Levin opening statement, Senate Armed Services Committee hearing on acquisition reform

Wednesday, April 30, 2014

The Committee meets today to assess the impact of the Weapon Systems Acquisition Reform Act of 2009 (“WSARA”) and other acquisition reform measures adopted over the last decade, and to consider the need for further legislative and administrative improvements to the defense acquisition system.

Six years ago, the Committee held a similar hearing at a time of real crisis in the defense acquisition system.  In 2008, half of DOD’s major defense acquisition programs had exceeded the so-called “Nunn-McCurdy” cost growth standards established by Congress to identify seriously troubled programs.  On average, these programs had exceeded their research and development budgets by an average of 40 percent, seen their acquisition costs grow by almost 30 percent, and experienced an average schedule delay of almost two years.

GAO’s 2008 annual report on DOD’s large weapon systems described an acquisition system in real disarray.  The report stated:

“Of the 72 weapon programs we assessed this year, no program had proceeded through system development meeting the best practices standards for mature technologies, stable design, and mature production processes . . . Eighty-eight percent of the programs in this assessment began system development without fully maturing critical technologies according to best practices.  Ninety-six percent of the programs had not met best practice standards for demonstrating mature technologies and design stability before entering the more costly system demonstration phase.  Finally, no programs we assessed had all of their critical manufacturing processes in statistical control when they entered production, and most programs were not even collecting data to do so.”

The problem, as described in 2008 by GAO and others, was that DOD was trying to build complex weapon systems without doing the up-front engineering, design, and cost estimating work needed to put an acquisition program on sound footing.  We learned that, as a rule of thumb, it can cost ten times more to fix a problem after you have built a weapon system than it does to get it right the first time.  That is why we should continue to insist on a “fly before we buy” approach to major weapon systems, and it is why WSARA established a “design before you build” policy for these acquisitions as well. 

The Weapon Systems Acquisition Reform Act, which Senator McCain and I introduced in early 2009, and which was enacted several months later, focused on getting things right at the beginning of an acquisition program by:

•           Establishing new standards to ensure the technological maturity of key technologies before they are incorporated into major weapon systems;

•           Establishing a new Director of Cost Assessment and Performance Evaluation to ensure accurate estimates for the cost of these systems;

•           Requiring DOD to make early trade-offs between cost, schedule, and performance to ensure reasonable and achievable acquisition objectives; and

•           Restoring DOD’s system engineering and developmental testing capabilities – that is, the skills and procedures necessary to solve tough problems on the drawing board, before they become bigger, more expensive problems.

There is now evidence that our 2009 legislation has brought about signfiicant improvements. 

GAO’s 2013 report states:  “Continuing a positive trend over the past 4 years, newer acquisition programs are demonstrating higher levels of knowledge at key decision points . . . . Many of the programs are capturing critical manufacturing knowledge prior to production . . .”  As a result, GAO reported, “a majority of programs in the portfolio gained buying power in the last year as their acquisition unit costs decreased.” 

Similarly, GAO’s 2014 report found that in the previous year 50 of the 80 programs had reduced their overall costs, and 64 percent of the programs had increased their buying power, resulting in $23 billion of savings.   In short, improved acquisition practices have resulted in significant cost reductions on many of our major acquisition programs, a result that was rarely achieved five or six years ago.

WSARA is not the only major acquisition reform legislation that we have enacted since 2008.  For example: 

•           In the FY 2008 NDAA, enacted the Defense Acquisition Workforce Development Fund, which has enabled us to hire and train the engineers, cost estimators, program managers, IT experts, logisticians, testers, and procurement specialists needed to successfully run the acquisition system;

•           In the FY 2009 NDAA, we required the military departments to establish Configuration Steering Boards to prevent costly and unnecessary changes to program requirements for major weapon systems; and

•           In the FY 2012 NDAA, we enacted measures to strengthen the detection, avoidance, and remediation of counterfeit electronic parts in defense systems.

In addition, we have enacted Senator McCain’s provisions to prevent abuses of cost-type contracts and multi-year contracts and Senator McCaskill’s legislation to ensure proper oversight of wartime contracting.  We have enacted measures to protect contractor whistleblowers; prevent contractor conflicts of interest; establish a database of contractor misconduct; end the abuse of inter-agency contracting; address the problem of excessive pass-through charges; control the operating and support costs that constitute up to 70 percent of the lifecycle costs of many weapon systems; require business process reengineering before we buy new IT systems; and tie award and incentive fees to contractor performance. 

Senior defense officials have reinforced these reforms, beginning with the “Better Buying Power” Initiative launched by Under Secretary Kendall and his predecessor, Ash Carter.  GAO has reported that a single element of that initiative – the more aggressive use of “should cost” analyses for major defense acquisition programs – will result in $24 billion in savings on contracts negotiated last year.

Nonetheless, more remains to be done.  For example, GAO’s 2014  report on the acquisition of major weapon systems states that despite the improvements of the last 5 years, DOD has yet to fully implement a number of best practices, such as fully maturing technologies before starting engineering and manufacturing development and bringing all manufacturing processes under control before starting production.  And DOD’s track record in the acquisition of new IT systems remains abysmal, with repeated examples of systems that take years longer than expected to field, run hundreds of millions of dollars over budget, and end up being cancelled without any benefit at all to the government. 

That is why I recently joined Senator McCain in sending letters (in our capacity as Chairman and Ranking Member of the Permanent Subcommittee on Investigations) to several dozen acquisition experts, seeking their views on deficiencies in the defense acquisition process, steps that should be taken to improve the efficiency and effectiveness of this process, and the extent to which recent legislative and policy reforms may have resulted in improvements.   And it is why Senator Inhofe and I recently joined with our counterparts on the House Armed Services Committee in signing a series of letters to industry associations, seeking their views on a similar set of issues.

I thank our witnesses for being here today and I look forward to their testimony.