[Senate Hearing 113-66]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 113-66

 
                  OVERSIGHT OF THE DEFENSE PRODUCTION ACT: 
                    ISSUES AND OPPORTUNITIES FOR REAUTHOR-
                    IZATION
=======================================================================


                                HEARING

                               before the

                              COMMITTEE ON

                   BANKING,HOUSING,AND URBAN AFFAIRS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING HOW THE FEDERAL AGENCIES RESPONSIBLE FOR IMPLEMENTATION OF 
  THE DEFENSE PRODUCTION ACT (DPA) ARE BEING USED TO SUPPORT NATIONAL 
                                DEFENSE

                               __________

                             JULY 16, 2013

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                 Available at: http: //www.fdsys.gov /





                  U.S. GOVERNMENT PRINTING OFFICE
82-567                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001



            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson, Deputy Staff Director

                           Pat Grant, Counsel

                  Brett Hewitt, Legislative Assistant

                  Greg Dean, Republican Chief Counsel

            Chad Davis, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         TUESDAY, JULY 16, 2013

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Crapo................................................     2

                               WITNESSES

Frank Kendall, Under Secretary for Acquisition, Technology, and 
  Logistics, Department of Defense...............................     3
    Prepared statement...........................................    15
    Response to written questions of:
        Senator Crapo............................................    27
        Senator Kirk.............................................    32
        Senator Moran............................................    34
Eric L. Hirschhorn, Under Secretary for Industry and Security, 
  Department of Commerce.........................................     4
    Prepared statement...........................................    21
    Response to written questions of:
        Senator Crapo............................................    38
Richard Serino, Deputy Administrator, Federal Emergency 
  Management Agency, Department of Homeland Security.............     6
    Prepared statement...........................................    24
    Response to written questions of:
        Senator Crapo............................................    42

                                 (iii)


 OVERSIGHT OF THE DEFENSE PRODUCTION ACT: ISSUES AND OPPORTUNITIES FOR 
                            REAUTHORIZATION

                              ----------                              


                         TUESDAY, JULY 16, 2013

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m. in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. I call this hearing to order. While we 
are waiting for a quorum, I will begin this hearing on DPA.
    Today, the Committee continues its oversight of the Defense 
Production Act. In addition, today's hearing is the first step 
as the Committee considers the reauthorization of the DPA, 
which is set to expire on September 30, 2014.
    The DPA was originally passed in 1950 in the aftermath of 
World War II and in the midst of the Korean War. The 
legislation gave the President authority to ensure the timely 
delivery of necessary supplies and equipment for the Armed 
Services and promote domestic industrial production.
    Over time, the purpose of the DPA has evolved as the 
economy has globalized and the threats to national security 
have shifted. Today, the DPA continues to play an important 
role supporting our Armed Services. In addition, the DPA 
provides essential tools for the Government to better respond 
to natural disasters and acts of terrorism. In recent years, 
the authorities granted under the DPA have been used to provide 
supplies and support to emergency recovery efforts, such as 
after Hurricane Katrina.
    This morning, we will hear from the Department of Defense, 
Department of Commerce, as well as the Federal Emergency 
Management Agency. Each of these agencies plays a critical role 
in the implementation of the DPA. I look forward to hearing our 
witnesses' views on the effectiveness and the need for 
reauthorization of the DPA as well as areas where the 
Administration believes legislative changes might be 
appropriate to improve the law and better protect our national 
security.
    When the DPA was last reauthorized, it was passed by 
unanimous consent in the Senate on the same day of its 
introduction. I am hopeful that the Committee can work in a 
similar bipartisan fashion this time. I look forward to working 
with my colleagues to reauthorize the DPA.
    With that, I now turn to Ranking Member Crapo for his 
opening statement.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    As the United States continues to face conflicts overseas 
as well as terrorist threats and natural disasters at home, it 
is again time to consider reauthorization of the Defense 
Production Act, commonly referred to as the DPA.
    When its authorities are properly exercised, the DPA 
ensures adequate and timely delivery of critical materials and 
maintains our national defense posture to help us meet the 
demands of national emergencies. The DPA, amended and 
reauthorized some 51 times, remains a powerful resource that 
demonstrates how strongly our national defense capabilities 
rely on our Nation's economic strength and flexibility to 
preserve the readiness of our national defense to prepare and 
respond to military conflict, domestic disasters, or acts of 
terror in the United States.
    The DPA has enabled Presidents for more than 60 years to 
meet evolving threats to U.S. national security within the 
confines of a consolidated defense industrial base and the 
challenges of a globalized economy. Most recently, Presidential 
uses of DPA authorities have been applied both in national 
defense and in natural disaster contexts. The DPA has been used 
to prioritize the provision of night vision equipment for 
Afghanistan, bulletproof vests and the anti-mine MRAP vehicles 
for Iraq, and terror screening systems for the FBI. DPA 
authorities have also been used to restore critical 
infrastructure following Hurricane Katrina and provide 
interpretive services for Superstorm Sandy victims.
    It has been some time since the Committee has had an 
occasion to formally hear from the witnesses about the 
effectiveness and the problems encountered with the DPA's 
programs. I look forward to this morning's testimony to help us 
evaluate how the President is using the authorities granted to 
him under the Act in order to assure that those DPA authorities 
are being properly exercised by the President and in accordance 
with the law.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Crapo.
    This morning, opening statements will be limited to the 
Chairman and Ranking Member to allow more time for questions 
from the Committee Members. I would like to remind my 
colleagues that the record will be open for the next 7 days for 
opening statements and any other materials you would like to 
submit.
    Now, I would like to welcome the witnesses for our panel 
today. First, Frank Kendall is the Under Secretary for 
Acquisition, Technology, and Logistics at the Department of 
Defense. Eric Hirschhorn is the Under Secretary for Industry 
and Security at the U.S. Department of Commerce. And, finally, 
Richard Serino is the Deputy Administrator of the Federal 
Emergency Management Agency.
    I thank all of you for being here today. I will ask the 
witnesses to limit your remarks to 5 minutes. Your written 
statements will be submitted for the record.
    Under Secretary Kendall, please proceed.

 STATEMENT OF FRANK KENDALL, UNDER SECRETARY FOR ACQUISITION, 
        TECHNOLOGY, AND LOGISTICS, DEPARTMENT OF DEFENSE

    Mr. Kendall. Good morning, Chairman Johnson, Ranking Member 
Crapo, Members of the Committee. Thank you for this opportunity 
to discuss the current programs and projects operating under 
the Defense Production Act.
    Today, I want to clearly convey the Defense Department's 
support for a 5-year reauthorization of all existing DPA 
provisions. We need the capabilities provided by the DPA today 
as much as we ever have during the more than 60 years of the 
Act's existence. I will address each of the currently active 
titles of the DPA, Titles I, III, and VII, and I will cover the 
topics that the Committee requested that we discuss.
    Over the last six decades, we have relied on the DPA to 
enable the acceleration of critical defense materiel and urgent 
operational requirements to our warfighters, I think as was 
mentioned in the opening statements. Most recently, Title I has 
enabled the rapid fielding of items such as Counter-Improvised 
Explosive Device systems, Mine Resistant Ambush Protected 
vehicles, MRAPs, and Intelligence Surveillance and 
Reconnaissance platforms, among many others. The DPA 
contributes directly to the success of many Joint Urgent 
Operational Needs, called JUONs, acquisitions, a key element of 
our accomplishments in the contingency operations in Iraq and 
Afghanistan.
    Turning to Title III, there are currently 41 DPA Title III 
initiatives. Thirty-seven of these are under contract and the 
other four are expected to be under contract by the end of 
fiscal year 2013. Title III projects generally fall into three 
broad categories: Electronic materials and devices, advanced 
structural materials, and power and energy. There are also 
projects involving ammunition, optical materials and devices, 
and machining technologies.
    Notable successes of Title III projects include the Readout 
Integrated Circuit Project, conducted in Idaho; gallium nitride 
technology used in radar and electronic warfare, being 
developed in Massachusetts, North Carolina, and New Jersey; a 
high-purity beryllium metal project in Ohio; and the Armor 
Structures Transformation Initiative in Johnstown, 
Pennsylvania. All of these projects have direct positive impact 
to the warfighter and our weapons systems.
    Each Title III project is a cooperative Government-industry 
effort involving shared funding and planning. Project goals and 
contract terms are tailored to the market and technological 
conditions for each industrial resource or critical technology 
item. Potential Title III projects undergo a rigorous vetting 
process to ensure that they are both eligible for Title III 
action and likely to result in commercially viable production 
capabilities. Once a critical need for an innovative technology 
is established by the Government, DPA Title III provides the 
ability to use a variety of financial incentives to industry to 
make investments in production capabilities that will increase 
capacity to meet the national defense requirement.
    New, expanded, and modernized domestic industrial 
capabilities, one, reduce the risk of foreign dependencies 
caused by geopolitical factors or other economic issues, and 
two, strengthen the economic and technological competitiveness 
of U.S. manufacturers. Improvements in production capabilities 
due to Title III projects have resulted in improved defense 
capabilities, reduced production costs, lowered prices, and 
improved product quality.
    Title VII contains a number of provisions. I would like to 
mention the Defense Production Act Committee, which was 
established by the last DPA reauthorization. The DPAC has 
greatly benefited the Department of Defense through its 
coordinated interagency analysis of potential shortfalls in 
supply chains that are essential to national defense. The DPA 
Committee has four primary interagency working groups that 
focus on power and energy, metals, telecommunications, and 
lightweight materials. In the past year, our Metals Working 
Group released a Request for Proposal, and the other 
interagency groups have reached internal agreement on priority 
efforts moving forward.
    The DPA Committee report for 2012 admittedly is late, but 
it has been completed and all 17 Department secretaries are in 
the process of signing. The Department of Defense will host the 
next Committee meeting this coming fall.
    I would like to say a word about the need for 
reauthorization. Specifically, Title I of the Defense 
Production Act is vital to ensure timely DOD access to 
industrial resources during both peacetime and periods of 
conflict. Title III authorizes domestic sources for critical 
components, critical technology, and industrial resources 
essential for the execution of the national security strategy 
of the United States. Title VII mechanisms enable the Defense 
Department, as well as our interagency counterparts, to 
effectively manage and deliver critical capabilities as 
permitted through the DPA.
    In conclusion, the Defense Production Act continues to 
provide unique and important authorities that directly support 
the health of our defense industrial base. The Department of 
Defense fully supports a 5-year reauthorization of all the 
existing DPA provisions currently scheduled to expire in 
September of 2014. The DPA authorities enabled us to meet the 
challenges of the last 60 years and continue to provide 
products that are of great importance to our national security.
    Thank you for the opportunity to discuss the 
reauthorization of this important Act. I look forward to taking 
your questions.
    Chairman Johnson. Thank you.
    Under Secretary Hirschhorn, please proceed.

 STATEMENT OF ERIC L. HIRSCHHORN, UNDER SECRETARY FOR INDUSTRY 
              AND SECURITY, DEPARTMENT OF COMMERCE

    Mr. Hirschhorn. Thank you, Mr. Chairman and Members of the 
Committee. I appreciate the opportunity to address the role of 
the Commerce Department under the DPA, the Defense Production 
Act.
    We administer the Defense Priorities and Allocations 
System, which is known as DPAS, analyze the health of the U.S. 
defense industrial base, and report annually to Congress on 
offsets in defense trade.
    As you know, Title I authorizes the President to require 
acceptance and priority performance of national defense orders 
and to allocate goods and services as necessary for the 
national defense. We have had similar authority in the 
Department of Commerce since the DPA was enacted in 1950.
    The Bureau of Industry and Security implements these 
authorities through the Defense Priorities and Allocations 
Systems Regulation, or DPAS. The key elements of DPAS are 
mandatory acceptance of rated orders, preferential scheduling, 
and an extension or flow-down of priority ratings throughout 
the supply chain. A priority rating notifies the supplier that 
it must accept and give the order priority over unrated or 
lower rated orders. We have found that the private sector is 
well versed in DPAS and appreciates that the Defense Production 
Act protects them from liability if they are required to 
reschedule an unrated order.
    Commerce has authorized the Departments of Defense, Energy, 
and Homeland Security, plus the General Services 
Administration, to place priority ratings on orders that are, 
quote, ``necessary or appropriate to promote the national 
defense.'' Commerce also may authorize other Government 
agencies, foreign governments, critical infrastructure owners 
and operators, and companies on a case-by-case basis to place 
priority ratings on other contracts or orders.
    DOD, as Mr. Kendall has noted, is the principal user of the 
DPAS system. We work closely with Defense to expedite the 
delivery of resources needed to support such critical 
requirements for the military as Interceptor Body Armor 
procurement, the Counter IED program, and the Mine Resistant 
Ambush Protected Vehicle program.
    We have also worked closely with FEMA, represented by Mr. 
Serino, to support emergency preparedness and critical 
infrastructure requirements, for example, supporting the Corps 
of Engineers repair and expansion of the hurricane protection 
system for the Louisiana Gulf Coast region. The Corps placed 
priority ratings to expedite delivery of pumps, structural 
steel and concrete for levees and flood walls, and other 
infrastructure to reduce the risk of flood damage.
    Since the 2009 DPA reauthorization, we have also 
collaborated with the five other departments that have 
priorities and allocations authority and with the Department of 
Homeland Security to develop a consistent Federal priorities 
and allocations system.
    Under Section 705 of the Act, we conduct surveys and 
assessments of defense-related industries and technologies. 
Using these studies, Commerce and Defense can, for example, 
monitor trends, benchmark industry performance, and raise 
awareness of diminishing or endangered manufacturing 
capabilities. Our current studies include assessments of the 
U.S. space industry supply chain, the cartridge and propellant 
actuated device industry, and the underwater acoustics and 
transducers industry.
    Under Section 723 of the Act, we report annually to the 
Congress on the effects of offsets in defense trade. Such 
offsets encompass a range of compensation practices required by 
foreign governments as a condition of buying U.S. defense 
articles and services. We sit on the Defense Production Act 
Committee, or DPAC, which advises on the effective use of the 
Act's authorities. We are active in its study groups, including 
the group assessing the use of DPA authorities to support 
disaster preparedness and response and critical infrastructure 
protection.
    In sum, the Defense Production Act is essential to our 
Nation's security and we look forward to working with you 
toward a 5-year reauthorization of its nonpermanent provisions.
    Thank you, and I will be happy to take your questions.
    Chairman Johnson. Thank you.
    Deputy Administrator Serino, please proceed.

  STATEMENT OF RICHARD SERINO, DEPUTY ADMINISTRATOR, FEDERAL 
  EMERGENCY MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY

    Mr. Serino. Thank you. Good morning, Mr. Chairman, Ranking 
Member Crapo, Members of the Committee. I am Richard Serino, 
Deputy Administrator for FEMA. On behalf of FEMA and the 
Department of Homeland Security, I appreciate the opportunity 
to appear before you to support the five-year authorization for 
the nonpermanent provisions of the Defense Production Act and 
to discuss the importance of DPA to support our national 
defense, including disaster preparedness and response, 
protection and restoration of critical infrastructure, 
operations and the homeland security capabilities.
    The DPA is the primary source of Presidential authorities 
to expedite the supply of materials and services needed in both 
military and civil preparedness and response. Although FEMA 
does not use these authorities often, they are a critical tool 
in the toolbox to support our ability to prepare for and 
respond to natural disasters and other threats. While a few 
provisions of the DPA are permanent, expiration of the 
nonpermanent authorities would undermine the ability to prepare 
for and respond to natural disasters and other threats, such as 
an earthquake, a hurricane, or an incident involving weapons of 
mass destruction.
    I would like to discuss Title I in particular, which 
authorizes the priority treatment of contracts and orders. 
While the priority authority is primarily used to support the 
Department of Defense programs, it serves an important function 
for the Homeland Security purposes. As with rated orders in 
support of military programs, rated orders for Homeland 
Security programs are used to ensure on-time performance when 
delays could place lives and property at greater risk.
    Specifically, the priorities authority can be used to 
support disaster preparedness and response activities under 
Title VI of the Stafford Act. After Hurricane Katrina, the 
priorities authority was used to speed delivery of equipment 
needed to restore real service in the Gulf Coast region. After 
Hurricane Sandy, FEMA also used it to place contracts for 
telephone interpreter services to enable communications with 
diverse populations that were impacted by the disaster.
    FEMA has also used the priorities authority to support 
timely repair and modernization of critical equipment that 
supports emergency preparedness and response activities. For 
example, the primaries authority was used to support timely 
modernization of the FEMA National Radio System and to support 
computer network and other operations in the National Response 
Coordination Center.
    Along with its other responsibilities to coordinate Federal 
emergency preparedness and response activities, FEMA provides 
Governmentwide coordination guidance for the use of DPA 
authorities on behalf of the Secretary of Homeland Security. 
FEMA works with all the relevant Federal agencies to ensure 
effective use and proper implementation of the DPA, to include 
educating these agencies about the ability to incorporate DPA 
in planning for emergencies.
    Without renewal of the expiring provisions of DPA, a 
critical statutory authority to ensure timely procurement of 
materials and services to protect and restore critical 
infrastructure operations, whether they are key transportation 
capabilities, floodwalls, or levees, would be lost. Without the 
DPA, DHS and other Federal agencies would have no authority to 
prioritize contracts or resources needed for emergency 
preparedness, for critical infrastructure restoration, 
protection, for and lessening the risks associated with a 
terrorist attack.
    In closing, I urge that Congress reauthorize the DPA 
authorities that remain critical to our national defense.
    Thank you, Chairman Johnson and Senator Crapo, for the 
opportunity to appear before you today. I will be pleased to 
answer any questions you or the Committee may have. Thank you.
    Chairman Johnson. Thank you.
    I would like to begin with a question for all of our 
witnesses. It has been partially answered, but why is it 
important to reauthorize the DPA and not let the authority 
lapse? Under Secretary Kendall, let us start with you.
    Mr. Kendall. Mr. Chairman, the DPA gives us the authority 
to do things that we would not have and that are very important 
both to national security and to responding to emergencies that 
are not normally considered necessarily national security.
    It allows us to acquire things and set priorities with 
industry under Title I, which is very important to us. Industry 
has no obligation to prioritize national security requirements 
above commercial requirements, and, in fact, many times they 
are financially motivated to do otherwise. So DPA allows us to 
mandate that. It is part of all of our contracts.
    Title III allows us to invest money that improves the 
manufacturing capabilities where industry would not invest 
otherwise when it is important for national security. These are 
things that are of great benefit to the Department and which we 
would not be able to do were it not for the Act.
    Chairman Johnson. Under Secretary Hirschhorn.
    Mr. Hirschhorn. Having Title I authority enables us to 
ensure that the Defense Department, FEMA, and other agencies, 
as necessary, will get what they need when they need it. As 
Under Secretary Kendall pointed out, absent DPA, there is no 
guarantee that private contractors will be willing to put DOD 
or FEMA orders ahead of unrated orders.
    There is limited authority in Section 18 of the Selective 
Service Act if DPA Title I were to lapse, but it is quite 
limited. It is much less than we have today. It is only 
available to support procurement for the Armed Forces. So, in 
effect, it would take away what this Committee has given in 
terms of Homeland Security elements. It does not apply to 
service contracts. It very importantly does not provide 
contractors with the protection against claims if they put 
rated orders ahead of unrated orders. And it does not include 
allocation authority for possible use in a national security 
emergency situation involving shortages.
    It would also wipe away our ability to report to the 
Congress on offsets, which is something that this Committee has 
had great interest in and has asked us to do. Our authority for 
that flows from the Defense Production Act. Similarly, our 
Defense Industrial Base Assessment Programs would also lapse if 
the DPA is not reauthorized.
    Chairman Johnson. Deputy Administrator Serino.
    Mr. Serino. It is an important tool that we have, although 
FEMA, we do not use it that often, only two to three times a 
year. It is an important tool to have in the toolbox and having 
that tool when the disasters happen, because we do not know 
when disaster is going to happen, but it is an ability--it is a 
really important tool for us to have in order to prepare for 
and respond to and help recover from disasters.
    Chairman Johnson. Effective interagency coordination is 
essential to the DPA. Can each of you please discuss how you 
view the collaboration between various agencies? Under 
Secretary Hirschhorn, let us start with you.
    Mr. Hirschhorn. Our collaboration with the other agencies 
involved is excellent. We work with the Defense Department on a 
daily basis. They are, again, the heaviest user of the Defense 
Priorities and Allocations System. We work closely with FEMA 
when disasters arise. We are also working with the other 
departments that have been given Defense Priorities and 
Allocations authority to help develop a harmonized Federal 
system to ensure that the various sets of rules are congruent 
with one another.
    Chairman Johnson. Deputy Administrator Serino.
    Mr. Serino. We have had the opportunity to work closely 
with many Federal agencies when a disaster strikes, also with 
the Department of Commerce. Once we make the determination we 
can respond, we can report back to Commerce in order to move 
that forward. One of the key parts is making sure that other 
agencies that come in are familiar with the DPA and able to 
utilize that. But we have had very good working relationships 
with all the different agencies that we work with and 
departments and we have been able to continue to move forward 
with them on this.
    Chairman Johnson. Under Secretary Kendall.
    Mr. Kendall. Mr. Chairman, I can only echo what my 
colleagues have said. The cooperation, I believe, is excellent. 
The committees or the working groups that work under the 
Defense Production Act Committee, which include subject matter 
experts and have been able to work together very well to 
prioritize different projects. I think it has been extremely 
beneficial and a great example of good cooperation.
    Chairman Johnson. Under Secretary Kendall, during the last 
year, Congress has debated the use of DPA Title III funds to 
advance U.S.-based production of biofuels. I, along with some 
of my colleagues here, fought to prevent restrictions on the 
use of DPA funds for biofuels last year. Can you please discuss 
how the Administration is continuing to use DPA to increase 
funding for biofuels that are essential to our national 
security needs.
    Mr. Kendall. Yes. The biofuels project is one of the Title 
III projects that we are currently pursuing. As I mentioned, I 
think, in my opening statement, power and energy is one of the 
main areas of emphasis under Title III.
    The biofuels project is a relatively small project at this 
time. It is designed to determine if there are viable 
candidates for production, for scale production at economic 
rates for various biofuel sources. So what we awarded and what 
I certified earlier in this year, we are in the process of 
finalizing the contracts. But there are four contracts for 
approximately $6 million each that will do the initial design 
studies, site location studies, some of the regulatory things 
to prepare for a second phase, which has not been funded yet, 
which is not under contract yet, which would build actual 
production facilities to demonstrate the viability of 
production at industrial capacity, at scale capacity, including 
being competitive with petroleum-based fuels.
    This is overall a part of the larger program that the 
President has initiated to create energy independence. But 
biofuels and alternative fuel sources are very important to us, 
obviously, as we operate in the world. We are--the DOD is one 
of the biggest consumers of fuel, certainly in the Government, 
but also in the country, and access to secure sources of fuel 
is very important to us strategically. So the biofuels project 
is a relatively small effort that is part of a much larger 
program to increase our energy independence.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    Mr. Kendall, I want to follow up with you a little more on 
the biofuels question. As you know, there was a bit of a stir 
created by the initiation of this project and the basic 
question was, is it causing us to expend more resources than we 
can in the development and obtaining of the necessary fuels for 
our defense in the United States. The basic question that I 
understood being asked was, how is it that biofuels projects--
which, by the way, I am a huge supporter of biofuels--but the 
question is, how is it that biofuels projects are considered to 
be a strategic and critical material essential for the national 
defense purposes at a time when the United States is positioned 
to become one of the world's larger net exporters of oil.
    Mr. Kendall. Well, fuels are obviously of strategic 
importance to the Department and to the country. I am aware of 
the developments in the United States with regard to increased 
sources of fuel in the United States. Those are still emerging 
and ongoing. And as I said earlier, we will reconsider, or we 
will consider as a separate decision the second phase of this 
project approximately a year from now. But at this point, what 
we are trying to do is act as a catalyst to help this industry 
move forward to where it can be competitive and provide us with 
a secure source of fuel.
    And I am not going to get into a long strategic discussion 
about this, but while the United States may be in a situation 
where it will have increased sources of fuel for some period of 
time, that time is not infinite. So there is a value that may 
be longer-term to work like this.
    I would also point out that this is just, again, one piece 
of what the Department and the Administration is doing. The 
Department of Energy is involved in this project, as well as is 
the Department of Agriculture. So the Department of Defense, 
this is a relatively small part of our overall energy program, 
but it is also a relatively small part of the activities under 
DPA.
    Senator Crapo. Now, could I take from that, then, that 
there is not much of a likelihood that projects that are either 
ongoing or under consideration will be held up or otherwise 
impacted by the decision to move forward with the biofuels 
projects?
    Mr. Kendall. This--everything is obviously about 
prioritization, but I do not see this squeezing out, at this 
point in time, at least, other projects that I would consider a 
higher priority for the Department.
    Senator Crapo. All right. Thank you.
    And for Mr. Serino and Mr. Kendall, as I look at this, 
there are some 13 different departments and agencies with 
delegable authority under the DPAC umbrella. Governmentwide, 
then, it would seem that Title I holds the biggest potential 
for the use of DPA authorities. First, am I correct about that, 
and how much is the Defense Production Act Committee focused on 
Title I versus Title III authorities? Mr. Serino, do you want 
to start.
    Mr. Serino. So, with Title I, as I mentioned, FEMA makes a 
determination only, like, two or three times a year. We do not 
use the Title I authorities that much, but when we do, it is 
actually for critical--usually following a disaster is when we 
usually utilize that, for example, Sandy with the interpretive 
services. We used it during and after Katrina both for rail and 
also to help with the Army Corps of Engineers. So we use it 
very rarely, but when we do use it, it is an important 
opportunity. We make the determination for other Federal 
agencies that come in and then back to Commerce.
    Senator Crapo. Mr. Kendall and Mr. Hirschhorn, would either 
of you like to respond?
    Mr. Kendall. Just to mention that Title I authorities are 
in all of our contracts and they are floated down to our 
subcontracts. So industry is used to them. We make them 
available. They are invoked relatively rarely. When they are 
invoked, it is for an important reason. Historically, it goes 
back to, for example, production of the Abrams tank some time 
ago. The Secretary of Defense has some authorities to increase 
priority and the President has some authorities beyond that to 
an even higher priority. They are invaluable to us when we do 
need them, but we do not do them indiscriminately when they are 
not really required.
    Senator Crapo. Thank you.
    Mr. Hirschhorn.
    Mr. Hirschhorn. I would only echo Under Secretary Kendall. 
When we have to have something, we have to have it. It is not 
something that we do lightly, or that we do every day. And, 
again, industry seems to work quite well with it. We very 
rarely have a situation where a company is unwilling to comply. 
It is almost unheard of.
    Senator Crapo. All right. Thank you.
    Chairman Johnson. Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman.
    First, let me thank the witnesses individually. I have had 
the privilege of working with Secretary Kendall on the Armed 
Services Committee and the Defense Appropriations Subcommittee. 
He has done a superb job as acquisitions head in the Pentagon, 
so thank you, Mr. Secretary.
    Secretary Hirschhorn came up to Rhode Island and was superb 
in terms of looking at some of the specific needs we have and 
some of the programs that Commerce can respond.
    And, Administrator Serino, we get to see more and more of 
your people, unfortunately, with Sandy, with floods, but your 
colleagues are superb. They do extraordinary jobs. I seldom get 
stopped by my constituents and commended about the good work 
that we are doing, but your colleagues get that kind of 
commendation because they are terrific, so my best to them all. 
Thank you.
    Let me ask a question, though. We are reauthorizing a bill 
that was drafted decades ago, and one of the most significant 
changes is that it is just the issue of cyber technology and 
cyber threats, military, civilian, across every agency. So, 
Secretary Kendall, I will begin with you and then go down the 
row. What changes do we have to make, and if you have an 
impression, you can give it to us and then follow up later with 
more specifics. What changes must we make to capture this new 
world of cyber and perhaps the new technological dynamic?
    Mr. Kendall. Thank you, Senator Reed. With regard to the 
DPA, I am not aware of any specific changes that the cyber 
situation would require.
    More generally, I am very concerned about the loss of 
information to cyber threats right now, particularly on 
classified information. Industry is required to protect 
information to a certain level, but it is generally not to a 
very high standard and we really do not have a mechanism right 
now with industry to ensure that that information is protected. 
And I am talking specifically about design information, which 
might not be classified. But if you require that information, 
it certainly shortens your lead time to build things and it 
reduces your cost, and that is an advantage we do not want to 
give people who are our potential adversaries.
    So I have been working on that and I am in the process of 
looking at some changes in the contracting procedures that we 
use that will strengthen our standards. So I agree with you, 
absolutely, that it is a significant problem, but I do not have 
a specific DPA change that I would recommend for it.
    Senator Reed. I would--given the fact that, hopefully, we 
are on a path to reauthorize it, this might be a vehicle in 
which wise contractual provisions or authorities could be given 
to you. So I would encourage you, as you develop these 
thoughts, to pass them along, not just to the Banking 
Committee, but also the Armed Services Committee, et cetera, 
because this is no great flash of wisdom, but this is just the 
beginning of a multi-year phenomenon of extraordinary change, 
and if we are going to reauthorize this legislation, let us not 
be looking back to the 1956 and 1970s. Let us look ahead to 
2050, 2060.
    Secretary Hirschhorn.
    Mr. Hirschhorn. I do not think I have anything to add in 
terms of the Defense Production Act. I certainly agree that we 
need to focus very sharply on cyber threats. I think both the 
Congress and the Administration are spending a lot of time on 
it. I wish I could offer some solution related to the Defense 
Production Act, but as I sit here, I do not have one.
    Senator Reed. But, again, going forward, if you think 
consciously and your colleagues about is there language 
necessary in contracts that will give priorities? Is there a 
gap? We have pretty much sort of--if we had to go out and build 
some Liberty ships tomorrow, we could do it with the Defense 
Production Act, I think. But can we build a sophisticated 
system? Can we protect classified information on design--or 
unclassified information on design, et cetera?
    Secretary Kendall, you had a thought?
    Mr. Kendall. Yes, sir. I understand where you are coming 
from, I think. Let me take it for the--if not for the record, 
at least to work with you separately.
    Senator Reed. Yes.
    Mr. Kendall. I think there is a vehicle here that we could 
use to do some good, but I have not thought through exactly how 
that might be done, so I take your point.
    Senator Reed. I encourage thinking through. Thank you.
    And just, Mr. Administrator, your comments.
    Mr. Serino. Just--it is something that is--the language is 
currently--we have looked at this and there is good language in 
there that we are able to utilize that, but I agree with Under 
Secretary Kendall. It may be an opportunity to go back and 
look. We actually, during a national-level exercise a couple of 
years ago, we actually looked at the use that would address 
cyber issues and cyber security issues and look at the 
possibility of using DPA for that if it looked like there was a 
vehicle to do that.
    Senator Reed. I would--it would be interesting if you could 
share that. I know there is cross-pollination of ideas, but 
again, in your capacity, you have to react to not only a 
physical disaster in the United States, but a cyber disaster, 
and there might be useful information from your exercises that 
you could give back to DOD and to Commerce that could help 
frame this issue.
    Again, gentlemen, thank you for your extraordinary service 
to the Nation. Thank you.
    Chairman Johnson. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman, and before Senator 
Reed leaves, I just want to thank you, gentlemen, for 
appearing. Thank you for raising it. I mean, I had not--I have 
been looking at this. I do not know that much about the Defense 
Production Act, but I think you are dead on on an issue and it 
is not something I have considered. I would encourage our 
colleagues here. I am on the Intelligence Committee and I do 
not know how, as you think through the--as they think through 
the capabilities in this reauthorization, how they might also 
intersect with some of the folks on the IC. But I really 
appreciate you raising this issue. It is not something that 
would immediately come to mind, but I think it is a great 
point.
    Senator Reed. I feel like our colleagues did in 1920, 
talking about these newfangled airplanes.
    [Laughter.]
    Senator Warner. Amen. Amen. For everything that we have--as 
we all kind of struggle with this on various committees and how 
we get a framework in place, you know, thinking through some of 
the emergency components, I commend the Member for his comments 
and questions. Put me as ``ditto,'' echoing what he said.
    I want to actually go back to Assistant Secretary Kendall 
and actually follow up on Senator Crapo's comments about the 
biofuels program. I understand that it is a relatively small 
initiative, and it is one, as you, I think, mentioned, that has 
both DOD, DOE, and Agriculture involved. But I actually think 
there is kind of a legitimate point. I concur--Senator Crapo 
and I agree that our country needs an ``all of the above'' 
energy policy, and we have seen remarkable progress in terms of 
gas and even some traditional oil reserves. But the notion that 
we are putting all our eggs in one basket is, I do not think, 
smart.
    And I actually think, particularly what Secretary Mabus has 
done on the Navy side, has made sense. I would point out the 
fact that DOD spends about $15 billion a year on fuel, and in 
the last couple of years, we have had $3 billion worth of 
unforeseen fuel charges. In, I believe, fiscal year 2012 and 
2013, DOD was forced to ask Congress for a combined $2 billion 
in reprogramming funds to mitigate the price volatility in fuel 
costs.
    And I would argue that on biofuels, and let me quickly add 
here with due respect to the Chairman, hopefully noncorn-based 
biofuels, that this is an industry that held a lot of promise, 
but because there has been this lack of ability to kind of 
generate the volume, we have not seen the production costs come 
down. And it is my understanding that if we do get into this 
phase two, that DOD will be able to purchase close to 170 
million gallons per year of drop-in military fuel, that this 
production will begin in 2016.
    And I would raise the point, and I have met with the 
Secretary on this, that the weighted price of this biofuel--and 
this has all been, I think, publicly released--would be less 
than $4 a gallon, and actually substantially less than $4 per 
gallon. I am not sure whether Secretary Kendall wants to give 
the actual price, but the price is actually lower in 2016 than 
what we are paying for conventional fuels.
    So, I would argue, while this may be a relatively minor 
program, that the investments under the Defense Production Act 
that have been made by DOD, by DOE and Agriculture to create 
something that could be a new industry for America meets the 
DOD's needs. We have got a $15 billion fuel cost that is very 
volatile. Being able to lock in at a very market competitive 
price a stable supply of fuel, and that stable supply could 
actually grow, would be tremendously valuable.
    And I have actually almost used up all my time, so, Mr. 
Kendall, if you would like to make a comment on that. I think 
you ought to be out there trumpeting this program and not 
simply saying it is simply one little side program. I think it 
will be one of the great successes of this Act.
    Mr. Kendall. Thank you, Senator Warner. The reason we are 
doing the project is because it has that potential. Your 
figures on the 50 million dollar--gallons and so on--50 billion 
dollars, I am sorry--is correct. The target year is 2016. And 
it is a condition of the program that the production capacity 
be competitive with commercial prices, which means roughly in 
the neighborhood of $4 a gallon. And the current projections 
are----
    Senator Warner. My understanding is we are going to 
actually come in lower than that.
    Mr. Kendall. Well, we would need to come in at least at $4 
a gallon, I would say. And the projections from the four people 
that we have selected to continue with this first phase suggest 
that they will get there. So that remains to be proven, of 
course.
    I do want to go back to one thing you said earlier. We have 
not had to pay billions of dollars for unplanned costs for 
fuel. We were very concerned in fiscal year 2012 that that 
would happen, and at one point we were considering 
reprogramming, I believe. But we were able to manage our way 
through that period without having to do that. So I just want 
to correct the record for that because it came up.
    But your points about the purpose of the project and its 
potential, I think, are accurate. That is the intent. Ray 
Mabus, Secretary Mabus has been a very strong leader in this 
area and it is that vision that has driven his support for the 
project.
    Senator Warner. Thank you, Mr. Chairman.
    Chairman Johnson. Unfortunately, we have not achieved a 
quorum today for votes on the pending nominations. We will 
postpone the markup today and instead vote on Thursday before 
the monetary policy hearing.
    I want to thank our witnesses for their testimony today and 
I look forward to working with you as we begin to explore 
legislation to reauthorize the DPA.
    This hearing is adjourned.
    [Whereupon, at 10:53 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
                  PREPARED STATEMENT OF FRANK KENDALL
       Under Secretary for Acquisition, Technology, and Logistics
                         Department of Defense
                             July 16, 2013
    Chairman Johnson, Ranking Member Crapo and distinguished Members of 
the Committee, thank you for this opportunity to discuss the important 
role of the Defense Production Act (DPA) in supporting our Nation's 
defense needs.
    The DPA provides important authorities for the Department of 
Defense (DOD), both to ensure timely delivery of equipment and services 
essential to our armed forces, and to promote domestic industrial 
capabilities to produce superior defense systems at affordable costs. 
My testimony today will discuss the need for reauthorization of the 
Defense Production Act (DPA), provide an overview of the current 
projects operating under DPA, and outline the activities of the Defense 
Production Act Committee. I will discuss the priorities authority, 
business incentives and other important directives provided in Titles 
I, III and VII, all of which are important to the continued health and 
responsiveness of the United States defense industrial base.
NEED FOR REAUTHORIZATION
    The Defense Production Act, currently set to expire September 2014, 
is a fundamental enabler for the Department to successfully produce and 
deliver needed capabilities to our warfighters. Over the last six 
decades, we have relied on this Act to assist in the modernization and 
acceleration of critical defense elements and to help the Department 
meet urgent operational requirements such as: Counter Improvised 
Explosive Device (IED) systems, Mine Resistant Ambush Protected 
Vehicles (MRAPs), and Intelligence, Surveillance and Reconnaissance 
(ISR) platforms. This Act has facilitated the success of a large number 
of Joint Urgent Operational Needs acquisition processes--a key element 
to our accomplishments in recent and ongoing contingency operations. 
The DPA is also essential in transitioning new and next-generation 
technologies that are indispensable to meeting national security 
requirements identified by Government customers; a priority for the 
Department of Defense as we work to increase and maintain the 
technological superiority of our Nation.
    Without the authorities provided under the Defense Production Act, 
our efforts to protect and support the men and women of our all-
volunteer force would not be as effective. Our ability to maintain a 
healthy, lean and vibrant United States industrial base would also be 
reduced. Both of these goals are crucial elements to our National 
Defense Strategy. I urge the Committee to again support reauthorization 
of the Defense Production Act, an Act which has served us so well for 
over 60 years.
CURRENT DPA PROJECTS AND ACTIVITIES
    TITLE I
    Title I of the Defense Production Act is essential to ensure timely 
DOD access to industrial resources during both peacetime and periods of 
conflict. Title I authorizes the President: (1) to require U.S. 
industry to prioritize and allocate materials, services and facilities 
as necessary to promote our national defense and (2) to allocate 
materials, services, and facilities, as necessary or appropriate to 
promote the national defense.\1\ These Presidential authorities are 
delegated to the Department of Commerce with respect to industrial 
resources. Commerce has re-delegated to DOD authority under the Defense 
Priorities and Allocations System (DPAS) to place priority-rated 
contracts and orders for industrial resources in support of DOD 
Approved Programs. The Department uses DPA authorizations in a standard 
contacting provision for most weapon system related procurements that 
require industrial resources.
---------------------------------------------------------------------------
    \1\ The DPA defines the term ``national defense'' to mean programs 
for military and energy production or construction, military or 
critical infrastructure assistance to any foreign nation, homeland 
security, stockpiling, space, and any directly related activity.
---------------------------------------------------------------------------
    DPAS priority ratings help to assure that rated orders will be 
performed on time. For the most part, contractors and suppliers act on 
their own to fulfill their obligations under rated orders, without 
further action required by the Government. However, when problems occur 
that cannot be resolved by the contractors and suppliers, the DPAS 
provides for Special Priorities Assistance (SPA), whereby problems can 
be resolved with the assistance of DOD or, ultimately, the Department 
of Commerce.
    Although important in peacetime, the DPAS as implemented under 
Title I authority is indispensable in times of conflict. It provides 
the ability and flexibility to address the critical procurement needs 
of the warfighter. Even though Title I and DPAS were first enacted over 
60 years ago, experience with providing direct support to the 
operations in Afghanistan and Iraq demonstrates their continued 
importance. The DPAS played an important role during these operations 
in expediting delivery of equipment needed to counter new threats and 
protect the lives of our armed forces. The DPAS was instrumental in 
speeding the deployment of new and increased quantities of personal 
body armor, Counter Improvised Explosive Device (IED) systems, Mine 
Resistant Ambush Protected Vehicles (MRAPs), and Intelligence, 
Surveillance and Reconnaissance (ISR) platforms, night vision 
equipment, weapon targeting systems, and many more items needed to 
support our Armed Forces.
    Over the past decade, DPA's Title I authority has proven invaluable 
in supporting both our Armed Forces and those of allied nations. From 
the onset of the conflicts in Afghanistan and Iraq, DOD saw a need for 
lighter and stronger personal body armor. However, the capability to 
ramp up production of such body armor was constrained by the limited 
availability of Small Arms Protective Insert plates that provide the 
hard armor component of the Improved Outer Tactical Vest. From 2002 to 
2006, we used a Priority Allocation of Industrial Resources (PAIR) Task 
Force with multi-service and Department of Commerce participation to 
prioritize DOD requirements and then used the DPAS to direct the 
manufacture and distribution of this product in order to support our 
highest priority requirements. By 2006, U.S. manufacturing capacity had 
grown sufficiently to satisfy all rated order delivery requirements, 
eliminating the need for further SPA directives.
    In 2003, in support of Operation Enduring Freedom, the Department 
asked Commerce to issue a Directive to a key supplier supporting the 
Predator program that required the supplier to satisfy the orders it 
had received related to the Predator ahead of other competing rated 
orders based on urgent operational requirements. Commerce issued the 
Directive the same day it was requested and the critical supplier was 
able to meet the required delivery date because the directive 
``reprioritized'' work in its facility, moving the Predator-related 
order to the front of the production queue.
    In 2006, we used the DPAS to accelerate production of Counter IED 
systems. Insurgents in Iraq had changed tactics, planting more powerful 
bombs and using different triggering methods to defeat vehicle armor 
and evade U.S. countermeasures. To counter this threat, the Department 
dramatically increased its investment in electronic jamming technology 
to detect and disarm IEDs. To ensure production priority, the Secretary 
of Defense approved the use of the highest rating authority available 
under the DPAS, known as the ``DX'' rating, to support the rapid 
delivery of Counter IED systems.
    In 2007, we formed an MRAP PAIR Task Force to review and prioritize 
DOD requirements for materials used in MRAPs and competing programs. We 
identified potential industry bottlenecks and quantified our vehicle 
component requirements for items such as steel plate, axles, and tires. 
By combining the information accumulated from these activities, we were 
able to identify production capacity gaps in industry that would impact 
the MRAP and other DOD vehicle and armor programs. This knowledge of 
the industrial base, along with the Secretary's highest rating 
authorization for the MRAP enabled us to clearly and quickly 
communicate the Department's prioritized requirements to industry. As 
lower-rated programs were impacted by the surge to meet MRAP demand, we 
also increased industrial capacity through information sharing, capital 
investment, developing new sources, and by accelerating changes to 
specifications and standards that permitted increased production rates 
without sacrificing quality.
    In late 2008, we received an urgent request from the DOD's Central 
Command to increase production of ISR systems. In this case, we 
determined that simply elevating priority status to the highest level 
would not effectively address constraints among competing, equally 
important, acquisition programs. We mitigated many of the production 
constraints through the use of the SPA process. In one case involving 
the procurement of hundreds of sensor arrays/antennas from a contractor 
in a Security of Supply country, we were able to accelerate delivery to 
meet operational requirements, despite the fact that the DPAS has no 
standing outside the United States. We made the foreign supplier aware 
that DOD had a reciprocal Security of Supply arrangement with the 
partner nation and the foreign supplier agreed to meet DOD's required 
delivery dates.
    In 2010, the Department engaged with industry to address numerous 
delivery issues on behalf of the Special Operations Command (SOCOM) to 
expedite the fielding of night vision systems in Afghanistan. An 
Industrial Capability Assessment was done to determine industry's 
ability to deliver these systems quickly and an arrangement was 
brokered between the Command and competing Service requirements to 
preserve access for all while meeting the urgent needs of SOCOM. The 
assessment provided insight into industry constraints and enabled the 
prioritization of delivery requirements by using DPAS priority rating 
authority to reconcile competing Service needs.
    In 2012, a partner nation asked for help expediting the 
refurbishment of submarine environmental control systems. These 
atmospheric controls were urgently needed by both U.S. and the ally's 
navies to avoid disruptions of fleet deployments, but the contractor 
was limited in its ability to meet the needs of both customers. The 
Department mediated the dialogue between the buying activities and 
contractor to improve refurbishment rates. Additional Government 
Furnished Equipment was supplied to the contractor to improve 
throughput rates and both nations' schedules were aligned to improve 
contractor efficiency.
    In 2013, the Army requested SPA on behalf of a supplier of 120mm 
Enhanced Mortar Targeting Systems (EMTAS). The purpose was to expedite 
delivery of bearings, used in these systems. The Joint Chiefs of Staff 
had highlighted the military importance of deploying these systems to 
Afghanistan as rapidly as possible under a ``Joint Urgent Operational 
Need'' (JUON) statement. The Department worked with the EMTAS supplier, 
the bearing vendor and Commerce to develop a plan for expediting 
delivery. This plan was implemented in a matter of a few days under a 
Department of Commerce Directive.
    The above examples are a sampling of successes we've seen through 
the use of the Defense Production Act over the past decade. Title I 
authorities continue to assist us effectively both in an operational 
environment and also domestically with our industrial base. 
Reauthorizing this Act and the activities outlined in Title I will 
ensure the Department remains successful in the expeditious delivery of 
critical defense capabilities.
    TITLE III
    Title III of the DPA authorizes various actions by the President to 
develop, maintain, modernize, restore, and expand the productive 
capacities of domestic sources for critical components, critical 
technology items, materials, and industrial resources essential for the 
execution of the national security strategy of the United States. Title 
III authorities were initially used during the Korean War era to 
establish the industrial infrastructure needed to transition aircraft 
production into the jet age and for other industrial base needs. Jet 
aircraft production required vastly increased quantities of such 
materials as aluminum and titanium. Much of the U.S. processing 
capabilities for these and dozens of other key materials can trace 
their roots to Title III projects that were undertaken during the 
1950s.
    Today's Title III projects continue to support the transition to 
new and next-generation technologies that are essential to meeting 
national security requirements identified by Government customers. Once 
a critical need for an innovative technology is established by a 
Government acquisition program, DPA Title III has the ability to 
provide a variety of financial incentives to industry to make 
investments in production capabilities that will increase capacity to 
meet the national defense requirement.
    Title III projects help promote the use and insertion of new 
technologies for defense purposes in several ways. First, Government 
purchases and purchase commitments reduce the financial risks that 
discourage potential new producers from creating new capacity. Second, 
the new production capabilities stimulated by Title III incentives are 
generally more efficient and result in lower production costs and 
product prices. Third, Title III projects commonly generate information 
about the performance characteristics of new materials and support 
testing and qualification to promote the broader use of these materials 
in defense systems.
    Without Title III efforts to promote and incentivize the transition 
of new technologies to affordable use, beneficial use of new 
technologies can be delayed for many years. Potential producers do not 
invest in efficient production capacity without financial incentives 
and potential users are reluctant to commit to new technologies due to 
high first adoptor costs and lack of assured supply. Title III projects 
effectively overcome these market barriers to production expansion and 
technology adoption, accelerating insertion into defense applications.
    The primary objective of every Title III project is to improve 
domestic production capabilities to support national defense 
requirements. New, expanded, and modernized domestic industrial 
capabilities: (1) reduce the risks of foreign dependencies caused by 
geo-political factors or other economic issues; and (2) strengthen the 
economic and technological competitiveness of U.S. manufacturers. 
Improvements in production capabilities, due to Title III projects, 
have resulted in reduced production costs, lowered acquisition prices, 
and improved product quality. Domestic production sources supported by 
Title III actions provide an added element of trust regarding product 
integrity. Trusted sources are increasingly important for such products 
as microelectronics, in which malicious defects can be difficult to 
detect.
    The broad impact of Title III projects in supporting production of 
state-of-the-art defense systems and in strengthening domestic 
production capabilities for leading-edge technologies is illustrated in 
the following five examples:

  1.  In April 2013, a new manufacturing facility that produces 
        specialized materials for lithium ion batteries opened in 
        California. The facility, created with Title III support, will 
        provide a secure, domestically owned, and domestically based 
        source of materials that are critical to the production of 
        batteries for Government satellite and space programs. These 
        materials, which have never before been manufactured in the 
        United States, will enable production of satellite batteries 
        that last more than 10 years with more than 60,000 charge-
        discharge cycles. Title III support has enabled a U.S. 
        manufacturer to expand from manufacturing lithium ion cells 
        exclusively for high-technology medical applications to become 
        a leading designer and supplier of lithium ion cells for 
        aerospace and other military applications.

  2.  Another Title III project is supporting development of production 
        capabilities for a next-generation military GPS device, which 
        is the smallest, lightest weight and lowest power-consuming 
        device of its type available today. It enables the creation of 
        GPS receivers that provide significant size, weight and power 
        reduction for military systems in use around the world. Title 
        III support has been a critical element of the ``low-cost GPS 
        program,'' which has already saved the Government an estimated 
        $100 million and is expected to provide DOD over $300 million 
        more in savings and cost avoidance over the next 5 years.

  3.  A Title III project involving GaN on SiC X-Band Monolithic 
        Microwave Integrate Circuits (MMIC) caps a decade of 
        substantial investment from the Government and the contractor 
        (including DARPA's Wide Bandgap Semiconductor program). The 
        project prepared GaN technology for insertion into a broad 
        range of military systems, delivering better value to the 
        taxpayer and warfighter. Benefits of GaN technology includes 
        enabling radar systems to track a target 78 percent farther in 
        range with the same accuracy or, for a different mission, 
        reduce the radar antenna size by half while more than doubling 
        the radar search area. Over the course of this program the 
        contractor's GaN process yield improved by more than 3X. The 
        improved yield (along with other fab operations improvements) 
        corresponds to a greater than 76 percent reduction in the cost 
        of a MMIC power amplifier since the start of the program. In 
        addition to the improved yield the contractor accumulated over 
        a million hours of reliability data, demonstrating reliability 
        that supports military system lifetimes with significant 
        margin. As a result of this initiative, GaN technology is 
        mature and available for immediate insertion in a variety of 
        defense systems.

  4.  Another Title III project has been instrumental in re-
        establishing the infrastructure, facilities, and equipment 
        necessary to support a production capacity of 160,000 pounds 
        per year of high-purity beryllium metal. High-purity beryllium 
        is used extensively in structures and instruments found in 
        defense weapon systems where stiffness, low weight, good 
        thermal and electrical conductivity, and dimensional stability 
        are required. Essential strategic uses, where no suitable 
        substitute exists for high-purity beryllium, include: airborne 
        Forward Looking Infrared (FLIR) systems for fighter aircraft 
        and attack helicopters; guidance systems on existing strategic 
        missiles; surveillance satellites; ballistic missile defense 
        systems; and reflectors for high flux, nuclear test reactors. 
        Beryllium imports are unable to meet the purity levels required 
        for many critical defense applications.

  5.  In partnership with the Departments of Agriculture and Energy, 
        another Title III project is catalyzing a domestic capability 
        to produce cost-competitive, commercial-scale, renewable fuels 
        for the military. As one of the world's largest consumers of 
        petroleum, the Department has an interest in the long-term 
        diversification of fuel supplies. If successful, the project 
        may produce more than 170M gallons per year of drop-in, 
        military-compatible renewable fuels with initial production 
        capacity by 2016 and at an average cost of less than $4 per 
        gallon.

    While Title III projects target national defense needs, they 
generally result in more broad-based benefits to the U.S. economy. The 
benefits I just cited--reduced foreign dependencies, greater economic 
and technological competitiveness, as well as the creation of high-tech 
American jobs--are all important to the U.S. economy. Title III 
projects can also support other important goals, such as reduced energy 
consumption and CO2 emissions.
    An example of this is a Title III project that was undertaken to 
improve production capabilities for monolithic microwave integrated 
circuits (MMICs) needed for next-generation radar systems resulted in 
improved production capabilities for solid state lighting (SSL), using 
light emitting diodes (LEDs). LED lighting reduces energy consumption 
by three quarters compared to fluorescent lighting, while reducing 
CO2 emissions and use of toxic mercury.
    Another Title III project to improve production capabilities for 
reactive plastic CO2 absorbent material, used to improve 
breathing equipment for diving, has also resulted in improved 
anesthesia technology for use in operating rooms. This innovative Title 
III material absorbs more CO2 and fewer anesthetics than 
granular absorbent. It also eliminates temperature concerns and the 
toxic waste associated with granular lithium.
    Most people in this hearing room are carrying a device, which 
performs better and is cheaper, due to a Title III project that was 
completed several years ago. The project involved manufacturing 
capabilities for gallium arsenide wafers. The primary purpose of this 
project was to support defense needs for advanced integrated circuits, 
but gallium arsenide devices are also important components in cell 
phones. U.S. Title III contractors more than doubled their share of the 
world market for gallium arsenide wafers over the course of the Title 
III effort and reduced wafer prices by more than one third. So, 
everyone's cell phone is cheaper, performs better, and is more likely 
to contain integrated circuits fabricated using domestically produced 
wafers, due to Title III actions.
    These three examples are representative of the many commercial 
spill-over benefits resulting from Title III projects, beyond the 
benefits to our national defense.
    Each Title III project is a cooperative Government/Industry 
business partnership involving shared funding and planning. Project 
goals and contract terms are tailored to the market and technological 
conditions for each industrial resource or critical technology item. 
Potential Title III projects undergo a rigorous vetting process to 
ensure that they are both eligible for Title III action and likely to 
result in commercially viable production capabilities. Eligibility is 
based primarily on a Determination, required by the Defense Production 
Act, that specific criteria have been met. A project may not be 
initiated unless the President determines that:

  1.  The targeted resource or item is essential to the national 
        defense;

  2.  Industry cannot reasonably be expected to provide the needed 
        resource or item in a timely manner, without Title III action.

    Once a potential project is determined to be eligible for Title III 
action, it is assessed in terms of various market factors. For example, 
Title III generally targets materials that are required by multiple 
defense programs. Title III action to address an industrial resource 
shortfall is particularly important, when the cost of addressing the 
shortfall cannot be justified by individual programs. Multiple defense 
programs have benefited from Title III projects involving such items as 
radiation-hardened microelectronics, structural composite materials, 
and high-performance batteries. Market conditions are also assessed to 
determine how best to structure and incentivize a possible Title III 
effort and whether production capabilities resulting from such an 
effort would remain economically viable after the Title III commitment 
has concluded.
    Title III provides a number of important tools to support needed 
improvements in domestic production capabilities. The purchase and 
purchase commitment authorities provide the foundation for virtually 
all Title III actions. Purchases are used to assist in the creation of 
new production capabilities, and purchase commitments are used to 
guarantee a market for new production output. Title III also authorizes 
installation of Government-owned equipment in production facilities and 
the development of substitutes for strategic and critical materials. 
These authorities are used, as appropriate, to supplement purchase and 
purchase commitment actions.
    There are currently 41 Title III initiatives. Thirty-seven of these 
are under contract, and the other four are expected to be under 
contract by the end of the fiscal year. Many of these projects can be 
grouped into three broad categories--electronic materials and devices, 
advanced structural materials and power and energy. There are also 
projects involving ammunition, optical materials and devices, machining 
technologies, and a variety of other technologies.
    The electronic materials and devices projects involve enabling 
technologies, without which potential advances in microelectronics 
would be far more limited. These materials offer advantages in terms of 
faster device performance, greater resistance to radiation and 
temperature, reduced power requirements, reduced circuit size, 
increased circuit density, and the capability to operate at higher 
frequency levels. Advances in electronic materials enable new 
capabilities for defense systems and improvements in old capabilities. 
The advanced structural materials offer improvements in terms of 
strength, weight, durability, and resistance to extreme temperatures. 
Power and energy initiatives focus on technologies such as flexible 
solar cells, advanced battery technologies and fuel cells that enable 
advanced operational capabilities and reduce operational and 
maintenance costs. These benefits are particularly important in 
aerospace applications.
    I have already mentioned several ongoing or recent Title III 
projects. A sampling of other current Title III projects includes:

    Establishment of the world's first manufacturing production 
        facility of carbon nanotube (CNT) yarn and sheet material. This 
        project's emphasis is on expanding flexible, scalable, and 
        modular production processes; improving product quality and 
        yield; and reducing manufacturing costs. Carbon nanotubes 
        exhibit extraordinary strength and unique physical properties 
        and result in lighter weight and greater ballistic protection 
        for the warfighter and vehicle armor, stronger, lighter 
        structural components, as well as enhanced electromagnetic 
        interference (EMI) and electromagnetic pulse (EMP) protection.

    The upgrade and refurbishment of the facilities of the sole 
        domestic source for heavy forgings required by the U.S. Navy 
        and other DOD services. The DOD applications for these forgings 
        include propulsion shafts for surface and sub-surface naval 
        vessels, periscope tubes, ring forgings for bull gears, and 
        reactor vessels. Heavy forgings are unique and require a 10,000 
        ton, open die forging press (the largest in North America) in 
        order to produce parts that begin with ingots that are up to 11 
        feet in diameter and weigh up to 600,000 lbs. The focus of this 
        Title III project is to address production constraints and 
        single points of failure that are critical to maintain the 
        supply of heavy forgings to the DOD.

    The scale up for production of Polyhedral Oligomeric 
        Silsesquioxanes (POSSTM). POSS has been demonstrated 
        to enhance the performance of polymers in such applications as 
        radiation shielding for space-based microelectronics, photo-
        resistant material for semiconductor manufacturing, food 
        packaging, optical lenses, and aircraft tires.

    Establishment of a long-term, viable, world-class domestic 
        manufacturer of high-energy density lithium-ion (Li-ion) 
        batteries that is responsive to customer requirements with 
        respect to performance, reliability, quality, delivery, and 
        price. High energy density Li-ion batteries are suitable for a 
        number of military systems including enhancing the endurance of 
        Unmanned Aerial Vehicles (UAVs) and providing portable power to 
        support the mission for the dismounted soldier, long endurance 
        autonomous systems, tactical vehicles, unattended sensors, and 
        reconnaissance and surveillance systems. The intent is to 
        create a flexible production line capable of producing multiple 
        battery form factors for both military and commercial 
        applications, as well as achieving performance results needed 
        to meet unique warfighter requirements.

    Establishment of a domestic source for the production of 
        light-weight ammunition cartridge casings using a high-strength 
        polymer material. Ammunition casings produced with this 
        material may provide significant advantages over traditional 
        brass casings, such as decreased combat carrying weight for 
        ground and air operations, with cost savings obtained through 
        reduced fuel consumption, as well as lower transportation/
        shipping and material costs. Other potential benefits may 
        include increased muzzle velocities, improved weapons accuracy, 
        and prolonged barrel and weapon life. The initial focus of the 
        project is the development and qualification of lightweight .50 
        caliber machine gun rounds that can be utilized in 
        conventionally fielded weapon systems at a comparable cost to 
        standard brass ammunition.
    TITLE VII: ACTIVIES OF THE DEFENSE PRODUCTION ACT COMMITTEE
    I also wish to express support for DPA Title VII authorities. Title 
VII contains a range of provisions, including enforcement mechanisms, 
which help protect the Nation's security. Of particular importance are 
Section 705, which provides authority to collect industrial base 
information; Section 708, which provides authority to enter into 
voluntary agreements (and antitrust protections for participants in 
such agreements); Section 721, which authorizes the President to 
suspend or prohibit a foreign acquisition or merger with a U.S. firm, 
when the transaction provides a credible threat to U.S. national 
security (reviews of foreign acquisitions under Section 721 are 
conducted by the interagency Committee on Foreign Investment in the 
U.S. (CFIUS)); and Section 722, which established the Defense 
Production Act Committee. These enforcement mechanisms enable the 
Department, as well as our interagency counterparts, to effectively 
manage and deliver critical elements as permitted through the DPA. 
Without it, our Nation's security would be put at risk.
    Newly created during the last DPA reauthorization, the Defense 
Production Act Committee (DPAC) is an interagency body, established by 
Section 722, which identifies whole-of-Government approaches to 
strengthen domestic industrial base capabilities to meet national 
defense supply requirements under normal and emergency conditions. The 
Committee advises the President on the effective use of the DPA and 
develops recommendations for changes to the law and the effective use 
of the delegated authorities under this Act. To achieve these 
objectives, the Committee engages in assessment activities and enables 
information sharing related to the industrial base and DPA authorities.
    The DPAC has established Industrial Capability Study Groups to 
conduct assessments and develop long-term strategies for addressing the 
supply chain problems of various industrial sectors. Each of these 
study groups is chaired by a senior subject-matter expert from a 
civilian agency who directs the group's work, while DOD provides 
operational staff and budgetary support for assessment activities. 
Currently, the Committee is operating four study groups to analyze 
supply chain issues that are essential to national defense: (1) metal 
fabrication, led by the Department of Commerce; (2) power and energy, 
led by the Department of Energy; (3) telecommunications, led by the 
White House Office of Science & Technology Policy; and (4) lightweight 
materials, co-led by the Department of Energy and the Army. The work of 
the DPAC analysis led to a DPA Title III investment earlier this year 
to preserve and modernize the sole domestic source for heavy forging 
products for Navy applications including propulsion shafts and nuclear 
reactor containment vessels. I expect that another recommendation for 
investment will be made later this year.
CONCLUSION
    The Defense Production Act continues to provide unique and 
important authorities that directly support the continued health of our 
Defense industrial base. The Department of Defense fully supports a 
reauthorization of all the existing DPA provisions currently scheduled 
to expire in September of 2014. The DPA enabled us to meet the 
challenges of the last 60 years and provides important mechanisms that 
continue to be of vital importance to our national security. Thank you 
for the opportunity to discuss the reauthorization of this important 
Act, I look forward to taking your questions.
                                 ______
                                 
                PREPARED STATEMENT OF ERIC L. HIRSCHHORN
         Under Secretary of Commerce for Industry and Security
                         Department of Commerce
                             July 16, 2013
    Chairman Johnson, Senator Crapo, Members of the Committee:

    I appreciate the opportunity to testify before the Committee this 
morning on the important role the Defense Production Act (DPA) 
continues to play in supporting our national defense. I will focus my 
comments on the nonpermanent DPA authorities in Titles I and VII that 
are relevant to the Department of Commerce and the activities of the 
Department under those authorities.
    The Department of Commerce plays several roles in implementing DPA 
authorities related to the defense industrial base. First, under Title 
I, the Department administers the Defense Priorities and Allocations 
System. Second, under Title VII, the Department analyzes the health of 
U.S. defense industrial base sectors. Third, also under Title VII, the 
Department submits an annual report to Congress on offsets in defense 
trade. All three DPA authorities need to be reauthorized before 
September 30, 2014. I will briefly discuss each of these roles.
    I. Defense Priorities and Allocations System
    Title I of the Defense Production Act authorizes the President to 
require acceptance and priority performance of contracts and orders 
(other than contracts of employment) to promote the national defense 
over performance of any other contracts or orders, and to allocate 
materials, services, and facilities as deemed necessary or appropriate 
to promote the national defense. These authorities to prioritize 
contracts and require allocations for industrial resources were most 
recently delegated to the Secretary of Commerce by Executive Order 
13603 which was issued in March 2012. However, the Department has had 
similar authority since the DPA was first enacted in 1950.
    Today, the Bureau of Industry and Security implements these 
authorities through the Defense Priorities and Allocations System 
regulation (15 CFR Part 700) (most commonly known as the ``DPAS''). The 
DPAS establishes procedures for the placement, acceptance, and 
performance of priority rated contracts and orders and for the 
allocation of materials, services and facilities and is regularly used 
to support the acquisition of industrial resources needed to support 
U.S. national defense requirements, especially by the Department of 
Defense.
    All companies in the United States must comply with the provisions 
of the DPAS regulation. The key elements of the DPAS regulation are 
mandatory acceptance of rated orders, preferential scheduling, and 
extension of priority ratings throughout the supply chain. Under the 
DPAS, there are two levels of priority designated by the symbols ``DO'' 
and ``DX.'' All ``DO'' rated orders have equal priority with each other 
and take preference over unrated orders. All ``DX'' rated orders have 
equal priority with each other and take preference over ``DO'' rated 
orders and unrated orders.
    A ``priority rating'' on a contract or order notifies a supplier 
that the contract is supporting an approved national defense program 
and that the supplier must accept and give the order priority over 
unrated commercial orders (or lower rated orders in the event of 
competing ``DX'' and ``DO'' orders), as necessary, to meet the required 
delivery date. A contractor in receipt of a rated order, in turn, 
places ``priority rated orders'' with its subcontractors for parts and 
components.
    Our industrial base is well-versed in the DPAS based on more than 
60 years of experience in receiving and placing priority rated 
contracts and orders to support Department of Defense requirements. The 
private sector also appreciates that the DPA includes a protection 
against claims in the event a contractor, subcontractor, or supplier is 
required to reschedule an unrated order after receipt of a rated order.
    The Department of Commerce has delegated authority to the 
Departments of Defense (DOD), Energy (DOE), and Homeland Security 
(DHS), and the General Services Administration, to place priority 
ratings on contracts or orders for industrial resources to support 
programs determined by DOD, DOE, or DHS as ``necessary or appropriate 
to promote the national defense.'' The Department of Commerce may also 
authorize other Government agencies, foreign governments, owners and 
operators of critical infrastructure, or companies to place priority 
ratings on contracts or orders on a case-by-case basis. Such requests 
must first be determined as ``necessary or appropriate to promote the 
national defense'' by DOD, DOE, or DHS.
    Let me briefly highlight a few examples of the Department's work in 
administering the DPAS.
    The Department of Defense remains the primary user of the DPAS. My 
Department has worked closely with DOD to support the U.S. Armed Forces 
through the DPAS to expedite the delivery of industrial resources 
needed to support critical operational requirements, including the 
Interceptor Body Armor, counter-improvised explosive devices, and the 
Mine Resistant Ambush Protected vehicle programs. In addition, 
Commerce, in coordination with the Department of Defense, has 
authorized foreign defense ministries to place priority ratings on 
contracts and orders with U.S. suppliers for equipment needed to 
support coalition operations in Iraq and Afghanistan. My Department is 
very proud of the role we have played through the DPAS to support our 
servicemen and servicewomen and to assist our coalition partners.
    The Department has also worked closely with the Department of 
Homeland Security's Federal Emergency Management Agency through the 
DPAS to support emergency preparedness and critical infrastructure 
protection and restoration requirements. For example, the Department 
worked with DHS to authorize the U.S. Army Corps of Engineers to use 
the DPAS to support the repair and expansion of the Hurricane 
Protection System for the Louisiana Gulf Coast Region. The Corps of 
Engineers placed priority ratings on hundreds of contracts to expedite 
delivery of pumps, structural steel and concrete for levees and 
floodwalls, and other related flood control infrastructure to reduce 
the risk of floodwaters from future natural disasters. The Department 
has also worked with DHS to authorize other Federal agencies (including 
the Department of State, the Federal Bureau of Investigation, and 
Commerce's National Oceanic and Atmospheric Administration) to place 
priority ratings on orders to expedite the delivery of industrial 
resources needed to enhance the protection of Government facilities and 
to support systems designed to detect and track severe weather.
    These examples, and the testimony from my DOD and DHS colleagues, 
demonstrate how the DPAS remains critically relevant to support our 
national defense, including military and homeland security 
requirements.
    Since the 2009 reauthorization of the Defense Production Act, the 
Department has also collaborated with the five other Federal 
departments that are delegated priorities and allocations authority 
with respect to other resources (Agriculture, Energy, Defense, Health 
and Human Services, and Transportation) and with DHS to develop and 
implement a consistent and unified Federal priorities and allocations 
system to the extent practicable. The new rules being developed by the 
other departments for the resources under their priorities and 
allocations jurisdiction are based primarily on DPAS guidance and 
procedures and incorporate several key elements of the DPAS, including: 
mandatory acceptance of rated orders, preferential scheduling of rated 
orders to meet delivery requirements, and extension of priority ratings 
by contractors to lower-level suppliers and subcontractors. The 
Department of Commerce is also in the process of updating the DPAS 
regulation based on our collaboration with our interagency partners.
    II. Defense Industrial Base Studies
    Under Section 705 of the DPA and Executive Order 13603, the 
Department also conducts surveys and assessments of defense-related 
industries and technologies. These assessments are usually requested by 
the Department of Defense. Using these industrial base studies, the 
Departments of Commerce and Defense can, for example, monitor trends, 
benchmark industry performance, and raise awareness of diminishing 
manufacturing capabilities. The studies also provide detailed data that 
are unavailable from other sources.
    Currently, the Department of Commerce has a number of studies 
underway, including an assessment of the U.S. space industry supply 
chain. Commerce has partnered with NASA, the U.S. Air Force, and the 
National Reconnaissance Office to gain an understanding of the 
complicated network supporting the development, production and 
sustainment of products and services across the defense, intelligence 
community, civil and commercial space sectors. Additionally, Commerce 
is assessing the cartridge and propellant actuated device (CAD/PAD) 
industry, and the underwater acoustics and transducers industry. When 
completed, these assessments will provide the requesting agency or 
agencies with information needed to understand the health and viability 
of the studied sector.
    III. Offsets in Defense Trade
    Pursuant to Section 723 of the DPA, the Department also reports to 
Congress annually on the impact of offsets in defense trade. Offsets in 
defense trade encompass a range of industrial compensation practices 
required by foreign governments as a condition of the purchase of 
defense articles and services from a nondomestic source. This mandatory 
compensation can be directly related to the purchased defense article 
or service or it can involve activities or goods unrelated to the 
defense sale.
    The Department collects data annually from U.S. firms involved in 
defense exports with associated offset agreements in order to assess 
the impact of offsets in defense trade. In February 2013, the 
Department submitted its 17th report to Congress on offsets in defense 
trade, with data covering the 1993-2011 period. U.S. industry submitted 
2012 offset data to the Department in June 2013 in accordance with the 
offset reporting regulation (15 CFR Part 701). The Department will 
analyze this data and present its findings to Congress later this year.
    IV. Defense Production Act Committee
    The Department of Commerce is also a member of the interagency 
Defense Production Act Committee (DPAC) which was established pursuant 
to the 2009 DPA reauthorization to advise the President on the 
effective use of the Act's authority. The President has designated 
Homeland Security and Defense as rotating chairs of the DPAC. Commerce 
plays an active role in the work of study groups established by the 
DPAC, including the group that is assessing the use of DPA authorities 
to support disaster preparedness and response and critical 
infrastructure protection and restoration activities.
Summary
    In sum, the DPA provides authority for a variety of programs at the 
Department of Commerce of substantial importance to our Nation's 
security. The DPAS continues to facilitate the timely delivery of 
industrial resources to support the Department of Defense, coalition 
partners, and increasingly, to meet Homeland Security requirements. The 
DPA also facilitates valuable assessments of the health of key sectors 
of the defense industrial base and the impact of offsets in defense 
trade.
    The Department of Commerce looks forward to working with the 
Committee to reauthorize the nonpermanent provisions of the Defense 
Production Act.
    Thank you.
                                 ______
                                 
                  PREPARED STATEMENT OF RICHARD SERINO
       Deputy Administrator, Federal Emergency Management Agency
                    Department of Homeland Security
                             July 16, 2013
Introduction
    Good morning, Mr. Chairman and Members of the Committee, I am 
Richard Serino, Deputy Administrator of the Federal Emergency 
Management Agency (FEMA). On behalf of FEMA and the Department of 
Homeland Security (DHS), I appreciate this opportunity to appear before 
you to support a 5-year reauthorization of the nonpermanent provisions 
of the Defense Production Act (DPA) and to discuss the importance of 
the DPA to support our national defense, including disaster 
preparedness and response, protection and restoration of critical 
infrastructure operations, and homeland security capabilities.
    The DPA is the primary source of Presidential authorities to 
expedite the supply of materials and services needed for both military 
and civil emergency preparedness and response. While a few provisions 
of the DPA are permanent, expiration of the nonpermanent authorities 
would undermine the ability to prepare for and respond to natural 
disasters and other threats, such as an earthquake, a hurricane or an 
incident involving a weapon of mass destruction.
Use of Title I Priorities Authority
    The use of DPA authorities has evolved over time. Title I of the 
DPA authorizes the priority treatment of contracts and orders. While 
the priorities authority is used primarily to support Department of 
Defense programs, it has gained increased importance for homeland 
security purposes, particularly since the Act was amended in 2003 and 
2009. As with rated orders in support of military programs, rated 
orders for homeland security programs are used to ensure on-time 
performance when delays could place lives and property at greater risk.
    Under Executive Order 13603, which delegates Presidential DPA 
authorities, six Federal agencies have jurisdiction over various types 
of resources. The priorities authority most often has been used for 
resources falling under the jurisdiction of the Department of Commerce 
(DOC), which include most manufactured goods and services. DOC has 
delegated to the Department of Homeland Security (DHS) its authority to 
place priority-rated orders for its own programs, for the purposes of 
emergency preparedness and response activities under the Stafford Act, 
critical infrastructure protection and restoration efforts, and 
measures to prevent, mitigate, and recover from acts of terrorism. DOC 
also has delegated its authority to the Department of Defense, and to 
other entities as needed.
    It is important to note that the priorities authority is used only 
in support of eligible programs in circumstances when a procurement 
delay would prevent timely completion of a critical program or when a 
procurement problem occurs or is anticipated. Eligibility for 
application of the priorities authority is determined against a 
standard of ``necessary or appropriate to promote the national 
defense,'' in accordance with section 101 of the Act. The Secretary of 
Homeland Security is delegated the responsibility for making this 
determination for civilian national defense programs (not pertaining to 
the military, space, or energy). FEMA makes these determinations on 
behalf of the Secretary.
    By law, the priorities authority may be utilized to support a range 
of activities in support of the national defense, to include: programs 
for military and energy production and construction; military or 
critical infrastructure assistance to foreign nations; homeland 
security activities to prevent, mitigate damage from, or recover from 
terrorist attacks; and emergency preparedness activities under Title VI 
of the Stafford Act. FEMA has made determinations that programs are 
necessary or appropriate to promote the national defense across a range 
of civilian uses.
    Priorities authority may be used to support disaster preparedness 
and response activities under Title VI of the Stafford Act. For 
example, after Hurricane Sandy, FEMA used priority ratings to place 
contracts for telephonic interpreter services to enable communications 
with the diverse population impacted by this disaster. After Hurricane 
Katrina, priorities authority was used to speed delivery of equipment 
needed to restore rail service in the Gulf Coast region. In addition, 
the U.S. Army Corps of Engineers was authorized to place priority 
ratings in contracts and orders for its program to repair and restore 
floodwalls and levees after Hurricane Katrina. In this case, the 
priorities authority was used to help prevent delays to improvements to 
the greater New Orleans Hurricane and Storm Damage Risk Reduction 
System.
    Similarly, FEMA has used the priorities authority to support timely 
repair and modernization of critical equipment that supports emergency 
preparedness and response capabilities. For example, priorities 
authority was used to support timely modernization of the FEMA National 
Radio System and to support the computer network and other operations 
in the National Response Coordination Center.
    Priority ratings can also be used in support of other homeland 
security programs. For example, FEMA determined that U.S. Customs and 
Border Protection (CBP) can use priority-rated contracts to support 
timely maintenance and upgrade of its P-3 Orion aircraft fleet. These 
planes are used primarily in the interdiction of drugs and other 
contraband destined for the United States, but are also used to support 
anti-terrorism and border protection missions. In another case, the 
priorities authority was used to ensure timely completion of perimeter 
security measures at the Boston airport and its seaports. The use of 
priority-rated contracts was needed to ensure timely delivery of high-
tech camera equipment needed for these projects.
    Within the past year, FEMA has also determined that various 
emergency preparedness and continuity of operations activities of the 
Architect of the Capitol (AOC) are in support of the national defense. 
This includes such AOC activities as providing and maintaining physical 
security and surveillance; electronic surveillance, detection and 
warning systems; fire alarm and suppression systems; life safety 
equipment; hazardous material protective equipment; hazardous material 
response equipment; and shelter-in-place equipment. It also includes 
efforts to establish and maintain redundancy for critical information 
and communications systems.
    In addition to the U.S. Army Corps of Engineers and the Architect 
of the Capitol, several other Government agencies have been authorized 
by DOC to use priority-rated contracts in recent years to support 
specific homeland security activities after FEMA has made a 
determination that the activity was in support of the national defense.
    For example, the National Nuclear Security Administration in the 
Department of Energy has used priorities authority to support several 
of its programs. It was used in support of the Second Line of Defense 
Program, the purpose of which is to strengthen the capability of 
international partners to deter, detect and interdict illicit 
trafficking in nuclear and other radioactive materials across 
international borders and through the global maritime shipping system. 
It was also used in support of the Nuclear Counterterrorism Incident 
Response program, which promotes first responder and law enforcement 
capabilities to respond to and mitigate nuclear and radiological 
incidents in the United States and worldwide.
    In 2009, FEMA determined that the Department of Health and Human 
Services (HHS) program to combat the H1N1 influenza was eligible for 
priorities support. This program involved procurement of vaccines and 
anti-viral drugs and the development, manufacture, and supply of other 
medical countermeasures approved, licensed, or cleared by the Food and 
Drug Administration, such as biologics, equipment and devices.
    Based upon FEMA determinations of eligibility, priorities authority 
is also being used in support of the State Department's Domestic 
Facilities and Personnel Protection Program, which provides for the 
security of domestic State Department facilities, U.S. Government 
personnel located in those facilities and foreign dignitaries visiting 
the United States.
Use of Title VII Authorities
    Title VII contains a number of authorities--some permanent and some 
that will terminate in September 2014--if not reauthorized. One 
permanent section of the law--section 708--authorizes establishment of 
voluntary agreements. The purpose of a voluntary agreement is to allow 
cooperation among business competitors to expedite or expand the supply 
of critical materials or services by planning and coordinating actions 
in support of the national defense including Government emergency 
preparedness and response activities. Participants in a voluntary 
agreement are granted relief from antitrust laws under the provisions 
of section 708.
    Another section of Title VII--section 722 of the DPA--establishes 
the Defense Production Act Committee to advise the President on the 
effective use of DPA authority. Section 722 provides that the Committee 
membership shall include the head of each Federal agency to which the 
President has delegated DPA authority. The Committee is chaired on an 
annual rotating basis by the Departments of Homeland Security and 
Defense. The Committee has established several working groups to study 
DPA and defense industrial base issues.
Reauthorization of Expiring Provisions
    Along with other responsibilities to coordinate Federal emergency 
preparedness and response activities, FEMA provides Governmentwide 
coordination and guidance for use of DPA authorities on behalf of the 
Secretary of Homeland Security, pursuant to Executive Order 13603. FEMA 
works with all relevant Federal agencies to ensure effective use and 
proper implementation of the DPA, to include awareness of the ability 
to incorporate the DPA in planning for emergencies.
    Without renewal of expiring provisions of the DPA, a critical 
statutory authority to ensure timely procurement of materials and 
services to protect and restore critical infrastructure operations--
whether they are key transportation capabilities, floodwalls, or 
levees--would be lost. Without the DPA, DHS and other Federal agencies 
would have no authority to prioritize contracts for resources needed 
for emergency preparedness, for critical infrastructure restoration or 
protection, or for lessening the risks associated with a terrorist 
attack. In closing, I urge that Congress reauthorize the DPA 
authorities that remain critical to our national defense.
    Thank you, Chairman Johnson, for the opportunity to appear before 
you today, and I would be pleased to answer any questions you or other 
Members of the Committee may have.

   RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM FRANK 
                            KENDALL

Q.1.a. The Federal Government has not used the loan and loan 
guarantee authorities provided for in Title III in more than 30 
years.
    Under what circumstances were they used and why are they 
not used today, and if not used, should they be removed from 
the Act?

A.1.a. The loan/loan guarantee authorities in Title III of the 
Defense Production Act (DPA) were used extensively during the 
1950s and 1960s. More than 1,700 loans totaling more than $4 
billion were made or guaranteed using the Title III 
authorities. No new loan guarantees or loans have been 
initiated since the DPA borrowing authority was replaced by an 
appropriations requirement in 1974.
    In March 1982, Secretary of Defense Weinberger proposed an 
amendment to the DPA to grant $2.5 billion in revolving 
Treasury borrowing authority to subsidize domestic materials 
production. In April 1982, Office of Management and Budget 
(OMB) Director Stockman responded that OMB could not support 
the proposed amendment because (1) ``it is Administration 
policy to rely on the marketplace to improve the 
competitiveness of our industries to help reduce dependence on 
foreign sources;'' (2) ``the proposed legislation requests 
blanket project approval and `backdoor' borrowing authority 
which is contrary to the provisions of the Congressional Budget 
Act of 1974;'' and (3) ``our analysis of the DOD proposal to 
subsidize domestic cobalt production indicates that it is 
substantially less costly to acquire stockpile protection by 
direct purchase.'' (Source: Letter dated April 15, 1982, from 
David Stockman, Director, OMB to Casper Weinberger, Secretary 
of Defense)
    A compromise was subsequently reached between DOD and OMB 
in which DOD agreed ``to utilize only purchase/purchase 
commitment agreements.'' DOD has continued to abide by this 
agreement. Since Title III activities were ``resurrected'' by 
DOD and Congress in the 1980s, Congress has amended Title III 
provisions several times to place limitations on use of the 
loan/loan guarantee authorities. Most recently, the Section 
302(c)(1) DPA Reauthorization of 2009 (50 U.S.C. App.  2092 
(c)(l)) amended the loan/loan guarantee authorities to allow 
use of these authorities ``only to the extent that an 
appropriations Act--(i) provides, in advance, budget authority 
for the cost of such guarantees, as defined in section 502 of 
the Federal Credit Reform Act of 1990 [2 U.S.C.  661a]; and 
(ii) establishes a limitation on the total loan principal that 
may be guaranteed.'' To date, no appropriations Act has 
included such provisions. Congressional action is required 
before the loan guarantee and loan authorities can be used.
    The loan guarantee and loan authorities were cost-effective 
when used during the 1950s and 1960s. While they have not been 
used since the 1960s, past experience suggests that they are 
potentially valuable tools to support national defense 
production and supply needs, particularly under emergency 
conditions. Additionally, these authorities reside with the 
President, and while they have not been used for nearly 30 
years, the authorities are nevertheless an important tool for 
the President to ensure the availability of key domestic 
industrial base capabilities and these authorities should not 
be diminished.

Q.1.b. Similarly, the Title VII authority for a National 
Defense Executive Reserve appears dated, at least, in some of 
its language. It also either has never been used, or has been 
dormant for decades, does it need to be updated or eliminated?

A.1.b. DOD agrees that the current language of the Title VII 
authority for a National Defense Executive Reserve is designed 
to support a major mobilization of months or years. In 
Executive Order 13603, the President has authorized each Agency 
Head the discretion to create and activate National Defense 
Executive Reserve (NDER) units under their control. While there 
are no active NDER units in the Federal Government, the DPA 
NDER language is appropriate to govern the establishment of 
future units in the event of a catastrophic incident of 
sufficient magnitude to warrant its use. DOD does not believe 
that the current language needs to be updated or eliminated.

Q.1.c. Can you give any examples where DPA authorities, fell 
short in their implementation, or exceeded their scope or 
encountered any unintended consequences in any manner?

A.1.c. In short, none. The DPA authorities were the 
cornerstones of economic mobilization to support the Korean 
conflict during the 1950s and after more than six decades of 
use continue to play important roles in supporting the 
procurement needs of defense programs. The priorities authority 
continues to be a key element supporting DOD procurement and 
has also provided support for important homeland security 
activities--both for disaster preparedness and response and for 
counter-terrorism activities. The priorities authority has been 
used effectively with remarkably few problems for more than 60 
years.
    DOD has been making effective use of the Title III 
authorities since these authorities were resurrected in the 
1980s. The authorities have been exercised on numerous 
occasions to ensure the availability of critical domestic 
production resources when the private sector is not 
incentivized to create or expand these capabilities. Today, 
these authorities are used primarily to expand domestic 
production capacity for key technologies, materials, and items 
to improve the quality of these technologies, reduce 
procurement costs for these technologies, and speed the 
integration of leading-edge technologies into defense systems. 
Title III incentives help reduce the technical and financial 
risk associated with the higher-risk projects that business is 
unwilling or unable to undertake but that hold great potential 
for promoting our national defense through better and more 
affordable advanced technologies. By reducing risk, the Title 
III incentives encourage private sector investment thus 
mitigating the need for sustained Government investments.
DOD use of ``Title I'' Priorities
Q.2.a. Last year, the DOD exercised its authority under Title I 
with regard to about 300,000 contracts, about 20 percent of its 
contracts.
    How is the decision to prioritize or not prioritize 
contracts pursuant to Title I authority made at your 
department?

A.2.a. Most recently in section 202a of Executive Order 13603, 
the President delegated DOD the authority to determine which 
programs are necessary or appropriate to support the National 
Defense with respect to military production and construction, 
military assistance to foreign nations, military use of civil 
transportation, stockpiles managed by DOD, space, and directly 
related activities.
    To that end, DOD has established 14 approved categories of 
military-related programs that are identified in Schedule I of 
the Defense Priorities and Allocations System (DPAS) regulation 
(15 CFR part 700)-the Department of Commerce (DOC)-administered 
regulation covering the industrial resources under its 
priorities and allocations jurisdiction. All DOD contracts and 
orders for industrial resources associated with these 14 
program categories are eligible to be issued as priority rated 
contracts in accordance with Title I and DOC's delegation of 
authority to DOD to utilize the DPAS to support DOD 
contracting.
    DOD has been authorized by DOC to use both DPAS levels of 
priority, designated by the symbols ``DO'' and ``DX.'' All 
``DO'' rated orders for industrial resources have equal 
priority with each other and take preference over unrated 
orders. All ``DX'' rated orders for industrial resources have 
equal priority with each other and take preference over ``DO'' 
rated orders and unrated orders. Most DOD priority rated orders 
are rated ``DO.'' The use of the ``DX'' priority rating is 
justified on the basis of military need (highest national 
defense urgency) and industrial resource limitations that make 
it unlikely that required delivery schedules will be achieved 
without the ``DX'' priority rating. Only the Secretary or the 
Deputy Secretary of Defense can approve a program to use the 
``DX'' priority rating, which is currently limited to 
supporting approximately a dozen programs.

Q.2.b. Who exactly has the authority to make those decisions 
and what are the criteria used?

A.2.b. All procuring activities within DOD have the authority 
to apply priority ratings to contracts or orders for industrial 
resources in accordance with the DPAS regulation, the Federal 
Acquisition Regulation (FAR 11.600), DOD Directive 4400.01, 
``Defense Production Act Programs,'' and the DOD Priorities and 
Allocations Manual (DOD 4400.1-M). It is DOD policy that 
procuring activities shall assign a priority rating to all 
defense contracts and purchase orders for industrial resources 
associated with the 14 approved program categories, except when 
they contain items that DOC has determined are not eligible to 
be priority rated.
Biofuels
Q.3.a. What is the likelihood that projects either ongoing or 
under consideration may be held up or otherwise impacted on 
account of the Defense Department's decision to use unexpended 
``no year'' fiscal year 12 funding to initiate a bio fuel 
project such as the one providing seed money to fund the 
startup of biofuel production plants for the Navy or its 
follow-ons? Will this become an issue in the future?

A.3.a. Existing or proposed Title III initiatives are not being 
impacted by the use of fiscal year 2012 funds for the Title III 
biofuel project. The fiscal year 2012 funds allocated for the 
biofuel project were appropriated as a programmatic add above 
the budget request and therefore are available to be used for 
the biofuel initiative. We do not anticipate this being a 
future hindrance.

Q.3.b. How is the bio fuels project considered to be a 
strategic and critical material essential for national defense 
purposes at a time when the United States is positioned to 
become one of the world's biggest net exporters of oil?

A.3.b. A robust advanced drop-in alternative fuels market is an 
essential element of our national energy security. Energy 
security for the Nation requires unrestricted, uninterrupted 
access to affordable energy sources to power our economy and 
military. Traditional fossil fuel-based petroleum is derived 
from crude oil that is finite, unevenly distributed, and 
concentrated in particular regions of the globe, not all of 
which are habitually friendly to U.S. interests. Advanced 
alternative transportation fuels that use a domestic feedstock 
will provide us a secure alternative that reduces the risks 
associated with petroleum dependence.
    Additionally, section 106 of the Defense Production Act (50 
U.S.C. App.  2076) specifically designates energy as a 
strategic and critical material. Also, section 2(a)(6) of the 
Defense Production Act Declaration of Policy (50 U.S.C. App.  
2062 (a)(6)) states the congressional finding that `` . . . to 
further assure the adequate maintenance of the domestic 
industrial base, to the maximum extent possible, domestic 
energy supplies should be augmented through reliance on 
renewable energy sources (including solar, geothermal, wind, 
and biomass sources), more efficient energy storage and 
distribution technologies, and energy conservation measures;''.

Q.3.c. What criteria are used to make the determination?

A.3.c. Before action may be taken under the authorities of 
Title III of the Defense Production Act, section 303(a)(5) of 
the Act (50 U.S.C. App.  2093(a)(5)) requires that a 
Determination be made that:

  (A) Lthe industrial resource, material, or critical 
        technology item is essential to the national defense; 
        and

  (B) Lwithout Presidential action under this section, United 
        States industry cannot reasonably be expected to 
        provide the capability for the needed industrial 
        resource, material, or critical technology item in a 
        timely manner.

There were two Determinations made pursuant to the requirements 
of the Defense Production Act that validated the essentiality 
of biofuel to meet national defense needs. The first was 
approved on December 19, 2010, and the second was approved on 
January 8, 2013.
DPAC Report
Q.4. The Defense Production Act Committee, or DPAC, has only 
one statutory responsibility--and, that is to provide its 
congressional oversight committees with an annual report that 
reviews the current use of DPA authorities and provides 
recommendations for improving DPA implementation in the 
Government, or amending the DPA statute, itself. This is the 
only measure which this Committee really has to measure how the 
authorities are used. Why then has no annual report been 
submitted for either 2011 or 2012, and when might the Committee 
get one, considering the statute is up for reauthorization?

A.4. The 2011 annual report was delivered to the House and 
Senate Banking Committees in August 2011. A combined 2012-2013 
report was delivered on August 7, 2013. Just before the 2012 
report was to be finalized, Executive Order 13603 was issued. 
The new order vastly expanded DPAC membership to 17 departments 
and agencies. Since section 722(d) of the Defense Production 
Act of 1950, as amended (50 U.S.C. App.,  2061 et seq.), 
requires that each DPAC member sign the annual report to 
Congress, it was infeasible to submit the report on time. To 
allow full participation by new members, the DPAC's co-chairs, 
DOD and the Department of Homeland Security, agreed that the 
2012 and 2013 reports would be combined into a single 
submission.

Q.5.a. There are some 13 departments and agencies with 
delegable authority under the DPAC umbrella. Governmentwide, 
then, it seems that Title I holds the biggest potential for the 
use DPA authorities.
    How much is the Defense Production Act Committee focused on 
Title I versus Title III authorities?

A.5.a. The focus is roughly evenly split. The Department of 
Homeland Security leads a study group to discuss Title I 
issues, and DOD is leading four interagency study groups to 
evaluate potential Title III investments to mitigate industrial 
base shortfalls in the areas of telecommunications, power and 
energy, metal fabrication, and lightweight materials.

Q.5.b. Is emergency preparedness getting sufficient attention 
in the DPAC?

A.5.b. DOD believes that emergency preparedness is receiving 
the appropriate level of attention within the Defense 
Production Act Committee (DPAC) interagency review process.

Q.5.c. How useful or valuable is the work and focus of DPAC to 
the more nondefense-oriented agencies or departments?

A.5.c. There have been informative discussions among the DPAC 
interagency members regarding the use of Title I authorities 
for nondefense activities. DOD, through the DPAC industrial 
base analysis process, is working with nondefense agencies to 
identify cross-cutting industrial base issues that impact 
multiple agencies pertaining to the four focus areas identified 
above.
                                ------                                


   RESPONSE TO WRITTEN QUESTIONS OF SENATOR KIRK FROM FRANK 
                            KENDALL

Q.1.a. How does the Department of Defense evaluate its own 
organic industrial base when presented with requirements by 
either the Services or other agencies utilizing Defense 
Production Act (DPA) authorities?

A.1.a. As new requirements are presented from either the 
Services or other agencies, DOD uses a standardized Joint Depot 
Source of Repair (DSOR) process to analyze which of its 
military depots possesses the capability that best satisfies 
the requirement. For the arsenals, we have drafted a DOD 
instruction that will be issued this year, directing the 
arsenals to identify critical manufacturing capabilities and 
sustaining workloads annually, which will provide a solid basis 
for analyzing the capabilities these facilities provide. The 
use of DPA authorities would apply only to the private sector 
industrial base and not the DOD's organic industrial base.

Q.1.b. Does the Department differentiate between depots where a 
facility may be product focused and an arsenal that may have a 
broad range of capabilities?

A.1.b. There is no differentiation when considering the use of 
the DPA authorities. For depot maintenance requirements, the 
joint service community, through the Joint Depot Source of 
Repair (DSOR) process, analyzes and decides on the source of 
repair that provides the capability that best satisfies the 
requirement. For the arsenals, we have drafted a DOD 
instruction that will be issued this year, directing the 
arsenals to identify critical manufacturing capabilities and 
sustaining workloads annually. Therefore, given our best value-
based approach, the process will not differentiate between 
product-focused and broad ranged capability activities when 
performing the analysis.

Q.1.c. What mechanism exists for one Service to assess another 
Service's organic industrial base to determine if they are able 
to support a given requirement?

A.1.c. It is DOD policy that the Joint community consider 
Centers of Industrial and Technical Excellence in determining 
DSOR. Additionally, the Services are required to consider 
existing capabilities based on previous DSOR assignments and 
regular interaction between the Services on capabilities being 
established. A collaborative process exists to determine the 
best source of repair for emerging requirements, which has a 
mechanism to assess each Service's capabilities to arrive at 
the best value source of repair. The manufacturing arsenals are 
managed by the Army, who articulates the capabilities of each 
during these inter-Service discussions.

Q.1.d. What data does the Office of the Secretary of Defense 
provide to other services to support this effort?

A.1.d. The Office of the Secretary of Defense provides 
oversight and guidance to the Joint DSOR process to ensure it 
provides the best value. Services establish depot maintenance 
capabilities and execute workload to sustain those 
capabilities. Data is made available across DOD for the 
community of practice. Additionally, we have drafted a DOD 
instruction relating to arsenals that will be issued this year, 
directing the arsenals to identify critical manufacturing 
capabilities and sustaining workloads annually. This will 
increase the visibility of the capabilities of the arsenals.

Q.2. Are there any statutory barriers to using DPA funds for 
capital equipment at organic industrial base facilities?

A.2. To use Defense Production Act (DPA) funds for capital 
equipment at organic industrial base facilities, DOD must 
comply with the limitations and determination requirements that 
are imposed by the DPA for all other uses of the authority. 
Additionally, section 303(e) of the DPA stipulates that if the 
President determines that such action will aid the national 
defense, the President is authorized to inter alia:

  (A) Lto procure and install additional equipment, facilities, 
        processes or improvements to plants, factories, and 
        other industrial facilities owned by the Federal 
        Government;

  (B) Lto procure and install equipment owned by the Federal 
        Government in plants, factories, and other industrial 
        facilities owned by private persons.

Q.3. Many Department of Defense working-capital funded 
facilities already possess the physical infrastructure and some 
level of capital equipment to support requirements that may 
otherwise be funded by DPA authorities. Has the Department ever 
utilized public-private partnerships at organic industrial base 
facilities to take advantage of existing Government investments 
in physical infrastructure (e.g., buildings) and a trained 
workforce? If so, please provide examples.

A.3. Yes. DOD uses public-private partnerships under 10 U.S.C. 
2474 for depot-level maintenance when such partnerships are 
cost effective in providing improved support to the warfighter, 
and they maximize the utilization of the Government's 
facilities, equipment, and personnel at DOD depot-level 
maintenance activities. Furthermore, as we implement 
Performance-Based Logistics (PBL) strategies, amounts expended 
for the performance of depot-level maintenance and repair 
workload by non-Federal Government personnel at a Center of 
lndustrial--and Technical Excellence (CITE) under any contract, 
in accordance with section 2474, are not counted for the 
purpose of the percentage limitation contained in 10 U.S.C. 
2466(a).
    Additionally, the Secretaries of the Military Departments 
have designated depot-level maintenance activities as CITEs in 
their recognized core competencies in accordance with 10 U.S.C. 
2474. Each CITE is authorized and encouraged to enter into 
public-private partnerships comprising its own employees, 
private industry, and/or other entities outside the DOD to 
perform work within its depot-level maintenance core 
competencies and/or allow private industry to lease or 
otherwise use facilities and equipment at the CITE that is not 
fully utilized for the military department's own production and 
maintenance requirements. Examples of Public-Private Partnering 
for Sustainment include:

  1. LRock Island Arsenal (RIA) Composite Armor Center. RIA 
        entered a partnership with BAE in August 2009 to 
        establish an organic composite armor production 
        capability. The partnership utilizes BAE's strength in 
        the development and production of composite panels with 
        the skilled workforce and capital equipment at RIA. The 
        project is an Arsenal Support Program Initiative. It is 
        located in some of the excess warehouse space at RIA. 
        Renovations to the space provided the environment 
        needed to prepare and consolidate the panels in a very 
        effective and desirable work space.

  2. LFleet Readiness Center-Southeast (FRCSE)/General Electric 
        Aircraft Engines (GEAE). The F404 engine partnership 
        features a public sector depot labor provision within a 
        PBL arrangement. The partners in the fleet exchange 
        component availability-based project are FRCSE, GEAE, 
        and Naval Inventory Control Point, Philadelphia. The 
        work occurs within a Government-industry arrangement 
        under the authority of 10 U.S.C. 2474. The scope of the 
        partnership covers 33 critical gas path aviation 
        reparable components associated with the F404-GE-400/
        402 engines that power the F/A-18 Hornet. The aim of 
        the initiative is to provide and improve the 
        availability and reliability of the engine's 
        components.

Q.4. When was the last time the Department of Defense reviewed 
the Joint Manufacturing and Technology Center at Rock Island 
Arsenal as a potential site for DPA activities?

A.4. DOD has never had a requirement to consider the Joint 
Manufacturing and Technology Center at Rock Island Arsenal as a 
potential site for Defense Production Act (DPA) activities; 
however, the Secretary of the Army makes capital investments 
annually in accordance with 10 U.S.C. 2476. Additionally, the 
Secretary of the Army designated Rock Island as a Center of 
Industrial and Technical Excellence under 10 U.S.C. 2474.
    Also, before action can be taken under the authorities of 
Title III of the Defense Production Act, an industrial base 
shortfall that impacts essential national defense requirements 
must be identified and validated. This shortfall is typically 
articulated by the programs of record of military departments 
or agencies that rely on specific domestic industrial base 
resources to field or sustain key national defense 
capabilities.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM RICHARD 
                            KENDALL

Q.1. The Special Inspector General for Afghanistan 
Reconstruction (SIGAR) conducted an audit on aircraft 
procurement for Afghanistan, specifically PC-12's and Mi-17's. 
Of the seven recommendations by SIGAR, DOD concurred with all 
but the first recommendation, which is to suspend activity on 
the aircraft until a memorandum of understanding between the 
Afghan Ministry of Interior and Defense can be completed and 
signed. As such, the DOD agrees with the complex milestones and 
considerable work that must be done to properly transition 
aircraft to the Afghans and yet DOD does not concur with 
suspending activity on the transition of new aircraft. Is the 
DOD negating the recommendations you acknowledge and agree must 
be done by committing the United States to transition activity 
on investments for aircraft when the measures to use and 
sustain them haven't been met? If no, provide analysis that led 
to the decision to nonconcur with recommendation #1 and 
continuing aircraft transition activity to the Afghans despite 
their inability to meet operational capability as it relates to 
the SIGAR audit findings.

A.1. The Afghan Special Mission Wing (SMW) is critical to the 
success of the campaign in Afghanistan and to advancing U.S. 
national security objectives. Losing the SMW capability will 
mean that the Afghans will be unable to execute critical 
counterterrorism and counter narcotics operations. Moreover, 
the Afghans will have limited ability to disrupt and degrade 
the insurgent networks that enable Al Qaeda. Currently, the 
limiting factor for progress with the Mi-17 program is 
insufficient numbers of operable aircraft to sustain pilot 
currencies, advance prepared crews to night vision goggle (NVG) 
qualification, conduct required maintenance, and execute 
operations. The procurement process takes time, a decision to 
set aside or delay the purchase of new Mi-17 helicopters could 
result in a 2-year delay due to limited slots on the production 
line. The additional 30 Mi-17s enable the SMW to train NVG 
qualified crews faster, maintain/increase support to Afghan 
National Army Special Operations Force operations, and field 
four geographically dispersed squadrons.
    The SIGAR report does not accurately capture the progress 
of the SMW in training, maintenance, or mission execution. The 
SMW currently has 47 of 67 Mi-17 pilots and 23 of 52 flight 
engineers with six, soon to be seven, NVG-trained crews (pilots 
and flight engineers). The unit executes its training while 
concurrently providing operational support to both the 
Government of the Islamic Republic of Afghanistan Ministry of 
Interior and Ministry of Defense. Between October 1, 2012, and 
July 15, 2013, the SMW executed over 4 dozen operations 
(approximately 80 percent during daylight hours). Recent 
operations demonstrate the Wing's capability to conduct 100 
percent Afghan-planned, led, and crewed multi-ship daylight 
missions. A recent night operation was 100 percent Afghan-
planned and led and 75 percent Afghan-crewed; this multi-ship 
mission demonstrated their increasing ability to fly missions 
under extreme conditions (e.g., confined landing zone, maximum-
allowable wind velocity, low illumination).
    The current two maintenance and logistics contracts in 
support of the SMW expired at the end of August 2013. The new 
contract merges the previous two and addresses the 
recommendations in the SIGAR report regarding contractor 
performance metrics and a plan to transition responsibility to 
the Afghans. The transition plan includes the transfer of both 
management and operational functions and is based on specific 
milestones rather than a specific timeline. In terms of current 
progress, there are two Afghan maintenance managers leading 
production control meetings, setting priorities for aircraft, 
and briefing Afghan maintenance staff. Moreover, Afghans are 
currently performing regular maintenance on the Mi-17s with 
contractor oversight. Hands-on training for maintainers is 
essential, and additional aircraft are necessary to facilitate 
said training.

Q.2. Does DOD analysis currently include a timeline for 
proposed operational capability of PC-12's, Mi-17's and other 
planned fixed-wing aircraft? If yes, please provide this 
timeline. If no, provide a proposed timeline whereby DOD 
anticipates the Afghans will be able to meet the demand for 
pilots, flight engineers, maintenance technicians, and security 
personnel to successfully operate and maintain current and 
planned fleets. What current program is in place for the 
training of fixed-wing pilots? How many candidates are 
currently in training? As part of this time line, please 
address the factors of vetting and training to meet full 
operational capability. Planned fleets means aircraft beyond 
the SMW and in addition to PC-12's and Mi-17's.

A.2. Yes. Please see table below that outlines each fixed-wing 
aircraft and Mi-17 operational capability dates.


----------------------------------------------------------------------------------------------------------------
                                                                              Full Operational Capability (FOC)
               Aircraft                    Initial Operational Capability    (1.5 crew ratio per aircraft (a/c),
                                             (IOC) (basic crews ready)              plus perform missions)
----------------------------------------------------------------------------------------------------------------
PC-12 (Spec Msn Wg)...................                3rd Quarter (Q) 2015                            3d Q 2016
Mi-17 helicopter......................                          Already IOC                      With 86 a/c FOC 1st Q 2016
C-208 light lift plane................                          Already IOC                      With 26 a/c FOC 1st Q 2015
C-130 medium lift.....................                          1st Q 2016                        With 4 a/c FOC 4th Q 2018
A-29 light attack plane...............                          4th Q 2016                      With 20 a/c2019
----------------------------------------------------------------------------------------------------------------

    Current training program in place: All Afghan pilot 
trainees regardless of platform are required to achieve a 
minimum English language skill score before starting flight 
training. Most fixed-wing pilot training occurs at Shindand 
Airbase, Afghanistan. Students learn basic flight skills in the 
Cessna C-182 and then progress to the Cessna C-208 for advanced 
training. Other initial pilot training occurs in the United 
Arab Emirates and the Czech Republic. Classes are full and 
training is progressing well. The C-182 and C-208 are less 
complicated to maintain and have high sortie production rates. 
C-130 training is at Little Rock Air Force Base, Arkansas. Two 
students are in training and scheduled for completion 
commensurate with the delivery of the first aircraft in 
September/October 2013. Six other C-130 pilot candidates are in 
English language training, four of whom are scheduled to start 
pilot training late Fall 2013. Ten additional C-130 pilot 
candidates have been identified but have not started training. 
C-130 loadmasters and engineers have been identified and are 
enrolled in English language training. C-130 loadmasters and 
engineers have been identified and are enrolled in English 
language training. The initial two C-130 aircraft will be 
operational by Fall 2013 with U.S. Air Force aircrew support.
    Training Pipeline: 104 students are in Undergraduate Pilot 
Training, Undergraduate Helicopter Pilot Training or Initial 
qualification Training: 6 in the United States, 48 in UAE, and 
50 at Shindand Airbase: There are 441 students (aircrew and 
maintenance) in English training (various locations)--a 300-
percent increase in the last 6 months.

Q.3. How will DOD assist the Afghans in recruiting and 
retaining pilots, flight engineers and maintenance technicians 
to successfully operate and maintain current and planned 
fleets? Planned fleets means aircraft beyond the SMW and in 
addition to PC-12's and Mi-17's.

A.3. DOD assistance to the Afghans is primarily through the 
advisory function. Advisors have helped develop and implement 
the high standards that have put the Afghan Air Force (AAF) at 
the top of all recruiting and retention benchmarks across the 
Afghan National Security Forces (ANSF).
    Historically, the Afghan National Army (ANA) ``pushed'' new 
recruits to the AAF, many of whom did not possess the necessary 
literacy skills to be successful. Over the last several years, 
this has changed significantly such that the AAF now ``pulls'' 
quality recruits from the ANA to begin Air Force training. This 
January, the AAF Recruiting and Accessions Policy was signed 
and later reinforced by General Karimi (Chief of the General 
Staff) when he supported the AAF's decision to reject 
unqualified recruits.
    The U.S. 9th Air and Space Expeditionary Task Force-
Afghanistan Commander (Senior Airman in country) has requested 
a professional U.S. Air Force recruiter to serve as a mentor to 
the AAF to strengthen recruiting practices and develop the 
organization and messages to increase recruiting. Sourcing is 
in progress.
    AAF retention rates are the highest in the ANSF. Recruiting 
outstrips losses (retirements and separations) and many Afghans 
choose to remain in the AAF for a variety of reasons. Some of 
those reasons include incentive pay for specialized career 
skills such as pilots, maintenance personnel, and English 
competency. The AAF also has a leave policy allowing service 
members the time to visit with family. Cultural ties to family 
are important and the AAF provides stability by living in one 
location near family. Finally, combat losses and operations 
tempo are considerably less than their Army counterparts.

Q.4. What incentives, if any, will the Afghans provide pilots, 
flight engineers and maintenance technicians to ensure they do 
not complete the vetting process, acquire training and separate 
from service to operate and maintain current and planned 
fleets? Planned fleets means aircraft beyond the SMW and in 
addition to PC-12's and Mi-17's.

A.4. Afghan Air Force (AAF) retention rates are the highest of 
all the Afghan National Security Forces. Recruiting outstrips 
losses and many Afghans choose to remain in the AAF for a 
variety of reasons. Some reasons include incentive pay for 
specialized career skills such as pilots, maintenance 
personnel, and English competency, or the leave policy that 
allows members time to visit with family members. Cultural ties 
to family members are important, and the AAF provides stability 
by living in one location near family. Finally, combat losses 
and operations tempo are considerably less than their Army 
counterparts.
    Furthermore, once an Afghan joins the AAF and becomes an 
officer, the Inherent Law for Officers and Noncommission 
Officers requires them to serve for at least 10 years. No 
external ``pull'' to leave the AAF exists at this time. Unlike 
the United States, where major airlines or financially 
lucrative opportunities cause U.S. Air Force pilot retention 
challenges, the Afghan economy remains less attractive to many 
AAF members. Stable and safe employment with competitive pay 
and leave policies are positive factors motivating many Afghans 
to remain in service. Many AAF officers must be forced to 
retire at their high year tenure marks, making room for new 
officers that will lead the AAF.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM ERIC L. 
                           HIRSCHHORN

Q.1. The Federal Government has not used the loan and loan 
guarantee authorities provided for in Title III in more than 30 
years.
    Under what circumstances were they used and why are they 
not used today, and if not used, should they be removed from 
the Act?

A.1. The Department of Commerce (Commerce) does not have a 
Title III program and does not have any information on the 
circumstances associated with the previous use of the loan and 
loan guarantee authorities. The Department of Defense is 
currently the only Federal agency with an active Title III 
program. Commerce believes that the Department of Defense is 
better suited to respond to this question based on its 
extensive history administering its Title III program and 
related Title III projects.

Q.2. Similarly, the Title VII authority for a National Defense 
Executive Reserve appears dated, at least, in some of its 
language. It also either has never been used, or has been 
dormant for decades, does it need to be updated or eliminated?

A.2. Commerce did have a National Defense Executive Reserve 
(NDER) program from the mid-1950s to the mid-1990s. The focus 
of the program was to support mobilization planning in the 
event of a national emergency. Commerce dissolved its NDER unit 
in May 1997 after concluding that the maintenance of a cadre of 
industry executives was no longer necessary in light of the end 
of the cold war. Commerce has no current plans to reestablish a 
NDER program. The Department of Homeland Security has been 
delegated the responsibility for overall coordination of the 
Federal Government's NDER program, most recently in Executive 
Order 13603 of (March 16, 2012 (77 Fed. Reg. 16651, Mar. 22, 
2012). Commerce believes that the Department of Homeland 
Security is better suited to respond to the importance of the 
National Defense Executive Reserve authority as an element in 
national emergency planning in today's environment.

Q.3. Can you give any examples where DPA authorities, fell 
short in their implementation, or exceeded their scope or 
encountered any unintended consequences in any manner?

A.3. As noted in our testimony, the Defense Production Act 
(DPA) provides authority for a variety of Commerce programs of 
substantial importance to our Nation's security. The Defense 
Priorities and Allocations System (15 CFR part 700) facilitates 
the timely delivery of industrial resources to the Department 
of Defense, coalition partners, and increasingly to meet 
Homeland Security requirements. The DPA also facilitates 
valuable assessments of the health of key sectors of the 
defense industrial base and the impact of offsets in defense 
trade.
    Commerce cannot cite any examples where DPA authorities 
fell short in their implementation or exceeded their scope. 
Commerce did encounter an unintended consequence related to its 
reporting to Congress on offsets in defense trade. Prior to 
2008, Commerce's Bureau of Industry and Security published only 
one version of its offsets in defense trade report which was 
first transmitted to Congress and then subsequently made 
available to the public. During an internal program review, the 
Bureau of Industry and Security determined that foreign offsets 
authorities were using the country-specific offset data 
included in the Commerce report as a tool to benchmark their 
offset requirements with those required by other foreign 
nations, which potentially could contribute to higher offset 
demands being imposed on U.S. companies in future defense 
competitions. Accordingly, beginning with the Bureau of 
Industry and Security's 13th Offsets in Defense Trade Report to 
Congress (December 2008), Commerce ceased making such data 
available to the public and instead included the data only in 
``For Official Use Only'' annexes incorporated into the version 
of the report transmitted to Congress.
DPAC
Q.4. Since the Department of Commerce is a Defense Production 
Act Committee (DPAC) member, can you offer an assessment, as a 
participant on that Committee, as to whether DPAC has in your 
opinion effectively advised the President on the appropriate 
use of DPA authorities?

A.4. Commerce has participated in the interagency discussions 
associated with the establishment of the DPAC, including the 
development of its charter, and has supported study groups 
established by the DPAC. Commerce believes the DPAC can be a 
mechanism to share information among Federal agencies on the 
use of DPA authority (including through study groups 
established by the DPAC) and to develop recommendations for the 
effective use of DPA authorities.

Q.5. Can you provide us with an example or two of how the DPAC 
has improved the processes underlying the DPA authorities or 
how the authorities are used in the executive branch?

A.5. Commerce's National Institute of Standards and Technology 
worked closely with the Department of Defense in leading a DPAC 
study group that examined current domestic metal fabrication 
capabilities and national defense needs. The study group 
surveyed senior acquisition officials from across the Federal 
Government regarding unmet agency mission-critical component 
needs that are limited by current domestic metal fabrication 
capabilities. Based on this interagency discourse and 
subsequent industry engagement, the study group identified 
three primary cross-cutting risk areas that are essential to 
the national defense: castings, forgings, and machining, with 
forged-quality metal components representing the highest-
priority industrial base shortfall within metal fabrication. 
This work has helped inform the Department of Defense on its 
potential use of the Title III authority.
Commerce Regulations
Q.6. The Department of Commerce has issued its proposed 
rulemaking on its Defense Priority Allocation System, or DPAS, 
in 2010, but it has yet to be finalized, can you comment on the 
delay?

A.6. In June 2010, Commerce's Bureau of Industry and Security 
published a proposed rule to update the Defense Priorities and 
Allocations System regulations (15 CFR part 700) (75 FR 32122, 
June 7, 2010). The Bureau of Industry and Security received 
only one comment on that proposed rule. The Bureau of Industry 
and Security has reassessed some aspects of the June 2010 
proposed rule, based in part on our ongoing engagement with the 
five other departments that have been delegated priorities and 
allocations authority by the President (Agriculture, Defense, 
Energy, Health and Human Services, and Transportation) and with 
the Department of Homeland Security. We will be publishing a 
new proposed rule in the early fall.

Q.7. What needs to be done to improve the process of issuing 
the priorities and allocations under the DPAS regulations?

A.7. Based on our experience, no improvements are needed to the 
process at this time. As noted in our testimony, Commerce has 
delegated authority to the Departments of Defense, Energy, and 
Homeland Security, and the General Services Administration, to 
place priority ratings on contracts or orders for industrial 
resources to support programs determined by Defense, Energy, or 
Homeland Security as ``necessary or appropriate to promote the 
national defense.'' Commerce may also authorize other 
Government agencies, foreign governments, owners and operators 
of critical infrastructure, or companies to place priority 
ratings on contracts or orders on a case-by-case basis. Such 
requests must first be determined as ``necessary or appropriate 
to promote the national defense'' by the Departments of 
Defense, Energy, or Homeland Security. The current framework 
has proven effective in facilitating the timely delivery of 
industrial resources needed to support our national defense, 
including military, homeland security, emergency preparedness, 
and critical infrastructure protection and restoration 
requirements.

Q.8. If the Defense Department is using the process 300,000 
times a year, what type of coordination or oversight role do 
you have with it?

A.8. Commerce has delegated authority to the Department of 
Defense to place priority ratings on contracts or orders for 
industrial resources to support programs determined by Defense 
as ``necessary or appropriate to promote the national defense'' 
without coming to Commerce on a case-by-case basis. The 
Department of Defense is authorized by Commerce to use both 
DPAS levels of priority, designated by the symbols ``DO'' and 
``DX.'' All ``DO'' rated orders have equal priority with each 
other and take preference over unrated orders. All ``DX'' rated 
orders have equal priority with each other and take preference 
over ``DO'' rated orders and unrated orders.
    The Commerce delegation also provides that Defense may 
sponsor requests for special priorities assistance upon 
determining the need for the requested assistance in support of 
military programs. Since 2005, Commerce has taken more than 250 
official actions, in accordance with the DPAS, in response to 
requests for special priorities assistance endorsed by Defense, 
many related to directly supporting U.S. and coalition forces 
operating in Afghanistan and Iraq.
    Commerce also supports the Department of Defense's Priority 
Allocation of Industrial Resources (PAIR) Task Force which was 
established by Defense to address circumstance where there are 
competing Defense program requirements for limited resources. 
Commerce may be asked by the Department of Defense to take 
action through the DPAS to implement a Priority Allocation of 
Industrial Resources (PAIR) decision reflecting Defense's 
highest priority requirements, such as issuing a directive to a 
U.S. company that establishes priorities and deadlines for 
identified contracts and orders that are supporting urgent 
operational requirements.
    The Commerce delegation provides that Defense conduct a 
continuing training program to ensure that appropriate 
Department of Defense and contractor personnel are thoroughly 
familiar with the DPAS regulation and the provisions and 
limitations of Commerce's DPAS delegation to Defense. Commerce 
works closely with Defense in supporting DPAS training 
activity, including coordinating with the Office of the Deputy 
Assistant Secretary of Defense for Manufacturing and Industrial 
Base Policy, the Defense Acquisition University, and the 
Defense Contract Management Agency on activity to educate the 
Defense acquisition community and Department of Defense 
suppliers. Commerce has also established a DPAS Web site with a 
wide range of DPAS resources, including links to the DPAS 
regulation, DPAS training tools and DPAS guidance issued by the 
Office of the Deputy Assistant Secretary for Manufacturing and 
Industrial Base Policy for other Defense components.

Q.9. Are there any recent examples where special priorities 
assistance was required and what was done by your staff to 
resolve the issues?

A.9. Commerce's Bureau of Industry and Security worked closely 
with the Office of the Deputy Assistant Secretary of Defense 
for Manufacturing and Industrial Base Policy in March 2013 to 
expedite the delivery of certain specialized bearings needed to 
manufacture a new mortar system. In this case, the Department 
of the Army requested special priorities assistance on behalf 
of the supplier of the 120mm Enhanced Mortar Targeting Systems 
(EMTAS). The Joint Chiefs of Staff had highlighted the military 
importance of deploying these systems to Afghanistan as rapidly 
as possible under a ``Joint Urgent Operational Need'' 
statement.
    The EMTAS supplier needed assistance in expediting the 
delivery of certain bearings used in these systems because the 
bearing supplier was unable to meet the EMTAS program's 
required delivery schedule. After receiving guidance from the 
Department of Defense that the EMTAS requirement was the 
highest Department of Defense priority being supported by the 
bearing vendor, Commerce worked closely with the EMTAS 
supplier, the bearing vendor, the Office of the Deputy 
Assistant Secretary of Defense for Manufacturing and Industrial 
Base Policy, and the Department of the Army program office to 
develop a plan for expediting delivery. This plan was executed 
through the issuance of a DPAS directive by Commerce that 
required the bearing vendor to give its EMTAS-related orders 
priority over other defense and commercial orders. The 
directive also established a detailed schedule for delivering 
the critical items to the EMTAS supplier over a 5-week period.
                                ------                                


  RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM RICHARD 
                             SERINO

TITLE III
Q.1.a. The Federal Government has not used the loan and loan 
guarantee authorities provided for in Title III in more than 30 
years.
    Under what circumstances were they used and why are they 
not used today, and if not used, should they be removed from 
the Act?

A.1.a. The Department of Homeland Security (DHS) defers to the 
Department of Defense (DOD) to address how these authorities 
were used and if they are not used today. These authorities are 
valuable preparedness tools that can be used to support 
national defense production and supply needs and should remain 
in the DPA.

Q.1.b. Similarly, the Title VII authority for a National 
Defense Executive Reserve appears dated, at least, in some of 
its language. It also either has never been used, or has been 
dormant for decades, does it need to be updated or eliminated?

A.1.b. DHS does not believe that the current language regarding 
an industry reserve needs to be revised or eliminated. While 
there are no active National Defense Executive Reserve (NDER) 
units in the Federal Government currently, this authority is 
appropriate to govern the establishment of future units in the 
event of a catastrophic incident to warrant its use.

Q.1.c. Can you give any examples where DPA authorities, fell 
short in their implementation, or exceeded their scope or 
encountered any unintended consequences in any manner?

A.1.c. The DPA authorities have been proven effective over the 
course of more than six decades of use. The priorities 
authority continues to be a key element in supporting DOD 
procurement and has also provided support for important 
homeland security activities--both for disaster preparedness 
and response and for homeland security activities. Witnesses 
from FEMA, DOD and the Department of Commerce have all provided 
examples of how effective the recent and ongoing use of the 
priorities authority is to support military and homeland 
security supply needs.
DPAC
Q.2.a. There are some 13 departments and agencies with 
delegable authority under the DPAC umbrella. Governmentwide, 
then, it seems that Title I holds the biggest potential for the 
use DPA authorities.
    How much is the Defense Production Act Committee focused on 
Title I versus Title III authorities?

A.2.a. Both the Department of Homeland Security (DHS) and 
Department of Defense (DOD) are leading initiatives to study 
Title I and Title III authorities. DHS has put together a study 
group focused on Title I authorities, and DOD has established 
four separate study groups to conduct industrial base 
assessments in each of those focus areas to determine whether 
use of Title III authorities is warranted.

Q.2.b. Is emergency preparedness getting sufficient attention 
in the DPAC?

A.2.b. DHS believes that emergency preparedness is receiving 
sufficient attention in the DPAC at this time.

Q.2.c. How useful or valuable is the work and focus of DPAC to 
the more nondefense-oriented agencies or departments?

A.2.c. There have been several informative discussions that 
allow for a heightened awareness among DPAC members regarding 
how Title I authorities could potentially be used to support 
national defense activities, including nonmilitary related 
activities.
DPA and the business community
Q.3.a. Some might argue that there may be a lack of 
understanding in terms of the business community and the 
expectations placed on it by Title I authorities.
    In a major disaster situation, is the business community 
sufficiently prepared to fulfill contracts prioritized pursuant 
to the DPA?

A.3.a. DHS cannot speak for the entire business community, but 
no contractor compliance issues have been submitted to DHS for 
resolution.

Q.3.b. Is the business community completely aware of all that 
is required of it to do so?

A.3.b. Priority-rated contracts, orders, and subcontracts have 
been placed in support of national defense programs since the 
DPA priorities authority was first enacted in 1950. As a 
result, the business community engaged in national defense 
procurement at the prime or supplier level is well-versed in 
policy and procedures governing use of the priorities 
authority. Priorities system policy and procedures for the 
materials, services and facilities under the Department of 
Commerce's priorities and allocations jurisdiction are spelled 
out in comprehensive detail in the Defense Priorities and 
Allocations System (DPAS) regulation (15 CFR part 700), which 
is administered by the Department of Commerce. At this time, 
the DPAS is the only priorities system that is actively used. 
The DPAS policy and procedures have been used as a template for 
new priorities rules issued by other Federal departments that 
are delegated priorities authority under Executive Order 13603.

Q.3.c. What does the Federal Emergency Management Agency, or 
FEMA, do to ensure the full participation of industry?

A.3.c. Although FEMA rarely uses this authority, FEMA does 
reach out to industry to explain how priority ratings are used 
when there is a need to ensure the timely delivery of an item 
or service.


