[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-99]
DOING BUSINESS WITH DOD:
CONTRACTING AND REGULATORY ISSUES
__________
HEARING
BEFORE THE
PANEL ON BUSINESS CHALLENGES
WITHIN THE DEFENSE INDUSTRY
OF THE
COMMITTEE ON ARMED SERVICE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
FEBRUARY 6, 2012
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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
2012
Page
Hearing:
Monday, February 6, 2012, Doing Business with DOD: Contracting
and Regulatory Issues.......................................... 1
Appendix:
Monday, February 6, 2012......................................... 25
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MONDAY, FEBRUARY 6, 2012
DOING BUSINESS WITH DOD: CONTRACTING AND REGULATORY ISSUES
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
Burman, Dr. Allan V., President, Jefferson Solutions............. 4
Johnson, Joel L., Former Vice President, International, Aerospace
Industries Association of America, Inc......................... 6
APPENDIX
Prepared Statements:
Burman, Dr. Allan V.......................................... 33
Johnson, Joel L.............................................. 46
Larsen, Hon. Rick............................................ 31
Sharma, Raj, President, Federal Acquisition Innovation and
Reform (FAIR) Institute.................................... 53
Shuster, Hon. Bill........................................... 29
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Mr. Larsen................................................... 67
DOING BUSINESS WITH DOD: CONTRACTING AND REGULATORY ISSUES
----------
House of Representatives,
Committee on Armed Services,
Panel on Business Challenges within the Defense Industry,
Washington, DC, Monday, February 6, 2012.
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.
OPENING STATEMENT OF HON. BILL SHUSTER, A REPRESENTATIVE FROM
PENNSYLVANIA, CHAIRMAN, PANEL ON BUSINESS CHALLENGES WITHIN THE
DEFENSE INDUSTRY
Mr. Shuster. The hearing will come to order. I first want
to welcome our panelists here today.
Thank you, and a little trivia, they are fraternity
brothers from Wesleyan, and I was just trying to figure out who
hazed who.
Mr. Burman. He hazed me.
Mr. Shuster. Okay. All right. So you are the younger?
Mr. Burman. I am the younger.
Mr. Shuster. Well, again, thank you very much for taking
the time to be here today.
As most of you know, the panel has traveled around the
country over the past few months to hold roundtable discussions
with companies that are trying to do business with the
Department of Defense. No matter where we went or what sector
of the industrial base we met with, we heard time and again
that red tape and bureaucracy are getting in the way of
innovation, efficiency, and jobs.
In Rock Island, Illinois, we heard complaints that export
controls are overly restrictive. Many of the businesses we
spoke to highlighted that we currently take a one-size-fits-all
approach to determining what is placed on the U.S. munitions
list. There is no mechanism for items to smartly be moved off
of that list as technology advances and specific items become
readily available in the global market.
In Santa Clarita, California, we heard from a gentleman who
ran a company that was last audited by the Defense Contracting
Audit Agency in 2005, and the audit was still open due to
failures on the part of DCAA [Defense Contracting Audit
Agency]. He estimated that having his open audit on the books
has cost his company $3 to $4 million in lost business over the
last 6 years.
In Akron, Ohio, we heard that although programs like the
Small Business Innovative Research program aid in technology
development, the technology rarely goes anywhere because there
is no mechanism to assist in completing the stringent military
test requirements nor is there resourcing to get the technology
into production.
In Honolulu, Hawaii, we met with a small business owner who
commented that small businesses are simply not equipped to deal
with the bureaucracy of DOD [Department of Defense] acquisition
system. And in San Diego, California, we heard from a
businessman who felt that the large primes don't want small
business to innovate and another who commented that anyone that
wants to partner with a small business simply wants your
technology. Both these gentlemen agreed that more needs to be
done to protect the intellectual property of small businesses.
Here is the thing, it isn't just one guy in Ohio or a CEO
[Chief Executive Officer] in California or a small business
owner in Illinois. These issues were consistently raised
everywhere we went, from the shipyard workers in Hawaii to the
nanotechnology developers in Ohio.
Mr. Shuster. We invited three witnesses to meet with us
today to explore those issues and provide us with
recommendations to eliminate some of the red tape.
Unfortunately, one of our witnesses, Mr. Raj Sharma, President
of the FAIR [Federal Acquisition Innovation and Reform]
Institute, needed a few more days to recover from surgery he
had last week and will not be able to join us. He did provide
us with written testimony and is standing by to respond to any
questions we may have for him following the hearing. We wish
him a speedy recovery and ask his written statement be entered
into the record.
[The prepared statement of Mr. Sharma can be found in the
Appendix on page 53.]
Mr. Shuster. Today with us are Dr. Allan Burman, President
of the Jefferson Solutions, and Dr.--or, Mr. Joel Johnson,
former Vice President of the Aerospace Industries Association
of America. Both of these gentlemen bring a unique set of--
brings a unique set of experience and expertise to the table. I
hope that we will have a fruitful exchange today and you will
be able to assist this panel in formulating recommendations to
improve the business environment out there.
And with that, I will yield to Mr. Larsen if he has an
opening statement.
[The prepared statement of Mr. Shuster can be found in the
Appendix on page 29.]
STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE FROM
WASHINGTON, RANKING MEMBER, PANEL ON BUSINESS CHALLENGES WITHIN
THE DEFENSE INDUSTRY
Mr. Larsen. Thanks, Mr. Shuster, and I am pleased to be
joining you and the other panel members today in what is the
last hearing of the panel's first 6 months.
Mr. Shuster. Is it?
Mr. Larsen. The staff is confirming it is in fact our last
hearing of the panel's first 6 months to look at the challenges
of doing business with the Department of Defense.
Since this panel kicked off, we have heard from countless
large and small defense contractors, DOD officials, noted
academics, and nonprofit and think tanks about doing business
with the Department. While each individual had their own take
on doing business with DOD, many common themes emerged. The
Federal acquisition process consists of many onerous rules and
regulations. There is not enough communication between industry
and the Government buyer. The technology valley of death
continues to grow. The accounting and auditing standards used
by DOD agencies are antiquated and don't differentiate between
large and small companies. There is a lack of skilled
acquisition professionals. And Government export control
policies hinder the sale of U.S. goods and services to foreign
buyers.
Today's hearing focuses on some of the most complex issues
that negatively impact small businesses' ability to become and
remain viable partners to the Department contracting and
procurement processes as well as regulatory policies.
While U.S. goods and services and the process in which the
DOD buys them has repeatedly proven to be world class, it is
not without limitations. For many companies, doing business
with the DOD either the cost to enter the defense market or the
cost to comply with defense regulations is prohibitive. This
panel would benefit from hearing recommendations from our
witnesses that might lead to DOD's contracting system becoming
more flexible, allowing more entrants into the defense market.
We would also like to hear your recommendations for ideas to
bolster the existing defense industrial base while taking steps
toward creating a 21st-century defense industrial base that is
more diverse, more agile, and more able to respond to an array
of potential threats.
Shifting to a more agile 21st-century defense industrial
base will mean making difficult choices about what we want our
defense industrial base to look like and what goods and
services we want it to provide.
I would like to thank each of our witnesses for appearing
before the panel this afternoon and ask that they offer the
panel, this panel, their expert viewpoints on what they feel
are some necessary steps needed to create a more flexible
acquisition process. I am also interested in hearing about what
steps DOD and industry can take to increase communication and
transparency, not just at the top leadership levels but
trickling down to the buying commands and program officers.
Last, I am interested in hearing what our witnesses believe
are the most significant challenges that DOD faces in buying
goods and services, and briefly offer your thoughts on at least
one significant barrier faced by the industry to remain a
viable defense partner. For example, I can't help but recall a
couple of export control challenges that were presented to the
panel while we were conducting the roundtable discussion in
Chairman McKeon's district a few weeks ago.
One small business noted that on a particular contract to
provide air conditioners for a weapons platform, that the basic
air conditioner was required to be ITAR [International Traffic
in Arms Regulations]-compliant simply because DOD wanted it to
be painted similar to the platform it supported. Another
participant who manufactures lithium ion batteries described
how unnecessary ITAR restrictions impacts his,
``competitiveness, not only in exporting but also how it
impacted his domestic sales as well.''
These are tough issues that fall largely outside the
jurisdiction of this committee but nonetheless should be
addressed if we as a nation seek to help our industrial base,
particularly our small businesses, remain viable to defense and
to our economy.
So I want to thank Dr. Burman and Mr. Johnson for their
participation this afternoon, and I look forward to hearing
from each of you.
And again thank you again, Mr. Chairman, and as well, Mr.
Chairman, it looks like we, in fact, will have Representative
Hanabusa's presence at this hearing, maintaining her stellar
attendance.
[The prepared statement of Mr. Larsen can be found in the
Appendix on page 31.]
Mr. Shuster. Thank goodness.
I wouldn't know what to do if she wasn't here.
Welcome.
Welcome to all. We have a full house here today, so welcome
all the Members to the hearing today.
And with that, Dr. Burman, if you would proceed with your
testimony.
STATEMENT OF DR. ALLAN V. BURMAN, PRESIDENT, JEFFERSON
SOLUTIONS
Dr. Burman. Thank you very much, Mr. Chairman. Chairman
Shuster, Ranking Member Larsen and Members of the committee, I
am Allan Burman.
Mr. Shuster. Your microphone, sir. Your microphone, you
have to press the button.
Dr. Burman. Now do you hear me? Sorry.
And Members of the committee, I am Allan Burman, president
of Jefferson Solutions, a woman-owned small business, and
chairman of the Procurement Round Table. I am also a former
administrator for Federal procurement policy of the United
States and served in that post under Presidents Reagan, Bush,
and Clinton. I appreciate the opportunity to testify on
challenges facing companies doing business with the Department
of Defense, and I would ask that my statement be submitted for
the record, and I will summarize its main points.
Jefferson has done many acquisition reviews across the
Government, and the same issues tend to come up again and
again. Contracting officers are often overworked and
underequipped. Collaboration between program and contract staff
is poor. And there is a lot of confusion on what Government can
say to industry and when. Some of these problems come from the
mismatched growth of dollars and staff. If you look at DOD's
contract obligations from fiscal year 1999 to fiscal year 2010,
they went from $165 billion to $366 billion, an increase of 122
percent. However, if you take a look at staffing over that same
time frame, contract staffing, you are seeing a growth of about
20 percent. The fix to a lot of these kinds of problems tends
to be additional layers of policy and regulation, and what ends
up is added complexity, burden, and cost, and costs
particularly for small businesses.
I think the committee recognizes and those who are in this
profession looking at acquisition, the acquisition community,
agree that we need to strike some kind of balance between
workload and staffing, efficiency and risk, and regulation and
cost.
Today I would like to speak to four major topics of concern
and challenges: Communications between Government and industry;
the imbalance between Federal contracting workload and
staffing; the risks involved with the improper use of Lowest
Price Technically Acceptable contracting techniques; and the
costs of increasing use of regulation.
With regard to communications, as I mentioned, there seems
to be a lot of confusion and misinformation on the level and
timing of communication between Government and industry, and
people are hesitant to talk. Dan Gordon, as procurement
administrator, the most recent administrator who just recently
resigned, came up with a Mythbusters Top 10 list, and here are
some things to do: When requests for information go out,
Government should follow up with meetings to perform market
research. One-on-one meetings help both sides in understanding
capabilities and needs. And debriefs should be as thorough as
possible to help small businesses better compete and to reduce
protests. When we first started, when Solutions started in the
mid-1990s, we went through a lot of procurements where it
definitely helped us to come in and find what we had done wrong
to be able to correct those kinds of things. We ended up doing
a lot better as a result. So more communication and more
understanding of how the other side operates I think is a great
benefit for both.
With regard to staffing, we find overworked and
understaffed personnel. They don't have the time to get the
training, development, and refreshers they need, and you see
low morale and high turnover. Procurements are delayed and
customer service suffers, and staff are not developing the
competencies they need. As a result of this, agencies are
looking to use less complicated evaluation schemes
inappropriately, such as Lowest Price Technically Acceptable
ones, as a way to sidestep the inability of staff to perform a
best value analysis effectively. Even with reduced budgets--and
we see this coming--the agency must invest in the necessary
support training and staffing of its workforce.
Now, I mentioned Lowest Price Technically Acceptable and
the risks associated with it. This really is a focus on price,
and it results in big risks for the Department because it
drives innovation off the table. Competitors only show enough
qualification to get by. Evaluations start at prices, and if
the low cost offer is technically acceptable, then they win,
and no one else's proposal can be even seen or is even seen. So
small businesses that can't offer incredibly low bids are
forced out of the process. I know this is an issue that has
already been raised before this committee.
The end result is Government gets unrealistically low bids
and firms can't do the work. A former--Jacques Gansler, a
former Under Secretary of Defense, cited this as something that
the NRO [National Reconnaissance Office] was using as a
contracting technique for buying security services. He called
it a failure waiting to happen. I see the same thing happening
now with the Navy going down the path for its highly
sophisticated multibillion dollar next-generation enterprise
network contract. By essentially denying the best products,
services, and ideas, LPTA [Lowest Price Technically Acceptable]
sends a message that subpar work is good enough for Government.
With regard to small business goals, I know the Department
is behind on its goals and missed some of its goals in 2010.
There is a common complaint that the agency tends to favor
large businesses. This isn't a new complaint. When I was
procurement administrator, I had to arbitrate between the SBA
[Small Business Administration] and the Department to get the
Department to raise its goals, and for a department with large
sophisticated procurements, it is hard to hit these numbers.
Certain categories of activities that lend themselves to small
business participation, like construction or base repair work,
they tend to bear the brunt, and larger businesses in these
fields then see themselves as being treated unfairly. The goals
will not be met without the strongest possible leadership in
the Department. I know that Secretary Panetta has mentioned
this a number of times; it is a key issue for him.
Then the increased tendency toward regulation. This creates
the same types of costs and process delays that the regulations
are meant to remedy. For example, the Department of Labor's
final rule on nondisplacement of qualified workers under
service contracts ends up creating new hurdles for getting rid
of poor performing incumbent contractors, even after the
company employing them loses the work. The most comprehensive
assessment of this regulatory constraint is the 1994 Coopers &
Lybrand study for Bill Perry. It was a major effort, a thousand
interviews. They came up with a result of 18 percent cost
differential for firms doing business with DOD. Maybe it is
time to look at this again, and it may be time to redo this
study.
I hope the points I have raised have been helpful to the
committee. I strongly support the work of this committee to
address the issues that make it hard for firms to do business
and to provide meaningful support to the Department.
Mr. Chairman, Ranking Member Larsen, committee Members,
this concludes my prepared remarks. Thank you for the
opportunity to testify, and I would be pleased to answer any
questions you or other committee Members may have.
Mr. Shuster. Thank you very much, Dr. Burman.
[The prepared statement of Dr. Burman can be found in the
Appendix on page 33.]
Mr. Shuster. And with that, Mr. Johnson, if you would
proceed.
STATEMENT OF JOEL L. JOHNSON, FORMER VICE PRESIDENT,
INTERNATIONAL, AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA,
INC.
Mr. Johnson. Thank you, Mr. Chairman and Members of the
panel.
I, too, am pleased to be here. I am testifying on my own
behalf, although as you noticed, I am unsuccessfully retired
from 20 years in the trade association world and a few more
years in the Government, including 2 years--3 years on the
other body across the way here.
I was particularly interested in reading the summaries of
your industry roundtables. My experience when I was at AIA
[Aerospace Industries Association] was certainly that you never
were in doubt as to what the large primes wanted. They made
sure you knew. But for small guys, you really needed to go out
to them because they weren't set up in Washington to express
what their concerns were, and they didn't particularly want to
necessarily express them in front of primes or DOD. So you had
to go to them.
I think this is going to be a very challenging time for the
small guys, as the procurement budget shrinks. Not only does
the procurement budget shrink but the primes pull work in
house, so it is double jeopardy for the small guys and that
means that people who aren't in the defense arena are going to
be even more hesitant to get into it when they look at the
newspapers. So we need to work to get them involved.
The big thing about small companies is they are small. They
don't have contracting and accounting experience or
capabilities that the big guys have. In the private world, they
basically focus on inventing and manufacturing and marketing
their product for a price. They don't deal in a world where
contracting, accounting, and even lobbying are comparative
advantages, which they are in the world we deal here in
Washington. They are also handicapped by the fact that it is
probably easier for DOD to deal with a prime than it is with
those guys, and that means the primes have the--the primes are
better able to search out capability and to use commercial
market prices to buy stuff.
On the other hand, this risks the small companies losing
their technology to the primes, and of course, the primes are
going to take a percentage as they work with DOD. So bottom
line, if DOD is going to directly seek out and take advantage
of innovation that maybe in the small business sector, it has
to go out of its way to do so.
There are several suggestions I would have, most of which
you are familiar with, use FAR [Federal Acquisition Regulation]
Part 12 commercial contracting where you can; raise the
threshold for TINA [Truth in Negotiations Act] maybe to a
million, possibly 2 million; make sure that you have extended
SBIR [Small Business Innovation Research] and STTR [Small
Business Technology Transfer] programs if they are funded;
assure small companies they won't have their intellectual
property hijacked either by DOD or the primes; develop good
outreach programs so that the small guys actually know what is
available to them and the DOD really ``honest injun'' is
interested to them.
Finally, because I spent much of my professional career
tilting at export controls, I noted the subject consistently
came up in your roundtables, and both of you mentioned it this
morning. I would be happy to discuss, if there is anything more
mysterious than FAR and DFARS [Defense Federal Acquisition
Regulation Supplement], it is ITAR. And if there is anything
that small companies know less about than FAR and DFARS, it is
ITAR. And if there is a valley of death, this is the kiss of
death very often if you want to get into the export world or
even in terms of what you have to do on your own shop floor in
protecting your technology from your own engineer, for example,
who happens to be Indian born and on an H-2 visa. In any case,
I appreciate the opportunity to talk with you all, and over to
you.
[The prepared statement of Mr. Johnson can be found in the
Appendix on page 46.]
Mr. Shuster. Thank you very much, Mr. Johnson.
With that, we will open it up for questions. I am going to
start, change it up here a little bit, start down with Mr. West
for the first round.
Mr. West. Thank you, Mr. Chairman and also Mr. Ranking
Member, and thanks for the panel for being here today.
I think one of the things that are really causing us to
bust budgets in the military is the acquisition process and
system, the special weapons system development, I mean, 10, 15,
20 years. So when I read and I look at, we have the Acquisition
Systems Reform Act of 2009, I would like to get an assessment
from you two gentlemen, how do you see this act in its early
stages? Have we seen any changes moving toward a betterment and
a streamlining of this acquisition process?
Dr. Burman. I think, clearly, the act is meant to try to
improve how these major systems are acquired, but frankly, I
think it is too early to really get any sense with new systems
to see whether things have really improved, so I would say it
is a wait-and-see kind of an effort. I think the policies are
in place to try to improve the process, but I don't think we
see much at this point.
Mr. Johnson. I couldn't disagree with that. Or let's put it
this way, I would agree with that. The policies are just
getting underway. I think some of the basic notions are, you
know, do 80-, 85-, 90-percent solutions, but don't push the
state of the art to the point where you wind up procuring
forever but not getting a product at the end of the day, which
has been an Army problem, obviously, over the last few years.
Mr. West. Yeah, I know that well.
Mr. Johnson. You design for the absolute best and
ultimately don't wind up with a product----
Mr. West. So my question then, when is the first maybe
evaluation point that you all would recommend? I mean, I don't
want to see us, you know, go 5, 6 or 7 years down the road and
no one asks the question about, okay, have we seen anything? I
mean, is there some type of, you know, measuring of
effectiveness that we have at a 2-year, 3-year point?
Dr. Burman. I don't think anything has been set up in terms
of doing that. My recommendation would be to have a GAO
[Government Accountability Office] investigation, a GAO report
and review, but wait 3 or 4 years, pick the systems that you
want to look at, and see what has been going on in terms of
dealing with this question of are you asking for everything or
are you actually trying to deal with these issues? I know the
same complaint has been made about the new fighter plane in
terms of how long that is gone through an acquisition process.
I mean, people are talking 30 years or so in terms of the time
frame. It is sort of incredible. And then when you think about
the technology development that occurs in an 18-month
timeframe, you can see why dealing with the integration issues
and the other kinds of issues, it becomes almost an impossible
job to get that resolved and to bring anything in under price,
you know, and on schedule, given these kinds of problems. So I
would say that would be the suggestion I would recommend, and
clearly, the GAO is well accustomed to doing those kinds of
reviews.
Mr. Johnson. I think I would add, at risk of offending some
of my former employers, but there is a problem when the colonel
or the general says, I want to do this, the contractor says
yes, sir; no one asks, what will it cost and is it worth it?
And you add on, you add on, you add on. That is what happened
to the President's helicopter. I mean, you start out with a
perfectly serviceable helicopter that had 100,000 hours of
combat experience, and first the Navy wanted to do it the Navy
way, and so you start dismantling a helicopter that is supposed
to be off the shelf, and then you keep adding electronics, and
everybody says, yes, sir, we can do that, and you wind up with
Air Force One with a rotor. And somehow the system somewhere,
whether it be in the Pentagon or even on the Hill has to say,
well, what does that cost and what percentage improvement is it
going to give me? And somehow that doesn't happen.
Mr. West. Next question. Last week, I sat down with
Brigadier General Avieli, who is the Israeli one-star general,
head of their Israeli Defense Export and Cooperation
Department. Question, can we do a better job, do you think,
when it comes to our acquisition process of working with our
allies to, you know, look at how we can have common operating
systems and maybe getting more commercial off-the-shelf
technology instead of going through these long, exorbitant
procurement processes that we have here in America?
Mr. Johnson. Well, now you are starting to get into the old
ITAR issue among other things that is very difficult to talk to
some of our allies, even our closest allies, at least at the
company level, as to what do you do, what do I do, and we
played around with these notions of different kinds of
licenses; which by and large, State has never been terribly
enthused about. We had a--you go all the way back to Clinton-
Bush, the so-called ITSI initiatives, they were a set of
initiatives where, one, they were going to issue a program
license where, say, two companies could get together and
brainstorm, and if they came up with something, then they will
tell you, come back and get a license, but at least let the
engineers talk to each other about what each of them could do.
It was used once for a Raytheon-Talus program, you know, at the
big think level. It has never been used again. Somehow you have
to--we need to find ways, I know engineers always talk too
much, and they all want to solve the problem, but, you know,
that is the only way two companies can find out what they know.
They don't know what they don't know until they talk about it,
and again, this is an area where I think we could be much more
imaginative in how we work export controls, especially at the
pre-think level.
Mr. West. Okay.
Thank you, Mr. Chairman, I yield back.
Mr. Shuster. Was there a reason why they never used it
again or just--I mean, just did it and said, ah, enough of
that?
Mr. Johnson. I think basically State never liked the whole
idea. I mean, there were several approaches to this, and
basically you had to trust people to do, work within
parameters, and the system would much rather define very
carefully exactly what you can and can't do. Well, the problem
is you don't know what that is until you have had a chance to
talk, and talk about that a little, I will give you an anecdote
later if we are still on ITAR.
Mr. Shuster. Yeah, I am sure we will be.
With that, Mr. Larsen.
Mr. Larsen. Well, don't let me stop you. Let's get on with
ITAR. I know that there has been legislation introduced in
Congress to look at the export control policies of the
Government, and efforts started under Secretary Gates and
continued under Mr. Panetta along with the other relevant
departments to rework the munitions list. What specific reforms
do you think would be most helpful that this panel should be
promoting with regards to export control and ITAR?
Mr. Johnson. Well, I realize it is not your jurisdiction,
but as I pointed out in my testimony, most export control
legislation in the last 10 years has been done in Armed
Services bills, not--in fact, SFRC [Senate Foreign Relations
Committee] sometimes have problems getting their bills done and
out. One thing one might want to look at, for example, is 250--
DOD has chaired all of the interagency review panels to argue,
try to figure out, what do we want to keep on the munitions
list and what can go over to the commerce list that is easier,
of less interest, which has never been done before. I mean,
people think of the munitions list, as if there is actually a
list there. It is a list of tanks and guns, and then down
below, it says, and anything designed or modified for anything
above is on the munitions list, so this is what kills the small
guy.
He has got a machine shop. In theory, if he has ever worked
for a defense contractor, he should be registered with the
State Department at 2750, 1750 the first year and X amount.
Even if it is never exported, the law says he should be
registered. Most of them, of course, aren't because they never
heard of the ITAR.
One of the things at a minimum that was done is DOD
ultimately identified a bunch of stuff they thought, we don't
care at all about this stuff: this radiator hoses, hydraulic
hoses, engine mounts, with all due deference; in the Air Force,
piddle bags. I mean, all of these are on the munitions list,
and they said, no, no, no, no, this is commercial stuff; we
don't care. It has been identified. Someone should ask the
Administration, at least send that, do their 38 E--38 F
notification to Congress and see what Congress says. Congress
will probably say, fine put it over here, and when it is over
here, we are not going to even--we are not worrying about it. A
whole lot of small companies suddenly then are completely free
of this business. They don't know anything about ITAR. They
will never have to know about ITAR because what they are
building isn't that kind of stuff and that is not the kind of
stuff you are terribly interested in, but at least it would
solve an immediate problem. It may be that one might want to
look at legislation that would say, when you are exploring a
technology with a small company, maybe DOD decides upfront
whether this is something they want to control as a military
item or not. And I go back to one of my first field trips 25
years ago, and nothing has changed. I was at a university, and
the Army was putting some money into a program where, this is
all, of course, pre-Nooks and pre-all kinds of things, this is
30 years ago. They wanted a flexible display sheet, just
something like a piece of paper that you could fold up, but
when you got to a table, you could open it up, plug it into
your computer, and out would be a whole map, and the Army was
so afraid of talking, of getting this stuff caught up in the
ITAR that they didn't dare talk to the people they were giving
the money to as to what they wanted. It had to go circuitously,
because as soon as it was built to a military spec, it became
an ITAR item, and the Army knew that if it had been an ITAR
item, they could never afford it. They had to get it out into
the commercial world. That is what they wanted to do, make, you
know, gazillions of them, and we will ruggedize it, and that
can be on the ITAR, but don't get the immediate technology on
ITAR or this company is never going to have a market.
And so that might be one thing one could look at is when
you start putting money into the technology, you decide upfront
whether you would like to see this commercialized or not, and
then we will pick the cherry off the tree when it does, and now
I can afford it because in the electronics world, the stuff
that is most affordable is the stuff that you can buy at Best
Buy, and then you can ruggedize it, but don't start out with it
as a military item upfront, or you are in this morass. It is
not the valley of death; again, it is the kiss of death. So
there is a couple of thoughts.
Mr. Larsen. Dr. Burman, do you have some thoughts on this?
Dr. Burman. I would say the same thing, it is very
analogous to the kinds of issues that we were dealing with on
the acquisition front, and back in the early 1990s, just trying
to get someone to move away from putting specifications,
military specifications on everything was just a tremendous,
tremendous problem, and you couldn't get people to want to
participate because of all of these kinds of constraints.
Ultimately Bill Perry, Secretary of Defense at the time, put in
a requirement that said that people had to justify it if they
were going to put military specifications for commercial type
items, and we had legislation passed that encouraged people to
buy commercially.
I mean, one of the problems that I tended to deal with is
the community, the acquisition community tends to be a very
risk-averse community, and so people, even from Congress, would
say to me, well, you know, they can do these things, they can
buy that stuff, they don't need to do all of that. But when
push came to shove, unless there was something there that
really gave people an opportunity to see that, yeah, they
weren't going to get in trouble by going down that path, they
weren't going to do it. And so ultimately, we had legislation
passed--this committee certainly supported that legislation--to
try to make it clear that we were looking down this commercial
product path and commercial services path and reduce, trying to
reduce the burdens for people and small businesses doing
business with the Government. It was a major accomplishment. It
was a bipartisan accomplishment, but it took a lot of work to
get there.
Mr. Larsen. I yield back.
Mr. Shuster. Mr. Schilling.
Mr. Schilling. Thank you, Chairman, Ranking Member.
Thank you, gentlemen, for being here. I am going to start
with Mr. Johnson. Your statement also touched on ways for the
DOD to reach out into the communities to encourage small
businesses to do contracts with the DOD. Are public-private
partnerships like those under 4544 with organic industrial
bases, are those a good way to bring in the very small
businesses and get them used to doing work with the DOD?
Mr. Johnson. I mean, anything that gets their feet wet, as
long as it doesn't discourage them in the process. I mean, I
was also thinking about everything from--most States have
economic development offices, if you want to reach out to
those. A number of States, like Florida, I am trying to think
of--you usually see at least seven States trying to attract
aerospace at the Paris Air Show and at the Farm Bureau Air
Show. Those are States that obviously are interested in the
subject. They must have outreach. Could the military or DOD
work with some of these State organizations that are economic
development operations or, more specifically, aerospace because
that is where an awful lot of the technology is.
But the little guys don't necessarily, you know, read the
daily Federal Register or they don't read the--they don't know
what they don't know. So I think you need to find some
intermediaries that do know how to touch these folk, not just
from Washington but from--again, probably the States are the
best instruments, although some big cities have these kind of
things also, where they do know who is out there and who is
looking for money and who is looking for expansion. Some of
the--another place you might want to look to again are some of
the university communities.
Obviously, universities know this stuff. But, again, they
are terrified of O5 P (?) and they are terrified of ITAR. What,
40, 50 percent of all engineering graduate students are foreign
born. So what they don't want to do is if the touch of the
military touches them, suddenly half their students are
inaccessible for this work. So, I mean, again, one needs to be
a little careful as to when do you militarize and when do you--
or what kind of arm's length can you have so you can stir up
the animals that you want to stir up and pick the right time to
intervene as this style becomes an interesting defense issue.
Going back to my Army analogy, how do you get this stuff going
that you know you want going without crossing the line to when
now you are doing mil specs or you are doing a specific
military contract, getting a little distance between you before
you close the door?
Mr. Schilling. Very good. Thank you for that.
You mentioned in your statement that the DOD should be able
to interact with the private sector in a way the private sector
is used to doing business, a more open and interactive forum.
How do we restructure--you kind of answered a little bit of
that there with maybe talking with the universities, so on and
so forth, but how do we restructure DOD acquisitions and
procurement offices to address this, or do we need to focus
more on changing the culture within the DOD?
Mr. Johnson. Allan is smarter on this than I am, but I will
just come back to the point he talked about, you know, whether
it be in acquisition or in export controls, the incentives are
all, never make a mistake. The incentives aren't, do really
great, find the golden chalice. The incentives are never make a
mistake so I don't get in trouble, and I don't know how you
turn that around. I mean, procurement guys in the private
companies do get rewarded when they find good technology at
good prices. They also may get cashiered if they screw up, but
there is a rewards incentive, and there is not much of that
within the Government community.
Similar, the export controllers have really no, there is no
incentive to make the thing go out, which is why those of us in
industry are terrified at the idea of a standalone export
control agency because their only incentive is to make sure
nothing goes out that shouldn't go out. There is no incentive
to say we have to do cooperative programs with our allies or we
have to do cooperative research with our allies. They are
saying, if I never let anything out, I will never be in
trouble. How do you incentivize people to go the other way
around? But Allan knows.
Dr. Burman. And I think you are right, it is a cultural
issue, and there are consequences. If you are a procurement
person and somehow it looks like you are giving special
treatment to somebody, you can get in a lot of trouble; the
company can get in a lot of trouble. So the more that you can
get information from the leadership of all of these
organizations that deal with this to demonstrate that it is in
the Government's interests and it is in their interests to have
this kind of communication, and clearly you have to put in
enough constraints so that somebody's not providing sensitive
information or proprietary information to someone, but that can
be easily worked out, but people have to understand that this
is the way the Government wants to go because this is the way
that you are going to bring more people into the Government
marketplace, more companies into the marketplace.
Mr. Schilling. Very good. Thank you, gentlemen.
Mr. Shuster. Ms. Sutton.
Ms. Sutton. Thank you, Mr. Chairman.
What are your thoughts on the other transactions authority
as a means to increase opportunities for small businesses?
Dr. Burman. Well, I think it provides an innovative way to
allow companies to be able to participate where there is a lot
of flexibility in exactly how do you structure things. So I
would say this authority, it was actually something that I
understood was put in place many years ago with NASA [National
Aeronautics and Space Administration] with Paul Dembling, who
was a member of the Procurement Round Table, trying to come up
with a way to figure out how to invite some issues where you
don't really know what the answer is or the approach should be,
and offer an opportunity and some flexibility to do that.
Anything that offers openness, flexibility, another approach to
be able to encourage businesses to come into the Government I
think is a good thing.
Ms. Sutton. Okay. What can be done, and certainly you have
talked about this some, what can be done to reduce the risk-
averse culture in DOD so that contracting officers are more
inclined to contract with small businesses?
Dr. Burman. Yeah, that is the--yeah, no, that would be
great to have that solution.
Ms. Sutton. I am counting on you.
Dr. Burman. I have been plugging away at trying to do that
for a long time to, again, make it clear that the approach is
something that is in the best interests of the Government and
something you are not going to be held accountable for, but the
community itself tends to be very risk averse.
Frankly, when I was doing that, I needed congressional
action to get people to feel they could do something, or many
people said you can do it anyway; the rules allow you to do it.
So I don't know if you need more emphasis from this body to try
to make that point. Clearly, my successor at OFPP [Office of
Federal Procurement Policy], Dan Gordon, who just left to go
over to GW, had a major effort to try to get that kind of word
out, encourage people to have conversations, better
communications, and I think that is clearly a benefit to the
Government and to the industry because if both sides know what
the other wants, you are going to get a better deal ultimately.
But the more, at least, the leadership of the organization will
back you up on doing these kind of things, then I think the
better chance you have of people being willing to stick their
necks out a bit. But it is a community that doesn't like to do
that.
Ms. Sutton. Mr. Johnson.
Mr. Johnson. Again, you know, maybe you need some
appropriate threshold under which you don't have to--I have had
these experiences as a consultant personally where DOD said
yeah, I would like to do this study, but, gee, I would have to
competitive bid it for $100,000. I am not going to do that. It
is too much trouble, so go find somebody that has a task order
that you can attach yourself to. And we will funnel the money
through. And of course, 10 percent goes off the top. Somebody
writes 12 checks, and they are happy, and I have seen this
happen, but maybe there ought to be some authority at some
level to say you have the authority to do this.
And similarly, on the private sector side, I mean, back at
AIA days, when somebody, one of our guys screwed up, you would
say, just, please God, don't write another reg, put them in
jail. White collar workers hate jail, you know. The word gets
around, but don't write another reg. I mean, that is when you
get FARs and DARs [Defense Acquisition Regulation] like this. I
remember a friend of mine, board of administrations, would say,
only bottle common sense, you know. We would solve a lot of our
problems. But I think you can't ring every possible thing with
a regulation. You have got to have some ability for human
beings to make some decisions, and occasionally they will make
a wrong one, but as long as they are not doing it because they
are lining their own pocket, in which case they should go to
jail, there ought to be some flexibility for people, at least
at the small level, to do things that aren't necessarily
competitive bid. The guy has a really bright idea, and yeah,
that is worth 100,000 bucks for me to figure out whether it is
really a good idea. How do we do that?
Dr. Burman. Just another example in that whole area was the
use of purchase cards. I mean, purchase cards were a tremendous
advantage in terms of reducing some of the burden on
contracting people, giving program people more authority, but
then all of a sudden, people are, you know, buying Christmas
gifts and Jeeps and other kinds of things, and pretty soon,
where did the purchase cards go? Well, there's a tremendous
savings by getting people to use that as opposed to paper and
pencil and having the acquisition community doing that job. So
here is a case where you need the balance, you know. You
recognize somebody is going to do bad things, you want to do
something about those people doing bad things, be able to
monitor it, know it, but don't take away the ability for 95, 99
percent of the people to use a device that we are all very
familiar with and that most people are going to use
successfully.
Ms. Sutton. Thank you.
Mr. Shuster. Mr. Runyan.
Mr. Runyan. Thank you, Chairman.
And I always love the word common sense because we lack a
lot of it around here.
But just talking about, and really to both of you, how
changes in procurement acquisition regulations and that, and we
see this happen throughout our economy, our tax structure. What
are the rules of the game? How much of that are we creating
ourselves on a yearly basis?
Mr. Johnson. I mean, again, every time one adds another
regulation, one, you are almost guaranteeing somebody is going
to foul up because nobody can possibly know all the
regulations, and again there needs to be some way to just have
a little bit of human discretion with a little penalty. If you
do wrong, wrong is not the same as making a mistake. If you
take a lot of your exploring technologies, you often learn the
most from when something blows up in my world or it falls down.
That is not necessarily somebody doing evil, it is somebody
exploring the boundaries of science.
If somebody does wrong, then they should be punished, but,
again, no more--not another batch of regs. Maybe we need more
recognition for people in the procurement world when they do do
something innovative so that there are some positive upsides. I
don't know how much. I know there is a few----
Dr. Burman. That generally doesn't hit the Washington Post.
It is kind of the other side that you read about in the
newspapers unfortunately. So you are not seeing a lot of gold
stars for folks. But I agree with Joel, if you can try to do
that, that would be a great way to at least try to deal with
the cultural issues that Mr. Schilling talked about.
Mr. Runyan. And that is obviously rewarding people for that
and also taking chances I think a lot of times. You admit that
that is where your cutting-edge stuff is going to come from,
and we can't be afraid to go out and ask people to take those
risks sometimes. I think not only there, I think dealing on the
small business aspect of it. You know, they are not either
fiscally or just even in their heart of hearts, they don't want
to go out and take those risks, and I think, you know, not only
from a regulatory aspect of it to, obviously, I use the term
all the time, why are we always changing the rules of the game
when we are in the middle of the game, and I think that weighs
on the small guy a tremendous lot.
Dr. Burman. And there are a lot of rules.
Mr. Runyan. Yes, and I thank you guys for your insight.
Chairman, I will yield back.
Mr. Shuster. Thank you.
With that, Ms. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chairman.
Dr. Burman, in reading your testimony, I am curious about
this Procurement Round Table that you are chair of that was
chartered in 1984. What does the Procurement Round Table do?
Dr. Burman. Yes, I am glad you asked that question. Elmer
Staats actually was the first chairman of the Procurement Round
Table and chairman for many years and one of the founders of
the organization. We are a group that is limited to 50 people.
Virtually all of us have had senior level positions in the
Federal Government. We are now serving pro bono. We are all in
the private sector at this point, and our goal is to try to
help improve the acquisition process. We have meetings and talk
to senior leadership in agencies and try to provide help and
expertise to them. We provide an award to a young acquisition
professional to recognize them and recognize their work and to
try to promote good acquisition processes.
Ms. Hanabusa. In the ending part of your testimony, you
give a kind of a frightening percentage, and this is when then-
Defense Secretary William Perry actually did this major study,
and he said DOD paid a cost premium of 18 percent as a result
of the regulatory constraints, and I assumed that was sometime
in 1994.
Dr. Burman. It was. This is the----
Ms. Hanabusa. So today----
Dr. Burman. This is the heavy document.
Ms. Hanabusa. So today 17-plus years later, I mean, what do
you think that cost premium is that DOD--and I assume that is
18 percent above.
Dr. Burman. It is.
Ms. Hanabusa. So what is the cost premium?
Dr. Burman. And, again, nobody has really done that kind of
a detailed analysis. There has been lots of reviews about
regulations and the impact of regulations, but a lot of the
issues are the kinds of things that you have been hearing from
the committee, anecdotal concerns about how it makes it more
difficult for somebody to do something. This was an effort to
try to put a rigorous evaluation scheme together. They had 10
companies that were looked at in depth. There was something
like a thousand people interviewed, and they looked at cost
drivers and what were the differences. And frequently the
companies, they had companies that were doing both Government
work and private sector work, like Motorola, at the time, and
you could then see what was the cost differential, and that was
the value-added cost, excluding materials.
You know, I would bet, even given all of the kinds of
concerns that we have had to try to improve things, just given
Joel's comments about the growth of regulation and how people
continually see ways to address these problems through more
regulations, I wouldn't be surprised if we are seeing a similar
number, even when that was put in place back then, and we had
the Federal Acquisition Streamlining Act or FASA to try to
address many of these kinds of issues.
Ms. Hanabusa. So, Dr. Burman, you sit on a special
roundtable of 50 people with exemplary experience, and you have
been offering free advice to Government basically, and we are
not doing any better than what we know we were doing in 1994,
and I think Mr. Johnson made a point about, you know, I think
what he was trying to say is that maybe there is just a
percentage of people who are going to do bad things, and maybe
we should calculate that in instead of overregulating and
instead of overpolicing and overregulating. Maybe we should
just have it like a loss leader in inventory that some
companies do and say, we lose that much, it is within the
margin. I mean, nobody wants to accept that, but is that
something that all of you experts, 50 of you, have you ever
thought of that, the cost of monitoring, the cost of doing
this? You know, we have DCAA, we have all these people who do
pre-, almost pre-application processing. Is that a
consideration, that maybe we should just, you know, pack it up?
Dr. Burman. I think one of our views are to see if for
particularly lower-cost items, of which there are many, and if
you look under a simplified acquisition threshold of $150,000,
there are ways which you could try to make the process work
more smoothly and simply. The issue becomes, even if it is only
a couple of things, you know, we have all seen what happens
when somebody does something that is a bad thing or a silly
thing, the muffin business, all of a sudden that tars everybody
who is doing the job with that kind of a complaint, and so it
is awfully hard to do that and be willing to sit back and
accept that because it then becomes a reflection of how the
Government does its business, and none of us like to be accused
of doing bad things.
Ms. Hanabusa. Whatever happened to debarment? I mean, don't
we have any kind of teeth with that? I mean, what happened to
the good old days----
Dr. Burman. I think that there is----
Ms. Hanabusa [continuing]. That people were afraid of being
debarred and the shame that went with it? It has no value
today?
Dr. Burman. And there has been a serious effort to do that,
and I think many of the companies have, in fact, been suspended
over time because of these kinds of issues, but debarment was
meant to be a tool to protect the Government from bad actors,
and agencies use that, some more than others. I think in many
respects Defense probably is more effective in using this tool
than many of the civilian agencies, so it is certainly not
ignored and agencies have been focusing on it, but you still
are faced with the issue of if somebody does something bad,
that is the Washington Post story.
Ms. Hanabusa. Thank you.
Mr. Johnson. And it is hard. I mean, debarment, the problem
with debarment is you are dealing with somebody that is too big
to fail, just as it is too big--you can't debar Lockheed Martin
because some guy makes a mistake somewhere in one of the
subsidiaries. You have to be able to reach down and nail that
particular--I remember Norm Augustine once in one of our very
many scandals maybe 20 years ago saying, you know, I have
120,000 employees, show me a town in the United States of
120,000 that doesn't have a jail. He said, somewhere out there,
someone is doing something wrong at any given time, but, you
know, we do our best to make that not happen, but you have got
to find a way to reach out and debar or do whatever you are
going to do that is of appropriate scale.
When you have huge companies, you can't--you simply can't
debar any of these large companies. You have got to find
measures that sort of fit the crime, and I think that is one of
the problems on some of these cases; the Government doesn't
know what to do because it doesn't know what the mechanism is
to get at that guy over there.
Ms. Hanabusa. Mr. Chairman, my time is up.
But I did want to say too big to fail is not really a nice
word around here anymore. Thank you.
Thank you, Mr. Chair.
Mr. Johnson. I chose it specifically.
Mr. Shuster. Again, we have talked about a lot of things
that we have heard before, about the Government not talking to
business. How much of that is driven by the regulations, and
how much of that is driven by the culture of I am not talking
to them because I don't want to get in trouble? I mean, I am
sure that because of the regulations, they are doing that, but
I mean how much of it is perceived and how much of it is
reality that is going to be, can you quantify that at all?
Dr. Burman. It is hard to say. Clearly, when you have got
an actual procurement on the street, when a procurement is out,
then that changes the picture because there you do have to be
particularly careful about not giving somebody an unfair
advantage. So that changes the equation. But prior to that
procurement coming out on the street, there should be many
opportunities to have these kinds of conversations. Sometimes
it is workload; you don't have the time. Sometimes it is
perhaps people aren't really seeing down in the long run what
the benefits are of doing it so it becomes a burden. Again, it
becomes a cultural issue more than a regulatory issue when you
are dealing with those kinds of problems, Mr. Chairman.
Mr. Shuster. Right. That is occurring with the large primes
as well as the small guys?
Mr. Johnson. Well, what I mean, again----
Mr. Shuster. Or significantly.
Mr. Johnson [continuing]. This is your one-size-fits-all
problem in that it is one thing when you are dealing with a
large procurement, you have got three or four big guys
competing for it; yeah, there's all kinds of rules and regs
that should be there, that no one should be given an advantage.
And they have the overhead to deal with what a procurement
requires, and DOD has the overhead to deal with what
procurement requires. It is when you get down to the small
guys, where you are talking $100,000 or half a million dollars,
then trying to run it the way you would run a large procurement
may simply not be in the cards.
Mr. Shuster. Right.
Mr. Johnson. I mean, particularly if you are dealing with
someone that has got a unique something, that is the whole
reason you are wanting to reach out to him is we think he has
got a unique innovation, then how do you deal with that, you
know, that entity in a way that doesn't get you all caught up
in acquisition regulations because there isn't another one out
there right now? And all I want is a little bit of seed money
to go do something and see what happens.
Mr. Shuster. Right. And we talked, you mentioned about
Congress, and I think we have done some of this to try to go in
and change the regs, but it seems every time we change regs, we
just pile more on top and make it more and more difficult, and
so trying over the past 6 months to listen and hearing these
things, you are trying to think how do you go and change the
culture over there, how do you--you mentioned that small
businesses don't have contracting or even the accounting
department to be able to deal with DOD. Nobody is really doing
a lot of cost-benefit analysis on some of this technology, and
you talked about intermediaries, being able to reach out to the
small guys to help them. So as I am thinking through this, how
do you--and Ms. Hanabusa talked about being debarred, and that
brings up, I think to myself, we have got different segments of
different professions out there, different industries that
self-regulate. Lawyers debar themselves. Accountants throw
themselves, I mean, they debar them, whatever they call
debarring an accountant, we have got an agency, a self-funding
agency, FINRA [Financial Industry Regulatory Authority], that
regulates the, a lot of the securities and exchange industry.
So is it possible to change the culture over there, or do we
have to do something dramatic and maybe pull it out and let the
industry self-regulate itself, especially when you are dealing
with these smaller and medium-sized companies. Is that
something that even in your mind, is it in the realm of
possibility, or am I out of my mind?
Dr. Burman. No, but I think one of the things that is done
in the acquisition world is one company can complain about the
other company when the other company has done something that
they perceive to be incorrect or improper or the Government has
done something through the protest process. So, in some
respects, there is a way to redress these kinds of problems by
protesting to the GAO and/or the Court of Claims or going back
to the agency to complain that the process hasn't worked right
or they have been unfairly treated. So you do have a mechanism
that the industry more or less works itself that then still
comes back to the Government. But, again, then, you have got a
regulatory process with the Government to try to deal with
that.
Mr. Shuster. You say there is a regulatory? Because that
didn't happen on our tanker program.
Dr. Burman. Yeah, I mean----
Mr. Shuster. Where does that occur out there?
Dr. Burman. I mean, it can become a very complicated
process, but I mean, one of the reasons for having a protest
system in place is to try to allow firms an opportunity to go
to somebody to complain.
Mr. Shuster. But does that happen? You say that happens out
there?
Dr. Burman. And it does happen out there.
Mr. Shuster. Within the DOD or outside?
Dr. Burman. I think the Government-wide numbers, I mean,
they are not huge, I think the Government-wide numbers in terms
of protest for the GAO is around 4,000 something. There is
about 70 cases before the Court of Claims. A significant number
of those, though, get turned around one way or another. The
suspension rate isn't that high, but the agencies do make some
changes. So it is one means to try to offer a way other than
the regulations themselves to try to make sure the process
works fairly.
Mr. Shuster. Mr. Johnson.
Mr. Johnson. Again, it is one thing to have--you mentioned
the tanker program, one of the all-time largest acquisitions in
history as opposed to some little guy that you want to do
100,000 bucks worth of business or 500,000.
Mr. Shuster. Right.
Mr. Johnson. And there to pick up on Congresswoman
Hanabusa's comment, I mean, the price of perfection is very
high. It is a lot cheaper to have 99 percent perfection, and it
is even cheaper to have 95 percent perfection. One of the
questions is sort of, what is the pain tolerance level or the
political tolerance level that one can put up with? I
remember--and this town is pretty awful for that. I remember in
Desert Storm when, with all due deference to someone from GAO
who may be in here, if the only thing you had ever read about
Army equipment was in GAO reports and some other press reports,
you would have been astonished to know that the M1A1s ran, that
Bradleys ran, that A-10s ran, all this stuff worked, amazing,
in really miserable, rotten conditions, but, you know, during
the time you are fielding this stuff, bad things happen. Until
you put something in the hands of 21-year-olds, you really
don't know what you have got----
Mr. Shuster. Right, right.
Mr. Johnson [continuing]. No matter what you do at
Aberdeen, and so you have to have some risk tolerance, and it
seems to me the risk tolerance should go up the smaller the
program is, and somebody is always going to find out that
somebody's Uncle Todd got the $100,000 program from somebody
who was in DOD. Well, okay, fine, it is going to happen. But 99
percent of the time the guys are going to try to do the best
job they can, and they may find some little nuggets out there
if they have the flexibility to take a little risk. Some of
them aren't going to pan out. Some of the--but, again, how do
you--what we are talking about, if you are looking for
innovation in the small guys, how do you take risks, how do
you----
Mr. Shuster. Well, that is the idea, you want it taken out
of DOD, again, not the large contracts, but the smaller guys.
Let it, like FINRA, for 70 years, they have self-regulated, and
the industry pays in. They go to these people at FINRA. They do
protests. They regulate them. They tell them things that they
can do, can't do, and it just seems to me, I can't imagine we
are ever going to change the culture over there unless we do
something dramatic because there is some reporter sitting down
at the Washington Post looking to get somebody so they can
write a story on, you know, Uncle Todd getting that contract.
So, again, back to my original question, am I completely
out of my mind even to think that there is something out there
that exists today, a model for how we can--again, maybe it is
just DCAA or maybe it is, you know, regulating small contracts.
Dr. Burman. Again, Mr. Chairman, there is a--there is
something called the Defense Industry Initiative. I don't know
if the committee is familiar with that operation, but it is
something that one of the former procurement administrators,
Angela Styles, is now the chief person working with, but this
was an effort by the industry, and this is largely large
businesses in the industry. It has a very robust system for
identifying what you can and can't do and trying to get the
word out and providing training and that sort of thing as a
way, again, to try to ensure that their staff are doing things
appropriately, and this is not something that is done or forced
by the Government. It is something that is, again, a self-
regulated effort.
Mr. Shuster. What is it called, the defense industry----
Dr. Burman. The Defense Industry Initiative.
Dr. Burman. And that may be something that the committee
might want to look at. Again, the problem is when you have
small businesses, I mean, small businesses, sometimes they
don't--they don't even know who to talk to in the Government. I
mean, just the basic question of, you know, you don't talk to a
contracting officer. They are not going to know what the
program is that you are going to try to deal with. You need to
talk to the program official. Well, that is very elementary
information, but if you are not doing business with the
Government, how do you know this? So you need somebody to help
you to know these kinds of things.
Mr. Shuster. I am way over my time, but I wanted to ask you
another question about--before you decide that you are going to
do something with DOT [Department of Transportation], maybe you
decide you want to commercialize it. Some things I know are
going to be simple. In your experience, how difficult is that
to look at something and say--is it pretty straightforward, you
can look at something and say, we need thousands of this, so we
need to have them produced by the millions to be able to drive
down the cost? In most cases is it going to be smaller
projects, or the things that are going to be larger?
Mr. Johnson. I guess it will depend.
Mr. Shuster. Yeah.
Mr. Johnson. I mean, it certainly--if you can commercialize
something, you are bound to drive the price way down.
Mr. Shuster. Right.
Mr. Johnson. I mean, if you can produce--you know, if you
go back 30 years, if I remember correctly, you know, the
military was 85, 90 percent of all microchips, and today they
are about 1 percent, 2 percent. I mean, the commercial world
drives electronics. So if it is something that has commercial
applicability, that is what you want. You know, you have to
weigh the probability that, okay, this is commercialized, then
all the bad guys can go buy it off the shelf, too. They all
have cell phones, and they use garage door openers for IEDs
[Improvised Explosive Devices], and you are stuck with that,
and you have to make that call. But by and large, if you can
commercialize--because the other thing is going to be very
unique stuff that only DOD would be interested in, and that is
going to be high unit cost.
Mr. Shuster. So do a cost/benefit analysis on that, and
say, is it worth commercializing and letting bad guys----
Mr. Johnson. The trouble is you don't know until you--you
know, Steve Jobs invents things that nobody knew they needed.
And so, that is one of the hard parts in electronics is----
Mr. Shuster. Right?
Mr. Johnson. You don't know what you don't know.
But getting back to your point, you know, maybe--and I will
probably have some of the audience that is going to tell me
this is already the case, and what can I say? You may need
particular offices in the Army or the Air Force or the Navy,
but you have some guys that just do this. That is their thing
is going and looking.
Mr. Shuster. Right.
Mr. Johnson. And they are familiar with the top
technologies you guys are interested in, and they are empowered
to make some decisions, and they are told, go take some risks.
And if you pan out 1 out of 10 times, you are going to make
colonel.
Dr. Burman. And I think the system does, in fact, react at
times to meeting needs and helping agencies meet needs. There
was a major transformation in the late 1980s, early 1990s to
shift to a best-value procurement process, evaluation process.
And essentially, one of the reasons for going down that path
was you had all of these IT [Information Technology] companies
who weren't interested in doing business with the Government.
And, you know, they weren't interested in somebody saying the
requirements, and this is how you are going to do the job. So
the only way that the Government could get them to come in was
to say, okay, we will evaluate you. This is a solution we want.
You show us how to get there, and we will have to measure
apples and oranges and come up with the best result for the
Government.
So, I mean, the system does adapt, it seems to me, when you
have these kinds of major needs. And again, you have to have
somebody say, yeah, this is what we want to do, and we will
take the risk of going to best value, and we will take the risk
of actually paying more for somebody than the low-price offer
because it is good for the Government to do that. So, I mean,
there are certain things that are of benefit in how the
Government does its business as well.
Mr. Shuster. Let me mention, a skunk works for procurement
in the development. Let us go out there, and----
Mr. Johnson. Or three or four of them, wherever you want to
put them.
Dr. Burman. Yes, and DOD has used that kind of technique.
Mr. Johnson. So think small.
Mr. Shuster. Right.
Mr. Johnson. And think radical and be unleashed a bit.
Mr. Shuster. Right. Does anyone else have--yes, Mr. Larsen.
Mr. Larsen. Mr. Johnson, back to ITAR. Do you have any
specific examples that you can think of, maybe give us a couple
of examples for the panel to consider about the impact ITAR has
had on the U.S. companies maybe with regard to Europe, losing
business to European companies?
Mr. Johnson. I mean, when you read in the paper that--I
mean, you can read in Defense News this week Northrop Grumman
is developing an ITAR-free DIRCM [Directional Infrared Counter
Measures] in Europe. Northrop Grumman. So even U.S. companies
are inventing ITAR-free products overseas to avoid our system.
This doesn't help our industrial base any. It helps large
companies, and more power to them.
I mean, Lockheed Martin is doing an ITAR-free--if I
remember correctly, it is a fire-control system for a Canadian
frigate, and they are going to do all of the development
offshore so that they are not constrained. They don't have to
go through what they have to go through.
As you all know, I mean, you know, Alenia advertises ITAR-
free satellites, I mean, a U.S. satellite, and it is the
component guys that really get nailed on this. It is not the
end item. I mean, in the satellite issue, you know, Lockheed or
Boeing can get a license to sell a satellite to pretty much
anybody as long as they don't launch it on a Chinese launcher.
But when you are in Europe and you are buying in bulk so that
you are going to make a standard satellite, and you are going
to have a minimum of 10 buses----
Mr. Larsen. Right.
Mr. Johnson. The basic satellite. I want to be able to buy
the same thing for all 10 for economies of scale. Now, one of
those may turn out to have a Chinese buyer, or one of them may
turn out to be launched on a Chinese rocket. I can't pull an
American--one American component out and have to--have to
requalify my satellite, so the best thing I can do is not have
any American content in my satellite, because they are all
ITAR-controlled, as you know, thanks to the law that was passed
about 10 years ago.
And so it is the component makers, it is the guys that make
thrusters, it is the guys that make actuators, it is the guys
who make stuff that goes on a satellite bus. They have now lost
that entire market, and, of course, the Europeans can sell back
to Boeing and Lockheed Martin because they don't have any
constraints on selling into our market.
So it is those kinds of things that, you know, that is part
of what the Administration is trying to deal with by moving
stuff over to the export control is where you at least have de
minimises. If it only has less than 10 percent American
content, we don't try to control it. There is no de minimis
when you are an ITAR product. If there is one American-made
screw on an end item made in the U.K. or in France, they have
to come back and say, ``Mother, may I,'' to State Department to
sell it to anybody, including, you know, Belgium, or the
Netherlands. They still have to come back and say, ``Mother,
may I?'' So you have a major disincentive to include the
American components. And as I say, primary in that works
against are the component makers.
Mr. Larsen. They tend to be smaller businesses, suppliers.
Mr. Johnson. Yeah, and item makers; the airframers, the
tank makers. Okay, they are going to have to get a license to
sell a tank to anybody, but it is the little guys who are
selling to people who don't at the time know who they are going
to sell to, what we would call in the aerospace industry
``white tails''; that is, you are building on spec. In the case
of satellites, you do build on spec, or you buy on spec in
terms of, I am going to buy 10 ship sets of this, and I know
who the first 5 are going to. I don't know who the last 5 are
going to.
Mr. Larsen. Yes.
Mr. Johnson. I would just say in passing--more than you
ever wanted to know--I mean, there is a couple of bills kicking
around now that in order to get cosponsors, not only do they
keep the China exclusion, they have added an exclusion for
terrorist-supporting nations. Well, that is all well, it sounds
good, but that means you couldn't sell a satellite to ArabSat,
or to IntelSat or to AsiaSat because they all have--Syria or
Iran have little bits and pieces. They never see these
satellites. They are up there. They are delivered on orbit,
but, you know, if you spread that tentacle around without being
really sure what you are doing, now you are suddenly knocking
our guys off of even more things that you really didn't intend
to, but it looked good. And again, that is part of the problem
on export control. Things that look good aren't necessarily
very good when you start to see the unintended consequences of
what you have accomplished.
Mr. Larsen. Yeah. Dr. Burman, on Federal workforce, in your
testimony, page 3, you mention in your oral about the amount of
dollars, that we have seen an increase in contract obligations
of 122 percent, but staffing is about 20 percent. I don't think
you are making an argument that staffing should be 122 percent.
It shouldn't be one-for-one.
Dr. Burman. No, I am definitely not.
Mr. Larsen. And I am not sure you are arguing for a
formula. However, can you enlighten us a little bit more about
what you mean for the Federal acquisition workforce?
Dr. Burman. Well, one of the issues that results from that
is--and we--I was a member of this SARA [Services Acquisition
Reform Act] panel that was set up by Congress as well, and my
report was produced in 2007, to look at services contracting.
And we were looking at how do you do services contracting more
effectively. And it turns out that there is the--I am sorry,
the workforce was spending all of its time trying to get to
award, doing proposals, getting solicitations out, and so you
end up with an issue where there is no time to do the
monitoring, the contract management, the contract
administration. So you end up with a system where because
people want to get those solicitations out, but you don't have
enough people looking at the back side of the process to see
how you are getting what you need, are they doing it well, and
that kind of thing.
I think it is those sorts of issues that come to play here
when you put so much pressure on people to do the front end of
the process. You don't think as much, or worry as much, or pay
as much attention to the back end of the process. And that is a
common complaint I find across the Government, and so having
more resources to be able to do that, I think, would be a real
benefit.
Mr. Larsen. Okay. I see. Thanks.
Mr. Johnson. Or needing less resources up front. I mean----
Dr. Burman. Either way, maybe easier to do it on the front
end, less complicated----
Mr. Johnson. Or spending less time on the back.
Mr. Larsen. Thank you.
Mr. Shuster. Anybody else have any questions?
Okay. Well, thank you very much for being here today, and I
appreciate your testimony. It was excellent, and hopefully if
we have further questions, we can ask you in writing. Again,
thank you all very much, and the hearing is adjourned.
[Whereupon, at 4:09 p.m., the panel was adjourned.]
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A P P E N D I X
February 6, 2012
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=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
February 6, 2012
=======================================================================
Statement of Hon. Bill Shuster
Chairman, House Panel on Business Challenges within the Defense
Industry
Hearing on
Doing Business with DOD:
Contracting and Regulatory Issues
February 6, 2012
Good afternoon. As most of you know, this panel has
traveled around the country over the past few months to hold
roundtable discussions with companies that are trying to do
business with the Department of Defense. No matter where we
went, or what sector of the industrial base we met with, we
heard time and again that red tape and bureaucracy are getting
in the way of innovation, efficiency and jobs.
In Rock Island, Illinois, we heard complaints that export
controls are overly restrictive. Many of the businesses we
spoke to highlighted that we currently take a ``one-size-fits-
all'' approach to determining what is placed on the U.S.
Munitions List; there is no mechanism for items to smartly be
moved off the list as technology advances and specific items
become readily available on the global market.
In Santa Clarita, California, we heard from a gentleman who
owned a company that was last audited by the Defense Contract
Audit Agency in 2005 and the audit was still open due failures
on the part of DCAA. He estimated that having this open audit
on the books had cost his company $3 to $4 million in lost
business over the last 6 years.
In Akron, Ohio, we heard that although programs like the
Small Business Innovative Research Program aid in technology
development, the technology rarely goes anywhere because there
is no mechanism to assist in completing the stringent military
test requirements, nor is there resourcing to get the
technology into
production.
In Honolulu, Hawaii, we met with a small business owner who
commented that small businesses are simply not equipped to deal
with the bureaucracy of the DOD acquisition system. In San
Diego, California, we heard from a businessman who felt that
the large primes don't want small businesses to innovate and
another who commented that anyone that wants to partner with a
small business simply wants your technology. Both of these
gentlemen agreed that more needs to be done to protect the
intellectual property of small businesses.
Here's the thing: It wasn't just one guy in Ohio, or a CEO
in California or a small business owner in Illinois. These
issues were consistently raised everywhere we went--from the
shipyard workers in Hawaii to the nanotechnology developers in
Ohio.
We invited three witnesses to be with us today to explore
these issues and provide us with recommendations to eliminate
some of this red tape. Unfortunately, one of our witnesses, Mr.
Raj Sharma, President of the FAIR Institute, needed a few more
days to recover from a surgery he had last week and he will not
be able to join us today. He did provide us with a written
statement and is standing by to respond to any questions we may
have for him following the hearing. We wish him a speedy
recovery and I ask that his written statement be entered in the
record. With us today are:
LDr. Allan V. Burman, President of Jefferson
Solutions
LMr. Joel L. Johnson, Former Vice President of
the Aerospace Industries Association of America
Gentlemen, each of you brings a unique set of experience
and expertise to the table. I hope that we will have a fruitful
exchange today and that you will be able to assist this panel
in formulating recommendations to improve the business
environment out there.
Statement of Hon. Rick Larsen
Ranking Member, House Panel on Business Challenges within the Defense
Industry
Hearing on
Doing Business with DOD:
Contracting and Regulatory Issues
February 6, 2012
Mr. Chairman, I'm pleased to be joining you and the other
panel members here today on what is the last hearing of the
panel's first 6 months to look at challenges of doing business
with the Department of Defense.
Since this panel kicked off, we have heard from countless
large and small defense contractors, DOD officials, noted
academics, and non-profit and think tanks about doing business
with the Department of Defense. While each individual had their
own take on doing business with DOD, many common themes
emerged:
LThe Federal acquisition process consists of
many onerous rules and regulations;
LThere is not enough communication between
industry and the Government buyer;
LThe technology ``Valley of Death'' continues
to grow;
LThe accounting and auditing standards used by
DOD agencies are antiquated and don't differentiate
between large and small companies;
LThere is a lack of skilled acquisition
professionals; and
LGovernment export control policies hinder the
sale of U.S. goods and services to foreign buyers.
Today's hearing focuses on some of the most complex issues
that negatively impact small business' ability to become and
remain viable partners to the Department: contracting and
procurement processes as well as regulatory policies.
While U.S. goods and services, and the process in which DOD
buys goods and services, has repeatedly proven to be world-
class, it is not without limitations. For many companies doing
business with DOD, either the cost to enter the defense market,
or the cost to comply with defense regulations, is prohibitive.
This panel would benefit from hearing recommendations from our
witnesses that might lead to DOD's contracting system becoming
more flexible, allowing more entrants into the defense market.
We would also like to hear your recommendations for ideas to
bolster the existing defense industrial base, while taking
steps towards creating a 21st-century defense industrial base
that is more diverse, more agile, and more able to respond to
an array of potential threats.
Shifting to a more agile 21st-century defense industrial
base will mean making hard choices about what we want our
defense industrial base to look like, and what goods and
services we want them to provide.
I would like to thank each of our witnesses for appearing
before the panel this afternoon and ask that they offer the
panel their expert viewpoints on what they feel are some
necessary steps needed to create a more flexible acquisition
process. I am also interested in hearing about what steps DOD
and industry can take to increase communication and
transparency--not just at top leadership levels, but trickling
down to the buying commands and program
officers.
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?
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
February 6, 2012
=======================================================================
QUESTIONS SUBMITTED BY MR. LARSEN
Mr. Larsen. What is/should be DOD's strategy for transitioning
innovations developed at small businesses to the battlefield when such
companies and the PM offices often lack the proper funding to pay for
the qualification effort which can cost many times the development
costs?
Dr. Burman. [The information was not available at the time of
printing.]
Mr. Larsen. How can the DOD better facilitate communication between
PM offices where the technology needs are vetted and small businesses
which often lack access to PM offices which tend to be dominated by big
Primes?
Dr. Burman. [The information was not available at the time of
printing.]
Mr. Larsen. U.S. allies typically bar use of ITAR restricted items
for space and military applications, marketing these capabilities as
``ITAR-Free.'' I understand that State is investigating these ``ITAR-
Free'' claims. Nonetheless, manufacturers in those same countries,
however, do not face similar restrictions when selling their product to
the U.S. primes working on USG programs. And those same companies
leverage the experience they have gained in their home country where
U.S. companies were not allowed to ``compete'' to outcompete U.S.
companies on U.S. programs, touting their qualification and field
experience gained in their home country. How does the DOD plan to
``level the playing field'' in this environment? Can the DOD impose a
``domestic preference'' or would it require some sort of legislation to
allow it to do so?
Dr. Burman. [The information was not available at the time of
printing.]
Mr. Larsen. What is/should be DOD's strategy for transitioning
innovations developed at small businesses to the battlefield when such
companies and the PM offices often lack the proper funding to pay for
the qualification effort which can cost many times the development
costs?
Mr. Johnson. There are at least two major impediments to DOD
supporting efforts to test and qualify innovations for use on the
battlefield--a dependable and flexible fund that can be used for such
purposes, and the ability to act and think small and hence affordable.
There are examples of such programs that might be examined for both
positive and negative experiences. The Foreign Comparative Testing
(FCT) program, run by AT&L, provides a structure and funds for DOD to
test existing foreign developed hardware for applicability to U.S.
requirements. The Joint Improvised Explosive Device Defeat Organization
(JIEDDO) was created to identify and test equipment to defeat IEDs.
Congress might examine the strengths and weaknesses of such programs to
see whether an additional fund to transition successful Phase II Small
Business Innovation Research (SBIR) projects might be possible. Such a
fund and its administration should be kept ``lean and mean'', avoiding
the excesses of the JIEDDO program in terms of staffing and testing. It
should be possible for the services to test design mock-ups in existing
testing and training facilities to see if basic concepts show promise
before making a decision to package and ``ruggedize'' a technology,
thus keeping costs down. Such testing should allow for feedback and
interchange between service testing personnel and the small company
engineers to allow for improvements and modifications. If such a
testing program indicated an innovative technology showed real promise,
at that point additional funds might be made available for assisting a
small company to move into a manufacturing stage for the technology.
Such assistance might include funding that could be reimbursable if the
program moved forward, or involve an advance purchase contract that
would allow the company to obtain financing from the private sector to
gear up for manufacturing. Another option might be to have DARPA and/or
the services institute an office where smaller companies could outline
their ideas and provide funds for testing technologies in the field,
while they are still in the experimental stage.
Mr. Larsen. How can the DOD better facilitate communication between
PM offices where the technology needs are vetted and small businesses
which often lack access to PM offices which tend to be dominated by big
Primes?
Mr. Johnson. My understanding is that communications between PMs
and defense companies, both large and small, seem to have declined in
recent years. There appears to be a fear of perceived conflicts of
interest and any perception of favoring any one company that might draw
a protest down the road. With small companies this problem is
compounded by not having the personnel that can interact with PM
offices on a constant basis. Re-invigorating the competition advocate
and giving them this function, or establishing a technology advocate
that could serve as a point of access for companies to call attention
to potentially useful technologies might help resolve the issue. Such
points of contact should encourage companies, large and small, to
present technology that may resolve, or to use the current buzz-word,
resolve 80% of a problem at a much lower cost.
Mr. Larsen. U.S. allies typically bar use of ITAR restricted items
for space and military applications, marketing these capabilities as
``ITAR-Free.'' I understand that State is investigating these ``ITAR-
Free'' claims. Nonetheless, manufacturers in those same countries,
however, do not face similar restrictions when selling their product to
the U.S. primes working on USG programs. And those same companies
leverage the experience they have gained in their home country where
U.S. companies were not allowed to ``compete'' to outcompete U.S.
companies on U.S. programs, touting their qualification and field
experience gained in their home country. How does the DOD plan to
``level the playing field'' in this environment? Can the DOD impose a
``domestic preference'' or would it require some sort of legislation to
allow it to do so?
Mr. Johnson. The ITAR-Free problem is based on the fact that under
the current ITAR, if a part or component that is considered to be on
the U.S. Munitions List (USML) is exported from the U.S. and
incorporated into an end-item produced by a foreign country, that
country must obtain permission to export the end item to any other
country. This is true if the part or component is no more than a
trivial item such as a bolt, hydraulic hose, or shock absorber. In
complex systems, such as the Swedish Grippen jet or the European A-400M
or Eurofighter, there are large amounts of American content and the
Europeans simply live with the ITAR rules. For end-items where U.S.
content is not necessary, it is easier for bookkeeping and for foreign
policy flexibility to simply keep out any U.S. content. Much of this
problem would be eliminated, especially for many small business, if
items that were not of major security interest were removed from the
USML and either transferred to the Commerce Control List (CCL), or
uncontrolled altogether. This is essentially the approach taken by the
administration's proposed Export Control Reform initiative. It is also
true that if the U.S. has confidence in our allies export control
policies with respect to what end items they sell to what countries;
the U.S. should in turn be able to reduce concern as to the components
we sell to our allies. That is the position most countries take with
respect to the U.S. In general, countries selling components to U.S.
companies for military products do not impose third-country transfer
controls, as they assume the U.S. will not allow exports to countries
they would refuse to export to themselves. Space, and particularly
satellites, is a more complicated problem, as without a change in the
law, the executive branch cannot move components from the munitions
list to the CCL. The law not only requires essentially all satellite
parts and components to be treated as USML items, it also bans any USML
item from being sold to China or launched on a Chinese launcher.
European satellite makers prefer to purchase components for satellite
buses and payloads in quantity as a way to drive down prices. At the
time of contracting for such components, it is not necessarily known if
one of the satellite purchasers may include Chinese companies or
shareholders, or if a satellite might be launched on a Chinese rocket.
European satellite manufacturers therefore have tried to eliminate U.S.
components altogether--hence ITAR-free satellites. Of course European
countries do not attempt to impose such restrictions on U.S. exports of
satellites with European components, and hence there is no incentive
for companies such as Boeing or Lockheed Martin to European components.
Again, European countries are generally comfortable that the U.S. will
protect their technology when exporting U.S. satellites. The way to
avoid the ITAR-free satellite problem would be to change the law to
allow the executive branch to determine, with Congressional review,
what components are so sensitive they should remain on the USML, and
which might be transferred to the CCL (without a Chinese exception) so
that foreign satellite makers could incorporate U.S. content without
fear of losing satellite sales or having to strip out U.S. components
and re-qualify a satellite. As for ``domestic preferences'', the U.S.
has reciprocal procurement memorandum of understandings (MOUs) with
most NATO countries and other close allies that guarantees the U.S.
will not discriminate against their producers in DoD acquisition
policy. Furthermore, as the U.S. still exports far more defense items
and components than it imports, the U.S. and its companies have more to
lose than to gain from any policies that encourage ``buy-national''
policies. It makes far more sense to harmonize export policies with
respect to end-items with our allies, while reducing barriers to
exports of parts and components to each other.
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