[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



                         [H.A.S.C. No. 112-79]

      THE DEFENSE INDUSTRIAL BASE: A NATIONAL SECURITY IMPERATIVE

                               __________

                                HEARING

                               BEFORE THE

        PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                            OCTOBER 24, 2011







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        PANEL ON BUSINESS CHALLENGES WITHIN THE DEFENSE INDUSTRY

                  BILL SHUSTER, Pennsylvania, Chairman
BOBBY SCHILLING, Illinois            RICK LARSEN, Washington
JON RUNYAN, New Jersey               BETTY SUTTON, Ohio
ALLEN B. WEST, Florida               COLLEEN HANABUSA, Hawaii
                Lynn Williams, Professional Staff Member
               Timothy McClees, Professional Staff Member
                  Catherine Sendak, Research Assistant











                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2011

                                                                   Page

Hearing:

Monday, October 24, 2011, The Defense Industrial Base: A National 
  Security Imperative............................................     1

Appendix:

Monday, October 24, 2011.........................................    29
                              ----------                              

                        MONDAY, OCTOBER 24, 2011
      THE DEFENSE INDUSTRIAL BASE: A NATIONAL SECURITY IMPERATIVE
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Larsen, Hon. Rick, a Representative from Washington, Ranking 
  Member, Panel on Business Challenges within the Defense 
  Industry.......................................................     2
Shuster, Hon. Bill, a Representative from Pennsylvania, Chairman, 
  Panel on Business Challenges within the Defense Industry.......     1

                               WITNESSES

Chao, Pierre, Senior Associate, Center for Strategic and 
  International Studies..........................................     6
Downey, Fred, Vice President, National Security, Aerospace 
  Industries Association.........................................     4
Watts, Barry, Senior Fellow, Center for Strategic and Budgetary 
  Assessments....................................................     3

                                APPENDIX

Prepared Statements:

    Chao, Pierre.................................................    61
    Downey, Fred.................................................    47
    Larsen, Hon. Rick............................................    35
    Shuster, Hon. Bill...........................................    33
    Watts, Barry.................................................    37

Documents Submitted for the Record:

    AIA White Paper, Building and Maintaining Value in the 
      National Security Space Industrial Base....................   103
    Summary from Industry Roundtable, Rock Island, IL............    97

Witness Responses to Questions Asked During the Hearing:

    Ms. Hanabusa.................................................   111

Questions Submitted by Members Post Hearing:

    Ms. Hanabusa.................................................   115
 
      THE DEFENSE INDUSTRIAL BASE: A NATIONAL SECURITY IMPERATIVE

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                        Panel on Business Challenges within
                                      the Defense Industry,
                          Washington, DC, Monday, October 24, 2011.
    The panel met, pursuant to call, at 3:02 p.m., in room 
2212, Rayburn House Office Building, Hon. Bill Shuster 
(chairman of the panel) presiding.

 OPENING STATEMENT OF HON. BILL SHUSTER, A REPRESENTATIVE FROM 
PENNSYLVANIA, CHAIRMAN, PANEL ON BUSINESS CHALLENGES WITHIN THE 
                        DEFENSE INDUSTRY

    Mr. Shuster. The hearing will come to order. I want to 
thank everybody for joining us here today. It is especially 
good to see my colleagues back from our recess. I hope it was 
productive for everybody. I believe that today's hearing will 
serve as a foundational discussion for this panel as it moves 
forward in its working to examine the challenges of doing 
business with the Department of Defense [DOD]. The House Armed 
Services Committee [HASC] has led the way in improving how DOD 
develops and buys equipment and needs. As most of you know, the 
HASC has successfully shepherded a substantial reform effort, 
the Weapons System Acquisition Act, through the legislative 
process to the President's desk. While the bill did much to 
garner efficiency, increase transparency and foster 
competition, there is still room for improving DOD's business 
practices.
    I am a strong believer in the fact that you can't solve the 
problem without looking at both sides of the equation. And that 
is exactly why Chairman McKeon and Ranking Member Smith 
established this panel, to look at the business side of the DOD 
acquisition system. I wanted to start this series of hearings 
with a broad look at the defense industrial base [DIB] to give 
the panel a clear framework for moving forward. Today we have 
well-recognized leaders in public policy regarding the defense 
industrial base joining us.
    On November the 1st, we will follow up with senior 
officials from DOD's Manufacturing and Industrial Base Policy 
office and Small Business office to give us their views on the 
issue. After that, we will move on to several hearings focused 
on some of the specific issues and challenges facing the 
businesses that are eager to provide technologies and services 
to support our warfighters.
    We have some terrific witnesses with us today, and I am 
very grateful that they have taken the time to share their 
insights and expertise on the defense industrial base with my 
colleagues. I would like to introduce them. First, Mr. Barry 
Watts, Senior Fellow at the Center for Strategic and Budgetary 
Assessment [CSBA]; Mr. Fred Downey, Vice President, National 
Security, Aerospace Industries Association [AIA]; and Pierre 
Chao, Senior Associate, International Security Programs, Center 
for Strategic and International Studies [CSIS].
    Again, gentlemen, thanks for taking the time to be here 
with us today. I also want to take a minute to thank Mr. 
Schilling and Mr. Loebsack and their hard-working staffs for 
hosting the panel in the Quad Cities area of Illinois and Iowa. 
We had a very informative discussion there with industry 
leaders and learned a great deal about what goes on at the Rock 
Island Arsenal. It was an extremely useful trip and I 
appreciate all the effort that went into it. I also want to 
thank Black Hawk College for letting us use their facilities to 
hold the meeting.
    The committee staff prepared a summary of discussion with 
the industry at Rock Island and it was provided to all of the 
panel members. Without objection, I would like that to be 
entered into the record. Hearing no objection, so ordered.
    [The information referred to can be found in the Appendix 
on page 97.]
    Mr. Shuster. On Friday, members of the panel will travel to 
Akron, Ohio, to hear from the industrial base in that area and 
to meet with engineers and scientists at the University of 
Akron who are engaged in efforts to help DOD prevent and 
mitigate corrosion. In these tough economic times, we have got 
to make sure we are doing everything we can to get the most out 
of every piece of equipment we ask the American taxpayer to 
provide, and mitigating and preventing corrosion is a critical 
part of doing so. I am very much looking forward to that trip 
and the discussions on developing and in transition critical 
technologies to help DOD sustain its equipment.
    I want to thank Ms. Sutton for inviting us to her district. 
With that, I turn to my friend from Washington, Mr. Larsen, for 
any remarks he might want to make.
    [The prepared statement of Mr. Shuster can be found in the 
Appendix on page 33.]

     STATEMENT OF HON. RICK LARSEN, A REPRESENTATIVE FROM 
WASHINGTON, RANKING MEMBER, PANEL ON BUSINESS CHALLENGES WITHIN 
                      THE DEFENSE INDUSTRY

    Mr. Larsen. Thank you, Mr. Chairman. I appreciate the 
opportunity to make a brief opening statement, but also, again, 
to thank you for your leadership on this panel. The panel is 
tasked with looking at ways the Department can improve its 
contracting practices for the benefit of our warfighters, 
taxpayers and businesses. DOD must continue its efforts of 
building a strategic dynamic contracting process, one that 
ensures those who have great products do not fall by the 
wayside. A key component of this process is ensuring that we 
protect and grow our Nation's defense industrial base. The U.S. 
defense base has a long history of producing the best military 
systems in the world. We must ensure that this continues both 
for our warfighter and because it creates jobs here in the U.S.
    In August, the chairman and I heard from several businesses 
in my own district about successes and challenges that they 
have had with the DOD and with contracting. All of these, in 
fact, were small businesses. These anecdotal accounts help give 
us an understanding of the real-world experiences small 
businesses face and the challenges they face while trying to do 
contracting with a very large government bureaucracy.
    Today we have witnesses that have studied Department of 
Defense policy and laid out policy implications and reforms 
that we should seriously consider as we move forward in looking 
at how we can help small- and medium-sized businesses access 
the Department of Defense contracting process. I look forward 
to hearing today's testimony. Thank you again, Mr. Chairman.
    [The prepared statement of Mr. Larsen can be found in the 
Appendix on page 35.]
    Mr. Shuster. Thank you. And with that, we will proceed with 
our witnesses. First, Mr. Watts. You may proceed. But I see in 
your bio here, you are a graduate of the University of 
Pittsburgh. So are you a native of western Pennsylvania, or 
just attended graduate school there?
    Mr. Watts. No. I attended graduate school there.
    Mr. Shuster. All right. That is great. You don't have that 
Pittsburghese accent. Or at least I didn't pick up on it yet. 
Well, thank you very much for being here today.

 STATEMENT OF BARRY WATTS, SENIOR FELLOW, CENTER FOR STRATEGIC 
                   AND BUDGETARY ASSESSMENTS

    Mr. Watts. Well, Chairman Shuster, Mr. Larsen, members of 
the panel, thank you very much for giving me the opportunity to 
testify. I just want to make a couple of quick comments about 
caveats for the Center for Strategic and Budgetary Assessment's 
report that we put out earlier in the year. We focused pretty 
much on prime contractors and major defense acquisition 
programs in that particular report. As a very small think tank, 
we have very little capacity to do the sort of thing that Brett 
Lambert is trying to do over in the Pentagon and that is, go 
down to the lower tiers and the parts suppliers, and even the 
material suppliers. That is an enormous job and a small group 
like ours, it is just beyond what we can do.
    We also didn't say much about some of the ITAR 
[International Traffic in Arms Regulations] constraints, the 
legislative constraints that make it difficult for the defense 
industrial base to access the global defense economy, as 
Jacques Gansler talked about at great length in his recent 
book, ``Democracy's Arsenal.'' Beyond that, I will just make a 
couple of comments about the three pieces that were in my 
written statement.
    First of all--and I am not going to say much about this--I 
think, here in Congress, it is clear that this is not a normal 
free market economy when we talk about the defense industrial 
base. It is very different than consumer electronics or the 
automobile industry. It is highly regulated. The regulators and 
the customer are one in the same, the U.S. Government, and 
there are piles and piles of regulations and statutes that try 
to make the business processes as low risk as possible when you 
do--particularly when you do major programs. And I would 
certainly suggest that whatever can be done to try to relieve 
some of that burden would be useful going forward.
    Given the present fiscal situation that the Pentagon is 
facing, they have had almost a decade of growing budgets, they 
had supplementals, and now the base defense budget is surely 
going to start going down and will probably go down for a 
period of time into the future. Given that, I think it is 
essential for the Pentagon and the U.S. Government writ large 
to develop a coherent long-term strategy for deciding what 
pieces of the defense industrial base are really going to be 
important going forward over the next several decades and make 
some real strategic choices.
    We talked in the report about six or seven or eight major 
areas which we think should be invested in preferentially. We 
did not give you or suggest a list of what those are. But we 
think if you are going to have a strategy insofar as strategy 
is about choice, that you are going to have to focus on 
capability areas that are probably in the single digits. If you 
end up with 75 or 123 most important things, you just don't 
have a strategy. And it is very difficult, given the interests 
of the various, here on the Hill and Congress, and the various 
services and constituencies and industry, to not end up with a 
very large list.
    So I think making that choice going forward is really 
critical. Let me just say that it is not easy. You need to 
start with the challenges that we will face from a national 
security standpoint over the next several decades, and that is 
going to be difficult enough figuring out what the really seven 
or eight, or maybe nine really important areas are. Then 
secondly, if we could get some consensus on what those are, 
there is the problem of deciding what pieces of the industrial 
base, the defense industrial base, would really support those 
capabilities going forward.
    I mentioned in my statement anti-access/area-denial 
capabilities. And if you thought that was important, that was 
an area where we really have invested preferentially, there is 
a whole range of different options that you could choose. You 
could buy more Aegis cruisers or emphasize missile defense. You 
might want to invest long term in directed energy. You might 
think more about submersible combatants. There are a whole 
range of things. Both of those choices, deciding what the 
really important threats to pay attention to over the next 
several decades and deciding what pieces of the industrial base 
are really critical to supporting them. Those are difficult 
choices. And with that, I will end. My 5 minutes are up.
    Mr. Shuster. Thank you very much, Mr. Watts.
    [The prepared statement of Mr. Watts can be found in the 
Appendix on page 37.]
    Mr. Shuster. With that, Mr. Downey.

 STATEMENT OF FRED DOWNEY, VICE PRESIDENT, NATIONAL SECURITY, 
                AEROSPACE INDUSTRIES ASSOCIATION

    Mr. Downey. Mr. Chairman, Mr. Larsen, distinguished members 
of the panel, it is a real pleasure for me to be here as a 
representative of more than 350 companies who are part of the 
aerospace and defense industrial base. The week of September 
12th was National Aerospace Week by congressional resolution. 
During that week, we celebrated our legacy of global leadership 
and aviation defense in space. In the coming months, several 
momentous decisions will be made about the Nation's budget, 
which will ultimately affect what kind of aerospace and defense 
industrial base we will have, what capabilities it will 
possess, and whether or not we will remain the global leaders. 
Those decisions will be taken in the absence of an industrial 
base strategy, and if history repeats itself, without full 
participation from those who must manage the industrial base 
during what is a time of historic reorganization.
    I think most Americans would agree that the 20th century 
was defined by aerospace, and that it was largely our century 
because we were second to none in aerospace. I think the 21st 
century will also be defined by aerospace. The question is 
whether we are still going to be second to none.
    While most accept that the industrial base is a national 
strategic asset, too many choose to treat it with benign 
neglect, assuming that the free market will always work to make 
sure we stay second to none. As Mr. Watts said, although it 
never really was a free market, it was so successful that many 
believe it is now a national birthright.
    But that was then. The industrial base that existed then 
doesn't exist today. It is a far cry from the military 
industrial complex of the Eisenhower era. In the 20 years since 
the cold war, nearly 150 significant defense companies have 
consolidated to 6. The number of big companies left the market, 
almost none have entered it. In the post-cold war, 
consolidation has created a situation where the top firms have 
grown individually, but the market has shrunk significantly.
    So, far from being the powerhouse that many suggest, the 
combined annual revenue of the top seven members of the 
aerospace and defense industrial base today is about one half 
of the annual revenue of Wal-Mart. That is how it has changed 
since the days of the cold war. If these trends continue and 
the defense budget continues to be cut, the capability to 
deliver critical militarily unique systems will atrophy and the 
capability our troops and the American people expect might not 
be available. We have to have the capability to design, 
develop, produce and support complex systems. And that requires 
having programs to work on. If we don't, the companies that 
make up our industrial base can't continue to invest in the 
workforce, plant and research that might be needed. The impact 
will be felt first on our workforce. We have only half the 
workers we did 30 years ago and the recession and budget 
reductions already have further reduced that amount. Recent 
analysis performed by Dr. Fuller at George Mason University and 
others find that the total American job loss for just the first 
part of the Budget Control Act [BCA] will be approximately 
430,000 jobs, and about one-third of those jobs will be from 
the defense, aerospace and industrial base. But it is not just 
jobs we are going to lose. It is the valuable human capital. 
The most brilliant and ambitious technicians, engineers and 
scientists have sought to work for the industry, but we are 
facing an increased competition from other high-tech sectors 
for those workers. Without the challenges, we are not going to 
get there.
    We need two things: We need budgets that produce programs 
that are profitable and that reach out to the talent we need, 
and we need an industrial base strategy that gives direction 
and predictability that the industry leaders need to make sound 
strategic business decisions. Without those two things, it is 
doubtful whether we will have the aerospace and defense 
industrial base that has provided the capability that our 
soldiers, sailors and airmen and the American people have come 
to expect. Thank you, sir.
    Mr. Shuster. Thank you.
    [The prepared statement of Mr. Downey can be found in the 
Appendix on page 47.]
    Mr. Shuster. Mr. Chao.

    STATEMENT OF PIERRE CHAO, SENIOR ASSOCIATE, CENTER FOR 
              STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Chao. Mr. Shuster, Mr. Larsen and members of the panel, 
thank you for inviting me. As was noted, I am a senior 
associate at CSIS. I am also a managing partner at Renaissance 
Strategic Advisors. So I am not only a student of the industry, 
but also a practitioner in it. You are asking a great question 
in terms--and an important one, particularly given the budget 
environment that we are entering into. However, it is a 
question that you need to, I think, approach with caution, 
because one of the worst things that one can apply when it 
comes to defense industrial policy is a one-size-fits-all 
mentality. In fact, more damage has been done to the industry 
by trying to apply these one-size-fits-all policies. We would 
suggest that thinking about the industry as a whole in sort of 
three constituent parts: The emerging technologies and 
companies, think cyber, think directed energy, think mobile 
applications, the new technologies of today as one sort of 
group that has its own issues and topics.
    You then have the core part of the market, or the mature 
part, the constituents of Mr. Downey, the Lockheeds, the 
Northrops and the Boeings of the world and their supplier base 
to Mr. Larsen's point, that there is a whole small business 
community. And then there is the much more mature legacy 
component. Those are the remaining sort of monopoly or duopoly 
manufacturers of--for example, the shipbuilders, space launch, 
went down to one major supplier, fixed-wing aircraft, went down 
to two, and tank manufacturing, went down to one.
    The policy issues and the contracting issues are different. 
On the emerging sort of category, this is where technology is 
important, access to technological talent. The issue that we 
have in our schools with science and technology is a critical 
issue. They can't find enough scientists. Export controls are 
absolutely critical to this category where we are not getting 
inside the technology because people are afraid to put 
technology in the U.S. because they can't get it back out 
again. It has become a serious issue. The lack of venture 
capital. And even the overall environments for these small 
emerging companies operating in a budgetary environment, 
frankly, under continuing resolutions [CRs], it is very hard 
for these young companies to sort of enter and come in and do 
things.
    The other thing that is very important to think about when 
you are thinking about policies relative to these, don't shut 
down competition too early. In this part of the segment, you 
like having 8, 9, 10 different players, because we are still 
trying to figure out what is the right technology. Think about 
what the aircraft industry looked like in the 1920s, where it 
had eight or nine different companies. They were making 
airplanes with three wings, two wings, engines in the front and 
the back. We didn't know which one was the right way. You can 
think of the UAV [unmanned aerial vehicle] industry today as 
the same one. The Orville and Wilbur Wrights of the 21st 
century are playing in the new space launch markets and the 
UAVs; shutting off competition too early is actually dangerous; 
preservation of the science and technology budgets is critical 
for this constituency.
    So the 6163 budget funding to places like DARPA [Defense 
Advanced Research Projects Agency] are sort of the lubricant or 
the thing that keeps this part of the industrial base vital and 
alive. In the mature part or the core part of the supplier 
base, these again are the Lockheed Martins, the Northrop 
Grummans, the General Dynamics and the Boeings of the world. 
They represent, frankly, the jobs that we have in our districts 
today, and in many cases, they are in some of the most sort of 
underrepresented areas. And their supplier base underneath them 
sort of represent the mainstay.
    Here this is where the core questions about DOD acquisition 
processes, how difficult is it, how much overhead burdens are 
we putting on them with unneeded processes and others. This is 
where the call for strategy and focus that Mr. Watts and Mr. 
Downey called for is going to be absolutely critical. They can 
figure their way out as long as they know where we are going. 
Right? And in the absence of a strategy, it becomes too easy 
for some of them to sit there and say--just like they did in 
the 1990s--this is too difficult, I am going to go home, I am 
going to go somewhere else. A great example.
    And we also have to remember that defense is a small market 
for some of these. We went through untold pain related to the 
tanker program, for example, over about 160 airplanes in the 
end that represents about 10 weeks worth of production for 
Boeing and Airbus.
    So keeping that in mind in terms of we deal with that. The 
legacy one is probably one of the most complex for you because 
it represents core capabilities, tanks, submarines, aircraft, 
space launch, critical capabilities where we have an advantage, 
but we are down to a very small set of suppliers. And frankly, 
it sometimes takes a lot of money in order to keep that core 
capability set. And here we just need to decide which ones are 
core capability sets that we want to continue, and where we 
need to put in sufficient engineering and money to sustain 
engineering talent versus who is the last buggy whip 
manufacturer and actually should go away, because they are in 
more the legacy side of it.
    So from that perspective, the issue of making sure that 
there is enough money to sustain that old legacy set of 
capabilities until the new emerging guys rise becomes one of 
the most critical questions. This is really important for the 
small suppliers because I think where you will find the most 
amount of vulnerability is in the last propeller manufacturer 
for the U.S. Navy, for example. Or there is an example of--it 
turns out the last maker of linen bags for artillery shells 
also does habits for nuns. And the nuns decide to pull their 
contract, and now suddenly the U.S. Navy is worried about who 
is going to make the last set of linen bags for the artillery 
shells.
    You are going to find all sorts of strange, bizarre pockets 
of industry that are actually absolutely critical and 
important. And so from that perspective, the policies that work 
at one end of the industry don't work at the other. So as you 
go through your work, which I commend highly, the right sets of 
questions, think through those buckets and the impact that it 
has across those different parts of the industry. Thank you.
    Mr. Shuster. Thank you very much.
    [The prepared statement of Mr. Chao can be found in the 
Appendix on page 61.]
    Mr. Shuster. Mr. Chao, could you talk a little a bit more 
about the technology, the emerging companies and the 
technology, we are keeping it out of DOD. We heard in one of 
our hearings where--because of the ITAR regulations, that it is 
very difficult once you have a technology that it is in the 
open market with our folks providing to DOD can't sell 
commercially now, so it really constrains them. So what you are 
suggesting is that people are saying I am not even going to 
start selling to the United States Government because they are 
going to capture this and I am going to be hamstrung.
    Mr. Chao. This is one of the thorniest topics on the 
landscape in terms of export control reform. I know this 
committee and Congress and the Administration have been looking 
at this topic. We have the beginnings of a lot of strange, 
unintended consequences because of the way the policy has been 
put into place. It has logically been put into place in order 
to prevent core American technology from leaking out to 
adversaries.
    It is having the unintended consequences the way it is 
being implemented where companies are afraid to put the 
technology into the U.S. and are keeping it outside. You are 
seeing this mostly in very cutting edge telecommunication 
technologies. I am aware of at least two instances where global 
companies have decided to sell off their U.S.-related 
businesses in order to be able to compete globally because it 
was, again, too difficult.
    You are beginning to hear other countries about developing 
products that are ``ITAR free.'' And when you talk to those 
companies--and CSIS did a big study on this--these are 
countries and companies that say we would have gladly bought 
American had we been allowed to. Since we weren't, we had to 
build our own set of technologies.
    So we have to figure out a way to reconcile that core need 
of making sure that our core technology doesn't go out while 
mitigating some of these unintended consequences. And I would 
argue those unintended consequences are rising at such a level 
that it is getting to crisis levels where addressing this 
issue, I think, is going to be absolutely critical.
    Mr. Shuster. And you talked about shutting off competition. 
Where is that occurring and how is that occurring?
    Mr. Chao. It is not occurring yet. But as we go into a 
tighter budget environment, it is going to become very easy to 
sit there and take a look at that list and say boy, I am 
running 10 UAV competitions or programs, maybe I should just go 
to one. And all I am saying is 10 to 8 is probably okay. Ten to 
one would be disastrous because we are still trying to figure 
out that technology, for example. And others where the answer 
is becoming more evident just like it occurred with the 
aircraft industry where we settled on a common solution, a 
single-wing monocoque hull, and others, it is okay to narrow 
down.
    Mr. Shuster. Thank you. The Department of Defense just came 
out with a report talking about long-term investments, short-
term strategically looking at what I think--Mr. Watts, you 
talked about that. But that the report is almost schizophrenic. 
It talks about those things being important, yet it is going to 
allow the market to continue to drive our needs, or to provide 
for our needs and you are saying in your report that we need 
some kind of strategic plan moving forward to keep, like Mr. 
Chao said, some of our legacy, some of our other core 
competencies, did you see the report at all?
    Mr. Watts. Yes, I have looked at it.
    Mr. Shuster. Your assessment is?
    Mr. Watts. Well, it seems to continue to assume that this 
industry operates like consumer electronics or the automobile 
industry, and if that is not the case, then trying to develop a 
strategy based on an incorrect assumption, an incorrect 
understanding of the nature of what they are trying to manage 
and develop a strategy for is probably not going to succeed.
    Dr. Gansler, going all the way back to 1980, pointed out 
that because of the acceptance of that assumption, that 
incorrect assumption that it is a normal free market and 
competition will really work the same as it does in consumer 
electronics or flat-screen TVs, the policies, based on that 
assumption, have generally done more harm than good. So now in 
fairness to that report, they did talk about the service 
aspects of defense acquisition as opposed to major weapons 
systems. And the use of competition may be more useful in the 
services in the defense procurement.
    So there is a point to be made there in terms of the way 
they structured the report. But still, the assumption about the 
nature of the industry just, as far as I can tell, has been 
wrong since the 1950s.
    Mr. Shuster. Mr. Downey, you concur with that, for the most 
part, from the sounds of your testimony?
    Mr. Downey. Yeah. I do entirely. I think competition 
certainly ought to be used for those sectors of the industry 
where it may be effective. Electronics is a key area. But there 
is not going to be much competition for a nuclear submarine or 
a long-range bomber. There just aren't enough companies in the 
market. So you can't have classic competition in some core 
capabilities. And I think the challenge for the Pentagon is to 
understand the difference and construct a strategy that is 
adequate to deal with the differences, as Pierre [Mr. Chao] has 
said.
    Mr. Shuster. And I fully intend--at some point, we will 
have the folks from the DOD in front of us to ask why they 
believe that this can be a market driven to provide us with all 
when it is clear when most people look at it--when you look at 
it as with common sense, that DOD is the regulator, the 
procurer, there is just one U.S. Department of Defense. Why do 
you think, in their minds, are they just kicking the can down 
the road, because we have got fiscal financial restraints?
    Mr. Watts. I am just puzzled by why that has persisted as 
long as it has, is all I can say. It seems to be a myth at 
best. Perhaps it is just--you know, we look at the really 
normal market commercial parts of our industry. We think 
competition and innovation are very important, and we just sort 
of assume that it is pretty much the same in the defense 
industry on the one hand. On the other hand, if you look at 
down select from an RFP [request for proposal] to move into 
development of a program, most of the competition ends at that 
point, notwithstanding, essentially, the direction in law from 
that 2009 Reform Act which suggested that the Secretary of 
Defense should try to maintain competition throughout the life 
of programs. It just hasn't been happening. And the best 
example is the second engine for the Joint Strike Fighter.
    If you go back and review the reasons that Secretary Gates 
gave for not going ahead with that, it was basically the 
tradeoff between the real upfront of $2.7 billion or so of real 
cost to develop the engine, and the more theoretical benefits 
of the long term--you know, actually being able to compete two 
engines over the lifespan of that airplane, which they judged 
as more theoretical and ephemeral and didn't think it was worth 
the $2.7 billion.
    Mr. Downey. Mr. Chairman, if I might add, I think part of 
the answer to your question is simply not watching what is 
happening to the market in general. In the 1950s and 1960s, 
when we were designing 10 aircraft and producing 6, competition 
made sense. When you have a market of only one or two actual 
producers today and no real prospect in a very capital 
intensive sector of attracting new competitors into the market, 
then you have to look at something different. And that is a 
hard thing to do. It is much easier simply to assume that 
competition will give you the innovation and go forward.
    Mr. Chao. I would also submit to you, again, it is the 
difference between these different segments. So when the 
Pentagon writes that report, they are looking at some of the 
emerging technologies. If you were to put an RFP out today and 
say I need a cyber solution, or I want to put a PDA [personal 
digital assistant] in every soldier's hand, I guarantee you are 
going to get a lot of competition, a lot of people will show 
up. That is not who they are representing, that is not who they 
are talking to. To sit there and say I want competition in tank 
manufacturing is silly. We haven't designed a new one. I have 
got a very good supplier. I am down to one. And I would be 
wasting money. That is more of a negotiated relationship as 
opposed to where you can have an open arm's length 
relationship--and again, services, newer technologies, that 
works fine. And that is where, I think, you have also the 
schizophrenia of the report, because they are talking about 
that part of the industry, I would suspect that--most of the 
people you are talking about the pain that is going on inside 
the defense industry is from the more legacy part of the 
industry that is down to that narrow base.
    Mr. Shuster. Thank you. Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman. Just an observation in 
the first 8 to 10 years of this decade when there seemed to be 
relative plenty to the defense budget, we were getting the same 
complaints. So fiscal restraint is here and coming and we have 
the same complaints. Sort of gets to Mr. Watts' point. I wasn't 
here in the 1950s, but I will take your word for it, that the 
complaints were the same. As always, there is always never 
enough money and there is always plenty of bad ideas being 
brought to the Government for funding, as well as good ideas. 
And our goal here is to be sure the good ideas, no matter where 
they come from, get a hearing to increase the opportunities for 
warfighters to get the products and services and support that 
they need.
    One example--and I think this is interesting--I guess, I 
would ask Mr. Chao, Mr. Downey. This question has to do with 
satellites. There is a new entrant in the market who is seeking 
to become a competitor in the defense side of the business. 
So--but the core part, as you would describe it, the core part 
of the industry, either--well, I won't say that they don't want 
that competitor, but the rules are set up to encourage to 
support the core part of the industry, and to seemingly 
discourage the new entrant. This has to do with the SpaceX 
versus the Boeing on the satellite side.
    So how do we bridge that? How do we bridge that problem as 
an example? I didn't come here to talk about this in 
particular. But it is a perfect example of where you have a new 
emerging entrant who actually wants to now jump the gap to 
become a competitor in a larger program.
    Mr. Chao. That is a great example. You can take those, and 
again, you can pit the classic aircraft manufacturers against 
the UAV manufacturers, the light vehicle--I mean, each one of 
these sectors has players in each place. Part of it is driven 
by the policy and the technological solutions that the Pentagon 
wants to go after. If the core way that we are going to do our 
satellites is large, sort of monolith, multibillion dollar 
satellites that have capabilities, it is going to be very hard 
to give that to a small startup, and it would drift itself 
towards there.
    A policy suggestion or things that some people have 
suggested is that while you are keeping that core legacy, 
ensuring that there is a certain amount of money preserved for 
the technological innovation amongst the younger ones is money 
worth spending as the hedge, and in order to usher along some 
of these newer technologies. In markets where there is a large 
commercial market, the commercial market will do that for the 
Pentagon.
    In places where it is a little harder and there isn't a big 
market, space, you happened to pick one, would sit there and 
say that it is probably too early to hand it over to that young 
startup, so I want to keep my core. But on the other hand, you 
are probably going to want to usher along some of these new 
guys to see what the new technology is.
    Mr. Larsen. Mr. Downey.
    Mr. Downey. I think it is a great question, and we are 
going to have to figure out how to integrate new innovative 
ways of building capabilities that we have built before. But in 
general, a great idea isn't a capability. A capability is the 
ability to design, develop, produce, and support a system 
throughout its life cycle and to build the skilled workforce 
that can do those things.
    Our policies today are to buy fewer and fewer pieces of 
equipment, have fewer programs with far more time between new 
program starts. It is very, very difficult to sustain that 
life-cycle capability in that kind of environment. Most small 
companies don't have the staying power or the resources to be 
able to do that. So having a one-time capability to compete for 
one thing doesn't necessarily mean you sustain the capability 
in terms of a unique military capability.
    Mr. Larsen. But that is one of the challenges facing the 
smaller companies in general, that longer lead time. So again, 
it is a process that plays against them as opposed to 
encouraging newer entrants into even the smaller niche areas of 
the defense budget, and something that we heard from folks and 
certainly in my district and from other places as well. So I 
think accepting that as a reality is part of what we don't want 
to do here. We want to accept that as a challenge for the 
Pentagon to change as a way to encourage smaller and medium-
sized businesses. Maybe we can help define what is an 
appropriate market and what is not an appropriate market too, 
and help them along. We will hear from folks next week on this 
point.
    The point you made about the aerospace defense industrial 
base today is not the one of the past but that we need budgets 
that produce programs that are profitable and stable--I don't 
want to put words in your mouth. I think from your members' 
point of view and from the current market's point of view, 
clearly, stable contracts that help provide a profit to the 
business is a good idea from your side of things, and probably 
the number one priority, despite the brochures; our number one 
priority is the warfighter and making sure they get the 
services and products and things so they can do the things we 
are asking them to do. Where those match, it is a great idea. 
Where they don't match, I would rather see us prevail. I would 
rather see the Pentagon prevail so that we are getting the 
services first. But if we do that, then that may not help you 
all prevail. So trying to find the sweet spot where you are 
coming--folks are coming and saying we need programs that are 
profitable, frankly, we have to say, well, we want programs 
that work, and they work on time and you are responsible for 
that, too.
    Mr. Downey. Well, I don't think there is any difference in 
what we are saying at all. If you have a strategy, you know 
where you are going, you have predictability and stability, and 
you have a reasonable way to do strategic business planning 
that satisfies your shareholders.
    And we have to remember that the members of the aerospace 
and defense industrial base are largely private companies. They 
are not government companies. If they don't meet the 
expectations of return on investment--and here is an expert on 
that--then their boards are going to force them into more 
profitable areas.
    So the more predictability and stability you have, the 
better opportunity to calculate that critical return on 
investment, and the stability allows you to build those things 
that work, that are on time, and that are on the contracted 
price. The more instability you have, we would say, the less 
likelihood that you are going to get an era where you don't see 
cost increases and schedule slippages. We have got to get to 
the point where we have that understanding of what is wanted, 
when it is wanted and it isn't changed on an annual basis, or 
when a chief of service or a new administration turns a 
critical must-have into a nice-to-have but expendable.
    Mr. Larsen. The other challenge, if I may, Mr. Chairman, a 
challenge we all obviously face and we have heard from other 
folks is the--another solution is the board decides to go out 
and purchase that smaller company, right? They go out and 
purchase the capability and bring it in-house themselves, which 
is a challenge we have heard from other folks, is how do we 
maintain--how do we help maintain the incentive structure so 
that the independence and smallness and innovation side of 
these small- and medium-sized businesses stays independent and 
innovative as opposed to getting sucked in to become a division 
or subsidiary of a company?
    Mr. Chao. That has partly been driven by the lack of 
visibility in the market space. Right? The large companies have 
cut independent research and development down from about 5 
percent of their revenues to about 1\1/2\ percent, and they 
have been substituting M&A [mergers and acquisitions] for that 
research and development because in the absence of knowing 
where the building wants to go, the only thing they can do is 
watch that little guy succeed, and at least they know that, 
hey, they are buying from that guy, so I will pull him in.
    The other thing about the profitability--just one quick 
point there. This is the only market space where the customer 
would gladly pay a billion dollars at 8 percent margin rather 
than $500 million at 20 percent margins. It is completely 
turned around. And that mentality sort of creates a lot of I 
think these perverse sort of disincentives for innovation, new 
entrants, et cetera. So as you hear proposals for, you know, 
reforming the system, just be very careful in watching about 
the assaults on the profit, which I can understand from a 
political standpoint, is actually going to end up generating 
the exact opposite. The industry would gladly trade lower 
dollars for higher profits each time. But for some reason, that 
is not in the mix.
    Mr. Larsen. Thank you, Mr. Chairman.
    Mr. Shuster. Mr. Runyan.
    Mr. Runyan. Thank you, Mr. Chairman. And, gentlemen, thank 
you for coming and your testimony. I just really have one 
question. We talk about the industrial base in this country, 
how it is--frankly how I look at it is the last major form of 
industry that we have here that is solely done here, and how we 
keep that, and Mr. Downey you have said obviously we need to 
have some confidence in projection forward in how we can 
procure stuff like this. My one thing, and I don't think--I 
don't think it gets enough traction, and I think it is really 
directly linked is the turn we have actually taken in space 
exploration associating with defense. Can you kind of talk--
because I know there is a lot of one offices and small 
suppliers that are involved in that industry. Can you kind of 
touch on that a little bit?
    Mr. Downey. We are concerned about the space industrial 
base, especially as it relates to the national defense space 
industrial base. There is some good news. There is an emergence 
of commercial space companies. Some of them are, in fact, 
members, and we look for great things from them. But I would 
make the same case. Space is an expensive proposition. The 
return on investment right now is somewhat problematic, and we 
need the Government strategy that keeps us moving forward on 
the cutting edge of technology.
    There have been many who have said they would bet you a lot 
that the next boots on the moon are going to be Chinese. And I 
am not sure that they are wrong. And only the Government, only 
NASA [National Aeronautics and Space Administration] and the 
Pentagon can have the kind of vision that translates into 
programs that builds the capabilities, and then as the 
commercial companies build their capabilities, I think they 
will be serious members of the United States space industrial 
base.
    But we risk losing some critical parts. We don't have a 
heavy-lift capability. Our satellite capability is atrophying, 
and everybody knows what the situation is with our manned space 
program. Right now, you know, we are dependent on the Russians 
to get to the space station. And the capability will atrophy. 
It will. And the small companies that make up the supplier base 
won't have the majors to sell to. They will turn to something 
else and then we will have to start again.
    Mr. Runyan. And I think even looking forward and planning--
and we hear it--testimony all the time, that even when the DOD 
tries to project what is going to happen in a QDR [Quadrennial 
Defense Review], that changes tomorrow. So--in a way it is kind 
of an oxymoron to go back and forth. We are planning for the 
future, but the future changed yesterday after we already put 
the report out. So I understand the frustrating aspect of it. 
But to help us nail down a way to keep the industrial base here 
I know is a frustrating proposition. So thank you. And I yield 
back, Chairman.
    Mr. Shuster. Thank you, Mr. Runyan. Ms. Hanabusa, you are 
next.
    Ms. Hanabusa. Thank you, Mr. Chairman. And I would like to 
thank the chair and the ranking member for taking us to Rock 
Island. It was a very interesting adventure for someone from 
Hawaii to actually see a working foundry. I think I would like 
to start first with Mr. Downey. Mr. Downey, I was reviewing 
your publication, ``Defense Investment, Finding the Right 
Balance.'' And you say things like how much is enough, which is 
an interesting concept of how much is enough. But I think the 
problem that I see that we are having is the fact that when we 
talk about the defense industrial base, right, some of us think 
about things like R&D [research and development], because we 
know that the Big 7 or the Big 5, as you say, in 1993, 30 
companies went down to 5 in essence. And then we forget that 
the other component of it is truly an industrial base, in other 
words like the foundry, who then manufactures. But then we have 
this conflict of how do we decide what is going to be 
manufactured because of what we are developing and, it comes 
down to really a sense of what is, from our perspective, the 
defense going to look like, or the military is going to look 
like into the future? And I know each of you have your 
different areas.
    So can you tell me each one of you, beginning with Mr. 
Downey, you can go to Mr. Chao and Mr. Watts afterwards--what 
is that fundamental end goal that we are looking at, you might 
call it end strength, I am talking about people. What is that 
end goal we are looking? Let us take it 10 years out, to 2021. 
What are we planning for? Because until we have a clear view of 
that, how can we then decide enough is enough or when is enough 
enough? Is 4.4 percent of GDP [gross domestic product] enough? 
And how do we spend that money? And how do we keep the 
industrial base, which is manufacturing and the research and 
development when we go from 30 to 5?
    Mr. Downey. Ms. Hanabusa, I think there are--I detect this 
as two parts. One is that we do need a strategy to decide what 
we want our military to do in the future, what forces we need 
to do it, and what technologies and weapons we want to provide 
them to do it. That is frankly supposed to be the job of the 
QDR. It has not done a terrific job there. So that is about 
getting down to what specifically we are going to do and what 
we need. The report you talked about was one where we looked at 
the issue from a macro level, and said the United States since 
mid-20th century has been a global power with global 
responsibilities and global reach that we have ended with up a 
military of a relative size of 1.5 million active. And when we 
looked at the budgets over time, and the ups and downs of the 
budgets, what we found was that in order to have that global 
military with global reach and global responsibilities, every 
time we came down much below 4 percent of GDP, and at the same 
time, reduced the investment accounts to below--much below 35 
percent of that top line, we ended with up a hollow force, 
whatever the specific goals, whatever the specific forces were.
    And so I think it is back to a point I made earlier. You 
have to make these choices, but you have to have adequate 
resources. And so we started with the assumption that the 
United States is going to remain a global power with a global 
force, with global responsibilities, and we looked at the--an 
interesting point too, that increasingly, that 1.5 million 
looks smaller and smaller to do all of those things.
    So we have had a historical policy of using the technology 
advantage we have had. And so the amount of money that it takes 
to field one of those 1.5 million is going to keep increasing 
in the future. You are not going to reduce that requirement. So 
number one, we do need to know where we are going. That is a 
national-level political decision. We need to know how we are 
going to do it militarily. That is ultimately a professional 
military recommendation with the national political decision. 
But it is going to need the resources. And we believe, at AIA, 
that those resources are probably not going to fall much below 
4 percent of GDP or 35 percent of that top line for investment, 
whatever those decisions are, or those plans are going to end 
up being hollowed out in one way or another. And the resourcing 
part is a congressional responsibility and decision.
    Ms. Hanabusa. Mr. Chair, I am out of time. So could the 
other gentlemen send it in writing to me? Thank you very much.
    [The information referred to can be found in the Appendix 
on page 111.]
    Mr. Shuster. Sure. And with that, Mr. West. And also let me 
mention, Members, we will probably go for another round if you 
have any more questions. Because I know I have a couple more.
    Mr. West. Thank you, Mr. Chairman, and to the ranking 
member and thanks to the panel for being here. And I spent a 
couple of days in the military. And a lot of the frustrations I 
saw, especially when you look at the FCS [Future Combat 
Systems] program, Crusader, F-22, Advanced Amphibious Assault 
Vehicle. In the last 20 years, we have gone from 546 Navy war 
vessels down to 285, but yet, 10 years ago about 19 guys got 
together. We spend $1.5 million on a Tomahawk Cruise Missile. 
They hijack four airplanes and they flew them into buildings.
    We have programs like the JTRS [Joint Tactical Radio 
System] and the WIN-T [Warfighter Information Network-
Tactical], which the Army is saying that is one of their top 
requirements for communications, but yet we are not funding it.
    I would like to ask this question, your assessment: Do you 
really believe that there is a huge disconnect between a 
national security strategy, national military strategy and 
then, of course, the requirements we send out to the defense 
industrial base so that we can start developing a sensing of 
the next 20, to 30, to maybe 40 years, of this military that we 
have to have to be able to fight against, you know, what is a 
very determined enemy that is not that much technologically 
advanced. So I would like to hear your assessment on that. And 
then what can we do to rectify that situation?
    Mr. Watts. All right, I will take a stab at that one.
    Look, let me just mention one very broad capability that we 
have had really since the Second World War, and that is 
overseas power projection of conventional forces. Associated 
with that, one of the pieces that we have developed certainly 
over the last couple decades has been long-range precision 
strike, and frankly since Desert Storm, we have had almost a 
monopoly in that area. Now, one of the problems going forward 
is that technology is starting to proliferate, at least at the 
short end range, guided mortars, guided artillery, guided 
short-range missiles, and that is going to make power 
projection much more difficult for us if you think in terms of, 
say, something like Inchon in 1950, a traditional over-the-
beach amphibious assault. So that would suggest we are going to 
have to make some substantial changes and adjustments.
    I would be hard-pressed to think that we would like to get 
out of the precision strike business. I think that is going to 
be--that is an area which is fundamentally dependent on 
networking, on ISR [intelligence, surveillance, and 
reconnaissance] advanced capabilities that we have spent a lot 
of money and time and effort developing, and in a broad sense 
you wouldn't want to back out of that particular business long 
term. Given the fact that the Chinese, for example, are going 
fairly fast down the same path in developing anti-access/area-
denial capabilities against, say, surface combatant and 
aircraft carrier, reaching out to ranges as far away from the 
Chinese coast as Guam, suggests that the future of the carrier 
battle group may be at risk. We have depended on that for 
overseas presence and power projection for a long time. Those 
are hard choices that I think the services are going to have to 
make, so let me just mention that as one.
    I mean, another area that I know is not conventional, but 
to think about where our nuclear capabilities have gone since 
the cold war ended, it would be nice if we could get, in my 
lifetime, to a world without nuclear weapons. I am personally 
fairly skeptical. I don't think we have convinced too many 
others around the planet who possess nuclear weapons that it is 
time to give them up and that they no longer have value, and 
that is an area of the industrial base where we have preserved 
the design capabilities at Lawrence Livermore and Los Alamos, 
which as I am sure you are aware Secretary Gates and Secretary 
Bodman, who was at [the Department of] Energy going back in 
2009, basically observed we no longer have production 
capabilities for a nuclear weapon, and that is an area where if 
you really wanted to go back into that business, you would have 
to start over again.
    Mr. Chao. One quick comment. As long as we have a 
requirements and acquisition system that takes 20, 25 years to 
get something from concept to actually out in the field, you 
are going to have always a fundamental disconnect between 
strategy and what we are buying. I mean, in 1900 they were 
planning against the war against, you know, the Germans or the 
French or the Brits potentially, by 1920, right, we had just 
fought the Germans, by 1940 fighting them again, by 1960 it is 
the Russians, by 1980 they are at the top, by 2000 it is four 
guys in an airplane, by 2020, to your question, Ms. Hanabusa, I 
mean, who knows? And so shrinking, looking at the, again in 
terms of your reform efforts, looking at shortening that cycle 
can only be a good thing from the perspective of getting that 
mismatch out of the way, and oh, by the way, shorter cycle, 
which means more points of competition, more programs is very 
healthy for an industry. One program every 20 years is really 
unhealthy for an industry.
    Mr. Shuster. Would you repeat the last thing you said? I 
couldn't hear it. Just the last couple sentences.
    Mr. Chao. One program, if I am running one program for 20 
years, that is very unhealthy for an industry versus, you know, 
versus not. I mean, this whole element of how long it takes us 
to get a weapons system is really one of these core root cause 
elements, and we solved part of that problem in the way we did 
acquisition for the war because it created a really quick pull, 
and we had very quick turns, right? And so we will have a 
healthy base related to that. It is the other part of the 
system which you guys are looking at from a reform standpoint, 
I think that is part of the fundamental issue.
    Mr. Downey. Quick comment, Mr. West. I think, as an old 
soldier myself, I sympathize with your frustrations, I had them 
as well. One thing that personally I would be leery to do is 
predict too precisely who we are going to fight, where we are 
going to fight, with what we are going to fight, and when we 
are going to do it. Historically we have always been wrong when 
we have done that too much. So part of the problem, I think, is 
retaining the capability we need. We are not going to end up 
buying everything that is wanted or designed, but when the 
system gets to the point that you described, the possibility is 
we won't buy much of anything, as Pierre said, and the 
capability to do that will atrophy and migrate away, and we are 
just not going to be able to reconstitute some of that. Some of 
it will be very expensive, some of it may not be recoverable at 
all.
    Mr. West. Thank you, Mr. Chairman. I yield back.
    Mr. Shuster. Thank you. Ms. Sutton.
    Ms. Sutton. Thank you, Mr. Chairman. Thank you for your 
leadership, and to the ranking member, thank you as well. 
Gentlemen, thank you for your testimony. I have great concern, 
as I am sure everyone here does, of the consequences of the 
atrophy that you describe. I tend to believe that if you can't 
make it, you are at the mercy of those who can, which is not a 
good place for the United States of America to be. This is so, 
so very, very important.
    Mr. Downey, on page 5 of your testimony you talk about 
other nations, including our closest allies, comprehend these 
realities, and thus they have adopted systematic comprehensive 
policies to sustain what they consider to be strategic national 
assets. Can you expand on that for me, tell me who and what?
    Mr. Downey. Yeah. Most major industrial nations do have an 
industrial base strategy for their defense. I wouldn't go so 
far as to say it is exceedingly successful and effective in all 
cases, but France does, United Kingdom does, Germany does, I 
believe China does, but the key that they tend to focus on is 
what capabilities from a national standpoint they want to 
retain. They don't always get it right, but at least it is part 
of their process.
    The British have the process of the defense white paper 
system, which includes defense white papers. We do not include 
industrial base considerations in our strategic planning 
historically. In the most recent QDR there was exactly one 
paragraph about industrial base, and nobody in the industrial 
base that I am aware of participated in even developing that 
one paragraph, let alone a strategy. Yet I sat in a meeting in 
London a couple of years ago where the then British Defense 
Minister met with the senior leaders of the British defense 
industry and outlined where he was going to go, saying that he 
had heard their concerns and that he was going to take care of 
part of that by including in the strategy an effective outreach 
program for foreign sales. Now, that may not be a complete 
strategy, but it is at least a somewhat coherent one, and one 
which we don't have as a coherent one.
    Ms. Sutton. Well, I appreciate your answer. There are so 
many questions. Let me ask you this: I mean, clearly I think 
that maintaining a stable and strong and nimble industrial 
policy is critically important. You talked about the need for 
the strategic plan. I think the second component that you 
really focused in on was communication, and if you could just 
speak to the need for much better communication and 
coordination between the Pentagon and industry than has been 
our historical norm, in a nutshell, what do we do?
    Mr. Downey. Yeah, in a nutshell, as I said, historically we 
haven't done much of it for almost a 10-year period. During the 
first decade, to my knowledge, there wasn't one meeting between 
the Secretary of Defense and the collective leaders of the U.S. 
aerospace and defense industry. That has been turned around. 
Former Secretary Gates and current Secretary Panetta has begun 
to meet with the leaders of the aerospace and defense industry, 
and the industry has reciprocated by forming an industrial base 
task force to look at the impacts with the hope that we can 
help the Pentagon if they so choose, but it is--even if they 
develop an industrial base strategy, if they do it without 
industry, it would be like having a naval strategy without 
talking to the Chief of Naval Operations.
    Ms. Sutton. Well, the one question I have, as you talk 
about the--even if all of those improvements take place, if we 
make progress there, we still have the issue that this panel 
has seen over and over again dealing with the communication 
into smaller and midsize providers, so can you speak to that 
issue as well? Because when you say industry, I am guessing you 
are not talking about them, you are talking about----
    Mr. Downey. No----
    Ms. Sutton. You are talking about----
    Mr. Downey. I am. And as a matter of fact, in our 
association, for example, we have a supplier management council 
that includes members of the supply base and that is 
represented on our executive committee by one of their leaders, 
currently Chuck Gray from a small company. So their 
considerations are included in all of the work that we do and 
all of the advocacy we do with the Pentagon and elsewhere.
    Mr. Shuster. If you have further questions, we will start 
the second round with you right now.
    Ms. Sutton. That would be great.
    Mr. Shuster. Sure.
    Ms. Sutton. Thank you very much, Mr. Chairman. When you 
talk about the--you specifically mentioned some capabilities 
that you see atrophying from the heavy-lift capability, the 
satellite capability, and the manned space capabilities. Part 
of the challenge I face and maybe others do is how do you 
quantify what that means to us?
    Mr. Downey. Well, we are working on trying to get a better 
handle on the impacts. One thing we do know, the first part of 
that life cycle that begins to atrophy is the design 
capability. As a program matures, the company who is making the 
product has less and less need for the people who do design, 
and so if they don't have other places to put them or other 
programs that require design, then they are going to get rid of 
them, and there are a number of design teams that have been 
reduced or that have actually been disbanded because there is 
no work for them, and it goes back to which ones do we not want 
to have that happen to. I would probably suggest that right now 
we wouldn't want to lose our capability to design a nuclear 
submarine. The British went down that road and found they 
couldn't reconstitute that capability, and about a dozen years 
later they decided they needed it. And so I would hope the 
Pentagon is looking at that much more carefully to decide which 
of those capabilities and which of the skills represented by 
the people that may be lost if the budget is decremented too 
much they absolutely have to have and then come up with plans 
to do it, and in some cases that may not seem the most cost-
effective thing, program by program, but on a national security 
basis it might be the most cost-effective thing to do.
    Ms. Sutton. Well, I share the frustration over the idea 
that every expenditure--it is interesting what we are seeing in 
budgeting here, that anything that doesn't appear as an 
expenditure is obviously an efficiency, and that isn't 
necessarily the truth, and so this whole concept of life cycles 
and the cost of not investing, the cost of not doing things, 
and I think that that is what we really need to help translate 
in order to get some more sense back into the way we are 
proceeding, not just in this, you know, in the industrial base 
and certainly DOD, but frankly infrastructure, the cost of not 
building infrastructure is not zero. It is still there, and it 
is going to maybe be more costly and more inefficient. So 
anybody else have any comment?
    Mr. Chao. I am just going to make a comment to your 
question, in the absence of a defense industrial strategy, we 
are actually making one up by every acquisition decision we 
make.
    Ms. Sutton. Exactly.
    Mr. Chao. It is getting done, so we should stop lying to 
ourselves and admit that we are doing it and get to it. Because 
also in the absence of that strategy, and I will say something 
incendiary that will probably get me into trouble, but, you 
know, in the absence of figuring out what is strategically 
important to us, we focus on very strange things, so I have a 
very detailed industrial base strategy related to black berets, 
but I don't have one related to semiconductors.
    Ms. Sutton. Right.
    Mr. Chao. And the Chinese have set up a policy where they 
are drawing in every technology where it would almost be 
fiduciarily irresponsible for an executive not to put their 
plant into China, right, because of the incentives they set up, 
and we are letting it drift away. And so I think you are 
hitting on exactly the right point about what is strategically 
important, and if we don't get to it, we are going to find out 
that that capability is gone.
    Mr. Watts. If I could just add to that, in the kind of 
fiscal environment that the Pentagon faces now and the 
Department of Homeland Security and other parts of the U.S. 
Government, the tendency is to start focusing on individual 
programs and sort of addressing the question of, well, how much 
can I cut this one, can I eliminate that one? And it seems to 
me from a strategic standpoint, you first want to decide what 
you really want to keep, and we haven't been doing very well at 
that.
    Just to touch on the point that Mr. West mentioned earlier, 
if you look at the last three or four or five national security 
strategy documents, they tend fundamentally, in my judgment, to 
be wish lists without getting on to the difficult issues of 
exactly how are we going to get from point A to point C or 
point D, and so I think they have not been that helpful in 
addressing these kinds of issues about what we want to keep.
    Ms. Sutton. Thank you.
    Mr. Shuster. Thank you. Mr. West.
    Mr. West. Thank you, Mr. Chairman. Coming back to what we 
talked about with the acquisition cycles, you know, one of the 
things that I know that the Army has instituted is something 
called the Rapid Equipping Force. A good buddy of mine is 
heading that up. So what are your recommendations, things that 
we can look at, things that we could do, things that we could 
push for coming from this panel and from the Armed Services 
Committee as far as how do we shorten that acquisition cycle 
and how do we get more of these emerging technologies and 
companies involved so that we can be a bit more adaptive 
because the soldiers, sailors, airmen, marines are quite 
adaptive on the battlefield, but it seems that we up here on 
this aspect and in industry, we are not as quickly responding 
and as adaptive.
    Mr. Chao. You hit a great topic. We have painfully learned 
those lessons over the last decade. One of the biggest things I 
think you need to watch as a group is the tendency that once we 
are gone to have forgotten those lessons. In fact, 200 years of 
history says we will forget those lessons and go back to our 
old habits, and so one of the key things we can do is how do 
you embed those hard lessons learned into the system and do 
that? Because there is a basic presumption that in some ways 
there is a barbell-shaped market. One part of the market or of 
the industry that is tied to this fight of today, very rapid 
acquisition, leveraging commercial technologies, I am fighting 
against guys with box cutters and spending $10 million 
developing a device is not a smart thing. The troops know how 
to do that.
    There is the other end where it is near-peer adversary and 
I do need these traditional players to do that, how can I get 
them to move a little bit faster and cross-pollinate? Again, 
don't extend the lessons too far in either direction, but the 
number one thing I think we can do is make sure that the 
mentality that is adopted there gets shifted into the core 
process where appropriate, particularly related to some of 
these new technologies where you need the fast turns. Think of 
how obsolete the technology is inside some of those long 25-
year platforms we just talked about.
    Mr. Downey. I am not sure there is a whole lot of new ideas 
on that. Most of them have been identified and articulated, 
number one, decide what we want, lock down the requirement, and 
build to the requirement, preferably do that with some 
cooperation between those who need it and those who are going 
to build it, and reduce the impediments to building it and 
doing it quickly and without excessive cost, and we know what a 
lot of those are; excessive oversight, excessive paperwork, 
excessive and nonmaterial audits. I had one of our CEOs [chief 
executive officers] that told me that he had a program that had 
ended over 3 years before. The auditors showed up, three 
people----
    Mr. Shuster. Mr. Downey, would you suspend for a second. I 
have a little difficulty here. I don't want to miss what you 
are saying.
    Mr. Downey. Sorry, Mr. Chairman. That he had a program with 
the Pentagon that had been completed about 3 years before. 
There were only a handful of people who were actually on that 
program, and the auditors showed up. There were actually more 
auditors than had ever worked on the program, and he had to go 
out and hire some accounting people on the back end. Now that 
is cost, you know, and that is going back in the system. So Ben 
Rich, who was the head of the fabled ``Skunk Works,'' pointed 
out in his book that over his tenure the oversight and 
paperwork had increased to the point that in his words we put 
more and more into the big end to the final to get less and 
less out the small end, and it just got worse and worse, and he 
wrote that in 1994, so you can imagine what it is like at this 
point.
    Mr. Watts. Back in 2006 General Kadish, when he retired, 
did an acquisition assessment, and one of the recommendations 
in that report was something called ``time-certain 
acquisition'' where you set a 4- or 5-year hard [stop], you 
either deliver the product by then or the program is canceled 
kind of an approach. I understand that when they did the 
outside look at the last QDR, General Larry Welch was involved 
in that. He has a lot of acquisition experience, and 
essentially made the same recommendation. You will find it in 
Gansler's book, you will find it in our report. The caveat that 
goes with that, of course, is you have to ruthlessly adhere to 
the time-certain delivery schedules and not sit there towards 
the end of the program as it is starting to slip in terms of 
schedule, and cost is going up, and decide, well, we spent all 
that money, so we can't afford to actually cut it off. That is 
a very difficult thing, as I am sure all of you know in terms 
of listening to industry constituents from your States.
    Lastly, I will just mention, you know, to touch on what 
Fred talked about, about the oversight, I recently talked to 
some people from one of the major contractors where they had a 
product--it had originally been built for one of the services, 
and now they were starting to sell commercial versions of it, 
and the difference in oversight at government contractor 
oversight of the program actually in the factory was the 
difference between 5 or 6 on the commercial side and 100-plus 
on the government side, and as Fred correctly said, that is 
cost. There is just no doubt about it. It also makes schedules 
slip.
    Mr. West. Thank you, Mr. Chairman. I yield back.
    Mr. Shuster. Thank you. Ms. Hanabusa.
    Ms. Hanabusa. Thank you, Mr. Chair. Mr. Chao--and by the 
way, gentlemen, I still want your writing to my last line of 
questions, I want it in writing your responses.
    But Mr. Chao, let's move on. I like your concept of policy 
by acquisition. I think that is a great way of putting it, and 
that is probably what we are doing. I also went over your sort 
of your slide show, and what caught my eye was, of course, the 
second page that says a few ways to think of industrial policy 
affairs. One of the things in here that causes me somewhat 
concern, and I would like to go over it with you, you talk 
about the life cycle of technology industry sectors, and it is 
this curve that ends up with stability decline, and you have 
all these other things on the bottom, and it basically points 
to fewer competition, and that is really the purpose of, I 
think, this committee. We were looking at as we began to look 
at the cuts in the defense budget, we were actually more 
concentrating on small and medium-sized businesses because the 
big guys will, as your chart in here shows, they practically 
have everything else. But this is troubling to me because what 
you seem to be saying is that we are just headed for fewer 
competitors and we are headed for some kind of decline. Am I 
reading your chart correctly?
    Mr. Chao. You are from a technological standpoint to the 
extent that every industry runs through its normal cycle, and 
the commercial industry runs through it much faster, and the 
cycle gets restarted. There is a part of the curve that reboots 
the cycle, and so if you want to be harsh about it, the 
technologies we are most stressed about--aircraft, space 
launch, shipbuilding--those are technologies of the 1910s, 
1920s, right? Now, the difference between the commercial world 
and defense is actually we still use those technologies. So 
that decline phase goes on for a very long period, which is 
why--or I would call it stability in terms of maturity of 
technology, and so all it says is that the policies and things 
you want to focus in on are different. That is going to be a 
negotiated relationship with that because of the age of those 
technologies there will naturally be fewer competitors, period, 
full stop.
    Ms. Hanabusa. But if we put the policy by acquisition and 
overlay that----
    Mr. Chao. Right.
    Ms. Hanabusa. We also seem to be saying that because we are 
continuing maintaining those old technologies of 1910 of which, 
as you are saying, we may put a new coat of paint or we may 
beef it up a little bit, but we are seemingly then doing what 
you are kind of guarding or telling us to guard against, which 
is we are maintaining the old technologies because we, by doing 
that, we are making, we are setting the policy through our 
acquisitions.
    Mr. Chao. And in some cases you should because they are 
still very valid technologies. So to date no one has yet sort 
of come up with a substitute for the submarine, right?
    Ms. Hanabusa. Right.
    Mr. Chao. And so it is a core capability set. No one has 
come up with a substitute for, again, the heavy space launch. 
You have some guys who are trying to do that. And that is why I 
think as you look at this, and to Mr. Downey's point and Mr. 
Watts' point, you know, it is where you should be spending your 
time because it is going to be the thorniest problems of how do 
I keep these capabilities alive while at the same time you 
should be spending R&D money. We should be encouraging the 
young innovators to see who is going to come up with an answer 
for that because I guarantee you something, if we don't, the 
adversaries will. They don't have $700 billion to spend on 
sustaining that base. They are trying to solve the exact same 
problem at one-tenth the cost and, guess what? That forces them 
to be really innovative, which is why they come up with box 
cutters or they come up with drones or others.
    Ms. Hanabusa. While I still have you, the barbell, which is 
what you were mentioning I think in relationship to Congressman 
West, you have it also in your handout. I am trying to 
understand slice one and slice two, and if you can do that very 
quickly for me.
    Mr. Chao. Yeah, it is just two different ways of looking at 
it. So one way is to think about it from the dynamics of the 
left-hand side of the barbell which is tied to the fight of 
today. It is very much again pulling technologies off the 
shelf, think of the MRAP [Mine Resistant Ambush Protected 
vehicle], think of those technologies. In fact, back to the 
ITAR issue, three or four of the five designs were overseas 
designs, right? That was able to pull the more traditional side 
of it is our old stately system of acquisition that we know and 
love and sort of, you know, moves along. That is one way of 
thinking about it.
    The other way of thinking about it also is from the types 
of companies. The smaller, younger, more innovative ones are 
the ones that we have found that have been taking advantage of 
[the] rapid acquisition system. I am not going to give the 
creation of the building of FCS or the GIG [Global Information 
Grid] or large networks or F-22 to a small start-up. It is just 
not the right scale and appropriateness. So you need both ends.
    The biggest dilemma for the companies themselves is can 
they operate on both ends of the barbell or not, right? And so 
that is what they are struggling with and they are beginning to 
question that once the war is over will the left-hand side of 
the barbell live anymore? I would submit to you SOCOM [Special 
Operations Command] lives in that world all the time, the 
Intelligence Community lives in that world all the time, so 
there is an enduring market.
    Ms. Hanabusa. Thank you. Thank you very much. Thank you, 
Mr. Chair.
    Mr. Shuster. Thank you. You mentioned about the MRAP, and I 
got to know a Special Forces colonel, he is not a colonel now, 
he is a general now, but he was in Somalia, and he talked about 
they had in Somalia deployed some up-armored vehicles, I don't 
know which country, South Africa or somewhere, and he came back 
after Somalia and said we need these if we ever go into an 
urban environment again. Well, you know, we just pooh-poohed 
that, and then we had the situation in Iraq and we should have 
learned from that, but going back to the point we don't predict 
very well what we are going to be doing, and I guess we don't 
listen to people that have been actually in those situations 
and know what they are talking about.
    You had mentioned earlier that Secretary Panetta and 
Secretary Gates had started to engage at least the large 
defense contractors. Is DOD doing anything, in your view, 
sufficient enough to reach down to the mid-level and smaller 
companies to engage with them in some kind of dialogue? Can you 
talk about that a little bit?
    Mr. Chao. It is harder. There are things like the Mentor-
Protege programs that, you know, I find useful. It is back to 
the other entities who sort of are tasked to do that like DARPA 
that has been reaching, but in dealing with those companies, 
that has been one of their biggest frustrations has been they 
don't even begin to know where to start, how to interface, how 
to, you know, how to begin to get in. They would love to have 
an ombudsman or somebody that could, you know, be their 
champion. They look to the small business sort of advocates, 
you know, to do that. As you know, some groups are better than 
others in terms of following that. It is a perpetual sort of 
grinding of the gears.
    Mr. Shuster. That would be something you would recommend 
for us to look at?
    Mr. Chao. Yeah.
    Mr. Shuster. Having somebody in there that is looking out 
for the smaller guys more aggressively? I guess there is an 
office at DOD that is supposed to be doing that, and we are 
going to have them in front of us, but I get the sense that 
they don't have too many resources behind them to be able to do 
that.
    Mr. Chao. There is, and then again the thing to be careful 
about is setting, you know, the small business set-asides which 
I understand is part of a policy also has sometimes some 
unintended consequences, right?
    Mr. Shuster. Right.
    Mr. Chao. There are companies that have loved sticking 
within that and don't want to graduate because once you 
graduate you are in the maelstrom, and that is not quite what 
we want them to do. We want them to use that to get to a 
certain level, then graduate to the mid tier without having to 
sell out, and so we also have to be very vigilant about these 
one-size-fits-all things.
    Mr. Shuster. Mr. Downey.
    Mr. Downey. I think they are, and I think your witness in 
the coming hearing will be able to talk to a lot of that. One 
of the problems is the Pentagon actually coming up with an 
inventory of who the aerospace and defense industrial base 
suppliers actually are. We don't really have an inventory. The 
OEMs [original equipment manufacturers], the large producers 
have a pretty good handle on what their supply chain is, but 
there is not much of a horizontal, so Brett Lambert, who is the 
Deputy Assistant Secretary, does have a program that they have 
been implementing, but there are a lot of them, I think 25,000 
suppliers is kind of a guesstimate.
    Mr. Chao. 97,500.
    Mr. Downey. 97,500.
    Mr. Chao. Essentially everybody.
    Mr. Downey. And so that is pretty hard. My own personal 
opinion is you should look at it. Doing business with the 
Pentagon is difficult, intimidating, and for small companies 
darn near impossible. To have the lawyers, accountants, and 
advocates that are necessary to understand the Federal 
Acquisition Regulations and operate successfully without 
penalty in that world scares away a lot of people and is 
scaring some of the people who are actually doing it now out of 
the business, and I think if we don't get a handle on that we 
are going to lose capability that we wish we had.
    Mr. Shuster. Right. Mr. Watts, any comments?
    Mr. Watts. Well, I just touch on the ITAR's kinds of 
constraints on being able to access the global defense industry 
is, really is a significant constraint these days. And the 
specialty metals thing came back in Iraq when people had 
started running into IEDs [improvised explosive devices], you 
had Humvees that were not armored. You could get access to 
additional armor to add to the Humvees in country, but that ran 
into the very amendment kinds of restrictions which sort of 
said to people really if you are going to follow the rules and 
regulations you are going to have to go all the way back to the 
United States to get armor plate that is available locally. I 
mean, these kinds of constraints I think in that particular 
case probably led to some people dying, and, you know, those 
kinds of constraints it just seems to me we do need to do 
something about.
    Mr. Shuster. And one final question. What role, what is the 
appropriate role for the industry to work with DOD to assessing 
the health of the structure, you know, as we move forward? What 
is the role of industry?
    Mr. Watts. DOD is going to supply an awful lot of the data 
that the Pentagon doesn't have, for a starter, and, you know, 
the more you can get the companies to work as a team with the 
Defense Department or Homeland Security I think the better off 
you are going to be.
    Mr. Shuster. Do we have enough laws in place, in your view, 
that stop us from doing that, keeping these, you know, arm's 
length instead of bringing them in and being a part of the 
team?
    Mr. Watts. I go back to a program that in my industry days 
I was really familiar with, the B-2 bomber, which is not 
everybody's favorite acquisition for a variety of reasons, 
including the unit cost at the end of the program, but that 
program was eventually won by Northrop [Grumman]. The 
competitor was Lockheed [Martin], who had built the F-117, and 
the Air Force basically wanted a high flyer, it was going to be 
a high-altitude penetrator, period, end of story. Two years or 
so into the program, the Air Force changed their mind, wanted 
low-altitude penetration, and as I discussed with some of the 
staffers for the panel a couple weeks back, that required a 
major wing redesign except the airplane was a flying wing. You 
imposed a lot of cost and a lot of delay by having essentially 
requirements creep in that particular program. We haven't 
talked too much about the requirements process, but that is 
another piece of this whole system which, in my view, could use 
a lot more coherence and discipline.
    Mr. Shuster. Mr. Downey.
    Mr. Downey. Mr. Chairman, there are in fact impediments to 
adequate cooperation. Some of those are cultural, some of them 
are institutional, some of them fall into the category of laws 
and regulations, and some of them are absolutely correct. At 
some level you do have competition and you do have a need to 
protect proprietary information on both sides, but increasingly 
industry views the relationship, and I am not talking about 
just in the last few months or even the last couple years, as 
increasingly adversarial. Witness the most recent letter out of 
the administration that would tighten or reduce the ability of 
military officers to participate in widely attended events, and 
so you end up with the problem of what is intended, what is 
written, what is interpreted, and when you get down into the 
organization, it is just an awful lot easier to avoid the whole 
thing than defend yourself or try to explain it later.
    Mr. Shuster. And I think it is a terrible problem. They 
don't even want people to talk to people, and when it is 
completely appropriate and necessary. Mr. Chao.
    Mr. Chao. It is a huge issue, and it is politically 
difficult and hard to raise, and it is another one where it is 
creating a really unintended consequence. If I can't talk to 
people and I can't sort of get basic information, so what 
happens? You are then forced to recruit retiring military 
people because that is the only way you get to understand what 
is going on inside, which then raises the specter of the issue 
of what is going on, and so I tighten laws about that, and then 
I get even more and more removed every step of the way until 
the point where I can't talk to my basic customer in order to 
understand what is going on. And that then has second-order 
consequences. But to sit there and say I want to speed up the 
revolving door is political suicide, and so it is a topic that 
we don't really touch at. But again, I think you are touching 
on one of these core fundamental issues. If you can figure out 
a way to gently look at the issue, I would really encourage you 
to do so.
    Mr. Shuster. That is what we hope to, but that brings us 
right back to what Mr. Watts started out saying, this is not a 
free market system because in the free market system you go to 
the customer, and say what do you want? Explain it to me, and I 
will try to come up with something that satisfies your needs. 
So it brings us right around, and that is one of the things we 
need to explore because we know it is a big problem.
    Again, I want to thank all of you for giving up your time 
today and your expertise. I am sure as we move forward, Ms. 
Hanabusa, I think she has some questions, and we may have 
questions further that hopefully we can talk to you and get 
your input because I had--just in this room a couple weeks ago 
we had a meeting with former Secretary Rumsfeld, and I said we 
had this panel and, you know, what do you see at the Department 
of Defense? He looked at me and smiled and he said, if I was 
advising a small business, I would tell them, don't do business 
with DOD, he said it is too difficult. His quote, his 
comparison was it is like sleeping with a hippopotamus. 
Eventually it is going to roll over and crush you, and it will 
never know it did it to you. So it was a very concerning 
comment, but I am not willing to take that point that I think 
it is critical. And he did say also that a lot of the great 
ideas, I mean if not all the great ideas, the new technologies 
are coming from small and medium-sized companies that are 
nimble, but he said it is so difficult. So that is what 
hopefully we are tasked here, and we will come up with some 
solutions to change that, to change the culture, to change the 
laws and make sure that those small and medium-sized companies 
continue to be a very important and--very important part of the 
new technologies that emerge to protect our warfighters and our 
Nation.
    So, again, thank you all very much for being here, and we 
have a field hearing Friday in Akron, Ohio. Looking forward to 
it. I have a list here. You have got a number of companies, so 
I'm looking forward to that. As we go to Ohio on Friday I hope 
all our members or most of our members can join us. Again, 
thank you very much, and this hearing is adjourned.
    [Whereupon, at 4:37 p.m., the panel was adjourned.]



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                            A P P E N D I X

                            October 24, 2011

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            October 24, 2011

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=======================================================================


                   DOCUMENTS SUBMITTED FOR THE RECORD

                            October 24, 2011

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=======================================================================


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                            October 24, 2011

=======================================================================

      
            RESPONSES TO QUESTIONS SUBMITTED BY MS. HANABUSA

    Mr. Watts. See attachment [Appendix, page 103]. [See page 16.]
    Mr. Downey. [The information was not available at the time of 
printing.] [See page 16.]
    Mr. Chao. [The information was not available at the time of 
printing.] [See page 16.]
?

      
=======================================================================


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            October 24, 2011

=======================================================================

      
                  QUESTIONS SUBMITTED BY MS. HANABUSA

    Ms. Hanabusa. In your testimony, you mentioned that the Independent 
Panel that writes the Quadrennial Defense Review does not communicate 
well enough with defense industry while conducting their research. 
Specifically, who in industry does the panel need to communicate more 
with?
    Mr. Downey. [The information was not available at the time of 
printing.]
    Ms. Hanabusa. Please explain in more detail the connection between 
Wall Street and the defense industry.
    Mr. Chao. [The information was not available at the time of 
printing.]

                                  
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