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[H.A.S.C. No. 106–8]



FOR FISCAL YEAR 2000—H.R. 1401






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MARCH 10, 1999




JOHN M. McHUGH, New York, Chairman
BOB STUMP, Arizona
J.C. WATTS, Jr., Oklahoma
WALTER B. JONES, Jr., North Carolina
BOB RILEY, Alabama
ROBIN HAYES, North Carolina
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MARTIN T. MEEHAN, Massachusetts

Tom Hawley, Professional Staff
Dudley Tademy, Professional Staff
Jesse Tolleson, Staff Assistant





    Wednesday, March 10, 1999, Fiscal Year 2000 National Defense Authorization Act—MWR Programs and Resale Activity Oversight
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    Wednesday, March 10, 1999



    McHugh, Hon. John M., a Representative from New York, Chairman, Special Oversight Panel On Morale, Welfare and Recreation

    Meehan, Hon. Martin T., a Representative from Massachusetts, Ranking Member, Special Oversight Panel on Morale, Welfare and Recreation


    Amerault, Vice Adm. James F., Deputy Chief of Naval Operations, Logistics, U.S. Navy

    Barker, Jeff, Customer Business Development Manager, Procter & Gamble Development Company

    Bates, Maj. Gen. Barry, Commander, Army and Air Force Exchange Service, U.S. Army
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    Beale, Maj. Gen. (Ret.) Richard E., Jr., Director, Defense Commissary Agency

    Davis, Gregory H., Military Sales and Marketing Manager, H.J. Heinz Special Markets

    de Leon, Hon. Rudy, Under Secretary of Defense for Personnel and Readiness

    Flowers, Alan L., Category Manager for Health and Beauty Aids Defense Commissary Agency

    Ginman, Rear Adm. Richard T., Commander, Navy Exchange Service Command, U.S. Navy

    Handy, Lt. Gen. John W., Deputy Chief of Staff for Installations and Logistics, U.S. Air Force

    Hinkle, Rear Adm. James B., Assistant Commander, Personnel Command, U.S. Navy

    Johnson, Lloyd, CEO, C. Lloyd Johnson Company, Inc.

    Klimp, Lt. Gen. Jack W., Deputy Chief of Staff for Manpower and Reserve Affairs, U.S. Marine Corps
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    McGinn, Gail H., Acting Deputy Assistant Secretary of Defense for Personnel Support, Families, and Education

    Myers, Arthur, Director of Services, U.S. Air Force

    Short, Philip G., Director, Personal and Family Readiness, U.S. Marine Corps

    Van Antwerp, Maj. Gen. Robert L., Jr., Assistant Chief of Staff for Installation Management, U.S. Army

    Whelden, Brig. Gen. Craig B., Commanding General, Community and Family Support Command, U.S. Army

    Wood, William T., Buyer for Breakfast Cereals, Tea, Coffee, Juices and Nutritional Snacks, Defense Commissary Agency


[The Prepared Statements can be viewed in the hard copy.]
Amerault, Vice Adm. James F.
Bates, Maj. Gen. Barry D.
Beale, Richard E., Jr.
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de Leon, Hon. Rudy
Ginman, Rear Adm. Richard T.
Handy, Lt. Gen. John W.
Hinkle, Rear Adm. James B.
Johnson, Lloyd
Klimp, Lt. Gen. Jack W. and Philip G. Short
McGinn, Gail H.
McHugh Hon. John M.
Myers, Arthur
Short, Philip G.
Staton, James D., Chief Master Sergeant, USAF (Ret.), Executive Director
Van Antwerp, Maj. Gen. Robert
Whelden, Brig. Gen. Craig B.

[The Documents submitted can be viewed in the hard copy.]
Statement of the Military Coalition by Col. Frank G. Rohrbough (Ret.) and Mr. John Daly

[The Questions and Answers are pending.]


House of Representatives,    
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Committee on Armed Services,
Special Oversight Panel on Morale,
Welfare and Recreation,
Washington, DC, Wednesday, March 10, 1999.

    The subcommittee met, pursuant to notice, at 1:00 p.m., in room 2212, Rayburn House Office Building, Hon. John M. McHugh (chairman of the committee) presiding.


    Mr. MCHUGH. We will begin.

    We have a rather long day because of the previously rescheduled meeting, which particularly affects the first panel, and we appreciate their being here today.

    Since this is the Morale, Welfare, and Recreation (MWR) Panel's first meeting in this 106th Congress, I would like to recognize a number of new members that we have before we proceed with the business of the hearing. The Panel is very privileged this year to be joined by several individuals who expressed an interest, who have reached out to the chairman and to the ranking members and wish to participate, and they are Bob Riley of Alabama, Silvestre Reyes of Texas, Robin Hayes of North Carolina, and Bob Andrews of New Jersey. We certainly welcome them to the Panel. I am sure the increased interest in sitting on this Panel reflects greater concern with our programs and not a plan by Floyd Spence and Ike Skelton to give Marty and me greater supervision.
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    I am pleased particularly that Marty Meehan, a gentleman from Massachusetts, has agreed to stay on as the Panel's ranking member, and I look forward to working with him. I certainly welcome the perspective of our new members and, of course, will continue to rely on the wisdom and the guidance of those old hands that remain with us.

    Today, the Panel will hear testimony concerning service morale, welfare and recreation programs, and resale activities. Since the services' MWR programs and resale activities are inextricably linked and since the crowded schedule would not permit otherwise, as I mentioned at the beginning, we are combining two normal hearings into a single, what I think we can call, fairly comprehensive hearing.

    Our witnesses today will address the range of issues facing MWR, and as usual, there are many. The Panel will hear from the Department of Defense and service policy chiefs in MWR and resale, as well as the DOD and service operators of MWR and resale programs. All of the Department's considerable expertise and responsibility for MWR is assembled here today for the members to question and, of course, to have the members hear from these learned participants.

    I have learned in my time as chairman that service on the MWR Panel is never without controversy, and despite what logic would tell me, some senior leaders in DOD, though none are here today, might recommend changes that are contrary to the interests of military families. I am talking now about the so-called ''privatization issue.''

    Once again, this year it appears that the Panel must step in to defend important soldier programs from some who might advocate change without full considering the overall implications of the change they are proposing.
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    We on the Panel understand the pressures on the services to seek out savings wherever they might exist and can be found. Certainly, your budgets are strained by continuous unplanned operations in such places as the Persian Gulf and the Balkans, and you are aggressively privatizing all manner of functions to glean money for modernization. Of course, we are all living under the budget caps.

    I think it is fair to say, we all on this Panel recognize the need to modernize and to provide adequate funds for base operations and family housing and support a healthy pay raise for the troops. Nonetheless, as a policy matter, we in Congress need to review what those changes may do to the face of military bases. I am not against change. I just want to ensure that change is driven for the right reasons and that all the long-term implications are fully considered.

    As the services rush down the gilded-path road of privatization, seeking financial salvation, have they asked how the character of military bases will appear when it is all over, or have they shifted the problem to major base commanders? Will base commanders be able to provide security? Will they be able to provide for the most basic services? Will MWR and resale professionals be available and willing to deploy to the hot spots of the world, or will we have to rework contracts before we can get help in Kosovo or the Persian Gulf? Will exchange and commissaries be convenient and available to our military families, or will we have given over commercial enterprise on military bases to the lowest bidder?

    I have been reminded that the current system was developed because commercial firms were unwilling to establish concessions offering reasonable prices for troops at remote bases. I am not sure that anything has really changed in that regard.
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    I am confident that we will find bidders for the largest bases, but even there, are we sure that adequate stores with reasonable prices will be established, or will military housing host unattractive strip malls, gauging the military patron, providing no dividends to MWR programs? Surely, smaller bases will be left out in the rush to privatize.

    Last year, and in the years before this, this Panel attempted to send a clear message: We are solidly behind the morale, welfare and recreation system. We have been told, and we believe, that these programs are essential to elements affecting military readiness in the military community. I am talking about all of the programs here, exchanges, commissaries, youth centers, child care centers, and libraries. It is an integrated, interrelated package that begins to unravel if you remove too many of the basic parts.

    Now, under admittedly great budget pressures, some services appear to be backsliding and are leaning toward wholesale privatization in military communities, at least that is some of the information we are receiving. Suffice it to say, we want to pursue this issue fully, and we are deeply concerned about it. Obviously, we want to examine this issue.

    Additionally, I will ask the witnesses to speak about the scope of the programs that should be offered, the levels of appropriated funds provided by the respective services and their commitment to capital improvement. Non-appropriated funds, by definition, convey the idea that the money belongs to the troops, not to taxpayers. Unfortunately, the services generally are not meeting departmental guidelines for appropriated funds' support of MWR programs. Any shortfall means that soldier money must make up the difference in fund programs for which taxpayer dollars should have been made available, but were not.
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    Then, resale, there are a number of issues to be discussed, most related to commissaries. In fact, we have asked the special panel of witnesses to discuss an issue of some controversy in recent years, the use of electronic scanner data within the Defense Commissary Agency (DeCA), and Commercial Industry.

    Before proceeding to our witnesses, let me now recognize the Panel's ranking Democrat and ranking member, Marty Meehan, the gentleman from Massachusetts, for an opening comment.


    Mr. MEEHAN. Thank you very much, Mr. Chairman. You have acknowledged some of the controversial items that we will have to deal with on this Panel. I can tell you after my service in the last few months on the Judiciary Committee, I welcome the controversies of the MWR Panel. [Laughter.]

    I do welcome you, and I welcome the witnesses to the MWR Panel hearing today, and I also welcome my colleagues to another challenging and productive session as members of this Panel.

    To my colleagues that are serving on the Panel for the first time, I am reminded that it was just two years ago when I became a member of this Panel and began to immerse myself in the profound challenges and opportunities associated with the variety of activities called MWR, and it does not take much time to recognize the critical role that MWR activities play in the services and their contributions to the military resale activities.
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    While we have addressed many critical and often contentious issues thus far, I am convinced that much has been accomplished in ensuring the first-rate MWR activities for active reserve and retired military personnel and their families. There is also an awareness that much more remains to be done.

    Mr. Chairman, I understand that we are pressed for time during this hearing today, and for that reason, I do not want to take up too much time with opening remarks. I think you have eloquently delineated the conditions and environment for the discussion of the MWR and resale issues.

    I also believe that it is more important that we have the opportunity to hear both the testimony from the witnesses and their response to the questions from Panel members, but I do want to surface two pressing concerns.

    First, I am concerned about the potential changing character of military quality of life as an unintended byproduct of some of the proposal for privatization of on-base military housing.

    Second, I am not certain that we are doing enough to provide quality MWR facilities for U.S. forces deployed in remote locations where force protection is also a major concern.

    With those brief remarks, Mr. Chairman, I thank you for your indulgence and yield back the balance of my time, and I look forward to hearing from the witnesses on the panel.
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    Mr. MCHUGH. I thank the gentleman for his comments and for his leadership on the Panel, and as I said in my opening remarks, I look forward to working with him.

    I would ask unanimous consent that all other members of the Panel submit their opening statements in their entirety for the record so that we can proceed directly to our panels.

    Hearing no objection, so ordered.

    Mr. MCHUGH. As I mentioned, our first panel today was scheduled earlier last month, and we appreciate them making themselves available to be here with us this afternoon.

    By way of introduction, they are Mrs. Gail McGinn who is Acting Deputy Assistant Secretary of Defense for Personnel Support, Families, and Education; Brigadier General Craig B. Whelden, Commander of the United States Army Community and Family Support Center; Rear Admiral James Hinkle, who is the Assistant Commander of the Navy Personnel Command; Mr. Arthur Myers, Director of Air Force Services; and Mr. Philip Short, who is Director of Personal and Family Readiness for the United States Marine Corp.

    To all of you, welcome. As you have heard, we are anxious to hear from you, and we have some concerns that we are anxious to discuss with you.

    We have your statements in their entirety. I will speak for myself. I have read them. So I would ask for unanimous consent that all of the witnesses' testimonies in all four panels be submitted in their entirety for the record, and with that, I would ask that if you could just summarize your statements rather than reading them in their entirety, it would facilitate our time here this afternoon.
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    So, Mrs. Hinkle—excuse me—Mrs. McGinn—I got ''Hinkle,'' and it is Irish. As I said, welcome. Our attention and the direction of the entire committee room is yours. So thank you.


    Mrs. MCGINN. Thank you, Mr. Chairman.

    I will provide just some brief comments, and I would like to update you on some of the actions that we have taken since last year's testimony.

    First, I would like to thank you and the Panel for your continued support of our efforts to improve the quality of life of our service members and their families. We appreciate your commitment to their well-being, especially as we face the new challenges in the coming century.

    In the past year, we have continued to work on better ways of supporting both service members and their families during deployment, improving the quality of our military communities, and integrating best business practices into our MWR programs.

    The resources provided to the services, along with the revenue they have attained through their operations, had been focused on furthering these goals.
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    For the past few years, we have reported on the increasing amounts of appropriated funds provided to MWR. We have also reported on our progress toward meeting our goal of using the correct proportionate levels of appropriated and non-appropriated funds in our Category A and B activities.

    For fiscal year 1998, Department-wide appropriated fund support to Category A remained at the same relative proportions to non-appropriated funds. However, the proportion of appropriated funds for Category B dropped by two percent.

    We note that there are additional funds budgeted for fiscal year 1999. So we are hopeful that this will be corrected this year, and we will be watching this.

    Category C activities continued to provide a two-fold benefit to our customers, low-cost and high-quality services and revenue for operating expenses, and capital improvements for authorized activities. The military departments reported Category C activities earned $55 million in fiscal year 1998.

    As you will hear from each of the military services, we have concentrated our efforts to improve the conditions in which our troops served during deployments. In addition, the $50 million we received in this year's supplemental appropriations have helped us to enhance our deployed programs, as well as those supporting families left behind.

    In improving our military communities, we have joined with the services to focus on key programs, namely physical fitness, libraries, child care, and youth.
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    Two years ago, we embarked Operation Be Fit to focus greater attention on this critical readiness issue. Today, I can report that with the military services, we have completed major pieces of our fitness initiative. We have been able to increase and accelerate the construction of fitness facilities.

    We have also delivered executive-level standards with the help of the services to establish qualitative requirements for fitness programs throughout the Department. In turn, they are building more detailed quantitative standards for their programs.

    In the same manner, we have continued to place emphasis on libraries. We have placed a moratorium on library closures pending the results of a comprehensive review. As part of the review, we established a strategic plan and developed a set of core library standards outlining basic requirements for a quality program.

    In child care, we continue to provide care for approximately 200,000 children on a daily basis. We continue to lead the Nation in accredited centers with 88 percent achieving standards compared to five to eight percent of centers nationally.

    We are still working this program hard, having increased our capacity to 58 percent of need, but recognizing we still have work to do to achieve our 65-percent goal.

    We have also stepped up our efforts to support military youth. The Department concluded a 3-year project to improved youth and teen programs through model community pilot projects. The results of these 20 pilots have given us clear examples of how we can improve on life skills education, relocation and sponsorship assistance, and providing alternatives to risk behaviors. We have also published a strategic plan for youth to maintain momentum for positive policy and program change.
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    Finally, we are continuing to use innovation throughout our MWR programs to better meet the needs of our service members and their families.

    In sum, Mr. Chairman, we believe we have a strong program that is getting stronger. Thank you for this opportunity to share our progress and our vision of the future, and thank you also for your strong support that has helped us build the program we have today.

    [The prepared statement of Mrs. McGinn can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Mrs. McGinn.

    Next, we have Brigadier General Craig Whelden, as I said, Commander of the United States Army, Community and Family Support Center.

    General Whelden, welcome. Thank you for being with us, and our attention is yours.


    General WHELDEN. Thank you, Sir.

    Mr. Chairman and members of the Panel, I am honored to appear before you and share some of the Army's efforts to improve soldier and family quality of life.
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    Today, 23 volunteer MWR professionals staff ten service locations in support of our operations in Bosnia and provide MWR for Southwest Asia with both direct civilian support in Saudi Arabia and by contract in Kuwait. In both theaters, recreation, library, and physical fitness opportunities provide respite from the rigors of duty.

    At home, we support deployed soldiers' families by expanding family assistance center operations and modifying the MWR programs to meet family needs.

    I want to thank you for providing the supplemental funding for contingency operations. We will use the majority of funds to improve the recreation infrastructure in-theater and to establish real-time communications links between soldiers and their families at home.

    Despite the impact of severe flooding in Korea and the sharp decline in the value of the Won, MWR worldwide closed the year with a positive cash flow of $67 million for an 8.3 percent of total revenue. These results exceed our board of directors-established standard by 1.3 percentage points. We attribute much of our program and financial successes to the development and implementation of program standards and bench marks.

    In fiscal year 1998, our business programs generated $30.7 million in, Net Income Before Depreciation (NIBD). For clubs, golf, and bowling, positive cash flow increased by 67 percent over the past four years.

    By implementing program and financial standards, the Army reduced the Non-Appropriated Fund (NAF), subsidy to child care centers from $22 million in 1992 to $232,000 in 1998.
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    In child and youth programs, we are creating a seamless delivery system that serves both parents and children. Our Youth Services partnership with 4-H and Boys and Girls Clubs of America allows us to better provide safe, affordable, and supervised-after-school alternatives for youth during parental working hours.

    We are focused on the 11-to-15-year age group who are too old for traditional child care and too young to drive. Our first commitment remains service to soldiers. We will become more efficient and effective. We will support deployed forces and their families. We will build self-reliance, yet provide a safety net.

    We will do all of this so that MWR remains a primary buffer between change and quality-life predictability.

    Thank you for your continued support, and I stand ready to answer any of your questions.

    [The prepared statement of General Whelden can be found in the Appendix.]

    Mr. MCHUGH. Thank you, General Whelden.

    Next is Rear Admiral James Hinkle, whom I ascribed a confusion with an earlier witness. It had nothing to do with anything other than how it is printed here.

    Admiral, welcome again. It is good to see you, and we are looking forward to your comments.
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    Admiral HINKLE. Thank you, Mr. Chairman and members of the Panel. I bring you greetings from Congressman John Tanner's back yard in Millington, Tennessee, the new home of the Naval Personnel Command. It is always a pleasure to be here, and I look forward to today's dialogue.

    I would like to share with you a few statistics to give you a snapshot of some of the things we have done and an idea of where we are going in Navy MWR.

    There were 3.2 million patrons who used our fitness facilities last year. This equates to 90 percent of the entire eligible activity-duty, retired, and family-member population. We added five new fitness centers and 17 renovation projects and trained staff to support this effort.

    We completed outfitting the fleet with state-of-the-art fitness, recreation, and library commitment. To give you an idea of the magnitude of this project, some 30,000 pieces of fitness and sports equipment, over 4,000 pieces of electronic library equipment, and 22,000 pieces of recreation gear were delivered to the fleet.

    We completed the installation of 61 new Cinema at Sea video equipment packages. It allows sailors on board ships at sea to enjoy movies on a large screen, bringing the crew together for a traditional movie call, and with a sound system that only the young can fully appreciate. [Laughter.]
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    This year, we will equip 50 more ships with the remainder slated for next year.

    Fiscal year 1998 marked the fifth straight year of increases in appropriated fund support to MWR, a total increase of $117 million, or 60 percent since the end of fiscal year 1993. I am pleased to add that we are on track to maintain that budget base.

    For fiscal year 1999, we funded a $41-million central non-appropriated-fund construction package, the largest in our history, and more importantly, we are reducing the time it takes to complete these projects by half.

    Last year, we completed 46 appropriated-fund Military Construction (MILCON) and renovation MWR and child care projects for the total value of $25.4 million. We also put 35 more projects into construction for $25 million that will be completed this year.

    These are but a few of the concrete results that are making a positive difference in the lives of our sailors and their families. We are also aggressively implementing a customer service program that motivates and teaches our staff to serve the greatest Navy in the world, our sailors and their families, and convey with utmost sincerity the message that the Navy truly cares.

    If I may take just a few more minutes, I would like to address an issue that has received significant interest of late, one that often steers controversy, the proposed restructuring of our non-appropriated-fund retirement plan.
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    I am here to assure you that we did not undertake this initiative lightly or without extensive consultation with the experts in the field. We developed this initiative with two goals in mind.

    First, we wanted to simplify and improve benefits for our employees and retirees while also enhancing the security of pension benefits.

    Second, we were seeking an approach to take surplus plan assets and use them in a more productive fashion to improve MWR programs and facilities for sailors, while creating new and more secure job opportunities for our employees.

    As required by IRS regulations, we would purchase annuities for a major insurance company to guarantee payments for all benefits earned up to the date of the new plan. We would also leave excess funds in the new plan to provide added protection for employees and cover future benefits.

    It is also our intent to make adjustments in the benefit formula of the new plan, to simplify it, and increase benefits for the employees. Our lower-paid employees would benefit the most with retirement benefits, for many of them doubling as a result of this change.

    To improve the benefits for current retirees, we would be giving them an additional cost-of-living allowance. We would also refund all prior employee contributions, plus interest.

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    We have added an employer match to our 401(k) plan, and remaining funds would be used to improve MWR facilities and programs for sailors.

    These changes would result in better and more secure pension benefits for our employees and improve MWR programs and facilities for sailors. This is truly one of those unusual win-win situations for all concerned. Even the experts agree.

    I want to thank the members of this committee for your support for MWR over the past years. I look forward to working with you closely in the future.

    I welcome any questions that you might have. Thank you.

    [The prepared statement of Admiral Hinkle can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Admiral.

    Next, we have Mr. Arthur Myers, Director of Air Force Services.


    Mr. MYERS. Thank you, Mr. Chairman and members of the Morale, Welfare and Recreation Panel for the opportunity to appear before you today and tell you the status of your Air Force's MWR programs. I have just a few brief opening remarks.

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    First, let me thank you for your continued strong support for programs impacting the quality of life for our fighting forces and their families. Our MWR troops in the field are providing outstanding support for the force in the many locations where they are deployed around the world, and also back at their home station taking care of those left behind. I have seen first-hand the exceptional service our MWR folks provide across the entire spectrum of military preparedness and engagement.

    Your support is the key ingredient that makes it all possible, and I thank you and the other members of Congress for the additional resources you have committed to these programs.

    For example, the Air Force recently became the executive agent for the Armed Forces Professional Entertainment Office which, in partnership with the USO, provides quality entertainment for U.S. troops overseas, especially those at deployed locations.

    Thanks to the contingency MWR support funding provided in the omnibus bill, this important defense-wide program received an additional $3.5 million fully funding the troops' overseas entertainment requirements for the first time in five years.

    For its own programs, the Air Force received an additional $10.6 million which will greatly enhance the quality of life of deployed service members and their families. You can be sure that that money will be well used and is greatly appreciated by the troops.

    My statement for the record includes more detail in key areas of the Panel's interest, including library programs, child care and youth, our support for the Congressional Awards Program, military funeral honors, protecting the interests of the troops in the privatization efforts, fitness initiatives, and comprehensive standards in the many programs and services we provide for the troops and their families.
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    Let me conclude by saying how much we appreciate this Panel's continued support and guidance to sustain these vital programs. They are an important part of Air Force people's quality of life, essential components of recruiting and retention efforts and a force multiplier for combat effectiveness.

    We put the quality in the Air Force's quality of life programs. With your continued support, the Air Force Services will continue to help keep America's Air Force fit and mission-ready, whether deployed or at home, in combat or in peace.

    Mr. Chairman, I welcome your questions.

    [The prepared statement of Mr. Myers can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Mr. Myers.

    As they say, last but not least is Mr. Philip Short, who is Director of Personal and Family Readiness for the United States Marine Corps.

    Mr. Short.


    Mr. SHORT. Good afternoon, Mr. Chairman and members of the MWR Panel. I am truly pleased to make my first appearance before this Panel today as Director of Marine Corps Personal and Family Readiness.
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    I would like to bring a few specifics to the Panel's attention about our efforts over the past year. In a milestone achievement, we have stood up Marine Corps Community Services as the vehicle for quality-of-life delivery in our corps.

    In the Marine Corps, we make Marines through the process of transformation. This process begins with the recruiter and proceeds through recruit training.

    In response to the challenge of the times, we have raised recruiting standards and made recruit training longer. Sustaining this transformation is the responsibility of those who lead our Marines.

    To assist the leaders of Marines, we have redesigned MWR to exchange family service and voluntary education programs and have, thus, created the Marine Corps Community Services system (MCCS).

    MCCS helps leadership sustain the transformation throughout the life cycle of a Marine from first assignment through successive reenlistments and finally through retirement. In that way, MCCS is a force multiplier that helps maintain Marines as the Nation's premiere war-fighters.

    MCCS programs not only raise the quality of life standards for our Marines. They are directly related to combat readiness. We have one corps, and we have one standard for MCCS. Regardless of where a Marine or a Marine family is assigned, MCCS will look the same, and it will deliver assured high-quality programs, even in deployment.
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    Traditional morale, welfare and recreation activities have been expanded and realigned to deliver programs focused on readiness and prevention of problems, rather than the after-the-fact intervention.

    We can, therefore, maximize the effect of the taxpayers' dollars entrusted to us. As an example, we have enhanced yesterday's physical fitness of the MWR activity by creating a program called Semper Fit. Semper Fit uses a combined-arms approach of physical fitness, wellness, healthy lifestyles and athletics, not only to improve the physical and mental fitness of Marines and their families, but also to raise the overall standard of health and wellness.

    Quality of life is related to readiness. We know that because our programs are related to combat readiness because of our ground-breaking study of quality of life in the Marine Corps.

    We first conducted this study in 1993 and received quantifiable evidence that quality of life is related to readiness. We learned from our Marines and families where our program shortfalls were and also learned our single Marines were the least satisfied with their quality of life. The findings of the studies were, of course, taken very seriously within our corps. We listen to our Marines.

    From 1993 to today, over $1 billion has been invested in quality of life programs and infrastructure. During 1998, we re-administered this survey. I am proud to report to you today that the taxpayers are receiving a good return on that investment. Preliminary results show across-the-board improvements. We have noted a 6.5-percent increase in the intention to remain until retirement or beyond, an 8.5-percent increase in overall job satisfaction, a 6-percent increase in the housing satisfaction, and a 7-percent increase in recreation and leisure satisfaction.
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    In summary, the investment in MWR is bearing dividends in making and sustaining the Marines who win our Nation's battles and in sustaining their families.

    Thank you for this opportunity to brief you about the MWR component of Marine Corps Community Services. Subject to any questions you may have, this concludes my statement. Thank you.

    [The prepared statement of Mr. Short can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Mr. Short.

    I thank you all.

    You all heard me spend a rather sizeable portion of my opening statement on the question of privatization. With the exception of, I believe, Mr. Myers, no one mentioned it in your spoken testimony. It was touched upon in some of your written testimony, but I think it is important to hear from you directly on what I certainly believe is a very important question and potentially a troubling one.

    Yesterday, in the Military Installations and Facilities (MILCON) Subcommittee, we had before us Secretary Apgar, Secretary Dishner, and others talking about the privatization program of housing. I think it holds a lot of potential in a way by which we can work toward depleting the housing stock that in many bases is woeful. There is no other way to put it, but by the same token, we are deeply concerned about the possible effects of associated commercialization within those housing privatization initiatives and retail outlets and challenges and competition against the exchanges and the commissaries coming from private operations located within those housing privatization projects and what that might do to the support of the MWR programs.
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    Number one, I would like to hear those of you from the service branches respond to your view of that potential development as it might affect the support you receive for your programs.

    Second of all, I would be interested to know what, if any, consultation may have occurred between your offices and those who are pursuing this initiative, particularly within the Department of Defense.

    I guess we have to start with General Whelden, based on the service rank.

    General WHELDEN. Sir, Mr. Apgar is the lead on this issue within the Army as Assistant Secretary of the Army. We expressed some concerns about this over the past few weeks and the past few months ourselves, and as a result, Mr. Apgar posted a meeting about seven to ten days ago which I attended, General Bates, Commander of Army & Air Force Exchange Service (AAFES), attended, and General Colburn, who is the chairman of the Board of the Commissary, DeCA, attended.

    We met for almost two hours on this very subject, and I left there with a very good feeling that there is absolutely no intent upon adversely affecting MWR revenues, AAFES revenues, or DeCA revenues or the quality of life that those three programs provide the soldiers and their families, and that what we are really interested in is getting the best possible partnership amongst MWR, AAFES, DeCA, and the private sector such that we can bring quality programs to soldiers and not have adverse impacts on existing programs.

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    So I am optimistic. I think the glass is half full, not half empty, on this issue.

    Mr. MCHUGH. Do you feel comfortable with the channels of input you have had and you are likely to have as this initiative progresses?

    General WHELDEN. Yes, sir, absolutely.

    Mr. MCHUGH. Admiral Hinkle?

    Admiral HINKLE. Mr. Chairman, the leadership of the Navy, I believe, is publicly on record as indicating the Navy does not intend to do commercialization of any of its services or MWR within the privatization of housing.

    There are other areas of privatization that we are looking at and working with Department of Defense (DOD), and others, golf courses and hotels and things like that, but we have not gone very far down that road.

    If it were to happen that this commercialism occurred within the housing, then we would have to have some means to recoup the lost revenues and the other type of things that might be generated in those houses, but I would think if someone did that, that they would want to provide those same kinds of services that we do if they are in fact taking the revenues from that particular area.

    Mr. MCHUGH. Your point is well taken. Of course, at this point in the road, it is an Army and an Air Force initiative. However, I think it is fair to say that the Marine Corps, for example, gets about ten percent, about $5 million a year, of its MWR funds out of AAFES, and anything they might do to upset that end of the equation could adversely affect them. So I guess you have got to keep your eye on your neighbor.
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    Mr. Myers?

    Mr. MYERS. Yes, sir. The Air Force has already taken steps to protect the interests of the troops' benefits as far as exchange, MWR, and so forth.

    We recently came out with a policy that if there is any disputes as far as privatization resale opportunities, those would go to the respective boards for resolution and ultimately up to the Secretary of the Air Force.

    So I feel very comfortable in the Air Force that we are looking out for the best interests of the troops and their families, and these benefits will be protected.

    Mr. MCHUGH. You feel comfortable—

    Mr. MYERS. Yes, sir.

    Mr. MCHUGH. —that you have input—

    Mr. MYERS. Yes, sir.

    Mr. MCHUGH. —and they are considering the practicality and the ultimate impact of any of these proposals.

    Mr. Short, are you watching your neighbor?
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    Mr. SHORT. Mr. Chairman, I can truthfully say that I am pleased to work with my AAFES neighbors. We have a number of very significant cooperative endeavors, and we have been good neighbors for quite a while now.

    Concerning the privatization of housing, the Marine Corps position is that we strongly support that privatization effort where it raises the quality of life standard in housing for our Marines and their families.

    However, we do not support tying resale activities into the contract. We have learned that the contracts for housing and retail services have been considered or let within DOD. It is difficult to conceive of how this would not be detrimental to our MWR dividend and NAF support of MWR. We are extremely reliant in the Marine Corps on that exchange dividend to provide the quality of life and raise the standards for our Marines. So, as we look at it, that would not be in our best interest at this time.

    Mr. MCHUGH. Thank you all very much.

    Just for the record, I strongly support the privatization of the housing initiative as well. I was on MILCON when the chairman helped develop that, and I think it is in the right direction. I just concern myself, pushing the envelope so far, that we not only hurt the credibility of the privatization of housing program, but we, as a secondary but equally important impact, affect the important work that you do. So, there, we have got it.

    Let me just ask one more quick question before I go to my colleagues, who have been very patient here.
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    Mrs. McGinn, in your testimony, you talked about how you are making progress toward the DOD standards on appropriated funds, and that is good news. I would like to hear more good news.

    Quite honestly, the seven years I have been on this Panel now, I have heard a lot about how we are making progress, and yet, we are still not there. Is there any plan, any schedule, or any map that you all have laid out to try to finally across the board reach this, or do we just look at piecemeal progress or losses each year? How are you approaching that on a longer-term basis, if at all?

    Mrs. MCGINN. Mr. Chairman, we are actively involved in watching the services' budgets as they unfold in each budget year.

    We do have a Quality of Life Executive Committee, which is comprised of the senior military leadership and civilian leadership in both housing and personnel issues in DOD. The service budgets and their plans for the future are briefed and presented to that committee, so that we watch it that way.

    Unfortunately, our accounting is set up such that when we apply the funding metrics, we can see how it was executed in the past year, but we cannot really see how it is executed in a future year. So that is something that we need to be working on, so that we have a better handle on that.

    The other thing that we have done is turn to programmatic standards, in addition to our funding standards. So now that we have issued some basic fitness standards, some basic library standards, then those things will have resource requirements attached to them, which the services will need to meet either through budgetary issues or through reprogramming or redesigning the way that they structure their programs.
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    Mr. MCHUGH. Well, I am looking forward to next year, and as I said, I am pleased we are showing some steps in the right direction, but, quite frankly, I do not know as I blame the services for the direction that they have taken historically because it has appeared to be an easy out in terms of accountability.

    The effects of it, I think, are dramatic. Mr. Short spoke about recruitment, and maybe if we have time, I would like to probe that a bit further because I think we are overlooking the vital component that MWR programs play in recruitment and perhaps a very important part of recent recruitment problems that virtually all the services have been experiencing, but I think it is going to take leadership, hard decisions, and commitment from the Department and a clear conveying of that view down to the services if we are ever going to reach that.

    I do not think that standard is unreasonable. I truly do not, and if people do, then we ought to talk about that. So I am looking forward to your comments next year.

    Let me yield to the ranking member, Mr. Meehan.

    Mr. MEEHAN. Thank you, Mr. Chairman.

    The downsizing of units in Europe has increased the difficulty of providing some MWR activities to military service personnel and their families. While some of the consolidation of units in commands have taken place, there are also a number of smaller communities where the size of the community does not justify the full range of services that you would expect to find in a larger installation.
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    What are the Departments doing to compensate for the shortfall of programs and to sustain the quality of those programs available at those downsized installations?

    Mrs. MCGINN. I probably need to turn to my service counterparts for the details.

    General WHELDEN. Sir, if you want to take USAE, or United States Army Europe, as an example, we have a couple of mechanisms that we look at for small installations. One of them is called a self-sufficiency exemption. Typically, we will withhold approximately a million dollars each year of non-appropriated funds to look specifically at very small installations in major commands, two of which are overseas, Menwithe Hills in England and Bad Ivoleim in Germany, to see what specific MWR needs they have. In fact, we have two projects— going in each of those locations this year as a result of our focused efforts there.

    The second thing I would tell you is that in the United States Army Europe, we have consolidated our non-appropriated fund account into what we call a ''one fund.'' That gives the major commander, the Commander-in-Chief (CINC), the Commanding General (CG), over there, the flexibility to make decisions on where he is going to put his priorities, where he is going to put his resources, and assure a level playing field.

    Getting back to Mr. McHugh's comments about standards, in the United States Army Europe, we do have standards established in MWR quality of life, and I was a part of the development to those about four years ago when I was over there.
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    We have minimum standards in all MWR quality of life programs such that if one of the smaller communities is at some risk, we can focus our energies there, and that is what the CG of the United States Army Europe does.

    The last thing I would tell you is that we subsidize where we need and find it necessary. So that, if you have a program that is hurting, we will take the NAF profits of another program to help prop up those that are hurting where we feel the need because I just do not have the customer base that places like Fort Bragg or Fort Hood might have.

    Mr. MEEHAN. I note that in some remote locations, the Department and services have provided MWR facilities, and in other locations, especially in the Middle East where force protection is a major concern, I get a different impression.

    Has the Department exhausted its search for alternative MWR facilities for forward-deployed forces in remote locations where force protection is a dominant concern?

    General WHELDEN. I do not know that we have exhausted it, sir.

    As I said, we have 23 MWR specialists over in Saudi Arabia now, and we contracted out operations in Kuwait for Camp Doha. I visited Camp Doha, and striking a balance between force protection and providing a quality of life, recreation and fitness and so froth is clearly a challenge sometimes, but Camp Doha is, in my estimation, in pretty fair shape. I have not personally visited the facilities that the Army has proponents for in Saudi Arabia.

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    Mr. MYERS. Sir, I recently visited all of our remote sites over in Southwest Asia and also in Europe. We give them priority treatment as far as equipment, programs, and so forth.

    We also have our services' military personnel deployed there. Since we are also responsible for feeding, lodging, we do the MWR part. We make sure that they have the full range of MWR programs needed for that activity.

    However, last year when I went to Tazar, they had a sign that said ''Future Site of Child Development Center.'' We will not go that far. [Laughter.]

    Mr. MCHUGH. Would the gentleman yield?

    Mr. MEEHAN. Sure.

    Mr. MCHUGH. In Doha, you have a sizeable commitment from the Kuwaiti government. Is that not true?

    Mr. MYERS. Yes.

    Mr. MCHUGH. In fact, they paid for most of it, isn't that not true, of the fiscal plan? True?

    Mr. MYERS. Yes, sir.

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    Mr. MCHUGH. Thank you.

    Mr. MEEHAN. One quick question. Obviously, Y2K compliance is a hot issue not only with the resources in the military, but also in the civilian communities. I am aware of efforts that are being expanded to address Y2K matters in military strategic and tactical operational areas.

    What actions are you taking to ensure that the MWR activities and specifically the military resale systems will be able to provide uninterrupted services? Are the MWR Category A and B Y2K-compliant requirements being funded as an additional part of the budget?

    Mrs. MCGINN. You ask these operational questions. I keep needing to lob them over to the side.

    We have asked the services about the status of Y2K compliance, and I believe we got a good report. I will defer to them to answer that question further and also about the funding. Perhaps if you could hold the other question on the resale activities to the resale panel, I would appreciate that.

    Mr. MYERS. What we have done in the Air Force is we have identified in our MWR activities 40 major programs. We started this some time ago, and through a process, we send it to the experts to be certified. As of today, 38 of those 40 have been certified as Y2K-compliant, and the other two will be this month.

    What we are doing on several of our installations, we are actually going to go to Year 2000 to test our bowling machines, our fitness centers and so forth, just to make sure they are compliant. On the Year 2000, we expect our fitness centers to be full with people using them, with no major problems.
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    Admiral HINKLE. The Navy programs both within headquarters and in the field activities have all been certified as Y2K-compliant. We have been using it for pay and salaries for the last year. We do not anticipate any issues there, and most of the equipment in the field, including computer equipment, is being replaced on a regular basis. There is a lot of new stuff out there in the field in the last couple of years, thanks to the money that has been put into it.

    General WHELDEN. In the Army, we have been able to accomplish all of our Y2K responsibilities within MWR without any additional resources. We recognized this problem in 1995, and we started developing our management information system programs such that when we purchased them, they were Y2K-compliant.

    We have ten management information systems in MWR across the Army, eight of which are currently Y2K-compliant and have been tested, two of which are in the fielding process now. One of them is for billeting.

    We expect to have that fielded and tested within the next six months without the need for any additional resourcing.

    Right now, I get a monthly lay-down from my management information folks with a matrix on every system across the Army in MWR. So I am pretty comfortable.

    Mr. SHORT. In the Marine Corps, we are fully Y2K-compliant. As Marine Corps Community Service, I can discuss that we are in fact in our retail also Y2K—we have a number of ongoing developmental programs which we are acquiring such as Point of Sale, RETRAC, and a number of other things. As we are acquire them, they are Y2K-compliant. This is being funded through the NAF where NAF is appropriate or Appropriated Fund (APF), and we have had no increase in requirements for dollars.
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    So we are on track with that through Manpower and Reserve Affairs, which is our larger division, if you will. We monitor this on a monthly basis. So we have no problems being Y2K-compliant.

    Mrs. MCGINN. Mr. Meehan, Mr. de Leon assures me that he can answer the second part of your question in the next panel.

    Mr. MEEHAN. Thank you.

    Mr. MCHUGH. Before I yield to the gentleman from Virginia, I do not want there to be any misunderstanding. I did not mean to suggest, if anyone took it that way, that because the Kuwaiti government was participating that somehow lessens it. Quite the contrary, I was just at Doha in Saudi Arabia, and I visited the poor facilities at Bahrain. The MWR programs are excellent, and there is a real partnership ongoing there that I think has worked extraordinarily well. Actually, I want to compliment you all at what I saw there.

    With that, I would be happy to yield to the gentleman from Virginia, Mr. Sisisky.

    Mr. SISISKY. I thank the chairman and welcome you all.

    Mrs. McGinn, you talked about the quality of life committee. Is there senior military in there?

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    Mrs. MCGINN. Yes, sir.

    Mr. SISISKY. How high does it go?

    Mrs. MCGINN. It is chaired by Mr. de Leon.

    Mr. SISISKY. Oh, that is pretty high. [Laughter.]

    Mrs. MCGINN. The Deputy Chiefs of Staff for Personnel (DESPER's) of the military services, their equivalents on the housing side, the Assistant Secretaries of the Departments for Personnel, and the Assistant Secretaries for Housing, as well as the senior military representatives.

    Mr. SISISKY. Is there any synergism in that committee with recruiting? The chairman brought up the matter of recruitment. Is there any connection there with recruitment that you know of?

    Mrs. MCGINN. The committee has not considered recruitment issues at this point. For the DESPER's and the Assistant Secretaries for Personnel, the issues are there.

    Mr. SISISKY. Do they have a feeling about what is their highest priority in MWR from a recruitment standpoint, what do the people in service enjoy the most or use the most?

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    Mrs. MCGINN. The committee has not really prioritized those things. We have presented certain things to the executive committee, such as physical fitness, for example, because we know that that is very high on the scope for all of our military members, as well as their families, as the number-one MWR activity.

    The committee has reviewed that, as well as a number of other quality of life issues over the past—it has been in existence now since 1995. It was actually started by Secretary Perry and officially chartered by Secretary Cohen.

    Mr. SISISKY. Do you think they relay the importance of MWR programs to the people in service as much as they used to?

    Mrs. MCGINN. Oh, I believe so.

    Mr. SISISKY. You believe that?

    Mrs. MCGINN. I believe that more than that.

    Mr. SISISKY. Do you have a feeling that there is something left, that people are a little afraid of benefits getting eroded now in the military? Do you have that, or do you see that?

    Mrs. MCGINN. I think that has been a concern that has been expressed, and I think part of the Defense budget that we are presenting is designed to allay those concerns in terms of military pay and related compensation.
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    Mr. SISISKY. I ask you that for a couple of reasons. Number one, a lady stopped me last week and said, ''Please, please do not do anything to my commissary benefits,'' a lady from North Carolina, as a matter of fact, but he has left.

    But there was another reason I asked the question, and that had to do with child care centers. General, you mentioned in non-appropriated funds—wait a minute. Was it appropriated funds? The subsidy was reduced from $22 million to $232,000?

    General WHELDEN. Yes, sir, $232,000 for this year. That is a non-appropriated-fund subsidy in child care.

    Mr. SISISKY. How is that made up?

    General WHELDEN. In efficiency, sir.

    Mr. SISISKY. In efficiencies?

    General WHELDEN. In the last 6 years, I believe that we have gotten—

    Mr. SISISKY. I will tell you one thing—well, that is being pretty efficient.

    General WHELDEN. On the appropriated fund side, I believe that we have gotten efficient. We have learned an awful lot.
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    First of all, if you go back to the Military Child Care Act, which really is the launching pad for putting military child care as a bench mark for the Nation, we have gotten better and better and better over the years.

    Our NAF subsidy was $900 per space, per year, in 1992. This year, this past year, it was $11 per space, and I expect it to break even in 1999.

    Mr. SISISKY. But how are we making it affordable?

    I think, Admiral Hinkle, you said something about that. I have got so many papers here. ''Providing quality child care that is affordable and acceptable.'' Are we subsidizing it at all? Are we charging the people more money for child care? Is that what we are doing?

    Admiral HINKLE. The Navy is subsidizing child care to a point, but not with non-appropriated funds, only with appropriated funds.

    What we are finding is that the cost of doing it in child care centers is very expensive, but if we can do it in the home in a family child care setting, we can reduce this cost considerably.

    The Marines have had much success with that in Quantico, and we are adopting that in many of our areas.

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    Mr. SISISKY. Have you raised the prices? That is what I am asking.

    Admiral HINKLE. The price that the sailor pays is the same because it is subsidized in the home for the family child care.

    Mr. SISISKY. Maybe I am missing something.

    Mrs. MCGINN. If I may, sir, the $22-million difference in the Army was mostly made up by increasing the amount of appropriated funds that went into the program.

    Right now, the program is structured so there is a 50/50 match we try to meet. The parents pay 50 percent of the cost, and the Department of Defense pays 50 percent of the cost.

    Currently, the amount that we pay per space in a child care center in terms of DOD funds is about $3,400 per child, and then the parent pays the rest.

    We have a child care fee schedule.

    Mr. SISISKY. They pay $3,400 per child?

    Mrs. MCGINN. Yes, over the year, over the course of the year.

    Mr. SISISKY. And that is affordable?
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    Mrs. MCGINN. We have a child care fee schedule based upon the relative rank of the individual or—excuse me—the total family income, and we—

    Mr. SISISKY. I only bring this up by asking the first question about recruitment. We wonder why we cannot get people to stay in service, and this is one of the reasons. I say one. The fear of losing a lot of these things, health care and everything imaginable, all of this adds—and that is why I asked is there any synergism in this type of thing because I trace it—look, we are going to give a pay increase. We are going to change. We are going to change the retirement plan, but I can assure you, at least I think, it ain't going to help a lot. It is going to be nice to do, but as long as we keep this operation tempo of what we are doing, plus these other things that add into the cost—I mean that the military loses, I just—and that is why I asked the question because that is a good example.

    My guess is—and it is only my guess. I will get to you in a minute. My guess is that you raised the price to the constituents that you are serving. It may have not been in the last year. It may have been five years ago, but I am saying what you did is raise. When did the 50/50 come in?

    Mrs. MCGINN. That came in with the Military Child Care Act in 1989.

    What we did was we established a fee schedule, and then that fee schedule has basically been adjusted for inflation and cost of living allowances over the course of the years. So it has only changed in that regard, and it is based upon total family income.
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    General WHELDEN. Sir, this is the first time I have been before this committee or testified before Congress. I asked my deputy before I left if he had any advice, and he said, ''Any time you open your mouth, you have an opportunity to stick your mouth in it.'' So, at that risk, I would tell you that the Army has, I believe, perhaps the most affordable child care in the nation.

    As Mrs. McGinn said, when you put them in DOD funding bans based on the ability to pay—and every time a parent comes in and says, ''I would like to put my child in child care,'' we do an assessment of how much that family makes, what is their total income and their capability to pay. The lowest end is typically a single parent, and we do have a good number of single parents in the Army. Single parent on the low end of the scale—and we have five pay bans—pays 76 cents an hour for child care. I paid $4 per hour for a baby-sitter who did nothing but watch TV, four years ago when I was in Europe, when I had a personal requirement for a baby-sitter.

    The average pay per hour for child care was $1.64 in the Army last year. I do not know what the other services are, but I would suspect we are perhaps the lowest of the four services.

    So I am very proud of not only the quality of the care, but the price, and I have talked to many, many different groups. Every time I talk to a group when we talk about child care, I tell them there ought not to be a single soldier out there who says I cannot afford child care, and if they do, we can make special arrangements to ensure that their children get taken care of.
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    Mr. SISISKY. I just want you to understand that I asked the question really to be sure that you are doing it.

    General WHELDEN. Yes, sir.

    Mr. SISISKY. That is the way that I have to—

    General WHELDEN. Sir, tell them to give me a call, and I will make sure they get affordable care.

    Mr. SISISKY. And I am sure that you will tell them that I was a nice guy when I told you to look out for them.

    Mr. MCHUGH. That is the other thing he warned him about. When you say you are a nice guy, put your head down. [Laughter.]

    Mr. MCHUGH. The other gentleman from Virginia, the second of three gentlemen from Virginia, Mr. Pickett.

    Mr. PICKETT. Thank you, Mr. Chairman, and welcome to the witnesses.

    Secretary McGinn, in the 1999 Defense Authorization Act, there was a provision in there that required the Secretary of Defense to conduct a survey of the eligible patrons of the commissary system to determine patron satisfaction and make a report on that. Can you tell us where you all are on that matter at the present time?
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    Mrs. MCGINN. I will tell you what I know. I think we are in the process of developing the statement of work for that survey, but you might want to check that with Dick Beale when he comes up on the Panel here.

    Mr. PICKETT. So that is not something that is being supervised by your office?

    Mrs. MCGINN. No, it is not, sir.

    Mr. PICKETT. I thought it said the Secretary of Defense was undertaking that, but you all have delegated it down, have you?

    Mrs. MCGINN. No. It is being handled with our Office of MWR and Resale Activities.

    Mr. PICKETT. I would like to go back to this issue about child care because it is one that is very important.

    I think one of the things that concerns people about this is there are two types. You have got the child development centers and you have got home care, and they are two separate programs.

    Mrs. MCGINN. Right.

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    Mr. PICKETT. But there continues to be substantial evidence, because I ask the question when I go around to different facilities, that there are a considerable number of non-appropriated-fund dollars being used to supplement the cost of the child development centers. That on a base-by-base basis sometimes gets to be a fairly substantial item.

    Do you have some means of tracking that, and what do you do in those cases where the local administrators are using non-appropriated-fund dollars to disproportionately supplement the cost of the child development program?

    Mrs. MCGINN. We have been tracking that since the Military Child Care Act came into our lives in 1989, and right now, we have only identified about $300,000 in non-appropriated-fund subsidies going into child care, the 200-and-a-some that General Whelden mentioned, and then there is a smaller amount, I believe, that the Marine Corps provides, but those amounts have been coming down. Compared to an appropriated fund, commitment to child care was up around $340 million now, I believe. So we believe that—

    Mr. PICKETT. Based on my talking to people at the bases, I question the accuracy of your figures. I think something is a mismatch here between what is actually happening and the data that you are getting. That may be something you might want to go back and look at.

    Mrs. MCGINN. I may have to go back and check that.

    Mr. SHORT. Congressman Pickett, on the Marine Corps side, four years ago, MWR was subsidizing child care with approximately $1 million per year.
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    We have heard the mandate to move to best practices, increase efficiencies, but maintain quality, and this year in fiscal year 1998, MWR NAF had no dollars that went to subsidize that program.

    If there are local commanders that are doing something like that, we track this. We have in our support of Marine Corps Community Services' close financial controls. So I am confident that that is a fact. So, at this point, I cannot identify any MWR funds that have gone to child care in the Marine Corps, sir.

    Mr. PICKETT. I think you all are speaking from the standpoint of what you program for the facilities to actually use, and I guess I am speaking from the standpoint of what these people are telling me is actually happening with the administration of their funds, that they are finding that it is necessary to take non-appropriated dollars and put them into the appropriated fund activity, such as child care, in order to balance out.

    Chairman Bateman held a hearing in Naples this past Monday, as a matter of fact, and one of the big issues that developed was the matter of readiness and how the quality of life impacts on readiness. We sort of got agreement among the witnesses testifying there that perhaps quality of life, readiness, and modernization were the three principal things that impacted on how military members felt about what they were doing, in that order, and then they went on to describe how the readiness and modernization itself impacted on the quality of life.

    In trying to establish the policy for the kinds of activities that you are going to support, do you make any kind of surveys? Do you all have any kind of ongoing effort to find out what it is that the military people are seeking in the way of MWR activities? You seem to have a mismatch in some cases between the younger people coming in who have a different idea about entertainment and so on than some of the older people who are already in. How do you account for that? How do you make up for that?
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    Mrs. MCGINN. There are two ways. Every five to seven years, we have done a master Department of Defense survey of quality of life and military personnel issues. We are about to readminister that survey in the summer/fall time frame.

    Other than that, the services do need assessments and surveys within their military services and determine what the needs are from that.

    I think that I would like to give my counterparts a chance to talk, but I think that they have done a good job of adapting MWR to the needs of the young service members who come in and their different kinds of requirements.

    I know especially the Navy has done a lot with their Single Sailor Initiative and changing the way programs and facilities are put together.

    Admiral Hinkle, would you like to say something?

    Admiral HINKLE. Congressman, what Mrs. McGinn said is exactly right. The Single Sailor Centers are focused at that population, and every year we work with Naval Personnel Research & Development Center (NPRDC), to do a survey of our quality of life programs, and ranking high up there is voluntary education, the Navy Exchange Service as provided, but also our fitness centers. The clubs, as we know them, have changed. The need for them have changed, and that is why these new recreation centers offer an opportunity for sailors to get on the Internet to offer them ways to play games and things that young people grow up with today, and smaller movie houses, the things that they can stick a tape in the machine and watch, instead of going to the large theaters where they see their first-run movies.
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    They have been very popular. They are very attractive to go into. We have a couple in your area. I hope you have had a chance to visit them. The sailors tend to like them. They do not focus on alcohol or smoking and things like that. So it is a healthy lifestyle type of environment that we are trying to encourage.

    Mr. PICKETT. Thank you.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    The third gentleman from Virginia, Mr. Bateman.

    Mr. BATEMAN. Thank you, Mr. Chairman.

    My colleague made reference to the hearings that we conducted in Naples on Monday. One of the areas that was discussed in a negative context insofar as it exciting or creating a greater propensity to stay in the service was the quality of the Department of Defense schools in Europe. Do you have any report of complaints or the quality of that system in the European theater has declined?

    Mrs. MCGINN. Sir, we have what we call accountability reports that we publish, and we can make available to you. We actually track by school how well the individual schools are going.
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    We have heard from our commanders in the European theater that there are concerns about the schools. They address to us in terms of they want the school system to be the best in the world, and they really want a world-class education for their children. We do not hear it so much, at least we do not, complaints about the current quality. We do not want to be just average. We want to be above average. We want to be better and better and better.

    We have put money in the budget this year to comply with some of the requests from those commanders for full-day kindergarten, for reduced people-teacher ratio in grades one through three, and also for an expanded summer school program to provide further learning education for the children, but it is something that we are very aware of and that we have been working closely with the CINCs and with General Clark on over the course of the last six to eight months, I would say.

    Mr. BATEMAN. I would appreciate it if you would send me the background on this.

    Mrs. MCGINN. Yes, sir.

    Mr. BATEMAN. I was very distressed because my own personal view through the years had been that the children of military parents overseas and DOD schools, generally speaking, succeeded better in getting into college, getting into service academies, and succeeding in life than the norm of the population. So it was a matter of some concern to hear such negative comments about the system.

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    Mrs. MCGINN. Frankly, if you look at our performance on what standardized tests there are, our children tend to score above the average there.

    Mr. BATEMAN. One of the comments made—and I think it is part of my concern—if you take the school population they are dealing with, they do not have any children of the homeless. They have very few children that come from an unstable home environment, without any training or without any discipline. These children are going to succeed well in anybody's school, and certainly, such children ought to be given the opportunity for truly a quality educational experience, not an average one, but given their merits and their capability to benefit from that education, it ought to be something that is certainly more than average.

    Mrs. MCGINN. We agree, sir.

    Mr. BATEMAN. That is all I have.

    Mr. MCHUGH. I thank the gentleman.

    We have three more panels, and we want to move along. However, before we do that, we have been joined by a member of the full committee, not a member of the Panel, but a member of longstanding of the full committee and a gentleman with whom I serve on the MILCON Subcommittee where he is ranking member. Mr. Taylor, the gentleman from Mississippi, has a question, I understand, that he believes you folks could shed some light on. So I would be happy to yield to him for that and welcome him to the Panel.

    Mr. TAYLOR. Thank you, Mr. Chairman.
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    Let me preface my remarks by saying in the fall of 1990, Mr. Pickett and then the Chairman of the Military Personnel Subcommittee, Mr. Byron, held a town meeting in Naples, and something that has stuck with me to this day was the troops complaining about the fact that every time they took over an apartment in Italy, they had to go out and buy their own light fixtures, they had to go out and buy their own sinks and commodes. Generals do okay. Congressman obviously do okay financially, but E–3's, E–4's, and E–5's, that is pretty tough. That is 6- or $700 of unanticipated expenses.

    I realize that has been fixed, but I have seen something similar to that in a recent trip to Panama where because the negotiations did not work out there with regard to Howard and Colby, we are in effect getting out there in a hurry. Howard shuts down, I think, in early May.

    In our rush to get the heck out of there, the DOD is doing a pretty good job of prioritizing those things that we are going to keep, but, again, there is a heck of a lot of things in that train that has to get out of there. They have decided some things will not go.

    I am told by a very knowledgeable source that all the white goods, the washing machines, the dryers, the refrigerators, the things that, again, to a congressman or to an admiral is not that big of a deal when you go to buy one, but when you are an E–4 living paycheck to paycheck, it is a big deal.

    I am told that all of that stuff is going to the Panamanian landfill, where it has created a cottage industry of Panamanians who scoop the stuff up, take it back into town, and sell it. Quite honestly, I would rather see, if someone is going to get a bargain out of this, it go to the troops.
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    I know that certainly throughout my district, and I have seen it just about everywhere, there are a lot of businesses that sell reconditioned or used appliances because people realize that, when you are just starting out, maybe that is the best you can do for now.

    I would certainly like to encourage you to send someone down there on behalf of the MWRs and have someone screen these things and then where you can—obviously, you cannot do it everywhere, but in those bases where you can, where you get close to a military sealift command, or where an air transport unit is going to fly back to the States, to get as many of these things as we can and make them available to the troops for two cents on the dollar.

    Again, we have got, I think, 13,000 kids on food stamps. They are obviously having a hard time getting by. Anything we can do to help them in any way, I think it is going to be appreciated, and I sure as hell deplore the waste of these things that the American taxpayers paid for.

    I am told by my very knowledgeable source that in many instances, the appliances are still in the original crates, and that is horrible.

    So, again, I want to encourage you. We have a military sealift command. We have 141's going down there on a regular basis. They usually go down full and come back empty. I would hope someone would act on that, and we have to act on it in a hurry because we close Howard in May.

    Mrs. MCGINN. If I may, sir, can I take that one back and then get back to you on that particular?
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    Mr. TAYLOR. I hope you do before May.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman.

    As I said, we have three other panels. There are many other areas we could and probably in some degree should probe. Therefore, we would ask your indulgence as we go through, and all the members may have the opportunity. I know we will take advantage of submitting some written questions to you for your response, and we appreciate your cooperating in that.

    With that, thank you, again, for being here, and thank you for your efforts on behalf of MWR. We look forward to working with you.

    Mrs. MCGINN. Thank you, Mr. Chairman.

    Mr. MCHUGH. We will move immediately to our second panel which are the witnesses representing the Department of Defense's senior policy-makers for military MWR programs and resale matters.

    If I could have everyone settle in as quickly as possible, we can expedite what under the best of circumstances will be a rather long day. I appreciate the audience's cooperation. Let me rephrase that. I anticipate the audience cooperation.

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    As I said, we have with us the Department of Defense's senior policy-makers for military MWR programs, and we are pleased and welcome the Honorable Rudy de Leon, who is Under Secretary of Defense for Personnel and Readiness; Vice Admiral James Amerault, who is Deputy Chief of Naval Operations, Logistics; Lieutenant General John W. Handy, who is Deputy Chief of Staff for Installations and Logistics in the United States Air Force; Lieutenant General Jack Klimp, who is Deputy Chief of Staff for Manpower and Reserve Affairs in the United States Marine Corps; and Major General Robert Van Antwerp, Jr., Assistant Chief of Staff for Installation Management for the United States Army.

    Welcome to you all. We appreciate your being here. We look forward to your comments, and with that, let me get right to Secretary de Leon.

    Welcome, Rudy. Thanks for being here, and we are all yours.


    Secretary DE LEON. Mr. Chairman, I have a formal statement, but I would just like to be very brief here.

    Mr. Chairman, Mr. Bateman, Mr. Sisisky, Mr. Pickett, and Mr. Taylor, it is a pleasure to appear here to discuss the Department of Defense resale programs and also any questions that the first panel may not have satisfied you on. I think some of our ability to answer some of those questions and the responsibility rests with us as well.

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    To you, Mr. Chairman, and to the other members of the Panel, your advocacy of resale programs is greatly appreciated. Not only do resale activities provide affordable goods and services to military members and their families, but they also provide critical financial support to morale, welfare, and recreation programs.

    During my visits with military members and their families, commissary and exchange stores are clearly viewed as a key element of the military community support, especially overseas.

    The Department's objective is to ensure that resale activities can thrive in a competitive business environment. We are working hard to keep prices competitive and empowering management with the tools they need to posture the resale system for the future. Our resale system is seeking initiatives to lower costs, while improving the benefit. The status of the military resale system remains solid, and the commissaries are fully funded.

    The Department is working to implement important changes directed in last year's Defense authorization bill which includes: expanding commissary and exchange shopping privileges with the National Guard and Reserves; depositing fees for dishonored checks in the surcharge account; obtaining telecommunications services to enable commissaries to accept credit cards; and conducting a commissary patron survey.

    Initiatives contained in the Defense Reform Initiative give the military services greater responsibility for delivering commissary benefits. To facilitate this objective, the four services act corporately in making decisions regarding store operations and responsiveness to military personnel, retirees and their families.
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    I have retained full oversight of the board and remain responsible for ensuring that the commissary funding is not diverted for other purposes. In fact, the Deputy Secretary of Defense has provided explicit direction that commissary funding will not be diverted for other purposes.

    The due diligence review, to be completed in April, conducted right now under the auspices of the Navy, will recommend the most effective and cost-effective ways to organize and operate the exchanges while serving the patron. We will carefully review the services' recommendations and will work closely with the Congress and clearly keep this panel carefully involved as that study comes forward.

    Our resale programs remain robust and provide quality service and products at competitive prices. We are fully committed to improving the valuable support and services these programs offer to men and women in uniform and appreciate the panel's guidance on these important issues.

    In closing, I would just like to make two brief comments. Mr. Bateman, with respect to the DOD schools in Europe, there is an initiative included in this year's 2000 budget that does two things.

    First, it increases the dollars. We will see how responsive my system is and whether I can get you a dollar by the end of my testimony here, but, one, we have increased the kindergarten program to a full day because this is viewed as necessary, really to getting the kids off to a good start.
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    Second, we are lowering the teacher-pupil ratio in the European schools. These were issues I have heard. Secretary Cohen spent time talking with military families. This came back as a major issue.

    Third, we are establishing a Senior Executive Service (SES), position for the DOD schools in Europe so that there is a senior person in the community able to be responsive to military members because they are rotating while the teachers, if you will the educational establishment remains constant, and we need to make sure that parents have as much say in the system as do the teachers and the educational professionals.

    General Reimer has an initiative that he is pursuing, which really looks at the fact that we have significantly resized in Europe from plus 200,000 down to 100,000. Now, how does he provide the diversity? It is not just simply the core, but the diversity of sports programs or music programs, all of the things that colleges look at in terms of extra curricular activities that are critical to being competitive at a major school. How does he do that, realizing that his communities are getting smaller.

    The sports programs for the kids in Italy used to be great because there were enough American bases. They could travel the Adriatic Coast and play their fellow schools, and now with a much smaller footprint, how does he still give that diversity of experience? So, clearly, you have raised a very important issue.

    The second, Mr. Chairman, is I would like to acknowledge that this is the last time that Dick Beale will be testifying in his capacity as the Director of the Defense Commissary Agency.
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    Very early in my tenure in this job, having moved after many years of largely doing procurement of aircraft and ships, to move to manpower issues—very early in my tenure, I came to a conclusion that I wanted a direct relationship with Dick Beale and said he did not have to communicate through the bureaucracy to talk to me.

    He is a very capable person. He is a person who has approached his duties with great seriousness. He is a person of high integrity and dedication to his responsibilities, and I have enjoyed the experience to work with him on a regular basis. He has been a real asset to our country, and I wanted to acknowledge that before he had a chance to testify here today.

    I also am here testifying with Lieutenant General John Handy, who chairs the Oversight Board for the Commissaries. He has made a real impact in terms of bringing resale together. We still have unique personalities and characteristics of the individual systems, but he has really worked hard to get the services who are the ultimate advocates for the customers and the patrons to come together as a system that works together, rather than one that is competitive with itself. The real competition on resale is outside the base gate, and getting our act together has been critical.

    So I wanted to acknowledge Dick Beale and also Lieutenant General Handy, and, of course, appreciate your support and the access to you in the course of the year in doing business.

    Thank you, Mr. Chairman.

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    [The prepared statement of Secretary de Leon can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Mr. Secretary, and we certainly concur with your comments about both General Handy and, of course, General Beale.

    I will reserve my comments until the General is actually seated here, but that was both gracious and appropriate of you. He is a very, very special man, and we appreciate that.

    Next to testify according to service seniority is Major General Robert Van Antwerp, Assistant Chief of Staff for Installation Management, United States Army.


    General VAN ANTWERP. Thank you, Mr. Chairman and distinguished members of the Panel.

    As you know, commissaries, exchanges, and MWR programs are essential for an Army that is facing demanding operational tempo and personal tempo requirements.

    Our customer-driven programs provide integrated educational, preventative, and support services that directly affect soldier readiness and promote self-reliance.
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    We are pleased that the Army in fiscal year 2000 has in our military construction budget three physical training facilities on our installations, and we have 11 more programmed for the out-years.

    We believe that a key component of our success is the active involvement of senior Army leaders through the MWR Board of Directors and the Commissary Operating Board. These boards provide a corporate vision and balance major Army command and installation perspective against Army-wide requirements.

    By implementing strategic planning, establishing standards, soliciting customer feedback and monitoring program execution, the boards help ensure that our programs continue to meet the needs of soldiers and their families.

    Developing and implementing financial standards have been key to our overall financial viability. As we establish programs and support service standards and monitor execution against those standards, we expect to be better able to serve our customers and our families and our soldiers. We expect that soldiers and their families will find more uniformity in the availability and predictability of services Army-wide.

    Another success story that has already been talked about in brief is our support for contingency operations. As General Shelton mentioned, we are working closely with the Army's Housing Privatization Office to maximize the benefits to all as we develop the Residential Communities Initiative projects. We believe there are some great opportunities for further community development, and we corporately want to provide the best possible housing and whole neighborhood opportunities for our soldiers and their families.
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    I thank you, Mr. Chairman, for the opportunity to appear before you today and welcome your questions.

    [The prepared statement of General Van Antwerp can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, General.

    Next is Vice Admiral James Amerault, Deputy Chief of Naval Operations, Logistics.


    Admiral AMERAULT. Mr. Chairman and members of the Panel, thank you for the opportunity to appear before you today and discuss the status of exchanges and commissaries which serve our sailors and Marines, officers and their families.

    I would also like to thank you all for your continuing role as the service members' advocates, ensuring that these important resale organizations meet our needs by providing excellent service at a low price to all of our members.

    I have a written statement that provides comments on the ongoing military exchange merger study, which the Navy is leading, and it also focuses on the usefulness of the new Commissary Operating Board, and I request that that be entered into the record, sir.
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    Mr. MCHUGH. Without objection.

    Admiral AMERAULT. By way of summary, the Navy supports change in the present organization of the exchange systems if it results—and ''if it results'' is the important operative word—in better service at a lower price for our patrons, and if the change protects the contributions that the exchanges make to MWR.

    We look forward to the completion of the study this spring, and we will consider its results very carefully and share them with the Congress.

    Second, the newly formed Commissary Board promises to be a worthwhile forum which will look after the interests of commissary patrons.

    As the Navy's representative on the board, I have been impressed by the ernest and collegial approach to issues taken by the board members led by Lieutenant General Handy in exercising the oversight role.

    I would be happy to answer any questions you might have, sir.

    [The prepared statement of Admiral Amerault can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much.

    Lieutenant General John Handy, Deputy Chief of Staff for Installations and Logistics of the United States Air Force. General?
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    General HANDY. Mr. Chairman and members of the committee, my sincere thanks for being able to be here today. I would also like to take this opportunity to publicly thank you and the rest of the committee for their strong and aggressive support of the MWR troop benefit.

    Having said that, I request my statement be entered for the record—

    Mr. MCHUGH. Without objection.

    General HANDY. —and stand by for your questions. Thanks very much.

    [The prepared statement of General Handy can be found in the Appendix.]

    Mr. MCHUGH. Aha, a curve ball.

    Last, Lieutenant General Jack Klimp, Deputy Chief of Staff for Manpower and Reserve Affairs for the United States Marine Corps. General, thank you for being here.

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    General KLIMP. Thank you, sir.

    Mr. Chairman, Mr. Short and I submitted a joint statement for the record. I would request that that be taken as such.

    During his opening remarks, Mr. Short discussed our stand-up with the Marine Corps Community Services program far more eloquently than I could ever hope to. Retail sales and MWR are key integral parts of that program.

    Our recruiters have accomplished their recruiting goals for 44 consecutive months in terms of both the numbers of people recruited and the quality of those people recruited. Once we have expended that effort and have enlisted them into our Marine Corps, it is our job to care for and sustain them while they remain on active duty. I think our success in doing that and accomplishing that is reflected by the fact that our first-, second-, and third-term reenlistment rates are tracking with historic norms.

    I think that success is further reflected by a couple of quality of life studies. We did one in 1995, and the most recent one in 1998, that showed that the satisfaction of Marines and their families, with their quality of life in our corps, has risen by 7.5 percent.

    This is my first time as the Deputy Chief of Staff of Marine Corps Manpower and Reserve Affairs to appear before this panel, and I stand ready, sir, to attempt to answer any questions you may have.

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    [The prepared statement of General Klimp and Mr. Short can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, General.

    Gentlemen, you heard my opening comments. You heard my opening exchange with the previous panel with respect to privatization. This is an issue that at least for the moment appears to primarily involve the Air Force and the Army, but it certainly involves you, Mr. Secretary, and your area of responsibilities. So, obviously, I was pleased that the service folks felt that their concerns were having input, but I would like to hear from your end of the equation.

    To what extent you are pulling in MWR concerns, I would like to hear how you evaluate the potential impact of commercialization within the Housing Privatization Program on MWR funding streams and on their general integrity so that we can get a little bit better picture.

    Mr. Secretary, I think it is correct that we start with you, sir.

    Secretary DE LEON. Mr. Chairman, I have raised this issue with my colleagues, in the Army and Air Force particularly, and I am satisfied that as we move forward with the housing initiative that our MWR system and all of the prerogatives are being protected, and that the folks that are responsible for housing and the folks that are responsible for the MWR programs are having a very vigorous dialogue.

    I think we all agree how critical the new Housing Initiative is, but I have seen written direction from the Assistant Secretary of the Air Force and I have reviewed the direction that the Assistant Secretary of the Army, Ms. DeMesme and Secretary Henry, have made relative to protecting all of the MWR options. So I believe at this point, the concerns should not be front-burner concerns. In the long term, we are looking at how we can provide a better quality of life, in this case through better housing to our members, but I believe that the actions that the Air Force and Army have taken in the near term have recovered whatever ground might have been lost in terms of the resale activities on these new housing tracks.
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    Mr. MCHUGH. Just to make sure we have it in a single context, on the record, am I safe in assuming that before any of these programs go forward and are finalized that you will share the recommendations that you all have developed, particularly with respect to MWR with this Panel?

    Secretary DE LEON. Well, particularly with respect to MWR, I am also a major participant in the whole housing initiative because, to increase the amount of housing and to use the public/private initiative largely requires the use of housing allowances. So that comes through my office.

    I meet with the housing people now weekly. This is an issue in at least three other committees, the House Applications Committees, other subcommittees of this committee, as well as the Senate Armed Services. So I believe there is a full and very healthy discussion going on, but my bottom line is resale will be a key element of the Housing Initiative as it goes forward, and I will certainly protect our MWR system as that goes forward.

    Mr. MCHUGH. I know you will, Mr. Secretary, but, again, will the recommendations be shared with the Panel prior to their adoption? I did not use the word ''approval'' of the Panel, necessarily, although I would like that, too.

    Secretary DE LEON. I think we have no secrets from this Panel.

    Mr. MCHUGH. Can I hear a ''yes''? [Laughter.]

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    General VAN ANTWERP. Sir, if I might respond?

    Mr. MCHUGH. In all seriousness, am I getting a ''yes,'' Mr. Secretary?

    Secretary DE LEON. Yes, absolutely.

    Mr. MCHUGH. Thank you. Thank you.

    Secretary DE LEON. Unconditionally.

    Mr. MCHUGH. That is all I want to hear.

    Secretary DE LEON. I was trying to remember the standard from last year.

    Mr. MCHUGH. The partly dead, wholly dead, we are going to get back to that in a second. [Laughter.]

    Mr. MCHUGH. General, go ahead.

    General VAN ANTWERP. Sir, you get a ''yes'' from the Army for sure.

    Mr. MCHUGH. Thank you.
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    General VAN ANTWERP. What we are doing with our program, the back bone of our program is to develop a community development plan, along with a developer, the Army, the local community, and if there is opportunities for AAFES or DeCA or MWR operations, that will be brought to their boards. So part of it is we are buying information that might provide opportunities actually in this area, and then it will be taken to the board and brought to the Panel, before anything is done.

    I will read a statement out of our guiding principles. It says: ''The Army will not approve any initiative that would compete with AAFES, DeCA, or MWR operations without express approval of the board of directors of those organizations.''

    Mr. MCHUGH. Comforting words, General. I appreciate that.

    General Handy.

    General HANDY. Mr. Chairman, the Air Force initiated a rather aggressive policy that is stated much like the Army just read to you that, under no circumstances, will the interest of DeCA or AAFES be subordinate to the interest of housing privatization, and it is a lot more fancier than that, but the purpose is to make darn sure that the troop benefit is considered first.

    Mr. MCHUGH. Good.

    Well, as I said, and just to follow up on the Secretary's comments, this is an important program, this initiative, and I truly am excited by it. I think it can do some very positive things. I would hate to see it become less effective or somehow endangered by transgressing these lines, but it sure sounds at this point that you have this in hand and I appreciate that. I say that to all of you.
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    Mr. Secretary, last year we did have an exchange about—no pun intended on that word—discussion about the possible use of non-appropriated funds to underwrite commissary expenses, and the reference I used at the time was something out of the movie called ''Prince's Bride,'' where the question was, was the hero mostly dead or totally dead. You said that initiative was totally dead, and indeed, it was. I appreciate the clarity and the follow-through.

    Perhaps I should have asked it as well about another initiative, though, with respect to some concerns that we had on the devolvement of the commissary system. Without dragging all of that out again, I know that you understand that the panel—I think it is fair to say the committee was concerned about the devolvement of management and certainly funding. We had some proposals and worked up a program of restructuring of the management that I think has been relatively effective.

    The Congress adopted language that specifically prohibits devolvement of funding, however. Yet, in the budget submission this year, there are in fact proposals to enact that devolvement. I am just wondering where we stand on that.

    Secretary DE LEON. As the case last year, the committees of the Congress will be able to write the final word.

    I think in talking with the senior leadership of the Department in the last week with respect to this, including Dr. Hamre, our goal with the Commissary Board, which you approved—and whether the services control those dollars directly or indirectly through me, the one thing that we want to make sure that we are committed to is that the commissary system is responsive to the military members and the retirees.
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    I think that the board is more responsive than a bureaucracy because the board can respond real time. So I think in the long term, we would like to see the board have more autonomy. I think that is the Department's position.

    My personal position is that I think the committee was responsive to our request in spirit last year. I think we have a system that is working very well.

    I think that General Handy, as we work through the 2000 budget process had more control over the commissary system and in terms of where to direct dollars and things like that and that his recommendations carried the weight with the Deputy Secretary. So I think we are on the right track.

    You gave us a great start last year, and rather than coming to a definitive conclusion on whether devolvement is the right answer or the status quo is the right answer, I would just say give us a chance to continue to use the tools that you offered us last year and judge us by what we produce.

    Mr. MCHUGH. Kind of threw the ball to you, General.

    Mr. Secretary, I appreciate and appreciated last year the way we worked through the management side, and we have the greatest respect for General Handy and the job that he has already done. I would be one to agree from what we know at this point that that new structure is working well; that, indeed, from the information I received, it does provide the services with more direct input and in a sense creates a more sensitive and more direct system, which I think does work well.
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    I am not certain that translates to the questions of funding with respect to driving it out of the Department where the responsibility lies and into the individual service budgets, not because we do not have faith in the board—I do not have faith in the board—not because I certainly do not have faith in General Handy, but because I am deeply concerned about the possible erosion of support that is available.

    We all know what the budget realities for the various branches of the service are at this moment, and they are incredibly challenging.

    We just had a discussion in the previous panel about how, in spite of years of departmental standards on percentage levels of commitment to MWR programs and Category B, all of the services fall short, in spite of their good intentions, in spite of all their skills, in spite of all their good work. In fact, in Category B, each one of the services lost percentages of funding. So that is the concern we have, but I guess you are saying that the Congress will have its will. So we will see, but I think we spoke pretty clearly on that last year and I would be surprised if we change.

    Let me yield to the ranking member, Mr. Meehan.

    Mr. MEEHAN. Thank you, Mr. Chairman.

    Both the Chairman and I have mentioned in our opening remarks the concern about the unintended changing character of the MWR activities as a byproduct of housing privatization initiatives. My question, while similar to the chairman's first question, is different in the sense that I want to get at the process that will be used for future considerations because I think it is my sense that the absence of a comprehensive approach to housing privatization provides the most opportunity for mischief in those areas.
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    In terms of process in the future, in developing the privatization package, a public private consideration, at what level in the services does the package get reviewed and approved?

    General VAN ANTWERP. Sir, I will address the Army program.

    What will happen under our Request for Qualification (RFQ), process which is the basis—not for the Fort Carson. That was done under the traditional RFP where the plans and specs essentially were set ahead of time, and then we got bids on that. Incidentally, in July of this year, those bids, we will open and we will have a contractor/developer to building the housing at Fort Carson, we hope.

    The others that make up the pilot are done through an RFQ process, and that process, we will very early on down-select to a single developer. We will enter into a 6-month process with that developer to develop a community development plan.

    At that time, they will analyze not only what is available off the installation, 2-, 3-, 4-bedroom homes, but what really needs to be on the installation.

    In addition to that, as I said, they would analyze what other resale or other opportunities there might be, and we are going to have in-progress reviews (IPRs), every month where we will report out to—in fact, General Whelden and General Bates will be part of that report-out system, and we will report to them and tell them what we have found and discovered.
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    At the end of that 6-month period, that developer will present a plan, and at that time, the plan will go all the way to the Assistant Secretary of the Army, Mr. Apgar. He will be the focus of that plan. It will come in. At that time, we will take any recommendations in this area to the two boards and then to this Panel. So that is kind of the procedures, a monthly IPR, and then at the 6-month mark, we will have a plan that is presented that will be elevated to the Assistant Secretary level.

    Mr. MEEHAN. And that will be the plan for the pilots, and looking into the future, that would in all likelihood be the process?

    General VAN ANTWERP. We are feeling that if these pilots work out correctly that the other 47 installations will use the same procedures.

    General HANDY. Sir, a similar program, perhaps a little more aggressive at the front end, we have an integrated team of all the components of the issue for privatization as well as MWR in services at the Air Staff who look at each of the projects. The Major Air Force Command (MAJCOM), that owns the base has a similar staff, an integrated team that develops the proposals with the host commander of a particular installation, but then before it goes any further, it is briefed to the Chief of Staff of the Air Force for his approval, and that early on in the stage ensures that we are looking at all the pieces of the puzzle, both for these initial privatization efforts, as well as any future ones.

    General KLIMP. Sir, I will go ahead. I think as Mr. Short said, the Marine Corps supports public/private ventures for housing where they provide an improvement in the quality of housing that is going to our Marines.
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    It is difficult for us to conceive of a concession as a part of that, that would provide the same dividend to our Marines, and the protection of that dividend that goes to our Marines is essential to our quality of life programs.

    Consequently, none of the Public Private Ventures (PPVs), that we have going right now, have working right now have that sort of a plan or portion of the plan within them.

    As the Deputy Chief of Staff for Manpower and Reserve Affairs, I sit as an active member of the Assistant to the Commandant of the Marine Corp Committee (ACMCC). It is just the commandant of the Marine Corps Committee. I am also a member of the Executive Steering Council for the Marine Corps. Any initiative to incorporate that sort of thing into any of these PPVs would have to be vetted through both of those, and we would have our opportunity to examine it very carefully at that point.

    Admiral AMERAULT. Sir, in the Navy, the concept and goal of the public/private venture housing concept is to allow us to achieve by 2005 an elimination of the backlog of repairs necessary in housing that we now own and to add some significant number of housing to our inventory. That is the sole concept and goal at the moment.

    Any concept or any plan gets vetted at the four-star fleet commander level, that gentleman who basically owns the housing in the field, prior to it coming to Washington, to the Pentagon, to be reviewed by myself and by the Deputy Assistant Secretary of the Navy for Installations and Environment.
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    At that time, if it meets our approval—and when we do review it, we review it for basically the problems that the fleet commanders, the four-star flag officers had with it. We then send it to DOD where it is either accepted or rejected. It comes back through the loop to address any concerns with DOD. Then it comes over to the MILCON Subcommittee staff for approval.

    That is a long gauntlet to run. It generally shakes out any real questions with the project, and we want it to improve our housing. That is what we are after. We are not looking at the moment to public/private-venture any retail operations or MWR activities.

    Mr. MEEHAN. Mr. Secretary, does OSD have a role in this matter?

    Secretary DE LEON. We do. I am about to co-chair, along with my counterpart who is the Under Secretary of Acquisition, a housing board, which will oversee the execution of the plan.

    Clearly, I will be there to ensure that the allowances for housing and transfers of dollars as they migrate from traditional construction accounts to allowance accounts are fully funded and will certainly ensure that the appropriate mechanisms for support are there, which means a commissary or a shopette or something like that, but I think we have protected all of our interests here on the MWR side to ensure that a new military community has all of the same characteristics and attributes as one that is inside the base fence.

    Mr. MEEHAN. Thank you, Mr. Chairman.
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    Mr. MCHUGH. Mr. Sisisky?

    Mr. SISISKY. Thank you, Mr. Chairman, and welcome to you gentlemen. I see you in other committees quite often, and I also see Secretary de Leon.

    Before I ask him some questions, which may sound unfriendly, and, of course, they will not be, and I have known Secretary de Leon for a good while, but over the last year, I have really been involved with him both in health care, commissary problems, all things, but one thing that I am satisfied with is that he cares about the people in the service. That is the important thing.

    We expect you gentlemen in uniform to care about the people in service, but not always in a civilian suit, and a handsome civilian suit, I might add.

    Having said that, I think that Congress was pretty clear last year, I think, that we did not want commissary funds moved to service O&M accounts.

    I think you said that we will preserve DeCA at the OSD level. Am I correct in that?

    Secretary DE LEON. That is correct.

    Mr. SISISKY. It reminds me—I have got to tell this story—of when President Kennedy, right in the middle of the missile crisis, discovered we were still sending U–2 flights over Russia, and he was reported to have said: ''There is always some poor SOB who does not get the message.''
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    Who did not get the message? You do not want to say. All right, I will let you go find out. I know who did it, but, anyway—that is terrible.

    I have got to bring up some controversial things because I have been worried about it. This is not going to be very popular what I am going to talk about, I can tell you that, particularly with base commanders, because I have already tried it on for size on one of them.

    I have heard that AAFES—and I am doing it to you gentlemen, particularly. Maybe I should do it to the next panel, and I may do it then, too, but I think you have to answer the question. If you remember the debate on tobacco products in this very room, the debate was a lot, and I remember using the argument, if they cannot get a bargain at the commissary, they are going to go outside and get a better bargain. I used Hampton Roads as an example where an Army exchange was selling on the peninsula, and people would drive an hour to get there to buy tobacco products. We said no, they are not going to have that.

    I understand—and I do not know this to be a fact, but I am willing to listen—that AAFES, because of the arrangement and the mark-up that they have, is making about $80 million a year off of that.

    I think we all know that DeCA sales have declined. Appropriated funds obviously are limited. Surcharge revenue is down. Expenses are up, and, of course, the big problem now is that new construction will be almost nonexistent, therein lies the problem.

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    Some of you gentlemen will go to other hearings. I may blame this on Defense Business Operating Fund (DBOF), but I will let you comment, Secretary de Leon, on DBOF. I do not know how to approach it. Should they share it? I know the base commanders are opposed to that. Or, should the commissaries add something like wine in there, which would be in direct competition? But these are the things we are going to have to face, and with the declining base there, I think we have to face it.

    I would like your comment on that, and by the way, I think the commissary system—and I tried to get it out of the other panel—is the number one—

    Secretary DE LEON. I agree.

    Mr. SISISKY. —in terms of personnel fringe benefits, and I think we have to keep that in mind.

    Secretary DE LEON. Well, you raise several questions there, and all of them pertinent and interesting.

    I think the one experience I have had the last year watching is to see how we can maintain the unique characteristics of the commissary, which is really a benefit, and the exchange system which is a service, and yet, how can we bring them together?

    When you look at the tobacco issue in retrospect, while there is a lower percentage of sale today, the revenue that is being generated is greater, and so that translates into more dollars going into the MWR fund, which goes back to the—
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    Mr. SISISKY. That is the base commanders.

    Secretary DE LEON. Well, it goes back to the base commander, or what the exchanges also did was to provide more products at better price in the exchange sale. I think General Bates can answer this question far more articulately than I, but I think from the additional revenues, they have tried to put them back in a way that benefit the service member.

    I think the spirit of your question is very challenging, and it is bigger than just simply the sale of tobacco, beer, and wine. It is how does our resale system, especially at the United States bases, stay competitive with resale outside the fence that is dramatically changing.

    I spent several days at Cape Canaveral a summer ago, and outside was a Wal-Mart which was state-of-the-art. It had a grocery store in the middle. General Beale told me to go look at this place because he said this is his competition of the future. It had a grocery store in the middle, soft lines, hard lines, with groceries essentially being the part that is attractive, to get the person inside. So you give them the groceries at a very, very cheap price and—

    Mr. SISISKY. Product leaders at a cheap price.

    Secretary DE LEON. The product leaders.

    So, clearly, outside the fence, the marketplace is changing.
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    I think one of the things I have been most encouraged about was to hear the level of discussion among all of our resale elements as we prepared for this hearing and as we go through our normal course of business, and I think the commissary board and the service oversight of the exchange process has really moved us closer. We are still distinctive.

    Commissary is still a benefit, and the exchanges are still a service, but I think in the last year, we have made great strides moving toward one resale.

    Ultimately, where the system is critical, life and death, is as the chairman said. When you go to Camp Doha and you see Army troops coming out of the field, out of the dust literally, and they can go to the MWR trailer. They can decide whether they want Coke or whether they want the sport kind of drink which is now very popular in the different brands. They can go and have the kinds of products that they want.

    So how we keep the system competitive in a way that really supports the people who are totally dependent on the commissary and the exchanges overseas is our great challenge as the marketplace outside our gates change.

    Mr. SISISKY. Our challenge is going to be if they—and I really believe because of the traffic—I mean, they still get five percent. I understand that, no matter what price they sell, but I think it is taking away business from them, and that is not the only thing. You explained the others, but somewhere, we are going to have to rationalize, and the only way I can see it is take—I mean, if they took a product and put it in that and let them take a product and sell something else in the commissary, maybe that would bring the traffic.
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    I do not feel bad in suggesting alcohol. A lot of people, they can go right next door and buy it from the commissary. I mean absolutely next door in the same shopping mall. So I think you have to think about it. I am going to think about it when we bring this bill up because that may be the only way that we can do it quid pro quo and get some money for modernization and for the people that work there.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Mr. Pickett?

    Mr. PICKETT. Thank you, Mr. Chairman.

    Secretary de Leon, one of the items that gets a lot of attention and is very important to the resale system has to do with the data processing, the data processing of the sales, data processing for inventory control, and, of course, you have the issue of not just the generic data processing, but you have hardware issues and software issues. Is that something that your office follows and oversees, or is this an issue that is left strictly up to the individual resale activities, the exchanges and the commissaries?

    Secretary DE LEON. With respect to the commissary, General Beale keeps me apprised of what he is doing. He has now initiated a study with Layer Management Interface (LMI) really to inventory his computer systems and how he really moves into the 21st century, but this is one where I have given him the authority or he has the authority really to make smart business decisions. Clearly, I know that this is on his mind.
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    Mr. PICKETT. Isn't there some synergism between all of these resale systems that we could benefit from having a little closer oversight and coordination to ensure that they try to sort of stay in sync with the kinds of programs that they adopt and use?

    Secretary DE LEON. I think that answer is yes, and this is one of the things that we looked to General Handy to do in his capacity of representing the services.

    The big improvement of having General Handy and the Commissary Board is that we had two different systems, again, one a benefit, one a service, but they were managed differently, one with the services, hands on, directly involved, the others with the services more looking at an independent agency. I think to bring them together so that they work more in conjunction with each other rather than competitively with each other, again, because the real competition is outside the fence, is one of the things that I am seeing from General Handy's leadership and the involvement of his counterparts from the other services.

    I might ask if he would have any comments along those lines.

    General HANDY. The Secretary has really hit the nail on the head, sir.

    I could certainly address the efficiencies of the insights of the services. General Colburn and I both sit on the AAFES Board, for example. We both sit on the Commissary Board. We see a service involvement in decisions at the exchange level from having been on that board that we are seeing in the Commissary Operating Board today.
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    So, with regards to things like information technology, it becomes pretty clear that, as you put it, the closer you migrate systems or able to migrate systems to share data, the more efficient you are likely to come. I would say we are a long way from that, but because the services are now closer to the action, I think that we will have a greater influence on decisions involving data information technology, et cetera.

    Mr. PICKETT. Thank you.

    Secretary de Leon, the GAO and also the Inspector General has taken a look at the issue of inventorying and distributing distilled spirits as opposed to buying those from the established distributors in the area. In its recent review, the Inspector General indicated that the rules have not been followed pretty much—I am paraphrasing now—in establishing what those costs are and that a better job should be done to determine what the distribution costs are.

    I think the burden or the suggestion of this work falls on your office—

    Secretary DE LEON. Yes.

    Mr. PICKETT. —to develop the policy that is going to be followed and the procedures that are going to be used. Can you tell us where you are in that process, and what you see as the likely policy direction that you will be giving?

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    Secretary DE LEON. Consistent with the law, our obligation is to buy from the most economical source.

    I think each of the resale activities are moving in that direction. We have a few issues that we need to work out in the American Northwest with respect to unique State laws that have an impact, but I think the second panel will be able to give you an immediate status report. They are very close to executing the policies that will fully implement the 1996 law that you referenced.

    Mr. PICKETT. Okay.

    The one other related item was that of the pricing of distilled spirits. I believe it is the goal of the Department to have the products in the exchange stores priced about ten percent below what a similar product would cost outside the gate. Is that the pricing policy that you presently have in effect?

    Secretary DE LEON. That is correct.

    Again, I would let the witnesses representing the exchange discuss that. There are really two thresholds. One is ten percent where the distilled spirits are distributed by the State, and I think it is five percent where the marketplace establishes the cost, but I think each of the services are moving in that direction.

    Mr. PICKETT. The final question I have has to do with the costs that are paid by the resale system, the cost of products that they purchase for resale.
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    We pay a lot of attention to what our selling price is and the difference between what we pay for something and what we sell it for, but as I understand it, there is a requirement that vendors provide to the Federal Government, their lowest price that they offer to any of their customers for similar quantities and sales conditions.

    Do you have in place a policy to make sure that the Government is getting the best possible price to which it is entitled when they are buying products from commercial enterprises?

    Secretary DE LEON. I will ask the next panel to give you the details on that.

    Mr. PICKETT. I am ahead of time.

    Secretary DE LEON. The answer is yes, we are moving in that direction. We are factoring in the transportation piece. We are trying to use military transportation to get the product so that the service man or woman is essentially paying what they would pay if they were buying it at a mall here or at an exchange in Norfolk. So the overseas deployment, the transportation is not factored in, but, clearly, transportation is a big issue that the resale system is focusing on, so that we are able to ship the goods to the exchange and not penalize the member simply because it is further removed from a distribution point.

    Mr. PICKETT. Since you were not able to answer that last question, I am going to ask you another one. I had said that was going to be the last one.
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    The proposed Performance Based Organization (PBO), legislation for DeCA, where is that, and is it going to come over? Are you going to expect changes in the law applicable to DeCA or request them of the Congress this year?

    Secretary DE LEON. Well, I do not know that there is a PBO initiative.

    General Handy and General Beale are working on an initiative that will really streamline the business practices of DeCA. That is still under deliberation and review, and our hope is to send it to you because they are actively working on it, but it is not to make DeCA a PBO. It is really to make it a 21st century business practice system.

    Mr. PICKETT. Thank you.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Mr. Bateman?

    Mr. BATEMAN. Thank you, Mr. Chairman.

    I know we have to go and vote, but I just wanted to take a moment before we run to say to the Secretary what a pleasure it is to work with him on a number of issues through the years.

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    I am sorry that we are seeing the budget as we are seeing it in the submission with reference to the funding of commissaries, but if my recollection is correct, we should have taken care of that or did take care of that in Title X. It pretty well flat out says where that will be funded, unless we choose to change it. In any event, I appreciate the context in which you say you will be the arbiters of how that goes.

    The other thing I wanted to take a moment to do is to say a word of hail and farewell and appreciation to General Beale for the many services that he has performed and for his value to us through the years, and to say that as of a short time, I will be his servant and he will be my constituent.

    Mr. PICKETT. He has already moved in that direction.

    Mr. MCHUGH. Mr. Bartlett indicates he can do his portion very quickly. So I will yield to him.

    Secretary DE LEON. Could I just advise Mr. Bateman? Our system is responsive, $227 million in additional funding in the FYDP for the DOD schools in terms of the kindergarten and lower pupil/teacher ratio.

    Mr. BATEMAN. Thank you.

    Mr. MCHUGH. Mr. Bartlett?

    Mr. BARTLETT. Thank you.
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    Mr. Secretary, thank you very much for your cooperation in past matters, and considering the increasing difficulties we are having with recruitment and retention, quality of life is an evermore important factor in the military.

    I just want to commend the panel members for their commitment to that area. Thank you very much.

    Mr. MCHUGH. Obviously, we are in a vote, and we are in the second bell of that vote. So we need to go, but we have a number of other questions on the retirement system, for example, and others, but, Mr. Secretary, in consideration of the time, I believe we will submit those in written form. We would appreciate your response to this.

    Gentlemen, there will probably be questions in there for you as well. We would appreciate your cooperation.

    Thank you all for being here. We appreciate that, and with that, I would dismiss this panel, with our thanks and appreciation, and tell the members that we will be back as soon as we can. There may be two votes, depending on the disposition of the first vote, but we will be back for our final two panels.

    So we can stand in adjournment until the conclusion of the floor votes.


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    Mr. MCHUGH. If we could reconvene the hearing, people can find their places, and we can begin with our third panel of distinguished, all, resale chiefs. We certainly want to welcome Major General (Ret). I can say that twice now, Major General (Ret) Richard E. Beale, who will soon be retired yet again, and we will say a bit more about that in a second, as Director of the Defense Commissary Agency. Then we will hear from Major General Barry Bates, Commander of the Army and Air Force Exchange Service; followed by Rear Admiral Richard T. Ginman, Commander, Navy Exchange Service Command; and Mr. Philip Short, Director of Personal and Family Readiness of the United States Marine Corps, who loved it so much the first time, he has come back for more.

    Mr. SHORT. Glad to be here.

    Mr. MCHUGH. That is why they say what they do about the Marines.

    Mr. SHORT. Yes, sir.

    Mr. MCHUGH. Good things, I mean.

    As I said earlier to Secretary de Leon, I would like to add my words of appreciation and admiration to Richard Beale, General Beale. It really is impossible to go through by rote the distinguished career he has compiled in both uniform and then out, but I have tremendously enjoyed and welcomed the opportunity to work with him. It has always been an experience that I have felt comfortable in because he is, first and foremost, a gentleman and always a professional and always brought to the job the kind of motivation that, if all of us possessed as deeply and consistently as he did, this would be a far better country.
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    Dick, we are going to miss you, but thank you for your years and years of service, and I do not want this to sound like a eulogy. You are still a young man. Whatever challenge you next face, those who are standing with you will be very fortunate. I know you will be equally successful. So thank you, sir.

    General BEALE. Sir, I appreciate your kind remarks.

    Mr. MCHUGH. Nothing but the truth. You have got to say that when you are the chairman.

    Having said nice things, you do have the opportunity here today to appear before us for a final time, and we welcome you and look forward to your comments. As usual, you hold the lead-off position, General. So we are all ears and anxious to hear your testimony.


    General BEALE. Thank you very much, Mr. Chairman.

    Mr. Chairman and members of the Panel, as noted, this will be my last report to you as Director of Defense Commissary Agency.

    Before I begin my final report, I would be remiss if I did not take this opportunity to express my thanks and personal thanks to each member of the panel, both present and past, because without your help, we would not be where we are today and I am truly appreciative.
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    I would also be remiss if I did not thank publicly Under Secretary de Leon for his most gracious remarks and his confidence that he expressed in the earlier panel.

    There are two specific issues that I wish to address in my brief opening statement, and then I will make a couple of general remarks.

    The first involves our attempt to acquire a commissary information management system which we call DCIS. After three years, as many of you may know, of significant hard work by DeCA, the Air Force, and the contractor, I decided to allow the DCIS contract to expire because of escalating costs, uncertainty that the end product was attainable at reasonable costs, and the fact that the system could not be deployed before the year 2000.

    As directed by the Congress in last year's authorization bill, the Department of Defense Inspector General (DODIG) has audited the DCIS program, and although I have not seen the final report of the DODIG, I have been privy to an out-brief.

    I am told that their preliminary report will indicate that the DCIS procurement, the program management, and the contract management were all conducted in strict accordance with the law.

    Despite DCIS, as I sit here before you today, I can tell you that DeCA has never been in better shape information technology-wise. We have a sound enterprise business system on which to build, and we have a solid information technology foundation that will carry us will into the 21st century, and I will look forward to your questions and expect some in that regard.
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    The second matter concerns scanner data. This has been a tough issue for many of us. Commissaries have provided scanner data to industry through various contractual instruments for many years. The most recent formal contract inherited from the Air Force ran from January of 1991 through March of 1996, approximately 63 months.

    An attempt to award a replacement contract resulted in long-term litigation when the General Services Board of Contract Appeals declared the contract void. DeCA then moved to an interim measure pending resolution of the litigation, which provided data to interested parties through auction.

    This was a wise business decision. Had DeCA waited until completion of the litigation, there would have been no scanner data available for more than two years.

    Furthermore, after considerable training for multiple industry sources, an adoption of the industry-wide practice of category captains, DeCA operators realized we no longer required the category management support services specified in the original contract.

    Upon conclusion of the litigation, DeCA has moved to a new auction process to help us realize market value for the scanner data, and when we announced the results of that auction, which I hope to be within the next two to three weeks, I am confident that we will receive market value for the use of the scanner data.

    In a more general sense, over the past 6-1/2 years, I poured most of my energy into the preservation of the commissary benefit by increasing operational effectiveness and focusing on the customer. While DeCA has been very successful in maintaining a much improved commissary benefit and system, we, and that is all of us, have in my opinion neither fully understood what has occurred over the past five years in the grocery sector of commercial retail or spent sufficient time evaluating how our customers, particularly our younger customers, are responding to the overwhelming changes downtown.
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    Even though we are constantly in the commissary business ranked as the number-one benefit among service members, I firmly believe that we are in a battle for the hearts and minds of our junior military personnel, both officers and enlisted, and their family members.

    Our view is sometimes jaded because we still sell lots of groceries, and we still experience lines at check-out stations on payday. In formal reports from our store managers, however—and I ask them all the time—they clearly indicate that nearly two-thirds of our shoppers in the United States are retirees.

    Loyal retired shoppers came into that status by being loyal active-duty shoppers for 20 to 30 years. We must continue to cultivate the younger shoppers since young blood is life blood to most commercial endeavors.

    Hence, the challenge to DeCA, and if I may be so bold, to all military resale is to retain the loyalty and support of our older customers, while courting the loyalty of our younger ones. Members of the Panel, that is a tall order.

    Commissaries have always been the foundation of the military resale. If commissaries are to maintain that role, we must understand their customers, particularly the ones that we are not getting, their likes, their dislikes, their expectations, or if we do not, they will simply take their business elsewhere.

    Together, however, we can maintain a strong niche for military resale, but we must be willing to change notions, attitudes, operating policies, regulations, and even laws if we are to continue to meet our customers' expectations.
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    I urge the Panel to place faith in the Commissary Operating Board you created and work with them to develop the required flexibilities. I have been extremely impressed with the ability of board members to put service parochialism aside and act corporately in the interest of the commissary patron.

    Finally, Panel members, DeCA has come a long way since I first arrived in November of 1992. I am proud of our many accomplishments during my watch, but the credit goes to the employees of DeCA and their industry partners who have worked long and hard to bring about those changes. Each one deserves an enthusiastic pat on the back and a big thanks. They have risen to meet and beat every challenge.

    Thus, as I bring 35 years of public service to a close later this year, I am confident that our customers will be well served by the DeCA industry team under the watchful eyes of the Commissary Operating Board, the Department of Defense and the Congress.

    Again, I thank you for your continued support during my time at DeCA and stand by for any questions. Thank you, Mr. Chairman.

    [The prepared statement of General Beale can be found in the Appendix.]

    Mr MCHUGH. Thank you, General Beale, and again, thank you for 3-1/2 decades of services and contributions.

    Major General Bates.
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    General BATES. Mr. Chairman and honorable members of the Panel, as this is my first opportunity to appear before you as the Commander of the Army and Air Force Exchange Service, I would like to begin by expressing my sincere appreciation for your steadfast support in preserving a robust and effective exchange benefit for the men and women of the United States Armed Forces.

    As you are all aware, exchanges play a vital role in sustaining recruitment, retention, and readiness in the active and reserve forces by providing the military family with quality merchandise and services at uniformly low prices and by sustaining the flow of dividends to the service MWR programs.

    AAFES customers are the 7.7 million Army and Air Force active-duty, Reserve, National Guard, and retired military members and their families stationed and residing around the world.

    Operating some 10,000 customer service facilities, the 53,000 men and women of AAFES provide a wide variety of retail services. AAFES continues to conduct retail operations in Hungary, Croatia, Bosnia for deployed U.S. forces participating in Operation Joint Forge. Support for Operations Northern Watch, Uphold Democracy, and Southern Watch also require an AAFES presence to support troops in Macedonia, Saudi Arabia, Kuwait, and Haiti.

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    Exercise New Horizons carried AAFES into Honduras, Guatemala, El Salvador, the Dominican Republic, Nicaragua, and Bolivia.

    This year, support in Central America is greatly expanded due to a continuation of Hurricane Mitch disaster relief operations.

    Exercises Cobra Gold in Thailand and Bright Star in Egypt will also be supported by AAFES in 1999.

    In Panama, AAFES will continue to provide the necessary support to American forces and their family members throughout the current drawdown and to closure of U.S. bases there at the end of this year.

    The competitive environment in which we operate continues to intensify. The proliferation of shopping malls, mail order catalogs, Internet shopping sites, and home-shopping formats is driving down retail prices and profit margins for all retailers. Our customers expect us to offer them savings over the already-low prices of our competitors. We must not only do this profitably, but also while simultaneously supporting contingency operations in small remote troop and family locations around the world    .

    Our ability to perform our mission, to provide low prices, and generate earnings is absolutely dependent upon our ability to operate efficiently and in a businesslike manner.

    I ask for the understanding and support of the members of this Panel in our current efforts to sustain a business environment that allows a full range of merchandise that supports low-cost operations.
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    AAFES had worldwide sales of $7.1 billion in 1998. Earnings for 1998 were $340 million, which was one percent earnings for 1997. Higher earnings were made possible in large part due to our commitment to lowering operating costs. Our higher earnings in 1998, combined with a shrinking customer base, have resulted in our third consecutive record year in per-capita dividends. For 1998, this dividend is $264 per active-duty soldier and airman, up from $258 in 1997. The total 1998 dividend to support Army and Air Force MWR programs was $235 million.

    The year 1998 has seen AAFES actively participating in what I believe to be an unprecedented level of cooperative efforts with our sister exchange services and other members of the DOD resale community.

    From partnering on design and construction of capital investment projects with DeCA and the service MWR's to developing an all-exchange credit program for all the DOD exchange services to unprecedented joint merchandising initiatives, a cooperative spirit has permeated virtually every facet of exchange operations. This is a healthy change and one that I believe must and will continue into the future.

    Mr. Chairman, I have long appreciated the role that you and the members of this Panel have played in preserving and improving the quality of life for military members and their families. I look forward to addressing any questions that you may have regarding Army and Air Force Exchange Service operations.

    Thank you.

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    [The prepared statement of General Bates can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, General.

    Next is Admiral Ginman. Admiral, welcome.


    Admiral GINMAN. Mr. Chairman and distinguished members of the Panel, I appreciate the opportunity to be here today and update you on our Navy exchange program.

    I, too, am new at the helm and look forward to guiding our exchanges into the next millennium.

    While the challenges in recruitment and retention facing the Navy today, our quality of life programs must play a stronger role than ever. Surveys among our sailors have shown that they view the exchange as a very valuable part of their quality of life, particularly those serving overseas. We have a very loyal and dedicated staff who remain committed to protecting and improve this valuable non-paid benefit for our military families, and I am proud to be a member of that team.

    During this past year, the Exchange Integration Due Diligence Study has made us take a hard look at how we do business and compare ourselves to best practices in the commercial sector. Our modernization and business process reengineering initiatives, I believe, are moving the Navy Exchange System in the right direction.
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    Implementation has not been easy. It has come with challenges, and it is not yet complete. I have reprioritized our modernization efforts to ensure our systems are prepared for the year 2000. We will complete our modernization roll-out after the Y2K efforts are completed.

    Last year, we reported to you our Strategic Planning Initiative to become the Navy family store, a customer-driven organization. This effort continues to show excellent results. Our positive sales trend continued in 1998 as we surpassed prior years' sales for eighteen of the last nineteen months. I am confident that our profits will show a positive trend as well. Our 5-year capitalization plan has allowed us to renovate our aging facilities at double the rate of the 1980's and 1990's. We are providing better facilities for our sailors and their families.

    Our profit stream for MWR has remained stable. During 1998, we provided $47 million in exchange and ship stores profit to the central MWR. We provided an additional $11 million directly to ships to provide quality of life for our sailors at sea.

    Our military families rely on us for more than just their shopping needs. Our exchanges cater to our customers with a broad range of service-oriented businesses. Last year, our ship store program continued to install personal telephones aboard ships, allowing our sailors closer contact with home while deployed. This program has proven to be a major morale-booster.

    Our uniform program have improved quality, with more comfortable wearable fabrics, and the result has been overwhelming acceptance by our Navy members.
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    One new Navy lodge was opened and five more were renovated. In 1998, our public/private efforts expanded as we opened 46 more branded fast-food locations. Providing brand names our sailors want continues to be the basis of our food program. In many locations, we are replacing our own direct-run operations with concession operations, a win-win for our patrons and our local partners.

    Our relationship with our sister services has never been stronger. Through the due diligence process, we have had teams from each service working together and gaining a better understanding of how each service operates. Our staffs are currently working together on joint sales promotions, marketing, and distribution initiatives.

    I would be remiss if I did not also recognize the support of our industry partners during this past year, and we expect to continue.

    I would like to thank the members of this distinguished Panel for your strong support and your continued commitment to our military members and their families. Quality of life will continue to play an increasingly prominent role as the services in partnership with this committee face the challenges of recruitment and retention.

    1998 has been a very busy year for us, and we look forward to the future. We know that our initiatives will help position our exchange system to better serve our sailors and their families wherever they are located across the world. We understand what it means to be a part of the Navy family. It is a tradition we are proud of. Our sailors remain our most valuable asset, and we must ensure we continue to meet their needs. They deserve no less.
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    Thank you very much.

    [The prepared statement of Admiral Ginman can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much, Admiral.

    Mr. Short, welcome back.


    Mr. SHORT. Good afternoon again, Mr. Chairman. I am pleased in my second appearance before this Panel to be on the occasion of today for the retail portion.

    I would like to just summarize a few of the specifics of my statement previously submitted by General Klimp.

    As I have already briefed you, we have created an interconnected web of services under the banner of Marine Corps Community Services. You might ask, well, what does that have to do with the exchanges. We believe it is a great deal.

    The exchanges are the cornerstone of Marine Corps Community Services, providing goods and services to our Marines and families, what they want and what they need most, and equally important, providing a financial dividend to support our prevention and equity goals.
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    A challenge to our program implementation is the achievement of a third requirement for exchanges, achieving a balance between what we sell and the dividend, not just in dollars and cents, but advancing our transformation goals.

    As an example, we know that abuse of alcohol and use of tobacco creates serious medical and societal problems. Our Marine Corps Community Services program bear the twin responsibilities of selling these legal products, as well as encouraging responsible use and discouraging unhealthy and unproductive behaviors.

    By combining programs that appear to be at the ends of a spectrum, we achieve balance and focus on our goals of prevention and equity, and these are the keys to overcoming these challenges.

    Our exchanges will sell these products, but we will not aggressively promote, offer deep discounts, or truckload sales. In fact, we have also raised prices as well.

    Marine Corps exchanges have three years of solid financial performance. Although estimated sales for 1998 are down one percent, our net profit has increased by 14.2 percent over 1997. Our total exchange dividend to MWR, including capitalization support in 1998, was $47.5 million, or $275 per Marine, and that is our highest performance ever.

    Thanks to the strong dividends and the active engagement of our board of directors, we are in the midst of an aggressive and forward-thinking capitalization program that has seen over 215 new or renovated facilities since 1995. We have spent over $138 million on these facilities, half of which are exchange or services facilities.
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    Our main exchanges are all new or recently refurbished. In fiscal year 2000, we will borrow an additional $28 million to fund certain high return on investment projects that will contribute to the profitability, as well as meet the needs and expectations of our Marines into the 21st century.

    Finally, we have also improved the state of our human capital by increasing our training program by 300 percent over the past 3 years. As an example, all sales associates have completed what we call a world-class customer service training program.

    We have testified previously that our exchanges are extremely dependent upon continued strong earnings. We have also testified of our support for the DOD due diligence process and have already benefitted as the other sister exchanges from that study. The identification of industry best practices was extremely enlightening, and we are actively assessing and in some cases implementing some of these practices, but because we are a smaller service and so dependent upon our exchange dividend to support MWR activities and recapitalization, we will not support a potential which would lower our dividend.

    Our continuing concern over protecting that dividend has occasioned the Marine Corps to take a serious look at supporting how we support the inclusion of retail ventures into the private housing, the family private housing ventures. We have learned that contracts for the housing and retail services have been let within DOD, and it is difficult for us to conceive of how this would not be detrimental to our MWR dividend and NAF support of MWR.

    We have worked with exceptional vigor over the past five years, Mr. Chairman, to become more efficient and enhance the exchange dividend to MWR. We have done this because it directly supports Marines and their families and increases the value of their benefit. This higher purpose for our profit is our motivation, and I strongly believe that strengthening the dividend to MWR deserves everyone's support.
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    In conclusion, our exchanges are in robust health in meeting the needs of Marines and families around the world, and I thank you for the opportunity to present the Marine Corps position and summarize this, and subject to your further questions.

    Thank you for your time.

    Mr. MCHUGH. Thank you, Mr. Short.

    Thank you, gentlemen.

    General Beale, you and I have had over the years a number of conversations with respect to what I view to be an invaluable role of the commissaries, and that is familiar brands no matter where you happen to be stationed, no matter how small a base nor how remote.

    As you mentioned in your comments, you are in a struggle to retain customer base to where you kind of expand upon that, and I recognized from the talks that we have had that you view as very important the need to provide the best possible prices and the kind of variety that more commercially based grocery stores provide. That brings us to the issue of so-called value brands.

    General BEALE. Yes, sir.

    Mr. MCHUGH. You do have a test ongoing. We had long conversations about that, and I appreciated your cooperation. As you know, there were concerns about how the test was to be conducted, concerns about both the origin of the brand and the breadth of the products within the brand to be offered, shelving, et cetera, et cetera.
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    We worked those out, I think to most everyone's satisfaction. We extended the tests from 6 months to a year—

    General BEALE. Yes, sir.

    Mr. MCHUGH. —and you cooperated, and I appreciated it. I think it is an important issue.

    I have had a number of comments and expressions of concern, particularly recently about the progress of that test. I understand it is two months old. So we have got a long way to go, and it is in its relatively early stages.

    I want to list a couple of those concerns. If you are prepared to comment, I would be delighted. If you are not, I would rather have you take the opportunity to go back and look—

    General BEALE. Yes, sir.

    Mr. MCHUGH. —but I think it is an important issue to put on the public screen here.

    The first is, as you know, required under law, the product has to be widely available, and everybody has tried to be flexible about that because there are, indeed, regional brands that people in the South like a particular barbecue sauce, for example. Probably, people at Fort Drum hanker a particular maple service, et cetera, et cetera, but, by and large, the products do have to be widely available.
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    The particular brand that was selected by you is now in question by some of being widely available. In fact, people are suggesting it is not really a value brand. It would in fact be a house brand. There are many value brands available that could compete and would like to compete for this shelving at a price wholly competitive, some say even matter, number one.

    Number two, the understanding we reached, as I recall, was that this would be a real test that unlike commercial practices—and as I understand it, this is a standard commercial practice. There would not be preferential shelf space. There would not be extraordinary displays, any kinds of restocking, extraordinary restocking efforts. Certainly, product displays would be arranged by the product personnel, not by back-up people, but according to the observations I have been receiving, that indeed restocking is occurring frequently, unlike common practice. These products are receiving preferential shelf treatment. Indeed, DeCA employees are involved in the construction of preferential displays, et cetera, et cetera.

    The purpose allegedly is to skew the test, to show that indeed, surprise, there is an outcome here and not have a fair test. I realize for some, this is inside baseball, but in my opinion, it goes to the heart of what the commissary system should be all about, and that is recognizable products for every man and woman in uniform at every base.

    While you have been very persuasive to me about the need to parallel where possible commercial enterprises because they are competitors of yours, I worry about value brands being taken over by house brands.

    Is there any comment you would like to make now? Or, as I said, I am perfectly happy to take your response at a later time.
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    General BEALE. Sir, I would like to make a couple of comments, and then I will follow it up with answers for the record.

    First, with regard to preferential treatment, I had given very specific instructions, particularly after we last spoke, that there was to be none. We did agree, in fact, to a initial display to introduce the product. Because we had committed to that, the manufacturer and the supplier was geared for that, but there was to be no special preferential placement on the shelf. In other words, as we discussed, they would start at the bottom and work up.

    To the best of my knowledge, that is what was to have occurred. I will certainly follow up and see if in fact that is what occurred.

    The test actually began back in November, but without the full 40 lines. They were brought in really over the period at the end of last year, and January was the first month where we had all 40 lines in the 22 stores in the southern area of the eastern region. So we have got about two months of data.

    I will tell you at this juncture that there is a demand for those types of products. One of the complaints that is probably coming from the vendor community is that for the most part, those products are not widely available in the area that we are testing. I understand that. We made a conscious decision because the supplier is from the upper Midwest, but in order to get a good picture of the demographics as to what a product line like Robert & James would do in the open marketplace, we had to go to where the heart of the commissary sales are, which is in the Sunbelt from Tidewater, Virginia, down to about East Texas. So we have got 22 stores, the larger stores, Category 3 and 4, in the Sunbelt that are testing those products.
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    So I understand some of the complaints and concerns about the lack of availability in the marketplace in those marketing areas, but I do believe that we met the test, the acid test and the intent of the law. If I am mistaken on that, we certainly stand ready to try to correct what we have done, but that was the reason for the introduction of those product lines in the southern area.

    With regard to preference again at the shelf, I am certainly not aware of any. There was not to be any. They were to earn their spurs. The initial results I have are that some are doing extremely well. Some are doing so-so, and some will probably not make the cut.

    Ultimately, what I owe the Panel and the board and the Department of Defense is an assessment as to the market preference for value-brand products within the commissary, and you are absolutely right in your comments that historically the commissaries have been providers of brand-name products, for the most part below private-label or control-label prices outside the fence.

    What has changed, as I tried to allude to in my remarks, is what is going on in the marketplace where in all too many occasions now, when we are working with our brand-name manufacturers on this every single day at our Marketing Business Unit, the prices that our younger troops particularly are seeing downtown at the Wal-Marts of the world in many cases show national brands at or below commissary pricing.

    What we are finding with our youngsters is that our younger shoppers tend to place time and convenience over price. There are exceptions to that rule, but what we also find is that the younger patrons who place price first will take the best price, regardless of brand name. In fact, I refer to your reading the article that was the cover story in, I believe it was, the November issue of Military Market, where the reporters went out and reviewed three young service families. That is exactly the message they were sending us. They could care less what the brand name is or what the name is on the label. They are looking for price, but it is a tough issue that we have to come to grips with. We will do our best to continue to operate that test under the guidance of the chairman, and we will get back to you if I have erred in my responses.
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    Mr. MCHUGH. I appreciate that, and I appreciate your looking at it because it is an important issue.

    Let me just follow up on the last part of your comments. Clearly, one of the major needs in the commissary, it seems to me, as I have gone through them, in placing myself in the place of a consumer, thinking about today's average military family, who are not unusual—in fact, probably, usually, one of the spouses works—

    General BEALE. Yes, sir.

    Mr. MCHUGH. —whichever one is not in uniform, and extended store hours are very, very important. How are we addressing that?

    I know you added another day. Might not it have been better to take the day and build on the closing hours, so that if at 9:00 at night, the wife or the husband wanted to run down and pick something up, it would be open?

    General BEALE. Sir, that is an absolutely terrific question and one that I have been over recently with the Under Secretary, as well as many others, and in fact with the Marketing Council this morning.

    The answer is this. I would like to keep every store in the system open seven days a week from 9:00 in the morning until 10:00 at night. We simply do not have the resources to do it.
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    The additional $13.3 million that we were able to gather in from the Department to apply to extended operating hours was used against a very specific set of criteria, first and foremost being particularly stores in remote areas of the continental United States or overseas, where we have ended up closing them three days in a row because of a Federal holiday that is in conjunction with the weekend. So we put additional operating hours into those stores so we would not have 3-day closures at those locations.

    We put some hours into overseas stores like Vincenzo and Aviano where we have soldiers and airmen driving excessive distances because they live away from the bases, to try to make conducive the shopping hours, particularly on the weekends, that would help those families.

    In most cases, though, in the continental United States, the additional hours were driven where we could increase sales, and I will give you a classic example. At our home base at Fort Lee at the headquarters, Fort Lee is a 6-day store.

    If we put a seventh day of operation, a Monday, into Fort Lee, we are simply going to spread 6 days worth of commissary sales against seven days, which will incrementally increase our operating cost to do that.

    So we looked at places like Fort Campbell, Kentucky, where we know a Monday operation at Fort Campbell will generate additional sales, high-troop density, particularly focusing on the active duty, and that will also generate more customers for the exchange.

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    Quantico is another one, here in the national capital area. It now has Monday operating hours. So we focused more on our potential to gross sales, which helps keep our operating costs down. However, with specific regard to your question on operating hours, we give the authority to the region director to work with the commissary officer and installation commanders to have any operating hours they want as long as it is within the limits of funding that we make available. So that is how we decided to do that.

    Mr. MCHUGH. It all comes down to money—

    General BEALE. Yes, sir.

    Mr. MCHUGH. —as does everything, I guess.

    General BEALE. Unfortunately, sir, you see, we are the only retailer in America where we can increase sales and not get one additional nickel to put into operating costs for labor.

    Mr. MCHUGH. Well, I have seen a few of those in my district, unfortunately, but that is part of the challenge, isn't it? [Laughter.]

    I would yield to Mr. Sisisky.

    Mr. SISISKY. Thank you, Mr. Chairman, and welcome to you gentlemen.

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    General Beale, I will just join with my colleagues in wishing you well. Some of you may not know this, but General Beale works in my district and lives in Herb Bateman's district.

    General BEALE. We try to spread our business around.

    Mr. SISISKY. He has got the business around, and he happens to have his headquarters at the jewel of the Army bases.

    Mr. MCHUGH. Fort Drum?

    Mr. SISISKY. No. Even as that is new, it is not as good.

    Anyway, I do wish you well. With 35 years of public service, we indeed appreciate it. I am going to tell you something. As they go to get people to replace you, they are going to get an eye-opening thing. I have tried to hire people and work with corporations that do that, and it is going to be a great experience on this Nation to try to do that.

    I will just join in the value brand, just for a moment. I was going to ask you the question about value brands. I saw your value brands, but it is the strangest thing I have ever seen in my life.

    I was in the commissary a couple of weeks ago, not buying. I cannot buy anything, but that is where the lady stopped me, in the store, and she must have been 90 years old. She came up from North Carolina to do her shopping there, and she said, ''Please, Congressman, do not take that benefit away from us,'' and she meant it. I hope we do not, but I saw something in there.
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    I think they have about 36,000 square feet of selling space, the size of a Food Lion, I think. I think I counted eight different brands of beans there, and I thought why in the world would you carry all of these, because I know what Food Lion does. They just limit the amount. They said they have to because of the regional differences. People come from all over, and they are used to beans this way and used to beans that way. That is where we end up in trouble taking up shelf space and other things.

    Let me just make an observation. I used to be in the soft drink business. I sold a brand called Pepsi-Cola. I used to sell to the commissary. I am just a poor Federal employee. I have been out since 1986. So I am free and clear. I can talk about these things.

    I will tell you something about what my observation is. I do not blame people that are in the brand-name business for knocking the value-brand business or even a private label, but let me make a confession here. The one thing that private labels do, at least in the soft drink business, let me put it this way. They keep the price down. We wanted to keep the private labels down in my market.

    I had a per-capita consumption, which is probably the third-highest in the world, as you know, General Beale, but I will tell you something really funny. The price of Pepsi-Cola and Coca-Cola today by the ounce is cheaper than it was 20 years ago. Stop and think a minute, cheaper than it was 20 years ago.

    There are many reasons, but one of them was to keep the private labels down. I can tell you that. The other is the integration. We decided we could make cans better than a can supplier, and we can make plastic bottles better than a plastic supplier. So we did all of that.
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    There are going to be unhappy people. I know that, and we still want to keep our brand names in there, but if we are going to compete, we are going to have to compete.

    Let me get off of that for a moment. General Bates, you heard me drop that little bombshell in here a little while ago. Was I out of line on the figures? I was probably out of line with you, but out of line on the figures?

    General BATES. Those sounded totally foreign to me.

    If I could provide you some figures, sir, we show for tobacco sold in the commissary, sales of $307 million in our fiscal year 1998, which ended the end of January, to create earnings of $60 million, just the commissary tobacco. Of that $60 million in earnings, based upon the formula that was arrived at by our board of directors, $50 million of that went straight to the Army and Air Force as MWR dividends. The remainder of that, we are committed and directed by our board to use to provide lower prices to our customers, such as a special promotion that we ran at Christmas called Bonus Bucks, where we had budgeted $10 million, ended up taking a $8-million markdown to provide special buys during the Christmas gift-buying period.

    Mr. SISISKY. I understand the problem. That is why I talked about the base commanders. I know at Fort Lee, they keep a running total of how much money—

    General BATES. Yes, sir.

    Mr. SISISKY. —that they are giving back to Fort Lee.
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    Having said that, however, I do think that the commissary benefit is a very important benefit that we have to give to our people, and I am very concerned. I did not idly say that Secretary de Leon, out of uniform, really feels for the people in service. He really does, and I know that now. I am not sure that everybody out of uniform at the Pentagon feels the same way, and I do not mean that in a bad light. They just do not think in those terms, as some money-crunchers up there and other things like that.

    So I do worry about the future of the commissary. The competition is just not in days, as seven minutes, maybe 6 minutes from the commissary at Fort Lee is a Wal-Mart store which I understand is the third-largest store they have in the United States.

    They are doing so much business over there, 24 hours a day, 7 days a week—24 hours. A lot of people in the military work on different shifts. They do not work all at the same time, and that is the kind of competition we are dealing with, not just dealing with weekend business, but we are dealing with 24-hour business, which makes it convenient.

    All I was doing was looking for an avenue that the commissary can pick up some money. After all, they gave up traffic. I really believe they gave up traffic. That is the argument. There were two arguments that we gave against tobacco, and the press reported it differently that we were tobacco people in here talking about tobacco. It had to do with getting traffic in the store, and the other thing about breaking the 5-percent surcharge, that is what we were very, very concerned about because if tobacco, then how about dog food and on and on, how we can do it?

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    So what I am saying—and I need to know. I already know what this will do to the exchange service. I mean, it has got to hurt, but not in the ways that you would think because do not forget in the marketing business, people buy on the spur of the moment by seeing it in different places. I do not want to hurt Mr. Short's thing about hurting beer and wine sales or spirits, but you sell them and it does create traffic. That is the only thing that I am looking at right now of how we can relieve the pressure because the pressure—and if I said something wrong, General Beale, about the money that you have to build new stores, because we know that is another competitive thing, then please correct me.

    General BEALE. You are correct.

    Mr. SISISKY. I am worried about it.

    Also, what I want to know—I am talking too long now, but what is the advantages or disadvantages, General Beale, of selling beer and wine in the commissary?

    General BEALE. The advantage is, in theory, it would pick up foot traffic because you would be cross-merchandising it the same way a retail grocery chain does, and it would be a convenience. Nobody is going to sell beer and wine in the commissaries for cost plus five percent. It would have whatever price they have on it at the exchanges.

    The question for the installation—and batteries is a classic example, although somewhat different from beer and wine. When the commissaries picked up batteries, about 15 years ago, it did not cost the exchanges sales. In fact, it increased the sales of batteries in the installation, both in the commissary and in the exchanges because it is a convenience item.
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    Beer and wine are convenience items. In my judgment, you are going to sell a lot more of it if you offered it in the commissaries. It would obviously be a boost to the trust fund.

    The down side is, as you pointed out with the example on the green beans, space management is probably our toughest issue in the commissary, and the chairman and I had discussed that with regard to the placement of value brands because wherever there is a winner, there has got to be a loser.

    So, if you take items like beer and wine, which for the most part are space hogs, you are going to have to adjust the rest of the stock assortment to provide that space. That is the down side.

    Mr. SISISKY. How would it affect you, do you think?

    General BATES. Sir, I would caveat what I am going to say by the fact that I operate the exchange and generate the earnings for the services. Those earnings do not accrue to me. So I think they should have a say in what is the impact, but let me try to articulate a part of that.

    First, I would differ with my colleague and my longtime mentor that beer and wine is merely a convenience item. It very closely approaches a destination item. People come specifically to where it is at to purchase it.

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    Mr. SISISKY. Mostly for distilled?

    General BATES. When we talk about customers coming to the installation, retirees still come specifically for monthly supplies not only of distilled spirits, but for their beer and wine as well.

    I would say also that the method of determining the dividend for all Class 6 items, beer, wine, and spirits, was derived from a period in time when those items were sold by the MWR services. All of the earnings that AAFES generates from beer, wine, and spirits stays at the installation and goes to the service as a dividend.

    We have a small service fee that we attach to that so that we can renovate those stores, but all of those earnings go to the services. So it would be a very significant and, I think, traumatic impact on both of the service MWR programs.

    Mr. SISISKY. Yes. I said that right up front that I knew the base commanders would be upset with me. I have already got one that is a little upset. So I know what I am talking about, but I think we have to look at it. I think we have to weigh it. I think we have to be fair in how we are doing it. If you could come up with something, I do not know how, why, or what, whether it is sharing or something like that, but we could find a way to do something because it has cut down, I believe, on the traffic in the commissary, the number of customers. Of course, even though they make five percent on it, it would still increase the profitability.

    General BATES. We are back to cigarettes, tobacco products? I would cite a phenomenon that we are experiencing on tobacco products. We are seeing the unit sales that the trend is down.
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    Mr. SISISKY. Where? In price?

    General BATES. The price as a result. Dollar sales, the trend is up. So we are selling less units, but making greater dollar sales. That is a factor of the cost price increases that we have experienced over certainly the last year, five increases, almost a 90-percent increase just in fiscal year 1998. So I would say that from an earnings standpoint, the five percent that the commissary is currently obtaining is a far larger dollar number than it was two years ago when that mission devolved to the exchange services.

    Mr. SISISKY. I know what the five percent does.

    Okay, that is enough for right now. I may come back.

    Thank you.

    Mr. MCHUGH. Mr. Pickett?

    Mr. PICKETT. Thank you, Mr. Chairman.

    General Beale, I want to join my colleagues in commending you for your long, loyal, and dedicated service and associate myself with all of the favorable remarks that have been made on your behalf today, and we deeply appreciate all that you have done for the military and for our country.

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    General BEALE. Thank you.

    Mr. PICKETT. One of the issue areas that I have been somewhat concerned about—and I asked this question of Secretary de Leon a moment ago—has to do with the data processing systems.

    I know that this can be a fairly significant cost of operations in a retail operation, and it has the three components of it. You have the normal operating cost of it, but you also have the capital costs associated with developing software that is suitable for the use that you need it for and also have got to buy hardware to run it on.

    General Bates, beginning with you, can you tell us where you are in your data processing system now? Do you have plans to change it, expand it, make major commitments? Are you satisfied and believe that the system that you are presently operating is all that is required in your operations?

    General BATES. We believe that the systems that we currently operate are the correct systems to operate. We are expanding a program that we call ASAP, AAFES Store Automation Program, which essentially automates all of the functions within the store.

    We have deployed that to all of our Continental United States (CONUS) locations, and beginning this year. As a matter of fact, as we sit here, we have teams in Europe, extending that program to Europe to automate those stores. We will follow that by doing the same thing in the Pacific.

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    On the heels of ASAP, we are currently employing a program called Sales-Driven Replenishment. That is essentially a preplenishment program that is based upon historical sales and provides the shelf replenishment at the time that it is need. The intent is to have stock on the shelf when the customer shows up. So those are two programs that we are currently rolling out to enhance essentially our goal of being a lower-cost operator.

    Mr. PICKETT. Taking into account depreciation of both the software or amortization of the software and depreciation of your hardware and your operating expenses, what is your rough annual cost for data processing, I guess as a percentage or as an absolute dollar amount or whatever you may have there?

    General BATES. The costs for operating or investment costs?

    Mr. PICKETT. Well, all 3. Don't you have to include depreciation in your accounting figures now?

    General BATES. Let me provide this response and see if I get to your question, sir. During fiscal year 1998, we had budgeted $64 million for information systems. That is maintenance, repair, and the upgrade. For fiscal year 1999, we are reducing that somewhat to about $48 million, but it has been in the range for the past several years of 40- to $60 million.

    Mr. PICKETT. But that does not include any part of the capital cost of your system?

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    General BATES. That does include the capital cost, yes, sir. Those are the numbers for our capital program authorizations for those two years. We also use that for upgrading when we have capital investments associated with that.

    Mr. PICKETT. Thank you.

    General Beale, can you sort of give me just a brief summary?

    General BEALE. Yes, sir, and I will also try to help out the Under Secretary on this particular issue.

    About five years ago, a fellow by the name of Schwartz, a fellow by the name of Cavanaugh, a fellow by the name of Joy, and a fellow by the name of Beale—and unfortunately, as I look around the panel, I am the only one that is still here.

    Mr. PICKETT. Sole survivor, right?

    General BEALE. —signed a letter back to the Panel pledging in our business system procurements two things, open architecture and standard protocols.

    I will tell you that we are moving ever closer to that. For example, all of us have the same point-of-sale system, and with a little bit of tweaking on the front end with some software, they will be able to communicate together very nicely. It is a little bit more of a challenge when you get into the back room because we all started with independent systems, and we run into the same challenges that DeCA had with its DCIS program trying to take a commercial off-the-shelf grocery system from Shaw's Grocery chain up in New England and apply it to a Government operation.
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    General Bates and I had the conversation a while back when the Department asked us to look at the feasibility of integrating our business systems in light of the DeCA/DCIS experience, and while my good friend to my right was more than happy to do that, I asked him if he was ready to take on civil service pay. I asked him if he was ready to take on civil service personnel management. I asked him if he was ready to take on our acquisition under the Federal Acquisition Regulations. I asked him if he was willing to take over the bill-paying responsibilities of Defense Finance and Accounting Service (DFAS) using appropriated-fund ground rules. Those are the obstacles to integrating our business systems, but as long as we adhere to the pledge of open architecture and common protocols, we should be able to get to where we need to be in a fairly short period of time. The challenge is building the bridges from our older system to where we need to go.

    In terms of our own automated expenditures, the first year of DeCA, we spent about $38 million on Automated Data Processing (ADP). Last year, we spent $90 million on ADP. The bulk of that went to our point-of-sales modernization, which is about a $120-million program to date.

    Over the out-years, we are looking at probably $40 million a year in ADP expenditures.

    Mr. PICKETT. What is your current cost, including capital cost and operating cost?

    General BEALE. This year's budget is around $70 million. Last year, it was $90 million. In the future, we will go on a glide path to 40. That is not a recognition of what we need. It is simply a recognition of what we can allocate based on a decreasing cash balance in the trust fund.
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    Mr. PICKETT. Admiral Ginman, can you just summarize where you are with this?

    Admiral GINMAN. We commenced in 1994 on a $65-million modernization effort to replace all of the existing software systems we had.

    We have completed the modernization effort throughout the continental United States. We have yet to finish Hawaii, Guam, Japan, and Europe.

    I took the modernization program management team I had, merged it with my Y2K, and have prioritized any modernization required to complete Y2K will continue. Modernization not required to complete Y2K will be delayed until we are complete with the Y2K efforts.

    We made a decision to go all with commercial software packages. One of those has proven to be a challenge for us, our merchandizing system. We are currently looking at a replacement for it, perhaps in the 2000 or 2001 time frame, and an opportunity to try it out with our services. We have asked General Bates to participate with us as we go through that process, and I think he intends to offer his merchandizing system as one of the people to look at does it meet the needs.

    I do not have the annual expenditures at my fingertips that we actually spent on ADP, and I would be happy to take that for the record.

    [The information referred to can be found in the Appendix.]
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    Mr. PICKETT. Mr. Short.

    Mr. SHORT. Thank you, Congressman Pickett.

    We are averaging about $5- to $6 million a year, about $4 million in capitalization, about $2 million in operations, and I cannot break it down further than that and there are some reasons for that.

    First of all, we are testing our retail merchandizing system which will upgrade our system using an Oracle-based system and plan to start. We are actually testing it this week. We plan to start a roll-out in June at all of our stores.

    One of the things we have done is this is part of a system integration which integrates accounting, human resources information systems, food and hospitality, recreation systems, and electronic point of sale. These are all ongoing modernization programs that we have, and intend to continue into the next century.

    One of the things that Marine Corps Community Services has done is allowed us to then take all sides of this equation and start to achieve some efficiencies in information technology by combining programs that are compatible. All of our systems have an open architecture, and the ones that we acquire will all be open architecture so that we can take advantage of that versatility.

    We have spent in Oracle, I think, about $800,000 in our merchandising system, and about $500,000 of that was hardware. So we have a dynamic modernization program, and again, one of the things we are looking at is to achieve economies by taking and mixing all the aspects of Marine Corps Community Services in our information system.
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    Mr. PICKETT. The other question I had asked Secretary de Leon, and I think he deferred to you gentlemen, had to do with a policy concerning whether a policy to ensure that you in fact get the lowest price to which you are entitled based on the quantities and other terms of sale from your vendors. It does not have to be a long answer, but just to tell me whether you have in place a policy that you believe focuses on that and ensures that you do in fact get the place to which you are entitled when you are purchasing your merchandise for resale.

    General BEALE. Let me take the lead on that, sir, because I am the guy that has the problem.

    Mr. PICKETT. General Beale, I am not pointing my finger at anyone.

    General BEALE. No, no, no. Seriously, because I am the one that received the letter from the folks I work for at the Office of the Secretary of Defense (OSD), suggesting that AAFES was getting better prices than we were. This was back in the October time frame.

    Here is the issue with regard to DeCA pricing. After having talked with nine of our major suppliers in very great detail, more detail than has probably ever been discussed with major manufacturers and a commissary director since the commissaries came on the landscape, some 120 years ago, there are two elements of cost that are in virtually every price quote from a manufacturer that will not be included in the price quote to any other retailer in America, including the exchanges.
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    First, the second and third parts of the transportation formula, meaning if this gentleman orders something from Procter & Gamble or Kraft for his distribution center in Waco, Texas, he will pay the transportation charges from the manufacturer's plant to his distribution center. The drayage charges associated with him storing that product and his transportation charges to move that product from Waco to the store at Fort Hood are on his back as operating charges of the exchange, not included in the manufacturer's price quote.

    For DeCA, every price quote for a frequent-delivery item into a DeCA store includes transportation to the point of sale. We are the only retailer in America where that is the case. Furthermore, we are the only retailer in America who has vendor-managed items and servicing for those items by the broker or the manufacturer included in the price. That, again, would be an operating cost of the exchanges or any other retailer.

    So I can tell you that if you do an invoice-to-invoice comparison of DeCA invoices with exchange invoices, you are going to reflect higher prices from anywhere from 4 to 14 percent, but you have to back out the transportation. You have to back out the store servicing, and then to get to the actual price at the shelf, which the Profit Recovery Group Inc. (PRGI) folks did not do in the test—and they are in the process of doing now because I sent them to Europe to do it. They have got to back out every vendor credit memo that a manufacturer lays on the table that reduces the price at the shelf to the customer and reimburses the Treasury of the United States for the higher cost paid for Defense, by Defense Finance and Accounting Service, because we basically pay for groceries before they are sold, but I can assure you once you back out all of that stuff, I will put our price quotes up against any price quote given to any retailer in the nation.
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    Mr. PICKETT. So you have a policy in place to make sure you get the lowest price.

    General BEALE. And we are asking a lot tougher questions than we ever used to. Yes, sir.

    Mr. PICKETT. General Bates?

    General BATES. Yes, sir, we do, and our standard retail business agreement also affords us the opportunity to audit the vendor's offer and we have taken advantage of it.

    Mr. PICKETT. Admiral Ginman?

    Admiral GINMAN. Sir, in all of our purchase orders and all of our contracts, we have a standard clause that requires it is the best price. We also use PRGI and look at all of our invoices to make sure that we are getting that.

    Mr. PICKETT. Mr. Short?

    Mr. SHORT. Yes, sir. I would be glad to provide you with a written copy of our policy for your perusal on that.

    [The information referred to can be found in the Appendix.]
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    Mr. PICKETT. Thank you.

    General Beale, the commander of U.S. forces in Japan has recently proposed a 1-year transition period for DeCA vendor representatives to change them from Status of Forces Agreement (SOFA) status to non-SOFA status. I know you are familiar with that. Can you tell us what impact that is going to have on your operations in Japan?

    General BEALE. It is going to have less of an impact on my operation than it will on the patron because, as I told General Hull, the commander of the 5th Air Force—

    Mr. PICKETT. Let's include the patrons because that is who we—

    General BEALE. Absolutely, yes, sir. It is going to have an impact on the patrons, as I told General Hull when I spoke with him in person in May, and we have corresponded several times before and since. It is going to incremental increase the cost of vendor support that we now receive because the fact that those vendors have access to base facilities in Japan reduces the amount that their principals, manufacturers, and brokers have to pay to keep them on the ground.

    If you reduce those privileges, which have been done in other countries around the world, almost exclusively in Europe, it is going to incremental increase the cost of the product because the servicing done by those representatives will be cranked into the price at the shelf.
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    General Hull understands this, but he is between a rock and a hard place because, having been the J–4 of U.S. forces in Korea, I understand the trick he is in. The Japanese do not consider those people as protected and guaranteed privileges under the SOFA. Therefore, they are calling in the chip, and what has been a practice in the past is no longer going to be permitted by the host government.

    As I told the Marketing Council folks today, while my heart is with them and with the vendors because those vendors provide a great deal if integral support to the commissaries, I personally do not think it is a big deal for the United States of America when the greatest challenge that we have is trying to convince the Japanese government to put more money forward in support of U.S. forces on the ground over there, exactly the same issue we had in Korea when I was the J–4, exactly the same issue that the U.S. European Command has. So, while my sympathies are there, I do not know what else we can do about it.

    Mr. PICKETT. Very quickly, could someone tell us a little bit and give us an update about where we are with the credit card program, just a quick summary? I know there have been some changes in that over the past several years, trying to get just one card for all the services.

    General BATES. Yes, sir. AAFES has the lead to do that. We are currently working that with a not-later-than-1-July implementation date. We are on schedule with that. The three exchange services are working that in conjunction. I see no problem in meeting the deadline to do that.

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    Mr. PICKETT. Are you contracting all of that out now to an outside servicer?

    General BATES. No, sir. Our intent is to operate that internally.

    When that was directed to be outsourced, we requested and received permission to compete along side commercial offers. We did compete. We did provide the best offer. So we intend to run it internally for the three exchange services.

    Mr. PICKETT. Is that a separate profit center?

    General BATES. Yes, sir, it is.

    Mr. PICKETT. Can you give us any idea about how well you are doing?

    General BATES. Currently, the AAFES program incorporates the Marine Corps, and off the top of my head, it is about $40 million a year.

    Mr. PICKETT. Thank you, and thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you, sir.

    Was that a sealed bid, or did you peak, when you won?
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    General BATES. Sir, we sharpened our pencils. We sharpened our pencils.

    Mr. MCHUGH. Okay, good.

    Mr. Bartlett.

    Mr. BARTLETT. Thank you very much.

    General Beale, I would like to add my commendation to those of my colleagues for your man years of committed public service.

    General BEALE. Thank you, sir.

    Mr. BARTLETT. From my personal association with you, you have a commendable focus and energy, and in the view of some, a considerable ability to defend what in the view of these some are indefensible positions. You are, sir, a very talented public servant.

    General BEALE. Thank you, sir.

    Mr. BARTLETT. The basis of my left-handed compliment will become evident during the questioning.

    General BEALE. Yes, sir.
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    Mr. BARTLETT. General Beale, I think everyone agrees that marketing information is just as essential to DeCA as it is to the general industry. It would therefore, I think, be devastating if DeCA stops releasing raw scanner data, which I understand DeCA has said it has the option to do. I am sure it does. I hope it does not exercise this option.

    DeCA and some members of industry say that supermarkets sell data to everyone, and since this is industry practice, DeCA should do the same. I understand that this assumption is not necessarily true, that some supermarkets will sell to more than one entity. Others will sell to only one, and that decision depends on how they will realize the most money and the best services.

    The DeCA contract with Management and Marketing Information Inc. (MMI), which you referred to in your statement, which I think existed for 60-odd months, I think proved that DeCA can get much more via an exclusive contract with only one data processor than it can by selling the data to all interested parties.

    When that contract was in effect, it is my understanding not only what DeCA paid considerably more monies for the data than they now get by the spot sales, but that DeCA also benefitted from services, which could be valued at a good many millions of dollars.

    DeCA has claimed that it can produce the same services internally. I think the record will indicate that that has been very difficult to do, and that the buyers on the line would now contend that they do not have the same quality of services that they had under this previous contract.
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    DeCA believes it can get more money for raw data. It thinks daily data at store level is worth more. This is not certainly the case.

    I think DeCA has asked for bids in a new spot bid sale. I think that DeCA has been offered less for data in this newest spot bid sale, rather than more.

    If vendors budget more money for data, they want to buy more categories, not more details for categories they are already buying. DeCA should release raw data in whatever manner will return the greatest value to DeCA.

    For those who may not be familiar with the details of what has happened, for a number of years, DeCA had a contract with a single-source MMI that provided not only monies for the scanner data, but also considerable services. The last one of those contracts, roughly three years ago, was protested, and it was a technicality that, in my looking back on it, I did not think was a valid basis for making a decision.

    In your statement, you said that the General Services Board of Contract Appeals (GSBCA) declared the contract void. That is true, but it is also true that a subsequent court action—this is the Federal Court of Appeals—vacated the GSBCA's decision and further indicated—they said, and I quote, ''We believe that all concerned are best served by restoring the matter in the first instance to the parties for a speedy and just settlement.'' Has that happened?

    General BEALE. Yes, sir. Now—
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    Mr. BARTLETT. The settlement has occurred?

    General BEALE. The settlement has occurred with three of the four companies. The fourth company has been offered an option to settle under the contract that no longer exists. They have chosen not to settle to this point.

    Mr. BARTLETT. Okay.

    General BEALE. A claim was placed against the Government. The Government entertained that claim and disallowed that claim because the company did not provide cost data to the defense contract audit agency that was requested to determine the validity of the claim. Therefore, the contracting officer denied the claim.

    Mr. BARTLETT. So this is still an open item?

    General BEALE. It is an open item as far as perhaps the contractor is concerned, but the ball is in his court because the contractor's claim has been disallowed.

    Mr. BARTLETT. So, for whatever reason, there was not a speedy and presumably just settlement that occurred.

    With all of this in mind, I would like to ask a few questions.

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    General BEALE. Yes, sir.

    Mr. BARTLETT. What were the new bids for DeCA raw data?

    General BEALE. Well, as the head of the contract agency, I will not in open session disclose those bids because it would be very disadvantageous for me to do so.

    I will tell you this. Because you mentioned that the bids were considerably lower than what we are currently getting, I will tell you that at least—and I am being very selective here in my words because I am not going to give away our strategy—at least one of the bids was very solid, and we are in the process of negotiating with the three firms to determine what is available in the marketplace for that data.

    As soon as we make that determination, we will announce the results of the bid publicly, and anybody that wants to meet that level has the right to buy the data. As I mentioned in my oral statement and I believe in my written statement, I have every confidence that we will receive market value for the data.

    Mr. BARTLETT. When you say solid, you do not necessarily mean higher, do you?

    General BEALE. In this case, solid means higher.

    Mr. BARTLETT. I await the actual numbers to be assured of that.

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    Are you bartering away some of the bid amounts for services that you do not get under a strict sale of the raw scanner data?

    General BEALE. Congressman, as one Marylander to another, I am glad you asked that question because it has been one of the biggest challenges of the grocer operating under appropriated-fund rules. You are absolutely right that not every grocery chain in America puts that data on the market for anybody that wants to bid because they have the choice as to who they want to sell it to.

    Unfortunately, in our case, when we tried to make that choice three years ago with a contract award, that as the head of the contract agency I stand behind, but one of the courts of this land ruled void, the court said you do not have that authority. In essence, subsequent actions have led me to believe that the only way we are going to resolve this issue is to put that data out there in the marketplace because I do not care who we would award a contract to. Somebody is going to protest it.

    The problem is this. When you try to apply the rules outside the fence to what we are doing inside the fence and your hands are bound by Federal courts who generally do not take jurisdiction in an issue that involves who the Safeway will sell scanner data to, we have to take the leverage and the advantages that we are given. In fact, if I could remind the panel of something, the reason that we went to the auction, recognizing that the interim auction would only give us minimum return, we knew that because we had litigation, and we knew that at least two of the parties involved in the litigation were not going to put any bucks on the table of any sizeable amount until they found out what the result of the litigation was going to be.

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    We were forced into a position just to get the scanner data out there into the marketplace of taking whatever they would give us. We were kind of at their mercy.

    Now we are in a position to negotiate a good deal for the Government. Given my personal preference, I would like to do exactly what the Safeway does and say, ''Okay, you are my data provider of choice, and here are some other things that I want.''

    Now, the problem that we have, and let's get right to the core of the issue, the issue is not whether we need this category management support services as originally specified in the earlier contract because, as the director, after literally hours of agonizing debate, I am convinced that we do not because we have come a long way since 1993 when category management first came onto the scene, but what my folks will tell you and what the industry folks will probably tell you in the next panel is that my buyers and category managers need access to the raw unrefined data so they can figure out and know how many cases of Beanie-Weenies moved in the Fort Lee store for a given day, week, month, or year.

    We have to rely on industry for that data now. So one of the things we are negotiating is a tradeoff. If I had the ability to do it with one company, I would do it, but I have to do it with anybody that is interested. If I have to do it with three, we will do it with three. In order to get access to that data, we want terminals of those three companies in our marketing business units so our buyers and category managers can refer to that data and spend it any way they want to.

    What we need is access to our own data, refined by somebody other than the Government doing the refining. It would be far more cost effective if I could do that with one and let the other two, three, or four buy the data and do whatever they want with it, but the only way that we are able to play this game, based on court decisions, is to use the auction technique, put it out there for anybody that wants it, establish the price, and treat them all the same.
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    So, yes, you are absolutely right that we are negotiating as part of the total package the ability to have access to the databases of the firms that buy the data to give our category managers and buyers the ability to do their jobs, which you know and I know they have been hamstrung trying to do for the better course of the last three years since the courts entered this decision process.

    Mr. BARTLETT. Do you think that this constitutes a procurement without a solicitation or without complying with the procurement regulations?

    General BEALE. Sir, not in the least, and there is a Federal court decision and a court decision on the part of the Court of Appeals that has upheld our right to auction that data.

    So, until a Federal court tells me we do not have that right, it is the only access that I have to get it out there without protest.

    Mr. BARTLETT. I am not talking about auctioning the data. That is a sale. I am talking about negotiating for services, bartering for services. Does not that constitute a procurement without a solicitation or without complying with the procurement regulations?

    General BEALE. In the opinion of my contract advisors and my contracting law advisors, my legal advisors and the Department of Defense legal staff, and the Justice Department, no, sir.
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    Mr. BARTLETT. I think there may be a difference of opinion on that.

    When the Federal Appeals Court said that they vacated the GSBCA decision and the GSBCA decision was that the MMI contract was null and void, what the Federal Court of Appeals said—and I am reading from their motion—vacate the GSBCA's decision, what do you think that meant?

    General BEALE. I know what it meant, sir, but you also have to read the part in there that says that because DeCA canceled the requirement for category management support services, the whole issue was moot and would not be decided by the court.

    Mr. BARTLETT. I do not see that in this paragraph. It says earlier.

    General BEALE. Sir, I have read that thing more times than I care to remember. I have discussed it with the Deputy General Counsel of the Defense Department for Contract Law. I have discussed it with the Justice Department. I have discussed it with every contract manager and lawyer in the Defense Commissary Agency that has an opinion on it.

    Mr. BARTLETT. And you have reached a conclusion that is not shared by everyone?

    General BEALE. Sir, I agree. I mean, that is the nature of our business. That is the nature of a democracy.
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    Mr. BARTLETT. Yes. There are many that think that you could have done what the court suggested you do, and that is to vacate the GSBCA decision which would have meant that the original contract was now in effect and you could have proceeded.

    Is it not true, sir, that for the several years that you have not had that contract that you have received considerably fewer dollars, measured in millions, than you would have had, had the contract continued? Is that not true?

    General BEALE. Sir, absolutely, and you and I have had this discussion before and I have acknowledged it publicly on many occasions, but we had to go to an interim process at minimum value just to keep the data moving because we were not in a position to award that contract, even though I felt we should have been able to. After a year, almost a year from the time that contract was voided by the GSBCA, we made a tactical decision, a strategic decision to cancel the requirements in part for that contract in order to move on through another process that would allow us to get the data out there in the marketplace, and ultimately, once the litigation was resolved, to get to a resolution of this whole mess, and we are that close to doing it right now.

    Mr. BARTLETT. Is it not true that you joined MMI in the original appeal?

    General BEALE. This is what I said. Here is the problem that we had. My agency made what I believed to be a valid contract award under the Brooks Act, but the Federal Acquisition Reform (FAR), and the Service Contact Act. The GSBCA said no, it was an ADP contract. They invalidated the contract.
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    Three of the other parties took that case to the GSBCA. MMI then went to court, the other party, to appeal that decision.

    Mr. BARTLETT. Where you joined them?

    General BEALE. I could not join them because the courts retitled the case, and instead of it being MMI against the three companies that had protested to the GSBCA, the courts retitled the case to Richard E. Beale v. MMI.

    Mr. BARTLETT. Were you supportive in that?

    General BEALE. I did not have a choice because when complaining personally to the Eastern District Justice Department head guru, he said, ''Understand your interest in Justice Department manners, but this is the way it is going to be, Beale.'' And we suddenly found ourselves on opposing sides of Defense, and my agency had made what I believed to be a legitimate contract award to Mr. Downey's company in Bethesda.

    I recognized we walked away from $12 million, but I recognized that we had no way of getting to it and we have made the best of the circumstances that we face and the hand that we were dealt, and that is why we are working with the—

    Mr. BARTLETT. I agree, sir, that during this year or so that it was in litigation that you did the best that you could do. I feel, and many others do, that the decision that you and your counselors reached that you were precluded form going ahead with the contract after the court decision was an incorrect decision.
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    When the court said they vacated GSBCA decision, that placed you back exactly where you were a year or so prior to that, that the contract could then have been activated. Had it been activated, we would now have a good many millions of dollars more for quality of life in the military, and you would now have services of a quality that you are not able to provide yourself, but we will be able to explore this further in the next panel.

    Thank you very much for your answers.

    General BEALE. Yes, sir.

    Mr. MCHUGH. All right, now for some tough questions. [Laughter.]

    General BEALE. Throw me the hard ball, sir.

    Mr. MCHUGH. I would be happy to yield to the ranking member, the gentleman from Massachusetts, Mr. Meehan.

    Mr. MEEHAN. I am not messing with General Beale. I am totally satisfied. Any time I have the Attorney General representing me in court, I go along with what they say, too.

    I am going to submit my questions in the interest of time for the record, and if I could get a written response on it, that would be great, but obviously the hour is late and many of us will be back and forth in between hearings. So I will submit it in writing, and the General has always been great about getting back to me in writing.
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    [The information referred to can be found in the Appendix.]

    General BEALE. Yes, sir.

    Mr. MEEHAN. Thanks.

    Mr. MCHUGH. I thank the gentleman for that, and in the spirit of getting on to the last panel that has been very patient, I would ask that all panel members kindly cooperate with not just Mr. Meehan's submissions, but others that I am sure we will have. We would appreciate your responding to those.

    We thank you again for being here today, and always recognize that where we may have differences of opinion, we do not differ on the understanding of the commitment to a cause.

    General Beale, thank you, and we just want to give you something to remember us by, my friend. [Laughter.]

    Mr. MCHUGH. Godspeed, good luck, and thank you very much.

    General BEALE. Thank you, sir.

    Mr. MCHUGH. We have one final panel.

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    If we could have some order, please. We have a considerable ways to go, and yet another panel that has been very patient.

    Our final panel of the day consists of distinguished members of the military resale community, both private and public, and before I begin with the introduction of the gentlemen, let me thank you, as I noted earlier, for your patience. We understand it has been a long day, but we are looking forward to your comments and to your input that we know will provide us a very helpful insight and perspective on this entire system, which we obviously view as very, very important.

    We are joined today, as I said, by Mr. Lloyd Johnson, who is president and CEO of Lloyd Johnson Company, Incorporated; Mr. Jeff Barker who is Customer Business Development Manager of Procter & Gamble Development Company; Mr. Gregory Davis, Military Sales and Marketing Manager for H.J. Heinz Special Markets; Mr. Alan Flowers, Category Manager of Health and Beauty Aids for the Defense Commissary Agency; and Mr. William Wood who is Buyer or Breakfast Cereals, Tea, Coffee, Juices, and Nutritional Snacks, only, of the Defense Commissary Agency.

    Gentlemen, as I said, thank you for being here, and without any further ado, why don't we just get right to your comments.

    As I have said to all of the previous panels, we do have your written testimony, and we will enter it in its entirety for the record. We have reviewed it. So, if you could summarize and hit upon some of the major points of your testimony, it would be appreciated so we could get to the panel.

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    Mr. Johnson, thank you for being here. We look forward to your comments.


    Mr. JOHNSON. Mr. Chairman and other distinguished members of the MWR Panel, good afternoon. My name is Lloyd Johnson. I am chairman and CEO of a broker organization headquartered in Norfolk, Virginia. We represent various manufacturers of consumer products to the military resale system.

    I have been asked to comment on the need for scanner data and its overall impact on the military commissary business. The availability of accurate and timely scanner data directly benefits DeCA and their patrons.

    How? It allows DeCA to make the right decisions or to negotiate effectively in at least five areas: proper shelf space allocation to prevent overstocks or out-of-stocks; proper stock assortment to offer the best-selling items and brands to patrons; proper promotional mix to offer the right items at the right prices in the best location at the appropriate time of the year and attractive pricing to be able to offer the best prices possible to patrons; and finally, proper equipment and labor allocations to ensure efficient operations.

    All of the decisions and/or conclusions just described are usually combined by DeCA into a category plan in an effort to gross sales and/or minimize decreasing sales in various declining categories. Again, success in that area translates directly to patron satisfaction and efficient store operations.
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    At the present time, most of the data used by DeCA to make their decisions is supplied by manufacturers and brokers who in turn buy the data from one of the three current data suppliers.

    Sometimes that data is supplied by vendors in hard-copy format, such as paper charts and graphs. Sometimes it is supplied on disks delivered or presented to buyers, but, clearly, if a procedure could be worked out to give DeCA direct and easy access to the data, thereby allowing them to confirm or challenge the industry-provided data, that would seem to be a worthwhile improvement over the current situation.

    Of course, sufficient operations and maximum levels of patron satisfaction all translate into more business for suppliers.

    In addition to directly benefitting DeCA and their patrons, accurate and timely scanner data helps the manufacturer and broker community in at least four very specific ways.

    One, we can measure the success or failure of brands and even specific items by identifying movement trends and by comparing them to the performance of competitive items. This allows informed decisions to be made on factors that affect movements such as pricing, promotional support, and even packaging.

    We can also measure the effectiveness of specific promotions versus history and versus competitive brands to help decide whether or not to change a given promotional strategy.
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    Three, we can make sensible recommendations regarding shelf space and in-store location of products and displays.

    Finally, we can make logical suggestions to DeCA regarding stock assortment selection.

    All of the above result in brand strategies and informed category management decisions that directly impact DeCA's operations and patron satisfaction levels. Perhaps of equal importance, the availability of scanner data also contributes to heightened competitive activity among suppliers who always want to sell more goods. This translates directly to sharper prices and intense promotional activity.

    Without timely and accurate scanner data, merchandizing decisions would be much less effective, competition would decrease, and patron satisfaction would suffer considerably.

    One final point that I would like to make is that exchange scanner data transformed by third-party experts into an easily usable format would be a welcome addition to the category management process for both the exchange systems themselves and the supplier community.

    Some data currently exists, but it is in a raw form. It is somewhat difficult to use, and what is available covers individual exchange systems rather than the entire exchange market.

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    Thank you, Mr. Chairman. This concludes my remarks. I would be glad to try to answer any questions you may have.

    [The prepared statement of Mr. Johnson can be found in the Appendix.]

    Mr. MCHUGH. Thank you very much.

    Mr. Barker.


    Mr. BARKER. As stated, my name is Jeff Barker, and I would like to thank both the chairman as well as the ranking member, if he returns, and the other committee members for the opportunity to testify today on what is clearly an important issue for military resale and the patron that we serve.

    For the past 17 years, I have been an employee of Procter & Gamble (P&G), within the Customer Business Development Organization. We used to call that Sales. And I have worked closely with leading civilian retailers, including Kroger, HUB, Safeway, and American Stores.

    In my current role as Military Customer Business Development Manager, I am responsible for P&G's military resale business. The Defense Commissary Agency is currently one of P&G's fifteenth largest customers, and we are the second-largest manufacturer of supply and consumer products via DeCA to active and retired military patrons.
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    Procter & Gamble has historically and will continue to work closely with our customers to evaluate product trends and develop and improve patron understanding. We have been recognized year after year by leading industry executives as the most innovative manufacturer and the best in category management. The availability of high-quality and affordable customer-specific and market data is the most critical tool we have, and it enables our efforts to assist our customers in better meeting the needs of their patrons.

    Quality patron data is particularly important to high-volume customers like DeCA. DeCA is accustomed to having members of the P&G military team provide their senior management, category managers, buyers and store personnel with detailed analysis of category brand and item trends, as well as with promotion and pricing affecting the studies. Over time, we have contracted with all of the major suppliers of DeCA scanner data, including Empower IT or MMI, IRI and A.C. Nielsen for scanner data and analytical support.

    While each of these suppliers offer quality products and services, in the past year we moved our primary data contract. Two key factors led to this choice. First, the selective supplier offers DeCA data and civilian retailer and market data in one data base. The availability of both inside and outside gave information in a format which can easily be compared, and it is critical to supporting DeCA's category management efforts.

    Second, the chosen supplier is currently P&G's primary corporate data provider, and this move has enabled our military team to take advantage of standardized tools, training, support, data maintenance services, and then pass the savings back along to our customer.
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    DeCA's decision to make their data available openly to interested data providers has enhanced both the quality and the value of the available data. Since this decision was implemented, P&G has experienced a reduction in the price of data and a marked improvement in the quality of service being provided by all of the major DeCA data suppliers.

    Importantly, having DeCA data in a format that P&G brand managers are familiar with has also made them much more willing to support the military resale benefit through the funding of incremental promotion, merchandizing and couponing events.

    From a cost standpoint, this past year, our military team reduced our expenditures for base category, DeCA and market data by over 15 percent. This has allowed us to invest in new and progressive analysis designed to provide unprecedented patron understanding.

    Specifically, working with a civilian consultant, we invested over $100,000 in a patron study designed to identify why some eligible patrons' needs were and are not being met within the commissary system.

    Second, we contracted with IRI to complete a sophisticated pricing analysis, which produced best-eve knowledge on military patrons' reaction to various promotion pricing strategies, and we are using this data to improve our promotion effectiveness.

    Third, this past week, we reviewed the initial results of a state-of-the-art shopping habit study completed for P&G by A.C. Nielsen. This study shows us how and where the military patrons are spending their grocery dollars, and armed with this knowledge, we are now working to better understand why in many cases they are spending their limited dollars outside the gate and importantly how to bring them home.
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    In summary, the availability of affordable and high-quality data is critical to our quest to work with key customers such as DeCA to better understand and meet patron needs, and we have moved to an important and exciting new level in our partnership with DeCA as a result of these changes, which have taken place over the past few years.

    Thank you.

    [The prepared statement of Mr. Barker can be found in the Appendix.]

    Mr. MCHUGH. Thank you, Mr. Barker.

    Mr. Davis.


    Mr. DAVIS. My name is Gregory Davis of the H.J. Heinz Corporation.

    To begin with, I would like to thank Chairman McHugh and the members of this Oversight Panel for the opportunity to testify on one of the more important issues for the military patron, the issue of scanner data.

    This issue ranks high in the minds of DeCA personnel, as well as virtually all vendors that conduct business with the commissary system.
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    Before we can tell you our opinions on it, let me tell you just a little bit about Heinz Special Markets. We are a group that represents all of the affiliates within the H.J. Heinz Corporation, brands that you know, Heinz, StarKist, Weight Watchers, Budget Gourmet, and the famous cat Morris, the cat for Nine Lives. These brands are under the Heinz Special Markets Group and ensure that Heinz Special Markets ranks in the top ten customers for DeCA. In fact, the number-one-selling package item, 10 of 12 months a year, is a StarKist item.

    We have since our inception as a sales division utilized the services of MMI, recently renamed Empower IT. While the majority of our retail counterparts utilize the IRI firm for civilian scanner data, we have chosen to remain loyal to the Empower IT firm.

    Why have we signed contracts year after year with Empower IT? Confidence in the accuracy of their data, availability of overseas data, confidence in historical data, and quite frankly, their personal touch.

    We as vendors must work with DeCA to help provide them with the proper management tools to keep the categories heading in the right direction. The Wal-Marts, Coscos, K-Mart Super Centers, and PetsMarts of the world are outside virtually all military gates. We must ensure that we slow their growth and keep the patrons on the base. We can do this via category management and the use of scanner data.

    So, in summary, the need for affordable, accurate scanner data is critical to ensure our mutual success, but, more importantly, the need for this same data is critical to ensure that the valued civil service management is afforded every opportunity to preserve the benefit. We must help DeCA do the right things for the right people, the military patron.
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    Today's environment of competition on scanner data allows Heinz Special Markets as a group, as well as every vendor, the opportunity to look for the best price, the best service, and more importantly, help DeCA succeed in the competitive marketplace.

    Now that I have said all of those things that the lawyers wrote, I was raised in the military, raised by a Green Beret, a guy that was in the 82nd. I not only know this business, but I believe in it, and the fact of the matter is, the H.J. Heinz Corporation wants to go on record as saying that we hope that this data is available. We hope that it is available in a competitive market, and we will be glad to answer any questions you have.

    [The prepared statement of Mr. Davis can be found in the Appendix.]

    Mr. MCHUGH. Thank you, and thanks, H.J.

    Mr. Flowers will be next. Welcome.


    Mr. FLOWERS. Good afternoon, Mr. Chairman and members of the Panel. Thank you for this opportunity to be here to answer your questions today.

    My grocery experience started in 1968 with Safeway, working in the El Paso Division at Albuquerque. I started with the mop bucket, the brown bag, and a back room full of bottles, and worked my way up to the glorious position of assistant manager for Safeway.
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    You have probably heard the phrase in the past that you can be all that you can be in the Army. Well, I thought that applied to civilians, and I applied to the Troop Support Agency in 1984 and became the commissary officer in Schweinfurt, Germany.

    I spent the next eight years in Germany as commissary officer and operations specialist, working out of the Munich District where we oversaw several commissaries in southern Germany, two Army commissaries in northern Italy, a commissary in Cairo and two commissaries in Saudi Arabia. It was a marvelous experience, and I thank the agency for giving that to me.

    In 1992, when DeCA was setting up its marketing units on a regional basis, I was brought back from Germany to Little Creek, Virginia, to serve as a buyer/category manager on that staff there.

    In 1995, with the reorganization of the Agency under centralized buying, I came to Fort Lee and have been there since as category buyer and category manager.

    I, gentlemen, am an end user of these reports that are generated by these services. I work closely with my colleagues and their brokers and their representatives that are sitting here, too, to analyze that data and try to make the right decisions for our commissary patrons. The category management process is a dynamic process. Mr. Johnson described it quite eloquently, and he did a very good job with that.

    I am glad to be here. Thank you.
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    Mr. MCHUGH. Thank you, sir.

    Last but not least, Mr. Wood.


    Mr. WOOD. My name is William Wood. I am a buyer at the DeCA Marketing Business Unit (MBU). I have been in the business for 38 years. The first 21 years of it, I spent with Giant Food, working my way through all of the departments, and the last nine years with Giant, I was a general manager.

    I switched over from retail in 1981 to the wholesale side of it, and I went to work for B. Green in Baltimore, Maryland, a food wholesaler, and my first job with them was deli bakery supervisor. Then I was promoted to key accounts manager, and from there, I was promoted to director of marketing.

    I left B. Green in 1984 and went to Rich Food in retail development, new stores and acquisition of property, was promoted to regional director. I had 152 stores under me, four States, and Washington, D.C.

    In 1986, I went to Fleming, which is another wholesaler out of Oaks, Pennsylvania, and I was their store operations director and responsible for profit-and-loss statements for all the stores that they had leases on. That covered also a four-State area plus the District of Columbia.
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    In 1988, I joined the Army, Troop Support Agency (TSA), spent four years in Germany as a commissary officer, and as DeCA was being formed, I was selected to go to the Southwest Region at Alturas, California, as a buyer and category manager of the Southwest Region.

    In 1993, I was selected to come to Fort Lee as the first national buyer at Fort Lee. We turned into the MBU, and I transferred over as a buyer to the MBU.

    I had the personal privilege and honor to do the first category plan that was ever done in DeCA nationally. That was in detergents. I did that in 1994, and since then, I have developed and implemented 32 categories of plans. I am currently, as we said in the beginning, the buyer for cereals, juices, coffees, teas, nutritional and breakfast snacks.

    It is a pleasure being here, sir, and if I can answer any questions, I would be glad to.

    Mr. MCHUGH. Thank you very much.

    You all have a remarkable amount of experience, and certainly as a buyer—and it typifies that. I mean 152 stores, four States, District of Columbia. You all know this business very well, and that is why you are here, obviously, and we appreciate your coming and sharing your insights.

    There is a lot of different perspectives here that we would like to pursue. Because of the hour, I think we are going to have to do a number of it in the written testimony, but as you heard from the exchange between Congressman Bartlett and General Beale, there is some controversy here I do not know that we can resolve with this Panel.
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    Certainly, I think I can speak for everyone on this side of the dais. Our main interest is to try to ensure that in the end, in the final analysis, that the data available and how it is generated produces, number one, the highest rate of return for DeCA, and number two is in the most useful format for everyone involved so that it assists you on the private side to be better at what you do. It helps you gentlemen to invigorate the system and keep it vital because we believe very strongly it is a vitally important and critically important benefit, part of the benefit package to our men and women in uniform.

    So I would start over on the private side of the equation, and I am curious. In your experience, how do you most often derive the data that you use? In other words, is the prevailing commercial practice to have non-exclusive sale of data, or is it more common to sell to only one company? Maybe you could just share from your view, from your perspective, what, if any, advantages that are not exclusive versus exclusive.

    Lloyd, everybody is looking at everybody else, but I am looking at you.

    Mr. JOHNSON. All right.

    I think I can only comment—first of all, I do not have the civilian perspective that perhaps you are asking for, but in the military market, our company does not directly buy data from the supplies, but we use data that our client principals or our client manufacturers purchase.

    Mr. MCHUGH. Okay.
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    Mr. JOHNSON. I am told by the manufacturers that we do business with that the competition among the three data suppliers, currently three data suppliers, has generally resulted in improved service and lower prices.

    That is what I am told by the folks who actually buy the data, and our sense as a user of that data is that that is probably the case.

    Mr. MCHUGH. That is true. You are kind of a hybrid.

    Mr. JOHNSON. Yes.

    Mr. MCHUGH. I mean that with all due respect and compliments.

    Mr. Barker.

    Mr. BARKER. What I would say, just based on the customers I have dealt with specifically as well as others, it is all over the board. They all have different strategies for dealing with their data, whether to sell it, who to sell it to, how to support their category management plans, and there is really not a prevailing method.

    Many use multiple suppliers, and in some cases, some of the best-in-class retailers will select a supplier and say, ''All right. You are primary on these categories, and you are going to be the secondary supplier on these categories.'' Then they will reverse that with another supplier and attempt to get the benefit that comes from having two different organizations looking at the data and doing the analysis.
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    In some cases, they have chosen to go with a select supplier. One of the benefits for the manufacturer community of having multiple suppliers is, as in our case, we are able to take advantage of the synergies and efficiencies of having a major contract with one supplier. So, in other words, with a customer who says, ''Hey, you are going to support our category and management plan, you need to buy data from X.'' If that is not where our contract is, we obviously have to make a decision that will cost us more money in the long run.

    I would say that, though, today is not what happens in most cases. We are not finding ourselves mandated the type of data to bring in.

    Mr. MCHUGH. Mr. Davis.

    Mr. DAVIS. To answer your question, the most consistent thing would be the inconsistency because it is across the board.

    The challenge I have with it is year after year, you hear how DeCA is pumped up against the retail world because, for some reason, people think the retail side of this business does it better.

    Mr. MCHUGH. I am sorry. I did not hear.

    Mr. DAVIS. Sometimes people think the retail side of the grocery industry does it a little better than DeCA, and I would challenge that, quite frankly, having dealt with both sides, particularly in a major corporation.
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    I think that DeCA right now runs their grocery store better than just about any civilian wholesaler or grocery person in the world, and they all do it in different ways.

    My only goal with this whole session was to have DeCA offer this data in different ways, through more than one supplier.

    What we know for sure is our prices are down. Their attitudes are much friendlier, and we are able to take that money that we save off the scanner data and pump it right back into the stores, whether it is coupons, whether it is trade events, whether it is grand-opening specials. It all goes back to the same consumer bottom line. If our data is cheaper and we can pass it back onto the troop, I think that is the name of this business.

    Mr. MCHUGH. So you would agree with Mr. Johnson's impressions of the companies that he does business with. Prices are down?

    Mr. DAVIS. Right. Prices are down, for sure.

    Mr. MCHUGH. Let me go over to Mr. Flowers and Mr. Wood.

    If you had the opportunity, what would you do, if anything, to change, expand, reconfigure the data you are getting to make it more useful?

    Mr. FLOWERS. When we receive data from the manufacturers of the brokers, the data is presented to us in a variety of different forms, from what I call a macro report to a mini report, macro being brand share, brand clout, regionalized perhaps demographically, to a micro report where you have actual individual line items ranked against the entire category to see where it ranks.
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    By looking at different sources of this information, different providers I mean, sometimes we get a different perspective because each provider essentially does it in the same way, but they may slice a different facet off of that category to look at it in a different perspective. We appreciate that different perspective when it is offered to us.

    Did I answer your question?

    Mr. MCHUGH. You did. Sometimes I need a little kick down the road.

    You like it like that. Are you getting it like that, is the question, the follow-up.

    Mr. FLOWERS. It depends on which category we are working in and what size or significance the brand players are.

    Oftentimes, the category manager or buyer will start a category review. The category may have many different brand players in it, different manufacturers, and each manufacturer will go out and solicit the information from the various providers and bring it in. That is a variety of information.

    Sometimes the categories are smaller in sales and therefore less clout, and the major brand there may be the only provider of any data whatsoever. They will bring it in from one source only.
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    Mr. MCHUGH. Okay, I got you.

    Mr. Wood, same question?

    Mr. WOOD. I think I am going to answer it a little differently than he did.

    Mr. MCHUGH. Good, not that it was bad.

    Mr. WOOD. If I understood the question, sir, you said if I could change something, what would I do.

    Mr. MCHUGH. Right.

    Mr. WOOD. I would like to have the military or DeCA sales data available to me to where I can customize and run my reports the way that I would like to at any given time.

    The way we are set up right now, we are asking for data—I buy breakfast syrups. I could ask one manufacturer to give me data on syrups.

    If this customer only sells pancake syrup, the data he is buying may only be for pancakes. There is also maple. There is Karo, and there is fruit-flavored syrups. So I could ask four individuals for a syrup category, and depending on what they are selling is what they would give me.
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    If I had the data available to me, I could run the whole category and just set up subsegments. That would be my wish.

    Mr. MCHUGH. ''A little knowledge is a dangerous thing'' is the old saying. So I am pretty dangerous right now. [Laughter.]

    Is that an extraordinary capability that you have, or can any buyer in America say to any buyer worth his or her salt, if that is what they are buying—could they use that as well, or is that a pretty sophisticated—

    Mr. WOOD. When we do a category review or a plan, we need to look at all of the subsegments in the category, and if we had access to the data, we could pull out all of the subsegments, what we wanted to look at and have it on a report.

    Unfortunately, since we do not have anything live for us to do, we have to go on the manufacturer. The manufacturer is not going to buy fruit-flavored syrup data if he does not sell it because why does he need to spend X-amount of money for that.

    Mr. MCHUGH. Yes.

    Mr. WOOD. So, when we ask for syrup data, it is his subsegment that they are in.

    Some of them, we do get all of it, but if you are asking, what I would need to operate, to have a system to where I could also look at it in-house.
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    Mr. MCHUGH. Well, as someone who represents the maple growers industry in northern New York, you do not need the fruit syrups. [Laughter.]

    Just kidding.

    Mr. Pickett.

    Mr. PICKETT. I want to try to make sure I understand. We are talking about DeCA sales data and its tabulation and access to it, and I take it that DeCA takes the position that this is proprietary information that they want to sell, but the people that buy it from DeCA do not reconfigure it and provide it in a format that you like. Is that where we are?

    Mr. JOHNSON. Can I try to answer it? I think I see where you are coming from. The fact is that all three data suppliers now supply data to manufacturers who buy it from them, and then we bring it in piecemeal to the buyers. I think that is what Bill is trying to say there.

    If he is trying to analyze a category, he gets data from perhaps three or four suppliers, and it is not the whole picture. He would like to have access to that same body of data to perhaps challenge the suppliers that he is talking to or confirm what they are saying and make an overall decision on an overall category rather than do it piecemeal. For that reason, I can readily see why DeCA should have access to that same data that we as suppliers have access to.

    Right now they do not. They depend on suppliers to bring it to them piecemeal. I think General Beale said earlier that he would also like to have a system whereby his buyers could have access to that same data. Whether it is one supplier of data or three suppliers of data or multiple suppliers, the fact is DeCA buyers need that data to do an efficient and effective buying job.
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    Mr. WOOD. I would agree with that, sir.

    Mr. PICKETT. What is the problem? [Laughter.]

    I am sorry. DeCA does not want to make the data available to everyone, and they want to treat it as proprietary and then sell it?

    Mr. JOHNSON. No. I think DeCA, as said earlier—General Beale said he would be happy to sell it to three suppliers. I do not want to begin to even get in that legal discussion that was had before. I could not hold my own in that.

    I think DeCA just wants to have a system available whereby the manufacturers and their brokers could have access to the data, as well as the buyers could have access to the data, and somewhere through all that we have heard here this afternoon, there has got to be a way to do that.

    Mr. PICKETT. But the data is just not available, or it is not available in a format you want it? I do not understand that part of it.

    Mr. BARKER. Today, DeCA does not have easy access to the same data that many of their suppliers have.

    Mr. PICKETT. I thought DeCA created the data.

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    Mr. BARKER. It is DeCA's data which they provide to the data providers or suppliers in raw form from the stores.

    The data suppliers then take that, clean it. You are talking about huge databases, as you think about all the products being sold in all the commissaries. They clean it. They project it, and they all have different methods of trying to come out with the same basic information which is here is what is moving in the stores.

    As the manufacturer who purchases data from one of those suppliers, I could go to my hotel room tonight, get my laptop up, plug it into the wall, and I could instantly be manipulating a significant database and pulling down information on DeCA movement.

    Today, the buyers do not have that same capability. So one issue is they need that capability, and frankly, they are probably the only grocery retailer of their size who does not have that capability of the category manager level or buyer level today. So we pull the data and take it in to them.

    Mr. PICKETT. Can somebody answer why DeCA does not have data on its own sales? I do not understand that.

    The man in the blue shirt in the front row there. General, if you can just make it as brief as you can.

    General BEALE. Under the original contract and for years, there was one DeCA provider. DeCA sold the exclusive rights to that data, to that company, who turned around and sold it. The Government did not even retain rights to the data.
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    What we have done under the auction and under the original solicitation where we ended up in court, the interim auction procedure and the current auction procedure, the Government has retained rights to the data.

    What I promised the Panel is that I would not use Government resources to spin and collate that data. Therefore, we want the buyers of the data to do the manipulation of the data, the aggregation of the data, provide it back to us through these terminals that I was talking about, and at the same time sell that data to subscribers of the data who can come in, put their own spin on it, but my guys have the ability then to say, ''Okay, here is the truth. As P&G sees it, Heinz sees it, or C. Lloyd Johnson sees it, here is what the raw data says,'' and make a decision.

    Mr. PICKETT. So the problem is that DeCA does not have access to its own information, its own sales data information?

    General BEALE. At the present time, we do not, except as it is spent—

    Mr. PICKETT. I understand it. I got it. Thanks.

    Thank you, Mr. Chairman.

    Mr. MCHUGH. Got that? Good.

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    Mr. PICKETT. I am sorry to be so dense on that.

    Mr. MCHUGH. Don't apologize to me. [Laughter.]

    Mr. Bartlett.

    Mr. BARTLETT. Thank you very much.

    Mr. Johnson, the last sentence of your formal presentation, ''Some data currently exists, but it is in a raw form that is somewhat difficult to use, and what is available does not cover the entire exchange market.''

    What is the antecedent of the pronoun ''some''?

    Mr. JOHNSON. I was referring in that case to exchange data, not commissary data, by the way. I just want to make that clarification.

    It is possible for the vendor community to buy sales data from one or two of the exchange systems, but it is in a raw format which means it is difficult to use from a marketing standpoint.

    So what I was suggesting was that at some point, it would be helpful to the vendor community if the exchanges found a way to sell their data to data providers, such as Empower IT, Nielsen, IRI, and therefore suppliers could buy that data from those data-crunchers, if you will.
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    All I am saying is that the same information that is useful for doing business with DeCA would be useful in doing business with AAFES and Navy Exchange Command (NEXCOM) and the Marine Corps.

    Mr. BARTLETT. Several of you mentioned that prices were now lower. Is that because of the better quality of scanner data, or is it because of competition?

    Mr. BARKER. My personal opinion is it is due to the competition, and when that competition came into play, not only did the prices start down, but the quality of the data and the products being offered went up.

    Mr. JOHNSON. I would echo that.

    Mr. BARTLETT. Mr. Johnson, what are some of the companies that your company represents?

    Mr. JOHNSON. Best Foods Corporation, the Mars Corporation, Dial Corporation, Campbell Soup, to name a few.

    Mr. BARTLETT. If DeCA were to make daily data available by store, would that be of greater value? Would your clients be willing to pay more for more frequent data?

    Mr. JOHNSON. I do not think so. My sense is that the way the data is now supplied on a monthly basis from the three data suppliers that currently exist, that is the way the manufacturers would prefer to buy it and digest it and use it.
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    Mr. BARTLETT. Does personnel from MMI, IRI, or A.C. Nielsen have contact or work with your company?

    Mr. JOHNSON. Yes, absolutely, all three.

    Mr. BARTLETT. Can you give us an idea of how that works?

    Mr. JOHNSON. They know that we as a broker do not buy the information directly, but they know that we use it. So they call on us to train our people, and sometimes they call on us with our manufacturer for business reviews, where we analyze data in a half-day session and try and decide on promotional strategy and other things. So they are in fairly regular contact with us.

    Mr. BARTLETT. I think all agree that DeCA buyers and category managers need information. If DeCA cannot or does not internally produce the information, can they rely on the information that the manufacturers present to DeCA?

    The competitor to one of your clients presents information to DeCA. Do they present the whole picture, the good and the bad, what is hot and what is not, or do they cherry-pick the information to show their product in the best possible light?

    Mr. JOHNSON. It is a little bit of all of the above sometimes, I guess I would have to say, but us as suppliers providing data to DeCA is better than them not getting it at all, but it would be better if they could get it directly so that they could have a check on sellers trying to sell merchandise and spinning the data one way or another.
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    Mr. BARTLETT. You would agree, then, with the statement that DeCA needs its own objective information?

    Mr. JOHNSON. Yes.

    Mr. BARTLETT. Do you think that DeCA buyers and category managers might be at a disadvantage if the people selling to them have more complete and better information than they do?

    Mr. JOHNSON. A little bit, yes. Yes. I think we all said that here earlier. Yes, sir.

    Mr. BARTLETT. Thank you.

    Mr. Wood, you said several things, if we had access to data, if we had better data. As compared to what?

    Mr. WOOD. We have a report called a Store Item Movement Management System (SIMMS) report that shows some of our scanning data. Personally, I think there is a lot of flaws in that, and I do not put a lot of faith in the data that I could get from our scanning data.

    The data that we get from the three companies through the vendors is much more reliable, in my opinion.
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    Mr. BARTLETT. But you do not have access to data directly. You get it through—

    Mr. WOOD. I have to get it through a vendor.

    Mr. BARTLETT. You have to get it through a vendor?

    Mr. WOOD. Yes.

    Mr. BARTLETT. Has that always been true?

    Mr. WOOD. No, sir.

    Mr. BARTLETT. When was it not true?

    Mr. WOOD. Well, I guess from 1992 to 1996 or whenever the—

    Mr. BARTLETT. Is that the period when the MMI contract was in effect?

    Mr. WOOD. We had—we had access to it, yes, sir.

    Mr. BARTLETT. When the MMI contract was in effect, you had access to data that you do not now have access to which advantaged you in the decisions that you were making? That is correct?
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    Mr. WOOD. That is partly correct. We had access to the data.

    Mr. BARTLETT. You did not want the access to it or did not need it?

    Mr. WOOD. I am not saying that the data I am getting now or from outside source is incomplete.

    Mr. BARTLETT. What did you mean, then, if we had access to data and had better data?

    Mr. WOOD. Well, at this point, the only data we have is the SIMS report.

    Mr. BARTLETT. But that was not true under the MMI contract.

    Mr. WOOD. We do need scanning data that is now offered that is not available to us.

    Mr. BARTLETT. What you did have for those years in the early 1990's?

    Mr. WOOD. Yes, sir.

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    Mr. BARTLETT. When the MMI contract was in effect?

    Mr. WOOD. Yes, sir, we did have it available.

    Mr. BARTLETT. Thank you. Thank you.

    Would you tell the Panel how you use the information in your work? When vendors make presentations, do any of them use MMI data?

    Mr. WOOD. Repeat that question, again, sir?

    Mr. BARTLETT. The first question was, would you tell us how you use this data in your work, or do you think your answers to previous questions have answered that question?

    Mr. WOOD. I analyze the data. At present time, if I get three reports, and it can be from any one company—it could be from three manufacturers from the same company and supposedly be the same report, and a lot of times, the reports are skewed. You do not come up with the same answer.

    If I had access to raw data that I could create my own report without putting a skew on it, that is the ultimate, and I would take that data and make my decision.

    At this point, if I get three reports, I get one from three different companies, I take their propaganda, all three propaganda, put them together, and I come up with something close to the truth.
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    Mr. BARTLETT. But from 1991 to 1996 or so, through those years you had data formatted in a quality that enabled you to make better and quicker decisions?

    Mr. WOOD. No. We had data that was formatted.

    I personally think that the data we have today is much more accurate than we had from 1992 to 1996.

    Mr. BARTLETT. Then why your question, if we had access to data, if we had better data?

    Mr. WOOD. If we do a category review, we send out paperwork letting the manufacturers and brokers know that we are going to do a review. They bring their reports in.

    I do get the reports, but I do not necessarily get it—if I had access to it at my terminal, I could get a report right away, but it does not hinder me from doing my job. It just takes a week or two weeks to get the data.

    Mr. BARTLETT. But you still can do your job. It just takes you longer to do it.

    Mr. WOOD. Yes.

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    Mr. BARTLETT. The statement that I wanted to nail down was that you have made these comments relative to a period of time from 1991 to 1996, when the situation was different. That was your previous testimony.

    Mr. WOOD. No, sir. You are trying to put words in my mouth, sir.

    Mr. BARTLETT. Then what did you say?

    Mr. WOOD. I meant that if we had access to data ourselves, if we could pull it up, we could get better and more detailed data than we can get right now.

    Mr. BARTLETT. And I asked you was there a time when you had such data, and you told me yes, from the early 1990's.

    Mr. WOOD. We had access to reports. In my opinion, the data from 1992 to 1996, there were some problems with that in my opinion. We get much more accurate data now than we do even if I have to go through a broker. The data is more precise now than it was from 1992 to 1996.

    Mr. BARTLETT. Just one last question. I am trying to find out what you were comparing your statements to in your testimony today: if we had access to data, if we had better data. As compared to what?

    Mr. WOOD. What I was referring to is I have no source to get data now. I have to go outside and ask a vendor to bring it to me.
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    Mr. BARTLETT. And I asked you, was there a time when that was different, and the record will show that you answered: Yes, it was 1991 to 1996.

    Mr. WOOD. We had access to data. I did not say better data.

    Mr. BARTLETT. Okay.

    Mr. WOOD. I could pull up a report.

    Mr. BARTLETT. Then.

    Mr. WOOD. Then.

    Mr. BARTLETT. But you cannot now?

    Mr. WOOD. I cannot now, and that has been put in the record.

    Mr. BARTLETT. That is the answer I was trying to get, sir.

    Thank you very much, and thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you.

    Mr. Meehan.
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    Mr. MEEHAN. Mr. Chairman, we have a vote on. So what I would like to do, if I could, is submit some questions in writing and get a response. They are specifically addressed to specific individuals, and if I could get a response either in writing or on the telephone, that would be great.

    Thank you.

    Mr. MCHUGH. I thank the gentleman once again for his consideration. It has been a long day, and a lot of patience and some very interesting—

    Mr. MEEHAN. Mr. Chairman, patience is a virtue.

    Mr. MCHUGH. Well, we are very virtuous people today, aren't we? It is nice to do, for a change.

    I want to thank the last panel members, as I hope I expressed my gratitude to the previous three and to all of the people who have for some reason stayed here. I compliment you, and thank you for that.

    As well as the ranking member, we will have some written questions for you gentlemen. We would appreciate your cooperation and accommodation, and with that, I would declare the meeting adjourned.

    [Whereupon, at 5:53 p.m., the panel was adjourned.]
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