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Homeland Security

U.S. Department of Defense

June 22, 2020
Transcript

Undersecretary of Defense (A&S) and CEO of IDFC Sign Memorandum of Agreement

Undersecretary Of Defense For Acquisition And Sustainment Ellen M. Lord; Adam Boehler, CEO, U.S. International Development Finance Corporation

STAFF: Okay. So good morning, ladies and gentlemen, those in person, as well as those on the phone and virtually, watching us on defense.gov. Thanks for joining us here today. And a belated Happy Father's Day to everyone, especially my father, Air Force retired Master Sergeant Ken Andrews. So a family plug -- I apologize.

This morning, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord will provide a department update on acquisition efforts to combat COVID-19, and then both she and U.S. International Development Finance Corporation Chief Executive Officer Adam Boehler will discuss their signing of a joint memorandum of agreement which formalizes the relationship between our two organizations to utilize $100 million of the department's CARES Act spend plan to provide a subsidy for multiple federal loans to create, maintain, protect, expand, or restore domestic industrial base capabilities to support national COVID-19 response. Both leaders will have an opening statement, and then we'll take your questions. We do have a hard stop at 11:30, so please be respectful so we can get in as many as we can.

Ma'am, over to you.

UNDERSECRETARY OF DEFENSE ELLEN M. LORD: Thank you, Mike.

And good morning, ladies and gentlemen. Thank you for joining us today. And a special thank you to Adam Boehler from the Development Finance Corporation, or DFC, for making the trip to the Pentagon here in person.

Before we make our joint announcement, I want to give you an update on the department's continued efforts to mitigate impacts from COVID-19. Since January, the department's top priorities have remained protecting our three million service members, their families, and all of our civilian and defense contract personnel, while continuing our national security missions and helping the American people confront this crisis. We continue to honor the continued sacrifice and selfless service of our service members deployed around the country who are still supporting and protecting the American people.

The department has placed over $3 billion in contract obligations, spanning over 18,000 actions to combat COVID impacts. The Defense Logistics Agency, or DLA, especially is continuing to closely coordinate with the military services to understand requirements and priorities to protect the force. Specifically to protect the force, DLA has procured over 5.9 million N95 respirator masks, 14.2 million non-medical and surgical masks, 118 million exam gloves, 2.7 million isolation and surgical gowns, and 8,000 ventilators. Delivery of 13 million non-medical cloth face coverings to our military services, combatant commands, U.S. Coast Guard and several federal agencies is ongoing.

Last week DOD completed our 14th aeromedical evacuation mission, safely transporting the 78 COVID-positive patients from forward-deployed locations to a higher level of care in Europe and the United States. These missions have moved service members, DOD contractors, civilians, and two dependent children. We are fully committed to the safety of our aircrew, medical support staff, and patients during these missions.

My thanks to the Defense Threat Reduction Agency, or DTRA, and the Joint Rapid Acquisitions Cell, or JRAC, who continue to partner with the Joint Staff, TRANSCOM, and the Air Force to make these missions possible.

DOD remains closely partnered with FEMA and HHS, providing almost $800 million in life-saving supplies and equipment to service members and federal agencies in the nation's whole-of-government approach to the coronavirus pandemic.

Moving on to the defense industrial base, or DIB, we continue to carefully and methodically track the state of the DIB through Defense Contracting Management Agency, DCMA, and DLA, who both produce daily reports documenting operational status. Out of the 10,509 companies DCMA tracks, we are down to two closed and 267 companies having closed and reopened. Out of the 11,413 companies DLA tracks, 31 are closed, with 661 having closed and reopened.

Domestically, we have seen some minor improvements. We continue to see the greatest impacts both domestically and internationally in the aviation and shipbuilding supply chains. Our acquisition and sustainment team remains focused on partnering with industry to maintain readiness and drive modernization.

Scott Baum and our industrial policy team continue to lead multiple industry calls every week. I am proud of the department's responsiveness in addressing defense industry concerns outlined during these calls.

Mr. Kim Herrington, director of defense pricing and contracting, has issued 35 defense pricing and contracting memos aggressively responding to industry needs and impacts. Those memos include guidance, allowing companies to continue to work providing liquidity to the industrial base, implementing legislation, benefiting industry, improving the speed of contracting activity, and providing spending transparency.

An update on the $3 billion of increased cash flow due to increased progress payment rates: As of this week, we have processed over $2 billion in invoices at the higher progress payment rate. We have spoken with each of our major prime companies, and they have confirmed their detailed plans to work with their supply chains to accelerate payments to identify distressed companies and small businesses.

The department's Office of Small Business Programs continues to aggressively partner and engage. Amy Murray's team has hosted multiple small business webinars and remains a one-stop shop for small businesses in need.

On June 15th, DLA launched the FedMall Small Business Corridor for small business contractors to purchase personal protective equipment for their personnel to safely perform contracts for the government. Currently, there are four suppliers offering approximately 88 PPE items.

Lastly on the DIB, we continue to assess a three-month slowdown to all programs due to COVID-19. I continue to use the words "slowdown" and "impact," and did not say the word "delay," which carries a very different connotation.

I won't discuss any programs specifically, but we have seen inefficiencies across most programs. COVID-19 is shutting down defense manufacturing facilities and production lines, disrupting supply chains, and distressing the financial stability of the companies DOD relies on to protect the nation.

DOD continues to partner with our industry partners to do everything possible to keep programs on-schedule and to minimize the cost and schedule impacts. This is obviously a dynamic situation and the overall impacts will not be completely known for a while, as we work through how we operate over the next few months. I stress that we expect our defense industrial base to follow CDC guidelines.

I remain very proud of DLA, DCMA, and the Defense Threat Reduction Agency, DTRA, the Defense Acquisition University, DAU, and the Joint Acquisition Task Force, JATF, and the entire department's efforts to supply the whole-of-government and interagency battles against COVID-19.

While HHS and FEMA have both the field infrastructure and the medical knowledge to lead our nation's efforts, DOD brings the breadth and depth of acquisition expertise to underpin the interagency in contracting program management and industrial expansion for health and medical resources.

The Pentagon's Chemical and Biological Defense Program, CBDP, continues to play a key role in executing the DOD strategy for countering weapons of mass destruction, continues to support Army labs, Defense Health Agency, DHA, HHS, and FEMA COVID-19 countermeasures like testing, vaccines, masks, mask filters, and screening machines. This includes over $150 million of CBDP investments in diagnostics, vaccines, therapeutics, and modeling capabilities.

The department's DPA Title III investment, in response to COVID-19, remains on increasing manufacturing capacity and throughput. DOD continues to use DPA Title III for DIB resiliency and security, medical and health care resources with HHS and FEMA coordination. DOD has obligated approximately $472 million in DPA Title III funds for both medical resources and the DIB.

In June, we have announced 10 actions totaling over $320 million to help sustain and strengthen essential domestic industrial base capabilities and defense critical workforce in shipbuilding, aircraft manufacturing, and clothing and textiles, and we expect more actions will be announced over the next few weeks.

This investment is critical in allowing Americans to be tested and help reopen the economy. The increased production will ensure the U.S. government gets dedicated long-term industrial capacity to help meet the needs of the nation.

The department remains keenly focused on the threat of adversarial capital, especially at a time when the current COVID crisis is being exploited by our adversaries. We remain part of a whole-of-nation approach that values an open investment environment while recognizing the need to protect it.

We work closely with military services and interagency partners, including the Development Finance Corporation and Department of Energy, to take additional measures to protect and promote critical assets. This approach includes consistent messaging to public, private and academic sectors about the methods of our adversaries -- the methods they use to access technological know-how.

Economic security can be undermined by acquisitions of companies in the defense and dual-use sectors by companies that claim to be U.S.-based but are actually owned or controlled by adversarial foreign entities. The blurring of the line between commercial dual-use applications and defense applications further helps those adversaries that focus their policies around using burgeoning commercial technologies to strengthen their military capabilities.

Specifically, the department is committed to countering Chinese aggression on this front. My team is working to efficiently implement Section 889, part B of the F.Y. '19 NDAA, which aims to prohibit certain Chinese companies from our supply chain. We are also close to publishing our proposed CMMC policy, which will improve our DIB fiber hygiene practices.

These and other legislative initiatives will help us defend against Chinese practices while we also aggressively pursue offensive actions to thwart their theft of intellectual property and their predatory M&A activity.

The department has three main tools to combat this area of national security concern: our Mergers and Acquisitions team, which works closely with the Department of Justice and the Federal Trade Commission counterparts; the Interagency Committee on Foreign Investment in the United States, or CFIUS; and DOD's Trusted Capital Program, established in late 2019 to strengthen manufacturing in the defense industrial base, including by providing opportunities for trusted financial institutions and qualifying companies to explore mutually beneficial partnerships in support of national security goals.

Now, to why Adam is here with me today. On May 14, 2020, the president signed Executive Order 13922, delegating authority to DFC to execute loans using Defense Production Act -- DPA -- Title III authorities in support of the COVID-19 response. Up to $100 million will be expended to secure multiple loans in line with high national security, economic security impact.

This authority was delegated to DFC for two years, in conjunction with DPA loan-related waivers provided by Congress in the CARES Act.

As detailed in our CARES Act spend plan, we will utilize the $100 million to provide a subsidy for multiple federal loans to create, maintain, protect, expand, or restore domestic industrial base capabilities to support national COVID-19 response. These funds are being utilized to provide subsidy for federal loans to create, maintain, expand, or restore domestic industrial base capabilities to support national COVID-19 response. I will say a second time.

Adam and I have just signed a memorandum of agreement that formalizes the relationship between DOD and DFC, enabling us to move forward in executing against this new authority.

Formerly known as the Overseas Private Investment Corporation, DFC brings decades of federal credit experience to bear, advancing key national objectives and addressing domestic challenges in response to the current outbreak. DFC also has the unique ability to address this crisis with a global perspective, coordinating their international efforts with this new domestic time-limited authority.

DFC has been in sync with DOD, among other federal agencies, throughout the COVID crisis, and will continue to partner closely to ensure our approach and response to COVID-19 is completely coordinated.

In closing, the department continues to do everything we can to support our military members, their families, defense contractors and our fellow citizens. I want to personally thank both Congress and the defense industry associations, both who have been invaluable in helping us protect and advocate for the DIB.

I remain extremely proud of the selfless efforts of Department of Defense personnel who continue to do everything they can to help provide medical masks, test kits, medicine, and meals to support America's military, medical, emergency services, and law enforcement professionals who are on the front lines and need the most.

Now, Adam will make a statement, then we'll be happy to answer your questions. Thank you.

Adam?

U.S. IDFC CEO ADAM BOEHLER: Thank you, I appreciate it.

As the CEO of the Development Finance Corporation, which is America's development bank, I'm honored to join Under Secretary Lord here today and mark the start of our partnership with the Department of Defense. Our two agencies will leverage our unique strengths and expertise to carry out the mandate of the Defense Production Act, and strengthen America's self-reliance and resilience across critical supply chains.

To understand the significance of this partnership, we should reflect on the origins of the Defense Production Act, almost 70 years ago today. After fighting two world wars, both of which required unprecedented economic mobilization, the country recognized that America's strength against any enemy is derived from our people, a workforce that built the greatest economy in the world. They understand that our country's freedom cannot be separated from the strength of our economy.

With this in mind, Congress passed the Defense Production Act to provide our country with the requisite tools to harness the power of our economy in times of national crisis.

Today, we are battling a new enemy. We watch as the COVID-19 virus has spread around the world and at home. This administration is mounting an extraordinary response, and it's one that I'm proud to support.

The president's executive order last month authorizes the DFC to use tools under the Defense Production Act to strengthen America's domestic industrial base and ensure resilience in critical supply chains as we respond and recover from this health crisis. DFC is well suited for this mission, given our investment experience, our global focus and our track record of working very closely with the private sector.

In partnership with the Department of Defense, I'm confident that we can help secure a stronger, safer America while at the same time not only continuing but expanding DFC's development mandate around the world. Thank you.

STAFF: Okay, thank you, sir.

We're going to go to the phone. Tony Capaccio, are you up?

Q: Yes, I am. Can you hear me, Mike?

STAFF: Yeah, go for it.

Q: Ms. Lord and Michael, thank you for all your excellent service over the last couple of years, it's a very difficult beat.

Ms. Lord, quick question for you. On June 10th, you told the House Armed Services Committee that the Pentagon faces potential for billions in COVID-related penalty payments. Can you bound that, 12 days later, roughly how much are we talking? And when will either you or OMB send up the request to the Appropriations Committees?

MS. LORD: DOD has submitted our request to OMB. OMB now has it, and we continue to work carefully through with DCMA, DCAA, how we will calculate those.

Q: Can you give a sense of -- you said lower-digit billions a couple weeks ago. Can you bound it as like $15 billion or $16?

MS. LORD: I would say lower double-digit billions.

Q: All right, and one quickie then, oversight so the taxpayers aren't screwed on this one, what's the mechanism being set up?

MS. LORD: I think you know, Tony, that we do things in a very deliberate way in DOD, so we are working through defense pricing and contracting, along with DCMA, DCAA, the comptroller, to make sure we have clear mechanisms to identify the data that substantiates those 3610 claims. So we will have a very substantive data set by which we will make recommendations.

Q: Thank you.

STAFF: Okay, we're going to go back here in the room.

Go ahead, ma'am?

Q: Thanks. Tara Copp with McClatchy.

Operation Warp Speed has a stated goal of delivering 300 million vaccines by January. What's DPA's role in getting those delivery mechanisms, whether it's going to be a syringe or whatever type of delivery tool? And what room for error is there, really, at this point?

MS. LORD: We work closely -- DOD, HHS, whole-of-government -- on Operation Warp Speed. And we are looking at what there is in terms of the whole supply chain from developing a vaccine to actually delivering those vaccines. So we continue to increase the capacity and throughput of the whole supply chain, and will continue to monitor where we are on that in close coordination.

Q: And just as a follow-up, can you give an example of increasing throughput? Like, what specifically companies you're looking for as far as being able to get that vaccine into people's hands quickly?

MS. LORD: Well, what is done is there's a whole task force working on this, so they are working on everything from developing the vaccine and therapeutics to the delivery systems, so we look at capacity and throughput and make sure that we are going to have enough to deliver up to the 700 million doses that are thought to be required.

Q: And one quick last -- one of the criticisms of the DPA use of has come under, that it's very difficult to get a transparent look at what price is being paid per unit. What elements are in place to provide more transparency to the American public on how this tool is being used to help them?

MS. LORD: I think we have a long data trail to say exactly what we're doing with those DPA dollars. Again, we are not buying individual units with those, most of the time; we are investing in tooling equipment, buildings, infrastructure, and perhaps some training – things like that. So we have a lot of transparency. We have published the indiv – or the companies that have received the funding, as well as the amounts.

STAFF: We're going to go to the phone. Aaron Mehta?

Q: Yeah, thanks, ma'am, for doing this, and Mike, thanks for everything over the years.

Quickly wanted to ask -- on the three-month slowdown that you've mentioned a couple of times regarding major defense products, you said the same thing three months back in April. Now obviously, it's towards the end of June. I wanted to understand, are we talking about three months kind of on a rolling basis that you're saying slow down here, or is this three months compared to where it was supposed to be in April? And just looking forward, do you think that slowdown is going to continue in some capacity until there is a vaccine in place?

MS. LORD: So good morning, Aaron. What we were focused on are the three months where we thought the impact was the most significant to the workforce in the DIB, so it was that April-May-June timeframe. We see an enormous amount of recovery in the Defense Industrial Base. It depends on location and what type of work is being performed, but there is enormous progress coming back. A lot of work is being done as telework, although obviously, for manufacturing we need people on the lines, so we're doing things differently in terms of following CDC guidelines and so forth.

So we're getting back up to speed. We don't know what that new normal will be on speed, but we see an enormous amount of recovery, and we think there's roughly a three-month impact, but we will continue to monitor.

STAFF: Okay, we're going to come back in the room. Sandra?

Q: Thank you.

Sandra Erwin, Space News. Thank you, Secretary Lord.

You talked about the $320 million for Defense Production Act Title III for the industrial base. Some -- some actions were announced; some more will be announced before long, a small amount. Can you give us a sense of how these companies are selected to receive contracts? What is the -- the criteria for selecting? Is it -- do they have to be financially distressed, or is there other -- other factors?

MS. LORD: We have a team, OSD, in conjunction with the services, that meets on a weekly basis. We look at the data we have from DCMA and DLA, and we look at the impact to our readiness and modernization. So it really comes down to having the forces ready, and the team looks at it and come to a consensus and makes decisions.

Q: And -- and when would the launch contract be announced? Do you have --

MS. LORD: I'll have to get back to you on that. I'm not up to speed.

STAFF: We're going to go to the line. Tony Bertuca, are you there?

Q: Yes, I'm here. Thank you. Thanks, Mike. Thanks, ma'am.

My question goes again to the supplemental funding. Is -- is there a timeline that you need to have that money by? Is it urgent to get it, or can it wait until January, February?

MS. LORD: And Tony, which funding are you talking about?

Q: The supplemental funding that you talk to the HASC about, the need to reimburse contractors for 3610, and then other non-3610 claims that are likely to -- to make?

MS. LORD: Well, liquidity is important. That's why we put out over 30 memos to simplify and speed up contracting and increase the percentage in progress payments and so forth. So sooner is better, I think is the best way to put it. We have not yet received any claims because I believe the Defense Industrial Base is waiting to more clearly understand what the process is, and we're working with them on the criteria.

Q: And then quickly, is there a chance that DOD would take some of this out of hide and pay for it, or has it got to be supplemental funds?

MS. LORD: We are analyzing things on a by day-by-day basis, so I really am not going to conjecture.

STAFF: All right, we're going to do one last question. Nick, are you up?

Q: Hey there. Thank you, Mike, and -- and thank you guys for doing this.

Undersecretary Lord, I -- I want to zoom in a little bit and talk about the role of Mexico in -- in the procurement effort over the last few months. A few months ago you wrote to them urging them to reopen factories. Have they been responsive to some of your pushing? And can you respond to some of the people I've talked to in Mexico who feel that some of those factories that do supply the U.S. with necessary parts have reopened too quickly, or haven't taken COVID-19 precautions seriously enough?

Thanks.

MS. LORD: I wrote letters and actually talked to our State Department colleagues in Mexico about reopening, talking about the criticality of the Defense Industrial Base. They were very, very cooperative, and obviously want their facilities up and running in a safe manner. So that's been a very good process, very, very receptive.

Q: And -- and -- and to the -- the -- the people along the border especially who have worried that the pressure that they've felt from the United States to reopen has -- has left some workers vulnerable to COVID-19.

MS. LORD: Again, we advocate for using safe practices.

STAFF: Okay, so what we're going to do now is quick closing remarks. Ma'am, do you have any closing remarks?

MS. LORD: I just want to say that I really value the partnership with Adam Boehler and DFC. I think we're doing a good job of being creative, looking at all the different ways we can support the industrial base, how we can become more secure and resilient both on the medical resources side, as well as the Defense Industrial Base.

So thank you, Adam, for your partnership.

STAFF: And sir, any closing remarks?

MR. BOEHLER: Yeah, thanks, Undersecretary.

I was involved closely in our administration's efforts in sourcing ventilators, and one of the lessons learned, I think, thus far in the area is we sourced 150,000 within a short period of time, and that's because of the strength of America's domestic manufacturing base. And so one of our lessons learned to date is that's critical, and will be critical going forward. So I think that this is a great example of an interagency collaboration where we're both leveraging our strengths and partnerships, so I'm very excited about it.

STAFF: So thanks, all, for being here.

And thank you, ma'am, for being an advocate and a consistent leader in communicating and taking the time to do this. I think we've done 20 to 25 of these. It's been my honor to serve with you.

It's been my honor to serve with many of the reporters that are here, and thank you all for your cooperation over the last two years. Thank you very much. Have a great day.

MS. LORD: Thank you.

https://www.defense.gov/Newsroom/Transcripts/Transcript/Article/2228154/



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