[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
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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
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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.]
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A P P E N D I X
May 17, 2016
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
May 17, 2016
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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DOCUMENTS SUBMITTED FOR THE RECORD
May 17, 2016
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
May 17, 2016
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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]