Thank  you very much.  And thank you also for your service to the country.  Thanks to those here and those that may be watching from bases or ships all across the world.  We thank the dedicated men and women in uniform for doing so much to help keep our country free and safe.

I also want to welcome the representatives from BENS, the Business Executive for National Security, who are here.  We thank you for your interest, your support and your assistance.  And needless to say, we welcome the senior officials from the Department of Defense here, the vice chiefs and Dr. David Chu and others who are gathered.

I'm going to make some very brief remarks and then respond to questions, and the tough ones -- we'll heave them right down here.

Many of you will recall that on September 7th of 2001, I was here in this room on September 10th to talk to you and others around the world about the need to see that we engage in a process of transforming the Department of Defense – “not just the way we deter and defend, but also the way we conduct our business.”

“We must build a Department,” I said on that day, “where each of the dedicated people here can apply their considerable talents and skills to defend America, where they have the resources, the information and the freedom to perform.”

At that time, none of us knew that the next day -- September 11^th -- the building would come under attack, the country would, by terrorists, and that we would be engaged in short order in a global war on terrorism, the likes of which the world had not seen.

Since September 11th, the people of the Department have performed with courage, talent, and devotion.  And certainly each of you -- military and civilian alike -- has played an important role in the success that our country has had thus far.  And you will be important and critical in achieving our victory in the period ahead.

When this war on terrorism started, there were some who suggested that we should put our efforts to transform the Department on hold.

That we really couldn't do both at once.  The opposite was true.  Indeed, the attacks of September 11th make transforming the Department even more urgent -- because they have awakened us to a fundamental truth: that we have entered a new security environment, possibly the most dangerous the world has known.

It's a security environment where new threats can emerge very suddenly, without warning; where adversaries can attack not just on distant battlefield, but they can attack the people of the United States right here in America; where the nexus between terror and terrorist states and weapons of mass destruction means that attacks in this 21st century will be more likely, very likely more deadly, than at any time in modern history.

Notwithstanding the successes that our country has had and our coalition has had -- a giant coalition of some 90 nations in this global war, and the good work that has been done, we are still not yet arranged to deal successfully with this new security environment.  We entered the century really arranged to fight big armies, big navies, and big air forces -- and not to fight the shadowy terrorists and terrorist networks that operate with the support and assistance of terrorist states.

And that's why we are so focused on transforming the Department and the armed services.  To win the global war on terror, the Armed Forces simply have to be more flexible, more agile -- so that our forces can respond more quickly.

But the same is true of the men and women who support the forces in the Department of Defense.  We also need to be more flexible and more agile.  We also need freedom -- the freedom to move resources and to shift people, and design and buy new weapons more rapidly, so that this great Department can in fact respond to the changes in our security environment.

Today, we still do not yet have that agility.  In an age where terrorists move information at the speed of an e-mail, and money at the speed of a wire transfer, and people at the speed of a commercial jetliner, the Defense Department is still bogged down to too great an extent in the micromanagement and bureaucratic processes of an earlier era.

Consider just a few of the obstacles we face each day: 

• This Department spends an average of $42 million an hour -- and yet we are not allowed to move $15 million from one account to another without getting permission from four to six Committees, which -- a process that sometimes takes months.
• Think of the Fiscal Year 2004 defense budget.
  • It was developed by many of the people in this room, from the period probably of March of '02 to December of '02.
  • It was then sent to the Office of Management and Budget for consideration between December of '02 and February of '03, last month, when the President presented it to the Congress.
  • Congress will be considering it from February of '03 probably until October or November of '03 -- and, as in the past, probably making 10 to 20 percent changes in what was recommended.
  • DoD will then try to live with what's left during the period between October of '03 to September of '04.
  • That means that at any given time during the fiscal year of that budget, it will be between 14 and 30 months old while we are trying to implement what Congress provides us.
  • And all that is happening in a world that is changing monthly before our eyes.
• If you think about it, your family budget or a business budget or a department budget is not something that is solid mechanically by rote, because it's more of a plan.  It's something that's developed and put out there as a guide, and you need the flexibility to adjust it as you proceed through living through that period that that guide or that budget was designed for.  The fact that at any given time that plan if you will is between 14 and 30 months old, and the world is changing so rapidly -- it I think puts into perspective the difficulty of having so many restrictions imposed.
• Instead of being streamlined for the fast-paced 21st century, the Defense Authorization has grown with each passing year.  Just consider the changes over my brief career:
  • When I was first elected to Congress in 1962, the Defense Authorization Bill was one page.
  • The last time I was Secretary of Defense, a quarter of a century ago, the '77 authorization bill had grown to 16-pages.
  • When I came back to the Pentagon for this second tour, the 2001 authorization bill had grown to 534 pages.
• I can't even imagine what it will look like if I were to come back in 20, 25 -- let's hope it's not a straight-line projection.
• Today, we have some 320,000 uniformed people doing what are essentially non-military jobs, and yet we are calling up reserves to help deal with the global war on terror.
• The Department is required to prepare and submit some 26,000 pages of justification, and over 800 required reports to Congress each year -- many of marginal value, I am sure many not read -- consuming hundreds of thousands of man hours to develop, and untold number of trees destroyed.
• Despite 128 acquisition reform studies, we have a system in the Defense Department that since 1975 has doubled the time it takes to produce a new weapons system -- in an era when new technologies are arriving in years and months, not decades.

The point is this: We are fighting the first war of the 21st century with a department that was fashioned to meet the challenges of the mid-20th century.

We're all working hard to change.  In 2001, I talked about some of the things we could do on our own to transform this Department -- to eliminate waste and duplication, and to demonstrate greater respect for the taxpayers' dollars.

And in the past year-and-a-half, we've made really some good progress.  We've reduced management headquarters staffs in the Department -- from the Pentagon to every base headquarters by about 11 percent.  We have streamlined the acquisition process by getting rid of hundreds of pages of prescriptive rules and regulations and allowing program managers -- we hope -- to be more innovative, flexible, and creative.  By this spring, we are schedule to have a new financial management architecture in place -- at great expense -- so that we can begin dramatically reducing some 1,800 different information systems that we now rely upon.  We are improving family housing for the service members.  In 2001, when I spoke here, we had already privatized about 10,000 military family houses.  And since then we've privatized an additional 18,000, and we expect to reach 102,000 privatized by the end of 2004.

So, in these and other areas, we are making some good progress.

But to truly bring DoD into the 21st century, we need legislative help.  We are now working with Congress to fashion proposals that will help transform the Department -- how we move money, how we manage people, how we buy weapons.  Final decisions on this package of legislative authorities have not been made.

We are currently in discussions with the Office of Management and Budget about them.  And we are still in a consultation process trying to make sure that we get it right.

We are looking at proposals to do the following things, among other things, for example:

• To establish a National Security Personnel System that would give us greater flexibility in how to handle and manage civilian personnel -- so that we can attract and retain and improve the performance of our 700,000-plus civilian work force;
• To begin the process of moving a number of non-military functions that had been thrust on DoD over the years to other more appropriate Departments, so DoD can focus on tasks where we really do need to excel: defending our country in this dangerous new century; and
• To establish more flexible rules for the flow of money through the Department, giving us the ability to move somewhat larger sums between programs and priorities, as we go through the year, so we can respond to urgent needs and changes in our circumstance;
• To eliminate some of the onerous regulations that make it impossible or unattractive for many small enterprises to do business with the Department of Defense;
• To expand authority for competitive outsourcing, so we can get military personnel out of non-military tasks and back into the field.  There's really no reason, for example, that that the Department of Defense should be in the business of making eyeglasses, the private sector I suspect makes them better and faster, and possibly even cheaper.  But we are.  And these types of things need to change.

Our goal is to gain the freedom that you need to do your jobs.

Each of you here is a dedicated public servant, or you wouldn't be here.  You've chosen national defense as your vocation, because you love our country, and you probably know better than any the obstacles that each of you face each day -- and what needs to be done to solve some of the problems -- and make this Department work better.

Of course, there will always be resistance to change.  That's not surprising.  Change isn't easy.  People get comfortable to where they are in life.  And this is a big institution.  I suppose changing it is like turning a giant ship.  It doesn't spin on a dime.  It's not a speedboat.  It's an important institution, and it's probably good that it takes time.  But the ship is turning.

I do believe that we are making progress.  I can feel the turn.  I suspect many of you can as well.  And with your help and with the help of Congress, I believe we can do a lot more to make this department more effective and so that it will serve our country even better than it currently does.

So I thank all of you for what you do for our country, those here and those listening across the globe.  We appreciate it.  We know that what you do contributes to peace and stability in this world and that it is greatly valued by the American people.  We'd be happy to respond to questions.  Thank you very much.