program manager's full responsibility was the program that he or she was managing and we had a direct reporting line through a service acquisition executive to the Undersecretary of Defense for Acquisition. A much streamlined reporting channel, so that those people in that acquisition channel were not burdened down by other responsibilities, such as operating a base. We preset milestone criteria and determined that early on in the program so that if a system or a program reached a milestone, if it did not meet these present criteria, then, in fact, it could not go forward. Many programs fell by the way. And the biggest thing we accomplished was to discipline this approach so that, in fact, all of the prototypes, all of the testing, had to be in concert with this preset criteria. And I can tell you and I think you know how often a program would come up to a milestone and everyone would say, "Well, I know the prototypes were not completed or the testing did not turn out" and so forth and so on. But, you know, if we hold it up, we will be late. And there is a tendency, almost a proclivity on the part of people, to push it forward. Every time you run into a program in production that is in trouble, you go back and view it and the milestone criteria had not been met. So the biggest effort we put on it was to discipline that approach to it. NEW APPROACH TO ACQUISITION -Increased research on advanced technologies -Increased development and evaluation of technology demonstrators and proto- -Selected incorporation of advanced technology in existing weapons systems Now, based on the fact that we no longer are driven by this competitive technology, what we have done is take a whole new approach to acquisition, pull it back, put emphasis on the front end of it, on the research and advanced technologies, so that we always have at our beck and call the most advanced technology for weapons of the future. We would put increased emphasis on the development and evaluation of technology demonstrators, but would not necessarily go into production. At the risk of boring you, let me give you the situation on tanks. We have 8,000 tanks, proven just recently as the best tanks in the world. There is considerable life left in those tanks. With the downsized Armed Forces we have, those 8,000 advanced tanks are more than we need for any foreseeable contingency. Thus, there is no need to replace them. There is no need to rush into production on a block 2 or something further. Nevertheless, we continue the work on our prototypes and on our technology. We continue to work on new engines, new transmissions, new tracks, new armor, new fire control systems. We will build demonstrators and evaluate them, but not necessarily go into production until we are forced to. We would do selective insertion of this new technology into existing weapons when and only when the technology is proven out, when it is essential to improve the capability of performance or reliability of the existing weapon and when it is cost effective. We would produce limited numbers of new weapon systems, not just to have them, but to replace obsolete or wornout weapons; and at that time, to add to the force a new technology that is proven out. That is the basic approach to it. DEFENSE INDUSTRIAL BASE -Acquisition process to evaluate reconstitution needs -Critical technologies will be preserved -Over $50 billion will continue to be spent on procurement annually --Encourage commercial spin-offs from defense technology DEFENSE INDUSTRIAL BASE Now, the impact it has is on the defense industrial base. Quite obviously, we have today with the drawdown in Armed Forces more production capacity than we need. Furthermore, in the future, because we will not be building as many production systems, the rate of incorporation of new technologies will be lower. This says that, in fact, the acquisition process will lead to some serious concerns within the defense industry as to whether or not we would maintain a critical defense capability if we are asked to reconstitute it. For example, potentially having stopped the building of the SSN21-the concern about nuclear propulsion systems. Clearly a critical technology. We have underway a detailed study to determine what critical technologies we need to preserve in the face of declining production, and maybe even gaps in the production. I want to add here that we will be spending money for production. This budget, in spite of the new acquisition approach, has about $50 billion in it for production-production of what we need to replace older weapons, or weapons that are wornout, and to incorporate new technology where it is needed. So that in spite of everything, this is not an end of the world of acquisition. It does mean that we will spend more on research and development. And this budget proposes about $40 billion in research and development. Finally, we are concerned about the viability of the defense industrial base in total. Not just the critical technologies or the critical processes. We will be funding that. But we need a strong industrial base. We encourage the use of dual-use technology-technologies that are developed primarily for defense application. And it is my personal belief that as long as the name on the door says Department of Defense-as long as my title is Deputy Secretary of Defense, everything we do must in some form be geared toward defense application. But I think all of us know that there are few technologies that do not have a commercial application. And although we cannot fund them in the commercial world, we encourage all our contractors to take advantage of this dual-use technology-encourage them to use it for commercial applications. There are spinoffs we can take advantage of. DEFENSE MANAGEMENT REFORMS The last item I want to touch briefly on is one which-and I will not use a chart, if I could. Let me just talk about it a minute. And that is, the past 3 years, we have made a very concerted effort at changing the fundamental way we do business in the Pentagon. One of the most critical elements that I found in coming in is the lack of detailed, specific, accurate, timely, comprehensive data in order to make decisions. And as a result, we have done two things to improve that dramatically. We have concentrated and reorganized our finance and accounting systems to eliminate many of the duplications that have happened. With your approval, we have established a defense business operating fund which allows us now to keep track of our costs as you would in an ongoing business. This includes full costs, so that anyone running one of our bases or one of our depots has a full understanding of what the total costs are. Finally, in that area, we have coordinated and consolidated our data processing and corporate information management systems, so that we can eliminate many of the duplications that exist-nearly 30 different payroll systems, over 100 different inventory control systems, over 2,000 different base operating management systems. If you ran a company that operated that way, with 30 payroll systems, 100 different inventory control systems, and 2,000 different base operating systems, you would soon be bankrupt. We intend to eliminate all of that duplication. Coupled with that, we have made major shifts in how we are operating our supply depots, and significant reductions in our inventories and in the cost of doing maintenance. And we have taken further steps at consolidating our health affairs. I think Sean O'Keefe mentioned that-consolidating our commissaries, consolidating our intelligence operations, as well as our research laboratories. The savings which we have projected in this 6-year period are over $70 billion. That is a significant amount of money. We are today and I doubt that there are many organizations that can state it—at a head count of civilians, 85,000 fewer civilians in the Department of Defense than there were just 2 years ago this month. And all the while, conducted Desert Storm, Desert Shield, and all of the activities we are doing. And we are headed toward a civilian head count reduction which will exceed 200,000. Mr. Chairman, I have gone on long enough. Let me open it up to any questions you may have. [The statement follows:] STATEMENT OF DONALD J. ATWOOD Mr. Chairman, members of the Committee, thank you for this opportunity to discuss the Administration's fiscal year 1993 defense budget request. We meet at the dawn of what is unquestionably a new era for global security and for America. Gone not only is the Cold War, but also the former Soviet Union governmental apparatus and ideology that were our prime foes. In this new era, America's defense posture will be transformed. This will be as historic as the geostrategic changes that make it possible. The challenge facing our nation's leaders is to ensure that this is carried out wisely. Unfortunately, our nation has a discouraging track record when it comes to restructuring its military. We in the Department of Defense (DOD) look forward to working with this committee and the Congress to make sure that our 1990's transformation is one that will preserve the quality of America's military and support fully our nation's vital security needs. THE CHANGING INTERNATIONAL SECURITY ENVIRONMENT Global events in 1991 validated the favorable assumptions underlying the new U.S. defense strategy and force structure cuts approved by President Bush in 1990. The collapse of the Soviet Union confirms the shift of our strategy away from containment of communism and Kremlin-backed aggression. The end of the Warsaw Pact and communist rule in Eastern Europe enable a dramatic reduction in NATO force levels and U.S. troop strength in Europe. The rising support for democracy and capitalism around the world is improving prospects for greater international stability and economic progress. In spite of favorable developments over the past year, instability and regional conflicts remain a major potential security threat. The Persian Gulf War illustrated how U.S. military forces can prove decisive in protecting the vital interests of America and its allies. Of special concern for the future, a number of developing countries are acquiring improved conventional military capabilities, as well as weapons of mass destruction and accurate means of delivering them. Prudence demands that we recognize that future adversaries will be able to accumulate-as did Iraq-sophisticated weaponry that, if used effectively, could challenge U.S. military forces. In this changing security environment, U.S. leadership will remain uniquely important. We must continue to lead our allies and friends in the preservation of our shared values. A stable world order supportive of those values is still as essential to our well-being as it has been throughout this century. U.S. DEFENSE STRATEGY The past year's events confirm the appropriateness of the new U.S. defense strategy and its four main elements: Strategic deterrence and defense.-As a result of both arms control agreements and unilateral actions, the U.S. nuclear arsenal is shrinking substantially. But the remaining weapons must be kept modern and capable of deterring attack. Additionally, we must continue work on our Global Protection Against Limited Strikes (GPALS) system, to provide limited defense against ballistic missiles for the United States, our forward-deployed forces, and our allies. Regional instabilities and nuclear proliferation make the development and fielding of GPALS especially imperative. Forward presence.-To safeguard our global interests, U.S. military forces must continue to maintain a forward presence abroad. This serves to deter aggression, lend credibility to our commitments and alliances, enhance regional stability, promote U.S. influence and access, and-when required-enable us to respond to crises most effectively. The forward basing of forces and the prepositioning of equipment facilitates our projection of military power into vital strategic areas, when necessary. On the other hand, diminished global threats and increasing allied security contributions will allow us to withdraw some of our troops from permanent overseas locations and to reduce the size and frequency of our periodic deployments. Crisis response.-Ensuring America's ability to respond militarily to regional crises threatening U.S. interests is key to deciding on the optimum size and composition of our armed forces. Such contingencies are highly varied, and so U.S. forces must be versatile. They must be ready for deployment on short notice and be technologically sophisticated, to ensure them a decisive qualitative advantage in combat. U.S. forces also must be able to be deployed to distant regions rapidly; therefore we must continue to invest in prepositioning, airlift, and sealift capabilities. Reconstitution.—Should a global military threat someday return, U.S. defense strategy calls for our nation to be prepared to expand its military capabilities as necessary. This requires that we preserve those security components that would take the longest to resurrect, most importantly: our alliance structures, forward deployments, and arrangements for access to key nations and regions; the technological and doctrinal edge derived from vigorous research and development; our industrial base; and the high quality and morale of our military and civilian professionals. A NEW APPROACH TO DEFENSE ACQUISITION Positive changes in the global security environment make it possible and prudent for DOD to adopt a more appropriate, more economical philosophy for the acquisition of military goods. This new acquisition approach has two complementary aims. First, we must ensure that U.S. forces have military hardware that will give them a decisive advantage in combat with adversaries they would be most likely to confront in the future. Second, should a massive global military threat begin to emerge, we must be able to field the quantity and quality of weapons and materiel that would be needed for an expanded U.S. force structure to counter that threat. Past acquisition practices featured development and procurement of new systems as rapidly as feasible, so as to stay ahead of or keep up with a constantly modernizing Soviet military machine. To prevent hardware from being dated by the time fielded, we often stressed "concurrency"-meaning the pursuit of some phases of our acquisition process simultaneously, rather than sequentially. This sometimes caused new systems to exceed original cost estimates and be fielded before design or production flaws had been fixed. We also assumed that we eventually would produce nearly every system successfully taken through research and development (R&D). Defense firms carried out R&D with the expectation that they would realize a profit once they moved to full-scale production. This year's defense budget request is the first to reflect fully a fundamental departure from our earlier acquisition approach. The salient features of our new acquisition approach are: (1) Increased research on advanced technologies for application in military systems in the future; (2) Increased development and evaluation of demonstrators and prototypes using advanced technology; (3) Incorporation of advanced technologies into existing systems only when: the technology and associated subsystems are thoroughly tested and proven; there is a substantive need for improved performance or reliability; and the incorporation or retrofit program is cost-effective; (4) Production of new systems using advanced technology only when: the technology and associated subsystems are thoroughly tested and proven; the technical, production, and operational risks are significantly minimized; the production program is cost-effective; and the absolute need for a new system is verified. Stronger R&D efforts focused on technology demonstration and prototyping prior to production decisions will: help our nation maintain a strong and dynamic defense technology base; provide defense planners with sound technological options for our weapons to meet unforeseen threats should they emerge; support affordable technological improvements to existing systems to improve their military capabilities at less cost than for the production of replacements; eliminate cost overruns that have resulted from premature engineering and manufacturing development and production of new systems; and provide America's armed forces with the technological advantages they need to prevail in any conflict. To illustrate this new acquisition approach, consider tanks. The M1 Abrams tank has proven itself to be the best in the world. We have 8000 M1s in inventory, more than enough for our projected force structure. Upgrading older models now would not fulfill the criteria of our new acquisition approach. Nor is there justification at this time for moving to complete the development and initiate the production of the next generation Block III tank. That we can safely scale back our weapons modernization is corroborated by the performance of U.S. hardware in the Gulf War. Our weapons were outstanding in nearly all performance characteristics. Combat readiness rates were also extraordinarily high for our most critical weapons. Despite the harsh environment, readiness was often higher than normally attained in peacetime. DEFENSE INDUSTRIAL BASE Reduced military budgets and forces clearly mean reduced defense production. Moreover, DOD's new acquisition approach means a slower development and fielding of replacements for existing systems. This may result in a gap in the production of some systems. This slower replacement is now possible because most U.S. weapons on hand are superior technologically to those of potential enemies and have a number of years of useful life left. In addition, development of advanced technology weapons by potential enemies has slowed down significantly. These changing circumstances will have major consequences for America's defense industry. The stark reality is this: we cannot afford to maintain a warm production capability for everything we might need for a future global war. For regional contingencies, our plan is to have on hand, or quickly available, all the weapons that |