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DOD News Briefing with Under Secretary Carter with Opening Remarks by Secretary Gates from the Pentagon

Presenters: Secretary of Defense Robert M. Gates and Under Secretary of Defense for Acquisition, Technology and Logistics Ashton Carter
September 14, 2010

                Go to http://www.defense.gov/news/d20100914acquisitionprocurement.pdf to view briefing slides and memoranda associated with this transcript.

                SEC. GATES:  Good afternoon.  As you know, we’ve been intensely focused on fundamentally changing the way the Pentagon does business. Given the fiscal challenges facing the nation, the Department of Defense must make every dollar count.  But as I’ve stressed before, this effort is not about reducing the Defense top line but about getting more bang for the buck by shifting resources from overhead to the military capabilities needed today and in the future. 

                As a reminder, earlier this year I launched a multi-track approach to accomplish this goal.  I asked the military services to find $100 billion in overhead savings over the next five years.  We’ve been seeking ideas, suggestions and proposals from outside normal channels, including an online effort to solicit and reward creative ideas to save money.  I directed a series of assessments of how this department is organized and operated to inform the FY 2012 budget request.  And finally, last month I announced an initial set of major decisions that addressed duplication overhead and excess in the Defense enterprise. 

                Today I want to provide an update on a major component underlying this overall effort, one that cuts across every aspect of what the department does; that is, our initiative to improve efficiency, boost productivity and reduce costs in the defense contracting arena for goods and services, which make up roughly $400 billion out of the 700 billion (dollars) the department spends every year. 

                Since I first announced this project in June, the department’s most senior acquisitions and logistics professionals, led by Undersecretary Carter, have worked hard to prepare more detailed guidance for our industry partners and DOD contracting professionals. This guidance, which will be released today, contains a number of significant changes -- 23 in all -- to the way we contract for goods and services, many of which will take effect immediately. 

                Before discussing these changes with you, I’d like to remind you of the context for these efforts in particular.  As Dr. Carter has stated, we have not seen the productivity growth in the defense economy that we have seen and expect from the rest of the economy. Consumers are accustomed to getting more for their money -- a more powerful computer, wider functionality in mobile phones -- every year. When it comes to the defense sector, however, the taxpayers had to spend significantly more in order to get more. 

                We need to reverse this trend.  So as part of the guidance being issued today, the department is now going to require that program managers set a new affordability target that cannot subsequently be altered without specific authority from Dr. Carter.  Managers will ensure that a program’s initial design is constrained by its ultimate schedule and cost.   

                Implementing this guidance will enable this department to make programs more affordable without sacrificing important capabilities and prevent us from embarking on programs that have to be cancelled when they prove unaffordable. 

                Let me give you some examples to illustrate the point.  We will be initiating several new and needed programs in the near future, including the next-generation ballistic missile submarine, the Ground Combat Vehicle, long-range strike systems for the Air Force and Navy, and the Marine Corps presidential helicopter.   

                The acquisition cost of these new programs will probably be somewhere over 200 -- $200 billion, so designing to affordability and not just desire or appetite is critical.  According to the guidance being outlined today, affordability will be incorporated right at the beginning as a firm requirement for each new program, so, for example, we don’t end up with another half billion presidential -- half-billion-dollar presidential helicopter.   

                This emphasis on affordability is already being applied to the next-generation ballistic missile submarine, where we are trimming requirements without compromising critical capability.  The per-unit estimated cost had risen as high as $7 billion.  It is now roughly $5 billion.  The goal is a reduction of fully 27 percent in a program where total cost is expected to be more than $100 billion.  Dr. Carter will go into more detail on this and provide some additional examples in just a minute. 

                Another related change to help us deliver leaner programs that -- is that starting today all of our programs will require not only an estimation of what they will cost if we continue business as usual, but what they should cost if programs are managed effectively and hit cost objectives.  In too many instances, cost estimates that are based on past programs -- I might say past mismanagement -- have deprived us of incentives to bring down costs. 

                Achieving these goals will benefit both government and industry, because higher performance should naturally lead to higher financial reward -- profit.   

                Indeed, a number of changes being issued today are designed to create incentives for increasing productivity and innovation -- for example, by expanding the Department of the Navy’s Preferred Supplier Program to all of the Department of Defense.  This program will reward those contractors that have demonstrated superior performance in delivering quality products and services affordably and on time.   

                We’re also increasing the use of contracts in which the benefits of productivity and the cost of overruns are shared by contractors and the department.  This method is being applied to the Joint Strike Fighter, where we need and expect to begin reversing the cost growth that led me to restructure the program and change its management last year.  In another forum, it could lead to a multiyear contract for the next buy of the FA-18, a win-win for government and industry that will save $600 million. 

                Competition is a major source of productivity in the defense industry, as it is in commercial industry.  And this guidance gives our managers some further direction in how to obtain real competition. What we have in mind is illustrated by what has taken place with the littoral combat ship -- the littoral -- (changes pronunciation) -- combat ship program in the past few months, where we changed the whole acquisition strategy from directed buys to competitive buys.   

                While I can’t discuss the bidding process in detail until it’s complete, I can tell you that if successful, the strategy will result in savings of more than a billion dollars over the next five years, with additional estimated savings throughout the life of that shipbuilding program.   

                This department must also recognize that in some cases, our own bureaucratic processes are making our contractors behave inefficiently.  So as part of the guidance being issued today, we’re taking specific steps to reduce nonproductive processes and bureaucracy and costly and unneeded reports, including those we -- we require of contractors, in addition to the ones we write to ourselves and Congress. 

                Finally, while most people think of aircraft, ships, tanks and other weapons when they think of defense spending, I would like to emphasize that more than $200 billion -- that the department spends annually on contracting for professional services, information technology and facilities upkeep.  Beginning today, we are implementing a number of measures to improve efficiencies in the services-contracts area, including especially increasing the rates of competitive bidding.   

                Like all important and necessary institutional reforms, this process will take time and real effort to overcome long-standing habits and assumptions.  The guidance emphasizes follow-through and measured -- measurement of progress in all 23 of these steps against specific metrics.  And Dr. Carter will be reporting to me monthly on progress.  Ultimately, as leaders in government and industry, we owe it to the men and women in our armed forces to do all we can to provide them with the very best support to complete their mission and return home safely. 

                Why do I think we can succeed?  We have established reasonable reduction targets.  We are focused on specific savings.  We can identify the excess after an era of double-digit growth.  And the president, the Congress, the joint chiefs and I are all supportive of change in how we do business. 

                I know that there’s a lot of speculation about whether these efforts will be successful or will continue once I’m gone.  And I think the one thing that I want to underscore is that I believe that will be the case, because this has been a team effort.  These enterprises -- these initiatives have involved a significant number of people across this department who are now invested in this process and who believe in it.   

                And this includes both the civilian and military leadership of the Department of Defense. 

                And so I have no doubt that for years to come, these efforts will continue as these civilian and military leaders continue to see the benefit in adopting processes that not only save the taxpayers money but allow us to transfer money from overhead to real military capabilities. 

                So with that, I’ll turn it over to Ash. 

                STAFF:  (Off mike.) 

                MR. CARTER:  Thank you, Mr. Secretary. 

                At this point, the staff is going to hand out to you, and there will be released by the department, the specific directive that is -- I am issuing today to our acquisition workforce that gives specific detail in each of the 23 areas that Secretary Gates named. 

                And as that’s being passed out, I think we’re able to project also an outline of that.  And what I’d like to do is just touch on -- let you look at that.  That -- these are the 23 actions that the department is ordering today.  That seems like a lot of detail.  I’ll try to give you a little road map to it here, add some detail to what the secretary has already described, and then take your questions. 

                Let me just reiterate something he said, that he added at the very end, or which is related to what he added at the very end, which is, this has been the product of a very intensive effort over the last several months, since Secretary Gates and I discussed this initiative first on June 28th -- a lot of people involved, a lot of examination of what we’re actually doing and what is succeeding and what is not succeeding.   

                So each of these initiatives is, to the maximum extent possible, based on data and a true understanding of what we’re doing. 

                You see that it comes in five categories.  These are the five, if you -- I call them points of high ground in spending the taxpayers’ money for the warfighters’ needs.  These are the principles that we try to apply.  And you can see that each of the actions that we’re taking today is derived from one of those principles. 

                The secretary touched on an example from each of those.  If you remember affordability -- targeting affordability and controlling cost growth, he gave the example of the next-generation submarine as something that we have considerably reduced the cost of by reducing the scope of ambition and requirements for that submarine. 

                That is something we’re going to have to do for all of the new programs that we’re starting -- and we’re starting a great number of them -- so that we don’t find, down the road, that we don’t have the money to afford them and we end up canceling them, like what happened to the last presidential helicopter.  So we’ll be starting a new presidential helicopter; the ballistic-missile submarine; a family -- long-range-strike family of systems to replace the canceled next- generation bomber that we canceled last year; a replacement Army ground combat vehicle, which will replace the Future Combat Systems program, also canceled last year, which never produced a ground combat vehicle. 

                So in all these new starts, which in total are about $200 billion in value, we’re going to be applying to them the same principles that we applied to the SSBN-X, which, as the secretary said, have already resulted in a 16-percent reduction in the estimated cost of that submarine, en route to 27 percent -- this for a submarine program that is itself going to cost more than $100 billion. 

                That’s real money, and the -- it reinforces the secretary’s point.  He’s given us a target of $100 billion over five years, and he said he has confidence that through a combination of all of these measures, we can meet that objective.  And I think you can see just from the example of the SSBN-X that that should be possible. 

                He also talked about the next item here, which is "will cost/should cost."  I thought he explained it just exactly right.  Our cost estimators tell us what our programs are going to cost us if we keep managing them the way we are.  But Secretary Gates and I take that information and say, "We shouldn’t do that.  We shouldn’t pay that much." 

                So in the case of the Joint Strike Fighter, for example, which he mentioned, he learned and I learned late last year, you all know this, that the -- our estimates for the cost -- unit cost of the Joint Strike Fighter had gone from $50 million in ‘02 dollars, as had been estimated at the time the program began back in 2002, to by late last year $92 million.   

                And I thought that estimate was credible.  I told the secretary that it was credible, but I also told him, "We shouldn’t pay that much.  We should try to figure out if we can pay less."  And I’m happy to report that we’re working with the contractors who do this work in a cooperative effort to try to drive that cost back closer to where it should be. 

                He gave the example of the F-18 multiyear, also a successful -- we, I think, are going to have also -- to produce those aircraft much more efficiently, because we’ll order five years’ worth of them, which will allow the contractor who’s doing that work to make a five-year plan, smooth the workforce, order parts for the future.  These are all the ways that you get productivity in an industrial activity, and we’re looking for the kind of productivity in our defense activities that we’re -- we see in the commercial world.  And one way to do that is by giving the conductors of that work a span of time that they can plan in. 

                A couple items he didn’t touch on, and I will just explain what they mean.  Eliminating redundancy within warfighter portfolios is something that Army has done very successfully recently; led to the cancellation within the last couple months by the Army of the NLOS-LS [Non-Line-of-Sight Launch System] guided weapon, for the simple reason that, when they looked at all the precision weapons that they were buying -- that is, that the Army was buying -- and situated this system within that portfolio, they realized that the niche it occupied wasn’t worth the price it was costing, $300,000 each.  And so we said not worth it.   

                And so that was a program that was terminated because it proved not affordable, which gets back to the secretary’s point that, if we make things affordable, we won’t have as many program cancellations. But on the other hand, if things are not affordable, they will be canceled. 

                Let me go to the next category here.  I don’t have time to touch on all of these items.  You can read them.  There is -- there is an extensive discussion of each one of them in the guidance memorandum that’s being issued today. 

                But I do want to say something about each one.  

                Incentivizing productivity and innovation in industry -- the secretary mentioned that -- that’s critically important.  We don’t make our weapons in an arsenal in the United States.  We contract out for them, largely to private industry.  And the way to reduce cost and therefore the price to us is to incentivize the reduction of cost. One of the important ways of doing that is through profit.  And so we just are going to make sure that we’re giving the right incentives to our contractors to reduce cost and not giving them perverse incentives that cause them naturally to build in unnecessary cost. 

                We’re doing that with contract structures.  We’re doing that with how we calculate fee for subcontracted work by a prime contractor. 

                The secretary mentioned the Navy’s preferred supplier program. It’s a little like the frequent flyer program.  Those performers of our work who consistently do a good job and whom we measure to consistently deliver value for the warfighter to the Department of Defense we will give preferential treatment to that will benefit them financially, because of the good work they’ve done for us before. 

                Adjusting progress payments to incentivize performance addresses the question of cash flow, which is important in any business.  And so in addition to the overall price we pay, the way we flow cash is an important business incentive, and it should be incentivizing the productivity that is good for both us and for industry. 

                Real competition.  The secretary used the phrase "real competition," the third category, to distinguish it from, as he said, what we were beginning to see in the Littoral Combat Ship system, which is two builders of ships who had -- it -- who had begun to suggest to us that they thought they could both stay in business and would stay and both stay in business indefinitely.  And the prices that we were being asked to pay were suggesting that kind of behavior. We decided we had to interrupt that dynamic. 

                We did, and the savings, as he reported, that we expect to realize are very substantial from that.  That’s having real competition, as opposed to the appearance of competition, which is, you’re buying two of something, but you don’t have the real dynamic of competition. 

                We need to learn to tell the difference and make sure that we have real competition wherever we can possibly have it, because it’s the greatest driver of productivity. 

                And we have a number of steps to do that.  We have looked at the data that we have on competitive bidding in the department.  There is a -- there are a substantial number of competitive offerings where we in fact do not receive more than one bid.  And we’re looking very hard at that.  Why is that?  Why -- what can we do to make sure that we get more than one bid?  And what do we do in cases when we do only get one bid to nevertheless incentivize cost reduction in that circumstance? Very important, because it affects a substantial number of our contract awards and the value of those contract awards. 

                Improving tradecraft in services acquisition -- this may amaze you; it does many people.  First of all, many people are surprised to find, as the secretary said, that half of what the Defense Department spends, that $400 billion per year of contracted money, is for services, not weapons.  Most people think it’s all about ships and planes and tanks.  And so, in fact, fully half of it is for services. 

                Believe it or not, our -- we are -- our statistics show that we’re performing even worse in the acquisition of services than in the acquisition of weapons.  A lot less attention has been paid to this area.  The secretary and I believe it’s real important to turn to this because the amount of money has grown so large that we simply have to manage it better -- $200 billion a year. 

                So we’ve looked at this.  We’re still turning over this area. But, as you see detailed here and much more in the guidance memorandum, there are a number of ways where it is quite apparent that we can improve our tradecraft and therefore the value we get for services. 

                Let me just give you one example, which is shown up there under taxonomy.  We don’t even have a standard way of talking about services in the department.  And one of the things that this guidance does is establish a standard taxonomy.  It’s as though you were buying weapons and you never distinguished planes, ships and tanks.  There are a lot of different kinds of services.  They all require different managerial structure.  They all have a different industrial base that support them.  And we need to begin to manage to purpose in this area.   

                So this is a very rich area.  And because there’s so much money involved, we really do believe that we can do a lot better for the taxpayer and the warfighter in this area. 

                The last one, in the lower right, is not last because it’s unimportant by any means.  And it’s -- and this is, again, something Secretary Gates has taken some other steps in recent months to reinforce within his own office, and this -- but this is department- wide -- and that is the amount of bureaucratic process that is unproductive.  And that not only wastes our time and your money in government, but much of it is imposed upon our contractors.   

                So we ask them to do something that is unnecessary; they have to do it; they do it, but it’s an allowable cost and we pay for it.  So that cycle, where the administrative system that I am responsible for imposes cost on the taxpayer by first imposing tasks on a contractor that do not add to the value of the weapons system, we need to interrupt that -- interrupt that cycle of waste and excess cost. 

                And again, there are a number we’re -- we’ve -- we’ve looked into that process, looked at the data, identified ways that we can do that. And it’s very important to eliminate that, as well as to eliminate excess process in the government itself.   

                So we can’t leave ourselves out of this.  We are a contributor to low productivity in the industry that serves us.  We needed to step up to that, take responsibility for it. 

                So those are the areas.  I’m happy to take your questions in any one of those.  I think that, as you dig in to these in the way that we have dug in to them, you will see that it is entirely possible to find a substantial fraction of the hundred billion dollars that the secretary seeks over the next five years in eliminated, unnecessary and unneeded activity within this 400 billion (dollars) that is spent every year in contracted activities. 

                I’ll just echo what he said, if you’re -- if you’re wondering, you know, "Why do you think you’re going to succeed?"  There are a couple reasons that attach to this particular time and this particular approach that I think make it clear that we can succeed.   

                And just to repeat what the secretary said, first of all, these are very reasonable goals.  We’re not looking for -- we’re not in an era where the -- the defense budget is going to decline.  This is not the 1990s.  But neither is it the 2000s, when we had double-digit year-on-year growth and we could always reach for more money when we had a managerial problem. 

                We’re expecting a very, very small rate of real growth, and we aim to give the taxpayer and the warfighter what they have -- the capabilities that we have promised that they say they need for the amount of money they’re prepared to give us in an era of economic and fiscal distress in the -- in the country.  So these are reasonable targets. 

                Second, this is -- this is all very specific; all of these are specific actions with specific metrics attached to them.  This isn’t about moving bureaucratic boxes around; it’s about specific actions we can take. 

                Third, and the secretary said this, you know, we are coming off of an era of very rapid rates of annual growth in the defense budget, and it’s reasonable to -- therefore to believe that in that environment fat has crept in that we can identify and eliminate. 

                And last, as he said, it couldn’t be better circumstances for bold action.  We have a president who pays attention to acquisition matters; it’s a great thing.  We obviously have a secretary of defense who pays a great deal of attention to it.  We have a Congress that last year voted unanimously -- all members, both parties -- for a package of legislation that we have implemented which had a number of good ideas related -- not like this, but related -- urging us to do better. 

                I’d say one other thing.  To those who hesitate, to those who fear to go down this path, they need to consider the alternative -- and the alternative is broken programs, canceled programs, budgetary turbulence, the kind of unpredictability and uncertainty that are bad for industry; the erosion of the taxpayers’ confidence that they’re getting value for their money; and of course, worst of all, lost warfighter capability. 

                So we can do this.  We really need to do this. 

                The next stage is the implementation of this.  Those of you who watch the way I work, for example, on counter-IED issues in Afghanistan know I’m nothing if not relentless.  And so when it comes to the implementation of these things, we are going to be following them. 

                In some cases we know exactly what we’re going to do, and there is attached to what I’m giving to our acquisition professionals today specific implementing directives.  In other cases, we’re at about the 80 percent level.  And we want to make sure we get it right, so we’re going to try something and then adjust, so we don’t have unintended consequences here.  We’re trying to be very data-oriented in this and fact-based in our action. 

                And so we have an implementation plan for each of these 23 actions.  We have a metric against which we will measure progress. And we will track them -- I will be tracking them every day and, of course, the secretary, as he indicated, every month. 

                So implementation is everything.  We recognize that.  And we’ll be following through as -- with a pace of work as vigorous as the last four or three months that has gone into producing this. 

                With that, let me take your questions.  Sir. 

                Q     So you said that we would be amazed when we -- when we saw the number of -- the amount of services contracts that the department spends.  What was your reaction?  Because, when you look at the -- what’s in here, it’s pretty astonishing, actually.  It’s almost as if this department’s grown amuck in its spending and no one’s really known what -- where the money’s gone. 

                MR. CARTER:  Well, I think it is surprising to people.  They don’t think that fully half of what we spend is in services.  And there are certain categories that are growing even faster than the overall services buy, and they’re the ones we’ll be looking at. 

                If you ask, how could that happen, let me give you one hint for how it happens, which is our people who buy ships buy ships for a living.  They’re really good at it.  Everybody buys services in the department.  And so -- because they’re trying to get something else done, and they -- in association with that, they need some help, they contract out for it.  But that’s not mostly what they do, so that’s not mostly what they think about.  So they’re amateurs. 

                And an important part of this guidance is we’re not trying to turn everybody who buys services into an expert like our people who buy goods.  That would be the wrong approach.  We need to help them get a better deal, recognizing that that’s not what they do all the time. 

                So the trick for me is to help them by giving them some guidance, some templates; helping them with market research, so they can benchmark their services against services that similar institutions in the private sector are using to buy services, so we can help them do better. 

                So there is an interesting difference there between goods and -- but it’s so much money, you can’t ignore it, from a management point of view. We have to go at it.  And it just turns out one of the reasons I’m optimistic we can do well is the simple reason that we have not really applied ourselves to doing services buying well in the past.  Yes? 

                Q     Sir, you’re meeting with industry on Thursday to talk about these guidelines. 

                MR. CARTER:  I am. 

                Q     Which one of these do you expect to get the most pushback from industry?  Which one do you expect to create the most sort of reaction in terms of, you know, adopting these changes? 

                MR. CARTER:  We have -- I have, the secretary has, Deputy Secretary Lynn has -- been discussing this with the leaders of industry right along. 

                And the -- at the strategic leadership level of the industry that supports us, I would say that -- I mean, the overall reaction is positive to this, because they say they understand the alternative. They know -- they have their eyes open.  These are very experienced people.  They know we’re entering a different era.  And what we’re offering here is that we manage cooperatively, gradually, but with determination, to this new era. 

                Turbulence, canceled programs, programs that never get into production, these are not good things for industry.  So managing together to a new era, very important joint project for government and industry. 

                The second thing that we talk about is profit.  They want to make sure that we are using profit to incentivize productivity.  They need profit; we need an industry that is financially successful and technologically successful.  And we do buy our weapons on the -- from private companies that have stock prices and so forth.  And so the principle here of the second category is a very important one, because we’re trying to incentivize productivity.  And that means a gains- sharing arrangement, where if we get more productive, we’re willing to incentivize that with profits, because that’s the way -- that’s one of the major ways that we can get what we need, which is the capabilities we need for a lower -- a lower price. 

                So that is an important ingredient of it, and we’ve had a lot of discussion about that -- how to do that, getting their advice and so forth.  So I would say those are the -- the two points:  entering the new era and managing to that cooperatively, and the gains-sharing principle. 


                Q     A lot of this seems to be predicated on certain political assumptions.  I mean, the idea -- you said earlier that we’re not in an era of -- we’re not in the 1990s, we’re not in an era where budgets are going to decline.  I mean, what makes you so sure?  We don’t even know who the Defense secretary will be a year from now, necessarily. 

                MR. CARTER:  The -- well, the president, the Secretary of Defense and the Congress so far have indicated that we’re not going to have an era like the 1990s. 

                The budget is -- has leveled off, no question about it.  The nation’s at war.  I think people recognize that a -- in those circumstances, a -- the level of defense expenditure that we’re making is appropriate. They don’t want to spend more, and they don’t want us coming back to them every year and saying that what we told you last year we could get for so much money, this year is going to cost you more. 

                So we’re trying to manage within the amount of money we’re going to get, which is not a lot more, and give the nation the warfighting capability that it -- that it needs.  And we -- and that’s what this is about.  That’s the big idea behind the secretary’s efficiency initiative. 

                Q     What happens if there are some changes, that what happens to the economy doesn’t -- isn’t quite as -- you know, if things don’t look as good a year from now or two years from now, does this whole thing fall apart?  Or does it become --  

                MR. CARTER:  Well, I think these are the kinds of things that you’d expect us to manage to in any circumstance, getting better value.  We will -- and much of this is good -- pursuing good value for the taxpayer and the warfighter, you want to do in any circumstance. But the circumstances we’re anticipating are somewhere between the 1990s and the 2000s.  And one of the reasons I have confidence that we can do that with these measures is that we are in that in-between environment. 

                Q     One specific question.  There’s been a lot of interest in this lot 4 negotiation on the F-35.  Are some of the principles you’ve laid out today being inculcated, incorporated into those negotiations? 

                MR. CARTER:  Absolutely.  Absolutely.  It’s a -- it’s a very good example because it’s our largest program.  It’s the backbone of our tactical air combat power.  And so the performers of that work and we have been discussing precisely what this chart, particularly the second item there, contains, which is how we can enhance the productivity of the Joint Strike Fighter program so that the price comes down. 

                And so we’re looking at all -- in connection with this negotiation, but in the program management in general -- at all of the ingredients of cost and saying, how can we reduce cost -- where has cost grown in recent years, and therefore we may be able to scale it back.  So that is a joint and cooperative effort.  It’s ongoing.  I’m sure it’ll succeed. 

                Q     I have one broader question.  You mentioned that one of the consequences of not doing this is an erosion of public confidence in the dollars.  Well, one would submit that that’s been happening for the last decade with cost growth -- cost growth, schedule slip. 

                MR. CARTER:  Right. 

                Q     Where is the cop on the beat here being invigorated? Because this is a very industry-friendly briefing.  A lot of people would look and say you’re giving the store away to the defense industry.  Where are you tightening up punitive measures or penalties? Award fees?  Withholds?  Where do we see this here where the cop on the beat is tougher on the industry if they don’t perform? 

                MR. CARTER:  Well, I think -- I think incentives are always two- sided coins.  And so if you have a contract that has a share line, for example, that 50-50 share line, that means that if the contract underruns, the government and the contractor share the benefit of the overrun.  It also means that if the contract overruns, the contractor has to pay their share of the overrun. 

                The other thing that Secretary Gates has made pretty clear over the last year is that programs that overrun get canceled.  And that’s not good for -- so the kind of discipline that the NLOS-LS, for example, encountered, that’s not good. 

                So having stability, having programs that are performing well enough that we don’t decide to terminate them, is something very much in the industry -- in the interests of industry. 

                So the point is, I mean, our interest is the taxpayer and the warfighter.  But if you align the interests, our interests, so that industry is performing to our interests, that’s the trick.  But it is the taxpayer and the warfighter that come first. 

                Q     Yeah, I wanted to go back to what you said about SSBN and trying to achieve 27 percent savings.  And I’m wondering how -- if you can give us some insight into how you plan on achieving that.  I mean, are you talking about leaving requirements off?  Are we talking about a less-capable sub here? 

                MR. CARTER:  What you do is you -- is the engineers who are designing the submarine or the ground combat vehicle or whatever, what you do is you say to them, let’s take each -- size, speed and so forth -- and show me how the cost of this system varies as I vary that.  And then we can look at that in the department and say, is it really worth that much money to go one knot faster?  Why?  And when you begin to ask those questions, you find that you can adjust the design parameters.  And you just do that constantly so that you’re -- and relentlessly -- so that you -- until you end up with a design where you’re sure that everything you’re buying is something you need. 

                The alternative, which is just starting, well, it would be nice to have that, and why not go a little faster.  And so then you end up with a design which in this case was simply unaffordable. 

                We would look ahead and say we -- if we -- if we bought the submarine for the -- that much money, as originally forecast, the Navy wasn’t going to be able to buy many other ships during that period of time.  So it’s -- the key is doing those engineering trades right at the beginning and then sticking with them and not -- and I think you buy a car that way, right?  You don’t buy -- you don’t buy the car that you fantasize about.  You first check how much money you have before you buy a car.  And we need to start doing that. 


                Q     (Off mike) -- other ships in the fleet? 

                MR. CARTER:  Yes.  And with -- everything we start new.  I gave you four examples, I think the four most conspicuous examples of new starts that we’re planning soon in the department. 


                Q     A lot of the stuff that you’ve mentioned, stuff in the written guidance, is common sense.  I mean, it strikes me that making something -- making affordability targets -- 

                MR. CARTER:  You’ve read it already? 

                Q     Speed-reading while you were speed-talking.  (Laughter.) 

                MR. CARTER:  (Laughs.) 

                Q     But a lot of it is so commonsensical it raises the obvious question of why was it not done until now.  I mean, obviously, you’ve had some time in this job.  You’ve had predecessors in this job who I’m sure you respect.  Why were these changes, when some of them are so common-sense, not done sooner? 

                Also, more specifically, when you talk about, on the submarine, some of the changes made on the savings front by eliminating unnecessary things that have crept in, what are some examples of things that had crept into that design that, when you looked at it closer, you decided were not necessary but were very expensive? 

                MR. CARTER:  You’re talking about the SSBN-X specifically?  Okay. 

                I think there are two things.  First of all, I consulted with a lot of my predecessors in doing this.  But a couple things. 

                Over the last 10 years, especially since 9/11, as I mentioned earlier, the budget has been growing so fast that our managers have -- when they encounter a managerial problem, had more money to help them get out of that problem. 

                And so naturally that becomes the managerial habit, and so you’re maximizing more fighting capability within the context of an ever- rising budget.   

                That’s not what we have now.  That’s not what we’re going to have.  That’s not what the taxpayer’s going to get -- going to give us.  The taxpayer says, give me the security I need for the money I have, and so the circumstances change. 

                Second thing is, the eras change.  An earlier question came about services.  Well, services weren’t such a big deal for some of my predecessors.  Some of my predecessors were not at war, which forces a cadence upon us that -- during the Cold War, we prepared for war.  We didn’t conduct war.  That was a different schedule.  You could look at programs that were 10 and 15 years.  You didn’t have to deliver to Afghanistan this summer. 

                So circumstances change.  And this is the -- these are the initiatives that are appropriate to the circumstances in which we find ourselves. 

                Q     On the -- on the submarine? 

                MR. CARTER:  Oh, I’m sorry.  On the submarine, I’m a little nervous about that because I don’t want to get into anything classified.  I used speed and size.  I know that Secretary Stackley is here, their -- our navy acquisition executive.  If you don’t mind, let me follow up with you. 

                I mean, it’s stuff like size and speed -- I just want to be careful about what I say.  But it is the key things that determine the design of the submarine and therefore how much it costs. 

                Q     Much of the waste that we’ve seen in recent years has been in the war zone.  And it sounds like you do expect that this would apply to Iraq and Afghanistan.  Do you think that it would impact, for example, reconstruction spending in either war zone?   

                MR. CARTER:  Contracting for services, including contingency services, is definitely an important part of this.  And we are working very hard to learn the lessons of the last eight years and apply them to Afghanistan as we get in there and scale now, so that we understand the effect of our spending in Afghanistan on the COIN fight overall and on the society as a whole; that we get better at being able to monitor how our -- the contracts that we enter into are executed.  There’s no question that contingency contracting, which is a substantial part of the services’ contracting piece of this -- major focus. 

                Q     Well, to follow up on that, one big issue in Iraq and Afghanistan has been Blackwater, and we see that they now have some 24 subsidiaries that they operate under.  Army officials have said in a recent contract that they didn’t even know that they were working with Blackwater because it was under a different name. 

                How confident are you that the Defense Department understands and knows who they are working for or working with?

                MR. CARTER:  We -- we’re getting -- it’s not really -- but it’s a good question -- not really part of this initiative.  But we are working to get more visibility into subcontractors for contractors we contract with in contingency circumstances. 

                Q     Thank you, sir.  Do you see major problem of corruption in contracting goods and services?  And also if you outsource any of the services outside the U.S. as far as -- (inaudible) -- in contracting concerned?  And how are you going to control as far as overbilling and also overcharging?  

                And even many foreign buyers are surprised and confused. 

                MR. CARTER:  Good question.  The -- there are cases that arise, human nature being what it is.  They’re pursued in law-enforcement channels.  As you imagine, I can’t talk about any of the ones specifically.  It does occur.   

                That is not, we estimate, a major contributor to the kind of inefficiency the secretary is after, however.  It’s obviously always disturbing when people are dishonest.  We look for it.  It is -- it is investigated and prosecuted and so forth.  But it’s not a principal thrust of what’s here today. 


                Q     Sir, the changes that you’re talking about seem to require a cultural change within the Department of Defense.  How do you propose to effect that sort of change?   

                MR. CARTER:  Cultural change is -- I always say I don’t do cultural change; it’s too hard.  So we’re -- this is directing specific actions.  And the actions that we want are pretty specific, and the cause-and-effect is pretty specific, I think you’ll find as you read this, and the metrics by which we measure the effects are spelled out in the document. 

                So culture’s too hard for me.  Behavior, that’s what we’re after. 


                Q     You mentioned the -- (off mike).  Are there any other opportunities for cost savings within the Army, particularly coming out of the recent portfolio reviews? 

                MR. CARTER:  I think there will be, I think the Army is -- has -- found that approach so successful.  And the Army’s experience is one reason why -- I’m doing some of the similar things at the department- wide level -- that they’re extending that to other portfolios.  So I expect that they will find more, and we will find more. 

                Q     How long do you think it will take? 

                MR. CARTER:  I think -- I think you ought to wait and let the Army do its -- its continued portfolio reviews.  And as I’ve indicated, and you’ll see in that document, I’m initiating a few myself, which certainly will have consequences. 

                Q     Sir, is there an overall cost figure you’re looking for in terms of savings from these initiatives?  You talk about the potential savings. 

                MR. CARTER:  Well, we have the secretary’s goal, which is the hundred billion dollars over five years.  And certainly we need to meet that -- meet or exceed, of course, that.  And I think that these actions make plausible that a substantial fraction of that can be found within the substantial part of our spend, which is on contracted goods and services. 

                I mean, I want our people to deliver, not just promise.  So I’m not going to indicate today, you know, a price tag associated with each of -- of these.  We do have specific metrics of progress in there.  I gave you some examples where we now know what savings we’re going to -- we’re going to obtain. 

                Q     But there’s not an overall chunk of the hundred -- you know -- billion dollars that SecDef has laid out that’s supposed to be from AT&L? 

                MR. CARTER:  He has not done it that way.  And my aim is, give him as much as possible, give him all.   

                I’m sorry, back here. 

                Q     You mentioned that a substantial number of bids, of the competitive bids, are just one -- one bidder.  Do you have an estimate on about how many that is? 

                MR. CARTER:  I do.  If you don’t mind, I’d like to get you that -- I’d like to get you the figures on that, because you -- in order -- there is some variance depending upon which kind of services you’re talking about.  So I don’t give you an average number. 

                But if I average in my head, I think you’re in the neighborhood of -- well, a few tens of percent, which is large. 

                So these are things that are supposed to have been awarded competitively, but it doesn’t end up that way, because there’s not more than one bidder.  So that’s a big chunk of $200 billion spent annually that is not in fact spent competitively.   

                And we know that competition leads to savings, and we measure how.  So you can do the math, if you like.  I don’t want to do it in my head, but -- and it’s one of the reasons why this is a substantial foregoing of savings for the taxpayer, not to have competition in a big chunk of our services spent. 

                STAFF:  We have time for one or two more. 

                MR. CARTER:  Sir. 

                Q     The secretary mentioned the congressional reports as one of the potential problems in terms of the -- containing budget costs. And the 2010 budget required the Pentagon AT&L to report a possibility on  F-22s.  And I was wondering whether you had any conclusions as to what happened to the report.  And also for the future, how would you reach out to members of Congress in terms of preventing these kind of reports from being required in budgets? 

                MR. CARTER:  This is a specific report on the F-22?  And I’m not familiar with that exact report you’re talking about, but I understand the question you’re asking in general, which is the -- we are required by Congress to write a large number of reports.  That number has been increasing every year.  They are quite expensive. 

                However, and still, the Congress is entitled to information.  So if they ask for a report, we’re going to provide the report.  My question to our people is:  Do we -- does it have to be this thick and glossy-covered and cost so much money?  Can’t -- and can’t we -- and be too late to be useful to the person who asked for it in the first place? 

                So can’t we make them shorter, more pertinent, more helpful to the person who asked for the information rather than producing these “phone books”, which I spend Saturday afternoon reading and signing out? 

                So that’s really the objective.  Congress is perfectly entitled to the information that they ask for.  It’s really how we’re responding to those requests that concerns me. 

                Okay.  Well, listen, I thank you all very much for your time and attention, and we’ll try to follow up with any questions you may have.





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