▶ 0:15:58>> the hearing is on defense mobilization. I'm pleased to welcome three witnesses to testify today. John mcginn worked at the heart of the pentagon's efforts.
▶ 0:16:19Christine michienzi spent time at the dod, david berteau comes to us from the professional services council. Before that he served as the assistant secretary of defense for logistics and material readiness. Early put industrial base -- there seems to be an error here. Before that he served as assistant secretary as defense for logistics and material.
▶ 0:16:54Welcome to the witnesses. The chair of the committee is detained for a little bit. He will enter his testimony for the record. I would like to recognize the ranking member.
▶ 0:17:08Sen. Reed: I wanted to welcome our witnesses. Dr. christine michienzi, Mr. david berteau thank you for joining us. We are lucky to have a distinguished panel before us. We have seen nations with well-prepared militaries lose to superior industries.
▶ 0:17:41Sen. Reed: Getting troops and weapons to the front line is important but the -- the ability to sustain those forces with munitions is just as important. Industrial mobilization is defined as marshaling the goods and services including construction retired -- required to support military operations in domestic or national emergencies.
▶ 0:18:12Sen. Reed: Industrial mobilization represents the defense department's ability to call on the private sector in times of crisis. I'm concerned the united states is not prepared to do this effectively in a sustained, large-scale conflict. The war in ukraine and the amount of military support we have provided has been vital for ukraine's survival and exposed our own industrial-based vulnerabilities.
▶ 0:18:41Sen. Reed: Artillery shells, precision munitions, other weapons in a responsive way is much more limited than we realized. They have sustained significantly over the past three years. We have relied on existing tools , supply chain problems, increased production.
▶ 0:19:00Sen. Reed: Any future conflict we may face will require greater levels of industrial capacity as well as interagency coordination to leverage a whole of government response. The process dates back to the world war ii era when america entered the war, there was an enormous increase in military production planes, artillery, vehicles, more.
▶ 0:19:27Sen. Reed: Which eventually earned us the title as the arsenal of democracy. We must not forget the industrial ramp-up actually began long before the war started and did not yield significant results until we were years into the fight. This is important, industrial mobilization does not occur overnight. We have a useful model, it is not a blueprint for the future.
▶ 0:19:57Sen. Reed: We must recognize the industrial base of today is different than any period of the past considering our reliance on information, technology, and software-based systems. We must look at the workforce unlike any time before. We cannot assume like we did in world war ii that our production facilities will be safe from kinetic or cyber attacks or we will have uncontested supply lines for materials.
▶ 0:20:25Sen. Reed: I will ask the witnesses to discuss the lessons they have learned from ukraine and what processes they believe need to start now so that the united states is prepared to win the next contest. This committee has spent years examining the challenge around issues. We have worked to identify problems and investments in the military.
▶ 0:20:50Sen. Reed: Congress has directed the department of defense to stress test it's supply chain capabilities. The department has found a number of challenges including integration will software, information technology and it is clear that material and labor shortages are the biggest problems. There is nothing more important than defense mobilization strategy then our workforce.
▶ 0:21:17Sen. Reed: The defense acquisition corps and the personnel based interface. We cannot solve our acquisition problems without adequate supply of skills and trained workers. Acquisition reform is necessary but it is not sufficient with industrial mobilization. The crisis, having a system that is efficient and effective is important but production capacity saw more.
▶ 0:21:43Sen. Reed: Many of the policies were put in place in peace time for the sake of efficiency may actually be counterproductive in a prolonged crisis. Many of these which the administration is undertaking right now.
▶ 0:22:00Sen. Reed: The urgency around these issues is russia continues its onslaught against ukraine and china looks at potential expansion, we have to make sure our defense industrial base is able to adapt, scale, and outpace our competitors in the 21st century. I would ask our witnesses thoughts on how we overcome this challenge and ensure the workforce in place is there to do so. Thank you again to our witnesses and thank you, senator.
▶ 0:22:30Sen. Fischer: Thank you, welcome to the panel. Dr. mcginn you are recognized for your opening statement.
▶ 0:22:39Dr. Mcginn: Thank you. Good morning, it is a privilege to be here. Thank you very much for having this hearing on this important topic which is critical to facing the nation. The united states has the most legal and capable fighting force in the world,. .
▶ 0:23:00Dr. Mcginn: As we have seen in recent world gate -- wargames with production capacity for munitions, we have real industrial based capacity challenges. These challenges led me to do a study that addressed the following question, how well is the U.S. industrial base prepared to mobilize in the event of major,.
▶ 0:23:25Dr. Mcginn: The short answer published in our report before the balloon goes up is our ability to win a major war is very much at risk. Unless senior officials across washington pursue bold actions immediately, we face catastrophic consequences should the balloon go up in east asia or elsewhere. Drawing on historic or recent cases we welcome a series of recommendations. I would like to focus on two areas specifically.
▶ 0:23:57Dr. Mcginn: The authorities and planning capabilities, secondly, our ability to scale. As you all know, the government's ability starts with our legal authorities in the policies and plans. The famous war production board helped organize government industry to address those challenges.
▶ 0:24:21Dr. Mcginn: Similarly during the iraq and afghanistan wars, the development of the mine resistant ambush protected vehicle, the defense was critical to help produce those vehicles. We all felt and saw the power during covid. Overall, our legislative authorities are strong. The first, as you know dpa is up for reauthorization this year.
▶ 0:24:52Dr. Mcginn: Dpas had tremendous impact in rebuilding and reassuring industrial based capacity. It is essential to reauthorize and keep focus exclusively on national security issues, particularly threats from china. Dpa title iii is an important tool for industrial capacity.
▶ 0:25:15Dr. Mcginn: It would be a great way to enable strong demand signals for capacity and capabilities with critical materials. Currently, purchase commitments are not allowed or enabled because the dpa funds are being appropriated with procurement dollars which expired as opposed to traditional dpa appropriations which do not expire.
▶ 0:25:42Dr. Mcginn: There is a real opportunity in another section of titles of dpa, title vii where we have two sections of authority. They haven't been used since the cold war that are really powerful. One allows the creation of voluntary agreements between government industry that allows collaborative industry government engagement on critical supply issues. We have a few of these available now.
▶ 0:26:13Dr. Mcginn: Really investing in these efforts during the war production board years. The second section allows the creation of national defense executive reserve. A group of industry experts that could come into government during a crisis. This is tremendous authority that has not been used since the 1980's. The other thing we need to do on the planning side is restart mobilization planning.
▶ 0:26:43Dr. Mcginn: That ended in the early 1990's. We have to build this across the U.S. government and we also have to relook some of the executive orders that govern dpa. Transitioning from authorities to our capabilities, we have to focus on turbocharging our efforts with how we design resource and sustain capabilities.
▶ 0:27:12Dr. Mcginn: As the ranking member talked about it is not just about acquisition, it is how we buy. We have to design things for production, focus on requirements and have more adaptive ways to create technologies. More resources would be helpful. Another way that we could go beyond appropriations is to really tap the power of U.S. capital markets as one of our strengths.
▶ 0:27:40Dr. Mcginn: Building on the authority that you create with the office of strategic capital, there's an opportunity to grow this scale of investment so private capital could make larger bets in investments. On the areas of production, we have gotten the prototyping game down. It is really the time to transition more to production. There are ways to do that through other transactions, follow other production agreement.
▶ 0:28:11Dr. Mcginn: Finally the area of sustainment is our biggest challenge, being able to address logistics at scale. There we could do things like create contract. Limited supply runs, you could have the ability to grow that.
▶ 0:28:39Dr. Mcginn: One final point I would like to make is on allies and partners, our recent experience is we need a larger industrial base, our closest allies, those with whom we go to war, they help us build overall capacity. Time is not on our side, we have two years.
▶ 0:29:06Dr. Mcginn: The partnership with industry in our allies and partners with manufacturing capacity. Through a mission to strength of our industrial base to deter enemies in today's world. The time to do this is now before the balloon goes up. Thank.
▶ 0:29:22Sen. Fischer: , thank you.
▶ 0:29:23Dr. Michienzi: Thank you, chairman fisher and distinguished members of the committee on dispense -- defense mobilization. The defense industrial base necessary is fragile. This fragility did not happen overnight. Key decisions by the U.S. government and industry have played a very large role.
▶ 0:29:50Dr. Michienzi: For instance, decades long private sector and public policy approaches to domestic production prioritize low, short-term costs over security, sustainability, resilience. The industrial base has become optimized for efficiency and not resiliency. Inventories of long items have cut warehousing costs and increased efficiency but limits industry flexibility and responsiveness.
▶ 0:30:18Dr. Michienzi: There are many single and self source suppliers due to consolidation. Often those are foreign adversarial sources that are cheaper but could introduce risk. I was in the trenches for almost a decade. I was the lead for dod for scaling up production for all of the weapon systems we were sending to ukraine. A function I lead for various crisis scenarios since 2017.
▶ 0:30:44Dr. Michienzi: I was very involved in dod's efforts to response to covid-19 working with agency partners, using authorities talking about titles 1, 3, seven, to increase production of medical resources including prioritization and allocation of supplies which becomes important when we are trying to mobilize. Providing financial support to dod suppliers.
▶ 0:31:12Dr. Michienzi: Preparing for potential conflict in the end of pacific region, it is not equipped to mobilize to support the existing activities much less the competition in china. There continues to be multiple efforts to support mobilizations with systemic issues and factors that are not being addressed. Most important is dod's acquisition behavior.
▶ 0:31:40Dr. Michienzi: I'm not referring to acquisition reform such as different ways of doing contracting but to the decisions that are made by the acquisition community that are the root causes of many of our supply chain issues. The industrial base is very seldom a consideration when most acquisition programs make certain decisions such as increasing or decreasing procurement quantities or even analysis during major milestone decisions.
▶ 0:32:08Dr. Michienzi: Mitigating supply chain issues, dod is often treating symptoms and not the cause. There are many more I could elaborate on. The government's funding efforts to reassure critical supply chains and partners and allies are critical to solving this issue. However, if we don't bring demand back to those more secure sources, they will not survive. Dod programs have the authority, they most often do not let industry choose.
▶ 0:32:41Dr. Michienzi: They often choose the cheapest source, which is often a chinese or adversarial source or more secure source. Dod reinforces this behavior, industry will not risk losing a contract even if that supplier is more secure. It shifts liability from industry to government if something goes wrong.
▶ 0:33:09Dr. Michienzi: If we are going to have secure suppliers for these critical items, dod is often only 1%-2% of demand, they should be required to use sources if it is available that meets requirements. Also to incentivize industry to use those sources with policies. One of the major constraints with scaling production for weapon systems for you can end other crisis that continually plagues dod.
▶ 0:33:42Dr. Michienzi: The way dod deals with obsolescence is reactive and ad hoc at best. They do not plan the budget for obsolescence, waiting until an obsolescence issue appears to find funding to execute that plan before time runs out. Obsolescence was the main reason we couldn't make more stinger and patriot missiles when the ukraine conflict started initially.
▶ 0:34:09Dr. Michienzi: Acquisition program managers and executives told me they can't afford to budget for obsolescence. Many studies have shown that being proactive by planning and budgeting event saves time and cost. Programs should be required to plan and budget to deal with obsolescence more accordingly. As we support various efforts I'm often asked why can't we do what we did in world war ii?
▶ 0:34:36Dr. Michienzi: I give this lecture each year on mobilization to the entire class at the national defense university's eisenhower school. One of the slides I always present is why not freedoms for? I outline the condition between what is happening in -- and senator reed mentioned one of those and what is happening now that make it impossible to replicate that scenario. I'm happy to ask -- talk about these in further detail. I appreciate the committee's leadership and focus on the topic and helping any way I can.
▶ 0:35:08Dr. Michienzi: I have submitted written testimony and I thank you for the opportunity to testify today and I'm happy to answer any questions you may have.
▶ 0:35:15Sen. Fischer: Thank you.
▶ 0:35:20Mr. Berteau: We appreciate the opportunity to be here today. I'm the president and ceo of a trade association of congressional services council. I'm here today in my personal capacity and the opinions and suggestions I make today are my own and not those of my organization. There has been a lot of talk about the world war ii example of full-scale mobilization and really american history we've only had two such examples.
▶ 0:35:50Mr. Berteau: The other being the civil war. My experience is in a different segment. That is the cold war. Particularly that reagan built up during the cold war. I arrived at the pentagon in 1981 and served there until 1993. I was actively involved in those issues and there were a couple of lessons I would like to pose to you to the discussion today.
▶ 0:36:19Mr. Berteau: The first is that we actually had an operational plan and scenario on which we could calculate what our mobilization requirements were. It wasn't soviet tanks coming through the gap in germany. That was the driver if we didn't prevail there, we go nuclear and global thermonuclear war was not an option. How are we able to use that?
▶ 0:36:45Mr. Berteau: We were able to build a requirement and actually secure the funding because we had a common agreement between the white house, pentagon, congress as to what the threat was we are facing and what the scenarios were to plan and be prepared to execute. The first thing is we had that common ground. One of the most important things this committee could do is drive us to understand what the scenario is. We had an operational plan. How that evolves over time.
▶ 0:37:17Mr. Berteau: We need that in place today. Being able to do that we are able to proposed funding for surge capacity, training, actually deploying and being able to show we were able to do this. It was justified and everybody agreed on the basis for it. The example of that is one of the lessons is the capacity.
▶ 0:37:48Mr. Berteau: It was recommended by building in the multi-year procurements -- ultimately that got fixed but it took a long time. We have to have that agreed-upon set of scenarios to base requirements.
▶ 0:38:08Mr. Berteau: The second thing we learned from that cold war experience is the best way to demonstrate that we had the capacity to deliver that. Every year we would have massive exercises where we would deploy forces from the U.S. and sustain those.
▶ 0:38:38Mr. Berteau: That demonstrated capacity I think is the second key lesson. That partnership of industry is often times an arm's-length partnership. Dr. mckenzie did a good job describing the flaws. That describes long-term contracts. That is one of the big advantages we have over germany in world war ii.
▶ 0:39:07Mr. Berteau: New stuff would come along and they would stop production in order to do it. We would do in order to move those new ideas to the next generation of aircraft while getting the benefits of new technology. The fourth lesson is the reliance on allies and partners. The china threat, dod uses the word pacing challenge, I think it is much bigger. It is the threat. It is not the only threat.
▶ 0:39:41Mr. Berteau: It is the changing nature of the threat and much more complex nature. We did not learn this lesson very well. Mobilization is much more then defense industry. It is the whole industry. We have a shortage of workers. We have come out of that bathtub where we had twice as many people looking for work.
▶ 0:40:07Mr. Berteau: Throughout the industry, we have a shortage of workers today. Those are five lessons I think will be useful for the committee to undertake. I think it's time and I don't think we have time to wait. We would suggest this committee direct dod to do now between the time you go to conference a full-blown exercise of what our mobilization requirements look like, what is the scenario that we base that?
▶ 0:40:37Mr. Berteau: You need that as a committee before you base the fiscal year 2026 authorization act. I have negative time to yield back but I stand ready for your questions.
▶ 0:40:48Sen. Fischer: Thank you we will have five-minute rounds and I will begin with questioning. I strongly believe the administration should maximize its use of the defense production act. They have the authority to address challenges in our defense industrial base. I am concerned by the expanding definition of what qualifies as national defense.
▶ 0:41:15Sen. Fischer: In 2020 two, president biden invoked the defense production act up domestic production of clean energy technologies. Dr. mcginn, how should the defense production act be used for defense mobilization? Should the dpa investments be focused on areas clearly related to the national defense of this country?
▶ 0:41:35Dr. Mcginn: Thank you very much, the defense production act powerful tool and it is best used for national security defense purposes and that's how it has been used during the development of the afghanistan and iraq war, during covid, that's how it's being used to rebuild our defense industrial base, castings, forgings, especially with chemicals.
▶ 0:42:05Dr. Mcginn: That's how it is best used. The more it is focused on national defense, it is not a political issue. It is a national security issue.
▶ 0:42:18Sen. Fischer: How should the act be used for defense mobilization? Should the investments be focused on areas clearly related to being able to get that done?
▶ 0:42:33Dr. Michienzi: I just wanted to make sure. Absolutely it should be focused on mobilization efforts. Some of the efforts that dpa is funding now, it is difficult sometimes to realize those goes toward mobilization. Such as processing, critical come -- chemicals.
▶ 0:42:57Sen. Fischer: Would you look at any statutory changes to be able to make it work and make it identify truly what the national defense is? Is there anything we need to be looking at?
▶ 0:43:10Dr. Michienzi: Making sure it is centered on national defense issues, national security is critically important. We don't want to dilute the efforts of the dpa that are very successfully used currently and could be used going forward.
▶ 0:43:27Sen. Fischer: Thank you. The department released its first national defense industrial strategy and later in october released implementation plans, what is your assessment of the strategy?
▶ 0:43:41Dr. Mcginn: I think the strategy did a very good job bringing together a lot of efforts across administrations. One of the good things about this area is it is very bipartisan. A lot of similar things being addressed across the obama administration, trump administration first, through biden and today. They did a good job identifying the progress had been made.
▶ 0:44:11Dr. Mcginn: I think there were a number of good things in that report. I particularly liked the focus on points and production as well as the importance of working with allies and partners. The key will be how that substantiated in the 2016 budget.
▶ 0:44:30Sen. Fischer: Are there any additional areas you would recommend the department would consider were lacking from the previous strategies?
▶ 0:44:38Dr. Mcginn: Two things I would recommend. One is mobilization. It is mentioned briefly in the strategy. There is no talking about restarting mobilization planning. There actually are program elements for mobilization. There is no planning function, that needs to be started.
▶ 0:45:18Dr. Mcginn: We could share them with our partners and allies. That requires investment because you will have different capability levels of different missiles going to the different partners depending on how close they are. That requires investment not upfront but that needs to be a big priority that needs to be invested in terms of making export ability a priority and the technology to provide that capability.
▶ 0:45:48Sen. Reed: Thank you very much, senator fischer, let me commend you all on excellent testimony. Thank you very much. We have seen a lot of chaotic initiatives over the last several weeks. Significant cuts of workforce. We have seen funding cuts that don't seem to be organized.
▶ 0:46:18Sen. Reed: Tariffs placed on canada and other countries who presumably we would like to see work with us. Could you indicate or give an idea about the impact of these decisions with respect to mobilization on our industrial basis?
▶ 0:46:33Mr. Berteau: Senator, let me think out loud with you a little bit on that, I don't have a prepared script to answer that question. This is my eighth transition of one president to the next, I first one was president carter to president reagan. Every administration needs to and does take projects across the federal government in line with their priorities.
▶ 0:47:01Mr. Berteau: That is a lot of underpinning the efforts of what we have seen. One of the differences is stopping things rather than keep going while you are reviewing it. I think from a wider point of view this has caused a bunch of pickups. More importantly there is a second element of that. That is don't just focus on things you will stop, the money will save, reductions in necessary workforce that you will do.
▶ 0:47:30Mr. Berteau: You have to focus on what you want and not only keep going but go further and faster. One of the things we are focusing on is what are those areas? National security is a huge piece of that. Border security is another one. My personal concern is you need to actually undertake those places you are stopping or reducing and keep in mind you need to keep the capacity and capability in the government contractor community to work where you are going forward.
▶ 0:48:01Mr. Berteau: That is what I would advise these committee -- this committee to look out for. Dpa is up for reauthorization this year. It is not the jurisdiction of this committee. I have been through two dpa reauthorization's including one where we let the act expire because it got loaded up. Senator fischer, as you indicated with a bunch of things that didn't contribute to national defense. We let the act expire.
▶ 0:48:29Mr. Berteau: That is a dangerous time to do it. Saddam hussein had just invaded kuwait. There were other authorities we could use for a short-term conflict such as that. I do think this would be important, it might be useful in the reauthorization in terms of looking not only at how the dpa has been used but how it has not been used. I agree with Dr. mcginn.
▶ 0:48:57Mr. Berteau: Dpa work for me for a number of years, I exercised title vii a number of times. It needs a refresh because the nature that dod uses that authority in today's global economy is different than it was in 1980. I'm sorry for that sidebar.
▶ 0:49:16Sen. Reed: Your comments and we are running out of time, if you could with respect to the presence or turmoil that we are witnessing, the impact of that?
▶ 0:49:27Dr. Mcginn: The companies that support the government play critical roles and lots of different functions. The big thing that I'm recommending is the importance of us restarting kind of mobilization planning. This is not going to be impacted because it doesn't exist today. That is something that has to be developed. It is inherently governmental function.
▶ 0:49:55Sen. Reed: Dr. michienzi, we are much more reliant on software-based systems today then we were in world war ii and other periods of mobilization. When it comes to planning mobilization, how does this alliance change the situation?
▶ 0:50:19Dr. Michienzi: Luckily software systems have been I would say more adaptable in some of the hardware systems as dod tries to move forward. They do things like agile acquisition and refreshing upgrades quite quickly. I think software is absolutely key to any mobilization effort because that's what's controlling out of our community control. It's absolutely essential.
▶ 0:50:54Sen. Fischer: Thank you, senator rounds, you are recognized.
▶ 0:50:58Sen. Rounds: Thank you for being here today. We appreciate the time you are taking from your schedule. For all of you, and operational plan under the department of defense which requires an assessment of operational plans of the dod.
▶ 0:51:24Sen. Rounds: In the event of multiple concurrent contingencies or protected conflicts, this requirement reflects the reality that in the event the U.S. engages in hostilities with china, other adversaries such as russia and iran would press their own advantage in europe, the middle east, elsewhere. Basically talking about if we have a conflict, we will have a conflict on more than one area or theater at a time.
▶ 0:51:53Sen. Rounds: What are some of the considerations we must take into account and what are some of the key shortfalls that you believe the department should identify and highlight in their assessment? Would you like to begin?
▶ 0:52:07Mr. Berteau: Thank you, senator, let me go back a few years. At the time of the cold war, read -- we really only had one set of scenarios we cared about, the soviet threat in europe. A lesser included case, structure and capability that we have to counter the soviet threat would be sufficient to counter any other threat.
▶ 0:52:33Mr. Berteau: The cold war, we chae that to several different iterations for planning process point of view including two more scenarios that are essentially being the middle east and iran, iraq, the korean peninsula. After 9/11, we discovered that russian included cases might be russia but they weren't included. We had a big shift in our strategy and posture to deal with that.
▶ 0:53:00Mr. Berteau: In 2012, I was chartered by dod for what the force posture would need to pivot to asia. There was no basis for that. This was not included. You think about that evolution over time, the request of your provision is very valuable. It's important to know that is only where we are today.
▶ 0:53:24Mr. Berteau: It really focuses from that point of view, what do I have, what do I do, how do I use it? I think it needs to be much broader than that. What is it in day 50? One of the lessons from ukraine and every war we have entered in. It looks like it will be short at the beginning and keeps on going. Where are you at day 700?
▶ 0:53:51Sen. Rounds: Thank you.
▶ 0:53:52Dr. Mcginn: Thank you very much for that provision. It is important to focus on operational plantings. One of the things that is missing in most operation planning is the role of industry. One of the things that we saw supporting ukraine is the challenge of production. We have got to really kind of ramp it up. It requires close government collaboration.
▶ 0:54:20Dr. Mcginn: During the cold war we had these voluntary agreements that created integrating communities. They were focused on the production of 155 munitions. They were allowing for close collaboration between government industry on production issues. That needs to be part of the planet. We need to do the wargames to have that. You have seen the wargames, we are out of schlitz in two weeks.
▶ 0:54:52Dr. Mcginn: We have tremendous industrial implementations that have to be part of the planning going forward.
▶ 0:54:59Dr. Michienzi: Quickly, I will add the national defense strategy drives how the defense department looks at operational planning. The current strategy says focus on china. Previous national defense strategies included multiple conflicts at the same time and looking at that from a perspective. National defense strategy would be helpful here.
▶ 0:55:26Dr. Michienzi: I want to mention some of the impacts or the types of munitions we are going to use. In ukraine we are fighting mostly a ground war. A lot of artillery, mortars, things we will not be using in a china fight. In china fight we are focus on service launch, air launched, long-range missiles. If we had avenue -- have to add into another fight, let's say korea, partial ground war.
▶ 0:55:57Dr. Michienzi: It really matters which fights we are looking at as to which parts of the base we are looking to ramp up.
▶ 0:56:06Sen. Fischer: Thank you. Senator king, you are recognized.
▶ 0:56:09Sen. King: Congratulations on your meteoric rise to the chairmanship. I was interested in your approach during the reagan years of defining the scenario and then defining the strategy to meet it. Isn't that what is done now? I would assume that's exactly what is done? Is it being done in too broad a sense without focusing on particular scenarios with a particular response?
▶ 0:56:38Mr. Berteau: I should probably clarify my use of the words. You have an operational plan which from my perspective in history, with the forces today and the theaters they are in. They could go beyond that in terms of time and geography. But we had in the cold war was almost no difference between the operational plan today and what the long-term scenario looks like.
▶ 0:57:04Mr. Berteau: As we just heard, we have a wide variety of potential conflicts that could arise.
▶ 0:57:17Sen. King: You can't just throw up your hands and say we have a complex situation and therefore we can't have a specific response, should we say this is the most likely scenario? That's what we should be preparing for.
▶ 0:57:33Mr. Berteau: You need to figure out what you will base your requirements on. You have to have a mechanism for prioritization. It is probably a combination of likelihood and probability. It is also a question of where are the greatest stressors and what are the vulnerabilities if we can't combine or meet those stressors.
▶ 0:57:58Mr. Berteau: That could require an integration across multiple scenarios of what is aggregated or combined and where the things work, we need to put our resources first. We will never have enough money to do everything. The question is where do you put it first.
▶ 0:58:13Sen. King: Could we all agree that continuing resolutions absolutely are not part of the solution to this problem?
▶ 0:58:21Mr. Berteau: Franklin roosevelt did not face a single continuing resolution in the buildup to world war ii.
▶ 0:58:32Sen. King: All of you agree with that. That is one of the difficulties we are in. It creates all kinds of downstream in the industrial base and preparation. Thank you for that. Let the record show, continuing resolutions are not the way to do business. All of you have mentioned something very interesting. Allies are part of the solution.
▶ 0:58:56Sen. King: It concerns me that we are embarked on a course that is not encouraging to our allies, poking our allies in the eye. Talk to me about the importance of allies in dealing with significant conflict whether it is japan, u.k., canada, other countries.
▶ 0:59:21Dr. Mcginn: It is a key part of our industrial base. We have a number of agreements and collaborative programs in the world. We have a dozen partner countries I believe.
▶ 0:59:39Sen. King: We cannot do this by ourselves, correct? All of you are nodding, could you say yes? They don't show up in the transcript.
▶ 0:59:48Dr. Michienzi: Yes.
▶ 0:59:49Dr. Mcginn: Yes.
▶ 0:59:52Sen. King: One of the problems is the consolidation within the defense industrial base. How do we go about expanding the options available? One suggestion we had was go to major manufacturing facilities and getting them engaged in military production as well as making f-150's. How do we expand the industrial base?
▶ 1:00:19Sen. King: Everybody says that, give me some practical suggestions.
▶ 1:00:24Dr. Mcginn: We have to recognize consolidation, it is a function of spending. During the cold war, we were spending 5%, 6% gdp, now we are spending around 3%. You will have less companies in the overall system. Something Dr.
▶ 1:00:50Dr. Mcginn: Michienzi mentioned, when you are focused on efficiency, you want to buy the right system, the right time . What that ends up with is limited production and or production runs that last for when you have platform programs like the f-35, all of the -- the fighting vehicle, tanks, they last for 40 years.
▶ 1:01:21Dr. Mcginn: You have a prime contractor that has that market position. My argument is to change, we have to change how we buy. That means buying more systems for multiple sources and you could do that very much with unmanned systems with some of the platform systems you could do that as well. There has been a lot of work done on second sourcing in the 70's and 80's where we are buying munitions from two suppliers.
▶ 1:01:53Dr. Mcginn: There are ways you could increase competition by changing your buying approach. It gets away from some of the efficiency forecast.
▶ 1:02:08Sen. King: , one of the things is upgrading the entire platform, is that correct?
▶ 1:02:14Mr. Berteau: We just don't buy enough to keep more companies in business. We just don't buy enough. We only have 2.5 manufacturers is we only buy enough to keep 2.5 manufacturers in business.
▶ 1:02:30Sen. Fischer: Thank you, senator sheehy, you are recognized.
▶ 1:02:35Sen. Sheehy: You talked about the world war ii construct, obviously with regard to re-visioning product specifications and how we evolved that. I share the same regard with the customer has created this problem. The pentagon has created this defense consolidation and the supply chain that we have. I'm not confident the government could be the solution to it either.
▶ 1:03:04Sen. Sheehy: How do we incentivize free-market solutions to create a resilient and diversified supply chain? Rebuild the industrial base in a way that is resilient? During world war ii, japan and germany had centralized defense ministries, specified everything and tried to control the entire process. It could not keep up with the sheer quantity required.
▶ 1:03:34Sen. Sheehy: There is a certain amount of quality and quantity. That strength for us come from the free market. He came from private companies working in coordination with the government. How do we take a defense base that is largely been atrophied to the point of almost nonexistence for manufacturing, how do we incentivize the free market to outpace the government in fixing the solution?
▶ 1:03:59Mr. Berteau: There's two ways to approach that. There's this famous charter, we went from 51 contractors down to five. When I got to the pentagon, all 51 were there. During the buildup with research and development, they went away for three reasons. There wasn't more quantity.
▶ 1:04:27Mr. Berteau: We began to put more and more regulations on top. I'd be glad to provided to the committee when I finish this comparison of compliance requirements that a government contractor has. What happens in the private sector. It is a list about list -- at least 15 or 20 things that cost more, take time, and don't improve results. That is an important piece of it as well.
▶ 1:04:59Mr. Berteau: Industries, they all went out of the defense business in the middle of the buildup because it was no longer time valued money in the private sector. The returns were not there. The opportunities for better returns elsewhere. You have to be able to counter that and offset that risk reward basis the financial market is always looking for. I think that could be done.
▶ 1:05:31Sen. Sheehy: How does the government remove the bureaucratic red tape that this incentivizes companies from wanting to do business with the pentagon? That we don't have to have spacex sue the government to buy a solution that is better for the war fighter, that is what has been going on. Since it doesn't comport with an array of byzantine regulations, either it is not purchased or that company has to sue the government to give the war fighter the equipment they need.
▶ 1:06:03Sen. Sheehy: How do we change those regulations quickly so people want to do business and support the war fighter?
▶ 1:06:08Dr. Mcginn: Great question. I would start again, what is unique about the government contracting system is it is a monopoly. You have one buyer or different sets of buyers. It creates different items. They could set the market. The power is in the hands of the government to change incentive structures.
▶ 1:06:36Dr. Mcginn: Companies, private companies, public companies, it is on the department to change those incentive structures. A couple of ways we could do that is we could create more opportunities for companies across the spectrum to bring the power of our capital system you allude to.
▶ 1:07:01Dr. Mcginn: We want to build factories in advance of need, that is to be done through government investing. We will not be doing any more big chips bills. If you incentivize companies and create agreements or financing them that enable to make the bet , like the department of energy has it builds off with capital.
▶ 1:07:30Dr. Mcginn: That is how you get lots of money, which is the private equity and venture capital money to invest. That will help build capacity and build competitors for the department.
▶ 1:07:44Dr. Michienzi: I think there also needs to be a recognition of risk acceptance in the department. Contracting officers are personally liable for something goes wrong with contracting. Program managers are promoted if they produce things and nothing goes wrong. There is a very low risk tolerance. That contributes to the fact of not introducing new suppliers. Not wanting to change things or bring in new industries.
▶ 1:08:13Dr. Michienzi: There needs to be that piece of it that accounts for this as well.
▶ 1:08:17Sen. Sheehy: Quantity, iteration, and speed are key. World war ii was in the capability of our technology, we built lots of things fast and got them in the hands of our war fighters.
▶ 1:08:31Sen. Fischer: Thank you.
▶ 1:08:33Sen. Kaine: Thank you to our witnesses. My concern about mobilization is heavily on the workforce side. I think maybe because I'm on the health, labor, pension, education I look at this from a workforce angle. Our shipbuilders in virginia and elsewhere, I'm nervous about us not having the work or stat we need. This is a long-term problem with birthrates declining.
▶ 1:09:04Sen. Kaine: I think there is some big picture solutions like a workforce based immigration reform we will have to grapple with to get this right. I would love it if each of you could just address workforce strategies to help us with mobilization and include workforce strategies we could do jointly with allies.
▶ 1:09:28Mr. Berteau: Thank you. A lot of what we have already talked about, there are two additional points I would like to make. What is the impact of covid with the inflation and general cost and the increasing cost of labor over the last five years.
▶ 1:09:49Mr. Berteau: Many defense companies and contractors had bids put in place accepted by the government that made assumptions about 0% interest rate, very low inflation, a balance between job vacancies and those seeking stable workforce, none of that is true. Many of those contracts have not been adjusted. With the annual inflation because of somewhere around 1%-one .2%.
▶ 1:10:21Mr. Berteau: Workforce, wages, other costs associated with that. That is not only unrealistic, it leads companies to bid that are on executable in the end. We put some language in a couple years ago. It gave the defense department the flexibility where funds were available to set some of those costs. We have seen very little effort to lk at those economic price adjustments. What is the result?
▶ 1:10:52Mr. Berteau: You know this. You have a starting welder salary at a shipyard or after a year, it is substantially less than what that person could make at walmart or cosco. It is hard work. I'm not saying being a warehouse person at cosco is not a hard work but it is a lot easier on the body. We have to offset some of that.
▶ 1:11:19Sen. Kaine: Let me ask Dr. mcginn and Dr. michienzi.
▶ 1:11:24Dr. Mcginn: The industrial base workforce, one of the strengths is the nature of the business. Unlike commercial industries, we generally have long-term contract or one year with four options. It enables companies to plan for the future. When you have continued resolutions as senator king mentioned and you have stability and budget, it makes it harder for companies to do that.
▶ 1:11:56Dr. Mcginn: The more congress and the department could create stable demand signals, that is through things like purchase commitments for certain technology, capabilities that you need, multi-year procurement contract. That enables the stability to grow and stabilize workforce.
▶ 1:12:18Sen. Kaine: , you have one minute, the chair might let you go a little bit.
▶ 1:12:22Dr. Michienzi: We have been scaling up production for ukraine and other obstacles. The quickest way to scale up is to increase capacity. If you are operating at full scale. You need people for that. It was always an issue to get the people, even if you had excess capacity getting people to come on board to observe that is difficult. A lot of it has to do with areas that these plans are located in.
▶ 1:12:54Dr. Michienzi: By design, they are in rural areas that are not near exciting cities. Their people do not want to move there. Things that could build infrastructure and make those places better for young people and make them want to stay would be helpful. When we were growing up, we wanted our kids to be engineers, technicians were not considered a valued job description.
▶ 1:13:24Dr. Michienzi: We need to make being a technician exciting. There are some efforts to do that. Make sure they understand what they are doing is important lastly, for allies I have done a lot of work in that area. One of the things we proposed was they were trying to ramp up capacity to make munitions in australia, which they haven't done in a long time.
▶ 1:13:52Dr. Michienzi: Bring some of their folks over to train here so it is a win-win.
▶ 1:14:01Sen. Kaine: , that is sort of what we are doing. We have lost shipbuilders so they could do the same thing.
▶ 1:14:07Dr. Michienzi: We need to do more.
▶ 1:14:10Sen. Fischer: Thank you. At this time I would like to ask unanimous consent to enter chairman wicker's prepared statement into the record. This concludes today's hearing. I would like to thank the witnesses for their testimony. We are adjourned.