it could certainly do is said here we've defined core, and we're not doing what we said we're going to do. We're operating outside of core.
Q: I have a question for Art Money, too. Mr. Money, before you entered the Pentagon you were very critical of FFRDCs. I think you basically said they were an institution whose time had come and gone.
Dr. Kaminski: Art, come on up, please. [Laughter]
Q: Have you changed your thinking on FFRDCs, or do you need to be in a position where you take a little more diplomatic look at it?
Mr. Money: I'll be glad to answer that. That was primarily centered around FFRDCs going in and competing with industry on regular industrial type RFPs. I thought they exceeded the bounds in that regard.
That was roughly a year ago. I testified in front of a Defense Science Board subcommittee.
Having been in here now four days, but having some briefings over the last couple of months, there's much more of a dependency on some of the FFRDCs than I had appreciate from industry, so I totally concur with the position that the Pentagon is currently taking.
Q: So based on basically where you're sitting now you have a different view of the FFRDCs?
Mr. Money: I think two things have happened. The FFRDCs, their role and the boundaries that they operate under has been further clarified. Mitre, for example, has now formed two companies, split into two companies so they can have a for profit company as well as an FFRDC-oriented company. So I think that further clarifies who's doing what and the boundary condition, if you will, around those.
So in that regard, I think that's appropriate, and we've made some progress in that regard.
Q: The Mitre split obviously addressed concerns about Mitre seeking outside work. Might this provide a model if other FFRDCs like Aerospace or something...
Mr. Kaminski: To the extent that this starts to become a major issue, it certainly is a model that could be undertaken. I would say that I did nothing specifically to require Mitre to make this split, but we did lay down hard rules that the for profit work they were wanting to do couldn't fit under this core, so we couldn't allow it under our current arrangement. It was their choice. They felt that capability was important, and therefore, they decided to play by our rules, and yet pursue their objectives that they had to split.
Q: Do you see the funding to be fairly constant now?
A: Somewhat. But I would say, I want to come back to the principle. We're not trying t manage this by putting a particular funding cap on our organization. What we're trying to do is manage this by defining what the core work is that we need to have done. There may be some adjustments up or down in the amount of work, but the way to manage this is by describing what it is that's core, and sticking to that.