The DOD's in-house labs can be justifiably proud of the role they have played in recognizing, sponsoring, developing, and delivering the technological winning edge to our warfighters. But global political conditions, the global market place and the U.S. defense industry have changed dramatically in recent years and the labs need to change as well. The Department needs to reduce the size of its infrastructure, including acquisition infrastructure, consistent with reductions that have occurred in force structure since the end of the Cold War. Given current and foreseeable budget levels for defense and the demands placed on today's force while we transition to tomorrow's force, we must improve the effectiveness and efficiency of our RDT&E infrastructure work force, facilities and equipment.

Section 912 of the fiscal year 1998 Defense Authorization Act tasked the Secretary to provide a plan to streamline acquisition organizations, workforce and infrastructure. Because labs and test centers are a prominent part of the acquisition infrastructure, both through the development of technology and provision of matrix support for Program Managers in the procurement process, they have been the subject of intense review in the Section 912 process. Metrics were established which call for a 25 percent reduction in infrastructure cost by 2005. The military departments are currently finalizing their plans for achieving these reductions.

Changes are necessary and appropriate, but they must not compromise the ability of the labs to accomplish their technology mission. Most importantly, we must recognize the difficulty of attracting and keeping the best and brightest scientists and engineers in the midst of severe downsizing. With downsizing of our laboratories, there are fewer openings. Without an influx of new scientists and engineers we are at risk of not staying current with the cutting edge. In the midst of a booming economy, we find it difficult to compete with industry for the younger engineers. Thus, as part of the 912 study, the Department is also investigating initiatives to attract, develop, reward and retain technology leaders.

Against the backdrop of streamlining, the laboratories still require the tools to perform their mission. In that regard, the National Defense Authorization Act (NDAA) for fiscal year 1996, Section 2892, modified the minor military construction authority, provided under 10 USC 2805, to establish the DOD Laboratory Revitalization Demonstration Program. In particular, Section 2892 raised the threshold for unspecified minor construction projects for which operations and maintenance funds may be used from $300,000 to $1,000,000 and provided for a test period of 2 years. In the NDAA for fiscal year 1999, this authority was extended for an additional 5 years and is available for test facilities as well.

Section 2892 was a response to the need for laboratories to reconfigure their assets quickly so that they can respond rapidly and efficiently to RDT&E needs and exploit opportunities and discoveries. For such occasions, a multi-year advanced planning cycle is not appropriate.

A report on the Program was issued to the Congress in April 1998, describing the experience of the Program over a test span of essentially 18 months. During that period, 22 projects totaling about $17,700,000 were executed or planned by the three military departments on high impact laboratory needs.

This authority is particularly important in view of the advanced age of many of the Department's lab and test assets. According to data collected for fiscal year 1996, the original cost asset value of lab and test buildings was approximately $8B, whereas the investment in new plant was about $217M, which equates to a replacement cycle of about 40 years.

DOD TEST AND EVALUATION INFRASTRUCTURE

In order for the Department of Defense (DOD) to support its test and evaluation (T&E) functions it creates, operates, and maintains some of the most complex, technically sophisticated, and largest facilities in the world. In spite of the large areas and complex technologies involved, the facilities of the Major Range and Test Facility Base (MRTFB) provide T&E services at a cost that averages about 4 percent of total program development costs. Test and Evaluation is 1.6 percent of all DOD infrastructure costs. The MRTFB includes T&E facilities that encompass 21,000 square miles of land, 243,000 square miles of water surface, and 221,000 square miles of air space indispensable and irreplaceable resources. These facilities represent a capital investment of close to $30 billion and employ close to 48,000 military, government civilian, and contractor personnel. They are supported by annual institutional funding of approximately $1.2 billion and customer reimbursements of about $1.5 billion. The Department invests about $500 million each year in their recapitalization and modernization.

As we strive to accomplish the T&E mission and contribute to modernization for future readiness, we face a dual-faceted challenge. On one hand we are working

within the diminished modernization budget, including less resources for test as well as less investment dollars for enhancing T&E capabilities. On the other hand, the Department's strategy increasingly relies on the fielding of fewer, but more capable systems-systems that are inherently more sophisticated and complex-with greater technical challenges to manage and which stress our current test capabilities.

Consistent with, but not proportional to, overall reductions in the Department, we have reduced numbers of facilities, institutional funding levels, and personnel numbers. But these steps are not objectives in themselves. Our metrics should focus on reducing the cost and time to test programs and the cost to own and operate our T&E infrastructure. We have reduced institutional operating funding for the MRTFB by 27 percent since fiscal year 1990, but since in many locations a result has been that some increased costs have been passed on to our customers, the weapons systems program managers, the magnitude of this reduction may be meaningless. Reducing the numbers of the government T&E workforce is not helpful if processes are not put in place to enable testing with fewer personnel. Otherwise we merely shift the workload to a contractor workforce with no guarantee that costs will be reduced.

The composition of our T&E workload has changed since fiscal year 1990 with less of the work directly related to new acquisition programs, but increasingly for quality assurance, maintenance, and surveillance of existing and aging systems. Nevertheless, we do have excess infrastructure including many duplicative facilities once built to meet the unique requirements of specific weapons system programs. Four rounds of Base Realignment and Closures (BRAC) have led to a significant number of closures, consolidations and realignments, to be completed by fiscal year 2001. While we are committed to retaining our critical land, sea, and air space, we have not achieved the last of necessary reductions in test facilities particularly, the elimination of old, high-maintenance, and inefficient facilities and their associated costs. While retaining critical capabilities for the future, we simply cannot afford to spread our limited resources too thinly.

Meanwhile we must enhance the productivity of our assets. It often takes investment, however, to enhance productivity. Most of our test facilities were built in the early stages of the Cold War. More than two thirds of the infrastructure is over 30 years old with the average age being well over 40 years. During the last 20 years, DOD's investment rate for the T&E facilities had been less than one third of the rate of investment in private industry and an order of magnitude below the investment rate for high technology industries. At the same time, T&E investment funding is down more than 33 percent since fiscal year 1990 and I am not optimistic for future increases. Yet investments must be made to:

• Address testing of new technologies such as smart weapons, low observable systems, complex electronic systems, and space systems. Today's weapons employ technology that was virtually unknown at the time most of our test capability was established and much of it is unsuited to today's needs. • Replace outdated technology and single Service approaches with state-ofthe-art instrumentation and facilities that satisfy joint Service needs.

• Replace inefficient, labor intensive T&E resources with modern, cost effective capability.

The impact of inadequate investment in test capabilities is reflected directly in our ability to affordably modernize the forces.

On the other hand, with properly focused investment in test facilities, we are achieving some significant successes through recently fielded systems that have increased both the effectiveness of our testing and its efficiency.

It is compelling for DOD to sustain its ability to adequately test while reducing both the costs and time associated with this vital mission. In order to achieve that goal we will need to reduce old, inefficient facilities, lower manpower associated costs, improve our test and business processes, and focus our investments both to meet the testing needs of emerging technologies and complex weapons systems and to enhance productivity.

OTHER LEGISLATIVE PROPOSALS

The Department proposes to amend sections of Title 10 of the United States Code. If approved, these proposals will enhance installations' management.

We are requesting several changes that will bring sections of Title 10 that apply to the Reserve Components into conformance with sections governing the active components. For the Reserves, we are asking for changes to existing language to specify that operation and maintenance funds can be used to carry out an unspecified military construction project intended to solely correct a deficiency that is life,

health or safety threatening. We are also asking that the Reserve Components be able to use military construction funds for design. This is particularly important to enable the Reserves to use available MilCon resources to design projects that were added by the Congress to the President's budget.

FACILITIES STRATEGIC PLANNING

The DOD invests billions of dollars each year to acquire, construct, operate, maintain, repair and dispose of its physical plant. These assets are essential to readiness and operations, because military forces cannot train or perform missions effectively in the absence of highly capable facilities. In the past, the Department lacked a consolidated long-range plan for its facilities, instead often relying on stand-alone programs oriented around specific appropriations, military services, facility types or locations.

To improve this situation, we are working to create an initial Defense Facilities Strategic Plan as well as a process for reviewing and renewing the plan regularly. We have created an inter-Departmental working group to develop the plan and are using the DOD Installations Policy Board for review and oversight. Our goal is to establish a process where plans, programs, and initiatives are integrated with a DOD vision, mission, goals, tools, resources and metrics. We have developed a framework for the plan and merged existing initiatives with the framework, and are in the process of finalizing this initial plan. We are also beginning the process of developing new initiatives within the context of the plan. We intend to correlate the plan with other defense planning documents and update it every other year.

The Department is making good progress on its ongoing initiatives under the strategic plan. Among these initiatives, which I discussed earlier, are plans to upgrade barracks, privatize family housing, and accelerate demolition and disposal of obsolete buildings. Other efforts, such as privatizing utility systems, more competitive sourcing for facility requirements and developing a facility aging model, are well underway with positive results starting to show. In the near future, we will undertake several new initiatives within the context of the strategic plan. These new initiatives include increasing Federal joint use of facilities, improving real property reporting systems, and an assessment of the various facility condition assessment systems in place within the Department.

The result of our emphasis on such initiatives will be significantly enhanced management of and planning for the Department's investment in its facilities. Our continuing efforts to develop and effect a Facilities Strategic Plan will greatly help us determine the right size of the defense plant account, the right quality of our facilities and the right resources to satisfy requirements.

CONCLUSION

This concludes my prepared testimony. In closing, Mr. Chairman, I sincerely thank you for giving me this opportunity to describe our installations' and facilities' programs and for your very strong support for military construction and real property maintenance. I urge you to approve the budgets we have submitted and the legislation we have proposed.

Senator INHOFE. Thank you, Mr. Yim.

I notice there are several other members at the table and, while we will direct our questions to the four witnesses, you can pass them on as you wish to others who are participating. Secretary Apgar.

STATEMENT OF HON. MAHLON APGAR IV, ASSISTANT SECRETARY OF THE ARMY FOR INSTALLATIONS, LOGISTICS AND ENVIRONMENT, ACCOMPANIED BY: MAJ. GEN. ROBERT VAN L. ANTWERP, JR., U.S. ARMY, ASSISTANT CHIEF OF STAFF FOR INSTALLATION MANAGEMENT, DEPARTMENT OF THE ARMY

Mr. APGAR. Thank you, Mr. Chairman, distinguished members of the committee. It is an honor to appear before you to discuss the Army's budget request for the fiscal year 2000 Military Construction program. With me today is Major General Robert Van Ant

werp, the Army's Assistant Chief of Staff for Installation Management.

This is also my first appearance before this committee since my confirmation hearing last June, and on a personal note, I am pleased to report that since then my daughter has continued our family tradition of the citizen-soldier as an Army ROTC cadet.

I am committed to working with this committee on the challenging issues we face, and I hope that you will call me at any time with concerns or questions you have about any of our policies and programs.

Our combined written statement provides in-depth details of the military construction budget request. The budget represents a balance among Army objectives for readiness, modernization and quality of life, and continues to support our highest priorities: barracks and family housing, strategic mobility, Reserve component construction, and base realignment and closures.

With your permission, I will submit the full statement for the record and in these brief comments highlight the Army's housing privatization initiative, because this is a major administration priority, but it has been the subject of some misunderstanding and concern in recent weeks.

The Army's family housing situation is extremely serious—a huge backlog of substandard houses to be renovated and maintained and a substantial housing deficit, especially of three and four-bedroom houses for junior enlisted soldiers. In tackling these problems, we also hold to a firm institutional ethic of revitalizing and sustaining Army family communities on post.

Last June this committee asked me to look at the housing situation as soon as I took office. My first step was to visit Forts Carson and Lewis, and subsequently have visited six others, to see the problems first-hand through the eyes of soldiers and their families and gauge the concern and the interests of the local commands.

Frankly, as a professional from this industry, I was appalled at some of the conditions I saw. But I was also impressed with the understanding and dedication of the troops and the resolve of local commanders to help them. Therefore, our office mustered a task force of both internal and outside experts to shape an aggressive strategy, and we have pressed forward in the past 7 months with real urgency and the strong support of the Department's civilian and military leadership for rapid action.

Our strategy is two-pronged: attracting private capital to fund housing improvements with the leverage that Mr. Yim highlighted; and enlisting private enterprise to revitalize our residential neighborhoods. Capital alone is not enough. We need to engage what I would call the four E's of the world's most creative and effective homebuilding and real estate industry, namely the entrepreneurship, the energy, the efficiency, and the expertise they can bring to bear.

That is why we renamed our housing privatization program last fall from CVI, or Capital Ventures Initiative, which focuses on financing, to RCI, or Residential Communities Initiative, which better describes our overriding goal, to enhance the quality of life for soldiers and their families by creating and sustaining attractive, affordable residential communities on Army installations.

The RCI strategy is designed to maximize the Army's advantage of scale by using the housing privatization authorities Congress has given us to the fullest possible extent to create a major new market opportunity for the industry on whom this program will depend, and at the same time to mobilize support for privatization, because it does represent significant change both in the industry and in the Army to increase our chances of success.

RČI will cover nearly all family housing in the U.S., 85,000 units at 43 installations, by fiscal year 2005. In parallel, we will redistribute available funds to support housing revitalization in overseas locations where the needs are acute but the legislative authorities do not apply.

To achieve this goal, we are pursuing three major changes in policy and practices. First, our basic business focus is shifting from housing production to community development. The centerpiece of RCI is the neighborhood, not housing units, but homes clustered in neighborhoods that are safe, clean, and convenient with the features and amenities enjoyed by the majority of Americans in their neighborhoods, such as nearby recreation facilities, community centers, landscaping, and the like.

The second change is shifting our business relationships from contractors to partners. Contractors, as the name implies, are in the business of bidding and executing contracts, and under traditional military construction the Army serves as the developer, providing the funds, taking the risks, issuing the contracts with construction firms. When the houses are built, the job of those firms is done. The contractor leaves and the Army manages and maintains the completed project, often through a series of separate con

tracts.

In RCI, by contrast, the Army would partner with qualified private developers who arrange the financing from private investors, take appropriate business risks, bid the construction contracts, and manage the ongoing services, such as landscaping, building maintenance, and community facilities that are necessary to operate completed neighborhoods and communities.

The structure of these partnerships would be tailored to each situation, but typically would include a long-term ground lease or limited partnership and management contracts with specific performance measures that align the partner's goals with the Army's.

We are not inventing a new technique here. We are emulating what the private sector has pioneered in the past 30 years. In short, RCI uses the housing privatization authorities from Congress to leverage the creativity and experience as well as the capital of the development industry.

The third major shift, from procuring a contractor through request for proposals under the Federal Acquisition Regulations, to engaging a partner through a request for qualifications is a direct consequence of the first two changes. In an RFP, the Army and government, in general, details explicit requirements for executing a project and selects the contractor based on his proposal. The contractor cannot recommend changes to the project specifications until after the award. He cannot bring to bear his expertise in that process or his innovative ideas. Then he has no incentive to do so because the terms have been set and delays would ensue.