[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-85]
THE DEFENSE INDUSTRIAL BASE: THE
ROLE OF THE DEPARTMENT OF DEFENSE
__________
HEARING
BEFORE THE
PANEL ON BUSINESS CHALLENGES
WITHIN THE DEFENSE INDUSTRY
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 1, 2011
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PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY
BILL SHUSTER, Pennsylvania, Chairman
BOBBY SCHILLING, Illinois RICK LARSEN, Washington
JON RUNYAN, New Jersey BETTY SUTTON, Ohio
ALLEN B. WEST, Florida COLLEEN HANABUSA, Hawaii
Lynn Williams, Professional Staff Member
Timothy McClees, Professional Staff Member
Catherine Sendak, Research Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2011
Page
Hearing:
Tuesday, November 1, 2011, The Defense Industrial Base: The Role
of the Department of Defense................................... 1
Appendix:
Tuesday, November 1, 2011........................................ 35
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TUESDAY, NOVEMBER 1, 2011
THE DEFENSE INDUSTRIAL BASE: THE ROLE OF THE DEPARTMENT OF DEFENSE
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Larsen, Hon. Rick, a Representative from Washington, Ranking
Member, Panel on Business Challenges within the Defense
Industry....................................................... 2
Shuster, Hon. Bill, a Representative from Pennsylvania, Chairman,
Panel on Business Challenges within the Defense Industry....... 1
WITNESSES
Gudger, Andre J., Director, Office of Small Business Programs,
U.S. Department of Defense..................................... 6
Lambert, Brett B., Deputy Assistant Secretary of Defense for
Manufacturing and Industrial Base Policy, U.S. Department of
Defense........................................................ 3
APPENDIX
Prepared Statements:
Gudger, Andre J.............................................. 52
Lambert, Brett B............................................. 42
Larsen, Hon. Rick............................................ 41
Shuster, Hon. Bill........................................... 39
Documents Submitted for the Record:
``DOD Best Practices and FY12 Strategy,'' Submitted by Brett
B. Lambert................................................. 67
Hon. Ashton B. Carter's Memorandum on ``Defense Research and
Development Rapid Innovation Fund (RIF) Goals and
Implementation Guidelines,'' Submitted by Andre J. Gudger.. 70
Witness Responses to Questions Asked During the Hearing:
Mr. Larsen................................................... 79
Mr. Shuster.................................................. 79
Ms. Sutton................................................... 81
Questions Submitted by Members Post Hearing:
Mr. Larsen................................................... 86
Mr. Shuster.................................................. 85
Mr. Joe Wilson, a Representative from South Carolina,
Committee on Armed Services................................ 87
THE DEFENSE INDUSTRIAL BASE: THE ROLE OF THE DEPARTMENT OF DEFENSE
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House of Representatives,
Committee on Armed Services,
Panel on Business Challenges within the Defense Industry,
Washington, DC, Tuesday, November 1, 2011.
The panel met, pursuant to call, at 3:00 p.m. in room 2212,
Rayburn House Office Building, Hon. Bill Shuster (chairman of
the panel) presiding.
Mr. Shuster. Good afternoon. The hearing will come to
order.
I want to thank everybody for being here today.
I think we are live on C-SPAN. Are we live on C-SPAN? We
will be broadcast later, so we can watch it tonight. It will
put us to sleep.
Again, I thank everybody for being here today.
OPENING STATEMENT OF HON. BILL SHUSTER, A REPRESENTATIVE FROM
PENNSYLVANIA, CHAIRMAN, PANEL ON BUSINESS CHALLENGES IN THE
DEFENSE INDUSTRY
Mr. Shuster. The House Armed Services Committee Panel on
Business Challenges in the Defense Industry meets today to
continue our dialogue regarding the health and future of our
Nation's defense industrial base by receiving testimony from
witnesses from the Department of Defense.
While the Weapons System Acquisition Reform Act did much to
increase transparency and foster competition, there is still a
great deal of room for improvement in the Department of Defense
business practices.
Last Monday, the panel heard from policy experts and from
various think tanks that have studied the structure,
effectiveness, and efficiency of the defense industrial base.
Our witnesses last week pointed out that our Nation lacks a
coherent and complete strategy for our Nation's defense.
Without such a strategy, the defense industrial base is left
without the guidance and transparency necessary to ensure
viability and efficiency.
This panel is facing some complex issues, and nothing
illuminates that more than the RAND study on military research
and development policies, which I think I am going to carry
around with me from here on out. I think it does a very good
job of laying out the complexity of the issues as it offers
some findings and recommendations of the policy of providing
the military with new weapons and capabilities. The only
problem with this RAND study is it is from 1958, so we are
still talking about the same problems 50 years later. So that
is what this panel wants to take a look at and change the way
we are for the betterment of our Nation and our Department of
Defense and for the warfighter, especially.
As a panel, we traveled to Akron, Ohio, on Friday where we
met with small and mid-sized businesses working on highly
technical solutions to deliver capabilities to our warfighter.
We met with companies making advanced coatings to prevent
corrosion, composite armor, advanced aerodynamic control
systems, and technologies to enable remote detection and
identification of pathogens.
Just like in 1958, our defense industry today is having a
hard time getting clear requirements from the DOD [Department
of Defense], bridging the gap between development and fielding
and surviving overly burdensome, unresponsive program
management policies and regulations. Navigating these issues is
difficult for large defense contractors and near impossible for
small businesses. Today's hearing is an opportunity for us to
hear from these critical issues from witnesses from the
Department of Defense.
I would like to introduce, first, the Deputy Assistant
Secretary of Defense for Manufacturing and Industrial Base
Policy, Mr. Brett Lambert--thank you for being here, Mr.
Lambert--and Mr. Anthony Gudger, the Director of the Office of
Small Business Programs in the Office of the Under Secretary of
Defense for Acquisition, Technology, and Logistics.
Again, welcome. I look forward to hearing your testimony
and frank discussion.
But before we receive testimony, I would also like to take
a minute to thank Congresswoman Betty Sutton and her dedicated
staff for hosting the panel in Akron. It was an extremely
informative visit.
In addition to the roundtable with industry, we also had a
remarkable discussion on the impact of corrosion on DOD's
equipment facilities and got a briefing on the University of
Akron's unique program in corrosion research and engineering.
On the trip, I learned that the Department of Defense spends
nearly $23 billion a year dealing with corrosion. That is $23
billion out of a defense budget that we are not spending on our
troops, and it is something that I think all members of the
panel and the Armed Services Committee need to be aware of. So
I want to thank Betty for bringing this important issue to our
attention.
Our next field roundtable will be happening on Friday,
December 9th, in Congressman Jon Runyan's district, the 3rd
District of New Jersey. These sessions are invaluable to this
panel's work, and I hope all our panel members have an
opportunity to join us on that trip.
At this time, I turn it over to our ranking member, Mr.
Larsen, if he has any comments.
[The prepared statement of Mr. Shuster can be found in the
Appendix on page 39.]
STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE FROM
WASHINGTON, RANKING MEMBER, PANEL ON BUSINESS CHALLENGES IN THE
DEFENSE INDUSTRY
Mr. Larsen. Thank you, Mr. Chairman, and I am pleased to be
joining you and the other panel members here today.
As we have discussed, this panel aims to discover the
challenges facing the current defense industry partnership and
the capabilities they produce and, based on that RAND report,
perhaps solving them at some point as well.
Small businesses are essential to a robust and agile
industrial base as well as for a strong economy. The U.S.
defense base has a long history of producing the best military
systems in the world, and we have to ensure that this continues
both for our warfighter as well because it does create jobs
here in the U.S.
Key aspects of a strong defense industrial base include
assuredness of supply, American jobs, and ensuring the best
technology for the warfighter. The mission of the manufacturing
and industrial base policy is to monitor, preserve, and enhance
the national security industrial base of the United States. As
we know, small businesses play a critical role in the strength
of our economy by creating technologies for many folks,
including our warfighter. We need to ensure that our small
businesses are given every opportunity to compete on a level
playing field with larger businesses.
Over the past few months, we have heard that small
businesses face challenges regarding security clearances, lead
times from DOD contract solicitation to submission due dates,
ITAR [International Traffic in Arms Regulations] regulations,
defense auditing, and other regulatory and procedural issues.
I am pleased with what we have learned so far from our
first panel hearing that looked at challenges our small and
medium-sized businesses are having creating and maintaining
opportunities within the Department of Defense. Testimony from
that hearing was echoed during our district visits and
roundtable discussions. In addition, comments from local
leaders have been extremely helpful.
So far, this panel has met with business readers in my
congressional district in August. We visited Rock Island
Arsenal in early October in Mr. Schilling's district. And last
week I and other panel members met with industry leaders in and
around Ms. Sutton's district in Akron, Ohio.
Connecting today's hearing with our hearing on October 24th
where we discussed the role and the future of the defense
industrial base with witnesses from think tanks, we will hear
today what DOD is doing to improve the defense business
environment with a particular focus on small business. I look
forward today to hearing today's testimony and thank you all
for being here.
Thank you again, Mr. Chairman.
[The prepared statement of Mr. Larsen can be found in the
Appendix on page 41.]
Mr. Shuster. Thank you, Mr. Larsen.
With that, we will start with Mr. Lambert, if you would
proceed.
STATEMENT OF BRETT B. LAMBERT, DEPUTY ASSISTANT SECRETARY OF
DEFENSE FOR MANUFACTURING AND INDUSTRIAL BASE POLICY, U.S.
DEPARTMENT OF DEFENSE
Secretary Lambert. Chairman Shuster, Congressman Larsen,
and members of the panel and staff, thank you for the
opportunity to submit our written testimony on behalf of the
Department regarding maintaining a healthy and productive
defense industrial base.
I am Brett Lambert, the Deputy Assistant for Defense for
Manufacturing and Industrial Base Policy.
Let me begin by defining what we mean by the term ``defense
industrial base,'' because I think the definition is important.
The defense industrial base is comprised of an extremely
diverse set of companies that both provide products and
services directly and indirectly to the national security
agencies, including the military.
References to ``the'' defense industrial base that imply
some monolithic entity are not analytically useful. The defense
industrial base includes companies of all shapes and sizes
resourced from around the globe, from some of the world's
largest public companies to sole proprietorships to garage
start-ups. Some companies deal directly with the Federal
government, while the vast majority act as suppliers,
subcontractors, and service providers in a value chain that
leads to those prime contractors.
Companies at any tier, and at any size, may offer critical
or hard-to-produce products that ultimately lead to the systems
used by our warfighters. Some products and services sold by
companies in the defense industrial base are unique to defense
applications alone, while most have substantial levels of non-
defense demand or are even sold exclusively on commercial terms
such that the supplier may not even know that the products is
used in our military systems. And, likewise, the military may
not know it depends upon a primarily commercial component.
Finally, while the pace of innovation is extremely rapid in
some segments across our base, other segments are based on
mature technologies where dynamic innovation is less important
to the Department.
In short, there is not a single defense industrial base.
There is a defense market served by a diverse selection of
companies which span and often reflect the greater global
economy for goods and services.
The U.S. military's superior operational capabilities are
enabled by this diverse base, and for decades the U.S. has
commanded a decisive lead in the quality of the defense-related
research and engineering conducted globally and in the military
capabilities and products that flow from this work. However,
these advantages that have enabled American preeminence in the
defense technology are not a birthright, and the key elements
of that base are necessary to ensure U.S. dominance on future
battlefields must be sustained and nurtured. The U.S. defense
industrial base is critical to equipping our military with
superior capabilities, and a strong, technically vibrant,
financially successful industry is therefore in the national
interest.
As the era of sustained growth in defense budgets comes to
an end, the Pentagon stewardship responsibility to ensure
access to a robust industrial base becomes more challenging.
The Department needs to adapt its industrial base
considerations and actions to emerging fiscal realities.
In the past 2 years, we have made significant increases in
efforts to address the implications of the changes in both
budgets and the nature of the industry. We understand that
America relies on a defense industry that is healthy, robust,
and innovative, and the Department appreciates that businesses
must be motivated by the opportunity to make reasonable profit.
Indeed, leveraging the inherent motivations to allow companies
that perform well to increase profit levels above a mean is in
the Department's interest. Likewise, individual companies that
do not provide the government with quality products that meet
our requirements on time at a reasonable cost should expect to
make reduced profits. In the high-budget environments of the
past, many companies have grown to expect high margins
independent of quality. As budgets shrink, this practice must
end.
As the budget environment changes, we do expect some niche
firms to face difficulty due to decreased demand. In such
cases, we attempt to identify early warning signs through a
variety of means to isolate and, if necessary, mitigate these
issues, particularly if a firm offers truly critical, unique,
and necessary capabilities. While to date these cases have been
isolated, we must nonetheless be prepared for the occasion to
tailor our investment policies to preserve essential
capabilities, and we need sufficient insight to make these
choices.
Toward that end, we have undertaken an aggressive effort to
map and assess the industry sector by sector and tier by tier.
I can go into more detail during the question and answer on
this particular effort.
Finally, the Department relies on a variety of investment
tools to directly sustain and improve discrete, critical
industrial capabilities. Program offices routinely manage
industrial-based issues as part of their programs to keep them
on track.
One key mechanism we also have at Office of the Secretary
of Defense is the manufacturing technology, or ManTech, applied
research programs. The Department also preserves critical
capabilities through Research and Development investments,
life-type purchases of materials and components, and
acquisition strategy choices that sometimes give roles to
multiple companies rather than rely on single suppliers.
Another example of the industrial base investment the
Department is working on is in partnership with 18 civil
acquisition departments and agencies on initiatives to preserve
and create essential domestic capabilities through forums such
as the Defense Production Act Committee.
Our commitment to working with industry, however, does not
mean the Department should underwrite sunset industries or prop
up poor business models. It does mean the Department will
create an environment in which our vital industrial
capabilities, a foundation of our strength, can thrive and
continue to provide our warfighters with the best systems
available at a reasonable cost.
Congress has been actively involved in shaping and
supporting many of these initiatives on this front, and the
support has been both welcomed and appreciated.
Congress has also supported the Department's engagement
with industry, affording the Department the flexibility
necessary to maintain a healthy industrial base; and on behalf
of the Department we appreciate this support and look forward
to our continued partnership to best serve the warfighters and
our taxpayers while maintaining a financially healthy and
technologically superior industrial base.
Thank you.
[The prepared statement of Mr. Lambert can be found in the
Appendix on page 42.]
Mr. Shuster. Thank you, Mr. Lambert.
With that, Mr. Gudger.
STATEMENT OF ANDRE J. GUDGER, DIRECTOR, OFFICE OF SMALL
BUSINESS PROGRAMS, U.S. DEPARTMENT OF DEFENSE
Mr. Gudger. Thank you, Chairman Shuster, Ranking Member
Larsen, and members of the panel. Thank you for the opportunity
to speak to you today about the defense industrial base and the
role that small business plays within the Department of
Defense.
My name is Andre Gudger, and I am the Director in the
Department of Defense for Office Small Business Programs, and I
report to the Under Secretary for Acquisition, Technology, and
Logistics. The Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics is the principal staff
element of the Secretary of Defense for all matters to DOD
acquisition. Today, I will discuss the role of small business
programs and some of our initiatives and tracking of small
business goals.
The primary role of the Office of Small Business Programs
is to advise the Secretary of Defense on all things small
business. This includes policy, oversight, and meeting
statutory and regulatory requirements. The Office of Small
Business Programs works hard to advocate for small businesses
for inclusion in the acquisition process, the creation of
awareness, and the dynamic role that small businesses play in
our Nation's economy.
In September, 2011, Secretary Leon Panetta issued a memo to
the acquisition workforce emphasizing the importance to the
entire Department of Defense on meeting its small business
goals and showing the commitment of DOD's leadership in
supporting small business. This was unprecedented. There has
never been a Secretary of Defense to sign out a memo for small
business in the Department's history, and the Secretary of
Defense took it that serious where he signed it while he was on
vacation.
So when I look at the activities that the Department of
Defense has outlined for the Small Business Program Office, we
maintain three essential programs that is our base for creating
opportunities for small business.
The first one is the Mentor/Protege Program, where small
businesses can receive a one-time developmental assistance from
a larger company on developing their future capability. The
other program that we manage is the Small Business Innovation
Research and Technology Transfer Program, which is one of the
most successful small business programs in the country, where
this creates an opportunity for companies where we fund them to
develop technologies, solutions, and services to meet the
urgent needs of the Department. And, lastly, our Indian
Incentive Program where we provide opportunity to Indian-based
companies.
When I think about the outreach that we have provided
around the country, I personally have hosted several
roundtables throughout the country looking for new ideas on
increasing small business participation in our contracting
process and making it for companies easier to do business with
the Department.
We have hosted two large-scale outreach events with our
Deputy Secretary--at the time, he was the Under Secretary for
Acquisition, Technology, and Logistics--Dr. Ashton Carter,
where we offered matchmaking opportunities in the Department.
And we plan on continuing this engagement because it was
successful for us, and we will continue in future years.
In addition to the outreach with the community, we also
have opened the door in the Department where we have been
engaging other stakeholders in the Department of Defense in a
more coordinated effort on the opportunities and the value that
small business brings and looking at including them in the
overall center programs in the future of the Department and the
direction that we are going.
As I previously mentioned, Secretary Panetta issued a memo
to the acquisition workforce. The military secretaries also
issued a memo to their workforces about the importance of small
business, meeting the goals and inclusion of small businesses
in our direction as we continue to build capability.
When I look at the next thing, our regulatory changes, one
part of the OSBP [Office of Small Business Programs]
initiatives was to create an opportunity where we recognized
access to capital was a challenge for most small businesses, so
we made a change in the DFARS [Defense Federal Acquisition
Regulation Supplement] to allow for accelerated payments to
small business, which was tremendous. We, with this change,
were able to pay small business one-third earlier, faster than
they normally would get paid, on average. We are looking to
continue this in fiscal year '12. This puts billions of dollars
in small business's pockets, and this was used to hire workers,
expand their capabilities, and look for ways to participate in
new contracting opportunities more rapidly.
Next, we commissioned studies. One of the first studies I
commissioned was a reduction of barriers for service disabled
and veteran businesses so that we could reduce barriers to
allow them to participate at a much higher level as they
continued to develop their capability set within the Department
of Defense.
One of the next things we also did was the accountability.
We have included small business evaluation criteria in senior
execs who influence acquisition outcomes in the Department of
Defense, particularly in acquisition, technology, and
logistics. And, furthermore, we are looking at additional ways
to include assessing ways of determining subcontracting
achievement for the Department as well.
Finally, I would like to talk about the impact in our
current environment. The continuing resolution has a
significant impact on us because our programs are impacted by
the defense budget, and with the amount of uncertainty small
businesses tend to not invest and make key hires for the
future.
In conclusion, I would like to thank the panel for allowing
me to speak today. As you can see, our programs and initiatives
have focused on increasing small business utilization through
reducing barriers and streamlining the acquisition process.
These initiatives address several of the issues this committee
is seeking to identify based on its work plan.
I look forward to answering any questions you may have.
[The prepared statement of Mr. Gudger can be found in the
Appendix on page 52.]
Mr. Shuster. Thank you very much.
From your testimony, you are making strides or trying to
make strides in the right direction, but I think you are going
to find out after today what we have heard around the country
that those strides are very, very small and they need to be
bigger and we need to figure out a way to break through the
DOD, especially for these small and medium-sized businesses, to
do more business, to make it easier for them to get their great
ideas, products, and services to the warfighter and to the
Department of Defense.
I guess the first question I have is your view of doing
business with DOD. Is it a market system? Is it a traditional
market system that we use? Is that the way we should view it?
Or is it something different from that, in your view?
Secretary Lambert. I say that I read through the previous
and I know most of the previous folks who have been before you,
and I tend to agree with most of them. It is wrong, and I think
it is a mischaracterization of the Department's position that
we have this laissez-faire, let the market work, where, when
possible, we prefer to allow the traditional market elements of
competition to work. That is not--given the nature of some
defense elements, nuclear submarines, where there aren't other
products, there are elements of the defense industry where that
is not appropriate. In those certain sectors, in those specific
tiers, there is intervention that is necessary and nurturing
that is necessary. So, where possible and where commercially
products are available, we would prefer to allow the market to
work.
Mr. Shuster. All right, which makes some sense. But it
seems to me when you are selling to DOD, you have one got
customer, they regulate, they buy they tell you which end is
up, which end is down, so it becomes very difficult.
Could you go into some detail? You mentioned about you
tailor some programs to preserve certain segments. And I agree
with you. There are certain industries that are sunseted. We
don't necessarily need them anymore. Or there are people out
there, organizations, that are doing a poor job, and we can't
save them and shouldn't. Can you talk about some of those
programs that you tailor to preserve, some of the segments?
Secretary Lambert. There are a few examples, and I think it
goes to the heart of what I understand the task force is trying
to get at. And I think the business panel in particular has a
unique opportunity to address an area that I think has seen
short shrift over at least the last decade, which Andre
mentioned, which is the small and medium-sized businesses.
At the prime levels, access to capital is not a significant
barrier to continuing market performance. The lower you go down
the tiers, it becomes more constrained. Then you have things
like the CR [Continuing Resolution], the credit crisis, and
different ratios that are required of these small businesses.
So when we look at a program, you tend to stop--and I think you
had Center for Strategic and Budgetary Assessment [CSBA] here,
and they talked about their look at the prime level. But there
is a lot of the analytic stops at the prime level.
The real fragility we are seeing occurring is at those
lower tiers where you have a provider or a technology. I will
give one example.
Recently, in the solid rocket motor industry, we have two
providers. They do various things. We have two prime providers.
But both of those primes at a lower level, much lower than just
their next tier, rely on a single sub-supplier. So propping up
the two primes, while it might be easier because we have more
visibility into it, would do little to alleviate the concerns
we have at that sub-supplier level.
So when we need to intervene in those areas, we try to
adjust programs so that we can create sustainable rates of
production that are in the best interests of the primes but
also in the best interests of the taxpayer over time.
Mr. Shuster. Don't we need to do that? I think you
suggested you need to do it earlier on--not wait until you get
into a situation or it is critical. And that begs the question
of having a defense industrial based policy to determine
strategically are there six, are there eight, are there ten
different segments? That we need to make sure we have the core
competency there to build those products, the weapons systems
that we need.
Secretary Lambert. You are absolutely right.
I was charged when I came into the office, in essence, to
get the Department out of the role of firefighter, you know,
waiting for a building to be on fire before we responded. And
there are a number of mechanisms, it is not just one, that we
use. Program managers tend to have a good visibility, but it is
a soda straw visibility.
We do need greater insight, and I think what this
administration has been pursuing through various initiatives
like the S2T2, the sector by sector, tier by tier review, is to
gain insight before we dictate oversight.
But you are absolutely right. We need better data at that
second and third tier level before we can make these decisions.
Mr. Shuster. The program managers, it seems to me--I think
you said a soda straw--they have got to be able to look out
wider, and they are pushing to get their program, their project
out. I don't if they have much concern about the broader
implications. If you are looking down a soda straw, they can't
see. So how do we change that?
Secretary Lambert. I think it begins with, again, the
collection and the sharing of data. I know you received
testimony about the great policy we have for Army berets, and
that is correct, but I am not sure the Air Force or the Navy
ever got that industrial base report.
So some of it starts with the simple sharing of data, which
my office is charged with doing, the collecting of what those
soda straws are looking into at the lower tiers down to the
elements, if you will, of some of these programs, and then try
to take those tiers and string that thread across the defense
enterprise so we have a better understanding, where we are
beginning to see fragility at that lower base that has
cascading implications not just across the program but across
the services as well.
Mr. Shuster. Does that sharing of information include
talking to--having the project or program managers talk to the
manufacturer? There is a lot of fear out there that if you are
talking to the producer, if you are a program manager, there is
going to be some kind of implication. It just seems to me you
can't produce something for a customer unless you are talking
to them and trying to figure out exactly what they need.
Secretary Lambert. Absolutely, and I will let Andre jump
in, because I know for small businesses that is particularly
difficult. Having spent 20 years in industry, it has always
been a surprise to me that the defense sector is the only one
where as you get closer to negotiating the deal, the less you
talk to the person you are negotiating with. But that is how
the system is set up.
But we have redoubled our efforts to do outreach to
industry. I have had 300 and some meetings in two years that
are both larger meetings but one-on-one meetings. So we have an
active dialogue from the Secretary on down with industry to
listen to those concerns at the CEO [Chief Executive Officer]
level. But those, again, are at the medium and larger
companies.
I think your shop has really done a tremendous job in these
local centers, going out locally to reach out to the small
businesses.
Mr. Shuster. Mr. Gudger.
Mr. Gudger. Correct. We have taken an industrious approach
to solving the small business industrial based challenges we
have. Just this morning, our office met, down at Defense
Acquisition University, met with the program managers so that
we can better identify what the program manager is seeing, kind
of get in front of the requirements that are being developed
throughout the Department because they have visibility at the
level where things begin.
And something else that we did shortly after I took post in
March was to really invest in a study, a forecasting study, for
the small business industrial base looking at where we were in
the Department and aligning ourself with the efficiency
initiatives that were going on, and in particular Dr. Carter's
Better Buying Power, saying how can we build a capabilities set
with the current small business industrial base and have them
make the right investments today for the future of our defense
capability so that we would have the greatest military in the
year 2020?
So one of the leading things that we wanted to do was to
say we can forecast better. So we can define the requirements,
talking to the program managers, the program executive offices,
kind of centralize those requirements based on standards and
make them available to the industrial base via the Web or
another outreach event. Then we can kind of hone in where they
are making the key investments so that we can get better
products in the future.
Because we know if there is competition, then we are going
to buy better, we are going to do better for the taxpayers, and
then, ultimately, we will continue to create capabilities at a
much higher tier. So we kind of rise up the tide to where we
are creating things and technologies at a level at which we
haven't created them before.
So we see this as an opportunity to take a quantum leap in
the right direction for not just fiscal year '11 and '12 but in
future years.
Mr. Shuster. It sounds like a start.
How many people are in your department?
Mr. Gudger. In our office? We have roughly about 30 or so.
Mr. Shuster. How many in yours?
Secretary Lambert. If you include the ManTech program and
the Title III offices, which we also manage, and some of the
Committee on Foreign Investment in the United States
activities, it is around 35--38 now, I believe.
Mr. Shuster. Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Mr. Gudger, with regards to the Office of Small Business
Programs, one of the concerns that we have been exploring with
regards to that particular--not you, but just the particular
office--is that the office has been more about counting numbers
to be sure goals are met. And I think the concern that we have
about that is there is just so much more you can do, and I
think your testimony reflects that you are doing so much more
than that. So I want to explore a little bit about that.
First off, do have you a report or a wrap-up of the
roundtables you have done? We are doing our own roundtables. I
think it would be very valuable to get the reports of the
roundtables you have done so we can compare notes and make sure
that whatever we produce is reflecting some of the things that
you have discovered as well through your roundtables.
[The information referred to can be found in the Appendix
on page 79.]
Mr. Gudger. Absolutely. And when I took post, one of the
things I wanted to do was develop a best practice guide from
OSD's [Office of the Secretary of Defense] perspective and make
it available to all of the components and services and agencies
in the Department. So I would be more than happy to share our
final product of our best practices guide, which is an
inclusion of all our outreach events, all of the roundtables,
and saying, hey, we now have a platform where we can share the
best ideas and change where we are.
I agree that if you look backward, a backward view of the
office, we probably were very centric to socioeconomic and
disadvantaged programs, more counting the number. Since March,
we have taken a programmatic approach where we have aligned
ourselves with the urgent needs of the Department. We have
looked at those urgent needs in a way we haven't before and
begun to develop programs to support that.
For example, we worked very closely since I have been here
with space, intel, operational energy, rapid equipped force,
which is the brigade commanders out in the field. Mr. Lambert
brought me into that meeting, so our offices are working
together in a way we have never traditionally worked in the
past.
We now are looking at this as an opportunity that if we can
align the small business industrial base, or the industrial
base in general, with the direction the Department is going in,
then the numbers will improve for themselves. And I think we
are seeing that. Because, in fiscal year 2011 alone, we doubled
our small business innovation research programs that have gone
on to phase three. So doubling that in a very short period of
time shows a commitment from the Department into the small
business community on creating the central product and services
that we need for the future.
Mr. Larsen. Frankly, I don't mind that one of the purposes
of the office is to count those numbers, be sure the goals are
being met. I don't have a problem with that. The issue we are
looking into is, again, there is so much more capability in the
office. Whether you can do that with 30 people or not will be
up to you to determine, but there is so much more you can do in
addition to that.
In your testimony, you said that you made a change earlier
this year to the regulations and DFARS of implementing
accelerated payments to nearly a third faster. When was that
and what standard are you using that gets you to a third faster
on the payments?
Mr. Gudger. That is a phenomenal question.
Mr. Larsen. I have been here 10 years. No one has ever
called my questions phenomenal. Thank you very much.
Mr. Gudger. We published the final rule on April 27th of
this year. It was an area to reduce the barriers and move the
bureaucracy.
Mr. Larsen. We have heard this issue from small businesses.
Mr. Gudger. Right. So we solved it with technology, through
our financial system. We essentially didn't need the
intervention of people. We took our financial system, and any
small business who had a prime contract in a particular
financial system, which was the first we updated--we have 14 we
are updating over an 18-month period. But we targeted the
largest one, MOCAS [Mechanization of Contract Administration
Services], which is where 50 percent roughly of our spend comes
from for small business. And on July 1, we implemented--
actually mobilized the move where the financial system was
updated, and it automatically sent payments out to small
businesses. It didn't have to do anything.
On average, most companies have a net 30 payment day, and
we were paying them on the average of net 20. So essentially
for one-third of the year they will have money in their pocket
that normally they wouldn't have.
Mr. Larsen. And so these are small businesses that are
primes.
Mr. Gudger. Small business prime contractors.
Mr. Larsen. So it doesn't yet apply to small businesses who
are subs for a prime contractor, a larger contractor, is that
right?
Mr. Gudger. That is correct. The primes are in charge of
paying their subcontractors.
But I meet with large businesses as much as I meet with
small companies, and I have encouraged them to look at DOD's
lead. We are leading something, so look at our lead in this
area, and encouraging them to be very prudent as they pay small
businesses and look to doing that faster and better as well,
where appropriate.
Mr. Larsen. I notice there are issues that we have heard
from small businesses that has to do with auditing, not that
they don't want to be audited. But a business in my district,
five people, being audited for work they did a couple of years
ago, being audited as if they are a company of 30,000 for a
contract that is obviously big for even them but unique for the
Department in terms of work they are doing.
So this issue of auditing as if you are a large prime,
instead of auditing as if you are just a small business, you
are going to hire people or take people off the job in order to
fulfill the auditing requirements, is that something you have
heard throughout your roundtables?
Mr. Gudger. Oh, absolutely. Certainly we have heard that.
And we look at this in two ways.
First, Charlie Williams, who is the Director for the
Defense Contract Management Agency who oversees a lot of audits
now, we are working with his office in a way we haven't before;
and we brought this issue up to him. And we are looking at
reducing the number of small business audits as it currently
stands.
Most of it is driven by contract type. So if it is a cost-
reimbursable contract, it requires an audit. I have worked with
the Defense Procurement and Acquisition Policy Office, and we
are encouraging contracting officers in the acquisition
workforce to be very cognizant of the type of contracts that
they award. Award costs, reimbursable contracts, fixed-price
contracts, level-of-effort contracts where appropriate, and
that alone will begin an internal view of reducing the number
of audits.
Then the ones that require audits, we are going to look at
the ones that are what we consider high risk and move them into
priority and see if we can reduce the others.
So we are looking into it. We are working those issues. So
we are aware. We are making progress.
Mr. Larsen. We want to continue to understand the progress
being made.
You mentioned DCMA, the Defense Contract Managment Agency.
What about the Defense Contract Audit Agency, DCAA?
Mr. Gudger. We are working closely with DCAA. Pat, I know
him well, and we brought this issue to him as well. They are
overloaded. We have a high workload with the number of audits.
So Defense Contract Management Agency is helping pick up some
of the load. So we are working with both of them in the
reduction, yes.
Mr. Larsen. All right. I may want to look further into
that.
A few more minutes?
Mr. Shuster. Yes.
Mr. Larsen. Mr. Lambert, in your testimony, you talked
about the sector by sector, tier by tier. But it intrigued me,
so I looked at your written testimony. You have actually given
it a name, S2T2, which means I guess in defense language you
have given it a program name, so you are actually focused on
it, and it is not just some name you are giving it.
So talk to us about what specifically--how you are
approaching this sector by sector, tier by tier, what it means
to you all and what kind of outcomes are you looking at from
looking at the industry from a sector-by-sector, tier-by-tier
approach and the implications for the issues at hand that we
have?
Secretary Lambert. Absolutely. We realized again a couple
of years ago when we came in that we had a pretty good
understanding at the prime level. So the sectors are the things
that you would hear about--aircraft, missiles, ships--the
classic sectors that we do the comptroller's budget analysis
under. We have added to that under sectors emerging
capabilities, such as unmanned systems and cybersecurity. Then
the tiers are actually down to the component level. So you
would have gyros, actuators, all the way down to, really,
elements, if you will. And then--so that is the sectors and the
tiers is to go down.
We are pursuing it along four paths. My office is running
it. But the first was a study or a survey that we commissioned
through the Department of Commerce, which has the authority to
have industry respond.
We looked at about 25--I saw this was in a previous
testimony as well--about 25. We picked five programs from each
of those sectors that were representative, three programs of
record, one R&D [Research and Development] program, and one
rapid fielding program. We looked at all the contractors and
all the subs that were involved in those programs. That ended
up with about 25,000 contractors. That is how vast that base
is. So we are only talking about a small number of programs,
representative programs.
We crafted a survey. That survey went out to about 5,000
companies. I have a list of each one in your district, and I
can say your district is performing and responding quite well.
But they are companies you may not even have heard of. Because
sometimes we hear that they didn't know they were producing
products for the Department of Defense. And we are getting
those surveys back.
Mr. Larsen. If I may, I won't speak for the rest of the
members, but I would love the list in my district.
Secretary Lambert. Absolutely. You have seven.
And we then go along and we looked at all of the previous
studies that had been done in the Department and tried to
collect those. We came up with about 105 industrial-based
studies that have been done in the last 24 months alone, some
larger than others, some repetitive. We tried to get the best
information from the soda straws that we could find.
We then went out to independent experts and asked them in
their specific sector, space and so forth, to identify what
they always hear, the problems with certain components or
elements of that particular industrial base.
Then we had each service give us a detailee for 6 months--
that was at the direction of Deputy Secretary Lynn--to work
with the services to make sure we are reaching out to those
program office.
We are putting all of that information together in a data
set that will then become the repository for the Department and
a basis for which to allow not just individual assessments of
the health of the industrial base, the gross anatomy of the
industrial base, but also help us as we go through this next
chapter of mergers and acquisitions and consolidation so that
we understand what it is we are actually approving or having
problems with from that very specific elements of the lower
tiers.
Mr. Larsen. Okay. That is it. A great start to the answer.
I will yield back to the chairman.
Mr. Shuster. And we will probably go back for round two.
Mr. West.
Mr. West. Thank you, Mr. Chairman, ranking member, and also
thanks to the panel for being here today.
A couple of questions to start off with.
I get very concerned when you look and see a lot of these
weapons systems--F-22 [Raptor stealth fighter aircraft], AAAV
[Advanced Amphibious Assault Vehicle], Crusader [self-propelled
howitzer artillery system], FCS [Future Combat Systems]--that
all of a sudden we get going down the pipeline and then the
next thing you know we cancel these programs. And, of course,
when we are talking about budget cuts, we can't afford to have
that too much longer.
So when I look at the national military strategy--and I
would like to get your take on this--do we have a national
military strategy that really does articulate the requirements
of the Department of Defense to the defense industrial base so
that they can develop the right type of capabilities and
capacities for our military to be effective?
Secretary Lambert. Well, I know that again in previous
testimony people have talked about other countries and what
they do in the defense industrial base. We follow those issues
pretty closely just to actually take what we consider the best
from that. I think there is no doubt over the last decade in
the programs, some of which you mentioned but many more that
you didn't, where we spent billions and billions of dollars and
never produced something.
At the end of the day, our manufacturing base requirements
production. So unless we get into production at a lot of the
lower tiers, it is not going to help them to continue to spend
money on the research and development. We need to get into
production.
In the past, in a permissive budget environment, that
covers a lot of sins on both industry side I think and the
Department side as we were trying to field systems as rapidly
as possible. And I think adequate attention probably was not
paid, out of necessity in some cases, to the implications that
that had on the industrial bases, making what I call ``our
plans based on an EKG [electrocardiogram] chart.''
You mentioned acronyms. The one that doesn't come up very
often in the Pentagon is P&L [Profit and Loss]. So we ask these
companies to build up rapidly and then draw down rapidly, and
it is very hard to get a steady state of industrial
capabilities there.
As we have drawn down the last 2 years, my office for the
first time is engaged in program reviews. As we go through this
budget cycle now, our office is very engaged with CAPE [Cost
Assessment and Program Evaluation] and with the Deputy
Secretary now on looking at industrial base implications as we
make some of these hard decisions. So I would say it is better
than it has been but not good enough.
Mr. West. When you look at the procurement cycle or system,
what type of recommendations or what type of strategies and
initiatives is the DOD looking at so we can close some of these
long procurement cycles?
Secretary Lambert. Well, it is not in my department. Again,
within AT&L [Acquisition, Technology and Logistics] and the
individual services, I know that they are struggling with the
fact that we build systems that last for 20 or 30 years. And I
know Secretary Lynn was fond of saying, from concept to the
first delivery, the iPad took 18 months, and it took him 24
months to get a budget to think about developing the iPad. So
there are those inherent difficulties.
Again, it varies by sectors. With some sectors that are
more mature, such as shipbuilding, it is not as large of an
issue as it is with the IT [Information Technology] world where
we need that refresh. And I think the Department continues to
work and struggle with how we field everything that we need and
be flexible enough to get the systems to the warfighter as
quickly as possible.
Part of that, we saw some capabilities like the MRAP [Mine
Resistant Ambush Protected vehicle]. I think is a good example
of where when the Department--when there is an urgent
requirement, and in this case I think when the Secretary became
the program manager, we did move much more aggressively and
quickly to field those systems. And I think we are still
learning the lessons from the last five years, at least on how
to do that better across the Department.
Mr. West. What are we doing--I know about the rapid
equipping force. But are there other strategies and things that
we are using so that we can go in and pull off those commercial
off-the-shelf technologies so that we can get a lot of this out
to our soldiers, sailors, airmen, marines, and Coast Guardsmen
a lot quicker?
Mr. Gudger. Absolutely. We are working very closely with
the Assistant Secretary of Defense for Research and
Engineering, and one of the key programs under that portfolio
is the rapid fielding portfolio, where we are looking at
development things that will take somewhere between 6 months
and 2 years, which is a more rapid acquisition process in the
Department.
Our office has engaged them in a way, and we are working on
some particular programs there where we are looking at--where
they polled the entire defense internal stakeholder base on
where they are going, where they see the future, what
capabilities do they want to have in a 6-month or 24-month
period. We are making that available to small business, and,
where appropriate, if we see that they are one of our, let's
say, sub-awardees, we are looking at how do we then award them
the opportunity in a much more streamlined way. And we have had
some early success there where they had a need, they had a
capability.
We had a company who had received one of our phase two
awards, and it was more of a making the company available to
them where they could bend it slightly and then rapidly acquire
for it. So we are seeing some successes there.
Mr. West. Thank you, Mr. Chairman. I yield back.
Thank you, gentleman.
Mr. Shuster. Thank you.
And, with that, Ms. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chairman.
Mr. Gudger, you said something earlier. You said you want
to be able to forecast better for the military for 2020. This
has always been the major question, which is what is the
military for 2020? So when you say you are going to forecast
better for the military for 2020, what is your vision of the
military for 2020?
Mr. Gudger. Well, I am not at liberty to have a vision. I
definitely support Secretary Panetta's vision, and it is broad.
It is a broad stroke. And Deputy Secretary Carter. It is to
have the most powerful military on the face of the Earth in
that year. And my remark was if we forecast better now and give
our industrial base a chance to create the capabilities that to
date don't exist for tomorrow, then in that year we will have a
much more powerful military and national security posture.
The study that we commissioned was to look at forecasting
better. How can we take what the program managers and the
program executive offices throughout the Department, all these
requirements, what they see their needs would be in the future
and bring them together in a way that not just small businesses
but all businesses can understand them, it is clear where we
may be going, it is made available to them sooner.
So the study was to look at best practices, look at ways of
sharing information and data so that if, for lack of a better
term, if the Navy had a requirement that the Army was also
developing, maybe we could look at working together, closer, in
a streamlined way to produce the desired outcome.
Ms. Hanabusa. Mr. Gudger, that is part of the problem. You
want to work together, and you want to come up with a better
program, and we are talking like now maybe 9 more years into
the future. And unless there is somebody that has that vision,
a clear vision, what is the time for a small business person,
from the time you have an understanding of what it is that we
are going to need to the point where you put that out or you
help them get an understanding of that, and what exactly do you
do for small business so they can then meet that demand in
2020?
We have heard testimony that some of our big projects take
15 years to get there. In a prior hearing, I think the
organization--CSIS [Center for Strategic and International
Studies] had a gentleman come before us who I thought said it
really well. He said, policy is really set by acquisition. How
we acquire determines our policy versus our policy determining
how we acquire. Because if we continue to buy certain kinds of
fighter jets or certain kinds of equipment or continue to build
a certain way with a 15-year lead time, that is going to
determine that military in the year 2020 or into the future.
So how do you intend to help small business when that has
really been, for lack of a better description, that has been
the way our modus operandi has been?
Mr. Gudger. I agree that 10- or 15-year programs are
unacceptable, and I know Dr. Carter has a big focus on that not
being acceptable. What we are doing for small business in this
area we are doing a host of things, but one in particular thing
I can mention is like our rapid innovation fund, where we have
taken Department urgent needs and made them available to small
businesses and looking to rapidly acquire for them. I think
that this is a great example, illustration, of the level of
attention that the leadership in the Department is paying to
small business, understanding and recognizing the dynamic role
they play and working with our office in a way and engaging----
Ms. Hanabusa. Mr. Gudger, I don't want to interrupt you,
but let me tell you something.
One of the things that I hear you saying is, because we
don't have a clear focus, it almost seems like--well, 15 years
is about how long it takes us to build a fighter. So what you
are almost relegating small business to do is a certain kind of
work that you think is going to have an immediate demand and
immediate work. So you don't see small business really
participating in the long term for the bigger projects. Is that
what I am hearing you say?
Mr. Gudger. No. My number one goal is to make available
expeditiously any opportunity that is a maximum practical
opportunity for a small business, and that is exactly what we
are doing. Traditionally, small businesses have not built
tankers or ships or fighter jets.
Ms. Hanabusa. But they do subcontract.
Mr. Gudger. But they do subcontract.
Ms. Hanabusa. They are part of the process. They have
challenges as a result of that, right?
Mr. Gudger. Absolutely.
Ms. Hanabusa. So are you looking at that as part of what
you are looking at?
Mr. Gudger. Oh, absolutely.
Ms. Hanabusa. Then you have got to look at 15 years
potentially in the process and how you are going to insert the
small business into that?
Mr. Gudger. Absolutely.
Ms. Hanabusa. So you are looking at that?
Mr. Gudger. Absolutely.
Ms. Hanabusa. So when we get your roundtable report, we
will see that in that report?
Mr. Gudger. Yes. Anything that addresses any portion of the
industrial base on short- or long-term programs, we are looking
at ways to address those.
Ms. Hanabusa. Thank you, Mr. Chairman.
Mr. Shuster. We are going to have a second round if anybody
has interest in it.
With that, Mr. Runyan.
Mr. Runyan. Thank you, Mr. Chairman; and, gentlemen, thank
you for being here.
Mr. Gudger, you mentioned in your opening statement about
the memo from Secretary Panetta setting some benchmarks or what
have you. Are they much different from standing operating
procedure from before, or is he just trying to plant that seed
again in everyone's mind?
Mr. Gudger. I think it goes a step beyond the standard
operating procedure for the one simple fact that it never
happened before, so there is no real benchmark against it.
But, in addition to that, at the time, Under Secretary
Carter, sent out a memo with actionable items that was
addressed to all of the acquisition, technology, and logistics
workforce, and also he provided a copy to encourage the
military secretaries to also adopt very similar things. Those
actionable items are materializing. In fact, one of the
actionable items was to put in small business criteria and
performance evaluation of seniors that affect the outcome of
acquisition, and that is happening.
So we are looking at the actual items that went out. So it
went beyond just a memo. It looked at key things that we must
accomplish in order to reach this end state, whether it is one
year out or 15 years out. These actionable items are to address
the short term and long term, and there has been significant
progress there.
When we look at our tracking numbers, we look at our total
percentages for small businesses and prime contracting
opportunities, and we look at fiscal year '10, because '11 is
still settling. But when we look at '10, we actually--dollar-
wise, looking at the goals that we had, we actually met the
total dollars that should have gone to small business. I think
that is a testament to, one, what we are doing and, two, what
the future may hold as we continue to push forward and increase
our prime contracting numbers.
Mr. Runyan. Well, in your view of that percentage, though,
can it grow drastically more?
Mr. Gudger. I would like to say it is encouraging good
behavior. Drastically more, I am uncertain of drastically more.
Mr. Runyan. In reaching a lot of these--I am sure the list
is long, and I won't ask you to go through a lot of them, but
just off the top of your head a few of them--and are there any
roadblocks, regulations, that you have noticed so far that have
kept you from proceeding with any of them?
Mr. Gudger. No, I don't see any huge roadblocks. In fact,
one of the actual items was a biweekly meeting with our
office--or with me--with all of the acquisition executives for
services and components. I invite them in, which includes the
head of contracts, and we together develop strategies and we
share these best practices with them on what we are doing in
the Department to meet our goals.
One of the action items, as a best practice we had a
threshold of small business directors and specialists sitting
on peer reviews, which is their review of the acquisition
process. So our best practice was that our office put out to
reduce that number, and we said on all previous users of over
$500 million or more--so the large acquisitions where small
business need to be included in--we look and see if a portion
of it can be set aside for small business. And if it is not
possible, we then have started to put in language where we are
requiring the prime contractors to meet a certain subcontract
number for small businesses.
So that is inclusive of any opportunity, planned
acquisition of $500 million or more. So that is a successful
story. We actively engaged with them. We have been successful
in breaking pieces out for small businesses to participate in,
and we certainly have been very successful in ensuring that
small business has a required minimum contracting goal inside
of the larger planned acquisitions.
Mr. Runyan. I know specifically myself I have had three
different service-disabled veterans in my district reach out to
me that are having issues getting DOD contracts themselves. I
am sure a few of them will be part of the panel that we are
having December 9th back in the district. Having that
discussion with them, the DOD itself has this 3-percent
mandate, and a lot of times it is not being fulfilled. That is
the reason why we are here.
With that, Chairman, I yield back.
Mr. Shuster. Thank you.
Go ahead, if you want.
Mr. Gudger. I would like to respond to that.
The service-disabled veteran community is--although I have
to say that I care about all the programs equally, that is one
that is near and dear to my heart. In fact, that was the first
study I commissioned when I got in this position, was the study
on reducing the barriers for service-disabled, veteran-owned
businesses.
And there is a silver lining in our cloud at DOD. Yes, I
was disappointed when I took this position that we had not met
that goal. But in fiscal year 2011 we have already--since I
have taken post, we have already increased our service-disabled
veteran-owned contracting by $500 million since March of this
year, and we are going to continue to do better. The numbers
have been going year over year, but that is the single largest
jump we have had in the last three years, and we have a
continued focus on that particular community.
I have performed a lot of my outreach events have been with
the service-disabled veteran-owned community, and I am the co-
lead on the veterans task force for employment for
entrepreneurs, entrepreneurship subgroup. And, in fact, I have
reached out to the service-disabled veteran-owned community. A
few groups, a name like VET-Force, I brought them in and made
them members of my subgroup so that we could get the best ideas
and the best ideas would be heard and to show them that not
only are we going to talk about doing better, we are going to
do better, and it is going to be an inclusive environment
inclusive of their ideas.
Mr. Shuster. Would you identify some of the biggest
barriers? You said you did a study----
Mr. Gudger. Well, the study is actually still ongoing.
But, yes, some of the biggest barriers is the current
industrial base for where the urgent needs and the things that
the Department buys actually having certified service-disabled
veteran-owned businesses with a capability to perform those
functions. When we look at the industrial base, it is the
smallest group. And so when we look at how much money we spend
and how we spend it, there is simply not enough companies there
to participate across the board in all the things we do. Yes,
they do certain industries well.
But we are working with them. That is the reason why we are
forecasting better, making our urgent needs more available by
way of our Web site, and kind of helping them set the tone and
direction for the things that they need to develop, whether it
is a product or service.
Mr. Shuster. Thank you.
Ms. Sutton.
Ms. Sutton. Thank you, Mr. Chairman.
Mr. Lambert, on page 6 of your testimony you make a couple
of statements I would just like to get clarification on. You
say companies exist to make money and without the potential no
one would be competing to win defense contracts.
That is understandable. Everyone gets that.
And then at the end of the next paragraph you say, in the
high-budget environments of the past, many companies have grown
to expect high margins independent of the quality of their
performance.
When I read that sentence, it is concerning to me. How did
that happen in the first instance? Could you just expand on
that for me?
Secretary Lambert. Sure.
I think, as I said before, not just in this cycle but in
the four previous cycles we have seen in defense budgets when
we went and looked at the past lessons, a permissive budget
environment does cover a lot of sins. And that is a permissive
budget environment, it is important to remember, because of the
requirements of conducting two ongoing operations that we
faced.
But I think it would be hard to argue with the fact that
when we had programs in trouble or we are bleeding, we tended
to cauterize that wound with money. Because we needed the
program. We needed to get it fielded because it was important
to the warfighter. And in that process I think a lot of--or
some discipline went out of the system. That was the entire
point of Dr. Carter's Better Buying Power Initiative and the
Efficiencies Initiative, was to return that balance.
So when we look at the financial ratios of the leading
primes and some of the other defense companies, they grew quite
substantially over this period of time, understandably again,
and there wasn't much differentiation. I think what we are
trying to restore now is a balance of rewarding with better
profitability those companies which perform well, while making
it clear to those who don't that the expected profitability
that they may have had in past years will not continue.
Ms. Sutton. Okay. And if I could just get a little more
information and help in quantifying what you talk about on page
7, and I know there have been questions about this. The effort
that you are undertaking to map and assess the industrial base
sector by sector, tier by tier. Can you quantify how much--how
far along you are, given the massive amounts that you have to
deal with?
Secretary Lambert. Yes. It is a massive amount, and that is
why it is important that as we do this it is not a study, it is
a continued effort to collect data that will continue to be
refreshed probably with deep dives every quarter in different
sectors.
But of the roughly 5,500 surveys--we will start with that--
that were sent out, more than half have been returned and we
are going through. There were 17 in your district, and we are
going through those.
We work with the companies to fill them out. We are happy
to share with anyone who cares what the survey looks like. It
is quite comprehensive.
Some of the initial results are affecting some of the
budget decisions or at least showing early signs of fragility.
We have been tasked to get some early product up to the
Secretary's office by the end of November, and so we are
working toward that goal.
The independent studies we have done have all been
concluded, and we are integrating those. The studies that my
staff have done have all been concluded, and now we are
continuing to work with the services to collect the information
they have, and some of the services have been great in
responding.
Ms. Sutton. And I would like to avail myself of accessing
some of that.
Secretary Lambert. Absolutely.
Ms. Sutton. And could I just ask you--and, actually, I
would like both of you to think about this--are issues of
guarding proprietary information and intellectual property
hindering the development of our industrial policy? And, if so,
what are those issues and how are you dealing with them? Just a
small question.
Secretary Lambert. Is it specifically related to data
rights or intellectual--or who owns the data from the
contractors of the government?
Ms. Sutton. I think it is your choice. I think it is all of
those things.
Secretary Lambert. It is a complicated question. And
certainly we have it with some of the independent research and
development that companies themselves pursue and that we
reimburse, the question of who owns that data.
I think, again, over time, lines have been blurred. There
is a group working on that inside of AT&L--I have been in the
meetings. I am not part of the official group--about how do we
better define who owns what property at what stage. And the
goal of that is really pretty straightforward. If the
government owns the data and the rights to a component of a
major system, we then have the opportunity at a future time to
compete that component, to bring in new competitors, to
introduce competition.
And this is what is important the Department understand and
for everyone to understand about competition. It doesn't have
to be symmetrical competition. It can be asymmetrical
competition at a later stage or a different component or a
different product.
We have an example that we brought of a product that we
funded through the Title III program that changed the way we
are building ammunition, but it has also helped the medical
community. That is something we are inserting into a program
after the fact. So then data rights do become an issue. Because
we want to make sure if the taxpayer paid for this equipment,
if it paid for the production, and if we are paying for the
maintenance of it, we own the data. So that if the company
decides to go in a different direction down the road and
decides not to service the Department or if we want to
introduce competition at a later stage, we reserve that right.
Mr. Gudger. Oh, I agree with Mr. Lambert. I am a part of
the meetings, although I am not one of the owners.
The Department is certainly moving in the direction that we
are building on standards, and these standards will allow us
to, no matter if we want to introduce competition and buy
better and look to become more efficient in the future, it will
allow us to create and produce the competition.
For a small business industrial base, it is somewhat a
challenge for a lot of small businesses who are very concerned
with intellectual property and protecting intellectual
property. And that is one of the areas in our office that we
are now looking at. It is a new thing for us in our office to
take on intellectual property rights and ensuring that
intellectual property is protected as it relates to small
business. We haven't seen any major issue or any issue since I
have taken position, but we understand that it could be a
potential challenge in the future.
Ms. Sutton. Mr. Chairman, if I could just say, because we
have heard this issue come up in the context of small business,
so I would really love to understand more of what you are
doing. You said this is new. So if you could expand on that at
a later time I would appreciate it.
Mr. Gudger. Oh, absolutely. We are meeting with industry
now to understand all the issues they have and what is
bothering them so we can craft a response and a way of helping
assist them in this area. So I would be more than happy to come
back and make the data available to you.
[The information referred to can be found in the Appendix
on page 81.]
Ms. Sutton. Thank you.
Mr. Shuster. Mr. Lambert, am I to understand that, being
the industrial base person, you are not participating in the
discussions?
Secretary Lambert. No, we participate. There is a group
that was formed to follow up on the Better Buying Power
Initiative, which is called a senior integration group, that
Dr. Carter convened a year and a half ago. It was meeting
weekly on Saturdays for many, many months as we went through
this process, and we continue to be part of that.
There are subgroups as part of that leadership team, 15 or
20 people, and then there are subgroups who solely have
different responsibilities. I am not on the subgroup that is
doing the data rights or the intellectual property, but they
report back to this senior integration group.
Mr. Shuster. So you are participating?
Secretary Lambert. That is right.
Mr. Shuster. I think, as Ms. Sutton said, that is a
recurring theme we hear. Some people have even said that--I
don't know if we had anybody before us--that said we are not
going to do business. Because if we have to give up our
intellectual property rights, we will take it elsewhere.
Secretary Lambert. Absolutely. It is part of our issues
that we deal with on commercialization.
I would also say that one of the areas where we are
completely aligned with industry and we both need to do need to
do a better job is in the protection of our own intellectual
property from theft and from some of the cyber issues we have
been seeing. We can quibble with who owns the intellectual
property for a widget, but we can all agree that we don't want
that intellectual property going to third parties who don't
have a claim to it legally.
Mr. Shuster. And with that, Mr. Schilling, you are
recognized for questions.
Mr. Schilling. Thank you, Chairman.
Thank you, gentlemen, for being here today. I am actually
kind of impressed because we have got folks that are doing some
studies and, rather than throwing them into a file cabinet,
they are reaching around and doing some things about it.
You know, we are to the point as a Nation with the budgets
going on is that--and with the threats that are out there--we
have to be doing something. It is not we should. It is that we
need to and we have to.
I got the opportunity to speak at the U.S. Chamber
yesterday, and I took questions at the end. The first question
was a veteran, and he brought up exactly what we were talking
about here. And you answered most of it, and I think it is
great that you are taking that head-on.
But, also, the women-owned small businesses, also.
And then one of the things is I was kind of curious as to
why maybe they missed those goals. And then we know you are
doing something differently about it now, which is great, but
then is there anything that we can do legislatively to help you
guys to push that forward?
Mr. Gudger. One of the things that would help us
tremendously--in fact, the Chamber recognized us for
outstanding performance with women-owned business not too long
ago, actually, about a month ago. So we are happy that we have
made tremendous strides there and that they have recognized for
us for those strides.
What we can do in the future is to really focus on the
reauthorization of our key programs--Mentor/Protege, SBIR
[Small Business Innovation Research], and our STTR, Small
Business Technology Transfer program. That is where a lot of
opportunity not for just women but service-disabled, but there
is a lot of opportunity there for them. And with that if we
could focus on the reauthorization on programs I think that we
can continue to foster an environment where we are maturing and
growing, some of the micro businesses become small and the
small to grow and be successful. It is a success story when
they grow outside of the size standard. I think that is one of
the key things that we could focus on in fiscal year 2012.
Mr. Schilling. Very good.
When we talk to the small businesses one of the things that
they have, of course, is a problem with capital. What is the
Department of Defense doing for the small guy visibility to--
you know, the lower-tier folks--to help them get out there in
front and highlight their business since they don't have the
money to do the marketing? What might be needed? I guess either
one of you might be able to answer that one.
Secretary Lambert. Go ahead.
Mr. Gudger. We kind of initiated about three or four things
that we are doing.
One is there is a memo that went out from the Under
Secretary encouraging the contract and acquisition workforce to
host outreach events in fiscal year 2012. Continue them on. We
started them in fiscal year 2011, and they were successful, so
to continue it on. Because that is a way of meeting businesses
that we traditionally don't have or we don't have a supplier.
That is a way to get to new vendors and increase our industrial
base, which is key.
Some of the other things that we are doing to assist with
that is to look at businesses that have been successful and
making our mentor program available to the successful
businesses where they can work with either new entrants or
current businesses who are doing business with the Department
of Defense and want to do more business with the Department. We
see that as a successful way of doing a cross-transfer of
capability and skills. So we are encouraging them to team
together so that they can offer a unique capability in a way
that they haven't done before. So that is a huge encouragement,
and we are seeing that starting to happen.
In fact, one of the smaller Department of Army contracts,
we kind of combined the two, and then those two companies came
together, and they ended up winning a much larger effort
because of that encouragement of why don't you guys look at
putting your capabilities together and do something unique for
the Department, offer us a great capability at a reduced cost.
So we are happy to see that kind of thing happening.
Mr. Schilling. Very good.
And then, Mr. Lambert, so we kind of get the competition
part of this out of the way, but how many do I have in the 17th
District?
Secretary Lambert. Oh, let me see. I think you had nine.
Mr. Schilling. Oh, we are going to have to get to work.
Secretary Lambert. Yeah. I will get your list here.
Mr. Schilling. Okay. But the DOD--how do they determine
when there are strategic gaps and shortfalls in the defense
industrial base?
Secretary Lambert. Well, that is an issue; and historically
it has been when something has gone wrong. And that typically
occurs whenever there is a break in production and
subcomponents, the capability to manufacture atrophies, or the
people go out of business. So it is not just the plant, but it
is the physical--it is the design teams and the other elements
that are so vital to our industrial base.
And, in the past, if a program office doesn't manage, and
there are varying degrees of success at that level, then we end
up--it costing more, sometimes delaying entire programs that
can then result in the spiral of death that everyone is
familiar with.
What we are trying to change with the S2T2 database is to
create this repository where we can go in early and we can
uphold those threads. So if you had an Army program, as the
case was in the solid rockets, that was maybe changing their
behavior in accordance with the direction given to them by the
program manager and the service itself but it was going to have
a cascading effect across the other services or the other
departments, then we need, as OSD, to come in and try to align
that, and that has the benefit of creating stable production.
I mean, one of the issues I think that Congressman West
raised earlier, I am not sure if we are as bad at planning for
our industry as some would allude to. I think we give fairly
good visibility compared to other industrial sectors as to
where we are going. Where we fall down is in the execution, the
starts and the stops, the nontransparency and the ``EKG
charts'' of production numbers.
If we can give industry transparency through communications
and make that our desires and our plans and back it up with
execution clear to industry and to the financial community, we
find that the markets tend to work and companies tend to get
the investments they need. It is when we don't do that that we
see these instabilities, particularly at the second- and third-
tier levels.
Mr. Schilling. Thank you, gentlemen.
Mr. Shuster. Thank you.
We are going to go for a second round of questions and
start with Mr. Larsen.
Mr. Larsen. Thank you.
First, I want to make a point--a broader point about the
panel, at least in my view, because it wasn't clear in my
opening statement. As we get into a budget-constrained
environment it is extremely important that these small and
medium-sized businesses still have an opportunity to
participate in contracting. Because they are still going to be
there and be able to provide innovation, services, products to
the warfighter through the Pentagon. So it is extremely
important that we, at least in my view, we stay focused on
that.
The second point I want to make is about IP [intellectual
property]. We heard views from folks in my district where they
actually developed proprietary information as part of a
contract for one of the services, but in order to compete for
that they had to hand that over to the service in order for the
service to write the requirements so they can go out and
compete in a broader community, thereby legally transferring
this protected intellectual property to the rest of the market.
So there is nothing nefarious about it except that the rules
work against the company who developed the intellectual
property, and that ends up, obviously, being to the detriment
of the company itself.
So those two points and then there is a question.
Mr. Gudger, on SBIR and the tech transfer, can you answer
the ``so what'' question? That is, what impacts are there when
we do a 30- or 60- or 90-day reauthorization to SBIR and tech
transfer versus a 1-year, a 2-year, a 3-year authorization?
Mr. Gudger. Long-term authorization is always better for
small business because it allows them to make the investment
and feel more comfortable making the investment. Small
companies have a much more difficult time with the start, stop
and go, and then the uncertainty. So they are very reluctant to
making the investment in developing technologies or--because
the program may not be around to continue to fund them.
And then the second thing that bothers or hampers small
business in a way that is much different than a larger base is
the lack of direction when that happens. When programs are
short-term reauthorized, small businesses are not quite sure if
this is a sign that a program is going to go away, whether the
technology will be of interest to the Department, if it is
reauthorized longer term will the Department go in a different
direction. These things hamper them from making the investment
that we would like to see them make to create the capability we
want. And many small businesses say, if the government doesn't
believe long term in the program or the product, then it is
very difficult for me to. And so that is a challenge.
Mr. Larsen. All right.
I have something for Mr. Lambert here. But just one new
area for the Department, relatively new area, is the emphasis
on renewable energy and the role renewable energy can play in
our national security. And I know hearing from folks, again
where I come from, it is a great direction to go. There maybe
is not as much transparency because it is sort of still feeling
out how our small businesses can help out the Department in
that effort. So I will just keep that in mind--if you can just
keep that in mind.
Mr. Lambert, I understand that you have an example of a
small business innovation that you have brought. Can you talk
about that and perhaps play a little show and tell?
Secretary Lambert. Sure. There are a couple. Actually, I
came over yesterday to see them. They are not as small as they
used to be. But the Department invested through our Title III
authorities a company down in North Carolina.
Mr. Larsen. The Defense Production Act.
Secretary Lambert. The Defense Production Act, correct. We
were actually looking for silicon carbide for some weapon
systems, but it had the tertiary benefit of enabling commercial
technology. And, in fact, the LED [light-emitting diode] lights
in the Rayburn cafeteria are derived from this--were purchased
from this company who are now producing them for commercial
purposes. You can buy them at Home Depot.
But that was an example of where we need innovative
technology that--because it was everyone's problem; therefore,
it was nobody's problem. But once you could get the Department
engaged and with our buying power--we did Wedge 5 at the
Pentagon with these lights, and now you are using them in the
cafeteria, and they are quite nice, as I found out.
Now, the other company is a small firm. I will leave these
with you. I don't think I can take them out again.
Mr. Larsen. I am surprised you got them in.
Secretary Lambert. It wasn't easy, apparently, just so you
know.
This is a polymer. The net effect of this, this has a lot
of commercial medical applications, but nobody was investing in
it. A small company down in Mississippi did this polymer insert
into a .50 caliber round.
The practical effect of this--and think about it--if you
are a marine humping these things at 10,000 feet, they are 30
percent less weight, they have actually increased accuracy. We
have injected, molded, and made them drop inso that they are
now--if you think about the cascading effects that that small
base has--we can load more of them on a pallet. It requires
less fuel to transport them. Therefore, there are fewer
convoys. Therefore, there are fewer casualties. All of this
because of a simple--relatively simple, the company would say--
idea that the Department of Defense funded through our Title
III authorities.
That now has implications. They are doing these injected
moldings with the polymers. They are looking at medical
applications.
These are the kinds of things that if the Department--just
like in our ManTech programs where we get a ten for one return
on investment. When you talk about forward leaning and thinking
about what we need to do next, not just as a Department but as
a Nation in terms of manufacturing, these are the kinds of real
applications that I think the Department can be proud to point
to and say there is a guy somewhere over in Afghanistan that
has lightened his load because of this polymer, and probably 10
years from now there is somebody going to be on an operating
table that is going to survive because of these polymers.
Mr. Larsen. Thanks. I will have to defer to the chairman,
Mr. Gudger.
Mr. Shuster. Go ahead.
Mr. Larsen. Oh, I am sorry. You brought in something.
Mr. Shuster. I want to make sure that the polymer has a
medical benefit, not that round?
Secretary Lambert. Right. That is correct.
Mr. Larsen. Opposite of the medical benefit.
Secretary Lambert. Right.
Mr. Gudger. Just to show you how well we coordinate
together, I couldn't let Brett play show-and-tell without me so
I brought the body armor that a small business made to stop
that .50 caliber round. In fact, this was made by a company
called MQ. Then it was made and an urgent requirement in the
field in Afghanistan and Iraq for the need for body armor and
to sustain multiple blasts from IEDs [Improvised Explosive
Devices] and other munition. A small company made this, and
they are a subcontractor. They don't do this as a prime--they
provide the armor that fits into other polymers that are bent
and made for other pieces of the body. But this is a great and
phenomenal thing that small business is doing as an example of
our SBIR success story.
Mr. Larsen. Okay.
Mr. Shuster. Is that ceramic?
Mr. Gudger. No. It is made from bonding carbon and
silicone.
Mr. Shuster. Ms. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chairman.
So, Mr. Lambert, how many do I have in my district?
Secretary Lambert. You have it looks like one.
Ms. Hanabusa. Oh, I have one?
Secretary Lambert. But that is the one we found. So if you
can tell us more.
Ms. Hanabusa. I have Hawaii. That is right. They keep
reminding me that.
Mr. Gudger, the question that I have asked at all of these
meetings has been about SBIR and small business; and I notice
that you interface with Small Business Administration. And I
think you can see like on page 9 of your report. So what I am
trying to understand is, because Mr. Larsen has told me very
clearly about the jurisdictions between the SBA [Small Business
Administration] and DOD, so I want to understand from your
perspective what and how you work together. Because you are
asking for reauthorizations and so forth, and, you know, that
may not be our issue. So can you tell me first what your role
is with relation to the SBA and, also, in terms of SBIR,
whether when the grants are being reviewed what your role is in
that process, if any, and was that body armor a phase two SBIR?
Mr. Gudger. It went phase two and went on to phase three.
It became a program that was----
Ms. Hanabusa. Aren't you impressed that I would even know
that?
Mr. Gudger. Yeah.
Ms. Hanabusa. Anyway, can you answer those questions,
please?
Mr. Gudger. Yes. Our role with SBA, SBA has a statutory
requirement for overall small business, and they also are the
administrator of the overall small business innovation research
program.
However, our program is standalone, and it is based on the
reauthorization from Congress. And, typically, it takes both
House and Senate to reauthorize a program from my seat. Now,
when we do receive SBIR applications, we get thousands of them
every year, tens of thousands of them every year, and we reward
a few thousand every year, depending on the need. So, on
average, 4,000 that we reward; and, on average, we receive
about 14,000 applications. We are very instrumental in that
process.
The Office of Small Business program has a program manager
that oversees the program for the Office of Secretary of
Defense and works jointly with the Research and Engineering
Directorate Assistant Secretary along with the service SBIR
program managers to ensure successful administration of the
program and that the urgent needs of the Department are
fulfilled.
Ms. Hanabusa. So when you say you award, your Department or
your office awards, I think you are an office----
Mr. Gudger. Yes.
Ms. Hanabusa. Are you awarding SBIR grants?
Mr. Gudger. Yes. We award phase one and phase two grants
out of our office.
Ms. Hanabusa. And what role does the SBA play if you are
awarding the SBIR grants?
Mr. Gudger. They play no role in our awards.
Ms. Hanabusa. So SBIR, as I understand it, about 50
something percent of their money is actually defense because it
is a percentage of the budget, right? So do you get to control
over the whole 50-something percent of the money that SBIR has?
Mr. Gudger. No. The SBIR program is a percentage of the
total DOD budget. And it is a small percentage, about a percent
and a half now, I believe, which represents just about $1.5
billion. And our office oversees the broad agency announcements
that go out five times a year, and we collect information, and
we arrange with our other component agencies on selecting
successful awardees that meet the requirements outlined in the
broad agency announcement.
Ms. Hanabusa. So you actually award all of the SBIR.
Because my understand is SBIR's total funding is from basically
all contracts, all budgets. But you do control the SBIR
component that is funded through the DOD budget--percentage of
the DOD budget?
Mr. Gudger. Yes. I am responsible for the industrial base,
and we work very closely with the services in successfully
awarding these.
Ms. Hanabusa. So the Mentor-Protege' program which we heard
about, what is the funding source for that?
Mr. Gudger. That is also a congressional reauthorization.
And it is a relatively small amount compared to other programs
in defense where it is between $20 million and $25 million
annually. But it is a significant job creator in the
Department. It is phenomenal for a small business to also gain
capability in developing infrastructure for their company so
they can move on to be successful suppliers to the Department.
Ms. Hanabusa. But isn't the assumption that somehow they
are going to move forward with the mentor, which is usually a
larger defense contractor, so they kind of get gobbled up in a
way?
Mr. Gudger. You know, the consolidation of the industrial
base is a challenge everywhere. That is very true. But we look
at that as a success story. We don't penalize them for growth.
In fact, if they gain a capability in the Department, as long
as they continue to stay in front of it, I think there is no
reason why we wouldn't continue to work with them in some
fashion.
Ms. Hanabusa. Thank you.
Thank you, Mr. Chair.
Mr. Shuster. Thank you.
Mr. Gudger, you don't do phase three, correct?
Mr. Gudger. Correct.
Mr. Shuster. That has to be supported by the acquisition by
one of the services, is that correct?
Mr. Gudger. Well, phase three are not just solely the
services. It could be the component agencies as well. But phase
three becomes a much larger program. We look to help them
develop in phase one feasibility.
Mr. Shuster. And do you drop off then after phase two? You
have no say in the matter in phase three because--and I am sure
there are some things if you talk about--I don't know how the
UAVs [Unmanned Aerial Vehicles]--I know the UAVs were
earmarked. If they had gone through the SBIR process I am
pretty sure the Air Force would have said, no, we are not going
to do it; there are no pilots on that thing.
So are you involved in phase three at all? Do they consult
with you? Do you have the ability to say, this is pretty good
stuff; we have got to figure out some way how to move this. Or
are you done after phase two?
Mr. Gudger. That is somewhat of a complicated answer,
because it depends on the technology and the need of the
Department. But we certainly kind of go through the entire
portfolio of OSD and look at successful phase two and match
them up with program managers who may want to buy that
technology or services who may have that need. They pick up and
award the contract directly to them. But we make information
available to them through our database, and we continue to
track them and track the success in future years, yes, we do.
Mr. Shuster. Because there may be products that cost up
front is big and you get one of the services to say no. But if
you guys are looking at it and saying, look, but over the next
20 years we could save millions or billions of dollars, it
would make some sense to keep pushing that.
So, with that, Ms. Sutton.
Ms. Sutton. No more questions.
Mr. Shuster. Okay.
And the final questions I have, we get a sense out there
when we are talking in our field hearings with these smaller
businesses, and even I think with the big, the tier one primes,
there is a sense of hostility between DOD and contractors. And
some of it comes about because the media picks up on a $500
hammer or a couple-thousand-dollar toilet seat, which I think
those are both space shuttle problems. But, you know, still,
the media pounds on it.
And, as I recall, the space shuttle toilet seat, if you go
back there, is they only made like five of them, and they were
out of a very specific--so it cost a lot of money to make them.
You couldn't just go down to the Home Depot and get one.
So the media does some of that. But I think the Department
of Defense has some culpability in creating this tension when
we have got to figure out a way to get more together, whether
we are talking about the communications that we talked a little
bit about here earlier, the audits and the communications, you
know, not being able to talk. As you mentioned, the closer you
get to the contract you got to stop talking to your customer,
which is crazy.
Can you solve this hostility problem? I think it is a huge
hurdle that we have to overcome. I don't know if we can
legislate to stop it, if we have got to break the culture
somewhere at DOD to stop it.
Secretary Lambert. It is very much a culture, and I was
surprised, frankly, when I came in. I think what we have tried
to do over the last few years is, within the leadership,
explain very clearly that, despite spending about a billion and
a half dollars a day, we don't make anything, and without our
industry partners we can't field an army.
And Dr. Carter started by having an open door policy,
Secretary Lynn did, and Secretary Gates. I conducted over, as I
said, 300 meetings either individually or with groups and
associations like NDIA [National Defense Industrial
Association] for the second and third tiers, AIA [Aerospace
Industries Association] for the larger ones, and then with
individual companies.
It really is trying to get that message out there that we
need to better communicate, to be more transparent. And we send
memos out to that effect, but the practical--pushing that down
is a real challenge within the Department and one that I have
to give a lot of credit to both Dr. Carter and Frank Kendall.
It doesn't get any press. But they spend as much time going
internally to the buying commands preaching that message of
cooperation and working with industry to get best value for the
taxpayer and warfighter than they do going to the companies
themselves. I have seen a tremendous change in just the last 18
months as you work down that process. But it is very much an
internal process we are working through.
Mr. Shuster. Mr. Gudger, do you have any?
Mr. Gudger. Oh, absolutely. Being a former business owner I
walked in with a certain bias to the Department and
understanding the challenges that we faced. I thought I would
do something that would help alleviate that challenge for small
business. I understood that how you engage a culture and
modernize a culture without baking small business industrial
base into the process early. So we are making tremendous
strides there.
In fact, I look at doing that through training. So our
office created a small business training course that program
managers must take now in order to receive their program
management certification so they understand the small business
base, they understand how to look for innovative technologies,
they look at bringing them in the process during certain
milestone reviews.
We created a tool called MaxPrac, which is the other part.
It is the cornerstone to alleviating small business issues that
say, hey, I just want a fair chance. So MaxPrac is the maximum
practical opportunity tool that we developed and we share with
other agencies throughout the government. I think we shared it
with about 17 other agencies where it is a market-research-
driven tool where we can find opportunities where we are
currently engaged in a small company.
Let's say it is in the Army, for example, and the Navy is
not engaged in that company and may be paying more for that
resource or it is going to a large company. We now have a tool
where we can identify and compare to other services or agencies
in a Department or against other agencies in the government so
that, one, we can buy better and reduce costs and, two, promote
competition or promote the ability for opportunities to be
competed in the future amongst small businesses. We are taking
an analytical approach to this.
And then on the other side--that is the prime contracting
side. On the subcontracting side, looking at long-term, we have
looked at in the acquisition process influencing what we call
weighted factors, which is, all things being equal in a plan
acquisition, that the prime contractor for that, whether large
or small, if they have met small business criteria that they
outlined in previous contracts, all things being equal, small
business has consideration for who will get that award in the
source selection. Once you are awarded, then your fee--we
affect a fee construct if you don't continue to meet those
goals.
So it is to provide an incentive, one, on providing market
research from a prime contracting opportunity; and then, two,
looking at it from a subcontracting opportunity over the long
term ensuring that we give consideration of small business for
subcontract opportunities where primes have done well; and
then, if they don't do well, we can have some accountability
through fee construct.
Mr. Shuster. And MaxPrac, how is that initiated? Who
initiates that?
Mr. Gudger. It is administered by our office. All of our
small business directors and specialists throughout the
Department of Defense have a copy. We have trained all of our
head of contracts, and we are working downstream to all of our
contracting officers. We have 27,000 in our acquisition
workforce. And we started this initiative--this analytical
approach this year, probably in May of this year, where I
launched it at our annual conference in New Orleans. And it is
starting to help us produce significant, strides in
accomplishing our goals.
Mr. Shuster. So your contracting officers initiate that?
That is not--a private-sector company doesn't come in and say,
hey, I can provide the same product to the different service?
Mr. Gudger. It is a two-pronged approach. We meet with
businesses all the time where we can buy better. And then when
it is time to conduct market research, which is part of our
acquisition process, that is when we use the tools. So, one, we
can get it from industry in outreach events; and, two, we have
a tool that helps us look at a mountain of data and make sense
out of it pretty quickly.
Mr. Shuster. Mr. Lambert, you also said that you are
rewarding companies for better quality. That is contrary to
everything I hear. It is--you know, my goodness, it is heresy
by giving somebody a bonus for doing a great job in the
government.
Secretary Lambert. Well, again, it goes to trying to place
incentives in a direction that truly incentivizes instead of
punishing. And it is true that in the world that we are coming
from I think quite often it was--the question was how to reduce
profitability, not how to increase it as a motivating tool. I
think Dr. Carter and Mr. Kendall have been clear upon that.
To your point, Congressman, it is not so much the
profitability of the primes. The worse thing that would happen
is, if we hurt the profitability at the prime level, that
surely is going to cascade down to the subs, just as it did in
the auto industry, and that is the last thing we want to be
encouraging. So it is a very short-term solution to a long-term
problem, and we just can't allow program offices and
departments to run programs and operations that way. We won't
have a base if we do that approach.
Mr. Shuster. And my final question is, how many companies
in my district on your list?
Mr. Gudger. In your district--your district is strange.
Mr. Shuster. I have been told that before.
Secretary Lambert. Because you have a lot of different
things. But there is one that was on the survey. But I know of
several others that are close by that have a lot of people that
live in the district.
Mr. Shuster. Well, you know, they say that a Member of
Congress is a reflection of his district, so I have been said I
have been strange before, too.
Secretary Lambert. Well, it is an important one, if that is
helpful.
Mr. Shuster. Thank you. I really appreciate you being here
today.
You know, you have said a lot of positive things, and I
don't doubt that you are making strides. And, Mr. Gudger, you
have been there for several months. But what we are hearing out
there when we go out in the business community is a different
story. So, hopefully, with your efforts and what we are trying
to do here we can push that out.
Because I think the defense industrial base is so critical.
I don't believe that it is a traditional market system like we
have in other things, and we have got to make sure we are
making the right strategic decisions so that, down the road,
the next enemy, the next war we fight, we have all the right
stuff on the shelf to be able to provide for our warfighters.
So, again, I really appreciate you coming in today; and we
look forward to continue talking with you as we move down the
road.
And you are going to provide us with, as Mr. Larsen
requested, your roundtable feedback so we can see if it matches
up. So we would appreciate that greatly.
[The information referred to can be found in the Appendix
on page 79.]
So, again, thank you all very much for being here. Thank
the members for being here and the audience for being here.
The hearing is adjourned.
[Whereupon, at 4:40 p.m., the panel was adjourned.]
=======================================================================
A P P E N D I X
November 1, 2011
=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
November 1, 2011
=======================================================================
Statement of Hon. Bill Shuster
Chairman, House Panel on Business Challenges within the Defense
Industry
Hearing on
The Defense Industrial Base:
The Role of the Department of Defense
November 1, 2011
The House Armed Services Committee Panel on Business
Challenges in the Defense Industry meets today to continue our
dialogue regarding the health and future of our Nation's
Defense Industrial Base by receiving testimony from witnesses
from the Department of Defense. While the Weapons Systems
Acquisition Reform Act did much to increase transparency and
foster competition, there is still a great deal of room for
improvement in the Department of Defense's business practices.
Last Monday, the panel heard from policy experts and from
various think tanks that have studied the structure,
effectiveness, and efficiency of the Defense Industrial Base.
Our witnesses last week pointed out our Nation lacks a coherent
and complete strategy for our Nation's defense. Without such a
strategy, the Defense Industrial Base is left without the
guidance and transparency necessary to ensure viability and
efficiency.
This panel is facing some complex issues and nothing
illuminates this more that this RAND Report on Military
Research and Development Policy. I think it does a very good
job at laying out the complexity of the issues as it offers
some findings and recommendations on policy for providing the
military with new weapons and capabilities. The only problem is
that it was written in 1958 and not much has changed.
As a panel, we traveled to Akron, Ohio, on Friday where we
met with small and mid-size businesses working on highly
technical solutions to deliver capabilities to our warfighter.
We met with companies making advanced coatings to prevent
corrosion, composite armor, advanced aerodynamic control
systems, and technologies to enable remote detection and
identification of pathogens.
Just like in 1958, our defense industry today is having a
hard time getting clear requirements from the DOD, bridging the
gap between development and fielding, and surviving overly
burdensome, unresponsive program management policies and
regulations. Navigating these issues is difficult for large
defense contractors and near impossible for small businesses.
Today's hearing gives us an opportunity to hear about these
critical issues from witnesses from the Department of Defense.
I'd like to introduce:
LDeputy Assistant Secretary of Defense for
Manufacturing and Industrial Base Policy, Mr. Brett
Lambert, and
LMr. Andre J. Gudger, Director of the Office
of Small Business Programs in the Office of the Under
Secretary of Defense for Acquisition, Technology &
Logistics.
Welcome gentlemen, I look forward to a frank and
informative discussion.
Before we receive testimony, I would also like to take a
minute to thank Congresswoman Betty Sutton and her dedicated
staff for hosting the panel in Akron. It was an extremely
informative visit. In addition to the roundtable with industry,
we also had a remarkable discussion on the impact of corrosion
on DOD's equipment and facilities and got a briefing on the
University of Akron's unique program in corrosion research and
engineering.
On the trip, I learned that DOD spends nearly $23 billion
per year dealing with corrosion. That's $23 billion out of our
defense budget that we're not spending on our troops and it's
something that I think all the members of this panel, and the
Armed Services Committee, need to be aware of.
Betty, thank you for bringing this important issue to our
attention.
Our next field roundtable will be happening on Friday,
December 9th to Congressman Runyan's district--the 3rd district
of New Jersey. These sessions are invaluable to this panel's
work and I hope all of our panel members can join us on the
trip.
Statement of Hon. Rick Larsen
Ranking Member, House Panel on Business Challenges within the Defense
Industry
Hearing on
The Defense Industrial Base:
The Role of the Department of Defense
November 1, 2011
Mr. Chairman, I'm pleased to be joining you and the other
panel members here today.
As we have discussed, this Panel aims to discover the
challenges facing the current government-defense industry
partnership and the capabilities they produce.
Small businesses are essential to a robust and agile
industrial base as well as for a strong economy. The U.S.
defense base has a long history of producing the best military
systems in the world. We must ensure that this continues--both
for our warfighter and because it creates jobs here in America.
Key aspects of a strong defense-industrial base include
assuredness of supply, American jobs, and ensuring the best
technology for the warfighter. The mission of the Manufacturing
and Industrial Base Policy is to monitor, preserve, and enhance
the national security industrial base of the United States.
(Note: Mr. Lambert, one of the witnesses, heads this office.)
As we know small businesses play a critical role in the
strength of our economy by creating technologies for our
warfighter. We need to ensure they are given every opportunity
to compete on a level playing field with large business.
Over the last few months, we have heard that small
businesses face challenges regarding security clearances, lead
times from DOD contract solicitation to submission due dates,
ITAR, defense auditing and other regulatory and procedural
issues.
I am pleased with what we've learned so far from our first
Panel hearing that looked at challenges our small and medium-
sized businesses are having creating and maintaining
opportunities with the Department of Defense. Testimony from
the hearing was echoed during our district visits and
roundtable discussions. In addition, comments from local
leaders have been extremely helpful.
So far, this panel has met with business readers in my
congressional district in August. We visited Rock Island
Arsenal in early October in Mr. Schilling's district. And last
week I and other panel members met with industry leaders in and
around Ms. Sutton's district in Akron, Ohio.
Connecting today's hearing with our hearing on October 24th
where we discussed the role and future of the defense
industrial base with witnesses from think tanks, we will hear
what DOD is doing to improve the defense business environment
with a particular focus on small business. I look forward to
hearing today's testimony and thank you all for being here.
Thank you again, Mr. Chairman.
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
DOCUMENTS SUBMITTED FOR THE RECORD
November 1, 2011
=======================================================================
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
November 1, 2011
=======================================================================
RESPONSE TO QUESTION SUBMITTED BY MR. SHUSTER
Mr. Lambert. Please see the document ``DOD Best Practices and FY12
Strategy'' on page 67. [See page 33.]
______
RESPONSE TO QUESTION SUBMITTED BY MR. LARSEN
Mr. Gudger. Issues and Concerns Identified at the Roundtable:
Insourcing
b A challenge to small business in this climate is
insourcing. Government needs to identify those functions that
are, in fact, ``inherently governmental'' in nature.
b The fear is that decisions are made in an arbitrary nature
without regard for facts. Would like to see a mechanism for
small business to address the loss of personnel to insourcing.
Initiative--The pendulum is already swinging the other way.
b Government initially used insourcing to build workforce--
specifically its acquisition workforce. Many agencies took at
face value.
SBA and DOD Relationship
b The relationship between SBA and DOD is not fully
communicated or understood by the small business community.
Congress and White House Action
b A serious concern about the deadlock between parties in
Congress.
b It affects small businesses, especially from investors when
the economy is seen as in an unstable time.
b Across the country small businesses are advocating for
bipartisan collaboration and action.
Clean Energy
b More information about clean energy initiatives and avenues
for eco-friendly businesses to expand in the industry.
b If there are resources available for clean energy, how are
they best offered?
Government Contract Bidding
b A general gap in knowledge about and how to bid on
government contracts as a small business.
b Contracting world seems to be fixated on price and fail to
include other important factors such as quality.
b More information requested about government contracting
opportunities.
Mentor/Protege and SBIR Programs
b More information and awareness building about the benefits
of the Mentor/Protege program.
b Need long term re-authorization of Mentor/Protege and SBIR
programs
b Large businesses are often hesitant toward the program
because they do not have enough of an interest in the MPJV.
b There should SBA programs should be more streamlined and
more awareness needs to be promoted.
b Foreign companies that are prime contractors in the USA
need to be educated/informed on the Mentor/Protege program.
American Jobs Act
b The American Jobs Act and the related legislation directly
affect many small businesses.
b There is a widespread gap in knowledge about the bill and
further action the Obama Administration has taken since the Act
failed in Congress.
Youth Entrepreneurship Initiatives
b Small businesses are concerned about the youth of America.
b Roundtable participants who want to hire remark that
graduates or young workers are looking for jobs, rather than
pursuing entrepreneurship paths that would ultimately lead to
greater innovation for the whole country.
b There is similarly a lack of skilled manual labor.
b There is a need for the promotion of trade school as a
viable career opportunity compared to the standard general
four-year education.
b A major concern is how the Administration plans on dealing
with this issue of youth motivation and education reform.
Payment withholding
b Simply because prime contractors have not received payment
themselves, hurting the subcontractors.
Red Tape
b Too much red tape, it is really hard to deal with the DOD
and is an extremely lengthy decision process.
b Paper work requirements present significant burden to small
businesses (example: program requirements and Veteran
certification).
b It takes too long to award projects.
b Certifications are critical, but the process is grueling
and too long, with too much paperwork. Any way to streamline
it?
b There is also a concern about the high barriers to entry
for small businesses such as capital, taxes, and funding.
b There is a call for the administration to help make a
better environment for risk taking, especially for startups.
b The microenterprise RS Code should be explained more. If
people knew on the front end exactly how much revenue they
would be taxed on and what credits and rebates they would be
eligible for it would offer more stability.
Capital Limitations
b Banking regulations requiring collateralization with cash
instead of assets which makes things very difficult.
b Revision of bonding policies and coding is urgently needed.
b The government needs to provide support to protect IP
rights and capital formation.
NAICS codes revisions.
b NAICS code thresholds are too low.
b By the time small businesses have established staffing
processes and infrastructure to properly manage/prime an
effort, they have outgrown small business size standard.
Veteran Employment
b Veteran employment concerns.
b Incentives and training programs for both the veteran and
the company hiring veterans.
Infrastructure and Transportation
b Transportation Infrastructure investment has been a concern
brought up in every roundtable across the country.
Auditing Reform
b Too many audits on small businesses.
b They have sufficient inaccuracies and on top of the
inaccuracies the audits are causing many delays and impeding
progress.
Long-Term Solutions rather than immediate fixes
b Need long-term solutions that encourage businesses to make
investments in people.
b Long-term tax breaks, broader approach to regulations for
tax breaks.
b A business will make investments if it knows it's getting
the return.
Policy Suggestions
b Explain the Rapid Innovation Fund better, and how it works.
b Revisions are desperately needed for the acquisitions
process; it really needs to be streamlined.
b There should be local business representatives during
government contracting bids.
b There also needs to be very clear and concise requirements
and timelines for the bids.
b Recommend bringing in people with real-life experience to
teach small business skills more efficiently about contract
bidding.
b Small business training grants. The relationship between
the contractor and the mentor is failing. The HU incubator
wants to be the clearinghouse to help build the relationship
between small businesses and mentors.
b Use technology to update union programs so that DoL
training and apprenticeship programs perform better and do not
last too long.
b There is a need for federally backed loans for trade
schools. If there are already such loans, they should be on a
higher scale with lower rates.
b There is a lack of proper trade skill training in the
workforce that the act should invest in improving with the
ultimate goal of workforce development.
b We need to get the word out to promote institutions
(businesses and community colleges) to hire and train the
unemployed.
b Community colleges should partner with the Federal
government to provide for job training.
[See page 11.]
______
RESPONSE TO QUESTION SUBMITTED BY MS. SUTTON
Mr. Gudger. The Office of Small Business Programs (OSBP)
understands the importance of intellectual property issues faced by
small businesses. OSBP continues to be proactive in understanding these
concerns and in developing policy and programs that foster environments
for small business to continue to innovate. Through industry
roundtables, we have been able to get a real sense as to what some of
the intellectual property issues that small businesses face. We are
working closer with the U.S. Patent and Trademark Office (USPTO) and
are analyzing our SBIR and Mentor/Protege programs to ensure that our
policies and procedures are aligned with the direction of the USPTO. As
a result of the USPTO now participates in our outreach events,
including our 2011 Small Business Innovation and Research conference
and our upcoming Mentor/Protege conference in March 2012. [See page
22.]
?
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
November 1, 2011
=======================================================================
QUESTIONS SUBMITTED BY MR. SHUSTER
Mr. Shuster. It has been reported to the Committee that remarks,
made by Department of Defense officials a few weeks ago at the
Association of the United States Army conference, indicated there would
be a requirement, prior to any future/further insourcing, that Senior
Acquisition Executives certify that there would not be an adverse
impact or harm to the industrial base. Can the Department verify if
such a requirement exists, is being implemented, or is being considered
and what the rationale/justification may be? If so, please explain how
that reconciles with sections 129a and 2463 of title 10 and whether it
was coordinated with the Office of the Under Secretary of Defense for
Personnel and Readiness, who is responsible for insourcing oversight
and policy in the Department?
Mr. Lambert. While the Department greatly values the contributions
made by private sector firms as a part of the Department's Total Force
of military, civilians, and contract support, no such certification
requirement exists. We recognize that the private sector and the
industrial base are, and will continue to be, a vital source of
expertise, innovation, and support to the Department.
At the same time, the Department is committed to more appropriately
balance its workforce and meet our statutory obligations to annually
review contracted services, identifying those that are more appropriate
for government performance and should be insourced. This includes
services that are:
inherently governmental or closely associated with
inherently governmental in nature;
may otherwise be exempted from private sector
performance (to mitigate risk, ensure continuity of operations,
build internal capability, meet and maintain readiness
requirements, etc);
require special consideration for government
performance under the provisions of 10 USC 2463; or
can be more cost effectively delivered by the
government consistent with a cost analysis and in support of
section 129a.
Mr. Shuster. 10 USC 2330a requires that the Department submit an
inventory of contracts for services annually that is based on direct
labor hours and associated costs collected from contractors. The
Department consistently has resisted implementing this requirement as
required by statute. While we appreciate the Department's ``Better
Buying Power'' efforts to control costs by moving increasingly to firm
fixed price contracts, absent a compliant inventory, this policy poses
significant risks. Gauging reliance on contracted services by dollars
alone is not an accurate measure of workload, as contractors can use
the ``trade-space'' afforded in their pricing structures on firm fixed
price contracts to do additional duties, particularly when there is a
civilian workforce cap in place. What is the Department doing to
implement the requirements of 2330a, and in particular to link that, as
required by 10 USC 235, to the budget to preclude year of execution
increases in contracting?
Mr. Lambert. Without an accurate accounting of the direct labor
hours expended on services, as required by law, how can the Department
prevent work that was being done by civilians or military, since we
have both a civilian cap and declining end-strengths, from being
absorbed by contractors within that trade-space? Essentially, the
dollars spent aren't increasing, but the level of service is since the
Department has no true accounting of contractor equivalents executed
compared to the budgeted levels.
In order to take decisive and deliberate steps towards meeting the
requirements of 10 USC 235 and 2330a, the Department submitted a
consolidated plan on November 22, 2011 to the Congressional defense
committees. The plan identifies both short- and long-term actions the
Department will undertake to improve the inventory of contracts for
services, so that we have an accurate accounting of the direct labor
hours expended on services. As an enclosure to the plan, the Department
provided a copy of the draft guidance that will be issued to the
secretaries of the military departments and the directors of the
defense agencies and field activities. That guidance will include the
prescribed methodologies for collecting direct labor hours from
contractors. The Department is continuing efforts to strengthen the
relationship between the Inventory for Contract Services and the budget
justification materials. The FY 2013 budget guidance to the DOD
Components requires the budget estimates to be informed by the FY 2010
Inventory for Contract Services. The FY 2013 budget guidance also
requires that all components report funding for contracted services
(utilizing object class information) and contractor full-time
equivalents for all appropriations at the budget-line-item level of
detail.
______
QUESTIONS SUBMITTED BY MR. LARSEN
Mr. Larsen. Could you briefly describe the legal and procedural
definitions of a small business as it relates to your responsibilities?
Mr. Gudger. The Department of Defense relies on the size standards
established by the Small Business Administration (SBA) for its
definitions of small business. The SBA establishes size standards for
all for-profit economic activities as they are described under the
North American Industry Classification System (NAICS) Identifying
Industry Codes. Size standards based on annual receipts are determined
by the concern's three most recently completed fiscal years. Size
standards based on number of employees are determined by the concern's
12 most recently completed calendar months (not its calendar year).
Some SBA programs, such as the Small Business Innovation Research,
Small Business Investment Companies, and Surety Bond Guarantee, have
unique size standards designed to accommodate their specialized needs.
You may find a more comprehensive explanation of size standards by
going to www.sba.gov and selecting ``Size Standards.''
The Office of Small Business Programs' responsibilities are defined
by the Small Business Act and are explained on our web page at
www.acq.osd.mil/OSBP/. We strive to fulfill our mission statement
through creating opportunities and maximizing the contributions of
small businesses.
Mr. Larsen. In your oral and written testimony you discussed
several challenges small businesses face with securing work with the
Department of Defense. You also mentioned various statutory and
regulatory programs you oversee that assist small businesses with
overcoming some of those challenges. During recent field hearings held
by the Defense Business Panel, many of our medium-sized companies
shared their experiences of similar challenges with capturing or
maintaining work with the DOD. Are there any programs/procedures within
the Department that track the challenges faced by our medium-size
industrial partners? Are there any programs, procedures, or goals that
assist those businesses that fall outside of your small business lane,
but are not large contractors, with performing work for the Department?
Mr. Gudger. The Office of Small Business Programs (OSBP) recognizes
small businesses based on the Small Business Association's (SBA) size
standards as set in the SBA's Small Business Size Regulations. The SBA
defines business entities as ``small'' or ``other than small.'' The SBA
does have programs like the Small Business Innovation Research, Small
Business Investment Companies and Surety Bond Guarantee that have
unique size standards to assist different businesses' needs. Programs
such as Small Business Technology Transfer, the Rapid Innovation Fund,
and programs in the Office of Manufacturing and Industrial Base Policy
such as the ManTech and the Title III program also provide
opportunities to medium size enterprises to perform work for the
Department. Additionally, OSBP works closely with SBA to ensure that
growing companies have a smooth transition to becoming medium or large
companies. An example of this includes recommending to SBA that it
grant waivers to companies that are graduating from the 8(a) program
and could lose contracts under which they have exceptional past
performance and should remain on the contract. DOD also encourages
teaming and for medium size firms to participate as mentors in the
Mentor/Protege program.
Mr. Larsen. During your testimony, you briefly mentioned the Rapid
Innovation Fund. Please explain the role of your office in implementing
the Fund. Describe how the Department's implementation of the Fund
meets the goals and intent established by Congress in both statutory
and report language.
Mr. Gudger. The Department implementation and the role of the
Department of Defense Office of Small Business Programs and the Rapid
Innovation Fund are outlined in USD AT&L Memorandum dated 12 August
2011. The USD AT&L Memorandum can be found at: http://www.acq.osd.mil/
chieftechnologist/publications/docs/USA003854-11_Signed.pdf. (The
memorandum can be found on page 70.)
The Department goals are in accordance with section 1073 of the
National Defense Authorization Act for FY2011 and the 2011 Defense
Appropriation Act which reflect the emphasis on rapid, responsive
acquisition and engagement of small innovative businesses in solving
defense problems.
______
QUESTIONS SUBMITTED BY MR. WILSON
Mr. Wilson. You may be aware of campaigns led by foreign NGOs to
boycott U.S. companies involved in the manufacture pursuant to
contracts with the U.S. Department of Defense of weapons systems that
they don't think the United States should have. Specifically, landmines
that are compliant with the Ottawa accords and cluster munitions that
are compliant with the U.S. policy on unexploded ordnance.
Do you believe these boycotts are exclusively driven by NGOs, or
are some foreign governments also complicit in them? If so, which ones?
Mr. Lambert. To the Department's knowledge, the campaign is driven
by NGOs and not by foreign governments. That said, a handful of States
party to the CCM (Belgium, Ireland, Luxembourg, and New Zealand) have
chosen to criminalize investment in the production of cluster
munitions. The Department is not aware of any foreign governments
currently boycotting U.S. defense contractors for producing cluster
munitions for the U.S. Government.
Mr. Wilson. Are you concerned that these kinds of boycotts may
dissuade some U.S. companies from continuing to supply these weapons to
the Department of Defense?
Mr. Lambert. While we have not seen specific evidence to indicate
that U.S. firms have been dissuaded from supplying the Department of
Defense, we remain concerned about the current and future impact of
boycotts on the industrial base, particularly in regards to the
pressure on banks and insurance companies to stop servicing DOD
suppliers if they continue producing certain products.
Mr. Wilson. What specific steps have you or other officials of the
U.S. Government taken, if any, to resist these boycotts and support
U.S. defense contractors that have been targeted by them?
Mr. Lambert. If notified of such a boycott, it is my understanding
that the Department of State would be willing to raise the issue with
the appropriate foreign officials. With respect to particular steps
taken in responses to action by specific foreign governments, I defer
to the Secretary of State.
Mr. Wilson. Have you, or to your knowledge, other officials of the
U.S. Government expressed your concern about these boycotts to any
foreign governments? If not, why not?
Mr. Lambert. If notified of such a boycott, it is my understanding
that the Department of State would be willing to raise the issue with
the appropriate foreign officials. With respect to particular steps
taken in responses to action by specific foreign governments, I defer
to the Secretary of State.
Mr. Wilson. Does your office track these boycotts and the potential
impact on the United States industrial base, and if not, why not?
Mr. Lambert. When we become aware of a boycott, we work to identify
potential impacts to the U.S. industrial base.
Mr. Wilson. Do you believe the United States Government in general,
and the Department of Defense in particular, should continue to do
business with foreign banks and other foreign businesses that are
engaged in boycotts of U.S. defense contractors?
Mr. Lambert. The influence of activists and foreign governments on
the U.S. defense industrial base is a complex issue. Protecting the
U.S. defense industrial base and national security interests will
require the DOD to collaborate effectively with other Executive Branch
agencies and Congress. Before taking action, such as ceasing business
with a particularly entity, we must ensure we thoroughly understand
potential risks and communicate those risks to our industrial base. We
will work closely with the industry sector and foreign nations to
preserve domestic industrial capabilities.
Mr. Wilson. Does the Department of Defense have sufficient
authorities to address foreign boycotts of the U.S. industrial base?
Mr. Lambert. The influence of activists and foreign governments on
the U.S. defense industrial base is a complex dynamic. Protecting the
U.S. defense industrial base and national security interests will
require DOD to collaborate effectively with other Executive Branch
agencies and the Congress. We must do more to understand and
communicate the risks to the industrial base and work closely with
other nations to preserve domestic industrial capabilities.
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