[Senate Hearing 113-66]
[From the U.S. Government Publishing Office]
S. Hrg. 113-66
OVERSIGHT OF THE DEFENSE PRODUCTION ACT:
ISSUES AND OPPORTUNITIES FOR REAUTHOR-
IZATION
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING HOW THE FEDERAL AGENCIES RESPONSIBLE FOR IMPLEMENTATION OF
THE DEFENSE PRODUCTION ACT (DPA) ARE BEING USED TO SUPPORT NATIONAL
DEFENSE
__________
JULY 16, 2013
__________
Printed for the use of the Committee on Banking, Housing, and Urban
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon MARK KIRK, Illinois
KAY HAGAN, North Carolina JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota
Charles Yi, Staff Director
Gregg Richard, Republican Staff Director
Laura Swanson, Deputy Staff Director
Pat Grant, Counsel
Brett Hewitt, Legislative Assistant
Greg Dean, Republican Chief Counsel
Chad Davis, Republican Professional Staff Member
Dawn Ratliff, Chief Clerk
Kelly Wismer, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, JULY 16, 2013
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Crapo................................................ 2
WITNESSES
Frank Kendall, Under Secretary for Acquisition, Technology, and
Logistics, Department of Defense............................... 3
Prepared statement........................................... 15
Response to written questions of:
Senator Crapo............................................ 27
Senator Kirk............................................. 32
Senator Moran............................................ 34
Eric L. Hirschhorn, Under Secretary for Industry and Security,
Department of Commerce......................................... 4
Prepared statement........................................... 21
Response to written questions of:
Senator Crapo............................................ 38
Richard Serino, Deputy Administrator, Federal Emergency
Management Agency, Department of Homeland Security............. 6
Prepared statement........................................... 24
Response to written questions of:
Senator Crapo............................................ 42
(iii)
OVERSIGHT OF THE DEFENSE PRODUCTION ACT: ISSUES AND OPPORTUNITIES FOR
REAUTHORIZATION
----------
TUESDAY, JULY 16, 2013
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 a.m. in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. I call this hearing to order. While we
are waiting for a quorum, I will begin this hearing on DPA.
Today, the Committee continues its oversight of the Defense
Production Act. In addition, today's hearing is the first step
as the Committee considers the reauthorization of the DPA,
which is set to expire on September 30, 2014.
The DPA was originally passed in 1950 in the aftermath of
World War II and in the midst of the Korean War. The
legislation gave the President authority to ensure the timely
delivery of necessary supplies and equipment for the Armed
Services and promote domestic industrial production.
Over time, the purpose of the DPA has evolved as the
economy has globalized and the threats to national security
have shifted. Today, the DPA continues to play an important
role supporting our Armed Services. In addition, the DPA
provides essential tools for the Government to better respond
to natural disasters and acts of terrorism. In recent years,
the authorities granted under the DPA have been used to provide
supplies and support to emergency recovery efforts, such as
after Hurricane Katrina.
This morning, we will hear from the Department of Defense,
Department of Commerce, as well as the Federal Emergency
Management Agency. Each of these agencies plays a critical role
in the implementation of the DPA. I look forward to hearing our
witnesses' views on the effectiveness and the need for
reauthorization of the DPA as well as areas where the
Administration believes legislative changes might be
appropriate to improve the law and better protect our national
security.
When the DPA was last reauthorized, it was passed by
unanimous consent in the Senate on the same day of its
introduction. I am hopeful that the Committee can work in a
similar bipartisan fashion this time. I look forward to working
with my colleagues to reauthorize the DPA.
With that, I now turn to Ranking Member Crapo for his
opening statement.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you, Mr. Chairman.
As the United States continues to face conflicts overseas
as well as terrorist threats and natural disasters at home, it
is again time to consider reauthorization of the Defense
Production Act, commonly referred to as the DPA.
When its authorities are properly exercised, the DPA
ensures adequate and timely delivery of critical materials and
maintains our national defense posture to help us meet the
demands of national emergencies. The DPA, amended and
reauthorized some 51 times, remains a powerful resource that
demonstrates how strongly our national defense capabilities
rely on our Nation's economic strength and flexibility to
preserve the readiness of our national defense to prepare and
respond to military conflict, domestic disasters, or acts of
terror in the United States.
The DPA has enabled Presidents for more than 60 years to
meet evolving threats to U.S. national security within the
confines of a consolidated defense industrial base and the
challenges of a globalized economy. Most recently, Presidential
uses of DPA authorities have been applied both in national
defense and in natural disaster contexts. The DPA has been used
to prioritize the provision of night vision equipment for
Afghanistan, bulletproof vests and the anti-mine MRAP vehicles
for Iraq, and terror screening systems for the FBI. DPA
authorities have also been used to restore critical
infrastructure following Hurricane Katrina and provide
interpretive services for Superstorm Sandy victims.
It has been some time since the Committee has had an
occasion to formally hear from the witnesses about the
effectiveness and the problems encountered with the DPA's
programs. I look forward to this morning's testimony to help us
evaluate how the President is using the authorities granted to
him under the Act in order to assure that those DPA authorities
are being properly exercised by the President and in accordance
with the law.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Crapo.
This morning, opening statements will be limited to the
Chairman and Ranking Member to allow more time for questions
from the Committee Members. I would like to remind my
colleagues that the record will be open for the next 7 days for
opening statements and any other materials you would like to
submit.
Now, I would like to welcome the witnesses for our panel
today. First, Frank Kendall is the Under Secretary for
Acquisition, Technology, and Logistics at the Department of
Defense. Eric Hirschhorn is the Under Secretary for Industry
and Security at the U.S. Department of Commerce. And, finally,
Richard Serino is the Deputy Administrator of the Federal
Emergency Management Agency.
I thank all of you for being here today. I will ask the
witnesses to limit your remarks to 5 minutes. Your written
statements will be submitted for the record.
Under Secretary Kendall, please proceed.
STATEMENT OF FRANK KENDALL, UNDER SECRETARY FOR ACQUISITION,
TECHNOLOGY, AND LOGISTICS, DEPARTMENT OF DEFENSE
Mr. Kendall. Good morning, Chairman Johnson, Ranking Member
Crapo, Members of the Committee. Thank you for this opportunity
to discuss the current programs and projects operating under
the Defense Production Act.
Today, I want to clearly convey the Defense Department's
support for a 5-year reauthorization of all existing DPA
provisions. We need the capabilities provided by the DPA today
as much as we ever have during the more than 60 years of the
Act's existence. I will address each of the currently active
titles of the DPA, Titles I, III, and VII, and I will cover the
topics that the Committee requested that we discuss.
Over the last six decades, we have relied on the DPA to
enable the acceleration of critical defense materiel and urgent
operational requirements to our warfighters, I think as was
mentioned in the opening statements. Most recently, Title I has
enabled the rapid fielding of items such as Counter-Improvised
Explosive Device systems, Mine Resistant Ambush Protected
vehicles, MRAPs, and Intelligence Surveillance and
Reconnaissance platforms, among many others. The DPA
contributes directly to the success of many Joint Urgent
Operational Needs, called JUONs, acquisitions, a key element of
our accomplishments in the contingency operations in Iraq and
Afghanistan.
Turning to Title III, there are currently 41 DPA Title III
initiatives. Thirty-seven of these are under contract and the
other four are expected to be under contract by the end of
fiscal year 2013. Title III projects generally fall into three
broad categories: Electronic materials and devices, advanced
structural materials, and power and energy. There are also
projects involving ammunition, optical materials and devices,
and machining technologies.
Notable successes of Title III projects include the Readout
Integrated Circuit Project, conducted in Idaho; gallium nitride
technology used in radar and electronic warfare, being
developed in Massachusetts, North Carolina, and New Jersey; a
high-purity beryllium metal project in Ohio; and the Armor
Structures Transformation Initiative in Johnstown,
Pennsylvania. All of these projects have direct positive impact
to the warfighter and our weapons systems.
Each Title III project is a cooperative Government-industry
effort involving shared funding and planning. Project goals and
contract terms are tailored to the market and technological
conditions for each industrial resource or critical technology
item. Potential Title III projects undergo a rigorous vetting
process to ensure that they are both eligible for Title III
action and likely to result in commercially viable production
capabilities. Once a critical need for an innovative technology
is established by the Government, DPA Title III provides the
ability to use a variety of financial incentives to industry to
make investments in production capabilities that will increase
capacity to meet the national defense requirement.
New, expanded, and modernized domestic industrial
capabilities, one, reduce the risk of foreign dependencies
caused by geopolitical factors or other economic issues, and
two, strengthen the economic and technological competitiveness
of U.S. manufacturers. Improvements in production capabilities
due to Title III projects have resulted in improved defense
capabilities, reduced production costs, lowered prices, and
improved product quality.
Title VII contains a number of provisions. I would like to
mention the Defense Production Act Committee, which was
established by the last DPA reauthorization. The DPAC has
greatly benefited the Department of Defense through its
coordinated interagency analysis of potential shortfalls in
supply chains that are essential to national defense. The DPA
Committee has four primary interagency working groups that
focus on power and energy, metals, telecommunications, and
lightweight materials. In the past year, our Metals Working
Group released a Request for Proposal, and the other
interagency groups have reached internal agreement on priority
efforts moving forward.
The DPA Committee report for 2012 admittedly is late, but
it has been completed and all 17 Department secretaries are in
the process of signing. The Department of Defense will host the
next Committee meeting this coming fall.
I would like to say a word about the need for
reauthorization. Specifically, Title I of the Defense
Production Act is vital to ensure timely DOD access to
industrial resources during both peacetime and periods of
conflict. Title III authorizes domestic sources for critical
components, critical technology, and industrial resources
essential for the execution of the national security strategy
of the United States. Title VII mechanisms enable the Defense
Department, as well as our interagency counterparts, to
effectively manage and deliver critical capabilities as
permitted through the DPA.
In conclusion, the Defense Production Act continues to
provide unique and important authorities that directly support
the health of our defense industrial base. The Department of
Defense fully supports a 5-year reauthorization of all the
existing DPA provisions currently scheduled to expire in
September of 2014. The DPA authorities enabled us to meet the
challenges of the last 60 years and continue to provide
products that are of great importance to our national security.
Thank you for the opportunity to discuss the
reauthorization of this important Act. I look forward to taking
your questions.
Chairman Johnson. Thank you.
Under Secretary Hirschhorn, please proceed.
STATEMENT OF ERIC L. HIRSCHHORN, UNDER SECRETARY FOR INDUSTRY
AND SECURITY, DEPARTMENT OF COMMERCE
Mr. Hirschhorn. Thank you, Mr. Chairman and Members of the
Committee. I appreciate the opportunity to address the role of
the Commerce Department under the DPA, the Defense Production
Act.
We administer the Defense Priorities and Allocations
System, which is known as DPAS, analyze the health of the U.S.
defense industrial base, and report annually to Congress on
offsets in defense trade.
As you know, Title I authorizes the President to require
acceptance and priority performance of national defense orders
and to allocate goods and services as necessary for the
national defense. We have had similar authority in the
Department of Commerce since the DPA was enacted in 1950.
The Bureau of Industry and Security implements these
authorities through the Defense Priorities and Allocations
Systems Regulation, or DPAS. The key elements of DPAS are
mandatory acceptance of rated orders, preferential scheduling,
and an extension or flow-down of priority ratings throughout
the supply chain. A priority rating notifies the supplier that
it must accept and give the order priority over unrated or
lower rated orders. We have found that the private sector is
well versed in DPAS and appreciates that the Defense Production
Act protects them from liability if they are required to
reschedule an unrated order.
Commerce has authorized the Departments of Defense, Energy,
and Homeland Security, plus the General Services
Administration, to place priority ratings on orders that are,
quote, ``necessary or appropriate to promote the national
defense.'' Commerce also may authorize other Government
agencies, foreign governments, critical infrastructure owners
and operators, and companies on a case-by-case basis to place
priority ratings on other contracts or orders.
DOD, as Mr. Kendall has noted, is the principal user of the
DPAS system. We work closely with Defense to expedite the
delivery of resources needed to support such critical
requirements for the military as Interceptor Body Armor
procurement, the Counter IED program, and the Mine Resistant
Ambush Protected Vehicle program.
We have also worked closely with FEMA, represented by Mr.
Serino, to support emergency preparedness and critical
infrastructure requirements, for example, supporting the Corps
of Engineers repair and expansion of the hurricane protection
system for the Louisiana Gulf Coast region. The Corps placed
priority ratings to expedite delivery of pumps, structural
steel and concrete for levees and flood walls, and other
infrastructure to reduce the risk of flood damage.
Since the 2009 DPA reauthorization, we have also
collaborated with the five other departments that have
priorities and allocations authority and with the Department of
Homeland Security to develop a consistent Federal priorities
and allocations system.
Under Section 705 of the Act, we conduct surveys and
assessments of defense-related industries and technologies.
Using these studies, Commerce and Defense can, for example,
monitor trends, benchmark industry performance, and raise
awareness of diminishing or endangered manufacturing
capabilities. Our current studies include assessments of the
U.S. space industry supply chain, the cartridge and propellant
actuated device industry, and the underwater acoustics and
transducers industry.
Under Section 723 of the Act, we report annually to the
Congress on the effects of offsets in defense trade. Such
offsets encompass a range of compensation practices required by
foreign governments as a condition of buying U.S. defense
articles and services. We sit on the Defense Production Act
Committee, or DPAC, which advises on the effective use of the
Act's authorities. We are active in its study groups, including
the group assessing the use of DPA authorities to support
disaster preparedness and response and critical infrastructure
protection.
In sum, the Defense Production Act is essential to our
Nation's security and we look forward to working with you
toward a 5-year reauthorization of its nonpermanent provisions.
Thank you, and I will be happy to take your questions.
Chairman Johnson. Thank you.
Deputy Administrator Serino, please proceed.
STATEMENT OF RICHARD SERINO, DEPUTY ADMINISTRATOR, FEDERAL
EMERGENCY MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY
Mr. Serino. Thank you. Good morning, Mr. Chairman, Ranking
Member Crapo, Members of the Committee. I am Richard Serino,
Deputy Administrator for FEMA. On behalf of FEMA and the
Department of Homeland Security, I appreciate the opportunity
to appear before you to support the five-year authorization for
the nonpermanent provisions of the Defense Production Act and
to discuss the importance of DPA to support our national
defense, including disaster preparedness and response,
protection and restoration of critical infrastructure,
operations and the homeland security capabilities.
The DPA is the primary source of Presidential authorities
to expedite the supply of materials and services needed in both
military and civil preparedness and response. Although FEMA
does not use these authorities often, they are a critical tool
in the toolbox to support our ability to prepare for and
respond to natural disasters and other threats. While a few
provisions of the DPA are permanent, expiration of the
nonpermanent authorities would undermine the ability to prepare
for and respond to natural disasters and other threats, such as
an earthquake, a hurricane, or an incident involving weapons of
mass destruction.
I would like to discuss Title I in particular, which
authorizes the priority treatment of contracts and orders.
While the priority authority is primarily used to support the
Department of Defense programs, it serves an important function
for the Homeland Security purposes. As with rated orders in
support of military programs, rated orders for Homeland
Security programs are used to ensure on-time performance when
delays could place lives and property at greater risk.
Specifically, the priorities authority can be used to
support disaster preparedness and response activities under
Title VI of the Stafford Act. After Hurricane Katrina, the
priorities authority was used to speed delivery of equipment
needed to restore real service in the Gulf Coast region. After
Hurricane Sandy, FEMA also used it to place contracts for
telephone interpreter services to enable communications with
diverse populations that were impacted by the disaster.
FEMA has also used the priorities authority to support
timely repair and modernization of critical equipment that
supports emergency preparedness and response activities. For
example, the primaries authority was used to support timely
modernization of the FEMA National Radio System and to support
computer network and other operations in the National Response
Coordination Center.
Along with its other responsibilities to coordinate Federal
emergency preparedness and response activities, FEMA provides
Governmentwide coordination guidance for the use of DPA
authorities on behalf of the Secretary of Homeland Security.
FEMA works with all the relevant Federal agencies to ensure
effective use and proper implementation of the DPA, to include
educating these agencies about the ability to incorporate DPA
in planning for emergencies.
Without renewal of the expiring provisions of DPA, a
critical statutory authority to ensure timely procurement of
materials and services to protect and restore critical
infrastructure operations, whether they are key transportation
capabilities, floodwalls, or levees, would be lost. Without the
DPA, DHS and other Federal agencies would have no authority to
prioritize contracts or resources needed for emergency
preparedness, for critical infrastructure restoration,
protection, for and lessening the risks associated with a
terrorist attack.
In closing, I urge that Congress reauthorize the DPA
authorities that remain critical to our national defense.
Thank you, Chairman Johnson and Senator Crapo, for the
opportunity to appear before you today. I will be pleased to
answer any questions you or the Committee may have. Thank you.
Chairman Johnson. Thank you.
I would like to begin with a question for all of our
witnesses. It has been partially answered, but why is it
important to reauthorize the DPA and not let the authority
lapse? Under Secretary Kendall, let us start with you.
Mr. Kendall. Mr. Chairman, the DPA gives us the authority
to do things that we would not have and that are very important
both to national security and to responding to emergencies that
are not normally considered necessarily national security.
It allows us to acquire things and set priorities with
industry under Title I, which is very important to us. Industry
has no obligation to prioritize national security requirements
above commercial requirements, and, in fact, many times they
are financially motivated to do otherwise. So DPA allows us to
mandate that. It is part of all of our contracts.
Title III allows us to invest money that improves the
manufacturing capabilities where industry would not invest
otherwise when it is important for national security. These are
things that are of great benefit to the Department and which we
would not be able to do were it not for the Act.
Chairman Johnson. Under Secretary Hirschhorn.
Mr. Hirschhorn. Having Title I authority enables us to
ensure that the Defense Department, FEMA, and other agencies,
as necessary, will get what they need when they need it. As
Under Secretary Kendall pointed out, absent DPA, there is no
guarantee that private contractors will be willing to put DOD
or FEMA orders ahead of unrated orders.
There is limited authority in Section 18 of the Selective
Service Act if DPA Title I were to lapse, but it is quite
limited. It is much less than we have today. It is only
available to support procurement for the Armed Forces. So, in
effect, it would take away what this Committee has given in
terms of Homeland Security elements. It does not apply to
service contracts. It very importantly does not provide
contractors with the protection against claims if they put
rated orders ahead of unrated orders. And it does not include
allocation authority for possible use in a national security
emergency situation involving shortages.
It would also wipe away our ability to report to the
Congress on offsets, which is something that this Committee has
had great interest in and has asked us to do. Our authority for
that flows from the Defense Production Act. Similarly, our
Defense Industrial Base Assessment Programs would also lapse if
the DPA is not reauthorized.
Chairman Johnson. Deputy Administrator Serino.
Mr. Serino. It is an important tool that we have, although
FEMA, we do not use it that often, only two to three times a
year. It is an important tool to have in the toolbox and having
that tool when the disasters happen, because we do not know
when disaster is going to happen, but it is an ability--it is a
really important tool for us to have in order to prepare for
and respond to and help recover from disasters.
Chairman Johnson. Effective interagency coordination is
essential to the DPA. Can each of you please discuss how you
view the collaboration between various agencies? Under
Secretary Hirschhorn, let us start with you.
Mr. Hirschhorn. Our collaboration with the other agencies
involved is excellent. We work with the Defense Department on a
daily basis. They are, again, the heaviest user of the Defense
Priorities and Allocations System. We work closely with FEMA
when disasters arise. We are also working with the other
departments that have been given Defense Priorities and
Allocations authority to help develop a harmonized Federal
system to ensure that the various sets of rules are congruent
with one another.
Chairman Johnson. Deputy Administrator Serino.
Mr. Serino. We have had the opportunity to work closely
with many Federal agencies when a disaster strikes, also with
the Department of Commerce. Once we make the determination we
can respond, we can report back to Commerce in order to move
that forward. One of the key parts is making sure that other
agencies that come in are familiar with the DPA and able to
utilize that. But we have had very good working relationships
with all the different agencies that we work with and
departments and we have been able to continue to move forward
with them on this.
Chairman Johnson. Under Secretary Kendall.
Mr. Kendall. Mr. Chairman, I can only echo what my
colleagues have said. The cooperation, I believe, is excellent.
The committees or the working groups that work under the
Defense Production Act Committee, which include subject matter
experts and have been able to work together very well to
prioritize different projects. I think it has been extremely
beneficial and a great example of good cooperation.
Chairman Johnson. Under Secretary Kendall, during the last
year, Congress has debated the use of DPA Title III funds to
advance U.S.-based production of biofuels. I, along with some
of my colleagues here, fought to prevent restrictions on the
use of DPA funds for biofuels last year. Can you please discuss
how the Administration is continuing to use DPA to increase
funding for biofuels that are essential to our national
security needs.
Mr. Kendall. Yes. The biofuels project is one of the Title
III projects that we are currently pursuing. As I mentioned, I
think, in my opening statement, power and energy is one of the
main areas of emphasis under Title III.
The biofuels project is a relatively small project at this
time. It is designed to determine if there are viable
candidates for production, for scale production at economic
rates for various biofuel sources. So what we awarded and what
I certified earlier in this year, we are in the process of
finalizing the contracts. But there are four contracts for
approximately $6 million each that will do the initial design
studies, site location studies, some of the regulatory things
to prepare for a second phase, which has not been funded yet,
which is not under contract yet, which would build actual
production facilities to demonstrate the viability of
production at industrial capacity, at scale capacity, including
being competitive with petroleum-based fuels.
This is overall a part of the larger program that the
President has initiated to create energy independence. But
biofuels and alternative fuel sources are very important to us,
obviously, as we operate in the world. We are--the DOD is one
of the biggest consumers of fuel, certainly in the Government,
but also in the country, and access to secure sources of fuel
is very important to us strategically. So the biofuels project
is a relatively small effort that is part of a much larger
program to increase our energy independence.
Chairman Johnson. Senator Crapo.
Senator Crapo. Thank you very much, Mr. Chairman.
Mr. Kendall, I want to follow up with you a little more on
the biofuels question. As you know, there was a bit of a stir
created by the initiation of this project and the basic
question was, is it causing us to expend more resources than we
can in the development and obtaining of the necessary fuels for
our defense in the United States. The basic question that I
understood being asked was, how is it that biofuels projects--
which, by the way, I am a huge supporter of biofuels--but the
question is, how is it that biofuels projects are considered to
be a strategic and critical material essential for the national
defense purposes at a time when the United States is positioned
to become one of the world's larger net exporters of oil.
Mr. Kendall. Well, fuels are obviously of strategic
importance to the Department and to the country. I am aware of
the developments in the United States with regard to increased
sources of fuel in the United States. Those are still emerging
and ongoing. And as I said earlier, we will reconsider, or we
will consider as a separate decision the second phase of this
project approximately a year from now. But at this point, what
we are trying to do is act as a catalyst to help this industry
move forward to where it can be competitive and provide us with
a secure source of fuel.
And I am not going to get into a long strategic discussion
about this, but while the United States may be in a situation
where it will have increased sources of fuel for some period of
time, that time is not infinite. So there is a value that may
be longer-term to work like this.
I would also point out that this is just, again, one piece
of what the Department and the Administration is doing. The
Department of Energy is involved in this project, as well as is
the Department of Agriculture. So the Department of Defense,
this is a relatively small part of our overall energy program,
but it is also a relatively small part of the activities under
DPA.
Senator Crapo. Now, could I take from that, then, that
there is not much of a likelihood that projects that are either
ongoing or under consideration will be held up or otherwise
impacted by the decision to move forward with the biofuels
projects?
Mr. Kendall. This--everything is obviously about
prioritization, but I do not see this squeezing out, at this
point in time, at least, other projects that I would consider a
higher priority for the Department.
Senator Crapo. All right. Thank you.
And for Mr. Serino and Mr. Kendall, as I look at this,
there are some 13 different departments and agencies with
delegable authority under the DPAC umbrella. Governmentwide,
then, it would seem that Title I holds the biggest potential
for the use of DPA authorities. First, am I correct about that,
and how much is the Defense Production Act Committee focused on
Title I versus Title III authorities? Mr. Serino, do you want
to start.
Mr. Serino. So, with Title I, as I mentioned, FEMA makes a
determination only, like, two or three times a year. We do not
use the Title I authorities that much, but when we do, it is
actually for critical--usually following a disaster is when we
usually utilize that, for example, Sandy with the interpretive
services. We used it during and after Katrina both for rail and
also to help with the Army Corps of Engineers. So we use it
very rarely, but when we do use it, it is an important
opportunity. We make the determination for other Federal
agencies that come in and then back to Commerce.
Senator Crapo. Mr. Kendall and Mr. Hirschhorn, would either
of you like to respond?
Mr. Kendall. Just to mention that Title I authorities are
in all of our contracts and they are floated down to our
subcontracts. So industry is used to them. We make them
available. They are invoked relatively rarely. When they are
invoked, it is for an important reason. Historically, it goes
back to, for example, production of the Abrams tank some time
ago. The Secretary of Defense has some authorities to increase
priority and the President has some authorities beyond that to
an even higher priority. They are invaluable to us when we do
need them, but we do not do them indiscriminately when they are
not really required.
Senator Crapo. Thank you.
Mr. Hirschhorn.
Mr. Hirschhorn. I would only echo Under Secretary Kendall.
When we have to have something, we have to have it. It is not
something that we do lightly, or that we do every day. And,
again, industry seems to work quite well with it. We very
rarely have a situation where a company is unwilling to comply.
It is almost unheard of.
Senator Crapo. All right. Thank you.
Chairman Johnson. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman.
First, let me thank the witnesses individually. I have had
the privilege of working with Secretary Kendall on the Armed
Services Committee and the Defense Appropriations Subcommittee.
He has done a superb job as acquisitions head in the Pentagon,
so thank you, Mr. Secretary.
Secretary Hirschhorn came up to Rhode Island and was superb
in terms of looking at some of the specific needs we have and
some of the programs that Commerce can respond.
And, Administrator Serino, we get to see more and more of
your people, unfortunately, with Sandy, with floods, but your
colleagues are superb. They do extraordinary jobs. I seldom get
stopped by my constituents and commended about the good work
that we are doing, but your colleagues get that kind of
commendation because they are terrific, so my best to them all.
Thank you.
Let me ask a question, though. We are reauthorizing a bill
that was drafted decades ago, and one of the most significant
changes is that it is just the issue of cyber technology and
cyber threats, military, civilian, across every agency. So,
Secretary Kendall, I will begin with you and then go down the
row. What changes do we have to make, and if you have an
impression, you can give it to us and then follow up later with
more specifics. What changes must we make to capture this new
world of cyber and perhaps the new technological dynamic?
Mr. Kendall. Thank you, Senator Reed. With regard to the
DPA, I am not aware of any specific changes that the cyber
situation would require.
More generally, I am very concerned about the loss of
information to cyber threats right now, particularly on
classified information. Industry is required to protect
information to a certain level, but it is generally not to a
very high standard and we really do not have a mechanism right
now with industry to ensure that that information is protected.
And I am talking specifically about design information, which
might not be classified. But if you require that information,
it certainly shortens your lead time to build things and it
reduces your cost, and that is an advantage we do not want to
give people who are our potential adversaries.
So I have been working on that and I am in the process of
looking at some changes in the contracting procedures that we
use that will strengthen our standards. So I agree with you,
absolutely, that it is a significant problem, but I do not have
a specific DPA change that I would recommend for it.
Senator Reed. I would--given the fact that, hopefully, we
are on a path to reauthorize it, this might be a vehicle in
which wise contractual provisions or authorities could be given
to you. So I would encourage you, as you develop these
thoughts, to pass them along, not just to the Banking
Committee, but also the Armed Services Committee, et cetera,
because this is no great flash of wisdom, but this is just the
beginning of a multi-year phenomenon of extraordinary change,
and if we are going to reauthorize this legislation, let us not
be looking back to the 1956 and 1970s. Let us look ahead to
2050, 2060.
Secretary Hirschhorn.
Mr. Hirschhorn. I do not think I have anything to add in
terms of the Defense Production Act. I certainly agree that we
need to focus very sharply on cyber threats. I think both the
Congress and the Administration are spending a lot of time on
it. I wish I could offer some solution related to the Defense
Production Act, but as I sit here, I do not have one.
Senator Reed. But, again, going forward, if you think
consciously and your colleagues about is there language
necessary in contracts that will give priorities? Is there a
gap? We have pretty much sort of--if we had to go out and build
some Liberty ships tomorrow, we could do it with the Defense
Production Act, I think. But can we build a sophisticated
system? Can we protect classified information on design--or
unclassified information on design, et cetera?
Secretary Kendall, you had a thought?
Mr. Kendall. Yes, sir. I understand where you are coming
from, I think. Let me take it for the--if not for the record,
at least to work with you separately.
Senator Reed. Yes.
Mr. Kendall. I think there is a vehicle here that we could
use to do some good, but I have not thought through exactly how
that might be done, so I take your point.
Senator Reed. I encourage thinking through. Thank you.
And just, Mr. Administrator, your comments.
Mr. Serino. Just--it is something that is--the language is
currently--we have looked at this and there is good language in
there that we are able to utilize that, but I agree with Under
Secretary Kendall. It may be an opportunity to go back and
look. We actually, during a national-level exercise a couple of
years ago, we actually looked at the use that would address
cyber issues and cyber security issues and look at the
possibility of using DPA for that if it looked like there was a
vehicle to do that.
Senator Reed. I would--it would be interesting if you could
share that. I know there is cross-pollination of ideas, but
again, in your capacity, you have to react to not only a
physical disaster in the United States, but a cyber disaster,
and there might be useful information from your exercises that
you could give back to DOD and to Commerce that could help
frame this issue.
Again, gentlemen, thank you for your extraordinary service
to the Nation. Thank you.
Chairman Johnson. Senator Warner.
Senator Warner. Thank you, Mr. Chairman, and before Senator
Reed leaves, I just want to thank you, gentlemen, for
appearing. Thank you for raising it. I mean, I had not--I have
been looking at this. I do not know that much about the Defense
Production Act, but I think you are dead on on an issue and it
is not something I have considered. I would encourage our
colleagues here. I am on the Intelligence Committee and I do
not know how, as you think through the--as they think through
the capabilities in this reauthorization, how they might also
intersect with some of the folks on the IC. But I really
appreciate you raising this issue. It is not something that
would immediately come to mind, but I think it is a great
point.
Senator Reed. I feel like our colleagues did in 1920,
talking about these newfangled airplanes.
[Laughter.]
Senator Warner. Amen. Amen. For everything that we have--as
we all kind of struggle with this on various committees and how
we get a framework in place, you know, thinking through some of
the emergency components, I commend the Member for his comments
and questions. Put me as ``ditto,'' echoing what he said.
I want to actually go back to Assistant Secretary Kendall
and actually follow up on Senator Crapo's comments about the
biofuels program. I understand that it is a relatively small
initiative, and it is one, as you, I think, mentioned, that has
both DOD, DOE, and Agriculture involved. But I actually think
there is kind of a legitimate point. I concur--Senator Crapo
and I agree that our country needs an ``all of the above''
energy policy, and we have seen remarkable progress in terms of
gas and even some traditional oil reserves. But the notion that
we are putting all our eggs in one basket is, I do not think,
smart.
And I actually think, particularly what Secretary Mabus has
done on the Navy side, has made sense. I would point out the
fact that DOD spends about $15 billion a year on fuel, and in
the last couple of years, we have had $3 billion worth of
unforeseen fuel charges. In, I believe, fiscal year 2012 and
2013, DOD was forced to ask Congress for a combined $2 billion
in reprogramming funds to mitigate the price volatility in fuel
costs.
And I would argue that on biofuels, and let me quickly add
here with due respect to the Chairman, hopefully noncorn-based
biofuels, that this is an industry that held a lot of promise,
but because there has been this lack of ability to kind of
generate the volume, we have not seen the production costs come
down. And it is my understanding that if we do get into this
phase two, that DOD will be able to purchase close to 170
million gallons per year of drop-in military fuel, that this
production will begin in 2016.
And I would raise the point, and I have met with the
Secretary on this, that the weighted price of this biofuel--and
this has all been, I think, publicly released--would be less
than $4 a gallon, and actually substantially less than $4 per
gallon. I am not sure whether Secretary Kendall wants to give
the actual price, but the price is actually lower in 2016 than
what we are paying for conventional fuels.
So, I would argue, while this may be a relatively minor
program, that the investments under the Defense Production Act
that have been made by DOD, by DOE and Agriculture to create
something that could be a new industry for America meets the
DOD's needs. We have got a $15 billion fuel cost that is very
volatile. Being able to lock in at a very market competitive
price a stable supply of fuel, and that stable supply could
actually grow, would be tremendously valuable.
And I have actually almost used up all my time, so, Mr.
Kendall, if you would like to make a comment on that. I think
you ought to be out there trumpeting this program and not
simply saying it is simply one little side program. I think it
will be one of the great successes of this Act.
Mr. Kendall. Thank you, Senator Warner. The reason we are
doing the project is because it has that potential. Your
figures on the 50 million dollar--gallons and so on--50 billion
dollars, I am sorry--is correct. The target year is 2016. And
it is a condition of the program that the production capacity
be competitive with commercial prices, which means roughly in
the neighborhood of $4 a gallon. And the current projections
are----
Senator Warner. My understanding is we are going to
actually come in lower than that.
Mr. Kendall. Well, we would need to come in at least at $4
a gallon, I would say. And the projections from the four people
that we have selected to continue with this first phase suggest
that they will get there. So that remains to be proven, of
course.
I do want to go back to one thing you said earlier. We have
not had to pay billions of dollars for unplanned costs for
fuel. We were very concerned in fiscal year 2012 that that
would happen, and at one point we were considering
reprogramming, I believe. But we were able to manage our way
through that period without having to do that. So I just want
to correct the record for that because it came up.
But your points about the purpose of the project and its
potential, I think, are accurate. That is the intent. Ray
Mabus, Secretary Mabus has been a very strong leader in this
area and it is that vision that has driven his support for the
project.
Senator Warner. Thank you, Mr. Chairman.
Chairman Johnson. Unfortunately, we have not achieved a
quorum today for votes on the pending nominations. We will
postpone the markup today and instead vote on Thursday before
the monetary policy hearing.
I want to thank our witnesses for their testimony today and
I look forward to working with you as we begin to explore
legislation to reauthorize the DPA.
This hearing is adjourned.
[Whereupon, at 10:53 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF FRANK KENDALL
Under Secretary for Acquisition, Technology, and Logistics
Department of Defense
July 16, 2013
Chairman Johnson, Ranking Member Crapo and distinguished Members of
the Committee, thank you for this opportunity to discuss the important
role of the Defense Production Act (DPA) in supporting our Nation's
defense needs.
The DPA provides important authorities for the Department of
Defense (DOD), both to ensure timely delivery of equipment and services
essential to our armed forces, and to promote domestic industrial
capabilities to produce superior defense systems at affordable costs.
My testimony today will discuss the need for reauthorization of the
Defense Production Act (DPA), provide an overview of the current
projects operating under DPA, and outline the activities of the Defense
Production Act Committee. I will discuss the priorities authority,
business incentives and other important directives provided in Titles
I, III and VII, all of which are important to the continued health and
responsiveness of the United States defense industrial base.
NEED FOR REAUTHORIZATION
The Defense Production Act, currently set to expire September 2014,
is a fundamental enabler for the Department to successfully produce and
deliver needed capabilities to our warfighters. Over the last six
decades, we have relied on this Act to assist in the modernization and
acceleration of critical defense elements and to help the Department
meet urgent operational requirements such as: Counter Improvised
Explosive Device (IED) systems, Mine Resistant Ambush Protected
Vehicles (MRAPs), and Intelligence, Surveillance and Reconnaissance
(ISR) platforms. This Act has facilitated the success of a large number
of Joint Urgent Operational Needs acquisition processes--a key element
to our accomplishments in recent and ongoing contingency operations.
The DPA is also essential in transitioning new and next-generation
technologies that are indispensable to meeting national security
requirements identified by Government customers; a priority for the
Department of Defense as we work to increase and maintain the
technological superiority of our Nation.
Without the authorities provided under the Defense Production Act,
our efforts to protect and support the men and women of our all-
volunteer force would not be as effective. Our ability to maintain a
healthy, lean and vibrant United States industrial base would also be
reduced. Both of these goals are crucial elements to our National
Defense Strategy. I urge the Committee to again support reauthorization
of the Defense Production Act, an Act which has served us so well for
over 60 years.
CURRENT DPA PROJECTS AND ACTIVITIES
TITLE I
Title I of the Defense Production Act is essential to ensure timely
DOD access to industrial resources during both peacetime and periods of
conflict. Title I authorizes the President: (1) to require U.S.
industry to prioritize and allocate materials, services and facilities
as necessary to promote our national defense and (2) to allocate
materials, services, and facilities, as necessary or appropriate to
promote the national defense.\1\ These Presidential authorities are
delegated to the Department of Commerce with respect to industrial
resources. Commerce has re-delegated to DOD authority under the Defense
Priorities and Allocations System (DPAS) to place priority-rated
contracts and orders for industrial resources in support of DOD
Approved Programs. The Department uses DPA authorizations in a standard
contacting provision for most weapon system related procurements that
require industrial resources.
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\1\ The DPA defines the term ``national defense'' to mean programs
for military and energy production or construction, military or
critical infrastructure assistance to any foreign nation, homeland
security, stockpiling, space, and any directly related activity.
---------------------------------------------------------------------------
DPAS priority ratings help to assure that rated orders will be
performed on time. For the most part, contractors and suppliers act on
their own to fulfill their obligations under rated orders, without
further action required by the Government. However, when problems occur
that cannot be resolved by the contractors and suppliers, the DPAS
provides for Special Priorities Assistance (SPA), whereby problems can
be resolved with the assistance of DOD or, ultimately, the Department
of Commerce.
Although important in peacetime, the DPAS as implemented under
Title I authority is indispensable in times of conflict. It provides
the ability and flexibility to address the critical procurement needs
of the warfighter. Even though Title I and DPAS were first enacted over
60 years ago, experience with providing direct support to the
operations in Afghanistan and Iraq demonstrates their continued
importance. The DPAS played an important role during these operations
in expediting delivery of equipment needed to counter new threats and
protect the lives of our armed forces. The DPAS was instrumental in
speeding the deployment of new and increased quantities of personal
body armor, Counter Improvised Explosive Device (IED) systems, Mine
Resistant Ambush Protected Vehicles (MRAPs), and Intelligence,
Surveillance and Reconnaissance (ISR) platforms, night vision
equipment, weapon targeting systems, and many more items needed to
support our Armed Forces.
Over the past decade, DPA's Title I authority has proven invaluable
in supporting both our Armed Forces and those of allied nations. From
the onset of the conflicts in Afghanistan and Iraq, DOD saw a need for
lighter and stronger personal body armor. However, the capability to
ramp up production of such body armor was constrained by the limited
availability of Small Arms Protective Insert plates that provide the
hard armor component of the Improved Outer Tactical Vest. From 2002 to
2006, we used a Priority Allocation of Industrial Resources (PAIR) Task
Force with multi-service and Department of Commerce participation to
prioritize DOD requirements and then used the DPAS to direct the
manufacture and distribution of this product in order to support our
highest priority requirements. By 2006, U.S. manufacturing capacity had
grown sufficiently to satisfy all rated order delivery requirements,
eliminating the need for further SPA directives.
In 2003, in support of Operation Enduring Freedom, the Department
asked Commerce to issue a Directive to a key supplier supporting the
Predator program that required the supplier to satisfy the orders it
had received related to the Predator ahead of other competing rated
orders based on urgent operational requirements. Commerce issued the
Directive the same day it was requested and the critical supplier was
able to meet the required delivery date because the directive
``reprioritized'' work in its facility, moving the Predator-related
order to the front of the production queue.
In 2006, we used the DPAS to accelerate production of Counter IED
systems. Insurgents in Iraq had changed tactics, planting more powerful
bombs and using different triggering methods to defeat vehicle armor
and evade U.S. countermeasures. To counter this threat, the Department
dramatically increased its investment in electronic jamming technology
to detect and disarm IEDs. To ensure production priority, the Secretary
of Defense approved the use of the highest rating authority available
under the DPAS, known as the ``DX'' rating, to support the rapid
delivery of Counter IED systems.
In 2007, we formed an MRAP PAIR Task Force to review and prioritize
DOD requirements for materials used in MRAPs and competing programs. We
identified potential industry bottlenecks and quantified our vehicle
component requirements for items such as steel plate, axles, and tires.
By combining the information accumulated from these activities, we were
able to identify production capacity gaps in industry that would impact
the MRAP and other DOD vehicle and armor programs. This knowledge of
the industrial base, along with the Secretary's highest rating
authorization for the MRAP enabled us to clearly and quickly
communicate the Department's prioritized requirements to industry. As
lower-rated programs were impacted by the surge to meet MRAP demand, we
also increased industrial capacity through information sharing, capital
investment, developing new sources, and by accelerating changes to
specifications and standards that permitted increased production rates
without sacrificing quality.
In late 2008, we received an urgent request from the DOD's Central
Command to increase production of ISR systems. In this case, we
determined that simply elevating priority status to the highest level
would not effectively address constraints among competing, equally
important, acquisition programs. We mitigated many of the production
constraints through the use of the SPA process. In one case involving
the procurement of hundreds of sensor arrays/antennas from a contractor
in a Security of Supply country, we were able to accelerate delivery to
meet operational requirements, despite the fact that the DPAS has no
standing outside the United States. We made the foreign supplier aware
that DOD had a reciprocal Security of Supply arrangement with the
partner nation and the foreign supplier agreed to meet DOD's required
delivery dates.
In 2010, the Department engaged with industry to address numerous
delivery issues on behalf of the Special Operations Command (SOCOM) to
expedite the fielding of night vision systems in Afghanistan. An
Industrial Capability Assessment was done to determine industry's
ability to deliver these systems quickly and an arrangement was
brokered between the Command and competing Service requirements to
preserve access for all while meeting the urgent needs of SOCOM. The
assessment provided insight into industry constraints and enabled the
prioritization of delivery requirements by using DPAS priority rating
authority to reconcile competing Service needs.
In 2012, a partner nation asked for help expediting the
refurbishment of submarine environmental control systems. These
atmospheric controls were urgently needed by both U.S. and the ally's
navies to avoid disruptions of fleet deployments, but the contractor
was limited in its ability to meet the needs of both customers. The
Department mediated the dialogue between the buying activities and
contractor to improve refurbishment rates. Additional Government
Furnished Equipment was supplied to the contractor to improve
throughput rates and both nations' schedules were aligned to improve
contractor efficiency.
In 2013, the Army requested SPA on behalf of a supplier of 120mm
Enhanced Mortar Targeting Systems (EMTAS). The purpose was to expedite
delivery of bearings, used in these systems. The Joint Chiefs of Staff
had highlighted the military importance of deploying these systems to
Afghanistan as rapidly as possible under a ``Joint Urgent Operational
Need'' (JUON) statement. The Department worked with the EMTAS supplier,
the bearing vendor and Commerce to develop a plan for expediting
delivery. This plan was implemented in a matter of a few days under a
Department of Commerce Directive.
The above examples are a sampling of successes we've seen through
the use of the Defense Production Act over the past decade. Title I
authorities continue to assist us effectively both in an operational
environment and also domestically with our industrial base.
Reauthorizing this Act and the activities outlined in Title I will
ensure the Department remains successful in the expeditious delivery of
critical defense capabilities.
TITLE III
Title III of the DPA authorizes various actions by the President to
develop, maintain, modernize, restore, and expand the productive
capacities of domestic sources for critical components, critical
technology items, materials, and industrial resources essential for the
execution of the national security strategy of the United States. Title
III authorities were initially used during the Korean War era to
establish the industrial infrastructure needed to transition aircraft
production into the jet age and for other industrial base needs. Jet
aircraft production required vastly increased quantities of such
materials as aluminum and titanium. Much of the U.S. processing
capabilities for these and dozens of other key materials can trace
their roots to Title III projects that were undertaken during the
1950s.
Today's Title III projects continue to support the transition to
new and next-generation technologies that are essential to meeting
national security requirements identified by Government customers. Once
a critical need for an innovative technology is established by a
Government acquisition program, DPA Title III has the ability to
provide a variety of financial incentives to industry to make
investments in production capabilities that will increase capacity to
meet the national defense requirement.
Title III projects help promote the use and insertion of new
technologies for defense purposes in several ways. First, Government
purchases and purchase commitments reduce the financial risks that
discourage potential new producers from creating new capacity. Second,
the new production capabilities stimulated by Title III incentives are
generally more efficient and result in lower production costs and
product prices. Third, Title III projects commonly generate information
about the performance characteristics of new materials and support
testing and qualification to promote the broader use of these materials
in defense systems.
Without Title III efforts to promote and incentivize the transition
of new technologies to affordable use, beneficial use of new
technologies can be delayed for many years. Potential producers do not
invest in efficient production capacity without financial incentives
and potential users are reluctant to commit to new technologies due to
high first adoptor costs and lack of assured supply. Title III projects
effectively overcome these market barriers to production expansion and
technology adoption, accelerating insertion into defense applications.
The primary objective of every Title III project is to improve
domestic production capabilities to support national defense
requirements. New, expanded, and modernized domestic industrial
capabilities: (1) reduce the risks of foreign dependencies caused by
geo-political factors or other economic issues; and (2) strengthen the
economic and technological competitiveness of U.S. manufacturers.
Improvements in production capabilities, due to Title III projects,
have resulted in reduced production costs, lowered acquisition prices,
and improved product quality. Domestic production sources supported by
Title III actions provide an added element of trust regarding product
integrity. Trusted sources are increasingly important for such products
as microelectronics, in which malicious defects can be difficult to
detect.
The broad impact of Title III projects in supporting production of
state-of-the-art defense systems and in strengthening domestic
production capabilities for leading-edge technologies is illustrated in
the following five examples:
1. In April 2013, a new manufacturing facility that produces
specialized materials for lithium ion batteries opened in
California. The facility, created with Title III support, will
provide a secure, domestically owned, and domestically based
source of materials that are critical to the production of
batteries for Government satellite and space programs. These
materials, which have never before been manufactured in the
United States, will enable production of satellite batteries
that last more than 10 years with more than 60,000 charge-
discharge cycles. Title III support has enabled a U.S.
manufacturer to expand from manufacturing lithium ion cells
exclusively for high-technology medical applications to become
a leading designer and supplier of lithium ion cells for
aerospace and other military applications.
2. Another Title III project is supporting development of production
capabilities for a next-generation military GPS device, which
is the smallest, lightest weight and lowest power-consuming
device of its type available today. It enables the creation of
GPS receivers that provide significant size, weight and power
reduction for military systems in use around the world. Title
III support has been a critical element of the ``low-cost GPS
program,'' which has already saved the Government an estimated
$100 million and is expected to provide DOD over $300 million
more in savings and cost avoidance over the next 5 years.
3. A Title III project involving GaN on SiC X-Band Monolithic
Microwave Integrate Circuits (MMIC) caps a decade of
substantial investment from the Government and the contractor
(including DARPA's Wide Bandgap Semiconductor program). The
project prepared GaN technology for insertion into a broad
range of military systems, delivering better value to the
taxpayer and warfighter. Benefits of GaN technology includes
enabling radar systems to track a target 78 percent farther in
range with the same accuracy or, for a different mission,
reduce the radar antenna size by half while more than doubling
the radar search area. Over the course of this program the
contractor's GaN process yield improved by more than 3X. The
improved yield (along with other fab operations improvements)
corresponds to a greater than 76 percent reduction in the cost
of a MMIC power amplifier since the start of the program. In
addition to the improved yield the contractor accumulated over
a million hours of reliability data, demonstrating reliability
that supports military system lifetimes with significant
margin. As a result of this initiative, GaN technology is
mature and available for immediate insertion in a variety of
defense systems.
4. Another Title III project has been instrumental in re-
establishing the infrastructure, facilities, and equipment
necessary to support a production capacity of 160,000 pounds
per year of high-purity beryllium metal. High-purity beryllium
is used extensively in structures and instruments found in
defense weapon systems where stiffness, low weight, good
thermal and electrical conductivity, and dimensional stability
are required. Essential strategic uses, where no suitable
substitute exists for high-purity beryllium, include: airborne
Forward Looking Infrared (FLIR) systems for fighter aircraft
and attack helicopters; guidance systems on existing strategic
missiles; surveillance satellites; ballistic missile defense
systems; and reflectors for high flux, nuclear test reactors.
Beryllium imports are unable to meet the purity levels required
for many critical defense applications.
5. In partnership with the Departments of Agriculture and Energy,
another Title III project is catalyzing a domestic capability
to produce cost-competitive, commercial-scale, renewable fuels
for the military. As one of the world's largest consumers of
petroleum, the Department has an interest in the long-term
diversification of fuel supplies. If successful, the project
may produce more than 170M gallons per year of drop-in,
military-compatible renewable fuels with initial production
capacity by 2016 and at an average cost of less than $4 per
gallon.
While Title III projects target national defense needs, they
generally result in more broad-based benefits to the U.S. economy. The
benefits I just cited--reduced foreign dependencies, greater economic
and technological competitiveness, as well as the creation of high-tech
American jobs--are all important to the U.S. economy. Title III
projects can also support other important goals, such as reduced energy
consumption and CO2 emissions.
An example of this is a Title III project that was undertaken to
improve production capabilities for monolithic microwave integrated
circuits (MMICs) needed for next-generation radar systems resulted in
improved production capabilities for solid state lighting (SSL), using
light emitting diodes (LEDs). LED lighting reduces energy consumption
by three quarters compared to fluorescent lighting, while reducing
CO2 emissions and use of toxic mercury.
Another Title III project to improve production capabilities for
reactive plastic CO2 absorbent material, used to improve
breathing equipment for diving, has also resulted in improved
anesthesia technology for use in operating rooms. This innovative Title
III material absorbs more CO2 and fewer anesthetics than
granular absorbent. It also eliminates temperature concerns and the
toxic waste associated with granular lithium.
Most people in this hearing room are carrying a device, which
performs better and is cheaper, due to a Title III project that was
completed several years ago. The project involved manufacturing
capabilities for gallium arsenide wafers. The primary purpose of this
project was to support defense needs for advanced integrated circuits,
but gallium arsenide devices are also important components in cell
phones. U.S. Title III contractors more than doubled their share of the
world market for gallium arsenide wafers over the course of the Title
III effort and reduced wafer prices by more than one third. So,
everyone's cell phone is cheaper, performs better, and is more likely
to contain integrated circuits fabricated using domestically produced
wafers, due to Title III actions.
These three examples are representative of the many commercial
spill-over benefits resulting from Title III projects, beyond the
benefits to our national defense.
Each Title III project is a cooperative Government/Industry
business partnership involving shared funding and planning. Project
goals and contract terms are tailored to the market and technological
conditions for each industrial resource or critical technology item.
Potential Title III projects undergo a rigorous vetting process to
ensure that they are both eligible for Title III action and likely to
result in commercially viable production capabilities. Eligibility is
based primarily on a Determination, required by the Defense Production
Act, that specific criteria have been met. A project may not be
initiated unless the President determines that:
1. The targeted resource or item is essential to the national
defense;
2. Industry cannot reasonably be expected to provide the needed
resource or item in a timely manner, without Title III action.
Once a potential project is determined to be eligible for Title III
action, it is assessed in terms of various market factors. For example,
Title III generally targets materials that are required by multiple
defense programs. Title III action to address an industrial resource
shortfall is particularly important, when the cost of addressing the
shortfall cannot be justified by individual programs. Multiple defense
programs have benefited from Title III projects involving such items as
radiation-hardened microelectronics, structural composite materials,
and high-performance batteries. Market conditions are also assessed to
determine how best to structure and incentivize a possible Title III
effort and whether production capabilities resulting from such an
effort would remain economically viable after the Title III commitment
has concluded.
Title III provides a number of important tools to support needed
improvements in domestic production capabilities. The purchase and
purchase commitment authorities provide the foundation for virtually
all Title III actions. Purchases are used to assist in the creation of
new production capabilities, and purchase commitments are used to
guarantee a market for new production output. Title III also authorizes
installation of Government-owned equipment in production facilities and
the development of substitutes for strategic and critical materials.
These authorities are used, as appropriate, to supplement purchase and
purchase commitment actions.
There are currently 41 Title III initiatives. Thirty-seven of these
are under contract, and the other four are expected to be under
contract by the end of the fiscal year. Many of these projects can be
grouped into three broad categories--electronic materials and devices,
advanced structural materials and power and energy. There are also
projects involving ammunition, optical materials and devices, machining
technologies, and a variety of other technologies.
The electronic materials and devices projects involve enabling
technologies, without which potential advances in microelectronics
would be far more limited. These materials offer advantages in terms of
faster device performance, greater resistance to radiation and
temperature, reduced power requirements, reduced circuit size,
increased circuit density, and the capability to operate at higher
frequency levels. Advances in electronic materials enable new
capabilities for defense systems and improvements in old capabilities.
The advanced structural materials offer improvements in terms of
strength, weight, durability, and resistance to extreme temperatures.
Power and energy initiatives focus on technologies such as flexible
solar cells, advanced battery technologies and fuel cells that enable
advanced operational capabilities and reduce operational and
maintenance costs. These benefits are particularly important in
aerospace applications.
I have already mentioned several ongoing or recent Title III
projects. A sampling of other current Title III projects includes:
Establishment of the world's first manufacturing production
facility of carbon nanotube (CNT) yarn and sheet material. This
project's emphasis is on expanding flexible, scalable, and
modular production processes; improving product quality and
yield; and reducing manufacturing costs. Carbon nanotubes
exhibit extraordinary strength and unique physical properties
and result in lighter weight and greater ballistic protection
for the warfighter and vehicle armor, stronger, lighter
structural components, as well as enhanced electromagnetic
interference (EMI) and electromagnetic pulse (EMP) protection.
The upgrade and refurbishment of the facilities of the sole
domestic source for heavy forgings required by the U.S. Navy
and other DOD services. The DOD applications for these forgings
include propulsion shafts for surface and sub-surface naval
vessels, periscope tubes, ring forgings for bull gears, and
reactor vessels. Heavy forgings are unique and require a 10,000
ton, open die forging press (the largest in North America) in
order to produce parts that begin with ingots that are up to 11
feet in diameter and weigh up to 600,000 lbs. The focus of this
Title III project is to address production constraints and
single points of failure that are critical to maintain the
supply of heavy forgings to the DOD.
The scale up for production of Polyhedral Oligomeric
Silsesquioxanes (POSSTM). POSS has been demonstrated
to enhance the performance of polymers in such applications as
radiation shielding for space-based microelectronics, photo-
resistant material for semiconductor manufacturing, food
packaging, optical lenses, and aircraft tires.
Establishment of a long-term, viable, world-class domestic
manufacturer of high-energy density lithium-ion (Li-ion)
batteries that is responsive to customer requirements with
respect to performance, reliability, quality, delivery, and
price. High energy density Li-ion batteries are suitable for a
number of military systems including enhancing the endurance of
Unmanned Aerial Vehicles (UAVs) and providing portable power to
support the mission for the dismounted soldier, long endurance
autonomous systems, tactical vehicles, unattended sensors, and
reconnaissance and surveillance systems. The intent is to
create a flexible production line capable of producing multiple
battery form factors for both military and commercial
applications, as well as achieving performance results needed
to meet unique warfighter requirements.
Establishment of a domestic source for the production of
light-weight ammunition cartridge casings using a high-strength
polymer material. Ammunition casings produced with this
material may provide significant advantages over traditional
brass casings, such as decreased combat carrying weight for
ground and air operations, with cost savings obtained through
reduced fuel consumption, as well as lower transportation/
shipping and material costs. Other potential benefits may
include increased muzzle velocities, improved weapons accuracy,
and prolonged barrel and weapon life. The initial focus of the
project is the development and qualification of lightweight .50
caliber machine gun rounds that can be utilized in
conventionally fielded weapon systems at a comparable cost to
standard brass ammunition.
TITLE VII: ACTIVIES OF THE DEFENSE PRODUCTION ACT COMMITTEE
I also wish to express support for DPA Title VII authorities. Title
VII contains a range of provisions, including enforcement mechanisms,
which help protect the Nation's security. Of particular importance are
Section 705, which provides authority to collect industrial base
information; Section 708, which provides authority to enter into
voluntary agreements (and antitrust protections for participants in
such agreements); Section 721, which authorizes the President to
suspend or prohibit a foreign acquisition or merger with a U.S. firm,
when the transaction provides a credible threat to U.S. national
security (reviews of foreign acquisitions under Section 721 are
conducted by the interagency Committee on Foreign Investment in the
U.S. (CFIUS)); and Section 722, which established the Defense
Production Act Committee. These enforcement mechanisms enable the
Department, as well as our interagency counterparts, to effectively
manage and deliver critical elements as permitted through the DPA.
Without it, our Nation's security would be put at risk.
Newly created during the last DPA reauthorization, the Defense
Production Act Committee (DPAC) is an interagency body, established by
Section 722, which identifies whole-of-Government approaches to
strengthen domestic industrial base capabilities to meet national
defense supply requirements under normal and emergency conditions. The
Committee advises the President on the effective use of the DPA and
develops recommendations for changes to the law and the effective use
of the delegated authorities under this Act. To achieve these
objectives, the Committee engages in assessment activities and enables
information sharing related to the industrial base and DPA authorities.
The DPAC has established Industrial Capability Study Groups to
conduct assessments and develop long-term strategies for addressing the
supply chain problems of various industrial sectors. Each of these
study groups is chaired by a senior subject-matter expert from a
civilian agency who directs the group's work, while DOD provides
operational staff and budgetary support for assessment activities.
Currently, the Committee is operating four study groups to analyze
supply chain issues that are essential to national defense: (1) metal
fabrication, led by the Department of Commerce; (2) power and energy,
led by the Department of Energy; (3) telecommunications, led by the
White House Office of Science & Technology Policy; and (4) lightweight
materials, co-led by the Department of Energy and the Army. The work of
the DPAC analysis led to a DPA Title III investment earlier this year
to preserve and modernize the sole domestic source for heavy forging
products for Navy applications including propulsion shafts and nuclear
reactor containment vessels. I expect that another recommendation for
investment will be made later this year.
CONCLUSION
The Defense Production Act continues to provide unique and
important authorities that directly support the continued health of our
Defense industrial base. The Department of Defense fully supports a
reauthorization of all the existing DPA provisions currently scheduled
to expire in September of 2014. The DPA enabled us to meet the
challenges of the last 60 years and provides important mechanisms that
continue to be of vital importance to our national security. Thank you
for the opportunity to discuss the reauthorization of this important
Act, I look forward to taking your questions.
______
PREPARED STATEMENT OF ERIC L. HIRSCHHORN
Under Secretary of Commerce for Industry and Security
Department of Commerce
July 16, 2013
Chairman Johnson, Senator Crapo, Members of the Committee:
I appreciate the opportunity to testify before the Committee this
morning on the important role the Defense Production Act (DPA)
continues to play in supporting our national defense. I will focus my
comments on the nonpermanent DPA authorities in Titles I and VII that
are relevant to the Department of Commerce and the activities of the
Department under those authorities.
The Department of Commerce plays several roles in implementing DPA
authorities related to the defense industrial base. First, under Title
I, the Department administers the Defense Priorities and Allocations
System. Second, under Title VII, the Department analyzes the health of
U.S. defense industrial base sectors. Third, also under Title VII, the
Department submits an annual report to Congress on offsets in defense
trade. All three DPA authorities need to be reauthorized before
September 30, 2014. I will briefly discuss each of these roles.
I. Defense Priorities and Allocations System
Title I of the Defense Production Act authorizes the President to
require acceptance and priority performance of contracts and orders
(other than contracts of employment) to promote the national defense
over performance of any other contracts or orders, and to allocate
materials, services, and facilities as deemed necessary or appropriate
to promote the national defense. These authorities to prioritize
contracts and require allocations for industrial resources were most
recently delegated to the Secretary of Commerce by Executive Order
13603 which was issued in March 2012. However, the Department has had
similar authority since the DPA was first enacted in 1950.
Today, the Bureau of Industry and Security implements these
authorities through the Defense Priorities and Allocations System
regulation (15 CFR Part 700) (most commonly known as the ``DPAS''). The
DPAS establishes procedures for the placement, acceptance, and
performance of priority rated contracts and orders and for the
allocation of materials, services and facilities and is regularly used
to support the acquisition of industrial resources needed to support
U.S. national defense requirements, especially by the Department of
Defense.
All companies in the United States must comply with the provisions
of the DPAS regulation. The key elements of the DPAS regulation are
mandatory acceptance of rated orders, preferential scheduling, and
extension of priority ratings throughout the supply chain. Under the
DPAS, there are two levels of priority designated by the symbols ``DO''
and ``DX.'' All ``DO'' rated orders have equal priority with each other
and take preference over unrated orders. All ``DX'' rated orders have
equal priority with each other and take preference over ``DO'' rated
orders and unrated orders.
A ``priority rating'' on a contract or order notifies a supplier
that the contract is supporting an approved national defense program
and that the supplier must accept and give the order priority over
unrated commercial orders (or lower rated orders in the event of
competing ``DX'' and ``DO'' orders), as necessary, to meet the required
delivery date. A contractor in receipt of a rated order, in turn,
places ``priority rated orders'' with its subcontractors for parts and
components.
Our industrial base is well-versed in the DPAS based on more than
60 years of experience in receiving and placing priority rated
contracts and orders to support Department of Defense requirements. The
private sector also appreciates that the DPA includes a protection
against claims in the event a contractor, subcontractor, or supplier is
required to reschedule an unrated order after receipt of a rated order.
The Department of Commerce has delegated authority to the
Departments of Defense (DOD), Energy (DOE), and Homeland Security
(DHS), and the General Services Administration, to place priority
ratings on contracts or orders for industrial resources to support
programs determined by DOD, DOE, or DHS as ``necessary or appropriate
to promote the national defense.'' The Department of Commerce may also
authorize other Government agencies, foreign governments, owners and
operators of critical infrastructure, or companies to place priority
ratings on contracts or orders on a case-by-case basis. Such requests
must first be determined as ``necessary or appropriate to promote the
national defense'' by DOD, DOE, or DHS.
Let me briefly highlight a few examples of the Department's work in
administering the DPAS.
The Department of Defense remains the primary user of the DPAS. My
Department has worked closely with DOD to support the U.S. Armed Forces
through the DPAS to expedite the delivery of industrial resources
needed to support critical operational requirements, including the
Interceptor Body Armor, counter-improvised explosive devices, and the
Mine Resistant Ambush Protected vehicle programs. In addition,
Commerce, in coordination with the Department of Defense, has
authorized foreign defense ministries to place priority ratings on
contracts and orders with U.S. suppliers for equipment needed to
support coalition operations in Iraq and Afghanistan. My Department is
very proud of the role we have played through the DPAS to support our
servicemen and servicewomen and to assist our coalition partners.
The Department has also worked closely with the Department of
Homeland Security's Federal Emergency Management Agency through the
DPAS to support emergency preparedness and critical infrastructure
protection and restoration requirements. For example, the Department
worked with DHS to authorize the U.S. Army Corps of Engineers to use
the DPAS to support the repair and expansion of the Hurricane
Protection System for the Louisiana Gulf Coast Region. The Corps of
Engineers placed priority ratings on hundreds of contracts to expedite
delivery of pumps, structural steel and concrete for levees and
floodwalls, and other related flood control infrastructure to reduce
the risk of floodwaters from future natural disasters. The Department
has also worked with DHS to authorize other Federal agencies (including
the Department of State, the Federal Bureau of Investigation, and
Commerce's National Oceanic and Atmospheric Administration) to place
priority ratings on orders to expedite the delivery of industrial
resources needed to enhance the protection of Government facilities and
to support systems designed to detect and track severe weather.
These examples, and the testimony from my DOD and DHS colleagues,
demonstrate how the DPAS remains critically relevant to support our
national defense, including military and homeland security
requirements.
Since the 2009 reauthorization of the Defense Production Act, the
Department has also collaborated with the five other Federal
departments that are delegated priorities and allocations authority
with respect to other resources (Agriculture, Energy, Defense, Health
and Human Services, and Transportation) and with DHS to develop and
implement a consistent and unified Federal priorities and allocations
system to the extent practicable. The new rules being developed by the
other departments for the resources under their priorities and
allocations jurisdiction are based primarily on DPAS guidance and
procedures and incorporate several key elements of the DPAS, including:
mandatory acceptance of rated orders, preferential scheduling of rated
orders to meet delivery requirements, and extension of priority ratings
by contractors to lower-level suppliers and subcontractors. The
Department of Commerce is also in the process of updating the DPAS
regulation based on our collaboration with our interagency partners.
II. Defense Industrial Base Studies
Under Section 705 of the DPA and Executive Order 13603, the
Department also conducts surveys and assessments of defense-related
industries and technologies. These assessments are usually requested by
the Department of Defense. Using these industrial base studies, the
Departments of Commerce and Defense can, for example, monitor trends,
benchmark industry performance, and raise awareness of diminishing
manufacturing capabilities. The studies also provide detailed data that
are unavailable from other sources.
Currently, the Department of Commerce has a number of studies
underway, including an assessment of the U.S. space industry supply
chain. Commerce has partnered with NASA, the U.S. Air Force, and the
National Reconnaissance Office to gain an understanding of the
complicated network supporting the development, production and
sustainment of products and services across the defense, intelligence
community, civil and commercial space sectors. Additionally, Commerce
is assessing the cartridge and propellant actuated device (CAD/PAD)
industry, and the underwater acoustics and transducers industry. When
completed, these assessments will provide the requesting agency or
agencies with information needed to understand the health and viability
of the studied sector.
III. Offsets in Defense Trade
Pursuant to Section 723 of the DPA, the Department also reports to
Congress annually on the impact of offsets in defense trade. Offsets in
defense trade encompass a range of industrial compensation practices
required by foreign governments as a condition of the purchase of
defense articles and services from a nondomestic source. This mandatory
compensation can be directly related to the purchased defense article
or service or it can involve activities or goods unrelated to the
defense sale.
The Department collects data annually from U.S. firms involved in
defense exports with associated offset agreements in order to assess
the impact of offsets in defense trade. In February 2013, the
Department submitted its 17th report to Congress on offsets in defense
trade, with data covering the 1993-2011 period. U.S. industry submitted
2012 offset data to the Department in June 2013 in accordance with the
offset reporting regulation (15 CFR Part 701). The Department will
analyze this data and present its findings to Congress later this year.
IV. Defense Production Act Committee
The Department of Commerce is also a member of the interagency
Defense Production Act Committee (DPAC) which was established pursuant
to the 2009 DPA reauthorization to advise the President on the
effective use of the Act's authority. The President has designated
Homeland Security and Defense as rotating chairs of the DPAC. Commerce
plays an active role in the work of study groups established by the
DPAC, including the group that is assessing the use of DPA authorities
to support disaster preparedness and response and critical
infrastructure protection and restoration activities.
Summary
In sum, the DPA provides authority for a variety of programs at the
Department of Commerce of substantial importance to our Nation's
security. The DPAS continues to facilitate the timely delivery of
industrial resources to support the Department of Defense, coalition
partners, and increasingly, to meet Homeland Security requirements. The
DPA also facilitates valuable assessments of the health of key sectors
of the defense industrial base and the impact of offsets in defense
trade.
The Department of Commerce looks forward to working with the
Committee to reauthorize the nonpermanent provisions of the Defense
Production Act.
Thank you.
______
PREPARED STATEMENT OF RICHARD SERINO
Deputy Administrator, Federal Emergency Management Agency
Department of Homeland Security
July 16, 2013
Introduction
Good morning, Mr. Chairman and Members of the Committee, I am
Richard Serino, Deputy Administrator of the Federal Emergency
Management Agency (FEMA). On behalf of FEMA and the Department of
Homeland Security (DHS), I appreciate this opportunity to appear before
you to support a 5-year reauthorization of the nonpermanent provisions
of the Defense Production Act (DPA) and to discuss the importance of
the DPA to support our national defense, including disaster
preparedness and response, protection and restoration of critical
infrastructure operations, and homeland security capabilities.
The DPA is the primary source of Presidential authorities to
expedite the supply of materials and services needed for both military
and civil emergency preparedness and response. While a few provisions
of the DPA are permanent, expiration of the nonpermanent authorities
would undermine the ability to prepare for and respond to natural
disasters and other threats, such as an earthquake, a hurricane or an
incident involving a weapon of mass destruction.
Use of Title I Priorities Authority
The use of DPA authorities has evolved over time. Title I of the
DPA authorizes the priority treatment of contracts and orders. While
the priorities authority is used primarily to support Department of
Defense programs, it has gained increased importance for homeland
security purposes, particularly since the Act was amended in 2003 and
2009. As with rated orders in support of military programs, rated
orders for homeland security programs are used to ensure on-time
performance when delays could place lives and property at greater risk.
Under Executive Order 13603, which delegates Presidential DPA
authorities, six Federal agencies have jurisdiction over various types
of resources. The priorities authority most often has been used for
resources falling under the jurisdiction of the Department of Commerce
(DOC), which include most manufactured goods and services. DOC has
delegated to the Department of Homeland Security (DHS) its authority to
place priority-rated orders for its own programs, for the purposes of
emergency preparedness and response activities under the Stafford Act,
critical infrastructure protection and restoration efforts, and
measures to prevent, mitigate, and recover from acts of terrorism. DOC
also has delegated its authority to the Department of Defense, and to
other entities as needed.
It is important to note that the priorities authority is used only
in support of eligible programs in circumstances when a procurement
delay would prevent timely completion of a critical program or when a
procurement problem occurs or is anticipated. Eligibility for
application of the priorities authority is determined against a
standard of ``necessary or appropriate to promote the national
defense,'' in accordance with section 101 of the Act. The Secretary of
Homeland Security is delegated the responsibility for making this
determination for civilian national defense programs (not pertaining to
the military, space, or energy). FEMA makes these determinations on
behalf of the Secretary.
By law, the priorities authority may be utilized to support a range
of activities in support of the national defense, to include: programs
for military and energy production and construction; military or
critical infrastructure assistance to foreign nations; homeland
security activities to prevent, mitigate damage from, or recover from
terrorist attacks; and emergency preparedness activities under Title VI
of the Stafford Act. FEMA has made determinations that programs are
necessary or appropriate to promote the national defense across a range
of civilian uses.
Priorities authority may be used to support disaster preparedness
and response activities under Title VI of the Stafford Act. For
example, after Hurricane Sandy, FEMA used priority ratings to place
contracts for telephonic interpreter services to enable communications
with the diverse population impacted by this disaster. After Hurricane
Katrina, priorities authority was used to speed delivery of equipment
needed to restore rail service in the Gulf Coast region. In addition,
the U.S. Army Corps of Engineers was authorized to place priority
ratings in contracts and orders for its program to repair and restore
floodwalls and levees after Hurricane Katrina. In this case, the
priorities authority was used to help prevent delays to improvements to
the greater New Orleans Hurricane and Storm Damage Risk Reduction
System.
Similarly, FEMA has used the priorities authority to support timely
repair and modernization of critical equipment that supports emergency
preparedness and response capabilities. For example, priorities
authority was used to support timely modernization of the FEMA National
Radio System and to support the computer network and other operations
in the National Response Coordination Center.
Priority ratings can also be used in support of other homeland
security programs. For example, FEMA determined that U.S. Customs and
Border Protection (CBP) can use priority-rated contracts to support
timely maintenance and upgrade of its P-3 Orion aircraft fleet. These
planes are used primarily in the interdiction of drugs and other
contraband destined for the United States, but are also used to support
anti-terrorism and border protection missions. In another case, the
priorities authority was used to ensure timely completion of perimeter
security measures at the Boston airport and its seaports. The use of
priority-rated contracts was needed to ensure timely delivery of high-
tech camera equipment needed for these projects.
Within the past year, FEMA has also determined that various
emergency preparedness and continuity of operations activities of the
Architect of the Capitol (AOC) are in support of the national defense.
This includes such AOC activities as providing and maintaining physical
security and surveillance; electronic surveillance, detection and
warning systems; fire alarm and suppression systems; life safety
equipment; hazardous material protective equipment; hazardous material
response equipment; and shelter-in-place equipment. It also includes
efforts to establish and maintain redundancy for critical information
and communications systems.
In addition to the U.S. Army Corps of Engineers and the Architect
of the Capitol, several other Government agencies have been authorized
by DOC to use priority-rated contracts in recent years to support
specific homeland security activities after FEMA has made a
determination that the activity was in support of the national defense.
For example, the National Nuclear Security Administration in the
Department of Energy has used priorities authority to support several
of its programs. It was used in support of the Second Line of Defense
Program, the purpose of which is to strengthen the capability of
international partners to deter, detect and interdict illicit
trafficking in nuclear and other radioactive materials across
international borders and through the global maritime shipping system.
It was also used in support of the Nuclear Counterterrorism Incident
Response program, which promotes first responder and law enforcement
capabilities to respond to and mitigate nuclear and radiological
incidents in the United States and worldwide.
In 2009, FEMA determined that the Department of Health and Human
Services (HHS) program to combat the H1N1 influenza was eligible for
priorities support. This program involved procurement of vaccines and
anti-viral drugs and the development, manufacture, and supply of other
medical countermeasures approved, licensed, or cleared by the Food and
Drug Administration, such as biologics, equipment and devices.
Based upon FEMA determinations of eligibility, priorities authority
is also being used in support of the State Department's Domestic
Facilities and Personnel Protection Program, which provides for the
security of domestic State Department facilities, U.S. Government
personnel located in those facilities and foreign dignitaries visiting
the United States.
Use of Title VII Authorities
Title VII contains a number of authorities--some permanent and some
that will terminate in September 2014--if not reauthorized. One
permanent section of the law--section 708--authorizes establishment of
voluntary agreements. The purpose of a voluntary agreement is to allow
cooperation among business competitors to expedite or expand the supply
of critical materials or services by planning and coordinating actions
in support of the national defense including Government emergency
preparedness and response activities. Participants in a voluntary
agreement are granted relief from antitrust laws under the provisions
of section 708.
Another section of Title VII--section 722 of the DPA--establishes
the Defense Production Act Committee to advise the President on the
effective use of DPA authority. Section 722 provides that the Committee
membership shall include the head of each Federal agency to which the
President has delegated DPA authority. The Committee is chaired on an
annual rotating basis by the Departments of Homeland Security and
Defense. The Committee has established several working groups to study
DPA and defense industrial base issues.
Reauthorization of Expiring Provisions
Along with other responsibilities to coordinate Federal emergency
preparedness and response activities, FEMA provides Governmentwide
coordination and guidance for use of DPA authorities on behalf of the
Secretary of Homeland Security, pursuant to Executive Order 13603. FEMA
works with all relevant Federal agencies to ensure effective use and
proper implementation of the DPA, to include awareness of the ability
to incorporate the DPA in planning for emergencies.
Without renewal of expiring provisions of the DPA, a critical
statutory authority to ensure timely procurement of materials and
services to protect and restore critical infrastructure operations--
whether they are key transportation capabilities, floodwalls, or
levees--would be lost. Without the DPA, DHS and other Federal agencies
would have no authority to prioritize contracts for resources needed
for emergency preparedness, for critical infrastructure restoration or
protection, or for lessening the risks associated with a terrorist
attack. In closing, I urge that Congress reauthorize the DPA
authorities that remain critical to our national defense.
Thank you, Chairman Johnson, for the opportunity to appear before
you today, and I would be pleased to answer any questions you or other
Members of the Committee may have.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM FRANK
KENDALL
Q.1.a. The Federal Government has not used the loan and loan
guarantee authorities provided for in Title III in more than 30
years.
Under what circumstances were they used and why are they
not used today, and if not used, should they be removed from
the Act?
A.1.a. The loan/loan guarantee authorities in Title III of the
Defense Production Act (DPA) were used extensively during the
1950s and 1960s. More than 1,700 loans totaling more than $4
billion were made or guaranteed using the Title III
authorities. No new loan guarantees or loans have been
initiated since the DPA borrowing authority was replaced by an
appropriations requirement in 1974.
In March 1982, Secretary of Defense Weinberger proposed an
amendment to the DPA to grant $2.5 billion in revolving
Treasury borrowing authority to subsidize domestic materials
production. In April 1982, Office of Management and Budget
(OMB) Director Stockman responded that OMB could not support
the proposed amendment because (1) ``it is Administration
policy to rely on the marketplace to improve the
competitiveness of our industries to help reduce dependence on
foreign sources;'' (2) ``the proposed legislation requests
blanket project approval and `backdoor' borrowing authority
which is contrary to the provisions of the Congressional Budget
Act of 1974;'' and (3) ``our analysis of the DOD proposal to
subsidize domestic cobalt production indicates that it is
substantially less costly to acquire stockpile protection by
direct purchase.'' (Source: Letter dated April 15, 1982, from
David Stockman, Director, OMB to Casper Weinberger, Secretary
of Defense)
A compromise was subsequently reached between DOD and OMB
in which DOD agreed ``to utilize only purchase/purchase
commitment agreements.'' DOD has continued to abide by this
agreement. Since Title III activities were ``resurrected'' by
DOD and Congress in the 1980s, Congress has amended Title III
provisions several times to place limitations on use of the
loan/loan guarantee authorities. Most recently, the Section
302(c)(1) DPA Reauthorization of 2009 (50 U.S.C. App. 2092
(c)(l)) amended the loan/loan guarantee authorities to allow
use of these authorities ``only to the extent that an
appropriations Act--(i) provides, in advance, budget authority
for the cost of such guarantees, as defined in section 502 of
the Federal Credit Reform Act of 1990 [2 U.S.C. 661a]; and
(ii) establishes a limitation on the total loan principal that
may be guaranteed.'' To date, no appropriations Act has
included such provisions. Congressional action is required
before the loan guarantee and loan authorities can be used.
The loan guarantee and loan authorities were cost-effective
when used during the 1950s and 1960s. While they have not been
used since the 1960s, past experience suggests that they are
potentially valuable tools to support national defense
production and supply needs, particularly under emergency
conditions. Additionally, these authorities reside with the
President, and while they have not been used for nearly 30
years, the authorities are nevertheless an important tool for
the President to ensure the availability of key domestic
industrial base capabilities and these authorities should not
be diminished.
Q.1.b. Similarly, the Title VII authority for a National
Defense Executive Reserve appears dated, at least, in some of
its language. It also either has never been used, or has been
dormant for decades, does it need to be updated or eliminated?
A.1.b. DOD agrees that the current language of the Title VII
authority for a National Defense Executive Reserve is designed
to support a major mobilization of months or years. In
Executive Order 13603, the President has authorized each Agency
Head the discretion to create and activate National Defense
Executive Reserve (NDER) units under their control. While there
are no active NDER units in the Federal Government, the DPA
NDER language is appropriate to govern the establishment of
future units in the event of a catastrophic incident of
sufficient magnitude to warrant its use. DOD does not believe
that the current language needs to be updated or eliminated.
Q.1.c. Can you give any examples where DPA authorities, fell
short in their implementation, or exceeded their scope or
encountered any unintended consequences in any manner?
A.1.c. In short, none. The DPA authorities were the
cornerstones of economic mobilization to support the Korean
conflict during the 1950s and after more than six decades of
use continue to play important roles in supporting the
procurement needs of defense programs. The priorities authority
continues to be a key element supporting DOD procurement and
has also provided support for important homeland security
activities--both for disaster preparedness and response and for
counter-terrorism activities. The priorities authority has been
used effectively with remarkably few problems for more than 60
years.
DOD has been making effective use of the Title III
authorities since these authorities were resurrected in the
1980s. The authorities have been exercised on numerous
occasions to ensure the availability of critical domestic
production resources when the private sector is not
incentivized to create or expand these capabilities. Today,
these authorities are used primarily to expand domestic
production capacity for key technologies, materials, and items
to improve the quality of these technologies, reduce
procurement costs for these technologies, and speed the
integration of leading-edge technologies into defense systems.
Title III incentives help reduce the technical and financial
risk associated with the higher-risk projects that business is
unwilling or unable to undertake but that hold great potential
for promoting our national defense through better and more
affordable advanced technologies. By reducing risk, the Title
III incentives encourage private sector investment thus
mitigating the need for sustained Government investments.
DOD use of ``Title I'' Priorities
Q.2.a. Last year, the DOD exercised its authority under Title I
with regard to about 300,000 contracts, about 20 percent of its
contracts.
How is the decision to prioritize or not prioritize
contracts pursuant to Title I authority made at your
department?
A.2.a. Most recently in section 202a of Executive Order 13603,
the President delegated DOD the authority to determine which
programs are necessary or appropriate to support the National
Defense with respect to military production and construction,
military assistance to foreign nations, military use of civil
transportation, stockpiles managed by DOD, space, and directly
related activities.
To that end, DOD has established 14 approved categories of
military-related programs that are identified in Schedule I of
the Defense Priorities and Allocations System (DPAS) regulation
(15 CFR part 700)-the Department of Commerce (DOC)-administered
regulation covering the industrial resources under its
priorities and allocations jurisdiction. All DOD contracts and
orders for industrial resources associated with these 14
program categories are eligible to be issued as priority rated
contracts in accordance with Title I and DOC's delegation of
authority to DOD to utilize the DPAS to support DOD
contracting.
DOD has been authorized by DOC to use both DPAS levels of
priority, designated by the symbols ``DO'' and ``DX.'' All
``DO'' rated orders for industrial resources have equal
priority with each other and take preference over unrated
orders. All ``DX'' rated orders for industrial resources have
equal priority with each other and take preference over ``DO''
rated orders and unrated orders. Most DOD priority rated orders
are rated ``DO.'' The use of the ``DX'' priority rating is
justified on the basis of military need (highest national
defense urgency) and industrial resource limitations that make
it unlikely that required delivery schedules will be achieved
without the ``DX'' priority rating. Only the Secretary or the
Deputy Secretary of Defense can approve a program to use the
``DX'' priority rating, which is currently limited to
supporting approximately a dozen programs.
Q.2.b. Who exactly has the authority to make those decisions
and what are the criteria used?
A.2.b. All procuring activities within DOD have the authority
to apply priority ratings to contracts or orders for industrial
resources in accordance with the DPAS regulation, the Federal
Acquisition Regulation (FAR 11.600), DOD Directive 4400.01,
``Defense Production Act Programs,'' and the DOD Priorities and
Allocations Manual (DOD 4400.1-M). It is DOD policy that
procuring activities shall assign a priority rating to all
defense contracts and purchase orders for industrial resources
associated with the 14 approved program categories, except when
they contain items that DOC has determined are not eligible to
be priority rated.
Biofuels
Q.3.a. What is the likelihood that projects either ongoing or
under consideration may be held up or otherwise impacted on
account of the Defense Department's decision to use unexpended
``no year'' fiscal year 12 funding to initiate a bio fuel
project such as the one providing seed money to fund the
startup of biofuel production plants for the Navy or its
follow-ons? Will this become an issue in the future?
A.3.a. Existing or proposed Title III initiatives are not being
impacted by the use of fiscal year 2012 funds for the Title III
biofuel project. The fiscal year 2012 funds allocated for the
biofuel project were appropriated as a programmatic add above
the budget request and therefore are available to be used for
the biofuel initiative. We do not anticipate this being a
future hindrance.
Q.3.b. How is the bio fuels project considered to be a
strategic and critical material essential for national defense
purposes at a time when the United States is positioned to
become one of the world's biggest net exporters of oil?
A.3.b. A robust advanced drop-in alternative fuels market is an
essential element of our national energy security. Energy
security for the Nation requires unrestricted, uninterrupted
access to affordable energy sources to power our economy and
military. Traditional fossil fuel-based petroleum is derived
from crude oil that is finite, unevenly distributed, and
concentrated in particular regions of the globe, not all of
which are habitually friendly to U.S. interests. Advanced
alternative transportation fuels that use a domestic feedstock
will provide us a secure alternative that reduces the risks
associated with petroleum dependence.
Additionally, section 106 of the Defense Production Act (50
U.S.C. App. 2076) specifically designates energy as a
strategic and critical material. Also, section 2(a)(6) of the
Defense Production Act Declaration of Policy (50 U.S.C. App.
2062 (a)(6)) states the congressional finding that `` . . . to
further assure the adequate maintenance of the domestic
industrial base, to the maximum extent possible, domestic
energy supplies should be augmented through reliance on
renewable energy sources (including solar, geothermal, wind,
and biomass sources), more efficient energy storage and
distribution technologies, and energy conservation measures;''.
Q.3.c. What criteria are used to make the determination?
A.3.c. Before action may be taken under the authorities of
Title III of the Defense Production Act, section 303(a)(5) of
the Act (50 U.S.C. App. 2093(a)(5)) requires that a
Determination be made that:
(A) Lthe industrial resource, material, or critical
technology item is essential to the national defense;
and
(B) Lwithout Presidential action under this section, United
States industry cannot reasonably be expected to
provide the capability for the needed industrial
resource, material, or critical technology item in a
timely manner.
There were two Determinations made pursuant to the requirements
of the Defense Production Act that validated the essentiality
of biofuel to meet national defense needs. The first was
approved on December 19, 2010, and the second was approved on
January 8, 2013.
DPAC Report
Q.4. The Defense Production Act Committee, or DPAC, has only
one statutory responsibility--and, that is to provide its
congressional oversight committees with an annual report that
reviews the current use of DPA authorities and provides
recommendations for improving DPA implementation in the
Government, or amending the DPA statute, itself. This is the
only measure which this Committee really has to measure how the
authorities are used. Why then has no annual report been
submitted for either 2011 or 2012, and when might the Committee
get one, considering the statute is up for reauthorization?
A.4. The 2011 annual report was delivered to the House and
Senate Banking Committees in August 2011. A combined 2012-2013
report was delivered on August 7, 2013. Just before the 2012
report was to be finalized, Executive Order 13603 was issued.
The new order vastly expanded DPAC membership to 17 departments
and agencies. Since section 722(d) of the Defense Production
Act of 1950, as amended (50 U.S.C. App., 2061 et seq.),
requires that each DPAC member sign the annual report to
Congress, it was infeasible to submit the report on time. To
allow full participation by new members, the DPAC's co-chairs,
DOD and the Department of Homeland Security, agreed that the
2012 and 2013 reports would be combined into a single
submission.
Q.5.a. There are some 13 departments and agencies with
delegable authority under the DPAC umbrella. Governmentwide,
then, it seems that Title I holds the biggest potential for the
use DPA authorities.
How much is the Defense Production Act Committee focused on
Title I versus Title III authorities?
A.5.a. The focus is roughly evenly split. The Department of
Homeland Security leads a study group to discuss Title I
issues, and DOD is leading four interagency study groups to
evaluate potential Title III investments to mitigate industrial
base shortfalls in the areas of telecommunications, power and
energy, metal fabrication, and lightweight materials.
Q.5.b. Is emergency preparedness getting sufficient attention
in the DPAC?
A.5.b. DOD believes that emergency preparedness is receiving
the appropriate level of attention within the Defense
Production Act Committee (DPAC) interagency review process.
Q.5.c. How useful or valuable is the work and focus of DPAC to
the more nondefense-oriented agencies or departments?
A.5.c. There have been informative discussions among the DPAC
interagency members regarding the use of Title I authorities
for nondefense activities. DOD, through the DPAC industrial
base analysis process, is working with nondefense agencies to
identify cross-cutting industrial base issues that impact
multiple agencies pertaining to the four focus areas identified
above.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR KIRK FROM FRANK
KENDALL
Q.1.a. How does the Department of Defense evaluate its own
organic industrial base when presented with requirements by
either the Services or other agencies utilizing Defense
Production Act (DPA) authorities?
A.1.a. As new requirements are presented from either the
Services or other agencies, DOD uses a standardized Joint Depot
Source of Repair (DSOR) process to analyze which of its
military depots possesses the capability that best satisfies
the requirement. For the arsenals, we have drafted a DOD
instruction that will be issued this year, directing the
arsenals to identify critical manufacturing capabilities and
sustaining workloads annually, which will provide a solid basis
for analyzing the capabilities these facilities provide. The
use of DPA authorities would apply only to the private sector
industrial base and not the DOD's organic industrial base.
Q.1.b. Does the Department differentiate between depots where a
facility may be product focused and an arsenal that may have a
broad range of capabilities?
A.1.b. There is no differentiation when considering the use of
the DPA authorities. For depot maintenance requirements, the
joint service community, through the Joint Depot Source of
Repair (DSOR) process, analyzes and decides on the source of
repair that provides the capability that best satisfies the
requirement. For the arsenals, we have drafted a DOD
instruction that will be issued this year, directing the
arsenals to identify critical manufacturing capabilities and
sustaining workloads annually. Therefore, given our best value-
based approach, the process will not differentiate between
product-focused and broad ranged capability activities when
performing the analysis.
Q.1.c. What mechanism exists for one Service to assess another
Service's organic industrial base to determine if they are able
to support a given requirement?
A.1.c. It is DOD policy that the Joint community consider
Centers of Industrial and Technical Excellence in determining
DSOR. Additionally, the Services are required to consider
existing capabilities based on previous DSOR assignments and
regular interaction between the Services on capabilities being
established. A collaborative process exists to determine the
best source of repair for emerging requirements, which has a
mechanism to assess each Service's capabilities to arrive at
the best value source of repair. The manufacturing arsenals are
managed by the Army, who articulates the capabilities of each
during these inter-Service discussions.
Q.1.d. What data does the Office of the Secretary of Defense
provide to other services to support this effort?
A.1.d. The Office of the Secretary of Defense provides
oversight and guidance to the Joint DSOR process to ensure it
provides the best value. Services establish depot maintenance
capabilities and execute workload to sustain those
capabilities. Data is made available across DOD for the
community of practice. Additionally, we have drafted a DOD
instruction relating to arsenals that will be issued this year,
directing the arsenals to identify critical manufacturing
capabilities and sustaining workloads annually. This will
increase the visibility of the capabilities of the arsenals.
Q.2. Are there any statutory barriers to using DPA funds for
capital equipment at organic industrial base facilities?
A.2. To use Defense Production Act (DPA) funds for capital
equipment at organic industrial base facilities, DOD must
comply with the limitations and determination requirements that
are imposed by the DPA for all other uses of the authority.
Additionally, section 303(e) of the DPA stipulates that if the
President determines that such action will aid the national
defense, the President is authorized to inter alia:
(A) Lto procure and install additional equipment, facilities,
processes or improvements to plants, factories, and
other industrial facilities owned by the Federal
Government;
(B) Lto procure and install equipment owned by the Federal
Government in plants, factories, and other industrial
facilities owned by private persons.
Q.3. Many Department of Defense working-capital funded
facilities already possess the physical infrastructure and some
level of capital equipment to support requirements that may
otherwise be funded by DPA authorities. Has the Department ever
utilized public-private partnerships at organic industrial base
facilities to take advantage of existing Government investments
in physical infrastructure (e.g., buildings) and a trained
workforce? If so, please provide examples.
A.3. Yes. DOD uses public-private partnerships under 10 U.S.C.
2474 for depot-level maintenance when such partnerships are
cost effective in providing improved support to the warfighter,
and they maximize the utilization of the Government's
facilities, equipment, and personnel at DOD depot-level
maintenance activities. Furthermore, as we implement
Performance-Based Logistics (PBL) strategies, amounts expended
for the performance of depot-level maintenance and repair
workload by non-Federal Government personnel at a Center of
lndustrial--and Technical Excellence (CITE) under any contract,
in accordance with section 2474, are not counted for the
purpose of the percentage limitation contained in 10 U.S.C.
2466(a).
Additionally, the Secretaries of the Military Departments
have designated depot-level maintenance activities as CITEs in
their recognized core competencies in accordance with 10 U.S.C.
2474. Each CITE is authorized and encouraged to enter into
public-private partnerships comprising its own employees,
private industry, and/or other entities outside the DOD to
perform work within its depot-level maintenance core
competencies and/or allow private industry to lease or
otherwise use facilities and equipment at the CITE that is not
fully utilized for the military department's own production and
maintenance requirements. Examples of Public-Private Partnering
for Sustainment include:
1. LRock Island Arsenal (RIA) Composite Armor Center. RIA
entered a partnership with BAE in August 2009 to
establish an organic composite armor production
capability. The partnership utilizes BAE's strength in
the development and production of composite panels with
the skilled workforce and capital equipment at RIA. The
project is an Arsenal Support Program Initiative. It is
located in some of the excess warehouse space at RIA.
Renovations to the space provided the environment
needed to prepare and consolidate the panels in a very
effective and desirable work space.
2. LFleet Readiness Center-Southeast (FRCSE)/General Electric
Aircraft Engines (GEAE). The F404 engine partnership
features a public sector depot labor provision within a
PBL arrangement. The partners in the fleet exchange
component availability-based project are FRCSE, GEAE,
and Naval Inventory Control Point, Philadelphia. The
work occurs within a Government-industry arrangement
under the authority of 10 U.S.C. 2474. The scope of the
partnership covers 33 critical gas path aviation
reparable components associated with the F404-GE-400/
402 engines that power the F/A-18 Hornet. The aim of
the initiative is to provide and improve the
availability and reliability of the engine's
components.
Q.4. When was the last time the Department of Defense reviewed
the Joint Manufacturing and Technology Center at Rock Island
Arsenal as a potential site for DPA activities?
A.4. DOD has never had a requirement to consider the Joint
Manufacturing and Technology Center at Rock Island Arsenal as a
potential site for Defense Production Act (DPA) activities;
however, the Secretary of the Army makes capital investments
annually in accordance with 10 U.S.C. 2476. Additionally, the
Secretary of the Army designated Rock Island as a Center of
Industrial and Technical Excellence under 10 U.S.C. 2474.
Also, before action can be taken under the authorities of
Title III of the Defense Production Act, an industrial base
shortfall that impacts essential national defense requirements
must be identified and validated. This shortfall is typically
articulated by the programs of record of military departments
or agencies that rely on specific domestic industrial base
resources to field or sustain key national defense
capabilities.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM RICHARD
KENDALL
Q.1. The Special Inspector General for Afghanistan
Reconstruction (SIGAR) conducted an audit on aircraft
procurement for Afghanistan, specifically PC-12's and Mi-17's.
Of the seven recommendations by SIGAR, DOD concurred with all
but the first recommendation, which is to suspend activity on
the aircraft until a memorandum of understanding between the
Afghan Ministry of Interior and Defense can be completed and
signed. As such, the DOD agrees with the complex milestones and
considerable work that must be done to properly transition
aircraft to the Afghans and yet DOD does not concur with
suspending activity on the transition of new aircraft. Is the
DOD negating the recommendations you acknowledge and agree must
be done by committing the United States to transition activity
on investments for aircraft when the measures to use and
sustain them haven't been met? If no, provide analysis that led
to the decision to nonconcur with recommendation #1 and
continuing aircraft transition activity to the Afghans despite
their inability to meet operational capability as it relates to
the SIGAR audit findings.
A.1. The Afghan Special Mission Wing (SMW) is critical to the
success of the campaign in Afghanistan and to advancing U.S.
national security objectives. Losing the SMW capability will
mean that the Afghans will be unable to execute critical
counterterrorism and counter narcotics operations. Moreover,
the Afghans will have limited ability to disrupt and degrade
the insurgent networks that enable Al Qaeda. Currently, the
limiting factor for progress with the Mi-17 program is
insufficient numbers of operable aircraft to sustain pilot
currencies, advance prepared crews to night vision goggle (NVG)
qualification, conduct required maintenance, and execute
operations. The procurement process takes time, a decision to
set aside or delay the purchase of new Mi-17 helicopters could
result in a 2-year delay due to limited slots on the production
line. The additional 30 Mi-17s enable the SMW to train NVG
qualified crews faster, maintain/increase support to Afghan
National Army Special Operations Force operations, and field
four geographically dispersed squadrons.
The SIGAR report does not accurately capture the progress
of the SMW in training, maintenance, or mission execution. The
SMW currently has 47 of 67 Mi-17 pilots and 23 of 52 flight
engineers with six, soon to be seven, NVG-trained crews (pilots
and flight engineers). The unit executes its training while
concurrently providing operational support to both the
Government of the Islamic Republic of Afghanistan Ministry of
Interior and Ministry of Defense. Between October 1, 2012, and
July 15, 2013, the SMW executed over 4 dozen operations
(approximately 80 percent during daylight hours). Recent
operations demonstrate the Wing's capability to conduct 100
percent Afghan-planned, led, and crewed multi-ship daylight
missions. A recent night operation was 100 percent Afghan-
planned and led and 75 percent Afghan-crewed; this multi-ship
mission demonstrated their increasing ability to fly missions
under extreme conditions (e.g., confined landing zone, maximum-
allowable wind velocity, low illumination).
The current two maintenance and logistics contracts in
support of the SMW expired at the end of August 2013. The new
contract merges the previous two and addresses the
recommendations in the SIGAR report regarding contractor
performance metrics and a plan to transition responsibility to
the Afghans. The transition plan includes the transfer of both
management and operational functions and is based on specific
milestones rather than a specific timeline. In terms of current
progress, there are two Afghan maintenance managers leading
production control meetings, setting priorities for aircraft,
and briefing Afghan maintenance staff. Moreover, Afghans are
currently performing regular maintenance on the Mi-17s with
contractor oversight. Hands-on training for maintainers is
essential, and additional aircraft are necessary to facilitate
said training.
Q.2. Does DOD analysis currently include a timeline for
proposed operational capability of PC-12's, Mi-17's and other
planned fixed-wing aircraft? If yes, please provide this
timeline. If no, provide a proposed timeline whereby DOD
anticipates the Afghans will be able to meet the demand for
pilots, flight engineers, maintenance technicians, and security
personnel to successfully operate and maintain current and
planned fleets. What current program is in place for the
training of fixed-wing pilots? How many candidates are
currently in training? As part of this time line, please
address the factors of vetting and training to meet full
operational capability. Planned fleets means aircraft beyond
the SMW and in addition to PC-12's and Mi-17's.
A.2. Yes. Please see table below that outlines each fixed-wing
aircraft and Mi-17 operational capability dates.
----------------------------------------------------------------------------------------------------------------
Full Operational Capability (FOC)
Aircraft Initial Operational Capability (1.5 crew ratio per aircraft (a/c),
(IOC) (basic crews ready) plus perform missions)
----------------------------------------------------------------------------------------------------------------
PC-12 (Spec Msn Wg)................... 3rd Quarter (Q) 2015 3d Q 2016
Mi-17 helicopter...................... Already IOC With 86 a/c FOC 1st Q 2016
C-208 light lift plane................ Already IOC With 26 a/c FOC 1st Q 2015
C-130 medium lift..................... 1st Q 2016 With 4 a/c FOC 4th Q 2018
A-29 light attack plane............... 4th Q 2016 With 20 a/c2019
----------------------------------------------------------------------------------------------------------------
Current training program in place: All Afghan pilot
trainees regardless of platform are required to achieve a
minimum English language skill score before starting flight
training. Most fixed-wing pilot training occurs at Shindand
Airbase, Afghanistan. Students learn basic flight skills in the
Cessna C-182 and then progress to the Cessna C-208 for advanced
training. Other initial pilot training occurs in the United
Arab Emirates and the Czech Republic. Classes are full and
training is progressing well. The C-182 and C-208 are less
complicated to maintain and have high sortie production rates.
C-130 training is at Little Rock Air Force Base, Arkansas. Two
students are in training and scheduled for completion
commensurate with the delivery of the first aircraft in
September/October 2013. Six other C-130 pilot candidates are in
English language training, four of whom are scheduled to start
pilot training late Fall 2013. Ten additional C-130 pilot
candidates have been identified but have not started training.
C-130 loadmasters and engineers have been identified and are
enrolled in English language training. C-130 loadmasters and
engineers have been identified and are enrolled in English
language training. The initial two C-130 aircraft will be
operational by Fall 2013 with U.S. Air Force aircrew support.
Training Pipeline: 104 students are in Undergraduate Pilot
Training, Undergraduate Helicopter Pilot Training or Initial
qualification Training: 6 in the United States, 48 in UAE, and
50 at Shindand Airbase: There are 441 students (aircrew and
maintenance) in English training (various locations)--a 300-
percent increase in the last 6 months.
Q.3. How will DOD assist the Afghans in recruiting and
retaining pilots, flight engineers and maintenance technicians
to successfully operate and maintain current and planned
fleets? Planned fleets means aircraft beyond the SMW and in
addition to PC-12's and Mi-17's.
A.3. DOD assistance to the Afghans is primarily through the
advisory function. Advisors have helped develop and implement
the high standards that have put the Afghan Air Force (AAF) at
the top of all recruiting and retention benchmarks across the
Afghan National Security Forces (ANSF).
Historically, the Afghan National Army (ANA) ``pushed'' new
recruits to the AAF, many of whom did not possess the necessary
literacy skills to be successful. Over the last several years,
this has changed significantly such that the AAF now ``pulls''
quality recruits from the ANA to begin Air Force training. This
January, the AAF Recruiting and Accessions Policy was signed
and later reinforced by General Karimi (Chief of the General
Staff) when he supported the AAF's decision to reject
unqualified recruits.
The U.S. 9th Air and Space Expeditionary Task Force-
Afghanistan Commander (Senior Airman in country) has requested
a professional U.S. Air Force recruiter to serve as a mentor to
the AAF to strengthen recruiting practices and develop the
organization and messages to increase recruiting. Sourcing is
in progress.
AAF retention rates are the highest in the ANSF. Recruiting
outstrips losses (retirements and separations) and many Afghans
choose to remain in the AAF for a variety of reasons. Some of
those reasons include incentive pay for specialized career
skills such as pilots, maintenance personnel, and English
competency. The AAF also has a leave policy allowing service
members the time to visit with family. Cultural ties to family
are important and the AAF provides stability by living in one
location near family. Finally, combat losses and operations
tempo are considerably less than their Army counterparts.
Q.4. What incentives, if any, will the Afghans provide pilots,
flight engineers and maintenance technicians to ensure they do
not complete the vetting process, acquire training and separate
from service to operate and maintain current and planned
fleets? Planned fleets means aircraft beyond the SMW and in
addition to PC-12's and Mi-17's.
A.4. Afghan Air Force (AAF) retention rates are the highest of
all the Afghan National Security Forces. Recruiting outstrips
losses and many Afghans choose to remain in the AAF for a
variety of reasons. Some reasons include incentive pay for
specialized career skills such as pilots, maintenance
personnel, and English competency, or the leave policy that
allows members time to visit with family members. Cultural ties
to family members are important, and the AAF provides stability
by living in one location near family. Finally, combat losses
and operations tempo are considerably less than their Army
counterparts.
Furthermore, once an Afghan joins the AAF and becomes an
officer, the Inherent Law for Officers and Noncommission
Officers requires them to serve for at least 10 years. No
external ``pull'' to leave the AAF exists at this time. Unlike
the United States, where major airlines or financially
lucrative opportunities cause U.S. Air Force pilot retention
challenges, the Afghan economy remains less attractive to many
AAF members. Stable and safe employment with competitive pay
and leave policies are positive factors motivating many Afghans
to remain in service. Many AAF officers must be forced to
retire at their high year tenure marks, making room for new
officers that will lead the AAF.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM ERIC L.
HIRSCHHORN
Q.1. The Federal Government has not used the loan and loan
guarantee authorities provided for in Title III in more than 30
years.
Under what circumstances were they used and why are they
not used today, and if not used, should they be removed from
the Act?
A.1. The Department of Commerce (Commerce) does not have a
Title III program and does not have any information on the
circumstances associated with the previous use of the loan and
loan guarantee authorities. The Department of Defense is
currently the only Federal agency with an active Title III
program. Commerce believes that the Department of Defense is
better suited to respond to this question based on its
extensive history administering its Title III program and
related Title III projects.
Q.2. Similarly, the Title VII authority for a National Defense
Executive Reserve appears dated, at least, in some of its
language. It also either has never been used, or has been
dormant for decades, does it need to be updated or eliminated?
A.2. Commerce did have a National Defense Executive Reserve
(NDER) program from the mid-1950s to the mid-1990s. The focus
of the program was to support mobilization planning in the
event of a national emergency. Commerce dissolved its NDER unit
in May 1997 after concluding that the maintenance of a cadre of
industry executives was no longer necessary in light of the end
of the cold war. Commerce has no current plans to reestablish a
NDER program. The Department of Homeland Security has been
delegated the responsibility for overall coordination of the
Federal Government's NDER program, most recently in Executive
Order 13603 of (March 16, 2012 (77 Fed. Reg. 16651, Mar. 22,
2012). Commerce believes that the Department of Homeland
Security is better suited to respond to the importance of the
National Defense Executive Reserve authority as an element in
national emergency planning in today's environment.
Q.3. Can you give any examples where DPA authorities, fell
short in their implementation, or exceeded their scope or
encountered any unintended consequences in any manner?
A.3. As noted in our testimony, the Defense Production Act
(DPA) provides authority for a variety of Commerce programs of
substantial importance to our Nation's security. The Defense
Priorities and Allocations System (15 CFR part 700) facilitates
the timely delivery of industrial resources to the Department
of Defense, coalition partners, and increasingly to meet
Homeland Security requirements. The DPA also facilitates
valuable assessments of the health of key sectors of the
defense industrial base and the impact of offsets in defense
trade.
Commerce cannot cite any examples where DPA authorities
fell short in their implementation or exceeded their scope.
Commerce did encounter an unintended consequence related to its
reporting to Congress on offsets in defense trade. Prior to
2008, Commerce's Bureau of Industry and Security published only
one version of its offsets in defense trade report which was
first transmitted to Congress and then subsequently made
available to the public. During an internal program review, the
Bureau of Industry and Security determined that foreign offsets
authorities were using the country-specific offset data
included in the Commerce report as a tool to benchmark their
offset requirements with those required by other foreign
nations, which potentially could contribute to higher offset
demands being imposed on U.S. companies in future defense
competitions. Accordingly, beginning with the Bureau of
Industry and Security's 13th Offsets in Defense Trade Report to
Congress (December 2008), Commerce ceased making such data
available to the public and instead included the data only in
``For Official Use Only'' annexes incorporated into the version
of the report transmitted to Congress.
DPAC
Q.4. Since the Department of Commerce is a Defense Production
Act Committee (DPAC) member, can you offer an assessment, as a
participant on that Committee, as to whether DPAC has in your
opinion effectively advised the President on the appropriate
use of DPA authorities?
A.4. Commerce has participated in the interagency discussions
associated with the establishment of the DPAC, including the
development of its charter, and has supported study groups
established by the DPAC. Commerce believes the DPAC can be a
mechanism to share information among Federal agencies on the
use of DPA authority (including through study groups
established by the DPAC) and to develop recommendations for the
effective use of DPA authorities.
Q.5. Can you provide us with an example or two of how the DPAC
has improved the processes underlying the DPA authorities or
how the authorities are used in the executive branch?
A.5. Commerce's National Institute of Standards and Technology
worked closely with the Department of Defense in leading a DPAC
study group that examined current domestic metal fabrication
capabilities and national defense needs. The study group
surveyed senior acquisition officials from across the Federal
Government regarding unmet agency mission-critical component
needs that are limited by current domestic metal fabrication
capabilities. Based on this interagency discourse and
subsequent industry engagement, the study group identified
three primary cross-cutting risk areas that are essential to
the national defense: castings, forgings, and machining, with
forged-quality metal components representing the highest-
priority industrial base shortfall within metal fabrication.
This work has helped inform the Department of Defense on its
potential use of the Title III authority.
Commerce Regulations
Q.6. The Department of Commerce has issued its proposed
rulemaking on its Defense Priority Allocation System, or DPAS,
in 2010, but it has yet to be finalized, can you comment on the
delay?
A.6. In June 2010, Commerce's Bureau of Industry and Security
published a proposed rule to update the Defense Priorities and
Allocations System regulations (15 CFR part 700) (75 FR 32122,
June 7, 2010). The Bureau of Industry and Security received
only one comment on that proposed rule. The Bureau of Industry
and Security has reassessed some aspects of the June 2010
proposed rule, based in part on our ongoing engagement with the
five other departments that have been delegated priorities and
allocations authority by the President (Agriculture, Defense,
Energy, Health and Human Services, and Transportation) and with
the Department of Homeland Security. We will be publishing a
new proposed rule in the early fall.
Q.7. What needs to be done to improve the process of issuing
the priorities and allocations under the DPAS regulations?
A.7. Based on our experience, no improvements are needed to the
process at this time. As noted in our testimony, Commerce has
delegated authority to the Departments of Defense, Energy, and
Homeland Security, and the General Services Administration, to
place priority ratings on contracts or orders for industrial
resources to support programs determined by Defense, Energy, or
Homeland Security as ``necessary or appropriate to promote the
national defense.'' Commerce may also authorize other
Government agencies, foreign governments, owners and operators
of critical infrastructure, or companies to place priority
ratings on contracts or orders on a case-by-case basis. Such
requests must first be determined as ``necessary or appropriate
to promote the national defense'' by the Departments of
Defense, Energy, or Homeland Security. The current framework
has proven effective in facilitating the timely delivery of
industrial resources needed to support our national defense,
including military, homeland security, emergency preparedness,
and critical infrastructure protection and restoration
requirements.
Q.8. If the Defense Department is using the process 300,000
times a year, what type of coordination or oversight role do
you have with it?
A.8. Commerce has delegated authority to the Department of
Defense to place priority ratings on contracts or orders for
industrial resources to support programs determined by Defense
as ``necessary or appropriate to promote the national defense''
without coming to Commerce on a case-by-case basis. The
Department of Defense is authorized by Commerce to use both
DPAS levels of priority, designated by the symbols ``DO'' and
``DX.'' All ``DO'' rated orders have equal priority with each
other and take preference over unrated orders. All ``DX'' rated
orders have equal priority with each other and take preference
over ``DO'' rated orders and unrated orders.
The Commerce delegation also provides that Defense may
sponsor requests for special priorities assistance upon
determining the need for the requested assistance in support of
military programs. Since 2005, Commerce has taken more than 250
official actions, in accordance with the DPAS, in response to
requests for special priorities assistance endorsed by Defense,
many related to directly supporting U.S. and coalition forces
operating in Afghanistan and Iraq.
Commerce also supports the Department of Defense's Priority
Allocation of Industrial Resources (PAIR) Task Force which was
established by Defense to address circumstance where there are
competing Defense program requirements for limited resources.
Commerce may be asked by the Department of Defense to take
action through the DPAS to implement a Priority Allocation of
Industrial Resources (PAIR) decision reflecting Defense's
highest priority requirements, such as issuing a directive to a
U.S. company that establishes priorities and deadlines for
identified contracts and orders that are supporting urgent
operational requirements.
The Commerce delegation provides that Defense conduct a
continuing training program to ensure that appropriate
Department of Defense and contractor personnel are thoroughly
familiar with the DPAS regulation and the provisions and
limitations of Commerce's DPAS delegation to Defense. Commerce
works closely with Defense in supporting DPAS training
activity, including coordinating with the Office of the Deputy
Assistant Secretary of Defense for Manufacturing and Industrial
Base Policy, the Defense Acquisition University, and the
Defense Contract Management Agency on activity to educate the
Defense acquisition community and Department of Defense
suppliers. Commerce has also established a DPAS Web site with a
wide range of DPAS resources, including links to the DPAS
regulation, DPAS training tools and DPAS guidance issued by the
Office of the Deputy Assistant Secretary for Manufacturing and
Industrial Base Policy for other Defense components.
Q.9. Are there any recent examples where special priorities
assistance was required and what was done by your staff to
resolve the issues?
A.9. Commerce's Bureau of Industry and Security worked closely
with the Office of the Deputy Assistant Secretary of Defense
for Manufacturing and Industrial Base Policy in March 2013 to
expedite the delivery of certain specialized bearings needed to
manufacture a new mortar system. In this case, the Department
of the Army requested special priorities assistance on behalf
of the supplier of the 120mm Enhanced Mortar Targeting Systems
(EMTAS). The Joint Chiefs of Staff had highlighted the military
importance of deploying these systems to Afghanistan as rapidly
as possible under a ``Joint Urgent Operational Need''
statement.
The EMTAS supplier needed assistance in expediting the
delivery of certain bearings used in these systems because the
bearing supplier was unable to meet the EMTAS program's
required delivery schedule. After receiving guidance from the
Department of Defense that the EMTAS requirement was the
highest Department of Defense priority being supported by the
bearing vendor, Commerce worked closely with the EMTAS
supplier, the bearing vendor, the Office of the Deputy
Assistant Secretary of Defense for Manufacturing and Industrial
Base Policy, and the Department of the Army program office to
develop a plan for expediting delivery. This plan was executed
through the issuance of a DPAS directive by Commerce that
required the bearing vendor to give its EMTAS-related orders
priority over other defense and commercial orders. The
directive also established a detailed schedule for delivering
the critical items to the EMTAS supplier over a 5-week period.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM RICHARD
SERINO
TITLE III
Q.1.a. The Federal Government has not used the loan and loan
guarantee authorities provided for in Title III in more than 30
years.
Under what circumstances were they used and why are they
not used today, and if not used, should they be removed from
the Act?
A.1.a. The Department of Homeland Security (DHS) defers to the
Department of Defense (DOD) to address how these authorities
were used and if they are not used today. These authorities are
valuable preparedness tools that can be used to support
national defense production and supply needs and should remain
in the DPA.
Q.1.b. Similarly, the Title VII authority for a National
Defense Executive Reserve appears dated, at least, in some of
its language. It also either has never been used, or has been
dormant for decades, does it need to be updated or eliminated?
A.1.b. DHS does not believe that the current language regarding
an industry reserve needs to be revised or eliminated. While
there are no active National Defense Executive Reserve (NDER)
units in the Federal Government currently, this authority is
appropriate to govern the establishment of future units in the
event of a catastrophic incident to warrant its use.
Q.1.c. Can you give any examples where DPA authorities, fell
short in their implementation, or exceeded their scope or
encountered any unintended consequences in any manner?
A.1.c. The DPA authorities have been proven effective over the
course of more than six decades of use. The priorities
authority continues to be a key element in supporting DOD
procurement and has also provided support for important
homeland security activities--both for disaster preparedness
and response and for homeland security activities. Witnesses
from FEMA, DOD and the Department of Commerce have all provided
examples of how effective the recent and ongoing use of the
priorities authority is to support military and homeland
security supply needs.
DPAC
Q.2.a. There are some 13 departments and agencies with
delegable authority under the DPAC umbrella. Governmentwide,
then, it seems that Title I holds the biggest potential for the
use DPA authorities.
How much is the Defense Production Act Committee focused on
Title I versus Title III authorities?
A.2.a. Both the Department of Homeland Security (DHS) and
Department of Defense (DOD) are leading initiatives to study
Title I and Title III authorities. DHS has put together a study
group focused on Title I authorities, and DOD has established
four separate study groups to conduct industrial base
assessments in each of those focus areas to determine whether
use of Title III authorities is warranted.
Q.2.b. Is emergency preparedness getting sufficient attention
in the DPAC?
A.2.b. DHS believes that emergency preparedness is receiving
sufficient attention in the DPAC at this time.
Q.2.c. How useful or valuable is the work and focus of DPAC to
the more nondefense-oriented agencies or departments?
A.2.c. There have been several informative discussions that
allow for a heightened awareness among DPAC members regarding
how Title I authorities could potentially be used to support
national defense activities, including nonmilitary related
activities.
DPA and the business community
Q.3.a. Some might argue that there may be a lack of
understanding in terms of the business community and the
expectations placed on it by Title I authorities.
In a major disaster situation, is the business community
sufficiently prepared to fulfill contracts prioritized pursuant
to the DPA?
A.3.a. DHS cannot speak for the entire business community, but
no contractor compliance issues have been submitted to DHS for
resolution.
Q.3.b. Is the business community completely aware of all that
is required of it to do so?
A.3.b. Priority-rated contracts, orders, and subcontracts have
been placed in support of national defense programs since the
DPA priorities authority was first enacted in 1950. As a
result, the business community engaged in national defense
procurement at the prime or supplier level is well-versed in
policy and procedures governing use of the priorities
authority. Priorities system policy and procedures for the
materials, services and facilities under the Department of
Commerce's priorities and allocations jurisdiction are spelled
out in comprehensive detail in the Defense Priorities and
Allocations System (DPAS) regulation (15 CFR part 700), which
is administered by the Department of Commerce. At this time,
the DPAS is the only priorities system that is actively used.
The DPAS policy and procedures have been used as a template for
new priorities rules issued by other Federal departments that
are delegated priorities authority under Executive Order 13603.
Q.3.c. What does the Federal Emergency Management Agency, or
FEMA, do to ensure the full participation of industry?
A.3.c. Although FEMA rarely uses this authority, FEMA does
reach out to industry to explain how priority ratings are used
when there is a need to ensure the timely delivery of an item
or service.