DEPARTMENT OF THE AIR FORCE

PRESENTATION TO THE

SUBCOMMITTEE ON ACQUISITION AND TECHNOLOGY

SENATE ARMED SERVICES COMMITTEE

Good morning, Mr. Chairman and members of the committee:

Thank you for this opportunity to appear before you to discuss the Air Force's initiatives and future in the area of acquisition reform. Our challenge in today's acquisition environment is clear. We must maintain our readiness and technological superiority. At the end of the Cold War we appropriately began a reduction in a manner which would appear that the modernization account was being reduced proportionate with Air Force TOA. However, the FY99 Modernization Account as a percent of Air Force TOA, which is currently 32.9%, is still near the lowest point ever--31.6% in FY98. Further, it is below the FY75 former low of 33.3% realized during the "hollow" forces of the 70's. At the same time, we are faced with a growing list of aging and obsolete systems; an OPSTEMPO about four times what it had been during the bipolar world of the past; and an acquisition workforce that is being "rightsized" for the future. We must continue to deliver effective weapon systems and services at an affordable price using the most efficient processes possible. The imperative to reform how the Air Force does business has never been greater.

Modernizing our warfighting forces is a top priority and we are doing this while we reduce the cost of doing business. I see acquisition reform as one enabler that is making this happen. Acquisition reform has allowed us to get more for our modernization dollar -- translating directly into more operational capability for the warfighter. The savings we harvest from embedding acquisition reform in each of our programs and processes will be essential if we are to pay for our aerospace forces of tomorrow.

However, downsizing the acquisition workforce and reforming our business practices will not be enough to fuel our modernization program. We also need to revisit prior efforts taken to reduce the cost of the defense infrastructure if we are to achieve our procurement targets. Each budget year, we are forced to migrate investment funds to pay increasing operating costs to support an infrastructure which is no longer proportional to our force structure. During the FY98 budget process for example, the modernization account lost approximately $750 million to offset excess operating costs. The dollars expended to carry this excess infrastructure capacity could instead have been invested in Air Force modernization. We will need the support of the Congress to implement DoD's recommendations on infrastructure sizing.

As we addressed to you last year we are attacking the challenges of sustaining, and accelerating, Air Force acquisition reform. We are changing the culture within the acquisition workforce. The emphasis is to acquire all products used by the Air Force "better, faster, cheaper" by employing "best value" procurement practices. Virtually every new acquisition program is taking advantage of commercial practices by altering its strategy toward commercial off-the-shelf technology, commercial specifications and standards, privatization, competition, and contractor system responsibility. Through recent initiatives in streamlining, teaming, and innovative acquisition strategies, we have realized $7.1 billion in savings from previously budgeted funds and $11.8 billion in cost avoidance. Our newer efforts focus on continuous process improvement and establishing strategic steps to ensure that acquisition efficiency becomes the norm. To accomplish our objectives, we will continue to advance the professional development of our acquisition workforce by providing quality continuing education and training

Today's Air Force Acquisition Reform:

A Successful Start

The Department has many success stories. Over the past year, the Air Force has continued to accelerate its reform efforts. I want to share with you some examples of programs that have embraced acquisition reform and produced what all of us want -- better systems delivered to the warfighter faster with cheaper program costs over their entire life cycles. The following examples will give you an idea of how our innovative and enthused program managers are working and actually teaming with their cooperative and success-oriented partners in industry.

The Airborne Laser (ABL) program continues to shine in its acquisition reform initiatives. As most of our programs today ABL's current Program Definition and Risk Reduction (PDRR) contract mandates no Military Specifications (MILSPECS) or Military Standards (MILSTDS) and only a minimal number of data deliverables. The Air Force and contractor program management team rely instead on a shared joint electronic database for timely and accurate information. The ABL program office has formed with its prime contractor, the Boeing/TRW/Lockheed-Martin team, fully integrated product teams to jointly manage the contract work. Such combined AF-industry teams are one reason the government's program workforce can be kept small in size - 77 people vs 200-300 in comparable program offices of yesterday. The aircraft is paid for using a "first-of-its-kind" voucherless electronic funds transfer process, both saving personnel costs and stepping up to one of the challenges of Vice President Gore's National Performance Review (NPR) goals. The ABL program illustrates our commitment to effective life cycle cost management. Over $500 million was saved in ABL's life cycle cost decision to use a new 747 for the PDRR ABL, as opposed to a used aircraft.

The Joint Air-to-Surface Standoff Missile (JASSM) team's implementation of Cost as an Independent Variable (CAIV) has been demonstrated with the reduction of the estimated average unit production price for a missile by over 50%, well below the Operational Requirement Document (ORD) objective. Success was achieved chiefly through identifying non-tradable key performance parameters, making smart trades of other requirements influencing the design and allowing the contractor to control the system performance specifications. In addition, a new approach to subcontracting -- co-contractors -- is influencing cost. Subcontractors are treated as co-contractors by choosing them early, making them partners in the design process, establishing long term, collaborative relationships, and negotiating work share with the prime. Several programs are moving beyond the highly effective management practice of teaming to what is referred to as Total System Performance Responsibility (TSPR). This integrates a program's activities into a highly efficient operation between the Air Force and the contractor. In the case of the Advanced Medium Range Air-to-Air Missile (AMRAAM) the program office worked out a "Total Package Deal" with its contractor. The Deal transfers certain government activities to contractor control in exchange for a long-term agreement to produce AMRAAMs at ever decreasing unit prices. This "Deal" has resulted in an estimated savings of over $500 million.

Likewise the F-117 Stealth fighter program team currently is negotiating a contract to provide the contractor total responsibility of the depot-level acquisition and sustainment management of the F-117. The contract, highly incentivized, will encourage additional contractor productivity initiatives. These efforts allow for a 75% reduction in the program office size. The manpower savings combined with the projected Operating and Support savings are estimated to be $170 million.

Similarly we have restructured our management approach for sustaining our intercontinental ballistic missile (ICBM) force. This new management philosophy changes 40-years of the government acting as the single integration manager. By consolidating over 30 engineering services contracts and reducing the program office size by one-third the Air Force will save nearly $1.5 billion over the life of the contract with no reduction in the performance or readiness of the ICBM force.

In addition to the teaming efforts with our industry partners, we continue to take major steps in embracing commercial practices within several programs. A truly successful enterprise is the International Merchant Purchase Authorization Card (IMPAC), a government-wide commercial credit card used to buy supplies and services costing less than $2,500. Ninety-one percent of eligible Air Force purchases made in the first quarter FY98 were with the IMPAC, exceeding the DoD NPR goal of ninety percent. The Air Force Logistics Management Agency recently provided statistics showing a savings of $15.05 per card action compared to the standard small purchase buy processed through Supply and Contracting. For FY97, this represents a total savings of $16.4 million. Equally important, the use of IMPAC has significantly reduced the cycle time of the customer making small purchases. Now purchases that once took 15 to 30 days can be accomplished in only 1 to 2 days.

Lastly, I'm delighted to report that we streamlined the acquisition practices that will provide airlift support to the various Congressional delegations and other Distinguished Visitors very soon. We commercially acquired the C-32A (Boeing 757-200) and C-37A (Gulfstream V) aircraft from Boeing and Gulfstream respectively. With few exceptions, commercially available designs, options, practices, and processes were used throughout the acquisition. Acquisition practices were simplified to mirror those employed in the airline industry with no significant unique requirements to accommodate the needs of the Air Force. Aircraft will be delivered FAA certified to the latest safety criteria and will include the latest commercially available navigation and safety equipment developed to commercial standards. The marketplace and the economic benefits gained from high volume production of similar items drove the price. The supportability package was designed to take full advantage of the worldwide Boeing, Gulfstream, and airline product support capability. No unique support structure was created to accommodate the Air Force's requirement. The first two C-32s are planned to be delivered to the Air Force in May and operational by July 1998.

These are only some of the examples of a continuously growing list within the Air Force. I am very proud of the widening trail of successes the Air Force Acquisition Team has blazed. We are now striving for every single member of the AF acquisition and sustainment community to commit to taking the personal initiative to approach all we do in a more consistent manner while reducing the time it takes to get it done.

Tomorrow's Air Force Acquisition Reform:

A Revolution in Business Affairs

I am interested in not simply sustaining the present pace of reform, but continuously striving to accelerate it. I want to move the Air Force culture beyond today where continuous improvement will be the benchmark by which we, our Sister Services, DoD, industry and the American taxpayer will assess our success.

Our ability to respond to future opportunities under tighter fiscal constraints requires that we become even more efficient and effective. A revolution in business affairs within the Air Force is essential. We must deliver better products and services to our customers by developing better tools, taking advantage of information technology, and exploiting the availability of commercial products. In addition, we must accomplish all this doing our part to reduce acquisition lead time. To do this, we must identify 'best practices' and seek new ways of doing business.

Our job in the acquisition community is to provide the warfighters with the effective weapons systems they need in the most efficient manner possible. Given today's fiscal environment, our challenge is to provide both adequate investment in modernization and in development of new capabilities to meet future warfighting requirements. To achieve this, we must continue and expand our efforts to implement a Revolution in Business Affairs (RBA) within the Air Force and our industry partners--thereby achieving the needed performance gains at far lower costs.

Realization of an RBA will transform acquisition and sustainment business practices and processes to deliver products and services better, faster, and cheaper. We are establishing a strategic business planning framework to identify our critical acquisition processes and restructure them as necessary to efficiently deliver superior capability to the warfighter. The focus of the framework will emphasize; (1) using "best value" procurement for all products and services, (2) exploiting new technologies in development, test, procurement, and sustainment, (3) increasing the use of modeling and simulation, (4) streamlining the financial management system, (5) emphasizing cycle time and life cycle cost reduction, (6) accelerating movement toward alignment with commercial practices, (7) getting the acquisition cycle within the technology cycle and (8) investing thousands of hours on training for in-house personnel and industry.

With today's declining budgets, it has become imperative that we find ways to shift our management focus towards the Total Ownership Cost (TOC)/Life Cycle Cost (LCC) of weapon systems as one of our major corporate decision drivers, achieving best value weapon system acquisitions. As a result, the Air Force implemented a LCC Reduction Tiger Team with Air Force-wide representation in September 1997. The drafted plan is extremely aggressive, covering the three major phases of the weapon system life cycle -- requirements, acquisition, and fielded systems. The team's initial focus puts in place the actions necessary to institutionalize the visibility and accountability of program LCC and sustainment parameters as major decision drivers in the Air Force decision process.

As we experience the RBA and divest ourselves of traditional military standards and specifications, we must be careful to not lose sight of DoD's new role in the "consumer marketplace." Participation in commercial (both national and international) standardization activities is a key element to enabling and expanding the use of commercial technology, processes, and products within the Air Force and the Department of Defense (DoD). The Air Force is currently working with the Defense Standards Improvement Council on how to more efficiently and effectively participate in commercial standardization efforts. New policies, procedures, and tools are anticipated to facilitate improved Air Force and DoD participation in commercial standardization activities.

As we embrace the RBA, we remain committed to reducing the size of our acquisition workforce. However, we will be significantly impacted if we implement reductions employing the definition used in the FY98 NDAA. This act sizes and reduces an Air Force workforce of 58,000 people. This 58,000 excludes all depot civilians, some of whom are actually performing acquisition functions, and includes base operating support personnel at AFMC locations who are not performing acquisition functions. Base operating support personnel are sized and programmed as a factor of the mission personnel they support, along with an "open-the-door" cadre for the installation. Base operating support personnel can not be reduced arbitrarily or one-for-one with mission personnel. Additionally, because all civilians at the depots are excluded from the legislated reductions (including those performing an acquisition mission), the Air Force must achieve all the legislated reductions from a smaller targeted Acquisition population of those who are performing critical Acquisition functions. The true Acquisition mission workforce is further impacted since the 58,000 includes other personnel that the Air Force cannot arbitrarily reduce due to legislation, such as the Defense Health Program, the National Foreign Intelligence Program, Special Operations Forces, Child Care, Foreign Military Sales, and military personnel. As we achieve improvements through the revolution in business affairs, the Air Force would like to make future cuts balanced across the acquisition workforce consistent with achieving maximum efficiency. The FY98 NDAA acquisition workforce definition does not allow us to make balanced cuts efficiently.

Apart from legislative reductions, the Air Force has reduced the size of its acquisition workforce through proactive initiatives aimed at increasing efficiency. Some of these initiatives include: consolidating laboratory functions into a single laboratory organization which when combined with prior laboratory reductions, reduces laboratory personnel by 30% (FY89-01); reducing program office size through acquisition reform initiatives by 42% (FY89-01); and retiring test aircraft to decrease maintenance and test mission manpower requirements. As part of a larger DoD effort, the Air Force continues to explore consolidation and merger of test ranges owned by DoD, other government agencies, and the private sector based on an assessment of best value to the Government. In response to the Quadrennial Defense Review, the Air Force is assessing those elements of base operating support and infrastructure that can be competed for outsourcing to private industry, allowing the re-allocation of funding to modernization efforts in FY00 and beyond. The Air Force is planning to compete over 60,000 positions in the FY1997-2001 period.

The Air Force continues to view contractor support as part of our total acquisition workforce concept. A key element of this contractor workforce is the Federally Funded Research and Development Centers (FFRDC). These centers provide critical systems engineering expertise in the areas of command and control (C2) and space. In these areas, the Air Force does not possess an indigenous organic system engineering capability. Since 1991, FFRDC funding has been reduced 32%. The FY98 Appropriations Bill reduced DoD FFRDC funding by $71.8 million; a $34.5 million reduction to the Air Force. These cuts have translated into reduced systems engineering manpower to support C2 and space acquisition programs, with no organic engineering workforce available to backfill shortages caused by FFRDC reductions. Since FFRDCs act as the Government's trusted agent, free from real or perceived conflict of interest, and because they possess a breadth and depth of technical expertise not found in private industry, the Air Force cannot substitute "for profit" companies to replace lost FFRDC capability. In areas where conflict of interest is not a concern, Advisory and Assistance Services (A&AS) contractors are used. They provide a wide range of contract services for Air Force acquisition programs spanning three major categories: management and professional support services; engineering and technical services; and studies, analyses, and evaluations. The FY98 Appropriations Bill also reduced DoD A&AS funding by $300 million; a $114 million cut to Air Force A&AS.

Congress has enacted legislation reducing Air Force organic workforce levels, FFRDC funding, and A&AS funding ­ all three elements of the total acquisition workforce. Acquisition Reform has, to an extent, helped the Air Force mitigate some of the effects of these reductions. However, with continued reductions across all elements of the total workforce, the Air Force will not have sufficient resources to effectively manage its acquisition programs.

Even with the savings offered by workforce reductions, we are still short of our investment needs. We must now address the resources expended on non-value added infrastructure capacity that could be applied to modernization. "Rightsizing" our infrastructure to reflect our present and future force structure must be vigorously examined and efficiencies exploited. We will need the support of the Congress to implement DoD's recommendations on infrastructure, including 2 more BRAC rounds.

Air Force Acquisition Reform Summary

We are now leading the Air Force as a Service to take the strategic steps to make sure acquisition reform becomes the "norm" and is instilled in every process we use as we go about all our daily activities. Establishing a rigorous, long-term, strategic business planning process will help us set our priorities and defines the path for future change. In order for these strategic goals to be accomplished, the Air Force acquisition team must share a common and consistent commitment to acquisition reform. I am certain that with vision, drive, energy, singleness of purpose, wise use of resources and commitment to our plan and planning processes, we can deliver our warfighters the systems they need and keep the ones we currently have in working order, meeting our requirements ­ better , faster , and cheaper.

As I stated earlier, I am extremely proud of the Air Force acquisition team's accomplishments to date. The challenge now lies in sustaining, and accelerating, Air Force acquisition reform. We are committed to providing our Joint Force Commander's with the best capabilities possible, in the shortest time practical, and at the most affordable price. Working together, partnered with the warfighter, industry, and the Congress as we execute this plan, we can and will succeed in moving the our air and space forces into the 21st Century.