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▶ 0:14:27we right
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▶ 0:15:30uh in our first hearing this Congress We examined uh the complex and growing threats facing our nation today we're going to review the state of the defense industrial base and how we can best position it to fully support our military if conflict breaks out for over 200 years we have relied on the skills of the men and women working in shipyards factories throughout America to build the tools of War Fighters that war Fighters need
▶ 0:16:00to succeed in battle we cannot Prevail in any conflict without a ready strong and adaptable industrial base but over the last 30 years we have watched the industrial base atrophy defense firms have Consolidated Supply chains have narrowed regulatory burdens have grown out of control and Recruitment and Retention of the skilled Workforce have become much more difficult the consequences are readily apparent critical acquisition
▶ 0:16:30programs are years behind schedule and way over budget thousands of small businesses are choosing not to do business with the Pentagon and we are losing war game after war game because we can't resupply CR critical Munitions and weapon systems in a timely manner while recent ndas have made great strides in tackling this issue much more needs to be done we need to expand multi-year contracts and fully fund them to provide industry
▶ 0:17:00with more certainty we need to bulldo the Labyrinth of regulatory burdens that hamstring the acquisition process we need to end our dependency on China for critical minerals and materials and we need to reform the arms export process to help industry work with our allies and partners to unlock greater burden sharing ultimately however we need to invest much more in Workforce Development Automation and infrastructure
▶ 0:17:31improvements while our adversaries increase Investments and subsidies in their defense industrial bases we've let ours languish a strong resilient and diverse industrial base is needed to restore peace through strength our adversaries will only be deterred if they know that the United States along with its allies can produce and sustain military forces in a protracted conflict I look forward to hearing from our w Witnesses about what resources and authorities
▶ 0:18:02your member companies need to revitalize the industrial base and restore American deterence with that I yield to my friend the ranking member for any comments he may have uh thank you Mr chairman thanks for holding this hearing I think this is an important topic that we should all uh discuss as we get ready to see what the budget is going to look like yes the the the our ability to get to scale and produce what we need to produce in the quantity it needs to reduce is seriously in question we you know whether you're talking about ship building munitions across the board there are considerable concerns about our ability to
▶ 0:18:32build what we need to build I completely agree with your comments about the workforce we need to do a better job of developing that Workforce as we go forward and to get to that scale of production on critical items another big part of it which I know this committee has done a lot of work on is how quickly we make decisions and are able to adapt to uh new technologies and buy new equipment the process is too slow we all know that we've talked about that repeatedly um the Pentagon is more focused on process less focused on results the defense industrial
▶ 0:19:02base is focused on sort of gaming the requirement system to make sure that they win um and we don't make decisions quickly and Congress of course limits the flexibility of the Pentagon to get there the other aspect of this though that I hope we'll consider is choices when when you look at all of the areas within DOD where we want to spend more money and you can pick a member here who has a particular interest if you're from a ship building area you will complain that we don't have enough ships you know we talk
▶ 0:19:32about you know our jet fighters we we don't have the F-35 fast enough and then when you look at all of the adversaries that we face and and what our concerns are with China with Russia I think that's still a concern um with the Middle East um with various terrorist groups and you say well what do we need to meet those threats the one thing I hope everyone considers here we cannot possibly spend the amount of money and build what is needed to meet all of the threats that we keep talking about it's simply
▶ 0:20:02not possible so part of this needs to be thinking about what is our strategy how do we manage the challenges that we Face instead of imagining that we're somehow going to be dominant in the world and be able to deter everybody we are not making choices in terms of what is a realistic defense strategy we're not going to be able to dominate and overcome every single perceived adversary out there so I hope we have some ation this year about how we can restructure that and make different choices and one key
▶ 0:20:33part of that is something that the chairman mentioned allies and partners they're going to be absolutely crucial now in this particular context they're crucial in terms of the industrial base um allies and partners have capabilities that's why I'm such a huge fan of aus you know building that greater partnership with the UK and Australia yes you know we'll build submarines but also the technology sharing that goes in that into that enables us to rely on other parts of the world other partners and allies now it's important to have partners and allies who are willing to do that
▶ 0:21:03so we can't go around offending all of them all the time uh but we're going to need those partners and allies to do that the last thing that I'd like to hear from from our Witnesses about is the impact of the Doge approach to the Pentagon I am concerned about that to begin with we we need skilled workers and now we are apparently going to add the Pentagon to the list of federal agencies where we're simply going to randomly fire people okay now we're not going in there and saying who's good at their job we need this particular Talent we that need that particular Talent at the moment
▶ 0:21:34we're just saying that we're going to fire the people who have been there for less than two years I mean that's that's not quality control that that can enter chaos into the process in a very unhelpful way it's also become apparent that a lot of people are going to be fired based on their loyalty to the president as opposed to their ability and trust me that lesson will be learned by people at the Pentagon and they will learn okay I don't have to be good at my job I just have to suck up to the boss and they will make that choice that's not going to make us better
▶ 0:22:04it's not going to make us more efficient or more effective and lastly any insights anyone might have on the proposed 8% Cuts supposedly it's going to be cut you know from certain areas I don't know where and then added back into to quote presidential priorities but the clarity on that process just isn't there I mean nobody seems to know exactly what the point of that is and yet we're talking about 8% of the budget that's going to be moved around a little bit of clarity on this is what we're looking for this is where it needs to go with help so so chaos
▶ 0:22:34is not going to help this process um I think we have three very very highly qualified Witnesses here today look forward to hearing from you uh about how we can be more efficient more effective and build what we need uh to meet our national security objectives and with that I yield back thank you thank the ranking member before we continue with the introduction of witnesses I want to remind those in the audience that this hearing is open to the public but that actions to to disrupt or distract will not be tolerated the chair reserves the right to remove disruptive persons from the hearing
▶ 0:23:04us Capital police are on hand to assist with that task and I thank them for their presence let me start by introducing The Honorable Eric Fanning the president and CEO of the Aerospace Industries Association former H staffer uh he served which is what qualified him by the way uh he served as the 22nd Secretary of the army and various other senior roles for his in his 25 years of government service The Honorable David NorQuest is the president and CEO of the National Defense industrial Association Mr NorQuest
▶ 0:23:35previously served as the 34th deputy secretary of defense from 2019 to 21 and Max Paxton is the president of the ship builders council of America a role he assumed in 2007 after a very distinguished career as a senior advisor in the Senate with that Mr Fanning we'll start with you you recognized for five minutes uh thank you Mr chairman and my time to turn your microphone on thank you Mr chairman my uh my time on the I don't think your microphone's working
▶ 0:24:06maybe pull it closer to you Eric thank you Mr there we go um my uh my time on the Hask staff was well well before anybody on the committee was on the committee uh chairman Rogers ranking member Smith and members of the committee thank you for the opportunity to testify on the importance of strengthening the United States industrial base every morning more than 2 million Americans employed by the Aerospace defense industry go to work with one mission in mind to enhance deterrence by increasing The lethality survivability and chance
▶ 0:24:36of victory for the warf fighter this is our industry's primary driver to make our country safer more secure and more prosperous to do this the companies that make up the defense industrial base rely on clear demand signals from Congress and the executive branch sufficient Federal investment a healthy and resilient supply chain and a regulatory environment that promotes both Innovation and adoption the last three years have exposed how many years of policy and funding have shaped The Contours
▶ 0:25:06our industry we invest for peace rather than the deterrence necessary to sustain that peace we optimize for efficiency rather than capacity this was true when I testified two years ago before this committee and it remains true today despite an incredible amount of attention to the matter including from this committee and Industry working against enormous e economic headwinds to change this we still have a system that increasingly can't keep Pace however we proceed we must take an all of the above
▶ 0:25:37approach to defense acquisition recognizing that the defense industrial base is a diverse ecosystem of companies that each have an important role to play we must ensure the system positions the whole industrial base primes new entrance suppliers and Commercial companies of all sizes to meet the war Fighters needs and the nation's expectations we can start with the complex Maze of well-meaning but burdensome statutes and government policies which drive up the cost and complexities of doing business with the federal government
▶ 0:26:07bureaucracies are additive we create a process to prevent the last bad thing from happening again well-intentioned and important but the cumulative effect of this risk mitigation has become a greater risk than the combined mitigation because it's keeping new equipment from getting to the warf fighter today it takes nearly 300 days on average to award Prime contracts with estimated sales of more than $100 million for commercial companies used to working quickly the delays in awarding contracts
▶ 0:26:37and executing Agreements are a strong disincentive to Contracting with the dod and small businesses struggle to maintain the cash flow over such a long Horizon Congress should focus on rightsizing the regulatory regime to encourage new entrance and support companies of all sizes within the DI the removal of regulatory burdens also applies to strength strengthening domestic manufacturing and Supply chains as well as for allowing closer cooperation with allies and trusted Partners these Global alliances are
▶ 0:27:07a competitive Advantage for the United States and we make it too hard for them to work with us and buy the equipment they want ours increasing domestic manufacturing and supply chain resiliency easing easing technology sharing requirements and growing our defense exports are key to a US posture that effectively deters our adversaries rationalizing the process for arm sales has the added benefit of creating additional funding streams for the dib in the 2024 fiscal year total foreign arm
▶ 0:27:37sales exceeded all DOD procurement and rd&t rdt accounts combined a necessary Lifeline Amit an uncertain funding environment and federal investment must keep Pace with the threats we face while we all recognize the growing instability around the world particularly growing threats from China our actions have not matched our words insufficient funding levels the annual res Reliance on short-term funding measures and the constant Spectre of government shutdowns have created deep-seated
▶ 0:28:08and disrupting instability for companies this in term jeopardizes our ability to maintain production lines support a skilled Workforce and develop Innovative new technologies that ensure our asymmetric Advantage lastly guaranteeing the dib has access to the talent pipeline to sustain its work is foundational to these efforts investing in stem education reskilling current industry employees for new technologies and enhancing our country's training efforts including apprenticeship programs
▶ 0:28:38on the job training and certification and convening programs are vital to ensuring a highly skilled Dynamic future Workforce the administration and this Congress are pursuing a policy of peace through strength the United States defense industrial base delivers that strength the nation needs and deserves the entire defense industrial base running full Steam on behalf of the Aerospace Industries Association thank you again for the opportunity to testify thank you Mr Banning Mr n wish recognized
▶ 0:29:09thank you chairman Rogers ranking member Smith and distin I'll bring it up closer there we go chairman Rogers ranking member Smith and distinguished members of the committee thank you for the opportunity to speak with you today on strengthening America's defense industrial base which is essential for our national security I will limit myself to brief opening remarks for more detailed analysis the National Defense industrial Association has just completed a report on the resilience of the US defense industrial
▶ 0:29:39base titled Vital Signs 2025 and with the chair's permission I submit that report for the record for over 100 years ndia has provided a for for government and Industry leaders to collaborate and address complex defense issues so that our nation maintains a a strong and resilient defense industrial base ndia and its Affiliates represent over 1,700 defense companies of all sizes and sectors and the majority are small businesses
▶ 0:30:10these companies design manufacture and maintain the cuttingedge Technologies and systems that our Armed Forces rely upon to defend our nation during the last 35 years government policy and funding decisions have resourced the US defense industrial base for low intensity conflict critical elements of the industrial base including the manufacturing sector skilled trade Workforce have atrophied industry be Behavior reflected the funding levels and the rules set by its customer the federal government
▶ 0:30:41but now the threat has changed if we want increased capacity speed resilience and Innovation then we must prioritize them in the budget acquisition and requirements process at a high level many of the issues facing the US defense industrial base are well known scloric acquisition process brittle Supply chains insufficient procurement funding unstable budgets increased regulation and barriers to modernizing defense trade the committee has been a leader in addressing
▶ 0:31:11these challenges what makes change hard is that the system is so complex that changes at one level is often offset by counter pressures at another level for example we must be aware of how statutes regulations and policies driving compliance decisions at the the program manager and Contracting officer level can create incentives counter to the intent of reforms from Congress or senior department leaders one concrete example is how current policies and regulations deter industry
▶ 0:31:41ramping up Munitions production and I look forward to engaging with you on topic likewise new restrictions and barriers to entry arising including specific challenges around intellectual property and data rights as well as the cyber security maturity model certification requirements while well intentioned and in many cases very important both of these are clear areas that discourage attracting new entrance suppress Innovation and increase compliance costs in addition as the Congress moves forward
▶ 0:32:11to reduce regulatory burdens and incentivize novel Contracting approaches to attract and retain new companies it is important to give traditional company contractors access to the same streamline system otherwise we are signaling to the non-traditional that as they succeed they will eventually eventually graduate into the current slow burdensome and costly system this Congress and the new Administration have inherited the political conditions conducive to breaking up and reforming an acquisition
▶ 0:32:42system that prioritizes reducing risk over speed and Innovation the good news our nation has a defense sector that is innovative and dynamic what is required is to shape the conditions that will allow it to perform in the way we want ndi appreciates the committee's leadership and focus on this strategic topic we look forward to working with you to rebuild our defense industrial base in order to strengthen our national security thank you for the opportunity to testify today
▶ 0:33:12and happeny to answer any questions you may have thank you Mr NorQuest Mr Paxton you're recognized minutes you're microphone's not on let just see if the staff can get that nope thank you you on behal
▶ 0:33:42of the ship's Council of America I'd like to thank chairman Rogers and ranking member Smith and members of the committee for the opportunity to provide testimony on strengthening the US defense industrial base since I last testified before this committee there have been questions from C senior Navy leaders and others as to whether the US Shipyard industrial base has the capacity and capability to build and maintain our Navy and Coast Guard fleets I want to State very clearly that the physical capacity of our shipyards is not a
▶ 0:34:13constraint to building and maintaining the fleet in fact industry capacity is a reflection of the demand signal of our government and Commercial customers and in ship counts that demand signal for several decades was on the lower end on top of of this we went through sequestration strategic pauses in certain programs and endured the general volatility resulting from Ever Changing or non-existent ship building plans considering all these factors it is no wonder that Private Industry moves cautiously with capital
▶ 0:34:43expenditures and investment in Workforce I'm here this morning to thank the work of this committee and Congress for implementing policies and laws to assist the defense industrial base but certainly more will need to be done to truly achieve the Innovation and efficient gencies needed to deliver with speed Critical Defense programs to our men and women in uniform in particular to strengthen the shipyard industrial base we must be committed to maximizing optimization of existing Private Industry Shipyard capacity relentlessly
▶ 0:35:13seeking to reduce excessive oversight and requirements and and end the sole focus on competition at the expense of partnership it is unden it is undeniable that there has been a reduction in Fleet size since the end of the Cold War the government customer has gotten more bureaucratic and risk averse Navy got out of ship building role in 1971 when they determined Private Industry was producing ships 20% cheaper over time Navy's oversight and bureaucratic reach styed Innovation and
▶ 0:35:43has slowed the industry rather than sped it up anecdotally I can see this on the ground for example I was recently in the shipyard where the ratio of Shipyard workers to government oversight was 16 to1 and in another smaller Shipyard had a 2:1 ratio in any objective view this is simply not efficient and overly burdensome resulting in bureaucratic breakdowns impacting schedule and cost shipyards invest significant efforts in preparing designs conducting extensive feasibility assessments
▶ 0:36:14and shaping Workforce plans based on initial requirements even when a company wins a contract they're still dealing with shifting requirements after contract award pushing even more cost burden onto ship Builders while adding delays and inefficiencies Sailors deserve the best we can offer however we are overdesigning platforms to the point that they are not able to be manufactured and thus Sailors are asked to perform on older vessels with less capabilities there must be some level of mission sufficient when it comes to design additionally
▶ 0:36:44Navy share prare has been scrutinized in the headlines with some going as far to suggest that we should Outsource our crital critical maintenance availabilities to International counterparts Outsourcing would only exacerbate the decreasing work loads in the domestic private Ship Repair Market instead we need to address the fundamental issues impacting ship repair including including increased complexity of work available materials and how to facilitate A reduced regulatory structure lastly I'd note the current prospect
▶ 0:37:14that we are facing a year-long continuing resolution is agonizing to Industry it is Paramount that Congress does its part and returns to passing regular appropriation bills on time before the end of each fiscal year as would encourage the Congress to continue to support stable realistic and predictable budgets for the US Navy and Coast Guard and we appreciate the work of this committee has done to see these goals realized ultimately we need to change the behavior as we've currently as we're currently in an adversarial environment
▶ 0:37:44in Contracting and design which is a lose lose for industry and navy we must return to partnering to a partnering model where the government customer and Industry focus on continuous process Improvement and Jo point to ownership of problem resolution we need to view industry and Navy in the Coast Guard as partners and share equally in the risks with the common goal of delivering quality ships on time and on budget thank you chairman Rogers and ranking member Smith for allowing me to testify with such dis
▶ 0:38:15Witnesses and I look forward to your questions thank you Mr Pon I thank all the witnesses for their time they put in to making those uh statements and preparing for this hearing and I do appreciate your attendance and participation I recognize myself first for five minutes uh start with you Mr Paxton tell me what the ship building industry's done to to strengthen its uh Supply base I understand I I'm hearing all kind of horror stories about supply chain problems that have really been exacerbated since the covid
▶ 0:38:45pandemic but tell me what you're doing to make sure that your supply chain is not a problem uh thank you uh chairman Rogers first I'll say our shipyards are constantly taking the pulse of the health of our supply chain it's absolutely abolutely critical that we know where our sole source uh suppliers are and what the health of our industrial base looks like um we are investing in in the in the supply chain we have you know we are grateful for the work that this committee has done and the Congress has appropriated money for the uh submarine industrial
▶ 0:39:15base and the maritime industrial base those initiatives are having a real uh positive impact on the supplier base um but overall you're correct uh chairman uh since Co and before covid quite frankly there was a consolidation in the supplier base and we need to maintain the resiliency and health of that supply chain well uh Mr norquist you talked about um how current policies and regulations are making it harder for industry
▶ 0:39:45to ramp up uh Munitions production we've seen as a result of the conflict in the Eastern Europe that our ability to produce Munitions has really atrophied um how can how can we fix this so there's a number of challenges that happen with Munitions the first is it swings it swings more than the Top Line in the budget when the budget gets tight often the department will ask for amounts only necessary to keep a facility open and running and so you see this unstable
▶ 0:40:16demand signal that happens on the munition so that's one of the challenges I think also if you look at uh certainly the unclassified war games but this committee may have access to classified ones to ask the question question whether the floor that we're building to in peace time is in fact the appropriate inventory of Munitions we should have versus the requirement there's an assumption that once the war starts all of a sudden things will be available that weren't before I think there's a risk to that certainly when the other team can attack there's also
▶ 0:40:47um rules about when you have a profile for munition that shows a drop off at the end it discourages someone from opening a second production line Because by the time you bring in trained workers by time you get it up and running you'll turn around and have the production drop and so trying to rationalize the quantities you're buying with what you want the company to do in terms of factories those would be sort of the three things I'd start with great Mr vanning uh you and I talked in my office yesterday about the effect of
▶ 0:41:17CRS on cash flow and how that's affecting companies in the supply chain would you share with uh with uh the committee today your thoughts on what these these CRS are are meaning in the just the actual operational abilities of supply chain companies well it's certainly we've lived with CRS for many years although we're much further into the fiscal year now than than we typically are with a CR and it's happening at a time when I think the supply chain at least for our companies and our supply chain members
▶ 0:41:47are uh stretched thin and as fragile as we've seen in a very long time and a lot of that has to do with cash flow um following and being in an inflationary period there's a there's a lag for inflation in the industrial base and and I would argue that the the Pentagon still hasn't seen the full impacts of inflation so you have companies in supply chain with with really stretched cash flow problems causing them to have to move capex money into working account uh funds just to keep payroll going and when there's a CR
▶ 0:42:17and payments are cut off or are delayed it creates that extra stress and burden for the companies inside the supply chain that may have already lined up their Workforce their materials their parts and are under obligation to those contracts but aren't seeing their work start on something new or continue on something they're working on yeah and I just want people to understand if you're a small business in these Supply chains it becomes very unappealing to stay in this world and work and for the defense department and you decide instead just to go
▶ 0:42:47to the commercial work uh area so this is something that we're creating with these CRS and we've got to stop it with that thank you gentlemen and I yield to the ranking member for any questions he may have thank you Mr chairman Mr Norris you were talking a little bit about our capacity to grow quickly um and that's sort of bit of the traper in it's the whole demand signal thing industry obviously would like us to say for the next 10 years we're going to buy maximum amount of these things but it's a rapidly changing environment so we don't
▶ 0:43:17know for sure and and the answer to that would be build surge capacity so that you could is there any way to do that better than we've done it current or is it just the case that given how complicated it is to make systems they do better to get there so so the answer first is it is really difficult because to bring in Surge is to bring in you know the time you train and equip people but we also don't uh ask for it in our Contracting so typically if you have two biders and one builds
▶ 0:43:48excess capacity they will bid a higher price and lose and so unless you ask for that as part of the requirement the same thing with two suppliers if you don't ask for two suppliers coming into a supply chain for that final product then you'll get the Bender will be the one who does the single Source the things you can do for example is typically these are uh unused capacity is frowned on in the pricing in Audits and in the the allowable costs so if you want somebody to have a
▶ 0:44:18capacity uh to Surge then they need to have it priced into the contract or treated as an allowable cost but you you want to be careful where you do that you only want to do that in the things you're trying to allow because it is an extra cost for the system so as you point out you you can't have everything you need to figure out which are the systems which are the items that when the war starts or before the war starts you will need to Surge and how do you provide the rules for those contracts and and those items to allow for searge capacity well and that's
▶ 0:44:48something I really think that the dod in this body needs to do is make better choices about that you know we're all in favor of everything you know if everything's a priority then nothing's a priority and I think we need to really focus on that um you know mean seems to me that you know drones missiles counter drone missile defense are high priorities um and yet we're funding a whole bunch of other things so I think some choices need to be made uh Mr Fanning you were talking about um the slow pace of contracts and I'm with you
▶ 0:45:18we could go through any number of different stories I mean the Jitters radio God help us the tanker I mean that was when was it was like 2004 I think when we first said that maybe 2003 we still don't actually have the functional tanker um what can we do to speed up Contracting well I don't I don't think there's unfortunately any Silver Bullet to this I think the entire proc a brass bullet you know entire process from end to end you know needs to
▶ 0:45:48be needs to be rationalized as as I said before what we see in in bureaucracies is sort of a steering by the Wake attitude and processes are important and want to prevent bad things from happening but it just adds to the slow nature of the Contracting I think we're at a time where we need to add some thoughtful risk back into the system in order to get speed um and there are ways to do that it requires um careful oversight to make sure that the risk was well placed but I think it's a that's a larger cultural issue
▶ 0:46:19of taking risk to move faster and I don't think that's what we reward in the system it's not what we train for in the system um anytime you ask Congress for more authorities you get the answer we just gave you authorities which is almost always true there are always authorities that aren't being utilized because we incentivize uh the federal Workforce to use that um we incentivize them to find the problems not necessarily get us past the problems well and that's and it's not just DOD by the way I we see this in certification and FAA
▶ 0:46:49and it's not it's not in my view the workforce I've worked with amazing people in the federal Workforce um they are rewarded uh when they catch the problems and we need to think about that and we can we can Target it to specific sectors of what we're trying to produce in DOD uh to experiment with that and pilot it but I think we really need to to train um those those workers that Workforce differently and incentivize them and and reward them for taking that risk and getting things to the war fighter faster
▶ 0:47:19I'll take my last 30 seconds here just to to restate an editorial comment about the Doge effort and how we are going in there it's what's so maddening about this is if you were to go in there and say we want to make the changes in the workforce that you just described just set the incentives differently the the dod Workforce does a pretty good job of what we're telling them to do okay and we're telling them to go through a lot of process and make sure you never make a mistake so rather than going in there and just randomly firing people set a different culture
▶ 0:47:50change the requirements process free them up so they can do their job it's really frustrating because I know I know what Elon Musk did at SpaceX I know he knows better than this so I just don't know what the hell's going on well I have a suspicion which I'm not going to get into at the moment um but it's a huge missed opportunity to actually make the workforce at the Pentagon better more efficient I know people who work at the Pentagon they're as frustrated as we are okay they don't like the requirements that we put on them they don't
▶ 0:48:20like the process that we force them to go through they're smart capable people who shouldn't be being treated like this we should use them as the asset they are and unleash that asset so I hope we will change our approach on that going forward thank you for the Indulgence Mr chairman I yield back uh chair now recognizes a gentleman from South Carolina Mr Wilson thank you very much Mr chairman and indeed secretary Fanning we're glad to have you back we appreciate your H Heritage and we appreciate uh all of you for being
▶ 0:48:50here today uh it's so important that we have our country prepared for peace through strength and that's what you're doing uh with that in mind I I'm really grateful I grew up in Charleston South Carolina and so I particularly appreciate the naval facilities that are located there and have been so important uh and to me I was a sea Cadet but most important I appreciate the Navy my number two son ad is an orthopedic surgeon Buford Naval Hospital previously Naples Italy so uh it's just the Navy is just so important with that in mind
▶ 0:49:21Mr Paxton you've mentioned that in your written testimon the Navy's edition of last minute classification changes to parent designs along with the unilateral design changes that the contract is awarded is creating difficulty for ship Builders to meet the government's requirements without massive cost overruns how can we Implement long-term contracts to provide predictability for defense contractors while also having room for the Navy to make changes to respond to constantly changing Global threats
▶ 0:49:51as we've seen with war criminal Putin invading Ukraine and the puppets of Tran invading Iran Israel uh thank you Congressman for the question and um Deton Shipyard which is in Charles you need to get your microphone on I'm sorry again I apologize uh Denton Shipyard is a member of the shibler Council of America and they're right there in Charleston sir you're here um you know what we've experienced with some of our shiing programs that
▶ 0:50:21are not in the in the tier one shipyards talking about surface combatants and Air craft carriers nuclear submarines what we see on some of the lower programs uh the auxiliary programs um there's a constant churn on design um we go out with an RFP it's one price and the shipyard's bid on this and that and what they bid on ultimately is redesigned and added um ship specifications and requirements that by the
▶ 0:50:51time they ultimately are going to build this thing there's a different price and the vessel cost dramatically more so we got to lock those designs in um basic fun functional design and go forward with the ship Builder and indust uh and the government customer working together to get it right well we would look forward to everyone working together on that uh additionally our surface ships are entering maintenance in domestic shipyards are contining subject to delays resulting in a negative impact on Readiness in the indopacific our
▶ 0:51:22Department of Defense partners are telling us it's a result of Workforce limitations in supply chain issues when acquiring Parts would you say that this is an accurate representation the reason for the delays in domestic shipyards and would this be the same for foreign shipyards but I am very grateful that I visited of course the Guam Shipyard uh and our tremendous territory uh uh in the middle of the Pacific that is so crucial and in visiting I
▶ 0:51:52saw how dedicated they were so what is the status yes sir um Workforce is the number one challenge facing the shipyard industrial base at this point in time both in ship building and in Ship Repair um so Workforce is a challenge coming out of covid what we did see was kind of a generational shift with the Aging of our Workforce with a lot of our experienced Shipyard workers just retiring out of the industry postco so whereas in the mid 1990s a supervisor
▶ 0:52:22might have had 20 years experience sir some of those supervisors have four and half years um so there's a greening of the workforce but I can tell you this our Shipyard industry is investing the money and the resources to ramp that Workforce back up as for foreign shipyards sir I'm they're facing similar challenges with their workforces as well um and we are it's our number one priority to get it right and indeed forign uh the uh Republic of Korea to me uh is so
▶ 0:52:52important and what an opportunity uh and and with the backup at the Guam ship yard uh Mr norquist you've stated that many issues about offense industrial base are being faced and we see with war criminal Putin invading Ukraine and the attacks on Israel by the regime in Teran uh in its puppets so we have difficulty refilling our stock piles what is the status of a defense contractor to be able to increase production or shift from commercial production to military
▶ 0:53:29apologize I've the you have two challenges there the first one you the second one you mentioned is commercial moving towards working for the Department of Defense there the challenge is the number of unusual requirements that DOD puts on a company as you enter this which really requires them to go all in in order to be able to make it work on the first one which is which is ramping up the key question is access to Capital to be able to invest in addition facilities the supply chain in some cases when we're ramping up
▶ 0:54:00one munition it uses the same solid rocket motor line that two other Munitions use so they they end up getting stuck and then the third one is was mentioned before is the training of the workforce make these are very skilled individuals that are doing this work and this is not something you can pick up overnight so making sure that we have that pipeline of capacity to be able to provide those skilled workers for those functions thank you so much are you back chair I recognize a gentleman from California Mr G
▶ 0:54:30Mindy uh Mr chairman and ranking member thank you for uh this very very important first hearing of the full committee uh we're dealing with uh profoundly important issues here uh I want to focus on the maritime industry r large I want to thank our former member Mike Walsh uh who spent a lot of time as chairman of the Readiness committee addressing the issue of the capacity of the United States to provide
▶ 0:55:00both Naval vessels as well as um commercial vessels uh and now Mr Trent Kelly who has picked up uh this issue uh the introduction last year of the ships for America Act is the most comprehensive piece of legislation uh in recent history perhaps in all history about how we can add address the maritime challenges uh that face the U
▶ 0:55:31face this nation uh both in the uh Naval issues as well as the U commercial I draw the attention of the committee to that Mr chairman I thank you for raising this in your opening remarks and I want to U basically ask uh the witnesses their view of the ships for America act as it applies to those um me members of their uh organizations so let's start
▶ 0:56:01with Mr Paxton uh thank you Congressman G microphone please thank you Congressman Garamendi um and first of all thank you for your leadership sir um uh on the energizing America ship building act which is part of the ships act um and thank you for your sponsorship of the ships act uh not since the 1970s 1970 Merchant Marine act have we seen a peacetime buildup that the ships act would portend if we were to pass that legislation um having
▶ 0:56:31a national Maritime strategy is a failure we should have a national Maritime strategy that stitches together the commercial industrial base with our Navy with our Coast Guard with our Merchant Marine um and the ship act does all of those things um and again it really begs the question of do we want to be an international Commerce do we want to have a global logistics arm with our us-built US flag flag us crude ships and I think the answer is yes thank you I think one of the
▶ 0:57:01important things about the ship Act is it it creates a framework for significantly enhancing the domestic ship building and the repair and one of the important things is as we look at these challenges many of them are industry specific the type of changes you would make to increase and work through the shipyard industry might be very different than some of the others so I think when you have such a complicated process putting that Focus there is is particularly valuable and I think the the benefits for the Merit time Workforce which is an essential part of the success of that industry is key thank you
▶ 0:57:31Mr uh thank you um I don't have a whole lot to add there other than maybe I can just foot stamp on the workforce issue um it's a highly skilled issue in the shipyards um the conditions are a lot harder than other parts of of Aerospace and defense industry and I think we have to address the labor rates that are allowable uh particularly in shipyards thank you uh this piece of legislation is by camera uh Mark Kelly and Todd Young on the Senate side are the authors of it we intend to U
▶ 0:58:02reintroduce the bill following the chaos of March and so we'll pick it up probably in April and reintroduce between now and then any uh issues concerns suggestions that uh any of your members would want to uh make uh to improve or modify the bill please let us know I want to pick up another subject subject which came up and it's the subject of uh investment uh it's
▶ 0:58:32become increasingly clear that free cash flow from the major uh industrial military industrial companies uh is not being used for training workers instead it's being used to buy back stock I think this is a major issue that we should pay attention to um and I would ask all three of you to identify the three largest
▶ 0:59:03organizations in in three largest companies in your organization and provide to me and the committee uh if those companies are using free cash flow within their company to buy back stocks or investing in the training workers with that I yield back
▶ 0:59:33gentlemen y's back chair and I recognizes a gentleman from Virginia Mr Whitman thank you Mr chairman I'd like to thank our Witnesses for joining us today we know how important our ship building capacity is both the industrial base and the repair sector uh that's going to be the key for us going forward uh we know that we have a a advantage in the the undersea world we know that that Advantage comes from our Virginia class submarines and also pending construction of
▶ 1:00:03the Columbia class submarine unfortunately last year we saw a president's budget that came over wanting to build one submarine so we're retiring submarines at a fast rate them we're building them listen folks I'm not a mathematician but I find it hard to figure out how we do addition by subtraction when you're when you're proposing to retire more ships than you're building that's not a good path we know that China has 232 times the ship building capacity that the United States does and they are using it today the one place we do
▶ 1:00:33have that uh that Advantage is in the undersea world we have to get back to building 2.33 Virginia class submarines a year to meet us requirements and the requirements under August we're not anywhere close there we have to make sure we get our Workforce back underway uh that's uh an issue that needs to be taken up immediately you know how do we reconstitute that Workforce we understand what happened postco we haven't recovered the way we need to I tell folks
▶ 1:01:04the top three issues in reconstituting our ship building capacity and Ship Repair capacity top three issues are Workforce Workforce and Workforce that's that's the key uh Mr Paxton I wanted to um ask you what impact does a demand signal that is the president's budget the outcome of the national defense authorization act what impact does that have on what the industry looks towards investing in and what does that do in trying to develop the workforce in order
▶ 1:01:34to have what's necessary not just now but in the future yes uh thank you uh Congressman Whitman as you know sir better the most um de demand signal is the biggest factor in providing that predictability and the sustainability to do two things we're obviously uh cap intensive so we need to in our facilities and invest in our Workforce so having that demand signal is critical um I would also say sir we we do need that long-term Target
▶ 1:02:04to go towards and having multiple or no ship building plans um is is difficult uh we should have a plan to to shoot towards and and that does provide a demand signal that helps industry plan yes we know that long-term certainty is really the key in that in that effort um I wanted to get the panelist perspective on how do we how do we do the two critical things to make sure that we're able to increase the pace and get closer to
▶ 1:02:34the capacity and capability that we need first of all is how do we decrease build times unfortunately what we see is Bill times uh and also for that matter repair times going up maintenance avails lasting longer and how do we reduce cost we have to do both of those because in order to Prevail here we have to get more per our dollar than the Chinese get per their Yuan and we have to increase the pay Pace if they can build ships at a pace of 1 to 232 we've got a long ways to go and a short time to get there so I'll go to Mr
▶ 1:03:05norros Mr Fanning and then Mr Paxton so let me take that on in in two parts first to get to what you stated in the opening when you look at the challenge as you turn to the Pacific and the Chinese anti-axis environment undersea Warfare becomes the unending demand signal it can get inside it creates a strategic Advantage for the US so the need for the US for this is is unambiguous the challenges is converting that into the demand signals for industry that both causes them to be able to attract the workforce
▶ 1:03:35that they need as well as to expand the supply chain so there aren't dislay uh delays uh from from disruptions one of the things that I have seen uh is the Navy working with local communities on welding and others to try and create a pipeline it's something that perhaps an airplanes and Air Force and others should look to copy but as you point out that that Workforce piece is such a big part of it and then the step down from that is is the suppliers those were the things that that I think help drive up the speed but I'd defer to my
▶ 1:04:05my colleagues for other insights Mr Fanning I'd say I want to build on that the ship building industrial base that the Navy is investing in around the country finding areas where there are um concentrated pockets in the ship building industry has been very successful looking for new entrance into the supply chain investing in them helping them with tooling um that's a model that I think we can probably extend um uh across the defense industrial base the the second thing I would say on cost is making sure we're managing
▶ 1:04:35and keeping consistent the requirements um that adds a lot of cost and and it and it and it gets um more costly as you continue to to mix with the program third um is just a reminder to everybody that the the government investment in buying something is leveraged by a lot of private Capital coming into the system and it needs that that consistent demand signal that CRS and shutdowns don't provide very good thank you I'm out of time so I will um yield the bounce of my time what is
▶ 1:05:06not left back to the chairman you hear you hear it thank you Congressman Rob Whitman of Virginia now we proceed to Congressman Don dunross all the way from New Jersey thank you chairman and the panel for being here today is a fascinating conversation that we've had repeatedly year after year but certainly in the last few years uh it's come to a head and very much from a armed services standpoint have looked at the uh the submarine base uh the idea that we are going to build submarines is
▶ 1:05:36something that everybody knows so from that perspective government is sending the correct signal but it is much bigger of a problem than that when we look across the entire base uh I sit on the hardware committees along with Rob and others so we've seen the most important thing is a demand signal from government that we're going to built that's only part of the equation the other part of the equation is that we follow through on it I can site example after example where they go and put the capital into the facility saying
▶ 1:06:06we're going to build and they don't build who makes up for that now there's good reasons that happened but it doesn't help the problem you know our industry across the defense Epsom flows will have surge but in our what we build each day we don't have Sur surge capacity I I suggest and I mentioned this before that we look at a way how can we surge you start out with your facilities which you say generally we have them but they
▶ 1:06:36can be ready the raw materials or the equipment to build it and then what Rob said and I firmly believe the longest lead item the hardest to get and the hardest to retain is the human side of this so with that being the pinch point on this how do we look at the American Workforce creating surge capacity that we don't do you can have your core people the one industry that does this every day is construction they have
▶ 1:07:06hiring Halls when things go well they hire them when they don't they let go but they always keep their Core Group why haven't we looked at that because skilled something you can hire and lay them off when you're finished and that is their world so let me go write down list and start with uh you Mr Paxton surge capacity which is a pinch Point yes sir we we've been on a peace time footing for decades um and during that time
▶ 1:07:37um China and others while we've been on our peacetime footing China and others have massively invested in their industrial base uh to build up their uh capability building military vessels right next to commercial vessels so that's their search they can flip back and forth that's right sir and and again they're building vessels not to the level of complexity and lethality and survivability as our vessels but um they are building next to commercial
▶ 1:08:07assets and they build a lot um 1700 ships uh is a big order book in a year um so that that's the difference in in China and here in Surge capacity you know I I I think of a Philly Shipyard which is up your way that Shipyard was down to 60 employees they got a contract to build a series of um uh National multi-mission vessels five of them and they ramped up to close to 2,000 employees
▶ 1:08:37and they got other work and they're going to get more work so I think when there is a demand signal you can take a shipyard that had 60 people and pretty soon you're up to 2,000 would just suggest the only reason that their commercial side is because of the Jones act which many people are looking to dismiss we lose Jones act we lose the entire commercial side yes sir Mr norquist so I think the first part is when the Contracting officer goes to the industry if they pray if they disfavor a bidder with surge capacity because
▶ 1:09:07it has a higher price than the one without you're going to get what you asked for in the contract so you have to say I value surge capacity the other thing is because all of these facilities are drawing from long Supply chains you also want to move away from just in time inventory you want to pay people to be able to store large and this has really two advantages to us from National Security one is if I want the facility to go faster and they go and they lengthen the shift the parts are there to be able to finish the second part is if there's a conflict and
▶ 1:09:37things are getting disrupted you have the current back uh inventory to keep moving while you try and figure out what has happened to the disrupted supply chain so from a national security point of view asking for a move away from just in time inventory is a national strategic interest of the US government excellent uh with 25 seconds Mr yeah real quick I would just uh add that um for what we're talking about now there's a single customer and so when that customer's demand signal es and flows and
▶ 1:10:07and the workforce goes away they go away and it's very hard to get them back when there's that Surge and it's true with um the capital facilities and the supply chains as well thank you yeld back gentlemen y's back chair I recognized a gentleman from Tennessee Dr dejar thank you chairman Rogers I'd like to spend a little time on defense acquisition reform and deregulation and I'll start with Mr Fanning uh you noted that the current defense acquisition system is no longer serving key stakeholders effectively often delaying the adoption of
▶ 1:10:38critical technology what specific reforms would you me recommend to streamline the acquisition process while maintaining accountability and oversight well I I think there are different categories here one is just uh regulations or requirements that can be changed right away for example cost and pricing data raising the threshold there um providing uh costing data that's been validated for one company across the tire defense industrial base there are lots of different things I think we can do now for efficiencies but I think the entire system
▶ 1:11:08needs to be reviewed because it's been built in an additive way over many years there's no Silver Bullet um to to fix this system and it it perhaps you'd want to pick um some you know new Advanced T technology platforms like drones where you pilot something new for the entire industrial base to compete in and try something that moves faster um with a little bit more risk in the oversight you mentioned that it takes nearly 300 days on average to award Prime contracts over a 100 million
▶ 1:11:38I'm glad you highlighted this point because it's utterly insane but sometimes it helps us when we can see practical effects of these bureaucratic hurdles so can you provide specific examples where the contract delays have had a direct impact on National Security and Military Readiness to illustrate this point for us well I I I two things come to mind one is just the delay of getting something into the war Fighters hands we're not moving as fast as our incredible um manufacturing and Technology Industries are and increasing our adversaries are catching up
▶ 1:12:08with us that's one the second is it it has tremendous ramifications on the supply chain which is already fragile when it takes so long to get something under contract smaller companies that don't have the same cash flow cash reserves or access to Capital especially in a time when capital is more expensive money's not free anymore uh and it and it's being and it's there's there's less access to these small companies for it so these delays are make it harder to keep the supply chain whole and to keep it healthy
▶ 1:12:38okay shift gears a little bit talk about the rare earth minerals and the Ukraine agreement um earlier this month we heard from General Jack Keane about the benefits that the United States could gain from securing access to Ukraine's vast mineral resources uh shortly thereafter president Trump entered negotiations with president zalinsky to finally an agreement on this issue given Ukraine significant uh reserves of critical minerals such as titanium lithium and Rare Earth elements how could such an agreement bolster the US defense industry and mitigate some of these supply chain
▶ 1:13:09vulnerabilities well that critical minerals are one of our uh key priorities obviously in industry in Congress um to make sure that we Source them better uh internationally we just should be realistic also that they are expensive to mine and very difficult to process process and so it's going to take an investment to get that started so that we can Source them in a smarter way for the United States yeah and that that was going to be my next question you just answered it how you know how do we deal with it once we get them
▶ 1:13:39um the defense industrial base has seen significant consolidation over the past few decades with nearly 70% of the companies that once served EOD in the 1990s either merged or absorbed as some of you have noted the transitional uh primes bring scale experience and cash flow to the table while the smaller firm Serv as powerful Innovation incubators from your perspectives has this level of consolidation successfully balanced these two interest or is there a Tipping Point that we may reach and anyone can answer so I think what you always want
▶ 1:14:09in the defense industry is a dynamic where new firms are able to come in and if they are successful able to grow so I think the consolidation was a reflection of what was happening with the defense budget and as you have them the balance between the sizes of them really should be an outgrowth of firms that are successful firms that are delivering moving and being successful in the market so my view is you want to see small businesses graduate you want to see new firms entering and the challenge is we're not seeing a lot of of that right now we're seeing small firms and others leaving which is a
▶ 1:14:39risk okay thank you all I yield back chair not recognizer gentleman from Massachusetts Mr Molton thank you very much Mr chairman uh the state of our defense industrial base is concerning and there there's no argument there I don't think you're going to hear arguments uh from us but we also have a problem where there's just a fundamental lack of competition and a great example is with the F-35 that program's been around for 24 years not once in 24
▶ 1:15:10years have they ever delivered anything ahead of schedule I'm not sure they've ever even delivered anything on time many of the delays with the F35 we've learned on the committee have to do with the software and it turns out that locked Martin is not a software company but of course America makes the best software in the world we have a lot of firms that make software the problem is that Lockheed Won't Give Up the rights to that software so there's no competition and we're not tapping into the talent and knowledge in
▶ 1:15:40America when it comes to software development now I would argue that if we were on a wartime footing locked would do the right thing for the country and get others in on in competing to make software for the F35 they're not doing that they continue to report record so the issue here is that we've got a primes they obviously have an in a vested interest in reducing competition consolidating the industry
▶ 1:16:10they've been doing that for a long time and because they love earning calls they're always going to be investing their own profits you know they're Mak make sure they're they're they're not necessarily I should say investing their own profits into Innovation so Mr Fanning you expressed concern in your testimony that 40% of small businesses have stopped working with DOD in the decade what can we do as an industry to actually encourage more small business competition I I think there are a couple things one
▶ 1:16:40um the increasing barriers to entry for for small businesses AIA members work in space commercial Aviation and defense quite a few of them especially in the supply chain as a risk mitigation for their business strategies are doing defense and non-defense work and I see all the time where they they and and by the way all the commercial Aviation components helicopters airplanes aftermarket services are surging right now so there's a demand um on the supply chain and when they see the
▶ 1:17:11burdensome requirements to work with the Department of Defense they move over to the other side so that's that one part is as David was saying earlier finding ways um to encourage incentivize in the contracts recognize and unfortunately pay for um that diversity in the supply chain is one Element the other is um competition comes from competitions uh the number of things that we're building and competing out the number of platforms has also shrunk over that time uh which
▶ 1:17:41is why in some ways you you know we have less competition do you think if we stripped out the red tape in bureaucracy uh and all of a sudden you'd see small businesses getting a higher percentage of contracts over the primes well no it's about scaling I think and the the the issue is the the Pyramid of the industrial base looks a little bit more like a dumbbell now for the the reasons we were discussing in the earlier questions about why aren't companies able to grow from small to medium then to large
▶ 1:18:11and to compete for some of these bigger programs I think that's what we have to explore is that that mid-tier element of the industrial base that has atrophied Mr Paxton you say that we have we don't have a capacity problem in our STP yards we just need to improve efficiency what's your position on competition do you support competition I do support competition okay so then why when I hear so many senior naval officers asking to be able to repair their ships overseas and Allied Nations like South Korea and Japan do we not allow that yeah
▶ 1:18:41um well we do um certainly in if there's a um um a battle damage or if there's um repairs we're not just dealing with battle damage right we have a a fleet the amp fleet has accumulative 28.5 years in training and deployment time backed up because of of lack of Maintenance so like we've got a problem today you're telling us to be on a wartime footing I've been a constant critic of Congress and we need to do more to to to modernize
▶ 1:19:11but what can you do you support competition naval officers want to repair their ships closer to the fight increase competition more capacity get them done sooner yes sir and you're against that no sir I if there's uh emerging uh Ship Repair issues we are all about get it done there we have we in the fleet concentration areas we have private businesses they're investing our facilities to repair the non-nuclear surface ships and we have large investments in those home ports um
▶ 1:19:42at a time where the the fleet shrinking and those workloads and those home ports are going down we don't believe we should send more work overseas when that work should be coming home and quality life tell you what Mr chair I think what we should do what right for the Navy yes sir I agree for the fight I agree so thank you for that yeld back I thank the gentleman you're not recogniz a gentleman from Indiana Mr Mesmer for minutes thank you Mr chairman Mr Fanning uh spectrum is a valuable finite
▶ 1:20:12resource and there's those in Congress who who want to require the dod to vacate its Spectrum allocations which I believe would weaken the dod's ability to protect the Homeland and cause other operational harms uh it would cost taxpayers billions of dollars to to do that uh the defense and Industrial base is a critical partner in that Spectrum for the and uh if the dood was to require to vacate the Spectrum such as the lower Three band or the 78 band what would the cost and effect that relocation
▶ 1:20:42have on our national security platforms what would the cost be to the taxpayer and what kind of time would that take to to reallocate those to other locations uh thanks for that question spectrum is um a long-standing very important ISS issue and we all we all benefit by having more entities like telecoms in the Spectrum um uh we benefit in many ways but when it impacts the Department of Defense we have to be extra cautious about it we we didn't imagine when we were allocating Spectrum uh and then building for it in the Department of Defense
▶ 1:21:12that that there'd be so much demand for it at this point and that other other things would be adjacent so close to the parts of spectrum that DOD has so we didn't test or build or understand at the time what interference might mean and so we need to understand that very carefully if we're thinking about adding new things to the Spectrum especially if it butts up against the Department of Defense we can learn from um recent experience in civil aviation and uh because our members went through that as well and and hopefully won't repeat those mistakes one is get
▶ 1:21:42the sides talking commercial Aviation and telecoms are now collaborating very closely and mostly that's because we get the engineers in a room together who understand this stuff and we get the engineers of the new Spectrum owners and the manufacturers so it wasn't just the airlines we had to get the manufacturers in there to figure out the interference that cost the airlines the manufacturers and ultimately flying public a lot of money we had the retrofit 15,000 aircraft when we did that so there will be a tremendous expense even more so um with the Department of
▶ 1:22:12Defense and that will be a taxpayer expense that we need to take in account and and should come out of any auction proceeds that come from selling that Spectrum so I I I would caution that we do this very carefully smart people come up with smart Solutions but just like civil aviation the risk tolerance for the Department of Defense is higher than than any other industry that's going to be in Spectrum I I would imagine that the other allocations we've done we would call that the lwh hanging fruit uh and and the cost would
▶ 1:22:43be you know B billions to to to relocate those those uh spectrums now um Mr nor noris pivoting slightly if the dood was asked to share Spectrum what are the considerations that the defense industrial base would have to do to to do that so I think when it comes to to the defense industrial base and with the dod looking at Spectrum each of these are very fact specific and part of the challenge when you're looking at from the outside is how many of them deal with either classified programs
▶ 1:23:13or aspects that are classified so I think you'd have to look first at the cost which systems are affected how much would you have to retrofit you have to look at the mission impact does it even function well if it's moved uh to a different Spectrum if the controls are put upon it so I think I would urge somebody to to approach this with caution to make sure they fully understood from both an unclassified and a classified side both the mission impact and the cost and the timeline that's involved if you're trying to convert
▶ 1:23:43Legacy systems over to a new technology okay uh either one you could answer this you know what what kind of systems are supported in the in the lower lower three and the 78 bands well some very critical things like um ballistic missile early warning uh are in these bands and so it's not just that it's Department of Defense they have some of their critical programs uh in those bands and so again what we learned on the Civil side it is not just about who's in the band it's about the interference of putting things nearby which wasn't anticipated and therefore
▶ 1:24:13built into the requirements or built into the programs has to be understood very carefully before you make a change um Mr chairman yeld back my time thank the gentlemen Mr Annie bny I want make sure I heard you correctly did you say these words the risk tolerance at the dod is higher no the opposite for civil avation never heard that phrase with the dod I don't you know telecoms that was part of the issue on the civil aviation side is
▶ 1:24:44risk to them was a little bit different if they encountered interference they'd find a way to fix it operationally for civil aviation or for Def and for defense for the military we need to know that the risk is zero before we make a change okay thank you chair and I recognize General from California Mr carbajal thank you Mr chairman and thank you to the witnesses for being here today Mr Fanning good to see you again as you know I've had the privilege of interacting with AIA through my role as co-chair of the house Aerospace caucus
▶ 1:25:14companies in my district have told me time and time again that there is a need to change the way we allow research and development activities to be expensed can you speak about what changes are needed to address this R&D expensing issue and how making this change will benefit the industrial base uh in the in the previous um round of of tax reform they switched the um or I should say sunsetted the R&D tax amortization where if you spend a a dollar in a year you
▶ 1:25:44got to deduct that in that year to a five-year amortization cycle so you got 20 20% of your investment at the same time China doubled it they gave you a 2% 200% deduction um for every investment you made in R&D in real time that affects not just big companies that get the attention because that Aggregates into a lot of money but very small companies and well as well that are doing R&D that have to stop doing it uh with the cash flow problems that small companies like in your District are facing they can't afford
▶ 1:26:15what becomes the luxury of R&D Investments and that's not good for our for our economy for our country for our national security because they're doing some of the most interesting cutting Ed Edge Innovation and research but they can't afford it because they have cash flow problems by not getting that deduction in the year they spend it thank you for shedding light on that something something I've heard from the space industry over and over again is that they are facing a shortfall of skilled workers I have no doubt that this is this isn't unique to the space industry Mr Fanning
▶ 1:26:45Mr Paxton and Mr norquist do your organizations have any programs or are you working on ideas to develop a talent pipeline to develop this skilled Workforce and do you see Congress playing a role in developing this pipeline um our companies are doing a number of things they've recognized they've got to step in work with local community colleges local high schools even earlier than that for example um but there is certainly a role for Congress and the government in terms of
▶ 1:27:16uh stem education and vocational education in our public education system we're not producing the same numbers of people in those two categories as we did when I when I went to school and so we're just not feeding into the system um uh the you know students ready to go into what is a highly skilled uh industry that that pays well so I think that there are things on both sides which should be doing we have a number of proposals um for things that we'd like to see from government and this has to start early
▶ 1:27:46AI runs the world's largest student rocketry challenge which is middle schoolers and high schoolers um over a thousand schools team competing this year alone just to keep that stem pipeline pumped because what we find is if you don't keep kids engaged in stem education they'll go into something else and so you've got to keep them from elementary school to middle school middle school to high school high school to college but what we see is just the numbers keep dropping it's you know one in six um high school graduates is prepared to study
▶ 1:28:16stem in college and fewer than 50% Who start actually finish uh and get a stem degree thank you Mr norquist so so two things first of all as an association we do scholarships for students wanting to to study stem to be able to promote that and if they're coming into the defense when we survey our our membership though what we see is on stem skills about 20% say they don't have enough on trade skills it's closer to 30% and then you see a similar 30% when you look at cleared and each
▶ 1:28:46one of those they highlight the difficulty and the challenge in recruiting so this Workforce challenge has been mentioned before is extensive and it pervades uh the point I just also want to jump back the majority of our members are small businesses and that R&D tax credit is very important to them so I know you had brought that up earlier but the effect on small businesses is significant as well thank you Mr Paxton yeah um thank you for the question sir um the Shivers Council of America is a facilitator for the talent pipeline programs that we have around the nation um
▶ 1:29:16we have a program in Danville Virginia not SCA it's funded by the Navy but where we you know teach world class well buing and pipe fitting and machine work and electricity work and so we're we're doing it we're investing in um the Next Generation uh Workforce thank you uh I have limited time Mr Fanning I'm going to submit this uh question if you could answer it later on I would really appreciate it with that Mr chairman I'm out of time I'll yield back I thank the gentleman from California chair I recognize gentleman from
▶ 1:29:46Virginia Mr Maguire for five minutes thank you Mr chairman uh members of the committee um after being inspired by uh Ronald Reagan to join the Navy he talked about building a 600 ship Navy he talked about American exceptionalism he talked about peace through strength I was inspired to join the Navy and served uh as a Navy SEAL and this was a time the United States armed forces with at the peak of their strength since World War II it saddens
▶ 1:30:17me that we've allowed our Readiness and investment in defense industrial base to decline in the 35 years since the end of the Cold War I think you guys used the term earlier atrophied in every way according to most recent data the Chinese Navy consists of over 400 ships 225 armed Chinese Coast Guard vessels of 500 tons or more and vast numbers in the inventory of their Maritime militia the United States 7eventh Fleet has between 50 and 70 ships near the China and South China Sea we must
▶ 1:30:47work together to ensure that our armed forces and navy can over overcome this threat posed by the CCP Mr Mr Paxton thank you for appearing here today for the committee the challenges fac in the defense industrial base specifically the submarine industrial base are concerned and must be addressed immediately the challenges faced in the defense industrial base specifically the submarine industrial base are timely as I'm sure you know the overall capacity of our ship building industrial base has significantly degraded since the Cold War over
▶ 1:31:17the last 30 years thousands of businesses have left the ship building supplier base limiting the Navy's options I'm particularly concerned about this especially as we look forward to the future with near-peer competitors such as the CCP who are aggressively growing their Fleet and our own need to recapitalize our Fleet and surface ships and submarines do you agree that this lack of competition is unsustainable and attention it I believe um U Congressman
▶ 1:31:47there is competition uh to build the platforms the fleet mix uh that we have that our shipyards had the physical capacity to do this and I'll just give you a reference point in in the 1980s we were building 4.2 attack submarines a year 2.5 ddgs a year I don't think the difference in capacity was different I think what was different was the experience in the workforce we we had veteran Workforce that was building those assets and building them
▶ 1:32:17at scale and building them in serious construction we got away from that that demand signal and the subsequent Workforce has suffered and we've had consolidation as you know sir I'm glad to hear us talk about CTE so also I say I'm also aware of the recent Congressional Investments to develop the future work Workforce within the defense industrial base in part through the creation of Regional training centers such as the Advanced Training and defense manufacturing atdm program which we have right there in Danville Virginia in my district I
▶ 1:32:47toured that last week and it's amazing how they're preparing these young folks and they basically are creat creting a maritime training pipeline in several other locations in the United States do you agree that it is imperative to regenerate and grow the ship building and Ship Repair work force throughout the company our country uh Congressman absolutely we're at a generational Point um and I do think we're seeing the demand signal from again the maritime industrial based program that was set up um and the work that's going on at Danville these are
▶ 1:33:17programs are being replicated around the country and I think we are going to hire and build the Next Generation we work I'm not a welder but they don't just qualify welders they qualify welders to do just about anything you would need for submarines it's amazing and uh not everybody's meant to go to college and some of these folks they complete this course and they're making six figures right out the gate and a lot of them are doing such a good job but they're putting them to work on submarines and everywhere right away yes sir um as a as a fresh member of the committee I too uh support continued investment
▶ 1:33:47in the people facilities and suppliers that enable ship building and Ship Repair in our country so Mr Paxton what can members of this committee do to provide for this critical National capacity capability and what does the industry need what more should the Navy be doing well sir I I commend this committee for all the things they have done um uh we have a demand signal that the shipyard industry is building towards uh the industry reflects that demand signal um
▶ 1:34:18if it is going to keep going up um which we hope it does uh we will ramp up that Workforce to meet it it will take some time um and challenges but um the work of this committee to authorize um multi-year contracts um those type of things provide the stability um that the industry needs all right one last question for everyone if you have something to say I just talk some folks in Israel and they said perfect is the enemy of good enough and sometimes they get a program in the field quickly and it's battle tested because time is an issue and we're taking
▶ 1:34:48so long and if youall had any comments on that that's correct that's a challenge I recognize the time is short but you are correct that's a challenge thank you everyone participating gentlemen y's back chair I recognize gentleman from Massachusetts Mr keading for 5 minutes thank you Mr chairman and I thank the members of the committee and I thank our Witnesses for dealing with this important discussion uh and and going back and forth on it but I feel like I'm sitting here at this moment in time in this place a little like uh
▶ 1:35:18with this hearing a little like uh Mrs Lincoln who was questioned other than that Mrs Linc and how did you enjoy theater we're sitting here now just in the last few weeks with the president of the United States has stated that Russia is not the aggressor in Ukraine that indeed Ukraine was responsible for the war that the duly elected Democratic leader of Ukraine is a dictator in a time period where they had a meeting
▶ 1:35:49our Administration in Saudi Arabia with someone that they've San IED our country has sanctioned uh and representing a war criminal to the exclusion of the ukrainians to the exclusion of our NATO allies and our allies the same period where a shameful act in the United Nation occurred for our country with the president's leadership where they're sided with Russia and China and bellarus and Hungary to the exclusion of
▶ 1:36:19our European allies so we're here talking about as the title of this committee goes uh our industrial base well when we tell Europe and the rest of the world you're on your own we're sitting here worried about strengthening our industrial base they're going to be creating their own to the exclusion of the US's industrial base with us assets us training and they're going to gain influence around the world and that includes our
▶ 1:36:49adversaries and our enemies like China that'll be advant Advantage the most of this we're giving them a green light so we're talking about the this hearing with the concern on deterring war while we're sitting there making sure we're giving a green light to everyone else in the future that's where we are right now so when we have these hearings and we're talking about what we should do we better put it in perspective and realize what's going on in our own
▶ 1:37:20country I yield back gentleman yields back chair I recognizes Mr amade of Arizona for five minutes thank you Mr chairman and thank you gentlemen for being here today as we look at ways of strengthening our defense industrial base one thing is clear a backlog of unfulfilled foreign military sales is not just a paperwork issue it's a national security problem I face these challenges during my time as an Army Reserve intelligence officer facilitating our military
▶ 1:37:50sales in Saudi Arabia delays in delivering Critical Defense systems to our allies undermine our ability to deter enemies strengthen Partnerships and sustain our own domestic defense industry at the same time adversaries like China have streamlined their arms export processes leveraging speed and influence to expand their Global footprint the US must do better we cannot afford bottlenecks and bureaucratic inertia in an era of strategic competition I look forward to hearing from our Witnesses today and how we can accelerate our production
▶ 1:38:20cut red tape and ensure a defense industrial base is not just responsive but proactive in meeting both the United States and our Allied defense needs now my first question is for Mr Fanning my understanding is that after the cancellation of the future attack reconnaissance aircraft program we did not divert resources to continue Apache acquisition is that correct that is correct do you know why that was uh I don't now Boeing's Apache
▶ 1:38:51Productions at in Arizona is at risk if the the dod doesn't commit to a minimum order of 12 or so helicopters the production line could be shut down putting 5,000 Phoenix area jobs on the line now that's not just bad for Arizona's economy it sends the wrong message to our allies and our foreign Partners won't invest in a platform if they think the US military is moving on from that platform now how do we ensure our domestic acquisition policy stay consistent both with our long-term defense plans and the needs of our allies who rely on these systems
▶ 1:39:21Congressman thanks for that question that sort of hits at the Crux of I think what we're sort what we're talking about today which is sending a not just a clear signal to our allies but to the industrial base so that it invests its money in the facilities in the workforce in the supply chain um so they can meet the needs of the Department of Defense and so that if if I had one single headline for what we need for the defense industrial base it is that clear consistent and sufficient demand signal so that the the
▶ 1:39:51the industrial base and the private Capital that supports it can line up uh for DOD requirements and how do delays in the foreign military sales impact your members companies well it's it's it's a frustration all the way around I mean as I said in my oral statement last year for the first time foreign military sales and direct military sales exceeded what the Department of Defense spends on military equipment and rdt and that's American jobs that brings down the the price for the Department of Defense that's interoperability that binds our allies
▶ 1:40:21closer with us over a longer period of time we want to make sure that um the wrong people aren't getting our stuff and you with the with Administration decides that but if the answer is yes we want to get there quickly we're we're our allies want to buy our kit our stuff um and we make it as hard as can be for them to do that if the answer is no we should get there quickly as well so we it one of our top priorities at AIA is trying to reform and streamline that system so it meets the intent of making
▶ 1:40:51sure Bad actors in the world don't get the stuff that we produce but we ought to be bringing our allies along faster and making sure that we're not disincentivizing them in anything we do to buy someplace else oftentimes I see people you know it's a pocket veto system we have got to switch the default to yes people make their case or they don't make their case and move forward because there are other places that countries can go buy Hardware Mr gorist do you have anything to add oh yes sir uh a couple things first of all in our membership surveys 55% said foreign military
▶ 1:41:22sales and Dem commercial sales were either very extremely important to company creates jobs in the US but it also empowers our allies to defend themselves you asked for recommendations on change I'll I'll give you three first of all defense and state had looked at FMS reforms but they haven't finalized or been executing on that so getting them to exe uh finalize those FMS reforms and then begin to execute them uh would be essential and then reporting back there's also an issue
▶ 1:41:52uh with the ability to switch to Direct commercial sales in many cases Direct commercial sales can go faster and that's actually within the control of the department to say this should move as an FMS case is it move as a direct commercial sale that will go faster and the last is to build on on what Eric said there have been reviews about the inter agency process it's very slow and sequential and trying to accelerate that uh and that was per section 98 ofda pushing them uh to bring that to closure is very helpful so those are three ones what you talked
▶ 1:42:22about thank you Mr nor Chris I'm sure my staff will be in communication with you to tackle this problem that I to see is really pressing especially when our allies now are no longer purchasing our equipment and seeking elsewhere thank you chairman I yeld back genten yelds back chair I recognize gentle lady from Pennsylvania Miss hulahan thank you Mr chair and thank you gentleman for your testimony today I found it uh very interesting and it as a result of your testimony has had me change my questions just a little bit um our
▶ 1:42:53job here on the Hask is I believe to ensure that our defense industrial base is resilient and responsive and that it is ready uh interestingly enough just yesterday the house passed a hundred billion doll increase in defense spending in the dod and also concurrently and curiously secretary he heg has asked for an 8% annual decrease and these things are schizophrenic and confusing in my mind um and we can kind of put that to the side but the bottom line is we have a responsibility to the tax taxpayers
▶ 1:43:23into to our constituents to be responsible for for their resources and for their money and to understand how to be and uh as optim uh optimize as much as possible our expenses uh for Workforce for production lines for the industrial base as well Mr narcist you said something really intriguing about Just in Time Manufacturing I my background is in industrial engineering my Master's Degree uh thesis was in jit manufacturing for the airframe industry defense airframe industry back in the day that was the
▶ 1:43:53thing uh we really wanted to streamline Manufacturing in that way and I'm intrigued by the fact that jit probably has become p a as a result of the shocks to our supply chain from covid and other things can you dive a little bit deeper in what it would look like and whether we've actually done some studies and whether there's been some uh conclusions real conclusions about what the defense industrial base would look like if we actually did carry inventory and what kind of inventory would it be and would it be stockpiled
▶ 1:44:24and would it be additive manufacturing and all of those kinds of things the devils in the details can you kind of drill down on whether that's a good investment to carry inventory sure and I think there's there's three levels at which you can do it and I think the nature of the product you're trying to buy drives it so the first one is you can stockpile the final product you can stockpile the Munitions in anticipative a war requirement most people are familiar with that but we should relook whether that's right the second one is the parts coming into the supply chain so you have somebody who
▶ 1:44:54assembles they may have inventory doing just in time arrival that's cheap that's efficient the private sectors refin that but that doesn't allow you to Surge and that creates real risks in Wartime knowing which are those products that you're willing to to to say to the vendor we would like you to hold 30 60 days worth of parts so A disruption to subcontractor those would be very essential you'd have to do some analysis on what are those things you're most vulnerable the third one is one where we've
▶ 1:45:24seen studies out of the defense which looks at even stockpiling raw materials which is if we are not worried about A disruption to a US vendor but actually overseas supplier can we buy enough of that material and keep it here to be able to be refined and produced so other countries can shut it off so I think there's three levels at which people look at and I appreciate that and in the interest of time would love to follow up with you about how to look at that through the ndaa and be a little bit more thoughtful on that um transitioning now to the other way that we can
▶ 1:45:54be responsible is with Workforce and a lot of your conversation today is focused on that um we have seen through the Doge uh a haphazard in my opinion uh laying off of people who are provisional employees that to me you know uh smacks have getting rid of our our youngest and newest people in many cases we also had a long conversation with you all about stem professionals and stem education um I'm myself as I mentioned I'm an engineer and we have 51% of our Workforce presumably who are women
▶ 1:46:24and yet we're in the process of uh devaluing uh e you know making sure we emphasize the fact that women can be stem professionals as well particularly in the defense industry you as the defense industry and the defense industrial base if you could each comment a little bit on what you feel is happening now that we are saying effectively that 51% of our Workforce doesn't need to be paid attention to well I think it's it's imperative and our companies feel that way should be recruiting from the broadest
▶ 1:46:55population of of that the United States has to offer um and in some ways if if your Workforce doesn't reflect the United States it may be that you're not recruiting in a smart and comprehensive way so that's important to us Workforce is the number one strategic risk concern priority of of our industry would I ask could I Ask Of Industry that you put some pressure on those of us who are sitting across here to tell us that this is indeed important uh Mr NorQuest and Mr Paxton with the 17 second seconds I
▶ 1:47:25have left um I would love to hear if you have any input in that area just we need to be strategic in how we um um do this and we we value all our workers thank you yes you you need to pull for the entire population the workforce to be able to to take advantage of the skill sets and the Technologies uh and so as Eric point you got to make sure you're you're recruiting from everywhere so you can bring the best and the brightest thank you I appreciate it and I yield back back chair I recognizes a gentleman
▶ 1:47:55from the strategically important territory of Guam Mr mland for 5 minutes thank you Mr chairman uh now Guam remains a vital strategic asset in the Indo Pacific as we look to safeguard the defense of our nation its location makes it a critical logistical hub for the M movement of personnel and suppli is crucial to maintaining our presence in the region and as a nation we Face challenges in the defense industry base especially regarding
▶ 1:48:25shipyards and ship building the ship repair facility in Guam was closed in 1997 as part of the base realignment enclosure process the facility was shut down with the equipment remaining in place and it's still there today now with the growing threats and tensions in the indopacific we must prioritize improving our Readiness capabilities this includes ensuring that we have the infrastructure to support our Navy ships submarines
▶ 1:48:56which serve as the backbone for deterrence and protection in the region now as we PR prepare for potential future conflicts it's vital that we make full use of every available resource including boosting maintenance and repair capabilities we cannot ignore Guam potential to provide an expanded capability and support needed to keep are military assets ready and operational in this critical
▶ 1:49:26region so my question for Mr Paxton as I stated earlier the ship repair facility in Apper Harbor Guam was closed in 1997 the facility is still owned by the Navy and is available for leasing to a shipyard company offering potentials for Ship Repair and maintenance services could you provide an insight into the advantages of restoring the gu Shipyard as a domestic facility
▶ 1:49:57uh Congressman I I think to the extent that we can um have strategic capacity um and we can have it um available to us we should we should absolutely be looking at that and finding ways to utilize it the best way possible is a Time an issue do we have uh serious time constraints in our hands with our indopacific region oh for sure I mean we need that area to be very strategic we need it to be capable um and so
▶ 1:50:27to the extent that um you know there's Private Industry out there that wants to try to do something with that facility um we would support Private Industry taking that on how important rate it one through five one being the best it it's very important all right well thank thank you uh next question is for Mr NorQuest what steps can be taken to improve the resilience and the defense industry based against potential disruptions such as natural disasters especially in our
▶ 1:50:59area so that as you point out that uh there are multiple challenge to it you have everything from natural disasters that can disrupt A supplier and one thing that people forget is the product may be made in one location but the parts may be made in another and so therefore if the storm hits one area you can you can have an effect the same thing is with Cyber attack right you can have an attack on a supplier and at the end of the day you can't finalize assembly until you have all of those pieces so you have to look at a number of things one is uh making
▶ 1:51:29places more resilient you know against storm damage against other items SEC same thing is on Cyber protection and then the third is figuring out how to have uh supplies moving through so that there is always some capacity so a short-term disruption while you get a facility up and running doesn't stop everything uh Downstream from the supply chain from it with far strategic location and our distance being an issue what do you think about Guam are we
▶ 1:51:59prepared with what you just said so I think the the challenge is when you look at the Pacific Guam is so Central to the strategy right there's there's multiple things whether it's uh air ranges repairing on location movement of supplies it is it is the hub for many of those which brings you both to the question of protecting it as well as which are the things that you want that prioritize uh using in that space is it prepositioning is it facility and production is it repair
▶ 1:52:30uh but when you look at it's often hard people have to get them a globe and rotate and say look at the Pacific all right and you some places you can't see the either ends but in the middle you can see there's there's Guam uh so trying to just understand the sheer scale of distance in the Pacific and how much that challenges us Logistics operations and therefore understanding the role of Guam in those types of operations that's key thank you to the panel Mr chairman thank you a you back
▶ 1:53:00jimy Ys back chair and I recognize G lady from California Miss Jacobs thank you Mr chairman and thank you to our panelists um we've talked a lot about Workforce today and the importance of Workforce I'm really proud to represent San Diego one of our major ship building hubs but I've notice that one of the things we haven't talked about Workforce is actually the role immigration plays and it struck me that many of my colleagues who are worried about Workforce are the same ones who are saying we should restrict immigration restrict legal
▶ 1:53:30immigration so I guess Mr Fanning could you talk about how restricting immigration would have an impact on these defense industrial based industries that we really need we so uh all aspects of Workforce need to be on the table and discussed including immigration a lot of our workers are are cleared highly skilled take years to train but but no Workforce exists in isolation and so if any industry is having problems with its Workforce it could have problem it could create problems
▶ 1:54:00for ours including driving up wages so I do think we need to discuss that and making sure if we can't organically um fill the workplace needs in our country how we go about uh an immigration policy that helps with that thank you um and you know we've talked a lot today also about these like big Exquisite capabilities right f35s ships um but I think one of the lessons of Ukraine is that military dominance isn't just about how much
▶ 1:54:30money we spend and how many big things we have right it's about agility adaptability cost-effective Innovation and one of the things that frustrates me about these conversations sometimes is we keep hearing demand signal demand signal demand signal well the demand for Munitions like5 rounds couldn't be clearer the demand for things like Patriots couldn't be clearer and yet we still having them not be produced at the rate that we need them so I guess Mr NorQuest can you talk about some of these other capabilities and why we aren't seeing
▶ 1:55:00the defense industrial production that we need for Munitions for you know these kinds of things right so typically what you have is is you have something in ammunition where either the demand signal wasn't there or if you think of something like the gimmers the the demand signal was there and the CRS blocked the ramp up of the production so you ended up with fewer than you wanted then you have an event like Ukraine where all of a sudden there's a surge in demand industry starts to see the signal starts to respond but some cases the government says and by the
▶ 1:55:31way as soon as this is resolved the demand is going to go to zero and then industry says well okay then I I'll expand my current team as fast as I can but I'm not going to do a new or second or third line Because by the time they're on board you may have have stopped the purchase so when people talk about the stability the one of the concerns is and it's not irrational the government has a increase in demand and when something passes it drops and yet that swing has the very disruptive effect on the capacity there are things we can do there's abilities to help
▶ 1:56:01with companies in terms of getting uh being able to qualify uh access to Capital to be able to expansions be able to draw on Workforce and looking at choke points in the supply chain so I think those are all key and sometimes it's the least glamorous stuff that's the most important thank you and um Mr Paxton I just want to ask you the the shipyard infrastructure optimization program it was intended to be a generational investment right to bring our public yards into the 21st century and yet what we've seen is that costs have ballooned timelines have slipped and we
▶ 1:56:31still don't have a full cost estimate for the program um we've seen the industry benefit from significant government support including long-term contracts and subsidies and infrastructure funding um and some might argue that this has actually reduced the incentive for the private sector to invest in Shipyard modernization leaving the government to foot the bill for these upgrades so How would how should we strike the balance between the necessary public Investments but also ensuring that the private sector is making their own meaningful contributions to our
▶ 1:57:01uh domestic ship building base yeah thank you for the question congresswoman um for sure the scop is critically important for our for public shipyards um uh we need those there those are critical assets in the inventory of our Shipyard industrial base they obviously do all the nuclear propulsions um systems uh but private Shipyard invest we have been spending in the order of billions in our facilities in our Workforce um on the private side of things and when we see that demand signal to Mr NorQuest
▶ 1:57:32comments we respond but it does take time it does take time to ramp that that Workforce up but the Investments are being made thank you I just got to say I am so frustrated by the whole concept of demand signal because I just feel like this committee couldn't have been clearer for the four years I've been on it so far about the kinds of things we want to see and so like I think we've got to get our get away from just saying we need more money less oversight um and and get to some real solutions and with that Mr chairman i y back
▶ 1:58:02G yelds back chair I recognize G lady from Virginia Miss kiggins for five minutes thank you Mr chair and thank you very much to our panelists for joining us I have the privilege of representing Hampton Roads area so home to a lot of our ship repair uh businesses and just defense industry in general large and small businesses we have meetings with them about their frustration with with with our budget process and passing continuing resolutions and I know that they are disproportionately impacted by these continuing resolutions that we continue to pass we passed one and then we passed another
▶ 1:58:33and now we're facing another deadline where we perhaps may pass one that will lead to a full year CR and uh as a person who is newer to Congress in my second term continues to frustrate me as a person who wants to be an advocate for our defense industry who wants to make sure that you all understand how much money you all have to work with so Mr Fanning I know you touched on it earlier but could you just for the record tell us what the impact of a full long CR would be for your industry a year-long CR is particularly um disruptive especially
▶ 1:59:03if it has limited anomalies new programs don't start I me I think this is what um people don't understand is that a CR is just saying continue with the last year's plan and so if there's a new start baked into it and companies have invested in it all up and down the supply chain lined up the workforce lined up the materials the parts and get ready to it doesn't happen it's a it's a tremendous Financial hit on them again especially on small companies ones that I think you're talking to in your District that don't have the cash flow or the access to Capital to withstand
▶ 1:59:34that type of of a delay and this is what you know sort of feeds into to having that consistent signal from the government so that all of that that is required to line up to produce what the government need when it needs it um takes place in a way and it it causes Not Just A disruption in in building those Supply chains it causes A disruption in trust um for the companies large small in between to lean forward and invest to be ready because they do that they want to do that they're all doing risk and strategy assessments every year
▶ 2:00:04where am I going to put my money so hopefully it lines up with what the government needs at that point and a CR that doesn't have anomalies in it is basically skipping a year for that change that growth that increase in in quantity orders or what have you and and again it causes industry to react conservatively to what they're he hearing from government because they've got to see that there is something at the end of their investment thank you very much just wanted that that to be made very clear uh let's see so also in my district with Ship Repair
▶ 2:00:34the ship repair industry that we have there uh we are seeing because of the CR a lot of them have to lose staff uh they are having just to change how they they do business I know we've heard our colleagues talk about the number of ships we we don't have in the US Navy right now so perhaps not enough business for to prepare we're seeing them do things that are a little bit outside the box you know participate in some of the modular build programs working with Huntington Engles and and we have close proximity so we can build build modular components and ship
▶ 2:01:04them up the up the river to Huntington Engles we have a win turban project off the coast of Virginia Beach that uh we're seeing some Ship Repair even being involved with staging and some manufacturing so so they're trying to do some things which I applaud them for to compensate for these this the budgetary issues that uh that we are facing ing but Mr Paxton do you see these these kind of thinking outside the box uh you know options that that my local ship repair industry is pursuing as as good alternatives to ways that we can just keep that skilled Workforce
▶ 2:01:35in place so that they don't have to shift around so much for sure I we're having a constant internal discussion about commercial ship repair a lot of your yards down your way um while they do amazing Navy maintenance and modernization uh used to have a lot more commercial ship repair work um for a lot of reasons um that commercial ship repair has gone overseas um we we should be clawing that back and and doing more of that um I will say um Virginia leads the way
▶ 2:02:05uh Virginia Ship Repair Association in educating the local communities down there on the just patriotic jobs that are in our Shipyard so Bill Crow is an amazing job they're great we appreciate them Mr NorQuest do you have anything to add on that so I was just going to come back to the the point had on on CRS I think there's uh we have had over 19900 days over 1,900 days of CRS in the last 16 years equivalent to be five full years and each of those is telling defense
▶ 2:02:35and companies and the the military that whatever you need next don't do it go back to the do the things that we would have told you to stop doing and that becomes incredibly disruptive and people think well they can just do the same as last year you passed a pay raise a CR doesn't accommodate the pay raise that you would have to Fig you know there's a series of changes that this committee and others have voted on to say we need dood in a different direction a CO say R says never mind do the old plan I can understand why it's very appealing
▶ 2:03:06for China for us to keep doing these I don't understand why it's it's in our interest and I think it's a real challenge uh for our membership to have to deal with I know the you guys are more frustrated than this as much as anybody else but to and the ship building is all a new start so every one of these is a big uh setback and so I'd be very concerned on the effect of a long-term CR thank you I share your frustration I'm out of time I yeld back thank you well as a very senior member of the Congress I can tell you most of the members who tolerate CRS as an accept acceptable
▶ 2:03:36option are just ignorant of the impact of those uh resolutions with that recognize a gentleman from New York for five minutes uh thank you Mr chairman thank you all for being here um uh I think we have the right three people here and your membership if you represent collectively basically the entire defense at least the traditional defense industry between the five big primes Lockheed boing northr GD and RTX over $200 billion in defense Revenue last year alone
▶ 2:04:06rough math that's about 130 billion from contracts from DOD 15% of our entire uh defense budget uh and since that's really discretionary spending that essentially means 1 in 12 we're spending uh as a country went to these five companies and we thank you and the employees that are doing that work given that context though and you you may have seen or heard a little bit in the news about uh government efficiency
▶ 2:04:37has been certainly a topic um in the first uh month or so while the Trump Administration has find found time to fire 6,000 veterans to fire thousands uh just Friday night at the dod they haven't yet found time to highlight any specific examples of the supposed waste Fraud and Abuse at the Department of Defense which constitutes as I said a huge part of our our spending and I agree so could each of you
▶ 2:05:07just name one program could be major could be minor one thing that we need to that we should cut Mr Fanning start with you I think um I think a lot of things are being conflated just one one thing I I think uh you know every program is there for a reason it doesn't mean it can't be more efficient top of my mind we you know we industry yeah I only have a few minutes so I'll just say when I was in the department we
▶ 2:05:37did defense wide to do and we proposed $5 billion worth of reduction so there are people who are constantly producing recommendations the challenge is one person's offset is another's essential requirement and you have to work through the both the politics and the impact what would you say given your expertise is the number one thing the number one thing I would do is I'd actually change the requirements process because I think it hasn't what's the one program that you eliminate I walk through I can give you a copy
▶ 2:06:07of the report that we produced I'd love to follow up on that happy to Mr Paxton I again I echo my colleagues comments on this I think the sheer volume of the DARS is needs to be contracted and I agree and I know I'm being yep somewhat provocative here but it's incredibly frustrating to me that we're all in high level agreement uh on and and there's been incessant talk of of the need for efficiency um and you all are the experts and your members
▶ 2:06:37and we would love to work with you I would love to work with you and I think there are a lot of members that know their legacy things that were out there from I'm 42 that have been out there you know in The Ether from before I was alive that we that our even our services are saying we don't need so I do think it would be helpful to not speak at the up in the clouds level but we need to be specific and and have those uh details um to that end my second question we've talked a lot about Hardware Focus programs which are of course a huge driver
▶ 2:07:08of our budget but I want to talk about some of the Legacy software programs across the Department of Defense that are ridiculously over budget archaic and largely in many cases simply don't work but are still programs of record because of the the broken acquisition system largely thanks to Cost Plus contracts Hardware first primes win software Centric contracts and they just cannot deliver the necessary necessary capability on an appropriate timeline yet they're rewarded
▶ 2:07:38for increasing uh uh their business expenses unnecessary auditing excess excessive accounting I was in Indo paycom last week we were hearing directly from senior leaders that the the the major Army C2 uh program they're literally not even using it's sitting there and they're locked in because of you know a program office's contracts so and this is going back to my time in the Army has the department not learned anything in your opinion from going back to the DC
▶ 2:08:08dcgs fight uh with paler uh that Hardware Centric primes shouldn't be building uh software I think um because I lived I lived through that a couple things I'd say is first of all um you know the issue with with paler at that time I think and even SpaceX uh earlier was about competition and the nature of competition and and setting up a competition that allowed um new entrance to to show what they could offer instead
▶ 2:08:38of sub optimizing them it it's hard for us I think to pick a program because probably is being ma it's probably one of our companies I will say that the industry that was my not so sub point the industry is ready to Surge though if if somebody loses a contract um and that money goes to another investment then their winners and losers are in that's competition um the industry industry stands ready to support the decisions Congress and the administration make about which programs to keep which programs to end um G gentlemen times expired here and I recognize
▶ 2:09:09young lady from New Hampshire Miss goodlander thank you Mr chairman and thanks to our Witnesses for being here today I've just come from the small business committee uh where we had an opportunity to to hear from some of the real innovators in uh in our defense industrial base who are the smaller players and I I wanted to give an opportunity to our Witnesses uh to to talk about the programs that you've seen work well um including the SB and St programs
▶ 2:09:39which I I very much appreciate you've included in this in this um very helpful and thick handout um but if you could speak a little bit more about the smaller and Mr Fanning I know you represent family-owned small businesses uh the challenges that the small businesses face in our IND defense industrial base and what what you would encourage Congress to prioritize um in our support for those important companies I I guess I um small businesses in particular
▶ 2:10:09are operating on on tighter margins and with fewer resources and tools to get them over perations in the system and we we've had a number that are non-government covid for example uh inflation but anything that we can do um to be consistent in our timelines and how we deliver on programs and and how we um deliver on the contracts to include payments helps those small businesses they're in a a real crunch right now many of them are
▶ 2:10:39um are still delivering on contracts written pre pre-inflation but having to buy their materials at post inflation prices so they're just being squeezed in a number of different ways and anything that that government can do to stay consistent on timelines is a Lifeline for small businesses so we have over thousand small businesses as members of our association it's the majority of of our organization I think our small business chair may have been in fact one of your your Witnesses so if I contradict ml ml Mack's right and I'm I'm
▶ 2:11:09wrong um the first thing of course is the permanent reauthorization of SBI R SDR I think that's very essential for the small businesses that's a great pipeline to bring them in I think there meet some emphasis on the the conversion side another one to look at is it's very important to have cyber security the cmmc standards are part of that but having either guaranteed loans or tax credits for small businesses who have to carry the load of getting compliance would be a particular help uh to them
▶ 2:11:39and uh it was mentioned earlier about software for those of them who are software focused the reciprocity of authority to operate they get authority to operate in one place but then it doesn't carry over to the other large firms can manage that small firms end up getting trapped with a product they would like to sell in scale but they're they're only getting clearance in one place and there's a cost for that so I think those are a couple of things that can be done to help small businesses but again I appreciate your interest and your emphasis on them well thank you I wanted to ask our Witnesses um
▶ 2:12:09if you could say a few words about the National Defense industrial strategy that was introduced just a year ago and H how you see the implementation of that strategy I know there's been a follow-on implementation plan plan um what is your advice to this committee about the content of that strategy and our progress on implementation I'm happy to start I think the there are two things that stood out to me sort of in a strategic way on the on the strategy one is it recognized private Capital as a stakeholder which I hadn't seen in a
▶ 2:12:40document before the other is it explicitly recognized that the national the defense industrial base is shaped by its single customer um we we've learned a lot in UK train uh a lot of conversation about Surge and about demand signals but it was years of demand signals that got the industrial based to where it was when the war kicked off and it's not an easy thing to counter and that's partly because industrial policy um Munitions which you know you can take a 20%
▶ 2:13:10risk on Munitions year after year after year after year after year and the industrial base will shape around that you can't buy 80% of an aircraft carrier uh and so I think those you know the the problem with surge the problem with stockpiles and the problem with industrial policies in in the end game of the budget they don't compete well to things that you can actually park at a pier or put on a ramp that's what I would just remind the the ranking member talked about choices in the end game it's all about choices and what you can actually have in your inventory
▶ 2:13:40tends to win uh over these types of Investments that we think are critical because capacity is a capability and it does deter so first of all it was very helpful that the department produced The First National Defense industrial strategy it was a clear recognition of the challenge they're facing how the challenge came about over time through government policy I would encourage the new Administration to look at that of course going to have their own version but the industrial base has been a party for them so be able to
▶ 2:14:11use and draw from that what they value but I think that's something that um the recognition of the effect of certain policies on it the recognition of where Earth medals re I mean they did a relatively across the board look and so I think that's a great place for someone to start and to build on and so i' encourage the committee to look at it and and to and the implementation plan uh and then recognize some of those have costs associated with them and so you just have to pay attention to that I thank you and I yield back Mr chairman I'll be submitting some more
▶ 2:14:41questions for the record and appreciate the time of the witnesses the chair now recognizes Mr Mills from Florida thank you very much Mr chairman thanks so much for being here here gentlemen Mr noris great to see you again Mr noris I'd like to Pivot to another critical concern uh related to our industrial base namely supply chain Integrity uh and transparency I don't think I need to rehash the issues that we have regards to Reliance on adversarial Nations for critical components uh but even more certain is the critical minerals that we have banned
▶ 2:15:11uh DOD and Commercial Partners from sourcing from adversarial Nations uh these restrictions are often too to uh too wavered for you know these individual program managers or you these adversarial trading proxies and minority ownerships been taking advantage of these thresholds so my question I guess is that knowing that the responsibility of both DOD and the industrial Partners to ensure the United States abides by these responsible acquisition practices uh what is the industry doing to ensure transparency in these Supply chains
▶ 2:15:41so each of the companies industry is working at and there are companies that are helping produce tools to let you map your supply chain and be able to understand what's coming from where this is both a a supply Interruption risk if even if it's a domestic company or it's a an item that could be compromised along the way and so you need to know that chip or whatever is coming from a trusted supplier the same thing actually somewhat comes in place with trusted capital and knowing that the investors and the people you're
▶ 2:16:11playing with are worthwhile so that has been a a part of it now this is these are relatively complicated uh Supply chains and there's risks involved um when you go to the overseas so there's certain things that can be done uh with regard to promote um domestic mining or refining capabilities as the the the 45x tax credit would use is not available for mining but if you were trying to get after the rare earth metal issue that would be one of uh the uses on it when we talk to our membership
▶ 2:16:42one of the things they bring up is uh in the last three years 28% lost a critical supplier uh 30% lost a soul sour supplier so mapping is not just it has multiple values security understanding and then recognizing your vulnerabilities and your choke points so you can start to build resilience yeah as a business owner one of the things you always look at as your single point of failures obviously one of those key and critical areas is the 92% of microchips and semiconductor capabilities that's within Taiwan that is why building up Endo paycom capabilities
▶ 2:17:12ensuring that we diffuse some of the increased uh adversarial kind of nature of both ourselves and China knowing they're the greater aggressor uh looking at ways coastal defense and other things like that should these things take but also working with other committees such as Ways and Means with chairman uh Smith to eliminate the double taxation on Taiwan which allow them to invest in the industrial base here in America to ensure that we have the ability to go forward and create those semiconductors and microchips ourselves you know one of the key things that that I've
▶ 2:17:42been concerned with for a very long time is that America still adopts the idea that Warfare is built on kinetic only the supply chain the resource capability the electronic the io IW space that is really a concern for me as we advance to what Real Warfare looks like I mean if you think about China Russia Iran and North Korea's geopolitical alignment this is not meant to just involve themselves in a kinetic element yet proxies from the Iranians will actually help
▶ 2:18:12to be a distraction as we saw with the houthis who's disrupted 12% of global trade through the Red Sea when the last Administration delisted them as a organization but China's aggression has been mostly not just expanding out the belt and Road initiative but utilizing Russia to expand the European like Eastern Front taking Oceania taking the 15 of 16 rare Earth mineral mines in Africa and doing what we claim to do on paper which is oh we're sanctioning you they're doing it from a geopolitical stance where they're actually moving the football by cutting
▶ 2:18:43off Western Hemisphere supply chain to the Red Sea the Persian Gulf the Black Sea the Horn of Africa while using economic coercion on on Honduras to try and influence trade tariff Taxation and capabilities through the canal that's really actually cutting off America and our supply chain capabilities you know the thing that's worried me is that we have to get proper procurement reform in place the DSP 83 DSP 5S that are sometimes held up for political purposes that is not restricted by usml 151
▶ 2:19:13or things like this are not meeting the 90-day threshold of the director at uh defense trade controls is putting us really far behind our adversaries with supplying our allies the necessary tools but I'm committed to contining to support the industrial base to have American built components American built products that allows our economy to thrive and stop adversarial Reliance which allows us to build the economics of another Nation who's out to destroy us thank you for your support thank you for all you guys do and we're here to give our best to try and make sure America continues to build back strong with that I yield back
▶ 2:19:44you thank you does the uh gentleman from North Carolina have any questions recognize the Gent from North Carolina well let me say um as our military faces increasingly challenges uh with budgetary constraints prioritizing our defense industrial base is of even greater significance so with that thank you all for being here today Newport News ship building in Virginia
▶ 2:20:14employs North Carolinians um over the state border in my congressional district in North Carina's first in the northeastern portion of the state and it's currently hiring um North Carolinians uh the shipyard this is my question Mr Paxton what efforts are being done when we talk about um taking advantage of entire populations in particular Workforce
▶ 2:20:44all the conversations our Workforce what efforts are being taken to strategically and be intentional about bringing in rural areas in particular in these Workforce conversations and then not just rural areas um but for instance in North Carolina we're right there and many are going into Virginia to then entice states to
▶ 2:21:15collaborate more with each other thank you Congressman for the question um first of all I I think the goodness of the ship building industry and ship repair industry is oftentimes they're the economic engine of some communities that aren't in major city uh locations and so the initiatives that I know Newport News and other shipyards do through their apprenticeship programs are world class and they attract the best of the best and they want to hire up those
▶ 2:21:45people who maybe didn't go to college who just got their High School degree and want to have a career uh one of the great things about the shipyard industry is you can have that career um and I know Newport News is an exceptional job um uh bringing in uh the next talent in our Shipyard industrial base yeah is there anything specific that you would suggest as a priority that would focus specifically in helping to could cultivate Workforce in
▶ 2:22:15rural communities Across America you know Congressman to the extent that we are trying to make raise the awareness of the shipyard industrial base that we are a a great uh family wage career destination um and you've seen some of that with the shipyard industrial based promotions and where they those promotions go so I do think there's Outreach to rural areas to to make them aware of our industrial base and that again these are career jobs it
▶ 2:22:45was interesting this week U we had um Educators that came into the office from Shawan County uh we had a principal from Shawan Middle School um we also had the stem coordinator um my question is could you just speak briefly when we talk about cultivating Workforce because they were sharing with me their vision of extending stem you within schools um
▶ 2:23:15within the county um how important is stem stem and I'll sure my colleagues will have some opinions on this as well it's absolutely the most critical thing we need right now um and and what our shipyards are going into elementary schools now to talk about stem and talk about careers in the shipyard industry but I'll hand it off yeah I think what you want to do is you want to give individuals exposure to the industry so they can develop a passion
▶ 2:23:46for it you know many people they get because one of their parents worked in a field but if your parents aren't involved in these if you were at a school where you have the exposure to work either Electrical Plumbing I mean there's a range of of technical trade skills and there's a way a range of stem topics that people start to develop an interest for when they're young and then that passion they discover there's an all Queer field attached with that that allows you to to work with those skills in that areas and so I think the ability of of introducing that and we have chapters of ndi all around who work
▶ 2:24:16with local schools uh do different programs in order to expose them to the range of career fields that are out there and then from that they look around they say oh there's a shipyard nearby or I can drive this distance to get there but trying to show them these are fun interesting things to do that there are entire careers behind that you can make a living doing and and let me say this nor Clin Forest congressional district we're one of the most economically distress M and we have to look at these areas that are experience experiencing distress and especially rural
▶ 2:24:46communities and really begin to go to the core and that building the future through our Workforce right thank you so much and I yield back the balance of my time thank you uh I now recognize the gentleman from Illinois thank you Mr chairman um good morning to everyone thank you so much for your time sharing your expertise um strengthening the defense industrial base is such a critical issue
▶ 2:25:17um especially to my neighbors in Central and Northwestern Illinois I'm so glad that we're taking the time to delve into that today um our defense industrial base Fosters Innovation it creates jobs it helps our allies around the world and keeps our adversaries at Bay um I'm so proud that my district is home to the historic Rock Island Arsenal um that back in the 1830s um there were decisions that were made here in Washington to put one of our most strategic
▶ 2:25:47places on an island in the Mississippi River and still to this day men and women back home go there to do this important work um and it is my job to make sure that we're making sure that uh the Arsenal will meet the needs into the future um so we know back home uh firsthand how important the organic industrial base is so Mr Fanning I'll begin with you uh has the Department of Defense in your opinion uh done a good enough job leveraging the organic industrial base in areas where the private
▶ 2:26:17sector is not there I I think the department does do a good job um proed by Congress to make sure that they do that where I think um perhaps there's a problem is the investment in that organic industrial base in the arsenals it I think much like surge capacity is is generally a bill payer in the end um most installation Investments I think are a bill payer in the end uh but I do think the department does a good job again because they know Congress is watching at leveraging
▶ 2:26:47that that organic industrial base thank you uh The Rock Island Arsenal is also home to the Army's Center for excellence for advanced and additive manufacturing uh which has pushed the boundaries of innovation uh through the surrounding defense industry all around Eastern Iowa and Western Illinois where I represent the story of advance in additive manufacturing at Rock Island it shows how investing in our modernization uh improves the Readiness and strengthens our national security posture uh so Mr norquist
▶ 2:27:18uh to what extent do you see additive manufacturing playing a role in the future of the defense industrial base so I see two particular areas that I'll focus on there are many but let me just dwell on to one of them is in places that do maintenance repair and others the ability to get an old piece of equipment working by by additive manufacturing uh saves you the other part is when you have either deployed or at home a spare part you don't have access to deployed it may because of a supply disruption at home because it's an old item in the vendor when out of
▶ 2:27:48business the ability of additive Manu ufacturing to say we can produce that for you without the traditional cost of tooling and running a production line and then doing a run of 20 right which is incredibly inefficient provides real opportunities for the Department in terms of rationalizing its Supply its parts and its production so I think there's a lot of great opportunity and I think this is one of those areas we've seen progress and succeed as it's moved into new and different fields and how important is that especially as this Administration seems to
▶ 2:28:18go at Cost cutting measures and efficiency how important is that oh it's a major cost saving so I think about it think of all the systems we have that were built 20 30 years ago many of those suppliers are gone so the cost of trying to build those the traditional way is both financially expensive but operationally such a long lead time additive manufacturing says we can do that faster and less and let you keep things up and running so I really see that as one of the key items uh
▶ 2:28:48for uh speed and cost Savings in the department right glad that we could be a part of that in my district and and also uh the congresswoman across the aisle congresswoman kin um she had asked about you know the effect that it has on this uh when we look at short-term CRS and I know she had asked that to you Mr Fanning Mr NorQuest or Mr Paxton would you like to to answer that yeah the one thing I would add is in ship repare if we go much longer uh we're going to be talking about work
▶ 2:29:18stoppages and that's no one wants that we don't want to issue warn warn notices we don't want to do that so that's the severity of the CR it's going to be hard on the on the shipyard industrial base Mr nist on the CRS I think one of one of the things that people tend to misunderstand on CRS is a regular appropriation bill can have the Top Line go up or down the only thing that's different is a CR tells you don't do the stuff you think you need to do next do the stuff you used to do
▶ 2:29:48a year ago even if if it was something you recommended stopping it's it's incredibly inefficient and then it creates cascading effects down through the system one is instead of awarding a single contract the contractor is doing multiple iterations which creates uh instability and uncertainty and then the other part is funds just aren't aligned in the right place and so we have had companies get sto work orders because they were under CR and the government didn't know how much on andm they'd have how much maintenance money so they said and that company just laid off its Workforce and then two months later
▶ 2:30:19they said hey we think in a better shape can you find them again and so they'd try and find them from wherever they were and bring them back um but unnecessary it's just you're putting on the brakes and then at year end you're going to hit the accelerator right and then you're going to pay the consequences it's incredibly inefficient yeah thank you to all three of you and Mr chairman I yield back thank you I recognize the gentleman Louisiana thank you Mr chairman gentlemen thank you for appearing before us today Mr Paxton I'm going to be directing my questions at you
▶ 2:30:50um would you concur good sir that that small ship yards are are an important part of the industrial base that the that our nation requires as we look at the future of ship building and our responsibility to provide vessels for the United States Navy absolutely sir okay availability is is challenging across the Spectrum of
▶ 2:31:20ship building in America is that a is that an accurate statement generally speaking our number one challenge sir number one challenge there you go so if if smaller shipyards for our Republic and by extension may I say not only for in defense of the United States of America but for the for the prosperity and security of the entire world and relies upon the United States
▶ 2:31:50and we agree that small shipyards are vital U and significant part of of any foreseeable ship building future for the the United States of America and should be recognized as such so Workforce stoppage job when you pause a job when you the the impact of that for a smaller Shipyard is is far greater than on your larger shipyards
▶ 2:32:20they just move those guys they can keep their welders their Fitters their machinists their supervisors Etc they can shift them you know to another another project within that that larger Shipyard but a smaller Shipyard can't do that they have to bear the the cost of even a shutdown for a few weeks can mean that they have to let these guys go then that Workforce leaves and these welders and and Fitters and Machinists they're going to get other job jobs
▶ 2:32:51and it's it's difficult to replace that Workforce for your smaller Shipyard so how would you how would you address that and I yield to the I yield to the gentleman is it is the is the Pentagon paying attention is my is my the the Cornerstone question here I I I think Congressman you you rais a very important point we should be opening the aperture uh in DOD contracts for smaller shipyards that can do some of
▶ 2:33:21the work the Navy needs to get done um for instance a shipyard in your state um got a contract to build birthing barges it should not have been a comp complex contract and it became very complex for that Shipyard and we should we should try talking about the ybm and Conrad yes sir yeah but what we were trying to achieve there sir is open that aperture for a shipyard like that that cuts its teeth on Commercial work and and makes you know does really great things employees a lot of people
▶ 2:33:52they shouldn't have been punished for for getting a government contract precisely so you you you concur that this has to be this consideration is part of the totality of circumstance that that the that the the dod the Pentagon that our Navy commanders and the executive branch must keep in mind when when we're when we're we're laying out plans for what the ship building looks like in America and how we're going to actually perform Mr chairman I'd like to uh unanimous
▶ 2:34:22consent to submit for the record a letter that I submitted to the executive branch on February 24th regarding this topic uh the importance of Workforce and its and the impact of shutting down programs even temporarily I'd like unanimous consent to enter to the record please sir hearing no objection thank you uh Mr Paxton I I have one specific question I'd like to get to your your testimony sites um excessive oversight and frequent
▶ 2:34:53design changes by the Navy as causing delays and and I'm saying that those delays may be may be manageable by your larger shipyards but they're they can cause significant economic injury to our smaller shipyards and I yield to the gentleman to resp respond to that that position yes sir I think we should
▶ 2:35:23be a clear U eyed about once we have a functional Baseline design on that ship we we have to be rigid in not having requirements creep and ship specifications continually to increase because that drives up cost that drives down the schedule and It ultimately hurts smaller shipyards thank you sir Mr chairman uh thank you for for convening this hearing and my time has expired I yield thank you uh recognize Mr
▶ 2:35:56vinman thank you Mr chairman um so uh my first question is for Mr Fanning um sir you served as a secretary when I worked in the headquarters uh at uh the Pentagon and so you are very familiar with uh the Pentagon and the Army bureaucracy and you stated in your testimony that the defense industrial base is largely shaped by a single customer the federal government that the defense industrial base relies on federal investment to ensure the overall health of
▶ 2:36:26the industry and I agree that it's critical that we support our defense industrial base in a way that supports new technology at reasonable cost and delivery timeline especially in response to the pre prevalence of weapons such as cheap and easily acquirable um drones so um I've been thinking about the modern Battlefield and what we see uh developing in Ukraine uh these small inexpensive systems that um have really been a GameChanger
▶ 2:36:57um the ukrainians are looking at establishing a basically a 15 kilomet Kill Zone um that's largely unmanned how do we um maintain the speed of innovation um you know smarter faster development of of systems when we have a acquisition ition system that is Antiquated that it takes years to develop
▶ 2:37:28give you a chance to answer that first sure thanks simple question um well I think what's you what we're learning in Ukraine is is you need highend and lowend uh that you can buy in volume is attributable and what's interesting about that part of of your production plan of your acquisition plan is there's the opportunity for a lot of competition there uh you know you're not going to have a lot of competition in in Legacy platforms that you keep that are fairly mature and way too expensive for for some new company to come in and and
▶ 2:37:58uh and and try and compete but you can get a lot of competition here to bring new entrance into the industrial base I think the issue on the acquisition side um David and I served on the ppbe Reform Commission there's some great ideas in there I would say and one is a way to how do you create some more competition and speed inside the department one isort portfolio management um give the program managers the peos um the ability to um uh
▶ 2:38:28to think of pots of money differently and move things around inside of them it requires a lot more transparency with Congress so you can complete your oversight responsibilities but but you know you you can try to reform the entire acquisition program or you can take the parts where you really need that speed the most and focus on those and I think it's some of this new technology that we're seeing coming in and there are some decent models out there for Special Operations authorities that can move much faster than the typical um system is there
▶ 2:38:58do you see any major issue with actually just applying or dropping that model in um That Special Operations forces use on to regular Acquisitions I think um well I what I would argue is it's the risk rat's been too turned too far in the anti-risk direction and and I would if someone wants to take risk I app plot it so long as there's transparency and it can be monitored what's nice about the Special Operations authorities is they've been tested over a long period of time and so
▶ 2:39:29we have some confidence in them the the question i' be is just be careful which ones can scale and which one can't scale there's there's lots of Rapid authorities and Rapid offices in the Department of Defense that are designed as workarounds that wouldn't scale very well but I think what Special Operations has done has proven to be a good model and I think you could apply it to other things very quickly thank you for that and so I think getting the getting the right balance between the Exquisite expensive systems and the cheap dual use systems is going to be critically important so um Mr
▶ 2:39:59NorQuest um without giving you too much of a preamble because I only have less than a minute left you know um production of the magazine so to speak um that we need artillery missiles and such um is way behind um where we are producing right now so um as the US doubled its production capacity we're still struggling to produce artillery shells for example um so how do we address that issue
▶ 2:40:29so I think there's a couple of things the first just recognize part of the way we got here was the wild swings in Munitions so I think one of the first steps is working with the Department to have much clearer floors for Munitions inventory that way the vendor understands there's going to be a quantity the department uh War Fighters know that the event of a conflict they will have access to Greater volume there are things you can do with the the vendor in terms of uh helping them set up new facilities
▶ 2:41:00uh and being able to addition in production but that assumes that the demand signal is going to be long enough take several years to get a factory up and running and sometimes with these the signal is actually going to drop on the other side and that creates a problem thank you I yiel back thank you I recognize the gentleman from Colorado thank you Mr chairman Mr Fanning in your written testimony you touched on how rapid inflation caused by the Biden Administration weakened the defense industrial base um and I just yesterday
▶ 2:41:30met with excelo which is in in my district about that very thing uh talked about the inflation crisis and how it was especially harmful for the small businesses in the industrial base you know these mom and pop shops effectively had their fixed price contracts uh renegotiated to slash their revenue by 20% through no fault of their own and for many companies this means laying off staff or closing their doors
▶ 2:42:00um what flexibility is the dod have to support small contractors during extreme situations like the inflation crisis that we've had and how can Congress assist them well first I think um recognizing the impact of inflation uh my observation in this job having been in government before is that industry is the shock absorber of inflation the Pentagon seemed to think that it had managed through inflation um because it hadn't hit it yet when the next round of contracts
▶ 2:42:31or economic order quantities uh or competitions take place that inflation that has been absorbed by industry is going to show up and the government's going to have to deal with it and I think the way the what government can do in real time um which is hard is pay for it the the contracts most of the contracts that are directly with the government have adjustment Clauses in them but it doesn't matter if there's no money to pay for those adjustment Clauses and that's what caused you know the the primes
▶ 2:43:02anyone who has a direct contract with the government to absorb it and then pass it down through the supply chain and what you're seeing now is small businesses that are locked into contracts to their customer pre-inflation but are now buying materials and parts in post inflation and their margins are just getting squeezed yeah and and and I'm sorry and we can chase them out of the defense industrial base because they can adjust to inflation much more quickly on the non-defense side of the work that they're doing right
▶ 2:43:32okay thank you Mr norquist in your written testimony you talk about the burden of Regulatory Compliance that contractors are forced to bear in order to support our National Defense for small contractors who can't afford to to devote an entire position or a department to compliance the regulatory burden is crippling um do you have any sort of estimates as to how much time or money the average small contractor is forced to commit in order to meet Federal requirements and you know it seem to
▶ 2:44:02me like Congress would want those resources to be focused on supporting the war fighter instead of checking the box for DOD so we don't have estimates in the aggregate but individual things like the cmmc standard how many you know 100,000 200,000 are they going to have to spend to get and well just for the annual inspections each of those we tend to you know for some of them we all have estimates but as you point out those are all significant burdens for the small business and it makes moving into the barrier to moving into the government sector or staying there
▶ 2:44:32very high well and and it also takes money away from the the war fighter right when they're spinning it on compliance instead of right right okay thank you I would yield back Mr chair thank you I recognize the gentleman from Missouri thank you Mr Mr chair ranking member Mr Fanning Mr norquist and Mr Paxton thank you for being here today uh Mr norquist I want to start with a question for you um I think you mentioned
▶ 2:45:03I or identified brittle Supply chains as one of the key vulner vulnerabilities facing Americans America's defense industrial base often our defense critical supply chain chains can be dependent on products and materials Source from other strategic competitors and adversaries including China and my district in the St Louis region is home to numerous contractors and subcontractors that are part of the crucial
▶ 2:45:33backbone of our country's nation's defense including the Aerospace industry given recent efforts to increase our leverage and involvement of small and medium-sized defense contractors what steps are you aware of that the Department of Defense is taking to ensure these entities have the necessary support and resources to meet the demands of our national defense strategy so I think you bring up a critical challenge which is mapping the supply chain
▶ 2:46:04understanding where you are either vulnerable because it's it's offsize or You're vulnerable because of the fragility of your supply chain I know the department has been looking at different choke points solid rocket Motors is one of the most obvious ones where there was there was not a capacity to meet it but they have and I think some of it may be covered in in their National Defense industrial strategy where they go through and they work backwards and say where are the common choke points and that's a common project you often do with with industry to map to understand where the overlaps are
▶ 2:46:34sometimes competitors who are bidding against each other and build different products are actually buying from the same supplier for the part and so being able to be aware that that part take disruption there would affect several then the question goes goes to the government about what's the best way to deal with it you know one of the old techniques is defense production act you go to the the supplier and you help them increase their capacity uh that works well the other ones is in future contracts you incentivize the the winning firm
▶ 2:47:04to develop a second supplier as part of their contract and so they will then grow uh a second subcontractor who will be able to provide that both of those are useful and I think it's really a matter of understanding where the choke points are uh versus which you don't is do that where you actually already have capacity and there are other firms willing to Bid And if you just found them they'd come right on in thank you and Mr Fanning um as industry continues to drive innovation in Military and civilian Aviation how do you see
▶ 2:47:34Missouri based contractors contributing to the development of Next Generation Technologies well I think um our industry has a footprint in every state in the country and so um uh which is great but I'm I know you're talking about Missouri I think which is which is fantastic we we um Missouri specific I'd have to get back to you on that I and we can have a conversation
▶ 2:48:05because as we said earlier Workforce is the critical component here there shortages and if we if there are regions or states in the countries that that want to work with Aerospace and defense um that's an easy partnership to okay thank you Mr Fanning um Mr norquist um I want to continue um the discussion on supply chain resilience and security um while it's essential to
▶ 2:48:35reduce Reliance on parts and products from strategic competitors it's also critical to strengthen cooperation and expand Industrial Supply chains with our allies can you speak to the import importance of fostering robust Partnerships and trade within the industrial base particularly with our NATO allies and other multilateral security partners are there and are there any specific programs or initiatives that you believe are particularly
▶ 2:49:05effective in this regard so I think one of the things that that people need to understand is with our formal allies and we have over 50% of the world GDP so there's amount of economic capability there these countries are both suppliers of part to us and if they're allies then they're friendly suppliers as well as buyers of the products we make which create jobs here so there's a value in having that working relationship with them there has been work in Aus with with uh with uh UK and Australia to be able to expand our ability to do that
▶ 2:49:35trade there are certain companies in Europe that are absolutely essential for certain systems that we build where they're the best supplier so I think it it behooves us to take advantage of allies when they are useful and it's useful to be able to have allies take advantage of and buy from the US and I think that that reciprocity is part of what makes it effective the gentleman's time has expired I think that's my time I yield back thank you recognize Mr SOS thank you Mr chairman uh M Mr
▶ 2:50:05norus good to see you again um you know as a former comproller former deputy uh Secretary of of Defense I think you're you're well aware of the the cause of what a continuing resolution and how it impacts um you know Defense building in the industrial base but I'm actually going to ask you about the um the workforce um so would you say developing the workforce given production shortfalls is a priority um you know companies like in
▶ 2:50:35your Association continue to invest in higher education and engineering degrees but we still need manual labor the wrench Turners the guys who actually build the things uh we need that to create the work we need to create the work Force for tomorrow so what role do do your industries have in expanding all of our future Workforce um and not just recruiting engineers and stem degrees but actually building the guys who are putting hands on the product and building it so I think first of all it's important to understand the
▶ 2:51:06the value you know people use the Expression blue color work but they're skilled labor and in many of these skills they're very complicated skills in advanced electrician a welder working on an aluminum inside those are very complicated process and so with industry what you want to be able to do is recruit people and train them and then retain them because it's the years of experience in that training and so I think industry is very keen on that it understands the risk of disruption there are things that we can do to help you know when there's a a break in production
▶ 2:51:36the incentives financially are to get the industry to lay people off there's not an incentive to try and retain them that's not in the government's uh long-term interest there's opportunities to encourage uh training of people coming in before they're on board that can if that was an allowable cost that would encourage it but I think it's really important as we as we see how many of these places the the value of that skilled laborers and their ability to produce a quality product is essential to our national security and often it's the shortage
▶ 2:52:07there that that's holding back a number of Industries and that's the thing right is how do we get people uh I don't think anybody really kind of knows or thinks growing up as like hey I want to be a welder but not only a welder I want to be a skilled while we in this industry and and don't realize actually what a good career that could be but how do we work to recruit people into these industries and to become those skilled laborers to go and to retain them as you say so there was a time when we started to shift and started emphasizing college and a liberal arts degree as a solution
▶ 2:52:37for everyone and we saw that both in things being done in the Department of Education we saw that even in the military when when people were leaving the military that was sort of the theme the answer is in fact there many of these career Fields uh the skill labor are much better paying and have much more stability and a more interesting career field and so I think we need to both inside the department and as a country rightsize the recognition of both the value of that labor and making it clear to people the this
▶ 2:53:08the the potential to have a real career that this isn't something You' end them you can make this a long-term career and be a uh have a very successful life and a very positive environment thank you uh Mr Fanning I want to ask you around same lines really um you know what are some of the biggest challenges you see in the Aerospace and defense industry in attracting and retaining these skilled workers I I think i' just be eing what David said we we pivoted in this country away from vocational and Technical Training to Community College Investments
▶ 2:53:39and I think we not only did we move the needle too far in the other direction but David mentioned the value of this work we sent a message about the the value of this work the worth of this work to to our country and I think um we know we have jobs that pay 50% more than the national average we pay well we have to pay well we need that type of a Workforce and so I've got a company in in a Kansas that actually recruits on farms because they can at least find people who work who work
▶ 2:54:09with big equipment we need to have that Pipeline and it has to start early that feeds into stem that can be this type of of high skill labor you talked about and you know what we want to do is hire people in and not just train them recruit them but grow them and move them into those higher skilled jobs that are on the floor you know I think this is something we need to look at right and I know the Department of Defense and I'm sure you all know this right you know we got fifth graders going in to get them interested in science and physics and becoming
▶ 2:54:39Engineers but I think we need to start getting not only the government but industry as well focused on in making Investments to have building that skilled labor so that we have that Workforce for tomorrow especially as these weapons get more Technical and difficult to build um so anything we can do to partner with industry to kind of make that happen uh I am here to help and support that and with that Mr chairman I yield back thank you recognize Mr Tran thank you Mr chairman
▶ 2:55:09ranking member uh thank you gentleman for being here I am deeply concerned about our dependence on components and material Source from the people's Republic of China and the implications of our supply chain China is already levying new export restrictions against the United States and I have no expectations that tensions between our two countries will be Al alleviating anytime soon uh the question is uh for any of the witnesses what are the most critical supply chain vulnerabilities in the defense sector and how can we better
▶ 2:55:40mitigate China's influence on us Supply chains so I'll just start with a few and then and they can jump in I think one of the places you see this is energy storage and batteries and the materials needed to produce those that has effect across a wide range of Technologies and many of those also depend on whereare earth metals for development either not produced here or not refined here and so that would be one where you would need to look to both improve your either stockpiling your development your processing or make mining
▶ 2:56:10either here or through an ally um you'll also see this this came up with microelectronics right and the and not that one is not just a interrupt the supply for the Department of Defense it's how do I know the Integrity of the chips that I am using have not been compromised so I think those those two I think raw materials we've we've talked about extensively and this one and feeds into both of those two questions so I'd start there is the ones I would highlight and I would maybe expand the focus a little bit to adversary Capital
▶ 2:56:40um watching very carefully where China is moving its manufacturing um to make sure that we're not getting it through a second secondary source and then a recognition um this is a these decades long whip saws um you know this it was our strategic Focus to partner closely with China over time and so some of these things will take time if they're left to their on their own to write themselves so there's an investment requirement there if we want to get speed thank you
▶ 2:57:11Mr yeah I just my comment here would just be where we are down to single Source Supply ERS um in our um Shipyard industrial based supply chain we have got to make sure the health of the industrial base is such that you know when we continue to ramp up and that signal might be coming that we're going to do that that we have a supply chain that can be resilient and answer that call thank you um you'll hear me talk a lot about our people after
▶ 2:57:41after all our people are military's greatest asset in this case I would like to know more about recruiting and retaining the skilled workers need to meet production demands what are the key work force shortages affecting the defense industrial base and what specific partnership will be necessary to ensure industry can identify and recruit enough talent to meet our strategic requirements I know we talked a little bit with repos uh but specific Partnerships is what I'm looking for any of the gentlemen so I'll just start you the the key ones are are
▶ 2:58:11skilled labor stem and also people who can get clearances because that becomes a choke point as well some of the most important important Partnerships are with the local communities uh through their high schools and other programs so that uh employees get exposed or students get exposed to the Technologies the stem of the trade skills and that creates a pipeline as well as them being aware of what industry opportunities are available in the area so I think those are some of the starting points I think the Navy has done a good job of this I think the Air Force is is looking at doing this as well
▶ 2:58:42to be able to to bring people in and let them know that this exists right there's an opportunity here so I'll pause and let the others weigh in but that's why i' start I I think absolutely um local communities and educational institutions and expanding um so that the Educational Systems in in the state and local governments can see what will help these students get jobs like this and it backs up further than than high school I mean if you want to do some of these jobs you have to start taking and understanding and and studying math in elementary school
▶ 2:59:12and so um that's a long pipeline that's important but I would say the the importance of retaining because you brought that up as well and one of the hardest things uh that undercuts retention is inconsistency surging and coming down off of a surge and you know we we've talked about it in terms of demand signal and investment but but these companies never want to lose their workers they'll go someplace else and it'll be very hard to get them back and we saw that in covid again the shared supply chain
▶ 2:59:43it hit the commercial Aviation side so hard and that was the focus how do we keep those workers because we won't get them back they're in demand they'll go someplace else and so that consistency that that industry can have so they can plan around retaining that Workforce is very important thank you so much Mr chair I yield back thank you and the chair would wants to announce we will have a hard stop at one o'clock and with that I recognize Miss hrth thank you very much Mr chair fully recognizing I'm bad in cleanup
▶ 3:00:13so I just have one question for everybody and it's kind of a natural evolution of some of the questions that we just heard but appreciating there are multiple VAR variables that contribute to what we're discussing today obviously Workforce that we've discussed supply chain issues continuing resolutions aren't helping any of this but can I'd like to specifically drill down on the the threat of the this administration's tariffs on our allies and our adversaries both on the raw materials that you utilize from copper and aluminum to Lumber but also a lot of the
▶ 3:00:43the process materials and the products that we've also discussed today so I just want have a greater appreciation from any of the witnesses as to the potential impact the tariffs that have been announced could have on exacerbating this challenge we Aerospace and defense is the the largest net exporting manufacturing industry in the country and we've had the longest running um uh export surplus of any industry in the country so we our markets all over the world and a part of that is also having a supply
▶ 3:01:13chain that's all over the world and we we have been doing a lot of work to rationalize that Supply chain get it out of China um uh take the lessons we learned from Co and move it where we needed to follow successive administration's guidance on this but buying American involves getting a part of the economic benefit of of that purchase um companies that buy airplanes for example they they also want some economic benefit from doing that and so there are
▶ 3:01:43incentives to buy American um to invest and to move your supply chain internationally so we you know we we're watching this very closely um when we went through this before uh the defense industry in particular was given very careful consideration for exemptions recognizing that that any tariffs um that that are impacting what the government is buying essentially go back to the taxpayer because of the economic adjustments that are in the
▶ 3:02:14contracts so I think there multiple ways the government gets Revenue each one of them has an effect on how it takes it and the incentives it creates and so I think with with a tariff you'd have to figure out what is it on and what products and then you have to work through the supply chain to figure out what's disrupted remember the second order effect which may I may not be buying from overseas I be buying from a US supplier who's right so there's there are consequences to that and as as as a point trying to understand the effect on defense and making sure that those are taken into account so you don't harm National
▶ 3:02:44Security would be an essential I'll just say as a general matter um on the commercial side of things we're you're it's it's much because we have Global Supply chains on you know commercial ship building there are some real near-term impacts on what that could mean cost-wise but like um my two colleagues have said there's still a lot of kind of analysis of what's going on here and
▶ 3:03:14what we're going to get thank you very much and uh I think it's clear that there again multiple variables here but adding an additional stressor um is the effects are still unclear as to our preparedness our Readiness all of those things and so I do hope this committee uh continues to ask these questions and have these these challenging conversations with that Mr chair I'll yield the remainder of my time thank you and we recognize that the chair recognizes Mr Scott from Georgia Thank you Mr chairman I'll be I'll be brief I'm sorry that I've been running in and out of other meetings with
▶ 3:03:45uh people from the Department of Defense um not taking care of the supply chain just a few years ago put our country in a position where if we wanted to launch a rocket we actually had to buy that rocket from Russia if I'm not correct and I think that uh obviously um if we had not gotten ourselves out of that position we would be in we we would be in Dire Straits right now and uh I'm I'm afraid maybe that uh we haven't haven't necessarily
▶ 3:04:15learned our lessons uh certainly by American Mak sense um and and a lot of things Mr Paxton and I'm going come back to you Mr Man one one of the areas that I have the hardest time with though uh I understand the ship Builders need a consistent flow to to get uh decent pricing for us uh and and reasonable margins for them uh but I don't understand why we only buy one ship or one part of a ship at the time I don't understand why we don't do purchases and
▶ 3:04:46I the thing that I have the hardest time with though with the the ship building is like just buying rolloff rolloff roll on rolloff containers for um I would prefer to have the US ship building industry focused on more specialized products when we could buy roll on rolloffs from Singapore or South um but I why are we are we only
▶ 3:05:16Contracting for one ship at the time is that why does it cost so much more in America well certainly we we are subject to the appropriation process where these ships are bought in you know a single appropriation year but certainly we have advocated for Block buys the recent amphib bundle down at Engles was exactly the right thing to do putting ships together in groups like that gives the shipyard everything they need for predictability and um sustainability
▶ 3:05:46the other thing I'd say this committee authorized a 10 ship buy of of conro roros for the National Defense Reserve Fleet and that was very smart um Appropriations were funded for that and we still had the maritime Administration sitting on put putting that that out to contract and in that case Congressman would be we would be using commercial best practices to build those ships okay but but it is cheaper to buy their R owner offs from you
▶ 3:06:16know uh Congressman I I think the reality is when we buy in ones and twos and threes here it's more expensive um if you buy an order of 10 it's going to be much more affordable um I will say Okay um if you're buying in orders of 70 and 100 thank you I just it we got to work through this yes sir we can't we can't pay as much as we are for the equipment we need and and it can't take this long secretary Fanning I'm gonna come to you because you were Air Force before you were Army right yes um
▶ 3:06:47n before that okay uh well I was trying to give you credit without demerits um the data on the F35 we listened yesterday uh I'm very concerned about the Contracting when we is when the United States taxpayer pays for the development of a weapon system and then we turn around and because of poor laer Contracting we end up not owning data or
▶ 3:07:18systems that we've paid for do we own the data on the F35 Congressman I I actually don't know the answer to that question we don't work on individual programs at AI we okay I thought I thought I thought maybe from your time is I don't recall specifically I do know the data rights is a is a complex issue and it does come down to what's in the what's in the contract but I don't know the answer to your specific question so as a guy from the private sector
▶ 3:07:48I don't think it's that complex in the private sector if a private company pays to develop something they own what they paid to develop and so I I want our defense contractors to be successful and being successful means you have a reasonable margin just as being being responsible to the taxpayers when the US taxpayers funds are used to develop a system the US taxpayers should not have to pay to license that system back and
▶ 3:08:18that's something that the US government has got to do a better job of I appreciate all of you sorry that I've been running from meeting to meeting but and sorry Mr norquist I could have asked you a trigonometry question or something but thank you the chair recognizes Mr kanana thank you Mr chair Mr Paxton I found uh your testimony very very helpful and on point especially as you pointed out that our ship Builder are competing
▶ 3:08:48with Enterprises that it's not a Fair competition I mean China South Korea Japan basically have been financing their ship industry for decades uh and we have not done that with our ship industry now others have pointed out that China is making 1,700 ships a year in the commercial sector and we're making about five I a co-sponsor on Mr gar Mendy's excellent uh chips bill which is bipartisan
▶ 3:09:19but my understanding is that would take us from making five ships to 25 ships a year 250 ships in 10 years I mean we're still orders of magnitude less than China and I guess my question is you know the the bill as I understand it is about $250 million of investment a year but if we're serious about this shouldn't we be putting in more money and financing a ship building industry in this country like
▶ 3:09:49we did in World War II with Roosevelt uh and actually making the investment that is required to uh catch up uh if we can to China or at least have some capacity yeah thank you Congressman for the question I I don't think we're ever going to catch up to China I think what we want to try to achieve and I think what the ships Act is trying to achieve is having that National Maritime strategy a 250 uh commercial strategic Fleet that balances out the fact that we
▶ 3:10:19don't have any Logistics globally in the maritime space beyond the maritime security program which is about 65 ships so I think this legislation gets us down the path sir um and I think we you know the legislation thinks about stuff like the cost differential subsidy which we let go in 1981 and is that something that we're serious about implementing again and if we are you know we what's that demand side of the signal for what these ships are going to go and do
▶ 3:10:49um I think it's undeniable though the ready Reserve Fleet is aging out we need to recapitalize our auxiliaries we should be building two auxiliaries a year in perpetuity and I think the ships act gets at that logistical um uh lack of logistics that we have Mr President how much can the Federal Financing solve this I mean with generous investment tax credits and generous financing I understand there's need for regulatory reform and I get your point you don't want you know one in Vector for two ship workers fine
▶ 3:11:19let's but you know that's I'm not saying that's the easy part but let's say we have a consensus on that can if Congress said tomorrow we're going to put a billion dollars into this or uh serious more money will that solve it I mean is that really the the biggest variable I don't think it's just money is the variable I think what you've been hearing a lot today is that demand signal are we serious about this or is this going to be a five-year initiative that then go goes away I think if we were serious about
▶ 3:11:49this and you could see out on a horizon of 10 to 15 to 20 years absolutely this industry is so capable that they will invest in their facilities and continue to grow and can and can be serious about building and would the government have to give the demand signal even for the commercial Fleet or would it be a purchase tax credit for American consumers or American businesses who used American fleets yeah I think there has to be a demand side to this I think the energizing American ship building act which looks at
▶ 3:12:20prioritizing a certain amount of our petroleum and LG to go on preferenced us-built lmg carriers or us-built um uh tankers is how you get at this um and so I think you got to have a demand side side of it of what we're going to do with these ships well I appreciate it I really appreciated your testimony and look forward to working in a bipartisan way to support building appreciate it thank you Mr chair
▶ 3:12:51chair recognizes Mr van Orton oh okay thank you Mr chairman uh Mr Paxton uh I chair subcommittee on the Veterans Affairs uh committee it's great Economic Opportunity and I've learned something I've been in Congress for uh two years and and five minutes this is what I figured out uh an agency a department or an office is not a person and the only way to get stuff done is to identify the person and then unfortunately sometimes humiliate
▶ 3:13:22them on public uh television and that's not my intent with you sir so that was a little sketchy there for a sec wasn't it um so who by name like by name is the person that is responsible for setting out these standards to that are so Exquisite for these these ships that were physically incapable of building them who is that first first of all um Congressman
▶ 3:13:52great question we're we're we work with our Navy Partners um industry Private Industry does and we really do have a uh a relationship where we want to get better um there is a lot of uh Mr Paxton yes that's not a person is it yeah um that's not a person we we work very closely with navc and a lot of the folks at navc work on some of these will you do me a favor yes sir um I want to talk to you we can do it in private if you want but I want to find the person and I want to figure out why
▶ 3:14:23okay they're setting these standards that are L crystally high are you familiar with Liberty ships yes sir I am okay so the Liberty ship we realized we didn't have enough Maritime transport during World War II so they developed a thing called a liberty ship Unfortunately they had some issues where they with the welding they broke in half you know you know you know what I'm talking about like they get torpedo and they break in half because they didn't do the welding job anyway they fixed that and then we're producing a ship a day mhm the United States of America was producing a ship a day and then uh was it himler figured that
▶ 3:14:53out or no uh ging figured that out and he's like we have just lost the war so Nazi Germany realized they lost the war when we could produce a ship a day and those Liberty ships are very simple so maybe we need to get back to that basic concept uh Mr Fanning how you doing man well thank you you have stated that these continuing resolutions are not helpful and it is having a a detrimental effect on National
▶ 3:15:23Security is that correct it is okay so could we maybe think that some of the folks uh in my party and in my other party or the other party here uh could be cloaking themselves behind patriotism and fiscal conservatism and they're actually having a detrimental effect on our budget and the security of the United States would you say that's an accurate statement I I I'll I'll say that I agree CRS are detrimental to our nation's
▶ 3:15:53security in the industrial base yes okay well then I'll just say it there's some people in my party and the guys across the aisle who are cloaking themselves in patriotism and fiscal conservatism and they're actually making us spend more money and making the world and our nation less safe for political purposes and that's got to stop but National Security should never be political and our budget believe it or not should not be political either so when we do have some folks that are complaining about
▶ 3:16:23this Doge thing which I'm a very strong supporter of they don't understand that a smaller more Nimble force is more accurate and more lethal and so I think there's room for both sides to come together and put the American flag over their political t-shirt I yeah I the top line is is a separate issue um this is about uh operating as efficiently and effectively as possible with what you spend
▶ 3:16:54correct and it's an enormously complex industrial base making simple things up to enormously complex things that nobody else in the world can make and the fits and starts of How It's funded and what's allowed um is extremely costly and cost time Mr Fanning would you say that um even if we had the if we had the manufacturing capacity to to produce everything that we possibly wanted that we still wouldn't be able to get it to the Troops because our acquisition process simply
▶ 3:17:24sucks that's a term of art I learned it law uh if we had the resources to build everything we wanted yes we would still be getting things to the Troops late okay it's not it's not just a question of resource in fact in fact resource is probably um covering up some of the problems in the system buying down would you say it's an issue of process not product uh uh yeah I would I mean we are we are building the most complicated things you know we've been talking quantities of ships
▶ 3:17:54and our types of things but nobody can match the the effect of what we build and so I do think it's a it's a process issue it's a it's an investment issue it's a political issue it's a process issue but we're not unleashing the full strength of our industrial base thank you Mr Fanning uh my time has expired i y back thank you Mr Fallon is recognized thank you Mr chairman and I'll be brief I know we had our Stu at once I want to thank all the witnesses for coming and thank you for your great line of questioning um I like your industry
▶ 3:18:24terms Mr vanning uh how can the procurement process in uh the defense industrial base become more agile and uh enhance adaptability and cost efficiency in the industrial base or in the the defense industrial base in the defense well I think the the defense industrial base will respond to whatever process the customer puts in place there there it's not like I liken it to it's a simple analogy a hardware store you know there's only one customer buying Hammers and if you stop
▶ 3:18:54buying hammers or if you want to buy hammers in a different way or different color the the hardware store is going to respond to that so I think the change has to come from the Department defense and the and the processes are there and Industry will will will will fold around that and whoever figures it out the best is going to be the one that wins and if we emphasize speed nimbleness and the metric of getting something to the troop um the companies that do that will win and then if I could ask the the three Witnesses just to touch on this I just came from a doge the Doge subcomittee
▶ 3:19:25so I was doing I think that's the first time I use that as a verb um but you know how do you all think uh the dod can reform the Acquisitions process to accelerate Innovation uh to deploy critical Technologies and uh really honestly just become far more efficient and give the taxpayers more bang for the buck if you want to start Mr Paxton and go to your right that'd be great thank you well I if we're going to look at acquisition reform which I think we should do I think this committee is all about that and and we have some proposals um both the house and the Senate
▶ 3:19:56uh we we really have got to get serious about the level of oversight uh the volume um of our contracts um you know when we're building something relatively simple we're still dealing with 4,000 to 5,000 page contracts I don't know if that's efficient I I do know that's not efficient um we should be streamlining our acquisition and Contracting process extensively Mr arist so one of the things I'd point out is you know we've had
▶ 3:20:26studies on the acquisition we've had studies on the budget what we haven't focused is requirements one of the challenges is if I write and this is a tradition Department very specific requirements you are going to have to build to that solution and as the United States we have a very Innovative population we inative industrial base so trying to use Central planning and be better Comm Communists and the Chinese is not going to get us to the solution we want the place you get disrupting big savings is when somebody says
▶ 3:20:56I don't need this widget I have this problem I need to sink a ship at Sea from a distance I need to come tell me how you might do this right because otherwise you get very incremental changes you get class plus you e conducts and and the person who comes in with something that cuts the cost in half well that's not a very welcome solution it doesn't generate revenue for you it doesn't meet the um the contract so you want to really open up to disruptive innovative ideas and we've seen this is what happens in the private sector somebody
▶ 3:21:26comes in and finds a way that does something that others do for half the price and they just do it differently all together and then all of a sudden that takes off other end companies enter and then the price comes comes down but we really have to take be careful in our requirements process not to handcuff the solution but to open up where you can now some parts it's got to be a widget it's got to fit exactly here that's fine but if you're trying to open up defense what's the problem you're trying to solve and let people bring you some very radical Solutions great thank you Mr Fanny you want to bring us home I agree it starts
▶ 3:21:56with the requirements bring industry in as early as possible and bring the warf fighter in as early as possible the one that's actually going to use it um you know field things uh it gets improved more and faster when you get it into the hands of warfire earlier and let them figure out how to make it work um the second is it's it's not rocket science it's not easy though it is every part of the proc process needs a review it's it's an additive process um where things were put in because something wrong happened and you want some mechanism to prevent it there's no counterveiling
▶ 3:22:27process to clear the brush of of this and I would give more control um it comes with more oversight to program managers to be able to move money around to who the winners and losers are in in coordination with the combatant commanders who are actually Fielding the Fielding the Weaponry but you you want you know winners and losers they present themselves as you bring them in early you want to be able to reward them quicker mhm so be practical fill a need and live within the bounds of reality sounds you what saying thank you very much uh and thank you chairman I appreciate it to yield
▶ 3:22:57back I thank our Witnesses for being here and our members for their participation the committee
▶ 3:26:15e for
▶ 3:27:45e for