IT ADIES A ND GENTLEMEN, it's a great pleasure to * be with you this morning. ...

A J The people and leaders of Huntsville can be proud af those plans made by many of you in this room to build :he economy of this region — you are not just surviving :he defense downsizing, you are bouncing back to actively

nap out your future.

America will continue to count on -iuntsville for its critical contributions o the world's best missile defense ystems and technology. Today, I TOuld like to share some of my views tn where I think we're headed in echnology development and acquiition reform in the Department of )efense.

As I look broadly at the external nvironment that impacts our national :curity, I note that so many things ave changed — not just in the past

0 years, but in the past year or two. I have been in my job a little over

ne year now, and one of the molents that I want to share with you

- one that helps in understanding le fundamental change in our relaonships — was a trip that I made ith Secretary of Defense Bill Perry

1 four of the former Soviet republics

- Russia, Ukraine, Kazakstan and
zbekistan.
We visited an SS-19 silo near the

ty of Pervomaysk in the Ukraine. I Mh^^^^^^^^^h

ink I had seen that silo before, but from a different oriitation. On that day, an SS-19 missile, one previously tarted against six cities in the United States, was being withawn from the silo and decommissioned.

TM\ n the same trip, we toured Russia's Engels Air Force -/Base and saw former Soviet Bear bombers being disintled using American equipment provided through the ann-Lugar program.

The use of Nunn-Lugar funds to support weapons disintlement and defense conversion in the republics of the 'mer Soviet Union is part of our Cooperative Threat duction program — it represents a fundamental shift in r approach to security relationships and is a good invest:nt in our national security.

In the post-Cold War world, the United States no longer es a single galvanizing threat such as the former Soviet

Union. Instead, there is increased likelihood of our forces being committed to limited regional military actions — coalition operations — which allies are important partners.

This situation can be summed up in statistical terms. I'll risk sharing this statistical description with you this early in my talk because you are an educated audience and George Bernard Shaw once observed that: "One of the distinguishing marks of an educated person is one who can be emotionally moved by statistics."

I would sum up our current national security environment in statistical terms by saying that the mean value of our single greatest threat is considerably reduced. But the irony of the situation is that the variance of the collective threat that we deal with, plan for and must counter is up.

This gives us some pause in trying to plan intelligently.

In response to reduced mean value of the threat, the United States has cut end strength by about a third from 1985 levels. But at the same time, the increase in variance has caused deployments of U.S. forces to go up by a third.

During this adjustment phase, we have brought the total defense budget down while maintaining the high state of readiness needed to support increased operational tempos. We have done this by reducing our procurement at a pace that is twice the rate of the overall downturn in total obligation authority. This response is consistent with historical norms. Procurement has traditionally been the most volatile component of the budget in a drawdown because it is not necessary to purchase new equipment for a smaller force structure.

But this approach also defers long-term modernization and future readiness. I view this as a temporary condition as we complete our drawdown, which is just about over. Our current level of investment — it was a little over S39 billion in procurement and $34 billion in RDT&E [research, development, test and evaluation] in the president's FY [fiscal year] 96 budget request — will not sustain the Bottom-up Review force over the long term. The drawdown is nearly complete with the FY 96 budget, and so from FY 97 on, we will have to increase our spending to sustain modernization of the force.

However, our investment outlays — what industry actually receives — lags budget authority by two to three years due to our full-funding policy. The implication is that industry is still working off of dollars appropriated for FY 93 and will need to deal with a further contraction on the order of 20 percent over the next three years.

But now that the drawdown is nearly over, our modernization reprieve from aging is nearly over, too. So next year, we have to start a ramp-up in modernization. That is absolutely critical to the readiness of the forces — not this year or next year, but the readiness of our forces by the end of the century.

By the year 2000, we plan for a modernization account to go up to $67 billion in current dollars — almost twice what it was in the fiscal '96 budget submitted to Congress. And this modernization plan will focus on building a ready, flexible, responsive force for the changing security environment in which we live.

That means we will continue to maintain technological supremacy on the battlefield, especially by seizing on breathtaking advances in information technology: advanced semiconductors, computers, software and communication systems. We will maintain strong emphasis on missile defense and put greater emphasis on fast transportation and mobility: airlift, sealift, groundlift and trucks.

Our future years modernization plan reflects these priorities. But I must be candid with you. We are making three critical assumptions about where we will get the money to make this work. And the first of these assumptions is that we will receive significant savings by closing bases.

As I said earlier, the DoD budget and force structure are both down about a third from their peak levels in 1985. Guess what? Our infrastructure is only down by 18 percent. It is the reason why the Base Realignment and Closure '95 program is so important. The program we have laid out through BRAC '95 will reduce the infrastructure by an additional 11 percent over the next few years. It is important to bring this infrastructure into balance with our smaller force structure. The savings produced are needed to plow back into our investment program.

Unfortunately, there is a bad news-good news story here. The bad news piece is that it takes money to save money. When we close down facilities, we actually end up spending money in the near term. Typically, it takes between two to three years to break even before there is a net savings in this process.

We are still experiencing no net outflow due to the pre vious BRAC rounds. In the fiscal 99 budget, we will be saving about S6 billion a year that will be available to plow back into our investment accounts. But we have to succeed in our plans for closing bases.

Right now, integrated organizational planning teams from the Army's Aviation and Troop Command and the Army Missile Command are working to prepare for the move and realignment of the aviation management functions of ATCOM, the Army program executive officer for aviation and the Logistics Systems Support Center frorr St. Louis to the Redstone Arsenal, here in Huntsville. I: we hold to current schedules, I would expect movemen: of some logistics support center functions beginning nev; summer with all ATCOM, PFO Aviation and LSSC moves complete by the end of 1997.

The second big assumption in our defense planning is that we will get significant savings by overhauling ourdc fense acquisition system. The icfci here is to be more efficient in whs: we buy, how we buy it and how we oversee that buying process.

As I look at the defense acquisition system in detail, what I find3 that the system is not broken — t fields equipment that is second to none in the world. What I finds that the system can and must operate more efficiently.

We're implementing the prou sions of the 1994 Federal Acquisition Streamlining Act to increase the department's access to commercial products. We've nn» completed just about one full yd of implementation. The act coniarra multiple provisions that establish i preference for commercial items while exempting those items frca government-unique contracting^ accounting requirements. In the past, these requirements served* disincentives for commercial comp* nies to participate in DoD procure ments.

Although the new federal acquisition streamliningreg« lations will help the department use commercial procure ment procedures, we are beginning to understand that tin principal problems are not statutory or regulatory. Wei finding that there is considerable freedom in our acquis tion statutes and regulations. The issue is really cultui To make a cultural change, we need the appropriate incd tives to adjust the behavior of our acquisition work fbra

In fact, the whole situation reminds me of a MarkTv* story about a cat on a hot stove. Mark Twain descrii* "The cat, having once sat upon a hot stove lid, will noti upon a hot stove lid again. The problem is that neither* that cat sit on a cold stove lid." That is the problem" have overall in our acquisition system. We have becomel risk-averse that we end up spending billions to make sure we do not lose millions.

We have set up a structure that discourages risk taking — it settles for very, very conservative performance at all levels. We are moving now to try to adjust that culture. The first change we made was to stop required use of military specifications — those reams of documents that spelled out in meticulous detail how contractors must design and produce a system of supplies and services. It was safe to specify conformance to military specifications and standards.

Instead, we are going to be using commercial and performance standards which call for the highest quality standards available in the commercial market or if there is no commercial standard, describe how we want our equipment to perform and then challenge the supplier to meet that performance standard.

We have effectively turned our procurement system on its head. A program manager in the past Hb^bbbmbmb had to get a waiver in order to use commercial and performance standards. Now the reverse is true. If a program manager wants to use military specifications, then he has to get a waiver in order to justify the extra cost entailed in military specifications.

At the current time, we are implementing a block changes policy to use ?est commercial practices throughout a .ontractor's facility. It makes no sense o use best commercial practices on new :ontracts and maintain a separate set of >rocedures for existing DoD contracts. Ve are seeking to use the same inspecion procedures on military production ines that are used for commercial lines — for example, changing from the MIL2-9858A quality control standard in ivor of standards like ISO [Internaional Standards Organization] 9000, sed by companies worldwide.

We are looking at our own internal :quisition processes within the departlent. We are beginning to achieve real access in implementing a bold, new, rengi neered oversight and review process lat will better serve our warfighters and conserve public incis.

p^oD Directive 5000.1 and DoD Instruction 5000.2 L-^are now being revised to define an acquisition envimment that makes DoD a smarter, more responsive buyer r the best goods and services that meet our warfighters' :eds at the best dollar value over the life of the product.

The rewrite will take us from a very detailed, centralized anagement approach that was widely perceived as inflexle and overly bureaucratic, to a set of more flexible polios and procedures that emphasize the use of professional dgment and common sense to streamline the acquisition 0cess. The major themes in the new 5000 series docu

ments are:

□ Teamwork among program managers, and OSD [Office of the Secretary of Defense] and service staffs;

□ Tailoring acquisition process and procedures to fit individual programs;

□ Empowerment of managers and staff to reach agreements at lowest possible levels;

□ Cost as an independent variable to ensure lower cost systems to meet mission needs and life-cycle cost goals;

□ Commercial products utilized when possible to reduce cost and time to field; and

□ Best practices modeled on sound commercial/business experience.

To make a cultural change, we are putting the appropriate incentives in place to adjust the behavior of our acquisition work force.

On May 10, 1995, Secretary Perry signed a letter directing the use of integrated product and process develop^^■■^■hmb ment and integrated product teams in DoD acquisition.

The intent of the department's IPPD-IPT initiative is to replace after-the-fact oversight with early and continuous insight. The goal is to institutionalize a management approach that encourages partnership by stakeholders vs. sequential, adversarial relationships between and among organizations. We want to build in quality rather than inspect in quality.

Iwould like to see service and OSD staffs discover problems and help develop solutions early rather than find and report on problems at the DAB [Defense Acquisition Board]. I expect to reduce government decision cycle times using IPPD and IPT commercial practices.

Earlier, I spoke of some visible progress in acquisition reform. I've been keeping book on the acquisition process at my level. For example, the cycle time for acquisition w^^^^mmm^^^^^ decision memorandums — it averaged 23 days in 1994 — it was 2.5 days in 1995. Seventeen of 23 scheduled DAB reviews in 1995 were not held — they were not needed because there were no issues as a result of our new Overarching Integrated Product Team process.

On the Space-Based Infrared program, we shortened the DAB preparation cycle from six to two months and supporting documentation for the DAB went from [more than] 1,000 pages to 47 pages.

The story is the same on the Joint Direct Attack Munition program — a joint Air Force/Navy program to develop an affordable, accurate, all-weather guidance kit for 1,000- and 2,000-pound bombs in inventory.

In fact, JDAM is probably one of the first programs to benefit from the full combination of our year-long implementation of FASA acquisition reform initiatives. The first J DAM RFP — request for proposal — was issued in August of 1993 and required 87 military specifications and standards to be enforced. As we enter engineering and manufacturing development today, the number of milspecs and standards required to build the system is zero. In August 1993, the number of pages in our statement of work was 137; the number of pages today is two.

I credit the combination of our acquisition reform initiatives and a very able, aggressive program manager with reducing the unit price estimate from S40,000 at the 40,000th unit to $18,000 at the first unit — a savings of $1.5 billion.

These savings are predictions; they will not be validated until we enter production. But they provide a quantitative indication of the range of savings that can be achieved. This is a good news story. I predict it will end up to be a good news story even if we do not achieve all of our aggressive objectives.

The third big assumption in our defense planning is that the defense budget modernization line will stop declining and begin to go back up. This will depend ultimately on actions taken by Congresses three and four years from now.

When I think of the future investment budget, I'm reminded of the Peanuts cartoon in which Charlie Brown is getting ready to kick a field goal and just down field, Lucy is kneeling on a hash mark representing the year 2001.

The football she is holding represents a procurement budget that we are counting on to grow by nearly 50 percent to pay for much-needed modernization programs across the department. Despite having been burned so many times before, Charlie Brown wants to believe the football will be there when he tries to kick it.

I am not confident that the projected increases we are counting on will be there in 2001. ... It compares the dif

ference in budget authority set by the congressional budget resolution with that of the president's budget. As you can see, there is an unsustainable ramp in the near term — and in the long term, Lucy could be planning to pull the football!

It is a sobering state of affairs. But my concern here is not directed only at the Congress. The DoD must continue to reduce infrastructure and to execute our plan*, to achieve greater efficiency if we are to prevent Lucy from pulling the football away.

Our success in fielding superior systems will depend upon our success in reducing excess infrastructure, implement ing lasting acquisition reforms and maintaining sustainable increases in our modernization accounts.

We are in the process of making the most revolutionarv change in the defense acquisition system in the past 50 years. The true measure of our success in reforming our buying practices will be acceptance in the field — not polio pronouncements in Washington.

For this reason, it is important to "bubble up" the besi ideas from the field — that means closing the feedback loop — in government and with industry.

I sincerely hope that you will not be shy in raising your concerns. ...

The time is ripe to go forth and leave a legacy, a foiinda tion, for those that will follow — for U.S. forces in 2010 Thank you all.

Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistan: to the Secretary of Defense (Public Affairs), Washington, D.C Parenthetical entries are speaker/author notes; bracketed entna are editorial notes. Tins material is in the public domain and may be reprinted without permission. Defense Issues is available on the Internet via the World Wide Web at http://www.dtic.mil/defenselink/pubs/di_index.html.

LADIES AND GENTLEMEN, it's a great pleasure to be with you here this morning. The government and Lockheed-Martin representatives present in the aulience today are clearly demonstrating your commitment o the department's single process initiative. Thank you or your proactive approach.

From an acquisition reform per- ^^h^^^^^^^h pective, this is a very important time or all of us. When I attend a meeting ike this, I find that I benefit cnornously from my interaction with all if you, so I plan to leave time for |uestions and answers. This type of nteraction is important to me.

When it comes to meaningful prourement reform, it has been my sense hat it is easy to talk about why, harder o talk about how and even harder to lo.

In June of 1994, DoD took a maar step towards implementing real eform by authorizing the use of commercial specifications and standards, lut those changes, as important as bey were, effectively applied to new ontracts only. We have now taken the ext major step toward reforming )oD purchasing practices. Last lonth, I approved guidance implementing a single process initiative to :duce the number of governmentnposed processes on existing con

This initiative addresses a very real problem. Its implementation requires a streamlined approach so that we can et it done quickly and so that we can begin to benefit om the savings and the cost avoidance associated, sooner ither than later.

[launched this initiative with the idea of achieving four basic objectives. The first one — quick implementation - for the reasons I've just stated.

No. 2, it's my intention to obtain consideration when mere are one-sided savings in the process. For most conacts that we have in place, there will be bilateral cost avoidnce. That is, the savings will be passed directly to the govrnment and in the end, to the taxpayer. This occurs on ast-reimbursable contracts and cases where we have priced prions that can be renegotiated. In the case of longer-term fixed-price contracts, t|iejre is

a possibility of what I would describe as unilateral cost avoidance. Savings would be realized by the contractor, but the contract's fixed-price structure has no mechanism to automatically pass along these savings to the government. In these unilateral cases, we would seek consideration — cither nonmonetary or as adjustments to the contract prices. ^^^^^^^^hm Thirdly, I wish to minimize the cost of implementation. We could go through a very cumbersome procedure to implement this change. I have asked this be done on a[n] expedited basis. We will not spend months having detailed cost proposals prepared, audited and negotiated unless the initial review by an administrative contracting officer indicates that the possibility exists for substantial unilateral savings after the contractor transition costs and the government administration costs are considered. We expect the number of these unilateral savings cases to be few.

ourthly, we want to protect the in

terests of the principal stakeholders in this process — the individual program managers who may be affected and the individual program teams who are operating in a given facility.

We will be using an integrated product team approach to make a block change for modifying the specifications and the standards for all existing contracts on a facilitywide basis rather than on a contract-by-contract basis. Here, really, the issue is you can't make a contract-bycontract change for a facility that has many contracts. You have to try to go through a set of common processes across the whole facility.

Our goal here is to consolidate or eliminate multiple management and/or multiple manufacturing processes when they're not needed. These multiple processes add unnecessary costs to the goods and the services that are purchased by the department.

Let me give you my frame of reference here. About a year back, we commissioned a study conducted by Coopers and Lybrand [accounting firm]. They looked to see what were the added costs of government-unique requirements — imposed by the DoD on our major contractors

,r~frosts above wtet MMOuld be imposed by normal com

"• --. ; 1 v~'P V.. :JT?. » r