[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 116-84]
DEPARTMENT OF DEFENSE
COVID-19 RESPONSE TO DEFENSE
INDUSTRIAL BASE CHALLENGES
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
42-131 WASHINGTON : 2021
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COMMITTEE ON ARMED SERVICES
One Hundred Sixteenth Congress
ADAM SMITH, Washington, Chairman
SUSAN A. DAVIS, California WILLIAM M. ``MAC'' THORNBERRY,
JAMES R. LANGEVIN, Rhode Island Texas
RICK LARSEN, Washington JOE WILSON, South Carolina
JIM COOPER, Tennessee ROB BISHOP, Utah
JOE COURTNEY, Connecticut MICHAEL R. TURNER, Ohio
JOHN GARAMENDI, California MIKE ROGERS, Alabama
JACKIE SPEIER, California K. MICHAEL CONAWAY, Texas
TULSI GABBARD, Hawaii DOUG LAMBORN, Colorado
DONALD NORCROSS, New Jersey ROBERT J. WITTMAN, Virginia
RUBEN GALLEGO, Arizona VICKY HARTZLER, Missouri
SETH MOULTON, Massachusetts AUSTIN SCOTT, Georgia
SALUD O. CARBAJAL, California MO BROOKS, Alabama
ANTHONY G. BROWN, Maryland, Vice PAUL COOK, California
Chair BRADLEY BYRNE, Alabama
RO KHANNA, California SAM GRAVES, Missouri
WILLIAM R. KEATING, Massachusetts ELISE M. STEFANIK, New York
FILEMON VELA, Texas SCOTT DesJARLAIS, Tennessee
ANDY KIM, New Jersey RALPH LEE ABRAHAM, Louisiana
KENDRA S. HORN, Oklahoma TRENT KELLY, Mississippi
GILBERT RAY CISNEROS, Jr., MIKE GALLAGHER, Wisconsin
California MATT GAETZ, Florida
CHRISSY HOULAHAN, Pennsylvania DON BACON, Nebraska
JASON CROW, Colorado JIM BANKS, Indiana
XOCHITL TORRES SMALL, New Mexico LIZ CHENEY, Wyoming
ELISSA SLOTKIN, Michigan PAUL MITCHELL, Michigan
MIKIE SHERRILL, New Jersey JACK BERGMAN, Michigan
VERONICA ESCOBAR, Texas MICHAEL WALTZ, Florida
DEBRA A. HAALAND, New Mexico
JARED F. GOLDEN, Maine
LORI TRAHAN, Massachusetts
ELAINE G. LURIA, Virginia
ANTHONY BRINDISI, New York
Paul Arcangeli, Staff Director
Barron YoungSmith, Counsel
Stephanie Halcrow, Professional Staff Member
Natalie de Benedetti, Clerk
C O N T E N T S
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Page
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Smith, Hon. Adam, a Representative from Washington, Chairman,
Committee on Armed Services.................................... 1
Thornberry, Hon. William M. ``Mac,'' a Representative from Texas,
Ranking Member, Committee on Armed Services.................... 4
WITNESSES
Lord, Hon. Ellen M., Under Secretary of Defense for Acquisition
and Sustainment, Department of Defense......................... 5
APPENDIX
Prepared Statements:
Lord, Hon. Ellen M........................................... 47
Documents Submitted for the Record:
Letter from Governor Jay Inslee to Vice President Mike Pence. 63
Letter Submitted by Mr. Wilson............................... 66
Witness Responses to Questions Asked During the Hearing:
Mr. Brindisi................................................. 71
Mr. Cisneros................................................. 71
Mrs. Davis................................................... 71
Ms. Houlahan................................................. 72
Mr. Smith.................................................... 71
Questions Submitted by Members Post Hearing:
Mr. Banks.................................................... 79
Ms. Haaland.................................................. 81
Mrs. Hartzler................................................ 78
Ms. Horn..................................................... 79
Ms. Torres Small............................................. 80
Mr. Turner................................................... 76
Mr. Wilson................................................... 75
Mr. Wittman.................................................. 77
DEPARTMENT OF DEFENSE COVID-19 RESPONSE TO DEFENSE INDUSTRIAL BASE
CHALLENGES
----------
House of Representatives,
Committee on Armed Services,
Washington, DC, Wednesday, June 10, 2020.
The committee met, pursuant to call, at 2:00 p.m., in room
1100, Longworth House Office Building, Hon. Adam Smith
(chairman of the committee) presiding.
OPENING STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM
WASHINGTON, CHAIRMAN, COMMITTEE ON ARMED SERVICES
The Chairman. I believe we are ready to go. A unique
setting.
And I want to welcome our witness, even though at my
advanced age, as Rick was saying earlier, we think you are
there. We can almost see you in the distance. We appreciate you
wearing the bright color to help us with that.
So, this is our first hybrid hearing. I am quite confident
this will work out just fine. I appreciate the members who are
here. We have members who are participating remotely as well. I
have a statement up front that will explain the process, and
then we will proceed with a normal hearing.
So, I would like to welcome members who are joining today's
proceeding remotely. Those members are reminded that they must
be visible on screen within the software platform for the
purposes of identity verification when joining the proceeding,
establishing and maintaining a quorum, participating in the
proceeding, and, if necessary, voting, which will not be
necessary today.
Members who are participating remotely are reminded to keep
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the time they attend the proceeding. These members may leave
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and, then, rejoin it if they return.
If a member who is participating remotely experiences
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When recognized, the video of a remotely attending member's
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Doing so will help to ensure that the remote technology works
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Members participating remotely will be recognized normally
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Members should be aware that there is a slight lag of a few
seconds between the time you start speaking and the camera shot
switching to you. To account for this, please do a brief
preamble in your remarks or you can just pause and wait for a
second. You don't actually have to prepare a preamble, I don't
believe.
Members are also advised that I have designated a committee
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Finally, remotely participating members should see a 5-
minute countdown clock on the software platform's display, but,
if necessary, I will gently remind members when their time is
up.
Thank you very much.
I appreciate, as I said, folks being here. I certainly
appreciate Under Secretary Lord appearing, as all of us have
tried to figure out across the country what can we do, what
can't we do, what can we do safely, how do we do it in a way
that respects the very real public health crisis that we are
facing, but still enables us to do our job. And I will say the
Department of Defense has been very cooperative in that. We
have done a number of remote informal committee events during
the course of this pandemic. Under Secretary Lord has
participated in, I think, at least one of those, if not more,
and that has been very helpful. And it is good to have
witnesses here in person.
The subject of today's hearing is to discuss the
Department's response to the pandemic, and specifically, the
efforts--and as the Under Secretary for Acquisition, you are in
the middle of this--the efforts to ramp up production necessary
to meet that aspect of the public health challenge. And very
early on, it was obvious that, when we were going to have such
a massive increase in public health demands surrounding COVID-
19 [Coronavirus Disease 2019], one of the things that was going
to be required was to mass produce far greater quantities of
certain key public health needs than we would normally have.
We have a global supply chain. That presented enormous
challenges. There are many examples of that. For instance, for
the testing capacity, swabs are enormously important. A good
chunk of those happened to be made in northern Italy, which
created a significant challenge. So, we had to adjust.
And I will say it is awkward because we have a witness here
who I know has worked very hard on this issue. I have been in
communication with her going back months now, and she
understood this right up front, the importance of it. I do
think, overall, the administration and DOD [Department of
Defense] was slow to respond and there are still challenges
going forward.
We needed to figure out how to produce things more quickly.
And from the very start--and the Under Secretary and I spoke
about this--nobody understands how to do that better than the
Department of Defense. In the United States of America,
certainly in the public sector, nobody procures more equipment
of a varied kind and has a deeper industrial base than the
Department of Defense. And I felt very strongly that early on
they should get involved. I realize that, as a public health
crisis, the lead agencies were HHS [U.S. Department of Health
and Human Services] and FEMA [Federal Emergency Management
Agency], but they clearly did not have the capacity that DOD
did. DOD has gotten involved through the Defense Production Act
and other ways, and that is a positive. I hope in the future we
will understand that that needs to happen as soon as possible,
and we saw this coming in the January-February timeframe.
Now, with that said, we have learned a lot as we have gone
forward. I mean, early on, there was a huge focus on producing
more bed capacity. We set up a number of field hospitals in a
number of places. In a lot of cases, it didn't turn out that a
lot of those were needed. So, we learned as we went.
But the two big areas that have been a challenge are, one,
testing. And in that area, belatedly, we have started to have
some successes. I believe the President was just up in Maine
visiting a production facility there which, if I have my
numbers correct, is cranking out 40 million swabs a month, and
that is a remarkable increase and absolutely necessary to the
challenge in front of us.
The one big area where we still have a significant gap,
believe it or not, is in personal protective equipment [PPE].
And the response to that has been very frustrating. We have now
sort of created this sort of global competition where States
and localities and everybody is competing to track down PPE in
the global marketplace. We have 50 States competing against
each other, the Federal Government competing with them, all
manner of different nations and other folks competing against
each other, and that has made it difficult.
My own State is an example. We very early on recognized
this and we have managed, frankly, to leverage some
relationships with companies in the area. Microsoft, Amazon
have been helpful to reach out to partners around the world to
get some of that product, but it still does not appear to be
very coordinated.
In fact, I received a letter just this week from our
Governor about a lot of the equipment that has come in from
different places--oh, sorry--a lot of the PPE that has come in
doesn't work. It has not panned out the way we expected it to.
And I am still concerned that we do not have the domestic
production capacity necessary to meet the need.
As we saw with the example of the swabs, we can crank up
production. And that was the conversation that I was having in
early March. They were, ``Well, you know, look, we don't do
that. We only produce this many.'' And that is true, all right,
but we are pretty big, pretty powerful, have a lot of money. We
can change. Okay? You can say, well, gosh, it is impossible;
there's no way we can produce 100 million masks a month. Well,
what if we did this? Okay? What if the full force of the
Federal Government came in and said, ``This is what you're
going to build.'' If we need this machine, if we need this
material, we will find it and we will make it happen.
That took too long, in my view, and I still am worried on
the PPE side that we are not producing sufficient number of
masks to meet the needs and demand, I mean, even as a basic
point. What we are struggling with in our State is nursing
homes, as every place is, just to get there and make sure that
they have a dependable source of masks. And I am not sure of
the statistic, but I believe at one point it was between a
third and 40 percent of the people who have died in this
country from COVID-19 were in nursing homes. It is clearly the
vulnerability. Now exactly what type of mask we need, depending
on the setting, we can have that debate. But what I want to see
is us ramp up our production capacity.
The last thing, quickly--I apologize, I haven't done this
in a while, so I have got a lot to say--is, as we are trying to
figure out how these contracts went out, there have been a
number of disturbing stories about business people coming along
and saying, ``Hey, I can get you 30 million masks.'' So, they
get a contract and produce nothing. That money seemed to go out
in a very confusing way.
And even within, there is $1 billion that was specifically
given to DOD to manage Defense Production Act steps. I am
curious how that money is being spent. One thing that really
stood out for me was, apparently, $100 million has gone to the
foreign direct investment, which is something I have worked on
with Congressman Yoho. We just expanded their ability to take
equity stakes, but it is for international development. They
provide loans to developing countries. What are they doing with
$100 million of DPC [Defense Pricing and Contracting] money to
send out loans to domestic companies? It didn't really make any
sense.
So, I am still worried about whether or not we are using
the full force and power of the Federal Government to meet this
crisis, particularly when it comes to producing PPE, and to
make sure that we bring the competence to the problem that is
necessary. No doubt, this is a huge, complicated, difficult
problem that would have been really hard to anticipate in all
of its varied forms. The idea that we could have a pandemic
certainly was out there. The specifics of it, that is
difficult, but we are supposed to be the best. We are supposed
to be able to do difficult things. And it is still very
important. The disease has not gone away and there is a lot
more work to be done.
With that, I will yield to Ranking Member Thornberry for
his opening statement.
STATEMENT OF HON. WILLIAM M. ``MAC'' THORNBERRY, A
REPRESENTATIVE FROM TEXAS, RANKING MEMBER, COMMITTEE ON ARMED
SERVICES
Mr. Thornberry. Thank you, Mr. Chairman.
And I join in welcoming Under Secretary Lord and thanking
her for participating in today's hearing. Not only is the
substance of what we have before us today important, this is an
important trial run because this is the same room we will use
to have our full committee markup in just a few weeks' time.
So, I appreciate her being here.
And I would have to say, from my perception, well, two
things. One is Under Secretary Lord has had a lot on her plate.
The chairman just described a whole range of things related to
medical equipment, and so forth, the Defense Production Act,
DOD's role in that, as well as the supply chain for everything
that DOD has to have to support our men and women of the
military at a time when a pandemic has basically shut down most
all of the economy, and at a time when we are much more
sensitive to foreign sources that may be a part of our supply
chain.
And I would say, from my standpoint looking at it, I think
certainly Under Secretary Lord and much of the Department has
done a pretty good job in dealing with unprecedented
circumstances--with technology that makes lots of noises, just
like we have just been hearing.
I think there is no question we still have challenges to
work our way through. We will talk about some of those today.
But I really appreciate the effort and the success in dealing
with all of those issues, the medical stuff, the Defense
Production Act, the whole supply chain for everything that DOD,
actually the men and women who serve require.
I hope, on the other side of this, what we can also do is
step back and look at changes that we can make or that the
Department can make to procure things faster. There are some
lessons, not just with pandemics and medical-related things,
but the world is changing quickly. Technology changes quickly.
We have to be faster. And I think some of the challenges
related to COVID should help inform us as far as acquisition,
sustainment, and things moving forward. And it may be
challenges of a completely different kind, but we need to learn
those lessons and institute them.
So, again, I appreciate you being here and look forward to
your testimony and the questions beyond.
The Chairman. Thank you.
Under Secretary Lord.
STATEMENT OF HON. ELLEN M. LORD, UNDER SECRETARY OF DEFENSE FOR
ACQUISITION AND SUSTAINMENT, DEPARTMENT OF DEFENSE
Secretary Lord. Chairman Smith, Ranking Member Thornberry,
and distinguished members of the committee, thank you for the
opportunity to testify today on matters related to the
Department's response to the COVID-19 pandemic.
While COVID-19 has had an unprecedented impact on the
Nation, under Secretary Esper's leadership, the Department of
Defense has contributed immensely to the administration's
whole-of-government response. Today, I will describe key
elements of how the acquisition enterprise has supported other
Federal agencies and the defense industrial base, or DIB.
The COVID-19 pandemic highlighted critical shortfalls in
the medical supplies and personal protective equipment supply
chain. On March 18, President Trump invoked the Defense
Production Act [DPA]. In doing so, he delegated authority to
the Secretary of Health and Human Services to determine
nationwide priorities and allocation of health and medical
resources for responding to the spread of COVID-19.
Accordingly, the DOD has been supporting HHS to execute DPA
authorities.
On March 27th, the President signed the CARES [Coronavirus
Aid, Relief, and Economic Security] Act. It includes language
and resources to mitigate critical shortfalls and to create and
expand domestic industrial base capabilities. The DOD, in
support of HHS and FEMA, initiated several projects to support
approximately $210 million worth of medical equipment
investment.
The CARES Act also provides authorities and resources to
HHS to invest in industrial expansion. DOD has been providing
acquisition assistance to HHS to acquire medical resources and
expand industrial capacity and manufacturing throughput.
Our collaboration also supports the HHS strategy to
replenish and modernize the Strategic National Stockpile. To
ensure the Department was postured to leverage all of its
resources, I created the COVID-19 Joint Acquisition Task Force,
or JATF. The JATF team has created processes to enable HHS and
FEMA to quickly and effectively access the DOD acquisition
workforce, its expertise, and authorities. The JATF's work with
HHS has evolved to its current support to HHS in expanding and
replenishing the Stockpile as well as expanding the domestic
manufacturing base for some of those items.
In order to decrease our dependence on foreign suppliers
for medical resources, DOD has focused on increasing domestic
industrial capacity and capabilities. To that end, we executed
some $284 million in industrial expansion efforts during the
first 2 weeks of May 2020. The JATF is in close coordination
with HHS regarding replenishment of the Stockpile.
Reconstituting domestic production or creating new production
that shifted offshore years ago often requires capital
expenditure, capital equipment expenditures, retooling, and
retraining of the workforce.
While the JATF is focused on sharing the DOD's acquisition
expertise with HHS and FEMA, the Defense Logistics Agency [DLA]
has supplied badly needed medical supplies. DLA has obligated
over $752 million through the end of May to provide lifesaving
medical supplies. I would like to highlight that this support
includes an ongoing effort to supply nearly 15,000 nursing
homes with a 2-week supply of PPE.
I would now like to turn to issues surrounding the DIB,
including actions we have and are taking to ensure DIB
viability. We are using $688 million of CARES Act funding to
address impacts to the DIB by directly offsetting financial
distress and providing investments to regions most severely
impacted. These investments will sustain essential domestic
industrial base capabilities and spur local job creation. The
Industrial Base Council [IBC] has prioritized risks to address
use of this funding. Newly identified issues are continually
coming in and the IBC will continue to prioritize efforts for
execution.
Another area where we will be supporting the DIB is by
making Defense Production Act loans through the U.S.
International Development Finance Corporation, or DFC.
Mr. Chairman, I just have a few more minutes. I notice I am
at 5 minutes. May I take 2 or 3 more minutes?
The Chairman. Yes.
Secretary Lord. Thank you.
Funds will support HHS Strategic National Stockpile
priority areas: specifically, N95 respirators, other personal
protective equipment, pharmaceuticals, ventilators, airway
management consumables, and testing supplies.
We have also taken more immediate and direct action to
support the DIB by implementing congressional direction,
empowering the contracting workforce, and ensuring a healthy
DIB through continued guidance and direction. We have taken
steps to ensure the widest dissemination of guidance to the
contracting community. These policy documents focus on allowing
companies to continue to work while maintaining workforce
safety, providing liquidity, implementing legislation
beneficial to industry, improving speed of contracting, and
providing spending transparency.
In the early stages of the pandemic, the Department
increased the progress payment rate from 80 to 90 percent for
large businesses and from 90 to 95 percent for small
businesses. This change will infuse an estimated $3 billion in
cash to all levels of the DIB. Further, the Department has
partnered with the major primes [prime contractors] to ensure
this increase in cash makes its way throughout the supply
chain.
As you know, section 3610 of the CARES Act allows agencies
to reimburse contractors for payment associated with the
preservation of workforces prevented from working due to COVID-
19 facility closures or other restrictions. Our implementation
guidance provides a framework for contracting officers to
assess any claimed allowable paid leave, including sick leave,
that a contractor or their subcontractors provide to keep their
employees in a ready state.
It is important to note that section 3610 authorized, but
did not appropriate, the funds needed to make these
reimbursements. While the Department may be able to use other
appropriated funds to reimburse contractors, the cost for 3610
is likely well beyond the Department's resource stability to do
so without significantly jeopardizing modernization or
readiness. For example, just one of our major primes estimates
that 3610 impacts could be up to $1.5 billion for their company
and their associated suppliers.
Section 3610 leave costs are just one category of COVID-19-
related costs being experienced by the DIB. Others include
those associated with contracting officer direction, such as
stop work, the purchasing of PPE, cleaning and sterilization
costs, impacts related to implementing Centers for Disease
Control guidance, such as spacing out factory floor activity,
and the cost associated with schedule delays emanating from the
supply chain. As with section 3610, the Department does not
have the funding to cover these costs. The same prime
contractor noted earlier estimates these non-3610 COVID-19-
related costs to be in excess of $1.5 billion--correction--to
be in excess of $1 billion.
The Department's response to COVID-19 addresses a full
spectrum of needs. I am incredibly proud of the Department's
response to this national emergency and to our dedicated
individuals who have worked so diligently on behalf of the
American people.
With that, I look forward to answering your questions, and
many, Mr. Chairman, that you mentioned in your opening, I am
very interested in discussing. Thank you.
[The prepared statement of Secretary Lord can be found in
the Appendix on page 47.]
The Chairman. Certainly. Thank you very much.
I guess as a starting point, on the swabs, one of the very
reassuring things is to hear that they are producing 40 million
a month. We have a quantifiable figure, and that is not far off
from what we need if there is more, obviously. I don't have a
similar number on N95 masks. I have asked this question before
and don't have an answer. How many N95 masks are we now
producing a week, a month, however you want to categorize it,
in this country? Where did we come from and where do we want to
get to? And I will get to sort of the international piece in a
second, but domestic U.S. production.
Secretary Lord. So, one of our challenges has been
aggregating the demand signal, first, for the medical
community, and then, for getting back to work; then looking at
reconstituting our Strategic National Stockpile, and then,
looking for ongoing activities. So, we have had the Supply
Chain Task Force, under Admiral Polowczyk's guidance at the
NRCC [National Response Coordination Center], looking at
aggregating that demand signal.
While that is going on, and we are taking part in that,
what we have done is taken DPA Title III money, and then, in
order to do even more industrial expansion, we worked with
lawyers to be able to use the Economy Act to move money from
HHS for industrial expansion to be executed----
The Chairman. I am sorry, that is not actually what I
asked.
Secretary Lord. Okay. What is the demand signal?
The Chairman. So, I understand how many. That is a separate
question. But how many are we--and if you don't know, that is
fine.
Secretary Lord. Yes, I was about to say I do not have that.
I can take that for the record. But I might call on our JATF
Director, Ms. Stacy Cummings, to begin to address that.
[The information referred to can be found in the Appendix
on page 71.]
The Chairman. And as you are looking at the demand signal,
I hear that. When I told our Governor that a couple of months
ago, he about pulled his hair out, ``I'll give you a demand
signal. It's very large.'' And so, what have we learned at this
point? I will ask the question in a different way. What is the
demand signal for N95 masks?
Ms. Cummings. Based on our projections, prior to the COVID
response, we were nationally using about 50 million N95
respirators in a year. I will tell you that that demand went up
to about 140 million over the 90 days of peak demand. And so,
what we are looking at from a demand signal is a significant
increase in the use of N95 masks, which is why we made the
significant investment that Ms. Lord mentioned earlier. I can
tell you that, based on the investments that we have made, by
October of 2020 we will be seeing an increase of 450 million
masks a year, and by January of 2021 an increase in total,
including that 450, up to over 800 million masks----
The Chairman. And that is domestic production?
Ms. Cummings. And that is domestic production, correct.
The Chairman. I am sorry, so you are producing 450 million
a year, and your estimate is, at this point what is our need,
the demand signal, if you will?
Ms. Cummings. So, based on having 90 days of stock, we are
looking at that number being about 300 million to be used in 90
days of peak use.
The Chairman. So, 300 million is like 100 million a month,
roughly?
Ms. Cummings. About 100 million a month during peak use is
on the high end of demand that we want to be able to have
access to, again, during that peak.
The Chairman. Yes, right. And now, we are getting
somewhere. So, 100 million a month and we are set to produce by
the end of October 450 million a year?
Ms. Cummings. 450 additional million a year. By January,
our annual production----
The Chairman. I am sorry, additional to what?
Ms. Cummings. Additional to our base.
The Chairman. Okay. And our base was?
Ms. Cummings. I can't tell you the proprietary information
of the base that was being produced on individual companies.
The Chairman. I am sorry----
Ms. Cummings. But what I can tell you is that, starting in
2021, we anticipate our total domestic production to be in
excess of a billion per year. So, we are getting very close to
being able to meet that demand domestically, but we are not
quite there yet.
The Chairman. Okay. And I do understand. I don't have any
problem with supplementing it internationally, but we want to
try to get that number up as high as possible.
Ms. Cummings. Absolutely.
The Chairman. Thank you.
So, I want to yield at this point to Mr. Thornberry for any
questions he has.
Mr. Thornberry. Thank you, Mr. Chairman.
And, Under Secretary Lord, I just wanted to clarify part of
what you talked about in your testimony. Section 3610 of the
CARES Act says that contractors can be reimbursed for sick
leave, paid leave, other things they have done to try to keep
their folks employed. But you are telling us today that there
is not the money to do that. So, if that is going to happen--
and it would run into the billions--so, if that is going to
happen, there would have to be some sort of supplemental
funding?
Secretary Lord. Correct.
Mr. Thornberry. And otherwise, these contractors are going
to have to eat several billions of dollars, which could well
come at their employees' expense, which is what this was
supposed to help to begin with.
Secretary Lord. Well, there is a choice there, whether or
not we want to eat into readiness and modernization and slow
down readiness and modernization on an ongoing basis or whether
we want to remedy the situation in the next 6 months or so, and
then, be able to continue on to make sure that we have the
ready forces that we need to have for national security.
Mr. Thornberry. Okay. I want to ask a broader question
about the defense industrial base. And that is, do you feel
like you have good visibility in what the defense industrial
base is? And just as one example of that, so if we wanted a
list of parts where we were down to a single supplier, can you
do that? Give us some sense for how much you know about this
very complex community, I guess, that supplies our men and
women in uniform.
Secretary Lord. We have been gaining in our knowledge,
which I would say is still insufficient. But it started out
with the report we did as a result of the Executive Order
13806, the report we put out about 2 years ago. We segmented
the defense industrial base. We all began to have a common
lexicon, and we identified fragilities in that base, whether it
be sole-source suppliers or whether it be the dependence on
overseas sources of supplies. That highlighted work we started
doing using the Defense Production Act and other mechanisms to
begin to bolster our capability.
Fast forward to COVID. COVID exacerbated that fragility
that we had identified through the report, and we found that we
could not onshore the materials that were produced offshore and
that we might not be able to for quite some time.
So, what this required us to do was really accelerate our
illumination of our supply base, and we have had a number of
our individuals out of our acquisition group, our industrial
policy group work with specific tools to illuminate the supply
chain, not only to understand who was in there, and then,
identify what the weaknesses were, but where we had actually,
what I will call, adversaries as one of our key suppliers.
So, part of our effort here is not only to identify where
we are sole-sourced, but where we actually need to reshore a
lot of that capability. In fact, we mentioned the $100 million
of DPA Title III being used with the Development Finance
Corporation. The idea is that we are taking an existing
infrastructure in the government, working closely with DOD to
use all the knowledge that we have gained in terms of medical
resource fragility, as well as defense industrial base
fragility, and we are going to use a modest amount of our DPA
Title III money as collateral to go and do Treasury loans to
reshore businesses, so that we have the domestic capability.
Mr. Thornberry. Okay. And so, just briefly, I take by your
answer, we are working on that, single-sourced, foreign-
sourced, et cetera, but we don't quite know the full extent of
it yet?
Secretary Lord. We know a large amount of it. We do not
know the full extent, and that is a key focus of ours and we
need to continue----
Mr. Thornberry. Well, it is important and a number of
members are interested in that as well. So, we look forward to
working with you.
Thank you, Chairman. I yield back.
The Chairman. Thank you.
And now, we have reached the exciting moment of the hearing
when we call on our first member who is participating remotely.
And that would be Susan Davis, who is recognized for 5 minutes.
So, it will probably take a second----
Mrs. Davis. Thank you, Mr. Chairman.
The Chairman. There we go. Susan, you are up for 5 minutes.
Mrs. Davis. Thank you very much to have this experiment at
this time.
I want to thank you, Madam Under Secretary Lord, very much
because I know that you have been working 24/7 at this, and we
all greatly appreciate that.
There was an article in The Atlantic recently, ``How to
Actually Use the Defense Production Act.'' In the summary, it
mentions, ``Using the statute does not mean giving up on
American ingenuity in an emergency but competently maximizing
it--and recognizing that the energy must come from the top.''
Would you say that that is generally your position?
Secretary Lord. I believe that is directionally correct.
What we are trying to do is send a strong demand signal that we
want domestic production. So, what we are doing is saying we
will take papers on what level of investment could generate
what increased capacity and throughput over what specific
period of time, and rack and stack those applications against
our requirements that are prioritized, and then, begin to
address them.
Mrs. Davis. And would you say that those working with you
are all pretty much on the same page on that?
Secretary Lord. Yes, I believe so.
Mrs. Davis. Okay. I wonder if you can talk, then, about how
the Department is planning to use the DPA for vaccine
production/distribution. Are you making those plans now? And
what are the known shortcomings in vaccine distribution that
the DPA would prove most useful to address?
Secretary Lord. Yes. So, about 3 weeks ago or so, we
bifurcated our Supply Chain Task Force efforts into Project
Warp Speed, and then, the Strategic National Stockpile.
Operation Warp Speed has two leaders, Dr. Slaoui and General
Perna, who report directly to Secretaries Esper and Azar. They
are working first on vaccines, then on therapeutics, and then,
on diagnostics. So, they have picked up a lot of the work,
obviously, being done by HHS and DHA [Defense Health Agency].
Right now, what they are doing is prioritizing who they are
funding for vaccines and, then, how they will be distributed.
We stand ready to support them, but right now they are
finalizing all of their investment plans and they are reporting
out directly on that.
Mrs. Davis. From lessons learned that we have gone through
now, what is going to be a hard stumbling block? Is it
competition for the vaccine? What is it that you think is going
to get in the way?
Secretary Lord. I think, first of all, we have to make
data-driven decisions. There are a lot of anecdotes. I think we
all have to have the same fact set, and then, prioritize and
move forward. Additionally, our adversaries are watching what
we are doing very closely. So, the security around all of these
efforts is paramount. We have to also come up with a scheme, to
your earlier point, as to how we prioritize distribution. We
also have to deal with the risk scenario of how do you quickly
get FDA [Food and Drug Administration] approval for a vaccine
in a smart way where you are balancing risk and reward.
Mrs. Davis. You have put a great deal of energy and thought
into this, but I am wondering, are there some areas that you
have not been able to bring about some of the changes that you
would like to see perhaps with the interagency? What are you
not doing that you are hoping down the line?
Secretary Lord. I think, initially, it was a bit
frustrating to go through the legal issues around moving money
between agencies. We have kind of cracked the code on the
Economy Act and how to have the correct documentation move
quickly. That is what I would term a non-recurring engineering
event that I hope we do not have to go through again, and we
need to memorialize that to make sure we can activate it
quickly.
I think at this point we are pretty well aligned with
communications up through all of the different organizations,
but I think we have to remain very disciplined about
communications, so that we are all putting our efforts towards
key objectives and not getting distracted by things that look
interesting. We have to be very, very disciplined.
Mrs. Davis. Could I ask you, then, did you have any
involvement with Project Airbridge?
[The information referred to can be found in the Appendix
on page 71.]
The Chairman. I am sorry, the gentlelady's time has
expired. This is the awkward part here.
Mrs. Davis. Okay.
The Chairman. But 5 minutes are up.
Mrs. Davis. All right.
The Chairman. So, I do want to move on to other members.
And we have Mr. Turner up next, who is recognized for 5
minutes.
Mr. Turner. Thank you, Mr. Chairman. I want to thank you
for your executing this very unique structure for us to try
this. I can't think of anyone more capable than Secretary
Lord--hopefully, you are hearing me--in order to try this.
Mr. Chairman, you spoke of how busy Secretary Lord was with
the Defense Production Act and, of course, on the defense
industrial base issues.
Secretary Lord, I would like to ask you for a moment if you
could give us some additional fidelity on your work on the
defense industrial base. I was very impressed in the phone
conference that we had with you and in the written
communications that you have given us in responding to the
needs of the defense industrial base. You mentioned some of
those issues.
In your testimony, you talked about increased costs as
associated with teleworking, leave, sanitizing workspaces, and,
of course, work disruption. We also know that some of our
defense industrial base lost some of their liquidity due to
commercial interruptions and some of their supply chain
interruptions.
So, you did this very quickly. So, if you could give us
some additional fidelity as to how did you come about with this
bushel basket of things that you needed to do, knowing that we
had defense contractors, defense workers, suppliers,
subcontractors?
But, then, the next step that I am really interested in is,
once you go through this, once you have provided this
additional assistance, this additional help to try to get the
defense industrial base over this period, what type of
assessment, information back, are you going to be receiving as
to how has this left them? What condition are they in? What has
been more effective or less effective? And what new things
should we be doing?
And that is my only question. So, after your answer, Mr.
Chairman, I will be yielding back.
Secretary Lord. Very good. So, I had started, when I first
took this position, meeting with industry on a quarterly basis
along with 15 or so of my colleagues at the Department of
Defense. I leveraged three industry associations that I thought
really caught everything from small business to large primes,
so that we got a good cross-section. We used those quarterly
meetings with CEOs [chief executive officers] to both push
information that we thought that was useful, but, probably more
importantly, to listen to industry about what their concerns
and issues were.
When the pandemic hit and we saw how catastrophic it could
be to our defense industrial base, what we did was just really
amp up those engagements. So, starting on March 17th, we had
our first telecon [teleconference] with industry and we
broadened beyond just the three industry associations that we
worked with to really start including non-traditionals and
others. And for multiple weeks, we had calls three times a
week. One of those calls per week was focused on small
business. And we listened to what the problems were.
As a result of that, the team sitting behind me, a lot of
the leadership of A&S [Acquisition and Sustainment], listened
to what the issues were and we tried to start taking the first
small steps. We realized liquidity was really the most key
issue. So, what we did is we started trying to simplify how to
do business. We raised micro-threshold levels. We changed
progress payments. In fact, there is a whole binder I have
right here that has over 30 different memos from Defense
Pricing and Contracting to ease how to do business. What we did
is we got real-time feedback three times a week on what the
biggest pain points were, so that we could prioritize all of
those memos to provide some relief.
On the other side, what we did is we started more regular
convening of what we call our Industrial Base Council. I look
at OSD [Office of the Secretary of Defense] as kind of a
corporate function with my customers being the operating units
which are the services. We had the service acquisition
executives [SAEs], logisticians, others together, and we have
worked every week for the last 2 months to rack and stack what
the SAEs were seeing for critical issues, so that we could
focus our Defense Production Act Title III investments as well
as start putting programs on contracts faster. Each of the
services has dozens more contracts that have been awarded this
time of the year than they did last year.
So, again, it was listening to industry, constantly getting
feedback, and then, moving forward.
The Chairman. Thank you, Madam Secretary. We have to move
on to the next questioner.
And that is Mr. Langevin, who is recognized for 5 minutes.
Mr. Langevin. Very good. Thank you, Mr. Chairman.
And, Madam Secretary Lord, I want to thank you for
attending today's hearing and for accommodating to the new
format of these hearings.
I have got a couple of COVID-related questions, but before
I get to that, I just wanted to call your attention to section
1648 of last year's NDAA [National Defense Authorization Act],
which called for a comprehensive framework to strengthen the
cybersecurity of the defense industrial base. And we made an
important first step with the Cybersecurity Maturity Model
Certification Program.
But I have to tell you, what we received from the
Department was really wholly unacceptable. The first update
that the Department provided to Congress really appeared to
show that the Department has not really made a good-faith
effort to deconflict, synchronize, and harmonize the various
programs that we depend on to keep the industrial base safe.
So, what I wanted to ask you, I hope that you will commit
to providing the committee with all the specific factors
described in the legislation.
Secretary Lord. Absolutely. In fact, we have taken one of
our key leaders, Katie Arrington, she is very, very focused on
this area. We work closely with NSA [National Security Agency],
as well as the services, because we understand the
vulnerabilities and we need to commit the funds to make sure
that we have a secure and resilient set of warfighting tools.
Mr. Langevin. Okay. Thank you. It is something my
subcommittee is going to be following closely. I look forward
to working with you. I appreciate the work that Ms. Arrington
is doing and look forward to getting a more comprehensive
update from the Department in the very near future in that
case.
Let me turn to a COVID-related question. Last week we heard
from the Defense Logistics Agency that they are working to give
defense companies and the defense industrial base potentially
testing equipment to allow them to do testing themselves.
Electric Boat, just by way of example, in my district has been
calling for the capability for quite some time. They have taken
some steps on their own. Given their medical facilities that
they have onsite, it makes it possible for them to do that. But
can you please update us on what the DOD is doing to
disseminate testing equipment to defense-critical
infrastructure?
Secretary Lord. What we are doing is reaching out beyond
just our government contracting employees and we are now
reaching out to small businesses and making our FedMall
available. So, what this is is going online, searching just
like you would at home for a variety of things, so that you can
go and compare and contrast different PPE and other materials.
We are trying to make that much more accessible to small
businesses and we are working to see how that can be legally
accessed by States as well.
Mr. Langevin. So, using the purchasing power and the
logistic capability of the DOD to help both acquire, and then,
also, disseminate the equipment? Did I understand that
correctly?
Secretary Lord. Correct. And so, one of the challenges
which was highlighted in an earlier question is aggregating a
demand signal. If we can have a more focused location to
aggregate that demand signal, that gives us better leverage,
better price capability, and so forth, and frankly, eases the
ability to come in and get PPE. And we plan to grow that
capability into other things as well.
Mr. Langevin. Okay. So, I know that wave one of the
coronavirus appears to be receding, but listening to medical
health officials at what is happening around the country,
scientists have sounded the alarm of future waves. You have
touched on some of this already, but, Ms. Lord, what groundwork
are you laying to ensure now that the DOD can quickly amass and
distribute resources, just in case another wave does occur in
the fall? And are you prepared for that?
Secretary Lord. Yes. What we are doing is not only
modernizing the Strategic National Stockpile for the Nation,
meaning that we will have IT [information technology] systems
that will easily let us know what we have and where it is, but
we are doing the same thing with our DOD stockpile. That means
looking at what is in it, what the levels should be, and making
sure we reconstitute it very quickly, so that we not only have
the capability to deliver it day by day, but that we have a
ready reserve.
The Chairman. Thank you very much.
Mr. Langevin. Thank you, Mr. Chairman. I yield back.
The Chairman. Thank you. The gentleman's time has expired.
Mr. Rogers is recognized for 5 minutes.
Mr. Rogers. Thank you, Mr. Chairman.
And, Ms. Lord, thank you for being with us today and thank
you for your service to our country.
Early in this pandemic we were having some troubles, our
contractors, our defense contractors were having some troubles
obtaining parts from Mexico because of the different way that
they were handling the pandemic from us. And I understand you
were working on that. Can you tell us the status of that
situation now?
Secretary Lord. Absolutely. My latest DCMA [Defense
Contract Management Agency] reports say that everything is open
in Mexico. What we did to support that effort was what we did
with Governors here domestically. When local and State
regulations are put out, sometimes there is a disparity in
terms of how they are interpreted. So, what I did in terms of
Mexico was to call our embassy, talk to all of the U.S.
officials there, give them a prioritized list of companies that
were critical links in our supply chain, and called back every
day giving data until they were able to open them up. So, the
Mexican government was very, very responsive once they had the
facts and figures.
So, the second area we have had issues there is India,
which we are working through most of those, and then, a variety
of other small ones.
Mr. Rogers. Great. Thank you.
I want to follow up on the line of questioning from Mr.
Thornberry where he talked to you about the consequences of the
COVID impact on your budget, and then, the impact that that has
had on our defense contractors and their employees. There seems
to be a genuine consensus that there is going to be a fourth
iteration of relief by Congress to the CARES Act sometime in
July. Do you anticipate offering the number to the
administration of funding that you need to backfill, to replace
the funds that you had to use to deal with COVID?
Secretary Lord. You broke up a little bit there, but I
think the question was, do we have a number to make up for what
I will call the COVID penalty to contractors on their existing
contracts, and so forth?
Mr. Rogers. Correct.
Secretary Lord. Yes, we have rough numbers on that. We have
submitted them. They are at OMB [Office of Management and
Budget] right now.
Mr. Rogers. Great. Thank you, ma'am. I yield back.
Mr. Larsen [presiding]. All right. Chair Smith is out for a
bit. And so, I will take over the chair. As it happens, I am
also next in line.
So, first off, I will recognize myself for 5 minutes and
ask unanimous consent to include in the record a letter from
Governor Jay Inslee to Vice President Mike Pence, which Chair
Smith mentioned earlier, regarding Washington State's
experience with PPE and the need for the DPA implementation.
[The information referred to can be found in the Appendix
on page 63.]
Mr. Larsen. Second, I want to follow up on what Mr. Rogers
was discussing as well. You mentioned that there is a number,
an estimate I guess. Can you share that estimate with the
committee today, about what, I guess, the COVID penalty costs
are?
Secretary Lord. It would be in the double digit of billions
of dollars.
Mr. Larsen. So, it's somewhere between $10 billion and $99
billion?
Secretary Lord. On the lower end of that, yes.
Mr. Larsen. Thank you. All right. Thanks.
Second, other than that, though, do you have guidance for
allowable costs, specific guidance for allowable costs under
section 3610? My recollection from your testimony is that it
will arrive shortly.
Secretary Lord. We have put out an enormous amount of
guidance on this. It is a dialogue with industry, again, to
make sure we understand what the needs are. We are committing
to within 30 days, I think less than that, to put out final
guidance.
But just for your reference, we are working through looking
at confirmed cases or quarantines, government facility closures
or stand-downs, test delays. This is really a key item if you
couldn't get out to a range, and so forth, because of research
and development center inefficiencies. Telework, closures due
to travel restrictions, logistic implications caused by travel
restrictions requiring commercial flight, availability of parts
and supplies, high absentee rates, local and State lockdowns,
foreign government lockdowns, company and supplier shutdowns--
--
Mr. Larsen. Thank you. So, I understand it is fairly broad
and fairly specific. And you mentioned 30 days. Is that 30 days
from today or 30 days from a day before this?
Secretary Lord. Thirty days from today----
Mr. Larsen. Okay.
Secretary Lord [continuing]. We will have it done.
Mr. Larsen. Okay. Thanks.
The next question I have for you is still on the supply
chain, but I think I mentioned this when we had the briefing
call a few months back, whenever that was, a few weeks back. It
had to do with the use of the DPA beyond COVID-19, the
flexibility the Department has. There was a particular instance
with aluminum use in defense manufacturing, which has an impact
on Washington State. There is an aluminum plant there that is
curtailed 100 percent for other reasons, but still the need for
aluminum. Can you speak at all to how you are thinking about
using the DPA for either commodity purchase or purchases
otherwise? And are you contemplating that?
Secretary Lord. We are contemplating anything that is a
constraint at this point. The way we have broken down looking
at the DIB has typically been aircraft, shipbuilding, space,
soldier systems. At this point, I am unaware of a cross-cutting
commodity, but I think I am going to ask Kevin Fahey to come up
and address this. Kevin, as you know, is ASD [Assistant
Secretary of Defense] for Acquisition, and he is the one that
is closest to the actual programs and goes to all of the
industrial base meetings.
Mr. Larsen. I would note I have 1 minute and 15 seconds.
Secretary Fahey. Yes, sir. Just really quick, what we do is
all the program officers bring in their issues, where they see
the supply chain. We also have industry that comes in and talks
to us. That specific issue has not been brought to us about the
aluminum in Washington. If it came in, we'd prioritize it.
Basically, the first priority is things that were
specifically impacted by COVID, and most of that, as you can
imagine, is driven by the financial situation, the supply
chain, and those kinds of things.
Mr. Larsen. Yes. Okay. Yes. Thanks.
Secretary Lord. But there is the opportunity. If there is a
need, we want to hear that. So, I would say that Kevin is the
person to reach out to for those who have issues.
Mr. Larsen. So, I will just conclude by saying what I heard
you say is: one, you have the flexibility to address that.
Second, you have financial authority to address that.
Secretary Lord. Correct.
Mr. Larsen. All right. Thank you. I yield back.
The Chairman [presiding]. Thank you.
Just one quick note on the remotely participating members.
If you are, in fact, sitting there, it is good to leave the
video on. Now, just like in a regular hearing, members come and
go, and if you happen to be eating lunch or something, we don't
have to view that. So, you can turn it off. But if you are
sitting there like you would normally be there, it is good to
leave the video on, just so we can know who is there. But if
you have got to move around, moving around is fine.
Next up is Mr. Conaway, recognized for 5 minutes.
Mr. Conaway. Thank you, Mr. Chairman.
And, Ms. Lord, thank you for being here.
What I heard in the conversation about PPE particularly was
that you are trying something on the order of pandemic peak
supply capacity from domestic production, which would be great
if the peak lasts a long time. Most of us think it will ebb at
some point in time. But you look like you put in place a
significant amount of capacity that might not be needed when
the pandemic ends. Can you talk to us a bit about what is in
the contracts that will allow companies to unwind that
capacity, or is it in the contract that they have to maintain
it while they do some other things? And what is the cost going
to be to the taxpayer to maintain what at some point in time
will be excess capacity for PPE? Again, will we know what those
costs are on a running rate?
Secretary Lord. So, two separate issues in my mind. The DPA
Title III provides funds through contracts to companies for
facilities, equipment, tooling, training, flowing down funds
through the supply chain. The idea is either to preserve
capacity or to increase it.
Separate and distinct issue of letting contracts for a
certain number of items over a certain amount of time. What we
are doing is carefully looking at what we think demand signals
are. And there is, again, a diversity of thought about that.
And we will not overinvest in an area where we do not need more
capacity or believe we will have excess capacity. So, those are
the trades that are being done because, obviously, we don't
have an infinite amount of money and we have to prioritize what
we are doing.
Mr. Conaway. Well, let's use your N95 masks as an example.
You said, by January, we will have the capacity to do 80
million a month. Peak demand was, what I heard is 100 million a
month. We are not at peak demand now. So, is that 80 million a
month paid for or is that capacity that would be--I mean, you
don't need to keep making these masks, just stacking them up in
a warehouse anywhere beyond a certain point. What will happen
to those, to that 80 million a month under this scenario?
Secretary Lord. So, again, the capacity is there. We let
contracts that are separate and distinct----
Mr. Conaway. Okay. Yes, ma'am, but capacity has a cost.
Will you maintain the capacity? And how much will that
maintaining the capacity cost, is really the issue.
Secretary Lord. Yes, correct. In terms of maintaining
capacity, that would typically be captured in overhead rates
and so forth. And if we get to the point where we have built up
the Strategic National Stockpile, and the monthly utilization
no longer requires the entire capacity that we have in the
Nation, then, typically, what businesses would do would be to
repurpose or idle certain lines, so they are not paying to keep
something operational if there is not a demand signal. But,
again, we are trying to be smart about that, so that we are not
going to find ourselves in a huge overcapacity situation.
Mr. Conaway. Okay. I understand how a private company would
react on its own nickel. I just want to make sure that you have
got the authorities to react in that exact same manner when it
is clear that capacity is no longer and the taxpayers no longer
have to pay folks for idle capacity. Did I hear you say that?
Secretary Lord. Absolutely correct. And again, when we
write contracts, if they are long-term contracts, they
typically have a base, and then, option years that can be
executed. So, we typically are incredibly reticent about
committing to long-term contracts where the demand signal is
unclear.
Mr. Conaway. Okay. Well, I think that has been my concern,
and I appreciate your testimony today.
With that, Mr. Chairman, I will yield back.
The Chairman. Thank you.
Mr. Courtney is recognized for 5 minutes.
Mr. Courtney. Great. Thank you, Adam.
And thank you, Secretary Lord, for being here. I also want
to thank you for the quick follow-up after the April 16th
teleconference call regarding CARES Act section 3610. Again,
you followed up in terms of some of your comments about the
sort of scope of the paid leave in terms of the Department's
interpretation of the CARES Act. And as you point out, the sort
of Q&A [question and answer]/FAQ [frequently asked questions]
guidance that the Department has been putting out has also been
helpful in terms of putting some precision around the scope of
the reimbursable paid leave.
But, as you point out, an unfunded authorization kind of
leaves us frustrated in terms of being able to convert that
into reality for a lot of these workers, some of whom have
contracted coronavirus. And obviously, the intent of Congress
needs to be followed up on with an appropriation.
But you indicated to Mr. Larsen that the Department, I
guess, is putting its arms around a figure. Are you doing that
based on claims that are being submitted by contractors
regarding specific workers who have been out for 2 weeks, 3
weeks, 4 weeks, in the hospital? I mean, is there something
that we are going to really see that is very clear-cut, so that
we can help with the appropriators, if, again, there is going
to be another COVID bill at the end of July.
Secretary Lord. The figure that we arrived at is data-
driven. We have not yet had any contractors actually submit
claims because they are aware that there is not an
appropriation yet, and I believe that they are concerned they
might get a one-time shot and want to make sure what the entire
situation is.
That being said, our DPC group, as well as Acquisition,
have spent an enormous amount of time talking with contractors
and understanding the range of challenges that they see. Our
Defense Contract Management Agency has individuals embedded in
all of the major primes and visiting the smaller ones. So, we
have eyes on every day. In fact, I get data every morning that
we share at our startup in terms of the 20,000, roughly,
companies that we track, the number of closures, the days
average that they are closed, the number of openings, what
level of workforce they have. So, we can do some rough
calculations ourselves, but our boots on the ground, so to
speak, are collecting their own information and talking with
management teams.
So, we believe that we understand the lower end of the
number. I believe there will be some delayed issues because,
again, our primes are trying to look down through their supply
chains. But, as you get lower in the supply chain, typically,
some of the tier 2s or 3s are not sharing with the tier 1s all
of their issues because they don't want to reveal a lot of what
they think is proprietary data, and so forth. So, I think it
will be a while to unravel.
We just actually had another teleconference, actually, a
video teleconference, that we set up this morning for Secretary
Esper with a lot of the large primes where we talked about this
very issue.
Mr. Courtney. So, again, the fact that Congress already
took at least half a step with an authorization shows that I
think there is support for making sure that we finish the job
and really compensate people, particularly for their sick
leave. So, the extent that you can incorporate us in terms of
that data-driven analysis, so that we can help, I would
encourage----
Secretary Lord. Yes.
Mr. Courtney [continuing]. The Department to do that.
Secretary Lord. Thank you. Once the figures are released, I
will commit to coming back and doing that, because that is in
our mutual best interest. Because, again, I am very concerned.
The defense industrial base I believe is the nexus of economic
security and national security, and it is vitally important to
make sure they remain as healthy as possible.
Mr. Courtney. Great. Thank you.
I yield back, Adam.
The Chairman. Thanks, Joe.
Up next is Mr. Wittman, recognized for 5 minutes.
Mr. Wittman. Thank you, Mr. Chairman.
And, Secretary Lord, thanks for joining us.
I want to talk about the ship repair, maintenance, and
overhaul industry. As you know, there have been some challenges
there prior to COVID-19. The requirement up to COVID-19 on
payments to the industry was 90 percent payment, or 10 percent
retainage, what they call progress payments, up to 90 percent,
and then, 95 percent for small businesses.
And as we have seen those yards now have to accommodate
more ships, so more maintenance availabilities, longer
duration, there is more and more of those dollars that are
being held up. In fact, it is right now over $100 million is in
retainage for those yards. Those dollars are needed for those
yards to reinvest, to get the capacity necessary to keep the
throughput going, to repair the ships not only that are there
now, but the ships that are to come to those yards. And we all
know the longer the ship is in the yard, the less available it
is, and availability has become a big issue these days, as we
make sure that we are meeting readiness needs.
To give Assistant Secretary of the Navy Geurts credit, he
said, okay, we are going to change that; because of COVID-19,
we are going to drop that down to 1 percent retainage, so they
get 99 percent of those dollars, which has been a tremendous
help.
The question is, that is a temporary measure. Would the
Pentagon consider making that a permanent measure to help the
cash flow for our ship maintenance, repair, and overhaul
industry?
Secretary Lord. I know that Secretary Geurts is spending an
enormous amount of time on this and talking with CEOs and a
number of individuals on a weekly basis. I think at this point
we are letting the data drive us and we are not drawing any
hard lines. We want to be flexible. I think there are a lot of
things that we have learned during this pandemic that we don't
want to unlearn, but we have to look at the value equation,
obviously, for the taxpayer and what we are getting for
deliveries as well. But, again, we will remain open and
flexible to what makes the best sense for all of this.
Mr. Wittman. So, if the data indicates things are going
well, the contractors are performing, with this 1 percent
retainage going forward, would the Pentagon make it permanent?
Secretary Lord. I don't want to speak for the Navy right
now, but I will tell you, I think it would get serious
consideration.
Mr. Wittman. Okay. Very good.
Let me ask you, too, our committee is very focused,
obviously, on resources. As you talked about earlier,
maintaining readiness is incredibly important. We know the
challenges that we face now with COVID-19-related costs. We
want to make sure we are getting money to restoring readiness,
to modernization.
But last week a major industry partner--that is Ken
Possenriede from Lockheed, who is the CFO [chief financial
officer]--raised the idea of the benefit of a global
settlement; that is, a macro-adjustment on equitable adjustment
on costs related to COVID-19. So, instead of going contract-by-
contract to look at it and say, how do we come up with a way to
make sure that everybody is justly compensated for the costs
associated with COVID-19, it would make it much faster; make it
much less complicated, and make it much less likely that that
there are going to be protests to say, well, you did this for
this contractor, but you didn't do it for this contractor.
What processes or mechanisms are you considering to
efficiently manage the coming wave of what we know are going to
be COVID-19 adjustments to make sure that they are fair and
equitable, and to make sure there is an opportunity to make
things right? And is there an opportunity for a global
settlement of some kind?
Secretary Lord. I am going to ask Mr. Kim Herrington, who
runs Defense Pricing and Contracting, to address that because
he is spending an enormous amount of his time on 3610 and
equitable adjustment.
Mr. Herrington. Yes, sir. So, when Ms. Lord referenced that
final guidance would be coming out within a month's time
period, that is, in fact, what we are working on right now. And
as she noted about our industry engagement discussions, that
has been one of the primary topics. We gave industry an
opportunity to provide input to us. We got about 100 pages of
input. And so, that is, in fact, what we are working on right
now, is to come up with the most efficient way to resolve those
reimbursements. And you are right that global settlements would
make a lot of sense in many cases; not all, but many.
Mr. Wittman. Okay. Very good.
Thank you, Mr. Chairman. I yield back.
The Chairman. Thank you.
Mr. Norcross.
Mr. Norcross. Thank you. I appreciate it. Can you hear me?
The Chairman. We got you. It is all working quite well,
actually.
Mr. Norcross. Great.
Ms. Lord, it is great to see you again. I look forward to
when we can get together.
A number of issues jump up to us right away, but I want to
stay on the REAs, the requests for equitable adjustments. Is
that the only method that is available to contractors to look
to the government to absorb their COVID costs?
Secretary Lord. No, I think 3610 is separate and distinct
from equitable adjustments.
And again, I will ask Kim Herrington to differentiate
between the two and perhaps comment on anything else.
Mr. Herrington. Yes. So, what I would say, sir, is there is
sort of three buckets that we think about in terms of these
costs, where these would fall. The request for equitable
adjustment is codified in regulation around specific actions
that the government takes to drive. So, in cases where maybe we
issued a stop work or maybe where a facility was closed, a
government facility was closed, that would be a case for a
traditional REA.
As Ms. Lord noted, 3610 was authorized by Congress. And so,
that is sort of a separate bucket. And then, you have got
everything else from PPE cost to facility rearrangement to
social distance, and things of that nature.
Mr. Norcross. I understand. That is the point we are trying
to make. I am pressed for time.
Mr. Herrington. Right.
Mr. Norcross. It is that there is more than one area. The
REA is something that has been set up and they can do it. We
spoke with Dr. Jette during a briefing yesterday, and he had
indicated few, if any, REAs have come through. So, there is
more than one bite at the apple, and we want to make sure
because not all companies are created equal in terms of how
this affected them. But the number we were told was $4 to $6
billion. So, hearing a double-digit figure, Ms. Lord, is
something that is a bit of a surprise to us.
Let me ask you, in looking at the budget and what has been
spent this year, are we spending everything that has been given
to us or are there some savings across the entire DOD that we
might tap into before we start looking for us to give
additional monies?
Secretary Lord. Well, I think you are aware that the CMO
[Chief Management Officer], at the request of Secretary Esper,
has been working on defense-wide reviews and we have swept up,
if you will, a lot of funds that we are refocusing on
modernization. So, it is all a matter of priorities. Right now,
we don't see the flexibility except out of programs themselves,
if, again, we wanted to effect what could be delivered out of
programs to address this cost.
Mr. Norcross. We saw in the past where a reprogram has
taken place to fund the wall. So, we didn't like it then. So, I
don't think we like it any more now.
I just want to follow up on a quote that you made earlier:
we want domestic production. And certainly, we do, too. During
yesterday's briefing, we got a list of the nations that we are
working with. Would you be supportive of bringing up the
domestic content to close to 100 percent? And if you wouldn't,
why wouldn't you? And this is outside of the F-35 program.
Secretary Lord. I understand. Both for medical resources as
well as the defense industrial base, we would like to have as
much domestic production as possible. Obviously, competition is
always our friend. So, we like to have two sources of supply
wherever. But we are actively looking at reshoring a number of
critical items, for all of the reasons that we have cited
during this hearing and all of the challenges we have faced
getting critical equipment to the assembly lines.
Mr. Norcross. So, obviously, people are now understanding
at a different level why being made in America is important.
But, again, would you be supportive of bringing that rate up to
closer to a high percent, incrementally? We can't do this
overnight. But what we heard time after time is, We want
predictability. You can't change it in one year. Would you be
in favor of predictable ways of bringing up that percentage?
Secretary Lord. Absolutely.
Mr. Norcross. Thank you. I yield back.
The Chairman. Thank you.
I have Mr. DesJarlais next, recognized for 5 minutes. Is he
still with us?
[No response.]
It does not sound like it. So, the next I have is Mr.
Kelly.
Mr. Kelly. Thank you, Mr. Chairman.
And thank you, Secretary Lord, for being here. It is very
important.
I think one of the things that I want to concentrate on--
and it kind of goes to what Mr. Conaway from Texas said--is,
initially, number one, we had some stockpiles. And then, we
started production. But, within just the production, then you
also have the distribution and who is prioritizing where those
distributions go. And that priority is both by location and by
need; i.e., do nurses need it? Do grocery stores need it? Does
New York City need it? Or does Mississippi need it? Who is
responsible for coordinating, number one, the production, which
is you? But, then, the distribution and the prioritization of
where that distribution goes for PPE, for example, whether it
is masks or hand sanitizer, or those things?
Secretary Lord. That has come out of the Supply Chain Task
Force, working at the NRCC, between FEMA and HHS with strong
support from DOD, with Admiral Polowczyk leading that, and
then, reporting up through the UCG [Unified Coordination Group]
up to the White House Task Force.
Mr. Kelly. And I am a little different than everyone else.
We kind of got caught unexpectedly with all these things that
we didn't know that we would need, but I thought we did a
phenomenal job, DOD specifically, in helping with that
distribution. I can tell you in my home State of Mississippi we
had our MEMA, our Mississippi Emergency Management [Agency],
which didn't have the number of personnel nor the logistics
experience, which the Mississippi National Guard just sent a
few planners over there, which helped them with distribution
and supply points and, also, in those priorities.
What are we doing, Secretary Lord, to make sure that we
capture our lessons learned? Who is conducting an interagency
and an interdepartment AAR [after action review] and lessons
learned? So that, when we face the next pandemic or the next
big event in the United States, that we capture these lessons
learned and take them forward?
Secretary Lord. The individual agencies are, and I know the
White House Task Force is looking at that. I will tell you, in
terms of distribution of PPE and medical resources, one of the
highest priority items right now is to have a modern IT system
that we would typically have in some other industries, so that
the government can track where all of this is and, also, ensure
that they only use carriers that they can track, so they know
where everything is all of the time. That was a huge lesson
learned early on in the pandemic, as was the entire acquisition
process, because we were asking a group at HHS that typically
does only about $5 billion of acquisitions a year to look at
this huge tidal wave. And that is why DOD has come in to really
set up processes and help out in an emergency situation. But we
want to make sure we get irreversible momentum, so that we
leave behind a sustainable acquisition and distribution system
that could be utilized in the future.
Mr. Kelly. And then, the final thing that I think we need
to capture out of this, initially, hand sanitizer was a big
deal. I had a meadery that turned into immediately processing
hand sanitizer, which now is no longer needed. So, you know,
they have to look at getting back.
The same with like stockpiles of N95 masks or ventilators
or all these other things, some of those things go out with
dates. So, you have a strategic stockpile, but it has to be
rotated. But, at some point, the rotational value of
maintaining that stockpile will be less than the production
required to keep that stockpile rotated. Who is responsible for
managing that going forward into the future? Is that the
Defense Production Act? Is that you, Secretary Lord? Or who is
that?
Secretary Lord. Well, for the Strategic National Stockpile,
HHS has responsibility for that. I will tell you, at DOD we
have our Warstopper Stockpile, and we do that, I think, in a
relatively innovative way where we are paying manufacturers to
keep stock in hand, but it is rotated, so it is not aging. We
always have to have a certain amount available. But I think it
is kind of a win-win situation. We are trying to share all of
those techniques with HHS to, again, just not only reconstitute
the Strategic National Stockpile, but to modernize it.
Mr. Kelly. Very good. And I knew that was the answer. And
thank you all for what you have done in assisting other
organizations.
With that, Mr. Chairman, I yield back.
The Chairman. Thank you.
Mr. Gallego.
Mr. Gallego. Thank you, Mr. Chairman. I yield my time to
Representative Slotkin.
The Chairman. To whom? Ms. Slotkin?
A generous offer by Mr. Gallego. Ms. Slotkin, are you
available? I think you may have to unmute yourself. We cannot
hear you at the moment.
Yes, we can't hear you. I don't know why we can't hear you.
I see you are talking. I see your hands moving. But if you can
hear me--oh, it had to happen at some point.
[Laughter.]
But we do not have Ms. Slotkin. So, for now, Mr. Gallego,
if you----
Mr. Gallego. Mr. Chairman, who is next after me?
The Chairman. Mrs. Trahan is the next Democrat. Sorry. Mr.
Brindisi. Mr. Brindisi is next after you.
Mr. Gallego. I yield my time to that person.
The Chairman. Okay. That doesn't work great because he is
going to have his own time here in just a couple of minutes.
Why don't we try to figure out the technical problem with
Ms. Slotkin. I will reserve Mr. Gallego's 5 minutes, and once
we figure out the technical problem with Ms. Slotkin, I will go
back to Mr. Gallego, who can then give his time to Slotkin, and
we will call her up.
But, for now, we will give Mr. Brindisi a shot. Mr.
Brindisi, are you on the line?
[No response.]
Do you know what is funny about this? When I said things
were going so well, Rick Larsen looked at me and said, you know
you just screwed the whole thing up? And he was right.
[Laughter.]
Okay. So, we don't have Mr. Brindisi. And Ms. Slotkin is
still, for some reason, not able to communicate.
Wait a second. I hear a voice. No.
All right. I will give Mrs. Trahan a shot.
Mrs. Trahan. Thank you, Mr. Chairman.
The Chairman. All right. You are recognized for 5 minutes.
Mrs. Trahan. And thank you, Congressman.
Secretary Lord, thank you so much for coming before the
committee. I think the entire committee is grateful that DLA
stepped in and played such a major logistical role at a time
when there was no blueprint and I am sure a fair amount of
silo-busting that you had to make happen.
As I walk through the timeline between a national emergency
being declared on March 13th and, then, the White House issuing
an Executive order to compel GM [General Motors] to accept,
perform, and prioritize Federal contracts for ventilators, I am
just trying to diagnose the primary source of delay or
friction. Was it lack of authorities? Was it interagency
logistics? Was it the realization that our supply chain was
largely overseas? I am wondering if you could just speak to
that.
Secretary Lord. Are you asking in general or specifically
about GM?
Mrs. Trahan. No, just in general.
Secretary Lord. In general? I think, again, that this was a
gargantuan task that first had to be analyzed: what were the
issues; what was needed? And we had individuals at FEMA who are
very good at reacting to specific events, like a hurricane or a
forest fire. We had people at HHS who were brilliant medical
individuals and research individuals, and so forth. But there
wasn't the combination of expertise in terms of operational and
programmatic knowledge to go and procure complex systems that
perhaps had different training needs, had different parts that
had to be purchased, consumables, to keep them going. There was
not the experience with complex distribution systems, with
evolving demand signals that had to be reprioritized. So, I
think it was an issue of both scale and scope very quickly.
Mrs. Trahan. Yes.
Secretary Lord. And I believe that the Department of
Defense, by the nature of what we do, is better equipped to
deal with those very abrupt, very large, very complex dilemmas.
And it took a bit to really sort through the authorities and
how to make sure we were legally helping out on both the
acquisition and distribution side. So, there was a bit of
learning, non-recurring engineering, I would say, that had to
happen, but we have captured that now. And I believe we have
the mechanisms. So, we have learned from that and we should not
see that in the future. And we plan on leaving a very
sustainable system that can be handled, so that we don't see
this again.
Mrs. Trahan. I appreciate all of that. And in a perfect
world, I mean, if we were going to build a system to respond
with agility and speed to a pandemic, one that might be right
around the corner, should this continue to be an interagency
response? I mean, organizationally, we don't exactly get the
economies of scale through a shared services model, and you
have a pretty demanding day job. Should that rest with, you
know, HHS? Should they have a medical industrial base?
I have heard you say bringing that supply chain home is an
important priority. There is no question. There is a huge
[inaudible] to bring those manufacturing jobs homes. But would
it take some of the friction out of the system if that rested
with HHS and they had their own MLA and authorities that they
sort of had singularly?
Secretary Lord. I think that remains to be seen. We are
just now getting to somewhat of a steady state with these
systems. There is a lot of support planned through September
for HHS. FEMA is stepping back a little bit now that we are
getting into hurricane and forest fire season. And we have a
team that will remain with HHS through September. We will see
at that point whether or not that is sustainable.
And I think that we at DOD can always provide a surge
capacity, an assistance system capacity. I don't believe that,
generally, it is a good idea to duplicate capabilities at scale
around the government.
The Chairman. I am sorry, the gentlelady's time has
expired. If you had a closing thought there? Did you want to
wrap up?
Secretary Lord. Certainly. Yes. I was just going to say, I
don't think they need something right now. Hopefully, we can
leave them with a system and we could augment as needed.
The Chairman. Thank you very much.
So, just an update here. Next up, we are going to go Mrs.
Hartzler, followed by Brindisi and Bacon. We are still trying
to resolve the issue with Ms. Slotkin to try to make sure if we
can get her mic to work. And when we do, we will come back to
Mr. Gallego for the yielding of that time.
But for now, Mrs. Hartzler is recognized for 5 minutes.
Mrs. Hartzler. Thank you, Mr. Chairman.
And thank you, Secretary Lord, for the great job that you
have done in a very difficult time in our Nation to stand up
and keep our industrial base strong and to make sure Americans
have the supplies that they need.
I have a few different questions. The first one is about
section 889 of the fiscal year 2019 National Defense
Authorization Act, which prohibits Federal agencies from
contracting with companies that use any equipment, a system, or
service from certain Chinese telecommunication companies like
ZTE [Zhongxing Telecommunications Equipment] and Huawei. And I
am a very strong supporter of this provision and offered an
amendment to expand the prohibition to Chinese video
surveillance equipment from Hikvision, Hytera, and Dahua. And I
don't believe that this video surveillance equipment should be
on any of our critical Federal property as well.
But I understand that the contractors who are supposed to
remove this equipment are having some difficulty due to COVID,
and the administration has not released the rules yet for what
they need to do specifically. And the deadline is August 13th.
So, do you feel like the deadline needs to be extended for them
to be able to comply? Or do you have an update for us on when
these rules will be released and if this equipment will be
reviewed?
Secretary Lord. Absolutely. Section 889 I believe is of
critical importance. As you know, section A has been released
and complied with. Part B of that, we are 100 percent behind
the intent of that. We at DOD are a bit concerned about the 2-
year deadline, not for our own facilities quite as much as that
of the industrial base.
While what we find is, if you look all the way down the
supply chain, it is a heavy lift to find all of this equipment
everywhere. And the thought that somebody six or seven levels
down in the supply chain could have one camera in a parking
lot, and that would invalidate one of our major primes being
able to do business with us, gives us a bit of pause. So, we
are very supportive of it, but I believe we need to extend it
in terms of the time for compliance, so that we don't have
unintended consequences.
Mrs. Hartzler. Okay. Thank you. I will be working with you
guys on that to see what we can do and appreciate your support
of it. We want it to be workable, but we certainly appreciate
your support in getting that implemented.
I want to switch gears. As you know, there has been a lot
of discussion about our dependence on China for our critical
pharmaceuticals----
Secretary Lord. Absolutely.
Mrs. Hartzler [continuing]. And our medicines for our
military. And as we discussed in the April 21st hearing, my
colleague John Garamendi, who is on this call, as well as
myself introduced a bill, the Pharmaceutical Independent Long-
Term Readiness Reform Act, which seeks to take the first step
in tackling this issue by ensuring that America produces the
medicines, the vaccines, the vitamins, and the antibiotics for
our military.
Can you share with us what the Department of Defense is
doing currently with the Defense Production Act to help stand
up pharmaceuticals? Are you already taking steps to go down
this road in health? Or what do we need to do to get that back
here on our shores?
Secretary Lord. We very much are focused on that. I am
going to ask Stacy Cummings to come up and speak to some of the
specifics.
One point is, early on, we worked with lawyers, so that we
could tap into the $17 billion of the CARES Act that went to
HHS for some of this industry expansion. So, APIs, advanced
pharmaceutical ingredients, are an area that we are spending a
lot of time on now reshoring, using the industry expansion
dollars through the CARES Act. And Stacy has some of those
specifics.
Ms. Cummings. Thank you.
Yes. So, what we did when we stood up the JATF is we set up
some product leads across different functional areas. And
pharmaceuticals and APIs was one of those areas that we saw as
a direction that we needed to look into.
So, when we look at the Strategic National Stockpile, our
first focus has been partnering with HHS on PPE. Our next area
of focus is critical care medications/pharmaceuticals. And we
have, through our industrial portal, been capturing proposals
and ideas from industry, as well as from government, on where
we can make the next investment dollar to look at those most
critical pharmaceuticals and APIs and those most valuable next
investments to be able to onshore and create domestic
production.
The Chairman. Thank you. I am sorry, the gentlelady's time
has expired.
So, we are going to give Mr. Gallego another shot here. I
believe we have Ms. Slotkin queued up.
Mr. Gallego, of course, I said it would be hysterical at
this point if you declined to yield. It is your time. Mr.
Gallego, you are recognized for 5 minutes.
Mr. Gallego. Thank you, Chairman. I yield to Representative
Slotkin.
The Chairman. All right.
Ms. Slotkin. Thank you, Representative Gallego.
Sorry about that. Apologies for the hiccup.
And thank you, Under Secretary Lord, for being here, and
your whole approach to the committee during COVID has been
really commendable. I really appreciate the communication.
I feel like I have rarely seen an issue where so many
people agree that we, just after the experience of COVID,
learned in real time that certain supplies, certain issues,
certain medical supplies and pharmaceuticals, at least a
portion of them should be produced here, should be able to
surge here.
And I guess my first question is, we have talked a lot of
what you have done with the Defense Production Act, which is
great, but if you were looking around the future, what are the
two or three things that this committee could do to help
enshrine in law some things that incentivize even more
production onshore? What are the two or three things you would
recommend?
Secretary Lord. Well, obviously, money solves some
problems, but it usually has to be accompanied by policy. So, I
think if there was a preference for onshore supplies, that
would be useful, but we have to think about the cost of doing
business with this. So, providing the money to reshore, set up
factories, and so forth, is one step. But I believe we need to
recognize that a lot of business went offshore because of a lot
of bureaucratic hurdles and cost.
One of those is tax incentives. So, this committee might
think about what tax incentives could be provided in order to
make it more attractive to produce here domestically. And those
taxes could take a lot of different forms in different
portions, whether it be real estate or workforce or training,
or whatever it might be, different relief.
Ms. Slotkin. Thank you for that.
I think we have a lot of folks who feel very strongly about
this issue. So, we would love to work with you, even if there
are small issues that we can do through the NDAA.
The other question I have is looking forward. You know, we
learned through this process that there are a lot of things we
don't have on the shelves that we needed. And my question is,
going forward, how will you manage requirements? Who is going
to keep the list of stuff that we want to have in supply? Who
is going to refresh that list? What does your requirements list
look like and who owns that list?
Secretary Lord. From a DOD perspective we are saying?
Ms. Slotkin. Yes. Yes, ma'am.
Secretary Lord. Yes. So, what we realized was there were
critical items that we never thought about before, most of this
PPE, for instance. So, Acquisition and Sustainment has
partnered very, very closely with the Joint Staff. The Joint
Staff typically develops requirements, and then we work on the
acquisition and distribution portion of this.
There has been quite a robust discussion within DOD about
this. We have a DOD task force that is chaired by the Deputy
Secretary of Defense Norquist as well as the Vice Chairman,
Joint Chiefs of Staff, General Hyten. And we, many of us, meet
with them three times a week or so, and these are the very
items that we are grappling with.
We have been working on a demand signal for PPE, all kinds
of medical resources, on an ongoing basis, first, looking at
medical facility requirements, which was the first demand
signal, and then, for the Nation to get back to work. Then, for
a Strategic Stockpile, and then, what is the ongoing need,
especially if we have another spike here sometime this fall?
So, that is a work in progress, but I will tell you
enormous progress has been made. The Joint Staff is the group
within the Department of Defense who owns requirements.
Ms. Slotkin. We are looking at some possible NDAA language
that we would love to work with you on, just to maintain after
this COVID experience is over, first wave and second wave, just
making sure we have a more regular process to update those
requirements and refresh those requirements.
I don't want to go over time since I am already on borrowed
time. But thanks very much for being here, and thanks to
Representative Gallego.
Mr. Cisneros [presiding]. The lady yields back.
The chairman had to step out.
So, Representative Bacon is recognized for 5 minutes.
Mr. Bacon. Thank you very much, Secretary Lord. I
appreciate you being here today. You do a great job here, just
as you do all the other times you have come in. So, I really
appreciate you.
I want to talk to you a little bit about what we did in the
fiscal year 2019 NDAA concerning the supply chain with the
involvement of certain Chinese companies like ZTE and Huawei.
We put some restrictions in there, and the administration is
supposed to get back to us and report.
Are you concerned about the Department's ability to
implement subsection 889 on the current timeline, especially
with the COVID crisis? And what do you recommend? The reason I
ask that, with less than 2 months to implement, the
administration has not yet released additional guidance. And
so, I am just curious about where we are at with that. Are we
able to comply with the supply chain restrictions in regards to
Huawei and ZTE?
Thank you.
Secretary Lord. So, very, very supportive of section 889.
Obviously, we have implemented Part A. Part B, I am 100 percent
behind the intent. I am very concerned about being able to
implement it in August, as well as totally comply within 2
years. I think the majority of it can be done, but we have very
complex supply chains, and we are just now getting better at
illuminating the third, fourth, fifth, sixth levels. And I am
concerned that we might have some unintended consequences with
shutting down major portions of our defense industrial base
because of one infraction of a Hikvision camera in a parking
lot somewhere at a level 4 supplier.
So, we, again, are very, very supportive of the intent. I
am concerned about unintended consequences. I believe we need
more time.
Mr. Bacon. Okay. I appreciate that. I think that is an
outstanding answer. That is my question. I yield back. But I
appreciate your insight on that. Thank you.
The Chairman [presiding]. Thank you.
Mr. Cisneros.
Mr. Cisneros. Thank you, Mr. Chairman.
And, Secretary Lord, thank you for being here, you and your
staff.
I led on a bipartisan letter, along with my colleague
Congressman Bacon on this committee, addressed to Secretary
Esper and Secretary Azar, about support for small businesses
that have stepped up to manufacture critical supplies in this
time of need. We have small business owners in our district
that are concerned about the future viability of producing such
critical supplies without certainty. I appreciate what the
Department is doing to support the defense industrial base writ
large, but what is the Department doing, including in support
to HHS, to support small businesses?
Now we have small businesses that have switched their
production to start making PPE, and they are kind of worried
about the uncertainty. They don't know how much material that
they need to buy because they are not sure how long this is
going to continue. So, how do we give them that certainty?
Secretary Lord. Understood. In fact, we have had many, many
VTCs [video teleconferences] with small business. And last week
we had Secretary Esper do a VTC with many small business
associations.
What we are doing just now is getting ready to have a
series of industry days in the next 30 days outlining many of
our requirements for the Strategic National Stockpile. During
those industry days, we will lay out what the demand signal
looks like. That should provide certainty. We did not have this
coalesced in order to have a large demand signal all at once
previously, but I think that is one of the keys.
Secondly, we have portals where they can go. They can
always call our industrial policy team at A&S. We have gone to
great lengths--and we will provide your office with this--to
provide what we call a placement with all kinds of links into
the Department. Small business is where most of our innovation
in this country comes from. Obviously, liquidity is critical to
them at this point in time. And we want to be there to support
them. We would like to have as much small business involvement
as possible.
So, I think in these industry days--and again, we can
provide your office with information--they will get a lot more
detail about opportunities coming up in the very near term that
will be very significant in terms of volume and duration.
[The information referred to can be found in the Appendix
on page 71.]
Mr. Cisneros. All right. Well, thank you for that.
So, as we move forward and we look at lessons learned, what
other items are we looking at that DOD procures that primarily
depend on overseas procurement? Are we creating a list? And
like, hey, we depend a lot on overseas procurement for this;
maybe we need to kind of start thinking about manufacturing
some of these items in CONUS [continental United States].
Secretary Lord. Absolutely.
Mr. Cisneros. Have you taken a look at that?
Secretary Lord. Absolutely. We started with the 13806
defense industrial base report that, again, highlighted
fragility, and we are working down that list. I will tell you
two things that I am particularly concerned about.
One is processing of rare earth minerals that affects us in
so many different ways. We need to have a domestic capability
for that. That is on one end.
The other area that I am extremely concerned about that we
are working to come up with a variety of I think innovative
solutions is the whole microelectronics supply base. This is an
area where we have a lot of foreign dependency, and I think we
have the entire supply chain thinking differently over the last
year, and especially over the last 3 months. And I think they
are willing to be far more creative in terms of looking at
public-private partnerships and a number of other things.
So, many items that we have prioritized. We can share the
list with you. But I will say, top of mind right now are rare
earth mineral processing and the entire microelectronics supply
chain, including foundries.
Mr. Cisneros. And as we move to some in-CONUS production,
whether it be for swabs, PPE, face masks, face covers, as we
started to do that, how do we ensure this industrial base
doesn't go away? I mean, there are going to be times where it
is going to be, just like it has happened before, you know, it
is cheaper to make it overseas; why don't we just buy it from
there? But how are we going to ensure that production
continues, so in this time of need we can make sure that we
have the capability to ramp up and make those productions in
CONUS when we need them?
Secretary Lord. First of all, I think we have to have a
business environment that encourages business domestically. I
mentioned taxes a while ago. I also talked about, when we were
addressing vaccines, what we have for FDA procedures, and so
forth. We need to be safe. We need to manage risk. But we need
to be efficient and effective. And I think, frankly, we have
lost a lot of business because we have become too bureaucratic,
too expensive to do business here.
Getting back to the point of how do we not let these lines
go dry, we are being very careful to make sure that we are
spreading our industry expansion dollars many places, so that
we are not overbuilding capacity in one particular area.
The Chairman. Thank you.
Secretary Lord. And at this point, I don't think we are
close to that.
Mr. Cisneros. Thank you.
The Chairman. I have Ms. Cheney next. I know she was here
in person. I don't know if she is now remote or she is not
here. Okay.
Then, Mr. Gallagher is the next Republican on the list. Mr.
Gallagher, are you still with us?
[No response.]
Ms. Stefanik.
[No response.]
That is the last Republican member that I had on the list.
So, I will go to Mr. Crow. If there are Republican members, if
you could let staff know, we will get you re-added to the list.
Mr. Crow is recognized for 5 minutes.
Mr. Crow. Thank you, Mr. Chairman.
Thank you, Secretary Lord, for coming in and for the hard
work that you and your team have put in under very
significantly challenging circumstances.
I wanted to just pull on the thread a little bit more of
this issue of our ability or the challenges in aggregating
demand signals. So, to start that, can you just describe for
me, how do you define a demand signal? Is that just how much
PPE that we need in any given week?
Secretary Lord. Correct. And so, you need to segment who is
generating the demand. So, obviously, at the beginning of the
pandemic, the focus was on healthcare facilities, and then we
shifted to nursing homes, and so forth. So, there is all of the
medical care, critical care, long-term care is one segment of
the demand signal.
Then, obviously, we have forces from a DOD perspective that
we look at. But, then, we look at the rest of the Nation. And
if we are going to comply with CDC [Centers for Disease Control
and Prevention] guidelines and get the Nation back to work,
that is going to require a certain amount of PPE. So, we are
working----
Mr. Crow. If I could just interject for a moment here. Do
those signals come from States, municipalities, private
industry, other government agencies? Is that all of the kind of
places where those signals come from?
Secretary Lord. Correct. Correct.
Mr. Crow. Okay.
Secretary Lord. And, in fact, HHS and FEMA have retained
some outside organizations as well, subject matter experts. And
again, there is a diversity of thought on this. So, one has to
rationalize it.
Mr. Crow. So, if they are coming from all these different
locations, something that you said earlier kind of stuck out to
me. You said that we are having a really hard time still
aggregating that demand signal, and that you saw a present need
to create a centralized location to assess all of those signals
and to figure out what the need is, which obviously begs the
question for me, if we don't have that centralized location and
ability to sort through all of that, how do we even, sitting
here today, have our arms around or know what it is we need?
Secretary Lord. What I was trying to convey is that is
happening now with HHS and FEMA with the Supply Chain Task
Force. So, that is one of the critical tasks, if you will, that
Admiral Polowczyk is undertaking and reporting back to the
White House Task Force.
Mr. Crow. So, this task force, in your estimation, is it
successfully aggregating those demand signals, to the extent
that, sitting here right now, the U.S. Government knows what is
needed and where it is needed?
Secretary Lord. I believe they do, and that has been a
process, not an event. It has resulted, the information has
come from many places. There has been a large level of
interaction with a lot of State governments. There also has
been a lot of work with distributors of medical equipment, for
instance, to understand what their total demand signal was
prior to the pandemic. And it has come from teams, independent
teams, looking at it.
Mr. Crow. And in your estimation, HHS, FEMA, the Supply
Chain Task Force, is that the appropriate place, given your
very important role and DOD's really important role in managing
the defense supply chain? Is it appropriately located within
HHS and FEMA?
Secretary Lord. I think it is because it has been augmented
with many people from DOD. And we in A&S talk very frequently--
we have people embedded over at the NRCC , where most of this
has been happening. For instance, I talk probably three times a
week with Admiral Polowczyk. Stacy Cummings goes to meetings
several times a week. So, this is sorted through, so that we
have what I would call a cadence of communications.
Now this was not the case on March 15th. But, since about
April 15th, we have started to work into this rhythm. So, it
has been a process, not an event, to aggregate this demand
signal. But because we believe we understand it at this point,
to the degree you can, that is why we can move forward and
modernize the Strategic National Stockpile and know what to----
Mr. Crow. And do you believe that you need any additional
authorities or are you confident that you have both the
authorities and an adequate kind of operational picture of the
need at this point?
Secretary Lord. At this point, I believe we do. What we
want to make sure that we continue to test is that we have the
authorities to work between agencies very quickly using the
Economy Act to move money around. So, we can go and use the
expertise where it is and bring it back to the point of need.
Mr. Crow. Thank you, Secretary Lord.
I yield back, Chairman.
The Chairman. Thank you.
Ms. Torres Small, you are recognized for 5 minutes.
Ms. Torres Small. Thank you, Mr. Chair and Ranking Member.
Thank you, Under Secretary Lord. I appreciate the chance to
touch base with you today. I want to follow up----
The Chairman. I don't know that your microphone is on
there. The button isn't on.
Ms. Torres Small. There we go.
The Chairman. There we go.
Ms. Torres Small. I wanted to follow up on the conversation
that you were having with Congresswoman Davis about vaccine
production and distribution. So, I understand the vaccine
development is being addressed by Operation Warp Speed.
However, I have some real concerns that, if we wait until the
vaccine is developed before we start thinking about the
mechanisms to produce and distribute it, we will lose precious
time.
Secretary Lord. No, that is not the case. That is not the
case.
Ms. Torres Small. And so, I am just about to ask----
Secretary Lord. It all works in parallel.
Ms. Torres Small. Wonderful. I am so pleased to hear that
you are working in parallel. I recognize your comment about the
need to have a plan to increase the speed of distribution. So,
can you tell me what the timeline is for that plan?
Secretary Lord. That is being worked in Operation Warp
Speed right now, and General Perna is probably better to answer
that. But I will tell you there has been an enormous amount of
work done up to this time. What is being rationalized right now
is where the vaccine goes first. And once the prioritized list
of who receives it is determined, then that determines where it
will go, and then the details can be worked out.
Ms. Torres Small. Okay. So, to fully understand that,
Operation Warp Speed is not only managing the development of
the vaccine, but also where it will be delivered. Who is
managing the plan for what needs to be manufactured in an
effort to distribute the vaccine as quickly as possible?
Secretary Lord. So, it is a combination of Dr. Slaoui and
General Perna. They are leading it. And what is happening is a
series of vaccine companies are being funded to manufacture,
and then, do the finish and fill. And then, they are looking at
the distribution as well.
Ms. Torres Small. So, I want to make sure I fully
understand that. They are working with individual companies for
the manufacturing of the specific things that will be needed
for the distribution? So, I am not thinking just the vaccine,
but the vials and the needles and the swabs.
Secretary Lord. Correct. Correct. Correct.
Ms. Torres Small. Okay. And so, is DOD, through the Defense
Production Act, already starting to identify how to make sure
that there aren't those same hiccups in the supply chain that
we have seen in testing, for example?
Secretary Lord. Absolutely. However, what we have done is
we have moved away from the Defense Production Act for the
health resources because we have found a way to tap into a
larger pool of money that HHS has through the CARES Act to do
the exact same investment in industry to get that increased
capacity and throughput. So, yes, that is being worked. That is
primarily within Warp Speed right now, working with the Joint
PEO [Program Executive Office] under the Army, and they
leverage the Joint Acquisition Task Force as well. So, yes,
there is a large DOD portion of that.
Ms. Torres Small. Okay. And can you explain just a little
bit more what the value is of going through the CARES Act
process as opposed to the Defense Production Act?
Secretary Lord. Absolutely. Right now, we had $1 billion
appropriated through DPA Title III in the CARES Act. We used
about $200 million of that for HHS-type things, if you will.
And then, we were able to work with HHS lawyers and DOD lawyers
and come up with a mechanism to use the Economy Act to tap into
$17 billion that HHS has. So, it expands the pool and allows us
to use even more money while taking the balance of the billion
dollars that came through for DPA Title III and use a portion
of that for the defense industrial base.
Ms. Torres Small. I appreciate your comments there and I am
pleased to hear that you are working with Operation Warp Speed
to utilize that.
Secretary Lord. Yes.
Ms. Torres Small. And can you explain a little bit more
about your role? In conjunction, as you mentioned, you are
working with them?
Secretary Lord. They look back to us for acquisition
assistance as needed. But what we did was really bifurcate all
of our effort about 3 or 4 weeks ago, from what we were doing
in terms of just the Supply Chain Task Force, into one effort
looking at the Strategic National Stockpile and another effort
being Operation Warp Speed, which is the vaccines,
therapeutics, and diagnostics. So, some of the people that were
working in JATF on everything went over and were dedicated to
Warp Speed.
That being said, General Perna and I have regular
conversations. Stacy's team and the JATF supports them. So, it
is a very fluid organization in terms of, if there is a need,
we will support that instantaneously.
Ms. Torres Small. My time has expired.
The Chairman. Thank you.
Next up, we have Mr. Brindisi.
Mr. Brindisi. Thank you, Chairman.
And thank you to our witnesses for being here. I appreciate
the Department's assistance in helping our communities respond
to this pandemic.
However, this unprecedented coronavirus pandemic has made
it clear that our country's supply chains for critical supplies
and materials have vulnerabilities that must be addressed, and
we have a lot of work to do to make sure our domestic
industrial base is more prepared for situations that might
happen in the future.
Secretary Lord, I wanted to ask you about domestic non-
availability waivers. As you know, under the Buy America Act
and the Berry Amendment, the law requires for agencies to buy
certain products domestically, and when domestic items are not
available at a reasonable cost or quantity, the Department can
waive these requirements with the domestic non-availability
waivers. Under Secretary Lord, could you briefly describe how
frequently the Department of Defense uses domestic non-
availability waivers for requirements mandated by the Buy
America Act or the Berry Amendment?
Secretary Lord. I will have to take that for the record and
give you actual details on that.
I will tell you, during this pandemic, one of the biggest
challenges we have had in terms of domestic production are
textiles. And we have worked on a little bit of policy that
allows us, if we cannot produce domestically, to prioritize
partial domestic production of it. But we are working with
several industry associations to make sure that we ramp up
domestic production to the greatest degree possible. We were
working early on with Puerto Rico because they had many local
shutdowns and they were critical to us for textile production
and, in fact, converted over some items. But this is an area of
focus for us, and I will get back to you with the numbers.
[The information referred to can be found in the Appendix
on page 71.]
Mr. Brindisi. Okay. So, you can get back to us as to how
many waivers are typically granted in a year. You could provide
that information for maybe the last few years?
Secretary Lord. Yes.
Mr. Brindisi. Okay. All right. And I want to follow up. I
appreciate you talking about the concerns regarding rare earth
materials and microelectronics. The COVID-19 pandemic has
raised many supply chain issues and questions for the future.
And I am also particularly concerned about the lack of domestic
production of rare earth elements, including indium, germanium,
and tin. As you know, the United States was once self-reliant
in domestically produced rare earth elements, but over the past
20 years has become 100 percent reliant on imports, primarily
from China. There are important defense and non-defense
applications for rare earth elements, including fighter jet
engines, guided missile systems, space-based satellites,
communication systems, and touch screens.
I appreciate you mentioning that this is a concern. I am
working on some language for the NDAA regarding this. But can
you go into more detail? Do you have a plan to decrease DOD's
reliance on China for things like rare earth elements or
microelectronics?
Secretary Lord. Absolutely. From the rare earths, the issue
is not so much getting them out of the ground or where they
are; it is the processing of them. So, we are looking at a
variety of options to do this domestically. We are also talking
with some of our close partners and allies about having backups
of that as well.
So, this is an area that we are focused on relative to
perhaps the reshoring, using the Development Finance
Corporation. I just had a meeting on that earlier this week.
But we have been looking at this for about 2 years. We have a
number of ideas.
From the microelectronics point of view, I am very
concerned at the lack of domestic foundries. We in DOD only use
about 1 to 2 percent of the entire production there. However,
having trusted parts is very important to us, and I believe we
have the ability to relook at how we work all the way up
through the different levels of the supply chain to have more
onshore capability. Until we can really identify the technology
for zero trust in microelectronics, we need to have some
trusted sources. And we actually have quite a bit of activity
going on right now to come up with a number of scenarios that
we will be bringing forward in the next couple of months of how
to do that.
Mr. Brindisi. I will stop there, but I would like to follow
up with you offline on the trusted foundry issue. We have some
interesting things happening here in New York State and some
new semiconductor facilities that are going up. And I would
love to follow up with you more on that.
Secretary Lord. Absolutely.
The Chairman. Thank you.
I had Mr. Brown. I am not sure if he is still on the call.
Mr. Brown, are you there?
[No response.]
I take that as a no.
Mr. Garamendi.
Mr. Garamendi. Thank you, Mr. Chairman.
Secretary Lord, thank you very much and for your team.
Stacy, a terrific job on the briefing a few days back and,
obviously, again today. So, compliments to you as well as to
your team.
Secretary Lord. Thank you.
Mr. Garamendi. Beyond that, the issue of the
pharmaceuticals has been raised by several of my colleagues. We
continue to pursue that along the way.
Also, I want to just ask the question: the $750 million of
the billion dollars that was allocated was originally going to
be for medical issues. It has now been transferred over to the
International Development Finance Corporation to respond to the
COVID-19 outbreak. What is that? Apparently, it was established
in December of 2019. They got three-quarters of a billion
dollars to do something. Is that your responsibility or is that
somewhere else?
Secretary Lord. A couple of different things.
Mr. Garamendi. And do you know what they are doing?
Secretary Lord. I believe I can explain this. We, through
the CARES Act, received a billion dollars for DPA Title III. We
began executing on that for medical industry expansion. What we
found was we had a number of defense industrial base critical
needs as well and worked with our legal teams to find a way to
be able to have DOD execute industry expansion for medical
resources utilizing the HHS $17 billion appropriation from the
CARES Act. So, we switched over to start using the other pool
of money to continue to fund industrial expansion of medical
resources, which we continue to do today.
We also, then, started working on defense industrial base
industry expansion using DPA Title III. There, then, was an
Executive order about 3 weeks ago that enabled the Development
Finance Corporation, which typically does international
investment for the benefit of our national security, to broaden
what they do and use their infrastructure to actually do loans
to reshore critical capability for the U.S. as a result of
COVID.
So, what we are doing is taking up to $100 million to
provide collateral for the Development Finance Corporation, or
DFC, to reshore either health resource types of companies or
other national security critical companies. However, that is
not being done in isolation. I meet with Adam Boehler, the CEO
of DFC, once a week. We sit down and talk about our priorities
that we have generated along with HHS and FEMA, as well as our
Industrial Base Council priorities. And we are generating a
demand signal to DFC to allow them to use their back office, so
to speak, to look at potential loans to reshore capability to
the U.S. to create jobs and a supply chain here. The DPA Title
III money is collateral only that is being used for that.
Mr. Garamendi. Okay. Well, thank you for that explanation,
most of which is not understandable because I don't, and
perhaps none of us, really understand who those organizations
are. We are talking about a vast amount of money that is flying
back and forth around here, all for the good purpose of
reshoring.
I suspect the Auditor General is going to be very, very
busy trying to keep track of all of this. And certainly we need
to know where all of this money is going and whether it is
going to a successful outcome or not.
I don't want you to stop attempting to reshore, but it is
imperative that we have documentation of where the money is
going and for what purpose and for what success, if any. So,
please keep that in mind, and as you develop that information,
please forward it on to our committees.
And with that, I yield back.
The Chairman. Thank you.
Secretary Lord. Absolutely. I commit to doing that. I am
more than happy to come with Adam Boehler and talk about DFC
specifically, if needed.
The Chairman. Thank you.
Mr. Garamendi. Thank you.
The Chairman. All right. Now I am not sure who is still
here. So, I am just going through the list. If you are not
here, you don't have to speak up.
Mr. Keating I have next.
[No response.]
He is not here.
Mr. Vela.
[No response.]
Ms. Sherrill.
[No response.]
Mrs. Luria.
Mrs. Luria. Hi. This is Elaine Luria.
The Chairman. You are recognized for 5 minutes.
Mrs. Luria. Well, thank you, Mr. Chairman.
Thank you, Ms. Lord, for being here again to talk to us
today and for your updates.
I had an issue that was brought to my attention by several
small businesses here in our community. A lot of them support
the Department of Defense. And they brought to my attention
that, in November of last year, the DLA moved away from the
practice of accelerated payments to small business suppliers
and they went from a net 15 to a net 30, and cited shortages in
the working capital fund. Under the best of circumstances,
these small businesses work on a continuous cash flow. Having
payments tied up for an additional 2 weeks is putting an
additional strain on them, and especially during the financial
burden that they are experiencing during the COVID crisis, this
has been exacerbated even more.
So, my question is, basically, is the Department taking any
steps to return to the accelerated timeline payments of net 15
for small businesses?
Secretary Lord. Yes. In fact, although we did move from net
15 to net 30, we are closer usually to the 15 than the 30.
However, when we submit our request for the next tranche of
funding, if there is tranche 4 here, we have included in that
funding to move back to net 15. And that is a need to have a
working capital fund funding.
Mrs. Luria. Okay. Thank you. And that was going to be my
question: what additionally did you need from Congress to move
back to the net 15?
My second question is relative to the CARES Act, and
specifically, section 3610, which provides much-needed relief
to the national security contractor workforce. But it is set to
expire on September 30th. And I am skeptical that our national
security facilities will be back to their full pre-COVID level
by September 30th. And I was curious, could you quantify how
you foresee this back in readiness as of October 1st when this
runs out, and if we allow that to expire?
Secretary Lord. We are monitoring to see the health of the
defense industrial base. In fact, I get numbers every day
through DCMA and DLA. So, for instance, we follow 20,000
companies. To date, due to COVID, we have had 960 cumulative
closures. We have had 859 cumulative reopenings. So, that
leaves us with about 101 companies currently closed. And that's
about 57 average days closed. So, that would be part of what
3610 would look at, is the impact to the employees, and so
forth, as a result of that.
We also, as you know, have issues around sickness and not
being able to get into facilities, the government facilities,
and so forth. We are writing guidance right now to have claims
submitted against that. Although we do have the authorization
for 3610, we do not have an appropriation for 3610. So, one of
the items that we will be submitting in our tranche 4 are funds
to help us reimburse the defense industrial base.
We continue to monitor on a daily basis to see about the
health of the companies. We are optimistic that we see a trend
improving in terms of efficiency and ability to operate.
Obviously, we have to continue to use all the CDC-recommended
practices, and we hope we can mitigate any impact due to a
second spike of COVID, if we do see that in the fall.
Mrs. Luria. Well, thank you, and thanks for quantifying
your base on the metrics of the number of companies impacted. I
guess, just any specific areas, weapon systems, impacted
operationally that come from the specific key companies that
may be sole-source suppliers of any material that is necessary
that rises to your level of being a high concern?
Secretary Lord. Two answers to the question. One, there are
three basic areas that have had the most significant impacts.
One of them is aviation, particularly aviation propulsion, and
that in large part, as you well know, is due to the implosion
of the commercial aviation industry. Secondly, we have seen
shipyard impacts for a variety of reasons, although that is
coming back pretty well right now. And thirdly, we have seen
satellite launch impact, again, because of the commercial
dependence there.
Now we also have seen some critical companies that really
were not on our radar screens, so to speak, previously that had
a couple of cases, and in one case particularly, a fatality.
And there was a very significant impact in shutting down that
facility.
The Chairman. I apologize, Madam Secretary. The
gentlelady's time has expired. We have other people to get to.
So, we will have to move on.
Mrs. Luria. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
I know Ms. Houlahan is on the line. Ms. Houlahan, you are
up now.
Ms. Houlahan. Thank you, Chairman.
And thank you so much for coming today. I want to echo my
colleagues' appreciation for your participation in today's
hearing.
The Chairman. I think we lost you there.
Ms. Houlahan. I also want to thank you for your--can you
hear me?
The Chairman. We can. You are breaking up a little.
Ms. Houlahan. Can you hear me?
The Chairman. Yes, we got you. You are breaking up a little
bit, but I think we have got you clear.
Ms. Houlahan. All right.
The Chairman. Go ahead.
Ms. Houlahan. I want to thank you for speaking on rare
earth elements [inaudible] NDAA with you all and the briefing
that you had in Puerto Rico, which has a heritage and history
of textile manufacturing, as you mentioned, of pharmaceutical
manufacturing. To what degree can you talk about the ability
that we might have to be able to incentivize bringing or
reshoring manufacturing and production of PPE and
pharmaceuticals back to Puerto Rico, if you wouldn't mind
talking about that?
Secretary Lord. We have an effort to reshore both PPE as
well as pharmaceuticals, and it comes down to the capability of
the companies in Puerto Rico or anywhere else in the U.S. So,
if there is an interest in doing some of that, as we have
already seen from some companies in Puerto Rico relative to
making some N95 masks, for instance, they can reach out to our
portal. I will make sure that your office gets all of the
information. And we are looking at all kinds of proposals. So,
we are very interested in speaking with any company anywhere in
the U.S. that has an interest and a capability in
participating.
[The information referred to can be found in the Appendix
on page 72.]
Ms. Houlahan. We also talk about how to utilize those
dollars. How can we maybe, in the case of an island like Puerto
Rico that has been under such duress for so many years at this
point in time and it is such an obvious solution for our
reshoring needs, how can we be more aggressive in our outreach
to that island?
Secretary Lord. What I would suggest is, number one, that
the individuals, the companies on that island that want to
participate, reach out to industry organizations. One of the
most effective ways that we deal with industry is through
industry associations because it allows the member company's
needs to sort of be echoed and amplified, and it is easier for
us to respond to a common reachout from an industry
association. So, I would really encourage Puerto Rican
companies to think about what they have for facilities,
equipment, people in terms of skill sets, and reach out to
industry associations to understand everything we have
available. And we want to hear from them. Likewise, I will make
sure your office has all the information on how to reach out to
portals that DOD has.
[The information referred to can be found in the Appendix
on page 72.]
Ms. Houlahan. Thanks. And I just want to [inaudible]
companies, but a lot of mainland [inaudible] and domestic
manufacturers of [inaudible] work with factories on
[inaudible].
With the remaining minute of my time, I want to go back to
something that Representative Crow talked briefly about, which
is, you know, is there one central place where we can look
around and find all of our supplies----
Secretary Lord. I am sorry, I couldn't----
The Chairman. I think she was asking if there is one
central place we can look to find supplies.
But I am sorry, Chrissy, you are breaking up.
Ms. Houlahan. Sure. I apologize. I am asking whether there
is an information [inaudible] of the IT systems to be able to
monitor and track all of the supplies that we are talking
about, a modern IT system such as Amazon would have.
The Chairman. Distribution.
Secretary Lord. Yes. So, a couple of different things. One,
we have a modern system to sell through DLA. In terms of
distribution of PPE, and so forth, there is a modern system
that is being put in by HHS and FEMA for distribution of same.
Ms. Houlahan. Thank you. I look forward to learning more
about that. And I yield back the balance of my time. Thank you,
sir.
The Chairman. Thank you.
I believe that is all the people that we had who had
questions. My staff can let me know if that is not, in fact,
the case.
I did just have one follow-up to where I started. I know we
talked about you are going to get to being able to potentially
produce almost a billion masks a year by January, and I think I
forget the number--where are we at right now in terms of the
number of masks that we are producing each month? You may have
answered that and I may have missed it.
Secretary Lord. I don't have that specific, but Stacy may
well.
Ms. Cummings. We are going to have to take that for the
record to give you specifics. We have them, but I can't give
them to you right now.
[The information referred to can be found in the Appendix
on page 71.]
The Chairman. Yes. Because, as Mr. Conaway was pointing
out, we don't know if we are going to need a billion a year,
come January. I think we have our need right now. So, how that
ramp looks would be helpful. It is good to know that by
January, we are going to be there. Where are we going to be in
September, for instance?
Ms. Cummings. And I can absolutely provide that to you.
The Chairman. Okay.
Ms. Cummings. The one thing I do want to point out is that
one of Ms. Lord's comments about how the demand signal is
complicated is that there is a medical demand signal, and then,
there is a non-medical demand signal.
The Chairman. Absolutely.
Ms. Cummings. And so, I feel very confident that the
investments that we have made across the Federal Government in
masks is well worth it and will be used domestically. And I
think it is a matter of understanding how they are used now and
in the future and when they are used for medical purposes and
non-medical purposes.
The Chairman. Yes, and that is a very good point. There has
been a lot of sort of back and forth about the utility of masks
and what type are necessary. But in close working
environments--we are not in a close working environment here,
we have distance--but if you are in with a group of people in
meatpacking plants and other places, I mean, you can wear one
of these masks, but they are not as useful as an N95 mask. So,
even if we have got the healthcare professionals covered, if
you don't have an N95 mask, you do the best you can in a
meatpacking plant or in a manufacturing place where you are
close to each other. But if they are available, I think there
is going to be a pretty big demand signal for those for some
time to come.
Other than to say thank you--you have been here for almost
2\1/2\ hours now, and I appreciate that.
And also, to thank the staff. What you see here was not
easily put together. We show up and participate, but the
technology that had to be wired in, the room that had to be
found, all the decisions that were made, the HASC [House Armed
Services Committee] staff set all of this up. And this is also
very helpful practice for us for when we come in here and try
to mark up our bill. So, staff did incredible work on this, and
I want to publicly thank them for that work.
With that, I will yield to Mr. Thornberry for any closing
remarks he might have.
Mr. Thornberry. Mr. Chairman, I would just echo those
comments and, again, thank Under Secretary Lord for being here.
The Chairman. Thank you, and with that, we are adjourned.
[Whereupon, at 4:22 p.m., the committee was adjourned.]
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A P P E N D I X
June 10, 2020
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
June 10, 2020
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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DOCUMENTS SUBMITTED FOR THE RECORD
June 10, 2020
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
June 10, 2020
=======================================================================
RESPONSE TO QUESTIONS SUBMITTED BY MR. SMITH
Secretary Lord. For N95 respirators, we understand current demand
to be 170M/month, based on the demand data available to the
government. Current domestic capacity is approximately 80M masks/
month. DOD has invested nearly $295M to increase domestic production of
N95 masks, with the largest 5 domestic producers on track to yield
increases to meet the 170M masks/month by Jan 2021. [See pages 8,
41.]
______
RESPONSE TO QUESTION SUBMITTED BY MRS. DAVIS
Secretary Lord. No, I did not. [See page 12.]
______
RESPONSE TO QUESTION SUBMITTED BY MR. CISNEROS
Secretary Lord. DOD understands the challenges small businesses
face with uncertainty in production and procurement, and we are
leveraging that experience in our support to HHS. On July 14-15, the
JATF hosted a Domestic PPE Information Day focused on engaging
businesses who want to provide PPE to the interagency effort and to
industry. The two-day virtual event provided an overview of the
interagency work in replenishing the Strategic National Stockpile and
included presenters from HHS, the Veterans Administration, and the
White House Supply Chain Advisory Group, in addition to the JATF, the
Defense Logistics Agency, the Joint Staff, and the Office of Industrial
Policy. As the government is only a small portion of the overall demand
for PPE, the event also included presenters from the National
Association of Manufactures and the Healthcare Industry Distributors
Association--respectively representing non-medical and medical
industry--to explain their demand projections for PPE. We are
continuing to work with industry to determine what type of incentives
or policies the government can create to drive industry to maintain
sustained purchasing of domestically produced PPE, so the companies you
reference can appropriately plan for and rely on that business. We are
happy to provide a summary of our findings back to the Congress in the
coming months. OSD Industrial Policy hosts a weekly call with industry
associations which provides an opportunity for industry and DOD to
openly exchange information in a non-attributional environment. This
forum has been key to sharing information with small business on policy
changes and outreach events as well as DOD receiving input on
challenges. In the early spring the JATF stood up an online portal
which provided information to industry on how to do business with the
government and where to find COVID-19 business opportunities. The
portal provided access to resources and a mechanism for industry to
provide DOD their ideas for COVID response. [See page 31.]
______
RESPONSE TO QUESTION SUBMITTED BY MR. BRINDISI
Secretary Lord. Under the Buy American Act, a determination that an
article, material, or supply is not reasonably available is required
when domestic offers are insufficient to meet the requirement and a
contract award is to be made on other than a qualifying country or
eligible end product. For the Department of Defense (DOD), these
determinations are made at a level above the contracting officer for
acquisitions valued at or below $250K; by the chief of the contracting
office for acquisitions with a value greater than $250K, but less than
$1.5 million; or by the head of the contracting activity or immediate
deputy for acquisitions valued at $1.5 million or more. The number of
non-availability determinations for the Buy American Act covering the
last three fiscal years are: Fiscal Year 2019--2,717; Fiscal Year
2018--2,714; and Fiscal Year 2017--2,081 Under the Berry Amendment, if
the Secretary concerned determines that items grown, reprocessed,
reused, or produced in the United States cannot be acquired as and when
needed in a satisfactory quality and sufficient quantity at U.S. market
prices, the following officials are authorized, without power of re-
delegation, to make such a domestic non-availability determination: The
Under Secretary of Defense (Acquisition and Sustainment); The Secretary
of the Army; The Secretary of the Navy; The Secretary of the Air Force;
or, The Director of the Defense Logistics Agency. The supporting
documentation for the determination must include an analysis of
alternatives that would not require a domestic non-availability
determination and a written certification by the requiring activity,
with specificity, why such alternatives are unacceptable. The number of
domestic non-availability determinations for the Berry Amendment
covering Fiscal Year 2020 (as of July 6, 2020) and the last three
fiscal years prior are: Fiscal Year 2020--8; Fiscal Year 2019--3;
Fiscal Year 2018--9; and Fiscal Year 2017--4. [See page 36.]
______
RESPONSES TO QUESTIONS SUBMITTED BY MS. HOULAHAN
Secretary Lord. From late April until the beginning of July, the
JATF hosted an industry portal into which companies with potential
solutions for COVID response could submit their ideas. We received
numerous submissions and pursued all those that seemed viable from a
financial, manufacturing, and production perspective. On July 10 until
August 7, we shifted our focus to the JATF Commercial Solutions
Opening, which was informed by the industry portal submissions and
provided industry with four focus areas and more detailed criteria
which we were using to evaluate industrial base expansion efforts. The
focus areas were N-95 respirators and surgical masks, pharmaceuticals,
screening & diagnostics, and personal protective equipment. The
evolution of the industry portal--which was broader and more open--to
the CSO coincided with the evolution of the JATF's support to HHS and
the interagency's response to the COVID crisis. We continue to solicit
ideas from industry with domestic production capacity, including in
Puerto Rico. We recently awarded a $4.9M contract to Pall Corporation
to expand their manufacturing of ventilator consumables in their
factory in Puerto Rico. We are working with a second company who
produces critical supplies for testing to expand production in Puerto
Rico. Additionally, we are investigating several opportunities in the
pharmaceutical supply chain. [See page 40.]
Secretary Lord. During this time, it is critically important that
the Department undertake all that it can to maintain and grow our
defense industrial base, and there are a number of resources that
companies can take advantage of to learn about those tools which may be
available to them.
The Department of Defense's Office of Small Business
Programs, in conjunction with the Defense Acquisition University, are
putting on a series of webinars to help answer companies' questions
about a variety of topics. Companies can sign up for the webinars at
https://business.defense.gov/Events/Webinars/.
The Office of Small Business Programs also retains an
events page, which helps to aggregate those events across the
department that are devoted to small business. This can be found here:
https://business.defense.gov/Events/
The Office of Industrial Policy has a number of FAQs
regarding the COVID-19 response that can be found here: https://
www.businessdefense.gov/corona
virus/
These additional websites also provide information on resources
available to support businesses currently within the U.S. defense
industrial base, as well as direction for those interested in becoming
part of the industrial base.
Commercial Solutions Opening: https://fedsim.gsa.gov/
CSOClient.html
Defense Production Act Title III: https://
www.businessdefense.gov/Programs/DPATitle-III/
Trusted Capital Marketplace: https://
www.businessdefense.gov/Trusted-Capital/
Developmental Finance Corporation: https://www.dfc.gov/
The Office of Small Business Programs: https://
www.businessdefense.gov/Small-Business-Programs/
[See page 41.]
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
June 10, 2020
=======================================================================
QUESTIONS SUBMITTED BY MR. WILSON
Mr. Wilson. I have heard from a number of groups representing
Federal contractors about concerns with guidance issued on Paycheck
Protection Program loans for DOD contractors. In the Frequently Asked
Questions section of the Office of Defense Pricing & Contracting
implementation guidance for section 3610 of the CARES Act, the answer
to Question 23 states that ``to the extent that PPP credits are
allocable to costs allowed under a contract, the government should
receive a credit or a reduction in billing for any PPP loans or loan
payments that are forgiven.''
I'd like to enter into the record a letter signed by 14 stakeholder
organizations representing thousands of small businesses that explains
their concerns with this guidance. Essentially, they contend that the
application of a credit to the direct or indirect costs of a small
business government contractor who has properly qualified for the PPP
loan forgiveness would be contrary to the intent of the PPP program and
would harm small businesses by essentially requiring them to repay the
loan through such credits. If any forgiveness of the proceeds of
properly utilized PPP loans ultimately must get credited back to the
Federal Government by contractors, then these loans are not truly
forgivable. Depending on how the credits are allocated, including to
the firm's overhead costs, they may be in a worse financial position in
future years than had they not taken the loan at all.
[The letter referred to can be found in the Appendix on page 66.]
Can you please provide clarification on the treatment of PPP loan
forgiveness for small business government contractors to address these
concerns?
Secretary Lord. The Department of Defense (DOD) has examined how
the Paycheck Protection Program (PPP), established by section 1102 of
the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L.
116-136), impacts its authority to provide reimbursement to contractors
pursuant to section 3610 of the CARES Act. The Department's position is
that it is required, by section 3610 of the CARES Act, to reduce the
amount of reimbursement provided to a contractor under section 3610 by
the amount of any PPP loan forgiven for that contractor.
Section 3610 of the CARES Act is a discretionary
authority allowing agencies to reimburse contractors for paid leave a
contractor provides to keep its employees or subcontractors in a ready
state during the public health emergency declared for the Coronavirus
Disease 2019 (COVID-19) pandemic, subject to certain conditions.
Congress explicitly limited agencies' authority to
reimburse contractors for paid leave in section 3610:
``Provided, that the maximum reimbursement authorized by this
section shall be reduced by the amount of credit a contractor
is allowed pursuant to division G of Public Law 116-127 and any
applicable credits a contractor is allowed under this Act.''
The Department reasonably interprets ``any applicable
credits a contractor is allowed under this Act'' to include
forgiven PPP loans. Although section 3610 of the CARES Act does
not specifically refer to the PPP or section 1102 of the CARES
Act (or section 1106, which provides for PPP loan forgiveness)
PPP loans are provided under the CARES Act (i.e., ``this
Act''), and, when forgiven, PPP loans thus become ``credits''
\1\ a contractor is allowed under the CARES Act.
---------------------------------------------------------------------------
\1\ Although any loan a contractor is eligible to receive under the
PPP would constitute ``credits a contractor is allowed under'' the
CARES Act, the Department has determined that it would be unreasonable
and contrary to Congressional intent to interpret section 3610 as
requiring the maximum reimbursement it is authorized to provide to a
contractor to be reduced by the amount of loans a contractor is
eligible to receive under the PPP, or by the amount of PPP loans a
contractor repays to the Government.
---------------------------------------------------------------------------
The Department therefore understands that it is
required, by statute, to reduce the amount of reimbursement
provided to a contractor under section 3610 by the amount of
any PPP loan forgiven for that contractor. This is a legal
requirement. To understand section 3610 differently could allow
for contractors to obtain duplicate recovery of their paid
leave costs.
The requirement in section 3610 to reduce the maximum
reimbursement for paid sick leave a contractor may receive by
the amount of ``any applicable credits a contractor is allowed
under'' the CARES Act contains no restriction that the
``applicable credits'' the contractor is allowed were provided
or used for the same costs as section 3610 reimbursement
payments. Thus, section 3610 reimbursement amounts must, by
law, be reduced for any credits a contractor is allowed under
the CARES Act, even if such credits are not provided for the
contractor's paid leave costs.
______
QUESTIONS SUBMITTED BY MR. TURNER
Mr. Turner. In the Department's May 29th CARES Act spending plan,
DOD mentioned plans for a ``Coronavirus detection-by-sequencing''
platform. Can you share more about this initiative and are you actively
looking to partner with the bio-industrial members of the defense
industrial base that has long been working alongside DOD on sequencing
platforms and projects?
Secretary Lord. The DOD's SARS-CoV-2 sequencing efforts, led by the
Armed Forces Health Surveillance Branch's Global Emerging Infections
Surveillance (GEIS) section, used its existing partnerships with Army,
Navy, and Air Force public health and medical research laboratories to
jumpstart the effort. This connection helped to establish a
collaborative approach to the sequencing capabilities. Sequence data
from this collaboration will provide critical information about
transmission patterns, track diagnostic effectiveness, and guide the
development and evaluation of medical countermeasures for the 1.4
million active duty and 331,000 reserve personnel. In addition, efforts
to evaluate ``detection-by-sequencing'' methods have been initiated by
multiple DOD laboratories to determine the feasibility and cost
parameters of implementing this process for large-scale screening and
testing. Each of these efforts have continued to be coordinated with
industry partners to ensure the latest technologies and capabilities
are being implemented by DOD laboratories, and to establish high-
quality repository of full genome sequences of SARS-CoV-2 from across
the Joint Forces. The DOD has also continued engagement with HHS and
other interagency partners to exchange best practices and leverage
other existing industry partnerships to ensure analysis methods and
logistic considerations are being optimized across the network.
Additional engagements with industry and interagency partners seek to
develop a DOD-based data infrastructure to complement national genomic
databases. This capability would enable accurate, efficient, and secure
access to genomic, clinical, and epidemiologic data across multiple
sources to support public health response to the SARS-CoV-2 pandemic
and improve preparedness for other emerging pathogens with epidemic or
pandemic potential. Our DOD laboratories have existing partnerships
with industrial experts in sequencing technologies utilized for past
infectious disease outbreaks. Our teams are leveraging these
relationships for expanding capability today.
Mr. Turner. I understand that the current expiration date for
section 3610, Federal Contractor Authority, of the CARES Act is
September 30th. It seems very unlikely, based on current public health
projections and agency return to work plans, that access to national
security facilities will be back to pre-COVID-19 levels by September
30th. Additionally, I am concerned about the ability of small business
subcontractors to carry staff for extended periods without revenue and
how the turning off of relief provided for by section 3610 starting
October 1 would severely impact ready state support to DOD missions.
Because facility restrictions and constraints may still be in place
with continuing impact to the industrial base, do you agree with me
that section 3610 coverage should be extended by Congress beyond to
September 30th?
Secretary Lord. The Department anticipates COVID-19 impacts to
industry requiring continued use of paid leave beyond the current
September 30, 2020 date. The Department has no objections to an
extension beyond September.
Mr. Turner. A question regarding the implementation of section 3610
of the CARES Act, which provided much needed relief for the national
security contractor workforce. The level of detail being required for
small and large contractors seeking reimbursement under section 3610 by
DOD in draft guidance appears to be onerous and may significantly
impact their ability to invoice for costs that industry has been
incurring since March to maintain the industrial base. Further, because
of the complexity that the Department is creating from a process
perspective, DOD has not even been able to finalize its guidance, and
the national security workforce is very hesitant to move forward with
contractor requests for reimbursement without guidance. The result is
that DOD is lagging well behind other agencies where invoices are being
submitted and paid. What can DOD do to simplify the process so that the
industrial base can invoice and be paid for costs covered by the CARES
Act?
Secretary Lord. DOD issued guidance on April 9th on how to modify
contracts as required by the Act to enable payment of claims under
section 3610. The guidance called for creating a line item or line
items for the 3610 paid leave costs so that those could be segregated
and tracked. We are preparing to publish additional guidance that
recommends, regardless of the original contract type, the contracting
officer create a firm fixed price line item for reimbursement of
section 3610 paid leave costs. Once the funded line item is included in
a contract modification, the contractor can invoice immediately for the
full amount of the line item. While we understand the need to reimburse
section 3610 paid leave costs promptly, the Department must ensure that
reimbursement requests include sufficient data to verify that
contractors are reimbursed only for paid leave costs that meet the
criteria in section 3610 and that they are not reimbursed more than
once for the same costs. Through July 31, 67 percent of the
Department's section 3610 reimbursement requests were paid within 15
days. The Department believes that the principal reason we have
received a limited number of section 3610 reimbursement requests is
that no dedicated funds are available for such reimbursements.
Contractors are aware that section 3610 reimbursement is ``subject to
available funding,'' and will not expend resources to prepare a
reimbursement request unless they have a reasonable expectation that
funds are available.
______
QUESTIONS SUBMITTED BY MR. WITTMAN
Mr. Wittman. Secretary Lord, can you please lay out a clear
definition for the committee as to what the Department is categorizing
as COVID related cost impacts to the defense industrial base?
In doing so can you also distinguish between COVID cost impacts
that are covered under section 3610 of the CARES Act and related costs
beyond the scope of 3610?
Secretary Lord. Section 3610 of the CARES Act is specifically for
the costs of paid leave a contractor or subcontractor provides to its
employees to keep its workforce in a ready state, including to protect
the life and safety of Government and contractor personnel, when they
are unable to work because of a facility shutdown (company or
government facility) or other COVID-19-related restrictions. Other
COVID-19-related costs may include costs of providing personal
protective equipment, additional cleaning costs, supply chain
disruption costs, and costs stemming from production inefficiencies
such as changing a factory floor layout to provide social distancing.
Mr. Wittman. Secretary Lord, you have previously stated that you
expect the pandemic to delay major programs by about 3 months and
require a supplement of ``billions and billions'' of dollars to
reimburse contractors required to remain in a ``ready state.''
a. Can you describe to the committee what steps the Department is
taking to collect and compile COVID related cost impact data across the
defense industrial base?
b. When do you believe you will have enough data to develop a cost
estimate with sufficient fidelity to bound the problem and present it
to Congress?
c. Some have suggested that the costs defense industry wide could
be as high as $20B. Do you have any preliminary estimates that you
could share at this time?
Secretary Lord. a. We have requested and received rough order of
magnitude estimates from some of our major contractors. A summary
spreadsheet can be made available setting forth the DOD estimate. It
should be noted that our estimate was based on assumptions around lost
efficiency and the cost impact that it would drive, and was not based
on a bottoms up estimate of all the details of 3610 costs, PPE costs,
etc.
b. Better cost estimates can only be made after submission of full
proposals from industry for their COVID-19 related costs. Industry is
understandably hesitant to expend resources to prepare such proposals
without assurance that funds are available for reimbursement of these
costs.
c. The Department has made its initial request for $10.8B for
COVID-19 related costs, including section 3610 paid leave costs, but
COVID-19 impacts have already gone on longer than assumed and continue
to be an issue. Given the uncertainty about the trajectory of the
COVID-19 health emergency and the resultant long-term impacts such as
production inefficiencies and lost sources of supply, it is not
unreasonable to estimate the Defense industry-wide cost impact may be
as high as $20B.
Mr. Wittman. Do you believe that if we do not address these issues
now, much of the good work undertaken by the Department and industry to
maintain the viability of the defense industrial during this crisis
could be undone?
Secretary Lord. Yes--While the Department has made great strides
mitigating risks in the Defense Industrial Base (DIB) exacerbated by
the COVID-19 pandemic, many critical companies still remain vulnerable.
Continued investments into essential businesses would lower the
probabilities of potential irreversible negative impacts to the DIB.
Small businesses remain particularly vulnerable as they do not have the
necessary capital or resources to weather the ongoing market
conditions. In recognition of the risk the COVID-19 pandemic has
created for essential small businesses, DOD used 64% of the Defense
Production Act (DPA) Title III CARES Act allocation to support
struggling small businesses, and the Small Business Program Office
routinely communicates with more than 4,500 small businesses through
webinars and calls with 14 trade associations. The Department remains
committed to ensuring the continued viability of critical companies and
the preservation of the DIB.
Mr. Wittman. What processes or mechanisms are you considering to
efficiently manage what is likely to be a coming wave of COVID REAs
from the defense industry?
Secretary Lord. We will soon publish a detailed process for
managing industry requests for reimbursement of section 3610 paid leave
costs, including instructions for what information industry should
include in reimbursement proposals. Internal to the Department, we are
establishing procedures for prioritization of industry requests and for
managing any funds that may be appropriated for the purpose of section
3610 reimbursements. Requests for reimbursement of COVID-19 costs not
covered by section 3610 will be addressed in accordance with normal
procedures for equitable adjustment of contract schedules and prices.
This process begins with a contractor request for equitable adjustment
(REA), and Industry REA proposals will be reviewed and negotiated just
like any other proposed effort. To date, we have received few COVID-19
REAs because contractors are aware that no funding has been provided to
the Department for reimbursement of such costs.
______
QUESTIONS SUBMITTED BY MRS. HARTZLER
Mrs. Hartzler. Secretary Lord, China is the principal developer of
active pharmaceutical ingredients for generic prescription drugs, which
account for approximately 90 percent of pharmaceuticals used in the
United States. The current pandemic has shed light on this
vulnerability and highlights the urgency in ending China's chokehold on
the global pharmaceutical supply chain. Representative Garamendi and I
introduced H.R. 4710, the Pharmaceutical Independence Long-Term
Readiness Reform Act, which seeks to take the first step in tackling
this issue by ensuring our military's medications are produced in the
United States. Representative Garamendi and I are working to ensure our
bill is included in this year's NDAA. On April 21st of this year,
following one of our committee briefings with you, we sent a follow-up
letter to you highlighting these concerns.
Is the Department of Defense using the Defense Production Act to
stand up American industry to produce pharmaceuticals in the United
States for our men and women in uniform? If not, what is the Department
of Defense doing to protect our military's medications?
Secretary Lord. Over the past few decades there has been offshoring
of pharmaceutical manufacturing, especially active pharmaceutical
ingredient (API) production and fill-finish/final dosage form
production, primarily in the generic drug industry which represents 85-
90% of all drugs. Increasingly more APIs are manufactured in China and
India, creating a strategic risk for the nation. Reshoring domestic
capacity requires capital investment in new infrastructure and
machinery and it will take years to see the results of these investment
using traditional processes. The DOD is evaluating advanced
manufacturing capabilities, i.e. continuous flow manufacturing, which
is different than the traditional batch manufacturing processes used by
the pharmaceutical industry. While this new technology needs to be
matured--most companies have 12-18 month timelines for regulatory
approvals--it does have great potential to accelerate flexible and
sustainable domestic pharmaceutical manufacturing. Long term solutions
to the offshoring challenge in pharmaceuticals will require a
combination of legislative and regulatory reforms to entice
manufacturers to establish and sustain a domestic presence. Current
inventory levels of the pharmaceuticals for the DOD are healthy and
have been throughout the pandemic. The Department will continue to work
closely with the interagency regarding the application of DPA
authorities to aid in the national COVID-19 response where and when
called upon. There have not been any DPA activities to date for
domestically producing pharmaceuticals for the Services. The current
efforts being reviewed in the pharmaceutical sector would likely be
funded by the HHS CARES Act and in support of the Strategic National
Stockpile.
______
QUESTIONS SUBMITTED BY MS. HORN
Ms. Horn. Secretary Lord, the current expiration date for section
3610 of the CARES Act is September 30. It seems unlikely, based on
current public health projections and agency return to work plans, that
access to national security facilities will be back to pre-COVID-19
levels by September 30th. I am concerned about the ability of small
business subcontractors to carry staff for extended periods without
revenue and turning off relief from section 3610 starting October 1
would severely impact ready state support to DOD missions. Because
facility restrictions and constraints will still be in place with
continuing impact to the industrial base, do you agree with me that
section 3610 coverage should be extended beyond to September 30th?
Secretary Lord. The Department anticipates COVID-19 impacts to
industry requiring continued use of paid leave beyond the current
September 30, 2020 date. The Department has no objections to an
extension beyond September.
Ms. Horn. Secretary Lord, section 3610 of the CARES Act provided
much needed relief for the national security contractor workforce.
However, the level of detail being required for small and large DOD
contractors seeking reimbursement under section 3610 in draft guidance
appears to be onerous and may impact their ability to invoice for costs
that industry has been incurring since March to maintain the industrial
base. Additionally, DOD has not finalized its guidance, and the
national security workforce is very hesitant to move forward with
contractor requests for reimbursement without guidance. The result is
that DOD is lagging well behind other agencies where invoices are being
submitted and paid. What can DOD do to simplify the process so that the
industrial base can invoice and be paid for costs covered by the CARES
Act?
Secretary Lord. The Department is providing additional guidance
based on inputs received from the draft guidance mentioned in your
question. Defense Pricing and Contracting is developing an Abbreviated
Guidance Checklist for section 3610 reimbursement requests that will be
applicable to requests less than $2M for paid leave provided to direct-
charged employees under a single contract, a Global Guidance Checklist
for requests at a division or corporate level, and a Multipurpose
Guidance Checklist for when the Abbreviated Checklist or Global
Checklist is not applicable. Based on industry feedback, the Department
is implementing a two-step process, in which contractors can submit a
rough order of magnitude (ROM) and inquire if funds are available prior
to submitting a formal section 3610 reimbursement request. This new
guidance and accompanying Checklists are expected to be issued by mid-
August. As I have testified previously, I believe the biggest
impediment is the lack of dedicated congressional funding for section
3610 reimbursement.
______
QUESTIONS SUBMITTED BY MR. BANKS
Mr. Banks. Are current DOD policies effective in checking and
reversing the atrophy of key and unique talent, such as engineers and
designers, specialty craftsman?
Secretary Lord. Yes. Facing similar challenges as industry, through
policies and also programs, DOD uses a variety of talent management
tools to attract and retain DOD technical talent. Tools include
contribution-based personnel programs for acquisition organizations and
DOD Science and Technology Research Labs, flexible hiring authorities,
training and development, exchange programs, recruiting and retention
incentives and recognition programs. The Defense Acquisition Workforce
Development Account provides funding for targeted hiring of acquisition
workforce technical talent and also retention incentives, such as
student loan repayment. DOD also implements the 10 U.S.C. 1706,
Government Performance of Critical Acquisition Functions through policy
which includes establishment of technical key leadership positions in
acquisition, such as the Chief Engineer and Chief Developmental Tester,
which requires a three year tenure agreement.
Mr. Banks. How effectively are current authorities, such as multi-
year purchasing and block buys, being employed to strengthen the
purchasing power of the DOD budget? How well do new and existing
programs contemplate and execute those authorities?
Secretary Lord. Multi-year procurement (MYP) and block buy
contracting provide an alternative contracting mechanism for the
Department compared to the standard annual contracting, and are used to
reduce weapon system costs by several percent. A 2012 briefing by the
Cost Assessment and Program Evaluation office found that MYP savings
for four aircraft procurement programs ranged from 2% to 8%, but the
briefing also stated that actual savings from using MYP rather than
annual contracting are difficult to verify since the annual contracting
path was not chosen. Block buy contracting has been used much less
frequently than MYP, but has provided the flexibility to programs that
do not meet the MYP statutory criteria but would still benefit from
using a single contract for more than one year's worth of procurement.
Since FY11, Congress has authorized MYP 21 times for programs from all
military services, including some programs approved more than once.
Block buy contracting has been used four times since it was initialized
in the FY98 National Defense Authorization Act.
Mr. Banks. Is there adequate testing facility bandwidth to match
the scale and pace at which we are developing hypersonic systems? If
not, what specific measures could be taken now, at a time when we're
making targeted investments to support the industrial base, to ensure
we are able to meet future testing demand?
Secretary Lord. Per the Office of the Under Secretary for Research
and Engineering, the Test Resource Management Center (TRMC) is the
Defense Field Activity responsible for assessing readiness of the
department's test infrastructure. The TRMC makes test infrastructure
modernization investments to address enterprise test capability and
capacity needs. Hypersonic ground and flight testing demand exceeds
current capacity of the hypersonics test infrastructure. The TRMC's
strategic planning process anticipated the increased demand for testing
of hypersonic systems and has prioritized and programmed $768M (PB21)
to address the most critical hypersonic test infrastructure capacity
and capability needs. To support the acceleration of hypersonic system
development, test, and fielding, the Department is considering what
investments are required in the out years to ensure future high
priority testing demand and capability needs are met. Investments under
consideration include increased capacity at critical ground test
facilities, establishment of additional long range flight test
corridors to offload demand from the Pacific, and investment in
airborne test instrumentation platforms to increase throughput and
capabilty. These additional investments will allow hypersonics test
infrastructure to meet future testing demand from current hypersonic
programs and future technology demonstrators. The TRMC is currently
completing two reports to Congress to address Department's hypersonic
test capability, capacity, and workforce, as required by the Senate
Report accompanying S1790 the 2020 NDAA. These reports will be
delivered to the Committee by January 2021.
______
QUESTIONS SUBMITTED BY MS. TORRES SMALL
Ms. Torres Small. Understanding that an effective vaccine for
COVID-19 may be some months or years away, I am interested to learn in
what other diagnostic or screening capabilities the Department is
investing in. Several articles over the last few months note DOD is
procuring items such as thermal cameras. While that solution may
identify symptomatic individuals, it will not detect individuals that
are asymptomatic or pre-symptomatic and no test exists currently that
is truly ``instant''.
1. What is Acquisition and Sustainment doing, in conjunction with
their counterparts at Research and Evaluation, to rapidly develop
advanced capabilities, such as remote sensing, and get them in the
field as fast as possible?
2. How are you supporting work done by DTRA and others on this type
of approach?
Secretary Lord. A&S is providing contracting and program management
expertise to enable capability for the DOD and the Department of Health
and Human Services. DOD research on these problem sets falls under the
Under Secretary of Defense for Personnel and Readiness, who coordinates
closely with the JATF and the Defense Health Agency. Additional efforts
are also being conducted by DARPA. DOD, led by the JATF, has made
industrial base expansion investments to support onshoring of screening
and diagnostics solutions. A&S contracting and logistics experts have
supported the execution of HHS funding to enable the following:
$7.6 million undefinitized contract award to Hologic,
Inc. on July 25 to expand domestic production of custom sample
collection and processing consumables to support increased production
and availability of COVID-19 tests for the United States. These Tube,
Cap, and Multi-tube Unit (MTU) consumables are critical for performing
molecular diagnostic tests on the Panther and Panther Fusion systems.
$24.3 million contract to Becton, Dickinson and Company
(BD) on July 30 to establish and expand domestic production of SARS-
CoV-2 rapid point-of-care (POC) tests used for COVID-19 testing on the
BD VeritorTM Plus analyzers. More than 25,000 BD Plus
VeritorTM instruments exist in the U.S. in urgent care
centers, physician offices, acute care facilities and other health care
locations. This investment in equipment procurement and facility
renovations will support the establishment and expansion of COVID-19
test production in California, Pennsylvania, and Massachusetts for U.S.
consumption, with an initial manufacturing scale-up to 4 million tests
per month by the end of September 2020, and subsequent scale-up to
enable a final production rate of 8 million tests per month by the end
of February 2021.
DOD is also conducting research with several of the new POC tests
in asymptomatic populations to compare their ability to detect
asymptomatic cases compared to PCR based testing. If those tests
demonstrate similar capability to PCR, then that data will support
potential expansion of the FDA EUAs for surveillance efforts, allowing
rapid expansion for a quick turnaround alternative.
______
QUESTIONS SUBMITTED BY MS. HAALAND
Ms. Haaland. Can you describe the plans currently underway to build
the capacity that is needed within the department to manage and
accelerate the spend plan you released on May 29th?
Secretary Lord. Since the enactment of the CARES Act on April 6,
DOD has engaged in a collaborative and focused execution plan for the
funding appropriated to the Defense Production Act (DPA) Title III
program. In order to accelerate the spend plan, the DPA Title III
Executive Agent (EA) Program Office has used the full spectrum of
acquisition tools ensuring companies can begin performance as soon as
possible. The EA further collaborated with contracting offices that had
existing, more expedient contract vehicles to which work could be
added. These efforts greatly reduced the timeline from issue
identification to agreement performance, and resulted in funds flowing
to the companies that urgently needed assistance. As of the first week
of August, the DPA Title III Program Office has issued awards totaling
$847.37M to defense industrial base companies impacted by the pandemic,
as well as allocated $100M to a COVID-19 response loan program in
conjunction with the United States International Development Finance
Corporation (DFC) in support of the DPA title III Loan Program, in
accordance with Executive Order 13922 (May 14, 2020). These actions
account for 94.7% of the appropriation. The Department anticipates
awarding the remainder of the CARES Act funding appropriated to DPA
Title III over the next 30-60 days.
Ms. Haaland. In keeping with the efforts to shore up the critical
Space Industrial Base, Secretary Lord, you've spoken publicly about
your concerns over the small launch industrial base as a result of the
COVID-19 pandemic. How do you see the $150M funding in the Department's
CARES Act spending plan to ``support and maintain a competitive space
launch industrial base'' being used to ensure new and innovative
capabilities are available to the military, such as responsive small
launch?
Secretary Lord. A healthy and resilient space industrial base is
essential to national defense and the Department has utilized CARES Act
funding to make investments to sustain key space industrial base
capabilities such as domestic solar panel arrays, and essential space
qualified materials. Within this important sector, the small launch
industrial base remains a priority for the DOD. The forecasted small
launch initiative in the CARES Act spend plan remains an area of focus
and we continue to closely monitor the state of the small launch
industrial base in concert with the Air Force and Space Force (SMC/
ECL).
Ms. Haaland. My final question is for the thousands of small
businesses that supply the DIB, and especially as we've spoken about
previously the very vulnerable growing Space Industrial Base. If I am a
small business owner struggling during COVID to meet demands and remain
operational under the national security orders to stay open, how do I
navigate the maze of policies and constantly updated guidelines on your
industry portal? What infrastructure are you putting in place to help
stakeholders navigate and find the answers they need to continue
operating in the complex and massive undertaking you're managing?
Secretary Lord. The Department is dedicated to assisting small
businesses grow their engagement with the DOD--especially amid the
myriad challenges presented by COVID-19. Small business holds an
important place within the Defense Industrial Base, especially in the
emerging domain of space technology. The Office of Small Business
Programs (www.businessdefense.gov/Small-Business-Programs) provides
resources and information to assist small businesses. In addition,
there is a visual representation of how to do business with the
Department at www.business
defense.gov/resources.
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