QUESTIONS SUBMITTED BY MR. HUNTER SHIFTING OF FUNDS Mr. HUNTER. Each Service has referred, either directly or indirectly to the so called "death spiral"-shifting funds from procurement accounts to finance operations and support costs. How does each propose to get away from this practice and when? Secretary HOEPER. Army Modernization funding shortages over the last 15 years have had a serious negative effect. Aging of critical equipment, production buys at or near minimum economic order quantities, and delays in technology insertion have increased maintenance costs and have decreased funds available for modernization. Some have dubbed this the "modernization death spiral." To reverse this trend and create what we have termed a "success spiral," we have developed several excellent initiatives that provide new ways of managing our systems and components. Examples include: The Modernization through Spares program; the merger of acquisition and logistics policy into one office; Program Manager (PM) responsibility for Total Ownership Costs; PM execution of Cost as An Independent Variable (ČAIV) and baselining of weapons sustainment costs and cost reduction plans; Total Ownership Cost pilot programs; prime Vendor pilot programs; the Army Materiel Systems Analysis Activity's tool kit for operating and supply cost reduction; new policies on the sale and exchange of property; the Commercial Operations and Support Saving Initiative (COSSI); and Operations and Support Cost Reduction (OSCR) programs. While many improvements have resulted from these initiatives, much more remains to be done. Our newest initiative to create a success spiral will focus on a concerted effort to manage reliability growth. Longer lasting spare parts will reduce maintenance labor and other costs, reduce inventories, and lessen demand for storage and transportation of spares. Reliability growth will increase available resources for equipment modernization, reducing the impact of aging equipment and further reducing maintenance costs To achieve increased reliability, both in new systems acquisition and in legacy system management, we will focus increased attention on total ownership costs. We will change the historical paradigm that relied on the instant contract's cost as the primary concern. Use of tools such as "physics of failure" analysis, commercial parts acquisition, modular design, and most of all, a strategy of competition, will yield the objective results. To assure success, I have requested that all Army project managers, for both new and legacy systems, now integrate Total Ownership Cost analysis and decision-making into their key management practices. Exceptions will require the approval of a General Officer or member of the Senior Executive Service. Secretary BUCHANAN. Our First priority has been to attempt to minimize the impact of contingency operations. Beginning in fiscal year 1998, funding has been included in DOD budget requests for anticipated overseas operations. Additionally, as a result of Congress' timely Supplemental Appropriations, we have not had to absorb significant costs in recent years due to unanticipated contingencies. Second, we have worked hard to make our procurement program more cost effective wherever possible. Accordingly, Navy is aggressively pursuing legislative approval of a multi-year procurement contract in the F/A-18E/F program, as well as most economic buy rates for programs such as the MV-22. Third, by designing in reduced manning into our new DD-21 and CVN(X) classes of ships, and reduced maintenance in our F/A-18E/F and JSF aircraft, we believe we will achieve substantial life-cycle cost savings in the future. While we continue to look for initiatives that will help us to cut costs, newfound efficiencies have not kept pace with our requirements. Our aging force is working against us in this respect as older ships and aircraft require more maintenance and repairs. The CNO has testified that we need $6B per year above the President's FY99 Budget Levels across the Future Years Defense Program, excluding pay and retirement benefits, to ensure our readiness accounts are funded properly, and modernize and recapitalize the fleet for the 21st Century. |