    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                             [H.A.S.C. No. 114-123]

                            ASSESSING THE DEPARTMENT

                           OF DEFENSE'S EXECUTION OF

                          RESPONSIBILITIES IN THE U.S

                         FOREIGN MILITARY SALES PROGRAM

                                   __________

                                    HEARING

                                   BEFORE THE

                  SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                     OF THE

                          COMMITTEE ON ARMED SERVICES

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD

                                  MAY 17, 2016

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                  ____________

                            U.S. GOVERNMENT PUBLISHING OFFICE
    20-791                         WASHINGTON : 2017

    _________________________________________________________________________________________
    For sale by the Superintendent of Documents, U.S. Government Publishing Office,
    http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
    U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
    E-mail, gpo@custhelp.com.

                  SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                      VICKY HARTZLER, Missouri, Chairwoman

    JEFF MILLER, Florida                 JACKIE SPEIER, California
    K. MICHAEL CONAWAY, Texas            JIM COOPER, Tennessee
    JOSEPH J. HECK, Nevada               HENRY C. ``HANK'' JOHNSON, Jr.,
    AUSTIN SCOTT, Georgia                    Georgia
    MARTHA McSALLY, Arizona              GWEN GRAHAM, Florida
                     Heath Bope, Professional Staff Member
                     Katy Quinn, Professional Staff Member
                               Mike Gancio, Clerk
                                C O N T E N T S

                                  ----------
                                                                       Page

                  STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

    Hartzler, Hon. Vicky, a Representative from Missouri, Chairwoman,
      Subcommittee on Oversight and Investigations...................     1
    Speier, Hon. Jackie, a Representative from California, Ranking
      Member, Subcommittee on Oversight and Investigations...........     2

                                   WITNESSES

    Grady, Claire, Director, Defense Procurement and Acquisition
      Policy, Under Secretary of Defense for Acquisition, Technology
      and Logistics..................................................     5
    McCormick, Beth, Director, Defense Technology Security
      Administration, Office Of the Secretary of Defense.............     7
    Rixey, VADM Joseph, USN, Director, Defense Security Cooperation
      Agency, Department of Defense..................................     4

                                    APPENDIX

    Prepared Statements:

        Grady, Claire................................................    43
        Hartzler, Hon. Vicky.........................................    31
        McCormick, Beth..............................................    61
        Rixey, VADM Joseph...........................................    33

    Documents Submitted for the Record:

        Letters of Offers and Acceptance graph and chart.............    67

    Witness Responses to Questions Asked During the Hearing:

        Ms. Bordallo.................................................    71
        Mrs. Hartzler................................................    71
        Ms. Speier...................................................    71

    Questions Submitted by Members Post Hearing:

        Ms. Speier...................................................    75

    ASSESSING THE DEPARTMENT OF DEFENSE'S EXECUTION OF RESPONSIBILITIES IN
                    THE U.S. FOREIGN MILITARY SALES PROGRAM

                                  ----------

                      House of Representatives,
                           Committee on Armed Services,
                  Subcommittee on Oversight and Investigations,
                                 Washington, DC, Tuesday, May 17, 2016.
        The subcommittee met, pursuant to call, at 10:00 a.m., in
    room 2212, Rayburn House Office Building, Hon. Vicky Hartzler
    (chairwoman of the subcommittee) presiding.

    OPENING STATEMENT OF HON. VICKY HARTZLER, A REPRESENTATIVE FROM
          MISSOURI, CHAIRWOMAN, SUBCOMMITTEE ON OVERSIGHT AND
                             INVESTIGATIONS

        Mrs. Hartzler. Welcome and good morning. Before we begin, I
    would like to note that members of the full committee plan on
    attending today who may not be part of this committee. And so,
    therefore, I ask unanimous consent that these committee members
    be permitted to participate in this hearing, with the
    understanding that all sitting subcommittee members will be
    recognized for questions prior to those assigned to the
    subcommittee.
        Without objection, so ordered.
        This is the subcommittee's third event to review and assess
    the Department of Defense's [DOD's] role in the U.S. Foreign
    Military Sales program. As I noted at our hearing last week
    with representatives of the defense industry, foreign military
    sales, or FMS, is one component of the partnership-building
    tools the United States utilizes. It is a vital instrument of
    U.S. national security policy and is watched closely by our
    allies, partner nations, and adversaries alike.
        This subcommittee understands that FMS is a complex
    program. It is executed by many Federal agencies and policy
    stakeholders. All are dedicated professionals who strive to
    further U.S. national security. They recognize that building
    critical relationships and military capacities of our foreign
    partners and allies strengthens American security. It also aids
    our vital defense industrial base and in many ways eases the
    task of equipping our forces with the best equipment.
        But as with many large and multifaceted programs, FMS also
    comes with an inherent set of bureaucratic challenges. Some
    observers think the process is needlessly delayed and hinders
    the ability to deliver military capabilities to our partners
    engaged in many of the same conflicts or confronting the same
    threats we are.
        In recent weeks, our subcommittee has learned, through
    various avenues, about lengthy policy reviews that occur
    regarding some FMS cases. For example, it is my understanding
    that FMS cases for fighter aircraft that began well over 2
    years ago have been delayed due to opaque and bureaucratic
    deliberations at the National Security Council. This is very
    unfortunate. And I wholeheartedly agree with Chairman
    Thornberry's recent assessment that the NSC has become an
    organization making military operational decisions, building
    misinformation campaigns, and absorbing most national security
    functions from within the White House.
        I also strongly support the amendments filed by both
    Chairman Thornberry and Representative Jackie Walorski during
    floor consideration of the fiscal year 2017 NDAA [National
    Defense Authorization Act] this week, and I am glad that they
    were made in order so that we can vote to implement overdue
    accountability and congressional oversight to the processes and
    deliberations of the NSC.
        We have also heard of delays stemming from the need to
    ensure technology embedded in U.S. products is properly
    protected. It is important to note that as we seek to
    streamline this process, the foundational basis of the FMS
    program is to support and preserve the national security
    interests of the United States.
        Concerns have also been expressed about initial
    requirements or final design configurations which have been
    poorly developed. We have heard that the Defense Department
    does not always efficiently collaborate with industry in
    appropriately determining and developing end-item
    configurations based on the defined requirements. We have been
    told the Department also sometimes insists on undesirable
    contractual vehicles and upfront financial requirements that
    may dissuade allies from coming to the U.S. for their military
    equipment and support service needs. I also am concerned about
    the size and alignment of the Department's acquisition
    workforce and how the workforce is trained in prioritizing of
    FMS cases.
        The goal of our FMS oversight activities has been to gain a
    better understanding of the strengths, weaknesses,
    opportunities, and challenges associated with DOD's role in the
    FMS program, how this committee can help streamline the process
    without sacrificing technology, security, and support the
    dedicated and hardworking people of our defense industrial
    base.
        It is essential that the program is executed effectively
    and efficiently, and results in timelier acquisition and
    delivery of military capability where and when it is needed,
    both for the security of the United States and our reputation
    as an international partner.
        But before I introduce the witnesses, I turn to the
    Oversight and Investigations Subcommittee ranking member for
    any opening remarks she wishes to make.
        [The prepared statement of Mrs. Hartzler can be found in
    the Appendix on page 31.]

        STATEMENT OF HON. JACKIE SPEIER, A REPRESENTATIVE FROM
       CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON OVERSIGHT AND
                             INVESTIGATIONS

        Ms. Speier. Madam Chair, thank you. And thank you to our
    witnesses who are here today.
        Last week, the subcommittee heard industry's perspective on
    the process for U.S. foreign military sales. We heard
    suggestions for improving the process, but we also heard about
    delays, including assertions that delays led to lost sales.
        I think it is important for us to dig deeper. How many
    sales have actually been lost? Let's get specific. Is the
    process slow because foreign countries are unwilling to sign
    agreements with the United States not to share technology with
    other countries who are not our allies? Last week's industry
    witnesses were unable to provide specific examples where
    foreign governments have walked away from an FMS sale because
    the process was too slow.
        The quality, prestige, and servicing agreements involved in
    purchasing U.S. weapons systems cannot be matched by foreign
    competitors. So I want to get a better sense of how much of an
    issue this really is.
        At the last hearing, industry also complained that the
    technology transfer review was slowing down the process. But I
    want to reiterate that we need reassurance that these weapons
    do not fall into the wrong hands. Obtaining these assurances is
    a necessary part of the process.
        Despite these potential challenges, based on current sales
    this year, foreign military sales are robust. Let me repeat:
    they are robust. A recent Defense Security Cooperation Agency
    announcement indicated about $29 billion in FMS sales through
    the end of April, which is on track with last year, so the
    demand is still clearly there.
        Regardless, there are always improvements that can be made,
    and I look forward to hearing about several ongoing initiatives
    across the DOD to make the process more efficient. I also look
    forward to better understanding about benefits and potential
    pitfalls of the program.
        Foreign military sales support the U.S. defense
    manufacturing base and strengthen our international
    partnerships. Through FMS, our interoperability with other
    international partners increases as does their capability to
    respond to shared global security challenges.
        One issue where we are failing to maximize the benefits
    from this program is in recouping the hundreds of billions of
    dollars of taxpayer money that has gone to research and
    development for these weapons systems. Historically, we used to
    recoup a portion of these investments when we sold weapons to
    foreign governments. However, due to a policy change, DOD now
    waives all research and development fees. As a result, we are
    leaving nearly $800 million, and I suggest even more, of
    taxpayer money on the table each and every year and allowing
    industry and foreign governments to benefit at the American
    taxpayer's expense. Given the high demand for these sales, we
    need to do a better job of getting a return on our investment.
        In our oversight role of the DOD and its part in the FMS
    process, the subcommittee continues to learn more about whether
    the FMS process is suitably efficient, effective, and timely.
    Yet I will reiterate what I said last week: We must not forget
    that FMS is an instrument of U.S. foreign policy. As we sell
    weapons systems and services to foreign countries, we must
    ensure they are used appropriately, responsibly, and are in our
    best interests. Although that may delay the process, it is a
    policy we must always keep in mind.
        With that, I yield back, Madam Chair.
        Mrs. Hartzler. Sure. Thank you, Ms. Speier.
        So I am pleased to recognize our witnesses today, and I
    want to thank them for taking time to be with us. We have today
    Vice Admiral Joseph Rixey, director of the Defense Security
    Cooperation Agency [DSCA] for the Department of Defense. Thank
    you for coming back. We have Ms. Claire Grady, director of
    Defense Procurement and Acquisition Policy from the Office of
    the Under Secretary of Defense for Acquisition, Technology and
    Logistics. And Ms. Beth McCormick, director of the Defense
    Technology Security Administration [DTSA], also from the Office
    of the Under Secretary of Defense for Acquisition, Technology
    and Logistics.
        Thank you all for being with us here today. And so now we
    will begin with your opening statements.
        So, Vice Admiral Rixey, we will begin with you.

    STATEMENT OF VADM JOSEPH RIXEY, USN, DIRECTOR, DEFENSE SECURITY
               COOPERATION AGENCY, DEPARTMENT OF DEFENSE

        Admiral Rixey. Thank you, Chairwoman Hartzler, Ranking
    Member Speier, and members of the subcommittee. I am pleased to
    be here today to share with you my thoughts on the overall
    health and well-being of the foreign military sales process and
    the Department of Defense's role in the program from my vantage
    point as the director of the Defense Security Cooperation
    Agency.
        FMS is a longstanding foreign policy and national security
    program that supports partner and regional security, enhances
    military-to-military cooperation, enables interoperability, and
    develops and maintains international relationships. The system
    is performing very well, and the United States remains the
    provider of choice for our international partners with over
    1,700 new FMS cases implemented in fiscal year 2015 worth more
    than $47 billion.
        FMS is operated under the title 22 authority in which
    direction and guidance is delegated to DOD from both the
    President and from the Department of State. DOD manages the FMS
    life cycle, overseen by DSCA; conducts technology transfer
    reviews overseen by the Defense Technology Security
    Administration; and manages the defense acquisition and
    logistics systems which are overseen by DOD Acquisition,
    Technology and Logistics, and the military departments.
        The FMS process is executed through a system designed to
    fulfill requirements of the Arms Export Control Act, ensuring
    three fundamental and critical validations occur before a
    capability can be offered: that the sale is of mutual benefit
    to the partner nation and the U.S. government, that the
    technology will be protected, and that the transfer is
    consistent with U.S. conventional arms transfer policies.
        Criticism of the alleged slow approval timelines is largely
    associated with a few high profile cases, and this criticism is
    actually misplaced. These delays are the natural outcomes of
    the required validations rather than a negative reflection of
    the performance of the FMS system itself.
        The FMS system is burdened, but it is not broken, and we
    have made important strides, not only within the Department of
    Defense, but across the interagency in mapping out and
    beginning to develop and implement important initiatives that
    target areas for improvement to keep the FMS system responsive
    to our partner needs and agile to support national security
    objectives.
        We have identified approximately 40 interagency initiatives
    to better enable the United States to remain the provider of
    choice for our foreign partners, providing them with the full
    spectrum of required capability to receive, maintain, and
    sustain the products they receive through the FMS program.
        Initiatives range from professionalizing of the Security
    Cooperation workforce, providing ways in which we can better
    understand and help define partner requirements earlier, and
    surely we are properly resourced for FMS contracting manpower
    and establishing ways we can more effectively respond to the
    requirements, such as our ability to buy ahead of need with the
    Special Defense Acquisition Fund.
        And that is a broad overview. My written statement has
    greater detail that I am happy to discuss in response to your
    questions.
        Distinguished committee members, I want to thank you again
    for the opportunity to sit before you today, and I look forward
    to your questions.
        [The prepared statement of Admiral Rixey can be found in
    the Appendix on page 33.]
        Mrs. Hartzler. Thank you.
        Ms. Grady.

     STATEMENT OF CLAIRE GRADY, DIRECTOR, DEFENSE PROCUREMENT AND
    ACQUISITION POLICY, UNDER SECRETARY OF DEFENSE FOR ACQUISITION,
                        TECHNOLOGY AND LOGISTICS

        Ms. Grady. Thank you.
        Good morning, Chairman Hartzler, Ranking Member Speier, and
    distinguished members of the subcommittee and committee. Thank
    you for the opportunity to appear before you to discuss the
    role the defense acquisition community plays in supporting
    foreign military sales.
        In acquiring goods and services on behalf of FMS customers,
    we employ the same rigorous policies and procedures that we use
    to meet our own requirements. When an FMS customer seeks to
    acquire major weapons systems, whenever possible, the same
    acquisition program management office that oversees the DOD
    acquisition and sustainment of that system is also responsible
    for delivering the FMS requirements. In this way, the
    Department and the FMS customers enjoy the benefits of synergy,
    not only from the perspective of staffing, but also in
    realizing efficiencies in achieving economies of scale, which
    results in lowered negotiated prices from industry.
        To increase the efficiency and effectiveness of the overall
    acquisition system, the Under Secretary of Defense for
    Acquisition, Technology and Logistics, Frank Kendall, has
    advanced a series of continuous improvement initiatives we
    refer to as Better Buying Power. One of the central elements of
    Better Buying Power is our focus on the people who comprise our
    acquisition workforce and ensure we provide the training and
    tools to enable them to secure the best possible value for our
    warfighters, the American taxpayer, and our FMS customers.
        The Department has invested significant resources, with the
    support of Congress, to ensure that our acquisition workforce
    is properly sized, with the right skills, experience, and
    training to execute the responsibilities entrusted to us. Last
    year, DOD's talented contracting officers obligated over $274
    billion on contract actions, of which about $26 billion were
    for foreign military sales.
        DOD training and certification programs for the defense
    acquisition workforce are considered to be the gold standard
    within the Federal Government. The professionalism and
    capability of our acquisition workforce is a significant
    contributing factor in our international partners' choice to
    acquire goods and services through the U.S. FMS program.
        Another pillar of Better Buying Power is to incentivize
    productivity and innovation in industry and the government. A
    key tenet of that is the need to employ appropriate contract
    types and to properly align incentives. There is no one
    preferred contract type. The contract type that is employed
    should reflect the balance of risk between the government and
    the contractor and provide the contractor with the greatest
    incentive to achieve the outcomes necessary to make the program
    successful. If the Department were precluded from using the
    appropriate type contract in any particular environment, it
    would effectively constrain our ability to deliver best value
    to the FMS customer and eliminate opportunities to achieve
    efficiencies by combining U.S. and FMS requirements on the same
    contract.
        As detailed in the tables I included in my written
    statement, the Department's contracting officers employ a
    variety of contract types that will best support the FMS
    customer's needs, with the predominant contract type being firm
    fixed price.
        Recognizing the importance of being responsive to
    customers' needs, we are continuing to work with Vice Admiral
    Rixey, DSCA, and the implementing agencies to shorten the times
    involved in the portion of the process that the acquisition
    community can influence. For example, as is the case with U.S.
    requirements, sole source foreign military sales contracts for
    military items require the contractor to submit certified cost
    or pricing data in accordance with the Truth in Negotiations
    Act. We are exploring opportunities to reduce procurement lead
    time and realize efficiencies by extrapolating from prior cost
    history to price future requirements and reduce the
    administrative costs for contractors to submit and certify
    proposals for FMS requirements.
        Another area where we are looking to improve is in the
    final pricing of undefinitized contract actions [UCAs]. The
    preferred practice is to finalize the terms and conditions and
    negotiate the price prior to award of a contract. However, due
    to urgent needs of FMS customers, it is often necessary to
    authorize the contractor to begin work prior to reaching final
    agreement on price and other terms. Although the statute
    exempts undefinitized contract actions awarded for FMS
    customers from restrictions and procedures otherwise required
    for UCAs, by policy, the Department has mandated that these
    management procedures be employed whenever practicable. And if
    it is not possible to improve those--if it is not possible to
    apply those management techniques, they're required to notify
    their acquisition chain of command as well as my office.
        We also have instituted internal reporting procedures to
    provide management and attention and visibility on our use of
    UCAs and provide semiannual reports to the Congress. In these
    reports, we identified a number of UCAs that have remained
    undefinitized for extended periods of time. Definitizing UCAs
    in a timely manner is important to both the government and
    industry and requires the mutual cooperation of both to
    achieve. We are committed to doing better in that area.
        Responsive to your hearing invitation letter, I have
    included in my written statement information about DOD's
    technology security and foreign disclosure process and the
    Defense Exportability Features Pilot Program. For acquisition,
    these initiatives are led by my colleague in the Office of the
    Under Secretary for Acquisition, Technology and Logistics, the
    director of International Cooperation.
        I thank you for the opportunity to address the acquisition
    perspective of this important element of the Security
    Cooperation program, and I look forward to your questions.
        [The prepared statement of Ms. Grady can be found in the
    Appendix on page 43.]
        Mrs. Hartzler. Thank you, Ms. Grady.
        Ms. McCormick.

       STATEMENT OF BETH McCORMICK, DIRECTOR, DEFENSE TECHNOLOGY
      SECURITY ADMINISTRATION, OFFICE OF THE SECRETARY OF DEFENSE

        Ms. McCormick. Thank you, Chairman Hartzler, Ranking Member
    Speier, and members of the subcommittee. I appreciate the
    opportunity to discuss the Department of Defense ongoing
    technology, security, and foreign disclosure process
    improvements.
        As part of the Office of the Under Secretary of Defense for
    Policy, my agency, the Defense Technology Security
    Administration, collaborates with our sister agency, the
    Defense Technology Cooperation Agency, to build the capacities
    and capabilities of international allies and partners through
    the transfer of defense articles. Whether through the foreign
    military sales or direct commercial sales, providing the right
    equipment to match the security requirements of partners is a
    must.
        My agency also partners with several organizations in the
    Office of the Under Secretary of Defense for Acquisition,
    Technology and Logistics. The Arms Transfer and Technology
    Release Senior Steering Group, which I co-chair with Keith
    Webster, Director of International Cooperation, in the Office
    of the Acquisition, Technology and Logistics, brings together
    all of the key DOD stakeholders and process owners, breaking
    down longstanding stovepipes and focusing attention on the
    considerable factors so we can get capability to our global
    partners effectively and efficiently.
        We recognize that in some complex export transactions, if
    we wait for a formal letter of request from the international
    partner, we will be behind the power curve in the technology
    security and foreign disclosure review process. As a result,
    for select high-demand or sensitive systems, we seek to develop
    anticipatory policies addressing several of the technology
    security and foreign disclosure reviews in advance of a request
    or export license authored submission. Also, we are able to
    avoid false impressions when the answer will be ``no'' and, in
    some cases, address challenges early enough in order to get to
    a quick ``yes'' decision.
        Partnership between the U.S. Government and U.S. defense
    industry is also imperative, and I would note that last week
    this committee had several presentations by those key industry
    associations. Last October, I had the privilege of co-hosting a
    U.S. DOD-industry partnership forum with Keith Webster. As co-
    chairs of the Arms Transfer and Technology Release Senior
    Steering Group, we thought it was high time to have a dialogue
    about ways industry and government can work together to
    facilitate defense exports. While we developed the initial
    concept for the event, the forum became a reality only through
    collaboration with the Aerospace Industries Association and the
    National Defense Industrial Association.
        This was a great opportunity to foster communication
    between the Department of Defense and our industry partners on
    how we can work together to ensure our industry remains
    competitive internationally. Industry is counting on increased
    exports of defense technology to new and emerging markets. We
    had industry and DOD panels addressing a variety of defense
    export-related topics, with a healthy exchange of perspectives.
    We took stock of the many reforms undertaken, including the
    administration's Export Control Reform Initiative, improvement
    to the foreign military sales process, DOD participation in
    many international trade shows, and thinking about
    exportability capabilities to partners and allies from the
    start.
        Again, thank you for the opportunity to share our
    technology security and foreign disclosure-related process
    improvements with you today. I look forward to additional
    questions from the committee. Thank you.
        [The prepared statement of Ms. McCormick can be found in
    the Appendix on page 61.]
        Mrs. Hartzler. Thank you, Ms. McCormick.
        General Rixey, I would like to start asking questions of
    you. You said in your testimony that your written statement
    will provide more information on the different initiatives,
    over 40 initiatives, that you shared with us two hearings ago,
    the list here of all these initiatives.
        Admiral Rixey. Yes.
        Mrs. Hartzler. And I was very much looking forward to you
    coming and sharing details about some of these----
        Admiral Rixey. Sure.
        Mrs. Hartzler [continuing]. But in your written--in your
    oral testimony, you just mentioned a couple of them and you
    said to look at the written testimony. We did not receive this
    till 8:30 last night. I was at that time reading Ms. Grady and
    Ms. McCormick's testimony, which didn't arrive 48 hours,
    either, before.
        Do you realize there is a requirement that the testimony be
    here 48 hours before, and how come you didn't meet that
    deadline?
        Admiral Rixey. Yes, ma'am, I do realize. And I apologize. I
    wanted to make sure that my chop went through the interagency
    properly. And I admit that it was my fault and I should have
    had it to you sooner.
        Mrs. Hartzler. So there is no way that I have had a chance
    to read this and nobody else on this committee has, so can you
    outline some of the things in the written testimony, some of
    the initiatives that you are doing to help speed up the
    process?
        Admiral Rixey. Yes, ma'am.
        Mrs. Hartzler. Thank you.
        Admiral Rixey. I will talk about three or four specifically
    that I think are critically important. The first is we are
    working very closely with the services to ensure that we have
    adequate manpower to execute our programs. As I have shown
    earlier, it is a system of systems that has many artisans
    involved with ensuring that we get a good requirement from our
    customer, that we are able to process the case in a timely
    manner, that we are able to do the technology review, we can do
    the foreign policy review, and then, finally, to ensure that we
    have enough artisans to get the acquisition process moving
    forward.
        We want to ensure that the services realize that it is in a
    critical mission area and that they support staffing of these
    key positions, as well as we are working with the services and
    the comptrollers to find a way to fund these personnel with
    nonappropriated funds to ensure that we can meet the demands of
    a very robust FMS system. So that is the very first initiative,
    is to ensure that we have adequate manpower to execute these
    programs.
        Mrs. Hartzler. Can I stop you just a second?
        Now, in Ms. Grady's testimony, you say you have oversight
    of over 30,000.
        Ms. Grady. I am sorry. To clarify, the 30,000 that I have--
    --
        Mrs. Hartzler. You want to----
        Ms. Grady. Good point. Thank you. Sorry.
        The 30,000 that I highlighted I have personal oversight of
    is the contracting professionals. The acquisition workforce
    writ large is just over 150,000, about 153,000 to 156,000.
        Mrs. Hartzler. So how many of those, Admiral Rixey, are you
    speaking of that you are making sure you have adequate manpower
    of?
        Admiral Rixey. Well, we fund--overall, the whole system, I
    fund about 10,000. And I would--I would say roughly about 7,000
    of the majority of those are in the acquisition community. So--
    --
        Mrs. Hartzler. Do you feel like you need to hire more to
    meet the needs?
        Admiral Rixey. I do believe that we will, if the demand
    continues. And there are three items that our international
    partners tend to purchase. If they purchase an item that is
    from our program of record or something that we are already
    developing, I can leverage, for the most part, the program
    offices that exist for those types of equipment. For example,
    the F-18 Hornet. I would go to the F-18 program office and
    say--and they actually have a contingent that do international
    sales, and we can facilitate that.
        Sometimes our international partners want to buy an item
    from us, but they want to add capability that is unique to
    their country. Well, then I have to go to the same program
    office and ask them for engineers and technicians to help me
    understand how we are going to integrate these capabilities in,
    and that is usually supported very well.
        Where we run into some difficulties is when a country asks
    us for nonprogram of record-type procurements, for example, a
    patrol boat that is not in our inventory. Then I have to go
    find--there is no program office. We have to establish a
    program office. And that sometimes is a challenge finding those
    artisans, because we are always running up against manpower
    constraints or caps in manpower.
        The way we fund our personnel right now is through
    reimbursable accounts, which at this point count against their
    caps. We are working with the comptrollers to figure out how to
    pay direct site and establish these types of program offices
    and this type of support without counting against the service's
    manpower. And that is one of the initiatives that we are
    working on, is to be able to both expand and contract with
    sales.
        Mrs. Hartzler. To have the flexibility.
        Admiral Rixey. Have the flexibility, yes, ma'am.
        Mrs. Hartzler. So how many people are you planning on
    hiring in the next 6 months to help meet----
        Admiral Rixey. In the next 6 months?
        Mrs. Hartzler. Uh-huh.
        Admiral Rixey. I think we have a lot of work to do in
    determining--understanding anticipated demand, and I still have
    to go through the mechanisms of how to hire. So not many in the
    next 6 months. I will be able to project, over the life of
    these cases, what we think we are going to need in terms of as
    contracts start to become required for case execution. In the 6
    months, I don't have enough time right now to change the
    policies.
        Mrs. Hartzler. Okay. So the adequate workforce is one of
    the things that you are trying to get ahold of and----
        Admiral Rixey. Yes.
        Mrs. Hartzler [continuing]. Figure out manning.
        Admiral Rixey. Yes.
        Mrs. Hartzler. Why don't you go ahead and give another
    example? Then we will go to the questions of other----
        Admiral Rixey. So the next one, I think, is probably the
    most important and it is within our control, is we need to
    certify and train our Security Cooperation workforce almost in
    the same manner that we did a couple decades back with the
    acquisition community.
        Right now Security Cooperation, I would say, is basically
    an ad hoc operation. We do train our folks, we send them to
    school at Wright-Patterson called DISAM [Defense Institute of
    Security Assistance Management]. I would say that that would
    probably be like a level one certification. We need to expand
    upon that. We need to make sure that the 800-plus Security
    Cooperation officers that I am responsible for in the embassies
    down in these particular countries are fully trained. And in
    some of these countries, we may need a level of certification
    above an entry level certification.
        So we need to professionalize the Security Cooperation
    workforce, from the Security Cooperation and also within the
    services, and we also need to reach out to the acquisition
    community--which I think you will explain--Claire will explain
    how we are training our acquisition professionals to be savvy
    in acquisition for foreign partners. And so this is what I
    think we need to embark on and is very important.
        Mrs. Hartzler. I was going to go, but since you mentioned
    Ms. Grady, there is something in her testimony--which I very
    much enjoyed your testimony. It was getting right at the heart
    of the changes that you are making to try to address and
    expedite FMSes. So I very much appreciate that.
        But you mentioned that there is now an international
    acquisition billeting that you are doing to train people in
    this specific area. Can you expound on that and tell how many
    people, how many billets you have that deals just with foreign
    military sales?
        Ms. Grady. Absolutely. And, first of all, as part of our
    standard acquisition training, we apply the same processes to
    foreign military sales as we do to U.S. So one of the important
    elements of that training is addressing foreign military sales
    early in all of our acquisition training so that when our
    program managers are embarking on a new program, they are
    considering the full spectrum of potential requirements,
    including partner or allied sales in the future when they are
    standing up programs.
        So we want people to have, acquisition professionals to
    have awareness of the full scope of the acquisition
    responsibilities they have, including the foreign military
    sales.
        In addition to what is included as part of the standard
    certification training for functional communities, we also have
    subspecialties in international acquisition where we have
    identified positions that are predominantly or have a need to
    have greater knowledge of the international acquisition. We--
    that as a subspecialty emerged in 2007 exclusively for program
    managers. It wasn't until 2014 that we looked and said, it is
    much broader than just the program manager who needs awareness
    associated with that.
        We have put through about 7,500 students in training, and
    we have recently put a lot of emphasis on two foundational
    courses, Acquisition 120 and Acquisition 130. Acquisition 120
    deals predominantly with the Security Cooperation enterprise
    and what the acquisition role is in that. Acquisition 130
    focuses on technical rights and disclosure of technology. And
    we have had about 6,000 people take those courses just since
    they have stood up in 2014.
        So it has been an area of emphasis. And when we look at our
    acquisition workforce and our planning for the future, we look
    not just for the U.S. requirements, but the total capabilities
    that we need to deliver and make sure that we are working with
    the service acquisition executives to forecast their workforce
    needs for the full body of work we are going to ask them to
    perform.
        Mrs. Hartzler. It sounds like it certainly makes a lot of
    sense to me that you would train people and give them the
    specialty background that they need to deal with that.
        Okay. Ranking Member Speier.
        Ms. Speier. Thank you, Madam Chair. And thank you again to
    the witnesses for your testimony.
        Vice Admiral Rixey, when you refer to non-program-of-record
    cases, you are talking about designer products, are you not,
    for specific countries?
        Admiral Rixey. Yes, ma'am. They will be unique.
        Ms. Speier. So, I mean, I think it is really important for
    us to appreciate that when a country comes to us and says, ``We
    don't want something off the shelf. We want you to build us
    something special,'' that is a designer product, that is a one
    of a kind. And, frankly, they should pay for that and they
    should pay, in my view, the R&D [research and development] for
    that as well, because we are building them something unique.
        Now, let's get to the crux of this. How many cases do you
    have in any given year----
        Admiral Rixey. Well, in fiscal year 2015----
        Ms. Speier [continuing]. In sales?
        Admiral Rixey [continuing]. We had 1,774.
        Ms. Speier. Okay. 1,774 sales that actually went through
    the process?
        Admiral Rixey. That were implemented. Cases that were
    implemented.
        Ms. Speier. And how many of those were for weapons?
        Admiral Rixey. I would say roughly--we broke that out, and
    the rough order of magnitude is about 75 percent goes to end
    items and 25 percent to things like training and services.
        Ms. Speier. So 75 percent of all of those were for weapons
    systems?
        Admiral Rixey. Yes.
        Ms. Speier. If you were to chart that year to year, how
    would that compare?
        Admiral Rixey. I will have to take that for the record, but
    if I were to guess, that would be consistent, but----
        [The information referred to can be found in the Appendix
    on page 71.]
        Ms. Speier. Do you expect sales to increase?
        Admiral Rixey. I expect sales to be steady this year to
    match what we did in 2016--or 2015.
        Ms. Speier. Okay. There has been a lot of talk in this
    committee about lost sales. And the witnesses that testified
    last week, I specifically asked them, give me some examples,
    and they were hard pressed to do it.
        Could you tell us, how many sales have we lost because of
    the slowness of the process?
        Admiral Rixey. I cannot. I would have to take that back for
    the record as well. There has been--industry has told me that
    they have lost sales, but I don't have any proof, and so I will
    have to go back and do more research on that.
        I know that the fact that we do get delayed in certain
    items, the international partners do convey to me that they
    will look elsewhere for products. But I will have to take that
    question back for the record to get you an exact answer.
        [The information referred to can be found in the Appendix
    on page 71.]
        Ms. Speier. But when all is said and done, if they want an
    F-16, they are probably not going to go somewhere else to get
    it.
        Admiral Rixey. Well, they can. They can go to the French,
    they can go for a Mirage, they can go to Saab, and occasionally
    they do, but that is not the--they don't tell me the reason. It
    could be for their competitive advantage within their country,
    and so--they can go to other places. There are other
    opportunities to buy generation 4, generation 4.5 fighters from
    other countries.
        Ms. Speier. But if they are allies of ours, do we--is that
    a bad thing?
        Admiral Rixey. Not necessarily. If it is a NATO-compliant
    solution and it is interoperable, it is a capability. And,
    again, the business of DSCA is to provide capability. And if
    they find that through, like I said, a NATO-compliant solution,
    that is a capability.
        What we strive for in foreign military sales is building
    our partnership capacity and interoperability. That is what
    we--that is what our mission statement is for. And the reason
    we encourage foreign military sales is that we are involved
    with the contracting, we can design the contract itself and the
    specifications, and to ensure maximum interoperability. That is
    an extension of our warfighting capability if they are
    interoperable. And----
        Ms. Speier. So where does the slowness start to be seen?
    Where is the logjam?
        Admiral Rixey. Ma'am, we have actually tried to look at
    that in terms of--I built a Gantt chart that shows from, again,
    when the customer makes a requirement down through all the
    different lanes that have to--we have to go through, where we
    have to discuss a mutual benefit, is it a technology transfer
    issue, is it a foreign policy concern, and is it available in
    our acquisition community?
        We are seeing holdups throughout various places, whether it
    is foreign policy review or going from once we have approval to
    contract award. It is everywhere. And it is a complex system of
    systems. I would like to think that the front end of it, where
    we have that deliberate conversation, goes at a pace that is
    required to make sure that we have a deliberative conversation.
        Ms. Speier. Well, in a private conversation that I had with
    you yesterday, you seemed to indicate to me that the delays
    start to occur in the foreign policy area when the purchaser is
    unwilling to sign the agreements relative to retaining the
    technology and not sharing it with third parties that are not
    our friends.
        Admiral Rixey. I would argue that of the 1,774 cases that
    we had go through the system, the ones that gain a lot of
    attention are those very few high profile cases that are hung
    up in policy review. And for the most part, most of what we
    have goes through the system relatively quickly.
        Some of these major defense articles that get these
    headlines, the few happen to have huge production lines and
    have huge workforces depend on the sales of these end items.
    But when I look at the system as a whole writ large, I think
    fundamentally we get through the system quickly.
        I am worried and concerned about, with $47 billion of sales
    this year and matching next year, the sheer number of contracts
    going through our acquisition community could cause the major
    delay. And I think if you ask industry where they focus, their
    concerns are, is getting to contractor award once we have had
    approval, and we are working very hard on these things. And I
    think Claire will talk about some of the initiatives that are
    in place.
        The foreign policy issue that I see really are on high
    profile cases and really not that many when you look at the
    1,774 cases that we push through. So--and why are they hung up?
    Well, things tend to get hung up when some of the countries
    don't sign security agreements with us. So when we come to
    technology transfer and technology review, we pause on whether
    or not we are going to provide that capability from a
    technology transfer perspective.
        Ms. Speier. Okay. On the issues of research and
    development, historically we were reimbursed for the research
    and development that we have provided for all these complicated
    weapons systems. You had indicated to me that if we were to
    receive the R&D licensing fee, so to speak, we would be talking
    about, I think the figure you said was over $800 billion a
    year.
        Admiral Rixey. Yes.
        Ms. Speier. So when did we stop receiving those funds? What
    year was it?
        Admiral Rixey. I don't know the exact date. I understand it
    was in the 1990s. I know that just--I--when it comes to waiving
    nonrecurring--or nonrecurring costs, I execute that in
    accordance with the Arms Export Control Act. That authority has
    been delegated from the President down to the Secretary of
    Defense and down to me.
        Ms. Speier. Well, at one point, as I understand it, there
    was an amendment to just get rid of the R&D----
        Admiral Rixey. Yes.
        Ms. Speier [continuing]. Reimbursement, and Congress said,
    no, that what we will give you instead is a waiver.
        Admiral Rixey. Is a waiver.
        Ms. Speier. But as I understand it from you, you have
    waived every single request.
        Admiral Rixey. Almost every single. There has been one or
    two exceptions, but for the most part, yes. And the criteria
    that we use is--so in the last 3\1/2\ years, we waived for
    not--for NATO standards. So a NATO country, Australia, New
    Zealand, and a few others, we waived; 38 percent of the waives
    associated with that.
        The other two reasons that we are authorized to waive is
    there is a likely loss of a sale, or if there is economies of
    scale to be gained by selling, for example, more jets on a
    line, incorporating it into our contract, our unit costs come
    significantly down, then we won't----
        Ms. Speier. But, Vice Admiral, those three potential
    reasons to do it basically cover the waterfront, right?
        Admiral Rixey. Yes, they do.
        Ms. Speier. You can basically make that argument for
    everything, and that is what you've done.
        Admiral Rixey. Yes, ma'am.
        Ms. Speier. So we have received, the taxpayers have
    received zero, basically zero back for all the R&D that we
    invest in these various weapons systems.
        Now, the F-35, as I understand it, can only be purchased
    through FMS. Is that correct?
        Admiral Rixey. That is not correct. We have--we have FMS
    customers as well.
        Ms. Speier. No.
        Admiral Rixey. Of the F-35.
        Ms. Speier. From direct military sales? I thought----
        Admiral Rixey. Oh. Oh, only through FMS. I am sorry. I was
    confused whether it is a cooperative program, and we have FMS
    customers. You are absolutely correct.
        Ms. Speier. So in that kind of situation, they are not
    buying it from anyone else.
        Admiral Rixey. Yes, ma'am.
        Ms. Speier. They want that particular weapon. And why
    wouldn't we recoup the R&D that we have invested in that
    particular weapons system?
        Admiral Rixey. Well, again, I apply the logic of likely
    loss of----
        Ms. Speier. Well, but you are not going to lose it because
    they are not going to get it through direct military sales, and
    they specifically want that airplane and not someone else's
    airplane.
        Admiral Rixey. Not in all cases. They can--they have
    alternatives. There are other generation 4, 4.5 fighters that
    they can go to if they find it too costly. And so, again, I
    apply the waiver criteria that has been provided.
        Ms. Speier. Okay. I am just going to say for the record,
    Madam Chair, we are talking about taxpayer money. And
    historically the R&D was recouped. It has morphed into a
    situation where it is waived unilaterally and ubiquitously, and
    the result is the taxpayer is just fronting this R&D money
    without any benefit. And we wouldn't expect that from a license
    that a university was providing to a pharmaceutical company.
    They get recoupment. And I think the Federal taxpayer should
    get recoupment as well.
        With that, I yield back.
        Mrs. Hartzler. Thank you.
        Representative Scott.
        Mr. Scott. Thank you, Madam Chair.
        Admiral, you mentioned patrol boats. And just as an
    example, a country like Australia, if they wanted to buy a
    patrol boat from a U.S. company, would they have to go through
    the foreign military sales?
        Admiral Rixey. No, sir. They could go direct commercial.
        Mr. Scott. Because they are a NATO ally?
        Admiral Rixey. I think when we look at the technology, we
    would do an evaluation based on technology. But a patrol craft,
    if it didn't have any sensitive technologies that were of
    concern for our technology release, they could go direct
    commercial sale.
        Mr. Scott. Okay. So it is really--it is not the vessel; it
    is the weapons systems and the technology that is on the vessel
    where foreign military sales comes in?
        Admiral Rixey. There are two reasons. If we designated--and
    Ms. McCormick can talk about it. If it is designated as FMS
    only, then it has to go through the FMS system. There are some
    countries that don't have mature enough procurement officials
    to buy anything, and they come to us to purchase it for them.
        Mr. Scott. Okay. Well, that answers one question. There are
    smaller countries who don't have the ability to do this, to
    negotiate the contracts for themselves is one of the reasons
    they would come through foreign military sales.
        Admiral Rixey. Yes, sir.
        Mr. Scott. But a country like Australia, who is a friend,
    if they want to buy a patrol craft, they can just negotiate
    directly with U.S. manufacturers. And if there are any
    questions about the technology or the weapons systems that
    might be on that patrol craft, then they would get either a
    waiver from foreign military sales or----
        Admiral Rixey. Well, we would--what we would do is we would
    call it a hybrid. They could buy 95 percent of it via direct
    commercial sale and then maybe, for example, if it is a system
    that is so classified for even Australia, we would deem that
    FMS, and that piece would be--just that piece would be FMS and
    then it would be provided to the vendor.
        Mr. Scott. Okay. So of the thousands of contracts that you
    have, if you broke them down by the dollar volume, is it 10
    percent of the contracts that would make up 90 percent of the
    dollar volume? Do we have a----
        Admiral Rixey. Oh.
        Mr. Scott. Are there several supersized contracts that make
    up the vast majority of the volume----
        Admiral Rixey. There are some supersized cases that make up
    the majority of the volume. And I can--if you want to in a
    closed session, I could walk you through the specific countries
    and those contracts themselves.
        Mr. Scott. Well, certainly, to me, if we can simplify the
    process, I think that would be better for everybody. It would
    be better for the three of you and it would be better for the
    industry that is trying to sell the weapons and it would be
    better for the consumer as well. And so some of the stuff that
    is not sensitive, getting it out of the backlog sooner rather
    than later, I think probably helps everybody.
        But for all of you, and I hope you will be specific with
    this, if there are any Federal acquisition regulations or
    statutory policy requirements that could be altered or
    eliminated, what would make DOD's force of the FMS program more
    efficient or effective? And just pick one thing, if you would.
    What is the one thing you would do you if could--if you had
    control that would make the system better?
        Admiral Rixey. Well, I would support DASD [Deputy Assistant
    Secretary of Defense for] Security Cooperation's initiative
    consolidating some of these title 10 authorities down to be a
    little bit more flexible than they are. And so we do also run
    title 10 authorities through the FMS system, and they come with
    some restrictions, like time, region, and there is about 20
    authorities. So anything we can do to streamline those title 10
    authorities, I think, would be--would help alleviate a lot of
    the strain on our contracting commands because of the
    restrictions associated with them, and that is to support that
    initiative.
        Ms. Grady. From an acquisition and procurement perspective,
    we largely follow the identical regulations for both foreign
    military sales and U.S. sales. There is maybe less than five
    pages of unique requirements associated with foreign military
    sales in our procurement and acquisition regulations.
        Most recently, though, last year in the National Defense
    Authorization Act, we got specific guidance--or authority from
    the Hill relative to treatment of offset costs, and that has
    been one of the areas that has historically slowed us down
    significantly from foreign military sales. We are in the
    process of implementing that from a regulation perspective, and
    that should expedite the contracting process.
        It is one of the unique aspects of a foreign military sale
    that would not have been--that is not applicable to U.S., which
    because it is foreign, it is different and, therefore, it takes
    some time--or added time to the process. The treatment of
    indirect offset costs that we got the authorization for last
    year will help us in terms of speeding up our timeline.
        Mr. Scott. All right. I am down to 10 seconds, so hurry.
    Please.
        Ms. McCormick. Congressman, I don't really have any
    specifics, because I think the role in my process is one that
    has to be a fairly deliberate one, and so it takes some time to
    make the decisions that we need to make. But I would echo
    Admiral Rixey's comments that some of the authorities that we
    have under title 10 should be looked at and streamlined.
        Mr. Scott. Thank you.
        Mrs. Hartzler. Thank you.
        Ms. Graham.
        Ms. Graham. Thank you, Madam Chairwoman. And thank you all
    for being here today.
        Admiral, following up on Congressman Scott's question, so
    there are FMS contracts and there are commercial contracts. Do
    we keep track of those that are getting FMS contracts, what
    they are doing commercially as well?
        Admiral Rixey. Yes. And that is the State Department
    program. So we handle FMS; and then the license requirements,
    they go through State. And State manages and tracks the direct
    commercial sales.
        Ms. Graham. Is there somewhere where you can go where you
    can see what foreign governments have in terms of commercial
    contracts as well?
        Admiral Rixey. Well, I would defer that to State, but we
    track, obviously, the FMS cases that come through DSCA.
        Ms. Graham. So they do have a tracking system where they
    keep track of that?
        Admiral Rixey. Yeah, definitely.
        Ms. McCormick. Maybe I could--maybe I could----
        Ms. Graham. Okay.
        Ms. McCormick [continuing]. Handle the question, since I
    get--my agency actually is in a situation that we get the
    licenses referred to us by the Department of State.
        So in this particular case, under the title 22 authorities
    of the State Department, the Directorate of Defense Trade
    Controls actually receives license authorizations from our
    industry directly to sell basically some of the same products
    through the direct commercial sale process. And the State
    Department Bureau of Political-Military Affairs also oversees
    the foreign military sales process. So all of defense trade is
    under their authorities and under the title 22.
        So--but my agency actually gets to review those direct
    commercial sale licenses. So we provide that technology
    security input into the Department of State on those matters as
    well.
        Ms. Graham. And how is a decision made if--I am assuming we
    have countries that have both commercial and FMS contracts. How
    is the decision made whether it is required FMS or whether it
    can be done commercially?
        Ms. McCormick. I will go ahead and take that one again.
        The decision basically is really a choice by the recipient
    country, unless we have made a decision between the Department
    of Defense and the Department of State that a particular item
    must go through the foreign military sales process. And that
    decision is normally made, what we were just answering
    Congressman Scott's question, it is normally because that
    technology is so sensitive that we want to put in place the
    various agreements between ourselves and the other government
    for the protection of that technology. Otherwise, it is really
    driven by the international partner, the international
    customer's decision.
        Ms. Speier. Will the gentlelady yield?
        Ms. Graham. Absolutely.
        Ms. Speier. Isn't it also, the difference is with direct
    military sales, you don't have the support provided in terms of
    maintenance? Isn't that the distinction between the two?
        Admiral Rixey. It is not that it's not provided. It is that
    we aren't ensuring that it is provided. So if the partner
    nation is, like, Australia, who wants to go direct commercial
    sale, they are strong enough and capable enough that they are
    going to build in a logistic support plan and they have the
    absorption capability. So that is dependent upon the nation
    that is procuring.
        So going direct commercial sale doesn't mean they are not
    going to get the logistic support or the--or will they be able
    to absorb it.
        When they go foreign military sales, we ensure full-
    spectrum capability, so we will deliver the end product, 2
    years of initial support, we will encourage them to have a
    follow-on technical support case so that it is being supported
    properly, and we ensure that they can absorb it through our
    conversations with the COCOMs [combatant commands] and our
    country teams.
        So the difference between a foreign military sale and a
    direct commercial sale is we feel it is necessary, again, as
    the mission of Defense Security Cooperation, to deliver full-
    spectrum capability. And so we have to have very candid
    conversations, deliberate conversations, which also slow down
    the process, to assure that they get the product, they have the
    support, and they can absorb it.
        DCS [direct commercial sale] is between the country and the
    contractor. We have no idea about the configuration, we have no
    idea about supportability. The times that we recommend DCS is
    when the technology is mature and the procuring officials are
    mature. Any time you deviate from that, they are setting
    themselves up for a nonsupportable system.
        Ms. Speier. I thank the gentlelady for yielding.
        Ms. Graham. Of course. Thank you.
        In the two processes, is there--if a country--is there an
    advantage in terms of timing or challenges that the countries
    face to choose one over the other, other than what
    Congresswoman Speier just pointed out, that one has more of a
    support system attached to it than the other?
        Admiral Rixey. Well, I will tell you what I am told is the
    advantage of going direct commercial sales. First of all, they
    can go direct to the international--or they can go direct to
    the vendor. In their minds, they think they are saving on the
    3.5 percent administrative fee that we charge them to manage
    these cases. However, they are still going to go through the
    technology review. They are not going to skip that. There is
    this thought out there that they won't have to go through the
    technology review process. They do. But in terms of going
    direct to the vendor, they can negotiate their fee, they can
    negotiate the contract.
        An FMS case, when they come to us, we go through our entire
    processes to get there. And I think they are necessary
    processes. Because sometimes some of these countries that don't
    have mature contracting offices get themselves into bad
    contracting vehicles or--and so we are providing a service and
    we are charging for a service. We also make sure, in our terms
    and conditions of a foreign military sale, that they can't do
    third-party transfers and that they are subject to our end-use
    monitoring processes.
        So they think that when they go direct, they are skipping
    this. They are not. And they are also putting themselves at
    risk of dealing with our industry.
        Now, again, when they have very mature contracting offices,
    that is not a problem.
        Ms. Graham. We sell F-35s to international----
        Admiral Rixey. Correct.
        Ms. Graham [continuing]. Obviously. Would that be
    considered something--that goes through FMS every time?
        Admiral Rixey. That does.
        Ms. Graham. Okay.
        Admiral Rixey. And I would highly recommend a major end
    item, especially that is involved with still completing its
    phases of development, to go foreign military sales. It is a
    huge risk if they do otherwise.
        Ms. Graham. Okay. Thank you.
        I yield back, Madam Chairwoman.
        Mrs. Hartzler. Thank you.
        Madam Bordallo.
        Ms. Bordallo. Thank you, Madam Chairman.
        Admiral Rixey, I think many of us see the FMS process as
    integral to our Asia-Pacific rebalance strategy in terms of
    reassuring allies and partners, as well as building capacity in
    that region. Now, in recent years, we have made progress with
    regard to South Korea, and I am hopeful that efforts will
    continue to streamline sales to our partners in the South China
    Sea.
        You touched very briefly on this in your testimony, but to
    what extent is DSCA, in coordination with the Department of
    State, working to prioritize FMS, particularly related to
    maritime capabilities for countries in the Asia-Pacific region?
        Admiral Rixey. Well, yes, ma'am. We work very closely with
    our combatant commanders, with OSD Policy, and with State to
    ensure that we understand our priorities writ large. I think
    once you understand that FMS, I told you, is a burdened
    process. We have to have some mechanism for prioritizing this
    finite workforce. We actually reorganized at DSCA along
    regional lines, and so I now have an integrated regional team
    lead at DSCA that has a relationship with the combatant command
    and the specific SCO [Security Cooperation Officer] that does
    foreign--does security cooperation, has a relationship with OSD
    Policy to ensure that we are, in fact, executing those
    priorities. And those folks in the Pacific are very much tied
    in to these initiatives that you are talking about.
        Ms. Bordallo. Very good. Now, from the DSCA perspective,
    what tools can Congress provide to enhance and facilitate
    internal as well as external processes with regards to the
    South China Sea FMS? Is there anything that----
        Admiral Rixey. I can't think of anything on hand, but let
    me take that back for the record, I will get you a response.
        [The information referred to can be found in the Appendix
    on page 71.]
        Ms. Bordallo. Okay. And though this hearing isn't an
    evaluation of the Excess Defense Articles or Foreign Military
    Financing programs, they do fall under a similar purview. And I
    welcome any additional relevant comments that you may have.
        Admiral Rixey. Yes, ma'am. Again, I will follow up, take
    that for the record, and provide that for you.
        [The information referred to can be found in the Appendix
    on page 71.]
        Ms. Bordallo. Very good.
        Admiral Rixey. But we are executing those programs as
    diligently as possible so----
        Ms. Bordallo. Well, I am pleased to hear that.
        Admiral Rixey. Yes, ma'am.
        Ms. Bordallo. And I yield back, Madam Chair.
        Mrs. Hartzler. Thank you very much.
        Vice Admiral Rixey, I have had a chance to look just
    briefly at your testimony as others have been talking here. You
    say I will not address each of the initiatives that you
    outlined, but you do cover a few of them. I was wondering if
    you and your office could take each one of these and write a
    summary of what you are doing in each of these initiative areas
    for us. That would be very helpful.
        Admiral Rixey. Yes, ma'am. We will forward you the--we
    actually have built PowerPoint quad charts that talk about
    those specifically, and I have them and I will provide those to
    you.
        [The information referred to can be found in the Appendix
    on page 71.]
        Mrs. Hartzler. Great. Well, we appreciate your efforts
    there.
        Ms. Grady, last week at our hearing with the industry, they
    indicated and were talking about how when a project comes
    through, it is mixed together with a domestic sale project at
    the same time and sometimes might be put on the back burner
    until the domestic program goes through first.
        And I was just wondering, so how are acquisition programs
    prioritized within the DOD for interagency acquisition programs
    and FMS case acquisition programs?
        Ms. Grady. Certainly. We look collectively at our total
    requirements, both U.S. and foreign allies, and coalition
    partners. And when I say ``we,'' that begins at the highest
    levels. We have warfighter senior integration groups where you
    look at emerging needs from COCOMs and from the Joint Staff,
    working in conjunction with Acquisition, Technology and
    Logistics, Admiral Rixey's staff in DSCA, DTSA, as well as all
    the implementing agencies to ensure we have visibility on the
    highest priority needs across the Department.
        Those obviously, particularly where you impact warfighter,
    are going to get the highest priority across the Department
    from an acquisition perspective. When you come to more routine
    recapitalization, that is balanced as part of a total workload
    of a particular implementing agency. And when we do forecast
    our requirements, we forecast both what we need for U.S. and
    what we need for FMS, and make sure that we track and--we track
    and get the management attention across the board, including
    looking at acquisition milestones to make sure we continue to
    progress.
        Wherever possible, we combine U.S. and foreign military
    requirements. That is where we find the greatest efficiencies
    so we can put everything on one contract. Budget cycles or
    needs don't always align that way, in which case then we would
    enter into a separate procurement action associated with that.
    But, again, using the same program office to the greatest
    extent possible so you have the sustaining engineering
    benefits, as well as production efficiencies, as well as
    management of the vendor's efforts.
        So we look at it as a collective workload management
    perspective. And in some cases, a U.S. requirement will be a
    higher priority; in some cases, an FMS requirement will be a
    higher priority. That is coming from the customers, and we make
    sure that is reflected in how we execute the workload.
        Mrs. Hartzler. Great. Thank you.
        Ms. McCormick, so to put this question in context, industry
    expressed frustration to the subcommittee last week in their
    testimony that they would--kind of generalities--say, show up
    to DOD with, say, a certain rock and DOD would, in turn, tell
    them to bring us a different rock without providing much detail
    on why the first rock wasn't sufficient. And it related to
    understanding technology, exportability, and configuration
    management of end items.
        So, therefore, what processes do you use to collaborate
    with the defense industry to provide predictability and policy
    guidance about which U.S. defense technologies are exportable
    and which are not?
        Ms. McCormick. Well, thank you, Chairwoman. That is
    interesting that they say that because, actually, they bring me
    a lot of rocks and I help to shape the rocks that they bring us
    usually. I do it really through a couple of different ways. The
    first thing is, I have a very open-door policy with industry
    where I actually encourage industry to come in and talk to us,
    actually, even before they submit their export licenses. We
    also do deep-dive sessions. In fact, Admiral Rixey and I just
    did one a couple of weeks ago with one of the major defense
    companies where we spent over 3 hours talking about all of
    their international projects.
        In fact, I really encourage companies now, particularly as
    companies are increasing the amount or looking to increase
    their international sales and, particularly, doing sales in
    countries, perhaps, where we don't have a lot of experience,
    don't have a lot of track record, to come in and really share
    with us, you know, their plans. And that gives us a great
    opportunity, I believe, to talk about sort of what is the art
    of the possible and to give them a clear sense of it.
        The final area, I think, that has been very helpful in this
    regard to clarify sort of what is in the art of the possible
    has been the significant changes that we have made as part of
    the administration's Export Control Reform Initiative where we
    have gone through a comprehensive review of our export control
    regulations, both the Commerce Department's and the Department
    of State. My agency has played a very key role in the technical
    review of those regulations in actually determining what type
    of technology we believe should stay in the jurisdiction of the
    Department of State.
        And we have moved a variety of items, many items, actually,
    over from the Department of State over to the Department of
    Commerce, including items, to be honest with you, that are
    military items. And now they are over in the Commerce's
    jurisdiction and they are allowed to go to our friends and
    allies more easily, in fact, in a very--oftentimes, without any
    additional authorization by the United States Government.
        So I think those bright-line exercises we have done as part
    of export control where we have published those regulations and
    industry has had a chance to comment on them, I think through
    all of those vehicles they have a very good opportunity to know
    exactly where the sensitive technologies are and what type of
    technology they would be able to sell internationally.
        Mrs. Hartzler. Okay, good. Do you believe that the
    Department is sufficiently staffed with the necessary skills to
    adequately perform end-use monitoring and enhanced end-use
    monitoring activities for those U.S. technologies that are
    exported to foreign customers?
        Ms. McCormick. I will tell you what I am going to do, I am
    going to leave the staffing answer to Admiral Rixey, but I will
    give you my piece of the puzzle. So what my agency is very much
    involved in is working with Admiral Rixey, as well as the
    Department of State, to determine what types of technology,
    first off, as we have talked previously, need to go through
    that FMS process and which technology needs to have certain
    levels of either end-use monitoring or enhanced end-use
    monitoring.
        And so a lot of that is driven by that technology level. So
    I am--my staff and I are very involved in actually setting the
    determination of the frequency with which that end-use
    monitoring needs to be done. But in terms of the staffing
    level, I will leave that to Admiral Rixey since it is usually
    the workforce that he actually helps to fund that do that work.
        Mrs. Hartzler. Okay. Thank you.
        Admiral Rixey. Yes, ma'am. Well, first of all, staffing
    concerns with end-use monitoring is the same as staffing
    concerns with contracting and everything else. So as the
    foreign military sales increase, we will need to staff to meet
    that demand. I am responsible for the Golden Sentry program.
    That is for foreign military sale. The State is responsible for
    Blue Lantern.
        Under the Golden Sentry program, we have our staff that are
    in the embassies in each country, so we are working very
    closely with the services to identify those needs. Also, how
    they are allocated, working with the Joint Staff and then how
    those folks are allocated. Again, we are going to have to look
    at staffing mechanisms that don't count against manpower
    counts. And then I also have a team at DSCA that is responsible
    for assessing. We do assessment visits with each country to
    determine, are they managing their end-use monitoring programs
    carefully?
        With that assessment, we rate them, and if satisfactory,
    they can continue. We have rated some unsatisfactory when they
    are not meeting the requirements associated with that. And that
    is the team that I have that do those assessments and do those
    courtesy visits back at DSCA. We are staffed for that, but I
    will be concerned with the folks that we have in the embassies
    in terms of numbers if these sales continue to rise.
        Mrs. Hartzler. Okay. Very good.
        Ms. Grady, in your testimony you talk a little bit about
    the different types of contracts, and that was also brought up
    last week with industry. And you make a case there for enabling
    the fixed price incentive to continue. And you say that you
    require a lot of customers of FMS to participate in this at
    times--let's see. It says, ``Simply put, sufficient funding
    needs to be in place to ensure that the FMS customer pays the
    final bill, no more, no less.'' And this is alluding to the 3.5
    percent fee that is----
        Ms. Grady. Actually, ma'am, that was in reference to a
    point that industry had raised last week----
        Mrs. Hartzler. Right.
        Ms. Grady [continuing]. About the length of time that we
    need to hold on to excess funds before we can close out the
    contract. So it was specifically to contract type, not to the
    fee that is payable for the FMS process.
        Mrs. Hartzler. Yes. Right. We are talking about the same
    thing.
        Ms. Grady. Okay.
        Mrs. Hartzler. Let me get around to my question here.
    Because they did raise that concern that sometimes it could be
    7 to 10 years that the money is held up by the country until
    the contract is completely filled. So I just wondered, has
    there been examples of a country not having enough money to pay
    their final bill, and when did that happen?
        Ms. Grady. I am not aware of a specific example. We can go
    back and look associated with that. We monitor throughout the
    contract performance to ensure that there are adequate funds in
    the case to pay all of the costs associated with that.
        When we talk about cases versus contracts, cases are
    usually a compilation of support that we are providing to a
    particular country. And it is usually typically more than just
    one specific contract. So it is the broader package of support
    that we are delivering to that foreign government.
        So we monitor both the estimate up front of what we think
    it will cost to complete the contract and then we monitor
    contract performance throughout the entire life of the contract
    to ensure that we have adequate funds.
        In the event the funds are different than what we
    anticipated, we would either notify the customer that we are--
    through DSCA, that we have excess funds or notify them that we
    need to potentially amend the case to add additional funding
    associated with that. We track that throughout the process.
    That is part of the case management function, and we want to be
    as transparent and as timely as possible in terms of notifying
    them where we are relative to the expenditure of their money.
        Mrs. Hartzler. Would you be supportive of allowing the
    country to choose which type of contract that they enter into?
        Ms. Grady. So what is somewhat unique about the FMS process
    is the letter of offer and agreement is a contract between the
    country and DSCA. The contract that we are entering into itself
    is actually between the U.S. Government and U.S. industry. So
    while we are doing that on behalf of the FMS customer, they are
    not actually a party to the legal contract that we enter into.
    What we look at and we apply the same rigor and discipline
    associated with selection of contract type for our FMS
    customers as we do for our U.S. customers.
        In a mature production environment, it would be fairly
    typical to see a firm fixed price contract type. Where we have
    seen uses of fixed price incentive has been instances where
    when we look at what we negotiated versus what the actual costs
    incurred were and there was a significant variation. And when I
    say significant variation, we define that back in 2008 in our
    acquisition regulations as greater than 4 percent.
        So, basically, there is some factor that is driving
    uncertainty into the cost of performance that we didn't account
    for when we negotiated with industry. Using a fixed price
    incentive contract allows for sharing between either the
    overrun or underrun associated with those excess or surplus
    funds to be shared between the customer, ultimately, the
    customer and industry.
        So our preference is to use firm fixed price, but only if
    we have cost certainty that allows us to fairly price those
    contracts.
        Mrs. Hartzler. Got you. Thank you very much.
        I just have a couple more here for Ms. McCormick. Can you
    tell me anything about what internal benchmarks DTSA has in
    place to guide decision timelines, and how are DTSA and DSCA
    communicating decision timelines to our country's partners to
    ensure that they are making the best decisions in their
    national security interests and not seeking goods/services from
    alternative sources, such as China or Russia?
        Ms. McCormick. Thank you for that question. So the first
    one, as I alluded in my--I mentioned in my opening statement,
    and it is also in my written statement about the Arms Transfer
    and Technology Release Senior Steering Group that we use. I
    think this is a very good forum that we use really as a
    benchmark because that is a forum where we get the DOD
    stakeholders together and we identify priority release
    decisions that were working across the different processes.
        I also, every week, get together with my staff, and I am
    constantly looking at the timelines associated with our review
    of export licenses. Obviously, we do provide the technical
    input, particularly to the Department of State, on those direct
    commercial sale munitions licenses. And I certainly--we don't
    have a statutory timeline in that case, but I try to move very
    quickly. I try to do that in sort of the 60-day timeframe. On
    the dual-use side with the Commerce license, we actually have
    statutory requirements that we have to meet. Those licenses
    have to be reviewed in a 30-day period.
        And so I think through the last couple of years, the
    processes that we have used to really track this are really
    trying to, again, be anticipatory with these release decisions.
    And as I indicated in my testimony, to actually do that in
    release of--basically, before a country actually asks for that
    capability.
        Admiral Rixey and I also work very closely together where
    the whole issue of defense trade is a constant discussion point
    that we have with international partners. We both work for
    Under Secretary Christine Wormuth, the Under Secretary of
    Defense for Policy, and she has many bilateral dialogues with
    countries. And I can tell you that the defense trade portion,
    including foreign military sales, is always a key part of those
    dialogues.
        And so I think that keeps our feet to the fire where we are
    working very closely with those international partners and they
    realize that the capability--we want to provide that capability
    to them and we certainly want to do it in a timely manner and
    be a provider of choice.
        Mrs. Hartzler. Very good. So given the constraints on the
    U.S. budgets and foreign military sales are increasingly
    important to ensuring that the U.S. defense companies are able
    to remain competitive and provide for a more robust industrial
    base. So how are DTSA and DSCA communicating with industry to
    ensure that they have visibility on expected timelines in order
    to plan and ensure that they meet critical FMS needs and what
    can we be doing better here?
        Admiral Rixey. Well, ma'am, first of all, we have a very
    robust industry engagement. And I meet with them regularly,
    unilaterally--or bilaterally, sorry. And sometimes I meet with
    Ms. McCormick. She joins me, and we have discussions with our
    industry partners.
        I have an entire team called my weapons group that is
    really an ombudsman to our industry partners to have as much
    dialogue as they are willing to have on those particular cases.
    In addition to that, I sit with Mr. Kendall and when he meets
    with the significant primes of industry to discuss foreign
    military sales. So we have what I consider an extraordinarily
    robust industry engagement across all three fronts to make sure
    that we are managing their expectations.
        Mrs. Hartzler. Great. All right. Looks like Ms. Speier had
    to leave, so I think we are done with the questions from our
    end. But I wanted to give each one of you an opportunity to
    make any closing statements or anything else you would like to
    share on this topic that you haven't had a chance to cover yet.
        So Vice Admiral.
        Admiral Rixey. Well, I would like to close by saying, first
    of all, thanks for this opportunity. I do want to emphasize
    that we are defending the foreign military sales system. We
    think it is--you know, the Arms Export Control Act and all it
    entails is critically important to ensure that it is, as a
    foreign policy too, we are doing it the right way.
        An FMS case as opposed to direct commercial sale case
    really establishes a mil-to-mil relationship for 25 to 40
    years. It is a very effective foreign policy tool, for building
    that relationship, for interoperability, for building out our
    capacity. And so, anyway, ma'am, thanks for the opportunity to
    speak today.
        Mrs. Hartzler. You bet. Thank you.
        Ms. Grady.
        Ms. Grady. Good morning. Thank you for the opportunity. And
    I think I have emphasized this repeatedly, but also I just
    wanted to make one more reiteration. One of the strengths of
    the acquisition system and our ability to support the foreign
    military sales agilely, when you have potentially large swings
    in customer requirements and don't always have the ability to
    anticipate as well as we would like what those requirements
    are, keeping the processes as consistent as possible, and
    providing the full range of acquisition tools we have available
    are the best way we can support our foreign military sale
    customers.
        Mrs. Hartzler. Great.
        Ms. Grady. Thank you.
        Mrs. Hartzler. Thank you.
        Ms. McCormick. And I appreciated the opportunity to join
    this panel today. I was sort of a late add, I believe, last
    week, but I was very pleased to be asked because, obviously, it
    is very important. We do want to share advanced technology with
    international partners, but we also have to strike that balance
    to make sure that that technology is going to be used in the
    manner in which it should be used and for which we have
    authorized it. So I hope you have gotten the impression this
    morning, we have a great collaboration within the Department of
    Defense to work these issues, and we also have a very strong
    partnership with industry as well. So thank you.
        Mrs. Hartzler. You bet. Well, thank you for all that you
    are doing for our country. This is a very important process,
    not only for our national security, but for our allies as well.
    And it is not an easy process. So I appreciate all of your
    efforts. Thank you for being here today.
        This hearing is now done.
        [Whereupon, at 11:15 a.m., the subcommittee was adjourned.]

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

                                A P P E N D I X

                                  May 17, 2016

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

                  PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                                  May 17, 2016

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

        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

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

                       DOCUMENTS SUBMITTED FOR THE RECORD

                                  May 17, 2016

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

         [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

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

                  WITNESS RESPONSES TO QUESTIONS ASKED DURING

                                  THE HEARING

                                  May 17, 2016

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

                RESPONSE TO QUESTION SUBMITTED BY MRS. HARTZLER

        Admiral Rixey. These initiatives were developed with stakeholders
    across the enterprise and are led by different offices within the
    Department of Defense, as well as Department of State--as depicted by
    ``lane owners'' in the FMS System chart (slide 1). The initiatives are
    organized to align to the FMS System Grid chart (slide 2) that segments
    the process into coordinates, major milestones/validation points of the
    process. The first group of initiatives, ``Phase 0'', are considered
    shaping, enterprise activities--that is, they affect multiple lanes and
    benefit the process in the broadest sense. Subsequent initiatives are
    focused on specific activities within the different lanes--whether the
    FMS case development process, the technology release and foreign
    disclosure review process, foreign policy oversight, or acquisition.
    Taken together, these initiatives endeavor to fundamentally and
    comprehensively improve the performance of the FMS enterprise.   [See
    page 20.]
        [The slides referred to are retained in the subcommittee files and
    can be viewed upon request.]
                                     ______

                 RESPONSES TO QUESTIONS SUBMITTED BY MS. SPEIER
        Admiral Rixey. DSCA does not have any data points or documentation
    indicating numbers of FMS cases that might have been lost due to
    slowness (or perceived slowness) of the system. We noted in industry
    testimony on May 11 that the industry witnesses did not provide
    specific examples supporting this concern. If industry representatives
    do provide specific examples of FMS cases lost due to slowness in the
    FMS system, DSCA could research the specifics of the individual case(s)
    and perhaps provide more information.   [See page 12.]
        Admiral Rixey. This chart and graph include numbers of FMS cases
    newly implemented each year from Fiscal Year 2000-2015.   [See page
    12.]
        [The information referred to can be found in the Appendix on pages
    67 and 68.]
                                     ______

                RESPONSES TO QUESTIONS SUBMITTED BY MS. BORDALLO
        Admiral Rixey. At the Shangri-La Dialogue on May 30, 2015,
    Secretary Carter announced the Department of Defense's (DOD) Southeast
    Asia Maritime Security Initiative (MSI), a comprehensive, multi-year
    effort that will reinforce our partners' and allies' maritime security
    efforts and address shared challenges. This initiative is made possible
    through a new authority focused on building partner capacity in the
    maritime domain--Section 1263 of the National Defense Authorization Act
    (NDAA) for Fiscal Year (FY) 2016.
        DOD is using MSI to provide training, equipment, supplies, and
    small-scale construction to eligible countries--the Philippines,
    Vietnam, Indonesia, Malaysia, and Thailand--in an effort to enhance
    their ability to ``sense, share, and contribute'' to maritime security
    and maritime domain awareness.
        To carry out the authority, DOD provided $50 million in funding for
    MSI in FY 2016 and has requested an additional $60 million in FY 2017.
    The Department has also programmed an additional $315 million through
    FY 2020 for an initial total of $425 million over the duration of the
    existing authority. However, the lack of cross fiscal year authority in
    Section 1263 makes it more difficult for our planners and acquisition
    professionals to implement comprehensive programs that ensure we
    maximize the use of resources to deliver full and sustainable
    capability.
        For fiscal year 2017 and beyond, we recommend Section 1263 include
    provisions for cross-fiscal year authority and the achievement of full
    operational capability. Specifically, we would like to see the same
    language in NDAA Section 1263 that currently exists in 10 U.S.C. 2282
    to allow for the availability of funds across fiscal years:
        Cross Fiscal Year Authority--Amounts made available in a fiscal
    year to carry out the authority may be used for programs under that
    authority that begin in the fiscal year such amounts are made available
    but end in the next fiscal year.
        Achievement of Full Operational Capability--If equipment is
    delivered under a program under the authority in the fiscal year after
    the fiscal year in which the program begins, amounts for supplies,
    training, defense services, and small-scale military construction
    associated with such equipment and necessary to ensure that the
    recipient unit achieves full operational capability for such equipment
    may be used in the fiscal year in which the foreign country takes
    receipt of such equipment and in the next fiscal year.
        Finally, we recommend Congress rename the Section 1263 authority
    the ``Southeast Asia Maritime Security Initiative'' (versus ``South
    China Sea Initiative''). The current name inadvertently discourages
    partners in the region from participating in a program that, to some,
    appears politically charged.   [See page 20.]
        Admiral Rixey. The U.S. Foreign Military Financing (FMF) and the
    Excess Defense Articles (EDA) programs continue to be essential tools
    for the Department of Defense (DOD) in building the capacity of partner
    nations. We find that the best results are achieved when these programs
    are used in tandem, or when we combine them with other available
    authorities such that we can provide a full-spectrum capability, to
    include platform, enhancements, training, and sustainment.
        All countries in the South China Sea region are eligible to receive
    EDA through either sale or grant and, in FY16 alone, $75 million in
    bilateral FMF is available for partner nations. To build capacity in
    the Southeast Asian region, DOD is working closely with the Department
    of State and regional partners to co-invest and integrate partner
    nation funds, EDA, and FMF. An example of this can be found in the
    Philippines where EDA grant assistance provided two high endurance
    cutters and investment from FMF and Philippine national funds
    refurbished the cutters to operational capability. In addition to FMF
    and EDA, the U.S. Government is also integrating a new security
    assistance program as part of the rebalance to Asia--the Department of
    Defense's (DOD) Southeast Asia Maritime Security Initiative (MSI),
    which is a comprehensive, multi-year effort that will reinforce our
    partners' and allies' maritime security efforts and address shared
    challenges. This initiative is made possible through a new authority
    focused on building partner capacity in the maritime domain--Section
    1263 of the National Defense Authorization Act (NDAA) for Fiscal Year
    2016. MSI will complement other ongoing U.S., partner, and allied
    efforts. Fundamental to our vision, MSI views maritime capacity
    building through a regional lens that prioritizes building multi-
    mission capabilities and fosters interoperability, not just with the
    United States, but among key Southeast Asian countries.   [See page
    20.]

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

                  QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                                  May 17, 2016

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

                       QUESTIONS SUBMITTED BY MS. SPEIER

        Ms. Speier. To what extent are foreign military sales driven by
    U.S. defense manufacturing companies courting foreign countries? How
    sizable and influential is their role upon other countries in their
    deliberation of the military purchasing process? Are there instances in
    which defense companies created a need for FMS abroad when it may not
    exist?
        Admiral Rixey and Ms. Grady. Foreign military sales arise from
    foreign partner requirements. Ultimately, the decision to procure
    defense articles and services from the U.S. defense industrial base
    lies with the foreign partner country. U.S. DOD security cooperation
    offices, under the direction of the Geographic Combatant Commander and
    supported by the Defense Security Cooperation Agency (DSCA), are
    positioned overseas at our embassies and consulates as the principal
    DOD points of contact to respond to our foreign partners and to help
    them to identify and define requirements for defense capabilities.
    Procurement of defense capabilities can be satisfied through Foreign
    Military Sales (FMS), Direct Commercial Sales (DCS), a combination of
    both, or other arrangements such as coproduction agreements. U.S.
    defense industry participate in all of these alternatives. They market
    the capabilities of their companies' products and services and help DOD
    inform our foreign partners on the price and availability of defense
    goods and services available to meet their requirements. Prior to any
    discussions of systems that involve the provision of International
    Traffic in Arms Regulations (ITAR)-controlled information, U.S.
    industry is required to submit an export license for U.S. Government
    approval to do so. This allows the U.S. Government to conduct due
    diligence review to ensure that a potential resulting sale is in line
    with these three fundamental and critical validations:
          The sale is of mutual benefit to the partner nation and
    the U.S. Government;
          The technology will be protected; and
          The transfer is consistent with U.S. Conventional Arms
    Transfer policy
        In addition, the Department of Commerce's Advocacy Center
    coordinates U.S. Government interagency advocacy efforts on behalf of
    U.S. exporters bidding on public-sector contracts with overseas
    governments and government agencies. The degree to which both DOD and
    U.S. industry work together to help influence this outcome, while
    ensuring that efforts are coordinated and in line with U.S. foreign
    policy and technology transfer limitations, should be viewed as a
    positive national defense priority.
        Ms. Speier. To what extent are foreign military sales driven by
    U.S. defense manufacturing companies courting foreign countries? How
    sizable and influential is their role upon other countries in their
    deliberation of the military purchasing process? Are there instances in
    which defense companies created a need for FMS abroad when it may not
    exist?
        Ms. McCormick. DTSA has a limited role in the execution of FMS
    programs and, as a result, has little insight into the specific impact
    of industry on FMS cases. We defer to DSCA, who in response to the same
    question from Representative Speier, provided the following: [see
    answer above from Admiral Rixey and Ms. Grady].``Foreign
    military sales arise from foreign partner requirements. Ultimately, the
    decision to procure defense articles and services from the U.S. defense
    industrial base lies with the foreign partner country. U.S. DOD
    security cooperation offices, under the direction of the Geographic
    Combatant Commander and supported by the Defense Security Cooperation
    Agency (DSCA), are positioned overseas at our embassies and consulates
    as the principal DOD points of contact to respond to our foreign
    partners and to help them to identify and define requirements for
    defense capabilities. Procurement of defense capabilities can be
    satisfied through Foreign Military Sales (FMS), Direct Commercial Sales
    (DCS) a combination of both, or other arrangements such as coproduction
    agreements. U.S. defense industry participate in all of these
    alternatives. They market the capabilities of their companies' products
    and services and help DOD inform our foreign partners on the price and
    availability of defense goods and services available to meet their
    requirements. Prior to any discussions of systems that involve
    provision of ITAR-controlled information, U.S. Industry is required to
    submit an export license for USG approval to do so. This allows the USG
    to conduct due diligence review to ensure that a potential resulting
    sale is in line with these three fundamental and critical validations:
          The sale is of mutual benefit to the partner nation and
    the USG;
          The technology will be protected; and
          The transfer is consistent with U.S. Conventional Arms
    Transfer policy
        In addition, the Department of Commerce's Advocacy Center
    coordinates U.S. government interagency advocacy efforts on behalf of
    U.S. exporters bidding on public-sector contracts with overseas
    governments and government agencies. The degree to which both U.S. DOD
    and U.S. industry work together to help influence this outcome, while
    ensuring that efforts are coordinated and in line with U.S. foreign
    policy and technology transfer limitations, should be viewed as a
    positive national defense priority.'' deg.

                                      [all]