own. We will hear about many of these constructive changes from our witnesses today. Taken together, the improvements we have made in acquisition laws, regulations, policies, and practices appear to have made significant headway in changing the procurement culture, which has often been criticized for doing things by vote, even when they do not make sense.

We have reason to be proud of these achievements; but, at the same time, we cannot afford to rest on our laurels. More work remains to be done, both to institutionalize acquisition reform and consolidate the gains we have made, and to ensure the broad, new authorities we have created are not abused.

Mr. Chairman, I commend you for scheduling this hearing, and I look forward to the testimony of our witnesses. [The prepared statement of Senator Robb follows:]

PREPARED STATEMENT BY SENATOR CHARLES S. ROBB

Mr. Chairman, it is a pleasure to join you for this morning's hearing on acquisition reform. Over the last 5 years, Congress has worked closely with the Department of Defense to streamline our acquisition system and make it more responsive to the requirements of today's commercial environment. As a result, acquisition reform is in many ways the success story of government reinvention and improved business management.

For our part, we have enacted three major acquisition reform bills-the Federal Acquisition streamlining Act, the Information Technology Management Reform Act, and the Federal Acquisition Reform Act. Taken together, these statutes have changed the landscape of the acquisition system by:

• making it easier for the contractors to sell, and for the government to buy, items that have already been proven in the commercial marketplace; establishing streamlined contracting procedures for purchases of $100,000

or less and so-called "micropurchases" of $2,500 or less; and

• changing the traditional, top-down regulatory approach of the acquisition system by giving greater discretion to program managers and contracting officials.

At the same time, the executive branch-led by the Department of Defense has moved forward with acquisition improvements of its own. We will hear about many of these constructive changes from our witnesses today. Taken together, the improvements that we have made in acquisition laws, regulations, policies and practices appear to have made significant headway in changing the procurement "culture"-which has often been criticized for doing things by rote, even when they don't make sense.

We have reason to be proud of these acheivements but at the same time, we cannot afford to rest on our laurels. More work remains to be done, both to institutionalize acquisition reform and consolidate the gains that we have made, and to ensure that the broad new authorities that we have created are not abused.

Mr. Chairman, I congratulate you for scheduling this hearing and I look forward to the testimony of our witnesses.

Senator INHOFE. Good. Since we have been joined by someone, in introducing him, I want to tell you about the most miserable day of my life, in 1976, when I scheduled to speak at an annual meeting of the American Conservative Union here in Washington. When I arrived, I looked at the program, and I was speaking between Ronald Reagan and Strom Thurmond. Do not ever find yourself in that position. [Laughter.]

So, we will recognize one of the truly great Americans of our time for his opening statement, Senator Strom Thurmond.

STATEMENT OF SENATOR STROM THURMOND

Senator THURMOND. Thank you very much.

Mr. Chairman, to save time, I will just ask unanimous consent that my statement be placed in the record.

Senator INHOFE. Without objection, it will be placed in the record.

[The prepared statement of Senator Thurmond follows:]

PREPARED STATEMENT BY SENATOR STROM THURMOND

Thank you, Mr. Chairman:

Mr. Chairman, I want to commend you for holding this hearing to review the Department's efforts to reform and streamline the acquisition process. Although Chairman Warner's reorganization of the Armed Services Committee's subcommittee structure has received a great deal of attention, the focus has been on the creation of the Emerging Threats and Capabilities Subcommittee. They have given almost no notice to the fact that the Readiness Subcommittee has assumed oversight of management support, which in my judgment, is an improvement over the old committee organization. Those who understand readiness also appreciate that readiness is closely linked to how we support the forces and how quickly and cost effectively we provide the new weapons systems and supplies to the troops so they have the means to fight.

It is common knowledge, that the management practices within the Department of Defense were arcane, wasteful, and not conducive to good business practices. The end of the Cold War and the searchfor the peace dividend forced the Department to either change its method of operating or face shortfalls in modernization.

Although the Department has made significant progress in modernizing its business practices, it did so only after a great deal of encouragement from the Congress. The fact that the Readiness Subcommittee is holding this hearing is an example of the keen Congressional interest in ensuring that the Department continues on its path of ensuring that its business practices is up to the excepted and effective standards of the commercial sector. Although we will never attain the efficiencies that the private sector motivation for profit has achieved, we must ensure that our Armed Forces are provided the best possible equipment, supplies and services for the taxpayers' dollars.

Today's witnesses, are at the forefront in the battle to instill cost-effective management practices into the Department's vast, but ever shrinking acquisition bureaucracy. I look forward to their testimony and assure them that we all realize how difficult the task is to reverse decades old practices. Despite the painful changes that we must undertake, it is the only way we can meet the challenges of the coming century and still maintain the best military force in the world. Thank you, Mr. Chairman.

Senator INHOFE. The same would go for our witnesses today. If you have a written statement, it will be made a part of the record. We would appreciate it very much if you would paraphrase you written statement.

We will start with Secretary Hoeper.

STATEMENT OF PAUL J. HOEPER, ASSISTANT SECRETARY OF THE ARMY FOR ACQUISITION, LOGISTICS, AND TECHNOLOGY Mr. HOEPER. Thank you, Mr. Chairman and members of the subcommittee, for this opportunity to discuss the Army's acquisition reform program.

I should say, as a summary, that we are making steady progress and that we are having good success. I should also say that, like you and the other members of the subcommittee, Mr. Chairman, we are very concerned about efficiencies and savings that we can get in acquisition and modernization programs, and that, as I am sure you understand well, we view modernization as part of readiness. Modernization is of course future readiness. Without modernization, there can be no readiness in the future.

As members of Congress, you have helped us enormously by changing laws to make the Department's acquisition system more

effective and more efficient. On behalf of the military and civilians of our Army acquisition work force, I thank you. Your legislative reforms came at a critical time. Our modernization budget was drastically reduced below the levels at which we could maintain our aging equipment, let alone modernize it with information technology upgrades.

As our budgets reduced and the Federal Government was no longer the principal buyer in many key technology areas, we found that our traditional procurement methods were inadequate for effectively addressing the commercial marketplace. In response to these and other challenges, the Congress and the Defense Department forged new understandings that, in turn, have created an environment receptive to positive change.

The Army has had much success with acquisition reform. Now, in addition to this, we are turning to logistics reform and focusing on the entire life cycle of our weapon systems and equipment. The Army logistics function is now combined with acquisition in my shop. This enables us to focus on the total cost of ownership, including acquisition, maintenance and sustainment. We expect these reforms not only to save us money, but also to allow us to get more reliable equipment to the soldier faster and at the lowest total cost possible.

Let me briefly tell you how your changes in the law have helped us to institutionalize a number of critical changes. In 1991, the Defense Acquisition Work Force Improvement Act (DAWIA) mandated that we increase the standards for educating, training and developing our acquisition professionals. As a result, we now have the Army Acquisition Corps that develops our senior personnel, and sets a high standard for the education and training of our entire acquisition work force. Of particular note, the Army now holds joint promotion boards to select new program and project managers from a talent pool that includes both civilian and military candidates. This is making a great difference, and we thank you.

Senator INHOFE. Which Act are you referring to now?

Mr. HOEPER. The DAWIA Act. Basically, the Act allowed us to begin replacing oversight with insight. You have mentioned that in your opening remarks.

In 1994, the Federal Acquisition Streamlining Act raised the simplified acquisition procedures threshold to $100,000, establishing at the same time a preference for buying commercial items, and encouraged an open dialogue with industry, increased emphasis on past performance, and streamlined the protest process. We have created a past performance database, and use it in all best value contracting. We are increasing using creative procurement tools, such as alpha contracting, pre-solicitation conferences, and sources sought announcements, to spur collaboration with our industry partners.

We lead the Federal Government in the use of the alternative disputes resolution process. In fact, we have cut protests in half, from more than 400 to less than 200.

In 1996, the Klinger-Cohen Act, among other things, repealed the Brooks Act. This legislation further empowered Army acquisition officials to make good procurement decisions, raised the simplified acquisition procedures threshold up to $5 million for the competi

tive acquisition of commercial items, and provided the encouragement to continue streamlining our acquisition system.

In response to your actions, we have participated in revising Parts 10, 12, 13, and 15 of the Federal Acquisition Regulation. With each of these changes, we have further enabled our professional work force access to the marketplace in ways that emphasize efficient operations, effective partnering, and, ultimately, outcomebased solutions. We now design our weapons with more modular components that enable us to keep up with technological advances and foster competition, especially within the commercial sector.

In addition, we are rapidly making the Army contracting and acquisition process paperless. We have instituted metrics that measure our efforts to reduce the acquisition cycle time, the spare parts delivery time to the soldier, and many other items.

The Army leads the Federal Government in the use of the commercial purchase card. More than 95 percent of our purchases under $2,500 are now made with this credit card. This allows faster receipt of goods, more reliable payments to our vendors, and allocation of our professional work force to do more complex procurement actions.

We have created a modernization through spares program that already has reduced system maintenance costs, and allowed insertion of needed technology improvements. The Army pioneered the Single Process Initiative, and continues to work with our industry partners to simplify manufacturing processes and eliminate burdensome, government-imposed standards.

We have begun several pilot programs that expand on the prime vendor concept. We are studying more than 50,000 positions for competitive sourcing. We continue to improve the quality, education and career development of our acquisition work force.

Senator INHOFE. Secretary Hoeper, let us try to expedite your opening statement here a little bit.

Senator THURMOND. Mr. Chairman.

Senator INHOFE. Yes, sir.

Senator THURMOND. If you will please excuse me, I have to go and open the Senate. I would ask that my questions be answered for the record.

Senator INHOFE. All right. Well, I may even ask them myself, Senator Thurmond. Thank you.

Mr. HOEPER. Let me just close by saying that, in the same spirit of cooperation that created previous acquisition legislation, we would like to request additional authority from the Congress to continue our work and our progress. Our first priority is renewal of base realignment and closure authority to modernize and sustain our fighting force. Since the end of the Cold War, Army force structure has been reduced 40 percent, but our infrastructure has declined only about 20 percent.

Second, we would like an increase of current reprogram authority from the threshold currently of $4 million in the research and development, and $10 million in procurement established 15 years ago. These thresholds have not kept up with inflation, and we need this flexibility.

Third, we would like to see made permanent the current $5 million threshold for use of the simplified acquisition procedures when pursuing competitive commercial procurements.

Last, we seek your assistance in expanding the range of contract incentives that we can offer to industry. In the past, price and schedule incentives have enabled us to reward motivated contractors. But new incentives authority can help us develop novel contracts that might require no up-front government investment. This concludes my statement, Mr. Chairman. Thank you for your patience.

[The prepared statement of Mr. Hoeper follows:]

PREPARED STATEMENT BY HON. PAUL J. HOEPER

INTRODUCTION

Mr. Chairman and Members of the Committee, thank you for the opportunity to appear before you to discuss the status of acquisition reform initiatives in the United States Army. It is my privilege to represent the Army leadership, the civilian and military members of the Army acquisition workforce, and, most importantly, the soldiers who rely on us to provide them with world-class weapons and equipment to fight and win our nation's wars.

America's Army is the finest land combat force on earth. We are very proud of our soldiers and what they accomplish every day in countries all over the world. We thank you for your help and support in equipping them to do their jobs. As representatives of the American people, you have strongly supported our programs and guided them to fruition.

It is imperative that we sustain modernization. If not, our technological advantage over potential adversaries will diminish over time and increase the risk to our soldiers. Continuous modernization is one of the keys to dominance on the future battlefield and the key to readiness for unexpected challenges of the 21st Century.

THE MODERNIZATION CHALLENGE

While modernization funding for fiscal year 2000 remains relatively flat, the budget stems the decreases in modernization that began 14 years ago. In 1985, we spent almost $32 billion for modernization; by 1998, we were spending just $12 billion. Part of that decline reflects our decline in force structure. We've reduced the force by nearly 40 percent, but our modernization accounts have fallen by almost 65 percent. In fact, the fiscal year 1998 budget funded Army procurement at its lowest level, in real terms, since 1960. The fiscal year 1999 budget broke that trend by adding an extra $1.3 billion for modernization, increasing the total to $13 billion.

The fiscal year 2000 budget not only maintains that level of funding, but also takes pressure off the modernization account by providing increases in the accounts for readiness, base operations, and real property maintenance. Shortfalls in these accounts often turn modernization into the bill payer for near-term requirements. Funding challenges have forced us to either reduce the quantities of systems or stretch our programs to great lengths or both. These actions raise unit costs and further delay modernization. In many cases, we maintain our procurement programs at minimum sustaining rates rather than more efficient economic rates. Add to this the fact that our weapon systems are aging because we have not modernized them as quickly as we should have. When coupled with the Army's increased operational tempo over the last decade, increased maintenance is required in order to avoid degradation in operational readiness. More maintenance means increased operations and support (O&S) costs. The increased O&S costs mean less money for modernization. Dr. Jacques Gansler, the Department of Defense's (DOD) Under Secretary of Defense for Acquisition and Technology, has appropriately called this the "death spiral." It is a trap. With the Abrams tank, for example, we find ourselves struggling to sustain and recapitalize it while, at the same time, we are trying to develop its replacement, the future combat vehicle/future combat system.

ACQUISITION REFORM

Acquisition reform is absolutely critical to our modernization program and the future readiness of the force. Efficiencies within our own operation produce savings, in some cases substantial savings, to reinvest in modernization. For example, we