BRYAN WHITMAN (Pentagon spokesman): Good afternoon and welcome. It's my privilege to welcome back to the briefing room. He's been gone for about a year, he told me, since the last time he was here to talk to you -- Mr. Ken Krieg, the undersecretary of Defense for Acquisition, Technology and Logistics.

A lot has happened in the acquisition field since he last had the opportunity to speak to you, and he wants to bring you up to date on some of the initiatives and some of the reform that's been going on in the department.

And I thank him for spending some time with us this afternoon and appreciate it.

MR. KRIEG: Greetings. Welcome. It's great to be down here. I was actually looking in my notes to figure out when I was here last, and I think it was February of last year. We had just rolled out the Quadrennial Defense Review, and for the first time in the Quadrennial Defense Review, there was a section on business process change and what we were going to try to do. And so I wanted to come back down -- and I talked to many of you here and there -- but wanted to come back down and describe for all of you what we've been trying to do in implementing those kinds of changes over the last year or so.

And I'm not sure whether or not you've seen it or whether or not you've picked it up, but we sent -- the deputy secretary sent a report over to the Congress about a month ago, which we tried to use as a reference document for all of you, for ours and others -- and you as well -- to try to show you the range of activities going on. I think we have it in hard copy.

It's actually more interesting -- this is hard for a guy from the paper industry -- it's actually more interesting electronically, because of all the links to additional information, and rather -- so I commend that to you.

I wanted to hit a couple of high points of things we have been working on over the last 12 months and what we've got laid out ahead. I had put out a set of objectives, set of goals, when I started this work about two years ago.

Goal 1: a high-performing, agile, ethical workforce, in particular dealing with those issues of -- you know, we've got about 134,000 -- one of the hard things in government, as you all know, is it depends on how you count -- but about 134,000 people in the acquisition workforce. About 85 percent of them are civilians; the remainder are military. Of the civilians, their average age is about 48 or 49, and so -- and we didn't hire many during the '90s.

So thinking through how one manages a workforce of that scale in a business that's inherently an intellectual property business -- we are; we manage the procurement of incredibly complex activities -- how do you get ready for that when you have the time to get ready for it? And so a lot of work we've been doing in Goal 1 is around that effort. We issued a strategic plan outline a year ago. We'll be issuing the second version of that with more data in it, with more specific initiatives.

And one of the challenges you have at this kind of scale is -- you know, most of the people who are hired into the Department of Defense are hired into the camps, posts and stations around America. In OSD, in the Office of the Secretary of Defense, Acquisition, Technology, & Logistics, we don't hire many people. And so how do you set a strategy that federates activity throughout the enterprise in a way that gets work done as you need it?

The second goal is strategic and tactical acquisition excellence. And you'll see a lot in the report we just sent up to the Hill. Because remember, that report was a response to what we were doing about the -- see if I can get my terms of art right -- DAPA, the Defense Acquisition Performance Assessment, yeah. The Defense Science Board, that had done some work over the last couple years, the Center for Strategic and International Studies has done a lot of work on acquisition issues. And then we put out information in the QDR, and the Congress asks us to report on that. What do we think about it? How are we doing it? And that's the nature of the report.

You'll find in the report an awful lot of material on strategic and tactical acquisition excellence.

What's strategic? That's the "what" we buy, the intersection -- and a lot of it is about the intersection of requirements acquisition, which is really schedule and risk management, and resources. And so we talk a lot about -- whether it's concept decision or the tri-chair activity of bringing those three communities together or risk-based source selection or time-defined acquisition, there's a whole bunch of efforts, some of them being experimental, some of them being policy changes, that we've got under way.

The third area in the goals for the department is focus technology to meet warfighter needs. You know, what is it -- if stealth, speed and precision defines the sort of concept of operation vectors of technology that were really framed in the '70s, what are those kinds of vectors for this next year of competition? I can't answer that question today other than to say we've begun work on it.

You see in the '08 budget some additional investments in research in things like biometrics, in things like targeting -- tracking, targeting -- locating, tracking and targeting. We keep changing the order of those acronyms. And so locating, tracking and targeting. A number of investments that we made in this last budget review aimed at the kind of strategic challenges we think we're going to have for capability over this next year of competition.

We also over the last year sponsored a Defense Science Board summer study on that; what are the vectors for this next year of competition. And the reality, much as the reality of the '70s when, you know, one would like to think that Bill Perry sat down one -- woke up one morning and said, "Gee, stealth, speed and precision is what I need to do, and therefore it's all ordered." It was a process of thinking about how you want to operate, what technology was, where did you want to go with concepts, and it was an evolutionary process to get to those kinds of vectors. We've kicked that effort off.

The fourth one is cost-effective joint logistics support for the warfighter, in particular three big chunks. People, again. We have about a million people in the supply chain writ large inside the government. The second area is that whole factory-to-foxhole of the supply chain and bringing the kinds of business process changes and measurement changes and performance changes that we've seen work well in the private sector; how do we apply it to the public sector. And then the fourth (sic) area, which, you know, we're not inventing, which we've been working at for a while, is how do you bring the principles of life-cycle management back into the acquisition and decision-making process so that you're giving birth to programs that are reliable and maintainable over time.

The fifth area is a reliable and cost-effective industrial capability sufficient to meet strategic objectives. Got a lot of data efforts under way trying to understand what are the capabilities of the market and how do we deal with it.

The sixth area: improved governance and decision-making process. A lot of that is taking the work that was birthed out of the QDR. Skip Sharp and I got tagged with responsibility for continuing the implementation of QDR efforts in what was called the IR&G, institutional reform and governance. You know, in this business we -- sometimes we say an acronym enough that we forget what the predecessors to it were. Institutional reform and governance. Skip and I co-chair that effort.

A lot of it is thinking about what is the framework -- how do we organize for thinking in particular strategic decision-making and how we integrate processes to make the kind of choices -- and we can talk about that some if you want to.

And the last one, a goal that we pulled out this year and highlighted because of the immense amount of activity that was going on inside the space was capable, efficient and cost-effective installations. With both BRAC [Base Realignment and Closure] implementation and global basing changes going on at once and really entering a period of five or six years of heavy design -- planning, design and implementation of facility changes, we felt it was important to bring that out in its own right. And so we've highlighted that, not just the implementation of those things, but in particular thinking about that whole area as a portfolio of activity.

We spend -- I guess it was -- it's -- I'm about a year or two out of date on the exact numbers, but when we did a piece of work that was a precursor to this, we spent about $44 billion a year on all the elements of facilities. Whether it's MILCON, military construction; base operating support; sustainment; all those things, taken together, is about $44 billion. It's a pretty sizable chunk of business.

And so how does one think about the numbers for -- the concept of facility health and capability over time in an integrated sense, instead of thinking about the individual elements of investment? That's another part that's inside that goal.

So anyway, I commend all that reading to you. As I said, it cascades down to a lot of information. We're always more than happy to get folks - if you're interested in these areas, to get folks to talk to you about the specifics of implementation.

But with that as a precursor, I throw it open to all of you and let's talk about what you want to talk about.

Yes, ma'am?

Q Have you been briefed by the Air Force on the tanker competition, how that's going so far? And do you think they have a valid competitive strategy to move forward?

MR. KRIEG: (Chuckling.) I've been briefed a lot on tanker. And so up to the -- you know, we released the request for proposal -- boy, it all merges together -- two, three, four weeks ago, maybe even a little -- I can't -- maybe even a little bit longer ago than that -- so worked a lot up to the point of getting that out on the street.

I haven't spent a lot of time talking about tanker since that's out. That's now out, and the company's trying to decide what they want to do in the period of time at which they will discuss with the Air Force and enter that zone of source selection, which guys like me tend to stay out of while it's going on.

But we've spent a lot of time talking about, you know, how we, first of all, get the right capability that the nation needs and wants, and that was the most important element -- really get to be able to define that; you know, hopefully define that in a way that created an interesting model for more than one competitor to participate in. We'll see whether they choose to do that. I mean, you know, companies are free to do what they do.

But we were -- we especially wanted to make sure that our -- the request for a proposal we put out there was for a product that we wanted, not for a product that ensured a competition, but for a product we wanted. And we worked a lot at that over the period, thinking about it not only from an Air Force perspective, but from a joint perspective as well. And I mean, I feel pretty good about where it came out. It was that transparent of a development of an RFP as one could ever expect. They were out with interested parties in the industry multiple times during the period between the request for information and the final RFP.

And again, as I said, throughout it all we were trying to make sure that we got the -- we were putting out the request for the product that we wanted, but being responsive to the needs of industry at the same time. And I think we've met that balance, but we'll see.

Q (Off mike) -- competition or not it's not as important to you as whether the right --

MR. KRIEG: Look, I'd always like a competition, but having to have a competition for something I don't want is not of interest. And you always -- you know, when you're down to handfuls of suppliers on -- you're always working that balance. The most important thing was just something we wanted, but try to do it in such a way that we got a competition. Competition -- you know, more competition is better than less competition, but to have to go to a competition for something you don't want then sends you off into an environment you don't want to be in either. So striking that balance was one of the things we clearly were working on as a department during that period.

Q With recent developments with the Air Force -- the CSAR-X [Combat Search And Rescue] program, the recent GAO [Government Accountability Office] report, and other aspects of it -- the Air Force is considering a bunch of options on how to address that report and the program itself, one of which being reopening the constitution altogether. Is that something you would support or believe the Air Force should go ahead and do or --

MR. KRIEG: The Air Force is evaluating its options. The secretary has that. And I won't comment on what the secretary ought to do until he's had a chance to think about it and figure out what he wants. And so that's -- I mean, that's kind of where we are.

Q Thanks.

One of the main issues outlined from the reports he mentioned is the role of contractors performing inherently governmental functions.

MR. KRIEG: Right.

Q Some parts of -- (inaudible) -- are moving away from the Lead Systems Integrator approach. I'm wondering what's you're view on the LSI approach, and what you're doing to reform that.

MR. KRIEG: It's really interesting. I mean -- and I've spent actually a fair amount of time working on this -- I mean, Lead Systems Integrators get a lot of heat, light, attention and energy. But when we went to ask -- we surveyed -- I mean, we didn't go all the way down to Category 3s and the like -- but when we surveyed the major Category 1s and Category -- all the Category 1s as to how many Lead Systems Integrators, as defined, there were, the answer was there were only three or four programs that were truly a Lead Systems Integrator.

The biggest of which is very, you know, very controversial and interesting, as an experiment, being the Future Combat System. And that's got a lot of heat, light and attention. And as a contracting vehicle, I view that as still very experimental in the nature of what it is.

But also note that there's not -- there are subtle distinctions between what a prime contractor and what a Lead Systems Integrator does in a highly networked systems integration kind of world. And so, you know, Lead Systems Integrator as a contracting vehicle: Our view is there are only a handful. There are many who are thinking about -- there are some who have branded it that. It got very interesting as a brand for a while, and then people got afraid of it. Now they're not sure they want to brand it that way.

But again, the big one, FCS, I think that's still an experiment in process.

Q So you don't have a view on whether or not that's an inherently governmental function?

MR. KRIEG: Lead Systems Integration depends on what you talk about. If you talk about the development of requirements, the development of needs, that tends to be something you'd like to be in the government space. I think that the edge is around, what is designed as success? What do you want? And so you kind of like government to be in that space. And the argument is whether the Lead Systems Integrator moves too much into that space or not.

I will tell you that a lot of that's relative. If I go to a prime manufacturer on a normal weapons system, there's a whole bunch about the requirements and decision-making below the key performance parameters and the like that the prime contractor is responsible for.

And the prime contractor makes a lot of those decisions, and we as government do oversight of it. Much of that is also true in the LSI.

There is an awful lot in a prime contractor, I believe, about cascading of requirements down to subs that is the responsibility of the prime. Similar, a little different in the LSI. And people are watching that and trying to understand that, and I think we'll learn a lot as we go. And I often hear people come back and say, "Well, missile defense, that's a lead systems integrator." It's not. That contracting vehicle was changed three or four years ago to two national contract teams with leads.

So I think there's a lot of similarities between primes and lead systems integrators. The application of something like an LSI to a future combat system is an interesting experiment. It raises lots of questions, but so does future combat system. And, you know, that's really a hard problem, how do you want to do all of that (inaudible) program at one time, vice, on the other hand, if I did a bunch of little programs, how would I ever know that it was networked in the end?

I mean, it is really a bit of a conundrum. And so we're kind of managing that, and we'll watch it and we'll learn from it. There's a lot of attention on it. We're trying to learn as we go.

Q Page 15 of the report talks about your revisions of the award fees and incentive structure. Can you talk a little bit about -- (off mike)? For the first time you're talking about no fees and possibly penalties for substandard performance. It's somewhat of a change -- (off mike). Can you elaborate?

MR. KRIEG: Yeah. I mean, obviously I think you like -- I mean, what we've tried to do is say that what do you do with awards and incentives? What you want to do with awards and incentives is motivate behavior in a direction. It's what you do with your kids; that's what you do -- that's how you build relationships in contracts. And the question is, what do you want to motivate them toward? What do you want to incent them toward?

In looking at a lot of the work over years, what we've come back to is this notion that what you want to incent them to is the outcomes you're seeking.

And so, as much as possible, put the awards -- center the awards and the incentives on the outcomes you're seeking -- tangible, real outcomes. You know, whether that's cost, whether that's schedule, whether that's performance, it'll be a different combination based upon what the program is and what the needs are. But in all cases, try to make as much of that incentive structure, based on upon your want the outcome to be, so that you align the contractor's incentive to your desire as a buyer.

Conversely, then, or secondarily, then, to make sure in the review of -- and we've gotten some comments back from GAO, which we've tried to learn from -- in the review of award performance and the like, make sure you have higher levels reviewing the award allocation. That was what -- that was a criticism the GAO had of us. We thought that was a pretty good criticism. And this policy tries to do that.

And now the effort is to get that out into implementation and try to drive that behavior and that performance over time.

Q One follow-up. I mean, isn't this a recognition, though, that GAO has made some valid points about award fee and incentive fee being paid for less than optimal performance?

MR. KRIEG: And I think if you look at what we wrote on those GAO reports, we agreed with it. I think if you look at my testimony with David Walker and both in front of the House and the Senate, we agreed with it. You know, we've tried to collaborate with them, recognizing the division of powers and the responsibility of the GAO to be independent in its review. But we've -- we talk to them, and they've been very supportive in trying to help us understand what the right kinds of tools are and the right kinds of directions. So I mean, we've been -- I think we've been very -- since those reports came out now about 18 months ago --

Q (Inaudible) In '05? --

MR. KRIEG: -- yeah -- we've been very consistent in our view that they were right, and we needed to be -- we needed to change our policy, we needed to -- and then we needed to change our behavior.

Q So the message to industry is what on this particular --

MR. KRIEG: Performance matters, and to focus on trying to align our desire for outcome and their desire -- and their definition and performance in the same vein through incentives and awards is what we're seeking to do.

Q This is all future, though; you can't go back through current cost or cost plus contracts or --

MR. KRIEG: Pretty hard to go back unless you're going to reopen contracts.

Q Yes. Okay.

MR. KRIEG: Okay?

Q Thank you.

Q Mr. Krieg, this question is about the KCX again.

Last week the GAO issued a report, and they said essentially that, you know, despite that the RFP's already on the streets, that they feel that there was never any formal analysis done to warrant investing as part of the KCX program, and giving that aircraft ancillary capabilities to haul passengers or carry cargo, and lacking such formal analysis to support those ancillary missions that you might be precluded per DOD, you know, acquisition regulations from authorizing the program to move forward.

I was wondering what you felt about that, because, for example, there was an Air Force three-star that testified last week before Congress, and he asked a similar question. He said: I think in my 35 years of working acquisition issues, the KCX has probably the most steady program that we have.

MR. KRIEG: Yeah. I haven't read the report. I've only read the pieces in your work.

When we did the Mobility Capability Study, which was a pretty extensive look at mobility and the needs two or three years ago, one of the conclusions we came to as we looked at alternatives in that space was that as the nation looked at a follow-on tanker, that if the price was right for doors and floors, that the agility that that would create in terms of being able to have additional palette capability, additional personnel capability, you'll pick up some additional medical capability, because if you string oxygen all the way back and -- I mean, you pick up additional flexibility in lift, that, you know, we didn't do a cost-benefit. We didn't try to roll it into the analysis.

But in any sustaining operation, the capability to do palettes and people through more and varied types of airplanes was worth a fair amount. It wasn't worth building a tanker for, but if you could get it for a reasonable investment, it made a lot of sense to do it because -- oh, by the way, right now we're sending lots of palettes to places around the world, lots of palettes to the theater, in particular. We're moving lots of people back and forth. Some of that's on commercial carriers, some of that's on C-17s, some of that's hopping on C-130s.

And the notion that analytically we looked at is that the agility that that would create is a good thing. Did we do, you know, thousands of runs with and without doors and floors? I'd have to ask the analysts whether we did runs with and without, but it was very clear not in the first seven days of the conflict or the first limited engagement because at that time tankers are doing their tanker mission -- I mean, that's -- we're principally buying tankers to be tankers -- but in a sustaining operation over time, the agility that being able to make them a cargo carrier -- as long as you are trying to optimize the airplane as a cargo carrier -- that that agility made a lot of sense inherently and analytically.

So, as I said, I've not read the GAO criticism, and so I'll withhold judgment on it, but I can tell you as the lead of the analytical community during Mobility Capability Study, it was clear that agility in the mobility fleet was good; that putting pallets on a C-17 is extremely inefficient, just -- I mean, it's built for large cargo, not for pallets.

And so I'll have to evaluate what they said after I get a chance to read it, but just from the analysis, that's kind of how I look at it.

Q In the broadest terms, can you describe --

MR. KRIEG: I love broadest terms.

Q (Off mike) -- answer.

MR. KRIEG: Thank you. I don't know -- (inaudible).

Q What are the biggest challenges you're encountering in reforming a system of the scope you describe? And what, two years into this, are tangible signs you're seeing that it is, in fact, impacting warfighters, saving money, accomplishing what you're setting out to do?

MR. KRIEG: I'll tell you the hardest thing is scale. This is just gigantic! You know, people often ask me, "Well, why don't you just run this like a company?" Well, you know, first of all, no company would be this large, complex and try to structure this way. No company would try to manage this level of risk. No company would try to surge and reduce like the Department of Defense tries to do. And so managing it just like a company is hard.

The second problem is that unlike a company, where I've got a clear metric of value -- you know, I can reduce almost all things in a company to return on investment, return on net assets, return on capital employed, some kind of financial metric so that I can have a sense of whether doing the next thing is worth it or not. That's really hard in this space -- you know, what is the value of the Department of Defense? -- and have it in a way that I can compare relative things to each other is difficult. We've had a lot of work under way in the last six years around capability. You know, at the end of the day, what we do in the Department of Defense is provide capability to warfighters. You know, whether they're engaged in war or whether they're engaged in peacetime operations, like the tsunami, we provide them capability. They take all that capability and they do amazing things with it.

Well, the interesting idea is whether the capability is a value and how do we do that. We've got a lot of work under way. It's distinctly not -- you know, it's distinctly complex. And so we've done that work.

And I guess the third hard thing when you have -- when value is hard to have and hard to think about and you have lots of stakeholders who are interested and it's really complex is keeping focus on driving the outcomes. You know, we're an input-based -- government inherently, particularly the federal government, is inherently an input-based area. We argue a lot about budgets. As a business guy, I worry a lot about outcomes. Trying to get us all to worry more about outcomes, which is sustaining a level of attention on outcomes, is a tough thing.

What do I see going on? One of the things we've tried to do in this change process is spend a lot of time at the governance level. I differentiate a governance level, a management level and a work level. The governance level -- and a lot of this is in QDR, and you'll see a little bit of it in the 804 report -- you know, governance level is the strategic choice, is the macroresource allocation. It's the decision-making between I want to do more of this and less of that. We've spent a lot of time on that, and we're making progress.

One of the key things I saw as a problem, particularly as I look at programs coming in Nunn-McCurdy you know, and that's a responsibility I take pretty seriously as one of my legal responsibilities to go through Nunn-McCurdy. As we dissect them and try and take them apart, very often what we see in those programs is they weren't -- their birthing process was not beautiful. Requirements, acquisition, resources weren't aligned. We didn't hold configuration discipline on any of them as we went along. And you know, if you start a program with requirements up here, a bunch of risk and resources down here, the chance that that program is going to be successful is kind of limited. So giving it right up front is, I think, one of the most important challenges and, frankly, one of the things that's hardest do to because that's all about choice.

We're now going to work at -- in particular we're going to work at the big difference between public sector and private sector. If -- in the private sector, if you make a decision to invest capital, particularly a sizeable decision to invest capital, that goes all the way to the chairman and probably to the board if it's a reasonable amount. The manufacturing guy, the marketing guy, the sales guy, the finance guy, everybody's got to come in the room, sign in blood -- yes, I'm going to create -- yes, I can deliver that outcome for that amount of money, and yes, I'm going to deliver that kind of return.

And oh, by the way, they're all mutually incented when they walk out, to make sure it happens.

You come to the government space, and we don't have that kind of investment discipline, nor do we have the sustaining discipline afterwards to hold it. So we've been working at how you do that, experimenting with it, trying to start programs better. If you can start programs better and you can hold discipline, then it creates an opportunity for program managers to be successful.

The last part of that is one of the key challenges I think we have is, how do you do configuration control after you've started a program? How do you keep requirements from moving around? How do you keep derived requirements well below key performance parameters from eating your -- eating you alive in cost? How do you keep next year's budget from being 10 percent less on that program than last year?

Those are all really -- because those require us to stay disciplined over time, and that's something that governments aren't really good at. I mean, we actually like maximum flexibility from year to year. But yet we're buying -- we're designing and buying programs. The life cycle of those programs are 30, 40, 50 years. Instead of buying them with capital, we buy them with cash. And I think all those are dilemmas that I'm trying to figure out in the public sector vice the experience in the private sector. How do you take those disciplines from the private sector and apply them to the public sector? It won't be the same way. It's a different world. They're much different stakeholders.

But that's -- I'm encouraged that there's a lot of good discussion; we're making some progress, because I do think the strategic decision-making is one of the real challenges to acquisition performance.

Q (Off mike) -- add some weight to the concept of consolidation of support functions and the idea that the Air Force should be the sole acquisition force for fixed-wing and convoy aircraft? There are some ideas floating around that --

MR. KRIEG: I got the second half. I'm trying to figure out how the first -- give me --

Q It's under the notion of consolidating support functions.

MR. KRIEG: Okay. Okay. Okay.

Q (Off mike) --

MR. KRIEG: So the executive agent -- why don't --

Q (Off mike) --

MR. KRIEG: -- I mean, that's always a debate, and I'm not going to get into the specifics of the debate, because those will -- I'm the acquisition guy. This is one of those cases where I can say, "Hey, I'm only the acquisition guy." So I'll take that opportunity.

But it's always a challenge when you look at an enterprise as complex as this one. How do you figure out how to focus on centers of excellence -- whether you call them executive agents, whether you call them -- I mean, there's a whole set of terms for them -- how do you do that and still maintain the equities of other players who are going to need the product?

So whether it's Air Force's fixed-wing, what should we do with joint cargo aircraft, should that be consolidated in the Air Force? And I won't get into the roles and mission space. I've been very clear about what I expect to see in the joint cargo aircraft, which is a common set of requirements, a common training approach, a common maintenance and spares and supply chain approach. So that's my space and I'll stay inside my box on that question.

But the broader question of how you do that in an environment this complex is one of the really hard things of governance because, you know, Army operates an awful lot of boats. Joint High-Speed Vessel started as an Army-centric program. If it's going to operate a thousand nautical mile range, should it be an Army program? We made it a joint program; now who should operate it and how is an interesting question and we'll start working through that as we go.

Q So it is an ongoing debate in terms of -- (off mike) -- executive -- you know, the acquisition -- (off mike)?

MR. KRIEG: Congress has announced it wants to have a debate about that, so I'm assuming they're going to.

Q Within the building. I mean within the Pentagon is there a debate on this issue? And how is it going to affect --

MR. KRIEG: I've made it very clear about what I expect to see in terms of a plan coming forward. Whether the roles and missions gets debated around, I'm not going to speculate on that at the moment. So I'll let that kind of hang out there.

Q Along the same vein that you were speaking earlier about the department's discipline with regard to program requirements, there is some language in the most recent defense authorization bill about the use of -- or a preference for fixed-price development contracts. Could you address some guidance that might be coming down the line about how broad or narrow that preference might be?

MR. KRIEG: I've not seen the work of the staff yet on it, so I don't want to presage that because I just haven't seen it. But I will say, you know, fixed price and -- price and risk -- the pricing methodology and the risk methodology ought to be aligned.

So if you have a fixed-price contract but a lot of risk inherent in the program, beware that dichotomy. And the department has plenty of examples, going back over time, of fixed-price development with high risk, and the outcome of that is rarely ever good.

So trying to -- and again, I'm not presaging the answer, because I haven't actually seen what the staff is working on, but I'm giving you my principles. Thinking about the pricing methodology and the contracting methodology and the amount of risk you have inherently in the program -- those two have to be related. If they ever get out of balance, you get yourself in umimplementable contracts.

Q I understand this week -- earlier today, I think -- you had a senior-level meeting on LCS [Littoral Combat Ship]. Can you talk a little about what you have also decided on the future of that program?

MR. KRIEG: Where we are on LCS is the secretary of the Navy decided he wanted to lead the review process. I'm actually a big fan of the chain of command taking responsibility for managing and leading program activity, as opposed to immediate corporate staff having to do it. You know, once it gets to Nunn-McCurdy land, I have to do it. Before that, I like the line actually doing its work.

So Secretary Winter asked to do the work. He was briefing us on some of what he found. I'd like to let the line manager stay in the lead on it. But that's -- he's been doing due diligence. They've been trying to figure it out. And I think in due course, he'll be out on it.

Q Speaking of Nunn-McCurdy, the Air Force, Secretary Wynne and General Moseley, are saying that C-5A modern invasion is probably going to bridge Nunn-McCurdy later this year. Is there a ceiling for that cost spike that you would think is just too high, and they should walk away from doing the A models?

MR. KRIEG: Since I haven't reviewed it, I'm not going to comment on it. I haven't talked to Mike and Buzz about that yet. So I'd rather not speculate on it, because I haven't looked at it.

I mean, obviously they're old airplanes. So there's a point at which a return -- I mean, there's obviously a point at which one has to think about that. But I haven't reviewed their thinking on it yet, nor have I seen anything to give me a way to give you a specific answer.

In the back.

Q Yeah, since you mentioned the life-cycle cost as one of your goals, I'm just curious -- in your review of the CSAR-X coming forward, did you see anything that alerted you to some life-cycle concerns that were raised later by TAS?

MR. KRIEG: I'm not going to comment on the specifics of that work, because that's still open. But let me tell you, when you -- it's really an interesting problem making decisions on these complex weapons systems. Because you make it on a balanced set of issues. You know, the concept -- what was clear about CSAR-X was the need to hold schedule. The legacy aircraft were aging rapidly, and the need to get replacement into the field -- and so we debated -- actually, we had a concept decision. We brought the requirements guys in, the resource guys, and the acquisition guys. And it was one of the more intense early discussions around trade space.

And what we determined was that schedule is more important than ultimate capability, and that's what led to a block zero, block 10 approach and that block 10 was going to have to stand on its own merits later. But the desire to be able to field a program in a relative amount of time with relative certainty with short development cycles was clearly a desire because of the need to get new aircraft out there. And so you had to look at cases where you had high technology readiness levels, where your integration risks were less.

And so when you make a decision with a variety of variables trying to optimize the outcome as the objective, any one of which can be open for criticism, and in that case, I'm not actually speaking to the CSAR-X work per se, although that's what that's what it looks -- I mean, it looks -- I have not read the GAO report on it. But I do think that's a challenge -- is that -- is that you're always trying to manage -- make a decision among a variety of variables.

And so anyway, the protest is a protest, and the Air Force is trying to figure out what do about it.

Q Could you just give us a little bit more clarity on what kind of discussion that's supposed to take place in this coming week on JPA? First off, for instance, on they're trying -- (off mike) -- that up, anything like that, trying to get a little bit more --

MR. KRIEG: I'm trying to think whether I know what the next step -- they're supposed to come back to me spring -- late spring. So I mean -- the answer is I can't give you because I can't off the top of my head remember where we are in it. They're supposed to come back to me for a milestone review? They're supposed to come back -- I don't know -- (inaudible) -- or not.

We can -- rather than speculate, I'd rather give you an answer. I can't -- we'll get you the answer on when our next review is and what the timing of it is. Let me do it that way.

Q On the -- (off mike) -- here, what kind of stuff does -- (inaudible) -- when will they be affected?

MR. KRIEG: Policy?

Q Mm-hmm.

MR. KRIEG: We've issued the first round of policy late last year, I think.

And we are now working with the agencies on a subsequent -- I believe it's operating instructions -- you know, their next level of work. And that's sometime in the next month or two. And hopefully -- those are all interesting. What would be really good is if you started to see them in sort of the RFPs and contracts. And as Tony said, that's a future case, that those will be as they come out. So -- and I would expect you'll see those as the next sets of contracts come out.

I got just a couple more minutes. Who hasn't had one yet? Anyone not had one who wants one? All right. Well, okay. Good.

Will?

Q Thanks. As you know, the GAO has often called for a chief management officer separate from Deputy Secretary England, the chief operating officer. I'm wondering if you are now thinking that that might be a good idea or -- why or why not?

MR. KRIEG: The secretary has a reporting responsibility to the Hill on that sometime in the next couple of months. So I won't presage any -- I mean, he's got to make that decision.

You know, look, my personal -- let me give you my concerns about it. The first one is, we've got lots of undersecretaries, you know. And what is a chief management -- I mean, I'm really -- these are -- I mean, these are really serious questions. If he's -- is -- do I work for him? If he's the chief management officer -- I do an awful lot of governance of management processes -- I ought to work for him. If I work for the chief management officer, do I work for the chief management officer and the deputy secretary of Defense? Do I work for both the chief management officer and the chief operating officer?

And I'm saying I'm not worried about it. I mean, by the time that gets done, I can tell you that January 20th of '09 will be here, and I won't have to worry about it .

But I do have, in sort of a roles and mission sense, really thinking through how do you -- how would you actually implement it in a way that made sense? Or is management more narrowly conceived to be around management data, information flows. And so how one draws that boundary says a lot about where this person is. And I've seem it described a lot of different ways. I wouldn't want just -- I mean, I got to tell you, candidly, I wouldn't advise just another undersecretary with another set of overlapping portfolios with other secretaries, so that you have a reason to have more meetings about how you de-conflict what the two undersecretaries think about something.

My personal view is, it's more you ought to select people who have management experience and management responsibility. Invest them in the responsibility of doing those kinds of things. That's clearly much more -- I mean, I like aligned organization and management chains.

So those are things I worry about as I think about this concept. Okay?

Q (Off mike) -- saying is that there should be one senior leader who coordinates change management and transformation and has the authority to oversee all of those processes. Do you think that -- (off mike)?

MR. KRIEG: And so that's the chief operating officer. That's what a chief operating officer ought to do. So that's kind of my -- but, you know, David and I have had -- David Walker and I have had countless good discussions. We could actually do each other's shtick now on this one. So it's -- but I mean the secretary's looking at work that was done by IDA [Institute for Defense Analysis] and will take advice. And I don't know where he'll turn out on it.

MR. WHITMAN: One more.

Q Can I ask about MRAP [Mine Resistant Ambush Protected vehicle], since it's a crucial program?

MR. KRIEG: Go ahead.

Q All right. A, are you satisfied with the Navy's approach? There's been some buzz because you wrote a memo a couple weeks ago -- month ago that it was --

MR. KRIEG: There's been wonderful speculation that I'm going to slow the program down.

Q Okay. That's one question.

Two, what's your realistic expectation of when full-scale production can start on these critical vehicles, assuming you get some good candidates tested out?

MR. KRIEG: Right. That is, to me, one of the critical questions, and I don't have an answer to that because I've still got to see the work that's ongoing. I mean, they're trying to think through what are ramp curves, how do things get done, et cetera, et cetera.

What I clearly tried to state was, depending upon what requirement set we looked at, this was anywhere from a couple of billion dollar buy to many couples of billions of dollars buys, and that it would be irresponsible if we didn't think about how to plan for it to be an ACAT 1D as it was in evolution, so that when it started it started as an ACAT 1D. And the last line of the memo is to make sure that our processes are flexible and agile in order to make sure that the program gets executed as smartly as possible. And that's what we're trying to do.

And I think that's kind of where we are right now. I don't think we've slowed a thing down. We're trying to make sure that the documents that she's laid -- that the Navy's putting together and that Dolores [Etter] is managing migrate easily -- migrate directly to an ACAT 1D and we have the kind of management processes in place.

Q But generally, though, for those mothers and fathers of Marines out there who may get these things, you're somewhat happy with the progress to date, but you don't know when it could actually be ratcheted up for full-rate production?

MR. KRIEG: Well, that's all the work that's under way. You got to -- first, you got to prove the vehicles work.

Q Right.

MR. KRIEG: That's the testing phase, that's under way. They've laid out some contracts for a limited number of them to start the phase in advance of that. That's -- if I did that in a normal program, you'd be asking me why I was moving ahead of testing. So just to kind of show you that -- I mean, this is to your point of, are things different? Yeah, I think we're taking risks in programs that we wouldn't normally take.

Now, I will tell you, I'd be willing to bet you -- of course, I wouldn't do that in here because that would be the wrong thing to do, to have an official bet with someone in the media -- but if I were a betting man, I would be willing to bet that two years from now there'll be a GAO study of how we refused -- how we avoided using the discipline processes that we had in place in -- (inaudible).

I'm -- Tony -- absolutely.

Q (Off mike.)

Q Six months away.

MR. KRIEG: Absolutely. It's only a question of whether it's two, five, 10 years, and I'm not picking on GAO. It may be one of you that goes out and does a report on it. I mean, we do things in expediency that we think are exactly the right thing to do because we've got an urgent mission need. In the light of day two, three, four years later, sheesh, it might not look so obvious that we should have done that. How could those guys have been so crazy as to have done that back then? We do it all the time. We do it all the time.

So I'm trying my best to make sure we've thought about those kinds of things so that at least we can say, hey, we looked at it, we thought about it, we analyzed it. We didn't slow it down; we kept it going fast. But we tried to do our due diligence to make sure that we were getting the best product we could in a timely fashion, because the requirement and time are very closely related here.

So we're trying to manage that balance, you know, in the light of public day. Right now, it means go fast. I will tell you, I will guarantee you at some point later, that it will be why did you go so fast and why didn't you put more testing in, and why didn't you understand the sustainment method, and why didn't you know that the tires would gum up because of sand or whatever else. I don't know what it'll be, but I can almost guarantee you it will be.

Q No good deed goes unpunished.

MR. KRIEG: All right. Thanks a lot, all. I appreciate your time.

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